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UNIVERSAL SERVICE FUND REFORM: ENSURING

A SUSTAINABLE AND CONNECTED FUTURE FOR

NATIVE COMMUNITIES

HEARING

BEFORE THE

COMMITTEE ON INDIAN AFFAIRS 

UNITED STATES SENATE

ONE HUNDRED TWELFTH CONGRESS

SECOND SESSION

JUNE 7, 2012

Printed for the use of the Committee on Indian Affairs

(

(II)

COMMITTEE ON INDIAN AFFAIRS 

DANIEL K. AKAKA, Hawaii, Chairman 

JOHN BARRASSO, Wyoming, Vice Chairman 

DANIEL K. INOUYE, Hawaii 

KENT CONRAD, North Dakota 

TIM JOHNSON, South Dakota 

MARIA CANTWELL, Washington 

JON TESTER, Montana 

TOM UDALL, New Mexico 

AL FRANKEN, Minnesota 

JOHN MCCAIN, Arizona 

LISA MURKOWSKI, Alaska 

JOHN HOEVEN, North Dakota 

MIKE CRAPO, Idaho 

MIKE JOHANNS, Nebraska 

LORETTA A. TUELL, Majority Staff Director and Chief Counsel 

DAVID A. MULLON JR., Minority Staff Director and Chief Counsel 

(III)

C O N T E N T S 

Page 

Hearing held on June 7, 2012 ................................................................................. 1

Statement of Senator Akaka ................................................................................... 1 

Statement of Senator Barrasso ............................................................................... 2

Statement of Senator Murkowski ........................................................................... 3

Statement of Senator Udall .................................................................................... 2

WITNESSES

Adelstein, Jonathan, Administrator, Rural Utilities Service, U.S. Department 

of Agriculture ........................................................................................................ 15

Prepared statement .......................................................................................... 18

Bloomfield, Shirley, CEO, National Telecommunications Cooeprative Association (NTCA) .......................................................................................................... 76

Prepared statement .......................................................................................... 79

Clyburn, Mignon L., Commissioner, Federal Communications Commission ...... 5

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

Hee, Albert S.N., President, Sandwich Isles Communications, Inc. ................... 57

Prepared statement .......................................................................................... 59

LaPaz, Hon. Alfred, Secretary, Mescalero Apache Tribal Council ...................... 36

Prepared statement .......................................................................................... 38

Merriam, Stephen, CEO, Arctic Slope Telephone Association Cooperative, 

Inc. ......................................................................................................................... 41

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

APPENDIX

Angapak, Sr., Nelson N., Senior Vice President, Alaska Federation of Natives 

(AFN), prepared statement ................................................................................. 93

Badal, John, CEO, Sacred Wind Communications, Inc., prepared statement .... 102

Confederated Tribes of the Warm Springs Reservation of Oregon, prepared 

statement .............................................................................................................. 122

Haliniak-Loyd, Gayla, President, Kalamaula Homestead Association, prepared statement ................................................................................................... 105

Kail, James J., Executive Committee Member, Small Company Coalition 

(SCC); President/CEO, Laurel Highland Telephone Company (LHTC) & 

Yukon-Waltz Telephone Company, prepared statement ................................... 106

Kelling, Meahilahila, Executive Director, Kai Loa Inc., prepared statement .... 110

Parker, Alvin, Principal, Ka Waihona o ka Na‘auao PCS, prepared statement . 111

National Congress of American Indians (NCAI), prepared statement ................ 113

Office of Hawaiian Affairs (OHA), prepared statement ....................................... 118

Rambler, Hon. Terry, Chairman, San Carlos Apache Tribe, prepared statement ...................................................................................................................... 119

Watson, Kali, Chairman, Economic Development and Housing Committee, 

Sovereign Councils of the Hawaiian Homelands Assembly, prepared statement ...................................................................................................................... 123

(1)

UNIVERSAL SERVICE FUND REFORM:

ENSURING A SUSTAINABLE AND

CONNECTED FUTURE FOR NATIVE

COMMUNITIES 

THURSDAY, JUNE 7, 2012

U.S. SENATE, COMMITTEE ON INDIAN AFFAIRS, Washington, DC. 

The Committee met, pursuant to notice, at 2:15 p.m. in room 

628, Dirksen Senate Office Building, Hon. Daniel K. Akaka,

Chairman of the Committee, presiding. 

OPENING STATEMENT OF HON. DANIEL K. AKAKA,

U.S. SENATOR FROM HAWAII 

The CHAIRMAN. This Committee will come to order. 

Aloha and welcome, everyone, to the Committee’s oversight hearing on Universal Service Fund Reform and its impact on Native 

Communities. 

Native communities suffer from the poorest access to telecommunication services in the Country which impacts their health, 

safety, education and potential for economic development. More 

than 90 percent of Tribal residents lack access to broadband and 

one out of three Tribal residents still lack even basic telephone 

service. 

Universal service, which has been a core priority of Federal telecommunications policy since the 1930s, is the primary reason that 

Native residents have even limited access to basic services. For 

years, these critical funds have provided a lifeline and allowed companies that want to serve Native communities to do so even though 

they operate in the highest cost markets in the Country. 

The FCC has recently started issuing a number of major reforms 

to the modern Universal Service Fund which will have disproportionate and potentially dangerous impacts on Native communities. 

Tribally-owned and operated telecom companies may see as much 

as a 33 percent revenue reduction which will mean an initial loss 

of over $600,000 annually per company. 

For companies that operate on slim margins in high-cost Native 

areas, this could mean the end to their business and a major step 

back for Native broadband connectivity. Most of the companies that 

serve Native residents also borrow significantly from the Rural 

Utilities Service, whose administrator we will hear from today. 

2

USF funds are critical to secure these important capital loans and 

their clients’ ability to repay these loans may now be in question. 

We will also be hearing today from Tribal leadership and the Native companies themselves about why these funds are critical to 

keeping their business open and growing in their communities. It 

is absolutely necessary that the Federal Government honor its 

unique relationship with Native communities across the U.S. and 

ensure that these companies that provide broadband do not have 

to shut their doors. 

In most of these communities, these companies are the only ones 

available to provide critical services that enable better health care, 

education and economic development. And now I would like to call 

on our Vice Chair, Senator Barrasso, for his opening statement. 

STATEMENT OF HON. JOHN BARRASSO,

U.S. SENATOR FROM WYOMING 

Senator BARRASSO. Thank you, Mr. Chairman. Thank you for 

holding this hearing. I do appreciate your opening statement. What 

you are saying is so very important. 

As you know, communications technology has evolved significantly over the years, and quick and effective internet access is 

vital for many purposes, for commerce large and small, for health 

care, for public safety, for weather information, for education, for 

news, the list just goes on and on. So the Universal Service Fund 

has supported many telecommunication and internet service providers in serving rural and Indian communities. 

The Federal Communications Commission has taken steps to increase the efficiency of that Federal support to expand communications, to expand internet access. These are very laudable goals. The 

Universal Service Fund was developed with Wyoming communities, 

including reservations, in mind. I do, however, have some concerns 

about how the proposed reforms might affect some rural and Tribal 

providers in those communities. 

So I have joined several Senators from rural States in urging the 

Commission to carefully evaluate the reforms that are being proposed before actually implementing them. So I hope today that we 

will hear more about that process and the evaluation that has been 

conducted up to date. 

So thank you very much, Mr. Chairman. 

The CHAIRMAN. Thank you very much, Mr. Vice Chairman 

Barrasso. 

Now I would like to call on Senator Tom Udall for his opening 

statement. 

STATEMENT OF HON. TOM UDALL,

U.S. SENATOR FROM NEW MEXICO 

Senator UDALL. Chairman Akaka, thank you very much, and 

Senator Barrasso, good to be here with you. 

Thank you for holding this hearing on an issue of such great importance to Native American and Native Hawaiian communities. I 

want to thank you for inviting the RUS administrator and the FCC 

commissioner who will be testifying today. Both the FCC and the 

RUS have an essential role in tackling the digital divide challenge 

on Tribal lands. 

3

I am especially pleased that we have Secretary Alfred LaPaz 

from Mescalero Apache Tribe, and Mr. Godfrey Enjady from the 

Mescalero Apache Telecom, here with us today. They are an example of a Tribally-owned telecom that is bringing service to people 

who otherwise would have no telephone or broadband access. That 

is precisely what universal service is for. 

Most people probably cannot imagine life without a telephone. 

Yet today 30 percent of households in Indian Country do not have 

access to basic telephone service. 

But statistics do not really have the story. Not having a land line 

or cell phone reception can mean the difference between life and 

death. Imagine not being able to call an ambulance when you or 

a loved one is in medical danger. 

Members of this Committee know how essential it is that our Nation’s Tribal lands are not bypassed when broadband networks are 

built out across the Nation. I am pleased that FCC Commissioner 

Clyburn is paying particular attention to this communications crisis. In fact, all the FCC Commissioners have pledged their support 

for addressing this appalling digital divide affecting Native Americans. 

The new FCC Office of Native American Affairs and policy is 

helping build better government to government relations between 

the FCC and the Tribes. This is a good moment to achieve more 

progress. Despite spending more than $8 billion last year, the current Universal Service program has failed Indian Country when it comes to 

ensuring basic telephone service. We cannot fail again when it 

comes to building modern broadband networks. So I am concerned 

when I hear from communications providers serving Tribal lands in 

New Mexico that they are deeply worried about the direction of 

USF reform. Companies like Mescalero Apache Telecom and Sacred 

Wind are working on the ground to bridge the digital divide. 

I am also concerned when I learn that the Rural Utilities Service 

loans to telephone cooperatives could be at risk of default due to 

USF changes. However, I know we need USF reform. The USF 

framework is outdated and needs to focus on broadband, not just 

telephone service. The status quo is unacceptable for too many Native American households that still do not have access to affordable 

broadband. 

That is why this hearing is so important. I hope this process 

helps highlight where USF reforms are going to work well. We also 

need to pay special attention to where some issues and concerns 

may have been overlooked. So I look forward to hearing from our 

witnesses and want to thank the Chairman again for holding the 

hearing. Thank you. 

The CHAIRMAN. Thank you very much, Senator Udall. 

Senator Murkowski, your opening statement, please. 

STATEMENT OF HON. LISA MURKOWSKI,

U.S. SENATOR FROM ALASKA 

Senator MURKOWSKI. Thank you, Mr. Chairman. To the Vice 

Chairman, I appreciate that you have called this hearing on Universal Service Fund reform. I appreciate the comments of my colleague, Mr. Udall, in recognizing that in far too many of our very 

4

rural, very remote communities, things just aren’t measuring up. 

And I think we hear of them and we recognize that when they 

don’t measure up, our communities suffer, the families that live 

there suffer. And we all talk about even playing fields out there. 

I think we recognize exactly how uneven that playing field is. 

I think we recognize that there are very serious implications for 

the people in my State of Alaska as well as around the Nation, particularly in our rural areas. In this day and age of increased dependency on technology, having equal access to the technology and 

the opportunity to participate in the global market place is critical. 

I would like to acknowledge the presence of Steve Merriam, who 

has traveled all the way here from Alaska to offer his testimony 

to the Committee. He will be here on the second panel. He is the 

CEO and the general manager of Arctic Slope Telephone Association. This is a pretty successful co-op serving 92,000 square miles. 

I won’t tell you how many customers within that area, I will leave 

that to him. We have to have some surprise here. 

But it certainly speaks to the size of the magnitude of what we 

are dealing with up north. Thank you, Steve, for being here. 

I am always telling people that Alaska is very unique. And certainly when it comes to the issues that we will be discussing today, 

it is no exception. I think it is a testament to the Native people of 

Alaska and all Alaskans that with all of the challenges that we 

face, the high energy costs, the limited access to quality health 

care, education issues, that despite all that, they are strong, resilient and many of our communities are very vibrant. 

But we have situations where our rural citizens clearly need and 

deserve better access to the infrastructure that I think many in 

other parts of the Country absolutely take for granted. For Alaska, 

for so many of our rural communities, we are talking about the 

most basic connectivity to the outside world. Even the most basic 

phone and internet infrastructure provides a rural area with a 

multitude of different benefits that they would not otherwise have. 

There is opportunity for them to join the global marketplace, to 

buy and sell goods online, ELearning through distance education is 

a critical way to provide rural Alaskans with the opportunity to 

stay in their community, but yet have that critical link to the outside. With access to tele-medicine, rural health care providers can 

reduce the extraordinarily high cost of services that are already so 

limited in so many of our communities. When your nearest medical 

facility is hours away by plane or by boat, no road out there, telemedicine can really be that critical lifeline. 

We could talk all day about the benefits that the infrastructure 

provides, the urgent need to close the digital divide that denies so 

many the opportunities of accessing information and participating 

in the growing global economy. While critical reform can help to 

address financial waste and inefficiency, we have to be careful. We 

must be mindful not to create a situation where unintended consequences end up hurting the people who reform was really directed to help. I think we are going to hear today some of those 

concerns spelled out more clearly. 

I look forward to hearing from our distinguished panel and the 

witnesses who will join us throughout the afternoon. I thank you, 

Mr. Chairman. 

5

The CHAIRMAN. Thank you very much, Senator Murkowski. 

I just want you to know that Senator Inouye is unable to be here 

due to another important commitment. But he has given me a series of detailed questions for the record, which I will set in the 

record. 

I welcome the witnesses. I appreciate that you have all traveled 

to be with us today and I look forward to hearing your testimony 

on this very important matter. I ask that you limit your oral testimony to five minutes. Your full written testimony will be included 

in the record. 

Also, the record for this hearing will remain open for two weeks 

from today. So we welcome written comments from any interested 

parties. Thank you very much. 

I would like to introduce our panel: Ms. Mignon Clyburn, Commissioner at the Federal Communications Commission in Washington, D.C. and Mr. Jonathan Adelstein, Administrator for the 

Rural Utilities Service in the U.S. Department of Agriculture in 

Washington, D.C. 

Ms. Clyburn, will you please proceed with your testimony? 

STATEMENT OF MIGNON L. CLYBURN, COMMISSIONER, 

FEDERAL COMMUNICATIONS COMMISSION 

Ms. CLYBURN. Thank you, Mr. Chairman. Chairman Akaka, Vice 

Chair Barrasso and members of the Committee, I am grateful for 

the opportunity to provide an update on the Federal Communications Commission’s process in reforming the Universal Service 

Fund and our continued effort to ensure a sustainable and connected future. 

I respectfully request at this time that you enter my full written 

statement into the record. 

In the spirit of the unique trust relationship the Commission 

shares with Tribal nations, we have undertaken an unprecedented 

level of coordination and have extensive consultative outreach efforts in consideration of our reforms. As a result, the unique circumstances of providing service on Tribal and Native lands has 

been recognized and we are taking critical steps to directly address 

any challenges that may arise. 

The Commission takes very seriously our statutory responsibility 

to advance the deployment of voice and broadband services on Tribal lands, both of which significantly lag behind the rest of the 

Country. 

The FCC also takes very seriously the special government-to-government relationship that we share with federally-recognized 

American Indian Tribes and Alaska Native villages and our responsibilities to the Hawaiian Homeland. It is in this spirit that we 

took a momentous step to reform the $4.5 billion high cost portion 

of the Universal Service Fund last year. We transformed it from a 

program that explicitly supports voice telephone service to one that 

will also support the deployment of broadband capable networks. 

The communications needs of our Nation have evolved due to 

technological advancement and the Fund desperately needed to be 

reformed to reflect those changes. The old Fund’s mechanisms were 

not designed to target support to areas where the private sector 

6

will not build broadband. As a result, our Nation remains digitally 

divided. 

More than 18 million Americans lack access to robust broadband 

capable networks at home. Citizens and communities are significantly disadvantaged, for it is hard to find a job, complete an application, open a small business or finish homework without it. Ubiquitous broadband will enhance opportunities in health care, education, public safety, and jobs on Tribal lands. And these facts were 

foremost in my mind as I weighed issues in the USF reform proceedings. 

We worked with many interested parties, including the Rural 

Utilities Service at USCA, public interest and consumer advocates, 

industry, State governments, and Tribal governments, among others, on this effort. We held workshops both inside and outside of 

the beltway, met with numerous parties multiple times. And I am 

proud to report that we put in place reforms that will make a significant dent in the digital divide. 

In our two phases of reform, we directly target funds to unserved 

locations, including places where over one million unserved consumers on Tribal lands reside. This year in phase one, up to $300 

million is being distributed to carriers who serve 83 percent of 

unserved Americans for the sole purpose of building broadband. 

For example, Alaska Communications Systems has been allocated 

almost $4.2 million and Hawaii Telecom will receive just over 

$400,000 to extend broadband to unserved consumers. 

In addition, Century Link, which serves most Tribal lands, the 

most Tribal lands of any price-capped carrier, has been allocated 

almost $90 million in phase one. This year, we designated $350 

million to a mobility fund, $50 million of which will be designated 

for the delivery of service to unserved Tribal lands. We included 

specific considerations, such as bidding credits and flexibility for 

obtaining certain required statutory designations for Triballyowned carriers to participate in the auctions that will be used for 

distributing this funding. 

In phase two of our reforms, up to $1.8 billion will flow to 

unserved areas each year to ensure that consumers have access to 

fixed broadband in their homes. And mobility fund phase two will 

be allocated up to $500 million annually, with $100 million specifically for mobile broadband in Tribal lands. 

We have preserved $2 billion for small companies serving rural 

America, including eight Tribally-owned carriers, and have added 

special Tribal and Alaska variables in the reform of rate return 

mechanisms. A waiver process is in place for these carriers who 

cannot adjust to these reforms. These reforms recognize the need 

for predictability by avoiding slash cuts, and providing several 

years for transitions so that they may adjust to the changes. 

The USF programs Lifeline and Link Up, which ensure that lowincome consumers can afford the cost of monthly phone service, are 

other important sources of revenue for carriers. Earlier this year, 

we reformed and modernized these programs and took several 

steps to reserve this stream of funding on Tribal lands. We maintained Link Up on Tribal lands. We continued our provision of additional monthly support for monthly service to low income consumers on Tribal lands. We expanded the list of Lifeline-qualifying 

7

1Written Statement of Geoffrey C. Blackwell, Chief, Office of Native Affairs and Policy, Federal Communications Commission, Before the United States Senate Committee on Indian Affairs, ‘‘Deficit Reduction and Job Creation: Regulatory Reform in Indian Country,’’ Dec. 1, 2011; 

Written Statement of Geoffrey C. Blackwell, Chief, Office of Native Affairs and Policy, Federal 

Communications Commission, Before the United States Senate Committee on Indian Affairs, 

‘‘Internet Infrastructure in Native Communities: Equal Access to E-Commerce, Jobs and the 

Global Marketplace,’’ Oct. 6, 2011. 

programs for Tribal consumers and established a Lifeline 

broadband adoption pilot program. It is our intent to include at 

least one pilot project on Tribal lands, to further learn how the 

transformation of the Lifeline program into a broadband program 

can overcome adoption barriers. 

As we implement our reforms, our Office of Native Affairs and 

Policy continues to engage with Tribal nations and Native communities to explain changes, hear about any adjustments that may be 

needed and coordinate on the opportunities that these reforms 

offer. Our work to improve communications services on Tribal 

lands has been a priority of Chairman Genachowski’s administration, all of which I wholeheartedly support. Extending broadband 

to every corner of this Nation will help us achieve a more equal opportunity for all Americans. If we work collectively to completely 

and perfect these reforms, we can ensure that the transition of 

Universal Service Fund from voice only to broadband opens the 

door for every citizen to become a part of the digital economy. 

When that occurs, the decades-long struggle to achieve these reforms will have been well worth the effort. 

Thank you for the opportunity and the indulgence you have 

given me this afternoon. I look forward to answering any questions 

you may have. 

[The prepared statement of Ms. Clyburn follows:]

PREPARED STATEMENT OF MIGNON L. CLYBURN, COMMISSIONER, FEDERAL

COMMUNICATIONS COMMISSION

Chairman Akaka, Vice Chairman Barrasso, and Members of the Committee, it is 

a pleasure to be here before you representing the Federal Communications Commission. I am grateful for the opportunity to provide updates on the Commission’s process in reforming the Universal Service Fund and our continued efforts to collaborate 

with Tribal Government and Native Community leaders to ensure a sustainable and 

connected future for Tribal Nations and Native Communities. 

Twice last year, Geoffrey C. Blackwell, Chief of the Commission’s Office of Native 

Affairs and Policy, testified before you about our agency’s monumental task to reform an outdated and broken Universal Service Fund. 1 In addition, he provided you 

an overview of other proceedings where the Commission is working on improving 

the connections to Tribal Nations and Native Communities. I would like to incorporate his earlier testimony due to its extensive coverage of our ongoing work and 

focus my testimony solely on the topic of concern for today’s hearing: Our implementation of USF reform and the progress we have made since December of 2011. 

First, I will discuss the Commission’s implementation of the high-cost fund portion of USF reform. I then wish to turn to our reform of the low-income programs 

supported by USF called Lifeline and Link Up, which the Commission adopted in 

January. Finally, I will provide an update on the Commission’s adoption of a Further Notice of Proposed Rulemaking in April to reform the USF contribution system. 

In all of these reforms, and in the spirit of the unique trust relationship the Commission shares with Tribal Nations, the Commission has undertaken an unprecedented amount of internal coordination and focus on Tribal issues and has organized 

extensive consultative outreach efforts and coordination with Tribal Governments, 

Tribally-owned carriers, and Native Community representatives. As a result, our reforms recognize the unique circumstances and challenges of providing service on 

Tribal Lands and take steps to directly address these challenges. In summary, 

among other things, our reforms, for the first time:

8

2FEDERAL COMMUNICATIONS COMMISSION, WIRELINE COMPETITION BUREAU, 

INDUSTRY ANALYSIS AND TECHNOLOGY DIVISION, TELEPHONE SUBSCRIBERSHIP IN 

THE UNITED STATES at 2 (Dec. 2011). 

• Require all recipients of USF high-cost support serving Tribal Lands to provide 

detailed annual reports and to directly and meaningfully engage with Tribal 

Governments on several key issues critical to the deployment of broadband service on Tribal Lands. Recognizing the important role that all parties play in expediting services to Tribal Lands, these include:

• A needs assessment and deployment planning with a focus on Tribal community anchor institutions;

• Feasibility and sustainability planning;

• Marketing services in a culturally sensitive manner;

• Rights-of-way processes, land use permitting, facilities siting, environmental 

and cultural preservation review processes; and

• Compliance with Tribal business and licensing requirements.

• Target funds directly to locations with unserved Americans, including the over 

one million unserved consumers on Tribal Lands.

• Dedicate hundreds of millions of dollars in support to address the significant 

mobile broadband gap on Tribal Lands.

• Include specific considerations specifically for Tribally-owned carriers; for example, through bidding credits in the first phase of the Mobility Fund, special 

Tribal and Alaska variables in the reform of our legacy rate-of-return mechanisms, and in the waiver process outlined for the Connect America Fund.

• Recognize the unique challenges of serving remote areas of Alaska by including 

a two-year delay in the reforms to competitive eligible communications carriers 

in remote Alaska starting on July 1.

• Maintain the Tribal Link Up program, while otherwise eliminating Link Up on 

non-Tribal Lands, recognizing that Tribal consumers should continue to be eligible for enhanced Lifeline and Link Up support above levels on non-Tribal 

Lands.

• Expand the list of Lifeline qualifying programs for Tribal consumers; and

• Establish a Lifeline Broadband Adoption Pilot Program, with the intent to include at least one pilot project on Tribal Lands.

While this is not an inclusive list of steps we have taken to address consumers 

on Tribal Lands and Tribally-owned carriers, I hope it shows that the Commission 

and I personally, take our statutory responsibility to advance the deployment of 

voice and broadband service on Tribal Lands very seriously. The Commission also 

takes very seriously the special government-togovernment relationship that we 

share with federally recognized American Indian Tribes and Alaska Native Villages, 

and exercising our responsibilities with respect to the Hawaiian Home Lands. 

High-Cost USF Reform—The Connect America Fund 

As you are aware, on October 27, 2011 the FCC took a momentous step to reform 

the high-cost portion of the Universal Service Fund in order to transform it from 

a program that supports voice telephone service, to one that will also explicitly provide for the deployment of broadband-capable networks, in high-cost areas. This 

vote was a long time coming. It was a reflection of the fundamental fact that the 

communications needs of our nation have evolved over time due to technological advancements, and that the Fund desperately needed to be reformed to reflect those 

significant changes. 

Since its inception, the Fund has been instrumental in providing affordable phone 

service to most Americans; however, as you are well aware, there still exists an unacceptable gap in Indian Country. The Fund has helped achieve an overall higher 

telephone penetration rate in our nation, which currently stands at 95.6 percent 2

and while that remarkable achievement of the Fund should not be overlooked, technology has rapidly progressed in the last decade. More Americans are using mobile 

service than ever before, and broadband access is now the gateway by which most 

Americans obtain critical information and services. As such, it is hard to deny the 

fact that every American needs access to both voice and broadband services. And 

while the Commission permitted phone companies to invest USF monies in 

broadband-capable networks, the Fund’s mechanisms were not designed to target 

9

support to areas where the private sector will not go, areas where broadband is not 

being built. 

Sadly, our nation remains digitally divided. More than 18 million Americans lack 

access to robust broadband-capable networks at home. Over a million of those Americans live on Tribal Lands. While approximately six percent of all Americans are 

unserved by broadband, it is well known that Tribal Nations and Native Communities lag well behind the nation as a whole. These Americans are the ‘‘have nots’’ 

of the broadband world, and they are denied access to some of the most basic features of modern life, that you or I take for granted: Optimally navigating your bank 

account in real time, accessing late breaking news, or quickly sending an email to 

a friend. 

Citizens and communities are significantly disadvantaged without high-speed 

Internet. Whether you are in urban or rural America, it’s hard to find a job, complete an application, operate a small business, or finish your homework without 

broadband. In fact, we know that 80 percent of Fortune 500 companies require that 

you apply online, and high school students with access to broadband at home have 

higher graduation rates. So those Americans who lack broadband access at home 

and on the go, were first and foremost in my mind as I considered the issues in 

the USF reform proceeding. 

For Tribal Nations, access to broadband is particularly critical. For Tribal Governments themselves, the benefits of broadband infrastructure, both fixed and mobile, 

will enable new opportunities for the provision of quality healthcare, education, public safety, and jobs. Broadband must be available, accessible, and affordable to meet 

its great promise for Tribal Nations and Native Communities. Perhaps most importantly, the foundation of robust and viable broadband infrastructure brings Tribal 

Nations the ability to create opportunities for economic empowerment and to build 

systems of governance that engage industries, demonstrate stability, and encourage 

the deployment of other services. 

FCC Chairman Genachowski crafted a plan that transforms the way we spend the $4.5 billion of the high-cost portion of USF each year. The Commission’s proceeding 

to reform USF was unprecedented. We worked with many interested parties, including our sister agency, the Rural Utilities Service at USDA, public interest and consumer advocates, industry, State governments, including State PUCs, and Tribal 

Governments, among many others. We held workshops both inside and outside the 

Beltway, and met with numerous parties multiple times. The reform plan drew from 

many competing ideas, to form a balanced framework that the Commission unanimously approved because it makes the Fund more efficient and effective and will 

promote significant broadband deployment, as quickly as possible, to millions of 

unserved consumers in our nation. 

We set out five goals for the Fund: (1) to preserve and advance universal availability of voice service; (2) to ensure universal availability of modern networks capable of providing voice and broadband services to homes, businesses, and community 

anchor institutions; (3) to ensure universal availability of modern networks capable 

of providing mobile voice and broadband service where Americans live, work , and 

travel; (4) to ensure that rates are reasonably comparable in all regions of the nation, for voice as well as broadband services; and (5) to minimize the universal service contribution burden on consumers and businesses. 

In Phase I, the reform plan provides for speedy broadband deployment to 

unserved consumers with an injection of $650 million in capital in 2012, for both 

fixed and mobile technologies. While we begin to transition legacy support from 

those areas that don’t need assistance, we can begin to make a difference in those 

areas that are lacking broadband service. Of that amount, $50 million is reserved 

for mobile service to be extended to currently unserved roads on Tribal Lands. We 

expect that hundreds of thousands of consumers will be served with fixed broadband 

networks as a result of Phase I, and tens of thousands of miles of unserved roads 

will be covered by mobile networks. 

The reform plan preserves about $2 billion in funding for those rural carriers that 

currently operate under the rate-of-return regulatory regime. These carriers serve 

less than five percent of all telephone access lines in the U.S. and have about 17 

percent of Americans who are not served by broadband in their territories. Our reform recognized the unique nature of these providers—most of which are small businesses. As such, rather than making extreme changes, as some interested parties 

had called for in the proceeding, we focused instead on modifying their current funding mechanisms in a targeted manner to better address our new goals for universal 

service. For each carrier, the reforms will have a different impact. Some carriers 

will obtain additional funds, while others will see a decrease in funding. For example, in 2012, we estimate that five of the nine tribally-owned carriers currently receiving USF high-cost support will experience no change or ever a slight increase 

10

3Our staff’s projections (based on the carrier’s 2010 cost data) indicate that support amounts 

will be similar for 2013 and 2014. 

in funding, while three of these carriers will see decreases between one and five percent of their total high-cost USF support. One will see a decrease just shy of ten 

percent. 3 What is most significant is that our reform carefully balanced the need 

for certainty and predictability for carriers by avoiding flash cuts and providing 

transitions so they could adjust to the changes. 

In addition, our Order recognized the fact that there could be instances when we 

will need to specifically review the impact of the total reforms on a particular provider and the consumers it serves through a waiver process. To date, the Commission has received five waiver requests from rate-of-return companies, which are currently under review. The waiver process we have set out will give the Commission 

an opportunity to use a safety net in order to ensure consumers aren’t inadvertently 

harmed by our reforms. Of course, given our role as the steward of the public’s 

money, the waiver process will focus on the financial health of the providers and 

whether reform jeopardizes their ability to provide service to consumers. Our reform 

establishes for the first time, the explicit goals to preserve and advance the availability of voice service and the modern networks capable of delivering both voice and 

broadband services; as such, we will certainly consider the impact of our reforms 

on achievement of those goals. In Phase II of the reform, which will begin in 2013, we have allocated up to $1.8 

billion to reach consumers who currently have no broadband service in price cap 

companies’ territories and to maintain existing service. The Commission found that 

over 80 percent of the unserved Americans live in the areas served by price cap carriers. As a result, Commission staff is now engaged in a process that will culminate 

in the adoption of a cost model to determine the amount needed for each carrier 

to reach those consumers who do not benefit from Phase I. In order to qualify for 

that money, each price cap carrier will need to make a state-wide commitment to 

build broadband and serve for five years in its areas where no other provider offers 

broadband service. Where a commitment is not made, those funds will be available 

for other providers to offer service and build broadband to unserved consumers 

through a reverse auction. 

Finally, for the first time, the Commission has determined that mobility service should be funded. We have provided for up to $500 million of ongoing support 

through the Mobility Fund, of which up to $100 million is exclusively for support 

on Tribal Lands, to ensure we have covered as many roads as possible where mobile 

carriers will not serve without financial assistance. We also have set aside at least 

$100 million for the Remote Areas Fund. This will help bring broadband to those 

Americans who cannot be reached through any of the other high-cost mechanisms. 

By phasing out the identical support mechanism, as many had called for, we are 

able to focus our limited funds from supporting multiple networks in a geographic 

area to ensuring that a broadband-capable network reaches as many Americans as 

possible. We are shifting money from areas that do not need support (or as much 

support) to areas where a broadband network is still needed. We also are requiring 

that providers meet firm deadlines with appropriate accountability and reporting for 

the money spent and oversight by the FCC, State Commissions, and Tribal Governments. Moreover, by setting a budget we are helping to stabilize the contribution 

factor and minimize the burden on consumers and businesses who pay into the 

fund. 

Of great importance to me, is the beneficial impact this reform will have on consumers and their communities, including those living and/or working on Tribal Nations and in Native Communities. It is a universally accepted principle that we all 

benefit more when everyone is connected. As such, our reform recognizes that 

broadband, both fixed and mobile, are the services consumers are demanding and 

that the Fund should support the networks that offer such services where there is 

not a private sector business case to be made. And as a condition for receiving highcost USF assistance, all recipients must deploy broadband-capable networks, in addition to offering voice service to consumers. Accordingly, we expect that millions 

of consumers will get fixed and mobile broadband coverage where they live, work, 

and travel as a result of our reform over the next six years. 

Recent Steps for Implementing High-Cost USF Reform 

There are numerous steps the agency must take to implement reform. For rateof-return carriers, the Wireline Competition Bureau completed work at the end of 

April on its benchmark analysis for high-cost loop support (HCLS), using a quantile 

regression. By way of background, HCLS provides close to $800 million annually to 

help offset high capital and operating expenses faced by rate-of-return carriers. 

11

4 Carriers are now required to invest their USF support in broadband-capable networks. 

However, under the old system, HCLS lacked benchmarks for determining whether 

subsidies were warranted, and it fully subsidized high expense levels, effectively 

punishing efficient operations. The new benchmarks impose reasonable limits on 

subsidized capital and operating expenses by comparing spending among similarly 

situated companies. The net effect is that more funding is freed for hundreds of 

small rural carriers, which in turn will help connect more Americans. Carriers serving 705 study areas across the country will receive more funding for broadband as 

a result of the benchmarks, and carriers serving 129 study areas that have unusually high expenses will have to take steps to bring their operations more in line with 

their similarly situated peers. 

The agency conducted hundreds of meetings and had ongoing dialogue with and 

input from all interested parties which led to a significantly improved analysis. For 

example, the benchmarks now take into account a number of additional factors regarding a carrier’s territory, including whether a carrier serves Tribal Lands and 

whether a carrier serves Alaska. In addition, the Bureau modified the timeline so 

carriers will have more time to adjust to the changes, over an 18-month period. For 

the tribally-owned carriers, only one was capped—and its changes will be phased 

in, as I mentioned. The remaining seven of the eight tribally-owned carriers receiving HCLS will see no reductions in their HCLS, and indeed should see a little more 

HCLS over the next 18 months. 4

In addition, the Wireline Competition Bureau announced Connect America Fund 

Phase I amounts for price cap carriers. CAF Phase I allocates $300 million to extend 

broadband for up to 400,000 currently unserved homes, businesses, and community 

anchor institutions in rural America, including unserved locations on Tribal Lands. 

