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[Senate Hearing 106-697]
[From the U.S. Government Publishing Office]

                                                        S. Hrg. 106-697

 
   RURAL SATELLITE AND CABLE SYSTEMS LOAN GUARANTEE PROPOSAL AND THE 
                    DIGITAL DIVIDE IN RURAL AMERICA

=======================================================================

                                HEARING

                               before the

                       COMMITTEE ON AGRICULTURE,
                        NUTRITION, AND FORESTRY
                          UNITED STATES SENATE

                       ONE HUNDRED SIXTH CONGRESS

                             SECOND SESSION

                                   ON

   RURAL SATELLITE AND CABLE SYSTEMS LOAN GUARANTEE PROPOSAL AND THE 
                    DIGITAL DIVIDE IN RURAL AMERICA

                               __________

                            FEBRUARY 3, 2000

                               __________

                       Printed for the use of the
           Committee on Agriculture, Nutrition, and Forestry

                    U.S. GOVERNMENT PRINTING OFFICE
67-316 CC                   WASHINGTON : 2000

_______________________________________________________________________
            For sale by the U.S. Government Printing Office
Superintendent of Documents, Congressional Sales Office, Washington, DC 
                                 20402

           COMMITTEE ON AGRICULTURE, NUTRITION, AND FORESTRY

                  RICHARD G. LUGAR, Indiana, Chairman

JESSE HELMS, North Carolina          TOM HARKIN, Iowa
THAD COCHRAN, Mississippi            PATRICK J. LEAHY, Vermont
MITCH McCONNELL, Kentucky            KENT CONRAD, North Dakota
PAUL COVERDELL, Georgia              THOMAS A. DASCHLE, South Dakota
PAT ROBERTS, Kansas                  MAX BAUCUS, Montana
PETER G. FITZGERALD, Illinois        J. ROBERT KERREY, Nebraska
CHARLES E. GRASSLEY, Iowa            TIM JOHNSON, South Dakota
LARRY E. CRAIG, Idaho                BLANCHE L. LINCOLN, Arkansas
RICK SANTORUM, Pennsylvania

                       Keith Luse, Staff Director

                    David L. Johnson, Chief Counsel

                      Robert E. Sturm, Chief Clerk

            Mark Halverson, Staff Director for the Minority

                                  (ii)

  

                            C O N T E N T S

                              ----------                              
                                                                   Page

Hearing:

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

Appendix:
Thursday, February 3, 2000.......................................    57

                              ----------                              

                       Thursday, February 3, 2000
                    STATEMENTS PRESENTED BY SENATORS

Lugar, Hon. Richard G., a U.S. Senator from Indiana, Chairman, 
  Committee on Agriculture, Nutrition, and Forestry..............     1
Fitzgerald, Hon. Peter G., a U.S. Senator from Illinois..........    27
Grassley, Hon. Charles E., a U.S. Senator from Iowa..............     4
Harkin, Hon. Tom, a U.S. Senator from Iowa, Ranking Member, 
  Committee on Agriculture, Nutrition, and Forestry..............     3
Leahy, Hon. Patrick J., a U.S. Senator from Vermont..............     4
Conrad, Hon. Kent, a U.S. Senator from North Dakota..............     5
Baucus, Hon. Max, a U.S. Senator from Montana....................     7
Lincoln, Hon. Blanche L., a U.S. Senator from Arkansas...........    35
                              ----------                              

                               WITNESSES

Hutchison, John, CEO, LTVS, Inc. Raleigh, North Carolina.........    20
Jay, Dr. Steven, Assistant Dean for Continuing Medical Education, 
  Indiana University School of Medicine, Indianapolis, Indiana...    40
May, James C., Executive Vice president, Government Relations, 
  National Association of Broadcasters...........................    15
McLean, Christopher A., Acting Administrator, Rural Utilities 
  Service, U.S. Department of Agriculture........................    11
Parkhill, Dave, General Manager, Hamilton County Telephone 
  Cooperative, Dahlgren, Illinois................................    18
Rhode, Gregory, Assistant Secretary for Communications and 
  Information, National Telecommunications and Information 
  Administration, U.S. Department of Commerce....................    13
                              ----------                              

                                APPENDIX

Prepared Statements:
    Lugar, Hon. Richard G........................................    58
    Craig, Hon. Larry E..........................................    60
    Hutchison, John..............................................    63
    Jay, Stephen J...............................................    90
    May, James C.................................................    75
    McLean, Christopher..........................................    67
    Parkhill, David E............................................    20
    Rhode, Gregory L.............................................    70

   RURAL SATELLITE AND CABLE SYSTEMS LOAN GUARANTEE PROPOSAL AND THE 
                    DIGITAL DIVIDE IN RURAL AMERICA

                              ----------                              

                       THURSDAY, FEBRUARY 3, 2000

                                       U.S. Senate,
         Committee on Agriculture, Nutrition, and Forestry,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 9:02 a.m., in 
room SR-328A, Russell Senate Office Building, Hon. Richard G. 
Lugar, (Chairman of the Committee), presiding.
    Present or submitting a statement: Senators Lugar, 
Fitzgerald, Grassley, Craig, Harkin, Leahy, Conrad, Baucus, and 
Lincoln.

 STATEMENT OF HON. RICHARD LUGAR, A U.S. SENATOR FROM INDIANA, 
  CHAIRMAN, COMMITTEE ON AGRICULTURE, NUTRITION, AND FORESTRY

    The Chairman. This hearing of the Senate Agriculture 
Committee is called to order. Let me just mention for the 
benefit of all members, and staff may want to inform them, we 
probably will have a roll call vote on the nomination of Alan 
Greenspan at about 10:30. At that point, we will interrupt the 
hearing so that all Senators can cast that vote. I believe it 
will be the only vote, so it should not be a significant 
interruption, but we appreciate the patience of witnesses and 
all who have come to join us in the hearing room today in sort 
of understanding our predicament.
    But we will proceed now on time. We have the distinguished 
ranking member, the former chairman, indicating the importance 
of the hearing. I want to make a short opening statement and 
then I will call upon the ranking member for his opening 
comments.
    Today, the Senate Agriculture Committee is holding a 
hearing on two related issues. The first is an examination of a 
proposal that would create a loan guarantee program to provide 
low-cost money to satellite and cable systems to help them 
deliver local broadcast stations to viewers in rural America.
    The second issue is the looming presence of the digital 
divide in rural America. Rural communities face a number of 
unique barriers in the realm of telecommunications. Small-scale 
low-density settlement patterns make it costly to deliver these 
types of services, and even when the technology is available, 
as in the case of satellite television, issues of access still 
arise due to the cost constraints inherent in serving a 
population that is often remote from the economic centers of 
urban America.
    Just as the disparity in access to local television signals 
for rural Americans is problematic, the disparity in access to 
telephones, personal computers, and Internet access between 
rural and urban areas is likewise very troubling. A recent 
United States Department of Commerce report shows that 
regardless of income level, Americans living in rural areas are 
lagging behind in Internet access, and even when holding income 
constant, Americans living in rural areas are less likely to be 
connected by personal computers. Low-income, young, and certain 
minority households in rural America are the least connected to 
the information highway.
    This digital divide contributes to the problems facing 
development in rural America. Rural America is an important 
source of income, wealth, and well-being for our Nation. The 
rural regions of the United States contain 83-percent of the 
Nation's land and are home to 21-percent of Americans. Rural 
America can gain access to some opportunities only by 
connecting to the information highway. By creating necessary 
linkages to manufacturers, other businesses in the region, 
small towns and cities will be more able to attract 
entrepreneurs.
    Therefore, telecommunication infrastructure is an important 
foundation for job creation. The information highway offers 
rural America an unprecedented opportunity to compete on an 
equal footing with big cities and with other countries. Access 
to information network is already bringing jobs, education, and 
health care services. Yet, there is also a danger that some 
parts of rural America which already have lower incomes and 
lower education levels than the rest of America lack access to 
these online resources and could fall further behind.
    This hearing will look at the reasons for this disparity as 
well as hear testimony on ways of solving the problem. Our 
first panel will focus on the rural satellite television issue. 
We will hear testimony from two administration witnesses, Mr. 
Chris McLean, the Acting Administrator of the Department of 
Agriculture's Rural Utilities Service, and Mr. Greg Rhode, 
Assistant Secretary for Communications and Information at the 
Department of Commerce's National Telecommunications and 
Information Administration.
    Next, we will hear from Mr. James May, the Executive Vice 
President for Government Relations at the National Association 
of Broadcasters, and we will hear from Dave Parkhill, the 
General Manager of the Hamilton County Telephone Cooperative 
located in Dahlgren, Illinois, and from John Hutchinson, 
Executive Vice President and Chief Operating Officer of LTVS, 
Incorporated, from Raleigh, North Carolina.
    [The prepared statement of Senator Lugar can be found in 
the appendix on page 58.]
    Our second panel will focus on the more general issue of 
the digital divide in rural America. Dr. Stephen Jay, Chairman 
of the Department of Public Health and Assistant Dean for 
Continuing Medical Education at Indiana University School of 
Medicine will join Mr. McLean, Mr. Rhode, and Mr. Parkhill for 
that discussion.
    I welcome all the witnesses to the Committee. Obviously, I 
welcome all my colleagues and I call upon one of them now, the 
distinguished ranking member, Senator Harkin.

STATEMENT OF HON. TOM HARKIN, A U.S. SENATOR FROM IOWA, RANKING 
   MEMBER, COMMITTEE ON AGRICULTURE, NUTRITION, AND FORESTRY

    Senator Harkin. Thank you very much, Mr. Chairman, and 
thank you for holding this very important hearing. I want to 
associate myself with everything that you have said this 
morning and I might just make a couple of additional comments 
to add to it, perhaps.
    We are very proud of the technical progress we have made in 
America, but even though we have made this progress in 
technology, rural America is being left behind. I joined the 
Senate Rural Telecommunications Task Force last year in order 
to address these issues and work as part of a group to pass 
legislation to help rural communities catch up.
    Just as cable and telephone companies say that it does not 
make good business sense to provide service to a few customers 
in sparsely populated areas, we know that without this access, 
rural America will, indeed, be left behind. We are not just 
talking about high-speed broadband Internet access or reliable 
telephone lines. We are talking about just the basic TV 
services, local weather, local news for rural residents and 
farmers.
    You would think it would be easy. You would think that if 
you lived on a farm in Iowa, you could just attach an antenna 
to your house and get the local weather or local news from the 
closest TV station, but it does not work that way and it is not 
that easy. An antenna a lot of times does not reach that far. 
Cable, they will not extend the lines outside of metropolitan 
areas because they say it costs too much.
    The satellite dish came along and provided some relief and 
access, but satellite companies say they have revenue problems. 
They say they cannot afford to include what's called local-
into-local programming into small and rural TV markets. They 
can sure do it in a lot of other places, but they say it's not 
profitable to do it in rural areas.
    Last year, we fought hard to keep our rural loan guarantee 
program in the satellite bill, one that would make it easier 
for companies or nonprofit cooperatives to provide local TV to 
rural customers at no cost to taxpayers. Unfortunately, it was 
taken out at the last minute before the bill was passed and 
signed into law.
    Senator Baucus has introduced a bill, which I cosponsor, 
that contains much of the same language that was taken out of 
the satellite bill. I believe this bill is a good start in 
giving rural customers local TV and I hope we can all work from 
there to put together a bipartisan bill that will give rural 
America the access that it deserves.
    I think we have an obligation to move ahead here in the 
Congress to make sure that rural America is not left behind. It 
is wrong that residents in DC and other big cities can receive 
local programming while customers in Cumming, Iowa and the rest 
of rural America cannot.
    Thank you very much, Mr. Chairman.
    The Chairman. Thank you very much, Senator Harkin.
    Senator Grassley, do you have an opening comment?

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

    Senator Grassley. Yes. First of all, my two colleagues who 
have just preceded me have probably said it as well as can be 
said and said everything that needs to be said.
    Iowa, of course, is one of 15-States that does not have 
markets big enough to make it economically attractive for the 
satellite companies to provide local TV services, and I guess 
maybe I do not understand that any more than my colleague from 
Iowa, who just said that he understands the technology and does 
not understand why we cannot get it. But even if you assume 
that, that is right, it seems to me as a matter of fairness we 
ought to make sure that we serve all the 15-States and the 25-
percent of the people in this country that do not have it and I 
am here to help see that that gets done.
    I want to thank Senator Burns on our side of the aisle for 
working so hard on this issue in the past. I do not think 
anybody has worked harder than he has and I appreciate his and 
your attention to this to get it to the top of the agenda.
    The Chairman. Thank you very much, Senator Grassley.
    Senator Leahy?

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

    Senator Leahy. Thank you, Mr. Chairman. I am delighted you 
are having this hearing and I agree with what you have said and 
what Senator Harkin has said, the importance of it to us in 
rural America.
    Last year, I worked on the satellite home viewer conference 
because part of it was in the Judiciary Committee and I worked 
with those around this table and with Senator Lott and Chairman 
Hatch and Senators Stevens and McCain, Thurmond, and Chairman 
Bliley and Hyde and Kohl and Hollings and Representatives 
Dingell, Markey, Conyers, Berman, and others. I think we ironed 
out a great satellite bill, and the fact that we got it through 
at the very end of the session was an amazing, amazing thing. 
But we had one big gaping hole in there and that was the loan 
guarantee program.
    The rural areas encompass 75-percent of the U.S. landscape, 
but it is only 25-percent of the population, but for those of 
us who live in there, in that 25-percent, we consider it a 
pretty important part of the country, and we might not receive 
local-into-local satellite TV until 10- to 20-years after the 
urban areas do. I think that is something that will add to this 
digital divide that will leave much of rural America behind the 
computer revolution, something we do not want to do. We like to 
advertise our quality of living, but we also want to make sure 
we have jobs and access to the same technology the rest of 
America does.
    The law we passed last year sets forth the real head-to-
head competition between cable and satellite TV, and I think, 
ultimately, that is something that is going to help both 
satellite and cable TV. But it will also help in States like 
mine. A lot of other States have access to local stations for 
the first time over satellite. Potentially, they can have high-
speed Internet access to boot, and in the next four or 5-years, 
you will either have high-speed Internet access or you really 
do not have Internet access. You will be cut off from most of 
the things that the Internet will have, especially in a digital 
world, whether it is the downloading of movies, music, 
software, or anything else.
    Now, in a lot of these rural areas, those that are using 
satellites today, many of them have never seen their local 
network channels over the air or over satellite. A lot of them 
cannot receive some of the local emergency things--there is a 
flood, there is a tornado, there is weather or any other type 
of thing. They cannot receive it.
    So I think a loan guarantee program could assure both 
access to local network stations and broadband Internet access. 
We could solve two major challenges facing rural America, 
access to the Internet and access to local programming. With a 
single action, we could help rural America leapfrog over the 
wired era directly into the satellite-driven wireless era.
    I was convinced when we were meeting last year in the 
conference that the USDA should handle this loan guarantee 
program because of their 50-years of experience in financing 
rural telephone, rural electric, and all these other areas. 
They have the largest loan portfolios in this area that there 
is.
    I still remember my grandparents talking about the first 
time they had electric lights in Vermont. My grandfather used 
to turn the light on, turn the light off, turn the light on and 
off, not having to get out the matches and light up an oil 
light. I realize when I start telling these stories, Mr. 
Chairman, my children start referring to the geezer attitude, 
but------
    [Laughter.]
    Senator Leahy. But I am not yet sixty, and I remember 
talking about that. It was not all that long ago, and to get 
telephones into rural areas, the things that you take for 
granted in urban areas. Well, this is the same thing, and so I 
hope USDA can do it.
    I will put my whole statement in the record, Mr. Chairman.
    The Chairman. It will be published in full.
    Senator Leahy. Thank you.
    The Chairman. Thank you very much, Senator Leahy.
    The Chairman. Senator Conrad?

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

    Senator Conrad. Thank you, Mr. Chairman. Before I talk 
about the subject at hand, I am just wondering as a matter of 
committee business, will there be an opportunity to vote on the 
portraits that are hanging in the Committee hearing room?
    [Laughter.]
    Senator Leahy. Mr. Chairman, does that not require 
unanimous consent, to have any revotes on this?
    The Chairman. I think that is a good point.
    Senator Leahy. Yes.
    The Chairman. Well, the chair does not contemplate any such 
action.
    Senator Conrad. I regret that, Mr. Chairman.
    The Chairman. I understand.
    Senator Conrad. I think we do have some votes to make some 
changes.
    [Laughter.]
    Senator Leahy. Mr. Chairman, you still have my proxy for 
the rest of the year, as long as you do not put this on the 
agenda.
    [Laughter.]
    Senator Conrad. Thank you, Mr. Chairman. I very much 
appreciate your holding this hearing because it is a matter of 
real importance in my State.
    I hope the number one priority today is to address this 
question of areas that are being left out, because being left 
out in this area is to be left behind. We have got to, I 
believe, ensure that all Americans have access to the 
information they need to participate in this remarkable 
transformation that is occurring in the world today.
    As we all know, when we had the legislation before us last 
year, the rural satellite loan program was left out, and in 
part, I opposed the appropriations bill for that reason. This 
is simply too important to be left out.
    In my State, 140,000 of our population, about 23-percent of 
the households in North Dakota gets their television from 
satellite, and they are, I can tell you, complaining each and 
every day about the lack of service. As I think everybody 
knows, no city in North Dakota is large enough to qualify as 
one of the top markets in the United States. I wish that were 
not the case, but it is. Therefore, not one citizen in North 
Dakota will benefit from the local-into-local provision that 
was included in the recently passed legislation.
    I hope very much that we can make certain that the rural 
parts of the country are included. It is absolutely essential 
that they be included.
    That deals with the question of television. Also, Internet 
access is critically important. I just held my annual 
marketplace conference in North Dakota that attracts about 
4,500 people in a day that come to talk about economic 
opportunity in the State of North Dakota, how we can diversify 
farming operations, how we can attract new jobs, how we can 
take advantage of technology.
    Admiral Bill Owens came and was the keynoter this year, the 
former Vice Chairman of the Joint Chiefs of Staff, who is now 
the co-executive of Teledesec. Teledesec is the company founded 
by Craig McCaw and Bill Gates and Boeing and Motorola to put 
satellites in low-earth orbit all around the world to provide 
broadband access, to provide that technology. He painted a 
picture of what is going to happen in terms of the availability 
of this extraordinary technology, the difference it is going to 
make in people's lives, and the absolute need to be included or 
to be left out and what that will mean.
    So, Mr. Chairman, I believe this is one of the most 
critical issues facing rural America and I am grateful to you 
for holding this hearing.
    The Chairman. Thank you very much, Senator Conrad.
    Senator Baucus?

