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UNIVERSAL SERVICE REFORM—BRINGING 

BROADBAND TO ALL AMERICANS 

HEARING 

BEFORE THE

COMMITTEE ON COMMERCE, 

SCIENCE, AND TRANSPORTATION 

UNITED STATES SENATE 

ONE HUNDRED TWELFTH CONGRESS 

FIRST SESSION 

OCTOBER 12, 2011 

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

( 

(II) 

SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION 

ONE HUNDRED TWELFTH CONGRESS 

FIRST SESSION 

JOHN D. ROCKEFELLER IV, West Virginia, Chairman 

DANIEL K. INOUYE, Hawaii 

JOHN F. KERRY, Massachusetts 

BARBARA BOXER, California 

BILL NELSON, Florida 

MARIA CANTWELL, Washington 

FRANK R. LAUTENBERG, New Jersey 

MARK PRYOR, Arkansas 

CLAIRE MCCASKILL, Missouri 

AMY KLOBUCHAR, Minnesota 

TOM UDALL, New Mexico 

MARK WARNER, Virginia 

MARK BEGICH, Alaska 

KAY BAILEY HUTCHISON, Texas, Ranking 

OLYMPIA J. SNOWE, Maine 

JIM DEMINT, South Carolina 

JOHN THUNE, South Dakota 

ROGER F. WICKER, Mississippi 

JOHNNY ISAKSON, Georgia 

ROY BLUNT, Missouri 

JOHN BOOZMAN, Arkansas 

PATRICK J. TOOMEY, Pennsylvania 

MARCO RUBIO, Florida 

KELLY AYOTTE, New Hampshire 

DEAN HELLER, Nevada 

ELLEN L. DONESKI, Staff Director 

JAMES REID, Deputy Staff Director 

BRUCE H. ANDREWS, General Counsel 

TODD BERTOSON, Republican Staff Director 

JARROD THOMPSON, Republican Deputy Staff Director 

REBECCA SEIDEL, Republican General Counsel and Chief Investigator 

(III) 

C O N T E N T S 

Page 

Hearing held on October 12, 2011 .......................................................................... 1 

Statement of Senator Rockefeller ........................................................................... 1 

Statement of Senator Kerry .................................................................................... 1 

Statement of Senator Inouye .................................................................................. 2 

Statement of Senator Hutchison ............................................................................ 6 

Statement of Senator Warner ................................................................................. 7 

Statement of Senator Cantwell .............................................................................. 8 

Prepared statement .......................................................................................... 8 

Statement of Senator Wicker .................................................................................. 8 

Prepared statement .......................................................................................... 8 

Statement of Senator Pryor .................................................................................... 52 

Statement of Senator Ayotte ................................................................................... 55 

Statement of Senator Begich .................................................................................. 57 

Prepared statement of ViaSat, Inc. ................................................................. 74 

Statement of Senator Thune ................................................................................... 60 

Statement of Senator Klobuchar ............................................................................ 63 

Statement of Senator Boozman .............................................................................. 65 

WITNESSES

Hon. Kathleen Q. Abernathy, Chief Legal Officer and Executive Vice President, Regulatory Affairs, Frontier Communications; former Commissioner, 

Federal Communications Commission (FCC) .................................................... 9 

Prepared statement .......................................................................................... 11 

Mary N. Dillon, President and Chief Executive Officer, United States Cellular 

Corporation ........................................................................................................... 14 

Prepared statement .......................................................................................... 15 

Michael K. Powell, President and Chief Executive Officer, National Cable 

& Telecommunications Association .................................................................... 19 

Prepared statement .......................................................................................... 21 

Shirley Bloomfield, Chief Executive Officer, National Telecommunications Cooperative Association ........................................................................................... 24 

Prepared statement .......................................................................................... 26 

Philip B. Jones, Commissioner, Washington Utilities and Transportation 

Commission ........................................................................................................... 31 

Prepared statement .......................................................................................... 33 

APPENDIX

Hon. Frank R. Lautenberg, U.S. Senator from New Jersey, prepared statement ...................................................................................................................... 77 

Response to written questions submitted to Hon. Kathleen Q. Abernathy 

by: 

Hon. Claire McCaskill ...................................................................................... 77 

Hon. Mark Pryor ............................................................................................... 78 

Hon. Olympia J. Snowe .................................................................................... 78 

Response to written questions submitted to Mary N. Dillon by: 

Hon. Claire McCaskill ...................................................................................... 81 

Hon. Olympia J. Snowe .................................................................................... 84 

Hon. Roger F. Wicker ....................................................................................... 86 

Response to written questions submitted to Michael K. Powell by: 

Hon. Claire McCaskill ...................................................................................... 88 

Hon. Olympia J. Snowe .................................................................................... 88 

Response to written questions submitted to Shirley Bloomfield by: 

Hon. Claire McCaskill ...................................................................................... 90 

Page

IV 

Response to written questions submitted to Shirley Bloomfield by—Continued 

Hon. Mark Pryor ............................................................................................... 92 

Hon. Olympia J. Snowe .................................................................................... 94 

Response to written questions submitted to Philip B. Jones by: 

Hon. Claire McCaskill ...................................................................................... 96 

Hon. Olympia J. Snowe .................................................................................... 97 

Letter dated October 18, 2011 to Hon. John D. Rockefeller IV from Mary 

N. Dillon ................................................................................................................ 102 

Letter dated October 19, 2011 to Hon. Jay Rockefeller IV and Hon. Kay 

Bailey Hutchison from Philip Jones, Commissioner, Washington Utilities 

and Transportation Commission ......................................................................... 104 

E-mail dated October 25, 2011 from Charles Bubnis ........................................... 106 

E-mail dated October 21, 2011 from Melissa Chalmers ....................................... 107 

E-mail dated October 20, 2011 from Cynthia Price .............................................. 108 

E-mail dated October 19, 2011 from Evelyn Savarin ........................................... 109 

(1) 

UNIVERSAL SERVICE REFORM—BRINGING 

BROADBAND TO ALL AMERICANS 

WEDNESDAY, OCTOBER 12, 2011 

U.S. SENATE, COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION, Washington, DC. 

The Committee met, pursuant to notice, 2:34 p.m. in room SR– 

253, Russell Senate Office Building, Hon. John D. Rockefeller IV, 

Chairman of the Committee, presiding. 

OPENING STATEMENT OF HON. JOHN D. ROCKEFELLER IV., 

U.S. SENATOR FROM WEST VIRGINIA 

The CHAIRMAN. Ladies and gentlemen, this hearing will come to 

order. And it’s going to be a very interesting hearing. 

And it’s not going to be started off by me, but it’s going to be 

started off by John Kerry, who has to leave immediately for that 

wonderful thing called the ‘‘super committee,’’ which is solving all 

the problems of all the eastern, western, and north, south countries. Plus, he’s a subcommittee chairman. 

Go ahead, Mr. Kerry, Senator Kerry. 

STATEMENT OF HON. JOHN F. KERRY, 

U.S. SENATOR FROM MASSACHUSETTS 

Senator KERRY. Mr. Chairman, thank you. I didn’t realize you 

were going to put me ahead of yourself. I appreciate it very much— 

and my colleagues, and especially Senator Warner, who made extra 

efforts to get here before me, I know. 

Mr. Chairman, an article that appeared in my state’s papers recently on the Universal Service Fund was titled, ‘‘Massachusetts 

Phone Charges Fuel Communications Investments Around the 

Country.’’ The article’s point was to highlight a dramatic inequity. Massachusetts telephone customers pay $1.47 billion in sur- charges into the Universal Service Fund, but draw only $415 million in benefits in return. Put another way, at a time when household budgets are squeezed and middle class and working families 

in Boston and throughout the state are subsidizing phone customers in other states in very large amounts, people are obviously 

very concerned about why the inequity between my state and others might be OK if you had a USF that you could say was really 

efficient and targeting only those communities that need it the 

most, and you can make an argument for that. 

But that’s not what’s happening. It might be OK if Massachusetts didn’t have large pockets of geography without access to 

broadband and with spotty wireless service, but we do. 

2 

Now, we need to start getting a fair share of the fund, and the 

fund needs to target areas of need in a financially responsible way. 

In a speech last week, Chairman Genachowski said this: ‘‘The 

Universal Service Fund is outdated. It still focuses on the telephone, while high-speed Internet is rapidly becoming our essential 

communications platform. USF is wasteful and inefficient. The 

fund pays some companies almost $2,000 a month. That’s more 

than $20,000 a year for a single home phone line. USF is unfair. 

Some parts of rural community are connected to state-of-the-art 

broadband, while other parts of rural America are entirely left behind, because the program doesn’t direct money where it’s most 

needed. USF is broken. And the related Intercarrier Compensation 

System—a complex system of payments phone companies make to 

each other when they connect calls—doesn’t work anymore either.’’ 

Those are all Chairman Genachowski’s words. 

Well, I agree with that assessment. And I don’t want my constituents’ money to continue to be spent this way any longer. The 

specific details of the FCC Chairman’s proposal for reform are on 

circulation at the FCC and are not yet public, so none of us can 

judge them yet. But I support the Chairman’s intent. 

I have written two letters over the last year to the FCC on this; 

and one was with Senator Warner, asking the FCC to focus on efficiency and broadband deployment where it’s most needed. And 

then another one we sent with Senators Lautenberg and Nelson, 

focusing on providing for greater equity in distribution. 

So today’s hearing is focused on the potential for these reforms 

at the FCC of the most costly of the Universal Service Fund programs, the High Cost program. 

I support universal service as a concept. I remember, Mr. Chairman, you and I on this committee, when we were struggling with 

it in the incipient days—I remember in 1996, when we wrote the 

Telecommunications Act, which we all learned within 6 months 

was completely outdated almost before the ink was dry—because 

all we did was talk about telephony, when the entire system was 

moving to data transmittal. 

So, we have a huge opportunity here to learn the lessons, to recognize that modern communications systems pose new challenges 

in a time of fiscal constraints. And I think we have to make sure 

we fund services with the end user in mind. 

And I thank you very, very much, Mr. Chairman, for letting me 

make this statement. 

The CHAIRMAN. Thank you, Senator Kerry. And thank you for 

the work you not only do here, but what you’re doing all day, every 

day. 

With the permission of the Ranking Member, of the getting-redder-and-redder Mark Warner, I would like to ask if Dan Inouye 

would like to say something. 

STATEMENT OF HON. DANIEL K. INOUYE, 

U.S. SENATOR FROM HAWAII 

Senator INOUYE. I appreciate this very much. 

I wish to commend the FCC for its efforts to reform the Universal Service Fund and Intercarrier Compensation programs to 

3 

support broadband growth and implement the goals of a National 

Broadband Plan. 

The draft order circulated by FCC, based on the scarce details 

available, appears to be a very concrete step forward in the effort 

to help sustain the investments that have already been made and 

will encourage new investment in broadband infrastructure in unserved areas. 

Furthermore, I’m pleased the proposal recognizes the adjustments must be made to recognize unique needs. But I am concerned the proposal will not go far enough to help native communities and remote, insular areas. 

For example, although the FCC Chairman’s proposal would dedicate special funds for tribal areas, the amounts, I believe, appears 

inadequate. Further, the Native American, Native Alaskan and Native Hawaiian communities face similar hardships and challenges 

when it comes to deploying broadband services and should all be 

eligible for any funds dedicated to assisting native communities. 

With respect to remote, insular areas, many of my colleagues 

have heard me speak over the years about the unique challenges 

facing these communities and the need to target assistance to ensure the availability of affordable, advanced communications services comparable to the services available in urban areas. 

To this end, during deliberation on the Telecommunications Act 

of 1996, I advocated the inclusion of a provision to specifically recognize the needs of remote, insular areas, including the state of 

Hawaii and the American territories. 

There is no question that there are severe geographic and economic obstacles to providing broadband technology in these areas, 

including geographic isolation, volcanic activity, difficult terrain, 

severe weather, and high transportation costs. In addition, these 

areas are further challenged by the limited availability and capacity of fiber and microwave links and the need for inter-island distribution facilities. 

While I’ve been disappointed that the FCC never completed its 

early efforts to identify how to give meaning to the term insular, 

I appreciate the fact that the FCC Chairman’s proposal recognizes 

the need to target remote areas. However, I question whether sufficient resources will be dedicated to meet these needs. 

Further, for many of us in the Pacific, satellite is not a viable option; and Hawaii has routinely been subject to discrimination in its 

access to direct broadcast satellite video services and direct-tohome broadband satellite services, resulting in services that are 

substantially inferior to those available to the rest of the United 

States. 

USF reform is indeed a difficult task. And I wish to thank all the 

witnesses for being here today to share their thoughts with the 

members of this committee on how best to reform this vital program. 

And it’s my hope that at the end of the day, reforms to the USF 

program will, in fact, result in the promised benefits to consumers 

throughout this land. 

And Mr. Chairman and members, I thank you very much for this 

consideration. 

4 

The CHAIRMAN. Thank you, Mr. Chairman. Haven’t you chaired 

every committee? 

Senator INOUYE. I try not to. 

The CHAIRMAN. You try not to, but you do. 

I want to make a statement, and then we’ll go to the distinguished senator from Texas and then to the most distinguished 

senator from Virginia. And I’ll repeat some of what’s been said, but 

it needs to be said again and again and again. 

As far back as the Communications Act of 1934, this country had 

a proud history of making sure that all of us have the opportunity 

to access modern communications networks. That is why universal 

service is a cherished principle. In years past, universal service has 

meant that we connect every community with basic telephone service. In the years ahead, it means that we connect our communities 

with something called broadband. 

Let me start by saying that I wholeheartedly applaud—and have 

told him so in a meeting in my office—FCC Chairman 

Genachowski for his efforts to reform this system. It is huge, the 

effort, and it is complicated to help bring broadband, both wired 

and wireless, to all Americans. He wants to do this. And he’s working assiduously at it. And he’s good at it. 

We’ve been talking about reform for more than a decade. I think 

it’s time really to do something about it. 

This committee understands that this challenge is not an easy 

one. It’s going to pit sector against sector; how much do I get paid, 

as opposed to how much do you get paid. I have a little speech I’m 

going to give about that at some point. 

Reform almost always means that some vested stakeholders will 

be unhappy because they prefer the status quo. And that is the definition of reform. That is the definition of reform. There are going 

to be unhappy people, unhappy companies, unhappy senators, unhappy constituents, or not as happy as they might be otherwise. 

Our nation’s communications infrastructure is the backbone of 

everything that we do in this economy, and we just simply can’t 

keep putting this off until we get everybody happy, because we 

never will. 

So, this Chairman wants to move ahead. Let me tell you why I 

think this is so important, and indulge me an extra minute. 

For too long, our universal service has focused upon communication challenges of the last century. We are analogs. We eat analogs; 

we wake up to analogs; we do analogs for our telecommunications. 

Obviously, it’s a digital age. We have not made the switch. And 

to the extent that it has been made, it has not been made psychologically or formally. 

Broadband is not just a technology. It’s a platform for opportunity. It’s the essential infrastructure of our day. I say that again: 

the essential infrastructure of our day. It is how we will grow in 

America, expand businesses, foster innovation, increase access to 

education, et cetera, et cetera, et cetera—even transform entertainment. 

There’s no doubt about it: Having widespread access to highspeed service is what this country requires to compete internationally—something we do rather poorly. And if we get this right, we 

can close the digital divide in rural America, or in all parts of 

5 

America; and we can provide the broadband and wireless access 

that is essential for every community to have a fair shot at prosperity in this century. 

Reform will require some very hard choices. But the fact is, there 

are big sections of this country that universal service policy barely 

benefits today. The fact of the matter is that, in some places, reimbursement is based upon the company rather than the constituency. 

The fact is that most people are pretty unhappy about what 

they’re getting—especially the size of their bills. That can come 

during questioning. 

We have to start targeting universal service support to areas of 

the country without service that truly need it—but not just them. 

This is not just about West Virginia that you’re about to hear. It’s 

not just them. 

Some states are underpaying. Some states are overpaying. As 

long as those people hold onto the status quo, we will not progress 

an inch, because they can block it from getting out of this committee, much less getting it onto the floor—such a complicated subject, with so little time left. 

The American people deserve better than an inefficient system 

that was designed to support the technologies—analog—of another 

era. Many members of this Committee have first-hand experience; 

they know it very well. So, making hard choices means developing 

a universal service system that works for the entire nation—and, 

if not equally for all parts of the entire nation, a movement in that 

direction. 

Senator Inouye, Chairman Inouye mentioned insular—a very important word for Alaska and for Hawaii. That’s in our public safety 

spectrum bill. That can be taken seriously. He said there won’t be 

enough money. Yes, probably true, the way things are these days. 

Does that mean, therefore, we don’t make changes; we don’t bite 

the bullet; we don’t set the framework? No, it doesn’t—not to this 

person. 

There is no one right reform plan. There isn’t any perfect one. 

More work needs to be done and is being done. I know there are 

serious questions about how to provide sufficient support for wireless networks in areas of the country where towers are too few and 

reliable signals are scarce. Actually, West Virginia is among those. 

I know there are serious questions about the impact of reform on 

consumer bills. I look at mine very, very closely these days. Very 

interesting, actually. Consumers need to get more value for what 

they pay for—not less value. 

I know there are serious questions about state commissions and 

the important role that they play, how they fit into reforms. I know 

that more accountability at the universal service system is critical. 

I know that deployment is the focus of this reform effort. Deployment. Yet we would be remiss if we do not also consider efforts to 

promote broadband adoption. That is an essential part of our 

broadband mission. 

And I also know this: We have an opportunity now that we better seize. People get tired of this stuff. People get weary. And that 

cannot happen. 

6 

Companies will lobby as they will lobby. Senators will lobby as 

they will lobby. But somewhere, there has to be a breakdown in 

this, so that we can reach a common purpose and pass something 

called a bill out of here, and out of there or whichever way the 

House is. Waiting only relegates too many communities to the 

wrong side of the digital divide. And I say, heavens, we’ve waited 

long enough. 

So, this is not just my clarion call. Comparable services at comparable rates—which is the going phrase—is a matter of law. 

I look forward to hearing the witnesses, and I turn now to my 

esteemed Co-Chairman, Senator Kay Bailey Hutchison. 

STATEMENT OF HON. KAY BAILEY HUTCHISON, 

U.S. SENATOR FROM TEXAS 

Senator HUTCHISON. Thank you very much, Mr. Chairman. 

Thank you for calling this hearing, because clearly so much good 

has happened since we established the Universal Service Fund in 

1996. I think just about every area of our country is covered with 

telephone service. Now is the time, with all of the options available, 

for a clear reform of the program. 

The FCC has recognized the problem, and I am pleased that 

their reform effort seems to be beginning to move forward. I don’t 

know what’s in their proposal, but I’m glad that they are seeing 

this issue as something that needs reform. 

I’m just going to lay out the things that I hope are in the FCC 

reform proposal. 

I believe that we need to ensure that the fund does not keep 

growing unsustainably. Consumers can’t afford the constantly increasing fees, and I hope that we will be able to fully utilize what 

is there without further raising the rates. 

The High-Cost program needs to focus on supporting carriers 

only where no one else is providing unsubsidized services. I think 

it should be clear that we don’t want to get in the way of free enterprise. 

While we’ve been subsidizing broadband indirectly through the 

USF for years, it’s time for the Universal Service Fund to officially 

become a broadband-centric program. As the chairman said, we’re 

in a digital age now, no longer in an analog age, and we need to 

adapt to that. This will lead to more efficient and effective use of 

USF dollars. 

Americans get broadband from a variety of technologies—telephone lines, cable TV wires, wireless communications, and satellites. The USF needs to be technology-neutral so it reflects today’s broadband marketplace. 

And last, the rates telephone companies charge each other needs 

to be rationalized; but the transition has to be done in a gradual 

manner. Providers who have made investments under the current 

system must have adequate time to plan for and adapt to a new 

system, and use what they have invested in. Otherwise consumers 

could get a disruption during the transition. 

I hope that the FCC will stay on course, and I hope they will be 

measured in the reforms that they put forward. And I am looking 

forward to working with you—our experts—but also with the FCC 

to try to address this problem in the right way. 

7 

Thank you Mr. Chairman. 

The CHAIRMAN. Thank you very much. 

This is such an important hearing that I’m torn—but not for 

long. 

Senator Warner just came up to me and said, look, let me just 

put mine in the record. Now that’s an amazing thing for Senator 

Warner to say—— 

[Laughter.] 

The CHAIRMAN.—because he has very strong ideas, for very good 

reasons, about everything that we’re discussing here. 

So, what I would like to do—and I think Senator Wicker wants 

to make his statement—what we should do here—we don’t have all 

that many people—is those who want to say something, let them 

so do, and those who want to put it in the record, let them so do. 

Senator Warner, you are not in the record. 

STATEMENT OF HON. MARK WARNER, 

U.S. SENATOR FROM VIRGINIA 

Senator WARNER. I’m not? 

The CHAIRMAN. You will be when you finish. 

Senator WARNER. Well, can I keep my time for some extra questions? I’ve got some questions for these folks. But I just want to 

commend the Chairman and the Ranking Member for doing this. 

You know, we kind of know where we’re at. The National 

Broadband Plan says we need $23 billion to build, at a minimum, 

a broadband system—$55 billion if we’ve got to do fiber to the 

home. We got a $4 billion a year high cost fund that we’ve got to 

figure out a smarter way, that is competitively neutral and technology-neutral, to get us there in a timely fashion. 

And, you know, my concern, and why I’m so anxious for this 

hearing and anxious to get to the questioning phase, is there have 

been some I think good faith efforts put together by industry already. I’ve got some very specific questions about some of those efforts. 

I, like I think all of our members, want to see this USF reform 

take place, take place in a timely way, and in a way where our 

communities who are still under-served, in terms of broadband access, get that, as I agree with the Chairman, absolutely critical 

21st Century infrastructure. 

And I would simply add—and something that I’ll come back to 

in the question period—our minimal standards we’re thinking 

about right now—for example, four megabits per second—sounds 

fast now. That isn’t going to sound very fast a few years from now. 

We need to lock in on standards that can move with technology. 

So, thank you, Mr. Chairman. I hope I’ll get my extra 2 minutes 

on questions. 

The CHAIRMAN. Thank you. 

So that I can be updated and humiliated, I would point out to 

the Committee that the FCC can do a USF thing without even consulting us. They just put it out. 

Senator Cantwell, Senator Pryor, Senator Klobuchar, Senator 

Wicker? 

8 

STATEMENT OF HON. MARIA CANTWELL, 

U.S. SENATOR FROM WASHINGTON 

Senator CANTWELL. Mr. Chairman, I just want to welcome Commissioner Phil Jones from the Washington Utilities and Transportation Commission. And I’ll submit my statement for the record. 

[The prepared statement of Senator Cantwell follows:] 

PREPARED STATEMENT OF HON. MARIA CANTWELL, U.S. SENATOR FROM WASHINGTON

Thank you Mr. Chairman for calling this important hearing. 

I want to welcome Washington Utilities and Transportation Commissioner Phil 

Jones to what I call the other Washington. Thank you for making the trip and for 

testifying at this hearing. 

Phil has served on the WUTC since 2005. He is very involved in telecom policy 

at the national level through the National Association of Regulatory Utility Commissioners. I know earlier in your career, you worked for Senator Dan Evans here 

in this Washington a number of years ago. Thank you for your public service in both 

Washingtons. 

There is broad agreement that reform of the universal service fund high cost support mechanism and the inter-carrier compensation system is long overdue. These 

programs were put in place years ago. They have served us well but have not kept 

pace with changes in technology and the competitive landscape. For one thing, the 

change from circuit switched networks to IP networks is accelerating. The cost to 

complete a call should be going down. While universal broadband is a policy imperative it should not be seen as a blank check. Ultimately funding for Universal Service 

Fund comes out of the pockets of consumers. 

I understand that fundamental change to long standing business models seem to 

present more challenges than opportunities. For that reason there have been several 

attempts at USF and inter-carrier compensation reform that have fallen short. I applaud Chairman Genachowski for taking on the issue and the various stakeholders 

for weighing in. I look forward to hearing from the panel. 

The CHAIRMAN. All right. Thank you very much. 

Senator Wicker? 

STATEMENT OF HON. ROGER F. WICKER, 

U.S. SENATOR FROM MISSISSIPPI 

Senator WICKER. Well, I’ll put my one-page statement in the 

record if I can make two points, Mr. Chairman. 

A reformed USF needs to adequately be responsive to the unique 

needs of rural America. And that’s one of the main points that 

needs to be made here today. The Commission needs to make sure 

it does not embrace one technology over the other. And I think our 

Ranking Member stressed that also. Rather, they need to ensure 

that the best technology for each geographic region receives support. 

Further, it’s important that carriers willing to invest in rural 

broadband infrastructure—a primary goal of 21st Century USF— 

are not impeded by anti-competitive regulatory framework. 

Having made those two points, I thank you, Mr. Chairman. 

Thank you for this hearing. And I’ll put my statement in the record 

as a whole. 

[The prepared statement of Senator Wicker follows:] 

PREPARED STATEMENT OF HON. ROGER F. WICKER, U.S. SENATOR FROM MISSISSIPPI

The issue of Universal Service and Intercarrier Compensation reform is an important and challenging one. With the FCC’s circulation of a draft order last week and 

an expected vote at month’s end, this process is well underway. But this hearing, 

with this broad cross-section of witnesses, can provide a good forum to underscore 

9 

the fact that there are many moving parts surrounding this issue, all of which need 

to be considered. 

As we transition the Universal Service Fund (USF) to focus on broadband availability, it is imperative that we rein in costs, making it more efficient and effective. 

At the same time, a reformed USF needs to be adequately responsive to the unique 

needs of rural America. 

The Commission needs to assure that our Nation’s vast rural areas, including significant portions of my home state of Mississippi, have access to the vital economic 

benefits of broadband. 

USF and ICC reform has been under consideration for over a decade. Now that 

we have reached critical mass, with an adoptable draft order on hand, the Commission needs to make sure it does not embrace one technology over another, but rather 

ensure that the best technology for each geographic region receives support. Further, it is important that the carriers willing to invest in rural broadband infrastructure—a primary goal of a 21st century USF—are not impeded by an anticompetitive regulatory framework. 

To proceed otherwise is to risk having a severe adverse impact on private sector 

investment and technological growth and in some cases may represent a step backward through reduced broadband availability. 

I applaud the efforts taken by the FCC to act on this important issue. I look forward to hearing our witnesses’ perspectives, suggestions and concerns as reform becomes a reality. 

The CHAIRMAN. It’s so ordered, and I thank you. 

Our witnesses today are Ms. Kathleen Abernathy. She’s the 

Chief Legal Officer and V.P. of Frontier Communications; and Ms. 

Mary Dillon, President and CEO, U.S. Cellular; Mr. Michael Powell, President and CEO, National Cable and Telecommunications 

Association—I think this is your first appearance here in that capacity. Ms. Shirley Bloomfield, CEO, National Telecommunications 

Cooperative Association; and, as has been noted, Mr. Philip Jones, 

Commissioner, Washington Utilities and Transportation Commission. 

I’ll just go down this list as it is and start with Ms. Abernathy. 

STATEMENT OF HON. KATHLEEN Q. ABERNATHY, 

CHIEF LEGAL OFFICER AND EXECUTIVE VICE PRESIDENT, 

REGULATORY AFFAIRS, FRONTIER COMMUNICATIONS; 

FORMER COMMISSIONER, FEDERAL COMMUNICATIONS 

COMMISSION (FCC) 

Ms. ABERNATHY. Thank you very much. Good afternoon, Chairman Rockefeller, Ranking Member Hutchison, and members of the 

Committee. It is a privilege to appear before you with my fellow 

panelists to discuss proposed reforms to universal service that will 

further promote broadband deployment to all Americans. 

Universal service reform, intercarrier compensation reform, 

broadband deployment—they’re all issues that I have worked on for 

a long time, first in the private sector, later on as an attorney in 

private practice, and then as a commissioner at the FCC, and now 

as an executive with Frontier Communications. 

Frontier is the largest provider of broadband, voice and video 

services focusing on rural America, and the fourth largest incumbent local exchange carrier in the country. 

During the last century, Frontier’s mission was ensuring that everyone in our area had access to reliable telephone voice service. 

That was the main means of communication. 

While Frontier continues to provide quality voice service, we 

agree with all of you that broadband has become the essential communications technology of the 21st Century; and we’ve redefined 

10 

our mission to provide reliable broadband service throughout our 

footprint. 

Frontier is committed to deploying broadband to some of the 

hardest-to-serve areas of the nation—areas where the population is 

scattered and the terrain challenges are significant. 

But despite these obstacles, we’ve been aggressively deploying 

broadband across our rural footprint. As of 15 months ago, prior to 

our most recent acquisition, we had high-speed Internet in 91 percent of the population in our footprint. And when we extended our 

commitment through the purchase of wireline operations from 

Verizon, we reaffirmed that commitment. We’re now in 27 states. 

And I’m happy to say, Mr. Chairman, we’re the largest service 

provider in West Virginia. 

We’ve made clear that our focus is on deploying broadband in 

these newly acquired markets, many of which had only 60 percent 

broadband penetration when we finalized the acquisition. We’ve invested heavily in the network, with the goal of extending 

broadband reach to 85 percent of the households in the newly acquired markets by the end of 2013. So, we are well aware of the 

challenges of delivering service to all of our customers and particularly the last 10 to 15 percent of the population that remains unserved, even with our aggressive deployment. 

The cost of deploying to these customers is exponentially higher 

than in the most densely populated areas, and the base of customers to absorb these costs is limited. Even given Frontier’s existing phone network in these low-density, high-cost areas, upgrading 

the existing facilities to make them broadband-capable is fundamentally uneconomic, absent government support. 

The FCC’s National Broadband Plan recognized this challenge 

and proposed transitioning the current Universal Service Fund to 

a broadband fund that would also reform the outdated intercarrier 

compensation scheme, and Chairman Genachowski, as you noted, 

announced last week that the FCC is moving ahead with this proposal. 

So, we’ve been working with our other wireline carriers—AT&T, 

CenturyLink, FairPoint, Verizon and Windstream—in support of 

what we call America’s Broadband Connectivity Plan, or the ABC 

Plan. 

The ABC Plan, in conjunction with the reform proposal of the 

rate-of-return carriers, is a consensus framework for reforming key 

areas of universal service and intercarrier competition—compensation to provide greater accountability, and to better direct the resources to the high-cost parts of the country. 

I want to stress that reform of intercarrier compensation is necessarily linked to USF reform. The intercarrier compensation system, which dictates how much carriers pay each other to complete 

calls, has always been a critical component of how rural carrier recover their costs. But it has become outdated, as technology has 

shifted from legacy voice networks over to broadband networks. 

So, the ABC Plan offers up a carefully constructed solution that 

combines a phase down of access charges with replacement revenue 

streams, and greater targeting to more accurately fund high cost 

parts of the country. This reform will also eliminate arbitrage opVerDate Nov 24 2008 13:10 Jun 15, 2012 Jkt 074568 PO 00000 Frm 00014 Fmt 6633 Sfmt 6601 S:\GPO\DOCS\74568.TXT SCOM1 PsN: JACKIE
11 

portunities, which, frankly, make no sense and simply undermine 

the goals of universal service funding. 

Finally, the plan meets the four principles articulated by Chairman Genachowski: First, the ABC plan transitions the current 

voice support mechanism to one for broadband. Second, it is fiscally 

responsible. It does not increase the size of the High Cost Fund, 

and more precisely and more accurately targets support to the most 

expensive, hardest- to-reach parts of the country. Third, the plan 

requires accountability: funding recipients are required to document and provide defined results. And fourth, the plan has marketdriven policies and uses a forward-looking model to distribute 

funds. 

So, in closing, the ABC Plan reflects a compromise and consensus, and is carefully balanced to provide ongoing stability and 

funding necessary to support broadband investment and deployment. 

Thank you. 

[The prepared statement of Ms. Abernathy follows:] 

PREPARED STATEMENT OF HON. KATHLEEN Q. ABERNATHY, CHIEF LEGAL OFFICER

AND EXECUTIVE VICE PRESIDENT, REGULATORY AFFAIRS, FRONTIER

COMMUNICATIONS; FORMER COMMISSIONER, FEDERAL COMMUNICATIONS

COMMISSION (FCC) 

Good afternoon Chairman Rockefeller, Ranking Member Hutchison, and members 

of the Committee. It is a privilege to appear before you this afternoon to discuss 

proposed reforms to universal service that will further promote broadband deployment to all Americans. Universal Service Fund (USF) reform, intercarrier compensation (ICC) reform, and broadband deployment are all issues I have been working on for a long time—as a telecommunications attorney in private practice, as a 

commissioner at the FCC, and now as Chief Legal Officer and Executive Vice President of Regulatory Affairs at Frontier Communications. 

Frontier is the largest provider of broadband, voice and video services focusing on 

rural America and the fourth largest incumbent local exchange carrier in the Nation. During the last century, Frontier’s mission was ensuring that everyone in its 

service area had access to reliable voice telephone service—the main means of communication. While Frontier continues to provide quality voice service, broadband 

has become the communications technology of the 21st Century, and Frontier has 

redefined its mission to provide reliable broadband service throughout its footprint. 

At Frontier, we embrace the position expressed by this Committee, Congress, the 

Administration and the FCC that broadband is the essential infrastructure of our 

time, capable of advancing job creation and economic growth, ensuring public safety, 

providing access to improved healthcare, enhancing education, and opening the 

doors of opportunity for all. But, to achieve these benefits, broadband should be 

available to all. Frontier is committed to deploying broadband to some of the hardest-to-serve areas in the Nation—areas where the population is scattered and the 

terrain challenges are hard to manage. 

Despite these challenges, Frontier has been aggressively deploying broadband 

throughout rural America. As of 15 months ago, Frontier had deployed high speed 

Internet to 91 percent of the households in its footprint. In July 2010, Frontier extended its commitment to serving rural America when we purchased the rural 

wireline operations of Verizon in 14 states. As a result, Frontier now has a coastto-coast rural footprint in 27 states and is the largest service provider in West Virginia. Frontier made clear that it would focus on deploying broadband in these 

newly acquired areas. Over the past year, Frontier has invested heavily in the network with the goal of bringing broadband access from approximately 60 percent 

availability up to 85 percent in the newly acquired markets by the end of 2013. Additionally, over the same period, Frontier has invested more than $750 million in 

capital expenditures. And, our commitment to the rural markets we serve is demonstrated by our 100 percent U.S. workforce. 

Frontier’s mission of providing high speed Internet to rural America is directly 

aligned with the Committee’s objective of ubiquitous broadband. At the same time, 

we are well aware of the challenges of delivering service to the last 10 percent to 

12 

15 percent of the population that remain unserved. The economics of deploying 

broadband to this hardest-to-serve segment of the population with private capital 

alone are daunting. The cost of deployment is exponentially higher than in the more 

densely populated areas and the base of customers is limited, which in turn limits 

potential return on investment. Even given Frontier’s existing infrastructure, which 

provides traditional phone service to these areas, the cost of upgrading the existing 

facilities to make them broadband-capable dwarfs any potential revenues. Simply 

stated, there is no business model for providing broadband service in these areas 

without an effective government support program to bridge the gap. 

The National Broadband Plan accurately concluded that serving most of the currently unserved areas of the country would be a money-losing proposition. To address this, the National Broadband Plan recommended transitioning the current 

Universal Service Fund for voice to a broadband fund while also reforming the arcane and outdated intercarrier compensation system. After reviewing various proposals, FCC Chairman Julius Genachowski announced last week that the FCC 

would act on a recommendation later this month. Frontier has been active in the 

FCC proceeding and joined with AT&T, CenturyLink, FairPoint, Verizon and 

Windstream in support of the America’s Broadband Connectivity Plan, or ABC Plan. 

The ABC Plan, in conjunction with the reform proposal for rate-of-return providers 

offered by the rural local exchange carrier associations NTCA, OPASTCO and WTA, 

provides a consensus framework for key areas of universal service and intercarrier 

compensation reform. 

It was no small task to find common ground among the six largest incumbent 

local exchange carriers. All of the companies have historically had varying and adverse positions on how to reform the existing system. But after several months of 

deliberations, negotiations and compromises, we were able to agree on a proposal 

that meets the principles articulated by Chairman Genachowski: a transition to 

broadband, fiscal responsibility, accountability and market-driven policies. 

• The ABC Plan transitions the current voice support mechanism to one that supports broadband. The newly created broadband fund will provide millions of 

Americans in high-cost areas with broadband access. 

• The ABC Plan is fiscally responsible. It does not increase the size of the current 

High Cost Fund. 

• The ABC Plan requires accountability. Funding recipients are required to provide defined results. 

• The ABC Plan has market-driven policies. It uses a forward-looking model to 

distribute funds quickly and efficiently, where applicable. 

Transition to broadband with limited funds. 

It is a complex project to transition the fund that currently supports voice service 

to one that supports deployment and operation of broadband service, all while maintaining the size of the fund. The ABC Plan meets these goals by more precisely targeting support for broadband to the most expensive and hardest-to-reach areas of 

the country on a granular, census block level. In addition, no support will be available where an unsubsidized broadband provider such as cable already offers service. 

Funding framework provides for quick and efficient deployment. 

In addition, the ABC Plan leverages existing broadband investment in certain 

areas to achieve rapid build-out to adjoining unserved areas. In particular, where 

an existing provider has already built out broadband to 35 percent of an area, the 

proposal offers that provider the opportunity to speedily complete build-out to the 

entire area with support calculated by the approved cost model. Some oppose this 

aspect of the proposal and recommend instead a lengthy, complex and burdensome 

reverse auction process to determine how new broadband support should be distributed. Before even getting to the ‘‘race to the bottom’’ with a reverse auction, the 

FCC will have to develop the ground rules for this cumbersome approach to funding 

the 900,000 census blocks in play. The initial result will be to delay broadband 

build-out for several years. Yet, incumbent carriers such as Frontier have been providing voice service under Title II, as well as under state regulations such as Carrier of Last Resort requirements, to these areas for some time. With incremental 

investment, the existing voice infrastructure can be upgraded to provide broadband. 

It is unlikely that a new provider would have both existing infrastructure and experience in the area to produce similar efficiencies within the same timeframe. Given 

the need for rapid deployment of broadband service to these high cost, unserved 

areas, and the fact that these areas are already served by traditional phone service, 

the ABC proposal best accomplishes the FCC’s goals. 

13 

Ubiquitous broadband benefits all. 

Clearly, this Committee recognizes the great benefits that broadband will bring 

to Americans—in both rural and urban areas. While Frontier chiefly serves rural 

America and focuses on the benefits that broadband will bring to its residents, 

urban and suburban residents will benefit from this Plan as well. On a very basic 

level, the Plan maintains the size of the fund, which means that the FCC will not 

require increased contributions from urban and suburban ratepayers. Most importantly, the entire country benefits from having access to 21st Century technology; 

friends, relatives, businesses and potential customers can connect with each other— 

whether in urban or rural markets. 

Intercarrier compensation reform is inextricably linked to modernization 

of USF. 

I hesitate to discuss intercarrier compensation because it can make USF reform 

seem like a walk in the park. But I must stress that reform of ICC is inextricably 

linked to USF reform. The intercarrier compensation system—which dictates how 

much carriers pay each other to complete calls over each other’s networks—grows 

more outdated as communications technology shifts from legacy voice networks to 

broadband. The ABC Plan proposes a five year transition of the many intercarrier 

compensation rates to a much lower uniform rate, and gives carriers options to try 

to make up revenue lost to mandated rate cuts. In particular, the proposed uniform 

intercarrier compensation rate for the termination of voice traffic will go from as 

much as 36¢/minute for some intrastate rates, to .07¢cent. That means that long 

distance and wireless providers will be paying significantly less to have their customers’ calls terminated on the public switched telephone network (PSTN), and we 

believe that benefit—which has been estimated to translate to $9 billion per year 

nationwide in consumer benefits—will get passed on to consumers in numerous 

forms including long distance rate reductions and increased investment and innovation. In addition, a unified terminating rate will eliminate arbitrage opportunities 

such as phantom traffic and traffic pumping, which have resulted in significant administrative costs, lost revenues and uncertainty for providers. 

Revenue Replacement For Losses In Access Revenues 

With this significant decrease in intercarrier compensation rates, many providers 

will lose revenues used to maintain and upgrade networks in high cost areas. Incumbent local exchange carriers’ monthly basic service rates for consumers are generally regulated by state public utility commissions and range from under $10 to 

$30 or more, depending on the state. In addition to the state component of the basic 

service rate, the Federal government permits carriers to apply a limited subscriber 

line charge (SLC). Under the ABC Plan, in areas where local telephone rates plus 

the SLC and all taxes are below a benchmark of $30, carriers may raise their subscriber line charges by 50¢ to 75¢ per year to help compensate for some revenue 

losses that result from intercarrier compensation reform. These potential increases 

are optional, and in some places carriers will not be able to raise their SLCs because 

their rates already hit the benchmark, while in other markets the companies will 

need to forego the opportunity to recover the revenue as competitive or other factors 

will not enable an increase in local voice rates. Frontier takes any rate increase very 

seriously, as do our customers, but we note that our voice competitors, such as competitive local exchange carriers, wireless providers and cable through voice over 

Internet protocol (VoIP), have no similar rate regulation or service area requirements. 

In closing, we believe the time to act on comprehensive reform of universal service 

and intercarrier compensation is now. As the senior Members of this Committee and 

the panelists sitting with me here know well, updating universal service and intercarrier compensation is difficult. The ABC Plan along with the rate-of-return proposal provides a framework for comprehensive reform of the existing systems while 

observing the key principles laid out by FCC Chairman Genachowski and providing 

significant benefits to consumers. It is a carefully negotiated proposal among the 

carriers with the most history and involvement in universal service and intercarrier 

compensation. We urge the FCC to take momentous action later this month by implementing as closely as possible, our comprehensive proposal. And we hope you will 

support us in this process. Thank you. 

The CHAIRMAN. Thank you. 

Let me see. Ms. Dillon. 

14 

STATEMENT OF MARY N. DILLON, PRESIDENT AND 

CHIEF EXECUTIVE OFFICER, UNITED STATES CELLULAR 

Ms. DILLON. OK. Thank you, Mr. Chairman and members of the 

Committee. Thank you very much for inviting me here today on 

this issue of great importance to all Americans, and including those 

living in rural communities. 

As you know, the FCC is working hard to reform and re-purpose 

the Universal Service Fund to support high speed broadband. We 

support reform, and believe that the goal should be to invest funds 

efficiently to deliver affordable access to both wireline and wireless 

high speed broadband to all Americans. 

What concerns me is that the Commission’s current proposal appears to favor wireline service over wireless. Wireless, which is currently capped at $1.2 billion in the fund, would be reduced to only 

$300 to $400 million, while wireline carriers would see their support increase from approximately $3 billion to $4.2 billion. So, that 

just doesn’t make sense for a couple of reasons. 

First, as we all know, consumers are moving very rapidly to 

wireless services, and that trend is accelerating. Today, roughly 

one-third of households are wireless only, and the array of wireless 

services that facilitate consumer lifestyles and business productivity, they are rapidly expanding. 

Second, the job of providing coverage throughout America—particularly in the rural areas, as has been noted here today—it’s not 

complete. And as you know, when you travel throughout your state, 

everybody experiences dead zones today. 

So, here’s what we think makes more sense for consumers. A recent study estimated that it will take up to $20 billion to build 

high-quality, mobile broadband networks across the rest of rural 

America. So, at a minimum, $1 billion a year, or less than 25 percent of the available funding, is what’s required to make a significant progress and difference in the next decade. 

Given the importance of wireless in public safety and economic development, the proposed $300 million, or 7 percent of the fund, 

is simply just not enough. 

There’s additional benefits to providing adequate funding for mobile broadband: investing in wireless drives economic growth. In 

fact, Deloitte recently published a study that indicates and shows 

that for every billion dollars invested in mobile infrastructure, 

15,000 jobs are created. 

In addition, mobile broadband can deliver high speeds even faster than what was recommended in the National Broadband Plan. 

So, let me offer two final observations. First, there needs to be 

a focus on the transition from the old program to the new. The 

FCC may be beginning to plan a phase down of the existing wireless funding while they consider a new distribution method and another proceeding. It’s risky, because if the FCC action on a new replacement approach is delayed, investments in rural networks that 

we and others have planned today would also be, likewise, delayed 

or canceled. So, we therefore ask you to ensure a smooth transition 

from the old to the new approach. 

And second, I want to be clear that I strongly believe that every 

participant in this program should be held accountable for how 

they use the support that they receive. Today, we keep track of our 

15 

investments; we report on our progress to regulators often. And we 

believe proper accountability is a critical element of reform. 

So, in closing, decisions that the FCC makes today will affect the 

development of broadband for a decade or more. Properly allocating 

universal service funding is probably the most important thing the 

FCC will do for a long time. 

So, reform must put the interests of consumers first and recognize the undeniable trend in the industry that wireless continues 

to grow, while wireline continues to shrink. Mobile broadband is 

absolutely critical to our Nation’s ability to compete in the global 

marketplace. And therefore, the FCC needs to ensure sufficient 

funding to ensure that our citizens have access to the tools that 

they need to be successful. 

So, thank you very much for the opportunity today. 

[The prepared statement of Ms. Dillon follows:] 

PREPARED STATEMENT OF MARY N. DILLON, PRESIDENT

AND CHIEF EXECUTIVE OFFICER, UNITED STATES CELLULAR CORPORATION

Chairman Rockefeller, Ranking Member Hutchison, members of the Committee, 

my name is Mary Dillon, and I am President and Chief Executive Officer of United 

States Cellular Corporation. Thank you for the opportunity to discuss the FCC’s imminent action to reform the universal service and intercarrier compensation mechanisms. 

