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39–391 PDF 2007

FULL COMMITTEE HEARING ON THE IMPACT

OF THE 700 MEGAHERTZ WIRELESS

SPECTRUM AUCTION ON SMALL BUSINESS

COMMITTEE ON SMALL BUSINESS 

UNITED STATES HOUSE OF 

REPRESENTATIVES

ONE HUNDRED TENTH CONGRESS

FIRST SESSION

OCTOBER 10, 2007

Serial Number 110-51

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 

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 

BRIAN HIGGINS, New York 

MAZIE HIRONO, Hawaii 

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 

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 

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 

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: 

Martin, Hon. Kevin, Federal Communications Commission ................................ 3

PANEL II: 

Bond, Edward Kelly, Public Service Communications ......................................... 19

Spencer, Shelley, WIREFREE Partners, LLC ....................................................... 21

Guttman-McCabe, Chris, CTIA - The Wireless Association ................................ 23

Libertelli, Christopher, Skype North America ...................................................... 26

Black, Jeffery, Wireless Founders Coalition for Innovation ................................ 28

APPENDIX 

Prepared Statements: 

Vela ́zquez, Hon. Nydia M. ....................................................................................... 41

Chabot, Hon. Steve .................................................................................................. 43

Martin, Hon. Kevin, Federal Communications Commission ................................ 44

Bond, Edward Kelly,Public Service Communications .......................................... 55

Spencer, Shelley,WIREFREE Partners, LLC ........................................................ 62

Guttman-McCabe, Chris, CTIA - The Wireless Association ................................ 70

Libertelli, Christopher, Skype North America ...................................................... 83

Black, Jeffery, Wireless Founders Coalition for Innovation ................................ 89

(V) 

(1)

FULL COMMITTEE HEARING ON 

THE IMPACT OF THE 700 MEGAHERTZ 

WIRELESS SPECTRUM AUCTION 

ON SMALL BUSINESS 

Wednesday, October 10, 2007

U.S. HOUSE OF REPRESENTATIVES, 

COMMITTEE ON SMALL BUSINESS, 

Washington, DC. 

The committee met, pursuant to call, at 9:30 a.m., in Room 2360 

Rayburn House Office Building, Hon. Nydia M. Vela ́zquez [Chairwoman of the committee] presiding. 

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

Altmire, Ellsworth, Sestak, Hirono, Higgins, Chabot, Akin, and 

Fallin. 

OPENING STATEMENT OF CHAIRWOMAN VELA ́ ZQUEZ 

ChairwomanVELA ́ ZQUEZ. Good morning. I call this hearing to 

order. This morning, the Committee will examine the Impact of the 

700 Megahertz Wireless Spectrum Auction on Small Businesses. 

Access to the newest technology is a key ingredient for all companies to innovate and compete in a global economy. For smaller 

firms, however, it is critical for their success that they have access 

to cutting-edge equipment and infrastructure. 

This much anticipated Spectrum Auction provides a unique opportunity for entrepreneurs to acquire these tools. Small firms that 

win the right to purchase Spectrum licenses will be able to deploy 

high-speed Internet access services. This will spur greater innovation and lead to lower communications costs, and improvements in 

service quality. Entrepreneurs operating in under-served areas will 

also benefit as the new technology is brought to remote parts of the 

country. As a result, rural businesses will be better able to compete, and advance local economic revitalization efforts. 

I am pleased that the FCC has included in the Auction Rules a 

number of elements that should benefit small companies. In order 

to assist them, the rules provide certain advantages for small 

firms, mainly in the form of credits toward their bids. In addition, 

the FCC decision to offer licenses that cover smaller geographic 

areas may allow these companies to compete and win, despite having more limited resources than a large national carrier. 

Together, these rules will allow them to start or expand wireless 

business operations. Entrepreneurs also have the potential to benefit from the FCC’s Open Platform Requirements. These requirements, which will allow any device to be used on the Spectrum will 

2

help level the playing field and permit for the wide-spread use of 

handsets. This will create new markets, and spur entrepreneurial 

activity in a wide range of industries. 

With all this potential, a downside does exist. Some small companies have raised concerns about whether the Auction Rules are 

fair, and whether the benefits of the auction will, in fact, extend 

to them. For example, rural wireless companies contend that the 

FCC’s decision to assign population-based benchmarks to build out 

requirements will hurt under-served regions. The smallest wireless 

companies also argue that the new rules governing bidding credits 

make it difficult for them to raise money, and pursue a sustainable 

endeavor. 

Fortunately, we have two panels here today that will help us 

consider both sides of this issue. The witnesses will share with the 

Committee how they expect the auction to benefit small entities 

and concern they may have about certain aspects of the Auction 

Rules. 

Let me take this opportunity to thank in advance the Chairman, 

and all the witnesses for their time and insights on this very important issue. 

For entrepreneurs that use technology to make our firms more 

efficient and competitive, this auction offers great promise. It provides a unique opportunity to secure the so-called beach-front real 

estate of the Spectrum. This can be used to launch a new endeavor, 

or strengthen an existing firm’s operations. Small business, both 

service providers and communications consumers stand to benefit 

greatly. 

I now recognize Mr. Chabot for his opening statement. 

OPENING STATEMENT OF MR. CHABOT 

Mr.CHABOT. Thank you very much, Madam Chair. And I want to 

thank you for holding this hearing on the Federal Communication 

Commission’s rules for the sale of Spectrum in the 700 Megahertz 

Band. 

Although fairly technical, the Commission’s regulations of the 

auction for this Spectrum will have a significant impact on small 

business providers, and users, wireless communications services. 

In 1934, Congress recognized that radio waves were a scare public resource, and authorized the FCC to award licenses for the use 

of radio waves, but only if the use would serve the public interest. 

Prior to 1993, the FCC simply gave this resource away. That did 

not represent good economics, or good public policy. Economics 

teaches us that the best way to determine the value of a resource 

is to sell it in the competitive market. That way, the entities that 

put the highest value on the resource will pay the most for the 

Spectrum. The basis for their bidding will be that they will provide 

consumers with services that the consumers are willing to purchase. 

Sale of Spectrum also represents good public management. It enables the Federal Treasury to recapture the value of this publiclyowned resource. Auctions also reduce transactions costs associated 

with the issuance of licenses, so it’s important that the Commission’s use of Spectrum Auctions—I also want to emphasize, however, that small businesses as innovators need to have their fair 

3

opportunity to obtain Spectrum. These innovators will provide new 

services and technologies that might not otherwise be developed. 

More importantly, small businesses tend to find niches that serve 

other small businesses, and may provide wireless services that 

large wireless companies may not. I am specifically interested in 

hearing from our witnesses whether the Commission adopted an 

appropriate balance between maximizing returns to the federal taxpayer, while ensuring that small business providers and users of 

wireless service will benefit from the auction in the 700 Megahertz 

Band. And with that, I yield back.

ChairwomanVELA ́ ZQUEZ. Thank you. Now I welcome the Honorable Kevin J. Martin. 

Mr. Martin is the Chairman of the Federal Communications 

Commission. He was appointed to the FCC by President Bush on 

March 18th, 2001, and designed Chairman by President Bush on 

March 18th, 2005. 

Before joining the FCC, Chairman Martin was a Special Assistant to the President for Economic Policy. Prior to joining the Bush 

Administration, Chairman Martin worked at the FCC, and practiced law in Washington, D.C. Welcome. 

STATEMENT OF THE HONORABLE KEVIN MARTIN, CHAIRMAN, 

FEDERAL COMMUNICATIONS COMMISSION 

Mr.MARTIN. Thank you, and good morning to Chairwoman 

Vela ́zquez and Ranking Member Chabot, and all the Members of 

the Committee. Thank you for inviting me to be here with you this 

morning, and I look forward to answering any questions you have 

after my brief opening statement. 

I’ve had the privilege of serving at the Federal Communications 

Commission for over six years, including two years as the Agency’s 

Chairman. During this period, my colleagues and I have overseen 

the telecommunications industry undergoing rapid and unprecedented change. These changes have seen the telecommunications 

industry transition from a period of sharp decline, to a time of significant growth. 

Ushered in by a broadband revolution, companies and consumers, alike, are finally finding the promise land of convergence. 

Telephone calls are now being made over the Internet and cable 

systems, cell phones are now mini-computers. They send e-mail, 

take pictures, surf the web, play songs and videos, and hopefully 

soon will send and receive emergency messages in times of a disaster. 

Businessmen and women are no longer tied to their desks from 

nine to five. They use handheld devices to access messages, files, 

and key information on the go. They can reach coworkers and clients from any location, and their customers are no longer just local, 

but global. 

These technological advances and converging business models, 

and the digitalization of services are creating unparalleled opportunities, and considerable challenges for both small businesses and 

the Commission. 

Almost all of this innovation is enabled by broadband deployment. Broadband technology is a key driver of economic growth. 

4

The ability to share increasing amounts of information at greater 

and greater speeds increases productivity, facilities interstate commerce, and helps drive innovation. 

Perhaps the most important factor spurring both increased 

broadband availability, and reduced prices for individual consumers, and for businesses, is competition among broadband platforms. The upcoming 700 Megahertz Auction presents the singlemost important opportunity for us to increase competition by adding a third broadband platform to a marketplace served predominantly by two broadband services, cable and DSL. 

The Commission recently adopted rules that will allow the auction of more than 60 Megahertz of Spectrum in the 700 Megahertz 

Band early next year. This is the part of the Spectrum that broadcasters have used for analog television channels, and that will be 

returned as part of the upcoming DTV transition. This Spectrum 

is well-suited for the provision of wireless broadband, and represents a critical opportunity to continue deploying broadband services, especially to rural communities. 

The rules the Commission has adopted for this Spectrum include 

several important provisions that will benefit small businesses, including promoting improved access to wireless broadband, facilitating the ability of small businesses to compete in the provision 

of wireless devices and software, and provide meaningful opportunities for small businesses to gain access to the Spectrum. 

Now, significantly, because this Spectrum is well-suited for the 

provision of wireless broadband, the Auction represents a critical 

opportunity to continue deploying wireless broadband services, especially to rural communities. 

The Commission has tried to ensure that these areas of the country have the same access to broadband enjoyed everywhere else. 

And, as such, we adopted some of the strictest build-out requirements ever implemented for wireless services. 

For example, at the urging of smaller service providers, the rules 

requires licensees in some blocks to serve at least 70 percent of the 

geographic area covered by their licenses, and 35 percent within 

the first four years. And in the largest blocks, licensees must serve 

75 percent of the population covered by their license, and 40 percent of the population within four years. 

Companies that do not meet their initial four-year benchmark 

will have their license terms reduced from ten years to eight years, 

and companies that fail to meet their final benchmark will lose the 

unserved portion of their license areas, which will then be made 

available to other potential users. 

This combination of geographic and population-based benchmarks will help ensure that even the most rural communities have 

broadband access. 

As a result, wireless broadband connections will be available to 

businesses of all size, and in nearly every location, not just the corporate headquarters in major metropolitan areas. Entrepreneurs 

and mom-and-pop shops located in small towns in rural areas will 

be able to communicate rapidly and efficiently with their suppliers, 

investors, and customers located around the world. And they will 

be able to make those connections wherever they are, at home, or 

at work, or on the road. 

5

Second, the auction rules will strengthen the ability of small 

businesses to compete in the provision of wireless devices and software. The license winner for about one-third of the Spectrum will 

be required to provide a platform that is more open to devices and 

applications. The companies that operate on this spectrum will not 

be allowed to prevent customers from using the wireless device or 

software of their choice on the licensee’s network. 

It is our goal that this open platform requirement will allow 

smaller businesses, nascent wireless device manufacturers, and 

smaller application software developers to put their products directly into the hands of consumers, without having to seek prior 

permission from the wireless provider, as they do today. 

I had the opportunity to hear from some of these technology entrepreneurs about their struggles to bring new products to market 

during a recent trip to Silicon Valley. By providing for this open 

platform, the Commission removed some of the barriers imposed by 

the wireless carriers to foster greater opportunity and innovation 

for entrepreneurs, and, ultimately, customers alike. 

This open platform requirement is designed to foster innovation 

on the edge of the network. When the same requirement was applied decades ago to the wire line network, we saw an explosion of 

innovation and choice. 

AT&T subscribers went from renting expensive black rotary 

phones to purchasing inexpensive cordless phones with voicemail 

and caller I.D. Investment in the market increased, new phones 

and calling features were developed, and consumers, ultimately, 

benefited. 

Many of these innovations were driven by entrepreneurs, who, 

for the first time, were able to make their latest innovations available directly to consumers, and compete in the equipment market 

to which they had previously been denied access. 

Ultimately, these rules facilitated the development of the Internet, as consumers were able to attach modems to the network, and 

go anywhere the Internet could take them without interference 

from the network owners. 

The Commission hopes and expects that this model will provide 

similar benefits for wireless entrepreneurs, by allowing them to introduce an array of niche applications and devices for the open 

wireless platform, including those tailored to meet the unique 

needs of small businesses, and individual consumers. 