For example, Alaska Communications Systems has been allocated almost $4.2 million for building broadband to unserved consumers in the State of Alaska, while in 

Hawaii, Hawaiian Telecom has been allocated just over $400,000 to extend 

broadband to unserved consumers in its area. In addition, CenturyLink, which 

serves the most Tribal Lands of any price cap carrier, has been allocated almost $90 

million. Price cap carriers have until July 24 to notify the Commission the amounts 

of money they plan to use, and the census blocks they will commit to build 

broadband in for receiving CAF Phase I support. While carriers are not required to 

participate, the Commission anticipates that hundreds of thousands of Americans 

will gain access to broadband even if carriers only accept a portion of the available 

money. We are committed to using whatever amounts are not accepted to further 

our broadband goals for the nation.. We expect that the expansion of broadband facilities during the CAF Phase I potentially will impact Tribal Lands, and we will 

keep you apprised of the building commitments we receive from the carriers in and 

around Tribal Lands. 

Mobility Fund Phase I 

Earlier this year, the Wireless Telecommunications Bureau scheduled the Mobility Fund Phase I reverse auction for September 27, 2012. Deemed Auction 901, it 

will determine (1) which providers will receive Mobility Fund Phase I support to deploy 3G or better wireless service, (2) the specific geographic areas that the providers will cover in exchange for support, and (3) the level(s) of support the providers will receive. Eligible areas will include census blocks unserved today by mobile broadband services, and carriers may not receive support for areas they have 

previously stated they plan to cover. The auction will maximize coverage of 

unserved road miles within the budget, and winners will be required to deploy 4G 

service within three years, or 3G service within two years, accelerating the migration to 4G. Mobility Fund recipients will be subject to public interest obligations, 

including data roaming and collocation requirements. 

The Wireless Bureau completed the final auction procedures in May, including finalizing the list of census blocks eligible to receive support in the auction. Over 50 

interested parties commented on the procedures and/or census block eligibility. The 

Bureau anticipates rolling out a tutorial for prospective bidders prior to opening the 

short-form filing window on June 27th. In order to participate in Auction 901, a prospective applicant must file a short-form application by July 11, 2012. After the auction, each winning bidder will be required to submit a long-form application to qualify for Phase I support. The Commission anticipates making the first disbursement 

of Phase I support by early 2013. 

The Bureau is also currently considering petitions by three carriers for designation as eligible telecommunications carriers (ETCs) in order to be eligible to receive 

USF support and participate in the Mobility Fund Phase I auction. In addition, the 

12

5Wireline Competition Bureau Issues Progress Report On The Connect America Fund (CAF) 

Phase II Model, Public Notice (rel. June 1, 2012). 

Bureau has received information from state commissions about new ETC designations for carriers interested in receiving Mobility Fund support. 

Connect America Fund Phase II 

Staff also has begun the crucial work for moving to Phase II of our reforms. I will 

refer you to a recent report released on June 1st that describes the Agency’s efforts 

to develop the cost model for the price cap territories for Phase II. 5 Last week, Commission staff also initiated a process to gather data regarding wire center boundaries for price cap carriers, which is necessary to determine where support should 

be targeted. This week, Commission staff will be soliciting public input on the key 

questions that need to be resolved in order to develop such a model. 

It is no secret that I have a deep connection to rural America, and I believe our 

reforms will allow us to come even closer to achieving Congress’ goal of providing 

all Americans access to affordable voice and advanced communications services. But 

I also recognize that these efforts to modernize the Fund—a decade in the making—

may not resolve all the issues that were raised in the proceeding, and our agency 

has been working very hard to hear all parties’ concerns and address them in a 

timely fashion. For example, we have received numerous Petitions for Reconsideration and/or Clarification, and the Commission has already addressed numerous 

issues in three separate Commission-level decisions. Moreover, our staff has issued 

multiple Orders that have offered clarifications that have been requested, and have 

spent hours on conference calls with state commission staff and other parties, including several visits to Tribal Lands specifically focused on USF reform since the 

Order was released, answering questions about implementation details. At all times, 

we have had an open door policy to hear from all interested parties, and we have 

worked diligently towards resolutions that benefit consumers and help us achieve 

our universal service goals. 

Lifeline and Link Up Reform 

At the end of January, the Commission comprehensively reformed and modernized the Lifeline and Link Up programs. For the past 25 years, Lifeline helped tens 

of millions of low-income Americans afford basic phone service, and the percentage 

of low-income households with phone service has increased from 80 percent in 1985, 

when Lifeline began, to nearly 92 percent last year. However, the program was facing significant challenges that needed to be addressed, including the fact that consumers now have numerous providers from which to choose as compared to when 

Lifeline first began. This had the inadvertent result of some consumers obtaining 

more than one Lifeline benefit. In addition to addressing this issue by creating a 

National Lifeline Accountability Database to prevent multiple carriers from receiving support for the same subscriber, the Commission also made a number of other 

changes to ensure that the Lifeline program is as efficient and effective as possible, 

while meeting the Commission’s newly instituted goals for the program to: (1) ensure the availability of voice service for low-income Americans; (2) ensure the availability of broadband service for low-income Americans; and (3) minimize the contribution burden on consumers and businesses. 

The priorities for me as we worked on these programs were that eligible families 

who needed phone service could sign up for and participate in the program; that 

we continued to allow families to choose the service that makes sense for them—

whether that is mobile or wireline phone service; that we addressed the waste, 

fraud and abuse in the programs and set a savings target tied to those reforms; that 

we accommodated the exceptional needs facing Tribal and Native Communities; and 

that we begin to reorient the program towards tackling the broadband adoption gap 

low-income consumers face. 

In its Lifeline Reform Order, the Commission continued to recognize the unique 

challenges facing consumers on Tribal Lands. In the past, the Commission acknowledged the low subscribership to telecommunications services and low-income needs 

on Tribal Lands and provided enhanced Lifeline and Link Up support to address 

those unique challenges. For example, in 2000, only an estimated 47 percent of Tribal households had phone service compared to 94 percent of all American households. 

In reforming the Lifeline program, the Commission set a uniform Lifeline discount 

amount at $9.25 per month on non-Tribal Lands, but recognized that low-income 

consumers living on Tribal Lands should continue to be eligible for enhanced Lifeline support—up to an additional $25 per month in Lifeline support. The Commission eliminated Link Up support (which off-sets the cost of commencing service) on 

non-Tribal Lands due to the evidence that Link Up was no longer needed, but mainVerDate 0ct 09 2002 13:22 Jan 04, 2013 Jkt 077458 PO 00000 Frm 00016 Fmt 6633 Sfmt 6621 S:\DOCS\77458.TXT JACK
13

6 2011 UNIVERSAL SERVICE MONITORING REPORT, CC DOCKET NO. 98–202 (Data Received Through October 2011) at Table 2.2. This amount is in addition to the basic support levels for Lifeline and Link Up offered to carriers serving Tribal Lands. 

tained the enhanced Link Up program on Tribal Lands for carriers receiving highcost support, due to the significant telecommunications and connectivity challenges 

on Tribal Lands. As a result, to initiate phone service on Tribal Lands for qualifying 

low-income consumers, Link Up provides up to $100. 

We also took steps to further advance the availability of Lifeline support for lowincome consumers living on or near Tribal Lands. First, we amended our rules to 

clarify that low-income residents of Tribal Lands may be eligible for program support based on either income or participation in certain federal or Tribal assistance 

programs. Second, we amended our rules to expand program-based eligibility to participants in the Food Distribution Program on Indian Reservations (FDPIR), a federal program that provides food to low-income households living on Indian reservations and to Native American families residing in designated areas near reservations and in the State of Oklahoma. Third, we established a process for Tribal Governments to seek designation of off-reservation lands as Tribal Lands for the purpose of receiving enhanced Lifeline support, and we clarified that low-income residents of Tribal Lands may self-certify as to their residency on Tribal Lands to receive additional support. 

The Lifeline and Link Up support received by those carriers serving Tribal Lands 

can be a significant portion of their total USF support and further supports the 

business case for carriers on Tribal Lands. For example, in 2010, $102.7 million of 

additional support was given to carriers to reimburse them for providing phone 

service to low-income households on Tribal Lands. 6 Thus, the low-income programs 

not only ensure that phone service is available for consumers, they also support the 

carriers’ ongoing ability to offer service in their territories. 

The Commission also recognizes that the Lifeline program can play an important 

role in helping to close the broadband adoption gap, while improving the business 

case for carriers to serve communities in Tribal Lands. As part of its plan to modernize the Lifeline program, the Commission recently launched a Broadband Pilot 

Program and will be accepting applications on July 2nd. We are very interested in 

receiving applications for pilot projects on Tribal Lands, and provided some additional flexibility for Tribally-owned carriers to participate, and we look forward to 

continuing our work with Tribal communities to learn more about what drives 

broadband adoption. 

Contribution Reform 

At the end of April, the Commission launched a proceeding to reform and modernize how Universal Service Fund contributions are assessed and recovered. The 

current contribution system has given rise to uncertainty, inefficiency and market 

distortions, with consumers and businesses, who ultimately pay for the USF, bearing the brunt of stresses on the contribution system. Reform of how funding is collected to support universal access to voice and broadband is the next step in the 

Commission’s continuing efforts to overhaul and modernize the Universal Service 

Fund. 

Building upon the Commission’s sweeping reforms to modernize the high-cost and 

lowincome components of the Fund to help bring broadband and voice service to all 

Americans, while increasing fiscal responsibility and limiting the overall contribution burden, the Further Notice seeks comment on a variety of alternatives to reform the system by which the Commission’s universal service programs are funded 

to promote efficiency, fairness, and sustainability. In particular, the Notice asks: (1) 

what services and service providers should contribute to the Fund; (2) how should 

contributions be assessed—on revenues, the number of connections, by phone numbers, or a hybrid approach; (3) how to reduce the cost, promote transparency and 

increase clarity of the contribution system; and (4) whether consumers could benefit 

from increased transparency and limitations on how providers recover their USF 

costs. In undertaking contributions reform, the Commission is guided by its overarching goal of ensuring the delivery of affordable communications to all Americans, 

while safeguarding core Commission objectives, including the promotion of 

broadband innovation, investment and adoption. 

As the Commission embarks upon this next phase to modernize the Universal 

Service Fund for the 21st century by addressing the contributions side of the equation, the Commission is encouraging detailed input from all stakeholders, including 

Tribal Governments who play a crucial role in overseeing communications services 

provided on Tribal Lands. I look forward to working with all interested parties to 

complete this proceeding in a timely fashion. 

14

Continued Engagement with Tribal and Native Communities 

As we implement our reforms, our Office of Native Affairs and Policy continues 

to engage with Tribal Nations and Native Communities to explain the changes, hear 

from them about what adjustments we may need to make, and coordinate with them 

on the opportunities that these reforms offer them. I want to underscore the unprecedented level of engagement and analysis that Tribal Nations and Native Communities are experiencing at the Commission. 

In this High-Cost Reform Connect America Fund proceeding alone, dozens of Tribal specific questions were presented in the proposed rulemaking, and the Commission engaged Tribal Governments and associations, Native institutions and community leaders, throughout the nation. An open and direct dialogue was established 

through ONAP and the Bureaus. On two separate occasions, both in the spring and 

fall of 2011, the National Tribal Telecommunications Association, the association of 

Tribally-owned telephone companies, had rounds of meetings with the Chairman 

and each of the Commissioners. They were joined by two major national inter-Tribal 

Government organizations, the National Congress of American Indians and Affiliated Tribes of NW Indians. Moreover, the Bureau’s and Offices met several times 

with the individual Tribes and Tribal Nations and companies. The Office of Native 

Affairs and Policy took its very first beyond the Beltway trip as a new office in late 

2010 to a quarterly meeting of the Tribally-owned telcos, and has consistently 

worked these regulatory priorities into virtually every effort they undertake on the 

ground in Indian Country. 

We also just recently launched, in May, the next generation of Tribal Nation and 

Native Community field training programs. These new ‘‘Tribal Communications 

101’’ meetings and consultations respond to the specific interests and needs of key 

regional partner organizations. Focused on delivering granular, specific information 

to Tribal leaders and their staffs at the Tribal Planner and IT Director level, these 

regional training workshops have proven to be exceptionally well-received. Along 

with wireline, wireless, and broadcast opportunities, the Universal Service Fund reform and the new programs and opportunities for Tribal Nations and Native Communities have been a key feature in this training, and will continue to be. As part 

of these sessions, our new FCC Native Learning Lab provides hands-on instruction 

in an ‘‘Internet cafe ́ classroom’’ setting to effectively teach the Commission’s webbased systems and applications, thereby enhancing coordination with the FCC, improving information flow to Tribal Nation and Native Community decision makers, 

and ultimately increasing the quality of our consultation with Tribal Nations and 

the involvement of Native voices within our proceedings. 

A positive outcome of these regional training sessions has been the development 

of formal and informal Tribal working coalitions, where leaders and managers from 

Tribal Nations in varying states of telecom and broadband deployment work together, learning from each others’ experiences and mentoring others who are just 

starting the journey within their area. Our first two of these targeted meetings were 

held on the Swinomish Indian Reservation in Washington with the Affiliated Tribes 

of NW Indians, and on the Pala Indian Reservation in California with the Southern 

California Tribal Chairmen’s Association. Several other regions and partners are 

targeted. Our new regional, scalable training workshops will expand to other regions 

throughout the nation, and we will aim to make a tangible difference in helping 

Tribal Government and Native Community officials work with the Commission, 

interact with the communications industries, and lead their people to the myriad 

benefits of new communications capabilities. 

This work has been a priority of Chairman Genachowski’s administration, which 

I wholeheartedly support. I know we have much work to do, and we are committed 

to meeting the modern communications needs of Tribal Nations and Native Communities. 

Conclusion 

Broadband is one of this generation’s most important challenges because it presents one of our most monumental opportunities. Extending broadband to all corners of this nation will help us achieve a more equal opportunity for all Americans. 

If we work together to complete and perfect these reform efforts, we can ensure that 

the transition of the Universal Service Fund from voice to broadband, opens the 

door for every citizen to become a part of the digital economy. When that occurs, 

the decade-long struggle to achieve these reforms will have been well worth the effort. 

Thank you for the opportunity to offer you this update, and I look forward to answering your questions.

The CHAIRMAN. Thank you very much, Ms. Clyburn. 

15

Mr. Adelstein, will you please proceed with your statement? 

STATEMENT OF JONATHAN ADELSTEIN, ADMINISTRATOR, 

RURAL UTILITIES SERVICE, U.S. DEPARTMENT OF

AGRICULTURE 

Mr. ADELSTEIN. Thank you, Chairman Akaka, Vice Chairman 

Barrasso, Senator Murkowski, Senator Udall. It is a pleasure to be 

here with you today. I appreciate the opportunity. 

I have been to all of your States and I have seen Tribal telecom, 

I have seen rural telecom, I have really got into the heart of it. 

There are a lot of challenges ahead of us. So I certainly appreciate 

this opportunity to testify on behalf of USDA’s RUS about the need 

to expand broadband to rural and Native communities and the role 

that Federal Universal Service Fund plays in our telecommunications programs. 

It is a special pleasure to be here with one of my successors at 

the FCC, Commissioner Mignon Clyburn, South Carolina, South 

Dakota, we are both from a State named South, but only one of us 

is really from the South. But both of us are from rural America and 

we share a deep commitment to rural communities and to making 

sure that underserved communities are taken care of. 

I think these charts tell the whole story, as you said in your 

opening statement, Mr. Chairman. A third of Native Americans 

lack telephone service, only one-tenth have broadband access. This 

is just unacceptable. It has to be changed and I really appreciate 

you focusing the Committee’s efforts, and so many of you who are 

members of this Committee that have focused on this. I have been 

at a broadband summit with you, Senator Udall, I have been to 

your State, Senator Murkowski, many times to get to the bush and 

really see the difficulties of getting broadband out there. This has 

been a long struggle.

16

The FCC was created in 1934. My agency, formerly the Rural 

Electrification Administration, was created in 1935. Both agencies 

have a very long and storied history and a shared mission of encouraging infrastructure investments in all of rural America, inVerDate 0ct 09 2002 13:22 Jan 04, 2013 Jkt 077458 PO 00000 Frm 00020 Fmt 6633 Sfmt 6601 S:\DOCS\77458.TXT JACK

607z1.eps 607z2.eps
17

cluding those who live outside the big cities. RUS and the FCC 

have had a long and enduring and successful partnership. 

Some of the best examples of the power of that synergy working 

together is in Indian Country. RUS, for example, has provided 

loans and grants to eight of the Nation’s ten Tribally-owned and 

regulated telecommunications carriers. We are going to hear from 

today some of them. Tribes have received state of the art telecommunications services and a chance to join the digital economy 

with that financing. 

RUS also provides major financing to non-Native telecommunications service providers that offer service to Tribal communities. 

Those investments by RUS would not have been possible without 

revenue from Universal Service. Those funds are distributed to carriers pursuant to FCC rules. Working together, RUS and FCC policies have given millions of rural Americans broadband service that 

they otherwise wouldn’t have, and service that is comparable to 

that enjoyed by residents of rural areas, as required by statute. 

Without USF revenues, many RUS loans would not be feasible. 

Without affordable long-term financing, large capital investment 

would not be made. I compare it to building a house. You don’t 

build your house based on your salary alone. You take out a mortgage and you build a house or you buy one. Same thing with these 

huge capital-intensive projects that require a lot of money up front. 

The stream of revenues from USF alone wouldn’t get it done without RUS loans. 

The alternative to these system-wide investments would be incremental, patchwork buildouts that a smaller revenue stream could 

fund. It would be like building your house with each paycheck, putting a new little room on whenever you get enough money together. 

Piecemeal purchases of equipment similarly in the telecommunications context, based on annual revenue streams alone, would be 

inefficient and ineffective for economic development. 

RUS looks forward to continuing that historic, successful partnership as the FCC works to reform universal service and intercarrier compensation rules. And reform is absolutely needed to 

modernize USF and inter-carrier comp, and to address legitimate 

concerns about potential waste and lack of accountability by some 

USF recipients. 

I worked on this long and hard when I was at the Commission 

and we tried to get it done. As a matter of fact, we had four out 

of five members that agreed to some major reforms. The problem 

was the fifth one was the chairman. So that kind of slowed it down. 

[Laughter.] 

Mr. ADELSTEIN. So the reform effort has been underway for a 

long time. It is still very much a working progress. RUS continues 

to examine the specific change in USF and ICC on rural carriers 

and Tribally-owned carriers. RUS has asked pending RUS applicants to re-estimate their revenues based on the USF order by the 

FCC. RUS will continue to remain vigilant over revenue changes 

on individual companies within our portfolio. 

Last week I was part of a conversation with the Secretary of Agriculture and the Chairman of the FCC along with other USDA 

and FCC staff. We discussed the effects to the reform effort on 

18

rural consumers and on RUS borrowers. And we agreed to continue 

what has been a very constructive dialogue on these issues. 

We are working very closely with the FCC to address the challenges presented by reform and to achieve our common goal to 

bring broadband to all rural communities, including Native communities. We are working together on our shared objective of protecting taxpayers and service to consumers. RUS is proud of its investments in telecommunications, electric, water and sewer systems serving Native American communities, and its direct relations 

with Tribal governments. RUS has engaged in unprecedented efforts of consultation, especially in implementing the substantially 

underserved trust area, or the new SUTA provisions in the 2008 

Farm Bill that gave our agency new discretionary authority to 

make our programs more accessible to Native American communities. 

The consultations honor the agency’s special government to government relationship with the Tribes and Alaskan Native villages 

and our commitment to Hawaiian Home Lands. RUS Recovery Act 

investments in broadband are creating all kinds of high-skilled, 

high-wage jobs. Recovery Act broadband projects will provide additional service to 31 distinct Tribal lands in the lower 48 States and 

125 persistent poverty counties, including many Native American 

communities. 

Our core programs are also improving the lives of Native Americans. Since 2009, RUS has helped provide broadband to nearly half 

a million rural Tribal subscribers. Since its creation, the Community Connect Grant Program has made 49 awards to completely 

unserved Tribal communities for $25 million. The RUS Distance 

Learning and Tele-medicine Grant Program is changing the lives 

of Native Americans. Since its creation, 230 awards for $100 million went to improve educational or health care services to Native 

communities. 

RUS is committed to serving Native communities and looks forward to using all the tools Congress gave us to improve the lives 

of people in Indian Country. Rural service is hard. I have seen that 

first-hand, I have seen it in your communities. Providing modern 

services to Tribal communities are among the most difficult I have 

ever seen. But that is why an agency like RUS was created by Congress. I thank you for your interest in RUS and your support of our 

agency and our mission. 

[The prepared statement of Mr. Adelstein follows:]

PREPARED STATEMENT OF JONATHAN ADELSTEIN, ADMINISTRATOR, RURAL UTILITIES

SERVICE, U.S. DEPARTMENT OF AGRICULTURE

Chairman Akaka, Vice Chairman Barrasso and Members of the Committee, I appreciate this opportunity to discuss the efforts of the United States Department of 

Agriculture’s (USDA) Rural Utilities Service (RUS), to encourage broadband deployment to rural and native communities, as well as the role the federal Universal 

Service Fund (USF) plays in our telecommunications programs, including those 

projects financed under the American Recovery and Reinvestment Act. 

The RUS is a policy, planning and lending agency of the USDA. The agency 

makes loans, loan guarantees and grants available to finance rural electric, telecommunications and water and wastewater infrastructure. These investments are 

necessary to build sustainable local and regional economies and to attract and leverage private capital in rural and tribal areas. 

19

RUS is one of three USDA Rural Development (RD) agencies. The Rural Housing 

Service offers programs in housing and community facilities. The Rural Business 

Service offers business development and finance programs. Together, RD agencies 

work very hard to help communities improve their quality of life and assemble the 

building blocks of long term economic growth. 

Nowhere is this RD assistance more needed than in America’s native communities. RD is fully committed to improving the flow of investment into tribal lands 

and underserved areas. Our first Americans deserve a quality of life comparable to 

that of all Americans. Our President, Secretary and Undersecretary have made improving program delivery to native communities a very high priority, as our programs generally place the highest priority on communities in the greatest need. At 

RUS, thanks to the leadership of many members of this Committee, we have a renewed and special emphasis on financing critical infrastructure services to un- or 

underserved native communities. 

RD agencies have a long history of investing in tribal economies—RD investments exceeded $3.2 billion from 2001 to 2011, with $1.5 billion of that total delivered 

through investments since 2009, under the current Administration. Each state-level 

USDA Rural Development office maintains a Native American Tribal Coordinator 

to assist tribes by providing technical assistance and programmatic knowledge 

throughout the application process. 

RD agencies and staff also work in cooperation with tribal governments and partner with other federal agencies such as the Department of Health and Human Service’s Indian Health Service, the Department of the Interior’s various Bureaus and 

Offices, the Department of Homeland Security, Department of Commerce, the Environmental Protection Agency, the Small Business Administration, the Department 

of Housing and Urban Development and of course the Federal Communications 

Commission. 

As a result of these combined efforts, the RUS is committed to helping American 

Indian, Alaska Native and Native Hawaiian communities obtain affordable and robust broadband services needed to attract investment capital and new business ventures unique to native cultures. 

The RUS is very proud of its record in working directly with tribal communities. 

We are especially pleased that RUS has provided loans and grants to 8 of the nation’s 10 tribally-owned regulated telecommunications carriers. RUS also provides financing to non-native telecommunications service providers offering services to tribal communities. Because the RUS understands the importance of our governmentto-government relationship with tribal elected officials, it has provided innovative 

legal solutions, loan documents and security arrangements which recognize tribal 

sovereignty, while still providing for tax dollar accountability. 

Recovery Act investments in broadband are creating high-skilled, high-wage jobs 

and will pay dividends to their communities and the nation in terms of further job 

creation and faster economic growth for years to come. RUS Recovery Act investments, known as the Broadband Infrastructure Program (BIP), remain a key component to the Obama Administration’s economic recovery strategy. I am pleased to report that the program is working, with projects that are on schedule, on track and 

creating jobs in tribal communities and across rural America. Recovery Act financed 

networks will create jobs when projects are planned and built, when they become 

operational and again as new networks are used by communities to create digitalera jobs, open new markets, and expand tourism. 

The Recovery Act represented an unprecedented opportunity for long un-served 

communities to gain new or expanded broadband service. In two rounds of funding, 

service to the most underserved received priority points. I am pleased that a number of excellent projects serving tribal communities took advantage of this once in 

a lifetime opportunity. Still, a number of worthy projects, including some that would 

have benefitted tribal communities, could not be funded given the tremendous demand and competition for Recovery Act dollars. 

More than $2.33 billion in grants and $1.19 billion in loans were made to 320 

projects totaling over $3.5 billion. Of those 320 projects, 36 infrastructure and technical assistance awards were to entities serving American Indian and Alaska Native 

communities, totaling investments just over $214 million. Tribal communities did 

very well, for example, in competing for the technical assistance grants where tribes 

won 12 of 19 grants awarded along with 8 BIP infrastructure awards to tribes and 

tribally owned enterprises. The RUS also set aside $100 million for satellite awards, 

which help reduce costs of satellite delivered broadband to those Americans lacking 

any broadband access, even after all Recovery Act awards are taken into account. 

When complete, Recovery Act broadband investments will connect nearly 7 million 

rural Americans, along with more than 360,000 businesses and more than 30,000 

critical community institutions like schools, healthcare facilities, and rural public 

20

safety agencies, to new or improved service. The projects funded will bring 

broadband service to 2.8 million households, spanning across more than 300,000 

square miles in 45 states and 1 U.S. territory. 

Recovery Act broadband projects are estimated to create more than 25,000 immediate and direct jobs for rural workers in a variety of industries. The projects will 

provide service to 31 distinct tribal lands in the lower 48 states and 125 persistent 

poverty counties. 

Making BIP awards was only part of the agency’s Recovery Act work. Getting BIP 

projects built and across the finish line in the timeframe provided is no small feat, 

especially in native communities. As part of our Recovery Act efforts, RUS identified 

all BIP projects on Indian lands that needed additional agency coordination for completion. To ensure that the Recovery Act investments comply with historic preservation, land use and cultural resource requirements under the National Environmental Policy Act and Section 106 of the Historic Preservation Act, the RUS worked 

closely with the Department of Interior’s Bureau of Indian Affairs (BIA) and Office 

of the Special Trustee (OST) to advance these projects through the review process. 

The United States has a special relationship with tribes regarding lands held in 

trust for tribes and their members that require extra attention. The RUS works to 

assist our borrowers and grantees in following the proper procedures in accessing 

trust lands. We maintain open lines of communications with BIA and OST so that 

Recovery Act projects are completed and tribal communities can finally receive the 

benefits of expanded broadband. 

One example of the RUS working proactively to assist our BIP borrowers/grantees 

with projects crossing Indian lands took place in the fall of 2011, when the agency 

offered training on rights-of-way acquisition and land process associated with trust 

land. This training was developed with the help and knowledge base of the Department of Interior’s OST and the BIA. RUS’ Environmental Team members also participated in this training and have become adept at identifying tribal issues that 

might require the agency and USDA’s Office of Tribal Relations (OTR) to work with 

our colleagues at BIA to resolve. 

I raise this example because this simple training initiative developed by RUS has 

led to further assistance provided to BIP recipients who were not familiar with some 

of the procedures necessary for working on Indian lands. It also is a living example 

of President Obama’s instruction to executive branch agencies to work together to 

coordinate Recovery Act implementation. Working with BIA over the past year has 

provided multiple success stories, such as the Kit Carson Electric Education Foundation project in New Mexico which will cross two pueblos, when complete. This 

project was awarded $19 million in loan and $44 million in grant resources. By facilitating dialogue between the two Departments and the developers on complex 

rights of way issues, a much needed project is moving toward completion. 

The RUS has long focused on the need to connect native and rural communities 

to a broadband future. The RUS has several standing programs which support 

broadband deployment. Our traditional telecommunications infrastructure loan program, authorized in 1949, was created to ensure rural areas had access to reliable 

and affordable telecommunications systems that were comparable to those in urban 

communities. 

Beginning in the 1990s, RUS required that telecommunications borrowers to build 

broadband capable networks to facilitate the use of advanced services. Since 2009, 

this program has provided broadband service to nearly half a million rural tribal 

subscribers. For example, in December of 2010, RUS provided a $37.9 million loan 

to the Cheyenne River Sioux Tribe Telephone Authority in South Dakota to complete a fiber-to-the-premises buildout, providing broadband services to homes and 

businesses necessary to meet growing demand, create jobs and spur economic development. More recently, a Telecommunications infrastructure loan helped Sacred 

Wind Communications secure new and improved broadband service throughout 

Navajo Nation Chapters within New Mexico. This investment continues to expand 

access to education, health care services, job opportunities and small business marketing tools within those Navajo communities. 

The RUS Broadband Loan Program, first authorized under the 2002 Farm Bill, 

and revised by the 2008 Farm Bill, makes broadband network financing in rural 

areas a reality for providers seeking to build high capacity systems in rural underserved areas. 

The RUS also administers the Community Connect grant program. While relatively small, applicants seeking to serve tribal communities have done very well 

under this program, which provides grant funding to communities with no access 

to broadband service. This program has made 49 awards to tribal communities totaling $25.6 million since the implementation of the program in FY 2002. Funds are 

used to build broadband infrastructure and awardees are required to establish comVerDate 0ct 09 2002 13:22 Jan 04, 2013 Jkt 077458 PO 00000 Frm 00024 Fmt 6633 Sfmt 6621 S:\DOCS\77458.TXT JACK
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munity centers that offer free public access to broadband as well as connect community anchor institutions to free broadband services for two years. On May 3, the 

RUS announced over $10 million in funding is available for new applications in FY 

2012. 

An excellent example of a project funded by the Community Connect program is 

the Sacred Wind Communications project in New Mexico. They were awarded a 

$436,461 grant to provide phone and Internet service to residents in Huerfano. The 

grant resulted in a new computer training center for public use. The grant also resulted in the installation of telephones in all community buildings, broadband service in the tribal school and other facilities and a new computer training center for 

public use. As a result of these investments, educational programs are available for 

all residents, health care services and job information is accessible, and the community can communicate with the rest of the world. 

Another RUS program that is changing the lives of Native Americans is the Distance Learning and Telemedicine (DLT) grant program. This week, Agriculture Secretary Tom Vilsack announced awards for over 50 distance learning and telemedicine projects that will increase access to health care and enhance educational opportunities to rural communities and tribal areas in 29 states. With these awards, over 

the life of the program, USDA will have provided half a billion dollars in Distance 

Learning and Telemedicine program funding to benefit rural communities and 

Tribes nationwide. A substantial portion, 230 awards for $100 million, went to improve educational or health care services to native communities. With a combined portfolio of over $6 billion in telecommunications investments 

alone, the RUS has a deep understanding of the costs, challenges of distance, density and geography to build out these systems. We also have witnessed lives transformed, communities enlivened and futures secured when affordable, reliable and 

robust utilities services finally arrive to communities that have been asked to wait 

far too long to enjoy the benefits of modern life and the rewards of the digital economy. 

A good example of how USDA Rural Development programs can improve the economy and quality of life in native areas is the Warm Springs Indian Reservation in 

central Oregon. About 10 years ago, the leadership of the Confederated Tribes of 

Warm Springs realized that their community severely lacked telecommunication 

services. Tribal leaders commissioned an assessment of the community’s needs and 

formulated a strategic plan, which identified the present telecommunications services and the capabilities needed to upgrade services on the tribal land. The report 

identified Public Safety Radio, basic telephone service, and broadband Internet access as the most critical priorities. It also highlighted the fact that only 63 percent 

of tribal members had basic telephone service and that even fewer had broadband 

Internet access. 

The overwhelming task of bringing broadband Internet access and basic telephone 

service to the reservation was made easier when the Confederated Tribes of Warm 

Springs discovered the USDA Rural Development Community Connect grant program. In 2002, the Tribes received a grant for $695,832 to build a small fiber network on the reservation that now links together the Health and Wellness Center, 

the Community Counseling Center, the Head Start/pre-school building, many 

schools, and other tribal administration buildings. The grant also funded the creation of a technology center that allows tribal members to access the Internet 24 

hours a day. 

Next, the Warm Springs Telecommunications Company (WSTC) was created. As 

the WSTC was designing their network and exploring potential funding options, 

RUS began the BIP program under the Recovery Act. 

In 2010, WSTC was selected for a $5.4 million award to construct a hybrid fiber/

wireless network throughout the reservation to connect critical facilities, including 

the administrative buildings, schools, health care facilities, all police/fire and public 

safety radio towers, and Kah Nee Ta (the tribal resort). When this project is complete, broadband service will be available to all residents, government agencies and 

businesses. Additionally, the WSTC was awarded a $200,000 Technical Assistance 

grant in 2010, also under BIP, to continue the planning process of building the new 

telecom network. 

The new network will provide students with access to school assignments and 

allow them to submit homework online from their homes. College students will be 

able to live on the reservation and conduct research or take distance learning 

courses without having to travel great distances. Broadband Internet access can 

help reduce the chronic unemployment that faces the residents. The new network 

continues to indirectly contribute to employment growth by allowing community 

members to pursue new, previously unavailable career opportunities, such as selling 

their artwork online or starting other online, home-based businesses. 

22

New telemedicine applications, which rely on broadband, will allow for quick and 

easy consultations with medical professionals. Tribal members will be able to meet 

with specialists at Oregon Health Sciences University in Portland. Diabetics will be 

able to connect to clinics for monitoring. 

The new broadband network will support and improve the interoperable public 

safety radio network that has been upgraded with U.S. Department of Homeland 

Security grants. The network will link together the funded towers with new radio 

equipment so that police and fire departments can better protect the people of the 

Confederated Tribes of Warm Springs as well as the citizens of Oregon who visit 

Kah Nee Tah, the Tribes’ resort. The moral of the story is that with work, commitment, planning, persistence and partnership with RUS and other public and private 

entities great things can happen and entire communities can be transformed. 

Since the start of this Administration, the RUS has placed a specific focus on expanding outreach to and expanding service across tribal communities. RUS has 

taken historic measures to make its utility loan and grant programs are more accessible to those serving and residing in tribal areas through the implementation of the 

Substantially Underserved Trust Area (SUTA) provisions of the Food, Conservation, 

and Energy Act of 2008 (2008 Farm Bill). I know members of this Committee have 

been advocates of the SUTA provisions in the 2008 Farm Bill, and I thank you for 

your leadership. 

The RUS published a proposed rule implementing the SUTA provisions in the federal register in October 2011 and accepted comments through December 14th. The 

final SUTA rules are slated for publication very shortly and will apply to the agency’s main programs.With the publication of the final rule, SUTA provisions will be 

available in following RUS programs:

• Rural Electrification Loans and Guaranteed Loans, and High Cost Energy 

Grants;

• Water and Waste Disposal Loans, Guaranteed Loans, and Grants;

• Telecommunications Infrastructure Loans and Guaranteed Loans;

• Distance Learning and Telemedicine Loans and Grants and:

• Broadband Loans and Guaranteed Loans.

