U.S. GOVERNMENT PRINTING OFFICE

67–316 CC WASHINGTON : 2000

S. HRG. 106–697

RURAL SATELLITE AND CABLE SYSTEMS LOAN

GUARANTEE PROPOSAL AND THE DIGITAL DIVIDE IN RURAL AMERICA

HEARING

BEFORE THE

COMMITTEE ON AGRICULTURE,

NUTRITION, AND FORESTRY

UNITED STATES SENATE

ONE HUNDRED SIXTH CONGRESS

SECOND SESSION

ON

RURAL SATELLITE AND CABLE SYSTEMS LOAN GUARANTEE PROPOSAL

AND THE DIGITAL DIVIDE IN RURAL AMERICA

FEBRUARY 3, 2000

Printed for the use of the

Committee on Agriculture, Nutrition, and Forestry

(

For sale by the U.S. Government Printing Office

Superintendent of Documents, Congressional Sales Office, Washington, DC 20402

ii

COMMITTEE ON AGRICULTURE, NUTRITION, AND FORESTRY

RICHARD G. LUGAR, Indiana, Chairman

JESSE HELMS, North Carolina

THAD COCHRAN, Mississippi

MITCH MCCONNELL, Kentucky

PAUL COVERDELL, Georgia

PAT ROBERTS, Kansas

PETER G. FITZGERALD, Illinois

CHARLES E. GRASSLEY, Iowa

LARRY E. CRAIG, Idaho

RICK SANTORUM, Pennsylvania

TOM HARKIN, Iowa

PATRICK J. LEAHY, Vermont

KENT CONRAD, North Dakota

THOMAS A. DASCHLE, South Dakota

MAX BAUCUS, Montana

J. ROBERT KERREY, Nebraska

TIM JOHNSON, South Dakota

BLANCHE L. LINCOLN, Arkansas

KEITH LUSE, Staff Director

DAVID L. JOHNSON, Chief Counsel

ROBERT E. STURM, Chief Clerk

MARK HALVERSON, Staff Director for the Minority

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(III)

C O N T E N T S

Page

HEARING:

Thursday, February 3, 2000, Rural Satellite and Cable Systems Loan Guarantee Proposal and the Digital Divide in Rural America ..................................... 1

APPENDIX:

Thursday, February 3, 2000 ................................................................................... 57

Thursday, February 3, 2000

STATEMENTS PRESENTED BY SENATORS

Lugar, Hon. Richard G., a U.S. Senator from Indiana, Chairman, Committee

on Agriculture, Nutrition, and Forestry ............................................................. 1

Fitzgerald, Hon. Peter G., a U.S. Senator from Illinois ....................................... 27

Grassley, Hon. Charles E., a U.S. Senator from Iowa .......................................... 4

Harkin, Hon. Tom, a U.S. Senator from Iowa, Ranking Member, Committee

on Agriculture, Nutrition, and Forestry ............................................................. 3

Leahy, Hon. Patrick J., a U.S. Senator from Vermont ......................................... 4

Conrad, Hon. Kent, a U.S. Senator from North Dakota ...................................... 5

Baucus, Hon. Max, a U.S. Senator from Montana ................................................ 7

Lincoln, Hon. Blanche L., a U.S. Senator from Arkansas .................................... 35

WITNESSES

Hutchison, John, CEO, LTVS, Inc. Raleigh, North Carolina ............................... 20

Jay, Dr. Steven, Assistant Dean for Continuing Medical Education, Indiana

University School of Medicine, Indianapolis, Indiana ...................................... 40

May, James C., Executive Vice president, Government Relations, National

Association of Broadcasters ................................................................................. 15

McLean, Christopher A., Acting Administrator, Rural Utilities Service, U.S.

Department of Agriculture .................................................................................. 11

Parkhill, Dave, General Manager, Hamilton County Telephone Cooperative,

Dahlgren, Illinois ................................................................................................. 18

Rhode, Gregory, Assistant Secretary for Communications and Information,

National Telecommunications and Information Administration, U.S. Department of Commerce ........................................................................................ 13

APPENDIX

PREPARED STATEMENTS:

Lugar, Hon. Richard G. .................................................................................... 58

Craig, Hon. Larry E. ........................................................................................ 60

Hutchison, John ................................................................................................ 63

Jay, Stephen J. ................................................................................................. 90

May, James C. .................................................................................................. 75

McLean, Christopher ........................................................................................ 67

Parkhill, David E. ............................................................................................. 20

Rhode, Gregory L. ............................................................................................. 70

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RURAL SATELLITE AND CABLE SYSTEMS

LOAN GUARANTEE PROPOSAL AND THE

DIGITAL DIVIDE IN RURAL AMERICA

THURSDAY, FEBRUARY 3, 2000

U.S. SENATE,

COMMITTEE ON AGRICULTURE, NUTRITION, AND FORESTRY,

Washington, DC.

The Committee met, pursuant to notice, at 9:02 a.m., in room

SR–328A, Russell Senate Office Building, Hon. Richard G. Lugar,

(Chairman of the Committee), presiding.

Present or submitting a statement: Senators Lugar, Fitzgerald,

Grassley, Craig, Harkin, Leahy, Conrad, Baucus, and Lincoln.

STATEMENT OF HON. RICHARD LUGAR, A U.S. SENATOR FROM

INDIANA, CHAIRMAN, COMMITTEE ON AGRICULTURE, NUTRITION, AND FORESTRY

The CHAIRMAN. This hearing of the Senate Agriculture Committee is called to order. Let me just mention for the benefit of all

members, and staff may want to inform them, we probably will

have a roll call vote on the nomination of Alan Greenspan at about

10:30. At that point, we will interrupt the hearing so that all Senators can cast that vote. I believe it will be the only vote, so it

should not be a significant interruption, but we appreciate the patience of witnesses and all who have come to join us in the hearing

room today in sort of understanding our predicament.

But we will proceed now on time. We have the distinguished

ranking member, the former chairman, indicating the importance

of the hearing. I want to make a short opening statement and then

I will call upon the ranking member for his opening comments.

Today, the Senate Agriculture Committee is holding a hearing on

two related issues. The first is an examination of a proposal that

would create a loan guarantee program to provide low-cost money

to satellite and cable systems to help them deliver local broadcast

stations to viewers in rural America.

The second issue is the looming presence of the digital divide in

rural America. Rural communities face a number of unique barriers in the realm of telecommunications. Small-scale low-density

settlement patterns make it costly to deliver these types of services, and even when the technology is available, as in the case of

satellite television, issues of access still arise due to the cost constraints inherent in serving a population that is often remote from

the economic centers of urban America.

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Just as the disparity in access to local television signals for rural

Americans is problematic, the disparity in access to telephones,

personal computers, and Internet access between rural and urban

areas is likewise very troubling. A recent United States Department of Commerce report shows that regardless of income level,

Americans living in rural areas are lagging behind in Internet access, and even when holding income constant, Americans living in

rural areas are less likely to be connected by personal computers.

Low-income, young, and certain minority households in rural

America are the least connected to the information highway.

This digital divide contributes to the problems facing development in rural America. Rural America is an important source of income, wealth, and well-being for our Nation. The rural regions of

the United States contain 83-percent of the Nation’s land and are

home to 21-percent of Americans. Rural America can gain access

to some opportunities only by connecting to the information highway. By creating necessary linkages to manufacturers, other businesses in the region, small towns and cities will be more able to

attract entrepreneurs.

Therefore, telecommunication infrastructure is an important

foundation for job creation. The information highway offers rural

America an unprecedented opportunity to compete on an equal

footing with big cities and with other countries. Access to information network is already bringing jobs, education, and health care

services. Yet, there is also a danger that some parts of rural America which already have lower incomes and lower education levels

than the rest of America lack access to these online resources and

could fall further behind.

This hearing will look at the reasons for this disparity as well

as hear testimony on ways of solving the problem. Our first panel

will focus on the rural satellite television issue. We will hear testimony from two administration witnesses, Mr. Chris McLean, the

Acting Administrator of the Department of Agriculture’s Rural

Utilities Service, and Mr. Greg Rhode, Assistant Secretary for

Communications and Information at the Department of Commerce’s National Telecommunications and Information Administration.

Next, we will hear from Mr. James May, the Executive Vice

President for Government Relations at the National Association of

Broadcasters, and we will hear from Dave Parkhill, the General

Manager of the Hamilton County Telephone Cooperative located in

Dahlgren, Illinois, and from John Hutchinson, Executive Vice

President and Chief Operating Officer of LTVS, Incorporated, from

Raleigh, North Carolina.

[The prepared statement of Senator Lugar can be found in the

appendix on page 58.]

Our second panel will focus on the more general issue of the digital divide in rural America. Dr. Stephen Jay, Chairman of the Department of Public Health and Assistant Dean for Continuing Medical Education at Indiana University School of Medicine will join

Mr. McLean, Mr. Rhode, and Mr. Parkhill for that discussion.

I welcome all the witnesses to the Committee. Obviously, I welcome all my colleagues and I call upon one of them now, the distinguished ranking member, Senator Harkin.

3

STATEMENT OF HON. TOM HARKIN, A U.S. SENATOR FROM

IOWA, RANKING MEMBER, COMMITTEE ON AGRICULTURE,

NUTRITION, AND FORESTRY

Senator HARKIN. Thank you very much, Mr. Chairman, and

thank you for holding this very important hearing. I want to associate myself with everything that you have said this morning and I

might just make a couple of additional comments to add to it, perhaps.

We are very proud of the technical progress we have made in

America, but even though we have made this progress in technology, rural America is being left behind. I joined the Senate

Rural Telecommunications Task Force last year in order to address

these issues and work as part of a group to pass legislation to help

rural communities catch up.

Just as cable and telephone companies say that it does not make

good business sense to provide service to a few customers in

sparsely populated areas, we know that without this access, rural

America will, indeed, be left behind. We are not just talking about

high-speed broadband Internet access or reliable telephone lines.

We are talking about just the basic TV services, local weather, local

news for rural residents and farmers.

You would think it would be easy. You would think that if you

lived on a farm in Iowa, you could just attach an antenna to your

house and get the local weather or local news from the closest TV

station, but it does not work that way and it is not that easy. An

antenna a lot of times does not reach that far. Cable, they will not

extend the lines outside of metropolitan areas because they say it

costs too much.

The satellite dish came along and provided some relief and access, but satellite companies say they have revenue problems. They

say they cannot afford to include what’s called local-into-local programming into small and rural TV markets. They can sure do it

in a lot of other places, but they say it’s not profitable to do it in

rural areas.

Last year, we fought hard to keep our rural loan guarantee program in the satellite bill, one that would make it easier for companies or nonprofit cooperatives to provide local TV to rural customers at no cost to taxpayers. Unfortunately, it was taken out at

the last minute before the bill was passed and signed into law.

Senator Baucus has introduced a bill, which I cosponsor, that

contains much of the same language that was taken out of the satellite bill. I believe this bill is a good start in giving rural customers local TV and I hope we can all work from there to put together a bipartisan bill that will give rural America the access that

it deserves.

I think we have an obligation to move ahead here in the Congress to make sure that rural America is not left behind. It is

wrong that residents in DC and other big cities can receive local

programming while customers in Cumming, Iowa and the rest of

rural America cannot.

Thank you very much, Mr. Chairman.

The CHAIRMAN. Thank you very much, Senator Harkin.

Senator Grassley, do you have an opening comment?

4

STATEMENT OF HON. CHARLES GRASSLEY, A U.S. SENATOR

FROM IOWA

Senator GRASSLEY. Yes. First of all, my two colleagues who have

just preceded me have probably said it as well as can be said and

said everything that needs to be said.

Iowa, of course, is one of 15-States that does not have markets

big enough to make it economically attractive for the satellite companies to provide local TV services, and I guess maybe I do not understand that any more than my colleague from Iowa, who just

said that he understands the technology and does not understand

why we cannot get it. But even if you assume that, that is right,

it seems to me as a matter of fairness we ought to make sure that

we serve all the 15-States and the 25-percent of the people in this

country that do not have it and I am here to help see that that gets

done.

I want to thank Senator Burns on our side of the aisle for working so hard on this issue in the past. I do not think anybody has

worked harder than he has and I appreciate his and your attention

to this to get it to the top of the agenda.

The CHAIRMAN. Thank you very much, Senator Grassley.

Senator Leahy?

STATEMENT OF HON. PATRICK LEAHY, A U.S. SENATOR FROM

VERMONT

Senator LEAHY. Thank you, Mr. Chairman. I am delighted you

are having this hearing and I agree with what you have said and

what Senator Harkin has said, the importance of it to us in rural

America.

Last year, I worked on the satellite home viewer conference because part of it was in the Judiciary Committee and I worked with

those around this table and with Senator Lott and Chairman

Hatch and Senators Stevens and McCain, Thurmond, and Chairman Bliley and Hyde and Kohl and Hollings and Representatives

Dingell, Markey, Conyers, Berman, and others. I think we ironed

out a great satellite bill, and the fact that we got it through at the

very end of the session was an amazing, amazing thing. But we

had one big gaping hole in there and that was the loan guarantee

program.

The rural areas encompass 75-percent of the U.S. landscape, but

it is only 25-percent of the population, but for those of us who live

in there, in that 25-percent, we consider it a pretty important part

of the country, and we might not receive local-into-local satellite

TV until 10- to 20-years after the urban areas do. I think that is

something that will add to this digital divide that will leave much

of rural America behind the computer revolution, something we do

not want to do. We like to advertise our quality of living, but we

also want to make sure we have jobs and access to the same technology the rest of America does.

The law we passed last year sets forth the real head-to-head

competition between cable and satellite TV, and I think, ultimately,

that is something that is going to help both satellite and cable TV.

But it will also help in States like mine. A lot of other States have

access to local stations for the first time over satellite. Potentially,

they can have high-speed Internet access to boot, and in the next

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four or 5-years, you will either have high-speed Internet access or

you really do not have Internet access. You will be cut off from

most of the things that the Internet will have, especially in a digital world, whether it is the downloading of movies, music, software,

or anything else.

Now, in a lot of these rural areas, those that are using satellites

today, many of them have never seen their local network channels

over the air or over satellite. A lot of them cannot receive some of

the local emergency things—there is a flood, there is a tornado,

there is weather or any other type of thing. They cannot receive it.

So I think a loan guarantee program could assure both access to

local network stations and broadband Internet access. We could

solve two major challenges facing rural America, access to the

Internet and access to local programming. With a single action, we

could help rural America leapfrog over the wired era directly into

the satellite-driven wireless era.

I was convinced when we were meeting last year in the conference that the USDA should handle this loan guarantee program

because of their 50-years of experience in financing rural telephone,

rural electric, and all these other areas. They have the largest loan

portfolios in this area that there is.

I still remember my grandparents talking about the first time

they had electric lights in Vermont. My grandfather used to turn

the light on, turn the light off, turn the light on and off, not having

to get out the matches and light up an oil light. I realize when I

start telling these stories, Mr. Chairman, my children start referring to the geezer attitude, but———

[Laughter.]

Senator LEAHY. But I am not yet sixty, and I remember talking

about that. It was not all that long ago, and to get telephones into

rural areas, the things that you take for granted in urban areas.

Well, this is the same thing, and so I hope USDA can do it.

I will put my whole statement in the record, Mr. Chairman.

The CHAIRMAN. It will be published in full.

Senator LEAHY. Thank you.

The CHAIRMAN. Thank you very much, Senator Leahy.

The CHAIRMAN. Senator Conrad?

STATEMENT OF HON. KENT CONRAD, A U.S. SENATOR FROM

NORTH DAKOTA

Senator CONRAD. Thank you, Mr. Chairman. Before I talk about

the subject at hand, I am just wondering as a matter of committee

business, will there be an opportunity to vote on the portraits that

are hanging in the Committee hearing room?

[Laughter.]

Senator LEAHY. Mr. Chairman, does that not require unanimous

consent, to have any revotes on this?

The CHAIRMAN. I think that is a good point.

Senator LEAHY. Yes.

The CHAIRMAN. Well, the chair does not contemplate any such

action.

Senator CONRAD. I regret that, Mr. Chairman.

The CHAIRMAN. I understand.

6

Senator CONRAD. I think we do have some votes to make some

changes.

[Laughter.]

Senator LEAHY. Mr. Chairman, you still have my proxy for the

rest of the year, as long as you do not put this on the agenda.

[Laughter.]

Senator CONRAD. Thank you, Mr. Chairman. I very much appreciate your holding this hearing because it is a matter of real importance in my State.

I hope the number one priority today is to address this question

of areas that are being left out, because being left out in this area

is to be left behind. We have got to, I believe, ensure that all Americans have access to the information they need to participate in

this remarkable transformation that is occurring in the world

today.

As we all know, when we had the legislation before us last year,

the rural satellite loan program was left out, and in part, I opposed

the appropriations bill for that reason. This is simply too important

to be left out.

In my State, 140,000 of our population, about 23-percent of the

households in North Dakota gets their television from satellite, and

they are, I can tell you, complaining each and every day about the

lack of service. As I think everybody knows, no city in North Dakota is large enough to qualify as one of the top markets in the

United States. I wish that were not the case, but it is. Therefore,

not one citizen in North Dakota will benefit from the local-intolocal provision that was included in the recently passed legislation.

I hope very much that we can make certain that the rural parts

of the country are included. It is absolutely essential that they be

included.