Introduction 

U.S. Cellular provides wireless service in nearly 200 markets across 26 states located in regional clusters across the country, including many of the states represented on this Committee such as Maine, Missouri, New Hampshire, Virginia, 

West Virginia and Washington. The overwhelming majority of the geography we 

serve is rural in character. Our opinions and perspectives on the Universal Service 

Fund are informed by our experience as an eligible telecommunications carrier 

(‘‘ETC’’) serving rural America. 

Fifteen years ago, Congress declared that rural citizens should have access to telecommunications and information services that are reasonably comparable to those 

available in urban areas. Last week, Chairman Genachowski announced that his vision of universal service reform includes the creation of a mobility fund, recognizing 

the critical role that mobile broadband plays in public safety and economic development in rural and high-cost areas. We thank him for his leadership in recognizing 

the important role of mobile broadband in enriching the lives of all of our citizens. 

What we hope to see in the upcoming order is a mobile broadband program that 

is sufficiently funded so that we can effectively expand and deploy mobile broadband 

networks in rural America. 

From our perspective, mobility and broadband are the two ‘‘must have’’ applications to enable our citizens and businesses to be competitive with other developed 

countries. Our country is stronger when citizens living in both urban and rural 

areas have access to the tools needed to participate in the world economy. As you 

know, mobile broadband uptake is exploding, and roughly one in three households 

is now wireless-only. 

We use federal universal service support to build new cell sites and operate facilities in many high-cost rural areas that would not otherwise have access, and we 

see first-hand the profound effect that access to advanced wireless service has on 

jobs and the quality of life of the consumers in rural America that we serve. In furtherance of the mission you gave them, to both ‘‘preserve and advance’’ universal 

service, the Federal Communications Commission must include funding to build, 

maintain and upgrade state of the art and high-quality broadband networks 

throughout those areas of the country that would not otherwise attract sufficient 

private capital. 

Between 1999 and 2010, over $34 billion of universal service support has been invested in fixed voice service while less than $8 billion has funded mobile voice 

16 

1 2010 Federal-State Joint Board Monitoring Report at Table 3.2; http://hraunfoss.fcc.gov/ 

edocslpublic/attachmatch/DOC-303886A5.pdf. 

service.1 In the wireless industry, support has been integral to our ability to extend 

new cell towers into rural areas, beyond the major towns and highways. Included 

with my statement as Exhibit 1, are a series of maps that demonstrate two things. 

First, we’ve made tremendous progress in improving coverage for rural Americans 

thanks to USF support, and second, that significant coverage gaps remain. 

These maps are instructive, because it is readily apparent that building new towers and providing high-quality coverage is the essential building block in delivering 

future mobile broadband services. That is, support is needed to build new towers, 

and overlay new 4G broadband technology in order to provide rural areas with highquality mobile broadband service that they can depend on. 

Here is one small example of what is happening in the marketplace. Amazon recently announced that its new Kindle Fire device includes free cloud storage for all 

Amazon content. Consumers are discovering the convenience of cloud storage for 

their digital content, including books, music, video and periodicals. As this transition commences, demand for mobile broadband will increase exponentially, as consumers will access this content any place that network quality is good. They do not 

intend to plug these devices into a wire in order to access their content. 

As a carrier that invests in rural communities and wants to deliver these services 

to our customers, we offer the following views on the Commission’s upcoming action 

and the role of universal service in helping all Americans access broadband services: 

1. High-Quality Mobile Service is Critical to Rural Americans 

As we’ve previously testified before this Committee, our research indicates that, 

given an either/or choice, most rural citizens would give up their home connection 

to the Internet because they view mobile access as a critical communications tool. 

Traveling in remote rural areas without a wireless device capable of dialing 911 or 

communicating with family is just not done in today’s world. This is not to suggest 

that rural areas don’t deserve access to both fixed and mobile broadband, but it 

highlights how important our rural citizens believe mobile services are in today’s 

world. 

Many of our new customers tell us that the reason for choosing our service is superior coverage in rural areas, much of which has been made possible by the FCC’s 

current universal service mechanism. In addition, policy makers often tell us they 

personally experience dead zones, or that their constituents have identified a lack 

of coverage in areas they live, work and travel. The symptoms include an inability 

to receive e-mail messages or access the Internet, inability to use smart phone 

functionalities, and batteries that die quickly because the device is constantly 

searching for a network. 

I would like to address up front the well-worn assertion that almost everyone has 

access to two or more mobile carriers. While technically that statement could be 

true it is misleading at best because it says absolutely nothing about the quality 

of that access experienced by citizens living in rural areas. For us, universal service 

is the difference between some mobile service in some areas (think ‘‘one bar’’ that 

flickers in and out) and high-quality service (think ‘‘five bars’’ that remain steady 

as you move) everywhere that rural citizens live, work and travel. A robust and ongoing program is needed to enable mobile carriers to fill in coverage gaps that continue to plague rural areas, otherwise citizens will be forced to settle for service 

quality that is inferior to that which is available in urban areas. And, as I mentioned above, coverage delivered by building towers is the gateway to high-quality 

broadband. 

Further evidence that more investment is needed in rural America to deliver 

high-quality mobile services can be found in a recent poll we commissioned. We 

have included a copy of this data as Exhibit 2. Currently, the Federal high-cost 

mechanism disburses approximately $4.5 billion per year. When asked how that 

amount should be divided going forward between fixed and mobile services, the 

great majority of Americans surveyed would invest approximately 50 percent in 

each category. 

This indicates a clear understanding that mobility plays a critical role and that 

more needs to be done. The idea that over 90 percent of universal service funds 

should be invested in either technology polled at 14 percent approval. Yet, the 

wireline-sponsored industry proposals that the FCC is considering would invest 93 

percent of available funds to landline technology and it would reduce existing funding for mobile broadband by 75 percent, or perhaps more, depending upon whether 

wireline carriers choose to take 100 percent of the funds which under their proposal 

they have the ability to do so. 

17 

2http://www.nytimes.com/2011/02/22/technology/22iht-broadband22.html. 3The FCC’s Technological Advisory Council recently estimated that by 2018, only 8 percent 

of the population will subscribe to residential telephone service on the public switched network. 

See, http://transition.fcc.gov/oet/tac/TACJune2011mtgfullpresentation.pdf. 4http://www.deloitte.com/assets/Dcom-UnitedStates/Local%20Assets/Documents/TMTlus 

ltmt/usltmtlimpactof4gl081911.pdf. 

If you look forward a decade under the wireline industry proposal, $42–45 billion 

would be invested in fixed services, while $0–3 billion would be invested in mobile 

services. At this time, when smart phones now place enormous computing power in 

an average person’s hands, when tablets are on the verge of revolutionizing industry 

and education, and when demand for mobile broadband is exploding in our urban 

centers, this is not an investment mix that will provide rural Americans with the 

opportunities they need to compete. It will fail to provide rural Americans with access to reasonably comparable services, which is what Congress mandated that the 

FCC do. 

I note that South Korea has set a goal to connect every one of its citizens at a 

speed of one gigabit per second by the end of 2012,2 while here in the U.S., wireline 

carriers propose to connect most of our citizens at 4 megabits per second, ten years 

from now. This is hardly the kind of big thinking that has been the hallmark of 

this country from its inception. 

In areas where population density and geographic challenges make it too expensive to string fiber to homes, mobile broadband can today provide speeds far greater 

than 4 megabits, and next generation LTE technology promises significant increases 

in speed, in addition to mobility. 

It is absolutely essential to provide enough support for mobile broadband to ‘‘move 

the needle’’ and bring meaningful infrastructure development to rural areas. We are 

prepared to build new towers that provide coverage and will be broadband-ready on 

day one. Accordingly, it is essential that at least $1 billion per year be invested in 

expanding our mobile broadband networks. That is less than 25 percent of the high 

cost fund to support the technology that rural consumers are demanding.3 Given 

that consumers of mobile services now contribute over $3 billion per year into the 

fund each year, they should not have to subsidizing networks they have abandoned 

to the exclusion of the networks they have chosen and be denied access to reasonably comparable services that Congress intended they receive. 

We thank FCC Chairman Genachowski for announcing last week that the FCC 

will adopt an FCC plan, not an industry plan, and we ask this Committee to insist 

that the FCC reject the plan for our rural areas that the wireline industry has included in its recent proposals. 

Access to high-quality mobile broadband service that is reasonably comparable to 

that which is available in urban areas must be a core component of universal service 

reform. 

2. Universal Service is a Driver of Jobs and Economic Development 

The high-cost fund can be a powerful engine of economic development, especially 

with respect to mobile broadband. When carriers use support to build infrastructure, 

it has a substantial multiplier effect in the economy. Jobs are created in construction, and more are created when mobile broadband enables people to build businesses. 

Deloitte recently released a study indicating that every one billion dollars of investment in mobile infrastructure creates 15,000 jobs.4 Accordingly, at this critical 

time, when jobs and growth are foremost in every government decision, if you want 

program funds to go farther, to deliver faster speed in a shorter time, while creating 

thousands of jobs and accelerating economic opportunities for rural Americans, more 

funding should be directed toward mobile broadband services. 

When a business decides whether to move to a rural area, or move out of it, highquality mobile wireless coverage is a factor. Each year, it will be more of a factor, 

especially as new 4G networks continue to proliferate. At a time when our economy 

is struggling, and millions of people are unemployed, we have urged the FCC to reject any proposal that would constrain funding to mobile wireless carriers, an industry that continues to buck national trends by investing in infrastructure and hiring 

new workers. 

Yet, as I understand the wireline industry plans, they propose to cut funding for 

mobile wireless, perhaps to zero. Today we’re using those funds to build towers, and 

related infrastructure. Every time we turn on a tower, all of the consumer and economic development benefits we’ve talked about are made available. Nobody has adequately explained to me why, at this moment, reducing infrastructure investment 

in our economy is being seriously considered. 

18 

A one billion dollar investment in mobile broadband infrastructure each year 

would create 15,000 jobs and stimulate economic growth in rural America. We believe that an investment of that order of magnitude—although less than what is 

being invested today—is needed to keep rural America from falling further behind. 

3. Improving Mobile Coverage and Enabling Mobile Broadband Will Deliver 

Enormous Public Safety Benefits to Rural Americans 

As you know, a mobile phone has become the single most important safety tool 

that a person can have. Seemingly every day you can find a story on the web about 

someone who has been helped, including an incredible one a few weeks ago where 

a severely injured man trapped in a ravine in a remote area of California was rescued with the help of mobile wireless technology. 

Anyone who travels throughout rural areas knows there remain dead zones that 

need to be filled in, and that mobile phones do not work on all mobile wireless networks. That problem will continue in the coming 4G world, because there remain 

significant challenges in developing interoperable networks in both commercial and 

public safety networks. Accordingly, as mentioned above, funding mobile technology 

so that carriers can continue to fill in dead zones in rural areas has critical public 

safety benefits for all Americans. 

The FCC is now moving forward on a proceeding to enable people to contact 911 

operators and first responders through text messaging and other media devices, 

such as a tablet, a book reader, or any device with a web connection, enabling people to not only speak to first responders, but to send pictures or video that can assist them. These tools have incredible potential, but at their core they are meaningless without towers and the coverage they provide which enable these devices. 

Senator Rockefeller, you and others on this committee have championed the cause 

of public safety by advocating that they receive additional spectrum so they can 

have an interoperable broadband network. When the time comes to build that network, its cost and the time it takes to build it can be greatly reduced, while coverage 

can be improved if commercial carriers have towers in place on which public safety 

can hang their radios, rather than building a new cell site. 

For years, we have advocated that support be targeted more accurately to the 

high-cost areas that need investment, including those with ‘‘some service in some 

areas’’ so that carriers become more accountable for the funding they receive and 

that rural consumers see meaningful improvement in network quality. Properly targeting support increases program accountability and accelerates benefits to rural 

communities. 

Accordingly, the best thing you can do for your rural constituents is to see that the 

FCC creates a robust mobile broadband fund with proper accountability, so that 

rural citizens have the benefit of high-quality mobile wireless coverage—and mobile 

broadband. 

4. The Transition to New Support Mechanisms Must be Measured and Orderly 

The Broadband Plan and the Commission have said that reform should be done 

without ‘‘flash cuts,’’ so that carriers can make appropriate adjustments and prepare 

for significant changes as reform is implemented. We agree with that approach. Yet, 

our understanding is that a phase down of support to wireless carriers under the 

existing mechanism would begin immediately, even though a new mobility fund 

mechanism may not be in place for several years. 

It is critically important that the timing of a phase-out of existing support coincides with the phase-in of new mechanisms. First, if support to wireless carriers is 

reduced without a replacement mechanism, cell sites built in remote areas will be 

immediately at risk, especially those where revenues are not covering cell site operating costs. 

Second, it is counterproductive to rapidly reduce funding to rural areas that still 

require significant capital investment to be brought up to par with urban areas. 

Third, as a part of how we are accountable for the funds we receive, we have submitted build plans to many states, the accomplishment of which depend on highcost support. Cutting funding will undermine the regulatory promises we have made 

to state commissions and deny many communities the benefit of new cell sites that 

we have committed to deliver. 

A new mobility fund that provides sufficient funding for rural America must be 

phased in coincident to the phasing out of the current support mechanism. 

Concluding Thoughts 

We are likely to get a reform order within weeks. This Committee’s oversight responsibility must include direction that a new broadband fund that does not include 

sufficient funding to meaningfully improve the lives of rural Americans is not acceptable. All four Commissioners have made clear how important it is to reform this 

19 

program, and all share the goal of investing funds more efficiently and directing 

more funds to the services that consumers are actually using. 

Unfortunately, last minute proposals from the wireline industry maintain the status quo for them, while gutting investment in mobile broadband. To date, the Chairman has made clear that he will not be adopting such proposals. 

I urge you to continue to monitor the process, as there is no more important mission for the FCC at this time than to ensure that public funds are invested efficiently, targeted toward areas that need them, that companies who receive funds 

are accountable, and that universal service is used to accelerate both fixed and mobile broadband service throughout our Nation. 

The CHAIRMAN. Thanks very much. 

Michael Powell? 

STATEMENT OF MICHAEL K. POWELL, PRESIDENT AND 

CHIEF EXECUTIVE OFFICER, NATIONAL CABLE & 

TELECOMMUNICATIONS ASSOCIATION 

Mr. POWELL. Chairman Rockefeller, thank you very much. 

It’s a privilege to be sitting at this table again, particularly at 

the maiden voyage in my new capacity as President and CEO of 

the National Cable and Telecommunications Association. 

And Senator Hutchison, thank you as well for hosting this hearing today, as well as other distinguished members of the Committee. 

As you’ve no doubt ascertained, USF can be a complex, arcane, 

downright mind-numbing subject. The subject is important, however. Getting it right will advance our communications goals. Getting it wrong will retard competition and innovation for the better 

part of the next decade—something the United States can ill afford. 

I would submit that, despite the depth of detail, there is one 

overarching principle that can guide Congress and the FCC to the 

right place: Focus on the American consumer, and not the financial 

interests of corporations. 

The USF program is not designed to maximize profit, protect any 

one particular business model, or federally guarantee loans. It is 

meant to get service to consumers at affordable rates. 

Focusing on the consumer brings a number of the complex issues 

into clearer relief: first, because it is the public interest that is 

paramount, the FCC has to write the plan, and not any group of 

self-interested, even if well-meaning, companies. Consensus or not, 

you should not be surprised that a draft principally developed by 

a subset of telephone companies favors their private interests in 

meaningful respects. I would probably do the same. And, though I 

concede that they have been valuable starting points—and we 

agree with many of the supposed consensus plans—it cannot be 

treated as ‘‘take it or leave it’’ if we hope to get reform right. 

But more importantly, we cannot forget that, while companies 

get the money, it’s consumers that write the check. And while all 

communications consumers share the burden, not all directly share 

in the benefits. A bloating fund will jeopardize public support for 

this critical program. 

We accept, as we should, that the universal service goals of ubiquity and affordability are critical to the national welfare. But it becomes clear when you understand that consumers bear the costs 

that we should have a clear fiduciary responsibility to: one—do not 

collect or spend any more money than is absolutely necessary; two: 

20 

demand accountability and efficiency; and target subsidies not to 

classes of companies, but to areas clearly in need of support where 

our citizens live. For this reason, NCTA has pressed vigorously for 

a cap, or financial controls, on the fund to require targeting in unserved areas in large measure, recognizing the danger of an everballooning fund. 

Consumer contributions in the first quarter of 2011 hit record 

levels. $15.50 of every $100 spent by an American consumer goes 

to this $8 billion program. 

Competition is what favors consumers. For the better part of the 

last century, policymakers accepted that the communications market was best served by a government-supported monopoly. In fact, 

the term ‘‘universal service’’ was actually coined by Theodore Vail 

in 1907, the CEO of AT&T, as a basis for justifying the efficiencies 

in his claim for the need for monopoly. The government accepted 

that compact at a time when only 35 percent of American homes 

had phone service; and indeed, it abided by that for nearly 80 

years, until divestiture—and not without regret, I might add. 

Today, 98 percent of homes have telephone service. And in the 

1996 Act, Congress wisely came to recognize that competition is the 

key to bringing consumers more choice, promoting efficiency, driving technological innovation, and encouraging fresh investment. 

Competition is not a risky experiment. It is more proven than a 

monopoly business model, or government computer models, in 

bringing the highest value to consumers. 

NCTA is the leading competitive industry in the United States 

in telephone, and the leading provider of broadband. It has built 

broadband infrastructure to 93 percent of American homes without 

government subsidies or benefits. 

We want universal service reform to give us a fair chance to compete to bring broadband to those remaining areas where, by all admission, it is economically difficult to do so. This is why we press 

for targeting—so that we’re not competing with companies with 

private risk capital that have the advantages of government-subsidized capital. If there is to be competition, it should be fair. 

It’s also why we strenuously reject proposed ideas of rights of 

first refusal. Why should it be that only an incumbent, by virtue 

of having been in an area first, be exclusively allowed to receive 

Federal subsidy programs, and others not? 

Finally, consumers want broadband. As we’ve mourned the passing of Steve Jobs and paid homage to his notable career, I would 

note that all the devices he developed only became magical when 

he put an ‘‘I’’ front of them. IPads and iPods became fantastic when 

they became Internet devices. 

Consumers who have no access to that are being left out of the 

information age. And in these kinds of networks, a bit is a bit— 

no matter how or what type of service that can be transferred efficiently over data networks. And the regulatory regime should treat 

all technologies, including Voice over IP, equally. And if there are 

funds to be collected, they should be able to share equally in them. 

Finally, I would conclude by saying we recognize this stuff is 

hard and it’s complex. I have every faith, having run the agency 

myself, that the FCC has the expertise to complete this process. 

21 

But over a decade, we’ve worked to get reform right and on the 

right passage. It will likely be another decade before it is fundamentally reformed again. Any reform that is not fiscally responsible, competitively friendly or technologically neutral, will be a 

travesty and a lost opportunity; it will be an expensive government 

program that does not drive America toward the future, but instead just pays expensive homage to our past—and, unfortunately, 

paid for by cash-strapped consumers. 

Mr. Chairman, thank you for your time. I look forward to your 

questions. 

[The prepared statement of Mr. Powell follows:] 

PREPARED STATEMENT OF MICHAEL K. POWELL, PRESIDENT AND CHIEF EXECUTIVE

OFFICER, NATIONAL CABLE & TELECOMMUNICATIONS ASSOCIATION

Good morning, Chairman Rockefeller, Ranking Member Hutchison, and members 

of the Committee. My name is Michael Powell and I am the President and Chief 

Executive Officer of the National Cable & Telecommunications Association. Thank 

you for inviting me today to testify on universal service and intercarrier compensation reform. 

NCTA represents cable operators serving more than 90 percent of the Nation’s 

cable television households and more than 200 cable program networks. The cable 

industry is the Nation’s largest provider of residential high-speed Internet service, 

having invested more than $173 billion since 1996 to build two-way, interactive networks with fiber optic technology. 

Relying almost solely on private risk capital, the cable industry has made 

broadband available to more than 123 million American households. Using efficient, 

advanced IP technology, cable companies also provide state-of-the-art digital telephone service to more than 22 million American consumers in urban, suburban, and 

rural markets—almost wholly without any universal service support. Cable operators are committed to expanding access to quality voice and Internet services, and 

the dramatic growth in cable broadband subscribers is evidence of their success in 

doing so. 

For at least a decade, policymakers have agreed that our system of subsidizing 

the operation and maintenance of rural communications networks is in critical need 

of reform. Our current support mechanisms—the high-cost support portion of the 

Federal Universal Service Fund (‘‘USF’’) and intercarrier compensation (‘‘ICC’’)— 

were first established decades ago to ensure that every American had access to basic 

telephone service. That national priority has long been met, but these programs are 

still propelled by past history rather than any vision for the future. 

As Committee members are aware, earlier this year the Federal Communications 

Commission opened a rulemaking proceeding for the purpose of fundamentally reforming the existing USF and ICC programs. We share the goal of all of the Commissioners to put these programs on a ‘‘fiscally responsible path that provides incentives for efficient operations and accountability for every dollar spent.’’ It is important to remember that consumers, not companies, are the intended beneficiaries of 

universal service funding, and it is also consumers who ultimately pay for the USF 

program. If the Commission fails to meaningfully constrain the USF program, consumers will inevitably see their bills rise. In these depressed economic times, government should do everything it can to limit the economic burden of government 

programs on consumers, even programs like USF that serve worthy goals. 

Cable companies strongly support and appreciate efforts to modernize the universal service program and to rationalize the intercarrier compensation regime. As 

competitors to the incumbent telephone companies, in both rural and non-rural 

areas, cable companies are directly and significantly affected by the FCC’s universal 

service and intercarrier compensation rules. While our cable companies operate in 

rural areas largely without subsidies, they compete directly with incumbent carriers 

that collectively receive billions of dollars annually in USF subsidies. Carriers have 

also refused to pay the appropriate intercarrier compensation on VoIP traffic we exchange with them. ICC reform must treat VoIP in a competitively neutral manner 

that encourages rather than penalizes investments in IP technology. The pending 

proceeding offers the opportunity to transform these programs into ones that can 

help accomplish our Nation’s telecommunications goals of tomorrow while limiting 

further taxpayer exposure. 

22 

Principles to Guide Effective Universal Service and Intercarrier 

Compensation Reform 

The goal of Universal Service Fund reform should be to provide support, on a fiscally responsible and competitively neutral basis, for broadband services in those 

areas of the country where there is no business case for providing broadband without government subsidy. The goal of reform of the intercarrier compensation regime 

should be regulatory certainty that ensures fair treatment of competitors and encourages the migration from circuit-switched to IP technology. These goals can be 

achieved within a framework that embodies the following principles. 

Intercarrier Compensation Reform Must Ensure Competitive and Technological 

Neutrality. The intercarrier compensation system must be reformed so that it treats 

voice over Internet protocol (VoIP) calls the same as ‘‘circuit-switched’’ calls. The 

FCC must provide regulatory certainty by making sure that carriers are able to collect and pay for VoIP calls under the same rules that apply to traditional circuitswitched calls. Adopting different intercarrier compensation rules for circuitswitched and IP calls will continue the arbitrage inherent in the existing system 

today. In making reforms, the FCC must also maintain the interconnection and 

transport rules adopted in 1996 that ensure continued growth of competition in the 

voice market. 

Target USF Broadband Support to Unserved Areas. The FCC should focus its reform efforts on bringing broadband to areas that do not have broadband today. Its 

policies should reward efficiency and make the best use of each taxpayer dollar of 

USF support. A common sense reform would be to prioritize support to providers 

that will bring broadband service to areas that lack such service today. We agree 

with members of Congress from both sides of the aisle that reform should end subsidies to providers that face competition from unsubsidized providers, whose presence in a market demonstrates that no subsidy is necessary. 

Cap USF High-Cost Fund at $4.5 Billion. High-cost support has more than doubled since 2000, and consumers currently contribute $4.5 billion per year that is disbursed in high-cost program support. The Commission should cap high-cost support 

for broadband and voice services at this amount. Limiting the growth of USF is important for one reason above all; consumers ultimately pay for subsidizing this program. In these challenging economic conditions, policy-makers should do everything 

possible to limit the economic burden of government programs on consumers, even 

programs that serve worthy goals, as does USF. 

Promote Competitive Neutrality and the Most Efficient Use of Subsidies. The FCC 

has acknowledged that it must modernize a 20th century program to serve 21st century needs. The USF high-cost support mechanisms that we have today were created in an era when wireline telephone service was provided on a monopoly basis, 

and are out of place in the modern, competitive communications marketplace. There 

is no justification for using subsidy funds simply to preserve incumbent phone companies’ existing revenue streams. Real USF reform must be fiscally responsible and 

competitively-and technologically-neutral, and should recognize and encourage the 

continued growth of voice and broadband competition rather than serving as a 

mechanism to further entrench incumbent phone companies. The FCC should put 

in place support mechanisms that harness marketplace competition, like competitive 

bidding or reverse auctions, to award subsidies to the most efficient provider, regardless of what type of technology that provider uses. At that point, legacy highcost support should end. 

Improving Telephone Company Reform Proposals 

Recently, much of the reform discussion at the FCC has centered on proposals 

made by two groups of incumbent telephone companies. One proposal, put forward 

by a group of larger incumbents, including Verizon, AT&T, and CenturyLink, has 

been labeled the ABC Plan. The other, made by a group of smaller rural incumbents, has been dubbed the RLEC Plan. While these plans have been represented 

by their proponents as a consensus proposal put forward by all providers, that is 

not the case. The plans were created by, and are endorsed by, the incumbent phone 

companies and include many provisions designed to benefit those companies to the 

detriment of their competitors. 

In spite of these flaws, there are some positive components of the ABC Plan that 

could serve as a basis for real reform that benefits consumers in all areas of the 

Nation. Consequently, rather than encouraging the Commission to reject these plans 

entirely, the cable industry has encouraged the Commission to eliminate or fix those 

elements of that plan that run counter to the reform principles set out by the FCC 

earlier this year, particularly in terms of fiscal responsibility and competitive neutrality. 

23 

To assist the FCC in achieving reform that genuinely meets its goals of modernization, fiscal responsibility, accountability, and market-driven policies, NCTA 

has proposed an ‘‘Amended ABC Plan’’ that addresses weaknesses in the phone companies’ USF and ICC proposals and promises to yield a modern Universal Service 

Fund and intercarrier compensation regime that is more consistent with a competitive marketplace and the FCC’s reform principles. 

USF Reform 

Our Amended ABC Plan embodies several major improvements to the proposals 

put forward by the incumbent carriers. Our proposals are aimed at ensuring true 

fiscal responsibility for the USF program, taking full advantage of competition in 

the marketplace to eliminate the need for subsidies in areas where they are not necessary and to ensure the greatest possible efficiency in areas where they are. 

Instituting Enforceable Fiscal Controls. NCTA’s Amended ABC Plan proposal ensures that consumers will contribute no more than they do today for high-cost funding by establishing an enforceable cap on the size of the high-cost support program, 

with the possibility of limited waivers where the Commission determines that such 

exceptions are necessary. The phone companies’ proposal professes to be tied to an 

estimated ‘‘budget,’’ but it contains no meaningful mechanism for constraining—or 

reducing—the size of the fund. 

In particular, the phone companies propose no meaningful constraints on rural 

phone companies’ receipt of support. Instead, their suggested ‘‘limits’’ on fund size 

would be enacted by eliminating the very reforms that are the goal of this proceeding, e.g., by delaying the availability of support in areas with significant 

unserved populations and deferring the reduction in excessive access charges that 

is an important aspect of intercarrier compensation reform. NCTA also has explained that caps or other mechanisms to limit the overall amount of support should 

not preclude the Commission from taking any necessary steps to ensure adequate 

support in areas that have been historically challenged, such as Alaska. 

Targeting Government Subsidies to Areas Where Support is Necessary for Service. 

NCTA’s Amended ABC Plan proposal would also target support only to those areas 

of the country where there is no business case for providing broadband without a 

subsidy. The presence of a cable operator offering broadband service in a given geographic area without subsidy shows that the area can be served without government 

support. While the ABC Plan put forward by the phone companies also targets support consistent with NCTA’s proposal in areas served by the larger, price cap companies, it does not do the same for areas served by small and rural rate-of-return 

phone companies, allowing those companies to continue to receive subsidies even if 

the area is already served by cable companies or other broadband providers. This 

approach unfairly advantages one provider over another and discourages the investment of private risk capital that could make subsidies unnecessary. 

Promoting Savings through Technological Neutrality. NCTA’s Amended ABC Plan 

proposal relies on marketplace approaches like competitive bidding to target the 

most efficient provider for support in an unserved area. By ensuring that subsidies 

go to the most efficient provider, these mechanisms would keep costs in check and 

possibly lead to overall reductions in the size of the fund. Consistent with this goal, 

USF should not be structured to favor incumbents by giving them a ‘‘right of first 

refusal’’ for USF support. By granting incumbents a preference over more efficient 

competitors, a right of first refusal would violate the principle of competitive neutrality and increase the size of the high cost program by denying support to a competing provider that could provide the same or better service at a lower cost. 

Modernizing Outdated and Inefficient Regulatory Regimes. NCTA’s Amended ABC 

Plan proposal would establish a clear sunset date for outmoded and inefficient rateof-return regulation applied to small and rural telephone companies and ask the 

Federal-State Joint Board on Universal Service to develop a transition plan to eliminate this out-of-date regulatory regime. In contrast, the phone companies’ plans 

make only minimal changes to rate-of-return regulation. 

ICC Reform 

Of equal importance are our proposed changes to the ABC Plan’s ICC proposal. 

Getting ICC reform right is essential to promoting full and fair competition and encouraging investment in IP networks. The goal of ICC reform must be a unified 

compensation system, not one in which a new disparity between traditional voice 

and IP technology is allowed to take root. 

Reaffirming Reciprocal Obligations to Collect and Pay Access Charges. Through its 

reform efforts the FCC must provide regulatory certainty that carriers will be able 

to collect and pay intercarrier compensation for VoIP traffic under the new rules. 

The FCC should affirmatively resolve issues surrounding compensation for carriers 

24 

exchanging VoIP traffic that have been the source of many disputes and litigation, 

providing needed certainty and incentives for providers to transition from the legacy 

phone networks of the past to the forward-looking IP networks of the future. 

Preserving Existing Regulatory Authority over Interconnection and Transport 

Charges. The NCTA’s Amended ABC Plan proposal preserves interconnection and 

transport policies enacted as part of the Telecommunications Act of 1996 that have 

been the foundation for competition to the voice market. The FCC should ensure 

that these critical services remain available and affordable to competitors, rather 

than allowing incumbent phone companies to hinder competition either by increasing the prices competitors must pay or by using strong-arm negotiating tactics to 

prevent competitors from using state commission-approved interconnection agreements as provided in the Telecommunications Act of 1996. 

Restricting Access Charge Replacement Funding Based on Need. The phone companies’ plans propose to create significant new transitional funding allowing telephone companies to obtain Universal Service Fund subsidies to replace access 

charge revenues lost through intercarrier compensation reform. Price cap carriers 

are generally large, financially-healthy companies that do not need ‘‘access replacement’’ funding to weather the transition to a new regime. The NCTA’s Amended 

ABC Plan proposal demonstrates fiscal discipline by making clear that such funding 

should not be available to these incumbent phone companies, and should be provided to other carriers only upon a demonstrated showing of need. 

Conclusion 

These issues are not easy and many of them are not new. NCTA welcomes the 

Committee’s continuing interest in USF and ICC reform. After a lengthy and considered review, the FCC appears poised to undertake major and welcome reform to universal service programs and the related intercarrier compensation regime. We remain committed to working cooperatively and constructively with Members of this 

Committee, the FCC, and with other stakeholders, including the incumbent telephone companies, to address remaining issues and achieve reforms that best meet 

the needs of the American public. 

We appreciate the opportunity to share our views with you and thank you again 

for the opportunity to appear today. 

The CHAIRMAN. And I thank you very much. 

We come now to Ms. Shirley Bloomfield. Would you please go 

ahead? 

STATEMENT OF SHIRLEY BLOOMFIELD, CHIEF EXECUTIVE 

OFFICER, NATIONAL TELECOMMUNICATIONS COOPERATIVE 

ASSOCIATION 

Ms. BLOOMFIELD. Mr. Chairman, thank you to you and your colleagues for allowing us to participate in this discussion today. 

My remarks today are on behalf of NTCA, OPASTCO and WTA. 

And collectively, we represent the vast majority of the small rural 

communication providers and broadband providers across this 

country. 

As community-based providers, our members hold a very deep 

commitment to their community and to their consumers. These are 

small businesses who create jobs; they create economic growth; 

they feed our nation; and they connect rural America to the rest 

of the world. 

Recent studies have shown that rural carrier investments in operations have a significant multiplier effect on jobs and wages in 

these areas; and they contribute over $14.5 billion to state economies in 2009, of which $9.5 billion was a direct benefit to urban 

economies. So, when we speak of universal service, we really need 

to view these support programs in the context of a universal economy. 

So, with that backdrop, in terms of USF, we’re very eager for reforms in USF and intercarrier comp mechanisms, because USF enVerDate Nov 24 2008 13:10 Jun 15, 2012 Jkt 074568 PO 00000 Frm 00028 Fmt 6633 Sfmt 6601 S:\GPO\DOCS\74568.TXT SCOM1 PsN: JACKIE
25 

ables providers to deploy and operate the most advanced networks 

possible, in places where density and distance, frankly, deter even 

the most optimistic business case that could be imagined. 

Our members have leveraged the existing investments that they 

have made amazingly well and amazingly efficiently. They’ve taken 

their broadband speeds, which are at basic broadband speeds, as 

well as higher speeds, and they’ve got them available to over 92 

percent of their customers within their service territory, with only 

a very small 3 percent compounded growth rate in High-Cost USF 

over the past 5 years, even as intercarrier compensation revenues 

have declined. 

So, high-cost broadband for USF is also, it’s also an adoption program. Mr. Chairman, I know you mentioned that’s very important 

to you. But what USF does is, it actually keeps these prices affordable for Americans to be able to have these broadband services. 

But notwithstanding the success, the time for reform is certainly 

now. We have arbitrage that is undermining the intercarrier comp 

system. Updates are desperately needed to ensure that there’s predictability and a predictable broadband future. But the reforms 

have to be done in a way that they are surgical and certainly well 

planned. 

So, the reform debate that has taken many turns since the National Broadband Plan was released—one of the things the 

broadband plan tried to really do is tried to assess the need for and 

the cost of providing broadband. And there have been a lot of policy 

discussions that have generated from that. And one of the things 

that it has done is really created a great deal of uncertainty. And 

as we all know, nothing stills investment like uncertainty. And we 

have certainly seen that in our sector of the industry. 

So, our association and our membership are hearing the call for 

reform, to modernize USF, intercarrier comp, ensure fiscal responsibility and promote accountability. We also want to meet the statutory mandate for universal service, and the ultimate objective of 

providing broadband on a sustainable basis throughout these high 

cost areas. 

So, with these principles in mind, our associations, and over 

three dozen other organizations, submitted a very detailed proposal 

to redefine today’s cost recovery systems. This ‘‘RLEC Plan’’ would 

transition to a new ‘‘Connect America Plan’’ that encourages even 

greater efficiency and promotes budgetary goals. 

We’ve also made very good faith efforts—and with the support 

and urging policymakers—to see common ground with others, and 

to reach agreement on changes to the RELC Plan as part of a ‘‘Consensus Framework’’ with a number of larger and mid-size providers 

as well. 

So, while this is not perfect from our perspective, the Consensus 

Framework provides a very reasonable path forward for reform. 

And others recognize this, as well. Just a few days ago, there 

were 15 organizations representing different business, agriculture, 

health care and medical groups, that included the Grange, the Net 

Literacy organization, the American Tele-Medicine Association, 

that also called upon the FCC to give serious consideration to the 

plans that are included in the Consensus Framework. 

26 

However, as everybody else has noted, the Devil is in the details. 

The RLEC Plan is the only detailed and practical plan on the 

record for rural consumers served by rural companies. It is clear, 

and a carefully balanced road map for reform. It also reflects substantial compromise and firm rejection of the status quo. This is as 

far as our sector can go before rural communications will certainly 

be in peril. 

So, this brings me to one final issue. There can be no doubt the 

severe debt crisis that our country is facing, and the fact that we 

need to really address this with due speed. But nonetheless, legal 

precedent and good policy confirm that privately managed and 

funded USF program has no place in these public debt discussions. 

Such a step would certainly constitute a taking and a new tax. 

And it would also undermine reforms that are currently under consideration, and would certainly halt broadband deployment. 

So, our organization and our members took up the challenge to 

develop a detailed reform plan. We took up the challenge to seek 

industry consensus. Our members took up the challenge to provide 

data to the FCC to create a reformed, informed process. And we 

hope that the FCC will now be able to enable the small rural carriers to meet their most important challenge—and that is the delivery of affordable, high quality broadband to millions of rural Americans. 

Thank you very much. 

[The prepared statement of Ms. Bloomfield follows:] 

PREPARED STATEMENT OF SHIRLEY BLOOMFIELD, CHIEF EXECUTIVE OFFICER, 

NATIONAL TELECOMMUNICATIONS COOPERATIVE ASSOCIATION

Introduction 

Thank you for the opportunity to participate in today’s discussion regarding the 

critical and ongoing role that universal service and related cost recovery mechanisms will play in bringing broadband to all Americans. 

I am the Chief Executive Officer of the National Telecommunications Cooperative 

Association (NTCA), which represents approximately 580 small, rural telecommunications cooperatives and commercial companies. However, my remarks today are 

also being made on behalf of the Organization for the Promotion and Advancement 

of Small Telecommunications Companies (OPASTCO), and the Western Telecommunications Alliance (WTA), which together with NTCA; represent the vast majority of rural rate-of-return-regulated community-based communications and 

broadband service providers around the Nation. These small businesses hold a deep 

commitment to the consumers and communities they serve. They are the very models of what policymakers are in search of and what America is in such need of 

today—the creators of rural jobs, the fuel of the rural economy, and the conduit between citizens and their government. 

The Benefits of Rural Carrier Investments and Operations Flow to the 

Entire Economy 

We know that a robust broadband infrastructure is critical to economic development. We know from a technological standpoint that all broadband networks, 

whether wireless or wired, ultimately rely upon the wired network. And we know 

that wired networks provide the capacity to support the type of applications that 

this Nation critically needs: telehealth, distance learning, civic participation, and 

interstate and global commerce. 

But, as we consider social and commercial impacts, can we quantify rural 

broadband’s impact on the economy? The answer is, yes. 

A study undertaken by New Mexico State University reported that, in 2012 alone, 

reductions in USF based upon early 2011 proposals by the Federal Communications 

Commission (FCC) could lead to a total employment loss of 335 jobs, with more than 

260 of those jobs being outside the telecommunications industry. In that first year 

alone, New Mexico personal income would be reduced by $14.1 million; over ten 

27 

years, personal income in the state would decline $200.3 million, leading to a loss 

in State tax revenue of $13.6 million. 

New Mexico is not alone: Oklahoma City University predicts 3,000 lost jobs over five years, with lost wages of $123 million. The news from Kansas is no better: 

Wichita State University estimates that USF reductions proposed by the FCC in its 

February 2011 Notice of Proposed Rulemaking would cost rural Kansas 367 jobs and 

$51 million in wages over a five year period. These results are not limited to the 

telecommunications sector, but instead extend to firms that do business with the 

carriers and their employees. 

In fact, the impact of rural telecommunications on all of America is substantial. 

A study being released this week by the Hudson Institute indicates that rural telecommunications companies across the country contributed a collective $14.5 billion 

to the economies of the states in which they operated in 2009. Of this amount, $10.3 

billion was through the carriers’ own operations, while $4.2 billion arose out of the 

follow-on impact of their operations. Notably, the study also finds that of that $14.5 

billion total, two-thirds—or $9.57 billion—accrues to the benefit of urban areas. We 

speak of universal service; let’s talk about a universal economy. The rural telecommunications sector supported 70,700 jobs in 2009, both through its own employment and also through the employment that its purchases of goods and services generated. 

The USF Program is Essential to Broadband Availability, Service Quality, 

and Adoption in Rural Areas 

This level of economic activity and employment is consistent with the values underpinning access to advanced communications and advanced services in all regions 

of the nation, as supported by universal service. High-cost USF is a program that 

enables providers to deploy and operate advanced networks in places where low customer density and vast distances would deter even the most optimistic business 

cases. The availability of these networks, the investment in them, and the operation 

of them generates substantial economic activity to the extent described above. But 

the high-cost USF program does so much more as well. It is a service-quality program, requiring rate-of-return-regulated carriers to show how they are making good 

use of valuable USF resources to invest in and operate these essential networks for 

the benefit of their consumers. Indeed, small carriers have used the existing USF 

program to invest efficiently in advanced networks, increasing broadband service 

penetration to 92 percent of consumers using the FCC’s current definition of 

broadband. This has occurred over the past 5 years with only a small 3 percent compound annual growth rate in high-cost USF support. It is also an adoption program—high-cost USF helps to keep rates reasonably comparable with urban areas 

in places where the costs of providing service would yield otherwise unaffordable 

prices. 

If USF support were to decline, or disappear altogether, two scenarios would almost certainly result. In one, companies would raise prices and rural users would 

pay substantially more for communications service. In the other, companies would 

cut investment and the networks would shrink, deteriorate, and possibly disappear 

over time. Both outcomes would be inconsistent with our long-standing national 

statutory universal service policy demanding that all Americans receive access to affordable advanced communications services that are comparable in price and quality. And for those who think that someone else would fill such a void, consider again 

the nature of the areas served and the essential nature of these networks. These 

areas are served by small rate-of-return-regulated providers precisely because no 

one else could justify a business case to serve there in the first instance. These networks offer the only lifeline between these rural communities and outlying farms 

and ranches on the one hand and the rest of America and the world on the other; 

even if a wireless carrier might happen to operate in some portion of such an area, 

that wireless carrier cannot deliver high-quality broadband without the robust underlying capacity of the networks provided by these small entrepreneurial community-based carriers. There is good reason that Congress mandated universal service 

in the Telecommunications Act of 1996—it stimulates the rural and national economy and ensures the availability, affordability, and quality of communications products and services. 

Today, this statutory mandate is more important than ever, as all Americans increasingly rely upon such products and services to meet their social, economic, and 

civic needs. Rural communications providers throughout the country continue to respond aggressively to this challenge, rapidly transforming their traditional switched 

voice systems into powerful and dynamic Internet protocol (IP)-based broadband 

networks. This is a natural response for these community-based providers that have 

a long history of taking their service responsibilities seriously and responding to the 

28 

demands of their consumers—their neighbors. Yet, the successful fulfillment of their 

mission of service requires predictable and sufficient support in the form of highcost USF and a reliable intercarrier compensation (ICC) system. 

It is Time to Restore Regulatory Certainty and Promote Sustainable 

Broadband 

Universal service, intercarrier compensation, and consumer rates all play important delicately balanced roles in enabling rural providers to overcome these challenges and provide services that are reasonably comparable in quality and price. 

Each is a necessary part of justifying efficient network investment and operation in 

rural areas—and each has proven successful to date, promoting the kind of responsible and effective network deployment and service availability described earlier in 

this testimony. 

Clearly, this is a model of success, but the time has come for change. The intercarrier compensation system needs reform, as arbitrage and self-help threaten to undermine its stability. High-cost USF has worked very well, but we acknowledge that 

updates are needed to provide greater predictability and to promote a broadband future. Our highest priority in reform must be to strengthen and preserve our cost 

recovery policies in a manner that both acknowledges their value and re-positions 

them for a sustainable future. 

Small rural providers have experienced both lows and highs as policymakers debate reform and consider how to show their commitment to universal service. In the 

lead-up to the release of the FCC’s National Broadband Plan (NBP) in March 2010, 

we had high expectations, for the FCC was putting in significant effort to evaluate 

our national communications landscape. We believed with all of the facts before 

them, the FCC would take advantage of the opportunity by making bold recommendations that would include a call for a national commitment to invest in and 

maintain state-of-the-art communications technologies throughout all of America. 

Unfortunately, while the NBP made substantial efforts to quantify the demands for 

and costs of broadband service, some of its policy recommendations were less specific and more experimental than pragmatic, leading to a substantial amount of uncertainty and confusion among service providers. In particular, as many highlighted 

in the wake of the NBP, the plan seemed focused upon delivery of broadband to the 

‘‘unserved’’ without taking into account: (1) whether such service would be sustainable once deployed; or (2) what would happen if USF support or ICC revenues were 

slashed for those who were already making services available in high-cost, hard-toserve rural areas. 

Our associations and hundreds of our small business members have had many 

conversations in subsequent months with the FCC, many of you here in Congress, 

and other stakeholders to help explain how the NBP recommendations and other 

FCC proposals would harm rural consumers and undermine network investment 

and operation in rural areas. We believe these conversations have been extremely 

productive in shedding light on how reform could proceed down an alternate path 

without upsetting the careful balance of universal service in areas served by small 

rural companies. I mentioned that this has been a period marked by both lows and 

highs, and today, I can say we are now at least cautiously optimistic that sensible 

and carefully crafted reform could be on the horizon. 