The SUTA provisions include the three discretionary tools: (1) The Agency may 

make loans and guarantee loans with interest rates as low as 2 percent and with 

extended repayment terms, (2) it may waive non-duplication restrictions, matching 

fund requirements, or credit support requirements from any loan or grant program 

to facilitate construction, acquisition or improvements of infrastructure, and (3) 

agency may give highest priority to designated projects in substantially underserved 

trust areas. 

Like all of RUS’s lending programs, the agency can and will only make loans or 

guarantee loans that are financially feasible and that provide eligible program benefits. It is our hope that the SUTA authorities will help make programs in substantially underserved trust areas more affordable and more likely to be financially feasible. 

The SUTA rulemaking was historic because it was crafted based on a 2 year tribal 

consultation effort that included over 33 government to government consultations 

with native nations and tribal communities as well as all relevant federal agencies 

and Departments. Several of the 33 consultations were held in Alaska, Hawaii and 

the Western Pacific (Guam, Saipan and American Samoa), hosted by the Rural Development State Directors in each region. 

RUS is proud to have hosted the first USDA Rural Development consultation with 

the Department of Hawaiian Homelands (DHHL) on January 27, 2011, on the 

SUTA provisions. The consultation included participants from all the Hawaiian 

Homelands. 

As a lender, RUS must look at all available revenue streams to establish loan feasibility. Even with 2 percent interest, as would be possible under the new SUTA 

provisions, the ability to repay loans in remote, sparsely populated, low income 

areas is difficult. There are only three basic streams of revenue available to build 

a business case for broadband deployment; the rates paid by subscribers, the compensation received from other service providers when they use the rural network 

and payments from the Federal Universal Service Fund (USF). Many of the examples outlined in today’s testimony demonstrate what is possible when those three 

revenue streams sync up to make advanced services available at affordable rates. 

Last November, the FCC adopted new rules that begin to restructure existing federal Universal Service support mechanisms and Inter-carrier Compensation (ICC) 

rules. These reforms affect the distribution of high cost support under the Federal 

23

USF and the rates carriers may charge each other for use of each others’ networks. 

They will also affect the rates carriers will charge their customers. 

The FCC reform order also seeks to implement new USF rules which are directed 

toward those underserved areas of the US which are within the service territories 

of non-rural local exchange carriers. A significant number of tribal communities are 

within those service territories. 

Some of the reforms have taken effect, others are expected to be effective later 

this summer and much of the reform effort remains subject to a notice of further 

rulemaking. It is still very much a work in progress. That said, USF support has 

been a vital revenue source for both rural telecommunications providers and tribally 

owned carriers. 

Native and non-native rural local exchange carriers in tribal areas depend heavily 

on both USF and ICC revenues to maintain and upgrade existing networks. 

At RUS we have a significant interest in the reform effort, and have been engaged 

in a continuing and productive dialog with the FCC about the financial and policy 

implications of the changing USF landscape. 

Out of the 487 active borrowers in the RUS Telecommunications Infrastructure 

loan program, 99 percent receive federal USF support. 

RUS is the primary lender to 9 of 12 tribally owned local exchange carriers in 

the U.S. today, as well as a number of entities which service tribal communities. 

About 65 percent of RUS’ Broadband Initiatives Program (BIP) awardees under the 

American Recovery and Reinvestment Act (ARRA) receive federal or state USF support and about 10 percent of the one hundred or so active RUS broadband loan recipients receive USF support. 

At the FCC’s request, RUS submitted a presentation into the FCC’s USF reform 

docket in August 2011 outlining the potential impact of reductions in federal USF 

to the existing telecommunications loan portfolio as well as lending decisions going 

forward for borrowers seeking to build broadband infrastructure in rural high cost 

areas. A copy of that presentation is provided for the record. RUS continues to examine the specific changes in USF and ICC on rural carriers and tribally owned 

carriers. We have asked RUS borrowers with pending loan applications to re-estimate their revenues based on the FCC order and the agency will continue to remain 

vigilant over revenue changes on individual companies within our portfolio. 

The RUS, on behalf of the Administration, recommended that the FCC include a 

‘‘safety net’’ or waiver process to give entities which made obligations to government 

based on a good faith reliance on the USF rules an opportunity to seek a restoration 

of support to avoid a default. A copy of that filing is also provided for the record. 

And most recently, on Tuesday May 29th, I was part of a conversation that the 

Secretary of Agriculture and the Chairman of the FCC and other USDA and FCC 

staff had regarding the effects of the reform effort on rural consumers and the RUS 

telecommunications loan portfolio and program. A copy of the ex parte filing outlining that discussion is provided for the record. We agreed to continue our constructive dialog on these issues. 

The RUS is proud of its investments in tribal communities and with the full implementation of the new SUTA provisions, looks forward to using the tools the Congress gave us to help bring broadband to every corner of rural America. 

But make no mistake. Rural service is hard. Providing modern services to tribal 

communities are among the most difficult. That is why an agency like the RUS exists. I thank you for your interest in the RUS and thank you for your support of 

our agency and its mission.

The CHAIRMAN. Thank you very much, Mr. Adelstein. 

Ms. Clyburn, a significant and unique cost of doing business in 

Hawaii is the cost of transportation. How is FCC taking costs like 

these into account when comparing companies serving our Native 

Home Lands to other rural companies in the Country? 

Ms. CLYBURN. Again, thank you for that question. The FCC is 

taking each request or each company on a case by case basis. We 

are looking and reviewing all applications. We are looking at all of 

this by way of reform and engagement in as responsible and interactive way as possible. 

We are looking at the entire portfolio, not just transportation 

costs, but that is a part of it. So we are looking at high costs, all 

of those variables that may be particular or unique to your homeVerDate 0ct 09 2002 13:22 Jan 04, 2013 Jkt 077458 PO 00000 Frm 00027 Fmt 6633 Sfmt 6601 S:\DOCS\77458.TXT JACK
24

land. We are taking all of those into consideration when we have 

that engagement as it relates to high costs. 

So transportation is but one variable. We are taking all of that 

into consideration. 

The CHAIRMAN. Thank you. 

Mr. Adelstein, many of the loans you have already made in Native telecom were invested many years ago and relied on current 

USF funding as guarantee for repayment by your clients. How do 

the new proposed reforms affect your older, long-term loans, and 

investments with this funding in question? 

Mr. ADELSTEIN. Well, as you noted, Mr. Chairman, our loans are 

very long-term. We do loans of up to 20 years’ maturity, and that 

does take a very long horizon. That is why they have relied on 

USF. Of course, the statute requires that it be predictable and sufficient. Ninety-nine percent of our telecommunications borrowers 

are dependent on USF. They built the broadband with the support 

of universal service, and they counted on it to do it. It is a very 

fragile industry because inter-carrier compensation has been declining and it is projected to continue to decline in the context of 

reform. 

So the industry is in a little bit of a difficult situation and not 

very strong to be able to survive additional reductions in revenue. 

I think the risk of the proposed reforms is determined by a number 

of factors that remain undecided. The FCC has a number of policy 

issues that it is still considering in a further notice of proposed 

rulemaking. It has waivers that it can consider that could avoid default in certain cases. We have yet to see how much ability some 

of our carriers will have to recover inter-carrier compensation from 

some of the mechanisms provided in the FCC’s order. 

Some of our borrowers gain under it, some lose substantially. 

Some lose little. It varies among companies. So we are carefully 

evaluating the impact on our portfolio in light of these considerations. 

The CHAIRMAN. Thank you. 

Ms. Clyburn, it is required by statute that USF funding be predictable and sufficient. How do these new rules satisfy that requirement when businesses and investors can’t predict their future 

business operations and budgets? 

Ms. CLYBURN. One of the things that we are most proud of, as 

I put forth in my testimony, is the engagement. We have had ongoing engagement with companies throughout this process, even before the order was submitted, so that there were some issues but 

very few surprises in this process. So therein, we started on a path 

that we think would lay down the groundwork for predictability. 

Also as my colleague mentioned, we have a waiver process in 

place. It is a very detailed process, but it is a very fair and open 

and engaged process. So we think by putting forth a number of 

steps that we in fact are preserving the fund and that in itself is 

the very foundation for predictability. Because it was on a path 

where the current path was not sustainable. We recognized that 

and we had to make some difficult decisions. 

The CHAIRMAN. Thank you. 

Mr. Adelstein, you have recommended a safety net as an alternative to the current waiver proposed by the FCC. Can you explain 

25

why this is more predictable and efficient for your borrowers, especially those in the middle of long-term investments? 

Mr. ADELSTEIN. If a borrower knows that if reductions in USF 

alone would result in its inability to repay its loans, then it would 

be in a better position going forward in its business. So the more 

secure that safety net is, the more assurance there is, I think the 

more predictability there is that they are not going to be put in a 

position where they are unable to pay their loans and are forced 

into bankruptcy or other types of disruption to their business. 

So we have suggested that the waiver be as streamlined as possible, that it be linked to broadband service and not voice service, 

so that people can peg it to something that they are very familiar 

with, and that the order is designed to promote. 

The CHAIRMAN. Thank you. 

Senator Barrasso, your questions. 

Senator BARRASSO. Thank you, Mr. Chairman. I just have a follow-up. It is interesting, you look at the big poster over there, Native communities are still far behind in basic voice access, even 33 

percent Native residents still lack telephone service. So there is a 

lot of work that needs to be done. We know that public safety, 

health care, education, economic development, all rely to some extent on Internet services, specifically the broadband services. 

So Indian Country has a long way to catch up to the rest of the 

Country in terms of broadband access and others. Could you elaborate a little bit on how your agencies work with carriers and Tribes 

to integrate the services along with public safety, health care, and 

infrastructure to together increase broadband access? 

Ms. CLYBURN. One thing that we have done that was very explicit was to open ONAP, the Office of Native Affairs. That particular office is working hand in hand with Native communities to 

guide them through whatever processes they are unfamiliar with. 

We have been very explicit, and I think that is my word for the 

day, explicit in the types of programs and opportunities and focus 

that we have. Case in point, the mobility fund. We know how reliant, especially in communities where landline deployment is an 

issue, mobility often is not. But we recognize that there are roads 

that, there are places where there is not connectivity. Fifty million 

dollars will immediately go and be targeted to Tribal communities 

to connect those roads and highways. 

So that is one very explicit way in which we are addressing some 

of those issues. And we can speak further on that. I don’t want to 

take too much time. 

Senator BARRASSO. Did you want to add anything? 

Mr. ADELSTEIN. These Tribal communities are the toughest to 

serve, in many cases. They are the most expensive, they are the 

last ones to get served. That is why you see these statistics. There 

is no way it can be done without the partnership that the FCC and 

USDA have had together in these programs. Without Universal 

Service, we wouldn’t have made the little progress that we have 

made. It is not enough. We have a long way to go. 

Like I said, eight of the ten little Tribal telecom that have managed to serve themselves in their sovereignty have been as a result 

of that partnership. The only way we are going to continue to develop that is to continue the working relationship that we have 

26

now to have those revenues pay for loans so these capital investments can be made. 

Senator BARRASSO. Commissioner Clyburn, on April 3rd, about 

two months ago, 18 other Senators and I sent a letter to your 

chairman urging the Commission to evaluate the impacts of the 

Universal Service Fund reforms before actually implementing 

them. I understand that a response is still in the works. It may include some modifications, a few reforms as a result of the evaluation. Can you tell us a little bit about how the Commission has 

evaluated the impact of the reform on the telecommunications providers serving Indian Country, and if there are certain additional 

reforms that you are considering based on that evaluation? 

Ms. CLYBURN. One of the things that should be obvious with us 

playing tag team is that we have been in constant engagement 

with RUS. We know that those reforms were needed, that reforms 

would have impact. So we made sure that it was clear that the 

loans, that portfolio and all the other variables that we put forth 

will be a part of any consideration if companies feel that they are 

at risk. 

There are a number of noticing requirements and the like that 

we have put in place that are part of an explicit engagement with 

companies in terms of filing and the like that we will put in place. 

We streamlined the waiver process through a whole host of things 

that we put in place as a result of collaboration and conversations 

with the agencies and with the companies. It is an ongoing process 

that I am glad to be a part of. 

Senator BARRASSO. I was just reading the testimony of this panel 

and the next panel. What I noticed in the written testimony from 

Ms. Bloomfield, who is on the next panel, is that she refers to the 

Commission’s new regression analysis cost model for the Universal 

Service Fund. She notes that this model, and I quote, ‘‘Contains admittedly erroneous data and is subject to frequent and unpredictable changes.’’ We will have a chance to visit with her on the next 

panel. 

But while you are here, it says, ‘‘contains admittedly erroneous 

data and is subject to frequent and unpredictable changes. As a result, a carrier can’t determine whether an expansion or upgrade 

might actually cost them future subsidies.’’ What is your response 

to that concern? 

Ms. CLYBURN. My response is that we, our office, our doors are 

open. If there are issues or concerns as it relates to the regression 

analysis, we are in continual conversation with that. So whatever 

concerns or discomfort the companies or she has, again, our office 

is open and we are addressing those on a case by case basis. 

Senator BARRASSO. Do you think there was erroneous data in 

some of this analysis? 

Ms. CLYBURN. I am not in a position to answer that with specificity. If there is erroneous data by chance, I assure you, if and 

when it is brought to our attention, we will incorporate that and 

make the necessary modifications. 

Senator BARRASSO. One of the rural companies from my home 

State, and I am running short on time, Mr. Chairman, one of the 

rural companies in my home State, Silver Star Communications, in 

Freedom, Wyoming, recently filed an application for review and a 

27

petition. They have some particular concerns with some of the data 

sets that are used. And in their case, the data fails to include two 

of their exchanges and fully excludes 15 percent of their service 

area. 

So if we can perhaps just address those sorts of concerns as they 

come up, I would appreciate it. We will submit this in writing. 

Ms. CLYBURN. Thank you, we absolutely will. Thank you, sir. 

Senator BARRASSO. Thank you. 

The CHAIRMAN. Thank you very much. We will have a second 

round. 

Senator Udall? 

Senator UDALL. Thank you, Chairman Akaka. 

Both of you probably read the testimony of the second panel, and 

seen some of the comments they have. I would be interested in 

your response in terms of addressing some of the concerns that 

these telephone cooperatives, the Arctic Slope in Alaska, the Mescalero Apache Tribe telecom out there, Sandwich Islands Communications, do you all have any answers to their specific concerns 

they have raised in their testimony? 

Ms. CLYBURN. I can tell you that we are constantly reviewing 

and are in communications with organizations or entities and are 

addressing concerns. We are in the business to do so. 

We have done a number of things to affirm our flexibility. We included Alaska’s specific variable to reflect a different cost within 

that area. We have a Tribal variable to reflect the cost in those 

areas. We have a waiver process, which we have streamlined as a 

result of engagement with companies. We had 12 subsets, now it 

is down to two. 

So there are a number of things, a number of engagements, and 

I don’t want to speak to, you mentioned one entity, I don’t want 

to speak to that particular entity, because that is an open exchange. But we have been, this has been a most open and engaged 

process that I am familiar with in regulations in large part because 

it is one of the most significant things that this agency has done. 

We had to do it, we had to perform triage. 

And that is what I call it, it was triage. But triage as we know, 

the simple triage is targeted and ultimately everybody gets served. 

And at the end of the day, that is our objective and how we best 

get there is going to be through an ongoing engagement. And whatever concerns need to be addressed, I assure you the Commission 

is open for business to do so. 

Senator UDALL. Commissioner Clyburn, given some of those concerns of the witnesses and some of their comments about not having enough meaningful consultation with Tribes, how can the FCC 

do more to improve its outreach to Tribes, and does the Office of 

Native American Affairs and Policy need more resources in order 

to help the FCC achieve its mission of bringing telecommunications 

services to all the people of the United States? 

Ms. CLYBURN. It would not surprise you that I would say to you 

that more resources are always welcome. But aside from that, I can 

affirm to you that ONAP has had some upwards of 250 meetings 

with persons, individuals and companies from Native communities. 

There has been engagement. Part, of course, when we go through 

28

monumental change, as we have, and as we are, not everybody is 

going to be happy with the pace of change. 

Everybody wants change, but when it affects them, then it is uncomfortable. And we were, to be honest with you, we would not be 

responsible stewards to the persons or people, to money, their 

money. Each month you see that line item that says USF. We are 

responsible for the efficient and effective delivery of service with 

those individuals’ monies. 

So we had to make a decision, we had to get this fund on a sustainable path. That required change. But we again, the Office is 

open for engagement. And if we are deficient in any way, I assure 

you that tomorrow we will correct that and do better. 

Mr. ADELSTEIN. I would say that USDA and RUS have reached 

out to every single Tribally-owned telecommunications company to 

tell them they need to be engaged in this process, to let them know 

that it could have an impact on them. We have reached out to leadership as well as the telecom companies themselves to try to say 

this is something that matters to you. We didn’t necessarily give 

them guidance on what to do, but we said that the Commission and 

the Chairman and Commissioner Clyburn and the others have 

asked for input and we have encouraged folks to make sure that 

whatever concerns they have are expressed. We work very closely 

and intimately with our borrowers and we have looked at their finances. When they come in with concerns like these, we take them 

very seriously. 

Senator UDALL. Great. And I would just echo what Senator 

Barrasso said in terms of the loans that are taken out, and I think 

the Chairman had this in his opening, the loans that were taken 

out were expecting the amount of revenue coming in. So when you 

changed that, you changed the whole equation for a lot of these 

smaller rural electric cooperatives. So we need to keep an eye on 

that. 

Thank you, Mr. Chairman. 

Ms. CLYBURN. Yes, sir, and in the five seconds we have left—

Senator UDALL. Go ahead. 

Ms. CLYBURN. I want to assure, one of the things that we put in 

place that I was not going to be supportive of, I was not going to 

be supportive of a slash cut. So we have a glide path, a number 

of years to calibrate and to engage. If by chance that time frame 

is not sufficient, we have an open and engaged waiver process that 

I encourage everyone to take advantage of. 

Senator UDALL. Thank you. 

The CHAIRMAN. Thank you. Thank you for your questions. We 

will have a second round. 

Senator Murkowski, your questions, please. 

Senator MURKOWSKI. Thank you. 

This is a very important hearing, of course, just based on the 

issue. But I think as you have pointed out, Senator Udall, there are 

concerns that seem to be across the board here regardless of where 

you are from, whether it is up in Alaska or down in the lower 48 

here, concerns about the waiver process being burdensome and 

costly. You say that there is a way around that. 

The issue of the regression analysis, and you are saying that the 

door is open, that sounds good. But the meeting that I had before 

29

lunch today to understand a little bit more about what was going 

on with Arctic Slope Telephone, the data seems to suggest that 

there is 2,000 miles of road up in the Arctic Slope telecom area. I 

was stunned to learn that, because in fact there is not. It may be 

closer to 200 if it is that. 

So it seems clear that there are some issues here that need to 

be addressed, that there are data errors that need to be followed 

up with. And so I appreciate your very open door policy. But in the 

meantime, you have some small telecom, at least in my State, that 

are feeling like they are on the ropes right now, that when they 

don’t have the level of predictability that they clearly need, they 

are concerned, they are coming to us and saying, how are we going 

to be able to hold on. 

So for me to be able to tell them, well, I hear that the FCC has 

an open door, that is not giving most of my folks much comfort. So 

we need to figure out how we are going to get through this. 

Let me ask a couple questions of you here, Ms. Clyburn. With the 

Alaska telecom, how much do you figure they would lose due to reform and if the answer is, we don’t know at this point in time, how 

can we expect these companies to sustain their businesses without 

access to the projected financials? And this goes to what the Chairman was discussing about the lack of predictability? How can we 

help them out there? 

Ms. CLYBURN. Well, many, numerically, broadly speaking, many 

of the companies will either see no or a bit more of an infusion of 

dollars, because again, of the savings and the predictability that we 

put forth. 

Senator MURKOWSKI. How do they know whether it is a little bit 

or a lot? 

Ms. CLYBURN. We have some, I have some enumerated figures at 

this point that I could submit to you that, maybe my nerves are 

getting the best of me, that I can’t put my hands on right now. But 

there is, again, ongoing engagement, a lot of these entities do know 

exactly, I think I put forth that a number of companies will get an 

infusion. So if you give me a second, I will be able to get that exact 

figure. Again, I apologize for not having it. But most of the entities 

that we have been engaged with, the worst case scenarios are 

around a 10 percent impact as it relates to this. Those are among 

the worst figures that I have seen. 

Senator MURKOWSKI. Well, I think what is important is to have 

a clear understanding in terms of what we are dealing with. They 

need to have those projected financials upon which to base sound 

business decisions. 

I guess the question would be, what the FCC intends to do then 

to protect the investment of our small rural carriers, many of 

whom have taken on quite substantial long-term debt to build our 

services. Mr. Adelstein, I know I am running out of time, but I 

want to ask you the same question here. As we deal with the issue 

of these loans that, I think we have demonstrated, have been proven to be a pretty effective tool for our rural telecom to gain access 

to capital. But how do we protect this investment here that again, 

these are small carriers. These are small carriers that have some 

pretty considerable costs. Now you inject the uncertainty in. 

30

Ms. CLYBURN. Well, one of the things that the high costs, a support fund that we did was, even though the numbers don’t synch 

up numerically, you are right, we recognized that those small carriers serve an important role. They serve consumers that deserve 

no disruption. So $2 billion of the high cost will go to ensure that 

there is sustainability and predictability from that point. 

I did have my figures here. In terms of Alaska rate of return carriers, only two carriers were capped. Only two carriers were 

capped. And we expect that the remaining 15 of the 17 rate of return carriers will actually see an increase in their high cost support during this year. And so I know again there is some worry and 

worry does come with what we have. 

Senator MURKOWSKI. It is beyond worry, it is fear. 

Ms. CLYBURN. No, no, well, concerns. Significant concerns. Because again, we are talking about monumental change here. But 

again, there are protections in place if the companies believe that 

their service delivery will be adversely impacted. We have a waiver 

process that is engaged in an open process that we have streamlined that we encourage them, all along the way, with engagement 

from us, to take full advantage of. 

And again, I know there is frustration. I know there is uncertainty. But we had to embark upon this path in order to sustain 

a system that everybody agreed was broken. 

Senator MURKOWSKI. Well, I would agree that it was broken. But 

I think what we are hearing from the smaller companies is that the 

big guys are never going to serve the folks out in the service area. 

Ms. CLYBURN. And that is why that $2 billion, half of that high 

cost fund, will remain at this point in time in those areas where, 

in those rate of return areas, even though numerically most of the 

people who are unserved are outside of those areas. 

Senator MURKOWSKI. I think it sounds wonderful on paper. I am 

not convinced, and I don’t think our smaller telecom in Alaska are 

convinced that this waiver process is going to be there, that what 

you are suggesting will be adequate to serve the needs of those who 

are so desperate in their needs. And they have been long ignored, 

they have been taken care of by these smaller telecom. And now 

I think everybody is feeling like they are on the ropes. 

My time is expired, I understand we will have a chance for another round. Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you very much, Senator Murkowski. 

Ms. Clyburn, you mentioned a wavier process to Senator Murkowski as well as Senator Udall. What is the cost of the waiver 

process? What kind of assistance is the FCC willing to give to Tribal communications companies in order to complete the waiver? 

Ms. CLYBURN. The actual waiver process, sir, is the cost for application is $8,000. The information that is needed, that is required 

that should be contained within the waiver, that is information 

that the companies generally should have if they practice GAMP, 

generally accepted accounting principles. So that is the cost. I am 

not going to say there are not any more costs. But in terms of what 

the cost for application is $8,000, sir. 

The CHAIRMAN. Thank you. 

Mr. Adelstein, fixing the Carcieri decision is one of my top priorities. In the past 13 months, this Committee has received a broad 

31

range of testimony regarding the negative impacts of that decision, 

including the significant impacts on economic development, lending 

and also financing. 

What is the USDA doing to address the negative impacts the 

Carcieri decision has had on agencies’ ability to issue loans to 

Tribes and Tribal members? 

Mr. ADELSTEIN. Finding a fix for the Carcieri decision is a very 

high priority for the Obama Administration. Land tenure across Indian Country can make it difficult for any lender to find adequate 

security, whether they are lending on fee allotted, or Tribal land. 

Carcieri provides further uncertainty for Federal lenders like us at 

RUS, trying to ascertain business taxes, taxation, adequate security on land with property status in flux like that. 

So we have been very flexible in working with our borrowers in 

Indian Country to retain adequate security for our loans. RUS generally utilizes revenues and equipment for loans. SUTA, which we 

are about to announce shortly, we are on the border of having the 

regulation finalized, will give us further flexibility to determine 

what adequate security would constitute. 

The rule’s imminent release, I think, will really help us out. We 

are working in the interim to be as flexible as we can and not using 

land necessarily for security. 

The CHAIRMAN. Thank you. Senator Barrasso, any further questions? 

Senator BARRASSO. Thank you, Mr. Chairman, for having this 

second round. I think we are hearing across the board concerns, 

from as far north as Alaska to New Mexico. And it all relates to 

the waiver situation. 

What I hear back home is what we are hearing here as well, 

don’t worry, just apply for a waiver. Just apply for a waiver. And 

as Senator Murkowski said, it is burdensome and it is costly, 

$8,000 to seek a waiver. It is not just like filling out a postcard and 

sending it in. When I talk to people, it is complicated, it is cumbersome, it is challenging, it is very detailed. Then the question is, 

what happens to a company like the Silver Star Company and the 

small community in Wyoming, come around 2014 if the waiver 

process fails them, and the flawed data isn’t corrected? They know 

that the data is flawed now. And if it doesn’t accurately reflect the 

reality that they know on the ground and whether it is 200 miles 

as opposed to 2,000 miles of roads, whether it is what is happening 

with 15 percent of the service area and two of the exchanges not 

included. 

I guess that is the question that so many of us have here, Mr. 

Chairman, why we are looking for answers, because we want to be 

able to go back home and tell the people that we have asked you 

the questions and here is the answer. So is the process sufficient 

to fully deal with the impact and the reforms? And how can we 

make sure that all happens? 

Ms. CLYBURN. Sir, I do believe it is. As I mentioned prior to us 

submitting the final series of steps, we had 12 things that we were 

looking at, 12 different sections that we were looking at. We narrowed that down to two particular sections. 

Most of the information that the companies need to submit to us 

can be found, if you practice GAMP, that should be relatively, basiVerDate 0ct 09 2002 13:22 Jan 04, 2013 Jkt 077458 PO 00000 Frm 00035 Fmt 6633 Sfmt 6601 S:\DOCS\77458.TXT JACK
32

cally all that you need to submit to the agency. So we have streamlined, we heard those types of concerns through the exchanges. And 

we acted. It is an $8,000 filing fee. It is not inconsistent in terms 

of cost, not inconsistent with some of the other filings. That money 

doesn’t come to us, goes straight to the U.S. Treasury. 

But first and foremost—

Senator BARRASSO. I would rather it went to you, I think. 

[Laughter.] 

Ms. CLYBURN. Well, you can take care of that in other ways. But 

again, we are speaking about people’s money. On that we can 

agree. We want, and we need, and I think we have on a pathway, 

we need an efficient process and an effective, more effective process 

that will serve, help serve those 18 million Americans that are not 

receiving adequate broadband delivery. It is not going to be the 

most comfortable of processes. I do admit that. 

But we do have an agency, if and when, if things are cumbersome or too burdensome, we will do all that we can, and have 

acted in a number of ways to do all that we can to make that process easier. But the books will have to be opened. The need has to 

be proven. We cannot afford to have a system with multiple providers in small areas. We cannot have a system that is not efficient 

and answerable and will deliver service where it is not, where it 

doesn’t exist. 

Senator BARRASSO. Mr. Chairman, that is the concern. You want 

to make sure that service gets to the people who need it. And our 

concerns are that if for some reason these small companies find 

themselves in this situation come 2014, that the waiver process has 

failed them and that the flawed data isn’t corrected to accurately 

reflect the reality, do they just close shop? And then we are just 

in the same situation that we are in now and services still aren’t 

provided and we are still looking at a situation years from now, 

like the two big poster boards that you brought in? That is what 

we are trying to prevent. 

Ms. CLYBURN. This remains, this will remain an interactive process. If we are all engaged, and I can commit that we will be, then 

that prediction that you have should be minimized. I can’t sit here 

and affirm to you that no door will close. No one can do that. I can 

assure you that I will do everything in my power to ensure that 

no citizen has disruptive service. 

Senator BARRASSO. Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you very much, Senator Barrasso. 

Senator Udall, any further questions? 

Senator UDALL. Thank you, Mr. Chairman. 

Commissioner Adelstein, the U.S. unemployment rate is about 8 

percent, which we all know is a terrible rate. But getting unemployment down to 8 percent for some Tribal communities would be 

significant progress. We need to find more economic development 

opportunities for Tribal communities and rural areas more generally. 

I am wondering, you mentioned how the RUS community connect 

grant has helped Sacred Wind Communications bring service to 

New Mexico. Are there areas where Tribes are not taking advantage enough of RUS assistance when it comes to promoting economic development? 

33

Mr. ADELSTEIN. We have been very successful with getting Tribal 

entities to get involved in our programs. Community Connect has 

gone disproportionately to Tribal areas. Our technical assistance 

grants we did under the Recovery Act went, 12 out of 19, to Tribal 

areas, because we made it especially easy for them to get that. 

Some of our non-Tribal awardees, like in Alaska, GCI is covering 

many different Tribal communities. 

We still need to do more. I think that sometimes the communities that need the help the most are at least able to get it for 

themselves. So we have done extensive outreach, consultation, honoring the nation to nation relationships that we have in an unprecedented fashion under this Administration. And we have seen jobs 

being created. Sacred Wind is considered one of the best small 

businesses in America. We have many great success stories that, 

without them, there wouldn’t be the opportunity for jobs. And of 

course, C.B.O. came out yesterday and identified the Recovery Act 

has indeed created millions of jobs and helped keep the unemployment rate from going any lower. 

I have seen that myself, I have seen the hard hats out there in Indian Country that are building this plant, over $200 million in 

the Recovery Act is going to serve Tribal areas. 

So we are seeing it working. But I think there is a heck of a lot 

more to do, and very limited resources to do it with. 

Senator UDALL. Good, and we appreciate you working hard to 

push it out there. 

Commissioner Clyburn, my understanding is the vast majority of 

the Navajo Nation, which encompasses an area the size of West 

Virginia, would be ineligible for the mobility fund support in upcoming auctions because the Commission finds that this area already has 3G service. This would surprise me, since many parts of 

the Navajo Nation still lacks cell phone service. 

Would you look into this to see if one of the least-served areas 

of the Country could potentially be excluded from the mobility fund 

support in these auctions? 

Ms. CLYBURN. Yes, I will. 

Senator UDALL. And if there is uncertainty or controversy over 

whether service exists in these areas, should the Commission’s default position be to keep these Tribal lands eligible for mobility 

fund auction? 

Ms. CLYBURN. I will answer that this way. We have made a lot 

of, many provisions to recognize the unique needs of Native nations. One of the things that sticks out in my mind is if you apply 

to be an eligible, under ETC, an eligible telecommunications carrier, you don’t have to have approval to get consideration. That is 

one of the things, in terms of when we talk about this process, that 

sometimes is complicated for smaller companies. That is one of the 

things that we put in place to ensure that there is a significant 

pathway for engagement. 

So the answer is of course yes on the first, and if there are any 

disconnects, ONAP and the Commission as a whole will look into 

that to ensure quality service. 

Senator UDALL. Thank you very much. Thanks, Mr. Chairman. 

The CHAIRMAN. Thank you very much, Senator Udall. 

Senator Murkowski, your questions. 

34

Senator MURKOWSKI. Thank you, Mr. Chairman. 

I am told that while the waiver application fee is $8,000, as you 

have indicated here, that the total predicted cost for going through 

this process to get a waiver with the fee and your consultants is 

somewhere between $100,000 to $180,000. Now, I don’t know if 

that is accurate, that is what I have been told. But for some of our 

smaller operations up north, that is a pretty tough financial load 

for them to bear. So when we are talking about the cost, I think 

we need to keep in mind, it is not just the fee for the waiver. 

I would be curious to know also, just in terms of the waivers, if 

you file your waiver with the FCC, what is the likelihood that 

waivers is going to be granted? What are the parameters? How 

many waivers will be granted? If you are going to take the limited 

resources of a small telecom and basically bank on getting a waiver 

here and then we find out, well, there is a very limited number 

that can be granted, that is something I think we want to understand a little bit more. 

Administrator Adelstein, I wanted to ask you, and I hinted at 

this in the last round, talking about the loans, the outstanding 

RUS loans. In Alaska, I understand there are over $200 million in 

outstanding RUS loans and they have been a pretty effective tool 

for us in terms of gaining the access to capital, helping to develop 

out the infrastructure. 

So from your perspective as administrator there at RUS, what effect will the Connect America fund and then these changes to the 

high cost fund have on these rural telecom? 

Mr. ADELSTEIN. It is really variable according to the company. 

Some companies, as the Commissioner indicated, gain, others lose. 

Obviously we are most concerned about those that lose and lose 

substantially. Because those are the ones that are at the greatest 

risk. That is where they may end up in this waiver process that 

you have talked about. 

So it really depends on the particular borrower. I know Arctic 

Slope is going to be here in the next panel, and we have a number 

of awards, over $100 million, went to Alaska in the Recovery Act. 

So we have a lot more loans coming to Alaska as the build out and 

GCI builds out. And some of the other companies, Copper Valley 

is here today, Dave Dangle is here from Copper Valley. 

We are very concerned about all these carriers and what the impact is. So we are looking at them on a case by case basis, because 

it does vary from company to company. To the degree there are 

major issues, we will work closely with the FCC to resolve those 

issues that we find. 

Senator MURKOWSKI. Well, let me ask you, though. You kind of 

had them on your watch list, it sounds like, working with them. 

But if it does not look good, what do you do? Again, I am concerned, as some of my colleagues have said here, that if we get to 

2014 and the waiver hasn’t worked out, then where are you? Because you are not going to see any of these big guys really stepping 

into these smaller markets to come and help. 

So when you say that they are, and these are my words, but 

when they are on your watch list, what can they expect in terms 

of any level of assistance, or are we all just watching together? 

35

Mr. ADELSTEIN. We do work with our borrowers when they get 

into trouble. Usually there is a way out. Traditionally we have an 

extremely low default rate. Our default rate is .6 percent for our 

programs, because we have been very careful in underwriting 

them. They have had a predictable revenue stream coming in. 