That deals with the question of television. Also, Internet access

is critically important. I just held my annual marketplace conference in North Dakota that attracts about 4,500 people in a day

that come to talk about economic opportunity in the State of North

Dakota, how we can diversify farming operations, how we can attract new jobs, how we can take advantage of technology.

Admiral Bill Owens came and was the keynoter this year, the

former Vice Chairman of the Joint Chiefs of Staff, who is now the

co-executive of Teledesec. Teledesec is the company founded by

Craig McCaw and Bill Gates and Boeing and Motorola to put satellites in low-earth orbit all around the world to provide broadband

access, to provide that technology. He painted a picture of what is

going to happen in terms of the availability of this extraordinary

technology, the difference it is going to make in people’s lives, and

the absolute need to be included or to be left out and what that

will mean.

So, Mr. Chairman, I believe this is one of the most critical issues

facing rural America and I am grateful to you for holding this hearing.

The CHAIRMAN. Thank you very much, Senator Conrad.

Senator Baucus?

7

STATEMENT OF HON. MAX BAUCUS, A U.S. SENATOR FROM

MONTANA

Senator BAUCUS. Mr. Chairman, I just wanted to be another

member of the choir here. I think all of us are singing from the

same page, the same sheet of music.

I might say that in our State of Montana, we have the highest

per capita use of satellite in the Nation. We have more satellite

dishes per capita than any State in the Nation. Our State flower

is the satellite dish.

[Laughter.]

Senator BAUCUS. It used to be the bitterroot, but no more.

We have a few TV stations in Montana. None of them begin to

qualify to receive local-to-local service under the scheme that the

satellite companies say that they will help utilize. We have heard

the figures. There are about 210-markets in the country. The current satellite companies say they will be able to service about 67

of those markets, not the others. That is a conservative estimate.

A lot of people tell me that it will probably not be more than 40.

Let me tell you about number 210 on that list, down at the bottom is Glendive, Montana, and I might say that all the others, of

course, are not in the top 60, just as none in North Dakota are. I

do not know how many in your State, Senator, are on that, but I

know there are 16-States—I think there are 16-State capitals that

will not be served in the Nation. If you get down to 40, it is going

to be obviously fewer. There are a huge number of Americans just

unable to get local-to-local service.

I do not need to go over all the reasons why local-to-local is so

important, but just to say things like local high school scores, the

weather and charity fundraisers. There is local news, maybe a

shooting, who knows.

Senator LEAHY. A lost child.

Senator BAUCUS. It is a sense of community which is dissipating

and slipping away in some areas.

Let me just give one example. I asked General Barry McCaffrey

to come to Montana last week. He came to Billings, Montana. Why

did I invite him? Because we have a significant methamphetamine

problem in Montana, and in other rural States, too. It is not just

our State. But the whole point of all this is to get the community

to work together. You know, the treatment providers, the prevention folks, the public and private prevention people, the Public

Health Service, the doctors, school boards, law enforcement, the

sheriff’s office, the police chief, just every facet of that community

has to work together on a holistic zero-sum basis if we are going

to stomp on and basically extinguish—never entirely—methamphetamine. It is wicked stuff, worse than heroin, worse than cocaine.

I must say, Mr. Chairman, astoundingly and sadly, the use of all

drugs in America today is about roughly 30-percent higher in rural

America than it is in urban America, and cocaine, heroin, methamphetamine is utilized twice as much in rural America compared

with urban America.

The communities need to, on a local basis, start to solve problems

and have a sense of community, and I tell you, in this age of TV,

it is not going to happen until we solve this problem, particularly

8

in rural America. It is not going to happen, because people watch

television and they watch a lot, we think around this table probably too much. But at least they should be able to get local-to-local

programming so they can tell their own local community what is

going on.

Just think of all the weather warnings, for example, you know,

tornadoes, blizzards, floods. If you cannot get local-to-local, somebody in Glendive, Montana, gets great programming out of New

York or out of L.A. does not make much difference, but you need

it locally.

In addition, Mr. Chairman, I might add that there are a couple,

three issues here. One is, which entity is best qualified to administer the program? I think the answer to that is clearly the Rural

Utilities Service [RUS] of the USDA. That is clear. They have provided such great service in telephone service, power service. They

have the biggest loan portfolio. It is not just satellite companies or

other line companies, it is cable companies, too. They are qualified

to do this.

I also think that you could write in this legislation some provisions to make it clear that the RUS, obviously the best qualified,

will be fair to everybody, fair to all who want to compete to provide

the service, whether it is wireless or it is cable or whether it is

with satellite. There is a way to get that in there to make that fair.

It makes no sense to set up a new bureaucracy, a whole new bureaucracy, as is contemplated by some Senators, to administer a

program. They have no idea of how it works. They would be subject

to Senate confirmation. I mean, there are all kinds of problems

that are going to slow up needed service to people.

So it is very clear, Mr. Chairman, we have got to move very aggressively on this legislation in this committee and I have a bill

that I have introduced attempting to solve this problem. I know

people amend it and they can improve on it, obviously, but at least

to get the ball rolling in this committee, because this is the Committee of jurisdiction on this issue. This is the Committee of experience on generally this issue and it makes no sense to start a new

bureaucracy, but we have to move aggressively if we are going to

make that happen.

Thank you, Mr. Chairman.

The CHAIRMAN. Thank you very much, Senator Baucus.

Let me just take the comments that you made as a point of departure before the panel commences. As the distinguished Senator

from Montana has pointed out, he has proposed legislation and it

has been assigned by the chair to this committee. Very clearly, the

Senator’s activities here have already generated considerable support. There are at least 13 cosponsors of his bill, and maybe more.

In tracing fairly recent history, just to the conference between

the Senate and the House that came, unfortunately, after the failure of Congress to pass all the appropriation bills, as you recall,

there were five bills and this led, as it had the year before, to a

significant deliberation by Senators.

In the midst of all this, Senator Burns of Montana, a colleague

of Senator Baucus, noted a severe deficiency here. Senator Gramm

of Texas objected very much to Senator Burns’s approach. Senator

Baucus and other colleagues who joined him drafted legislation and

9

asserted that the Agriculture Committee ought to be the major

committee of jurisdiction. Senator Gramm, who was chairman of

the Banking Committee, disputes that, not that we do not have an

interest in it, but that he believes that his committee, the Banking

Committee, likewise has the major interest.

So I will try to be diplomatic in weaving my way through the

competing proposals, but suffice it to say that we have a significant

piece of legislation offered by Senator Baucus and referred to this

committee. Senator Gramm has advised me, and by that I mean he

has approached me, talked to me about this, that he is drafting

with Senator Burns a bill that will be heard again. He has had one

hearing, and they will be working in the Banking Committee on

legislation.

Now, in the midst of this, we have seen that this is a high priority. This is just the second hearing in the Committee this year. We

are having a lot of them. But it is important for this issue, the

basic facts that are going to be presented by our witnesses this

morning, to come forward at this stage because this is a crucial

issue for rural America. That was finally observed by the Congress

with some stop-gap legislation so that signals would not go out all

over America on January 1 for many people, quite apart from those

who are unserved, for some who are served. But that, everyone realized, was a temporary fix and something more permanent and

stable in terms of policy needs to happen.

So I pledge to the Senator from Montana and to all who have

come to this hearing and already testified in our way as Senators

of our interest that we will try to move ahead. Now, how we do

this, I will ask the cooperation of all Senators so that this jurisdictional problem does not lead us down the path to inactivity

throughout this Congress. I think that we all recognize that. We

want action. Senator Baucus has been very gracious in saying the

last word in his bill may not be the last word. He is subject to

amendment and suggestion, but he has asserted with regard to the

rural agency that now he has designated RUS for this, that he

thinks that is the best idea.

Obviously, Senator Gramm and maybe Senator Burns, I will

have to determine really how they want to do it and we will have

to make some decisions in the Committees as well as, ultimately,

this is amendable on the floor, as anything is in the Senate, so decisions will finally be made by our colleagues. But we will try to

enlighten them in these hearings and in other colloquy as to the

basic issues that are involved here.

Senator BAUCUS. Mr. Chairman?

The CHAIRMAN. Yes?

Senator BAUCUS. I appreciate your comments, and I am glad you

referenced the efforts of Senator Burns, my colleague from Montana, because he has worked very hard on this, and the reason he

has and the reason I have, because as I mentioned in my comments, we have the highest per capita satellite use and we are in

desperate straits for serving our people.

Second, it is clear here we just need to help the people in our

country as quickly as possible. Even if we were able to pass legislation today, it is still going to take some time before these people

get service. It will take time to put the financing together, get the

10

satellites up if that is the primary technology, or if it is cable that

they use maybe in some places. I mean, it just takes time, so it is

critical that we move right away.

All I am saying is, we have got to move, and in my humble opinion, this committee is the logical committee of jurisdiction. On

something like this, every committee wants jurisdiction, but you

have got to be fair and honest. Which committee logically has jurisdiction? I think it is clear, this committee logically has jurisdiction,

and I think that some Senators are pretty assertive around here,

but that does not mean that they are right. But we have to be both

assertive because we have got to serve our people and because it

is right.

Thank you, Mr. Chairman.

The CHAIRMAN. I agree with the Senator. Obviously, we have

been assertive, as the Senator knows, as he approached me and

Senator Kerrey, Senator Leahy, and Senator Harkin last year. I

had concluded that we would try to assert jurisdiction, we would

have a hearing, put a stake in the situation.

I hope the Senator understands that I also want to see legislation, so even while we are asserting this and we will be very active,

we will try to keep an eye out for other activities, namely the

Banking Committee.

Senator LEAHY. Mr. Chairman, even though it is almost unheard

of for parochialism to come into debates around this table, I would

note that Vermont has the second highest per capita use of satellites, and I loved what the Senator from Montana said.

The CHAIRMAN. I am glad you made that point.

[Laughter.]

Senator LEAHY. I was counting all this time.

The CHAIRMAN. Let me complete the record. Senator Burns had

asked for an opportunity to testify this morning. He withdrew that

request because he needed to be in Montana and has asked me to

announce that, so he will not be appearing at the hearing this

morning.

Senator BAUCUS. It is a problem in Montana, Mr. Chairman,

Libby, Montana, northwest Montana. Lots of people are suffering

from asbestosis, mesothelioma, and other asbestos-related diseases.

The CHAIRMAN. That is my understanding.

Senator Fitzgerald, while all this was going on, you have arrived.

Do you have a comment before I call upon our panel?

Senator FITZGERALD. No. I will just have questions. Thank you,

Mr. Chairman.

The CHAIRMAN. Very well. Thank you.

Without objection, I would like to include a statement from Senator Craig in the record.

[The prepared statement of Senator Craig can be found in the

appendix on page 60.]

The CHAIRMAN. I will ask each of you to testify in the order that

I introduce you, which you may have forgotten, but it will be in the

order that you are, really, from left to right as you are seated

there. We will ask that you try to summarize your testimony in 5-

minutes. If you cannot, we understand, and there may be overwhelming circumstances. But to the extent that you can, this will

allow more dialogue with the Senators and their questions.

11

Mr. McLean?

STATEMENT OF CHRISTOPHER MCLEAN, ACTING ADMINISTRATOR, RURAL UTILITIES SERVICE, U.S. DEPARTMENT OF

AGRICULTURE, WASHINGTON, DC.

Mr. MCLEAN. Thank you very much, Mr. Chairman. If I may add

a personal note, as a former Senate staffer to Senator Jim Exon

and Senator Bob Kerrey, who have worked so closely with and on

this Committee, it is a distinct personal privilege and honor to appear before the Committee today.

I am Christopher McLean, the Acting Administrator of the Rural

Utilities Service, the successor to the Rural Electrification Administration. The RUS administers a $42 billion loan portfolio of more

than 9,000 loans for telecommunications, electric, water, and

wastewater infrastructure projects throughout rural America. Our

agency also administers a program which was introduced by, as I

recall, Senator Leahy, the Distance Learning and Telemedicine

Loan and Grant Program, which is a tremendous success and has

been very, very helpful in closing the digital divide in rural America. The RUS is also a leading advocate for rural consumers before

Federal and State regulatory authorities.

For nearly 65-years, with the sound and continuing oversight of

this Committee, the Rural Electrification Administration [REA]

and the RUS have been empowering rural America. Just this last

October, the RUS telecommunications program celebrated its 50th

anniversary. In those 50-years, RUS has helped close the digital divide. The telecommunications program has maintained an unprecedented level of loan security over the whole history of the program.

RUS is also very fortunate to have an accomplished core of engineers, accountants, financial specialists, and rural infrastructure

experts. I am confident that the RUS has the necessary skills to

administer new initiatives that bring the benefits of the information revolution to all Americans.

For America’s rural residents, access to television signals has

long been a challenge. Distance and geography have been significant impediments to the reception of consistently viewable broadcast signals. While cable television is available in many rural

towns, it does not reach America’s most rural citizens.

Since its inception, satellite-delivered television and now direct

broadcast satellite services have provided increased access for all

communications services to rural residents. Satellite television gave

America’s many rural residents first-time access to vital sources of

news, information, educational programming, entertainment, and

sports. But as good as these services were, satellite services did not

connect rural residents to their rural communities.

Once the amendments to the Satellite Home Viewers Act are

fully implemented, many rural residents will likely lose their ability to purchase distant network signals. Many still will be unable

to receive a suitable signal via antenna from their local broadcaster. Given the capacity limitations of current satellite providers,

the costs of nationwide local-to-local service, it is doubtful that the

current carriers will provide local signals to many of America’s

smaller television markets.

12

The availability of local programming will become more problematic as the television industry converts to a digital system of signal

delivery. The propagation of digital signals is different from analog.

Analog signals fade out gracefully from the distance of the transmitter. You are able to see the signal, it gets a little bit snowy, you

can get the audio, and then the signal fades out and disappears.

Digital signals drop off more suddenly, and the likely result is that

some current rural viewers of broadcast television may lose their

ability even to receive a viewable signal once the conversion to digital is complete.

Without the ability to retain and perhaps expand their viewer

base, rural broadcasters may not have the financial ability to upgrade their systems. Once digital conversion is complete, the technology will make it likely that rural viewers will be able to receive

fewer channels than they receive over conventional TV antennas.

Access to a full range of news, weather, sports, entertainment,

and information is certainly important to maintaining and enhancing the rural quality of life, but maintaining and expanding access

to most local sources of news and weather is critical to public safety. The 1999 violent tornado season and the recent back-to-back

winter storms we have experienced here in the East and the South

highlight the importance of local television as a means of disseminating life-saving information.

Linking local residents to their communities of interest is also

important to maintaining and enhancing the viability of local rural

economies and local rural civic life. From both an educational

standpoint and one of public safety, it is in the public interest that

rural citizens have access to local network programming.

The delivery of local signals to rural viewers will require significant infrastructure investment regardless of the technology utilized. RUS loans, loan guarantees, and grants have helped to bring

modern electric, telecommunications, and water infrastructure to

the 80-percent of America that is rural. This public/private partnership has been the hallmark of rural infrastructure investment, and

the work of the RUS is not done. The work of the RUS is never

done because it is simply more expensive to provide service to rural

areas.

So RUS is capable of helping rural America meet the new infrastructure challenge. We look forward to working with the Committee and offer our full expertise to solving the problem of local-intolocal for satellite viewers in rural America. Thank you very much.

The CHAIRMAN. Thank you very much, Mr. McLean, for your testimony.

[The prepared statement of Mr. McLean can be found in the appendix on page 67.]

The chair notes the presence of Senator Lincoln. Welcome.

Senator LINCOLN. Thank you, Mr. Chairman.

The CHAIRMAN. Senator Conrad, do you have a comment before

we have our next witness?

Senator CONRAD. Thank you, Mr. Chairman. I would just like to

introduce our next witness, Greg Rhode. Greg is from North Dakota. He was the top aide to Senator Dorgan for many years in the

Senate on Commerce Department issues and he is now the Assistant Secretary for Communications and Information.

13

I just want my colleagues to know, I think Greg has a deeper understanding and a broader background in these issues than anybody that I have dealt with. So we are very proud of him, and I

just wanted to make that comment before he had a chance to testify, and I thank the chair.

The CHAIRMAN. We are especially grateful you are here. Senator

Baucus?

Senator BAUCUS. I just want to add my experience, too. I have

known Greg for several months. The last several months, he has

attended many meetings and I have reached the same conclusion.

The CHAIRMAN. The threshold of expectation rises.

[Laughter.]

Mr. RHODE. It is nice to come to a friendly audience.

The CHAIRMAN. Please proceed.

STATEMENT OF GREGORY L. RHODE, ASSISTANT SECRETARY

FOR COMMUNICATIONS AND INFORMATION, NATIONAL

TELECOMMUNICATIONS AND INFORMATION ADMINISTRATION, U.S. DEPARTMENT OF COMMERCE, WASHINGTON, DC

Mr. RHODE. Thank you very much, and thank you very much,

Senator Conrad and Senator Baucus, for your kind words, and

thank you, Mr. Chairman, for inviting me here to testify.

I appreciated your recitation of the recent legislative history of

this legislation. In fact, I recall it very well. As the Senate was embroiled in debating the provision that came back in the Satellite

Home Viewer Act dealing with the rural loan guarantee provision,

I was in the process of cleaning out my desk in the Hart Building

and making my way down to the Commerce Department. In fact,

the very night that the Senate was here voting on the omnibus appropriations bill, I was being sworn in my new post, and that is

why Senator Conrad missed my swearing in ceremony but was

here for a good reason.

