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S. HRG. 113–265 

STATE OF WIRELINE COMMUNICATIONS 

HEARING 

BEFORE THE

SUBCOMMITTEE ON COMMUNICATIONS, 

TECHNOLOGY, AND THE INTERNET 

OF THE

COMMITTEE ON COMMERCE, 

SCIENCE, AND TRANSPORTATION 

UNITED STATES SENATE 

ONE HUNDRED THIRTEENTH CONGRESS 

FIRST SESSION 

JULY 25, 2013 

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

( 

(II) 

SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION 

ONE HUNDRED THIRTEENTH CONGRESS 

FIRST SESSION 

JOHN D. ROCKEFELLER IV, West Virginia, Chairman 

BARBARA BOXER, California 

BILL NELSON, Florida 

MARIA CANTWELL, Washington 

MARK PRYOR, Arkansas 

CLAIRE MCCASKILL, Missouri 

AMY KLOBUCHAR, Minnesota 

MARK WARNER, Virginia 

MARK BEGICH, Alaska 

RICHARD BLUMENTHAL, Connecticut 

BRIAN SCHATZ, Hawaii 

MARTIN HEINRICH, New Mexico 

EDWARD MARKEY, Massachusetts 

JOHN THUNE, South Dakota, Ranking 

ROGER F. WICKER, Mississippi 

ROY BLUNT, Missouri 

MARCO RUBIO, Florida 

KELLY AYOTTE, New Hampshire 

DEAN HELLER, Nevada 

DAN COATS, Indiana 

TIM SCOTT, South Carolina 

TED CRUZ, Texas 

DEB FISCHER, Nebraska 

RON JOHNSON, Wisconsin 

JEFF CHIESA, New Jersey 

ELLEN L. DONESKI, Staff Director 

JAMES REID, Deputy Staff Director 

JOHN WILLIAMS, General Counsel 

DAVID SCHWIETERT, Republican Staff Director 

NICK ROSSI, Republican Deputy Staff Director 

REBECCA SEIDEL, Republican General Counsel and Chief Investigator 

SUBCOMMITTEE ON COMMUNICATIONS, TECHNOLOGY, 

AND THE INTERNET 

MARK PRYOR, Arkansas, Chairman 

BARBARA BOXER, California 

BILL NELSON, Florida 

MARIA CANTWELL, Washington 

CLAIRE MCCASKILL, Missouri 

AMY KLOBUCHAR, Minnesota 

MARK WARNER, Virginia 

MARK BEGICH, Alaska 

RICHARD BLUMENTHAL, Connecticut 

BRIAN SCHATZ, Hawaii 

ROGER F. WICKER, Mississippi, Ranking 

Member 

ROY BLUNT, Missouri 

MARCO RUBIO, Florida 

KELLY AYOTTE, New Hampshire, 

DEAN HELLER, Nevada 

DAN COATS, Indiana 

TIM SCOTT, South Carolina 

TED CRUZ, Texas 

DEB FISCHER, Nebraska 

RON JOHNSON, Wisconsin 

(III) 

C O N T E N T S 

Page 

Hearing held on July 25, 2013 ............................................................................... 1 

Statement of Senator Pryor .................................................................................... 1 

Statement of Senator Wicker .................................................................................. 2 

Statement of Senator Thune ................................................................................... 4 

Statement of Senator Klobuchar ............................................................................ 5 

Prepared statement .......................................................................................... 5 

Statement of Senator Fischer ................................................................................. 6 

Statement of Senator Blumenthal .......................................................................... 58 

Statement of Senator Markey ................................................................................. 61 

WITNESSES

Jeff Gardner, President and Chief Executive Officer, Windstream Corporation 

on behalf of the United States Telecom Association ......................................... 7 

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

Shirley Bloomfield, Chief Executive Officer, NTCA—The Rural Broadband 

Association ............................................................................................................ 12 

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

Jerry James, CEO, COMPTEL ............................................................................... 20 

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

Larry Downes, Internet Industry Analyst and Author ........................................ 26 

Prepared statement .......................................................................................... 28 

Gigi B. Sohn, President and CEO, Public Knowledge .......................................... 38 

Prepared statement .......................................................................................... 40 

APPENDIX

Hon. John D. (Jay) Rockefeller IV, U.S. Senator from West Virginia, prepared 

statement .............................................................................................................. 67 

Response to written questions submitted by Hon. Mark Warner to: 

Jeff Gardner ...................................................................................................... 68 

Response to written questions submitted to Shirley Bloomfield by: 

Hon. Mark Warner ........................................................................................... 77 

Hon. Mark Begich ............................................................................................. 83 

Response to written questions submitted by Hon. Mark Warner to: 

Jerry James ....................................................................................................... 85 

Larry Downes .................................................................................................... 91 

Gigi B. Sohn ...................................................................................................... 103 

(1) 

STATE OF WIRELINE COMMUNICATIONS 

THURSDAY, JULY 25, 2013 

U.S. SENATE, SUBCOMMITTEE ON COMMUNICATIONS, TECHNOLOGY, AND

THE INTERNET, COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION, 

Washington, DC. 

The Subcommittee met, pursuant to notice, at 10:25 a.m. in room 

SR–253, Russell Senate Office Building, Hon. Mark Pryor, Chairman of the Subcommittee, presiding. 

OPENING STATEMENT OF HON. MARK PRYOR, 

U.S. SENATOR FROM ARKANSAS 

Senator PRYOR. I will go ahead and call our meeting to order 

here. 

And let me first apologize. I was in an appropriations meeting 

and they needed me for a quorum to get some bills moving, and 

we are trying to get our appropriations bills moving back on regular order. So I apologize for the delay. 

Let me just say good morning and welcome to the Subcommittee. 

This is the ‘‘State of Wireline Communications’’ hearing. I want to 

thank all of our witnesses for being here and I want to thank everybody for being here and participating in this to make this a reality. 

This is the fourth of the Subcommittee’s so-called ‘‘state of’’ hearings. We have had a series of these to learn about various aspects 

of telecommunications. They have been well attended by Senators. 

I know that today we have lots of things going on, including a lot 

of business on the floor and other committees. So we will see some 

Senators coming in and out. 

I certainly want to welcome Senator Wicker and his great work 

on this subcommittee and his great work in the Senate. 

The public telephone network remains the backbone of our nation’s communications infrastructure. Over the years, there have 

been innumerable benefits to American individuals and also businesses with that network, and we understand that. And if you look 

at our economy, you just think about the fundamental changes that 

have happened because of telephone service and wireline communications. There are just almost too many to enumerate. 

But in recent decades, we have also gone from a world of regulated monopolies to a vibrant market that has incumbents, competitors, and over-the-top providers. And if you look back 20 

years—the 1996 Telecom Act—the amount of innovation, creation, 

investment, and advancement in our ability to connect is just truly 

2 

astounding. It has been a huge American success story, and it is 

something that as a nation we all should be very proud of. 

And there is one fundamental ideal that has not gone away and 

that is we want all Americans to be able to have access to this network. We want that when a call is made, we want it to go to the 

intended person. We want it to be completed and that the network 

is also reliable for individuals and businesses. And that is also true 

in time of emergency. We do not want these things to stop and not 

work when sometimes people need it the most. 

But nonetheless, I know that Senator Klobuchar and others have 

talked about the concern that we have about calls not being completed. That is a real concern especially in rural America. We also 

see this continuing problem of unauthorized charges appearing on 

people’s phone bills. I think some of our witnesses will talk about 

that. 

Businesses struggle. Some in the industry will struggle because 

of the changing environment where there is kind of an uneven 

playing field when it comes to the regulatory environment, and 

sometimes that is not real clear and it is hard to navigate that. 

And we appreciate that. We would like to hear some discussion of 

that as well today. 

And also, one of the big changes that is going on right now is 

the transition from circuit-switched to Internet Protocol technologies, and this offers a great potential benefit to everyone. But 

it also challenges us to look with fresh eyes at the existing regulations we have and to maybe reexamine where we are. 

But nonetheless, this bedrock principle that we have talked 

about before, that everyone should benefit from our national communications network—that still remains. And we do not want to 

leave parts of America behind, and I think for some of us, the 

things we focus on in rural America—we do not want to have the 

tale of two Americas here where you have the urban and suburban 

and they have the latest and the greatest and the most cuttingedge, and then rural America is really decades behind. And we 

need to make sure we do not do that. 

Today’s panel is made up by a group of very qualified individuals. I appreciate all the panelists for being here. They represent 

a broad spectrum, a broad cross section of the industry, including 

the incumbent, competitive, and rural carriers, as well as public interest representatives, and then industry analysts. So again, we appreciate your range of perspectives. We appreciate your valuable 

observations, and we all look forward to your testimony. 

And with that, I will turn it over to Senator Wicker. 

STATEMENT OF HON. ROGER F. WICKER, 

U.S. SENATOR FROM MISSISSIPPI 

Senator WICKER. Thank you, Chairman Pryor, and thank you for 

holding this hearing. It is the fourth of the hearings on the state 

of communications. 

And let me say at the outset how comforting it is to have as a 

Chairman someone who knows how to properly pronounce the word 

‘‘wireline.’’ 

[Laughter.] 

3 

Senator WICKER. For the Senator from Minnesota, it may take 

more effort to pronounce those diphthongs; but not for Roger Wicker and Mark Pryor, my neighbor from across the river. 

The wireline sector is currently in a state of flux. Another way 

of saying it would be we are in a state of transition. Industry and 

consumers have been migrating away from traditional voice telephony, and in quick fashion. Consumers are frequently opting to cut 

the cord and move to mobile wireless and voice over IP services as 

their primary home phone lines. We are making an exciting conversion to a broadband world, a world that has seen rapidly growing 

innovation, competition, and options for the American consumer. 

These options will not only improve the day-to-day lives of our constituents but, most importantly, provide the tools that will stimulate a new broadband economy. 

With this transition, there are a number of issues that we as policymakers must examine. Priorities conceived in an era dominated 

by copper line infrastructure are ripe for reconsideration and modernization in the IP era. The transformation of the Federal Universal Service Fund from a program dedicated to promoting traditional voice communication over the publicly switched telecommunications network to one focused on broadband delivery to 

all corners of our nation is of vital importance to rural states like 

the ones represented on this panel today. 

We discussed many of these issues in our first subcommittee 

hearing this year, Mr. Chairman. It focused on the state of rural 

communications. At that hearing what became clear was that while 

the FCC successfully put the USF on a path to modernization, 

there were still a number of holes that needed to be filled to ensure 

that the program continues on a successful path. Providers should 

be encouraged, not discouraged, to build out and deploy broadband 

to our constituents. 

Moving forward, we need to ensure that the USF operates in a 

technology-neutral fashion. That includes all providers committed 

to serving rural America. I look forward to hearing our witnesses’ 

testimony on this topic. 

Another transition that is receiving a growing amount of attention is the IP, or Internet Protocol, transition. As highlighted in the 

FCC’s National Broadband Plan, the IP transition is expected to 

bring the full benefits of IP broadband networks to our constituents. This network modernization will not only provide far more efficient voice and data services than we have today, but also dramatically upgrade educational services, next generation 911, and 

health IT systems. We need to keep our eye on the ball. There is 

consumer demand for high speed broadband service applications 

now, and it is in their best interest that we make progress. Presupposing that regulation is needed on a platform that has flourished 

in the absence of regulation should not be our starting point. That 

being said, I recognize this is a complicated issue with many moving parts. 

I see that we are now joined by Ranking Member Thune. He and 

I agree this is an important enough issue that we have directed our 

respective staffs to engage stakeholders and experts analyzing all 

aspects of the transition and that we need to determine whether 

4 

Congress may have a role in fostering the modernization of our nation’s communications network infrastructure. 

So thank you, Mr. Chairman, for holding this important and very 

timely hearing, and thank you to our witnesses, who I greeted before the hearing began. I look forward to hearing your views. 

Thank you, sir. 

Senator PRYOR. Thank you. 

And we have been joined by Senator Thune, the full committee’s 

Ranking Member. Senator Thune? 

STATEMENT OF HON. JOHN THUNE, 

U.S. SENATOR FROM SOUTH DAKOTA 

Senator THUNE. Well, thank you, Chairman Pryor and Senator 

Wicker. And I want to thank our witnesses for being with us this 

morning. 

And I want to say, Mr. Chairman, to you and Senator Wicker 

that I commend you for continuing these ‘‘state of’’ hearings to inform our committee about our nation’s communications infrastructure and about the services, the opportunities, and the challenges 

facing our constituents as we move deeper into the 21st century. 

Rural communications are a priority of mine, and I am continually amazed at the capabilities that are being delivered in South 

Dakota. My home state is one of the national leaders in fiber buildout, thanks to companies like CenturyLink, Midcontinent Cable, 

and SDN Communications with its 17 member-owners. Of course, 

connectivity is not just about physical wires. The satellite services 

and new 4G mobile networks being deployed today offer even more 

economic and social opportunity for my fellow South Dakotans and 

consumers across the country. 

Much of this deployment is the result of our commitment to universal service. As we move forward, we should not allow existing 

networks to wither or future services to go unoffered because of unpredictable or inadequate universal service support. The FCC is directed by law to provide predictable and sufficient mechanisms to 

preserve and advance universal service, and it needs to abide by 

that directive. 

The state of wireline communications today is clearly one of transition. The older copper wire networks of the 20th century are 

being replaced by fiber optics. Circuit-switched telephony is migrating to packet-switched IP technology. American households are no 

longer faced with phone service from a government-protected monopoly. In fact, less than one-third of households today purchase 

voice service from their local telephone companies, and nearly 40 

percent have cut the cord, forgoing wireline voice service altogether. 

Furthermore, we do not just have competition among multiple 

wired and wireless networks today but also new alternatives to 

real-time voice communication, through texts, tweets, chats, and 

social media. These alternatives are IP-enabled and delivered over 

broadband, and they are largely unregulated. But as consumers 

demonstrate a preference for less-regulated, competitive alternatives to traditional local phone service, our laws continue to presume a monopoly exists for local voice communications. 

5 

As mentioned by Senator Wicker, we have tasked our staffs with 

engaging stakeholders and experts to both stay abreast of the ongoing IP transition and to look for ways where Congress may be helpful in the modernization of our nation’s communications networks. 

We should not approach the IP transition with anxiety and fear 

but with optimism and vigilance. Being distracted by what might 

be lost will be less useful than considering what has and will be 

gained. This transition brings forward many complex and deeply 

entrenched issues. We must, therefore, identify the challenges that 

an all-IP world presents and then determine how ingenuity and innovation and perhaps regulation will be able to overcome those 

challenges. 

We should acknowledge the growing choices in today’s market 

and pivot from the century-old default assumption that our nation’s 

communications system is uncompetitive. In laying out a strategic 

plan for the FCC in 1999, former FCC Chairman William Kennard 

proclaimed—and I quote—‘‘We must resist imposing legacy regulations on new technologies. Our goal should be to deregulate the old 

instead of regulating the new.’’ I could not have said it better myself. 

Mr. Chairman, we should focus on empowering individual consumers, entrepreneurs, and innovators. We should target limited 

Federal support to, and encourage investment in, areas that remain underserved because of structural economic reasons. We 

should understand the promise of what an all-IP world holds for 

better public safety, better education, better health care, and a 

more vibrant civic society than we know today. 

This may require removing obstacles which may include repealing or amending outdated laws, ending inefficient regulations, or 

even nudging reluctant incumbent business interests forward. 

American consumers are driving the broadband economy. We, as 

policymakers, should take their cue and ensure that they—not the 

government—manage the marketplace. 

I look forward to a bright communications future for our nation 

and I appreciate our witnesses’ thoughts today about how we can 

best pursue it. 

Thank you, Mr. Chairman. 

Senator PRYOR. Thank you. I know we are going to move to our 

panel in one moment. Would you like to say a word? 

STATEMENT OF HON. AMY KLOBUCHAR, 

U.S. SENATOR FROM MINNESOTA 

Senator KLOBUCHAR. Oh, thank you, Senator Pryor. I will put my 

statement on the record. 

[The prepared statement of Senator Klobuchar follows:] 

PREPARED STATEMENT OF HON. AMY KLOBUCHAR, U.S. SENATOR FROM MINNESOTA

Thank you, Chairman Pryor for holding this hearing to talk about the state of 

our wireline communications. 

While we continue to see a trend of more and more Americans going mobile and 

cutting the cord to their landline phones in favor of wireless options, it is important 

to note that the wireline networks provide the necessary and vital backbone for 

those mobile services. Additionally, businesses small and large continue to rely on 

wireline communications every day to connect with their customers around the 

world. 

6 

I continue to be encouraged by the innovations in the communications industry. 

But we do need to promote consistency and clarity in the regulations that govern 

the industry. In turn, companies need to also provide their customers with clarity 

and consistency—this means they need to protect consumers from cramming, provide accurate data about their services, and complete their calls to rural areas. 

We need to make sure that wireline services are billed fairly and transparently 

for consumers, that connections are reliable, and that rural areas have the same 

quality of service as urban areas. Call completion issues have continued to be an 

issue in my state and in other rural areas which is why I have introduced a resolution with Senator Fischer urging the FCC to act expeditiously on call completion 

problems to rural America through both rulemaking and enforcement actions. I am 

pleased that the Committee will be considering this resolution on next week’s markup. 

Communications services are vital to the economic future of this country and to 

Minnesotans, and as the network continues to evolve we need to continue to make 

sure that consumers are protected. 

Senator KLOBUCHAR. But I did want to say correctly ‘‘wireline.’’ 

[Laughter.] 

Senator KLOBUCHAR. Senator Thune, Senator Fischer, you should 

know—especially Senator Fischer—that Senator Wicker was saying 

that only Southerners can pronounce that correctly. I would like to 

have reflected on the record that it has been found that Midwestern women’s voices are the most neutral and soothing. 

[Laughter.] 

Senator KLOBUCHAR. And that is why they are often picked to be 

television anchors. And so that is the last thing I will say on this 

matter. 

But we are looking forward—— 

Senator WICKER. And alluring. 

[Laughter.] 

Senator KLOBUCHAR. Yes. 

Senator Fischer and I have a resolution on call completion that 

I understand is going to be on the agenda next week. And so I am 

interested in hearing from you on that as well. 

Thank you. 

Senator PRYOR. Thank you. 

Senator Fischer, would you like to say a word? 

STATEMENT OF HON. DEB FISCHER, 

U.S. SENATOR FROM NEBRASKA 

Senator FISCHER. Thank you, Mr. Chairman. I can only agree 

with my mentor here in the Senate, Senator Klobuchar. I look forward to the panel and having a chance to have a good conversation 

and back and forth with you on these issues. 

Thank you so much and thank you, Mr. Chairman and Ranking 

Member Wicker, for having this hearing. 

Senator PRYOR. Thank you. 

Let me go ahead and introduce our entire panel. In order to save 

some time, I will just do a very brief introduction. They all come 

with very strong credentials. We will make their backgrounds part 

of the official record. And I would ask each one to do 5 minutes, 

and we will make your full written text a part of the record as well. 

But, first, let me start with Jeff Gardner. He is Chairman of the 

Board of Directors of USTelecom and President and CEO of 

Windstream Corporation. Then we have Shirley Bloomfield, CEO of 

NTCA—The Rural Broadband Association. We have Jerry James, 

7 

CEO of COMPTEL—The Competitive Communications Association; 

then Larry Downes, Internet industry analyst and author; and Gigi 

Sohn, President and Co-Founder of Public Knowledge. So, again, 

thank you all. 

I recognize each of you for 5 minutes. Mr. Gardner, will you lead 

off? Thank you. 

STATEMENT OF JEFF GARDNER, PRESIDENT AND CHIEF 

EXECUTIVE OFFICER, WINDSTREAM CORPORATION ON 

BEHALF OF THE UNITED STATES TELECOM ASSOCIATION 

Mr. GARDNER. I am Jeff Gardner, President and CEO of 

Windstream, a major rural ILEC and also one of the nation’s top 

competitive carriers. I am testifying in my capacity as Chairman 

of the Board at USTelecom. 

I have three points about the state of wireline communications. 

First, wireline is the vital infrastructure for all communications. 

Second, rural networks are at a critical point, with significant 

uncertainty at the FCC and in the states. 

Third, we must create a pro-consumer, pro-competition regulatory framework for the IP era. 

Through all the changes in my 30-year career in the wireless and 

wireline industries, the wireline network remains the linchpin. 

Broadband, WiFi, LTE, 4G, Ethernet, and so on all rely on robust 

wired networks, and each day the demand for those networks 

grows. Last year, wireline networks handled 98 percent of total 

U.S. data traffic. USTelecom’s members are investing billions each 

year to keep pace with the phenomenal growth in data consumption. 

Wireline technology is essential to providing wireless services, 

whether it is connecting cell towers to the rest of the network or 

offloading wireless traffic onto WiFi at home, the coffee shop, or an 

airport. 

Rural policy and networks are at a critical point. Universal Service reform and intercarrier comp cutbacks are generating serious financial pressure and uncertainty. USF reform has become shorthand for a top-to-bottom rewrite of rural programs, including Universal Service, as well as intercarrier compensation. The reductions 

in revenue are significant and austere. This impedes our ability to 

serve rural customers. 

To recap FCC actions since 2011, intercarrier compensation has 

been slashed by billions of dollars while Universal Service remains 

level funded. Meanwhile, the FCC expects more from us, namely 

preserving full voice coverage while substantially expanding rural 

broadband. 

Intercarrier compensation cuts are well underway. Meanwhile, 

USF reforms that promise to bring added support to larger price 

cap carriers remain in development. 

On phase one of the Connect America Fund, we are pleased by 

the FCC’s recent decision to invest $485 million in rural 

broadband. We thank you, Mr. Chairman, and others who were engaged in this. 

Phase two, which is the long-term program, is still on the drawing board. 

8 

Uncertainty also exists for smaller rate-of-return carriers. There 

are concerns that the reform order’s quantile regression analysis is 

not performing as intended. USTelecom believes the Commission 

should expeditiously examine and understand the real-world effects 

on rate-of-return companies. 

Finally, it is time for a fresh look at the longstanding regulatory 

structure for legacy telephone companies. The biggest mismatch between regulatory approach and market realities is the retail residential market. ILEC’s are in a dog fight for residential voice customers. Legacy regulations are unfairly inflating costs for providers 

and limiting flexibility for consumers. 

USTelecom recently petitioned the FCC for regulatory forbearance, seeking the elimination of outdated rules and reporting requirements, some dating back to the telegraph era. In May, the 

FCC agreed to drop certain requirements, but many other unnecessary regulations remain. 

A related issue is the ongoing shift to IP-based services. All companies are deploying IP in their networks. There is an important 

and timely dialogue underway at the FCC, but the IP transition is 

in process. For each provider, the transition will unfold in different 

ways at different times. 

The association that I lead is comprised of companies offering a 

variety of services, utilizing copper, fiber, coax, and wireless platforms in widely diverse business environments. There is no onesize-fits-all approach when it comes to issues such as interconnection, competitive access, transport, privacy, and public safety. It is 

critical that reforms be judicious and grounded in facts. Where the 

competitive dynamics are not fully understood, we will need to 

gather data. 

In closing, the state of wireline is robust and dynamic. 

USTelecom member companies are investing in the future, but will 

require your attention and oversight to foster a vibrant, competitive, and innovative communications market that serves the public 

interest. 

Thank you. 

[The prepared statement of Mr. Gardner follows:] 

PREPARED STATEMENT OF JEFF GARDNER, PRESIDENT AND CHIEF EXECUTIVE

OFFICER, WINDSTREAM CORPORATION ON BEHALF OF THE UNITED STATES TELECOM

ASSOCIATION

Chairman Pryor, Ranking Member Wicker, members of the Subcommittee: Thank 

you for the invitation to testify today on the state of wired communications. 

I am Jeff Gardner, President and CEO of Windstream, a FORTUNE 500 telecom 

provider with an innovative hybrid business model. Windstream is a major rural 

ILEC and one of the Nation’s top competitive carriers as well. My testimony today 

is in my capacity as Chairman of the Board of Directors of the United States 

Telecom Association (USTelecom). 

USTelecom is the Nation’s oldest and largest association for owners of wired communications infrastructure—first, telephone companies and, today, broadband providers. The association represents some of the largest companies in the U.S., as well 

as some of the smallest cooperatives and family-owned telecom providers in rural 

America. We use a variety of technologies and platforms to provide voice, video, and 

data to residential customers, small businesses, large corporations, and governments 

at all levels. 

This is a dynamic time for wired communications. Technology and business models are transforming rapidly. I would like to make three points, in particular, about 

where this industry stands and what lies ahead: 

9 

(1) Wireline technologies comprise the most robust, secure, and relied upon communications infrastructure in the Nation. Our members provide service to 

wireline end-user customers of all sizes, and also supply the veins and arteries 

of wireless communications; 

(2) The FCC is in the process of dramatically reshaping the financial underpinnings of universal rural networks and while this transition must succeed, 

many details remain unresolved; 

(3) Communications technology is advancing at a rapid pace. This puts pressure 

on the regulatory structure to keep up. It is essential that we work together 

to update rules to a pro-consumer, pro-competition framework for the information age. 

The wireline network is the linchpin of the information age 

I started my career in 1986 in the wireless industry and have extensive experience in both wireless and wireline. I have witnessed dramatic changes in wired telecommunications. Wires are less visible to the consumer than they were 30 years 

ago, but in many ways they are even more important. As a recent filing by the Department of Defense noted, the wireline industry provides vital communications 

links for military installations, the Nation’s air traffic control system, and storefront 

offices of the Social Security Administration. 

Broadband, Wi-Fi, LTE, 4G, Ethernet, and so on all rely on robust wired networks, and each day the demand for those networks grows. Last year, wireline networks handled nearly 99 percent of U.S. video traffic and 98.4 percent of total U.S. 

data traffic. The share of traffic handled on mobile networks is increasing rapidly, 

but will only represent about 5 percent of overall traffic in five years. 

USTelecom’s members are leading the way and investing billions each year to advance this technological revolution. The wireline telecom sector has invested $645 

billion over the past decade to transform our industry from one focused primarily 

on voice services to one leading the way on data services. Every year is a race to 

keep pace with astounding trends in data consumption—over the past 15 years, 

total data traffic has grown at a compound annual rate of 81 percent. 

We also are essential partners in the wireless revolution, connecting cell towers 

to the rest of the network—most often with robust fiber optic cable—as well as offering Internet backbone and middle mile connections. In addition, for all wireless networks and technologies, one of the most important traffic management tools is offloading traffic onto landline networks as quickly as possible. Often, this means 

handing off traffic to Wi-Fi networks supported by wireline providers. One recent 

analysis found that Wi-Fi already handles more than two-thirds of the data for LTE 

subscribers and that its share is expanding. When consumers use tablets and smart 

phones at home, at a hotel, or in a shop, chances are they are connecting through 

a wired Wi-Fi connection. 

Some reporters and analysts have speculated about the extinction of wireline companies. But as Mark Twain might have said, ‘‘rumors of our death have been greatly 

exaggerated.’’ In fact, for Windstream, our wireline operations are growing, not contracting. Our employee count in Arkansas has grown 17 percent since 2010, and the 

company entered the FORTUNE 500 list for the first time this year. As a whole, 

the wireline industry has been investing on a massive scale to keep pace with 

changes in technology and consumer demand. For several years in a row, even 

through the toughest recessionary times in generations, our industry has invested 

more than $65 billion annually in broadband and other communications infrastructure. Wireline remains a major employer of high-skill workers. Excluding cable, the 

wireline industry employs about 400,000 American workers and pays wages approximately 45 percent above the national average. 

Future investment in rural broadband networks is at critical point 

In rural America, as in the rest of the country, wired networks remain essential 

to all communications—arguably more essential than ever. When you’re speeding 

along a rural interstate, it takes more than air and a smartphone to make a call 

or send an e-mail. Your device links to a tower or antenna that is tied immediately 

into a wired network—maybe the same overhead cable strung down the side of your 

highway. And, of course, many rural consumers live far from the Interstate highways, in places where wireless service is not so prevalent or reliable. The wired network—increasingly via broadband—remains the tether for the Nation’s rural citizens to family, friends, and business interests around the state, country and world. 

In short, wired networks remain essential infrastructure for ensuring that communication services for rural consumers are comparable to those in urban areas in 

quality and affordability—words that are not mere slogans but rather statutory 

10 

touchstones and directives to the FCC. Thus, you can appreciate the stakes around 

universal service and intercarrier compensation reform. 

The inherent and long-standing challenge in rural America has been to deploy, 

operate, and maintain expensive assets in areas with low population density. As a 

general principle, network costs are lower per subscriber in more densely populated 

areas but higher in rural areas, while total revenue potential decreases with lower 

density. That’s why we have universal service programs and intercarrier compensation systems. 

‘‘USF/ICC reform’’ has become shorthand for a top-to-bottom overhaul of rural 

communications programs, starting with the Universal Service Fund itself, and also 

including the Federal and state components of intercarrier compensation, as well as 

state USF programs. The FCC’s reform order in 2011 mandated specific and sizable 

reductions in intercarrier compensation and proposed a fundamental overhaul of 

universal service for high-cost areas. Nobody has attempted to score these changes 

in terms of their overall dollar impact, but at a high-level the math is simple and 

challenging. On one side of the ledger, intercarrier compensation has been slashed 

by billions of dollars, while Federal universal service funding remains at roughly the 

same level as before. On the other side of the ledger, the FCC’s goals now are to 

sustain ubiquitous voice service while also, simultaneously, substantially increasing 

broadband access in rural America. 

We understand the need for reform and helped get the comprehensive reform 

order across the finish line in 2011, but the job is far from complete. We were 

pleased by the FCC’s decision in May to invest $485 million in rural broadband expansion via phase 1 of the Connect America Fund. Mr. Chairman, you and several 

others on the Committee played important roles in that decision, and we thank you. 

Still, unresolved aspects of reform, coupled with slashing of intercarrier compensation, have created troublesome uncertainty for ‘‘price cap’’ carriers and the consumers they serve. For the future, there are plans to estimate the price cap carriers’ 

costs of providing service to certain rural areas, then offer funding above a high cost 

threshold, along with a set of performance requirements, to serve the area. There 

has been an unspoken assumption that the proffered funding will be reasonable to 

the provider, but also attractive to policymakers who are trying to cover the Nation 

with ubiquitous voice and broadband on a constrained budget. We are hopeful that 

these dual objectives soon will be fulfilled, and that the strain from existing uncertainty will be lessened. But we need the FCC to continue in a transparent and deliberate fashion as it moves forward with the next phase of reform, and ask the Committee to keep a watchful eye in its oversight role. 

Likewise, the reforms for smaller ‘‘rate-of-return’’ companies have created uncertainty for those providers. 

One way to understand the situation for rate-of-return companies and cooperatives is to look at the broadband loan programs run by the Rural Utilities Service 

at the Department of Agriculture. Borrowing from RUS has dropped to 37 percent 

of the money appropriated by Congress in the last Fiscal Year. Meanwhile, private 

lenders have withdrawn from the market altogether. Rob West of CoBank, a major 

lender to small carriers, estimates that ‘‘many small rural wireline providers have 

[lost] or will lose 50 to 100 percent of their capacity to access borrowed capital.’’ The 

bottom line is reduced capital investment for broadband service in rate-of-return 

areas at the very time policymakers—from the President to members of the Senate 

and House to key Federal agency appointees to state commissioners—are calling for 

bringing broadband to unserved communities. 

There are concerns that the reform order’s ‘‘Quantile Regression Analysis’’ (QRA) 

approach to determining universal service support to rural rate-of-return companies 

is not performing as intended. To better assess the impact of the QRA on rate-ofreturn companies, USTelecom believes the Commission should expeditiously examine and understand the real world effects of USF reform on rate-of-return companies 

and determine how to ensure that, in operation, it meets the Communications Act’s 

requirement that rural Americans have communications services comparable in 

quality and affordability to those in urban areas. 

A pro-consumer, pro-competitive framework for the information age 

Finally, let us consider the state of regulation for wireline communications. The 

regulatory structure for legacy telephone companies is the oldest, most comprehensive, and least flexible in all of communications. 

The biggest mismatch between regulatory approach and current market realities 

is in the retail residential market. Recent data from the FCC, as well as from the 

Centers for Disease Control, indicate that by year’s end, about 25 percent of U.S. 

households will have traditional voice service from incumbent local exchange carVerDate Nov 24 2008 07:09 May 13, 2014 Jkt 075679 PO 00000 Frm 00014 Fmt 6633 Sfmt 6621 S:\GPO\DOCS\87817.TXT JACKIE
11 

riers (ILECs). ILECs are no longer the dominant providers of retail residential voice 

service, and Federal and state regulators must respond accordingly. 

In fact, ILECs are in a dogfight for residential voice customers, and legacy regulations are unfairly inflating costs and limiting flexibility for consumers. Google recently announced that in Kansas City, where it has deployed a new fiber-to-thehome network, it will not offer voice service because of the regulatory burden. These 

regulations are holding back competition in the entire residential voice market. 

USTelecom has attempted to address these concerns in several ways. Recently, 

USTelecom petitioned the FCC for regulatory forbearance. The association sought 

the elimination of 17 categories of rules and reporting requirements that no longer 

have relevance in today’s marketplace. Some of these rules dated back to the telegraph era, and others are rooted in presumptions that ILECs remain monopoly providers of residential voice service. For instance, Windstream was required to offer 

long distance through a separate corporate entity from our local exchange services. 

This and other requirements were dropped in the FCC’s decision, released in May. 

But many other archaic and unnecessary regulations remain on the books, imposing 

costly burdens on our member companies and forcing us to fight with one hand tied 

behind our backs to retain old customers or to gain new ones in the face of obvious 

market evidence demonstrating that competition in the residential voice market is 

thriving. 

Closely related is the question of how the ongoing shift to IP-based services 

should affect regulation. All companies are deploying IP in their networks and appreciate the importance of this conversation, which is enhanced by the creation of 

an FCC task force on the issue. But this transition is a process, and will unfold in 

different ways and at different times for each provider. 

As I noted at the beginning of my testimony, technological changes and the demands of consumers and businesses for new solutions to their communications 

needs have brought real pressure to bear on our regulatory structures. This is a 

challenge for regulators, but also for us, as an industry. Increasingly, there is no 

‘‘one size fits all’’ approach. My company serves both urban and rural markets, it 

serves both residential consumers and business customers. In some areas it operates 

as an ILEC, in some as a CLEC—indeed, as one of the Nation’s largest and most 

successful CLECs. Likewise, the association that I lead is comprised of companies 

offering a variety of services—utilizing copper, fiber, coaxial and wireless platforms—in widely diverse business environments. So, when it comes to issues such 

as interconnection, competitive access, transport, privacy, and public safety, we are 

keenly aware of the need for public policy to balance regulatory treatment among 

competing platforms, to avoid disincenting wireline investment, and, at the same 

time, avoid competitive harm, especially during this transition period that we are 

in, a transition that is technology-driven. Therefore, the goal of our association, and 

my goal as Chairman, is one that I would hope is shared by this Committee: It is 

to forge a consensus on how we can restructure regulatory approaches in a way that 

provides consumers and businesses with all the benefits of the Information Age. In 

areas where the competitive or economic dynamics are not fully understood or where 

there are gaps in our knowledge, we will need to gather and analyze the right data 

to understand the specifics of the situation. Modernizing our regulatory structure 

and planning for a smooth transition to an IP world are essential to the health of 

the wireline industry and all the benefits that it brings our nation, and it is critical 

that reforms be judicious and grounded in fact-based assessment of the modern communications marketplace. 

In closing, my view is that the state of wireline is robust and dynamic. After decades of change, the wireline infrastructure remains the durable and essential core 

for all communications. Cloud computing promises real benefits for businesses and 

consumers, but only if a robust wireline industry can supply the broadband connections on which cloud computing depends. Similarly, advanced healthcare applications, gigabit connections linking research universities and gigabit communities all 

will depend on robust wireline infrastructure. If we are to reach the goals established by President Obama in his ConnectEd initiative to connect our Nation’s 

schools to the Internet at gigabit speeds and the FCC’s goals for a reformed E-Rate 

program, our country absolutely needs a healthy and robust wireline industry continuing to invest billions in broadband infrastructure. 

USTelecom member companies believe the future is bright and are investing accordingly, but we will require your attention and oversight to protect the public interest in strong communication links for all Americans, including in rural areas, and 

to foster a vibrant and innovative market for communications services. 

12 

Senator PRYOR. Thank you. 

Ms. Bloomfield? 

STATEMENT OF SHIRLEY BLOOMFIELD, CHIEF EXECUTIVE 

OFFICER, NTCA—THE RURAL BROADBAND ASSOCIATION 

Ms. BLOOMFIELD. Mr. Chairman and Senators, thank you from 

this Midwestern woman for the opportunity to participate in today’s hearing. 

[Laughter.] 

Ms. BLOOMFIELD. NTCA—The Rural Broadband Association represents nearly 900 small rural telecommunications providers everywhere from the North Slope of Alaska to the Everglades in Florida. 

Our members hold a very deep commitment to the communities 

that they serve because they live there, and these small businesses 

create jobs, they fuel the economy, they connect the world to rural 

America, and frankly, they also connect the wireless devices that 

we all use. But these companies need sufficient Universal Service 

support and regulatory certainty to be able to operate in these 

hard-to-serve areas. 

When we talk about Universal Service, we are really talking 

about the foundation of a universal economy and a better connected 

Nation. Federal law and cost recovery mechanisms, such as USF 

and intercarrier compensation, have long ensured that all Americans can participate in our increasingly interconnected world, leaving no one behind. 

Of course, these programs do need to be reviewed and to ensure 

that they remain applicable and sustainable. But, unfortunately, 

rather than building upon what has actually worked, the USF and 

ICC reforms have generated paralyzing regulatory uncertainty and 

a lost year broadband deployment to the detriment of rural consumers and the small businesses that they serve. 

For several years, we have made every attempt to work with the 

FCC to create a sustainable and predictable path forward. We proposed a number of very common sense solutions and industry 

agreements to responsibly transition these cost recovery mechanisms from voice to a broadband world. My written testimony outlines some of these thoughts, but I want to hit some of the highlights here with you all today. 

First, we need transparency. We need accuracy and predictability 

in the USF system. The FCC has adopted a new statistical model 

which is called ‘‘the quantile regression analysis.’’ It compiles 2- 

year-old data from hundreds of Universal Service recipients and 

then runs the data through a very complex formula to arrive at an 

annual cap on each carrier’s USF support, and that cap is recalibrated every year. The approach is inconsistent with the law that 

mandates that USF be predictable. As such, the QRA should be 

eliminated or perhaps used only as a trigger to flag a given carrier 

for additional review. At the very least, the cap should be phased 

in over a longer period of time until the QRA issues are resolved. 

Second, the FCC should follow through on some earlier promises 

to create a clear and simple waiver process. The FCC touted the 

waiver process as a safety valve for situations where the reforms 

were having the effect of undermining Universal Service rather 

13 

than promoting it. But it has been anything but simple, affordable, 

or successful to date. 

Third, the FCC should not proceed with additional cuts, caps, or 

constraints on USF and intercarrier cost recovery until it has fully 

evaluated the impact of what has already taken place. NTCA really 

appreciates the recent call that the Senate has made for a GAO report that will allow us to study the impacts of these reforms, and 

we believe that having the FCC wait to find out what comes out 

from those findings would be very critical. 

Fourth but not last, the FCC must adopt a sufficient and predictable Connect America Fund for small carriers to fulfill its policy objectives. The irony to date is the FCC has not created a Connect 

America Fund for rural carriers and has only actually cut legacy 

USF and intercarrier comp programs, which has led to higher rates 

for service and less investment. 

We talk a lot about the IP transition, and rural network operators have really been at the forefront of this evolution, never losing 

sight of some really core principles that I think Congress really 

cares about as well, and those are principles that compel consumer 

protection, the promotion of competition, public safety, and Universal Service. 

NTCA filed an IP evolution petition that highlights that as we 

migrate through this area, which is going to be very complicated, 

consumers and businesses will only benefit if the core objectives remain our collective guideposts. We believe the best way forward is 

to work from a well known regulatory framework and then surgically identify what rules need to be retained, what needs to be 

improved, what can be enhanced, modified, or eliminated that is 

consistent with those objectives. 

And there is probably no more pertinent example of the need for 

clear rules of the road than the call completion epidemic. Rural 

consumers are losing faith in the reliability of critical communication networks and the ability of policymakers to help manage them. 

This widespread problem of calls simply not terminating into rural 

markets is harming consumers, public safety, and the viability of 

businesses that are located in rural America. Rural consumers beyond frustrated and we are greatly appreciative of the help that 

the Senate has shown so far. 

Unfortunately, there has been very little regulatory or economic 

consequence for such failures to date. Congress has produced letters. You have supported a resolution, report language, and the 

FCC has taken some steps to investigate this. But we are begging 

for a more punitive message that this conduct is unlawful and that 

those responsible for the problem will be held accountable. 

So in conclusion, NTCA members want to continue to build upon 

the success story of rural broadband in their difficult-to-serve markets. Also access to affordable content and the ability to compete 

for spectrum in the wireless space are also critical issues. 

We are looking forward to continuing our work with Congress 

and the FCC to get it right. Our Nation’s economic success, our access to natural resources, energy, and food production all depend 

on our getting it right. 

Thank you very much. 

[The prepared statement of Ms. Bloomfield follows:] 

14 

1The Hudson Institute study is available through the following link: http://www.hudson.org/ 

files/publications/RuralTelecomOct2011.pdf. 2This survey can be found through the following link: http://www.ntca.org/2013-press-releases/survey-shows-rural-telecommunications-carriers-postponing-delaying-network-upgrades-because-of-regulatory-uncertainty.html. 3See Ex Parte letter filed on 2/15/13 by Acting Administrator Padalino which can be accessed 

here: http://apps.fcc.gov/ecfs/document/view?id=7022122079 

PREPARED STATEMENT OF SHIRLEY BLOOMFIELD, CHIEF EXECUTIVE OFFICER, NTCA—THE RURAL BROADBAND ASSOCIATION

Chairman Pryor, Ranking Member Wicker, thank you for the invitation to testify 

at the ‘‘State of Wireline’’ hearing. I am Chief Executive Officer of NTCA–The Rural 

Broadband Association which represents nearly 900 small, rural telecommunications 

providers across the country from the North Slope of Alaska to the Everglades National Park in Florida. These companies serve areas long ago left behind by larger 

providers because the markets were too high-cost—too sparsely populated, too far 

from larger towns and cities, and/or just too challenging in terms of topography or 

terrain. As community-based operators, our members hold a deep commitment to 

their consumers. These small businesses create jobs, fuel the economy, and connect 

rural Americans to the world. I was last before this committee days before the Federal Communications Commission (FCC) released its Universal Service Transformation order. I am grateful for the opportunity to address where the reforms 

have led, for better and for worse. I will review where rural carriers stand after Universal Service Fund (USF) and intercarrier compensation (ICC) reform, discuss the 

challenges and opportunities presented by technological evolution, and address lingering concerns regarding access to content and meaningful wireless competition. 

