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78–339 2002

SMALL BUSINESS ACCESS TO TECHNOLOGY

HEARING

BEFORE THE

SUBCOMMITTEE ON RURAL ENTERPRISES,

AGRICULTURE, AND TECHNOLOGY

OF THE

COMMITTEE ON SMALL BUSINESS

HOUSE OF REPRESENTATIVES

ONE HUNDRED SEVENTH CONGRESS

SECOND SESSION

WASHINGTON, DC, FEBRUARY 7, 2002

Serial No. 107–42

Printed for the use of the Committee on Small Business

(

(II)

COMMITTEE ON SMALL BUSINESS

DONALD MANZULLO, Illinois, Chairman

LARRY COMBEST, Texas

JOEL HEFLEY, Colorado

ROSCOE G. BARTLETT, Maryland

FRANK A. LOBIONDO, New Jersey

SUE W. KELLY, New York

STEVE CHABOT, Ohio

PATRICK J. TOOMEY, Pennsylvania

JIM DEMINT, South Carolina

JOHN R. THUNE, South Dakota

MICHAEL PENCE, Indiana

MIKE FERGUSON, New Jersey

DARRELL E. ISSA, California

SAM GRAVES, Missouri

EDWARD L. SCHROCK, Virginia

FELIX J. GRUCCI, JR., New York

TODD W. AKIN, Missouri

SHELLEY MOORE CAPITO, West Virginia

BILL SHUSTER, Pennsylvania

NYDIA M. VELAZQUEZ, New York

JUANITA MILLENDER-MCDONALD,

California

DANNY K. DAVIS, Illinois

BILL PASCRELL, JR., New Jersey

DONNA M. CHRISTENSEN, Virgin Islands

ROBERT A. BRADY, Pennsylvania

TOM UDALL, New Mexico

STEPHANIE TUBBS JONES, Ohio

CHARLES A. GONZALEZ, Texas

DAVID D. PHELPS, Illinois

GRACE F. NAPOLITANO, California

BRIAN BAIRD, Washington

MARK UDALL, Colorado

JAMES R. LANGEVIN, Rhode Island

MIKE ROSS, Arkansas

BRAD CARSON, Oklahoma

ANIBAL ACEVEDO-VILA, Puerto Rico

DOUG THOMAS, Staff Director

PHIL ESKELAND, Deputy Staff Director

MICHAEL DAY, Minority Staff Director

SUBCOMMITTEE ON RURAL ENTERPRISES, AGRICULTURE, AND TECHNOLOGY

JOHN THUNE, South Dakota, Chairman

ROSCOE BARTLETT, Maryland

FELIX GRUCCI, New York

MIKE PENCE, Indiana

BILL SHUSTER, Pennsylvania

TOM UDALL, New Mexico

DONNA M. CHRISTENSEN, Virgin Islands

DAVID D. PHELPS, Illinois

BRAD CARSON, Oklahoma

BRAD CLOSE, Professional Staff

(III)

C O N T E N T S

Page

Hearing held on February 7, 2002 ......................................................................... 1

WITNESSES

Cooper, Kathleen, Undersecretary for Economic Affairs, Department of Commerce, Economic and Statistics Administration ................................................ 5

Aughenbaugh, Tim, President and CEO, IdentityPreserved.com ........................ 7

Richmond, Ralph, President, USA Cartage, Inc ................................................... 9

Hugh-Jensen, Per, Owner, Bowhe & Peare ........................................................... 11

Pequigney, Steve, President, I–CUBE ................................................................... 13

APPENDIX

Opening Statement: Thune, Hon. John ................................................................. 25

Prepared statements:

Cooper, Katheleen ............................................................................................ 27

Aughenbaugh, Tim ........................................................................................... 31

Richmond, Ralph .............................................................................................. 38

Hugh-Jensen, Per ............................................................................................. 42

Pequigney, Steve ............................................................................................... 49

(1)

HEARING ON SMALL BUSINESS ACCESS TO

TECHNOLOGY

THURSDAY, FEBRUARY 7, 2002

HOUSE OF REPRESENTATIVES, COMMITTEE ON SMALL BUSINESS, SUBCOMMITTEE ON RURAL ENTERPRISES, AGRICULTURE AND TECHNOLOGY, Washington, DC.

The subcommittee met, pursuant to call, at 10:15 a.m. in room

2360, Rayburn House Office Building, Hon. John Thune (chairman

of the subcommittee) presiding.

Chairman THUNE. This hearing will come to order. Good morning, and welcome to this hearing of the Subcommittee on Rural Enterprises, Agriculture and Technology. I would especially like to

thank those of you who have traveled a long distance to participate

this morning.

Today we are going to be examining the issue of small business

access to technology. Small business owners are aware of all the

benefits technology has to offer, but are not always in the best position to utilize technology to its fullest extent. As much as they

might like, small business owners often times do not have the resources to devote to investing in new technologies.

On Tuesday, the Commerce Department released data indicating

that more than half of all American households are now connected

to the Internet and that 90 percent of children between the ages

of 5 and 17 now use the Internet at home. While these figures are

promising indicators of the technological skill level of future employees, small businesses still lag their larger counterparts in the

use of technology.

We have with us today the Undersecretary for Economic Affairs

at the Commerce Department, Ms. Kathleen Cooper. Undersecretary Cooper will be providing us with an in-depth look at a recent

study by the Commerce Department entitled Main Street in the

Digital Age: How Small and Medium-sized Businesses Are Using

the Tools of the New Economy.

It is the Subcommittee’s hope the results of this study will help

small business owners and Congress gain a better understanding

of how technology is used by the small business community and

provide some direction as we look at ways to improve access to necessary technology.

In rural areas such as South Dakota, small business owners realize that to continue to serve their communities and remain competitive in an increasingly consolidated marketplace they need reliable and affordable access to technology. That technology might be

2

used to help a business manage its inventory or help it purchase

and sell on line or help consolidate the massive amounts of paperwork small business workers are faced with daily.

Last year, the Subcommittee held two hearings on the issue of

access to broadband Internet in rural areas. While we heard about

some promising new technologies, it is clear that most people in

rural areas do not yet have broadband capacity. This lack of access

to broadband is indicative of the larger problem of access to technology in general for small business owners in rural areas.

Job creation is vital to the small communities and rural areas of

our country, and access to technology will help stem population loss

in rural areas. Residents will no longer feel compelled to leave

their towns and communities in search of higher paying jobs and

challenging careers. Farmers and ranchers, healthcare workers and

retail store owners realize that if they want to keep and attract

quality employees they need to have access to technology.

I look forward to hearing from our witnesses this morning, and

I want to thank them for participating in today’s hearing.

I would at this moment yield to the gentleman from New Mexico,

Mr. Udall.

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

Mr. UDALL. Thank you, Chairman Thune. Thank you for doing

this hearing. I know this is an important subject that you care a

lot about and have focused a lot in on this Subcommittee. We know

the benefits of high-technology properly applied. It boosts productivity, reduces cost, increases profits and wages and prepares workers for a lifetime of technological change.

One primary hurdle behind high-tech investment for small business is cost. Small companies see high startup prices and ongoing

costs for support and personnel with unknown or uncertain benefits. But the use of information technology as a tool of commerce

also relies on making another leap forward in communications infrastructure.

High-speed Internet connections are the next wave to propel the

awesome potential of e-commerce and telecommunications. If one

thing rings clearly from this report, it is that e-commerce is not

even out of its infancy. The potential for growth is enormous.