Senator MURKOWSKI. They have had a predictable revenue 

stream? 

Mr. ADELSTEIN. That is right. So we have been able to manage 

the portfolio very carefully. Occasionally there are issues that come 

up, we work with them, we are not able to handle given our small, 

little staff that we have, a large number of those issues. We will 

run down the street, the FCC is only three blocks away, so we may 

be occasionally making the trip down there to talk to them. We 

have already discussed the broader issues. And of course, we will 

work with our companies on the waiver process if it comes down 

to that. We have limited tools at our disposal. If they go into a default situation, then we can rework the loans. But what you find 

is that the amount of debt service isn’t usually the issue, although 

that can be helpful. 

We can’t do that prospectively without assistance from Congress. 

We can’t look at our whole portfolio and say we are going to have 

to adjust these loans because there is less revenue than we anticipated because that would be, that would require an appropriation, 

which in this budget environment we don’t anticipate being very 

likely. 

So we do have limited tools but we will use everything we have 

to be as flexible as we can. 

Senator MURKOWSKI. I have one final question, Mr. Chairman, if 

I may. This is directed to Commissioner Clyburn. And this relates 

to satellite. Most of rural Alaska is served by satellite. And it suffers from these latency issues, the slow download speeds. Under 

the National Broadband Plan, minimum upload/download speeds 

for broadband that are specified for funding in the order are not 

attainable in Alaska. I am told that the Commission is working to 

correct this so that the Alaska telecom will not be impacted by 

these unattainable speeds. 

Can you tell me where the Commission is in addressing this? 

Ms. CLYBURN. We recognize how expensive the middle mile is. 

We are working and have had an opportunity to visit your fine 

State. I love Cordoba, we will be there in the summer, let me affirm, it will be in the summer, and Gayana. So again, I recognize 

how expensive it is to serve. We do recognize all of that. 

So flexibility, we have allowed for flexible build-out requirements. You have expenses, including influenced by, if not made 

clear, the weather. So we have clarified that State commissions like 

yours can consider these middle mile costs of all these variables 

into consideration to ensure optimal outcome. And please forgive 

me for saying this, I really want to say back to your first statement, there is no requirement for companies to go and hire outside 

experts in terms of this type of review. They can do so, of course, 

that is their prerogative. But there is no requirement. If they practice GAMP, the majority of the information that they need, that we 

need, should be at their disposal. 

36

Senator MURKOWSKI. Thank you, Ms. Clyburn. Thank you, Mr. 

Chairman. 

The CHAIRMAN. Thank you very much, Senator Murkowski. 

I want to thank my first panel very much for your presence here 

and especially I want to commend you for working together on 

some of the issues that we are concerned with and urge you to continue to do that. I also want to thank you for your testimonies and 

your responses to our questions. Thank you. 

Ms. CLYBURN. Aloha. 

The CHAIRMAN. Aloha. 

Now I would like to invite the second panel to the witness table: 

the Honorable Alfred LaPaz, Councilman for the Mescalero Apache 

Tribe in Mescalero, New Mexico, accompanying Councilman LaPaz 

is Mr. Godfrey Enjady, General Manager of Mescalero Apache 

Telecom, Inc., in Mescalero, New Mexico; Mr. Steve Merriam, Chief 

Executive Officer and General Manager of the Arctic Slope Telephone association Cooperative in Anchorage, Alaska; Mr. Albert 

Hee, President of the Sandwich Isles Communications in Honolulu, 

Hawaii; and Ms. Shirley Bloomfield, Chief Executive Officer of the 

National Telecommunications Cooperative Association in Arlington, 

Virginia. 

Welcome to all of you. Councilman LaPaz, will you please proceed with your statement? 

STATEMENT OF HON. ALFRED LAPAZ, SECRETARY,

MESCALERO APACHE TRIBAL COUNCIL; ACCOMPANIED BY: 

GODFREY ENJADY, GENERAL MANAGER, MESCALERO 

APACHE TELECOM, INC. AND JOHN WHEELER, GENERAL 

COUNSEL, MESCALERO APACHE TRIBE 

Mr. LAPAZ. Good afternoon, Chairman Akaka, I see Vice Chairman Barrasso has 

left, and members of the Committee. 

My name is Alfred LaPaz, and I serve as Secretary of the Mescalero Apache Tribal Council. I am also a member of the Board of Directors of the Mescalero Apache Telecom and with me is Mr. Godfrey Enjady, General Manager of MAGI. Also Mr. John Wheeler, 

the Tribe’s General Counsel. 

I want to thank you for the opportunity to testify before the 

Committee about the impacts of the FCC’s reforms on the Mescalero Apache Tribe and MAGI. Our Tribe is very concerned about 

the pending July 1st deadline to implement the FCC order. While 

we support the goal of extending broadband to underserved communities, we believe that the FCC order will actually have the opposite effect on the Mescalero unless some revisions are made. 

Indian Country and Mescalero in particular is different and the 

current FCC order doesn’t reflect that fact. The Mescalero Apache 

Tribe’s 460,000 acres is located in the mountains of rural south 

central New Mexico. A large portion of our reservation has rugged 

and rocky terrain, and our elevations range anywhere from 5,000 

to 12,000 feet. As you can see from the pictures on the board here 

to my left, our reservation is extremely rural. Our telecommunications infrastructure is built over great distances and very tough 

terrain. 

At the left corner is MAGI’s headquarters, the top left of the 

board. It consists of six double-wide trailers that we lease. MAGI’s 

37

priority is to reinvest its money in state of the art technology instead of costly non-essentials. 

Our reservation is home to approximately 5,000 residents, most 

of whom are Tribal members. Like many reservations, we suffer 

high unemployment and poverty rates. With a low population density, high infrastructure costs and a relatively low income community, we don’t meet the typical business model of your average telecommunication company. 

In the mid-1990s, only 48 percent of our reservation’s residents 

had access to telecommunication services. To address this gap, the 

Tribe established MAGI with the sole purpose of bringing quality 

communications to our residents. Since 2001, we have transformed 

communications services on the Mescalero Reservation. Today all of 

our residents have access to basic voice service and broadband 

internet. That is an extraordinary feat, and I want to acknowledge 

Mr. Enjady’s work in achieving these goals. 

MAGI’s success in our business model has relied on both USDA’s 

rural lending program and the FCC subsidy programs. Both of 

these programs have enabled MAGI to provide our customers with 

access to available services. Unfortunately the FCC order has the 

potential to undo this success. For example, we estimate the November order would have resulted in an $800,000 cut in Federal 

funding annually from MAGI. 

This is close to one-third of our total Federal support. We would 

have been cash flow negative within four years. Thankfully, FCC 

amended the order to reduce the negative impact on Tribal telecom 

like MAGI. While we are grateful for this change, problems remain. 

For example, we estimate that MAGI will still have a reduction of 

$90,000 for just the high cost loop support portion of the subsidy. 

We estimate that MAGI will suffer an annual loss of $137,000 from 

the interstate common line support. Most importantly, the total 

USF cap will prevent MAGI from future expansion of services. And 

there are more reductions than we have time to list here. Again, 

these cuts will have a devastating impact on MAGI and our Tribal 

members. 

In response to these concerns, the FCC offers the waiver process. 

However, this waiver process remains unclear and uncertain. Not 

much has been disclosed about how the waiver process will apply 

to Tribal government-owned entities like MAGI. We are concerned 

that the process may require the disclosure of sensitive information 

of the Tribe or Tribally-owned enterprises. We also believe that the 

waiver process may be highly expensive and cumbersome to small 

Tribal providers. 

To address these concerns, we urge the FCC to consider an alternate process that respects Tribal government, honors the treaty 

and trust obligations of the United States to the Tribe and acknowledges the unique challenges facing Tribes and Tribal telecommunication providers. 

We are also troubled that the FCC failed to conduct meaningful 

consultations with our Tribal governments to engage in discussions 

with senior officials. Recently FCC officials informed me that because Indian Tribes are not referenced in the Communications Act 

of 1934, the FCC has no legal obligation to honor its trust responsibility to Tribes. 

38

While the FCC is an independent agency, it is still a part of the 

Federal Government that holds a unique legal obligation to all 

Tribes. As a result, we urge the FCC to engage in government to 

government consultation with all impacted Tribes before moving to 

implement the order. 

In conclusion, while the Tribe appreciates the goal of the FCC to 

modernize and reform the USF, we don’t believe that the order 

takes in account the Federal Government’s obligations to Tribes. 

We urge the Committee to take action now by working with the 

FCC and authorizing committee to delay implementation of the 

order to ensure that Tribal governments have access to a connected 

future. 

Thank you again for this opportunity. I appreciate being able to 

be up here and provide my comments today. At this time, if we 

have any questions, I would like to have Mr. Enjady here beside 

me entertain any questions that the Committee may have. Thank 

you. 

[The prepared statement of Mr. LaPaz follows:]

PREPARED STATEMENT OF HON. ALFRED LAPAZ, SECRETARY, MESCALERO APACHE

TRIBAL COUNCIL

Introduction 

Good afternoon, Chairman Akaka, Vice Chairman Barrasso, and Members of the 

Committee. My name is Alfred LaPaz and I serve as Secretary of the Mescalero 

Apache Tribal Council. I am also a member of the Board of Directors of the Mescalero Apache Telecom, Inc. (MATI). I am accompanied today by Godfrey Enjady, General Manager of MATI. Thank you for the opportunity to testify today before the 

Committee about the impacts of the Universal Service Fund (USF) reforms on tribal 

communities and tribally-owned telecommunications providers like MATI. 

This hearing is timely as the Mescalero Apache Tribe (Tribe) is greatly concerned 

about the pending July 1, 2012, implementation of the Federal Communications 

Commission’s (FCC) Connect America Fund (CAF) Order (Order). The purpose of 

the Order is to modernize and reform USF and intercarrier compensation (ICC) programs to address the broadband gap in rural and underserved communities. We believe that, unless our concerns are addressed, the Order will actually have a detrimental, and even opposite, effect on reservations. 

Background 

The Tribe entered into a treaty with the United States on July 1, 1852. This treaty, known as the Treaty with the Apaches, promised the Tribe a permanent homeland in its aboriginal territory. The Mescalero Apache Reservation (Reservation), located in the White and Sacramento Mountains of rural south-central New Mexico, 

was created by a succession of Executive Orders in the 1870s and 1880s. The Reservation spans approximately 720 square miles across south-central New Mexico. 

Our elevation ranges from 5,400 to over 12,000 feet above sea level. The Reservation 

is home to approximately 4,500 tribal citizens and approximately 200 non-Indian 

residents. 

Like many reservations, the Tribe suffers some of the most challenging socioeconomic conditions, including high unemployment and poverty. The poverty rate on 

the Reservation is 18.2 percent, compared to 15 percent for the rest of the Nation. 

In addition, 84 percent of MATI customers qualify for FCC’s Lifeline program, which 

provides monthly discounts for low-income customers, compared to 21.8 percent for 

the rest of the Nation. 

Throughout the 1900s, the Reservation had limited access to telecommunications 

and information services. Our Reservation, like many others throughout Indian 

country, has a low population density, faces high costs to build communications infrastructure, and has residents with little means to pay for high cost services. These 

circumstances simply do not fit into the business model of a private telecommunications company. In the mid-1990s, the Tribe recognized that only 48 percent of its 

residents had access to telecommunications and information services. To address 

this gap, the Tribe established MATI, which is a telecommunications enterprise 

wholly owned by the Tribe. MATI’s sole purpose is to bring quality communications 

39

services to the Tribe’s residents. Since 2001, MATI has transformed the communications service landscape within its 720 square mile service area. Today, 97 percent 

of tribal residents have basic local service available to them, and 92 percent of these 

residents have access to broadband-based Internet. Closing the service gap by essentially doubling the level of service in the decade since MATI began providing services to tribal residents is an extraordinary achievement. 

MATI’s success is due, in part, to the help of two important federal programs—

USF and USDA’s Rural Utilities Service (RUS) lending program. Through RUS, 

MATI was able to obtain low-cost financing to assist in building the network that 

is in use today. USF, through its cost support programs, ensures that MATI’s customers have access to affordable telecommunications services in our remote tribal 

area. MATI, like all tribally-owned telecommunications providers, serves an area 

that is historically underserved, lacks population density, exhibits chronic economic 

troubles, and has scarce labor resources. These factors provide little or no incentive 

for other providers to serve our Reservation. Without MATI and without the assistance from RUS and USF, the Mescalero Apache people would be relegated to low 

quality voice services and would have little or no quality Internet access service. 

The Reservation could easily go back to below 50 percent service availability. 

FCC Order and USF 

The FCC Order Leaves Indian Country Behind as a Result of Reductions in USF 

Revenues 

Last month, FCC Chairman Julius Genachowski testified before the Senate Committee on Commerce, Science, and Transportation that the Order would ‘‘spur wired 

and wireless broadband build-out to hundreds of thousands of rural Americans.’’ He 

said that the Order would set a path forward in order to achieve ‘‘universal 

broadband by the end of the decade.’’

The Order sets forth an ambitious implementation schedule to accomplish its goal. 

The Tribe supports FCC’s goal to address the broadband gap for all Americans but 

is deeply concerned that USF reform efforts will leave Indian country behind as it 

moves the rest of the country into the 21st century. For example, the Order would 

reduce and eliminate support mechanisms for MATI and other tribally-owned providers. This result is in direct conflict with the goals established by the National 

Broadband Plan, which reads in part:

Many Tribal communities face significant obstacles to the deployment of 

broadband infrastructure, including high build-out costs, limited financial resources that deter investment by commercial providers and a shortage of technically trained members who can undertake deployment and adoption planning. 

Current funding programs administered by NTIA and RUS do not specifically 

target funding for projects on Tribal lands and are insufficient to address all 

of these challenges. Tribes need substantially greater financial support than is 

presently available to them, and accelerating Tribal broadband deployment will 

require increased funding. (Emphasis added)

Perhaps most troubling is the lack of meaningful consultation by the FCC with 

tribes during development of the Order. While the FCC sought input from triballyowned providers before and after the Order was released, the FCC did not conduct 

formal tribal consultations where affected tribal governments could engage in discussions with senior officials. We urge the FCC to initiate tribal consultations before 

implementing the Order. This request is consistent with the FCC’s Statement of 

Policy on Establishing a Government-to-Government Relationship with Indian 

Tribes, which reads, in part, that the FCC, ‘‘in accordance with the federal government’s trust responsibility... will consult with Tribal governments prior to implementing any regulatory action or policy that will significantly or uniquely affect 

Tribal governments..’’ Engaging in meaningful consultation also falls within the 

spirit of Executive Order 13175, ‘‘Consultation and Coordination with Tribal Governments. . . .’’ that requires all federal agencies to consult on matters that have 

significant impacts on tribes.

Further, while the FCC does maintain a policy of government-to-government relationship with Indian tribes, the Tribe is deeply troubled that some at the FCC question the Commission’s obligation to Indian tribes because the protection of tribal 

sovereignty and the Federal Government’s obligations to Indian tribes are not expressly referenced in the Communications Act of 1934. While it exists as an independent agency, the FCC is part of the Federal Government. The Federal Government, in hundreds of treaties with Indian tribes, and in hundreds of federal laws 

and court decisions, has acknowledged that it incurs a legal obligation to improve 

conditions on Indian reservations. These federal obligations stem from the hundreds 

40

of millions of acres of tribal homelands that were ceded to or taken by the United 

States to help build this great Nation. As a result, the Tribe urges the FCC to recognize its existing duty to engage in government-to-government consultation with all 

federally recognized Indian tribes that will be impacted by the proposed policy. That 

consultation has not yet taken place with regard to the Order. 

Impacts on MATI Based Upon USF Reforms 

On October 27, 2011, the FCC adopted the Order to modernize and reform USF 

and ICC. As originally devised, the Order would have had significant negative impacts on MATI and many other tribally-owned providers servicing Indian country. 

MATI estimated that the initial cost mechanism (the Quantile Regression Analysis 

[QRA]) contemplated in the Order would have resulted in a massive reduction in 

USF annual support of over $800,000, representing 27 percent of MATI’s total federal support and 15 percent of its total revenues. Under this scheme, MATI would 

not have been able to meet its RUS loan repayment and other obligations. 

On April 25, 2012, after hearing from a number of tribal telecoms, the FCC issued 

a clarifying order on the cost mechanism related to High Cost Loop Support (HCLS), 

a major component of USF, that contained new factors that has reduced the Order’s 

impact on federal HCLS funding levels for tribal telecoms. MATI now estimates the 

annual reduction in federal support to be $90,000 using FCC’S QRA methodology. 

This revision alone caused an 80 percent upward swing in MATI’s federal support, 

unmistakably showing the unpredictable outcomes of the QRA. While the April 

order made adjustments to mitigate the potential devastation to tribal telecoms, it 

still equates to a significant reduction for MATI’s HCLS. 

Moreover, there are other significant aspects of the Order that still have not been 

addressed and could be equally damaging to MATI. For example, the Order extends 

the corporate expense limitation to Interstate Common Line Support (ICLS), which 

is a support mechanism for improving subscriber-based basic and broadband services. MATI estimates that this modification will result in an annual loss of 

$137,000. 

In addition, we are concerned about other features of the Order that eliminate 

and phase out support mechanisms such as the Local Switching Support (LSS) and 

Safety Net Additive (SNA) programs, which will negatively impact rural Incumbent 

Local Exchange Carrier (ILEC) communities and the customers they serve. To date 

and resulting from the Order, the FCC has not adopted a long-term plan for getting 

broadband services out to consumers served through small, traditionally-regulated, 

rural ILECs. The Tribe is concerned that FCC’s short-term solutions will have a 

drastic impact on tribally-owned companies, which are located in rural areas. The 

uncertainty created in the area of universal service support will erode the confidence needed in companies, lenders, and customers to provide, invest in, and purchase broadband-capable services. We urge the FCC to carefully consider the unique 

challenges of tribally-owned providers servicing Indian country as it continues to 

make decisions about the USF support mechanisms. 

Finally, the FCC continues to offer the waiver process as a relief mechanism 

available to providers who fear financial ruin as a result of the Order. However, the 

waiver process remains unclear and uncertain. According to the Order, the waiver 

application will be subjected to a ‘‘rigorous, thorough and searching review comparable to a total company earnings review.’’ The Tribe is concerned that this process may require disclosures of tribal government finances and other wholly triballyowned enterprises and businesses. Further, given the importance of the waiver and 

its uncertain requirements, a waiver application may be highly expensive and cumbersome for small tribal providers, like MATI, to complete. Without some certainty 

and transparency in the waiver process, the threshold to obtain a waiver seems unattainable as there is no guarantee that the FCC will grant the requested relief. 

We urge the FCC to consider an alternate process that respects tribal governments 

and honors the legal treaty and trust obligations of the United States to the Tribe 

and all of Indian country as well as acknowledges the unique challenges facing 

tribes and tribal telecommunications providers. 

In general, the uncertainty created by the Order has compelled MATI to shift its 

planning priorities from expansion of services through continued reinvestment to a 

system of sustaining current operations with reduced funding. Taking steps to reduce costs and develop solutions to mitigate the adverse impacts of the Order will 

put an end to MATI’s reinvestment program as it halts plans to build-out its 

broadband capable network and ceases upgrades on its existing network, which will 

result in a degradation of service quality on its current network. This scenario will 

severely limit the Tribe’s plans for economic growth, lead to less capital, likely lead 

to substantial loss of employment opportunities, and possibly shutter business operations altogether. 

41

Conclusion 

While the Tribe appreciates the goal of the FCC to modernize and reform USF 

to address the broadband gap in rural and underserved communities, we do not believe that the Order takes into account the gaps that will be created in Indian country as a result of many of the reforms. Instead of increased investment in 

broadband-capable networks, there is likely to be less. Instead of increased availability of quality broadband-capable services, customers in many areas will be lucky 

to maintain the current level of services and affordable costs. Without adequate support and relief mechanisms in place, which is what Congress clearly contemplated 

in Section 254 of the Telecom Act of 1996, some tribal communities run the risk 

of becoming an under- or even unserved area, which ironically, is at odds with 

FCC’s goals. The Tribe urges the Committee to take action now by working with 

the FCC and the authorizing Committee to ensure that Native Americans have access to a connected future. If the FCC’s Order remains intact without any further 

modifications, the lofty goals of the National Broadband Plan will be unreachable. 

Thank you again for the opportunity to provide these views on behalf of the Tribe. 

I welcome any questions that the Committee may have at this time. 

Attachment

The CHAIRMAN. Thank you very much for your testimony. 

Mr. Merriam, will you please proceed with your testimony. 

STATEMENT OF STEPHEN MERRIAM, CEO, ARCTIC SLOPE 

TELEPHONE ASSOCIATION COOPERATIVE, INC. 

Mr. MERRIAM. Chairman Akaka, Vice Chairman Barrasso, members of the Committee, good afternoon. My name is Steve Merriam. 

I want to thank you for the opportunity to testify today before this 

distinguished Committee on the subject of Universal Service Reform, Ensuring a Sustainable and Connected Future for Native 

Communities. 

I serve as the Chief Executive Officer and General Manager of 

Arctic Slope Telephone Association Cooperative, or ASTAC, the 


607z3.eps
42

local exchange carrier serving the North Slope region of Alaska. I 

have worked in rural telephony for the past 17 years and hold a 

bachelor of science degree in business administration from the University of Vermont and an MBA specializing in telecommunications 

management from Alaska Pacific University. 

ASTAC serves seven Inupiat Eskimo villages, the oil fields of 

Prudhoe Bay and Barrow, a land mass of 92,000 square miles, 

which is slightly larger than Minnesota and part of North Dakota. 

Our entire serving area is Arctic, where we face rugged challenges 

due to extreme cold, harsh inclimate weather, lack of roads, and 

sparsely populated and widely dispersed communities. 

Despite these challenges, we have digital switching in all exchanges and offer 2G wireless voice and data service as well as 

DSL. Yet, it wasn’t always that way. As late as 1980, our seven villages were served by one pay phone for the entire village. Every 

call was long distance and people stood in line, sometimes for 

hours, for a less than a private call. 

At the time, no one was interested in serving these communities, 

which eventually led the people to form a cooperative to provide 

local telephone service. With the assistance of an RUS loan, digital 

switches were installed in newly-constructed central offices and 

local networks were built out, creating local service for the very 

first time and connecting the communities of the North Slope to 

each other and the world. 

The steady progress the cooperative has made would not have 

been possible without the covenant of Universal Service and the 

support it provides to the highest cost to serve areas of rural America. While the transformation orders stated intent, to bring access 

to broadband for all Americans is a laudable goal, the reality is 

there are unintended negative consequences for Alaska Natives because of the broad brush approach taken by the FCC in the order, 

consequences that would raise costs for consumers, diminish or 

eliminate existing services and will lead to the loss of jobs. 

Most egregiously, it will penalize Native youth in numerous 

ways. There will be lost opportunities to participate in the digital 

world as a result of the FCC’s decision to use alternative middle 

mile technology, specifically satellite, in rural Alaska. The lack of 

broadband capacity on Alaska-serving satellites will extinguish the 

dream of a good education, whether through earning an online degree or through vocational certification. 

Tele-health and tele-work will never be fully realized without robust broadband, nor the economic stimulus of good wages brought 

back to a traditional subsistence community by an educated and 

skilled workforce. Communities will continue to stagnate relative to 

the rest of America and hopelessness and depression will continue 

to plague Alaska Natives, who have a suicide rate five times the 

national average. 

As part of my written testimony, I will provide an engineering 

report commissioned by Tel-Alaska that examines Alaska-serving 

satellite capabilities. In the interest of time, I will summarize the 

findings as they relate to the transformation order. Minimum 

upload and download speeds for both fixed and wireless broadband 

specified for funding in the order are unattainable via Alaska-serving satellites due to severe lack of capacity. Alaska-serving satellite 

43

costs for middle mile transport alone will cause both fixed and mobile pricing to fail the comparable pricing to urban areas test and 

latency over satellite well exceeds the threshold for enabling realtime applications, such as voice over IP. 

My testimony highlights two problems facing Alaska Natives, one 

short-term and the other more long-term. As noted above, satelliteserved communities in Alaska will fail all criteria to receive both 

Connect America and mobility funding. While the FCC has created 

a waiver process to provide possible relief, the process is extremely 

burdensome and expensive to use, particularly when the waiver is 

universal to rural Alaska because of misguided standards. 

A needed short-term solution that would save both the FCC and 

rural Alaska-served companies time and resources is for the FCC 

to adjust speed and latency requirements to match the limitations 

inherent to Alaska-serving satellites. This would allow those companies to continue to invest their services in members rather than 

waste those scarce resources on addressing a universally identified 

error specifically affecting rural Alaska. 

It would also acknowledge that satellite service in Alaska is not 

an alternative service as it is being characterized by the FCC in 

its order, it is an inferior service. Disparity must be acknowledged 

before it can be corrected. 

Likewise, service standards for mobility phase two should be lowered in Alaska to reflect the absence of satellite capacity to provide 

3G or 4G service. A good 2G wireless service exists in much of 

Alaska today, but is set to be defunded by the phase-down of identical support in two years. This will eventually drive these wireless 

services out of business and take away a safety margin for Native 

Alaskans. Allowing 2G service standards in the short term to reflect the reality of satellite limitations will prevent the eventual 

elimination of wireless service for Native Alaskans in rural communities as well as avoid the political firestorm that will ensue. Identical support could be phased down in Alaska on the proposed 

schedule consistent with how the order is written today. 

At the beginning of the phase-down, competitive eligible telecommunication carriers may show their costs. Phase-down of support would cease when it reaches the cost for the company to provide wireless service. Companies who decline to show their costs 

should be phased down on an accelerated schedule. This would provide scarce dollars and mobility phase one and two options to other 

rural areas where there is no service today. 

The longer term problem quite obviously is that Alaska Natives 

are being left behind absent government intervention to solve the 

middle mile bottleneck and achieve the broadband speeds being 

achieved by much of the rest of the Country. The Administration 

and the FCC proclaim that all Americans have a right to access 

broadband. In Alaska, we believe all Americans must include the 

First Americans. 

For too many years, Native Alaskans have been marginalized 

with substandard services that much of the rest of the Country 

takes for granted. Having identified both the problems and some 

solutions, I urge you to act boldly and decisively in your leadership 

capacity to drive change and to do what is just, so in the future 

when the Congress and the FCC says all Americans must have acVerDate 0ct 09 2002 13:22 Jan 04, 2013 Jkt 077458 PO 00000 Frm 00047 Fmt 6633 Sfmt 6601 S:\DOCS\77458.TXT JACK
44

1http://www.nytimes.com/2007/05/14/world/americas/14iht-alaska.1.5699923.html

2See Appendix A for the complete report. In the TelAlaska study, that company’s 1,552 DSL 

customers would exhaust approximately 26 percent of all available satellite bandwidth in Alaska 

in order to meet the ‘‘relaxed’’ FCC mandate for throughput from satellite, at a yearly cost of 

thirty million dollars.

cess to broadband, it rings true and truly is consistent with our Nation’s communications goals. 

Thank you again for the opportunity to testify in front of this distinguished Committee. 

[The prepared statement of Mr. Merriam follows:]

PREPARED STATEMENT OF STEPHEN MERRIAM, CEO, ARCTIC SLOPE TELEPHONE

ASSOCIATION COOPERATIVE, INC. 

Chairman Akaka, Vice Chairman Barrasso, Members of the Committee: 

Good afternoon. My name is Steve Merriam. Thank you for the opportunity to testify today before this distinguished Committee on the subject ‘‘Universal Service 

Fund Reform: Ensuring a Sustainable and Connected Future for Native Communities.’’

I serve as the Chief Executive Officer of Arctic Slope Telephone Association Cooperative (ASTAC), the local exchange carrier serving the North Slope Region of Alaska. I have worked in the rural telephony field for the last seventeen years and hold 

a Bachelor of Science degree in Business Administration from the University of 

Vermont and a MBA, specializing in Telecommunications Management from Alaska 

Pacific University. 

ASTAC serves seven Inupiat Eskimo villages, the oilfields of Prudhoe Bay and 

Barrow, a land mass of over 89,000 square miles which is slightly larger than Minnesota and part of North Dakota. Our entire serving area is arctic, where we face 

rugged challenges due to extreme cold, harsh inclement weather, lack of roads, and 

sparsely populated and widely dispersed communities. Despite these challenges, we 

have digital switching in all exchanges and offer 2G wireless voice and data service 

as well as DSL. 

It wasn’t always that way. As late as 1980, our seven villages were served by one pay phone shared by the entire village. Every call was long distance and people 

stood in line, sometimes for hours, to have a less than private conversation. At the 

time, no one was interested in serving these communities, which eventually led the 

people to form a Cooperative to provide local telephone service. With the assistance 

of a RUS loan, digital switches were installed into newly constructed central offices 

and a local network was built out, creating local service for the first time and connecting the communities of the North Slope to each other and the world. 

The steady progress that the Cooperative has made would not have been possible 

without the covenant of universal service and the support it provides to the highest 

cost to serve parts of rural America. While the Transformation Order’s stated intent, 

to bring access to broadband to all Americans, is a laudable goal, the reality is that 

there are unintended negative consequences for Alaska Natives because of the broad 

brush approach taken by the FCC in the Order, consequences that will raise costs 

to consumers, diminish or eliminate existing services, and will force the loss of jobs. 

Most egregiously, it will penalize Native youth in numerous ways. There will be 

lost opportunity to participate in a digital world as a result of the FCC’s decision 

to use alternative middle mile technology, specifically satellite in rural Alaska. The 

lack of broadband capacity on Alaska serving satellites will extinguish the dream 

of access to a good education, whether through earning an on-line college degree or 

vocational certification. Telehealth and telework will never be fully realized without 

robust broadband, nor the economic stimulus of wages brought back to a traditional 

subsistence community from an educated and skilled workforce. Communities will 

continue to stagnate relative to the rest of America, and hopelessness and depression will continue to plague rural Alaska Natives, who have a suicide rate five times 

the national average. 1

As part of my written testimony, I will provide an engineering report 2 commissioned by TelAlaska that examines Alaska serving satellite capabilities. In the interests of time, I will summarize the findings as they relate to the Transformation 

Order:

• Minimum upload/download speeds for both fixed and wireless broadband specified for funding in the Order are unattainable via Alaska serving satellites due 

to a severe lack of capacity.

45

3See http://assets.gci.com/tariffs/1544mbpst1speed.pdf or Appendix B for an appended 

version for ASTAC’s middle mile costs, which are quoted at $14,447.00 per month for 1.544 

Mbps middle mile transport. 

• Alaska satellite costs for middle mile transport alone will cause both fixed and 

mobile pricing to fail the comparable pricing to urban areas test. 3

• Latency over satellite well exceeds the threshold for enabling real time applications such as VoIP.

My testimony highlights two problems facing Alaska Natives, one short term and 

the other more long term. 

As noted above, satellite served communities in Alaska will fail all criteria to receive both CAF and Mobility funding. While the FCC has created a waiver process 

to provide possible relief, that process is extremely burdensome and expensive to 

use, particularly when the waiver is universal to rural Alaska because of misguided 

standards. A needed short term solution, that would save both the FCC and the 

rural Alaska satellite served companies time and resources, is for the FCC to adjust 

speed and latency requirements to match the limitations inherent to Alaska serving 

satellites. This would allow those companies to continue to invest in services for 

their members rather than waste those scarce resources on addressing a universally 

identified error specifically affecting rural Alaska. It would also acknowledge that 

satellite service in Alaska is not an alternative service as it is being characterized 

by the FCC in its Order, it is an inferior service. Disparity must be acknowledged 

before it can be corrected. 

Likewise, service standards for Mobility Phase II should be lowered for Alaska to 

reflect the absence of satellite capacity to provide 3G or 4G service. A good working 

2G wireless service exists in much of Alaska today but is set to be defunded by the 

phase down of identical support in two years. This will eventually drive these wireless services out of business and take away a margin of safety for Native Alaskans. 

Allowing 2G service standards in the short term, to reflect the reality of satellite 

limitations, will prevent the eventual elimination of wireless service for Native Alaskans in rural communities, as well as avoid the ensuing political firestorm. Identical 

support could be phased down in Alaska on the proposed schedule, consistent with 

how the Order is written today. At the beginning of the phase down, competitive 

eligible telecommunications carriers (CETC’s) may show their costs. Phase down of 

support would cease when it reaches the cost for the company to provide the wireless service. Companies that decline to show their costs should be phased down on 

an accelerated schedule. 

These actions would redirect scarce dollars in the Mobility Phase 1 & 2 auctions 

to other rural areas that have no service today and would maintain some level of 

competition, and the service quality that competition brings, to rural Alaska and its 

people. 

The longer term problem quite obviously is that Alaska Natives are being left behind, absent government intervention to solve the middle mile bottleneck and 

achieve the broadband speeds being received by much of the rest of the country. The 

FCC and the Administration proclaim that all Americans have a right to access 

broadband. In Alaska, we believe all Americans must include the first Americans.

For too many years, Native Alaskans have been marginalized with substandard 

services that much of the rest of the country takes for granted. Having identified 

both the problems and some solutions, I urge you to act boldly and decisively in your 

leadership capacity, drive change, and do what is just, so when in the future the 

Congress and the FCC say ‘‘all Americans must have access to broadband,’’ it rings 

true, and is truly consistent with our nation’s communications goals. 

Thank you again for the opportunity to testify in front of this distinguished Committee.

APPENDIX A—SATELLITE INTERNET REVIEW—JANUARY 30, 2012

Purpose of Review 

To determine if there were any satellite providers that can supply 1 Mbps 

download and 256 Kbps upload sustained data rates to each data subscriber in the 

Mukluk and Interior exchanges where Satellite is the only method of access. 

Mukluk and Interior Locations Considered in This Review 

The locations with satellite services include: Cold Bay, Glena, Fort Yukon, Nome, 

Brevig, Teller, Shishmaref, St. Michael, Stebbins, Shaktoolik, white Mt, Little 

Diomede, Wales, Golovin, Elim, Unalalaska and Koyuk. 

46

4 Excerpts from a 2010 report http://www.fridgefta.info/forums/printthread.php?tid=14640. 5This was indicated by Suzanne Palmini of X2Nsat in January 2012. 