Universal Service Reform 

As our Nation has understood for more than a century, and as Congress recognized by law in 1996, when we speak of universal service, we are really talking 

about the foundation of a universal economy and a better connected nation. The 

USF program helps to ensure that all American citizens and businesses, regardless 

of who they are or where they live, have a reasonable opportunity to participate in 

our increasingly interconnected and online world. The Hudson Institute, for example, has found that investment in rural telecommunications delivers real payback 

for our entire nation, generating $14.5 billion annually in economic activity—$9.6 

billion of which accrued to the benefit of urban areas where equipment manufacturers, contractors, and other service providers reside.1 As the foundation of telecom 

investment and operations in many hard-to-serve, high-cost areas, and the solution 

that promotes affordable rates to facilitate adoption by rural consumers, the USF 

program has therefore been a terrific success story for both those rural areas and 

for our nation as a whole. 

Now, all stakeholders agreed that the USF program needed modernization and 

common sense measures to adapt to a broadband world and to make it more sustainable over time. Unfortunately, rather than building upon what had worked to 

update the USF program for a broadband age, the reforms put into place by the 

FCC in 2011 have caused a significant amount of regulatory uncertainty, have frustrated access to capital for network deployment, and have resulted in what might 

be called at least one ‘‘lost year’’ in broadband deployment by small rural carriers 

with the threat of more to follow. Indeed, several surveys and other data points confirm that broadband investment by small rural carriers has all but ground to a halt 

in the wake of the 2011 reforms. For example, a recent survey conducted by 

NTCA—The Rural Broadband Association 2 underscores just how real the impacts 

have been. Out of 185 small carrier respondents, 127 indicated they have either 

postponed or cancelled plans to upgrade their network infrastructure due to lingering regulatory uncertainty. One-hundred and one of these respondents indicated 

that the combined value of the projects put on hold equaled more than $492 million. 

A publicly filed summary of a meeting between U.S. Department of Agriculture 

(USDA) Secretary Thomas Vilsack and then-FCC Chairman Julius Genachowski 

further highlights how the 2011 USF changes have chilled network investment.3

Even as that filing explained how the economic stability of rural areas depends on 

the availability of resilient robust communications infrastructure financed in significant part by USDA programs, the letter also reported that, in Fiscal Year 2012, carriers were able to draw down only 37 percent of the telecom infrastructure financing 

made available by USDA. USDA expressly noted that current and prospective borrowers of the program cited uncertainty arising out of the FCC’s changes in declining to move forward with planned construction efforts, and the threat of more 

changes to come only exacerbates such concerns. CoBank, one of the few other lendVerDate Nov 24 2008 07:09 May 13, 2014 Jkt 075679 PO 00000 Frm 00018 Fmt 6633 Sfmt 6621 S:\GPO\DOCS\87817.TXT JACKIE
15 

4See ‘‘State USF White Paper: New Rural Investment Challenges’’ by Michael J. Balhoff and 

Bradley P. Williams, June 2013, accessed here: http://www.balhoffrowe.com/pdf/BW%20State% 

20USF%20White%20Paper%20June%202013.pdf. 5See Comments of CoBank filed June 21, 2013, WC Docket No. 10–90, pages 4–5. 

ers to small rural carriers for network deployment capital, has also apparently severely cut back its lending in this space,4 and the bank recently made a filing at 

the FCC explaining how regulatory uncertainty surrounding the USF program was 

challenging its ability to advance capital in support of rural telecom investment.5

It is not as if demand by carriers and consumers is not there—to the contrary, 

it is quite clear that consumers across the country are seeking increased levels of 

broadband, and as always, rural telcos are willing and eager to serve them. Moreover, our companies only serve these rural markets, meaning that it is not as if they 

would rather divert resources to invest and provide cutting-edge services only in 

larger addressable markets. Similarly, it is not as if lenders are disinterested in the 

space—to the contrary, USDA and firms like CoBank and the Rural Telephone Finance Cooperative have long stood ready to help with the deployment of advanced 

communications networks in rural areas. Rather, the concerns that have reduced 

loan demand and availability arise specifically out of whether regulatory changes 

now being implemented—and the threat of further changes perhaps still to come— 

will preclude the payback of loans taken out to advance deployment of broadbandcapable networks to the benefit of consumers and businesses in rural areas. 

In the face of this presumably unintended uncertainty, NTCA has made every effort to work with the FCC and our member companies to create a more sustainable 

and predictable path for USF reform. We have devoted hundreds of hours to meetings with the FCC, other policymakers, and stakeholders aimed at identifying a better path forward that creates regulatory certainty and builds a broadband future for 

rural consumers even while working within broader reform objectives. We have proposed a number of commonsense solutions to facilitate the transition from a legacy 

USF regime to a true and effective ‘‘Connect America Fund’’ for all rural areas, 

while sustaining important accountability measures and recognizing the need to 

promote the fiscal sustainability of the program. Specifically, NTCA has suggested 

time and again over the last eighteen months four essential, straightforward steps 

that can and must be taken to overcome the current regulatory uncertainty and to 

develop a sufficient, predictable, and sustainable USF program for a broadband era. 

We have made some progress on some of these steps, but we also have a good, long 

way to go—and we remain hopeful that the FCC, or Congress to the extent necessary, will help in achieving these four essential objectives. 

First, there is a need for greater transparency, accuracy, and predictability in the 

USF system, post-reform. As one example of several retroactive cuts on support, the 

FCC’s new ‘‘Quantile Regression Analysis’’ (or ‘‘QRA’’) model to cap USF support for 

small carriers has created rampant uncertainty in the rural telecom marketplace. 

For those unfamiliar with the QRA model and its caps, I would urge you to take 

a look at how this incredibly complex system operates. If you thought the old ICC 

system with access charges was complicated, the QRA effectively requires a degree 

in statistics to understand. 

In short, the QRA model takes data from the investments and operations of hundreds of small carriers in the United States from two years in the past and then, 

on the basis of over a dozen different variables, runs through a formula that creates 

caps to govern each carrier’s USF support for a given year. This system is then rerun each year and new caps are generated, always based upon what hundreds of 

other carriers did years before. NTCA and others have filed hundreds of pages over 

the past eighteen months showing how the model’s complexity and its opaque nature are creating regulatory uncertainty. NTCA and others have also made many 

filings showing that errors in the models run the real risk of creating misplaced or 

unjustified caps, and it has been clear at least in early 2012 that the service area 

maps included in the QRA model are not accurate. Despite these obvious flaws, this 

model is still being used to generate caps every year to limit USF support, and no 

carrier can know whether its investments or operations today might trip the caps 

two years from now. This is an unsustainable approach to universal service and it 

runs directly contrary to the congressional mandate that USF be predictable; the 

errors in capturing actual costs used and useful in providing universal service also 

mean the QRA model does not satisfy the congressional mandate that USF be sufficient. 

NTCA and many other stakeholders therefore believe the QRA-based caps should 

be eliminated altogether and replaced with other mechanisms that would provide 

more clear and transparent limits on support. We proposed such a mechanism in 

2011, and we continue to believe that proposal would provide greater visibility into 

16 

how any limits would apply to prospective investments. Yet at the same time, since 

the QRA-based caps are already in effect, we have worked in good faith with the 

FCC to at least try to improve them. The FCC took some welcome interim steps 

last year to cushion the impact of the caps for 2013, and it also directed the commission staff to take further steps to improve the caps predictability. But we are now 

mid-way through 2013, and we have no better idea than we did on January 1 of 

this year what will be done to actually make that happen. If the model and resulting caps will not be eliminated or cannot be substantially improved very soon, the 

caps should then be used only as a ‘‘trigger’’ that flags a given carrier for additional 

review, rather than serving as an automatic disqualifier of recovery of certain costs. 

Alternatively, if they will continue to apply as true caps, their impacts should at 

least be phased-in over a longer period of time as the problems in the system are 

further analyzed and hopefully resolved. But in the absence of either immediate 

steps to address the uncertainty caused by the ever-shifting QRA caps or some other 

relief, we run the risk of 2014 becoming yet another ‘‘lost year’’ of rural broadband 

investment. 

Second, the FCC should follow through with the promises made in its Fifth Order 

of Reconsideration to create a clear, simple process for carriers who need waivers 

from the FCC reforms. The FCC has touted the waiver process as an important 

safety valve where the reforms are having the effect of undermining, rather than 

promoting, universal service. The Fifth Order on Reconsideration attempted to tie 

the standards for a waiver more faithfully back to the universal service provisions 

in the statute, and we were hopeful in the wake of that decision that better progress 

might be made on this safety valve mechanism. Unfortunately, we continue to see 

waivers take incredibly long periods of time to address, cost carriers large amounts 

of money to seek, and, to date, we have seen little, if any, improvement in the process. If the waiver process is to be cited as the last line of defense for universal service, it needs improvement. 

Third, consistent with its commitment to a ‘‘data-driven’’ approach, the FCC 

should not proceed with additional cuts, caps, or constraints on USF support and 

ICC cost recovery until it has evaluated the impact of changes already adopted and 

just now being implemented on consumers and core statutory objectives. A number 

of the reforms contemplate rate increases on rural consumers and are having the 

presumably unintended effect of slowing down broadband investment as already 

noted. Before undertaking additional changes that may only exacerbate these concerns and perpetuate regulatory uncertainty, good policymaking would dictate taking stock of the effects of the existing reforms on broadband deployment, broadband 

adoption, and end-user rates through a data-driven analysis. For example, we appreciate the interest of many Members of Congress in asking the Government Accountability Office to assess such effects starting later this year, and reviewing such 

data over the course of several years as the reforms already adopted continue to be 

implemented will be essential in determining what to do next—and, just as importantly, in determining whether any ‘‘course corrections’’ are needed for reforms already adopted. 

Fourth, but hardly last in importance, the FCC needs to define a path forward 

for a sustainable broadband future for consumers in areas served by smaller carriers. The FCC created a Connect America Fund for larger carriers that will support 

broadband-capable networks, but, as discussed earlier, it has not yet taken such 

steps for consumers in areas served by smaller companies. Instead, it left in place 

legacy USF programs for smaller carriers with changes that reflect, on the whole, 

reductions in USF and ICC revenues. And the irony is that this legacy system, 

while it has worked well and should form the foundation of informed next steps, 

still needs updating to serve the objective of universal service in a broadband-enabled world. Today, if the customer of a small rural carrier wants to stop buying 

plain old telephone service and just wants broadband service alone, that customer’s 

broadband rates would increase because the legacy rules eliminate USF support on 

such a line. It is essential that the FCC update its USF mechanisms to avoid this 

result—it can and should create a targeted and tailored Connect America Fund for 

areas served by smaller rural carriers by providing sufficient support for the networks (both last-mile and transport) that enable the availability of advanced services of all kind in rural markets, regardless of whether each customer chooses to 

buy just plain old telephone service on those networks. This does not require massive changes or substantial reworking of the existing mechanisms along the lines 

of the Connect America Fund that is still in its second year of development for larger carriers. Instead, such a program can build upon the existing mechanism, with 

technical fixes to the existing rules helping to achieve the FCC’s modernization objectives and serve the interests of rural consumers and businesses. 

17 

6This survey can be found through the following link: http://www.ntca.org/images/stories/ 

Documents/Advocacy/SurveyReports/2012ntcabroadbandsurveyreport.pdf. 7This survey can be found through the following link: https://www.neca.org/cms400min/ 

NECAlTemplates/PublicInterior.aspx?id=100. 

IP Technology Evolution 

There has been a great deal of talk in telecom circles recently about the ‘‘IP transition.’’ It is true that an evolution of network technologies is important both to provide increasingly attractive services to consumers and to enable carriers to achieve 

greater functionality and efficiency in their networks. But this is not some ‘‘switch 

to be flipped,’’ or ‘‘flash-cut’’ in moving from one type of network to another. To the 

contrary, while this evolution promises exciting things for our nation, it is not all 

that different in concept from when party-line services in rural areas were eliminated or when analog switches were replaced by digital switches. In fact, the IP evolution is already upon us—it is occurring today as communications networks and 

consumer demands adapt to new technologies and services. 

Rural network operators have been at forefront of this evolution for years. Small 

rural carriers are no longer interested in just being telephone companies. They have 

been and remain innovators who have been making every effort to deploy advanced 

networks that respond to consumers and businesses for cutting-edge services. A recent NTCA survey found that our entire membership now delivers broadband.6 Another study a few years ago by the National Exchange Carrier Association (NECA) 

indicated that smaller rural carriers were already delivering at least basic levels of 

broadband to 92 percent of their customers as of 2010, and more than half of them 

had already deployed or had plans to deploy next-generation, IP-enabled switching 

and routing technology in place of legacy telephone switches within the next year.7

NTCA and its members have been considering for some time how best to promote 

and sustain this evolution to next-generation network technologies. Above all else, 

we believe that core statutory principles relating to protection of consumers, promotion of competition, and assurance of universal service apply by law to all communications, regardless of the technology used within underlying networks. As we 

migrate to newer network technologies and the services they enable, this backdrop 

must not be lost. Instead, consumers and businesses will only benefit if these principles in the statute remain our collective guidepost. 

To help facilitate such a dialogue in policy circles and to shine a light on the need 

for thoughtful consideration of these principles in connection with the IP evolution, 

NTCA filed a petition at the FCC in late 2012. In that petition, we suggested that 

policymakers can best serve these important public policy objectives if they do not 

prejudge the value or inapplicability of specific rules or a broader regulatory framework. Specifically, NTCA contended that policymakers should not dismantle the current regulatory framework simply because underlying network technologies shift, 

while at the same time urging the FCC to also avoid leaving existing rules in place 

merely because they once made sense in an era when consumer preferences, technologies, and competition were different. We therefore urged the FCC to help promote and sustain the ongoing IP evolution by looking at existing rules to see whether each rule still has value in serving the statutory goals of consumer protection, 

promotion of competition, and universal service. Finally, we noted that by starting 

from a well-known regulatory framework and then looking to improve, enhance, 

modify, or eliminate parts of it based upon a surgical review, this would give greater 

certainty to consumers, investors, lenders, and the industry than either a regulatory 

vacuum or maintaining the status quo. 

NTCA’s petition also focused on a number of incentive-based measures which 

would help accelerate the technology transition. The first measure is one I have already mentioned—cleaning up legacy rules that compel consumers of small rural 

carriers to take ‘‘plain old telephone service’’ in order to obtain affordable broadband 

services in rural areas. The FCC resolved this issue for larger carriers serving rural 

areas in deciding to set up a Connect America Fund for them, and it has finally 

started moving forward on this issue for smaller carriers by seeking comments on 

a concept proposed by NTCA and other rural associations. In fact, the record before 

the FCC shows overwhelming support for our proposal. It is therefore our hope that 

the FCC will move to make the technical rule fixes needed to address this issue in 

the near future. 

Another measure identified in the NTCA IP Evolution petition was the establishment of a sufficient ‘‘middle-mile’’ USF support for rural carriers. Here again, the 

FCC is in the process of resolving this issue for larger carriers as part of their ‘‘Connect America Fund,’’ but there is no Connect America Fund program yet for smaller 

companies serving exclusively rural areas. One of the most costly parts of providing 

broadband service to rural consumers is the so-called middle mile network required 

18 

to connect rural consumers to the Internet on-ramps located in distant cities. The 

only way to ensure broadband service will be robust and affordable for rural consumers and businesses over time is to make sure sufficient middle mile support will 

be available for high-cost rural areas. 

Finally, the NTCA IP Evolution petition noted that the FCC has yet to address 

how carriers can interconnect with one another in an IP-enabled world. Even if IP 

networks are more efficient, there are still real and substantial network costs associated with the underlying transport of data from point A to point Z. It is not as if 

all of that data floats on free ‘‘pixie dust’’—there are real networks with real construction and operating costs that must be designed to handle the increasing 

amounts of traffic we all see on our networks, regardless of whether that data is 

IP or otherwise. Clear ‘‘rules of the road’’ for interconnection in an IP-enabled world 

will be essential to ensuring that certain consumers and businesses are not left behind, and to ensure the seamless transmittal of data in accordance with customer 

expectations 

Call Completion 

There is perhaps no more pertinent example of why clear ‘‘rules of the road’’ are 

important than the call completion epidemic that continues to plague rural areas. 

After more than two years since this issue was first brought to the attention of regulators, rural consumers and the carriers that serve them are losing faith in the reliability of critical communications networks and the ability of regulators to help 

manage them. Increasingly over the past few years, calls do not get through to rural 

areas—or when they do, they often have quality problems. This widespread problem 

is seriously and negatively affecting not only consumers, but also public safety and 

the viability of businesses located in rural areas. 

The problem often appears to stem from choices made by originating long distance 

carriers to use the cheapest possible route to transmit calls to rural areas—with the 

apparent sense that, if the calls should happen not to get there because a contractor 

in the middle (often called a ‘‘least-cost router’’ in the telecom industry) fails to deliver the call, there is little regulatory or economic consequence (if any) for such failures. The solution to this problem would require the originating long distance carriers to better police their service quality and the contractors they use. Greater 

transparency into the least-cost routing market would also help, but unfortunately 

scant information is available regarding who provides such services and when and 

where they do so. 

This is not to say that the FCC has done nothing to address this—we just need 

the agency to do more in terms of enforcement, and do so quickly. Congress has sent 

a number of letters to the FCC already urging quick action. The FCC released a 

Declaratory Ruling in February 2012 putting originating long distance carriers on 

notice that they are liable for call failures, even where the cause of the call failure 

is an underlying contractor or least-cost router in the middle. Then just last week 

the FCC reiterated this directive in a sternly worded ‘‘Enforcement Advisory’’ giving 

startling examples of how cavalierly some carriers and least-cost routers have taken 

enforcement efforts to date. The FCC also released a Notice of Proposed Rulemaking 

earlier this year which would force carriers to retain information so that the scope 

of the problem could be ascertained on a company-by-company basis and enforcement action could be pursued. While having access to such data would be an important step forward, complaints of calls failing to reach rural America continue, and 

we are begging the FCC to do more now to send a message that such conduct is 

unlawful. 

The FCC did take action earlier this year, announcing a ‘‘Consent Decree’’ with 

Level 3 Communications, in which the carrier paid a ‘‘voluntary contribution,’’ to 

monitor its call completion performance, and to pay additional amounts if its performance failed to satisfy certain metrics. But more enforcement is needed, as a onetime enforcement action two years after the problem was first brought to light and 

when unknown numbers of calls are still failing on unknown number of networks 

across America won’t do the job. As one state regulator put it, it is time for the FCC 

to ‘‘drop the hammer’’—in fact, it’s more than time to do just that. 

Video Issues 

Small carriers have been providing video service to their consumers for many 

years. In limited areas this may be done in direct competition with large cable companies, enhancing consumer choice. In more remote places where over-the-air signals may be weak and unreliable and/or the small carrier is the only local provider 

available, this is a critical service to customers who need access to local news and 

weather reports. 

19 

8MB Docket No. 05–311, 22 FCC Rcd 5101, 5132–33, ¶ 62 (2007). 9See NECA comments, GN Docket Nos. 09–47, 09–51, 09–137 (filed Dec. 7, 2009), p. 6. 10See ACA comments, MB Docket Nos. 09–182 and 07–294 (fil. Mar. 5, 2012), p. 9 

Video provision is also a broadband issue, as small carriers frequently use the 

same infrastructure to deliver both video and broadband services. In fact, the FCC 

has found that these services are intrinsically linked.8 When small carriers are able 

to offer video and broadband services together, data shows that broadband adoption 

goes up 24 percent,9 which makes it more feasible to invest in broadband networks. 

However, small carriers’ ability to deliver video and broadband services are impeded 

by outdated program access rules that make the business case increasingly difficult 

even for the Nation’s largest cable companies. 

Retransmission consent rules that are now over twenty years old—and thus reflect a very different video marketplace—give programmers a stranglehold over 

video content and prevent small providers from negotiating market-based rates for 

programming. Increasingly, customers are facing blackouts of channels due to programmers’ ‘‘take it or leave it’’ tactics, which are technically prohibited but occur 

frequently. In addition, evidence suggests that small and medium video providers 

pay up to twice the rates that large companies do for the same programming. And 

some types of content that is necessary for a viable service offering, notably sports 

programming, may be subject to even higher rates if it is available at all. 

In addition, recent years have seen a spike in instances where separately owned 

stations within the same market coordinate their retransmission consent negotiations. Such ‘‘coordination’’ has enabled separately-owned broadcasters to command 

retransmission consent prices that are 21 percent to 161 percent higher than each 

station negotiating on its own behalf could command on its own.10 These high rates 

are in turn passed on to consumers and decrease competition in the local television 

market. 

Customers must also pay ever-higher prices for video programming they do not 

even want because programmers force providers to buy multiple unwanted channels, 

and place them in basic service tiers, in order to have access to channels that customers demand. This ‘‘forced tying’’ prevents small providers from offering more affordable packages of channels, and is raising prices to unsustainable levels. 

Technology and the video marketplace have changed drastically since the current 

program access regime was enacted over 20 years ago. Just as we are talking about 

the need to re-evaluate rules in the context of an IP evolution in communications 

networks, it is far past time for policy makers to reform these outdated rules and 

encourage, rather than impede, video competition and broadband deployment. 

Wireless Issues 

Rural consumers require access to a strong and reliable wireless network and 

rural carriers are attempting to meet that demand despite monumental challenges. 

Essential to a robust wireless market is an interconnected wireline network. The 

demand for high capacity fixed wireline broadband to support wireless networks will 

only increase as usage of handheld devices grows. But rural carriers must also know 

they will be able to fully complete in the wireless marketplace before they will attempt to continue to expand their networks through effective use of spectrum. A 

lack of interoperability across the 700 MHz spectrum may lead to spectrum lying 

fallow or islands of rural service with devices that cannot be used outside of a customer’s home service area. A lack of fair and reasonable data roaming agreements 

with large carriers compounds the problem, creating barriers even when spectrum 

is interoperable. Furthermore, rural carriers often lack access to the equipment and 

handsets that are available to larger carriers. At a time when carriers are trying 

to diversify and make good use of spectrum assets, the lack once again of clear 

‘‘rules of the road’’ leaves smaller operators largely at the mercy of larger carriers. 

Finally, as the FCC moves forward with the upcoming 600 MHz auction plan it 

is essential that the agency allow meaningful participation by small rural and regional carriers. Most importantly, the FCC should allow carriers to bid on small license areas which will promote competition throughout the country. 

Conclusion 

NTCA’s membership wants to continue and build upon the success story of rural 

broadband deployment in their hard-to-serve territories, but they will only be able 

to do so once regulatory certainty is returned to their operations and if there is sufficient and predictable USF support that has been reoriented for a broadband world. 

We look forward to continuing to work with Congress and the FCC to get it right. 

Our nation’s economic success—its access to natural resources, energy production, 

and food production, for example—depends on getting this right. 

20 

Senator PRYOR. Thank you. 

Mr. James? 

STATEMENT OF JERRY JAMES, CEO, COMPTEL 

Mr. JAMES. Chairman Pryor, Ranking Member Wicker, and the 

members of the Subcommittee, on behalf of the 200-plus 

COMPTEL members, I want to thank you for the opportunity to 

appear today and talk about the status of the wireline communications industry. 

My name is Jerry James. I am the CEO of COMPTEL, which has 

a 31-year history as the largest trade association for the competitive communications industry, with members providing all forms of 

communications services from voice, data, video, managed services, 

cloud, Ethernet, using every form of technology available to deliver 

service to their customers. 

Many of COMPTEL’s members are small and medium-sized businesses themselves while we do have large members who are national companies with thousands of employees. This committee has 

a history of supporting pro-competitive policies such as the 1996 

Act. Our members are proving this committee is correct in its support of these policies by the fact that COMPTEL members are serving every segment of the telecommunications market on which this 

subcommittee has held status hearings: rural, wireless, video, and 

now wireline. 

On a personal note, in my years in the industry in the competitive companies in Texas, I have seen firsthand how pro-competitive 

policies drive the creation of advanced services, innovation, deployment of technology solutions, while also creating new jobs, new 

companies and economic growth through private investment. 

Today I want to emphasize that the foundation that allows 

COMPTEL members to offer all of these services is the wireline 

network. Wireline is the central nervous system of all the communications networks. Whether it is wireless, video, rural, or all the 

applications and advanced services that go with them, they depend 

on a competitive wireline industry. 

The wireline industry, as the industry transitions to IP, relies on 

two specific pro-competitive policies that ensure a functioning free 

market: last-mile access and IP interconnection. Last-mile facilities 

are the bottleneck for consumers who want to access the services 

and technologies our members provide. COMPTEL members have 

invested billions of dollars constructing fiber networks and adding 

electronics to increase the bandwidth capacities of copper facilities, 

which remain highly valuable and a vital part of the communications infrastructure. Yet, they could not be expected to overbuild an 

entire network. 

This is even more crucial in the business market where the largest ILEC’s still maintain significant market power. Whether the 

issue is special access, copper retirement, or access to packetized 

facilities, there is no escaping the fact that last-mile access is a 

vital input for competition. 

Sound interconnection policy, regardless of the technology or network, must remain in place for functioning markets. In fact, in regard to the issue of IP transition, there is a wide agreement 

amongst competitive carriers, including CLECs, some cable compaVerDate Nov 24 2008 07:09 May 13, 2014 Jkt 075679 PO 00000 Frm 00024 Fmt 6633 Sfmt 6601 S:\GPO\DOCS\87817.TXT JACKIE
21 

nies, rural ILEC’s, and wireless providers, that the FCC should 

confirm that the interconnection provisions of the 1996 Act apply 

with respect to managed VoIP services to provide the certainty 

needed for the IP transition to accelerate. 

It is important that Congress and the FCC recognize that residential and business markets have distinguishing characteristics. 

Businesses choose telecommunications service in a much different 

way than residential customers. While a customer may choose to 

forgo certain levels of quality and reliability for the sake of price, 

businesses cannot afford the same tradeoffs. Yet, it should be clear 

that everyone deserves reliable, high quality voice services. 

Finally, all these issues are wrapped in the IP transition. Let us 

be clear. This is not about the Internet, but just a different signaling protocol for managed voice traffic. IP is nothing new to our 

members. We have been deploying it for decades, some since 1999. 

Competitive companies have always leveraged new technologies to 

drive innovation where the largest incumbents have been slow to 

do so. But the important note here is that the IP transition is just 

that: a transition. It is no different than any other technology evolution that the network has undergone since its inception. 

Competitive providers have been leading this transition and we 

are willing to do it in the future and bring about a new wave of 

innovation. But we are at a crossroads. Basic, fundamental rules 

that ensure competition and consumer choice remain vital. It is important that customers continue to reap the benefits of new technologies and of innovations brought forth by competition. To ensure 

this, the FCC and Congress must continue to embrace pro-competitive policies such as last-mile access and IP interconnection that 

will drive investment, innovation, and more choice in the marketplace. 

Thank you for the opportunity to appear today, and I am happy 

to answer any of your questions. 

[The prepared statement of Mr. James follows:] 

PREPARED STATEMENT OF JERRY JAMES, CEO, COMPTEL 

Chairman Pryor, Chairman Rockefeller, Ranking Member Wicker, Ranking Member Thune and members of the Subcommittee, on behalf of our COMPTEL members, 

I thank you for the opportunity to appear today to discuss the status of the wireline 

communications industry. 

My name is Jerry James and I am CEO of COMPTEL, the oldest and largest 

trade association for the competitive communications industry. COMPTEL started 

more than 30 years ago and today, our association has more than 200 members, including local competitors, broadband providers, wireless carriers, cloud service providers, supplier and professional partners. COMPTEL’s membership is diverse. 

Nearly two-thirds of COMPTEL’s members are small and medium-sized businesses, 

a majority of which have $10 million or less in revenue and fewer than 100 employees. We also have a number of large national companies with thousands of employees. COMPTEL member companies utilize private investment to drive technological 

innovation and create economic growth with their competitive broadband, voice, 

video, Internet, data and other advanced services. Members of the competitive industry continue to be the entrepreneurial innovators. They were the first to deploy 

DSL in the mid-1990s. And, for the last decade, they have been the first to deploy 

next-generation, Internet Protocol (IP)-based managed networks that utilize copper, 

fiber, and wireless technologies. Whether COMPTEL members are helping businesses meet their increasing bandwidth needs by providing Ethernet services, saving small businesses thousands of dollars each month in IT costs by offering cloudbased solutions, or enabling telemedicine by providing telecommunications services 

to rural health care facilities, they are the companies fostering innovation, investing 

22 

1See Cisco Visual Networking Index: Global Mobile Data Traffic Forecast Update, 2012–2017, 

available at http://www.cisco.com/en/US/solutions/collateral/ns341/ns525/ns537/ns705/ 

ns827/whitelpaperlc11-520862.html. 2Letter of William H. Weber, Cbeyond, et al., to Marlene Dortch, GN Docket No. 09–51, p. 1, 

filed Sept. 22, 2009. 3Technology Transitions Policy Task Force Seeks Comment on Potential Trials, GN Docket No. 

13–5, Public Notice, DA 13–1016 (Technology Transitions Policy Task Force, May 10, 2013) (Notice) at 4. 

4The FCC’s most recent local competition report indicates that the PSTN (defined here as retail switched access lines and VoIP subscriptions) consists of just over 141 million retail local 

telephone connections (as of June 2012). Source: Local Telephone Competition, Status as of 

in new facilities to reach their customers, and creating jobs across the United 

States. 

COMPTEL members are serving every segment of the market on which this subcommittee has held status hearings: rural, wireless and video and they are largely 

running and growing their businesses with private investment and very little, if 

any, support from Federal programs. But it is important to emphasize that the key 

element that allows COMPTEL members to offer these services is the wireline network. 

Wireline networks are, and will continue to be, an essential component of the 

communications marketplace for the foreseeable future. Wireline remains the communications medium of choice for small, medium, and large businesses, as well as 

a significant segment of the consumer market. Businesses, in particular, require reliable, high-quality telecommunications services, along with cutting-edge features to 

conduct their day-to-day operations. For this reason, the ability to obtain Quality 

of Service (QoS) and Service Level Agreements (SLAs) is paramount to their operations. A small startup, a customer call center, or a tech support office cannot afford 

to have poor voice quality, or intermittent dial tone. Nor can these businesses afford 

to have unreliable broadband Internet access service. In fact, they would soon be 

out of business without reliable wireline voice and data services. This is a crucial 

point to remember as I address the continued need for the competitive opportunities 

Congress provided for in the Telecommunications Act of 1996 (‘‘the Act’’) . Our members have relied on this law as they invested private capital, which has led to, and 

continues to result in, innovative service offerings and better prices for consumers. 

Furthermore, wireline is an integral element of the Nation’s communications infrastructure. The advances in wireless, specifically 4G/LTE in today’s market, depend on the wireline network to handle the tremendous increase in data consumption that is predicted in the coming years. Cisco estimates that ‘‘[b]y 2017, almost 

21 exabytes of mobile data traffic will be offloaded to the fixed network by means 

of Wi-Fi devices and femtocells each month. Without Wi-Fi and femtocell offload, 

total mobile data traffic would grow at a Compound Annual Growth Rate (CAGR) 

of 74 percent between 2012 and 2017 (16-fold growth), instead of the projected 

CAGR of 66 percent (13-fold growth).’’ 1 Spectrum remains a finite resource. To ensure wireless networks can manage their ever-increasing demand, carriers off-load 

traffic to wireline networks so it can traverse to its destination. 

Competitive Companies Continue to Lead the Way in the IP Transition 

The transition of networks to IP technology is just another step in the evolution 

of the network. Competitive telecommunications companies have been at the forefront of the IP transition for over a decade. Some of our members have been allIP since 1999. Since 2009, competitors have been asking the Commission to take 

action to ensure that the ILECs (AT&T and Verizon, in particular) comply with 

their obligations under Sections 251 and 252 of the Act and allow competitors to 

exchange managed voice traffic with them at points on their network where they 

have IP facilities, so consumers may experience the full benefits of VoIP.2 To be 

clear, we are not talking about ‘‘Over the Top’’ (OTT) VoIP or the Internet, but managed voice traffic exchanged between carriers. 

As the FCC’s recent Public Notice on the IP Transition recognizes, VoIP interconnection has been happening all over the world ‘‘at a rapid rate’’ yet it has been 

delayed in this country notwithstanding ‘‘the efforts of some cable companies and 

competitive local exchange carriers.’’ 3 This delay is not technical. Rather, it is the 

result of the largest ILECs ignoring the Act’s interconnection obligations. These 

large ILECs continue to require competing carriers to convert traffic to legacy TDMformat prior to delivering it to the ILEC even where the ILEC itself has deployed 

facilities that could transport the traffic in packet form on its own network. This 

forced conversion increases cost for unnecessary media gateways, and reduces voice 

quality for consumers because of the unnecessary protocol conversions. The data 

clearly shows that the largest ILECs serve the largest share of voice subscribers 4

23 

June, 2012, Industry Analysis Division, Figure 1, page 2. Of this, AT&T, Verizon and 

CenturyLink (the ILECs that coincidently seek to escape their interconnection obligations) serve 

51 percent of the total connections. Sources: AT&T 10Q 2Q2012 at 18; Verizon 10Q 2Q2012 at 

30; and CenturyLink 10Q2012 at 30. If the ‘‘PSTN’’ is defined to include mobile subscriptions, 

AT&T and Verizon (including their mobile affiliates), as well as CenturyLink, serve 61 percent 

of the total connections. Sources: AT&T 10Q 2Q2012 at 18; Verizon 10Q 2Q2012 at 27; and 

CenturyLink 10Q2012 at 30. 5 Evaluating the Just and Reasonableness of BOC Ethernet Offerings (dated Apr. 2013), Attachment A, to Comments of CompTel, WC Docket No. 05–25, filed Apr. 16, 2013. 

and, therefore, are the largest traffic exchange partners for all voice providers. Larger network operators have no incentive to interconnect with smaller. As a result, 

as the FCC stated in the Local Competition Order (¶ 55) ‘‘Incumbent LECS have no 

economic incentive . . . to provide potential competitors with opportunities to interconnect with and make use of the incumbent LEC’s network.’’ 

Last Mile Access and Interconnection are Vital to the IP Transition’s 

Success 

Both Congress and its expert agency, the FCC, must keep in mind that the marketplace would not be where it is today, but for the requirements of last mile access 

and interconnection. Those two provisions are the foundation on which local competition was able to develop and grow and are technologically neutral. The provisions were enacted by Congress, which recognized that without them, competition 

in the local market would be unsustainable. Though some say those provisions are 

no longer needed, the reality is that last mile access and interconnection are still 

required to ensure a competitive wireline marketplace today and these provisions 

must continue to be enforced by the FCC. 

Access to Last Mile Facilities is Critical to Bringing Consumers Broadband 

Services and Cutting-Edge Technologies 

Competitive providers have invested billions of dollars constructing facilities to 

serve their customers. However, competitors continue to face significant barriers to 

building their own last mile facilities because the fact remains that the large ILECs 

still have the advantages of incumbency (and a 100 year head start) to achieve a 

cost structure that no competitor can achieve. The largest investment costs associated with deploying an IP network (as with any network) exist at Layer 1 (the Physical Layer) with the infrastructure and facilities—including costs to obtain space on 

as poles, rights of way, conduit, local permitting, and buildings—not with higher 

layers that electronically define and control traffic flows. By contrast, large incumbent carriers, such as AT&T and Verizon, have ubiquitous networks that they inherited as a result of their historical monopoly. In light of these facts, it is not surprising that the Government Accountability Office, the Department of Justice, and 

the FCC have all found that in the vast majority of locations in the country, incumbents control the only wireline connection that can be used to serve business customers. AT&T and Verizon have exploited this control to secure an 80 percent share 

of the market for dedicated, high-capacity broadband circuits—known as ‘‘special access’’—that are used to deliver reliable and high-speed services to American businesses. 

The large incumbents have used their overwhelming market power to charge exorbitant prices to competitive carriers that seek to purchase special access circuits and 

use them to provide innovative business broadband services. For example, a recent 

analysis commissioned by COMPTEL shows that AT&T’s prices for so-called packetbased ‘‘Ethernet’’ special access circuits are between six and 11 times higher than 

prices for comparable services.5

The large incumbents further use their market power to impose anticompetitive 

terms and conditions through exclusionary, ‘‘demand lock up’’ plans on competitive 

carriers seeking to purchase special access. For example, in many areas, in order 

to obtain a ‘‘discount’’ on circuits for which a purchaser has no alternative supplier 

(i.e., the vast majority of circuits), the purchaser must commit to buying the majority of its total circuit demand from the incumbent—including circuits for which a 

cheaper alternative may be available. In addition, large incumbent LECs include 

‘‘take or pay’’ provisions in their special access contracts so purchasers that do not 

meet their volume commitments are nonetheless required to pay for any committed 

but unused circuits. 

The large incumbents’ failure to offer special access circuits on just and reasonable rates, terms, and conditions—as required by the Communications Act—not only 

threatens innovation and investment in business broadband, but also has consequences for the larger economy. A recent study, found that failure to reform the 

FCC’s special access policies, among others, could result in a loss of as many of 

24 

6Susan M. Gately et al., ‘‘The Benefits of a Competitive Business Broadband Market’’ (April 

2013). 7 Reply Declaration of Betsy Farrell Supporting Comments of AT&T California, Before the 

California Public Utilities Commission, Rulemaking to Evaluate Telecommunications Corporations Service Quality Performance and Consider Modification to Service Quality Rules, Rulemaking 11–12–0001, filed March 1, 2012, at ¶ 43. 8 Although the Commission‘s ICC reform seeks to end the system of access support, the fact 

is that the system went on for decades and the local networks of the ILECs are largely fully 

depreciated. Nationally, in 2007, which is the last year the FCC required that this information 

be made public, 73 percent of the Total Plant in Service had been depreciated, and nearly 75 

percent of the Cable and Wire Facilities had been recovered. 2007 ARMIS 43–04, Total Large 

ILECs, Rows 2260, 3080, 1530 and 3060. 9 AT&T serves over 39 million wireline voice connections, while Verizon serves over 24 million 

wireline voice connections. AT&T data available at http://www.att.com/gen/investor-relations?pid=262, 4Q2011, Financial and Operating Results (PDF), page 13 of 21. Verizon data 

available at http://www22.verizon.com/investor/qreportlquarterlylearningslverizonl4ql 2011l01242012.htm, 4Q2011, Financial and Operating Information (PDF), page 16. 

300,000 existing jobs in the telecom sector and a reduction of up to $30 billion per 

year in capital expenditures in U.S. telecommunications networks.6

Congress should urge the FCC to take swift action to prevent these harms. First, 

the agency should use the existing record in the long-pending special access rulemaking proceeding to adopt interim rules to address incumbent carriers’ exclusionary, special access ‘‘demand lock up’’ plans. Second, while the FCC has adopted 

a mandatory information collection to gather data on special access prices, terms, 

and conditions, it has not yet submitted that information collection to the Office of 

Management and Budget for approval. The agency should do so as soon as possible. 

Third, the FCC should use the information it collects to conduct a market power 

analysis and adopt comprehensive final rules that govern the rates, terms, and conditions on which incumbent LECs must offer wholesale access to last-mile facilities 

in the geographic and product markets in which they possess market power. And 

those rules should apply to both so-called legacy, ‘‘TDM-based’’ last-mile facilities 

and newer, packet-based last-mile facilities. 

There is no question that the large ILECs use the advantages of incumbency to 

achieve more economical cost structures in network deployments. For instance, 

Verizon’s FiOS fiber network not only shares the same infrastructure that houses 

its copper facilities, its copper network also becomes the supporting infrastructure 

when Verizon lashes the fiber directly to the copper cable. AT&T‘s U-verse architecture exploits the preexisting copper network to an even greater extent, as it relies 

on the existing local copper loop (albeit shortened) to connect individual subscribers 

to its U-verse fiber. As AT&T explains: 

AT&T does not have two separate outside plant networks. For its high-speed 

U-verse services, AT&T deployed fiber from central offices to specialized field 

terminals, after which U-verse services travel to the customer‘s location over 

copper facilities. The copper and fiber infrastructures combine to make a single 

seamless network.7

AT&T‘s cable and wire facilities were deployed over many decades and the deployment was protected by regulatory policy and subsidies.8 The costly physical assets 

that underlie the IP networks of Verizon and AT&T are the same assets that have 

served as the PSTN for years. In addition to these physical assets, these ILECs are 

leveraging the other great benefit of incumbency: a still massive customer-base.9

Finally, where it is not feasible for COMPTEL members to build their own facilities, many are investing in technologies that maximize the bandwidth capacity and 

speed of the existing copper network. Members are offering Ethernet over Copper 

(EoC) services to small and medium-sized businesses that allow for high-speed 

broadband services. Moreover, as fiber has still not been deployed to a large percentage of buildings, copper remains a critical resource for delivering high capacity 

broadband services to these buildings. 

Some large incumbents have begun to remove existing copper facilities over which 

EoC services are provided. Unfortunately, because the FCC has permitted incumbents to deny competitors access to other facilities, including packetized facilities, 

that enable the delivery of broadband services, the competitive alternatives available to customers diminish or disappear. The FCC must revise its current rules to 

take into account not only the continued value of existing network infrastructure, 

but also competitor access to advanced broadband facilities continues to best serve 

consumers. 

25 

Sound Interconnection Policy is Vital for Functioning Markets 

It is vital for any successful communications policy to guarantee the ability of 

service providers to interconnect with other providers, regardless of the technology 

used in the underlying networks. As long as we maintain and promote a strong 

interconnection policy in telecommunications services, investment is higher, prices 

are more competitive, jobs and productivity increase, and innovation flourishes. 

IP-to-IP Interconnection for Exchanging Voice Traffic is Nothing New 

Under the Act 

Congress mandated interconnection between competing providers in the 1996 Act 

because it understood the history of the industry and that competition itself does 

not ensure interconnection between providers, especially where some are much larger than others, and possess market power. Sections 251/252 provide for interconnection at any technically feasible point, at just and reasonable rates, and the opportunity for arbitration where the parties’ negotiations fail. These protections continue 

to be necessary as the PSTN transitions from TDM to IP transmission technology. 

Congress has already established the framework for negotiations and minimum requirements, as well as the process for the arbitration/approval of interconnection 

agreements. Additionally, the FCC’s record is complete in demonstrating that VoIP 

interconnection falls within that framework. In its universal service/intercarrier 

compensation order that was released in November 2011, the FCC found that IP 

interconnection for voice services is critical, that the interconnection provisions in 

the statute are technology neutral, and that it expected carriers to negotiate in good 

faith in response to requests for IP-to-IP interconnection agreements for the exchange of voice traffic. 

There Is Widespread Agreement that the Communications Act’s 

Interconnection Provisions Still Apply 

The FCC is actively considering IP interconnection issues in its universal service/ 

intercarrier compensation proceeding. The record is complete and industry members, including cable providers, rural ILECs, and wireless providers, overwhelmingly 

support a ruling from the FCC that the ILECs must negotiate VoIP interconnection 

agreements. The reasons for this support are that: 

(1) the largest ILECs have ubiquitous networks in their service territories with 

access to every home and business; 

(2) these same ILECs continue to serve the majority of both business and residential wireline consumers in the U.S.; and 

(3) alternative providers cannot compete if they do not have an interconnection 

agreement with the ILECs. 