The ‘‘RLEC Plan,’’ the ‘‘Consensus Framework,’’ and Efforts to Pursue 

Balanced, Common-Sense Reform 

In the early wake of the NBP’s release, NTCA, OPASTCO, and WTA recognized 

from conversations with policymakers that it was not enough to ‘‘just say no.’’ We 

heard the calls of FCC Chairman Genachowski for reforms that would modernize 

the USF and ICC systems and ensure fiscal responsibility and promote accountability in these mechanisms. We looked too, however, to the statutory mandates for 

universal service as a guidepost for reform, and also kept as an overriding principle 

of our own that the ultimate objective was to promote the availability and affordability of broadband on a sustainable basis throughout high-cost areas. With all of 

these principles firmly in mind, we set forward to develop a creative plan that would 

build upon the best aspects of the existing cost recovery mechanisms while re-positioning other aspects of them for a broadband-based, IP-enabled world. We looked 

to develop a plan that would balance the needs of those providers who had already 

invested to recover their costs in order to keep providing service with those providers who still needed the opportunity and support to invest in broadband-capable 

networks over time. 

NTCA, OPASTCO, WTA and approximately 40 other state, regional, and tribal 

communications oriented organizations took up this challenge, putting forward in 

April 2011 a detailed, credible, and workable proposal centered on redefining the 

29 

USF and ICC cost recovery systems. In particular, our Rural Local Exchange Carrier (RLEC) plan modernizes USF and ICC for today’s broadband era and related 

needs, providing a transition from legacy high-cost USF mechanisms to a new Connect America Fund that will promote broadband services in rural areas. At the same 

time, through new constraints, the plan has been calibrated to seek even greater 

efficiency and aims toward a budget over the next several years that seeks to accommodate policymakers’ desire for fiscal responsibility in the USF program. The plan 

also demands accountability by requiring that USF recipients live up to the carrierof-last-resort obligations that are historically the hallmark of rural rate-of-returnregulated providers. 

We all recognize the complexity of modernizing these systems, and the years of 

effort that have already been put into this process. We also recognized that no one 

party in this divided industry could hope to move a program for reform without 

some attempt at compromise and effort to seek consensus. Accordingly, earlier this 

year, with the support and urging of policymakers, we and some from other industry 

sectors made good faith attempts to seek common ground and crystallize differences 

on reform. While some industry sectors chose to hold back, small rural providers 

represented by NTCA, OPASTCO, and WTA stepped forward, reaching agreement 

on amendments to the previously filed RLEC Plan as part of a ‘‘Consensus Framework’’ with U.S. Telecom, Verizon, AT&T, CenturyLink, Windstream, Frontier, and 

FairPoint. This Consensus Framework is comprised of two distinct but complementary plans—the RLEC Plan that would govern USF and ICC mechanisms in areas 

served by small rate-of-return-regulated carriers, and the America’s Broadband 

Connectivity Plan that would govern reform of these same mechanisms in areas 

served by the larger and mid-sized providers. In addition to providing a reasonable 

path forward on USF reform, the Consensus Framework would shut down many of 

the arbitrage and self-help problems that threaten to eviscerate the ICC system 

today and establish a more unified, transparent, and enforceable means of ensuring 

that providers pay one another for use of each other’s network. The bottom line is 

that the Consensus Framework will restore much-needed regulatory certainty and 

more predictable cost recovery, which will ultimately allow the industry to refocus 

on investments and operations in response to consumer demand and community 

need. 

Outside of this framework, these parties have divergent interests and would not 

necessarily agree to these compromises. For example, the rate-of-return associations 

would be unlikely to support in other contexts any of the ICC reforms included in 

this framework. Similarly, the price cap carriers would have been unlikely to support certain constraints on the use of the forward-looking cost model described in 

their proposal outside of the Consensus Framework. Others still would have refused 

to reach resolution on how carriers should be compensated for VoIP traffic terminating onto their networks. 

For these reasons, we have emphasized to policymakers the need to recognize that 

material changes to individual components of the Consensus Framework could cause 

individual parties to withdraw their support for—or even oppose—other components 

of these proposals and/or the then-negated consensus framework as a whole. The 

parties to this consensus made substantial concessions in the interest of obtaining 

an industry agreement that could restore regulatory certainty and allow providers 

to focus more closely once again on the business of building and providing 

broadband. 

The Consensus Framework is aimed at balancing sustainability of broadband 

where it is today with the need to promote more widespread deployment of 

broadband over time. It has also been designed to provide a path to meet consumer 

demand over time for upgraded services and improved networks. Recalling that the 

ultimate objective of this exercise is to promote a better experience for the consumer 

and a better outlook for the economy, we were pleased to see that fifteen organizations representing rural business, agricultural, educational, and economic development interests—including the National Grange, the American Farm Bureau Federation, the American Telemedicine Association, the Independent Community Bankers 

of America, and the Rural School and Community Trust—sent a letter last week to 

FCC Chairman Genachowski expressing concern over certain changes to the USF 

and ICC mechanisms as previously proposed and asking for further consideration 

of the plans in the Consensus Framework. 

The Path Forward on USF and ICC Reform—and the Roadblocks Still 

Ahead 

The devil is now in the details as the FCC considers final steps forward. While 

others continue to make broad policy arguments and press high-level principles, we 

are diving into the details. With valuable USF resources, the success of the rural 

30 

economy, the experience of the rural consumer, and the livelihood of small business 

telcos all at stake, we believe good public policy can only be made by moving past 

sweeping rhetoric and making sure that any reforms actually work to the benefit 

of the American consumer. The RLEC plan is the only detailed and practical plan 

on the record for high-cost areas in which small providers are the carriers of last 

resort. It defines a clear roadmap of exactly how we can get from the USF and ICC 

status quo to the next generation of cost recovery. It avoids radical and untested 

concepts such as permanent caps, ill-defined auctions, or flash-cuts in ICC rate reductions that would only spike end user rates or lead to retrenchment in service. 

Indeed, the FCC should not and cannot adopt such proposals when there is no basis 

in the record for them—for example, there is simply no definition in the record of 

the processes for auctions and no detailed examination of what more aggressively 

paced ICC cuts would mean for consumers. 

This brings me to one final concern as we approach what could be the culmination 

of a decade-long effort to achieve reform. Specifically, we are concerned whether the 

path forward on reform—or the successful implementation of any reforms—might be 

derailed through a ‘‘raid’’ on USF in the name of Federal debt reduction. There can 

be no doubt regarding the severe nature of the debt crisis confronting our nation, 

the interest of the public in responding to it, and the absolute necessity of doing 

so in a manner that is consistent with legal mandates and precedents. Nevertheless, 

we are extremely concerned to know that certain concepts may be under consideration that have no place in such discussions. 

Our concern first materialized upon seeing the recommendation in the December 

1, 2010 report of the National Commission on Fiscal Responsibility and Reform that 

identified the private USF as a source of public debt reduction. Some months later 

we were further troubled to learn that debt negotiators were giving serious consideration to this concept. And in recent weeks, our unease has grown as we have 

learned that the Joint Select Committee on Deficit Reduction may also consider this 

ill-advised proposal. 

In response, our organizations sent a letter dated September 23, 2011, to your colleagues serving on the Select Committee underscoring the unique nature of the federally mandated—yet privately managed and funded—USF program and why it has 

no place in these conversations. We have also sent a similar letter to you and your 

Commerce Committee colleagues urging you to call upon the Select Committee to 

refrain from further consideration of this idea. 

Throughout its long history, the USF has always been maintained outside the 

U.S. Treasury and managed by a non-governmental entity. While the Telecommunications Act of 1996 amended the previously existing framework of the USF, and 

thereafter the Office of Management and Budget displayed the private USF in the 

Federal budget, there is no legislative or other official indication that Congress ever 

intended to change the manner in which the fund is maintained and administered. 

Legal precedent and guidance confirm that the USF monies do not constitute 

‘‘public monies’’ that are received for the use of the United States, but rather are 

private funds that are merely derived and distributed at the direction of Federal 

statute. This conclusion was embraced and underscored by both the General Counsel of the FCC and the General Counsel of the Office of Management and Budget 

in an exchange of official correspondence dated April 28, 2000. Thus, the raiding of 

the privately funded and administered USF as a source of debt reduction would constitute a ‘‘taking’’ and the imposition of a new ‘‘tax’’ on the American people—in addition to the unfortunate follow-on impact that would upset the FCC’s USF and ICC 

reform efforts thus leaving the industry, and particularly its rural sector, vulnerable 

to ongoing uncertainty and revenue disruption. An unforeseen consequence of raiding the USF in the name of debt reduction is that it would likely ultimately add 

to the Nation’s debt as carriers find themselves unable to repay the Federal RUS 

loans many of them hold. There can be no question that going down this road would 

likely curtail broadband deployment that is so critical to our national and economic 

security today. 

The objective of getting broadband out to rural areas and keeping it there is far 

too important to gamble on untested theories and ill-defined concepts. We are far 

too close to meaningful reform to have this process fall apart now, or to have this 

reform be for naught because some portion of the USF is subsequently siphoned 

away to address purposes unrelated to the reasons for which these funds are collected. NTCA, OPASTCO, WTA and our collective members took up the challenge 

to develop a detailed plan for USF and ICC reform. We took up the challenge to 

seek industry consensus on reform. Our members took up the challenge to provide 

detailed data to support an informed course of action on USF and ICC reform. We 

now hope the FCC will enable small rural carriers of last resort to meet their most 

important challenge—that of delivering affordable, high-quality broadband to milVerDate Nov 24 2008 13:10 Jun 15, 2012 Jkt 074568 PO 00000 Frm 00034 Fmt 6633 Sfmt 6621 S:\GPO\DOCS\74568.TXT SCOM1 PsN: JACKIE
31 

lions of rural Americans who depend upon such access. To this end, we are hopeful 

that the FCC will give serious consideration instead to the RLEC Plan and pursue 

a common-sense, fact-based path for USF and ICC reform in its meeting later this 

month. We are also hopeful that the benefits of any such reform, once finally 

achieved after this long journey, will not be frustrated, undermined, or defeated by 

the siphoning of USF funds for other purposes. 

Conclusion 

We are excited to have a committee comprised of members with such knowledge 

of our industry and such a deep commitment to rural America. It is our sincere hope 

that we can count on each of you to help guide the FCC to adopt a well-defined and 

carefully developed reform framework that will promote sustainable and affordable 

broadband access for all Americans. Thank you again for the opportunity to testify 

today. 

The CHAIRMAN. Thank you very much, Ms. Bloomfield. 

Mr. Jones. 

STATEMENT OF PHILIP B. JONES, COMMISSIONER, 

WASHINGTON UTILITIES AND TRANSPORTATION COMMISSION 

Mr. JONES. Thank you, Mr. Chairman, Ranking Member 

Hutchison, and members of the Committee. 

I come to you today representing myself, the Washington Commission, and the state perspective, which I think needs to be represented today, and the consumer perspective that you mentioned, 

Mr. Chairman. 

I’ll make a few overall remarks and then talk about a few specific things like VoIP traffic and ETC designations and a nagging 

issue called ‘‘call termination.’’ 

Comprehensive reform is key. As you said, Mr. Chairman, the 

time to do something about this is now. We agree. Ever since I’ve 

been a commissioner, I’ve been grappling with, as the other panelists have said, these complex and difficult issues. 

The focus on re-targeting is good. Increased accountability is necessary. Elimination of multiple carriers in the study area is necessary. And we need to really focus these Federal subsidies on 

where they’re needed. 

Having a budget of $4.6 billion is a good thing and a bad thing. 

As Senator Warner said, the needs out there for broadband are 

great. We are making a big transition from plain old telephone 

service to broadband. Let’s make no mistake about it. It’s going to 

be expensive. So, if we impose a budget—if the FCC does—at $4.6 

billion—or, $4.5 billion, excuse me—this becomes a limiting factor. 

So, the whole issue of competitive neutrality, in my opinion, becomes less important than living within that budget. 

The state members of the Joint Board on USF submitted a plan. 

The rural LEC submitted a plan. And now the large carriers have 

submitted a plan called the ABC Plan. Of course, the states would 

prefer to go with the state members’ plan, but it looks as if Chairman Genachowski’s draft is based on the ABC Plan. 

I broke my testimony into what is called good, bad and the ugly. 

The ugly part of the FCC Chairman’s proposal, as we understand 

it, is mandatory preemption of State authority in the Act over 

intrastate access rights. 

As some of you know, in the rulemaking teed up in February, 

there were two ways proposed on intercarrier compensation. One 

was voluntary, one was mandatory. And he appears to have gone 

32 

with the mandatory approach. We would have preferred a voluntary approach. 

The other not so good thing about the proposal is the SLC increases. These are subscriber line charges. And, as the Chairman 

noted, in this economy, to impose a maximum Federal SLC increase of $3.50 on people who can basically hardly afford to pay 

their electric and gas bills could be a problem. 

So, the whole issue of consumer benefit cries out for an answer. 

Let me say a couple of things about ETC designations. Congress 

designated the states to play a role in designating carriers and 

having them be accountable for the funds. We’ve done that. 

The ABC Plan, as we understand it, wants to give us hardly any 

role in designating the ETCs, whether they be wireless, broadband 

providers or wireless. We think this is a mistake. So, we think if 

the FCC decides to preempt states’ jurisdiction over intercarrier 

compensation—which is not something we would prefer—they need 

to provide us with a robust role in protecting consumers, providing 

for interconnection, and doing all the other things that we currently do under Section 214–E and 254 of the Universal Service 

statute. 

On VoIP, we believe that VoIP is a service that acts like a telephone service; it’s not an information service. And if it’s being used 

as an information service for intercarrier compensation purposes, 

states should have the ability to deal with that. 

We get consumer complaints all the time about telephone service. 

Carriers in our state have been switching from traditional big 

switches for circuit switch networks to soft switches. This has been 

going on. It’s no secret. 

So, the question is—can the carrier sever the traffic, identify the 

traffic? We hear rumors that they are billing certain types of traffic 

for terminating, not originating. So, it appears to me, and us at the 

states, that they can do it. 

So, we are very wary of the FCC Chairman’s appeared attempt 

to not allow us to have any jurisdiction over VoIP. 

Just let me finish with call termination, because I know this is 

an issue in our State of Washington. Calls are now not being terminated to rural clinics, to Washington State Patrol offices, because, 

allegedly, the terminating access rates in that rural area is too 

high. So, the carriers are using a system of call, which they call 

‘‘Least Cost Routing’’ to use the best and cheapest way to terminate 

a call. And sometimes they don’t terminate a call. 

And this is creating a real public safety hazard. And it really, I 

think, Mr. Chairman, gets at the basis of: What is the public 

switch telephone network? What is a broadband network? And 

what are the duties of carriers to originate and terminate traffic on 

the network? 

So, those are just a few points I would make. The rest is in my 

testimony. And I would be happy to answer your questions. 

[The prepared statement of Mr. Jones follows:] 

33 

1See, e.g., The Resolution Supporting Expeditious FCC Action on Traffic Pumping Schemes, 

http://www.naruc.org/Resolutions/ 

Resolution%20Supporting%20FCC%20Action%20on%20Traffic%20Pumping.pdf, which I sponsored and which NARUC passed on November 17, 2010. See also, Letter from Sally Brown, Senior Assistant Attorney General, Office of the Attorney General of Washington, Utilities and Transportation Division to Ms. Marlene Dortch, FCC Secretary (filed June 17, 2011), detailing a 

WUTC ex parte providing data obtained from rural local exchange carriers in Washington State 

related to phantom traffic and possible spoofing of SS7 information needed for billing inter-state 

and intra-state calls, available online in the FCC’s ECSF system at: http://fjallfoss.fcc.gov/ecfs/ 

document/view?id=7021688209. 

PREPARED STATEMENT OF PHILIP B. JONES, COMMISSIONER, WASHINGTON UTILITIES AND TRANSPORTATION COMMISSION

Introduction 

Chairman Rockefeller, Ranking Member Hutchison and members of the Committee, I appreciate the opportunity to testify today on reform of the Federal universal service fund (USF) program and intercarrier compensation (ICC) rules. 

My name is Phil Jones. I have been a Commissioner with the Washington Utilities and Transportation Commission since 2005. Currently, I am the Second Vice 

President of the National Association of Regulatory Utility Commissioners 

(NARUC), Co-Chair of NARUC’s Washington Action Committee, Chair of the Board 

of Directors of the National Regulatory Research Institute, and Chair of the Federal 

Legislation subcommittee of NARUC’s Committee on Telecommunications. During 

my six years as a Telecommunications Committee member, I have served on several 

task forces that have pressed hard for both intercarrier compensation and universal 

service reform, including the well known NARUC task force on intercarrier compensation that facilitated the filing of the first broad consensus on reform—the socalled ‘‘Missoula Plan’’–and a separate earlier task force focused upon ‘‘Eligible Telecommunication Carrier’’ designations. 

I am here today to testify on behalf of myself and the Washington Utilities and 

Transportation Commission (UTC). 

No one seriously disputes that reform of particular aspects of the existing Federal 

universal service scheme is long overdue. What is in dispute is the way to achieve 

that reform. 

There is no question that the Federal USF has played an integral role in the near 

ubiquitous deployment, adoption, and maintenance of voice service nationwide. If reformed properly I believe USF can retain this role in achieving the same level of 

deployment and adoption of broadband services. 

On October 6, 2011, Federal Communications Commission (FCC) Chairman Julius 

Genachowski announced circulation to his colleagues of a draft order that undertakes comprehensive reforms of Federal universal service policy and Federal rules 

on intercarrier compensation. The FCC should be applauded for finally trying to 

grapple with some of the glaring abuses in Federal policy. Based on the limited information released about the draft order the Chairman circulated last week, I certainly applaud the Chairman for following through on the proposed rulemaking 

issued in February and trying to resolve the vexing and long-standing challenges 

in these two regimes. 

However, the Washington UTC shares the concerns of many other State commissioners and consumer advocates about specific portions of the proposed reform 

framework that seem directly counter to Congress’ instructions. In particular we 

find fault in the process that has resulted in the proposal to adopt specific mechanisms that lack adequate support in the record. 

The FCC has a difficult yet important task. This is a complex area where issues 

of law, rate design, network engineering, and social policy intersect and sometimes 

collide. As the Chairman and the agency deliberate, they should ensure that the 

final plan enhances the interests of consumers and provides a fair, more efficient 

way for carriers to provide service in rural, high-cost areas. It is not clear that all 

aspects of the current draft achieve these objectives. 

The Good 

On the positive side, the draft order’s proposals to stop traffic pumping and eliminate phantom traffic are non-controversial and long overdue. These ‘‘transparently 

abusive’’ 1 regulatory arbitrage schemes should have been eliminated years ago. I 

also personally believe that Congress has already given the FCC authority to eliminate excessive and inefficient fund disbursements by more narrowly targeting support. If the FCC keeps within its Congressional prescribed authority, such changes 

are long overdue. The draft order also apparently recognizes the crucial role reserved to the States by Congress with respect to carrier of last resort obligations 

34 

2The FCC has announced it will use a competitive bidding process to assign funds. I do not 

know what the new ‘‘designation process’’ can look like in such a circumstance. It is certainly 

unclear what role States can play that is consistent with the tasks assigned them by Congress. 

A process that simply has States ‘‘rubber stamp’’ any carrier that wishes to participate in a bidding process and reduces or eliminates the role assigned with respect to modification of study 

area boundaries is not only a swipe at Congressional authority and judgment, it is also poor 

policy. As noted in the April 14, 2011 Comments of the Washington Utilities and Transportation 

Commission, at page 4, note 10: ‘‘UTC Staff does not take ETC petitioners’ general compliance 

statements at face value. Rather, Staff scrutinizes applicants’ credentials and commitments in 

fulfilling universal service obligations. Staffs inquiries include applicants’ financial condition, 

corporate structure, detailed coverage in proposed service areas, capital investment plans, operational performance (e.g., subscribership, spectrum of services and products, consumer complaint 

records), and compliance with other state rules and regulations. In doing so, UTC Staff attempts 

to balance the potential benefits of designating additional ETCs (most saliently, infrastructure 

build out in rural areas, promoting market competition and benefits for low income households) 

with the need to protect the Federal Universal Service Fund against waste, fraud and abuse. 

Over the past fifteen years, Staff has made favorable and unfavorable recommendations to the 

UTC on various ETC petitions reflecting application of above-described framework and principles. See WUTC comments at: http://fjallfoss.fcc.gov/ecfs/document/view?id=7021238853. 3 It is true the WUTC FCC comments do appear to go beyond asking the FCC to make sure 

VoIP pays ‘‘interstate’’ access for ‘‘interstate’’ transactions. See, for example, the WUTC’s April 

18, 2011 comments, at http://fjallfoss.fcc.gov/ecfs/document/view?id=7021238853 and also the 

WUTC’s April 4, 2011 comments, also online at http://fjallfoss.fcc.gov/ecfs/document/ 

view?id=7021236705. However, our comments also detail the panoply of bad policy outcomes 

that would accompany FCC preemption of State authority over VoIP services. I personally believe that a unified interstate tariff for VoIP traffic could well have the exact same jurisdictional impact as classifying it as an ‘‘information’’ service. 

(COLR) and so-called ETC designations under Sections 254 and 214(e) of the 1996 

Act. 

I take comfort in some of the statements the Chairman made last week in his 

prepared remarks. He stated that the draft order does not ‘‘rubber stamp or adopt 

wholesale’’ the plan of any carrier-sponsored group or other stakeholders. The 

Chairman said he does not intend to eliminate the States’ carrier of last resort obligations. He also said that the proposed draft does not eliminate the States’ traditional role in designating ETCs and will provide for a ‘‘vital and meaningful role’’ 

in ensuring accountability for broadband investments made under the Connect 

America Fund, or CAF. Moreover, he reiterated the States’ ‘‘crucial role’’ in protecting consumers as we move forward in the transition of this Federal subsidy regime from voice services (POTS) to broadband services. 

We take the Chairman at his word and look forward to working with him and 

his colleagues to make the pledges a reality. Yet, based on the sparse details released thus far, we don’t have sufficient information to make an informed judgment, 

and as always in the field of ICC and USF issues, the devil will be in the details.2

The Bad 

I and many of my State colleagues remain vigilant as to how these words on ETC 

designations and COLR obligations will actually be put in to practice, and how they 

interact with other portions of the draft order. For example, it appears that specifying a uniform ‘‘interstate’’ rate for all VoIP traffic, will operate over time to undermine if not eliminate those obligations—along with your constituents’ ability to seek 

State commission assistance with service quality issues, State emergency communications and disaster recover policies, and perhaps even existing State Universal 

Service programs. 

State COLR obligations, which, among other things, require carriers to serve consumers in their service territory, are tied to jurisdictional authority. Some stakeholders have pressed for a uniform ‘‘interstate’’ tariff for all VoIP traffic—regardless 

of whether the traffic is currently (or can be) identified as jurisdictionally 

‘‘intrastate.’’ 3

Specifically, as my agency pointed out in its most recent FCC comments, at pages 

9–10, elimination of such VoIP traffic from State jurisdiction will have significant 

consequences: 

State Commissions would be precluded from exercising any jurisdiction over 

that service or potentially the companies that provide that service. Consumers 

who use VoIP as the equivalent of traditional landline telephone service could 

no longer seek redress from the state commission or any other state agency for 

billing, service quality or other service-related issues. The result would be to 

shift the resolution of such complaints from the state agency, which is in the 

best position to address them to the FCC which has neither the expertise nor 

the resources to take them on. These concerns are not hypothetical. Comcast is 

one of the largest providers of voice service in Washington based on the number 

35 

4See, 47 U.S.C. Sec. 251(d)(3) (1996): ‘‘Preservation of State Access Regulation: In prescribing 

and enforcing regulations to implement the requirements of this section, the Commission shall 

not preclude the enforcement of any regulation, order, or policy of a State commission that (a) 

establishes access and interconnection obligations of local exchange carriers; (b) is consistent 

with the requirements of this section ’’ 5See, e.g., Oral Ex Parte Notice from NARUC General Counsel James Bradford Ramsay to 

FCC Secretary Marlene Dortch, filed September 26, 2011, detailing the current status of State 

ICC reform efforts. The letter is available online at: http://fjallfoss.fcc.gov/ecfs/document/ 

view?id=7021711173. 6See, e.g., Pham, Alex, FCC’s Genachowski reinforces call for rules on net neutrality, LA Times 

(October 08, 2009) (‘‘Genachowski called for a ‘‘fact-based, data-driven’’ open dialogue with the 

industry.’’), available online at: http://articles.latimes.com/2009/oct/08/business/fi-fcc8; Prepared Remarks of Chairman Julius Genachowski, The Brookings Institution, Washington DC 

(September 21, 2009) (‘‘I will ensure that the rulemaking process will be fair, transparent, factbased, and data-driven. Anyone will be able to participate in this process, and I hope everyone 

Continued 

of subscribers, and that company provisions service as VoIP. Most, if not all regulated telecommunications companies in this state provision or have affiliates 

that provide VoIP. Verizon Northwest Inc. (now Frontier Northwest Inc.), the 

second largest incumbent carrier in Washington, replaced two of its circuit 

switches with IP-based switches, and other carriers are doing the same. Companies are increasingly converting their circuit switched networks to IP-based networks, and if the Commission were to determine that VoIP . . . {is not state 

jurisdictional} . . ., many, if not most, of them would likely seek to discontinue 

local telecommunications subject to state oversight in favor of FCC-regulated 

VoIP service. Complaints about telecommunications service, however, top the 

list of complaints consumers make to the WUTC. The Washington Commission 

received 722 customer complaints in 2010 against regulated telephone companies concerning billing disputes, disconnection threats, quality of service and 

customer service issues. Similarly, the Consumer Protection Division of the 

Washington Attorney General’s Office received more complaints about telephone 

companies and service (both landline and wireless) than any other industry on 

an annual basis from 2001—09, and such complaints for 2009 (the latest year 

for which the WUTC has such figures) was only second to the number of complaints about collection agencies. The FCC Enforcement Bureau’s backlog of 

cases is already substantial, and adding complaints that are currently filed with 

state agencies would overwhelm the system to the detriment of consumers. 

Any approach that allows the FCC to assume exclusive jurisdiction over VoIP 

services is short-sighted and will likely only provide yet another arbitrage opportunity. Moreover, long term such an approach could well jeopardize the funding 

streams for the more than 20 States that have adopted State-specific universal service programs, as well as threaten State authority over emergency calling, outage 

restoration, and, as already referenced earlier—service quality. As we noted in those 

same comments, at pages 10–11: 

The FCC should be mindful of all consequences that result from its actions, 

both intended and the unintended. The Commission can reform intercarrier 

compensation without assuming exclusive jurisdiction over VoIP and therefore 

should only make those determinations that are necessary to reach its goals. 

I also have real concerns about the proposals to preempt State intrastate access 

charge authority. Such an approach is directly contrary to the express terms of the 

statute and Congress’ view of the appropriate role of the States.4 Indeed, the current ICC dilemma is far more attributable to the FCC’s refusal to classify VoIPbased services than to States’ intrastate access charge regulation. 

States have long held that all carriers should pay according to State and Federal 

access tariffs. The market, not the regulator, should make such choices under a consistent federal-State regulatory regime. The lack of a Federal policy on the appropriate treatment of VoIP provides as telecommunications carriers has created a 

huge ambiguity during the last ten years that carriers have exploited to their advantage, resulting in the declines in intrastate access charge compensation that the 

telephone companies we regulate have experienced. The overwhelming majority of 

States, on the other hand, have already engaged is significant reform of intrastate 

ICC, and most of the remaining States are poised to act.5

The Ugly 

Chairman Genachowski has often noted that a ‘‘fact based and data driven process’’ is crucial to informed and efficient decision-making.6 Indeed, in one of his first 

statements after becoming Chairman, he argued that his universal broadband plan: 

36 

will.’’) available online at: http://www.openinternet.gov/read-speech.html; Eggerton, John, 

Genachowski Addresses Broadband, Indecency and Future FCC Plans (Broadcasting & Cable) 

6/16/2009, (‘‘Genachowski said his would be an open and transparent FCC, that made data-driven policy decisions that kept the consumer foremost . . .’’ online at: http://www.broadcas 

tingcable.com/article/294770-GenachowskilAddresseslBroadbandlIndecencylandlFuturel FCClPlans.php. 7See, Chairman Julius Genachowski, Prepared Remarks on National Broadband Plan Process, 

(July 2, 2009), at page 2, available online at: http://hraunfoss.fcc.gov/edocslpublic/attach 

match/DOC-291884A1.pdf. 8 According to this chart, Washington State residents pay about $155,701,000 into the Federal 

program but State residents only receive the benefits in the amount of about $140,092,000 from 

the fund, leaving us a net contributor state. 9See, Chairman Julius Genachowski, Prepared Remarks on National Broadband Plan Process, 

(July 2, 2009), at page 9, available online at: http://hraunfoss.fcc.gov/edocslpublic/attach 

match/DOC–291884A1.pdf. 

. . . will be data-driven. That means not starting with conclusions, but using data 

to develop analysis. It also means not just accepting data, but digging into data, to 

find concrete solutions that supersede ideology—and that can make a difference in 

the lives of real Americans.7

I agree with the Chairman. The development and final version of the National 

Broadband Plan (NBP) was a good example of this: a comprehensive, long-term 

analysis of the telecommunications/broadband industries and related public policy 

purposes based on exhaustive analysis and large amounts of data. A decision can 

only be as good as the record it is based upon. Unfortunately, I am concerned that 

while the original NPRM issued in February was comprehensive and asked many 

good questions based on analysis and data, the process over the last several months 

used to generate the draft circulated last week did not measure up to this standard. 

I have attached a chart to my testimony that estimates the flow of Federal USF 

funds, by State, based on data from the FCC’s 2010 USF Monitoring Report. For 

example, if you set off contributions against receipts from the Federal program, 

West Virginia is currently a net recipient of about $30 million dollars in Federal 

revenues. Washington State, on the other hand, is net contributor to the Federal 

programs sending about $15 million dollars to assure universal service in other 

states.8 Other members of the Committee can determine approximately from that 

chart the current net benefit of the Federal program to your respective States. 

Last week the Chairman pointed out in his speech that: 

So in the transition areas, until the shift to competitive bidding, the Commission will base support on a rigorous model estimating the costs of deploying 

broadband, ensuring carriers receive no more than necessary to enable 

broadband build out. And that cost model will be adopted only after an open 

and transparent public review process. 9

In other words, only after the plan is adopted can the FCC possibly have any realistic chance of estimating the actual costs of taking this approach. The FCC Commissioners—as well as other interested stakeholders and public officials—cannot 

look at the record and ascertain with any degree of certainty even the approximate 

impact on Federal funds flowing into and out of their States under the new paradigm. The only thing any interested policy maker can be sure of is that over the 

next five years the ‘‘net’’ amount of money you receive in your State to support universal service will change—and it is likely that change will be dramatic. Indeed, the 

FCC has expressed an interest in controlling the growth in the size of the fund, but 

current Federal legislation mandates reasonably comparable service. Without a fully 

vetted model, no policy maker can determine with certainty the likelihood that the 

FCC will be able to constrain the growth in fund size in the face of likely litigation. 

Unfortunately, the FCC appears poised to closely follow an industry drafted proposal at least on the timing and phase-down of intrastate access charges and the 

use of an access charge recovery mechanism. The so-called ‘‘America’s Broadband 

Connectivity’’ (ABC) plan proponents have filed at the FCC, and no doubt circulated 

on Capitol Hill, a list of how States purportedly ‘‘make out’’ if the agency adopts 

their proposal. Significantly, that list does not show net benefit amounts since it 

does not show the change in net benefits from the status quo. Also, one must be 

skeptical of the analysis done by the industry-sponsored consultants since the underlying model and assumptions haven’t been adequately vetted and tested. Verizon, 

AT&T, and the other ABC plan proponents did not file the model at the same time 

they filed the plan. Instead, they waited until all the comments responding to the 

Notice on their plan were filed. And then a week before the Chairman was slated 

to circulate his draft, they finally ‘‘offered’’ full access to the model and supporting 

37 

10See, e.g., Lawson, Stephen, Comcast Calls on VoIP—Cable company announces plans to 

launch phone service this year, IDG News Service (2006) According to Comcast Chairman and 

Chief Executive Officer Brian Roberts, Cable operator Comcast VoIP service ‘‘[w]ill not be an 

Internet telephony service, he says: Though they will use IP, the voice calls won’t touch the 

Internet, running instead over Comcast’s private data network, with priority over regular data 

packets to ensure good quality.’’ Available at: http://pcworld.about.com/news/Jan112005 

id119241.htm. (Last accessed October 28, 2008) {emphasis added} See also, July 23,2008 Sworn 

Initial Testimony of James R. Burt on behalf of Sprint Communications Company L.P. filed before the Arkansas Public Service Commission, In the Matter of Petitions for Arbitration by Sprint 

Communications Company L.P. against Yelcot Telephone Company, DOCKET NO. 08–0764, and 

against Northern Arkansas Telephone Company, DOCKET NO. 08477–U, Exhibit JRB–1 at page 

65, and at pages 29–30, where Mr. Burt notes: available at http://www.apscservices.info/pdf/ 

08/08-076-ul14l1.pdf. (Excerpt: ‘‘Is the proposed service an Internet Telephony, Internetbased VoIP or over-the-top VoIP service? No. I am not speaking to the regulatory treatment of 

these services, but rather, the functionality of the proposed service. . .The terms Internet Telephony, Internet-based VoIP and/or over-the-top VoIP services are used to describe voice services that utilize the public Internet. An example would be the service provided by Vonage. By 

contrast, the service provided by Sprint and Suddenlink does not use the public Internet in any 

manner. . . . The voice services provided by Sprint and Suddenlink are not nomadic; the customers only use the service in their homes. Internet Telephony, Internet-based VoIP service and 

over-the-top VoIP services have also struggled with providing 911 service consistent with customer or public safety official expectations. The voice services provided by Sprint and 

Suddenlink provide reliable 911 service. . . . There is one factor that is sometimes used to attempt to create confusion between Internet Telephony, Internet-based VoIP service and overthe-top VoIP service and the voice service king provided by Sprint and Suddenlink. It is the 

fact that all of these services happen to use the Internet protocol. Since all of these services 

use the Internet protocol, there is a tendency to claim the services are the same. The mere fact 

that there is one technical similarity, use of the Internet protocol, should not lead one to the 

conclusion that the services are the same.) {emphasis added} Cf. June 6, 2008 Prefiled Testimony of Corey R. Chase on Behalf of the Vermont Department of Public Service, State of 

Vermont Public Service Board Docket No. 7316 Investigation into regulation of Voice over Internet Protocol Services, at pages 12–14, 13, (Excerpt: Q. Is it true that CDV packets ‘‘flow interwoven with other data packets such as e-mail or video along Comcast’s private IP data network’’ 

as Mr. Kowolenko stated on page 10 of his prefiled testimony? A. It appears to be true that 

at some points within the Comcast network, packets containing CDV data travel with packets 

containing other data types on the same IP network, with CDV packets marked to maintain 

quality. However, in the response to DPS Information Request 1–12, Mr. Kowolenko stated that, 

Continued 

documentation—but even then only to stakeholders who could afford, on short notice, to travel to certain offices in the State of Ohio and pay a minimum of $600. 

Universal service and intercarrier compensation are large and complex regimes 

the reform of which will have major impacts on the retail rates your constituents 

pay, the subsidies carriers receive, and the flow of these subsidies among States. 

Some realistic assessment of the impact and outcome of any proposal should—logically—occur before any policy maker commits to a proposed spending plan. Certainly 

reform of the Federal program is necessary and long overdue. However, without 

thorough evaluation any new system could cause as many (and perhaps more) problems than it solves. 

Adoption of any major USF and intercarrier compensation reforms prior to full 

vetting of the underlying cost model would be putting the proverbial cart before the 

horse. It would be bad policy and definitely undermine the foundation for reform. 

It also appears the FCC may be considering at least one legal determination that 

is definitely not ‘‘data-driven’’ or ‘‘fact based.’’ To establish a unified interstate tariff 

to cover all (inter-and intrastate) traffic, the law requires a factual finding that the 

underlying traffic cannot be divided or ‘‘severed’’ into local/in-State and interstate 

calls. That poses a real obstacle. Other than self-serving statements by carriers looking to avoid jurisdiction, there is no evidence provided in this FCC reform proceeding that such traffic is not severable. Moreover, it is, at a minimum, counterintuitive that a network that has to deliver bi-directional voice traffic in real time 

is incapable of locating the end-points of that communication at least within existing 

State geographic boundaries. Claims of lack of severability are also completely at 

odds with Federal CALEA mandates and the unswerving FCC goal of assuring ever 

better and more precise routing of E911 emergency calls, regardless of the technology used to provide the underlying voice service. Such claims also cannot be reconciled with the undeniable fact that the majority of fixed VoIP providers (and wireless providers) pay into the Federal universal service program based on jurisdictional traffic distinctions—that is they actually do ‘‘sever’’ their traffic. Indeed, with 

respect to facilities-based or ‘‘fixed’’ interconnected VoIP services, severability is a 

non-issue. For them, it appears the traffic never touches the ‘‘Internet’’ but interfaces with the PSTN just like other communications systems with different dedicated protocols.10

38 

‘‘It [CDV] does not contend with other IP based traffic destined for the public Internet that flows 

across the Comcast access network.’’ Since packets carrying various data types do not contend 

for bandwidth and thus cannot affect each other, they should not be considered ‘‘interwoven’’ 

because CDV traffic can be identified separately from other data. Furthermore, as discussed 

above combining various traffic types on a single network is a function of all modern networks, 

not just IP networks. See also, July 25, 2008 Prefiled Rebuttal Testimony of David J. Kowolenko 

on behalf of Comcast of Vermont, State of Vermont Public Service Board Docket No. 7316 Investigation into regulation of Voice over Internet Protocol Services, at pages 8–9, where he points 

out, as does his CEO, supra, that Comcast’s phone service ‘‘uses IP technology but provides a 

facilities-based service that does not traverse the public Internet unlike ‘over the top’ providers 

that do not directly connect via a private network to the PSTN as Comcast does. It also does 

not conflict with other IP-based traffic destined for the public Internet that flows across the 

Comcast access network.’’ All 3 documents can be downloaded from: http://www.naruc.org/Publications/ 

Testimony%20filed%20in%20Vermont%20PSB%202008%20Examination%20of%20VOIP.pdf. See 

also, May 9, 2008 FINAL DECISION, in Public Service Commission of Wisconsin Docket 5911– 

NC–101, Application of Time Warner Cable Information Services (WI), LLC to Expand Certification as an Alternative Telecommunications Utility, at 8, Findings of Fact # 8 ‘‘Under the business model established by Sprint and TWCIS, Digital Phone uses IP technology as a transmission protocol, but does not use the Internet as such.’’ Available at: http://www.psc.wi.gov/ 

apps/erflsearch/content/docdetail.aspx?docid=94163. See also, Briefing Memorandum in Public Service Commission of Wisconsin Docket 5911–NC–101, Application of Time Warner Cable Information Services (WI), LLC to Expand Certification as an Alternative Telecommunications Utility, available at: http://www.psc.wi.gov/apps/erflsearch/content/docdetail.aspx?docid 

=84954. 11See Universal Service Contribution Methodology, WC Docket 06–122; CC Dockets 96–45, 

98–171, 90–571, 92–237; CC Dockets 99–200, 95–116, 98–170; WC Docket 04–36, Report and 

Order and Notice of Proposed Rulemaking, 21 FCC Rcd 7518 (2006), available at: http:// 

hraunfoss.fcc.gov/edocslpublic/attachmatch/FCC–06–94A1.pdf (Contribution Order), aff’d in 

part, vacated in part, Vonage Holdings Corp. v. FCC, 489 F.3d 1232, 1244 (D.C. Cir. 2007), at 

note 189 (‘‘Because we permit interconnected VoIP providers to report on actual interstate revenues, this Order does not require interconnected VoIP providers that are currently contributing 

based on actual revenues to revise their current practices.’’). 12 ‘‘In May 2005, the FCC adopted rules requiring providers of interconnected VoIP services 

to supply 911 emergency calling capabilities to their customers as a mandatory feature of the 

service by November 28, 2005. ‘‘Interconnected’’ VoIP services are VoIP services that allow a 

user generally to receive calls from and make calls to the traditional telephone network. Under 

the FCC rules, interconnected VoIP providers must: Deliver all 911 calls to the local emergency 

call center; Deliver the customer’s call back number and location information where the emergency call center is capable of receiving it.’’ See: http://www.fcc.gov/pshs/services/911-services/ 

voip/Welcome.html. 

Even the FCC conceded in a June 2006 Order that fixed interconnected VoIP services currently contribute to the Federal program based on actual revenues (i.e., sev- ered traffic).11 Because there is no question it is possible to separate intrastate nonnomadic facilities-based VoIP calls from interstate calls, the FCC has no jurisdiction 

over such intrastate calls. Indeed, now that the FCC has required both constructive 

severance by means of a proxy interstate safe harbor for nomadic VoIP providers 

to contribute to the Federal universal service programs, as well as actual severance, 

by requiring nomadic VoIP providers to have functioning 911services,12 it may be 

time to re-examine that FCC action. The only facts currently in the record support 

rejection of a unified Federal VoIP tariff approach. But if the FCC is seriously contemplating creating a factual record to allow it to consider granting the petition, 

these are precisely the types of issues that require the development of such a record 

through discovery, sworn testimony, and the opportunity for cross-examination before any final legal determination is possible—either here or in the broader proceeding. That examination has yet to take place. 

Partnership, not Preemption 

The Telecommunications Act of 1996 established a federal-State partnership to 

oversee the universal service and intercarrier compensation regimes. In that statute, Congress specifically and explicitly reserved State authority over, among other 

things, intrastate access, carrier of last resort obligations, service quality, State universal service mechanisms, and the designation of eligible telecommunications carriers. This partnership you established has worked well and is even more important 

as the Nation looks to expand broadband penetration. Regardless of goals or reasoning, this partnership cannot be undone by the FCC. The FCC, and this Committee, are to be commended for their courage in tackling USF and intercarrier compensation reform. Everyone in this room knows reform is necessary and long overdue. However, I, and I believe my agency, joins a substantial number of other State 

commissions and many consumer groups in raising concerns with what we know 

about the currently circulating FCC draft order. Any reform must benefit the consumers and not the bottom line of carriers, assure accountability, and maintain 

39 

buildout and service quality requirements—a role that States are best positioned to 

handle. Finally, as Chairman Genachowski has often noted, reform must be ‘‘datadriven and fact based.’’ Unfortunately, this is not the case with the actions the FCC 

apparently intends to take. 

I thank you again for the opportunity to testify today and I welcome any questions you may have. 