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

    Senator Baucus. Mr. Chairman, I just wanted to be another 
member of the choir here. I think all of us are singing from 
the same page, the same sheet of music.
    I might say that in our State of Montana, we have the 
highest per capita use of satellite in the Nation. We have more 
satellite dishes per capita than any State in the Nation. Our 
State flower is the satellite dish.
    [Laughter.]
    Senator Baucus. It used to be the bitterroot, but no more.
    We have a few TV stations in Montana. None of them begin to 
qualify to receive local-to-local service under the scheme that 
the satellite companies say that they will help utilize. We 
have heard the figures. There are about 210-markets in the 
country. The current satellite companies say they will be able 
to service about 67 of those markets, not the others. That is a 
conservative estimate. A lot of people tell me that it will 
probably not be more than 40.
    Let me tell you about number 210 on that list, down at the 
bottom is Glendive, Montana, and I might say that all the 
others, of course, are not in the top 60, just as none in North 
Dakota are. I do not know how many in your State, Senator, are 
on that, but I know there are 16-States--I think there are 16-
State capitals that will not be served in the Nation. If you 
get down to 40, it is going to be obviously fewer. There are a 
huge number of Americans just unable to get local-to-local 
service.
    I do not need to go over all the reasons why local-to-local 
is so important, but just to say things like local high school 
scores, the weather and charity fundraisers. There is local 
news, maybe a shooting, who knows.
    Senator Leahy. A lost child.
    Senator Baucus. It is a sense of community which is 
dissipating and slipping away in some areas.
    Let me just give one example. I asked General Barry 
McCaffrey to come to Montana last week. He came to Billings, 
Montana. Why did I invite him? Because we have a significant 
methamphetamine problem in Montana, and in other rural States, 
too. It is not just our State. But the whole point of all this 
is to get the community to work together. You know, the 
treatment providers, the prevention folks, the public and 
private prevention people, the Public Health Service, the 
doctors, school boards, law enforcement, the sheriff's office, 
the police chief, just every facet of that community has to 
work together on a holistic zero-sum basis if we are going to 
stomp on and basically extinguish--never entirely--
methamphetamine. It is wicked stuff, worse than heroin, worse 
than cocaine.
    I must say, Mr. Chairman, astoundingly and sadly, the use 
of all drugs in America today is about roughly 30-percent 
higher in rural America than it is in urban America, and 
cocaine, heroin, methamphetamine is utilized twice as much in 
rural America compared with urban America.
    The communities need to, on a local basis, start to solve 
problems and have a sense of community, and I tell you, in this 
age of TV, it is not going to happen until we solve this 
problem, particularly in rural America. It is not going to 
happen, because people watch television and they watch a lot, 
we think around this table probably too much. But at least they 
should be able to get local-to-local programming so they can 
tell their own local community what is going on.
    Just think of all the weather warnings, for example, you 
know, tornadoes, blizzards, floods. If you cannot get local-to-
local, somebody in Glendive, Montana, gets great programming 
out of New York or out of L.A. does not make much difference, 
but you need it locally.
    In addition, Mr. Chairman, I might add that there are a 
couple, three issues here. One is, which entity is best 
qualified to administer the program? I think the answer to that 
is clearly the Rural Utilities Service [RUS] of the USDA. That 
is clear. They have provided such great service in telephone 
service, power service. They have the biggest loan portfolio. 
It is not just satellite companies or other line companies, it 
is cable companies, too. They are qualified to do this.
     I also think that you could write in this legislation some 
provisions to make it clear that the RUS, obviously the best 
qualified, will be fair to everybody, fair to all who want to 
compete to provide the service, whether it is wireless or it is 
cable or whether it is with satellite. There is a way to get 
that in there to make that fair. It makes no sense to set up a 
new bureaucracy, a whole new bureaucracy, as is contemplated by 
some Senators, to administer a program. They have no idea of 
how it works. They would be subject to Senate confirmation. I 
mean, there are all kinds of problems that are going to slow up 
needed service to people.
    So it is very clear, Mr. Chairman, we have got to move very 
aggressively on this legislation in this committee and I have a 
bill that I have introduced attempting to solve this problem. I 
know people amend it and they can improve on it, obviously, but 
at least to get the ball rolling in this committee, because 
this is the Committee of jurisdiction on this issue. This is 
the Committee of experience on generally this issue and it 
makes no sense to start a new bureaucracy, but we have to move 
aggressively if we are going to make that happen.
    Thank you, Mr. Chairman.
    The Chairman. Thank you very much, Senator Baucus.
    Let me just take the comments that you made as a point of 
departure before the panel commences. As the distinguished 
Senator from Montana has pointed out, he has proposed 
legislation and it has been assigned by the chair to this 
committee. Very clearly, the Senator's activities here have 
already generated considerable support. There are at least 13 
cosponsors of his bill, and maybe more.
    In tracing fairly recent history, just to the conference 
between the Senate and the House that came, unfortunately, 
after the failure of Congress to pass all the appropriation 
bills, as you recall, there were five bills and this led, as it 
had the year before, to a significant deliberation by Senators.
    In the midst of all this, Senator Burns of Montana, a 
colleague of Senator Baucus, noted a severe deficiency here. 
Senator Gramm of Texas objected very much to Senator Burns's 
approach. Senator Baucus and other colleagues who joined him 
drafted legislation and asserted that the Agriculture Committee 
ought to be the major committee of jurisdiction. Senator Gramm, 
who was chairman of the Banking Committee, disputes that, not 
that we do not have an interest in it, but that he believes 
that his committee, the Banking Committee, likewise has the 
major interest.
    So I will try to be diplomatic in weaving my way through 
the competing proposals, but suffice it to say that we have a 
significant piece of legislation offered by Senator Baucus and 
referred to this committee. Senator Gramm has advised me, and 
by that I mean he has approached me, talked to me about this, 
that he is drafting with Senator Burns a bill that will be 
heard again. He has had one hearing, and they will be working 
in the Banking Committee on legislation.
    Now, in the midst of this, we have seen that this is a high 
priority. This is just the second hearing in the Committee this 
year. We are having a lot of them. But it is important for this 
issue, the basic facts that are going to be presented by our 
witnesses this morning, to come forward at this stage because 
this is a crucial issue for rural America. That was finally 
observed by the Congress with some stop-gap legislation so that 
signals would not go out all over America on January 1 for many 
people, quite apart from those who are unserved, for some who 
are served. But that, everyone realized, was a temporary fix 
and something more permanent and stable in terms of policy 
needs to happen.
    So I pledge to the Senator from Montana and to all who have 
come to this hearing and already testified in our way as 
Senators of our interest that we will try to move ahead. Now, 
how we do this, I will ask the cooperation of all Senators so 
that this jurisdictional problem does not lead us down the path 
to inactivity throughout this Congress. I think that we all 
recognize that. We want action. Senator Baucus has been very 
gracious in saying the last word in his bill may not be the 
last word. He is subject to amendment and suggestion, but he 
has asserted with regard to the rural agency that now he has 
designated RUS for this, that he thinks that is the best idea.
    Obviously, Senator Gramm and maybe Senator Burns, I will 
have to determine really how they want to do it and we will 
have to make some decisions in the Committees as well as, 
ultimately, this is amendable on the floor, as anything is in 
the Senate, so decisions will finally be made by our 
colleagues. But we will try to enlighten them in these hearings 
and in other colloquy as to the basic issues that are involved 
here.
    Senator Baucus. Mr. Chairman?
    The Chairman. Yes?
    Senator Baucus. I appreciate your comments, and I am glad 
you referenced the efforts of Senator Burns, my colleague from 
Montana, because he has worked very hard on this, and the 
reason he has and the reason I have, because as I mentioned in 
my comments, we have the highest per capita satellite use and 
we are in desperate straits for serving our people.
    Second, it is clear here we just need to help the people in 
our country as quickly as possible. Even if we were able to 
pass legislation today, it is still going to take some time 
before these people get service. It will take time to put the 
financing together, get the satellites up if that is the 
primary technology, or if it is cable that they use maybe in 
some places. I mean, it just takes time, so it is critical that 
we move right away.
    All I am saying is, we have got to move, and in my humble 
opinion, this committee is the logical committee of 
jurisdiction. On something like this, every committee wants 
jurisdiction, but you have got to be fair and honest. Which 
committee logically has jurisdiction? I think it is clear, this 
committee logically has jurisdiction, and I think that some 
Senators are pretty assertive around here, but that does not 
mean that they are right. But we have to be both assertive 
because we have got to serve our people and because it is 
right.
    Thank you, Mr. Chairman.
    The Chairman. I agree with the Senator. Obviously, we have 
been assertive, as the Senator knows, as he approached me and 
Senator Kerrey, Senator Leahy, and Senator Harkin last year. I 
had concluded that we would try to assert jurisdiction, we 
would have a hearing, put a stake in the situation.
    I hope the Senator understands that I also want to see 
legislation, so even while we are asserting this and we will be 
very active, we will try to keep an eye out for other 
activities, namely the Banking Committee.
    Senator Leahy. Mr. Chairman, even though it is almost 
unheard of for parochialism to come into debates around this 
table, I would note that Vermont has the second highest per 
capita use of satellites, and I loved what the Senator from 
Montana said.
    The Chairman. I am glad you made that point.
    [Laughter.]
    Senator Leahy. I was counting all this time.
    The Chairman. Let me complete the record. Senator Burns had 
asked for an opportunity to testify this morning. He withdrew 
that request because he needed to be in Montana and has asked 
me to announce that, so he will not be appearing at the hearing 
this morning.
    Senator Baucus. It is a problem in Montana, Mr. Chairman, 
Libby, Montana, northwest Montana. Lots of people are suffering 
from asbestosis, mesothelioma, and other asbestos-related 
diseases.
    The Chairman. That is my understanding.
    Senator Fitzgerald, while all this was going on, you have 
arrived. Do you have a comment before I call upon our panel?
    Senator Fitzgerald. No. I will just have questions. Thank 
you, Mr. Chairman.
    The Chairman. Very well. Thank you.
    Without objection, I would like to include a statement from 
Senator Craig in the record.
    [The prepared statement of Senator Craig can be found in 
the appendix on page 60.]
    The Chairman. I will ask each of you to testify in the 
order that I introduce you, which you may have forgotten, but 
it will be in the order that you are, really, from left to 
right as you are seated there. We will ask that you try to 
summarize your testimony in 5-minutes. If you cannot, we 
understand, and there may be overwhelming circumstances. But to 
the extent that you can, this will allow more dialogue with the 
Senators and their questions.
    Mr. McLean?

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

    Mr. McLean. Thank you very much, Mr. Chairman. If I may add 
a personal note, as a former Senate staffer to Senator Jim Exon 
and Senator Bob Kerrey, who have worked so closely with and on 
this Committee, it is a distinct personal privilege and honor 
to appear before the Committee today.
    I am Christopher McLean, the Acting Administrator of the 
Rural Utilities Service, the successor to the Rural 
Electrification Administration. The RUS administers a $42 
billion loan portfolio of more than 9,000 loans for 
telecommunications, electric, water, and wastewater 
infrastructure projects throughout rural America. Our agency 
also administers a program which was introduced by, as I 
recall, Senator Leahy, the Distance Learning and Telemedicine 
Loan and Grant Program, which is a tremendous success and has 
been very, very helpful in closing the digital divide in rural 
America. The RUS is also a leading advocate for rural consumers 
before Federal and State regulatory authorities.
    For nearly 65-years, with the sound and continuing 
oversight of this Committee, the Rural Electrification 
Administration [REA] and the RUS have been empowering rural 
America. Just this last October, the RUS telecommunications 
program celebrated its 50th anniversary. In those 50-years, RUS 
has helped close the digital divide. The telecommunications 
program has maintained an unprecedented level of loan security 
over the whole history of the program. RUS is also very 
fortunate to have an accomplished core of engineers, 
accountants, financial specialists, and rural infrastructure 
experts. I am confident that the RUS has the necessary skills 
to administer new initiatives that bring the benefits of the 
information revolution to all Americans.
    For America's rural residents, access to television signals 
has long been a challenge. Distance and geography have been 
significant impediments to the reception of consistently 
viewable broadcast signals. While cable television is available 
in many rural towns, it does not reach America's most rural 
citizens.
    Since its inception, satellite-delivered television and now 
direct broadcast satellite services have provided increased 
access for all communications services to rural residents. 
Satellite television gave America's many rural residents first-
time access to vital sources of news, information, educational 
programming, entertainment, and sports. But as good as these 
services were, satellite services did not connect rural 
residents to their rural communities.
    Once the amendments to the Satellite Home Viewers Act are 
fully implemented, many rural residents will likely lose their 
ability to purchase distant network signals. Many still will be 
unable to receive a suitable signal via antenna from their 
local broadcaster. Given the capacity limitations of current 
satellite providers, the costs of nationwide local-to-local 
service, it is doubtful that the current carriers will provide 
local signals to many of America's smaller television markets.
    The availability of local programming will become more 
problematic as the television industry converts to a digital 
system of signal delivery. The propagation of digital signals 
is different from analog. Analog signals fade out gracefully 
from the distance of the transmitter. You are able to see the 
signal, it gets a little bit snowy, you can get the audio, and 
then the signal fades out and disappears. Digital signals drop 
off more suddenly, and the likely result is that some current 
rural viewers of broadcast television may lose their ability 
even to receive a viewable signal once the conversion to 
digital is complete.
    Without the ability to retain and perhaps expand their 
viewer base, rural broadcasters may not have the financial 
ability to upgrade their systems. Once digital conversion is 
complete, the technology will make it likely that rural viewers 
will be able to receive fewer channels than they receive over 
conventional TV antennas.
    Access to a full range of news, weather, sports, 
entertainment, and information is certainly important to 
maintaining and enhancing the rural quality of life, but 
maintaining and expanding access to most local sources of news 
and weather is critical to public safety. The 1999 violent 
tornado season and the recent back-to-back winter storms we 
have experienced here in the East and the South highlight the 
importance of local television as a means of disseminating 
life-saving information.
    Linking local residents to their communities of interest is 
also important to maintaining and enhancing the viability of 
local rural economies and local rural civic life. From both an 
educational standpoint and one of public safety, it is in the 
public interest that rural citizens have access to local 
network programming.
    The delivery of local signals to rural viewers will require 
significant infrastructure investment regardless of the 
technology utilized. RUS loans, loan guarantees, and grants 
have helped to bring modern electric, telecommunications, and 
water infrastructure to the 80-percent of America that is 
rural. This public/private partnership has been the hallmark of 
rural infrastructure investment, and the work of the RUS is not 
done. The work of the RUS is never done because it is simply 
more expensive to provide service to rural areas.
    So RUS is capable of helping rural America meet the new 
infrastructure challenge. We look forward to working with the 
Committee and offer our full expertise to solving the problem 
of local-into-local for satellite viewers in rural America. 
Thank you very much.
    The Chairman. Thank you very much, Mr. McLean, for your 
testimony.
    [The prepared statement of Mr. McLean can be found in the 
appendix on page 67.]
    The chair notes the presence of Senator Lincoln. Welcome.
    Senator Lincoln. Thank you, Mr. Chairman.
    The Chairman. Senator Conrad, do you have a comment before 
we have our next witness?
    Senator Conrad. Thank you, Mr. Chairman. I would just like 
to introduce our next witness, Greg Rhode. Greg is from North 
Dakota. He was the top aide to Senator Dorgan for many years in 
the Senate on Commerce Department issues and he is now the 
Assistant Secretary for Communications and Information.
    I just want my colleagues to know, I think Greg has a 
deeper understanding and a broader background in these issues 
than anybody that I have dealt with. So we are very proud of 
him, and I just wanted to make that comment before he had a 
chance to testify, and I thank the chair.
    The Chairman. We are especially grateful you are here. 
Senator Baucus?
    Senator Baucus. I just want to add my experience, too. I 
have known Greg for several months. The last several months, he 
has attended many meetings and I have reached the same 
conclusion.
    The Chairman. The threshold of expectation rises.
    [Laughter.]
    Mr. Rhode. It is nice to come to a friendly audience.
    The Chairman. Please proceed.