6http://en.wikipedia.org/wiki/Galaxyl18. 7http://www.intelsat.com/lfiles/investors/financial/2011/2011–2Qer.pdf. 8 Anik F3 has 24 transponders in the C band and 32 transponders in the KU band. Galaxy 

18 has 24 transponders in C band and 24 transponders in Ku band. 9http://www.satbeams.com/footprints?beam=6554

Satellite Spectrum Analysis 

There are 1552 Internet subscribers in the Mukluk and Interior exchange locations served by satellite. To determine how much spectrum is needed we used the 

following calculations:

• 1552 users at 1 Mb/s down at 36MHz/per transponder Telalaska will require 

17 transponders to serve this portion of the bandwidth requirement

• 1552 times 256 kb/s at 36 MHz per transponder, the required return transponder space is estimated to be 10 transponders

• To serve the 1552 customers will require 27 transponders

• This traffic will be terminated at the Teleporter location

Rough order of cost for 27 transponders on a C-band and/or KU Band satellite 

is estimated to be 30 Million per year or $4000 per user per month. 

Satellites Available to Serve Mukluk and Interior Communities 

There are only a couple of satellites serving the majority of the northern 

Telalaska communities. 

The first satellite system to be considered is the Telesat Satellite systems which 

operate three satellites, the Anik F1R, Anik F2 and Anik F3, which serves northern 

Canada and Alaska on the fixed-service satellite band. 

Only Anik F2 and Anik F3 provide broadband Internet service. The F2 satellite, 

serves Canada’s northern territories through providers like SSI Micro and 

Northwestel. The Anik F3 satellite supplies broadband Internet to providers in 

northern Ontario, Quebec and Alaska. 

The Telsat organization has indicated if F2 falls out of the sky, every community 

in northern Canada would go dark. They have reserved bandwidth on Anik F3 in 

case of an F2 failure and would point all those F2 customers to Anik F3. 4

The Anik F3 satellite is the primary satellite serving Telalaska needs today. It 

is presently 80 percent utilized today. 5

Another satellite system to consider is the Galaxy 18 satellite which can serve the 

Mukluk and Interior communities. Galaxy 18 is a Space Systems/Loral (SS/L) 1300-

series hybrid communications satellite owned by Intelsat and located in geosynchronous orbit at 123° W longitude, serving the continental United States, Alaska, Hawaii, Mexico, and Canada with 24 C-band, and 24 Ku band transponders. 6

Galaxy 18 is the home of many free-to-air television channels used by several national TV stations. This satellite is also used by other wireless carriers such as 

Clear Channel and GCI in Alaska. 

Intelsat’s quarterly report completed in 2011 indicated that the private broadband 

networks for global organizations continue to see increased demand for their capacity. In the second quarter of 2011, Bell Canada, Canada’s largest communications 

company, renewed and expanded an agreement with Intelsat to provide a global 

IntelsatONE network broadband solution for a widely-dispersed civilian government 

network. 7 This means transponder space is in high demand in Canada and other 

northern markets. This increased demand will make it difficult for one carrier to 

obtain a large portion of transponder space. 

We also discover these satellites have limited transponder capacity and there is 

no near term plan to upgrade bandwidth on Anik F3 and Galaxy 18 in the near 

future. 8 This means there is a finite amount of transponder space. 

The newest satellite launched to meet the growing data demands was the Viasat 

1. The ViaSat-led project was developed by Loral to propel a series of satellites into 

space which was meant to enter the mainstream of broadband access choices alongside DSL and cable. This satellite was put into space on October 19th 2011. 

Because Viasat-1 satellite was just launched late last year, there are limited coverage maps on this satellite. The only one we could find was on Satbeams.com. It 

indicates the satellite should be able to serve most of Alaska: 9

47

10http://www.wildblue.com/overview/faqs#3l3

The concern should be not whether the satellite can provide service to the communities but if the companies supplying the signal can support the local residence and 

businesses in those areas. This support doesn’t just stop with the just providing a 

signal to the residence and businesses in the communities but should be able to 

meet the local service and support needs to the residence, businesses, schools, libraries and the community. 

When we tried to contact a Wild Blue representative the website identify a local 

reseller out of Anchorage. We contacted that person. He did not indicate he represented Wild Blue directly but indicated he worked with several satellite carriers 

and indicated he could provide service to the above mention location. He also indicated they would install the system but service would come out of the lower 48. 

They indicated an engineer would contact me to discuss installation options. As of 

this writing, I have not had another follow-up call. 

Again wanting to understand what Wild blue plans to offer, I looked further on 

their web site to see if I could get a more definitive answer. I found this FAQ page: 

Will Wild Blue be available in Alaska, Hawaii or Puerto Rico? 

Answer. Wild Blue is planning to start offering high-speed Internet services in 

Hawaii and southern Alaska (Anchorage and most of the Kenai peninsula) in early 

2012. 10

I also tried to find a support person from Hughes. I did find installation crews 

in Fairbanks and a new company just getting started in Anchorage to serve the 

Kenai and southern areas of the state. I called and they both indicated they only 

did installation work. Service would come from the Hughes service line in the lower 

48. They would only respond to a problem if dispatched by Hughes. 

Satellite Teleport Resource Considered in this Analysis 

We solicited three Satellite providers to find out if they could serve the communities outlined above.


607z4.eps
48

We asked each Satellite company:

1. If they could provide 1Mbps/256KBPS guaranteed sustained throughput from 

each data consumer in each community and terminate all users to a data access 

peering point in Anchorage Alaska?

2. If they could provide the service, what would it cost?

Satellites Providers Responses 

Globecomm Response 

Spreizer, Steve—sspreizer@globecomm.com—Jan 24

Hi, 

Thanks for sending me the information. Unfortunately we are not in a good position to address it. As I mentioned on the phone we do not have a facility in Anchorage to terminate the traffic. I checked and the only coverage we have for Alaska 

would actually terminate back here at our NY facility and then it would have to 

be routed back to Anchorage via terrestrial circuit/public Internet. This would not 

be a good technical solution or cost effective for you. 

I think you also need to revisit your bandwidth calculations. Satellite bw is very 

expensive. 137 Mbps of dedicated capacity will easily cost >$1M per year. 

On January 30

We pressed Steve to tell us if there was transponder space today to serve 

TelAlaska needs. This was his final response, ‘‘This type of capacity is not readily 

available today for Alaska. However if someone is really willing to pay this amount 

of money, a solution can be found.’’

X2nSat Response 

Suzanne Palmini—suzanne@x2nsat.com—Jan 25

Terry—Please find, attached, our findings. The conclusion is it is NOT feasible to 

dedicate 1M x 512 per subscriber. But, it is doable if you oversubscribe the network 

and gamble not everyone is ‘‘always on’’ thus freeing up bandwidth. Feel free to correspond directly with Phil should you have any questions. Thank you. 

This was the suggested design with Overbooking from X2nSat (Still Costly)

10:1 Overbooking scheme for 607 Users with 5 Mb/s max Down & 1 Mb/s max 

Up 

25 Gbyte/month Down max & 5 Gbyte/month Up, then charge extra 

Need one 36 MHz transponder for our DVB–S2 at 90 MB/s and 12 MHz for the 

Upload Returns 

Each Remote sites combines the Upload of it’s users into a constant carrier back 

to hub 


607z5.eps
49

111Ahttp://people.inf.ethz.ch/troscoe/pubs/TOITS09.pdf; another is on revenue management: 

http://en.wikipedia.org/wiki/Revenuelmanagement; another report presented to Globecom in 

1998: www.cs.ucla.edu/nrl/hpi/papers/1998-globecom-2.ps. 12http://ben-israel.rutgers.edu/711/McGill-VanRyzin.pdf

example 50 users x 30 kb/s avg = 1.5 Mb/s return carrier shared, minimum would have to be 1 Mb/s to meet spec if BW is $150,000/month over 600 = $250/month 

per user, if too much go 20:1 overbook for $125/month/user. 

Satcom Response 

Chris Weathers—chris.weathers@satcomresources.com—Jan 26

Hi, 

The most spectral efficient satellite link we’ve seen runs about 6 Mbits/MHz. So 

for 137Mbps, that would require over 23 MHz of space segment just for the downstream bandwidth. Satellite Space Segment is selling for $4,500 to $5,000 per MHz, 

that’s a monthly bill of over $103,000. This is the best case scenario. Of course, 

there are startup fees and Teleport fees and backbone termination feeds on top of 

the monthly cost but I wanted to hear if this is worth looking into further or not. 

Conclusion of the Discovery 

The three main hub providers, after reviewing their established resources, came 

to the same conclusion. Today none could guarantee they could provide the transponder spectrum required to serve Mukluk and Interior data users based on the 

sustain rates required by their interpretation of the new FCC ruling. 

The three main hub providers also indicated the costs for the service would be extremely expensive. The cost per subscriber would be upward of $4000 per sub per 

month—just for the cost of the service. This doesn’t include the costs of over head 

support and management, as well as ongoing customer care, billing and Internet access. These additional costs would increase the month rate by at least $500 per 

month per subscriber. 

The hub respondents indicated an overbook ratio as an alternative. They indicated this could be designed to give the end user the perception that they will have 

the full bandwidth available to them on a demand basis because it is assumed all 

users will not consume all of their bandwidth at the same time. 

The primary advantage of overbooking is to lower transport service cost. It is estimated overbooking will lower the cost of the service by as much as 50 percent. Studies on Internet access using overbooking can yield a 300–500 percent improvement 

in costs of access, while still providing useful resource guarantees to applications. 11

Another study completed by Rutgers University in 1999 focused on how the airline 

industry uses overbooking strategies to manage seat occupancy control while improving revenue streams. 12


607z8.eps
50


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51


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A General Map Layout ,,1 all Mukluk .nd Int:..rla' LocalK"''' 

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52

APPENDIX B


607z9.eps

1.544 Mbps RATES 

Description 

Gel Private Line service provides data service between specific points suitable for use In 

any manner compatible With !he channel's technical characteristics. 

Local Exchantle FacUltIes 

Local Exchallge Facilities for terminating Gel Digital Private Line Service will be 

oblained from the appropriate exchange canier at its tariffed rate. 

Rates and Charges 

Rates quoted below are monthly recurring charges (7 daysl\Neek, 24 hrsfday). do not 

Include local channel access charges, and apply to each section of an Interexchange 

channel, i.e.; botwccrI each paIr of points, on all types of channels. 

Installat10n Charge 

$ 

200.00 

Monthly Rates 

The pricing chart refers 10 "DAMA Villages', Please see, below the chart, the listing of 

cities considered 'DAMA Villages", 

1.54-4 Mbos 

Monthly 

Month to Recunirlg 

BETWEEN Month Charge 

Barrow Bethel Satellite $14,447 

Barrow Cordova Satellite $14,-447 

Barrow Dillingham Satellite $14,-441 

Barrow Dutch Harbor Satellite $14,447 

Barrow Eagle RiVer Satellite $14,-447 

Barrow Fairbanks Satellite $14,447 

Barrow Juneau Satellite $14,447 

Barrow King Salmon Satellite $14,447 

Barrow Klllzebue Satellite $14,447 

Barrow Nome Satellite $14,447 

Barrow Prudhoe Bay Satellite $14,447 

Barrow SeaUle Satellite $14,447 

Barrow DAMA Villages Satellite $14,447 

Prudhoe Bay Barrow Satellite $14,447 

Prudhoe Bay Bethel Satellite $14,447 

Prudhoe Say DAMAViliages Satellite $14,447 

Prudhoe Say Dillingham Satellite $14,447 

Prudhoe Bay Dutch Harbor Satellite $14,447 

Prudhoe Bay Ketchikan Satellite $14,447 

Prudhoe Say King Salmon Satellite $14,447 

Prudhoe Say Kodiak Satellite $14,447 

Prudhoe Bay Kolzebue Satellite $14,447 

DAMA Villages Barrow Satellite $14,447 

DAMA Villages Betl1el Satellite $14,447 
53


607z10.eps

DAMA Villages Cordova Satellite $14,447 

DAMA Villages Dillingham Satellite $14,447 

DAMA Villages Dutch Harbor Satellite $14,447 

DAMA Villages Eagle River Satellite $14,447 

DAMA Villages Fairbanks Salellite $14,447 

DAMA Villages Juneau Satellite $14,447 

DAMA Villages Kenai Satellite $14,447 

DAMA Villages Ketchikan Satellite $14,447 

DAMA Villages King Salmon Satellite $14,447 

DAMA Villages Kodiak Satellite $14,447 

DAMA Villages Kotzebue Satellite $14,447 

DAMA Villages Nome Satellite $14,447 

DAMA Villages North Pole Satellite $14,447 

DAMA Villages Prudhoe Bay Satellite $14,447 

DAMA Villages Seattle Satellite $14,447 

DAMA Villages Seward Satellite $14,447 

DAMA Villages Sitka Satellite $14,447 

DAMA Villages Valdez Satellite $14,447 

Term Discounts 

Term Commitment Discount 

1 year 3% 

2 year 4% 

3 year 5% 

5year 10.00% 

DAMA Villages: 

Barrow Region 

Anaktuvuk Pass" 

AtqasukKaktovik" 

Nuiqsut .. 

Point HopePoint Lay* 

Wainwright" 

EFFECTIVE: December 13, 2005 
54

1Paragraph 540, FCC 11–161. 

2Paragraph 543, FCC 11–161. 

At the request of Chairman Akaka, I am providing additional written responses 

corresponding to Commissioner Clyburn’s testimony on the subject ‘‘Universal Service Fund Reform: Ensuring a Sustainable and Connected Future for Native Communities.’’ My responses will address misunderstanding of the facts pertaining to the 

Quantile Regression Analysis, the Petition for Waiver process and throughput 

standards for Alaskan satellite served companies. 

Quantile Regression Analysis (QRA) 

At 49:49 of the recorded hearing, in reference to a question on data errors in the 

QRA, Commissioner Clyburn stated ‘‘If there is erroneous data by chance, I assure 

you, if and when it is brought to our attention, we will make the necessary modifications.’’ At 51:40, the Commissioner stated, ‘‘We included an Alaska specific variable 

to reflect the different costs in that area.’’ At 54:25, Commissioner Clyburn reaffirmed the Commission’s willingness to act quickly if data errors are brought to 

their attention, stating, ‘‘If we are deficient in any way, I assure you that tomorrow 

we will correct that and do better.’’

We appreciate the candor of Commissioner Clyburn and her willingness to act 

upon data errors which the Commission has acknowledged publicly. As a company 

which was going to be a recipient of additional support when the QRA was first calculated, and after modification of the model, saw our capped support reduced by 

over half a million dollars with full phase in on January 1, 2014, we have struggled 

with trying to understand how we became an outlier. While parts of the regression 

model are not easily deciphered, some input variable data and regression coefficients can be observed. In the Arctic Slope Telephone Association Cooperative 

(ASTAC) serving area, the FCC had listed our road miles at 2,429 miles. The actual 

number is closer to 300 miles of road. Since road miles carry a significant negative 

coefficient, it negatively impacted our allowable Capex and Opex regression capped 

funding. Alaska was given its own ‘‘dummy’’ variable to acknowledge the different 

costs we experience. Unfortunately, the Capex coefficient assigned to Alaska is negative, which is counter intuitive to what we believe the Commission was trying to 

achieve. Certainly, no one can reasonably think that building outside plant in the 

arctic is less expensive that doing so in much of the lower 48 states? Similarly, the 

Bureau of Indian Affairs has ruled that all of Alaska is tribal lands, yet the regression input ‘‘percent tribal land’’ is only 23.4 percent. Climate, which is broken down 

into 16 zones, is used to account for minimum temperatures. It is a predictor of time 

the ground isn’t frozen; seemingly short construction seasons due to permafrost 

raise costs for companies serving these areas. 

Again, it appears that logic got inverted in the model when ASTAC compares 

itself to another company operating in south central Alaska who have higher minimum temperatures but received a greater positive input variable. We intend to follow up with the Wireline Competition Bureau before the implementation of the 

capped support and appreciate the willingness of the FCC to ‘‘get it right.’’

Petition for Waiver 

When questioned about the burdensome and expensive waiver process, Commissioner Clyburn stated at 68:31, ‘‘Most of the information that companies need to 

submit to us can be found if you practice GAAP that should be relatively, basically 

all you need to submit to the Agency.’’ Appendix A lists the entire waiver requirements. While we do not disagree that part of what is being requested falls under 

GAAP, the data request is, as promised, ‘‘subject to a rigorous, thorough and searching review comparable to a total company earnings review’’ 1 and much of what is 

being asked for will have to be generated at great expense. ‘‘Failure to provide the 

listed information shall be grounds for dismissal without prejudice. In addition to 

the above, the petitioner shall respond and provide any additional information requested by Commission staff.’’ 2 The FCC has taken a talking points position that 

companies negatively impacted by the Transition Order do not need to hire consultants and lawyers to help them with the waiver and should instead address any 

questions they may have to the FCC. Given the importance of possible relief a waiver might bring to an impacted company and the ease with which a waiver can be 

dismissed, we do not think it is prudent strategy to try to submit a waiver without 

expert outside counsel. It is analogous to being a defendant in a capital case and 

having the prosecutor suggest you should ask him your questions about your defense. 

55

3Paragraph 44, FCC 12–52, Third Order on Reconsideration. 

4See https://prodnet.www.neca.org/publicationsdocs/wwpdf/22712gvnw.pdf; https://

prodnet.www.neca.org/publicationsdocs/wwpdf/22812gvnw.pdf; and https://

prodnet.www.neca.org/publicationsdocs/wwpdf/22912gvnw.pdf.

High Cost of Satellite Backhaul 

At 80:57, Commissioner Clyburn acknowledged the high cost of satellite middle 

mile transport, stating, ‘‘We recognize how expensive the middle mile is.So flexibility, we have allowed for flexible build out requirements.’’ Yet, in their Third 

Order on Reconsideration, the FCC denied the Alaska Rural Coalition’s request for 

a more relaxed throughput standard due to the insufficiency of available throughput 

on Alaska serving satellites and the extremely high cost of that bandwidth. In their 

decision, the FCC wrote, The Alaska Rural Coalition asks that we reconsider these 

requirements in two respects. First, the Alaska Rural Coalition objects to the requirements imposed on carriers reliant on satellite backhaul, claiming that it ‘‘is not 

convinced that current satellite offerings can reliably meet’’ the relaxed speed requirements for such carriers. The Coalition asks that ‘‘further consideration . . . be 

given to the cost and realistic capacity of the satellites serving Alaska.’’ But the 

Alaska Rural Coalition provides no information about satellite capacity limitations. 

Indeed, the Coalition does not even actually assert that meeting the relaxed requirements will, in fact, pose a challenge at all. On this record, we are not convinced that 

we should modify these requirements. 3

Note that the issue of satellite middle mile cost, raised by the Alaska Rural Coalition, is absent in the response by the FCC. Additionally, four Alaska Rural Coalition 

members, Arctic Slope Telephone Association Cooperative, Inc., Copper Valley Telephone Cooperative, Interior Telephone Company Inc. and Mukluk Telephone Company Inc. have provided the FCC and Wireline Competition Bureau staff with an 

engineering study that clearly shows the lack of capacity on Alaska serving satellites as well as the extraordinary expense. The findings were part of ex parte 

briefings which occurred prior to the release of the Third Order on Reconsideration. 4 This information was not refuted by the FCC nor did they provide any contrary data. Instead, they ignored the record in their decision not to grant a more 

relaxed speed and remained silent on the issue of cost that the study also raised 

as an issue. Absent regulatory relief, companies unable to certify they meet the 

throughput standard of 1Mbps download/256Kbps upload due to limited capacity 

and high cost could be denied support. 

APPENDIX A—PETITION FOR WAIVER REQUIREMENTS—FCC 11–161, PARAGRAPHS

540–544

540. We do not, however, expect to grant waiver requests routinely, and caution 

petitioners that we intend to subject such requests to a rigorous, thorough and 

searching review comparable to a total company earnings review. In particular, we 

intend to take into account not only all revenues derived from network facilities that 

are supported by universal service but also revenues derived from unregulated and 

unsupported services as well.902 The intent of this waiver process is not to shield 

companies from secular market trends, such as line loss or wireless substitution. 

Waiver would be warranted where an ETC can demonstrate that, without additional 

universal service funding, its support would not be ‘‘sufficient to achieve the purposes of [section 254 of the Act].’’903 In particular, a carrier seeking such waiver 

must demonstrate that it needs additional support in order for its customers to continue receiving voice service in areas where there is no terrestrial alternative. We 

envision granting relief only in those circumstances in which the petitioner can 

demonstrate that the reduction in existing high-cost support would put consumers 

at risk of losing voice services, with no alternative terrestrial providers available to 

provide voice telephony service using the same or other technologies that provide 

the functionalities required for supported voice service.904 We envision granting relief only in those circumstances in which the petitioner can demonstrate that the 

reduction in existing high-cost support would put consumers at risk of losing voice 

services, with no alternative terrestrial providers available to provide voice telephony service to consumers using the same or other technologies that provide the 

functionalities required for supported voice service. We will also consider whether 

the specific reforms would cause a provider to default on existing loans and/or become insolvent. For mobile providers, we will consider as a factor specific showings 

regarding the impact on customers, including roaming customers, if a petitioner is 

the only provider of CDMA or GSM coverage in the affected area. 

541. Petitions for waiver must include a specific explanation of why the waiver 

standard is met in a particular case. Conclusory assertions that reductions in supVerDate 0ct 09 2002 13:22 Jan 04, 2013 Jkt 077458 PO 00000 Frm 00059 Fmt 6633 Sfmt 6621 S:\DOCS\77458.TXT JACK
56

port will cause harm to the carrier or make it difficult to invest in the future will 

not be sufficient. 

542. In addition, petitions must include all financial data and other information 

sufficient to verify the carrier’s assertions, including, at a minimum, the following 

information:

• Density characteristics of the study area or other relevant geographic area including total square miles, subscribers per square mile, road miles, subscribers 

per road mile, mountains, bodies of water, lack of roads, remoteness, challenges 

and costs associated with transporting fuel, lack of scalability per community, 

satellite and backhaul availability, extreme weather conditions, challenging topography, short construction season or any other characteristics that contribute 

to the area’s high costs.

• Information regarding existence or lack of alternative providers of voice and 

whether those alternative providers offer broadband.

• (For incumbent carriers) How unused or spare equipment or facilities is accounted for by providing the Part 32 account and Part 36 separations category 

this equipment is assigned to.

• Specific details on the make-up of corporate operations expenses such as corporate salaries, the number of employees, the nature of any overhead expenses 

allocated from affiliated or parent companies, or other expenses.

• Information regarding all end user rate plans, both the standard residential 

rate and plans that include local calling, long distance, Internet, texting, and/

or video capabilities.

• (For mobile providers) A map or maps showing (1) the area it is licensed to 

serve; (2) the area in which it actually provides service; (3) the area in which 

it is designated as a CETC; (4) the area in which it is the sole provider of mobile service; (5) location of each cell site. For the first four of these areas, the 

provider must also submit the number of road-miles, population, and square 

miles. Maps shall include roads, political boundaries, and major topographical 

features. Any areas, places, or natural features discussed in the provider’s waiver petition shall be shown on the map.

• (For mobile providers) Evidence demonstrating that it is the only provider of 

mobile service in a significant portion of any study area for which it seeks a 

waiver. A mobile provider may satisfy this evidentiary requirement by submitting industry-recognized carrier service availability data, such as American 

Roamer data, for all wireless providers licensed by the FCC to serve the area 

in question. If a mobile provider claims to be the sole provider in an area where 

an industry-recognized carrier service availability data indicates the presence of 

other service, then it must support its claim with the results of drive tests 

throughout the area in question. In the parts of Alaska or other areas where 

drive testing is not feasible, a mobile provider may offer a statistically significant number of tests in the vicinity of locations covered. Moreover, equipment 

to conduct the testing can be transported by off-road vehicles, such as snow-mobiles or other vehicles appropriate to local conditions. Testing must examine a 

statistically meaningful number of call attempts (originations) and be conducted 

in a manner consistent with industry best practices. Waiver petitioners that 

submit test results must fully describe the testing methodology, including but 

not limited to the test’s geographic scope, sampling method, and test set-up 

(equipment models, configuration, etc.). Test results must be submitted for the 

waiver petitioner’s own network and for all carriers that the industry-recognized carrier service availability data shows to be serving the area in which the 

petitioner claims to be the only provider of mobile service.

• (For mobile providers). Revenue and expense data for each cell site for the three 

most recent fiscal years. Revenues shall be broken out by source: end user revenues, roaming revenues, other revenues derived from facilities supported by 

USF, all other revenues. Expenses shall be categorized: expenses that are directly attributable to a specific cell site, network expenses allocated among all 

sites, overhead expenses allocated among sites. Submissions must include descriptions the manner in which shared or common costs and corporate 

overheads are allocated to specific cell sites. To the extent that a mobile provider makes arguments in its waiver petition based on the profitability of specific cell sites, petitioner must explain why its cost allocation methodology is 

reasonable.

• (For mobile providers) Projected revenues and expenses, on cell-site basis, for 

5 years, with and without the waiver it seeks. In developing revenue and exVerDate 0ct 09 2002 13:22 Jan 04, 2013 Jkt 077458 PO 00000 Frm 00060 Fmt 6633 Sfmt 6621 S:\DOCS\77458.TXT JACK
57

pense projections, petitioner should assume that it is required to serve those 

areas in which it is the sole provider for the entire five years and that it is required to fulfill all of its obligations as an ETC through December 2013.

• A list of services other than voice telephone services provided over the universal 

service supported plant, e.g., video or Internet, and the percentage of the study 

area’s telephone subscribers that take these additional services.

• (For incumbent carriers) Procedures for allocating shared or common costs between incumbent LEC regulated operations, competitive operations, and other 

unregulated or unsupported operations.

• Audited financial statements and notes to the financial statements, if available, 

and otherwise unaudited financial statements for the most recent three fiscal 

years. Specifically, the cash flow statement, income statement and balance 

sheets. Such statements shall include information regarding costs and revenues 

associated with unregulated operations, e.g., video or Internet.

• Information regarding outstanding loans, including lender, loan terms, and any 

current discussions regarding restructuring of such loans.

• Identification of the specific facilities that will be taken out of service, such as 

specific cell towers for a mobile provider, absent grant of the requested waiver.

• For Tribal lands and insular areas, any additional information about the operating conditions, economic conditions, or other reasons warranting relief based 

on the unique characteristics of those communities.

543. Failure to provide the listed information shall be grounds for dismissal without prejudice. In addition to the above, the petitioner shall respond and provide any 

additional information as requested by Commission staff. We will also welcome any 

input that the relevant state commission may wish to provide on the issues under 

consideration, with a particular focus on the availability of alternative unsubsidized 

voice competitors in the relevant area and recent rate-setting activities at the state 

level, if any. 

544. We delegate to the Wireline Competition and Wireless Telecommunications 

Bureaus the authority to approve or deny all or part of requests for waiver of the 

phase-down in support adopted herein. Such petitions will be placed on public notice, with a minimum of 45 days provided for comments and reply comments to be 

filed by the general public and relevant state commission. We direct the Bureaus 

to prioritize review of any applications for waiver filed by providers serving Tribal 

lands and insular areas, and to complete their review of petitions from providers 

serving Tribal lands and insular areas within 45 days of the record closing on such 

waiver petitions.

The CHAIRMAN. Thank you very much. 

Mr. Albert Hee, will you please proceed with your testimony. 

STATEMENT OF ALBERT S.N. HEE, PRESIDENT, SANDWICH 

ISLES COMMUNICATIONS, INC. 

Mr. HEE. Thank you, Mr. Chairman and members of this Committee. 

It gives me great honor to appear before one kanaka maoli (Native person) to another. 

As you are aware by my written testimony, my name is Albert 

Hee. I am a Native Hawaiian. We are the first and only rural local 

exchange carrier in Hawaii. We serve exclusively and have been 

mandated by the FCC to only serve those areas of Hawaiian Home 

Lands that are unserved or underserved. 

I think it may be helpful at this point to understand the significance of what the Universal Service Fund really is and what Congress intended it to be. The Universal Service Fund is to prevent 

red-lining. Pure and simple, it is to prevent Americans from being 

red-lined by the large telecommunications companies because it is 

uneconomical or for whatever reason, they do not want to serve. 

The Communications Act of 1934 as amended by the Telecommunications Act of 1996 reaffirmed that all Americans deserve this. The 

58

momentous change in rules that the FCC has done puts this in 

jeopardy. And it puts it in jeopardy very simply first and foremost 

by not grandfathering the obligations that we have incurred with 

RUS and with other lenders and with other contractors to provide 

the service that we have provided under the old rules. 

There is no grandfather clause in the new rules. Without a 

grandfather clause, we are essentially doing zero base budgeting. 

While the FCC has tried very hard and the Commissioners have 

been very accommodating as far as working with us on trying to 

get through this process, I am probably uniquely qualified to talk 

about the waiver process and to talk about the safety nets that the 

Commissioners believe exist but do not. 

Sufficient and predictable as this Congress put into the 1996 Act, 

under the old rules, is no longer good enough. Under the new rules 

the waiver process simply allows us an opportunity to ask, beg, for 

the ability to continue to do business as we were doing business 

under the old rules. I fail to see how a waiver process is sufficient 

or predictable. We should be within the body of the rules. We 

should not be asking for a waiver to the rules. That alone tells you 

that we are not included in the rules. 

I filed a waiver, I was the first to file a waiver in December. I 

met numerous times with the staff. And I want to make sure this 

Committee understands. The waiver process under the new rules 

gives complete and unfettered discretion to the bureaucrats running the wire line bureau. It is not overseen by the Commissioners 

until and if we have to appeal the wire line bureau’s decision. 

The open communication that Commissioner Clyburn spoke of, 

and I must tell you, she has been very open, you saw an example 

of the open communications with the wire line bureau in last 

night’s Communication Daily. I met with my attorneys, with the 

wire line bureau yesterday. We filed our last set of answers to their 

questions on April 19th. My attorney has been in contact with 

them weekly, asking if there are any problems or if there is any 

more information that we need to provide. 

At this meeting, we were told you will get a new set of questions. 

This is from April 19th to yesterday. Nothing. And then we go and 

meet and they say, we have another round of questions. We say, 

can we have them. They say they will be forthcoming. 

We did not understand that forthcoming meant I would get a call 

from a reporter within two hours of that meeting, asking me to 

comment on the letter that the FCC released with the questions to 

me. That is what is considered open dialogue at the FCC. 

The problem of grandfathering, and while Commissioner Clyburn 

is very correct and she is, like I say, she is and I have found all 

of the Commissioners to be open, we have been in business for 15 

years. We were late to this game, as far as utilizing these programs. Hawaiians and the citizens of Hawaii have been paying 

long distance charges since the 1930s, since the program’s inception. We did not utilize any of these Universal Service funds until 

1995. 

We have been late to the game, we come into this and we get 

audited every year, all of our books are open. To say that we need 

to start from zero, we have been found compliant all of these 15 

59

years with the rules, and now we are going to start from zero. And 

the attitude is that we are guilty until proven innocent. 

But additionally, we are not told how to prove ourselves innocent. 

In Hawaii, the island of Molokai is the perfect example of what 

happens when you allow red-lining in the communications field. 

Despite having a monopoly for 100 years, which eventually ended 

up with GTE and Verizon, when the incumbent telephone company 

put in an inter-island cable, they bypassed the island of Molokai, 

because the island of Molokai is predominantly Native Hawaiian. 

They had no access to inter-island cable. 

Thank you. I see I have extended my remarks. 

[The prepared statement of Mr. Hee follows:]

PREPARED STATEMENT OF ALBERT S.N. HEE, PRESIDENT, SANDWICH ISLES

COMMUNICATIONS, INC. 

Chairman Akaka, Vice Chairman Barrasso, and distinguished members of the 

Committee, thank you for holding this hearing to address the impacts of the Federal 

Communications Commission’s (FCC) Connect America Fund Order (Order) on native communities across the country. My name is Al Hee and I am President of 

Sandwich Isles Communications, Inc. (SIC), a Rural Local Exchange Carrier (RLEC) 

serving Hawaii’s indigenous people on Hawaiian Home Lands (HHL), Hawaii’s ‘‘tribal lands’’, which were created by Congress through the Hawaiian Homes Commission Act of 1921 (HHCA). It is especially an honor for me to sit before you, as I 

am also a beneficiary of the HHCA. Thank you for this opportunity to share the devastating, albeit unintended, impacts the FCC’s Order will have on the native Hawaiians who have come to rely on advanced telecommunications service since 1995. 

On March 3, 2011, the FCC adopted a Notice of Inquiry (NOI) In the Matter of 

Improving Communications Services for Native Nations (CG Docket No. 11–41). In 

this filing, the FCC Chairman Julius Genachowski stated for the record that, 

‘‘. . . communications services like broadband, wireless communications and radio 

aren’t just valuable as a means to deliver entertainment and diversions. They are 

vital platforms for community-building, cultural preservation, and the promotion of 

public health, education and economic opportunity in Native Nations.’’

We agree and believe that broadband is the great equalizer for our people. It will 

allow native Hawaiians to leapfrog the digital divide that has historically held us 

back, enabling us to succeed in the 21st century and beyond. Success and self-sufficiency in today’s environment means native Hawaiians must have access to 

broadband technology so they can fully participate in a capitalist society. Affordable 

broadband helps native Hawaiians to overcome their geographic isolation by providing access to healthcare, education, commerce, public safety, and social interaction. It also provides native Hawaiians with an unprecedented opportunity to further our cultural revitalization—preserving, protecting, and promoting our culture 

for generations to come. 

Unfortunately, the rule changes adopted in the FCC’s Order have effectively created an environment where small RLEC’s, like ours, serving Native Americans on 

tribal lands cannot participate and, therefore, will quickly face bankruptcy with the 

implementation of strict limits on support funds beginning July 1, 2012. And while 

facing the potential for bankruptcy is daunting as a businessman, what I fear most, 

as a native Hawaiian, is the possibility that I may be forced to tell the more than 

6,400 native Hawaiians who have come to rely on my company for life-saving telephone service and life-changing broadband connectivity that we can help them no 

more. This is what really brings me here today, the concern that all the progress 

we have made and will continue to make as a people may be at risk. Ubiquitous 

broadband isn’t just a buzz word anymore, reserved for policymakers and technology 

pundits, it is fast becoming a reality in urban America and I humbly ask for your 

support to ensure it becomes a reality in rural, tribal America as well—where the 

need is greatest. 

Technology has evolved, so the need has shifted from plain old telephone service 

to broadband access. However, what has not changed is the need is still greatest 

in America’s rural/tribal areas. What has also not changed is the driving force behind the decisionmaking in America’s large carriers. While companies like AT&T 

and Verizon, may want to do the right thing and serve the rural/tribal areas, history 

60

has proven that when faced with a choice between social responsibility and economic 

interests, economic interests consistently prevail. If this were not the case, Congress 

would never have felt compelled to enact legislation that created the Universal Service Fund programs.the need would not have existed. The brutal reality is that after 

many years of waiting for the large national carriers to do the right thing and serve 

ALL Americans, Congress came to the stark realization that without government 

intervention, rural/tribal areas would be left behind. I fear Congress’ visionary mandate is now in jeopardy and I fear that history is repeating itself. I believe that 

when the large national carriers are once again faced with decisions on what areas 

they will and will not serve, economic interests will far outweigh any sense of social 

responsibility to ensure all Americans have access to reliable and affordable telecommunications services. And our native people will suffer. 