Federal Universal Service Support Mechanisms by State: 2009 

[Annual Payments and Contributions in Thousands] 

State or 

Jurisdiction 

High-Cost Support 

Payments from USF 

to Service Providers 

Estimated Contributions 

by Carriers to USAC 

Estimated 

Net 

Dollar Flow 

Amount % of Total Amount % of Total Amount 

Alabama $100,061 2.3% $68,579 1.6% $31,482 

Alaska $168,272 3.9% $11,250 0.3% $157,022 

American Samoa $3,939 0.1% $298 0.0% $3,641 

Arizona $67,204 1.6% $84,352 2.0% ($17,148) 

Arkansas $148,253 3.5% $39,246 0.9% $109,007 

California $107,508 2.5% $474,280 11.0% ($366,772) 

Colorado $79,397 1.8% $76,670 1.8% $2,727 

Connecticut ($390) 0.0% $57,085 1.3% ($57,475) 

Delaware $226 0.0% $15,761 0.4% ($15,535) 

Dist. of Columbia $0 0.0% $19,773 0.5% ($19,773) 

Florida $70,396 1.6% $285,907 6.7% ($215,511) 

Georgia $136,139 3.2% $140,561 3.3% ($4,422) 

Guam $16,650 0.4% $2,251 0.1% $14,399 

Hawaii $58,416 1.4% $21,298 0.5% $37,118 

Idaho $50,779 1.2% $21,336 0.5% $29,443 

Illinois $74,939 1.7% $177,462 4.1% ($102,523) 

Indiana $74,418 1.7% $83,888 2.0% ($9,470) 

Iowa $127,435 3.0% $38,837 0.9% $88,598 

Kansas $230,301 5.4% $37,973 0.9% $192,328 

Kentucky $101,805 2.4% $55,949 1.3% $45,856 

Louisiana $156,494 3.6% $61,345 1.4% $95,149 

Maine $27,443 0.6% $18,209 0.4% $9,234 

Maryland $3,966 0.1% $94,073 2.2% ($90,107) 

Massachusetts $2,413 0.1% $97,758 2.3% ($95,345) 

Michigan $63,193 1.5% $122,460 2.9% ($59,267) 

Minnesota $127,037 3.0% $68,112 1.6% $58,925 

Mississippi $281,267 6.6% $38,489 0.9% $242,778 

Missouri $108,639 2.5% $82,943 1.9% $25,696 

Montana $79,855 1.9% $14,539 0.3% $65,316 

Nebraska $116,611 2.7% $24,051 0.6% $92,560 

Nevada $25,570 0.6% $39,948 0.9% ($14,378) 

New Hampshire $8,576 0.2% $20,901 0.5% ($12,325) 

New Jersey $1,058 0.0% $143,512 3.3% ($142,454) 

New Mexico $71,391 1.7% $27,820 0.6% $43,571 

New York $44,967 1.0% $277,114 6.5% ($232,147) 

North Carolina $85,635 2.0% $130,102 3.0% ($44,467) 

North Dakota $94,452 2.2% $9,478 0.2% $84,974 

Northern Mariana $1,309 0.0% $465 0.0% $844 

Ohio $33,858 0.8% $149,536 3.5% ($115,678) 

Oklahoma $142,547 3.3% $45,232 1.1% $97,315 

Oregon $78,826 1.8% $51,882 1.2% $26,944 

Pennsylvania $57,770 1.3% $177,475 4.1% ($119,705) 

Puerto Rico $74,387 1.7% $39,829 0.9% $34,558 

Rhode Island $34 0.0% $14,102 0.3% ($14,068) 

South Carolina $98,376 2.3% $63,774 1.5% $34,602 

South Dakota $97,338 2.3% $11,053 0.3% $86,285 

Tennessee $58,896 1.4% $91,074 2.1% ($32,178) 

Texas $262,049 6.1% $299,043 7.0% ($36,994) 

Utah $19,221 0.4% $32,031 0.7% ($12,810) 

Vermont $21,208 0.5% $10,415 0.2% $10,793 

Virgin Islands $15,986 0.4% $2,961 0.1% $13,025 

Virginia $72,933 1.7% $120,689 2.8% ($47,756) 

Washington $94,459 2.2% $89,779 2.1% $4,680 

West Virginia $58,640 1.4% $28,323 0.7% $30,317 

Wisconsin $139,287 3.2% $72,198 1.7% $67,089 

Wyoming $50,740 1.2% $8,709 0.2% $42,031 

Total $4,292,179 

40 

Federal Universal Service Support Mechanisms by State: 2009—Continued 

[Annual Payments and Contributions in Thousands] 

State or 

Jurisdiction 

Low-Income Support 

Payments from USF 

to Service Providers 

Estimated Contributions 

by Carriers to USAC 

Estimated 

Net 

Dollar Flow 

Amount % of Total Amount % of Total Amount 

Alabama $25,652 2.5% $16,380 1.6% $9,272 

Alaska $24,480 2.4% $2,687 0.3% $21,793 

American Samoa $39 0.0% $71 0.0% ($32) 

Arizona $21,813 2.1% $20,148 2.0% $1,665 

Arkansas $4,019 0.4% $9,374 0.9% ($5,355) 

California $194,238 18.9% $113,283 11.0% $80,955 

Colorado $2,905 0.3% $18,313 1.8% ($15,408) 

Connecticut $5,389 0.5% $13,635 1.3% ($8,246) 

Delaware $661 0.1% $3,765 0.4% ($3,104) 

Dist. of Columbia $1,077 0.1% $4,723 0.5% ($3,646) 

Florida $74,720 7.3% $68,289 6.7% $6,431 

Georgia $33,514 3.3% $33,573 3.3% ($59) 

Guam $307 0.0% $538 0.1% ($231) 

Hawaii $495 0.0% $5,087 0.5% ($4,592) 

Idaho $3,603 0.4% $5,096 0.5% ($1,493) 

Illinois $13,649 1.3% $42,387 4.1% ($28,738) 

Indiana $4,917 0.5% $20,037 2.0% ($15,120) 

Iowa $4,314 0.4% $9,276 0.9% ($4,962) 

Kansas $3,128 0.3% $9,070 0.9% ($5,942) 

Kentucky $9,802 1.0% $13,364 1.3% ($3,562) 

Louisiana $12,011 1.2% $14,652 1.4% ($2,641) 

Maine $6,798 0.7% $4,349 0.4% $2,449 

Maryland $858 0.1% $22,470 2.2% ($21,612) 

Massachusetts $21,043 2.1% $23,350 2.3% ($2,307) 

Michigan $30,329 3.0% $29,250 2.9% $1,079 

Minnesota $7,043 0.7% $16,269 1.6% ($9,226) 

Mississippi $9,880 1.0% $9,193 0.9% $687 

Missouri $8,198 0.8% $19,811 1.9% ($11,613) 

Montana $3,875 0.4% $3,473 0.3% $402 

Nebraska $2,157 0.2% $5,745 0.6% ($3,588) 

Nevada $2,906 0.3% $9,542 0.9% ($6,636) 

New Hampshire $746 0.1% $4,992 0.5% ($4,246) 

New Jersey $15,053 1.5% $34,278 3.3% ($19,225) 

New Mexico $14,595 1.4% $6,645 0.6% $7,950 

New York $60,082 5.9% $66,189 6.5% ($6,107) 

North Carolina $33,899 3.3% $31,075 3.0% $2,824 

North Dakota $3,101 0.3% $2,264 0.2% $837 

Northern Mariana $168 0.0% $111 0.0% $57 

Ohio $36,707 3.6% $35,717 3.5% $990 

Oklahoma $71,141 6.9% $10,804 1.1% $60,337 

Oregon $5,413 0.5% $12,392 1.2% ($6,979) 

Pennsylvania $21,603 2.1% $42,390 4.1% ($20,787) 

Puerto Rico $28,854 2.8% $9,513 0.9% $19,341 

Rhode Island $3,425 0.3% $3,368 0.3% $57 

South Carolina $9,629 0.9% $15,233 1.5% ($5,604) 

South Dakota $3,334 0.3% $2,640 0.3% $694 

Tennessee $31,349 3.1% $21,753 2.1% $9,596 

Texas $101,914 9.9% $71,427 7.0% $30,487 

Utah $3,808 0.4% $7,651 0.7% ($3,843) 

Vermont $2,576 0.3% $2,488 0.2% $88 

Virgin Islands $77 0.0% $707 0.1% ($630) 

Virginia $15,198 1.5% $28,827 2.8% ($13,629) 

Washington $17,704 1.7% $21,444 2.1% ($3,740) 

West Virginia $1,189 0.1% $6,765 0.7% ($5,576) 

Wisconsin $9,341 0.9% $17,245 1.7% ($7,904) 

Wyoming $469 0.0% $2,080 0.2% ($1,611) 

Total $1,025,195 

41 

Federal Universal Service Support Mechanisms by State: 2009—Continued 

[Annual Payments and Contributions in Thousands] 

State or 

Jurisdiction 

Schools & Libraries 

Payments from USF 

to Service Providers 

Estimated Contributions 

by Carriers to USAC 

Estimated 

Net 

Dollar Flow 

Amount % of Total Amount % of Total Amount 

Alabama $28,922 1.5% $30,011 1.6% ($1,089) 

Alaska $22,542 1.2% $4,923 0.3% $17,619 

American Samoa $4,282 0.2% $130 0.0% $4,152 

Arizona $49,278 2.6% $36,913 2.0% $12,365 

Arkansas $14,974 0.8% $17,174 0.9% ($2,200) 

California $281,161 15.0% $207,549 11.0% $73,612 

Colorado $14,452 0.8% $33,552 1.8% ($19,100) 

Connecticut $22,255 1.2% $24,981 1.3% ($2,726) 

Delaware $831 0.0% $6,897 0.4% ($6,066) 

Dist. of Columbia $8,440 0.4% $8,653 0.5% ($213) 

Florida $75,933 4.0% $125,116 6.7% ($49,183) 

Georgia $67,875 3.6% $61,511 3.3% $6,364 

Guam $334 0.0% $985 0.1% ($651) 

Hawaii $1,930 0.1% $9,320 0.5% ($7,390) 

Idaho $4,750 0.3% $9,337 0.5% ($4,587) 

Illinois $63,987 3.4% $77,659 4.1% ($13,672) 

Indiana $22,702 1.2% $36,710 2.0% ($14,008) 

Iowa $9,899 0.5% $16,995 0.9% ($7,096) 

Kansas $15,278 0.8% $16,617 0.9% ($1,339) 

Kentucky $28,136 1.5% $24,484 1.3% $3,652 

Louisiana $35,427 1.9% $26,845 1.4% $8,582 

Maine $6,159 0.3% $7,969 0.4% ($1,810) 

Maryland $9,850 0.5% $41,167 2.2% ($31,317) 

Massachusetts $22,729 1.2% $42,780 2.3% ($20,051) 

Michigan $51,300 2.7% $53,590 2.9% ($2,290) 

Minnesota $17,168 0.9% $29,807 1.6% ($12,639) 

Mississippi $29,982 1.6% $16,843 0.9% $13,139 

Missouri $26,168 1.4% $36,297 1.9% ($10,129) 

Montana $4,201 0.2% $6,363 0.3% ($2,162) 

Nebraska $9,004 0.5% $10,525 0.6% ($1,521) 

Nevada $4,295 0.2% $17,481 0.9% ($13,186) 

New Hampshire $2,285 0.1% $9,146 0.5% ($6,861) 

New Jersey $37,106 2.0% $62,802 3.3% ($25,696) 

New Mexico $26,912 1.4% $12,174 0.6% $14,738 

New York $237,857 12.7% $121,267 6.5% $116,590 

North Carolina $57,744 3.1% $56,934 3.0% $810 

North Dakota $3,560 0.2% $4,148 0.2% ($588) 

Northern Mariana $1,142 0.1% $203 0.0% $939 

Ohio $63,578 3.4% $65,438 3.5% ($1,860) 

Oklahoma $35,314 1.9% $19,794 1.1% $15,520 

Oregon $15,057 0.8% $22,704 1.2% ($7,647) 

Pennsylvania $69,524 3.7% $77,665 4.1% ($8,141) 

Puerto Rico $8,735 0.5% $17,430 0.9% ($8,695) 

Rhode Island $5,466 0.3% $6,171 0.3% ($705) 

South Carolina $37,412 2.0% $27,908 1.5% $9,504 

South Dakota $5,536 0.3% $4,837 0.3% $699 

Tennessee $49,110 2.6% $39,855 2.1% $9,255 

Texas $155,009 8.3% $130,864 7.0% $24,145 

Utah $15,628 0.8% $14,017 0.7% $1,611 

Vermont $1,382 0.1% $4,558 0.2% ($3,176) 

Virgin Islands $2,014 0.1% $1,296 0.1% $718 

Virginia $29,056 1.5% $52,815 2.8% ($23,759) 

Washington $27,850 1.5% $39,288 2.1% ($11,438) 

West Virginia $10,647 0.6% $12,394 0.7% ($1,747) 

Wisconsin $22,569 1.2% $31,594 1.7% ($9,025) 

Wyoming $3,559 0.2% $3,811 0.2% ($252) 

Total $1,878,296 

42 

Federal Universal Service Support Mechanisms by State: 2009—Continued 

[Annual Payments and Contributions in Thousands] 

State or 

Jurisdiction 

Rural Health Care 

Payments from USF 

to Service Providers 

Estimated Contributions 

by Carriers to USAC 

Estimated 

Net 

Dollar Flow 

Amount % of Total Amount % of Total Amount 

Alabama $229 0.4% $970 1.6% ($741) 

Alaska $29,122 48.0% $159 0.3% $28,963 

American Samoa $141 0.2% $4 0.0% $137 

Arizona $1,954 3.2% $1,193 2.0% $761 

Arkansas $401 0.7% $555 0.9% ($154) 

California $942 1.6% $6,707 11.0% ($5,765) 

Colorado $234 0.4% $1,084 1.8% ($850) 

Connecticut $0 0.0% $807 1.3% ($807) 

Delaware $0 0.0% $223 0.4% ($223) 

Dist. of Columbia $0 0.0% $280 0.5% ($280) 

Florida $854 1.4% $4,043 6.7% ($3,189) 

Georgia $1,989 3.3% $1,988 3.3% $1 

Guam $101 0.2% $32 0.1% $69 

Hawaii $196 0.3% $301 0.5% ($105) 

Idaho $257 0.4% $302 0.5% ($45) 

Illinois $1,389 2.3% $2,510 4.1% ($1,121) 

Indiana $822 1.4% $1,186 2.0% ($364) 

Iowa $571 0.9% $549 0.9% $22 

Kansas $327 0.5% $537 0.9% ($210) 

Kentucky $708 1.2% $791 1.3% ($83) 

Louisiana $40 0.1% $868 1.4% ($828) 

Maine $63 0.1% $258 0.4% ($195) 

Maryland $0 0.0% $1,330 2.2% ($1,330) 

Massachusetts $150 0.2% $1,382 2.3% ($1,232) 

Michigan $941 1.6% $1,732 2.9% ($791) 

Minnesota $2,637 4.3% $963 1.6% $1,674 

Mississippi $148 0.2% $544 0.9% ($396) 

Missouri $578 1.0% $1,173 1.9% ($595) 

Montana $843 1.4% $206 0.3% $637 

Nebraska $1,391 2.3% $340 0.6% $1,051 

Nevada $73 0.1% $565 0.9% ($492) 

New Hampshire $11 0.0% $296 0.5% ($285) 

New Jersey $0 0.0% $2,029 3.3% ($2,029) 

New Mexico $386 0.6% $393 0.6% ($7) 

New York $62 0.1% $3,919 6.5% ($3,857) 

North Carolina $312 0.5% $1,840 3.0% ($1,528) 

North Dakota $1,201 2.0% $134 0.2% $1,067 

Northern Mariana $0 0.0% $7 0.0% ($7) 

Ohio $426 0.7% $2,115 3.5% ($1,689) 

Oklahoma $809 1.3% $640 1.1% $169 

Oregon $312 0.5% $734 1.2% ($422) 

Pennsylvania $109 0.2% $2,510 4.1% ($2,401) 

Puerto Rico $0 0.0% $563 0.9% ($563) 

Rhode Island $0 0.0% $199 0.3% ($199) 

South Carolina $47 0.1% $902 1.5% ($855) 

South Dakota $1,388 2.3% $156 0.3% $1,232 

Tennessee $242 0.4% $1,288 2.1% ($1,046) 

Texas $889 1.5% $4,229 7.0% ($3,340) 

Utah $666 1.1% $453 0.7% $213 

Vermont $115 0.2% $147 0.2% ($32) 

Virgin Islands $74 0.1% $42 0.1% $32 

Virginia $731 1.2% $1,707 2.8% ($976) 

Washington $80 0.1% $1,270 2.1% ($1,190) 

West Virginia $308 0.5% $401 0.7% ($93) 

Wisconsin $5,281 8.7% $1,021 1.7% $4,260 

Wyoming $148 0.2% $123 0.2% $25 

Total $60,698 

43 

Federal Universal Service Support Mechanisms by State: 2009—Continued 

[Annual Payments and Contributions in Thousands] 

State or 

Jurisdiction 

Total Federal Universal Program *

Payments from USF 

to Service Providers 

Estimated Contributions 

by Carriers to USAC 

Estimated 

Net 

Dollar Flow 

Amount % of Total Amount % of Total Amount 

Alabama $154,864 2.1% $118,935 1.6% $35,929 

Alaska $244,417 3.4% $19,511 0.3% $224,906 

American Samoa $8,400 0.1% $516 0.0% $7,884 

Arizona $140,249 1.9% $146,289 2.0% ($6,040) 

Arkansas $167,647 2.3% $68,063 0.9% $99,584 

California $583,849 8.0% $822,527 11.0% ($238,678) 

Colorado $96,989 1.3% $132,967 1.8% ($35,978) 

Connecticut $27,253 0.4% $99,000 1.3% ($71,747) 

Delaware $1,719 0.0% $27,334 0.4% ($25,615) 

Dist. of Columbia $9,518 0.13% $34,291 0.5% ($24,773) 

Florida $221,903 3.06% $495,839 6.7% ($273,936) 

Georgia $239,517 3.3% $243,770 3.3% ($4,253) 

Guam $17,392 0.2% $3,904 0.1% $13,488 

Hawaii $61,037 0.8% $36,936 0.5% $24,101 

Idaho $59,389 0.8% $37,003 0.5% $22,386 

Illinois $153,964 2.1% $307,767 4.1% ($153,803) 

Indiana $102,858 1.4% $145,484 2.0% ($42,626) 

Iowa $142,218 2.0% $67,353 0.9% $74,865 

Kansas $249,034 3.4% $65,855 0.9% $183,179 

Kentucky $140,451 1.9% $97,031 1.3% $43,420 

Louisiana $203,972 2.8% $106,388 1.4% $97,584 

Maine $40,463 0.6% $31,580 0.4% $8,883 

Maryland $14,673 0.2% $163,148 2.2% ($148,475) 

Massachusetts $46,335 0.6% $169,539 2.3% ($123,204) 

Michigan $145,763 2.0% $212,378 2.9% ($66,615) 

Minnesota $153,885 2.1% $118,125 1.6% $35,760 

Mississippi $321,278 4.4% $66,750 0.9% $254,528 

Missouri $143,583 2.0% $143,845 1.9% ($262) 

Montana $88,774 1.2% $25,215 0.3% $63,559 

Nebraska $129,163 1.8% $41,711 0.6% $87,452 

Nevada $32,845 0.5% $69,280 0.9% ($36,435) 

New Hampshire $11,617 0.2% $36,248 0.5% ($24,631) 

New Jersey $53,218 0.7% $248,888 3.3% ($195,670) 

New Mexico $113,284 1.6% $48,248 0.6% $65,036 

New York $342,968 4.7% $480,589 6.5% ($137,621) 

North Carolina $177,591 2.4% $225,632 3.0% ($48,041) 

North Dakota $102,314 1.4% $16,438 0.2% $85,876 

Northern Mariana $2,619 0.0% $806 0.0% $1,813 

Ohio $134,569 1.9% $259,335 3.5% ($124,766) 

Oklahoma $249,812 3.4% $78,444 1.1% $171,368 

Oregon $99,608 1.4% $89,978 1.2% $9,630 

Pennsylvania $149,006 2.1% $307,789 4.1% ($158,783) 

Puerto Rico $111,977 1.5% $69,074 0.9% $42,903 

Rhode Island $8,925 0.1% $24,456 0.3% ($15,531) 

South Carolina $145,463 2.0% $110,601 1.5% $34,862 

South Dakota $107,595 1.5% $19,168 0.3% $88,427 

Tennessee $139,598 1.9% $157,946 2.1% ($18,348) 

Texas $519,860 7.2% $518,620 7.0% $1,240 

Utah $39,323 0.5% $55,550 0.7% ($16,227) 

Vermont $25,282 0.3% $18,062 0.2% $7,220 

Virgin Islands $18,152 0.3% $5,136 0.1% $13,016 

Virginia $117,918 1.6% $209,307 2.8% ($91,389) 

Washington $140,092 1.9% $155,701 2.1% ($15,609) 

West Virginia $70,784 1.0% $49,119 0.7% $21,665 

Wisconsin $176,478 2.4% $125,210 1.7% $51,268 

Wyoming $54,917 0.8% $15,103 0.2% $39,814 

Total $7,256,372 $7,443,782 ($187,410) 

* Estimated contributions include an administrative cost of approximately $187 million. 

The CHAIRMAN. I thank you, Mr. Jones. 

If I might start—I spoke in my opening statement about opposition to reform. And there’s no question there’s going to be that. 

And I decline to glorify it, because I think it’s useless for the modVerDate Nov 24 2008 13:10 Jun 15, 2012 Jkt 074568 PO 00000 Frm 00047 Fmt 6633 Sfmt 6601 S:\GPO\DOCS\74568.TXT SCOM1 PsN: JACKIE
44 

ern world that we seek. Those that benefit from the existing system will want to keep the status quo. That will be the case. 

But the status quo is not acceptable. Too many areas in this 

country are untouched by universal service support, requiring their 

consumers and businesses to do without the broadband access they 

need. That is not fair. 

I have been served in the state that I represent by endless numbers of companies, large and small, all of whom promised to be able 

to deliver, to get to every single last person, and then they’d show 

you maps if you really asked for them, and they were pretty embarrassing. They were pretty embarrassing. And I have to say that— 

it’s nothing personal—but Verizon has an ad out on wireless service, a TV ad. And I see it about two or three times a day, I guess. 

And it’s most interesting that the only totally white place in the 

entire country, that is uncovered, is a place called West Virginia. 

I can’t help but notice that. And I think that’s accurate. 

So, my question to you all is this: What are the essential attributes of something called a fair system? I’d like to hear from all 

of you. 

Ms. ABERNATHY. Mr. Chairman, I think the essential attributes 

are that the support is targeted to the truly high cost areas; that 

there is accountability to document how you’re spending the 

money; and that there’s a real world recognition that, because 

these are high cost areas that can’t support multiple competitors, 

that some entity is going to benefit, in the sense that it will provide 

service there. But you can’t support multiple entities. It doesn’t 

work that way. That’s why these are the least dense, highest-cost 

parts of the country. 

But I think it has to be targeted, and you have to be accountable 

for it. And then you have to be willing to accept a level of regulation, because you’re getting government funding. 

Ms. DILLON. I will build on that. I would say that, to me also, 

fairness means that the role of wireless is recognized as much as 

wireline, because, as we know, there’s plenty of parts of this country and your state where companies like U.S. Cellular really focus 

on making sure that the rural consumer has access to wireless 

voice, and, in the future, data. And, you know, our concern in 

terms of fairness is that the current proposal really dramatically 

reduces funding to wireless in a way that just doesn’t dovetail with 

how consumers and businesses are—what the needs are today and 

in the future. 

So, in our estimation, accountability is critical. We’re not asking 

for wireless funding to go higher than it’s been historically, but at 

a minimum, to not go dramatically lower. Because if it does, I 

think the consumer is the one who pays the price there, because, 

while it’s important to have both, it’s important to have fixed mobile access, but it’s also very important for people, as they leave 

their homes and travel and go to work, that they also have the 

ability to communicate wirelessly. 

The CHAIRMAN. Thank you. 

Mr. Powell? 

Mr. POWELL. Senator, I would agree with those comments. I 

think a fair system is one that focuses on un-served consumers and 

not rural companies, per se. 

45 

I think that if you understand that the program, at its heart, is 

a cost subsidy program—we ask all Americans to pay a burden in 

order to achieve a national social aim of universal availability— 

that we must make sure that you have fiscal constraint and restrictions in the system that demand no more money than necessary, 

the kind of efficiency that will, at least, keep to a bare minimum 

what those in Senator Kerry’s state are asked to pay in order, to 

the benefit of people living in another state. 

We can’t emphasize enough the importance that we attribute to 

competitive focus. Let companies do what they do best, fight for the 

business of consumers. And let the benefits that history has demonstrated flow from those competitions be a part of any plan. 

And finally, we will be very unfair in our system if we don’t recognize the enormous value that the technological innovation path 

is on, as you referenced in your opening remarks, and as Senator 

Warner talked about the speeds. 

When we do this, we better ensure that we’re incenting investment in the kind of architecture and technological platforms that 

will grow and migrate and innovate, so that all consumers have an 

opportunity to benefit from the kinds of thing that are in the personal technology section of the New York Times. 

The CHAIRMAN. Thank you. Ms. Bloomfield. 

Ms. BLOOMFIELD. Mr. Chairman—— 

The CHAIRMAN. I have about 10 seconds left. 

Ms. BLOOMFIELD. I would be remiss if I didn’t tell you that you 

have Hardy Telephone Cooperative in Lost River, West Virginia—— 

The CHAIRMAN. I do. 

Ms. BLOOMFIELD.—that has had 99.4 percent broadband penetration for the past 3 years. And what they have done is, they have 

not given capital credits out over the last 4 years, because their 

Board has decided that any money they have, any resource they 

have, goes into building fiber to their subscribers. 

And that’s a lot of the spirit that you get with some of these companies. So, I did want to note that you do have a coverage area in 

West Virginia. 

But, too, to answer—— 

The CHAIRMAN. They’re the Green Bay Packers of telecommunications. 

[Laughter.] 

Ms. BLOOMFIELD. We agree. And you picked the right team, by 

the way. 

Also, just, you know, a couple of the things that, in terms of answering your question—carrier of last resort obligation is really important. It basically says if you’re getting USF funding, you’ve 

taken on the obligation that you are going to provide service to 

every one of those subscribers out in that area. You’re not going to 

cherry pick; you’re not going to take, you know, the area where 

you’ve got a population base. You’re going to provide service to the 

entire area. And that’s going to be very important. 

You also have to make sure—I think one of the accountability 

factors that would be valuable is for USF to go, when folks receive 

USF, that that funding go to that service area, that it becomes very 

46 

targeted in that area, instead of companies receiving USF support 

and no accountability in terms of where it goes. 

And the last point that I would make is sustainability. You 

know, infrastructure is not something you throw into the ground 

and walk away and hope that you’re able to continue to meet consumers’ needs, business needs, public safety needs. It’s a living, 

breathing network that needs continued investment. 

The CHAIRMAN. Thank you. 

Mr. Jones? 

Mr. JONES. Since time is out, I’ll keep this short. Just four 

points: Reasonable and comparable. I think you mentioned it. We 

don’t want to create a rural/rural divide, or a rural/urban divide. 

Rates should be reasonably comparable as we move into the IP architecture and the broadband world. 

Interconnection: Systems need to be interconnected. And there 

are always disputes that are raised among carriers. Remember, 

this is not a tax-based system. This is a carrier-based system. Michael makes a good point about perhaps the equity of that. But it 

has always been a carrier-based system. So, when disputes come 

up on terminating, originating, and all these other things, state 

commissions have played that role. 

Consumer complaints is another one. Consumers should have 

one body close to the ground, we think, in the states where they 

can go and complain to. This is a very complained about industry. 

The last thing is the contribution mechanism. For whatever reason, Chairman Genachowski decided to keep the contribution 

mechanism out of this proposal. If you want to make it fair to all 

Americans, instead of paying 14 percent, 15 percent on interstate 

toll, you could put a charge per either telephone number or IP address, or whatever. And that, in my opinion, would make it more 

fair. 

The CHAIRMAN. I thank you all. 

And Senator Hutchison? 

Senator HUTCHISON. Well, I thank you. Mr. Chairman, I have to 

say, I think you really covered the waterfront. Asking the sort of 

simple question ‘‘What’s fair to the whole group?’’ really answered 

a lot of the questions I would have asked. 

I’ll just, I guess, go micro a little bit here, and ask Ms. Bloomfield—I have said that I think the intercarrier charges that phone 

companies pay each other need to be reformed, but gradually. My 

question to you is, what impact do you think that would have on 

rural communities if the intercarrier regime is too abruptly reformed, and there’s not an absorption time? 

Ms. BLOOMFIELD. That’s a great question. Thank you very much, 

Senator. 

There’s really three places where these carrier get their funding 

from. One is the customers. One is from other carriers, you know, 

carrier-to-carrier compensation. And one, typically, is USF reform, 

in terms of rural carriers that we represent. 

Intercarrier comp is a big portion of that. So, as you talk about 

reform—and it’s one of the things that we have been brought to the 

table, in terms of USF and ICC reform—is that we are agreeable 

to reform. We are agreeable to taking those rates down. That will 

mean a financial hit for our companies. They’ll definitely have to 

47 

figure out ways to kind of make up some of that. It may slow down 

some future investment. But we knew that was the only way to actually achieve real reform and find any kind of consensus. 

So, the most important thing for us will be that that transition 

be thoughtful, that it be slow enough that companies have the opportunity to figure out how they’re going to adjust. 

And one of the proposals that we submitted to the FCC gives us 

about a six or seven, 8-year glide path, so that companies can adjust as the reform kicks in and as the rates go down, so you can 

kind of find that balance at some course through the process. But 

a flash cut would be incredibly detrimental, and I will tell you, it 

will again halt all broadband—you know, a lot of broadband investment. 

Senator HUTCHISON. Mr. Powell, welcome, in your new—— 

Mr. POWELL. Thank you. 

Senator HUTCHISON.—and different capacity. 

You are not a big user of the USF Fund right now. You’ve mostly 

gone into the urban areas, the cable companies, I mean. But I 

would just like to ask you how you envision the cable industry’s 

role in bringing more broadband out into the rural and high-cost 

areas? 

Mr. POWELL. Well, thank you for your question. 

I would emphasize the first thing you said, which is, we do reach 

93 percent of households without subsidy. And we’re very proud of 

that. 

If you think about cable’s roots, where did we come from? We 

began in rural America. You know, Comcast was founded in 

Tupelo, Mississippi. Many cable companies have their original roots 

in rural America, because their original purpose was to bring television service to communities that could not receive service from 

broadcast transmissions. So, we have presence in many parts of the 

country, and look for opportunities to extend what is now a bundled service network to more parts. 

I would also say that, while the headlines may be big companies 

that are centered around urban areas at times, we have lots of 

members of our company who are very much, just as much a part 

of the fabric of rural America. We have cable companies as small 

as Dick Sjoberg’s company that is serving a town with 67 people 

in it in rural Minnesota. He has a small number of the 30 homes 

available, and is offering up to 11 megabit-per-second speed. So, we 

do have companies that provide those services in that part of the 

world. 

I think the fundamental challenge is what we would always 

agree, we all agree here—the areas that are harder to serve are 

hard to serve because they’re uneconomical. And if the Federal 

Government is going to direct subsidy to turn what was otherwise 

uneconomical into economical, I think our companies would have a 

strong interest in having a fair opportunity to provide that service 

as well. 

Senator HUTCHISON. Thank you. 

I would just say, Mr. Chairman, I think the key here is going to 

be trying to get the Universal Service Fund to be technology-neutral and allow everybody to, at least, try to participate, and give 

the most service and the most options into these rural areas. BeVerDate Nov 24 2008 13:10 Jun 15, 2012 Jkt 074568 PO 00000 Frm 00051 Fmt 6633 Sfmt 6601 S:\GPO\DOCS\74568.TXT SCOM1 PsN: JACKIE
48 

cause certainly Texas has a number of them. You do. And, we don’t 

have broadband service everywhere in Texas yet. I’ve been to a lot 

of places where I can’t use my BlackBerry. So, I hope we can at 

least provide insights into the FCC’s proposals. 

And you know, I think we could act in this area if we wanted 

to. And if we didn’t like what the FCC was doing, we have, you 

know, a little bit of leverage with the Congressional Review Act. 

So, I hope that we can all work together to do what we think is 

best. 

Thank you. 

The CHAIRMAN. It’s interesting—before I go to Senator Warner— 

this is not a delaying tactic. It was brought on by the Ranking 

Member of this Committee. The thought popped into my head and 

it’s going to pop out. 

Actually, the FCC was not thrilled about the thought of our having this hearing. And I had that conversation with the relevant 

folks. And I said that I think it’s very important that, in fact, it 

happen. And there was a worry—- Well, what would happen then 

if we did it? Wouldn’t that mean that the House would do it? And 

all of that strikes me as kind of missing the point. 

What we’re all saying here is that we’re very much behind what 

is going on at the FCC, and the incredible effort that they’re making over a long period of time, without a full complement of commissioners, to put forward something in the relatively near future. 

And so, what I wanted to emphasize was that I think this kind of 

thing is very important. They should hear each other; they should 

hear us. 

Senator Warner? 

Senator HUTCHISON. If you would just permit me, on that point, 

to say I support what they’re doing in this area. If they would just 

stick to the things that we’ve authorized them to do—— 

[Laughter.] 

Senator HUTCHISON.—rather than go into other areas which we 

haven’t, I’d be supportive, too. 

Thank you. 

[Laughter.] 

The CHAIRMAN. It’s all yours, Senator Warner. 

Senator WARNER. On that note—— 

[Laughter.] 

Senator WARNER.—let me at least say I completely agree that— 

and I want to thank the chair for holding this hearing. This is a 

really important focus. And I agree with the Ranking Member as 

well, in terms of how we get this—technology-neutral, and in a 

competitive way—out to literally millions of Texans, Virginians, 

Washingtonians, West Virginians, maybe even a few Alaskans, you 

know, who don’t have this broadband service yet. 

And let me also say to my friends from the wireline side up there 

that, you know, I think it’s great that you all have started an approach that has suggested some areas of agreement. 

I’ve got three questions, though, on the ABC Plan. You know, I 

agree—and I hope that the, you know, with a limited amount of 

money, $4 billion—we haven’t even talked about how we’re going 

to cap, or not, the High Cost Fund, and the delta between $23 bilVerDate Nov 24 2008 13:10 Jun 15, 2012 Jkt 074568 PO 00000 Frm 00052 Fmt 6633 Sfmt 6601 S:\GPO\DOCS\74568.TXT SCOM1 PsN: JACKIE
49 

lion and $55 billion, in terms of what we need to build out—we 

have to use these dollars effectively and efficiently, number one. 

Number two, we should make sure that we don’t sprinkle it 

around so much in an underserved area that we don’t get quality 

service to that, if not 100 percent, close to 100 percent of the potential customer base receives service. 

So, I get the idea of what was behind your, you know, incumbent 

right of first refusal if you’ve got 35 percent built up. But it seems 

to me a pretty blunt instrument, and frankly, not within the spirit 

of competitiveness. 

One of the questions I’ve wondered is, you know—since we, 

you’ve talked about a 35, if you’ve got to hit that 35 percent service 

threshold, you get a right of first refusal—you know, why not let 

the market play out a little bit more? Why not let any competitor 

come to the table, if they’ve got an ability? 

And if there needs to be a way to at least acknowledge previous 

investment, rather than just having this arbitrary right of first refusal that would then allow 10 years of support in a 5-year buildout schedule, why not have some kind of sliding scale that said, 

OK, we’re going to, you know, if you can get up to 90, 95 percent 

penetration of coverage in 3 years, we’ll give you, you know, some 

greater ability in terms of a reverse auction point system? So, some 

way to give you some advantage for your capital that you’ve already invested. 

But if there is a wireless or cable or satellite or other technology, 

I just don’t think being the incumbent alone should give you that 

right of first refusal. 

So, Ms. Abernathy and Ms. Bloomfield, if you want to take that? 

Ms. ABERNATHY. Thank you, Senator. 

The issue really had been how do we most efficiently, and quickly 

get broadband deployed to these markets where there is no one else 

other than the incumbent provider today? These are the areas that 

no one else is serving. 

So, the only infrastructure in place today is the wireline infrastructure; and, even with our existing infrastructure, it needs to be 

subsidized in order to ensure ongoing deployment of broadband. 

So, clearly, the thought was, we’ll get it there faster than if you 

go through and try to design an auction process. And we’ve already 

accepted carrier of last resort obligations. We’ve already accepted 

the quid pro quo for the funding, which is, we have to report; we 

have service metrics; we have to deploy within a certain timeframe. 

We’ve accepted all of that regulatory framework that goes along 

with the support. 

So, in the interest of, here’s the way you can get it there the fastest, you do, in effect, sacrifice the more, you know—do you want 

to have an auction? It will take longer. 

And so the interest was, let’s get it out there. And these are 

areas that no one is serving anyway, other than ourselves. So, it 

seemed like a reasonable compromise. 

Senator WARNER. Let me see if Ms. Bloomfield wants to answer, 

because I just, I’ve got a couple other questions. 

Ms. BLOOMFIELD. Well, let me clarify, Senator Warner, that the 

RLEC Plan does not have a right of first refusal. So, that is the 

plan that is carrying the price cap companies. 

50 

But in terms of the one of the points that you raised about— 

wireless is really important, because I think more and more consumers see wireless and wireline services as really complementary 

services to one another. And I think one of the things that gets lost 

a little bit in the technology discussion—and you can probably 

draw the diagram as well as anybody—is the fact that you actually 

need a wired network to do the backhaul. 

And we can talk about, you know, what is the right speed? What 

is the right data capacity? And we know how much that data capacity and the desire is growing. But you can’t do it without a 

wired network. 

You know, you talk about fiber to the home. Some of those facilities and that plant in the ground is what allows the wireless providers to actually a lot of the services they do, as well. 

So, in terms of technology neutrality, that’s an important thing 

to keep in the back of everybody’s head as we—— 

Senator WARNER. Well, it would raise the issue, though, that, if 

you’ve got that last mile wireless—— 

Ms. BLOOMFIELD. Mm-hm. 

Senator WARNER.—and you predesigned a cap on the wireless 

side, it may not be the way—again, if we trying to—how do we get 

the service there the quickest? 

And I know my time has expired. I’m going to take 30 seconds 

more. Is that all right? 

Just the fact that, as someone who, you know, personally lost a 

lot of money in the late 1990s on CLEX with the promise of interconnection, that, with some of the incumbents, never came to pass, 

I do think—and Mr. Jones has already raised this point—the failure to have in the ABC Plan—or somewhere in this, I hope the 

Commission would have—is really clear interconnection requirements, so that whoever is providing this service, they can interconnect back into the network. It is terribly important. 

And I would only just also like to mention—and I know that I 

won’t get a chance to it get answered—but the ABC Plan, I understand, actually offers a lower access charge for IP connectivity than 

for traditional service. And doesn’t that, in effect, have the incentive reversed? Because doesn’t that mean that if we wanted everybody to move to Voice-over-IP, and we want to move to an IP protocol, that if we’ve got a lower access charge versus conventional 

service—who’s going to want to upgrade their system if they’re 

going to actually decrease their access charge reimbursements? 

Ms. ABERNATHY. They actually reconcile over time—the interconnection charges—so that you’re not advantaging or 

disadvantaging either. 

Senator WARNER. I may wait for a second round. Thank you, Mr. 

Chairman. 

The CHAIRMAN. You’re welcome. 

Senator Cantwell? 

Senator CANTWELL. Thank you, Mr. Chairman. 

Mr. Bloomfield, we’re obviously hearing a lot at home about the 

issue of rural areas and the failure to connect, or long delays. And 

obviously, people here have already talked about Least Cost Routing as a potential cause of that problem. And I know that you’ve 

51 

encouraged the FCC to take action on this. They’re holding some 

sort of a hearing or something—— 

Ms. BLOOMFIELD. Workshop, next week. 

Senator CANTWELL.—workshop next week. 

To the best of your knowledge, do you think the intercarrier compensation reforms in the ABC Plan would address this issue? 

Ms. BLOOMFIELD. The FCC’s perspective is that because the access rates are high, that is what’s causing the Least Cost Routing, 

and creating this problem where the calls are simply not terminating in these rural markets. And—— 

Senator CANTWELL. So, I mean, I’m just asking you, does the 

plan address it? And if not, should it? 

Ms. BLOOMFIELD. Oh. I—you know what? I, the plan does address it, because intercarrier comp rates go significantly low. They 

go to .0007 in a six, seven-year time frame. So, there’s a significant 

drop. 

The thing that I worry about with arbitrage is, somebody’s always clever enough to come up with the next scheme to, kind of, 

come around and do, you know, what is the next call termination 

issue? 

So, while yes, I do think this will be part of the solution, I think 

there’s going to be another issue. You know, as with everything, 

once you kind of squeeze the balloon, something else pops out 

somewhere else. 

Senator CANTWELL. Right. So, what would you do? Because obviously, having a plan that wouldn’t really solve the problem for 

rural communities—— 

Ms. BLOOMFIELD. Well, I think, you know, one of the things 

that’s really important that we’re finding right now is that our carriers don’t even know who to go to. So, one of the things that the 

FCC did a few weeks ago is, they put up on their website, you 

know, if you’re having issues with these different carriers, who to 

call. I mean, it’s that basic first-step problem of, you know, calls 

aren’t coming through. I don’t know who to go to in these different 

carriers. So, that has been the first step that they have done. 

I think the second step will be next week when they have this 

workshop, because it will be having all of the folks around the 

table. And it will be what—they’re really setting it up as a discussion for coming up with solutions to this. You know, what are some 

answers? What are, you know, are there significant carriers that 

are the biggest problem area? How do you actually resolve some of 

this? 

So, I hope that by the end of next week we actually have a little 

bit more of a clear path forward. And we’d certainly be happy to 

circle back to you at that point in time. 

Senator CANTWELL. OK. 

Commissioner Jones, will Washingtonians be better off under the 

Universal Service Fund in these compensation reforms, along the 

lines of the ABC proposal? 

Mr. JONES. It’s difficult to tell right now, because we do not understand the model properly. And what the ABC Plan proponents 

are advocating before you on the Hill is an incomplete picture. 

I attached to my testimony an appendix that shows the total net 

flows—high cost support for price-capped rural carriers, and the 

52 

competitive, you know, the wireless CETCs. So, that’s what you 

have to look at. 

Under the price-cap carriers, yes, we may be advantaged to some 

extent. But if we do not have some jurisdiction over VoIP, and the 

traditional carriers like Frontier and CenturyLink switch traffic, or 

a larger amount of traffic, to the IP network, we may not have the 

ability, as Senator Warner says, to deal with the interconnection 

issues, the consumer complaint issues, because the Federal Government will have exclusive jurisdiction over that. So, in that sense, 

I think we would be worse off. 

Ms. DILLON. Chairman, can I add a point? Can I add something 

to that? Which is, I just want to say that I think in the state of 

Washington, which is a state that U.S. Cellular operates in, that 

consumers would be worse if the plan is adopted as currently worded, because the funding to wireless and the ability to reach the 

rural communities that we would want to reach and further expand 

in Washington would be hampered. 

And you know, if the right of first refusal is activated, that further, you know, hampers our ability against a smaller fund to even 

go in and provide service. And I think that, you know, for the pricecap carriers or the wireline carriers, if they get the funds through 

right of first refusal, they could still use that to build out a wireless 

network. So, you know, that may or may not happen. 

But I know that given the way that the wireless companies like 

U.S. Cellular look at rural communities, they would be hurt in that 

scenario. 

Senator CANTWELL. So, Commissioner Jones, does it make a difference that the FCC is not, obviously, reforming the contribution 

mechanism at the same time it’s reforming the high cost distribution mechanism? 

Mr. JONES. I think it does, but I think it’s a remedy that we can 

address later. We were hoping—especially some of my state members—were hoping we could do it all at once. Chairman Martin, the 

previous chairman, put it in his plan, as you know, at the end of 

2008. And that was almost passed. I think Commissioner Copps 

and Commissioner McDowell were actively involved in discussion of 

both contribution and disbursement. But for whatever reason, 

they’ve chosen not to put that in. 

So, I would prefer that it be dealt with now. But the issues of 

how to assess contributions, the IP issues, are somewhat complex. 

So, I think they can be dealt with later. 

Senator CANTWELL. Thank you. 

Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you, Senator Cantwell. 

Senator Pryor, to be followed by Senator Ayotte. 

STATEMENT OF HON. MARK PRYOR, 

U.S. SENATOR FROM ARKANSAS 

Senator PRYOR. Thank you. 

Ms. Bloomfield, let me start with you, if I may. Regarding the 

ABC Plan, and I guess the consensus plan as well, there is this 

right of first refusal that is in the proposal. What—and I’m just not 

as familiar with it as you are—but, what is the time-frame for an 

53 

incumbent carrier to determine whether they’re going to exercise 

their right of first refusal? 

Ms. BLOOMFIELD. And Senator Pryor, I don’t mean to be passing 

the buck, but the RLEC Plan does not have a right-of-refusal proposal in it. So, Ms. Abernathy is probably better situated to answer 

that question than I am. 

Senator PRYOR. Good. Good. 

[Laughter.] 

Senator PRYOR. Down the table we go. 

[Laughter.] 

Ms. ABERNATHY. Here we go. OK. I’m looking at the timeframe. 

I believe the way it works, though—and I’ll have to be clear on 

this—is that you have within the first year of—well, it depends on 

how the FCC ultimately adopts the plan. 

Senator PRYOR. Right. Sure. 

Ms. ABERNATHY. But if there is a right of first refusal, there 

would be a period of time where the model would first identify the 

very high-cost areas where there is no competition today, so the 

only infrastructure is wireline infrastructure. And you would calculate that service area, and determine whether or not you want 

to provide service to that territory with the support mechanisms 

that the revised USF funding program would offer. And you would 

have to either take the money and build out; or you could say that 

you’re not going to take the money, and then it could be opened up 

to auctions. 

Senator PRYOR. And so, is there a time frame, though, in the 

ABC proposal? 

Ms. ABERNATHY. There is a time frame in the ABC proposal. But 

what I don’t know is exactly how the FCC is going to—— 

Senator PRYOR. And do you remember what your time frame is? 

Ms. ABERNATHY. I think within the first year of generating the 

model and adopting the program, you would have to identify if 

you’re going to take the money. 

Senator PRYOR. And then, what happens if you, say you want the 

right of first refusal, but then you end up not deploying broadband? 

What happens? Is there a ‘‘use it or lose it’’ provision? 

Ms. ABERNATHY. Well, you know, there’s certainly—traditionally, 

the FCC would have fines and penalties and reporting obligations. 

Certainly, under the plan, you would have to demonstrate that 

you’re using the support to build out and to deploy broadband. And 

it would be that way whether you use an auction, or whether you 

get a right of first refusal. You would have to demonstrate that 

you’re, in fact, building out and offering the services within the 

time-frame that’s been proposed. 

The big issue is the cost, and how quickly you can deploy to some 

of these high cost areas to get to your complete coverage over a period of time. Because it won’t flash cut in 1 year to complete coverage. It’ll take a multi-year process, because you’ll be investing 

capital investment. 

Senator PRYOR. All right. 

And so let me ask—this kind of goes to that. On Senator Rockefeller’s question a few moments ago about fairness, he asked about, 

you know, fairness and how do you define that? And you mentioned 

54 

accountability. And that’s part of the fairness that you think we 

ought to have. 

Ms. ABERNATHY. Mm-hm. 

Senator PRYOR. Does the accountability, in your mind, include 

the quality of the service that’s being provided and a commitment 

to improve the technology over time? Or is accountability just a 

one-time expenditure, and once you put something in, you’ve put 

it in? 

Ms. ABERNATHY. Well, under the wireline world in which Frontier lives, accountability is every year, every month reporting on 

the quality of our service, how quickly we put things back when 

they go down, service metrics, unbundling obligations. So, we live 

in a world where we report and identify the quality of our service 

all the time. 

The issue that is, I guess, the unknown is, the ongoing investment to continue, continually bring up to the next—— 

Senator PRYOR. Right. 