    STATEMENT OF GREGORY L. RHODE, ASSISTANT SECRETARY FOR 
COMMUNICATIONS AND INFORMATION, NATIONAL TELECOMMUNICATIONS AND 
   INFORMATION ADMINISTRATION, U.S. DEPARTMENT OF COMMERCE, 
                         WASHINGTON, DC

    Mr. Rhode. Thank you very much, and thank you very much, 
Senator Conrad and Senator Baucus, for your kind words, and 
thank you, Mr. Chairman, for inviting me here to testify.
    I appreciated your recitation of the recent legislative 
history of this legislation. In fact, I recall it very well. As 
the Senate was embroiled in debating the provision that came 
back in the Satellite Home Viewer Act dealing with the rural 
loan guarantee provision, I was in the process of cleaning out 
my desk in the Hart Building and making my way down to the 
Commerce Department. In fact, the very night that the Senate 
was here voting on the omnibus appropriations bill, I was being 
sworn in my new post, and that is why Senator Conrad missed my 
swearing in ceremony but was here for a good reason.
    The irony of that evening, actually, was not lost on me, 
because when my predecessor was sworn into the very same job in 
1993, there was no operational DBS system providing any service 
to any viewer in America. Today, there are 11-million DBS 
subscribers in our country. That tells us a lot. It tells us a 
lot about what is happening with technology and how fast it is 
growing, but it also tells us that one of the blessings of new 
technology is it creates new policy challenges.
    In 1993, the Congress never would have been having this 
debate about how do you get local-to-local over satellite 
because people were not imagining that that was possible. So, 
because of the changes in technology, it creates new 
opportunities, but it also creates very significant new policy 
challenges.
    The administration was very supportive of the provisions in 
the Satellite Home Viewer Improvement Act, which provided for 
the first time authorization for satellite systems to carry 
local-into-local programming. As a result, today, there are 24-
markets in the country that have local-into-local over 
satellite and satellite providers are negotiating for another 
20-markets. But the question that still remains is, what about 
the remaining 200-or so markets? Are they going to get local-
to-local, and how are they going to get local-to-local?
    We also need to remain mindful of the many Americans, rural 
Americans especially, who are not passed by cable, who do not 
get local-into-local over cable, and who do not get a clear 
broadcast signal.
    I had the great privilege one summer about 12-years ago of 
spending a summer in a very small community in North Dakota 
called Foxholm, North Dakota. It has a population of about a 
couple dozen people. It actually has more goats than it has 
people in that location. It is a small community about 30-miles 
outside of Minot, North Dakota. It is a community that grows a 
lot of flax, grows a little bit of wheat, but more importantly, 
it had a lot of dairy cattle in the area.
    I know that in that part of the country, as Senator Conrad 
knows from being around it quite a bit, that this part of the 
country relies very heavily on the weather. It determines their 
lives. When I lived there, there was no cable. We could not get 
a clear broadcast signal. I can imagine what a tremendous 
benefit it would be to the farmers of that area if they were to 
get local-into-local over satellite or some other means, what 
it would mean for them.
    I know that Senator Conrad and Senator Baucus know from 
being in ranch country that at this time of the year people are 
watching their television sets to see for livestock warnings, 
and in North Dakota, it is not explained. Everybody knows what 
it means. It means the weather is getting bad. They need to go 
out and protect the cattle. What a benefit it would be to 
people who currently cannot get those livestock warnings 
because they cannot get a clear local broadcast signal, nor can 
they get it over a cable system or a satellite system. So this 
is a tremendous issue to address.
    NTIA believes that this discussion over how to enhance the 
capability of getting local-into-local into small rural markets 
should not be limited to a loan guarantee approach. For this 
reason, I recently announced that NTIA is going to issue a 
Federal Register notice where we are going to seek public 
comment and suggestion as to how small rural markets can get 
local-into-local programming. All the comments we receive are 
going to be posted on our Website, which is at 
www.ntia.doc.gov. So these comments will be available for your 
information as well as anybody else in the public.
    In addition, as part of this process, I intend to host a 
roundtable discussion in early March that would invite various 
stakeholders, including policy makers and consumers, industry 
representatives, as well as technical experts to really examine 
this issue as to what are the possibilities out there. What are 
all the approaches? What are the things that we can do, whether 
it be a rural loan guarantee approach, or maybe there are other 
approaches, as well, that can compliment that approach to try 
to address this issue.
    I want to make it very clear that my intent with this 
inquiry is to compliment the debate here in the Congress as 
well as the discussions that are occurring at the FCC, as 
required under the Satellite Home Viewer Improvement Act. So my 
intent is to try to enhance the public debate and participate 
and improve upon it.
    The administration believes that this question of how 
consumers in small rural markets are going to get local-into-
local over satellite systems or other technologies is a very, 
very important question and I really commend you for having 
these hearings and for looking at this issue and really 
wrestling with it. The administration is very eager and willing 
to work closely with you on a loan guarantee approach, as well 
as any other approach that might be considered as you debate 
this issue.
    Should the Congress proceed to push legislation on a rural 
loan guarantee, I would just offer up three basic principles 
which I would ask you to consider in this approach.
    First is that any loan guarantee program that you would 
establish should be technologically neutral. This is very 
important. It is important for innovation, that this program be 
part of fostering innovation in the private sector. But it is 
also very important to be mindful of the fact that different 
technologies might work best in different types of 
circumstances.
    A second principle that I would urge you to consider is 
that any loan guarantee approach should really foster 
competition and encourage competition. The authorization of 
satellite providers to carry local-into-local programming is 
going to allow satellite providers to become a more forceful 
competitor to the cable industry. This is a good thing. This is 
going to be good for consumers. Any loan guarantee approach 
that would be constructed by Congress really should have in 
mind how this approach could actually foster competition in the 
multi-channel video market.
    Third and finally, any loan guarantee program really should 
demonstrate fiscal responsibility, and by that I mean it needs 
to conform with the existing Federal credit program policies. 
The administration has had a range of experiences with other 
loan guarantee programs. There are a lot of basic principles 
which these programs have operated under and I urge you to 
consider those as you consider this legislation.
    With that, I would be happy to take any questions you may 
have.
    The Chairman. Thank you very much, Mr. Rhode.
    [The prepared statement of Mr. Rhode can be found in the 
appendix on page 70.]
    The Chairman. Mr. May.

STATEMENT OF JAMES C. MAY, EXECUTIVE VICE PRESIDENT, GOVERNMENT 
 RELATIONS, NATIONAL ASSOCIATION OF BROADCASTERS, WASHINGTON, 
                              DC.

    Mr. May. Thank you, Mr. Chairman. In addition to handling 
government relations responsibilities at NAB, I also am sort of 
a project director looking into how broadcasters can take their 
own future into their hands in developing a local-to-local 
system.
    I will not try and repeat today all of the history and 
background. We obviously all are very well aware of what 
happened with SHVIA and I think what happens in local markets. 
We are very concerned that unless an appropriate economic 
mechanism can be developed, that there are stations all over 
this great land of ours that are not going to see local-to-
local and I think that the benefits of localism that you have 
talked about so eloquently this morning and the other members 
of this committee are critical and your commitment to localism, 
our commitment to localism can only be solved in these small 
and rural markets when we have a functioning, working system.
    Let us think about for a minute what is at play here. There 
are 210-television markets. DirecTV and EchoStar, the two 
principal platform providers, are likely to be serving 
somewhere between 35 and 40 of those markets with local-to-
local signals. They are in roughly 20-some-odd markets each 
today.
    My good friend, John Hutchinson, who will testify a little 
bit later this morning, is likely to be picking up a number of 
additional markets across the country, maybe as high as 68 to 
75. That then leaves from market-75 to market-210, a huge 
number of citizens of this country, 25-percent of the 
population of this country, unserved by local-to-local signals.
    Let me further put that into context and tell you there are 
17-States without a top-50 market, representing 34 of your 
colleagues. There are 800-television stations in those markets 
that will not enjoy the benefits of local-to-local as we go 
forward unless a system can be developed.
    Now, there are clearly a number of economic and technical 
hurdles that face anyone trying to create a viable business 
plan to develop these local signals in the medium and small 
rural markets.
    The first, obviously, is the limited number of people that 
live in these individual 150 or so markets. In order to make 
the service consumer friendly and to hold down costs, we think 
that the plan is ultimately going to be to have a company be 
developed that wholesales these local stations to the existing 
platform providers, an EchoStar or DirecTV. Likely partners in 
the relationship could well be EchoStar and DirecTV. Other 
partners could easily be satellite manufacturers, and certainly 
broadcasters want to partner with people so that we can take 
our own destiny into our hands.
    But they are going to have a number of other technical 
problems. In partnering with a DirecTV, for example, or an 
EchoStar, we have any of a series of issues that relate to the 
technology of actually delivering those local signals. What 
orbital slot might we be in? The large number of stations that 
have to be covered, I have said 800-plus stations, are going to 
mean that we are probably going to have to have unique orbital 
slots, as many as 60-different uplink facilities around this 
country, maybe more. We are going to have to use spot beam 
technology for the satellites that are going to be able to 
deliver this system.
    At the end of the day, depending upon the number of markets 
that are going to be covered and the level of redundancy that 
will be required to protect these markets, either by the 
lenders or anyone else, the cost of covering those rural 
markets that we are all concerned about is going to range 
somewhere between $600 million and $1 billion, not chump change 
by anyone's imagination. Now, as I said, that is going to be a 
function of redundancy, the number of markets covered.
    Now, we certainly are willing to accept this challenge. We 
support the concept of having the Government provide economic 
incentive. But I think that, Mr. Chairman, there are some key 
issues that have to be addressed in providing that economic 
incentive.
    First, let me suggest that there a lot of people who are 
trying to bring the issue of ``must carry'' into this process. 
Must carry is a complete red herring. There is an absolute, 
easy, simple way to assure that every station will be carried 
under a functioning local-to-local plan. Capacity is not the 
issue. If we are wholesaling to the retailers, it will not be 
an issue at all. We want to follow a policy of inclusion, not a 
policy of exclusion. That is the principle on which this 
committee is meeting today, to include everyone, and that 
includes all stations. The last thing we want to do is give 
satellite providers the opportunity to pick and choose who is 
going to be carried.
    Now, last year, we are all aware there was a loan guarantee 
program. Let me give you very quickly some suggestions we have 
to improve that.
    First, do not put limits on the numbers. Last year's 
program, I think, limited the top end at $625 million. We have 
told you this is a $600 million to $1 billion program. Anyone 
else coming into the business would have been limited to $100 
million. I think you want to let the marketplace and whoever is 
going to administer this program make a determination.
    Do not make it cumbersome. Keep it as simple as possible in 
terms of its administration. We think you need to be careful 
about the issue of subordination. The history of loan programs 
is that the Government does not have to have lenders be 
subordinate to the Government. It can be the other way around. 
We think that will make access to capital easier. We do not 
anticipate you are going to fund 100-percent of the plan. We 
need to go out for senior debt. That means senior debt is going 
to be more achievable if we do not have the Government be 
subordinate.
    Finally, we think that you cannot limit this to a nonprofit 
environment. You have got to be able to include for-profit 
operations, including a DirecTV or an EchoStar. At the end of 
the day, this is likely to be a consortium of companies that 
are coming together to provide these local signals into small 
and rural markets.
    We certainly praise your efforts, Mr. Chairman, those of 
Secretary Rhode, a great and good friend of ours for many years 
when he was up here on the Hill, and we look forward to working 
with you to accomplish this goal which we all share. Thanks so 
much.
    The Chairman. Thank you very much, Mr. May.
    [The prepared statement of Mr. May can be found in the 
appendix on page 75.]
    The Chairman. Senator Fitzgerald.
    Senator Fitzgerald. I just wanted to introduce the next 
witness.
    The Chairman. Yes. Please proceed.
    Senator Fitzgerald. Thank you, Mr. Chairman. I just wanted 
to interject at this point and introduce one of my 
constituents, the next gentleman on the panel, Dave Parkhill, 
General Manager of the Hamilton County Telephone Cooperative in 
Dahlgren, Illinois. Mr. Parkhill is from Southern Illinois, a 
rural part of my State.
    Mr. Parkhill, thank you very much for coming and welcome to 
the Committee.
    Mr. Parkhill. Thank you, Senator.
    The Chairman. Please proceed.

   STATEMENT OF DAVID E. PARKHILL, GENERAL MANAGER, HAMILTON 
        COUNTY TELEPHONE COOPERATIVE, DAHLGREN, ILLINOIS

    Mr. Parkhill. Chairman Lugar, my name is Dave Parkhill and 
I am the General Manager of the Hamilton County Telephone Co-op 
in Dahlgren, Illinois. Hamilton County Telephone Co-op is a 
member of the National Rural Telecommunications Cooperative. 
NRTC is a not-for-profit cooperative association with a 
membership of nearly 1,000-rural-utilities located throughout 
48-States. Hamilton County Co-op and NRTC's other members 
provide electric or telephone service to underserved low 
population density areas of the country. NRTC's mission is to 
meet the advanced telecommunication needs of American consumers 
living in underserved areas.
    NRTC, its members, and affiliates currently market and 
distribute C-band and direct TV programming to more than 1.4-
million subscribers. Hamilton County Telephone Co-op and its 
subsidiary provide these services to a customer base in 
Southern Illinois. However, our biggest request is for the 
networks, because our location is distant enough from the local 
broadcasting stations that we are not able to receive the 
networks without the investment of a tall tower, good antenna, 
rotator, and an amplifier. In fact, most all of our so-called 
local programming is from out of State. Some homes get no over-
air picture at all.
    In my testimony today, I intend to address two problems not 
addressed by last year's Satellite Home Viewer Improvement Act, 
first, the unavailability of local television services in rural 
America, and second, the lack of competition to cable. I am 
going to propose a satellite solution to both of those problems 
and it will require assistance in the form of a loan guarantee 
that should be administered through the United States 
Department of Agriculture and Rural Utilities Service.
    The Department of Agriculture through the Rural Utilities 
Service is intimately familiar with the challenges facing rural 
and underserved markets. By authorizing the retransmission of 
local broadcast signals by satellite, last year's satellite 
bill paved the way for the satellite industry to become a 
meaningful competitor to cable in some of the Nation's top 
markets. But the bill did nothing to close the digital divide 
throughout rural America where there is no profit to be made in 
delivering local service by satellite.
    The big for-profit satellite companies have announced their 
intention to provide local digital satellite service only to 
the top 33-markets out of a total of 210-markets. That means 
that more than half of the Nation's households will not have 
access to local digital satellite service. At least 20 States 
will be left out entirely, including many of the States 
represented by members of this committee.
    I have brought a map, and it is sitting over here, that 
shows the television markets that will be served with local 
channels via satellite. As you can see, many will be left out. 
That is unfair and it is contrary to the public interest. These 
people will be disenfranchised from the modern information age 
simply as a result of where they live.
    It is no coincidence that satellite penetration rates in 
rural America are 6-times higher than in urban parts of the 
country. Satellite is an ideal distribution technology for 
less-populated areas. At a fraction of the investment, 
satellites can reach where cable and other broadband 
technologies will never go. Satellite is ubiquitous. It can 
cover wide remote spaces that ground-based technologies will 
never reach. In fact, any technology other than satellite will 
be ineffective and piecemeal as a tool to bring local service 
to the unserved areas.
    More than 90-percent of NRTC's 1.4-million satellite 
subscribers do not even have access to cable. Why? Because it 
costs too much to serve those homes with cable. The cable 
industry has little or no economic incentive to build new 
plants to serve homes located in more remote, less densely 
populated areas. For any given large number of subscribers, 
satellite is by far a cheaper deliver technology per household 
than cable.
    The Department of Agriculture knows that members of NRTC 
have a history of serving remote, rural, and underserved areas. 
Unlike the cable industry, their motivation and mission is to 
bring service to the underserved areas, not to cream-skim the 
lucrative markets.
    Mr. Chairman, NRTC and its members fought the cable 
industry for nearly 10-years here in Congress to obtain the 
access to programming so we could help build a digital 
satellite industry to serve rural America. Throughout that 
debate, the cable industry argued in favor of the digital 
divide. They testified that rural and underserved consumers 
should pay more for their programming because of where they 
lived. We disagreed then and we disagree now.
    With the support of Congress, we can construct, launch, and 
operate a satellite system to provide local digital service to 
all areas not served by the for-profit satellite companies. 
Through a common industry platform, we can solve the problems 
not addressed by last year's satellite bill. We can make local 
service a reality for consumers across the country and provide 
meaningful competition to cable. Getting this job done will 
require a loan guarantee of at least $1.25 billion to be 
supplemented by the satellite industry, as needed.
    We also strongly recommend that the loan guarantee program 
be implemented on a not-for-profit cooperative basis. A not-
for-profit approach would ensure that the Federal loan 
guarantee is not used to enrich large private or corporate 
interests. Not-for-profit cooperative utilities have used loan 
guarantees to bring utility services to unserved areas since 
the 1930s. Rural utilities operating under the RUS program have 
an excellent record of Federal loan guarantee repayment. In 
fact, as part of the telecom program, I am proud to say that 
there has never been a default in its history.
    We urge you to establish strong criteria to ensure not only 
that any loan guarantee will be repaid, but that preferences 
will be given to plans which will provide the most 
comprehensive solution and utilize the Federal guarantee in the 
most efficient manner possible. It is imperative that all 
Americans, not just a few, receive service.
    Mr. Chairman, I recognize that some of these communications 
issues are beyond the purview of this committee. To accomplish 
our goals, we will need the assistance of other committees as 
well as the FCC. However, left to its own devices, the FCC will 
handle this problem the same way it handled countless others, 
by relying solely on the competition to fix it, but competition 
will never fix this problem simply because providing this 
service is not profitable.
    So we will be working with Congress and, hopefully, the FCC 
to obtain the necessary spectrum and orbital locations for this 
project. Mr. Chairman, if we can get Congress's help and 
approval soon, we can use satellite technology to bring service 
to the last mile and to provide meaningful competition to 
cable. It is a big job and we need to get started. Thank you.
    The Chairman. Thank you very much, Mr. Parkhill.
    [The prepared statement of Mr. Parkhill can be found in the 
appendix on page 94.]
    The Chairman. Mr. Hutchinson