The irony of that evening, actually, was not lost on me, because

when my predecessor was sworn into the very same job in 1993,

there was no operational DBS system providing any service to any

viewer in America. Today, there are 11-million DBS subscribers in

our country. That tells us a lot. It tells us a lot about what is happening with technology and how fast it is growing, but it also tells

us that one of the blessings of new technology is it creates new policy challenges.

In 1993, the Congress never would have been having this debate

about how do you get local-to-local over satellite because people

were not imagining that that was possible. So, because of the

changes in technology, it creates new opportunities, but it also creates very significant new policy challenges.

The administration was very supportive of the provisions in the

Satellite Home Viewer Improvement Act, which provided for the

first time authorization for satellite systems to carry local-into-local

programming. As a result, today, there are 24-markets in the country that have local-into-local over satellite and satellite providers

are negotiating for another 20-markets. But the question that still

remains is, what about the remaining 200-or so markets? Are they

going to get local-to-local, and how are they going to get local-tolocal?

14

We also need to remain mindful of the many Americans, rural

Americans especially, who are not passed by cable, who do not get

local-into-local over cable, and who do not get a clear broadcast signal.

I had the great privilege one summer about 12-years ago of

spending a summer in a very small community in North Dakota

called Foxholm, North Dakota. It has a population of about a couple dozen people. It actually has more goats than it has people in

that location. It is a small community about 30-miles outside of

Minot, North Dakota. It is a community that grows a lot of flax,

grows a little bit of wheat, but more importantly, it had a lot of

dairy cattle in the area.

I know that in that part of the country, as Senator Conrad knows

from being around it quite a bit, that this part of the country relies

very heavily on the weather. It determines their lives. When I lived

there, there was no cable. We could not get a clear broadcast signal. I can imagine what a tremendous benefit it would be to the

farmers of that area if they were to get local-into-local over satellite

or some other means, what it would mean for them.

I know that Senator Conrad and Senator Baucus know from

being in ranch country that at this time of the year people are

watching their television sets to see for livestock warnings, and in

North Dakota, it is not explained. Everybody knows what it means.

It means the weather is getting bad. They need to go out and protect the cattle. What a benefit it would be to people who currently

cannot get those livestock warnings because they cannot get a clear

local broadcast signal, nor can they get it over a cable system or

a satellite system. So this is a tremendous issue to address.

NTIA believes that this discussion over how to enhance the capability of getting local-into-local into small rural markets should not

be limited to a loan guarantee approach. For this reason, I recently

announced that NTIA is going to issue a FEDERAL REGISTER notice

where we are going to seek public comment and suggestion as to

how small rural markets can get local-into-local programming. All

the comments we receive are going to be posted on our Website,

which is at www.ntia.doc.gov. So these comments will be available

for your information as well as anybody else in the public.

In addition, as part of this process, I intend to host a roundtable

discussion in early March that would invite various stakeholders,

including policy makers and consumers, industry representatives,

as well as technical experts to really examine this issue as to what

are the possibilities out there. What are all the approaches? What

are the things that we can do, whether it be a rural loan guarantee

approach, or maybe there are other approaches, as well, that can

compliment that approach to try to address this issue.

I want to make it very clear that my intent with this inquiry is

to compliment the debate here in the Congress as well as the discussions that are occurring at the FCC, as required under the Satellite Home Viewer Improvement Act. So my intent is to try to enhance the public debate and participate and improve upon it.

The administration believes that this question of how consumers

in small rural markets are going to get local-into-local over satellite

systems or other technologies is a very, very important question

and I really commend you for having these hearings and for lookVerDate 11-MAY-2000 15:07 Nov 01, 2000 Jkt 067316 PO 00000 Frm 00018 Fmt 6633 Sfmt 6633 C:\DOCS\67316.TXT SAGRI1 PsN: SAGRI1
15

ing at this issue and really wrestling with it. The administration

is very eager and willing to work closely with you on a loan guarantee approach, as well as any other approach that might be considered as you debate this issue.

Should the Congress proceed to push legislation on a rural loan

guarantee, I would just offer up three basic principles which I

would ask you to consider in this approach.

First is that any loan guarantee program that you would establish should be technologically neutral. This is very important. It is

important for innovation, that this program be part of fostering innovation in the private sector. But it is also very important to be

mindful of the fact that different technologies might work best in

different types of circumstances.

A second principle that I would urge you to consider is that any

loan guarantee approach should really foster competition and encourage competition. The authorization of satellite providers to

carry local-into-local programming is going to allow satellite providers to become a more forceful competitor to the cable industry. This

is a good thing. This is going to be good for consumers. Any loan

guarantee approach that would be constructed by Congress really

should have in mind how this approach could actually foster competition in the multi-channel video market.

Third and finally, any loan guarantee program really should

demonstrate fiscal responsibility, and by that I mean it needs to

conform with the existing Federal credit program policies. The administration has had a range of experiences with other loan guarantee programs. There are a lot of basic principles which these programs have operated under and I urge you to consider those as you

consider this legislation.

With that, I would be happy to take any questions you may have.

The CHAIRMAN. Thank you very much, Mr. Rhode.

[The prepared statement of Mr. Rhode can be found in the appendix on page 70.]

The CHAIRMAN. Mr. May.

STATEMENT OF JAMES C. MAY, EXECUTIVE VICE PRESIDENT,

GOVERNMENT RELATIONS, NATIONAL ASSOCIATION OF

BROADCASTERS, WASHINGTON, DC.

Mr. MAY. Thank you, Mr. Chairman. In addition to handling government relations responsibilities at NAB, I also am sort of a

project director looking into how broadcasters can take their own

future into their hands in developing a local-to-local system.

I will not try and repeat today all of the history and background.

We obviously all are very well aware of what happened with

SHVIA and I think what happens in local markets. We are very

concerned that unless an appropriate economic mechanism can be

developed, that there are stations all over this great land of ours

that are not going to see local-to-local and I think that the benefits

of localism that you have talked about so eloquently this morning

and the other members of this committee are critical and your commitment to localism, our commitment to localism can only be

solved in these small and rural markets when we have a functioning, working system.

16

Let us think about for a minute what is at play here. There are

210-television markets. DirecTV and EchoStar, the two principal

platform providers, are likely to be serving somewhere between 35

and 40 of those markets with local-to-local signals. They are in

roughly 20-some-odd markets each today.

My good friend, John Hutchinson, who will testify a little bit

later this morning, is likely to be picking up a number of additional

markets across the country, maybe as high as 68 to 75. That then

leaves from market-75 to market-210, a huge number of citizens of

this country, 25-percent of the population of this country, unserved

by local-to-local signals.

Let me further put that into context and tell you there are 17-

States without a top-50 market, representing 34 of your colleagues.

There are 800-television stations in those markets that will not

enjoy the benefits of local-to-local as we go forward unless a system

can be developed.

Now, there are clearly a number of economic and technical hurdles that face anyone trying to create a viable business plan to develop these local signals in the medium and small rural markets.

The first, obviously, is the limited number of people that live in

these individual 150 or so markets. In order to make the service

consumer friendly and to hold down costs, we think that the plan

is ultimately going to be to have a company be developed that

wholesales these local stations to the existing platform providers,

an EchoStar or DirecTV. Likely partners in the relationship could

well be EchoStar and DirecTV. Other partners could easily be satellite manufacturers, and certainly broadcasters want to partner

with people so that we can take our own destiny into our hands.

But they are going to have a number of other technical problems.

In partnering with a DirecTV, for example, or an EchoStar, we

have any of a series of issues that relate to the technology of actually delivering those local signals. What orbital slot might we be

in? The large number of stations that have to be covered, I have

said 800-plus stations, are going to mean that we are probably

going to have to have unique orbital slots, as many as 60-different

uplink facilities around this country, maybe more. We are going to

have to use spot beam technology for the satellites that are going

to be able to deliver this system.

At the end of the day, depending upon the number of markets

that are going to be covered and the level of redundancy that will

be required to protect these markets, either by the lenders or anyone else, the cost of covering those rural markets that we are all

concerned about is going to range somewhere between $600 million

and $1 billion, not chump change by anyone’s imagination. Now, as

I said, that is going to be a function of redundancy, the number of

markets covered.

Now, we certainly are willing to accept this challenge. We support the concept of having the Government provide economic incentive. But I think that, Mr. Chairman, there are some key issues

that have to be addressed in providing that economic incentive.

First, let me suggest that there a lot of people who are trying to

bring the issue of ‘‘must carry’’ into this process. Must carry is a

complete red herring. There is an absolute, easy, simple way to assure that every station will be carried under a functioning local-toVerDate 11-MAY-2000 15:07 Nov 01, 2000 Jkt 067316 PO 00000 Frm 00020 Fmt 6633 Sfmt 6633 C:\DOCS\67316.TXT SAGRI1 PsN: SAGRI1
17

local plan. Capacity is not the issue. If we are wholesaling to the

retailers, it will not be an issue at all. We want to follow a policy

of inclusion, not a policy of exclusion. That is the principle on

which this committee is meeting today, to include everyone, and

that includes all stations. The last thing we want to do is give satellite providers the opportunity to pick and choose who is going to

be carried.

Now, last year, we are all aware there was a loan guarantee program. Let me give you very quickly some suggestions we have to

improve that.

First, do not put limits on the numbers. Last year’s program, I

think, limited the top end at $625 million. We have told you this

is a $600 million to $1 billion program. Anyone else coming into the

business would have been limited to $100 million. I think you want

to let the marketplace and whoever is going to administer this program make a determination.

Do not make it cumbersome. Keep it as simple as possible in

terms of its administration. We think you need to be careful about

the issue of subordination. The history of loan programs is that the

Government does not have to have lenders be subordinate to the

Government. It can be the other way around. We think that will

make access to capital easier. We do not anticipate you are going

to fund 100-percent of the plan. We need to go out for senior debt.

That means senior debt is going to be more achievable if we do not

have the Government be subordinate.

Finally, we think that you cannot limit this to a nonprofit environment. You have got to be able to include for-profit operations,

including a DirecTV or an EchoStar. At the end of the day, this is

likely to be a consortium of companies that are coming together to

provide these local signals into small and rural markets.

We certainly praise your efforts, Mr. Chairman, those of Secretary Rhode, a great and good friend of ours for many years when

he was up here on the Hill, and we look forward to working with

you to accomplish this goal which we all share. Thanks so much.

The CHAIRMAN. Thank you very much, Mr. May.

[The prepared statement of Mr. May can be found in the appendix on page 75.]

The CHAIRMAN. Senator Fitzgerald.

Senator FITZGERALD. I just wanted to introduce the next witness.

The CHAIRMAN. Yes. Please proceed.

Senator FITZGERALD. Thank you, Mr. Chairman. I just wanted to

interject at this point and introduce one of my constituents, the

next gentleman on the panel, Dave Parkhill, General Manager of

the Hamilton County Telephone Cooperative in Dahlgren, Illinois.

Mr. Parkhill is from Southern Illinois, a rural part of my State.

Mr. Parkhill, thank you very much for coming and welcome to

the Committee.

Mr. PARKHILL. Thank you, Senator.

The CHAIRMAN. Please proceed.

18

STATEMENT OF DAVID E. PARKHILL, GENERAL MANAGER,

HAMILTON COUNTY TELEPHONE COOPERATIVE, DAHLGREN, ILLINOIS

Mr. PARKHILL. Chairman Lugar, my name is Dave Parkhill and

I am the General Manager of the Hamilton County Telephone Coop in Dahlgren, Illinois. Hamilton County Telephone Co-op is a

member of the National Rural Telecommunications Cooperative.

NRTC is a not-for-profit cooperative association with a membership

of nearly 1,000-rural-utilities located throughout 48-States. Hamilton County Co-op and NRTC’s other members provide electric or

telephone service to underserved low population density areas of

the country. NRTC’s mission is to meet the advanced telecommunication needs of American consumers living in underserved areas.

NRTC, its members, and affiliates currently market and distribute C-band and direct TV programming to more than 1.4-million

subscribers. Hamilton County Telephone Co-op and its subsidiary

provide these services to a customer base in Southern Illinois.

However, our biggest request is for the networks, because our location is distant enough from the local broadcasting stations that we

are not able to receive the networks without the investment of a

tall tower, good antenna, rotator, and an amplifier. In fact, most

all of our so-called local programming is from out of State. Some

homes get no over-air picture at all.

In my testimony today, I intend to address two problems not addressed by last year’s Satellite Home Viewer Improvement Act,

first, the unavailability of local television services in rural America,

and second, the lack of competition to cable. I am going to propose

a satellite solution to both of those problems and it will require assistance in the form of a loan guarantee that should be administered through the United States Department of Agriculture and

Rural Utilities Service.

The Department of Agriculture through the Rural Utilities Service is intimately familiar with the challenges facing rural and underserved markets. By authorizing the retransmission of local

broadcast signals by satellite, last year’s satellite bill paved the

way for the satellite industry to become a meaningful competitor

to cable in some of the Nation’s top markets. But the bill did nothing to close the digital divide throughout rural America where

there is no profit to be made in delivering local service by satellite.

The big for-profit satellite companies have announced their intention to provide local digital satellite service only to the top 33-

markets out of a total of 210-markets. That means that more than

half of the Nation’s households will not have access to local digital

satellite service. At least 20 States will be left out entirely, including many of the States represented by members of this committee.

I have brought a map, and it is sitting over here, that shows the

television markets that will be served with local channels via satellite. As you can see, many will be left out. That is unfair and it

is contrary to the public interest. These people will be

disenfranchised from the modern information age simply as a result of where they live.

It is no coincidence that satellite penetration rates in rural

America are 6-times higher than in urban parts of the country.

Satellite is an ideal distribution technology for less-populated

19

areas. At a fraction of the investment, satellites can reach where

cable and other broadband technologies will never go. Satellite is

ubiquitous. It can cover wide remote spaces that ground-based

technologies will never reach. In fact, any technology other than

satellite will be ineffective and piecemeal as a tool to bring local

service to the unserved areas.

More than 90-percent of NRTC’s 1.4-million satellite subscribers

do not even have access to cable. Why? Because it costs too much

to serve those homes with cable. The cable industry has little or

no economic incentive to build new plants to serve homes located

in more remote, less densely populated areas. For any given large

number of subscribers, satellite is by far a cheaper deliver technology per household than cable.

The Department of Agriculture knows that members of NRTC

have a history of serving remote, rural, and underserved areas. Unlike the cable industry, their motivation and mission is to bring

service to the underserved areas, not to cream-skim the lucrative

markets.

Mr. Chairman, NRTC and its members fought the cable industry

for nearly 10-years here in Congress to obtain the access to programming so we could help build a digital satellite industry to

serve rural America. Throughout that debate, the cable industry

argued in favor of the digital divide. They testified that rural and

underserved consumers should pay more for their programming because of where they lived. We disagreed then and we disagree now.

With the support of Congress, we can construct, launch, and operate a satellite system to provide local digital service to all areas

not served by the for-profit satellite companies. Through a common

industry platform, we can solve the problems not addressed by last

year’s satellite bill. We can make local service a reality for consumers across the country and provide meaningful competition to cable.

Getting this job done will require a loan guarantee of at least $1.25

billion to be supplemented by the satellite industry, as needed.

We also strongly recommend that the loan guarantee program be

implemented on a not-for-profit cooperative basis. A not-for-profit

approach would ensure that the Federal loan guarantee is not used

to enrich large private or corporate interests. Not-for-profit cooperative utilities have used loan guarantees to bring utility services to

unserved areas since the 1930s. Rural utilities operating under the

RUS program have an excellent record of Federal loan guarantee

repayment. In fact, as part of the telecom program, I am proud to

say that there has never been a default in its history.

We urge you to establish strong criteria to ensure not only that

any loan guarantee will be repaid, but that preferences will be

given to plans which will provide the most comprehensive solution

and utilize the Federal guarantee in the most efficient manner possible. It is imperative that all Americans, not just a few, receive

service.

Mr. Chairman, I recognize that some of these communications

issues are beyond the purview of this committee. To accomplish our

goals, we will need the assistance of other committees as well as

the FCC. However, left to its own devices, the FCC will handle this

problem the same way it handled countless others, by relying solely

20

on the competition to fix it, but competition will never fix this problem simply because providing this service is not profitable.

So we will be working with Congress and, hopefully, the FCC to

obtain the necessary spectrum and orbital locations for this project.

Mr. Chairman, if we can get Congress’s help and approval soon, we

can use satellite technology to bring service to the last mile and to

provide meaningful competition to cable. It is a big job and we need

to get started. Thank you.

The CHAIRMAN. Thank you very much, Mr. Parkhill.

[The prepared statement of Mr. Parkhill can be found in the appendix on page 94.]

The CHAIRMAN. Mr. Hutchinson

STATEMENT OF JOHN HUTCHINSON, EXECUTIVE VICE PRESIDENT AND CHIEF OPERATING OFFICER, LOCAL TV ON SATELLITE, RALEIGH, NORTH CAROLINA

Mr. HUTCHINSON. Thank you. I am John Hutchinson, Executive

Vice President and Chief Operating Officer for Local TV on Satellite, LLC—I will call it LTVS—which was founded by Capital

Broadcasting Company in Raleigh in 1997, so we have been at this

for a little while, also founded by Capital’s subsidiary, Microspace,

Incorporated, so we are one of those unique companies that has

had a foot both in the broadcasting and satellite worlds.

Mr. Chairman, I heard your request to try to conserve our time

and I am going to do that by leaving out some of the background

that will be a matter of record from my text.

