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S. HRG. 109–1128 

S. 2686, COMMUNICATIONS, CONSUMER’S CHOICE, 

AND BROADBAND DEPLOYMENT ACT OF 2006 

(PART III) 

HEARING 

BEFORE THE

COMMITTEE ON COMMERCE, 

SCIENCE, AND TRANSPORTATION 

UNITED STATES SENATE 

ONE HUNDRED NINTH CONGRESS 

SECOND SESSION 

JUNE 13, 2006 

Printed for the use of the Committee on Commerce, Science, and Transportation 

( 

(II) 

SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION 

ONE HUNDRED NINTH CONGRESS 

SECOND SESSION 

TED STEVENS, Alaska, Chairman 

JOHN MCCAIN, Arizona 

CONRAD BURNS, Montana 

TRENT LOTT, Mississippi 

KAY BAILEY HUTCHISON, Texas 

OLYMPIA J. SNOWE, Maine 

GORDON H. SMITH, Oregon 

JOHN ENSIGN, Nevada 

GEORGE ALLEN, Virginia 

JOHN E. SUNUNU, New Hampshire 

JIM DEMINT, South Carolina 

DAVID VITTER, Louisiana 

DANIEL K. INOUYE, Hawaii, Co-Chairman 

JOHN D. ROCKEFELLER IV, West Virginia 

JOHN F. KERRY, Massachusetts 

BYRON L. DORGAN, North Dakota 

BARBARA BOXER, California 

BILL NELSON, Florida 

MARIA CANTWELL, Washington 

FRANK R. LAUTENBERG, New Jersey 

E. BENJAMIN NELSON, Nebraska 

MARK PRYOR, Arkansas 

LISA J. SUTHERLAND, Republican Staff Director 

CHRISTINE DRAGER KURTH, Republican Deputy Staff Director 

KENNETH R. NAHIGIAN, Republican Chief Counsel 

MARGARET L. CUMMISKY, Democratic Staff Director and Chief Counsel 

SAMUEL E. WHITEHORN, Democratic Deputy Staff Director and General Counsel 

LILA HARPER HELMS, Democratic Policy Director 

(III) 

C O N T E N T S 

Page 

Hearing held on June 13, 2006 ............................................................................... 1 

Statement of Senator Allen ..................................................................................... 61 

Prepared statement .......................................................................................... 61 

Statement of Senator Boxer .................................................................................... 58 

Statement of Senator Burns ................................................................................... 2 

Prepared statement .......................................................................................... 3 

Statement of Senator DeMint ................................................................................. 50 

Statement of Senator Dorgan ................................................................................. 4 

Statement of Senator Inouye .................................................................................. 1 

Prepared statement .......................................................................................... 2 

Statement of Senator Lautenberg .......................................................................... 6 

Statement of Senator E. Benjamin Nelson ............................................................ 6 

Statement of Senator Pryor .................................................................................... 5 

Statement of Senator Smith ................................................................................... 64 

Statement of Senator Stevens ................................................................................ 1 

Statement of Senator Sununu ................................................................................ 5 

Statement of Senator Vitter .................................................................................... 4 

WITNESSES

Fellman, Hon. Kenneth S., Mayor, Arvada, Colorado .......................................... 68 

Prepared statement .......................................................................................... 69 

Foosaner, Robert S., Senior Vice President, Government Affairs and Chief 

Regulatory Officer, Sprint Nextel Corporation .................................................. 97 

Prepared statement .......................................................................................... 98 

Glickman, Hon. Dan, Chairman/CEO, Motion Picture Association of America . 40 

Prepared statement .......................................................................................... 42 

Green, Brigadier General Richard M. (Retired), Legislative Director, National 

Guard Association of the United States ............................................................. 6 

Prepared statement .......................................................................................... 7 

Jones, Hon. Philip, Commissioner, Washington Utilities and Transportation 

Commission; on Behalf of National Association of Regulatory Utility Commissioners (NARUC) ............................................................................................ 92 

Prepared statement .......................................................................................... 94 

Largent, Hon. Steve, President/Chief Executive Officer, CTIA—The Wireless 

Association .......................................................................................................... 88 

Prepared statement .......................................................................................... 89 

LeGrande, Robert, Deputy Chief Technology Officer, District of Columbia 

Government .......................................................................................................... 33 

Prepared statement .......................................................................................... 35 

McCormick, Jr., Walter B., President/CEO, United States Telecom Association 

(USTelecom) .......................................................................................................... 76 

Prepared statement .......................................................................................... 77 

McCurdy, Hon. Dave, President/CEO, Electronic Industries Alliance (EIA); 

on Behalf of EIA, and Telecommunications Industry Association (TIA) ......... 25 

Prepared statement .......................................................................................... 27 

McSlarrow, Kyle, President/CEO, National Cable & Telecommunications Association ................................................................................................................ 72 

Prepared statement .......................................................................................... 74 

Putala, Christopher, Executive Vice President, Public Policy, EarthLink, Inc. . 79 

Prepared statement .......................................................................................... 81 

Rose, John, President, Organization for the Promotion and Advancement 

of Small Telecommunications Companies (OPASTCO); on Behalf of the 

Coalition to Keep America Connected ................................................................ 43 

Prepared statement .......................................................................................... 44 

Page

IV 

Rutledge, John, Ph.D., President, Rutledge Capital; President, Mundell International University Business School in Beijing, China; on Behalf of the 

U.S. Chamber of Commerce ................................................................................ 8 

Prepared statement .......................................................................................... 10 

Scott, Ben, Policy Director, Free Press .................................................................. 13 

Prepared statement .......................................................................................... 14 

APPENDIX

Letter with attachment, dated June 20, 2006, to Hon. Daniel K. Inouye 

from Robert S. Foosaner ...................................................................................... 107 

Letter with attachment, dated June 15, 2006, to Hon. Ted Stevens from 

Walter B. McCormick, Jr. .................................................................................... 103 

Letter, dated June 13, 2006, to Hon. Ted Stevens and Hon. Daniel K. Inouye 

from Ron Sege, President/Chief Executive Officer, Tropos Networks ............. 110 

(1) 

S. 2686, COMMUNICATIONS, CONSUMER’S 

CHOICE, AND BROADBAND DEPLOYMENT ACT 

OF 2006 (PART III) 

TUESDAY, JUNE 13, 2006 

U.S. SENATE, 

COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION, 

Washington, DC. 

The Committee met, pursuant to notice, at 10:07 a.m. in room 

SH–216, Hart Senate Office Building, Hon. Ted Stevens, Chairman 

of the Committee, presiding. 

OPENING STATEMENT OF HON. TED STEVENS, 

U.S. SENATOR FROM ALASKA 

The CHAIRMAN. Thank you very much for coming. Sorry for the 

delay. 

We have a very full hearing today. We’ll have two panels, so the 

Committee can receive diverse opinions on the revisions that my 

staff and I have suggested, working with Senator Inouye and his 

staff. 

To keep this moving smoothly, I would hope the Committee 

would agree to this, that Members will use up to 2 minutes before 

the first panel, or, if they want to forego the opening statement, 

they may use 7 minutes for questioning the first panel. And, otherwise, in the second panel, each member will have 5 minutes for 

questions. And if Members have to leave the hearing for a substantial period of time, aside from stepping out for a moment for a 

phone call or voting or for personal reasons, we are going to treat 

that as being when the person comes in the second time. That’s the 

order that they would be called on for asking questions of witnesses. 

I do thank all the witnesses for coming. And I thank members 

of the Committee, who have been very helpful in providing comments. 

We will print your statements in the record in full. Contrary to 

what you’ve heard, we have allocated 5 minutes to each one of you 

on your statements, and I would appreciate it if Members would 

confine their first comments to no more than 2 minutes. 

Senator Inouye? 

STATEMENT OF HON. DANIEL K. INOUYE, 

U.S. SENATOR FROM HAWAII 

Senator INOUYE. Thank you very much. May I have my statement made part of the record? 

2 

The CHAIRMAN. Senator Inouye’s statement will be made part of 

the record. I don’t know what the order is here yet. 

[The prepared statement of Senator Inouye follows:] 

PREPARED STATEMENT OF HON. DANIEL K. INOUYE, U.S. SENATOR FROM HAWAII

Today, we meet again to discuss the issue of telecommunications reform and 

changes made to S. 2686 by the recent staff draft released late last week by the 

Majority. 

While I recognize and appreciate that the new draft makes a number of improvements to the language contained in S. 2686, I continue to be concerned by the lack 

of significant progress in a number of key areas that, in my view, are critical components of telecommunications reform legislation. 

For example, despite significant changes to preserve the legitimate interests of 

state and local governments in the franchising process, I remain deeply concerned 

that further advances are needed so that any new franchising process will preserve 

important consumer protections, will promote a fair and neutral process for all operators, and will advance the interests of local communities in bringing the benefits 

of modern communications networks to all of their citizens. 

Apart from video franchising, I am also troubled by our failure in the current 

draft to strengthen existing interconnection requirements, to promote competition in 

special access markets in the face of clear market failure, and to preserve network 

neutrality through enforceable provisions that will prevent unfair discrimination by 

broadband network operators. 

That said, I realize that the current draft remains a work-in-progress and appreciate the efforts made by the Chairman and his staff to respond to concerns aired 

by Members on both sides of the aisle. As a result, I look forward to continuing our 

work on this legislation in the days and months ahead. 

The CHAIRMAN. Senator Burns? 

STATEMENT OF HON. CONRAD BURNS, 

U.S. SENATOR FROM MONTANA 

Senator BURNS. Mr. Chairman, can you all hear, out there? Can 

you? Can you hear, in the back? There are some people up front 

that would like to trade chairs with you, if you can’t. 

Thank you, Mr. Chairman, for holding this hearing today and 

taking the time on the views, as we try to move this legislation forward. I’ll submit my full statement for the record. 

But I think, you know, in 1996, we worked on the 1935 law, and 

we figured we were trying to deal with 1990s technology with a 

1935 law. It didn’t take very long for the technologies to catch up 

with this one and outdate it a little bit. And now we’re back revisiting that same law, just 10 years later. But that’s the way technology moves, and that’s the way it is, and we have to be flexible 

with it. 

And so, I’m grateful to the Chairman for putting this bill together. Universal service, I have a keen interest in, and most of the 

U.S.—the NetUSA that was in my Universal Service bill is also in 

this bill, and he has to be given a lot of credit for, really, offering 

a far-reaching bill. The goal is to permit competition. And I think 

it does. And now, we’re going to—now we’ve gone into the video 

services business, and people have a variety of ways of receiving 

their video—through cable, through telephone, through satellite. 

And every now and again they even go to the movies themselves. 

So, we are contemplating that there’ll be a lot of competition in the 

video business. 

As you know, with the telephones going into the video business, 

and the cables going into the telephone business, that offers up anVerDate Nov 24 2008 10:53 May 06, 2011 Jkt 066172 PO 00000 Frm 00006 Fmt 6633 Sfmt 6601 S:\GPO\DOCS\66172.TXT SCOM1 PsN: JACKIE
3 

other challenge for policymakers. But under competitive policies, 

that was expected to happen. 

So, lately now we’ve heard about net neutrality. I will guarantee 

you, if you walk down Pennsylvania Avenue, or any other street in 

this town, and you ask 20 people what ‘‘net neutrality’’ is or means, 

you will get 20 different answers. And some—now, there are just 

a few, maybe, that understand that, and—but it’s nice that we— 

and probably convenient—that we’ll be talking about net neutrality 

in this bill. And also on video franchising, we will talk about that. 

And so, it’s a far-reaching bill, and I congratulate the Chairman. 

And I will offer my statement and go away. 

The CHAIRMAN. The statement will be printed in the record in 

full. 

[The prepared statement of Senator Burns follows:] 

PREPARED STATEMENT OF HON. CONRAD BURNS, U.S. SENATOR FROM MONTANA

Thank you, Mr. Chairman, for holding this important hearing today. I would also 

like to thank our guests for taking the time to share their views with us. 

Congress, and this Nation, have had a commitment to a Universal Service for almost 100 years—a commitment that helps keep telephone service affordable in highcost areas such as Montana, helps ensure that schools and libraries receive access 

to the Internet, and helps link rural healthcare facilities to urban medical centers, 

promoting telemedicine. 

I’m grateful to see that Senator Stevens incorporated many important ideas from 

my NetUSA bill, including the section that will help improve the delivery of telemedicine, which will aid the people living in rural areas of the country, like Montana, by keeping their phone bills low while expediting the spread of new technologies to those rural communities. 

The Universal Service Fund remains crucial for the future of rural America—the 

day has not arrived when technology and the free market can make affordable telecommunications services available everywhere. 

Chairman Stevens deserves a lot of credit for introducing such a thoughtful and 

far-reaching telecommunications bill. I’m very pleased that most of the principles I 

set forth earlier this year are addressed and adhered to in this piece of legislation 

in regards to video franchising. 

The goal is to promote competition wherever possible. I am well aware of how 

competition for video services has grown over the past decade, even in rural areas 

like Montana. Satellite competitors, such as DIRECTV and EchoStar, have had a 

significant impact on the marketplace, and most of our constituents can now choose 

among three service providers for their video programming. 

Technology has enabled cable companies to compete for telephone customers, and 

telephone companies are beginning to compete for cable and satellite television customers. A study the GAO put out in March of 2004, shows that cable TV rates are 

substantially lower (by 15 percent) in markets where competition exists. With this 

in mind, we have the opportunity to bring even more competition to the marketplace, while at the same time ensuring that our colleagues in local government are 

able to protect the interests of our communities. 

Under existing law, cable operators and telephone companies must obtain a franchise from local governments before they can provide cable service. The franchising 

process ensures that local governments can continue to manage their rights-of-way. 

By taking franchising rights away from local governments it would eliminate them 

from requiring build-out requirements, offering consumer protections, preventing 

economic redlining, and offering their community public, educational, and governmental programming. But the franchising process must not be permitted to become 

a barrier to entry. 

Lately, we’ve seen an incredible surge in the argument of net neutrality—it’s an 

issue that’s unfortunately become political. It’s unfortunate because if you ask ten 

people what it is, you’ll get ten different answers. 

I feel the Stevens approach is the best way to effectively protect our Internet 

without over-regulating, and creating unintended consequences by giving the necessary tools for the Federal Communications Commission to monitor the net neutrality issue, and act to protect consumers accordingly. 

4 

Although I agree with the spirit and intent of the legislation Senators Snowe and 

Dorgan have proposed, I have some serious concerns of unintended consequences 

that this legislation could have on rural states like Montana. 

I have concerns that Congress is not as equipped to be a reliable consumer watchdog as the FCC, which is why I support the Stevens approach to ensuring the issue 

of net neutrality is properly handled. 

It takes a ‘‘crime before punishment’’ angle, as opposed to the Snowe-Dorgan bill, 

and gives the FCC the tools it needs to carefully monitor and act if large ISPs try 

to enter into an exclusive deal with a content provider. 

Our telecommunications laws are outdated, which is hurting consumers and businesses both large and small. I look forward to the thoughts and opinions of our 

guests today, and working with the rest of the Committee to craft the best telecommunications bill possible. 

The CHAIRMAN. Senator DeMint? 

Senator DEMINT. Mr. Chairman, I appreciate all your work on 

this bill, and I’ll withhold my comments until after the testimony. 

The CHAIRMAN. Thank you. 

Senator Vitter? 

STATEMENT OF HON. DAVID VITTER, 

U.S. SENATOR FROM LOUISIANA 

Senator VITTER. I’ll do the same, Mr. Chairman, thank you. 

The CHAIRMAN. Senator Dorgan? 

STATEMENT OF HON. BYRON L. DORGAN, 

U.S. SENATOR FROM NORTH DAKOTA 

Senator DORGAN. Mr. Chairman, let me just take a minute and— 

first of all, thank you. I received the revisions to your mark, I 

think, on Friday evening. And I’ve been traveling—just arrived 

back in town last evening—but I’ve looked through it, and I think 

that you’ve done some good things on the Universal Service portion 

of the bill. I think there are some good changes in the video franchising title. There are some areas, I think, with respect to buildout issues, that we ought to address. 

I agree with Senator Burns, that probably not a lot of people understand the term ‘‘net neutrality,’’ but they certainly understand 

the open architecture of the Internet, and the opportunity for everybody, no matter where they are, to access the Internet. And perhaps we should call it ‘‘Internet freedom.’’ I think maybe most people understand the freedom to move onto the Internet and move 

wherever they like. And so, I don’t—I think it’s very important for 

us to understand that that is an important issue. And I hope that 

Senator Snowe and I and others will be able to work with you, and 

with the Vice Chairman, or Co-Chairman, of the Committee on 

that issue. 

Finally, just—this is all very complicated, and these are big 

stakes. I was here in 1996 when we wrote the 1996 Act. The world 

has changed a great deal since then. And so, as we now contemplate additional changes, all of us understand that the stakes 

are very big. These are difficult issues, in many ways. But all of 

us, I think, want the same thing. 

I’d like robust competition to exist. I’d like consumers to have 

many choices. And I think I’d like—I’d certainly like to continue to 

incentivize innovation and creativity and progress. 

So, Mr. Chairman, thank you very much for calling this hearing. 

I look forward to hearing the witnesses. 

5 

The CHAIRMAN. Thank you very much. 

Senator Pryor? 

STATEMENT OF HON. MARK PRYOR, 

U.S. SENATOR FROM ARKANSAS 

Senator PRYOR. Thank you, Mr. Chairman. And I really want to 

just really thank the Chairman and his staff for just spending 

hours, and hours, and hours in trying to get this bill right, trying 

to take in—everybody’s views into consideration. And I’ll have a lot 

of questions, but, Mr. Chairman, I just wanted to say thank you, 

and thank you to all the staff members who worked so hard to get 

us here today. 

Thank you. 

The CHAIRMAN. Thank you very much. 

I’ve overlooked the Senator from New Hampshire. I apologize. I 

thought the first Senator—— 

Senator SUNUNU. That is quite—— 

The CHAIRMAN.—was my name, not yours. 

Senator SUNUNU. Thank you, Mr. Chairman. 

STATEMENT OF HON. JOHN E. SUNUNU, 

U.S. SENATOR FROM NEW HAMPSHIRE 

Senator SUNUNU. We do have principles that have already been 

put forward by the FCC supporting Internet freedom, if that’s what 

we want to call it, supporting Internet access. But what has been 

contemplated by Senator Dorgan and by others previously, such as 

Representative Markey in the House, are Internet regulations. And 

I think that’s something that the public can certainly understand. 

A few things have happened in the last 3 days, I think, that are 

important in this area: 

First, that that language, imposing regulations on the Internet, 

was rejected overwhelming in the House of Representatives, a bipartisan coalition. I think nearly 270 votes rejecting that Internet 

regulation language. 

Second, we have the editorial pages of pretty diverse institutions—the Washington Post and the Wall Street Journal—again, 

lining up, saying that it is wrong to impose these regulations now. 

We want to make sure that there is fair competition. We want to 

make sure that there are reasonable economic incentives for buildout and for other things. We have principles for competition that 

have been established by the FCC. But I think that the language— 

Chairman Stevens’ markup and the language that has been accepted in a bipartisan fashion in the House—steers it in the right direction. We should be very careful before we start imposing Internet regulations, because if there is anything that the public will 

understand, it’s that a heavy regulatory hand kills incentives to develop new products, to deploy new technologies, and that, ultimately, will be something that consumers feel and respond to in a 

very negative way. 

So, I think, over the last 3 days, we’ve seen a number of instances that set the right direction for us, and that, I hope, we will 

continue to heed as we mark up this legislation. 

Thank you. 

The CHAIRMAN. Thank you very much. 

6 

Senator Nelson of Nebraska? 

STATEMENT OF HON. E. BENJAMIN NELSON, 

U.S. SENATOR FROM NEBRASKA 

Senator BEN NELSON. Thank you very much, Mr. Chairman. And 

let me add my appreciation to you and your staff, and to the—to 

Senator Inouye and his staff, for working on this markup. And I’m 

anxious to hear the witnesses, so I’ll suspend any further comments. 

Thank you very much. 

The CHAIRMAN. Thank you, Senator. 

We’ll now proceed. I believe everyone that’s here has been given 

the chance to comment. 

Senator BURNS. Senator Lautenberg just walked in. 

The CHAIRMAN. Senator Lautenberg, you got in under the wire. 

Do you wish to make an opening statement? 

STATEMENT OF HON. FRANK R. LAUTENBERG, 

U.S. SENATOR FROM NEW JERSEY 

Senator LAUTENBERG. I wish to take as much time as I can, sir. 

And so, that means, I guess, I go to the back of the line for the 

7-minute inning? 

The CHAIRMAN. No, you can take 2 now. 

Senator LAUTENBERG. And sacrifice 2 minutes at the end. Is 

that—— 

The CHAIRMAN. We add the 2 minutes to the 5, if you don’t take 

them at the beginning. 

Senator LAUTENBERG. I’ll take 7, sir. 

The CHAIRMAN. All right. 

Our first witness, then, is Brigadier General Richard Green, retired as the Legislative Director for the National Guard Association. 

General Green? 

STATEMENT OF BRIGADIER GENERAL RICHARD M. GREEN 

(RETIRED), LEGISLATIVE DIRECTOR, NATIONAL GUARD 

ASSOCIATION OF THE UNITED STATES 

General GREEN. Good morning. 

The CHAIRMAN. As I said, all your statements are in the record 

in full. You may have up to 5 minutes to give us your comments, 

please. 

General GREEN. Chairman Stevens, Members—— 

Senator BURNS. Pull that mike up to you. 

General GREEN. OK. How’s that? 

The CHAIRMAN. They’re hot, but they’re not that hot. 

General GREEN. All right. 

Chairman Stevens, members of the Committee, thank you for the 

opportunity to testify before you today on issues related to Senate 

bill 2686, to reduce telephone rates for Armed Forces personnel deployed abroad. 

Since 1878, when a group of volunteer officers, veterans of the 

Civil War from both the North and South, gathered in Richmond, 

Virginia, to discuss matters of practical reform, which would make 

the militia a more effective instrumentality of our system of naVerDate Nov 24 2008 10:53 May 06, 2011 Jkt 066172 PO 00000 Frm 00010 Fmt 6633 Sfmt 6601 S:\GPO\DOCS\66172.TXT SCOM1 PsN: JACKIE
7 

tional defense, the National Guard Association of the United States 

has served as the voice on Capitol Hill to represent the interests 

of our citizen soldiers and airmen. 

The main thrust of our early founders was to ensure the Guard 

had the equipment and training necessary to attain desired readiness levels, and those efforts continue. However, since recruiting 

and retention is so important, a considerable amount of our efforts 

are now aimed at providing a variety of support for our military 

families. 

During the Cold War years, the Guard was considered a strategic 

reserve. Today, the National Guard represents 28 percent of the 

total Army and Air Force, and is considered an operational force. 

With boots-on-the-ground for a year or more at a time, members 

of the Guard are up to the challenge, but it doesn’t come without 

significant strain on families that may not be used to having their 

loved ones deployed for extended periods of time to dangerous locations. 

It is often said that we recruit the member and retain the family; 

however, when members of the military are deployed, the ability to 

communicate over the phone with loved ones back home can be 

confusing and expensive. Additionally, the inability to communicate 

with a spouse on a regular basis can result in family issues that, 

if allowed to fester, could ultimately affect the family’s perception 

of life in the military, and negatively impact retention. 

The ability to use e-mail has helped, but nothing compares to the 

voice of your loved one having the ability to exchange thoughts and 

feelings, or to discuss an important issue person-to-person over the 

phone. 

It has been the custom of the military to establish ‘‘welfare and 

morale’’ phone lines that are free-of-charge at deployed locations. 

But many times these services are extremely limited or inconvenient, resulting in some deployed members running up expensive 

phone bills. This is not a Guard-specific issue. It applies to all 

members of our Armed Forces. However, on behalf of the men and 

women of the National Guard who are serving our country, we both 

applaud and enthusiastically support your efforts to find creative 

ways to reduce the cost of calling home for Armed Forces personnel. 

Doing whatever we can to support those who risk their lives to 

defend freedom is always the right thing to do. And the National 

Guard Association stands firmly behind your Committee’s efforts to 

help provide more cost-effective means for our members to stay in 

touch with those back home. 

Mr. Chairman, members of the Committee, I sincerely thank you 

for your time and look forward to your questions. 

[The prepared statement of General Green follows:] 

PREPARED STATEMENT OF BRIGADIER GENERAL RICHARD M. GREEN (RETIRED), 

LEGISLATIVE DIRECTOR, NATIONAL GUARD ASSOCIATION OF THE UNITED STATES

Chairman Stevens, members of the Committee, thank you for this opportunity to 

testify before you today on issues related to S. 2686, the Communications, Consumers’ Choice, and Broadband Deployment Act of 2006, to reduce telephone rates 

for Armed Forces personnel deployed abroad, cited in Title I—War on Terrorism, 

Subtitle A, Sec. 101–102 as ‘‘Call Home.’’ 

8 

Since 1878, when a group of volunteer officers, veterans of the Civil War from 

both the North and South, gathered in Richmond, Virginia, to discuss ‘‘matters of 

practical reform which would make the Militia a more effective instrumentality in 

our system of National Defense’’, the National Guard Association of the United 

States has served as the voice on Capitol Hill to represent the interests of our citizen soldiers and airmen. 

The main thrust of our early founders was to ensure the Guard had the equipment and training necessary to attain desired readiness levels, and those efforts 

continue. However, since recruiting and retention is so important, a considerable 

amount of our efforts are now aimed at providing a wide variety of support to our 

military families. 

During the Cold War years, the Guard was considered a ‘‘Strategic Reserve.’’ 

Today, the National Guard represents 28 percent of the total Army and Air Force 

and is considered an ‘‘Operational Force.’’ 

With ‘‘boots-on-the-ground’’ of a year or more at a time, members of the Guard 

are up to the challenge. But, it doesn’t come without significant strain on families 

that may not be used to having their loved one’s deployed for extended periods of 

time to dangerous locations. 

It is often said that we ‘‘recruit the member and retain the family.’’ However, 

when members of the military are deployed abroad, the ability to communicate over 

the phone with loved ones back home can be confusing, and is almost always expensive. 

Additionally, the inability to communicate with a spouse on a regular basis can 

result in family issues that, if allowed to fester, could ultimately affect the family’s 

perception of life in the military and negatively impact retention. 

The ability to use e-mail has helped. But, nothing compares to the ‘‘voice’’ of the 

one you love, and having the ability to exchange thoughts and feelings, or to discuss 

an important issue person-to-person over the phone. 

It has been a custom of the military to establish ‘‘welfare and morale’’ phone lines 

that are free of charge at some overseas locations. But, many times these services 

are extremely limited or inconvenient, resulting in some deployed members running 

up expensive phone bills. 

This is not a Guard-specific issue. It applies to all members of our Armed Forces. 

However, on behalf of the brave men and women of the National Guard who are 

serving our country, we both applaud and enthusiastically support your efforts to 

find creative ways to reduce the cost of calling home for Armed Forces personnel 

stationed outside the United States. 

Doing whatever we can to support those who risk their lives to defend freedom 

is always the right thing to do. And, the National Guard Association stands firmly 

behind your Committee’s efforts to help provide more cost-effective means for our 

members to stay in touch with those back home. 

Mr. Chairman, members of the Committee, I sincerely thank you for your time 

and look forward to your questions. 

The CHAIRMAN. Thank you very much. 

Our next witness is Dr. John Rutledge, the President of Rutledge 

Capital, Consultant to the United States Chamber of Commerce. 

Dr. Rutledge? 

STATEMENT OF JOHN RUTLEDGE, PH.D., PRESIDENT, 

RUTLEDGE CAPITAL; PRESIDENT, MUNDELL INTERNATIONAL 

UNIVERSITY BUSINESS SCHOOL IN BEIJING, CHINA; 

ON BEHALF OF THE U.S. CHAMBER OF COMMERCE 

Dr. RUTLEDGE. Mr. Chairman and members of the Committee, 

thank you for inviting me to testify today. 

My day job is Rutledge Capital, which is a private equity firm, 

buying and selling companies, leveraged buyouts. Beside that, I’m 

President of the Mundell International University of Entrepreneurship in Beijing. So, I advise both Chinese companies and the Chinese Government on energy and technology issues, and deal with 

issues on both FOX News and CNBC relating to economics. 

I’m here to testify, invited on behalf of the U.S. Chamber of Commerce. I was one of the authors of a study the U.S. Chamber of 

9 

Commerce did on telecom reform which was conducted, reaching 

the conclusion that a broadbased deregulatory reform of the communications industries in the U.S. over a 5-year period could generate $58 billion of capital spending, $634 billion of extra GDP, 

$113 billion of extra taxes, 200,000 additional jobs, and make the 

U.S. more competitive. The Chamber has asked me to testify today 

on their behalf regarding the telecom legislation. 

My summary is really very simple. The communication network 

is the central nervous system of all economic activity in the country. Virtually 100 percent of growth in the U.S. economy in the 

next 5, 10, 20, and 50 years will occur in the information-driven 

service sectors. We talk a lot about competing for jobs with China 

and India, but the fact is, we’re not competing for jobs, we’re competing for capital. Every farmer knows you can’t eat more than you 

grow. You also cannot take home more than you produce in a factory. Productivity is the only number that matters, in terms of people’s paychecks. Productivity depends on workers’ access to tools. 

So, competing for capital with others is the issue. 

The U.S. Chamber of Commerce opposes the net neutrality reregulatory concept, on the grounds that it would harm capital 

spending on infrastructure, slow productivity growth, and slow 

overall growth. And I’d like to talk about why for a moment. 

I like to think of the global economy as a set of washtubs like 

my mother used to have. There was a washing tub and a rinsing 

tub. If you put water in one of them and not in the other one, it’ll 

stay that way for a long time. But if you put a hole in the wall between them, the water will become even on both sides. We call that 

‘‘water seeks its own level.’’ It’s really the second law of thermodynamics. It’s the same thing that drives markets with price differentials. It drives capital markets with return differentials, as 

well. 

Most of the capital in the world is bottled up in the U.S., Western Europe, and Japan. Most of the people in the world are bottled 

up in Asia. We are now connected not only through international 

trade, which means ships, but also via fiber optic cable that now 

can transmit an almost infinite amount of value at the speed of 

light between countries. That transfer of value is what we’ve all 

been thinking of as out-sourcing, and it has been disrupting the 

economy. 

Competing for paychecks is a matter of competing for capital, especially tech capital. In my work in China, I have understood and 

learned that the Chinese Government understands this issue, is 

aggressively competing to attract capital from the U.S. and Western Europe, especially technology capital. They have a particular 

reason for that. The reason is that the air is very dirty, and they’re 

running out of coal, gas, and oil. The only way they can deliver 8 

to 10 percent growth is to deliver $60 billion of foreign direct investment a year. To do that, they need tech capital that will grow 

the economy without using more oil. The way you win that game 

is with rates-of-return, taxes, and regulations. By making returns—returns are already high in China, but by making taxes and 

regulations attractive, they’re attracting large sums of tech capital. 

We need the fastest, deepest information network in the world. 

We don’t have it. Asia and Europe are both investing much more 

10 

heavily than we are. Wall Street, so far, is unimpressed with the 

measures that have been taken. The most important thing you 

could do is to pass this bill, which would not allow re-regulation of 

the Internet or price controls on information distribution. 

Thank you. 

[The prepared statement of Dr. Rutledge follows:] 

PREPARED STATEMENT OF JOHN RUTLEDGE, PH.D., PRESIDENT, RUTLEDGE CAPITAL; 

PRESIDENT, MUNDELL INTERNATIONAL UNIVERSITY BUSINESS SCHOOL IN BEIJING, 

CHINA; ON BEHALF OF THE U.S. CHAMBER OF COMMERCE

Mr. Chairman and Members of the Committee, thank you for inviting me to testify today. My name is John Rutledge, and I am the President of Rutledge Capital 

and President at the Mundell International University Business School in Beijing, 

China. I have spent a significant amount of time over the past few years researching issues related to the impact of technology on the economy, and I was one of the 

authors of the U.S. Chamber of Commerce’s telecommunications study, Sending the 

Right Signals: Promoting Competition through Telecommunications Reform. In this 

regard, I developed a macroeconomic model of the impact of the regulatory climate 

on jobs, the economy, and international competitiveness. The U.S. Chamber of Commerce has asked me to testify today on their behalf. The U. S. Chamber of Commerce is the world’s largest business federation, representing more than three million businesses and organizations of every size, sector, and region. 

Moreover, the U.S. Chamber, in partnership with the National Association of 

Manufacturers, the National Black Chamber of Commerce, and the United States 

Hispanic Chamber of Commerce, leads TeleCONSENSUS, a coalition of more than 

190 trade associations, chambers of commerce, telecommunications providers, and 

equipment manufacturers, businesses, and consumers, formed to educate policymakers, the business community, and the public about the need for modernized Federal telecommunications laws, and the importance of advanced telecommunications 

services to the U.S. economy, and our ability to effectively compete with other nations for jobs and capital. 

Impact of Telecommunications on the Economy 

This year, Congress will have a unique opportunity to set aside partisan politics 

and choose growth and prosperity for our citizens by voting to reform our archaic 

telecommunications laws. A legislator who votes to continue second-guessing innovation and regulate competitive communications technology services is voting to send 

U.S. businesses and jobs overseas. It is time for the United States to take a stand 

for growth. 

Telecommunications is the central nervous system of today’s global economy; it is 

the way all businesses communicate and do business with our workforce, our suppliers, and our customers. Fast, accurate communications networks have become a 

crucial competitive tool. It is absolutely critical that our businesses have the tools 

to compete for customers and to keep jobs and paychecks growing here at home. 

Inadequate investment in high-speed telecommunications networks has the potential to severely undermine our competitiveness. For the past decade, policies in 

Washington have discouraged investment by undermining the return on capital invested in U.S. telecommunications assets, and adding a great deal of regulatory uncertainty to the investment process. During that time, the United States has gone 

from 5th place to 16th place among global economies in access to high-speed telecommunications networks. America’s eroding telecommunications position is quietly 

reducing our workers’ standard of living. 

There is an intense global competition for capital underway. Workers in the 

United States are not competing with other states for jobs. Our workers and businesses are competing with China, India, Korea, and other Asian economies for the 

capital to build businesses. Jobs go where the businesses go. With fiber-optic connections, service jobs from customer service in a call center to radiologists reading xrays can be done over fiber-optic cable from anywhere in the world at the speed of 

light. China, India, and Korea are taking steps every day to make themselves a destination resort for capital. They have made high-speed telecommunications a national priority because they understand the role telecom plays in driving productivity and economic growth. Ironically, it is easier today to outsource work to companies in Beijing or Bangalore than to many small towns in America, simply because 

foreign telecommunications infrastructure is better than it is here. 

11 

1 Harold Furchtgott-Roth, ‘‘The ‘Network Neutrality’ Battle,’’ The New York Sun, June 12, 

2006, page 10. 2 ‘‘Appropriate Framework for Broadband Access to the Internet over Wireline Facilities’’, 

News Release, 2005 FCC LEXIS 4494 (rel. Aug. 5, 2005) (Chairman Kevin J. Martin Comments 

on Commission Policy Statement). 3 ‘‘Appropriate Framework for Broadband Access to the Internet over Wireline Facilities,’’ 

(FCC Adopts Policy Statement). 

In the old game, the capital and the workers were less mobile and our stable, 

well-developed markets and well-trained workers attracted the capital that made 

U.S. workers more productive and earn bigger paychecks than any place in the 

world. But the game has changed. 

Radical advances in technology have changed the way we all communicate and 

do business. Markets around the world are now connected. Capital can move easily 

and invisibly, in search of higher returns and service jobs can move across country 

lines independent of immigration policy. But policymakers have continued to regulate communications as if we were still in the 1950s. 

It’s time for policymakers in Washington to allow consumer choice and innovation 

to drive the deployment of new technology, not government regulation. In a June 

12, 2006, article in The New York Sun, former FCC Commissioner Harold 

Furchtgott-Roth illustrated the impact of the Internet on the U.S. economy when 

he stated that: 

Fees for Internet access services pale in comparison to the commercial transactions conducted on the Internet. The most recent government report calculates that in 2004 nearly $1 trillion in manufacturing shipments, or 23.6 percent of the total manufacturing, were attributable to electronic commerce. For 

the wholesale sector, more than $825 billion in sales were electronic commerce, 

or more than 17 percent of the total. Selected services, including airline ticket 

sales, had revenue of nearly $60 billion in sales.1

Congress has the opportunity this year to abandon the misguided ideas that they 

have the ability to predict new technologies, and that regulation encourages competition. Reforming telecommunications regulations will encourage new investment, 

innovation, and jobs and will free wireline and wireless service providers to engage 

in the capital spending they need to grow, and to ensure that the capabilities of 

their networks are in sync and responsive to user needs. This will do more to solve 

the problem of outsourcing than any form of protectionism, or for that matter, practically any other step the Federal Government may take to preserve jobs in this 

country. 

‘‘Net Neutrality’’ and the Economy 

‘‘Net neutrality’’ suggests that the Internet should be operated in a neutral manner—meaning that users should be free to visit their choice of legal websites, to connect video game systems and other such devices to the Internet, and to access online 

applications, without interference from service providers, content providers, or the 

Federal Government. The Federal Communications Commission (FCC) has adopted 

a policy statement that outlines four ‘‘net neutrality’’ principles designed to encourage broadband deployment, and preserve and promote the unrestricted nature of the 

Internet. 

The FCC principles are straightforward and clear: 

1. Consumers are entitled to access the lawful Internet content of their choice; 

2. Consumers are entitled to run applications and use services of their choice, 

subject to the needs of law enforcement; 

3. Consumers are entitled to connect their choice of legal devices that do not 

harm the network; and 

4. Consumers are entitled to competition among network providers, application 

and service providers, and content providers. 

While the FCC’s ‘‘Four Freedoms’’ statement does not formally establish rules, 

they do reflect the core beliefs that each member of this Commission holds regarding 

how broadband Internet access should function, according to FCC Chairman Kevin 

Martin.2 The press statement that accompanies the Policy Statement notes 

that . . . although the [FCC] did not adopt rules in this regard, it will incorporate 

these principles into its ongoing policymaking activities. 3 FCC Commissioner Michael Copps has stated that while he would have... preferred a rule that we 

could use to bring an enforcement action, the Policy Statement . . . lays out a path 

forward under which the Commission will protect network neutrality so 

12 

4 In the Matter of: Appropriate Framework for Broadband Access to the Internet over Wireline 

Facilities, Report and Order and Notice of Proposed Rulemaking, (Statement of Michael J. 

Copps, Concurring), Docket No. FCC–05–150, 20 FCC Rcd 14853, 14979. (rel. Sept. 23, 2005). 5 In the Matter of SBC Communications Inc. and AT&T Corp. Applications for Approval of 

Transfer of Control, WC Docket No. 05–65, 20 FCC Rcd 18290 (Rel. Oct. 31, 2005). In the Matter of Verizon Communications Inc. and MCI, Inc. Applications for Approval of Transfer of Control, WC Docket No. 05–75, 20 FCC Rcd 18433 (rel. Oct. 31, 2005). 

that the Internet remains a vibrant, open place where new technologies, 

business innovation, and competition can flourish.4

In granting the Verizon/MCI and SBC/AT&T mergers, the FCC went further and 

declared as enforceable certain voluntary ‘‘net neutrality’’ commitments by the parties. These obligations state that: 

• The applicants committed, for a period of three years, to maintain settlementfree peering arrangements with at least as many providers of Internet backbone 

services as they did in combination on the Merger Closing Dates. 

• The applicants committed for a period of two years to post their peering policies 

on publicly accessible websites. During this two-year period, the applicants will 

post any revisions to their peering policies on a timely basis as they occur. 

• The applicants committed for a period of two years to conduct business in a way 

that comports with the Commission’s [Policy Statement].5

Moreover, there has only been one instance in the United States of a company 

trying to block users from accessing a website or application. In that case, a small 

telephone carrier tried to prevent its customers from accessing a Voice over Internet 

Protocol (VoIP) service provider. Public outrage and FCC action quickly caused the 

company to halt this behavior. Simply put, the market reacted much more quickly 

to foolish practices than any Federal agency ever could. 

Therefore, based on the FCC’s principles, the commitment of the companies, and 

the fact that the market quickly resolved foolish conduct, there is no reason this 

country should assume the unintended risks (loss of investment, innovation, jobs, 

and competitiveness) by imposing a ‘‘net neutrality’’ law. 

The Internet is like a highway. Without enough lanes to accommodate the volume 

of cars, traffic jams occur. Widening the highway reduces congestion. The same principle applies to the Internet. Unless we invest in the infrastructure of the Internet, 

businesses and consumers will face massive traffic jams on the information superhighway as increasing amounts of high-volume traffic, like video, which has the potential to clog the existing transmission lines. Traffic flowing through our Nation’s 

information superhighway will increase 500-fold by 2020 as demand for multimedia 

applications increases. Internet content providers and dozens, if not hundreds, of 

startups will find themselves without the network capacity necessary to offer new 

services and applications. Therefore, this Nation has a choice. It either adopts a policy that fosters the build-out of the infrastructure, or it must be content to exist 

with today’s limited system and force all traffic over lines not built for the convergence of Internet, television, video, and massive amount of data. This latter outcome 

will deny U.S. businesses and workers the information tools they need to compete 

globally. 

As part of the larger ‘‘net neutrality’’ discussion, some members of Congress have 

announced their intent to introduce legislative language that would deter the investment necessary to avoid these traffic jams and realize wide-scale broadband deployment. ‘‘Net neutrality’’ legislation would, for the first time, impose government regulation on the Internet, inviting other countries to do the same—something that the 

Bush and Clinton Administrations have steadfastly opposed. 

The U.S. Chamber opposes the enactment of ‘‘net neutrality’’ legislation and believes that telecommunications markets should be driven by advances in technology, 

competition between telecommunications companies, and consumer choice, not by 

government regulation. The United States cannot afford for its economy to be stuck 

at an Internet red light. The Internet has succeeded precisely because it has not 

been burdened with government regulation. 

In the final analysis, the Internet is still evolving rapidly in both infrastructure 

and applications. Regulation would freeze current infrastructure in place, new applications would crowd the existing structure, and eventually those applications would 

run on more advanced systems in other parts of the world, thus harming our competitiveness. Simply put, as stated by Charles H. Giancarlo of Linksys in a June 

8, 2006, Wall Street Journal article: 

Regulation would lock in rules and practices that might seem correct today, but 

could create havoc tomorrow. Instead, we should allow massive convergence to 

13 

Internet technology to continue unabated, and regulators should address specific problems on a case-by-case basis. 

Therefore, if this Nation truly seeks to compete in a world economy in which there 

will be continuing battles over jobs and money, we must ensure that our industries 

have an incentive to create the best telecommunications system in the world. That 

innovation and investment can only be achieved by allowing the market-driven convergence of telephone, TV, computers, Internet services, and software applications 

without government regulation. 

The CHAIRMAN. Thank you, Dr. Rutledge. 

Our next witness is Ben Scott, who is the Policy Director for Free 

Press, here in Washington, D.C. 

Mr. Scott? 

STATEMENT OF BEN SCOTT, POLICY DIRECTOR, FREE PRESS 

Mr. SCOTT. Thank you, Mr. Chairman and members of the Committee. I thank you for the opportunity to testify. 

I sit on this panel today as a consumer advocate and a representative of a public-interest organization, a national nonprofit group 

with over 250,000 members. I think all of us on this panel, and all 

of you on the dais, agree on the goal of this legislation, if not always on the means to reach it. We all want to expand access to 

competitive video and broadband services, and we want to bring 

those services to the consumers who need them most. This bill 

takes some welcome steps in the right direction. 

First, the bill protects the right of municipalities to offer 

broadband service. It removes the barriers to entry that stand between broadband services and the people who need them. 

Second, the bill gives those communities the spectrum they need 

to bring broadband to their citizens. Opening the empty broadcast 

spectrum for unlicensed use will spur innovation, and bring affordable access to broadband technologies to millions of Americans. 

Third, the bill includes positive reform to stabilize and manage 

the Universal Service Fund toward a broadband future. We think 

it might even go farther in that direction. 