Twelve percent of manufacturing sales are now on line. The sales

rate of wholesale merchants is up to 5.3 percent. Retail sales are

lagging at only .5 percent of sales, but, if anything, the manufacturing and the B(2)(b) sales rates show where this rate could go.

Clearly, the potential is there.

So what is the holdup? That seems to be clear, too. The growth

of the Internet is restricted by bandwidth and the number of people

with access to it. We need to do everything we can to make the

Internet what it can be, an information conduit as wide and flush

as the Rio Grande.

We also need to make sure that river reaches more people all

across this country and that they have the tools to harness its

power. Currently, high-speed Internet connections are really only

available in urban areas. There companies and some homes can

pay a reasonable sum for DSL, which uses existing telephone lines,

but DSL requires the end user to be located only a few miles from

3

a major telecommunications switch available for now in densely

populated communities.

As a consequence, DSL is not available in rural, isolated areas

like my district, including Native American reservations that need

this kind of service to make the Internet work for them. Fewer people living in this country’s open, in between places have high-speed

Internet access than people anywhere else, and they often have less

money to pay for it. In areas like these, small businesses are critical to the communities they serve for employment opportunities

and economic growth. Unfortunately, the big river of information

runs a lot thinner and drier out there.

The Internet and its technology and tools for communication are

here to say. The Internet still has a great potential to transform

business by boosting productivity, employment, innovation and

sales, but we will only reach that full potential if technology can

expand its reach and capacity. We can widen and deepen this river

of information and technology and make it available for more and

more Americans.

Thank you, Mr. Chairman. I look forward to hearing the testimony of the panels.

Chairman THUNE. Thank you.

The Chair would now recognize the gentleman from Maryland,

Mr. Bartlett, who would like to acknowledge one of our witnesses

who comes from his district and to make his opening statement.

Mr. BARTLETT. Thank you. It is a real pleasure to be able to welcome a friend and constituent. We are a little late this morning,

and it is ironic that I am late because I was at the National Prayer

Breakfast with another trucker. Mr. Richmond is a trucker, and I

was there with Don and Joanie Bowman. Don Bowman is the very

recent past president of the American Trucking Association.

Mr. Richmond began his company, USA Cartage, in 1986 with

one driver, himself, which is just the way Don Bowman started his

company a bit before that. Mr. Richmond’s company may have been

one of those small business companies. I do not know how big his

company was in the early 1990s when we were coming out of the

last recession, but I was shocked by the statistics of where the new

jobs appeared as we came out of the last recession.

If you divide businesses up into groups depending, you know, by

their size, the largest, 5,000 or more, down to the very small businesses, zero to four employees, and that is a small business. When

Mr. Richmond started he had zero employees, unless he paid himself with a paycheck. That was a zero employee company; just one

person.

More than 90 percent, well more than 90 percent, of all the new

jobs that brought us out of the last recession were created in businesses of zero to four employees, so small business is the engine

which runs our economy. We are in a recession now. It will not surprise me that the same thing happens in this recession that most

of the new jobs will come from small businesses. So it is very appropriate for this hearing this morning that we recognize some of

the problems that small business has in accessing the technologies

that can help them grow and very rapidly become large businesses.

I note that Bill Gates started not very many years ago as a small

business, did he not. So it is still possible—increasingly more difVerDate 11-MAY-2000 13:16 May 24, 2002 Jkt 000000 PO 00000 Frm 00007 Fmt 6633 Sfmt 6602 W:\DISC\78339 txed01 PsN: txed01
4

ficult with all of our regulations and high taxes—but it is still possible in this country to achieve the American dream. Mr. Ralph

Richmond is one of those who has done this, so it is really a pleasure to welcome him here as a witness today.

I must again apologize because I need to leave. One of the problems we have here is that you cannot be in two places at once, and

I need to go chair the Science Committee. The Chair of that must

go to the Floor to manage a bill, his bill on the Floor, so he asked

me if I would come and chair the Science Committee for him.

Thank you very much. I have read some of your testimony. I will

read it all. I am one of maybe 35 people who came to the Congress

as a member of NFIB, so I was a small business person in another

life and understand your concerns and your problems and your

challenges.

Thank you very much for coming today to contribute your knowledge in our desire to make technology more readily available so

that small businesses can graduate from being small businesses

and become big businesses and make room for others to come in

as small businesses, which truly is the engine which drives our

economy in this country.

Thank you very much, and thank you, Mr. Chairman, for yielding.

Chairman THUNE. Thank you. I would note as well and apologize

for the late start. There were a number of us who were at the National Prayer Breakfast this morning and just got back up on the

Hill.

I now yield to the gentleman from Illinois, Mr. Phelps, if you

have an opening statement.

Mr. PHELPS. I have no opening statement.

Chairman THUNE. No statement. Okay.

We will turn to our witnesses. Before we begin receiving testimony from the witnesses, I do want to remind everyone and ask

that each witness keep their oral testimony to five minutes. In

front of you on the table you will see a little box that will let you

know when the time is up. When it lights up yellow you have one

minute remaining, and when five minutes has expired you will

have a red light that will appear.

Once that red light is on, we would appreciate it if you could

begin to wrap up or hopefully wrap up your testimony as soon as

you are comfortable. We will obviously grant some discretion on

that. There is no trapdoor there when the light goes off if you are

not through.

What I first want to do, too, is recognize Kathleen Cooper, who

is the Undersecretary for Economic Affairs at the Department of

Commerce. She has to leave early, and so after we hear her testimony Members will have an opportunity to question her. After we

are finished questioning, we will proceed with the rest of our witnesses.

Having said that, the bells are going off. Ms. Cooper, if you

would like to go ahead? I do not know if we have time for questions. Your deadline is 11:00?

Ms. COOPER. Yes, but I can stay. I can stay if need be.

Chairman THUNE. If you could make your statement at least,

and then maybe we can get a few questions asked before we head

5

over to vote. It is a 15 minute vote. If you would like to go ahead

and proceed, we would welcome your testimony.

STATEMENT OF KATHLEEN B. COOPER, UNDERSECRETARY

FOR ECONOMIC AFFAIRS, DEPARTMENT OF COMMERCE, ECONOMICS AND STATISTICS ADMINISTRATION

Ms. COOPER. Thank you very much, Mr. Congressman.

Chairman Thune, Congressman Udall and Members of the Committee, Member of the Committee, good morning. I am pleased to

be here. My name, as mentioned, is Kathy Cooper, and I serve as

the Commerce Department’s Undersecretary for Economic Affairs.

My complete testimony has been submitted for the record, but I

am pleased to be able to be here to provide a short summary of the

highlights of the Commerce Department’s report, Main Street in

the Digital Age.

This report does provide some good news. First, small businesses

are investing in and using the tools of today’s economy. In fact,

they invest about a quarter of their total capital expenditures on

computers and communications equipment, approximately the

same as large businesses.

Second, 70 percent of small businesses use computers. The data

indicate that the majority of small and medium-sized businesses

are also subscribing to the Internet.

Third, around 16 percent of employees of small and mediumsized firms who do not use a computer at work use it at home.

This, combined with the share of small business employees who already use a computer on the job, suggests that there is a basic

level of computer literacy in the current small business workforce.

However, our research also shows that the smaller firm, the less

it invests in absolute terms in IT equipment on a per employee

basis. Companies with more than 500 employees, as was referred

to earlier, invested more, invested in fact twice as much per employee in computers and communications equipment as enterprises

with 500 or fewer employees.

Employees at smaller firms are less likely to use a computer at

work than their counterparts at larger companies, and the best

available evidence suggests that small and medium-sized businesses are less likely than larger firms to undertake certain e-commerce activities like buying and selling on line.