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

    Mr. Hutchinson. Thank you. I am John Hutchinson, Executive 
Vice President and Chief Operating Officer for Local TV on 
Satellite, LLC--I will call it LTVS--which was founded by 
Capital Broadcasting Company in Raleigh in 1997, so we have 
been at this for a little while, also founded by Capital's 
subsidiary, Microspace, Incorporated, so we are one of those 
unique companies that has had a foot both in the broadcasting 
and satellite worlds.
    Mr. Chairman, I heard your request to try to conserve our 
time and I am going to do that by leaving out some of the 
background that will be a matter of record from my text.
    The Chairman. It will be included in full in the record.
    Mr. Hutchinson. Fine. I would just like to talk to you for 
a minute about why the loan guarantee, we think, is necessary 
and how this thing might get done, because we have been 
studying it probably as long as anybody, and I kind of like 
this backdrop over here because we saw this coming, and so we 
set out to say, how can we get this to more than 30 or so 
markets in the United States? How far can we press it?
    So we devised this technical plan with different kind of 
spot beams, a new kind of satellite, and we totally used up all 
of the capacity in an orbital slot and the biggest two 
satellites that could be made today and all the power and 
everything else, and it turned out that we got to about 800-TV 
stations retransmitted. That translates into 66 of the largest 
DMAs, if you start large and go down in a logical way, which is 
75-percent of U.S. households.
    Then we said, well, what about the rest? It is interesting 
that the rest are mirrored in another 800-TV stations serving 
the last 25-percent of America. So you have got 800 over here, 
75-percent, 800 over here serving 25-percent, but the satellite 
ran out after the first 800. So that is what we set about to 
try to find a solution to.
    Let me go back to my numbers here for a moment, and that is 
we have been studying this plan and running business models and 
have determined that it just cannot be done without government 
assistance for the so-called rural markets, and that is because 
private investors, of course, are seeking to maximize their 
short-or near-term returns, and so a local-to-local solution 
for rural America just cannot be funded purely on a commercial 
basis. I say purely, because it can be partly and it can 
eventually be profitable. Let me explain.
    The capital cost to serve the smaller 144-markets is at 
least as great for another satellite as the first 66-markets I 
have just talked about. But in the first 66, you have three 
times the subscriber potential, three times the revenue to work 
with. So that means it pushes out the time period for going 
positive, and frankly, the last 144-markets may even cost a 
little bit more because there are more uplinks involved to get 
from all of those markets, the way they are spread out.
    So under these circumstances, the private investment 
community would refuse to finance the disproportionately 
expensive technical program necessary to serve the smaller 
markets. A Federal loan guarantee, therefore, is desirable and 
it will enable the capital to be raised to finance satellite 
systems for the delivery of local TV signals to rural areas.
    Based on our rather conservatively constructed business 
model that we have run over and over, we believe that a loan 
would be fully repaid, and our business model shows that in 
just the first 2-years, a satellite provider of local TV 
stations should cover its costs. In year-3, it should generate 
enough income to cover its interest costs, and by year-5, there 
would be a sufficient positive cash flow to begin amortizing 
that loan. In addition, by this date, the enterprise would have 
reached a critical mass of subscribers in rural areas that 
could then make a more attractive investment opportunity out 
there for private investors to come in in a second round. This 
additional private capital would be used to further service the 
debt. Finally, our business plan does show that the loan would 
be fully repaid by year-15 or sooner.
    In short, we believe the private marketplace will not do 
this alone, will not provide the majority of the initial funds 
to construct, launch, and operate this satellite system, so we 
do support the Federal loan guarantee.
    LTVS believes that a common industry platform can be 
developed to ensure that small and rural markets across the 
United States can receive this service. In order for the rural 
satellite system to work today and in the near future, the 
enabling legislation should establish some strong eligibility 
criteria. In order to qualify for this loan, a satellite 
provider should be able to demonstrate that it can develop a 
common industry platform to be efficient to be used by all the 
DBS providers, not just one, to design the satellite to carry 
the entire 19.4-megabit digital signal that the Government has 
mandated we transition to, and to provide full ``must carry.'' 
I will address each of these.
    First, the common industry platform is essential to 
minimize unnecessary duplication of the use of government funds 
and government allocated spectrum. It is the efficient, right 
way to do it. By a common industry platform, I am referring to 
a local-to-local satellite system that is technically 
compatible with both DirecTV and EchoStar. That is what we have 
designed here, the two main providers. The satellite system 
would permit, therefore, all subscribers, whether they are with 
DirecTV or EchoStar, to receive both their national DBS 
channels and all of their local TV stations appropriate for 
that market.
    The satellite would retransmit all of these stations to the 
small markets and deliver the signals right into the 
subscribers using the same small dish,just one of them, same 
box on the set, and the subscriber receiving one bill, keeping 
it simple. Using the common platform approach, both DirecTV and 
Echo receivers would be designed to enable their subscribers to 
receive and unscramble these local television signals.
    To gain the necessary number of subscribers to make this 
plan financially viable, both DirecTV and EchoStar should 
include these stations in their packages and the capability in 
their receivers. By marketing a single unified service similar 
to cable, each of them will encourage the purchase of the local 
station packages along with other program offerings. In this 
way, the consumers will finally have a genuine choice in 
selecting a multi-channel video program distributor.
    Second, satellite carriers must be required to carry every 
station's full digital signal. You see, a satellite is expected 
to have a life of 15-years, and you cannot get up there to fix 
it or change it once it is in orbit. The issue is that the 
Government has mandated by mid-2002 that all the commercial 
stations go to this new digital standard, and so it is really 
important, in order to be practical, not to build and construct 
a satellite that will be obsolete in the early term of its 
life.
    Finally, in order to ensure parity with cable in terms of 
availability of all the local broadcast stations, the 
legislation must, of course, require full must-carry. So 
through the Satellite Home Viewer Improvement Act, Congress has 
allowed consumers to receive their signals of all stations and 
that is to happen by January 1, 2002. If no single DBS provider 
carried all of the available broadcast programming in the local 
market, then the very purpose of SHVIA would be eviscerated. AS 
a result, the small and rural market viewers would enjoy the 
full benefits of the Satellite Home Viewer Act if it is done 
this way.
    So, in conclusion, a loan guarantee program to ensure that 
the rural viewer can receive local television signals via 
satellite would serve an important public interest purpose and 
LTVS supports such a loan program. The enabling legislation 
should establish strong criteria to ensure that rural viewers 
receive the full benefits of a local-to-local service, and 
accordingly, the loan guarantee should be available only to 
satellite providers that will carry all of the local stations 
and all of their full digital signal.
    I thank you for this opportunity and I would be happy to 
answer any questions. Thank you.
    The Chairman. Thank you very much.
    [The prepared statement of Mr. Hutchinson can be found in 
the appendix on page 63.]
    The Chairman. I appreciate, and I am sure all of our 
colleagues do, the specifics that each of you have given in 
terms of the criteria of public policy as well as the practical 
economics of how this ought to be constructed. For my own 
information, and hopefully that of other Senators, let me try 
to move through the basics that I understand.
    Mr. Hutchinson, you outlined some criteria which are 
reasonably consistent with other panelists, but I am not 
certain that this is so and this is why I want to make certain. 
As I understood the idea that you present, and I think Mr. May 
touched upon this in his testimony, you envision a satellite, a 
common platform, as you are talking about it, that really is 
the basis for all these signals that will come to all of rural 
America, all the areas to be filled in. Obviously, this is an 
expensive project to begin with, the common platform, the 
satellite, leaving aside whatever happens after that.
    I make that point because as this was discussed anecdotally 
by Senators last year during the imbroglio that went on, there 
was a view on the part of many that we are talking about 
hundreds of small businesses, maybe local television stations, 
requiring loans. In other words, the map is filled in by people 
who are in these various localities who have to provide signals 
to their local subscribers and needed money to do so. Now, that 
may not have been the view of all of you who are here who are 
sophisticated about this to solve the satellite's common 
platform, but the whole loan guarantee situation was not clear 
and I just want to make certain I am clear in my own mind.
    I am trying to think of who puts up the satellite. Is this 
a company? Is it a consortium of companies? For instance, Mr. 
May makes a very good point that if you have a limit of $100 
million and we are talking about a $625 million to $1 billion 
project or what have you, that is obviated to begin with. The 
$100 million may work with these small television stations, and 
that is what some people thought we were trying to do, but what 
I gather you are trying to do is put up a satellite that costs 
hundreds of millions of dollars.
    Just for the sake of argument, would one company do this? 
Who does it? Who makes the application for this money?
    Mr. Hutchinson. Well, first of all, Sir, you are correct in 
that our plan shows that, after looking at this, that the 
common platform is the most efficient means to limit the 
Government's risk here, to conserve resources, and to have the 
best use of spectrum, not to duplicate or waste that spectrum 
by putting 1,600-TV stations up on satellites twice.
    In terms of who might do that, one thought would be a 
hybrid of a purely commercial enterprise, funded accordingly, 
for the largest markets that do pay back soon enough to get 
private investors and not put that burden on government, and 
then for the Government loan guarantee to come in on that 
second 800-stations for some sort of another entity to 
compliment the first, but with the same technical architecture. 
That would work.
    The Chairman. So you have two companies in this case------
    Mr. Hutchinson. Cooperating with the same technology, and 
we have------
    The Chairman. They are still to be formed. In other words, 
if there is an idea that this is going to happen, your thought 
is that out in private enterprise America, there will be two 
groups of people that will form and that will each have a 
percentage of this, of the stock or the equity of this or what 
have you. They become the applicants.
    Mr. Hutchinson. The offer by LTVS, because we want to see 
this happen, is that we will give, we will share with any other 
qualified entity the entire technical plan and all of the specs 
to make the systems compatible. That would save millions of 
dollars because that is what we spent over 3-years to develop 
it to date. So we want to cooperate fully with an entity that 
has the Government loan guarantee to complement that system.
    Mr. May. Mr. Chairman?
    The Chairman. Yes, Mr. May?
    Mr. May. As we have looked at this, first, let me confirm 
for you that we think probably the most effective way to do 
this, and I know that Hutch feels the same way, is to, in fact, 
launch another satellite. It is going, in all likelihood--
almost assuredly, it will be a spot beam satellite. It will 
have to cover 800 different stations. It will have roughly 60-
plus uplink facilities, 60- to 70-different uplink facilities. 
The technology is something that is developing.
    There are issues of compression as to how many megabits are 
provided for each station. There are issues of compatibility. I 
think when Hutch talks about a common platform, it is an issue 
that is slightly separate, actually, from the actual idea of 
the satellite itself. It refers more to issues like conditional 
access and transmission standards and a variety of other 
technical issues that bring together an EchoStar or DirecTV or 
whatever.
    I think at the end of the day, this entity that does this 
is likely to be some sort of a consortium. It could arguably 
involve an equity investment by small market broadcasters. It 
could arguably involve companies like LTVS. It could certainly 
involve satellite companies themselves, a Loral, a Hughes, who 
build the satellites that would be necessary for this project. 
It certainly could involve EchoStar and/or DirecTV as the basic 
platform providers because I think the economic model that we 
all recognize would be most effective is one that wholesales 
this company, this consortium, this whatever, wholesales those 
stations, that service to these folks in a way that makes it 
compatible with their existing DBS service.
    So it is not an easy project. It does work only with a 
longer-term horizon. I would disagree with my friend that I 
think you have to be able to have a for-profit motive here at 
the end of the day. I do not think it ought to be a not-for-
profit kind of business.
    I would finally acknowledge that there may be other 
technologies out there that could work. I know the satellite 
industry------
    The Chairman. Other than the satellite------
    Mr. May. Other than the satellite. So I would think from a 
policy perspective, being technology neutral is something that 
the Congress is likely to want to incorporate because we are 
not the be-all, end-all. There may be a lot of people out there 
that are a lot smarter than we are that can figure out other 
ways to compliment this service.
    The Chairman. Obviously, what all of you are saying is that 
as we are trying to form this legislation, we have to sort of 
stay out of the way of knocking down possibilities. In other 
words, you made the interesting point that given the digital 
requirements, you can send up this satellite but much of it is 
obsolete in a couple of years, given other requirements, so 
that if it is to have a 15-year duration, you have to make some 
sort of a blue-sky judgment of what happens during that period 
of time in which you are amortizing this loan.
    I have no idea precisely how the Baucus legislation, the 
Gramm bill, or so forth address this problem, so in sort of an 
a priori way, we are trying to come to grips that we are 
looking probably at one big loan to maybe two entities or one 
entity that is made up of a number of stakeholders who are 
involved in this problem.
    Your suggestion, Mr. May, is that it be not necessarily 
not-for-profit but for-profit, it could be either one, and that 
has been a big issue, whether we go both of those ways. But if 
we exclude one, we then have some problems maybe in putting 
together this consortium, or the risk-takers that are required, 
but that is a matter of judgment for members as they get into 
policy.
    Likewise, there is a real question that is being raised by 
Senator Gramm and his committee over how much of this guarantee 
the Federal Government ought to have. Now, if we are talking 
about a $1 billion loan, let us say, in a rough situation, 
should the Federal Government guarantee 70-percent of this and 
then go to banks or other lending agencies in the private 
sector to take the risk for the other 30? That is clearly a 
viable issue that some Senators are thinking, not necessarily 
70-30, but I throw out those figures because some have actually 
used those figures. In other words, are the risk-takers in 
America in banks, other people, given the fact that the Federal 
Government is going to pick up 70-percent of $1 billion, are 
prepared to see a satellite go up hopefully without too many 
restrictions so the technologies happen so that we can get this 
service?
    We cannot really write the legislation here today nor you 
figure out the business plan, but I think these are relevant 
questions that we are going to have to come to grips with 
before we get a bill that passes the Senate. There are so many 
ways to block this thing, and I do not start negatively. I 
start positively as to how we can try to forge some consensus.
    But can any of you make a comment to sort of help me along, 
if you were thinking through the parameters of where we start 
with this?
    Mr. Hutchinson. I can speak to the business model that we 
have run, and it is only one, but it does work, and that is if 
the capitalization is fully funded, if it is fully funded by 
the Government loan guarantee, it is all dead, it comes in just 
under about $1.1 billion.
    The Chairman. One-point-one billion to do this idea of a 
common platform------
    Mr. Hutchinson. To service the debt for this long-extended 
term until it turns positive. However, our investment banking 
consultants have advised me that, knowing the market as they 
do, there is a strong possibility that private investors or 
equity investors might very well be interested in a five-to 
ten-percent stake right from day one and that they will 
definitely have an interest in more than that, putting in more 
equity than that after year five, when it turns cash positive.
    So it looks to us like the maximum liability on a 
government loan guarantee is on the order of about $1.1 to, let 
us say, $1.2 billion.
    The Chairman. The government's part of it?
    Mr. Hutchinson. Yes.
    The Chairman. Well, now where does the private money come 
into this? In other words------
    Mr. Hutchinson. That would be the maximum liability, and 
depending on the ability to raise the private equity, that 
could be reduced perhaps by 5-percent.
    The Chairman. By only 5, but not by thirty?
    Mr. Hutchinson. Probably not by thirty because of the long 
pay-out.
    Mr. McLean. Mr. Chairman?
    The Chairman. Yes?
    Mr. McLean. I think it is important to be able to preserve 
as much flexibility to meet the plans that would come forward, 
presumably a year or 2-years from now, and there may be 
combinations or technologies that at this moment in time we are 
unable to anticipate. I think it is also important to consider 
the entire project cost as opposed to a pure ratio onto a 
particular loan guarantee. You maybe want to look at whether 
private capital is at risk in the entire project.
    At the Rural Utilities Service, we have both direct loans 
and loan guarantees. The loan guarantees that we administer are 
100-percent loan guarantees. Yet, that 100-percent loan 
guarantee leverages very significant private capital 
investments. So if you look at the entire project cost, the 
U.S. Government is not bearing 100-percent of the risk, but the 
portion of the guaranteed loan that we are supervising is 100-
percent guaranteed.
    So I would just urge the Congress that if they could leave 
flexibility so that we could work and find the most efficient, 
the most feasible project, because there are two things we look 
at. We look at loan security as well as Act purpose. So if the 
Act binds the administering agency in a way that rules out 
workable solutions, several years down the road, that could be 
a problem.
    The Chairman. I will cease fire for a moment and we may 
want to come back on this situation. But I would just comment 
that I think the flexibility thing, we all are gaining that 
idea.
    What I think many Senators who objected last, whenever we 
were talking about it, in October or November or so forth, they 
were not certain that the Government and the taxpayers are 
going to get paid back. In other words, there was real feeling 
that this was a speculative venture. So, if we are going to get 
into this, we have to construct something in which the taxpayer 
is not left holding the sack.
    There are many people who would say, well, after all, we 
have subsidized all sorts of things in America. Why not 
television in rural areas? But still, this is a point of 
controversy. So, the question is how you can construct 
something that is a pretty big project here, and with a single 
platform and the complex business of putting together these 
entities, but with some fairly good incentives that several 
parties have a reason to want to repay, and in the regular way 
at the end of the day.
    Mr. McLean. And Senator------
    The Chairman. Yes?
    Mr. McLean.--the legislation introduced by Senator Baucus, 
as well as Senator Burns and Congressman Boucher, had several 
very good protections for the taxpayers in there. There was the 
ability to have a credit risk premium, where a third party 
could bear risk. There were insurance requirements. There were 
auditing and review provisions. So you can construct the 
soundness and security provisions without hampering the 
technology or the business plan.
    The Chairman. Senator Fitzgerald?
    Senator Fitzgerald. I have some questions. I find this 
fascinating. I think it is very important that we provide 
satellite TV opportunities to our people in rural communities, 
and I have a large rural population in Illinois, but I want to 
ask some questions.
    Mr. Hutchinson, from your testimony, you said that LTVS has 
a very conservatively constructed business plan, and you felt 
that based on that model, that such a loan could be fully 
repaid, is that correct?
    Mr. Hutchinson. Oh, yes, certainly by the end of the life 
of the satellite, the business. But we see a scenario by which 
it might be sooner.
    Senator Fitzgerald. So it could even be sooner than under 
your conservative model------
    Mr. Hutchinson. Yes.
    Senator Fitzgerald.--and your business model shows that in 
the first 2-years, a satellite provider of local television 
stations should cover its costs?
    Mr. Hutchinson. Yes.
    Senator Fitzgerald. In year three, it should generate 
