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33–616 PDF 2007

FULL COMMITTEE HEARING ON ADVANCING

THE INNOVATION AGENDA: THE PERSPECTIVE

OF THE TECHNOLOGY AND

TELECOMMUNICATIONS INDUSTRY

COMMITTEE ON SMALL BUSINESS 

UNITED STATES HOUSE OF 

REPRESENTATIVES

ONE HUNDRED TENTH CONGRESS

FIRST SESSION

MARCH 7, 2007

Serial Number 110-5

Printed for the use of the Committee on Small Business

(

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

HOUSE COMMITTEE ON SMALL BUSINESS 

NYDIA M. VELA ́ ZQUEZ, New York, Chairwoman 

JUANITA MILLENDER-McDONALD, 

California 

WILLIAM JEFFERSON, Louisiana 

HEATH SHULER, North Carolina 

CHARLIE GONZA ́ LEZ, Texas 

RICK LARSEN, Washington 

RAUL GRIJALVA, Arizona 

MICHAEL MICHAUD, Maine 

MELISSA BEAN, Illinois 

HENRY CUELLAR, Texas 

DAN LIPINSKI, Illinois 

GWEN MOORE, Wisconsin 

JASON ALTMIRE, Pennsylvania 

BRUCE BRALEY, Iowa 

YVETTE CLARKE, New York 

BRAD ELLSWORTH, Indiana 

HANK JOHNSON, Georgia 

JOE SESTAK, Pennsylvania 

STEVE CHABOT, Ohio, Ranking Member 

ROSCOE BARTLETT, Maryland 

SAM GRAVES, Missouri 

TODD AKIN, Missouri 

BILL SHUSTER, Pennsylvania 

MARILYN MUSGRAVE, Colorado 

STEVE KING, Iowa 

JEFF FORTENBERRY, Nebraska 

LYNN WESTMORELAND, Georgia 

LOUIE GOHMERT, Texas 

DEAN HELLER, Nevada 

DAVID DAVIS, Tennessee 

MARY FALLIN, Oklahoma 

VERN BUCHANAN, Florida 

JIM JORDAN, Ohio 

MICHAEL DAY, Majority Staff Director 

ADAM MINEHARDT, Deputy Staff Director 

TIM SLATTERY, Chief Counsel 

KEVIN FITZPATRICK, Minority Staff Director

STANDING SUBCOMMITTEES 

Subcommittee on Finance and Tax

MELISSA BEAN, Illinois, Chairwoman 

RAUL GRIJALVA, Arizona 

MICHAEL MICHAUD, Maine 

BRAD ELLSWORTH, Indiana 

HANK JOHNSON, Georgia 

JOE SESTAK, Pennsylvania 

DEAN HELLER, Nevada, Ranking 

BILL SHUSTER, Pennsylvania 

STEVE KING, Iowa 

VERN BUCHANAN, Florida 

JIM JORDAN, Ohio

Subcommittee on Contracting and Technology

BRUCE BRALEY, IOWA, Chairman 

WILLIAM JEFFERSON, Louisiana 

HENRY CUELLAR, Texas 

GWEN MOORE, Wisconsin 

YVETTE CLARKE, New York 

JOE SESTAK, Pennsylvania 

DAVID DAVIS, Tennessee, Ranking 

ROSCOE BARTLETT, Maryland 

SAM GRAVES, Missouri 

TODD AKIN, Missouri 

MARY FALLIN, Oklahoma

(II) 

Subcommittee on Regulations, Health Care and Trade

CHARLES GONZA ́ LEZ, Texas, Chairman 

WILLIAM JEFFERSON, Louisiana 

RICK LARSEN, Washington 

DAN LIPINSKI, Illinois 

MELISSA BEAN, Illinois 

GWEN MOORE, Wisconsin 

JASON ALTMIRE, Pennsylvania 

JOE SESTAK, Pennsylvania 

LYNN WESTMORELAND, Georgia, Ranking 

BILL SHUSTER, Pennsylvania 

STEVE KING, Iowa 

MARILYN MUSGRAVE, Colorado 

MARY FALLIN, Oklahoma 

VERN BUCHANAN, Florida 

JIM JORDAN, Ohio

Subcommittee on Urban and Rural Entrepreneurship

HEATH SHULER, North Carolina, Chairman 

RICK LARSEN, Washington 

MICHAEL MICHAUD, Maine 

GWEN MOORE, Wisconsin 

YVETTE CLARKE, New York 

BRAD ELLSWORTH, Indiana 

HANK JOHNSON, Georgia 

JEFF FORTENBERRY, Nebraska, Ranking 

ROSCOE BARTLETT, Maryland 

MARILYN MUSGRAVE, Colorado 

DEAN HELLER, Nevada 

DAVID DAVIS, Tennessee

Subcommittee on Investigations and Oversight

JASON ALTMIRE, PENNSYLVANIA, Chairman 

JUANITA MILLENDER-McDONALD, 

California 

CHARLIE GONZA ́ LEZ, Texas 

RAUL GRIJALVA, Arizona 

LOUIE GOHMERT, Texas, Ranking 

LYNN WESTMORELAND, Georgia

(III) 

C O N T E N T S 

OPENING STATEMENTS 

Page

Vela ́zquez, Hon. Nydia M. ....................................................................................... 1

Chabot, Hon. Steve .................................................................................................. 2

WITNESSES 

PANEL I 

Archey, William T., American Electronics Association (AeA) .............................. 3

Bond, Philip J., Information Technology Association of America (ITAA) ........... 5

Seiffert, Grant, Telecommunications Industry Association (TIA) ........................ 7

Zesiger, David, Independent Telephone and Telecommunications Alliance 

(ITTA) .................................................................................................................... 8

PANEL II 

McCormick, Jr., Walter B., U.S. Telecom Association (USTELECOM) .............. 24

Bloomfield, Shirley, National Telecommunications Cooperative Association 

(NTCA) .................................................................................................................. 25

Cimerman, Richard, National Cable and Telecommunications Association 

(NCTA) .................................................................................................................. 27

Comstock, Earl, COMPTEL .................................................................................... 30

APPENDIX 

Prepared Statements: 

Vela ́zquez, Hon. Nydia M. ....................................................................................... 38

Chabot, Hon. Steve .................................................................................................. 40

Altmire, Hon. Jason ................................................................................................. 41

Archey, William T., American Electronics Association (AeA) .............................. 42

Bond, Philip J., Information Technology Association of America (ITAA) ........... 46

Seiffert, Grant, Telecommunications Industry Association (TIA) ........................ 53

Zesiger, David, Independent Telephone and Telecommunications Alliance 

(ITTA) .................................................................................................................... 57

McCormick, Jr., Walter B., U.S. Telecom Association (USTELECOM) .............. 60

Bloomfield, Shirley, National Telecommunications Cooperative Association 

(NTCA) .................................................................................................................. 64

Cimerman, Richard, National Cable and Telecommunications Association 

(NCTA) .................................................................................................................. 71

Comstock, Earl, COMPTEL .................................................................................... 88

Statements for the Record: 

Women Impacting Public Policy ............................................................................. 99

(V) 

(1)

FULL COMMITTEE HEARING ON ADVANCING 

THE INNOVATION AGENDA: 

THE PERSPECTIVE OF THE TECHNOLOGY 

AND TELECOMMUNICATIONS INDUSTRY 

WEDNESDAY, MARCH 7, 2007

U.S. HOUSE OF REPRESENTATIVES, 

COMMITTEE ON SMALL BUSINESS, 

Washington, DC. 

The Committee met, pursuant to call, at 9:05 a.m., in Room 

2360, Rayburn House Office Building, Hon. Nydia M. Vela ́zquez 

[Chairwoman of the Committee] Presiding. 

Present: Representatives Vela ́zquez, Jefferson, Shuler, Gonza ́lez, 

Bean, Cuellar, Lipinski, Altmire, Braley, Clarke, Johnson, Sestak, 

Chabot, Fortenberry and Davis. 

OPENING STATEMENT OF CHAIRWOMAN VELA ́ ZQUEZ 

Chairwoman VELA ́ ZQUEZ. I am very pleased to call to order this 

morning’s hearing on technology and telecommunications policy 

issues. Let me just say that, because of the weather out there and 

the fact that we are going to have a joint session of Congress today 

with King Abdullah, we are going to go ahead and start this hearing. But let me just mention the fact that this is not going to be 

the first and only hearing on this issue; that we are going to be 

seeing each other quite often, and we are eager to learn more about 

technology and telecommunications as it relates to small companies 

in our Nation. 

So these sectors are a major contributor to the U.S. economy and an engine for growth. The IT sector contributes nearly $1 trillion 

to the U.S. GDP each year, and, despite the size, will grow at more 

than 5 percent per year until 2009. The technology industry employs more than 3 million Americans. According to the AeA, these 

jobs pay 85 percent more than the average private sector job. These 

occupations which come with benefits like health care and retirement are the types of opportunities that we in Congress continue 

to talk about the economy’s needing to create. 

It is clear that innovation is leading the way in today’s economy, 

and that small tech companies are at the forefront of this boom, 

employing over half of the Nation’s scientists and engineers. Small 

research and development-oriented firms are at the heart of the industry’s innovative core. Companies both small and large have 

helped usher in the information wave. Characterized by competition and similarly continual reinvention of goods and services, the 

2

information economy has changed the way we go about our daily 

lives from artwork to education and recreation. 

In order to sustain the environment that facilitated this rapid development, a number of challenges must be overcome. From workforce and broadband access to tax and international trade, we cannot stress enough the importance of effective policies in these 

areas. 

This morning we begin the committee’s work on technology and 

communications issues and take our first step towards transforming the American business environment for innovation. I can 

tell you that this committee intends to be very engaged in this 

area. Small businesses are some of the larger consumers and producers of advanced technology products. Given our role in this Nation’s economy, our focus will include American competitiveness 

and broadband policy. It only makes sense that, as Congress begins 

its work on advancing innovation and enhancing U.S. competitiveness, the interests of small business are a priority. This committee 

will ensure real needs are taken into account in the policy process. 

Our country’s continued leadership in technological development 

depends on it. 

I would like to thank all of the witnesses for their testimony 

today and invite you to continue to work with our committee as 

these issues develop. 

Chairwoman VELA ́ ZQUEZ. I now recognize Mr. Chabot for his 

opening statement. 

OPENING STATEMENT OF MR. CHABOT 

Mr. CHABOT. Thank you very much, Madam Chair. 

I want to wish everyone a good morning, and we want to thank 

our witnesses for adjusting their schedules to be here an hour earlier than had originally been planned. 

I also want to thank Chairwoman Vela ́zquez for calling this important hearing. Ensuring that small businesses have access to innovation and technology and that those small businesses that provide it are not unduly burdened by regulations is critical not only 

for small business owners and their employees, but for our Nation’s 

economy as a whole. 

Over the last decade or so, the way we communicate with one another has fundamentally changed. Information can be sent from 

one coast to the other instantly via e-mail and the Internet. Businesses can have staff meetings on line with employees thousands 

of miles away, and with the right equipment, massive amounts of 

data can be analyzed, sorted, stored, and accessed from nearly anywhere on Earth. 

The United States is not alone in this revolution. Technology has 

allowed an increasing number of businesses to become global. Ecommerce and the underlying infrastructure and technology that 

support it have allowed the smallest of mom-and-pop shops across 

the U.S. to sell their wares across the globe. Technology also enables small businesses to quickly adapt to ever-changing conditions 

simply by going to their computer and reading the latest developments in their industry. In this new economy, innovations are just 

as likely, if not more so, to come from small businesses on Maple 

Street in Hanover Township, Ohio, or Main Street in Shawnee, 

3

Oklahoma, than the major corporations traded on Wall Street. Because of this fact, we must constantly ensure that all companies, 

large and small, rural or urban, have access to the technology and 

telecommunications infrastructure that drives commerce in our 

country. 

Nearly all industries utilize this infrastructure either directly or 

indirectly. A healthy economy relies on free and fair competition 

between companies, and we must ensure that all businesses have 

the opportunity to compete with one another as well as against 

their foreign counterparts. 

In addition to ensuring equal access to technology, we must see 

to it that the next generation, today’s students, are well prepared 

to take the reins as retirements occur. We need engineers, technicians, computer scientists, and a whole host of technologically 

savvy people who have the desire and the knowledge to be the 

innovators of tomorrow. 

While ensuring a fair marketplace in which businesses are held 

accountable, we must also prevent these small businesses, these 

technological leaders, from being slowed by burdensome Federal 

regulations. Red tape can stymie even the most innovative of companies by diverting much-needed resources, especially those in 

small businesses, away from innovation and invention and into accounting and compliance. 

