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[House Hearing, 107 Congress]
[From the U.S. Government Publishing Office]

 
                  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

                      U.S. GOVERNMENT PRINTING OFFICE
78-339                        WASHINGTON : 2002

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                      COMMITTEE ON SMALL BUSINESS

                  DONALD MANZULLO, Illinois, Chairman

LARRY COMBEST, Texas                 NYDIA M. VELAZQUEZ, New York
JOEL HEFLEY, Colorado                JUANITA MILLENDER-McDONALD, 
ROSCOE G. BARTLETT, Maryland             California
FRANK A. LoBIONDO, New Jersey        DANNY K. DAVIS, Illinois
SUE W. KELLY, New York               BILL PASCRELL, Jr., New Jersey
STEVE CHABOT, Ohio                   DONNA M. CHRISTENSEN, Virgin 
PATRICK J. TOOMEY, Pennsylvania          Islands
JIM DeMINT, South Carolina           ROBERT A. BRADY, Pennsylvania
JOHN R. THUNE, South Dakota          TOM UDALL, New Mexico
MICHAEL PENCE, Indiana               STEPHANIE TUBBS JONES, Ohio
MIKE FERGUSON, New Jersey            CHARLES A. GONZALEZ, Texas
DARRELL E. ISSA, California          DAVID D. PHELPS, Illinois
SAM GRAVES, Missouri                 GRACE F. NAPOLITANO, California
EDWARD L. SCHROCK, Virginia          BRIAN BAIRD, Washington
FELIX J. GRUCCI, Jr., New York       MARK UDALL, Colorado
TODD W. AKIN, Missouri               JAMES R. LANGEVIN, Rhode Island
SHELLEY MOORE CAPITO, West Virginia  MIKE ROSS, Arkansas
BILL SHUSTER, Pennsylvania           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            TOM UDALL, New Mexico
FELIX GRUCCI, New York               DONNA M. CHRISTENSEN, Virgin 
MIKE PENCE, Indiana                      Islands
BILL SHUSTER, Pennsylvania           DAVID D. PHELPS, Illinois
                                     BRAD CARSON, Oklahoma
                     Brad Close, Professional Staff

                            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

             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 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 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 andconstituent. 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 difficult 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 
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 medium- 
sized 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 
medium-sized firms. Our research presents a look first at 
entrepreneurs' information technology investment patterns and 
suggests a variety of questionsabout 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 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.
    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 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 
embracetechnology 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.
    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 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.
    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 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 meansthe 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 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 I-Cube. 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 e-mail 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 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.
    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 
curious 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 imagine, 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 andrural, 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 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 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 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 technologies, 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 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 forget 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 
hard-pressed 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, 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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