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73–403 2001

BROADBAND ACCESS IN RURAL AREAS

HEARING

BEFORE THE

SUBCOMMITTEE ON REGULATORY REFORM

AND OVERSIGHT

AND

SUBCOMMITTEE ON RURAL ENTERPRISES,

AGRICULTURE AND TECHNOLOGY

OF THE

COMMITTEE ON SMALL BUSINESS

HOUSE OF REPRESENTATIVES

ONE HUNDRED SEVENTH CONGRESS

FIRST SESSION

WASHINGTON, DC, MAY 17 & 24, 2001

Serial No. 107–9

Printed for the use of the Committee on Small Business

(

(II)

COMMITTEE ON SMALL BUSINESS

DONALD MANZULLO, ILLINOIS, Chairman

LARRY COMBEST, Texas

JOEL HEFLEY, Colorado

ROSCOE G. BARTLETT, Maryland

FRANK A. LOBIONDO, New Jersey

SUE W. KELLY, New York

STEVEN J. CHABOT, Ohio

PATRICK J. TOOMEY, Pennsylvania

JIM DEMINT, South Carolina

JOHN THUNE, South Dakota

MIKE PENCE, Indiana

MIKE FERGUSON, New Jersey

DARRELL E. ISSA, California

SAM GRAVES, Missouri

EDWARD L. SCHROCK, Virginia

FELIX J. GRUCCI, JR., New York

TODD W. AKIN, Missouri

SHELLY MORRE CAPITO, West Virginia

NYDIA M. VELA ́ ZQUEZ, New York

JUANITA MILLENDER-MCDONALD,

California

DANNY K. DAVIS, Illinois

WILLIAM PASCRELL, New Jersey

DONNA M. CHRISTIAN-CHRISTENSEN,

Virgin Islands

ROBERT A. BRADY, Pennsylvania

TOM UDALL, New Mexico

STEPHANIE TUBBS JONES, Ohio

CHARLES A. GONZALEZ, Texas

DAVID D. PHELPS, Illinois

GRACE F. NAPOLITANO, California

BRIAN BAIRD, Washington

MARK UDALL, Colorado

JAMES R. LANGEVIN, Rhode Island

MIKE ROSS, Arizona

BRAD CARSON, Oklahoma

ANI ́BAL ACEVEDO-VILA ́ , Puerto Rico

PHIL ESKELAND, Deputy Staff Director

MICHAEL DAY, Minority Staff Director

SUBCOMMITTEE ON REGULATORY REFORM AND OVERSIGHT

MIKE PENCE, Indiana, Chairman

LARRY COMBEST, Texas

SUE KELLY, New York

SAM GRAVES, Missouri

ROSCOE BARTLETT, Maryland

TODD AKIN, Missouri

PAT TOOMEY, Pennsylvania

ROBERT BRADY, Pennsylvania

BILL PASCRELL, JR., New Jersey

CHARLES GONZALEZ, Texas

DAVID D. PHELPS, Illinois

JAMES R. LANGEVIN, Rhode Island

ANI ́BAL ACEVEDO-VILA ́ , Puerto Rico

BARRY PINELES, Professional Staff Member

SUBCOMMITTEE ON RURAL ENTERPRISES, AGRICULTURE, AND TECHNOLOGY

JOHN THUNE, South Dakota, Chairman

ROSCOE BARTLETT, Maryland

FELIX GRUCCI, New York

MIKE PENCE, Indiana

VACANT

TOM UDALL, New Mexico

DONNA M. CHRISTIAN-CHRISTENSEN,

Virgin Islands

DAVID D. PHELPS, Illinois

BRAD CARSON, Oklahoma

BRAD CLOSE, Professional Staff Member

(III)

C O N T E N T S

Page

Hearing held on May 17, 2001 ............................................................................... 1

WITNESSES

Nolley, Robert, Founder & President, Tubesock.Net ............................................ 5

Reich, Gene, Telehealth Coordinator, Avera St. Luke’s Hospital ........................ 8

Imus, Marvin, Owner, Paw Paw Shopping Center ............................................... 9

Linkous, John, Executive Director, The American Telemedicine Association .... 12

Stark, Nancy, Director, National Center for Small Communities ....................... 14

APPENDIX

Opening statements:

Pence, Hon. Mike .............................................................................................. 65

Thune, Hon. John ............................................................................................. 68

Udall, Hon. Tom ............................................................................................... 71

Prepared statements:

Nolley, Robert ................................................................................................... 74

Reich, Gene ....................................................................................................... 82

Imus, Marvin .................................................................................................... 84

Linkous, John ................................................................................................... 92

Stark, Nancy ..................................................................................................... 98

Additional Information: Letter to Congressman Pence from Congressman

McInnis ................................................................................................................. 106

Hearing held on May 24, 2001 ............................................................................... 31

WITNESSES

Cook, Michael, Vice President & General Manager, Spaceway & Hughes

Network Systems ................................................................................................. 36

Kelly, Thorpe, Sr. V.P., Western Wireless Corp. ................................................... 38

McAdams, Susan, V.P., New Edge Networks ........................................................ 41

Houdek, Randy, Sulley Buttes Telephone Cooperative ........................................ 43

Campbell, Kirby, CEO, Armstrong Group of Companies ..................................... 46

APPENDIX

Opening statements:

Pence, Hon. Mike .............................................................................................. 114

Thune, Hon. John ............................................................................................. 117

Prepared statements:

Cook, Michael .................................................................................................... 121

Kelly, Thorpe .................................................................................................... 127

McAdams, Susan .............................................................................................. 138

Houdek, Randy ................................................................................................. 142

Campbell, Kirby ................................................................................................ 150

Additional Information:

Prepared testimony of Thomas Cohen, Coordinator, Americans for the

Digital Bridge ................................................................................................ 169

Prepared testimony of Bob Phillips, President & CEO, National Rural

Telecommunications Cooperative ................................................................ 174

Press Release of OPASTCO ............................................................................. 179

Letter to Chairmen from David Stephens, Chairman & Co-Founder,

OnSat Network ............................................................................................. 182

(1)

ECONOMIC DEVELOPMENT IN RURAL AMERICA, SMALL BUSINESS ACCESS TO

BROADBAND

Thursday, May 17, 2001

HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON REGULATORY REFORM AND OVERSIGHT, SUBCOMMITTEE ON

RURAL ENTERPRISES, AGRICULTURE AND TECHNOLOGY,

COMMITTEE ON SMALL BUSINESS,

Washington, DC.

The Subcommittee met, pursuant to call, at 2:07 p.m., in Room

2360, Rayburn House Office Building, Hon. Mike Pence [chairman

of the subcommittees] presiding.

Chairman PENCE. I would like to call to order this joint hearing

of the Subcommittee on Regulatory Reform and Oversight and the

Subcommittee on Rural Enterprises, Agriculture and Technology of

the Committee on Small Business. This joint hearing is entitled

Economic Development in Rural America—Small Business Access

to the Broadband. And I will be welcoming our guests individually,

but as Chairman of the Subcommittee on Regulatory Reform and

Oversight, I have a few brief remarks, as does my colleague and

friend, Chairman of the other Subcommittee that serves as a host

today, and then we will hear also from the Ranking Member of

that Subcommittee before we receive testimony.

Our hearing held jointly today with my good friend from South

Dakota’s Subcommittee on Rural Enterprises, Agriculture, and

Technology addresses the new economy and the technology needed

to ensure that rural areas can share in the global business opportunities that arise from continuing penetration of the Internet. This

is the second in a series of hearings that the Subcommittee on Regulatory Reform and Oversight has held on the Internet-based economy. Today’s hearing focuses on the so-called digital divide, the

lack of high-speed or broadband access to the Internet currently

plaguing rural small businesses and the importance that

broadband access will play in the continued economic prosperity of

rural small businesses. Next week, the Subcommittees will examine the technologies and providers who will help bridge the urban

and rural digital divide. I would like to thank the gentleman from

South Dakota, Chairman Thune, for agreeing to cochair these very

timely and important hearings.

Since the advent of the Industrial Revolution in England in the

late 1700s, infrastructure development has been a key component

of economic development. Location always has been a critical component for building infrastructure. Villages in the late 1700s that

2

were not located near a stream that could be used for steam generation often missed the prosperity of the early Industrial Revolution. Towns in the late 1800s that were not served by railroads

faced economic stagnation. Counties bypassed by interstate highways lost substantial growth opportunities as the economy moved

from rail transportation to cars and trucks. Cities without adequate

air transportation links cannot attract companies in a national and

even global economy.

Today communities that do not have broadband access to the

Internet face the same barriers to economic development that communities, mostly rural, faced in previous generations when the

mills, railroads, highways and airports passed them by. Without

broadband access, rural communities will be unable to entice businesses that rely on the Internet to relocate and take advantage of

the many qualities that rural communities offer. The other benefits, low crime, inexpensive housing, lack of traffic, clean air and

a connection with one’s neighbors are things that are missing in

the booming metropolises of this country. All these things taken together are the competitive advantage of our small towns and of

rural America at large.

Broadband access also provides small businesses with new, more

efficient ways to conduct their operations. There are some great examples of how technology is changing business in unexpected ways.

Who would have predicted that ranchers would be transmitting

bids in cattle auctions over the Internet? Finally, broadband access

will provide rural communities with access to information and resources that at one time would have necessitated visiting or locating in metropolitan areas. Ultimately broadband access will invigorate rural economic development and not force young people in

rural areas to leave home in search of the American dream.

Rural areas and businesses should not be deprived of their opportunity to prosper because they do not have access to high-speed

Internet connections. The witnesses at this hearing will explain the

vital role that broadband access plays or can play in their businesses. Furthermore, they will discuss the importance of broadband

access to economic development in rural areas.

I look forward to hearing from all of the witnesses today, particularly my own constituent Robert Nolley, the founder of the ISP

Tubesock.net, who provides a valuable service to the residents and

businesses of Shelbyville, Indiana, by bringing them access to the

Internet.

I will now recognize my cochair for this hearing, the gentleman

from South Dakota, Mr. Thune, for his opening statement. After

his opening statement, I will then recognize the Ranking Member

of Mr. Thune’s Subcommittee Mr. Udall. I would also take note

that the Ranking Member of my Subcommittee Mr. Brady had a

death in the family and could not be with us today.

So with that I recognize my co-Chairman Mr. Thune for his opening remarks.

[Mr. Pence’s statement may be found in appendix.]

Chairman THUNE. I thank the gentleman from Indiana for his

openings remarks and want to say good afternoon. It is a pleasure

to welcome our panelists to this joint hearing between the Subcommittee on Rural Enterprises, Agriculture and Technology,

3

which I chair, and the Subcommittee on Regulatory Reform and

Oversight, which is chaired by my colleague from Indiana Mr.

Pence. I also want to acknowledge Mr. Udall, Ranking Member of

our Subcommittee, and appreciate his participation here today and

am looking forward very much to the testimony we have before us.

We want to thank those of you who have traveled long distances

to be here to participate in this hearing.

Today’s hearing is the first of two hearings that will focus on the

issue of broadband telecommunications access to rural America.

This afternoon we plan to examine a critical role that small business access to broadband services will play in maintaining the economic health of our rural communities.

Throughout our Nation’s history there have been significant

events that help connect all of America. In the 18th century it was

the creation of the river and canal systems. In the 19th century the

railroad system was built, and in the 20th century we spent significant energy building a national highway system. All of these transportation systems served to connect rural America and small business owners with the rest of the population and were crucial in

bringing economic prosperity to our communities.

Advanced telecommunication services are just as important to

our future. As our economy becomes more and more dependent on

the Internet for growth, we must ensure that rural America is not

left behind. Without high-speed Internet and communications access, more sparsely populated areas will find it difficult to improve

economically. Farmer and ranchers to health care workers and retail store owners, people are realizing that if they want to maintain

a viable business and serve their community, they must have access to advanced telecommunications service. In addition, for

States with predominantly rural populations, being able to offer the

latest technology is crucial to luring new business and providing

jobs. It is no longer enough to offer a probusiness environment. Advanced technology has to be available.

Broadband access may also help to stem population loss to rural

areas. Citizens will no longer be compelled to leave their towns and

communities in higher paying jobs and challenging careers, and

telecommuting may well become a reality for many workers in

rural areas.

I look forward to hearing from our witnesses and thank you all

for participating in today’s hearing.

I also have a gentleman from my home State who I would like

to introduce at the appropriate time. But I look forward to the testimony and the opportunity to address this issue and hopefully

shed some light on what I think is a very important issue to rural

America, and certainly to all of America. Thank you, Mr. Chairman.

[Mr. Thune’s statement may be found in appendix.]

Mr. UDALL. Mr. Chairman. Thank you very much, and welcome

to the panel, Chairman Thune and Chairman Pence. I am pleased

to be here today for our first joint Subcommittee hearing to examine the impact that broadband telecommunications services have

on small business in rural areas.

Over the last decade we have witnessed how the Internet has

revolutionized our economy, the way we teach our children, provide

4

medical services and even conduct our everyday business from

shopping to communicating. However, about 86 percent of Internet

delivery in the United States is concentrated in only the 20 largest

cities. Rural America and its communities are not a part of the information highway and instead are in danger of losing ground to

urban areas that can attract jobs and have access to affordable

high-speed service and a strong telecommunications infrastructure.

On August 3, 2000, the Federal Communications Commission released a report on the availability of high-speed and advanced telecommunications services. The report concluded that advanced telecommunications capability is being deployed in a reasonable and

timely fashion overall, although certain groups were identified as

being vulnerable to not receiving service in a timely fashion. Those

groups included rural Americans, particularly those outside of population centers, low-income consumers, minority consumers and

tribal areas to name a few.

It is clear that rural America is in danger of becoming the other

digital divide. Many small business men and women in our rural

community recognize the need to engage in e-commerce to compete

and survive in our growing technological economy. Rural communities recognize without a strong telecommunications infrastructure, recruiting businesses and building economies will be hard to

achieve. However, even if technologies like broadband are deployed,

communities like our Native American reservations that are without even the most basic telecommunications infrastructure will be

beyond the far reaches of this technological leash.

One of the questions we need to ask ourselves is will small business in rural areas with high-speed Internet access be more likely

to find new market opportunities? That question will be hard to answer because we would have to assume that small businesses in

rural areas know how to use e-commerce, have the training and

skills to make it work, and that is a whole other ballgame.

There are several legislative proposals that have been offered in

Congress that address the concerns of broadband access and deployment. One bill would allow the Baby Bells to offer long distance data and voice services in their home areas. However, there

are no guarantees that if this were to occur that the Baby Bells

would deploy this service to the most rural of rural areas.

A second piece of legislation, which I am cosponsor of, H.R. 267,

the Broadband Internet Access Act of 2001, would offer incentives

for deployment of broadband service to rural and low-income areas.

This legislation would offer a two-tier tax credit for investments

that provide next-generation broadband service to all other areas

of the country except urban business areas, and to encourage providers to act quickly, the credit would be limited to broadband service deployment in the next 5 years.

The Internet holds an endless amount of potential for small business as well as for parents, teachers, doctors and farmers. Through

the use of the Internet, doctors are using telemedicine to help cure

and save lives. For those who live in rural communities, telemedicine would allow rural hospitals to effectively treat patients and receive expert medical advice with no degradation of patient care.

Beside the deployment of broadband to rural areas, we should

make sure we address other areas of concerns that small busiVerDate 11-MAY-2000 13:48 Oct 03, 2001 Jkt 000000 PO 00000 Frm 00008 Fmt 6633 Sfmt 6602 C:\DISC\73403 ATX007 PsN: ATX007
5

nesses have with the Internet, such as security, privacy, construction and maintenance, intimidation, and how to fully participate

and utilize e-commerce applications in its business practices.

Thank you both, Chairmen Thune and Pence, and I look forward

today to hear from our panel.

[Mr. Udall’s statement may be found in appendix.]

Chairman PENCE. I thank the gentleman from New Mexico Mr.

Udall for his very thoughtful opening statement and his participation in our hearing today, and to Chairman Thune, the gentleman

from South Dakota, we thank you for your comments as well.

Before the Chair recognizes the first witness, allow me to explain

as a courtesy the technology that is in front of you. It is fairly evident. We will ask you to keep your opening statement to approximately 5 minutes to allow for this panel to ask questions and complete our hearing in an orderly way. You will see the lights in front

of you green from the moment that you start. At 1 minute that

light will turn yellow, and at the 5-minute marker the red light

will appear. You need not fear the gavel unless you go dramatically

past the 5-minute time frame. So when you see the red light, just

try to wrap up your remarks, and we will move on to the next witness.

With that, it is my privilege to introduce your first witness today,

Mr. Robert Nolley, who is the president and founder of

Tubesock.net, which happily is a successful Internet business serving individuals and businesses in the heart of east central Indiana’s Second Congressional District that I serve here in Washington, D.C.

Mr. Nolley is one of those youthful prodigies that makes those

of us with gray hair frustrated. Rob became interested in computers in 1986 at the age of 16 when his father purchased a Commodore 64 computer for him, and since graduating from high

school and tour of duty in the United States Navy, he went on to

pursue a bachelor’s degree in business administration at Indiana

University.

He proceeded to become professionally involved in site construction, Internet site construction, working with NFL Hall-of-Famer

Joe Theismann. He developed an online chat program with basketball analyst Billy Packer, but in 1996 he left that employer to form

his own Web development company, starting RN Media in February of 1996, and began marketing his services to local businesses. And in 1999 and thereafter, he began the company

Tubesock, Incorporated, and it is currently the ISP of choice for

small businesses in Shelbyville, Indiana, and across much of east

central Indiana.

Rob is married to the former Jill Drake of Shelbyville and comes

to us under duress, having become a new father just 60 days ago.

The Chair recognizes for 5 minutes Robert Nolley of Shelbyville.

STATEMENT OF ROBERT NOLLEY, FOUNDER AND PRESIDENT,

TUBESOCK.NET, SHELBYVILLE, IN

Mr. NOLLEY. Thank you. I would like to state that I do not have

any contract with the Federal Government.

Good afternoon, ladies and gentlemen of the Committee. I would

like to thank you for inviting me here today. My name is Rob

6

Nolley, and I am the president of Tubesock Inc., an Internet service

provider based in Shelbyville, Indiana. Although Tubesock has only

been offering Internet access to citizens of Shelby County since the

fall of 1999, we already serve more than 900 subscribers, employ

five people and deliver a full range of e-commerce services to our

customers for both residential and business. From helping local

businesses to design Web pages to providing the high-speed Internet connections that help citizens of Shelby County reach the world

quickly and efficiently, we do it all.

Like many other small Internet providers nationwide, I recognize

that rural markets provide great opportunities, and I hope to be

there to provide Internet access and Web development services for

many years to come.

Early on when we added Internet access to our Web development

business, we realized that in order to survive and compete with

other ISPs, we would need to offer broadband service. The dial-up

business is a good one, but more and more business customers are

demanding faster Internet service in order to more efficiently serve

their own clients. In Shelbyville we are presently bringing highspeed access to our customers in two way, through DSL or digital

subscriber line access service, and high-speed Internet over cable.

In order for us to deliver DSL to our customers, we must interconnect with special DSL equipment installed at our local phone

company’s central office. We cannot install the equipment ourselves

because we are not registered as a phone company, nor do we desire to become one.