Furthermore, while Congress’ clear mandate in the Telecommunications Act of 

1996, has not changed, the FCC has changed its rules. These rule changes violate 

the Telecommunications Act of 1996, in that they do not provide Universal Service 

support funds that are ‘‘predictable and sufficient,’’ as required by Section 254(b)(5). 

SIC has been operating and borrowing monies based on the support being ‘‘predictable and sufficient’’, as interpreted under the old rules. The new rules do not allow 

for the building of a robust communications platform on tribal lands to meet some 

critical longer term goals of Native peoples, including, public safety, healthcare, and 

education. Broadband holds the promise of resolving the many problems faced by 

Native peoples and providing our people with the opportunities to become contributing members of society. Needless to say, time is of the essence to stay the initial 

and calamitous effects of the Order as it relates to Native Americans. 

So in the interest of providing constructive and meaningful feedback that can offer 

immediate relief, I respectfully provide an immediate solution to preventing the loss 

of critical telecommunications services Hawaiian homesteaders have come to rely 

on. An automatic approval of the FCC’s waiver for tribal RLEC’s, like SIC, with current obligations incurred following the FCC’s old rules. Even changes to laws provide for grandfathering, recognizing that new laws are meant to be prospective, not 

punitive. In this situation, the FCC’s rule changes are punishing our native Hawaiian customers, even though we followed the rules. In the true spirit of Universal 

Service, we borrowed millions of dollars to build-out infrastructure to the areas no 

one else would serve-to serve the customers no one else would serve. We did this 

after rigorous financial and technical planning and analysis, concluding that the 

FCC’s rules, at the time, provided adequate recovery to ensure we could recover our 

costs and pay back our debt. We now cannot meet our current obligations and service to our customers is threatened, because the FCC changed their rules without a 

grandfather clause. The unintended consequence is that, without a grandfather 

clause, the FCC’s new rules are punitive, not prospective. The immediate solution 

is to grant automatic waivers for tribal RLEC’s with current obligations incurred 

following the FCC’s old rules. We are not asking for a blank check in perpetuity. 

We are simply requesting that the FCC help ensure native Hawaiians continue to 

have access to reliable and affordable telecommunications services by allowing us 

to meet our current obligations, obtained lawfully and in full compliance with FCC’s 

rules. 

While this will address our immediate needs, we have an ongoing obligation to 

provide reliable and affordable telecommunications service to our indigenous people. 

So we must figure out how we’ll be able to continue serving native America into 

the future. The FCC has created a Mobility Fund. However as it stands, despite 

tribal priorities outlined to give preference to tribally owned telecommunications 

companies, our small rural telecoms will have a difficult time even participating. 

The auction process outlined by the FCC includes a requirement to obtain a letter 

of credit equal to the amount bid. For small rural telecoms, like ours, this is a nearly impossible proposition, as we would be required to maintain liquid assets equal 

to the amount guaranteed in the letter of credit. Furthermore, we must wait a full 

year to even participate in the Tribal Mobility Fund. And even if we could bid, what 

good will the wireless towers and infrastructure do without spectrum to reach our 

native customers? 

Furthermore, tribal governments should be allowed to maintain authority over decisions that impact tribal areas. While the FCC’s new rules include a tribal engagement obligation, tribal governments should be allowed to maintain their sovereignty, specifically as it relates to the Tribal Mobility Fund. Moreover, any large 

telco with vast resources could easily under bid a small RLEC and earn the right 

to serve tribal areas, despite their utter lack of experience serving rural and remote 

native nations and cultural understanding. Meeting the distinct challenges and 

unique needs of native peoples should be at the heart of any decision affecting tribal 

lands. For these reasons, tribal governments should have the ultimate decisionVerDate 0ct 09 2002 13:22 Jan 04, 2013 Jkt 077458 PO 00000 Frm 00064 Fmt 6633 Sfmt 6621 S:\DOCS\77458.TXT JACK
61

making authority with regard to the Tribal Mobility Fund, and specifically as it relates to what companies can best meet their tribal needs. 

Indigenous Americans cannot sustain themselves on reservations and other Tribal 

land areas without a robust communications platform to help overcome the geographic isolation that frequently comes with these set-aside lands. Our company 

provides broadband communications services that in addition to promoting economic 

development, facilitate the long term economic needs of our native Hawaiian communities, provide growth of businesses and job creation on HHL. The Order will extinguish our ability to provide these services to our communities. 

It may be helpful for this Committee to have additional background information 

regarding SIC’s unique circumstances, which must be factored into any analysis of 

SIC’s USF requirements. 

SIC’s Unique Geographic Service Area 

If you draw a rectangle around the main Hawaiian Islands and immediate ocean 

area, you will encompass an area of 79,625 square miles, which is roughly the size 

of the state of Nebraska (77,354 sq miles). This is SIC’s geographic service area. 

This territory has unique and historic antecedents that are relevant to SIC’s service 

obligations. 

In 1920, in an effort to redress the rapidly declining economic, social and health 

status of native Hawaiians, Congress placed 200,000 acres of federally-owned lands 

into a trust to be administered by the Hawaiian Homes Commission, a subdivision 

of the new territorial government. See Hawaiian Homes Commission Act, 42 Stat. 

108 (1921). Hawaii law defines ‘‘native Hawaiian’’ as any descendant of not less 

than one-half part of the blood of the races inhabiting the Hawaiian Islands previous to 1778. See Hawaiian Homes Commission Act a 201(7). This land is now 

known as Hawaiian Home Lands. Upon Hawaii’s admission to statehood in 1959, 

the United States Congress transferred responsibility for the 200,000 acre land trust 

to the State of Hawaii to continue the Hawaiian homesteading program, with federal oversight, requiring the new State to adopt the provisions of the HHCA into 

its constitution. See Act of Mar. 18, 1959 (Admission Act), Pub. L. No. 86–3, 73 Stat. 

4 (providing for the admission of the State of Hawaii into the United States). 

HHL is now made up of approximately 203,500 acres of land located on six of the 

eight main Hawaiian Islands and consists of more than 70 non-contiguous parcels. 

Located primarily in the most remote rural areas with few in urban areas, HHL 

properties are separated by both private and government owned properties and 

open-ocean. 

Hawaii’s ‘‘tribal lands’’ have unique geographic features that create difficulties for 

service providers: their remoteness, accessibility, geological makeup, archaeological 

and historical findings, environmental concerns, terrain conditions, lack of proximity 

to existing utility infrastructure and right of way availability; all such features play 

a significant role in creating higher costs for service providers such as SIC. Hawaii 

is an archipelago and coordination and collaboration between its own counties is 

more challenging than any other state as counties themselves are islands or groups 

of islands separated by miles of open-ocean. 

SIC’s Uniquely High Cost Considerations 

Building infrastructure of any type in Hawaii is a time consuming and high cost 

activity; these burdens are greater still throughout HHL. The difficulty of doing 

business in Hawaii begins with its unique geographical situation. It is the only state 

that is not located on the North America continent and is also one of only two states 

that do not share a border with another state. These unique geographic factors create higher construction costs due to high labor rates, high material costs (all materials are imported), ocean freight costs (inter-state and inter-island transshipment 

of all materials), higher utility costs (electricity is more than three times the national average) and highest fuel costs compared to other states. 

Obtaining permits in Hawaii is time consuming and costly; the process is especially difficult throughout SIC’s unique service areas. Construction permitting is 

subject to very stringent federal and state regulatory processes that have been put 

in place to protect natural and historical resources. According to the Bishop Museum, Hawaii is the endangered species capitol of the world, with hundreds of species of plants and animals listed as endangered and more than 270 species extinct. 

Hawaii is also a very rich ground for archaeological preservation laws since native 

Hawaiians populated the entire state at one time. As an island state, the population 

and major roads are located within a few miles of the coastline. The proximity to 

the coastline adds another layer of regulatory laws not typically found in other 

states. The premium added to the average cost of construction in Hawaii, ranges 

from 30 percent to 100 percent, depending on the specific activity or material. For 

62

example, there is a 35 percent increase between the average continental United 

States cost of constructing a single concrete 10′ x 18′ shelter slab foundation 

($5,795) and the Hawaii cost ($7,850). See Figure 1 (at the end of this testimony). 

Today, Hawaii’s population has grown to approximately 1.4 million people, and 20 

percent of the population is Native Hawaiian. Approximately 9,800 families currently reside on HHL properties with another 25,000 waiting for the Department 

of Hawaiian Home Lands (DHHL) to deploy the basic infrastructure necessary for 

homesteaders to move in. Much like other indigenous people in the continental 

United States, Native Hawaiians are over-represented with respect to many negative socio-economic indicators—lack of education, low-income, single parent households, homelessness, prison populations and harmful health statistics. Historically 

low deployment and unique obstacles make cost a significant challenge requiring 

large financial support to deploy affordable broadband capable of delivering effective, or even minimal public safety and emergency communications services. 

The Nature and History of Telecommunications Service in Hawaii 

Historically, Hawaii has been served by numerous small telephone companies beginning in 1878, two years after Alexander Graham Bell’s invention. Consolidation 

of telephone service began in 1884 on Oahu under the Mutual Telephone Company, 

four years before Hawaii was annexed by the United States. In 1918, the islands 

of Maui and Hawaii were consolidated under Mutual Telephone, with Kauai in 1928 

and Molokai in 1931. Since that time Hawaii was served by a single monopoly telephone company. In 1954, Mutual Telephone Company changed its name to Hawaiian Telephone Company. Hawaiian Telephone Company was eventually purchased 

by GTE in 1976 and changed the company name to GTE Hawaiian Telephone. In 

2000, GTE merged into Verizon Communications resulting in another name change 

to Verizon Hawaii. Verizon sold the Hawaii wireline telephone operations in 2005 

to an investment group headed by the Carlyle Group which renamed the company 

to Hawaiian Telecom and then later gave up its ownership interest allowing Hawaiian Telcom to emerge from bankruptcy (2008–09). During the relatively brief period 

of time in which SIC has been in business, three of the four facilities-based wireline 

telephone companies in Hawaii have gone either bankrupt or out of business (an 

RLEC-TelHawaii (1999), competitive local exchange carrier (CLEC)–GST Hawaii 

(2000), and the ILEC–Hawaiian Telecom (2008)). 

SIC’s Origins as a Telecom Carrier for native Hawaiians; Unique Service 

Obligations 

The last fifteen years have been arguably the most dynamic period in the communications industry. Two major regulatory changes occurred with the Telecommunications Act of 1996 and the new Connect America Fund (FCC 11–161). Evolutionary 

technology changes became revolutionary with electrons giving way to light, copper 

to fiber, circuit switching to Internet protocol, and wireline to wireless. Monopolies 

gave way to competition and competition now included new industries, cable and 

wireless. Performance measurements such as the ‘‘five nines (99.999 percent)’’ gave 

way to mobility and speed. Industry stalwarts, ATT, Bell Atlantic, Bell Labs, Nortel, 

etc., survived by changing or went bankrupt and were replaced by the likes of 

Verizon, Alcatel-Lucent and Cisco. Values of telecommunications companies experienced a meteoric rise and a precipitous plummet when the ‘‘bubble’’ burst. Total 

Universal Service Funds (USF) also rose with the market driven by new programs 

(health, schools and libraries, low income, competitive eligible telecommunications 

carrier (CETC)). However, without new contributors the contribution factor nearly 

tripled. When the market burst, the contributors sought relief. This is the period 

in which SIC began. In addition to the turmoil and uncertainty created by these 

changes, SIC also dealt with (i) an ILEC that has changed ownership three times 

and gone bankrupt, (ii) turmoil in the insurance and financial industries, and (iii) 

Hawaii’s high cost of doing business and low population density. All of the above 

factors, along with a century old monopoly ILEC that had very little, if any, interest 

in serving those areas that were financially marginal, resulted in areas outside the 

Honolulu urban core, especially HHL, having demonstrably inferior communications 

infrastructure with no hope of improvement. 

The FCC’s National Broadband Plan identified a significant lack of broadband infrastructure serving tribal lands. The situation in Hawaii emulates these problems 

with 87 percent of HHL without any service infrastructure. The rural and remote 

nature of HHL properties means higher costs to construct any type of network facilities, with no means to recover these expenses. Carriers cannot make a business case 

to invest in communications infrastructure throughout virtually all areas of HHL, 

absent government financial support. The ILEC did not land its inter-island cable 

on the island of Molokai where 60 percent of the population is Native Hawaiian. 

63

The ILEC was unwilling and unable to provide modern communications service 

to HHL at reasonable rates. GTE was aware of the Rural Utilities Service of the 

United States Department of Agriculture (RUS)–USF programs when it took over 

Hawaiian Telephone, and used the RUS program to fund its Micronesian Telephone 

Company subsidiary, but chose not to utilize these programs in Hawaii. In 1990, 

DHHL wanted to build 12 homes in Maku‘u an area on the island of Hawaii. As 

was its practice, the ILEC, GTE Hawaiian Telephone, demanded payment for its facilities ($1,000,000.00) plus land rights to locate a central office, merely to obtain 

party line service. Party line is not suitable for fax, direct-dial long distance or dial 

up Internet access. It was not until the late 1990s that the Hawaii Public Utilities 

Commission (HPUC) ordered party line service in Hawaii eliminated. DHHL was 

unable to come up with the money and deferred building, denying native Hawaiians 

another opportunity for rehabilitation. 

After no other carrier stepped forward to provide comprehensive communications 

services to HHL, as a native Hawaiian, HHCA beneficiary, I accepted the challenge 

to carry out Congress’s mandates, as expressed in the HHCA and the Communications Act of 1934, for native Hawaiians living on HHL. Pursuant to ‘‘License Agreement No. 372’’ (License), an exclusive license was awarded by DHHL on May 9, 

1995 to Waimana Enterprises, Inc. (Waimana). Waimana was granted an exclusive 

right and privilege to build, construct, repair, maintain and operate a broad band 

telecommunications network to serve all lands under the administration and jurisdiction of the DHHL. In May of 1996, that authorization was assigned in part to 

SIC, a wholly-owned subsidiary of Waimana, to satisfy the wireline voice requirements of the License. 

Working closely with RUS, SIC designed a 20-year plan to bring universal service 

to all areas of HHL not currently being served. This plan was markedly different 

from the sort of universal communication service plan a typical RLEC would undertake. Bringing universal communication service to all unserved areas of HHL required a transport network that would include undersea cables as well as terrestrial 

cables connecting each HHL. Although the number of customers would be comparatively small, because of the lack of adequate existing transport, and the time needed 

to build transport, each island would need to have its own central office(s) and numerous remotes until adequate transport could be built. The lack of adequate transport from the ILEC (Hawaiian Telcom and its predecessors) and the high cost to 

build transport, especially on the neighbor islands, was extensively verified by the 

ILEC (Hawaiian Telcom) in its Waiver Application to obtain High Cost USF filed 

with the FCC on December 7, 2007. 

Due to the magnitude and complexity of the plan, SIC sought and received RUS 

approval for its entire plan to bring universal service to all HHL areas. SIC did this 

primarily to mitigate the risk of not being able to complete its plan and to make 

sure everyone involved understood the plan’s enormity and significance. As a lender, 

RUS approved the entire plan and loans after intense and comprehensive engineering, financial and legal review and based on FCC’s then-current rules, providing 

adequate USF support to recover costs and repay the loans. Completion of the plan 

would be the best opportunity to be financially self-sustaining after the capital costs 

were paid for, while not completing the plan would necessitate continued financial 

support from the government. Ultimately, as the plan would be implemented, the 

architecture of the system would allow minimized operating costs through the retirement of most central offices and redundant loops reducing the need for people, 

equipment and inventory on each island to make costly emergency truck rolls to restore service until a permanent repair could be made. 

This plan to ensure a universal level of communications service would be available to those who live and/or work on HHL and was unlike any undertaking by another RLEC. When measured in miles of network, scope of facilities, advanced technology that would be deployed, environmental and regulatory agencies needed to be 

coordinated to construct the facilities in one of the most high cost, sensitive environments in the United States and the hundreds of millions of dollars needed to be borrowed and managed to complete this project, this plan was one of the most complex 

and difficult. 

Since the inception of the RUS-approved network construction plan, SIC has borrowed and/or invested more than $400 million on telecommunications infrastructure 

to serve more than 2,400 access lines throughout Kauai, Oahu, Molokai, Maui, 

Lanai and Hawaii Island. SIC now provides homesteaders with access to local and 

long distance telephone service as well as high speed Internet access. To accomplish 

all of this, SIC had to: (i) install 504 miles of terrestrial and undersea fiber optic 

conduit consisting of nearly 26,000 miles of fiber strands connecting the isolated 

parcels and islands, (ii) construct 24 remote Digital Loop Carrier (DLC) sites on six 

islands, (iii) build 12 Central Offices that house 12 switches and DLCs on five isVerDate 0ct 09 2002 13:22 Jan 04, 2013 Jkt 077458 PO 00000 Frm 00067 Fmt 6633 Sfmt 6621 S:\DOCS\77458.TXT JACK
64

lands, and (iv) erect nine microwave towers with 12 dishes and seven radios on two 

different islands. 

SIC has been reviewed and audited by independent auditors as well as various 

regulatory agencies. Each year RUS requires SIC to provide an independent auditor’s report. Additionally, RUS, NECA and USAC have each audited SIC several 

times. None of the audits have found a reportable problem or have required SIC to 

change its organization or the way it is doing business. 

Again, despite the dramatic changes to the industry itself, the regulatory rules 

governing the industry, and the significant increase in the size of the Universal 

Service Fund, Congress has not changed its mandate that all Americans are entitled 

to a universal level of communications service as expressed in the Communications 

Act of 1934 and reaffirmed in both the Telecommunications Act of 1996 and the 

FCC’s recent Connect America Fund Order (FCC 11–61). Congress has also not 

changed its mandate that USF support shall be sufficient and predictable. The fact 

that SIC’s plan met the law and rules at the time, was affirmed by RUS’s approval 

of SIC’s plan and by the FCC’s granting SIC a study area waiver. The law has not 

changed, and SIC’s plan and method of operation has not changed. The only change 

has been in the rules implementing the law. Absent a waiver to ensure preservation 

of existing service as provided for under the Connect America Fund Order (FCC 11–

61), SIC cannot survive, this means the native Hawaiian customers who rely on our 

service will be left stranded. 

SIC believes that equity and hardship and the harmful effects of the FCC’s Order 

on native Hawaiians ability to receive reliable, affordable and consistent telecommunications service should compel the Committee to support SIC’s recommendations for immediate relief—automatic approval of the FCC’s waiver for tribal 

RLEC’s, like SIC, with current obligations incurred following the FCC’s old rules. 

This relief is contemplated in the FCC’s Order and provides the best immediate solution to prevent the loss of service to our native Hawaiian customers, while a longterm solution is developed. 

Sandwich Isles Communications stands ready to work with the Federal Communications Commission and this Committee to achieve meaningful solutions for indigenous people in Hawaii and across the country. 

Thank you for the opportunity to provide testimony.

65

ADDITIONAL TESTIMONY OF ALBERT S.N. HEE

Chairman Akaka, Vice Chairman Barrasso, and distinguished members of the 

Committee, thank you for the opportunity to appear before you at this hearing to 

address the impacts of the Federal Communications Commission’s (FCC) Connect 

America Fund Order (Order) on native communities across the country. It was valuable to hear directly from my fellow tribal telco and telecommunications industry 

witnesses as well as from the FCC and the Department of Agriculture’s Rural Utilities Service (RUS). I am also grateful for this chance to further clarify important 

issues brought up at the hearing, for the record. 

Historically, a Rural Local Exchange Carrier (RLEC) had no other option but to 

seek financing for its infrastructure needs from the RUS. As part of RUS’s loan approval process, the RLEC’s proposal would undergo a rigorous engineering, legal 

and financial review. This is confirmed in a May 31, 2012 Notice of Oral Ex Parte 

Contact from Mr. Jonathan Adelstein, RUS Administrator, to Ms. Marlene Dortch, 

FCC Secretary, attached hereto as Exhibit ‘‘A’’. The letter states, ‘‘The Administrator noted that RUS only finances capital infrastructure, and that every RUS loan 


607z11.eps
66

and grant dollar is scrutinized by program and field staff, and that each dollar spent 

in the RUS program is tied to specific purchases that are audited. RUS does not 

tolerate waste, fraud or abuse, ensuring that dollars are prudently spent.’’ The financial review and ultimate loan approval was based on predictable and sufficient 

Universal Service Fund (USF) revenues for the term of the loan, which can exceed 

20 years. In the true spirit of Universal Service, the RLEC invested this capital to 

build infrastructure to serve its rural and remote customers. These investments 

were made under then-current rules with the understanding that the USF revenues 

would be necessary to recover costs and repay RUS loans. With its new rules, the 

FCC is severely and negatively impacting RLECs’ current and future obligations in 

the following ways:

1. Current obligations: The FCC is subjecting RLECs to an after-the-fact review 

of their eligibility for USF. Specifically, the FCC is questioning the eligibility 

for USF on facilities that have already been built using long-term loans that 

rely on USF funding for repayment. The FCC’s new rules allow this discretionary, after-the-fact review to occur at any time and as many times as the 

FCC’s Wireline Competition Bureau sees fit.

2. Future obligations: There is no assurance that USF funding will be predictable and sufficient to meet current and future obligations, as required by law. 

This is because of the FCC’s new rules and its reliance on an entirely discretionary waiver process. A process that from year to year, and bureaucrat to 

bureaucrat, could yield differing results. No lender would consider providing 

capital loans based on an uncertain and unpredictable USF income stream. 

No predictable access to capital loans jeopardizes an RLECs ability to maintain and/or expand its network serving rural/tribal customers.

With its new rules, the FCC is changing a process that has been successfully implemented for more than 60 years. While we question the need to ‘‘fix’’ this process, 

at a minimum, the FCC must ensure any new process they implement be:

1. Proactive, in that an RLEC would receive FCC approval of USF funding before it incurs capital expenses and not after;

2. Clearly outlined and carefully vetted with all stakeholders, eliminating bureaucratic discretion;

3. Efficient and timely;

4. Ensure USF funding be specific, predictable, and sufficient, as required by 

law; and

5. Not duplicative of the highly successful process RUS has in place.

The aforementioned principles must be assured before the FCC abolishes a highly 

successful process in place of its own. 

Beginning July 2, 2012, the FCC will implement a presumptive $250 per line cap 

on universal service support for all carriers. According to the FCC, the cap ‘‘will affect companies serving approximately 5,000 customers, many of whom live in extremely remote and high cost service territories.’’ Connect America Fund, Report 

and Order, paragraph 278 (November 18, 2011). This new per line price cap contradicts the statutory intent and purpose of the USF law. The USF was created specifically to ensure that ALL Americans have equal access to telecommunications 

services. The USF was clearly intended for high-cost-to-serve, tribal areas. However, 

the new cap automatically red-lines tribal lands in America due to the inherent high 

costs to serve indigenous lands. The FCC’s new rules will cut funding to the very 

citizens that live in remote, rural and tribal areas, areas that are too costly to serve 

without USF support. The FCC has access to and therefore knows precisely which 

tribal lands are historically high-cost-to-serve areas, where costs to serve Native 

Americans exceed the newly imposed price cap. 

Because of the geographic and infrastructure challenges, among other reasons 

outlined in our original written testimony, serving native Hawaiians on Hawaiian 

Home Lands is extremely costly. Therefore, Sandwich Isles Communications, Inc. 

(SIC) is one of those RLECs whose costs to serve exceed the FCC’s new price cap. 

As repeatedly stated during this hearing, the FCC’s solution to this dilemma faced 

by SIC and many other tribal RLECs serving indigenous people across the country 

is to apply for a waiver. To ensure the record clearly reflects the inherent flaws in 

the FCC’s so-called solution, we offer the following timeline of our waiver process:

1. December 30, 2011—SIC files waiver petition with FCC’s Wireline Competition Bureau (WCB)

2. March 13, 2012—WCB sends SIC questions

67

3. April 11, 2012—Upon SIC counsel’s request, WCB meets with SIC counsel. 

WCB poses more questions.

4. April 16 & 17, 2012—SIC answers both rounds of questions from the WCB.

5. June 6, 2012 (one day before SIC is scheduled to testify at this Senate hearing)—WCB releases another set of questions to the media before SIC has an 

opportunity to receive its letter. Despite the fact that SIC and FCC were in 

a face-to-face meeting the same day. This letter and SIC’s response are attached hereto as Exhibits ‘‘B’’ and ‘‘C’’.

6. SIC will answer third round of questions from the WCB before the end of 

June 2012.

More than 285 thousand dollars and 174 days later, SIC has yet to receive a ruling on its waiver application. This is well past the 45 day ‘‘shot clock’’ established 

in the Connect America Fund order. Meanwhile, our company faces a July 2 implementation date, when we will lose the funding needed to continue serving our native 

Hawaiian customers. 

Furthermore, during this hearing, the FCC’s witness stated that the FCC’s waiver 

process does not require telco’s to hire outside consultants as long as they follow 

Generally Accepted Accounting Principles (GAAP) and provide the FCC with their 

GAAP financials. However, it is important to note that while telco’s are required by 

the FCC to follow GAAP for their company financials, cost accounting (not GAAP) 

is required in the telco’s monthly reports submitted to obtain USF recovery. Furthermore, cost accounting and GAAP do not readily reconcile; which is why we were 

forced to hire outside consultants and accountants, at great expense, to help us correlate the two very different accounting principles. 

The aforementioned June 6, 2012 letter from the WCB to SIC (Exhibit ‘‘B’’), questions SIC’s corporate structure and relationship with its affiliated companies. As 

previously outlined in my written testimony in this matter, SIC has been reviewed 

and audited by independent auditors as well as various regulatory agencies. Each 

year RUS requires SIC to provide an independent auditor’s report. Additionally, 

RUS, the National Exchange Carrier Association (NECA) and the Universal Service 

Administrative Company (USAC) have each audited SIC several times. None of the 

audits have found a reportable problem or have required SIC to change its organization or the way it is doing business. Despite this, the WCB is causing a delay in 

SIC’s waiver process by questioning an organizational structure that is legal. This 

is just one example of what can happen when RLECs are forced into a waiver process that provides full discretion to the WCB. 

USF programs are critical to ensuring the progress that has been made to provide 

equitable telecommunications services to those in rural and tribal areas of our country continues. Likewise, a proactive, clearly outlined, carefully vetted, efficient, and 

timely, USF approval process is essential to preventing red-lining of native people. 

So we humbly ask this Committee to question why the FCC is abandoning a highly 

successful process that has, not only facilitated the build-out of telecommunications 

infrastructure to America’s rural and tribal areas, but also made money for the federal government by way of interest income. 

Mahalo (thank you) for the opportunity to shed additional light on this critical 

matter. I stand ready to work with the FCC and this Committee to bridge the digital divide that threatens to further separate America from its indigenous people. 

Attachments

68


607a1.eps

Exhibit "A" 

May 31. 2012 

Ms. Marlene Dortch 

Secretary 

USDA 

z.- ~ 

~ 

Un_ lIut.o. ~ ...... nl of Agl1c"ltu .. 

...... 1 0ew1Op-.,' 

Federal Communications Commission 

44512'11 Street S.W. 

WashinglOn, D.C. 20544 

Notice or Ora! Ex PIl1tC Contoct 

Re: Rllral Utilities Service notice of oral l'l: parte contact iDvolving the proceedings 

captiODed : In 1"1' Matter(s) oJthe Connect Amtrica Fund, We Docket No. 10-90, National 

Broadband Plan/or Ollr Future, GN Docket N~. 09- 51, Establishing Just and Reasonahle 

Rales/or Local Exchange Carril'r.;, WC Docket No. 07-135, High-Cost Unh-er.ral Sl'rvice 

Support, WC Docket No. 05·337, /Hwloping all Unified fntl'f"carrier Compensution Rl'gime, 

CC Docket No. 01-92, Federaf-Srure Joint Board (m UnivefYal Servl<-e, ec D" k~ 1 NQ. 9645, 

Li/flline alld Link-Up, we Docket No. 03-109, In Ihe Malter o/Unb'l'r.ral Sen.·ice Re/orm 

MobiUty Fund, wr Docket No. 16-208. 

Dear Secretary Donch: 

On Tuesday. May 29, 2012. the Honorable Tom Vilsack. the Secretary of the Department of 

Agriculture (USDA). Lindsay D=hle, Senior Advisor to the Secretary, and I met with the 

HonorobJc Julius Genochowsld, the Clwinnan of the Federal Communications Commission 

(FCC). lac Katz, Chief ofStafTlO the Chairman, and Michael Steffen, Advisor to the Chairman. 

for a discussion aOOm the imponance of broadband to the n;.ral quality of life. 

The Secretary expressed appreciation for the Chairman serving on the Rural Council. his 

openness to hearing rum! concerns. and specifically his willingness to oonsider USDA's 

perspective on the im))llct of the FCC's reform of the Federal Universal Service Fund (USF) and 

inter-carrier oompensation (ICC) rules on rura! providers and their consumers. Thc Secretary 

and ! discussed the long, successful hislOry of the cooperative efforts between the USDA, RUS 

and the FCC 10 improve rura! telecommunica/.ions service. The Secretary expressed an interest 

in building on existing coordination efforts through continued dialogue, data sharing and 

outreach to maximize the benefits ofUSF and ICC refonns for rura! oonsumers. The goal is to 

promote the mutual oommitment of both agencies to dcliveron the President's goal ofdas;ng 

the digital divide. 
69


607a2.eps

Ms. Marlene Dortch 

The USDA has policy, plRIlllillg and lending re~ponsibilities in all of rural America, including 

arcas served by telecommunications providers tbat do not participate in USDAIRUS 

telecommunications loan and grant programs. USDA also Ims an institutional interest in the 

FCC reform efforts. Changes to tbe federal USF and ICC can have a direct impact on the ability 

of existing RUS borrowers to repay their outstonding loans and complete the construction of 

wireline broadband systems. 111ese systems provide backhaul needed to facilitate wireless 4G 

deployment in rural areas, which are also critical to pnblic safety. Robust broadband network!; 

are essential to the future ofruml economic development ami the vitality of JUral communities. 

The Seeretmy noted that the RUS makes loans to finanee the constmction and upgmde of high 

c!!pacity broatlbond networks whose tenns con exceed 20 years. He noted these investments 

were made under then.current rules with the understanding that the revenues would he necessary 

to recover costs and repay loons 10 lenders including RUS. He noted that consumers nnd lenders 

need certainty and predictability in their investment horizon. The Secretary noted that the 

regression analysis model can affect long term revenues ond USF predictability. 

Tbe Administrator noted that RUS only finances capital infrastructure, and that every RUS loan 

and gmnt dollar is scrutinized by program and field stoff, ond tho! each dollar spent in the RUS 

progmm is tied to specific purchascs that ore audited. RUS does not tolemte waste, fraud or 

abuse, ensuring that dollar:s are prudently spent. 

The Secretary suggested that the waiver process oould be improved by inco~orating key 

elements of the "safety net" process, which was suggested in the October I J' L filing by the RUS 

Administrator whi~h recommends Wer alia that the standard for relief should be tied to a default 

on an obligation to government, nm the loss of"oice service. 

The Secretary underscored then~d for USDA and the FCC to continue to work together to 

addross the commlmications needs ofrural America. That way, tho partnership \hilt has 

succeeded f01' so long in facililatiug tbe build·out of state-of-the-art rund telecommunications 

networks can continue sllccessfully into the future. 

Sincerely, 

ct~:{~ AdminiStrator 

Ruml Utilities Service 
70


607a3.eps

Exhibit "8" 

Mr, Albert S.N. Hoo 

Fresident 

REDACTED - FOR PUBLIC INSPECTION 

FEDE.RAL COMMUNICATIONS COM.l\USSION 

WASHlNGTON.D.C.ZUS54 

JUlie 6,2012 

Sandwich Islt!5 ComJ1l1utic~tions.ln~. 

1003 Bish<Jp Street, 2"1'" Fluor 

Honolulu, Haw!lii 96813 

DA 12-S!J3 

Re: Snntfwidl 1...!<1s Commttml!ailnns. hu:, Pa(illfl1l fnr WaiWfr ffljSec:i(m $<f.lfJ2 (fltM 

Cmmmmim'x K~ we DllcketNII. 19-90 tmd WTDsd;elNo.10_2tM 

Dear Mr. Hee; 

The Wil:eliu~ Competition Bureau orlhe Federol Communications COlllmission is 

continuing 10 cvaluu;e the petition Qfthc S!Illdwich Is.eIi Communioations, Inc. (Sllndwkh Isles) 

('or waiver of section 54.302 ofth~ Commission's rules, which cslllblishcs II lotallimit on hiyhcost uniVl:rsal servic~suppOlt of$ZSO per line pcrmOlllh.1 In the USFIfCC '1'ra/l~/Qrmalion 

Order, the Commission established the S2S0 perline ;lermonth limit as part ofi!:! fiscally 

responsible refonn of the univefs~l ~ervice fund and oandaled Ihat the :tro!t be pbllsed in over 

three years. The Commission pel'ltlitted affected carriers to seek 1I waiwr efthal restriction by 

providing SJl~ific imorm;'ltlon ill its petition nnd also required anyre'l\re.~ting carrier to provide 

addiliQnul infonnntioll (IS ~<lqllested by stafe 

TIre Burellll husrevitm'td lhtdnfomt.uwn SlUIdwichJsles providtd with its petition, tIre 

record !eCCIVW In response 10 tho: petition, 1 and Sandwkh ls1cs' re~pm13e to L~ Buro!tll's Mmcb 

13, 2012 klWr SIlcl;i;~ additional information. 4 Together,!hm materiaJsl'tllse addltlonal 

questions regaromg sandwich Isles' J)~cde:d revenues and e1:penscs. 

I Snndwich Isles CQmulImkutlOl\., llll:, P<:titian for Wni""lofg""Uon 54.~02 ofth~Coll1missicJl;~ Rut,,", 

we DQ~ke\No. IO-S>O"llnd WTDodol NQ. 10-208 (mc~ Dc<:. sa, 2011); ~«I "/M COIInC.1 dmerka nma 

~t nt, WC Dooket No. 10-90 et nl., Rqmrt nnd Order and Fm1h"r NQli~ Qrl'l\Il'~sud ll-u\~lnakiIlS, 26 FCC 

Red 17563 (2011) (USFflCC Tilll!Jjlmrwli,m Ordar);47 C.F.R. § 54.302. 