Ms. ABERNATHY.—level of service. It’s hard for us, as we’re building right now in all of our territories, to know exactly where we 

need to take it. But every year, we ask ourselves that question— 

Are we delivering the right speeds and the right services to our 

customers? 

Senator PRYOR. Thank you. 

Mr. Jones, let me ask you a question about the mandatory preemption that’s in the ABC Plan. And you talk about how consumers in Washington State would be hurt by that. 

Give the Committee, if you can, a few examples of how you think 

that might actually hurt consumers in your state. 

Mr. JONES. One of the traditional issues in examining intercarrier comp proposals is to look at consumer benefits, consumer welfare. The ABC Plan proponents put out a paper on consumer benefits. 

But a lot of that hinges on how the carriers price long distance 

services and how they bundle. And as you know, a lot of these services are bundled, sometimes with cable VoIP, wireless, wireline 

service. And it’s difficult I think for consumers to understand how 

much of the reduction in intercarrier comp charges—and make no 

mistake. AT&T and Verizon, and the other long distance carriers, 

are going to save billions—hundreds of millions of dollars by going 

to .0007 or some similar rate. 

So, but it’s difficult to see what the consumer benefits are going 

to be. And so that’s one of my issues, is, Washington State consumers, if you’re talking about large, consolidated companies that 

have substantial market power, that can bundle services and not 

break it out—as the Chairman said, it’s kind of difficult on a line 

item basis to see. You know—intercarrier comp is going to .0007; 

my bill’s going down? 

The other thing is consumer complaints. We just don’t think that 

shifting consumer complaints about billing, service quality, to the 

FCC in Washington, D.C., instead of Little Rock or Olympia, Washington, is a good thing. It takes longer. They’re going to be inundated with consumer complaint issues. 

So, those are just two issues I would raise. 

Senator PRYOR. Thank you, Mr. Chairman. 

55 

The CHAIRMAN. Thank you, Senator Pryor. 

Senator Ayotte? 

STATEMENT OF HON. KELLY AYOTTE, 

U.S. SENATOR FROM NEW HAMPSHIRE 

Senator AYOTTE. Thank you, Mr. Chairman. 

Chairman Powell, I wanted to follow up with you on Senator 

Warner’s question that Commissioner Abernathy answered, with 

respect to replacing the right of first refusal with a reverse auction. 

I’m a strong advocate for this process to be competitively and technologically neutral. So, as you’re aware, when we talk about what 

the commissioner said in terms of how long it would take to implement an auction, can you help us understand how do you think 

that process would work, if the Commission chose to go in that direction, as opposed to this right of first refusal? 

And how long do you think that would take, in terms of moving 

forward to address getting down to the user level of where consumers in New Hampshire might have greater access to 

broadband? 

Mr. POWELL. You know, as best as I’ve understood the ABC’s 

consensus plan participants’ principal talking point that, you can’t 

do competitive bidding because somehow it will take too long, as 

measured against what, you know, decades of not serving these 

communities; and that somehow the competitive bidding process is 

some order of magnitude worse. 

I think that’s an exaggerated argument. First of all, it downplays 

how complex and how time-consuming it’s going to be to even build 

the first refusal model—the FCC computer model that’s going to 

determine these areas. 

It also ignores the fact of what the Commission is going to have 

to do, design an auction process anyway, because there will be carriers who don’t exercise the first refusal. They won’t have the luxury of doing one or the other. They’ll have to be prepared to have 

an auction system in any event, for areas that won’t be subject to 

this particular model; and, even in the cases of the model, when 

people choose not to do it. 

The Commission is the probably the best expert in the world on 

auctions. I think it has more technical expertise and capability and 

experience than any other regulatory body on the planet. I have 

every confidence. They have been tasked numerous times to develop competitive bidding processes for everything from wireless to 

other kinds of auctions. And I just think that, at the end of the 

day, being hasty and being efficient for the long term are two different things. 

And I think that the loss of ability and the sanctioning of a monopoly model over the efficiencies that are gained by competition 

over time are not worth the couple of extra months—even if I were 

prepared to concede that, which I’m not—that might be gained by 

first refusal over a competitive process. 

Senator AYOTTE. Thank you. 

Ms. Dillon, I wanted to follow up. Thank you for taking the time 

to come in and meet with me yesterday. 

As a follow-up to your testimony, when we met yesterday, one of 

the things that really kind of shocked me when I delved into this 

56 

further was that my state, New Hampshire, is contributing to the 

Universal Service Fund $25 million per year more than we are receiving back. And in a state of 1.3 million people, that’s a lot of 

money. 

So, what steps do you think the FCC should take to ensure a 

more equitable distribution of the Universal Service Funds to those 

unserved households in each state? 

Because in my state, there is a very significant part of northern 

New Hampshire that doesn’t have full access to technology. It 

would enhance our economic development in that area. And so, 

when I look at this number and I think, wow, we’re giving $25 million more back to other people, so that New Hampshire consumers 

are paying in, that’s really shocking to me. So, I’d just love to get 

your thoughts on that. 

Ms. DILLON. Sure, absolutely. 

Senator AYOTTE. If anyone else has any insight, I’d appreciate it. 

Ms. DILLON. Yes. I was going to say, I bet there are some experts 

here. I’m kind of the new kid on the block in the industry. I’ll tell 

you, that is one of the things that has me scratching my head, too. 

It doesn’t really make a lot of sense. And I certainly know that is, 

the FCC is looking to reform USF. The more fair distribution to 

states I’m sure is part, I know is part of the agenda. I’m sure 

there’s others here who can speak more specifically to what would 

be the right way to get at that. But I think that’s a great opportunity for the reform that’s on the table. 

Senator AYOTTE. Mr. Jones, did you have something you wanted 

to add? 

Mr. JONES. Well, I don’t mean to be humorous here, but we are 

not—you live in a relatively small state, and fairly densely populated. States in the west—Montana, Wyoming and others—are less 

densely populated. They have great expanses. 

So, it’s just a fact of the way we’ve designed the system, to support carriers in high cost areas, that states like yours, and Massachusetts and others, have traditionally been net donor states. And 

then other states are net recipient states. And that is probably an 

issue of fairness that we’ve been grappling with, with this program 

for decades. 

And it gets back to, I think, when the Congress and FDR developed the Rural Electrification Service and Rural Telephone Service 

in the 1930s and 1940s. These were Federal appropriated funds. 

And the country decided to do this, to extend service out to these 

rural areas. And obviously, there was a cost proportionally more to 

people in your state than in the state, in these vast expanses in 

the west. And that’s beyond my pay grade. That’s more of your decision. 

Senator AYOTTE. I just want to be clear—any of you that come 

visit New Hampshire, I’d like you to come to the northern part of 

our state. 

Mr. JONES. OK. 

Senator AYOTTE. Ninety percent of the population lives in the 

bottom half of the state. So, the other half of the state, the top half 

of the state, where some wonderful people live, my constituents, basically they don’t have full broadband access. They are underserved in many ways. So, it’s tough for me to go home to my conVerDate Nov 24 2008 13:10 Jun 15, 2012 Jkt 074568 PO 00000 Frm 00060 Fmt 6633 Sfmt 6601 S:\GPO\DOCS\74568.TXT SCOM1 PsN: JACKIE
57 

stituents and say, we’re donating $25 million and we should keep 

doing this. So I hope that the FCC will take up this issue. 

Ms. BLOOMFIELD. And Senator, if I could just add, that’s where 

I think the carrier of last resort obligations will actually be pretty 

powerful. Because what they will say is, if you’re getting USF support, you must build out, and particularly as it transitions to a 

broadband fund, you must build out in those areas. 

So, I think you’ll see—again to that point of accountability. It has 

the potential to shift where some of those resources are spent. 

Mr. POWELL. And Senator, if I could just add, one thing you 

might focus on, that I think is always challenging—and you want 

the FCC to get right—is whether the targeted areas are sufficiently 

granular that they will pick up remote parts of your community 

and not be swept in by some more populated density that’s within 

the jurisdictional boundary. 

That’s part of what goes wrong with this program all the time— 

that it doesn’t change the life of the citizen in rural northern New 

Hampshire who doesn’t have the service, but in a sense is being 

penalized, because they’re being captured by a study area or a area 

in the model that sweeps in other, more dense populations. 

So, I think the more granular the FCC can be in the way that 

it targets the program, the better the chances are that you get a, 

quote, fairer share of that support. 

Senator AYOTTE. Thank you. 

The CHAIRMAN. Thank you, Senator. 

Senator Begich, and then Senator Thune. 

STATEMENT OF HON. MARK BEGICH, 

U.S. SENATOR FROM ALASKA 

Senator BEGICH. Thank you very much, Mr. Chairman. And 

thank you for holding the hearing. 

When you made your comment about the one carrier, you 

weren’t—your picture of your map was all white, not the red—we, 

we’re not on the map, just so you know. We don’t have that service 

at all. 

[Laughter.] 

Senator BEGICH. So, I want to make that point, because that’s interesting—when you look at the data, you know, 1 percent of the 

country is not served by wireless—almost 15 percent of Alaska. So, 

when I hear Senator Ayotte talk about New Hampshire, which is 

about the size of this little bit of Alaska—no disrespect to New 

Hampshire—— 

The CHAIRMAN. Senator, please be respectful to New—[Laughter.] 

Senator BEGICH. I am. I just pointed out the size of Alaska. I always—— 

The CHAIRMAN. One of the states, one of the original states. 

Senator BEGICH. That’s right. And I always like to—on my business card, instead of putting Alaska by Baja or down by Mexico, 

I put it where it’s in proportion to the rest of the country. And you 

can kind of, you see from here. 

[Laughter.] 

Senator BEGICH. Probably people in the back can see it. 

58 

The reason I bring that point up is, Alaska—when you talk about 

high cost delivery system, there’s no state—maybe Hawaii because 

of its location and so forth. 

So, I guess I first want to get a general comment from each one 

of you. Do you—and I, you know, absolutely, I’m parochial and biased about this, because anytime someone says reform, it usually 

means a state that’s just become a state in less than a little over 

50 years, doesn’t have the infrastructure, like a New Hampshire or 

West Virginia, Arkansas, Minnesota. We’re building our infrastructure for the first time. 

How do you view—and it is a leading question—How do you view 

Alaska in comparison to these national plans? I mean, it is a very 

unique and different place. 

And I’ll start from here and kind of move down, if that’s OK. Because, I guess my point is—and also, with tribal lands, we’re much 

different than the lower 48. We don’t have reservations. We decided to take a different route, which has actually been more beneficial for the first people of our state, economically, socially, educationally, many other avenues. So, I think we’ve done some things 

that have actually proved to be right. 

So, how do we address the high cost when they start capping or 

limiting capacity for landline as well as wireless, in the sense of 

what they can utilize from the Universal Service Fund? 

Ms. ABERNATHY. Thank you, Senator. 

The FCC has always traditionally treated the insular areas and 

Alaska, Hawaii, separate and apart from what this plan would 

focus on, because, frankly, designing a plan for the other states just 

would not work in Alaska. 

I know Chairman Powell and I had the opportunity to visit Alaska when—— 

Senator BEGICH. Right. 

Ms. ABERNATHY.—we served on the Commission. And until 

you’ve been there, you fail to appreciate the challenges. So, I fully 

expect that the FCC will have a totally separate program. 

Senator BEGICH. And, do you agree with that? 

Ms. ABERNATHY. I do agree with that. 

Senator BEGICH. OK. 

Ms. ABERNATHY. Absolutely. 

Ms. DILLON. Yes, I’m not as familiar about what the FCC plans 

as a separate program. I would just say that, you know, the whole 

spirit of Universal Service funds is to make sure that people have 

access to the technologies that they need. 

And you know, in a state like Alaska, you know, all the more so 

I think that the need for wireless technology—and even if there’s 

not lines, but we also have plenty of licenses in areas that we use 

microwave technology to move, you know, the signal from tower to 

tower. 

So, you know, I think it’s in the spirit of why I feel strongly that 

wireless, as part of this equation, needs to be adequately funded, 

whether it’s for any part of the United States where service is still 

required. 

Mr. POWELL. Senator, I’d just say quickly, I always knew that it 

was different. I didn’t fully understand until I spent 10 days there. 

And, it is a remarkable environment, but one, from a communicaVerDate Nov 24 2008 13:10 Jun 15, 2012 Jkt 074568 PO 00000 Frm 00062 Fmt 6633 Sfmt 6601 S:\GPO\DOCS\74568.TXT SCOM1 PsN: JACKIE
59 

tions standpoint, if you throw it into the average, will always 

break. It can’t be treated, it just can’t be treated in the common, 

run of the mill approach to the average of the Nation in that way. 

It’s one of the reasons why, when we submitted our amended 

version of the ABC Plan, we just carve out Alaska. And it should 

be addressed uniquely. 

And by the way, the Commission always has flexibility to deal 

with outlying situations—— 

Senator BEGICH. Right. 

Mr. POWELL.—and they should. I mean, I think any plan that 

wouldn’t provide the Commission the legal flexibility to make exceptions around the edges would be a mistake. 

Two other points I’d make real quickly—and this is to Alaska’s 

benefit—the reason it’s so important to get financial control of the 

program is so that the money is used in the most needy of areas, 

and it’s redirected from areas that need it less so. 

And so, you know, I think it’s in Alaska’s interest, and most 

rural states’ interests, to make sure that there’s a fiscal efficiency 

in the program. 

And then finally, I would say the beauty of the technology revolution is that it’s built new tools and put them in our toolbox to 

solve hard problems. Alaska is a multi-technological problem. The 

idea that you’ll solve—— 

Senator BEGICH. Challenge, we like to say. 

Mr. POWELL. Challenge, challenge, OK. Opportunity. 

Senator BEGICH. There you go. 

Mr. POWELL. But it’s just the reality. You want wireless. You 

want wired. You want wireline. You want satellite. You want anything that the wizards of technology can invent that change the 

fundamental economics of serving those communities. And that’s 

why we think technical neutrality is so valuable in the program as 

well. 

Senator BEGICH. Sure. 

Ms. BLOOMFIELD. So, as you know, Senator, we represent a lot 

of carriers in Hawaii and Alaska—— 

Senator BEGICH. Right. 

Ms. BLOOMFIELD.—and some of the very tribal areas. And we are 

really hopeful that the FCC will find a way to craft, for those carriers of last resort in those areas, a path forward, and a way to do 

it without necessarily taking away from other rural consumers. 

And I think one of the things that would be really helpful would 

be to have those carriers in Alaska and Hawaii, as a matter of fact, 

come into the FCC and really open up their books and show their 

costs. 

Senator BEGICH. Mm-hm. 

Ms. BLOOMFIELD. Their costs are very unique. Their infrastructure is very unique. Come in and show those. And I am very hopeful that the FCC will figure out a way to kind of carve a different 

path, and kind of address those different challenges that those carriers actually face. 

Senator BEGICH. Very good. 

Mr. Jones? 

Mr. JONES. Alaska is not only unique, but it’s a good business 

partner of the State of Washington. 

60 

Senator BEGICH. We know that. 

Mr. JONES. And we have many—we know GCI. We know your 

fiber networks well. And we also know the unique needs that you 

have. And I think most of your needs are met under the rate-ofreturn, the restriction on removal, the rate-of-return carrier plan 

that was submitted jointly on July 29th. It pretty much makes 

them whole. 

And I haven’t been an FCC commissioner like Michael and Kathleen. But my understanding is that they always make exceptions 

for remote and insular areas, and recognizing those unique needs. 

Senator BEGICH. Very good. Thank you very much. 

Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you. And congratulations on your extensive explanation of Alaska, and how it belittles every other state. 

[Laughter.] 

The CHAIRMAN. Indeed, the United States itself is barely visible. 

Senator BEGICH. We just like to make the point. 

The CHAIRMAN. I see. OK. 

Senator BEGICH. Thank you, Mr. Chairman. 

The CHAIRMAN. Senator Thune, and then Senator Klobuchar. 

STATEMENT OF HON. JOHN THUNE, 

U.S. SENATOR FROM SOUTH DAKOTA 

Senator THUNE. Thank you, Mr. Chairman. 

And hearing about the distinctiveness of Alaska explains the distinctiveness of Senator Begich. I think that’s a—— 

[Laughter.] 

Senator BEGICH. Please note, I did not mention your state in a 

comparison. 

Senator THUNE. Yes, yes, yes. Thank you. I appreciate that. 

I, too, want to thank the Chair and the Ranking Member for having today’s hearing. This is an issue that’s important to a lot of us 

that represent rural areas. And South Dakota isn’t as rural as 

Alaska, but we have lots of people who have an expectation, I 

think, and many of us have become accustomed to using home computers and mobile devices to pay bills, make purchases, conduct 

business and just communicate. 

And it’s essential in a knowledge-based economy that we have 

broadband service. In fact, it’s become an absolute necessity. So, I, 

I’m enthusiastic about the substantial growth that we’ve seen in 

the telecommunications sector of our economy, but it’s concerning 

that we still have areas in the country that are un-served and that 

lag behind the rest of the U.S. population. And I hope that—it’s 

very important, in my view, to ensure that the FCC enacts USF 

reforms that help give all Americans, including those in rural areas 

and tribes, access to broadband service. 

And Senator Klobuchar and I, a month ago, wrote the FCC, basically expressing general support for the ABC Plan, that it was a 

good framework for U.S. reform, and that it’s achieved a remarkable level of consensus on an issue that’s very complex, and which 

sometimes defies a, you know, a consensus of that type. 

So, it’s not a perfect solution, but we think it would be unfortunate that if, that that consensus, after having been reached, after 

61 

so much difficult negotiation, get destroyed as a consequence of 

making the perfect the enemy of the good. 

So, anyway, I would just like to pose a couple questions, if I 

might today, to a couple of folks on the panel. 

Mr. Powell, I know your organization’s voiced opposition to the 

plan’s proposed right of first refusal. And I know you’ve addressed 

some questions about that today. But I’m interested in knowing 

what your thoughts are about tailoring the ABC Plan to take into 

account the cable industry’s concerns, but still permit a right of 

first refusal. Is there a middle ground that the cable companies 

would find acceptable with regard to that issue? 

Mr. POWELL. Well, I would reiterate that we generally still oppose right of first refusal under any modification, because we think, 

at the end of the day, we still should be given a fair opportunity 

to compete. 

We do think, though, we have proffered, at the request of the 

Commission, alternative proposals that we would find, you know, 

more palatable. 

For example, the current approach in the ABC Plan would allow 

for right-of-refusal for a company that serves 35 percent or more 

of an area. We believe if the public interest is to bring architecture 

and infrastructure to areas that have previously been unserved, it 

should be—it’s upside down. It should be the other way. If you 

serve less than 35 percent, and you get the right of first refusal, 

then at least the public benefits by you assuming an obligation to 

serve the remainder of that unserved area, as opposed to receiving 

a subsidy for an entire area in which you already are substantially 

currently serving. 

I can get you the specific details of the proposal we submitted. 

But that was one thing offered in the spirit and at the invitation 

of the Commission, to try to find compromise on that point. 

Senator THUNE. At the end of the day, though, doesn’t the cable 

company—cable industry, I should say—benefit from achieving a 

reasonably acceptable result with respect to USF reform, rather 

than having no result at all, or even maintaining the status quo? 

Mr. POWELL. Oh, absolutely. And we’ve said repeatedly that we 

agree with a huge percentage of the ABC Plan. We’ve said 70, 75 

percent. Who knows how to exactly measure it? And in fact, the 

plan that we submitted to the Commission in August, late August 

of this year, we dubbed the ‘‘amended ABC Plan’’. 

We’ve been very disciplined to try to focus on four or five issues, 

discrete issues that are specifically important to the industry, and 

to champion the importance of this opportunity to reform the system. 

I don’t think anyone at this table believes otherwise. Missing this 

opportunity would be a disaster. I do take issue with the idea that 

if the ABC Plan is not adopted in whole, in a ‘‘take it or leave it’’ 

fashion, that that’s the only path to an acceptable result. 

Senator THUNE. For Ms. Bloomfield or Ms. Abernathy, we’ve had 

some who have argued that USF should not be used to support universal broadband, but rather, used for other purposes, such as deficit reduction. And I’m interested in knowing—can you explain the 

importance of providing USF support to deploy universal 

broadband to un-served areas? 

62 

Ms. BLOOMFIELD. I would be happy to take the first crack at 

that, Senator. 

USF is really the only tool that has gotten initially even communication service out to these very remote areas. So, it’s one of those 

things, when you look at some of these very high-cost areas, where 

you’ve got no business model that you can possibly come up with 

that would lead you to deploy this infrastructure, then you take it 

the next step, to a broadband infrastructure, that becomes exponentially more expensive to do. 

So, the concern that we’ve got is a couplefold in terms of USF 

and the Federal budget. First of all, as we’ve kind of discussed during the course of this panel, these are funds that go between different carriers. So, it isn’t money that is on budget. It isn’t money 

that is in the Treasury. It is carrier to carrier support. 

So, to take that, and then to turn it into a public debt issue, it’s 

really, you know, you’re basically taking from different pots and 

you’re essentially creating a brand new tax on consumers. So, I 

think that becomes kind of a philosophical budgetary issue. 

But the other thing is that as you talk about universal service 

and you talk about unserved areas—these areas rely on USF funding to actually get the service. And you look at South Dakota as 

a perfect example of that. And you know, you talk about taking 

that support away, and I have to be very frank with you, I’m not 

sure what kind of business model you could actually create to provide any communication service, and what kind of enticement you 

would have to have anybody come out there and actually put infrastructure and plant in the ground in some of the remote—you 

know, western South Dakota is a pretty tough business model. 

So, we do think it is absolutely critical to ensure that you have 

affordable and sustainable broadband. 

Senator THUNE. Thank you. 

Ms. ABERNATHY. USF is critical for getting service—both phone 

service to these markets, and then, now, transitioning in to 

broadband services. And the reality is, these are markets where 

there will be a subsidized provider. And there will be one subsidized provider, unless we have so much money that we feel like 

we can subsidize two or three. And I don’t think that’s the way it’s 

intended. 

So, the challenge is, who gets the subsidy, and how you get the 

deployment out there as quickly as possible. And that’s what this 

plan focuses on—targeting the resources; making sure that 

broadband is deployed quickly; and making sure that whoever is 

providing service in that market has carrier of last resort obligations, because that carrier will be the only provider there. You can’t 

afford two. 

You can—right now, the only one there are the phone companies—because we have USF, and because we’ve been able to use 

that money to deploy. So, as you transition to broadband, you’ve 

got to have USF. It’s just not going to happen otherwise. 

Senator THUNE. OK. My time’s expired. 

Thank you, Mr. Chairman. Thank you. 

Senator BEGICH [presiding]. Senator Klobuchar? 

63 

STATEMENT OF HON. AMY KLOBUCHAR, 

U.S. SENATOR FROM MINNESOTA 

Senator KLOBUCHAR. Thank you very much. 

Thank you to all of you. 

I was just hearing from our pork producers—ready for this one? 

There’s hog rustling going on. I don’t know if you know this—hundreds of pigs being stolen because they’re so valuable. They are so 

frustrated because they don’t have broadband so they can monitor 

the pigs like, nanny-cam type thing. I will just say, it’s one example. 

Other ones that are more obvious: tourism in northern Minnesota. We can’t compete with the Canadian resorts, because they 

are not able to book as quickly, or their customers aren’t able to 

use them. We have major companies, ADCO in Jackson, Minnesota, 

a thousand employees, thanks to some early projects they did down 

there and some of the stimulus money we’ve been able to connect 

a number of these companies—Toro—and get better broadband. 

But I’m just convinced every day that this is the key for these 

areas, so that these jobs keep strong in the rural parts of our state. 

And I guess my first question would be about the, just, bizarre 

situation we have right now, where one group, one town, one small 

county will have broadband, because of how the Universal Service 

Fund has been set up, but then, literally, their neighbors across the 

way won’t have it. 

And I understand that there have been incentives in place that 

have created that situation. I blame no one exactly. I just want to 

get it fixed. 

And so I wondered how you feel that this, the current reform effort, will level the playing field, and if there are other things that 

we should consider as we look at how we make a level playing 

field. 

If one or two of you want to answer? 

Ms. Abernathy? 

Ms. ABERNATHY. Certainly, under the ABC Plan, the idea, if the 

model works as we believe that it will, is to target the support to 

the areas that are not being funded today, and to target the support to the customers, not—as Chairman Powell said—not to a 

company, but to customers in an area. And then, whoever is serving that area will provide service. 

And right now, these high-cost, low-density areas are served by 

the wireline companies. And there’s nobody else who’s shown up 

over the years, because, frankly, it’s uneconomic. 

So, I think that you’ve got to target the resources more efficiently 

to the right high-cost areas. Because, as the fund works today, because of historical anomalies—you’re exactly right—you can have 

two communities, neighbors, and one is getting sufficient support, 

and one is not getting sufficient support. And we struggle with that 

every day at Frontier, because we have so many rural markets, we 

have a pot of money, and we’ve got to try and figure out which ones 

will get support and which ones won’t. 

Ms. DILLON. Can I add to that, Senator Klobuchar? 

Senator KLOBUCHAR. Yes. 

Ms. DILLON. First of all, you asked about leveling the playing 

field. And you know, there’s plenty of states—we operate in 26 

64 

states. And much of the geography is rural. Much of it is, we’re 

there because we are able to both put private capital and USF support for wireless. 

And I’m sure that what you’re talking about for your state is 

fixed and mobile. I mean, those hogs probably need to be tracked 

wirelessly, right? As they’re wandering around. 

Senator KLOBUCHAR. Who knows? 

Ms. DILLON. But anyway, so, the notion—— 

[Laughter.] 

Senator KLOBUCHAR. We’re going to go GPS, I think. 

[Laughter.] 

Ms. DILLON. But the, you know, I just want to be clear that 

there—you know, there was a comment made earlier from the Senator about consensus around the ABC Plan. The gap in our mind 

is really—it’s not about reform, which we agree with. It’s not about 

if there’s a role for wireline and wireless; but to take wireless dramatically down. I think most people, when they think about 

broadband, they’re going to think about both fixed and wireless. 

And that would be a more level playing field. 

Senator KLOBUCHAR. The importance of wireless having a role 

here is, you see more and more of it. 

Ms. DILLON. Yes. 

Senator KLOBUCHAR. If any of you—— 

Ms. BLOOMFIELD. So, the only other thing I would add, Senator, 

is that, one of the things that’s a little bit in conflict is that we are 

working really hard, as we’ve put together these reform proposals, 

to stay within a controlled budget. I mean, it’s very clear that the 

FCC, and certainly Congress, are very concerned about the size of 

the Universal Service Fund. So, you’re kind of conflicted with, you 

know, all of the things you would like to do on an aspirational 

level, in terms of broadband deployment, and then what you can 

do from a practical perspective. 

One of the things I think the consensus framework does pretty 

effectively is addressing some of that rural/rural divide, that, how 

do you have two rural towns where you may have one that is 

served by an NTCA member or small telephone company, who actually has been a USF recipient, and they have 3,000 subscribers. 

So, they do a pretty darn good job of making sure that they’ve got 

good services and good customer service, and they’re very responsive, because that is their customer base. That’s their community. 

How do you then help those other companies that also provide 

service in a rural area, but, you know, also have different areas 

they have to be competitive, like the City of Chicago, or Denver, 

or some of those other challenges? 

So, that’s where I think the consensus framework really tried to 

address, how do you do this with a very limited pot of money? How 

do you do it so that the fund doesn’t grow exponentially? And how 

do you get as much service out there as possible? 

Senator KLOBUCHAR. Mm-hm. 

Mr. POWELL. Senator, one thing, just a point of clarification. One 

of the things that’s gone wrong with the program—and this is 

going to end up being a commendation to this commission’s leadership. All we subsidized in the past is voice. 

Senator KLOBUCHAR. Mm-hm. 

65 

Mr. POWELL. It’s been a voice network subsidy program. Now, 

what’s been allowed is a certain amount of using that money to 

build a network that has multiple purposes. The multiple purposes 

have included broadband to some degree. But as a technical matter, that goes beyond the scope of what’s being funded. 

So, you get these anomalies in which carriers use their funds in 

one way—— 

Senator KLOBUCHAR. Right. 

Mr. POWELL.—versus a carrier who used them another way. 

What I do think shouldn’t be lost about the big change in time 

in this program is that we’re now going to explicitly focus on the 

criticality of broadband as a 21st century infrastructure. 

And for all of this complicated stuff we all have got to whack 

through, that’s really what shouldn’t be lost. We’ve reached a moment in time and history in which the voice network is important 

and has served us well, but it is not where we need, it’s not the 

ship we need to be in to go into the future. And I think this is an 

invaluable first step in that journey. 

Senator KLOBUCHAR. All right. 

One last, Mr. Jones? 

Mr. JONES. Mr. Powell makes a good point. The FCC’s policy, 

even though its voice in the Act, in Section 254, the ETCs that we 

designate and oversee have been deploying broadband over DSL 

networks for years. We all know that. So, it’s—and the FCC has 

had a policy that its voice support. But if you can promote advanced services in these areas, go and do it. 

So, the state commissions have been very cognizant of this. When 

we review the ETCs every year, they bring in their plans. And they 

all talk about how much broadband they’re deploying. 

And it kind of creates—to get back to my point—it creates kind 

of level of discomfort and potential loopholes for states and the 

Federal Government, because we don’t regulate, or, we have jurisdiction over these services per se, because of the FCC’s lack of action in classification. 

But point of fact, on the ground, we’re looking at the carriers 

when they come in and saying, northern Minnesota, put a little 

more—wouldn’t it be good if you get a little more broadband up 

here. 

So, it’s a strange, outdated situation that needs to get fixed. 

Senator KLOBUCHAR. All right. Very good. 

Thank you to all of you. 

Senator BEGICH. Thank you. 

Senator Boozman. 

STATEMENT OF HON. JOHN BOOZMAN, 

U.S. SENATOR FROM ARKANSAS 

Senator BOOZMAN. Thank you, Mr. Chairman. 

I thought you said, Senator Klobuchar, pig wrestling, instead of 

pig rustling. 

Senator KLOBUCHAR. No, I said rustling. 

[Laughter.] 

Senator BOOZMAN. That’s a Minnesotan accent. 

Senator KLOBUCHAR. I said it with a Minnesota accent. But the 

pig wrestling could be really interesting. 

66 

Senator BOOZMAN. Yes. Exactly. 

[Laughter.] 

Senator BOOZMAN. I was thinking, you’d want wireless to take 

the photos. Very good. 

[Laughter.] 

Senator KLOBUCHAR. Thank you for clarifying. 

Senator BOOZMAN. Thank you. 

I want to thank you all. This has been a good hearing. We appreciate you being here. 

I’d just like to kind of clarify a few things, and just ask a couple 

questions. 

Ms. Abernathy, under the ABC Plan, would carriers be eligible 

for funds from both the Connect America Fund as well as the Mobility Fund? 

Ms. ABERNATHY. If the carrier provides both wireless and 

wireline services, and you served one of these designated high-cost 

areas—yes. But I think it’s unlikely that you’d have both a wireline 

and a wireless in these last, hard-to-serve parts of the country. I’d 

find that highly unusual. But I suppose, in theory, yes. 

Senator BOOZMAN. Thank you. 

Ms. Dillon, you said in your testimony that $300 million—$300 

billion for a Mobility Fund is not enough; that you estimate the 

size of the fund should be $1 billion. Given that it’s not likely that 

the FCC is going to go that far, is there a compromise in there? 

Ms. DILLON. Well, let me step back and say that, you know, even 

at a billion, that’s a reduction from where the Mobility Fund is 

today. And I think as, and we have as a mid-size carrier risk 

around our ability and others like us to continue to build out using 

that support at any level—— 

Senator BOOZMAN. OK. 

Ms. DILLON.—if, in fact, you know, that fund can be tapped into, 

you know, on the price cap side. 

So, actually, what we’re advocating is for a separate Mobility 

Fund. And, you know, I would say that even a billion not only is 

less than today, but doesn’t really complete the job. So, I don’t 

know what the right answer is. Certainly anything more than $300 

million is moving in the right direction. But less than a billion is 

really not going to get rural America to 4G wireless. 

Senator BOOZMAN. OK. 

Anybody else want to comment on—— 

Mr. POWELL. You know, you would assume the cable industry is 

all about wired, but, you know, we also are holders of spectrum, 

and also look at creative business plans that would allow us to use 

wireless functionality in parts of the country where you could extend your wireline network. 

I would say one more thing, because I think it’s come up a lot, 

this importance of COLR. First of all, to be clear on the record, I 

think the cable industry is more than happy to sign up for every 

obligation that would be required to serve these communities. That 

shouldn’t be a reason to disadvantage us. 

But as a plug for wireless, if you ask the average American consumer, if you had to get rid of every last service, then what would 

be the one you would most desperately rely on in a crisis or a hurricane or a storm, it would include wireless. 

67 

And I think that, at the end of the day, I don’t know the right 

number for them. And I don’t know the right number for us. But 

I know that any system that doesn’t take account for the way that 

the consumers want to embrace and use and rely on communications is a terribly missed opportunity for universal service reform. 

Senator BOOZMAN. Yes, ma’am? 

Ms. ABERNATHY. Just to add one data point. The wireless amount 

that’s been set aside under this proposed plan is 10 times what the 

National Broadband Plan thought was necessary for wireless mobility. Under the FCC’s National Broadband Plan, $300 million was 

the total. And under this ABC Plan, it’s $300 million per year for 

10 years. So, it is a much larger revenue stream for wireless than 

was ever envisioned by the FCC in its National Broadband Plan. 

Senator BOOZMAN. OK. Thank you. 

Let me ask a little bit about the Lifeline program. That’s something that’s been under fire lately, and lots of concerns about. 

Let me ask you, Ms. Abernathy, can you tell me how many duplicative claims for Lifeline support were initially found receiving benefits in your entity? 

Ms. ABERNATHY. I know that we’re still going through to see if 

there’s a lot of duplication. I don’t believe we had a lot. And I’ll get 

the final number for you. Because it’s easy to track on a wireline 

basis. 

I think the duplication arose because you would fund both a 

wireless and wireline phone for a particular family member, and 

that’s where the challenges and the duplication came. 

Senator BOOZMAN. There may be some duplication from all—individuals duplicating with other carriers, which is another separate 

problem. 

Ms. ABERNATHY. Correct. Which is unfortunate, and I think 

needs to be corrected. But having observed what the Lifeline plan 

can mean for certain individuals, I don’t want to throw the baby 

out with the bath water. I think the important thing is to reform 

and improve Lifeline and Link Up, because it is important especially in these difficult economic times. But the duplication needs 

to be addressed. 

Senator BOOZMAN. Does anybody else want to comment? 

Yes, sir. 

Mr. JONES. Senator, this is a big issue in our state. We have— 

I’m in the minority on this with my fellow commissioners. I voted 

against it. But we have a number of prepaid—these are not the 

postpaid carriers, but the prepaid—carriers who have come in and 

sought, and gotten support for, the Lifeline/Link Up program. 

We—I can’t mention names—but we had one carrier who, we authorized them for 1 year. And then we said we would do an audit 

to see how much duplicative support was done, because we have 

our state-based wireline Lifeline program, as well as the Federal 

program. And of course, that was against the rules to apply to both 

and receive support from both. And we found substantial duplication, because, as you know, it’s a self-certification program. The 

states don’t have an adequate data base. The FCC does not have 

an adequate data base. 

68 

So, it is a real problem, because the Lifeline/Link Up Program 

is growing dramatically. So, we applaud the FCC for its notice of 

proposed rulemaking. And they’re getting at it. 

But this is a difficult issue, because you need state cooperation. 

You need probably a Federal data bank where you can key in these 

applicants when they apply, so it’s no longer self-certification, but 

there’s some government check, where you can see that they’re not 

receiving duplicate support. 

So, it’s under investigation in our state. 

Senator BOOZMAN. Good. I think that’s helpful. 

I mean, as you said, Ms. Abernathy, there are people that genuinely benefit from the program. There is a finite amount of money. 

And so we want to ensure that that money that we do designate 

towards is going to the right people. So, we appreciate your study. 

And again, I think any input that you can give for all of us—it’s 

to all of our benefit to make sure that the system does have integrity. 

Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you, Senator Boozman. 

Senator Warner, you have some additional questions? 

Senator WARNER. Absolutely. 

Well, let me, first of all just, commend Senator Boozman for his 

questions on this Lifeline issue. I think we all will concur this is 

a—particularly during these challenging times—a needed program. 

But I have been, it’s come to my attention, as I’m sure it has 

yours, not only some of the duplications but some of the, you know, 

I guess robust marketing—how’s that for a politically correct 

term—— 

[Laughter.] 

Senator WARNER.—you know, that has been going on in some of 

these areas, which—in some cases, even here in this, the District, 

you know—are not necessarily target, what you would think would 

be the targeted community, and with glaring print that says, while 

there is self- certification, none of this is reported. 

And so, not seeming to me to be the right way to send the right 

message. So, I thank my colleague for raising this. 

I, you know, we had last left off on interconnection. And my hope 

would be, particularly as we—let me come back again to my 

wireline friends, but also, to a degree—you know, if cable is going 

to be the provider, for that matter, or wireless provider—you know, 

don’t you think we need some requirement in this universal service 

reform to make sure that there is clear, understandable, and timely 

interconnection? 

Because if, you know, building out this network, whomever it 

may be—if the incumbent then slows down the interconnection 

ability, you know, you can put a lot of capital to work that looks 

good on paper, but never gets then into service that folks need. 

So, anybody want to address some of those issues? 

Ms. BLOOMFIELD. I would just say, Senator, that there really is 

no incentive for our carriers to not do interconnection. I mean, the 

more robust—the more options you have for your consumers, the 

more robust the network is. So, I don’t really see interconnection 

as being a huge issue for our segment of the industry. 

69 

Senator WARNER. So, you would then not have a problem with 

if there was a requirement of robust interconnection—— 

Ms. BLOOMFIELD. Among all carriers. 

Senator WARNER.—amongst all carriers, at a competitive rate, 

within a certain timeframe, and if suddenly—you know, again, not 

to show my post-1996 scars, when I was in the private sector. But 

if, you know, suddenly the incumbent carrier always had some reason or another why they just couldn’t get to it right then and 

there—— 

Ms. BLOOMFIELD. Right. 

Senator WARNER.—you might even, you wouldn’t mind your side 

of the business, a timeline and—— 

Ms. BLOOMFIELD. Absolutely. I think that would be very easy to 

live up to, and I think, from a consumer perspective, would be very 

important. So, no, I don’t see that as being an issue. 

Mr. POWELL. Senator, if I could? 

Senator WARNER. Everybody can. I’d love to get everybody—— 

Mr. POWELL. If I could, one issue that we have, that is evident 

in the ABC Plan, is an issue that is related to interconnection, 

which is tandem switching services. 

Under the ABC Plan, the largest incumbents have made a play 

for having those kinds of connective services be deregulated in 

markets that we’re strongly concerned still desperately depend on 

good regulatory overseeing—interconnection and traffic distribution 

networks. Otherwise, we could be left in a situation of having to 

either replicate that at great expense, or not have an adequate 

number of competitive alternatives to keep those rates reasonable 

if they’re otherwise not regulated. 

So, one of the items and issues that we’ve put on the record is 

similar to the line of a concern you’re raising, and that’s with respect to tandem switching in the ABC proposal. 

Senator WARNER. Ms. Dillon and Ms. Abernathy? 

Ms. ABERNATHY. I guess I would point out that today the 

wireline companies are the only ones that are subject to 

unbundling. And we do this and none of the other competitors do 

this. None of the other competitors would think about, sort of, sharing their network with their competitors. This is what we do. We 

interconnect with other competitors. This is the world in which we 

live and the way in which we’re regulated. And it’s just the way 

it is. 

And as I said, I think it comes along with when you take Federal 

Government dollars to provide certain services, there are obligations that go along with them. And those obligations include carrier 

of last resort. They can include unbundling. They can include performance metrics. They include reports, accounting safeguards. We 

do it all. 

Senator WARNER. So, again, that would, I would take, then 

again, that as a sign that whatever USF reform came to place, having a requirement for timely interconnection, you know, yes—— 

Ms. ABERNATHY. I think that will happen anyway. But if the parties think that it needs to be regulated, we’re used to regulation. 

Senator WARNER. I was very current, circa late 1990s. So, I’m, 

you know, I’m no—— 

[Laughter.] 

70 

Mr. JONES. Senator, there’s something that we’ve done. As you 

know, Section 251 and 252—the issue is not so much interconnection as, what happens when the carriers don’t agree on terms and 

conditions? As you know, sometimes the incumbents, as Kathleen 

said, don’t want to open up their network. So, if there’s a dispute, 

where does it go? Does it go to the FCC? Does it go to the state 

commission? 

Under 251 and 252, we think we do that pretty well, in a timely 

way. We usually complete our arbitration disputes within 9 to 12 

months. I think the FCC takes a little bit longer. 

So, if you want to give that to us, we’d be happy to take it. But 

we do have this jurisdictional issue. 

We have arbitrated some disputes with some of Michael’s companies, cable, VoIP issues like directory listings and, you know, different parts of interconnection. But formally, they aren’t subject to 

our jurisdiction. We, I think we carry out those dispute arbitrations, you know, for the benefit of the network. And we do it. And 

so we could do it here too. 

Senator WARNER. Can I ask another, Mr. Chairman? 

And I’m not sure whether—I apologize. I had to step out for a 

couple other calls. But have of our colleagues gotten into the question of capping the growth of the fund at any point or—— 

Senator BEGICH. Off and on, members have mentioned and 

talked about it. But if you want to go into it, it’s OK. 

Senator WARNER. Yes. I just was, just curious. I mean, you know, we all know that USF has grown to over $8 billion. We all know 

we’ve got, you know, this high cost—which most of conversation 

has been about today—a little over $4 billion. 

We also know a lot of our consumers. And I, like, probably many 

of the states, have got consumers that pay in more than we get 

back. And there is some notion of shared responsibility on this. 

But I’d be curious—and recognizing again we’ve got that, you 

know, I think one of you all mentioned there’s a study that said 

on the low end, $20 billion plus to build out broadband availability 

close to 100 percent. I mean, I think that’s still relatively slow. You 

know, we’ve probably get a delta more between 20 and 55. Twentythree and 55 are the numbers I’m using. 

You know, what would all expect or anticipate? And should we 

cap the fund, the High Cost Fund? What should it be? What would 

it look like in 5 to 10 years, recognizing we’ve got, we really are 

going to have this need for this public support to make sure that 

all our folks get broadband services? 

Ms. DILLON. Well, I’ll start. You know, the $10 billion to $20 billion that I quoted was through the lens of wireless, and bringing 

4G wireless throughout the United States, and more for fixed, obviously. 

And, you know, we—I think the notion of—— 

Senator WARNER. I liked your subtlety with that more for fixed 

comment. 

[Laughter.] 

Ms. DILLON. Yes. The—well. The, anyways, the notion of reform, 

I think, on the table, is capping the fund, which, you know, we 

don’t have a problem with. It’s really, I think, the balance of what 

is in that fund and how it’s allocated. 

71 

So, you know, I hate to be a broken record, but I think the balance of most of that fund, if it stays at $4.5 billion, shifting to fixed 

versus wireless, just sort of doesn’t—flies in the face of where the 

world is heading. 

So, it’s not, I mean, it doesn’t need to be an either/or. And the 

fund should be capped, given that we, you know, that’s, I think 

that’s the responsible thing to do. 

Senator WARNER. Others want to—— 

Ms. BLOOMFIELD. I’d love to chime in. 

So, one of the things the 1996 Act really set out was that USF 

should be specific and predictable, and it should be sufficient. And 

I think that is actually a part of the law, as it stands today. 

And I think one of the things about a cap is, how can you ensure 

that you are actually meeting your legislative mandate if you have 

a cap on the program? And one of the things—you know, if you 

look at the High Cost Fund, it’s 4.2-some billion dollars. 

And you think about—when I listen to everybody talk about, you 

know, the infrastructure of Kathleen’s companies, and certainly the 

companies in Washington State that Phil works with, you know, 

when you think about the broadband deployment that’s been done 

with, you know, $4.2 billion, I mean, it’s an amazing job that has 

been actually accomplished with a very limited amount of resources 

that have been allocated toward it. 

And that’s only, you know, the High Cost Fund is only half of 

the entire USF. You’ve got Schools and Libraries. You’ve got the 

Low Income. You’ve got Rural Health. So, you’ve got a lot of other 

pieces out there. 

So, I think that, again, part of it comes down to what you all as 

policymakers want to try to achieve. A cap I think would be stifling. It certainly would not go, fit in with the 1996 law itself. 

And I think that, you know, one of the things we have done in 

terms of our reform proposal is, we have proposed a very small 

growth factor—2 to 3 percent on an annual basis. What that will 

allow in the rural carriers that we provide service to—40 percent 

of the land mass of this country, is the ability to build and sustain 

those networks. 

I, you know, I think a two to 3 percent growth rate on an annual 

basis is actually very small and gets you a lot of bang for your 

buck. 

Mr. POWELL. You know, one thing worthy of noting for the 

record—and Shirley mentioned other Universal Service Programs. 

Every other part of the Universal Service Program is capped. 

Schools and Libraries is a worthy, notable objective, put in place 

in the Universal Service System by Congress in 1996, and it operates under a cap, even though demand exceeds supply. 

At the end of the day, when you have a Federal program that’s 

paid for by the American consumers, some degree of fiscal constraint—and not suggesting that a word like sustainability can 

mean an infinite level of growth, at the expense of consumers, is 

not a fair balance, in our judgment, of the various equities between 

both the burdens associated with the program and the benefit. 