In Shelbyville, Ameritech does not employ any of this equipment,

but a competitor of theirs, Rhythms, does. We approached Rhythms

in order to interconnect and sell their product. Because of our small

size, we were referred to a resaler of the Rhythms product, a company called Netisun. Offering the DSL product this way has been

tough. The lead times are about 2 months. It is a two-part installation. The length of time is primarily because of the amount of time

it takes SBC-Ameritech to configure our customers’ phone lines so

they can get their data through the Rhythms equipment. Once this

is done, Rhythms generally gets our customers switched on 1 day

later.

SBC-Ameritech does not offer DSL itself in Shelbyville and

claims this is because it is under scrutiny of the State utility regulatory commission for the poor service it provides to residential consumers, and it wants to fix those problems first. Yet we have noticed that SBC-Ameritech offers DSL service everywhere in Indiana

except Kokomo and Shelbyville.

The other way for us to deliver high-speed Internet access for our

customers is over local cable network, and I must say for us this

is the way we prefer to do it. Dealing with the phone company is

usually such a nightmare. In Shelbyville the local cable operator is

Susquehanna Communications, and Susquehanna recognized early

on that partnerships with multiple ISPs could be a profitable business. It ran four strands of fiber-optic cable to our facility at no cost

in order to provide this service to our customers. And in contrast

to the 2-month lead times for DSL, a customer can have their highspeed Internet over cable delivered in about a week, and we are informed almost immediately when Susquehanna’s router is down.

7

This allows us to tell our business customers quickly about service

difficulties. Susquehanna in also local, and this makes them easier

to deal with as well.

We have a number of business customers who use high-speed

connections for their business, customers in Shelbyville, like Prime

Time Grill and Bar, that is able to upload its sales information to

its corporate office in Indianapolis over its cable connection; or

Martin Potts and Associates, a local CPA firm that is able to use

its DSL connections to download IRS forms and accounting software updates much faster than they could over a dial-up operation;

or Sandman Brothers, the local GMC-Chrysler dealership that does

all of its customer financing through its DSL connection. We have

seen the differences that broadband services make to these business and believe that broadband is an important product that we

must continue to be able to deliver to our customers in a cost-effective way in order to survive as an Internet service provider.

We have specific thoughts and real concerns regarding this, part

of which are included in my written testimony, that I would like

to address in the question-and-answer portion of this hearing.

Thank you.

Chairman PENCE. Thank you, Mr. Nolley.

[Mr. Nolley’s statement may be found in appendix.]

Chairman PENCE. And before I yield to Chairman Thune to introduce a witness from South Dakota, I wanted to acknowledge the

presence of the gentlelady from New York. Congresswoman Kelly

has joined us. She is the former Chairman of the Subcommittee on

Regulatory Reform and Oversight and has set the pace for our Subcommittee. So it is great to have you here. Thank you for being

with us.

With that I will recognize Chairman Thune to introduce our next

witness.

Chairman THUNE. Thank you, Mr. Chairman, and it is a great

honor for me to have someone from my State here today, Gene

Reich, who is the coordinator for telehealth services at Avera St.

Luke’s Hospital in Aberdeen, South Dakota, and has been very instrumental in exploring the utilization of new technologies to serve

the health care needs of people not only in Aberdeen, but also in

many rural areas of my State.

Everything in my State is kind of rural, but there are degrees

of rural, and, frankly, Gene really spearheaded the telemedicine

legislation that was adopted and signed into law last year by the

President as part of the Medicare refinement bill. It originated in

a hearing I had up there where he laid out some of the issues and

barriers to using technology and being able to get reimbursed

under Medicare. As a result of that process, we were able to have

legislation adopted last year which is currently in, as Gene informs

me, the rulemaking stage, and we are hopeful that we can get the

rules drafted in such a way that it will provide the assistance that

is necessary to really make this a transformational technology in

terms of serving the health care needs of people in my State of

South Dakota and all across this country.

Gene has often indicated to me that this is about telehealth, not

just telemedicine. They are doing some wonderful things in patient

consultation and innovative pioneering-type ideas when it comes to

8

health care, but also when it comes to the area of education,

wellness programs, training, those sorts of things, all of which I

think he will talk about in his testimony.

But it is great to have him here and very exciting to see the

things that are happening as a result of his efforts there in Aberdeen, South Dakota. So with that I will yield the floor to Mr. Reich.

STATEMENT OF GENE REICH, TELEHEALTH COORDINATOR,

AVERA ST. LUKE’S HOSPITAL, ABERDEEN, SD

Mr. REICH. Thank you, Congressman. My name is Gene Reich,

from Aberdeen, South Dakota, and I am the coordinator for telehealth services at Avera St. Luke’s in Aberdeen, South Dakota.

And on behalf the Presentation Sisters and the Benedictine Sisters,

the sponsoring groups of our network family called Avera Health,

I would like to thank you for the opportunity to present our input

on this critical subject certainly to rural America and to rural

health care.

I would also like to publicly thank Congressman Thune and this

body for its support of telehealth legislation passed last year that

will benefit the future growth of telehealth services nationwide. I

commend this Committee for taking up the matter of access to

broadband technology in rural America. This is an important issue

for the economic development in our State as well as the delivery

of quality health care services in our region of northeastern/north

central South Dakota.

Avera St. Luke’s is celebrating its centennial year in meeting the

healthcare mission of the Presentation Sisters in the city of Aberdeen and the surrounding region. We are proud that we have used

the latest technology to meet the sisters’ cherished health care mission and would be interested to know what some of the early members of the order might think about some of the methods we have

used to meet that mission. There are not many members of the

order left with us, only about just a handful less than the age of

50, so all of us at Avera St. Luke’s feel a strong commitment to

continue the mission, and pledge to do so in any way possible.

We feel that advanced technologies will be a key to our survival

as a rural health care provider. At Avera St. Luke’s we use interactive video conferencing to provide valuable health care services

to 15 rural hospitals and clinics. We built and equipped these facilities with videoconferencing technology with the help of two Federal

grants and a significant investment by Avera St. Luke’s.

We use the technology to deliver quality health care services in

a variety of ways. We provide regular continuing medical education

programs to rural providers and staff. We provide frequent training

sessions for rural health care staff in a variety of disciplines. For

example, in the month of June, we have already scheduled a workshop for hospice volunteers, a workshop on mentoring and a session on caring for the urology patient in a rural health care setting.

We also use videoconferencing for corporate meetings, partner

meetings, association meetings.

In this time of cutting programs in health care to meet budget

concerns, Avera St. Luke’s and Avera Health are using innovative

technologies such as videoconferencing to cut travel costs by thousands of dollars a year in order to keep our current level of services

9

intact. Like most similar projects around the country, we also use

the technology for telemedicine services. It allows our medical specialists to be available to rural providers and patients in a videoconference setting, saving patients and families travel expenses

and time away from work. Risk of travel is also a consideration, especially in our part of country during the winter months.

While CME programs, trainings, meetings and telemedicine are

all part of the offerings of Avera St. Luke’s telehealth services, the

area we are most proud of and the area of service that I think separates our project from many others around the Nation is our education and wellness programs. We offer classes in lowering your

cholesterol, quitting smoking, eating right, and even a support

group for diabetics. We also offer regular health forums featuring

physicians and other health care professionals presenting valuable

health care information on a variety of subjects. And last December

we also made Santa Claus available over our videoconferencing

network. As it turns out Santa Claus was high-tech. We are proud

of the wide diversity of our programming which makes our project

one of the true telehealth projects in the country.

One thing we have learned about access to technology, when people are exposed to new and innovative technology, they learn to use

it to benefit their way of life. We have certainly been a witness to

that premise in the health industry. We currently use ISDN service

to deliver our programming at Avera St. Luke’s. Many experts feel

that ISDN is an outdated technology, that it has served its purpose, and we are certainly very aware of that and are exploring

new and more efficient ways to communicate, and we are constantly looking for new equipment designs that will serve us better.

Staying on top of the developing technology is nearly impossible,

but in our field of telehealth, it is essential to our survival to cut

costs in order to keep our now coveted telehealth services in place.

We feel the availability of advanced and affordable networks and

infrastructure are critical to the survival of our project and projects

like ours across the country and also to the survival of rural America. Thank you.

[Mr. Reich’s statement may be found in appendix.]

Chairman PENCE. The Chair now recognizes Mr. Marvin Imus,

who is an owner/manager for over 20 years of a family-owned single store that was founded 47 years ago.

Mr. IMUS. 1947.

Chairman PENCE. A degree in economics from Western Michigan

University, currently you are the Chair of the Wholesaler Technology Advisory Board, a member of the Wholesaler Independent

Retailer Task Force and the NAWGA’s Category Management Certification Committee, and you have been involved in developing and

implementing a card-based marketing program for the last 5 years,

and your own customer card base is 6 years old. He is owner of the

Paw Paw Shopping Center in Paw Paw, Michigan.

Mr. Imus.

STATEMENT OF MARVIN IMUS, OWNER, PAW PAW SHOPPING

CENTER, PAW PAW, MI

Mr. IMUS. Thank you.

10

Good afternoon, Chairman Thune, Chairman Pence and members

of the Subcommittee. I would like to thank you for this opportunity

to speak to you on behalf of my business and also for all retailer

single-store operators that are supported by FMI, the Food Market

Institute.

Let me take a moment to tell you have about my business and

my community. Paw Paw, Michigan, is a small town in Michigan

just outside of Kalamazoo, about 10 miles west. We started the

business in 1947 with 1,000 square foot of retail space. Currently

we have 41,000 square feet. We have 30,000 products on our

shelves, but we have a database of 75,000 items and a historical

data base of every item sold to every customer for the last 6 years.

This is probably our most important asset as we go to our marketplace and as we try to use the data from our sales to market back

to the consumer, information and the products that they desire. We

rely on this information, and it is all based on broadband technology to give us the profitability aspect of it.

We have a Website which currently offers weekly specials, wine

ordering, gift baskets, weekly recipes, and meal solutions, as well

as household tips and consumer alerts. We have a weekly newsletter that we e-mail to our customers that request it. Approximately 10 percent of our customers visit the Website. We see the

Internet as being the facilitator of communications for our commerce in the future and potentially providing for competitive advantage for a small business like ours.

Broadband access is important for small businesses and consumers in rural America. Broadband access is not currently available in Paw Paw. If it were available, we would use it to enhance

our business. Currently we utilize a frame relay connection for our

Internet usage. This is provided to us through our wholesaler out

of Grand Rapids, Michigan, and basically provides us an ability of

communicating back and forth. We exchange information, orders,

products back and forth between our store and the headquarters of

our supplier.

There is an analogy I would like to use that seems to work very

well. If you are on an escalator at the bottom level of a building,

and you want to get to the third floor, with a 56k modem you have

a one-person escalator going up to the second floor. As you go up

to the second floor, you have to get off because the escalator has

to reverse to go back down, and you have to get back on the escalator to go up to the third floor. This is a 56k modem.

A broadband technology has the ability of putting three or four

persons or more on a step of the escalator. That escalator can go

up or down, so you have access both ways. It has a TV-like quality

that the consumers are demanding before we can get to a point

where the information that we are delivering to the consumer is

impactful enough for us. With dial-up technology today, it is too

slow. They don’t have the time nor the desire to want to wait for

a page to be drawn on our site. Textual information that is available quickly is basically boring. They are looking for TV-quality access.

As you can see in my statement here, which included a chart

that highlights the number of years it has taken from major technologies that we depend on each day to reach mass market over

11

the years, electricity took 40 years, telephones 30, and Internet access has reached over 25 percent of the population in 10 years, yet

in rural America we are not seeing that type of access yet.

One other analogy I would like to use is my mother-in-law. She

goes south for the wintertime, and we use telephones to keep in

contact. But we bought her a small Web TV system just so we can

e-mail back and forth with her. It cut my phone bills down dramatically. In fact, it really overkilled it because she is online so

much now that we cannot call her anyhow, which is great. But that

aspect that the elderly are getting access outside of their own community and gives them the broad world aspect is tremendous, but

we need to have quicker access with more TV-like quality to get to

that.

Certainly the work of the Committee in conjunction with the

Commerce Committee is important to ensuring that broadband access is available in the near future to businesses and customers in

rural areas at a reasonable cost. I understand that this is no easy

charge, but I for one feel the competitiveness of our business depends on it.

Thank you for the opportunity to testify, and I will be pleased

to answer questions later.

Chairman PENCE. Thank you, Mr. Imus.

[Mr. Imus’ statement may be found in appendix.]

Chairman PENCE. And you mention questions, and for those of

you new to being witnesses on Capitol Hill, we will have time for

questions by this panel of members for this panel of witnesses at

the conclusion of Mrs. Stark’s presentation.

I would also remind Mr. Imus and others that in view of your

mother-in-law analogy that all your testimony here is a public

record.

Mr. IMUS. Can I see that before you publish it?

Chairman PENCE. If it gets back to your mother-in-law, it is your

fault.

I would like to recognize Jonathan Linkous, who is the executive

director of American Telemedicine Association, the largest membership-based organization in the world focusing exclusively on providing health and medical care through telecommunications technologies, and Mr. Linkous has over 20 years experience in the Nation’s capital working in corporate and public sectors. For 5 years

he was a leader in the aging services community as the executive

director of the National Association of Area Agencies on Aging. His

principal interest in this position was in using telecommunications

and adaptive technology to assist older Americans and their caregivers.

Mr. Linkous was also involved for many years in the regional

planning and economic development field, serving as the deputy executive director of the National Association of Regional Councils

and at the Appalachian Regional Commission as director of the district.

Mr. Linkous holds a master’s in public administration from

American University in Washington, D.C., and also degrees from

Franklin University in Columbus, Ohio, with postgraduate work at

the LBJ School of Public Affairs in Austin.

The Chair recognizes Jonathan Linkous for 5 minutes.

12

STATEMENT OF JONATHAN LINKOUS, EXECUTIVE DIRECTOR,

AMERICAN TELEMEDICINE ASSOCIATION, WASHINGTON, DC

Mr. LINKOUS. Thank you, Mr. Chairman. I appreciate the opportunity for testimony today, and I am testifying on behalf of the

American Telemedicine Association. ATA is a nonprofit membership-based organization promoting telemedicine and working on

ways to resolve barriers to employment. Members of ATA include

representatives of an important small business in rural America,

and that is health care clinics, physicians’ offices and small hospitals.

Telemedicine represents a marriage of advanced telecommunications technology and new approaches to providing medical and

health care. Be it through online consultations between rural clinics and specialists at major medical centers, telehomecare for

homebound frail patients or homebound mothers-in-law, access to

comprehensive databases of health and medical information for

consumers over the Internet, telemedicine holds the promise of

using telecommunications to improve the lives of all Americans.

The deployment of telemedical links to rural medical, centers requires communications networks that are affordable reliable and

capable of handling large amounts of data in a very small time.

When I was at the Appalachian Regional Commission, we recognized the importance of opening up the isolated areas of Appalachia through a construction of a network of highway systems

throughout the Appalachian Mountains. The highways of today are

located on the telecommunications infrastructure. The telecommunications infrastructure opens up the isolation of rural

America to the opportunities for education, commerce, and health

care.

For rural hospitals, medical clinics and other health-related

small business, access to broadband networks means being able to

treat patients through a local health facility rather than losing

those patients and the revenues to distant communities. It means

improved health care for rural residents. It means being able to

keep a local clinic open. It means reducing public and private employer costs for health care, and finally, it means hope for small

and rural towns and villages struggling to survive and grow.

I would like to share one example as to how access to broadband

technologies can make a substantial difference to improving patient

care. That is in the area of teleradiology. Teleradiology allows medical clinics in rural areas to gain access to services of a qualified

radiologist you may not get otherwise. An X-ray or other image is

transmitted to a radiologist for an assessment or service they provide. For almost all radiology services there are several images to

be viewed in the area in question from two or more angles. If anybody has had a broken arm, you know you go in, you get two or

three X-rays. If you digitize those X-rays and send them over a

communications line as is needed for teleradiology, the amount of

information provided in that can be enormous, up to 5 megabits of

data, for example.

If you are transmitting that over a plain old telephone line, you

are talking about several hours of waiting. If there is a glitch in

the line, you have to resend the data because it is a medical image.

So, therefore, you are talking about double the amount of time. In

13

emergency situations this can happen, and many medical clinics in

rural, isolated areas, that amount of waiting time is just totally unacceptable. For other situations it is at best inefficient.

Despite the recent growth of alternative bandwidth choices such

as wireless or terrestrial communications lines, rural communities

are still limited to the availability of high-speed telecommunications where available and have problems with the reliability and

costs. Other countries, notably Canada and Finland and Sweden,

have established specific national goals towards universal deployment of high-speed telecommunications to every home throughout

that country. The United States has not done that. Congress

should consider establishing a national public-private commission

to look at establishing similar goals incorporating similar incentives and programs that will accelerate the availability of

broadband telecommunications to every business and every home

throughout the United States. The provision of such policies in

Canada and Scandinavia, I believe, is accelerating those countries

in the battle for the telecommunications market in the future.

There is a small but very important program authorized through

which the Federal Communications Commission assists rural

health providers in obtaining access to broadband services. Congress established this program under the Telecommunications Act

of 1996 to provide improved broadband access by rural health care

providers. Recent improvements by the FCC in the program create

hope that the program can provide major benefits to rural America,

and I urge Congress’s support for that program.

Finally, I want to join the other members of the Committee in

thanking this panel and particularly thanking Representative

Thune for your support for telemedicine and your support this last

year of the telehealth bill that provides very important incentives

for telemedicine, particularly rural America. So I publicly want to

thank you, sir, on behalf of the association for your leadership and

support.

Thank you, and I will be glad to answer any questions.

Chairman PENCE. Thank you, Mr. Linkous.

[Mr. Linkous’ statement may be found in appendix.]

Chairman PENCE. Lastly, the Chair is pleased to recognize Nancy

Stark, the director of community and economic development at the

National Center For Small Communities here in Washington, D.C.

With 24 years of experience in community and economic development in telecommunications, Ms. Stark has directed research, designed and conducted training programs, written guidebooks and

provided technical assistance to small-town leaders across America.

Currently Ms. Stark directs a U.S. Department of Commercefunded research project to identify, describe and evaluate the most

effective technology-led economic development strategies for distressed rural communities.

Recently Ms. Stark authored Getting Online, a Guide to the

Internet for Small-Town Leaders, and Harvesting Hometown Jobs,

a Rural Economic Development Primer.

Ms. Stark created and led the AOL Rural Telecommunications

Leaderships Awards, a digital divide initiative and partnership

with the AOL Foundation. The awards recognized and promoted

14

outstanding achievement in rural community development resulting from the deployment and use of advanced technologies.

Ms. Stark hold an M.S. in financial management from American

University and a B.S. from Cornell, and the Chair recognizes

Nancy Stark for 5 minutes. Thank you for being here.

STATEMENT OF NANCY STARK, DIRECTOR OF COMMUNITY

AND ECONOMIC DEVELOPMENT, NATIONAL CENTER FOR

SMALL COMMUNITIES, WASHINGTON, DC

Ms. STARK. Thank you, Chairman Pence and Chairman Thune,

members of the Subcommittee. Thank you for the opportunity to

testify before you today. I am Nancy Stark, director of community

and economic development with the National Center for Small

Communities here in Washington. The National Center for Small

Communities is the only national, nonprofit research, training and

technical assistance organization devoted exclusively to serving the

public servants of America’s small and rural communities.

On the topic of telecommunications, rural telecommunications we

have directed several initiatives that were mentioned recently. One

is a guidebook called Getting Online, a Guide to the Internet for

Small-Town Leaders—actually several Members of Congress have

distributed this to their constituents; the AOL Rural Telecommunications Awards; and most recently now a research project on technology-led economic development strategy.