, USf<IICC Tron:ifm'mQ/lrm Order, 26 fCC R<:d nl11M2, p"m. 543. 

1 See Comments oflIal'laiiafl Tcl~om,lne .• we Docket Nc. 10-!l() and WT Doekal Noll. 1()-208 (filed Feb. 

9, WI2); Communts of US 1'ele~oll1, we DQ~kUI N". IU-90 amlWT Dookcl No). I().::ms (fiI~d Feb. I), 

2(12) . 

• See [.~j{ef from Stumm ROiliell, Clth"r, Wireline Cbml,,!ilron Bureall, F~~(o,'a\ COITIIll\lII,ro\lens 

C\:lmmission, \() Alber! N. Hcc, i'{C$\dent. Sandwich 'sles TclecommunkatiOlll, In!')', we [}(lci:;:tN().IIJ-!lO 

~!!d WT DQ~lcct Nc-. In-70S (M;i.r. IS, 2{l11): Leiter rrom Frederi<:k M. Joyce. Coun;cl fer Sandwich Isles 
71


607a4.eps

In pllrtiwlar, the overwhelming majority ofSalluo';cb Isles' expcnse.~- many millions of 

dQU=-cun~st ofsignifiennt PlY=llts (OJ'; nlimt&tr~faffi!iaterlrompanics. indutling: 

CkarCom, Wairnunu.IREDACTEDJ. "nUPallkJl),l each Dfwhicb ~rs to he owucd andIor 

"'pl:m\ed byM:. Hea, COO of Sandwich Isles, nThl., family members. ill [t~ ,;tWa' wJ>ive, filing 

and inil:; sulmllssio:lS siltcll, S~lldwich "I$!es 11M f.!.Iiled t(l be ~mingrega«lingits :dJiliates, 

the fillllnces ottb.esC~ftl!illtcs, the basis of Sandwich ls.]es· payments to tbe.~e affiliatw.!, ~ad the 

details ofSalldwich J.~le~' agre~me!11S with these companies. Asu result, the BUrllau still lacks 

basic infOlmali(j(llleC(l$al)' to eval\late thMe ~ffiliatetransactions. The Bureau reminds 

Sandwich Isles that, in dcmonstratiog wbetberll Wtliver i~ walTIlntoo, the burd~n (lfpr(lofl"l:sts 

With the pelition~[.~ M.oordingly, it i~ inclll1lbcnt all SlUldwicb Islcs IQ be os forthcoming as 

po.~sible so lliat thc:Bureuu hftS necessary ~ndcomplet(: infamtalion before it whet! actit!g on Ule 

waiver petition. 

MQf'.)ovcr, the inionnMio!l avnil;"!blel(") Ilsr.liSi.'lssil,'!Iifil:ll.lltquestiorn; about wb'>ther 

Sa"dwieh t8.1~~ cnnldl.ro oblainillg the !!C,vices il reL-<:l~es foom itszffilintMJl! much lov.'e;rut~ 

from vIlUffili~ted mroos. 1"I:ese:!.ffiliate payrtlilflts airoll.ppcar:O rcflect very xgllifim'l:lt ('!.nd 

unexplained ca1:pQrllte cr.PI;1ll;CS, smI mise (lOlJCerns that Sandwlcl! Mes may be Ilsi.~£ urrivCT5a! 

service I\m& II) ~.I"O~s-s(ibBidizc cornpctilivcscn1ces uutside of its service territory. 

Accordingly, the Bvreuu ""quests >l.ddilional informatioll relnted to these iS5UI;.!i. This 

additional info!1l1ation is necessary for the BUfcau \0 complete its analysis ofwhother there is 

I!aoo cause ta grant the requested waiver. 

Plaase provide full and complete rt::!jlOruie$ II) the fClUClYing question.~: 

1. rl1 lIZ respcnse 10 thl: Burenu leti-er, Sandwick Isles projects revenues 1100 llpcr.lling O:XpWlS% 

fat the j'IlriOO '.012 through 20! 6. Please detail tim majer COt~p(lllel1t5 ofS~"dw!cb Isles' 

projected revenul::5 ~rni opero.ting expe:l$E'".': for each of Ille prcjecreu years. 

H. P!<;:;ISe separately iden!ifYproject~d ~v(!J\uo, if!IIIY, for HCLS, iCLS, Connect 

AmericlI Fund ICC/CAP Reoovetj, ACCC5S Rocovety Charges, intcrcarrier 

COlllpensati!ll1showiDg separatcly oo,tn:;CQvery from NECA pools rela1ed to Ihe 

{'puiaw network nod otlter 00.11 recowlY from NECA poal~, rcvcnllCS from 

1cruins: tbe Puniolo coble to otheru.sl'l-s, and any other mlIjoreompollcul:i of 

projected revenues. Please also provide projeoted cllslamer revennml foreaclt 

yearby Lype of service. 

b. P1M.;e tepr.rately identil)' ddailcd proje<Jled operntil1.&expen5lls in ~ch afme 

fullowillgexi)e!,se c.~tegorie.~, illilludlng out IK't limited to: 

CommunIcations to Mm\eJle H. l.lor(ch. S""rclary, FCC, WCDo,].:erNo. 10-90 (filed Apr. 16, ~OI2) CApr. 

16 R~sponlll:). 

! See Sm-llmllmM S!lilflw//IG C(JM~ LtmdiiJg LiCilllse ..Jpplk~lIo"s Accepted for Filing, Report No, SCL000833, Public No!i~c (r~L March 25. 2009) (ooting thl "on11"01 orPanio\o was transfum::d I" Bl~~ Ivory 

on Mar<:h 31,2008 and tllat"Bluc Jvory iswbolty m",cdby alId conlnlllcdb)' Blue Iv~ flnwuli Cotp.~. 

whi~li "is held cgunUy bylh,~epri"nte InlSl.'l,!M '\dr"mn~ H.It. flee 1m:l'Ilcable Trust, the Brom,ne E.R. 

Hee lrrc1'()cabItl:Tru!\t.1UId IhcCbaritan EoR. !-lee Il1'evQCllblc Trus,-"j. 

'T=/m RaJi", 1m:. 1'. P·CC,4S2 F..2d IJ!O. 1382 (D.C. tif. 1971). 
72


607a5.eps

i. Plant specific 

I. Puniolo leu~~,",)r.p~·m.lel 

2. Payments to eaeh nffiHa:e(l-fSnndwlch Isles 

3. Puymentl; III non->lffHiat<:s 

iL P1;11l1 NOIl-specifi(l 

l. Payments 10 each affiliate ofSandwicll Isles 

2. Payments to IlOJl·nfliii.lles 

iii. Corporate operotions 

I. Waimunu munagement fee 

2. [REDACTED1 

3. Paymellts to CIMtCOlll, ifany 

4. PayroJYLabor 

5. Other 

2. PaYr.1ent.~ 10 IREDACTED! lnsunmce Coml'lzny. [REDACTEDj from 200!! t0201 I. 

Provide delnils fuuli ;llS~mn:w p<>!ici.w pI'rcl,ase.i fREDACTED] f<:lf 1h000y~~rs. including 

type ofinsur1ll'.c:e and premiums. FIe= provide copies of all insuranee contracts and 

u,gre~mMts (REDACfEDj. Please pwyido il1f00113l10n regarding fill)' (lclivllie$ to seek 

insuran~ [rom olh~ companies 5in~ 200S, including the name oflhe compnny, typ~ of 

insurnnce untl the qUOled premium. 

3. During 1010, S~ndwioh Isles JREDACTED) it.~ affiliate ClearC(l-m, which was roCQl'!lod as 

Corporate Opcrutious Exp~n~~. Provide detaHs 1,11\ the nature-and purpQ~C oflhis expense. III 

:!dditioo, plen~e provine copies of all COI:ltr.lct~ or nsre~me:nt.~, !fflllY, t>elWt'lIilll Sandwich Isles 

nm! Cl~urC:)Ill. 

4. Provioo then~me. p(!.';'llol1, and :mnu~l compent.~lion oflhete.ll hi{;~=tpald employees of 

Ci::urCcm ami {REDACfED] for2009, 2010. nn(l 2{l1 1. III ~ddllion to salury, loolude ~s 

part ofcompensalion any benefits, dividends,locn:ases ill equity, sales ore~lIl1;y, ofllny other 

1l0ll·salalY forms ofcompellSlllion. 

5. Provide demils 011 the ownership OfPfIllio\o, induCing tho names ofall owners. the 

percentago ownmhip oreach, ami the relationship to the oWIlCl'ofSandwich lsJtl!l. In 2009, 

in additiOl'l to lellScpayment.>;, Sandwich Isl~.> p~id [REDACTED] \0 the Paniolo Network. 

Please specify tile rcuson for IREDACTED}, til" r.l1lUlcigljllstificuli~n for the 

JREDACTED], the extent 10 whkh the [REDACTED] arouseful to:my other Clltity. lind the 

wl1t.rnduuI pll1enliul for-reco"ery dthcjREDACTEDI i:! the eVfln! ora ClHIl!ge in Ihe 

contract between Sandwich lsles and PlIJIiolo. Plc;;se provide copies ofall contracts and 

ugret",m~ms belween Snndwicll Isles und ParoW!o. 

, We n~tQ tflat S3ndwl~h 1.lcs projects pa)'lllcnt'l from San~wi~h !.sIcs to Paniolo fortbe YCiIIlI2QI2!Q 2016 

ofapproxinultely [REDACfED[ annuully for cxlX'!I!Ie. found bytlu: Bmc"" not 10 b~ '·csc~ ormcfut" for 

pro.ision ofscrvk:o 10 tllo Hawnii"n hom.lond •. SCIl Apr. 16 Re:;pcQ""nt 14;SQ/f(lwi~~ MI.!' 

C(Jmm,miwri,,,,s< I~<· .• peJ.m~nfi'" !Je,,/"reJ/OIJ' R,dirlJ:, we Docket Nil. 0!)-13), n""larnt<»)' Ruling, 2~ 

FCC 13647, t36~CI, p'u. ~ (Wireli,", U>mp. Bur. 20)(1). 
73


607a6.eps

6. Plcase pr"vlde detailed ftnancinl statements for W~jmmla, ClearCom, and ]REDACTEDI r"r 

lhe y.."'UlI 1007 tlnough2011. Indicate any other entities forwl1om Wainmnn and ClcarCorn 

provide managcrn\ml ~ervi~ ~ml, ill the OI!SeS of My indivldua!s who work on mOle Iban 

!lJI\l pmjcct, the percentng¢ of lime IlIIU e;..pense allocoted between Sar.dwicll Isles aM (llller 

p'oje~ts. In a:!dilion, provide: copies aftile emploYIlle:.lt agreM",ellts oftbc tep four 

c;{ccutivcs ofWaimilllll !lml ellC>.i. OfWlllmUIl~, Please quantifY iIleperoMlligeot' 

oomp-;:nsation fur e:ach ofthe..w W;cCl,Hiw:; thai were :,;Ilocalcd 10 or oC,mwise rer;pv"lCoo m:.m 

Sandwi~h hies in2009, 2010, wui20!1. 

7. In ils rCllponse to the Burcau leLLer, Sondwieh Isles projected approximately IREDACrED\ 

additional av=se eapilul expenditure (capex) cae" y(,W fortheYMr.i 2012 tbroughl016, 

Please provide the I1wl1oorofllCw voice cuSlom~·s ~nd tho number ornew broad~nnd 

customers for ~aeh ofthepust thr'X culemlar)'l:utS, Ple!lsedemillhe major components of 

Sandwich 1~IWl' nddiliunul projected c~pe;;; foreucb. oflhe projected years. Please ,oreparntely 

fdentifj' addliionaJ pmji!Ctoo eal'ux in cach of the following categories: 

ll. Tr!lUsport: (u) Clipe;i, iflm}'.lU1So~ialed with the ?a!lroto !letwork, (bJ{l.1pe~, If 

uny, associated with !he wut.:rmll.]us, er.d(e) othertrn!lsp011-relr.t«l c(lpllX, ff 

any; 

h. Loop: (a) capcx, if !lIlY, Ilsoo~Jlted with the "dditian of new CU5iOmel'S in (ho 

study ar<:J, (b) C"l'~x, ifany, Hlisocimed with the maintenance ofJoc)'lli fur the 

~xislillg ~U~!OmcIS in the study ere<\, and (0) other loop-mInted capl':>:, ifany; 

c. Other, ifany. 

&. Sandwich t~les uscs ubandollCd wilter maills from CIe!lrCom, Inc" which leases ilia 

abandoned wlltcr1Illlins from the Bourd dWntc:.- S\I[;'ply fur tIre City 3nd CoUllty I>f 

j-JOIlOhtl\1.~ Plense quantify the amount oiaba.1id(llwd water mains utilized ill ClimrCoro'~ 

netwOfk (excluding tlte ~_""ge ;11 Sandwich hies' network) in l~ffilS of mi1c5 u~ed, llllStomc:rs 

served, lind reveWJe earned. Please prm.itle copies of ur.y UgreIlllle:!1S betwe:\1 SJndwicb 

We:; lind CleDrCllm and lhele;;ooagrccrnllllt belw!Ie!I the Bon,;! ofWalJai Sllpply nnd 

ClearCum fw the ~bandonoo wmermains, 

9. SnDd\\li~h L~l<'JS did not I~t Sandwich Islas WireI~s~ us nn uCfiliute in eithet its inltlnl pelltlon 

or in its re:;ponse to th~ Bureau's March IJ, 2012\ettcr. P]c;cse provide information ~boul the 

ownership ofS~nr:lwiGlJ Isles Wireless. In addition, pl= provide infomlation on the nature 

ofmlalioMhlp, paym~nl8, and in\'estmcnts (ifmiJ') for Illeperiods 2009 through 2012 (ye<1Tto.oole) b~j\O;een Sandwich Isles Communi<:ation:; und Sandwich Isles Wireless. In ~ddltion, 

please provide docu!TU!!ltannn Mowing how Sandwich Isles Wireless will have $11 HiclclIt 

limds 10 meet Its $-year bUUd:~llt obHglItions Ie tbe Hnwai:nn Publk:- U!i1ilie.~ Commission 

• HB 22u1, HD I, Rclirtfug 10 IsS\l:S ljfSp~i~ll'Il~ R~I'<;aue B(I~(is te !.%is! CleolCDm, lno .. in the 

Oe\'clQp!llCllt (If Bwo~bn~<llnr"'stnlct\1n' in """",ii, S<lsslon 2g t2 (Feb.:n, 2012) (litlll~roent gf Alberl S.N. 

H ... Presid.nlofCt""rCom, iHC. te the House Ccm\1nitt~c nn Finonoo, Hawoii SI,,\n L.ghtalUl'1\)' DI'aliable(l/ 

hlt(l:lfwwy.;..,am~i aoy/l!osr;{gn20!2D'esljmooyIHB2267 HD1 TESTIMONY )lIN _Qt~ 

]? 3 _PDF 

En 2236, HD ! R.I~ri"lI to Infbrm.rion Toohuo\oyy, S~.si ... n 2QI2 (Mnr. 28, 2012) lst"!~m~nl flfEd I'tIklni, 

Reg;o"nl Vic. ~idcn!, Mid-St:lleCODsultanls 10 the Hol!S. COO1mitte<: on Finonce, HaWl.lii Stut~ 

Legislature), a!;(lll""'~ <II 

httrrfl",,,,w_<:apiMLh1!\\!aii.goy/l!cssi~n2012!fgi[im9UY!S[l~36 HD! nS-TIMONY fiN O) ... :!S.:JLL~ 
74


607a7.eps

without fedcrnl high-<:ost universalscrviccsupport, Plellse provide documcntntlon showing 

Sandwich rsle,o; Wircll:sg's current BlldJll3nllcd ac~css to spectrum, including any contracts 

wilh mbcrpIOviders to RseU t.heirservke, 

1Q. We note thut S~ndwiciJ Islcs 11l!5 staletlthat it is "subject to eO!r.pelj~ion from mulliplemobile 

wireie:;scamers and to digital voice servU:ellmvi:ied by a caW: =Pllny.'" P!e~ provide 

a list ofS~ndwi~h Isll:s' compelilOlS (bo\h wlleiille alld wireless) and :mlicate I¢ whateJ:lent 

thos~ competitors overbp Sandwich Isles' smdy area. 

IfSamlwich Isle:; believes thai !lIlY information or document!; responsivo III this leuerbe 

treated ill a cQnfidenti~1 manner, it may file tho infol'lTlation In :u:cordHncc with th= Bmeuu's 

Pmlecrrve Order in this protecding.'O 

If you hllVcllny qu~5tKl!lS plcase cal! Gary Seigel olt (202)4l8-OO79. 

(l~ Fredetitk M. loyte 

Counsel fOO' Sandwich Isles 

Ven3lJl~, LLP 

Sin~erely. 

ShaWn E, Gillett 

Chief, Wirellne Competition Bureau 

Pl.'Il=1 Cammuni::a!ions CCIl~ni;;sioo 

• LCllru'frorr\ !l~d~rkk M. Joyce, Coumel f'orSand\1,'icb hl0" CommuniCfllions 10 Pnlricia Quarley, FCC 

~afed Jan. 2J, 2012). 

COlmacl Amerlc~ Fruuieta/" we Doekel N\I. lO·9(h: aI., PWleOltV6 Order, 25FCC Roo 13160 

(Wln:~ne COmpo S ...... 2OlQ). 
75


607a8.eps

Exhlblt"C" 

VENABLE~, 

June 12,2012 

VIA ECFS 

M!lrle!1E': H. Dortch, Secreta!)' 

Federal Co.:nmunicaticns Commission 

445 12th Street, SW 

Washi~<>ton. DC.20554 

S7SSEVEl{ltlSTQ<El II';'! WMU:N1lWJ..1JC 21(l&1 

nO,¥H~~~ FZ!;z.:w.&300 ''1WW.V~.= 

Frederio" M. JO)"''' 

n,..J.l4-1GsJ 

no!..lH.s:l~~ 

l"jO)"'o€i""",,bl~"' .. 

Attention: Sharon Oi1lt;lt, Chief, Wireline Competition Bureau 

RIi:; S~ndwich Isles Conununicalions, Ino. 

Petition for Rule WaiwrlEx Parle Notice 

CC Docket No. 01"92. we Docket Nos. 05-337, 07-135 and 10-90 nnd 

ON Dookel..!:!.% 011-;;1' _____________ _ 

Dear Ms. Gilloo1.t: 

Sandwich Islo.~ Cnmmunications,lnc. {SIC), through counsel, ond j"Itltsuantto Section 

LI204(a)(IO) of the Commission's RII 1::5, kr..,b)'submCts this~xparte notice in !h.;s role waiver 

proceeding. On behalfofSandwlch Isles Communications, thank you and the StnffC1fth~ 

Wireline Competition Bureau for taking the time to meet with AI Hee. President ofStC, Jlllleen 

Olds, Geneml COUI1~eI urSie, llnd me on June 6. As you know, we have repeatedly been In 

touch with the Bureau lind Chairman Gcnachowski's office since SIC fIr51 fIled its PetitiOll fur 

Waivcr (December 30, 2011) to answer questions, provide ndditioFllll documents, and determim: 

if you or your co!1e~gues had any concerns related tolhe Wlliver. Indeed, Wedncsduy's meeting 

was arranged Itt our !'<!qucst, not at the Bur",..:u'li itlsligutio>\' to determine the st:!.t'.1sofSIC's 

Petition rorWaivcI;" 11m:! ;answer IlI1Y remaining questions from the &;reru •. CUllsequcntly, we are 

de.."pI}'puZlie~ at;(i disappoinloo by the Bm-CllH'S auggc!rtlon at that meeting, and in ils JI1I\e 6 

letter to SIC, that SIC has "Iailed to be furthcoming" in its dealings with the Bureau. 

At the June G meeting you informed U5 that the Bureau had planned on sending SIC 

additional written inquiriBs and Ihal you would not make any commitments about when Q 

d~cjsion would be reached on th" Waiver. Lator th~t afteroooo thE': Bureau sent me a copy ofils 

letter with ten more areM of inquiry. Thi3 letter was apparently published by lhc FCC in 

''redacted'' form ~nd madQ available Lo Ih~ press before 1 had onyopportunity to see it. Prior to 

receipt oftb BIlre911'S June 6 letter, no one 3tlhe Commission had ewr informer:! we that they 
76

The CHAIRMAN. Thank you. 

Now, Ms. Bloomfield? 

STATEMENT OF SHIRLEY BLOOMFIELD, CEO, NATIONAL 

TELECOMMUNICATIONS COOEPRATIVE ASSOCIATION (NTCA) 

Ms. BLOOMFIELD. Thank you very much, Chairman Akaka and 

Committee members. It is a pleasure to be here today and to parVerDate 0ct 09 2002 13:22 Jan 04, 2013 Jkt 077458 PO 00000 Frm 00080 Fmt 6633 Sfmt 6601 S:\DOCS\77458.TXT JACK

607a9.eps
77

ticipate in this discussion that you are having regarding the 

changes to the essential Universal Service and the related cost recovery mechanisms that are going to affect in the future the availability and the affordability of advanced communications services 

on Tribal lands. 

The focus of the hearing also on sustainability of the connections 

is a really critical and so often overlooked component of what is 

going on with the reform debate. 

I am the CEO for the National Telecommunications Cooperative 

Association. We have about 580 small rural telecommunication providers. We have NTCA members that are nine Tribally-owned entities and we also have at least 27 other companies that serve Tribal 

lands. So we have the opportunity to see this from the very global 

Federal perspective. 

As you have already heard from my colleagues here at the table 

today, these are businesses that hold a really deep commitment to 

the consumers and the communities that they serve. They are the 

creators of these rural jobs and certainly the fuel for their rural 

economy. 

But broadband-capable networks and the benefits that they bring 

to the Tribal lands and beyond really just don’t materialize from 

thin air. The sparse populations and the large distances in these 

rural areas make these programs that we have heard about this 

morning, like RUS, so essential to promoting broadband deployment. Such programs can only help promote the deployment of 

rural networks, however, if those networks can actually be maintained and upgraded, and if the services offered over them can remain affordable for all consumers. 

Unfortunately, the success story of sustainable rural network development is at risk because of certain USF and inter-carrier compensation reforms that you have been discussing today and additional reforms that are certainly under consideration right now by 

the FCC. So while RUS and a number of these private lenders may 

provide capital to actually build a rural network, the network is actually of little use if it can’t be upgraded over time or if the services 

on that network are unaffordable for the consumers they serve. 

USF provides essential cost recovery for ongoing operation and 

maintenance of these rural networks, and USF makes sure that 

the prices that consumers pay for these services in these rural and 

Tribal areas are affordable. That really goes back to the reasonably 

comparable rates that were mandated in the 1996 Communications 

Act. 

By law USF is required to be predictable and sufficient. These 

principles encourage sustainability and are particularly important 

to the lenders and to the carriers who are actually investing in 

these networks, where the cost recovery path is frankly very long. 

Without committed carriers of last resort, which these carriers are, 

where they are committing to serve that last customer out there, 

wherever they may be, without these folks there would be even 

more unserved areas of rural America. So if we look at misplaced 

USF or inter-carrier comp changes that may require these small 

carriers to raise their prices substantially, cut back on their service 

quality, cut back on jobs or abandon their most remote areas, including Tribal lands altogether, that could be a real outcome. 

78

The FCC released their order on USF and inter-carrier compensation in November. And I commend the FCC for the work that 

they did in issuing an order after decades of debate on this. Some 

of the changes may hopefully promote broadband in some of the 

rural areas where it is currently unavailable today. Those are primarily, as we have heard, areas where some of the larger carriers 

had very little incentive or interest or motivation to invest when 

compared to the larger markets that they are currently serving. 

But even assuming the best of intentions, a number of answers 

in the order absolute miss the mark for rural America. The focus 

cannot simply be on making sure that the unserved become served. 

That is very important. But that is only one piece of a much more 

complex puzzle. The focus also has to be on making sure that those 

who have service stay served. 

Unfortunately, the FCC’s order didn’t create a Connect America 

fund for small carriers devoted to serving these rural areas. Instead, the small carriers like NTCA members, the FCC maintained 

a legacy USF funding mechanism and had additional USF and 

inter-carrier compensation reductions. So while there have been 

some transitions and adjustments made, some of these small carriers face severe reductions in their support in the very near term. 

These carriers will not only stop investing or upgrading, but they 

will be compelled to increase their consumer rates in absence of relief. In the Tribal areas, which we have been discussing how important broadband adoption is, you already have adoption rates that 

are very low and unemployment that is very high. So it is hard to 

see how this kind of action will actually promote real broadband 

access or economic opportunity. 

Perhaps the greatest concern is the regulatory uncertainty for 

the entire industry. For example, the FCC has adopted a new cost 

model that changes the rules of USF cost recovery mid-stream for 

the investments made in the past and contains erroneous data and 

is subject to unpredictable changes. So the carriers can’t determine 

if a new network grid or an upgrade might actually trigger the cap, 

even if they are not under the cap today. 

It is all the more troubling that these inter-carrier comp rate reductions now and in the future actually accrue to the benefit of the 

larger carriers without any corresponding obligation for them to reinvest those savings in rural broadband or past them along to the 

consumers. It is hard to see how these changes, cuts and caps will 

help chart a course for sustainable rural broadband. 

However, there are several ways to actually break this logjam. 

Rural and Tribal providers sincerely hope the FCC will respond to 

the recent calls of more than 70 members of Congress, including 

members of this Committee, to expressly decline to act on several 

aspects of its further notice and allow the dust to settle on the 

changes that have already been made in the order. 

And moreover, since carriers cannot undo loan commitments or 

tear out existing networks, the FCC should make it clear that 

these changes will only apply prospectively. The FCC should take 

steps to dispel the regulatory uncertainty created by unworkable 

regression analysis cap model and small businesses operating in 

these high cost, capital intensive businesses need more straightVerDate 0ct 09 2002 13:22 Jan 04, 2013 Jkt 077458 PO 00000 Frm 00082 Fmt 6633 Sfmt 6601 S:\DOCS\77458.TXT JACK
79

1 Connect America Fund, A National Broadband Plan for Our Future, Establishing Just and 

Reasonable Rates for Local Exchange Carriers, High-Cost Universal Service Support, Developing 

a Unified Intercarrier Compensation Regime, Federal-State Joint Board on Universal Service, 

Lifeline and Link-Up: Notice of Proposed Rulemaking and Further Notice of Proposed RuleContinued

forward rules of the road that will promote reasonable and responsible broadband investment. 

Finally, as it has done for consumers in other areas, the FCC 

should adopt a Connect America fund that will provide additional 

funding for sustainable broadband-capable deployment in areas 

served by rural providers, including on Tribal lands. 

With that, I would like to thank you very much and I would be 

more than happy to answer any questions. Thank you, Mr. Chairman. 

[The prepared statement of Ms. Bloomfield follows:]

PREPARED STATEMENT OF SHIRLEY BLOOMFIELD, CEO, NATIONAL

TELECOMMUNICATIONS COOEPRATIVE ASSOCIATION (NTCA) 

Introduction 

Chairman Akaka, Vice Chairman Barrasso, thank you for the opportunity to participate in today’s discussion regarding how changes to essential universal service 

and related cost recovery mechanisms will affect the availability and affordability 

of advanced communications services on tribal lands. As I will outline, this hearing’s 

focus on the sustainability of connections is a critical and often overlooked component of the reform debate. 

I am the Chief Executive Officer of the National Telecommunications Cooperative 

Association (NTCA), which represents more than 580 small, rural community-based 

telecommunications providers. These small businesses hold a deep commitment to 

the consumers and communities they serve. They have been the very models of what 

policymakers are in search of and what America is in such need of today—the creators of rural jobs, the fuel of the rural economy, and the conduit between citizens 

and their government and the wider world. 

NTCA members and their counterparts across the rural telecommunications industry serve approximately 5 percent of the nation’s population, but approximately 

40 percent of the nation’s land mass. NTCA members include both tribally owned 

telecommunication companies such as Gila River Telecommunications, Inc. owned 

by the Gila River Indian Community in Chandler, Arizona, as well as companies 

that are owned by non-natives but serve substantial portions of tribal lands such 

as Golden West Telecommunications headquartered in Wall, South Dakota. NTCA 

has at least 36 companies who serve Native Nations. 

I. Broadband Investments and Operations are Essential to the Well-Being 

of Rural and Tribal Communities, and They Contribute to Broader

Economic Activity as Well 

The debate over the importance of rural broadband, and the essential role that 

the federal Universal Service Fund (USF) and intercarrier compensation (ICC) 

mechanisms play in making broadband-capable networks available, is not academic. 

The American economy runs on broadband. As the Federal Communications Commission (FCC) stated in its February 2011 USF/ICC reform Notice of Proposed Rulemaking:

Ubiquitous broadband infrastructure has become crucial to our nation’s economic development and civic life. Businesses need broadband to start and grow; 

adults need broadband to find jobs; children need broadband to learn. 

Broadband enables people with disabilities to participate more fully in society 

and provides opportunity to Americans of all income levels. Broadband also 

helps lower the costs and improve the quality of health care. As important as 

these benefits are in America’s cities—where more than two-thirds of residents 

have come to rely on broadband—the distance-conquering benefits of broadband 

can be even more important in America’s more remote small towns, rural and 

insular areas, and Tribal lands. Furthermore, the benefits of broadband grow 

when all areas of the country are connected. More users online means more information flowing, larger markets for goods and services, and more rapid innovation. 1

80

making, WC Docket No. 10–90, GN Docket No. 09–51, WC Docket No. 07–135, WC Docket No. 

05–337, CC Docket No. 01–92, CC Docket No. 96–45, WC Docket No. 03–109, FCC 11–13, at 

para. 3 (2011) (NPRM). 2 NECA Trends 2010—A Report on Rural Telecom Technology, at 5 (available at https://

www.neca.org/cms400min/NECAlTemplates/PublicInterior.aspx?id=100). 3 (n.d.). Retrieved from website: http://usda01.library.cornell.edu/usda/current/FarmComp/

FarmComp-08–12–2011lnewlformat.pdf. 4 (n.d.). Retrieved from website: http://www.brookings.edu//media/Files/rc/papers/2007/

06laborlcrandall/06laborlcrandall.pdf. 5 Austin, Algernon. Different Race, Different Recession; American Indian Unemployment retrieved from website http://www.epi.org/publication/ib289/. 6Kuttner, H. Hudson Institute, (2011). The Economic Impact of Universal Telecommunications: The Greater Gains.

The numbers demonstrate that broadband is being deployed to and used in rural 

America. Fifty-one percent of small rural carrier customers purchased broadband 

services as of 2010, 2 and USDA’s National Agricultural Statistics Service’s August 

2011 report on Farm Computer Usage and Ownership revealed that 62 percent of 

U.S. farms now have Internet access. 3

At the same time, USDA’s Economic Research Service reports that over the course 

of the past decade the rural population has grown at less than half the rate of the 

metropolitan population. Both broadband deployment and adoption in rural America 

must increase at a faster rate in order to reverse a trend of rural flight. As more 

and more commerce, government services, and education move over broadband, the 

availability of affordable and reasonably comparable broadband will be essential for 

rural areas to attract and retain more Americans. This would seem particularly important with regard to tribal lands, where the access that broadband allows to economic opportunities outside of tribal lands can be essential to promoting economic 

development within tribal lands. 

The economic benefits of broadband are unmistakable. Studies indicate that every 

one percentage point increase in broadband penetration in a state increases overall 

employment by 0.2 percent to 0.3 percent a year. 4 Such a dynamic would be of great 

promise in helping tribal areas where unemployment often far outpaces other locations. An Economic Policy Institute study found that unemployment on tribal lands 

in the first half of 2010 was 15.2 percent but the unemployment rates vary depending on the region, finding Alaska Natives and Native Americans living in the Northern Plains had the lowest employment rates. 5 Yet the National Telecommunications 

and Information Administration’s State of Broadband Report indicates that at least 

1.1 million Native Americans living on tribal lands do not have access to the target 

broadband speeds established by the FCC. 

Broadband also provides wider benefits. In fact, not only does broadband hold the 

promise of stimulating job creation and economic development on tribal lands and 

in other rural areas, but it has a payback to the national economy as a whole. 

Small, rural community-based telecommunications providers alone contributed $14.5 

billion to the economies of the states in which they operated in 2009. 6 The rural 

telecommunications sector supported 70,700 jobs in 2009, both through its own employment and the employment that its purchases of goods and services generated. 

Thus, rural broadband is a true ‘‘win-win’’ proposition, in that residents of tribal 

and other rural areas obtain economic opportunities that would otherwise be inaccessible or difficult to reach, while those in urban areas realize the benefits of broader markets, more business partners and the economic activity generated by rural 

broadband deployment. 

II. A Public-Private Partnership Is Essential to Promote and Sustain 

Broadband in Hard-to-Serve Tribal Lands and Other Rural Areas 

But these broadband-capable networks and the benefits they can bring to tribal 

lands and beyond will not materialize from thin air. The sparse populations and 

large distances in rural areas make rural development programs, such as those administered by the Rural Utilities Service (RUS), essential to promote broadband deployment. 

The RUS telecommunication programs have been a great success story for decades, helping to provide voice and broadband service to millions of Americans where 

it would not otherwise be available, including on tribal lands. Since the 1990s in 

particular, these programs have looked to a data-driven future and helped to advance the deployment of state-of-the-art networks to rural Americans who otherwise 

faced the significant likelihood of being left behind by providers unable or unwilling 

to serve low population density markets. It is also worth noting that RUS telecommunication loan program projects are paid back with interest—creating yet anVerDate 0ct 09 2002 13:22 Jan 04, 2013 Jkt 077458 PO 00000 Frm 00084 Fmt 6633 Sfmt 6621 S:\DOCS\77458.TXT JACK
81

7 Ex Parte letter from RUS Administrator Jonathan Adelstein, filed June 1, 2012, to Marlene 

H. Dortch, Secretary, FCC, WC Docket No. 10–90, et. Al., dated May 31, 2012.

other ‘‘win-win’’ situation for rural broadband consumers and for American taxpayers. 

Such programs can only help promote the deployment of rural networks, however, 

if those networks can also be maintained and upgraded over time in response to 

consumer demands and business needs, and only if the services offered over those 

networks remain affordable even where the costs of operating are so high. This is 

why it is so important to recognize the key complementary role that other programs, 

such as the statutorily-mandated USF, play in allowing rural consumers to have access to telecommunications services that are reasonably comparable in terms of 

price and quality. In short, it takes a continuing public-private partnership—one 

that recognizes the costs of both building and operating networks in high-cost 

areas—to enable access to affordable, sustainable, high-quality access in tribal lands 

and other economically hard-to-serve regions of rural America. Again, the title of 

this hearing says it all. The goal must be not just to connect rural America, but 

to make sure those essential connections are sustainable so that the communities 

themselves are sustained and can prosper. 