With these new innovations and technology come new challenges 

that must be met. We are here today to identify some of these challenges and to discuss possible solutions that will enable small business to continue to compete effectively in the global marketplace in 

the face of changing technology. 

Again, I thank Madam Chair Vela ́zquez for holding this important hearing. We want to thank all of the witnesses for taking their 

time to come here and testify and to share their priorities with us, 

and I yield back the balance of my time. 

Chairwoman VELA ́ ZQUEZ. Thank you, Mr. Chabot. 

Chairwoman VELA ́ ZQUEZ. Our first witness is Mr. William 

Archey. He is president and CEO of AeA, the Nation’s largest hightech trade association. AeA represents 2,500 electronics, information technology, semiconductor, and communications companies. 

Mr. Archey, you will have 5 minutes. The green light means you 

have 5 minutes, and then the red light means your time is up. 

STATEMENT OF WILLIAM T. ARCHEY, PRESIDENT AND CEO, 

AMERICAN ELECTRONICS ASSOCIATION 

Mr. ARCHEY. Thank you very much, Madam Chairwoman and 

members of the committee. 

As the Chairwoman noted, I am here representing 2,500 member 

companies of which 82 percent of our member companies have revenue of less than $100 million. Indeed, about 75 percent have less 

than 50 employees. So we represent most of the big guys, but we 

also represent a large number of small companies. 

I would just like to note that we started dealing with the issue 

of competitiveness and innovation 2 years ago. It remains the single biggest priority for AeA as an institution and for our board of 

directors. Two years ago we issued our paper called Losing the 

Competitive Advantage?: A Challenge for Science and Technology 

4

in the United States, 2 years ago last week. I would note, as I did 

to the board of directors at the time, that you could have had a 

meeting on competitiveness on Capitol Hill in February 2005 and 

hold it in a phone booth. One of my board members said I should 

not use that analogy because he said there is an entire generation 

who have no idea what a ′′phone booth′′ is. 

One of the things that we are going to be doing, in fact, the week 

after next is we are reissuing our paper, only it is going to be retitled Still Losing the Competitive Advantage: It is Time to Act, 

and the emphasis is going to be on recommendations. The paper 

that we issued 2 years ago was on what is the nature of the problem, because it was our view recommendations were going to come 

fast and furious, but there was a considerable ignorance of what 

was the challenge and what were the problems that the country is 

facing particularly in the high-tech industry. 

I would also note that we have worked this issue in an extraordinarily bipartisan way. We have worked at the White House. We 

were the cosponsor of the Republican summit that was sponsored 

by Republican members of the House Science Committee. We also 

worked very closely within Anna Eshoo and George Miller and the 

then-Minority Leader Pelosi. Indeed, I had the privilege and pleasure of briefing the entire Democratic House delegation from California, and Ms. Pelosi has made some rather good public statements about the work that we have done and the paper that we 

have produced. 

I would just like briefly to say that where we are right now is 

that, in our new paper that is coming out, we basically have got 

a small number of priorities. The first is an increase in the number 

of students majoring in science, technology, engineering, and 

math—or STEM jobs—via a number of the Senate programs. The 

goal is to have 100,000 new students with STEM degrees. This is 

only going to happen if we improve the quality of teaching as well 

through teacher education programs, which also need to be funded. 

The ability of all companies, small, medium and large, to be able 

to track and retain foreign nationals and to keep them by reforming the entire visa and green card process, an increase by as much 

as 10 percent a year for Federal funding of basic research in the 

physical sciences. It is that research by the United States Government over 40 years ago, 50 years ago that made the United States 

into the technological powerhouse it became. We need to get back 

to some of these things, particularly R&D and the physical 

sciences. 

A strong and permanent R&D tax credit. 

An expansion and improvement in the SBIR program that directly benefits small companies that often need financial assistance 

in bringing innovation to market. 

An increase in broadband deployment, which is critical to enhancing productivity and innovation within the economy. We need 

to make the advanced broadband accessible and affordable. We are 

way behind the rest of the world. Indeed, a study came out 2 weeks 

ago. The United States is 17th in the world in terms of broadband 

deployment. We are way behind. South Korea leads the world. 

5

Then, finally, changes in the Sarbanes-Oxley, Section 404 to 

make it less costly for small business to comply. This has been a 

huge issue for our small companies. 

I would like to conclude by just quoting a member company of ours, $4 million in revenue, who sent me an e-mail and said, quote, 

′′We need to be eliminating barriers to finding and developing talented employees. If you do this one thing, we can figure out how 

to work around all of the other system failures that stifle growth 

and the improvement of the human condition across the Nation.′′ On that note, Madam Chairwoman, thank you for the time. 

Chairwoman VELA ́ ZQUEZ. Thank you, sir. 

[The prepared statement of Mr. Archey may be found in the Appendix on page 42.] 

Chairwoman VELA ́ ZQUEZ. Our second witness is Mr. Philip Bond. 

Mr. Bond is president and CEO of the Information Technology Association of America. ITAA is the largest of all the IT trade associations, representing 325 leading software services, Internet, electronic, commerce, and systems integration companies. 

Welcome, sir. 

STATEMENT OF PHILIP J. BOND, PRESIDENT AND CEO, 

INFORMATION TECHNOLOGY ASSOCIATION OF AMERICA 

Mr. BOND. Thank you, Madam Chairwoman, and thank you to 

the members of the committee. It is a privilege to be with you this 

morning. I will try to be brief. 

I want to start, though, by commending you for having this hearing and your interest and your record in this, including reports 

that have come from both sides of the aisle over the years out of 

this committee. If, indeed, we are to remain as the innovation 

headquarters of the world, which we have been for some time now, 

it will be because of the small business community that drives that 

innovation. 

As you mentioned, ITAA represents a range of sizes of companies, much like my colleague at AeA. We also have a partnership 

with regional IT associations, 48 of those across the country, so we 

are probably in everybody’s district by partnership with local regional groups. 

Well, as has been mentioned, the U.S. is the leader in innovation 

and has benefited throughout the culture and society and economy 

from all of these innovations, whether it is having music that connects to your sneakers, or whether it is the emerging biotech sector, all of these driven largely by IT-enabled innovation. That innovation, however, cannot flourish in a vacuum, and so I would like 

to focus really quickly on a few issues. 

I would affiliate myself, associate myself, with the remarks that 

Bill Archey made as well. I think there is great consensus among 

the IT and, indeed, the telecom industries on many of the points 

that Bill made, but I am going to reflect a couple of different views 

based on the fact that many of our members are contractors and 

providers of IT and services to government at both the State and 

Federal levels. So I will mention two that are important, and that 

is base, and then four others real quickly for your consideration. 

The first is regarding SBA’s definition and its size standards. 

This is extremely important to those serving the government. The 

6

current standard is $23 million in revenue, and if a very small contractor is fortunate enough to get a piece of a multi billion-dollar 

contract, they could suddenly vault out of the small status, and yet 

they certainly are not ready to go compete with the multinationals 

of the world. That is something that we have been talking to the 

SBA about for some time and look forward to some changes there, 

especially for those serving the public sector. 

Second, again critical to IT firms serving the Federal Government, there is a law on the books set to go into effect in 2011 which 

mandates a 3 percent withholding tax on all payments to contractors for goods and services. While we think this will just be built 

into higher costs ultimately if it goes into effect, it could be especially harmful to the small contractor who, again, may be fortunate 

enough to get a big contract, and the 3 percent withholding which 

is held then by the IRS for 12 to 15 months is more than they can 

afford with their cash flow, so the impact on small business of having to set aside at the outset and withhold 3 percent of the contract 

value could be detrimental. So that is the second one I would like 

to mention, and this is something that your report, Madam Chair, 

last year noted at the end of the year, your 2006 final report on 

the important innovations small contractors bring to the table, and 

we do not want to do anything to disadvantage them. 

Third, I would like to say a little bit more about the importance 

of extending the ban on discriminatory Internet taxes. Again, citing 

your 2006 year-end report, Madam Chairwoman, you noted the impact that this could have on small businesses who now use that 

medium to reach the globe, as Mr. Chabot mentioned in his opening statement. And so anything at this time when we are 17th in 

broadband deployment—anything that adds weight to the Internet 

medium, I think, would be negative for our country, so we urge the 

extension of that. 

Fourth, I want to mention the pursuit of the best and brightest. 

This includes both immigration and education. Mr. Chabot and others have mentioned the import of education, but we need access to 

the best and brightest. I think the question boils down to do they 

stay or come to America and create jobs, or do they stay in their 

country of origin and create jobs? Indeed, some are predicting 

shortages of as many as 10 million workers. Here we need the best 

and brightest to be welcome and then, of course, build our own supply here domestically. 

I do think, when it comes to immigration, it is worth noting that 

a national venture capital study found that, over the last 15 years, 

one out of four VC-backed companies became public. One out of 

four were started by somebody new to America. And so I think immigration is important. Obviously I am referencing the H1B visas, 

but also the green cards, but again, this has to be coupled with 

education. More on that in a bit. 

I did want to note that we put out a little booklet that is educational here, A Passport to Prosperity, the number of foreign-born 

folks who have come here and created jobs and prosperity in our 

economy. It is a powerful point. 

The fifth of my six points is R&D and funding for R&D. This is 

very difficult in the budgetary environments you have to operate 

in, I appreciate that, but it is also a great bipartisan agreement 

7

that basic R&D needs to be increased, and that is the role of government. 

Finally, I want to talk about the sourcing of work, and again, 

this has the link to education. As Mr. Chabot noted, in a networked 

global economy, work can move anywhere, placing the right talent 

in the right location. It may be here; it may be in other countries, 

and it is important that our companies have access to that sourcing 

to be competitive in a hypercompetitive world. In fact, there is now 

a movement towards some more domestic sourcing that we are just 

finishing up a study on that we will share with Capitol Hill. It 

points out that just with government IT growth alone, there is not 

going to be enough domestically skilled workers, and so, while domestic sourcing is set to take off, we have to have the human capital there to take it. 

Those are the six that I wanted to mention to you this morning, 

and I look forward to any questions. Again, thank you for your emphasis on this important subject. 

Chairwoman VELA ́ ZQUEZ. Thank you, Mr. Bond, for your presentation. 

[The prepared statement of Mr. Bond may be found in the Appendix on page 46.] 

Chairwoman VELA ́ ZQUEZ. Our next witness is Mr. Grant Seiffert. 

He is the president of the Telecommunications Industry Association, TIA, 600 members who manufacture and supply information 

and communications technology equipment. 

Welcome, sir. 

STATEMENT OF GRANT SEIFFERT, PRESIDENT, 

TELECOMMUNICATIONS INDUSTRY ASSOCIATION 

Mr. SEIFFERT. Thank you very much, and I am pleased to be 

here, Chairwoman Vela ́zquez, Ranking Member Chabot and other 

members of the committee. 

As you mentioned, I am happy to be here to share many 

thoughts, some thoughts regarding the issues that our 600 member 

companies are facing who manufacture/supply the information communications and technology equipment. It is important to note, as 

others have said, that 80 percent of our membership base is of 

small- and medium-sized companies. 

To give some context to where I am speaking from, we are the 

companies who sell directly to consumers, whether a handset, a television or your laptop. We also sell our products and our infrastructure to cable operators, to telcos, to wireless providers, to satellite 

companies, and the list goes on. 

So what does this mean? It means we are the closest to the public interest along with my other colleagues here on the panel. We 

simply want to sell our products to consumers, and they simply 

want to buy them. We walk hand in hand with consumers because 

we need to know what they want so that we can sell technology 

products to them and give them the functionality they desire. The 

more you, Congress, can do to get those products and services in 

the hands of consumers, the better we will all be. 

When sales are up, prices go down. When more products are sold, 

more jobs are created. When a new product does well, we innovate 

back into that product to make a better piece of technology for conVerDate 0ct 09 2002 17:29 Dec 19, 2007 Jkt 033615 PO 00000 Frm 00013 Fmt 6633 Sfmt 6633 G:\CLERK SB\HEARINGS\TRANSCRIPTS\33616.TXT LEANN
8

sumers to use. Our products and services are in classrooms, used 

for public safety, transportation, and provide countless of other societal benefits. 

In TIA’s 2007 annual market review, which covers the health of 

the industry, the U.S. market grew 9.3 percent this past year, 

2006, which brings us up to $923 billion in U.S. revenues. The 

worldwide market grew 11.2 percent to total $3 trillion. The demand for broadband/high-speed service is fueling this growth. People and businesses are thirsty for broadband, and this is TIA’s 

number one priority, broadband deployment. Our companies either 

manufacture the next-generation fat pipes that we know as the 

Internet or the products and services that ride over it. 