And, finally, the rules adopted by the Commission provide meaningful opportunities for small businesses to gain access to the Spectrum itself in the upcoming auction. The band plan makes nearly 

half of the Spectrum available over smaller and medium-sized geographic areas, 734 cellular market areas, or CMAs, and 176 economic areas. About one-third of the Spectrum will be available over 

larger regional areas, or 12 regional economic areas, and about onesixth of the Spectrum is available on a nationwide basis that will 

be used exclusively as part of a public/private partnership with a 

National Public Safety licensee. 

This distribution of geographic distribution is very similar to the 

geographic distribution in the AWS-1 auction from 2006. And with 

these changes, the total amount of Spectrum in the 700 Megahertz 

6

Band assigned to the smallest geographic area will be more than 

one-third of the Spectrum available. 

Licensing over smaller geographic areas benefits small businesses by reducing the cost of acquiring a license. The cost of acquiring Spectrum licenses with small geographic areas is, on average, significantly lower than the cost of acquiring licenses with 

larger geographic areas. 

The availability of licenses divided into these smaller areas enables smaller wireless providers to fulfill business plans focused on 

serving smaller discreet areas of the country, including more remote, and/or rural areas. The availability of smaller licenses at 

auction also allows smaller providers to avoid a transaction cost associated with attaining portions of a larger license in the secondary 

market through partitioning or leasing Spectrum from the incumbent carriers. 

To further promote the participation of small business in the upcoming auction, the Commission has provided for bidding credits 

for eligible small businesses, also known as Designated Entities. 

The Commission applied these same bidding credits in last year’s 

AWS-1 auction, in which a significant number of licenses were won 

by Designated Entities. Fifty-five percent of the winning bidders in 

the AWS-1 auction were Designated Entities, 57 out of 104, and 

those Designated Entities won more than 20 percent of all the licenses sold. In all, Designated Entities and the bidders won licenses valued at over half a billion dollars, and bidding credits 

made a significant difference, with Designated Entity bidders winning over half of their licenses by out-bidding a non-Designated Entity that placed the second highest bid without a bidding credit. 

Some entities have expressed some concern that the Commission’s modification to the Competitive Bidding Rules governing 

Designated Entities had deterred some smaller companies from 

participating in the AWS-1 auction. However, Designated Entity 

participation and performance in the AWS-1 auction was very similar to that in comparable past auctions, when partnerships with 

national wireless carriers are excluded. 

In addition to efforts to promote opportunities for small businesses through the upcoming 700 Megahertz Auction, the Commission has also undertaken a number of other initiatives to encourage 

small businesses to enter and compete in the telecommunications 

and media industries. 

The Commission is currently considering a Notice of Proposed 

Rulemaking that would allow small and independently owned entities to lease extra capacity of digital television station licenses in 

order to operate their own broadcast channel. This new programming station would then obtain all the accompanying rights and 

obligations of the underlying broadcast station, such as the public 

interest obligations and carriage rights. 

An example of this type of arrangement is the deal reached with 

Latino Alternative TV and Post-Newsweek that provides for carriage of LATV programming on multi-cast channels, and the PostNewsweek stations in Miami, Orlando, Houston, San Antonio. 

In this same rulemaking, the Commission is also seeking comment on several other proposals to allow qualified Designated Entities to more easily get into broadcasting, by allowing them to purVerDate 0ct 09 2002 13:15 Dec 20, 2007 Jkt 033615 PO 00000 Frm 00012 Fmt 6633 Sfmt 6633 G:\CLERK SB\HEARINGS\TRANSCRIPTS\39391.TXT LEANN
7

chase expired construction permits, and be allotted additional time 

to construct broadcast facilities. 

The Commission is working hard on several other areas, which 

we can end up discussing, but I do want to thank you for your time 

and attention today. And I certainly appreciate the opportunity to 

share with you the FCC’s efforts to support the growth of small 

businesses, and foster their participation, both in the FCC’s upcoming auctions, and the telecommunications and media industries, 

more generally. And with that, I’d be happy to answer any questions you may have. 

[The prepared statement of Kevin Martin may be found in the 

Appendix on page 45.]

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

Chairman Martin, the objective of Section 309(j) of the Communication Act is to promote economic development and diversification. Do you expect that open platform requirements assigned to 

the C block licenses will advance these objectives? 

Mr.MARTIN. Well, I do think so. I think it’s important not only 

from the perspective of an additional wireless business model, but 

for fostering additional innovation and opportunities for small businesses that are trying to develop software, and additional handsets. 

One of the things that the Commission had people raise with the 

Commission was the concern that small businesses that were developing new softwares and new applications were having a difficult time getting those applications placed on devices that were 

sold by the larger common carriers. And trying to have a new, 

more open platform I think will facilitate the opportunities for that 

kind of new innovation to occur. 

ChairwomanVELA ́ ZQUEZ. Could you tell me, specifically, how the 

open platform requirements may provide opportunity for small 

businesses, rural telephone companies, and business owned by 

members of minority groups, and women to offer wireless services? 

Mr.MARTIN. Well, I think that what it will allow, the open platform will allow for people that are small businesses that want to 

develop, like I said, a new application, or a new handset, to be able 

to get those services on to the wireless broadband networks. 

Currently, they’re not able to do that, unless they convince one 

of the large incumbent providers to sell their handsets, or sell their 

services, or include them. So I think the open platform will allow 

for people that don’t have to go get an agreement with the large 

incumbent providers to provide those kinds of applications and 

services, and I think that will be important, both to small businesses, and to consumers. 

ChairwomanVELA ́ ZQUEZ. How would you react to the fact that 

some rural telecommunications companies have suggested that 

larger entities seeking to avoid the open platform requirements of 

the C block licenses may opt to be on the smaller geographic licenses? Under this scenario, the smaller entities are concerned that 

they will be unable to compete, and win licenses as a result. Should 

the FCC take steps to address those concerns? 

Mr.MARTIN. Well, I think it was important for us to find a balance. And while the smaller carriers focused on rural areas, we’re 

concerned about the fact that the open access requirement placed 

8

on some pieces of the Spectrum might make the pieces they’re more 

interested in more attractive to larger providers. 

We could have applied the open access requirement everywhere, 

but the smaller carriers didn’t want that, either, so they didn’t 

want the open access requirements applied to the pieces of the 

Spectrum they were more interested in. And, ultimately, when we 

said we were going to apply it somewhere else, they were concerned it might drive some of the larger providers towards the 

Spectrum they were interested in. But I think we need to find an 

appropriate balance between not only making sure that there was 

Spectrum available for small telecommunications carriers who 

wanted to go buy Spectrum, but also make sure that we had a platform that was more open to small businesses in the development 

side of both handsets and applications. And I think that we are trying to find an appropriate balance with that. 

ChairwomanVELA ́ ZQUEZ. But, Mr. Chairman, our concern is to 

make sure that smaller entities will be able to compete and win 

those licenses. What actions have you taken to make sure that happens? 

Mr.MARTIN. What we’ve done to make sure that they’re going to 

be able to—we can’t make sure that they win. We can make sure 

they’re able to participate. 

ChairwomanVELA ́ ZQUEZ. Sure. That there is a level playing field 

for them to compete. 

Mr.MARTIN. Right. And so, what we did is, first, we divided up 

a lot of the Spectrum into smaller geographic sizes, and smaller 

Spectrum blocks, so they could have an area where they could be 

able to participate, and be able to have a more realistic chance of 

winning, because they were smaller geographic areas, towns, as opposed to states and whole regions of the country. And, so, compared 

to what the Commission had previously proposed, we actually 

broke the Spectrum up into even smaller areas to allow them to 

participate. 

And then we do have the Designated Entity bidding credits, 

which would allow them, if you qualify as a small entity, to participate and receive bidding credits in the auction. And I think that’s 

what’s going to allow them to end up competing. 

Like I said, the only other alternative in the issue that you 

raised about the open platform, is that going to be bad for small 

providers, the only alternative was to do that on a level playing 

field everywhere, apply the open platform to everyone. And the 

smaller carriers said that was worse, they did not want that as an 

alternative. And that would have been another alternative I think 

the Commission could have considered. We were actually taking 

their views into account but not applying everywhere. 

ChairwomanVELA ́ ZQUEZ. Okay. In 2006, the FCC revised its rule 

for small businesses or Designated Entities, that utilize bidding 

credits in Spectrum auctions. The revised rule had made it very 

challenging for them to raise money, and imposed significant restraint on their ability to run a viable communication business. 

Despite these concerns, the 700 Megahertz Auction will employ 

the rules as they were revised in 2006. Why did the FCC decide 

not to act on these concerns? And I know that the revised rules responded to the case in New York with Mr. Mario Gabelli, and we 

9

have to make sure that this is not a give-away. But in the process, 

also, we have to make sure that legitimate small entities are able 

to win. 

Mr.MARTIN. Well, I think you’re absolutely right, we need to find 

an appropriate balance to make sure that these rules not only protect against fraud, which is what some of the concerns that were 

expressed in the case up in New York that you were referring to 

with Gabelli, but also make sure that the legitimate small businesses have an opportunity to win as a part of the process. And I 

think that the changes the Commission made in 2006, which were 

done on a bipartisan basis by the Commission, were done to respond to the significant issues around fraud that had been raised. 

And I think that, actually, the changes from 2006 still allow 

small entities to actively participate and win in the auction that we 

had in 2006. So if you look, for example, in that auction, 55 percent 

of the winning bidders were Designated Entities, over half of the 

people who won licenses with the new rules you’re talking about, 

were Designated Entities. So I think that that’s a sign that despite 

the rule change we made, that they are still being very successful 

in the auction participation. They won 20 percent of the licenses, 

and over half of the licenses were awarded to smaller entities. And 

I think that’s a demonstration that they were still able to be successful, and we were able to address some of the fraud concerns. 

ChairwomanVELA ́ ZQUEZ. But we still want new entrants into this 

process. My question is, did you consider the comments that were 

submitted regarding the 2006 revised rules? 

Mr.MARTIN. Oh, absolutely. And the comments that were submitted, in large part, wanted us to go back to the pre-2006 rules, 

which had also facilitated, and/or allowed for some of the fraud 

that was occurring with the instances like Gabelli. And trying to 

make sure that these are legitimate small businesses that are interested in not just buying and flipping a license to a large provider, but that are interested in building a business, is what’s important. 

The most significant change that we made that the small carriers, that some of the potential licensees who want bidding credits 

made was, we said you have to hold the license for ten years, instead of five years, so you can’t just hold it for five years, and then 

flip it to a larger provider. And extending that time frame from five 

to ten years made it much more difficult for them to flip the license, as opposed to trying to build a legitimate business. And that 

was, frankly, the concern we had with some of the fraudulent activity that was going on. And I know that, as I said, some do not want 

that, some want to be able to flip it quicker to larger entities, but 

I think that’s an important rule change that I think was a good 

change by the Commission. And I think that it still did not deter 

people from participating as a Designated Entity. Fifty-five percent 

of the licenses were won by new small entrants, and I think that’s 

a demonstration that it was actually a successful balance. 

ChairwomanVELA ́ ZQUEZ. Thank you. Now I recognize Mr. 

Chabot. I have other questions, and when we finish here, we’ll go 

to a second round. 

Mr.CHABOT. Thank you, Madam Chair. 

10

Chairman Martin, could you describe again in some detail the 

procedures that the Commission used in evaluating the economic 

consequences of the auction rules on the Designated Entities? 

Mr.MARTIN. The economic consequences of all of the auction 

rules on the DEs? I mean, I think that we try to make sure we’re 

determining—first, we focused on the Designated Entity bidding 

credits, because that was the most contentious issue as it related 

to small new entrants. And we did evaluate the concerns that had 

been raised about wanting to go back to the previous rules. We determined that the changes in the rules had still allowed Designated 

Entities to be successful in the auction, and at the same time, that 

we think it’s a more appropriate means of preventing fraud, so we 

thought that was an appropriate rule change. 

We did look at the impact of the balance of rules, both auctioning 

off some of the licenses in larger areas, and made sure that we reserved a significant portion of the Spectrum for smaller bidders to 

be able to participate by having smaller geographic areas for them 

to be able to buy Spectrum in. So I think that we—every auction, 

we try to find a balance of some opportunities for small businesses 

to be able to participate on a smaller geographic area basis, but 

also some larger pieces of geographic areas and pieces of Spectrum 

to be sold, because that, at times, facilitates, for example, new entrants on a larger scale. And, so, I think that is appropriate balance that we had, but we certainly evaluated what the impact 

would be on small businesses. 

Mr.CHABOT. Thank you. In developing auction rules, does the 

Commission perceive that the public interest is, essentially, equivalent to obtaining maximum revenue from the sale of the Spectrum? 

And would there be situations in which the Commission adopts 

rules that do not maximize revenue, but instead maximize other 

public interest values? 