The Rural Health Care program is also capped. A lot of the industries that object to the cap today were more than happy to have 

72 

the cap imposed on competitive ETC carriers and wireless when 

the fund was growing. 

Caps shouldn’t be done bluntly or without some predictive judgment of need. But the notion that a program of this magnitude, of 

this size, involving the American taxpayer, without meaningful enforcement of fiscal restraint, seems to me, in this day and age, a 

big mistake. 

Ms. ABERNATHY. I would point out that the ABC Plan is built 

around a $4.5 billion fund. It’s not built around any growth in the 

fund, because that was one of the mandates that came down from 

the FCC, as far as what we want to look at and what we want to 

consider. 

And it may be less some years, more other years. But it’s supposed to stay right in that framework. And I think it’s a challenge. 

But you have to be fiscally responsible. 

Senator WARNER. One last—I just am curious. And this is—and 

obviously, wireless has been very, very good to me, you know. So— 

but I, and I understand your concerns from the wireless side. We’re 

at, you know, you’re at $1.2 billion right now. The notion on the 

ABC is about $300 million. 

But the whole notion of kind of carve outs, even for something 

that has been as successful as wireless has been—- I just wonder 

how we square that if we’re going to also continue to think we 

want to be technology-neutral. 

Ms. DILLON. Right. Well, the plan that’s being considered is not 

technology-neutral. It disfavors wireless, because it takes wireless 

down. So, we’re just asking that wireless—we recognize it’s probably going to be somewhat down, but not down to the point that 

it’s incapacitated. 

So, to me, that makes it more technologically neutral, to bring 

it up to something that’s more workable. 

Senator WARNER. Anybody else want to weigh in on that? Because, I mean—Mr. Jones, I just think that we, you know, as we 

talked about the 1996 Act when it was still telephony; moved to 

wireless; we’re now talking about IP. You know, hopefully somebody is sitting out there who’s got the next thing coming along. We 

want to make sure that we don’t box that out of a possible deployment strategy. 

Mr. Jones? 

Mr. JONES. I just think the very nature of a cap—and as Michael 

said, it does have the—Schools and Libraries and other programs 

have caps. Caps have the discipline of wringing inefficiencies out 

of a system. 

And so, whether it’s eliminating the identical support role, where 

wireless carriers are compensated on the basis of wireline costs— 

I mean, is that rational? Probably not. Is it rational to have multiple carriers in a study area, when you’re limited? 

I think—so part of the process of setting a cap, I think, will 

wring some efficiencies, and the re-targeting will work. 

However, I don’t think wireless should be excluded from the mix. 

Wireless can compete in certain areas. U.S. Cellular provides a 

very valuable service in our state, in some of the high-cost areas, 

to the Yakima Tribal Area. They provide excellent service. 

73 

So, the trick is in the details, to try to come up with wringing 

those inefficiencies out of the system. I support a cap, or a budget, 

for the time being—I think the carriers are saying the word budget, not cap—because we don’t understand all the formulas that support the rate-of-return carriers in particular. 

But once we understand that, let’s give the budget a try. Let’s 

wring the inefficiencies out of the system. 

But my challenge to you is, I think if you have a need, as you say, that’s $10 billion or $20 billion, you have a budget that’s $4.5 

billion, and then you want to accommodate wireline, wireless, cable 

VoIP, and maybe even over-the-top VoIP, new technologies—it’s 

very tough to do. So, you have to make some hard choices. 

Senator WARNER. Again, then, thank you, Mr. Chairman. I 

would—good enough to end on it. But we, you know, as I think a 

couple comments have been made, USF reform is long overdue. But 

there is still, you know, there’s, this is not all a bad story. This is 

a success story as well. And trying to just give a framework to 

make sure we get the balance of the country covered in a way 

that’s fair, that provides that 21st century infrastructure that’s so 

desperately, is really helpful. 

And I, you know, I know there are differing viewpoints at the 

table here. You know, but I would commend the industry of trying—this stuff gets very dense, very quickly, when you kind of get 

to the second and third layer down. 

But the more you all can find some commonality—and I know 

there was one of my wireline—up here, carriers came and talked 

about the fact that they didn’t really realize what the firestorm, the 

right of first refusal might have set off. 

I do think there are other ways to recognize invested capital and 

how we get it out there quicker that might be more elegant than 

a right of first refusal. I do think that trying to get, you know, I’m 

glad to hear that I’m behind on interconnection. But, so, putting 

something like that in would be helpful, because I think there still 

can be challenges around that. 

I do—and I know we’ve touched on this briefly, on the acts, and 

I think Ms. Abernathy made a good comment that there was a 

transition period—but trying to make sure that we get, that we 

don’t under-compensate on access charges on, you know, kind of 

next generation IP that we disincent people to make the technology 

upgrades, because they want to maintain the higher access charges 

for the, yesterday’s technology, are all things that we hope you’ll 

keep working on and sorting through. 

And again, Mr. Chairman, I appreciate you holding this open 

perhaps longer than you anticipated for me to get another round 

in. Thank you very much. 

Senator BEGICH. I’m a patient person. 

Thank you all, really, I want to echo those comments—for your 

work and your comments today, but also before, and I’m sure after, 

as we continue to work through these issues. 

The hearing record will be kept open for 7 days. 

And I would like to enter, on behalf of the Chairman, for the 

record, a statement from ViaSat, a satellite company that provides 

consumer broadband. 

[The information referred to follows:] 

74 

PREPARED STATEMENT OF VIASAT, INC. 

ViaSat supports the efforts of Congress and the Administration to facilitate the 

deployment of affordable broadband services to all Americans. We are encouraged 

that the FCC’s National Broadband Plan explicitly recognizes the major improvements we are making in satellite broadband, as well as the role satellite can play 

in cost effectively ensuring universal availability of affordable broadband access. 

As the Senate evaluates the pending reform of the High-Cost universal service 

support mechanism, it is our hope that you consider the following recommendations. 

ViaSat’s Credentials 

ViaSat is a U.S.-based company founded in the home of one of its co-founders 24 

years ago. ViaSat is a leading provider of communications networks to U.S. consumers, enterprises, and the U.S. Department of Defense. We are also one of the 

leading providers of consumer broadband, enterprise and government satellite networks on a global basis. We invent, design and build telecommunications technology. Our goal is to transform the way satellite broadband services are provided 

today to homes, businesses, community organizations, and first responders, as well 

as for other national security purposes. We also plan to help ensure that all Americans have the opportunity to access quality broadband services. ViaSat is investing over $400 million in the deployment of a highly innovative 

new satellite network that will more than triple the quality of satellite broadband 

service in the United States (and Canada), resulting in quality levels and price 

points that are comparable to, or better than, many of today’s terrestrial alternatives. That satellite is scheduled to be launched next week, and to commence 

service later this year. In 2010, we invested almost $600 million more to acquire 

WildBlue Communications, Inc., which is one of the top 20 broadband ISPs in the 

U.S., serving homes across the Nation by satellite. WildBlue, and its distribution 

partners, including DIRECTV, DISH Network, the National Rural Telecommunications Cooperative, and AT&T, will be the means by which we will deliver this satellite broadband technology to the American public. 

Key points: 

• Focus on the consumer. The FCC estimates that an estimated 18 million Americans do not have access to terrestrial broadband. The satellite broadband industry is focused on the needs of these Americans. We are launching a new satellite 

next week to start to meet the needs of this segment of the population, by providing them a high-quality broadband experience. We have more satellites 

under design, and our competitors are similarly targeting new satellite services 

to ‘‘unserved’’ Americans. The marketplace is responding. Any USF reform that 

distorts the marketplace risks quelling continued private investment in these 

networks, and eliminating options for the consumer. 

• Focus on adoption. The FCC has recognized that adoption of broadband is one 

of the biggest challenges this Nation faces. Affordability significantly affects the 

rate of adoption. A significant focus of USF reform should be making broadband 

affordable—both to underprivileged Americans, and to those in rural areas 

whose cost of service exceeds that in urban areas. 

• Do not adopt a preference for any incumbent provider. It is widely recognized 

that the current USF system is terribly broken. The right of first refusal 

(‘‘ROFR’’) mechanism in favor of ILECs that some have advocated would perpetuate the problems with the current system, and actually make things worse. 

Specifically, by making only one service provider eligible for support in a given 

geographic area, the ROFR would eliminate competition. The result would be 

even worse if, as proposed, the ILEC is not obligated to provide broadband to 

everyone in its service area. 

• Any High-Cost support mechanism should be competitively and technologically 

neutral. Support should be distributed through a funding mechanism that is 

open to all providers, regardless of the technology they may use today or in the 

future. The support mechanism should eliminate the existing systematic biases 

that were developed to support traditional, wireline voice telephony, and should 

avoid creating new biases (e.g., those that would flow from an ILEC ‘‘right of 

first refusal’’). If a hard ‘‘cap’’ on support is adopted, it should apply uniformly 

to all service providers—including ILECs. 

• Any High-Cost support mechanism should award funds to the most cost-effective 

providers. Support should be distributed to the providers that deliver high-quality, cost-efficient service to the American consumers who contribute to the universal service fund. Support should not be distributed under any ‘‘quota’’ system 

that reserves funding for less cost-efficient providers. 

75 

• ViaSat stands ready to serve the unserved. ViaSat and other technology providers promote the competition that today extends new and innovative services 

to the unserved. Without robust competition, this will not happen any longer. 

Our recommendations: 

A far better way exists to serve the unserved and deploy support efficiently and 

without delay. 

• Break down barriers to competition with market-based mechanisms to award 

support to the unserved. While we believe reverse auctions are the best solution, 

we also support other market-based solutions. One alternative would be to employ a cost model to estimate the per-line cost of extending and maintaining 

service. Take into account all technologies including satellite and award based 

upon the lowest cost service that meets applicable standards. All broadband 

providers in a given area should be eligible for the same per-line subsidy. A 

broadband provider should be eligible for that subsidy once it wins a customer 

in an unserved area, and only as long as it retains that customer. Customers 

should be allowed to change broadband providers and port the support to the 

new provider. 

• Control costs by funding cost-efficient solutions and actually service to consumers. Today, USF support often bears no relationship to the lowest cost solution, or to the number of consumers actually served. In fact, a provider who 

loses customers to a competitor may still receive the same level of support. The 

size of the fund can be constrained by basing support levels on the most efficient solution, and by tying support to the number of customers a provider actually serves. Providing support on a per-line basis would provide an incentive to 

win and retain customers. 

• Do not establish quotas for different technologies. An a priori allocation of support to different technologies would violate non-discrimination and technologyneutrality requirements. Given the significant role that satellite and other wireless broadband providers are playing in the marketplace, the proposal of ILECs 

to allocate only about 5 percent of USF support to satellite and wireless technologies is grossly inadequate. 

• An ‘‘exit strategy’’ from the existing High-Cost support mechanism should be developed. The legacy support and ILEC preferences that exist under the current 

High-Cost mechanism should not be perpetuated. A short term (e.g., three year) 

transition mechanism from the existing program may be appropriate, however. 

The High-Cost universal service lawmaking process should consider the interests 

of all stakeholders—including consumers, state governments, and public interest 

groups. Accordingly, we stand ready to work with all interested parties to develop 

reform proposals that represent a true reform and a true industry consensus, and 

that will benefit the American public. 

Senator BEGICH. Thank you all very much. 

[Whereupon, at 4:51 p.m., the hearing was adjourned.] 

(77) 

A P P E N D I X 

PREPARED STATEMENT OF HON. FRANK R. LAUTENBERG, U.S. SENATOR FROM NEW JERSEY

Since 1997, the Federal Government’s Universal Service Fund has subsidized the 

cost of affordable phone service in rural areas and for low-income families. 

The public finances this subsidy through a surcharge tacked onto many customers’ phone bills. Unfortunately, consumers in the most populous states end up 

paying more into the fund than others, but without receiving more benefits. For example, in 2009, consumers in my home state of New Jersey paid $4.68 to 

the fund for every dollar they got back. The state’s total contribution that year was 

$248 million. Similar disparities exist in other states. 

The Federal Communications Commission is planning to modernize the Universal 

Service Fund, shifting its emphasis from paying for rural phone service to expanding broadband service to the Americans who do not have high-speed Internet access. 

I applaud the FCC for taking these steps. In a world where people increasingly 

go online to find jobs and engage with schools, cultural institutions and their government, there are many benefits to ensuring as many Americans as possible have 

the fastest possible Internet connections. 

However, I am concerned consumers will continue to shoulder too much of the cost 

of financing the Universal Service Fund. As the FCC updates the fund for the 

public’s need in the Digital Age, one of the agency’s primary goals should be bringing relief to consumers in states like New Jersey and making sure their share of 

the cost is not unfair. 

I urge the FCC to move promptly to reform the Universal Service Fund and look 

forward to hearing what steps the agency will take to address my concerns. 

RESPONSE TO WRITTEN QUESTION SUBMITTED BY HON. CLAIRE MCCASKILL TO

HON. KATHLEEN Q. ABERNATHY

Question. What is the genesis of the ABC Plan’s proposed $.0007 rate for Intercarrier Compensation? Is $.0007 a cost-based rate for origination, transmission, or termination of calls (access rates) on the Public Switched Telephone Network (PSTN)? 

Are there any economic studies in the ABC Plan or by any regulatory body that 

demonstrate $.0007 to be a cost-based rate for termination of calls on the PSTN? 

With the proceeds from the FCCs Intercarrier Compensation reform, do you expect 

carriers receiving those funds to pass them along to their customers in the form of 

lower bills, or to invest those funds in broadband maintenance and deployment? 

Answer. The ABC Plan recognizes that new technologies and products are eating 

away at traditional wireline carriers’ access revenues. Carriers are losing access 

lines that provide the basis for access charges. As a result, the status quo—relying 

on revenue derived from access payments for use of the PSTN—will not serve such 

carriers well in the future. Further, jurisdictional access rate disparities have led 

to countless instances of arbitrage, fraud and abuse, wasting billions of dollars that 

could have been otherwise used to deploy broadband. A transition from the policies 

of the circuit-switched world to that of the Internet Protocol-based world is necessary. To achieve this, the ABC Plan proposes a five-year transition to a single, 

low, default terminating rate of $.0007 per minute starting July 1, 2012 and completing July 1, 2017, coupled with essential opportunities for companies to recover 

lost revenue due to the transition. The $.0007 number for intercarrier compensation 

that is used in the ABC Plan and other reform proposals has been associated with 

intercarrier compensation since 2001. In 2001, the FCC determined that $.0007 was 

the appropriate compensation rate cap for dial-up ISP-bound traffic. Given the shift 

to all-IP networks, this rate is appropriate. 

It is my impression that recipients of proceeds from intercarrier compensation reform will either pass funds along to their customers or use the funds to deploy and 

maintain broadband, or both. Economic analysis indicates that consumers can actuVerDate Nov 24 2008 13:10 Jun 15, 2012 Jkt 074568 PO 00000 Frm 00081 Fmt 6601 Sfmt 6621 S:\GPO\DOCS\74568.TXT SCOM1 PsN: JACKIE
78 

1Letter from Robert W. Quinn, Jr., AT&T; Steve Davis, CenturyLink; Michael T. Skrivan, 

FairPoint; Kathleen Q. Abernathy, Frontier; Kathleen Grillo, Verizon; and Michael D. Rhoda, 

Windstream; to Chairman Julius Genachowski, Commissioner Michael Copps, Commissioner 

Robert McDowell, and Commissioner Mignon Clyburn, FCC, CC Docket Nos. 96–45, 96–98, 99– 

68, 99–200, 01–92; WC Docket Nos. 03–109, 04–36, 05–337, 06–122, 07–135, 10–90; GN Docket 

No. 09–51, at Attachment 4, Professor Jerry Hausman, Consumer Benefits of Low Intercarrier 

Compensation Rates (filed July 29, 2011). 

ally expect approximately $9 billion per year in consumer benefits to result from 

lowering the access rate for terminating traffic to a uniform $0.0007/minute.1

RESPONSE TO WRITTEN QUESTION SUBMITTED BY HON. MARK PRYOR TO

HON. KATHLEEN Q. ABERNATHY

Question I have consistently called for reform of the Universal Service Fund 

(USF) and the Intercarrier Compensation (ICC) system to further enable broadband 

deployment in areas it would not otherwise be economical. To what extent do you 

believe the ABC Plan and/or the RLEC Plan specifically accomplishes this goal? Are 

there changes to the public interest obligations and cost recovery mechanisms suggested in the ABC Plan and the RLEC Plan the FCC has contemplated that could 

compromise the ability of broadband providers in states like Arkansas to justify investment in unserved and underserved areas? What adjustments would and should 

the FCC be able to make this year to ensure that these areas receive broadband 

service? 

Answer. The ABC Plan was filed by Frontier, AT&T, CenturyLink, Fairpoint, 

Verizon and Windstream in response to the Federal Communications Commission’s 

request for industry input on addressing the outdated and inextricably linked universal service and intercarrier compensation systems. In addition to reforming these 

two regimes, one of the hallmarks of the Plan is that it transforms the Universal 

Service Fund into one that explicitly supports broadband, and targets support to the 

areas that are the highest cost to provide broadband service and are not served by 

an unsubsidized provider. In fact, the Plan will ensure that four million rural homes 

and businesses in high-cost areas served by price cap carriers will have access to 

broadband. Achieving consensus on this proposal required compromise, perseverance, and a leap of faith by all involved. The delicate balance that was ultimately 

achieved benefits consumers across the country, and furthers the goal of Congress 

and the FCC outlined in the National Broadband Plan. 

Because the Plan is so very carefully constructed, even the smallest adjustments 

by the FCC could foil the Plan’s intended goal of ensuring broadband deployment 

in currently unserved and underserved areas. For example, the ABC Plan is designed to stay within a budget of $2.2 billion. To abide by this budget constraint, 

the Plan requires providers to meet certain broadband deployment obligations, such 

as offering broadband at speeds of at least 4 Mbps down and 768 Kbps up. If the 

FCC decides to keep the fund size constant but substantially increases the obligations associated with the funding, providers would not receive adequate support and 

may decide not to accept the funding to deploy broadband in the unserved area. The 

same unfortunate result would occur if the FCC seeks to decrease the fund size with 

the same or increased obligations. As for the cost recovery mechanism, any nearterm reforms that significantly reduce implicit support under the intercarrier compensation system without creating new, meaningful opportunities for replacement 

revenues will make it more difficult for companies to extend and sustain broadband 

networks in high-cost areas. 

Frontier recommends that the FCC adopt the ABC Plan as is to ensure that 

broadband becomes available to currently unserved and underserved areas in the 

near future. 

RESPONSE TO WRITTEN QUESTIONS SUBMITTED BY HON. OLYMPIA J. SNOWE TO

HON. KATHLEEN Q. ABERNATHY

Contribution Factor—Refer to Appendix A for historical data and trend lines. 

Both the industry’s ABC proposal and the FCC’s current efforts to reform the Universal Service Fund deal primarily with the distribution side of the program and 

don’t really address reforming the contribution mechanism of USF. However, the 

contribution factor has increased from 5.6 percent in 2000 to over 15 percent 

present day (figure 1), in part due to the shrinking contribution based that is assessed. To illustrate, the adjusted contribution base for the 4th Quarter of 2011 is 

$14 billion compared to a contribution base of $17 billion for the 4th Quarter of 

79 

1 Recommendation 8.10: The FCC should broaden the universal service contribution base. 

2007 (figure 2). So if no changes are made to the contribution mechanism, the financial burden to consumers could continue to increase due to a continued decrease in 

interstate and international revenue. 

As the statute stipulates, companies must pay a percentage of their interstate and 

international telecommunication service revenues to the Universal Service Fund, 

intrastate revenues are excluded as well as information services such as broadband 

Internet access. A key recommendation within the National Broadband Plan is to 

broaden the USF contribution base. 1

Question 1. Should the contribution base for USF be expanded to all telecommunications and broadband providers to (1) lessen the financial burden on consumers 

and (2) make such assessment more equitable? And do you believe expanding the 

base requires Congressional action? 

Answer. Under the statute, ‘‘every telecommunications carrier that provides interstate telecommunications service shall contribute, on an equitable and nondiscriminatory basis’’ to the mechanism devised by the FCC to support universal service. 

Based on this language, it may be appropriate for the FCC to expand the existing 

base in order for the contribution system to remain sustainable and to ensure equitable allocation of support obligations for both consumers and providers. The FCC 

has authority to make adjustments to the current contributions mechanism for telecommunications providers under § 254(d) of the Act. 

Question 2. If you agree the contribution base should be expanded, what suggestions of reform do you have to meet the previous questions criteria? 

Answer. To ensure that the contribution mechanism is equitable and not overly 

burdensome to both consumers and providers, the FCC should consider the possibility of other methodologies instead of or in addition to a revenues-based methodology. The focus should be on adopting a mechanism that fairly allocates the support 

obligations. 

Contribution Mechanism Methodologies 

Some industry groups and companies have advocated for the adoption of a numbers-based contribution mechanism. They have stated that such format would provide a more stable, predictable and nondiscriminatory funding mechanism that 

would affect all providers and end-users of voice services equitably, irrespective of 

the particular technology used to provide that service. 

However, the major goal of the ABC proposal and the FCC’s effort to reform USF 

are to transition today’s voice-focused high-cost Universal Service Fund into a 

broadband-focused fund. So a numbers-based—particularly phone number basedcontribution mechanism would not necessary properly map to a more broadbandcentric fund. 

Question 3. What are your views on the benefits and disadvantages of both a 

numbers-based contribution mechanism and a general revenue-based methodology, 

where a carrier would be assessed based on their total gross communications services (telecommunications and information two-way services) revenue? 

Answer. I agree with your above conclusion that a numbers-based methodology 

does not fit squarely with the reform proposed in the ABC Plan. However, a contribution system based on connections, numbers or revenues, or a hybrid of those 

or other methodologies may be appropriate based on the requirements of the statute 

for an equitable and non-discriminatory system. 

Voucher Program for USF 

Various parties have suggested reforming the USF program’s disbursement process. Instead of the USF collecting money from telecommunications carriers and then 

distributing the funds to households that need assistance paying for phone service, 

some have suggested giving the low-income households direct vouchers that they 

could use for communications services. 

Such arrangement would be similar to the Housing Choice Voucher Program (Section 8) provided by the Department of Housing and Urban Development (HUD) to 

subsidize housing for low-income families and individuals. The participant is free to 

choose any housing that meets the requirements of the program and is not limited 

to units located in subsidized housing projects. 

Question 4. Could such modification to a direct voucher program improve the effectiveness of the Fund as well as help reduce waste, fraud, and abuse? Is this 

something that Congress should examine and possibly implement? 

Answer. There are several options both the FCC and Congress could consider to 

ensure that the Lifeline/Link Up Program effectively helps low-income families and 

80 

2See Further Inquiry into Four Issues in the Universal Service Lifeline/Link Up Reform and 

Modernization Proceeding, Public Notice, 26 FCC Rcd 11098 (2011); Lifeline and Link Up Reform and Modernization; Federal-State Joint Board on Universal Service; Lifeline and Link Up, 

Notice of Proposed Rulemaking, 26 FCC Rcd 2770 (2011). 

individuals receive telecommunications services in a way that minimizes waste, 

fraud and abuse. The FCC has an open proceeding to consider modifications to the 

Lifeline/Link Up Program that would address efficiency and waste, fraud and abuse 

concerns.2 There are statutory limits, however, to the options available to the FCC, 

and therefore Congress may find it appropriate to examine whether a voucher program would be a more efficient means of distributing Lifeline/Link Up support. 

APPENDIX A.—CONTRIBUTION FACTOR & BASE HISTORICAL CHARTS


1012ABSQ1.eps 1012ABSQ2.eps
81 

RESPONSE TO WRITTEN QUESTIONS SUBMITTED BY HON. CLAIRE MCCASKILL TO

MARY N. DILLON

My chief concern with any reform proposal is ensuring that broadband expands 

to those who currently do not have it as fast as possible and in a coordinated manner. We need to close the digital divide in this Nation and the current piecemeal 

approach in providing broadband to rural areas has led to winners and losers—some 

areas have broadband while many others have dial-up or no service at all. 

Question 1. Under the USF reform proposals that appear to be coming out from 

the FCC, how quickly can you get broadband to rural areas, especially those that 

are unserved? 

Answer. Senator McCaskill, thank you for giving us the opportunity to provide 

you with additional information on these important issues. At the outset, we offer 

some background information on the status of broadband in rural America: 

As of today, most of rural America, under any rational definition of ‘‘rural,’’ is 

unserved by broadband as the FCC proposes to define it—that is—4 Mb down/1Mb 

up. Most rural households located outside of the town centers are too far from a 

telephone company central office to receive fixed broadband from a telephone company and beyond the reach of cable television. Satellite broadband is available 

throughout the Continental United States, but does not yet deliver 4/1 service, it 

is a fixed service, and it currently suffers from other technical limitations that make 

it less useful. Many rural areas have access to narrowband or ‘‘3G’’ data services 

from mobile wireless companies, but today there are virtually no new mobile ‘‘4G’’ 

broadband networks operating beyond the Nation’s major cities, as this is new technology in early stage roll out. 

In urban areas, mobile 4G networks offer real world throughput at speeds well 

above the FCC’s requirement. All four major carriers have achieved speeds between 

10 and 20 Mb down and above 4 Mb up in commercial deployments. Small dongles 

that plug into a USB port on a desktop computer or laptop can bring these fast 

speeds to homes and businesses. Smartphones, tablets, and other devices with builtin 4G capabilities can put vast computer power in the hands of a mobile user. 

Let me explain why mobile broadband is so critical to economic development in 

rural areas. Many companies are now ramping up ‘‘cloud’’ applications, that store 

data in remote locations, which a user can access using a computer or a 

smartphone. There are countless business and personal uses for cloud computing, 

most of which require a broadband connection to work properly. For example, a 

broadband connection enables an insurance adjuster on the road to download pictures, manuals, or data from the cloud without having to seek out an Internet connection from the nearest fixed point of service. 

These cloud-based applications greatly improve productivity and will soon form a 

substantial reason for businesses to locate in, or move away from, our Nation’s rural 

areas. Accordingly, high-quality mobile broadband networks are a critical component 

to rural economic development. 

Mobile 4G broadband represents the fastest, and most economically efficient 

means of delivering broadband to rural consumers. Satellite technology has minimally acceptable throughput, it has latency issues, and most limiting, it is a fixed 

service, not mobile. Stringing wires to homes and businesses will deliver broadband 

and it will have societal benefits, however it is extraordinarily expensive and is not 

the most efficient use of scarce public resources within the universal service fund. 

The FCC has just released the text of its universal service reform order, adopted 

on October 27. It is over 700 pages in length and we have not had a chance to fully 

digest its contents Accordingly, we may have additional views from those set forth 

below to provide after we comprehensively review the order. 

In response to your question: 

Under the USF reform proposals that appear to be coming out from the FCC, how 

quickly can you get broadband to rural areas, especially those that are unserved? 

There are four parts to reform that provide opportunities for mobile wireless carriers to build broadband out to rural areas. 

1. Phase 1 Mobility Fund 

First, the Commission has created a Phase 1 Mobility Fund, a one-time $300 million investment in new cell sites in rural America. These funds will be awarded via 

auction in the second half of 2012. If you assume an average cost of approximately 

$300,000 per cell tower, this investment will result in less than 1,000 new cell sites 

being constructed in rural America, not enough to even make a dent in the needs 

of rural citizens for additional coverage. We may participate in the auction, however 

even if we garner 10 percent of the funds nationwide, or $30 million, that will only 

build at most approximately 90 cell sites, far fewer than we need to fill in our 

82 

unserved areas. This will not materially improve mobile wireless broadband networks in unserved areas. Since this will be an auction where awards are made to 

the lowest bidders it stands to reason that the lowest cost of the unserved areas 

will prevail and will get all of the available funding. This means that the highest 

cost unserved areas will continue to remain fallow with no mobile broadband. 

2. Phase 2 Mobility Fund 

Second, the Commission created a Phase 2 Mobility fund, designed to provide $500 million per year in rural America, $100 million of which is set aside for tribal 

lands. The mechanism for distributing funds under the new Phase 2 Mobility Fund 

is not decided in this order, but are still to be determined in a new rulemaking that 

will likely conclude in the second half of 2012. If not delayed by litigation, we believe the new Phase 2 Mobility Fund will begin to distribute funds sometime in late 

2013. 

Accordingly, at this time, it is impossible to determine what the opportunity will 

be for U.S. Cellular or any other company to roll out mobile broadband services, but 

it is likely that no new construction under the Phase 2 Mobility Fund will occur 

until 2014 at the earliest. We may participate in the Phase 2 Mobility Fund, however even if we succeed in obtaining ten percent of the funds nationwide, or $50 

million, that will represent approximately 33 percent of the funding we are using 

today to build cell sites in rural areas. The FCC’s decision to significantly reduce 

funding to mobile broadband platforms constrains both public and private capital 

flowing to rural America. 

3. Connect America Fund 

Third, the Commission has created a Connect America Fund (‘‘CAF’’) pursuant to 

which any carrier can access funding to build broadband, purportedly on a competitively neutral basis. As we understand the Commission’s executive summary, the 

Nation’s largest ‘‘price cap’’ carriers, AT&T, Verizon, CenturyLink, Windstream, and 

Frontier, will receive rights of first refusal, allowing them to be the exclusive recipient of funding for at least five years. In areas served by small rural telephone companies, funds will be set aside for the incumbent wireline carriers for up to ten 

years. 

Accordingly, we do not expect to have any opportunity to draw any funds from 

the CAF for any area served by a rural telephone company for at least a decade. 

In any area where a price cap carrier exercises its right of first refusal, we do not 

expect to have any opportunity to draw any funds from the CAF for at least five 

years. In areas where the right of first refusal is not exercised, if it is within our 

licensed area we would expect to participate in whatever process the FCC develops, 

however there is no reason why we should be given second class status in any corner of the country. Moreover, we think it is a mistake for the FCC to reserve approximately $4 billion out of a $4.5 billion dollar fund each year for wireline technology, despite the fact 

that nearly a third of residential households have cut the cord and rural Americans 

are demanding improved mobile services. Just last week, CenturyLink announced 

that it has 20 percent fewer customers than it did a year ago, continuing an inevitable trend that should cause policymakers to allocate more, not less, funding to the 

services consumers desire. In sum, we disagree with the FCC’s decision to wall off 

wireline funding in the CAF is a mistake. 

4. Existing CETC Support Mechanism 

Fourth, the FCC intends to continue to provide funding through its existing support mechanism for four more years. In mid-2012, support for wireless carriers participating in the CETC mechanism will begin to phase down in five equal 20 percent 

increments. When our support is cut each year, we will reduce our universal service 

budget by a similar amount, meaning that some new cell sites in rural areas will 

be dropped from our build plans. We have no way of knowing whether new support 

mechanisms will allow us to build out our networks in rural areas. We will continue 

to invest whatever funding we receive in our rural networks. 

Ironically, in most states, including Missouri, the existing mechanism allows us 

to leverage our substantial network investments by installing new 4G broadband 

equipment on existing towers, increasing capacity on links connecting towers, and 

upgrading our switching platform. An overlay does not ordinarily require building 

a new tower, obtaining new zoning permits, rights of way or environmental clearances. 

U.S. Cellular currently has thousands of cell sites throughout the country, serving 

almost 6 million customers, many within vast rural areas. In Q1—2012, we will 

begin to upgrade some of our existing cell sites with 4G technology. Many of these 

83 

cell sites were constructed with support from the Universal Service Fund Once these 

sites are upgraded for 4G every person who receives a high-quality signal from U.S. 

Cellular will have access to broadband at home, at their business, and on the road. 

The ability to deploy 4G on sites already built with USF support provides tremendous efficiencies and an excellent ‘‘bang for the USF buck’’ for accelerating mobile 

broadband deployment but it does nothing for areas where coverage is inadequate 

or doesn’t exist at all. 

And here is where the FCC’s Order comes up short since it does not sufficiently 

address the obvious and substantial coverage problem in rural America. Reductions 

in support under the CETC mechanism reduce carriers’ ability to build new plant 

to fill in dead zones and threaten viability of network facilities in rural areas where 

the revenue generated is insufficient to cover the cost of operations, maintenance, 

upgrades and a return on invested capital. 

At a time when so much work remains to be done to provide high-quality coverage 

in rural America, the combination of reform programs set forth above reduce funding to mobile broadband. In addition, the FCC’s policy shift, to restrict funding to 

a single carrier, is likely to result in a patchwork quilt of incompatible technologies 

throughout rural America which is going to leave consumers driving in and out of 

areas where they have very good signal, but an incompatible handset that cannot 

even dial 911. 

Finally, some carriers have placed evidence into the record demonstrating that 

significant reductions in support to wireless carriers will result in the redeployment 

of cell site equipment currently serving remote areas to places where it can provide 

a return on invested capital. 

Given all of the above, we conclude that the FCC’s actions will delay service in 

some rural areas, cause the redeployment of assets in some other areas, pick winners in the marketplace by limiting funding to one class of carrier, or in some cases 

only one carrier, and unlawfully abandon the pro-competitive mandates set forth in 

the 1996 Act. Delaying mobile broadband deployments is counterproductive and we 

will ask the FCC to improve opportunities for rural consumers to access mobile 

broadband. 

Question 2. Will cable companies, which have traditionally not accepted USF support, competitively bid for funding to expand broadband to if given the opportunity 

and reform is competitively neutral? Proponents of the right of first refusal have argued that the right of first refusal does not negatively impact competition because 

no one else wants to serve these areas anyway. How do you respond? 

Answer. We do not operate cable systems and cannot speak for cable companies, 

however we have every reason to believe that if support mechanisms were competitively neutral, then cable companies would have an opportunity to participate and 

in fact many would participate. 

Proponents who argue that ‘‘no one else wants to serve these areas anyway’’ have 

it exactly backward. If the area is so undesirable, that is actually an argument 

against a right of first refusal. If no party wants to serve an area, then a right of 

first refusal, which by definition, restricts competitive entry, is completely unnecessary. 

Even assuming incumbents are correct that cable companies would not enter, presumably because the cost of installing cable is equal to or greater than the cost of 

an incumbent wireline carrier upgrading plant, the right of first refusal prevents 

more efficient technologies, or those that rural citizens actually prefer, from entering the market. That is, more efficient providers are blocked from accessing support 

to provide consumers with service at a lower cost. 

In fact, the problem of a single carrier dominating the market by having all the 

customers and exclusive access to universal service support is precisely the problem 

the 1996 Act intended to solve when Congress mandated that new competitors could 

access support in high-cost areas. As a carrier who has been aggressively investing 

in rural America, U.S. Cellular can say categorically that it would take the opportunity to invest in areas locked up by a right of first refusal, if given the opportunity. 

In the fifteen years since the 1996 Act, the FCC has only adopted one ‘‘core principle’’ of universal service policy, namely that all universal service rules must be 

competitively neutral so that they do not favor any technology or class of carrier. 

On its face, a right of first refusal provision is not competitively neutral, and U.S. 

Cellular has yet to see any reason why the least efficient provider of services should 

be favored over more efficient alternatives, especially when consumers are demanding these alternatives and when they form a core component of rural economic development in the decades to come. 

In sum, the right of first refusal is legally indefensible under the 1996 Act and 

the Commission’s own rules. 

84 

* [See p. 80 of this transcript]. 

1 Recommendation 8.10: The FCC should broaden the universal service contribution base. 

RESPONSE TO WRITTEN QUESTIONS SUBMITTED BY HON. OLYMPIA J. SNOWE TO

MARY N. DILLON

Contribution Factor—Refer to Appendix A for historical data and trend lines.*

Both the industry’s ABC proposal and the FCC’s current efforts to reform the Universal Service Fund deal primarily with the distribution side of the program and 

don’t really address reforming the contribution mechanism of USF. However, the 

contribution factor has increased from 5.6 percent in 2000 to over 15 percent 

present day (figure 1), in part due to the shrinking contribution based that is assessed. To illustrate, the adjusted contribution base for the 4th Quarter of 2011 is 

$14 billion compared to a contribution base of $17 billion for the 4th Quarter of 

2007 (figure 2). So if no changes are made to the contribution mechanism, the financial burden to consumers could continue to increase due to a continued decrease in 

interstate and international revenue. 

As the statute stipulates, companies must pay a percentage of their interstate and 

international telecommunication service revenues to the Universal Service Fund, 

intrastate revenues are excluded as well as information services such as broadband 

Internet access. A key recommendation within the National Broadband Plan is to 

broaden the USF contribution base.1

Question 1. Should the contribution base for USF be expanded to all telecommunications and broadband providers to (1) lessen the financial burden on consumers 

and (2) make such assessment more equitable? And do you believe expanding the 

base requires Congressional action? 

Answer. Thank you for the question, as reform of the contribution mechanism is 

critical to sustaining the universal service fund. 

Taking your last question first, U.S. Cellular supports Congressional action to resolve substantial uncertainty in the existing law, and to provide the FCC with flexibility to design universal service mechanisms to ensure that universal service goals 

are met. U.S. Cellular has taken the position that the current statute authorizes 

the FCC to support Title II telecommunications services, but authority to support 

Title I services is far from clear. If it is ultimately determined that the FCC has 

no authority to fund Title I services, then it may not be able to collect contributions 

from Title I services. Accordingly, Congressional action can reduce the possibility of 

litigation that can potentially delay implementation. 

The public interest in expanding the base is substantial. The core principles of 

universal service are, (1) the value of a network increases when everyone is connected, and (2) the definition of supported services must evolve with technology. 

Today, both fixed and mobile broadband are just as essential to our Nation as basic 

telephone service was three decades ago. Applying the universal service principles 

above to a broadband world, policy makers must conclude that it is in the national 

interest for every citizen to have access to fixed and mobile broadband. Therefore, 

as many users of the network as possible should contribute, to ensure that each contribution amount is as low as possible and the greatest number of people can access 

the network. 

As your chart below evidences, interstate telecommunications services make up a 

shrinking revenue base for contributions, as the Nation migrates to all-IP networks. 

Accordingly, even if program demand remains flat, the contribution factor will continue to rise as the base shrinks. 

Despite the strong public interest reasons set forth above, we understand the difficulties that any political body has in assessing charges on what can be described 

as access to the Internet. Indeed, that is why the contribution mechanism has not 

been addressed for nearly a decade. The current mechanism is unsustainable, and 

therefore this issue must be confronted now. Put simply, Congress must authorize 

and direct the FCC, as the expert agency, to develop mechanisms that broaden the 

base, and ensure equity among consumers. 

Question 2. If you agree the contribution base should be expanded, what suggestions of reform do you have to meet the previous questions criteria? 

Answer. U.S. Cellular’s experience with the current system makes clear that 

change is not only advisable, it is a necessity. In the near future, there may be almost no ‘‘telecommunications services’’ being provided as that term is understood in 

the 1996 Act. 

A connection-based system may be much simpler for carriers to assess and collect, 

however it may disproportionately affect low-volume users. A connection-based system that assesses connections based on capacity or usage may prove to be more eqVerDate Nov 24 2008 13:10 Jun 15, 2012 Jkt 074568 PO 00000 Frm 00088 Fmt 6601 Sfmt 6621 S:\GPO\DOCS\74568.TXT SCOM1 PsN: JACKIE
85 

uitable. For example, a low connection charge for a low capacity connection and a 

higher charge for a high capacity connection. 

U.S. Cellular understands the difficulty in using a numbers-based methodology in 

a broadband world, where in the future traditional ten digit telephone numbers may 

not be used. One solution would be to assess any connection that is capable of delivering basic voice communications. Such a mechanism would assess a twisted copper 

pair, as well as a broadband connection, as each are capable of delivering basic voice 

service. 

Another option is to adopt a hybrid methodology, which assesses different types 

of services in a different manner, some based on revenues and some on connections. 

This is more complicated, and is likely to require more oversight as technologies 

continue to evolve, however in the short term it may be more equitable. 

In sum, if Congress does act, it should provide the FCC with the greatest possible 

flexibility to fashion equitable contribution mechanisms, so that the agency’s statutory mission can be met. In addition, Congress should require the FCC to complete 

any proceeding consistent with the statute within one year. 

Contribution Mechanism Methodologies 

Some industry groups and companies have advocated for the adoption of a numbers-based contribution mechanism. They have stated that such format would provide a more stable, predictable and nondiscriminatory funding mechanism that 

would affect all providers and end-users of voice services equitably, irrespective of 

the particular technology used to provide that service. 

However, the major goal of the ABC proposal and the FCC’s effort to reform USF 

are to transition today’s voice-focused high-cost Universal Service Fund into a 

broadband-focused fund. So a numbers-based—particularly phone number based— 

contribution mechanism would not necessary properly map to a more broadbandcentric fund. 

Question 3. What are your views on the benefits and disadvantages of both a 

numbers-based contribution mechanism and a general revenue-based methodology, 

where a carrier would be assessed based on their total gross communications services (telecommunications and information two-way services) revenue? 

Answer. A connections-based system (as opposed to a numbers-based system) has 

the advantage of broadening the base and correspondingly reducing each citizen’s 

burden to support universal service goals. A connections-based mechanism is likely 

to be easier for carriers and the FCC to administer and audit. It will also make it 

difficult for carriers to avoid contributing, or use arbitrage schemes to minimize contributions, leading to disputes and increasing compliance costs for both carriers and 

the government. 

An assessment based on gross communications services would be easier than the 

current interstate and international telecommunications services formula, provided 

that the term ‘‘gross communications services’’ is broad enough to discourage arbitrage or other avoidance mechanisms. As technology changes, there will be a continuing need to monitor and update the definition to limit avoidance mechanisms 

that artificially raise the price for others. 

Voucher Program for USF 

Various parties have suggested reforming the USF program’s disbursement process. Instead of the USF collecting money from telecommunications carriers and then 

distributing the funds to households that need assistance paying for phone service, 

some have suggested giving the low-income households direct vouchers that they 

could use for communications services. 

Such arrangement would be similar to the Housing Choice Voucher Program (Section 8) provided by the Department of Housing and Urban Development (HUD) to 

subsidize housing for low-income families and individuals. The participant is free to 

choose any housing that meets the requirements of the program and is not limited 

to units located in subsidized housing projects. 

Question 4. Could such modification to a direct voucher program improve the effectiveness of the Fund as well as help reduce waste, fraud, and abuse? Is this 

something that Congress should examine and possibly implement? 

Answer. With respect to the Lifeline fund, U.S. Cellular does not believe Congress 

needs to enact specific legislation, because the current Lifeline mechanism operates 

much like the HUD Section 8 program. Today, the program provides a specified discount that a low-income household can use to purchase service from any eligible 

provider. Low-income support goes directly to the eligible provider who gets the customer and provides the discount. As a result of more carriers being designated as 

eligible to provide Lifeline discounts, low-income consumers have increasing choices 

in service providers. 

86 

If Congress wishes to legislate, U.S. Cellular recommends funding the development of a nationwide database of eligible households, building on the work of some 

states, such as Colorado. If carriers signing up new Lifeline customers can check 

eligibility real time, the possibility of waste is greatly reduced. 

Separately, U.S. Cellular suggests that a voucher system for high-cost support, 

wherein a rural consumer receives a voucher that can be applied to the service provider of the customer’s choosing, is superior to the single winner reverse auction 

methodology recommended in the recent Connect America Fund item. A voucher 

system for high-cost support would unleash competition in the marketplace, rather 

than limiting competition to the auction room. Accordingly, any Congressional action to reform the telecommunications laws should include careful examination of 

why the FCC has chosen a command and control distribution mechanism for highcost support, rather than ensuring that universal service mechanisms increase consumer choice in rural areas, as required by the 1996 Act. 

RESPONSE TO WRITTEN QUESTIONS SUBMITTED BY HON. ROGER F. WICKER TO

MARY N. DILLON

Question 1. Ensuring the build out of broadband to unserved areas, such as Mississippi, is vital to ensuring the economic vitality of these rural regions. What do 

you recommend as the best way to accomplish this while ensuring the most efficient 

use of taxpayer money? 

Answer. At the outset, U.S. Cellular believes that the current law’s principle, that 

rural consumers are entitled to have access to services that are reasonably comparable in quality and price to those available in urban areas, is the correct standard. In today’s world, that means access to both fixed and mobile broadband platforms must be provided. 

Over the past decade, U.S. Cellular has consistently advocated that the most efficient way to accelerate broadband deployment to rural areas is to establish an 

amount of support available to each geographic area, and make that support available to the carrier that gets the customer (similar to the voucher discussion above). 

Such a mechanism allows consumers to have choices and provides marketplace incentives for all carriers to provide better service, and for new carriers to enter. 

In the recent Connect America Fund proceeding, U.S. Cellular sponsored experts 

who opined that the regulatory cost of implementing a command/control system that 

designates a single dominant provider in rural areas will far exceed a mechanism 

that provides an efficient amount of support in an area that is provided only to the 

carrier the customer chooses. Having reviewed the recent order, we are more convinced than ever that this is the right policy choice. 

Question 2. How can we achieve true USF reform that improves the fund’s efficiency and fulfills its mandate to rural America, while at the same time ensuring 

adequate competition and encouraging, rather than stifling, private investment? 

Answer. To elaborate a bit, the FCC had to decide whether competition should 

exist within the auction room, or alternatively, in the market. U.S. Cellular believes 

that market competition will yield far more efficiencies than auction competition. 