As I am sure you know, our Nation is a Nation of very small

communities. The latest Census of Governments reports that of the

36,001 subcounty and local governments, meaning towns, cities, villages, all the rest, approximately 90 percent have fewer than

10,000 residents; 82 percent have less than 5,000 residents; 51 percent have fewer than 1,000 residents.

Much has been reported recently about the apparent narrowing

of the urban-rural digital divide. For instance, a recent U.S. Department of Commerce report said that the gap between rural

households and the others that access the Internet had narrowed

from 4 percentage points in 1998 to 2.6 percentage points in 2000.

However, these statistics mask the real urban-rural digital divide. More and more rural households and businesses have Internet access, but few have high-speed broadband telecommunications

services. While nearly all users can now ramp on to the information highway via a local dial-up connection, although there are certainly places in this country where you have to make a long distance call to connect to the Internet, but saying that most of them

can get dial-up, the deployment of high-speed services has been

slow and limited. For example, the April 2000 joint report of the

U.S. Department of Commerce and the U.S. Department of Agriculture showed that less than 1 percent of residents in communities with fewer than 10,000 residents have access to DSL, in contrast with 86 percent for cities with populations above 100,000.

Similarly, approximately 1 percent of residents in communities of

10,000 population or less have access to cable modem compared to

72 percent of residents in cities above 250,000 population.

Without state-of-the-art communications, rural businesses are at

a severe disadvantage. Nearly all businesses need connection to the

Internet. Small and midsized enterprises are being forced to miVerDate 11-MAY-2000 13:48 Oct 03, 2001 Jkt 000000 PO 00000 Frm 00018 Fmt 6633 Sfmt 6602 C:\DISC\73403 ATX007 PsN: ATX007
15

grate their business to the Internet by bigger companies they are

affiliated with. In this symbiotic relationship, most small businesses are either suppliers to or distributors of bigger businesses.

Businesses need high-speed broadband to download files, submit

and receive orders, view graphics, access databases, participate in

videoconferencing, basically to participate in the modern economy.

Without state-of-the-art telecommunications, businesses are far

less productive. Consider the time it takes to download a 10-megabyte file using dial-up versus high-speed Internet access. This is

kind of my version of the escalator motif. Those are some statistics

from the FCC. If you took this guidebook, for example, which is

principally text and a few graphics, and you had 121⁄2 of these, that

would be a 10-megabyte file. If you downloaded that using a 14.4

modem, which is not uncommon in rural areas, it would take 11⁄2

hours. If you downloaded it with DSL, a 4-megabit cable, it would

take 20 seconds; or with an 8-megabyte DSL, it would take 10 seconds. So we are looking the difference between 11⁄2 hours and 10

seconds.

There are signs the deployment of broadband telecommunications services to rural America is increasing, but it is increasing

very slowly. Our observation is that despite the demand, and there

is lots of demand kicking and screaming from local and residential

and business markets, it is chiefly the small local telephone companies or cooperatives that are providing DSL, and sometimes cable,

to small communities, not the larger companies. It is also our observation that the market forces in many small, especially very remote rural communities may not be sufficient to inspire the development of high-speed services, and that Congress may need to consider market-based incentives to spur deployment.

Because of the critical influence of broadband telecommunications services on rural economic development, the National Center For Small Communities hopes that Congress will explore strategies for helping communities to remain on the right side of the

digital divide.

Thanks for this opportunity, and I welcome your questions.

[Ms. Stark’s statement may be found in appendix.]

Chairman PENCE. Thank you, Ms. Stark, and, witnesses, we are

going to move to the question-and-answer portion. The Chair has

a few questions for each of the witnesses, and we will then recognize Chairman Thune and Ranking Member Udall and Ms. Kelly

and those who can remain to participate.

We encourage you to keep your answers fairly brief so we can get

as much participation as possible, but we will refrain from any

blinking lights.

The Chair would like to congratulate each of the witnesses on

very good and informative and particularly plain English presentations which those of us that do not have Chairman Thune’s background in this area are particularly grateful that you spoke in

plain English.

With that said, the question for Mr. Nolley, on a very practical

level SBC is the employer in Shelby County, Indiana. What is the

time frame right now when you ask SBC to provide Tubesock.net

with a T–1, ISDN or other telecommunications service? Is that

16

rapid deployment; is it acceptable? In practical terms how does it

work?

Mr. NOLLEY. It is real slow. The current lead times are about 2

months, so we have to kind of time—keep on top of time to make

sure we ordered ahead of time before we actually need it. We have

to order it ahead of time. And sometimes we may be off on our timing, and we get it a little bit too soon, so we are paying for something we do not really need. Their lead times are off, and they keep

getting further and further out.

Chairman PENCE. The effect on your ability to interact with your

clientele, encouraging them to go to more advanced communications technology when they have to wait for that, the period of time

would be what?

Mr. NOLLEY. We often make ourselves look pretty bad because

we will get the lead times from Ameritech, relay those lead times

to our clients, and then our clients end up asking us where is the

product, where is the product. We look bad, and, of course, trying

to get through to Ameritech to get answers you never get anywhere. That is why we have been pushing cable Internet service

because it doesn’t touch Ameritech at all. It is local cable company,

local people who are working in the community. We already have

good rapport with them, good conversation. It is quicker. You don’t

have to worry about getting a suspect voice mail system and trying

to leave a message for somebody. So we are moving towards cable.

Chairman PENCE. A question for Mr. Imus. The Paw Paw Shopping Center. You describe the Internet as a facilitator for your

business. Could you elaborate for these Committees in this joint

hearing how it would facilitate your business? Do you expect to use

the Internet principally for marketing, or do you expect online

shopping to become a large part of your revenue stream?

Mr. IMUS. Well, yes. All of the above. Actually what we have with

our wholesaler right now is an intranet, which is a closed Internet

loop where it is just communication between us and the wholesaler,

and all the other retailers are part of it. But the Internet gives us

the ability of having effective marketing abilities that we can use

very cost-effectively.

As consumers get more and more online, we achieve a critical

mass. We have not achieved that point yet. We have online shopping. Again, because of the speeds of the access that the consumers

have in our area, it has not been overly well-received. I foresee it

to be a key component of our future plans for survival.

Chairman PENCE. Mr. Linkous, a couple questions. First, I wonder if you might elaborate on the significance of technical clarity

that comes with broadband access in terms of diagnosing. In plain

English is there a health benefit, a diagnostic benefit to expanded

broadband access in telemedicine?

Mr. LINKOUS. Well, if I were a patient, I would like to have a

physician who may need an eyeglass prescription to wear his glasses; and with broadband, you do have a guarantee of certain clarity

of images. There are a few medical specialty groups, radiology

being one of them, that actually have come up with some specific

clinical guidelines regarding clarity of image. The American College

of Radiology has a requirement now that you have an image, radiology image, that is 2k by 2k, 2,000 dots by 2,000 dots. That is a

17

fairly high-definition image that is required, because, again, if you

are looking at an X-ray, it is a very minor change in the bone that

can make a completely different diagnosis, and the soft tissues

would be the same.

So, yes, I think it would—broadband is absolutely critical for certain types of applications. Now, there are applications in telemedicine that probably can get by with lower, but absolutely. But for

a lot of what you see, certainly for emergency situations, certainly

for specialty referrals, the higher the speed, the better. It is not

only going to be an image that you have that is going to be arriving

at the destination quicker, but also the quality of the image is

going to be significantly improved.

Chairman PENCE. Mr. Linkous, you also propounded today before

these Subcommittees the idea of a national commission of sorts. I

wonders if you might elaborate on the jurisdiction of that commission, the goals of that commission, and so we might consider that.

Mr. LINKOUS. Certainly, and certainly I would be available to

talk to staff about it in more detail. But if you look at the experience in a couple of other countries, I think, frankly, they are putting the United States in the dust in some of the things that they

are doing. Using an urban example, if you look at Helsinki in Finland, they have made a commitment that every single home in Helsinki is broadband-wired. When you talk to a neighbor, when you

talk to your mother-in-law or children, you are seeing your children

over the phone lines. Canada has made a similar commitment in

the process of deploying it.

Now, in the United States we have a little bit of a different system where we have a private sector that is involved more so than

other countries, but it seems to me that in the United States, it is

high time particularly for rural America to have a commission of

public and private companies to talk about ways that we can deploy broadband throughout—not only to every business, but as I

mentioned, to every home, using things like tax incentives, regulatory relief, building on programs that are available in many,

many States that are deploying broadband networks throughout

the State, and as well as volunteerism that is going on throughout

the country.

So it seems to me there is a lot of solutions available, and it is

probably an appropriate time for this country to have some kind of

a national body that is starting to set forward some goals and a

specific timetable to get things deployed.

Chairman PENCE. Mr. Reich, thanks again for your wonderful

presentation. You are breaking new background for me and my understanding this area.

You used some pretty strong language today about the Internet,

and you said that it was the key to the survival of the rural health

care provider. As someone who represents an area that is largely

rural and has seen a real shift in the delivery of health care services—one county that I serve, Rush County, Indiana, announced,

sadly, 2 years ago—said that they would no longer be delivering

babies at Rush County hospitals. Is the power of the Internet and

broadband technology powerful enough to reverse the trend towards regionalism, or we are talking about the survival of regional

health care providers?

18

Mr. REICH. I think there is an evolution certainly. That is not

going to change. But I think we can do a lot with broadband capabilities to keep that rural physician and rural provider in place. We

have several examples of communities and health care facilities on

our network that aren’t very big. A community in extreme—north

central South Dakota, maybe a community of 3- or 400 people has

one rural physician, but he has access—he has access to broadband

videoconferencing technology, so he has been able to resolve a lot

of the isolationism which he has faced. He is all out there by himself, but he is not anymore. He has access to consultations. He can

talk to the surgeons about a patient he might want to send in. He

can present that patient. And he takes advantage of continuing

medical education programs that he needs to stay certified and to

keep his license intact by staying at home during during lunch

hour, not missing any time away from his clinic, not being gone for

2 or 3 weeks wherever to get the credits that he needs. He can get

all of those credits by staying in his own clinic, and he has access

to so many different things.

I think in his current situation he will probably end up retiring

there. Not too long ago he had considered leaving this community

in north central South Dakota, and the community encouraged him

and came to him and got he and his wife to stay. And it is really

a cool story because part of that, I think, really is the reason he

was staying is because he has access.

And there are others. There are other stories on the network, too,

not necessarily physicians, but PAs. I think we solved a lot of isolationism. I think we feel like there is some connection even though

we are not a huge medical center hub site. We are a relatively

small medical center in northeastern South Dakota, but still just

having that connection and that relationship I think is going to

help. I really do.

Chairman PENCE. Last question before I yield to my colleague

Mr. Thune.

Ms. Stark, you are a recognized national expert in the area of

economic development in small communities. Do you have any data

or do you have any comparison of communities that have

broadband access, relatively small, versus ones that haven’t and

the impact that can—that may have on the economic development

over the last 5, 10 years?

Ms. STARK. No, I don’t have any absolute data to share with you.

I think most of what is going on is anecdotal. Even what we are

doing for the Department of Commerce, this project on technology

is primarily collecting data, in the process of collecting data. However, we are looking at 14 very rural distressed communities that

were recognized as having a leadership role in technology-led economic development. We are not finished yet. We administered a

survey to them, and we are looking at what have been the impacts

in terms of economic development and also things that are a little

bit less tangible perhaps, citizen participation, youth engagement,

lots of things that make a rural community survive or not survive.

So I would love to share that with you once we have finished

that, which will be in a few months, but there are some wonderful

case studies. I have mentioned a few communities in here,

Abingdon, Virginia, which is not that far from here, which has had

19

high-speed broadband access in many public access places as well

as residential use since 1996, which is really remarkable. So there

are examples out there. They are just few and far between.

Chairman PENCE. The Chair recognizes Chairman Thune for any

questions.

Chairman THUNE. I thank the Chairman, and I thank the panel

for all the good testimony. This all helps us build a record and establish a foundation which points to not only the successes happening out there today, but certainly highlights where we need to

go in the future in order to make this an online society that doesn’t

know a digital divide, where you have rural areas that are benefiting from the same technology that the urban, more populated

areas are.

Mr. Imus, by the way, your mother-in-law called, and she heard

what you said, and she wants you to stay with your escalator story.

She is very well-connected down there. I commend you not only for

your entrepreneurship in taking on the challenges that you have

in your business, but also your bravery in using illustrations that

pertain to your mother-in-law. Most of us probably would not dare

to go there.

Just a couple of questions, and I will direct these around a little

bit to a couple of different areas.

Mr. Reich—and I know in conversations with you, and having

seen firsthand the things that you are doing, the various innovations that were out there, and really what that is doing to change

the way that we do business, to change the way we meet health

care needs in rural areas, to enhance and improve the quality of

life for people that live not only in Aberdeen, which, by South Dakota standards, is a population center, but those who live in more

remote outlying areas, those towns of 5,000 people that are served

by your facility there, but I guess I would be just curious to know

how broadband technology could further enhance your ability to

provide telehealth services and telemedicine services to South Dakota residents. How does that improve what you were already

doing?

Mr. REICH. I have lots of ideas. Everybody that has been involved

in technology for a while comes up with ideas and new ideas. And

I think for access to broadband technology, high-speed Internet access for us, I think, would be really something that would open up

a lot of doors for us in education and wellness.

We do a lot of education wellness programs on our network. The

folks in those communities have access to those programs in rural

health facilities, whether it is a clinic or hospital. I believe in the

future with access to broadband technology in small farm homes,

in communities all across our State and all across the country, we

feel like that we can eventually archive the program eventually on

the Internet, maybe place them on the Internet, put them on our

Website, and people can have access to a variety of health care

issues. They can have access to a class on cholesterol. They can access a diabetes-type information if they had access.

And right now I don’t think a majority—I don’t think there is a

whole lot of high-speed Internet access to the rural farms and communities in much of North and South Dakota and the western

parts of the State, but I see that as a real interesting step for ourVerDate 11-MAY-2000 13:48 Oct 03, 2001 Jkt 000000 PO 00000 Frm 00023 Fmt 6633 Sfmt 6602 C:\DISC\73403 ATX007 PsN: ATX007
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selves in telehealth and telemedicine in the future, kind of what

these guys are talking about with the use of the Internet.

Right now we have same broadband access to rural areas. We

have to bring it to more rural people, and we think we can do a

lot more in delivering health care services.

Chairman THUNE. I would like to tie into a point that, Mr.

Linkous, you made earlier on, and either of you can respond to this

question, in dealing with reliability. One was quality of transmission, which I think you referenced, and you got an interactive

patient consultation, and I am thinking—looking at, say, for example, some sort of a skin condition, and being able to make a diagnosis in an interactive setting like that. And the question is about

liability and whether or not you diagnose it accurately, and if you

don’t have the good quality of transmission, is that an issue?

And then secondly, the reliability question having to pertain

more to if you were doing emergency-type care of the equipment

itself—I am talking about the infrastructure itself—do you have

enough confidence—at that point is there a confidence level in

treating, say, a trauma situation if you had to rely on that technology? I mean, do we have the sort of confidence in the reliability

of the technology now that it would enable us to use it in that kind

of a context where you are talking about an emergency situation,

a trauma-related-type situation?

Mr. REICH. I think we are close. We have had—and, in fact, I

have talked to a gentleman. Who happens to be a rural telecommunications worker who also works on the community ambulance. And he told me, he said, boy, we would like to have access

to ERs. And, boy, I think the technology is close. I don’t know if

Jon would agree or not, but I think it is really close. I think we

can do a lot of things that would be acceptable for an ER doc.

Mr. LINKOUS. Yeah. A couple of examples of things that are

under way in Texas. At the Houston Medical Center they are working on an ambulance that has the ability to forward, send live images from the ambulance directly to the emergency room. I don’t

think we are quite there yet on reliability, but we are getting close,

I agree.

The second example is there is a new company that has formed

that provides intensive care services; that they have a contract

right now with several hospitals in the Norfolk area where there

is actually intensive care docs, intensivists as they call them, that

were wired into the intensive rooms for the small hospitals that

cannot afford an intensive specialist before this. But because it is

a very dangerous situation where you have immediate emergency

care that is needed, they use multiple T–1 lines going into the facility, to their clinic, using different providers, because it is very important for them to have redundancy built into the system.

So that is one way they are using it now. They are getting there.

We are not quite, but we are getting there.

Chairman THUNE. Any comment on the quality? It seems to me

at least broadband, where you have the interactive, the ability to

interactively telelink, are there any questions with quality of transmission, when a doctor, for example, might be seeing—and I will

just use my State as an example again—a specialist at St. Luke’s

Hospital might be looking at a situation, say, in Miller or

21

Highmore or Gettysburg, and somebody has a skin lesion or a lesion of some sort and is trying to make a diagnosis.

Mr. REICH. How comfortable is the physician in that respect?

Chairman THUNE. Yes.

Mr. REICH. I hate to say, but it depends on the physician. Some

physicians are more cautious than others. I like to call them openminded physicians. As far as liability is concerned, I don’t know if

we have had any real test cases as of yet, and I would assume they

are coming somewhere along the line, but we have not seen any

yet.

I think it depends on the physician. I think some physicians are

really accepting. Others see it as a follow-up tool rather than

maybe a primary diagnosis-type tool. But it depends. I think that

there are physicians that are very comfortable. There is equipment

out there for—in dermatology that I think we can do it. I think we

can project the image that is acceptable if the dermatologist is open

enough to—and it takes some time. They just don’t—I think you

just don’t come into a medical consult and do it for the first time.

When we start out a physician in telemedicine, we try to train

them a little bit, and these guys are busy people, and we need a

little bit more open-mindedness and cooperation from these people,

and I think we are going to get it as we educate them better.

And I think that is maybe the brunt of all we are talking about

here. We have a need to educate people on what broadband technology means to them. Some people don’t really understand what

we are talking about today. This is an issue that is incredibly important for us in rural South Dakota.

Chairman THUNE. In a follow-up to that, are you having any

problems getting new communities to accept and utilize telehealth,

the types of technology that are there? You have addressed sort of

the physician side of it, but how about that community out there?

Are there any barriers?

Mr. REICH. I think we did at first. I really do. I think it has gotten better. Part of what we have to do is get out there and to talk

to them and explain to them about what this technology could

mean to their communities. I have spoken to many small community groups, doing lunches, explaining to them what we are trying

to do with videoconferencing as it turns out in this particular application.

But an example, Mobridge is a community on the Missouri River

in north central South Dakota, and we are going to put a couple

new sites there online in the next month or so. Just the opposite

there. While some of the early communities we worked with, we

had to go out there and sell it, Mobridge is saying, hey, we see

what is going on; we want to be a part of it. So I don’t think there

is going to be a big sell needed out there. They want to be a part

of it. We have had docs out there ask when are we going to get this

technology? We need this; we see what it is doing for John

Ottenbacher out in Selby. We want the same kind of access.

Mr. LINKOUS. If I can mention, in the last 10 years there are lots

and lots of clinical trial studies done on medical imaging that send

telecommunications versus the doctor seeing it as well as patient

satisfaction surveys. Every single one of them without an exception, as far as I know, have shown that the images transmitted

22

using telemedicine have been acceptable, assuming you have the

high-speed telecommunications line that transmits that image. And

patient satisfaction people love it because people do not get access

to those doctors if they do not have telemedicine.

Chairman THUNE. It is a very real issue in many areas, the distances, the weather. I direct this maybe to Mr. Nolley. I would be

curious to know what your thoughts are about the percentage of

people out there on the main streets of this country who are conversant or knowledgable about DSL or broadband or regular dialup modem connections. Do most people really understand the differences about those options and what kind of benefits they offer?