Today, our members only have interconnection agreements with the ILECs to exchange traffic in TDM format, and it is widely recognized that the transition to IP 

in the U.S. has been slowed by the lack of interconnection with the major ILECs. 

Indeed, the FCC’s own Technology Advisory Council observed that the major ILECs 

are slowing the transition by refusing to negotiate interconnection agreements and 

that the FCC could speed the process by answering the critical question of whether 

Sections 251/252 of the Communications Act apply to VoIP interconnection. 

The technical feasibility of VoIP interconnection has already been established. The 

largest ILECs have the facilities in their networks to exchange voice traffic over the 

PSTN with other carriers on an IP-to-IP basis. All that is truly needed to move the 

industry forward in the transition is for these ILECs to comply with the interconnection provisions of the Act. Consumers should not have to wait any longer to 

reap the benefits of this new technology. Accordingly, the Commission should address the IP policy framework and confirm that Sections 251 and 252 apply to IPto-IP interconnection. 

The Importance of Managed Networks for Voice Services 

Managed VoIP service is voice service transmitted using IP technology over 

wireline, wireless, and coaxial cable networks. Unlike the services over the Internet, 

managed IP services, including managed VoIP services, can provide the kind of service-level guarantees that businesses expect. The Internet is a ‘‘best efforts’’ network, 

which means that traffic is routed and congestion controlled based on the principal 

of ‘‘first come, first routed.’’ In contrast, managed IP services can match performance 

26 

10See NRRI white paper entitled ‘‘The Transition to an All-IP Network: A Primer on the Architectural Components of IP Interconnection’’ available at http://communities.nrri.org/documents/317330/7821a20b-b136-44ee-bee0-8cd5331c7c0b. 11Local Telephone Competition, Status as of June, 2012, Industry Analysis Division, Figure 

5, page 7. http://transition.fcc.gov/DailylReleases/DailylBusiness/2013/db0621/DOC-3215 

68A1.pdf. 12 AT&T: How AT&T U-verse Voice is different from the digital voice products of other providers, available at http://www.att.com/esupport/article.jsp?sid=KB401031#fbid=L8RYx19uzva. 13 Verizon Press Release, ‘‘FiOS Digital Voice: Here’s How It Works, Verizon’s Managed IP 

Network Links Customers’ Homes to Softswitch and Applications Service, Enabling Innovative 

Services,’’ June 3, 2010, available at http://newscenter2.verizon.com/press-releases/verizon/ 

2010/fios-digital-voice-heres.html. 

to the particular needs of different information flows obtained through traffic management techniques.10

Consequently, managed voice services remain the dominant form of voice communications in the U.S., even when just looking at VoIP service. While some consumers 

may find an OTT VoIP service that is transmitted over the public Internet sufficient 

for their needs, the majority do not. This conclusion is supported by the fact that 

only 10 percent of all U.S. VoIP subscribers use OTT VoIP services.11

Indeed, AT&T and Verizon’s own product design and marketing for their managed 

VoIP services demonstrate the need to assure customers that their voice service 

does not traverse the Internet. AT&T confirms to its customers that ‘‘AT&T U-verse 

Voice service is provided over AT&T’s world-class managed network and not the 

public Internet.’’ 12 Likewise, Verizon explains to its customers that its managed 

VoIP service ‘‘is not the same as the services you get with a little Internet adapter 

for your modem and phone, and it does not ever touch the public Internet.’’ 13

Nonetheless, a common, inaccurate theme echoed by AT&T and Verizon is that 

the mere existence of Internet peering and transit agreements demonstrates that 

unregulated interconnection agreements for managed voice services will allow competition to flourish. However, what AT&T and Verizon neglect to plainly state is 

that the peering agreements used to move Internet traffic that they cite so freely 

are not used to terminate traffic to their FiOS and U-verse customers because those 

customers receive managed voice services. While the FiOS and U-verse networks 

use IP transmission technology, the traffic does not traverse the public Internet. 

In fact, there is no question that these managed VoIP services differ from the public Internet, nor is there any question that the exchange of this traffic will be subject to agreements that differ from the Internet peering arrangements that AT&T 

and Verizon continuously and erroneously cite. The only relevant question is whether IP interconnection agreements and network arrangements will be nondiscriminatory, reciprocal and public (which are the core requirements of Sections 251 and 

252), or offered only to favored partners, distorted by one-sided compensation obligations, and secret. 

Conclusion 

Congress should encourage the FCC to examine solutions and policies that allow 

consumers and businesses to continue to reap the benefits of the competitive telecommunications marketplace. It is not just about access for competitive telecommunications providers. It is about ensuring that the Nation’s businesses continue to have access to cutting-edge digital technologies and applications that drive 

value and growth. The ability of competitive service providers to interconnect and 

access the underlying communications infrastructure on reasonable terms and conditions, while maximizing existing infrastructure, will continue to provide consumers and businesses with the tools they need to succeed and increase economic 

growth and opportunities throughout the Nation. 

Senator PRYOR. Thank you. 

Mr. Downes? 

STATEMENT OF LARRY DOWNES, INTERNET INDUSTRY 

ANALYST AND AUTHOR 

Mr. DOWNES. Thank you, Chairman Pryor and Ranking Member 

Wicker, members of this subcommittee. Thank you for this opportunity to testify today on the state of wireline communications. 

My name is Larry Downes. I am based in Silicon Valley, and I 

am an Internet industry analyst, the author of several books on the 

27 

information economy, innovation, and the impact of regulation. I 

have also written extensively on the effect of communications regulation on the dynamic broadband ecosystem and, in particular, the 

role played by the FCC and local regulators. 

This is, obviously, an exciting time to be talking about the state 

of wireline. As you all know, the communications industry is in the 

midst of its most profound technological transformation in over a 

century of evolution. The old public-switched telephone network, 

the PSTN, is quickly being succeeded by native IP networks, the 

foundation of the modern Internet. 

Quite simply, the IP transition is already happening. As many as 

half of all U.S. homes have already cut the cord to the PSTN, a 

number that could rise to 75 percent by 2015. They have moved to 

all IP broadband networks delivered over a range of infrastructure 

technologies, including cable, fiber, satellite, and mobile. 

And they have moved for a good reason. The regulated PSTN 

world is static. It offers voice services in a world where voice has 

not only become just one of many forms of communication, but increasingly one of the least favored. For data traffic, it offers slow 

data speeds, too slow to support fast-growing high definition video 

applications. We now have better and cheaper technology available 

to us. When that happens, as history makes abundantly clear, it 

is only a matter of time before consumers make the switch and increasingly less time at that. 

Critics of an accelerated IP transition warn of the risk of leaving 

behind the remaining Americans who still rely solely on PSTN, 

particularly in rural communities and among some elderly and lowincome households. 

We in Silicon Valley see it very differently. We believe that the 

faster we can shut down the obsolete PSTN network, the faster we 

can help those users who still rely on it make the leap to the 21st 

century to broadband Internet and all it has to offer. 

According to research from the Pew Internet study, 20 percent of 

American adults still do not use the Internet, a group that nearly 

perfectly overlaps with those still tied to the PSTN network. Sadly, 

nearly half of that group give as their primary reason not the cost 

of broadband services but simply that they do not think there is 

anything there for them. Moving them to an all IP network, if only 

for voice, will get us halfway toward showing them otherwise. The 

other half should be easy or at least easier. 

I share the worthy goal of the FCC’s 2010 National Broadband 

Plan of full broadband adoption as soon as possible and for the reasons the plans authors so ably spelled out. We want everyone on 

the Internet, not just at home but around the world. The Internet 

exhibits what economists call ‘‘network effects,’’ which means that 

the more people and devices and apps that use it, the faster its 

value increases. 

With the PSTN network off and everyone transitioned to native 

IP networks, we can that much sooner build out the next generation of Internet services that will revolutionize education, health 

care, energy, employment, community, public safety, and entertainment. 

There are, of course, many complicated issues to be resolved in 

shutting down the PSTN, which is why the FCC is now considering 

28 

1Larry Downes is an Internet industry analyst and author. His books include Unleashing the 

Killer App (Harvard Business School Press, 1998), The Laws of Disruption (Basic Books, 2009) 

and Big Bang Disruption: Strategy in an Age of Devastating Innovation (Penguin Portfolio, forthcoming 2013). 

petitions for trials in select markets. Many of those submitting 

comments paint dramatic, doomsday scenarios even from simple 

trials. Frankly, the most extreme concerns were raised by self-interested parties eager to slow the transition to a speed more suited 

to their own business strategies. But conducting the trials in any 

case will make abundantly clear which are real and which are 

ephemeral. 

We still have to solve potentially thorny transition issues, including public safety and ancillary technologies such as security systems, health monitoring equipment, and others that today require 

a connection to PSTN in order to function. 

But technology entrepreneurs believe that the best solution to a 

technology problem is more technology, not more government mandates, byzantine regulatory structures that lend themselves to 

abuse. Set a date for IP transition and watch how fast the remaining technological and business hurdles evaporate as innovators do 

what they do best, solve problems on deadline. 

As I describe in my written testimony, however, there is a clear 

and inevitable role for Congress and the FCC to play in bringing 

the extraordinary benefits of broadband IP to everyone, much as 

there was in the transition from analog to digital television. But we 

should heed the lessons of that flawed earlier effort. For one thing, 

we need to set aggressive targets and stick to them. If we do, the 

problems, real and imagined, will largely take care of themselves. 

Thank you and I look forward to your questions. 

[The prepared statement of Mr. Downes follows:] 

PREPARED STATEMENT OF LARRY DOWNES,1 INTERNET INDUSTRY ANALYST

AND AUTHOR

Chairman Pryor, Ranking Member Wicker and members of the Subcommittee, 

thank you for this opportunity to testify on the state of wireline competition. 

My name is Larry Downes. Based in Silicon Valley, I am an Internet industry analyst and the author of several books on the information economy, innovation, and 

the impact of regulation. I have also written extensively on the effect of communications regulation on the dynamic broadband ecosystem, and in particular the role 

played by the FCC and local regulators. 

Summary 

Wireline communication is in the midst of its most profound technological transformation in over a century of evolution. The old public-switched telephone network 

(PSTN) is joining other obsolete networking technologies in converting to the packet-switched network protocols of the Internet (IP). Analog equipment is being replaced with digital; copper is being replaced or supplemented with fiber optic cable. 

Voice, video and data are converging onto a single standard, and moving over a single global network infrastructure. 

The emerging communications ecosystem, which includes broadband networks 

using fiber, cable, satellite and mobile technologies, is exponentially more efficient, 

extendable, and powerful than the separate, aging networks it is replacing. It offers 

new services that were unimaginable just a few years ago, and promises to accelerate its offerings in the coming decade. It is generating profound economic growth 

and new competitive advantage for American businesses that are leading the revolution. 

The nature of wireline competition has changed utterly, and will continue to 

evolve as IP our technology industries complete their conversion to Internet standards. Wireline network operators, as the FCC acknowledges, increasingly compete 

29 

2Larry Downes, FCC Refuses to State the Obvious: Mobile Market is Competitive, CNET 

NEWS.COM, April 3, 2013, available at http://news.cnet.com/8301-1035l3-57577630-94/fcc-refuses-to-state-the-obvious-mobile-market-is-competitive/. 3See Reed Hundt & Blair Levin, THE POLITICS OF ABUNDANCE: HOW TECHNOLOGY CAN FIX

THE BUDGET, REVIVE THE AMERICAN DREAM, AND ESTABLISH OBAMA’S LEGACY 9 (2012). 4Larry Downes & Paul F. Nunes, Big Bang Disruption, HARVARD BUSINESS REVIEW, March, 

2013, at 44, available at http://hbr.org/2013/03/big-bang-disruption/ar/1. 5 Joseph A. Schumpeter, CAPITALISM, SOCIALISM, AND DEMOCRACY (Harper 3d ed. 2008) (1942). 6Larry Downes, Toward a Technology ‘Watchful Waiting’ Principle,’ TECHNOLOGY LIBERATION

FRONT, Jan. 17, 2013, available at http://techliberation.com/2013/01/17/toward-a-technologywatchful-waiting-principle/. See also Geoffrey A. Manne & Joshua D. Wright, Innovation and 

the Limits of Antitrust, George Mason Law & Economics Research Paper No. 09–54 (Oct. 27, 

2012) (‘‘It is because of these dynamic and often largely unanticipated consequences of novel 

technological innovation that both the likelihood and social cost of erroneous interventions 

Continued 

not only with each other but with providers of mobile and other broadband networks, as well as cloud hosting and digital commerce services, content providers, 

consumer electronics device manufacturers, and operating system and other software developers.2 Already, American consumers are enjoying the benefits of highly 

competitive, integrated markets for all manner of communication and information 

services. 

While phone companies once dismissed the Internet as an inferior communications protocol for voice, carriers large and small have now embraced it. As switched 

network technology matured, IP has zoomed ahead, supporting exploding demands 

from consumers, small businesses, cloud-based services, and the coming deluge of 

machine-to-machine communications known as ‘‘the Internet of Things.’’ This new 

ecosystem is emerging organically from the deployment of robust, global broadband 

IP networks, a dividend from over $1 trillion in private funding invested in IP-based 

technologies in the first decade of the commercial Internet.3

Not surprisingly, the communications industry itself is being affected more profoundly than any other by disruptive technologies. But the transition to an all-IP 

network follows a pattern in disruptive technological innovation I have been studying for most of my career. In our recent Harvard Business Review article, ‘‘Big Bang 

Disruption,’’ my co-author Paul F. Nunes and I reported on research into a new 

model of technology-based innovation, one that is dramatically remaking every sector of the global economy, and in record time.4

This accelerating pace of industry change, I believe, has profound implications for 

the regulatory process, particularly for agencies operating at the center of what Joseph Schumpeter once called ‘‘the perennial gale of creative destruction.’’ 5

Dynamic, technology-driven markets, for example, increasingly remedy their own 

harms more quickly and far more efficiently than regulators can. As change accelerates, on the other hand, the deliberative pace of regulation increasingly means that 

by the time laws are passed and rules are made, consumers, markets, and providers 

have long since moved on. 

Under laws that date back nearly a century, regulatory agencies such as the FCC 

continue to tinker with 21st century problems using a 19th century toolkit. They 

are encouraged to do so by the siren song of competitors who prefer to lobby than 

to evolve, and by state and local regulators who fear they will play a far smaller 

role in the broadband future. 

But it is simply impossible even for those of us in Silicon Valley and other technology hubs to anticipate how future technology improvements will evolve and the 

kinds of markets they will both create and destroy. Government must admit to its 

institutional hubris. Today’s laws and regulatory rules reflect a profoundly dangerous belief that, despite being disconnected from the messy realities of rapid technology change, regulations can nonetheless predict the future and head off consumer 

harms that haven’t yet occurred. 

But regulators cannot imagine what is to come, even in the short term. No one 

can. Instead Silicon Valley investors have refined the art of making small bets on 

a range of experiments, watching closely to see which ones consumers embrace. 

Increasingly, the risks of government getting it wrong outweigh the benefits, if 

any, of intervention. 

I urge this Committee, in its analysis of communications and technology markets 

and industries, to consider adding a healthy dose of technological humility—of 

adopting a ‘‘watchful waiting’’ principle for disruptive technologies, and Hippocraticlike oath to ‘‘first do no harm.’’ Legislate only when it’s clear that there is demonstrable harm to consumers, a remedy that isn’t so broad as to cause unintended negative side effects, and no reasonable hope that the next generation of technology will 

moot the problem before new rules can be crafted.6

30 

against innovation are increased.’’), available at http://papers.ssrn.com/sol3/papers.cfm 

?abstractlid=1490849. 7Some of the comments that follow are derived from Comments filed with the FCC that I filed 

jointly with TechFreedom and the International Center for Law & Economics. See How the FCC 

Can Lead the Way to Internet Everywhere by Enabling the IP Transition, Reply Comments of 

Geoffrey A. Manne, Matthew Starr, Berin Szoka and Larry Downes, IN THE MATTER OF THE

TECHNOLOGICAL TRANSITION OF THE NATION’S COMMUNICATION’S INFRASTRUCTURE, GN Docket No 

12–353, (Filed on Feb. 25, 2013), available at http://apps.fcc.gov/ecfs/document/view?id 

=7022125022. 8 Communications Act of 1934, 47 USC § 151 et. seq. (1934). 9Larry Downes, Larry Downes, Telcos Race Toward an all-IP Future, CNET NEWS.COM, 

Jan 8, 2013, available at http://ces.cnet.com/8301-34435l1-57562644/telcos-race-toward-anall-ip-future/. 

My testimony addresses the most significant regulatory challenge facing the 

wireline industry today: the transition to all-IP networks and the accelerated retirement of the obsolete PSTN. I will describe what I see as the most productive role 

for Congress and the FCC in supporting that transition, and the benefits of universal broadband adoption and economic growth that will result from getting it 

right. I will also discuss the particular issue of IP-to-IP interconnection, and lessons 

learned from the flawed but ultimately successful transition, last decade, from analog to digital television. 

Accelerating the IP Transition7

The IP-based ecosystem reduces economic friction to dramatic effect. In information industries more than anywhere else, entrepreneurs now develop new products 

and services in real-time. Indeed, early users are increasingly co-developers, participating in product design, financing (through services such as Kickstarter), marketing and even customer service. The result is a new kind of technology disruptor, 

the ‘‘big bang disruptor’’: one that enters the market as a cheaper, higher-quality, 

and more customizable substitute for existing products offered by incumbent providers. 

In response to the sudden abandonment of older products and services by consumers with easy access to new big bang disruptions, many incumbents fail to 

adapt, unable to accept the death of the generation of core technologies on which 

their companies were built. 

Challenging much of the conventional wisdom of strategy and competition, my coauthor and I argue that incumbents, if they are to survive, must learn to see disruption coming much sooner and react decisively and quickly. Incumbents trained by 

a generation of strategic planning theory to wait for new markets to mature before 

beginning the transformation of their core business have waited too long. Many 

don’t survive the transition. 

Big Bang Disruption is nowhere more visible than it is in the communications industry itself. It is hard to overestimate the magnitude of the shift taking place in 

our technology infrastructure. Like many of the industries in our study, the transformation is following a familiar pattern. As disruptive technologies become both 

better and cheaper, customers abandon older products and services gradually, and 

then suddenly. 

This is especially true for legacy PSTN providers still operating under Title II of 

the Communications Act.8 For legacy PSTN providers, pricing, quality, and access 

to infrastructure by competitors are all regulated on the slower clock speed of government agencies. As their customers migrate to better and cheaper alternatives 

that are free of such regulations, the added gravitational pressure on the incumbents, who must continue to operate as common carriers, becomes unbearable. 

PSTN providers can’t beat better and cheaper with worse and more expensive, especially when worse and more expensive has to stay that way as a matter of law. 

They must move faster. Customers are abandoning wired telephone service in 

favor of fiber and cable-based Voice over IP (VoIP) and mobile broadband at a remarkable rate. At its peak, the PSTN network connected nearly every American. By 

the end of 2011, less than half of all American homes still had a wired connection. 

That number could fall to as little as 25 percent by 2015.9

The disruptor here, of course, is networking technology that operates natively 

using the packet-switching protocols of the Internet. IP networks, crucially, don’t 

care if the packets contain voice, data, or video content. While phone companies 

once dismissed IP as unsuitable for voice communications, carriers large and small 

have now embraced IP as the only option to satisfy exploding demand of consumers, 

cloud-based services, and the coming data deluge of machine-to-machine communications known as ‘‘the Internet of Things.’’ 

31 

10 Id. See also Larry Downes, AT&T Moves Dramatically Towards ‘‘Internet Everywhere,’’ 

FORBES, Nov. 8, 2012, available at http://www.forbes.com/sites/larrydownes/2012/11/08/attmoves-dramatically-towards-internet-everywhere/. 11Larry Downes, FCC Again Balks on Telephone Network Shutdown, CNET NEWS.COM, May 

14, 2013, available at http://news.cnet.com/8301-1023l3-57584306-93/fcc-again-balks-on-telephone-network-shutdown/. 12FCC, Eighth Broadband Progress Report, GN Docket 11–121 (Aug 21, 2012), ¶ 122 at p. 54, 

available at http://hraunfoss.fcc.gov/edocslpublic/attachmatch/FCC-12-90A1.pdf. 13Pew Internet and American Life Project, Digital Differences, April 13, 2012, available at 

http://pewinternet.org/Reports/2012/Digital-differences/Main-Report/Internet-adoption-overtime.aspx. 

That superior design has created an enormous black hole for PSTN network operators. As fewer customers subscribe to wireline services, the cost of maintaining 

aging copper and analog switches is increasing dramatically, both in absolute terms 

and on a per-customer basis. As much as 50 percent of current wireline expenditures go toward maintenance. By comparison, the operating expenses of native IP 

networks can be as much as 90 percent less than for PSTN.10

To their credit, the incumbent providers are trying to retire and replace what had 

been, until recently, their most valuable assets. Both Verizon and AT&T have spent 

billions accelerating the replacement of copper with fiber, and circuit-switched with 

packet-switched equipment. 

But turning off the old network isn’t as simple as it sounds. By law, carriers cannot retire the switched network without Federal and perhaps state regulatory approval, even if superior alternatives are in place. And the FCC and state regulators 

have balked at giving permission for the switchover, calling for more study on proposed trials for PSTN to IP switchovers in test markets.11

The longer the carriers are required to spend money maintaining the obsolete networks, however, the less capital budget is available to accelerate the replacement 

of aging and obsolete equipment with better and cheaper IP technologies, including 

fiber optics, digital switches, and upgrades to straining cellular networks. 

In the end, the real victims of the regulatory logjam are the remaining wireline 

customers who are also, not surprisingly, the ones least likely to be benefiting from 

Internet services. The customer segments that are farthest behind in broadband 

adoption, according to FCC data, are those most likely to be relying on switched 

telephone networks as their only form of communication access.12 These include 

rural users, seniors, and low-income customers. 

Getting these communities onto IP networks sooner rather than later eliminates 

the need for expensive duplication of the obsolete switched infrastructure. It will 

also make it easier and less expensive for them to connect to other broadband services including video and Internet access. 

In that sense, allowing the carriers to accelerate the transition to IP would overcome many of the obstacles that keep 20 percent of American adults from joining 

the Internet. According to the Pew Internet Project, almost half of that group cite 

as their primary reason not to connect a lack of relevance to their needs, rather 

than cost.13 With IP-based telephony in place, however, the relevance for employment, education, health care, family life, entertainment and commerce would be far 

easier to communicate. 

For Congress and the FCC, this is the moment of truth. The IP Transition is gaining speed, and its ultimate completion is inevitable. But even inevitable advances 

in technological progress can be delayed significantly by over-regulation, denying 

some consumers the full benefits of the Internet ecosystem. 

The FCC has an unavoidable role to play in the process. As communications markets are being simultaneously destroyed and recreated, regulations designed to dull 

the sharper edges of once-static and siloed technologies are now, as the agency recognizes, posing the very real danger of unintentionally holding back the progress of 

innovation. The agency must unravel itself from its complicated relationships with 

the affected industries, and quickly. 

To begin with, the FCC should expeditiously grant pending petitions for trials to 

switchover PSTN networks to native IP. And, while the trials are underway, the 

FCC should use begin planning a pro-transition agenda that can be enacted swiftly 

upon successful completion of the trials—or modified as necessary to adjust for any 

lessons learned. 

Specifically, Congress and the FCC should: 

1. Clearly define the IP Transition as a central Federal policy objective and make 

clear its intentions that VoIP be left unregulated. 

2. The FCC should preempt state regulators’ efforts to preserve PSTN networks 

beyond their useful lives to the long-term detriment of ratepayers. 

32 

14See Connecting America: The National Broadband Plan, § 4.5 at p. 59 (2010) (‘‘National 

Broadband Plan’’), available at http://download.broadband.gov/plan/national-broadbandplan.pdf. 15 Id. 16FCC, FCC Chairman Announces Formation of ‘‘Technology Transitions Policy Task Force’’, 

(Dec. 10, 2012), http://www.fcc.gov/document/fcc-chairman-announces-technology-transitionspolicy-task-force. 17 Id. 18 In nearly every government provision of spectrum in the last hundred years, Congress has 

clearly picked what it felt were ‘‘better’’ technologies and used policy levers to promote their 

adoption. Similarly, by excluding broadband Internet access from Title II regulations in the 

1996 Communications Act, Congress affirmatively and wisely promoted an unregulated market 

for IP-based services, and mandated the FCC to do the same. See, e.g., Communications Act of 

1996, 47 U.S.C. §§ 153(24), 230, 706 (1996). See also NCTA v. Brand X Internet Services, 545 

U.S. 967 (2005). 19See, e.g., Comments of Competitive Carriers Association, In re AT&T Petition, GN Docket 

No. 12–353 (Filed Jan. 28, 2013), available at http://apps.fcc.gov/ecfs/document/view?id 

=7022113646. 20 Id. at 3. 

3. Plan and set a date certain for PSTN retirement, based on lessons learned in 

the successful transition from analog to digital television. 

4. Retire legacy Federal regulations that are unintentionally slowing the transition to all-IP infrastructure and retarding the adoption of broadband, especially 

among rural and low-income populations. 

5. Make clear that Title II regulations will never apply to IP networks. 

6. Refrain from asserting Title I ancillary authority to impose mandated interconnection requirements on IP networks, and instead leave interconnection in 

the hands of the private parties exchanging the traffic. 

There has been some progress in achieving these objectives, albeit slow. The National Broadband Plan, in particular, showed vision in urging the Commission to 

move immediately to accelerate the transition away from circuit-switched networks 

to native IP.14 As the Plan noted, ‘‘[r]egulations require certain carriers to maintain 

[legacy TDM networks]—a requirement that is not sustainable—and lead to investments in assets that could be stranded.’’ 15

In creating the Technology Transitions Policy Task Force, the FCC likewise took 

an important step to encourage the rapid transition ‘‘from special purpose to general 

purpose, from circuit-switched to packet-switched, and from copper to fiber and 

wireless-based networks.’’ 16 Then-Chairman Genachowski noted at the time: 

Technological transitions don’t change the basic mission of the FCC. But technology changes can drive changes in markets and competition. And many of the 

Commission’s existing rules draw technology-based distinctions. So the ongoing 

changes in our Nation’s communications networks require a hard look at many 

rules that were written for a different technological and market landscape.17

The point of these farsighted statements is both clear and accurate: Regulators 

should not pick winners and losers in the broadband ecosystem. But that truism 

does not mean the Commission should not take action to advance new technologies 

that are clearly superior.18 IP networks, in design and implementation, are in every 

relevant measure exponentially better than PSTN. Lawmakers and regulators 

should continue to hasten their adoption, focus on making the transition as smooth 

as possible for all consumers and refrain from placing regulatory impediments in 

the way of their success. 

Some critics of proposed IP transition trials have argued for the continued application of existing regulations (particularly interconnection mandates under Sections 

251 and 252 of the Communications Act), arguing that these provisions should apply 

in a ‘‘technology neutral’’ fashion.19

According to these critics, ‘‘the policy justifications for requiring ILECs to provide 

interconnection and to submit to arbitration—namely, the ubiquity of ILECs’ telecommunications networks and market power that these pervasive networks confer— 

arise regardless of the technology used by those networks to transmit and exchange 

telecommunications traffic.’’ 20

Not only are these complaints irrelevant to the proposed trials (which are small 

steps aimed at determining precisely whether constraints such as Sections 251 and 

252 are appropriate), but their alleged policy justification is not, in fact, ‘‘technology 

neutral.’’ Instead, it is a call to apply barnacled rules, crafted over decades specifically for the technology and business realities of the PSTN, to a new ecosystem that 

shares few, if any, of the same characteristics. 

33 

21 National Broadband Plan, supra note 14, at xi. See also chapters 10–16. And see Robert 

E. Litan and Hal Singer, THE NEED FOR SPEED: A NEW FRAMEWORK FOR TELECOMMUNICATIONS

POLICY IN THE 21ST CENTURY (Brookings Institution Press 2013). 22 Reed Hundt & Blair Levin, THE POLITICS OF ABUNDANCE: HOW TECHNOLOGY CAN FIX THE

BUDGET, REVIVE THE AMERICAN DREAM, AND ESTABLISH OBAMA’S LEGACY 9 (2012), 16–17. 

Technology neutrality does not mean blindly enforcing design principles suited for 

tree houses as buildings codes for steel skyscrapers. Modern structures are clearly 

better. They require entirely different rules, and different kinds of enforcement. Applying PSTN rules to IP networks is bad business and bad public policy. There are 

no regulated monopolies in the IP ecosystem, and no need for the kind of regulations aimed at controlling them. 

An all-IP-infrastructure is clearly better for everyone. The sooner we can complete 

the transition, the sooner we will reap the full dividends of continuing private and 

public investments in this new infrastructure. Getting the transition right will not 

only save the legacy PSTN operators from irrelevance. It will likely bolster the U.S. 

economy, accelerate the technological empowerment of Americans as both citizens 

and consumers, and sustain global competitiveness for U.S. technology companies. 

As the National Broadband Plan put it, 

[B]roadband is a foundation for economic growth, job creation, global competitiveness and a better way of life. It is enabling entire new industries and 

unlocking vast new possibilities for existing ones. It is changing how we educate 

children, deliver health care, manage energy, ensure public safety, engage government, and access, organize, and disseminate knowledge.21

In The Politics of Abundance, former FCC Chairman Reed Hundt and his onetime chief of staff Blair Levin make a persuasive case that the shift to ‘‘connected 

computing’’—broadband Internet, cloud-based services, and widespread mobile devices—is essential to jumpstart the U.S. economy. Hundt and Levin urge all levels 

of government to take immediate steps to support what they call the ‘‘knowledge 

platform’’—ultra high-speed broadband with high reliability and low latency, able to 

support high-bandwidth, video-intensive applications and cloud-based services. 

As Hundt and Levin write, ‘‘[t]o increase growth, job creation, productivity gains, 

and exports at a faster rate, government should double down on what is already 

doubling in the Internet sector.’’ 22 They point, for example, to the fact that Internet 

transit prices have improved as much as 50 percent each year. (See Figure 1) 

Source: Hundt & Levin, supra note 22, Figure 2.1, p. 105 

Figure 1—Internet Transit Price per 1 Mbps, 1998–2015 

The kind of high-speed, widely accessible and affordable broadband Hundt and 

Levin describe also provides the tools that innovators need to launch more Big Bang 


725DOWN1.eps
34 

23Michael Kende, Voice Traffic Exchange in an IP World, Analyses Mason, April 12, 2013, 

at 2. 24Most notable among these is the Broadband Internet Technical Advisory Group (BITAG), 

‘‘a technical advisory group to discuss and opine on technical issues pertaining to the operation 

of the Internet, as a means of bringing transparency and clarity to network management processes as well as the interaction among networks, applications, devices and content.’’ BITAG History, http://www.bitag.org/bitaglorganization.php?action=history (last visited February 25, 

2013). 25See Federal Trade Commission, Broadband Connectivity Competition Policy, 3 (2007), available at http://www.ftc.gov/reports/broadband/v070000report.pdf (‘‘[FTC] jurisdiction [over 

broadband Internet access services] had once been regarded as limited to the extent that the 

FTC’s general enforcement authority under the FTC Act did not extend to entities that were 

‘common carriers’ under the Communications Act. The regulatory and judicial decisions at issue, 

however, confirmed that the larger categories of broadband Internet access services, as information services, are not exempt from FTC enforcement of the FTC Act.’’). 

Disruptions. All-IP networks will vastly expand the possibilities of the next generation of cloud services like Google, Facebook, Twitter and Salesforce. These services 

and others that will follow will be superior in ways both easily imaginable (instant, 

more reliable interaction with richer media like video, streaming presentations, and 

more robust tools) but also in ways that we cannot yet imagine. 

Preserving Peer-Based Interconnection 

The IP Transition will accelerate the ongoing transformation of our digital experiences in ways that could be as revolutionary as the introduction of the Internet 

itself. It is imperative that government, private sector companies, and consumers 

work together to get it done as quickly as possible. 

Government, in particular, should work to undo much of the regulatory mess that 

unnecessarily constrains legacy PSTN providers as they transition to IP. For example, Congress and the FCC should reject self-serving calls to impose outdated regulations mandated network interconnection, devised for an era of monopoly voice carriage, on the well-functioning market for private Internet peering agreements, 

which already ably provides for voice as well as video and data traffic management. 

Private peering arrangements have long provided an efficient mechanism for 

interconnection on packet-switched networks, regardless of whether the packets contain data, video, and voice applications. The shutdown of PSTN networks and the 

migration of additional voice traffic to the Internet do not change the dynamics of 

that system. As Michael Kende, former Director of Internet Policy Analysis at the 

FCC has recently written: 

[T]he competitive concerns that historically drove interconnection regulations 

for PSTN-based voice service are no longer valid due to the rapid take-up of 

many different types of alternative communications services to traditional voice, 

such as cable telephony, software-based voice over IP (VoIP), and other IP-based 

forms of communications. Therefore, as voice migrates to the Internet there is 

no need for any regulation of IP voice traffic which mirrors the regulation of 

the PSTN on competition grounds, because the current IP interconnection arrangements show how traffic will flow end-to-end without a regulatory mandate.23

Today, marketplace and reputational incentives drive interconnection and consumer protections. These incentives are buttressed by various multistakeholder 

processes that continue to evolve to supplement direct company-to-company dispute 

resolution.24 At the same time, the FCC retains authority under Title I of the Communications Act to regulate for public safety, and antitrust and consumer protection 

laws govern IP services precisely because they are not regulated as common carriers 

(which are excluded from the FTC’s general jurisdiction over the economy).25

If significant issues do arise in the IP transition that escape these multiple layers 

of regulatory and governance constraints, Congress can of course enact legislation 

appropriately targeted to address clear consumer harms. But narrowly tailored legislation from Congress after the IP transition has evolved of its own accord is the 

proper mechanism for addressing such issues—not by bringing the dead weight of 

old regulatory baggage to new markets. 

Not surprisingly, several parties in the FCC’s on-going IP transition proceedings 

have urged the agency to transplant legacy interconnection requirements on IP networks as part of the retirement of the PSTN. PSTN interconnection requirements, 

however, were formulated when the Bell System was a true, regulated monopoly. 

They were a necessary evil to control monopolistic risks, and they have imposed considerable waste, fraud and unnecessary cost in exchange for that benefit. Consider, 

for example, recent FCC reforms of intercarrier compensation aimed at reducing 

35 

26 Report and Order and Further Notice of Proposed Rulemaking, In re Developing a Unified 

Intercarrier Compensation Regime, CC Docket No. 01–92 (November 18, 2011), available at 

http://www.fcc.gov/document/fcc-releases-connect-america-fund-order-reforms-usficc-broadband. 27OECD, Committee for Information, Computer and Information Policy, Internet Traffic Exchange: Market Developments and Policy Changes, 3 (June, 2011), available at http:// 

search.oecd.org/officialdocuments/publicdisplaydocumentpdf/?cote=DSTI/ICCP/CISP(2011)2/ 

FINAL&docLanguage=En. 28See, e.g., Marguerite Reardon, Understanding the Level 3-Comcast spat (FAQ), C-Net (November 30, 2010), available at http://news.cnet.com/8301–30686l3-20024197-266.html. 29See, e.g., Betsy Isaacson, Netflix Says 3D and ’Super-HD’ Movies Are Just Around The Corner—But Only For Some Customers, Huffington Post (January 9, 2013), available at http:// 

www.huffingtonpost.com/2013/01/09/netflix-3d-movieslnl2441394.html; Fred Campbell, 

Netflix Blocking Internet Access to HD Movies, The Technology Liberation Front (January 17, 

2013), available at http://techliberation.com/2013/01/17/netflix-blocking-internet-access-to-hdmovies/; Fred Campbell, What Does Netflix’s Decision to Block Internet Content Tell Us About 

Internet Policy?, The Technology Liberation Front (January 23, 2013), available at http:// 

techliberation.com/2013/01/23/what-does-netflixs-decision-to-block-internet-content-tell-usabout-internet-policy/. 

such interconnection arbitrage as traffic pumping, phantom traffic and other 

abuses.26

In the IP world, by contrast, network operators worldwide negotiate all manner 

of peering agreements absent any regulation. Indeed, peering within the IP network 

is so easily achieved, as the OECD has pointed out, that ‘‘the terms and conditions 

of the Internet interconnection model are so generally agreed upon that 99.5 percent 

of interconnection agreements are concluded without a written contract.’’ 27 Simply 

put, there is no evidence that anything is broken in the IP network ecosystem. 

Those asking regulators to invent an IP interconnection regulatory scheme for 

voice (or perhaps for all Internet traffic) invoke public interest concerns, but the real 

motivation is simple rent-seeking. Smaller carriers prefer below-market rates for 

backhaul, and CLECs are eager to protect their subsidized business model in new 

ecosystems that are already highly competitive. But these desires have nothing to 

do with consumer harms, let alone the public interest. In any case, the FCC should 

avoid ‘‘prophylactic’’ regulations for interconnection problems that, as even those 

asking for them admit, are speculative. 

That Internet peering works so well absent regulation is no surprise. Major ISPs 

have strong business incentives to interconnect. For example, ISP customers increasingly demand access to streaming video content from services such as Netflix 

and Amazon, and ISPs know that streaming video is the primary reason that customers are willing to pay for high-speed broadband connections at home. 

Where disputes have arisen (often around the distinction between settlement-free 

transit vendors and paid-peering content delivery networks (CDN), for example 28), 

they have taken the form of contract disputes between large commercial players 

over the specific terms of interconnection, not whether it will be available. 

Moreover, demand for streaming video has become so strong that Netflix, having 

established its own CDN, can now sidestep such disputes and pressure ISPs to accede to its peering demands by threatening to withhold new content or services. It 

has now content providers, in other words, and not ISPs, who threaten to withhold 

traffic.29 The newfound market power of content providers—as well as increasing 

intermodal competition from mobile broadband—upends the weathered assumption 

that ISPs hold all of the bargaining power in interconnection negotiations. 

Lessons from the Digital Television Transition 

In encouraging the rapid transition of wireline providers to all-IP networks, Congress should heed the lessons of the earlier transition from analog to digital television (DTV). The DTV experience underscores the importance of accelerating deregulation of obsolete networks before consumers abandon them, of setting and 

sticking to a date certain, and to avoiding the temptation to prophylactically regulate for consumers harms that have yet to appear. 

At its height in the 1970s, 93 percent of all American homes relied on antennas. 

But analog broadcast couldn’t compete with the quality or the quantity of cable 

channels. As digital technology expanded the scope and efficiency of cable and later 

fiber-based programming, it became clear that over-the-air broadcasters would likewise need to convert to digital signals to compete. 

Shutting down analog broadcast, however, required government coordination. In 

1996, Congress mandated the conversion from analog to digital broadcast in 1996, 

setting a deadline of 2006 and authorizing the FCC to coordinate the transition. 

The coordinated switch to DTV was intended to make the highly-regulated broadcasters more competitive with the relatively unregulated cable industry. 

36 

30See Sam Schechner and Rebecca Dana, Local TV Stations Facing a Fuzzy Future, THE WALL

STREET JOURNAL, Feb. 10, 2009, available at http://online.wsj.com/article/SB12342291035 

7065971.html. 31 CEA Study: Consumers are Tuning Out Over-the-Air TV, May 31, 2011, available at http:// 

www.ce.org/News/News-Releases/Press-Releases/2011-Press-Releases/20110531-CEA-StudyConsumers-Are-Tuning-Out-Over-t.aspx. 32Marc Gunther, Digital TV: Leaving Viewers in Limbo, FORTUNE, Jan. 19, 2006, available 

at http://money.cnn.com/2006/01/04/technology/pluggedinldigitaltv/index.htm. 33 Nielsen, The Switch from Analog to Digital TV, Nov. 2, 2009, available at http:// 

www.nielsen.com/us/en/newswire/2009/the-switch-from-analog-to-digital-tv.html. 

How? Digital TV lowered costs and created new opportunities for broadcasters. As 

part of the transition, for example, broadcasters traded their analog radio spectrum 

allocations in the 700 MHz band for a new 6 MHz block in the 600 MHz band. Because digital signals are more compressed, each 6 MHz block could be split and used 

for multiple channels, all of them capable of high-definition broadcast, as well as 

new mobile business opportunities for the broadcasters. 

So far, however, few station operators have been able to make use of that capacity 

to offer extra channels or to repurpose underutilized spectrum for mobile or other 

premium services. That’s largely because, in the end, the DTV transition was delayed until 2009. By then, over-the-air television had already entered an unrecoverable dive in viewership and revenue.30 According to research from the Consumer 

Electronics Association, the decline in over-the-air audience became irreversible between 2005, when the transition should have happened, and 2009, when it finally 

did.31

Delays in the DTV transition were largely the result of unfounded and exaggerated fears that some consumers would not be ready in time. A 2006 article in Fortune, for example, warned breathlessly that the DTV transition would ‘‘render about 

70 million TV sets obsolete,’’ and that ‘‘for consumers with one of those 70 million 

sets—many of whom are likely to be poor, elderly or uneducated, being forcibly 

switched from one technology to another will be a nightmare.’’ 32

The reality, of course, was very different. Consumers who weren’t already cable 

or satellite subscribers and whose energy-inefficient tube television sets were too old 

to receive digital signals were barely inconvenienced, let alone ‘‘forcibly switched.’’ 

Many had already moved to cable or satellite by the time the DTV transition occurred. For the rest, all they had to do was to buy and attach small digital converter 

boxes to their old TVs. Under a plan implemented by the Department of Commerce, 

consumers could even apply for up to two $40 coupons with which to purchase the 

converters, funded by proceeds from the 700 MHz spectrum auctions. 

On the fateful day, June 12, 2009, according to Nielsen, almost no one was left 

without television service. As Figure 2 shows, nearly all ‘‘unready homes’’ had successfully made the transition by using the converter box, or by switching to digital 

cable or satellite. No television was rendered ‘‘obsolete,’’ let alone 70 million.33

37 

34See Marguerite Reardon, FCC Reforms Phone Subsidy Program for the Poor, CNET 

NEWS.COM, Jan. 31, 2013, available at http://news.cnet.com/8301–30686l3-57369007-266/fccreforms-phone-subsidy-program-for-the-poor/. 

Figure 2—Consumers Adapted to the DTV Conversion 

Delaying the transition by three years, however, blunted the potential of a coordinated and timely switchover in crucial ways. Consumers had more time to switch 

to cable or satellite to avoid dealing with the transition at all, imposing real damage 

on broadcasters. That loss of viewers makes it harder to this day for the broadcasters to offer new and competing products using their new spectrum and digital 

technology upgrades. 

Ultimately, that translates to a loss to consumer of more competition in the video 

marketplace. Delays that were intended to protect consumers, in the end, did just 

the opposite. 

The IP transition should be easier. Unlike digital television, consumers will not 

need to replace equipment already in their homes, nor will they need to install 

adapters for existing telephones. In some cases, fiber optic cable will replace copper 

wiring in the heart of the network; in other cases, fiber will be run directly to the 

home. But inside wiring will not be affected, and existing telephones (far cheaper 

to replace, in any case, than old analog televisions) will continue to operate, just 

as they do now in homes that have already switched to Internet voice services. 