The FCC’s regulatory regime for auction winners is substantial, including regulation 

of rates, collocation, roaming, and a host of reporting requirements. These regulations may be required to control dominant carriers in the market, but they are completely unnecessary in a competitive market. As set forth by U.S. Cellular’s experts, 

Dr. Lee Selwyn and Professor William Rogerson, the cost of implementing these regulations, and the cost to consumers of having new competitors shut out of the market will substantially exceed the savings from a single winner reverse auction. 

Question 3. I’m told that the FCC plan may reduce support for rural wireless carriers—which concerns me since a significant number of Mississippians are ‘‘cutting 

the cord’’ and moving to a wireless world. Additionally, I understand the FCC will 

wait until a future proceeding to determine how and where the adjustments will 

take place. How would such regulatory uncertainty impact your business plans for 

future growth and job creation? I am concerned that in an ailing economy, this 

hardly seems like a prudent way to proceed. 

Answer. Senator, your point is well taken. U.S. Cellular accepts that it is difficult 

for the FCC to provide a high level of regulatory certainty in a rapidly changing 

industry. That said, the fact that it has taken ten years to reform universal service 

has cast a difficult cloud over the wireless industry, at precisely the time we’re trying to build out rural areas. 

The adoption of reform last month has greatly increased uncertainty, because the 

rules of the road for reform are not finalized. They are subject to implementation 

87 

by the bureaus over the next few years, and the entire decision to fund broadband 

capable networks will have to go through the judicial review process. 

The FCC’s decision to phase down support to wireless carriers while such regulatory uncertainty exists is unfortunate. We can’t speak for the largest wireless carriers, but we can speak for ourselves in stating that there are vast areas in rural 

states we serve where we’re using support to build new cell sites to cover unserved 

and underserved areas. We know that in areas where support is being used to build 

infrastructure, our networks perform better, have fewer dropped calls, and provide 

important health and safety benefits superior to those available in unsupported 

rural areas. And we’ve put evidence of that into the FCC’s record. 

The FCC’s record speaks well for Mississippi carriers such as C Spire Wireless 

(formerly CellularSouth), who have demonstrated how their networks provide critical health and safety benefits for consumers, as evidenced by C Spire’s performance 

during hurricane Katrina. C Spire’s network recovered within days and was critical 

to first responders and public safety, facilitating rescue and recovery efforts. Again, 

all of this is in the FCC’s record. 

Accordingly, irrespective what universal service policy choices the FCC ultimately 

makes, support used to build networks should not have been phased down until the 

rules are finalized and judicial review is complete. With respect to cord-cutting, it 

is noteworthy that support to wireless carriers is being reduced while our networks 

continue to grow, and while rural consumers are clamoring for additional coverage 

and increased mobile broadband access. 

At the same time, the FCC did not phase down support to wireline carriers. In 

fact the Nation’s largest wireline carriers, including AT&T, will receive more support under the new mechanism. We fail to understand, at a time when the world 

is rapidly migrating to wireless platforms that are underdeveloped in rural America, 

why the FCC would shift support away from wireless and toward the platform that 

consumers are abandoning. 

In sum, your concern about jobs is on point. Wireless networks in rural America 

need more universal service funding, not less. Every incremental dollar we receive 

accelerates cell site construction, which has substantial economic benefits for rural 

areas. Jobs are created to build the infrastructure and new cell sites facilitate job 

creation when citizens can compete with their counterparts in urban areas, and indeed around the world. Mobile wireless networks have been a consistent job creation 

engine, even in the fact of the worst economic recession in eighty years. The President has repeatedly cited mobile broadband as critical infrastructure for the 21st 

Century, setting an agenda of 98 percent coverage in five years. Yet the FCC is 

shifting support funds in ways that frustrate the administration’s agenda. 

Improving our Nation’s infrastructure has never been a partisan issue, and it 

should not become one now. Our nation’s competitiveness on the world stage is a 

national priority, shared by all. The FCC’s recent order does not go far enough to 

provide rural consumers with access to both wireline and mobile broadband infrastructure that are high-quality and comparable in price to urban areas. 

Question 4. Some plans have provided rural wireless with a $300 million annual 

mobility fund. Assuming the Commission goes in the direction of favoring certain 

technology over others, can you tell me what bare minimum funding rural wireless 

would need to sustain operations in rural areas like my home state of Mississippi 

or say, West Virginia? 

Answer. U.S. Cellular does not serve Mississippi, so we don’t have data to understand a minimum amount of support needed to sustain operations in the state. In 

West Virginia, we are not licensed to serve throughout the state, and therefore we 

cannot speak to the entire state’s needs. 

That said, we know that there are many areas with services that lack coverage, 

or do not have 3G or 4G service. Since wireless carriers are in the process of building networks, the proper question is how fast do policymakers want to advance 4G 

services in rural America? For example, CTIA submitted a study to the FCC estimating that it would cost over $22 billion to build high-quality 4G service throughout rural America. If the FCC devoted $4 billion per year to the build out, the job 

could be done in just five years. 

Understanding that 4G LTE technology can deliver throughput speeds of up to 

16 Mb per second today, with higher speeds to come in the near future, U.S. Cellular believes that wireless is the answer for many rural areas in Mississippi, West 

Virginia, and throughout the country. 

As Congress considers the FCC’s recent action, it is worth noting that approximately $4.5 billion per year has been budgeted for high-cost universal service support. Of that amount, roughly ninety percent, or $4 billion, has been set aside for 

fixed wireline technology, while only $500 million has been allocated to wireless. We 

88 

* [See p. 80 of this transcript]. 

find it unfair that wireless consumers, who contribute over 40 percent of the fund, 

will continue to subsidize wireline networks for many years to come. 

Accordingly, while it is difficult to understand the minimum needed to deliver 

high-quality 4G wireless service to rural America, we know that devoting only ten 

percent of the high-cost fund to wireless is not the right proportion. 

Question 5. What will be the net effect on our constituents in rural America if 

the funding falls short? 

Ultimately, universal service support is for consumers, who pay into the fund. 

Those living in rural areas deserve to have the benefits that people in urban areas 

take for granted. The FCC’s recent policy choices provide insufficient funding for 

mobile wireless networks. The net effect will be investments cancelled or delayed. 

RESPONSE TO WRITTEN QUESTION SUBMITTED BY HON. CLAIRE MCCASKILL TO

MICHAEL K. POWELL

Question My chief concern with any reform proposal is ensuring that broadband 

expands to those who currently do not have it as fast as possible and in a coordinated manner. We need to close the digital divide in this Nation and the current 

piecemeal approach in providing broadband to rural areas has led to winners and 

losers—some areas have broadband while many others have dial-up or no service 

at all. Under the USF reform proposals that appear to be coming out from the FCC, 

how quickly can you get broadband to rural areas, especially those that are 

unserved? 

Will cable companies, which have traditionally not accepted USF support, competitively bid for funding to expand broadband to unserved areas if given the opportunity and reform is competitively neutral? Proponents of the right of first refusal 

have argued that the right of first refusal does not negatively impact competition 

because no one else wants to serve these areas anyway. How do you respond? 

Answer. As I explained at the hearing, cable started as a rural service and we 

continue to have a significant presence in rural America. In many rural areas, cable 

providers were the first to offer high-speed broadband service to consumers, and 

only after cable offered the service did the incumbent phone company also begin to 

offer it in those areas. NCTA’s member companies offer high-speed broadband services based on DOCSIS 3.0 technology to millions of rural customers. 

NCTA encouraged the FCC to make broadband subsidies available on a competitively neutral basis (e.g., through competitive bidding) rather than favoring incumbent phone companies. During the course of the FCC’s proceeding, many small and 

mid-sized cable operators met with Chairman Genachowski and others at the FCC 

and specifically expressed their interest in participating in a competitively neutral 

high-cost broadband funding mechanism and in expanding their services to additional rural areas. NCTA also explained that the participation of cable operators in 

the voice service USF program, which has historically been strongly tilted in favor 

of incumbent phone companies, was not a valid predictor of cable’s interest in a 

competitively neutral broadband support program. 

Notwithstanding our advocacy on this point, and the principle of competitive neutrality upon which the USF support program is based, the FCC chose to create a 

regime in which the vast majority of support is made available to incumbent phone 

companies on a preferential or an exclusive basis, with no meaningful role for competitive bidding. The effect of this blatant favoritism is that cable operators will be 

discouraged from serving high-cost areas and consumers in those areas will be limited to inferior broadband service from phone companies. 

RESPONSE TO WRITTEN QUESTIONS SUBMITTED BY HON. OLYMPIA J. SNOWE TO

MICHAEL K. POWELL

Contribution Factor—Refer to Appendix A for historical data and trend lines.*

Both the industry’s ABC proposal and the FCC’s current efforts to reform the Universal Service Fund deal primarily with the distribution side of the program and 

don’t really address reforming the contribution mechanism of USF. However, the 

contribution factor has increased from 5.6 percent in 2000 to over 15 percent 

present day (figure 1), in part due to the shrinking contribution based that is assessed. To illustrate, the adjusted contribution base for the 4th Quarter of 2011 is 

$14 billion compared to a contribution base of $17 billion for the 4th Quarter of 

2007 (figure 2). So if no changes are made to the contribution mechanism, the finanVerDate Nov 24 2008 13:10 Jun 15, 2012 Jkt 074568 PO 00000 Frm 00092 Fmt 6601 Sfmt 6621 S:\GPO\DOCS\74568.TXT SCOM1 PsN: JACKIE
89 

1 Recommendation 8.10: The FCC should broaden the universal service contribution base. 

cial burden to consumers could continue to increase due to a continued decrease in 

interstate and international revenue. 

As the statute stipulates, companies must pay a percentage of their interstate and 

international telecommunication service revenues to the Universal Service Fund, 

intrastate revenues are excluded as well as information services such as broadband 

Internet access. A key recommendation within the National Broadband Plan is to 

broaden the USF contribution base.1

Question 1. Should the contribution base for USF be expanded to all telecommunications and broadband providers to: (1) lessen the financial burden on consumers 

and (2) make such assessment more equitable? And do you believe expanding the 

base requires Congressional action? 

Answer. NCTA looks forward to participating in any future FCC proceeding to reform the USF contribution regime. NCTA is concerned that imposing a contribution 

requirement on broadband Internet access services could undermine efforts to promote broadband adoption because it would increase the price that consumers pay 

for such services. Moreover, to the extent broadband customers already are contributing based on their purchase of voice services (wireline and/or wireless), there is 

a risk that many customers could end up paying more than they do under the current regime, rather than less, if USF contributions were extended to broadband 

services as well as to voice services. Congressional action on contribution issues 

might be helpful in expanding the options available to the FCC as it considers how 

best to reform the contribution regime. 

Question 2. If you agree the contribution base should be expanded, what suggestions of reform do you have to meet the previous questions criteria? 

Answer. As noted above, we have concerns that adding broadband Internet access 

to the list of services subject to the contribution requirement could increase the burden on customers that already are contributing, rather than ‘‘expanding the base’’ 

of contributors, and could discourage broadband adoption. In the past NCTA has 

supported a numbers-based regime that would impose a flat contribution on each 

customer, which could be simpler to administer and more equitable for consumers. 

Contribution Mechanism Methodologies 

Some industry groups and companies have advocated for the adoption of a numbers-based contribution mechanism. They have stated that such format would provide a more stable, predictable and nondiscriminatory funding mechanism that 

would affect all providers and end-users of voice services equitably, irrespective of 

the particular technology used to provide that service. 

However, the major goal of the ABC proposal and the FCC’s effort to reform USF 

are to transition today’s voice-focused high-cost Universal Service Fund into a 

broadband-focused fund. So a numbers-based—particularly phone number based— 

contribution mechanism would not necessary properly map to a more broadbandcentric fund. 

Question 3. What are your views on the benefits and disadvantages of both a 

numbers-based contribution mechanism and a general revenue-based methodology, 

where a carrier would be assessed based on their total gross communications services (telecommunications and information two-way services) revenue? 

Answer. In the past NCTA has supported a numbers-based regime that would impose a flat contribution on each customer. A revenue-based regime raises difficult 

issues regarding the allocation of revenues when customers purchase bundles that 

include services not subject to the assessment (e.g., multichannel video service). A 

regime that imposes a flat contribution on each customer can be structured in a 

manner that is simpler to administer and more equitable for consumers. 

Voucher Program for USF 

Various parties have suggested reforming the USF program’s disbursement process. Instead of the USF collecting money from telecommunications carriers and then 

distributing the funds to households that need assistance paying for phone service, 

some have suggested giving the low-income households direct vouchers that they 

could use for communications services. 

Such arrangement would be similar to the Housing Choice Voucher Program (Section 8) provided by the Department of Housing and Urban Development (HUD) to 

subsidize housing for low-income families and individuals. The participant is free to 

choose any housing that meets the requirements of the program and is not limited 

to units located in subsidized housing projects. 

90 

Question 4. Could such modification to a direct voucher program improve the effectiveness of the Fund as well as help reduce waste, fraud, and abuse? Is this 

something that Congress should examine and possibly implement? 

Answer. The use of vouchers for low-income support is an idea that is worth exploring. From NCTA’s perspective, it is critical that any such program allow vouchers to be used with any broadband provider, not just incumbent telephone companies. In deciding whether to switch to such an approach, Congress would need to 

consider the potential benefits, as well as the potential costs of transitioning to an 

entirely new regime. 

RESPONSE TO WRITTEN QUESTIONS SUBMITTED BY HON. CLAIRE MCCASKILL TO

SHIRLEY BLOOMFIELD

Question 1. My chief concern with any reform proposal is ensuring that broadband 

expands to those who currently do not have it as fast as possible and in a coordinated manner. We need to close the digital divide in this Nation and the current 

piecemeal approach in providing broadband to rural areas has led to winners and 

losers—some areas have broadband while many others have dial-up or no service 

at all. Under the USF reform proposals that appear to be coming out from the FCC, 

how quickly can you get broadband to rural areas, especially those that are 

unserved? 

Answer. This question gets to the heart of the great disconnect that exists regarding the true meaning of ubiquitous broadband deployment. In many areas today, the 

universal service fund (USF) has worked thus far to enable the installation and operation of broadband-capable networks—but many of these networks provide only 

basic levels of broadband service and will need critical upgrades soon or over time. 

In other areas, where larger carriers have opted out of the ‘‘rate-of-return’’ system, 

there are few incentives to invest in high-cost areas because these carriers can realize greater returns on their investments in more populated parts of their serving 

areas. 

Reform is therefore needed in both areas, to ensure not only that broadband becomes available throughout rural America, but to make sure also that high-quality 

broadband will remain available and affordable for rural consumers and businesses. 

This reform must be carefully designed and tailored to solve the different problems 

facing different areas, including the differing needs of the carriers who serve these 

areas. A ‘‘one-size-fits-all’’ approach to reform—or reforms that threaten to disrupt 

the predictability and sufficiency of the USF system—will only undermine the dual 

objectives of getting broadband to and keeping broadband in rural areas. 

The small rural local exchange carriers (RLECs) on whose behalf I testified were 

formed for the specific purpose of providing communications services where high 

costs deterred larger entities with more profitable markets from doing so. The USF 

and related intercarrier compensation (ICC) mechanisms have been essential in allowing RLECs to provide and maintain advanced services throughout their service 

areas. Yet even so, the high cost nature of these rural markets has precluded universal deployment of comparable broadband services. Indeed, in many cases today, 

RLECs can provide only basic levels of broadband given the great distances to be 

covered, and upgrades are necessary to ensure that service will remain reasonably 

comparable over time between rural and urban areas. RLECs also have many customers who go unserved as well, given the nature of the areas they serve. 

So the ‘‘digital divide’’ should not and cannot be measured on a static basis—i.e., 

who may be served or unserved at any given point in time. Instead, it must be 

measured by identifying where truly comparable broadband can be installed and 

provided only through the availability of USF support for the carrier most committed to serving that area. 

The USF and ICC mechanisms remain necessary to ensure ubiquitous deployment 

and sustained operation of broadband networks in RLEC areas. As noted earlier, 

these small carriers serve the vast and sparsely populated areas that were left behind long ago by other providers—40 percent of the Nation’s geography containing 

only 5 percent of the Nation’s customers. With minor exception at best, customers 

in areas served by RLECs would not have sustainable access to affordable 

broadband without sufficient and predictable USF support and ICC revenues. At the 

same time, we recognize that there is a need to support a better business case for 

investment by larger entities that serve other rural areas This recognition that no 

rural consumer should go without broadband, regardless of who serves them—together with the notion that there should be no ‘‘one-size-fits-all’’ approach to reform—led to the development of the industry’s ‘‘Consensus Framework’’ for USF and 

ICC reform, consisting of the small carriers’ RLEC Plan and the complementary 

91 

ABC Plan. We believed that these two plans, while providing for ‘‘shared sacrifice’’ 

by RLECs and others across the industry, balanced the needs to inject funding into 

unserved areas and to support existing investment in and ongoing operation of 

broadband-capable networks. 

Leading up to the FCC’s October 27th vote on its USF/ICC order, we hoped that 

the complementary plans in the Consensus Framework would provide a balanced 

and sensible roadmap for reform. Unfortunately, the FCC has deferred for another 

day the question of what longer-term reforms are needed to create a ‘‘Connect America Fund’’ for consumers served by RLECs. Instead, the FCC’s Order is comprised 

mostly of short-term changes to the existing USF that will likely reduce or at best 

maintain the total amount of support that most RLECs receive; the FCC’s own estimate is that more than half of small rural carriers will lose some USF support 

under the Order, and we do not foresee any incremental funding being made available in the aggregate to support new broadband build-out or even significant network upgrades by RLECs. 

To be clear, it is possible that an individual RLEC might receive additional funding above what it receives today under these reforms. The few RLECs fortunate 

enough to fall within that category may have some ability to ‘‘edge out’’ new 

broadband to unserved portions of their serving areas, or to keep their networks up 

to pace with the speeds that the FCC has identified as quality broadband in its 

Order. But the fact that further cuts and changes to the USF and ICC programs 

loom in a Further Notice of Proposed Rulemaking attached to the Order may deter 

even these RLECs from investing. Rather, for the most part, until the FCC addresses the long-term vision for reform, we expect that the plan that has been approved 

will do little more than perhaps permit most RLECs to maintain broadband-capable 

networks where they have them today. 

This is of significant concern not only because it means that many unserved will 

continue to go unserved, but also because this constrained support may limit the 

ability to upgrade RLEC networks over time to keep up with those available in 

urban and even other rural areas. To summarize, we are concerned that the reforms 

coming out from the FCC will not enable RLECs to deliver on the promise of universal broadband throughout their service areas. Indeed, depending on how they are 

implemented, these reforms may compromise the ability of RLECs—small carriers 

based in the communities they serve—to continue providing affordable broadband 

even where it is available today. 

Question 2. How will you ensure that this new government broadband program 

distributes funds in an accountable and coordinated manner? Are there specific conditions a participant would have agree to in order to receive funding? 

Answer. There is a great deal of accountability in the USF system by which 

RLECs receive support today. Given that the FCC has not changed that system in 

any material respect as it applies to RLEC support (beyond certain cuts and caps), 

we believe those accountability measures remain in effect under the recently released Order. Under the USF mechanisms as they work today, detailed cost studies 

and approvals must be developed and submitted in order to receive USF support. 

Furthermore, a material amount of USF reimbursement for RLECs is provided on 

a two-year lag basis, and if subsequent studies suggest the original cost projections 

were too high, reimbursement can be adjusted downward. Finally, the FCC appears 

to have adopted additional accountability measures in the Order released since I 

testified; we continue to evaluate those to determine whether those are reasonable 

and appropriately tailored for small carriers. 

At bottom, RLECs are proud to serve as ‘‘carriers of last resort’’ in their areas— 

responding to the requests of customers for service in areas where no competitor 

would want to venture given the lack of business case for doing so. This is perhaps 

the ultimate measure of accountability, as it ensures that the carrier first and foremost is responsible to satisfy its customers’ demands. But the RLECs’ ability to continue serving as such carriers of last resort—particularly for upgraded broadband 

network demands—will be in question if adequate USF and stable ICC mechanisms 

are not available. 

Question 3. What is the genesis of the ABC Plan’s proposed $.0007 rate for Intercarrier Compensation? Is $.0007 a cost-based rate for origination, transmission, or 

termination of calls (access rates) on the Public Switched Telephone Network 

(PSTN)? Are there any economic studies in the ABC Plan or by any regulatory body 

that demonstrate $.0007 to be a cost-based rate for termination of calls on the 

PSTN? 

Answer. The Consensus Framework called for a phase-down specifically of terminating end-office switching rates from current levels to $0.0007 over the course of 

8 years for RLECs. As NTCA and the other rural associations made clear, this 

92 

phase-down was the product of a substantial industry compromise, and was agreed 

to subject to the availability of a fully compensatory, rate-of-return-based access restructure mechanism for RLECs that would ensure: (1) recovery of the costs of performing transport and termination functions and (2) continued universal service in 

rural areas. It is also worth noting that this compromise did not include reductions 

to other ICC rate elements, including originating access charges or most transport 

rates. 

In presenting these economic terms as a potential path forward for FCC consideration, NTCA was careful not to indicate that the FCC could or should adopt those 

rates without involving the States as required by law or that it could implement 

such rate reductions without any consideration of the ‘‘additional costs’’ of transport 

and termination required by the Communications Act. We believe that the FCC’s 

ability to implement these rate reductions and reach the ultimate rate of $0.0007 

(or to mandate a rate of zero, which is what the Order does) is necessarily bounded 

and limited by the plain language of the statute that Congress enacted in 1996. In 

other words, the FCC might be able to adopt a methodology that leads toward a 

particular end-office switching rate if structured correctly, but the structure of and 

process for that reform is critical and the statute precludes any short-cuts in ratesetting or gamesmanship with ‘‘methodologies’’ that are really nothing more than 

rate-setting exercises. 

RESPONSE TO WRITTEN QUESTIONS SUBMITTED BY HON. MARK PRYOR TO

SHIRLEY BLOOMFIELD

Question 1. I have consistently called for reform of the Universal Service Fund 

(USF) and the Intercarrier Compensation (ICC) system to further enable broadband 

deployment in areas it would not otherwise be economical. To what extent do you 

believe the ABC Plan and/or the RLEC Plan specifically accomplishes this goal? 

Answer. Subsequent to the hearing at which I testified, the FCC adopted an 

Order and Further Notice of Proposed Rulemaking that appears to incorporate only 

portions of the ABC Plan and requests further comment on most of the RLEC Plan. 

This being said, we continue to believe that these complementary plans would have 

been the most direct and efficient route to our shared goal—the deployment and operation of broadband-capable networks in the hardest-to-serve reaches of the United 

States. We hope that, after this opportunity for further comment, the FCC ultimately will find that the RLEC Plan, or at least significant components of it, could 

represent a reasonable means of achieving this important public policy objective. 

We designed the RLEC Plan to carefully ensure the sustainability of broadbandcapable networks in high-cost rural areas. As context, small rural local exchange 

carriers (‘‘RLECs’’) serve areas that were long ago ‘‘left behind’’ by larger providers 

who had made the determination that no business case would justify investment or 

operations in such locations. Those conditions continue today, and RLECs serving 

those high-cost areas accordingly rely upon USF cost-recovery and other mechanisms (such as intercarrier compensation (ICC)) to ensure that rural consumers 

have access to advanced communications services. 

RLECs take seriously and are proud of the commitment to the communities they 

serve—they are locally-based small businesses that serve as carriers of last resort 

for consumers throughout these vast rural areas, rather than focusing their operations only on population clusters that dot this rural landscape. Accordingly, RLECs 

serve where the customers are, whether the small town core or in outlying areas 

beyond the town. 

The RLEC Plan looks to strike a balance by encouraging efficient investment in 

areas where broadband does not exist today and where the costs of such deployment 

and operation are not economical. At the same time, it affirmed that carriers that 

have already made investments in such hard-to-serve areas must have a reasonable 

opportunity to recover the costs of those investments. It is important to look at universal service as more than just a program to get networks out in rural America— 

it must be a broader program that ensures those investments stay in rural America 

and that the services on those networks stay affordable for rural consumers and enterprises. 

With respect to the question of how the RLEC Plan would enable broadband deployment specifically in areas that would otherwise not be economical to serve, this 

would be achieved primarily through a ‘‘cost of service’’ benchmark that would compare the costs of providing broadband in rural and urban areas. The difference between the ‘‘urban benchmark’’ and the cost to provide service in a rural high-cost 

area would isolate whether the area is in fact high cost and then also identify the 

potential support needed to serve that area. Put another way, under the RLEC 

93 

Plan, an RLEC would not receive support unless the actual costs of deploying and 

operating a broadband-capable network in a given area exceeded those required to 

deploy the same kind of network in more densely populated areas. 

The ‘‘benchmark’’ under the RLEC Plan also reflects that the costs of operating 

in hard-to-serve rural areas are often driven by so-called ‘‘middle mile’’ costs—specifically, the costs of obtaining critical transport links from rural areas back to 

Internet points of presence in urban areas. Without cost-effective access to sufficient 

‘‘middle mile’’ capacity, consumers with outstanding local broadband-capable networks in their rural areas could still lack quality broadband because of ‘‘roadblocks’’ 

(i.e., insufficient capacity) in the middle mile network. The RLEC Plan ‘‘benchmark’’ 

ensures that small carriers can obtain support for those ‘‘middle mile’’ costs that are 

in excess of those that would typically be incurred in operating in a more urban or 

suburban setting. 

Finally, the RLEC Plan enables broadband deployment by encouraging broadband 

adoption. The plan is designed to encourage vigorous RLEC promotion of broadband 

subscriptions, allowing RLECs better opportunity to recover their costs to the extent 

that more customers in the rural area make use of broadband services. We think 

this is an important and attractive feature of the plan, since it addresses the clear 

need for support to enable deployment and operation in such areas while giving 

RLECs an incentive to create a better business case and seek more revenues directly from their customers over time. 

Question 2. Are there changes to the public interest obligations and cost recovery 

mechanisms suggested in the ABC Plan and the RLEC Plan the FCC has contemplated that could compromise the ability of broadband providers in states like 

Arkansas to justify investment in unserved and underserved areas? What adjustments would and should the FCC be able to make this year to ensure that these 

areas receive broadband service? 

Answer. Perhaps one of the most significant concerns in any reform process is the 

need to ensure reasonable transition periods that enable consumers and providers 

to react appropriately to regulatory change. In contrast, unnecessary and disruptive 

‘‘flash cuts’’ can often impose damaging impacts that undermine the benefits that 

reform was intended to create. There is near-universal agreement that reform is 

needed, but often overlooked is the fact—at least for RLECs and their consumers— 

that the existing mechanisms have proven effective and efficient in enabling 

broadband deployment and operation. From the RLEC perspective, reform is necessary primarily to ensure that the existing mechanisms are made more sustainable 

and re-oriented for broadband. 

Absent timely and rational reform, regulatory uncertainty will continue to depress 

incentives for investment and limit access to both publicly-administered and privately-obtained capital. ‘‘Flash cuts’’ to new mechanisms or reforms that ‘‘change the 

rules’’ in a way that doesn’t allow for providers to adjust will undermine the objectives of such reform. For example, reforms that retroactively undercut a carrier’s 

ability to recover investments made in good faith under existing rules will do little, 

if anything, to advance the cause of broadband. These sorts of caps would destroy 

market confidence in the regulatory process, and place individual carriers in an untenable position. While a ‘‘prospective’’ cap or limit on support may be something 

to which a provider can adjust (if adequate time is given), a retroactively-applied 

‘‘cap’’ or similar backward-looking constraint on cost-recovery would upend regulatory principles deriving from retroactive ratemaking. Stated simply, a carrier that 

invested in good faith under existing rules cannot tear its network out of the ground 

or undo existing loan commitments (many of which are commitments to a U.S. agency and backed by taxpayer dollars) simply to comply with a new backward-reaching 

rule that limits recovery of prior investments. 

The FCC must therefore be surgical in its approach to reform. The FCC must incorporate the best of what has worked in the existing system, improve aspects that 

are do not meet current needs, and then take specific, targeted steps to implement 

change.. Overly broad or so-called ‘‘experimental’’ reforms have no place in the Congressional mandate, as articulated in the Communications Act of 1934, as amended, 

to ensure universal access to advanced services throughout the Nation. Pursuit of 

unproven (or disproven) techniques will result in unintended consequences that will 

have devastating impacts on rural America and, by extension, the National networks. This option should not be selected over more sensible solutions. 

Toward these ends, we support carefully designed FCC steps that would start immediately to: (1) shut down long-standing arbitrage practices that undermine the integrity of the existing intercarrier compensation system; (2) begin paced reforms of 

that intercarrier compensation system that will lead to unified rates, subject to ensuring that implicit support within intercarrier rates will be replaced by explicit and 

sufficient supplemental universal service support; and (3) begin implementation of 

94 

* [See p. 80 of this transcript]. 

1 Recommendation 8.10: The FCC should broaden the universal service contribution base. 

a measured, carefully designed universal service reform plan that migrates funding 

over time and with reasonable opportunity to adjust from support of voice services 

to support of higher-capacity broadband-capable networks. This sort of calibrated response—such as that advocated in the RLEC Plan—will more effectively ensure the 

advancement of broadband networks throughout the Nation, restore investment and 

lender confidence, and thereby affirm the FCC’s fulfillment of its Congressional 

mandate to promote universal service. 

RESPONSE TO WRITTEN QUESTIONS SUBMITTED BY HON. OLYMPIA J. SNOWE TO

SHIRLEY BLOOMFIELD

Contribution Factor—Refer to Appendix A for historical data and trend lines.*

Question 1. Both the industry’s ABC proposal and the FCC’s current efforts to reform the Universal Service Fund deal primarily with the distribution side of the 

program and don’t really address reforming the contribution mechanism of USF. 

However, the contribution factor has increased from 5.6 percent in 2000 to over 15 

percent present day (figure 1), in part due to the shrinking contribution based that 

is assessed. To illustrate, the adjusted contribution base for the 4th Quarter of 2011 

is $14 billion compared to a contribution base of $17 billion for the 4th Quarter of 

2007 (figure 2). So if no changes are made to the contribution mechanism, the financial burden to consumers could continue to increase due to a continued decrease in 

interstate and international revenue. 

As the statute stipulates, companies must pay a percentage of their interstate and 

international telecommunication service revenues to the Universal Service Fund, 

intrastate revenues are excluded as well as information services such as broadband 

Internet access. A key recommendation within the National Broadband Plan is to 

broaden the USF contribution base.1

Should the contribution base for USF be expanded to all telecommunications and 

broadband providers to: (1) lessen the financial burden on consumers and (2) make 

such assessment more equitable? And do you believe expanding the base requires 

Congressional action? 

Answer. NTCA has long been concerned about the future of the universal service 

system as a whole and how to best ensure that both the contribution and distribution sides of the program effectively meet the statutory predictability, sufficiency, 

and comparability mandates associated with this long-standing national policy. For 

some time, our association and its members have been concerned about the contribution base and its related assessment factor, and their ability to appropriately 

carry out their statutory mandates. 

There is no question that the dramatic evolution of the communications industry 

is impacting the program and particularly its contribution aspects. Truly, this is an 

issue that warrants a meaningful solution. But, it is important to keep the overall 

matter in perspective and approach it in a way that solves the right problems rather 

than viewing it as yet another means of undermining the universal service system, 

as some appear ready to do. 

There are meaningful solutions to the contributions dilemma and for the most 

part congressional action would not be necessary to effectuate such change. While 

the FCC does not appear to have the authority to move away from the assessment 

of interstate and international interexchange revenues, the agency does have the 

authority to merely expand the contribution base to include the assessment of entities beyond the tradition communications industry players that have been subject 

to such assessment to date. The FCC could dramatically improve the supply equation by expanding the contribution base to fixed and mobile retail broadband Internet Access Revenues, texting revenues, and non-interconnected (1-way) voice over 

Internet protocol (VoIP) service revenues. Also, serious consideration should be 

given to how to ensure that web-based enterprises, that clearly place a substantial 

burden on networks, contribute directly or indirectly to universal service to help 

sustain the very networks they rely upon for their success. 

The FCC has ample authority and good public policy reasons to expand the contribution base. As previously noted, section 254(d) of the Communications Act permits the assessment on any provider of interstate and international telecommunications. And, ensuring that broadband, non-interconnected VoIP, and texting services share in the responsibility of building and maintaining the infrastructure upon 

which those services rely, is good public policy that is in our economic and national 

security interests. 

95 

We believe these actions and approaches outlined above could be initiated and implemented by the FCC without additional or specific congressional action. 

Question 2. If you agree the contribution base should be expanded, what suggestions of reform do you have to meet the previous questions criteria? 

Answer. As noted above, we believe the FCC should immediately initiate action 

to effectuate the expansion of the contribution base to effectively result in the assessment of fixed and mobile retail broadband Internet access revenues, non-interconnected VoIP revenues, and texting revenues, and that the FCC should consider 

how to ensure that web-based enterprises, that place a substantial burden on networks, contribute directly or indirectly to USF and ultimately help sustain such networks upon which their business models are entirely reliant. 

Contribution Mechanism Methodologies 

Question 3. Some industry groups and companies have advocated for the adoption 

of a numbers-based contribution mechanism. They have stated that such format 

would provide a more stable, predictable and nondiscriminatory funding mechanism 

that would affect all providers and end-users of voice services equitably, irrespective 

of the particular technology used to provide that service. 

However, the major goal of the ABC proposal and the FCC’s effort to reform USF 

are to transition today’s voice-focused high-cost Universal Service Fund into a 

broadband-focused fund. So a numbers-based—particularly phone number based— 

contribution mechanism would not necessary properly map to a more broadbandcentric fund. 

What are your views on the benefits and disadvantages of both a numbers-based 

contribution mechanism and a general revenue-based methodology, where a carrier 

would be assessed based on their total gross communications services (telecommunications and information two-way services) revenue? 

Answer. NTCA has long held that the assessment of revenues, as opposed to assessing numbers or other hybrid approaches that have their own problems and 

issues, is still likely the best approach for ensuring the universal service program 

is appropriately funded. First it is already statutorily mandated and to move away 

from revenue’s assessment would require legislative action. The FCC could much 

more easily move in the direction outlined above, which would be to merely expand 

the contribution base to capture the multitude of revenues that are representative 

of today’s communications traffic patterns and infrastructure users. 

Voucher Program for USF 

Question 4. Various parties have suggested reforming the USF program’s disbursement process. Instead of the USF collecting money from telecommunications 

carriers and then distributing the funds to households that need assistance paying 

for phone service, some have suggested giving the low-income households direct 

vouchers that they could use for communications services. 

Such arrangement would be similar to the Housing Choice Voucher Program (Section 8) provided by the Department of Housing and Urban Development (HUD) to 

subsidize housing for low-income families and individuals. The participant is free to 

choose any housing that meets the requirements of the program and is not limited 

to units located in subsidized housing projects. 

Could such modification to a direct voucher program improve the effectiveness of 

the Fund as well as help reduce waste, fraud, and abuse? Is this something that 

Congress should examine and possibly implement? 

Answer. NTCA has long viewed communications related voucher programs of any 

nature with a very skeptical eye, primarily because vouchers do nott build infrastructure. America’s rural markets have never been natural candidates for competition and particularly when viewed from the perspective that NTCA’s small rural 

community-based providers do. These carriers typically have evolved because no 

other carrier found it economic to serve in these markets. Cooperatives and small 

family or community held communications systems have a deep commitment to 

service rather than profit making and generally have state regulated responsibilities 

to serve not just the population center of their markets, but each and every consumer that desires service throughout their markets. Responding to these responsibilities is extremely costly and that is why NTCA’s members are so reliant upon 

the universal service and intercarrier compensation cost recovery mechanisms and 

the Rural Utilities Service financing programs, that together ensure these rural providers are able to fulfill their service missions’ and policymakers’ expectations. To 

go down the road of merely providing vouchers to consumers would lead to a situation where the providers that have a commitment and responsibility to serve the 

entire market area, would no longer have the ability to rely on cost recover streams 

from the universal service related mechanisms that have traditionally ensured they 

96 

1 Interestingly, another ABC plan proponent, AT&T argued in 2009 before the Connecticut commission that ‘‘merely adopting that [$0.0007] rate based on an inference, which has no 

record support, that it is somehow above AT&T Connecticut’s costs would be arbitrary and capricious.’’ See, DPUC Investigation into the Southern New England Telephone Company’s Cost 

of Service Re: Reciprocal Compensation, Docket No. 09–04–21, Reply Brief of SNET, at 41 (December 4, 2009). That seems inconsistent on its face with its current positions. 2See, Letter from Robert W. Quinn, Jr., AT&T, Steve Davis, CenturyLink, Michael T. Skrivan, 

FairPoint, Kathleen Q. Abernathy, Frontier, Kathleen Grillo, Verizon, and Michael D. Rhoda, 

Windstream, to Marlene H. Dortch, FCC,WC Docket No. 10–90 et al., (filed July 29, 2011), 

(Transmittal Letter—2 pages): http://fjallfoss.fcc.gov/ecfs/document/view?id=7021698690, 

(Company Advocacy Cover Letter—5 Pages): http://fjallfoss.fcc.gov/ecfs/document/view?id 

=7021698691, (Attachment 1—Framework of Proposal—14 Pages): http://fjallfoss.fcc.gov/ecfs/ 

document/view?id=7021698692, (Attachment 2—Summary of Model Results—04 Pages): http:// 

fjallfoss.fcc.gov/ecfs/document/view?id=7021698693, (Attachment 3 Model Description—28 

Pages): http://fjallfoss.fcc.gov/ecfs/document/view?id=7021698694, (Attachment 4 Purported 

Benefits—34 Pages): http://fjallfoss.fcc.gov/ecfs/document/view?id=7021698695, (Attachment 

5—‘‘Legal’’ analysis—69 Pages): http://fjallfoss.fcc.gov/ecfs/document/view?id=7021698696. 3The circumstances clearly indicate the ABC plan proponents were never interested in any 

critique of that model. Although they necessarily completed the model before they filed their 

proposal, they delayed providing any access to the model until too late in the process to allow 

any serious review and criticism. Some parties complained in late September that the belated 

‘‘access’’ first offered was defective. No analyst could make any realistic judgments about the 

validity of the models outputs based on the limited access provided. Indeed, even if full access 

had been provided, the proponents studied decision to delay releasing the model until so late 

could plan their network deployment and effectively predict their cost recovery. In 

the situation of communications, we do not see vouchers in any of the universal 

service program elements, as a viable or appropriate distribution alternatives, and 

would vigorously discourage policymakers from such considerations. 

RESPONSE TO WRITTEN QUESTION SUBMITTED BY HON. CLAIRE MCCASKILL TO

PHILIP B. JONES

Question. What is the genesis of the ABC Plan’s proposed $.0007 rate for Intercar- rier Compensation? Is $.0007 a cost-based rate for origination, transmission, or termination of calls (access rates) on the Public Switched Telephone Network (PSTN)? 

Are there any economic studies in the ABC Plan or by any regulatory body that 

demonstrate $.0007 to be a cost-based rate for termination of calls on the PSTN? 

Answer. It appears that the justification of the $.0007 rate derives from the socalled ISP Remand Order of the FCC that was released on April 27, 2001 (CC Docket No. 96–98, 99–68, and FCC 01–131). In that Order, the FCC established rate 

caps for only ISP-bound traffic (not all circuit-switched traffic that is exchanged 

among carriers over the PSTN, or public-switched telephone network) that ended at 

$.0007 after a three-year phase-in period (hence, the term used is interim Federal 

default rate for ISP-bound traffic). The ultimate rate that the FCC determined to 

be appropriate for ISP-bound traffic in that Order was bill-and-keep, but they declined to adopt such a regime in that Order suggesting that the Commission would 

revisit the issue later and examine more evidence. However, the issues surrounding 

this Order, both the legal rationale used and the economic justification and types 

of traffic subject to this Federal default rate, have been litigated extensively over 

the past decade. 

Moreover, one must point out several issues related to the determination of the $0.0007 default rate in this Order. First, it was only meant to be an ‘‘interim’’ default rate for a short period of time, until the Commission could gather more evidence on actual costs of exchanging traffic and recent interconnection agreements 

among carriers. Second, it applied only to ISP-bound traffic at that time, which at 

that time was largely being carried by CLECs to terminating carriers for dial-up 

ISP access. Finally, there was no determination or real evidence in the record of the 

actual costs of exchanging and terminating ISP-bound traffic. Instead, the Commission merely referenced several recently concluded interconnection agreements between a CLEC and a local exchange carrier (LEC) to justify the $.0007 rate, but 

without having such agreements and their terms and conditions subject to scrutiny 

and review by the many other stakeholders involved in the process. 

Regarding the background of the ABC plan’s use of this rate for all traffic, earlier 

in the proceeding, Verizon—an ABC plan proponent—argued that a substantial 

amount of traffic is billed at 0.0007 today—but it provided no statistics to back up 

its claim.1 It is also difficult to determine if a 0.0007 rate could be cost based. The 

ABC plan proponents did file a description of a model they claimed supports their 

proposed 0.0007 rate.2 But they didn’t provide any realistic access to the model to 

anyone interested in testing or critiquing its assumptions.3

97 

in the process already denied parties adequate time to vet the model before FCC action. On September 19th, less than seven days before the FCC Chairman circulated a draft of the order 

voted out at the October agenda meeting, the ABC proponents filed with the FCC a plan to— 

purportedly—provide ‘‘full’’ access to the model’s inner workings—and in so doing necessarily 

conceded that the access they provided previously was insufficient for any useful analysis. But 

even assuming arguendo, two weeks was a legally adequate time to review the model, the proponents further limited access to six workstations a day and to parties that had the financial 

resources to, on incredibly short notice, send expert staff to Cincinnati, Ohio and pay $500 for 

access and $100/day to examine the model. 4First Local Competition Order, 11 FCC Rcd 16055, at Paragraph 1112. * [See p. 80 of this transcript]. 

Certainly, more than one of the expert State Commission members and staff of 

the Federal-State Joint Board on Universal Service believe the proposed 0.0007 cannot be cost based and is likely to harm competitive, mid-sized, small and rural carriers while saving the largest carriers billions of dollars. According to the State 

member comments, such an intercarrier compensation proposal would affect most 

small carriers and some mid-sized carriers by reducing revenues, decreasing earnings, and potentially impairing access to capital. Moving to a bill-and-keep regime, 

which the FCC’s recent order proposes, which provides zero compensation for traffic 

termination can only further exacerbate this problem. It is difficult to see how such 

a regime could be cost-based. Indeed, based on FCC precedent,4 the Act’s pricing 

standards cannot be read to support bill and keep absent factual finding that the 

traffic is substantially in balance or that LECs incur no additional costs to terminate traffic. We must await the publication of the text of the Commission’s final 

order to discern what will necessarily be a novel legal justification for the approach 

suggested in the draft order. 

The biggest problem with the direction suggested by both the FCC order and the 

ABC plan is that a single, national unified intercarrier compensation rate does not 

take into account the unique circumstances of each carrier. The State Members’ 

plan makes clear that a Federal unified rate is not necessary right now because of 

the unique geography and terrain of each state, and the challenges of applying a 

methodology to determine a one-size-fits-all rate that will actually recover the real 

variable costs of the access service. The State members analyzed many scenarios 

and determined a way to reduce interstate and bring intrastate access much lower 

and very close to interstate while recognizing the unique cost characteristics of 

classes of carriers. 

My State colleagues on the Joint Board also believe the move to a single unified 

rate not only is bad for small and mid-sized carriers but is also contrary to explicit 

Congressional direction. The Telecom Act of 1996 clearly preserved State authority 

over intrastate services and rates. Outright preemption, or indirect preemption 

through a Federal system that establishes one unitary rate for all 50 states, of 

states’ access charge authority is not necessary to accomplish Congressional goals. 

Moreover, the legal theory advanced to accomplish preemption by the ABC plan proponents is a clear deviation from Congressional intent. Most states have already 

substantially reduced intrastate access rates, or are in the process of reducing such 

rates. The FCC could easily provide incentives for the small minority of remaining 

States to act in a timely fashion. 

RESPONSE TO WRITTEN QUESTIONS SUBMITTED BY HON. OLYMPIA J. SNOWE TO

PHILIP B. JONES

Contribution Factor—Refer to Appendix A for historical data and trend lines.*

Question 1. Both the industry’s ABC proposal and the FCC’s current efforts to reform the Universal Service Fund deal primarily with the distribution side of the 

program and don’t really address reforming the contribution mechanism of USF. 

However, the contribution factor has increased from 5.6 percent in 2000 to a level 

approaching 20 percent today (figure 1), in part due to the shrinking contribution 

base of interstate toll revenues. To illustrate, the adjusted contribution base for the 

4th Quarter of 2011 is $14 billion compared to a contribution base of $17 billion for 

the 4th Quarter of 2007 (figure 2). Moreover, the latest information from USAC for 

the First Quarter of 2012 indicates that the contribution factor will increase to 

about 17.9 percent. So if no changes are made to the contribution mechanism, the 

financial burden to consumers could continue to increase due to a continued decrease in interstate and international revenue. 

As the statute stipulates, companies must pay a percentage of their interstate and 

international telecommunication service revenues to the Universal Service Fund, 

intrastate revenues are excluded as well as information services such as broadband 

98 

1 Recommendation 8.10: The FCC should broaden the universal service contribution base. 

Internet access. A key recommendation within the National Broadband Plan is to 

broaden the USF contribution base.1

Should the contribution base for USF be expanded to all telecommunications and 

broadband providers to: (1) lessen the financial burden on consumers and (2) make 

such assessment more equitable? And do you believe expanding the base requires 

Congressional action? 