Fourth, the bill beefs up the nondiscrimination rules for video 

distributors to guarantee that popular programming reaches all 

consumers, especially regional sports. 

Yet, ultimately, we believe this bill has very significant weaknesses. Our haste to bring competition into the video market must 

not simply jettison public policies that both enhance competition 

and protect consumers. This could easily leave us with more anticompetitive activity in the marketplace, and not less. 

We see two of the most important issues in the bill remain unresolved: First, strong network neutrality protections; and, second, 

reasonable buildout requirements in video franchising. I fear that 

a franchising framework without reasonable buildout requirements 

will cement the digital divide into statute. It will allow telephone 

companies to cherrypick the most profitable franchises in the country and ignore all the others, including rural areas. It also gives 

the incumbent cable operators an incentive to lower prices in those 

areas where competition arises, and to raise them in those areas 

where there is no competition. The bill strips some basic protections against rate discrimination without conditioning that change 

on effective competition. 

14 

At best, we could see competition in a patchwork quilt of the 

most lucrative markets in the country, but those less prosperous in 

rural areas may be left out. The unintended consequences could 

well be systematic redlining on a national scale, a result I think 

none of us would welcome. 

On the question of network neutrality, this principle of nondiscrimination has been the cornerstone of Internet policy since the 

birth of the network technology. Nondiscrimination has made possible the greatest successes of the Internet. Its removal could well 

take them away. 

Once the practice of network discrimination begins, it will be 

very, very difficult to reverse. Consumers favor the lightest-possible 

regulatory touch that still guarantees the preservation of Internet 

freedom. I urge this Committee not to overlook the importance of 

this baseline protection and its impact on the future of the Internet. 

Notably, the principle of nondiscrimination is applied throughout 

the bill in several different titles. It is used to prevent abuses in 

the marketplace and to promote competition. For example, local 

franchising authorities must treat competitive video providers in a 

nondiscriminatory manner. Local governments that build 

broadband networks must not use local ordinances to discriminate 

against competitors. Cable operators may not use their market 

power to make discriminatory deals with programmers. Telecommunications networks must not give discriminatory treatment 

to other facilities-based VoIP providers. 

It seems to me that the only section of the bill that does not 

enjoy this protection against discrimination is the Internet, which 

is the most dynamic marketplace in our telecommunications economy. The very same network owners that oppose nondiscrimination 

through network neutrality embrace it when it benefits their own 

properties and purposes. 

We believe that the principles of nondiscrimination should be applied in an evenhanded fashion. The move toward discrimination 

and exclusivity on the Internet will mean higher prices, fewer 

choices, and a gatekeeper standing astride the Internet for the first 

time. With this new legislation, Congress has a great opportunity 

to bring broadband and video services that are competitive and affordable. However, if we are going to make policy that solidifies a 

duopoly of wireline triple-play network providers, we must also protect consumers with network neutrality and systemwide buildout 

requirements. 

I thank you for your time and attention, and I do look forward 

to your questions. 

[The prepared statement of Mr. Scott follows:] 

PREPARED STATEMENT OF BEN SCOTT, POLICY DIRECTOR, FREE PRESS

Summary 

Free Press, 1 Consumers Union, 2 and Consumer Federation of America 3 appreciate this opportunity to testify on the revised draft of the Communications, Consumer’s Choice, and Broadband Deployment Act of 2006 (S. 2686). We strongly support the goal of this legislation: to expand consumer choice and access to competitive 

video and broadband services. American consumers currently face high prices and 

very little competition in both the video and broadband Internet markets. Monopoly 

and duopoly provision of these essential communications services limits innovation, 

15 

widens the digital divide, and permits rates to rise beyond the reach of many households. As the United States falls further behind in the global race to lead the world 

in broadband, action must be taken to remedy the failures of the 1996 Telecommunications Act, and bring vigorous competition to video and broadband that 

will enhance the diversity of media choices for consumers. This is a window of opportunity to make broadband and video services available and affordable with robust content choices for all Americans. 

However, our haste to bring competition must not result in a blind giveaway to 

one industry or another. Such action would simply yield anti-competitive activity in 

another direction and leave our problems unresolved. S. 2686 takes many positive 

steps, but leaves much undone. Without substantial changes to the bill, the benefits 

of video and broadband competition will not reach many American households—particularly in the low-income and rural areas which need those benefits the most. The 

bill opens the door to competition, but doesn’t ensure that new networks will be 

built universally. Key public interest protections and services have been abandoned, 

the most important of which is Network Neutrality—the foundation of the free and 

open Internet. 

Any franchising framework without reasonable build-out requirements cements 

the digital divide into statute. On the one hand, it allows telephone companies to 

cherry-pick the most profitable franchise areas in the country and ignore all the others. On the other, it gives the incumbent cable operators an incentive to lower prices 

in competitive areas and raise them in non-competitive ones. Without regard to conditions of effective competition, the bill would eliminate prohibitions against discriminatory cable pricing. The end result will be that the most lucrative markets 

in the country will have video competition, new technologies and lower prices. But 

less prosperous and rural areas will be left out of the new networks and may well 

experience higher prices for the monopoly service still available. The unintended 

consequence will be systematic redlining on a national scale—leaving millions of 

consumers with empty promises. 

On the question of Network Neutrality, this bill applies the most important principle in communications law—nondiscrimination—indiscriminately, leaving out its 

most important application. The firewall of Network Neutrality, which protects competition, maximizes consumer choice, and guarantees fair market practices, has 

been abandoned on the Internet space—endangering the most important engine for 

economic growth and democratic communication in modern society. Nondiscrimination made possible the grand successes of the Internet. Its removal can take them 

away. This will not happen immediately, of course. But once the practice of network 

discrimination begins, it will be virtually impossible to reverse. The loss of Network 

Neutrality will be a perpetual regret to all consumers and producers of Internet content and services, as well as to this Congress. Yet, S. 2686 merely instructs the FCC 

to study the process that will destroy the Internet as we know it. 

Notably, nondiscrimination is applied throughout this bill as a critical protection 

against abuses in the marketplace and a promoter of competition. The bill has it 

right in each case, but fails to bring the same logic to the Internet. For example, 

local franchising authorities must treat competitive video providers in a nondiscriminatory manner in the use of the public rights-of-way. Local governments that propose to build broadband networks must not use local ordinances to discriminate. 

Under the program access rules in S. 2686, cable operators may not use their market power to make exclusive or discriminatory deals with programmers that are denied other operators. Telecommunications providers must treat facilities-based VoIP 

providers in a nondiscriminatory manner. Universal Service Fund (USF) support 

must be distributed according to principles of competitive-neutrality. The only sector 

that does not enjoy this protection against discrimination is Internet content, applications and service providers—the most dynamic marketplace in our economy. 

We should apply the principles of nondiscrimination everywhere in an even-handed fashion. We must protect Internet freedom by preventing the telephone companies and cable operators from putting toll booths on the information superhighway. 

It is both just and reasonable to apply nondiscrimination protections across the communications sector. Everyone loves nondiscrimination until it is applied to their own 

properties. The same telephone and cable companies that demand nondiscrimination 

in program access and interconnection hypocritically deny its importance in the 

broadband market. This duplicity must not be codified into law. The move toward 

discrimination and exclusivity for Internet content spells disaster for consumers— 

meaning higher prices, fewer choices, and a gatekeeper standing astride what was 

heretofore been a truly free market. 

This legislation also takes some positive and welcome steps. First, we applaud S. 

2686 for opening up more unlicensed spectrum for innovative wireless broadband 

applications. The empty broadcast channels represent a massive public asset for 

16 

next-generation communications that is ready for immediate use. This type of spectrum reform contained in this bill is much needed and overdue. 

Second, we also strongly support the protections against pre-emption given to municipalities that would offer broadband to their constituents, either via public networks or the public-private partnerships already enjoying success in hundreds of 

communities. It is critical to remove all barriers to the development of broadband 

services. 

Third, we believe that the reforms of the Universal Service Fund proposed in this 

bill are steps in the right direction. The expansion of the base of contributions, and 

insertion of stringent accountability and audit measures will help stabilize a critical 

public-service program. We also support the application of USF funds to broadband 

in underserved areas. However, we are disappointed to note that the requirement 

for USF-supported networks to become broadband compatible has been removed 

from the bill. The USF programs must evolve to bring the dominant communications technology to all American households. 

Fourth, we support the establishment of mandatory channel allocations and funding for public, educational, and government access television. This bill will bring online thousands of new channels that will provide an important public service and 

dedicate funding to support them. We must ensure that our most successful access 

channels—those currently operating at budgets above the 1 percent franchise fee allocation—are not harmed by this bill. 

Finally, we support a rigorous application of non-exclusivity and nondiscrimination requirements to Multichannel Video Programming Distribution (MVPD) programming. Consumers have long been denied choices in video programming because 

of the anti-competitive activities of the system operators. This bill recognizes that 

the program access rules must be strictly applied and expanded to prevent MVPDs 

from using market power to execute anticompetitive practices. The terrestrial loophole certainly should be eliminated, but Congress should also move toward expanding diversity of programming through an a la carte pricing system and reform of 

the retransmission consent rules. 

The Communications, Consumers’ Choice, and Broadband Deployment Act of 2006 

presents Congress with a great opportunity to make broadband and video services 

competitive, affordable, and open to all content, applications and services that flow 

over the networks to consumers. In many ways, this bill is a step in the right direction. However, the lack of build-out requirements and the failure to protect Network 

Neutrality are severe flaws. If left unaddressed, they will undermine the positive 

outcomes of this bill and leave consumers worse off than they were before. No reform of communications law that solidifies a duopoly of wireline triple-play providers can be pro-consumer without Network Neutrality and system-wide build-out 

requirements. 

Assessment 

USF Programs Must Be Stabilized, Held Accountable, and Applied to Broadband— 

Title II—Universal Service Reform; Interconnection 

The key requirements for reforming USF for the 21st century are a stable base 

of contributions, rigorous standards of accountability, and the modernization that 

extends the programs to broadband. To that end, we applaud the provisions in S. 

2686 that expand contributions into the Universal Service Fund to all providers of 

communications services. We will monitor the Federal Communications Commission’s choice concerning which methodology of collection to use, and we support the 

adjustments to protect low-volume customers from disproportionate fees. Expanding 

the base of contributions will improve equity on a technology-neutral basis, and address the economic inefficiencies that exist in the current contributions system. Most 

importantly, it will rectify shortfalls in the revenue needed to adequately execute 

USF programs. We support the injection of accountability standards, performance 

measures, and audits into the system. We hope that the FCC will work to resolve 

the problems of parity surrounding the compensation of Competitive Eligible Telecommunications Carriers (CETCs) and rate-of-return carriers that has stressed the 

financial viability of the Fund. This will ensure that the fees that consumers pay 

into USF are commensurate with the benefits of an expanded network available to 

every household. 

We support the creation of the account for funding broadband in unserved areas, 

but we do not believe that alone will be sufficient to solve our rural broadband problem. For example, if the per-line cost of deployment is $1,000, approximately 

500,000 lines could be added per year—about a 1 percent increase in broadband 

penetration. We regret to note the removal of the provisions in the prior draft of 

S. 2686 that would have required providers receiving USF contributions to provide 

broadband service within five years of passage. To achieve the goals of universal 

17 

broadband, it will be critical that carrier eligibility for USF be contingent on making 

broadband available to all of its customers. 

We also suggest the following additional provisions: First, we recommend that 

municipal broadband systems be made explicitly eligible for funding from the 

Broadband for Unserved Areas Account, enabling communities to finance the construction of broadband networks where private players refuse to invest. Second, we 

recommend that Congress instruct the FCC to explore expanding the Lifeline and 

Link-Up programs to broadband. A major factor curtailing broadband penetration 

in the United States is the price of connectivity. Removing this barrier could greatly 

expand the reach of the technology and the opportunities it brings. The Fund for 

unserved areas will not likely bring universally-affordable broadband. A complementary program will be necessary to address the rich-poor digital divide in addition 

to the rural-urban digital divide. For similar reasons, we recommend thirdly that 

a requirement for USF eligible networks to become broadband compatible within 60 

months be reinstated in the bill. Finally, we recommend that all network operators 

that receive public subsidies through USF programs be subject to nondiscrimination 

rules with regard to the content, applications, and services that they transmit. 

New Franchising Practices Must Include Build-Out Requirements—Title III— 

Streamlining Franchising Process 

We strongly support policies that will bring video competition to all consumer 

households as rapidly as possible. However, we must take great care not to abandon 

our commitment to public service requirements and to expanding competition as 

broadly as possible. A duopoly is better than a monopoly in wireline video services, 

but it is not a competitive marketplace. By creating new franchising processes to 

ease new market entry, we run the risk of creating a lowest common denominator 

of public service policies that do a disservice to localities while failing to maximize 

competition. 

In principle, we support the policy of keeping the franchising authority at the 

local level. Localities know best how to manage their own rights-of-way, administer 

fees, protect local consumers, and offer public services like PEG channels. However, 

the Federal framework that now guides these local franchising agreements must 

provide for adequate safeguards and consumer protections to maximize availability 

and quality of service. As we have testified before on this issue, 4 the franchising 

section of S. 2686 contains many liabilities in this regard. 

The legislation removes too many public service protections upon the entrance of 

a second wireline competitor into a market. It immediately allows incumbent cable 

providers to jettison their existing franchise obligations without any demonstration 

of effective competition. The standardized franchise agreement would then apply to 

both the cable incumbent and the newcomer, requiring neither to hold to build-out, 

upgrade, or basic tier regulations. Allowing incumbent providers to backslide on 

their existing franchise obligations would have devastating impacts in any community where the new video entrant is not providing service throughout the community. If a telephone company offers its video service in only an affluent part of a 

franchise area, as allowed under the legislation, an incumbent cable provider will 

have both the ability, and the financial incentive, to offer service upgrades only to 

competitive areas, while denying them to customers in neighborhoods not served by 

the new entrant. While the National Cable and Telecommunications Association has 

pointed out the importance of providing network upgrades in an equitable and nondiscriminatory manner,5 it has refused to pledge that cable providers will not deny 

service upgrades or withdraw service to currently served areas, if a national system 

of franchising is adopted.6

S. 2686 appropriately prohibits redlining based on income, race, and religion. 

However, it opens up substantial loopholes that will render these protections all but 

meaningless. The limitations in Section 642, under which discriminatory service 

provision will be permitted, are broad and indeterminate. Service may be denied because of ‘‘technical feasibility,’’ ‘‘commercial feasibility,’’ and ‘‘operational limitations.’’ It is hard to imagine how an operator could fail to construe its decision to 

redline under one of these vague categories. This puts the burden-of-proof squarely 

on the victims of discrimination and gives them little hope of redress. Further, even 

in a best-case scenario, anti-redlining protections will only ensure that service is 

provided throughout the franchise areas selected by the telephone companies. We 

will very likely see a patchwork quilt of affluent Local Franchising Authorities 

(LFAs) with service agreements, while neighboring towns and counties (particularly 

those in rural areas) will languish without competition. 

Skepticism that telephone companies will offer their video services to just the 

wealthiest counties is particularly warranted given statements by SBC (now AT&T) 

last year that it would roll out Project Lightspeed, the company’s Internet Protocol 

18 

Television (IPTV) video offering, to 90 percent of its ‘‘high-value’’ customers (those 

willing to spend up to $200 on communications services per month). These highvalue customers make up just 25 percent of its subscriber base. SBC also contended 

it would provide the video service to just 5 percent of ‘‘low-value’’ customers who 

constitute 35 percent of its customer base.7 Assurances that lowvalue customers 

would still be able to receive satellite video through SBC’s affiliation with Dish Network ring hollow, given the failure of satellite to provide meaningful price discipline. 

Instead, SBC’s statements suggest it will offer services only in mostly affluent areas, 

disregarding communities made up predominantly of rural or lower-income residents. 

Similarly, Verizon’s conduct to date strongly suggests it is seeking franchise 

agreements for its FiOS service in only the wealthiest counties. For example, 

Verizon has negotiated, or signed franchise agreements with largely affluent local 

franchise areas—such as in Fairfax County, Virginia, (where it has four franchise 

agreements in place for Herndon, Fairfax County, Fairfax City and Falls Church); 

Howard County, Maryland; Massapequa Park in Nassau County, New York; Nyack 

and South Nyack, in Rockland County, New York; and Woburn in Middlesex County, Massachusetts In terms of median family income, Fairfax County ranks Number 

1 nationally; Howard ranks 4th; Nassau 10th; Rockland 12th and Middlesex 17th.8

Unfortunately, in the absence of meaningful and enforceable requirements to 

build out services throughout a franchise area, the porous anti-redlining provisions 

of S. 2686 will be not be sufficient to prevent redlining by video providers. Existing 

Title VI anti-redlining provisions have only been effective because they exist in tandem with the ability of local franchise authorities to require service throughout the 

franchise area over time. Without requirements for build-out, anti-redlining provisions provide inadequate incentives or enforcement tools to ensure that all American 

households receive the same benefits from service provision. Our policy goal must 

be to deliver competitive video services as widely as possible, not as widely as a duopoly market will accomplish of its own volition. 

Incremental Build-Out Across System-Wide Franchises 

We strongly recommend that the Committee amend S. 2686 to include a buildout requirement that addresses the service territory of the Incumbent Local Exchange Carriers (ILECs) entering the video marketplace. The concept of the systemwide franchise is appealing for a variety of reasons. It is elegant in its simplicity— 

everywhere an ILEC has a telephone line, it must make available a video service 

over a reasonable period of time. Most importantly, it would provide for build-out 

across its existing service territory in a state, rather than just permitting build-out 

in a patchwork of counties and cities with the most desirable economics and demographics for a network operator. Variations of this model have been adopted by legislatures in Virginia and New Jersey. 

A build-out requirement for a system-wide franchise cannot be executed all at 

once for obvious reasons of scale. There must be incremental steps to ensure that 

there is sufficient revenue to make the investment in the next round of expansion. 

The key is finding the right balance that will both permit the ILEC to expand its 

fiber infrastructure on a schedule that makes business sense, and maintain a commitment to universal availability of the service, over time and across each state. 

Further, in the interest of the level playing field, the same kind of build-out requirement would need to apply to the cable incumbent, if and when it chooses to upgrade 

its lines to compete with the new fiber offerings from an ILEC. 

The balance in each case could be found by applying an incremental build-out 

plan (based on market-share) on a state-by-state basis across the provider’s service 

territory in that state. For the first few years of deployment, the ILEC would be 

permitted to establish its own service area. After a period of time, if 15 percent of 

the market was captured, that measure of effective competition would trigger a 

build-out requirement. This requirement would be to reach an additional 20 percent 

of the service territory in the state over several years. There would then be another 

check for market share capture, and the subsequent trigger for a further 20 percent 

build-out would repeat every few years. If the ILEC failed to capture sufficient market share (and, therefore, did not have an established revenue stream), the buildout benchmark would not be triggered. Eventually, all lines in the state service territory would be reached with the new, upgraded system (subject to density-based 

limitations). 

The overall rules for the franchise would be Federal. The authority of oversight 

and enforcement of the build-out would be at the State and local level. This model 

also provides a legislative framework that would integrate with the USF reform 

plans that extend to broadband. The overall public policy goal would be to ensure 

that high-capacity networks carrying voice, video, and data reach all American 

19 

households over time, making universal the benefits of video competition and highspeed broadband. 

Consumer Protection and Public Services in the Franchise 

Under current law, states and localities have authority to establish more stringent 

cable customer service standards than required by Federal law. Localities are able 

to enforce those standards through the terms of their local franchising agreements. 

Many franchise authorities have staff and offices dedicated to resolution of cable 

complaints that provide for speedy resolution of customer billing concerns, service 

outages, and more. Penalties in the form of liquidated damages or mandatory discounts for customers harmed by a provider’s violation of customer-service standards 

are not uncommon. 

Establishing baseline Federal consumer-protection rules is not a bad thing, provided they are strong and permit local governments to add additional protections 

to meet local needs. However, S. 2686 strips states and localities of the authority 

to establish consumer protections that exceed Federal minimum standards, and 

eliminates the ability of localities to use the franchise agreement itself as an enforcement tool. The legislation provides no guarantee that federally established consumer protection standards would take into account unique local needs, or be able 

to respond quickly to adapt regulations to novel anti-consumer behaviors. 

Any national franchise legislation should retain some state and local authority to 

establish customer-service standards and consumer protections. When facing billing 

errors, failures to make service repairs, property damage by cable employees, and 

other related hassles, consumers need a means for timely and local resolution of 

complaints against their service providers. Federalizing rules and appeals of local 

consumer protection decisions is not the most consumer-friendly solution. The FCC 

is ill-equipped to establish regulations in a timely manner to protect consumers, nor 

can it handle the thousands of potential cases brought on appeal. 

We are pleased to see the recognition that public, educational, and governmental 

(PEG) video channels are an important local service, and should be preserved and 

extended to all franchise holders. We strongly support minimum channel allocations, dedicated funding for PEG channels, and all of the technical requirements 

needed to bring this programming to local consumers. This bill will create thousands 

of new channels and public services where none existed before. We also believe that 

those access centers that currently rely on funding in excess of the 1 percent franchise fee set-aside in the bill should not be harmed. There is no public benefit from 

punishing the most successful PEG producers and their audiences with a hefty 

budget cut. 

Video Programming Should Be Available to All Providers on a Nondiscriminatory 

Basis and to All Consumers Exclusive of Bundles—Title IV—Video Content 

The 1992 Cable Consumer Protection Act banned cable companies from refusing 

to make their programming available, but the ‘‘terrestrial loophole’’ and lax enforcement have allowed cable operators to use control of programming to frustrate new 

competition. The situation has always been a fierce battle between cable incumbents 

and Direct Broadband Satellite (DBS)—and consumers often have been denied the 

programming they want. The entry of the ILECs into the video market should lead 

to reform. 

We strongly support a rigorous application of non-exclusivity and nondiscrimination requirements to MVPD programming. This bill recognizes that the program access rules must be strictly applied to prevent MVPDs from using market power to 

promote anti-competitive practices. We are particularly pleased to see these nondiscrimination requirements apply to dominant MVPDs that have made exclusive 

arrangements with unaffiliated programming and unfairly denied access to other 

distributors. This is notable because it recognizes the ability of a monopoly or duopoly distributor to distort the free market of content even when that content is not 

affiliated with the distributor.9

The elimination of the terrestrial loophole is the first in a series of steps that Congress must take to maximize choice and diversity in the video content market. Congress also must take up a la carte programming and retransmission consent. In 

each case, as in non-exclusivity requirements, the policy goal is to maximize diversity, lower barriers to entry for independent content providers, and thwart the anticompetitive activities of vertically integrated network operators that use market 

power to distort the content choices available to consumers. 

The content and distribution markets are both badly in need of new, pro-competitive policies. As the cable distribution market consolidated through mergers, concentration in video programming has increased dramatically. Broadcast giants and 

cable programmers have merged; broadcast and satellite distributors have merged; 

20 

and cable distributors increasingly offer their own programming, or have gained 

ownership stake in other video programmers. 

The premise of video franchise reform policy is to bring ILECs into competition 

with cable incumbents to drive down prices. To realize this goal, we must also deal 

with the problem of bundled programming, or offering programming in a package 

which artificially inflates prices. Innovative programming deals that offer consumers 

smaller bundles or a la carte pricing would differentiate new entrants in the market. Surveys have shown that the majority of consumers want the option to buy 

video service channel-by- channel.10 In countries where such choice exists, cable 

prices are significantly lower. For example, according to FCC’s chief economist, 

Hong Kong consumers who select channels a la carte, pay 50 percent less than those 

who buy programming tiers.11 However, program carriage-contracts preclude cable 

competitors from offering consumers smaller bundles or individual channels. These 

bundling requirements have contributed to increased size and price of the expanded 

basic tier, which has increased in cost by two and a half times compared to the basic 

tier.12

Media companies can secure these commitments because of their market power. 

Six media giants, including the top four broadcasters, dominate the programming 

landscape, accounting for three-fourths of the most-popular primetime channels.13

Four are networks (ABC, CBS, FOX, and NBC) and two are cable operators (Time 

Warner and Comcast). The networks use the retransmission consent negotiations for 

carriage of the local stations they own and operate to leverage local cable carriage 

of their other channels. These six companies also completely dominate the expanded 

basic tiers and the realm of networks that have achieved substantial cable carriage. 

They account for almost 80 percent of the more than 90 cable networks with carriage above the 20 million subscriber mark. 

Moreover, cable operators are majority owners of one-fifth of the top 90 national 

networks.14 The Government Accountability Office found that vertically integrated 

distributors, or those affiliated with media companies, are more likely to carry their 

own programming, contributing to the size and cost of the expanded basic tier.15

Program ownership by dominant incumbent cable distributors also provides the incentive to withhold carriage of cable networks they own from competitive video distributors. This is the basis of Verizon’s recent complaint against Rainbow Media and 

Cablevision over sports-channel carriage.16 Independent, unaffiliated video service 

providers that do not own their own programming have consistently expressed concerns about exclusionary tactics, contractual bundling requirements, and coercive retransmission consent negotiations that limit their ability to respond to customer demand for lower prices and more choice in program packages.17 Telephone companies 

attempting to enter and compete in new markets will face these same barriers. 

It is, therefore, essential that Congress address the anti-competitive practices of 

cable operators in any franchise legislation that hopes to expand competition in 

video markets. Failure to do so will impede the ability of any new video market entrant, including Verizon and AT&T, to compete on price or packages. They will be 

forced to buy the same channels their competitor is carrying; pay the same or greater licensing fees; and offer the same packages. Worse, they will be precluded from 

offering channels individually or in specialty tiers, even though doing so may give 

them an opportunity to differentiate their services from the incumbent cable monopoly, and respond to strong consumer demand for greater channel choice. The entrance of the ILECs into the video market is an excellent opportunity to expand the 

diversity of channels offered to consumers—but only if the gatekeepers are eliminated. 

Public Broadband Providers Should Face No Prohibitive Barriers to Market Entry— 

Title V—Municipal Broadband 

The provisions in S. 2686 regarding municipal broadband have been greatly improved in this revised draft. We applaud these changes. We strongly support S. 

1294, the Community Broadband Act, sponsored by Senators Lautenberg and 

McCain. The new language in S. 2686 approaches the spirit of S. 1294 and looks 

to accomplish the same goals. We look forward to working with the Committee on 

this important Title. 

We are pleased that S. 2686 now prohibits state pre-emption of municipal 

broadband networks—a critical component of any legislation that seeks to foster 

competition in data, video, and voice services, and expand affordable high-speed 

Internet access to all Americans. The bill encourages public-private partnerships in 

broadband networks, and opens the door for local governments to serve their constituents. This type of network has been among the fastest-growing sectors of the 

communications industry. In the past few years, more than 300 towns and cities 

21 

have built public and public-private broadband networks to bring low-cost services 

to consumers. 

These community Internet networks are a critical part of reaching President 

Bush’s stated goal of achieving universal, affordable access to broadband technology 

by 2007. These networks have a proven track record of promoting economic development, especially in rural and underserved urban areas. They offer many consumers 

and businesses an affordable broadband connection, bringing economic and social 

opportunities to communities in need. In a larger frame, these networks are a critical part of the effort to improve global competitiveness in broadband. These networks will provide an essential catalyst for market competition, economic development and universal, affordable Internet access for all Americans. 

Congress Should Open Empty Broadcast Channels for Unlicensed Wireless 

Innovation—Title VI—Wireless Innovation Networks 

We strongly support Title VI of S. 2686, and we applaud the continued efforts of 

Senators Stevens, Allen, Kerry, and other supporters of opening unused spectrum 

for innovative, unlicensed use. Congress has a crucial opportunity to foster universal, affordable broadband Internet services by tapping an underutilized, but valuable, public resource—the empty broadcast channels, known as ‘‘white spaces.’’ 

Unlocking the public airwaves would allow entrepreneurs to provide affordable, 

competitive, high-speed wireless Internet services to consumers that lack access 

completely, or have access only to services so expensive they remain out of reach. 

The digital divide in the United States is severe in rural areas. Prices are often 

higher and the quality of service is lower in rural states. More disturbingly, the 

rural digital divide has not been closing. According to the latest data from the Pew 

Research Center, 39 percent of urban households have broadband, compared to only 

24 percent in rural areas. This gap of 15 percent has remained constant for several 

years. Also worrying, according to Pew, is that 32 percent of the adult population 

does not use the Internet—a figure that held steady for the first half of 2005.18

These trends must be addressed immediately, and spectrum reform is an important part of the solution. Rural areas typically have very few broadcast stations and 

a large number of empty broadcast channels—that is, a lot of ‘‘white spaces.’’ The 

logic is simple: The places that need broadband the most also have the largest 

amount of unused airwaves available to provide it. 

Even after the digital television (DTV) transition ends in early 2009 (when the 

number of broadcast channel allocations will be reduced), every one of the Nation’s 

210 TV markets will have unassigned and vacant channels reserved for broadcasting but not being used. Many markets will have dozens of open channels. Vacant TV channels are perfectly suited for WiFi and other unlicensed wireless Internet services. Access to vacant TV channels would facilitate a market for low-cost, 

high-capacity, mobile wireless broadband networks. Using these white spaces, the 

wireless broadband industry could deliver low-cost, high-quality Internet access to 

every American household. 

Summary Analysis—White Space in Sample of U.S. Media Markets 

(The fall analysis of each market with channel data is available at www.spectrumpolicy.org.) 

Market No. of Vacant Channels Between 

Chs. 2–51 After DTV Transition 

Percent of TV Band Spectrum 

Vacant After DTV Transition 

Juneau, Alaska 37 74 

Honolulu, Hawaii 31 62 

Phoenix, Arizona 22 44 

Charleston, West Virginia 36 72 

Helena, Montana 31 62 

Boston, Massachusetts 19 38 

Jackson, Mississippi 30 60 

Fargo, North Dakota 41 82 

Dallas-Ft. Worth, Texas 20 40 

San Francisco, California 19 37 

Portland, Maine 33 66 

Tallahassee, Florida 31 62 

Portland, Oregon 29 58 

Seattle, Washington 26 52 

Las Vegas, Nevada 26 52 

Trenton, New Jersey 15 30 

Richmond, Virginia 32 64 

Omaha, Nebraska 26 52 

22 

Summary Analysis—White Space in Sample of U.S. Media Markets—Continued 

(The fall analysis of each market with channel data is available at www.spectrumpolicy.org.) 

Market No. of Vacant Channels Between 

Chs. 2–51 After DTV Transition 

Percent of TV Band Spectrum 

Vacant After DTV Transition 

Manchester, New Hampshire 23 46 

Little Rock, Arkansas 30 60 

Columbia, South Carolina 35 70 

Baton Rouge, Louisiana 22 44 

Enforceable Network Neutrality Protections Are Essential to Any Reform Package— 

Title IX—Internet Neutrality 

The most significant shortcoming in S. 2686 is its failure to preserve Network 

Neutrality. The consequences of this mistake will be irreversible, and we urge the 

Committee to give the issue the attention and remedy it requires. As drafted, S. 

2686 appears to recognize that their may well be a problem if network operators 

follow through on their promises to create discriminatory tiers of service. The bill 

orders a study of the issue, but it provides no remedy until years after the problem 

has been documented. By then, it will be far too late. Once discrimination has been 

introduced into the architecture of the Internet, there is no going back. The genie 

will not go back in the bottle. 

The history is clear. The Internet was born in a regulatory environment that 

guaranteed strict nondiscrimination. The physical wires were regulated separately 

from the content flowing over them. The reason was simple: to keep monopoly or 

duopoly owners of infrastructure from using market power to distort the free market 

of services on the Internet. This simple protection worked brilliantly. For two decades, the Internet has thrived with low barriers to entry and equal opportunity. It 

is the greatest engine of economic growth and democratic communication in modern 

times. 

About a year ago, the FCC yanked the rug out from under the Internet, removing 

the nondiscrimination protections. Soon afterward, the network operators inevitably 

announced that—free of limitations on abuse of their market power—they would 

change the Internet forever and begin offering discriminatory tiers of service. The 

owners of the Internet’s wires would become the gatekeepers of the Internet’s content. Is this wild speculation? Far from it. The CEOs of major telephone companies 

have publicly announced their intentions.19

This is a disaster for consumers and producers of Internet content. The egalitarian Internet is far too valuable, and far too successful, to be sacrificed for the 

benefit of creating an extra stream of revenue for cable and telephone giants. As 

they have indicated, if and when Congress ratifies the FCC’s decision, the network 

owners will use their market power to discriminate against Internet content and 

services. Tiers of service will establish first- and second-class citizens online. For the 

first time, the equal opportunity network will be a thing of the past. Barriers to 

entry will rise up and stifle innovation. End-user costs will increase as tollbooth fees 

are passed along to consumers. 

Some argue that it is not in the interest of the network operator to offer exclusive 

and discriminatory deals, or to block and degrade access to certain websites and 

services. They say consumers would simply drop them and move to another network. But this argument assumes that there is competition in the broadband market. There is not, and there won’t be any in the foreseeable future. According to the 

latest data from the FCC, cable providers and telephone companies currently dominate more than 98 percent of the residential broadband market—a slight increase 

in total market share from last year.20 Cable and telephone companies operate in 

regional fiefdoms, virtually assuring that every community has a maximum of two 

viable providers. The GAO confirmed this reality, reporting that the median number 

of available broadband providers for American households is just two.21 We have attached, as an appendix to this testimony, a study on the question of Network Neutrality by Dr. Trevor Roycroft that addresses the central economic issues at stake 

in this policy debate.22

23 

The principles of nondiscrimination and competitive-neutrality are present 

throughout S. 2686. They are applied throughout this bill to protect consumers and 

promote free competition—except with respect to the Internet. Under the bill, local 

franchising authorities must treat competitive video providers in a nondiscriminatory manner in the use of the public rights-of-way.23 Local governments that propose to build broadband networks must not use city ordinances to discriminate.24

Under the new program access rules for sports programming, cable operators may 

not use their market power to make exclusive or discriminatory deals for programming that is denied to other operators.25 Telecommunications providers must treat 

facilities-based VoIP providers in a nondiscriminatory manner.26 USF support must 

be distributed according to principles of competitive-neutrality.27 Even copyright 

control technologies under the broadcast flag must be licensed in a reasonable and 

nondiscriminatory manner.28

The only sector that does not enjoy this protection against discrimination is Internet content, applications and services—the most dynamic marketplace in our economy. We should apply the principles of nondiscrimination everywhere in an evenhanded fashion. This is the only means to guarantee pro-competitive policies across 

the communications sector that do not favor one technology or industry over another. 

Without anti-discrimination legislation, or the threat of meaningful competition, 

cable and telephone companies that own and control broadband networks now have 

both the incentive and the ability to discriminate against other content, services and 

applications transmitted over the wires. We strongly encourage the adoption of 

amendments to S. 2686 that will guarantee meaningful and enforceable Network 

Neutrality. The Internet Freedom Preservation Act (S. 2917), sponsored by Senators 

Snowe and Dorgan, provides an admirable solution to the problem. Its exclusion 

from the bill is a glaring liability. 

Conclusion 

The goals of this bill are admirable. Consumer organizations support the introduction of new competition into the video and broadband markets. We support the expansion of USF programs and their transition to broadband technologies. We support nondiscrimination rules for cable television programming and protections for 

public-access cable channels. We support municipal broadband networks and opening unused spectrum for unlicensed use. We believe all of these policies will move 

us toward our overall goal—universally affordable broadband technologies. 

However, we must not give away fundamental consumer protections and pro-competitive policies in one arena to bring the prospect of competition in another. Similarly, we must not sacrifice lower prices and service quality for some consumers to 

bring them to others. There are major problems in this bill which must be remedied 

to ensure that all consumers benefit from the new policies. The uniform application 

of nondiscrimination principles and a commitment to universal availability of new 

technologies must be central to new legislation. 

We strongly urge the Committee to incorporate the following key components that 

are currently absent from S. 2686: (1) meaningful and enforceable Network Neutrality that will preserve the free, open, and nondiscriminatory Internet; (2) reasonVerDate Nov 24 2008 10:53 May 06, 2011 Jkt 066172 PO 00000 Frm 00027 Fmt 6633 Sfmt 6621 S:\GPO\DOCS\66172.TXT SCOM1 PsN: JACKIE

scott1.eps
24 

able but mandatory build-out requirements for all holders of franchises under the 

Federal framework; (3) consumer protection structures in which local and state authorities can strengthen and enforce Federal minimum standards; (4) reforms to 

cable programming rules that break open the programming bundle and reform retransmission consent; and (5) application of USF programs to broadband. Without 

these changes, consumers will end up worse off than where they started, with high 

prices for television and broadband and fewer choices between content and services. 

ENDNOTES 1Free Press is a national, nonpartisan, nonprofit organization with more than 

300,000 members working to increase informed public participation in crucial media 

and communications policy debates. 2 Consumers Union is a nonprofit membership organization chartered in 1936 

under the laws of the State of New York to provide consumers with information, 

education and counsel about goods, services, health and personal finance, and to initiate and cooperate with individual and group efforts to maintain and enhance the 

quality-of-life for consumers. Consumers Union’s income is solely derived from the 

sale of Consumer Reports, its other publications and from noncommercial contributions, grants, and fees. In addition to reports on Consumers Union’s own product 

testing, Consumer Reports with more than 5 million paid circulation, regularly carries articles on health, product safety, marketplace economics, and legislative, judicial and regulatory actions which affect consumer welfare. Consumers Union’s publications carry no advertising and receive no commercial support. 3The Consumer Federation of America is the Nation’s largest consumer advocacy 

group, composed of over 280 state and local affiliates representing consumer, senior, 

citizen, low-income, labor, farm, public power, and cooperative organizations, with 

more than 50 million individual members. 4Testimony of Consumers Union, Free Press, Consumer Federation of America, 

Senate Committee on Commerce, Science, and Transportation, May 18, 2006, 

http://commerce.senate.gov/public/lfiles/kimmelman051806.pdf. 5 National Cable & Telecommunications Association, 2006, ‘‘The Bell Monopolies 

Want a Special Break to Enter the Video Business,’’ http://www.ncta.com/ 

pdflfiles/BelllMythslFINALl03.06.06.pdf. 6 Comments of NCTA, Hearing on Committee Print of the Communications Opportunity, Promotion, and Enhancement Act of 2006, Subcommittee on Telecommunications and the Internet, U.S. House of Representatives, March 31, 2006. 7 ‘‘Cable, Phone Companies duke it out for customers,’’ USA Today, June 22, 2005. 8 U.S. Census Bureau. Median Family Income; Counties within the U.S., 2004 

American Community Survey. 9S. 2686, Section 628(4)(D), (page 98). 

10 ‘‘How we pay for cable may be about to change; ‘A la carte’ programming picking up support over expanded-basic bundle,’’ USA Today, March 2, 2006. 11 ‘‘FCC Top Economist Trumpets a la Carte,’’ Multi-Channel News, May 10, 2006. 12Mark Cooper, Time to Give Consumers Real Cable Choices, Consumer Federation of America & Consumers Union, July 2004, (p. 5). 13MM Docket No. 92–264, Comments of CFA, CU, Free Press, In the Matter of 

The Commission’s Cable Horizontal and Vertical Ownership Limits and Attributions 

Rules, August 8, 2005. 14 ‘‘Issues Related to Competition and Subscriber Rates in the Cable Television Industry,’’ October 2003, GAO–04–8 http://www.gao.gov/new.items/d048.pdf, p. 27. 15 Id. at 29. 16 ‘‘Verizon Seeks FCC Intervention to Free Cablevision’s Stranglehold on Sports 

Programming,’’ March 21, 2006, http://newscenter.verizon.com/proactive/newsroom/release.vtml?id=93328. 17 EchoStar Communications Corporation, Testimony of Charles Ergen, Chairman 

& CEO, EchoStar Communications Corporation before the Senate Committee on 

Commerce, Science, and Transportation, January 19, 2006; Testimony of Bennett 

Hooks, Chief Executive Officer, Buford Media Group on behalf of the American 

Cable Association, before the Subcommittee on Telecommunications and the Internet, July 14, 2004. 18See John Horrigan, ‘‘Rural Broadband Internet Use,’’ Pew Internet and American Life Project, February 2006, http://www.pewinternet.org/pdfs/PIPlRural 

lBroadband.pdf; and John Horrigan, ‘‘Broadband in the United States: Growing 

but Slowing,’’ Pew Internet and American Life Project, September 21, 2005, http:// 

www.pewinternet.org/PPF/r/164/reportldisplay.asp. 19See for example: ‘‘At SBC, It’s All About ‘Scale and Scope’,’’ BusinessWeek Online, November 7, 2005; Jonathan Krim, ‘‘Executive Wants to Charge for Web 

Speed,’’ Washington Post, December 1, 2005; Dionne Searcey and Amy Schatz, 

25 

‘‘Phone Companies Set Off a Battle Over Internet Fees,’’ Wall Street Journal, January 6, 2006. 20 ‘‘High-Speed Services for Internet Access: Status as of June 30, 2005,’’ FCC, 

Wireline Competition Bureau, http://hraunfoss.fcc.gov/edocslpublic/attachmatch/ 

DOC–264744A1.pdf (Chart depicted, p. 8). 21 ‘‘Broadband Deployment is Extensive Throughout the United States, but it is 

Difficult to Assess the Extent of Deployment Gaps in Rural Areas,’’ GAO, May 2006, 

http://www.gao.gov/new.items/d06426.pdf. 22See Appendix: Trevor Roycroft, ‘‘Economic Analysis and Network Neutrality,’’ 

June 2006. 23S. 2686, Section 331(a)(2)(B): ‘‘A State or local government shall apply its laws 

or regulations in a manner that is reasonable, competitively neutral, nondiscriminatory, and consistent with State statutory police powers . . .’’ (p. 60); Section 331 

(b)(a): ‘‘A franchising authority may not discriminate among video service providers 

in imposing or collecting any fee assessed under this section.’’ (p. 61–62). 24S. 2686, Section 502(d)(1): A public provider of broadband must apply its ordinances and rules ‘‘without discrimination in favor of itself or any other advanced 

telecommunications capability provider that such public provider owns . . .’’ (page 

115–116). 25S. 2686, Section 628(b), ‘‘It is unlawful for an MVPD, an MVPD programming 

vendor in which an MVPD has an attributable interest, or a satellite broadcast programming vendor to engage in unfair methods of competition . . .’’ (page 92); Section 628(c)(2)(B), ‘‘The regulations required under paragraph (1) shall—prohibit discrimination by an MVPD programming vendor in which an MVPD has an attributable interest . . .’’ (page 93–94). 26S. 2686, Section 715 (a): ‘‘A telecommunications carrier may not refuse to transport or terminate IP-enabled voice traffic solely on the basis that it is IP-enabled.’’ 

(page 26). 27S. 2686, Section 253: ‘‘Competitive Neutrality Principle’’; (7) ‘‘Universal service 

support mechanisms and rules should be competitively neutral.’’ (page 34–35). 28S. 2686, Section 452 (d) (3). 

The CHAIRMAN. Well, thank you very much, Mr. Scott. 

Our next witness is Dave McCurdy, the President and Chief Executive Officer of the Electronic Industries Alliance. 

Mr. McCurdy? Dave? 

STATEMENT OF HON. DAVE MCCURDY, PRESIDENT/CEO, 

ELECTRONIC INDUSTRIES ALLIANCE (EIA); ON BEHALF OF 

TELECOMMUNICATIONS INDUSTRY ASSOCIATION (TIA) 

Mr. MCCURDY. Mr. Chairman, thank you very much. I’m pleased 

to accept your invitation to testify today on behalf of both the Electronic Industries Alliance and the Telecommunications Industry 

Association, and my good colleague and friend, Matt Flanagan. 

I’d like to first applaud your leadership in drafting a pro-competition bill that will remove barriers, and provide incentives for all 

providers to deploy next-generation broadband capability, a 20-fold 

increase in capacity. We believe that the Stevens-Inouye bill will 

significantly accelerate broadband deployment and capture the consumer welfare benefits of competition in the cable television space. 