It is true that some rural users may need to switch from landline to mobile service, especially in remote areas where the cost of installing wired IP networks is prohibitive. But the FCC can subsidize the cost of that switch—as indeed it already 

does through the recently-reformed Universal Service Fund.34

As with DTV transition, however, ungrounded fears of what could go wrong could 

continue to delay the IP transition, with dangerous and unintended consequences 

for consumers—particularly those for whom advocates most claim to be looking out. 

Conclusion 

Consumers naturally resist change, even when being offered new products and 

services that are better and cheaper. But where the introduction of new technologies 

once required careful planning by providers and different marketing delivered to different groups of users, research on Big Bang Disruptions reveals that the process 


725DOWN2.eps
38 

35See Downes and Nunes, Big Bang Disruption, supra note 4, at 47. 

has changed dramatically. The old bell curve model of technology adoption first described by Everett Rogers is gone, replaced by a much steeper curve in which adoption is nearly universal and immediate. The Internet revolution has compressed the 

old categories to just two: early users, and everyone else.35 (See Figure 3.) 

(Source: Downes and Nunes, supra note 4, at 47) 

Figure 3—The New Model of Technology Adoption 

The adoption of IP-based voice services is following the new model, and its impact 

on wireline competition has already been devastating. Congress and the FCC must 

act to preserve the residual value of the PSTN and ease the transition for those 

Americans who have yet to make the leap. 

Some consumers will no doubt encounter problems in the final transition from 

PSTN networks. Some of these issues will be addressed by more technology or, 

where truly necessary, by regulatory intervention. But as with the DTV transition, 

the real problems will likely turn out to be far less imposing, and visited on far 

fewer consumers, than pre-transition anxiety suggests. That of course is the reason 

to conduct trials in the first place: to unearth and resolve as many potential issues 

as possible, and to make clear where problems do not in fact exist. 

In the DTV transition, broadcasters set free too late to make use of their new 

competitive technologies are now limping into extinction. 

If we don’t get the IP transition right, the same fate could be unnecessarily visited 

on incumbent PSTN network operators. But in the end, as before, it will be consumers who pay the price for that failure. 

Senator PRYOR. Thank you. 

Ms. Sohn? 

STATEMENT OF GIGI B. SOHN, PRESIDENT AND CEO, 

PUBLIC KNOWLEDGE 

Ms. SOHN. Chairman Pryor, Ranking Member Wicker, members 

of the Subcommittee, thank you for inviting me to give the public 

interest perspective on the IP transition. 


725DOWN3.eps
39 

The transition of our wireline networks to Internet Protocolbased services is a tremendous opportunity for our nation, but we 

must make sure the transition results in actual upgrade in technology without a downgrade in the services upon which Americans 

depend. 

For decades, our country has used reasonable rules based on fundamental principles to build a phone network that became the envy 

of the world. We are the country that brought a phone to every 

farm, the country that built a network you can count on. We accomplished this by moving certain fundamental values with us as 

our networks evolved. As we now face the opportunities and challenges of implementing the next generation of communications 

technology, we must continue to leave no one behind. 

Americans are so used to relying on the protections of the phone 

network that they often do not even notice them. We conduct our 

business and personal communications as if they can always trust 

that the phone network will just work because it has. We can 

choose to use whatever phone we want. When the power goes out 

during a natural disaster, our phones will keep working. During 

emergencies, we can always call for help from police, fire fighters, 

and hospitals. When someone calls a friend on another phone network, that call will always go through regardless of which carriers 

they subscribe to or where they live. When the bill comes for that 

call, the user can rest assured that there will be no fraudulent 

charges and the carrier will not have traded her to another carrier 

without her permission. If a user changes phone companies, she 

can keep her phone number. In the rare instance that any part of 

the system breaks down, government authorities at the local, State, 

and Federal levels move swiftly to act as if our lives depended on 

it because they do. 

Every one of these benefits is the result of deliberate policy 

choices that serve specific basic values. Our phone network became 

the envy of the world because our policymakers valued what Public 

Knowledge calls the five fundamental principles: one, service to all 

Americans; two, competition and interconnection; three, consumer 

protection; four, network reliability; and five, public safety. These 

values are no less relevant and, if anything, are even more important as we begin the transition to IP networks. 

There are some who believe that the IP transition should be a 

glide path to eliminating FCC oversight. But as carriers begin the 

transition, we have concrete examples that many of the essential 

services we take for granted are at risk in rural and not-so-rural 

areas for individuals and for small businesses. 

One of the worst problems, as Shirley Bloomfield mentioned, is 

the continuing inability of rural residents to receive telephone reliably. As carriers switch to IP technology, they can route calls 

through least-cost router systems, creating latency, and sometimes 

trapping calls in perpetual loops so calls do not go through. In a 

world where we simply allow the marketplace to work, this does 

not get fixed. As one carrier told a complaining subscriber—and I 

quote—due to living in a rural area, you will experience service 

issues. That was the response. 

In Hurricane Sandy-ravaged Fire Island, just 60 miles from Manhattan, Verizon has replaced their damaged copper network with 

40 

1 I would like to thank my Public Knowledge colleagues Jodie Griffin, Christopher Lewis, Harold Feld, Clarissa Ramon, and Girard Kelly for assisting me with the research and drafting of 

this testimony. 

Voice Link wireless service. Hundreds of residents, many of them 

elderly, have complained to the New York Public Service Commission. For example, Dr. Samuel Mann complained that he cannot reliably receive emergency calls from his hospital. Jean Ufer writes 

that her husband’s pacemaker cannot be monitored via Voice Link. 

And Mr. and Mrs. Howard Bedell are concerned that their father 

cannot use Voice Link for his Life Alert. Jonathan Randazzo, who 

owns five restaurants and businesses on Fire Island, had his credit 

card machine stop working on a recent Saturday evening. According to the ‘‘Washington Post,’’ Randazzo hopped from table to table 

scribbling credit card numbers and asking for signatures. 

Now, this could happen to any community that has ever experienced a natural disaster strong enough to damage network lines. 

Before you or in back of you or in back of me is a chart of services supported by Verizon’s copper network that are not supported 

by Voice Link: reliable 911, medical alerts, security systems, 

broadband access, just to name a few. 

Members of the Subcommittee, these are not luxuries. These are 

necessities, and in many cases they are a matter of life or death. 

This is why we need rules of the road to govern the transition 

and beyond not because Verizon is a bad actor. They are not. But 

because problems will inevitably arise as old systems fade and new 

ones arise. Even at this early stage, carriers have shown that they 

will not voluntarily defend the fundamental principles that have 

made our networks great. 

The IP transition is an appropriate time for policymakers to review and update the rules for new technologies and ensure our 

communications policy continues to put everyday Americans first. 

But the question is not whether simply old rules apply to new 

networks. The question is whether we continue to believe in the 

same basic American values that have governed the relationship 

between our society and our communications networks for over a 

century. 

Thank you and I look forward to your questions. 

[The prepared statement of Ms. Sohn follows:] 

PREPARED STATEMENT OF GIGI B. SOHN, PRESIDENT AND CEO, PUBLIC KNOWLEDGE

Chairman Pryor, Ranking Member Wicker, and members of the Subcommittee, 

thank you for this opportunity to discuss the state of our nation’s wireline communications networks. My name is Gigi Sohn and I am the President and CEO of Public Knowledge, a nonprofit public interest organization that promotes the public’s access to information and culture through open, competitive, and universally accessible and affordable communications networks.1

Introduction 

The transition of our wireline networks to Internet Protocol (IP)-based services is 

a tremendous opportunity for our nation, but we must make sure the transition results in an actual upgrade in technology without a downgrade in the services upon 

which Americans depend. Right now we are in the midst of the transition: carriers 

are already actively moving their networks from the traditional Time-Division Multiplexing (TDM) protocol to IP-based technology. At the same time, we are seeing 

carriers show increasing interest in replacing their copper infrastructure with wireless service or with fiber for portions of their networks, often depending on the density and average income of each particular market. 

41 

2See Jodie Griffin and Harold Feld, Five Fundamentals for the Phone Network Transition, 

PUBLIC KNOWLEDGE (July 2013). 

For decades, our country has used reasonable rules based on fundamental principles to build a phone network that became the envy of the world. We are the country that brought a phone to every farm—the country that built a network you can 

count on. We accomplished this by moving certain fundamental values forward with 

us as our communications networks evolved since the founding of our country. As 

we now face the opportunities and challenges of implementing the next generation 

of communications technology, we must continue to leave no one behind. 

For decades, the phone network in the U.S. has quietly and reliably provided benefits to the American public. These benefits have become so firmly engrained in the 

U.S. economy, public safety systems, and personal communications that users take 

for granted the consumer protections and competition policies that make them possible. These benefits were not a happy accident—they were the result of deliberate 

communications policies that demanded a telecommunications network that served 

its users first and foremost. 

Just listing a few of the things we love about our phone network reveals how we 

are so used to relying on the protections of the phone network we often don’t even 

notice them. We conduct our business and personal communications as if we can always trust that the phone network will just work—because it will. We can choose 

to use whatever phone we want. When the power goes out during a natural disaster, 

our phones—and the central offices that service them—will keep working. In times 

of emergency, we can always call for aid from police, firefighters, and medical 

teams. When someone calls a friend on another phone network, that call will always 

go through—regardless of which carriers the two users subscribe to or where they 

each live. When the bill comes for that call, the user can rest assured that there 

will be no fraudulent charges and the carrier will not have ‘‘traded’’ her to another 

carrier without her permission. If a user changes phone companies, she can keep 

her phone number. We know that we can benefit from the innovations and features 

built on the phone network because it is an open platform: innovations like the 

internet, new handsets, calling cards, and collect calls. And in the rare instance that 

any part of this system breaks down, we know that there are government authorities at the local, state, and Federal levels equipped to fix the problem and protect 

users’ interests. 

Every single one of these benefits is the result of deliberate policy choices that 

served specific basic values. Our phone network became the unparalleled success we 

know today because our policymakers valued five fundamental principles: 1) service 

to all Americans; 2) competition and interconnection; 3) consumer protection; 4) network reliability; and 5) public safety.2 These values are no less relevant and, if anything, are even more important as we begin the transition to the next iteration of 

our Nation’s communications networks. 

The transition of our phone network is happening now because there is already 

a business case for it. The fact that the carriers are already actively updating their 

networks now means we need not worry that our current rules are standing in the 

way of the transition, but this is still an appropriate time for policymakers to review 

and update the rules for new technologies and ensure our communications policy 

continues to put everyday Americans first. The technology we use to communicate 

may be changing, but our basic social goals and values remain the same. 

The Transition to All-IP is A Good Thing, But It Must Be Handled 

Responsibly 

The transition to newer technologies in our communications network presents a 

tremendous opportunity for better service, new features, and more efficiencies that 

can be passed on to consumers. This does not, however, in any way lessen the 

public’s need for continued consumer protection and competition policies that have 

made our communications network such a success for the past 100 years. For this 

reason, Public Knowledge fully supports the phone network transition. But we must 

make sure this transition is a step forward, not a step backward, for everyday 

Americans. 

In addition to new opportunities, the phone network transition presents risks that 

the new networks will lack important features that consumers have counted on for 

decades. This means that policymakers at all levels of government must ensure that 

the transition is handled responsibly and everyday Americans are not left worse off 

during or after the transition. 

When users’ ability to call 9–1–1, conduct business, or reach loved ones is at 

stake, we cannot afford to permit carriers to engage in self-help. This summer we 

have already witnessed what happens when carriers replace their traditional netVerDate Nov 24 2008 07:09 May 13, 2014 Jkt 075679 PO 00000 Frm 00045 Fmt 6633 Sfmt 6621 S:\GPO\DOCS\87817.TXT JACKIE
42 

3 Rural Call Completion, Notice of Proposed Rulemaking, WC Docket No. 13–39 (rel. Feb. 7, 

2013). 4FCC Enforcement Advisory, Rural Call Completion: Long Distance Providers Must Take 

Consumer Complaints About Rural Call Completion Problems Seriously (July 19, 2013), http:// 

transition.fcc.gov/DailylReleases/DailylBusiness/2013/db0719/DA-13-1605A1.pdf. 5Sherry Lichtenberg, Ph.D., Telecommunications Deregulation: Updating the Scorecard for 

2013, NATIONAL REGULATORY RESEARCH INSTITUTE, at 1, 20–22 (May 2013). 6 Rural Broadband Tales, http://placestories.com/project/7996#!v=stories. 

works with new technology without guidance from authorities. Verizon’s deployment 

of its fixed wireless service, Voice Link, has deprived customers in Fire Island, New 

York of important network services without advance public notice or input. This 

cannot become the ‘‘new normal.’’ We are in the midst of an important transition, 

but that does not mean we can let people be cut off from the services they count 

on. 

The first step to preserving a communications network we can all depend on is 

establishing the basic values that will guide policymakers’ approach to the transition going forward. We need a basic framework of values to evaluate the many proposals that have been put forward before federal, state, and local regulators regarding the phone network transition. After all, for policymakers to know how to respond to an idea they must first know what goals and values the idea is supposed 

to serve. In the case of the phone network transition, policymakers can guide the 

transition to IP by relying on the same fundamental principles that made our phone 

network the envy of the world. 

The Transition Will Especially Impact Rural Americans and Small 

Businesses 

The new pattern of carriers eager to replace existing networks with new, untested 

technologies after natural disasters or when wireline networks have simply been allowed to degrade will have especially strong consequences for rural Americans and 

small businesses. Rural areas depend on wireline services more than most, especially because wireless deployment—even beyond its general limitations compared 

to wireline service—is not very strong in rural areas. And when a rural community 

loses a wireline service provider that offered DSL or other broadband service, there 

is rarely any competing service to turn to for continued Internet access. At the very 

least, the rural farmers who grow our food should know that they will be able to 

make phone calls and access the Internet when needed to check weather patterns, 

predict crop growth, and make business arrangements to harvest and transport 

crops. This also impacts more than just rural communities themselves—when farmers are arranging food shipments to your town, do you want them to lose service? 

The recent rural call completion problem also reminds us that rural communities 

may bear the brunt of unexpected complications tied to the IP transition, with potentially devastating consequences. As carriers switch to IP technology, it becomes 

possible for them to route calls through Least Cost Router systems, creating latency 

and sometimes trapping calls in perpetual loops so calls to or from rural areas do 

not go through. The Commission has rightly recognized that this issue speaks to our 

foundational expectation that the phone network will be reliable for all Americans, 

including those in rural areas, and has opened a proceeding to learn more about 

exactly why the rural call completion problem is getting worse.3 But even so, the 

FCC has received some shockingly inadequate carrier responses to rural call completion complaints. For example, one carrier told the FCC: ‘‘We have contacted the 

[rural complainant] and have successfully resolved this matter by advising [her] 

that due to living in a rural area she will experience service issues.’’ 4

This is why we need rules of the road: problems will inevitably arise as old systems fade away and new ones arise, but carriers have clearly shown that we cannot 

simply assume that companies will voluntarily defend the fundamental principles 

that have made our communications networks great. Meanwhile, 25 states have 

eliminated or reduced state commission authority over telecommunications services, 

and 12 states (all of which are in AT&T’s incumbent local exchange carrier territory) have eliminated or reduced carrier of last resort obligations.5 Particularly 

where the states have effectively written themselves out of the conversation through 

deregulation, everyday Americans are relying on Federal authorities as their sole 

defender to protect the reliable, affordable communications access they count on. 

The National Rural Assembly’s Rural Broadband Tales 6 reminds us how everyday 

rural Americans rely on communications networks to conduct business, pay their 

bills, and pursue education. If these communities see their Internet access replaced 

with voice-only fixed wireless services like Voice Link, or continue to lack adequate 

43 

broadband access in the first place, we all miss a huge opportunity to develop our 

economy and connect our nation. Here are just a few of these stories: 

• John Hicks, a coal miner from Perry County, Kentucky, explains that his Internet service drops around 300 to 400 times per month, leaving him unable to 

pay his bills and his children unable to do their homework. 

• Joyce Dearstyne from Elk City, Idaho tells how, if she had access to broadband, 

she could ‘‘utilize e-commerce capabilities to promote artists in the woods and 

other value-added good products and create a level playing field for my businesses and artisans to compete throughout the world.’’ 

• John Carwell, a minister from southeastern Kentucky suffers from (1) no wireless service and (2) poor broadband service. He explains, ‘‘[w]e feel helpless when 

we talk to the communication companies. We say we have the tower and land 

to put your services and equipment on . . . We’re helpless because the response 

is always ‘well there’s not enough people.’ That’s tough to hear because what 

they’re saying is ‘your area’s not worth it.’ ’’ 

Similarly, small businesses—particularly those in areas with terrain inhospitable 

to wireless service—are vulnerable to losing necessary communications services if 

this transition is not handled responsibly. If a business’s wireline connection is replaced with a service like Voice Link that does not support Internet access or credit 

card processing, they risking going out of business entirely. If a restaurant cannot 

take your credit card because it only has a voice line, or its service was just 

dropped, you likely won’t be inclined to return. When a coffee shop can no longer 

offer WiFi because its Internet connection has been taken away, the fact that the 

shop might have an almost-as-reliable wireless voice-only service in its stead will 

be cold comfort as it watches paying customers walk out the door. 

These are the risks faced by every area that faces potential natural disasters, 

every town that contains small businesses, and every community that wants this 

transition to be a step forward, not a step backward. This is why we must be diligent in shaping a phone network transition that creates new, better services protected by strong, certain rules. 

A Cautionary Tale: Transitioning After Natural Disasters 

It is clear that the continued success of our communications networks depends on 

reasoned rules and strong consumer protection during and after the phone network 

transition, and that need is even greater in communities likely to experience or already experiencing the transition, like rural areas and areas damaged by natural 

disasters. The examples we have already seen where carriers have transitioned communities to new networks on their own initiative warn us of what happens if policymakers do not step in to protect consumers. Without strong guidance, we all face 

the very real danger that the phone network transition will be a technological step 

backward and a downgrade in consumer protection. 

Communities and their residents have always had to deal with temporary network outages after natural disasters, but now that we are in the midst of the phone 

network transition, we are seeing instances where carriers want to respond to damaged networks by replacing the existing networks with new, untested services, rather than repairing or rebuilding the infrastructure the community has relied on for 

decades. Like the rest of the phone network transition, this can be an opportunity 

for better, newer service for the community, but unfortunately we have already seen 

how it can also force customers—who are already trying to rebuild their lives after 

a devastating natural disaster—to accept less reliable, more restricted services than 

what they had before. 

For example, after Hurricane Sandy damaged the existing copper network in communities on the East Coast, Verizon decided to replace its copper-based service with 

a fixed wireless service called Voice Link in certain areas. Voice Link works by connecting a device linked to Verizon’s wireless network to a customer’s house. It is 

now clear that Voice Link constitutes a substantial step backward for many of the 

permanent residents in Fire Island, New York, hundreds of whom have already 

complained to the New York Public Service Commission. As a wireless service, Voice 

Link does not offer the same reliability and quality of service that the copper did, 

and it requires the customer to remember to recharge or replace its batteries to 

function during a power outage. Verizon specifically disclaims liability if it negligently lets the wireless network become too congested for 9–1–1 calls to go 

through. And, unlike the copper network, Voice Link does not support important 

44 

7For a comparison of the capabilities of Voice Link and the previous copper-based telecommunications service, please see Appendix A. 8 Cecilia Kang, Verizon Pursues All-Wireless Phone Service in Seaside NY Town, WASHINGTON

POST (July 4, 2013), http://www.washingtonpost.com/business/technology/verizon-pursues-allwireless-phone-service-in-seaside-ny-town/2013/07/04/9120fa80-ac4c-11e2-a198– 

99893f10d6ddlstoryl1.html. 9For more selected public comments submitted to the New York State Public Service Commission, please see Appendix B. 

features like Life Alert, other medical alerts, security alarms, Internet access, credit 

card processing, calling cards, and collect calls.7

Even a quick glance through the New York State Public Service Commission’s 

public comments and press reports reveals how much these changes are impacting 

real customers’ lives: 

• R. Bruce Minoff, among many other customers, complains that wireless service 

in his family’s area is spotty, so they now have no option at all for reliable 

phone service. 

• Dr. Samuel J. Mann complains that he cannot reliably receive emergency calls 

from his hospital now, while other families, like Sonia Gluckman, are worried 

that they will not be able to reach a doctor if their elderly parents need urgent 

medical care. 

• Mr. and Mrs. Howard Bedell express concern that their father cannot use Voice 

Link for Life Alert or to remotely connect pacemakers and other medical devices 

to their hospitals, as they previously could using Verizon’s copper network. 

• Customers—particularly small business owners like realtor Jean Ufer—report 

that they can no longer turn to uncapped DSL Internet access for approximately 

$30 per month, and instead pay $80 per month for just 10 GB of data on a 4G 

wireless connection. Even outside of the office, Ms. Ufer also noted that the 

switch to Voice Link has prevented her husband from having his pacemaker remotely monitored, as he used to over the copper line. 

• Jonathan Randazzo, who owns five restaurants and businesses on Fire Island, 

had his credit card machine stop working on a recent Saturday evening. According to the Washington Post, Randazzo ‘‘hopped from table to table, scribbling 

credit card numbers and asking for signatures he created on a Word document 

printed out from his computer.’’ 8

Every day more complaints come in; it is clear that customers of all backgrounds 

are outraged at having been switched to an inferior service with no prior public notice or input.9

Voice Link is one startling example, but the lessons are by no means limited to 

Verizon, Voice Link, or Fire Island. This could happen to any community that has 

ever experienced a hurricane, tornado, earthquake, blizzard, flood, or storm strong 

enough to damage network lines. We all have a stake in making sure policymakers 

protect the interests of everyday Americans, especially people trying to rebuild their 

communities after devastating natural disasters. Hurricane victims cannot become 

the de facto guinea pigs for the phone network transition—if we have pilot programs 

for new technologies, they must be transparent and carefully controlled to protect 

the communities testing the new technology. 

The Transition Should Be Guided by the Five Fundamentals 

As we move forward in the phone network transition, we need a basic framework 

to establish the fundamental values that undergird our communications networks 

and guide new policy proposals. Working within a values-based framework ensures 

that our 21st Century rules will benefit everyday Americans, not just the dominant 

corporations in the telecommunications industry. 

Public Knowledge submits that this framework should consist of Five Fundamentals that have successfully steered communications policy for decades, and continue 

to protect consumers and encourage innovation today. These fundamental values— 

service to all Americans, competition and interconnection, consumer protection, network reliability, and public safety—capture the basic principles that made our 

phone network a resounding success and can do the same for the next generation 

of communications technology. The reality of tomorrow’s network will depend on the 

expectations we set today and the values we commit to serving through the transition. 

Service to All Americans 

First and foremost, our national communications policy ensures the benefits of our 

communications network flow to all Americans—regardless of ‘‘race, color, religion, 

45 

10 47 U.S.C. § 151. 11 47 U.S.C. § 254(c). 

national origin, or sex.’’ 10 We have, as a nation, decided to invest in a world-class 

communications infrastructure and so we should, as a nation, reap the benefits of 

that infrastructure. The principle of service to all Americans applies whether users 

live in rural areas or urban areas. It applies to those with any physical disability 

that would interfere with communication. It applies to all users regardless of their 

level of income. Today, our efforts to serve all Americans must include initiatives 

that go beyond traditional concepts of deployment and take advantage of the opportunities presented by new technologies. 

Whatever happens, the United States must not be the first industrialized nation 

to step back from the goal of achieving 100 percent penetration of basic communications service. While the United States has not yet completely achieved the goal of 

100 percent build-out, it is vital that reaching everyone in the country continues to 

be the goal motivating all stakeholders to continue working until the job is done. 

This transition is also an opportunity to look forward: what new opportunities are 

made possible by new technology, and how does that impact what we determine to 

be the ‘‘basic service’’ that all should have access to? The Communications Act specifies that universal service encompasses ‘‘an evolving level of telecommunications 

services’’ and that the FCC should take into account ‘‘advances in telecommunications and information technologies and services’’ as it decides what universal service will look like for homes, schools, libraries, and health care providers across the 

country.11 Access to basic communications services reaps tremendous social and economic benefits to users, regardless of the material or technology used to transport 

the communications. 

It remains to be seen how the U.S. will continue to pursue the goal of 100 percent 

basic service for all Americans as carriers stop maintaining their older, TDM-based 

facilities. It is clear, however, that universal service and carrier of last resort policies must continue ensuring that all users are able to purchase reliable voice service 

under nondiscriminatory terms. These policies traditionally applied to all relevant 

carriers operating in some way on the traditional PSTN. Neither the make-up of the 

physical plant nor the protocols used to transport data on the network diminish consumers’ need for basic service—if anything, advances and new efficiencies in technologies may justify raising the standard for what is considered basic service. 

One of the most important goals of communications policy in the United States 

is reaching universal service for all Americans across the country. The transition of 

the PSTN is an opportunity to expand and improve the communications service that 

all Americans receive, and our communications authorities must determine how 

they can continue to serve that goal as the traditional make-up of the PSTN 

changes. 

Interconnection and Competition 

Interconnection and other competition policies lie at the heart of the development 

of a robust and competitive communications network. As we saw more than 100 

years ago, without mandatory interconnection the phone network will slide inevitably toward monopoly as the largest carriers can gain anticompetitive advantages 

by withholding access to their customers from competitors. As carriers now move 

toward all-IP networks, policymakers must determine how they will ensure interconnection and competition among providers post-transition. These policies are critical to creating and maintaining a functioning interconnected network and a competitive market for communications services. 

The duty to interconnect with other networks was first a means of enabling universal service in rural areas in the days of the old AT&T monopoly so rural cooperatives, municipalities, and local businesses brought service to places AT&T found too 

expensive to serve. Later, as amendments to the Act shifted national policy from 

regulated ‘‘natural monopoly’’ to encouraging competition among competing networks, interconnection became the sine qua non of fostering and developing competition. Unless we propose to return to the days of regulated natural monopoly, policymakers must absolutely guarantee that competing networks will continue to accept 

each other’s traffic and terminate each other’s calls in a manner that both preserves 

call quality throughout the country and actively promotes a robust and competitive 

environment. 

In particular, subscribers to different networks must not find themselves with 

dropped calls or degraded quality of service due to ‘‘peering disputes’’ between carriers. If NBC and AT&T have a retransmission dispute and AT&T video subscribers 

temporarily lose NBC programs, it is annoying. But if Comcast and AT&T have a 

‘‘peering dispute’’ and millions of AT&T wireless customers cannot call Comcast 

46 

12 47 U.S.C. § 222. 

landlines, it is a disaster. It is not enough to speculate that incentives will prevent 

such a thing from occurring. Policymakers must make sure such an event continues 

to be impossible after the transition. 

It is not just idle speculation to imagine this happening in a post-transition 

PSTN. Already, some carriers are refusing to file IP-to-IP interconnection agreements at the state level. Without adequate interconnection requirements, consumers 

may find themselves suffering from interconnection disputes between carriers that 

provide not just their video and Internet access, but their basic voice service as well. 

If the interconnections that have tied together our voice network unravel, dominant 

service providers will be able to leverage their customer bases against competitors 

and control increasingly large shares of the market, resulting in higher prices and 

fewer choices for consumers. 

Interconnection and competition policy also require an examination of potential 

reform in call termination and access charges. Even now, rate-of-return carriers that 

serve rural areas have reported increasingly poor phone service quality and increasingly frequent customer complaints. This quality decay prevents small businesses 

from offering prompt service, threatens to hinder emergency calls to or from public 

safety officials, and thwarts customers’ efforts to communicate with loved ones. 

These complaints should be taken as a warning of things to come if interconnection 

requirements are not adequately implemented and enforced in the post-transition 

PSTN. 

The phone network transition also calls into question the future of other rules and 

policies designed to encourage competition among communications providers. For example, local number portability (LNP) obligations have currently been extended to 

VoIP providers so that VoIP customers may keep their North American Numbering 

Plan (NANP) telephone number when changing providers. LNP rules encourage 

competition by allowing consumers to respond to providers’ price and service 

changes without losing their phone numbers. But at this juncture the questions inevitably arises: when the traditional PSTN is gone, what will happen to the NANP? 

How can LNP rules extend to all phone service providers without revisiting the 

foundation of the NANP or classifying VoIP service? 

Additionally, to preserve a competitive environment in wireline, the law must provide certainty that businesses and competing carriers will be able to obtain special 

access services at reasonable rates. If a carrier desires to exit a market completely, 

Congress must ensure that consumers are not left behind by protecting the right 

of local communities and governments to provision their own communications services. 

As the PSTN transitions to new physical facilities and IP protocols, it is critical 

to the competitive future of the market that the law and rules ensure carriers will 

continue to interconnect and rules will continue to promote competition in the marketplace to the benefit of consumers. 

Consumer Protection 

When we talk about a system that everyday Americans count on to call 9–1–1, 

businesses, and loved ones, we cannot ignore users’ need for consumer protections 

in the network. Competition is important, but it does not always guarantee consumer protection. From the privacy of phone calls to truth-in-billing to slamming 

and cramming, Americans rely on a safety net of rules that protect them when they 

communicate with one another. Throughout and after the PSTN transition, consumers must continue to be adequately protected—including effective recourse 

through the timely resolution of complaints. 

But on the Federal level, the Federal Communications Commission has only extended privacy rules to interconnected VoIP services by reasoning that those VoIP 

services send calls to and receive calls from the traditional phone network.12 It 

makes sense that customers should be able to rely on the same protections they 

have always enjoyed when they switch to what by all appearances seems like a pure 

replacement for ‘‘regular telephone’’ service. However, without further guidance or 

action it is unclear how the FCC will be able to continue applying these rules to 

VoIP by relying on its authority over the traditional phone network when the traditional phone network as we know it has been retired. 

Even worse, ‘‘slamming’’ rules that prevent carriers from switching subscribers’ 

services without permission and ‘‘cramming’’ rules that forbid carriers from adding 

unauthorized charges on customers’ phone bills only apply to providers that use the 

older, TDM-based, technology, and do not apply to VoIP providers at all. Leaving 

consumers vulnerable to predatory practices with no avenue for recourse cannot beVerDate Nov 24 2008 07:09 May 13, 2014 Jkt 075679 PO 00000 Frm 00050 Fmt 6633 Sfmt 6621 S:\GPO\DOCS\87817.TXT JACKIE
47 

13 Brian X.Chen, AT&T’s TV, Phone and Internet Service is Down in Some States, N.Y. TIMES

BITS BLOG (Jan. 23, 2013), http://bits.blogs.nytimes.com/2013/01/23/atts-tv-phone-and-internet-service-is-down-in-some-states/. 

come the new normal. Consumers should not be punished for upgrading to new 

technology by receiving downgraded protections. 

As the PSTN begins to transition to IP protocols and other upgraded technologies, 

policymakers must come to terms with how they will continue to protect consumers 

post-transition. All signs indicate that consumer protection rules will be equally, if 

not more, important post-transition than they are today, and if anything consumer 

protection agencies will need flexibility to ensure that current and future consumer 

protection rules serve the same basic social needs as they do today. 

Network Reliability 

A comprehensive framework for the PSTN would be incomplete without a principle ensuring that the basic mechanisms of the network will continue to function 

throughout and after the PSTN transition, even and especially in emergency situations. Above all else, Americans rely on their communications networks to work consistently and reliably. Above all else, a successful transition means that phone numbers still work and calls still go through with the same reliability they do today. 

The first and most fundamental criterion for network reliability is ensuring that 

basic network mechanisms will continue to function during and after the transition. 

We must therefore determine how the fundamental mechanisms underlying the 

phone network today will continue to operate when the traditional PSTN technology 

no longer exists. The FCC currently exercises its authority over phone numbers to 

distribute phone numbers through the North American Numbering Plan (NANP). 

Most VoIP providers must buy phone numbers through another carrier that uses 

the PSTN instead of obtaining numbers directly from a NANP Administrator. This 

raises the stark and critical question: who will be able to obtain numbers when all 

carriers have transitioned to IP-based technology? How will phone numbers work 

in a world with no TDM-based PSTN? These are questions that we absolutely must 

answer if the phone network as users now know it is to continue operating posttransition. 

After the transition, there will also be no ‘‘copper safety net’’ to offer the reliability 

that users have come to expect with basic phone service. Nevertheless, users’ phone 

service—regardless of the protocols or materials it uses—must be able to withstand 

emergency situations. Even at this early point we are witnessing phone network 

technology ‘‘upgrades’’ result in less redundancy and back-up power in the system 

and increased reliance on the commercial power grid, creating a single point of failure when users need to communicate most. This does not mean that the only answer is to hope that fiber or wireless services suddenly become self-powered as copper is, but it does mean that we must find new ways to ensure a reliable phone 

system that doesn’t let customers down when they need it most. 

The impact of the transition to IP-based networks on reliability is unfolding before 

us in real time. After Hurricane Sandy, Verizon acknowledged that the storm 

caused outages in its FiOS voice, internet, and video services, while users across the 

affected areas lined up outside to use pay phones connected to the copper network. 

Similarly, this past January customers of AT&T’s U-verse voice, internet, and video 

services suffered outages for days due to problems with a software upgrade. As one 

customer hit by the outage put it, ‘‘You go on U-verse, and the old handy dandy 

landlines that would work no matter what? . . . That’s not happening any 

longer.’’ 13 This, of course, is no new phenomenon. Outages by cable providers have 

been periodically denying subscribers their services for years. Such outages would 

be unacceptable in the TDM-based, circuit-switched world, and they must be equally 

unacceptable in the IP world. 

This means that the FCC, and other regulatory authorities, must determine how 

they can ensure that the post-transition PSTN continues to guarantee robust service 

for everyday uses and for emergency circumstances, when users need communications services most. As the PSTN continues its transition, policymakers must decide 

how they will ensure that consumers can continue to expect that their phone calls 

will go through, every time. 

Public Safety 

Finally, it is unquestioned that when someone calls 9–1–1, that person needs to 

know beyond a shadow of a doubt that she will be connected in one second. Everyday Americans rely on 9–1–1 daily to call for help in time of need. The FCC has 

already begun to look to the future of public safety requirements with the Next GenVerDate Nov 24 2008 07:09 May 13, 2014 Jkt 075679 PO 00000 Frm 00051 Fmt 6633 Sfmt 6621 S:\GPO\DOCS\87817.TXT JACKIE
48 

14The FCC is also working with surer authority in this area compared to other aspects of the 

PSTN transition, based on the Next Generation 9–1–1 Act. See Middle Class Tax Relief and Job 

Creation Act of 2012, Pub. L. No. 112–96 (2012), Title VI, Subtitle E. 

eration 9–1–1 transition.14 This conversation, however, is best situated in the broader context of the overall PSTN transition, both to evaluate the effect of 9–1–1 proposals on other aspects of the network, and to anticipate the impact of non-9–1–1 

proposals on our emergency communications structure. 

Public safety rules must ensure that emergency services like 9–1–1 and 

geolocation technologies continue to help first responders offer emergency care, regardless of whether the network that the customer uses is wireless or wireline, copper or fiber. The conversion to an all-IP network offers an opportunity to further 

facilitate emergency communications, and that opportunity must not be squandered. 

This also includes ensuring that the thousands of alarm systems and alarm system 

standards that rely on access to a ‘‘telephone line’’ are not disrupted by the transition, as we have seen them be disrupted by the transition to Voice Link in Fire Island, New York. 

When the traditional architecture of the PSTN no longer exists, it is crucial that 

consumers are able to contact emergency services when they need it most. The moments in which the public relies upon emergency services like 9–1–1 are literally 

life-or-death, and it is crucial that policymakers implement rules that maintain the 

public safety components of the phone network. To its credit, the FCC has already 

begun the process of creating a framework for next-generation 9–1–1 services, but 

these issues must also be considered in the broader context of the overall shift of 

the PSTN to new technologies. 

Conclusion 

The transition of the phone network presents new opportunities and new challenges for policymakers seeking to ensure new networks constitute a true step forward, not a step backward, for everyday Americans. The stakes are high. The 

choices policymakers make now will impact how the public conducts business, communicates with loved ones, and reaches emergency services. Public Knowledge urges 

Congress to follow the basic values that have informed our communications networks since the founding of our country to ensure we can all continue to enjoy a 

communications network we can count on. 

49 

APPENDIX A 


725SOHN1.eps
50 

15See New York State Public Service Commission, Tariff Filing by Verizon New York Inc. to 

Introduce Language Under Which Verizon Could Discontinue Its Current Wireline Service Offerings in a Specified Area and Instead Offer a Wireless Service as Its Sole Service Offering in the 

Area, Case 13–C–0197, http://documents.dps.ny.gov/public/MatterManagement/CaseMaster 

.aspx?MatterSeq=42688. 

APPENDIX B 

The following are just some examples of the hundreds of public comments submitted to the New York State Public Service Commission in its proceeding on 

Verizon’s Voice Link deployment in Fire Island.15

1. ‘‘I bring my 93 year old mother who is in home hospice, to my beach house 

on Fire Island, and having an old fashioned landline is crucial to my feeling 

safe about having her there.’’—Sonia Gluckman, 7/15/2013 

2. ‘‘We have also been relying on cell phone service through Verizon which has 

been spotty, at best. My cell phone works in our house while my husband’s 

does not. He is a physician at NYPresbyterian Hospital and relies on his cell 

phone to take emergency calls when he is away from Manhattan. Sometimes 

these calls are urgent and confidential.’’—Maureen and Samuel J. Mann, 7/ 

15/2013 

3. ‘‘In hurricanes Irene and Sandy the land line phone service was a life saver. 

Without the land-line phone I would have had to keep my cell phone off to 

save battery power for 911 calls. I am a senior citizen. With a cell phone I 

could not receive calls from doctors. If land-line is dropped then people will 

die. Because cell phones will run out of battery power and people will not be 

able to call 911. My whole area was out of electricity after Sandy. I lost power 

for 5 days in hurricane Irene and 8 days after Sandy. My area loses power 

many times a year. About a month after hurricane Sandy my area lost power 

again for 12 hours. The land line phone has to stay.’’—Albert Dresner, 7/12/ 

13 

4. ‘‘The bigger issue has been internet. I and most Fire Islander’s previously had unlimited DSL service (through the copper wires) for about an additional $30 

per month, tagged on to the phone service. Now, for the 4G service (which 

is admittedly faster), I am paying $80 per month for just 10GIGs per month 

of data (I believe the cost is $10 per month for each additional 2GIGs). Those 

10 GIGs just get me and my family through a month of e-mail, normal levels 

of work related Internet use, and basic household Internet usage. . .. One 

could easily spend hundreds of dollars or more per month, at Verizon’s rates, 

in order to regain the amount of data we previously had pre-Sandy. This is 

where Verizon is truly taking advantage of us all, and what people are most 

upset about.’’—Keith B. Stein, 7/10/2013 

5. ‘‘Cell service is often poor on Fire Island and it can often times requires several minutes to get cell service and may require you to physically move to another location to pick up service. I have previously had a heart attack and 

do not want to rely solely on cellular service in case of an emergency. We need 

a hard line service provider on the Island.’’—Arthur Rhein, 7/8/2013 

6. ‘‘Please help with this very bad situation with Verizon service at Fire Island. 

They will not repair my landline, which my husband really needs, as he has 

a pacemaker, which has to be monitored by a land-line. They also refused to 

connect my DSL, even though they charged me the monthly fee right through 

the winter, when I questioned this, they said they would transfer me to the 

billing department, and I was promptly disconnected!!!!! I have a Real Estate 

office here in Fair Harbor, and I am getting SO many complaints about 

Verizon service, (or, NON service).’’—Jean Ufer, 7/8/2013 

7. ‘‘I’m extremely unhappy and very nervous that our hardline or copper will be 

cancelled. We are year round residents on Fire Island and need a hard line 

to run our business and to monitor our property from The DSL line. After the 

storm, I temporarily had the Home Connect system and it worked poorly. 

Calls would ring for 30 plus times before I even knew they were coming 

through and we had no Internet which is essential to run a business. Sometimes calls didn’t even go through. Please don’t allow Verizon to cut our lines 

without offering a suitable option. VOICE LINK DOESNT WORK.’’—Barbra 

Heller, 7/6/2013 

8. ‘‘I’m single, live alone and am now considered ‘senior.’ While I don’t use the 

telephone too often I rely it being there for essential help in emergencies. I 

am active on the Internet and require it for business connections. Life without 

51 

a real telephone would be precarious and dangerous on our relatively isolated 

island.’’—Patricia Robbins, 7/5/2013 

9. ‘‘During superstorm Sandy, we lost power for 2 weeks. Although the telephone 

line fell and was across the backyard, we had telephone service. We were able 

to call Verizon to come and fix the line. We were able to call the children and 

tell them that we’re ok. We also were able to call LIPA to tell them about 

the power outage. We are senior citizens in our 70s and are afraid of not 

being able to call for assistance if needed.’’—Robert and Barbara Grosswald, 

7/4/2013 

10. ‘‘My father was on life alert and many of the seniors who lives alone depend 

on that service. I work in a Nursing and Rehab Center and many people who 

have fallen and have medical issues live alone.’’—Mr. and Mrs. Howard Bedell, 7/2/2013 

11. ‘‘As a home owner in Fair Harbor I am distressed and concerned about the 

‘solution’ of Voice Link over the copper wire system for our phones. Already 

I have had an incident with being unable to make a call from my cell phone 

because the network was busy. Thankfully it was not an emergency call, but 

if it had been the delay in getting through would have been significant. With 

an aging mother who does come out to visit, the idea of not being able to 

reach 911 in an emergency is terrifying.’’—Jennifer-jo Moyer, 7/2/2013 

12. ‘‘As a NY resident with elderly (80+) parents, and an elderly (80+) aunt with 

health issues and Parkinson’s Disease on Fire Island for the entire summer, 

I am concerned that the Voice Link system will not meet their needs in a time 

of emergency. Cell phone signals are notoriously erratic particularly in poor 

weather, and particularly on Fire Island; and I am concerned that this system 

is more likely to fail in the event of an emergency. In my elderly aunt’s case, 

she will no longer be able to use her medical alert bracelet as it is dependent 

on a working landline. That she would be able to reach her cell phone after 

falling down seems unlikely.’’—Ken Rothchild, 7/2/2013 

13. ‘‘As a senior-age Fire Island customer since 1970, my wife and I are very dependent on a telephone system that we can rely on, especially during health 

emergencies. The research that I have done on the Voice-Link System tells 

me that its very unreliable and would be a terrible down-grading for us causing lots of anxieties. Please do not give Verizon a go-ahead ruling on their 

‘consumer un-friendly plan.’ ’’—Lee Epstein, 7/1/2013 

14. We need Life Alert systems, our home alarm system and communication with 

the outside world, especially in times of weather disasters such as the recent 

Hurricane Sandy. During that storm, which caused electrical power outages, 

our cell phone also failed. Our landline made it possible for us to contact our 

son and daughter, as well as emergency sources, should it become necessary. 