Our report thus paints a picture of the diffusion, although the

uneven diffusion, of information technologies to small and mediumsized firms. Our research presents a look first at entrepreneurs’ information technology investment patterns and suggests a variety of

questions about the role of small business in the digital economy.

Why, for instance, do large firms invest more than small and medium-sized firms in information technology equipment, and what

role does the Internet and e-commerce play in helping businesses

to succeed? Two factors help to account for lower levels of IT investment per employee.

First, although small and medium-sized firms devote roughly the

same percentage of their capital spending to IT as do larger businesses, the total amount they invest in capital equipment is simply

less than that expended by large firms. Second, smaller firms are

6

more prevalent in industries that tend to be less capital-intensive

such as retail, services and construction.

Our data are revealing, but they do raise new questions that will

require new data to answer. All of these are areas for further research. Improvements in the data collection programs at Commerce

should aid in addressing these important research questions, and

I would be happy to discuss these initiatives at a later point in

more detail. They include the Census Bureau’s American Community Survey, the Economic Census, which is the statistical benchmark of business economic activity and also the new economic indicators that are being considered reflecting the services in high-tech

sectors of the U.S. economy.

The emergence of the Internet and the combination of increasing

quality and falling prices of computer equipment during the last

decade should not be overlooked in this context. Less expensive

computers and easy to use computer networks have given small

and medium-sized firms entree into the information economy.

Small business may not be engaging in some of the more sophisticated online activities like buying and selling on line to the same

extent as large firms, but most firms are at relatively early stages

of incorporating the Internet into their business processes.

Furthermore, as you know, small businesses are an incredibly diverse collection of firms. Some of the most technologically advanced

firms are small web-design firms, for example, independent software designers and so on. We cannot expect a single technological

approach to be appropriate for every firm. Business owners must

evaluate each technology and each online business activity in light

of their business goals. This research is just one part of the Commerce Department’s efforts to improve our understanding of small

businesses in the new economy and to make sure that these firms

are able to grasp the potential of new technology.

Secretary Evans’ e-business facilitation initiative encouraged the

OECD, the Organization for Economic Cooperation and Development, to examine the obstacles facing small businesses in conducting cross border transactions over the Internet. The Secretary

wants to look for positive ways to help businesses use information

technology and electronic commerce to expand internationally.

In my own agency, the Economics and Statistics Administration,

we are making it easier for smaller exporters to complete their

trade paperwork and submit it to us on line. This will reduce the

administrative burden on small business and enable the Census

Bureau to produce trade statistics more quickly.

The Administration’s proposals are detailed. As I mentioned in

my written testimony, the President’s tax bill enacted last year has

already helped small business, and his commitment to enhance

trade policy and improve education will reap benefits down the

road.

Mr. Chairman, Members of the Subcommittee, I appreciate your

leadership. This is a critical time for the economy as a whole. As

the Members of the Subcommittee well know, small business has

been hit hard. I hope and expect that we will see a rebound in the

near term. A solid recovery depends on a variety of factors, of

course, including the strength of small business and the high-tech

industry, both individually and together.

7

I thank you, and I would be happy to take questions at the appropriate time.

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

Chairman THUNE. Thanks, Ms. Cooper. Since we have some folks

that are over voting and who will be returning here, I would rather, if we can, hold up on questions until they get back.

What I would like to do is move to our second witness, who is

a gentleman from the great State of South Dakota, Tim

Aughenbaugh. Tim grew up on a family farm near Iroquois, South

Dakota. After graduating from South Dakota State University with

a degree in Agricultural Engineering, he started his own business

in 1991.

Tim’s business, IdentityPreserved.com, produces Internet software that enables food companies and their supply chains to monitor production protocols and product safety and quality issues and

does business in several countries throughout the world. Tim, his

wife and three children live in De Smet, South Dakota, where he

currently serves on the board of the De Smet Development Corporation.

It is a great privilege for me to be able to welcome someone from

my own state, someone who has been a leader in this field and has

some great insights and ideas about how to apply technology in the

rural sector of our economy.

Tim, it is good to have you here today. Welcome. Please proceed.

STATEMENT OF TIM AUGHENBAUGH, PRESIDENT AND CEO,

IDENTITYPRESERVED.COM

Mr. AUGHENBAUGH. Mr. Chairman and Members of the Subcommittee, it is an honor and a pleasure to come before you today

and testify on the opportunities and challenges that technology represents to small businesses. The subject of technology, particularly

as it relates to agricultural and other rural enterprises, has been

at the center of my 11-year career as an entrepreneur.

The company I founded has strived to help production agriculture in the better use of technology. As you likely know, technology use has not grown as fast in this sector as it has in others.

An ongoing difficulty in obtaining a strong penetration here is the

challenge of making the technology easy to use. This is difficult because of the harsh work environment, the speed and long hours in

which people work and the wide range of technical expertise that

is found in the workforce.

Advances in the capabilities of technology, as well as the increase

in technology infrastructure in rural areas, such as the addition of

wireless and higher speed access, certainly make the job of providing these appropriate technologies an easier task. The need for

technology in agriculture is on the rise. In order to meet the increasing need for food safety and security, as well as those of a

more demanding domestic and international customer, today’s

farmer needs to communicate, coordinate, document and verify his

efforts to the supply chain.

It is my opinion that in the near term most of the requirements

for this type of production can be met with the addition of technology applied to our existing infrastructure. The farmer who is

better able to meet the needs of this production environment will

8

find himself in a much more secure and valuable position. Therefore, if agriculture is to continue to deliver, I believe that investment in the development, access and training of new technologies

will be crucial.

I would like to address technology as it relates to small rural

businesses in a slightly broader manner. I concur with the Commerce Department’s study that small businesses need to embrace

technology in order that they can compete with their larger counterparts in several basic areas. I further believe that technology investment in technology industries themselves in rural areas can

offer assistance on a very important subject, the stemming of outflow of young, talented people from these areas.

The reality of this outflow strikes pretty close to home. I currently sit on the board of directors of the Development Corporation

of De Smet, South Dakota, a town of 1,100 people and the childhood home of Laura Ingalls Wilder, the childhood author whose

books were made popular by the TV series Little House on the

Prairie.

De Smet has been the beneficiary of a strong economic development effort and currently boasts 143 small businesses, including a

strong industrial park. But the looming problem for De Smet, as

it is for many other rural communities, is coming to terms with declining rural population. The concern is magnified by the fact that

our young people and the potential babies that they take with them

represent the majority of this population outflow.

In my home county, for instance, only 11 percent of the population is now made up of 20- to 34-year-olds. In recognition of the

importance of this age group, one must look seriously at ways to

retain them. In order to do that, one must look seriously at the reasons that they leave. From my own perspective, I believe that the

driving force is not so much a desire to leave, but rather a desire

to seek opportunity. In today’s world, opportunity is pronounced

‘technology,’ and that opportunity is currently elsewhere.

A study recently conducted in South Dakota maintains that if

any stability is to be attained, it will demand a holding power,

which will allow young adults to stay and even return to a community. I believe that technology is one such holding power.

Challenges certainly abound in running a technology business

from a rural location. In my own case, we utilize ten of the 11 copper phone lines coming from the town in my area. Our corporate

office operates with an Internet connection speed that is often only

a fraction of that of our offsite employees, the connection speed

that they enjoy in their home offices. We were forced to open a satellite development office in Minneapolis in order to just hire some

of our own homegrown talent that has chosen to live there.

All of these difficulties aside, it should be noted that technology

itself allows us to run a technology business from a rural location.