We’re also pleased your bill makes the streamlined franchise process available to existing cable TV providers, as we think this step 

is important to encourage investment by all providers and to spur 

healthy competition. Both urban and rural communities will reap 

the benefits. 

Next-generation broadband enables voice, data, video, and other 

multimedia services to be offered over single and multiple infrastructures. Technology integration, expanded broadband technology 

communications infrastructure, and seamless mobility of communications and computing are expected to bring enormous economic 

26 

and societal benefits, and improve the quality of life of all consumers. 

Video service is the application driver for the deployment of nextgeneration broadband, because video uses an enormous amount of 

bandwidth. The telephone companies want to deploy video over 

new broadband networks as a new business model in a changing 

market. However, the local franchise process is a regulatory barrier 

to entry that impedes timely investment in new facilities and capabilities and slows delivery of competitive and innovative services to 

consumers. 

We are supportive of Title III, the video franchise portion of your 

draft, because it replaces the local franchising process with a uniform Federal system that will be managed by the FCC with limited 

input by existing local franchise authorities. We have spent a significant amount of time analyzing the effects of various local franchise requirements on next-generation broadband deployment, and 

we conclude that three impediments exist: delay in granting franchises, buildout requirements, and extraneous costs imposed on 

providers. Your bill reduces these barriers. 

Mr. Chairman, with regard to the municipal broadband provision 

in your draft, EIA and TIA support, as a longstanding principle, 

legislation that allows municipalities to deploy broadband and provide video services on a transparent and nondiscriminatory basis, 

thereby removing barriers for yet another competitor’s entry into 

this marketplace. 

Mr. Chairman, I want to commend Senators McCain, Lautenberg, and Ensign for their agreement on removing the right-of-firstrefusal provision that was in the original draft, and I thank you 

for that leadership. 

We’d also like to express our support for a provision included in 

the minority draft allocating a specific sum to basic telecom research and interoperability. We hope to see this provision included 

in the final bill, as it will contribute to U.S. competitiveness and 

innovation. 

With regard to the debate over net neutrality, we fully understand the concerns that have been expressed over the possibility of 

abuses in the marketplace; however, we are not aware of any significant evidence of abuses that require preemptive legislation. Accordingly, we believe this issue is speculative and premature; and, 

thus, support the study approach taken in this bill to answer a 

number of important questions before legislating. 

I’d like to refer you to TIA’s broadband Internet access 

connectivity principles, which state that subscribers should be able 

to get the capacity for which they pay to connect to the Internet, 

access any content on the Internet, as long as such content is lawful, use any applications they choose, as long as such use does not 

hurt the network or other users, and attach to the network any device they choose, as long as it does not harm the network. 

We believe that the FCC has jurisdiction to vigilantly monitor 

the broadband Internet access service market and expeditiously review any complaint of anticompetitive activity. 

Let me emphasize that we believe unaffiliated content providers, 

as consumers of bandwidth, should benefit from connectivity principles just like retail subscribers. 

27 

Mr. Chairman, you have a wonderful opportunity to achieve real 

success this year that will accelerate deployment of next-generation 

networks, and benefit consumers through lower prices and improved services. Franchise reform, for example, is long overdue, 

and is an area in which there is great consensus. Net neutrality, 

on the other hand, is an issue on which there is little clarity and 

even less consensus. I’d propose that Congress continue to examine 

the net neutrality issue until it’s clear what the problem is, if, in 

fact, there is a problem, and what the solution should be. 

On behalf of both EIA and TIA, I respectfully urge the Committee to act quickly on video franchise reform and other issues on 

which there is a consensus, so we can enact them this year. With 

such action, we can capture the benefits of accelerated broadband 

deployment and the consumer welfare benefits of competition now. 

Thank you very much. 

[The prepared statement of Mr. McCurdy follows:] 

PREPARED STATEMENT OF HON. DAVE MCCURDY, PRESIDENT/CEO, ELECTRONIC

INDUSTRIES ALLIANCE (EIA); ON BEHALF OF TELECOMMUNICATIONS INDUSTRY

ASSOCIATION (TIA) 

Mr. Chairman, I am pleased to accept your invitation to testify today on behalf 

of both the Electronic Industries Alliance (EIA) and the Telecommunications Industry Association (TIA). 

As you know, EIA is an alliance of several trade associations representing nearly 

1,300 companies from the full spectrum of U.S. technology manufacturers. Our 

member companies’ products and services range from the smallest electronic components to the most complex systems used by government and industry. Among our 

Alliance associations, TIA represents the communications sector, providing a forum 

for over 600 member companies, the manufacturers and suppliers of products and 

services used in global communications. Many TIA members manufacture and supply products and services used in the deployment of the broadband infrastructure 

that enables the distribution of information in all its forms including video programming. 

We believe that the objective of the legislation before you should be to ensure that 

broadband networks and services operate in a minimal regulatory environment, 

which is critical for the continued deployment of broadband, and innovation in both 

next-generation network facilities and the services they empower. Currently, there 

is a consensus among legislators and regulators that competition in the video services market is a good thing. We are in support of this consensus view, and would 

like to see the momentum continued so that we achieve facilities-based competition 

in the interest of both producers and consumers. 

Benefits of Competition 

The ability to offer voice, data, video, and other increasingly intermingled multimedia services over single or multiple infrastructures is becoming more prevalent. 

This means that competing infrastructure platforms will be able to provide essentially similar multimedia experiences. The question that Congress can help answer 

is: how long will it take to make these converged and competing services available 

to consumers at lower prices? 

Integration, broadband technology communications infrastructure, and seamless 

mobility of communications and computing are expected to bring enormous economic 

and societal benefits to the U.S. and the world, and improve the quality of life for 

all consumers. With that in mind, I think it is helpful to review the recent history 

of broadband technology. 

The Evolution of Technology 

The first evolution of broadband technology is from dial-up Internet access to current-generation broadband access. This is characterized as a shift from 56 kilobitper-second narrowband capability to around 1.5 megabit-per-second (Mbps) 

broadband capability—roughly a 20-fold capacity expansion. 

Current-generation broadband technology has been deployed as the result of market-driven, deregulatory actions taken by Congress and the FCC. The Federal Government played a positive and significant role in promoting competition through deVerDate Nov 24 2008 10:53 May 06, 2011 Jkt 066172 PO 00000 Frm 00031 Fmt 6633 Sfmt 6621 S:\GPO\DOCS\66172.TXT SCOM1 PsN: JACKIE
28 

1See United States. Cong. House of Representatives. Internet Freedom and Broadband Deployment Act of 2001. 107th Cong. H.R. 1542. Washington: GPO, 2001. 2See FCC GN Docket No. 00–185, CS Docket No. 02–52, (rel. March 15, 2002). 3See FCC CC Docket No. 01–338, (rel. Aug. 21, 2003). 4See FCC CC Docket No. 02–33. (rel. Sept. 23, 2005). 5See Telecommunications Industry Association , Telecommunications Market Review and Forecast, 2005. 6See Deficit Reduction Act of 2005, Pub. L. 109–171, Title III Digital Television Transition 

and Public Safety. 7See FCC CC Docket No. 04–267. (adopted Nov. 9, 2004). 

regulation. House passage of the Tauzin-Dingell bill,1 in February 2002 spurred 

three major decisions by the FCC that created a favorable environment for 

broadband investment: the cable modem decision of 2002,2 the Triennial Review 

Order of 2003,3 and, most recently, the DSL decision of 2005.4 Thus, the pro-competitive, deregulatory actions taken by this body and by the Commission, have 

worked to encourage the first evolution of broadband technology. 

The next growth spurt from current-generation to next-generation broadband access is characterized by yet another 20-fold increase in capacity, from 1.5 Mbps to 

as much as 25–30 Mbps. Both are massive expansions, but the second evolution to 

next-generation broadband is what allows for future growth. Among developed nations worldwide, the U.S. is behind in broadband deployment, and a second evolution is necessary to offer new and competing services to consumers. 

Thanks to many technology drivers, current-generation broadband access is well 

on its way. Progress in technology deployment is often measured by the substitution 

of the new for the old. By this measurement, tremendous progress has been made 

in the deployment of current generation broadband, where U.S. subscribership increased by more than 700 percent from 5.1 million in 2000 to 39.1 million in 2005, 

while dial-up subscribership peaked at 47.3 million in 2002, and has since declined 

to about 35.2 million subscribers in 2006, the level that existed in 2000.5

The second broadband technology shift has just begun and involves a number of 

different technologies, including fiber-to-the-premises (FTTP), fiber-to-the-node 

(FTTN), fiber-to-the-curb (FTTC), very high-speed digital subscriber line (VDSL) for 

increasing broadband rates over telco platforms, high speed data interfaces for cable 

systems such as DOCSIS 2x and DOCSIS 3.0, and satellite and wireless broadband 

technologies, such as WiFi and WiMax. All of these technologies hold great promise 

and are in various stages of development and deployment. 

To best promote widespread deployment of next-generation technology, Congress 

should continue its pro-competitive, deregulatory stance. And indeed, you have already taken steps in this direction. Most recently, with leadership from this Committee, Congress adopted a ‘‘hard date’’ for the DTV transition,6 which will release 

prime spectrum for the development of new wireless solutions. Congress has also 

encouraged the FCC to facilitate competition in the wireline voice market by applying the light hand of regulation for VoIP, which will enable cable companies and 

new entrants to compete with incumbent telephone companies.7

Deregulation in the video realm is the next logical step. Video is the application 

driver for the deployment of next-generation broadband because video uses an enormous amount of bandwidth. The telephone companies want to deploy video over new 

broadband networks to gain additional revenue as their core markets rapidly 

change. The local franchise process is a regulatory barrier to entry that impedes 

timely investment in new facilities and capabilities, slowing delivery of competitive 

and innovative services to consumers. This process requires service providers to negotiate and obtain individual and unique authorizations in thousands of jurisdictions. Federal legislation facilitating entry of new video providers will result in the 

deployment of more robust infrastructure, increased competition, and consequent 

consumer benefit. 

Problems With the Video Franchise Process 

The local franchise process should be replaced with a uniform, Federal system 

that will be managed by the FCC with limited input by existing local franchise authorities. We have spent a significant amount of time analyzing the effects of various local franchise requirements on next-generation broadband deployment, and I 

will summarize our thoughts in that regard here and provide a more detailed discussion in an annex to this testimony. 

The first problem is delay by local franchise authorities in awarding franchises, 

as it adversely affects broadband deployment and video competition. Prompt entry 

into the video market is a key predicate to justifying construction of new broadband 

facilities, regardless of the network architecture, because the extra revenue potential of video (as well as ancillary offerings such as video-on-demand, HDTV, and perVerDate Nov 24 2008 10:53 May 06, 2011 Jkt 066172 PO 00000 Frm 00032 Fmt 6633 Sfmt 6621 S:\GPO\DOCS\66172.TXT SCOM1 PsN: JACKIE
29 

8See U.S.C. Sec. 542(g)(1). 

sonal video recording capability) is necessary to justify the multi-billion dollar investment such networks require. 

The delayed entry of these competitive video providers results in less competition, 

less consumer welfare benefit, and delay in the second evolution of broadband technology. The solution is to automatically issue a franchise within a set period of time. 

The second major problem with the current video franchise process is the practice 

of requiring new entrants to build out facilities beyond the area they find economical. In the case of a telephone company entering the video market, video deployment 

logically follows the existing wire center footprint, which typically does not follow 

franchise area boundaries. As a result, build-out requirements present entrants with 

a choice between building out an entire service area and incurring losses associated 

with providing service where it is not economic to do so, or not building out at all 

and instead choosing to use limited resources as a competitor in communities that 

do not have build-out requirements. The solution, we believe, is to establish a franchise process that does not require such counterproductive build-out requirements. 

The third problem is the prevalence of extraneous obligations. Congress has already indicated its intent to limit payments for franchises by establishing in Title 

VI of the Communications Act that the 5 percent statutory franchise fee is a ceiling 

for payments ‘‘of any kind.’’ 8 Yet, franchise authorities often seek payments that far 

exceed the 5 percent fee. These extraneous requirements increase costs, and discourage the investment in next-generation broadband capability, thereby delaying the 

second evolution of broadband technology. The solution, we believe, is to prohibit the 

imposition of extraneous cost beyond 1 percent of gross revenues. 

If a bill is enacted this year that adequately addresses these issues, as the Stevens-Inouye bill appears to do, we believe it will significantly accelerate deployment 

of next-generation broadband capability and capture the consumer welfare benefits 

of competition in the cable TV space. 

We are also pleased that the Stevens-Inouye bill would make its streamlined franchise process available to existing cable TV providers, as we think this step is important to encourage investment by all providers and to spur healthy competition. 

Municipal Broadband 

As a long-standing principle, EIA and TIA support legislation that allows municipalities to deploy broadband, and provide video services on a transparent and nondiscriminatory basis, thereby removing barriers for another competitor’s entry into 

the marketplace. Particularly in fiber-to-the-premises municipalities were among 

the early leaders, although recent court decisions have slowed deployment in a number of states. Although we believe municipalities should consider all options before 

entering the telecom field, if municipal leaders feel that they must build their own 

networks in order to provide satisfactory broadband services to their constituents, 

they should have the freedom to make those decisions. 

The draft bill before the Committee includes a statutory clarification to allow municipal entry, subject to a right of first refusal provision requiring consideration of 

private sector offers to provide desired services. While we encourage private sector 

deployment where possible, we are concerned that the right of first refusal requirement could create uncertainty and opportunities for litigation that delay broadband 

deployment for protracted periods. 

Net Neutrality 

Mr. Chairman, the issue of net neutrality has become a central focus of telecom 

reform in this Congress. Last week, the House overwhelmingly passed video franchise reform legislation that included an appropriate, cautious response to net neutrality concerns. EIA and TIA support the study element of the approach taken in 

the Stevens-Inouye bill to answer a number of important questions on this issue before legislating. However, if you determine the net neutrality study presently included in S. 2868 is insufficient, we urge this Committee to adopt the approach 

taken by the House. When no two stakeholders can agree on a definition of net neutrality, and no stakeholder can point to a tangible problem, policymaking with respect to the Internet must begin with the principle of ‘‘first, do no harm.’’ The net 

neutrality provision in H.R. 5252 establishes appropriate safeguards against problems that may arise, while doing no harm. 

The value of a network is determined by its adoption by consumers. As leading 

manufacturers of network equipment, TIA and EIA member companies share an interest in ensuring that broadband networks are both deployed and used. If consumers are unsatisfied with the service they are receiving, the incentive to build 

30 

new networks is lost. Network equipment generally goes unnoticed by the consumer, 

but it is clearly the consumer that drives its demand. 

Accordingly, EIA, TIA and other members of the High-Tech Broadband Coalition 

(HTBC) created the network Connectivity Principles several years ago, and urged 

the adoption of the principles by Federal policymakers. The FCC did so in 2004, 

under Chairman Michael Powell as principles of ‘‘Network Freedom,’’ and again in 

the Summer of 2005, under Chairman Kevin Martin as the Commission’s ‘‘Policy 

Statement.’’ 

This spring, TIA determined that additional principles were necessary to support 

the interests of not only consumers, but also unaffiliated content providers, and 

therefore, released new Broadband Internet Access Connectivity Principles. We attach a copy hereto for your use. 

In short, TIA’s Broadband Internet Access Connectivity Principles state that subscribers should be able to get the capacity for which they pay to connect to the 

Internet, access any content on the Internet as long as such content is lawful, use 

any applications they chose as long as such use does not hurt the network or other 

users, and attach to the network any device they choose as long as it does not harm 

the network. TIA believes that the FCC has jurisdiction to vigilantly monitor the 

broadband Internet access service market and expeditiously review any complaint 

of anticompetitive activity. Let me emphasize that we believe unaffiliated content 

providers, as consumers of bandwidth, should benefit from the Connectivity Principles just like retail subscribers. 

It is the interest of some to go beyond these principles in an effort to safeguard 

against a problem that, at this point and in the foreseeable future, is nonexistent. 

Advocates of stronger net neutrality language are clearly concerned about what they 

view as potential violations of net neutrality, as opposed to legitimate violations of 

net neutrality. 

We find this troubling because legislating against potential misdeeds can have unfortunate, unintended consequences, as we experienced after the 1996 Telecom Act, 

when the FCC’s use of an unbundling regime discouraged investment in local 

broadband access by incumbent local exchange carriers. This was an unintended 

negative consequence, and we are loathe to see similar outcomes from net neutrality 

legislation, however well-meaning the intent. 

The lesson of unbundling is instructive. If policymakers take actions that disturb 

the business models of the companies deploying next-generation networks, the result may well be to delay or stop deployment. Then we all will suffer—the carriers, 

equipment vendors, content providers, and consumers. 

To understand the thought process of a service provider building a new network 

to offer new advanced services and how its business model may be affected by 

strong net neutrality regulations, one would have to determine what specifically the 

unaffiliated application providers want, what it will cost, and who will ultimately 

pay. 

It may be that unaffiliated application providers want carriers to offer them the 

same bandwidth, speed, and additional capabilities that carriers offer retail subscribers. This could force the carriers to internalize the revenue lost to provisioning 

the networks to meet their demands, and ultimately force the consumer to make up 

for lost revenue. 

While this is clearly a hypothetical, the net neutrality debate lives in the realm 

of hypothetical, and this is one possibility that does not bode well for consumers, 

service providers, or equipment providers. The system described above would surely 

weaken the incentive for service providers to deploy new advanced networks, thereby slowing investment in network equipment, and the process through which consumers will be offered lower prices and more choices for digital services. 

For Congress, the question of who will pay is undoubtedly the most important. 

Certainly, Congress does not want to require carriers to build excess capacity into 

their networks and pass the cost on to retail consumers. If this were to occur, most 

Americans who use Internet access for simple applications such as e-mail would 

carry an enormous, unfair burden. Clearly, if unaffiliated applications providers 

want network capability—bandwidth, speed, quality of service, and content—it is in 

the interest of the consumer that the unaffiliated application providers must pay for 

it. 

We are unaware of any analysis that answers the questions of what the unaffiliated application providers want, what it will cost, and who will ultimately pay. Because of this lack of analysis, we support the study element of the approach taken 

in the Stevens-Inouye bill. If the Committee finds this approach insufficient, we suggest that the approach taken in the House bill is the appropriate alternative. 

31 

9See FCC MB Docket No. 05–311, Comments of Verizon on Video Franchising, Feb. 13, 2006, 

Attachment A at 5. 10See FCC MB Docket No. 05–311, Comments of Verizon on Video Franchising, Feb. 13, 2006, 

Attachment A at 4. 11See FCC MB Docket No. 05–311, Comments of Verizon on Video Franchising, Feb. 13, 2006, 

Attachment A, Exhibit 1. 12See supra footnote 11. 13See FCC MB Docket No. 05–311, Comments of BellSouth Corporation and BellSouth Entertainment, LLC, Feb. 13, 2006, at 10, 11. 14See FCC MB Docket No. 05–311, Comments of the Fiber-to-the-Home Council, Declarations 

of Felix Boccucci, Andy Sarwal, Jeff Mnick, Terrence McGarty. 

Conclusion 

In conclusion, we feel that it is crucial for Congress to continue the momentum 

towards legislation that has been driven by consensus support for competition in the 

video services market. We believe that legislation consistent with the foregoing positions will increase investment and competition, create jobs, and enhance American 

competitiveness. 

Regarding net neutrality, let me stress to this committee how important it is that 

Congress should proceed only where there is consensus and continue to work on 

issues where consensus does not exist. You have an opportunity to achieve real success this year that will accelerate deployment of next-generation networks, and benefit consumers through lower prices and improved services. Franchise reform, for example, is long overdue and is an area in which there is great consensus. Net neutrality, on the other hand, is an issue on which there is little consensus and even 

less clarity. I would propose that Congress continue to examine the net neutrality 

issue until it is clear what the problem is—if there in fact is a problem—and what 

the solution should be. 

On behalf of both EIA and TIA, I urge the Committee to act quickly on video franchise reform and other issues on which there is a consensus, so we can enact them 

this year. With such action, we can capture the benefits of accelerated broadband 

deployment and the consumer welfare benefits of competition now. 

Annex 1: Detailed Discussion of Specific Problems With the Current Video 

Franchise Process 

Problem 1: Delay 

Unfortunately, the current video franchise process does not facilitate the entry of 

new video providers in a timely fashion. The franchise-by-franchise negotiation process established under the old monopoly framework is simply too slow and unwieldy 

to encourage the speedy entry of new providers. Verizon has filed documents with 

the FCC establishing that, to serve its entire target area with video service, it must 

negotiate between 2,000 and 3,500 franchises, excluding those in Texas.9 Verizon 

began negotiations with 320 franchise authorities in November 2004, and, as of February 2005, had only 26 franchises other than those that were automatically issued 

in Texas.10 For those franchises that have been successfully negotiated, negotiation 

time has ranged between two months and 17 months, with an average of 7.65 

months.11 The more important focus, however, is the negotiations in which Verizon 

has not been successful: in over 80 percent of the franchise negotiations Verizon initiated in November 2004, a franchise still has not been granted.12

BellSouth faces a similar situation, which may need to negotiate 1,000 franchises. 

As of last month, BellSouth had 20 franchises, requiring between 1.5 months and 

32 months of negotiation time for each, at an average of 10 months.13

Moreover, this is not just a problem for the Regional Bell Operating Companies. 

Smaller companies such as Knology, Grande Communications, Guadeloupe Valley 

Telecommunications Cooperative, and the Merton Group have all reported a similarly protracted period of franchise negotiations, ranging between 9 months and 30 

months.14

The delayed entry of these competitive video providers results in less competition, 

less consumer welfare benefit, and delay in the second evolution of broadband technology. 

Problem 2: Build-Out 

The second major problem with the current video franchise process is the practice 

of requiring new entrants to build out facilities beyond the area they find economical. For example, in the case of a telephone company entering the video market, 

video deployment logically follows the existing wire center footprint, which typically 

32 

15See FCC MB Docket No. 05–311, Comments of Verizon on Video Franchising, Feb. 13, 2006, 

at 40. 16See FCC MB Docket No. 05–311, Comments of the National Telecommunications Cooperative 

Association, Feb. 13, 2006, at 4, 5. 17See U.S.C. Sec. 542(g)(1). 18See FCC MB Docket No. 05–311, Comments of Verizon on Video Franchising, Feb. 13, 2006, 

at 57–75. 

does not follow franchise area boundaries.15 If a telephone company wants to offer 

video service throughout a wire center which covers 30 percent of a local franchise 

area, for example, the requirement to build out to the entire franchise area might 

well make it economically infeasible to provide video service at all within that franchise area. 

This is not merely a whimsical example. We recently analyzed telephone company 

wire centers in Texas—where the characteristics of wire center deployment are typical of the Nation on average—and found that only 3 percent of the wire centers 

completely overlap the geographic area of franchise areas. 

Therefore, the requirement that new entrants build out to an entire franchise 

area will result, in many instances, in potential competitors delaying or even abandoning plans to enter new video markets. 

Again, this is not just a Bell Company problem. The National Telecommunications 

Cooperative Association has reported that many of its members, which tend to be 

small rural telephone companies, want to get into the cable business but have reported problems with local franchising authorities—particularly unreasonably short 

build-out periods or requirements to build outside the carrier’s own service territory.16

The solution, we believe, is to establish a franchise process that does not require 

such counterproductive build out requirements. 

Problem 3: Extraneous Obligations 

The third major problem with the current video franchise process is the imposition of extraneous obligations that exceed 1 percent of revenues. 

Congress has already indicated its intent to limit payments for franchises by establishing in Title VI of the Communications Act that the 5 percent statutory franchise fee is a ceiling for payments ‘‘of any kind.’’ 17 Yet, franchise authorities often 

seek payments that far exceed the 5 percent fee by imposing requirements such as 

the assumption of all Public, Education, and Government (PEG) costs incurred by 

the incumbent cable operator over the entire span of its service, the installation of 

institutional networks (I-Nets), the requirement to bury aerial plant, the assumption of applications and acceptance fees, etc.18 These extraneous requirements increase costs and discourage the investment in next-generation broadband capability, 

thereby delaying the second evolution of broadband technology. The solution, we believe, is to prohibit the imposition of extraneous cost beyond 1 percent of gross revenues. 

APPENDIX

Broadband Internet Access Connectivity Principles 

TIA has long supported the rights of broadband Internet access service consumers 

to connect to and utilize their choice of legal Internet content, applications and devices, while also recognizing the needs of service providers in a competitive market 

to manage the security and functionality of their networks. TIA reaffirms its proconsumer principles, as outlined below, while continuing to observe that currently 

no significant evidence exists of these principles being abused in the marketplace. 

As such, it is not now necessary for the Federal Communications Commission to 

promulgate detailed rules in this area. Rather, the FCC should address any such 

problems on a case-by-case basis in the event they arise. 

1. A competitive broadband Internet access market offers consumers choices with 

respect to ‘‘connectivity’’—that is, the ability to access any lawful Internet content, 

and use any device, application, or service over the public Internet—so long as they 

do not harm the network. In particular: 

1.1 Consumers should receive meaningful information regarding their 

broadband Internet access service plans. 

1.2 Broadband Internet access consumers should have access to their choice of 

legal Internet content within the bandwidth limits and quality of service of 

their service plan. 

33 

1.3 Broadband Internet access consumers should be able to run applications of 

their choice, within the bandwidth limits and quality of service of their service 

plans, as long as they do not harm the provider’s network. 

1.4 Consumers should be permitted to attach any devices they choose to their 

broadband Internet access connection, so long as they operate within the bandwidth limits and quality of service of their service plans, and do not harm the 

provider’s network or enable theft of services. 

2. A competitive broadband Internet access market also gives facilities-based 

broadband Internet access providers competitive incentives to undertake risky, new 

investments, while precluding anticompetitive behavior against unaffiliated businesses. In particular: 

2.1 Broadband Internet access service providers should remain free to engage 

in pro-competitive network management techniques to alleviate congestion, 

ameliorate capacity constraints, and enable new services, consistent with the 

technical characteristics and requirements of the particular broadband platform. 

2.2 Broadband Internet access service providers should remain free to offer additional services to supplement broadband Internet access, including speed 

tiers, quality of service tiers, security and spam services, network management 

services, as well as to enter into commercially negotiated agreements with unaffiliated parties for the provision of such additional services. 

2.3 Such network management tools would enable operators to continue to optimize network efficiency, enable new services, and create incentives for continued build-out to meet increasing capacity demands. 

2.4 Broadband service providers should also remain free to innovate in the deployment of managed services, such as packaged video programming, which utilize the same networks but are distinct from public Internet access services. 

TIA believes that the FCC has jurisdiction to vigilantly monitor the broadband 

Internet access service market and expeditiously review any complaint of anticompetitive activity. However, as no significant evidence of a problem exists at this 

time, it is not now necessary for the FCC to promulgate detailed rules in this area. 

Rather, the FCC should address any such problems on a case-by-case basis in the 

event they arise. 

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

Our next witness is Robert LeGrande, the Deputy Chief Technology Officer for the Office of the Chief Technology Officer, in the 

District of Columbia, here in Washington. 

Mr. LEGRANDE. That’s a mouthful. I took it out of my speech just 

because of that. 

[Laughter.] 

STATEMENT OF ROBERT LEGRANDE, 

DEPUTY CHIEF TECHNOLOGY OFFICER, 

DISTRICT OF COLUMBIA GOVERNMENT 

Mr. LEGRANDE. Good morning, Mr. Chairman. 

The CHAIRMAN. Pull that mike up a little, will you, please? 

Mr. LEGRANDE. Good morning, Mr. Chairman, members of the 

Committee. Again, my name is Robert LeGrande, and I’m the Deputy Chief Technology Officer with the District of Columbia Government and the National Capital Region’s Interoperability Program 

Manager. Additionally, I’m the founder and Chairperson of the National Coalition for Public Safety. Today, I will comment on your 

Communications, Consumer’s Choice, and Broadband Deployment 

Act of 2006—specifically, Section 151, Interoperable Emergency 

Communications. 

First, I would like to take a moment and thank this committee, 

your staff, and the Congress for the continued efforts to address 

our national public safety communication needs. This Act further 

34 

demonstrates this committee’s commitment to public safety, and we 

appreciate the opportunity to speak in support of the legislation. 

The 700 megahertz spectrum-clearing legislation process was 

very painful for all of us, but well worth it. We can now leverage 

that accomplishment to deploy interoperable public safety solutions 

across the Nation. The questions before us today are: When and 

how? My immediate answers to these questions are: now and strategically. 

As most of you know, we have many areas in the Nation that 

lack interoperable voice communications. Catastrophic events such 

as 9/11, Hurricanes Isabel and Katrina, and future national threats 

require us to expeditiously provide funding to address public safety’s critical communications needs. 

While we have many needs, we must all agree on one eventual 

public safety communications outcome: seamless, interoperable, redundant national network of networks that transmit voice, video, 

and data. We must also agree that there is an impending multifaceted data communications problem. The vast majority of our current public safety mobile data solutions rely on commercial networks that are shared with the public. In a major event, these networks will likely fail, due to the excessive public and private communication demands, leaving our first responders without missioncritical data. Many jurisdictions throughout the country are attempting to address this problem by deploying noninteroperable 

private networks using disparate frequencies and differing technologies. If this trend continues, we’ll be here 5 years from now trying to solve a data interoperability crisis. 

Section 151(d)(1) and Section 151(d)(4), stated below, are essential to preventing this trend, because they establish funding criteria for standardized, commercially-available IP-based technologies being deployed in the 700 megahertz spectrum. 

The National Capital Region’s Interoperability Program is in its 

second year of a 5-year plan to deploy a seamlessly interoperable 

wireless broadband network of networks throughout its 19-member 

jurisdictions. 

I’d like to draw your attention to attachment 1 in your packet. 

Our plan leverages the recently cleared 700 megahertz public 

safety wideband spectrum. The program has already established a 

successful prototype in use daily by Federal, regional, and local 

first responders across the District of Columbia. The National Capital Region Interoperability Program recently partnered with Silicon Valley, San Diego, and Phoenix to create a national network 

of networks for wireless broadband communications. That’s also a 

diagram in your attachment—attached in your book. All regions 

have agreed to deploy the same technologies in the same frequencies at the same time. 

Recent UASI grant cuts severely threaten our region’s ability to 

deploy these proven national wireless broadband solutions. It is our 

collective hope that this Act will initiate full funding of the four regional programs no later than the end of the calendar year 2006. 

This investment will provide a model that can be leveraged across 

the Nation. 

In summary, it is our strong belief that a percentage of the dollars should go toward public safety voice communications problems 

35 

in high-risk areas. Further, a percentage should go toward investing in solutions that will solve data interoperability communications needs. These investments would patch critical voice communications holes, while investing in a scalable platform that will provide integrated voice, video, and data. The funds for these solutions 

should be available and disbursed without delay. 

In attendance with me today—and I’ll ask them to stand—are 

Chief Demetrios Vlassopoulos, of the District of Columbia Fire Department, and Private Scott Robinson, of the U.S. Park Police. 

Both are here in support of our national program and are users of 

the District’s citywide public-safety wireless broadband pilot network. This network is used daily to provide mobile video surveillance, high-resolution images, and access to applications, such as 

CapWIN and WebEOC. 

We need your help to continue our efforts to meet our first responders’ communication needs, and we thank you for this time, 

and are happy to answer any of your questions. 

[The prepared statement of Mr. LeGrande follows:] 

PREPARED STATEMENT OF ROBERT LEGRANDE, DEPUTY CHIEF TECHNOLOGY OFFICER, 

DISTRICT OF COLUMBIA GOVERNMENT

Good afternoon, Mr. Chairman and members of the Committee. My name is Robert LeGrande. I am a Deputy Chief Technology Officer in the Office of the Chief 

Technology Officer (OCTO), the central information technology and telecommunications agency of the District of Columbia government. I am responsible for the 

wireless communications infrastructure for the District government and the National Capital Region’s Interoperability Communications Program. Additionally, I 

am the Founder and Chairperson of the National Spectrum Coalition for Public 

Safety. 

As the leader of the District of Columbia’s wireless public safety voice and data 

communications programs, I have partnered with officials and field personnel of the 

District’s Metropolitan Police and Fire & Emergency Management Service Departments to upgrade our public safety voice network and install public safety wireless 

broadband network. During this process, I gained a deep appreciation of the demands our first responders face every day, and the urgency of their communications 

needs. Today, I will comment on the Communications, Consumer’s Choice, and 

Broadband Deployment Act of 2006, specifically section 151; Interoperable Emergency Communications. 

First, I would like to take a moment and thank this Committee, your staff and 

the Congress, for their continued efforts to address our national public safety communications needs. The 700 MHz spectrum-clearing legislation process was painful 

for all of us, but worth it. We can now leverage that accomplishment and deploy 

interoperable solutions across the Nation. 

The questions before us today are when and how. My immediate answers to these 

questions are now and strategically. As most of you know, we have many areas in 

the Nation that lack interoperable communications. Catastrophic events such as 9/ 

11, Hurricanes Isabel and Katrina, and future national threats require us to expeditiously provide funding to address public safety’s critical communications needs. 

While we have many needs, we must agree on one eventual public safety communications outcome; seamlessly interoperable, redundant, national network of networks that transmits video, data, and voice. 

We must also agree that there is a national public safety voice communications 

crisis, as well as an impending data communications crisis. I’ll spend a few minutes 

describing these major problems and then the remaining time on a recommended 

solution. 

First, the voice communications crisis, please reference the Voice Interoperability 

Matrix diagram (Attachment I). I will spare you the full description of this diagram, 

and state that the multiple colors represent the various frequencies used by first 

responders in The National Capital Region (NCR). The cost to implement the voice 

interoperability illustrated in this diagram for the District of Columbia was $40 million. Due to disparate frequencies and limitations in legacy voice communications 

systems, there are approximately 25 of these diagrams in the NCR. The good news 

36 

is that first responders in the NCR have interoperable voice communications; the 

bad news is that this is not the case for many jurisdictions in the country. 

Second, the impending data communications crisis is multi-faceted. The vast majority of our current public safety mobile data solutions rely on commercial networks 

that are shared with the public. In a major event, these networks will likely fail, 

and our first responders will be without mission critical data. Many jurisdictions 

throughout the country are attempting to address this problem by deploying noninteroperable, private networks using disparate frequencies and differing technologies. If this trend continues, we will ‘‘cube’’ ourselves for data communications, 

before we have even resolved the voice communications crisis. 

Different approaches can be taken to address our public safety voice and data 

communications problems. It is important to invest in repairing/upgrading voice 

communications systems in high-risk areas, while also investing in a new public 

safety communications platform that solves the impending data interoperability crisis, and has the capacity to later provide a Voice Over IP (VoIP) solution that addresses our long-term voice interoperability communications need. 

The NCR is in its second year of a five year plan to deploy a seamlessly interoperable network of networks throughout our 19 jurisdictions. Please reference the NCR 

Interoperability Program Cornerstone Chart (Attachment II) and the Regional Wireless Broadband Network Deployment Map (Attachment III). Our plan leverages the 

recently cleared 700 MHz public safety wideband data spectrum and all members 

of the NCR have agreed to deploy in the same frequencies using the same standardized, commercially available technology at the same time. This Urban Area Security 

Initiative (UASI) funded program will be competitively bid and select a spectrally 

efficient technology that provides seamless interoperable mobile data communications while maintaining jurisdictional control. VoIP technology will also be tested 

and later deployed on this infrastructure. 

Recently, the National Capital Region partnered with the Silicon Valley, San 

Diego, and Phoenix regions. All plan to deploy the same technology, in the same frequencies, at the same time. Please reference the Public Safety National Broadband 

Network of Networks diagram (Attachment IV). 

Unfortunately, recent UASI funding cuts severely threaten our region’s ability to 

deploy our national broadband network of networks solution. It is our collective 

hope that the Communications, Consumer’s Choice, and Broadband Deployment Act 

of 2006 will fully fund the deployment of the four regional programs (National Capital Region, Silicon Valley, San Diego, and Phoenix) and that these funds are available to start the deployment process no later than the end of calendar year 2006. 

In summary, it is our strong belief that a percentage of the dollars should go towards solving the voice communication issues in high-risk areas, a percentage 

should go towards investing in solutions that will solve our long-term voice and data 

interoperable communications needs, and that these funds should be available and 

dispersed without delay. 

In attendance with me today is Chief Demetrios Vlassopoulos of the District of 

Columbia Fire Department, Chief Pam Datcher of the U.S. Park Police, and Captain 

Hassan Aden of the City of Alexandria Police Department. Each is here in support 

of our national program and are users of the District’s city-wide public safety wireless broadband network. With the Chairperson’s permission, I would like to provide 

you with a two-minute video demonstration of our network. 

[Video Demo.] 

This is a real network... used daily by our Federal, regional and local first responders, We need your help to continue our efforts to meet all our first responder’s 

communications needs. Thank you for your time and we are happy to answer any 

of your questions. 

37 


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40 

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

Our next witness is Dan Glickman, Chairman and Chief Executive Officer of the Motion Picture Association of America. 

STATEMENT OF HON. DAN GLICKMAN, CHAIRMAN/CEO, 

MOTION PICTURE ASSOCIATION OF AMERICA 

Mr. GLICKMAN. Thank you, Mr. Chairman, Senator Inouye, and 

Members of the Committee. On behalf of the member companies of 

the MPAA, I thank you for the opportunity to talk about S. 2686, 

which we support. 


legra4.eps
41 

Protecting intellectual property will become a recurring and increasingly important theme for our economy in the decades to 

come. Piracy is a dagger in the heart of all the industries that rely 

on intellectual property protection, and we believe that your bill 

will help us in our battle against piracy, particularly as it relates 

to the broadcast flag provisions. 

The broadcast flag is targeted and narrowly focused on a single 

problem: the indiscriminate redistribution of digital broadcast television content over the Internet. The broadcast flag rule was adopted by the FCC some years back, and it was, by no means, perfect. 

Not everyone who participated in the process got everything they 

hoped for, and there was probably no one, including people in the 

motion picture industry, that wouldn’t change something, if given 

the chance. But, in the end, the rule that was approved by the FCC 

reflected an open and thorough process that took into account the 

concerns expressed by all who participated, and the result was a 

compromise that was fair and workable. 

As you are aware, a court of appeals struck down the broadcast 

flag rule that the FCC promulgated, on jurisdiction grounds, not on 

substantive grounds. And that is why we so much appreciate your 

including this language in this bill. 

The provision, which we support, is not perfect, and no one is 

likely to be entirely satisfied. But, on the whole, the Committee has 

done a commendable job of crafting a compromise provision that is 

fair and workable, and we hope that the bill, and this provision, 

will ultimately be enacted into law. 

There are three reasons to include this broadcast flag provision: 

First, it will protect the quality of three over-the-air broadcasts 

in the digital age. Cable and satellite systems already have systems in place to protect content so that it cannot be indiscriminately distributed over the Internet. If broadcast television is not 

similarly protected, content providers will choose to send their 

high-value content to where it can be best protected, and that 

would particularly affect, adversely, areas not currently served by 

cable and satellite: broadcast television. 

Second, by including this provision, the Committee brings certainty to the consumer electronics marketplace. The marketplace 

has already anticipated that the broadcast flag will be required, 

and many manufacturers of digital television devices are now producing equipment in compliance with the FCC broadcast flag regulations. 

Third, the provision promotes an important free market principle: by protecting intellectual property protection, you promote 

job creation. According to a new study conducted by a respected 

market research firm, our industry loses approximately $6.1 billion 

a year to piracy. Without this broadcast flag provision, those numbers could grow exponentially once we make the full transition to 

digital television. 

So, Senator Stevens and members of the Committee, we thank 

you for hosting this hearing. We support the bill and the broadcast 

flag provisions. And I look forward to answering your questions. 

[The prepared statement of Mr. Glickman follows:] 

42 

PREPARED STATEMENT OF HON. DAN GLICKMAN, CHAIRMAN/CEO, 

MOTION PICTURE ASSOCIATION OF AMERICA

Chairman Stevens, Co-Chairman Inouye, members of the Committee: 

On behalf of the member companies of the Motion Picture Association of America, 

I thank you for the opportunity to talk to you about S. 2686, the Communications, 

Consumer’s Choice, and Broadband Deployment Act of 2006. 

Chairman Stevens, this hearing comes at a time not only critical to our industry, 

but also at a critical time for this Nation. 

Protecting intellectual property will become a recurring and increasingly important theme for our economy in the decades to come. This Nation will prosper or it 

will fail, in large part, based on how we protect our Nation’s greatest assets . . . 

the skill, ingenuity, and creativity of our people. 

This is why the MPAA strongly supports including a broadcast flag provision in 

S. 2686. The broadcast flag rule adopted by the FCC was by no means perfect. No 

one who participated in the FCC process got everything they hoped for, and there 

is probably no one, including the motion picture industry, that wouldn’t change 

something if given the chance. 

But in the end the FCC rule reflected an open and thorough process that took 

into account the concerns expressed by all who participated, and the result was a 

compromise that was fair and workable. The same can be said of the latest provision 

included in S. 2686. It is not perfect, and no one is likely to be satisfied entirely. 

The motion picture industry certainly has its own concerns with some of its provisions. But on the whole the Committee has done a commendable job of crafting a 

compromise provision that is fair and workable. We appreciate your hard work in 

including this provision in S. 2686, and we hope that it will pass the Senate and 

eventually be enacted into law. 

This provision works to protect video content by giving the Federal Communications Commission (FCC) authority to implement the broadcast flag regulations 

which it adopted over two years ago, and that were to become effective last July. 

There are three reasons to include this broadcast flag provision. 

First, it will protect the quality of free over-the-air broadcasts in the digital age. 

Cable and satellite systems already have systems in place to protect content so that 

it can not be indiscriminately distributed over the Internet. If broadcast television 

is not similarly protected, content providers will choose to send their high-value content to where it can best be protected. By including the broadcast flag, this Committee takes a stand to protect free over-the-air television for consumers. 

Second, by including this provision, the Committee brings certainty to the consumer electronics marketplace. The marketplace has already anticipated that the 

broadcast flag will be required, and many manufacturers of digital television devices 

are now producing equipment in compliance with the FCC broadcast flag regulations. Reinstatement of the FCC rule will provide uniformity and certainty for consumers who rely on digital over-the-air broadcasts. 

Third, the provision promotes an important free market principle: By protecting 

intellectual property you promote job creation. 

The American film industry, like all of the creative industries, combines capital 

and talent to produce intellectual property. It is not easy to create a movie. It requires lots of money, lots of skilled workers, and lots of hard work. In fact, four out 

of ten movies don’t make back their investment. So the movie industry is fraught 

with risk. 

Despite these hurdles, the American film industry is the most successful in the 

world. It is one of our most important exports. It is one of our best job creators. 

But according to a new study conducted by a respected market research firm, our 

industry loses approximately $6.1 billion a year. Without this broadcast flag provision, those numbers could grow exponentially once we make the full transition to 

digital television. 

The broadcast flag rule is targeted and narrowly focused on a single problem, the 

indiscriminate redistribution of digital broadcast television content over the Internet. As long as one is not trying to redistribute flagged content over the Internet, 

a typical consumer will not know the broadcast flag exists. 

I want to emphasize that the broadcast flag has been the subject of intense scrutiny by technology and content communities, as well as other interested parties, in 

open forums consuming literally thousands of man-hours of discussion. There is 

broad consensus that this is an issue that needs to be addressed. There is also broad 

consensus on the nature of the solution considered. I believe the discussion draft 

legislation released last week is fully consistent with that consensus and should be 

swiftly enacted. 

43 

Let me add one cautionary note. While we strongly support legislation that will 

implement the broadcast flag, we cannot support legislation that will do that at the 

expense of the anti-circumvention provisions of the DMCA. Legislation similar to 

that offered by the House of Representatives in the form of H.R. 1201, would, as 

a practical matter, repeal Section 1201 of the DMCA, and do much more harm than 

good. 

Chairman Stevens, Co-Chairman Inouye, members of the Committee, I appreciate 

this opportunity to discuss this matter of great concern to our industry and I look 

forward to answering any questions you may have regarding what I have just discussed. 

The CHAIRMAN. Thank you very much. 

The last witness of this panel is John Rose, the President of 

OPASTCO, here in Washington. 

Mr. Rose? 