enough income to cover its interest costs?
    Mr. Hutchinson. Yes.
    Senator Fitzgerald. And by year five, there would be 
sufficient positive cash flow to begin amortizing the loan?
    Mr. Hutchinson. That is correct.
    Senator Fitzgerald. With that in mind, that sounds to me 
just like anybody else starting a business in this country. 
That is a pretty positive business plan. Why do you need the 
Federal Government to come in and guarantee so that it puts all 
that risk on the taxpayers?
    Mr. Hutchinson. Well, I do not have direct experience in 
starting a lot of those businesses, but our investment banking 
consultants, who are in the room from Babcock and Brown, could 
supply that. Leonard Schavel is here, if you would like to hear 
from him.
    Senator Fitzgerald. But a business that can make a profit 
after 5-years, I know I come from a banking background. You 
could start a new bank. If you can be making a profit in 5-
years, that is excellent.
    Mr. Hutchinson. The point that we have been advised by the 
people who raise this money is that the Federal loan guarantee 
not only reduces the interest rate, because there is less 
risk------
    Senator Fitzgerald. Well, there is no question it would 
make it even better for you, but, I mean, why should the 
Federal Government be coming in and making it even better for 
you and take the risk off you?
    Mr. Hutchinson. Because our analysis shows it cannot happen 
otherwise. I do not see anyone------
    Senator Fitzgerald. You are of the position that the 
private sector would never step up to this plate, never ever 
provide satellite television around the country unless the 
taxpayers come in and guarantee their loans?
    Mr. Hutchinson. Excuse me, Leonard------
    Senator Fitzgerald. Will you promise that your company will 
never do that if there is no loan guarantee from the Federal 
Government?
    Mr. Hutchinson. Yes.
    Senator Fitzgerald. You will make that promise?
    Mr. Hutchinson. Yes, because we tried to.
    Senator Fitzgerald. Well, you have only been in business 
since 1997.
    Mr. Hutchinson. Yes.
    Senator Fitzgerald. But you have a business plan to do 
that. Did you have that business plan before there was talk of 
a loan guarantee?
    Mr. Hutchinson. We have a business plan to cover the top 
75-percent of the population where there is three times the 
revenue, so the payout is much sooner and the risk is much 
less.
    Senator Fitzgerald. If these loans are going to be repaid, 
I mean, according to your business plan, why do you need a 
government guarantee to such an extent? Are you saying the 
loans would not be repaid if there is no government guarantee?
    Mr. Hutchinson. We have, based on looking at the markets, 
the concern is, would the loans be available with that much 
risk at stake, with such a long payout in the market, and would 
they be at a favorable interest rate such that------
    Senator Fitzgerald. You do not have to raise money from 
loans. You can raise private equity, too, so you have no 
interest costs.
    Mr. Hutchinson. It is a question of the risk over the long 
period of pay-out.
    Senator Fitzgerald. There are big companies that have the 
money to go put up that satellite right now and provide that 
without borrowing, that have the cash available to do that. 
There are big companies like General Motors or Microsoft that 
have a billion or two sitting in their treasury and could put 
up a satellite right away and have zero interest costs. I mean, 
should these government loans be available to companies like 
that?
    Mr. Hutchinson. These companies do have that capital, but 
the question is, would they do it?
    Senator Fitzgerald. You are saying no one will ever provide 
this?
    Mr. Hutchinson. I cannot say no one, but I say all of our 
experience to date in the investment community is that it 
cannot happen.
    Senator Fitzgerald. Do you think the loan guarantee should 
be 100-percent?
    Mr. Hutchinson. No. We believe that private capital can 
fund some of it, even from day one, and that private capital 
can supplement it and accelerate the pay-out after year year.
    Senator Fitzgerald. The bill that has been drafted, I guess 
Senator Baucus's bill, the way I read it, and I have a 
background as a banking lawyer, there is no requirement that 
the loan documents be such that the Federal Government would 
have access or recourse against the borrower. In other words, 
there could be a loan, a set of loan documents that could be 
written in a non-recourse way to the borrower and the Federal 
Government could come in and guarantee the loan, and under the 
bill, as I read it, there would be no requirement that the loan 
documents be such that the Federal Government could have a 
right to even come after the borrower to recoup any part of 
that loan.
    Mr. Hutchinson. We have not been a part of the structure in 
that particular loan.
    Senator Fitzgerald. So you would have no problem if in the 
bill it said that the Federal Government, if we had to pay on a 
guarantee, we could go and pursue the borrower to collect the 
money that the taxpayers forked over?
    Mr. Hutchinson. There would be substantial assets in the 
entity itself that could be guaranteed.
    Senator Fitzgerald. And pledged.
    Mr. Hutchinson. Yes.
    Senator Fitzgerald. They could be pledged to secure the 
guarantee, and your company would be willing, if you were a 
participant, to pledge all its assets?
    Mr. Hutchinson. Yes, we would--among other things, you are 
talking about the hard assets of over a half-billion dollars in 
the satellites themselves, which are fungible, which do have 
other uses.
    Senator Fitzgerald. So the Government could take the 
satellite back?
    Mr. Hutchinson. Yes.
    Senator Fitzgerald. You would have no problem with that?
    Mr. Hutchinson. No.
    Senator Fitzgerald. You would have no objection? Would 
anybody have an objection if the bill provided full recourse 
for the taxpayers to go after the borrowers?
    Mr. McLean. Mr. Chairman, the Rural Utilities Service would 
not consider a loan that did not have adequate security to be 
feasible.
    Senator Fitzgerald. So there is no problem putting it in 
the bill?
    Mr. McLean. In fact, Senator Baucus's legislation requires 
that the administrator and the lender shall have perfected 
security interest in those assets of the borrower fully 
sufficient to protect the administrator and the lender.
    Senator Fitzgerald. I did not see that.
    Mr. McLean. That is on page 17 of S. 1980, at least the 
copy that I have.
    Senator Fitzgerald. I saw that they should have 
reasonable------
    Mr. McLean. It says Section (I), and as well as there is 
also the insurance requirements in Section (J).
    Senator Fitzgerald. Section------
    Mr. McLean. But Senator, the most important thing is that 
adequate security for the taxpayers is absolutely crucial. The 
Rural Utilities Service, if we were entrusted with this 
responsibility, would not make an asset-deficient loan. It 
would not be sound banking principles.
    The Chairman. Let me interject just at this moment, and I 
am sorry to stop the Senator. We have a vote and Senator Leahy 
cannot return, so I have pledged that he can ask a couple of 
questions at this point. But we will all return and the panel 
will stay here and we will do some more questioning.
    Senator Leahy. Thank you. First off, I should add to what 
my friend from Illinois has said. It was always the intent 
there would be security on such loans. Our conference report 
last year said this. Our discussions on the floor always said 
this.
    There has been some discussion in here about if you can 
talk regarding strategic partnerships without an antitrust 
exemption. I am advised by our attorneys that you do not need 
an antitrust exemption to have such a strategic partnership 
discussion.
    But this is a lot more than just TV. It is about a high-
speed Internet access. Mr. Hutchinson, you talk about how you 
are moving into this. Frankly, the time might come 20-years 
from now or 10-years from now or 15-years from now for totally 
private, non-secured, non-government-secured loans that might 
get into the area for rural areas. But by that time, the 
Internet divide would be so substantial. This is not a time 
where the country moves forward incrementally by decades. This 
is more than just when you get a telephone and whether you have 
a private line at home or you have a two-party line in the 
rural areas. I mean, this is something where each month, each 
quarter makes a major difference in whether rural America is 
left way behind from urban America.
    Mr. McLean, you were quite right in pointing out that the 
legislation and all of us would require USDA to have 
securities. We always do. But you have been doing 65-years of 
making--not you personally, but USDA has been doing 65-years of 
making rural electric loans, 50-years of making rural telephone 
loans, and much of rural America would not have had phones or 
electricity until they were so far behind they would not have 
caught up if you had not done that.
    Can you administer this loan guarantee program without 
creating a new bureaucracy? Can you do it within your current 
staffing levels and with the expertise you have at USDA?
    Mr. McLean. Absolutely, Senator, assuming that the Rural 
Utilities Service is able to replace recently retired staff 
members and recently detailed staff members, I assume them 
back, or we can get them back. I think that, absolutely, we 
will be able to administer a program of this size. Again, we 
have a tremendous, tremendous talent base of telecommunications 
engineers, financial analysts, accountants, and I believe that 
we are capable of handling such a program.
    Senator Leahy. Because of time constraints, I will submit a 
question on the different ways you can do security, but I know 
the briefings I have had, I will just note, Mr. Chairman, I am 
satisfied that USDA can handle the security of the loan issue 
well.
    Mr. May, some of the satellite providers want to reopen the 
issue of the must carry deadline for local-into-local satellite 
TV. Would that have a good or a bad impact, he says as he leads 
the witness------
    [Laughter.]
    Senator Leahy.--on local affiliates and local independent 
broadcasters?
    Mr. May. Senator, you do not have to lead me very far on 
this particular issue. Let me make a generic comment and then a 
comment specific to must carry.
    Our concern is, as much as we would like to see this loan 
guarantee program go forward and recognizing that it is on a 
fast track in the Senate because of a unanimous consent 
agreement, and recognizing also the problems that can be caused 
when it gets to the floor, the chairman talked about the kinds 
of amendments that can be made, as strongly as we support this 
program, we would be very reluctant to continue our support if 
people try and use this vehicle as a means of rewriting SHVIA, 
and I think that is a very real concern that we have. Must 
carry is one of the principal examples of that.
    Let us recognize that at least one of the major satellite 
platform providers has already announced plans to launch a spot 
beam satellite to accommodate their must carry requirements in 
those markets in which they choose to operate, principally the 
40-top large markets in the country. Let us recognize also that 
Mr. Hutchinson's company is prepared to go from market one to 
market 75 with full must carry. Let us recognize that if we can 
put a consortium together to cover the remainder of those 
markets, that that is going to be done with broadcaster 
participation with full must carry.
    People who suggest that you need to change the must carry 
rules to accomplish this business of providing local signals in 
rural markets are raising a complete red herring. They are 
doing it for self-interest purposes only so that they can 
generate the kind of additional capacity to have pay services 
and simply earn more revenue. There is no relationship 
whatsoever to the idea of relief on must carry and a greater 
opportunity to do local signals in small markets.
    Senator Leahy. I appreciate that, because having gone 
through all the battle to get a must carry and everything else, 
it would be a real mistake to hold back or to let that deadline 
slip. I think the companies that have shown a lot of foresight 
and innovation, Mr. Hutchinson, yours and others, to say, let 
us go forward, are then put at a heck of a disadvantage. I 
think let us keep this playing field the way it is.
    But also, this is not something, again, as I said, that you 
sit around and wait 10-years or 20-years, so like you could at 
the beginning of the last century, the 20th century, where you 
could say, well, we can go slowly on telephones, slowly on 
electricity because it does not make that much difference. Now, 
just pick up the paper any day or talk to your 12-year-old 
neighbor who probably is far more Internet-adept than most of 
us are and just see the innovations going on.
    I talked to my son who lives in an urban area who has a DSL 
line and he is downloading movies and albums in a matter of 
seconds and doing------
    Mr. McLean. With appropriate copyright protections.
    Senator Leahy.--with appropriate copyright protections.
    [Laughter.]
    Senator Leahy. In fact, that is the first thing he said to 
me. He said, Dad, before you say anything, this is well 
registered and everything else.
    But Mr. May, you go into another point. In a very short 
time because of the digital era, you are at home and you say, 
well, I would like to rent such and such a movie. Most places 
where you have all of these facilities, you can say, okay, 
well, it will be ready in five or 6 minutes because you put the 
order in and then you download it. I mean, they do the 
appropriate things for how many times it can be replayed or 
something like that, but that is what will be done, unless you 
are out in an area where you have none of this access.
    I am thinking of the commercial implications, but I am also 
thinking of the business implications. I want the opportunities 
for jobs, for high-tech jobs in rural areas, as there are in 
urban areas. Now, if the rural areas do not take advantage of 
that, that is one thing. But at least it should be available, 
whether it is in my State of Vermont, whether it is in rural 
Indiana, or anywhere else. I think this is important. I think 
that Mr. Hutchinson has said the low-interest loan program is 
an important one for the USDA. It can be done at no risk to 
taxpayers, but it can be done at great advantage to rural 
America.
    That is not parochialism. I have the happy opportunity of 
living in both urban America and rural America, urban America 
in the Washington area, rural America where I live in Vermont. 
There are advantages to both. I will freely admit that. I do 
not sit here like I am looking at some kind of a Currier and 
Ives print. But we have to have the ability in rural America to 
make the same choices you can in urban America on jobs, 
especially the IT-type jobs that we face today.
    Mr. Chairman, I realize that I have done a little 
preaching, but I will submit other questions for the record. I 
think this hearing you are having could well turn out to be one 
of the most important hearings for rural America for years.
    The Chairman. Thank you very much, Senator.
    Let me just say to you, as well as to everyone else, I was 
misinformed earlier. The vote has not happened. We are in a 
quorum call, but I am told the vote is imminent. So I am 
hopeful our two colleagues who are waiting over there 
expectantly will not------
    [Laughter.]
    Senator Leahy. There are somewhere out in virtual space.
    The Chairman. That is right, and I hope that they will not 
return angry that they have been misinformed.
    Let me just take advantage of this quorum call to ask a 
question. What happens, Mr. Hutchinson, if despite the 
prospects of success of this project with the loan guarantee, 
in fact, the project fails. By the third year, things do not 
work out so well. By the fifth year, the revenues just are 
deficient. Is there something else for this satellite to do? In 
other words, is security for the loan, the satellite out there, 
merchantable in some way, or------
    Mr. Hutchinson. Yes, Sir. It could be a very valuable 
satellite because unlike the ones that are up there now that 
have a footprint of the entire United States, this satellite by 
design would have to have specific discreet spot beams with 
different content going to individual television markets or 
individual cities.
    If the satellite were reallocated, for example, to the 
delivery of high-speed Internet data, the user who wishes to 
see a movie or a Web page in Philadelphia would not be in 
competition with the server and the lines with the user who 
wants to see something else in New York. You are only in 
competition with the others in your own market. So it would be 
an extremely efficient very high-speed data delivery system, 
and, in fact, that is one of the ancillary opportunities that 
exists in this system even with the pretty television pictures.
    The Chairman. Are these specifications we should write into 
the bill to begin with, so the security that we have for the 
taxpayers has all these features that you are suggesting, or is 
it axiomatic that they will all occur, I mean, anyone putting 
up a satellite would do all the things that you are suggesting?
    Mr. Hutchinson. Well, there are certainly different designs 
in satellites and I can only speak to the one that we have 
studied. We think it is the best way to do it. Perhaps in 
reviewing applications for this loan, the entity reviewing it 
would want to take that into consideration, the fungibility of 
the satellite should something happen to the basic local-to-
local business.
    The Chairman. Do you have a comment on that, Mr. McLean?
    Mr. McLean. Yes, Senator. That would be key to the loan 
feasibility, the value of the assets, under any circumstance.
    Mr. May. Senator, I might observe that in the abstract, we 
would hope that the Committee and that the Congress would not 
place artificial restrictions on the use of the spectrum 
available through that satellite and that those that are 
investors be permitted the opportunity to expand their horizons 
to the extent possible in delivering digital-quality 
information, data, video, etc. via this satellite. I think that 
would be key to the ultimate success of the project.
    The Chairman. Is there an argument about that? Mr. Rhode, 
do you have a comment about that?
    Mr. Rhode. No, I do not.
    The Chairman. Mr. McLean?
    Mr. McLean. I do think it is important to ensure, though, 
that the fundamental purpose is met so that local-into-local is 
the first priority.
    The Chairman. Yes. You do the fundamental and then the 
additional which makes the assets more valuable------
    Mr. McLean. Yes, Sir.
    The Chairman.--which undergirds, then, the collateral for 
this loan, whoever it is to be made to.
    Clearly, Senator Gramm is drafting his bill, so I am not 
either mind reading or trying to help him along here, but as I 
understand, one concept that he has in mind is that the 
governing body would be a panel of three people designated by 
such entities as, and the Senator has not made a decision, but 
nevertheless, generally broached have been people like the 
Chairman of the Federal Reserve Board and the Secretary of the 
Treasury and the Secretary of Agriculture, for example, as 
three.
    If that was the case, I suspect still these three ladies or 
gentlemen would not be administering the program, but they are 
sort of a super board of directors, and as I understand from 
the Banking Committee's focus, they are still worried about the 
taxpayers and getting paid. In other words, to have Alan 
Greenspan or his designee or Larry Summers or so forth in 
addition to our own Secretary of Agriculture and the department 
for which we are responsible is to make certain that there is 
some public confidence that the budget is not going to be 
unbalanced in this deal.
    What is your general comment, any of you, about that idea, 
without knowing, I suppose, who these three finally are, 
whether it is the RUS and it is you, Mr. McLean, or I am not 
certain who else in the Government can handle this kind of 
thing, but this is being sketched over in that committee, as I 
understand it. It clearly is a different concept than the 
Baucus bill or the Burns bill that we started out with, 
although Senator Burns probably is working with Senator Gramm 
in some way, largely because he wants to see a bill passed, as 
I do, as Senator Leahy does and Senator Baucus. So this is all 
sort of out-of-school work, but can you help contribute while 
you are here today as to how any of this might be fleshed out 
satisfactorily? Does anyone have an idea on that? Mr. McLean?
    Mr. McLean. Two days ago, we did testify before the Banking 
Committee and offered our assistance and expertise to Senator 
Gramm. There is a model that this committee is responsible for 
that might be worth considering. In 1972, Congress created the 
Rural Telephone Bank. The Rural Utilities Service provides all 
of the staff work, provides all of the due diligence. It 
staffs, in fact, the board members of the Rural Telephone Bank, 
which are both Presidential appointees and industry-elected 
members. So you do have a model or a precedent of the Rural 
Utilities Service working with a board.
    I think the most important thing is that the loan 
guarantees are available in a timely manner. You certainly do 
not want to create a new bureaucracy. You do not want to have 
to have excruciating levels of review that take away all of the 
market benefits from having a loan guarantee by replacing it 
with costs involved in that review.
    The Chairman. Did you offer that testimony to the Banking 
Committee in your appearance there, or give them these ideas?
    Mr. McLean. We told Senator Gramm that we would work with 
him and work with all members of Congress to make the system 
work.
    The Chairman. Tactfully stated. Let me at this point 
indicate that the vote finally has begun, so I will recess the 
Committee. Mr. Rhode, I understand that you need to be excused 
because another committee wants to see you, so you are excused 
and we really appreciate your appearance and your testimony. If 
the others of you can stay, I would gather imminently, Senator 
Fitzgerald, who was in mid-flight when I stopped him and he 
went to vote, may well have some more questions, and Senator 
Lincoln has not had an opportunity at all. If either of those 
should return, I might ask staff simply to indicate that they 
may commence chairing the Committee and start asking questions 
and I will return as soon as possible to conclude with this 
panel, and then we look forward to another panel right after 
you.
    So for the moment, we are recessed until a Senator appears 
and begins the questioning.
    [Recess.]