When people do go to the trouble of physically visiting our remote

offices, they unfailingly mention that they cannot believe it is possible to do what we are doing from out in the boonies. Those comments are not only a testament to the fact that the technology is

in place, but also a statement on its ability to deliver positive results.

9

The point may be that the technology pipe is technically built to

flow both ways. Just as it allowed rural businesses to access services of the broader world, so, too, should that vast, broad world outside our rural boundaries be afforded the opportunity to access the

talent, work ethic and solid values that personify the people of our

rural neighborhoods.

I thank you for the opportunity to share my experience and perspective on these topics. I am hopeful that the Subcommittee’s efforts can positively impact the opportunities and challenges we face

in adopting technology in rural areas.

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

Chairman THUNE. Thanks, Tim.

Since Mr. Udall has not returned, I am going to have to run. We

have about two minutes left on the vote, so I am going to temporarily recess. As soon as he returns, we will continue with the testimony.

The hearing is temporarily recessed.

[Recess.]

Mr. UDALL [presiding]. The hearing will come back to order. We

are doing a little shuffle here to try to keep it rolling for all of you.

I ran into John in the hallway. He wants to continue with the

witnesses, so we will hear now from Ralph Richmond, who was previously introduced by Roscoe Bartlett. Mr. Richmond, please go

ahead.

STATEMENT OF RALPH RICHMOND, PRESIDENT, USA

CARTAGE, INC.

Mr. RICHMOND. Good morning, Mr. Chairman and Members of

the Subcommittee. I would also like to thank Mr. Bartlett for that

very kind introduction.

My name is Ralph Richmond. I am the president of USA Cartage, Inc., a trucking company based out of Williamsport, Maryland,

and I am here representing the American Trucking Association.

First, I want to thank you for the opportunity to share my thoughts

and ideas on technology use in trucking and small business.

The trucking industry as a whole is large, moving 350 billion

tons of goods every year. In fact, 82 percent of all freight in the

U.S. is moved by truck. The industry employs more than ten million hardworking men and women. Seventy-four percent of all

trucking companies have six or fewer trucks, so today I am speaking on behalf of more than 400,000 small to medium-sized trucking

companies across the U.S. Challenges facing our industry today include shortage of skilled drivers, skyrocketing insurance rates, unstable fuel cost, increasing regulatory burden.

There are three factors that influence our company to look at and

invest in technology. Number one is productivity. We look at how

can we increase our miles per gallon? How can we extend oil

changes? How can we handle data more efficiently? How can we

make our trucks safer? How can we make our trucks last longer?

How can we file our taxes faster?

Second, we are influenced by the marketplace. Changing customer requirements include many customers now and, because of

technology by larger and larger companies that over the years have

become more and more commonplace, customers now require that

10

you have electronic billing, that you have GPS tracking, and that

you have Internet tracking for their shipments.

Third, we are influenced by government regulations and mandates. We need to invest in systems to keep up with and meet compliance issues with federal regulations and technologies mandated

on our industry and equipment.

There are four thoughts I would like to advance to this Committee to help small businesses in dealing with technology issues.

Number one, faster depreciation. Currently, systems are required

to be depreciated over five years. With the speed of technology

today, we are sometimes still depreciating systems after they are

functionally obsolete.

Number two, tax credits. I encourage you to look at tax credits

to small business for technology investments.

Number three, proprietary policies. Now, I am a firm believer in

the American free market system, so this idea is just a little bit

hard for me to articulate, so I would like to express it with an example and then give some other examples that I am involved with.

I want you to think for a moment that the technology is cable

TV. You had that technology, and for some reason you were required to move to another city. In that city you had a different vendor for that cable service, and that service was not compatible or

did not read the systems that you had. In order to hook up to that

service, you would have to buy all new TVs in your house. The

same thing if you for some reason had to move into another or get

another service.

Fortunately, that is not the case in cable TV or in the cable industry, but our industry is faced with some emerging technologies

such as satellite communications and GPS tracking that requires

huge investments for the hardware and software, but are only proprietary to the specific vendors. These systems do not speak to each

other, even though the technologies are fundamentally the same.

These huge investments make it very difficult, if not impossible, for

a small business to change to another vendor or better service.

Another example is that our industry is headed for requiring

data transponders on our trucks to transmit data for several different government agencies. Once again, the technology is fundamentally the same, yet different states or agencies may have different systems or vendors, and we will be required to buy and

maintain multiple transponders on each truck just to operate. I can

only ask you where warranted for you to encourage standardization

and freer access for companies to build on some of these emerging

technologies.

Fourth, data privacy protection. One thing for sure is that today’s technology can gather and store and make available data at

unprecedented efficiency. I see that trend only getting more and

more efficient as we move along. Data and information are valuable to every company, large or small. I urge you to bear that in

mind as you set policies. Data privacy is very important to us.

I want to thank you for the opportunity to share my opinions

with you, and I would be happy to answer any questions you may

have. Thank you.

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

Mr. UDALL. Thank you very much, Mr. Richmond.

11

Next, the Subcommittee will hear from Mr. Per Hugh-Jensen,

owner of Bowhe & Peare Retail headquartered in Old Town Alexandria. Please proceed.

STATEMENT OF PER HUGH-JENSEN, OWNER, BOWHE & PEARE

Mr. HUGH-JENSEN. Thank you, Mr. Chairman and Members of

the Subcommittee. First and foremost, I would like to thank you

all for inviting me to testify here today on behalf of the National

Retail Federation.

The National Retail Federation is the world’s largest retail trade

association with membership that comprises all retail formats and

channels of distribution, including department, specialty, discount,

catalog, Internet and independent stores. NRF members represent

an industry that encompasses more than 1.4 million U.S. retail establishments, employs more than 20 million people, about one in

five American workers, and registered 2001 sales of $3.5 trillion.

N.R.F.’s international members operate stores in more than 50

nations. In its role as the retail industry’s umbrella group, NRF

also represents 32 national and 50 state associations in the U.S.,

as well as 36 international associations representing retailers

abroad.

As an owner of a small retail chain, Bowhe & Peare, here in Old

Town Alexandria, we are presently facing many of the challenges

which I will briefly outline today. As we look to grow and expand

our business over the next 12 to 18 months, it is imperative that

we integrate a system into our business which allows us to track

sales, inventory, inventory turnover, customer purchases, et cetera,

along with a customer database.

While most business owners would agree that this is imperative,

there are many obstacles that small and medium-sized business

owners, in particular retail, face in making these decisions. They

are as follows:

Cost. This is probably the area most evident in making these decisions. Because of today’s economic climate, making the decision

to invest thousands of dollars into the business is somewhat risky,

thereby creating a fear factor. On the other hand, if you are going

to become a leader in your state, you must have the ability to

evaluate your business to make strategic decisions to grow the

business intelligently.

There are great products on the market that allow you to do this

today. Recently, both Microsoft and Oracle have announced initiatives to launch products and services for small and medium-sized

businesses, but I suspect that we are not at the top of their priority

list based on what I just stated.

Education. When a company has made a decision to incorporate

certain technologies into their organization, they must also be able

to train their staff on the use of these technologies. Since in the

gift industry in our geographic area we have a lot of part-time help

making $9 to $15 an hour, this presents a great challenge in incorporating these new systems into our business model.

There is an up-to-speed issue that business owners must understand. In retail, almost all employees are in touch with the systems

we decide to incorporate into our business. I would venture to say

that the retail industry, in particular in the small to medium size

12

range, is not technologically savvy. This is why we are not perceived as a great market by many of the large supplier companies

that are out there in the market today.