STATEMENT OF JOHN ROSE, PRESIDENT, ORGANIZATION FOR 

THE PROMOTION AND ADVANCEMENT OF SMALL 

TELECOMMUNICATIONS COMPANIES (OPASTCO); ON BEHALF 

OF THE COALITION TO KEEP AMERICA CONNECTED 

Mr. ROSE. Good morning. I’m John Rose, President of OPASTCO. 

Today, I’m here testifying on behalf of the Coalition to Keep America Connected, a coalition of rural communications providers, consumers, and small businesses. We appreciate both the opportunity 

to testify and the leadership this committee, and Chairman Stevens, has shown on these important issues. 

The Coalition to Keep America Connected is organized by ITTA, 

NTCA, OPASTCO, and WTA, all representing telephone companies. Collectively, our memberships include more than 700 smalland mid-sized companies and cooperatives that serve millions of 

consumers that reside throughout more than 40 percent of the land 

mass of the United States. We serve rural communities. 

S. 2686 contains many positive aspects for rural America. I will 

comment today on the portions dealing with the Universal Service 

Fund. 

First of all, I want to thank you, Mr. Chairman and others on 

the Committee, for the strong leadership and support for the Universal Service Fund that is reflected in this legislation. The staff 

discussion draft contains many improvements on that effort. There 

are areas that give us some concern, though. 

The bill provides the FCC with the flexibility to assess contributions from broadband service providers. The long-term sustainability and stability of the Universal Service Fund necessitates that 

broadband service providers should contribute to the Fund. Current 

market data continues to demonstrate significant growth in 

subscribership to broadband services. In light of this growth, permitting broadband service to be assessed in a combination of ways 

ensures a sustainable contribution base for the long-term. 

Regardless of the methodology the FCC establishes, it’s important for all broadband providers to contribute to the Fund. We include ourselves in that. Rural providers already contribute on the 

revenues they receive on their DSL service. 

We applaud the language in Section 715 of the discussion draft 

stipulating that IP-enabled voice traffic should not be excluded 

from intercarrier compensation. The Coalition has long advocated 

the simple concept that regulatory arbitrage should not prevent 

44 

carriers from being fairly compensated for the use of their networks. 

Thank you for including the language that prohibits the limitation of Universal Service support to a single connection or a primary line. Also, the bill clarifies that intrastate services may be assessed for USF contributions. As bundled local and long-distance 

services become more common, the problem of distinguishing between intra- and interstate services has become increasingly difficult. This provision eliminates the unnecessary confusion generated by the current requirement to assess only interstate service. 

We’re also very grateful for the exemption of the Universal Service Fund from the Antideficiency Act, an issue that we believe 

needs to be resolved by the end of this calendar year. The Coalition 

appreciates the leadership shown on this issue by many Members 

of this Committee. 

On another positive note, the legislation addresses the issue of 

phantom traffic and proposes language that would help alleviate 

this growing problem. ‘‘Phantom traffic’’ refers to communications 

traffic that cannot be properly tracked or billed for. This translates 

into billions of minutes of communications traffic that are being 

terminated on the networks of other carriers without compensation. It’s essential that all service providers receive reasonable and 

fair compensation for the use of their networks. 

We have three areas of concerns that are not included in the introduced legislation or discussion draft: 

First, we would like to see the inclusion of a provision that requires support to be based on the carrier’s actual cost. Currently, 

new eligible carriers in rural telephone company service areas receive support based on the incumbent’s cost. The incumbents must 

not only follow more regulations than other carriers, they must also 

serve the least lucrative and the most rural consumers. 

Second, the legislation should be recalibrated to the current 

method used to calculate universal growth factor. 

The third would be the so-called ‘‘parent trap.’’ In many instances, current rules serve as a significant impediment to the kind 

of network investment this bill is designed to encourage. By modifying these rules, consumers living in rural areas would be able to 

enjoy the benefits of a broadband-capable network. 

Rural areas need the tools to compete. Broadband is one of those 

essential tools. Our country needs rural areas to be productive in 

order for this country to be productive and compete on the world 

market. We believe your bill moves it in that direction. 

The Coalition applauds the legislation’s move toward a sustainable Universal Service Fund which would make our rural areas 

competitive, and we pledge to continue working with this Committee on the vitality of this important issue. 

Thank you, Mr. Chairman. 

[The prepared statement of Mr. Rose follows:] 

PREPARED STATEMENT OF JOHN ROSE, PRESIDENT, ORGANIZATION FOR THE

PROMOTION AND ADVANCEMENT OF SMALL TELECOMMUNICATIONS COMPANIES

(OPASTCO); ON BEHALF OF THE COALITION TO KEEP AMERICA CONNECTED

Good Morning. I am John Rose, President of the Organization for the Promotion 

and Advancement of Small Telecommunications Companies (OPASTCO). Today, I 

am testifying on behalf of the Coalition to Keep America Connected, a coalition of 

45 

rural communications providers, consumers and small businesses. We appreciate 

both the opportunity to testify and the leadership this Committee has shown on 

these important issues. 

The Coalition to Keep America Connected is organized by the Independent Telephone and Telecommunications Alliance (ITTA), the National Telecommunications 

Cooperative Association (NTCA), the Organization for the Promotion and Advancement of Small Telecommunications Companies (OPASTCO), and the Western Telecommunications Alliance (WTA). Collectively, our memberships include more than 

700 small and mid-size companies and cooperatives that serve millions of consumers 

that reside throughout more than 40 percent of the landmass of the United States. 

S. 2686, the ‘‘Communications, Consumer’s Choice, and Broadband Deployment 

Act of 2006,’’ contains many positive aspects for rural America. I will comment today 

on the new draft of this legislation and specifically the portions dealing with the 

Universal Service Fund (USF). 

First of all, I want to thank you, Mr. Chairman, and others on this Committee 

for the strong leadership and support for the Universal Service Fund that is reflected in this legislation. The goal of Universal Service policy is to ensure that 

every American, regardless of location, has affordable, high-quality access to a variety of modern telecommunications and information services. Rural incumbent local 

exchange carriers are the embodiment of the Universal Service concept, having built 

the infrastructure that provides ubiquitous, high-quality local telecommunications 

service to some of the country’s most remote and difficult to serve areas. The provision of a robust infrastructure in these areas would never have been possible were 

it not for the Nation’s long-established policy of Universal Service and the Federal 

Universal Service Fund. This is important not only to those living in rural areas, 

but also to those in urban areas who wish to communicate with individuals and 

businesses in less populated communities. 

As introduced, S. 2686 seeks to update America’s telecommunications laws to 

meet the current and ever evolving communications market. In our view, the Staff 

Discussion Draft released on June 9th contains improvements on that effort, and, 

in some areas, gives us concern. 

The Coalition is pleased that the bill provides the Federal Communications Commission (FCC) with the flexibility to base Universal Service contributions on several 

different factors, including revenues, working phone numbers, other identifier protocols, connections, and network capacity. This type of flexibility is necessary in a continually evolving communications marketplace. 

The bill provides the FCC with the flexibility to assess contributions from 

broadband service providers. The long-term sustainability and stability of the USF 

necessitates that broadband service providers should contribute to the Fund. Current market data continues to demonstrate significant growth in subscribership to 

broadband services. For example, the FCC recently reported that for the twelve 

month period ending June 30, 2005, the number of broadband service connections 

increased by 32 percent, from 32.5 million to 42.9 million. In light of this growth, 

permitting broadband service to be assessed in a combination of ways, based on revenues and/or capacity ensures a sustainable contribution base for the long-term as 

consumers continue to migrate to broadband platforms. In turn, this enables consumers in rural and high-cost areas to continue to have affordable access to highquality telecommunications and information services that are comparable to those 

available to urban and suburban residents, as Section 254 of the Telecommunications Act requires. Regardless of the methodology the FCC establishes, it is important for broadband providers to contribute to the Fund. We include ourselves in 

that; rural providers fully plan to contribute in an equitable manner as well. 

We applaud the language in Section 715 of the discussion draft stipulating that 

IP-enabled voice traffic shall not be exempted from intercarrier compensation. The 

Coalition has long advocated the simple concept that regulatory arbitrage should not 

prevent carriers from being fairly compensated for the use of their networks. 

Thank you for including language that prohibits the limitation of USF support to 

a single connection or primary line. Limiting support in this manner would be devastating to the small businesses that generate a large percentage of the jobs in rural 

areas. 

Also, the bill clarifies that intrastate revenue may be assessed for USF contributions. As bundled services become more common, the problem of distinguishing between intra- and interstate revenues has become increasingly difficult. This provision eliminates the unnecessary confusion generated by the current requirement to 

assess only interstate revenue. 

We are also very grateful for the exemption of the USF from the Antideficiency 

Act, an issue that we believe needs to be resolved by the end of this calendar year. 

46 

The Coalition appreciates the leadership shown on this issue by many Members of 

this Committee. 

The Coalition is also pleased with the inclusion of the new provisions in this 

version of the bill that would apply the geographic toll rate averaging and integration requirements of the 1996 Act to any services that can be used as a substitute 

for traditional long-distance toll services. The geographic averaging of toll rates has 

long been a cornerstone of telecommunications policy in the United States. It is critical to rural subscribers, who typically have to make a greater number of long-distance calls than their urban counterparts due to smaller local calling scopes. For 

rural subscribers, calls to schools, doctors, and government agencies can often times 

be toll calls. By extending the geographic rate averaging and integration requirements to successor services, it will help to ensure that consumers in rural and insular areas continue to have access to affordable long distance rates as communications networks and services evolve. We applaud you for extending the rate averaging concept to the IP world. 

Another positive provision in the new draft clarifies that portions of study areas 

may qualify for support from the Broadband for Unserved Areas Account. This will 

be helpful in enabling rural telecommunications companies to come closer to achieving full broadband coverage throughout their areas. Rural telecommunications companies are committed to offering broadband services to their communities, and have 

done a tremendous job thus far in deploying it where it is economically feasible. For 

example, OPASTCO estimates that its members are presently capable of offering 

broadband to nearly 90 percent of their customers. However, there are portions of 

some rural study areas that are so prohibitively expensive to serve, that ubiquitous 

broadband deployment throughout the study area is unachievable absent high-cost 

support. By making targeted support for broadband deployment available to rural 

telecommunications companies who have, thus far, been unable to achieve full coverage, it will help to bring our country closer to the goal of affordable broadband 

availability for all Americans, no matter where they live. 

The Coalition also supports having the Universal Service Administrative Company (USAC) serve as the administrator of the Broadband for Unserved Areas Account, subject to FCC oversight. It is efficient and logical to have the current administrator of all the other Universal Service programs administer this new account. 

Furthermore, rural carriers appreciate the consistency of being able to interact with 

the same administrator for all Universal Service programs on a long-term basis. 

However, with regard to the new Broadband for Unserved Areas Account, we 

question the collection of these new monies under Section 254(d) of the Act. We are 

also concerned that the Fund covers the customer premises equipment (CPE) for 

satellite service. Residential CPE is generally not covered in the other programs, 

and this provision risks focusing a disproportionately large segment of the Unserved 

Areas Account on this element. 

We are highly supportive of the language that requires the FCC, if it modifies the 

distribution rules for the high-cost support, to adopt transition mechanisms designed to alleviate any harmful effects on existing Eligible Telecommunications Carriers (ETCs) and their customers. As you may know, the Federal-State Joint Board 

on Universal Service is in the midst of a proceeding that is considering changes to 

the high-cost support distribution mechanism for rural telecommunications companies. If the distribution mechanism that is ultimately adopted in that proceeding reduces the high-cost support that rural carriers receive, it is critical that there is not 

a flash-cut to the new system. Unlike the largest local exchange carriers, rural telecommunications companies have limited resources, and rely heavily on Universal 

Service support as a source of cost recovery. As a result, they will need ample time 

to adjust to any negative impacts of a new distribution system in order to prevent 

undue short-term hardships, and to enable them to continue providing their customers with high-quality service. 

On another positive note, the legislation addresses the issue of phantom traffic 

and proposes language that would help alleviate this growing problem. Phantom 

traffic refers to communications traffic that cannot be properly tracked and billed 

for. It is a growing phenomenon that, by Verizon’s own estimate, accounts for 20 

percent of all traffic on its network. This translates into billions of minutes of communications traffic that are being terminated on the networks of other carriers for 

free. This is problematic because it places increased pressure on consumers—who 

are ultimately paying for this unidentified traffic through higher rates or increased 

Universal Service fees. It is essential that all service providers receive reasonable 

and fair compensation for the use of their networks. 

The Coalition is particularly happy to see new language in the latest version of 

the bill that would require a provider that transports, or transits traffic between 

communications service providers, to forward without alteration the call signaling 

47 

information it receives from another carrier. This is very important to rural carriers 

because much of the network traffic they receive comes to them through a transiting 

carrier. Rural carriers must rely upon the transiting carrier to receive the necessary 

call-identifying information to properly bill for the call. We are also pleased that the 

legislation would require the FCC to establish rules and enforcement provisions for 

traffic identification, including penalties, fines and sanctions for rule breakers. By 

fixing the problem of phantom traffic, Congress will help alleviate pressures on enduser rates and the USF. 

We have concerns about the Group Plan Discount provision that is included in 

the new draft. We believe it is vague and overly broad by allowing an unspecified 

number of ‘‘additional numbers’’ to be eligible for the discount. It is positive that 

the discount is limited to residential customers only. 

We have three areas of concern that are not included in the introduced legislation 

or discussion draft. First, we would like to see the inclusion of a provision that 

would require support to be based on a carrier’s actual costs. Currently, competitive 

ETCs receive support based on the incumbent’s costs. Incumbents must not only follow more regulations than other carriers, they also serve the least lucrative consumers. This often results in many ETCs receiving unwarranted windfalls of support, which increases costs to consumers nationwide with no corresponding benefit. 

Second, the legislation should recalibrate the current method used to calculate the 

USF growth factor to account for access line loss. The current method fails to recognize that local exchange carriers are losing customers to other services, and, in 

many rural areas, out-migration. The current mechanism used to calculate the inflationary adjustment penalizes carriers due to customer loss even as we continue our 

carrier of last resort obligations. 

The third area that we would like to see addressed in the legislation is the socalled ‘‘parent trap.’’ There is a need to reconfigure how Universal Service support 

is calculated and distributed to rural areas in order to align the current disconnect 

between the rural characteristics of purchased properties with the ridged regulatory 

classification of the acquired properties. In many instances, current rules serve as 

a significant impediment to the kind of network investment this bill is designed to 

encourage. By modifying these rules, consumers living in rural areas would be able 

to enjoy the benefits of a broadband capable network, because carriers would be inclined to purchase and invest in rural areas that need and deserve rehabilitation. 

As stated earlier, the Coalition applauds this legislation’s move towards a sustainable Universal Service Fund, and we pledge to continue working with this Committee on this vitally important issue. 

At this point I would like to step away from the Coalition to Keep America Connected perspective on USF and comment on other parts of the bill on behalf of 

OPASTCO. OPASTCO supports the inclusion of the Section 335 Shared Facilities 

portion of the bill. This will help rural carriers control costs of bundled, innovative 

new services, and thus assist furthering the deployment of broadband to rural areas. 

Similarly, subtitle A of Title IV will help small providers obtain content demanded 

by consumers on an equitable basis, encouraging the bundling of video and 

broadband services. OPASTCO is also pleased with the inclusion of the Section 602 

language. This so-called ‘‘white space’’ spectrum can be utilized on an unlicensed 

basis to provide wireless broadband to consumers. 

Once again, thank you for listening and working with us on these very important 

issues. 

The CHAIRMAN. Thank you very much. 

We’ll now go through a period of questions from Members of the 

Committee. I do hope you’ll all keep in mind that we do have a second panel. 

The Co-Chairman is recognized. 

Senator INOUYE. I thank you very much. 

Mr. Scott, listening to the testimony of this panel, one is bound 

to get the impression that there is no clear definition of ‘‘net neutrality.’’ What is your definition? 

Mr. SCOTT. My definition is very simple. It’s nondiscrimination 

on the Internet. 

Senator INOUYE. Should this be legislated? 

Mr. SCOTT. I believe it should. I believe it is the cornerstone of 

what gave us the Internet through Title II. And I believe that, now 

48 

that Title II no longer applies to broadband, it is incumbent upon 

us to transfer over nondiscrimination into the Internet space to 

guarantee that we continue to have the benefits that we’ve enjoyed 

heretofore. 

Senator INOUYE. Do you believe the Internet is successful today 

because of legislation? 

Mr. SCOTT. Yes, sir, I do. 

Senator INOUYE. What would the impact be with no legislation? 

Mr. SCOTT. I think the impact of no legislation is a structural 

change in the Internet, which would, for better or worse—I believe, 

for worse—change the way the Internet works, change the user experience of the Internet, change the relationship between the competitive free market for content applications, and the noncompetitive market for broadband connectivity. 

Senator INOUYE. I thank you very much. 

Mr. Rose, what are your thoughts on out-building? 

Mr. ROSE. Thoughts on what, sir? 

Senator INOUYE. Out-building. Oh, no, no, I’m—I should be asking Mr. McCurdy. I’m sorry. 

Mr. MCCURDY. Senator, I’m sorry, I didn’t—you asked my 

thoughts on buildout? 

Senator INOUYE. Yes. 

Mr. MCCURDY. We believe that the legislation today, with the 

changes in the franchise process, incentivizes greater competition 

throughout the country, and that buildout will occur, that there 

will be an economic basis for it. This is a way to improve competition, rather than having single providers. And, as I think all the 

witnesses have testified, the opportunities for consumers to have 

access to greater broadband capability is more than just use of the 

Internet, it really provides opportunities for other kinds of services 

to be provided, and the ability for consumers to network, from a 

business standpoint, from a personal standpoint. So, I think the 

way the bill is structured, that it really does provide incentives. 

I would disagree with my panelist, Mr. Scott, when it comes to 

legislating the Internet. The Internet was not legislated before. The 

1996 Telecom Act had almost no provisions with regard to the 

Internet. It was really on telecom. The Internet has been tremendously successful because of a non- or a light-regulatory model emphasized by the Federal Communications Commission and the Congress. And we believe that’s the best approach. And that’s the approach that says, ‘‘If you can’t define what ‘net neutrality’ is, and 

you can’t have two stakeholders that really agree on the definition, 

and you can’t point to a tangible problem, then why regulate it, 

why be proactive and take that step?’’ 

Senator INOUYE. Dr. Rutledge, is there a middle ground? And I’m 

saying this because there are strong groups saying no to net neutrality, and other groups saying yes. Is there such a thing as a middle ground? 

Dr. RUTLEDGE. Well, you know, I think there is, and I think we 

are in the middle ground already. As Mr. McCurdy says, there 

have not been regulations before. These are new regulations that 

are being proposed. The entrepreneurial behavior is about change. 

There are existing procedures at the FCC and in antitrust law to 

49 

deal with anticompetitive issues. So, I think the issue of access is 

very important, and that we have laws in place to deal with that. 

I think the issue of trying to stop changes or control pricing 

through legislation is a remedy for disaster. It will end up in a litigation mess like some parts of the 1996 Telecom Act did. 

So, guaranteeing access, nondiscriminatory access, yes, but not 

controls over ability to price, which would deter investments. 

Senator INOUYE. I notice that my time is up, Mr. Chairman. 

The CHAIRMAN. Thank you very much. 

The next Senator is Senator Burns. 

Senator BURNS. Thank you, Mr. Chairman. 

I really meant it when I said that nobody really has got a definition for ‘‘net neutrality.’’ And we will struggle to define that, Senator Inouye, before it’s all over. 

But I’m interested in the case of video franchising. Have we 

taken the right approach on this? What exists in the bill today? 

Mr. McCurdy? 

Mr. MCCURDY. Senator Burns, we really believe that the Title III 

provisions on streamlining this franchise process are the right step. 

You know, we’ve looked at this in-depth, and we find that the 

delays in issuing franchises really impedes deployment of 

broadband capability. And we’ve seen it in several States. A number of States are now trying to revise their provisions, but we believe a uniform Federal provision is the right approach. 

Senator BURNS. Dr. Rutledge? 

Dr. RUTLEDGE. Again, I’m sorry, sir. The question? 

Senator BURNS. Do you think that our approach on video franchising is where we should be in this piece of legislation? 

Dr. RUTLEDGE. Well, you know, I really do. And I do, partly because, in the last 5 years the U.S. share of world production of 

communication equipment has gone from 40 percent to below 20 

percent. Last July, I believe it was, when Senator Ensign released 

a draft of his bill, telecom equipment companies’ market values increased by $22 billion in the first 48 hours. Corning was up 15 percent, after they had closed five out of their six U.S. plants. So, I 

think, the approach of making it easy for people to make investments in video quickly is a very positive one for the capital stock 

and for productivity growth. 

Senator BURNS. Mr. Scott? 

Mr. SCOTT. I believe that the framework for franchising authority 

is workable. I think it’s less important where the authority is located than what that authority delivers to the consumer. And I 

think the biggest issue here that’s unresolved is, how are we going 

to bring video competition out into rural areas? I grew up in the 

panhandle of Texas, and I don’t mean in the great metropolis of 

Amarillo, I mean out in the country, where you’ve got yourself a 

town if you’ve got a stoplight. And it took us a long time to get 

cable TV. And I fear that we’ll never get video competition out in 

those areas unless we make a public policy that reasonably guides 

the marketplace to incentivize buildout in those areas. 

Senator BURNS. Do you have competition in video programming 

now, or video in that small town in the panhandle of Texas? 

Mr. SCOTT. Well, I mean, you can get cable television if you’re 

in town. You can get satellite if you’re out of town. But over the 

50 

years, satellite has proven, year after year, to be unable to discipline the prices of video. And satellite does not bring a high-speed 

broadband connection with it, like another wireline competitor 

would. 

Senator BURNS. Do you have access to DSL? 

Mr. SCOTT. In some cases. It depends—— 

Senator BURNS. And what—— 

Mr. SCOTT.—on where you are. 

Senator BURNS. Even in your city? 

Mr. SCOTT. It depends on how far away from the wire center you 

are. 

Senator BURNS. But it’s there? 

Mr. SCOTT. It is there. 

Senator BURNS. Thank you, Mr. Chairman. 

The CHAIRMAN. Senator DeMint? 

STATEMENT OF HON. JIM DEMINT, 

U.S. SENATOR FROM SOUTH CAROLINA 

Senator DEMINT. Thank you, Mr. Chairman. And I appreciate all 

the testimony today. 

Just one note. Mr. LeGrande, you mentioned—and I appreciate 

that you mentioned—the importance of interoperable communication, rural areas, particularly when there is a disaster, be it manmade or otherwise. And, actually, this Committee had acted on 

that last year. Senator Ben Nelson, and I, introduced the Warren 

Act, which this whole Committee passed unanimously. Unfortunately, one Member of the Committee continues to hold it up; so, 

as hurricane season starts again, we’re still sitting on our hands 

with something that could do a lot of what you had said. So, I appreciate you bringing that to our attention again. 

Mr. Chairman, let me just jump to net neutrality. There seems 

to be a lot of discussion about what’s the real definition of ‘‘net neutrality.’’ I know exactly what it is, because I’m an old retail guy. 

And what this is, is the government telling retailers how to run 

their business. 

Now, if there was just one retailer in town, I think we should all 

be concerned. We obviously have to look out for consumers. But 

when it comes to the Internet now, there are many retailers, and 

there are going to be many more in just a relatively short period 

of time. We’ve got high-speed phone lines, we’ve got cable, we’ve 

got satellite, and I think you’re going to see, in just a relatively few 

number of years, every community, even distant rural communities, are going to have community-wide WiFi networks with highspeed broadband services, which are already being developed all 

around the country. 

So, it’s really commercial suicide for any network retailer to limit 

something that their customers want. And so, for us to be sitting 

here concerned that somehow we’re going to block something, that 

one of these retailers is going to block something their consumers 

want, it just, frankly, won’t happen. 

In fact, to use this term ‘‘discrimination,’’ we want retailers to 

discriminate. If you’ve ever seen how the showcase of free enterprise works on the retailing side of our economy, I mean, producers 

of products and services fight to get their products displayed in 

51 

stores, and they make better deals and better products, and they 

develop market demand for their product, so the retailers are 

forced to have them. And that’s what’s happening in this marketplace today. So, we actually want some discrimination to force better products and better prices. 

And, again, if you think any of these retailers are going to limit 

something their customers already want, it just isn’t going to happen. We need to stop worrying about telling retailers what products 

to stock on their shelves and how many facings to give them. We 

don’t need to do that, because the market is developed to the point 

where it’s going to take off if we just let it. 

But let me just ask one question to Dr. Rutledge and Mr. McCurdy, because I think you seem to have a grasp on what’s really going 

on here. 

Mr. Scott is arguing that if we let the broadband market develop 

without imposing retailing regulation mandates, that if this discrimination begins, that there’ll be no way to stop it, that it’ll just 

get out of hand. Mr. McCurdy, we’ll just start with you—what are 

your thoughts on that? And then, Dr. Rutledge, I’d appreciate your 

point of view, too. 

Mr. MCCURDY. Senator DeMint, people often have noble intent, 

but I think there are unintended consequences by some of the actions. And regulation often results in that. In the 1996 bill, there 

were the unbundling requirements, and we saw disincentives really 

imposed on the deployment of broadband capability. 

As I stated in my testimony, I believe the FCC has full authority 

to investigate any abuses, discriminatory practices or such, that 

would really block the use of the Internet. And they should have 

authority to not only investigate, but to adjudicate some of those 

actions. 

And also, if you recall in the House bill, there was an amendment that provided that even though the FCC has authority, it in 

no way takes away the antitrust authority within the U.S. law. So, 

there’s ample ability to police, and to adjudicate any discrimination 

that would occur—wrongful discrimination, not the kind of retail 

discrimination that I think you were alluding to. 

And I’d just like to make one last point. I think Senator Burns, 

has raised that. Senator Dorgan, when he made his intro, talked 

about incentivizing innovation and providing for competition. I’m 

here representing the technology industry. Europe and Asia have 

greater deployment and use of broadband than we do, and this is 

an opportunity to unleash the ability of major providers to go to 

that second generation, that next generation of capability, whether 

it’s fiber-to-the-premises, network-to-the-curb; VDSL, which is very 

high-speed DSL; cable interfaces, new systems there; WiFi, 

WiMAX, broadband over powerlines. There was an article in the 

paper yesterday about satellite providers now reaching new agreements to provide Internet capability. This technology is ready to 

explode, it’s ready to take off. And I think you have the ability, this 

year, to really incentivize it and move it forward. 

Senator DEMINT. Dr. Rutledge? 

Dr. RUTLEDGE. I think we need to be careful not to try and create 

regulations for a problem that doesn’t exist. There’s plenty of remedies between the FCC and antitrust law to deal with anticompetiVerDate Nov 24 2008 10:53 May 06, 2011 Jkt 066172 PO 00000 Frm 00055 Fmt 6633 Sfmt 6601 S:\GPO\DOCS\66172.TXT SCOM1 PsN: JACKIE
52 

tive behavior. And that’s sufficient to deal with the problem. If we 

do regulate it, there may not be a problem, because there may not 

be investment in high-speed telecom. 

What we call ‘‘broadband’’ is really a misnomer. Broadband is not 

a ‘‘thing.’’ ‘‘Broadband’’ just means that, of all technologies, you’re 

using the one faster than the other guy. You know, once upon a 

time, the imperial highways in China were broadband, because 

they were the fastest transportation in the world. They’re not any 

more. Once upon a time, the railroads were the fastest. In the rest 

of the world, they are using fiber optics. I’ve had video conferences 

from Beijing to several thousand people in the U.S., with no delay 

and perfect signal, because every band on my phone is lit up in 

every city I go to in China. That’s the battle. The battle is a competitive one. And we need to make sure we don’t stop change before 

it happens. 

Senator DEMINT. Mr. Chairman, I’ll yield back, but just one last 

point. I think once we interject this idea of discrimination onto the 

Internet, which is something—really, in retailing, it’s a good idea 

and ultimately benefits the consumer—once we interject that at all, 

we’re going to create another litigation playground for the trial 

lawyers, and I’m afraid we’re going to really hurt something that’s 

beginning to move in a very fast way in the right direction. 

Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you. 

Senator Vitter? 

Senator VITTER. I have nothing at this time, Mr. Chairman, 

thank you. 

The CHAIRMAN. Senator Dorgan? 

Senator DORGAN. Mr. Chairman, thank you. 

I think my colleague Senator DeMint has given the most robust 

support for discrimination that I’ve heard here in the Senate for 

some while. I think it was in this room, as a matter of fact, where 

we saw people on all sides doing their best impression of potted 

plants, while the Federal Government was doing nothing with respect to the stealing of about $10 billion-plus with respect to wholesale electricity rates in California, and we were told, ‘‘Don’t do anything, nothing’s happening, this is the free market system.’’ We 

now understand it was a massive criminal enterprise, and Congress would have been well advised to stand up for the interest of 

the consumers on the West Coast. 

But, Mr. Scott, who created the Internet? 

Mr. SCOTT. It was a combination of the Defense Department and 

some university researchers. 

Senator DORGAN. So, it was government-created? 

Mr. SCOTT. Yes, sir. 

Senator DORGAN. Uh-huh. Let me ask you, until last summer, 

when the Supreme Court affirmed an FCC ruling that broadband 

was an information service—prior to that time, broadband was considered a telecommunications service, and, therefore, subject to the 

common-carrier rules and nondiscrimination provisions of the common-carrier rules, is that accurate? 

Mr. SCOTT. That’s right. DSL and broadband services were considered Title II services. 

53 

Senator DORGAN. So, the unbelievable robust growth of the Internet occurred while the nondiscrimination rules existed. Is that correct? 

Mr. SCOTT. That’s right. And even those cable modems that were 

not technically subject to Title II common-carrier regulations defacto adhered to those regulations because of the uncertainty of 

how that nondiscrimination principle would ultimately be applied. 

Senator DORGAN. And we are told that, in the absence of those 

nondiscrimination rules that have always existed, or been adhered 

to, that antitrust laws replace it. My view of antitrust laws is, they 

make glaciers look like they’re speeding. 

Mr. SCOTT. That’s right. And—— 

Senator DORGAN. Antitrust-law enforcement, in this town, is almost completely, thoroughly, totally nonexistent. 

Let me ask Dr. Rutledge a question. A CEO of a telecom company recently—actually, last November, said—this was Business 

Week—he said, quote, ‘‘They don’t have any fiber out there. They 

don’t have any wires, they don’t have anything, and they use my 

lines for free, and that’s bull. For a Google, or a Yahoo!, or a 

Vonage, or anybody to expect us to use these pipes for free is nuts.’’ 

I think, Dr. Rutledge, you and I don’t disagree about where this 

would head. I think you indicated, when you testified, that access 

is very important. You don’t want people to discriminate with respect to the ability of—the people in this country to access the 

Internet. Would that not be true? 

Dr. RUTLEDGE. I didn’t hear anything in that quote that suggested that no one would have access. I heard—— 

Senator DORGAN. Well, the quote was—— 

Dr. RUTLEDGE.—I heard in the quote that there would be differential pricing based on the intensity of use by different customers, just as you have today if you send a letter by Federal Express, or Express Mail, or any other way. If you regulate against 

pricing freedom, you are shifting the cost of building the infrastructure, if it gets built—— 

Senator DORGAN. You didn’t hear anything in—— 

Dr. RUTLEDGE.—from the intensive users to the small users of 

the Internet, because you’re forcing average pricing on the market. 

No, I didn’t. 

Senator DORGAN. You heard nothing in this quote that would describe a concern about access? 

Mr. Scott, did you hear something in this quote—or let me perhaps read another quote. ‘‘Google is enjoying a free lunch that 

should, by any rational account, be the lunch of facilities providers.’’ Do you read into that quote, maybe, a suggestion that 

those who are controlling access to providers would like to charge, 

for access, a bit more? 

Mr. SCOTT. I do. I hear, in that quote, an intent to change the 

structure of the Internet. And I think the key point is that even 

though I would love to see numerous competitive service providers 

in the marketplace. I’d love to see BPL take off. I’d love to see fiber 

to the home all over the country. I’d love to see wireless ubiquitous 

access, but the fact of the matter is that cable, modem, and DSL 

service control 98 percent of the broadband market. And, actually, 

over the last year, according to the FCC’s data, that market share 

54 

actually increased. The market share of all the other technologies 

combined is less than 2 percent. That’s not a competitive marketplace. And there are incentives for service providers in a duopoly 

market to discriminate against content providers to fatten their 

pockets. 

Senator DORGAN. Let me just say, in North Dakota, for example, 

49 percent of North Dakotans have one provider, no competition. 

I want competition. I want there to be innovation. I believe all that. 

I, however, am concerned about how mangled the description of 

what the open architecture of the Internet proposal has become. 

This notion of retaining an open architecture that has led to the 

innovation and the growth of the Internet, one of the great innovations of our time, or perhaps any time, has come as a result, in my 

judgment, of nondiscrimination. 

I believe, Mr. Scott, you said that replete in the Chairman’s 

bill—and the bill that’s the revision now—are nondiscrimination 

provisions in a range of areas. I support all of those. I think they 

are the right thing to do, and I believe the same is true with respect to the restoration of nondiscrimination provisions with respect to the Internet, because we have very big organizations, behemoth organizations that are going to fight over this issue, and I 

want to make sure that the Internet, 2 years, 5 years, and 10 years 

from now, is an Internet with open architecture, accessible to anybody. I want—no, I—look, I think it’s good that telecom companies 

are deciding to produce video and to provide competition. I think 

all of that is good, because, ultimately, that’s going to be good for 

the consumer. But it will also be good for the consumer if we have 

an Internet a couple of years from now, or 10 years from now, that 

has an open architecture for the ordinary folks around this country 

who want to get on it and move on it without impediment. And so, 

that’s the purpose of our legislation that Senator Snowe and I have 

introduced. 

Mr. Chairman, thank you very much. 

The CHAIRMAN. Thank you. 

Senator DORGAN. Let me thank the rest of this panel. I didn’t 

ask them questions, but—we’re getting a lot of really good information, Mr. Chairman. I think you’ve selected some good panelists. 

The CHAIRMAN. Senator Pryor? 

Senator PRYOR. Thank you, Mr. Chairman. 

Secretary Glickman, I want to thank you for being here today, 

and also want to echo what you said about the importance of piracy. It is something that is very critical to the U.S. economy, and 

I’m glad you’re vigilant on it, and I’d love to help you work on that, 

on this legislation and others. 

But let me, if I may, start with Mr. LeGrande on—and I have 

a question about the strategic technology reserve, which is in the 

Chairman’s bill. Do you like the approach that is taken on the strategic technology reserve? 

Mr. LEGRANDE. I think that, as I mentioned in my testimony, it 

is important that we look to the future, that we look to getting on 

a new platform. I think that our existing voice communications 

platforms don’t scale. They won’t, right now, scale to include highspeed data, in video. So, consequently, we really need to look to a 

new platform so diversification to move us to that is important, 

55 

but, at the same time, we still know that there are voice communication systems in various areas—that need support, so we really 

need to look at doing that. 

Senator PRYOR. OK. I’m really glad that the Chairman added the 

strategic technology reserve in there. I think it’s something that 

the Congress needs to weigh in on. I might have a little different 

approach, if I can just alert the Committee to this. And that is, I 

actually like the FEMA approach under James Lee Witt, where he 

went out and negotiated a number of—I think what they call ‘‘setaside contracts,’’ where they negotiated the contracts, but they 

didn’t execute them until they needed them. And certainly, I like 

what the Chairman’s trying to do. I certainly agree with his goals, 

that we need to have the communications ability there when we 

need it. But, given the fact that technology changes so rapidly, 

given the fact that, say, for example, in the cellular industry, they 

have mobile units that they can move into areas after hurricanes, 

after terrorist events, et cetera, to get their cell phone networks up 

and running. I just think we need to be smart about how we approach this, so I just wanted to alert the Committee to that. 

Also, if I may, Dr. Rutledge—let me ask you—the House bill just 

passed last week. Are you happy with what you see in the House 

bill? 

Dr. RUTLEDGE. I think, by and large, the House bill does a pretty 

good job of encouraging capital spending, yes. 

Senator PRYOR. And, Mr. Scott, on net neutrality—I know that’s 

an issue that’s near and dear to your heart—if the Senate bill stays 

as is, and there are no changes to the net neutrality provisions, 

what do you think the consequences are of that? 

Mr. SCOTT. Well, as I noted in my testimony, I think we’ll see 

a structural change in the Internet. 

Senator PRYOR. So, you feel like we don’t have the balance in the 

bill right now that you want to see. 

Mr. SCOTT. Yes, that’s fair. 

Senator PRYOR. And, Mr. McCurdy, as I understand it, you disagree with that. You think there is the balance there, and you 

think net neutrality, as written in the bill, is workable. 

Mr. MCCURDY. Yes, Senator Pryor. As a matter of fact, this 

morning, early, I was at the canteen just down the hall, and one 

of my former House colleagues, now a Democratic Senator, came 

by, and he said, ‘‘You’re testifying today?’’ 

And I said, ‘‘Yes.’’ 

And he said, ‘‘Are you going to testify on that net neutrality?’’ 

And I said, ‘‘Yes.’’ 

And he says, ‘‘Well, when you figure out what it is, let me know.’’ 

And that’s part of the problem we have. You know, with all due 

respect—and my good friend and former classmate Byron Dorgan 

talked about, you know, the government invented the Internet. And 

it’s true, ARPANET was a joint project. But that’s a different platform, and that platform has been changed dramatically over the 

years. This is not the Internet of that generation. This is a worldwide connectivity that blows the imagination. You look at the map 

of what the Internet looks like, and it’s literally billions of connections and small nets. 

56 

We’re really talking about differences in platform. This new platform that’s being described is beyond our imagination, even now, 

with the capabilities it’s going to provide to, I think, most all Americans. And we want to see it deployed. You know, I’m here because 

we believe in competition. We want the competition. We want the 

competition across technologies, but we want it incentivized. We 

want it in rural Arkansas just as much as I want it in rural Oklahoma. And the way you do that is not by the European approach 

of subsidizing a single provider and then regulating it. We adopted 

a different approach in this country, and that is to have a market 

approach where people do subscribe to services, but the difference 

is that, in this net neutrality debate, it’s the unaffiliated application providers who want the carriers to offer them, for free, all the 

up-speed, the new bandwidth, the tremendous new speeds and additional capabilities that they’re investing billions of dollars to deploy. So, to me, that’s a fairly simple argument, moving forward, 

that this bill, I think, is really taking the right approach, and it 

has some balance. Will it be perfect? That’s why you have committees, why you have conferences, and why we’ll probably revisit this 

issue in the future. It’s also why you have to keep, I think, effective 

oversight of what the FCC’s doing. 

Senator PRYOR. Thank you. 

Mr. Chairman and Members of the Committee, my impression— 

I know that net neutrality is a very controversial piece of this, and 

my impression, after talking with I don’t know how many dozens 

of people about net neutrality, there are a set of issues that, really, 

I think, can be agreed upon. I think that there is some general 

agreement on a lot of issues, a few issues there’s no agreement on, 

and people just see the world differently. But, certainly, I’d like to 

work with my colleagues to find the common ground we can, and 

get as much as we can agreed to and work it into the bill, if that 

makes sense. 

Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you, Senator. I, too, think there’s an 

area—and I’ve discussed it with some Members of the Committee— 

where we ought to talk about the FCC having the right to deal 

with net neutrality issues that affect consumers and let the basic 

providers, the large providers, hire the attorneys to battle out their 

concepts of what is there. But the protection for consumers, I think, 

we could handle in net neutrality. When it comes to interfering 

with the marketplace, in terms of the major expenditures in capital, I think we should stay away. 

Senator PRYOR. I’ll be glad to work with you on that. Thank you. 

The CHAIRMAN. Senator Lautenberg? 

Senator LAUTENBERG. Thanks, Mr. Chairman. And thanks, in 

particular, for giving us a little more time to look at the bill, to 

enter into the debate that we see here today. 

I think the latest draft of the legislation does have good language 

that will grow community broadband efforts. And, as you know, I 

introduced the Community Broadband Act with Senator McCain, 

and I thank Mr. McCurdy for mentioning it. I think we’re making 

some progress. We’ve got an agreement with Senator Ensign, and 

Senator McCain, and myself. And I think that it’s going to help us 

57 

clarify whether or not the community has a role to play when offering these services. 

As it has been said here, broadband, a 21st-century utility, improves communication and education, but many Americans are just 

not able to get broadband service because they live in small towns. 

Now, coming from the most densely populated State in the country—people don’t think of us as having small towns, but we have 

more than our fair share of communities, about 560, and a lot of 

them are very small. I still catch up on the names, and I’ve lived 

there all my life. But the companies are just not, at this point in 

time, making it available, or people just can’t afford it. So communities across the country have responded by stepping in to create 

their own municipal networks. And we’ve got to protect their right 

to do so. 

So, I thought the first draft of this communications bill put too 

many obstacles and hurdles in the way of community broadband 

development. 

Now, based on the agreement that we worked out last week, I 

think that the new title on community broadband is a major improvement. The bill requires that, before a town acts on its own to 

provide broadband, it must give notice to the public about the kind 

of project it has planned, and it also must give private industry an 

opportunity to offer proposals to undertake the same project. But 

the town will have a voice, ultimately, to decide how to proceed. 

And the bill encourages public-private partnerships like those we’re 

seeing in Philadelphia and San Francisco, and smaller cities like 

Summit, New Jersey. 

Now, on the issue of allowing telephone companies to enter the 

TV market, often called ‘‘franchise reform,’’ I appreciate the Chairman’s efforts to address the concerns of local government and consumers, but I still think there’s room for improvement. And we all 

want to increase competition in the television market, because it 

would result in expanded services and lower prices for consumers; 

but we’ve got to ensure, when a company enters a new area, it’s 

going to serve all of the customers in that jurisdiction, not just the 

ones who are most affluent or easiest to reach. New Jersey is an 

example of this. My home State is close to enacting legislation to 

create a statewide franchise. The New Jersey bill requires new 

companies that want to provide TV service in our State to reach 

customers in the 60 densest cities in the State, beginning in 3 

years. 

So, this is a sweeping piece of legislation that we’re looking at 

here. And, obviously, there are going to be provisions on which we 

agree, and others on which we disagree. And I think we’ve struck 

the right policy balance on community broadband. And, hopefully, 

in the next week, and with the help of today’s witnesses, Mr. 

Chairman, who provided some very interesting observations on 

where we ought to go, we’ll continue to work on this bill. 

Now, Dr. Rutledge, you talked about the focus on capital. And I 

heard your views on how structure ought to be developed, and have 

people paid based on productivity. And I come out of the business 

world and ran a pretty good-sized computer services company. 

What has been the capital investment, would you say, by the cable 

industry, by the telcos, in the last, perhaps, 10 years? 

58 

Dr. RUTLEDGE. I’d have to go dig in my file drawer to find a good 

answer for you, Senator, but the total capital spending peaked in 

2001 at about $150 billion a year. It fell, until 2005, to a round 

number of $50 billion a year—— 

Senator LAUTENBERG. Well—— 

Dr. RUTLEDGE.—and is going back up in this direction. 

Senator LAUTENBERG. Yes. 

Dr. RUTLEDGE. Cumulative investment would be in the—make 

up a number—$200 billion-ish zone—— 

Senator LAUTENBERG. Well, it—— 

Dr. RUTLEDGE.—the cost of building out $200 to $400 billion 

from here. 

Senator LAUTENBERG. Yes. But it doesn’t sound like we’re investment-starved, in my view. The cable industry says that they’ve already put $100 billion, in the last decade, to improve and upgrade 

their services. And certainly the competitive factor that looms over 

all parties is going to induce capital investment. I don’t see us as 

capital-starved. 

And, in terms of net neutrality, Mr. Chairman, I think what we 

have to do is revise the description, because net neutrality means 

you’re not at war anymore, and that things are going to be peaceful 

from that point on. And I think it gets confused, in terms of what 

we’re talking about when it’s net neutrality. Does it say ‘‘Just tell 

what kind of services are available and what kind of pricing that 

might include? ’’ I think the problem with net neutrality, is that the 

term describes something that people don’t understand. Are we in 

agreement on that? I think the words to define it make it more 

complicated than the situation really is; enough said. 