Do people who have a standard dial-up connection today—and Ms.

Stark utilized some of the statistics and percentages of people, and

there are a lot of people who have at least some form of access, but

do they really understand the potential of having access to a

broadband or high-speed Internet type?

Mr. NOLLEY. When we refer to businesses, they do understand

what it is that it can bring. When you refer to residential consumers, they know—they don’t understand the words or the terms ‘‘broadband’’ or any of that kind of stuff, but they do know what

DSL is. They do know it is faster and what it can offer. They know

what cable Internet is and what it can offer. But in talking with

the businesses in our community and doing my job going around

trying to sell this, they do understand what it can bring and the

benefits, especially the communications aspect of bringing e-mail to

the corporate network, Internet availability on every desktop,

things of that nature. They understand.

Chairman THUNE. And I think Mr. Imus testified to that fact,

too. He understands what this is about. And you said that in Paw

Paw today you don’t have access to broadband. Some of your competitors, the bigger ones who have the benefit of economies of scale,

use satellite or something else. They are going to have that opportunity available to them.

How ultimately are we going to get broadband access to a community like Paw Paw? And I mean, do you have any suggestions

for us in terms of things that we might be able to do to provide

incentives to get your area served? I am—certainly from a small

business—we talked about the health care side of it, but certainly

from a small business standpoint, I would think, doing business

with your suppliers who are all connected.

Mr. IMUS. It is becoming a competitive issue, very much so. We

are competing with chains that are doing billions of dollars of business instead of the millions that we do. While it is not the only

component of our success, it is becoming a larger percentage. Consumers want products on the shelves quicker and faster. As soon

as they see it on TV, they want it in the store. Information about

products, about the health aspects of the product, we do not have

access to that information in a timely enough manner. We had a

conversation the other day, and there are areas just outside of Paw

Paw that are still on third-party lines. You pick up a phone and

you have to listen to somebody else’s conversation.

Chairman THUNE. You want to hear your mother-in-law.

Mr. IMUS. Exactly. I am not sure how to address that issue, I

don’t know, because it is a very big issue. A lot of our penetration

23

with our Website, I think, is the lack of the ability of the consumers to access the Internet. You can get a 56k modem off the

shelf for 20 bucks, but even the quality of the telecommunications

in our area is so bad that these modems automatically adjust down

speedwise for quality. So I have a 56k modem, but I am only going

to access the Internet at 14.4, and that is the best I can do, and

that is just completely unacceptable.

Chairman THUNE. Hopefully next week we will get some suggestions, too. We will bring in some broadband providers to talk to

about what we can do to drop those barriers. I appreciate very

much your testimony this afternoon and your responses to the

questions, and we hope this will help us build a record upon which

to hopefully formulate some decisions.

Thank you, and, Mr. Chairman, I yield back.

Chairman PENCE. Thank you, Chairman Thune, and the Chair

with now recognize the gentleman from New Mexico, the Ranking

Member of Mr. Thune’s Subcommittee Mr. Udall.

Mr. UDALL. Thank you, Chairman Pence. I want to, first of all,

thank the panel and tell them how much we appreciate their presence and for the excellent questions of both of the Chairmen here

exploring this very important area.

It seems to me we are at a point where—and I guess, Mr.

Linkous, you talked about it a little bit—other places like Helsinki,

Finland say every home should be broadband-wired. Canada has

made a commitment. Other places in the world are making these

kind of commitments and doing these things, and the challenge for

us rural areas is how we figure out to do that as quickly as possible. And when we faced that challenge in terms of moving goods

and moving materials a generation ago, we invested heavily in an

interstate highway system. And Congress right now is considering

when it comes to broadband looking at legislation to increase

broadband access to rural areas. Much of this legislation would cost

2-, $3 billion over 5 years, major commitment of resources.

This question is really addressed to all of you on the panel. As

taxpayers, do you believe it is a good idea for Congress to focus on

this investment at this type of level?

Mr. LINKOUS. I will take a little stab at that. In looking at what

is needed in the suggestions I have from the national commission,

I don’t think I had envisioned or the association envisions the Federal Government paying for every last mile of wire that goes out

there. However, there is a lot of incentives that Congress and the

United States can use to make sure that that technology is out

there as well as looking at the use of alternative technologies, because you have to look at what the advancements have been for

wireless applications right now. We are not always talking about

wireline applications going to every home, but it certainly seems to

me that if we are looking at what is increasingly—what I see as

a competitive issue, an issue of the U.S.’s position in the world, in

a competitive marketplace, then it probably does justify some investment of taxpayer dollars.

Mr. UDALL. When you have say incentives, we are talking about

using the Tax Code. We are using taxpayer dollars in a little different way.

Any other panelists’ thoughts on it?

24

Ms. STARK. It seems that there are two kinds of communities out

there right now. There are those communities served by high-speed

broadband, or will be soon, and those are communities, primarily

urban, suburban or rural areas right outside of metropolitan areas,

where the market forces exist, where the demand for such services

exist. And either the large RBOC’s (Regional Bell Operating Companies) will provide that service, or it will be large cable, or it will

be small telephone companies, co-ops, small cable companies.

But there are a whole other group of communities out there

where the market forces may not exist, and I think those are the

communities that we should be concerned about. And they are in

your States, absolutely, as well as in many other States. I think

those are the communities where we need to think about market

incentives or also just some provisions.

You know the very controversial issue now as to whether local

government, utilities can provide telecommunications services, and

that is being litigated back and forth right now. What other things

can we do, because I think the truth is—and we have seen this

over and over again in all the research we have ever done—in very

small, rural communities people make do with what they have. So

if there is a community college, there is a whole lot of economic development coming out of that community college. It may only be

two or three stakeholders, movers and shakers, whatever you want

to call them, that make things happen in that rural community.

People make do with what they have.

So I think we need to think about those communities that—sitting in situations where the conditions are such that there is not

a profit-making motive for companies to come in and provide

telecom, and those are the communities I am concerned with.

Mr. NOLLEY. I would like to comment also that using Chairman

Pence’s Rushville district, we have tried to penetrate that area

with broadband. It is in a different LATA. We are in the Ameritech

territory. Rushville happens to be in the Verizon territory. A lot of

businesses in Rushville, they can not even get ISDN service, and

I think someone mentioned earlier that is kind of an outdated service. We have had a lot of trouble with the tariffs involved when you

cross LATAs in getting broadband over there. Verizon’s explanation

is they don’t feel like investing in Rushville because they do not

know if it will be profitable. But for a small business—say the ISP

had the incentive to do something like that, as a small business it

would be profitable for them. So I feel that investment would work.

Mr. REICH. I have a feeling that the Federal Government still

is—granted the public sector is going to have something to do with

this, but somewhere along the line if we are going to get out there

and build an interstate highway system with broadband technology, which to me is totally realistic, it needs to happen in our

country in the next 10 to 15 years for sure.

I still think the Federal Government has to play a role in putting

together the networks. If we want to build an ultimate network

someday where we can all talk to each other and everything works

out, I think if we get everybody going in different directions, too,

all these providers going in different directions, we might have affordability problems, and we will not communicate well with the

other side. So I think there will have to be some leadership that

25

will come from Congress or somewhere to keep everything intertwined, very comparable to what the interstate highway system is.

That is a very good analogy.

Mr. UDALL. Mr. Imus.

Mr. IMUS. I am just very concerned about the competitive nature

of our industry. We are a dying breed, small single-store retailer,

market, hardware. We are impacted by the megachains, and any

kind of regulatory issues that come to us are very impactful on our

whole business. So I don’t really have that much more to add to

that.

Mr. UDALL. Great. Thank you. Thank you for your answers.

Two of you talked about the use of technology and how you can

use this technology in the area of medicine, for example—a radiologist looking at tests over a long distance for medical purposes. Can

you think of other examples, either, I guess, Mr. Reich or Mr.

Linkous, of other specialties that are also utilized? Are we really

opening it up to rural areas which will have a real difficulty getting

specialists in many cases, that all the specialists out there will be

able to be plugged in this way?

Mr. LINKOUS. I would say there is probably not a medical specialty around that is not involved in some way in telemedicine. Our

membership has, I would say off the top of my head, 40 or so specialties and subspecialties represented by the memberships. And I

am sure that Avera has many different types of applications.

Mr. REICH. I agree, there is an application, if it is follow-ups,

whatever, there is a value to them. And we are working on right

now a diabetes education project. We have a tremendous need for

diabetes education. We feel like we can save people a lot of travel

by conducting diabetes education consults, using videoconferencing

technology, critical for an aging population like we have in South

Dakota. There is no physician involved. This is talking to diabetics

and their families. There are a lot of other things going on for services, other services provided other than just the medical specialists.

Mr. UDALL. Now, when you talk about being able to take a medical record like an X-ray or any other record that we have just

talked about and utilizing that in another place and transferring

it across these lines, it raises a whole other issue that we hear a

lot about from our constituents, which is this whole issue of privacy

and how do you deal with the privacy issue. How do you protect

a patient’s privacy moving that kind of information around? Have

you run into any problems? Is there another problem there? What

would you tell a patient that is going to have to have this kind of

thing happen to them? And, of course, the advantages you have

outlined, are there any disadvantages in terms of privacy?

Mr. REICH. I would say there is some education involved, but,

boy, we really haven’t had any. It would be just like if a patient

came to our facility, we conduct a consult the same way. It is the

same thing except it is a face-to-face video conversation. Everything is conducted the same way, the same confidentiality. I think

there is no difference. We would like to mimic as much as we can

what a patient would go through seeing a specialist if they traveled

2 hours to our facility and traveled 2 hours home.

But to answer your question, for sure it is an issue. Absolutely.

And in health care it is a big-time issue right now. But I am very

26

conscious of that, and that is maybe one of our number one concerns when we work on the telemedicine application is that we

need to make sure we protect the patient’s privacy.

Mr. LINKOUS. I will add to that every telemedicine application,

every program has in place guidelines and use of encryptions, as

well as specialty clinical requirements regarding privacy of patients’ records, as well as the protection of the images themselves

that are transmitted. I agree it is a very important issue, and it

is a very important issue throughout the country on patient privacy

and electronic medical records.

I think it is important to point out that probably anybody in this

room can put on a white lab coat and go into many medical centers

right now and collect a number of patient records and walk out

with it. So it is not limited to the fact that there is electronic

records right now available, it is throughout the country in terms

of patient records.

Mr. IMUS. Mr. Udall, if I might comment on that. As I mentioned

before, we have a database of all our customers’ transactions for

the last 6 years, and privacy has become a very big issue for us,

and we try to protect that. As you know, medical histories are very

important as is personal shopping, grocery shopping is very personal to the consumer herself.

I had a call from an attorney who wanted to subpoena my record

for this consumer in a divorce case, and I have told them, no, that

I would not let the record go. And he said, I am going to subpoena

you. And I said, that is fine, you may subpoena me, and still won’t

provide the record. And he said, well, you will be in contempt of

court, and you can serve jail time and have a severe fine. And I

said, you do not seem to understand. First of all, this is Paw Paw,

Michigan. The judge and everybody in the jury are going to be

shopping in my store. The second is that the protection of the consumer is so private that it takes each of us as individuals that are

guarding that data, we have taken on that onus of having to do

that to the best of our extent in protecting that.

That happens all the time. Hackers get in there. Kids are smarter than we are when it comes to this type of technology. Yet it still

is very important for us to take that upon ourselves to protect that

data so it will not become public record.

Mr. UDALL. Do any of you have any idea how much medical centers or hospitals have to spend annually to upgrade systems to protect privacy?

Mr. REICH. I wouldn’t have any firm numbers, Congressman, but

it is astronomical. It is a huge issue. We have that all the time.

We are trying to meet these new regs that are coming, and I deal

with this in education as well as telehealth, and I have people

clamoring for information about what we need to do, and it is costing us. It is going to cost the health care industry millions of dollars to adhere to some of these regulations, and, you know, we are

trying to—there are a lot of reimbursement questions, and now you

have to deal with these kind of issues. No firm number, but it is

a big one.

Mr. UDALL. When you say regs, you are referring to the HIPAA

regulations that Secretary Thompson has under review?

Mr. REICH. Yes.

27

Mr. UDALL. Okay.

Mr. LINKOUS. Certainly we hear from our members fear of

HIPAA, particularly rural hospitals and rural clinics, those institutions that are operating on the margin already, as to what HIPAA

is going to do to them in terms of costs. There is a lot of rumors

and scared talk right now. There is hope when it finally comes

down and we see the black and white of what is going to be required to be implemented, it will not be as bad as what we feared,

but there is a lot of concern that implementations of HIPAA regulations will, frankly, put some medical centers out of business.

Mr. UDALL. And you all know that Secretary Thompson has said

that he has opened this up for comment, and clearly anybody that

is interested here ought to give him specific examples of what

needs to be changed, because just like you were saying, I was very

encouraged with his guidelines and principles that he was going to

try to follow. He is going to try to protect privacy, yet at the same

time try not to hinder the operation and—the operation with a patient and her quality of care. So we really need to find that right

balance.

Once again, let me thank the panelists and thank the two Chairmen, Chairman Pence and Chairman Thune, for your very strong

interest on this issue and your commitment to get to the bottom

of this and really do something about it. Thank you very much.

Chairman PENCE. The Chair thanks the gentleman from New

Mexico, the Ranking Member, for his very thoughtful questions and

kind remarks.

The Chair would also recognize for any questions she might have

the gentlelady from Ohio Ms. Tubbs Jones.

Mrs. JONES. Thank you. I don’t serve on this Subcommittee, and

I was sitting here trying to figure out how I got here, and I told

my staff member I was trying to be up on broadband. So she put

this on my schedule, and I am glad I got here.

I come from the rural community of Cleveland, Ohio. Very interesting, my hair stylist, a small businessman, and I have lots of conversations, and he said to me, you know, I am having a problem

getting the type of phone lines I want in the city of East Cleveland

to do the high-speed, the whole business. And I said, Mr. Black—

that’s his name—not in East Cleveland. He said, apparently it is

not lucrative for them to come and wire this little suburb of East

Cleveland.

And I say this seriously and jokingly, but also I want to add that

my colleague Eva Clayton from the great State of North Carolina

said to me—I said, I am going by this, are you interested, and she

said, yes, and go read this letter. I won’t read the whole letter, but

in essence what she says, when we talk about rural communities,

we have tend to talk about farming, but more importantly rural

communities need a lot of different things, and I will read one

paragraph. She says, however, in spite of the many challenges facing rural America, the response of the United States Government

has been a piecemeal combination of policies. While we devote resources to individual problems facing our rural communities, such

as housing, there is a lack of an integrated policy that seeks to address the entire rich fabric of rural America. Included in that she

is talking about infrastructure, broadband and the like.

28

So on behalf of my friends that come from rural communities, I

am glad I had an opportunity to hear what you had to say. I am

enlightened more than I was previously. I have absolutely have no

questions, but I thank you for coming here, and I thank the Chair

and Ranking Member.

One more thing I will say, I did have a chance to visit Mr.

Udall’s community with President Clinton 2 years ago, and we

were discussing this very issue, the digital divide, and had a

chance to travel up to the Navajo Nation, and it took us an Army

helicopter and another helicopter to get there. So I recognize the

distance and the divide that comes as a result of being in rural

America. And thank you, Mr. Chairman, for the community, to be

here.

Chairman PENCE. Well, the Chair thanks the gentlelady from

Ohio and welcomes her as an ex officio member of these joint hearings at any time in the future. I appreciate your energy, your enthusiasm and encouragement to these outstanding witnesses.

I will ask as a courtesy of Chairman Thune for Mr. Udall are

there any additional questions of the panel?

Chairman THUNE. I think we have probably covered all the

bases, Mr. Chairman, and would invite Ms. Tubbs Jones to South

Dakota, too. There are places you can’t get to with a helicopter. I

am just kidding. But I appreciate the fact that we have Members

from the more populated area of the country who feel our pain, so

to speak, because these rural areas are very, very difficult, challenging when it comes to getting some of the same basic service

that a lot of our brethren in the bigger cities expect.

I appreciate your participation, and I appreciate the panel’s testimony today, and we will look forward to developing this issue further. Thank you, Mr. Chairman.

Chairman PENCE. Mr. Udall, any additional questions or comments?

Mr. UDALL. No. I would just like to say that on that trip she

talked about out to Shiprock, New Mexico, I know that Congressman Thune has many areas like that in South Dakota, many of

these tribal areas and reservations. They have a hard time getting

phone service, sometimes getting electricity service. So we have a

real challenge there, and I think sometimes we may need to look

at those in a little different way than we look at some of the other

rural problems that are out there, but clearly everybody is in the

same boat on this. We need that kind of broadband access, and

thank you once again.

Chairman PENCE. With that, the Chair would like to thank our

witnesses, Mr. Reich and Mr. Imus, Mr. Linkous, Ms. Stark and

Mr. Nolley of Indiana. We thank you for all traveling, in some

cases far distances, and in other cases bringing tremendous acumen and background to what will be the first in a series of joint

hearings of the Subcommittee on Rural Enterprises, Agriculture

and Technology and the Subcommittee on Regulatory Reform and

Oversight of Small Business. And I think I speak for Chairman

Thune when I say that it is my sincere hope that the remainder

of our hearings will be as illuminating and as interesting and as

well presented as this panel has provided in this hearing.

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With that, this joint hearing is adjourned. I thank you.

[Whereupon, at 3:47 p.m., the subcommittees were adjourned.]

(31)

ELIMINATING THE DIGITAL DIVIDE: WHO

WILL WIRE RURAL AMERICA?

Thursday, May 24, 2001

HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON REGULATORY REFORM AND OVERSIGHT, AND SUBCOMMITTEE

ON RURAL ENTERPRISES, AGRICULTURE AND TECHNOLOGY COMMITTEE ON SMALL BUSINESS,

Washington, DC.

The subcommittee met, pursuant to call, 10:06 a.m. in Room

2360 Rayburn House Office Building, Hon. Mike Pence and Hon.

John Thune [chairmen of the subcommittees] presiding.

Mr. THUNE. This joint hearing will come to order.

Good morning. It is my pleasure to welcome you this morning to

the joint hearing between the Subcommittee on Rural Enterprises,

Agriculture, and Technology, and the Subcommittee on Regulatory

Reform and Oversight chaired by my colleague from Indiana, Mike

Pence.

I would especially like to thank those of you who have traveled

over a long distance to participate in this hearing today.

Today’s hearing is the second of two which are focusing on the

issue of broadband telecommunications access in rural America.

This morning we plan to examine how we can connect rural America to ensure it is not left out of the Internet revolution.

Here to discuss this challenge with us today are five witnesses

representing a broad array of telecommunications companies. The

committee will hear from Sulley Buttes Telephone Cooperative

from my home state of South Dakota; from New Edge Networks;

Armstrong Cable Company; Western Wireless Corporation; and

Hughes Network Systems. These companies range in size from

large corporations to small local businesses and utilize very different technologies but they all have one goal in mind, and that is

to provide broadband access to rural America.

We heard at last weeks’ hearing that one of the biggest obstacles

to rural broadband access is affordability. Because of the sheer cost

of new technology and the associated access costs, the vast majority

of small business owners find themselves unable to obtain services

that other parts of the country take for granted. So when faced

with the question of how to provide high speed connections to all

Americans, those of us who represent rural areas understand how

important the information highway is to the future prosperity of

our constituents.

Just as the national highway system has been crucial to the economic prosperity of rural America during the last century,

32

broadband Internet technology will be equally important this century.