Mr.MARTIN. Absolutely. I mean, we do not consider the public interest being simply maximizing revenue. And, indeed, the rules we 

adopted do not maximize revenue. If we wanted to maximize revenue, all of our studies show we would sell all of the Spectrum basically in the largest geographic area possible, if not nationwide, 

and all of it on a very large Spectrum-basis, with no build-out requirements, whatsoever. And, so, all of those things, dividing up 

the country into smaller pieces, reduces the overall amount of 

money that’s raised, but it provides an important opportunity for 

smaller players to get in and provide service. 

In addition, build-out requirements also decrease the value of the 

Spectrum. The economists would say that the way to achieve the 

most value for the Spectrum from the Treasury standpoint would 

be allowing an incumbent to buy it and not use it, because it would 

prevent entry by anybody else. So he might be willing to pay a premium for the opportunity to not even build it out. So strict buildout requirements, and dividing the Spectrum up into smaller geographic areas, both reduced the amount of money that the Treasury will receive from the auction, but they provide other very important public interest benefits, and so the Commission doesn’t 

maximize revenue. And I think we do make sure that the Spectrum 

is being put to use, and that there’s other opportunities. 

11

Mr.CHABOT. Thank you. And, finally, Verizon has challenged the 

Commission’s auction rules in the D.C. Circuit. What would be the 

impact on the auction if Verizon were to win its challenge? 

Mr.MARTIN. Obviously, it would depend upon, when the Court 

ended up hearing on it. Verizon has filed a lawsuit. They actually 

asked the court to consider hearing this on an expedited basis, because they said it was important as it related to the auction, and 

the court just ruled last week and denied that request, and said 

that they would not hear that request on an expedited basis. 

Mr.CHABOT. So then relative to the impact, if they were to win 

the challenge, can you comment on that? 

Mr.MARTIN. Well, it, obviously, depends upon when they won the 

challenge, and whether that ended up ultimately being appealed. 

I mean, the Commission has had, in the past, its auctions that 

have been appealed after they’ve already occurred. And if the Commission ends up winning those appeals, then there’s no change. 

And if, ultimately, the person challenging the auction wins, the 

Commission has to go back and undo the auction, which is what 

occurred in the context of the one auction that had to be unwound, 

so to speak. And so that would depend upon when Verizon actually 

won their suit, if they win. 

Mr.CHABOT. Thank you. Madam Chair, I yield back my time. 

ChairwomanVELA ́ ZQUEZ. Mr. Gonza ́lez. 

Mr.GONZA ́LEZ. Thank you very much, Madam Chair. And welcome, Mr. Chairman. And I know you probably think that we don’t 

appreciate your service, but we do. And I’ve had the privilege of 

hearing you as a witness before, before Energy and Commerce. 

A couple of observations, first of all. When we talk about small 

businesses, and this is such a different environment here, because 

that is a first concern here, is where does the small business factor 

in the auction. It seems to me, despite your testimony, that it really isn’t about owning Spectrum for small businesses. That somehow 

the benefits of this auction, and the conditions that have been attached in open platform will somehow benefit small businesses by 

having handset manufacturers, I really don’t know the small business handset manufacturer, to be honest with you, or application 

providers, software providers. And, also, that certain areas, small 

businesses will have access to the Internet. And I think there’s 

some legitimacy to that. But I really don’t see the Spectrum rules 

benefiting small businesses, as far as ownership. And we’re going 

to have a panel of witnesses a little later that may disagree or 

agree with me. 

Secondly, I do believe that maximizing the monies that will be 

derived from the auction is a primary concern to the FCC, because 

we’ve told you, Members of Congress, when we were debating the 

Deficit Reduction Act, we’re placing $10 billion, and that’s on the 

low-end of what you’re going to get. Your reserve price probably 

adds up to about $10 billion, so I think the public owns the airwaves, you’re the auctioneer. You have a fiduciary duty, in my 

opinion, to maximize the monies that will be realized from that 

sale. 

I’m going to be citing testimony from some of the witnesses in 

addressing different aspects of the auction, and the concerns that 

are expressed by some of these witnesses. First of all, the condiVerDate 0ct 09 2002 13:15 Dec 20, 2007 Jkt 033615 PO 00000 Frm 00017 Fmt 6633 Sfmt 6633 G:\CLERK SB\HEARINGS\TRANSCRIPTS\39391.TXT LEANN
12

tions, no leasing, reselling, wholesaling to other entities. And I will 

then refer to the testimony of Shelley Spencer at page 2. 

‘‘Another key to our success in acquiring the Spectrum in the 

former, or in previous auctions, which were recently rescinded, by 

the way, it permitted us to lease half of our Spectrum to Sprint and 

Nextel. This is Spectrum which we are not using in our own network, and for small businesses, the ability to lease a portion of the 

Spectrum can provide immediate revenue. And as for us, provide 

the collateral necessary to raise the capital to purchase Spectrum, 

and build our own network.’’ So I do want you to be able to address 

that. 

The second area, ‘‘That larger companies will be attracted to the 

smaller licenses that they don’t see as being encumbered by the 

open platform conditions that you have placed on the Block C.’’ And 

so I’ll go to page 4 of Christopher Guttman-McCabe’s testimony, because I think he frames it very well. 

‘‘Incumbents that choose to participate in this auction and want 

a nationwide or regional presence will be left with a choice between 

bidding with a few large licenses with new and very specific service 

obligations, or bidding on the many licenses, as many as 734 in 

some Spectrum blocks, needed to achieve the same area of coverage. While this is an unfortunate choice for all carriers, it may 

have the greatest impact on small businesses. As a result of the 

new license conditions, if large incumbents choose to aggregate 

many of the smaller, less encumbered licenses, small businesses 

will be hard-pressed to raise the amount of capital needed to compete head-to-head in an auction with larger established carriers, 

particularly in the tighter credit markets that exist today.’’

Next, we’ll go into, ‘‘Open platforms will open markets for small 

handset manufacturers, small software companies, and small 

added-value resellers.’’ And I’ll go to page 3, and I can find it quickly, of Mr. Edward Kelly Bond, President of Public Communications, 

Incorporated, who, in essence: 

‘‘Unfortunately, the FCC’s current plan for auction and licensing 

the 700 Megahertz Bands presents only limited opportunities for 

small businesses to participate. Small businesses have virtually no 

opportunity to participate in the provision of the anticipated highspeed service to be offered on the upper 700 Megahertz C Block 

Spectrum. Small businesses have no opportunity to acquire the 

huge C Block licenses in the auction, and the FCC’s construction 

requirements do not encourage the large C Block licensees to work 

with small businesses. Since the open platform requirements apply 

only to the C Block licenses, the open platform requirements may 

be of little benefit to small carriers.’’

Lastly, on the Regulatory Flexibility Act, page 5 of Mr. Bond’s 

testimony readsChairwomanVELA ́ ZQUEZ. Mr. Gonza ́lez, time has expired, so I’m 

going to give you 30 seconds. 

Mr.GONZA ́LEZ. I’m justChairwomanVELA ́ ZQUEZ. But I will allow for the Chairman to answer your question. 

Mr.GONZA ́LEZ. Well, the last thing, and I think this is dear to the 

Chairman’s heart here, I mean, Chairwoman Vela ́zquez. And this 

is what Mr. Bond states: 

13

‘‘There is a law that exists, which I know this Committee is all 

too familiar with. It is called the Regulatory Flexibility Act.’’

As a regulatory agency, the FCC under this Act is charged with 

giving particular consideration to whether or not its rules will negatively impact small carriers, and particularly rural telephone companies. We cannot honestly think of one instance in which the 

Commission ever outlined in a final order that had found circumstances that warranted adopting different rules for small rural 

carriers.’’

And I know that is multi-faceted, and I’ll ask if Chairman Martin 

is not able to respond now, if he would in writing. 

Mr.MARTIN. I’d be happy to end up responding both in writing 

and now. Although, Chairwoman, if you want to go to the next 

questions, that’s okay. No, I’m just kidding. 

Let me respond, and say a couple of things. First, I think that 

there are often conflicting and competing interests that are involved in the Commission’s rules that we’re trying to balance when 

we’re trying to come up with their auction. 

There’s no question about we want to try to develop opportunities 

for small businesses to participate. But you also indicated that you 

think it’s important for us to maximize revenue. Those two are 

competing and conflicting interests that do not always coincide. 

Actually, to maximize revenue, we should provide less opportunities for small providers to participate, because they, in general, pay 

less for smaller pieces of Spectrum than if we sold a larger amount. 

So that’s one example of how the competing and conflicting interests have to be balanced to come up with something that’s fair to 

all the different parties. 

Another example is that you indicated that you were concerned 

about our limitations on wholesaling. Actually, we allow for a Designated Entity to wholesale up to 50 percent of the capacity that 

they’ve bought. What we don’t do is what some who wanted to 

change our Designated Entities require, they wanted us to require 

wholesaling for pieces of the Spectrum. And what we determined 

was that requiring wholesaling would have too much of an adverse 

impact on the amount of money people would pay for that Spectrum, because incumbents would not want to participate if we required wholesaling. But they’re allowed to wholesale up to 50 percent of what they buy, but they are not required to wholesale. And 

many of the small businesses, or some of them who had argued for 

us requiring wholesaling, understood that if we had a wholesale requirement, it would actually deter many of the larger providers 

from even playing, which would actually drive down the revenue 

that we would gain. 

So I think those are just two examples of how the interest that 

the Commission has, and the interest that I think everyone has, 

are often competing and conflicting, and we have to try to find a 

balance. But I think in our 700 Megahertz order, we have tried to 

provide a balance that allows them, for example, to wholesale a significant amount of what they buy, but they’re not required to 

wholesale at all, that we sell off a large portion of the Spectrum 

in a large geographic area, that has some open platform requirements, which we think will facilitate some small businesses. And, 

at the same time, sell a significant amount of the Spectrum, with 

14

more than half of the Spectrum is sold in small and medium-size 

geographic areas, without any encumbrances, whatsoever, without 

any encumbrances on open access at all. And I think that’s an example of how we tried to find an appropriate balance, and give 

small businesses an opportunity. 

ChairwomanVELA ́ ZQUEZ. Any answer on the Regulatory Flexibility analysis, because that was my next question. So we can take 

this opportunity for you to answer. 

Mr.MARTIN. Well, I think the Commission is both statutorily required to, and does, undergo a Regulatory Flexibility Analysis in 

all of our orders to determine the impact of our decisions on small 

businesses. And we do end up taking all that into account. I’m not 

aware, off the top of my head, of any court challenge that has said 

that have insufficiently done that Regulatory Flexibility Analysis in 

recent times, but I’ll go back and try to get you any further answers. But the Commission is always open, if there’s ways that the 

Committee thinks we might be able to improve that Flexibility 

Analysis. We’d be happy to work on that. 

ChairwomanVELA ́ ZQUEZ. So you’re aware that you conductedMr.MARTIN. Oh, absolutely. 

ChairwomanVELA ́ ZQUEZ. So, I will ask that you submit to this 

Committee the economic analysis that you conducted on the impact 

that it will have on small businesses. 

Mr.MARTIN. Sure. We always end up having to, and we’re happy 

to submit the Regulatory Flexibility Analysis. 

ChairwomanVELA ́ ZQUEZ. Thank you. Ms. Hirono. Mr. Sestak, he’s 

gone. Mr. Higgins, he’s gone. Mr. Shuler. 

Mr.SHULER. Thank you, Madam Chair. 

I simply have one question. We discussed that if a licensee 

doesn’t perform the benchmarks with the build-out within 10 years. 

Has the Commission explored, I know this is under new regulations, have you explored ways to kind of provide incentives after 

five years that maybe they could—I understand why they don’t flip 

it, and I believe what you’re saying, because that would create—

obviously, people would be getting it just for flipping those. Is there 

any other ways that we can kind of expedite that, make it a little 

faster; especially, in rural areas. I mean, ten years can be a life 

time. 

Mr.MARTIN. No, no. Our rule on Designated Entities says, if you 

qualify for a bidding credit, you are not allowed to flip it. You have 

to keep it for 10 years. Our build-out requirements actually kick in 

earlier. So, for example, after four years, we have a benchmark, 

and we say if you don’t—both geographic and population, depending upon which license you want. If you don’t meet that benchmark 

after four years, we actually shorten the time of your license from 

ten years to eight years. And that’s a significant deterrent to not 

building out over a large part of either your population or geographic area. So we actually have benchmarks along the way to 

make sure that people are progressing, and making progress towards getting to that. We don’t want to just have a requirement 

that says you have to build it out over ten years, and get to the 

end of the ten years and say you didn’t do anything. And that’s 

why we have the benchmark actually less than halfway through, 

15

to make sure you’re doing it, and meeting what’s a very aggressive 

benchmark. 

And, indeed, the wireless industry was very opposed to, in general, that aggressive benchmark, because it’s a more aggressive 

benchmarking along the way than we’ve ever used before, to make 

sure that those areas in rural areas are being built-out, because we 

can’t afford to wait for ten years for it to be getting out to those 

people. 