Thanks very much, Mr. Chairman. Thank all of you at the witness table. 

The CHAIRMAN. Thank you very much. 

I believe the next person is Senator Boxer. 

STATEMENT OF HON. BARBARA BOXER, 

U.S. SENATOR FROM CALIFORNIA 

Senator BOXER. Thanks very much, Mr. Chairman. And thank 

you for moving your bill—on changing your bill in ways that are 

helpful—very helpful. For example, I think that the broadcast flag 

provision now is something that I’m happy with; and, for my State 

of California, I thank you for that. The Wireless Innovation Act, 

that allows unlicensed devices to use the unused spectrum, is very 

important. So, those are parts of the bill I strongly support, but I 

still have some questions on other parts. 

I also wanted to welcome the panel. Two of my colleagues that 

I enjoyed working with so much are here. 

I wanted to take this whole issue on about what’s pro-business, 

what’s not, and to say that, on the net neutrality issue, there’s no 

such thing as a pro-business position, because business is split. Depends on the business. We had a whole hearing where we had businesses in front of us who want us to protect net neutrality. And 

some of those are Amazon, Yahoo!, EarthLink, Microsoft, Google— 

there’s a whole site, SaveTheInternet.com, that lists many, many 

small businesses. So, there isn’t any, you know, pro-business position here. I think we’ve got to get past that. And the whole point 

59 

that, you know, regulation always hurts retailers, as my good 

friend Senator DeMint says, is—you could have these same people 

here from the business community on the opposite side being for 

regulation. Depends on the issue. So, this is something we’ve got 

to step back from, I think. We’ve got to do the right thing for the 

majority of the American people. 

So, I want to get to the issue of net neutrality, and—now, Mr.— 

Dr. Rutledge said that there has been no regulation of the Internet. 

Mr. Scott, do you agree with that? 

Mr. SCOTT. I mean, we can get out the Communications Act. 

There has always been regulation of the Internet. It was in Title 

II from the beginning of the Internet. I’m not quite sure why that 

argument is still around. 

Senator BOXER. OK. And then, I’m just going to go straight with 

this line of questioning here. When you were asked, Mr. Scott, 

‘‘How would you define ‘net neutrality’?’’ you put it simply. Everyone is struggling with definitions. You don’t seem to have a problem. You said it’s nondiscrimination on the Internet. Now, what 

about that is unclear? Could you now describe what you mean 

when you say, ‘‘nondiscrimination on the Internet’’? 

Mr. SCOTT. Well, I think, you know, my ideal definition of ‘‘net 

neutrality’’ is in Section 202 of the Communications Act. 

Senator BOXER. And you want to summarize that so people understand it—— 

Mr. SCOTT. Just—— 

Senator BOXER.—in simple terms? 

Mr. SCOTT.—reasonable, and nondiscriminatory conditions of 

service on the Internet. 

Senator BOXER. OK. 

Mr. SCOTT. Now—— 

Senator BOXER. And yet, do you understand why people are 

struggling with trying to define what does this mean? Do you—— 

Mr. SCOTT. I—— 

Senator BOXER.—do you understand why they’re having a problem? 

Mr. SCOTT. I think the struggle is not over the definition of ‘‘nondiscrimination.’’ I think everyone understands that quite clearly, 

clear enough to embrace it when it applies to their own business 

interests, such as in the program access rules, which, by the way, 

back in the 1992 Cable Act, drew the same kind of criticisms about 

regulating an industry in a thicket of regulation and a litigation 

playground. These things never happened. Program access rules 

have worked quite well. And, in fact, we’re beefing them up in the 

latest draft of this bill, and that’s a position we support. I think 

the struggle over net neutrality is not the definition of ‘‘Internet 

freedom,’’ it is how to apply it to navigate the politics of the issue. 

Senator BOXER. I think I agree with you. Do you—you advocate 

for a buildout requirement. I mean, all the testimony is, ‘‘Leave us 

alone. Let us charge whatever we want. Don’t have net neutrality 

language, and you’ll see the great things that will flow from that.’’ 

Listen, I heard about that in California from Enron, and I know 

what happened, ‘‘Leave us alone, prices will go down,’’ and we’re 

$11 billion poorer. And, thank God, some crooks are in jail. But I 

really want you to tell us why you advocate for a buildout requireVerDate Nov 24 2008 10:53 May 06, 2011 Jkt 066172 PO 00000 Frm 00063 Fmt 6633 Sfmt 6601 S:\GPO\DOCS\66172.TXT SCOM1 PsN: JACKIE
60 

ment in addition to a redlining provision that prohibits discrimination. 

Mr. SCOTT. Well, I think the only real way to guarantee that 

competition and the benefits of competition come to all American 

communities, including rural areas, is to intentionally craft public 

policy that guides the market in that direction, because, if we don’t, 

what we’re going to have is a patchwork, where the most lucrative 

markets, those local franchising areas, whether they’re municipalities or counties, will get competitive service, and those that aren’t 

lucrative will not. I mean, we saw this problem 75 years ago with 

the telephone, and we addressed it. We decided that this was a 

technology that every American household deserved. I would say 

we need to bring competition into every American community. I 

think there’s a way we can couple buildout requirements on the 

franchise with a Universal Service policy expanded to broadband to 

make that a reality. 

Senator BOXER. Mr. Glickman, I just want to ask you this, because as you—I know that we’re happy with the way this all 

turned out, in terms of the broadcast flag, but I just want to give 

you a chance to put on the record here—some people say that, 

given the current state of technology, it isn’t possible to engage in 

mass piracy of over-the-air shows. So, how do you respond to those 

who say broadcast flag is a solution in search of a problem? 

Mr. GLICKMAN. Well, first of all, you have to realize that cable 

and satellite systems already have systems in place to protect content, so that they cannot be indiscriminately distributed over the 

Internet. But free, over-the-air broadcasts—— 

Senator BOXER. Speak into the mike. 

Mr. GLICKMAN. I’m sorry—free over-the-air broadcast does not 

have that. So, roughly about 15 percent of the people in this country, largely in underserved areas, face the fact that their content 

can’t be protected. So, unless you provide a parity here, unless you 

provide the same kind of protection for free, over-the-air broadcast 

that you do for cable and satellite, it’s likely that that content will 

move to cable and satellite, which means an awful lot of people 

who don’t have the systems could lose their freedom to see all sorts 

of shows in this country. 

And the fact of the matter is, is that, with the advent of digital 

television, you will have all sorts of opportunities to take that and 

spread it all over the world and not be compensated for it. So, it 

not only provides an opportunity for piracy—rampant piracy—but 

it also means—that other systems, other than over-the-air broadcasting, will be preferred in the protection, and that means content 

providers will go where the preference is, because that’s where the 

content will be protected. So, it is a big problem. 

Senator BOXER. Well, I thank you, because I worry about the 

House language, and I think this is an important debate. 

Mr. Chairman, do I have time for one last question? Do I have 

any time remaining? It’s hard for me to see your clock. Well, I’ve 

lost it. 

Do you agree, Mr. McCurdy, with the four network neutrality 

principles set forth by the FCC? 

Mr. MCCURDY. Yes. The FCC has adopted policies that are consistent with what the Telecommunications Industry Association 

61 

outlined as principles for Internet usage. And we think those 

should be extended to include pro-competitive network management techniques to alleviate congestion, ameliorate capacity constraints, enable new services. 

I would say to my good friend, I happen to live in a jurisdiction 

in Virginia. I have satellite for my television, I have cable for my 

Internet, and telephone through one of the major providers. What 

was interesting, when the telephone provider announced that it 

was going to deploy fiber to the home in our neighborhood, my 

Internet bill dropped $20 a month without any notice. It just 

dropped. You know, now I have choices, and we want those choices 

to be available to other people. 

And our concern is that by regulation you’re going to limit those 

choices and the incentives to make the investments. And these are 

huge investments, and government can’t mandate these investments, because it’s not government money. And so, we want this 

competition to really enable this further deployment. 

Senator BOXER. Well, I’m encouraged that you support the FCC’s 

principles. I just don’t know why you wouldn’t want them to have 

the authority to address the problem. 

Thank you, Mr.—— 

Mr. MCCURDY. I believe they have the authority to address the 

problem, and that’s why we’re encouraging this committee to authorize—— 

Senator BOXER. No, they don’t. 

The CHAIRMAN. Thank you very much. 

Senator Allen? 

STATEMENT OF HON. GEORGE ALLEN, 

U.S. SENATOR FROM VIRGINIA 

Senator ALLEN. Thank you, Mr. Chairman, for holding this hearing. And thank you for your leadership in pushing forward on this 

Consumer’s Choice, and Broadband Deployment Act of 2006. I have 

a statement I’d like to put into the record. 

[The prepared statement of Senator Allen follows:] 

PREPARED STATEMENT OF HON. GEORGE ALLEN, U.S. SENATOR FROM VIRGINIA

Mr. Chairman, I would like to thank you for calling today’s hearing to discuss 

your Consumer’s Choice, and Broadband Deployment Act of 2006. All of us here recognize the need for telecommunications reform, and we would all like to see a bill 

pass this year for a variety of reasons. Thoughtful telecommunications reform legislation will greatly benefit consumers by increasing competition, and, therefore, consumer choices for communications services such as video, voice and broadband. 

The primary motivation for this bill is the Internet. As I have stated many times, 

I believe that the Internet is the greatest invention since the Gutenberg Press. The 

Internet and broadband revolution is opening up a whole new world of opportunity 

for consumers and businesses. Internet applications are bringing new competition 

to old markets, which means more innovation, lower prices, and higher quality of 

service for customers. For example, in the voice space, voice-over-IP technology is 

providing consumers with an alternative to traditional phone service. Entrepreneurs 

are merely a website away from offering phone services. Virtually every consumer 

with broadband Internet access can now choose between several telephone service 

providers. 

Unfortunately, these technological advancements enabled by the Internet have 

outpaced many of the laws and economic regulations governing the communications 

industry. I applaud Senator Stevens for his efforts to update many of these regulations including a provision to streamline regulations that pertain to another exciting 

Internet application—IPTV. Phone companies are beginning to offer this exciting 

62 

new video service around the country, including a few places in Virginia. Government should get out of the way as much as possible and allow this competition to 

flourish. 

A guiding principle I have followed throughout my time in public service, is that 

the Internet, and all of the opportunities it brings, should be as accessible as possible to all Americans. Unfortunately today, many people from rural areas to big cities either do not have access to broadband Internet service or simply cannot afford 

it. As a result, the U.S. is lagging behind much of the world in broadband penetration (16th). To encourage the deployment of affordable broadband services, I introduced, along with Senator Kerry, and a bipartisan group of Senators (Sununu, 

Boxer, Dorgan), the Wireless Innovation Act of 2006 (WINN Act). 

The goal of WINN Act is to unleash the power of advanced technological innovation to facilitate the development of wireless broadband Internet services. Specifically, our legislation allocates certain areas within the broadcast spectrum that are 

otherwise unassigned and unused (known as white spaces) for wireless broadband 

and other innovative services. I thank the Chairman, for including the WINN Act 

in his communications reform bill. Mr. Chairman, I thank you again for holding this 

hearing and I thank all of the witnesses for being here. I look forward to hearing 

their ideas and suggestions. I also look forward to working with you on further improvements as we work to move this bill through the Committee and the Senate. 

Senator ALLEN. This measure, it’s so important that we get this 

passed, for so many reasons. Listening to Congressman McCurdy 

wisely choosing to move into Virginia—— 

[Laughter.] 

Senator ALLEN.—but, regardless of all that, this is exactly what 

we want to see. With the greater deployment of broadband, with 

increased competition, you get more consumer choices and services, 

whether it’s voice, video, or broadband; and, with more competition, 

you get better quality, and you can get lower prices. And that’s why 

it’s so essential that we find a consensus on this net neutrality 

issue, because there are so many other beneficial aspects of this 

measure. 

Now, the Internet—we’re all talking about getting more deployment of the Internet. In particular, it may be in inner cities, where 

people don’t have access to it as much as, say, a suburban area. 

Or, also, in places such as Virginia and other States, small towns 

and rural areas don’t have access to broadband. They may have access for video, for satellites, but they don’t necessarily have 

broadband access, which, therefore, limits their ability for telemedicine, for education, for commerce, and for access to information. 

One of the measures you, Mr. Chairman, have been very helpful 

to me on was a measure that I introduced, which was the Internet 

Tax Nondiscrimination Act, which the President signed into law in 

2004, and it’s a moratorium preventing access taxes on the Internet. On average, it would be an 18-percent tax. The last thing, in 

my view, we need are these avaricious State and local tax 

commissars imposing an 18-percent tax on Internet access. 

I’d like to ask Dr. Rutledge, What effect do you think taxing 

Internet access would have on broadband deployment and penetration? My view is, this moratorium, or this prohibition on State, 

Federal, or local taxing of Internet access, ought to be permanent. 

What impact, if it were permanent, would that have on broadband 

deployment and penetration if that were added to this bill? 

Dr. RUTLEDGE. Adding a tax to Internet distribution would reduce capital spending and shrink access to the Internet, it would 

reduce the return on capital of assets invested in the sector, by 

some 20 percentage points, if that tax were deployed. Building-out 

63 

the infrastructure needed in the next 10 years or so, is going to 

cost somewhere between two- and four-hundred billion dollars. 

Every time a company in this sector announces new capital-spending plans, their stock price falls, so they’re being told by the market not to do it. And they’re being told by the market to move their 

capital someplace that has lower tax rates and where they can get 

paid. 

Senator ALLEN. Well, do you see, in rural areas, where my friend 

from Montana, our colleague Senator Burns will say, and I say it, 

as well, is, there’s a lot of dirt between light bulbs—— 

Dr. RUTLEDGE. Yes. 

Senator ALLEN.—out in the country, and if you have a small 

market, to get that rate-of-return—there’s a reason there’s less 

cable out in the country: there are fewer customers. If you add an 

18-percent tax to it, one would logically conclude that fewer people 

could afford it, thereby exacerbating the economic digital divide, insofar as access to broadband. Would you agree with that? 

Dr. RUTLEDGE. Absolutely. I think adding taxes will make it 

more difficult to bring high-speed Internet into rural areas. 

Senator ALLEN. The other measure that I thank the Chairman 

for including, is a measure that I introduced, along with Senators 

Sununu, Boxer, Dorgan, and Kerry, and that’s the Wireless Innovation Act. This is to use the unused, unassigned, so-called ‘‘white 

spaces’’ for unlicensed use, for more robust and efficient use of that 

particular spectrum, which I believe will lead to rapid innovation 

and result in numerous benefits. You’ll actually get some competition using this spectrum. It’s not like WiFi that shoots out for 

maybe a few hundred yards; it’ll shoot out miles and miles, and 

also not be impeded by buildings, or trees, or structures. And I 

think there are numerous benefits to consumers, whether you’re in 

the city or whether you’re in the country, or whether you’re in a 

suburban area, and make wireless broadband more affordable. 

Mr. Scott, I know you touched on it in your opening statement. 

Could you elaborate, for the benefit of the Committee and the 

American people, on some of the benefits American consumers will 

see if this legislation, this Wireless Innovation Act, becomes law? 

Mr. SCOTT. I’d be happy to. And I want to thank you, Senator, 

for your leadership on the issue. It is one of the best ideas that I’ve 

heard in a while. 

I think you’re going to get two things when you open up the 

empty broadcast spectrum that are going to solve the most important impediments to our broadband deployment, and those are the 

high cost of delivering service in rural areas and the high prices 

that keep low-income households from buying broadband access. 

Opening up the empty broadcast spectrum lowers the cost of infrastructure deployment for wireless broadband by a significant factor—by some estimates, an order of magnitude. Now, that order of 

magnitude of cost savings will be passed along to the consumer, 

and, by some estimates, will produce a broadband connection down 

below $10 a month. Now, that’s a price point that most American 

families can afford, and I think that’s the moment when we see our 

broadband engine begin to churn up a bit, and we begin to tick up 

some places above those 15 other nations that are currently ahead 

64 

of us in broadband. I think this is an important measure to take 

us down that path. 

Senator ALLEN. Thank you, Mr. Scott. 

Dr. Rutledge actually is nodding his head in agreement, so it’s 

to see—— 

Mr. SCOTT. Yes. 

Senator ALLEN.—I assume you’re both in agreement on this one 

subject. 

Dr. RUTLEDGE. Absolutely. 

Mr. SCOTT. All right. 

Dr. RUTLEDGE. Consensus. 

[Laughter.] 

Senator ALLEN. Good. Let me ask Mr. LeGrande a question. 

The CHAIRMAN. Senator, this will have to be your last question. 

Senator ALLEN. Mr. LeGrande, on the CapWIN, are you familiar 

with CapWIN? 

Mr. LEGRANDE. Yes, sir. 

Senator ALLEN. Because one thing we saw, Mr. Chairman, when 

the Pentagon was hit, was all sorts of fire and rescue personnel 

coming into the Pentagon, but not communicating, between Arlington, Fairfax, Alexandria, Maryland, and D.C. That has worked out 

very well in an operable way, even for the Texas Guard, when Hurricane Rita came in. Would you briefly summarize for us how that’s 

working in the Capital Region, and if you also see that as 

replicable for interoperability elsewhere in the country? 

Mr. LEGRANDE. OK. It’s a core component of what we’re moving 

toward in the National Capital Region. CapWIN was developed 

several years ago, and it does provide data access and actual direct 

communications between folks using their laptops or other wireless 

devices. It’s a great platform that we certainly plan on leveraging 

within the National Capital Region. It’s a virtual application or a 

virtual network. We have plans to ride it on our hardwire network, 

which is a fiber optic network that these gentlemen spoke of as so 

important, earlier, but also ride on our wireless broadband network. So, together with CapWIN, our infrastructure that we’re putting in place, and hopefully through our partners in California and 

other places, we’ll be able to leverage the CapWIN experience 

throughout the country. So, it’s a very important application, and 

we’re glad we have it. 

Senator ALLEN. Thank you. 

Thank you, Mr. Chairman. 

The CHAIRMAN. Senator Smith? 

STATEMENT OF HON. GORDON H. SMITH, 

U.S. SENATOR FROM OREGON 

Senator SMITH. Thank you, Mr. Chairman. 

I think many of us are trying to find the right balance here, because we recognize how critical this legislation is to the future competitiveness of our country. 

I believe, Mr. Scott, you were in my office recently, and you represented to me that the amount of money that would come through 

assuring net neutrality is very small in comparison to the enormous additional business opportunity that is out there, and that 

65 

this would not be an impediment to deployment. Is that your position? 

Mr. SCOTT. Yes, sir, that’s fair. I think that there’s a little more 

to it than that, which is that the sources of revenue that will drive 

the buildout of these next-generation networks will come from enduser costs and producer costs, which can go up and down at the 

will of the network operator at any time. They can raise the cost 

on those producers of content that interconnect with the Internet, 

and they can raise the cost on consumers to buy next-generation 

services. That’s how cable built out their network, and that’s how 

all of the nations that are currently ahead of us in broadband, but 

yet retain network neutrality, have built out their networks. 

Senator SMITH. So, on the one side of the equation, we’re talking 

peanuts, in terms of regulation to assure net neutrality; on the 

other side there are very real dollars. 

Mr. SCOTT. These economics are a matter of speculation, and I 

would—— 

Senator SMITH. Can you give us an idea what—you know, what are we talking about—$20 billion here, $200 billion there? 

Mr. SCOTT. You know, I’ve read several studies, and one of them 

has the numbers on one side, and the other one has the numbers 

on the other side. And I think, you know, for me, the primary way 

that I think about the Internet is, where has the innovation been? 

Where have the dollars been spent over the last 10 years as we’ve 

seen the Internet take off? And I want to make sure that those 

businesses that have become so successful stay here in the United 

States and don’t retreat to Asian markets or to European markets 

because they find a more favorable climate to innovate in those 

areas. 

Senator SMITH. Mr. Rutledge, as you see a few billion here, in 

terms of regulation, or a trillion over there, you see the equation 

reversed. Is that correct? 

Dr. RUTLEDGE. What I see is that these innovative companies are 

leaving, and have left. The U.S. has lost more than half of its global market share in telecommunications equipment, largely to 

China. 

Senator SMITH. But is Mr. Scott right, that these other countries 

have assured net neutrality, and yet the business has still gone 

over there? 

Dr. RUTLEDGE. There are many different regulatory structures in 

the different countries. Largely, it’s a question of taxes and costs 

and incentives to move. If you went to Chengdu, in western China, 

you’d see all the names you know up on the wall who are there 

with R&D facilities, doing optical physics right now. But I think 

the issue here isn’t whether you get one or the other; it’s whether 

you get both or neither. Because there won’t be any high-end Internet services if there is no way to get them to people. And if there’s 

no spending on infrastructure, there won’t be any way to get people 

the services, at the end of the day. 

It’s not surprising to me that the companies that have built up 

huge market caps in the Internet in the recent years would like to 

keep things the way they are, because those market caps have 

turned them into a conservative force. I don’t know where the next 

innovation’s going to come from, but I’ll bet you it does not come 

66 

from those five companies we would all say. It’s going to come from 

somebody we don’t know yet. But it won’t happen unless there’s 

capital spending and the infrastructure in place. 

Senator SMITH. In your testimony, Mr. Rutledge, you say that 

there is no regulation of the Internet. I believe that’s what I have 

in front of me. And yet, Mr. Scott says there has always been regulation of the Internet. Who’s right? 

Dr. RUTLEDGE. Well, we’re both wrong, probably. DSL was regulated. Capital spending in America in telecommunications area, including cable, declined by two-thirds over the 5 years up to the decision to deregulate high-speed Internet, and has increased since 

then, but not back to where it started the story. Before that, highspeed Internet was largely cable modems, which were not as regulated. 

Senator SMITH. Well, it just seems to me that—and I said this 

in a hearing, the last one we had on this issue—that there is just 

so much enormous good in this broader bill that it would be a tragedy for our Nation if net neutrality is the basis upon which it is 

entirely taken down. And that’s a very real possibility, the way I 

see things shaping up. Does anybody here have an idea how we can 

split this baby, how we can preserve this broader good that comes 

from this legislation, and deal with this net neutrality issue on 

some middle course? 

Mr. MCCURDY. Senator? 

Senator SMITH. Yes. 

Mr. MCCURDY. If I could, on that, I think the Chairman is trying 

to do exactly that. I think the Chairman has offered a way for you 

to move the bill, which is going to provide the greater good; and 

at the same time, really get a better understanding of what the 

practices are going to be, understand what net neutrality is. Until 

we saw recent op-eds, it wasn’t even mentioned. It just kind of 

came out of nowhere. 

Senator SMITH. Right. 

Mr. MCCURDY. And we’re talking about competing business models here. And we’re talking about advanced platforms. And I think 

that’s what we want to see move. And I don’t think there’s disagreement here. It appears to have almost become a partisan issue, 

and I have yet to really understand what the basis of it is. 

So, I think the Chairman is trying to find that. I commend him, 

I commend the Co-Chairman, Senator Inouye, for trying to work 

with this committee. It has worked better than I’ve seen a lot of 

committees work in the last few years—in trying to reach out and 

build some consensus. 

Now, I—you know—— 

Senator SMITH. Well, I actually agree with you. I think that’s 

where the Chairman is. And that’s where I’m inclined to go. But 

I think, Mr. Scott, you disagree with that. And I’d love you to elucidate. 

Mr. SCOTT. Well, I think there are quite a few things that we 

find we actually all agree on, things like: no one wants to see blocking and degradation of service on the Internet. A couple of weeks 

ago, I sat on a panel like this with an executive from Verizon, and 

he said as much. So, I think we can put that on the table. And I 

think we can make sure that that never happens. 

67 

I think we all agree we want to see Internet freedom, and we 

want to maximize consumer choice. I think if you look at the 150 

pages of this bill, and you see how often nondiscrimination principles are applied in order to protect consumers in noncompetitive 

markets, there is a lot of room in that principle of nondiscrimination to find a way to both protect consumers, and keep the free 

market for innovation and content and applications on the Internet. 

Senator SMITH. But isn’t your concern that—— 

The CHAIRMAN. Senator, this will have to be your last question. 

Senator SMITH. OK—that if we go with the Chairman’s bill, and 

then this does become a problem, that Congress simply won’t be in 

a place to get it through? 

Mr. SCOTT. Well, I think if we study the problem, and, in 5 years, 

we find that, in fact, the Internet has changed for the worse, and 

we want to go back, all of the network operators who are currently 

building out their networks will have installed network discrimination routers in their systems, and they’ll have to divest and completely change the technologies that are in that infrastructure. And 

I think Congress would have a hard time undoing that kind of investment. 

Senator SMITH. Thank you, Mr. Chairman. 

The CHAIRMAN. That may be true, but the provision calls for an 

annual review by FCC on a continuing basis from day one. And 

when I hear you talk, Mr. Scott, I think you use the word ‘‘net neutrality,’’ really, to mean put common-carrier provisions applying to 

all communications. Now, we’re not going to do that. And I don’t 

think anyone here would agree to put common carrier on all of it. 

So, we’re dealing with communications now, not with the three levels of telecommunication, information service, and communication. 

It’s all communications, because of the vast ability to compete now. 

And with regard to the problem of charges, if you take a search 

engine, people who have them will charge you more if you want 

your name to come up first. Now, is that net neutrality? I think 

we’d better be careful what we’re talking about. 

By the way, the law that you refer to—I mean, the concept of 

video franchising you referred to, we almost copied the law of 

Texas. And the first place that was served after that new law went 

into effect, I’m told, was Keller, Texas, which you and I know is 

pretty rural. So, I don’t have the fear you do of the provisions we 

have here. We have a watchdog in the FCC, which has got a flag 

out there, and they’re told, annually, to report to us. But, more 

than that, if they see, they really see something they can define as 

a violation of net neutrality, to immediately tell us, and we’ll tackle 

it on legislation. Now, I don’t think it’ll be 5 years. If there is something out there called net neutrality that develops, we’ll know it 

very quickly. 

I hope you’ll help us get the bill. I think the bill, in itself, represents a major step toward recognizing that communications is 

communications, and it ought not to be treated differently if it was 

telecommunications, or information service or communications by 

any other means. They all ought to be on a level playing field, in 

terms of incentives to expand and develop. Everything I’ve read 

68 

says we’re behind the world on broadband. And I think the reason 

is the fear that we’re not going to pass this bill. 

So, let’s move on to the next panel. I appreciate you all coming. 

We all appreciate it, as a matter of fact, not just me. 

While we’re changing, if we may, keep it down a little bit, let me 

urge the witnesses to come forward: Ken Fellman, Kyle McSlarrow, 

Walter McCormick, Christopher Putala, Steve Largent, Phil Jones, 

and Robert Foosaner. Thanks very much. 

Ladies and gentlemen, if we can make this transition quickly, I 

must report to you that there’ll be a vote in the Senate, about 

12:15, and we intend to stay here to listen to our witnesses. We do 

appreciate that you all have waited. This has been a long session, 

I know. And, again, we’ll print all of the statements in the record 

as you’ve presented them to us. 

And let me call on Kenneth Fellman, the Mayor of Arvada, Colorado. 

Mr. Mayor? Pull the mike right up to you, if you will. 

STATEMENT OF HON. KENNETH S. FELLMAN, 

MAYOR, ARVADA, COLORADO 

Mayor FELLMAN. Thank you. I don’t know whether to say good 

morning or good afternoon. I guess we’re close. 

Chairman Stevens, Co-Chairman Inouye, Members of the Committee, I’m Ken Fellman, Mayor of Arvada, Colorado, and I am 

honored to be here today on behalf of local governments nationwide. 

Before I address specifics, the national and local government organizations also want to thank both the majority and the minority 

staffs for their professionalism, courtesy, and the time spent with 

us to hear our concerns and work toward resolutions. The revised 

draft represents a good-faith effort to address many of our concerns. There are matters that we could not resolve, and we agree 

to disagree, but that is the nature of the legislative process. We 

look forward to continuing this dialogue as we move toward markup. 

Just as my friend, Dearborn’s Mayor Guido, testified at your last 

hearing, I want to, again, stress that America’s local governments 

embrace technological innovation and competition in the video marketplace. Our last testimony outlined our well-known and oft-stated 

principle that video franchising process should remain at the local 

level. 

In our review of the first draft, we raised five specific criticisms. 

First, we testified that the bill failed to preserve local franchising 

authority. The proposed timeframes for local action were unrealistic and required a franchising authority to act in 15 business 

days. The new draft imposes a timeframe of 90 calendar days within which the franchising authority must act. We believe that our 

original proposal of 90 business days is more reasonable. 

Second, we testified that the bill would send all rights-of-way disputes to the FCC, an agency that lacks the resources and the expertise to handle them. The new discussion draft changes that 

model and replaces the FCC with a court of competent jurisdiction. 

We appreciate that change. 

69 

1 NLC, USCM, NCBM and NACo collectively represent the interests of almost every municipal 

or county government in the United States. NATOA’s members include elected officials, as well 

as telecommunications and cable officers who are on the front lines of communications policy 

development in cities nationwide. GFOA’s members represent the finance officers within communities across the country who assist their elected officials with sound fiscal policy advice. 

TeleCommUnity is an alliance of local governments and their associations that promote the 

principles of federalism and comity for local government interests in telecommunications. 

Third, we testified that, while the intent was to keep local government financially whole, the prior draft resulted in significant 

revenue loss. The revised draft attempts to address this concern 

over gross revenue, although the language appears in brackets, and 

we strongly urge you to retain this language. 

Regarding PEG financial support, we still believe this percentage 

of support should be higher. We note that an additional section was 

added to provide an alternative of a per-subscriber payment basis. 

This language is also bracketed, and we strongly urge that it be retained. 

Fourth, we testified that the bill would permit video providers to 

pick and choose the neighborhoods they serve and bypass others 

completely. While the draft expands the anti-redlining section, this 

section alone falls short. Local governments should retain the discretion to impose reasonable, competitively neutral, and nondiscriminatory buildout requirements. 

Fifth, we testified that it appeared that the original draft would 

undermine taxing authority of State and local government in areas 

wholly unrelated to rights-of-way compensation, and we appreciate 

the corrections that have been made in this draft. 

Our other concerns relate to the consumer protection issues and 

the references to certain accounting principles. We are pleased with 

Title I’s public safety provisions and the changes that we anticipate 

to Title V regarding municipal broadband. 

Senator Stevens and Senator Inouye, we appreciate the progress 

that has been made so far, and we hope that we can see that the 

reservations in the brackets are removed. We will continue to work 

with your staffs on the remaining issues. 

Thank you very much. 

[The prepared statement of Mr. Fellman follows:] 

PREPARED STATEMENT OF HON. KENNETH S. FELLMAN, MAYOR, ARVADA, COLORADO

Introduction 

Good morning, Chairman Stevens, Senator Inouye, and members of this Committee. I am Ken Fellman, Mayor of Arvada, Colorado. I am honored to be here 

today to testify not only on behalf of the National League of Cities (NLC), but also 

on behalf of local governments across this Nation, as represented by the National 

Association of Counties (NACo), the United States Conference of Mayors (USCM), 

the National Conference of Black Mayors, the National Association of Telecommunications Officers and Advisors (NATOA), the Government Finance Officers Association (GFOA), and TeleCommUnity.1

Before I address specifics, the national organizations want to thank both the majority and minority staffs for their professionalism, courtesy, and time spent with 

us to hear our concerns and work toward resolutions. The revised draft represents 

a good faith effort to address many of our concerns. There are matters that we could 

not resolve, and agreed to disagree, but that is the nature of the legislative process. 

We look forward to continuing this dialogue as we move towards markup. 

Just as my friend, Dearborn’s Mayor Michael A. Guido, testified at your last hearing, I want to again stress that America’s local governments embrace technological 

innovation and competition in the video marketplace. We want and welcome real 

70 

competition in a technologically-neutral manner. Local governments—and our residents—support the deployment of new video services in our communities. 

Our last testimony outlined our well-known, and oft-stated, principle that the 

video franchising process should remain at the local level. To do so permits each 

community, based on its unique community needs and citizen input, to decide for 

itself—in a fair, equitable and politically accountable manner—the nature of the 

video service that will be provided to its citizens. 

Based on this principle, we put forth our philosophical concerns with this legislation—that video franchising authority would be stripped away from local governments; that Congress should not attempt to speed entry into the marketplace for 

new video providers through subsidies paid for out of local government budgets to 

private sector entities for the use of the public rights-of-way; that no citizen should 

be deprived of video service because of the neighborhood they live in; and that public, governmental, and educational (PEG) access channels and institutional networks 

are critical links to our communities. 

The Specifics 

In our review of the first draft, we raised five specific criticisms that we believed 

needed to be addressed. 

First, we testified that while ostensibly preserving local franchising authority, the 

net effect of the earlier version of the legislation would be to strip authority from 

local governments, and grant that authority to the Federal Communications Commission (FCC). The proposed timeframes for local action were wholly unrealistic and 

requiring a franchise authority to act in 15 days—and to approve a franchise in 30 

days—would, in many instances, violate State and local law, deprive elected officials 

of their statutory rights and authority, and leave consumers without a voice in their 

community. 

The new staff discussion draft imposes a timeframe of 90 calendar days within 

which the franchising authority must act on the video provider’s application. While 

this new deadline will require some jurisdictions to change their processes, it is a 

more reasonable time for local governments to act than appeared in the first draft. 

Still, we would prefer that the language be revised to accommodate the public notice 

and hearing requirements of State and local law. These requirements are the foundation of democracy at the local level, not merely for cable franchising, but for all 

local laws. We see no need to give preferential treatment to one industry. 

Second, we testified the bill would send all rights-of-way disputes to the FCC, an 

agency that lacks the resources and expertise to handle them. We said the bill 

would second guess not only the general police powers of the community, but the 

policies and engineering practices of public works departments nationwide—and put 

those decisions within a Federal agency with no stake in the outcome other than 

to speed deployment at any or all cost. 

The new discussion draft changes that model and replaces it with a court of competent jurisdiction as the sole recourse for dispute resolution. This works in today’s 

environment, and should work in the future. And we welcome the addition in Section 612 in which new video service providers will have to agree to comply with all 

regulations regarding the use and occupation of public rights-of-way, including the 

police powers of local governments. We have some concern, however, that the rightof-way language places too many obligations on local rights-of-way regulators. We 

believe that, much like 47 U.S.C. § 253, if a right-of-way management requirement 

is competitively neutral and non-discriminatory, no more is required. As drafted, the 

bill would preempt local right-of-way regulations that satisfy the requirements of 

§ 253 in certain circumstances. 

Third, we testified that while the stated intent of the original draft may have 

been to keep localities financially whole, the bill would result in a significant revenue loss to local governments. The exclusion of advertising and home shopping revenues from the definition of ‘‘gross revenues’’ would significantly diminish the rent 

paid for the use of public property. Further, the reduction in the base of gross revenues would undermine local government’s ability to provide necessary services 

through the use of public, educational, and government access facilities, and deprive 

public safety and governmental use of institutional networks. 

The revised draft attempts to address this concern over gross revenue, although 

we note that there may be some reluctance to accept language we have suggested. 

The language appears in brackets in the definitions section—Page 69 ‘‘(2) Gross 

Revenue (A)(iii), (iv).’’ 

We strongly urge you to retain this language, which includes both home shopping 

and advertising revenues. 

Regarding PEG financial support, we still believe the percentage of support 

should be higher. While many communities across the country already impose a one 

71 

percent of gross revenue formula for PEG financial support, a number of communities have entered into freely negotiated franchise agreements with video providers 

that provide for additional support. This draft would strip those communities of the 

support that their video providers agreed to give to support these vital local resources. 

We also recommended that in addition to the language providing one percent of 

gross revenues for PEG support, that an additional section be added to provide an 

alternative of a ‘‘per-subscriber’’ payment basis. We note that this language has 

been included (Page 63, line 16), but it too is bracketed, and may be subject to further consideration. We strongly urge that this language be retained as well. We are 

also troubled by the exclusion of one-time or lump-sum PEG support payments from 

the ‘‘per subscriber’’ formula. This arbitrarily punishes communities which did not 

have the foresight years ago in anticipating what Congress would do now. 

Fourth, we testified that while at first glance the bill appeared to prohibit redlining, it would permit video providers to pick and choose the neighborhoods they 

would like to serve and bypass others completely. This would not enhance the position of this country in the standing of broadband deployment, but will certainly 

widen the gap between those who have access to competitive, affordable services and 

those who do not. Rather than ensure that everyone is served and served equitably, 

the legislation would continue the downward spiral that the unregulated market 

has created thus far. 

While the new staff discussion draft expands the definition of what groups are 

covered by the anti-redlining section, this section alone falls far short of the measures we believe will be necessary to enhance broadband deployment, and ensure 

competitive services are offered to all segments of our communities. Local governments should retain the discretion to impose reasonable, competitively neutral and 

nondiscriminatory buildout requirements. 

The new language does put in place dual, non-duplicative complaint-initiated enforcement mechanisms, State commission enforcement, or State attorney general enforcement. While some guidance is given to the state, absent the discretion on the 

part of local governments to require buildout, we are not convinced this will be sufficient to actually address our redlining concerns. 

Fifth, we testified that it appeared that the original draft would undermine the 

taxing authority of State and local governments in areas wholly unrelated to rightsof-way compensation. 

The new draft addresses this concern on page 65, line 7, ‘‘(d) Other Taxes, Fees, 

and Assessments Not Affected.—Except as otherwise provided in this section, nothing in this section shall be construed to modify, impair, supersede, or authorize the 

modification, impairment, or supersession of, any State or local law pertaining to 

taxation.’’ We appreciate your resolving this issue in this manner. 

Other Interests and Concerns 

Having addressed the five main points from our earlier testimony, we would like 

to call the Committee’s attention to other matters in the discussion draft. 

Consumer Issues 

Section 632, as proposed to be amended by this discussion draft, would have the 

FCC, after consultation with a variety of groups, promulgate regulations with respect to customer service and consumer protection. Local communities would not be 

able to create different standards tailored to meet local needs. Existing standards 

would be preempted if inconsistent with the new FCC standards. The new draft 

would allow local governments to enforce the Federal standards, with the video 

service provider having the opportunity to appeal to the FCC. The ability to tailor 

local standards to meet local needs has served consumers well, and this local authority should not be preempted. 

GAAP 

We expressed concern to the Committee staff about utilizing Generally Accepted 

Accounting Principles (GAAP) as a standard for the Annual Review of PEG financial 

support. GAAP are ‘‘principles’’ and, as such, are guidelines. It is not a clear set of 

black and white rules. The accounting treatment of many issues involving the definition of gross revenue can be subject to interpretation, as well as materiality standards. 

Utilizing GAAP will present the following issues: 

• The categories of revenues will not be clearly and consistently defined because 

GAAP can issue new standards and guidelines. GAAP can change based on new 

accounting standards by industry, and/or new interpretations of old standards 

72 

by industry, resulting in variations in the calculation of gross revenues from 

year to year. 

• Recognition of revenue under GAAP can hinge on contract language making 

gross revenues subject to the manipulation of the Franchisee. 

• GAAP is utilized within the accounting industry as a guideline and is subject 

to interpretation. Thus, the Franchisor and Franchisee may have differing opinions of what revenues to include in franchise and PEG fee calculations. 

• Issues such as advertising commissions, launch fees, distribution fees, and cooperative advertising may be accounted for as ‘‘contra-expenses’’ in accordance 

with GAAP, even when the ‘‘third party’’ is an affiliated entity. This allows manipulation of the recognition of gross revenues by the Franchisee, and this presentation of revenues is advantageous only to the video service providers. 

• There is more than one method to record revenues in accordance with GAAP. 

The video service provider could choose the version that lowers fees, resulting 

in debate as to the proper treatment and interpretation. 

Municipal Provisioning 

We believe the new language recently agreed to by Committee Members is a 

marked improvement, and we are grateful to Senators McCain and Lautenberg for 

their leadership in ensuring that communities can explore broadband options. 

Having noted a number of concerns, we would like to point out some acceptable 

parts of the revised draft. 

We appreciate the staff’s rescission of the ‘‘video source’’ definition to accommodate IPTV and interactive, on-demand services. 

We want to note that the Committee staff accepted our recommendation in assuring that PEG channels be available to all subscribers in a franchise area by requiring they be in a basic tier of service. 

We like Title I of the draft, particularly the section on interoperability and 

SAFECOM. The interoperability section of Title I appropriately allocates available 

funds, and utilizes the expertise of the Department of Homeland Security’s 

SAFECOM program. 

Conclusion 

We value the deliberative process, such as today’s hearing, to be sure that we are 

making informed decisions. The franchising process should be designed to promote 

fairness for consumers and promote a level playing field for all providers, and this 

draft makes significant progress towards ensuring this is the case. 

Collectively, we represent the interests of almost every municipal and county government in the United States. We strongly endorse promoting competition that will 

permit new video providers to come into our communities on a level playing field, 

while preserving local franchising authority that has proved to be so valuable to our 

cities and counties around the country. We note that there were many areas of initial concern within the bill that have been addressed. We look forward to continuing 

our work in assessing the legislation and its impact, and believe that the Committee 

should continue its excellent work, and ensure a strong record in support of any decision to change existing law. 

Thank you. I look forward to answering any questions you may have. 

The CHAIRMAN. Thank you, Mayor. 

Our next witness, Kyle McSlarrow, who is the Chief Executive 

Officer of the National Cable & Telecommunications Association. 

STATEMENT OF KYLE MCSLARROW, PRESIDENT/CEO, 

NATIONAL CABLE & TELECOMMUNICATIONS ASSOCIATION 

Mr. MCSLARROW. Mr. Chairman, thank you. And thank you, Mr. 

Co-Chairman. And a special thanks, also, to your staffs, who have 

worked so hard to get us to this point. 

I was prepared just to talk a little bit about some of the changes 

in the latest draft, but, like a moth to the flame, I can’t resist talking a little bit about net neutrality, based on the last panel. 

There were two issues that were raised. One was whether or not 

the Internet has ever been regulated. The answer is, no, unequivocally. There is an issue as to whether or not the Bells, with DSL 

73 

technology, the on-ramp to the Internet, were regulated. And that 

is true. But cable modem service—and cable, remember, is the largest broadband provider in America—has never been regulated. 

There was one court case, I think out in the Ninth Circuit, that 

suggested otherwise, but we have always operated in an unregulated environment. And that is important, because the proponents 

of net neutrality would like to paint a picture that something 

changed recently that we need to now correct. But, in fact, at least 

for cable and our broadband service, it hasn’t been regulated. We 

invested the $100 billion because of the 1996 Communications Act, 

which largely deregulated our industry. We put fiber into the 

ground. We put out cable modem service. That spurred competition 

from the Bells. And we now have robust competition, which is exactly the policy result that you want. 

The second issue is this issue of discrimination. Mr. Chairman, 

I think you hit it head-on. You can’t—if you cross the line into regulation in this space, and you say you’re doing so on the basis of 

discrimination, there is no principled reason why you have to stop 

with network providers. You can go to Microsoft’s operating system 

or any web-based software. You can go to Google’s search engine. 

You can go to Amazon, or eBay or any of the other, quote/unquote, 

‘‘discriminatory’’ practices that they engage in. Now, I’m not suggesting you do so, but I am suggesting that people should think 

twice before going down this road. 

On the new draft, I have to say, it’s a little bit of a mixed bag 

for us. At the outset, I think, for us, we’re where we were at the 

last hearing on the bill, which is, we think this is a fair product, 

it’s a very balanced approach. We’ll continue to work with you. I’ll 

just point out two things. One, the voice competition piece of the 

bill, we believe, has been significantly improved, and we appreciate 

you listening to the concerns that we expressed at the least hearing 

and in our testimony. We think it’s vital that, if we’re going to look 

at the competitive space, in terms of who the households have as 

providers, both for video and for voice, that we get that entire competitive space right. So, we think this draft goes a long way toward 

making the video and voice competition part of the market; a good 

one. 