The CHAIRMAN. It will be included in full in the record.

Mr. HUTCHINSON. Fine. I would just like to talk to you for a

minute about why the loan guarantee, we think, is necessary and

how this thing might get done, because we have been studying it

probably as long as anybody, and I kind of like this backdrop over

here because we saw this coming, and so we set out to say, how

can we get this to more than 30 or so markets in the United

States? How far can we press it?

So we devised this technical plan with different kind of spot

beams, a new kind of satellite, and we totally used up all of the

capacity in an orbital slot and the biggest two satellites that could

be made today and all the power and everything else, and it turned

out that we got to about 800-TV stations retransmitted. That translates into 66 of the largest DMAs, if you start large and go down

in a logical way, which is 75-percent of U.S. households.

Then we said, well, what about the rest? It is interesting that the

rest are mirrored in another 800-TV stations serving the last 25-

percent of America. So you have got 800 over here, 75-percent, 800

over here serving 25-percent, but the satellite ran out after the

first 800. So that is what we set about to try to find a solution to.

Let me go back to my numbers here for a moment, and that is

we have been studying this plan and running business models and

have determined that it just cannot be done without government

assistance for the so-called rural markets, and that is because private investors, of course, are seeking to maximize their short-or

near-term returns, and so a local-to-local solution for rural America

just cannot be funded purely on a commercial basis. I say purely,

21

because it can be partly and it can eventually be profitable. Let me

explain.

The capital cost to serve the smaller 144-markets is at least as

great for another satellite as the first 66-markets I have just talked

about. But in the first 66, you have three times the subscriber potential, three times the revenue to work with. So that means it

pushes out the time period for going positive, and frankly, the last

144-markets may even cost a little bit more because there are more

uplinks involved to get from all of those markets, the way they are

spread out.

So under these circumstances, the private investment community

would refuse to finance the disproportionately expensive technical

program necessary to serve the smaller markets. A Federal loan

guarantee, therefore, is desirable and it will enable the capital to

be raised to finance satellite systems for the delivery of local TV

signals to rural areas.

Based on our rather conservatively constructed business model

that we have run over and over, we believe that a loan would be

fully repaid, and our business model shows that in just the first 2-

years, a satellite provider of local TV stations should cover its

costs. In year-3, it should generate enough income to cover its interest costs, and by year-5, there would be a sufficient positive cash

flow to begin amortizing that loan. In addition, by this date, the

enterprise would have reached a critical mass of subscribers in

rural areas that could then make a more attractive investment opportunity out there for private investors to come in in a second

round. This additional private capital would be used to further

service the debt. Finally, our business plan does show that the loan

would be fully repaid by year-15 or sooner.

In short, we believe the private marketplace will not do this

alone, will not provide the majority of the initial funds to construct,

launch, and operate this satellite system, so we do support the Federal loan guarantee.

LTVS believes that a common industry platform can be developed to ensure that small and rural markets across the United

States can receive this service. In order for the rural satellite system to work today and in the near future, the enabling legislation

should establish some strong eligibility criteria. In order to qualify

for this loan, a satellite provider should be able to demonstrate

that it can develop a common industry platform to be efficient to

be used by all the DBS providers, not just one, to design the satellite to carry the entire 19.4-megabit digital signal that the Government has mandated we transition to, and to provide full ‘‘must

carry.’’ I will address each of these.

First, the common industry platform is essential to minimize unnecessary duplication of the use of government funds and government allocated spectrum. It is the efficient, right way to do it. By

a common industry platform, I am referring to a local-to-local satellite system that is technically compatible with both DirecTV and

EchoStar. That is what we have designed here, the two main providers. The satellite system would permit, therefore, all subscribers, whether they are with DirecTV or EchoStar, to receive both

their national DBS channels and all of their local TV stations appropriate for that market.

22

The satellite would retransmit all of these stations to the small

markets and deliver the signals right into the subscribers using the

same small dish,just one of them, same box on the set, and the subscriber receiving one bill, keeping it simple. Using the common

platform approach, both DirecTV and Echo receivers would be designed to enable their subscribers to receive and unscramble these

local television signals.

To gain the necessary number of subscribers to make this plan

financially viable, both DirecTV and EchoStar should include these

stations in their packages and the capability in their receivers. By

marketing a single unified service similar to cable, each of them

will encourage the purchase of the local station packages along

with other program offerings. In this way, the consumers will finally have a genuine choice in selecting a multi-channel video program distributor.

Second, satellite carriers must be required to carry every station’s full digital signal. You see, a satellite is expected to have a

life of 15-years, and you cannot get up there to fix it or change it

once it is in orbit. The issue is that the Government has mandated

by mid-2002 that all the commercial stations go to this new digital

standard, and so it is really important, in order to be practical, not

to build and construct a satellite that will be obsolete in the early

term of its life.

Finally, in order to ensure parity with cable in terms of availability of all the local broadcast stations, the legislation must, of

course, require full must-carry. So through the Satellite Home

Viewer Improvement Act, Congress has allowed consumers to receive their signals of all stations and that is to happen by January

1, 2002. If no single DBS provider carried all of the available

broadcast programming in the local market, then the very purpose

of SHVIA would be eviscerated. AS a result, the small and rural

market viewers would enjoy the full benefits of the Satellite Home

Viewer Act if it is done this way.

So, in conclusion, a loan guarantee program to ensure that the

rural viewer can receive local television signals via satellite would

serve an important public interest purpose and LTVS supports

such a loan program. The enabling legislation should establish

strong criteria to ensure that rural viewers receive the full benefits

of a local-to-local service, and accordingly, the loan guarantee

should be available only to satellite providers that will carry all of

the local stations and all of their full digital signal.

I thank you for this opportunity and I would be happy to answer

any questions. Thank you.

The CHAIRMAN. Thank you very much.

[The prepared statement of Mr. Hutchinson can be found in the

appendix on page 63.]

The CHAIRMAN. I appreciate, and I am sure all of our colleagues

do, the specifics that each of you have given in terms of the criteria

of public policy as well as the practical economics of how this ought

to be constructed. For my own information, and hopefully that of

other Senators, let me try to move through the basics that I understand.

Mr. Hutchinson, you outlined some criteria which are reasonably

consistent with other panelists, but I am not certain that this is so

23

and this is why I want to make certain. As I understood the idea

that you present, and I think Mr. May touched upon this in his testimony, you envision a satellite, a common platform, as you are

talking about it, that really is the basis for all these signals that

will come to all of rural America, all the areas to be filled in. Obviously, this is an expensive project to begin with, the common platform, the satellite, leaving aside whatever happens after that.

I make that point because as this was discussed anecdotally by

Senators last year during the imbroglio that went on, there was a

view on the part of many that we are talking about hundreds of

small businesses, maybe local television stations, requiring loans.

In other words, the map is filled in by people who are in these various localities who have to provide signals to their local subscribers

and needed money to do so. Now, that may not have been the view

of all of you who are here who are sophisticated about this to solve

the satellite’s common platform, but the whole loan guarantee situation was not clear and I just want to make certain I am clear in

my own mind.

I am trying to think of who puts up the satellite. Is this a company? Is it a consortium of companies? For instance, Mr. May

makes a very good point that if you have a limit of $100 million

and we are talking about a $625 million to $1 billion project or

what have you, that is obviated to begin with. The $100 million

may work with these small television stations, and that is what

some people thought we were trying to do, but what I gather you

are trying to do is put up a satellite that costs hundreds of millions

of dollars.

Just for the sake of argument, would one company do this? Who

does it? Who makes the application for this money?

Mr. HUTCHINSON. Well, first of all, Sir, you are correct in that

our plan shows that, after looking at this, that the common platform is the most efficient means to limit the Government’s risk

here, to conserve resources, and to have the best use of spectrum,

not to duplicate or waste that spectrum by putting 1,600-TV stations up on satellites twice.

In terms of who might do that, one thought would be a hybrid

of a purely commercial enterprise, funded accordingly, for the largest markets that do pay back soon enough to get private investors

and not put that burden on government, and then for the Government loan guarantee to come in on that second 800-stations for

some sort of another entity to compliment the first, but with the

same technical architecture. That would work.

The CHAIRMAN. So you have two companies in this case———

Mr. HUTCHINSON. Cooperating with the same technology, and we

have———

The CHAIRMAN. They are still to be formed. In other words, if

there is an idea that this is going to happen, your thought is that

out in private enterprise America, there will be two groups of people that will form and that will each have a percentage of this, of

the stock or the equity of this or what have you. They become the

applicants.

Mr. HUTCHINSON. The offer by LTVS, because we want to see

this happen, is that we will give, we will share with any other

qualified entity the entire technical plan and all of the specs to

24

make the systems compatible. That would save millions of dollars

because that is what we spent over 3-years to develop it to date.

So we want to cooperate fully with an entity that has the Government loan guarantee to complement that system.

Mr. MAY. Mr. Chairman?

The CHAIRMAN. Yes, Mr. May?

Mr. MAY. As we have looked at this, first, let me confirm for you

that we think probably the most effective way to do this, and I

know that Hutch feels the same way, is to, in fact, launch another

satellite. It is going, in all likelihood—almost assuredly, it will be

a spot beam satellite. It will have to cover 800 different stations.

It will have roughly 60-plus uplink facilities, 60- to 70-different

uplink facilities. The technology is something that is developing.

There are issues of compression as to how many megabits are

provided for each station. There are issues of compatibility. I think

when Hutch talks about a common platform, it is an issue that is

slightly separate, actually, from the actual idea of the satellite

itself. It refers more to issues like conditional access and transmission standards and a variety of other technical issues that bring

together an EchoStar or DirecTV or whatever.

I think at the end of the day, this entity that does this is likely

to be some sort of a consortium. It could arguably involve an equity

investment by small market broadcasters. It could arguably involve

companies like LTVS. It could certainly involve satellite companies

themselves, a Loral, a Hughes, who build the satellites that would

be necessary for this project. It certainly could involve EchoStar

and/or DirecTV as the basic platform providers because I think the

economic model that we all recognize would be most effective is one

that wholesales this company, this consortium, this whatever,

wholesales those stations, that service to these folks in a way that

makes it compatible with their existing DBS service.

So it is not an easy project. It does work only with a longer-term

horizon. I would disagree with my friend that I think you have to

be able to have a for-profit motive here at the end of the day. I do

not think it ought to be a not-for-profit kind of business.

I would finally acknowledge that there may be other technologies

out there that could work. I know the satellite industry———

The CHAIRMAN. Other than the satellite———

Mr. MAY. Other than the satellite. So I would think from a policy

perspective, being technology neutral is something that the Congress is likely to want to incorporate because we are not the beall, end-all. There may be a lot of people out there that are a lot

smarter than we are that can figure out other ways to compliment

this service.

The CHAIRMAN. Obviously, what all of you are saying is that as

we are trying to form this legislation, we have to sort of stay out

of the way of knocking down possibilities. In other words, you made

the interesting point that given the digital requirements, you can

send up this satellite but much of it is obsolete in a couple of years,

given other requirements, so that if it is to have a 15-year duration, you have to make some sort of a blue-sky judgment of what

happens during that period of time in which you are amortizing

this loan.

25

I have no idea precisely how the Baucus legislation, the Gramm

bill, or so forth address this problem, so in sort of an a priori way,

we are trying to come to grips that we are looking probably at one

big loan to maybe two entities or one entity that is made up of a

number of stakeholders who are involved in this problem.

Your suggestion, Mr. May, is that it be not necessarily not-forprofit but for-profit, it could be either one, and that has been a big

issue, whether we go both of those ways. But if we exclude one, we

then have some problems maybe in putting together this consortium, or the risk-takers that are required, but that is a matter of

judgment for members as they get into policy.

Likewise, there is a real question that is being raised by Senator

Gramm and his committee over how much of this guarantee the

Federal Government ought to have. Now, if we are talking about

a $1 billion loan, let us say, in a rough situation, should the Federal Government guarantee 70-percent of this and then go to banks

or other lending agencies in the private sector to take the risk for

the other 30? That is clearly a viable issue that some Senators are

thinking, not necessarily 70–30, but I throw out those figures because some have actually used those figures. In other words, are

the risk-takers in America in banks, other people, given the fact

that the Federal Government is going to pick up 70-percent of $1

billion, are prepared to see a satellite go up hopefully without too

many restrictions so the technologies happen so that we can get

this service?

We cannot really write the legislation here today nor you figure

out the business plan, but I think these are relevant questions that

we are going to have to come to grips with before we get a bill that

passes the Senate. There are so many ways to block this thing, and

I do not start negatively. I start positively as to how we can try

to forge some consensus.

But can any of you make a comment to sort of help me along,

if you were thinking through the parameters of where we start

with this?

Mr. HUTCHINSON. I can speak to the business model that we

have run, and it is only one, but it does work, and that is if the

capitalization is fully funded, if it is fully funded by the Government loan guarantee, it is all dead, it comes in just under about

$1.1 billion.

The CHAIRMAN. One-point-one billion to do this idea of a common

platform———

Mr. HUTCHINSON. To service the debt for this long-extended term

until it turns positive. However, our investment banking consultants have advised me that, knowing the market as they do, there

is a strong possibility that private investors or equity investors

might very well be interested in a five-to ten-percent stake right

from day one and that they will definitely have an interest in more

than that, putting in more equity than that after year five, when

it turns cash positive.

So it looks to us like the maximum liability on a government

loan guarantee is on the order of about $1.1 to, let us say, $1.2 billion.

The CHAIRMAN. The government’s part of it?

Mr. HUTCHINSON. Yes.

26

The CHAIRMAN. Well, now where does the private money come

into this? In other words———

Mr. HUTCHINSON. That would be the maximum liability, and depending on the ability to raise the private equity, that could be reduced perhaps by 5-percent.

The CHAIRMAN. By only 5, but not by thirty?

Mr. HUTCHINSON. Probably not by thirty because of the long payout.

Mr. MCLEAN. Mr. Chairman?

The CHAIRMAN. Yes?

Mr. MCLEAN. I think it is important to be able to preserve as

much flexibility to meet the plans that would come forward, presumably a year or 2-years from now, and there may be combinations or technologies that at this moment in time we are unable to

anticipate. I think it is also important to consider the entire project

cost as opposed to a pure ratio onto a particular loan guarantee.

You maybe want to look at whether private capital is at risk in the

entire project.

At the Rural Utilities Service, we have both direct loans and loan

guarantees. The loan guarantees that we administer are 100-percent loan guarantees. Yet, that 100-percent loan guarantee

leverages very significant private capital investments. So if you

look at the entire project cost, the U.S. Government is not bearing

100-percent of the risk, but the portion of the guaranteed loan that

we are supervising is 100-percent guaranteed.

So I would just urge the Congress that if they could leave flexibility so that we could work and find the most efficient, the most

feasible project, because there are two things we look at. We look

at loan security as well as Act purpose. So if the Act binds the administering agency in a way that rules out workable solutions, several years down the road, that could be a problem.

The CHAIRMAN. I will cease fire for a moment and we may want

to come back on this situation. But I would just comment that I

think the flexibility thing, we all are gaining that idea.

What I think many Senators who objected last, whenever we

were talking about it, in October or November or so forth, they

were not certain that the Government and the taxpayers are going

to get paid back. In other words, there was real feeling that this

was a speculative venture. So, if we are going to get into this, we

have to construct something in which the taxpayer is not left holding the sack.

There are many people who would say, well, after all, we have

subsidized all sorts of things in America. Why not television in

rural areas? But still, this is a point of controversy. So, the question is how you can construct something that is a pretty big project

here, and with a single platform and the complex business of putting together these entities, but with some fairly good incentives

that several parties have a reason to want to repay, and in the regular way at the end of the day.

Mr. MCLEAN. And Senator———

The CHAIRMAN. Yes?

Mr. MCLEAN.—the legislation introduced by Senator Baucus, as

well as Senator Burns and Congressman Boucher, had several very

good protections for the taxpayers in there. There was the ability

27

to have a credit risk premium, where a third party could bear risk.

There were insurance requirements. There were auditing and review provisions. So you can construct the soundness and security

provisions without hampering the technology or the business plan.

The CHAIRMAN. Senator Fitzgerald?

Senator FITZGERALD. I have some questions. I find this fascinating. I think it is very important that we provide satellite TV opportunities to our people in rural communities, and I have a large

rural population in Illinois, but I want to ask some questions.

Mr. Hutchinson, from your testimony, you said that LTVS has a

very conservatively constructed business plan, and you felt that

based on that model, that such a loan could be fully repaid, is that

correct?

Mr. HUTCHINSON. Oh, yes, certainly by the end of the life of the

satellite, the business. But we see a scenario by which it might be

sooner.

Senator FITZGERALD. So it could even be sooner than under your

conservative model———

Mr. HUTCHINSON. Yes.

Senator FITZGERALD.—and your business model shows that in

the first 2-years, a satellite provider of local television stations

should cover its costs?

Mr. HUTCHINSON. Yes.

Senator FITZGERALD. In year three, it should generate enough income to cover its interest costs?

Mr. HUTCHINSON. Yes.

Senator FITZGERALD. And by year five, there would be sufficient

positive cash flow to begin amortizing the loan?

Mr. HUTCHINSON. That is correct.

Senator FITZGERALD. With that in mind, that sounds to me just

like anybody else starting a business in this country. That is a

pretty positive business plan. Why do you need the Federal Government to come in and guarantee so that it puts all that risk on

the taxpayers?