Small business owners in rural America are becoming increasingly aware of the importance of broadband access to the future viability of their businesses. To continue to serve their communities

and remain competitive with large companies, small business owners must have reliable and affordable high speed Internet access.

Congress is looking at different solutions to the problems of access and affordability. One promising bill, H.R. 267, the Broadband

Internet Access Act of 2001, has been introduced by Representative

Phil English from Pennsylvania. The bill uses tax credits as incentives for companies who are interested in providing broadband access in rural and low income areas. As a cosponsor of this legislation, I believe H.R. 267 uses a balanced approach to federal tax dollars and free market solutions to reach our goal of broadband access for all Americans.

I again want to thank all of our witnesses for participating in today’s hearing, and I look forward to hearing your testimony. At

this point I would like to yield to the chairman of the other subcommittee, my colleague from Indiana, Mike Pence for an opening

statement.

Mr. PENCE. Thank you, Mr. Chairman.

I thank you for agreeing to co-chair these very important and

timely hearings.

Our hearing held jointly today with my good friend from South

Dakota’s Subcommittee on Rural Enterprises, Agriculture and

Technology addresses the rise of the new economy and the technology needed to ensure that rural areas can share in the global

business opportunities that arise from the continuing penetration

of the Internet.

This is the third in a series of hearings that the Subcommittee

on Regulatory Reform and Oversight has held on the Internetbased economy. Last weeks’ hearing, as the Chairman indicated, focused on the so-called digital divide—the lack of high speed or

broadband access to the Internet currently plaguing rural small

communities. Today’s hearing examines the various technologies

for eliminating the digital divide, be it cable, satellite, DSL, fiberoptic, or wireless. The businesses testifying today have decided that

it makes good business sense to provide broadband to rural areas,

and I look forward to a very informative session from all of our witnesses.

Again, I would like to thank the gentleman from South Dakota,

Chairman Thune, for agreeing to co-chair these hearings and also

would like to acknowledge the ranking member of our subcommittee the gentleman from Pennsylvania, Mr. Robert Brady,

who joins us and who while from a very large city, Philadelphia,

still is demonstrating a genuine commitment to seeing to it that

the opportunities that are available over the Internet are available

to all Americans. I thank you for your interest and participation.

The evidence of the digital divide is pretty clear. While urban

areas get broadband access, rural areas are left behind. A relevant

illustration is that today’s hearing is being carried live by Hearings.Com on the worldwide web. That is accessible in most major

metropolitan areas, as our discussion will be today, but is not acVerDate 11-MAY-2000 13:48 Oct 03, 2001 Jkt 000000 PO 00000 Frm 00036 Fmt 6601 Sfmt 6602 C:\DISC\73403 ATX007 PsN: ATX007
33

cessible to adults or to students in rural America that might be

even more interested in our discussion today.

As the Federal Communications Commission noted in August of

2000 in their report on deployment of broadband services, ‘‘Consumers in Los Angeles County have a rich variety of choices of advanced services while there are no providers of advanced services

for residents of rural West Virginia.’’ Given the benefits of broadband service and the importance it

can play in maintaining the vitality of America’s rural communities, that disparity must change. Inroads are being made to reduce this disparity as the witnesses at today’s hearing will demonstrate. More investment will be required as the National Exchange Carrier Association estimates that it may cost as much as

$11 billion to make telephone lines in rural America broadband capable.

My primary concern is that the investment will not occur quickly

enough to stimulate the economies of rural America, and of Indiana

particularly. The only favorite I seek to play in the debate over

broadband is to ensure that businesses in rural America have the

same access to advanced telecommunication services that are available in Los Angeles, New York, and Washington, D.C. and Philadelphia. I have no preference concerning technology or providers.

All I am interested in is making sure the government gets out of

the way or otherwise adopts policies that ensure that all businesses

interested in serving rural America have that opportunity.

I look forward to the testimony from the witnesses and the problems that they see in delivering broadband to rural America. The

businesses at today’s hearing represent the entire spectrum of technologies for delivering broadband access. We will hear from a company that provides satellite service, a cable operator focusing on

serving rural America, two competitive local exchange carriers that

started to serve rural America after the enactment of the Telecommunications Act of 1996, and a very small telephone cooperative that serves rural South Dakota.

Conspicuously absent today are the largest incumbent telephone

companies serving rural Indiana, South Dakota and rural New

Mexico. Let the record show that invitations were extended so the

joint subcommittee members could inquire about these companies’

plans for broadband deployment in rural areas. The invitations

were turned down due to the press of business. I might note that

a number of the small businesses represented here today were able

to attend even though they clearly do not have the resources or the

flexibility of the companies that did not wish to participate. I know

that I am disappointed in not being able to create a full and complete record on the potential providers of broadband service for

rural America and the problems they face in eliminating the digital

divide as I am sure all of my colleagues on this panel are as well.

Again, let me thank the gentleman from South Dakota for agreeing to co-chair this hearing. I look forward to working with him

and other members interested in addressing the critical need for

telecommunications infrastructure in rural America.

I thank you, Mr. Chairman.

Mr. THUNE. I thank the gentleman from Indiana for his statement, for his leadership on this issue.

34

We are joined by the ranking members of the two subcommittees,

and I would first like to yield to the gentleman from the great state

of New Mexico, the ranking member on the Subcommittee on Rural

Enterprises, Agriculture and Technology, Mr. Tom Udall.

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

Chairman Thune, Chairman Pence, and ranking member Brady,

I also find it particularly discouraging that Qwest would not attend

today and come and tell us about their plans to expand into rural

areas of New Mexico, and I think all of us feel the same way on

that.

I am pleased to be here today for the second joint subcommittee

hearing to examine the impact of broadband telecommunication

services on small business in rural areas. All of us recognize that

the Internet has revolutionized the way people communicate, students learn, and the way in which business is conducted in America and throughout the world. However the fact of the matter is

that while just about every apartment and city school and suburban home are wired and connected with high speed Internet access,

there are many people in America who have not benefitted from

this technological revolution either because service is too costly or

non-existent.

This is especially the case in rural areas where the Internet

along with high speed access remains just a concept, not a real tool

as it is in more urban areas.

The Internet possesses limitless potential to bring technology, information and jobs to our rural communities. In my state our small

business communities accounted for nearly 90 percent of all net

new jobs last year. High speed Internet access must be an essential

and basic service that all Americans are entitled to. I believe that

Internet access must become a basic service everywhere for every

American.

Yesterday Qwest announced that broadband Internet access will

be coming to parts of rural New Mexico. Two of the four cities

where digital subscriber line equipment, otherwise known as DSL,

will be installed are located in my district. In addition to New Mexico, Qwest will expand its DSL service in 10 other western states.

Even though communities I represent are not like Los Angeles or

Phoenix, they are significantly populated and personally it is astonishing to me that this service was not offered earlier.

Many areas of my district remain technologically isolated and

some of my constituents face the threat of never acquiring the computer skills that we have come to consider basic and essential in

today’s technological economy.

One piece of legislation which I believe will assist in the deployment of broadband to rural areas such as in my district is H.R.

267, the Broadband Internet Access Act of 2001 which is designed

to offer incentives for deployment of broadband service to rural and

low income areas. I have joined Chairman Thune, Congressman

Bartlett, Congresswoman Christensen, and 149 other members

from both sides of the aisle in co-sponsoring this legislation. The

broad support for this legislation is an indication that Congress is

committed to seeing the deployment of high speed and affordable

Internet access that will reach all Americans.

35

I hope that you share our concern and that we can work today

towards greater understanding and a common goal.

Thank you, Mr. Chairman. I look forward to hearing from our

panel today.

Mr. THUNE. I thank the gentleman, and I would at this point

yield to the distinguished ranking member of the Subcommittee on

Regulatory Reform and Oversight, Mr. Brady, from the state of

Pennsylvania.

Mr. BRADY. Thank you, Mr. Chairman.

I represent urban districts. I do not always get the chance to

hear the concerns of rural areas in obtaining Internet access. I am

very happy to have this opportunity to hear these concerns and

offer my support for the rural communities in their endeavors to

gain broadband access. Because broadband technology has the potential to transform the Internet, there has been a great deal of debate in Congress on how to ensure timely deployment, fair competition and service to all sectors and geographical locations of America.

I look forward to learning more about these issues. And just to

let you know, South Dakota, Indiana, New Mexico, Philadelphia.

[Laughter.]

It sounds strange, but I thank the two chairmen and my ranking

member also, my dear friend from New Mexico for allowing this

city slicker here to learn a little bit more about the rural areas and

to pledge my support to you.

Thank you.

Mr. THUNE. And I want to thank the gentleman for his hospitality last summer. We were in your fine city of Philadelphia for

a national convention. I did not see you at a lot of those events,

but we enjoyed the greatest hospitality of your district.

Mr. BRADY. I was in so much seclusion.

Mr. THUNE. Okay.

We have been joined also by a gentleman from Illinois. Mr.

Phelps, welcome to the committee.

Mr. Baird from the state of Washington has joined us, and I believe he is here to introduce the witness from New Edge Networks.

Do you want to make an opening statement?

Mr. BAIRD. I can do that now, Mr. Chairman, or when—— Mr. THUNE. Do you want to get a minute to catch your breath?

We can catch up with you.

Mr. BAIRD. Sure.

Mr. THUNE. Terrific. Good.

Before we begin receiving testimony from the witnesses I do

want to remind everyone that we would like to keep each of the

witnesses, to keep their oral testimony to five minutes. Your written statement will be included in the record.

In front of you on the table you will see an array of lights. Green,

red, and yellow, which I guess is fairly self explanatory. But when

the red light is on, the committee would like to have you, if you

could, wrap up your testimony. But there are no trap doors there.

If you are not finished by then we will not—— [Laughter.]

But without further delay—And I might add, too, that we are

scheduled to have a vote on the journal here at some point in the

36

very near future. So we will get underway but we may have to

break just to make you aware of that.

So without further delay I am going to introduce our first witness. That is Mr. Michael Cook of Hughes Network Systems. He

is the Vice President and General Manager of the Spaceway Business Group of Hughes Network Systems. In this role he is responsible for the establishment and operation of the new Hughes

Spaceway Broadband Satellite System. Mr. Cook has more than 20

years experience in telecommunications, having worked previously

for cable and wireless and Alcatel Business Systems. Mr. Cook

holds a first class or honors Bachelor of Science degree in Mathematics from Exeter University.

Mr. Cook, if you would please proceed.

STATEMENT OF MICHAEL L. COOK, VICE PRESIDENT AND

GENERAL MANAGER, SPACEWAY AND HUGHES NETWORK

SYSTEMS, BETHESDA, MD

Mr. COOK. Thank you very much. Good morning.

I am Vice President of Hughes Network Systems and General

Manager of Spaceway. Spaceway is Hughes’ next generation

broadband satellite system, and that is going to provide broadband

service coverage to the whole of the United States including Alaska, Hawaii, South Dakota, Indiana, New Mexico, Illinois, Washington State, and of course Pennsylvania.

I would like to thank the committee for the opportunity to speak

to you today and to commend the members of both committees for

reviewing the issue.

In the satellite industry we are inspired by the prospects and

promises of broadband service, but at the same time we are deeply

frustrated with the apparent lack of awareness of the critical role

that satellites will play in the provision of advanced broadband

services—particularly to small businesses and consumers in rural

areas.

We hope the Congress in drafting legislation to support the deployment of broadband and in reviewing the FCC allocation of

spectrum will take into account and support this essential role that

satellites will play both in the provision of broadband service and

indeed in the competitive landscape across the whole of the country. I am going to come back to those two issues in a few moments.

Firstly, I would like to review the role that Hughes Network Systems, or HNS as I will probably refer to it, is playing in providing

high speed communications. HNS was a pioneer in the very small

aperture terminal VSAT industry which is the provision of satellite

delivered data communications services using small dishes.

H.N.S. was also the first to offer true broadband service over satellites when it introduced its direct PC service in 1996.

Today HNS provides broadband satellite services to approximately 300,000 consumers and businesses in the United States

through its DirecPC and DirecWay services using today’s operational Ku-band satellites.

What is more important than that is that we continue to invest

heavily to significantly advance the technology and service quality.

HNS’ efforts have led to significant price reductions in both equipVerDate 11-MAY-2000 13:48 Oct 03, 2001 Jkt 000000 PO 00000 Frm 00040 Fmt 6601 Sfmt 6602 C:\DISC\73403 ATX007 PsN: ATX007
37

ment and services while simultaneously increasing the power and

the effectiveness of these systems.

Historically small business has been underserved by terrestrial

broadband service providers. HNS considers that small businesses

are one of the most important components of our future broadband

services. In fact we already provide satellite broadband services nationwide to thousands of small businesses through DirecPC and

DirecWay.

Using current satellite technology we are involved today in a

number of initiatives that are aimed specifically at serving the

small business community. These initiatives are things like on-line

livestock auctions, streaming video and Internet content to familyowned businesses, data multicasting, remote worker training, and

briefing such as for the health care, financial, agricultural and insurance industries.

In the not too distant future small businesses, no matter where

they are located geographically, will require broadband access. Not

merely to be more competitive, but in order to survive.

As part of our dedication to the continuing development of ad- vanced broadband services, we have committed $1.5 billion for the

U.S. portion of a new, advanced, broadband satellite system called

Spaceway.

When it is fully deployed Spaceway will consist of a global network of geostationary satellites offering broadband service in the

new Ka-band frequency spectrum. Three satellites will be dedicated

to serving North America with launches beginning at the end of

next year.

Spaceway satellites are quite unlike any that exist today. The

satellites have roughly five to ten times more capacity and will be

capable of much higher data, voice and video communication

speeds than today’s Ku-band systems.

Spaceway satellites will be capable of transmitting data at over

400 megabits per second, and with custom software and equipment

individual Spaceway users will receive services individual services

at downlink speeds of 30 megabits per second or 30,000 kilobits per

second to each terminal.

This downlink speed is about 1,000 times faster than the speeds

available today on a typical telephone modem, and depending on

the particular terminal chosen, users will be able to send data up

to the satellite at speeds from 512 kilobits per second to 16 megabits per second.

Spaceway is perfectly designed to meet the burgeoning demands

of small businesses everywhere, and using standard Internet protocols from low cost satellite terminals, its data rates will support

high speed Internet access, high quality full motion

videoconferences for businesses and residential applications, and

point to point applications of streaming and large amounts of data.

In the Spaceway world there will be no have’s and no have not’s.

There will be no differences between rural and urban communities’

access to broadband. And with broadband satellite solutions there

is no digital divide.

One key issue has been spectrum allocation. In order to provide

a high quality service, Spaceway needs clear spectrum that is not

simultaneously used by terrestrial services. In our view, the FCC,

38

which has the primary responsibility for allocating spectrum, has

sometimes placed a higher priority on short term terrestrial deployment rather than on long term provision of competitive satellite

services. As a result, broadband satellite systems operating in the

Ka-band such as Spaceway, have not been allocated sufficient spectrum to operate as efficiently and effectively as possible.

We would like to encourage the committee to examine the crucial

role of spectrum allocation and the most effective way it can be

used to serve small businesses and underserved communities, particularly in rural areas.

Secondly, there are a number of bills before Congress, and we

have talked about some of them already, that would offer tax and

other incentives to companies to build out their broadband infrastructure to rural areas. We believe it is essential that any legislation enacted by Congress be truly technology neutral and recognize

the needs of users throughout the country.

Unfortunately, we sometimes find that proposals do not take into

account the unique characteristics of broadband satellite technology, but instead tend to favor terrestrial technologies. We believe that that will be counterproductive since it will diminish the

potential availability of broadband services in rural areas by discouraging the most promising solution for these areas.

In conclusion, I would like to say very clearly that through the

development of interactive broadband satellite technology, Hughes

is eliminating the digital divide. With the services we are deploying

today—DirecPC and DirecWay—and with the significantly enhanced capabilities we will have when we deploy Spaceway at the

end of next year, small businesses, wherever they are, will be within easy reach of the broadband universe without service discrimination, and very particularly, without financial disadvantage.

I would like to thank the subcommittee members for your time

this morning, and I will be delighted to answer any questions that

you have on the subject.

[Mr. Cook’s statement may be found in appendix.]

Mr. THUNE. Thank you, Mr. Cook.

Next we will move to Thorpe ‘‘Chip’’ Kelly with Western Wireless

Corporation. He is the Senior Vice President for Sales and Marketing for Western Wireless in Bellevue, Washington. Mr. Kelly

started as General Manager in 1989, working for predecessor entities of Western Wireless including Stanton Communications and

Pacific Northwest Cellular. Over the years he has held a variety of

positions in sales and marketing for the company.

Mr. Kelly, please proceed.

STATEMENT OF MR. THORPE ‘‘CHIP’’ KELLY, SR. V.P. FOR

SALES AND MARKETING WESTERN WIRELESS CORP., SEATTLE, WA

Mr. KELLY. Thank you very much.

Good morning Congressman Thune, Congressman Pence, and

members of the subcommittees. I commend you and your colleagues

for highlighting the advanced telecommunication needs of rural

America.

My company, Western Wireless, successfully provides wireless

telephone services in areas of the country long neglected by others.

39

The company serves customers in 19 western states with a state

of the art network infrastructure capable of providing both basic

and advanced telecommunications services for rural businesses and

residential customers. Our system covers 800,000 square miles

which is 30 percent of the continental United States, and our average population density in our markets is 11 people per square mile.

For Congressman Brady, that would be probably the area of

Philadelphia with about 500 people in it. So it is rural.

Our mission statement is that we endeavor to be the premier

communications provider to rural America.

About seven years ago we began providing wireless local loop

service to small businesses and residential customers in a remote

area of Nevada that had never been served by local telephone companies before. In the last year we have launched competitive wireless local loop service in more than 70 rural communities in Minnesota, Kansas, Texas, and South Dakota.

In South Dakota, for example, we are providing wireless service

on the Pine Ridge Indian Reservation, which as Congressman

Thune knows all too well, is a remote and depressed area. For almost half of our tribal customers we provided their first ever telephone service.

Many have questioned the viability of cellular telephone service

in rural America, and now it is widely recognized that wireless

service holds the key to the availability of advanced telecommunications services in rural America.

The centerpiece of Western’s three year old effort to bring the

benefits of competition to the local telephone market in rural America is our petitions, pursuant with federal law, for designation as

eligible telecommunications carrier status or ETC. Western Wireless has been designated as an ETC in 12 states.

Despite national policy to the contrary, rural areas have in many

cases been effectively excluded from the benefits of the competitive

telecommunications market because of incumbent local telephone

companies which have historically monopolized the access to universal service support necessary to provide affordable telecommunications in these rural and high cost areas.

For example, the cost of providing telephone service in many

rural areas exceeds $100 per line per month, and yet consumers

pay as little as $10 or less per month with the Universal Service

Fund making up the bulk of the difference.

Clearly, a competitive carrier that does not have access to Universal Service Funds would not choose to enter that local market

and compete with incumbent carriers who do have universal service support.

The Telecommunications Act of 1996 was supposed to eliminate

the historical barriers to local competition in rural areas by requiring the FCC and state commissions to open the universal service

market to competitive entry. Five years have now passed since the

passage of this Act and rural consumers are still waiting for the

promised benefits.

The problem is that the FCC and state commissions have not

completed the transition to a competitive universal service system,

which I believe is critical to competitive entry in rural markets and

to the closing of the digital divide in rural America.

40

Western’s entry into the universal service market allows us to

serve the basic and the advanced communications needs of our

rural customers.