Since we do not drive, having a landline made it possible to contact neighbors 

should we need food and help. There are many stresses, which accompany 

aging. Losing touch with the outside world should not be another source of 

worry.’’—Phyllis and Herbert Hildebrand, 7/1/2013 

15. ‘‘If Verizon were to abandon the South Bronx for landlines with the argument 

that the neighborhood is unprofitable due to income, credit worthiness problems or vandalism, it would never fly. Why then can Verizon be allowed to 

reduce service levels to Fire Island?’’—Kevin Lee, 6/28/2013 

16. We rely on phone service for emergency response. In the short time that we 

have had Voice Link we have had problems in rainy weather. The Jetpack 

Internet service that, with our limited mobility, we rely on to order medications, food and communicating with physicians is painfully slow and does not 

work at all on weekends.’’—R. Bruce Minoff, 6/28/2013 

17. ‘‘My husband and I are seniors, and in the future may need life alert. That 

does not work on VoiceLink. There have been break-ins in our neighborhood, 

and we are going to install an alarm. That doesn’t work on VoiceLink. We 

have been waiting not so patiently for FiOS to be installed in our neighborhood. I have initiated many complaints to Verizon for noise on our line. Our 

DSL is so slow, it seems as if we have dial-up Internet service.’’—Jean L. 

Coleman, 6/28/2013 

18. ‘‘If you are unfamiliar with Fire Island, there is very little medical service and 

the only way off the island is a scheduled ferry service or, for some people 

who have permits and trucks, a very long drive. When someone needs to be 

rushed to the hospital, they are evacuated by helicopter, which makes timely 

emergency calls of the essence to save lives.’’—Nora Olsen, 6/20/2013 

52 

Senator PRYOR. Thank you. 

Let me go ahead and ask Mr. Gardner the first question. And 

that is, you mentioned in your statement that residential retail is 

basically out of date in terms of the regulatory framework. So what 

is the solution from your standpoint? 

Mr. GARDNER. Thank you, Senator Pryor. 

I think when you look at residential markets, it has changed 

greatly in the last 10 years. In 1996, nearly 100 percent of the people in this country received wireline phone service from the telephone company. At the current time, that number is in the 25 to 

30 percent range. That market share has changed a lot. As was 

mentioned by one of the Senators, 43 percent of the people are 

wireless today, wireless only. 

And so I think what we need to do is recognize there are big differences between residential and enterprise in terms of the market 

opportunities. We need to look at reforming regulatory policy to fit 

with what the construct is today. Wireline companies are a much 

smaller piece of the pie, yet they still carry the brunt of the regulatory burden. 

Senator PRYOR. I want to ask Ms. Bloomfield, if I can, a follow 

up from something you said. You talked about there should be a 

Connect America Fund for smaller providers. How would that 

work? 

Ms. BLOOMFIELD. So right now the Connect America Fund that 

you hear so much about is for those carriers that are not the rateof-return carriers. We need to create a Connect America Fund for 

the small rural carriers that will really focus on ensuring that they 

continue to do the good work that they have been doing in these 

markets. When you look at the evolution and the fact that there 

are 92 percent of these subscribers in these small rural communities served by these rate-of-return carriers that actually have 

broadband access, it is pretty miraculous. And I think we really become a showcase in a lot of ways for rural areas of the rest of the 

world because we recognize how important it is to connect everybody. 

So I think that there is a number of different ways to go about 

it. We have been presenting plans to the FCC. There is, I think, 

a recognition that when you look at the carriers’ costs and reconcile 

what took place with the transformation order a couple of years 

ago in terms of the lost revenue on the intercarrier compensation 

side, kind of reconciling it to the point where there are financial 

incentives for these companies to actually make the investment 

that we need to have in these communities. 

And I would point out, as an example, one of the things that I 

think is a little bit ironic about not having a Connect America 

Fund is right now the way USF is now set for these carriers is it 

supports a voice network. So we are talking about people cutting 

the cord. We are talking about people going to different networks, 

but you still might want that wired broadband connection to your 

home because it has a very high data capacity. Well, right now our 

carriers do not get support. If that customer drops the voice service, wants the wired network for their broadband, they do not get 

USF support. So all that is going to do is increase the cost for that 

consumer to actually get the broadband service. We need to move 

53 

into a broadband-enabled environment for the rural carriers as 

well. 

Senator PRYOR. Senator Wicker? 

Senator WICKER. Thank you very much. 

Let me begin with Mr. Downes. You mentioned that we are in 

the midst of a revolution, that the IP transition is already happening. 

And you are based in Silicon Valley, I believe. Is that correct? 

Mr. DOWNES. Yes, sir. 

Senator WICKER. Some people are advocating a regulatory route 

to approaching this transition. Others advocate a lighter regulatory 

touch. As Congress looks at this issue and as the FCC looks at this 

issue, what do you say to that? Do we need a lighter touch, or do 

we need to delve into a whole new regulatory scheme? 

Mr. DOWNES. Well, Senator, I think the easiest way to think 

about it is just to look at the two worlds in which consumers are 

now living. We have the old PSTN world and we have the Internet 

world largely unregulated, the other very regulated still. It is clear 

where consumers are voting. They are moving from one to the 

other, and they are moving from one to another, as I say, for very 

good reasons. The service is available through the Internet. The innovation that is possible, the entrepreneurship that happens means 

that things can change and evolve very quickly and have very 

quickly, obviously, quicker than anybody would have imagined in 

the last 15 years. 

Frankly, when we in the technology industry hear discussion 

about which of the title II sections should be applied to IP networks in the future, we are baffled. We do not understand even 

how that is possible, but definitely not why we would think it is 

a good idea. 

In matters such as interconnection, for example, we do not have 

interconnection. We have piering arrangements. They have worked 

remarkably well. According to the OECD, 99.5 percent of them are 

not even reduced to writing. That is how sort of straightforward 

they are. Some of them are paid. Some of them are unpaid. Some 

are for large, some are for small networks connecting to each other. 

It is on a global basis, by the way. This is not just in the U.S. 

And, of course, it does not always work perfectly, but when it 

does not, the resolution is relatively easy. In fact, this is not about 

networks having power. Increasingly the content providers have a 

leverage that they are exerting on this process as well. 

So we like the fact that essentially, whether unintentionally or 

otherwise, the 1996 Act left broadband technologies out of the regulatory scheme of the FCC and particularly out of title II. That is 

why it has worked, frankly, and it will continue to work as long 

as we leave it alone. 

Senator WICKER. OK. We have two volunteers to answer that. 

I think you said these problems will take care of themselves if 

left to the current regulatory structure. Is that correct? 

Mr. DOWNES. Yes, that is right. As I said in my testimony, there 

are important roles for Congress and the FCC in the transition 

itself making sure that the process happens smoothly and hopefully 

more smoothly than it did in the digital television transition. But, 

yes, in the actual unregulated Internet market, things work reVerDate Nov 24 2008 07:09 May 13, 2014 Jkt 075679 PO 00000 Frm 00057 Fmt 6633 Sfmt 6601 S:\GPO\DOCS\87817.TXT JACKIE
54 

markably well. We have the multi-stakeholder governance process. 

We have all sorts of mechanisms, engineering-based regulations. It 

is not unregulated. It is engineering regulated. And that really 

works and has continued to work for a very long time. 

Senator WICKER. Ms. Sohn, I believe your hand was up first, and 

then we will let Mr. James dive into this issue. 

Ms. SOHN. So interconnection has been the law for 100 years and 

nobody has regretted it. Let me give you a real-world example of 

what happens when interconnection does not happen. Now, granted, this is in the wireless space, but it is the same issue. 

So in Montana, AT&T decided they no longer wanted to have a 

roaming agreement with Verizon. So what is happening is police 

are having to drive 30 miles out of the city so they can get 

connectivity. When you have players—and we are talking really 

about two or three large market players that do not want interconnection. Everybody else does. Most of the cable companies do. 

All the competitive telephone companies do. The rurals do. We are 

talking about two or three companies. If they can leverage their 

market power, then you have got trouble. 

And my question is do we really, really want to roll the dice and 

wait until there are interconnection problems so a customer from 

AT&T cannot call their mother who is on Comcast? I do not think 

we want that. And as I said before, interconnection has been a 

value and a mandate for 100 years and it has worked marvelously 

well. And I do not understand why we should retreat from that. 

Senator WICKER. Mr. James? 

Mr. JAMES. Thank you, Senator. 

I agree with a lot of what she just said. 

First of all, we need to separate, if we can, some of the issues. 

Managed voice traffic that people have depended upon, particularly businesses with regard to the quality but consumers as well, 

is a service that has always been handled by exchange traffic from 

one carrier to another. Under the 1996 Act, those are negotiated 

for the terms and conditions of that. 

We have made conversions like analog to digital to SS7 signaling 

and now to IP. So we are only talking about the managed voice. 

We are not talking about other broadband services or the Internet 

in general. We are talking about maintaining a quality, reliable 

voice service for those customers who need that because of their 

business or because they want it at home. So we do not want to 

confuse the issue here. And that is what all carriers have to have 

in order to serve their customers. Otherwise they cannot complete 

calls, and that needs to be done in a just and reasonable manner. 

Thank you. 

Senator WICKER. Thank you, Mr. Chairman. 

Senator PRYOR. Thank you. 

Senator Klobuchar? 

Senator KLOBUCHAR. Thank you very much, Mr. Chair. 

I mentioned earlier this issue of call completion which has become a real problem for rural America. I cannot tell you the number of businesses that have told me anecdotally that their customers told them that the calls were dropped. And then actually 

they have been able to collect statistics showing that. And that is 

55 

why Senator Fischer and I have this resolution that will be coming 

up next week in front of this committee. 

As we know, the FCC is making some progress on this issue, and 

there is much more that needs to be done and it needs to be done 

soon. There was a consent decree between the FCC and Level 3 

Communications to see some improved performance, and I applaud 

that but the problems still persist. 

Ms. Bloomfield, do you think that the FCC’s recent enforcement 

advisory it published this week means that the FCC will be taking 

further enforcement action? 

Ms. BLOOMFIELD. It is a very encouraging sign. And I think, 

again, the leadership that you and Senator Fischer have shown on 

this has helped elevate the issue. And the stories are heart-wrenching. 

I think there are a couple of things. I think the enforcement action would be appropriate. I think Level 3 was a good measure, but 

what we saw, interestingly enough, about a week after that enforcement action, the problem just picked back up in tenfold because, again, these least-cost routers then look for new markets 

and new ways to get into these rural markets. And then the calls 

just do not terminate. 

So I think it would be nice to have the FCC move as quickly as 

possible. I think having this issue hang out there is difficult. I continue to get calls from consumers in rural America as well, and you 

know, part of it is they are directed to the FCC website. Well, you 

are just a consumer. Going to that website, trying to fill out this 

form explaining where your call originated, where it was terminating, you know, it is onerous and it is difficult. So I do think 

some more data and transparency will help a great deal. 

Senator KLOBUCHAR. Very good. 

Ms. Sohn mentioned the copper issue. And I think we all know 

there are benefits to copper, and many companies undergoing the 

IP transition will continue to use copper. Many businesses in Minnesota give services up to 220 megabits per second over copper 

with a digitally bonded connection. Copper is still valuable in the 

broadband network. We have a hybrid network and we will continue to have copper into the near future. 

Could you explain maybe, Mr. James, why copper is so valuable? 

Mr. JAMES. Oh, thank you, Senator. It absolutely is. It is the 

most ubiquitous type of facility that is out there, and it is capable 

of handling up to 100 megabits of capacity. It is highly reliable. It 

is DC powered. The other things that are very important about 

that is the technology continues to grow the value of copper. So 

that it now provides all kinds of different applications particularly 

for small-and medium-sized businesses because it reduces their 

cost. And so the Ethernet over copper is continuing to expand in 

our industry. And it is similar to all the capabilities to fiber in 

many ways. It can offer video content over it, triple play. So copper 

is a very valuable part of our network, and it is the most crucial 

last-mile connection because it is so universal. And many of our 

members who deploy fiber still rely on copper for multi-location 

businesses where they are off-net. It is very powerful. 

Senator KLOBUCHAR. A somewhat related issue, Mr. Gardner, I 

appreciated the support USTelecom has given to the bill that I 

56 

have with Senator Graham and Senator Schumer and Senator 

Hoeven, which makes it an explicit Federal crime to steal metal 

from critical infrastructure. We have seen a vast increase in the 

number of metal thefts in our State. Some companies, electric companies, being preyed upon six, seven times. Bronze stars in veterans’ graves being taken. And so I know this is a concern for telephone companies as well as really all businesses. And I just wanted 

to note that bill if anyone is interested in looking at it. We are 

moving it through the Judiciary Committee. 

Ms. Sohn? 

Ms. SOHN. I just wanted to make the Subcommittee aware that 

there are, I believe, two petitions pending in front of the FCC asking whether when incumbents give up their copper or leave their 

copper in the ground, whether competitors should have access to it 

either for free because, of course, taxpayers have already paid for 

it or at a reduced price. Again, that has been pending since, I believe, 2007. I think with this transition, that is something the FCC 

should look at like sooner rather than later. 

Senator KLOBUCHAR. OK, good. 

My last question on rural broadband. I think we know it has not 

expanded as rapidly as we had hoped even though there have been 

improvements. The Universal Service Fund and the support from 

loans made by the Rural Utility Service are important tools for 

supporting broadband expansion. They have been used in my State. 

Several of you mentioned in your testimony—I also find it troubling that the RUS Broadband Program only loaned 37 percent of 

the money that Congress has appropriated to it. 

Ms. Bloomfield, in your view what is holding back investment? 

What does it mean specifically for states like Minnesota that have 

a very short construction period as the winter looms? 

Ms. BLOOMFIELD. It is an excellent question, Senator. It is the 

regulatory uncertainty that is hanging over these carriers that because of the fact that the way the quantile regression analysis 

works, the cap is done on an annual basis. So you have no idea 

year to year what your return is going to be. So folks are feeling 

really paralyzed about do I put money in the ground, do I go ahead 

and make this. You know, I have a fiber to the node plan or a fiber 

to the home. 

We actually did a survey and found that 68 percent of our member companies have chosen to either stop or to slow down their construction progress. And you know, at a time where there is more 

and more demand for broadband, the capacity needs to be greater, 

there is more data that is writing over it, it is a frustrating development to see. But I think they are looking at it thinking I am not 

sure I can repay this loan. So how do I take out a loan? 

And we are seeing the same on the regular RUS lending program 

on the telephone side as well as the broadband side. They are just 

not going in. And not only are they not going in, those that are 

going in are having a harder time getting loans approved because 

even RUS is unable to assess their credit worthiness because they 

do not know what their revenue stream is going to be in the following year. So it just becomes a very vicious cycle. 

Senator KLOBUCHAR. Very good. Thank you, all of you. 

Senator PRYOR. Thank you, Senator Klobuchar. 

57 

Senator Fischer? 

Senator FISCHER. Thank you, Mr. Chairman. 

If I could, Ms. Sohn, follow up a little on the call completion that 

Senator Klobuchar brought up in her questioning. In your opinion, 

what actions do you think Congress or maybe the FCC can take in 

order to continue to address this problem? 

Ms. SOHN. I think the most important thing that Congress and/ 

or the FCC can do is to make sure that they have the authority 

to make sure that rural residents get their calls completed. So once 

the public-switched telephone network goes away, away with it 

goes the FCC’s ability to do anything. As it is, they have authority 

now and it is still taking them forever. But again, once this transition is complete, they do not have the power under the law—they 

will not have the power under the law to fix a horrible problem like 

this. 

And I thank you and Senator Klobuchar and the other Senators, 

Senator Pryor for that resolution. 

So that is the single most important thing that Congress and/or 

the FCC can do, is to ensure that they have the ability to protect 

rural residents. 

Senator FISCHER. Thank you very much. 

Ms. Bloomfield, as you know from past hearings, I am very concerned about the regulatory uncertainty that is out there as well. 

And you just addressed part of that with the quantile regression 

analysis. 

Can you expand on the mechanism that your organization proposed to replace that? 

Ms. BLOOMFIELD. So absolutely. Thank you. 

I think there is are a few things, and you have 50 independent 

carriers in the state of Nebraska. So you have got a lot of folks covering a lot of territory out there. 

So there are a couple of things I think. You know, you have got 

the quantile regression analysis, and the problem is it is now in 

place. So I think 2 years ago we had our own proposal, but right 

now I think we have to look at this and think can we fix it, can 

we eliminate it, can you stretch out the cap so that instead of every 

year they are recalibrated, you have a longer period of time, or can 

you use them as a trigger. And again, it is kind of the art of the 

possible. You know, is there a way to make that work to eliminate 

some of that regulatory uncertainty? 

So I think that we are working really hard with the FCC to 

make sure the data is correct. We are having issues with that, getting that in place. I think there are also things that we need to be 

looking at like how do you get some of the things like the safety 

net additive dealt with. How do you deal with the waiver process 

so it actually works for carriers? How do we do things like—there 

is a further notice that is out there from the FCC that is looking 

at changing rate of return. It is piling on when these carriers do 

not even know what the impact is going to be. Having that rate of 

return proceeding hanging out there is another factor that is just 

creating more of that uncertainty. 

And an issue that I know that we have discussed before is USF 

contributions. You know, if you deal with contributions, can you 

58 

look at the entire Universal Service mechanism a little bit more holistically? I think all of those would help a lot. 

Senator FISCHER. Do you think you are moving forward in any 

way with the FCC on making any of those changes that you are 

recommending? 

Ms. BLOOMFIELD. We are hoping. We are having a lot of discussions. Our team is in there every day. We have probably filed about 

400 pages worth of suggestions and commentary and feedback and 

analysis. We just continue. You know, that is where a lot of this 

action is taking place at this point in time. But I think congressional involvement and oversight is incredibly critical. 

Senator FISCHER. I hope you will keep my office up to date on 

how that is moving forward. 

Also, you mentioned that the waiver process is inefficient. Why 

do you believe that this application process is so cumbersome? 

Ms. BLOOMFIELD. It is very difficult. The process is cumbersome 

enough that folks actually have to hire legal counsel to do it. There 

is a pretty high filing fee, and once you get into the process, it is 

hundreds and hundreds of pages that folks have to be able to document, get all of their data from their companies to submit. And to 

date, to be very frank, we have not really seen very many approved. So folks are willing to go through this because they are 

under such duress, but at the same time, there is no end result 

that kind of shows that the data they have put forth has made any 

difference. So I think a lot of carriers are looking at it thinking I 

do not have $100,000 to spend on a filing process and, at the end 

result, not get any relief. So it is really kind of putting folks in a 

very tough position. 

Senator FISCHER. Thank you. I look forward to working with you 

on those issues. 

Ms. BLOOMFIELD. Thank you. 

Senator FISCHER. Thank you, Mr. Chairman. 

Senator PRYOR. Thank you. 

Senator Blumenthal? 

STATEMENT OF HON. RICHARD BLUMENTHAL, 

U.S. SENATOR FROM CONNECTICUT 

Senator BLUMENTHAL. Thank you, Mr. Chairman. 

I would like to ask a question relating to legislation that I have 

joined Chairman Rockefeller and Senator Klobuchar in introducing, 

the Fair Telephone Billing Act of 2013. And as you know, the bill 

would prohibit wireline telephone companies and other providers 

from placing third party charges on telephone bills, ‘‘cramming’’ as 

it is popularly known. And this issue is one of great concern, I 

think, across the country, spreading ramifications. The FCC is currently considering strengthening its rules that address cramming 

for landline services and extending those rules, which I hope it will 

do to wireless. 

Let me begin. Ms. Sohn, what do you think about extending the 

FCC’s cramming rules to include wireless and other services? 

Ms. SOHN. We absolutely agree with you and we thank you and 

Senator Rockefeller for your leadership on this. 

59 

I mean, cramming practices are no less horrible on wireless and 

voice over IP technologies than they are on wireline technologies. 

Consumers do not get any less hurt. 

Again, to repeat myself a little bit, while the FCC now can probably do something about it and they should if Congress does not 

act, once the PSTN goes away, then the FCC’s ability to deal with 

something like this goes away. And it does not matter what the 

technology is. People can talk about copper, fiber, IP, what have 

you. It is about the social goals. It is about the needs of our society 

and whether we are going to leave anybody behind. 

Senator BLUMENTHAL. Any of the other panelists have views on 

that issue? 

Mr. JAMES. Senator, I would just say we agree with you that it 

is a difficult practice. And we will take a look at the legislation and 

see if we can work with you on it. 

Senator BLUMENTHAL. I would appreciate that, and the same 

with other members of the panel because I do think that there is 

really no justification for this practice. I think everyone would 

agree except for the extreme outliers who engage in it. And I do 

hope that we can extend and strengthen these measures. 

Let me ask also again beginning with Ms. Sohn. What consumer 

problems do you think are most pressing in this area when we look 

at extending protections that copper wire enjoys right now or 

strengthening those protections? In your testimony, you note credit 

card trouble, 911 access. Are those the principal ones? And again, 

I am going to ask the other panelists to follow you. 

Ms. SOHN. Well, many of them are important, but what is more 

important than the ability to make a 911 call to make sure that 

if, God forbid, your husband has a heart attack, that you can get 

through to an ambulance? There is really nothing more important 

than that. And similarly that first responders can also use the network. That is critical. And medical alerts. People on Fire Island reported that their Life Alert would not work with Voice Link. Anything that deals with life and death is the most important thing 

in the world. 

But, look, small businesses in Fire Island are suffering because 

credit cards cannot go through, because faxes cannot go through. 

I know people say, oh, fax. That is so old-fashioned. But, you know, 

lawyers depend on that, you know, to get documents and things 

like that. So there are many, many things. Again, that list I think 

is a good start of items that people need functionality from their 

networks to do it. 

And again, it does not matter what the technology is. What matters is that people have essential services that protect their ability 

to speak, to engage in economic life, and frankly to live a good life. 

Senator BLUMENTHAL. Any of the other panelists? 

Mr. JAMES. Yes, sir. Senator, we could not agree more that the 

last-mile connection is the bottleneck for us to be able to provide 

competitive alternatives to customers, and without it, they are isolated from that availability of choice to vote with their feet, to pick 

a provider that they think is providing the quality of service or the 

types of services that they require. And that is essential. Over 60- 

plus percent of the buildings in the United States that have 20 or 

less employees have only copper as the only connecting facility. 

60 

And so it is essential for customers to be able to have that alternative, and for our members to be able to stay in this market, it 

is a requirement. 

Senator BLUMENTHAL. Thank you. Thank you very much. 

Senator PRYOR. Thank you. 

Let me start, if I may, with Mr. Gardner again, and that is in 

your capacity as running the phone company Windstream. We have 

talked about copper versus IP and all that transition. Give us a feel 

for how your company is making that transition and where you are 

in the process and how you feel like that is going. 

Mr. GARDNER. Well, I think, Senator Pryor, that is a very important issue for us at Windstream. We are both, as I said, an ILEC 

serving many rural customers across America and also one of the 

largest competitive players in the industry. Like many of the companies in this country, we are deploying IP technology very rapidly 

into our network. 

I made my comments on the residential market. I think it is important to note also, on the rural side, that copper is often associated with customers out in the most rural areas. And the publicswitched telephone companies are still providing the bulk of the 

services. In fact, Windstream has already built out broadband to 93 

percent of all of our customers. For those most rural customers, 

often we are the only alternative out there as it relates to high 

speed Internet. So that is very important. 

On the enterprise side, we have been deploying IP. We want to 

be in a position to serve some of the biggest companies in the country. Windstream today serves 80 percent of the Fortune 500, and 

all of our technology going in that side of the business are new soft 

switches, IP technology. 

So I think that as we look at this issue nationally, we just have 

to have a balanced approach to this transition, understanding that 

different companies have different business models because of the 

cap structure, where they are located, et cetera. 

Senator PRYOR. Mr. James, let me ask you. I know you want to 

follow up on that, and I want you to. But I also want to ask you 

about this trend where states are deregulating when it comes to IP, 

and I think there are maybe 25 states or so that have done that 

now. I would like to get your thoughts on that and what the proper 

role of State regulation is in all this. 

Mr. JAMES. Certainly, Senator. Just as a follow-on to the comments just made, IP managed voice is agnostic to whether it is over 

copper or fiber. So those are separate issues. 

As to the states that you mentioned, there are roughly 23 to 25 

states that have deregulated retail residential services or retail 

services but have protected the wholesale obligations that are 

under the 1996 Act. And so we have seen that trend in those 

states. 

Senator PRYOR. Is that a good thing? 

Mr. JAMES. I think the markets between residential and business 

are different because people can choose multiple modes of how they 

want to communicate or conduct their business, their social life, 

and such, whereas businesses that are relegated to a location who 

have to have quality hardline services to be able to receive and get 

calls and make calls to their customers like a local hardware store 

61 

or, for example, like Walmart or any of those kinds of services— 

they need to have reliable service. That could also be offered by IP 

technology, but it would have the same quality of service standards 

that would be under the interconnection that we currently have 

under the TDM network. And that is what we are asking for, is 

that that same types of standards and network architecture be developed and agreed to by the carriers using just a different way of 

exchanging that traffic. 

Senator PRYOR. Great. 

Ms. Bloomfield, let me ask you one follow-up to what Senator 

Klobuchar and Senator Fischer were talking about with the call 

completion, especially in rural call completion. Does that have anything to do with this transition to all IP networks? Are those totally unrelated? 

Ms. BLOOMFIELD. You know, it is a clear example of why we really do need rules of the road. I know my fellow panelists have talked 

a lot about you are really just changing a switching technology. It 

is not really a magic switch goes off and suddenly we have a whole 

new network. 

So part of it is no matter what you do, you need to be looking 

at what happens to consumers. What happens to public safety. 

How do you ensure what happens in competition? How do you ensure that those safeguards all stay in place? So in a lot of ways, 

the call completion issue is a perfect example of what could go 

wrong if you are not looking at the transition in, again, kind of a 

surgical, piece-by-piece way that ensures that those guideposts are 

maintained. 

Senator PRYOR. Thank you. 

Now, we are delighted to have with us our freshman Senator 

from the state of Massachusetts. 

[Laughter.] 

Senator PRYOR. He is number 100 in seniority. I used to be number 100 in seniority. And the great thing about him is he has 37 

years of experience in the Congress. We understand historically 

that he is the record holder of the longest tenure in the House to 

come to the Senate, and we are delighted to have you. I would invite Senator Markey to ask questions. 

STATEMENT OF HON. EDWARD MARKEY, 

U.S. SENATOR FROM MASSACHUSETTS 

Senator MARKEY. Thank you, Mr. Chairman, very much, and 

thank you for that warm welcome. It is great to be here. I am looking forward to learning a lot about these telecommunications 

issues. 

[Laughter.] 

Senator MARKEY. So when I started, there was one phone company. It had 1.2 million employees and there were no competitors. 

That is my first hearing back in 1977. And this hearing really 

could not happen because there would be no other witnesses. And 

so we have come a long way and we have to continue to have discussions about this very dynamic area. 

My bottom-line philosophy always has been that the whole key 

to this goal that we have to ensure that America is number one 

looking over its shoulder at number two, three, four, five in the 

62 

world is that we have to constantly be introducing Darwinian paranoia-inducing competition into the marketplace. And that is ultimately the key protection for our consumers on the one hand because they have more choice and it is also the key for the creation 

of the new jobs here in America because we are the innovation center and not some other place in the world. 

So that is kind of our challenge and we have to do it with consumer protection, with reliability, with Universal Service, with all 

of the old principles. So as you move to new technologies, you cannot leave behind old values. They have served us very well and ultimately competition is a part of that mix in a very big way because consumers are beneficiaries. 

So I guess what I would ask is—I will start with you, Ms. Sohn, 

if I could—to talk a little about this issue of a migration toward 

wireless and kind of the sense that some people have that if we 

continue that migration towards mobile phone usage, that is a big 

reason why we should have less of a concern about the protections 

that are built into the 1996 Telecommunications Act for wireline. 

How do you view that issue? 

Ms. SOHN. So at the risk of sucking up to you, Senator Markey, 

it is wonderful to see you on the dais. Welcome. 

So my response to that is 141 million users still rely on wireline 

services, both copper-based phone services and managed VoIP. And 

as USTelecom says itself, 99 percent of video, nearly 99 percent of 

data still comes over wireline. So wireline is still king, and there 

are many places, particularly in rural areas, where mobile just 

does not work. 

The other thing—I think this is really important—is wireless 

technologies depend on a wireline backbone. It is coexistent with 

wireline. So we really, really have to make sure that our wireline 

systems are built out particularly in rural areas. So wireline is not 

going away anytime soon, and the protections that wireline 

brings—— 

Senator MARKEY. So what could be an unintended consequence 

of removing wireline protections from your perspective? 

Ms. SOHN. As I mentioned before, mobile does not have reliable 

911 connectivity. You cannot use your alarm systems. Many alarm 

systems do not work with mobile. Medical alerts do not work with 

mobile. There is a wide variety of functionality that wireline has. 

And as I said before, wireless does not work in many, many places 

or it does not work well. And we are seeing more and more stories 

of people complaining that they do not have good connectivity. In 

fact, there is an appendix in my testimony that lists 18 of hundreds 

of them. 

Senator MARKEY. Mr. James, do you believe that local competition rules need to stay in place, that they are still necessary even 

as we move to more of an IP-based phone system? 

Mr. JAMES. Absolutely, Senator. We believe that the 1996 Act is 

technology neutral, and the fact that we can progress to the IP 

transition, just like we have done with other transitions in the network, also access to last-mile facilities is essential. Without the 

wholesale side of the industry, there is no real retail competition, 

and competition is the best protection for consumers to be able to 

have multiple companies who have the ability to offer services that 

63 

you want to buy at a value price and utilizing the network that can 

be available to them. That is why it is so important for copper to 

be accessible, and we are continuing to deploy our own facilities 

but we do need those tenets of the 1996 Act. 

Senator MARKEY. So you are saying that copper is a way of ensuring that there is real access, that there is competition, that 

there is a way for smaller companies to be able to compete. 

Mr. JAMES. Absolutely. It is very extremely valuable. The technology continues to improve. We are up to 100 megabits. We have 

extended distances. We now have vectoring. There is all kinds of 

technology development that shows that copper has a greater value 

today than it did 2 years ago, 3 years ago. It is amazing what is 

being done with that technology. 

Senator MARKEY. And that is because you can enhance the capacity for copper to be able to deliver digital services. 

Mr. JAMES. Exactly. And if the recent case of the storm in New 

York where all the copper was removed from two central offices— 

our member companies lost their investment that was embedded in 

those central offices, could not offer the advanced services that they 

were offering over Ethernet copper to their customers. So they were 

disconnected from all their customers, could not reconnect to them, 

and those customers had to find an alternative because our members could not reach that connectivity because of the alternative 

that was offered to them by the carrier at that time was a boxed 

service which could not be added services on top of that the business customers really wanted to buy. 

Senator MARKEY. So what you are saying is that as those competitors are removed from the market, then there is less pressure 

to improve the service. 

Mr. JAMES. Exactly. 

Senator MARKEY. And that the incumbents would be providing. 

You need that competitive dynamic in order to ensure that there 

is a constant upgrade so that customers have choice. When you remove the competition, you remove the likelihood that there is an 

upgrade. 

Mr. JAMES. And in that instance, our members were relegated 

from being advanced technology companies of offering enhanced 

services to just resellers, and that is not what they wanted to be. 

They added that value through what they installed, what they 

risked their financial resources in order to provide to those customers. 

Senator MARKEY. Thank you. 

So, Ms. Sohn, can you follow up a little bit on what Mr. James 

is saying? 

Ms. SOHN. Well, look, nobody benefits more from competition 

than consumers. Competition lowers prices. It improves services. 

Look, I am old enough—we are both old enough—to remember a 

time where there were 6,000 competitive ISP’s, and each American 

had a choice of 13 different ISP’s, Internet service providers. That 

was a great time. Unfortunately, because the U.S. has exported 

many of its competitive policies, we really have a shrinking competitive market. And I think in this new IP transition we need to 

see whether we need to expand our competitive policies not shrink 

them. 

64 

Senator MARKEY. Mr. Gardner, could you comment on this? 

Mr. GARDNER. Yes. I think it is very important. You raised a 

point that I think is—one of the things as we look at next generation regulation—and you asked earlier what do we think about 

wireless technology, et cetera. There is no doubt wireless is an incredible technology that has opened up many opportunities for all 

of our customers in this country. 

But, again, as CEO of a wireline company, just to remind everyone of the criticality of our infrastructure, this year Windstream 

and many members of the United States Telecom Association have 

invested hundreds of millions of dollars building fiber out to cellular towers. So we are a critical part of that infrastructure. 

And then as you look at the limitations that wireless has related 

to spectrum, WiFi is so critically important going forward. 

So I would just ask that as you think about the new world, do 

not forget that wireline is still a critical part of the infrastructure. 

And as we think about the transition, with all the transitions I 

think our regulatory policy has worked well. The world is changing. 

We just ask that you be balanced and manage this transition carefully and understand that different companies are at different 

places in terms of this migration. 

Senator MARKEY. Yes. When you are creating policies, you just 

want to make sure that certain companies are not vindicated posthumously. 

Mr. GARDNER. Yes. 

[Laughter.] 

Senator MARKEY. That the policy did not work. You want to 

think through the policy so that in fact you are ensuring that as 

you are opening up a new world, you are not accidentally destroying something which was a vital part of the fabric of the communications system. 

Ms. Bloomfield, could you? Again, I am sure that the Chairman 

has already talked about the rural aspects of this. But when we 

were doing the 2009 stimulus bill, we built in billions of dollars 

into the stimulus bill in order to ensure that there would be greater funding for the rural aspect of this broadband revolution. Could 

you tell us how that has worked so far from your perspective? 

Ms. BLOOMFIELD. So it was a great initiative by the administration and I think their emphasis on broadband is critical because we 

all know every one of us would attest to the economic impact it has 

on our society and on the economy. 

The problem has been—you missed my whole story on Universal 

Service. 

Senator MARKEY. I am sorry. 

Ms. BLOOMFIELD. I would tie together for you why it has actually 

been probably not as successful. We are actually really struggling 

to get a lot of our members to finish their stimulus buildouts because they are very concerned about the regulatory uncertainty 

that has been created by the FCC’s Universal Service Intercarrier 

Comp order. So they are actually not using that funding. We have 

got a lot of pressure to get them to try to use that funding. They 

have got one more build year to do it. Those carriers that are in 

areas like Massachusetts have a very short build season. And I 

think they are feeling stymied by it. 

65 

So I think there have been some great initiatives. Broadband is 

very important in rural areas. In some ways it bridges that distance, that handicap of distance that is even more important. 

Senator MARKEY. So I would like to work through the chairman 

to work with you. Perhaps maybe we can make sure that policy 

works correctly. 

Ms. BLOOMFIELD. That would be great. Thank you. 

Senator MARKEY. Mr. Chairman, Mr. James would like to add 30 

seconds, if you could. 

Senator PRYOR. Yes. 

Mr. JAMES. I just want to say that when Verizon was entering 

the Europe market as a new entrant, they had in their filings to 

the regulatories—this is a quote—continued regulatory controls 

must remain in place to safeguard access to the necessary wholesale inputs and thereby support competition to the benefit of customers. Prices of these core access products should be as low as 

possible in order to facilitate a genuinely competitive marketplace 

and drive down the prices for customers. It is clear that the most 

effective way to achieve that is to ensure that the operators who 

have significant market power in the relevant markets adhere to 

strict price controls. 

Senator MARKEY. So your point is where a big company is an entrant as a new competitor, they want competitive principles in 

place, but where an incumbent is already there, their views toward 

competitive policies are not nearly as enthusiastic. 

Mr. JAMES. Yes, sir. 

Senator MARKEY. And I thank you for that. 

[Laughter.] 

Senator MARKEY. And, Mr. Chairman, I would yield back the balance of my time. 

Senator PRYOR. Thank you, Senator Markey. It is great to have 

you here. 

I want to say to all of the panelists I actually have some more 

questions, as do a couple of other of our colleagues, but I think 

what we will do is just submit them for the record. We are going 

to leave the record open for 2 weeks. We would encourage all the 

Senators and their staffs to get the questions to the Committee as 

soon as they can. We will try to send those out to the panelists, 

and we would love for you all to respond to those. But we will keep 

the record open for 2 weeks. 

With this, what we will do is we will conclude the hearing. 

But I do want to thank the panelists for coming and your preparation and your hard work to get here, and we appreciate all that 

you do. And we hope that we will all keep talking. 

Again, Senator Markey, it is great to have you with us today. 

So with that, we will conclude the hearing. Thank you. 

[Whereupon, at 1:31 p.m., the hearing was adjourned.] 

(67) 

A P P E N D I X 

PREPARED STATEMENT OF HON. JOHN D. (JAY) ROCKEFELLER IV, 

U.S. SENATOR FROM WEST VIRGINIA

Today’s hearing on the state of wireline communications affords us an opportunity 

to take stock of the nation’s public telephone network. That network is a source of 

National pride and ingenuity, and remains the envy of the world. In fact, one could 

argue that the public telephone network is a victim of its own success; we only notice the value of this network and its reliability and resiliency when we are forced 

to compare other communications networks to it. 

The principle of ‘‘universal access’’ to communications is one of the basic tenants 

of the Communications Act of 1934, and it remains as vital today as it was then. 

We have reached out and covered nearly everyone—in urban, rural, and even many 

of the most remote areas of the world based in part to our nation’s fidelity to the 

principle that all Americans should be able to benefit from the opportunities afforded by access to communications. We must continue to make sure that everyone 

has available to them the advantages that come with access to modern communications networks. 

The nation’s wireline infrastructure is at the heart of this nation’s communications system and policy. Not only does our public telephone network provide a vital 

voice, data and video service to our Nation’s citizens and businesses, it is the backbone on which the nation’s wireless networks also rely. And allows a consumer in 

a remote part of West Virginia to pick up the phone and reach anyone in the country. 

The success of the nation’s telephone network was not fortuitous. It came about 

by a tremendous amount of private investment and innovation and because of sound 

policy decisions, rooted in the fundamental principles of the Communications Act of 

1934, and later the Telecommunications Act of 1996. And as Americans begin to 

benefit from the next evolution in wireline technology, I remain convinced that 

smart regulation and strong consumer protection is as necessary today as it was 

when the Communications Act was passed almost 80 years ago. 

Rural consumers should not be left behind in this transition. They must have access to next-generation high-speed broadband services. The need for access to advanced broadband networks throughout the country is one of the reasons I believe 

it is time to strengthen the E-rate program. As I said last week, basic Internet 

connectivity is not sufficient to meet our children’s 21st century educational needs. 

Bringing next-generation high-speed broadband to schools and libraries in rural as 

well as urban areas is essential to affording students access to tomorrow’s digital 

education technologies and services. 

As we look to the future, we must make sure that comparable communications 

services are available at comparable rates for everyone in this country, no matter 

who they are and no matter where they live. Even as networks evolve and as companies upgrade their technology, the principles undergirding decades of communications law and policy remain. And it will be up to Congress and the states to make 

sure that all communications companies comply with the underlying foundations of 

universal access, consumer protection, competition, and public safety enshrined in 

our nation’s communications laws. 

I look forward to the testimony from our witnesses today and to their perspectives 

on the state of wireline communications in the nation, the challenges facing their 

companies, and how we can achieve our collective goal of bringing advanced communications services to all Americans. 

68 

RESPONSE TO WRITTEN QUESTIONS SUBMITTED BY HON. MARK WARNER TO

JEFF GARDNER

Question 1. With respect to the coming IP transition and advancing technology, 

which specific requirements from the Telecommunications Act of 1996 are the most 

important to maintain to ensure fair competition in the marketplace? 

Question 1a. For example, the 1996 Act has clear interconnection requirements. 

Do you believe that these provisions are technology-neutral and should apply in an 

IP-based network? If not, please explain why not. 

Answer. As I stated in my testimony, communications technology and the competitive landscape of the telecommunications industry is changing rapidly. This 

places tremendous pressure on the regulatory structure to remain sufficiently flexible to adjust to these changes in a timely fashion. As is evidenced by my own company, which is both an incumbent phone company and one of the largest competitive 

phone companies, the industry structure is increasingly complex with fewer and 

fewer ‘‘one size fits all’’ solutions. It is therefore essential that we work together to 

update rules to a pro-consumer, pro-competitive framework for the information age. 

As the industry—including wireline, cable and wireless companies—moves forward in its deployment of new IP-based technologies, core policy issues will continue 

to be important. These include issues such as interconnection, competitive access, 

transport, privacy, and public safety. As policymakers evaluate the proper regulatory framework for such issues in the course of the IP transition, USTelecom believes it is important to properly balance the policy goals of regulatory parity among 

competing platforms, promoting investment in next-generation network facilities, 

avoiding competitive harm, and protecting consumers. 

Question 1b. How important is it to maintain the legacy/copper communications 

network as we transition to IP? If so, for how long? If not, please explain why not. 

Answer. As you correctly note, the shift to IP-based services is a transition, not 

an event; all communications companies are deploying IP in their networks, and the 

transition is unfolding in different ways and at different times for each provider. 

For example, various providers are delivering IP-based services over fiber, copper, 

coaxial cable and wireless facilities. Therefore, it is most important for policymakers 

to avoid imposing a one-size-fits-all approach to this transition. Rather, policymakers should be focused on facilitating this transition by minimizing regulatory 

impediments while at the same time ensuring protections for consumers and competition. This balanced approach applies equally to the replacement of copper facilities. To achieve this balance, policymakers and the industry will need to forge a consensus on how we can restructure regulatory obligations in a way that provides consumers and businesses with all the benefits of the Information Age. 

Question 2. Reform of the Universal Service Fund (USF)/creation of the Connect 

America Fund (CAF) is critically important because millions of Americans still lack 

access to high-speed broadband service in many areas of the country. According to 

the National Broadband Plan, broadband is available in 98 percent of the nation, 

but the national adoption rate, according to the National Telecommunications and 

Information Administration (NTIA) and Census data, is 72 percent. I believe it is 

important for all Americans to have access to high-capacity broadband service, and 

therefore, I am focused on policies that help us to reach 100 percent coverage of U.S. 

households. However, we have a limited amount of money that we can allocate as 

a nation to rural broadband deployment, and I believe we should prioritize funding 

to support buildout in unserved areas or areas below 4 mbps down/1 mbps. Typically, these areas are still unserved because of the high cost of deployment and the 

low population density. Understandably, this makes it difficult for private companies to deploy broadband in these areas, and it is also the reason why policymakers 

decided to create programs like USF/CAF—to serve hard-to-reach places in the 

country. 

Question 2a. Do you believe CAF is adequately focused on broadband deployment 

in unserved areas? If so, how long do you think it will take to reach full deployment? If not, please explain what it would take to buildout unserved areas of our 

country given that we only have approximately $4.5 billion/year through USF. 

Answer. The FCC’s CAF program is limited to larger telecommunications providers known as price cap carriers. The CAF program is focused on supporting the 

construction and operation of robust broadband and voice networks in areas served 

by these companies where there is no private business case to provide service. The 

program properly recognizes that support is necessary in these areas both to build 

and maintain networks. The program further limits funding to only those areas 

where there is no unsubsidized competitor. 