The second place where I think we’ve gone a step backward is 

in the program access language. Congress, I guess, in 1992, established a policy that, because of the then-fledgling satellite industry, 

they wanted to ensure that the satellite industry had access to programming that was then largely owned by the cable operators. And 

so, that was the policy that is in current law today. And I have to 

say, it worked magnificently well. The second and third largest 

multichannel video providers in America are DIRECTV and 

EchoStar, two satellite companies. Number 1 is Comcast. So, it 

worked. And in that timeframe, the percentage of cable programming owned by cable operators dropped from above 50 percent to 

about 20 percent in the same timeframe. So, you had more competition, and you have less of an ownership interest, in terms of the 

cable industry. 

So, while I think the government has already intruded in this 

space, and I can offer my own views about whether or not that 

made sense, the truth is, in terms of what the policy goal was, it 

74 

has largely been accomplished. What this does is, it starts discriminating between satellite and cable operators, in terms of whether 

or not you can offer exclusive programming. So, on the one hand, 

DIRECTV, which has the NFL Sunday Ticket, which no one else 

can get access to, is free to have that kind of exclusive arrangement, but cable operators, who are offering other types of sports 

programming, are prohibited from doing that. 

And, again, Mr. Chairman, as I said at the last hearing, I think 

the program access requirements are a search of a problem that 

doesn’t exist, and I would urge you to delete the entire provision. 

And, with that, I’ll stop. I’ll be happy to answer questions. Thank 

you. 

[The prepared statement of Mr. McSlarrow follows:] 

PREPARED STATEMENT OF KYLE MCSLARROW, PRESIDENT/CEO, 

NATIONAL CABLE & TELECOMMUNICATIONS ASSOCIATION

Chairman Stevens, Co-Chairman Inouye, and members of the Committee, thank 

you for the opportunity to appear today to comment on the June 9 staff draft revisions to S. 2686. 

In my testimony last month, I explained that NCTA found much to commend in 

the introduced bill, including the elimination of outmoded economic regulation of 

cable services, and movement in the direction of a level playing field in video as well 

as voice competition. In addition, we strongly supported the very thoughtful approaches to difficult issues like net neutrality and the digital transition in the introduced bill, and are pleased to see those approaches preserved in the June 9 staff 

draft. My May 18 statement also included a detailed discussion of the provisions in 

the bill and where those provisions have not changed, I respectfully incorporate 

them there. 

Today, therefore, I would like to focus my testimony on the staff draft’s proposed 

changes to the introduced bill. 

In a number of these areas, the staff draft suggests changes that we believe improve the bill. 

Voice Competition 

We believe the staff draft significantly improves the provisions on voice competition. We agree with the staff draft’s proposal to limit the rights, duties, and obligations of carriers under sections 251 and 252 of the Communications Act to facilitiesbased VoIP providers, which have made a commitment to deploying their own networks and infrastructure. A non-facilities-based provider should not have the right 

to order facilities-based entities, on whose networks it rides, to interconnect at a 

particular place or manner. 

We are also pleased that the staff draft addresses rural telephone carriers’ recent 

refusals to exchange VoIP traffic with telecommunications carriers, even though 

they have existing interconnection agreements with those carriers. Rural carriers’ 

resistance on this point is depriving rural consumers of competitive voice services. 

Universal Service 

As I have testified before, the cable industry supports the principles underlying 

the Universal Service regime. We agree that Universal Service reform is needed, but 

urged you to reform the disbursements side of the Universal Service Fund (USF) 

as well as contributions to the USF. Thus, we are pleased that the staff draft offers 

a number of helpful improvements on the disbursement side. For instance, it adds 

competitive-neutrality as a Universal Service principle and appropriately proposes 

to substitute more technology- and provider-neutral eligibility requirements in lieu 

of the ILEC-centric obligations in the introduced bill. In particular, the draft would 

require a competitor to offer service throughout its service area rather than the 

ILEC’s. It would also not condition a competitor’s Universal Service eligibility on a 

commitment to offer local usage plans comparable to those offered by ILECs, or to 

provide equal access to long distance carriers. Competitors should not have to mimic 

ILEC service offerings, or network architecture, or geographic coverage to qualify 

for Universal Service support. 

Second, the staff draft would eliminate the requirement that all Universal Service 

Fund recipients deploy broadband. While broadband deployment is a goal strongly 

shared by the cable industry, incorporating it into Universal Service eligibility 

75 

would have appeared to validate—even if indirectly—using funds for broadband deployment. Cable companies are understandably very reluctant to contribute revenues from their own broadband services to subsidize their competitors, either directly or even by supplying them with fungible resources. 

Finally, we are pleased to see that the draft extends the fiscal oversight proposed 

in S. 2686 for the ‘‘E-Rate’’ programs to the rural and high-cost programs as well. 

Level Playing Field for Cable Operators and Video Service Providers 

The bill’s opt-in opportunities for existing operators are essentially unchanged 

from the introduced bill. As I explained last month, these opportunities remain too 

limited. While the introduced bill is a fair start, we again urge you to ensure the 

availability of opt-in for every existing cable provider beginning on the date of enactment. 

Role of Local Governments; Prohibition on Discrimination 

The staff draft would give the State public utility commissions the responsibility 

for enforcing the prohibition on the denial of video service to potential subscribers 

on the basis of race or religion, in addition to income. While an improvement from 

the introduced bill, under which only the FCC had enforcement authority, we continue to believe that local governments are best suited to investigate and determine 

instances of discriminatory conduct. 

Other Issues Related to Franchising and Regulation 

The staff draft does not address many of the franchise- and regulatory-related 

issues I described in my May 18 testimony on S. 2686, and in some cases even adds 

provisions that create additional concerns. We look forward to continuing to work 

with you and your staff on these issues. 

First, the draft still lacks a definition of franchise area. Such a definition is essential to ensure meaningful compliance with the antidiscrimination requirement. Second, the draft revises the new definitions of ‘‘video service’’ and ‘‘video service provider,’’ but it may preserve a loophole for AT&T’s IPTV service by defining video 

service as the ‘‘one-way transmission’’ of video, carrying forward the language from 

the current definition of cable service that AT&T and the Connecticut DPUC relied 

on to exclude IPTV from that definition. These definitions must be carefully constructed to bring all providers of functionally equivalent video services within the 

same franchising and regulatory scheme, regardless of the delivery technology they 

use. Third, the draft would put upward pressure on cable rates by increasing government fees on video services. The draft would authorize PEG and institutional network (INET) support payments in excess of the 1 percent of gross revenue proposed 

in the introduced bill, if the incumbent cable operator was contributing more than 

that in a franchise area, while eliminating the proposed offset for INET operating 

costs incurred by an incumbent cable operator that opts in or otherwise becomes 

subject to the new scheme. It would also broaden the definition of gross revenues— 

the base for calculating franchise fees—to include home shopping and advertising 

revenues. Finally, the staff draft lacks any requirement for cost-based permitting 

and rights-of-way management fees. 

Program Access 

We are disappointed that the expansion of program access law remains in the 

staff draft, and that it has, on one hand, been further broadened. In this regard, 

the staff draft would bar ‘‘permanent foreclosure strategies’’ and ‘‘terms or conditions that have the effect, in their application, of discriminating against an MVPD 

based on its technology, delivery method, or capacity constraints.’’ Both of these 

vague and undefined concepts will lead, inevitably, to disputes and litigation over 

business practices that are lawful today; even under the program access law. On the 

other hand, the staff draft narrows the program access provisions of the bill to permit exclusive arrangements between DBS and non-vertically integrated national 

sports programming services. As we have previously said, we would urge you to 

drop this entire provision. As currently drafted, the provisions solve no existing 

problem in the marketplace, and are likely to add confusion and unfairness. 

Conclusion 

Thank you, again, for this opportunity to testify. We appreciate your openness to 

our perspective and our suggestions, and look forward to continuing to work together to craft a framework that promotes innovation and consumer choice. 

The CHAIRMAN. Thank you very much. 

Our next witness is Walter McCormick. 

76 

STATEMENT OF WALTER B. MCCORMICK, JR., PRESIDENT/CEO, 

UNITED STATES TELECOM ASSOCIATION (USTELECOM) 

Mr. MCCORMICK. Mr. Chairman, thank you very much. Co-Chairman Inouye, members of the Committee, thank you for the opportunity to testify today. 

On behalf of our 1,200 member companies, we want to commend 

you for recognizing the importance of updating our telecom laws, 

to provide consumers with a new choice in video, and to stabilize 

and secure Universal Service for the future. And it would be our 

hope that this debate on net neutrality not slow down action on either of these important objectives, providing increased video choice 

and securing Universal Service for the future. 

Mr. Chairman, we’ve been honored to participate in this process. 

We commend you for the outreach and inclusiveness that has characterized your deliberations. 

As you have noted, Mr. Chairman, the world has changed since 

the passage of the 1996 Act. Today, you can make a telephone call 

on a landline phone, on a wireless phone, on a cable phone, on an 

Internet phone. You can obtain high-speed Internet access from 

your telephone company, your cable company, your wireless company, your satellite company. In coffee shops, in airports, on college 

campuses, and in many municipalities, you can access the Internet 

via WiFi hotspots. Electric utilities are beginning to invest in delivering broadband over powerline. Others are entering the market 

using unlicensed spectrum. And the government is about to put 

new spectrum out for bid. 

As a result of this world of choice, consumers are benefiting. The 

prices for broadband access are falling, and broadband penetration 

is increasing, particularly among middle-income Americans and minorities. Earlier in this hearing, there were comments made that 

this investment, this explosive growth in the Internet, was occurring under regulation. The facts tell a different story. It has been 

since there has been unbundling relief, it has been since there has 

been deregulation, that broadband Internet investment and access 

has skyrocketed. So, today in this country, just over the course of 

the last 2 years, we have seen the number of broadband providers 

nearly triple, and, in the last 5 years, we have seen them grow by 

almost tenfold. In major metropolitan areas—in States like California, we see up to 23 providers in cities like San Francisco, and 

Los Angeles, and San Diego; 75 percent of Americans have access 

to up to four high-speed Internet providers. So, what we’re seeing, 

Mr. Chairman, is, we’re seeing explosive growth, and we’re seeing 

a marketplace that’s working. 

This bill is aimed as expanding choice for video, to give consumers an expanded ability to get the services they want from the 

companies they choose. And, in doing so, it preserves an appropriate role for government. First, it protects the revenues, the franchise authorities currently received from franchise fees. It protects 

PEG channels and iNETs. Second, it protects and secures Universal Service for the future by expanding the contribution base, by 

treating all competitors fairly, and by exempting USF from the 

Antideficiency Act. And by assuring both intrastate and interstate 

services are assessed, this bill advances important reforms. 

77 

With regard to access to sports programming, Mr. Chairman, we 

do support the provision that’s in your bill. We think it is an important competitive provision. 

And finally, Mr. Chairman, this bill does take a measured and 

reasoned approach to net neutrality. It is a compromise position. It 

is a reasoned position to instruct the FCC to report annually about 

impacts on the free flow of information. There is, as everyone has 

noted, no problem today. The Chairman of the FCC says that he 

has the sufficient authority to address any problem that might 

arise. The approach of this bill, to monitor and then to act, should 

be the approach of the Committee. 

Finally, Mr. Chairman, we’re pleased that you’re moving. The 

House of Representatives acted, just this week, on its own measure 

to give consumers new TV choice. We look forward to working with 

you, and the members of the Committee, to see S. 2686 proceed expeditiously through the Senate. 

[The prepared statement of Mr. McCormick follows:] 

PREPARED STATEMENT OF WALTER B. MCCORMICK, JR., PRESIDENT/CEO, 

UNITED STATES TELECOM ASSOCIATION (USTELECOM) 

Introduction 

Mr. Chairman, Co-Chairman Inouye, Members of the Committee: Thank you for 

this opportunity to appear before you today. I am Walter McCormick, President and 

CEO of the USTelecom Association. On behalf of our more than 1,200 member companies, I thank you for the work that this Committee has put into updating the Nation’s communications laws to expand consumer choice, encourage robust broadband 

investment, and stabilize the future of Universal Service. 

Last week the U.S. House of Representatives delivered an historic vote . . . an 

overwhelmingly bipartisan vote to deliver the many benefits of video choice to American consumers . . . to continue down a path of vigorous investment in the Nation’s broadband future... and to ensure a broader funding base for Universal 

Service. These principles are embraced and advanced as well by . . . S. 2686, the 

‘‘Communications, Consumers’ Choice and Broadband Deployment Act of 2006.’’ So 

I thank you for your leadership, and for this opportunity to appear before you today 

to talk about the broadband future... video choice... Universal 

Service... and this important effort to advance these national priorities. 

It has been 10 years since this body last revisited the issue of U.S. communications policy. How much has changed. Broadband investment and adoption are surging ahead at an unprecedented rate today. According to the Pew Internet and American Life Project, the number of Americans with broadband at home has risen 40 

percent over the past year. This rapid adoption is being driven by intensely competitive prices, with some introductory rates now below $15 a month. Consumer 

choices—across a variety of platforms and services—continue to expand seemingly 

every day. This legislation—and the growing momentum for delivering reform this 

year in both the House and the Senate—represents an historic opportunity to continue that progress for consumers, and for our Nation’s information economy. 

USTelecom’s membership ranges from the smallest rural telecom companies in 

the United States to some of the largest investors in America’s broadband infrastructure today. We are united in our commitment to a modern communications policy, in which all companies are encouraged to invest and compete head-to-head in 

the marketplace . . . with consumers determining the market winners based on 

who provides the most innovative, attractive packages of voice, video and Internet 

services to meet their needs. 

We believe this market-based model—rather than a government-managed regulatory model—is best capable of encouraging significant investment in next-generation broadband infrastructure . . . in encouraging the arrival of new innovations 

. . . and the availability and numerous benefits of diverse market choices for consumers. 

Video Choice 

The companies I represent are particularly eager to bring new consumer choices 

to the video marketplace. No one in this room—or across America, I’d gather—needs 

78 

a lecture in the many benefits that would be derived from enhanced consumer 

choice in the video marketplace. A recent study by the Phoenix Center indicates 

that consumers would save as much as $8 billion on their cable bill in the first year 

alone with TV freedom. In Keller, TX, the local cable company reduced the rates 

on its most popular bundled service package by nearly 50 percent in response to 

Verizon’s announcement of a voice, video and Internet triple play. 

Our companies would like to bring this innovation and competition to communities across the country. Standing in the way, as you know, are outdated regulations that were designed, in a bygone era, to protect consumers from cable monopolies. Unfortunately, today they frequently have the exact opposite effect—protecting 

cable companies from the market disciplines—on price, on quality of service, on innovation—of vigorous competition. 

Removing barriers to our competitive entry into the video marketplace would deliver this much-needed consumer choice. Your legislation takes the right approach 

. . . maintaining local revenue streams and control over public rights-of-way . . . 

safeguarding local, education, and government programming . . . and advancing 

video choice and competition. 

Another critical byproduct of this updated policy would be a bright, green light 

to the marketplace to continue investing in the Nation’s broadband infrastructure 

. . . creating jobs, increasing broadband penetration and fueling a continued revival 

of our high-tech economy. 

Universal Service 

Mr. Chairman, I also want to thank you for your long-standing leadership on Universal Service. There is nothing I can tell you about the value of this national commitment, nor the challenges it faces today that you do not already fully understand. 

Representing a state with one-fifth of the land mass of the continental U.S., and 

only one-fifth of 1 percent of the Nation’s population, you require no lecture on the 

cost of providing essential services to a dispersed population . . . nor the importance of ensuring the Nation remains connected through affordable, reliable communications. Our member companies, too, know the importance of Universal Service 

to rural and low-income communities across the country, so we welcome the reforms 

proposed in this legislation. 

This legislation would stabilize Universal Service amid a rapidly evolving technology environment . . . ensuring new technologies contribute alongside established 

technologies . . . so Universal Service is a shared responsibility and one that receives adequate funding. Universal service reform, too, is a time-sensitive priority 

that should spur action in this Congress. 

Net Neutrality 

Mr. Chairman, I also want to thank you for the reasoned, measured approach 

taken in this legislation to the ‘‘net neutrality’’ debate. This is a very complex technology debate that, I believe, has been unfortunately and inaccurately oversimplified 

in recent weeks. As I have stated before this Committee many times, the companies 

I represent have been managing networks in this country for over 100 years. Consumers today have—and will continue to have—the freedom to call or e-mail whomever they choose . . . and to visit any legal website . . . without being blocked, 

without their service being impaired or degraded. It’s the right thing to do in a 

country that values and cherishes the First Amendment. It’s smart business 

. . .offering the greatest customer satisfaction, and driving demand for broadband. 

And, the FCC has demonstrated both the will and the capacity to safeguard Internet freedom. We are well aware that Congress and the FCC are watching our companies closely. 

The measured approach of the watchful eye that your legislation proposes is reasonable and pragmatic. The notion that Congress should rush to regulate the Internet—in anticipation of a problem that may never manifest—is dangerous. This extreme position would not preserve the free and open Internet we enjoy today, it 

would most certainly stifle its future development and growth. And, to hold the consumer benefits of video choice hostage to this extraneous debate over Internet regulation, makes no sense. 

Mr. Chairman, we applaud your giving the marketplace the opportunity to continue demonstrating its capacity to be a responsible, innovative driver of the Internet’s evolution; before resorting to regulation and government-managed competition. 

This bill delivers to consumers long overdue video choice and stability for Universal 

Service. It ensures, vigilance and accountability on the issue of Internet freedom. 

But it wisely continues the hands-off policy that has driven unprecedented Internet 

investment, innovation, and economic growth. 

79 

Mr. Chairman, it is time to update the Nation’s communications laws . . . to stabilize Universal Service . . . and to share with American consumers the many benefits of video choice . . . not next year or the year after that, but right now—this 

year—in this Congress. 

If we streamline the video franchising process, the net result will be accelerated 

broadband deployment, more competition for voice, video, and Internet services, and 

lower prices for consumers. I look forward to continuing to work closely with you, 

Mr. Chairman, with this committee, and with leaders on both sides of the aisle who 

are eager to bring the many benefits of video choice and Universal Service to consumers and to the Nation’s economy. Thank you again for the invitation to be here 

today . . . and for your leadership in driving these vital issues to resolution this 

year. I would be happy to answer any questions you may have. 

The CHAIRMAN. Thank you very much. 

Our next witness is Chris Putala. Am I saying that right? 

Mr. PUTALA. You are, sir. 

The CHAIRMAN. Putala—thank you—Vice President for Public 

Policy of EarthLink, in Washington, D.C. 

STATEMENT OF CHRISTOPHER PUTALA, EXECUTIVE VICE 

PRESIDENT, PUBLIC POLICY, EARTHLINK, INC. 

Mr. PUTALA. Thank you, Mr. Chairman, Co-Chairman Inouye, 

and members of the Committee. As the Chairman stated, my name 

is Chris Putala. I’m Executive Vice President for Public Policy at 

EarthLink. 

EarthLink is the Nation’s largest independent Internet service 

provider. We are a publicly-traded company headquartered in Atlanta. We are proud to provide Internet access, and services to 

more than 5.4 million consumers throughout the country. 

Thank you for the opportunity to testify today. I ask that my full 

statement be made a part of the record, and I will summarize. 

Today, we will hear one common argument from this panel. In 

short, where the other team has market power, this Committee 

should enforce against discrimination. Bell companies argue that 

cable has too much power, and not enough competition in television 

services; and so, they seek nondiscriminatory program access rules. 

Cable argues that Bells have too much power, and not enough competition over telephone networks; and so, they ask this Committee 

to require nondiscriminatory interconnection rules for VoIP. And, 

by the way, EarthLink agrees. The independent wireless company, 

Sprint Nextel, argues that the Bells have too much power and not 

enough competition in the high-capacity pipes that connect cell 

towers to the network; and so, they ask this Committee to reduce 

special access charges to prevent discrimination from the Bell companies. Again, EarthLink agrees. 

I respectfully suggest that this same nondiscrimination principle 

guide the Committee as it continues to consider the important 

issue of network neutrality. The fundamental points are the same 

that the Bells make about television, that cable makes about telephone. In the face of market power, there is a need for protections 

against discrimination—in this case, nondiscriminatory equal access to the Internet. The rules that have governed the Internet 

from the start required equal and open access over the last mile, 

precisely because consumers lacked robust choices. And, under 

these rules, under the same rules, different speeds and different 

bandwidth offerings have always been permitted, and they should 

continue to be so, in our view. The legislation offered by Senators 

80 

Snowe, Dorgan, and others offer both key ingredients, nondiscriminatory equal access, and the ability to offer consumers a variety 

of different speed options. 

The Snowe-Dorgan legislation protects consumer freedoms in another important respect, by ending the anticompetitive practice of 

requiring customers to buy regular voice phone service when they 

buy broadband service. Why should a customer, who wants to use 

VoIP, or their wireless phone instead of traditional phone service, 

be required to spend 25 to 50 bucks every month for this phone 

service she doesn’t want, in order to get broadband? We urge all 

members of the Committee to support this standalone broadband 

provision. 

EarthLink also urges all members to support the modified municipal broadband language included in the new staff draft. We are 

pleased that this legislation takes an important step to encourage 

a new broadband facility by eliminating current and future prohibitions on local broadband initiatives. EarthLink is proud to be leading the effort to un-wire America’s cities with WiFi technology, delivering the Internet wirelessly and affordably. EarthLink has already partnered with Philadelphia, Anaheim, San Francisco, and 

New Orleans to build, own, and manage, at our cost, a wireless 

network to provide these new broadband services. EarthLink’s 

WiFi networks will also practice what we preach, we will offer fair, 

reasonable, and nondiscriminatory wholesale rates to others who 

seek to bring customers to these new networks. 

The interconnection policies in the staff draft are not as well 

crafted as those originally in S. 2686, in our view. The interconnection rights included in the original legislation better follow the successful lesson offered by the early days of wireless to ensure that 

all providers will be able to exchange VoIP traffic. Ten years ago, 

wireless faced the same situation Internet voice traffic does today. 

Wireless networks had relatively few customers; and so, little negotiating power with the Bells when it comes to the terms and conditions of connecting to the Bells’ customers. Fortunately, this Committee took significant steps in 1993 and 1996 to require nondiscriminatory interconnection rights in the face of such disproportionate market power. The original draft of S. 2686 better incorporated this core lesson from wireless, and nondiscriminatory interconnection rights should be granted to all VoIP providers, not just 

facilities-based providers. 

To close with one last comment, EarthLink recognizes the importance of Universal Service, and stands ready, as a VoIP provider, 

to continue to contribute to the Federal Universal Service mechanisms. We respectfully ask, however, that whatever mechanisms 

you authorize the FCC to adopt be competitively neutral, and not 

require us to engage in complex legal exercises to determine whether a particular dollar of customer revenue is subject to, or outside 

of, Universal Service assessment. 

Thank you very much for the opportunity to testify. I look forward to your questions. 

[The prepared statement of Mr. Putala follows:] 

81 

PREPARED STATEMENT OF CHRISTOPHER PUTALA, EXECUTIVE VICE PRESIDENT, 

PUBLIC POLICY, EARTHLINK, INC. 

Mr. Chairman, Senator Inouye, members of the Committee, thank you for inviting 

me to speak to you as you consider S. 2686, and how best to update our communications laws in light of change in technologies and marketplace conditions, to preserve 

the competition, innovation, and freedom that characterize the Internet, and to ensure that all Americans—including low-income Americans and those in the most 

rural parts of our country—receive the benefits of the broadband revolution. 

For ten years, EarthLink has been on the cutting edge of delivering the Internet 

to American consumers and business, first through dial-up, then broadband, and 

now VoIP, wireless voice and municipal wireless Internet services. Over the past ten 

years, we’ve seen the Internet grow from the specialized province of a few techsavvy early adopters to an integral part of American work and family life. And 

we’ve seen—and helped—millions of Americans move toward broadband services 

and capabilities that were not possible with dial-up services. 

Our approach has been to deliver our customers the services they want: Our 

motto is ‘‘we revolve around you.’’ And we’ve been successful. Over the past three 

years, EarthLink has won numerous awards for customer satisfaction in both 

broadband and dial-up services. We now deliver to our customers a full-range of 

broadband services and applications, including Internet access, Voice-over-IP, and 

wireless services. We offer our customers a wide range of enhanced offerings, including pop-up, spam and spyware blockers, anti-virus protection, and parental controls. 

We are excited to work with the Cities of New Orleans, Philadelphia, San Francisco 

and Anaheim—and we hope many more—to deploy a new WiFi network providing 

the residents of those cities an alternative to the cable—telephone company highspeed wireline access duopoly. 

At the outset, I’d like to commend the Committee, and particularly its staff, for 

all the hard work you have put in so far. S. 2686 takes some key steps towards an 

appropriate regulatory framework for broadband communications. In particular, we 

commend the provisions making clear that local governments may seek creative solutions to bring broadband—or more broadband—to their communities, and the bill’s 

recognition that VoIP providers—like wireless carriers and CLECs—need to be able 

to interconnect and exchange traffic with traditional telephone networks. But there 

are also areas where the draft could be improved, particularly with respect to what 

has come to be known as net neutrality. We are also concerned that the current 

draft cuts back on the interconnection, numbering, and number portability rights for 

VoIP providers, and that the bill does not yet contain a stand-alone broadband requirement, as proposed by Senators Snowe, Dorgan and Inouye. These are all elements that are critical to delivering the ‘‘consumers’ choice’’ promise of the bill’s 

title. 

As you consider further how to shape the legislation that has moved forward, I 

would like to leave you with five key thoughts: 

1. A local facilities-based access duopoly does not provide sufficient choice to 

drive innovation, and preserve consumer freedom to use the services and applications of their choosing. The bill’s municipal broadband provisions, therefore, 

appropriately ensure that consumers have as much choice as is possible, without fear of taxpayer funding or financing. 

2. Remember that the Internet (like the market) has become a dominant economic force, because it lets a thousand economic flowers bloom, and does not 

let the network operators (or any other centralized authority) determine which 

flowers take root. Net neutrality protections are therefore critical to maintaining consumer choice and innovation. 

3. Protect consumer freedom by requiring that broadband be available on a 

standalone basis. 

4. Promote competition by ensuring that all VoIP providers can obtain numbers, 

utilize number portability, and interconnect and exchange traffic with the legacy telephone network. In that context, while providers should be entitled to 

and pay fair interprovider compensation, recognize that the current intercarrier 

compensation system on the legacy telephone network is hopelessly fractured, 

and thus both empower and require the FCC to reform that system quickly. 

5. In ensuring that all communications service providers contribute to Universal 

Service, ensure that any mechanism is competitively neutral. 

82 

1See http://wireless.fcc.gov/statements/Sugruelslides3.ppt. 2 Id. 

3 Implementation of Section 6002(b) of the Omnibus Budget Reconcilliation Act of 1993; Annual 

Report and Analysis of Competitive Market Conditions with Respect to Commercial Mobile Services, Tenth Report, 20 FCC Rcd 15908, 15966 (¶ 158) (2005). 4See Federal Communications Commission, Wireline Competition Bureau, Industry Analysis 

and Technology Division, High-Speed Services for Internet Access: Status as of June 30, 2005, 

at Table 6 (April 2006), available at http://www.fcc.gov/DailylReleases/DailylBusiness/ 

2006/db0407/DOC-264744A1.pdf. 

I. Municipal Broadband Is Critical To Broadband Deployment and 

Consumer Choice 

A. Facilities-Based Duopoly Is not Sufficient to Protect Consumers and Drive 

Innovation 

This Committee has long recognized that while duopoly is better than monopoly, 

a duopoly by itself does not necessarily serve consumers well, nor lead to maximum 

innovation. The history of wireless services, for example, cautions strongly against 

relying on a facilities-based duopoly to deliver strong competitive choices and marketplace innovation to consumers. From 1984 until the first broadband PCS services 

began to be offered in 1995, wireless services were a legally-sanctioned duopoly. Not 

surprisingly, prices rose until 1993, when Congress voted to authorize new wireless 

entry through spectrum auctions—of which Chairman Stevens was an early and 

leading champion.1 Duopoly created wireless services that were priced for only a 

few, relegating wireless to a niche market. 

On the other hand, since the third and fourth (and more) wireless competitors entered the market in 1995–96, competition in the wireless market has exploded. As 

stated above, wireless subscribers have soared from only 20 million in 1994 to nearly 200 million as of June 2005. In 1993, wireless service averaged 58 cents per 

minute,2 but by the end of 2004 was averaging 9 cents per minute—a nearly 85 percent drop.3

The same market performance can be expected in broadband as well. If there are 

only two facilities-based broadband providers, competition will stagnate, and consumers will not reap the full benefits of the broadband revolution. Broadband today 

is characterized by a cable-telco duopoly, with cable modem service and ILEC-provided DSL together accounting for 95 percent of all residential and small business 

broadband connections nationwide.4

However, if a stable duopoly is not permitted to develop, the market will keep 

competitive pressure on all providers and force the two dominant facilities-based 

providers, cable and ILEC DSL telephone companies, along with all other market 

participants, to continue to innovate to the benefit of consumers. Unfortunately, the 

FCC’s decisions have moved to shore up, rather than challenge, the existing access 

duopoly. In its Wireline Broadband Order, for example, the FCC allowed incumbent 

telcos to stop providing last-mile broadband transmission as wholesalers. As a result, in mid-May, for example, AT&T notified its wholesale broadband customers 

that it had stopped accepting new orders for wholesale DSL two weeks earlier, as 

of May 1, 2006. The minority draft legislation notably—and properly—would reverse 

that change, and treat these services with market power as telecommunications 

services. As another example of a regulatory action that buttresses duopoly, the 

FCC’s curtailed CLEC access to unbundled loops in Omaha, Nebraska—including 

loops used for competitive DSL service—because of cable voice competition, effectively raising the price for a CLEC to use UNE copper loops combined with its own 

electronics to deliver alternative broadband services in competition with the cable 

company and incumbent telco. 

Moreover, the nationwide stability of that duopoly also keeps growing as the 

telcos and cable companies each, respectively, merge, with the proposed AT&T/ 

BellSouth; potentially reaching half the homes in the country. This will no doubt 

put pressure on both Verizon and the cable companies to strive for similar scale. 

Time Warner and Comcast are already dividing up Adelphia between them. 

Shoring up the existing duopoly has real consequences. For one thing, it makes 

net neutrality a more significant issue. As analyst Blair Levin wrote earlier this 

year, the net neutrality debate is fundamentally about the market power of the current broadband telco/cable duopoly. It is much easier to have an Internet ‘‘gatekeeper’’ when there are only two gates. I’ll return to net neutrality later. 

In addition, we should remember the lessons of both 9/11 and New Orleans. Having more communications networks—rather than just a duopoly—means we have 

more ways to keep communications up and running in a crisis. In particular, on 

both 9/11, and in New Orleans, and the Gulf Coast after Hurricanes Katrina and 

83 

Rita, the Internet proved to be an important means for keeping communications 

flowing, both among first responders and among victims and their families. 

B. Municipal Broadband—Antidote to Duopoly 

As S. 2686 recognizes, the best way to address problems with duopoly is to expand 

the number of unaffiliated alternatives—just as Congress did with wireless in requiring that new spectrum be distributed for broadband PCS. At EarthLink, we are 

actively exploring alternatives to telco and cable. We are not limiting our efforts to 

municipal broadband. For example, we are an investor in a broadband-overpowerline project with Current Communications. 

EarthLink’s municipal deployments illustrate the promise of municipal 

broadband. We are very proud to assist the City of New Orleans rebuild its infrastructure as it recovers from the devastation of Hurricane Katrina. Underscoring 

the public safety advantages of having a third broadband network, our wireless network will give New Orleans’ city officials and first responders another way to keep 

communications networks operating in the event of another, unthinkable tragedy. 

Our path-breaking New Orleans and Philadelphia deployments shows how much 

can be accomplished with no risk to taxpayers: 

• EarthLink will build, own, and manage the wireless network, at no cost to the 

cities, while providing the cities a revenue share to fund its operation. And, 

EarthLink has guaranteed network upgrades on an ongoing basis. This is not 

a case of ‘‘taxpayer funded’’ competition, and will not lead to taxpayer funded 

bailouts. Nor is it funded by tax-free bonds. EarthLink is bearing the risk of 

constructing this network. 

• This network will serve all the citizens of New Orleans and Philadelphia by providing a competitive alternative to current broadband and dial-up Internet services—at retail rates at, or below, the common price of premium dial-up Internet 

access. 

• The initial service offering will be a symmetric One Megabit per second (1 

Mbps) service, which is about fifty times as fast as a dial-up connection. It’s 

nearly as fast as a typical DSL line for downloads, and is actually faster than 

most of today’s broadband services when uploading data. Once we have the initial service deployed, we expect to offer higher-tiered services up to several 

times that fast, and we will upgrade the network over time so that ever higher 

speeds are enabled as new technology becomes available. 

• EarthLink supports Open Access to third-party Internet service retailers and 

‘‘net neutrality.’’ So, the project will provide opportunities for many local companies to resell broadband access service that they purchase at competitive wholesale rates. As the third broadband entrant in this market, we embrace competition as a way to make the use of our network more attractive. And the same 

is true for ‘‘net neutrality.’’ We view this as the best way to serve the consumer 

and embrace innovation and competition. 

• In Philadelphia, EarthLink’s partnership with Wireless Philadelphia will help 

bridge the Digital Divide, subsidizing affordable high speed Internet access to 

low-income households in overlooked neighborhoods. 

These deployments will catapult New Orleans and Philadelphia into a worldwide 

leadership position in technology, and will enable officials to meet the needs of their 

residents as well as enhance the visitor, tourism, and business climate of those 

great cities. But, EarthLink is already taking this story on the road! In Anaheim, 

San Francisco, and Milpitas, California, EarthLink has been selected as the municipalities’ private-sector partner. And EarthLink has (or soon will) propose that we 

unwire other municipalities—at our cost—across America, including: 

Honolulu, Hawaii; 

Houston, Texas; 

Boston, Massachusetts; 

Long Beach and Orange County, California; 

Milwaukee, Wisconsin; 

Arlington, Virginia; and 

Minneapolis, Minnesota. 

We also believe, however, that the EarthLink approach of partnering private sector expertise and capital with municipalities can also be harnessed to expand 

broadband options in small cities and rural areas across America. EarthLink is developing a ‘‘Network Alliance’’ program with just this goal in mind. 

84 

5 Accordingly, in proposed Section 706(d)(2), on page 116, line 9, of the June 9, 2006 Staff 

Draft, the words ‘‘such public’’ should be deleted. 

Local entrepreneurs know best the local consumer and business needs for 

broadband access and services. EarthLink’s Network Alliance program will aid these 

local businesses in partnerships providing: 

• EarthLink’s technical expertise in network design, deployment, and specifications; 

• EarthLink’s volume pricing for equipment and services—so even the smallest 

companies will get the best prices; and 

• EarthLink’s ordering, billing and other back-office services—so these local businesses can put full focus on building out networks and signing on customers. 

Our New Orleans and Philadelphia projects are great examples of what local governments and the private sector can accomplish together, as the bill envisions. And 

so thier record is clear, Philadelphia and other cities across the country solicit competitive bids for their projects. EarthLink has participated in other competitive bids 

around the country—with a recent successful example being San Francisco. 

S. 2686 takes the most necessary step with respect to municipal broadband, and 

that is to preempt State and local laws that prohibit, or have the effect of prohibiting locality-driven broadband. It also appropriately requires municipalities that 

provide broadband act nondiscriminatorily when applying its ordinances and rules, 

particularly those involving rights-of-way, permitting, performance bonding, and reporting. 

We also believe that many of the changes made in the June 9 staff draft improve 

this section of the bill, and we commend the staff for making these changes. First, 

the June 9 draft eliminates a provision that would have required a public provider 

to grant a requesting non-governmental entity the right to place similar facilities 

in the same conduit, trenches, and locations, subject to a public safety exception. 

While well-intentioned, this requirement would have been difficult to implement. 

For example, antenna locations can have limited capacity, depending on load and 

other engineering factors, as well as the need to space facilities to prevent them 

from interfering with one another. As originally drafted, the bill would have made 

it difficult to execute construction schedules. 

Second, the June 9 draft more appropriately makes clear that the municipal 

broadband provisions of this law do not preempt generally applicable telecommunications laws, rather than making the application of all generally applicable laws a 

condition precedent to providing service. One suggestion we offer here is that the 

June 9 draft states that this bill does not displace telecommunications laws that are 

generally applicable to public providers. Given the nondiscrimination goals, as well 

as the goal of enabling public providers to offer broadband service, what should be 

preserved is the application of telecommunications laws that apply to all providers, 

not just public providers.5

Third, the June 9 staff draft appropriately encourages public-private partnerships, 

without creating difficult line-drawing issues that the original bill created with respect to what constitutes a public-private partnership. The original bill could have 

been interpreted to include the mere lease of tower sites or other rights-of-way does 

not create a public-private partnership, and then imposed various competitive bidding requirements. The provisions of the staff draft are better, particularly given the 

fact that States and local governments have their own competitive bidding requirements. 

Fourth, the staff draft appropriately deletes the mandated ‘‘right-of-first-refusal’’ 

for local projects that are not competitively bid public-private partnerships, along 

with what could have been unduly costly and burdensome neutral evaluation requirements. This will particularly help small localities that might lack the resources 

to carry out all the previous requirements. 

Finally, we note that the general public safety exemption (new subsection 706(g) 

of the Telecommunications Act of 1996) in the original bill, while again well-intentioned, raised questions as to what rules apply to network deployments that are 

dual use, i.e., with a portion for public safety and a portion for the general public. 

Experience has shown that, particularly in smaller towns and rural areas, it is important to aggregate communications demand, and to make common use of facilities 

where possible. Having two sets of requirements, one for public safety and one for 

other uses, limits the ability to obtain the economies of scale and scope that will 

make these deployments affordable in smaller and rural communities, and which 

otherwise promote important public interest objectives such as public safety. The 

June 9 staff draft appropriately eliminated that provision. 

85 

II. Net Neutrality—Keeping the Internet Working Through Freedom and 

Innovation 

It is undisputable that the reason the Internet has been a transformative engine 

for economic growth and innovation is that the Internet is an open communications 

platform. As Vint Cerf, the father of the Internet, previously told this Committee, 

the open Internet allowed companies like EarthLink, Google, Yahoo!, eBay, and 

Amazon to grow from an entrepreneur’s dream to successful Internet businesses. 

Small companies and entrepreneurs can use the Internet to prove the worth of their 

ideas without having to convince a bureaucrat at a cable or telephone company of 

their economic merit—or having to pay a ‘‘success’’ fee to those network duopolists. 

The Internet drives growth because—like the market as a whole—it allows a thousand flowers to bloom without central planning or management. 

At EarthLink, we lived this history. If the telephone companies had had their 

way, our pioneering dial-up Internet access business would have been shut down by 

imposing per-minute access charges. Instead, because the FCC did not allow the 

telephone companies to become Internet toll collectors, millions of Americans were 

able to gain familiarity with the Internet, building the critical customer awareness 

and interest in the Internet that enabled broadband products to be successful when 

launched. Moreover, because the consumer connected to the Internet with an ordinary telephone call, the telephone companies were not permitted to try to favor 

some Internet services over others. 

Going back to our days battling AOL in the Internet services marketplace, 

EarthLink has long recognized that consumers are not best served by exclusive-access Internet networks. We believe that consumers are best served by an Open Access model—where network owners offer fair, reasonable, and nondiscriminatory 

wholesale rates to others who seek to bring customers to that network. And we don’t 

just pay lip service to this model—as a network operator, we live up to the vision. 

EarthLink’s municipal networks are open networks. Any qualifying ISP will get the 

same low, wholesale rate, and we welcome them to bring consumers to our network. 

And, we welcome the competition that ensues—it will ultimately deliver the best 

service and experience to consumers. 

As a network investor and operator, EarthLink rejects the argument by the telephone and cable duopolists that networks must be closed and applications subject 

to a ‘‘success tax’’ in order to promote network investment. We embrace ‘‘net neutrality’’ because it is both consumer friendly and economically right. We will succeed 

by adding users and by providing our (and our wholesale customers’) users better 

service, not by throttling web-based innovation and business models. When 

EarthLink and our local government partners expand the number of facilities-based 

networks providing Internet access, the marketplace can better police and ensure 

‘‘net neutrality.’’ This model of competition obviating the need for regulation is exactly what happened with wireless resale requirements, after this committee ended 

the wireless duopoly through spectrum auctions. 

So how can this Committee address net neutrality in the time until there is sufficient competition to eliminate any concerns even without regulation? I offer a few 

thoughts. 

First, recognize, as analyst Blair Levin has commented, that net neutrality is 

about market power in the local portion of the broadband network, and not about 

the Internet ‘‘cloud’’ or backbone. Accordingly, as Mr. Levin has put it, the more networks, the less the concern—provided those networks are not affiliated (as some 

wireless and telco networks are). A gatekeeper can discriminate and exercise market 

power only when there are a very small number of gates. 

Second, discrimination is particularly significant when bandwidth in the last mile 

is scarce. Put another way, a network can meaningfully discriminate through the 

last mile best if the last mile can’t handle all the bits the consumer wants. 

Third, the Committee, and policymakers in general, should be particularly skeptical of network operator claims for a need to discriminate with respect to low-bandwidth (e.g. VoIP and e-mail) or high latency (e.g., streaming video for storage on a 

TiVo) services and applications. 

What this leads to is that, in order to preserve the open, innovative nature of the 

Internet and consumers’ freedom to choose their applications and services until 

there is sufficient competition—and at least until consumers are so awash in 

broadband capacity that network neutrality that discrimination cannot be executed—EarthLink supports adoption of some clear rules, building on the FCC’s 

broadband policy principles. In this regard, we believe that the bill recently introduced by Senators Snowe, Dorgan, and Inouye would provide a strong, interim assurance that the Internet will remain a vibrant driver of and tool for innovation. 

86 

6 Implementation of the Local Competition Provisions in the Telecommunications Act of 1996; 

Interconnection between Local Exchange Carriers and Commercial Mobile Radio Service Providers, First Report and Order, 11 FCC Rcd. 15499, 16037, 16044 (1996) (‘‘Local Competition 

Order’’) (CMRS carriers complain ‘‘that they are unable to negotiate interconnection arrangements based on mutual or reciprocal compensation because of incumbent LEC bargaining 

power;’’ ‘‘the problem of achieving mutual compensation is further compounded because incumbent LECs not only charge rates that bear no relationship to their costs, but also refuse to compensate CMRS providers for termination of landline-originated calls;’’ ‘‘incumbent LECs even 

charge CMRS providers for terminating incumbent LEC-originated calls;’’ ‘‘we conclude that, in 

many cases, incumbent LECs appear to have imposed arrangements that provide little or no 

compensation for calls terminated on wireless networks, and in some cases imposed charges for 

traffic originated on CMRS providers’ networks.’’) 

III. Empower Consumers Through Stand-Alone Broadband 

Another provision of the Snowe-Dorgan-Inouye bill that I commend for inclusion 

in S. 2686 is the provision on stand-alone broadband. As the Committee is well 

aware, in many instances, consumers who want to purchase DSL service must also 

purchase voice telephone service. Those types of requirements frustrate consumer 

choice by precluding consumers from buying DSL service from a BITS provider, 

while using another provider’s VoIP service in lieu of the BITS provider’s traditional 

circuit-switched (or VoIP) voice service. 

There is no reason to permit this type of gamesmanship that blocks consumer 

freedom to choose. Cable companies, by and large, already permit their customers 

to buy broadband Internet access without buying video services. As conditions of 

their mega-mergers, the Nation’s two largest ILEC BITS providers, Verizon and 

SBC, have committed—for two years—to offer such stand-alone or ‘‘naked’’ DSL 

services to 80 percent of their customers. Qwest has said that it will offer standalone Internet access services. 

This consumer freedom should not be temporary, and should extend beyond the 

two years pledged by AT&T and Verizon as part of their recent merger approvals. 

All consumers should be given the freedom to choose the service that best meets 

their needs, unfettered by tying arrangements designed to protect legacy businesses. 

IV. Interconnection and a Rationalized Interprovider Compensation 

System Are Critical for VoIP and Universal Service 

One other set of provisions that are critical to delivering on the bill’s promise of 

consumer choice are its provisions regarding the interconnection rights of VoIP providers, and the attendant Universal Service, and intercarrier compensation obligations of VoIP providers. Today’s system doesn’t serve competition or Universal Service well, with regulatory uncertainty plaguing all industry participants. 