Mr.SHULER. Chairman Martin, thank you. And, Madam Chair, I 

yield back. 

ChairwomanVELA ́ ZQUEZ. Mr. Ellsworth. 

Mr.ELLSWORTH. Thank you, Madam Chair. 

Chairman, could you discuss how the e911, how we can ensure 

the availability in the open platform for e911? 

Mr.MARTIN. Well, we end up having some very strict rules on 

wireless 911 capability, and indeed, increasing it on all the different platforms that we have, that the Commission regulates. 

Since I became Chairman, we’ve been very aggressive in making 

sure that all the different platforms have 911 capability, so that 

when—voice over IP providers are now required to provide 911, 

and deliver every call to the local police and fire department. And 

we have very aggressive requirements on the wireless industry, 

that they’re having to do, as well. 

And we will enforce those, and the Commission was clear, they 

would provide to all of the providers who win in the 700 Megahertz 

Auction, as well. So it would apply to whoever is winning all the 

different pieces of Spectrum. 

Mr.ELLSWORTH. Thank you. I have no other questions. 

ChairwomanVELA ́ ZQUEZ. Mr. Altmire. 

Mr.ALTMIRE. Chairman Martin, thank you for being here today. 

I’m encouraged by the prospect that wireless broadband services 

might expand the service areas where reliable broadband is available, and provide more options for consumers in areas served by a 

limited number of providers, rural, and under-served areas. So 

when would you expect the entities that win licenses at next year’s 

auction to begin to roll-out wireless broadband services? 

Mr.MARTIN. Well, whenever you’re talking about rolling out a 

service that requires you to put up new infrastructure, go out actually in the communities and put up towers, and turn on service, 

that takes a while, turning on the services. That’s actually the reason why people were so concerned about that four-year benchmark, 

where we’re saying you’ve got to be providing service, for example, 

to about 40 percent of your population, and a significant portion of 

your geographic area with those four years. So, certainly, within 

four years, you’re going to be having to be serving more than about 

a third of the area already, so they’ll start turning it on, I would 

think, once you’ve bought the Spectrum, paid a lot for it, you want 

to turn it on as quickly as you can. But it does take a while to go 

get the approval from the local communities to put a new antenna, 

and put that antenna up, and get power to it, and turn it on, and 

begin selling handsets, so that takes a while. 

I would think within a year they might be able to start serving 

some places, but that four-year benchmark is a good sign for how 

far along they should be. 

16

Mr.ALTMIRE. Are there any areas of the country that you feel 

might be lagging behind, or similarly, that are further ahead in the 

process, and maybe would be used as a model for other areas to 

look at? 

Mr.MARTIN. Well, unfortunately, because this Spectrum is currently utilized by television signals, it’s been very difficult for anybody to—even for some of the pieces of the Spectrum were sold, for 

them to utilize it very effectively. So in this piece of Spectrum, in 

these frequencies, I can’t say that I think anybody’s really that 

much further ahead. 

Probably the one furthest ahead is a company called Qualcomm 

has rolled out service media flow, which is a mobile video service 

to telephones, that is provided by Verizon and several other providers. And they’re using actually some of the frequencies from digital television channels that they have actually either won, or negotiated with television channels to let them begin providing service. 

So they’re probably the most aggressive, and already utilizing some 

of the 700 Megahertz today. But I think that was a somewhat 

unique service, so I’m not sure how comparable that would be for 

others to follow. 

Mr.ALTMIRE. For my last question, I wanted to follow-up on what 

Mr. Chabot had talked to you about. And the FCC has proposed 

reserve prices for Spectrum licenses which amount to more than 

$10 billion. 

Mr.MARTIN. That’s right. 

Mr.ALTMIRE. As, of course, you know. At these prices, small businesses cannot participate without access to significant capital. Are 

you concerned that rules governing Designated Entities may inhibit their ability to raise capital? 

Mr.MARTIN. As I said, I think they were able to be very successful in raising capital, and still winning effectively in the last auction we had for similar kinds of Spectrum. And in that auction, 

over half of the winners were Designated Entities. And we based 

that reserve price on the amount of money that was garnered in 

this auction, where they effectively participated. So what we did is, 

we said that to try to get an estimate for how much this Spectrum 

should be worth, we looked at what was the most recent auction 

we had, and let’s utilize that as a benchmark for how much this 

Spectrum should be worth. And in that auction, that was the auction in which Designated Entities were able to win more than half 

the licenses. So I think that is a sign that they will be able to effectively compete. 

Mr.ALTMIRE. Thank you. I have no further questions. 

ChairwomanVELA ́ ZQUEZ. Yes. Ms. Hirono. 

Ms.HIRONO. Thank you, Madam Chair. 

I’m referring to the testimony of Mr. Edward Bond, Mr. Chairman. And I think that we want to allow small companies to directly bid for these bands, and then also to encourage the larger 

licensees to work with the small businesses. And, so, I’m referring 

to his testimony on it looks like page 4 or 5 of Mr. Bond’s testimony, where he says that: 

‘‘A better approach would be for the FCC in trying to promote the 

direct bidding by small businesses to license the Spectrum based 

on smaller license areas, rather than huge regional areas.’’

17

Can you respond to that part of my question? 

Mr.MARTIN. Sure. In the 700 Megahertz Band, in all of the television, in all of the frequencies we’re to sell, that the Commission 

is going to get back as a result of the DTV transition, a third of 

those channels are going to be sold in the smallest geographic 

areas. I haven’t seen Mr. Bond’s testimony, but in the smallest geographic areas that anybody propose, the cellular market areas or 

towns. So I think that is a significant opportunity for them to be 

participating. 

Are we doing it all on a small basis? No, but I think that’s a lot 

of Spectrum to be offering on a very small basis. 

Ms.HIRONO. Then his second point has to do with, you want to 

encourage the larger licensees to work with the smaller providers. 

And that, currently, your proposed rules provide few or no incentives for this to happen, because you’re allowing the large companies to basically focus on serving the urban or populated areas. So 

can you respond to how you can better encourage partnership between the large bidders and the smaller companies that want to 

get into the market? 

Mr.MARTIN. Well, I’m not sure exactly what he’s referring to on 

trying to encourage them to work together. But I will say that I 

think the most important thing that we can end up doing to try 

to facilitate that, is to make clear, if in the larger geographic areas 

that we sell, you have an obligation to serve that whole area, and 

all of those communities in there. And you can’t just serve the 

urban are, as you said in your question. You’ve got to go serve all 

of those areas, which is why we have very strict build-out requirements. 

Now one of the ways they can meet those build-out requirements 

is working with other providers, if they would like to. I think that 

would allow them, and encourage them to do that, but I think 

that’s the most important thing that we can do to encourage it, is 

to say, if you win a large geographic area, you’ve got to serve the 

smaller communities in that area, as well. You can’t just serve the 

big urban area. 

Ms.HIRONO. Just one clarification. I think, as I recall in your testimony, that you said that they would have to serve 75 percent of 

the population. 

Mr.MARTIN. That’s right. 

Ms.HIRONO. That’s not 100 percent. But at some point, do they 

need to serve 100 percent, including the rural areas? 

Mr.MARTIN. In areas where—if they haven’t met their benchmarks, we take back away the areas they haven’t served. But to 

be clear, and this is an important, I guess, important to put in context. The Commission has never had a requirement as high as the 

requirements we put in this auction on what they should end up 

providing service to. And, indeed, the industry in total, and I think 

this would probably be both the smaller providers, and the largest 

providers, were opposed to the very requirements you’re talking 

about, of being able to serve at least 75 percent of the population 

and a very high percentage of the geographic area. And, so, the 

Commission was trying to find a balance with that, but this was 

the most aggressive the Commission had ever been in what we 

were requiring people to provide service to. 

18

Ms.HIRONO. Thank you. 

ChairwomanVELA ́ ZQUEZ. Let me follow-up on Ms. Hirono’s question to you. 

In the next panel, some of the witnesses, like Mr. Bond, raised 

the issue of how—it’s going to be more expensive for a small entity 

to cover rural areas, because they are more spread out, they don’t 

the resources and the infrastructure. So rural communication companies have raised concerns about the population-based build-out 

requirements that the FCC assigned to the larger licenses. This 

company contends that population-based benchmarks will not encourage licensees to provide service to rural areas. How do you respond to that? 

Mr.MARTIN. That’s the very reason why we have actually a mix 

of our requirements. Some of the licenses are required to be built 

out on a population-basis, and some are required to be built-out on 

a geographic basis, to make sure that all of the different areas are 

covered. And, so, some of the small carriers wanted to make sure 

that we had a geographic basis, to make sure that all the rural 

communities were covered. 

Some small carriers were concerned that would actually become 

too difficult for them to end up doing, and wanted a population everywhere. And, so, the Commission, again, tried to find a mix 

where we’ve said some of the licenses can be built-out on a geographic area-basis, and some need to be built-out on a populationbasis, to try to provide opportunities both ways, to different carriers who wanted to be in differentChairwomanVELA ́ ZQUEZ. In 2006, the FCC conducted the Advanced Wireless Services Auction. Fifty-seven of the 104 winning 

bids were submitted by small businesses. According to one of the 

witnesses that will be testifying today, due to government user’s 

needs, small entities may have to wait as long as five years before 

they begin to benefit from the Spectrum. Mr. Chairman, for a small 

business, small entity, five years is a long time, so what steps are 

you taking, or you will be taking to accelerate the relocation process, so that these firms are not impacted by extended delays? 

Mr.MARTIN. The Spectrum that we were auctioning off in that 

AWS-1 auction was actually Spectrum that we were taking back 

from government users, and NTIA, which is a division of the Department of Commerce, is responsible for moving government users 

off of those pieces. They’ve got a schedule for when the government 

users are supposed to be off, but the Commission regulates commercial private users, not the government users, themselves. 

So to the extent that there’s concerns about the government 

users moving off, the Commission has very little that they can end 

up doing. NTIA is the one responsible for making sure that government users exit according to the schedule that has been laid out. 

But the auction was conducted with a schedule of when people 

were going to be leaving, and I assume that everything is on track 

with that. I haven’t heard, in particular, anything that that’s not. 

I think, though, the fact that the Spectrum was going to be unavailable for such a long period of time, because there were current 

government users who were going to be leaving over a certain period of time, only highlights why this Spectrum should be worth 

significantly more, because this Spectrum is going to be available 

19

at a date certain. We know on the DTV transition in 2009. And 

that’s the very reason why I think us using that Spectrum as an 

example of how much we should be able to raise, and using that 

as a benchmark, is why that’s a reasonable benchmark for us to 

be using, because this Spectrum should be worth more, because it’s 

available even quicker. 

ChairwomanVELA ́ ZQUEZ. Thank you very much. Mr. Chabot, do 

you have anything? Well, with that, the gentleman is excused, and 

I thank you for your time, and your cooperation, and your insights 

into this issue. 

Mr.MARTIN. Thank you very much. 

ChairwomanVELA ́ ZQUEZ. And we’ll expect for some of the questions that you were not able to provide some of the answers, to be 

sent to this Committee. 

Mr.MARTIN. Sure. Thank you. 

ChairwomanVELA ́ ZQUEZ. I will ask the second panel to please 

take your seats. 

Mr. Chairman, would you please name for the record a staff person who will stay at this hearing? 

Mr.MARTIN. Oh, sure. Aaron Goldberger will stay. 

ChairwomanVELA ́ ZQUEZ. Thank you. 

Okay. We’re going to start with our second panel. And each of 

the witnesses will have five minutes to make your testimony. And 

we’re going to start with Mr. E. Kelly Bond. He is CEO and President of Public Service Communications, based in Reynolds, Georgia. Public Service, through its subsidiaries, holds Spectrum in regions of Alabama and Georgia. Mr. Bond is Chair of the Wireless 

Committee of the National Telecommunications Cooperative Association, and is a member of the Rural Telecommunications Group. 

Welcome, sir. 

STATEMENT OF EDWARD KELLY BOND, CEO AND PRESIDENT, 

PUBLIC SERVICE COMMUNICATIONS, REYNOLDS, GEORGIA 

Mr.BOND. Thank you, Madam Chair. 

Good morning, and thank you for the invitation to be here. 

The upcoming 700 Megahertz Auction, if structured and managed appropriately, represents a tremendous opportunity for the 

FCC to help deliver broadband capabilities to all areas of the 

United States. 

Because of the characteristics of the 700 Megahertz Spectrum, I 

believe it will be economical to deploy broadband services to many 

rural areas that would otherwise have been uneconomical to serve. 

That’s why the segment of our industry has argued so strenuously 

that it’s essential for Congress and the FCC to develop policies that 

will ensure rural carriers have access to 700 Megahertz Spectrum, 

and, in particular, the 700 Megahertz Auction. 

My fear is that consistent with past practices, large nationwide 

telecommunications carriers will be in the best position to win 

many of these licenses that will soon be auctioned, and they will 

once again overlook rural towns, and their outlying areas, concentrating on the most profitable, highly populated areas. 