Now, the question remains how can we work together to better 

facilitate this continued growth in the broadband space? Consumers’ demand for voice over IP and video are not going to do the 

job alone. Your committee can help. Your committee can act now 

to advance this innovation in this area. 

There are two things that TIA is asking you to do to help us be 

more competitive. First, achieve a national market-driven framework that fosters the diffusion of innovative communications technologies into all markets, support policies and encourage investment in next-generation network facilities, promote competition in 

the provision of multimedia applications and services. It spurs the 

proliferation of end users’ devices. The bottom line, remove regulatory barriers to the deployment of new technologies. 

Second, give relief to small- and medium-sized companies on Section 404 of the Sarbanes-Oxley Act, which places extraordinary and 

unnecessary costs and burdens on these companies. You have 

heard this before. Section 404 threatens the long-term success of 

companies in the U.S. in their capital markets. TIA and our members companies offer our help, support and time to help work on 

these important goals. Our Nation’s small businesses will only benefit from increased broadband deployment. 

In closing, I want to thank you for your leadership on these important issues. We enjoyed working with you last year and appreciate your continued support of small businesses and the relief of 

the Sarbanes-Oxley Act. So thank you very much. 

Chairwoman VELA ́ ZQUEZ. Thank you. 

[The prepared statement of Mr. Seiffert may be found in the Appendix on page 53.] 

Chairwoman VELA ́ ZQUEZ. Now, our last witness on this panel is 

Mr. David Zesiger. He is the senior vice president, regulatory policy 

and external affairs, for Embarq, a telecommunications company 

based in Kansas. Mr. Zesiger is testifying on behalf of the Independent Telephone and Telecommunications Alliance. 

Welcome, sir. 

STATEMENT OF DAVID ZESIGER, SENIOR VICE PRESIDENT, 

REGULATORY POLICY AND EXTERNAL AFFAIRS, EMBARQ, 

ON BEHALF OF THE INDEPENDENT TELEPHONE AND TELECOMMUNICATIONS ALLIANCE 

Mr. ZESIGER. Thank you, and good morning, Chairwoman 

Vela ́zquez, Ranking Member Chabot and members of the committee. 

9

I am David Zesiger, senior vice president of regulatory policy for 

Embarq, and today, I am testifying on behalf of the ITTA, the Independent Telephone and Telecommunications Alliance, which represents mid-sized telecommunications carriers here in Washington. 

Thank you again for the opportunity to share our perspective on 

how telecommunications can advance the innovation agenda for the 

Nation’s small businesses. 

Embarq is the Nation’s fourth largest wireline telecommunications provider, serving approximately 7 million lines in 18 States. 

We serve well over 400,000 small and medium-sized businesses in 

our service territories, including nearly 300,000 of which are the 

smallest of businesses with one through four employees. We commend you for holding this hearing today to examine the role that 

telecommunications can play in driving business innovation in our 

economy. 

Small businesses are the bedrock of our Nation’s economy, and 

our Nation’s telecommunications infrastructure plays an increasingly important role in empowering small businesses to do what 

they do best in our economy. Small businesses are increasingly reliant on broadband data networks to run their businesses, and they 

are demanding increasing bandwidth. 

Expanding the availability of broadband to businesses and to 

consumers is a top priority for telecommunications providers like 

Embarq. As of the end of 2006, Embarq had deployed broadband 

to over 80 percent of all of our business and residential lines, and 

it turned up our one millionth customer. 

In the same time frame, going forward in 12 months, we plan to 

provide access to 10-megabit service to approximately 50 percent of 

our DSL-capable lines and the vast majority of our small businesses, but businesses of all sizes are demanding even faster service than traditional broadband, so-called Ethernet services. These 

services begin at 10 megabits per second and range as high as a 

gigabit per second. Both upstream and downstream, they are symmetrical in nature. In 2006, Embarq and other carriers saw an explosion of demand for Ethernet services, from small and large businesses alike, and we have invested significant capital in upgrading 

our network to meet this demand. 

Embarq also is a leading innovator in bringing benefits of convergence between wireline and wireless technologies to its customers. 

Last year we led the Nation and the industry in launching a dualmode, cellular/WiFi phone that allows for seamless operation between the two platforms. We have now made this service available 

in 10 of our top markets, which collectively contain 70 percent of 

all of our lines. 

This kind of innovation is expensive. It takes enormous up-front 

investment to upgrade our networks to offer the advanced services 

our customers demand, literally tens of billions of dollars a year. 

Embarq alone invests approximately $1 billion a year in upgrading 

its network. 

There are several important things that Congress and you all can 

do and should do to ensure that telecom providers like Embarq in 

rural and urban markets alike can continue to empower their business customers with the best that telecommunications has to offer. 

10

First, ensure a sustainable future for the Universal Service 

Fund. The fund made universal voice service possible in the 20th 

century. Congress needs to stabilize the fund today and expand and 

increase it to make broadband service available to all Americans. 

Second, reform the Rural Utility Service Broadband program. 

Congress should reevaluate the goals of the RUS program and ensure that the RUS loan programs are used to increase broadband 

deployment to the unserved areas of this Nation. This year’s reauthorization of the farm bill provides you with an important opportunity to do that. 

Finally, avoid imposing unnecessary and harmful regulation on 

broadband networks that would limit network providers’ abilities to 

invest in new and innovative services. 

The debate over Internet regulation or Net neutrality is likely to 

continue for some time, but all parties should be able to agree on 

the importance of accelerating deployment of greater bandwidth to 

all users. Avoiding unnecessary regulation that discourages investment in networks will help business users, equipment manufacturers, network providers, software providers, and even edge providers 

who ultimately rely on the network to reach their customers. By 

taking these three steps, Congress can ensure that providers like 

Embarq will continue to have the right incentives to innovate and 

to invest in their networks and open a world of opportunity for 

small businesses and all Americans. 

Thank you again. 

[The prepared statement of Mr. Zesiger may be found in the Appendix on page 57.] 

Chairwoman VELA ́ ZQUEZ. Thank you very, very much, and this 

has been an incredible panel. I am very grateful for your participation this morning. 

Mr. Archey, I would like to address my first question to you. 

Your organization has released data demonstrating the benefits 

that small firms receive from the R&D tax credit. 

Given their significant contribution to innovation, what improvements can be made to allow additional small companies to access 

the credit? Can we simplify the process, and can we provide more 

technical assistance? Please tell me how can we improve, or how 

do you think we should proceed here. 

Mr. ARCHEY. Well, I think, on the R&D tax credit, one of the continual issues has to do with the fundamental formula that is used 

in terms of the base years that you can use. There were some 

changes in the recent extension in the R&D tax credit which, I 

think, are going to, in fact, help smaller companies, because what 

it is going to do is it is going to open up the R&D tax credit to a 

larger universe than the previous formula allowed for. I think that 

has got to continue to happen. 

The problem, of course, we have is that the R&D tax credit was 

only extended for 1 year, and we would like to see it permanent. 

We realize there are issues there on the budget. There are also 

other issues on it, but I think that making it permanent, which 

gives it much greater predictability for the companies to use, and 

particularly the small companies who are not as, if you will, sophisticated about the R&D tax credit as the larger companies with 

large tax organizations within those companies can do. So basiVerDate 0ct 09 2002 17:29 Dec 19, 2007 Jkt 033615 PO 00000 Frm 00016 Fmt 6633 Sfmt 6633 G:\CLERK SB\HEARINGS\TRANSCRIPTS\33616.TXT LEANN
11

cally, it is the formula, and it is to essentially make it permanent 

that, in turn, gives it that predictability. 

Chairwoman VELA ́ ZQUEZ. Thank you, sir. 

I would like for each of the witnesses to comment on my next 

question. There are many different ideas about what Congress 

could do to promote the deployment of broadband throughout the 

country and to encourage the consumer in the adoption of 

broadband in areas where it is currently available. I would like 

each of you to identify the two steps that Congress could take or 

refrain from taking that will contribute the most to the FCC’s stated goal of affordable access to broadband for all Americans. 

Mr. SEIFFERT. Sure. Thank you very much. 

As you all know, broadband technology is the foundation of our 

21st century economy, and most recently the FCC just released 

rules on reforming video franchise competition. What that means 

is allowing the telecom companies to get into the video business. 

You certainly could support that. Last year there was legislation up 

here on the Hill to reform that. Now it has been taken up with the 

FCC, and they have implemented rules which we support. Legislatively here with Congress, there have been proposals in the past 

to support broadband tax credits. Certainly my colleague here to 

my left has talked about reforming the U.S. RUS and the Universal 

Service Fund to allow broadband providers to be a part of that. 

Those are some steps. 

Then I would just put a caution of any regulation on this amazing new economy in the Internet space to refrain from regulating. 

That is one thing Congress should do. 

Mr. BOND. I would very quickly add a couple, one that I mentioned in my testimony, of course, which is this is not the time, 

given our international standing, for any discriminatory taxes 

against the Internet when we are trying to roll out greater bandwidth. 

The second that I would mention that I think Congress has an 

opportunity to incentivize in many ways is the uptake of digital 

health records and e-health. That touches every American’s life, 

every family. To the extent that we can provide more of those services through the broadband connections which allow you to see not 

only records, but to see X-rays and scans and so forth that takes 

a lot of bandwidth, that would really promote the broadband takeup. 

Thank you. 

Mr. ZESIGER. Just to reiterate the three points, Madam Chairwoman, that I made earlier in my introductory testimony, I will 

focus on one in particular, which really was the focus of a hearing 

last week on the Senate side in the Senate Commerce Committee. 

There is one program that will move the needle in broadband deployment, and that is the Universal Service Fund. It has got its 

problems. There has been a lot of debate. There was legislation 

that was considered last year in the last Congress. All of that was 

very constructive; none of it passed. There has to be forward movement on this issue if you really want to change our status from 

number 17 in the world to something greater. 

Mr. ARCHEY. One other point I would just add is that one of the 

things that we have got to look at when it comes to the whole issue 

12

of broadband deployment and the infrastructure itself is there are 

an awful lot of barriers at the State level, and AeA happens to 

have the largest State public policy program in the country—we 

are in 15 different States—and what we have found is that certain 

things like right-of-ways, things like that, are really problems for 

enhancing or increasing broadband deployment. And it is not a 

very sexy issue, but it is an awfully important one. 

Chairwoman VELA ́ ZQUEZ. Thank you. 

Now I will recognize Mr. Chabot. 

Mr. CHABOT. Thank you very much, Madam Chair. 

Mr. Archey, if I could start with you, you mentioned the research 

and development tax credit, the importance of that and the importance of making some of these tax cuts permanent so that businesses can rely upon them and be able to plan into the future. 

Could you expound upon that just a little bit of why that is important? 

Mr. ARCHEY. Well, one of the problems with the R&D tax credit 

which we certainly saw in the past year is whether it is going to 

exist, and that is a real problem in terms of companies like some 

predictability, and we ended up virtually a year after it expired 

making it retroactive and then extending it for a year. There has 

got to be a better way to do it, and if it is not going to be permanent, then how about 2 or 3 years at least of an R&D tax credit 

with a specific formula that people know, can understand and can 

execute on? 

I just think one of the problems that we discovered when we 

were doing some analysis of this is that the number of companies 

who could not use the previously expired R&D tax credit because 

of the underlying formula. They just could not use it very well, if 

at all. So I think that is where we are now, and I think that Congress, by the way, on this extension did make some changes in the 

underlying formula which were very helpful. That has got to continue. 

Mr. CHABOT. Okay. Thank you. 

Mr. Bond, let me turn to you next if I could. You mentioned taxes 

as well in yours and specifically relative to the Internet, and many 

of us would like to keep the Internet as tax-free as possible. 

Would you comment on that? And also if you wanted to follow 

up on the question I asked Mr. Archey about taxes and the impact 

and the importance of making the tax cuts that have been passed 

permanent. 

Mr. BOND. Sure. I would be happy to, Mr. Chabot. Thank you. 

I think that the Internet tax is important for so many reasons. 

It is important because it is a global medium whereby the small 

can be big, a very small company, and north of Cincinnati could be 

marketing to the entire world, and I am sure there are some that 

are, and so any additional weight or burden on that medium at this 

time is going to hurt those innovative companies. It is going to hurt 

the medium at a time when we really want all of society on a high 

bandwidth connection so that more services and innovation can 

come out of that. 