   STATEMENT OF HON. BLANCHE L. LINCOLN, A U.S. SENATOR FROM 
                            ARKANSAS

    Senator Lincoln. [Presiding.] I think I am supposed to 
reconvene this hearing. I very much appreciate the chairman 
allowing me to do that, because we all do have other things to 
move to.
    In his absence, I would certainly like to compliment the 
chairman for holding this hearing, scheduling the hearing here 
today, but also for his attention to issues that affect rural 
America, and I think this is definitely one. I have mentioned 
to some of you all before that I am the ultimate consumer to 
testify on this issue. I live in the middle of nowhere and have 
had some unbelievable lack of opportunities in many of what I 
have been able to get, whether it is through my phone service 
or whether it is through my television outlets or whatever that 
may be.
    I will indulge myself and request that my entire statement, 
since I was a little bit tardy this morning, be included in the 
record.
    Senator Lincoln. I have said many times in floor statements 
in Arkansas that this is an extremely important issue. It is a 
very important issue to us in Arkansas and to my constituents.
    My colleagues and I sometimes jokingly refer to one another 
as sharing a State flower, a flower that is up in the front 
yards of many of our constituents, and that is a satellite 
dish. We tease about that sometimes, but it is an important 
issue for many of us that do live in rural America, to be able 
to have access to local information. Oftentimes, we have to go 
to a portable radio in order to get farm information, local 
weather information, disaster, a school closing, whatever it 
may be, and it is going to be very critical, I think, for us to 
make sure that we look at this issue closely and recognize what 
it means to all Americans.
    I would also like to thank my colleagues on this committee, 
Senator Baucus and Senator Johnson, and especially Senator 
Leahy who was on the conference committee here, who I think 
stood firm and worked very hard. Their leadership on this issue 
has certainly been very important, and also Senator Burns, who 
is the chairman of the Telecom Subcommittee in the Senate. He 
is not here, obviously, today, but he has also done a great 
deal of work on that and I have enjoyed working with my 
colleagues and want to continue to.
    I mentioned out in the hallway how pleased I am to see such 
a very diverse and very well-versed panel that we have here 
today. Chris and Greg, from your experience here on the Hill, I 
not only want to thank you on this issue, but also in the way 
that you worked with me and my staff. You were very helpful 
during the conference committee on the 1996 Telecom Act, and I 
really appreciate that and am proud that you all have achieved 
what you have and that you are here again to help us work 
through some of these issues.
    Mr. McLean. Thank you, Senator.
    Senator Lincoln. Without a doubt, I think Jim May has got 
history here beyond bounds that he brings to this today.
    This issue is critical because 20-percent of all of the 
homes in Arkansas were left without access to in-State 
television broadcasts through their satellite service last 
November when the Senate adjourned without adopting the rural 
loan provision in the satellite bill. We are here today to talk 
about what is the best way to achieve access and certainly 
visibility to individuals in rural areas. I am pleased with 
some of the ideas, also some of the questions, that have been 
brought up that point out to all of us that we are looking for 
a solution that is going to benefit everybody, not just 
consumers. Obviously, I say to the industries that could be 
serving these consumers, we want to be able to work with you to 
come up with something that is going to be beneficial to 
everybody.
    I do believe, though, that there is a solution out there, 
and I hope that as we work to get to that, that everybody is 
going to be willing to come to the table and realize that we 
all have to give a little bit to get something out in return.
    Since January of 1999, my office has received more letters 
and phone calls on this issue, the satellite legislation, than 
almost any other issue, and that is one of the reasons I have 
been very passionate and involved in this issue. I can identify 
with them because I live out in the rural areas and I 
understand what they are up against.
    It was never more obvious to me than when, some of you all 
will remember, when I was in the House, having twins. After 
those twins were born, I was stuck out in the middle of 
nowhere, pretty much isolated with small children. Being able 
to get local news was very important to me. But also in terms 
of the schedule and the life that I led, I could not get local 
news, and at feeding time and at bath time, I missed any kind 
of local news that there may have been, which was really not 
even Arkansas news, it was Tennessee news. Then after feeding 
time, I would wait for the nightly news, which was usually 
Seattle, Atlanta, or Boston, which was completely irrelevant in 
rural Arkansas.
    But this is an important issue and one that I definitely 
intend to play a role in. The frustration level has increased, 
obviously, for the constituents that we serve, and they want to 
know why their next-door neighbor, after what has happened in 
November and what has transpired since then, why their neighbor 
who has a satellite dish and has had one for years can now get 
FOX and CBS but they cannot as the next-door neighbor with a 
new satellite.
    My staff assistants who are answering the calls that are 
coming in from these constituents really deserve combat pay in 
trying to explain this legislation. They first explain the 
disparity in the service between the next-door neighbor's and 
theirs, and then they also have to explain why folks in 
Washington, DC., can get local-to-local while folks in Arkansas 
cannot. That really smacks right dab in the middle of inside-
the-beltway favoritism to them in Arkansas. So I have had to 
put hazardous duty pay on that front office when they take 
those calls.
    But it is truly, I think, somewhat a lack of understanding 
in terms of what rural America is up against and I want to 
compliment the chairman, as I did earlier, Mr. Chairman, on the 
way that you have taken the initiative to really focus on the 
issues of quality of life in rural America.
    I would like to ask just a couple of questions. Mr. McLean, 
one point of contention seems to be determining which group is 
best equipped to administer the rural loan fund. In terms of 
your views of who is going to be the best to do that, if you 
could express to us, and others may have some point of view 
there.
    Mr. McLean. Well, very humbly, Senator, I certainly believe 
that the Rural Utilities Service is very capable of performing 
that service. We have some of the Federal Government's very 
best telecommunications engineers. We have a top core of 
accountants. We have excellent financial analysts. I think most 
importantly, the Rural Utilities Service understands rural 
America and understands the challenges of both distance and 
density.
    So I think that we have the skills and I think that we also 
have, given the size of the program we are talking about; very 
large loans, but we are talking about, I think, a manageable 
volume of loans that I believe we would be able to accommodate 
under current FTE ceilings.
    Senator Lincoln. If you thought there were any drawbacks in 
your capability, would it be the size of the loan?
    Mr. McLean. I do not think that that--if there were------
    Senator Lincoln. Or weaknesses, if you felt like there were 
any weaknesses where we needed to shore up in order for your 
capabilities to be there.
    Mr. McLean. Right. I think the wonderful thing about the 
Baucus legislation as well as the Burns and Boucher legislation 
is that it does give the administrator the ability to seek 
outside advisors, either financial analysts or technology 
analysts, if it were necessary, to analyze a particular loan. 
So I think that there is sufficient flexibility to be able to 
manage any shortcomings that might exist in staff at the 
current time.
    Senator Lincoln. Mr. Hutchinson, you mentioned that the 
Government loan guarantee made this a desirable approach, or a 
desirable project. I mean, do you think that was an 
understatement? Later on, you did mention to Senator Fitzgerald 
that you felt like the only way that you could accomplish it, 
was if that incentive were there. Do you strongly believe that?
    Mr. Hutchinson. Yes. I believe if the incentive is there, 
that there are several entities I know about that will be 
applying. We might be among them. I am not making a commitment 
right now. But I do make the commitment that whatever the 
entity, we think we are in the best position with what we have 
done technologically to date to sort of be the back room, 
economies of scale, and that we have the conditional access 
system, we have the architecture, and I think it is really 
important, just as we talk about the common platform for 
efficiency, that the system be built to be fully compatible 
with the other markets so that, for example, if someone moves 
from one market to the other, the box still works. You do not 
have two sets of boxes or standards across the land.
    Senator Lincoln. Continuity is important, and the long-term 
technology that is going to be out there, I agree, we need to 
be prepared for.
    I have been out there with a lot of small Arkansas 
telecommunications companies who know what it costs. They know 
what it takes to lay the line to reach Ms. Irene that is living 
out on a gravel road and recognizing what it costs to service 
those customers out there. The universal service fund is a way 
that really helps those companies and some of those really, 
rural customers to be served.
    Do you think that there is any merit in some type of a cost 
sharing or investment from the industry side in terms of what 
investment we make? Obviously, the loan guarantee is important, 
but do you see any responsibility from the industry? I know 
Senator Fitzgerald touched a little bit on the fact that if it 
seems to be a good business investment, if these are places 
where the industry wants to play and these are good 
marketplaces for them, does it not make sense for them to at 
least share in some of that?
    Mr. Hutchinson. In what we call the phase one plan for the 
larger markets, which is mirrored for the smaller markets, our 
preference is for strategic partners who have more than just an 
economic stake in it, who it really fits their business, the 
satellite providers, the satellite builders, those sorts of 
entities. So the answer is yes.
    Now, with regard to the technical platform, I do favor 
satellite because we have talked about the last mile there and 
it just seems to us that the one special attribute of satellite 
is that it is like rain. It falls on everyone. There is really 
no added cost for that last mile. So, when you are talking 
about these geographically disperse areas, we think satellite 
technology does an especially good job of assuring that every 
last citizen is served.
    Senator Lincoln. Mr. May, I met with other Senators with 
some of the major network anchors the other day and they were 
talking about the importance of dovetailing and how important 
the telecommunications industry, the computer, the Web, and all 
of that infrastructure has become to network television and 
what it is going to mean for them. I, myself, am amazed at how 
we have progressed even much further than my wildest dreams 
from the 1996 Telecom Act. We have come a lot further a lot 
quicker than I thought we would.
    Do you think that it stands to benefit those networks in 
terms of increasing their visibility in markets that are going 
to be enhanced by the information highway? When you start 
talking about the increase in telecommuting, you start talking 
about the advantages that it provides to rural America, I am 
just seeing in my constituency those that have been able to 
build their businesses on a Website like eBAY, for instance, 
and have been able to build an industry in rural America. Does 
it not really stand to truly benefit those networks to be able 
to access that market?
    Mr. May. Senator, certainly the networks themselves could 
benefit and therein the business, if you will, of convergence 
with these different technologies. But I think the more 
important benefit to what we are talking about here today is 
not the networks but the local stations. It gives the local 
stations greater incentive and opportunity to engage in 
convergence. It gives them--you and the Congress have mandated, 
for example, that these stations be up and running in digital 
technology by 2006.
    Senator Lincoln. I know. I am hearing from them.
    Mr. May. That is a huge investment on the part of stations. 
Yet this gives stations an opportunity to be broadcasting, if 
you will, from satellite in digital throughout their entire 
market overnight, if they can be carried, and I think that 
gives them the opportunity to engage in other lines of 
business, again, a matter of convergence.
    So we are very high on the positive opportunities that 
local-to-local in all size markets, but in particular rural 
markets, provides. We discussed that with Senator Leahy just a 
minute ago.
    I would make one other observation, Senator, if you would 
permit me, and that is that it is a good thing when you are at 
home with your new babies and you did not have access to local 
television, that you did have access to local radio.
    [Laughter.]
    Senator Lincoln. Point well taken. I appreciate that and am 
glad to know that it is a good prospect in terms of a market. I 
do think, without a doubt, that local network affiliate is a 
good conduit for the networks, because I know for my own sake, 
it is hard to run a campaign in a State where you do not even 
get the State affiliate station's local news, so------
    Mr. May. At the end of the day, Senator, we are very 
sensitive to the kind of combat pay that your front office 
staff require because we hear from those consumers, too, 
because they are our consumers. They are our viewers, as well. 
I think the beauty of local-to-local being provided in all 
markets, 210 across the country, is that, that really does wipe 
out any of the real concerns about access to entertainment and 
news and programming for anyone who chooses to have access to a 
satellite.
    Senator Lincoln. Well, I appreciate it, and thank you, Mr. 
Chairman. I have taken more than my time, but would like to 
encourage all of the panel that we can work together to come up 
with a plausible solution in terms of how we actually make this 
happen. Knowing that technology-neutral is something that 
people are interested in, let us make sure that we are doing it 
fair. Thank you again, Mr. Chairman, for your leadership on 
this issue. I appreciate it.
    The Chairman. [Presiding.] Thank you, Senator Lincoln, for 
attending the hearing and raising some very important 
questions.
    I just wanted to conclude. Mr. May, in your testimony, I 
just do this for clarification, you mentioned that the bill 
appears to exclude two existing DBS operators. The bill you are 
referring to is the Baucus bill?
    Mr. May. No, Sir. I was referring to last year's conference 
bill, where it sort of excluded, if I recall correctly, both 
DirecTV and EchoStar's platform------
    The Chairman. You are suggesting that if we do this again, 
we should not exclude them because of the reasons that you----
--
    Mr. May. That is correct.
    The Chairman. I appreciate very much all of you coming and 
your staying with us throughout this period. I think this 
testimony is very helpful to Senators who attended and 
certainly through the record to all the rest as we really try 
to work our way through a very important project and try to do 
so in a timely way.
    As I mentioned in our first hearing on another subject on 
Tuesday, we have a fairly small window of opportunity this 
year, largely imposed by the fact that the leadership is intent 
upon passing the appropriation bills this year and having them 
signed at an early time. So this backs up into the 
discretionary period for those subjects that are not 
appropriation bills or not the budget, and essentially a time 
frame of this month, next month, and maybe April. This is why I 
am intent in trying to push this thing and accelerate it. We 
have the support of our members in doing that, as was evident 
today.
    We thank you all for your testimony. We look forward, if we 
may, to calling upon you for additional information. As Senator 
Leahy has indicated, he will have some additional questions, 
and so may other Senators. If you could respond to those 
promptly, we would appreciate it. Thank you very much.
    The Chairman. I now call upon a second panel. Some of you 
will be participating in that, but we will also have Dr. 
Stephen Jay, Chair of the Department of Public Health and 
Professor of Medicine at Indiana University of Medicine, 
joining Mr. McLean, Mr. Rhode, and Mr. Parkhill.
    Dr. Jay, we welcome you to the hearing to join your 
colleagues who are already tested by this morning's question 
and answer as well as their own testimony. As perhaps you heard 
from the last time, we are asking that initial testimony be 
summarized, preferably in 5-minutes or a little bit more, and 
we will not be rigorous, because for the moment I am not joined 
by other Senators, so the pressing issue of hoards of questions 
is not upon us, but we really want to explore this subject 
carefully.
    If you would proceed with your testimony, and then I will 
ask that you be followed by Mr. McLean, Mr. Rhode, and Mr. 
Parkhill. Dr. Jay?

 STATEMENT OF STEPHEN J. JAY, M.D., ASSISTANT DEAN, CONTINUING 
   MEDICAL EDUCATION, INDIANA UNIVERSITY SCHOOL OF MEDICINE, 
                     INDIANAPOLIS, INDIANA