While such a market-based approach to the provision of 

broadband is understandable, it is not justifiable when there are 

small and rural companies ready and willing to provide service to 

20

such rural areas. And I suggest that rural carriers and rural businesses have different incentives when it comes to their regions’ economic survival. Bringing new businesses and jobs to my service 

area is a win-win situation. 

The FCC’s current plan for auctioning and licensing the 700-

megahertz band by design limits opportunities for small businesses 

to participate. Small businesses have no opportunity to acquire the 

huge C block licenses in the auction. And the FCC’s construction 

requirements do not encourage the large C block licenses to work 

with small business. 

And if I may interject, the discussion just now about the buildout requirements, as proposed, the build-out requirements are 

more burdensome on the small carrier than the large carrier. 

A far better approach for small business would be for the FCC 

to license the spectrum based on smaller license areas and the 

huge regional areas. Instead of creating licenses so large that only 

multi billion-dollar companies can bid on them, division of the spectrum across the smaller CMA divisions would allow for fair and 

equal participation by all size companies. 

Also, the FCC should change the current construction requirements for the C block from population-based benchmarks to geographic based-benchmarks. This would encourage large licensees to 

work with small businesses to maximize employment of service to 

secondary and rural markets. 

In addition, the FCC and Congress should ensure that to the extent services provided using 700-megahertz spectrum are mobile or 

portable, the customers of small carriers are able to roam on the 

networks to be built by the nationwide carriers. 

The FCC and Congress should ensure that nationwide carriers 

do not deny their own customers the ability to roam in rural areas 

where there is a small business carrier that is providing technically 

compatible services. 

Another way that FCC can ensure that rural citizens have access 

to new 700-megahertz-based applications is to require open access 

on the entire 700-megahertz platform and all future auctions of 

spectrum intended for personal communications services. 

If large nationwide carriers are allowed to dominate the 700-

megahertz auction, they will control massive amounts of spectrum. 

Such concentration in the hands of a few goes against the entire 

grain of section 309(j) of the Communications Act and seems contrary to congressional intent. 

We question the benefit to the public of allowing large carriers 

with huge budgets to gather spectrum with the potential purpose 

of preventing its use by others. 

There is no question that rural carriers, more than others, need 

less burdensome regulations. As a regulatory agency, the FCC 

under this Act, is charged with giving particular consideration to 

whether or not its rules will negatively impact small carriers and 

particularly rural telephone companies. 

We cannot honestly think of one instance in which the Commission ever outlined in a final order that it had found circumstances 

that warranted adopting different rules for small carriers. We ask 

how can this be? 

21

Instead of discouraging small businesses, the FCC should carefully study the impact of its regulations on small businesses, and 

should ensure that rules and policies encourage small and rural 

businesses to deploy broadband services. 

By instituting the suggestions I have outlined today, which we 

have repeatedly made in formal presentations and filings with the 

FCC, policy-makers could encourage the deployment of broadband 

connectivity to rural citizens and rural businesses with high-speed 

connections throughout America. 

I thank you for the opportunity to speak. And I invite your questions. 

[The prepared statement of Mr. Bond may be found in the Appendix on page 56.]

ChairwomanVELA ́ ZQUEZ. Thank you, Mr. Bond. 

Our next witness is Ms. Shelley Spencer. Ms. Spencer is President of WIREFREE Partners, based in Vero Beach, Florida. 

WIREFREE Partners currently deploy wireless networks in 16 

metropolitan markets, where it holds spectrum licenses. 

Prior to joining WIREFREE Partners, Ms. Spencer was General 

Counsel and founder of Airgate, a wireless company that built, 

owned, and operated a network in the southern Eastern U.S. covering more than 6.5 million people. 

Welcome. 

STATEMENT OF SHELLEY SPENCER, PRESIDENT, WIREFREE 

PARTNERS, LLC, LAYTONVILLE, MARYLAND 

Ms.SPENCER. Thank you, Madam Chairwoman, Ranking Member 

Chabot. And let me also thank you for your leadership. I think it 

is very timely since we just found out on Friday the auction is 

going to start January 24th and significant dollars will be due from 

all bidders by December 28th. So thank you for keeping this on the 

radar screen. 

As I sit here today, we are constructing a state-of-the-art network in our 16 markets. And that network I think shows the story 

of what small businesses can do. 

We are not a rural telephone company. So I think we have a different story here today. And I hope that the message doesn’t get 

lost that small businesses can also serve urban markets. 

We have Cincinnati as our market. We have Austin, Texas. We 

also have McAllen, Texas. So there is a variety of markets. And 

small businesses can bring value to every one of those markets, be 

they rural or urban, but that all counts on the FCC and the FCC’s 

rules. 

My companies have participated for ten years in spectrum auctions, each time as a small business. And we have seen the rules 

go back and forth. Significantly, the network that we are building 

today operates on spectrum 1 in 2005. 

We chose not to participate in the AWS auction in 2006 precisely 

because the rules changed and we didn’t feel we could raise the 

capital. We are likely to sit on the sidelines in 700 megahertz because, again, we don’t think we can raise the capital. 

But the story for small businesses can be bright. Just like other 

industries, small businesses in wireless generate new jobs, bring 

22

new competition, and bring innovative services. My companies over 

the years have created over 250 new jobs. 

We are bringing service to business customers that aren’t being 

provided today by the national carriers. As a small company, we 

can pay attention. We can bring those niche services that other 

people like. But we need to have access to spectrum. 

I think it is important to recognize that small businesses in wireless are unique in two very important ways. First, we have to get 

access to spectrum. And the only way to do that is to buy it from 

somebody else or go to an auction. And that is expensive. 

Second, we have to raise a lot of capital, not just to buy the spectrum but to build the network. My company in the 2005 auction 

paid 152 million for spectrum. That is a lot for a small business. 

That included, significantly, a $44 million bidding credit, without 

which we wouldn’t have been able to purchase the spectrum. It also 

included our ability to lease half of our spectrum to Sprint-Nextel, 

as mentioned by Congressman Gonza ́lez. That today is not available, Congressman. We can lease a portion of the spectrum, 25 percent, but being able to lease 50 percent to a single entity is not permitted. Nor is wholesaling of 50 percent to a single entity. So small 

businesses have to face, how do we raise the money to participate 

in this business? 

The 700-megahertz auction will require small businesses to raise 

millions of dollars in the next 3 months. As it is been noted today 

by the Committee, the auction will have to produce $10 billion in 

revenue. 

Just to bid on the small markets that the Chairman pointed out 

are key to small business opportunity takes huge dollars. For example, the minimum opening bid in New York City for the smallest 

market is $59 million. That is to place one bid, the first bid. 

The Cincinnati minimum first bid for the smallest market is $2.9 

million. And San Antonio will cost you 767 million if you win it on 

the first bid, but no one wins it on the first bid. 

The capital requirements are staggering for small business. And 

it requires that the rules be flexible so that we can be innovative 

in our strategies and our finances in attract the capital. 

The AWS auction was not a bright spot for small businesses, although I think the FCC chairman would quote you different statistics. If you look at the half a billion dollars that he cites that small 

businesses won, that is out of 13.5 billion that was spent. So half 

a billion was spent by small businesses. And since everything is 

priced on population and size of megahertz, that means that the 

smaller markets were what the small businesses were winning. 

Also, the rural telephone companies, although they don’t like the 

rules, did okay if you look at the percentage that they won by DEs, 

but the small businesses that are true entrants won less than that. 

We attribute the poor showing in that auction, frankly, to the rule 

changes. And we would expect the same in the next auction unless 

there is significant change, which doesn’t seem to be underway. 

So the future can be different, but we think small businesses 

really need three things. One, we need bidding credits, which are 

in place and are available for small businesses. But those have to 

be tied to flexibility to run our business.

23

We should be able to wholesale. We should be able to retail. We 

should be able to lease. We shouldn’t have straitjackets because we 

are small businesses that other carriers don’t face.

And also we can’t live with a ten-year restriction of holding the 

business. It isn’t just selling the business. We can’t change our 

board. We can’t have strategic relationships because all of a sudden 

we fall out of the small business category. In ten years, that is a 

long time in the wireless industry.

Just open the paper this morning, and you will see 700 megahertz was bought by AT&T from a small carrier. That happens 

every day. And to say a small business can’t have that but must 

raise millions of dollars to participate in the auction is the death 

knell for small businesses.

So we appreciate your leadership and your continued support. 

And we hope the auction goes well. Thank you. 

[The prepared statement of Ms. Spencer may be found in the Appendix on page 63.]

ChairwomanVELA ́ ZQUEZ. Thank you very much. 

Our next witness is Mr. Chris Guttman-McCabe. Mr. McCabe is 

Vice President, Regulatory Affairs, for the CTIA - The Wireless Association. CTIA is an international trade association representing 

all sectors of wireless communications, including service providers, 

manufacturers in wireless data and Internet companies. 

Prior to joining CTIA, Mr. Guttman-McCabe practiced law in 

Washington, D.C. 

Welcome, sir. 

Mr.GUTTMAN-MCCABE. Thank you. 

STATEMENT OF CHRIS GUTTMAN-MC CABE, VICE PRESIDENT, 

REGULATORY POLICY, CTIA-THE WIRELESS ASSOCIATION 

Mr.GUTTMAN-MCCABE. Good morning, Chairwoman Vela ́zquez, 

Ranking Member Chabot, and distinguished members of the Committee. On behalf of CTIA and its hundreds of carriers and manufacturer members, I want to thank the Committee for focusing its 

attention on the upcoming 700-megahertz auction. This spectrum 

and the recently auctioned AWS spectrum will continue to facilitate 

the wireless industry’s provision of broadband to the person. 

Over 150 wireless companies provide service to more than 243 

million Americans today. These companies have in excess of 25 billion in capital expenditures each year and account for over 253,000 

jobs in America. Last year there were 1.8 trillion minutes of use 

in the United States. There currently are 18.7 billion SMS text 

messages issued per month. 

From a public safety perspective, there are 291,000 wireless calls 

to e911 each day. More than 15 companies manufacture handsets 

for use in the United States market. There are hundreds and hundreds of handsets available to American consumers. And perhaps 

even more staggering, there are over 1,000 companies that display 

their products and services at CTIA’s annual shows each year. 

24

All of these products and services are provided to the American 

consumer for one-fourth of the average price per minute that consumers in Europe experience. In addition, U.S. subscribers use 834 

minutes per month. That is 500 minutes more than the next closest 

country in Europe. 

In addition, U.S. subscribers enjoy benefits involving less cost, 

more minutes, more offerings, more carrier choices than anyone on 

the planet. Other countries envy this market, the market that has 

developed in the United States. And the country, its regulators and 

legislators should be proud. 

The 700-megahertz spectrum referred by some as beach-front 

property could help to continue that trend. Unfortunately, when 

the Commission sought comment on the potential service rules for 

the spectrum, a small subset of new entrants promoted proposals 

designed to tailor the auction to their own unique business models 

and promoted proposals that were designed to prevent access by 

some incumbents. 

Much of the debate during this process has centered on proposals 

put forth by a group of well-funded companies with a combined 

market capitalization of one-half trillion dollars. Companies will 

spend the next few months reviewing the rules and making decisions whether to participate in the auction, but it is arguable that 

these new conditions, which contradict the FCC’s past policies of 

supporting license flexibility, could have a negative effect on the 

ability of small businesses to take part in and ultimately win licenses in 700 megahertz. 

Specifically, the Commission’s open platform and geographic 

build-out requirements could place 700-megahertz licenses out of 

the reach of small businesses. 

As referenced in the letters that we attached to my written testimony, a coalition of 139 companies, all of which would qualify as 

small businesses, oppose the open access requirement. Additionally, 

55 companies and organizations, again the majority of which would 

qualify as small businesses, oppose the geographic build-out requirement. 

In setting the ban plan and service rules for the 700-megahertz 

spectrum, the Commission adopted a mix of spectrum and license 

sizes as well as regulatory requirements. For example, in the upper 

C block, a 22-megahertz block of spectrum, the Commission has imposed an open platform condition. 

CTIA and many large and small incumbent carriers argued that 

removing carriers’ ability to control the handsets permitted on its 

network limits the ability of the carrier to manage the security, the 

quality, and the viability of its wireless networks. 

Further, with the fast pace of innovation in this industry, having 

the government try to predict or direct where the industry should 

go is a troubling concept. 

Similarly, the upper D block is subject to a public-private partnership obligation. The additional obligations this condition places 

on the D block licensee will likely make it less attractive to small 

businesses. 

In the lower band licenses, the Commission adopted a geographic 

build-out that potentially limits the desire of small businesses to 

purchase that spectrum. 

25

Requiring carriers to serve those areas where there are few, if 

any, people may require small business licenses to build sites that 

they cannot afford to maintain. Specifically licensers will need to 

reach 35 percent of the geographic area in 4 years and 70 percent 

by the end of the license term. 

To put this into perspective, according to the U.S. census, 87 percent of our population lives in 8 percent of the geography. Taken 

collectively, the Commission’s decision to encumber the 700-megahertz license with new service obligations could significantly impact 

small business opportunities. 