So I think the permanence is important. It is important for a lot 

of reasons, not the least of which kind of relates back to the Sarbanes-Oxley comment that has been made by a number of folks. 

13

You cannot tell your auditor, ′′Well, do not worry. Congress is going 

to pass that again. They always do extend it. They did not get to 

it, but do not worry. It will happen.′′ that is obviously not going to 

make it in terms of your report and your auditing, talking to Wall 

Street and shareholders. So they need to be able to count on it for 

both Internet tax and R&D. 

Thank you. 

Mr. CHABOT. Thank you. 

I have got some questions for the other two witnesses, but would 

either of you agree with the other gentleman relative to the importance of the tax cuts and making them permanent? 

Mr. SEIFFERT. Absolutely. 

Mr. ZESIGER. Yes, we would agree with that. 

With regard to the Internet tax moratorium, there has been a recent trend among State and local localities to begin to tax 

broadband services and facilities. That tax moratorium needs to be 

expressly expanded to those kinds of services so that we do not 

burden the kind of deployment that you all want to see in your districts. 

Mr. CHABOT. Okay. Thank you. 

Mr. Seiffert, you had mentioned Sarbanes-Oxley as a deterrent 

to small business growth. What specific ideas would you suggest for 

us to ease the impact yet maintain the spirit of the law? 

Mr. SEIFFERT. Sure. 

I think that everyone supports the spirit of the law and understands that there are reasons to have those controls. Really, the 

bottom line is that you are reallocating resources, dollars—real dollars—from hiring engineers or salespeople rather than putting the 

money into accountants, and so I think the issue is a dollar expanse, and if we can take away some of the duplication in the accounting space, that would certainly help. We have many companies that would rather see engineers on their payroll rather than 

an accounting firm. 

Mr. CHABOT. Okay. Thank you. 

Mr. Zesiger, I will conclude with you. You had talked about the 

concern that you have with increased regulation by the government 

at various levels. 

What in particular are you concerned about that might be out 

there that you think we should avoid to make business more challenging than it already is? 

Mr. ZESIGER. Again, I mentioned in my opening testimony the 

threat of regulation that really does not have a problem that causes 

it. ′′net neutrality regulation′′ is what it is called. It is Internet regulation by any other means or name. That is going to be a debate 

that you will hear more of from the next panel, and you have 

heard, I am sure, already at this point in time that it is a very serious threat to our ability to continue to invest. If you take away incentives through regulation that really has no predicate for it, and 

there is no problem it is solving—if you take away the incentives 

we have to employ, we simply will fall further behind in our competitive status. 

Mr. CHABOT. Thank you very much. 

I yield back, Madam Chair. 

14

Chairwoman VELA ́ ZQUEZ. Now I recognize Mr. Johnson, and I 

will ask the members to please observe the 5-minute rule since we 

have a very important panel, second panel. 

Thank you. 

Mr. JOHNSON. Thank you, Madam Chair. 

Members of the panel, I appreciate your appearing here today to 

share the concerns about your industry, and I am a first-year Congressman, previously elected to the county commission, DeKalb 

County, so I have got local government experience. And local government, DeKalb County specifically, funds its county operations 

based on, in large measure, sales tax revenues, and even our EMS 

service for ambulance is partially offset by monies that we collect 

on landlines, a fee that the service providers pay to local governments. And so, of course, local government provides things like police and fire, roads and drainage, sanitation, those kinds of basic 

services that make life better for people. And the people can go to 

the mall and go shopping at the mall and purchase goods, pay the 

sales tax; money comes back to the county; the county provides the 

services to the people, but with the growth of Internet shopping, it 

has definitely shown up in the bottom line of retail throughout 

America, and eventually, I think, Internet shopping will become so 

pervasive that it will definitely start shrinking the number of retail 

outlets that people actually shop at, and that will decrease the 

amount of revenues that county governments or city governments 

take in, and State governments as well, to render basic services to 

people. 

Now, you, Mr. Bond, have talked about the discriminatory Internet taxes, and there are a whole range of taxes, and I do not want 

us to kind of paint all taxes with the same broad stroke. What are 

you talking about when you talk about discriminatory Internet 

taxes, and does that include things like taxing the sale of products 

on the Internet? 

Mr. BOND. Thank you for the question, because I know it represents the source of funding for so many government services, the 

sales tax in particular. 

The emphasis on the moratorium has been on nondiscrimination 

against that medium, not that transactions and business that may 

take place over the Internet and sales that may take place over the 

Internet could not have taxation affixed to them, but that it not be 

discriminatory, that it not be more to say that because you do not 

have a store in the mall, you should pay more in taxes or whatever. 

And I would just say, too, that this goes to a fundamental question 

for local governments everywhere, which is to also make sure that 

you have a growing economy. I think this medium is critically important to our growing and competing internationally. 

Mr. JOHNSON. Certainly, and we have just got to make sure that 

we have a balance, that we are able to fund basic operations, governmental operations, that help people live safely and comfortably 

on a day-to-day basis. We have got to be able to fund that, and we 

need to be able to recognize the fact that State and local governments rely on sales tax revenues to fund their operations. 

So, from what I hear you say, Mr. Bond, you would not be opposed to a treatment of Internet sales, if you will, in the same way 

that sales to a traditional retail—or through a traditional retail 

15

outlet would be handled; in other words, say, a 6 percent tax on 

the sale of goods at a store in a particular jurisdiction. Should that 

jurisdiction be able to levy that same sales tax on a good that was 

purchased over the Internet from that jurisdiction? 

Mr. BOND. The controlling principle for the industry, and I think 

I probably speak for everyone up here, is nondiscrimination against 

the medium. However, the depth and profundity of your question 

is because what is presence and what is nondiscrimination gets 

very, very difficult—

Mr. JOHNSON. Those things can be worked out. 

Mr. BOND. —but the controlling principle is do not discriminate 

against the medium. 

Mr. JOHNSON. Right. Right. On either side, do not put Internet 

sales in a priority posture at the expense of regular retail. 

Do any of the other panel members have anything they would 

like to add if I still have time? 

Chairwoman VELA ́ ZQUEZ. Quick. Just 1 second. 

Mr. JOHNSON. All right. Well, I will yield back my 1 second, 

Madam Chairwoman. 

Chairwoman VELA ́ ZQUEZ. Thank you. 

Mr. Davis will be recognized for 5 minutes. Thank you. 

Mr. DAVIS. Thank you. I just have a very quick question. 

When I was back in my district a couple weeks ago, I had some 

small business owners come visit me about net neutrality, and they 

are concerned that if they are put on a slow Internet system, and 

bigger companies are put on a faster Internet system, it is going 

to put them out of business. 

Can you just talk about that and see if you think that is reality, 

and if not, help me understand it so I can explain it to my constituents? 

Mr. ZESIGER. Effectively, as we go towards increasing the 

bandwidths, the bandwidth that we provide our customers, there is 

a natural evolution towards a proliferation of products that we can 

sell as a business to them. Some of those products are a higher 

bandwidth and products that customers and businesses desire. If 

you want to download a movie, and you have a basic 1.5 meg service, how long is that going to take you? Are you willing to wait for 

that? It is faster to go out to your local video rental store, in fact. 

So will customers be interested in purchasing, basically, almost a 

turbocharging-, supercharging-like approach where, for a short period of time, they can increase their bandwidth, pay for that service 

and reap the benefits of it at home? That is one example of the 

kinds of services that we would like to provide, but if regulations 

are put on our backs, we will not be able to. 

Right now the question really is: Is the Internet still free? Can 

users access the Internet in any way, form or fashion that they 

choose? The answer to that question is absolutely yes. There is 

nothing like a blocking of traffic or a discriminatory practice at this 

point in time. Frankly, the FCC currently has the jurisdiction necessary to oversee that process. Those folks probably did not mention that to you in your meeting back home, but if you contact the 

Chairman of the FCC or their staff, they will clarify that fact for 

you. 

16

Mr. DAVIS. As I move through and think about this situation, not 

all small businesses, or not even all large businesses, can afford to 

advertise on Super Bowl Sunday, but they can choose to do that 

if they want to do that, and if they want to stay competitive, then 

they decide to make that decision for their business. Is that pretty 

much the way you see this? If you want to stay competitive in a 

global marketplace, you have to step up to the plate and move to 

the next level of technology? 

Mr. ZESIGER. Yes. We want to keep these as marketplace decisions, driven by marketplace realities. If you intervene with regulation, you are going to distort the marketplace and really discourage 

investment. 

Mr. DAVIS. Thank you. 

Mr. ARCHEY. I would like to offer a contrary point of view on 

this. 

The board of directors of AeA about 4 months ago took a position 

favoring pure Net neutrality to, in fact, deal with the issue. We 

think that if you go to different levels on the Internet in terms of 

access, you are going to have a discriminatory Internet, and we believe very strongly that a pure Net neutrality issue that favors, to 

some degree, the Internet service providers is the way we ought to 

go and not allow the carriers to, in fact, provide extra services 

where there is going to be a certain, if you will, class of users who 

have a higher status than others. 

I would also note to you that this is the one issue where this 

panel is clearly not going to be in agreement. 

Mr. DAVIS. Any other thoughts from the other panelists? 

Mr. SEIFFERT. Sure. 

I would associate—TIA would associate itself with Mr. Zesiger, 

and you are right. You are going to have a debate as we address 

these other issues. We do not believe there is antidiscriminatory 

behavior going on, and I would just caution that any regulation you 

place on these telecommunications networks will disincent the incentive to invest and upgrade the networks to be competitive in 

this global market and bring us from the 17th spot up to number 

1. 

Mr. BOND. I think my association is a little bit more like Congress. We have folks on both sides. 

Chairwoman VELA ́ ZQUEZ. Okay. Thank you. 

We will recognize Mr. Gonza ́lez for 5 minutes. 

Mr. GONZA ́LEZ. Thank you very much, Madam Chair. 

Mr. Davis, we need to have a really good discussion. I think if 

we had a real education about this Net neutrality—unfortunately, 

it is such a wonderful term that it is such a misnomer, but I will 

tell you now it is not about small business interests. It is not about 

the bloggers or the individual users of the Internet. It is about 

Google and AOL and EBay. Believe me, when we get educated on 

this issue, sooner rather than later, we will understand that the 

market really should drive these practices to build out the proper 

measure of what do the networks deserve in the way of their investment and such. But that is for another day, which I would say 

that the testimony you all gave here today—and I understand the 

difficulty. When you provide this type of testimony, you probably 

17

have to take it over to Financial Services. You could take it to 

Ways and Means. You could take it to Energy and Commerce. 

The challenge that we face here on this committee is really trying to identify those aspects of an issue that relate specifically to 

the needs or to the challenges of small business, and so that is how 

I am going to try—and I only have 5 minutes and have used up 

about a minute on this Net neutrality, but I am going to pose just 

three questions, and then each member of the panel—and you are 

only going to have about 20 seconds to address this thing. 

There are three aspects of what I see here when it comes to information technology. Small business, first of all, is a consumer, 

and that is the purchase and utilization of information technology; 

secondly, as a provider, and that is providing the product and the 

service of information technology because obviously they are out 

there; and lastly, the most difficult are the challenges facing small 

businesses, which is the evolving Internet business model. 

I think it is probably going for the best at this point because we 

are getting away from—that you have to advertise or promote or 

market your product now in the traditional medium such as radio, 

television, the Yellow Pages, and newspapers. We have expanded 

it, and we are finding niche markets as long as those—that control 

the manner in which small businesses are able to access the Internet, and I am talking about rankings.You know, any time that you 

have a search, how discriminatory can that be? Those are the challenges. So let us start off again. 

As a consumer of IT, as a provider of IT and, lastly, small businesses in the Internet marketplace and its evolution, and we can 

start with Mr. Archey. 

Mr. ARCHEY. In 20 seconds, right? Okay. 

Small business is a purchaser. One of the great things about the 

IT industry and the IT evolution is it is one of the very few industries in which products and services that are purchased are cheaper now than they were 5 years ago and dramatically cheaper than 

they were 10 years ago, et cetera, et cetera. 

Some wag made the comment that if the auto industry had followed the IT industry, a new car would be about $4.75. So I think 

that—as a purchaser, I think it is fine. As a provider, one of the 

things that we noted—and it is part of the reason that I responded 

to Mr. Davis as I did in terms of the Internet and about the whole 

issue of Net neutrality is that the Internet is an extraordinarily 

democratic infrastructure, and it is one that enables companies to 

get into business, precisely because the Internet exists as both a 

provider, a service provider, a product provider or what have you, 

and I think things are going to be very, very positive in the future 

precisely because of, if you will, the democracy of the Internet. 