It is hard for the retailer to understand why to incorporate something into their business when ‘‘everything is working fine for me

today.’’ It is equally hard for the technology suppliers to SMEs to

find business owners who understand and appreciate the value of

what some of these products can do to enhance their business. Because many of these small retailers over the past six to nine

months have had to streamline their resources, they have had less

time to focus on the ‘‘what is next’’ portion of their business.

I believe there should be local community initiatives that allow

the owners of small and medium-sized businesses to discuss these

issues and become more educated on what is available to them.

Some of us here in this room might argue that the local chamber

of commerce units throughout the United States and other nonprofits provide this service, but I feel that there is a great disparity

between the SMEs and the larger businesses out there today.

Change. There is a saying that people are afraid of change. This

fear escalates in times of economic uncertainty. I believe this is

true in what we are discussing here today. Unless people can truly

see a direct benefit to their business, as opposed to someone trying

to ‘‘sell’’ them something, they are reluctant to make these changes

to their organization. It takes a lot of time, money and patience;

thus, the reluctance to make the change.

Obsolescence. This is also an important area to discuss. In my

company, we are looking to spend in excess of $150,000 on new

technologies for a four-store operation over the next ten to 12

months. Because of the size of our organization, we cannot afford

to make a decision on some technology that becomes obsolete in

two years, nor do we want to be forced to upgrade to some new

version of software in order to stay compatible and receive the

proper maintenance and support. This is a very, very common issue

that we see out there today.

A great example of where this has happened before and where

this is prevalent is in the healthcare industry where in the early

1990s a lot of the healthcare companies or I should say the hospital

groups made major expenditures where they only found two to

three years later a lot of these systems were proprietary and could

not integrate or speak to other systems within the organization.

If the technology that we decide to purchase cannot scale with

our business moving forward, we risk not being able to grow or

even the potential of going out of business. Both my brother and

I have experience in IT so I would say that we are the fortunate

ones, but this is by no means the norm.

In closing, I believe most retail SME business owners will likely

never have enough technical knowledge to be able to stay abreast

of technological change. This is probably just as well because that

knowledge is not a core competency of retailers. I believe that there

will one day need to be a model where retail SMEs can pay a

monthly fee for a shared service and ASP model that provides all

necessary retail applications at a lower cost. This should allow

them to incorporate technology, be cost-effective and have an online

13

help service that is user friendly. Most importantly, it will allow

them to focus better on their core business.

I also think we should look at having some form of a stamp of

approval provided by a third party, a nonprofit, that would give the

retail SMEs some level of assurance that these products conform

to industry best practice.

Thank you very much for giving me the opportunity to speak

with you here today. I welcome any questions you may have.

[Hugh-Jensen’s statement may be found in the appendix.]

Chairman THUNE [presiding]. Thank you, Mr. Jensen.

We are going to move to our last witness this morning, who is

a small business owner from Crofton, Maryland, Steve Pequigney.

Steve is president of Integrated Imaging, Inc., better known as ICube. Please proceed.

STATEMENT OF STEVE PEQUIGNEY, PRESIDENT, I–CUBE

Mr. PEQUIGNEY. Good morning, Chairman Thune and Members

of the Committee. I thank you for the invitation and the opportunity to present testimony on behalf of the National Federation of

Independent Business, NFIB, regarding small business and technology investment. NFIB is the nation’s largest small business advocacy organization, representing more than 600,000 small business owners in all 50 states and the District of Columbia.

My name is Steve Pequigney, and I am a small business owner

from Millersville, Maryland. I sit before you today with a unique

perspective; not only am I a small business owner, but I am also

a technology professional.

In the late 1980s, I was in charge of a sales office for a high-tech

corporation when all outside sales offices were closed. I found myself facing two choices: securing another corporate job or striking

out on my own as an entrepreneur. I chose the latter, and my company, Integrated Imaging, Inc., known as I-Cube, was born.

I-Cube is a four-person digital imaging company that sells equipment and services such as high-tech digital cameras, computer

interface boards and scientific imaging software to government

labs, universities and corporate research and development clients.

In my opinion, the personal computer is one tool that can make

an immediate improvement in efficiency for small business owners.

For example, an accounting program such as Quickbooks can be

utilized on a PC in order to eliminate heaps of paperwork associated with entering orders, generating invoices and financial statements, paying bills and processing payroll.

Utilizing accounting software has allowed me to save time and

money, for example, by simply maintaining records electronically

which can be copied to a removable disk and sent to my accountant

for tax preparation. Other software, such as customer contact database programs, can be used to eliminate manual tasks of organizing and maintaining customer addresses, phone numbers and email addresses.

A second area of technology investment that has become increasingly important to small business owners is the Internet. E-commerce is here to stay, and small business owners must compete in

this marketplace. Additionally, the Internet offers small business

14

owners a unique opportunity to overcome the economies of scale

that often bar them from competing effectively against larger firms.

I-Cube has maintained a web presence since the mid 1990s, and

the presence of product and technical information and lead generation stemming from our website, i-cubeinc.com, is invaluable. In

years past, I purchased print advertising in trade publications in

order to market I-Cube. Today, that is unnecessary. In fact, my

only advertising is accomplished via the web. In addition to simply

advertising, I-Cube utilizes the website to showcase products, to expedite customer service and to actually sell products on line.

As you can see, I believe technology investment, even a minimal

amount, is a great thing for small business. However, as the recent

Commerce Department study highlights, not all small business

owners have jumped on the technology bandwagon.

So what are the barriers? One major barrier is the unfamiliarity

with or even fear of technology itself. For many small business

owners, especially those who have spent years running their businesses the old-fashioned way, technology can be daunting. Large

corporations have entire IS or IT departments to analyze e-commerce and technology needs, purchase and maintain equipment

and to train users. For those with no technology background, consultants, often with high price tags, must be hired to handle technology needs.

A second barrier that I have personally experienced is the difficulty in finding and hiring qualified workers. Even if a new employee has technological aptitude, he or she must still often be

trained on specific programs and software.

In November 2000, NFIB asked its members if small business

owners should be allowed a tax credit for technology credit. Seventy-six percent of members responding answered yes. This poll

provides strong indication that technology training for small business owners and their employees is a need for many on Main

Street.

So there are opportunities and challenges to technology investment for small business owners. What are the solutions? I think

the overwhelming objective must be to provide education and resources that allow small business owners to see the value of technology to their bottom line and to assist them in analyzing, purchasing, training and utilizing technology.

A second objective, in my opinion, would be to make technology

accessible and affordable for Main Street. Small business is the engine that drives this nation’s economy, and it is important that

small business be in a position to take advantage of opportunities

in a fast-moving, technology-based marketplace.

In conclusion, I commend the Chairman and the Committee for

examining the topic of small business and technology investment,

and I thank you for the opportunity to speak here today. I would

be happy to answer any questions related to my testimony.

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

Chairman THUNE. Thank you, Mr. Pequigney, and I apologize for

butchering your name.

Mr. PEQUIGNEY. No problem.

Chairman THUNE. I do have a few questions, and then I will

yield to my colleagues here for some questions.

15

I should introduce Mr. Carson from Oklahoma, who has joined

us. Any statement that you would like to make?

Mr. CARSON. If we could go straight to the questions, Mr. Thune,

I think that would be most appropriate.

Chairman THUNE. Very good. Thank you.

I would like to address a couple questions to Undersecretary Cooper. To what degree has the recession and the sharp downturn in

technology and the technology sector, how that has affected small

businesses? I mean, do you see evidence of that fact? Can you

elaborate on that?

Ms. COOPER. I think there is no question that that is the case.

Certainly there has been a very sharp downturn in the last year

and a half in IT spending overall, and it has affected small businesses, just as it has the larger ones.