In December, Western successfully demonstrated the capabilities

of next generation wireless digital technology in a trial in Windom,

Minnesota where speeds of 153 kilobits per second were received

over wireless local loops. And Western is now in the process of deploying this technology into its network and will commercially

launch high speed data services later this year.

Further, as third generation wireless technology becomes widely

available in 2002, data rates of more than 600 kilobits per second

will be supportive.

In order to resolve the digital divide the government must take

steps to reform current universal service support mechanisms so

that competitive carriers and incumbent carriers alike have access

to the same levels of support.

This means that implicit support mechanisms such as access

charges must be replaced with explicit portable universal service

funding mechanisms, and that explicit portable universal service

funds are established to provide support to carriers that serve

rural, high cost areas.

Second, the government must expeditiously grant competitive

carriers ETC status and prevent incumbent carriers from delaying

and preventing competitive entry into the global market.

For the past three years, incumbent local exchange carriers have

engaged in anti-competitive tactics aimed at delaying or preventing

Western from entering the local market. One incumbent local exchange carrier in North Dakota went as far as to cut off Western

Wireless’ interconnection to the public telephone network. A court

order ultimately ordered the incumbent telephone company to restore service and pay damages.

In conclusion, competition holds the key to the deployment of advanced telecommunications services in rural America.

The federal government should foster competition by establishing

a competitive universal service system and by taking enforcement

actions against anti-competitive behavior by incumbent carriers.

The government should also end the limitations on spectrum aggregation by crafting a comprehensive spectrum allocation policy,

and these two points are elaborated upon in my written statement.

Thank you, Mr. Chairman, and I am happy to answer questions

later.

[Mr. Kelly’s statement may be found in appendix.]

Mr. THUNE. Thank you, Mr. Kelly.

At this point I am going to yield to the gentleman from Washington, Mr. Baird, who would like to introduce his witness and I

believe any statement you would like to make, Mr. Baird.

Mr. BAIRD. Let me thank the Chairman for assembling this

panel. I think it is a critical topic particularly for areas such as

yours and mine where a number of rural areas do not have access

to high speed Internet.

Fortunately, however, companies such as those we are hearing

from today are making real progress in this area. One company

that has made particularly progress is a company located in Vancouver, Washington, New Edge Network.

41

With us today is Susan McAdams, the Vice President for Regulatory and Public Affairs. Ms. McAdams has more than 23 years of

experience in the telecom field. Before coming to New Edge she

worked for the Washington State Utilities and Transportation

Commission, the National League of Cities, the National Telecommunications and Information Administration of the Department of Commerce, and the North Carolina Task Force on Public

Telecommunications.

I want to thank Ms. McAdams for making the trip here to testify.

I believe we could not have a better person to talk about this issue.

Mr. THUNE. Thank you, Mr. Baird.

Ms. McAdams, please proceed.

STATEMENT OF SUSAN MCADAMS, V.P. FOR EXTERNAL AND

LEGAL AFFAIRS, NEW EDGE NETWORKS, VANCOUVER, WA

Ms. MCADAMS. Thank you very much, Mr. Chairman, members

of the committee, and Congressman Baird for that most gracious

introduction. Thank you very much.

I am especially pleased to have the opportunity to testify here

today because New Edge Networks is proud to in fact be bridging

the digital divide by bringing broadband communication services to

hometown USA. New Edge Networks is the largest national

broadband services provider focusing on small and mid-sized cities

and towns. We generally serve communities with population ranges

between 5,000 and 250,000. These include towns like Rapid City

and Sioux City, South Dakota; Bedford, Michigan City, Indiana;

Decatur, Illinois; Farmington, Santa Fe and Albuquerque, New

Mexico; and of course Battleground, Camas, Longview and Vancouver, Washington.

We were founded less than two years ago and believe that we are

in fact a success story of the 1996 Act. To date, New Edge Networks offers services, broadband Internet access services to customers in 400 smaller cities and towns in 29 states.

Today, gentlemen, there is a new economic revival in small town

USA and information is the driving force behind that revival.

Chairman Pence, Chairman Thune, and other members of this

committee have spoken eloquently about the vital role of

broadband in supporting small business development, and our marketplace experience bears this out.

Let me tell you about the comments of one small businessman,

Marcus Wilcox, whose company, Cascade Energy Engineering, is located in the small town of Walla Walla, Washington. He had this

to say. ‘‘Our engineering firm makes heavy use of the Internet from

e-mail to transferring large, computer-aided design files and

spreadsheets. With our choice to set up shop in a small, eastern

Washington town, slow Internet access was assumed to be a way

of life. When New Edge Networks and our Internet service provider, Blue Mountain Internet, offered us DSL, it seemed to be too

good to be true. Going to DSL actually saved us money.’’

A moment ago I referred to an information-powered economic revival in small town USA. Unfortunately, the revival tent in which

this miracle is taking place is currently listing in the wind and is

in danger of toppling over. Some proposals before this Congress, if

42

enacted, threaten continued competitive deployment of advanced

telecommunications services, especially in smaller markets.

The 1996 Telecommunications Act did something conceptually

very simple. It set in motion a framework for competition in the

telecommunications marketplace. The promise of the Act was to

bring further deployment, competitive prices, increased innovation,

and improved customer service to telecommunications markets

across the nation. To achieve these objectives Congress carefully

crafted the transition from monopoly to a competitive market structure. And central to this design is the requirement that new entrants be allowed to interconnect with traditional networks that

were financed over the last 100 years by monopoly rate payers.

In fact in only the few short years since the Act, competitive providers have produced astonishing results. Fifty-six billion dollars

invested since 1997 in new network infrastructure; 16 million access lines served by CLECs; 8200 central offices DSL-equipped;

500,000 DSL lines provided; and in fact today about half of Americans can access CLEC provided DSL.

What the committee is probably most interested in is what we

feel the Congress can do today to continue to address the issue of

broadband development in rural America. I suggest the following

in conclusion. Stay the course that Congress charged with the Telecommunications Act. Make monies available for targeted subsidies,

for further deployment in rural areas. Give the FCC stronger enforcement tools such as Chairman Michael Powell has requested.

Urge timely FCC action on pending petitions that would set clear

performance intervals and standards for loop provisioning by the

incumbent telephone company. Consider requiring full structural

separation of the major incumbent telephone companies into retail

and wholesale companies. And finally, send a clear message to Wall

Street that Congress continues to support the important pro-competitive policies of the ’96 Act.

Unlike some in the industry, we believe that the House Small

Business community has a critical stake in this debate, and that

is why I am here today. We applaud you for holding these hearings. We urge you to continue to monitor telecommunications developments. You are in a unique position to assure that any legislation before Congress empowers small businesses as full participants in today’s information economy.

Thank you very much.

[Ms. McAdams’ statement may be found in appendix.]

Mr. THUNE. Thank you, Ms. McAdams.

At this point we have a vote on, so members have gone. We are

going to keep rolling here, and they will come back and we will

turn it over.

But I would like to introduce, and I will take these out of order

if it is okay with the witnesses.

It is my pleasure to introduce Randy Houdek of Sulley Buttes

Telephone Cooperative in Highmore, South Dakota from my home

state. Mr. Houdek is a graduate of Northern State University of

Aberdeen, South Dakota and has been employed by Sulley Buttes

for 15 years, spending the last four years as General Manager. He

and his wife Deb are the proud parents of three boys—Derrick,

Carsten, and Hayden.

43

Sulley Buttes’ telephone is a small rural incumbent local exchange carrier that is owned by the members of the cooperative

and run by a board of directors elected by the membership and has

been serving customers for over 40 years in central and northeast

South Dakota. And I might add, has very much been on what I

would call the cutting edge of extending broadband service, DSL,

to a lot of small, rural communities across South Dakota.

So we are very delighted and pleased to have Randy with us

today. Thank you for coming to Washington. Please proceed.

STATEMENT OF RANDY HOUDEK, SULLEY BUTTES

TELEPHONE COOPERATIVE HIGHMORE, SD

Mr. HOUDEK. Thank you very much for allowing me this opportunity. I am honored.

Again, my name is Randy Houdek. I am the General Manager

of Sulley Buttes Telephone, SBCT, of Highmore, South Dakota.

Our system serves a substantial portion of central and northeast

South Dakota. We are a small local exchange carrier, an ILEC,

that is owned by the members of our rural communities.

Sulley Buttes currently is serving more than 13,600 customer in

rural areas of central and northeastern South Dakota. According to

the 2000 census, South Dakota has approximately 754,000 people

or roughly the same number of people as the city of San Francisco.

However, our population is disbursed over more than 77,000 square

miles with fewer than ten people per square mile. In areas served

by Sulley Buttes, we have fewer than two customers per mile of

line.

In contrast, the average customer density in the urban areas is

closer to 100 per mile of line. Several other incumbent carriers in

South Dakota have less than one customer per mile.

The U.S. Department of Health and Human Services classifies

more than 60 percent of South Dakota as not rural, but frontier.

Yet even in the face of these obstacles we have managed to grow

and thrive as a company thanks in part to the federal government’s

policy of universal service. This policy has brought basic telephone

service to rural locations like Highmore in the early parts of the

20th Century, and now the policy of universal service is helping

bring advanced services to communities in rural South Dakota.

At Sulley Buttes we are proud of the fact that we offer our customers many of the latest and most advanced technologies available in the market today. Currently we have deployed digital subscriber line, DSL technology, in seven of our exchanges, and we

plan to deploy DSL in the remaining 19 before the end of the year.

We offer the latest call-in features including voicemail, caller ID,

call waiting, and most of the other services offered in urbanized

areas. Moreover, we provide advanced services including high

speed, always on Internet, cable television, centralized equal access

to long distance carriers. This progress has largely been made possible by the various financing programs and support mechanisms

made available to companies like mine over the past several decades. More recently we have acquired wireless licenses including

PCS and LMDS licenses to use as tools in providing advanced services to our subscribers.

44

Programs like the Rural Utility Service or RUS and the Rural

Telephone Bank have helped finance major portions for rural companies like ours that are just not feasible for many commercial

lenders. Thanks to these entities and the universal service concept,

Sulley Buttes and other ILECs in South Dakota have deployed

broadband services in more than 40 small communities with plans

to increase to more than 100 by the end of the year.

The subject of your hearing today is eliminating the digital divide—Who will wire rural America? I am here to tell you this

morning for the record, that the job is already being done to a large

degree by Sulley Buttes and its colleagues from around the nation.

We approach our work from an integrated perspective using wire

as well as fiber, radio, and all other available technologies.

Sulley Buttes is a member of National Telephone Cooperative Association or NTCA, an association representing more than 540

small rural ILECs. Much of what I talk about today is representative of what other rural ILECs are doing as well.

Sulley Buttes and our rural ILEC colleague surveyors that are

viewed as economically unattractive to the industry’s largest carriers. We have relied on loans from the Rural Utility Service telephone program as well as cost recovery through federal universal

service program. Both programs have been critical to our ability to

provide service of a price and scope that are comparable to those

anywhere else in the nation.

Because of our commitment to serving these communities, rural

telephone companies accept an area-wide coverage commitment. In

other words, we take on the responsibility of serving every customer in our market regardless of their economic desirability.

The push for Internet access came primarily from our business

customers which includes farming and ranching operations that

have interest in commodity pricing and other market information,

and retail operations that wish to interact with their customers. On

the residential side we have helped to ensure that the school-age

children are able to access many educational offerings available via

the Internet. In South Dakota we have what is known as the Digital Dakota Network, a state-initiated project that provides

broadband access to most of the educational classrooms within the

state.

I am proud to say that Sulley Buttes already provides broadband

service to the native American community in the Sisseton exchange. We have fiber in place on the Coal Creek Reservation and

soon will be providing broadband service in this area as well.

Finally, for the past five years we have provided the technology

that has enabled telemedicine applications and are taking steps to

move these services to higher speeds in the near future.

Regardless of the technology used to provide advanced services,

cost will always be a major factor. It is critical that policymakers

here in Washington understand this fact and remain willing to support programs such as the rural utility service or universal service

system.

There will always be upgrades and new technologies that are

necessary to ensure consumers are receiving the most advanced

services of the era.

45

Recently NTCA conducted surveys on the provision of advanced

service deployment nationwide in rural America by the ILEC community. The results should be of interest to this subcommittee and

are summarized at the end of my written presentation. Contrary

to popular perception, dial-up Internet access is widely available to

the areas served by the rural telcos and actual usage is growing

significantly. Almost 90 percent of the schools and libraries and

other public institutions have access to broadband service. Meanwhile, rural companies who are seeking to provide broadband service face economic and technical challenges including extremely high

costs.

The bottom line is continued support will be necessary.

We are cognizant that certain wireless carriers are seeking to

gain access to the universal service funds in the name of bringing

competition to rural communities. Congress and the FCC must recognize the sensitivity of the rural ILECs and changes to the revenue streams, particularly in USF funding. Rural ILECs like

Sulley Buttes have taken on the responsibility of being the carrier

of last resort and we have a decades-long track record of being committed to serving the rural communities. Competition in this arena

must coexist with the concept of universal service. This requires

regulators to engage in a balancing process. Rural America does

not benefit from competition for the mere sake of competition. California has learned this lesson the hard way with regard to its electric utilities.

The ’96 Act is pro-competitive but recognizes that one size does

not fit all. Competition must be tempered with universal service

considerations in high cost, hard to serve rural areas. As discussed

above, Sulley Buttes and our fellow rural ILECs are already eliminating the digital divide in a lasting way by providing broadband

service to the communities we have served for decades and will

continue to serve for decades to come.

The current universal service funding mechanism is not broken.

It may require updating. The FCC is going in the correct direction

with its USF reform effort.

In this regard we hope the FCC adopts the complete MEG plan.

The FCC must focus more on the USF impact when it considers

policy matter related to the ETC status such as those represented

by Western Wireless.

Thank you again for this opportunity.

[Mr. Houdek’s statement may be found in appendix.]

Mr. THUNE. Thank you, Mr. Houdek.

We have, Mr. Pence has returned. I am going to turn the chair

over to him so I can get over to vote. He will introduce our last witness.

Mr. PENCE. [presiding]. Thank you, Mr. Chairman. I thank our

witnesses for accommodating the vagaries of a congressional voting

schedule. It is my understanding that that will be our last recorded

vote for some time so we should be able to complete our business

this morning without any additional interruption.

Our next witness this morning is Kirby Campbell with the Armstrong Group of Companies. Mr. Campbell is the CEO of the Armstrong Group of Companies based in Butler, Pennsylvania. As CEO

he provides advice on all financial decisions, and assists in ArmVerDate 11-MAY-2000 13:48 Oct 03, 2001 Jkt 000000 PO 00000 Frm 00049 Fmt 6601 Sfmt 6602 C:\DISC\73403 ATX007 PsN: ATX007
46

strong’s continued growth and diversification efforts. Prior to joining the Armstrong Group in 1972 he worked for PriceWaterhouse

for three years. Mr. Campbell graduated from Geneva College in

1969.

The chair recognizes Mr. Campbell for five minutes.

STATEMENT OF KIRBY CAMPBELL, CEO, ARMSTRONG GROUP

OF COMPANIES BUTLER, PA

Mr. CAMPBELL. Thank you.

Why am I here? I am here to help in any way I can. I have been

in the industry for 30 years. We serve rural America in the states

of Pennsylvania, New York, Ohio, Maryland, West Virginia and

Kentucky. Not only in cable, but small, rural telephone companies.

What I wanted to do was identify what I felt were critical areas

that you and your group could focus on and maybe make a difference going forward so that the small operator in rural America

can continue to exist.

There are over 1,000 cable operators in this nation right now,

and the bulk of that 1,000 are serving rural America. They are, I

think, being put at some disadvantage based on some of the unintended results of legislation and rules being misinterpreted.

One of the areas that I think you could focus on if I were sitting

in your chair that would help. Rural, small cable companies do not

enjoy the same costs for acquiring programming as the large MSOs

do.

When you go out and build these facilities and plants in rural

America you sign personally for this model and you have to put

models together that justify the borrowing. It makes it hard when

you have to pay more yet charge the same because of competitive

pressures of the MSOs around you or the satellite providers, that

if your bottom line is eroded. So I ask the question and I ask you

to look into why are rural cable companies, smaller cable companies, having to pay more for programming?

When those programmers realize that they force through these

processes the small operators out of business, sometimes the

acquirors of these small areas leave the management team and everything intact and do not change a thing, yet the acquiring large

MSO immediately gets more money into the bottom line because

they get reduced rates.

Another area that I think is being abused and needs focus is retransmission. I do not think that retransmission is getting the results that it intended. Rural companies who have to provide network service to the constituents are being forced to carry multiple

channels on their broadband. That is all operators have to sell is

broadband width. We would like to see the marketplace determine

who—what is carried by the marketplace. The subscriber will pay

for what they want.

We are being forced to carry multiple channels by the networks

that the subscriber may or may not want. When these retransmissions rules were instituted, I think there was not a vision that

these networks would be in three businesses. I could give you specific examples later if you want, but networks are in sports programming, they are in network and they are in satellite programming. They force the operators to carry multiple channels as a reVerDate 11-MAY-2000 13:48 Oct 03, 2001 Jkt 000000 PO 00000 Frm 00050 Fmt 6601 Sfmt 6602 C:\DISC\73403 ATX007 PsN: ATX007
47

sult of just trying to get the local network to the local subscriber.

They do not care whether it is in the state that you operate or not,

they make you carry these things all over the place. So retransmission consent, again, I think could be talked about for hours. I

would urge you to look into that and see is it really doing or is it

hindering the development? Our conclusion after 30 years of watching it, it is hindering it because it is thwarting the money available

through higher costs.

Another area that is concerning us is again with the networks,

digital must carry. The same thing. We have broadband. We would

like the market to determine what can be carried. Broadcasters are

seeking legislation that will force us to carry not only their analog

and their digital, and who knows what programming they will provide on those services going down the road.

Open access is a big issue. Many of us in rural America have

stepped forward, risked our capital. We put models together which

we control our own destiny and it does not seem fair that after private money is put into the marketplace that after the fact the rules

can be changed and jeopardize the very loan covenants that I

agreed to when I signed on the dotted line.

Another thing that just came across my desk this week that concerns me, in rural America we use rights of way. We feel that we

have a need to pay for that right of way. Our average cost for pole

attachment is $6 to $9. We just received an invoice this week

which the utility is asking for $42 a pole. If that were to result in

the way that we have to pay for these poles, that would mean in

some of the areas that we serve that each subscriber each month

would have to pay $10 a month just to cover pole rental. A huge

deterrent. I would think that you would be concerned that if pole

attachments are permitted to go that high, that is a huge deterrent

to the construction and deployment of broadband going forward.

My perspectives, like I say, are after 30 years of experience. To

the extent that our group, I am associated with the ACA representing 1,000 operators, we will give you whatever information

you need to make prudent decisions going forward. Thank you.

[Mr. Campbell’s statement may be found in appendix.]

Mr. PENCE. The Chair thanks Mr. Campbell for his testimony,

and for the testimony of all of our witnesses.

With apologies to the gentleman from New Mexico, I am going

to exercise the authority of the Chair and recess our hearing for

approximately 40 minutes. We on the Republican side of the aisle

have a mandatory conference relative to the tax bill, and we do expect that to run about 30 minutes.

So we will order this hearing, which you all have stimulated

some very important questions that I know members of this panel

are anxious to ask you. We will recess this hearing for approximately 40 minutes or until such time that either Chairman Thune

or I return to the chair. I encourage you to take advantage of the

delicatessens and other lunch fare as we may be going into the

lunch hour.