Then, lastly, it is basically the same answer, which is on the 

Internet business model, more and more small companies are 

leveraging the use of the Internet than are some of the larger ones, 

and there are a lot of new companies that are coming into existence 

precisely because of their ability to use the Internet in very, very 

creative ways, and that is a trend that is not going to stop. 

Mr. BOND. Thank you for three profound questions. 

18

Small business as a consumer, I would go back to Internet tax. 

I think it is critically important that we not burden them in that 

regard. 

As a provider, I think it boils down to the R&D discussion that 

has been mentioned and the Federal Government’s role there and 

people, our own domestic skill sets and production. And I would 

just very quickly say in that regard there is a lot of talk about 

STEM, and I think it is really STEM Plus. In today’s environment, 

we need to look at what are the 21st century skills. Is our education and secondary education system mapped well to those skills? 

Third, on the Internet business model, to my mind this links 

really to some of the comments about global sourcing, not only having access to the best and brightest via the Internet model, but also 

bringing the best and the brightest here to start their companies 

here as we have a rich history of. It is something that we should 

pursue as a country. 

Mr. SEIFFERT. Again, thank you for the question. 

I would just say, as a purchaser, there is much more opportunity 

for choice as a small business because of the Internet and the access to the different opportunities out there to create efficiencies to 

sell their products. 

Certainly as a provider, again, there is more range of reach to 

the rest of the world because of this technology that these small 

businesses are established on, and I would just comment about the 

challenges with the Internet model. I think entrepreneurs who are 

out there figuring out and carving a new way of doing business, 

you know, against the traditional models that we know and what 

you have talked about, advertising and marketing their products. 

Chairwoman VELA ́ ZQUEZ. I am sorry. Time is up. Thank you. 

Now we go to Mr. Fortenberry. 

Mr. FORTENBERRY. Thank you, Madam Chairwoman. 

Good morning, gentlemen. I do not have the benefit of your earlier testimony, so I apologize if this is a little redundant. 

Can any of you define the size of the problem in terms of a lack 

of broadband access in rural communities? That is a hard question 

because there is a lot of overlap in some areas that are proximate 

to urban communities that are in pretty good shape, and other 

areas that are very remote are not, but it is hard to quantify. If 

any of you can give a reasonable opinion on that. 

Secondly, there is a Federal program, the Rural Utility Service 

Program. I am also on the Ag Committee. That could be an important part of the discussion of the next farm bill, which is likely to 

happen this year. There are some potential opportunities there and 

some potential dilemmas in terms of, in effect, government subsidies to companies that would provide better access in rural communities, but that also may end up competing in urban communities with those companies who have invested in infrastructure 

and purely through the private sector. 

Whoever would like to—

Mr. ZESIGER. As a telecom provider, Embarq addresses these 

issues, and we addressed them this morning in our testimony, so 

I would recommend that to you. I will not recap all of that, but 

simply say it is a very, very expensive proposition. We are investing aggressively. Tens of billions of dollars a year go into this inVerDate 0ct 09 2002 17:29 Dec 19, 2007 Jkt 033615 PO 00000 Frm 00024 Fmt 6633 Sfmt 6633 G:\CLERK SB\HEARINGS\TRANSCRIPTS\33616.TXT LEANN
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dustry to expand broadband speeds and access and availability. It 

is going to cost billions more—it is a big country—and we referenced in our testimony this morning the fact that we have covered over 80 percent of all of our lines, and that last 20 percent 

is the most expensive part. And we keep chipping away at it year 

by year, but programs like Universal Service is really the only program, and programs like that, at the State and Federal levels, that 

will move the needle on broadband deployment. So that is the first 

takeaway. 

With regard to deployment, the RUS Broadband Loan Program 

is also helpful. It is the second point we made in our testimony. It 

is important that those funds are directed to areas that are 

unserved today instead of areas that already have broadband service and, therefore, only support redundant networks. And so a 

change in the parameters and the goals of the RUS Broadband 

Loan Program are an important part of the kind of conversation 

you will have in the ag bill this year. 

Mr. FORTENBERRY. Any other comments? 

Mr. BOND. I would only observe for the record that, of course, 

there are some other technologies coming along that will have 

great impact on rural America. Broadband over power lines many 

Members, I think, are familiar with and have read about, but also 

the now emerging WiMAX technology, which has been called ′′WiFi 

on steroids,′′ but has much greater reach in a wireless capability 

to maybe solve some of those expensive last mile issues. 

Mr. SEIFFERT. I would just add, Congressman, that we have not 

quantified it, but I think the realities of rural America are that, 

without broadband access, you do not have access to telemedicine 

technologies; I mean, you know, the basic issues that we mentioned 

earlier about education and access to the rest of the world. You 

have brain drain for some of these rural communities going to larger cities, and so that should be an issue we look into. 

Chairwoman VELA ́ ZQUEZ. Ms. Clarke. 

Ms. CLARKE. Thank you very much, Madam Chair. 

Gentlemen, this has been a very impressive and important conversation we are having here this morning. My question is directed 

to Mr. Seiffert, but if any of you have any thoughts on it, if you 

could answer, it would be great. 

I am looking at your whole—addressing the issue of broadband 

deployment, and you talk about a strategy. Have you given any 

thought to that and what we should do in the Congress working 

with the administration to really spur that? 

I am one who looks at deadlines very seriously, and we are already in the first quarter of the year 2007. What suggestions or 

recommendations do you have. 

Mr. SEIFFERT. Sure. For many years, we have been focused on 

this issue, and we have addressed it from the standpoint of how do 

we incent our customers to invest in these risky investments. They 

take on deploying these new technologies. I think, from a Federal 

standpoint, you need a national policy, as I mentioned earlier in 

my testimony, a national framework to incent investment, and that 

can be through removing barriers to deploy and to new market 

spaces. 

20

The FCC has been quite critical in the recent growth that we 

have seen in our industry. Again, from 2006, we reported that the 

industry grew 9.23 percent; and, you know, that was because the 

competition that was created by the telcos and the cable industry 

and the wireless and satellite industry was coming together in new 

spaces. 

We have also supported up here on Capitol Hill tax incentives, 

broadband tax incentives. I mean, from a world perspective, these 

are risky investments and there has got to be some kind of guaranteed return in these investments. 

The wireless space, which Mr. Bond just mentioned, is critical. 

I think the Congress and the administration has been successful in 

bringing more spectrum to the marketplace through the Commercial Spectrum Enhancement Act addressing 3G wireless auctions, 

allowing more people to buy wireless services and also, with the 

DTV transition, there is more spectrum coming to the marketplace. 

That will serve not just rural but urban communities through WiFi 

or WayMAX. 

So there are a few issues that we can continue to address at the 

FCC and here in Congress through tax incentives and allowing 

more services to come to competition. 

Mr. BOND. I would mention one other thing. There still is a lot 

of public housing being built without pipes in the public housing. 

Most of that is going to be flipped to a commercial sale at some 

point in time, so the investment would certainly come back to the 

builders. A number of States have moved down this path in terms 

of requiring it. I think it is a discussion for Congress to have with 

HUD about how to adjust the scoring on that. 

Ms. CLARKE. Thank you. I yield back. 

Chairman VELA ́ ZQUEZ. Mr. Shuler. 

Mr. SHULER. Thank you, Madam Chair. 

Mr. Archey, I want to thank you and all of the panel for just your 

wealth of knowledge and your participation in the panel. It has 

been very informative. 

Mr. Archey, you mentioned the need for expanding the HB-1 visa 

opportunities in a technology work place. Why don’t you believe 

that the American technology needs can be met by American workers? 

Mr. ARCHEY. Because they can’t. Right now, there is an enormous shortage. You take a look at, for example, Microsoft’s Web 

site. There are several thousand job openings that have been on 

that Web site for a year, 2 years, sometimes longer. 

The fact is that we are not producing our students, our kids, with 

a background in math and science in the colleges partly because, 

I think, of the inadequacy of the instruction when they are in high 

school. Because there is also a view—I mean, I get this question 

all the time, why don’t more of our kids take math and science? 

And my pat response is, because it is hard. 

One of the things is that, you know, people get into—it gets in 

the way of the fact that it is more of a grind, if you will, in those 

areas, but there is also this issue—the Department of Education 

noted last year that a maximum of 41 percent of high school students in the United States take a course in math and science that 

is taught by a teacher who actually majored in the subject. And 

21

Congressman Miller made the comment at a hearing that I was a 

witness in a few weeks ago where the answer is not to let us make 

our history teachers into physics teachers. We have got to start this 

whole ball game over and put an enormous emphasis on it. 

Lastly, the point I would make is that, given this inadequacy you 

have, to then look at what is going on in the graduate schools. Almost 55 percent of all—56 percent of all Ph.Ds and engineers are 

going to foreign nationals. About 50 percent of all Ph.Ds in physics 

are going to foreign nationals. The average is about 50, 51 percent 

in the science, technology, engineering, and math areas. Math is 

very high. 

But the point about that also is that is another complication. We 

then say to these students that were just educated in American 

universities, goodbye. We don’t want you to stay. That is absurd. 

And the other thing is partly because in the Congress and in 

other institutions there is a view that if you let foreign nationals 

in it is a zero-sum game against American workers. Think of the 

history of the last 40 years. It will prove that is not the case. The 

number of coups that have been started by foreign nationals and 

the jobs that were created is extraordinary. 

But so one of the things that—my last point of this is this not 

the first time we have had to deal with this issue. We had to deal 

with this issue as soon as Sputnik went up in 1957. And, in 1958, 

the Congress passed the National Defense Education Act. It was 

about a $1.3 billion appropriation, which in today’s money is about 

$7 billion. That appropriation led to thousands of our young kids 

getting interested in math and science and taking not only in undergraduate but in graduate degrees, and it is not a coincidence for 

the next 50 years the United States dominated the world both economically and technologically. That was a very important intervening variable. 

Then, lastly, I would just note that, in terms of should we do it 

again, the difference today versus 1957, 1958, we were very afraid; 

and public policy always gets pushed when we are afraid. We are 

not so afraid now. We are used to being number one. We think that 

it is almost a God-given right that we are going to be number one; 

and the fact of the matter is, we have slipped. We are still number 

one, but that lead is not what it used to be. 

Mr. BOND. We do have shortages that everybody is seeing. Our 

domestic companies can’t find the folks. Even though we have global companies coming to the U.S. saying they can’t find the folks in 

the market, we are not drawing the kids in, as Bill has mentioned, 

to take those kinds of degrees. 

The good news somewhat there is that market, if you look at it 

for the kids, seems to be pretty elastic, that if they get positive signals, as they got during the dot com boom, that is the place they 

go, they major in those things. But since that point in time it has 

been nothing but negative messages. We have higher IT employment today than we have had in the last 14 years. So it is really 

coming back. 

I guess I would make this analogy, if you would allow me, given 

your background, to not go after the best and brightest would kind 

of like be telling the University of Tennessee you have to recruit 

only in State. 

22

Mr. SHULER. We do like the State of Florida when it comes to 

the recruiting. 

Madam Chair, just—sorry that my time is up, but I just wanted 

to thank all of you for coming again. It is very informative, and we 

certainly have some work to do in education workforce. Hopefully, 

at a later date, with more time, that you can certainly educate the 

other Committee of how we can continue to get our bright students 

into the workplace and we can recruit them here. I think that 

would be, obviously, even in my district, a very rural district, that 

we could continue to send our brightest students in mathematics. 

It is something that we have been talking throughout our community about, to continue to send our bright students to make sure 

they are in math and engineering. 

I thank you for your testimony. 

Chairwoman VELA ́ ZQUEZ. Mr. Braley. 

Mr. BRALEY. Mr. Archey, where do you live? 

Mr. ARCHEY. Alexandria, Virginia. 

Mr. BRALEY. Mr. Bond, where do you live? 

Mr. BOND. Fairfax Station. 

Mr. BRALEY. Mr. Zesiger? 

Mr. ZESIGER. Leewood, Kansas. 

I want to follow up on my neighbor, Mr. Fortenberry’s, question, 

because I grew up in rural America. I represent a good section of 

rural America, and rural America is in trouble. Every small business owner I know in rural America is dependent upon technology 

to survive. Every economic development director I talked to in 

rural America talks about expanded access to broadband as a fundamental opportunity for success and survival in rural America. 

This is a critical issue. The State of Iowa has been exporting educators, technicians, scientists as part of this brain drain that Mr. 