Mr. HUTCHINSON. Well, I do not have direct experience in starting a lot of those businesses, but our investment banking consultants, who are in the room from Babcock and Brown, could supply

that. Leonard Schavel is here, if you would like to hear from him.

Senator FITZGERALD. But a business that can make a profit after

5-years, I know I come from a banking background. You could start

a new bank. If you can be making a profit in 5-years, that is excellent.

Mr. HUTCHINSON. The point that we have been advised by the

people who raise this money is that the Federal loan guarantee not

only reduces the interest rate, because there is less risk———

Senator FITZGERALD. Well, there is no question it would make it

even better for you, but, I mean, why should the Federal Government be coming in and making it even better for you and take the

risk off you?

Mr. HUTCHINSON. Because our analysis shows it cannot happen

otherwise. I do not see anyone———

Senator FITZGERALD. You are of the position that the private sector would never step up to this plate, never ever provide satellite

28

television around the country unless the taxpayers come in and

guarantee their loans?

Mr. HUTCHINSON. Excuse me, Leonard———

Senator FITZGERALD. Will you promise that your company will

never do that if there is no loan guarantee from the Federal Government?

Mr. HUTCHINSON. Yes.

Senator FITZGERALD. You will make that promise?

Mr. HUTCHINSON. Yes, because we tried to.

Senator FITZGERALD. Well, you have only been in business since

1997.

Mr. HUTCHINSON. Yes.

Senator FITZGERALD. But you have a business plan to do that.

Did you have that business plan before there was talk of a loan

guarantee?

Mr. HUTCHINSON. We have a business plan to cover the top 75-

percent of the population where there is three times the revenue,

so the payout is much sooner and the risk is much less.

Senator FITZGERALD. If these loans are going to be repaid, I

mean, according to your business plan, why do you need a government guarantee to such an extent? Are you saying the loans would

not be repaid if there is no government guarantee?

Mr. HUTCHINSON. We have, based on looking at the markets, the

concern is, would the loans be available with that much risk at

stake, with such a long payout in the market, and would they be

at a favorable interest rate such that———

Senator FITZGERALD. You do not have to raise money from loans.

You can raise private equity, too, so you have no interest costs.

Mr. HUTCHINSON. It is a question of the risk over the long period

of pay-out.

Senator FITZGERALD. There are big companies that have the

money to go put up that satellite right now and provide that without borrowing, that have the cash available to do that. There are

big companies like General Motors or Microsoft that have a billion

or two sitting in their treasury and could put up a satellite right

away and have zero interest costs. I mean, should these government loans be available to companies like that?

Mr. HUTCHINSON. These companies do have that capital, but the

question is, would they do it?

Senator FITZGERALD. You are saying no one will ever provide

this?

Mr. HUTCHINSON. I cannot say no one, but I say all of our experience to date in the investment community is that it cannot happen.

Senator FITZGERALD. Do you think the loan guarantee should be

100-percent?

Mr. HUTCHINSON. No. We believe that private capital can fund

some of it, even from day one, and that private capital can supplement it and accelerate the pay-out after year year.

Senator FITZGERALD. The bill that has been drafted, I guess Senator Baucus’s bill, the way I read it, and I have a background as

a banking lawyer, there is no requirement that the loan documents

be such that the Federal Government would have access or recourse against the borrower. In other words, there could be a loan,

a set of loan documents that could be written in a non-recourse

29

way to the borrower and the Federal Government could come in

and guarantee the loan, and under the bill, as I read it, there

would be no requirement that the loan documents be such that the

Federal Government could have a right to even come after the borrower to recoup any part of that loan.

Mr. HUTCHINSON. We have not been a part of the structure in

that particular loan.

Senator FITZGERALD. So you would have no problem if in the bill

it said that the Federal Government, if we had to pay on a guarantee, we could go and pursue the borrower to collect the money that

the taxpayers forked over?

Mr. HUTCHINSON. There would be substantial assets in the entity

itself that could be guaranteed.

Senator FITZGERALD. And pledged.

Mr. HUTCHINSON. Yes.

Senator FITZGERALD. They could be pledged to secure the guarantee, and your company would be willing, if you were a participant,

to pledge all its assets?

Mr. HUTCHINSON. Yes, we would—among other things, you are

talking about the hard assets of over a half-billion dollars in the

satellites themselves, which are fungible, which do have other uses.

Senator FITZGERALD. So the Government could take the satellite

back?

Mr. HUTCHINSON. Yes.

Senator FITZGERALD. You would have no problem with that?

Mr. HUTCHINSON. No.

Senator FITZGERALD. You would have no objection? Would anybody have an objection if the bill provided full recourse for the taxpayers to go after the borrowers?

Mr. MCLEAN. Mr. Chairman, the Rural Utilities Service would

not consider a loan that did not have adequate security to be feasible.

Senator FITZGERALD. So there is no problem putting it in the

bill?

Mr. MCLEAN. In fact, Senator Baucus’s legislation requires that

the administrator and the lender shall have perfected security interest in those assets of the borrower fully sufficient to protect the

administrator and the lender.

Senator FITZGERALD. I did not see that.

Mr. MCLEAN. That is on page 17 of S. 1980, at least the copy

that I have.

Senator FITZGERALD. I saw that they should have

reasonable———

Mr. MCLEAN. It says Section (I), and as well as there is also the

insurance requirements in Section (J).

Senator FITZGERALD. Section———

Mr. MCLEAN. But Senator, the most important thing is that adequate security for the taxpayers is absolutely crucial. The Rural

Utilities Service, if we were entrusted with this responsibility,

would not make an asset-deficient loan. It would not be sound

banking principles.

The CHAIRMAN. Let me interject just at this moment, and I am

sorry to stop the Senator. We have a vote and Senator Leahy cannot return, so I have pledged that he can ask a couple of questions

30

at this point. But we will all return and the panel will stay here

and we will do some more questioning.

Senator LEAHY. Thank you. First off, I should add to what my

friend from Illinois has said. It was always the intent there would

be security on such loans. Our conference report last year said this.

Our discussions on the floor always said this.

There has been some discussion in here about if you can talk regarding strategic partnerships without an antitrust exemption. I

am advised by our attorneys that you do not need an antitrust exemption to have such a strategic partnership discussion.

But this is a lot more than just TV. It is about a high-speed

Internet access. Mr. Hutchinson, you talk about how you are moving into this. Frankly, the time might come 20-years from now or

10-years from now or 15-years from now for totally private, nonsecured, non-government-secured loans that might get into the

area for rural areas. But by that time, the Internet divide would

be so substantial. This is not a time where the country moves forward incrementally by decades. This is more than just when you

get a telephone and whether you have a private line at home or

you have a two-party line in the rural areas. I mean, this is something where each month, each quarter makes a major difference in

whether rural America is left way behind from urban America.

Mr. McLean, you were quite right in pointing out that the legislation and all of us would require USDA to have securities. We always do. But you have been doing 65-years of making—not you

personally, but USDA has been doing 65-years of making rural

electric loans, 50-years of making rural telephone loans, and much

of rural America would not have had phones or electricity until

they were so far behind they would not have caught up if you had

not done that.

Can you administer this loan guarantee program without creating a new bureaucracy? Can you do it within your current staffing

levels and with the expertise you have at USDA?

Mr. MCLEAN. Absolutely, Senator, assuming that the Rural Utilities Service is able to replace recently retired staff members and

recently detailed staff members, I assume them back, or we can get

them back. I think that, absolutely, we will be able to administer

a program of this size. Again, we have a tremendous, tremendous

talent base of telecommunications engineers, financial analysts, accountants, and I believe that we are capable of handling such a

program.

Senator LEAHY. Because of time constraints, I will submit a

question on the different ways you can do security, but I know the

briefings I have had, I will just note, Mr. Chairman, I am satisfied

that USDA can handle the security of the loan issue well.

Mr. May, some of the satellite providers want to reopen the issue

of the must carry deadline for local-into-local satellite TV. Would

that have a good or a bad impact, he says as he leads the

witness———

[Laughter.]

Senator LEAHY.—on local affiliates and local independent broadcasters?

31

Mr. MAY. Senator, you do not have to lead me very far on this

particular issue. Let me make a generic comment and then a comment specific to must carry.

Our concern is, as much as we would like to see this loan guarantee program go forward and recognizing that it is on a fast track

in the Senate because of a unanimous consent agreement, and recognizing also the problems that can be caused when it gets to the

floor, the chairman talked about the kinds of amendments that can

be made, as strongly as we support this program, we would be very

reluctant to continue our support if people try and use this vehicle

as a means of rewriting SHVIA, and I think that is a very real concern that we have. Must carry is one of the principal examples of

that.

Let us recognize that at least one of the major satellite platform

providers has already announced plans to launch a spot beam satellite to accommodate their must carry requirements in those markets in which they choose to operate, principally the 40-top large

markets in the country. Let us recognize also that Mr.

Hutchinson’s company is prepared to go from market one to market

75 with full must carry. Let us recognize that if we can put a consortium together to cover the remainder of those markets, that that

is going to be done with broadcaster participation with full must

carry.

People who suggest that you need to change the must carry rules

to accomplish this business of providing local signals in rural markets are raising a complete red herring. They are doing it for selfinterest purposes only so that they can generate the kind of additional capacity to have pay services and simply earn more revenue.

There is no relationship whatsoever to the idea of relief on must

carry and a greater opportunity to do local signals in small markets.

Senator LEAHY. I appreciate that, because having gone through

all the battle to get a must carry and everything else, it would be

a real mistake to hold back or to let that deadline slip. I think the

companies that have shown a lot of foresight and innovation, Mr.

Hutchinson, yours and others, to say, let us go forward, are then

put at a heck of a disadvantage. I think let us keep this playing

field the way it is.

But also, this is not something, again, as I said, that you sit

around and wait 10-years or 20-years, so like you could at the beginning of the last century, the 20th century, where you could say,

well, we can go slowly on telephones, slowly on electricity because

it does not make that much difference. Now, just pick up the paper

any day or talk to your 12-year-old neighbor who probably is far

more Internet-adept than most of us are and just see the innovations going on.

I talked to my son who lives in an urban area who has a DSL

line and he is downloading movies and albums in a matter of seconds and doing———

Mr. MCLEAN. With appropriate copyright protections.

Senator LEAHY.—with appropriate copyright protections.

[Laughter.]

32

Senator LEAHY. In fact, that is the first thing he said to me. He

said, Dad, before you say anything, this is well registered and everything else.

But Mr. May, you go into another point. In a very short time because of the digital era, you are at home and you say, well, I would

like to rent such and such a movie. Most places where you have

all of these facilities, you can say, okay, well, it will be ready in

five or 6 minutes because you put the order in and then you

download it. I mean, they do the appropriate things for how many

times it can be replayed or something like that, but that is what

will be done, unless you are out in an area where you have none

of this access.

I am thinking of the commercial implications, but I am also

thinking of the business implications. I want the opportunities for

jobs, for high-tech jobs in rural areas, as there are in urban areas.

Now, if the rural areas do not take advantage of that, that is one

thing. But at least it should be available, whether it is in my State

of Vermont, whether it is in rural Indiana, or anywhere else. I

think this is important. I think that Mr. Hutchinson has said the

low-interest loan program is an important one for the USDA. It can

be done at no risk to taxpayers, but it can be done at great advantage to rural America.

That is not parochialism. I have the happy opportunity of living

in both urban America and rural America, urban America in the

Washington area, rural America where I live in Vermont. There

are advantages to both. I will freely admit that. I do not sit here

like I am looking at some kind of a Currier and Ives print. But we

have to have the ability in rural America to make the same choices

you can in urban America on jobs, especially the IT-type jobs that

we face today.

Mr. Chairman, I realize that I have done a little preaching, but

I will submit other questions for the record. I think this hearing

you are having could well turn out to be one of the most important

hearings for rural America for years.

The CHAIRMAN. Thank you very much, Senator.

Let me just say to you, as well as to everyone else, I was misinformed earlier. The vote has not happened. We are in a quorum

call, but I am told the vote is imminent. So I am hopeful our two

colleagues who are waiting over there expectantly will not———

[Laughter.]

Senator LEAHY. There are somewhere out in virtual space.

The CHAIRMAN. That is right, and I hope that they will not return angry that they have been misinformed.

Let me just take advantage of this quorum call to ask a question.

What happens, Mr. Hutchinson, if despite the prospects of success

of this project with the loan guarantee, in fact, the project fails. By

the third year, things do not work out so well. By the fifth year,

the revenues just are deficient. Is there something else for this satellite to do? In other words, is security for the loan, the satellite

out there, merchantable in some way, or———

Mr. HUTCHINSON. Yes, Sir. It could be a very valuable satellite

because unlike the ones that are up there now that have a footprint of the entire United States, this satellite by design would

33

have to have specific discreet spot beams with different content

going to individual television markets or individual cities.

If the satellite were reallocated, for example, to the delivery of

high-speed Internet data, the user who wishes to see a movie or a

Web page in Philadelphia would not be in competition with the

server and the lines with the user who wants to see something else

in New York. You are only in competition with the others in your

own market. So it would be an extremely efficient very high-speed

data delivery system, and, in fact, that is one of the ancillary opportunities that exists in this system even with the pretty television pictures.

The CHAIRMAN. Are these specifications we should write into the

bill to begin with, so the security that we have for the taxpayers

has all these features that you are suggesting, or is it axiomatic

that they will all occur, I mean, anyone putting up a satellite

would do all the things that you are suggesting?

Mr. HUTCHINSON. Well, there are certainly different designs in

satellites and I can only speak to the one that we have studied. We

think it is the best way to do it. Perhaps in reviewing applications

for this loan, the entity reviewing it would want to take that into

consideration, the fungibility of the satellite should something happen to the basic local-to-local business.

The CHAIRMAN. Do you have a comment on that, Mr. McLean?

Mr. MCLEAN. Yes, Senator. That would be key to the loan feasibility, the value of the assets, under any circumstance.

Mr. MAY. Senator, I might observe that in the abstract, we would

hope that the Committee and that the Congress would not place artificial restrictions on the use of the spectrum available through

that satellite and that those that are investors be permitted the opportunity to expand their horizons to the extent possible in delivering digital-quality information, data, video, etc. via this satellite. I

think that would be key to the ultimate success of the project.

The CHAIRMAN. Is there an argument about that? Mr. Rhode, do

you have a comment about that?

Mr. RHODE. No, I do not.

The CHAIRMAN. Mr. McLean?

Mr. MCLEAN. I do think it is important to ensure, though, that

the fundamental purpose is met so that local-into-local is the first

priority.

The CHAIRMAN. Yes. You do the fundamental and then the additional which makes the assets more valuable———

Mr. MCLEAN. Yes, Sir.

The CHAIRMAN.—which undergirds, then, the collateral for this

loan, whoever it is to be made to.

Clearly, Senator Gramm is drafting his bill, so I am not either

mind reading or trying to help him along here, but as I understand, one concept that he has in mind is that the governing body

would be a panel of three people designated by such entities as,

and the Senator has not made a decision, but nevertheless, generally broached have been people like the Chairman of the Federal

Reserve Board and the Secretary of the Treasury and the Secretary

of Agriculture, for example, as three.

If that was the case, I suspect still these three ladies or gentlemen would not be administering the program, but they are sort of

34

a super board of directors, and as I understand from the Banking

Committee’s focus, they are still worried about the taxpayers and

getting paid. In other words, to have Alan Greenspan or his designee or Larry Summers or so forth in addition to our own Secretary of Agriculture and the department for which we are responsible is to make certain that there is some public confidence that

the budget is not going to be unbalanced in this deal.

What is your general comment, any of you, about that idea, without knowing, I suppose, who these three finally are, whether it is

the RUS and it is you, Mr. McLean, or I am not certain who else

in the Government can handle this kind of thing, but this is being

sketched over in that committee, as I understand it. It clearly is

a different concept than the Baucus bill or the Burns bill that we

started out with, although Senator Burns probably is working with

Senator Gramm in some way, largely because he wants to see a bill

passed, as I do, as Senator Leahy does and Senator Baucus. So this

is all sort of out-of-school work, but can you help contribute while

you are here today as to how any of this might be fleshed out satisfactorily? Does anyone have an idea on that? Mr. McLean?

Mr. MCLEAN. Two days ago, we did testify before the Banking

Committee and offered our assistance and expertise to Senator

Gramm. There is a model that this committee is responsible for

that might be worth considering. In 1972, Congress created the

Rural Telephone Bank. The Rural Utilities Service provides all of

the staff work, provides all of the due diligence. It staffs, in fact,

the board members of the Rural Telephone Bank, which are both

Presidential appointees and industry-elected members. So you do

have a model or a precedent of the Rural Utilities Service working

with a board.

I think the most important thing is that the loan guarantees are

available in a timely manner. You certainly do not want to create

a new bureaucracy. You do not want to have to have excruciating

levels of review that take away all of the market benefits from having a loan guarantee by replacing it with costs involved in that review.

The CHAIRMAN. Did you offer that testimony to the Banking

Committee in your appearance there, or give them these ideas?

Mr. MCLEAN. We told Senator Gramm that we would work with

him and work with all members of Congress to make the system

work.

The CHAIRMAN. Tactfully stated. Let me at this point indicate

that the vote finally has begun, so I will recess the Committee. Mr.