On the spectrum front, this Committee also could help licensees 

that won spectrum in the recent AWS auction. Some of the 104 

winners, many of whom were small businesses, may have to wait 

as long as four years to begin operation. Companies purchase license in the AWS auction and have been unable to begin serving 

customers as government incumbents have yet to clear the spectrum. And the process of coordinating operation prior to relocation 

has proven difficult. 

We urge this Committee to help small businesses with AWS licenses by working with those agencies to ensure the timely relocation or prior to relocation the coordination of the use of that spectrum. 

In addition to asking and investigating issues regarding small 

business access to spectrum, this Committee also could aid small 

businesses by helping to ensure that unnecessary, unfunded mandates are not placed on wireless carriers. This was referenced in 

Mr. Bond’s testimony. 

In the last 18 months alone, carriers large and small have faced 

the prospect of having to upgrade their networks to face new 

CALEA, e911, CPNI, Emergency Alert, Katrina, and other unfunded mandates. Perhaps even more than access to spectrum, 

these additional burdens on the provision of wireless service threaten to significantly impact the viability of small carriers. 

Finally, I commend the Committee for its recent hearing on the 

need to extend the Internet tax moratorium. CTIA urges the Committee to continue to press for lower, simplified taxation, not only 

for Internet service but also for wireless service. It, too, is a critical 

input for many small businesses. 

Thank you, Madam Chair. And I look forward to your questions. 

[The prepared statement of Mr. Guttman-McCabe may be found 

in the Appendix on page 71.]

ChairwomanVELA ́ ZQUEZ. Thank you, Mr. McCabe. 

Our next witness is Mr. Christopher Libertelli. Mr. Libertelli is 

Senior Director of Government and Regulatory Affairs for Skype, a 

global Internet communications company. Skype’s software allows 

users to make telephone calls from their computer to other Skype 

users free of charge or to land lines and cell phones for a fee. 

Before joining Skype, Mr. Libertelli was senior legal adviser to 

FCC Chairman Michael Powell. 

Welcome. 

26

STATEMENT OF CHRISTOPHER LIBERTELLI, SENIOR DIRECTOR, GOVERNMENT AND REGULATORY AFFAIRS, NORTH 

AMERICA, SKYPE COMMUNICATIONS 

Mr.LIBERTELLI. Madam Chairwoman, Ranking Member Chabot, 

and members of the Committee, thank you very much for offering 

us the opportunity to testify before the Committee this morning on 

an issue that is central to Skype’s future and the future of small 

business on the Internet. 

As the Committee knows well, during the 1990s, America began 

a transition from the dial-up to the broadband Internet access. 

Small business benefited enormously from this transition. The 

Internet empowered a small business with a good idea with the 

chance to become a corner store in the global information economy. 

Today policy-makers are presented with the next chapter in the 

development of the Internet: the transition to the mobile broadband 

Internet. If we get this transition right, the backbone of the U.S. 

economy, small business, will be in position to compete on a global 

scale with competitors in Europe, China, and India. If we get this 

wrong, one of the most important trends in Internet communications, mobility, will be less open to U.S. entrepreneurship and innovation. 

Unfortunately, the mobile Internet bears very few similarities to 

the Internet that allows small business to thrive. Today, openness 

on the wireless Internet is at risk, which is why the FCC’s 700-

megahertz auction and its open access provisions are crucial to 

Congress’ innovation and small business policy. 

For Skype, business users are more than 30 percent of our global 

community of more than 220 million registered users. Skype allows 

people to communicate with their customers and colleagues using 

text, voice, and video, to communicate more affordably but also to 

change the way people think about communications. 

Take, for example, Anita Campbell, who is the editor of the popular Small Business Trends Web site based in Lynchburg, Virginia 

and Cleveland, Ohio. Controlling the costs of a mobile phone bill 

that kept creeping higher is a priority for her. So she uses Skype 

to make outbound telephone calls. She uses Skype to complement, 

not replace, her primary connection to the phone network. By doing 

so, she was able to cut her wireless plan down to 450 minutes from 

1,000, saving approximately 40 percent. 

But it is not merely about saving money, as important as that 

is to small businesses. Consider another company, Media Internet, 

based in New York City. In its New York office, they use Skype in 

a related program called Unyte to teleconference from one cubicle 

to another or with remote offices in Argentina. As a result, conveying an idea which used to take half an hour can take ten minutes or less. 

The impact of openness principles on small business is real. All 

of these innovations are taking place on the wired Internet.There 

is no reason why we can’t have the same level of innovation on the 

wireless web. 

Shorthand for 700-megahertz open access policy is in our view a 

no blocking and no locking rule, something we refer to as 

Carterfone. By that we mean that a small business or any consumer should be able to use any wireless telephone handset or 

27

Internet device as long as that device is technically compatible with 

the network. It also means that small business users should be 

able to use any software on that device without the permission of 

the network operator. This is the rule in every other sector of the 

broadband market except wireless. And we should correct that. 

In testimony before the House Commerce Committee, FCC 

Chairman Kevin Martin updated the Carterfone story for the wireless environment by explaining that openness will ‘‘ensure that the 

fruits of innovation swiftly pass to the hands of consumers.’’

Chairman Martin, Commissioner Copps, and Commissioner 

Adelstein made good on that vision a few months ago in the 700-

megahertz rule. And we fully support them. 

In the aftermath of the on-again/off-again Verizon restrictions on 

the political speech of an abortion interest group, the wasteful cat 

and mouse game over unlocked Apple iPhones, we need no further 

evidence of the importance of open access principles for the wireless market. 

I would like to close by stressing two major benefits that an open 

access policy has for small businesses. The first is that in the small 

businesses’ role as a consumer of wireless services. In this respect, 

they will have more advanced, more affordable tools for their business needs with open access. 

For small business users, there is a second perhaps unique benefit. Small businesses will have the opportunity to build Internet 

applications and devices sold directly to consumers, subject only to 

the reasonable technical constraints, rather than the competitive 

concerns, of wireless operators. 

In short, small businesses are both consumers of Internet communications services and creators of mobile applications. Twelve 

years ago, eBay started as a small business. Four years ago, Skype 

started as a small software company. An unconstrained wireless 

marketplace offers almost unlimited potential for the next eBay, 

the next Skype. 

America’s small businesses can have a pro-consumer, pro-innovation policy in wireless if the FCC’s 700-megahertz policies are implemented and carried forward throughout the wireless market. 

Thank you. 

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

Appendix on page 84.]

ChairwomanVELA ́ ZQUEZ. Thank you, Mr. Libertelli. 

Our next witness is Mr. Jeffrey Black, who is the founder, Chairman and Chief Strategy Officer of TalkPlus. TalkPlus brings advanced mobile phone features to customers, including an application which allows users to add a second phone number to their mobile phone. 

Mr. Black is a member of the Wireless Founders Coalition for Innovation, a group of wireless industry entrepreneurs who have 

founded wireless companies that now generate billions of dollars of 

revenue and have created thousands of jobs. 

Thank you. 

28

STATEMENT OF JEFFREY BLACK, CHAIRMAN, FOUNDER AND 

CHIEF STRATEGY OFFICER, TALKPLUS, INC., SAN MATEO, 

CALIFORNIA, ON BEHALF OF THE WIRELESS FOUNDERS COALITION FOR INNOVATION 

Mr.BLACK. Thank you, Madam Chair and Ranking Member 

Chabot, and distinguished members of the Committee. 

The topic before the Committee is critically important to the future of business entrepreneurs in the wireless industry. I am here 

today as a member of the Wireless Founders Coalition for Innovation, which is a group of seasoned industry entrepreneurs who have 

founded wireless companies who have generated billions of dollars 

of revenue and have generated thousands of jobs. 

Many of us are now working in our second, third, and sometimes 

our fourth wireless start-ups. Many of those are actually still in the 

garage stage. 

I personally have built my career as a serial entrepreneurs with 

27 years of experience in the high tech industry, founding several 

companies, including IMI, iAtlas, Hotels.com, and PartnerVision 

Ventures. Currently I am the founder, Chairman, and Chief Strategy Officer of TalkPlus, a next-generation mobile software company 

which develops advanced calling services for small businesses. 

These features are very critical for some of the things coming up. 

Imagine if you had the ability to have a phone locally somewhere 

and you can actually add a D.C. phone number onto your current 

phone right now. That is one of the types of services. 

So these types of innovations can flourish as a result of the upcoming spectrum auction because the FCC has wisely adopted the 

so-called open access conditions. Open access is a familiar idea that 

applies to everywhere except for the wireless industry. Those who 

build and maintain our highways don’t get to dictate the type of 

cars that we drive. The electric company can’t limit your type of 

choice of vacuum cleaners you buy. Nor can your ISPs tell you if 

you can launch a Web site. 

However, in the wireless world, wireless carriers dictate the devices and applications that can be used on their networks. We believe the wireless industry is ripe with opportunities for innovation 

and economic growth, but the large wireless carriers currently act 

as gatekeepers to block or deter many of these opportunities. 

From firsthand experience, we know that negotiating with the 

large carriers for access to their networks can be a difficult and 

time-consuming process that can add months, if not years, to the 

launch of a new venture. 

An open access framework, by contrast, would enable innovation 

at Internet speed. To make this auction a boon for small business 

and entrepreneurs, we urge this Committee to prod the FCC to 

take two important steps: one, strictly enforce the open access requirements; and, two, ensure that the rules will give small businesses and start-ups bidding credits to enter into the market and 

capitalize on these new rules. 

What start-ups and small businesses are looking for is equal access to the network, to the phone, and to all the features that carriers get access to. In short, what level of access a carrier gets to 

this new network, small business should get the same access. Let 

29

the consumers, not the carriers, dictate who can offer the best and 

the brightest applications. 

Carriers argue that they need absolute control over the consumer 

experience and which applications they have access to. But if a consumer wishes to use a free instant messaging service offered by a 

small business, instead of using the carrier’s own messaging service, how will that harm the network? 

Simply put, there is no reason. Apart from commercial self-interest, why a carrier needs to ban video streaming, voice over IP, and 

other applications makes no sense. The only devices and applications that should not be allowed are those that actually harm the 

network. 

Today’s barriers significantly raise the costs and the risks of a 

start-up entrepreneur bringing a new mobile product or service to 

the market. The impact of this on American ingenuity is tragic. 

If you are a small business with a big idea, venture capitalists 

strongly urge you to target Europe and Asia before attempting to 

introduce your application in the United States. It is not because 

the other countries are more forward-thinking or their consumers 

are smarter or more tech-savvy. No. It is because these countries 

give consumers more choices and drives sales and innovation. 

Wireless entrepreneurship could take a huge step forward in the 

U.S. if the United States were to be more like the public Internet. 

What makes the Internet so friendly from an entrepreneur’s perspective is openness. One does not have to ask Comcast or AT&T’s 

DSL Division for permission to launch an application, a service, or 

a device. As Nike would say, we just do it. But in the wireless industry, we have to ask permission to innovate. 

So, in conclusion, America is not innovating in the wireless at 

nearly the rate that it could be. While all the ingredients for innovation, wireless broadband networks, IP network, IP network 

stacks, advanced multimedia devices, are readily available in other 

countries, the U.S. incumbent operators are too hesitant to try a 

new recipe for change. 

The upcoming spectrum auction gives small businesses a chance 

to compete in the wireless world and offer consumers new and exciting services. The FCC has taken small steps in this direction. 

And I urge the Committee to push the FCC to finish the job and 

enable small businesses to compete and innovate. 

[The prepared statement of Mr. Black may be found in the Appendix on page 90.]

ChairwomanVELA ́ ZQUEZ. Thank you, Mr. Black. 

Ms. Spencer, I would like to address my first question to you. 

You stated in your testimony that in 2006, after the revised rules, 

you decided not to participate in that auction because you felt that 

it would be really difficult for you to raise the money. 

When I asked the Chairman the same question about how the revised rules will have unintended consequences for small entities, 

his answer was that out of 101, 57 competed and they won. But 

then I asked him out of the 57 how many were new entrants. I believe he didn’t answer. Are you aware of how many of the 57 were 

new entrants? 

30

Ms.SPENCER. Chairwoman, I don’t know the exact number, but 

I can tell you of the DEs that one licenses, I think a few things 

are important. One, they want 20 percent of the licenses. So he is 

taking the best number. 

Maybe our four percent of the revenue is the worst number. And 

there are some numbers in between. And one is that 20 percent of 

the licenses in that auction went to DE. 

Seventy percent of those went to rural telephone companies that 

claimed in their application. So the remaining 30 percent went to 

new entrants. However, of that, I believe there were a handful. 

Many companies that we had competed against in prior auctions, 

like myself, did not come to that auction. 

ChairwomanVELA ́ ZQUEZ. Mr. Bond, do you have any recommendations about how the Commission’s rule could be refined to 

provide flexibility to pursue proven business models without undermining the safeguards against abuse? Ms. Spencer? 