This Committee is well aware how critical interconnection, as well as access to 

numbers, number portability, and fair interprovider compensation arrangements, 

are to allowing consumers to have real choice and benefits from VoIP competition. 

Again, for evidence of why this is necessary we need look no further than our collective experience with wireless. Over the past ten years, we have seen an explosive 

growth in wireless services. In 1994, there were fewer than 20 million wireless subscribers; today, there are over 200 million—a more than ten-fold increase. 

Prior to the 1996 Act, wireless faced extremely unbalanced terms when it exchanged traffic with incumbent local telephone companies. In some cases, wireless 

carriers paid the incumbent telephone company for every minute of traffic that the 

wireless carrier received from the incumbent LEC, and it also paid the incumbent 

LEC for every minute of traffic that originated from a wireless customer but terminated to a telephone number on the traditional public-switched network.6 These arrangements were hardly surprising. In 1996, wireless carriers were much smaller 

than the incumbent LECs, and had many fewer subscribers. Few incumbent LEC 

subscribers would therefore be inconvenienced if they were unable to call out to, or 

receive calls from, a wireless customer. However, the wireless carriers were dependent upon the incumbent LECs to handle all but the then very small fraction of calls 

placed between wireless consumers. The incumbent LECs were thereby able to use 

their market power over interconnection to extract fees from wireless carriers, regardless of whether traffic originated from the incumbent LEC’s wireline customer, 

or from the wireless carrier’s customer. From the ILEC’s perspective, it was able 

to insist on ‘‘heads I win, tails you lose’’ compensation for traffic exchange. This allowed the incumbent LECs to raise wireless carriers’ costs, thus inflating the prices 

that wireless carriers had to charge to their customers, and, thereby, limiting wireless carriers’ competition with landline services. 

The 1996 Act changed all of that. Under the 1996 Act, for all local calls, an incumbent LEC could charge a wireless carrier (or, for that matter, a CLEC) for traffic 

that the wireless carrier originated, but could no longer charge a wireless carrier 

87 

7Technically, the 1996 Act’s reciprocal compensation rules apply to all traffic that is not interstate or intrastate exchange access, information access or exchange services for such access. See 

47 CFR 51.701. 

for traffic that originated from an incumbent LEC’s own customer.7 Moreover, under 

the 1996 Act, the wireless carrier is entitled to compensation for all local traffic that 

originates on the ILEC’s network and terminates on the wireless carrier’s network: 

the rate the ILEC pays the wireless carrier mirrors the rate that it charges the 

wireless carrier. Furthermore, the FCC ruled that reciprocal compensation rules, 

and not intrastate and interstate access charges, would apply to all CMRS traffic 

that originated or terminated within a ‘‘Major Trading Area,’’ a large region used 

for PCS licensing that was much larger than traditional ILEC local calling areas. 

There were two significant results from these changes with respect to wireless 

intercarrier compensation. First, incumbent local telephone companies could no 

longer use traffic exchange fees to increase a wireless carrier’s costs, and thus prevent a wireless carrier from offering prices that would compete with the incumbent 

local telephone company’s core services. By making these charges cost-based and 

symmetrical, all carriers were required to compete. Second, because the traffic exchange fees that wireless carriers paid were no longer strictly tied to ILEC traditional wireline local calling areas, wireless carriers were able to offer regionwide 

and national calling plans. This led directly to the emergence of today’s popular 

wireless one-rate bucket pricing plans. 

We urge that S. 2686 fully incorporate the core teachings of the wireless experience and applies those lessons to broadband and VoIP. Like pre-1996 wireless carriers, VoIP providers will be very small relative to the incumbent LECs, and will 

have a much greater need both to receive calls from, and terminate calls to the 

ILEC’s customers than the ILEC will need to do with respect to the VoIP provider’s 

customers. This asymmetric market power is exactly what led to the asymmetric 

charges between incumbent LECs and wireless carriers prior to 1996. Should the 

large incumbent telephone companies be able to impose those unbalanced, asymmetric charges far above cost-based levels, the incumbents will be able to squeeze 

VoIP out of competition for mainstream consumers, and relegate VoIP to a niche— 

much as wireless occupied only a niche prior to 1996. 

Accordingly, S. 2686 should, as the original draft did, give all VoIP providers, not 

just ‘‘facilities-based’’ VoIP providers the rights to obtain telephone numbers, to port 

numbers, and to interconnect with the local telephone network. If ‘‘facilities-based’’ 

is defined too narrowly, a provider such as EarthLink, which purchases wholesale 

DSL from both CLECs and ILECs to offer its services, could be denied interconnection, telephone numbers and number portability simply because it doesn’t physically 

own, or provision, its last-mile transmission facilities. Provisioning the ‘‘last-mile’’ 

shouldn’t be the test for interconnection, number portability, or access to numbers, 

so long as the VoIP provider is operationally present—itself or through an agent— 

in the area in which it wants to exchange traffic with the legacy telephone network. 

In our view, the changes made by the June 9 staff draft, head in the wrong direction. 

Second, EarthLink recognizes the critical importance of Universal Service, and 

stands ready, as a VoIP provider, to contribute to the Federal Universal Service 

mechanisms. As an ISP, CLEC, and VoIP provider, EarthLink today pays both directly and indirectly to support Universal Service. The Committee is properly considering how that Universal Service payment mechanism can be improved and 

broadened. 

We embrace our duty to support Universal Service: Universal Service ties our 

country together, and brings economic and educational opportunity to all corners of 

our country. As the staff draft correctly recognizes, a cornerstone of any mechanism 

must be that whatever mechanisms it authorizes the FCC to adopt are competitively 

neutral, and do not require us to engage in complex legal exercises to determine 

whether a particular dollar of customer revenue is subject to, or outside of, Universal Service assessment. Today’s mechanisms are flawed in both respects. We also 

urge that if the bill is going to permit states to assess Universal Service fees, as 

the staff draft does, that those fees not extend more broadly than to the services 

covered by the Federal mechanism, and that there be some limits on the magnitude 

of those State fees. 

Third, while we do not object to the idea, as the staff draft contemplates, that providers should pay each other fair interprovider compensation, we are concerned that 

neither S. 2686, nor the staff draft empower or direct the FCC to make sure the 

interprovider compensation system is fair, rational, and economically sustainable as 

a precondition of those obligations. The current intercarrier compensation system on 

the public-switched network is universally recognized to be Byzantine, economically 

88 

irrational, and broken. Today’s system imposes different charges for the same use 

of the network depending of whether a call is ‘‘local,’’ interstate ‘‘long distance,’’ or 

intrastate ‘‘long distance,’’ whether it is a wireline call or a wireless call, and whether it is an information service or a telecommunications service. Unless S. 2686 addresses this issue head-on, it will leave a gaping hole that will ultimately defeat all 

of the bill’s goals, including consumer choice, broadband deployment, and the preservation of Universal Service. Accordingly, the Committee should adopt the provisions 

of the minority staff draft that both give the FCC the authority to address interprovider compensation issues, and require the FCC to take action to reform the current 

system within 180 days. 

Before I close, I leave you with a note of caution on a topic not addressed by the 

S. 2686 or the staff draft—forbearance under Section 10 of the Communication Act. 

The FCC has taken an extremely expansive view of its forbearance authority, and 

without necessarily requiring that a competitive marketplace be supplying what regulation was assuring. So, for example, the FCC has consistently cut back on the 

scope of Section 251(c)’s unbundling requirements, going so far as to forbear from 

Section 251(c) entirely with respect to unbundled loops in Omaha, Nebraska. The 

FCC did so because a competitive, wholesale market for loops had developed (in 

which case forbearance would make sense), but because the cable company—which 

didn’t use unbundled loops—was able to serve residential customers over its cable 

plant. And perhaps even more troubling, the FCC recently allowed a forbearance petition to be granted by inaction. In other words, the FCC simply let a private party 

assume the FCC’s delegated rulemaking authority by refusing to act. This raises 

very troubling and serious constitutional issues—most notably whether an administrative agency can, through inaction, allow a private party to rewrite the laws without any affirmative governmental action, let alone action by the Congress and a signature of the President. 

On behalf of EarthLink, I thank the Committee for the opportunity to present 

these views. The staff has done yeoman’s work, and presented you with a thoughtful 

starting point for further legislative efforts. By continuing to promote additional 

broadband competition, and by preserving the Internet’s essential character as a 

place that fosters economic innovation without duopoly control, the Committee can 

craft a truly pro-consumer, pro-innovation legislative framework for broadband services. 

The CHAIRMAN. Thank you very much. 

The next witness is Steve Largent, the President and Chief Executive Officer of CTIA—The Wireless Association, in Washington. 

STATEMENT OF HON. STEVE LARGENT, PRESIDENT/CHIEF 

EXECUTIVE OFFICER, CTIA—THE WIRELESS ASSOCIATION

Mr. LARGENT. Chairman Stevens and Co-Chairman Inouye, and 

members of this Committee—thank you for, yet again, another opportunity to testify before the Committee, to offer the wireless industry’s views on the Communications, Consumer’s Choice, and 

Broadband Deployment Act of 2006. 

Over the course of the last year, I have closely followed the debate and rationale as to why Congress needs to update our national 

communications laws, which has led us to this point today. The 

purpose is simple: create a national deregulatory framework, induce competition, spur innovation, and lower customer prices. Ironically, while Congress is working to increase competition and innovation in other telecom sectors, vis-a`-vis a national framework, 

State legislatures and PUCs throughout this country are working 

hard to impose disparate and conflicting State-by-State regulations 

on the industry I represent. I have listed just a few of these proposed State regulations in my written testimony. 

I guess it would be somewhat understandable if there were only 

one or two carriers to choose from, or prices had gone up, or consumer complaints were on the rise, or there was a lack of handsets 

that were offered, or a lack of innovation. But none of those things 

89 

I’ve just mentioned are the case. In point of fact, the opposite is 

true. Americans have come to rely on, and enjoy, the ability to communicate anyplace, anytime that wireless affords. CTIA and our 

member companies have been working with this Committee to reinforce the national deregulatory framework Congress created in 

1993. I would hope that Members of this Committee would carefully consider and support the merits of such a proposal. 

Regarding the issue of net neutrality, the wireless industry has 

seen no evidence that there is a problem that needs to be resolved, 

or would be solved, by prescriptive regulations. CTIA believes the 

Internet has derived its strength by virtue of its freedom from regulation; and, therefore, believes the net neutrality provisions contained in this legislation are the appropriate approach to take. 

Finally, as I stated at a hearing a couple of weeks ago, when it 

comes to USF reform, the promotion of wireless voice and 

broadband service is a solution, not the problem. Since 1997, of the 

$22 billion spent on high-cost Universal Service subsidies, $20.9 

billion has gone to incumbent LECs, while only $1.1 billion has 

gone to wireless ETCs. This year, wireless carriers—more accurately, wireless customers—will pay over 2-and-a-half billion dollars into the Universal Service Fund. It is CTIA’s belief that if 

wireless customers are going to chip in, to the tune of 2-and-a-half 

billion dollars, they deserve a better return on their investment 

than what they are currently receiving. 

In summary, I would ask the Committee to support strengthening the wireless industry’s national framework, refrain from imposing anticipatory and prescriptive net neutrality regulations, and 

take into account that the current Universal Service system does 

not reflect current market realities. Consumers never benefit from 

regulations that distort the competitive market. CTIA’s USF reform proposals demand accountability and results from all fund recipients. 

Again, thank you, Mr. Chairman, for the opportunity to offer 

some additional views, and I’ll be happy to elaborate further on any 

questions you may have. 

[The prepared statement of Mr. Largent follows:] 

PREPARED STATEMENT OF HON. STEVE LARGENT, PRESIDENT/CHIEF EXECUTIVE

OFFICER, CTIA—THE WIRELESS ASSOCIATION

Chairman Stevens, Co-Chairman Inouye, and members of the Committee, thank 

you for the opportunity to appear before you this morning to discuss issues relating 

to the future of U.S. telecommunications law. As you determine the most appropriate ways to spur competition and innovation in the telecom sectors while simultaneously protecting consumers, I encourage you to take steps to further the positive 

impact that the wireless industry has had on the U.S. economy, and on the level 

of competition for voice and data services. The wireless sector is repeatedly touted 

as the model of an industry that has flourished in a national deregulatory framework, and it is becoming apparent that this Congress is attempting to deliver a 

similar national framework to other telecom sectors. Ironically, while Congress is 

working to increase competition and innovation for other sectors via a national 

framework, regulatory bodies at the State level are attempting to take wireless far 

back into the 20th century by imposing disparate and burdensome State-by-State 

restrictions. The innovative national approach applied to the wireless industry in 

the 1993 Budget Act has proven its incredible value and is one which recognizes 

that the consumer is the best regulator. 

90 

The Consumer is the Best Regulator in a Competitive Market 

In 1993, Congress passed The Omnibus Budget Reconciliation Act of 1993 (OBRA 

1993), which added a new section 332(c) to the Communications Act preempting 

state rate and entry regulation. Congress recognized that pre-OBRA state regulations actually operated to slow down competition, delay entry, and minimize or prevent carriers from developing new and innovative rate plans. Section 332(c)(3) preempted State and local rate and entry regulation of wireless carriers, but preserved 

State authority over undefined ‘‘other terms and conditions’’ of commercial mobile 

radio services. State commissions have asserted this ‘‘other terms and conditions’’ 

authority as the basis for an increasingly broad range of regulation. 

State legislatures and commissions are increasingly introducing and passing an 

array of conflicting laws and regulations. Just last week, a bill was introduced in 

the Michigan Senate that requires a mandatory trial period extending well beyond 

the time the customer receives his first bill that limits early termination fees to $20, 

and requires the Michigan Public Service Commission to establish service quality 

standards for wireless service. Simultaneously, the New York Assembly is currently 

considering a bill that would require its Consumer Protection Board to adopt a different set of new rules and regulations on wireless carriers requiring a different 

trial period. In addition, the New York Assembly is considering what written materials have to be provided to customers when, as well as at what time within a contract period, carriers can make changes to their rates. Surely, Congress did not intend for Michigan wireless subscribers to have service under one set of rules while 

New Yorkers have service under a completely different set. 

A review of the results of this ground-breaking deregulatory framework have been 

astounding and altogether unique as compared to other telecom sectors. In 1993, 

states were preempted from regulating entry. As a result, the wireless industry has 

gone from two wireless carriers per market to an average of five per market. States 

were preempted from regulating rates. Competition and market forces have caused 

the average price per minute to fall about 84 percent. There were 11 million wireless customers in the United States when OBRA was passed, now there are 219 million customers. These customers have the ability to pick among carriers for better 

service quality, different plans, and unique offerings. The lightly regulated wireless 

industry has invested $187.8 billion in capital expenditure since the OBRA was 

passed—not including the billions of dollars spent purchasing spectrum. Where once 

a limited number of people had an expensive voice only option, consumers now have 

access to voice, text messages, office systems, e-mail access, mobile television, web 

access, games, and other entertainment options. 

Opponents to the continued, national, light-touch regulation Congress put in place 

in 1993 claim they are trying to protect wireless consumers. Here is the pivotal 

question you need to be asking—protect wireless consumers from what? Lower 

prices? More providers to choose from? More choices among rate plans? Innovative 

new devices with features like camera phones or that are sleekly designed? Multiple 

billing options, from rollover minutes to text message billing? Clarity on bills about 

what the charges are for? Cheaper devices? 

Let me be clear, the wireless industry supports consumer protection: protections 

against confusion about what consumers can expect from their provider and how 

their service operates; protection from a decline in the variety of services and devices they can choose from; protection from the reduction in their ability to obtain 

the exact device and service plan they want; and the lack of ability to receive the 

best services and devices. 

State-by-State, wireless specific laws and regulations over issues such as the size 

of the font of marketing materials, and how long of a trial period consumers have 

to test their phone undermine the national, deregulatory framework Congress instituted in 1993 and that produced the enormous consumer benefits I outlined earlier. 

I respectfully ask you again—what is the problem more laws and regulations would 

solve for the wireless consumer? We often hear that State-by-State laws and regulations are necessary so that wireless consumers have somewhere to go, close to home, 

to have their concerns addressed. We agree that wireless consumers need recourse 

to address whatever issues they have. And they do! State attorneys general have 

and will continue to have authority to prosecute fraudulent business practices—and 

they exercise their authority. 

There are many forums for wireless consumers to address and resolve their concerns at both the State and Federal levels. The FCC’s tracking of quarterly complaints shows that wireless complaints have fallen 37 percent over the last year, 

and now stand at 22 complaints per million wireless customers—that’s an incredibly 

low complaint ratio that continues to improve as carriers expend significant resources to address consumer issues. But what about those wireless consumer concerns. The wireless industry does not turn a deaf ear to them. It is the foundation 

91 

of our business model to attract and keep customers. Some industry critics would 

have you believe that we actually try to annoy our customers and drive them away. 

Nothing could be further from the truth. Wireless companies take customer service 

very seriously, spending millions of dollars a year on training personnel and upgrading their call center capabilities. 

Wireless carriers are also spending millions of dollars a year on behalf of wireless 

consumers by opposing excessive and discriminatory taxes imposed by State and 

local governments. Wireless consumers are bearing the brunt of budget shortfalls 

as cities and localities view the telecom consumer as the golden goose for revenue 

enhancement. Ironically, some of the states that are the most aggressive in pushing 

for regulation on wireless carriers in the name of the consumer, are also the states 

with the highest rates of taxes and fees on their constituents. 

As we enter our third decade, the wireless industry is poised to enter a wireless 

renaissance, bringing advanced services like wireless Internet, to more than 200 

million mobile Americans. We are at a critical juncture in our evolution, and need 

your leadership to make this renaissance a reality for consumers at prices they can 

afford. Shoring up the national, deregulatory framework you created in 1993, is the 

best way to empower consumers and protect their rights and access to innovative, 

convenient, and affordable wireless devices and services. How to do this? Reaffirm 

the national framework for wireless carrier practices, and allow the FCC to regulate 

only in instances necessary for public health and safety, or demonstrated market 

failure. 

Wireless Perspective on Regulating the Internet 

Recently, a concept called ‘‘net neutrality’’ has generated intense debate within 

the context of broader reforms of our telecommunications laws. The issues are complex and confusing. It appears the only thing everyone agrees on is that no one can 

agree on what net neutrality means. The wireless industry has seen zero evidence 

that there is a problem that needs to be, or would be, solved through the variety 

of net neutrality legislative proposals currently circulating. The industry agrees 

with FCC Chairman Martin that the Commission already has the jurisdiction and 

ability to address any problems in this area, and urges you to carefully consider the 

unintended, negative consequences that could befall the U.S. wireless consumer if 

anticipatory regulations are enacted. The Internet, like the wireless industry, has 

never stopped growing and evolving. There is no reason to restrict the growth or 

evolution of either, unless, or until, a real marketplace failure is identified. 

In particular, the wireless industry is quite concerned that many of the unintended consequences that would flow from some of the net neutrality regulations 

being considered would have a particularly negative impact on wireless consumers. 

The industry is also troubled that the proposed net neutrality regulations being contemplated will discourage investment the industry needs to continue building the 

infrastructure, design the devices and operate the evolving networks needed to 

make a wireless renaissance a reality, and sustain consumer demand for more advanced mobile services. CTIA believes the Internet has derived its strength, and 

contributed to the economy, by virtue of its freedom from regulation, and, therefore, 

believes the net neutrality provisions of the Communications, Consumer’s Choice, 

and Broadband Deployment Act of 2006, which calls for a review of the current system, in lieu of regulation, is the appropriate approach to take. 

Universal Service Reform for the Wireless Consumer 

Let me turn now to the urgent need for Universal Service reform. Over the last 

decade, wireless industry contributions to Universal Service have been steadily rising, while Universal Service distributions remain primarily directed to wireline carriers. Wireless carriers and their customers are responsible for about one-third of 

contributions to Universal Service. The wireless industry’s payment into the Federal 

Universal Service programs will likely exceed $2.5 billion this year. Meanwhile, the 

vast majority of Universal Service subsidies are directed to our competitors— 

wireline carriers. Wireless carriers receive only about 13 percent of Universal Service support overall and less than 20 percent of high-cost Universal Service support. 

Since 1997, of the $22 billion spent on high-cost Universal Service subsidies, $20.9 

billion has gone to incumbent LECs, and only $1.1 billion has gone to wireless carriers. This inequity exists even as consumers—the only intended beneficiaries of 

Universal Service—are demanding more and more wireless services. In fact, there 

are now more mobile wireless subscribers than wireline switched-access lines. 

The wireless industry shares Congress’s commitment to the goals of Universal 

Service and its concerns about growth in the size of the Universal Service Fund. 

Wireless carriers are committed to the efficient deployment of networks in rural 

America, and Universal Service can play an important part in making that happen. 

92 

Because of our net payer position, the wireless industry has strong incentives to ensure that Universal Service contributions are collected from as wide a base of contributors as possible, while ensuring that both incumbent and competitive eligible 

telecommunications carriers (ETCs) receive no more support than is necessary to 

achieve the goals of Universal Service. On the contribution side, CTIA supports 

adoption of a numbers- or connections-based contribution methodology. On the distribution side, CTIA supports market-driven reforms to curb demand for Universal 

Service subsidies. The current Universal Service system does not reflect current 

market realities. It favors incumbent wireline networks and that does not help consumers. Consumers never benefit from regulations that distort the competitive market. In contrast to the current Universal Service mechanisms, CTIA’s reform proposals would demand accountability and results from all Fund recipients, and would 

encourage and reward efficiency. Under CTIA’s proposals, both incumbents and 

competitors would receive less support. 

As this Committee works to update our Nation’s telecommunications laws, please 

consider the tremendous positive impact that the wireless industry has had on the 

ability of consumers to communicate, on the U.S. economy, and on the competitive 

landscape. 

The CHAIRMAN. Thank you. 

The next witness is Philip Jones, Commissioner of Washington 

Utilities and Transportation Commission, the WUTC, of Olympia, 

Washington. 

STATEMENT OF HON. PHILIP JONES, COMMISSIONER, 

WASHINGTON UTILITIES AND TRANSPORTATION COMMISSION 

(WUTC); ON BEHALF OF NATIONAL ASSOCIATION OF 

REGULATORY UTILITY COMMISSIONERS (NARUC) 

Mr. JONES. Thank you, Mr. Chairman, and Co-Chairman Inouye. 

I am Philip Jones, Commissioner with the Washington Utilities 

and Transportation Commission, a resident of Seattle, Washington, 

and a member of the National Association of Regulatory Utility 

Commissioners, which you know as NARUC. I serve as Chairman 

of NARUC’s Federal Legislative Subcommittee on Telecommunications in our efforts in this bill, and I’m also a member of the 

Intercarrier Compensation Task Force, Chairman Stevens, which 

we have visited with you before. 

We commend you and your staff on the great efforts you’ve made 

in the manager’s amendment that was released last Friday night. 

We’ve scrambled hard to develop testimony to respond to it. And 

just let me offer a few comments today, especially after Mr. 

Largent addressed some of the comments on the role of State PUCs 

for wireless communication. 

NARUC’s approach changed quite a bit when we released our 

white paper in July 2005, what we call ‘‘Cooperative Federalism.’’ 

We undertook a dialogue with the stakeholders in the communications industry to ensure that as the industry changes—wireless, 

VoIP, triple-play broadband bundles, and also the mega-mergers— 

that we have a better paradigm at the State level for dealing with 

regulation. 

The first principle is technology, neutrality. We are trying to 

come up with a regulatory approach that establishes that any regulations that we developed are technology-neutral. The other is the 

concept, instead of end-to-end point, interstate-intrastate—what is 

inter and what is intra? What is long distance, what is local?—develop a ‘‘functional federalism’’ approach. In that model, we believe 

that the States excel in areas like consumer protection, efficiently 

resolving intercarrier disputes, ensuring public safety, such as E– 

93 

911, and assessing the level of competition in local markets, and 

tailoring national Universal Service to those goals, specific to the 

State. 

This is actually not a new model. For the past several years, 

wireless carriers have been governed by Section 332—specifically, 

332(c) of the Act, which does not—I emphasize ‘‘not’’—declare wireless to be interstate or intrastate, but, rather, assigns appropriate 

functions to State and Federal authorities. It assigns spectrum 

management functions to the FCC, includes a rebuttable presumption of competitiveness for wireless carriers, and allows States to 

handle—States to handle—consumer protection and other terms 

and conditions of service. Wireless carriers are also able to avail 

themselves of State arbitration procedures for interconnection to 

the wireline phone network, what Mr. Putala, of EarthLink, mentioned. We think this is a model of successful federalism that 

shouldn’t be tampered with. 

Three areas I’d like to address: the first is consumer protection. 

We are pleased to see that the manager’s amendment and the 

Inouye staff draft—neither of those seek to pare back the role of 

State commissions in consumer protection. We think this is appropriate. Under current law, State commissions handle—hundreds of 

thousands of complaints every year. And we generally provide individual relief to each complaint, often resolving complaints in a matter of weeks, or even days, as opposed to the FCC complaint process. 

We are concerned, and raise the issue today, because the wireless 

industry, in particular—and my colleague to the right, my good 

friend, Steve Largent—has launched an aggressive lobbying effort 

to create a technology-specific preemption standard for their telecommunication services. From our point of view, it makes little 

sense to eliminate scores of consumer protections at the State level 

on the basis of that technology. And I should add that States are 

actively involved in issues like ETC designations, in which the 

wireless companies receive a good deal of Federal revenue to provide service to high-cost areas, and we deal with the wireless carriers in a positive way, generally. 

Interconnection, Section 213 of your manager’s amendment, is a 

good step forward in applying the rights and obligations of interconnection to VoIP providers. We support that provision. Going forward, it is our hope that stakeholders participating in NARUC’s 

ICC—our Intercarrier Compensation Task force—will make a recommendation to the FCC soon, probably in the month of July, 

about particular ways to rationalize the intercarrier compensation 

payment structure—not the provisions in your bill, but the payment structure. 

On Universal Service, we appreciate the effort to broaden the 

base. Mr. Chairman, you consistently use the word ‘‘communications services.’’ We appreciate that you have broadened the base on 

USF to all communications services, including broadband. In particular, we appreciate your focus in the manager’s amendment on 

allowing States to assess on either revenues or bandwidth or on 

working telephone numbers for the State USF programs that do 

exist. It’s important to note that 22 State programs exist today. 

These States are providing useful functions in service to high-cost 

94 

areas, and we would like to ensure, as the process moves forward, 

that these provisions are protected. 

On video franchising, I—NARUC has not taken a formal position 

on video franchising, and I would just note that several States— 

South Carolina, New Jersey, California, Indiana and others have 

acted in the past few months to adopt State legislative approaches 

to video franchising, and that is something that we would urge the 

Committee to address in the deliberations ahead. We have noted, 

with pleasure, in the latest staff draft, that the State PUCs are no 

longer being asked to referee or arbitrate on definition of gross receipts. However, you have given us some new obligations on redlining and enforcing redlining provisions. These are so new to us, 

and based on the fact that so many States have so many different 

approaches, we are caucusing our States on an urgent basis now 

to see what they think of that provision, and will get back to you 

and your staff as soon as possible. 

Thank you. 

[The prepared statement of Mr. Jones follows:] 

PREPARED STATEMENT OF HON. PHILIP JONES, COMMISSIONER, WASHINGTON

UTILITIES AND TRANSPORTATION COMMISSION; ON BEHALF OF NATIONAL

ASSOCIATION OF REGULATORY UTILITY COMMISSIONERS (NARUC) 

Mr. Chairman, Co-Chairman Inouye, and members of the Committee, thank you 

for the opportunity to testify today on S. 2686, the Communications, Consumer’s 

Choice, and Broadband Deployment Act of 2006. 

I am Philip Jones, Commissioner with the Washington Utilities and Transportation Commission (WUTC) and a member of the National Association of Regulatory 

Utility Commissioners (NARUC). I serve as Chairman of NARUC’s Federal Legislative Subcommittee on Telecommunications and as a member of the Association’s 

Intercarrier Compensation Task Force. NARUC represents State public utility commissions in all 50 states, the District of Columbia, and U.S. territories, with jurisdiction over telecommunications, electricity, natural gas, water and other utilities. 

We commend you and your staff, as well as Co-Chairman Inouye, and other Committee Members, for getting us to where we are today. While there is still much to 

be done, we appreciate your hard work and especially your responsiveness to the 

specific concerns we have raised along the way. 

NARUC’s Approach to Federalism 

NARUC’s analysis of the recently released manager’s amendment to S. 2686 and 

the other bills before this Committee is guided by our ‘‘Federalism and Telecom’’ 

white paper that we approved in July 2005, after an extensive dialogue among ourselves and with stakeholders, examining every Federal policy position we had taken 

since the passage of the Telecommunications Act of 1996. 

We undertook this dialogue to be sure that, as Congress reexamined the Act, our 

policy positions reflected the impact of all the new technologies and market developments in recent years, including the emergence of Voice-Over-Internet-Protocol 

(VoIP), triple-play broadband bundles, mega-mergers, and the tremendous growth of 

wireless telephony—and all the associated challenges to traditional Federal and 

State oversight roles. In the end, we came to two important conclusions. 

The first was that, with the pace of innovation accelerating, any major bill must 

strive to be as technology neutral as possible. Whenever technological change and 

restructuring sweeps through an industry, there is pressure to give new technologies special status under the law because they don’t appear to fit the ‘‘old’’ regulations. The problem with this approach is that the new services compete directly 

with traditional services, and by creating brand new regulatory silos, you distort the 

market, encouraging regulatory arbitrage instead of true innovation. The better approach, in our view, is to ask how these new technologies change the environment 

for all players, and reexamine the first principles behind the regulations that are 

on the books for everyone. 

The second conclusion was the development of our ‘‘functional federalism’’ concept, 

which is the idea that if Congress is going to rewrite the Telecommunications Act, 

it doesn’t have to be bound by traditional distinctions of ‘‘interstate’’ and ‘‘intraVerDate Nov 24 2008 10:53 May 06, 2011 Jkt 066172 PO 00000 Frm 00098 Fmt 6633 Sfmt 6621 S:\GPO\DOCS\66172.TXT SCOM1 PsN: JACKIE
95 

state,’’ or figure out a way to isolate the intrastate components of each service. Instead, a Federal framework should look to the core competencies of agencies at each 

level of government—State, Federal and local—and allow for regulatory functions on 

the basis of who is properly situated to perform each function most effectively. 

In that model, States excel at responsive consumer protection, efficiently resolving 

intercarrier disputes, ensuring public safety, assessing the level of competition in 

local markets, and tailoring national Universal Service and other goals to the factspecific circumstances of each State. 

This is not actually a new model. For the past several years, wireless carriers 

have been governed under Section 332 of the Act, which does not declare wireless 

to be interstate or intrastate, but rather assigns appropriate functions to State and 

Federal authorities. It assigns spectrum management functions to Federal authorities, includes a rebuttable presumption of competitiveness for wireless carriers, and 

allows States to handle consumer protection and other terms and conditions of service. Wireless carriers are also able to avail themselves of State arbitration procedures for interconnection to the wireline phone network. Under this model, the wireless industry has already eclipsed the traditional phone business in total number 

of subscribers and now has over 200 million subscribers and $118 billion in annual 

revenues—a model of successful federalism at work. 

Consumer Protection 

Neither the manager’s amendment, nor the Inouye draft seeks to pare back the 

role of State commissions in consumer protection, and we think this is appropriate. 

Under current law, State commissions handle hundreds of thousands of consumer 

complaints every year, and generally provide individual relief to each complaint, 

often resolving complaints in a matter of weeks, or even days, through informal 

processes. In addition, we are able to address new and novel concerns as they arise, 

whether they are the result of new fraudulent schemes or unfair terms in 

boilerplate service contracts. 

We are concerned, and raise the issue today because the wireless industry in particular has launched an aggressive lobbying effort to create a technology-specific 

preemption standard for their telecommunications services. From our point of view, 

it makes little sense to eliminate scores of consumer protections at the State level 

solely on the basis of the particular technology used. In the case of wireless, it 

makes even less sense because the industry has prospered so well under the division 

of authority that now exists. And while some have argued that wireless is ‘‘too interstate’’ to face telecom-based State consumer protections, our experience is that the 

carriers have little trouble finding their way to Olympia, or Sacramento, or Anchorage when they are asking for something, such as certification to receive Universal 

Service dollars or interconnection to the wireline networks. 

Most importantly for an industry that is quickly replacing traditional landline 

phone service in many people’s lives, there are legitimate consumer protection 

issues, often associated with selling service via long boilerplate contracts with terms 

of a year or more. Now is probably a good time to let those concerns shake out instead of cutting off avenues of relief for consumers. 

Interconnection 

We appreciate the specific recognition in both the manager’s amendment, and the 

Inouye draft of State commission expertise and effectiveness when it comes to mediating, arbitrating, and enforcing interconnection agreements between carriers. In a 

networked industry like telecom, fierce competitors will always have to cooperate to 

operate a seamless network of networks, but there are frequent incentives for one 

carrier or another to frustrate interconnection for anti-competitive reasons. State 

commissions are generally recognized as the fastest, most effective forum for resolving interconnection disputes. 

It makes particular sense to extend the right of interconnection to VoIP providers, 

so long as they are willing to undertake the responsibilities of providing a telecommunications service, such as paying appropriate intercarrier compensation, and 

making equitable contributions to Universal Service. By the same token, we support 

the provisions in the Inouye staff draft clarifying that deployment of IP infrastructure does not free a provider of the duty to interconnect. 

Going forward, it is our hope that the stakeholders participating in NARUC’s 

Intercarrier Compensation Task Force will make a recommendation to the FCC soon 

about particular ways to rationalize the intercarrier compensation payment structure, and clarify the obligations of all providers in a way that eliminates distortions 

and incentives for arbitrage. 

96 

Universal Service 

One of the most important things the new legislation would do is stabilize the 

contribution base for the Federal Universal Service Fund. Spreading the base broadly to all those services that utilize and benefit from a ubiquitous communications 

infrastructure is a simple question of fairness, and will reduce the opportunities for 

regulatory arbitrage that distort the market. 

We are also pleased that both the Stevens bill and the Inouye staff draft recognize 

the importance of State Universal Service programs. Universal service is a jointly 

shared responsibility between the States and the Federal Government, with 26 

State programs distributing over $1.3 billion—nearly 20 percent of the overall national commitment to Universal Service. This joint approach benefits both ‘‘net 

donor’’ and ‘‘net recipient’’ states because it lessens the burden on an already sizable 

Federal program and permits another option when Federal disbursement formulas 

do not adequately serve a particular state or community. 

State Universal Service funds face the same structural funding challenges as the 

Federal program, with many new services that rely on a ubiquitous network (and 

exchange traffic with the PSTN) failing to contribute equitably to either one. That’s 

why it is good that both manager’s amendment and the Inouye staff draft would 

allow State funds to broaden their contribution bases to include total revenues and 

Voice-Over-Internet-Protocol (VoIP) services. Ultimately, we’d encourage you to 

make the assessment authority for both State and Federal programs co-extensive. 

Committee Members should also know that the NARUC Intercarrier Compensation Task Force, on which I serve, is close to winding up its work. At a previous 

hearing before this Committee, my colleague Ray Baum of the Oregon Public Utilities Commission testified that the impact of intercarrier compensation on the revenue streams of carriers is more than $10 billion. I would only caution you that 

every previous plan to substantially lower access charges, including both the 

‘‘CALLS’’ plans and the ‘‘MAG’’ plan, has involved a combination of retail rate 

changes and increased Universal Service support. So as difficult as it is to address 

funding and distribution issues with USF today, we need to remember that there 

are additional implicit subsidies in the system that will turn into additional stresses 

on the Fund if and when they are made explicit. 

Video Franchising 

While NARUC does not take a formal position on the video franchising provisions 

in the manager’s amendment and other proposals before the Committee, a number 

of State legislatures and commissions have acted under current law to reform and 

streamline their processes. In Texas, Indiana, South Carolina, and Kansas, this has 

meant the creation of statewide franchises awarded by the State commission or another agency. In Virginia and Arizona, it meant a streamlining of the local franchise 

process. 

As a general matter, we want to encourage vigorous competition in the video market and also recognize the important roles that State and local governments should 

play in any framework. To that end, we are currently engaged in a dialogue with 

a number of stakeholders through a Working Group chaired by Commissioner Daryl 

Bassett of Arkansas, and will soon issue a white paper detailing the particular roles 

that NARUC’s members are playing in this area. 

While the manager’s amendment no longer delegates a specific role to State commissions for consumer complaints and calculations of gross revenues, it does designate both State commissions and attorneys general to handle income-based redlining complaints. We are surveying the NARUC members to find out which State 

enabling statutes would allow their commissions to play this role, although at first 

blush it appears that role would be most feasible in the 12 or so States that have 

already vested some level of franchising authority in the State commission. 

E–911 and Emergency Communications 

While it is not addressed in S. 2686, another important component of a technology 

neutral policy is ensuring that VoIP providers are meeting their duty to provide 911 

and E–911 functionality to consumers. States were first to raise this issue back in 

2004 when the New York and Minnesota commissions ordered Vonage Holdings to 

provide emergency dialing services to its customers. While both orders were the subjects of legal challenge, we are pleased to see that in the intervening two years, the 

FCC has acted to require the same functionality, and Congress is not far behind. 

This is also an area where the same State commissions have worked through informal avenues to help VoIP companies gain access to the 911 call center infrastructure, so they could make those capabilities available as early as possible. We are 

continuing to refine our Federal policy positions under the guidance of a Working 

Group chaired by Commissioner Connie Hughes of New Jersey. 

97 

Conclusion 

We look forward to working with Chairman Stevens, Co-Chairman Inouye, and 

all the members of the Committee as you consider additional refinements and 

amendments to S. 2686, and move toward consideration by the full Senate and final 

enactment. Our goal at all times has been to offer ourselves not as traditional advocates with a bottom line to defend, but as resources in each State and partners in 

seeking the best deal for our mutual constituents. 

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

Our last witness, Robert Foosaner—right? 

Mr. FOOSANER. Foosaner, sir. 

The CHAIRMAN.—Foosaner, Vice President of Government Affairs 

and Chief Regulatory Officer for Sprint Nextel, of Reston, Virginia. 

STATEMENT OF ROBERT S. FOOSANER, SENIOR VICE 

PRESIDENT, GOVERNMENT AFFAIRS AND CHIEF REGULATORY 

OFFICER, SPRINT NEXTEL CORPORATION 

Mr. FOOSANER. Chairman Stevens, Co-Chairman Inouye, and 

members of the Committee, my name is Bob Foosaner, and I’m the 

Senior Vice President of Government Affairs, as the Chairman has 

said, at Sprint Nextel. I appreciate being given the opportunity to 

be part of today’s hearing, and I commend you for taking on the 

complex task of reforming communications law. 

Nextel supports the goals of the bill before you today—namely, 

encouraging competition and focusing on the deployment of 

broadband nationwide. We believe the bill would be enhanced by 

addressing the critical need to correct the market failure for special 

access. 

Sprint Nextel is heavily dependent upon the Bell Operating Companies (BOCs) to provide the last-mile connections. In fact, special 

access lines connect all of our sites to our mobile switching centers 

and link our network to the network of other carriers. I believe you 

might be surprised to know that, at 99 percent of our cell sites in 

BOC territories, we find that BOC is our only choice. Sprint Nextel 

is not alone in its dependency on the BOC’s provision of the last 

mile. These other companies include ISPs, cable companies, longdistance carriers, other wireless providers, and nearly every major 

U.S. business. In fact, the Ad Hoc Telecommunications User Committee, an organization of major U.S. businesses, has filed data 

with the FCC showing that the BOCs, in 2005, remain the sole 

source of dedicated access at roughly 95 percent of all business 

premises nationwide, even for the largest corporations. 

Sprint Nextel would very much prefer to have the option of obtaining these dedicated circuits from someone other than the parents of our largest competitors, Cingular and Verizon Wireless. 

Prior to its merger with Sprint, Nextel made a concentrated effort 

to reduce its dependence on wireless in the most competitive market in the Nation—New York City. And we failed. When Nextel 

sought bids for special-access services in the New York metropolitan area, competitors bid to serve fewer than 3 percent of our locations. 

Others have previously raised this issue with you. AT&T and 

MCI, prior to their absorption into the Nation’s two largest BOCs, 

had repeatedly demonstrated there’s a special-access market failure. In 2004, MCI informed the FCC, quote, ‘‘The ILEC’s market 

power over the market for DS1 and DS3 facilities, coupled with the 

98 

Commission’s decision to largely deregulate the pricing of these facilities, has resulted in prices far in excess of the cost. The result 

is that special access has become the ILEC’s ‘‘most profitable line 

of business,’’ from MCI. For example, just last year, AT&T/SBC 

earned a rate-of-return of 92 percent on its special-access charges. 

Bell South earned nearly 98 percent. These returns are not a 1- 

year aberration. Special-access rates-of-return—namely, their aftertax profits—have grown steadily over 5 years. Indeed, SBC’s rateof-return rose by more than 120 percent from 2001 to 2005, and the 

rates-of-return increased by more than 167 percent for Bell South 

and 175 percent for Verizon. Without effective rules or meaningful 

competition, the BOC’s special-access profits are likely to grow at 

an even faster pace—a future in which special access will become 

even more critical, and more capacity will be required to support 

the burgeoning mobile broadband marketplace that this Committee 

is committed to encouraging. 

Congress needs to mandate that the FCC impose the pricing discipline that the marketplace has failed to provide. Let me be clear: 

failure to do so will thwart mobile broadband deployment and competition that we all seek. 

Thank you. I’d appreciate any questions you have to ask. 

[The prepared statement of Mr. Foosaner follows:] 

PREPARED STATEMENT OF ROBERT S. FOOSANER, SENIOR VICE PRESIDENT, 

GOVERNMENT AFFAIRS AND CHIEF REGULATORY OFFICER,SPRINT NEXTEL

CORPORATION

Good Morning Chairman Stevens, Co-Chairman Inouye, and Members of the Committee. I am Bob Foosaner, Senior Vice President of Government Affairs for Sprint 

Nextel Corporation. Thank you for the opportunity to appear before you today to 

discuss S. 2686, the Communications, Consumers’ Choice and Broadband Deployment Act of 2006. I appreciate this opportunity, and I commend you for taking on 

the complex task of reforming our Nation’s communications law. 

In my view, the goals of the bill before you today—encourage competition, the deployment of broadband nationwide and, most importantly, bringing the benefits of 

telecommunications advances to all consumers—would be enhanced if your bill addressed the serious market failure for special access services—a market that is a 

lynchpin to the success of a vibrant, competitive broadband marketplace. 

Today, Sprint Nextel, like many of our Nation’s businesses (including Internet 

service providers, cable companies, long distance carriers, competitive local exchange carriers, and other wireless companies), remains heavily dependent on the 

Bell Operating Companies (BOCs) to provide ‘‘last mile’’ connections known as ‘‘special access services.’’ In fact, Sprint Nextel has identified alternative providers of 

special access services at less than one percent of its cell sites nationwide. In other 

words, in nearly every case the BOC is the only choice for service in their respective 

service territories. Sprint Nextel needs these dedicated circuits to link together different parts of its own network (for example, from our cell sites to our switches) and 

to link its network to the networks of other carriers. Sprint Nextel and other businesses’ reliance on special access services, moreover, will only increase as we need 

more and more capacity between our cell sites and our networks to support the 

transmission of voice, video, and other data over broadband networks. 