69 

The cost of full deployment remains unquantified, despite some preliminary efforts made during development of the National Broadband Plan and later by a coalition of price cap companies. Even by the FCC’s own rough estimate, reaching all 

unserved consumers will require much more funding than is currently available in 

the CAF and may require technologies other than wired broadband. In the absence 

of a precise estimate, we do not know how long it will take to reach full deployment 

at the rate of $4.5 billion a year. It should also be noted that a percentage of that 

funding will be necessary to sustain operation of the phone network in high-cost 

areas and also high-cost locations that already have broadband (and will require investment, as network demands have increased steadily year-over-year). 

At a high level, the vision of the Connect America Fund is, beginning with a 5- 

year phase, to deploy 4/1 broadband speeds as widely as possible, given that budget 

constraint. Areas served by price cap companies that are so remote and costly to 

serve that they exceed an upper cost threshold that the FCC will establish can receive support under the separate Remote Areas Fund. 

Neither USTelecom nor the FCC believes that a 5-year Connect America Fund 

will address all rural broadband needs in areas served by price cap companies. 

There are significant issues yet to be resolved with regard to that 5-year phase, as 

well as what comes next. We appreciate your interest and engagement and will need 

more of it. 

Question 2b. Is the pace of reform moving too slowly? 

Answer. Certainly price companies and our customers feel a sense of urgency to 

extend broadband into more of rural America. Ultimately, reform may produce more 

investment capital for rural deployment in price cap areas, although many significant issues remain unresolved. We urge the Commission to take the time necessary 

to do the job right, but we would note that development of CAF–2, the permanent 

funding model for price cap areas, has fallen behind schedule. Meanwhile, other key 

aspects of reform have progressed rapidly: The high-cost program is operating on 

a flat-line budget, and intercarrier compensation is being eliminated. Phasing out 

the implicit subsidies from intercarrier comp is reducing support for high cost networks, both in price cap and rate-of-return areas, by billions of dollars. 

Question 3. Based on my experience in Virginia, it is not possible to deploy fiber 

absolutely everywhere. Many areas of my state have granite rockbeds, which make 

it prohibitively expensive to deploy fiber. Therefore, I am supportive of cost effective 

deployment of broadband technology to reach universal coverage. Although I recognize that the focus of this hearing was on wireline issues, it seems to me that we 

should consider the best technologies based on our national goal of providing advanced communications services to all Americans. 

Question 3a. Should the Federal Communications Commission (FCC) focus more 

resources on best-available technology for unserved areas or areas below 4/1? If so, 

please explain what else the FCC could do to improve broadband coverage to 

unserved areas. If not, please explain how we can reach full broadband deployment 

by focusing more on fixed services, at a reasonable cost to taxpayers and consumers. 

Answer. Every aspect of universal service is resource-constrained, and the FCC 

has made a commitment to operate within a $4.5 billion annual budget. In light of 

the elimination of intercarrier compensation revenues and the formidable amount 

of work ahead, it is important that support for funding broadband and voice service 

in high cost areas not be further eroded. The FCC and our industry have focused 

considerable effort on designing a cost model that will accurately estimate the forward-looking costs of providing broadband service over the most efficient network. 

That cost model will play an important role in allocating support and ensuring that 

support is tailored to the costs and obligations of providing robust broadband in 

high-cost areas. I believe that wireline is the most robust and cost-effective 

broadband network option in terms of bandwidth, latency, reliability, and scalability 

for the vast majority of locations in the Nation. That said, USTelecom believes the 

FCC’s plan to support deployment of alternative technologies via a Remote Areas 

Fund is a practical second-best solution, in light of budget constraints, to reach the 

very highest-cost locations. 

Question 3b. Please describe what role you see for other technologies in terms of 

serving hard-to-reach areas in the near term. Could we be more technology-neutral 

in our Federal broadband funding programs? 

Answer. As I described in my answer to the previous question, I think there is 

a role for satellite or fixed wireless in the very highest-cost areas. In addition, the 

FCC is supporting the provision of mobile service through a separate Mobility Fund. 

Finally, the FCC is operating in a technology-neutral manner now, as it is planning 

a competitive bidding process that would be open to all fixed terrestrial technologies, 

including DSL, fiber, cable, and fixed wireless. 

70 

Question 4. Would more targeted broadband mapping—at the address level, specifically—help to accelerate deployment to unserved areas? If not, please explain 

why less granular data models are sufficient to target deployment to unserved 

households. Do you believe the current level of data gathered by the National 

Broadband Map contributes to overbuilding? If not, please explain. 

Answer. Accurate data is important to thoughtful policy-making, and USTelecom 

members, including Windstream, continue to work on providing updated, granular 

data for inclusion in the National Broadband Map. Given that the NBM is informing 

important policy decisions, including the distribution of universal service funding, 

it should be a priority to ensure that broadband service providers are using the 

same methodologies for submitting data and—in light of the fact that the NBM is 

based on self-reported data—are providing data that accurately reflects existing 

service. 

As your question recognizes, more targeted reporting would not serve to accelerate 

deployment in the 95 percent of locations in the U.S. that are already served by 

fixed broadband. Even in unserved areas of the country, however, targeting 

broadband mapping at the census block level—the current level of granularity of the 

NBM—is appropriate. Because broadband service providers base deployment decisions on the costs of multi-location projects or routes, it is not useful to target 

broadband mapping at the address level. Moreover, requiring the collection of household-level data would place a substantial burden on providers and require them to 

divert resources toward administrative matters and away from broadband investment, thus undermining the goals of universal broadband availability. Targeting the 

collection of mapping data on the census block level strikes an appropriate balance, 

providing sufficiently granular detail while minimizing the burden on providers. 

Question 5. As many experts have noted, there is ‘‘rural-rural divide’’ when it 

comes to the presence of broadband infrastructure in rural America. According to 

the FCC, more than 83 percent of the approximately 18 million Americans that lack 

access to residential fixed broadband at or above the basic level of acceptable service 

outlined in the National Broadband Plan live in areas served by price-cap carriers. 

The FCC attempted to address this disparity by establishing an incremental support 

component in the Phase I CAF Fund for price cap carriers. The initial support was 

established at $300 million, but more than half of the allocated funds went unclaimed. Different types of carriers have expressed opinions about whether or not 

it was a good idea for the FCC to set aside this amount of money even though the 

bulk of the $4.5 USF program was allocated to other types of carriers. 

Question 5a. Regardless of your views on the Phase I Fund, do you think the FCC 

has done enough to provide coverage to the 14.9 million people who still lack any 

sort of basic broadband service? 

Question 5b. If so, when do you think we can expect to provide broadband service 

to all Americans? If not, what else could the FCC do to provide universal broadband 

service? 

Answer. See question #2. If I am missing the point of your question, I would be 

happy to arrange a meeting with you or your staff. 

Question 6. There has been a great deal of discussion about the FCC’s models for 

CAF. Given that technology is advancing at a rapid rate, it seems like the FCC 

should be focused on establishing a cost model that is updated frequently enough 

to provide an accurate sense of the marketplace. How important is the timeliness 

of the FCC’s proposed cost model in delivering service to unserved areas? 

Answer. USTelecom has long urged that an essential feature of CAF in general, 

and of the Connect America Cost Model (CAM) in particular, must be the proper 

alignment of funding and the service obligations attached to such funding. The 

FCC’s CAM is timely in that it models the cost that an efficient provider using forward-looking technology would incur to provide robust broadband and voice services. 

The FCC has correctly adopted a multi-year support period for CAF Phase II, in recognition that few if any carriers would undertake the enormous upfront investment 

cost of building out a broadband network, especially in rural locations where there 

is no business case to do so, without a set, multi-year support period. Likewise, it 

is crucial that carriers have certainty with regard to the amount of funding they 

will receive over the support period and the obligations attached to such funding. 

Without such certainty, carriers will be less likely to take on CAF Phase II service 

commitments, which would undermine the goal of delivering service to unserved 

areas. 

USTelecom agrees that the CAM should provide an accurate sense of the marketplace and the cost of serving high-cost areas, and we have been working with the 

FCC to ensure that the CAM achieves these objectives. It is our belief that a CAM 

that provides certainty with regard to support amounts over a multi-year period, 

71 

rather than a CAM that is updated frequently, is most appropriately aligned with 

the realities of network-building and most likely to result in the deployment of 

broadband service in unserved areas. 

Question 6a. Do you agree with the revisions the FCC has made to its cost model? 

Does the cost model accurately predict needs/services under CAF? If not, or if you 

believe the FCC model should lock in rates for a longer period of time, please explain how a longer view would deliver broadband to unserved areas more quickly 

than an annualized model. 

Answer. The development of the CAM is still underway, with many key decisions 

as yet unmade. Therefore, while we are working with the FCC and other interested 

parties to ensure that the various components of the CAM work together to accurately predict the costs of serving high-cost areas, it is too soon to say whether the 

CAM does or does not do so. 

As noted above, USTelecom believes the FCC correctly adopted a multi-year support period for CAF Phase II; in fact, USTelecom member companies advocated for 

a longer support period than the one ultimately adopted by the FCC because a 

longer support period more accurately reflects the sunk-cost nature of much network 

investment in providing broadband services. Carriers must undertake an enormous 

upfront investment cost to build out a broadband network, especially in rural and 

high-cost locations where there is no business case to do so. The longer the guaranteed period of support, the more likely carriers are to assume those massive costs. 

Conversely, an annualized model, which would not provide carriers with certainty 

regarding the support they will receive to underwrite these investments, would 

make carriers less likely to undertake the deployment of broadband in high-cost 

areas. In this way, a longer view will deliver broadband to unserved areas more 

quickly than an annualized model. 

Question 7. A report by the nonpartisan Congressional Research Service analysis 

captures one of the major challenges of USF reform as follows: 

‘‘Smaller, rural, rate-of-return carriers are particularly dependent on USF subsidies, and have expressed concern that the reforms that the USF Order will 

implement could place them under financial hardship. Many RUS telecommunications and broadband borrowers (loan recipients) receive high cost USF subsidies. In many cases, the subsidy received from USF helps provide the revenue 

necessary to keep the loan viable. The Telecommunications Infrastructure Loan 

program is highly dependent on high-cost USF revenues, with 99 percent (476 

out of 480 borrowers) receiving interstate high-cost USF support. This is not 

surprising, given that the RUS Telecommunications Loans are available only to 

the most rural and high-cost areas (towns with populations less than 5,000). Regarding broadband loans, 60 percent of BIP (stimulus) borrowers draw from 

state or interstate USF support mechanisms, while 10 percent of farm bill 

(Rural Broadband Access Loan and Loan Guarantee Program) broadband borrowers receive interstate high-cost USF support. Thus, to the extent that USF 

may be reformed, this could have an impact on the viability of RUS telecommunications and broadband loans, and ultimately the overall financial 

health of the carrier. 

Although the FCC included a waiver process in its USF Order for those carriers 

that felt they would be subject to significant economic stress, due to the reforms, many smaller carriers assert that the waiver process is too burdensome 

and difficult and that the requirements for qualifying for relief are too restrictive.’’ 

Additionally, according to the U.S. Department of Agriculture, demand for RUS 

loan funds was only 37 percent of loan funds appropriated by Congress in FY2012. 

This is indicative of the fact that the restructuring and uncertainty around USF/ 

CAF reform could diminish the desirability of RUS broadband loans to borrowers 

going forward. 

Question 7a. Given that the RUS and USF broadband programs share the goal 

of deploying broadband to rural America, and many RUS borrowers appear to be 

significant beneficiaries of USF as well, are these programs effectively targeted towards providing broadband to unserved areas of the nation? 

Question 7b. Are these programs the most cost-effective way for Congress to fund 

rural broadband development? If so, please explain why. If not, please share any 

ideas you may have regarding a more cost-effective approach to encouraging 

broadband deployment. 

Question 7c. Given that these two programs (USF and RUS) share the same goals, 

to what extent are they duplicative and to what extent are they complementary? 

72 

Question 7d. Do you think that the FCC waiver process, as designed and described above, is appropriate? If so, why? If not, what changes would you recommend? 

Answer. Because Windstream is a price-cap carrier and this question pertains to 

rate-of-return carriers, I have asked Walter McCormick, President and CEO of the 

USTelecom Association, to respond for the Association and respectfully request that 

his answer be incorporated into the record. 

[Mr. McCormick’s answer follows:] 


725JEFFQ1.eps
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77 

RESPONSE TO WRITTEN QUESTIONS SUBMITTED BY HON. MARK WARNER TO

SHIRLEY BLOOMFIELD

Question 1. With respect to the coming IP transition and advancing technology, 

which specific requirements from the Telecommunications Act of 1996 are the most 

important to maintain to ensure fair competition in the marketplace? 

Question 1a. For example, the 1996 Act has clear interconnection requirements. 

Do you believe that these provisions are technology-neutral and should apply in an 

IP-based network? If not, please explain why not. 

Question 1b. How important is it to maintain the legacy/copper communications 

network as we transition to IP? If so, for how long? If not, please explain why not. 

Answer. NTCA–The Rural Broadband Association (‘‘NTCA’’) filed an ‘‘IP Evolution’’ Petition with the Federal Communications Commission (‘‘FCC’’) arguing precisely that certain fundamental statutory principles transcend mere technology transitions and should therefore be promoted and sustained regardless of the protocols 

used within underlying communications networks. A copy of that Petition, as filed 

in November 2012, can be found in the attachment titled ‘‘Petition of the National 

Telecommunications Cooperative Association for a Rulemaking to Promote and Sustain the Ongoing TDM to IP Evolution.’’ It explains how the FCC should undertake 

a thoughtful and comprehensive review to modernize its regulations in light of technology transitions—but only against a statutory backdrop that above all else: (1) 

preserves and advances universal service; (2) promotes competition, and (3) ensures 

consumer protection (which includes the need for reliable service quality and access 

to public safety emergency services). This review would include not the narrow question of how to sustain technology neutral interconnection requirements between carriers consistent with the Communications Act of 1934, as amended (the ‘‘Act’’), but 

also a broader consideration of what additional steps are needed to ensure that 

there is sufficient and predictable universal service support so that all Americans— 

including those in high-cost areas and low-income consumers—can enjoy meaningful 

access to sustainable IP-enabled, broadband-capable services at affordable rates. 

Question 2. Reform of the Universal Service Fund (USF)/creation of the Connect 

America Fund (CAF) is critically important because millions of Americans still lack 

access to high-speed broadband service in many areas of the country. According to 

the National Broadband Plan, broadband is available in 98 percent of the nation, 

but the national adoption rate, according to the National Telecommunications and 

Information Administration (NTIA) and Census data, is 72 percent. I believe it is 

important for all Americans to have access to high-capacity broadband service, and 

therefore, I am focused on policies that help us to reach 100 percent coverage of U.S. 

households. However, we have a limited amount of money that we can allocate as 

a nation to rural broadband deployment, and I believe we should prioritize funding 

to support buildout in unserved areas or areas below 4 mbps down/1 mbps. Typically, these areas are still unserved because of the high cost of deployment and the 

low population density. Understandably, this makes it difficult for private companies to deploy broadband in these areas, and it is also the reason why policymakers 

decided to create programs like USF/CAF—to serve hard-to-reach places in the 

country. 

Question 2a. Do you believe CAF is adequately focused on broadband deployment 

in unserved areas? If so, how long do you think it will take to reach full deployment? If not, please explain what it would take to buildout unserved areas of our 

country given that we only have approximately $4.5 billion/year through USF. 

Question 2b. Is the pace of reform moving too slowly? 

Answer. The Connect America Fund (‘‘CAF’’) is a program intended by the FCC 

to implement the high-cost universal provisions of Section 254(b)(3) of the Act, 

which requires among other things that: 

Consumers in all regions of the Nation, including low-income consumers and 

those in rural, insular, and high cost areas, should have access to telecommunications and information services, including interexchange services and advanced 

telecommunications and information services, that are reasonably comparable to 

those services provided in urban areas and that are available at rates that are 

reasonably comparable to rates charged for similar services in urban areas. 

Section 254(b)(5) further compels that ‘‘[t]here should be specific, predictable and 

sufficient Federal and State mechanisms to preserve and advance universal service.’’ 

Thus, universal service—and by extension, the CAF—must not be merely about 

‘‘getting services out there’’ to unserved areas. Instead, by Congressional mandate, 

any universal service program must also seek to ‘‘preserve and advance universal 

service’’ by keeping services in all areas of the United States, and by making sure 

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that those services are and remain affordable. Universal service will fail in the longrun—and the investments used to deploy broadband will be inefficient or even wasted—if there is not a co-equal focus on sustainability as compared to merely reaching 

unserved areas in the first instance. More specifically, if networks are built, but 

services on them are unaffordable or do not remain ‘‘reasonably comparable’’ to services available in urban areas over time, then universal service has failed. 

Particularly given that broadband speeds are evolving and increasing, it is important that the high-cost USF program continue to be seen—as it was until the past 

few years –as both an ‘‘availability’’ and ‘‘adoption’’ program that helps to justify 

both the deployment of networks and then the use of services on them by consumers. A network that is built merely to meet 4/1 Mbps speeds today will become 

quickly outdated; the FCC has acknowledged this in indicating that CAF Phase II 

recipients will be required to ensure that their networks are capable of offering 6/ 

1.5 Mbps speeds in several years. Unfortunately, it appears that even 6/1.5 Mbps 

speeds are already surpassed, as studies (including the ‘‘State of the Internet’’ report 

published regularly by Akamai) indicate that the average nationwide use of 

broadband is already in excess of this speed threshold. Moreover, given that networks are built to last for twenty years or longer—and given that it takes at least 

this long to recover the costs of deploying a network in sparsely populated, highcost rural areas—a forward-looking and efficient universal service policy should aim 

to deploy and maintain/sustain networks that will be capable of delivering ‘‘reasonably comparable’’ speeds for the next several decades in lieu of clinging to quickly 

surpassed arbitrary speed targets. 

Such efforts will almost certainly require more resources in the end than the $4.5 

billion available under the FCC’s ‘‘budget target’’ for high-cost universal service 

through 2017. Yet the fact remains that small rural carriers, such as those within 

NTCA’s membership, have already made ‘‘commendable’’ strides (according to the 

Federal-State Joint Board on Universal Service) in deploying broadband, even as 

their use of high-cost USF support grew only roughly equal to the historic pace of 

inflation (3 percent per year, per FCC Order 11–161). It is also worth noting that 

the ‘‘budget’’ risk in the high-cost USF program was ultimately ‘‘a solution in need 

of a problem’’ since, once again per FCC Order 11–161, the overall high-cost program budget had been declining slightly for years, even in advance of the FCC’s 2011 

reforms. 

Unfortunately, with uncertainty arising out of the FCC’s 2011 order—specifically 

as a result of the ‘‘Quantile Regression Analysis’’ caps and the threat of more cuts 

to come in a further notice of proposed rulemaking—many small carriers have been 

forced to put their investments on hold. A NTCA survey in early 2013 indicated that 

out of more than one hundred small carriers responding, nearly 70 percent had postponed or cancelled broadband network deployment projects specifically due to regulatory uncertainty arising out of the FCC’s reforms and the threat of further cuts 

to come. 

Thus, while more remains to be done to achieve truly universal broadband, if regulatory certainty can be restored and a more sufficient and predictable support 

mechanism put into place, it may be possible on a reasonable budget that includes 

some reflection of the fact that costs are subject to inflation over time—particularly 

labor costs that represent the overwhelming portion of network deployment costs— 

to re-commence the ‘‘edging out’’ of broadband in rural areas that smaller carriers 

had been making prior to the FCC’s reforms, and to thereby achieve nearly universal broadband deployment over the course of time. 

Question 3. Based on my experience in Virginia, it is not possible to deploy fiber 

absolutely everywhere. Many areas of my state have granite rockbeds, which make 

it prohibitively expensive to deploy fiber. Therefore, I am supportive of cost effective 

deployment of broadband technology to reach universal coverage. Although I recognize that the focus of this hearing was on wireline issues, it seems to me that we 

should consider the best technologies based on our national goal of providing advanced communications services to all Americans. 

Question 3a. Should the Federal Communications Commission (FCC) focus more 

resources on best-available technology for unserved areas or areas below 4/1? If so, 

please explain what else the FCC could do to improve broadband coverage to 

unserved areas. If not, please explain how we can reach full broadband deployment 

by focusing more on fixed services, at a reasonable cost to taxpayers and consumers. 

Question 3b. Please describe what role you see for other technologies in terms of 

serving hard-to-reach areas in the near term. Could we be more technology-neutral 

in our Federal broadband funding programs? 

Answer. As noted in a prior response, small carriers, such as those in NTCA’s 

membership, have made ‘‘commendable’’ strides according to Federal and state reguVerDate Nov 24 2008 07:09 May 13, 2014 Jkt 075679 PO 00000 Frm 00082 Fmt 6601 Sfmt 6621 S:\GPO\DOCS\87817.TXT JACKIE
79 

lators in deploying broadband in hard-to-serve rural areas. Still, there is more clearly to be done to upgrade many of those networks to ensure they remain ‘‘reasonably 

comparable’’ over time with services available in urban areas. To date, NTCA members have utilized every possible tool available to them to provide broadband, 

leveraging a mix of fiber and copper, coaxial cable, and wireless technologies to 

reach consumers. In fact, NTCA estimates that nearly half of its members hold 

some spectrum assets, and it is our understanding that some of those carriers have 

used fixed wireless to reach some portion of their customers where other technologies were not yet feasible. 

This being said, it remains clear that fiber networks remain the best, most efficient option to achieve true universal service in the long-run—that is, to ensure that 

all Americans have access to reasonably comparable service at reasonably comparable rates. Copper networks installed in rural areas decades ago during the transition from party-line to single-line telephone service are in many cases long past 

their useful life, and as those networks deteriorate, consumers run the risk of losing 

access even to voice service, never mind obtaining access to reasonably comparable 

broadband. And while fixed wireless may be an option in certain cases to help deploy broadband, it is worth noting that many fixed wireless solutions do not enable 

voice service; in fact, many fixed wireless providers specifically disavow the offering 

of voice services. Similarly, satellite services present significant limitations in the 

carriage of real-time voice traffic, and NTCA understands that capacity limitations 

are even precluding the placement of new orders now for satellite broadband in wide 

swaths of rural America. Thus, while each of these technologies could represent 

niche parts of a comprehensive national solution, the fact remains that the only reliable means of offering both voice services and ensuring ‘‘reasonably comparable’’ 

broadband in rural areas is through the deployment and ongoing operation of robust, fixed networks. 

Just as the nation committed to wiring all of America to ensure rural electrification and rural telephony decades ago, it should recommit to re-wiring America 

now—over time if needed to help manage within reasonable ‘‘budget targets’’—to ensure that the statutory mandate of universal service is served in an IP-enabled era. 

Question 4. Would more targeted broadband mapping—at the address level, specifically—help to accelerate deployment to unserved areas? If not, please explain 

why less granular data models are sufficient to target deployment to unserved 

households. Do you believe the current level of data gathered by the National 

Broadband Map contributes to overbuilding? If not, please explain. 

Question 4a. While the collection of address level data is a laudable goal, the implementation on a nationwide basis would be extremely difficult for a number of 

reasons. First of all, not every home in the country actually has a street address. 

Many homes located in rural areas have post office boxes and not street addresses. 

Additionally, wireless providers who claim to serve an entire area would be unable 

to tie their coverage with an actual street address. Finally, the sheer amount of data 

needed to accomplish this goal on a nationwide basis would likely overwhelm the 

programs used to run the mapping tools. The FCC recently took over the mapping 

initiative and there are concerns about their ability to maintain the detail needed. 

Answer. Networks are not built address-by-address or customer-by-customer. Particularly in a broadband world, there are aggregation points and middle mile connections that link entire rural communities ‘‘back to the Internet.’’ Thus, while better mapping to understand what providers operate where and which services they 

actually offer could be helpful in guiding Federal policy, such mapping cannot play 

an exclusive or dispositive role in deciding where and to what degree to provide universal service support in a given area. For example, while multiple providers may 

provide broadband in a given area, only one may be offering voice service and, moreover, a ‘‘broadband coverage map’’ will not yield any information that indicates 

whether the rates for voice and broadband are ‘‘reasonably comparable’’ for purpose 

of actually carrying out the statutory mandates of universal service. 

NTCA has filed extensive comments at the FCC on the proper role of mapping 

in guiding universal service policy, and raising concerns with respect to the accuracy 

of the maps as they might be utilized to inform USF support decisions. In particular, NTCA has noted that the states—given their proximity to the consumer and 

better awareness generally of competitive and marketplace conditions ‘‘on the 

ground’’—should play a more prominent role in helping to identify what areas are 

truly unserved or served by multiple providers. Examples of such comments can be 

found in the attached Comments of NTCA et al., dated March 28, 2013 and Comments of NTCA et al., dated January 9, 2013. 

Question 5. As many experts have noted, there is ‘‘rural-rural divide’’ when it 

comes to the presence of broadband infrastructure in rural America. According to 

80 

the FCC, more than 83 percent of the approximately 18 million Americans that lack 

access to residential fixed broadband at or above the basic level of acceptable service 

outlined in the National Broadband Plan live in areas served by price-cap carriers. 

The FCC attempted to address this disparity by establishing an incremental support 

component in the Phase I CAF Fund for price cap carriers. The initial support was 

established at $300 million, but more than half of the allocated funds went unclaimed. Different types of carriers have expressed opinions about whether or not 

it was a good idea for the FCC to set aside this amount of money even though the 

bulk of the $4.5 USF program was allocated to other types of carriers. 

Question 5a. Regardless of your views on the Phase I Fund, do you think the FCC 

has done enough to provide coverage to the 14.9 million people who still lack any 

sort of basic broadband service? 

Question 5b. If so, when do you think we can expect to provide broadband service 

to all Americans? If not, what else could the FCC do to provide universal broadband 

service? 

Answer. Interestingly, the ‘‘rural-rural divide’’ notion fails to take into account 

that, even as small carriers have made ‘‘commendable’’ strides to deploy broadband 

in high-cost areas as noted in prior answers, many Americans living in rural areas 

served by those small carriers still lack access to even 4/1 Mbps broadband. Thus, 

while these customers may have access to some very basic levels of broadband because of the hard work of the small carriers that serve them and public-private 

partnerships made possible through USF, the fact remains that more remains to be 

done in all rural areas—both those served by larger carriers and those served by 

smaller carriers—to realize sustainable universal service in which all consumers 

have access to reasonably comparable broadband at reasonably comparable rates. 

There is also increasing concern that a misplaced focus on a perceived ‘‘rural-rural 

divide’’ will result in missing the much more concerning gap arising between rural 

and urban areas generally. As the National Telecommunications and Information 

Administration and the Economic and Statistics Administration of the Department 

of Commerce highlighted in their joint June 2013 report entitled ‘‘Exploring the Digital Nation: America’s Emerging Online Experience,’’ broadband adoption in rural 

areas trails adoption in urban areas by a substantial degree (72 percent in urban 

areas; 58 percent in rural areas). Without sufficient USF support to help ensure 

that sustainable rural broadband is available and to help ensure that the prices for 

broadband access in high-cost areas are and remain reasonably comparable, it will 

become only more difficult over time to overcome this growing and troubling ‘‘ruralurban divide.’’ 

As for whether the FCC has done enough to provide coverage to those who lack 

access to any sort of basic broadband in rural areas, it is simply too soon to tell 

whether the CAF Phase I program (and certainly the CAF Phase II program) will 

ultimately succeed in actually enabling better access to broadband in areas served 

by larger companies—and whether that access is sustainable over time. It is clear, 

however, that in areas served by smaller carriers such as those within NTCA’s 

membership, the effect of the reforms—as explained in prior answers—has been to 

put much of the investment in more broadband-capable networks on hold as carriers 

sort through the byzantine ‘‘Quantile Regression Analysis’’ caps or await the prospect of further cuts to USF support through the FCC’s further notice of proposed 

rulemaking. 

In the wake of the 2011 reforms, NTCA has presented to the FCC several different ways in which it could create regulatory certainty and build a broadband future in which ‘‘universal broadband service’’ comes closer to realization across all 

of rural America. Of particular note, NTCA has made a number of filings and has 

had productive conversations with FCC staff in recent months regarding the creation of a Connect America Fund for areas served by smaller companies—a support 

mechanism that would enable the deployment and upgrade/maintenance of sustainable broadband-capable networks regardless of whether consumers choose to buy 

regulated voice service on any given line—and also regarding replacements for the 

‘‘Quantile Regression Analysis’’ caps that would remove the complex retroactive impacts of those caps while still meeting the FCC’s desire for additional fiscal responsibility measures in the context of small carriers’ USF distribution mechanisms. Details regarding these proposals and ongoing discussions with the FCC regarding consideration of these issues can be found in the following attached documents: Comments of NTCA et al., dated June 17, 2013, Reply Comments of NTCA et al., dated 

July 15, 2013, and Ex Parte Letter from NTCA dated September 12, 2013. 

Question 6. There has been a great deal of discussion about the FCC’s models for 

CAF. Given that technology is advancing at a rapid rate, it seems like the FCC 

81 

should be focused on establishing a cost model that is updated frequently enough 

to provide an accurate sense of the marketplace. 

Question 6a. How important is the timeliness of the FCC’s proposed cost model 

in delivering service to unserved areas? 

Question 6b. Do you agree with the revisions the FCC has made to its cost model? 

Does the cost model accurately predict needs/services under CAF? If not, or if you 

believe the FCC model should lock in rates for a longer period of time, please explain how a longer view would deliver broadband to unserved areas more quickly 

than an annualized model. 

Answer. The cost model currently under consideration for CAF by the FCC does 

not apply to small, rate-of-return-regulated carriers pursuant to the terms of FCC 

order 11–161. Instead, the CAF model currently being developed for implementation 

is applicable by FCC rule and order only to larger, price cap-regulated carriers. 

NTCA has, however, submitted several rounds of comments to the FCC regarding 

the model, noting many of the ways in which it would need to be reviewed and 

modified to provide a potential alternative means by which smaller carriers could 

voluntarily seek distribution of USF support. These observations can be found in the 

June 17, 2013 Comments, the July 15, 2013 Reply Comments, and the September 

12, 2013 Ex Parte letter noted in the prior answer and attached hereto. 

As noted in prior answers, there is not yet a Connect America Fund for areas 

served by smaller carriers, although NTCA continues to engage in productive conversations with the FCC regarding the development of such a program tailored for 

the unique challenges faced by smaller carriers that operate exclusively in rural, 

high-cost areas. 

Beyond these general clarifications regarding the inapplicability of the model to 

small carrier operations today and the need for substantial modifications to the extent a model of some kind might be used by smaller carriers on a voluntary basis 

at some future point to obtain USF support, NTCA cannot speak to the questions 

of how the model might spur—or fail to spur—delivery of broadband services to 

rural areas served by price cap-regulated carriers. NTCA notes once again, however, 

that it is essential (and required by statutory universal service mandate) that the 

problem to solve is not viewed merely as a one-time challenge of ‘‘delivering’’ 

broadband to unserved areas; rather, the question to address must also examine the 

extent to which USF/CAF resources can help promote sustainable broadband-capable networks and affordable services throughout all rural areas. 

Question 7. A report by the nonpartisan Congressional Research Service analysis 

captures one of the major challenges of USF reform as follows: 

‘‘Smaller, rural, rate-of-return carriers are particularly dependent on USF subsidies, and have expressed concern that the reforms that the USF Order will 

implement could place them under financial hardship. Many RUS telecommunications and broadband borrowers (loan recipients) receive high cost USF subsidies. In many cases, the subsidy received from USF helps provide the revenue 

necessary to keep the loan viable. The Telecommunications Infrastructure Loan 

program is highly dependent on high-cost USF revenues, with 99 percent (476 

out of 480 borrowers) receiving interstate high-cost USF support. This is not 

surprising, given that the RUS Telecommunications Loans are available only to 

the most rural and high-cost areas (towns with populations less than 5,000). Regarding broadband loans, 60 percent of BIP (stimulus) borrowers draw from 

state or interstate USF support mechanisms, while 10 percent of farm bill 

(Rural Broadband Access Loan and Loan Guarantee Program) broadband borrowers receive interstate high-cost USF support. Thus, to the extent that USF 

may be reformed, this could have an impact on the viability of RUS telecommunications and broadband loans, and ultimately the overall financial 

health of the carrier. 

Although the FCC included a waiver process in its USF Order for those carriers 

that felt they would be subject to significant economic stress, due to the reforms, many smaller carriers assert that the waiver process is too burdensome 

and difficult and that the requirements for qualifying for relief are too restrictive.’’ 

Additionally, according to the U.S. Department of Agriculture, demand for RUS 

loan funds was only 37 percent of loan funds appropriated by Congress in FY2012. 

This is indicative of the fact that the restructuring and uncertainty around USF/ 

CAF reform could diminish the desirability of RUS broadband loans to borrowers 

going forward. 

Question 7a. Given that the RUS and USF broadband programs share the goal 

of deploying broadband to rural America, and many RUS borrowers appear to be 

82 

significant beneficiaries of USF as well, are these programs effectively targeted towards providing broadband to unserved areas of the nation? 

Answer. Although FCC order 11–161 has been perceived as ‘‘modernizing’’ the 

fund to allow more companies to invest in broadband-capable networks in rural 

areas, as noted in prior answers: (1) smaller carriers, such as those in NTCA’s membership, have already leveraged USF support for years to make ‘‘commendable’’ 

progress in deploy multi-use, broadband-capable networks (although more remains 

to be done); and (2) FCC order 11–161 did not create a Connect America Fund for 

smaller carriers. As noted in prior answers, small carriers and their representatives 

are currently working with the FCC to address these issues and to determine what 

additional steps might be taken to implement a CAF that promotes sustainable upgrades to broadband networks in areas served by smaller carriers as well, and we 

remain hopeful that such discussions will yield productive results. 

Rural Utilities Service (‘‘RUS’’) financing and USF programs play a complementary role in supporting the deployment and sustainability of broadband-capable networks in rural areas. Much like a commercial lender, RUS provides reasonable access to capital—but unlike many commercial lenders, RUS is willing to do so (and 

charged by statute to do so) in some of the most challenging reaches of the United 

States. The high-cost USF program, in turn, helps to ensure that consumers can pay 

‘‘reasonably comparable’’ rates for ‘‘reasonably comparable’’ services on the networks 

that RUS (and only a small handful of other commercial lenders) help to finance 

in the first instance. In this regard, it is once again important to recall that USF 

is much more—by law—than an ‘‘availability’’ program; instead, the high-cost USF 

program is in many respects an ‘‘adoption’’ program, helping to ensure that rates 

for services on networks in rural areas are not unaffordable. 

Thus, the RUS financing programs and the high-cost USF program play two very 

different, but complementary and very important, roles in promoting and sustaining 

rural broadband. 

Question 7b. Are these programs the most cost-effective way for Congress to fund 

rural broadband development? If so, please explain why. If not, please share any 

ideas you may have regarding a more cost-effective approach to encouraging 

broadband deployment. 

Answer. These programs are extremely cost-effective. In fact, the RUS traditional 

telecommunications loan program is what is commonly known as a ‘‘super program.’’ 

It is one of the few government programs that actually pays down the deficit by returning funds to the U.S. Treasury when loans are repaid. Meanwhile, as noted in 

prior answers, the high-cost USF program overall had a slightly declining ‘‘budget’’ 

for several years even before the reforms in 2011, and the portion of high-cost support received by smaller carriers was increasing by only 3 percent per year on average leading up to those reforms even as these rural providers edged out broadband 

to more than 92 percent of their consumers. Thus, at least prior to the 2011 reforms, 

both programs represented rare and remarkable successes in policy—yielding funds 

back to the American taxpayer while promoting broadband investment (in the form 

of the RUS programs) and helping to justify such investments and the ongoing provision of affordable rates for broadband to consumers (in the form of the high-cost 

USF programs). 

Question 7c. Given that these two programs (USF and RUS) share the same goals, 

to what extent are they duplicative and to what extent are they complementary? 

Answer. As noted above, the two programs are not at all duplicative; they are instead entirely complementary. The high-cost portion of the USF is designed to be 

part of a revenue base to allow companies to operate in areas where it would otherwise be uneconomical to operate, and to keep consumer rates ‘‘reasonably comparable’’ in such hard-to-serve. As stated in Section 254 of the Act, it was the policy 

of Congress to attempt to equalize the cost and availability for advanced telecommunications services for all parts of the country, regardless of where someone 

lived. 

On the other hand, the Rural Utilities Service, initially through the Rural Electrification Administration, has helped to provide capital financing for the build-out 

first of basic telephone networks across the country. Moreover, many years ago (well 

before the 2011 FCC reforms), the RUS adopted a forward-looking policy of ensuring 

that the networks it financed—given that they would be in place and the costs of 

them recovered over decades to come—should be broadband-capable, thereby representing an ‘‘early adoption’’ of focusing deployment on future-proof networks on 

which consumers could receive advanced services. 

Question 7d. Do you think that the FCC waiver process, as designed and described above, is appropriate? If so, why? If not, what changes would you recommend? 

83 

Answer. The process by which a carrier can obtain relief from certain of the reforms in FCC order 11–161 remains problematic. Initially, under the 2011 order, a 

consumer could see an unreasonable increase in broadband rates, degradation in 

broadband speeds or service quality, or even lose access to broadband service altogether as a result of a FCC rule change, and yet no waiver would be available. In 

its Fifth Order of Reconsideration, however, the FCC confirmed that these too could 

be factors justifying the grant of a waiver, and the agency also took certain other 

steps to relieve some (but not all) of the burdens associated with obtaining a waiver. 

The FCC has touted the waiver process as an important safety valve where the 

reforms are having the effect of undermining, rather than promoting, universal 

service. Unfortunately, even in the wake of the Fifth Order on Reconsideration, 

waivers continue to take incredibly long periods of time to address, cost carriers 

large amounts of money to seek, and, to date, we have seen little, if any, improvement in the process or the outcomes. If the waiver process is to be cited as the last 

line of defense for universal service, it needs marked improvement—and it should 

be clear in the first instance that any universal service program that relies as much 

as the current system on a protracted and opaque waiver process raises serious concerns in light of the statutory requirement that USF support must be specific, predictable, and sufficient. 

RESPONSE TO WRITTEN QUESTIONS SUBMITTED BY HON. MARK BEGICH TO

SHIRLEY BLOOMFIELD

Question 1. Thank you for your testimony. The recent FCC order released on July 

26, 2013 provided a reprieve from FCC and USF changes and was a positive step 

for Alaska. However, how does the FCC’s order resolve the underlying problems associated with the USF/ICC Transformation Order? 

Answer. Although NTCA–The Rural Broadband Association (‘‘NTCA’’) welcomed 

the delay of implementation in the next round of cuts for providers, the most recent 

Federal Communications Commission (‘‘FCC’’) order does not fix the many underlying issues with the Quantile Regression Analysis (‘‘QRA’’) caps. We have continued 

to engage with the FCC on the need to undertake a substantial review of and likely 

replacement for the QRA system, and we are hopeful that the FCC might even 

adopt a different mechanism to avoid once and for all the byzantine, retroactive caps 

that still apply pursuant to the QRA mechanism. A copy of our latest proposal to 

the FCC in this regard can be found in the attached Ex Parte Letter from NTCA 

dated September 12, 2013. 

Question 2. If you don’t think the Quantile Regression Analysis works in current 

form, what alternatives have you proposed to the QRA? 

Answer. First and foremost, it is essential to fix the underlying data issues that 

are known to be resident within the QRA mechanism. As NTCA has shown in repeated filings since the Sixth Order on Reconsideration, many steps are needed to 

determine whether and to what degree the QRA can (or even should) be salvaged— 

and those steps cannot begin until the acknowledged errors in the underlying model 

are identified and corrected. Additionally, NTCA along with USTelecom and WTA 

worked with former Chief Economist of the FCC, Simon Wilkie, to examine the volatility of the QRA. A copy of the study is attached hereto. Copies of other filings since 

earlier this year on these points can be found in the attached documents: Ex Parte 

Letter from NTCA and WTA dated March 6, 2013 Ex Parte Letter from NTCA dated 

April 18, 2013, Ex Parte Letter from NTCA dated May 31, 2013, and Ex Parte Letter 

from NTCA dated July 19, 1013. 

In recent months, however, NTCA has worked with other stakeholders to create 

an alternative proposal that would satisfy the FCC’s desire for ‘‘fiscal responsibility’’ 

in the form of a reasonable, well-defined constraint on future investments without 

injecting byzantine levels of complexity and uncertainty into the recovery of both 

past and future investment. A summary of this proposal, entitled the ‘‘Capital Budget Mechanism,’’ can be found in the Ex Parte Letter from NTCA dated September 

12, 2013 attached hereto. This proposal would define each small carrier’s ‘‘budget’’ 

for future USF-eligible investment based upon a transparent identification of its 

need to replace depreciated plant over a series of years, and the mechanism includes 

a ‘‘trigger’’ that could be used by the FCC to adjust a given carrier’s future investment budget without putting at risk recovery of costs associated with investments 

made years ago in accordance with then-current rules and reasonable expectations. 

Question 3. If you think the current waiver process is broken, what specific steps 

would you take, or urge Congress to take to fix it? 

Answer. The process by which a carrier can obtain relief from certain of the reforms in FCC order 11–161 remains problematic. Initially, under the 2011 order, a 

84 

consumer could see an unreasonable increase in broadband rates, degradation in 

broadband speeds or service quality, or even lose access to broadband service altogether as a result of a FCC rule change, and yet no waiver would have been granted. In its Fifth Order of Reconsideration, however, the FCC confirmed that these 

too could be factors justifying the grant of a waiver, and the agency also took certain 

other steps to relieve some (but not all) of the burdens associated with obtaining 

a waiver. 

The FCC has touted the waiver process as an important safety valve where the 

reforms are having the effect of undermining, rather than promoting, universal 

service. Unfortunately, even in the wake of the Fifth Order on Reconsideration, 

waivers continue to take incredibly long periods of time to address, cost carriers 

large amounts of money to seek, and, to date, we have seen little, if any, improvement in the process. If the waiver process is to be cited as the last line of defense 

for universal service, it needs marked improvement—and it should be clear in the 

first instance that any universal service program that relies as much as this current 

system on a protracted and opaque waiver process raises serious concerns in light 

of the statutory requirement that USF support must be specific, predictable, and 

sufficient. 

Ultimately, if a well-functioning Connect America Fund can be set up that provides predictable and sufficient support for investments in broadband-capable networks by smaller carriers, if the QRA mechanism can be addressed as suggested by 

NTCA and others in recent proposals, and if the FCC can eliminate the regulatory 

uncertainty created by the ‘‘overhang’’ prospect of even more cuts in the further notice of proposed rulemaking issued in 2011, this could help to reduce the need for 

and reliance upon a waiver mechanism in the first instance. 

Question 4. Please explain in more detail your proposal for a Connect American 

Fund for RLECs—why it is needed and how it would work? 

Answer. Details of the proposal (including specific recommended rules to implement the proposal) can be found in the following filings made in recent months by 

NTCA and allied stakeholders with the FCC and included in the addendum: Comments of NTCA et al., dated June 17, 2013, Reply Comments of NTCA et al., dated 

July 15, 2013, and Ex Parte Letter from NTCA dated September 12, 2013. 