Ms.SPENCER. Oh, I am sorry. I thought you said Mr. Bond. 

ChairwomanVELA ́ ZQUEZ. I am sorry. Ms. Spencer? 

Ms.SPENCER. Okay. Well, I think the fraud issue was what the 

Commission was concerned about. And we are concerned about 

that, too. But I think the rule changes actually didn’t go to the 

Gabelli situation. With Gabelli, it was a question of, was the small 

business he was investing in a legitimate small business? 

There are ways to address that. The construction requirements 

are one way. You have to have a service. But what the Commission 

did is look and say, ‘‘Well, we are not going to let you lease. We 

are not going to let you wholesale.’’ Gabelli wasn’t doing any of 

that. So it is kind of like we had the problem and we applied a 

Band-Aid somewhere else. 

So I think there are a lot of rules. The Commission gets applications. They can review applications. Challenges can be brought. 

And people do that. Other bidders bring that. 

But the construction requirements here are very severe, as has 

been pointed out. So there are ways to make sure people use the 

spectrum. But the answer of doing these other kind of line of business restrictions and the ten-year hold, you cannot talk to a venture capitalist. 

You can’t talk to Wall Street and say, ‘‘Lend me money’’ because 

they get into the details of what you can and cannot do. And they 

don’t see how you can navigate in the competitive market. 

ChairwomanVELA ́ ZQUEZ. Well, how would you react to the answer provided by the Chairman that the fact that 57 small entities 

were able to get the licenses compared to the 100—

Ms.SPENCER. Well, I congratulate them. 

ChairwomanVELA ́ ZQUEZ. Apparently they didn’t have a problem 

raising the money. 

Ms.SPENCER. Yes. Well, I think we are all tough on companies. 

And Mr. Bond can address this more. They have a base. You know, 

so what they are doing is they are buying spectrum to add onto 

their business. A new entrant has nothing. We are starting from 

zero. So I think that is part of it. 

And, frankly, the rule changes were late. So I think people, some 

people, may have had their money and it wasn’t affected. 

ChairwomanVELA ́ ZQUEZ. Thank you. 

31

Mr. Bond, can you tell me and the Committee if any of the associations that your company is a part of have brought legal actions 

against the FCC regarding the regulatory flexibility analysis. 

Mr.BOND. I am aware, I was told of one as we were listening to 

the Chairman’s testimony. And I understand that during the local 

number portability proceedings, that we did bring and rules were 

stayed as they applied to local telephone companies. So that is one 

that I am aware of. 

ChairwomanVELA ́ ZQUEZ. My concern is if there are concerns out 

there regarding the fact that the FCC didn’t conduct a responsible 

analysis regarding the regulatory flexibility act, I didn’t see the 

complaints and comments submitted to FCC. I don’t see a big number. 

Mr.BOND. Yes, ma’am. 

ChairwomanVELA ́ ZQUEZ. Mr. Libertelli, Skype along with Google 

and other Internet companies have been strong supporters of the 

open platform requirement, which will allow individuals to use any 

device for the 700-megahertz frequencies. 

Looking forward, what will the wireless market look like after 

the auction? And why are the open platform rules important to you 

and your customers? 

Mr.LIBERTELLI. Chairwoman Vela ́zquez, I think there are two dimensions to the answer to your question. The first is we think that 

after the 700-megahertz auction is completed in these open device 

and application principles are put into the market, you will see 

consumers take greater control over the way they use communication services and wireless. 

So in the story I mentioned in my testimony, you will see small 

businesses take control over the amount of overage they typically 

have with a wireless service and try to reduce the cost of doing 

business. 

The other dimension to this, which I think is critically important, 

is that if the 700-megahertz rules are put in place and openness 

principles prevail, you will start to see more and more small—and 

I mean very small—companies, zero to ten people, build mobile applications that plug into applications like Skype. 

We try to approach this with some amount of humility. We can’t 

always figure out what the next great Internet application will be, 

but we can partner with companies who are themselves small businesses to develop that application and jointly provide that choice 

to consumers. 

So we would expect to see more consumer empowerment on the 

service side and more innovation on the development side. 

ChairwomanVELA ́ ZQUEZ. Thank you. 

Mr. Bond, I share your concerns regarding the Regulatory Flexibility Act. And I just want for you and other associations that really represent small businesses to understand that the Regulatory 

Flexibility Act is an important tool of this Committee under the jurisdiction of the Small Business Committee. 

So when a federal agency is going to issue a regulation or a rule, 

they have to comply to do the proper economic impact on small 

businesses. And that we can use to bring the agency before this 

Committee. 

32

And so in helping us do our job, it is important for trade associations that represent small businesses to submit the comments and 

to raise the concerns in big numbers so that it will give us the arguments to bring those agencies before the Committee. 

Mr.BOND. Yes, ma’am. And we do make it a practice to comment. 

I thought the question was more tailored towards legal action. And 

it is very expensive to challenge legally. 

Small businesses don’t have the resources to go down that path. 

And the associations being funded by small businesses are limited 

in resources as well. But we do make it a practice to comment. 

ChairwomanVELA ́ ZQUEZ. From your testimony, it sounds as 

though broader communication companies have a great deal of uncertainty about how the upcoming auction will impact their businesses. 

Mr.BOND. Yes, ma’am. 

ChairwomanVELA ́ ZQUEZ. Do you expect that your small business 

customers will benefit from the open platform requirements that 

the FCC assigned to the C block licenses? 

Mr.BOND. Absolutely. Small business customers—and I will 

speak as both a rural telephone company, rural carrier, and small 

business customer myself—need access to the high-end equipment. 

I mean, speaking as a carrier, a wireless carrier, one of the hard 

tasks that we had was to get equipment to sell to our customers. 

We are on the tail end of the supply chain. All of the new equipment, the stuff that is advertised, the stuff that is promoted is tailored for and sold by the large carriers. And in most cases, we can’t 

get that equipment until it is generations old. 

ChairwomanVELA ́ ZQUEZ. Thank you. 

Mr. Chabot? 

Mr.CHABOT. Thank you, Madam Chair. 

Mr. Black, you mentioned I think that regulations, among other 

things, make it more difficult to innovate in the wireless world 

versus the Internet. How would you change this? Are there any 

things that we could do that would remedy that or at least head 

in the right direction? 

Mr.BLACK. Well, the important part here is all about open access 

to both the networks and the phones. And there are some things 

that go beyond that also that would really help out, especially for 

start-ups and people building software. And that would be open access to the billing systems, too. 

So what we are looking for is the ability to bring a product to 

market without having to spend millions and millions of dollars to 

build a product just so the carrier can turn around and say, ‘‘I am 

sorry. We are not interested.’’ And that happens all the time. 

So a lot of start-ups are now looking at saying, ‘‘Okay. I can build 

a product in Silicon Valley. Oh, but why don’t I just go launch it 

in Europe and Asia?’’ because it is easier to get onto the phones 

in those other countries because most other countries outside the 

United States, they are not locked phones. 

Mr.CHABOT. Thank you very much. 

This is for the whole panel. Are there services that are available 

to large users of wireless services that are unavailable to small 

business users? And if so, what competitive disadvantage does it 

33

place the small business user in? And what could be done about 

that? I would invite anyone who wants to comment. Mr. McCabe? 

Mr.GUTTMAN-MCCABE. Yes. Thank you, Congressman. I can’t 

picture services that are available to one category of users versus 

another, but I do think it’s instrumental. And you’ve brought up 

the idea of looking at this 700-megahertz auction not only from the 

perspective of companies being able to access spectrum, small business entities, but also from the perspective of small business users. 

Part of our concern with regard go the open access concept is, as 

you hear Mr. Black talk about the benefits of Europe and Japan 

and how his company or others may benefit there, I don’t think 

that’s a model we want to replicate from the perspective of the 

small business user. 

In Japan, they charge five times the amount that they do in the 

United States per minute of use. And as a result, users in Japan 

use abut 130 to 150 minutes per month compared to 800 in America. So the small business user in the United States has access to 

a device that has opened up untold riches and rewards to that 

small business user. You look to Europe. Europe charges on average four times as much per minute, and they use one-fourth the 

minutes of use. 

So I’m not sure. While that concept may benefit Mr. Black, I’m 

not sure it benefits consumers as a whole and particularly small 

business users. I think that the majority of small business users 

are moving away from their land line phones and moving to using 

at times solely a wireless phone. I think that benefits. We have 1.8 

trillion minutes of use. And there’s a reason for that. And so to me 

there are some concerns. 

Mr. Libertelli suggests that we should have some open access so 

that his devices can be used more regularly in the United States. 

I have two devices from two of our members. One is WiFi-based. 

One is not. One is used on the CMRS network. Both have Skype 

downloaded on it. 

I went to Skype’s Web site, used Skype’s instructions on how to 

do it. I bought the phones. I bought one phone online, not through 

the carrier. I bought the second phone at the carrier. And both are 

able to be used. In fact, it’s almost going to be cute in an FCC 

meeting with the Chairman’s advisers and call Chris from them 

and demonstrate. 

[Laughter.] 

Mr.GUTTMAN-MCCABE. But the reality is both of these work. 

They work on Skype’s software. There is a reason some would 

argue why Skype isn’t taking off as much in the United States, and 

that is because the settlement rates from Vermont to New Mexico 

to Washington, D.C. are not as cost-prohibitive as the settlement 

rates from Finland to Germany to the United Kingdom. 

So I would argue that as the Commission looks at expanding this 

to open access, we have WiMax and Sprint using an open access 

platform. We have T-Mobile that is using a WiFi at home product. 

We have Nokia that is taking out full-page ads in every major city 

saying they have open access devices to battle the Apple product. 

We have Motorola saying the same. I mean, you can go on the list 

again and again. And my concern is that the FCC is going to try 

34

to put an imprint on an industry that is taking off, and they are 

going to be behind. 

This is our phone 12 years ago. This is the wireless phone 12 

years ago. This is a year-old already, and it has everything we 

could want to do from our business office in it. And I am terribly 

troubled that we are going to trip up this industry. And we are 

going to have something like Japan and Germany and Great Britain. And I don’t think that will benefit the small business community that you are so ably representing. 

Mr.CHABOT. Let me tell you a very quick story related to what 

you are just saying. My daughter kept telling me years ago that 

I should watch the Seinfeld series. She said, ‘‘Dad, it is just the 

kind of humor you would really find funny.’’

I never did it, never watched it. And she gave it to me for Christmas. I think it was the last year or something like that. So I have 

sort of started out in the first season. I think I am in the third or 

fourth season now. 

I think it started in ’93 if I am not mistaken or something like 

that, year before I got elected up here. And you see them whip out 

these phones now. 

[Laughter.] 

Mr.CHABOT. And, I mean, it is really humorous to see that. And 

it was a cutting-edge technology at the time. 

In any event, let me just ask one more. Were there any of the 

other witnesses who wanted to comment on that? Yes? You can 

both go, just whichever. 

Mr.BLACK. Okay. I am sorry. I have got to cut in here a little bit. 

We are talking apples to oranges. And we need to explain something, a real simple concept here. When you compare the United 

States with Europe and Asia and other countries, we are the only 

country in the world that every caller pays. I call you. I pay for my 

part of the call. You call, and you answer the phone, you are paying for your side. 

In Europe, it is a caller pays world. I call you. I pay for both legs 

of the call. All right? So let’s not skew the numbers we are throwing out here because it does skew the numbers quite a bit. It also 

means that people are going to call less often. 

But wait a second. There is another concept. Everything in Europe is international. So it is like calling from Boston to San Francisco to Miami, and those are all international calls. That is why 

the rates are so much higher. I mean, if you call across the United 

States, we are the only country in the world that has unlimited 

calling plans. So we can skew the numbers all we want, but it is 

irrelevant. 

Now, if we take it to the other side, if we talk about Skype, since 

we are picking on Skype, here is a Verizon phone Skype has 

banned. Here is a T-Mobile phone, can’t get it to work here. My 

Blackberry, the carriers all have it in their networks. If I use too 

much on here, they will cut me off. Skype is not a valid application 

on here. And, just for fun, here is an iPhone. I tried the best I 

could to get it to work. 

Now, it gets more interesting. We are talking about downloading 

an application onto the phone. I can actually do things in the 

world. With TalkPlus, we have a technology that allows us to add 

35

features to these phones that the carrier doesn’t support and that 

the phone doesn’t support. 

So let’s use Skype as an example. I can actually make a Skype 

call on this phone. And the way I would do it is different than 

Skype would do it. Skype would do it predominantly using the data 

channel most of the time. It is how they would like to do it. 

I actually put the call in the voice channel, which means I work 

exactly the way a carrier wants to work. Yet, the carriers till won’t 

let us on the deck. No harm, no foul to the network at all. Anything 

we do, all calls are held in the voice channel. There is no reason 

that should be cut off. They still won’t let on the network. 

Mr.CHABOT. Thank you. 

Mr. Libertelli? 

Mr.LIBERTELLI. Just a brief response. I think you know you are 

making progress when your opposing side starts to make your argument for you. 