Small businesses do not tend to have as much of a backstop as

do large businesses for some of the same reasons that have been

mentioned by my fellow panelists, so it has made it tougher. But

I would say it is encouraging at this moment because we are seeing

a leveling off in the declines in IT spending nationwide.

I would expect that before too many more months we will see

some upward movement, not just a leveling off. That would be in

spending by small businesses and larger businesses as well. All of

that is a plus for the U.S. economy and a plus for small businesses.

Chairman THUNE. The data that you compiled in the report primarily uses 1998. I would be curious to know, are there things that

you are doing to improve your data collection and make it more

current, particularly in rural areas? That is one thing I guess I

would like to see more of an emphasis on. Any thoughts about how

you might accomplish that?

Ms. COOPER. Well, I mentioned a couple things where we are trying to improve the data collection.

Chairman THUNE. Right.

Ms. COOPER. This is an unusual and special project that we did.

Some of the data that we used for this particular project will not

be available and will not be collected again until next year. But because of the amount of interest that we think there is out there in

following the trends that we have seen or this baseline that we

have seen from this report, I am sure that we will do that again.

We will update this report and get the new data next year.

As far as the question of rural versus urban, I guess we do not

really have that in this particular report. I did want to mention in

response to what Congressman Udall mentioned earlier that we are

encouraged by the fact that we are seeing essential parity in urban

and rural populations in terms of their use of the Internet.

That is not broadband, no question, but it is a first step and I

think good movement in that direction, so we ought to see this evolutionary process of people and then small businesses starting to

use more and more of the technology and being able, therefore, to

prosper and contribute even more to their development and development of their companies, sell overseas and so on.

Chairman THUNE. Thank you.

Mr. Aughenbaugh, one of the things in the Commerce study findings indicated that there were a low number of agricultural workers that would use a computer at home or at work. I am just curiVerDate 11-MAY-2000 13:16 May 24, 2002 Jkt 000000 PO 00000 Frm 00019 Fmt 6633 Sfmt 6602 W:\DISC\78339 txed01 PsN: txed01
16

ous to know, in your experience, is this a real problem? Is that

something that you see?

Mr. AUGHENBAUGH. Well, from my experience, and working with

people in that industry really across the country, I would say that

there is a general lack of training for many of the people who are

in the business-making decisions.

Many of the younger people who are coming back into that industry and are afforded the opportunity to do that have gone and

gotten some training and are much more familiar with it, but in

many cases in people 40 years old and up that are often managing

these businesses or have the assets underneath them to be able to

participate today in the agricultural community, there are some

barriers related to just almost a fear factor related to using technology.

I have seen some people be fairly comfortable with it even, but

just their inability to type has stopped them from participating at

the level that they could.

To some extent as technology is increasing as we get more higher

speed access and more different technologies out into the countryside, I think we will be able to develop technologies that more easily interface with these people so some of the hurdles will not be

there, but those days are yet to come.

Chairman THUNE. What types of technology do you see most benefiting the agricultural economy?

Mr. AUGHENBAUGH. I think the dominant one has to be access to

the Internet. It brings an awareness that goes beyond the local

community that has not been there in the past and instant access

to information that can be used for marketing reasons of crops,

that can be used for better access and better and more efficiently

producing crops, those types of things.

Secondarily to that are better methods that farmers can use to

collect data on their farms, which then can be used by consultants

to advise them if they do not have the knowledge to use that information, or that information can be better shared with the supply

chain that they are involved in, which should strengthen their role

in that supply chain.

Chairman THUNE. How do we make farmers more aware of the

benefits of technology?

Mr. AUGHENBAUGH. I think awareness is out there in general. It

is more the ability to then act on that awareness that is the issue,

and that certainly involves training and investment in technologies

that can speed that process up for them, such as higher access to

the Internet.

Chairman THUNE. I have some questions for some of the other

witnesses, but I yield to Mr. Udall.

Mr. UDALL. Thank you, Mr. Chairman.

Dr. Cooper, some information I received in preparation for this

hearing states, ‘‘The Administration would like to see widespread

availability of broadband communications.’’ My question for you is what proposal does the Administration

recommend to ensure that all small businesses throughout the

country have affordable, high-speed Internet access?

Ms. COOPER. Well, I can say that we have not yet formulated any

specific proposal on broadband policy. We, as you might well imagVerDate 11-MAY-2000 13:16 May 24, 2002 Jkt 000000 PO 00000 Frm 00020 Fmt 6633 Sfmt 6602 W:\DISC\78339 txed01 PsN: txed01
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ine, are very interested, as you are, in having widespread access

for small businesses and for the population at large, but what we

know is that it is much better—everyone will be able to afford it

much better, small business will be able to afford it much better— if we are in an environment where the economy that is a stronger

economy.

That is one of the reasons we have pushed as hard as we have

over the course of this last year with regard to getting tax rates

changed and allowing small businesses to be able to have somewhat improved incomes in order to make the investments that we

know are needed over the course of the next year and pushed as

well in terms of trade and education to allow small businesses to

do that when the time comes.

Mr. UDALL. I assume the Administration sees this as a high priority from your perspective in your Department in terms of

broadband into all areas, including rural areas?

Ms. COOPER. We do see it as a high priority, but, as you can well

appreciate, it is a very difficult issue and one that we want to be

very careful in terms of coming up with the right set of proposals

so we have not been specific yet in that regard, but we are working

on it. We take it very seriously.

Mr. UDALL. If you look at your statistics in this report and you

are comparing urban and rural, is it fair to say that there is a huge

disparity there between urban and rural on broadband?

Ms. COOPER. I think there is a large disparity. It has to do with

costs in rural areas. It is a lot more cost effective in urban areas,

concentrated areas, for installing the technology and providing it to

a wide range of people. When we get to the rural areas, those that

would have to make the investment would have to make a lot more

significant investment for a smaller number of people, who then

would pay the bill.

I think we understand why that is the case. We just have to figure out the most effective way to move in the direction of getting

closer to parity over a period of time. We do not know exactly what

the right amount of time is. Here I am as an economist. I think

of everything in terms of a tradeoff. People have to look at prices

and cost-effectiveness.

We have heard from the people on the panel—I think they said

it much better than I could say it—that there is still some fear of

technology. All of that takes time to work its way out, and it has

to work its way out in terms of price as well, but I think we are

very much moving in the right direction.

Mr. UDALL. The whole idea of moving this into rural areas, I

think part of it is that the employment base there and the growth

that we want to see, and I know the Chairman has a district very

much like mine where I think there is a skilled workforce out there

in rural areas.

If you just have the ability to have broadband and have everybody hooked up, I think there would be a workforce that business

could plug into. You, I am sure, agree with that. It is just how we

get that done. We may have to think outside of the box, it seems

to me, in terms of the economics and everything else.

Have you looked at the different ways? I know you say the policy

is not set yet, but have you looked at the combinations that might

18

be there? I mean, is this something government should do, or

should it be in the private sector, or should it be a combination of

both?

Ms. COOPER. Congressman Udall, I understand your interest in

this. I would simply say that this is not an area that I am spending

a great deal of my time on.

We are providing the information, and I know the Commerce Department itself, with the rest of the Administration, is developing

such a policy. What we are trying to do with this report and with

this information is to help people understand what indeed the

changes that are out there might be and what the goals should be

when we do develop that policy.

I would remind you again that all of this would be more affordable with a strong economy. We certainly want to do that. I think

the news from this report is quite good in the sense that small

businesses, whether urban or rural, are devoting a quarter of their

investment into high-tech expenditures.