    Dr. Jay. Mr. Chairman, thank you for the privilege of 
testifying on this critically important issue. I am Stephen 
Jay. I am a practicing internist from Indiana. I am on the 
faculty of the Indiana University School of Medicine and Chair 
of the Department of Public Health and have been involved in 
one way or another in telecommunications, telemedicine, to 
support patient care and the education of health professionals 
for about 25-years.
    In his State of the Union address just recently, the 
President spoke of the digital divide which separates 
technology haves from have-nots and Secretary Shalala and 
Surgeon General Satcher issued a related call last week in 
announcing the goals of Healthy People 2010, those to improve 
quality and duration of life and to eliminate disparities in 
health care. This digital divide, specifically the issue of 
telemedicine, threatens the ability of our Nation and of 
particular rural States like Indiana to meet these challenges 
of Healthy People 2010.
    Among our most vulnerable citizens are the medically 
underserved populations of rural communities, and telemedicine, 
in particular, the application of telecommunications 
technologies to health care, is one of those strategies that 
Indiana and other States have used to address rural health care 
challenges.
    Telemedicine offers three key advantages to rural 
communities. First, it can provide clinical care benefits, 
including greater access and reduced disparity in health care. 
Indiana, for example, has compelling needs in these areas. 
Sixty-percent of Indiana's 92-counties are Federally designated 
non-metropolitan counties. Thirty-percent of our population, 
too, of the 6-million people in Indiana live in these areas. 
The rural populus is disproportionately poor and older than 
average and only about 13-percent of Indiana's active patient 
care physicians serve in these rural areas.
    Experience nationally and in Indiana indicates that 
telemedicine can improve care for these populations, benefits 
through less time to travel and the cost of such for health 
care, less delays in treatment, increased access to specialty 
care, and importantly, as was alluded to earlier, improved 
capacity for community-based care.
    In Indiana, for example, the Department of Agriculture's 
distance learning and telemedicine grant program supports an 
innovative partnership project of Union Hospital in Terre 
Haute, Indiana, the Midwest Center for Rural Health, the 
Clarian Health Partners, and this comprehensive telemedicine 
project provides benefits for patients in rural Western Indiana 
that include electronic medical records networks among multiple 
care sites, which ensures continuity of care, obstetric 
consultation services that eliminate dangerous and costly 
travel for high-risk obstetric patients, and interactive multi-
site distance learning activities for health professions.
    A second benefit of telemedicine is its role in 
strengthening community-based health professions education and 
training, and here, we have had about 30-years of experience in 
Indiana through the Statewide system of medical education that 
was embarked on in the late 1960s. Recently, in fact, last 
month, Indiana has begun to build on that platform through the 
HRSA area Health Education Centers Program. Indiana has just 
submitted the AHEC proposal, and a key element of bridging 
between academic medical centers and small communities, 
particularly rural communities in Indiana, is the telemedicine 
technology.
    A third benefit of telemedicine is the ability to expand 
systemwide capacity for data collection, research, and so on, 
and here, the EPICS program in Southern Indiana is particularly 
innovative in bringing and linking together hospitals, clinics, 
and other providers in a very innovative way.
    There are barriers, and I will list just a few before 
closing. The barriers to implementing telemedicine are several-
fold. Licensure is an issue which needs to be addressed at 
various levels. Reimbursement continues to be somewhat limited 
and complex. The operating and start-up costs for small 
institutions, particularly in hub-and-spoke sort of 
arrangements, continues to be a barrier. Infrastructure, 
communities lack the needed infrastructure to support 
telemedicine.
    Liability is also an issue in that there is uncertainty 
among telemedicine practitioners as to what their legal 
exposure is, and also, recently, the OIG advisory opinion 
concerning the anti-kickback violation issues has raised 
concern and questions among those who are participating in 
collaborative telemedicine ventures.
    We have learned through our experience in Indiana, these 
pilot programs and others, that success, critical success, 
involves involvement of community leaders in all levels of 
planning and implementation and evaluation of these programs 
and partnerships, which was mentioned earlier, among State and 
Federal Governments, State and local health departments, 
academic health science centers, and private sector and NGOs.
    While significant barriers remain to rapid development of 
telemedicine, we believe that progress is being made, and by 
building on these successes, we can hopefully accomplish the 
goals that were set out in Healthy People 2010.
    Mr. Chairman, we applaud your holding these important 
hearings on this critical issue to rural America. Thank you.
    The Chairman. Thank you very much, Dr. Jay, for coming 
today and offering that testimony and very specific instances 
of telecommunications and telemedicine in our State. We 
appreciate it.
    [The prepared statement of Dr. Jay can be found in the 
appendix on page 90.]
    The Chairman. Mr. McLean, would you proceed with your 
testimony? We are on the digital divide panel now, as you and 
the audience know.
    Mr. Mclean.
    Mr. McLean. Yes, thank you, and it is a great pleasure to 
serve on a double-header here. This is terrific.
    Yesterday, President Clinton announced initiatives to close 
the digital divide and gave a little preview of the budget and 
I would ask the chairman if I could have a statement related to 
that included into the record.
    The Chairman. Yes. It will be placed in the record in full.
    Mr. McLean. This Committee has not only been responsible 
for closing the digital divide, but also creating digital 
opportunity throughout rural America. If I could just use a few 
moments to highlight some of the accomplishments of the Rural 
Utilities Service, again, under the oversight of this 
Committee.
    Since 1993, the deployment of fiber optic cable in Rural 
Utilities Service-financed plant has doubled, representing one 
in every ten miles of cable in rural local loops. That is a 
tremendous fiber-rich diet for telecommunications. Since 1993 
through 1999, RUS has financed $1.2 billion in fiber optic 
facilities and $790 million in digital switching systems and 
enhanced feature softwares. Today, RUS-financed borrowers 
provide 99-percent digital switching. It is unparalleled 
compared to rural exchanges outside of the RUS family. Since 
1993, 306-distance learning and telemedicine projects totaling 
$83 million have been funded in 44-States and two territories.
    The Rural Utilities Service is absolutely committed to 
closing the digital divide. We are bringing, in many cases, new 
service, first-time phone service to folks right now in the 
year 2000. Last year, I had the great privilege of presiding 
over a ribbon-cutting ceremony in Bylas, Arizona, where the San 
Carlos Apache tribe connected 450-families to phone service for 
the very first time. This had a profound effect on the 
community. One of the first things that happened is the police 
department hired more police because now they could have people 
to call in for 911 service and have a rapid response. So just 
by the addition of that technology, the safety and security of 
that community increased. There are new opportunities for jobs. 
There are new opportunities to participate in the digital 
economy.
    We are so fortunate to have your longstanding and strong 
support for our program. Rural America is benefitting very 
much. So thank you for the support of the Rural Utilities 
Service and the distance learning/telemedicine program.
    The Chairman. Thank you very much for that historical 
outline. It is a fairly short history, but an intense period of 
discovery and application. We appreciate that.
    Mr. Rhode?
    Mr. Rhode. Yes. Thank you. First, I should explain my 
reappearance, as you were kind enough to excuse me------
    [Laughter.]
    The Chairman. We are grateful.
    Mr. Rhode.--but the hearing in which I was supposed to 
appear is delayed, so if you will have me back, I thought I 
would return and I may have to go a little later.
    The Chairman. Yes, indeed. We are grateful you are here.
    Mr. Rhode. I am glad to be here again to talk about this 
subject.
    I grew up in Rural America, and I grew up in what was the 
second-largest city in North Dakota, which is a town of about 
50,000-people. So to a lot of people, that is considered a 
pretty small town. To us, it was a big town. But I grew up in a 
State where all but just a couple of counties have experienced 
out-migration over the last two censuses that have been 
conducted.
    So I fully understand the unique challenges that small 
communities face, particularly those communities that are in 
economically distressed areas, such as the communities that I 
have grown up in the farm belt. But I also understand the 
tremendous potential that information technologies offer many 
of these rural residents to improve the way they live, work, 
the way they learn and obtain health care, and getting good 
access to advanced telecommunications and information services.
    Last summer, many people are aware that the Commerce 
Department released a report called ``Falling Through the Net: 
Defining the Digital Divide'' which was a combination of 
efforts from NTIA, the Agency which I now administer, as well 
as the Census Bureau, using census data. That report 
highlighted a number of positive things. For example, computer 
ownership has doubled in the last 4-years in the United States. 
Internet access has increased by more than 40-percent, just in 
the last year alone. Also, more than a quarter of American 
households now have access to the Internet.
    However, that same report had some rather disturbing news. 
It also found that at almost every income level, households 
that are in rural areas are less likely to own computers than 
households that are in urban areas. The report also found that 
at almost every income level, households in rural areas are 
half as likely to have Internet access at the home than 
households in urban areas. The report also found that black, 
Hispanic, and Native American households are much less likely 
to have computers and access to the Internet than white 
households are.
    The point of this is that while there is tremendous growth 
and a lot of wonderful things occurring in our economy with 
respect to access to information technologies, what this report 
found is that the gap between urban and rural, between poor and 
affluent, and between minority and white is growing.
    For example, in 1997, 8.7-percent of Hispanic households 
had access to the Internet while 21.2-percent of white American 
households had access to the Internet. We found that within 1-
year, the increase for Hispanic households went to 12.6-
percent, while in white households increased to 29.8-percent.
    With respect to African American households, we found a 
similar pattern, that in 1997, only 7.7-percent of black 
households had access to the Internet while 21.2-white 
households had access. The white household access increased to 
29.8-percent in 1-year, while the black households only 
increased to 11.2-percent. The point is, the trend lines are 
showing an increasing chasm between minorities, between low-
income and affluent, and between rural and urban America.
    Now, yesterday, as my colleague Mr. McLean just announced, 
President Clinton at Ballou High School in Southeast 
Washington, DC., unveiled his budget package for his initiative 
to close the digital divide, and yesterday, the President said, 
``We must make access to computers and the Internet as 
universal as the telephone is today.'' To help achieve this 
goal, the President announced the following initiatives that I 
would just like to briefly run through for you.
    First, the President is proposing to triple the funding for 
the Technology Opportunity Program which is administered by 
NTIA. Currently, that program is funded at $15 million. The 
President is proposing to increase that funding to $45 million. 
Since 1994, the TOP program has been working to close the 
digital divide, providing over $118 million worth of Federal 
grants to nonprofit community-based organizations who provide 
for innovative telecommunications and information technology 
applications to address a range of issues, such as public 
safety, health care, education, community-wide networking, and 
business development. That funding has leveraged over $184 
million in non-Federal dollars.
    Another initiative of the President is to create a new 
program to expand home access to the Internet and computers, 
which will be funded at $50 million.
    There are other programs, as well, such as a $25 million 
program at the EDA, as well as the RUS, to accelerate broadband 
deployment in rural communities and inner-city areas.
    The President is also proposing to triple the funding for 
the community technology centers, which is currently 
administered by the Department of Education. That funding would 
increase from $32 million to $100 million. Also, to double the 
funding that we currently provide at the Department of 
Education to train teachers, new teachers. The President also 
is proposing a $10 million program at the National Science 
Foundation to help prepare Native Americans for careers in 
information technology fields, and also a $2 billion package 
over 10-years for tax incentives to encourage private sector 
donation of computers, technology training for workers, and 
sponsorship for community technology centers.
    This package of proposals is part of the administration's 
effort to close the digital divide. In addition to this, the 
administration will continue to promote policies that are 
faithful to the Telecommunications Act of 1996, policies that 
foster competition and policies that preserve and advance 
universal service in a manner that is consistent with the Act 
to ensure that access to advanced telecommunications and 
information services are available to consumers in all regions 
of the Nation.
    Finally, the one last comment I would make is that as part 
of NTIA's role and working on the administration's efforts to 
close the digital divide, we have created a new Website called 
digitaldivide.gov, and the purpose of this Website is to 
provide for a clearinghouse for those that are interested in 
following the administration's activities to close the digital 
divide, as well as to find additional information about private 
sector initiatives. There is an enormous amount of activity in 
the private sector by private companies that are providing for 
grants, providing donation of workers for training, donation of 
equipment, and we are trying to provide a means for the public 
to easily access a number of these programs, and so I would 
encourage people who are interested to check our Website. Thank 
you.
    The Chairman. Thank you very much, Mr. Rhode.
    Mr. Parkhill.
    Mr. Parkhill. I appreciate the opportunity to come before 
you today to talk about the digital divide in rural America. As 
I introduced myself a while ago, I am Dave Parkhill. I am from 
rural America. I am the General Manager of Hamilton County 
Telephone Co-op in Dahlgren, Illinois.
    Hamilton County Telephone Co-op is a member of the National 
Rural Telecommunications Cooperative. NRTC is a not-for-profit 
cooperative association with a membership of nearly 1,000 rural 
utilities located throughout 48-States. Like Hamilton County 
Telephone Co-op, NRTC's other members provide electric or 
telephone service to underserved low population density areas 
of the country.
    Mr. Chairman, Dahlgren, Illinois, is the second-largest 
town in Hamilton County, Illinois, and we have a population of 
about 500-people. In our telephone service, we provide services 
to approximately 2,400-subscribers and we cover approximately 
463-square miles in parts of seven counties. That is a lot of 
land and not a whole lot of people there.
    Our area of Illinois is agricultural. We grow corn, 
soybeans, wheat, and other crops, raise cattle, hogs, and other 
livestock. The average family income in our service territory 
is well below the national average. I do not have the figures 
here, but I believe the average income in those seven counties 
is just a little bit over $17,000 per year.
    About 4-years ago, Hamilton County Telephone Co-op 
partnered with Midwest Internet to bring the first local 
Internet service to our community. Four-years later, we are 
still the only local dial-up Internet service in our area. We 
have about 525-subscribers and each pay about $20 a month for 
Internet access.
    Most of our subscribers are farmers using the Internet to 
get the vital information they need to conduct their 
businesses. They use it for pricing and ordering supplies and 
checking the weather. They use it to buy and sell products, 
keep an eye on the grain market and other commodities. We have 
school kids that use the Internet access to study and do their 
homework and to learn, and their parents use it for a host of 
the other services that the Internet offers.
    Without the Internet access service, Mr. Chairman, Dahlgren 
and surrounding areas would have no local dial-up service, none 
at all. As far as high-speed access goes, it is simply cost 
prohibitive. We do not have enough people to justify the 
expense of providing it. If we were to offer ISDN service, we 
would have to charge maybe $200 a month more to provide it. The 
DSL service would more than likely be in the $100 per month 
range. Our subscribers do not have the incomes necessary to 
support these kinds of charges.
    I had a chance recently to review the report issued last 
year by the National Telecommunications and Information 
Administration entitled, ``Falling Through the Net: Defining 
the Digital Divide.'' Mr. Chairman, there is shocking 
information in that report, and based on my experience as the 
only Internet service provider in Hamilton County, Illinois, it 
is true.
    NTIA says that at almost every income level, households in 
rural areas are less likely to own computers than households in 
urban or central city areas. At every income level, households 
in rural areas are significantly less likely, sometimes half as 
likely to have home Internet access than those in urban or 
central city areas. Black households in rural areas, in 
particular, are one-third less likely to own a computer than 
the average U.S. black household and are two-fifths less likely 
to access the Internet than the average U.S. black household.
    According to the NTIA report, a digital divide exists among 
different geographic areas of the country. Even though the 
number of Americans accessing the Internet has grown rapidly in 
the past year, NTIA says that the digital divide between 
information haves and have-nots continues to widen.
    Mr. Chairman, NTIA is right. There is a digital divide and 
Hamilton County and the rest of rural America is on the wrong 
side of it. That is a problem and it has got to be fixed.
    I am sure there are many other home towns that view this 
problem just as seriously as I do, and I am sure that anything 
your committee could do to help fix it would be deeply 
appreciated in Hamilton County and throughout rural America. 
Thank you very much.
    The Chairman. Thank you very much, Mr. Parkhill.
    Let me just make some general comments before commencing 
questions of you, because all of you have touched upon 
something that is very important not only to our committee but 
to the country, the digital divide issue the President has 
addressed. Both you, Mr. McLean and Rhode, have cited specific 
programs that the President has advanced.
    But the reason we have coupled these two hearings is 
obvious, one of which is, in the first half of our hearing, we 
discussed a bold proposal for technology, for this common 
platform, that has all sorts of possibilities. I think as you, 
Mr. Rhode, or Mr. McLean pointed out, if you have this 
satellite there, the least-accessible American in terms of what 
used to be the stringing of telephone lines or rural electrical 
lines or what have you really becomes accessible in a way that 
we could not have envisioned at the beginning of rural 
electrification or the telephone service.
    These have been basic quests for us, because 
philosophically, we have said although these individual persons 
may be more expensive on a unit cost basis to service, we were 
simply all one country and we wanted to have that sense of 
indivisibility, unlike countries that have tried to repopulate 
their areas, often at great expense and often of human liberty 
of people who simply did not want to go to Siberia or wherever 
else.
    In rural America, people have wanted to live. They have 
liked the quality of lifestyle. The dilemma that puts this 
together with our previous hearing when we were talking about 
rural income, the safety net, these sorts of problems, you 
discover rapidly there are great divides among farmers in terms 
of their sophistication to market their grain.
    I have a computer and I can at night, when I have nothing 
else on my mind but the price of corn, go to the, say, the CBOT 
Website and get a chart for corn, daily, weekly, historically, 
and get a pretty good idea, and even note what other people are 
saying about the price of corn. I may get sort of a twitch to 
get into the market the next day to make a sale, perhaps. That, 
I have the opportunity to do.
    As you pointed out today, if a farmer does not have a 
computer, and in many counties of our country, a majority of 
farmers do not have computers, quite afar from people who are 
not farmers in rural America, why, they have got a problem. You 
could probably get the Wall Street Journal, but maybe that is 
not altogether accessible. In fact, the degree of 
sophistication that comes through learning courses that come 
from our universities, from all the people who are available if 
you can get them on the Net are likewise not available.
    So although we are asking farmers to become more 
sophisticated and more market-oriented, and they really must, 
there is no way out of this problem. Their return on investment 
will continue to decline unless they are just very lucky. Until 
there really is something, we are trying to come to grips today 
just with basic income of producers.
    Now, in terms of the quality of life, and Dr. Jay has 
addressed this, we all want to be healthy Americans and the 
problems there are manifest, but so are the possibilities. It 
is sort of an exciting idea as to why as a national project we 
ought to undergird getting the satellite up and getting the 
signals there so that we not only have entertainment and news, 
but we have all the benefits of education and even of medical 
service that can come. Granted, the problems of licensure and 
reimbursement and other aspects cannot be forgotten.
    I just make these points to try to buttress why this 
committee, or most of us, believe we have some responsibility 
in this and how we meld together the market forces. I am not 
oblivious to the fact that the ingenuity of Americans making 
investments and seeing these needs is clearly there, but the 
problem that we saw earlier with the electrification and 
telephone issues and so forth impelled a broader strategy and 
that has created a lot of opportunities.
    Sort of commingled with this is the fact that, as we talked 
about demographics in agriculture, there is not a one-way flow 
from people from the country to the city. I cited in a press 
conference on Monday, I think it was, the fact that the 
largest-growing farm population in the country are those who 
are on farms of one to 50-acres. In other words, sort of the 
broadcast treatment of this journalistically that farms are 
decreasing almost inevitably in America has been true for most 
of our century, but not necessarily very much true of the last 
5-years.