Rhode, I understand that you need to be excused because another

committee wants to see you, so you are excused and we really appreciate your appearance and your testimony. If the others of you

can stay, I would gather imminently, Senator Fitzgerald, who was

in mid-flight when I stopped him and he went to vote, may well

have some more questions, and Senator Lincoln has not had an opportunity at all. If either of those should return, I might ask staff

simply to indicate that they may commence chairing the Committee and start asking questions and I will return as soon as possible

to conclude with this panel, and then we look forward to another

panel right after you.

35

So for the moment, we are recessed until a Senator appears and

begins the questioning.

[Recess.]

STATEMENT OF HON. BLANCHE L. LINCOLN, A U.S. SENATOR

FROM ARKANSAS

Senator LINCOLN. [Presiding.] I think I am supposed to reconvene this hearing. I very much appreciate the chairman allowing

me to do that, because we all do have other things to move to.

In his absence, I would certainly like to compliment the chairman for holding this hearing, scheduling the hearing here today,

but also for his attention to issues that affect rural America, and

I think this is definitely one. I have mentioned to some of you all

before that I am the ultimate consumer to testify on this issue. I

live in the middle of nowhere and have had some unbelievable lack

of opportunities in many of what I have been able to get, whether

it is through my phone service or whether it is through my television outlets or whatever that may be.

I will indulge myself and request that my entire statement, since

I was a little bit tardy this morning, be included in the record.

Senator LINCOLN. I have said many times in floor statements in

Arkansas that this is an extremely important issue. It is a very important issue to us in Arkansas and to my constituents.

My colleagues and I sometimes jokingly refer to one another as

sharing a State flower, a flower that is up in the front yards of

many of our constituents, and that is a satellite dish. We tease

about that sometimes, but it is an important issue for many of us

that do live in rural America, to be able to have access to local information. Oftentimes, we have to go to a portable radio in order

to get farm information, local weather information, disaster, a

school closing, whatever it may be, and it is going to be very critical, I think, for us to make sure that we look at this issue closely

and recognize what it means to all Americans.

I would also like to thank my colleagues on this committee, Senator Baucus and Senator Johnson, and especially Senator Leahy

who was on the conference committee here, who I think stood firm

and worked very hard. Their leadership on this issue has certainly

been very important, and also Senator Burns, who is the chairman

of the Telecom Subcommittee in the Senate. He is not here, obviously, today, but he has also done a great deal of work on that and

I have enjoyed working with my colleagues and want to continue

to.

I mentioned out in the hallway how pleased I am to see such a

very diverse and very well-versed panel that we have here today.

Chris and Greg, from your experience here on the Hill, I not only

want to thank you on this issue, but also in the way that you

worked with me and my staff. You were very helpful during the

conference committee on the 1996 Telecom Act, and I really appreciate that and am proud that you all have achieved what you have

and that you are here again to help us work through some of these

issues.

Mr. MCLEAN. Thank you, Senator.

Senator LINCOLN. Without a doubt, I think Jim May has got history here beyond bounds that he brings to this today.

36

This issue is critical because 20-percent of all of the homes in Arkansas were left without access to in-State television broadcasts

through their satellite service last November when the Senate adjourned without adopting the rural loan provision in the satellite

bill. We are here today to talk about what is the best way to

achieve access and certainly visibility to individuals in rural areas.

I am pleased with some of the ideas, also some of the questions,

that have been brought up that point out to all of us that we are

looking for a solution that is going to benefit everybody, not just

consumers. Obviously, I say to the industries that could be serving

these consumers, we want to be able to work with you to come up

with something that is going to be beneficial to everybody.

I do believe, though, that there is a solution out there, and I hope

that as we work to get to that, that everybody is going to be willing

to come to the table and realize that we all have to give a little

bit to get something out in return.

Since January of 1999, my office has received more letters and

phone calls on this issue, the satellite legislation, than almost any

other issue, and that is one of the reasons I have been very passionate and involved in this issue. I can identify with them because

I live out in the rural areas and I understand what they are up

against.

It was never more obvious to me than when, some of you all will

remember, when I was in the House, having twins. After those

twins were born, I was stuck out in the middle of nowhere, pretty

much isolated with small children. Being able to get local news was

very important to me. But also in terms of the schedule and the

life that I led, I could not get local news, and at feeding time and

at bath time, I missed any kind of local news that there may have

been, which was really not even Arkansas news, it was Tennessee

news. Then after feeding time, I would wait for the nightly news,

which was usually Seattle, Atlanta, or Boston, which was completely irrelevant in rural Arkansas.

But this is an important issue and one that I definitely intend

to play a role in. The frustration level has increased, obviously, for

the constituents that we serve, and they want to know why their

next-door neighbor, after what has happened in November and

what has transpired since then, why their neighbor who has a satellite dish and has had one for years can now get FOX and CBS

but they cannot as the next-door neighbor with a new satellite.

My staff assistants who are answering the calls that are coming

in from these constituents really deserve combat pay in trying to

explain this legislation. They first explain the disparity in the service between the next-door neighbor’s and theirs, and then they also

have to explain why folks in Washington, DC., can get local-to-local

while folks in Arkansas cannot. That really smacks right dab in the

middle of inside-the-beltway favoritism to them in Arkansas. So I

have had to put hazardous duty pay on that front office when they

take those calls.

But it is truly, I think, somewhat a lack of understanding in

terms of what rural America is up against and I want to compliment the chairman, as I did earlier, Mr. Chairman, on the way

that you have taken the initiative to really focus on the issues of

quality of life in rural America.

37

I would like to ask just a couple of questions. Mr. McLean, one

point of contention seems to be determining which group is best

equipped to administer the rural loan fund. In terms of your views

of who is going to be the best to do that, if you could express to

us, and others may have some point of view there.

Mr. MCLEAN. Well, very humbly, Senator, I certainly believe that

the Rural Utilities Service is very capable of performing that service. We have some of the Federal Government’s very best telecommunications engineers. We have a top core of accountants. We

have excellent financial analysts. I think most importantly, the

Rural Utilities Service understands rural America and understands

the challenges of both distance and density.

So I think that we have the skills and I think that we also have,

given the size of the program we are talking about; very large

loans, but we are talking about, I think, a manageable volume of

loans that I believe we would be able to accommodate under current FTE ceilings.

Senator LINCOLN. If you thought there were any drawbacks in

your capability, would it be the size of the loan?

Mr. MCLEAN. I do not think that that—if there were———

Senator LINCOLN. Or weaknesses, if you felt like there were any

weaknesses where we needed to shore up in order for your capabilities to be there.

Mr. MCLEAN. Right. I think the wonderful thing about the Baucus legislation as well as the Burns and Boucher legislation is that

it does give the administrator the ability to seek outside advisors,

either financial analysts or technology analysts, if it were necessary, to analyze a particular loan. So I think that there is sufficient flexibility to be able to manage any shortcomings that might

exist in staff at the current time.

Senator LINCOLN. Mr. Hutchinson, you mentioned that the Government loan guarantee made this a desirable approach, or a desirable project. I mean, do you think that was an understatement?

Later on, you did mention to Senator Fitzgerald that you felt like

the only way that you could accomplish it, was if that incentive

were there. Do you strongly believe that?

Mr. HUTCHINSON. Yes. I believe if the incentive is there, that

there are several entities I know about that will be applying. We

might be among them. I am not making a commitment right now.

But I do make the commitment that whatever the entity, we think

we are in the best position with what we have done technologically

to date to sort of be the back room, economies of scale, and that

we have the conditional access system, we have the architecture,

and I think it is really important, just as we talk about the common platform for efficiency, that the system be built to be fully

compatible with the other markets so that, for example, if someone

moves from one market to the other, the box still works. You do

not have two sets of boxes or standards across the land.

Senator LINCOLN. Continuity is important, and the long-term

technology that is going to be out there, I agree, we need to be prepared for.

I have been out there with a lot of small Arkansas telecommunications companies who know what it costs. They know what it

takes to lay the line to reach Ms. Irene that is living out on a gravVerDate 11-MAY-2000 15:07 Nov 01, 2000 Jkt 067316 PO 00000 Frm 00041 Fmt 6633 Sfmt 6633 C:\DOCS\67316.TXT SAGRI1 PsN: SAGRI1
38

el road and recognizing what it costs to service those customers out

there. The universal service fund is a way that really helps those

companies and some of those really, rural customers to be served.

Do you think that there is any merit in some type of a cost sharing or investment from the industry side in terms of what investment we make? Obviously, the loan guarantee is important, but do

you see any responsibility from the industry? I know Senator Fitzgerald touched a little bit on the fact that if it seems to be a good

business investment, if these are places where the industry wants

to play and these are good marketplaces for them, does it not make

sense for them to at least share in some of that?

Mr. HUTCHINSON. In what we call the phase one plan for the

larger markets, which is mirrored for the smaller markets, our

preference is for strategic partners who have more than just an

economic stake in it, who it really fits their business, the satellite

providers, the satellite builders, those sorts of entities. So the answer is yes.

Now, with regard to the technical platform, I do favor satellite

because we have talked about the last mile there and it just seems

to us that the one special attribute of satellite is that it is like rain.

It falls on everyone. There is really no added cost for that last mile.

So, when you are talking about these geographically disperse areas,

we think satellite technology does an especially good job of assuring

that every last citizen is served.

Senator LINCOLN. Mr. May, I met with other Senators with some

of the major network anchors the other day and they were talking

about the importance of dovetailing and how important the telecommunications industry, the computer, the Web, and all of that

infrastructure has become to network television and what it is

going to mean for them. I, myself, am amazed at how we have progressed even much further than my wildest dreams from the 1996

Telecom Act. We have come a lot further a lot quicker than I

thought we would.

Do you think that it stands to benefit those networks in terms

of increasing their visibility in markets that are going to be enhanced by the information highway? When you start talking about

the increase in telecommuting, you start talking about the advantages that it provides to rural America, I am just seeing in my constituency those that have been able to build their businesses on a

Website like eBAY, for instance, and have been able to build an industry in rural America. Does it not really stand to truly benefit

those networks to be able to access that market?

Mr. MAY. Senator, certainly the networks themselves could benefit and therein the business, if you will, of convergence with these

different technologies. But I think the more important benefit to

what we are talking about here today is not the networks but the

local stations. It gives the local stations greater incentive and opportunity to engage in convergence. It gives them—you and the

Congress have mandated, for example, that these stations be up

and running in digital technology by 2006.

Senator LINCOLN. I know. I am hearing from them.

Mr. MAY. That is a huge investment on the part of stations. Yet

this gives stations an opportunity to be broadcasting, if you will,

from satellite in digital throughout their entire market overnight,

39

if they can be carried, and I think that gives them the opportunity

to engage in other lines of business, again, a matter of convergence.

So we are very high on the positive opportunities that local-tolocal in all size markets, but in particular rural markets, provides.

We discussed that with Senator Leahy just a minute ago.

I would make one other observation, Senator, if you would permit me, and that is that it is a good thing when you are at home

with your new babies and you did not have access to local television, that you did have access to local radio.

[Laughter.]

Senator LINCOLN. Point well taken. I appreciate that and am

glad to know that it is a good prospect in terms of a market. I do

think, without a doubt, that local network affiliate is a good conduit for the networks, because I know for my own sake, it is hard

to run a campaign in a State where you do not even get the State

affiliate station’s local news, so———

Mr. MAY. At the end of the day, Senator, we are very sensitive

to the kind of combat pay that your front office staff require because we hear from those consumers, too, because they are our consumers. They are our viewers, as well. I think the beauty of localto-local being provided in all markets, 210 across the country, is

that, that really does wipe out any of the real concerns about access to entertainment and news and programming for anyone who

chooses to have access to a satellite.

Senator LINCOLN. Well, I appreciate it, and thank you, Mr.

Chairman. I have taken more than my time, but would like to encourage all of the panel that we can work together to come up with

a plausible solution in terms of how we actually make this happen.

Knowing that technology-neutral is something that people are interested in, let us make sure that we are doing it fair. Thank you

again, Mr. Chairman, for your leadership on this issue. I appreciate

it.

The CHAIRMAN. [Presiding.] Thank you, Senator Lincoln, for attending the hearing and raising some very important questions.

I just wanted to conclude. Mr. May, in your testimony, I just do

this for clarification, you mentioned that the bill appears to exclude

two existing DBS operators. The bill you are referring to is the

Baucus bill?

Mr. MAY. No, Sir. I was referring to last year’s conference bill,

where it sort of excluded, if I recall correctly, both DirecTV and

EchoStar’s platform———

The CHAIRMAN. You are suggesting that if we do this again, we

should not exclude them because of the reasons that you———

Mr. MAY. That is correct.

The CHAIRMAN. I appreciate very much all of you coming and

your staying with us throughout this period. I think this testimony

is very helpful to Senators who attended and certainly through the

record to all the rest as we really try to work our way through a

very important project and try to do so in a timely way.

As I mentioned in our first hearing on another subject on Tuesday, we have a fairly small window of opportunity this year, largely

imposed by the fact that the leadership is intent upon passing the

appropriation bills this year and having them signed at an early

time. So this backs up into the discretionary period for those subVerDate 11-MAY-2000 15:07 Nov 01, 2000 Jkt 067316 PO 00000 Frm 00043 Fmt 6633 Sfmt 6633 C:\DOCS\67316.TXT SAGRI1 PsN: SAGRI1
40

jects that are not appropriation bills or not the budget, and essentially a time frame of this month, next month, and maybe April.

This is why I am intent in trying to push this thing and accelerate

it. We have the support of our members in doing that, as was evident today.

We thank you all for your testimony. We look forward, if we may,

to calling upon you for additional information. As Senator Leahy

has indicated, he will have some additional questions, and so may

other Senators. If you could respond to those promptly, we would

appreciate it. Thank you very much.

The CHAIRMAN. I now call upon a second panel. Some of you will

be participating in that, but we will also have Dr. Stephen Jay,

Chair of the Department of Public Health and Professor of Medicine at Indiana University of Medicine, joining Mr. McLean, Mr.

Rhode, and Mr. Parkhill.

Dr. Jay, we welcome you to the hearing to join your colleagues

who are already tested by this morning’s question and answer as

well as their own testimony. As perhaps you heard from the last

time, we are asking that initial testimony be summarized, preferably in 5-minutes or a little bit more, and we will not be rigorous,

because for the moment I am not joined by other Senators, so the

pressing issue of hoards of questions is not upon us, but we really

want to explore this subject carefully.

If you would proceed with your testimony, and then I will ask

that you be followed by Mr. McLean, Mr. Rhode, and Mr. Parkhill.

Dr. Jay?

STATEMENT OF STEPHEN J. JAY, M.D., ASSISTANT DEAN, CONTINUING MEDICAL EDUCATION, INDIANA UNIVERSITY

SCHOOL OF MEDICINE, INDIANAPOLIS, INDIANA

Dr. JAY. Mr. Chairman, thank you for the privilege of testifying

on this critically important issue. I am Stephen Jay. I am a practicing internist from Indiana. I am on the faculty of the Indiana University School of Medicine and Chair of the Department of Public

Health and have been involved in one way or another in telecommunications, telemedicine, to support patient care and the education of health professionals for about 25-years.

In his State of the Union address just recently, the President

spoke of the digital divide which separates technology haves from

have-nots and Secretary Shalala and Surgeon General Satcher

issued a related call last week in announcing the goals of Healthy

People 2010, those to improve quality and duration of life and to

eliminate disparities in health care. This digital divide, specifically

the issue of telemedicine, threatens the ability of our Nation and

of particular rural States like Indiana to meet these challenges of

Healthy People 2010.

Among our most vulnerable citizens are the medically underserved populations of rural communities, and telemedicine, in particular, the application of telecommunications technologies to

health care, is one of those strategies that Indiana and other States

have used to address rural health care challenges.

Telemedicine offers three key advantages to rural communities.

First, it can provide clinical care benefits, including greater access

and reduced disparity in health care. Indiana, for example, has

41

compelling needs in these areas. Sixty-percent of Indiana’s 92-counties are Federally designated non-metropolitan counties. Thirtypercent of our population, too, of the 6-million people in Indiana

live in these areas. The rural populus is disproportionately poor

and older than average and only about 13-percent of Indiana’s active patient care physicians serve in these rural areas.

Experience nationally and in Indiana indicates that telemedicine

can improve care for these populations, benefits through less time

to travel and the cost of such for health care, less delays in treatment, increased access to specialty care, and importantly, as was

alluded to earlier, improved capacity for community-based care.

In Indiana, for example, the Department of Agriculture’s distance learning and telemedicine grant program supports an innovative partnership project of Union Hospital in Terre Haute, Indiana,

the Midwest Center for Rural Health, the Clarian Health Partners,

and this comprehensive telemedicine project provides benefits for

patients in rural Western Indiana that include electronic medical

records networks among multiple care sites, which ensures continuity of care, obstetric consultation services that eliminate dangerous and costly travel for high-risk obstetric patients, and interactive multi-site distance learning activities for health professions.

A second benefit of telemedicine is its role in strengthening community-based health professions education and training, and here,

we have had about 30-years of experience in Indiana through the

Statewide system of medical education that was embarked on in

the late 1960s. Recently, in fact, last month, Indiana has begun to

build on that platform through the HRSA area Health Education

Centers Program. Indiana has just submitted the AHEC proposal,

and a key element of bridging between academic medical centers

and small communities, particularly rural communities in Indiana,

is the telemedicine technology.

A third benefit of telemedicine is the ability to expand systemwide capacity for data collection, research, and so on, and here, the

EPICS program in Southern Indiana is particularly innovative in

bringing and linking together hospitals, clinics, and other providers

in a very innovative way.