Seiffert talked about for over a decade. And yet, at the same time, 

we are starting to attract small businesses from the coast, people 

who are looking for a different lifestyle and who depend upon technology to compete in a global marketplace and are doing it successfully. 

As someone who depended heavily on technology in my small 

business to expand the market that I worked in, I would like to follow up on your comment, Mr. Zesiger, and ask you, when you talk 

about this goal of increasing broadband deployment in underserved 

areas and coming from Kansas, what real-world examples can you 

share with us to help us learn how we can make this a higher priority in the Small Business Committee? 

Mr. ZESIGER. Excellent question. The needs are real; and telecommunications and high technology, primarily telecommunications, is really the leading high-tech investor in rural America. 

The next panel will address this. There will be at least two representatives of that panel that can address these issues from a 

smaller provider’s perspective. 

But we provide service to literally hundreds of rural committees 

across the country. And the answer is it just takes money. It is 

very capital intensive to buy Mr. Seiffert’s products. His members’ 

products are not cheap. 

To provide those products in rural markets, which are uneconomic to serve, there are not enough customers. There are not 

23

enough large businesses that you might find in the urban areas. It 

is a true challenge. It has always been a challenge. And it is the 

Universal Service Fund that really resolved that challenge as effectively as any nation in the world has ever done. 

We ought to be proud of as much as we do today. We need to 

do more. To make that fund more sustainable in the long term, to 

reform it and going forward so that it supports broadband is the 

primary goal here today. 

Mr. BRALEY. I want to follow up with you, Mr. Archey, on your 

recommendation that the SBIR program should be expanded and 

improved. That is one of the programs that is under the jurisdiction of my Subcommittee; and, given your expertise in technology 

and innovation issues, I wanted to give you an opportunity to expand on that recommendation. Because this Committee and Subcommittee are likely to examine that program very closely, and I 

believe a number of the members of this Committee are interested 

to know how you believe the SBIR program could be improved. 

Mr. ARCHEY. One of the points, Mr. Braley, is we are finding—

I have gotten in the last month a number of queries and call complaints from some small companies. Companies that are partially 

controlled by a venture capital company are not eligible for SBIR, 

and that is the rule that was put into place about a year ago, year 

and a half ago. I think that ought to be revisited, because I think 

what is happening is that some innovations are, in fact, not being 

discovered precisely because these folks can’t get into the program. 

The second thing that I have been hearing from the companies, 

because I haven’t had a lot of in-depth looks at SBIR but I have 

to basically reflect what my companies are saying, is that there is 

still a fair amount of bureaucracy involved with applying and with 

getting into the program. The word I hear all over our small business people is simplification, and I think that would go a long way 

to increasing participation and increasing the consequences of the 

results of the program. 

Beyond that, I would be guessing. But those two points come directly from our member companies. 

Mr. BRALEY. Would you be willing to discuss that further with 

your members and be a resource as we look at that program further and the concerns? 

Mr. ARCHEY. I would be happy to. In fact, we have 17 local councils consisting of full-time staff and high-tech executives, many of 

whom are small. This week, I will go back out to them and pointblank ask them, if you were changing the SBIR program, how 

would you do it? And I will get it back to you within a week, week 

and a half. 

Mr. BOND. Our venture capital capabilities are a huge advantage 

for us globally. Many countries come here expressly to mimic that. 

So knocking out a VC back company for SBIR has taken our advantage off the table. 

The other thing I would mention is, to protect the program, you 

also want to police the program. So there have been occasional 

complaints about SBIR mills making the same application to multiple agencies and getting funded multiple times; and so, obviously, 

good policing protects the political support. 

24

Chairwoman VELA ́ ZQUEZ. Let me just mention for the record, Mr. 

Archey, you write in your comments regarding inequities of venture 

capital and the SBIR. We will be addressing those issues right before this summer, this Committee. 

Mr. Chabot? 

Okay, so let me thank all of the witnesses. This has been quite 

an extraordinary discussion, one that will remain open, and we will 

continue to talk to you, reach out to you to see what the next step 

that should be taken coming out of this Committee. Thank you 

very much. 

We will move to the second panel. 

Good morning to all of you. Thank you for coming and participating in this second panel. 

STATEMENT OF WALTER B. McCORMICK, JR., PRESIDENT AND 

CEO, U.S. TELECOM ASSOCIATION (USTELECOM) 

Chairwoman VELA ́ ZQUEZ. Our first witness is Mr. Walter McCormick, Jr. Mr. McCormick is President and CEO of the United 

States Telecommunication Association. USTelecom represents service providers and suppliers in the new telecommunications marketplace. 

Mr. MCCORMICK. Madam Chairwoman, thank you for having me 

today. I appreciate the opportunity to appear before the Committee 

to discuss our Association and our industry’s perspective for advancing the innovation agenda. 

Our Association represents innovative companies ranging from 

the smallest rural telecoms in the Nation to some of the largest 

corporations in the United States economy. Our companies offer a 

wide range of services across the communications landscape, including voice, video, and data over local exchange, long distance, 

Internet and cable networks. 

Most of our world providers are small businesses themselves; and 

many of them have been at the forefront of providing their customers with the triple play of voice, video, and data. These innovative communication services provided by our members play a vital 

role in the success of many small businesses. 

Our members also provide small businesses with personalized solutions to meet their individual needs. For example, our members 

offer small businesses a range of Internet services including stateof-the-art security protection, 24/7 live technical support, Web site 

hosting and business e-mail accounts. Differentiation of products 

and services is important to small businesses as differentiation provides options and flexibility for entrepreneurs to choose the best 

service with which to meet their needs. 

Madam Chairwoman, the ways in which businesses conduct commerce and communicate with each other and their customers has 

changed fundamentally. Today, you can make a phone call using a 

wireline phone or a wireless phone, a cable phone or an Internet 

phone. Technology has made it possible for cable operators, who 

historically offered only video, to offer voice and Internet services. 

Especially relevant for this hearing, a number of cable companies 

are now moving to compete in the business market. 

Similarly, Internet access is available through wireline or—

wireline, DSL or cable modem, through wireless or satellite, and 

25

increasingly over municipal WiFi systems and broadband, over 

power lines. In fact, today there are more than 1,200 broadband 

service providers in the United States, and broadband is exploding. 

The FCC says that during the first half of 2006 more than 6.7 million wireless high-speed Internet lines were added by businesses, 

for an increase of over 200 percent. 

Madam Chairwoman, our industry, our member companies of the 

United States Telecom Association, are committed to furthering 

broadband deployment; and we believe the Congress can do three 

things to advance broadband deployment in this country. First, 

Congress should ensure a sustainable future for universal service; 

second, an important part of the equation for broadband deployment lies in ensuring continued funding for the Rural Utilities 

Service broadband program; and, finally, Congress can promote 

broadband deployment by permanently expanding the tax moratorium, by allowing for faster depreciation of broadband equipment 

and fiber, and by establishing a tax credit for the deployment of 

broadband equipment and fiber. 

By continuing to advance policies that promote competition and 

ensure investment, Congress has the opportunity to encourage 

broadband deployment and to create a new wave of small business 

entrepreneurs across the width and breadth of this country. 

Again, thank you very much for the opportunity to testify before 

you today. 

[The prepared statement of Mr. McCormick may be found in the 

Appendix on page 60.] 

Chairwoman VELA ́ ZQUEZ. Our next witness is Shirley Bloomfield. 

Mrs. Bloomfield is Vice President, Government Affairs and Association Services for the National Telecommunications Cooperative Association. NTCA represents over 570 rural community based communications providers throughout the United States. 

Welcome. 

STATEMENT OF SHIRLEY BLOOMFIELD, VICE PRESIDENT, 

GOVERNMENT AFFAIRS AND ASSOCIATION SERVICES, NATIONAL TELECOMMUNICATIONS COOPERATIVE ASSOCIATION (NTCA) 

Ms. BLOOMFIELD. Thank you very much. 

I know that you are pressed for time, so I will try to keep this 

to the points that I think are the most relevant. 

NTCA members really are small businesses. They serve between 

50 to 100,000 access lines in communities across this country. So 

they are the small of the small. 

I will also tell you broadband has really come up as a big topic 

today. Ninety percent of member companies serve over 90 percent 

of their service territories, and I admire the commitment this Committee has in figuring out how do you get to that last 10 percent. 

I really look forward to working with all of you on that. 

I am just going to focus on a few things that we think are very 

key to ensure that all Americans, regardless of where they live, will 

have access to new technologies and advanced services. 

You have heard this before, but modernizing and sustaining the 

Universal Service Fund is critically important. 

26

Access to video content. We have talked today about what are 

the take rates out in rural America. Why can’t you get people to 

take a higher level of broadband services? I think access to video 

and video competition is going to be very key to that portion. 

Spectrum policy, network regulation and the Regulatory Flex Act 

I think are all going to be key. 

Restructuring the Universal Service Program properly is critical 

to determining whether all Americans will have access to all of the 

advanced services we are talking about here in the 21st century. 

Even though all Americans rely increasingly on sophisticated services, bandwidth for economic health care and certainly educational 

opportunities, there are a lot of folks that are looking to actually 

limit the Universal Service Program. 

While other countries are making an effort at this point in time 

to ensure ubiquitous broadband coverage for their citizens, the 

United States remains a step behind in making a genuine commitment to broadband deployment. It is NTCA’s position that, rather 

than contemplating ways to cap or otherwise limit this program, 

policymakers should be looking for ways to enhance it and to accelerate the deployment. 

NTCA has a policy course that we have been looking at that has 

been very forward looking in terms of the advancement of this. It 

covers things such as expanding universal service base contributors 

so that all contribute so we can continue that build-out, strengthen 

the public interest in the ETCs and eliminate the identical support 

rule. 

A second priority for us is access to video content. Small video 

programmers in small areas are having a difficult time obtaining 

video programming from the content providers who actually own 

the content. 

There are two critical issues that I just would like to take a second to highlight. The first is shared head ends. What we find in 

a lot of our folks right now, we have folks in the State of Tennessee, for example, is they come together because the economies 

of scale for these small telephone companies is very limited and to 

buy a head end to receive your telephone content is very expensive 

to do. So a lot of these folks across the country have gone together 

to either lease a head end or purchase a head end jointly. 

But what has happened is a lot of the video content providers 

have prohibited that type of arrangement, and what that is doing 

is that is cutting off those rural subscribers for having access to 

those programs. It is making it very expensive to provide service 

when it is a stand-alone service because nobody else in those service territories are offering those services or to provide a competitive 

service. 

The other point that I would raise that I think we are going to 

hear a lot of this year is the need for retransmission consent reform. The broadcast stations are electing retransmission consent, 

and they are increasing the price that the video carriers are having 

to pay to provide their services to their customers. What this is 

doing is this is increasing the cost to the customers, and it is also 

requiring some of the small carriers to have to choose or box some 

of the different channels that they are carrying at this point in 

time. And they want to be responsive to their customer base. 

27

Regarding spectrum policy, you have heard a little about that 

today. NTCA has done some very comprehensive surveys with our 

members who do provide wireless service. We found that, in 2006, 

30 percent were able to obtain spectrum but close to 50 percent 

still cited that it is very, very difficult to do and a lot of them use 

unlicensed spectrum in part because it is actually easier to get, although it is very difficult to make a long-term business commitment. The spectrum is important in the broadband department because wireless broadband is going to be the next effort out there, 

and 700 megahertz is going to be key to rolling out this technology. 

I think this Committee could play a role in terms of ensuring 

that the FCC continues to look at small license areas, continues to 

encourage the FCC to license off the spectrum in the small markets 

where those carriers who are local will make sure that they provide 

those services to their customer base. 

In terms of network regulation, I only want to point out one nondiscriminatory fact about the whole discussion that has come up 

about Internet neutrality. That is that one thing that does get lost 

a little bit in the discussion is that NTCA are small carriers, and 

we need to ensure that small companies are not discriminated 

against in our access to the Internet backbone. We don’t own that 

Internet backbone, and we need to have that same access to those 

services so our customers can get the broadband deployment services without discriminatory pricing on our carriers that will increase the cost for the rural consumers. 

Just with regard to the Reg Flex Act, NTCA encourages this 

Committee to ensure that Federal agencies are doing their due diligence to make certain that small businesses aren’t economically 

disadvantaged by new regulations. This is particularly important 

in the communications industry because so many small independent providers do not have the resources to fully comply with 

all of the regulations. 

I think small communication carriers have a lot going for them. 

They are innovative, they are community focused, they are diverse 

in their services, they are agile enough to move quickly, and their 

service ensures economic development in the rural communities 

they serve. 