Mr. McCabe’s phone that he held up indeed does run Skype. And 

the point is this. If you were to take that device and walk outside 

of a WiFi environment and try to use Skype, the terms of service 

for the major wireless operators, AT&T and Verizon, specifically 

block his ability to use Skype to have a conversation. That is what 

is at stake here. It is that kind of blocking behavior that needs to 

be corrected. 

Mr.GUTTMAN-MCCABE. If you don’t mind, just to correct one 

thing. 

Mr.CHABOT. Go ahead. 

Mr.GUTTMAN-MCCABE. The numbers that I stated are Merrill 

Lynch numbers. They are not CTIA. They are not industry numbers. They are adjusted for calling party pays. They are numbers 

that reflect the fact that the different countries have different ways 

of charging. 

Additionally, this is a T-Mobile phone. And T-Mobile doesn’t prevent. This is a Sprint/Nextel phone. Sprint/Nextel doesn’t prevent. 

And the idea that the 22-megahertz license would just be one more, 

it wouldn’t be everyone else. 

What we argue is there are at least two here. The iPhone, you 

can download Skype onto the iPhone. And so the reality is there 

are services and produces available that counter the arguments 

that people are making, including Mr. Black, who has successfully 

built and some of his members have successfully built and sold 

small businesses in the wireless space. 

Mr.CHABOT. Thank you all. 

ChairwomanVELA ́ ZQUEZ. Mr. Gonza ́lez? 

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

I neglected to commend Committee staff for an excellent memorandum, by the way. I think we neglect at times to thank them for 

their hard work. 

The first observation—I am going to split my questioning in two 

categories. One is going to be spectrum ownership. I don’t think 

that is going to happen for small business. So then the fall-back position is going to be this wonderful C block with open access, whatever that truly means. 

But the biggest fear—and I think that Mr. McCabe was the one 

that framed it best. And I repeat it basically from his testimony to 

36

the Chairman, to Chairman Martin. And I will pose this to Ms. 

Spencer. 

Do you believe that the big bidders’ attention will be diverted 

from the encumbered block C spectrum, the open access, into other 

areas and that those other areas, where the big bidders will be putting their money, would be those areas that would be most attractive to the smaller bidders? 

Ms.SPENCER. Well, I think that your kind of beginning here is 

right. Spectrum ownership has kind of gone away for small businesses, unfortunately. So I would hope that everybody could have 

an opportunity here. But I think unless the rules change, the small 

bidders aren’t going to come in big numbers anyway. So it is somewhat they are going to play everywhere. 

I would say on the open access, you know, if we can’t get spectrum directly, where are small businesses going to play? And it is 

probably with them. So I would guard that C block and say, ‘‘Then 

that is okay.’’

Mr.GONZA ́LEZ. Okay. 

Ms.SPENCER. You know, open access is a fall-back for small business if we can’t get it ourselves. 

Mr.GONZA ́LEZ. It is a self-fulfilling prophecy. And if we really believe FCC is not thinking ahead, we are all kidding ourselves. They 

have set up this game in a way where I do believe this is going 

to transpire. So then you are going to have to fear where are your 

Verizons and AT&T’s, the open platform on block C but in a way 

bleeds over to other areas. And then down the road we will be into 

access fees, special access fees, roaming fees, and all of that business. I mean, this is where it is all going. I don’t know why we 

keep kidding ourselves. 

The bottom line is little, small business is not going to own spectrum. If you own spectrum, you build out networks, I mean, what 

you have done in your business life. So let’s go into this open access, open platform, and all that means. 

Mr. Black, let me ask you, if you came up with an application 

for a way for Charlie Gonza ́lez to order something on eBay and pay 

for it that mimics and competes with PayPal, would eBay allow 

that? The answer is no. 

[Laughter.] 

Mr.GONZA ́LEZ. Because, you know, go and talk to Google or anyone. These are the big guys. Skype. You know, small business. You 

were bought for $2.6 billion by eBay. eBay has a policy. They own 

PayPal. They don’t allow anyone else to compete in that little environment. Why don’t we have an open platform, open access so that 

Mr. Black can come up with some sort of application and compete 

with what eBay basically monopolizes in their site? 

I mean, let’s just say that is what is really going on. And I think 

that I am right on this evaluation. But for Mr. Libertelli and Mr. 

Black, who pays for the network? Does Skype pay for the network? 

Does eBay pay for the network? Does Mr. Black’s enterprise pay 

for the network? I mean, what I am saying, who is building out the 

network? 

And so we do have special relationships. And I recognize that 

they can be problematic. But those contractual relationships are 

37

with device manufacturers, application providers, search engine 

providers, content aggregators, all of that in the business world. 

Now, you are asking government basically to come in and say 

that you shouldn’t have exclusive relationships at a certain level of 

the Internet world, such as networks with devices and others, but 

we shouldn’t be interfering with the other exclusive relationships 

that you are allowed to engage in at an entirely different level, 

such as PayPal and so on. And there are many other examples that 

would go beyond eBay and Skype. 

So I am just saying, who pays for the network? I mean, what you 

are telling me, Mr. Libertelli and Mr. Black, is, the AT&T’s and the 

Verizons of this world have buses and you would like to get on that 

bus. Right? That is open access, open platforms. But you guys also 

have cars. But you are not going to let anyone else get in that car 

and hitch a ride because I do believe it is a monopoly. 

I just really have always had a problem with that argument. We 

will see how this works out. But I do believe it is going to move 

on spectrum because when it is all said and done, it is about the 

sale of spectrum. 

When it is all said and done, what we have is not an unintended 

consequence. I think it could have been anticipated that you are 

going to make that other spectrum that is unencumbered more attractive, which may have provided the best opportunities for small 

businesses to bid on it. I think that is gone. Now we have to live 

with what open access really means. 

So my real question comes down to, Mr. Black and Mr. Libertelli, 

what are you doing to build out a broadband network that is so 

desperately needed in this country in the way of the wireless Internet? 

ChairwomanVELA ́ ZQUEZ. Time has expired, but I will allow for 

the witnesses to answer. 

[Laughter.] 

Mr.LIBERTELLI. If I could try to offer a response? 

ChairwomanVELA ́ ZQUEZ. Yes, sure. 

Mr.LIBERTELLI. There is a lot in that question. And I understand 

some of the concerns you have expressed in there. The answer to 

your question is that AT&T doesn’t pay for these networks. Consumers pay for these networks. That is the answer to who is funding the deployment of 700-megahertz spectrum or wireless spectrums generally. 

So we shouldn’t be sort of under the notion that somehow the—

Mr.GONZA ́LEZ. And I agree with you. 

Mr.LIBERTELLI.—cost from consumers—

Mr.GONZA ́LEZ. I think maybe content aggregators and application 

providers and such, maybe you should share some of that expense, 

rather than just the consumer. 

Mr.LIBERTELLI. And a company like eBay pays millions of dollars 

to buy network services from network operators every year. So each 

part of the ecosystem as a consumer is contributing to the deployment of these networks. 

ChairwomanVELA ́ ZQUEZ. Mr. Black? 

Mr.BLACK. I would second that. If you look at what TalkPlus 

does, our users drive more minutes and more data plans for the 

carriers. So carriers in the United States have a very low amount. 

38

The threshold of the number of people who actually have a data 

plan is actually very low in the United States. So every time a 

TalkPlus user goes online with a carrier, no matter which carrier 

it is, we drive their data plans. So we are actually driving revenues 

for them, both on the data side and we are driving it on the voice 

side. 

If you treat this like the Internet in a way, which one is more 

valuable: the infrastructure people buying the pipes or all the ecommerce that goes across it? That is the first part. 

The second part is there is no place to innovate right now. And 

that is the part that is not being talked about here. If a start-up 

has an application and they want to go to a carrier and say, ‘‘I have 

got a great application. Can I put it up in your catalog in the sky?’’ 

and they look at you and they go, ‘‘Okay,’’ one of two things. They 

can say, ‘‘Yes.’’ And on average, they will take 40 to 50 percent of 

your gross revenues. 

Could you imagine what the carriers would do if NAPA, where 

they get their phone numbers from, required them to pay 40 to 50 

percent of their gross revenues to get phone numbers, which is critical for any carrier to survive? Verizon, Sprint, T-Mobile, every one 

of them, would go out of business in a year flat. 

So there is no place to innovate right now unless we can actually 

make this happen. 

ChairwomanVELA ́ ZQUEZ. Time has expired. 

Mr. McCabe, I would like to address my last question to you. Do 

you really think that there is a place in today’s industry for small 

carriers given the fact that recently there have been several acquisitions announced that will consolidate mid-sized carriers into large 

national carriers? 

Mr.GUTTMAN-MCCABE. Madam Chair, let me take that from two 

different perspectives; second, address the question about consolidation and some concerns that I think those at this table and elsewhere share. 

But first I think there absolutely is a place for different size carriers, small, medium, or large. The FCC calls them tier 1, 2, and 

3. It makes sense from the perspective that carriers don’t build out 

to the entire geographic area of the country. They don’t build out 

generally to 100 percent of the population in areas. It is just costprohibitive. 

Some companies decide to build a business model around focusing on those high-cost areas and accordingly go to the FCC for universal service funding. And I know we have been in front of this 

Committee and others suggesting that wireless carriers should continue to have access to the Universal Service Fund as more and 

more people move towards a wireless device. 

So I think absolutely there is a place for it. I think that companies, contrary to Congressman, will continue to have access to spectrum. I think it will be difficult at times, particularly when you 

come to an auction like 700, where the hype has been built up so 

much that it is almost as if this spectrum has been designed for 

a specific purpose, which is sort of a fourth generation network. 

But you look at the previous 700-megahertz auction, and companies were able to secure some licenses. And I think going forward, 

this is certainly not the last time we will be looking for spectrum. 

39

I can assure you there have been discussions about this is the last 

great piece of spectrum. 

I am already in discussions with NTIA about where we can go 

next to get spectrum. It is part of my job. I have been doing it for 

six years. And I imagine that—

ChairwomanVELA ́ ZQUEZ. Are you hopeful that there will be new 

entrants? 

Mr.GUTTMAN-MCCABE. Yes. I am hopeful that there will be new 

entrants. In the AWS, Action Spectrum Co., while it wasn’t a small 

company, it was a brand new provider of the cable providers. Additionally, Metro PCS and Leaf, which were small companies, decided 

to participate on a grand scale and secured financing. 

With regard to the consolidation issue, I think—and I reference 

this in my testimony—I am concerned that in a competitive industry such as ours, where margins are thin, when you begin to pile 

on, almost like a Christmas tree and ornaments, regulatory requirements, you really start to squeeze that margin. That margin 

gets tighter and tighter. And Mr. Bond and Ms. Spencer can address this much better than I can. That margin gets tighter and 

tighter, particularly if you don’t have the economies to spread those 

costs over. 

So when you look at issues like e911, CALEA, CPNI—we just 

ended up in a debate with the Commission over upgrades, over 

Katrina backup power issues. And we have played in the Regulatory Flexibility Act space to suggest that there should be a difference. 

But those areas do cause significant concern and do really press 

on the margins. 

ChairwomanVELA ́ ZQUEZ. Any other comment? 

Mr.BOND. Yes, ma’am. 

ChairwomanVELA ́ ZQUEZ. Mr. Bond? 

Mr.BOND. I think it is important to realize that this spectrum 

auction was tailored around specific applications and apparently 

tailored for specific carriers or specific sized carriers. Of the 20 percent of the spectrum that is allocated to CMA-sized geographic 

areas, where small carriers actually have an opportunity to bid, 

versus the much larger regions that the other 80 percent is allocated to, where you have to be a multi billion-dollar company to 

have a chance at bidding at those. 

The question was asked, is spectrum pretty much resigned now 

to the large carriers and the small carriers are left out? Unless the 

rules are changed and unless the designs for these auctions are set 

up in such a way that it is a level playing field for all size carriers, 

the answer is absolutely yes. 

But it is self-fulfilling. I mean, that is the path we are obviously 

taking. And that is one reason why I am here today to say possibly 

we need to stop going in that direction. 

ChairwomanVELA ́ ZQUEZ. We hear you. 

Ms.SPENCER. The other thing, Madam Chairman, I would just 

point out is that when Congress gave the FCC auction authority, 

it included specifically in 309(j) that you cited at the beginning of 

this hearing a requirement that the auction be designed to give opportunity for small businesses and rural telephone companies and 

those owned by women and minorities. 

40

So the statute says it has got to work that way. The question I 

think we’re posing is that it is not right now and will it change? 

ChairwomanVELA ́ ZQUEZ. Okay. Mr. Chabot, do you have any 

other question? 

[No response.] 

ChairwomanVELA ́ ZQUEZ. Well, with no further question, I would 

like to again thank the witnesses for your testimony. Members 

have five legislative days to submit additional material or statements for the record. Thank you again. This hearing is adjourned. 

[Whereupon, at 11:36 a.m., the foregoing matter was concluded.]

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