    One reason is there were a lot of farm families who left, 
say, in a group of people from 51-acres to 500. This seems to 
be a more vulnerable group of people, but not so of those who 
are, say, in the 18-percent of Americans who produce 85-percent 
of all that is produced. These are, by and large, people with 
500-acres, usually 600-acres or more, and these folks are 
moving ahead. They are capitalized to be superior marketers and 
competitors.
    But then at the level of one to 50, this must mean a lot of 
Americans are choosing a more rural lifestyle. They may just 
want to get away and have a little space. This leads to a whole 
new group of people who are interested in what we are talking 
about today. Many of these people may have lived in the middle 
of New York City or Indianapolis and they now, by choice, find 
themselves in a situation that may still pick up the 
metropolitan market signals or what have you, may not have gone 
that far, but some do, reach the point where the signal becomes 
fuzzy, as you were describing today, or may stop altogether.
    So this is a new, not lobbying group, but an advocacy group 
that say, we want the benefits of our 50-acres out here and we 
are classified as farmers because we sell at least $1,000 off 
of that, so that qualifies your farm. There are a lot more 
people on the 50-acre farms that do not sell $1,000, but there 
are many that do. Hundreds of thousands of people start showing 
up in these new farm situations. But they are often doctors, 
they are lawyers, they are business people, and given 
transportation possibilities, they can do that sort of thing. 
So they want to have all these things, so that has probably 
been helpful. As opposed to simply a one-way tour to the city, 
we have got a little spreading out in America, maybe some 
potential for revival of some county seats.
    I do not want to overdo it, but Mr. Rhode, in your State of 
North Dakota, we have had testimony for several years of people 
trying to do things that could otherwise be done on the New 
York Stock Exchange or through commercial clearinghouses or so 
forth, but you can do it in North Dakota or South Dakota if you 
have the electronic and communications mechanisms to do that, 
employ people in sophisticated ways. This still requires very 
sizeable leadership at the local level and the State level and 
the imagination of business people to do that.
    Having said all that, the fact is, as you point out, the 
divide is very great. Because this seems to be racing along at 
a very fast pace, that is the whole telecommunications age or 
computers or bandwidth or so forth, without there being some 
thoughtfulness about this, there is every prediction that the 
gap will get wider still. Eventually, something may happen at 
the lower end of the band, but then the other folks may be off 
somewhere else by this time. So the need to compress this time 
frame is at hand.
    I am curious, Dr. Jay to begin with, granted that a lot of 
good things can happen in telemedicine. Describe the 
infrastructure of what is required to make this work. There has 
to be somebody back at the hospital or at the medical school or 
at the headquarters, I suppose, so that even though you are 
extending your empire in terms of information, advice, can you 
fill in the gaps of how you have tried to organize that or how 
you would suggest that we improve that situation?
    Dr. Jay. Briefly, we have used virtually all of the 
communications technologies that have been discussed here 
today. I guess I see some strengths in having several arrows in 
the quiver, so to speak, in terms of adapting and approaching 
the need of a particular community in linking the technology 
required to that particular need, and probably one will need 
several arrows as opposed to one.
    We use satellite technology for medical education programs. 
We use two-way V-tel type of communication technologies for 
two-way video, two-way audio conferencing with patients in the 
prison systems and other formats. We use Internet with 
technology that includes compress and store forward for things 
like teleradiology, teledermetology, telepathology, where the 
microscopic findings can be transmitted.
    So the short answer is, we use multiple technologies and, I 
think, probably will need to continue to explore and use and 
adapt multiple technologies in the future. I am not sure there 
is one single answer to your question in terms of the 
technology, specific technology.
    The Chairman. Do you do surgery, not over the Net, of 
course, but do you have a master surgeon at some point who 
guides the surgeon at the local level via some network?
    Dr. Jay. Yes, and again, the simplest technology could be a 
phone. It could be your computer, your PC. Or it could be the 
kind of video interactive sorts of technologies that we are 
talking about.
    The Chairman. On which you could show the surgeon how to 
go?
    Dr. Jay. Yes.
    The Chairman. He can actually see something there that is 
helpful.
    Dr. Jay. Exactly. So you can basically send and forward the 
clinical information of a particular patient. You can send the 
data, the information, the laboratory information. You can send 
the images, the radiology images, and the ultimate image, the 
image of the patient themselves, to the consultant at a 
distance.
    The Chairman. Mr. McLean, at RUS, obviously, you are 
involved in all these issues broadly because your portfolio 
covers people doing lots of things, but can you give some 
overall comment as to all we are discussing here and how your 
agency specifically is being helpful or could be more helpful 
if we were to do the right things?
    Mr. McLean. Well, Senator, first of all, I do not think you 
overstate the case at all in your comments. In my heart, I 
believe we really are on the verge of a rural renaissance. 
Because of the technologies of telecommunications, it makes it 
possible to do anything anywhere and we can bring the very best 
medical minds to a rural patient in a rural clinic. 
Surprisingly to many people, the digital technologies that are 
utilized to examine a patient via telemedicine will provide in 
many cases a superior diagnostic tool than a visual examination 
of a doctor coming into your office, because if the scope is in 
your ear and it is projecting a digital picture, it has a much 
more accurate resolution than the naked eye would have. So we 
see where telemedicine is not a second choice for rural 
communities, but in many cases, telemedicine can enhance the 
quality of health care.
    Then in education, it is just tremendous, the power of this 
technology. Rural schools can combine together and share 
teachers which any one of those schools would not otherwise be 
able to afford. Kids in distance learning classrooms develop an 
etiquette that is relevant to having a camera in the classroom, 
and in some ways have kids being more polite to each other 
because they know they can only talk one at a time, kids have 
to raise their hand, because you have the technology in the 
room, and in a sense, they are on television. So there are all 
kinds of tremendous fringe benefits that relate to this.
    We found in our distance learning/telemedicine projects 
that once you establish a facility, it becomes a community 
asset. During the week, on Monday through Friday, on school 
days, it is used by kids for education. In the evenings, the 
facility is used by the fire department or for the nursing 
homes to do continuing education. On the weekend, it might be 
used for a community club.
    We were not too long ago, Greg and I, together in Montana 
and we visited a hospital where they said they used their 
community telemedicine room, when it is not utilized for 
medical purposes, for community groups, and they had the Girl 
Scouts in, and because there was a few second delay in the 
transmission, they were singing songs together, but it turns 
out they were singing in round, so it worked out pretty nicely 
to be able to use the technology for the kids to sing together.
    So we can, by bringing these technologies to rural America, 
have a profound effect on the economy, on the community, and 
the quality of life, and the brilliance of both the distance 
learning/telemedicine program and to e-rate and as well as what 
you are contemplating in bringing modes of transmission for 
local-to-local, these applications become magnets for 
infrastructure upon which businesses can grow and you can have 
new economic activity that just was not possible before.
    The Chairman. This is much like when I was mayor of 
Indianapolis some 25- or 30-years ago. The extension of the 
sewer lines made all the difference in terms of the economic 
activity and the vitality. Hopefully, it will be easier to do 
the communication lines than it was that.
    Certainly, this whole idea of the satellite, that it 
happens all at once, everybody is accessible, it is a very, 
very exciting idea. That could never have occurred when you are 
laying it a pipe at a time or what have you.
    I had an experience, and I think one other Senator has had 
this more, but in our television studios here, we now have the 
opportunity to teach classes in our home States, wherever they 
are. So last week, two classes, one in South Bend, one in 
Evansville, wanted to discuss the whole State of the Union 
process, what happens, who does what and so forth, and so I was 
the teacher. Now, the point, too, we are making about the 
courtesy situation, in order to speak or to be heard out there, 
I had to guide my mouse to click on the right button and keep 
it there or I fade from the picture altogether. Likewise, the 
student questioning me--I can see the classroom out there and 
the students, whether they are restless or whether they are 
not, but the person questioning me has to likewise manipulate 
the mouse and I have to be quiet. But nevertheless, it is a 
fascinating idea.
    The thing that came to my mind, though, is this really 
requires very creative teachers. Let us say all of us get our 
work done today and all these lines get laid down and all these 
things could happen in medicine or education or with farmers 
becoming more sophisticated, but the will to do so, the 
organization of this, the optimization of the opportunity is 
really something else, too. But, nevertheless, our work right 
now is the block-and-tackle work of infrastructure which 
hopefully the creative Americans will have the ingenuity to 
fill in.
    Mr. Rhode, you have already been commended by Senators, and 
rightly so because you have been active in this in the 
legislative process, now administrative, but give us your 
overall views to try to fill out this hearing.
    Mr. Rhode. I think I would start by quoting Steve Case, who 
is the CEO of AOL. He said yesterday, the Internet is big 
enough to matter but still small enough to shape. The fact is, 
we are in the midst of a tremendous communications revolution 
in this country and in this world. New technologies are 
providing incredibly new, wonderful services for distance 
learning, health care, and a whole range of things, and we are 
seeing the tremendous benefits of all that.
    But as this industry is growing enormously, and it is 
growing very, very fast, as there is nothing like that. I mean, 
just compare the statistics for electronic commerce from this 
last Christmas shopping season to the previous one. They went 
from about $3 billion to well over exceeding $12 billion. It is 
just a phenomenal amount of activity that is occurring. Our 
economy is quickly becoming an electronic economy and we are 
becoming an information society.
    But the fact is that because of all this growth and because 
of all this excitement of what is going on, now is really the 
time to establish the policies and establish the programs and 
to make sure that all Americans can benefit from this wonderful 
revolution.
    Congress had this vision in 1996 when it passed the 
Telecommunications Act. There are provisions in that Act that 
did not exist before in the statute. For decades, we have had a 
universal service system, and it is in large part because of 
the programs that the Rural Utilities Service has provided loan 
financing to small companies, but also because of a universal 
service system, what we had as a value in this country, that 
everybody was going to have a telephone.
    We have largely succeeded in that venture. Now, over 94-
percent of American homes have telephones. We still have 
segments of our population, as Chris pointed out, turning on 
basic phone service for some people for the first time. But for 
the most part, we have really succeeded in having basic 
telephone service. We are now moving into the next generation 
of communications services, such as broadband capability and 
advanced telecommunications and information services.
    So in the 1996 Act, Congress was very specific in 
establishing a vision that all Americans were going to have 
access. The words that access to advanced telecommunications 
and information service should be available to consumers in all 
regions of the Nation is right from Section-254 of the 
Telecommunications Act. That did not exist in statute before. 
So Congress has already laid the groundwork and established the 
objective of which we need to implement the policies now and we 
also need to establish the other programs, such as programs 
that the President has articulated and is going to propose in 
his budget next week, which really help connect more and more 
Americans to that infrastructure.
    I believe if we are faithful to the design of the 
Telecommunications Act, we are going to see the kind of 
construction that occurs in the streets of Washington, DC., now 
that Mayor Williams has to wrestle with, with all these 
telecommunications companies tearing up the street to lay down 
fiber. That is exciting. It is exciting for the people of 
Washington.
    The question is, is this going to get to the smaller 
communities across America, and if we are faithful to the 
principles of promoting competition, which is what is driving 
the investment in a city like Washington, DC., if we can 
promote competition, extend that competitive dynamic to more 
and more communities, we are going to see more and more 
investment and this great infrastructure that can be laid out, 
and then that needs to be complimented with the faithful 
implementation of a universal service program so we can have 
the infrastructure so that residents who live in very small 
communities can access the kind of health care that Dr. Jay 
talked about, access the kind of educational opportunities that 
Chris just described.
    The Chairman. Apropos what you are saying, Mr. Rhode, a 
week from today, our committee will be hearing again from Alan 
Greenspan and Mr. Summers and the Secretary and what have you, 
but this time on the Commodity Futures Trading Corporation's 
reauthorization. This is, as you know, the oversight for the 
Chicago Mercantile and the Board of Trade and others who are 
involved in agricultural commodities, but now increasingly 
Treasury securities, energy, all this sort of thing.
    We had a hearing last year in which a commodity trader 
brought in a computer and he brought in a screen so we could 
all see this, and he executed a trade selling 10,000-bushels of 
corn or whatever the unit was on a market in London. This is 
right from our committee room. There was confirmation of the 
trade and this was a real trade, not just simply an exhibit for 
the Committee.
    The point he was making is, our CFTC, we reauthorize this 
all the time. We try to construct guidelines so that markets 
have confidence in this country. But since we did this the last 
time, there has been an electronic market worldwide that covers 
a lot of volume that was beyond our purview. The New York Stock 
Exchange is wrestling with this, as is the SEC, and quite apart 
from people out in Chicago with open outcry, the normal way of 
doing this sort of thing as opposed to people who are trading 
electronically all over the world.
    My point is that as we try to get into the subject that we 
are dealing with today, we really need all of you sort of 
looking over our shoulder because each of you have made points, 
as did the panel before. If we put restrictions and limits of 
various sorts, we can thwart this situation in ways that really 
make the kind of idealism we are discussing possible.
    On the other hand, there is a public responsibility to keep 
this thing within bounds if there are public funds and 
responsibilities available. I think there is a desire, which 
you have heard several, that if we have guarantees and we have 
loans, there is the full thought of repayment and the security 
has to be whole, even as we are trying to think of an 
infrastructure that has unlimited possibility. These are not 
incompatible, but they are not altogether easy.
    I have no critique of the Burns bill last year or the 
Baucus bill this year or whatever Senator Gramm is doing, but 
our responsibility in this committee is to do the best that we 
can, working with all of these colleagues and whatever 
jurisdictions and interests that they have. I think that we 
start with a good bipartisan basis here of doing that, as well 
as you, Mr. Rhode and Mr. McLean, representing responsible 
agencies in the administration, speaking for the President and 
others, working with the leadership of the other party in this 
Congress. All of these folks will have to come in harness.
    So if there is impatience with any of these people, I am 
going to try to ignore that. We are not getting into editorial 
comments, we are just trying to steer things along if we can.
    Mr. Parkhill, you are out there on the firing line, a 
practitioner, but what would be helpful to you as you have 
heard this? You have already testified a little bit about that 
in the previous session, as we discussed the satellites and 
this type of thing, but given all the services we have been 
talking about now, the medicine, the educational features and 
so forth, these are very important, as you are saying, to maybe 
2,400 subscribers of the telephone operation there or others 
who might have other needs. Can you fill in any more of that 
terrain?
    Mr. Parkhill. Within Hamilton County, we have one hospital. 
It is a small hospital. They do not have the facilities that 
they would have in a larger area.
    The Chairman. Yes.
    Mr. Parkhill. So telemedicine would be a great benefit to 
them.
    The Chairman. Are they tied together? Dr. Jay has cited the 
Clarian Network in the State of Indiana. There is no reason why 
you would know about that, but I am just wondering, in 
Illinois, is there a comparable thing with larger hospitals 
sharing in some ways?
    Mr. Parkhill. I am not sure if they are tied in with any of 
the others, not on a network such as that. With the hospital 
being located within McLeansboro, it is served by GTE and so I 
do not know what services they are trying to offer them. I do 
know that the high school and the junior high are tied in with 
the junior college, which is several miles away, trying to 
bring them and several other high schools together on some T1 
lines, which is very expensive. Whenever you go to crossing 
LATA boundaries and everything, you start incurring some great 
costs. So with what is available out there today, it really 
gets into the taxpayers' pocket real heavily.
    My feeling, and I believe that it is NRTC's feeling, as 
well, that by doing this through a satellite-type connection, 
this could be tied in with the local-to-local satellites that 
we talked about earlier. Going through the RUS for funding, we 
could get funding that way, and with the loan guarantees, it 
would drive the interest rate down to where it would be more 
affordable. Therefore, you would be able to pay it off, 
hopefully, within 15, 20-years, something like that. It might 
take a little bit longer. It depends upon how everything comes 
up, because models and everything, you try to project, but 
sometimes you goof a little bit.
    The Chairman. Just on the interest rate problem alone, 
there is no way you could project this because interest rates, 
even as we speak, are in fluctuation, or at least they were 
yesterday. But we speak of lower than market and maybe double 
the market, but can you give some idea of what kind of rates 
that you think happen in those two scenarios, that is, market 
only or one in which you see something less than market 
occurring.
    Mr. Parkhill. With the loan guarantees from the Congress 
going through RUS, I think that we could look at loan rates 
possibly in the 7-percent, 6.5-percent area. Going out on the 
open market, I would say you are going to be looking at 12, 14-
percent.
    The Chairman. Would you agree with that, Mr. McLean, from 
your portfolio experience?
    Mr. McLean. Yes, Sir. I would say that if we had that 
authority today and we were looking at an application today, 
that is about the right spread. The common thing that runs 
through rural electrification, rural telecommunications, rural 
water is that, and the universal service program in the 
Telecommunications Act, is how do you get private sector people 
to do things that they would not otherwise do left to basic 
market forces.
    That 75/25-percent ratio that we heard over and over today 
recurs in our work all the time. Seventy-five percent of the 
market is profitable. Twenty-five percent is difficult to 
serve. Seventy-five percent of the geography is rural. Twenty-
five percent of the population is rural. It just recurs over 
and over again, even in individual businesses. I always hear, 
25-percent of my customers provide me 75-percent of my 
revenues. So I think it is a very profound statistic that kind 
of guides our work.
    So how can we fix that 25-percent? If we can bring down the 
cost of capital, then it is affordable for the private sector 
to move in and bring the service that we need, and I think it 
is going to be a multi-modal solution to meeting the 
telecommunications needs. There is incredible hunger and demand 
for bandwidth, and we are going to need everything. We are 
going to need satellite. We are going to need wireless. We are 
going to need fiber optics. Even in data transmissions, we will 
have large amounts of bandwidth with data coming down from the 
satellite, but likely, at least initially, we are going to have 
to connect to the satellite through the telephone network. To 
ride the Internet, you need to be on the telephone network.
    Again, this committee has been in the vanguard of that 
vision of one Nation indivisible, and when President Truman 
signed the telephone amendments to the Rural Electrification 
Act into law, 40-percent of American farmers had telephone 
service, and as Greg just mentioned, we are almost completely 
there. But the job does not stop, because it is three times 
more expensive to serve rural citizens than it is to serve 
urban citizens. There is always going to be a need to be able 
to help bring those costs down.
    The Chairman. As you gentlemen and others have noticed, 
this committee has a bias toward rural America. A good number 
of our members come from there, and each one of the States that 
is around this table has a great sensitivity to constituencies 
that we are talking about today.
    We sort of start, then, with a full head of enthusiasm 
coming out of the Committee and approach the Senate as a whole, 
and in fairness, there is a resonance, at least, of interest in 
rural America with people who have left rural America. They 
still want somebody to do something out there.
    So I think there will be broad support, but we need to get 
it right. As I listened again and again carefully, the 
technical aspects of this are very important, the prohibitions 
and the stoppers and so forth. This is musing out loud, but it 
is a part of the hearing process, to perfect the situation, 
which you have all contributed to a great deal.
    At this point, let me thank you and thank all who have 
attended our hearing. We look forward, if you will, to your 
responses to questions that other Senators that have not been 
able to attend this hearing in person may wish to ask so that 
we will have a complete hearing record.
    Thank you very much. The hearing is adjourned.
    [Whereupon, at 12:13 p.m., the Committee was adjourned.]

                                
      
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                            A P P E N D I X

                            February 3, 2000

      
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