Thank you very much. 

Chairwoman VELA ́ ZQUEZ. Thank you. Right on time. 

[The prepared statement of Ms. Bloomfield may be found in the 

Appendix on page 64.] 

Chairwoman VELA ́ ZQUEZ. Our next witness is Mr. Richard 

Cimerman. He is the Vice President of State Telecommunications 

Policy for the National Cable & Telecommunications Association. 

NTCA members include cable operators serving more than 90 percent of the Nation’s cable telecommunications subscribers. 

STATEMENT OF RICHARD CIMERMAN, VICE PRESIDENT OF 

STATE GOVERNMENT AFFAIRS, NATIONAL CABLE AND TELECOMMUNICATIONS ASSOCIATION (NCTA) 

Mr. CIMERMAN. Chairwoman Vela ́zquez, Ranking Member, members of the Committee, the cable industry is the Nation’s largest 

broadband provider of high-speed Internet access after investing 

more than $110 billion over 10 years to build out a two-way interVerDate 0ct 09 2002 17:29 Dec 19, 2007 Jkt 033615 PO 00000 Frm 00033 Fmt 6633 Sfmt 6633 G:\CLERK SB\HEARINGS\TRANSCRIPTS\33616.TXT LEANN
28

active network with fiberoptic technology. We also provide state-ofthe-art digital telephone service to millions of American consumers. 

Thank you for the opportunity to appear before you today to discuss the cable industry’s priorities for the 110th Congress. 

I am proud to report that our small and mid-sized operators have 

invested billions of dollars of private risk capital in small towns 

and rural communities all across this country in order to provide 

a full array of advanced broadband services equal to what our larger operators offer, including services such as residential and commercial high-speed Internet access, high definition, digital and ondemand video services and digital telephone service. Some of the 

smallest towns in the United States have access to some of the 

most advanced digital services in the world because of the commitment and investments made by our smaller and mid-sized operators. 

To take just one example, Midcontinent Communications is offering households and businesses in Buxton, North Dakota, with a 

population of 350, state-of-the-art high-speed Internet service, digital cable and high definition programming and digital telephone. 

These investments have created new jobs for American workers 

and new business opportunities for small entrepreneurs in rural 

America. 

I want to briefly touch on four topics that are explained in more 

detail in my written testimony. They are that competition in the 

communications marketplace is working, Congress’s decision to 

leave the Internet unregulated is an unquestioned success, 

broadband deployment initiatives should be focused on unserved 

areas, and new government fees should not be imposed on 

broadband service. 

The cable industry fully embraces and thrives today in a robust, 

competitive marketplace in all of its businesses. The cable industry 

has never asked Congress for a handout, and we are not looking 

for regulatory advantages over our competitors. We don’t oppose efforts designed to lighten regulatory burdens on our competitors in 

order to foster fair competition on a level playing field. 

Fifteen years ago we commanded 95 percent of the multi-channel 

television market, but today, because of fierce competition from 

DBS satellite television providers and other broadband providers, 

our market share has fallen to less than 68 percent. And now the 

Regional Bell Operating Companies have entered the fray, and 

they are not your typical underfunded, undercapitalized, newly entered market. Rather, they bring with them annual revenues of 

$219 billion, more than three times those of the entire cable operator industry. As a result of this competition, over 31 million consumers, almost one of every three video subscribers, now obtain 

multi-channel video programming from someone other than a local 

cable operator. 

As stated by the FCC last year, competition in the delivery of 

video programming has provided consumers with increased choice, 

better picture quality and greater technological innovation. 

Our entry into the telephony market is also great news for consumers across America. Today, nearly 10 million households have 

chosen cable phone service, with more than half of those added 

within the last 10 years. According to a recent J.D. Power report, 

29

cable phone customers are saving over $10 a month on their phone 

bills, and recent projections show that total anticipated consumer 

benefit for phone competition over the next 5 years will total more 

than $100 billion. Small cable operators are increasingly bringing 

the benefits of these competitive telephone services to rural areas 

as well. 

It is still the case, however, that phone companies serve the vast 

majority of Americans. It is also true that competitive voice services cannot survive without physical interconnection to the phone 

company controlled public switched telephone network at a fair and 

reasonable rate. 

We hope that Congress will continue to support competition of 

the voice market by working to ensure that the interconnection 

rights Congress established in 1996 apply to all providers in a fair 

and reasonable manner and on a technology neutral basis, including requirements that rural telephone companies interconnect with 

competitors. 

With our triple play of phone, data, and video, consumers are enjoying tremendous cost savings and enhanced value as cable operators and our broadband competitors offer bundled packages of these 

services. Competition in the communications marketplace is working. 

Now the deployment of high-speed Internet access in the United 

States has been an amazing success story. I know there were questions earlier about quantifying the extent to which broadband is 

available. Cable broadband service is available to more than 94 

percent of all U.S. homes. That is cable alone. DSL and other services don’t overlap completely. So there is something more than 94 

percent available today. So when we look at the unserved areas, 

that portion is something less than probably 5 percent; and our 

view is that is the area where government policy needs to focus in 

terms of deployment. 

Both Mr. Fortenberry and Mr. Zesiger mentioned the RUS program, which we believe is badly flawed as it has been administered. RUS funds have gone to areas with multiple providers, rather than to unserved areas. We think that is something Congress 

should address. 

Finally, let me just say that Congress’s decision to leave the 

Internet unregulated is an unquestioned success. With usage growing at a rapid pace, continued investment will be needed to keep 

these services robust and give consumers the level of services and 

innovative new products and features they desire. So-called net 

neutrality proposals, however, seek to cement in stone today which 

business models are permissible and which ones are not. They 

would impose by government fiat outcomes that are better left to 

the marketplace. 

We believe Congress’s hands-off policy has worked and should remain. 

Thank you, And I look forward to any questions. 

Chairwoman VELA ́ ZQUEZ. Thank you. 

[The prepared statement of Mr. Cimerman may be found in the 

Appendix on page 71.] 

Chairwoman VELA ́ ZQUEZ. Now our next witness is Mr. Earl Comstock. He is the President and CEO of COMPTEL. COMPTEL repVerDate 0ct 09 2002 17:29 Dec 19, 2007 Jkt 033615 PO 00000 Frm 00035 Fmt 6633 Sfmt 6633 G:\CLERK SB\HEARINGS\TRANSCRIPTS\33616.TXT LEANN
30

resents more than 180 competitive communication service providers. 

Welcome, sir. 

STATEMENT OF EARL COMSTOCK, PRESIDENT AND CEO, 

COMPTEL 

Mr. COMSTOCK. Thank you, Madam Chairwoman and members 

of the Committee. It is a pleasure to be here on behalf of 

COMPTEL. We represent the competitive communications providers, over 185 member companies, carrier companies as well as 

associated suppliers serving primarily small business. 

The COMPTEL members would like to be serving a greater portion of the country. I am sad to report today that under the current 

FCC and FCC policies competition is diminishing in this country, 

as opposed to increasing. 

What was fascinating about the presentations by the previous 

users is every single one of them requested government intervention. Yet, at the same time, all of them that represent the large incumbents, and I am talking about incumbent telcos and the incumbent cable providers, also suggested that you should deregulate 

them with respect to removing competition. 

The reality is the Internet was created by regulation, not the 

other way around. What was unregulated on the Internet was the 

content and services you could provide. But the fact of the Internet, 

which is a communications network, it is nothing more than the 

next generation of public-switch telephone network, was created by 

the fact that government rules allowed innovators and small businesses access to that network at reasonable prices and on reasonable terms and conditions. This is the key to competition, this is 

the key to solving broadband in rural America, and this is the key 

to making small businesses competitive. 

The issue you hear about, net neutrality, is an issue over gatekeepers, an issue over will the two transmission facility owners in 

the country, the incumbent cable companies—notwithstanding 

Rick’s claim about private risk capital, which, by the way, it was 

absolutely true. There was private risk capital. But with the government guaranteed monopoly when they started, they got to build 

their infrastructure while protected from competition, protected, I 

might say, from the telcos. 

Likewise, the telcos got to build their networks while protected 

from competition. That is why their network reaches a hundred 

percent of the country, and the cable industry reaches roughly 94 

percent of the country, because they got to build in a protected environment. None of the companies I represent got that same privilege. We all have to build our networks in a competitive environment in the face of entrenched incumbents. 

So the bottom line is, I am here just like everybody else saying, 

yes, government does need to set some rules if you want this to 

happen. 

Now, if you look at your innovation agenda and the concerns that 

have been expressed here, the key factor is America, to remain 

competitive in the 21st century, must have access to faster speeds 

at lower prices. 

31

As Rick accurately portrayed, broadband deployment is not your 

problem. Broadband penetration is. Broadband penetration is the 

rate at which people buy the service, and that is a function of price, 

and only competition is going to bring that price down. 

It was government regulation that created the competition and 

video that, as Rick pointed out, cost them some market share. We 

created the program access rules that Shirley said they need access 

to in order to provide video in the small areas. We support USF, 

which is another government program, but only as—I think we 

would agree with the cable industry—there needs to be some 

changes to it to ensure it remains competitive. 

But all of us are talking about a common infrastructure; and if 

you have any doubt about the fact that the Internet and the public 

switch network are the same thing, try knocking down the telephone pole in front of your house and see what happens to your 

Internet service. And that is true whether you have got cable 

modem or Internet DSL. 

Fiber is not coming to rural areas any time real soon except in 

the areas, I would say, perhaps by the smaller telephone companies. Not the big companies. But the big companies are not rolling 

fiber. 

You have heard about Verizon’s deployment plan. It covers 40 

percent of their customers. But, at the same time, they are coming 

in saying, give me regulatory relief. You know what their priority 

agenda is? Let us not have net neutrality because we don’t want 

people to have reasonable access to this network. We want to lock 

it up and control which content and services you get. They want 

the cable model. The cable network is a broadband network, yet 

you can’t buy broadband, the entire broadband capacity of that 

cable network, because the cable company gets to tell you this is 

the package of services you get. 

So, you know, you have all got my prepared testimony. It goes 

into things. 

We are concerned about the fact that, right now, absent intervention by Congress, the FCC is rapidly removing the rules that give 

companies access on reasonable terms and conditions to that infrastructure that was built in a monopoly environment. 

Without that access, it is very difficult for us to provide service. 

Without that access, we can’t continue to serve the small business 

customers we serve today. And we are the ones providing that service. Don’t forget, we wouldn’t be in business if we didn’t provide 

lower prices, better service, greater innovation. All of the major 

leaps in technology that went on, whether you are talking about 

the Internet, the fax machine, even different phones, came about 

because government rules gave us access to that network. 

So what I am here to say is this Committee can play a role in 

advocating to the FCC that you maintain reasonable rules to ensure access to infrastructure because we are not building three, 

four, five or six or seven new infrastructures across this entire 

country. 

Thanks very much. 

Chairwoman VELA ́ ZQUEZ. Thank you. 

[The prepared statement of Mr. Comstock may be found in the 

Appendix on page 88.] 

32

Chairwoman VELA ́ ZQUEZ. This has been quite an exciting and 

challenging discussion, and I will go to Mr. Chabot. 

Mr. CHABOT. Thank you very much. 

Mr. McCormick, I will start with you. I think you stated earlier 

in your testimony that you believe Congress should extend the 

Internet tax moratorium; is that correct? 

Mr. MCCORMICK. Yes. 

Mr. CHABOT. Could you state briefly why you believe that, and 

if the other members could just indicate if they agree that we ought 

to extend the moratorium. 

Mr. MCCORMICK. Yes. If a principal goal of Congress is to speed 

broadband deployment, to increase broadband take rates, then you 

don’t want to disincent the taking of broadband by taxing the taking of broadband. So we think that the Internet tax moratorium 

makes a lot of sense. You impose taxes on things like alcohol and 

cigarettes to discourage consumption. Don’t impose taxes on Internet access. We don’t want to discourage consumption 

Mr. CHABOT. Do all the other members agree? 

Mr. CIMERMAN. We agree. 

I also stated in my testimony that we don’t believe that 

broadband should be assessed for universal service, which in effect 

is exactly the same thing, imposing a tax on a service that we are 

trying to get more people to buy. So neither Internet taxes or universal service fees ought to be imposed on broadband service. 

Mr. COMSTOCK. Again, I think the devil is in the details, and we 

would agree with the concept of not taxing Internet access unfairly. 

I think the concern is much of the debate around Internet tax is 

also bundled up with the idea that you are not going to regulate 

the networks that are used; and if Internet tax moratorium extensions results in loss of access to those networks, I think that is a 

huge problem. 