There are barriers, and I will list just a few before closing. The

barriers to implementing telemedicine are several-fold. Licensure is

an issue which needs to be addressed at various levels. Reimbursement continues to be somewhat limited and complex. The operating

and start-up costs for small institutions, particularly in hub-andspoke sort of arrangements, continues to be a barrier. Infrastructure, communities lack the needed infrastructure to support telemedicine.

Liability is also an issue in that there is uncertainty among telemedicine practitioners as to what their legal exposure is, and also,

recently, the OIG advisory opinion concerning the anti-kickback

violation issues has raised concern and questions among those who

are participating in collaborative telemedicine ventures.

We have learned through our experience in Indiana, these pilot

programs and others, that success, critical success, involves involvement of community leaders in all levels of planning and implementation and evaluation of these programs and partnerships,

which was mentioned earlier, among State and Federal GovernVerDate 11-MAY-2000 15:07 Nov 01, 2000 Jkt 067316 PO 00000 Frm 00045 Fmt 6633 Sfmt 6633 C:\DOCS\67316.TXT SAGRI1 PsN: SAGRI1
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ments, State and local health departments, academic health science

centers, and private sector and NGOs.

While significant barriers remain to rapid development of telemedicine, we believe that progress is being made, and by building

on these successes, we can hopefully accomplish the goals that

were set out in Healthy People 2010.

Mr. Chairman, we applaud your holding these important hearings on this critical issue to rural America. Thank you.

The CHAIRMAN. Thank you very much, Dr. Jay, for coming today

and offering that testimony and very specific instances of telecommunications and telemedicine in our State. We appreciate it.

[The prepared statement of Dr. Jay can be found in the appendix

on page 90.]

The CHAIRMAN. Mr. McLean, would you proceed with your testimony? We are on the digital divide panel now, as you and the audience know.

Mr. Mclean.

Mr. MCLEAN. Yes, thank you, and it is a great pleasure to serve

on a double-header here. This is terrific.

Yesterday, President Clinton announced initiatives to close the

digital divide and gave a little preview of the budget and I would

ask the chairman if I could have a statement related to that included into the record.

The CHAIRMAN. Yes. It will be placed in the record in full.

Mr. MCLEAN. This Committee has not only been responsible for

closing the digital divide, but also creating digital opportunity

throughout rural America. If I could just use a few moments to

highlight some of the accomplishments of the Rural Utilities Service, again, under the oversight of this Committee.

Since 1993, the deployment of fiber optic cable in Rural Utilities

Service-financed plant has doubled, representing one in every ten

miles of cable in rural local loops. That is a tremendous fiber-rich

diet for telecommunications. Since 1993 through 1999, RUS has financed $1.2 billion in fiber optic facilities and $790 million in digital switching systems and enhanced feature softwares. Today,

RUS-financed borrowers provide 99-percent digital switching. It is

unparalleled compared to rural exchanges outside of the RUS family. Since 1993, 306-distance learning and telemedicine projects totaling $83 million have been funded in 44-States and two territories.

The Rural Utilities Service is absolutely committed to closing the

digital divide. We are bringing, in many cases, new service, firsttime phone service to folks right now in the year 2000. Last year,

I had the great privilege of presiding over a ribbon-cutting ceremony in Bylas, Arizona, where the San Carlos Apache tribe connected 450-families to phone service for the very first time. This

had a profound effect on the community. One of the first things

that happened is the police department hired more police because

now they could have people to call in for 911 service and have a

rapid response. So just by the addition of that technology, the safety and security of that community increased. There are new opportunities for jobs. There are new opportunities to participate in the

digital economy.

43

We are so fortunate to have your longstanding and strong support for our program. Rural America is benefitting very much. So

thank you for the support of the Rural Utilities Service and the distance learning/telemedicine program.

The CHAIRMAN. Thank you very much for that historical outline.

It is a fairly short history, but an intense period of discovery and

application. We appreciate that.

Mr. Rhode?

Mr. RHODE. Yes. Thank you. First, I should explain my reappearance, as you were kind enough to excuse me———

[Laughter.]

The CHAIRMAN. We are grateful.

Mr. RHODE.—but the hearing in which I was supposed to appear

is delayed, so if you will have me back, I thought I would return

and I may have to go a little later.

The CHAIRMAN. Yes, indeed. We are grateful you are here.

Mr. RHODE. I am glad to be here again to talk about this subject.

I grew up in Rural America, and I grew up in what was the second-largest city in North Dakota, which is a town of about 50,000-

people. So to a lot of people, that is considered a pretty small town.

To us, it was a big town. But I grew up in a State where all but

just a couple of counties have experienced out-migration over the

last two censuses that have been conducted.

So I fully understand the unique challenges that small communities face, particularly those communities that are in economically

distressed areas, such as the communities that I have grown up in

the farm belt. But I also understand the tremendous potential that

information technologies offer many of these rural residents to improve the way they live, work, the way they learn and obtain

health care, and getting good access to advanced telecommunications and information services.

Last summer, many people are aware that the Commerce Department released a report called ‘‘Falling Through the Net: Defining the Digital Divide’’ which was a combination of efforts from

NTIA, the Agency which I now administer, as well as the Census

Bureau, using census data. That report highlighted a number of

positive things. For example, computer ownership has doubled in

the last 4-years in the United States. Internet access has increased

by more than 40-percent, just in the last year alone. Also, more

than a quarter of American households now have access to the

Internet.

However, that same report had some rather disturbing news. It

also found that at almost every income level, households that are

in rural areas are less likely to own computers than households

that are in urban areas. The report also found that at almost every

income level, households in rural areas are half as likely to have

Internet access at the home than households in urban areas. The

report also found that black, Hispanic, and Native American households are much less likely to have computers and access to the

Internet than white households are.

The point of this is that while there is tremendous growth and

a lot of wonderful things occurring in our economy with respect to

access to information technologies, what this report found is that

44

the gap between urban and rural, between poor and affluent, and

between minority and white is growing.

For example, in 1997, 8.7-percent of Hispanic households had access to the Internet while 21.2-percent of white American households had access to the Internet. We found that within 1-year, the

increase for Hispanic households went to 12.6-percent, while in

white households increased to 29.8-percent.

With respect to African American households, we found a similar

pattern, that in 1997, only 7.7-percent of black households had access to the Internet while 21.2-white households had access. The

white household access increased to 29.8-percent in 1-year, while

the black households only increased to 11.2-percent. The point is,

the trend lines are showing an increasing chasm between minorities, between low-income and affluent, and between rural and

urban America.

Now, yesterday, as my colleague Mr. McLean just announced,

President Clinton at Ballou High School in Southeast Washington,

DC., unveiled his budget package for his initiative to close the digital divide, and yesterday, the President said, ‘‘We must make access to computers and the Internet as universal as the telephone

is today.’’ To help achieve this goal, the President announced the

following initiatives that I would just like to briefly run through for

you.

First, the President is proposing to triple the funding for the

Technology Opportunity Program which is administered by NTIA.

Currently, that program is funded at $15 million. The President is

proposing to increase that funding to $45 million. Since 1994, the

TOP program has been working to close the digital divide, providing over $118 million worth of Federal grants to nonprofit community-based organizations who provide for innovative telecommunications and information technology applications to address a range

of issues, such as public safety, health care, education, communitywide networking, and business development. That funding has leveraged over $184 million in non–Federal dollars.

Another initiative of the President is to create a new program to

expand home access to the Internet and computers, which will be

funded at $50 million.

There are other programs, as well, such as a $25 million program

at the EDA, as well as the RUS, to accelerate broadband deployment in rural communities and inner-city areas.

The President is also proposing to triple the funding for the community technology centers, which is currently administered by the

Department of Education. That funding would increase from $32

million to $100 million. Also, to double the funding that we currently provide at the Department of Education to train teachers,

new teachers. The President also is proposing a $10 million program at the National Science Foundation to help prepare Native

Americans for careers in information technology fields, and also a

$2 billion package over 10-years for tax incentives to encourage private sector donation of computers, technology training for workers,

and sponsorship for community technology centers.

This package of proposals is part of the administration’s effort to

close the digital divide. In addition to this, the administration will

continue to promote policies that are faithful to the TelecommuniVerDate 11-MAY-2000 15:07 Nov 01, 2000 Jkt 067316 PO 00000 Frm 00048 Fmt 6633 Sfmt 6633 C:\DOCS\67316.TXT SAGRI1 PsN: SAGRI1
45

cations Act of 1996, policies that foster competition and policies

that preserve and advance universal service in a manner that is

consistent with the Act to ensure that access to advanced telecommunications and information services are available to consumers in all regions of the Nation.

Finally, the one last comment I would make is that as part of

NTIA’s role and working on the administration’s efforts to close the

digital divide, we have created a new Website called

digitaldivide.gov, and the purpose of this Website is to provide for

a clearinghouse for those that are interested in following the administration’s activities to close the digital divide, as well as to find

additional information about private sector initiatives. There is an

enormous amount of activity in the private sector by private companies that are providing for grants, providing donation of workers

for training, donation of equipment, and we are trying to provide

a means for the public to easily access a number of these programs,

and so I would encourage people who are interested to check our

Website. Thank you.

The CHAIRMAN. Thank you very much, Mr. Rhode.

Mr. Parkhill.

Mr. PARKHILL. I appreciate the opportunity to come before you

today to talk about the digital divide in rural America. As I introduced myself a while ago, I am Dave Parkhill. I am from rural

America. I am the General Manager of Hamilton County Telephone

Co-op in Dahlgren, Illinois.

Hamilton County Telephone Co-op is a member of the National

Rural Telecommunications Cooperative. NRTC is a not-for-profit

cooperative association with a membership of nearly 1,000 rural

utilities located throughout 48-States. Like Hamilton County Telephone Co-op, NRTC’s other members provide electric or telephone

service to underserved low population density areas of the country.

Mr. Chairman, Dahlgren, Illinois, is the second-largest town in

Hamilton County, Illinois, and we have a population of about 500-

people. In our telephone service, we provide services to approximately 2,400-subscribers and we cover approximately 463-square

miles in parts of seven counties. That is a lot of land and not a

whole lot of people there.

Our area of Illinois is agricultural. We grow corn, soybeans,

wheat, and other crops, raise cattle, hogs, and other livestock. The

average family income in our service territory is well below the national average. I do not have the figures here, but I believe the average income in those seven counties is just a little bit over $17,000

per year.

About 4-years ago, Hamilton County Telephone Co-op partnered

with Midwest Internet to bring the first local Internet service to

our community. Four-years later, we are still the only local dial-up

Internet service in our area. We have about 525-subscribers and

each pay about $20 a month for Internet access.

Most of our subscribers are farmers using the Internet to get the

vital information they need to conduct their businesses. They use

it for pricing and ordering supplies and checking the weather. They

use it to buy and sell products, keep an eye on the grain market

and other commodities. We have school kids that use the Internet

46

access to study and do their homework and to learn, and their parents use it for a host of the other services that the Internet offers.

Without the Internet access service, Mr. Chairman, Dahlgren

and surrounding areas would have no local dial-up service, none at

all. As far as high-speed access goes, it is simply cost prohibitive.

We do not have enough people to justify the expense of providing

it. If we were to offer ISDN service, we would have to charge

maybe $200 a month more to provide it. The DSL service would

more than likely be in the $100 per month range. Our subscribers

do not have the incomes necessary to support these kinds of

charges.

I had a chance recently to review the report issued last year by

the National Telecommunications and Information Administration

entitled, ‘‘Falling Through the Net: Defining the Digital Divide.’’

Mr. Chairman, there is shocking information in that report, and

based on my experience as the only Internet service provider in

Hamilton County, Illinois, it is true.

NTIA says that at almost every income level, households in rural

areas are less likely to own computers than households in urban

or central city areas. At every income level, households in rural

areas are significantly less likely, sometimes half as likely to have

home Internet access than those in urban or central city areas.

Black households in rural areas, in particular, are one-third less

likely to own a computer than the average U.S. black household

and are two-fifths less likely to access the Internet than the average U.S. black household.

According to the NTIA report, a digital divide exists among different geographic areas of the country. Even though the number of

Americans accessing the Internet has grown rapidly in the past

year, NTIA says that the digital divide between information haves

and have-nots continues to widen.

Mr. Chairman, NTIA is right. There is a digital divide and Hamilton County and the rest of rural America is on the wrong side of

it. That is a problem and it has got to be fixed.

I am sure there are many other home towns that view this problem just as seriously as I do, and I am sure that anything your

committee could do to help fix it would be deeply appreciated in

Hamilton County and throughout rural America. Thank you very

much.

The CHAIRMAN. Thank you very much, Mr. Parkhill.

Let me just make some general comments before commencing

questions of you, because all of you have touched upon something

that is very important not only to our committee but to the country, the digital divide issue the President has addressed. Both you,

Mr. McLean and Rhode, have cited specific programs that the

President has advanced.

But the reason we have coupled these two hearings is obvious,

one of which is, in the first half of our hearing, we discussed a bold

proposal for technology, for this common platform, that has all

sorts of possibilities. I think as you, Mr. Rhode, or Mr. McLean

pointed out, if you have this satellite there, the least-accessible

American in terms of what used to be the stringing of telephone

lines or rural electrical lines or what have you really becomes acVerDate 11-MAY-2000 15:07 Nov 01, 2000 Jkt 067316 PO 00000 Frm 00050 Fmt 6633 Sfmt 6633 C:\DOCS\67316.TXT SAGRI1 PsN: SAGRI1
47

cessible in a way that we could not have envisioned at the beginning of rural electrification or the telephone service.

These have been basic quests for us, because philosophically, we

have said although these individual persons may be more expensive on a unit cost basis to service, we were simply all one country

and we wanted to have that sense of indivisibility, unlike countries

that have tried to repopulate their areas, often at great expense

and often of human liberty of people who simply did not want to

go to Siberia or wherever else.

In rural America, people have wanted to live. They have liked

the quality of lifestyle. The dilemma that puts this together with

our previous hearing when we were talking about rural income, the

safety net, these sorts of problems, you discover rapidly there are

great divides among farmers in terms of their sophistication to

market their grain.

I have a computer and I can at night, when I have nothing else

on my mind but the price of corn, go to the, say, the CBOT Website

and get a chart for corn, daily, weekly, historically, and get a pretty

good idea, and even note what other people are saying about the

price of corn. I may get sort of a twitch to get into the market the

next day to make a sale, perhaps. That, I have the opportunity to

do.

As you pointed out today, if a farmer does not have a computer,

and in many counties of our country, a majority of farmers do not

have computers, quite afar from people who are not farmers in

rural America, why, they have got a problem. You could probably

get the Wall Street Journal, but maybe that is not altogether accessible. In fact, the degree of sophistication that comes through learning courses that come from our universities, from all the people

who are available if you can get them on the Net are likewise not

available.

So although we are asking farmers to become more sophisticated

and more market-oriented, and they really must, there is no way

out of this problem. Their return on investment will continue to decline unless they are just very lucky. Until there really is something, we are trying to come to grips today just with basic income

of producers.

Now, in terms of the quality of life, and Dr. Jay has addressed

this, we all want to be healthy Americans and the problems there

are manifest, but so are the possibilities. It is sort of an exciting

idea as to why as a national project we ought to undergird getting

the satellite up and getting the signals there so that we not only

have entertainment and news, but we have all the benefits of education and even of medical service that can come. Granted, the

problems of licensure and reimbursement and other aspects cannot

be forgotten.

I just make these points to try to buttress why this committee,

or most of us, believe we have some responsibility in this and how

we meld together the market forces. I am not oblivious to the fact

that the ingenuity of Americans making investments and seeing

these needs is clearly there, but the problem that we saw earlier

with the electrification and telephone issues and so forth impelled

a broader strategy and that has created a lot of opportunities.

48

Sort of commingled with this is the fact that, as we talked about

demographics in agriculture, there is not a one-way flow from people from the country to the city. I cited in a press conference on

Monday, I think it was, the fact that the largest-growing farm population in the country are those who are on farms of one to 50-

acres. In other words, sort of the broadcast treatment of this

journalistically that farms are decreasing almost inevitably in

America has been true for most of our century, but not necessarily

very much true of the last 5-years.

One reason is there were a lot of farm families who left, say, in

a group of people from 51-acres to 500. This seems to be a more

vulnerable group of people, but not so of those who are, say, in the

18-percent of Americans who produce 85-percent of all that is produced. These are, by and large, people with 500-acres, usually 600-

acres or more, and these folks are moving ahead. They are capitalized to be superior marketers and competitors.

But then at the level of one to 50, this must mean a lot of Americans are choosing a more rural lifestyle. They may just want to get

away and have a little space. This leads to a whole new group of

people who are interested in what we are talking about today.

Many of these people may have lived in the middle of New York

City or Indianapolis and they now, by choice, find themselves in a

situation that may still pick up the metropolitan market signals or

what have you, may not have gone that far, but some do, reach the

point where the signal becomes fuzzy, as you were describing

today, or may stop altogether.

So this is a new, not lobbying group, but an advocacy group that

say, we want the benefits of our 50-acres out here and we are classified as farmers because we sell at least $1,000 off of that, so that

qualifies your farm. There are a lot more people on the 50-acre

farms that do not sell $1,000, but there are many that do. Hundreds of thousands of people start showing up in these new farm

situations. But they are often doctors, they are lawyers, they are

business people, and given transportation possibilities, they can do

that sort of thing. So they want to have all these things, so that

has probably been helpful. As opposed to simply a one-way tour to

the city, we have got a little spreading out in America, maybe some

potential for revival of some county seats.