That in and of itself says that they are ready and willing and

their employees are a lot of them using computers already either

at home or at work, so I think it is a good story. It is just a question of exactly what the right way to go is. We are moving towards

a policy, but it has not been finalized yet.

Mr. UDALL. Thank you very much for your testimony.

Ms. COOPER. Yes.

Chairman THUNE. MR. CARSON. Mr. CARSON. Thank you very much, Mr. Chairman. I apologize

for missing the opening testimony of Dr. Cooper and Mr.

Aughenbaugh, if I am pronouncing that correctly. I read your testimony with interest, and I want to thank you and the rest of the

panel for your testimony today.

I also read the report from the Department of Commerce with

great interest as well. I wonder if I could just ask a couple of questions about that and then a couple of questions perhaps to Mr.

Aughenbaugh as well about some of the problems that he outlines

in his testimony about the difficulty getting his business on line

and hooked up with the kind of connection that he needs as well.

I know that in the report, Dr. Cooper, you discuss some estimates from various trade groups and private organizations about

the percentage of businesses that have access to broadband. Is

there any sense of the percent of the population in this country

that has access to broadband services?

Ms. COOPER. The number that I hear for the U.S. is right around

10 percent, 10 or 11 percent.

Mr. CARSON. That is the number I usually see reported as taking

up broadband services. My question is the percent of people who

have access to it if they so desire to have it.

Ms. COOPER. I am not familiar with how to come up with a different way to look at it than that. The only one I am familiar with

is the 10 percent.

Mr. CARSON. Do you have any sense of that 10-percent number

and how it breaks down between urban and rural or for the business community alone perhaps, if not the entire household—— Ms. COOPER. I do not. Earlier Chairman Thune mentioned a report that we released earlier, A Unique Nation On Line. I do not

19

have the numbers in my head. I do not have them with me, but

we certainly can get them to you.

Mr. CARSON. Very good.

Ms. COOPER. There is some breakdown in that.

Mr. CARSON. Do you know if there is a breakdown as well of that

10 percent of businesses that have access to broadband, some form

of broadband—DSL, cable, wireless, satellite?

Ms. COOPER. I have heard estimates along those lines. We will

get you what we can find. Certainly we would be happy to do that.

Mr. CARSON. Very good.

Mr. Aughenbaugh, let me ask you a couple of questions. You discussed the fact, as I recall, your business went to a satellite hookup. Is that correct?

Mr. AUGHENBAUGH. Yes.

Mr. CARSON. Tell me why you went to a satellite hookup. Does

your community have DSL? Does it not have wireless? Tell me

what led you to go to a satellite.

Mr. AUGHENBAUGH. Because our business is directed to the agricultural market, we decided to build our offices. Once the business

became successful seven or eight years ago, we decided to build our

offices in a rural location just outside of town to have closer access

to the customers we serve.

Mr. CARSON. And how big is the community that you are close

to?

Mr. AUGHENBAUGH. The one that I live in is ten miles away. It

is 1,100. The one that our office is closest to is a town by the name

of Iroquois, which is around 350 people.

Mr. CARSON. Okay. So very small.

Mr. AUGHENBAUGH. Yes.

Mr. CARSON. Okay.

Mr. AUGHENBAUGH. During the growth of our business, we grew

to expand to need ten of the 11 phone lines that came out of that

area, as I testified to. Our need was actually much greater than

that, and it kind of caused the need for a bunch of switches and

combination boxes and the like.

In fact, at one point one of my partners there, I overheard him

talking to our business development office in Minneapolis and referred to our office as Planet Iroquois due to the inadequacies of

the communication there. DSL is not an option in our company just

because of length from the central office.

Mr. CARSON. Who is your local exchange carrier there in your

area?

Mr. AUGHENBAUGH. Bell.

Mr. CARSON. Is it one of the regional Bell companies?

Mr. AUGHENBAUGH. One of the regional Bells. U.S. West or whatever name they call themselves today.

Mr. CARSON. I understand.

Mr. AUGHENBAUGH. We made a decision after talking to the

phone company in which they were going to require a several thousand dollar investment for us to pay them to bury more fiber into

our area off the main trunkline to go instead with an investment

in digital satellite capabilities.

Our first step into that was paying several thousand dollars for

our own computer server station that would really receive downlink

20

from a satellite, but at that point in time all we were able to have

was uplink through a local dial-up connector. Any problems we had

at that point was dealt with between two suppliers.

Mr. CARSON. Right.

Mr. AUGHENBAUGH. Later on we were able to go to a satellite

connection, which we now use, that goes up and down.

Mr. CARSON. Very good. One of the major debates in this whole

controversy over broadband is how we stimulate demand for it. The

application is out there. Now that Napster has gone, the font which

attributed so much of the demand for broadband in the consumer

market at least, that there is not a demand out there because the

application does not exist.

Tell me how your business is using it. Why broadband? Why do

you need it in a way that a 56K dial-up connection is not sufficient

for your work?

Mr. AUGHENBAUGH. Increasingly, our business has grown to do

commerce with several countries around the world as it relates to

food production and food tracking and food safety. Increasingly, as

we demonstrate these new capabilities to other people we try to do

that via demonstrations over the web.

That is where our technology is based, and that is also a very

efficient tool, as opposed to traveling and scheduling other activities for us to do so. Currently, it is very limited, the type of technology we can use to do that.

To expand on that just a touch, Congressman Udall mentioned

access to the capabilities of rural people. I think that the work

ethic and the raw capability of people in rural areas is in demand

by companies. They express a desire to move certain types of activities there.

Increasing capabilities and infrastructure of broadband technology is a pipe that can work the other way to these companies

so that a community can serve a broader industry and enterprise

that is out there.

Mr. CARSON. Can you tell us how much you pay for that two-way

satellite hookup?

Mr. AUGHENBAUGH. My wife can. I believe it is several hundred dollars a month, $300 a month or so that we pay for access charges

beyond the equipment.

Mr. CARSON. Just in your own experience, are other businesses

in South Dakota in rural areas like the one in which you live and

work, are they taking advantage of the satellite technology for

Internet access, or are consumers in households?

Mr. AUGHENBAUGH. Most have not made that leap. It takes quite

a bit of internal technical support at our company just to keep it

up and running, and so most of them may do with a dial-up connection, which is what they have today.

Mr. CARSON. Very good. One last question to Dr. Cooper, and this

may not be data you have at your immediate disposal or perhaps

you haven’t even collected.

In some of the surveys that have been done on small businesses

do we know, and I know you have some hypotheses about why

small businesses are not investing as much in IT as our large businesses that all sound quite plausible. Any survey data or similar

ideas about businesses that are offered various broadband techVerDate 11-MAY-2000 13:16 May 24, 2002 Jkt 000000 PO 00000 Frm 00024 Fmt 6633 Sfmt 6602 W:\DISC\78339 txed01 PsN: txed01
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nologies, various advanced services, their decision to take them up

or not?

That is, we have broadband offered a lot of places across the

country. People do not want it. It is expensive, more expensive here

than in most countries around the globe attributed to the lower

take-up rate of it.

Any reason why small businesses—maybe they do not think they

need it, for example, for their day-to-day work. Maybe there is not

that application out there. Any sense of numbers why people are

not taking more advantage of the high-speed advanced services?

Ms. COOPER. I have not seen specifically any research on that,

but I would say to you that I think everybody, and I think we have

heard vivid examples of this in the testimony that we have heard

this morning. Every small business person is looking at the tradeoff between benefit versus cost.

If they think that it will help them make money, the speed and

so forth that they get from it will help them add to their business,

then I think they will go ahead and be willing to pay the cost. I

think it is that tradeoff between price and benefit. Clearly what I

think small businesses will increasingly do is more and more begin

to use it.