Ms. BLOOMFIELD. Universal service is not a tax. It is an intercarrier support mechanism. So I would like to separate out those two 

notions between each other. 

Mr. CHABOT. Okay. Mr. McCormick, what do you see as the next 

important demand from consumers for telecommunications services? In other words, what is the next big thing after cell phones, 

the Internet, et cetera? 

Mr. MCCORMICK. Congressman, I think it is making life simple. 

It is having technology conform to the way in which you live your 

life, rather than you having to conform your life to the state of the 

art of technology. 

Where we are headed with our investments is to provide consumers and small business with communications their way, to be 

able to have seamless mobility, to be able to move between wireless 

and wireline environments seamlessly, to be able to access the 

Internet or to be able to access a host of new video entertainment 

and social services seamlessly. Health care providers over advanced 

networks. Home security services provided. So we see we are really 

at the threshold of the information economy, and technology is 

going to make life simple and more efficient for all. 

Mr. CHABOT. Thank you. 

As a follow-up, just as one human being, a thing that would 

make it simpler. I know we have cable at home. I have basic up 

33

here, but the cable at home where my family is, but trying to figure 

out what is on in an hour from now when there is 150 channels 

is just—I haven’t grasped the concept of figuring that out. So I do 

what most guys do, is whatever my wife picks is what we will 

watch. 

Chairwoman VELA ́ ZQUEZ. Wise choice. 

Mr. CHABOT. Ms. Bloomfield, would you point out some of the 

benefits that urban residents receive from the Universal Service 

Fund? 

Ms. BLOOMFIELD. I think when you look at the value of the network, the network is only as valuable as the number of entities of 

business people that you connect to it. So it is truly one of those 

things like—the analogy being the highway system. The fact that 

you can cross seamlessly. We have stories of ranchers in South Dakota who sell their wares to markets in Chicago. Universal Service, 

by building out the network in these markets, allows that 

interconnectivity that increases the value for all Americans. You 

can’t separate that out. 

I will also note that Universal Service is not only a high-cost 

fund. There is also a non-rural fund that goes to the larger companies to build out in their markets as well as the fact that there is 

a lifeline and link-up which provides access to those lower-income 

consumers to allow them to have access to the network as well. 

Mr. CHABOT. Is concentration in the video programming market 

reducing cable companies’ ability to invest and improve broadband 

access? 

Mr. CIMERMAN. I don’t think so. I mean, I think that, first of all, 

in terms of broadband per se, we are at 94 percent plus. We are 

not looking for additional government funding to push that out further. 

I would say, in response to some of the statements that were 

made before about our standing in the world as 17th, that there 

is a little bit of a misunderstanding about that because it is—our 

deployment is not 17th. It is penetration that is 17th. And there 

is a lot of different reasons why people choose not to take service 

in the U.S. Twenty-One percent take dial-up today. Twenty-six percent have no computers at home. We do lead the world in the number of actual Internet users that are out there. We are a much 

more geographically vast and less dense country than some of the 

other countries that are often touted as having these tremendous 

penetration rates, and very often people who have broadband at 

work just don’t see the need for purchasing broadband at home. 

So we think that some of the—it has been a little bit overstated 

as to where we stand or what the problems are in terms of 

broadband in the U.S. 

Mr. CHABOT. With respect to broadband speeds, how much of the 

increased capacity comes from government investment versus private sector investment, if you know, or if you could venture an 

opinion. 

Mr. COMSTOCK. The question of capacity—what increases the 

speed typically is greater innovation, and that comes from the freedom to attach devices, I mean, when the Internet came about, because people could attach newer electronics to the existing telephone infrastructure without having to get AT&T’s permission to 

34

do so as long as it was certified by FCC as not harming the network. I think that is the key. 

I agree with you about the 150 channels, having to wait and 

scroll through. But that is what happens when you leave this to 

the private sector. The cable industry was not required to allow 

other people to attach devices to their network. So you can’t get 

some innovator that comes along and says I don’t want to watch 

150 channels, scroll through one by one. I want to type something 

in and have it pop up. You can’t get that because they control 

which devices get access to their network. And, in fact, there has 

been a 10-year fight since the ’96 Act over the ability to use noncable company controlled devices on the cable network. 

Mr. CHABOT. Thank you very much. 

Chairwoman VELA ́ ZQUEZ. Ms. Bean. 

Ms. BEAN. Thank you, Madam Chair; and I would like to thank 

you and our ranking member for hosting an important forum here 

today. Your testimony has been helpful, as well as the first panel. 

Unfortunately, I missed little bits of it, and I apologize. You know 

how things work here on the Hill. But it has been helpful. I know 

all of us will be looking at the further testimony as well that you 

provided on the net neutrality debate between the carriers and the 

content and balancing access that is affordable to the Internet with 

the necessary infrastructure development that needs to continue. I 

have found that helpful. 

But I would like to change subjects briefly and ask from an industry perspective about another issue. With the converging technologies, there is a lot more access, whether it is data or voice or 

music or entertainment; and these technologies are converging into 

the homes, in many cases, and parents have a lot of concerns about 

Internet safety. Given that there is going to be more availability in 

the homes and more access for children and the increasing concerns about child predators, what is the industry doing, from your 

perspective, and what do you think could be done further on industry’s part so the government doesn’t have to get overly involved in 

the interest of protecting children from predators? 

Mr. MCCORMICK. It is a very significant issue, and much of that 

has to be addressed through sophisticated network management. It 

is the type of things like—it is an extension of extending parental 

control, spam control, firewalls. It is the kind of challenge that does 

require us to be able to engage in pro-consumer-oriented network 

management, and it is one of the reasons we are fearful of net regulation or net neutrality regulation. Because you are—in effect, as 

you begin to move into this area and give consumers greater control over what comes into their house, you are engineering the network in ways that will allow the consumer to choose to block certain functionality. 

It is something that we see as not only a very important social 

objective, but we also believe it is a very important market objective, because we know how consumers desire to have these kinds 

of safeguards. 

Ms. BEAN. I will add a little later to this, as you go further on 

this, is we have done a number of forums on this in our district. 

Part of the challenges as parents, as you can imagine, are busy 

working, running their businesses, trying to provide their kids with 

35

technology that helps them in school, that is often used for other 

purposes as well. And as quickly as those protections become available that they do—that they thought they bought when they 

brought the equipment home or they added some additional software, those who seek to undermine those provide products to allow 

people to get around them. So how do parents, in the interest of 

protecting their children—should it all be on the consumers to provide that protection from the leapfrogging that goes on? 

Mr. COMSTOCK. If I could offer something on that. I think you are 

highlighting the difficulty and the distinction that has always been 

there between the regulation and the transmission networks and 

the regulation of the content. Regulating the content, Congress has 

tried numerous times through various laws, and it is exceedingly 

difficult to do, and it often gets struck down in court. 

I think the concern that we would express on the opposite side, 

while we agree it is a huge problem and a great concern, is you 

are picking a path, if you go down the path that Mr. McCormick 

is suggesting, of saying let the network operator do it exclusively. 

Then you are counting on one or two companies to really solve this 

problem. If you go down the other path of saying, no, we are going 

to keep the network open and let all innovators attack this problem, you have got thousands of minds looking at this issue. You 

have got lots of innovation, and it is going to be a cat-and-mouse 

game. 

It is always going to be a case of you design a safeguard, somebody designs a way around it. That is the nature of the beast with 

software development. And I think that speaks for all kinds of 

things. But that is why we would say keep the network open and 

accessible and don’t turn it over exclusively to a couple of network 

operators. 

Mr. CIMERMAN. I wanted to mention that there was recently a 

new initiative that was formed in conjunction with the Internet 

Caucus, the Congressional Internet Caucus; and it includes, I believe, company members of all of ours—and I am sorry that the 

name escapes me, but it is something like the Child Online Safety 

Alliance that is designed to offer tools and programs to parents and 

educate them about what they can do. I will get the name and Web 

site for you, but it is a major initiative that was announced several 

weeks ago by all of our companies. 

Ms. BEAN. Thank you. 

Chairwoman VELA ́ ZQUEZ. Thank you. 

I would like to ask you the same question I asked the first panel. 

And that is for each one of you to identify two steps that Congress 

can take or refrain from taking so that it will contribute the most 

to the FCC stated goal of providing affordable access, broadband 

access to all Americans. 

Mr. MCCORMICK. First, do no harm. Broadband investment is occurring. It is occurring at record rates. We heard Mr. Seiffert talk 

this morning about the extent to which his industry is seeing the 

broadband investment. The FCC notes the broadband investment. 

On the wireless side, it increased by over 58 percent, according to 

FCC statistics over the first 6 months of 2006. But, first, do no 

harm through net regulation. 

36

Secondly, there are good, strong programs like Universal Service 

and the Rural Utilities Loan Program; and those programs should 

be stabilized and focused and directed to making sure the 

broadband is deployed to those areas that are unserved. 

We now have 96 percent of the United States served by at least 

two broadband providers, but there are areas of the United States 

that remain unserved, and we have an obligation to extend 

broadband to all Americans, and those are two good programs to 

help with that. 

Ms. BLOOMFIELD. I would say number one is look for incentives 

to create the build-out. As I mentioned, our members have 

broadband to 90 percent of their service territories. That last 10 

percent is very, very difficult and very expensive. Universal Service, the RUS broadband program, what incentives some of the larger companies may need, all of those are going to be important. And 

keep the technology neutral. What we find is our folks are reaching 

those markets by DSL, by their cable networks, by wireless services, by satellite services. So keep in mind that it may be different 

technologies for different parts of the country. 

And the second thing I would say is the take rates. Again, going 

to risks points, penetration is a huge problem. Is it cost? Is it availability? Is it a killer application? So as you go through policy, keep 

in mind what role will wireless policy or might video policy play 

in terms of creating some of those applications out there that will 

actually incite the American public to purchase the service. 

Mr. CIMERMAN. I would agree that the focus, as mentioned before, should be on unserved areas. We support the Universal Service Program. 

I know that Mr. Chabot had asked a question about the benefits 

for urban residents. We support the program, but that doesn’t 

mean that the program doesn’t need to be reformed. Simply dumping more money into the program as it exists today when there is 

wide-spread agreement that some reform is necessary, simply 

dumping money into the program to fund broadband would not be 

the way to go. We should specifically have a carve-out, a separate—

if we are going to try to subsidize in some way some unserved 

areas—a separate program rather than the Universal Service Program as it exists. 

In terms of—I don’t want to get into a debate of whether it is 

a tax or not, but I would suggest that if you ask any of your constituents what that 10 percent tax is on the bill that they pay 

every month, you would be hard pressed to find any of them that 

wouldn’t say it is not a tax of some sort. So focus on unserved 

areas. Pass the Internet Freedom Act and no new universal freedom fees on broadband. 

Mr. COMSTOCK. I think the key thing that you can do is continue 

to focus on necessary regulations, and those range from ensuring 

that innovators have access to the network. 

Right now, as I mentioned, there are a lot of things happening 

down at the FCC where they are recreating the monopoly that existed before. The old AT&T is restructuring itself and they are 

doing it by removing rules that Congress adopted in the 1996 Act 

to promote competition. Without that competition, you are not 

going to get innovation, you are not going to get new products, and 

37

you are going to get the United States falling further behind. We 

need rules to maintain that access so we can’t have these forbearance petitions. 

So I would say that is the most important thing. This Congress 

needs to send a message that we want access. And you keep hearing that broadband deployment is a risky investment. If it is so 

risky, then fine, use the marketplace. By keeping it open to other 

people to get access on reasonable terms and conditions, you spread 

that risk. Allow other people to come out and officer service. 

Let me give you one example. Cavalier Telephone today in Richmond, Virginia, is offering service using Verizon loops, a triple play 

service. They are attaching newer electronics. What is Verizon’s response? It is not to get out there and offer that same service. It is 

to seek relief from rules that give Cavalier access. 

If you are worried about regulations somehow making investment not possible, take a look at what is going on in Europe. They 

do have a reasonable regulatory oversight that provides this kind 

of access, and they are not seeing any diminishment in investment. 

In fact, they are seeing lower prices, faster speeds and greater 

service offerings than we see in the United States today. 

Thank you. 

Chairwoman VELA ́ ZQUEZ. Mr. Chabot, do you have any other 

questions? 

Well, let me say, this has been an incredible discussion. We look 

forward to continue working with you, and I want to thank all of 

you for your participation. 

Thank you. The Committee is now adjourned. 

[Whereupon, at 11:00 a.m., the Committee was adjourned.]

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