NTCA’s proposal is intended to solve a technical gap in ‘‘connecting the dots’’ between FCC order 11–161 and the rules that govern distribution of USF support to 

smaller carriers. In the order, the FCC clearly grasped the need to evolve how it 

would support broadband-capable networks. Specifically, the FCC ruled in the order 

that the service to be supported through high-cost USF going forward would no 

longer be the actual sale of ‘‘Plain Old Telephone Service’’ (or ‘‘POTS’’), but rather 

the offer of ‘‘voice telephony service’’ on broadband-capable networks. Specifically, 

the FCC determined that to be eligible for receipt of USF support, carriers should 

be required ‘‘to offer voice telephony as a standalone service throughout their designated service areas.’’ The Commission further stated that ‘‘Section 254 grants . . . 

the authority to support not only voice telephony service but also the facilities over 

which it is offered,’’ and that ‘‘the modified definition simply shifts to a technology 

neutral approach, allowing companies to provision voice service over any platform, 

including the PSTN and IP networks. 

Unfortunately, the unmistakably clear, forward-looking vision in the text of the 

FCC’s order did not carry through as a simple mechanical matter to the rules that 

actually govern the distribution of USF support for smaller carriers such as those 

in NTCA’s membership. Instead, while these smaller carriers can and already do leverage USF support to justify the deployment and enable the operation of 

broadband-capable networks in high-cost areas, these smaller carriers cannot receive USF support for the portion of the network used to serve a given customer 

unless that customer actually chooses to buy POTS service. Thus, where a customer 

chooses to buy wireless voice service or wants to take an over-the-top VoIP service 

(such as Vonage) but then desires to keep fixed broadband service from the smaller 

carrier, that customer’s broadband rates ironically spike several times over because, 

pursuant to rules that were left unchanged in the 2011 reforms, USF support is no 

longer available in connection with that portion of the small carrier’s network. 

This result flies in the face of the vision of the order, as well as the intent to promote and sustain an IP evolution and ‘‘modernize’’ the USF program for a 

broadband-capable, IP-enabled world. To remedy this disconnect between the FCC’s 

vision as stated in the order and the rules that govern distribution, NTCA and other 

stakeholders have proposed support for ‘‘data-only broadband’’ or ‘‘standalone 

broadband’’ in the form of a Connect America Fund for smaller carriers. Under this 

proposal, while a smaller carrier would be required to offer voice telephony service 

to each and every consumer, as with the CAF for price cap carriers, the availability 

of USF support to deliver affordable services would not be dependent upon whether 

85 

1 USF/ICC Transformation FNPRM ¶ 1336. 2See id. 

3See Network Effects in Telecommunications Mergers MCI WorldCom Merger: Protecting the 

Future of the Internet, Address by Constance K. Robinson, Director of Operations and Merger 

Enforcement, DOJ Antitrust Division, before the Practicing Law Institute, at 2 (Aug. 23, 1999), 

Continued 

any given customer chooses to buy POTS service when offered. The exact amount 

of USF/CAF support available to each carrier under this proposal would be calculated based upon an assessment of the costs required to provide service on the 

supported network as compared to the ‘‘reasonably comparable’’ rate that the carrier 

should be expected to obtain from the consumer in connection with the provision of 

such service. 

RESPONSE TO WRITTEN QUESTIONS SUBMITTED BY HON. MARK WARNER TO

JERRY JAMES

Question 1. With respect to the coming IP transition and advancing technology, 

which specific requirements from the Telecommunications Act of 1996 are the most 

important to maintain to ensure fair competition in the marketplace? 

Question 1a. For example, the 1996 Act has clear interconnection requirements. 

Do you believe that these provisions are technology-neutral and should apply in an 

IP-based network? If not, please explain why not. 

Answer. The provisions of the Communications Act establish the preconditions for 

competition in the telecommunications market by requiring that competitors have 

access to last-mile end-user connections and interconnection on reasonable rates, 

terms, and conditions. These provisions are crucial to the IP transition because the 

most effective way of promoting efficient investment in new IP technologies is to 

promote competition. Moreover, these provisions are technologically neutral. They 

have applied to every technology used in the network since its inception, and it is 

crucial that the FCC apply them to IP networks. 

First, it is impossible to overstate the importance of ensuring access to last-mile, 

end-user connections on reasonable rates, terms and conditions. The incumbent telephone companies own the only physical connection to many business customers in 

the U.S. It is not economically possible for competitors to replicate these facilities 

because the steep costs associated with building new facilities (e.g., obtaining access 

to rights of way, digging up streets, etc.) often far exceed the revenues that can be 

earned from serving business customer locations. This is so regardless of whether 

the services provided to the customers utilize legacy technologies or new IP technologies. As a result, incumbent telephone companies have market power over last 

mile connections to business customers, and they have little or no incentive to make 

these facilities available to their competitors. 

This is why the terms of the Communications Act, both those adopted in the original 1934 Act (sections 201(b) and 202(a), which govern special access) and the 

amendments added in 1996 (sections 251(c)(3) and 252(d)(1), which govern 

unbundled network elements), mandate that incumbent LECs provide these facilities to competitors on reasonable rates, terms, and conditions. Competitors rely on 

last mile facilities made available pursuant to these statutory provisions to provide 

innovative, game-changing services to business customers. This would not be possible if last-mile facilities were unavailable to competitors at wholesale, and, again, 

this is true regardless of the technology used to provide services over the end user 

connections. Thus, if incumbent telephone companies are no longer required to provide competitors access to last mile facilities after the transition to IP networks, 

U.S. businesses would lose the benefit of competition, yielding less innovation, higher prices, and degraded service quality. 

Second, interconnection is also critically important. A provider of voice services 

must be able to interconnect its network with other providers’ networks in order to 

ensure that its customers can call the other providers’ customers. But so-called ‘‘network effects’’ prevent incumbent telephone companies from having an incentive to 

cooperate with competitors in establishing interconnection arrangements. As the 

FCC has explained, ‘‘[n]etwork effects arise when the value of a product increases 

with the number of customers who purchase it.’’ 1 For instance, the value of a subscriber’s telephone service increases as the number of other people the subscriber 

can reach using that service increases.2 And, ‘‘[i]f the attractiveness of a [telephone 

or other communications] network increases as it enlarges, consumers will tend to 

choose the larger network, which in turn will make it even larger and more attractive.’’ 3 For this reason, large incumbent telephone companies—which have far largVerDate Nov 24 2008 07:09 May 13, 2014 Jkt 075679 PO 00000 Frm 00089 Fmt 6601 Sfmt 6621 S:\GPO\DOCS\87817.TXT JACKIE
86 

available at http://www.justice.gov/atr/public/speeches/3889.pdf (‘‘DOJ Network Effects in 

Telecommunications Mergers Address’’). 4 Implementation of the Local Competition Provisions in the Telecommunications Act of 1996; 

Interconnection Between Local Exchange Carriers and CMRS Providers, First Report and Order, 

11 FCC Rcd. 15499, ¶ 55 (1996) (‘‘Local Competition Order’’) (subsequent history omitted). 5This point can be illustrated by measuring the value of a large incumbent LEC’s network 

relative to that of a competitor. Under one such measure (known as ‘‘Metcalfe’s law’’), the relative value of a network is proportional to the square of the number of subscribers served by 

the network. See Michael Kende, FCC Office of Plans and Policy, The Digital Handshake: Connecting Internet Backbones, OPP Working Paper No. 32, at 3 n.5 (Sept. 2000), available at 

http://www.fcc.gov/Bureaus/OPP/workinglpapers/oppwp32.pdf. The difference in the relative 

values of incumbent LECs’ voice networks and competitive LECs’ voice networks is enormous. 

For example, Cbeyond, a CompTel member, provides voice and data services to approximately 

59,000 business customers. See Cbeyond, Inc., SEC Form 10–Q, Item 2 (filed May 2, 2013); 

Integra Telecom, About Us, http://www.integratelecom.com/about/Pages/default.aspx (last visited Aug. 1, 2013). AT&T provides approximately 122.9 million total voice connections. See 

AT&T Inc., SEC Form 8–K, Items 8.01, 9.01 (filed July 24, 2013). This total includes 92.7 million wireless connections (excluding data-centric devices such as tablets), 26.8 million switched 

access lines, and 3.4 million U-Verse VoIP connections. See id. Even under the conservative assumptions that all of Cbeyond’s business customers purchase voice services and that those customers each purchase numerous voice connections (e.g., 100 voice connections), Metcalfe’s law 

would yield the conclusion that AT&T’s voice network is hundreds of times more valuable than 

Cbeyond’s and Integra’s voice networks. 6See Comments of Sprint, GN Docket No. 13–5, at 6 (filed July 8, 2013). 7The National Broadband Plan at 49. 

er voice subscriber bases than virtually any of their competitors—do not need to 

interconnect with competitors nearly as much as competitors need to interconnect 

with them. As the FCC explained it in 1997, ‘‘incumbent LECs have no economic 

incentive . . . to provide potential competitors with opportunities to interconnect 

with . . . the incumbent LEC’s network.’’ 4

This is as true today as it was in 1997. The size of a carrier’s customer base is 

still the most important determinant of its leverage in interconnection negotiations 

and its willingness to interconnect with other carriers. And incumbent LECs such 

as AT&T and Verizon still have far more voice subscribers than non-incumbent 

LECs.5 The resulting market power over interconnection persists, regardless of 

whether a competitor seeks interconnection using legacy technology or IP. 

This is why the terms of the Communications Act mandate that service providers 

interconnect with each other. Of particular importance is Section 251(c)(2), which 

requires that incumbent telephone companies interconnect at any technically feasible point with a requesting competitor. This provision evens an otherwise highly 

imbalanced playing field and makes it possible for competitors to interconnect and 

exchange traffic with incumbent voice service providers. 

Direct interconnection rights are crucial for managed IP voice services demanded 

by business customers because those services do not traverse the public Internet 

and cannot be exchanged over established Internet backbone networks. Rather, providers of business IP voice services must interconnect using separate, managed connections, a situation in which incumbents can exploit, and have exploited, to their 

advantage by refusing to interconnect on an IP basis. My understanding is that 

AT&T incumbent telephone company operations have not interconnected in IP with 

a single competitor for the exchange of voice traffic. Verizon has only agreed to establish such interconnection with one competitor, and that was with Comcast, one 

of the very few competitors with a large customer base. In contrast competitors have 

established IP interconnection with each other. For example, Sprint ‘‘currently has 

IP interconnection agreements with 12 major [non-incumbent LEC] carriers.’’ 6 Similarly, tw telecom has entered into five VoIP interconnection agreements with nonincumbent LECs, including with one cable company. But competitors must eventually establish these arrangements with incumbent telephone companies, and that 

outcome can only be assured if the requirements of Section 251(c)(2) apply to interconnection in IP. 

As the FCC has stated: 

The technology change does not alter the fact that carriers must still interconnect. ‘‘Basic interconnection regulations, which ensure that a consumer is 

able to make and receive calls to virtually anyone else with a telephone, regardless of service provider, network configuration or location, have been a competition to thrive, the principle of interconnection—in which customers of one service provider can communicate with customers of another—needs to be maintained.7

The change in technology also does not alter the incumbent LEC’s subscriber base 

or its control of the physical facilities used to provide the service. Moreover, in the 

87 

8Only 10 percent of interconnected VoIP subscribers use an Internet based service. The FCC 

reported 37 million interconnected VoIP subscriptions at the end of 2011, see Local Telephone 

Competition, Status as of December 31, 2011, Industry Analysis and Technology Division, 

Wireline Competition Bureau, January 2013, p. 1 (‘‘FCC 2013 Local Competition Report’’), and 

USTELECOM estimates there to be a mere 3.5 million of OTT VoIP lines, see USTELECOM, 

‘‘Evidence of Voice Competition and ILEC Non-Dominance Mounts,’’ April 2, 2013, at 8 (‘‘UST 

Brief’’). Available at: http://www.ustelecom.org/news/research-briefs/ustelecom-research-briefapril-4–2013. COMPTEL does not endorse the USTELECOM analysis (which generally understates ILEC dominance). 9 47 U.S.C. 153(46) [‘‘The term ‘‘telecommunications service’’ means the offering of telecommunications for a fee directly to the public, or to such classes of user as to be effectively 

available directly to the public, regardless of the facilities used.’’(Emphasis added). 10Memorandum Opinion and Order, and Notice of Proposed Rulemaking, Deployment of 

Wireline Services Offering Advanced Telecommunications Capability, CC Docket Nos. 98–147, 

98–11, 98–26, 98–32, 98–78, 98–91, CCB/CPD No. 98-RM 9244, FCC 99–188, ¶ 48–49 (1998). 

case of managed VoIP services, which constitute the vast majority of interconnected 

VoIP subscriptions,8 the end-user service is fundamentally the same as one’s traditional phone service. Unlike over-the-top service, managed VoIP services do not traverse the public Internet and provides substantially higher quality of service, security and reliability. A consumer is unlikely to view a managed VoIP service any differently from their traditional phone service. Managed VoIP service meets the statutory definition of a telecommunications service.9

Finally, there can be no dispute that the terms of the Communications Act that 

mandate access to last-mile end-user connections and interconnection are technology 

neutral. This is evident from the terms of the provisions, which make no distinction 

between legacy and new technologies. Moreover, as, the Federal Communications 

Commission (‘‘FCC’’) explained when addressing the 1996 amendments, ‘‘[n]othing 

in the statute or legislative history indicates that it was intended to apply only to 

existing technology. . .Congress was well aware of. . .packet-switched services in 

1996, and the statutory terms do not include any exemption for those services.’’ 10

Question 1b. How important is iti to maintain the legacy/copper communications 

netowrks as we transition to IP? If so, for how long? If not, please explain why not? 

Answer. As an initial matter, IP alone cannot get traffic from Point A to Point 

B. The reason is that IP is nothing more than a software protocol—a set of rules; 

it is not a physical network. IP, therefore, needs a physical network framework over 

which to transport traffic according to its rules. Just as with TDM, IP can be used 

with the legacy copper, fiber or wireless networks. 

As explained, the ability for competitors to have access to last mile facilities to 

the consumer is critical for consumers to have a choice in service providers. As also 

explained, competitors cannot possibly replicate the ILEC network in many locations. So where building facilities is not a viable option, competitors have no choice 

but to rely on access to ILEC last-mile facilities. 

The most efficient last-mile connections for providing IP service utilize packetbased technology, such as Ethernet. Incumbent LECs have market power over lastmile end-user connections that utilize this technology just as they have market 

power over last-mile end-user connections that utilize legacy technologies. In order 

to ensure that business customers receive the benefits of competition during and 

after the transition to IP, it is critical that the FCC adopt rules requiring that incumbent telephone companies offer packet-based last-mile end-user connections, including those that utilize Ethernet, to competitors on reasonable rates, terms, and 

conditions. These rules should apply regardless of whether the underlying physical 

connection to the end user consists of copper, fiber or some other material. Failure 

to ensure this outcome will ultimately hobble competition and harm the U.S. economy. 

But until the FCC adopts such rules, it must make sure that legacy copper loops 

are available to competitors. Existing FCC last-mile access rules severely curb the 

access competitors have to incumbent LEC last mile facilities. Among the few kinds 

of last-mile facilities that are subject to regulation are legacy copper loops. Competitors use the last mile access they obtain through the copper loop to serve business 

customers. They have done so by providing innovative and valued services to small 

and medium size businesses and to supplement service to multi-location enterprise 

customers in locations where it has been uneconomical for them to build their own 

facilities. Competitors have invested millions of dollars to be able to offer these advanced services which are at risk when such last mile facilities are unavailable. In 

other words, the availability of the copper loop provides business consumers a choice 

in providers they otherwise would lack and encourages substantial infrastructure investment by competitors in the electronics that translate a bare copper wire to a 

broadband facility. Thus, until the FCC updates its rules governing access to lastVerDate Nov 24 2008 07:09 May 13, 2014 Jkt 075679 PO 00000 Frm 00091 Fmt 6601 Sfmt 6621 S:\GPO\DOCS\87817.TXT JACKIE
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mile end user connections to encompass facilities to utilize packet technology such 

as Ethernet, it must ensure that competitors continue to have access to copper 

loops. 

Question 2. Reform of the Universal Service Fund (USF)/creation of the Connect 

America Fund (CAF) is critically important because millions of Americans still lack 

access to high-speed broadband service in many areas of the country. According to 

the National Broadband Plan, broadband is available in 98 percent of the nation, 

but the national adoption rate, according to the National Telecommunications and 

Information Administration (NTIA) and Census data, is 72 percent. I believe it is 

important for all Americans to have access to high-capacity broadband service, and 

therefore, I am focused on policies that help us to reach 100 percent coverage of U.S. 

households. However, we have a limited amount of money that we can allocate as 

a nation to rural broadband deployment, and I believe we should prioritize funding 

to support buildout in unserved areas or areas below 4 mbps down/1 mbps. Typically, these areas are still unserved because of the high cost of deployment and the 

low population density. Understandably, this makes it difficult for private companies to deploy broadband in these areas, and it is also the reason why policymakers 

decided to create programs like USF/CAF—to serve hard-to-reach places in the 

country. 

Question 2a. Do you believe CAF is adequately focused on broadband deployment 

in unserved areas? If so, how long do you think it will take to reach full deployment? If not, please explain what it would take to buildout unserved areas of our 

country given that we only have approximately $4.5 billion/year through USF. 

Question 2b. Is the pace of reform moving too slowly? 

Answer. COMPTEL agrees that ensuring all consumers in the U.S. have access 

to broadband services is an important goal for our Nation and that increasing the 

broadband adoption rate in the U.S. is necessary to ensure that the entire nation 

benefits from the broadband economy. As you know, the FCC’s effort to reform the 

high-cost program in USF was largely focused on reallocating money to areas not 

served by broadband, which are largely in the price cap carrier territories. 

Generally, COMPTEL members are not eligible to receive funding in the reform 

of the high-cost program; however, we do have one member that is an incumbent 

price cap telephone company that qualifies, and it has accepted funding in both 

rounds of CAF Phase I and is deploying broadband services to unserved areas. During CAF Phase II, should the incumbents not accept a statewide commitment to 

serve at the funding amount to be determined by the FCC using a cost model (that 

is under development), then other qualified providers may have the opportunity to 

apply for the support and meet the service obligations (the process by which is still 

to be determined by the FCC). COMPTEL believes that every provider that is willing to serve those areas should be eligible to apply for and receive funding if they 

can meet the service obligations. 

With respect to your last question about the pace of reform, yes implementation 

of the reforms is taking a significant amount of time. Unfortunately, any time a 

Federal funding program undergoes a major overhaul such as this, delays are to be 

expected. 

Question 3. Based on my experience in Virginia, it is not possible to deploy fiber 

absolutely everywhere. Many areas of my state have granite rockbeds, which make 

it prohibitively expensive to deploy fiber. Therefore, I am supportive of cost effective 

deployment of broadband technology to reach universal coverage. Although I recognize that the focus of this hearing was on wireline issues, it seems to me that we 

should consider the best technologies based on our national goal of providing advanced communications services to all Americans. 

Question 3a. Should the Federal Communications Commission (FCC) focus more 

resources on best-available technology for unserved areas or areas below 4/1? If so, 

please explain what else the FCC could do to improve broadband coverage to 

unserved areas. If not, please explain how we can reach full broadband deployment 

by focusing more on fixed services, at a reasonable cost to taxpayers and consumers. 

Question 3b. Please describe what role you see for other technologies in terms of 

serving hard-to-reach areas in the near term. Could we be more technology-neutral 

in our Federal broadband funding programs? 

Answer. The FCC’s reform establishes two different types of funding—one for 

fixed service (with its CAF) and one for mobile service (with its Mobility Fund), acknowledging the importance of both fixed and mobile service to consumers in the 

U.S. COMPTEL has consistently advocated for policies that are competitively and 

technologically neutral. The FCC maintains that its approach to USF reform is technologically neutral. Many of COMPTEL’s members use an ‘‘all of the above’’ stratVerDate Nov 24 2008 07:09 May 13, 2014 Jkt 075679 PO 00000 Frm 00092 Fmt 6601 Sfmt 6621 S:\GPO\DOCS\87817.TXT JACKIE
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egy, offering a combination of fiber, copper, mobile and fixed wireless, to achieve the 

broadest possible reach to consumers and businesses in unserved and underserved 

areas. There is no ‘‘one size fits all’’ approach to serving those communities that are 

the hardest to reach and the FCC should continue to look at all reasonable avenues 

to address Federal broadband funding programs and other incentives to expand and 

improve broadband coverage. 

Question 4. Would more targeted broadband mapping—at the address level, specifically—help to accelerate deployment to unserved areas? If not, please explain 

why less granular data models are sufficient to target deployment to unserved 

households. Do you believe the current level of data gathered by the National 

Broadband Map contributes to overbuilding? If not, please explain. 

Answer. Revisions to the FCC’s broadband data collection form (the Form 477) are 

expected to go into effect next year and as a result, the FCC will be collecting the 

deployment information that is used for the National Broadband Map as well as 

broadband subscriber information. It is our understanding that the FCC is using the 

Map to evaluate the CAF-funded builds and a challenge process has been adopted 

to avoid funding overbuilds in the second round of CAF Phase I. We believe that 

the FCC’s collection of data (as reformed) is sufficient at this time, especially given 

the challenge process established so that competitors may dispute a specific build 

plan using CAF Phase I funds. 

Question 5. As many experts have noted, there is ‘‘rural-rural divide’’ when it 

comes to the presence of broadband infrastructure in rural America. According to 

the FCC, more than 83 percent of the approximately 18 million Americans that lack 

access to residential fixed broadband at or above the basic level of acceptable service 

outlined in the National Broadband Plan live in areas served by price-cap carriers. 

The FCC attempted to address this disparity by establishing an incremental support 

component in the Phase I CAF Fund for price cap carriers. The initial support was 

established at $300 million, but more than half of the allocated funds went unclaimed. Different types of carriers have expressed opinions about whether or not 

it was a good idea for the FCC to set aside this amount of money even though the 

bulk of the $4.5 USF program was allocated to other types of carriers. 

Question 5a. Regardless of your views on the Phase I Fund, do you think the FCC 

has done enough to provide coverage to the 14.9 million people who still lack any 

sort of basic broadband service? 

Question 5b. If so, when do you think we can expect to provide broadband service 

to all Americans? If not, what else could the FCC do to provide universal broadband 

service? 

Answer. The challenge of serving all Americans with broadband is great given the 

diverse geographic areas of the Nation. Moreover, reforming USF so that it could 

more effectively target funds to unserved areas was a significant accomplishment 

for the FCC. The FCC balanced the burden on consumers who contribute to USF 

with its goal of reaching unserved Americans when it established the $4.5 billion 

budget for the high-cost programs. At the same time, the FCC unfortunately has 

yet to address contribution reform or to broaden the contribution base to include 

users of broadband services. 

The National Broadband Plan that the FCC staff formulated under Chairman 

Genachowski’s leadership recommended that Congress provide additional funding to 

build broadband infrastructure in unserved areas. Given the national importance of 

broadband infrastructure, this recommendation could be taken up by Congress to 

the extent that it is dissatisfied with the pace of broadband deployment in the 

unserved portions of rural America. Should you do so, COMPTEL would encourage 

an application process for those funds that permits all technologies and service providers that can meet the service requirements an opportunity to compete for the 

support. 

Question 6. There has been a great deal of discussion about the FCC’s models for 

CAF. Given that technology is advancing at a rapid rate, it seems like the FCC 

should be focused on establishing a cost model that is updated frequently enough 

to provide an accurate sense of the marketplace. 

Question 6a. How important is the timeliness of the FCC’s proposed cost model 

in delivering service to unserved areas? 

Question 6b. Do you agree with the revisions the FCC has made to its cost model? 

Does the cost model accurately predict needs/services under CAF? If not, or if you 

believe the FCC model should lock in rates for a longer period of time, please explain how a longer view would deliver broadband to unserved areas more quickly 

than an annualized model. 

90 

Answer. COMPTEL has not been participating in this process at the Commission. 

Under the current structure of the FCC’s USF Reforms, the principal role of the cost 

model will be to allocate ‘‘relative’’ support among areas served by incumbent local 

exchange carriers. Because the vast majority of COMPTEL members are not incumbent local exchange carriers—and, therefore, are not eligible for support determined 

by the cost model—we have not been engaged in a process that largely impacts only 

incumbents. 

Question 7. A report by the nonpartisan Congressional Research Service analysis 

captures one of the major challenges of USF reform as follows: 

‘‘Smaller, rural, rate-of-return carriers are particularly dependent on USF subsidies, and have expressed concern that the reforms that the USF Order will 

implement could place them under financial hardship. Many RUS telecommunications and broadband borrowers (loan recipients) receive high cost USF subsidies. In many cases, the subsidy received from USF helps provide the revenue 

necessary to keep the loan viable. The Telecommunications Infrastructure Loan 

program is highly dependent on high-cost USF revenues, with 99 percent (476 

out of 480 borrowers) receiving interstate high-cost USF support. This is not 

surprising, given that the RUS Telecommunications Loans are available only to 

the most rural and high-cost areas (towns with populations less than 5,000). Regarding broadband loans, 60 percent of BIP (stimulus) borrowers draw from 

state or interstate USF support mechanisms, while 10 percent of farm bill 

(Rural Broadband Access Loan and Loan Guarantee Program) broadband borrowers receive interstate high-cost USF support. Thus, to the extent that USF 

may be reformed, this could have an impact on the viability of RUS telecommunications and broadband loans, and ultimately the overall financial 

health of the carrier. 

Although the FCC included a waiver process in its USF Order for those carriers 

that felt they would be subject to significant economic stress, due to the reforms, many smaller carriers assert that the waiver process is too burdensome 

and difficult and that the requirements for qualifying for relief are too restrictive.’’ 

Additionally, according to the U.S. Department of Agriculture, demand for RUS 

loan funds was only 37 percent of loan funds appropriated by Congress in FY2012. 

This is indicative of the fact that the restructuring and uncertainty around USF/ 

CAF reform could diminish the desirability of RUS broadband loans to borrowers 

going forward. 

Question 7a. Given that the RUS and USF broadband programs share the goal 

of deploying broadband to rural America, and many RUS borrowers appear to be 

significant beneficiaries of USF as well, are these programs effectively targeted towards providing broadband to unserved areas of the nation? 

Question 7b. Are these programs the most cost-effective way for Congress to fund 

rural broadband development? If so, please explain why. If not, please share any 

ideas you may have regarding a more cost-effective approach to encouraging 

broadband deployment. 

Question 7c. Given that these two programs (USF and RUS) share the same goals, 

to what extent are they duplicative and to what extent are they complementary? 

Question 7d. Do you think that the FCC waiver process, as designed and described above, is appropriate? If so, why? If not, what changes would you recommend? 

Answer. The Commission also reformed aspects of the support rate-of-return carriers receive for serving their areas, and it continues to look at ways to achieve additional reforms. We have not taken a position on this aspect of USF reform, but we 

do believe that it is important for the Commission to ensure that the high-cost funding is competitively-neutral, is as efficient and effective as possible, and only is used 

in areas where, but for Federal assistance, consumers would not have access to services in rural areas that are comparable to services available in urban areas. 

91 

1See, e.g., Comments of Competitive Carriers Association, In re AT&T Petition, GN Docket 

No. 12–353 (Filed Jan. 28, 2013), available at http://apps.fcc.gov/ecfs/document/view?id 

=7022113646. 2 Id. at 3. 

RESPONSES TO WRITTEN QUESTIONS SUBMITTED BY HON. MARK WARNER TO

LARRY DOWNES

Question 1. With respect to the coming IP transition and advancing technology, 

which specific requirements from the Telecommunications Act of 1996 are the most 

important to maintain to ensure fair competition in the marketplace? 

Question 1a. For example, the 1996 Act has clear interconnection requirements. 

Do you believe that these provisions are technology-neutral and should apply in an 

IP-based network? If not, please explain why not. 

Answer. I do not believe that interconnection requirements or any other requirements of Title II of the Communications Act are ‘‘technology neutral,’’ and I would 

advise Congress not to attempt to transport or translate any specific requirements 

of Title II of the Communications Act to IP networks. 

Title II was inherited into the 1996 Act to deal with lingering competitive issues 

of the former wireline monopoly. One could argue that its continued application has 

contributed significantly to the obsolescence of the PSTN network, but in any case 

it has no place—either as a matter of sound engineering or sound policy—in an allIP world. 

IP networks have developed as well as they have precisely because they have not 

been subject to the kind of legacy regulation that has applied to the former PSTN 

telephone monopoly. That has provided significant incentives for providers to make 

massive capital investments, and for engineers to innovate constantly in the development of better and cheaper hardware, software, and standards that have always 

been at the core of the Internet. 

From a design and engineering standpoint, the concept of mandated interconnection as the FCC has implemented it under Sections 251 and 252 of the Communications Act is a non sequitur in the context of IP networks. The Internet has always 

operated on the basis of peering arrangements, over 99.5 percent of which, according 

to the OECD, are so simple that they aren’t even memorialized in written documents. 

It is hard to imagine how, as a matter of sound engineering, it would even be possible to sub-divide IP traffic in a way that would make it possible to apply Section 

251 and Section 252 on voice-related IP traffic moving solely between networks of 

ILECs and CLECs. Indeed, some parties in the FCC’s on-going IP Transition trials 

proceeding are trying to use that engineering impossibility as an opportunity to 

apply ‘‘interconnection’’ mandates to all IP traffic, effectively bringing all Internet 

traffic under Title II—in clear violation of the Communications Act and Congress’s 

sensible decision to leave information services including data, text, and video outside of the obsolete legacy rules. 

As I explained in my written testimony: 

Some critics of proposed IP transition trials have argued for the continued application of existing regulations (particularly interconnection mandates under 

Sections 251 and 252 of the Communications Act), arguing that these provisions 

should apply in a ‘‘technology neutral’’ fashion.1

According to these critics, ‘‘the policy justifications for requiring ILECs to provide interconnection and to submit to arbitration—namely, the ubiquity of 

ILECs’ telecommunications networks and market power that these pervasive 

networks confer—arise regardless of the technology used by those networks to 

transmit and exchange telecommunications traffic.’’ 2

Not only are these complaints irrelevant to the proposed trials (which are small 

steps aimed at determining precisely whether constraints such as Sections 251 

and 252 are appropriate), but their alleged policy justification is not, in fact, 

‘‘technology neutral.’’ Instead, it is a call to apply barnacled rules, crafted over 

decades specifically for the technology and business realities of the PSTN, to a 

new ecosystem that shares few, if any, of the same characteristics. 

Technology neutrality does not mean blindly enforcing design principles suited 

for tree houses as buildings codes for steel skyscrapers. Modern structures are 

clearly better. They require entirely different rules, and different kinds of enforcement. Applying PSTN rules to IP networks is bad business and bad public 

policy. There are no regulated monopolies in the IP ecosystem, and no need for 

the kind of regulations aimed at controlling them. 

92 

3 National Broadband Plan, supra note 14, at xi. See also chapters 10–16. And see Robert E. 

Litan and Hal Singer, THE NEED FOR SPEED: A NEW FRAMEWORK FOR TELECOMMUNICATIONS

POLICY IN THE 21ST CENTURY (Brookings Institution Press 2013). 4 Reed Hundt & Blair Levin, THE POLITICS OF ABUNDANCE: HOW TECHNOLOGY CAN FIX THE

BUDGET, REVIVE THE AMERICAN DREAM, AND ESTABLISH OBAMA’S LEGACY 9 (2012), 16–17. 

An all-IP-infrastructure is clearly better for everyone. The sooner we can complete the transition, the sooner we will reap the full dividends of continuing private and public investments in this new infrastructure. Getting the transition 

right will not only save the legacy PSTN operators from irrelevance. It will likely bolster the U.S. economy, accelerate the technological empowerment of Americans as both citizens and consumers, and sustain global competitiveness for 

U.S. technology companies. 

As the National Broadband Plan put it, 

[B]roadband is a foundation for economic growth, job creation, global competitiveness and a better way of life. It is enabling entire new industries 

and unlocking vast new possibilities for existing ones. It is changing how 

we educate children, deliver health care, manage energy, ensure public 

safety, engage government, and access, organize, and disseminate knowledge.3

In The Politics of Abundance, former FCC Chairman Reed Hundt and his onetime chief of staff Blair Levin make a persuasive case that the shift to ‘‘connected computing’’—broadband Internet, cloud-based services, and widespread 

mobile devices—is essential to jumpstart the U.S. economy. Hundt and Levin 

urge all levels of government to take immediate steps to support what they call 

the ‘‘knowledge platform’’—ultra high-speed broadband with high reliability and 

low latency, able to support high-bandwidth, video-intensive applications and 

cloud-based services. 

As Hundt and Levin write, ‘‘[t]o increase growth, job creation, productivity 

gains, and exports at a faster rate, government should double down on what is 

already doubling in the Internet sector.’’ 4 They point, for example, to the fact 

that Internet transit prices have improved as much as 50 percent each year. 

(See Figure 1) 

Figure 1—Internet Transit Price per 1 Mbps, 1998–2015 

Source: Hundt & Levin, supra note 22, Figure 2.1, p. 105 

The kind of high-speed, widely accessible and affordable broadband Hundt and 

Levin describe also provides the tools that innovators need to launch more Big 

Bang Disruptions. All-IP networks will vastly expand the possibilities of the 

next generation of cloud services like Google, Facebook, Twitter and Salesforce. 


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5Michael Kende, Voice Traffic Exchange in an IP World, Analyses Mason, April 12, 2013, at 

2. 6Most notable among these is the Broadband Internet Technical Advisory Group (BITAG), ‘‘a 

technical advisory group to discuss and opine on technical issues pertaining to the operation of 

the Internet, as a means of bringing transparency and clarity to network management processes 

as well as the interaction among networks, applications, devices and content.’’ BITAG History, 

http://www.bitag.org/bitaglorganization.php?action=history (last visited February 25, 2013). 7See Federal Trade Commission, Broadband Connectivity Competition Policy, 3 (2007), available at http://www.ftc.gov/reports/broadband/v070000report.pdf (‘‘[FTC] jurisdiction [over 

broadband Internet access services] had once been regarded as limited to the extent that the 

FTC’s general enforcement authority under the FTC Act did not extend to entities that were 

‘common carriers’ under the Communications Act. The regulatory and judicial decisions at issue, 

however, confirmed that the larger categories of broadband Internet access services, as information services, are not exempt from FTC enforcement of the FTC Act.’’). 

These services and others that will follow will be superior in ways both easily 

imaginable (instant, more reliable interaction with richer media like video, 

streaming presentations, and more robust tools) but also in ways that we cannot yet imagine. 

Preserving Peer-Based Interconnection 

The IP Transition will accelerate the ongoing transformation of our digital experiences in ways that could be as revolutionary as the introduction of the Internet itself. It is imperative that government, private sector companies, and consumers work together to get it done as quickly as possible. 

Government, in particular, should work to undo much of the regulatory mess 

that unnecessarily constrains legacy PSTN providers as they transition to IP. 

For example, Congress and the FCC should reject self-serving calls to impose 

outdated regulations mandating network interconnection, devised for an era of 

monopoly voice carriage, on the well-functioning market for private Internet 

peering agreements, which already ably provides for the efficient transport of 

voice as well as video and data traffic. 

Private peering arrangements have long provided an efficient mechanism for 

interconnection on packet-switched networks, regardless of whether the packets 

contain data, video, and voice applications. The shutdown of PSTN networks 

and the migration of additional voice traffic to the Internet do not change the 

dynamics of that system. As Michael Kende, former Director of Internet Policy 

Analysis at the FCC has recently written: 

[T]he competitive concerns that historically drove interconnection regulations for PSTN-based voice service are no longer valid due to the rapid 

take-up of many different types of alternative communications services to 

traditional voice, such as cable telephony, software-based voice over IP 

(VoIP), and other IP-based forms of communications. Therefore, as voice migrates to the Internet there is no need for any regulation of IP voice traffic 

which mirrors the regulation of the PSTN on competition grounds, because 

the current IP interconnection arrangements show how traffic will flow endto-end without a regulatory mandate.5

Today, marketplace and reputational incentives drive interconnection and consumer protections. These incentives are buttressed by various multistakeholder 

processes that continue to evolve to supplement direct company-to-company dispute resolution.6 At the same time, the FCC retains authority under Title I of 

the Communications Act to regulate for public safety, and antitrust and consumer protection laws govern IP services precisely because they are not regulated as common carriers (which are excluded from the FTC’s general jurisdiction over the economy).7

If significant issues do arise in the IP transition that escape these multiple layers of regulatory and governance constraints, Congress can of course enact legislation appropriately targeted to address clear consumer harms. But narrowly 

tailored legislation from Congress after the IP transition has evolved of its own 

accord is the proper mechanism for addressing such issues—not by bringing the 

dead weight of old regulatory baggage to new markets. 

Not surprisingly, several parties in the FCC’s on-going IP transition proceedings 

have urged the agency to transplant legacy interconnection requirements on IP 

networks as part of the retirement of the PSTN. PSTN interconnection requirements, however, were formulated when the Bell System was a true, regulated 

monopoly. They were a necessary evil to control monopolistic risks, and they 

have imposed considerable waste, fraud and unnecessary cost in exchange for 

94 

8 Report and Order and Further Notice of Proposed Rulemaking, In re Developing a Unified 

Intercarrier Compensation Regime, CC Docket No. 01–92 (November 18, 2011), available at 

http://www.fcc.gov/document/fcc-releases-connect-america-fund-order-reforms-usficc-broadband. 9OECD, Committee for Information, Computer and Information Policy, Internet Traffic Exchange: Market Developments and Policy Changes, 3 (June, 2011), available at http:// 

search.oecd.org/officialdocuments/publicdisplaydocumentpdf/?cote=DSTI/ICCP/CISP(2011)2/ 

FINAL&docLanguage=En. 10See, e.g., Marguerite Reardon, Understanding the Level 3-Comcast spat (FAQ), C-Net (November 30, 2010), available at http://news.cnet.com/8301–30686l3-20024197-266.html. 11See, e.g., Betsy Isaacson, Netflix Says 3D and ’Super-HD’ Movies Are Just Around The Corner—But Only For Some Customers, Huffington Post (January 9, 2013), available at http:// 

www.huffingtonpost.com/2013/01/09/netflix-3d-movieslnl2441394.html; Fred Campbell, 

Netflix Blocking Internet Access to HD Movies, The Technology Liberation Front (January 17, 

2013), available at http://techliberation.com/2013/01/17/netflix-blocking-internet-access-to-hdmovies/; Fred Campbell, What Does Netflix’s Decision to Block Internet Content Tell Us About 

Internet Policy?, The Technology Liberation Front (January 23, 2013), available at http:// 

techliberation.com/2013/01/23/what-does-netflixs-decision-to-block-internet-content-tell-usabout-internet-policy/. 

that benefit. Consider, for example, recent FCC reforms of intercarrier compensation aimed at reducing such interconnection arbitrage as traffic pumping, 

phantom traffic and other abuses.8

In the IP world, by contrast, network operators worldwide negotiate all manner 

of peering agreements absent any regulation. Indeed, peering within the IP network is so easily achieved, as the OECD has pointed out, that ‘‘the terms and 

conditions of the Internet interconnection model are so generally agreed upon 

that 99.5 percent of interconnection agreements are concluded without a written 

contract.’’ 9 Simply put, there is no evidence that anything is broken in the IP 

network ecosystem. 

Those asking regulators to invent an IP interconnection regulatory scheme for 

voice (or perhaps for all Internet traffic) invoke public interest concerns, but the 

real motivation is simple rent-seeking. Smaller carriers prefer below-market 

rates for backhaul, and CLECs are eager to protect their subsidized business 

model in new ecosystems that are already highly competitive. But these desires 

have nothing to do with consumer harms, let alone the public interest. In any 

case, the FCC should avoid ‘‘prophylactic’’ regulations for interconnection problems that, as even those asking for them admit, are speculative. 

That Internet peering works so well absent regulation is no surprise. Major 

ISPs have strong business incentives to interconnect. For example, ISP customers increasingly demand access to streaming video content from services 

such as Netflix and Amazon, and ISPs know that streaming video is the primary reason that customers are willing to pay for high-speed broadband connections at home. 

Where disputes have arisen (often around the distinction between settlementfree transit vendors and paid-peering content delivery networks (CDN), for example 10), they have taken the form of contract disputes between large commercial players over the specific terms of interconnection, not whether it will be 

available. 

Moreover, demand for streaming video has become so strong that Netflix, having established its own CDN, can now sidestep such disputes and pressure ISPs 

to accede to its peering demands by threatening to withhold new content or 

services. It is now content providers, in other words, and not ISPs, who threaten 

to withhold traffic.11 The newfound market power of content providers—as well 

as increasing intermodal competition from mobile broadband—upends the 

weathered assumption that ISPs hold all of the bargaining power in interconnection negotiations. 

Question 1b. How important is it to maintain the legacy/copper communications 

network as we transition to IP? If so, for how long? If not, please explain why not. 

Answer. It is, of course, essential to continue providing service to customers of the 

obsolete PSTN network until such time as a final cutover date is set and approved. 

(As for the actual infrastructure technology, copper is perfectly capable of carrying 

IP traffic at broadband speeds for short distances and of course does so today. The 

retirement of the PSTN network and the replacement of copper are not the same 

thing, and I presume the question refers to the former and not the latter.) 

It is, however, essential that Congress and the FCC move quickly to organize and 

establish a date certain for moving the remaining PSTN customers to better and 

cheaper IP networks. The transition is already happening, driven by consumers who 

see no benefit to continue maintaining connections to the limited and technicallyVerDate Nov 24 2008 07:09 May 13, 2014 Jkt 075679 PO 00000 Frm 00098 Fmt 6601 Sfmt 6621 S:\GPO\DOCS\87817.TXT JACKIE
95 

12Larry Downes, Telcos Race Toward an all-IP Future, CNET NEWS.COM, Jan 8, 2013, available at http://ces.cnet.com/8301–34435l1-57562644/telcos-race-toward-an-all-ip-future/. 13 Id. See also Larry Downes, AT&T Moves Dramatically Towards ‘Internet Everywhere,’ 

FORBES, Nov. 8, 2012, available at http://www.forbes.com/sites/larrydownes/2012/11/08/attmoves-dramatically-towards-internet-everywhere/. 14Larry Downes, FCC Again Balks on Telephone Network Shutdown, CNET NEWS.COM, 

May 14, 2013, available at http://news.cnet.com/8301–1023l3-57584306-93/fcc-again-balkson-telephone-network-shutdown/. 

inferior PSTN network. Already, over half of U.S. homes have voluntarily cut the 

cord to the PSTN network, integrating their voice communications with other IPbased services offered by cable, fiber, satellite, and mobile providers. By 2015 that 

number may reach as high as 75 percent. 

As more customers abandon the PSTN network, the cost per remaining user of 

maintaining old and obsolete equipment and other infrastructure has already become uneconomic. It is also wasting money that would be far more effectively spent 

as capital investment in IP networks. The continued maintenance of the PSTN network is throwing good money after bad. 

That is why it is essential, following the proposed trials, to set a date certain for 

complete shutdown of the PSTN network and use the remaining time to resolve any 

lingering technical issues and to ease the transition of remaining PSTN customers 

to alternative IP networks. As I explained in my written testimony: 

PSTN providers can’t beat better and cheaper with worse and more expensive, 

especially when worse and more expensive has to stay that way as a matter 

of law. 