Answer. Contributions are an integral part of USF reform. I and many of my 

State colleagues believe the FCC should have tackled contributions in the most recent USF/ICC order. The problem with not addressing contributions at the same 

time as fund distribution is obvious. There is no program without a sound funding 

foundation. Logically, that should be established before deriving any distribution 

plan. However, I am very pleased to hear the FCC is taking steps to address contributions very soon and look forward to working with them. 

I agree with the State members of the Federal-State Joint Board on Universal 

Service. The USF assessment must be reformed for the reasons you discuss. Currently, the burden of USF falls on decreasing interstate telecommunications revenue. Section 254 of the Act makes clear that ‘‘every telecommunications carrier 

that provides interstate telecommunications services shall contribute, on an equitable and nondiscriminatory basis, to the specific, predictable, and sufficient mechanisms. . . . Any other provider of interstate telecommunications may be required to 

contribute to the preservation and advancement of universal service if the public interest so requires.’’ To date the FCC has failed to classify point-to-point fee based 

VoIP services. Such services easily meet the functional definition Congress designated as ‘‘telecommunications services’’—which are—in the statute—equivalent to 

‘‘telecommunication services.’’ The most recent order takes a byzantine discussion 

and reclassification of funded services—which seems to affirm that only common 

carriers that provide ‘‘voice telephony’’ services can receive Federal funding, but 

leaves broader definitions untouched. A few years ago, the FCC overturned years 

of precedent that high speed data services are ‘‘telecommunications services’’—as 

they were so classified at the time the 1996 legislation was enacted and currently, 

some carriers are allowed to choose whether to provide broadband on a common carrier basis (with a separate ISP of the customers choosing) or as an ‘‘information 

service’’. Unfortunately, the statute currently specifies that only a telecommunications carrier that provides a ‘‘interstate telecommunications service’’ (not simply 

‘‘interstate telecommunications’’) must contribute to the Federal fund. This problem 

is most easily ameliorated by simply classifying at least point to point voice as a 

‘‘telecommunications service’’, regarding of which technology is used. 

Broadening the base could greatly reduce the Federal surcharge rate and should 

also be more resistant to the erosion of narrow-band voice service revenue. In their 

filing the State Members of the Federal State Joint Board on USF’s staff estimate 

that if all revenues currently reported on line 418 of FCC Form 499 were required 

to contribute, that would reduce the carrier contribution factor to approximately 2 

percent from the current level of about 15 percent. While some information services 

currently reported on line 418 are excluded, that would raise the rate somewhat, 

but the final USF surcharge rate would be far lower than at present. 

Personally, I don’t believe the FCC needs Congressional action to expand the contribution base. As a statutory basis for this proposed action, the Commission can 

use its discretionary Section 254(d) funding authority to require contributions from 

any ‘‘provider of interstate telecommunication.’’ The Commission previously used 

this authority to impose surcharges on voice over Internet protocol services for E911 

services and the like. 

However, Congressional action may be preferred to eliminate the potential legal 

challenge likely to result from FCC action to expand the base to previously un-assessed services. I haven’t made any personal conclusion on which approach might 

be preferable, and NARUC as a whole has not taken a position on contribution reform. But one approach you may wish to consider was a proposal by Cong. Boucher 

and Terry in the fall of 2009 included in their ‘‘Discussion Draft’’ for Universal Service Reform. Section 102 of that Draft sets forth a draft proposal which I think provides a good starting point for discussion and debate. It requires the FCC to complete contribution reform on passage of the bill, but provides the Commission with 

sufficient flexibility to accommodate various interest groups and concerns. It suggested that the Commission consider three possible methodologies for assessment: 

(a) revenues-based system on interstate, intrastate, and foreign communication services; (b) working telephone numbers; and (c) any other current of successor identifier 

protocols or connections to the network used by communications service providers. 

It allowed the Commission to consider either one methodology or a combination 

99 

thereof, and also allowed for certain exceptions for low-volume users, de minimis 

use, and group plans (presumably for a working telephone numbers based approach. 

The devil will be in the details in terms of the methodology chosen and how it 

is applied, and it will be difficult to satisfy the needs of each particular interest 

group and user of today’s increasingly diverse communications system. No methodology will be perfect, and the states—both commissions and other agencies—will 

need to be a part of the solution. But I would urge you to keep a few basic regulatory principles in mind as you craft a new solution. The first is the concept of unforeseen consequences: almost anything the Commission, or Congress, does will 

have some consequences we cannot foresee today. So I suggest that you build in a 

certain amount of flexibility for the implementing agencies as we face real-world situations and devise rules; this would include the Commission, USAC as the Federal 

implementing agency, state commissions (especially those with state USF funds), 

other state agencies, and of course the communication service providers. You may 

want to build in a certain mandatory review period after a certain number of years 

(eg, three or five years) at which point we can review and modify the rule, so that 

we don’t repeat the mistake we have made in relying on interstate toll revenues for 

such a long period of time. The second is that we should realize that the pace of 

technological change in this industry is very swift, and that we should not try to 

favor, or disfavor, any particular technology in the contribution methodology that is 

selected. We should try to target reform on communications traffic that travels from 

one point (originating) to the point where the consumer receives and uses the voice/ 

data (termination); we should not try to base our laws and regulations on the type 

of traffic or technology. Finally, we should keep the principles of universal service 

in mind as we craft the new rules on contribution reform. Specifically, we should 

adhere to the principle that all users of communications services should be able to 

receive the most up-to-date and relevant communications traffic—whatever the content and whatever the medium—in all parts of this country. 

Question 2. If you agree the contribution base should be expanded, what suggestions of reform do you have to meet the previous questions criteria? 

Answer. As for what should be done, I agree with the State members of the USF 

joint board (State Members) who recommended that the FCC broaden the Federal 

universal service contributions base to include all services that touch the public 

communications network. By ‘‘public communications network’’ they meant the 

interconnected communications network that uses public rights of way or licensed 

frequencies for wireless communications. The same contribution base should be used 

to generate support for High Cost programs and for Schools and Libraries, Rural 

Health Care and Low Income programs. This proposal would better match the realm 

of services that benefit from universal access to the services that must contribute 

to that universal access. 

The State Members recognized that some line drawing is needed between the 

services that should contribute to USF and those that should remain exempt. They 

did not claim to have fully defined that line at the time when comments were due 

in the FCC’s proceeding earlier this year. They did recommend, however, that 

broadband and services closely associated with the delivery of broadband should 

contribute. This change is essential if universal service funds are going to be used 

to build broadband facilities. Broadening the contribution base matches well with 

a broadening of the distribution purposes of the fund to include the total network 

deemed essential for universal service in the future. 

The USF surcharge should apply equitably to all broadband services such as DSL, 

Cable Modems, and wireless broadband. The surcharge may also include services, 

such as ISP service, that are traditionally bundled with those broadband services. 

Generally, the State Members did NOT intend that pure content delivered by nontelecommunications carriers over broadband facilities should contribute. 

To assist the Commission in defining this line more clearly, the State Members 

suggested that the Commission examine the current reporting categories defined for 

FCC Form 499–A. Form 499–A requires reporting on Line 418 some services that 

should be subject to the USF surcharge, like DSL, and some services, like Westlaw 

for example, that should not be subject to the USF surcharge. 

State Members were aware that the Commission has drawn a fundamental divide 

between ‘‘telecommunications services’’ and ‘‘information services,’’ and the Commission has placed broadband services in the latter group. Nevertheless, they did not 

believe that distinction would be particularly helpful in defining the contribution 

boundary for universal service, particularly when the fund is used to support both 

classes of service. If the ‘‘information service’’ concept is to be useful here at all as 

an exception from contribution requirements, it should be narrowed to a more traditional scope that excludes services like Westlaw but that includes retail broadband 

service. 

100 

2States with USF programs: Alaska, Arizona, Arkansas, California, Colorado, Idaho, Illinois, 

Indiana, Kansas, Maine, Nebraska, Nevada, New Mexico, Oklahoma, Oregon, Pennsylvania, 

Puerto Rico, South Carolina, Texas, Utah, Vermont, Wisconsin, Wyoming. 

The State Members recommended that the Commission make the maximum effort 

to separate the question of what services should contribute to universal service from 

the question of whether service rates are ‘‘regulated’’ and, if so, at what level of government. They concluded that the list of contributors to universal service should 

have little or no relation to: (1) whether the FCC has authority to prescribe rates 

and standards for that service; (2) whether States have that regulatory authority; 

or (3) whether no government has that regulatory authority. 

The courts have held that States may constitutionally impose sales taxes on both 

interstate and intrastate telecommunications. Similarly, State Members believed 

that the U.S. Constitution does not prohibit either a Federal universal service surcharge or a State universal surcharge, or both, on all services delivered over the 

public communications network. 

The statute requires that contributions must be ‘‘equitable and nondiscriminatory.’’ The State Members do not believe it to be either inequitable or discriminatory for a single service to be subject to both a State universal service surcharge 

and a Federal universal service surcharge. Currently, 23 states have their own complimentary funds that distribute over $1.5 billion each year.2 While the two universal service programs aim at a common goal, they often support different elements. The Federal program supports schools and libraries, health care, and lowincome programs, while many State programs do not. At least one State has a universal service program that supports E–911 services, while the Federal program 

does not. Moreover, even in States where only high-cost support is provided, the 

State and Federal programs can and should function cooperatively, not competitively. 

The actual benefits of existing universal support programs have only tenuous connections to traditional regulatory classifications or the level of government that collects USF contributions. While two Federal high-cost programs are aimed at ‘‘interstate’’ costs,’’ all the others aim primarily to reduce intrastate rates. Support for 

Schools and Libraries, Health Care and Low Income support is used by grantees to 

purchase an inextricable combination of interstate and intrastate services. Moreover, when today’s service providers use high-cost support to extend the reach or 

the capability of their existing networks, they are not deploying an interstate or an 

intrastate product, only non-jurisdictional facilities. Today’s service providers spend 

new construction dollars to meet the present and future demands of their customers, 

and jurisdictional distinctions have little to do with that process. The Commission, 

State Members and carriers all seek to maximize the deployment of the best infrastructure to meet the future needs of our Nation and achieve the goals of universal 

service. 

Efforts to broaden the base of the Federal universal service programs should necessarily clarify that States have equal authority to broaden their assessment base 

and, if done by the FCC, should specify that such assessments do not ‘‘burden’’ the 

Federal funding mechanism. 

Contribution Mechanism Methodologies 

Question 3. Some industry groups and companies have advocated for the adoption 

of a numbers-based contribution mechanism. They have stated that such format 

would provide a more stable, predictable and nondiscriminatory funding mechanism 

that would affect all providers and end-users of voice services equitably, irrespective 

of the particular technology used to provide that service. 

However, the major goal of the ABC proposal and the FCC’s effort to reform USF 

are to transition today’s voice-focused high-cost Universal Service Fund into a 

broadband-focused fund. So a numbers-based—particularly phone number based— 

contribution mechanism would not necessary properly map to a more broadbandcentric fund. 

What are your views on the benefits and disadvantages of both a numbers-based 

contribution mechanism and a general revenue-based methodology, where a carrier 

would be assessed based on their total gross communications services (telecommunications and information two-way services) revenue? 

Answer. Absent new legislation, as long as the contributing carrier is providing 

an ‘‘interstate telecommunications service’’—an argument could be constructed to 

justify either approach under the existing statute. Moreover, the Commission has 

to clarify the threshold legal issues involving ‘‘telecommunications services’’ and ‘‘information service’’ in order to provide clear guidance to both the communications 

service providers and the states that administer USF programs. Without sufficient 

101 

legal authority and clear guidance, the carriers and states may continue to be quite 

constrained with regard to how broadly the new contribution is defined, and how 

it is to be collected and administered—by either USAC as the Federal Administrator, or the state USF Administrator. As I stated above, the Boucher-Terry draft 

discussion legislation provided a menu of options from which you could choose including gross revenues, working telephone numbers, or a network (Internet) connections-based methodology. One can conceive of a ‘‘hybrid’’ methodology in which each 

of the various approaches could be incorporated in to an overall mechanism. A numbers-based approach seems more likely to survive judicial review as there is court 

precedent that suggests the FCC may not calculate fees based upon intrastate revenues. Yet working telephone numbers may have their own disadvantages as well, 

in terms of the technology assessed, and incentives (depending on how high the surcharge is set per working telephone number—some analysts have suggested $1.00 

per number, but no definitive study has been conducted to my knowledge) for carriers to ‘‘arbitrage’’ around this number by adopting new switches, routers, or technologies. 

There are arguments both for and against the above approaches. Two things are 

obvious—if more contribute—the per contribution amount is reduced and if a larger 

revenue base is assessed—even if the raw fee is the same—the percentage number 

will be smaller. It is clear to me that the present trend of an increasing contribution 

factor—now approaching 20 percent—on interstate toll revenues is not sustainable. 

I have not yet formed an opinion on what might be the best approach. If new legislation is contemplated, one could also consider if it might be appropriate for funding 

for this program to come from general tax revenues rather than from an agency administered variable phone surcharge. Such an approach could eliminate the costs of 

the current separate collection mechanisms and might lead to greater efficiencies. 

Voucher Program for USF 

Question 4. Various parties have suggested reforming the USF program’s disbursement process. Instead of the USF collecting money from telecommunications 

carriers and then distributing the funds to households that need assistance paying 

for phone service, some have suggested giving the low-income households direct 

vouchers that they could use for communications services. Such arrangement would 

be similar to the Housing Choice Voucher Program (Section 8) provided by the Department of Housing and Urban Development (HUD) to subsidize housing for lowincome families and individuals. The participant is free to choose any housing that 

meets the requirements of the program and is not limited to units located in subsidized housing projects. Could such modification to a direct voucher program improve the effectiveness of the Fund as well as help reduce waste, fraud, and abuse? 

Is this something that Congress should examine and possibly implement? 

Answer. I do not have a comparable experience base to evaluate this idea. Let me 

point out some pros and cons of each approach. 

Arguing in favor of a carrier-based subsidy program is the following. First, carriers of great knowledge and expertise in building out advanced communication networks, and dealing with phone subscribers, namely their customers. Secondly, they 

are usually quite familiar with the terrain and geography of each particular state 

and region, and know how to adapt their network to the needs of these communities. Third, despite the challenges (including waste and abuse) involved in the current program that is administered by USAC for eligible telecommunications carriers, we have an established program in place that in many respects has done an 

admirable job of building out voice and advanced telecommunications services to 

rural America. 

Arguing in favor a direct voucher program is the following. First, the consumer 

would have the ability to choose his or her particular carrier, instead of a government agency or the carrier. Second, one may be able to economize on administration 

and overhead costs (as well as possible margin for the ETC carrier) if one moves 

to a direct voucher system, thereby freeing up more funds for the whole program. 

Third, in a time of increasing choices given to consumers through applications carried out advanced networks, it seems timely to give the consumer more choice and 

authority to select the carrier and level of services. 

Yet each approach has shortcomings as well. The shortcomings of the carrierbased system are well-known and documented, and the subject of numerous Congressional and GAO inquiries. Yet one can anticipate certain challenges with a 

voucher-based system as well, such as administrative complexity, the lack of familiarity with a non-telecommunications agency (whether it be housing, social services, 

or whatever) with administering a telecommunication network subsidy program, 

and so forth. Also, as opposed to a fee-based approach like the current system, a 

voucher system would more likely than not be subject to the vagaries of the annual 

102 

Congressional appropriations process. Moreover, one might not have the flexibility 

in a voucher-based program to match costs and revenues, which may lock in a higher level of payment to the recipient in a voucher when economies of scale and other 

forces are forcing costs down in a telecommunications network. 

In summary, I believe that the history of the universal service program for telecommunications back to the 1930s offers us a few historical pointers. In general, 

government agencies perform poorly when they seek to make technology choices 

through legislative or administrative fiat, rather than letting consumer views and 

the markets decide. It does seem that a voucher approach would at least have the 

benefit of being technology neutral and not advantaging any particular technology 

or provider—just focusing the funding on the people that need assistance. I recognize this ‘‘fund company’’ vs. ‘‘fund people’’ debate has been around ever since we’ve 

had Federal and state universal programs to build out telephone networks starting 

in the Roosevelt Administration over eight decades ago. But if Congress is going to 

consider legislation to reform the USF contribution methodology, I believe a direct 

voucher approach should at least be considered along with other more traditional 

reform options. 

October 18, 2011 

Senator JOHN D. ROCKEFELLER IV, 

Chairman, 

U.S. Senate, 

Committee on Commerce, Science, and Transportation 

Washington, DC. 

RE: COMMERCE COMMITTEE HEARING ON UNIVERSAL SERVICE

Dear Mr. Chairman: 

It was a privilege to testify at last week’s hearing on universal service and intercarrier compensation reform and I thank you for the opportunity. Below, I provide 

additional information on two items discussed at the hearing, in accordance with the 

order that the record be held open for seven days following the hearing. 

Supplemental Response to Senator Ayotte’s Question 

At the hearing, Senator Ayotte asked what the FCC should do to ensure a more 

equitable distribution of funds throughout the country, so that unserved households 

within each state have a fair opportunity to access technology and spur economic 

development. I responded that the FCC has on its agenda a plan to reform its distribution methodology throughout the states. Permit me to be more specific. 

The FCC’s distribution model has frustrated us since 2008, when the FCC imposed an ‘‘interim cap’’ on support to wireless carriers. At that time, we had only 

recently been designated as eligible to draw from the fund in New Hampshire. Before we could undertake any significant investments, the cap took effect, limiting 

the state to only about $200,000 per year for mobile services. The cost of a single 

tower usually exceeds that amount, so our ability to accelerate investment in New 

Hampshire has been significantly curtailed for three years now, and counting. 

U.S. Cellular has for several years now advocated the use of a forward-looking 

cost model to determine the efficient costs of providing mobile broadband service 

throughout the country. A cost model has the advantage of targeting support to the 

areas of greatest need which will result in a more equitable distribution among the 

states. This summer, we submitted the basics of a cost model in the universal service reform proceeding and I am advised that the FCC intends to seek comment on 

whether to use our cost model to determine support levels in high-cost areas. 

As the FCC works through the process of vetting the model for use in distributing 

support for mobile broadband, I’m confident that it will identify northern New 

Hampshire as an area of need that should receive significant additional resources. 

We will be following this proceeding carefully and we’ll keep you informed of its 

progress. 

Clarification of FCC’s Intentions With Respect to Mobile Broadband 

In the course of preparing for the hearing, I learned that the recent history of universal service reform includes the National Broadband Plan, a proposal for a onetime Mobility Fund, a Connect America Fund (‘‘CAF’’), and a sustaining mobility 

fund, as described by Chairman Genachowski last week. I was advised that the FCC 

intends for mobile broadband to play a significant role in universal service reform, 

but that recent ABC Plan and RLEC Plan submitted by the wireline industry would 

significantly limit funding to mobile wireless. That formed the basis for my testimony that mobile wireless requires significantly more than $300 million per year, 

103 

citing a recent study that it will take $10–20 billion to build out high-quality mobile 

broadband in rural America. 

So, it was surprising to hear that the amount set aside in the ABC Plan for wireless, ‘‘is ten times what the national broadband plan thought was necessary for 

wireless mobility. Under the FCC’s national broadband plan, $300 million was the 

total—and under this ABC Plan it is $300 million per year for ten years, so it is 

a much larger revenue stream for wireless than was ever envisioned by the FCC 

in its national broadband plan.’’ 

Following the hearing, I asked our advisors to report back to me as to whether 

my understanding of the FCC’s intent with respect to mobile broadband was incorrect. The information provided proved most helpful to me and the record in this proceeding will benefit from having a more thorough response than I could have provided at the hearing. 

The National Broadband Plan, a document authored by FCC staff and never 

adopted by the Commission, recommended that the FCC create a Connect America 

Fund, with eligibility criteria that is company and technology agnostic. ‘‘Support 

should be available to both incumbent and competitive telephone companies, fixed 

and mobile wireless providers. . ..Any broadband provider that can meet or exceed 

the specifications set by the FCC should be eligible to receive support.’’ Recommendation 8.2. 

These principles suggest that the National Broadband Plan intended that the entire $4.5 billion dollar CAF would be available to any carrier meeting the specifications set by the FCC. Indeed, almost all of the Senators at the hearing agreed that 

competitive and technological neutrality must be principles that guide decisions in 

reforming universal service. We have found no reference to a $300 million dollar 

limitation in the National Broadband Plan. 

Early this year, when the FCC released its Notice of Proposed Rulemaking proposing to adopt the CAF (‘‘CAF NPRM’’), it made scores of proposals, including the 

use of technology-neutral reverse auctions, which would allow mobile wireless carriers access the entire $4+ billion CAF, on a competitively and technologically neutral basis, free from rights of first refusal or other set-asides. The CAF NPRM also 

proposed an alternative that would allow incumbents to have a right of first refusal 

over a portion of the CAF funds. Again, there was no proposal to limit mobile wireless carriers to $300 million dollars of total funding. 

Last fall, the FCC proposed to create a one-time mobility fund, intended to provide ‘‘an initial infusion of funds toward solving persistent gaps in mobile serves, 

through targeted, one-time support for the build out of current-and next-generation 

wireless infrastructure in areas where these services are unavailable.’’ The FCC proposed to allocate $100 [million]–$300 million for this purpose and it sought comment 

on whether there is an optimal size of the mobility fund. The Commission also noted 

that its new mobility fund would be one of a set of initiatives to promote deployment 

of broadband and mobile services in the United States and that it would continue 

to pursue other policies that promote the availability of mobile voice services in as 

much of the country as possible. 

It is here that it appears the misunderstanding occurred. The reference to onetime funding was in this one item, not in the National Broadband Plan, the CAF 

NPRM, or the recent speech by Chairman Genachowski. Taken together, there’s 

nothing in the record of the universal service reform proceeding to suggest that the 

FCC has ever intended for funding to mobile broadband providers to be limited to 

$300 million or to be subject to rights of first refusal by incumbents. 

Finally, it is important to note that the ABC Plan would provide between zero 

dollars and $300 million each year to mobile broadband. ABC divides the amount 

of mobile broadband support between mobile service and fixed satellite service. 

Moreover, funds for mobile and satellite depend upon whether the incumbent 

wireline carriers use up all available support. So it is possible that mobile 

broadband will get no funding under the ABC Plan, ever. 

I trust that you will find this information to be helpful in completing your record. 

Should you have any questions or require any additional information, please contact 

me directly. 

Sincerely, 

MARY N. DILLON, 

President and CEO, 

U.S. Cellular. 

cc: Hon. Kay Bailey Hutchison 

Hon. Daniel K. Inouye 

Hon. John F. Kerry 

Hon. Barbara Boxer 

Hon. Bill Nelson 

Hon. Maria Cantwell 

Hon. Frank R. Lautenberg 

Hon. Mark Pryor 

104 

1See, The chart was based on the FCC 2010 USF Monitoring Report, December 2010 (which 

has the most recent data publicly available, online at http://transition.fcc.gov/wcb/iatd/monitor.html. 2 Information obtained from a 2009 information survey of State PUCs. 

Hon. Claire McCaskill 

Hon. Amy Klobuchar 

Hon. Tom Udall 

Hon. Mark Warner 

Hon. Mark Begich 

Hon. Jim DeMint 

Hon. John Thune 

Hon. Olympia J. Snowe 

Hon. Roger F. Wicker 

Hon. Johnny Isakson 

Hon. John Boozman 

Hon. Patrick J. Toomey 

Hon. Marco Rubio 

Hon. Roy Blunt 

Hon. Kelly Ayotte 

Hon. Dean Heller 

WASHINGTON UTILITIES AND TRANSPORTATION COMMISSION

Olympia, WA, October 19, 2011 

Hon. JAY ROCKEFELLER, 

Chairman, 

Committee on Commerce, Science, and 

Transportation, 

Washington, DC. 

Hon. KAY BAILEY HUTCHINSON, 

Ranking Member, 

Committee on Commerce, Science, and 

Transportation, 

Washington, DC. 

RE: SENATE COMMERCE COMMITTEE HEARING ON ‘‘UNIVERSAL SERVICE REFORM: BRINGING BROADBAND TO ALL AMERICANS’’—OCTOBER 12, 2011

Dear Chairman Rockefeller and Ranking Member Hutchison: 

Thank you again for inviting me to testify on universal service reform. I am submitting this letter for the record to provide (i) a revised attachment outlining the 

net flow of USF dollars by State, (ii) a list of States that operate their own universal 

service programs, and (iii) clarification of responses to a few questions posed by 

members of the Committee during the hearing. 

My October 12 written testimony contained an attachment that estimates the flow 

of Federal USF funds by State.1 Members should pay the most attention to the column which describes the net flow of high cost Federal dollars to or from their 

States. I have edited the attachment to allow each member to easily determine the 

net impact on their State. The FCC’s proposed modifications will unquestionably— 

over the next 5–10 years—change this number significantly. The amount your State 

contributes is unlikely to be reduced. The amount that is most likely to change is 

how much your State receives (or does not receive). But to really understand the impact of the FCC’s proposals on constituents in your State, please consult with in 

utility commission which has jurisdiction over ETC designations and often administers a State-sponsored universal service fund as well. These experts can provide 

you with detailed State-specific insight. Staff with the National Association of Regulatory Utility Commissioners can put you in touch with them. (NARUC Contact 

Brian O’Hara at (202)898–2205, bohara@naruc.org). 

My written testimony points out that over 20 States have complementary uni- versal service programs that distribute over $1.5 billion each year: Alaska, Arizona, 

Arkansas, California, Colorado, Idaho, Illinois, Indiana, Kansas, Maine, Nebraska, 

Nevada, New Mexico, Oklahoma, Oregon, Pennsylvania, Puerto Rico, South Carolina, Texas, Utah, Vermont, Wisconsin, and Wyoming (23).2 Whatever action the 

FCC takes is long term likely to impact the both the operation of and the financial 

support needed (provided by your constituents) to maintain such State programs. 

Finally, I would like to take this opportunity to expand on my answers to two 

questions posed at the hearing. 

• Sen. Warner expressed grave concern with the ability of all carriers to interconnect. 

States have long played an important role in arbitrating intercarrier interconnection disputes. As communications moves over to IP we are still seeing the same 

problems as we did before. In short, there are problems currently with IP-to-IP 

interconnection which the FCC doesn’t appear to address in its draft order. We understand the FCC is planning on asking questions in a further notice about the application of the duty/negotiation/State-arbitration process to IP-to-IP interconnections under Sections 251 and 252 of the 1996 Act. I believe seeking further comment 

is not a good policy choice, since these statutory provisions apply on their face to 

105 

such traffic. Given the rapid movement from a circuit-switched to an IP network, 

we should recognize that reality and use the good-faith efforts of state commissions 

to arbitrate disputes of interconnection when they arise, and most certainly they 

will. If a competitive carrier can’t get interconnection to the network, whether it be 

the PSTN or an IP network, competition will not develop as robustly as it should, 

and ultimately consumers will suffer. There is no need for the FCC to seek further 

comment. The FCC should simply clarify the existing obligations of IP providers to 

interconnect under Section 251(c)(2). 

• Sen. Pryor asked how the proposed ABC plan would hurt consumers. 

There are several portions of the plan that I believe will harm consumers. First 

is the increase in the subscriber line charge (SLC) (and the separate access charge 

replacement fee) add-ons to local phone rates. In these economically troubling times, 

the very last thing the FCC should be suggesting is rate increases on a basic service 

that people rely upon in emergencies and to find and keep employment. Also, the 

failure of the FCC to classify VoIP fee based services as ‘‘telecommunications services’’ is long overdue. I understand why the carriers want to delay and obstruct a 

proper classification decision, which allows them to continue to press flawed arguments that State Carrier-of-last-resort obligations (COLR), State service quality/outage oversight, and other State consumer protection laws have no application to the 

service. But it makes no sense for consumers to continue to suffer from this ‘‘regulatory gap’’ and the lack of regulatory clarity. In fact, as in other industries that 

have some type of regulatory construct, I believe the telecommunications/information markets today need regulatory certainty in order to build out advanced 

broadband networks and applications; uncertainty leads to delays in investment decisions and continued litigation at both the Federal and state levels. Proper, effective regulation should allow markets to function properly with adequate competition, and hopefully eliminate arbitrage opportunities, while providing us with the 

means to protect consumers at the State level. 

I appreciate your leadership on this important issue. The WUTC stands willing 

to work with Congress, the FCC, and other stakeholders to ensure all Americans 

have access to advanced services. If you have questions or would like to discuss it 

further, please contact me at 360–664–1169 or pjones@wutc.wa.gov. 

Sincerely, 

PHILIP JONES, 

Commissioner, 

Washington Utilities and 

Transportation Commission. 

cc: Members of the Commerce, Science and Transportation Committee 

106 

State or 

Jurisdiction 

High-Cost Support 

Payments from USF 

to Service Providers 

Estimated Contributions 

by Carriers to USAC 

Estimated 

Net 

Dollar Flow 

Amount % of 

Total Amount % of Total Amount 

Alabama $100,061,000 2.3% $68,579,000 1.6% $31,482,000 

Alaska [BEGICH] [BEGICH] $168,272,000 3.9% $11,250,000 0.3% $157,022,000 $157,022,000 

American Samoa $3,939,000 0.1% $298,000 0.0% $3,641,000 

Arizona $67,204,000 1.6% $84,352,000 2.0% ($17,148,000) 

Arkansas [PRYOR/BOOZMAN] [PRYOR/BOOZMAN] $148,253,000 3.5% $39,246,000 0.9% $109,007,000 $109,007,000 

California [BOXER] [BOXER] $107,508,000 2.5% $474,280,000 11.0% ($366,772,000) ($366,772,000) 

Colorado $79,397,000 1.8% $76,670,000 1.8% $2,727,000 

Connecticut ($390,000) 0.0% $57,085,000 1.3% ($57,475,000) 

Delaware $226,000 0.0% $15,761,000 0.4% ($15,535,000) 

Dist.of Columbia $0 0.0% $19,773,000 0.5% ($19,773,000) 

Florida [NELSON/RUBIO] [NELSON/RUBIO] $70,396,000 1.6% $285,907,000 6.7% ($215,511,000) ($215,511,000) 

Georgia [ISAKSON] [ISAKSON] $136,139,000 3.2% $140,561,000 3.3% ($4,422,000) ($4,422,000) 

Guam $16,650,000 0.4% $2,251,000 0.1% $14,399,000 

Hawaii [INOUYE]) [INOUYE]) $58,416,000 1.4% $21,298,000 0.5% $37,118,000 $37,118,000 

Idaho $50,779,000 1.2% $21,336,000 0.5% $29,443,000 

Illinois $74,939,000 1.7% $177,462,000 4.1% ($102,523,000) 

Indiana $74,418,000 1.7% $83,888,000 2.0% ($9,470,000) 

Iowa $127,435,000 3.0% $38,837,000 0.9% $88,598,000 

Kansas $230,301,000 5.4% $37,973,000 0.9% $192,328,000 

Kentucky $101,805,000 2.4% $55,949,000 1.3% $45,856,000 

Louisiana $156,494,000 3.6% $61,345,000 1.4% $95,149,000 

Maine [SNOW] $27,443,000 0.6% $18,209,000 0.4% $9,234,000 $9,234,000 

Maryland $3,966,000 0.1% $94,073,000 2.2% ($90,107,000) 

Massachusetts [KERRY] [KERRY] $2,413,000 0.1% $97,758,000 2.3% ($95,345,000) ($95,345,000) 

Michigan $63,193,000 1.5% $122,460,000 2.9% ($59,267,000) 

Minnesota [KLOBUCHAR] [KLOBUCHAR] $127,037,000 3.0% $68,112,000 1.6% $58,925,000 $58,925,000 

Mississippi [WICKER] [WICKER] $281,267,000 6.6% $38,489,000 0.9% $242,778,000 $242,778,000 

Missouri [MCCASKILL/BLUNT] [MCCASKILL/BLUNT] $108,639,000 2.5% $82,943,000 1.9% $25,696,000 $25,696,000 

Montana $79,855,000 1.9% $14,539,000 0.3% $65,316,000 

Nebraska $116,611,000 2.7% $24,051,000 0.6% $92,560,000 

Nevada [HELLER] [HELLER] $25,570,000 0.6% $39,948,000 0.9% ($14,378,000) ($14,378,000) 

New Hampshire [AYOTTE] [AYOTTE] $8,576,000 0.2% $20,901,000 0.5% ($12,325,000) ($12,325,000) 

New Jersey [LAUTENBERG] [LAUTENBERG] $1,058,000 0.0% $143,512,000 3.3% ($142,454,000) ($142,454,000) 

New Mexico [UDALL] [UDALL] $71,391,000 1.7% $27,820,000 0.6% $43,571,000 $43,571,000 

New York $44,967,000 1.0% $277,114,000 6.5% ($232,147,000) 

North Carolina $85,635,000 2.0% $130,102,000 3.0% ($44,467,000) 

North Dakota $94,452,000 2.2% $9,478,000 0.2% $84,974,000 

Northern Mariana $1,309,000 0.0% $465,000 0.0% $844,000 

Ohio $33,858,000 0.8% $149,536,000 3.5% ($115,678,000) 

Oklahoma $142,547,000 3.3% $45,232,000 1.1% $97,315,000 

Oregon $78,826,000 1.8% $51,882,000 1.2% $26,944,000 

Pennsylvania [TOOMEY] [TOOMEY] $57,770,000 1.3% $177,475,000 4.1% ($119,705,000) ($119,705,000) 

Puerto Rico $74,387,000 1.7% 39,829,000 0.9% $34,558,000 

Rhode Island $34,000,000 0.0% $14,102,000 0.3% ($14,068,000) 

South Carolina [DEMINT] [DEMINT] $98,376,000 2.3% $63,774,000 1.5% $34,602,000 $34,602,000 

South Dakota [THUNE] [THUNE] $97,338,000 2.3% $11,053,000 0.3% $86,285,000 $86,285,000 

Tennessee $58,896,000 1.4% $91,074,000 2.1% ($32,178,000) 

Texas [HUTCHISON] [HUTCHISON] $262,049,000 6.1% $299,043,000 7.0% ($36,994,000) ($36,994,000) 

Utah $19,221,000 0.4% $32,031,000 0.7% ($12,810,000) 

Vermont $21,208,000 0.5% $10,415,000 0.2% $10,793,000 

Virgin Islands $15,986,000 0.4% $2,961,000 0.1% $13,025,000 

Virginia [WARNER] [WARNER] $72,933,000 1.7% $120,689,000 2.8% ($47,756,000) ($47,756,000) 

Washington [CANTWELL] [CANTWELL] $94,459,000 2.2% $89,779,000 2.1% $4,680,000 $4,680,000 

West Virginia [ROCKEFELLER] [ROCKEFELLER] $58,640,000 1.4% $28,323,000 0.7% $30,317,000 $30,317,000 

Wisconsin $139,287,000 3.2% $72,198,000 1.7% $67,089,000 

Wyoming $50,740,000 1.2% $8,709,000 0.2% $42,031,000 

Total $4,292,179,000 

This chart is based on the FCC 2010 USF Monitoring Report, December 2010 (which has the most recent data publicly available, 

online at http://transition.fcc.gov/wcb/iatd/monitor.html). 

Ocober 25, 2011 

COMMENTS TO OCTOBER 12 HEARING ON UNIVERSAL SERVICE REFORM

As a member of a Wireless Safety Organization I am concerned about the physiological effects of radio frequency on people and the environment, I urge this subcommittee to consider that all Broadband is not ‘‘Technology Neutral’’. Rather, numerous studies, independent of industry funding, have found biological outcomes including an increase in breast cancer, sleep disorders and Alzheimer’s disease. 

107 

Please see the Bionitiative Report at www.bioinitiative.org (2007) and the Journal 

of Pathophysiology (August 2009), for more information. It is extremely unfortunate 

that the United States has yet to publicly acknowledge the health risks associated 

with RF microwave radiation sources, as other countries have done so to protect 

their citizens. 

European governments and the World Health Organization, IARC (International 

Agency on Research and Cancer) recognized in May 2011 that radiation frequencies 

are Class 2B carcinogens, in the same category as lead, DDT, and gasoline exhausts. 

In May 2011 the European Parliament recommended that strong precautionary 

measures be taken to avoid exposures from RF radiation sources primarily by vulnerable sectors of the population, such as children, pregnant women and the elderly. 

They recommended the establishment of Wireless Free Zones for those electrically 

sensitive or for those who wish other living options. 

I ask that this sub-committee urge the FCC to scale down its goals for the Advanced Mobility USF plan and dedicate some of those wireless un-served/underserved areas of the country as Wireless Free Zones. Wired or fiber optic technology 

should be implemented in these areas. 

There is a significant portion of the population who find themselves physically 

compromised from the microwave overload in our living environment (headaches, 

sleep disorders, cancer, etc.) that seek out these unserved wired areas of the country 

as a place of refuge and relief from their physical sensitivity to ambient microwave 

exposures. 

My wife is severely electrically sensitive due to radiation exposure. It is estimated 

that 5 percent of the population suffers from this phenomenon and the numbers are 

growing daily as radiation exposure levels keep increasing. Our need for Wireless 

Free Zones should and need to be considered in the total scheme for meeting societies broadband needs. Why is it that Europe is taking leadership in this arena? 

Our United States officials ought to take responsibility and ensure and protect the 

future health of our citizens. Please do not wait for millions of people to be adversely affected as we did with smoking, asbestos, lead, DDT and chlordane! 

Thank you for your time and consideration regarding this matter. I am looking 

forward to your response. 

Kind regards, 

CHARLES BUBNIS. 

October 21, 2011 

Dear Sirs and Madams, 

As someone whose life is entirely affected by microwave radiation, please do not 

go forward with any plan to increase wireless communication. 

I am an Air Canada pilot living in Canada. Since last year when a two cell towers 

were placed behind my home I have become sensitive to all forms of microwave radiation along with electric and electro-magnetic fields. I imagine you can see how this 

would impact my life and career without me having to go into much detail. It’s only 

through an exhausting effort that I am currently still able to work. 

This technology, which I understand quite well, is not safe and shouldn’t be forced 

on the entire population. Scientists in Canada have done studies at the Universities 

here and conclude that 5 percent of the entire population is severely affected by this 

technology and about 30 percent are moderately affected. This number is growing 

as well due to the increased exposure to this technology. Even my occupational 

health doctor has 10 other patients in his own practice here in my smaller city. At 

Air Canada where I work there are at least two other pilots with this condition that 

have had to stop working entirely. 

This is all totally avoidable. The world is focusing on cancer and whether or not 

microwave radiation conclusively causes cancer or not. There is much more than 

cancer that is affecting people. My condition is called electro-sensitivity. It is a permanent condition and it has essentially ruined my life. My only solution, even according to my doctor, is to find a place with no cell towers around. So far I have 

been looking all summer and have yet to find something. Since this condition causes 

sensitivity to electric field and electro-magnetic fields it makes it even harder to find 

somewhere to live that you don’t have to have the power off all the time, since most 

homes are built without shielding cables. I shouldn’t have to be doing this. It is an 

entire waste of my and family’s time for an illness that it totally preventable. 

108 

Please do not go forward with any plans concerning this. It will be a costly mistake that will affect the health of many American for the rest of their lives. Wired 

connections are much safer and money should be allocated for their use. 

Thank you for listening, 

MELISSA CHALMERS

October 20, 2011 

Dear Sirs: 

I am opposed to forced Broadband, especially in rural areas, just as I am opposed 

to forced Smart Meters, WiFi and Cell Phone Towers. The microwave fueling these 

ever stronger devices is very bad for people’s health, not to mention wildlife and the 

environment. All also open the door to universal, 24/7 surveillance of every move 

people make. 

These initiatives are being forced on us by the Obama administration ‘‘to do people a favor’’. Since when is being sick and depressed and microwaved, and surveilled 

a favor????? Many people choose to live in rural environments for the purity of the 

air and water, the peace and quiet, the privacy and tranquility . . . ‘‘deploying’’ 

these and ‘‘accelerating’’ this, and we are talking about 4G networks—the latest and 

strongest, possible links with Smart Meter networks, which compound the radiation, 

and WiMax . . . produces the result that no one in any natural environment can 

escape being poisoned!!! 

I live in the country, and I can FEEL the toxins whenever I go into the nearest 

town, which has Cell Phone Towers every few hundred feet, everyone on wireless, 

and WiFi in all public places (plus, coincidentally, everyone is sick) . . . it is terrible. Please listen to those sensitive to this, and to the many courageous and admirable researchers who have studied the effects. We are talking about—long term— 

cancer, DNA damage, sterility, damage to the blood-brain barrier and to the brain, 

headaches, sleep disorders, cataracts, depression, confusion, memory loss, damage to 

cells, disruption of the electronic signaling and rhythms of the human body (as well 

as that of pollinating insects, birds, and other creatures), suppression of the immune 

system, susceptibility to mind control, and many other horrors. 

There is a reason microwave is the latest ‘‘non-lethal’’ weapon of the military. 

And, the frequencies that they know cause harm are those being forced upon us. 

There is a large group of people who WANT landline phones . . . they are the 

safest. Analog meters are the most durable, unhackable, and safest for health and 

privacy. We DO NOT WANT LANDLINE OR WIRED DEVICES PHASED OUT 

FOR WIRELESS. We DO NOT need lightening speeds or sexy propagandizing . . . 

if there is a group who thinks the world cannot live without these death traps, let 

them use them for themselves . . . only. . . . It is beyond arrogance to assume that 

the whole earth, all the air, all natural environments, and all people must have 

these artificial, and harmful, creations mandated with taxpayer money. 

Fiber Optics, although more expensive than wireless, is, apparently, completely 

safe. High frequencies over power lines (spikes . . . dirty electricity) and wireless, 

with the RF radiation, is not. 

I close with a few quotes from Zbigniew Brzezinski’s Between Two Ages (1970), 

which he wrote for the Trilateral Commission at the behest of the Club of Rome 

(both institutions founded by the Rockefellers on orders of the Rothschild banking 

family, long-term Luciferians): 

‘‘The technetronic era involves the gradual appearance of a more controlled society. Such a society would be dominated by an elite, unrestrained by traditional 

values. Soon it will be possible to assert almost continuous surveillance over 

every citizen and maintain up-to-date complete files containing even the most 

personal information about the citizen. These files will be subject to instantaneous retrieval by the authorities’’. 

‘‘By the year 2018, technology will make available to the leaders of the major 

nations, a variety of techniques for conducting secret warfare, of which only a 

bare minimum of the security forces need be appraised. One nation may attack 

a competitor covertly by bacteriological means, thoroughly weakening the population (though with a minimum of fatalities) before taking over with its own 

armed forces. Alternatively, techniques of weather modification could be employed. . . .’’ 

‘‘In addition . . . chemical and biological weapons, death rays, and still other 

forms of warfare. . . .’’ 

‘‘In addition, it may be possible—and tempting—to exploit for strategic-political 

purposes the fruits of research on the brain and on human behavior. Gordon 

109 

J. F. MacDonald, a geophysicist specializing in problems of warfare, has written 

that timed artificially excited electronic strokes could lead to a pattern of oscillations that produce relatively high power levels over certain regions of the 

earth. . .In this way one could develop a system that would seriously impair 

the brain performance of very large populations in selected regions over an extended period. . . . No matter how deeply disturbing the thought of using the 

environment to manipulate behavior for national advantage is to some, the 

technology permitting such use will very probably develop within the next few 

decades’’. 

It is clear that this technology is not ‘‘for our benefit’’, and it never has been. It 

is the responsibility of our representatives to adhere to the Constitution, practice 

The Precautionary Principle, and not mandate anything that will do harm . . . at 

least, to large segments of the population. Please do not force this wireless 

Broadband on the public, do not pollute our air and harm our earth, and please 

start considering already safe technologies, or technologies that do no harm to any 

living thing. 

Thank you. 

CYNTHIA PRICE, 

Woodville, VA. 

October 19, 2011 

RE: Comments to the Oct 12th Hearing on Universal Service Reform— 

Bringing Broadband to All Americans 

As a member of a Wireless Safety organization I urge this subcommittee to consider that all Broadband is NOT ‘Techology Neutral’ The public health and environmental impacts of the technology need to be taken into account. Wireless RF/Microwave linked communications technologies has a long scientific history of physiological and biological effects on people and the environment. 

Although U.S. has yet to acknowledge publicly the health risks associated RF/ 

microwave radiation sources, the FCC’s own website states ‘‘. . . there is no federally developed national standard for safe levels of exposure to radiofrequency (RF) 

energy . . .’’ European governments and World Health Organization IARC (International Agency on Research and Cancer), have recently recognized that RF radiation frequencies pose potential health risks. IARC in May declared RF frequencies 

as Class 2B carcinogens, in the same category as Lead, DDT, fuel oils, gasoline exhausts. In same month European Parliament recommended that strong precautionary measures be taken to avoid exposures from RF radiation sources primarily by vulnerable sectors of population, primarily children, pregnant women, elderly etc. They also recommended the establishment of wireless free zones for those 

electrically sensitive or wish other living options. 

I ask the Subcommittee to urge the FCC to scale down its goals for Advance mobility USF plan and dedicate some of those wireless unserved/underserved areas of 

the country as Wireless Free Zones. Target exclusively those zones with Wired 

broadband technology. 

Many of us who find ourselves physically compromised from the microwave overload in our living environment seek out these unserved wireless areas of the country 

as places of refuge and relief from our physical sensitivity to ambient microwave exposures. We are Consumers too. Our needs for wireless free zones should be considered in the total scheme for meeting society’s broadband needs. 

EVELYN SAVARIN

Æ