[Recess.]

Mr. THUNE [presiding]. The hearing will resume.

Let me sort of pick up where we left off. Again, we appreciate

all the testimony of our witnesses on the panel this morning. Very

48

insightful. It is exciting to see some of the things that are happening out there, and figure out how we can go about replicating

some of those success stories, and then talk, as some of you did in

your testimony as well, about things that the Congress ought to be

looking at in terms of making broadband access more accessible in

rural areas.

Just a first question that I would like to pose of all the witnesses

if you can respond to it to the degree that you have perhaps studied this issue, but the House Commerce Committee recently passed

H.R. 1542 which is the Internet Freedom and Broadband Deployment Act, probably more commonly known as Tauzin-Dingell. The

bill seeks to ease restrictions and requirements on providing

broadband services that were placed, restrictions, that is, that were

placed on the Bell operating companies by the Telecom Act of 1996.

I would just as a general question ask do any of you believe that

opening up the long distance market to the Baby Bells would increase competition and help meet the growing demand for Internet

access and long distance data capacity?

Ms. MCADAMS. Quite the opposite, Mr. Chairman. I am convinced that the provisions of the Tauzin-Dingel bill both in terms

of opening up the Interlata data market and the provisions which

would eliminate the provision of unbundled network elements are

the obligation of the RBOCs to provide unbundled network elements for broadband services, would have the eventual effect of

condemning especially more rural constituents to monopoly supply

of telecommunications.

What we know today, in New Edge’s case, in many of the central

offices and small towns where we are, we are the only DSL provider. The incumbent has not yet even stepped up to that plate.

They tend to roll out DSL service shortly after competition comes,

and that is a great dynamic of competition, and that has been the

pattern with broadband development.

So no, I believe that is a counterproductive approach.

Mr. THUNE. Anyone else care to comment on that subject?

Mr. COOK. Mr. COOK. I think, just to pick up on the issue of the monopoly

supply. Of course from a satellite point of view we bypass all of the

terrestrial networks and therefore because we are going to be providing services literally everywhere, we will be a competitor to

whatever terrestrial networks are put in place. So we think that

we have confidence, if you like, that Congress is going to make the

right decisions on this bill. From our point of view we are relatively

neutral. We think that competition will exist regardless of the outcome of that particular bill.

Mr. THUNE. Would anyone else care to comment?

Mr. HOUDEK. From an independent’s perspective, particularly in

South Dakota, we are a single-Lata state. It does not have a lot of

impact for our company. However, we are a little bit reluctant to

open up the Act this early. There are provisions to accomplish what

they want. So we are, I guess, in favor of not tearing the Act apart

yet.

Mr. THUNE. Ms. McAdams, you indicated that the monopoly status would not be helpful. What they have argued in support of that

legislation is that it will give them powers they do not currently

49

have that will enable them to get to places that nobody else can— that because of their economies of scale they can serve and there

are not providers out there. That would be their argument to

counter yours, that it is better to have one than to have none.

For those of us who come from rural areas, that is a fairly persuasive argument if we do not have anything going right now. But

we are also attuned to the fact that we want to make sure there

is a competitive playing field out there.

I guess I am wondering, in particularly remote areas of the country like South Dakota I think fits that category, Randy described

it as the frontier. It is not rural, it is frontier. We want to make

sure that our smaller towns have that opportunity.

I know that the RBOCs in coming in and making that case, that

was the argument they made. But you disagree, obviously, with

that position.

Ms. MCADAMS. Yes, Mr. Chairman. I do agree that wireless is a

great and appropriate technology for the very much more rural

areas, the farms, the ranches, et cetera. But for the small cities

and towns where DSL wire line service makes sense, and where

the constituents have paid for that distribution plant through their

rates, their monopoly rates for the last 100 years, it makes equal

sense in those areas to provide the opportunity for both the RBOC

and the competitor to compete, and we do not mind competing with

the incumbent. And in the case of the small companies, in fact New

Edge Networks currently brings DSL services on a wholesale basis

to some of the small telephone companies who then resell our service branded with their own name, and that is a great cooperative

effort.

But today the argument mounted by the large incumbents that

the inter-Lata restriction is keeping them from deploying

broadband, I frankly believe has very little merit. There certainly

are a few areas in the country which we can point to where perhaps the Lata boundary is in a somewhat inconvenient place. The

FCC has in place today an expedited process by which companies

or individuals in those communities can apply for Lata-boundary

modifications. As far as I know, none of the incumbents have in

fact availed themselves of that process to correct Lata boundaries

if they are in fact making this problem for them in some specified

areas.

Mr. THUNE. There are several bills that have been introduced in

this Congress that are designed to promote development of

broadband technology to rural and underserved areas in addition

to the Tauzin-Dingell legislation, and again, I think it is questionable as to whether that is the appropriate vehicle for some of the

reasons that you noted.

But some of the other legislation—tax incentives, tax credit, the

English bill, loan guarantees. I think Mr. Houdek you referenced

RUS in our part of the world.

Do those make sense? Are those approaches that in your judgment would make a difference in terms of the incentive it provides

for companies to come in and provide those types of services?

Anybody feel free to comment on that.

Mr. CAMPBELL. A concern I have is that there are deployments

of monies already out there, and to bring in subsidized monies that

50

could compete with those already invested dollars, or how do you

recognize those who did step forward already?

I think it is a good idea, it helped develop telephone service in

rural America, but it is a complex environment in today’s world. So

if you can figure a fair way to do it, that would be—What I have

read so far, there are some inequities. So a fair way, yes, but subsidized monies is not always necessarily the solution either.

A lot of people did the tax credits in a lot of the smaller coop

areas do not even pay taxes so it is really not a true incentive to

some of the rural areas that are doing this stuff through coops.

Mr. COOK. I would just again like to echo some of those things.

In building out a broadband satellite network, we have already

made the decision to invest $1.5 billion without the need or the incentive of tax credits.

While we think that tax credits are not wholly bad, there has got

to be some benefit and incentive and it will no doubt encourage

some additional build-out, it is not going to solve the whole problem because some of the areas that we are talking about will remain too expensive to bill out with traditional terrestrial technologies. So from our point of view, we think that if indeed there

are to be tax credits or similar incentives, the most important thing

is to ensure that they are truly technology neutral, that they do not

have requirements for particular types of service or speed which

would favor one technology against another. Under those circumstances we would obviously, anything which is an incentive,

which will encourage you to take up broadband services is obviously in principle a good thing.

We also wonder whether maybe the credits should be oriented towards the end user rather than the infrastructure builder, and

thus allow the market to decide what is the appropriate technology

to use in each different area, so some way of encouraging or motivating the end user, subsidizing the end user’s takeup of

broadband services. That in itself will create a level playing field

for all of the technologies to build out.

Mr. THUNE. In that approach the customer basically, it would

incent them through some sort of a tax credit to subscribe to whatever services might be out there?

Mr. COOK. That is right.

Mr. THUNE. Without differentiating between types of technologies.

Mr. COOK. That is exactly right. You put the power in the hand

of the end user to decide what is most appropriate for him.

Mr. THUNE. A followup question with respect to your technology,

Mr. Cook. One of the accusations that has been leveled I think

against the satellite industry or systems is their lack of reliability

relative to other types of technology. What has been your experience with respect to the reliability issue?

Mr. COOK. In the end there is absolutely no difference in terms

of reliability between satellite systems and terrestrial systems.

With broadband satellite today and indeed tomorrow when we have

Spaceway available, we will be offering levels of availability and

levels of service quality that will be equivalent to anything that is

offered by terrestrial technologies. We spent a huge amount of

money and effort, time and effort, in really pushing the limits of

51

technology and we believe that we have a fantastic service offering

which will compete everywhere very favorably with anything that

is offered terrestrially.

Mr. THUNE. I have some other questions I would like to ask but

I will take a break here and yield to the distinguished co-chair

here, Mr. Pence, for some questions.

Mr. PENCE. Thank you, Mr. Chairman. I want to thank all the

witnesses for their patience on what has become a fairly unusual

day in Washington.

First a question across the board. As someone who believes very

strongly in state and local control, I would like to ask the panel

generally what they would view as the proper role of local governments in the regulation of broadband services, specifically should

local governments be limited to simply regulating the use of the

right of ways, or should there be a greater role, and if there is a

greater role does that act as a hindrance? Whoever wants to step

up to the microphone on that one.

Mr. HOUDEK. I think the ’96 Act was written, gave specific powers to the state commissions to determine ETC status.

One of the things they base it on is the public interest. I am

afraid that without the actual states making those decisions they

might not, some of the areas that are currently served only by the

traditional ILEC might go unserved.

Our industry has made a commitment to serve the entire area

with high speed, high quality. I think that it would be very difficult

for us if we were to lose some of the support we get to provide that

service for less, or for a substandard product.

Ms. MCADAMS. Mr. Chairman, I have been dealing with telecommunications public policy long enough that I remember a time,

frankly a couple of decades ago I hate to admit, when the cities at

their conferences of the National League of Cities, the Conference

of Mayors, et cetera, would get together and ask themselves the

question what can we do to attract infrastructure development in

terms of telecommunications? It is important for us in terms of our

economic development, in terms of our competitiveness in the nation and the world, and that, it seemed to me, was a very positive

approach saying how can we attract this infrastructure investment.

Unfortunately what many of the CLECs and the competitors

today are finding is that the city’s interest has changed somewhat

and is unfortunately more along the lines of how much revenue can

we derive from the individuals who bring in the infrastructure and

use the public rights of way.

Clearly the municipalities have an important role in managing

their rights of way and reducing traffic congestion, in issuing permits and making sure that work in the streets is done safely and

so forth. But that is a circumscribed role. I agree the Act and the

history of telecommunications law cedes to the public utility commissions in the states the overall regulatory oversight of entry and

pricing for local services.

So I would agree with those who argue that the role of the municipality should be limited to that which is reasonably related to

the direct use of the right of way, and that fees for the use of the

right of way should relate to the actual administrative costs of

making that right of way available.

52

In fact the local economy stands to gain immeasurably from the

increased transactional mass, the support for small, medium and

large businesses as a result of that infrastructure development.

Mr. KELLY. We too share the desire to keep most of the oversight

on a state and local basis. Instead of right of way, we talk about

tower ordinances and that certainly is something that is a bit frustrating on a region by region basis, but something that we are easily able to work with local constituencies.

What has been a little discouraging though is I think the different speed with which different states, state PSCs, have taken up

compliance with the Telecom Act of ’96 and in particular, there are

a lot of states that just do not seem to be very close at all to having

their state funds or state universal service funds funded in any

way. That is a frustration for us.

Mr. COOK. From our point of view I think we think it is a very

good thing, a healthy thing that state and local government takes

an active interest in telecommunications. From the perspective of

a satellite provider, for every satellite that we put up we are able

to offer coverage across the whole of the United States. That means

it would be very difficult for us to operate if there were differences

in the regulatory or other environment, significant differences anyway, on a state by state or a local basis.

So the most important thing, again, is to ensure that there is

consistency of environment for us to be able to provide the same

high quality services to everybody.

Mr. HOUDEK. An experience we have is, at the local level, an unfair competitive advantage of different technologies, i.e., not having

to pay local franchise fees.

A certain percent of every dollar we collect, be it for broadband

Internet, video, whatever services we provide is taxed where competitors are not. And we have equal to or greater investments in

providing those. So I would like to see that leveled out somehow

by the locals.

Mr. PENCE. Specifically to Mr. Campbell, in your testimony, your

written testimony, you spoke about the irony of attempts being

made to create incentives to RBOCs and to incumbents to service

smaller market areas and rural areas, to close the digital divide

saying rather obliquely that we are already here.

Is it your feeling that we should not create incentives or mandates in the Congress that would even invite the incumbents in in

a competitive environment under the ’96 Act? I wanted you to amplify those remarks.

Mr. CAMPBELL. In a fair way, competition is good. I have

watched with interest being in telephone and cable over the last 30

years the results of the larger incumbents not stepping forth in

rural America, and I find it ironic that they do when the incentives

are put before them. Right now those large incumbents are even

thinking about abandoning by selling off some of their rural investments and concentrating in highly populated areas.

So I take it from just a competitive view that if it is a level playing field—But why did they not step up before this? It is not that

they did not have the resources or the money, they opted to go

where the more dense population was and where they could make

53

bigger returns. That is what I find ironic at this time to encourage

those who have ignored, to now participate.

Mr. PENCE. Somewhat along those lines, Ms. McAdams, you

made a comment during Chairman Thune’s question and answer

period about if we were to provide incentives to the RBOCs or the

incumbents to move into the rural area that we would be, I think

your phrase was condemning you to monopoly supply. Could you

elaborate on that for someone very new to this area?

Ms. MCADAMS. Yes, thank you, Mr. Chair. I need to perhaps

clarify the point I was trying to make and perhaps I did not make

myself as clear as I should have. In particular, incentives for development, I agree with my fellow panelists that direct incentives, especially if they go to rural businesses, rural institutions and agencies, who then can choose through a competitive bidding process a

provider, make a great deal of sense, and in some of those instances the incumbent would win those bids and we think that is

a fine thing.

The point I was trying to make was that some of the current proposals before Congress, and Mr. Thune referenced the Tauzin and

Dingell bill, would in fact make it impossible for companies like my

own to have access to the existing copper infrastructure which by

its nature is today a natural monopoly in terms of wire line access,

and therefore if that bill were to pass in its current form, competitors such as myself would simply no longer be able to provide these

broadband services to the rural communities in which we serve

today.

So in that sense, removing the obligation of the incumbents, the

RBOCs, to allow access to the existing copper plant would result

in in most instances the RBOC being the only wire line carrier

available to rural consumers.

Mr. PENCE. One other question for Ms. McAdams, in your written testimony you call for, that Congress ought to or the FCC

ought to consider full structural separation of large incumbent telephone companies into distinct wholesale and retail telecommunications providers to avoid there being a built-in institutional incentive for preferring their own provider.

We certainly have been down this road in the courts with courtesy of the Justice Department and another high tech area. Speak

to that proposal and how, whether you would see Congress acting

or the FCC acting or legal action as appropriate.

Ms. MCADAMS. Yes, thank you, Mr. Chairman, for the opportunity to expand those thoughts.

The basic problem and the reason why we have to have so much

regulatory oversight of this transition between the monopoly market structure and a competitive one is because of the need for wire

line competitors to interconnect with and use the essential facilities

of the incumbent phone company. Because it is the incumbent who

controls those bottlenecks, clearly there can be an opportunity and

we believe an incentive for the incumbents to favor their own retail

operations, perhaps in very subtle ways in some cases. The ultimate solution to that problem, and in fact a fairly deregulatory proposal, would be to duplicate what the courts ended up doing, and

of course Congress was also considering at the time, which was

54

done in 1984 in divesting the AT&T Bell system into local and long

distance companies.

A divestiture of the existing RBOCs into retail and wholesale

arms would then break that affiliation such that there would no

longer be any incentive for the incumbent who owns the bottleneck

facilities and provides them on a wholesale basis to all comers, to

favor their own retail efforts. Now how that might come about, I

think there are a number of forums. It has been suggested in Congress. Senators DeWine and Kohl presented such a proposal in the

past. Today such proposals are pending before a number of state

legislatures. Some PUCs such as Pennsylvania have considered

and implemented some version of structural separation. And certainly if the antitrust opportunities and remedies in telecommunications are restored, right now there is some what I would consider

to be bad law out there which says violations of the Telecommunications Act basically can’t be used as evidence in an antitrust case

and there is pending legislation before the House Judiciary Committee to correct that. So if the antitrust remedy were restored,

then conceivably such a structural separation might end up being

ordered by a court as a result of an antitrust case.

Mr. PENCE. Thank you.

One other question, and I will yield to the Chairman and to my

colleagues.

Mr. Cook, in my former life I was in syndicated radio, and know

just enough to be dangerous about Ku-band technology. I’m fascinated by your presentation about the Ka-band as a possible way

of end-running all the challenges of terrestrial access to broadband

and wanted just very briefly to ask you about your Spaceway system and I believe you said within three years you expect to have

three geosynchronous satellites that can address North America

and how realistic is that as an alternative to more traditional

means of broadband access?

Mr. COOK. The simple answer is it is a very, very real alternative. It builds actually on the Ku-band technologies that we have

today, so we have existing Ku-band, broadband services, which are

widely distributed and widely taken up.

But we certainly intend to launch Spaceway—actually, again, the

first satellite will be up round about the end of next year; the second Spaceway satellite is programmed to be about six months later;

and then the third will come on stream based on the uptake of the

first two.

And the services that we will be able to provide will be extremely

competitive. I think I mentioned in my statement the sort of speeds

we are talking about. The speeds we are talking about are typically

greater than you will be able to get with today’s SDL and cable

modem types of technology.

There are some unique benefits that you can generate from a satellite system. It is very, very good for rural casting and multi-casting services, when it is saying the same information to lots of people.

We have devised Spaceway with some very, very advanced technology to optimize now the satellite broadband capability for point

to point traffic.

55

Today’s systems tend to be broadcast orientated technology systems. Spaceway is being pushed far more towards the point to

point end of the spectrum. It means that we will be able to offer

direct small dish to small dish high speed connectivity, so there is

no need anymore for users to go into a terrestrial gateway or into

a central hot station. Any small business will be able to communicate directly with any other at these high broadband speeds.

We think from a pricing point of view we are also going to be extremely competitive. We are expecting that small businesses will be

able to acquire Spaceway technology, capital costs for up to two

years out, so there is no final cost yet. But we are expecting the

capital costs can be significantly less than $1,000 for the equipment

and the dish and everything necessary to receive the service, subscription rates will be very comparable with DSL subscription

rates.

So we expect the service to be very, very competitive from a technology and from a commercial point of view.

Again, from the main subject of the hearing, from a rural point

of view, the cost differential to us in providing service to a rural

user compared to a metropolitan user. And therefore, the service

will be available fundamentally at the same price with the same

capabilities wherever the user is.

Mr. PENCE. Thank you, Mr. Chairman. I have no more questions.

Mr. THUNE. Thank you, Mr. Pence, and I notice when you made

the comment about this not being a usual day in Congress that

there really are not any what I would call very many usual days

in Congress. This is an unusual place and I think having the word

Congress and extraterrestrial in the same context probably makes

a lot of sense.

But I would like to yield to the ranking member, the gentleman

from New Mexico, Mr. Udall for questions.

Mr. UDALL. Thank you, Chairman Thune.

I have a couple of questions for Randy Houdek.

I have a district that is, in my state, heavily native American.

We have 22 tribes, we have a large Navajo reservation, so I am

very interested in your ability to serve native American populations.

To start, what specifically has your business done to provide

broadband access to the rural areas in South Dakota?

Mr. HOUDEK. Thank you.

What we have—We have taken a system-wide approach to deploying as quickly as we can fiber into the local, the rural areas,

and then to the house we will use copper.

The part of the reservation we serve is the Coal Creek Reservation. We have just done that. We have got fiber-optic loop in and

within a month we will be able to provide DSL-type services 30

miles out in the country on the reservation.

We recently acquired the system exchange from Qwest which has

a large native American population up there, the Sisseton

Wahpeton Tribe. We are, as we speak, we have staked and are

planning to bury fiber to that community right now. We are offering via sole services in Sisseton and plan to expand that. Within

the city of agency they have a couple of hospitals and clinics and

schools. We are going to bury fiber to all of those.

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There has been a very good reception from our communities.

Mr. UDALL. Can you address some of the challenges than to putting it into Indian country.