They must move faster. Customers are abandoning wired telephone service in 

favor of fiber and cable-based Voice over IP (VoIP) and mobile broadband at a 

remarkable rate. At its peak, the PSTN network connected nearly every American. By the end of 2011, less than half of all American homes still had a wired 

connection. That number could fall to as little as 25 percent by 2015.12

The disruptor here, of course, is networking technology that operates natively 

using the packet-switching protocols of the Internet. IP networks, crucially, 

don’t care if the packets contain voice, data, or video content. While phone companies once dismissed IP as unsuitable for voice communications, carriers large 

and small have now embraced IP as the only option to satisfy exploding demand 

of consumers, cloud-based services, and the coming data deluge of machine-tomachine communications known as ‘‘the Internet of Things.’’ 

That superior design has created an enormous black hole for PSTN network operators. As fewer customers subscribe to wireline services, the cost of maintaining aging copper and analog switches is increasing dramatically, both in absolute terms and on a per-customer basis. As much as 50 percent of current 

wireline expenditures go toward maintenance. By comparison, the operating expenses of native IP networks can be as much as 90 percent less than for 

PSTN.13

To their credit, the incumbent providers are trying to retire and replace what 

had been, until recently, their most valuable assets. Both Verizon and AT&T 

have spent billions accelerating the replacement of copper with fiber, and circuit-switched with packet-switched equipment. 

But turning off the old network isn’t as simple as it sounds. By law, carriers 

cannot retire the switched network without Federal and perhaps state regulatory approval, even if superior alternatives are in place. And the FCC and 

state regulators have balked at giving permission for the switchover, calling for 

more study on proposed trials for PSTN to IP switchovers in test markets.14

The longer the carriers are required to spend money maintaining the obsolete 

networks, however, the less capital budget is available to accelerate the replacement of aging and obsolete equipment with better and cheaper IP technologies, 

including fiber optics, digital switches, and upgrades to straining cellular networks. 

In the end, the real victims of the regulatory logjam are the remaining wireline 

customers who are also, not surprisingly, the ones least likely to be benefiting 

from Internet services. The customer segments that are farthest behind in 

broadband adoption, according to FCC data, are those most likely to be relying 

96 

15FCC, Eighth Broadband Progress Report, GN Docket 11–121 (Aug 21, 2012), ¶ 122 at p. 54, 

available at http://hraunfoss.fcc.gov/edocslpublic/attachmatch/FCC-12-90A1.pdf. 16Pew Internet and American Life Project, Digital Differences, April 13, 2012, available at 

http://pewinternet.org/Reports/2012/Digital-differences/Main-Report/Internet-adoption-overtime.aspx. 17See Connecting America: The National Broadband Plan, § 4.5 at p. 59 (2010) (‘‘National 

Broadband Plan’’), available at http://download.broadband.gov/plan/national-broadbandplan.pdf. 18 Id. 

on switched telephone networks as their only form of communication access.15

These include rural users, seniors, and low-income customers. 

Getting these communities onto IP networks sooner rather than later eliminates 

the need for expensive duplication of the obsolete switched infrastructure. It 

will also make it easier and less expensive for them to connect to other 

broadband services including video and Internet access. 

In that sense, allowing the carriers to accelerate the transition to IP would 

overcome many of the obstacles that keep 20 percent of American adults from 

joining the Internet. According to the Pew Internet Project, almost half of that 

group cite as their primary reason not to connect a lack of relevance to their 

needs, rather than cost.16 With IP-based telephony in place, however, the relevance for employment, education, health care, family life, entertainment and 

commerce would be far easier to communicate. 

For Congress and the FCC, this is the moment of truth. The IP Transition is 

gaining speed, and its ultimate completion is inevitable. But even inevitable advances in technological progress can be delayed significantly by over-regulation, 

denying some consumers the full benefits of the Internet ecosystem. 

The FCC has an unavoidable role to play in the process. As communications 

markets are being simultaneously destroyed and recreated, regulations designed 

to dull the sharper edges of once-static and siloed technologies are now, as the 

agency recognizes, posing the very real danger of unintentionally holding back 

the progress of innovation. The agency must unravel itself from its complicated 

relationships with the affected industries, and quickly. 

To begin with, the FCC should expeditiously grant pending petitions for trials 

to switchover PSTN networks to native IP. And, while the trials are underway, 

the FCC should begin planning a pro-transition agenda that can be enacted 

swiftly upon successful completion of the trials—or modified as necessary to adjust for any lessons learned. 

Specifically, Congress and the FCC should: 

1. Clearly define the IP Transition as a central Federal policy objective and make 

clear its intentions that VoIP be left unregulated. 

2. The FCC should preempt state regulators’ efforts to preserve PSTN networks 

beyond their useful lives to the long-term detriment of ratepayers. 

3. Plan and set a date certain for PSTN retirement, based on the results of market trials being proposed and lessons learned during the successful transition 

from analog to digital television. 

4. Retire legacy Federal regulations that are unintentionally slowing the transition to all-IP infrastructure and retarding the adoption of broadband, especially 

among rural and low-income populations. 

5. Make clear that Title II regulations will never apply to IP networks. 

6. Refrain from asserting Title I ancillary authority to impose mandated interconnection requirements on IP networks, and instead leave interconnection in 

the hands of the private parties exchanging the traffic. 

There has been some progress in achieving these objectives, albeit slow. The 

National Broadband Plan, in particular, showed vision in urging the Commission to move immediately to accelerate the transition away from circuitswitched networks to native IP.17 As the Plan noted, ‘‘[r]egulations require certain carriers to maintain [legacy TDM networks]—a requirement that is not 

sustainable—and lead to investments in assets that could be stranded.’’ 18

In creating the Technology Transitions Policy Task Force, the FCC likewise took 

an important step to encourage the rapid transition ‘‘from special purpose to 

general purpose, from circuit-switched to packet-switched, and from copper to 

97 

19FCC, FCC Chairman Announces Formation of ‘‘Technology Transitions Policy Task Force’’, 

(Dec. 10, 2012), http://www.fcc.gov/document/fcc-chairman-announces-technology-transitionspolicy-task-force. 20 Id. 21 In nearly every government provision of spectrum in the last hundred years, Congress has 

clearly picked what it felt were ‘‘better’’ technologies and used policy levers to promote their 

adoption. Similarly, by excluding broadband Internet access from Title II regulations in the 

1996 Communications Act, Congress affirmatively and wisely promoted an unregulated market 

for IP-based services, and mandated the FCC to do the same. See, e.g., Communications Act of 

1996, 47 U.S.C. §§ 153(24), 230, 706 (1996). See also NCTA v. Brand X Internet Services, 545 

U.S. 967 (2005). 22See Sam Schechner and Rebecca Dana, Local TV Stations Facing a Fuzzy Future, THE WALL

STREET JOURNAL, Feb. 10, 2009, available at http://online.wsj.com/article/SB123422910 

357065971.html. 

fiber and wireless-based networks.’’ 19 Then-Chairman Genachowski noted at 

the time: 

Technological transitions don’t change the basic mission of the FCC. But 

technology changes can drive changes in markets and competition. And 

many of the Commission’s existing rules draw technology-based distinctions. So the ongoing changes in our nation’s communications networks require a hard look at many rules that were written for a different technological and market landscape.20

The point of these farsighted statements is both clear and accurate: Regulators 

should not pick winners and losers in the broadband ecosystem. But that truism 

does not mean the Commission should not take action to advance new technologies that are clearly superior.21 IP networks, in design and implementation, 

are in every relevant measure exponentially better than PSTN. Lawmakers and 

regulators should continue to hasten their adoption, focus on making the transition as smooth as possible for all consumers and refrain from placing regulatory 

impediments in the way of their success. 

[. . .] 

In encouraging the rapid transition of wireline providers to all-IP networks, 

Congress should heed the lessons of the earlier transition from analog to digital 

television (DTV). The DTV experience underscores the importance of accelerating deregulation of obsolete networks before consumers abandon them, of 

setting and sticking to a date certain, and to avoiding the temptation to prophylactically regulate for consumers harms that have yet to appear. 

At its height in the 1970s, 93 percent of all American homes relied on antennas. 

But analog broadcast couldn’t compete with the quality or the quantity of cable 

channels. As digital technology expanded the scope and efficiency of cable and 

later fiber-based programming, it became clear that over-the-air broadcasters 

would likewise need to convert to digital signals to compete. 

Shutting down analog broadcast, however, required government coordination. In 

1996, Congress mandated the conversion from analog to digital broadcast in 

1996, setting a deadline of 2006 and authorizing the FCC to coordinate the 

transition. 

The coordinated switch to DTV was intended to make the highly-regulated 

broadcasters more competitive with the relatively unregulated cable industry. 

How? Digital TV lowered costs and created new opportunities for broadcasters. 

As part of the transition, for example, broadcasters traded their analog radio 

spectrum allocations in the 700 MHz band for a new 6 MHz block in the 600 

MHz band. Because digital signals are more compressed, each 6 MHz block 

could be split and used for multiple channels, all of them capable of high-definition broadcast, as well as new mobile business opportunities for the broadcasters. 

So far, however, few station operators have been able to make use of that capacity to offer extra channels or to repurpose underutilized spectrum for mobile or 

other premium services. That’s largely because, in the end, the DTV transition 

was delayed until 2009. By then, over-the-air television had already entered an 

unrecoverable dive in viewership and revenue.22 According to research from the 

Consumer Electronics Association, the decline in over-the-air audience became 

98 

23 CEA Study: Consumers are Tuning Out Over-the-Air TV, May 31, 2011, available at http:// 

www.ce.org/News/News-Releases/Press-Releases/2011-Press-Releases/20110531-CEA-StudyConsumers-Are-Tuning-Out-Over-t.aspx. 24Marc Gunther, Digital TV: Leaving Viewers in Limbo, FORTUNE, Jan. 19, 2006, available 

at http://money.cnn.com/2006/01/04/technology/pluggedinldigitaltv/index.htm. 25 Nielsen, The Switch from Analog to Digital TV, Nov. 2, 2009, available at http:// 

www.nielsen.com/us/en/newswire/2009/the-switch-from-analog-to-digital-tv.html. 

irreversible between 2005, when the transition should have happened, and 

2009, when it finally did.23

Delays in the DTV transition were largely the result of unfounded and exaggerated fears that some consumers would not be ready in time. A 2006 article in 

Fortune, for example, warned breathlessly that the DTV transition would 

‘‘render about 70 million TV sets obsolete,’’ and that ‘‘for consumers with one 

of those 70 million sets—many of whom are likely to be poor, elderly or 

uneducated, being forcibly switched from one technology to another will be a 

nightmare.’’ 24

[. . .] 

The reality, of course, was very different. Consumers who weren’t already cable 

or satellite subscribers and whose energy-inefficient tube television sets were 

too old to receive digital signals were barely inconvenienced, let alone ‘‘forcibly 

switched.’’ 

Many had already moved to cable or satellite by the time the DTV transition 

occurred. For the rest, all they had to do was to buy and attach small digital 

converter boxes to their old TVs. Under a plan implemented by the Department 

of Commerce, consumers could even apply for up to two $40 coupons with which 

to purchase the converters, funded by proceeds from the 700 MHz spectrum 

auctions. 

On the fateful day, June 12, 2009, according to Nielsen, almost no one was left 

without television service. As Figure 2 shows, nearly all ‘‘unready homes’’ had 

successfully made the transition by using the converter box, or by switching to 

digital cable or satellite. No television was rendered ‘‘obsolete,’’ let alone 70 million.25

Figure 2—Consumers Adapted to the DTV Conversion 

Source: The Nielsen Company 


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26See Brendan Sasso, FCC Moves to Fine ‘Obamaphone’ Companies $14 Million, THE

HILL.COM, Oct. 1, 2013, available at http://thehill.com/blogs/hillicon-valley/technology/325779- 

fcc-moves-to-fine-obamaphone-companies-14-million. 

Delaying the transition by three years, however, blunted the potential of a coordinated and timely switchover in crucial ways. Consumers had more time to 

switch to cable or satellite to avoid dealing with the transition at all, imposing 

real damage on broadcasters. That loss of viewers makes it harder to this day 

for the broadcasters to offer new and competing products using their new spectrum and digital technology upgrades. 

Ultimately, that translates to a loss to consumer of more competition in the 

video marketplace. Delays that were intended to protect consumers, in the end, 

did just the opposite. 

As with DTV transition, however, ungrounded fears of what could go wrong 

could continue to delay the IP transition, with dangerous and unintended consequences for consumers—particularly those for whom advocates most claim to 

be looking out. 

Question 2. Reform of the Universal Service Fund (USF)/creation of the Connect 

America Fund (CAF) is critically important because millions of Americans still lack 

access to high-speed broadband service in many areas of the country. According to 

the National Broadband Plan, broadband is available in 98 percent of the nation, 

but the national adoption rate, according to the National Telecommunications and 

Information Administration (NTIA) and Census data, is 72 percent. I believe it is 

important for all Americans to have access to high-capacity broadband service, and 

therefore, I am focused on policies that help us to reach 100 percent coverage of U.S. 

households. However, we have a limited amount of money that we can allocate as 

a nation to rural broadband deployment, and I believe we should prioritize funding 

to support buildout in unserved areas or areas below 4 mbps down/1 mbps. Typically, these areas are still unserved because of the high cost of deployment and the 

low population density. Understandably, this makes it difficult for private companies to deploy broadband in these areas, and it is also the reason why policymakers 

decided to create programs like USF/CAF—to serve hard-to-reach places in the 

country. 

Question 2a. Do you believe CAF is adequately focused on broadband deployment 

in unserved areas? If so, how long do you think it will take to reach full deployment? If not, please explain what it would take to buildout unserved areas of our 

country given that we only have approximately $4.5 billion/year through USF. 

Question 2b. Is the pace of reform moving too slowly? 

Answer. My experience with CAF is insufficient to comment on these questions. 

What is clear, however, is that there are direct economic and societal benefits that 

derive from access to high speed broadband. Efforts to foster more and faster 

broadband in areas that do not currently have access to same would seem important, and worthy of close analysis. 

Though the FCC has done a worthy job in reforming USF over the last two years, 

there is clearly still much to be done. As recent announcements of settlements with 

Lifeline providers abusing the system makes clear, there is still considerable waste, 

inefficiency, fraud and corruption in the system.26

Question 3. Based on my experience in Virginia, it is not possible to deploy fiber 

absolutely everywhere. Many areas of my state have granite rockbeds, which make 

it prohibitively expensive to deploy fiber. Therefore, I am supportive of cost effective 

deployment of broadband technology to reach universal coverage. Although I recognize that the focus of this hearing was on wireline issues, it seems to me that we 

should consider the best technologies based on our national goal of providing advanced communications services to all Americans. 

Question 3a. Should the Federal Communications Commission (FCC) focus more 

resources on best-available technology for unserved areas or areas below 4/1? If so, 

please explain what else the FCC could do to improve broadband coverage to 

unserved areas. If not, please explain how we can reach full broadband deployment 

by focusing more on fixed services, at a reasonable cost to taxpayers and consumers. 

Question 3b. Please describe what role you see for other technologies in terms of 

serving hard-to-reach areas in the near term. Could we be more technology-neutral 

in our Federal broadband funding programs? 

Answer. I am not in a position to comment specifically on the effectiveness of Federal broadband funding programs or the FCC’s role in improving coverage to those 

100 

27Kathryn Zickuhr, Who’s Not Online and Why, PEW INTERNET AND AMERICAN LIFE PROJECT, 

September 25, 2013, available at http://pewinternet.org/∼/media//Files/Reports/2013/PIP 

lOffline%20adultsl092513.pdf. 

remaining areas of the U.S. that do not have broadband access as that term is defined by the National Broadband Plan. 

But there are clearly other technologies besides fiber optic cable that support 

broadband speeds. Cable, mobile, and satellite-based broadband all have important 

roles to play in both the middle-mile and last-mile Internet today, and will continue 

to do so. Broadband over power lines remains a high-potential option as well, especially for remote areas where power lines have already been deployed at high cost. 

While experimentation with this approach in the U.S. has largely stalled due to resistance and delays by the FCC to approve applications, it is not too late to restart 

the industry. 

Access, however, is not the most urgent issue. Rather, it is adoption. In that 

sense, enabling the carriers to accelerate their transition to all-IP infrastructure 

would overcome many of the obstacles that keep 15 percent of American adults 

(mostly those over age 65 or adults without a high school diploma) from joining the 

Internet. According to the most recent Pew Internet Project survey, more than half 

of that group cite as their primary reason not to connect a lack of relevance to their 

needs or usability, rather than cost or availability. (See Figure 3.) 27

Figure 3—Obstacles to Internet Adoption 

Source: Pew Research Center’s Internet & American Life Project Surveys. 

With IP-based telephony in place, however, the relevance for employment, education, health care, family life, entertainment and commerce would be far easier to 

communicate. A transition to all-IP networks, in other words, bring those Americans 

who have resisted the Internet revolution at least one step closer to adoption—if 

only as a side-effect. 

As I wrote recently, the most current data on adoption issues suggests that the 

best use of limited government resources may not be subsidizing access or the buildout of network infrastructure in high-cost areas. Rather, it may be in public education: 

[G]overnments can play a critical role in encouraging the few remaining Americans who have so far failed to see the benefit of Internet adoption. But in allocating limited public resources, it’s essential to read the data for what it actually says before deciding how to proceed. 

For example, the most-frequently cited reason given by Americans not to use 

the Internet, according to the Pew survey, is that they are ‘‘just not interested.’’ 

Is that because the Web really holds no relevance to them, or because the case 

for connectivity just hasn’t been made? Given the increased importance of InterVerDate Nov 24 2008 07:09 May 13, 2014 Jkt 075679 PO 00000 Frm 00104 Fmt 6601 Sfmt 6621 S:\GPO\DOCS\87817.TXT JACKIE

725LARQ3.eps
101 

28Larry Downes, Who’s Still Offline and Why? The Real Reasons, CNET NEWS.COM, Sept. 30, 

2013, available at http://news.cnet.com/8301–1023l3-57605169-93/whos-still-offline-and-whythe-real-reasons/. 

net technologies and protocols for basic communications, entertainment, education, employment, health care, and public safety, going online is becoming a 

crucial part of daily life, especially for the groups who today have the lowest 

levels of adoption. They just may not fully appreciate the value to them of doing 

so. 

Governments could be much more effective in using their bully pulpit to make 

that case. The FCC’s exceptional 2010 National Broadband Plan, for example, 

included detailed descriptions of the promise of the Internet to improve the lives 

of all Americans in each of these core areas. Yet the agency did almost nothing 

to promote the hard work of the plan’s authors once the document was published. 

It would cost little for the FCC and the rest of the administration to dust off 

the plan and highlight the vision it painted for a fully connected America. This 

could take the form of speeches, government websites, and public demonstrations coordinated with industry leaders. Much of that activity already exists; it 

just needs to be focused. 

The FCC could also accelerate its ongoing efforts to remove regulatory roadblocks, especially at the state and local level, that cause unnecessary delay and 

cost in the deployment of additional and critical broadband infrastructure. Despite a modest ‘‘shot clock’’ established by the FCC in 2009, for example, permit 

requests for new cell towers and equipment changes on existing utility poles 

and buildings continue to drag on for months or even years, often held back or 

even denied based on little or no zoning-related justification. Laying new fiberoptic cable, likewise, often requires navigating a maze of local authorities. 

The agency should also restart stalled efforts to begin trials for a final switchover from the aging, obsolete public switched telephone network to all-IP networks. 

A majority of Americans have already cut the cord to the old networks. Maintenance costs for providers who have to support both the old and new networks 

are inhibiting even more investments in broadband. Landline carriers have 

asked the FCC for permission to conduct trials on switching over the remaining 

customers to better and cheaper IP networks, but the agency has stalled, with 

special-interest groups gumming up the works. 

Ironically, households still using analog telephone switches are also those most 

likely not to be Internet users. Accelerating the transition to IP networks would 

get those customers onto the Internet, at least for voice services. 

These are the kind of government interventions that will actually help those 

few Americans who still don’t see the value of Internet adoption. And they require no new laws—just a careful analysis of data that is already clear and convincing for those who are willing to read it.28

Question 4. Would more targeted broadband mapping—at the address level, specifically—help to accelerate deployment to unserved areas? If not, please explain 

why less granular data models are sufficient to target deployment to unserved 

households. Do you believe the current level of data gathered by the National 

Broadband Map contributes to overbuilding? If not, please explain. 

Answer. My experience with the National Broadband Map is insufficient to comment on these questions. 

Question 5. As many experts have noted, there is ‘‘rural-rural divide’’ when it 

comes to the presence of broadband infrastructure in rural America. According to 

the FCC, more than 83 percent of the approximately 18 million Americans that lack 

access to residential fixed broadband at or above the basic level of acceptable service 

outlined in the National Broadband Plan live in areas served by price-cap carriers. 

The FCC attempted to address this disparity by establishing an incremental support 

component in the Phase I CAF Fund for price cap carriers. The initial support was 

established at $300 million, but more than half of the allocated funds went unclaimed. Different types of carriers have expressed opinions about whether or not 

it was a good idea for the FCC to set aside this amount of money even though the 

bulk of the $4.5 USF program was allocated to other types of carriers. 

Question 5a. Regardless of your views on the Phase I Fund, do you think the FCC 

has done enough to provide coverage to the 14.9 million people who still lack any 

sort of basic broadband service? 

102 

29FCC, Eighth Annual Broadband Progress Report, GN Docket No. 11–121 (August 14, 2012), 

available at http://www.fcc.gov/reports/eighth-broadband-progress-report . 

Question 5b. If so, when do you think we can expect to provide broadband service 

to all Americans? If not, what else could the FCC do to provide universal broadband 

service? 

Answer. My experience with CAF is insufficient to comment on these questions. 

Again, per my response to question 3 above, the more urgent issue is not access but 

adoption. The FCC did an admirable job of making the use cases for broadband 

adoption by all Americans in the National Broadband Plan, but has done little since 

its publication to underscore the benefits of broadband in education, employment, 

health care, public safety, citizenship, government, and energy. Thus, I believe it 

would be very productive if the FCC were to use its bully pulpit to educate American consumers on the value of having access to broadband. 

However, I do not believe it is accurate to say that 18 million Americans ‘‘lack 

access to residential fixed broadband,’’ or that 14.5 million of that number are rural 

Americans. Those numbers, which originate with the FCC’s most recent Broadband 

Progress Report,29 are both misleading and highly inaccurate. 

For one thing, the FCC ended its data collection in June 2011. But network providers and their investors have spent billions in infrastructure improvements over 

the last two years, as they have every year since the broadband revolution began. 

Between 2010 and 2011 alone, when the FCC’s data runs out, the number of Americans without access to a single home broadband provider fell by 7.4 million, a number almost certain to have dropped further since 2011. 

More important, the FCC report completely ignores the availability of mobile 

broadband. Although 4G and other networking technologies can and do deliver 

speeds that exceed the FCC’s broadband threshold, the agency excluded mobile entirely from its statistics on access, citing a lack of ‘‘reliable’’ data on precisely how 

many of the 19 million could or even do get service from mobile broadband providers. 

Rather than estimate, the FCC simply counted the entire wireless industry as 

zero. Yet with the explosion in smartphone use, as every consumer knows, wireless 

broadband growth far exceeds that for wired broadband. Mobile carriers in the US, 

according to the same FCC report, invested more than $25 billion in network improvements just in 2011, compared with $18.6 billion in the 15 largest European 

economies combined. 

Including data on mobile broadband access provided in the FCC’s report but left 

out of its calculations, the number of Americans without any home broadband provider falls as low as 5.5 million. That’s less than 2 percent of the population. 

To put that number in perspective, consider that landline telephone service never 

achieved more than 95 percent adoption in American homes. Indeed, according to 

the U.S. Census Bureau, more than 3.5 million Americans still lacked complete indoor plumbing as recently as 2011. Yet universal telephone service has been the policy of the U.S. since the formation of the FCC in 1934. And public efforts to improve 

household sanitation predate the founding of the Republic. 

So the fact that broadband Internet access and adoption are still less than 100 

percent less than two decades after its invention, while unfortunate, is hardly a crisis. Even excluding mobile broadband, the FCC report found that 95 percent of 

American homes have access to a broadband connection, in most cases with two or 

more choices of provider. We can and will do better, but realistically, if herculean 

efforts over decades or even centuries have failed to achieve 100 percent adoption 

of more basic technologies, it seems unlikely that any intervention over any period 

of time will ultimately achieve complete Internet adoption, let alone at broadband 

speeds. 

Question 6. There has been a great deal of discussion about the FCC’s models for 

CAF. Given that technology is advancing at a rapid rate, it seems like the FCC 

should be focused on establishing a cost model that is updated frequently enough 

to provide an accurate sense of the marketplace. 

Question 6a. How important is the timeliness of the FCC’s proposed cost model 

in delivering service to unserved areas? 

Question 6b. Do you agree with the revisions the FCC has made to its cost model? 

Does the cost model accurately predict needs/services under CAF? If not, or if you 

believe the FCC model should lock in rates for a longer period of time, please explain how a longer view would deliver broadband to unserved areas more quickly 

than an annualized model. 

Answer. My experience with CAF is insufficient to comment on these questions. 

103 

Question 7. A report by the nonpartisan Congressional Research Service analysis 

captures one of the major challenges of USF reform as follows: 

‘‘Smaller, rural, rate-of-return carriers are particularly dependent on USF subsidies, and have expressed concern that the reforms that the USF Order will 

implement could place them under financial hardship. Many RUS telecommunications and broadband borrowers (loan recipients) receive high cost USF subsidies. In many cases, the subsidy received from USF helps provide the revenue 

necessary to keep the loan viable. The Telecommunications Infrastructure Loan 

program is highly dependent on high-cost USF revenues, with 99 percent (476 

out of 480 borrowers) receiving interstate high-cost USF support. This is not 

surprising, given that the RUS Telecommunications Loans are available only to 

the most rural and high-cost areas (towns with populations less than 5,000). Regarding broadband loans, 60 percent of BIP (stimulus) borrowers draw from 

state or interstate USF support mechanisms, while 10 percent of farm bill 

(Rural Broadband Access Loan and Loan Guarantee Program) broadband borrowers receive interstate high-cost USF support. Thus, to the extent that USF 

may be reformed, this could have an impact on the viability of RUS telecommunications and broadband loans, and ultimately the overall financial 

health of the carrier. 

Although the FCC included a waiver process in its USF Order for those carriers 

that felt they would be subject to significant economic stress, due to the reforms, many smaller carriers assert that the waiver process is too burdensome 

and difficult and that the requirements for qualifying for relief are too restrictive.’’ 

Additionally, according to the U.S. Department of Agriculture, demand for RUS 

loan funds was only 37 percent of loan funds appropriated by Congress in FY 2012. 

This is indicative of the fact that the restructuring and uncertainty around USF/ 

CAF reform could diminish the desirability of RUS broadband loans to borrowers 

going forward. 

Question 7a. Given that the RUS and USF broadband programs share the goal 

of deploying broadband to rural America, and many RUS borrowers appear to be 

significant beneficiaries of USF as well, are these programs effectively targeted towards providing broadband to unserved areas of the nation? 

Question 7b. Are these programs the most cost-effective way for Congress to fund 

rural broadband development? If so, please explain why. If not, please share any 

ideas you may have regarding a more cost-effective approach to encouraging 

broadband deployment. 

Question 7c. Given that these two programs (USF and RUS) share the same goals, 

to what extent are they duplicative and to what extent are they complementary? 

Question 7d. Do you think that the FCC waiver process, as designed and described above, is appropriate? If so, why? If not, what changes would you recommend? 

Answer. My experience with RUS is insufficient to comment on these questions. 

RESPONSE TO WRITTEN QUESTIONS SUBMITTED BY HON. MARK WARNER TO

GIGI B. SOHN

Question 1. With respect to the coming IP transition and advancing technology, 

which specific requirements from the Telecommunications Act of 1996 are the most 

important to maintain to ensure fair competition in the marketplace? 

Question 1a. For example, the 1996 Act has clear interconnection requirements. 

Do you believe that these provisions are technology-neutral and should apply in an 

IP-based network? If not, please explain why not. 

Question 1b. How important is it to maintain the legacy/copper communications 

network as we transition to IP? If so, for how long? If not, please explain why not. 

Answer. The challenge of the IP transition is for the country to agree upon what 

fundamental principles should guide any future statutory revision process. The 

interconnection requirements of the Communications Act of 1996 are a good example. Section 251 is technology neutral. It applies to copper lines as equally as it does 

to interconnected VoIP. The fundamental principle at play is, does the network connect to everyone? For example, does a resident in Wise, Virginia know that when 

they make a call to family in Richmond or New York, the providers will connect as 

one large network? Smaller providers in rural areas should not have to pay a premium to connect to larger incumbent carriers. The phone system has always worked 

104 

as one network and this fundamental principle must be maintained as we make the 

transition to IP. 

Additionally, competition provisions in the Communications Act provide for the 

connection of a variety of competitive services over the network that have brought 

new innovations to consumers, such as home security systems and telemedicine 

services. If we as a nation decide that we still value competitive services that ride 

over the network, then we must ensure that we maintain policies that protect competition for these innovative services. 

In regard to how important it is important to maintain copper networks, it is important to point out that we are already transitioning away from copper networks. 

For example, there is no longer functioning copper networks on most of Fire Island, 

New York following the destruction of Hurricane Sandy. Verizon, the only network 

provider on the island, is deploying fiber to its consumers as a replacement. In other 

words, for communities like Fire Island, the transition has already happened. 

It is not the material or technology of the network that is important, it is that 

the new network and the policies supporting it do not take a step back in quality 

and consumer protections that have expected for decades. Americans do not care if 

the wire running to their home is copper or fiber, they care that they don’t lose access at a reasonable cost. Does it works reliably, and with the privacy and other 

consumer protections we expect? Will it work when there is a storm or a medical 

emergency? These are the sorts of questions that Americans are concerned with. 

The question of ‘‘how long’’ is why real trials to answer these technological questions must be conducted by the FCC. Americans deserve to know that when the 

Federal Government allows companies to turn one network off, the replacement will 

not be a downgrade in service. We do not use our consumers as guinea pigs when 

it comes to access to critical communications. Once we determine what is required 

to ensure Americans are able to receive comparable service, we will have a sense 

of how long the dependability of TDM networks will be necessary. 

Question 2. Reform of the Universal Service Fund (USF)/creation of the Connect 

America Fund (CAF) is critically important because millions of Americans still lack 

access to high-speed broadband service in many areas of the country. According to 

the National Broadband Plan, broadband is available in 98 percent of the nation, 

but the national adoption rate, according to the National Telecommunications and 

Information Administration (NTIA) and Census data, is 72 percent. I believe it is 

important for all Americans to have access to high-capacity broadband service, and 

therefore, I am focused on policies that help us to reach 100 percent coverage of U.S. 

households. However, we have a limited amount of money that we can allocate as 

a nation to rural broadband deployment, and I believe we should prioritize funding 

to support buildout in unserved areas or areas below 4 mbps down/1 mbps. Typically, these areas are still unserved because of the high cost of deployment and the 

low population density. Understandably, this makes it difficult for private companies to deploy broadband in these areas, and it is also the reason why policymakers 

decided to create programs like USF/CAF—to serve hard-to-reach places in the 

country. 

Question 2a. Do you believe CAF is adequately focused on broadband deployment 

in unserved areas? If so, how long do you think it will take to reach full deployment? If not, please explain what it would take to buildout unserved areas of our 

country given that we only have approximately $4.5 billion/year through USF. 

Question 2b. Is the pace of reform moving too slowly? 

Answer. I agree that the Connect America Fund (CAF) is an important piece of 

the puzzle of making broadband accessible to all Americans. The difficulty in structuring a fund to support broadband deployment is that the standard of what is considered adequate service is a moving target over time. The National Broadband Plan 

set a standard of 4mbps down/1mbps up because of the capabilities that such a service provides. However as we see new innovative, and higher bandwidth services become more widely available (i.e., HD video conferencing) the definition of what is 

unserved is likely to change. The more funding that is available to support 

broadband deployment in unserved areas (CAF or otherwise), the faster the country 

will be able to reach near-full deployment as we have with phone service. This is 

why it is essential that the FCC complete the process of reforming the Universal 

Service Fund (USF), including reform of the contributions side in order to broaden 

the base of revenue for the fund. 

While Public Knowledge supports the creation of the CAF, I understand that 

there have been many concerns raised by stakeholders about the formulas used to 

determine subsidy levels. It is important that the FCC work with stakeholders to 

address these concerns and ensure that the CAF is making efficient use of the billions of consumer’s fees that make the CAF subsidies possible. The pace of reform 

105 

has slowed under a 3 member Commission, but I trust that the FCC will be able 

to resume the USF reform process when a permanent chair is sworn in. 

Question 3. Based on my experience in Virginia, it is not possible to deploy fiber 

absolutely everywhere. Many areas of my state have granite rockbeds, which make 

it prohibitively expensive to deploy fiber. Therefore, I am supportive of cost effective 

deployment of broadband technology to reach universal coverage. Although I recognize that the focus of this hearing was on wireline issues, it seems to me that we 

should consider the best technologies based on our national goal of providing advanced communications services to all Americans. 

Question 3a. Should the Federal Communications Commission (FCC) focus more 

resources on best-available technology for unserved areas or areas below 4/1? If so, 

please explain what else the FCC could do to improve broadband coverage to 

unserved areas. If not, please explain how we can reach full broadband deployment 

by focusing more on fixed services, at a reasonable cost to taxpayers and consumers. 

Question 3b. Please describe what role you see for other technologies in terms of 

serving hard-to-reach areas in the near term. Could we be more technology-neutral 

in our Federal broadband funding programs? 

Answer. Support for deployment of broadband should be technology neutral, but 

it should not be standards neutral. If a technology cannot meet certain basic standards that provide for basic IP enabled broadband services then it is not a wise investment for the FCC and other Federal broadband funding programs. Standards 

typically start with speed, but due to the transition of the phone system to all IP 

networks, it makes sense to include other quality standards such as latency and reliability. The Federal Government can improve broadband coverage by completing 

the transition of Federal programs such as USF to fully support broadband. As I 

addressed in question #2, it is essential that the FCC complete the process of reforming the Universal Service Fund (USF), including reform of the contributions 

side in order to broaden the base of revenue for the fund. Public Knowledge also 

supports the transition of the USF Lifeline program to broadband as we have done 

with eRate and the CAF. Technology neutral funding programs such as USF/CAF 

provide the flexibility to develop and invest in innovative ways to deploy in rural 

areas. For example, recent advances in the use of TV White Spaces (TVWS) have 

demonstrated the potential to provide a wireless broadband service in high-cost 

rural areas. The excellent propagation properties of the TVWS band combined with 

the lower cost of deployment makes this potential a possible solution for areas of 

Virginia and other states that face challenges to fiber deployment for various reasons. 

Question 4. Would more targeted broadband mapping—at the address level, specifically—help to accelerate deployment to unserved areas? If not, please explain 

why less granular data models are sufficient to target deployment to unserved 

households. Do you believe the current level of data gathered by the National 

Broadband Map contributes to overbuilding? If not, please explain. 

Answer. More granular data could make a real difference as the National 

Broadband Map is only as good as the data provided. National Broadband Map data 

is self-reported by broadband providers and some stakeholders have found the map 

to be inaccurate at times. Broadband providers may show that a census block is 

served when in truth it is only partially served. Americans living in the unserved 

portions of census blocks may suffer from a lack of connectivity due to the cost to 

deploy to their part of the census block, while the National Broadband Map and 

Federal programs using the Map ignore their lack of access. 

While more granular data in broadband mapping would create a more accurate 

picture of the need for deployment, broadband providers will not deploy to streets 

and addresses that are currently unserved unless there is a business case to do so, 

or the Federal Government mandates that they serve everyone. The repeal of many 

state level Carrier of Last Resort (COLR) policies has reduced the commitment to 

rural phone deployment that drove broadband providers that offer phone service to 

deploy fully in service areas. As the IP transition continues, we must ensure that 

our policies remain committed to serving to all Americans. IP networks deployed as 

phone networks provide the added opportunity to bring high speed broadband services as well. 

National Broadband Map data is provided by broadband providers at the census 

block level, the smallest geographic area used to track demographics before moving 

to the address level. If data from the providers show that there are unserved in a 

census block, it is unlikely that funding directed at these blocks would lead to overbuilding. However we should take into account that providers often must build in 

surrounding areas to make the new deployment profitable. While this additional deVerDate Nov 24 2008 07:09 May 13, 2014 Jkt 075679 PO 00000 Frm 00109 Fmt 6601 Sfmt 6621 S:\GPO\DOCS\87817.TXT JACKIE
106 

ployment create competition for neighboring providers, it benefits unserved Americans by making their newly deployed broadband affordable. 

Question 5. As many experts have noted, there is ‘‘rural-rural divide’’ when it 

comes to the presence of broadband infrastructure in rural America. According to 

the FCC, more than 83 percent of the approximately 18 million Americans that lack 

access to residential fixed broadband at or above the basic level of acceptable service 

outlined in the National Broadband Plan live in areas served by price-cap carriers. 

The FCC attempted to address this disparity by establishing an incremental support 

component in the Phase I CAF Fund for price cap carriers. The initial support was 

established at $300 million, but more than half of the allocated funds went unclaimed. Different types of carriers have expressed opinions about whether or not 

it was a good idea for the FCC to set aside this amount of money even though the 

bulk of the $4.5 USF program was allocated to other types of carriers. 

Question 5a. Regardless of your views on the Phase I Fund, do you think the FCC 

has done enough to provide coverage to the 14.9 million people who still lack any 

sort of basic broadband service? 

Question 5b. If so, when do you think we can expect to provide broadband service 

to all Americans? If not, what else could the FCC do to provide universal broadband 

service? 

Answer. As I addressed in question #2, it is essential that the FCC complete the 

process of reforming the Universal Service Fund (USF), including reform of the contributions side in order to broaden the base of revenue for the fund. While Public 

Knowledge supports the creation of the CAF, I understand that there have been 

many concerns raised by stakeholders about the formulas used to determine subsidy 

levels. It is important that the FCC work with stakeholders to address these concerns and ensure that the CAF is making efficient use of the billions of consumer’s 

fees that make the CAF subsidies possible. As the National Broadband Plan noted, 

Congress could choose to appropriate more funding to the CAF and other broadband 

deployment programs if they wished to accelerate the efforts beyond the limits of 

the $4.5 million CAF. 

Question 6. There has been a great deal of discussion about the FCC’s models for 

CAF. Given that technology is advancing at a rapid rate, it seems like the FCC 

should be focused on establishing a cost model that is updated frequently enough 

to provide an accurate sense of the marketplace. 

Question 6a. How important is the timeliness of the FCC’s proposed cost model 

in delivering service to unserved areas? 

Question 6b. Do you agree with the revisions the FCC has made to its cost model? 

Does the cost model accurately predict needs/services under CAF? If not, or if you 

believe the FCC model should lock in rates for a longer period of time, please explain how a longer view would deliver broadband to unserved areas more quickly 

than an annualized model. 

Answer. As important as timeliness is to delivering critical broadband services, 

it is equally important for the FCC to get it right. As I have previously noted, while 

Public Knowledge supports the creation of the CAF, I understand that there have 

been many concerns raised by stakeholders about the formulas used to determine 

subsidy levels. It is important that the FCC work with stakeholders to address these 

concerns and ensure that the CAF is making efficient use of the billions of consumer’s fees that make the CAF subsidies possible. 

At a high level, the CAF cost model must be equitable, taking into account both 

the variety regional difference that impact cost, as well as comparison of the costs 

of similarly situated companies. In the end however, if the amount of funds in the 

CAF remain relatively constant, there will always be winners and losers when models are adjusted. 

Question 7. A report by the nonpartisan Congressional Research Service analysis 

captures one of the major challenges of USF reform as follows: 

‘‘Smaller, rural, rate-of-return carriers are particularly dependent on USF subsidies, and have expressed concern that the reforms that the USF Order will 

implement could place them under financial hardship. Many RUS telecommunications and broadband borrowers (loan recipients) receive high cost USF subsidies. In many cases, the subsidy received from USF helps provide the revenue 

necessary to keep the loan viable. The Telecommunications Infrastructure Loan 

program is highly dependent on high-cost USF revenues, with 99 percent (476 

out of 480 borrowers) receiving interstate high-cost USF support. This is not 

surprising, given that the RUS Telecommunications Loans are available only to 

the most rural and high-cost areas (towns with populations less than 5,000). Regarding broadband loans, 60 percent of BIP (stimulus) borrowers draw from 

107 

state or interstate USF support mechanisms, while 10 percent of farm bill 

(Rural Broadband Access Loan and Loan Guarantee Program) broadband borrowers receive interstate high-cost USF support. Thus, to the extent that USF 

may be reformed, this could have an impact on the viability of RUS telecommunications and broadband loans, and ultimately the overall financial 

health of the carrier. 

Although the FCC included a waiver process in its USF Order for those carriers 

that felt they would be subject to significant economic stress, due to the reforms, many smaller carriers assert that the waiver process is too burdensome 

and difficult and that the requirements for qualifying for relief are too restrictive.’’ 

Additionally, according to the U.S. Department of Agriculture, demand for RUS 

loan funds was only 37 percent of loan funds appropriated by Congress in FY2012. 

This is indicative of the fact that the restructuring and uncertainty around USF/ 

CAF reform could diminish the desirability of RUS broadband loans to borrowers 

going forward. 

Question 7a. Given that the RUS and USF broadband programs share the goal 

of deploying broadband to rural America, and many RUS borrowers appear to be 

significant beneficiaries of USF as well, are these programs effectively targeted towards providing broadband to unserved areas of the nation? 

Question 7b. Are these programs the most cost-effective way for Congress to fund 

rural broadband development? If so, please explain why. If not, please share any 

ideas you may have regarding a more cost-effective approach to encouraging 

broadband deployment. 

Question 7c. Given that these two programs (USF and RUS) share the same goals, 

to what extent are they duplicative and to what extent are they complementary 

Question 7d. Do you think that the FCC waiver process, as designed and described above, is appropriate? If so, why? If not, what changes would you recommend? 

Answer. The targeting of the RUS and USF programs is not effective due to the 

fact that both programs give to the same projects. Loans should be offered to borrowers based on the ability of companies to create profits and pay them back, not 

based on the Federal Government’s ability to provide the funding to pay itself back 

through CAF grants. While the reforms of the USF/CAF have created uncertainty 

for these loans, perhaps this will provide RUS and the FCC the opportunity to 

gradually create reasonable rules to eliminate the overlap of their borrowers and 

grantees. 

Keeping the two group separate would be a more cost-effective way of funding 

broadband deployment. Given the high cost of deployment, it would make more 

sense to structure RUS loans and the CAF in a more complementary way. It is appropriate for the FCC to have designed a waiver process to help the two agencies 

transition away from their overlapping financial arrangements. It is difficult for this 

transition process to be painless, but it is important to be clear that, in the end, 

companies and the government will no longer structure Federal loans based on the 

expectation of receiving a Federal grant. 

Æ