I do not want to overdo it, but Mr. Rhode, in your State of North

Dakota, we have had testimony for several years of people trying

to do things that could otherwise be done on the New York Stock

Exchange or through commercial clearinghouses or so forth, but

you can do it in North Dakota or South Dakota if you have the

electronic and communications mechanisms to do that, employ people in sophisticated ways. This still requires very sizeable leadership at the local level and the State level and the imagination of

business people to do that.

Having said all that, the fact is, as you point out, the divide is

very great. Because this seems to be racing along at a very fast

pace, that is the whole telecommunications age or computers or

bandwidth or so forth, without there being some thoughtfulness

about this, there is every prediction that the gap will get wider

still. Eventually, something may happen at the lower end of the

49

band, but then the other folks may be off somewhere else by this

time. So the need to compress this time frame is at hand.

I am curious, Dr. Jay to begin with, granted that a lot of good

things can happen in telemedicine. Describe the infrastructure of

what is required to make this work. There has to be somebody back

at the hospital or at the medical school or at the headquarters, I

suppose, so that even though you are extending your empire in

terms of information, advice, can you fill in the gaps of how you

have tried to organize that or how you would suggest that we improve that situation?

Dr. JAY. Briefly, we have used virtually all of the communications technologies that have been discussed here today. I guess I

see some strengths in having several arrows in the quiver, so to

speak, in terms of adapting and approaching the need of a particular community in linking the technology required to that particular

need, and probably one will need several arrows as opposed to one.

We use satellite technology for medical education programs. We

use two-way V-tel type of communication technologies for two-way

video, two-way audio conferencing with patients in the prison systems and other formats. We use Internet with technology that includes compress and store forward for things like teleradiology,

teledermetology, telepathology, where the microscopic findings can

be transmitted.

So the short answer is, we use multiple technologies and, I think,

probably will need to continue to explore and use and adapt multiple technologies in the future. I am not sure there is one single

answer to your question in terms of the technology, specific technology.

The CHAIRMAN. Do you do surgery, not over the Net, of course,

but do you have a master surgeon at some point who guides the

surgeon at the local level via some network?

Dr. JAY. Yes, and again, the simplest technology could be a

phone. It could be your computer, your PC. Or it could be the kind

of video interactive sorts of technologies that we are talking about.

The CHAIRMAN. On which you could show the surgeon how to go?

Dr. JAY. Yes.

The CHAIRMAN. He can actually see something there that is helpful.

Dr. JAY. Exactly. So you can basically send and forward the clinical information of a particular patient. You can send the data, the

information, the laboratory information. You can send the images,

the radiology images, and the ultimate image, the image of the patient themselves, to the consultant at a distance.

The CHAIRMAN. Mr. McLean, at RUS, obviously, you are involved

in all these issues broadly because your portfolio covers people

doing lots of things, but can you give some overall comment as to

all we are discussing here and how your agency specifically is being

helpful or could be more helpful if we were to do the right things?

Mr. MCLEAN. Well, Senator, first of all, I do not think you overstate the case at all in your comments. In my heart, I believe we

really are on the verge of a rural renaissance. Because of the technologies of telecommunications, it makes it possible to do anything

anywhere and we can bring the very best medical minds to a rural

patient in a rural clinic. Surprisingly to many people, the digital

50

technologies that are utilized to examine a patient via telemedicine

will provide in many cases a superior diagnostic tool than a visual

examination of a doctor coming into your office, because if the

scope is in your ear and it is projecting a digital picture, it has a

much more accurate resolution than the naked eye would have. So

we see where telemedicine is not a second choice for rural communities, but in many cases, telemedicine can enhance the quality of

health care.

Then in education, it is just tremendous, the power of this technology. Rural schools can combine together and share teachers

which any one of those schools would not otherwise be able to afford. Kids in distance learning classrooms develop an etiquette that

is relevant to having a camera in the classroom, and in some ways

have kids being more polite to each other because they know they

can only talk one at a time, kids have to raise their hand, because

you have the technology in the room, and in a sense, they are on

television. So there are all kinds of tremendous fringe benefits that

relate to this.

We found in our distance learning/telemedicine projects that once

you establish a facility, it becomes a community asset. During the

week, on Monday through Friday, on school days, it is used by kids

for education. In the evenings, the facility is used by the fire department or for the nursing homes to do continuing education. On

the weekend, it might be used for a community club.

We were not too long ago, Greg and I, together in Montana and

we visited a hospital where they said they used their community

telemedicine room, when it is not utilized for medical purposes, for

community groups, and they had the Girl Scouts in, and because

there was a few second delay in the transmission, they were singing songs together, but it turns out they were singing in round, so

it worked out pretty nicely to be able to use the technology for the

kids to sing together.

So we can, by bringing these technologies to rural America, have

a profound effect on the economy, on the community, and the quality of life, and the brilliance of both the distance learning/telemedicine program and to e-rate and as well as what you are contemplating in bringing modes of transmission for local-to-local, these applications become magnets for infrastructure upon which businesses

can grow and you can have new economic activity that just was not

possible before.

The CHAIRMAN. This is much like when I was mayor of Indianapolis some 25- or 30-years ago. The extension of the sewer lines

made all the difference in terms of the economic activity and the

vitality. Hopefully, it will be easier to do the communication lines

than it was that.

Certainly, this whole idea of the satellite, that it happens all at

once, everybody is accessible, it is a very, very exciting idea. That

could never have occurred when you are laying it a pipe at a time

or what have you.

I had an experience, and I think one other Senator has had this

more, but in our television studios here, we now have the opportunity to teach classes in our home States, wherever they are. So

last week, two classes, one in South Bend, one in Evansville, wanted to discuss the whole State of the Union process, what happens,

51

who does what and so forth, and so I was the teacher. Now, the

point, too, we are making about the courtesy situation, in order to

speak or to be heard out there, I had to guide my mouse to click

on the right button and keep it there or I fade from the picture altogether. Likewise, the student questioning me—I can see the

classroom out there and the students, whether they are restless or

whether they are not, but the person questioning me has to likewise manipulate the mouse and I have to be quiet. But nevertheless, it is a fascinating idea.

The thing that came to my mind, though, is this really requires

very creative teachers. Let us say all of us get our work done today

and all these lines get laid down and all these things could happen

in medicine or education or with farmers becoming more sophisticated, but the will to do so, the organization of this, the optimization of the opportunity is really something else, too. But, nevertheless, our work right now is the block-and-tackle work of infrastructure which hopefully the creative Americans will have the ingenuity to fill in.

Mr. Rhode, you have already been commended by Senators, and

rightly so because you have been active in this in the legislative

process, now administrative, but give us your overall views to try

to fill out this hearing.

Mr. RHODE. I think I would start by quoting Steve Case, who is

the CEO of AOL. He said yesterday, the Internet is big enough to

matter but still small enough to shape. The fact is, we are in the

midst of a tremendous communications revolution in this country

and in this world. New technologies are providing incredibly new,

wonderful services for distance learning, health care, and a whole

range of things, and we are seeing the tremendous benefits of all

that.

But as this industry is growing enormously, and it is growing

very, very fast, as there is nothing like that. I mean, just compare

the statistics for electronic commerce from this last Christmas

shopping season to the previous one. They went from about $3 billion to well over exceeding $12 billion. It is just a phenomenal

amount of activity that is occurring. Our economy is quickly becoming an electronic economy and we are becoming an information society.

But the fact is that because of all this growth and because of all

this excitement of what is going on, now is really the time to establish the policies and establish the programs and to make sure that

all Americans can benefit from this wonderful revolution.

Congress had this vision in 1996 when it passed the Telecommunications Act. There are provisions in that Act that did not

exist before in the statute. For decades, we have had a universal

service system, and it is in large part because of the programs that

the Rural Utilities Service has provided loan financing to small

companies, but also because of a universal service system, what we

had as a value in this country, that everybody was going to have

a telephone.

We have largely succeeded in that venture. Now, over 94-percent

of American homes have telephones. We still have segments of our

population, as Chris pointed out, turning on basic phone service for

some people for the first time. But for the most part, we have realVerDate 11-MAY-2000 15:07 Nov 01, 2000 Jkt 067316 PO 00000 Frm 00055 Fmt 6633 Sfmt 6633 C:\DOCS\67316.TXT SAGRI1 PsN: SAGRI1
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ly succeeded in having basic telephone service. We are now moving

into the next generation of communications services, such as

broadband capability and advanced telecommunications and information services.

So in the 1996 Act, Congress was very specific in establishing a

vision that all Americans were going to have access. The words

that access to advanced telecommunications and information service should be available to consumers in all regions of the Nation

is right from Section-254 of the Telecommunications Act. That did

not exist in statute before. So Congress has already laid the

groundwork and established the objective of which we need to implement the policies now and we also need to establish the other

programs, such as programs that the President has articulated and

is going to propose in his budget next week, which really help connect more and more Americans to that infrastructure.

I believe if we are faithful to the design of the Telecommunications Act, we are going to see the kind of construction that occurs

in the streets of Washington, DC., now that Mayor Williams has

to wrestle with, with all these telecommunications companies tearing up the street to lay down fiber. That is exciting. It is exciting

for the people of Washington.

The question is, is this going to get to the smaller communities

across America, and if we are faithful to the principles of promoting competition, which is what is driving the investment in a city

like Washington, DC., if we can promote competition, extend that

competitive dynamic to more and more communities, we are going

to see more and more investment and this great infrastructure that

can be laid out, and then that needs to be complimented with the

faithful implementation of a universal service program so we can

have the infrastructure so that residents who live in very small

communities can access the kind of health care that Dr. Jay talked

about, access the kind of educational opportunities that Chris just

described.

The CHAIRMAN. Apropos what you are saying, Mr. Rhode, a week

from today, our committee will be hearing again from Alan Greenspan and Mr. Summers and the Secretary and what have you, but

this time on the Commodity Futures Trading Corporation’s reauthorization. This is, as you know, the oversight for the Chicago

Mercantile and the Board of Trade and others who are involved in

agricultural commodities, but now increasingly Treasury securities,

energy, all this sort of thing.

We had a hearing last year in which a commodity trader brought

in a computer and he brought in a screen so we could all see this,

and he executed a trade selling 10,000-bushels of corn or whatever

the unit was on a market in London. This is right from our committee room. There was confirmation of the trade and this was a

real trade, not just simply an exhibit for the Committee.

The point he was making is, our CFTC, we reauthorize this all

the time. We try to construct guidelines so that markets have confidence in this country. But since we did this the last time, there

has been an electronic market worldwide that covers a lot of volume that was beyond our purview. The New York Stock Exchange

is wrestling with this, as is the SEC, and quite apart from people

out in Chicago with open outcry, the normal way of doing this sort

53

of thing as opposed to people who are trading electronically all over

the world.

My point is that as we try to get into the subject that we are

dealing with today, we really need all of you sort of looking over

our shoulder because each of you have made points, as did the

panel before. If we put restrictions and limits of various sorts, we

can thwart this situation in ways that really make the kind of

idealism we are discussing possible.

On the other hand, there is a public responsibility to keep this

thing within bounds if there are public funds and responsibilities

available. I think there is a desire, which you have heard several,

that if we have guarantees and we have loans, there is the full

thought of repayment and the security has to be whole, even as we

are trying to think of an infrastructure that has unlimited possibility. These are not incompatible, but they are not altogether easy.

I have no critique of the Burns bill last year or the Baucus bill

this year or whatever Senator Gramm is doing, but our responsibility in this committee is to do the best that we can, working with

all of these colleagues and whatever jurisdictions and interests that

they have. I think that we start with a good bipartisan basis here

of doing that, as well as you, Mr. Rhode and Mr. McLean, representing responsible agencies in the administration, speaking for

the President and others, working with the leadership of the other

party in this Congress. All of these folks will have to come in harness.

So if there is impatience with any of these people, I am going to

try to ignore that. We are not getting into editorial comments, we

are just trying to steer things along if we can.

Mr. Parkhill, you are out there on the firing line, a practitioner,

but what would be helpful to you as you have heard this? You have

already testified a little bit about that in the previous session, as

we discussed the satellites and this type of thing, but given all the

services we have been talking about now, the medicine, the educational features and so forth, these are very important, as you are

saying, to maybe 2,400 subscribers of the telephone operation there

or others who might have other needs. Can you fill in any more of

that terrain?

Mr. PARKHILL. Within Hamilton County, we have one hospital. It

is a small hospital. They do not have the facilities that they would

have in a larger area.

The CHAIRMAN. Yes.

Mr. PARKHILL. So telemedicine would be a great benefit to them.

The CHAIRMAN. Are they tied together? Dr. Jay has cited the

Clarian Network in the State of Indiana. There is no reason why

you would know about that, but I am just wondering, in Illinois,

is there a comparable thing with larger hospitals sharing in some

ways?

Mr. PARKHILL. I am not sure if they are tied in with any of the

others, not on a network such as that. With the hospital being located within McLeansboro, it is served by GTE and so I do not

know what services they are trying to offer them. I do know that

the high school and the junior high are tied in with the junior college, which is several miles away, trying to bring them and several

other high schools together on some T1 lines, which is very expenVerDate 11-MAY-2000 15:07 Nov 01, 2000 Jkt 067316 PO 00000 Frm 00057 Fmt 6633 Sfmt 6633 C:\DOCS\67316.TXT SAGRI1 PsN: SAGRI1
54

sive. Whenever you go to crossing LATA boundaries and everything, you start incurring some great costs. So with what is available out there today, it really gets into the taxpayers’ pocket real

heavily.

My feeling, and I believe that it is NRTC’s feeling, as well, that

by doing this through a satellite-type connection, this could be tied

in with the local-to-local satellites that we talked about earlier.

Going through the RUS for funding, we could get funding that way,

and with the loan guarantees, it would drive the interest rate down

to where it would be more affordable. Therefore, you would be able

to pay it off, hopefully, within 15, 20-years, something like that. It

might take a little bit longer. It depends upon how everything

comes up, because models and everything, you try to project, but

sometimes you goof a little bit.

The CHAIRMAN. Just on the interest rate problem alone, there is

no way you could project this because interest rates, even as we

speak, are in fluctuation, or at least they were yesterday. But we

speak of lower than market and maybe double the market, but can

you give some idea of what kind of rates that you think happen in

those two scenarios, that is, market only or one in which you see

something less than market occurring.

Mr. PARKHILL. With the loan guarantees from the Congress going

through RUS, I think that we could look at loan rates possibly in

the 7-percent, 6.5-percent area. Going out on the open market, I

would say you are going to be looking at 12, 14-percent.

The CHAIRMAN. Would you agree with that, Mr. McLean, from

your portfolio experience?

Mr. MCLEAN. Yes, Sir. I would say that if we had that authority

today and we were looking at an application today, that is about

the right spread. The common thing that runs through rural electrification, rural telecommunications, rural water is that, and the

universal service program in the Telecommunications Act, is how

do you get private sector people to do things that they would not

otherwise do left to basic market forces.

That 75/25-percent ratio that we heard over and over today recurs in our work all the time. Seventy-five percent of the market

is profitable. Twenty-five percent is difficult to serve. Seventy-five

percent of the geography is rural. Twenty-five percent of the population is rural. It just recurs over and over again, even in individual businesses. I always hear, 25-percent of my customers provide

me 75-percent of my revenues. So I think it is a very profound statistic that kind of guides our work.

So how can we fix that 25-percent? If we can bring down the cost

of capital, then it is affordable for the private sector to move in and

bring the service that we need, and I think it is going to be a multimodal solution to meeting the telecommunications needs. There is

incredible hunger and demand for bandwidth, and we are going to

need everything. We are going to need satellite. We are going to

need wireless. We are going to need fiber optics. Even in data

transmissions, we will have large amounts of bandwidth with data

coming down from the satellite, but likely, at least initially, we are

going to have to connect to the satellite through the telephone network. To ride the Internet, you need to be on the telephone network.

55

Again, this committee has been in the vanguard of that vision of

one Nation indivisible, and when President Truman signed the

telephone amendments to the Rural Electrification Act into law,

40-percent of American farmers had telephone service, and as Greg

just mentioned, we are almost completely there. But the job does

not stop, because it is three times more expensive to serve rural

citizens than it is to serve urban citizens. There is always going to

be a need to be able to help bring those costs down.

The CHAIRMAN. As you gentlemen and others have noticed, this

committee has a bias toward rural America. A good number of our

members come from there, and each one of the States that is

around this table has a great sensitivity to constituencies that we

are talking about today.

We sort of start, then, with a full head of enthusiasm coming out

of the Committee and approach the Senate as a whole, and in fairness, there is a resonance, at least, of interest in rural America

with people who have left rural America. They still want somebody

to do something out there.

So I think there will be broad support, but we need to get it

right. As I listened again and again carefully, the technical aspects

of this are very important, the prohibitions and the stoppers and

so forth. This is musing out loud, but it is a part of the hearing

process, to perfect the situation, which you have all contributed to

a great deal.

At this point, let me thank you and thank all who have attended

our hearing. We look forward, if you will, to your responses to

questions that other Senators that have not been able to attend

this hearing in person may wish to ask so that we will have a complete hearing record.

Thank you very much. The hearing is adjourned.

[Whereupon, at 12:13 p.m., the Committee was adjourned.]

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