Sprint Nextel would very much prefer to have the option of obtaining these dedicated circuits from someone other than the BOCs who, after all, are the parents of 

our largest competitors Cingular and Verizon Wireless. The reality, however, is that 

even ten years after passage of the Telecommunications Act of 1996, the competitive 

availability of special access services, such as DS1 and DS3 services, is woefully limited. In the Boston, Massachusetts metropolitan area, for example, Sprint Nextel 

provides service to its subscribers through a sophisticated wireless network with 

more than 1,500 cellular radio towers and five mobile switching offices. To move our 

traffic from the cell site to our switches, and then ultimately to the public switched 

telephone network, we purchase dedicated DS1 and DS3 circuits that interconnect 

the towers and switches, and link our Boston customers to Sprint Nextel’s national 

99 

1See the Federal Communications Commission, 2004 Telecommunications Industry Revenues, 

released March 2006, at Table 5. 2Other carriers appear to have been similarly unsuccessful in obtaining competitively provided dedicated circuits. (See AT&T Reply Comments, RM–10593 at 12–16 (Jan. 23, 2003); Ad 

Hoc Telecommunications Users Committee Reply Comments, WC Docket No. 05–65, Attachment 

A, ETI Report at pp. 16–22 (May 10, 2005).) In addition, Ad Hoc’s analysis shows that intermodal technologies do not offer competitive alternatives to high- speed special access services. 

Declaration of Susan M. Gately, attached to Ad Hoc Telecommunications Users Committee 

Reply Comments, at ¶¶ 19–25. In fact, it appears to be undisputed that competitive alternatives 

are available only at a ‘‘tiny percentage’’ of commercial buildings. AT&T Reply at p. 13 (stating 

that the BOCs do not dispute the conclusion that competitive alternatives are available only in 

a small number of buildings). 3MCI Comments, WC Docket 04–313, at p. 156 (Oct. 4, 2004). 

and international telecommunications network. Ninety-eight percent of Sprint 

Nextel’s expense for the hundreds of dedicated circuits Sprint Nextel uses in the 

Boston area is paid to Verizon. 

Several other critical markets tell the same story. In Portland, Maine, Sprint 

Nextel has over 100 cell sites, one mobile switching center and approximately 150 

special access pipes connecting those network components. One hundred percent of 

those special access circuits are purchased from Verizon. In Miami, there appears 

to be a little more competition with 88 percent of Sprint Nextel’s expense for 2,800 

special access pipes, connecting over 1,200 cell sites to four mobile switching centers, paid to BellSouth. In Richmond, Virginia, our network of over 400 cell sites 

and one mobile switching center is connected by approximately 900 special access 

connections, with 85 percent of the cost of those connections going to Verizon. The 

Charleston, South Carolina, network is reliant on Bellsouth for 86 percent of its special access, and in San Francisco, we purchase 98 percent of our special access from 

AT&T to connect our 2,000-plus cell sites to six mobile switching centers. 

To provide just one more example that demonstrates the monopoly market Sprint 

Nextel and numerous other businesses face for special access services, look to the 

New York City metropolitan area—an area generally regarded as one of the most 

competitive areas in the Nation. Prior to its merger with Sprint, Nextel made a concerted effort to reduce its dependence on Verizon special access service, and it failed 

utterly. When Nextel sought bids for special access services in the New York metropolitan area, competitors bid to serve fewer than 3 percent of the required locations 

in one of the most competitive geographic markets in the Nation. On a nationwide 

basis, according to an FCC report, wholesale revenues from the sale of special access 

by the BOCs and other incumbent local exchange carriers to Sprint Nextel and 

other carriers amounted to $10.5 billion, while the wholesale revenues generated by 

competing providers amounted to $664 million.1

Sprint Nextel is also heavily reliant on the BOCs’ special access services to serve 

wireline large business customers with sophisticated telecommunications requirements, especially high-capacity data networks. Although many of these customers 

are located in and around the center of urban areas, Sprint Nextel nonetheless has 

had very limited success in securing service from competing providers of dedicated 

circuits, especially in the wake of the BOC acquisitions of AT&T and MCI last year, 

the two companies that had been the leading competitive providers of special access 

service. In Boston, for example, Sprint Nextel currently obtains 90 percent of the 

special access it needs to reach large business customers through Verizon. In Portland, Maine, and Miami, Florida, Sprint Nextel’s special access for wireline service 

is obtained from the BOC 98 percent and 91 percent of the time, respectively. In 

Richmond, Charleston, and San Francisco, those numbers for Sprint Nextel’s special 

access services are 81 percent, 86 percent, and 87 percent, respectively. All of these 

markets are overwhelmingly dominated by the BOC. 

Sprint Nextel is not the only company captive to the BOCs’ special access market 

dominance.2 Other companies—including, notably, AT&T and MCI prior to their absorption into the Nation’s two largest BOCs—have demonstrated repeatedly that 

there is a special access market failure. In 2004, MCI (now Verizon) informed the 

FCC that ‘‘[t]he ILECs’ market power over the market for DS1 and DS3 facilities, 

coupled with the Commission’s decision largely to deregulate the pricing of those facilities, has resulted in prices that are far in excess of cost. The result is that special 

access has become the ILECs’ most profitable line of business,’’ 3 Pre-BOC merger 

AT&T similarly argued for correction of the special access market failure by promoting the very action that many of us have asked be included in your bill. That 

is, AT&T recognized the need for ‘‘reimposing an annual productivity offset (X-Factor) . . . [to] ensure that ratepayers share in the benefits of special access producVerDate Nov 24 2008 10:53 May 06, 2011 Jkt 066172 PO 00000 Frm 00103 Fmt 6633 Sfmt 6621 S:\GPO\DOCS\66172.TXT SCOM1 PsN: JACKIE
100 

4 AT&T Comments, WC Docket 05–25, at p. 5 (June 13, 2005). 

5 Ad Hoc Telecommunications Users Committee Reply Comments, Attachment B, Declaration 

of Susan M. Gately, ¶ 18 (May 10, 2005). 6Such circuits require high-fixed, sunk costs to serve an individual customer location. No firm 

can match the scale economies that the BOCs enjoy in furnishing DS1 special access service, 

since they alone had the opportunity to construct a ubiquitous local network over a period of 

decades, while protected against competition. In the Matter of Unbundled Access to Network Elements Review of the Section 251 Unbundling Obligations of Incumbent Local Exchange Carriers, 

WC Docket No. 04–313, CC Docket No. 01–338, Order on Remand, at ¶ 166 (rel. Feb. 4, 2005). 7 AT&T Reply Comments, RM–10593 at 11 (Jan. 23, 2003) (emphasis in original). 

8See, e.g., Competition in Access Markets: Reality or Illusion, A Proposal for Regulating Uncertain Markets at pp. 22–24 (ETI Aug. 2004) (‘‘ETI Report’’), attached to Ex Parte Letter from 

Colleen Boothby, counsel for Ad Hoc Telecommunications Users Committee, to Marlene H. 

Dortch, FCC, RM No. 10593 (Aug. 26, 2004). 9MCI Comments, WC Docket 04–313, at p. 157–58 (Oct. 4, 2004). 

10These returns are computed from data the BOCs filed with the FCC in their annual ARMIS 

43–01 reports. 11 Id. 12 Id. 13See ETI Report at 33–34 (noting that the net investment allocated to the special access category is ‘‘completely disproportionate’’ to the number of special access loops as a percentage of 

loops in service, raising ‘‘suspicions that costs are being over-allocated to the special access category.’’) (emphasis in the original); Gately Declaration ¶ 12. 

tivity gains, as the Commission originally intended.’’ 4 Finally, the Ad Hoc Telecommunications Users Committee, an organization of major U.S. businesses, also 

has filed data with the FCC showing that the BOCs, in 2005, remained the sole 

source of dedicated access at roughly 98 percent of all business premises nationwide, 

even for the largest corporate users.5

Will competition develop and correct this market failure? Unfortunately, that is 

not likely. As the FCC itself has noted, the competitive deployment of stand-alone 

DS1 circuits connecting two points—for just one carrier’s traffic—is rarely if ever 

an economic possibility.6 Competitive carriers simply cannot establish a business 

case to lay a DS1 circuit out to a Sprint Nextel cell site, given the high- fixed, sunk 

costs incurred to construct that circuit. Prior to its merger with SBC, AT&T echoed 

this predicament, stating that it and other special access purchasers ‘‘generally have 

no alternative suppliers for the bread and butter DS-level services.’’ 7 Thus, for carriers like Sprint Nextel that rely heavily on those circuits, the prospects for obtaining service from competing providers are practically non-existent. In the case of 

wireless carriers in particular, the possibility of a competitive market for these circuits is even more doubtful, because, for zoning and other reasons, cell sites frequently are located in out-of-the way locations, such as along roadsides or atop surrounding hills. In the Boston metropolitan area, for example, 75 percent of Sprint 

Nextel’s cellular radio towers are located outside of the core urban area, in the areas 

least likely to attract competitive offerings. Furthermore, alternative technologies, 

such as fixed wireless or a cable-provided circuit, rarely meet Sprint Nextel’s service 

requirements.8

Despite the lack of competition for special access, even in places like metropolitan 

New York, the FCC deregulated the rates for these last mile special access circuits 

in many metropolitan areas around the country. 

The result of deregulation in the face of a market failure has been predictable 

(and, frankly, perfectly rational from the BOC’s point of view): astounding rates of 

return and, as a result, harm to the promise of wireless, mobile broadband. Premerger MCI noted to the FCC that between 1996 and 2003, the BOCs, ‘‘as a group 

enjoyed an almost six-fold increase in the rate-of-return for interstate special access 

(from 7.6 percent to 43.7 percent), with three BOCs reaping returns in excess of 60 

percent in 2003.’’ 9 The most recent data that the BOCs themselves have filed with 

the FCC show that they have continued to earn exorbitant profits from special access. For example, just last year AT&T/SBC earned a rate-of-return of 92 percent 

on its special access services; BellSouth earned nearly 98 percent.10 Even Verizon, 

which historically has lagged behind the other BOCs, reported a return of 42 percent.11

These returns are not a one-year aberration—special access rates of return (or, 

their after-tax profits) have grown steadily over the past five years. Indeed, SBC’s 

rate-of-return rose by more than 120 percent from 2001 to 2005, and the rates of 

return for the rest of the BOCs increased by more than 167 percent for BellSouth 

and 175 percent for Verizon.12 Moreover, one study has suggested that even these 

astronomical returns may understate the BOCs’ earnings; the costs of other services 

may have been misallocated to the special access category, thereby overstating the 

BOCs’ special access costs and understating their rates of return.13 These high BOC 

101 

returns are evidence of a market failure: the lack of competition for special access 

has allowed the BOCs to charge exorbitant prices without restraint. 

Without effective rules or meaningful competition, the BOCs’ special access earnings are likely to grow at an even faster pace in the future—a future in which special 

access will become even more critical to the telecom marketplace as more and more 

capacity will be required to support the burgeoning broadband marketplace that this 

committee is committed to encouraging. 

It is noteworthy that the largest providers of special access services are also the 

parents of our wireless competitors. These integrated firms, therefore, have the incentive and ability to raise the special access costs of, and thereby disadvantage, 

Sprint Nextel and other competing providers of retail wireline and wireless services. 

What is the solution to the special access market failure and rate gouging? Congress needs to mandate that the FCC rollback its premature deregulation of special 

access services, and implement the pricing discipline that the marketplace has 

failed to provide. Let me be clear: failure to do so will thwart broadband deployment 

and competition. 

The CHAIRMAN. Thank you very much. 

There is a vote on. And, as a matter of fact, it’s almost over. 

We—if you don’t object, we’d prefer to ask you to respond to written questions that Members may submit to you pertaining to your 

testimony. And try to respond, if you can, in a week. 

The CHAIRMAN. This completes 29 hearings now, six listening 

sessions. We had three full legislative sessions like this on specific 

drafts. I think we’re now ready to start working on the final draft, 

and we will have an announcement soon of the markup date. We 

are going to change the markup date, and postpone it, I think, a 

few days, but we will go into markup soon. 

We do thank you. This is not your first time, for many of you, 

to come and give us your views. We do review these views, and we 

thank you very much for them. I thank you for your cooperation 

and your contributions. Thank you very much, gentlemen. 

[Whereupon, at 12:35 p.m., the hearing was adjourned.] 

(103) 

1Special access services are high-capacity telecommunications circuits dedicated to individual 

customers (usually telecommunications service providers or large businesses) to deliver large 

volumes of traffic between two points in a network. 2 United States Telecom Assoc. v. FCC, 359 F.3d 554, 575 (D.C. Cir. 2004) (USTA II). 

A P P E N D I X 

USTELECOM

Washington, DC, June 15, 2006 

Hon. TED STEVENS, Chairman, 

Senate Committee on Commerce, Science, and Transportation, 

Washington, DC. 

Dear Mr. Chairman: 

Thank you again for the opportunity to provide the views of USTelecom’s 1,200 

members at yesterday’s hearing. S. 2686 is a significant step forward in delivering 

video choice to consumers, and fulfilling your commitment to stabilizing the future 

of Universal Service.JLW 

This letter and the accompanying Discussion Paper respond to questions about 

special access competition arising from yesterday’s hearing. At the hearing, Robert 

Foosaner, Senior Vice President of Government Affairs for Sprint Nextel Corporation devoted his testimony to calling for dramatic re-regulation of the special access 

services 1 offered by incumbent local exchange carriers (ILECs). One would not know 

from the Sprint Nextel testimony that only two years ago the United States Court 

of Appeals for the District of Columbia Circuit found that ‘‘wireless carriers’ reliance 

on special access has not posed a barrier that makes entry uneconomic,’’ 2 and the 

Federal Communications Commission (FCC) thereafter declined to order unbundling 

of special access circuits for wireless carriers. Now, despite the findings of the D.C. 

Circuit and the FCC, Sprint Nextel is asking Congress to force ILECs to subsidize 

the construction of its wireless networks rather than making the investment itself. 

The staff working draft released May 24, 2006, by the Committee’s minority staff 

would go even further by extending special access regulation to all ILEC broadband 

services, and entangling the United States Congress in setting specific prices for 

special access services. This proposal, like Sprint Nextel’s appeal for regulation, is 

completely unnecessary because: (1) special access markets are competitive today; 

(2) special access customers, particularly large telecommunications carriers, are capable of deploying their own circuits; and (3) the FCC still has the responsibility 

and all the tools it needs to ensure that special access rates are just and reasonable. 

Moreover, the proposed re-regulation of ILEC special access services, and extension 

of this regulation to broadband services would thwart competition, innovation, investment, and network deployment. 

Should you or any Members of the Committee, or its staff, wish to discuss these 

important matters further, we stand ready to respond. Once again, Mr. Chairman, 

we thank you for your efforts to promote video competition and a sustainable Universal Service program. 

Sincerely, 

WALTER B. MCCORMICK, JR. 

President/CEO. 

ATTACHMENT—USTELECOM DISCUSSION PAPER ON SPECIAL ACCESS

I. Special Access Markets Are Competitive, With Many Alternative Providers 

Sprint Nextel and Minority Staff Would Substantially Reverse Many Decisions by 

the FCC—the Expert Agency—Determining that Special Access Markets are Competitive. The Federal Communications Commission (FCC) has jurisdiction over special 

access services. Over the past two decades, the FCC has followed a policy of removVerDate Nov 24 2008 10:53 May 06, 2011 Jkt 066172 PO 00000 Frm 00107 Fmt 6601 Sfmt 6621 S:\GPO\DOCS\66172.TXT SCOM1 PsN: JACKIE
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3 Access Charge Reform, CC Docket No. 96–262, Fifth Report & Order and Further Notice of 

Proposed Rulemaking, 14 FCC Rcd 14221 (1999) (Pricing Flexibility Order). The FCC’s pricing 

flexibility triggers are based on competitive collocation within metropolitan statistical areas 

(MSAs). 4WorldCom v. FCC, 238 F.3d 441 (D.C. Cir. 2001). 5SBC Communications, Inc. and AT&T Corp. Applications for Transfer of Control, WC Docket 

05–65, Memorandum Opinion and Order, 20 FCC Rcd 18,290 (2005); Verizon Communications, 

Inc. and MCI, Inc. Applications for Transfer of Control, WC Docket 05–75, Memorandum Opinion and Order, 20 FCC Rcd 18,433 (2005). 6The principal FCC merger conditions related to special access are (1) a 30-month rate freeze 

for existing customers, and (2) somewhat greater availability of unbundled network elements 

(UNEs). Id. 7See, e.g., Letter dated October 4, 2004 from Evan T. Leo, Counsel for BellSouth Corporation, 

SBC Communications, Inc., Qwest Communications International, Inc., & the Verizon telephone 

companies, to Marlene Dortch, Secretary of the Federal Communications Commission, submitting UNE Fact Report 2004, Unbundled Access to Network Elements, WC Docket No. 04–313 

(October 2004) (UNE Fact Report). 8 Id. 

9 Concentrated demand means that the market is characterized by relatively few buyers who 

purchase substantial network capacity, particularly within narrow geographic areas. 10 E.g., Pricing Flexibility Order, 14 FCC Rcd at 14,276 ¶ 97; Access Charge Reform, CC Docket 

No. 96–262, First Report & Order, 12 FCC Rcd 15,982 (1997). 

ing barriers to entry, allowing competition to develop and flourish, and deregulating 

ILEC special access services. In particular, the Commission established a framework 

for granting ILECs special access pricing flexibility when there is strong evidence 

of competition in the relevant geographic area.3 Based on these criteria, which were 

specifically affirmed by the United States Court of Appeals for the District of Columbia Circuit (D.C. Circuit),4 ILECs have made the requisite competitive showings 

and obtained pricing flexibility in much of the country. Sprint Nextel and minority 

staff would reverse this pricing flexibility, which is essential for competitive markets 

to function efficiently. 

The FCC has also looked at special access prices in a number of other proceedings 

over the past decade. Most recently, the FCC evaluated competition in most of our 

country’s special access markets in the SBC-AT&T and Verizon-MCI merger review 

proceedings. 5 The FCC determined that only limited merger conditions 6 were war- ranted to address potential harms to competition in special access markets. Sprint 

Nextel and minority staff would reverse all of those findings, without any evidence 

to the contrary. 

Special Access Markets Today Exhibit Extensive Competition. There are many 

competitors in special access markets today, particularly fiber-based competitors (an 

average of 19 competitive networks in each of the top 50 MSAs) providing high-capacity circuits purchased by telecommunications carriers and large business customers. 7 Moreover, these entrants are winning many contracts and establishing 

meaningful and growing market shares. In addition to actual competition evidenced 

by market offerings, the record in other recent proceedings shows great amounts of 

collocation, and other entry and investment. 8 This is not surprising because special 

access demand is highly concentrated in relatively few geographical locations—most 

special access circuits are sold in areas where large businesses are located, such as 

urban areas. This concentration of demand allows for greater ease of entry and exit. 

Special access competition is occurring throughout the country via traditional 

wireline alternatives and intermodal competitors, and, increasingly, most special access customers are able to choose from among several providers’ offerings when entering into new contracts or buying new circuits out of tariffs. Moreover, both competitors and customers often are able to build, and many routinely do build, their 

own special access circuits. These competitors can serve many other customers in 

each area where they have deployed networks, once presented with requests for 

service. Therefore, the relevant area in which competitors discipline market prices 

is far greater than the individual routes on which they have won customers and installed circuits. 

In many ways, it is easier to enter and compete in special access markets than 

in many other telecommunications markets. In particular, demand for special access 

services is highly concentrated,9 as the FCC has recognized many times.10 This 

makes special access markets more competitive than many other telecommunications markets, as competitors do not require as substantial scale and scope economies in order to compete effectively. 

Increased competition has led to substantial changes in special access markets. 

Special access prices increasingly are responsive to competition, actual cost of service, and customer preference, rather than being set at average prices for the whole 

market. For example, USTelecom members offer substantial volume and term disVerDate Nov 24 2008 10:53 May 06, 2011 Jkt 066172 PO 00000 Frm 00108 Fmt 6601 Sfmt 6621 S:\GPO\DOCS\66172.TXT SCOM1 PsN: JACKIE
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11See, e.g., Policy and Rules Concerning Rates for Dominant Carriers, CC Docket 87–313, 

Order on Reconsideration, 6 FCC Rcd 2,637 ¶ 194 (1991). 12See USTelecom Reply Comments, Special Access Rates for Incumbent Local Exchange Carriers, WC Docket 05–25 (filed Jul. 29, 2005). 13Declaration of Alfred E. Kahn and William E. Taylor, AT&T Corp. Petition for Rulemaking 

to Reform Regulation of Incumbent Local Exchange Carrier Rates for Interstate Special Access 

Services, RM–10593 (filed Dec. 2004). 

counts and, where permitted by FCC pricing flexibility rules, they use contract tariffs to reach commercial arrangements to suit customers’ individualized needs. 

II. There is No Credible Evidence That Special Access Prices Are 

Unreasonable 

Regulatory Accounting Cannot Be Used To Measure Rates Of Return On Individual Services. Sprint Nextel points to data filed in the Automated Reporting Management Information System (ARMIS) to claim that ILEC special access prices are 

unreasonably high. ARMIS was created, however, to provide a generalized overview 

of the industry before price cap regulation, not to measure service-specific rates of 

return under price cap regulation. For this reason, the FCC has repeatedly recognized that these ARMIS rates of return cannot be used to evaluate rates and ‘‘do 

not serve a rate-making purpose.’’ 11

The Same ARMIS Data Shows Implausible Switched Access Losses Over the Same 

Time Period. When one looks at ARMIS data more closely, it becomes apparent that 

it offers no meaningful data about special access profits. During the same time, and 

in the same places, where ILECs are alleged to have made excessive special access 

margins, ARMIS also shows switched access margin declines and even losses. This 

is an improbable result, and the only natural interpretation of these two events is 

that ARMIS is not accurately assigning costs to the various services provided over 

the network, particularly after the separations freeze. This conclusion is bolstered 

by the fact that ARMIS data shows negative costs for some special access service 

elements, which is economically impossible. 12

Market Performance is Good. Even as reported in ARMIS, special access prices 

taken together measured as revenue per line have declined significantly over the 

past five years. 13 This is even more impressive when considered together with the 

fact that special access demand has increased substantially over the same time period, which generally puts upward pressure on prices. These declines have been 

greater than would have been mandated under the productivity factor calculation 

required by the minority staff draft. Moreover, competitors offer similar prices and 

terms, and there do not appear to be any clear distinctions between prices in markets that have multiple competitors and those with fewer competitors. This is particularly significant for one would expect to see lower prices in markets with multiple competitors if Sprint Nextel and the minority staff were right about their claim 

that special access markets are not competitive, and that prices are not just and 

reasonable. 

In reality, therefore, prices are declining more rapidly than prescribed by regulation; supply and demand are increasing rapidly; competitors offer similar prices and 

terms; there do not appear to be clear distinctions between prices in markets that 

have multiple competitors and those with fewer competitors; and customers are increasingly putting special access services to new and different uses. 

III. Special Access Customers, Particularly Wireless Carriers, Could and 

Should Build Their Own Network Circuits If Prices Were Unreasonable 

Special Access Customers Can Build Their Own Circuits. Special access circuits 

are generally sold to large, well-financed, facilities-based telecommunications providers. These customers can, and do, build their own network connections. This provides a formidable check on special access prices—if prices are too high, then the 

customers will buy from competitors or deploy their own facilities. 

The D.C. Circuit Court of Appeals Determined that Wireless Carriers Are Not Impaired in Their Ability to Compete When Buying Special Access Services. Wireless 

carriers, such as Sprint Nextel, are not impaired in their ability to compete by their 

purchases of special access services. Indeed, the D.C. Circuit noted: 

that wireless providers have traditionally purchased such access from ILECs at 

wholesale rates (a transaction classified, since adoption of the Act, under 

§ 251(c)(4)). And the data above clearly show that wireless carriers’ reliance on 

special access has not posed a barrier that makes entry uneconomic. Indeed, the 

multi-million dollar sums that the Commission regularly collects in its auctions 

of such spectrum, see, e.g., *576 **224 Annual Report and Analysis of Competitive Market Conditions With Respect to Commercial Mobile Services, Seventh ReVerDate Nov 24 2008 10:53 May 06, 2011 Jkt 066172 PO 00000 Frm 00109 Fmt 6601 Sfmt 6621 S:\GPO\DOCS\66172.TXT SCOM1 PsN: JACKIE
106 

14 USTA II, 359 F.3d, at 575–76. 15 Unbundled Access to Network Elements, WC Docket 04–313, Order on Remand, 20 FCC Rcd 

2533, 2553 ¶ 36 (2005) (TRRO). 16 Id. at fn. 106. 17Pricing Flexibility Order, 14 FCC Rcd at 14,258 ¶ 69. 18 Id. 19 In the case of a wireless carrier, it may often be the case that there is only one wire going 

to any given cell tower because a competitor is not going to build a second circuit without first 

winning a contract that will pay for the construction. This does not mean that the wireless proport, FCC 02–179 (July 3, 2002), Table 1B, and that firms pay to buy alreadyissued licenses, see, e.g., Annual Report and Analysis of Competitive Market 

Conditions With Respect to Commercial Mobile Services, Eighth Report, FCC 03– 

150 (July 14, 2003), ¶ ¶ 42–44, seem to indicate that wireless firms currently expect that net revenues will, by a large margin, more than recover all their nonspectrum costs (including return on capital). 14

On remand, the FCC analyzed whether wireless carriers needed access to discounted (below cost in many cases) unbundled network elements, including the dedicated transport links that are currently offered as special access circuits. The FCC 

concluded that they do not need such access.15 Indeed, the FCC found that wireless 

carriers are competing vigorously, growing rapidly, winning customers from ILECs 

and CLECs, and generating impressive cash flows.16 Now, Sprint Nextel is here before the Senate Commerce Committee asking for unprecedented regulatory intervention from Congress that, in effect, would give it the discounted network facilities 

that the D.C. Circuit and FCC decided it does not need. In sum, wireless carriers 

do very well today using special access circuits, and there is no reason to believe 

that they need legislative intervention to give them cheaper network facilities. 

Wireless Companies, in Particular, Should Build Their Own Circuits If They Feel 

that ILECs Are Charging Too Much. Not only are wireless carriers thriving with 

current special access prices, but they are entirely capable of building such circuits 

themselves. In fact, there is little reason to think that wireless carriers would be 

substantially less efficient than ILECs at building components of the wireless carriers’ own networks. In particular, wireless companies have been experiencing rapid 

growth, and they have impressive cash flows. They also have ample telecommunications network expertise. In fact, wireless companies are uniquely able to determine the appropriate cost for the special access circuits they purchase rather than 

build because they are the sole customers at their tower sites. If wireless carriers 

were being charged too much, they would build their own circuits. This approach 

is consistent with Congressional policy favoring facilities-based competition rather 

than imposing outdated price regulation. 

IV. There Is No Need for Special Access Legislation In Any Event as the 

FCC Closely Scrutinizes Special Access Markets and Applies Any 

Regulation It Deems Necessary 

The FCC Regulates Special Access Today Where There Isn’t Competition. Under 

FCC rules, special access pricing flexibility is only granted where there is competition. In the Pricing Flexibility Order, the FCC established competitive triggers for 

ILEC pricing flexibility. If those triggers have not been met, ILEC special access 

services remain subject to the FCC’s full range of price regulation. The triggers 

measure the development of facilities-based competition, specifically collocation arrangements, and pricing flexibility is available in two phases depending on the development of competition. 

Phase I Relief: ILECs can begin offering contract tariffs and volume and term 

discounts, and they may file new tariffs on one-day’s notice, where ‘‘competitors 

have made irreversible investments in the facilities needed to provide the services at issue, thus discouraging incumbent LECs from successfully pursuing exclusionary strategies.’’ 17

Phase II Relief: ILECs may offer services outside of price cap regulation, although they must still file generally available tariffs and remain subject to FCC 

enforcement actions for anticompetitive behavior. Phase II relief is available 

where ‘‘competitors have established a significant market presence in the provision of the services at issue.’’ 18 To the extent customers feel aggrieved by special access contract conditions, therefore, they may file complaints at the FCC. 

Under these rules, special access customers either have reasonably-available competitive alternatives, or they continue to receive services at regulated, ‘‘just and reasonable’’ prices. There simply is no substance to an allegation that special access 

customers lack alternatives and must pay unreasonable rates.19

107 

vider lacks for competitive alternatives. To the contrary, this is precisely how a competitive market works when the service at issue is tailor-made for a specific customer, particularly where 

it involves a substantial sunk-cost investment. 20Special Access Rates for Price Cap Local Exchange Carriers, WC Docket No. 05–25, Order 

and Notice of Proposed Rulemaking, 20 FCC Rcd 1994 (2005). 

The FCC Is Looking at Its Rules in an Open Proceeding. New special access legislation is unnecessary for the additional reason that the FCC is considering special 

access prices and market performance in an active rulemaking proceeding.20 Legislation would not give the FCC any new authority; instead it would prevent the FCC 

from acting in response to the full record that is developing at the agency in the 

open rulemaking proceeding. 

V. The Minority Staff Draft, If Enacted, Would Be Even More Harmful 

Because It Would Extend Special Access Regulation to Broadband and 

Have Congress Set Prices 

The Minority Staff Draft Would Impose Harsh Price Regulation on ILEC 

Broadband Services. The minority staff draft defines special access so as to include 

ILEC broadband services (which must be offered on a stand-alone basis). This would 

subject ILEC broadband (e.g., DSL, FiOS, Lightspeed, etc.) services to rate regulation despite the fact that they face vigorous competition. Competing broadband services would not be regulated, however, creating regulatory asymmetry and harming 

competition by favoring one technology and class of providers over another. Price 

regulation of ILEC residential broadband services would also be illogical because 

competing cable modem services often have much larger market shares, yet they 

would remain free from price regulation. 

The Minority Staff Draft Would Have Congress Micro-Manage Prices. Congress 

rarely (if ever) sets specific prices because that is something for which agencies are 

better suited, yet the minority staff draft would establish specific prices (based on 

June 2004 prices) without regard to actual market conditions (very competitive). 

Specifically, Congress would be establishing separate rates for AT&T and Verizon, 

on the one hand, and all other ILECs, on the other hand. AT&T and Verizon would 

be required to reduce their prices if they have not already done so (because of competition) to the levels at which they would be if the FCC had imposed a productivity 

factor for the past two years (since June 2004), and they would be further required 

to reduce prices in the future by an estimate of their improved productivity. Moreover, all ILECs would be prevented from raising prices other than inflation adjustments. Finally, the minority staff draft would set future special access prices in a 

vacuum, without considering how shortfalls in special access revenue may force 

ILECs to seek increased Universal Service funding (USF), which would further destabilize that vital program. In all of these ways, the Minority Staff Draft would 

be dragging Congress into the details of common carrier rate regulation for the first 

time, which seems unwise. 

SPRINT NEXTEL

Reston, VA, June 20, 2006 

Hon. DANIEL K. INOUYE, 

Co-Chairman, 

Senate Committee on Commerce, Science, and Transportation, 

Washington, DC. 

Dear Senator Inouye: 

Thank you for the opportunity to testify on June 13, 2006, before the Senate Committee on Commerce, Science, and Transportation. Sprint Nextel continues to believe that to spur innovation, encourage competition, and provide better service for 

consumers, special access needs to be addressed in legislation. 

USTelecom was critical of my testimony on special access. Please find a rebuttal 

to USTelecom’s claims, and I respectfully request you put the attached in the record. 

Sincerely, 

ROBERT S. FOOSANER, 

Senior Vice President, Government Affairs and Chief Regulatory Officer. 

Sprint Nextel Response to USTA Letter—June 16, 2006 

USTA argues (at 1) that ‘‘the United States Court of Appeals for the District of 

Columbia found that ‘wireless carriers’ reliance on special access has not posed a 

barrier that makes entry uneconomic’ and the Federal Communications Commission 

108 

1These mechanisms were adopted ‘‘[i]n recognition of the difficulty of determining a single, 

industry-wide productivity offset that will be accurate for all LECs’’ and enables the Commission 

to adjust rates in the event of unanticipated errors in the price cap formula.’’ Id. at ¶ 86. Under 

sharing, the LECs earning above the prescribed industry rate-of-return must share their profits 

with customers in the form of price decreases. The adjustment mechanism allows for correcting 

of unusually low earnings. Id. 

(FCC) thereafter declined to order the unbundling of special access circuits for wireless carriers.’’ 

• The quoted language was taken from a paragraph in the D.C. Circuit’s decision 

in which the court clearly was setting forth the ILECs’ arguments, and in no 

way can be considered a ‘‘finding’’ of the court. 

• In light of the D.C. Circuit’s decision, the FCC declined to order the unbundling 

of UNEs ‘‘to provide service in the mobile wireless services market and the long 

distance services market,’’ 20 FCC Rcd 2533, 2555 (2005), in part because ‘‘competition’’ in these markets ‘‘has evolved without access to UNEs’’ Id. at 2554. 

The ‘‘unbundling of special access circuits for wireless carriers’’ was not at issue 

in the FCC’s decision and indeed makes no sense since special access are dedicated circuits provided on an ‘‘unbundled’’ basis. In fact, relying on UNEs to 

rebut arguments concerning special access are nothing more than red herrings 

because UNEs have long been off-limits to wireless carriers. USTA is throwing 

apples at a problem involving oranges. 

Stated differently, special access is not a leased component of the BOC network—i.e., it is not a UNE; it is a service sold by the BOC. Moreover, the rates 

for special access are not subject to UNE rules or pricing at economic costs. Indeed, unlike UNEs, special access prices are not subject to pricing rules set by 

the FCC and utilized by the states in setting rates. Rather, special access is 

purchased under take it or leave it contracts that are virtually unregulated in 

most parts of the country. Sprint Nextel and other carriers are not asking Congress for the UNE economic cost-based rates. We want only to pay rates that 

would exist if the market were genuinely competitive. 

• For these reasons, USTA’s UNE arguments fall of their own weight, and demonstrate, by way of comparison, the intellectual bankruptcy of USTA’s challenge 

to special access legislation. 

USTA claims that the FCC’s criteria to determine whether to grant special access 

pricing flexibility ‘‘were specifically affirmed by the [D.C. Circuit].’’ 

• The court did not affirm the FCC’s criteria themselves. The court instead affirmed the FCC’s decision based on the ‘‘deferential standard’’ under which the 

court presumes that the agency action is valid. Id. at 457. The court noted that 

the FCC is acknowledged to have expertise in ratemaking matters and it is not 

the court’s role to ‘‘second guess the FCC’s policy judgment as long as it comports with established standards of administrative practice.’’ Id. at 458. In 

short, the court did not ‘‘endorse’’ the criteria used by the FCC. 

USTA argues that Sprint’s reliance on ARMIS data to demonstrate that RBOCs 

are earning extraordinary rates of return on special access services is inapposite 

since ‘‘ARMIS was created . . . to provide a generalized overview of the industry 

before price cap regulation, not to measure service-specific rates of return under 

price cap regulation.’’ In fact USTA states that ‘‘the FCC repeatedly has recognized 

that these ARMIS rates of returns cannot be used to evaluate rates and ‘do not 

serve a rate making purpose’ ’’ citing 6 FCC Rcd 2937 ¶ 197 (1991). 

• The language quoted from the FCC’s decision cannot be found in ¶ 197. Rather 

it appears in ¶ 199 and in footnote (279). That language appears in a paragraph 

where the FCC was rejecting the argument by the LECs that ARMIS reporting 

amounted to ‘‘double regulation.’’ The FCC at ¶¶ 198–199 discussed the importance of ARMIS data to a ‘‘performance review’’ of price cap regulation and to 

‘‘the implementation of the sharing and adjustment mechanisms’’ adopted under 

price cap regulation.1

• Of equal, if not more, importance, USTA’s argument that ARMIS cannot be 

used for ratemaking is a diversion and misses the point entirely. Even if ARMIS 

data are not used for ratemaking purposes, the fact is that such data show that 

the BOCs are earning extraordinary rates of return in their provision of special 

access. Such returns would not be possible if the special access market was 

truly competitive. USTA’s letter and attachment completely ignore this fact. Indeed, if as USTA suggests the rates of return for special access reported by the 

BOCs to the FCC in their ARMIS filings are inaccurate, USTA should have supVerDate Nov 24 2008 10:53 May 06, 2011 Jkt 066172 PO 00000 Frm 00112 Fmt 6601 Sfmt 6621 S:\GPO\DOCS\66172.TXT SCOM1 PsN: JACKIE
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2 If USTA believes that ARMIS does not accurately measure the rates of return they are earning on their special access services, it should seek to have its member BOCs provide data showing their rates of return for this service. However, if the past behavior is any guide, the BOCs 

will be reluctant to reveal such information. In the Notice of Proposed Rulemaking in the Special Access Rulemaking, the FCC invited parties to ‘‘comment on the relevance of [ARMIS] 

data . . .’’ To the extent that parties questioned ARMIS data, they were invited to comment 

on whether accounting rates of return were ‘‘meaningful statistics for evaluating the reasonableness of price cap rates’’ and ‘‘what factors may affect the relevance of ARMIS data.’’ The RBOCs 

did not supply special studies. 

plied the rates of return the BOCs are actually earning from their provision of 

special access. That USTA does not, speaks volumes.2

USTA argues that the market for special access is robustly competitive, and that 

prices for special access ‘‘increasingly are responsive to competition.’’ 

• USTA fails to support its argument here with any data presumably because the 

data simply do not support its claims. Twenty two years after divestiture, and 

ten years after the Telecom Act of 1996, the BOCs retain effective control over 

special access. In the BOC service territories, 95 percent of large business locations are served only by the BOCs; and 99 percent of Sprint Nextel cell sites 

are served only by the BOC. Moreover, the BOCs are usually the only provider 

of special access in non-urban areas. 

• USTA is correct that the competitive providers are highly concentrated. Such 

providers are located in certain core urban areas, and their offerings often are 

limited to a few city blocks. For most other areas, Sprint Nextel has no other 

option than the BOCs. 

• Sprint also agrees with USTA that prices for special access services being demanded by the BOCs are reflective of the state of competition, and the pricing 

flexibility the BOCs have received from the FCC. But the data do not support 

what USTA would have the Committee Members, and their staffs, believe. As 

data submitted in the Commission’s long-stalled Special Access Rulemaking 

proceeding demonstrates, BOC special access prices in areas in which they have 

been granted pricing flexibility—because those areas are allegedly competitive— 

are higher than the rates in areas that remain regulated. Basic economic teachings would suggest the opposite result. Competitive markets pressure entities 

to constantly look for ways to reduce their costs in order to maintain, or even 

gain market share, since market shares of inefficient carriers are subject to attack by more efficient competitors. If the special access market were competitive, the BOCs prices would have been falling in line with their cost reductions. 

• In all events, and as stated, the rates of return being realized by the BOCs in 

their provision of special access are simply not sustainable in a competitive 

market. 

USTA cites the FCC’s decisions granting SBC’s acquisition of AT&T and Verizon’s 

acquisition of MCI, as further ‘‘proof’’ that the FCC regards the special access market as competitive. It points out that the FCC found that only ‘‘limited merger conditions were warranted to address potential harms to competition in special access 

markets.’’ 

• One of these ‘‘limited conditions’’ imposed by the Commission was a 30-month 

freeze on special access rates to be charged by the merged entities in their territories. If the special access market were as competitive as USTA says it is, the 

merged entities would not be able to raise their rivals’ costs by increasing special access rates. That the FCC found it necessary to insist upon such a freeze 

provides additional evidence, as if more were needed, that the market for special access services in BOC territories is simply not competitive. 

USTA argues that ‘‘special access prices taken together measured as revenue per 

line have declined significantly over the past five decades.’’ 

• The revenues per line measurement—and presumably the ‘‘line’’ is a DS1 equivalent—being touted by USTA again demonstrates the weakness of USTA’s argument. USTA is not saying that actual prices of the actual pipes being purchased 

have declined. In fact, USTA simply cannot make that claim. Carriers need for 

bandwidth has been increasing over time, and, as such, they have been switching to higher bandwidth special access services, such as DS3 and OCn. These 

services are both multiples of DS1s. For example, a DS3 is equal to 28 DS1. 

Thus, by spreading the revenues received for a DS–3 pipe across 28 DS1 lines, 

USTA can provide the illusion of rate decline when the price of the DS3 pipe 

has actually increased. The only way to get an accurate picture of the BOCs 

110 

special access prices is to examine the prices for each capacity type being offered individually, e.g., DS1s, DS3s OCns, and not as USTA has done to added 

the prices for the various types of capacity together and divide that number by 

the total capacity measured in DS1 equivalents. 

USTA accuses Sprint Nextel of ‘‘asking Congress to force ILECs to subsidize the 

construction of its wireless networks rather than making the investment itself.’’ 

• The only thing that Sprint Nextel is seeking is to pay for special access services 

at levels that would exist if the special access market was competitive. In such 

a market, no entity would be able to realize the exorbitant rates of return being 

achieved by the BOCs. 

• Of course, if the BOCs were ‘‘forced’’ to charge competitive rates for special access, they would lose the ‘‘monopoly rents’’ for such services that they have been 

receiving, and that they, presumably, have been using to subsidize their 

broadband expansion. Loss of such subsidy from their competitors would necessarily ‘‘force’’ the BOCs to self-finance their broadband expansion. But this is 

what firms in truly competitive industries have to do. Such firms have no market power to exploit, so they cannot charge above cost prices for their products 

and services. Thus, Sprint Nextel is ‘‘making the investment itself’’ in a wireless 

broadband network; unlike the BOCs it cannot rely on monopoly rents to pay 

for such network. 

TROPOS NETWORKS

Sunnyvale, CA, June 13, 2006 

Hon. TED STEVENS, Chairman, 

Hon. DANIEL K. INOUYE, Co-Chairman, 

Senate Committee on Commerce, Science, and Transportation, 

Washington, DC. 

Dear Mr. Chairman and Mr. Co-Chairman: 

We write to express our appreciation for your recognition of the importance of 

community broadband networks in the Communications, Consumers’ Choice, and 

Broadband Deployment Act of 2006. As the proven leader in delivering ubiquitous, 

metro-scale WiFi mesh network systems throughout the world, Tropos appreciates 

the opportunity to submit this letter for the hearing record in support of the Community Broadband Act, as proposed in Title V of the staff discussion draft circulated 

on June 9, 2006. In addition, we support your efforts to free up unlicensed ‘‘white 

spaces’’ spectrum for use by wireless community broadband networks. 

Community broadband networks offer the promise of increased economic development and jobs, enhanced market competition, improved delivery of e-government 

services, and accelerated universal, affordable Internet access for all Americans. 

Moreover, these networks will help promote our homeland security. In the wake of 

Hurricanes Katrina, Rita, and Wilma, new technologies demonstrated the resiliency 

and reliability of communications systems that can be used by police, fire, and EMS 

departments every day. In the future, these locally deployed technologies can help 

first responders, volunteers, and local governments react quickly to disasters, particularly when old ways of communicating no longer work. 

Nothing better illustrates how these public-private partnerships can serve America than the decision by the City of New Orleans to construct a wireless mesh network ‘‘cloud’’ available to the public. This network is helping bring back businesses, 

residents, students, and tourists. It will improve public safety and access to needed 

public services and information. And perhaps most importantly, it shows the world 

the ‘‘can do’’ spirit of America. Hurricane Katrina may have washed away the old 

copper lines and coax cables, but the City of New Orleans is now embarked on an 

effort to rebuild itself stronger than before. 

Beyond New Orleans, communities across America are ready and eager to bring 

the economic and social benefits of broadband access to their citizens. Today, over 

300 cities have chosen to build competitive broadband access networks, and hundreds more are now in the planning stages. They should be encouraged to move forward, and should have the freedom to choose what makes the most sense for their 

citizens. The revised staff draft will ensure that they can do so. 

In closing, we want to thank Senators Lautenberg, McCain, and Ensign and their 

staffs for working so hard to achieve a compromise that will help promote the rollout of community broadband networks throughout the country, will encourage pubVerDate Nov 24 2008 10:53 May 06, 2011 Jkt 066172 PO 00000 Frm 00114 Fmt 6601 Sfmt 6621 S:\GPO\DOCS\66172.TXT SCOM1 PsN: JACKIE
111 

lic-private partnerships, and will give the private sector an opportunity to bid on 

public projects. By freeing up ‘‘white spaces’’ spectrum for use by wireless community broadband networks, the draft bill will help promote universal access for all 

Americans. 

Sincerely yours, 

RON SEGE, 

President/Chief Executive Officer. 

cc: Hon. Frank Lautenberg, Hon. John McCain, and Hon. John Ensign. 

Æ