We heard good examples I think as well of what large businesses’ role is in all of this. They tend to spend money, learn some of the

mistakes, get some of the providers of these services to change to

make them more user friendly, and then ultimately small businesses will get a better product. I think that is what they are waiting for. They are waiting for to some degree a better product.

But all of this, of course, this Administration is very, very interested in, in fostering small businesses’ access to capital and to people who know how to use the Internet and are learning how to use

the Internet. We know that small businesses have to take on risk,

and we want to make sure that they are rewarded for those risks.

I think this is just one more set of policies that we are allowing

them. We certainly know they have to make these choices themselves, and they will.

Mr. CARSON. Thank you, Dr. Cooper, and thank you, all members

of the panel, for being here today. Thank you, Mr. Chairman.

Chairman THUNE. Thank you. I understand, Dr. Cooper, if you

need to excuse yourself. We appreciate your testimony and response to questions this morning.

A couple of questions for the entire panel if I might. Again, this

has sort of been hit upon or touched upon in some of your testimony already, but I am just curious to know how much of a barrier

lack of broadband access is to the effective use of e-commerce for

small businesses.

Mr. Aughenbaugh has testified that in his particular set of circumstances broadband was a necessity in order to be able to demonstrate his services on a website, but how many of the others of

you have experienced, in terms of is that something that really prevents businesses from using e- commerce as a tool, not having

broadband access?

Mr. PEQUIGNEY. Somewhat from a communications perspective. I

mean, for information traveling from one point to another

broadband is a great benefit. If you think of files and things that

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need to be transferred from one location to another or if you are

accessing and searching for information on the Internet, broadband

saves you time. It allows you to be more efficient.

Chairman THUNE. Does anybody else care to tell me?

Mr. HUGH-JENSEN. I was just going to say that I think also in

developing some of your applications that you are using on line, I

think there are some applications that can be developed using a

lower bandwidth so really, I mean, you are sort of limited depending upon your location.

I think, once again not living in a rural area, I would have to

say that in my opinion I think that bandwidth today is adequate.

I think there are many, many other issues that sort of complement

the broadband argument that need to be thought of as well.

Chairman THUNE. Could you elaborate on that a little bit?

Mr. HUGH-JENSEN. Well, I mean, in part of my testimony I just

think that if you are talking from a small retail perspective I think

you have seen a lot of people streamline their internal resources.

You know, we hear all the time that everything in our lives today

is based on we are too busy. There are all these services out there.

Anything that we can do quickly is something we are interested in.

There is a time issue to be able to train part-time employees on

how to use these technologies that you are going to incorporate into

your business. You know, obviously the cost, which we brought up

today, is also prevalent.

When I was referring to cost, I was referring more to the hardware and software aspects, as opposed to the actual connectivity

costs from my perspective. I was really referring more to hardware,

software—— Chairman THUNE. Right.

Mr. HUGH-JENSEN [continuing]. Understanding of the costs to be

able to—there are a lot of software companies out there now that

you can purchase and you are forced almost to continuously make

these upgrades on a periodic basis. If you do not make these upgrades, you basically will not receive the same service level as

someone who does; once again, also an issue when you think about

making these huge capital expenditures.

Chairman THUNE. Can any of you sort of quantify the benefit of

technology to your bottom line? Can you measure? Is there a way

of saying, you know, that we are this much more profitable because

we use technology?

Mr. HUGH-JENSEN. Speaking from a retailer perspective, we just

had a meeting up in New York with a bunch of larger retailers as

well. We actually have a database. We have a small store, but what

we do is we ask people to provide us with their e-mail address once

they are in the store.

In two years, we have an e-mail database of about 8,000 people,

so from a perspective of doing regular print advertising, print advertising, newspaper advertising, whatever your normal marketing

avenues are, we are able to really see a tremendous bottom-line

cost savings from a standpoint of really being able to market new

promotions, new products, items that are basically going to be discontinued, et cetera.

We do offer an opt-out to all of the people. They have actually

given us their name, address, e-mail address. Sometimes they forVerDate 11-MAY-2000 13:16 May 24, 2002 Jkt 000000 PO 00000 Frm 00026 Fmt 6633 Sfmt 6602 W:\DISC\78339 txed01 PsN: txed01
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get that they did that, so in doing that we offer them an opt-out

to say please do not send me. We do not really overburden. We

send out probably about six to eight a year spaced out based on

promotions, new lines, et cetera.

I cannot tell you a dollar amount other than we have lowered our

marketing costs probably from 2000 to 2001. We have probably cut

our costs in half from what we expected for marketing from 2000

to 2001. We have probably cut that in half, which is nice because

now we can go and invest the monies that we need to upgrade to

the latest version for our POS system that we are using.

Chairman THUNE. Does anybody else care to—— Mr. PEQUIGNEY. Yes. I would say that without the available technology our company has taken advantage of, we would be hardpressed to have done—we would probably be about 40 percent

down from a revenue perspective.

Chairman THUNE. Let me ask you one other question just for the

panel, too. Have any of you lost customers because your access to

technology is not at the level of a larger competitor? Does it put

you at a disadvantage if the technology is deficient relative to those

larger businesses in the market that might have access to that sort

of technology?

Mr. RICHMOND. I cannot say that we ourselves have lost, but I

do know smaller companies that have. In our industry, it is starting to come more and more where customers are going to maybe

a third-party logistics.

One of the things that is required when they take over and they

might be writing a bid package is do you have GPS tracking? In

a DOT contract, do you have GPS tracking? If you have not been

keeping up with that or been handling that freight when that data

comes out, you are off the contract.

I know people that have lost for that very reason, or a customer

will go to an EDI-type billing system or an Internet- based shipment status billing. If you do not have that capability, you cannot

get that business.

Chairman THUNE. Anybody else?

Mr. PEQUIGNEY. I would say in our company, since we are a technology company, our size actually benefits us in many cases because we are able to take advantage of things that larger companies do not tap into as quickly.

Chairman THUNE. Do you have any other questions?

Mr. UDALL. I do not have any additional questions, but I would

like to thank each member of the panel for the insight and energy

you bring to this issue. Thank you very much for your testimony

today.

Chairman THUNE. Let me just close again also by echoing what

the distinguished gentleman from New Mexico said. Thank you for

your testimony. This is very insightful and helpful.

Like Tom, I have a keen interest in how we bridge this digital

divide that exists in this country. We are always seeking suggestions on policy that we can implement here, things that we might

be able to do to provide incentives.

There are some things out there that have been proposed. So, to

the degree that those solutions will help to sort of close that, I

mean, I think increasingly what we see in my part of the world,

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which is very rural and sparsely populated, is that we just do not

have some of the same access to those technologies that those in

more populated areas have. It makes it difficult.

I think that Mr. Aughenbaugh touched on it exactly. It is a way

of keeping people in rural areas if we can figure out a way to not

only provide access to technology, but how to apply it. Part of that

comes back to making sure you have people that understand and

are trained in using it.

But there are a whole range of issues here which I think strike

very profoundly at our ability to survive and prosper in rural areas

of this country, and so it is an issue of great importance to me, as

I know it is to Mr. Udall and others who represent rural areas.

We appreciate the insights that you have provided on this, and

we welcome your input in the future as we consider things that we

might do here in terms of public policy changes that would make

Internet access, broadband access technology more readily available in rural areas.

I thank you again for your testimony. With that, we will conclude

the hearing.

[Whereupon, at 11:30 a.m. the Subcommittee was adjourned.]

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