Mr. HOUDEK. Actually the challenges that we face in particular

are not much greater than they are in any other part of our service

area. We are very sparsely populated. The technology is expensive.

And in order to get the customers to actually subscribe to the service you have to price it aggressively, and that just makes for kind

of a long-term payback.

We are a coop. We are member owned. Maybe our incentive is

not to much generating huge profits as opposed to providing service

to our owners.

Mr. UDALL. What percentage of the market does SBC control in

South Dakota?

Mr. HOUDEK. Sulley Buttes Telephone?

Mr. UDALL. Yes.

Mr. HOUDEK. We have about 7,000 square miles. What percentage, again, we are 13,600, there are 770,000 in the state. Geographically we are about 10 percent; actual access lines, I cannot

do the math that quick.

Mr. UDALL. That gives me what I need, thank you.

Mr. Kelly, can you elaborate on some of the problems your company has encountered in its ETC application process and in its general efforts to provide service?

Mr. KELLY. Certainly. As I mentioned earlier, we have had problems with incumbent carriers, and what we have found, there has

been quite a bit of frivolous activity that has been brought to bear

by the incumbent, lots of motions, in some cases court challenges

along the way. Probably the ultimate frustration was when we initiated service up in Regent, North Dakota, and after getting ETC

status up there, and had the local telephone company shut our network office. Just completely cut the wires, took us out of the system.

We were restored within a couple of days and were fortunate

through court action to get that resolved in our favor. But it is

tough going up against the incumbents. We would really appreciate

a real smooth and orderly process, particularly at the state level at

the PFCs.

Mr. UDALL. Am I right in inquiring and getting ETC means you

cannot pick and choose your customers?

Mr. KELLY. Absolutely not. When we receive ETC status it is for

a designated study area and we are required with our ETC to provide service to everyone within that study area.

Mr. UDALL. And the universal service funding covers basic services only, is that correct?

Mr. KELLY. Absolutely. We see——

Mr. UDALL. What is the difference between your basic offering

and your advanced services offering?

Mr. KELLY. If you take a look at our native American initiative

in South Dakota on the Pine Ridge Indian reservation, for instance,

we are providing today basic telephone service. I would not construe it as being broadband. But half the customers who we have

signed up there in the five months that we have been in service

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never had a telephone line before. So before you can go broadband

you need to get basic service.

So we see universal service as the mechanism by which we can

get good competition for basic telecom service. Then from there we

can, on a level playing field, go out and start making the enhancements to both our network and to our other competitors’ networks

to get the high speed bandwidth and the broadband type technology that we are here talking about today.

Mr. UDALL. Thank you.

Chairman Thune mentioned the surrealities of Washington, and

one of the things that happens back here is we sometimes see television commercials that the rest of the country do not see that I

think are designed to influence members of Congress.

I just recently saw a commercial on Tauzin-Dingell that talked

about, and maybe those of you here have seen it, it talked about

how it was going to be guaranteed that rural areas under that bill

would be provided with broadband access. I know that Chairman

Thune asked about this but I was just wondering if any of you had

any thoughts, or if you had seen that commercial or any additional

thoughts in terms of the discussion on the bill providing that.

Ms. MCADAMS. Mr. Udall, the bill as originally submitted, as I

read it at least, did not have any assurance or guarantee of any

additional deployment on the part of the incumbents in return for

the end run around Section 271 of the Act that is also incorporated

in the proposal. However, it is my understanding that an amendment was added during committee markup which purports to be a

rural, a buildout provision but in fact is very limited. It requires

within five years, which of course is an eternity in the telecommunications industry, the incumbents to outfit their existing

central offices for DSL and make DSL available within three miles

of the central office.

Three miles from the central office probably does not take care

of a lot of your constituents, Mr. Udall. I know that Congressman

Largent argued during the markup that in his rural area in Oklahoma a buildout requirement more on the order of 30 miles such

as you are hearing, some of the coops, have stepped up on their

own to do, would make more sense if there is to be a bill of that

nature and there is to be a buildout requirement.

Frankly, I think what you are hearing among the panelists

today, the witnesses today, is that the market is working to in fact

bring these services perhaps not as fast as any others would have

liked, but the capital realities are such that it is a both expensive

and time consuming process. But I think you are seeing services

in fact brought through appropriate mixes of technology increasingly to rural areas as a direct result of the opportunities crafted

in the ’96 Act.

Mr. UDALL. Any other panelist—Go ahead.

Mr. KELLY. I am not familiar with the particular legislation, it

is not my general domain. But Randy and I were both talking, that

it is interesting that neither of us have seen the ad. It is Beltway

surrealism. And there is a certain amount of irony that the companies sponsoring it are the very ones in our markets who are selling

off the exchanges to companies like Randy’s.

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Mr. UDALL. Okay. Thank you very much. We will keep an eye

on those commercials and monitor that. [Laughter.]

Mr. THUNE. Three miles in South Dakota is just a short walk.

[Laughter.]

The distances are very real. I do not think anything in that bill

probably contemplates what we are talking about as far as the dimensions.

The Chair recognizes the gentleman from Washington, Mr.

Baird, for questions.

Mr. BAIRD. Thank you, Mr. Chairman.

I want to in all sincerity compliment both Chairs for hosting this

meeting. We have an awful lot of hearings around this place and

very few, I can sincerely say, are as informative as this one has

been, and I compliment you for hosting it and the panelist for their

thoughtful and diverse presentation.

I do want to ask my friend from New Mexico where he is finding

time to watch TV. [Laughter.]

Mr. BAIRD. Maybe your staff tapes them.

Mr. UDALL. Five seconds when I am shoving down some breakfast before heading to this hearing. [Laughter.]

Mr. BAIRD. Oh, I remember that.

I think part of the importance of this is many of us represent

rural communities and we know on the Small Business Committee

how important broadband and remote access is to our development

of these communities. Many have been hit hard in our state by timber cutbacks or fishing changes, and if we are going to help them

diversify their economy, we have got to provide the access to the

technology to make it so.

Years ago our country faced rural electrification challenges, and

very analogous in the sense that the sort of major companies did

not have the financial incentive to go out and provide this access.

In that case the government stepped up to the plate and found

ways to promote rural electrification.

Let me ask each one of you to address this question, and it is

a two-parter.

What is the single most important and effective thing the federal

government could do to promote broadband access to our rural communities? And what is the single stupidest thing we could do, even

possibly through unintended consequences, that would impede the

expansion of broadband?

I will start with Mr. Cook.

Mr. COOK. From our point of view the single most important

thing is spectrum allocated for satellite. Spectrum is the one component which directly affects the amount of capacity that we can

put up, and therefore the number of subscribers that we can serve.

Having access to an appropriate amount of spectrum is essential if

satellite services are to be readily available to rural areas.

Our concern is that the amount of spectrum required is not being

made available to us, and I am talking about the entire satellite

industry. Each orbital slot that we have could support more satellites and therefore more subscribers if we were given the full

amount of spectrum that we had requested when the licenses were

being issued.

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Additionally, there has been a tendency to continue to nibble

away at the clear spectrum that is available—in other words, interference-free spectrum that is allocated for satellite services. That is

a trend that must be reversed.

The stupidest? I guess from our point of view it would be to create legislation that unduly favors one technology versus another,

one place versus another.

As we have heard there are a lot of things going on in the market which are positive and which are generating improved

broadband access to rural areas. The wrong sort of intervention

will create distortions which could have an absolutely counterproductive impact.

Tax legislation and other incentives should be absolutely technologically neutral.

Mr. KELLY. I think that as the microphone gets passed down you

are going to start hearing the answers get more and more similar.

The most important thing is going to be having a technology neutral, competitive enhancing set of incentives out there. That is the

most important thing that can happen.

I think the more that we look at fostering monopolies, the less

competition obviously you are going to get and the fewer the advances in broadband.

Probably the stupidest thing right now, once again this kind of

sounds familiar, is going to be ignoring the need for some comprehensive spectrum policy planning right now.

The U.S. is behind particularly the European but also Japanese

carriers in terms of their spectrum allocations. More spectrum out

there in the hands of wireless providers will mean more broadband,

plain and simple. We are under a spectrum crunch right now so ignoring that is probably the stupidest thing that I could see out of

Washington.

Mr. HOUDEK. Thank you.

From the rural ILEC perspective, I guess one of the most important things I would like to see happen is when enforcing the Act,

as FCC enforces the Act, we recognize the balance between competition and universal service. Competition is wonderful, but let us

not sacrifice the service in the very rural areas just for the sake

of competition. The Act was written fairly well so that the two

prongs are competition and universal service and to do one without

the other is I think going to do a disservice to the very rural people.

Mr. CAMPBELL. Repeating what I said earlier, I think the most

important thing for a small rural company like ours and the members of the ACA is to be afforded a level playing field. It takes

money to develop these facilities and you have to sell at bottom line

profit to pay that money back. And there is an unjust, or undue

disadvantage by the larger MSOs getting programming costs

cheaper. Therefore being forced to build into less dense areas that

we would like. We could build into more less dense areas if we

could get more bottom line, we could got a little deeper.

That falls into the retransmission rules as well. Let the marketplace determine how that broadband—We don’t have spectrum, we

have bandwidth. And with the rules and regs as they are being utilized now by the networks, they are demanding the use of that in

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a way that maybe is not behooving the best interest of the constituents and subscribers out there.

I guess the thing that I would like you not to do is ignore history.

This is a Small Business Committee, and just look what has made

rural America what it is. It is the small businessman. It is not the

big guys. They do not go there, and we have.

Ms. MCADAMS. Thank you, Mr. Baird.

It is absolutely clear to me that the biggest barrier today to further broadband deployment is the drought in the capital markets

throughout the telecommunications industry and in the competitive

sector in particular.

What Congress could do that would be the smartest thing today

in my perspective, would be to make it clear to Wall Street that

Congress intends to stick with the very good policy framework and

direction and pro-competitive policies that were set forth in the ’96

Act and stay that course.

The market is working. Everyone sitting at this table is in fact

demonstrating that fact today.

The stupidest thing is, you know, it is a symmetrical answer, Mr.

Baird. The stupidest thing would be to reward the bad behavior of

the large and incumbent telephone companies who frankly have

done everything they can get away with to impede the development

of competition under the Act by both legal and regulatory challenges, by strategic incompetence, by confusion of the station and

egregious pricing, and reward them for that behavior by restoring

their monopoly.

Mr. BAIRD. Thank you very much for those I thought very

thoughtful answers.

If you could give me a list of those critiques I might use them

later on in the floor speeches.

But I think the points are very well taken and I certainly have

seen first hand the challenges many of your industries face in the

capital market, and we have seen I think elsewhere in the economy

when regulatory uncertainty creeps in, it can create huge disincentives to investments and capital starvation can be possibly the

greatest single threat to innovative folks like you who are really

pioneers and going—Where other folks have not seen the great return, you have seen the need and I commend you for that, and I

think your points are very well taken.

Thank you, Mr. Chair.

Mr. THUNE. I thank the gentleman from Washington.

I would also add that I like small words and big print so I am

not sure all of the adjectives that you used I could stay with either,

but I think it does make the point and I appreciate the very direct

and candid way in which you have all answered the questions.

I just have a couple of wrapup questions, and I asked most of the

members if they had other questions and I do not think anybody

does. You can get a chance at a closing statement here in a minute.

But I am curious as to understanding, help me better understand

the technology. How do you differentiate, Mr. Kelly and Mr. Cook,

between what your two technologies do? Satellite and wireless. Mechanically speaking so I better understand it. I think I understand

the wired side of it. But how do those work?

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Mr. COOK. In one sense they are very similar because we are

using wireless techniques. There is a slight frequency difference in

the allocated spectrum we are using, but that is not significant.

The most important difference is that a satellite can see a lot of

geography from one place. That means we can offer the same high

quality service wherever people are in the footprint. So ubiquity of

coverage is an inherant feature of satelite service. That then enables, as I think I said earlier, services such as like broadcasting

and multicasting.

One of the particular benefits of the sort of system we have, the

new Ka-band technology, are spot beams. These are geographically

oriented high power beams. There are lots of them together which

provides the total coverage.

But in each of those spot beams a services, such as local broadcasting which is very important for local communities, is a viable

activity. Local multicasting and local connectivity—again, very important.

So really the issue is the source of the data transmission is coming from, and what is the link point? That link point is our capacity point.

It does not matter where the demand for service is on the

ground. Our capacity is available fundamentally to everybody, and

therefore the capacity can be used to save the demand from wherever it originates.

Mr. KELLY. I am trying to keep big type and small words in mind

here.

In essence, our technology is wire telephony without the wires.

We also have switches and we are terrestrially based. We maintain

towers, towers that provide coverage to the signal that we use to

communicate to the device.

The beauty of wireless as a technology is that you do not ever

have to replace the waves out there. As we go through and add

new technology, as technology advances, it is something that is

added once at the switch. It is added to each individual tower as

you go. The devices are upgraded, but you are not faced with the

degradation of copper, the wires, in between.

So we, in particular Western Wireless operates in the 800 megahertz cellular frequency range. It is a technology that is very good

for coverage, very good for capacity, particularly in rural America.

And we believe that as we go through and make extra investments

into 3G technology and new digital technology that we are going

to be able to get very good data rates, up to 20, 30 miles away from

the tower. So it is something that lends itself very well to rural

America.

Mr. THUNE. And just one followup question, because you had indicated earlier, and I know some of your frustrations in dealing

with some of the reservations in South Dakota, but the question

about the universal service fund, being eligible for voice transmission type services. That decision is a function, is it not, of the

state public utility commissions? I mean in order to become eligible

for some of that funding, is that where you would wage your argument, or wage your debate?

Mr. KELLY. In general all those decisions are made on a state

level. We have an application pending right now with the FCC,

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however, because jurisdiction over Indian reservations is a little

less clear for Pine Ridge.

Mr. THUNE. I am aware of that. And any of the panel who care

to comment on that subject, but I think it was referenced in at

least a couple of the testimonies this morning about the universal

service fund, in terms of how that might be applied across other

areas as opposed to just its traditional use under the Act.

As I understand the way that works, at least right now in most

cases it is just limited, is that correct?

Ms. MCADAMS. Yes, Mr. Chairman. It is under the purview of the

state regulatory commissions who periodically undertake to evaluate what level of services constitute basic services, and most of the

state commissions believe that that well may be a moving threshold over time. However, in making that evaluation the state commissions I believe also are taking very seriously the need to balance what should be subsidized with what essentially is a telecommunications taxation program on basic telecommunications

bills to collect the funding to go into universal service.

So while they look at whether new services should be subsidized,

they also are balancing that benefit against the cost on the normal

consumer’s bill.

Mr. THUNE. Randy.

Mr. HOUDEK. Thank you.

If I could add, the federal universal service fund, the FCC makes

the determination on what services are supported. If it is a statewide USF then the state commission makes that determination.

But back to the issue of should support be given to a competitor

in that case. In a perfect world, the fund would not be limited. But

the way it works now is if the USF support is given to someone

else it takes away from the incumbent who obviously still has that

investment.

The risk of losing a revenue stream that it takes to support or

make those investments, you know, if that is at risk I feel that you

might stifle investment.

In a perfect world—the fund is capped right now. In a perfect

world it would not be, but that is the way it is now.

Mr. THUNE. All right. Does the gentleman from Washington have

any closing remarks? Mr. Chairman, Mr. Pence, any summation?

Mr. PENCE. Thank you, Mr. Chairman.

I want to thank again Chairman Thune for lending his support

and his subcommittee’s interest in this issue. I think these have

been, as has been said by some of our colleagues, very informative.

As Mr. Baird said, very informative and very enlightening hearings

over the past two weeks.

I look forward to working together on many future occasions as

we bring regulatory reform and rural enterprise together to truly

promote small business development.

In addition to commending the Chairman and the members, I

want to commend these witnesses who have achieved a couple of

goals in this area that this fairly high tech, illiterate member of

Congress is grateful for. Number one, I appreciate that you spoke

in English, and you did not use a lot of very big words. More importantly, I think that you very clearly advocated your hard earned

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position and credibility as pioneers on the frontier of the digital divide.

You are truly representative of enterprises across America who

have been willing to go where no RBOC has been willing to go. In

many cases where no incumbent with far more resources has been

willing to go.

Having an entrepreneurial background, I admire you, and I respect you, and I pledge to you not only our subcommittee’s continued interest in your challenges, but also I pledge to you simply as

a member of Congress to be an advocate for the work that you are

doing.

In that vein, I feel very strongly that we should stay the course

that Congress charted in 1996 with the Telecommunications Act. I

also believe and will look for opportunities to make monies available for targeted subsidies and grants dealing with that capital

drought that so many of you spoke to.

Also, I am going to pursue the availability of stronger enforcement tools, giving the FCC a stronger hand simply to enforce the

law as it is written, and ultimately as we move into what will likely be a lively debate over modifications of the ’96 Act and other

very worthwhile measures before Congress.

Allow me to say that this member of Congress is committed to

leveling the playing field, avoiding mandates to organizations small

or large, but ultimately doing those things inside the context of a

free market model that will achieve the objective of those 150 West

Virginia children who flanked Chairman Thune and I this morning

at our press conference who attend a small, rural middle school

that does not have broadband access. To recognize that unless we

deal aggressively in a public policy model, in an enforcement

model, and in the way of subsidies and grants for capital formation,

that as I said this morning at the press conference, I believe that

25 years from now you will be able to tell where there is broadband

access in America from a satellite photograph, given the nature of

the economic activity and the population centers.

I come from a largely rural area with medium sized cities that

are filled with the brightest adults and the brightest young people

in America, and I would like to keep them all right there and make

sure that the opportunities to move into the new economy are

there.

I thank you for the sacrifices that you all have made, the capital

that you have risked in bridging that divide, and I pledge to work

with you to achieve that goal.

I thank the Chairman, again, for cooperation in this hearing, and

I thank all the witnesses for their outstanding presentations.

Mr. THUNE. I thank the gentleman from Indiana, and I would

just say that all those young people that he talked about in his

state, we would like to move to South Dakota, which is why we

want to make sure that we have all these opportunities available

there.

But I have to admit, I am very excited to hear the things that

are going on. I really am. I think some of the things that are happening are remarkable and as Mr. Pence noted, they are happening

out there in the small business sector, entrepreneurial sector, as

opposed to the more traditional deliverers of these types of services,

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and I want to credit all of you for the work that is going on and

echo what Mr. Pence said. That is we want to work with you as

partners, in making sure that we are tearing down barriers and

providing incentives.

Whatever this Congress can do to enhance the opportunity for

better availability of high speed access, whether it is band-width or

spectrum, depending on what your technology is, we want to make

sure that the competitive issues, the economic development issues,

distance learning, health care, all those quality of life things are

available not just in our population centers but to people that live

in rural areas. I think this is going to be critical in terms of seeing

that accomplished in the same way that building the interstate

highway system and the railroad system of the past, or rural electrification as Mr. Baird indicated, those are all things, models that

have led to great progress in this country and it ought to be

progress that extends beyond the borders of Washington, D.C. and

some of our metropolitan areas to places more remote.

So anyway, I appreciate very much your testimony. I hope that

you will feel free in the future to call upon us and visit with us

about things that we ought to be doing, insights that you have.

I certainly am someone who admittedly is a novice in this area

but want to come up to speed on the issue so that we can be conversant in talking away. And we can come to a formation of public

policy that would enable us to get to the finish line.

So thank you very much for your testimony and for your patience

today. I appreciate everything that you have contributed.

This hearing is adjourned.

[Whereupon, at 12:51 p.m., the subcommittees were adjourned.]

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