Unfortunately, the story of sustainable rural network development is at risk due 

to certain USF and ICC reforms now being implemented and additional reforms now 

being considered by the FCC. As I noted earlier, while RUS and other private sector 

lenders may help provide the capital needed to build a rural network in economically challenging markets, that network is of little use if it cannot be upgraded over 

time or if services on that network cost so much that no consumer can afford them. 

USF addresses this distinct part of the rural problem. It provides essential cost recovery for the ongoing operation and maintenance of rural networks, and helps to 

ensure that the prices consumers pay for services in rural areas are affordable—

that is, ‘‘reasonably comparable’’ to those in urban areas as required by law. Put 

another way, USF helps make sure that consumers can both afford to ‘‘adopt’’ service and make continuing use of advanced, evolving networks over time. 

By law, USF is required to be predictable and sufficient. Changes to the USF and 

ICC mechanisms must therefore be carefully calibrated. But if USF and ICC revenues are reduced without careful consideration and in the absence of a longer-term 

plan for sustaining rural broadband through other means, this will undermine the 

work of RUS and put the affordability and availability of rural voice and broadband 

services at great risk. Indeed, the Secretary of Agriculture met recently with the 

FCC Chairman to discuss the consequences of USF and ICC reform on RUS borrowers and rural communities. Among other things, a U.S. Department of Agriculture letter reporting on that meeting noted:

Changes to the federal USF and ICC can have a direct impact on the ability 

of existing RUS borrowers to repay their outstanding loans and complete the 

construction of wireline broadband systems . . . The Secretary noted that the 

RUS makes loans to finance the construction and upgrade of high capacity 

broadband networks whose terms can exceed 20 years. He noted these investments were made under then-current rules with the understanding that the 

revenues would be necessary to recover costs and repay loans to lenders including RUS. He noted that consumers and lenders need certainty and predictability in their investment horizon. 7

Predictability is particularly important to lenders and to carriers investing in a 

network where the cost recovery path is 20-plus years long. Rural telecom is not 

a business where quick payback on investment can be expected. The addressable 

markets are small, and in many cases, carriers are tasked with serving not only the 

population centers (often only several hundred or a few thousand people) but also 

the surrounding countryside. Without committed carriers-of-last-resort such as 

Golden West or Gila River reaching out into the ‘‘country’’ outside the towns with 

the help of this public-private partnership, we would have even more unserved consumers in rural America and on tribal lands—and the challenge of achieving universal broadband would be greater than it already is. If this public-private partnership is undermined by misplaced USF or ICC changes, then small rural telcos may 

have no choice but to substantially increase rates, cut back on service quality, or 

abandon the ‘‘countryside’’ and other outlying areas, including portions of tribal 

lands, altogether. Instead, these carriers may retreat to serve only the ‘‘in-town’’ 

areas where at least some business case might be made in the absence of predictable and sufficient USF and ICC cost recovery mechanisms. 

82

8See Final Order. 

III. Course Corrections Are Needed to Sustain This Successful PublicPrivate Partnership and Keep Tribal Lands and Other Areas Served 

The FCC released its USF/ICC reform order on November 18, 2011, with the aim 

of transitioning the program to explicitly support broadband service in rural America. 8 NTCA worked extensively with other industry and rural groups and organizations leading up to that order, attempting to make sure it struck a careful balance 

that made progress toward a broadband future while preserving the essence of the 

public-private partnership referenced earlier. Indeed, NTCA and dozens of other 

stakeholders with interests in rural and tribal areas, including the National Tribal 

Telecommunications Association (NTTA), filed a series of joint comments with the 

FCC pointing out the flaws of a number in the agency’s earlier reform proposals and 

providing detailed alternatives for its consideration. 

The FCC’s November 2011 order took many steps to update the USF program for 

a ‘‘broadband world,’’ and the FCC deserves to be commended for achieving the 

issuance of an order after a decade of debate. Some of the changes may promote 

broadband in rural areas where it is unavailable today—areas where larger carriers 

had little incentive or interest to invest when compared to other, larger markets 

they serve. Hopefully, consumers in those unserved areas will now start to realize 

the benefits of broadband based upon these reforms. 

But even assuming all of the best intentions, a number of the answers in that 

order miss the mark for rural America. The focus cannot simply be on making sure 

that the unserved become served. That is important, but it is only one piece of a 

more complex puzzle. The focus also has to be making sure that those who obtain 

service because of the successful public-private partnership that I described earlier 

ultimately stay served. Here yet again, sustainability is the key consideration—and 

that is in serious question at this point. 

Unfortunately, the FCC’s November 2011 USF/ICC reform order did not create a 

broadband oriented ‘‘Connect America Fund’’ for smaller carriers devoted to serving 

rural areas. Instead, for smaller carriers like NTCA members, the FCC maintained 

the legacy USF funding mechanisms, introduced a series of new reductions to those 

USF mechanisms, and also mandated reductions to ICC rates. 

While several of these reductions are subject to transitions and the FCC has already recognized the need for adjustments based upon input from NTCA and other 

stakeholders, some small rural carriers still face the prospect of severe reductions 

in support in the relatively near term. These carriers will not only stop investments 

or upgrades they planned to make, but they will also be compelled to increase consumer rates in the absence of relief. In tribal areas where broadband adoption is 

low and unemployment is high, it is hard to see how this will promote rural 

broadband access or economic opportunity. 

Of perhaps greater concern, however, is that even carriers not as adversely affected by the FCC’s changes face in the near term still face substantial uncertainty 

and the potential for significant declines in coming years. For example, the FCC has 

adopted a new statistical ‘‘regression analysis’’ cost model that changes the rules of 

USF cost recovery ‘‘mid-stream’’ for investments made in the past. Changing the 

rules in this manner has chilled lender and investor interest in rural telecom generally and made access to capital even more challenging for these small businesses. 

Moreover, this new ‘‘regression analysis’’ cost model contains admittedly erroneous data and is subject to frequent and unpredictable changes that provide no 

clear ‘‘rules of the road’’ by which a carrier can determine whether a new network 

build or upgrade might trigger new USF caps and lose support. As the general manager of Mescalero Apache Telecom, which serves over 700 miles of tribal land in 

New Mexico, recently explained in a declaration supporting a FCC filing by NTCA 

and its rural allies, his company has curtailed capital expenditures despite being 

only slightly affected by the new model, precisely because no one can tell where the 

model might strike next. Unfortunately, this is hardly an isolated case. 

Finally, while the FCC provided a ‘‘transition’’ for regulatory-mandated reductions 

in ICC rates, its replacement of those lost revenues is subject to an automatic winddown regardless of cost, and a further notice of rulemaking threatens additional ICC 

rate reductions. It is all the more troubling that these ICC rate reductions accrue 

to the benefit of larger carriers without any corresponding obligation for those carriers to reinvest such savings into rural broadband or even to pass them through 

to consumers. 

It is hard for smaller carriers to see how such aspects of reform help to chart a 

course toward sustainable rural broadband. This is all contributing to a general 

sense among NTCA members that further investment in rural broadband will be 

83

9 Badal, John Testimony before the Senate Committee on Commerce, Science, and Transportation, Delivered April 2011 http://commerce.senate.gov/public/

?a=Files.Serve&Filelid=24bf8511-d9d6–4901-aae4-c914ac90aec1

difficult to justify, at least until ‘‘the dust settles’’ on the FCC’s reforms. Rural and 

tribal providers sincerely hope that the FCC will respond to the recent calls of well 

over 70 members of Congress, including members of this committee, to expressly decline to act on several aspects of its further notice and instead signal to service providers, lenders, investors and consumers that it will allow adequate time for adjustment to the changes already made in its order. 

Moreover, since carriers cannot ‘‘undo’’ loan commitments or ‘‘tear out’’ existing 

networks, the FCC should make clear that any caps or other limitations on cost recovery already adopted in its order will be applied prospectively. The FCC should 

also take steps to dispel the massive and paralyzing uncertainty created by its confusing, error-ridden and otherwise unworkable ‘‘regression analysis’’ cap model, 

adopting in its place more straightforward ‘‘rules of the road’’ that promote reasonable and responsible broadband investment. 

Finally, as it has done for consumers in other areas, the FCC should adopt a 

broadband oriented Connect America Fund that will provide additional funding for 

sustainable broadband-capable deployment in areas served by rural providers, including tribal lands. 

We continue to engage actively with the FCC in seeking a more proper balance 

on all of these fronts, and the FCC has continued to discuss all of these matters 

with us. But time is already short to remedy these concerns, with reductions beginning to take effect in only a matter of weeks—and the chilling uncertainty that 

hangs overhead is already stifling investments in rural broadband. It is critical that 

these issues be resolved soon for the benefit of those living on tribal lands and other 

rural consumers. 

IV. Rural Providers Face Additional Challenges in Delivering Service to 

Tribal Areas 

NTCA members include 9 tribal entities and 27 other companies that serve tribal 

lands. These companies face similar regulatory pressures to other small rural providers in NTCA’s membership. Tribal telcos are not exempt from major data issues 

in the model, for example, and they face many of the same support reductions as 

non-tribal telcos. But there are also unique challenges to deploying networks and 

delivering high-quality services on tribal lands. 

Indeed, tribal lands are among the least connected areas of the country, and multiple barriers hinder the ubiquitous deployment of broadband-capable networks in 

such areas. First, tribal lands are typically located in the most remote areas of the 

country and usually have large land mass with low population density. These factors can impede development because of the expense of laying fiber to reach customers or enable wireless coverage in these areas. 

Second, while network construction is never an easy task, carriers can face significant burdens when they attempt to deploy networks on tribal lands due to the maze 

of permits generally required. Companies not only have to seek permits from the 

tribal government, but they must obtain permits from the Bureau of Indian Affairs 

(BIA). For example, John Badal, the chief executive officer of Sacred Wind Communications—a company devoted to serving portions of the Navajo Reservation in New 

Mexico—testified before the Senate Commerce, Science and Transportation Committee in April 2011 that the process to receive the right of way permits from BIA 

and other agencies added two years to the time it took to complete a recent project 

on federally managed lands. 9

Unfortunately, in addition to being time-consuming, these approval processes do 

not always take a straight line to the desired destination. There are areas where 

companies will have to work with a variety of governments, sometimes facing the 

uncertain question of which governmental entity even has jurisdiction over the land 

at issue. This confusion can cause delay or permanent halting of a project when permits cannot be issued in a reasonable amount of time. 

Even with these delays and difficulties in serving remote areas and tribal lands, 

NTCA members observe a duty to serve under their ‘‘carrier of last resort’’ obligations and pursuant to their commitment to the communities in which they live and 

operate. Small, rural carriers take this responsibility seriously and do what they can 

to try to overcome the hurdles to deploy broadband in such areas. This includes not 

only the network deployment challenges already mentioned, but also working to ensure that the price for consumers to procure broadband is not out of reach for areas 

where the unemployment rate can reach 80 percent and 90 percent. The broader 

84

10 Comments filed by Eric Jensen, National Tribal Telecommunications Association, April 18, 

2011, WC Docket No. 10–90, et. Al, accessed here http://apps.fcc.gov/ecfs/document/

view?id=7021239931 11 NECA Trends 2010—A Report on Rural Telecom Technology, at 5 (available at https://

www.neca.org/cms400min/NECAlTemplates/PublicInterior.aspx?id=100).

economic conditions on tribal lands are one of the biggest hurdles facing broadband 

providers and those making network investment decisions. 

Of course, the costs of serving rural and remote areas, and particularly tribal 

lands, are often quite high, and this is once again where the USF and ICC cost recovery mechanisms both play such an important role. USF and ICC enable both network operations and consumer adoption in high-cost rural areas, including tribal 

lands. Without these mechanisms, small rural carriers—which have few, if any, 

‘‘profitable’’ large markets to help support operations—would be unable to recover 

their costs over the useable life of the networks they build. Furthermore, without 

USF and ICC, the prices for services would be astronomical. USF and ICC thus promote both the availability and affordability of services on tribal lands and in other 

rural areas. 

To date, small rural companies, such as NTCA members and their counterparts, 

have done a commendable job investing in broadband-capable networks in recent 

years. The NTTA has previously cited in particular the efficient work of small rateof-return carriers in providing high-speed broadband to their areas. 10 Despite 

claims from some uninformed corners of inefficiency or rampant growth in the USF, 

small rural companies have deployed at least basic levels of broadband to over 92 

percent of their consumers with a miniscule 3 percent per year growth in their USF 

receipts—and even as their ICC revenues have been declining. 

So small rural companies truly have done more with less. They have put valuable 

USF resources to work, and the communities in which they live and work are the 

beneficiaries. But the job of these small companies is also not done—while they may 

have over 92 percent broadband penetration, as of 2010, 72 percent of those rural 

and tribal customers can only receive broadband below the FCC’s targeted 4 Mbps 

(down)/1 Mbps (up) broadband speed. 11 Moreover, our members indicate that 

broadband adoption on tribal lands is particularly low—and reductions in USF and 

ICC revenues will only compel small carriers to pass through price increases to consumers that are likely to deter rather than promote adoption. 

Although the USF and ICC mechanisms needed updating, they were clearly enabling progress in the delivery of broadband in tribal lands and other rural areas by 

small, rate-of-return-regulated carriers. But rather than build upon and sustain that 

progress through carefully calibrated and well-targeted reforms, and rather than 

striking a balance between the need to reach unserved areas and also ensure that 

services in all rural areas are sustainable once deployed, certain of the FCC’s reforms run the risk of undermining the progress already made and appear to be 

bringing broadband deployment to a standstill in wide swaths of rural America. 

This is why it is so important that hearings like this examine what can be done 

to ensure that residents of tribal lands and rural areas across the country can realize and participate in the broadband world. The focus of this hearing on sustainability is essential—we must not have the debate limited to what it takes to get 

broadband to rural America. Instead, we have to focus on what it takes to keep 

broadband in rural America, and what it takes to make sure that broadband for 

tribal residents and other consumers is reasonably comparable in price and quality 

to what is available elsewhere in America. 

V. Conclusion 

NTCA members have worked hard to provide 21st century infrastructure in high 

cost areas of the country. But the work is far from over, and it will only become 

more difficult to achieve if the predictability and sufficiency of USF and ICC support 

are in question. It is essential to restore regulatory certainty to encourage investment in these hard-to-serve rural markets, and it is important to define what the 

sustainable broadband future will be for these small carriers and the millions of 

rural and tribal consumers they serve. It is critical to make sure that we strike a 

better balance between getting broadband to rural America and sustaining 

broadband in rural America.

The CHAIRMAN. Thank you very much, Ms. Bloomfield, for your 

testimony. 

Mr. LAPAZ.or Mr. Enjady, how have the new FCC reforms affected future plans 

for broadband deployment in your community, especially larger capital investments? 

85

Mr. ENJADY. Mr. Chairman, Senator Udall, thank you for graciously letting me come today before you and speak. MAGI is a 

company that we started back in 2001, that was the first day we 

opened our doors. The Tribe was very excited, in fact, I was there, 

built every bit of nuts and bolts of the company, from the ground 

up. As a Tribal member of the Mescalero Apache Tribe, I am very 

proud that we have this ability to do this. 

Everything that the FCC has put before us today has been very 

cumbersome, very difficult. It is a tough thing to try to go through 

all these different rules and waivers that we have talked about. 

And earlier we had a meeting today to that effect, that provided 

some insight of what we have to do to jump over the hoops like Mr. 

Hee was talking about earlier. This is a very cumbersome and very 

difficult process to go through, for Tribes like ourselves. We are 

very poor. We have 5,000 members in the whole world, of Mescalero Apache members. That is all that is left, that is who we are. 

But we built our own phone company. And with this, we wanted 

to provide the best services to our members in Mescalero. And with 

the new order that is in place right now, it prevents us from providing new buildouts in areas. We are very dependent upon the 

government in providing homes for our children, for my aunts, my 

uncles, these are my own relatives that we are providing services 

to. If I have to build out to them with the new caps in place, that 

are going to be coming in July 1st, it prevents me from actually 

building out fiber optic services to those areas. 

When they are your own family, you want to provide the best 

services that you can. When they are your kids, you want to provide the best services you can. You have never denied anything for 

your own kids, so do we as a Tribe. So we want to build the best 

type of system for them so they can learn, we are giving them the 

tools to be able to provide education. 

These are some of the things that are preventing us, the FCC’s 

order that is very harmful to us. We are probably one of the only 

Tribes that is really being affected by it. 

The CHAIRMAN. Thank you. 

Mr. Merriam, can you explain more about how the new reforms 

may threaten public safety in rural Alaska? 

Mr. MERRIAM. Thank you, Mr. Chairman. 

The extent of the reductions in support will have an effect on the 

network over time. And everything runs on the network, public 

safety, broadband, data traffic, economic development. Everything 

is impacted when that infrastructure is impacted. 

We are one of the two companies in Alaska that were outliers 

and were affected by the regression analysis. We found where we 

could observe the inputs and understand them that there were 

some significant errors. We are putting together our final analysis 

and are going to meet with the FCC before the end of the month 

to try to get those corrected. 

That will help us for the time being. But the unknown is in late 

2013 they are going to run another regression and there is no predictability of how that, because we don’t understand the model, 

how that might affect us in the future. It makes the five-year 

buildout plan that we are being required to provide very difficult 

to predict, when you don’t know what your revenue looks like. 

86

The CHAIRMAN. Thank you. 

Mr. Hee, what are some of the most unique and expensive challenges about providing service to our Native Homelands in Hawaii? 

Mr. HEE. Mr. Chairman, as you are well aware, providing utility 

services to any part of Hawaii is very challenging, not only because 

of the transportation costs, but because of the other utility costs. 

Our electricity is three times the national average. 

But it is especially challenging on Native Hawaiian Home Lands, 

because the Hawaiian Home Lands, currently made up of approximately 80 non-contiguous parcels spread out over all of the islands, 

all of which need network because they have not, the incumbent 

has not built out sufficient network into these rural areas. 

I think the most telling fact is that of the four wire line carriers 

that have tried to do business in Hawaii, including the incumbent, 

two have gone bankrupt, one has left the State because they 

couldn’t do business and we are the remaining one headed for 

bankruptcy because of the changes in the Universal Service Fund. 

That statistic alone should be very telling as to how difficult it 

is for not only a Native company but for any company to build out 

communications infrastructure in Hawaii. 

The CHAIRMAN. Thank you. 

Ms. Bloomfield, apart from predictability, do you have any concerns about where the companies will be able to keep up with inflation and other future expense increases related to long-term 

broadband infrastructure investment? 

Ms. BLOOMFIELD. Mr. Chairman, we are very concerned about 

that. When you look at the high cost portion of Universal Service 

Fund, it has only grown at about 2 or 3 percent a year, which is 

a very small increase. So these caps are going to have a really 

chilling effect on these companies in terms of making decisions. Not 

only are you talking about inflation, but you are talking about a 

really capital-intensive business here. 

As you are talking about moving to a broadband world, particularly when you have these remote areas, and you are not sure in 

terms of your adoption rates, it is not like you can put the plan out 

there and know that you are going to get 90 percent of your customers taking that service. These companies are making their own 

gambles. 

So that is going to be very, very difficult moving forward. That 

is why I think that lack of predictability is really going to slow 

down and absolutely chill investment. 

In addition to that, you have that unpredictability. These carriers 

won’t know, the best analogy I have heard is that it is like everybody in this hearing room today puts their salary into a hat and 

then we all go off and we buy a house and we have a mortgage and 

we take out loans and do whatever we do. And at the end of the 

year, we all pull out a new number. So these companies are essentially operating without knowing when they are going to trigger 

these caps and what is going to happen. 

What I am seeing most clearly is, we work a great deal with outside lenders. They are simply not lending to this sector of the industry right now. They don’t know if those loans can be repaid. 

And even RUS and USDA, with a $5 billion loan portfolio, is, as 

Jonathan Adelstein referenced earlier in his testimony, is really 

87

taking a look and having carriers come back and give a lot more 

data before they are putting any money out the door. 

Without that capital investment, none of these companies are 

going to be able to make the upgrades that we know that you want 

consumers to have. 

The CHAIRMAN. Thank you. 

Senator Udall, anything further? 

Senator UDALL. Thank you very much, Chairman Akaka. 

Secretary LaPaz, or Mr. Enjady, could you describe for the Committee the service territory that Mescalero Apache Telecom covers 

and why it costs more to bring broadband to your communities 

than less rural areas? 

Mr. LAPAZ. Our reservation is 460,000 acres. And a lot of mountainous terrain 

and a lot of the systems we have dead areas. Our people, many years ago, were 

brought together, moved back into one community due to hardship and other problems. They have been that way in this community for many years. Our Tribe has 

grown and we have a housing issue that we are currently working on. 

A lot of our young people are moving back into these rural areas. 

And they don’t have availability in telecommunications. Mr. Enjady 

and his group are working very hard to make this possible to 

where we are able to get back into some of these places. 

We have DRMP, Department of Resource Management and Protection, and the Forest Service. They work in these areas where 

they have no contact, and many occasions they have had some 

problems, even injuries where they have no contact with their main 

offices. These are some of the things that we are faced with and 

it is a big area, like I said, mountainous areas. So it is really hard 

on us. It is a safety hazard, and healthwise, we have a lot of elderly that live in these rural areas. So with the work of Mr. Enjady 

and his crew, we hate to see this type of thing going on. We want 

him to continue in the work that they have done for many years 

for our people. That is why I am here in support of what they are 

doing. 

Senator UDALL. Mr. Enjady, if you would like to expand on that, 

that would be fine. 

Mr. ENJADY. Mr. Chairman, Senator Udall, yes, I do. I do want 

to expand on the point of our area. If you can look at the collage 

of photos that we have here, our area is not very flat. It is not like 

around here, you dig a couple feet down and you hit water. We are 

very dry. But we also have a lot of granite rock underneath and 

our bedrock is very tough. 

So when I am digging in a mile of fiber optic cable, I try to put 

it in some inter-duct. That is costing me anywhere from $60,000 to 

$80,000 a mile. And that is probably three, four years ago. I don’t 

know what the cost is today because I haven’t been able to borrow 

any money. My forward-looking ability to predict the future costwise is uncertain now because of the changes that are happening. 

Those are some of the things that we are looking at, to ensure 

a stay at least for the Tribal folks. Let’s take a look at this again 

to be sure that we can sustain this, services that we have provided 

for our reservation. We are trying to do the best we can. Like I 

said, we have put every bit of our dollars into our network. If you 

look at the pictures, it is very remote, there are houses, we 

Apaches don’t like to live very close together. We like to live far 

88

apart. We don’t like to bother anybody, we just like our sense of 

being alone. 

And that is very true, in fact, Secretary LaPaz here lives at the 

very end of one of our lines. He lives all the way at the end, I 

mean, close to the bottom of the reservation. That is how far he 

wants to get away from everybody. 

[Laughter.] 

Mr. ENJADY. But it was not difficult to provide him the services, 

because we had enough capacity and fiber optic cable going all 

around the reservation. Now, we have not gold-plated our system. 

We have fiber to the curb and from there, from those boxes, it is 

copper. This is a 1999–2001 network that we built. Since then, I 

have not been able to get fiber optic all the way to the home. That 

is something that we are sitting on, we are depreciating that part 

of our plant slowly. 

But like I said, going forward, I am not sure we are going to be 

able to provide that. Hopefully with the Senator’s and the Chairman’s help, we can turn this tide around, especially for Mr. Hee. 

Senator UDALL. Thank you. And you emphasized, we all love our 

wide open spaces in the west. Thank you, and thank you, Mr. 

Chairman. 

The CHAIRMAN. Thank you very much, Senator Udall, for your 

questions. Do you have any further questions? 

Senator UDALL. Yes, I do. 

The CHAIRMAN. Please proceed. 

Senator UDALL. To Secretary LaPaz and also Mr. Enjady again, 

USF support is meant to go precisely to the types of high cost areas 

Mescalero Apache serves. You discussed the severe impact on Mescalero Apache Telecom if the USF reform order moves forward 

without changes. 

Yet my understanding is that there is a waiver process, and you 

all were here and heard them talk about it, to ensure that companies like Mescalero Apache’s Telecom situation are fully addressed. 

If necessary, will you seek a waiver from what you have heard and 

will you be able to continue to serve customer and bring service to 

those who do not have broadband? Are there specific concerns 

raised with applying for a waiver as you understand the waiver 

process so far? 

Mr. ENJADY. Mr. Chairman, Senator Udall, yes, I think we are 

going to have to be forced to. Like Mr. Hee there, he has gone 

through that process and I don’t want to go through the process 

that he has gone through, especially getting portions of answers 

back, even especially through the news. 

But the biggest part of that waiver process that Mescalero 

Apache Tribe is worried about is the process that they might ask 

sensitive financial information of the Tribe. They say they are not 

going to, but it is still not written down anywhere in the reform 

order that they are not going to ask this type of question. That 

could be any of our hospitality, our casino proceeds, any of this 

stuff. 

If you look at the FCC order itself, it does talk about it, it cautions petitioners that, we intend to subject such requests to a rigorous, thorough, and searching review comparable to a total company earnings review and its subsidiaries. And that subsidiaries 

89

portion is the portion that we are not too sure about and we would 

like to get some clarification from the FCC. We have posed this 

question to them, too. So we are still waiting for an answer on that, 

as you saw today when Commissioner Clyburn was answering 

questions. They are still having to figure this whole thing out. 

So it is a process that is not, the whole framework of it has not 

been laid out in a map. This is a process that seems very, if we 

ran our government in Mescalero that way, I don’t think there 

would be a lot of people who would be very happy with us. So we 

are looking for some clarification. 

Senator UDALL. Thank you, and I have one more question. Then 

I will wrap up here. 

Ms. Bloomfield, I really appreciate your testimony today and for 

the work your member companies do on Tribal lands and throughout New Mexico. I know that rural telephone cooperatives in my 

State are doing a good job of bringing service to their communities. 

In fact, the areas that seem to be the least served are often where 

there is no rural telecommunications provider. So I want to ensure 

continued good service in rural areas that have broadband. But I 

want to see unserved areas finally linked up to the internet. And 

I have a couple of questions here. 

How can we target USF support to unserved Tribal areas while 

not endangering service to those rural communities that are already served well by their local telephone cooperative? Is the solution for each unserved Tribal area to form its own telephone cooperative? Is that a feasible approach given the challenge of setting 

up cooperatives in the overall fiscal constraints of USF support? 

Ms. BLOOMFIELD. Let me take that piece by piece, senator. In 

terms of when you talk about the unserved, and that is a really important part of the population base, and as I have mentioned, the 

large companies primarily serve a lot of that land mass as well and 

have not invested. 

One of the things that I think would have been really intriguing 

for the FCC to have taken a look at, and obviously it is never too 

late, is over the course of, this is both USF and inter-carrier compensation reform, on the inter-carrier compensation reform, that is 

the access that the carriers pay back and forth and that is going, 

those payments the large carriers pay to the smaller carriers is 

going to decrease significantly over time. 

If this effort was really a broadband deployment effort as well, 

there will be about a $9 billion savings to the larger carriers from 

that. What a great way to actually create some policy around taking some of those savings and ensuring that those go back into 

building broadband facilities or potentially rate reductions to those 

areas to provide some of that motivation to build in the areas 

where, I understand, it is hard to build a business model. You have 

three or four customers per mile, you don’t recover a lot of the cost. 

I think that is something that would have been well worth folks 

looking at. 

The other thing is the way USF is structured, there is a USF 

high cost portion for the smaller carriers. What the FCC has also 

done is created one for the price capped carriers, which are the 

mid-size and larger carriers. So there are different pockets of 

money. I know they are all kind of struggling with how they are 

90

going to actually use some of those resources to build out whether 

they will have the resources. 

So I think that is a question that some of the larger companies 

will be able to better answer. 

In terms of your question about setting up a cooperative, one of 

the things that I think folks find is that it is a really intriguing 

prospect until you get into it, and realize it is really complicated, 

it is really capital-intensive. And I think the key is really that dialogue and that partnership with the carriers out there. I think our 

members have had a great relationship, those that are not the 

Tribal entities themselves but those who serve Tribal lands, really 

working hard with the Tribal areas to kind of work through what 

the needs are, where the builds need to be. There is a lot of different regulatory proceedings that have to go back and forth, State 

proceedings, Bureau of Indian Affairs proceedings, rights of way. 

It is one of those things that, I think if somebody were to look 

at the landscape for telecommunications today and say, it would be 

a great idea to start up a new company, I am not sure this would 

be, given all the USF and inter-carrier comp reforms, the first 

thing somebody would want to jump into. But I do think there is 

a way for companies to work together and to better make sure that 

they are kind of dialoguing with each other about what the needs 

are. 

Senator UDALL. Thank you very much for that answer. I thank 

the entire panel today and I want to tell the Chairman I very much 

appreciate his persistence and hard work on these kinds of issues, 

as our Chairman. Thank you, and I have concluded. 

The CHAIRMAN. Thank you very much, Senator Udall, for your 

deep interest in all of this. I do have further questions that I will 

submit to the record to you. 

But I want to say mahalo, thank you so much to all the witnesses as well. This, for me, and for the Committee, this has been 

an informative discussion. And I look forward to working on these 

concerns. 

I can’t stress enough how important this issue is to our Native 

communities across the Country. In this new era, access to internet 

service is now a basic need. The funds provided through Universal 

Service make a difference in how our elders receive critical health 

care services. They pave the way for successful and affordable education opportunities for our young people at home and in the communities, and to give our business owners, large and small, real 

economic opportunities to participate in the global economy. 

I hope that the Federal agencies here today will take this to 

heart as they proceed with reforms to the Universal Service Fund. 

Not only are Native communities severely underserved, they are 

owed, owed a special duty as part of the Federal Government’s 

trust relationship, which must be honored and respected. We must 

work together to ensure that the proposed USF reforms address 

the special needs of the Native communities. 

Federal agencies must also work to ensure equal access to high 

quality, high speed and reliable broadband services and not a second class system. More importantly, Congress needs assurance that 

Native communities won’t be left with companies shutting their 

91

doors due to these reforms, leaving them with no service at all. We 

can’t afford that. 

And again, thank you all, to our witnesses today. I would like to 

remind everyone that the hearing record will be open for two weeks 

after today. So please, if you need to, please use that time to let 

us know what you think. 

But again I say, this has been informative, I think we have 

learned a little bit more about our concerns. And I am glad and 

commend the two departments for working together. We need to 

continue to do that to resolve these problems and to try to avoid 

the calamity that is really possible here. 

So with that, again, mahalo nui loa, all of you, thank you very 

much. And to many of you who are traveling, a safe trip home. 

This hearing is adjourned. 

[Whereupon, at 4:34 p.m., the Committee was adjourned.] 

(93)

APPENDIX

PREPARED STATEMENT OF NELSON N. ANGAPAK, SR., SENIOR VICE PRESIDENT, 

ALASKA FEDERATION OF NATIVES (AFN) 

Introduction 

Mr. Nelson N. Angapak, Sr., Senior Vice President, Alaska Federation of Natives 

(AFN), hereby submits the following comments to the U.S. Senate Committee oversight hearing on’’ Universal Service Fund Reform: Ensuring a Sustainable and Connected Future for Native Communities’’ on behalf of AFN. 

AFN was formed in 1966 to address Alaska Native aboriginal land claims. From 

1966 to 1971, AFN devoted most of its efforts to passage of a just land settlement 

in the U.S. Congress. On December 17, 1971, Congress recognized those efforts with 

the passage of the Alaska Native Claims Settlement Act (ANCSA). Today, AFN is 

the largest Native organization in Alaska. Its membership includes 178 villages 

(both federally recognized tribes and village corporations), 13 regional for-profit corporations (established pursuant to ANCSA), and 11 of the 12 regional Native nonprofit tribal consortia that contract for and run a broad range of state and federal 

programs for their member villages. The overall mission of AFN is to enhance and 

promote the cultural, economic, and political voice of the Alaska Native community. 

There are at least three stakeholders impacted by the Universal Service Fund Reform the Federal Communications Commission, the service providers, and the customers of those service providers. This written statement reflects some of the concerns of customers impacted by FCC’s decision regarding the deployment of 

broadband in rural and remote villages in Alaska. 

Rural villages in Alaska are geographically remote from urban areas and are 

‘‘rural’’ in every respect, as there are no interconnecting roads or genuine broadband 

connectivity on which to base employment, improved health care, and expanded educational opportunities. Internet and other telecommunications in rural Alaska are 

provided through satellite links. Satellite service has a small throughput, and can 

barely handle audio streaming, much less video streaming, which is essential for robust and effective telemedicine, distance learning, and economic development. This 

is in sharp contrast to urban America, where reliable, state-of-the-art fiber allows 

for these applications directly—or from hubs. Not only is current satellite-based 

Internet service inadequate to handle broadband applications of today and tomorrow, but it is subject to weather fluctuations, sun spots and other frailties, and can 

be afforded by only a few. 

Rural Alaska contains the most remote and isolated communities in the United 

States. Many villages and communities are, in some respects, still emerging from 

third World conditions. Teenage male suicide rates are alarmingly high, caused in 

great part by lack of job opportunities and the self-esteem that comes from hard 

work. In villages of 100 to 800 people, there are usually only a handful of paying 

jobs, resulting in unemployment rates in such areas ranging from 20 percent to 90 

percent. Rural Alaska has some of the highest poverty rates of any place in the nation. There is nowhere else in America that faces the combination of such high unemployment, poverty, near absence of paying jobs, and geographic and telecommunications remoteness as rural Alaska... NOWHERE! 

To gain proper perspective of the immensity of the task that Federal Communications Commission (FCC) is charged with as it develops the broadband needs of the 

nation, and in particular, the broadband needs of the Alaska Native villages, it is 

helpful put into perspective the size of Alaska relative to size of the United States. 

Our nation is about half the size of Russia, roughly 3/10th the size of Africa, about 

1⁄2 the size of South America, just slightly larger than Brazil and China, and about 

21⁄2 times the size of Western Europe. Within the United States, Alaska is the largest state, about 2.3 times the size of Texas and about 115th the size of the lower 

48 states. 

94

1Testimony of Julie Kitka, President, Alaska Federation of Natives, June 21, 2006, Joint 

Hearing on Government Reform and Committee on Small Business on Northern Lights and Procurement: The Effect of the ANC Program on Federal Procurement and the Alaska Native Corporations. pp 4 and 6. 2http://en.wikipedia.org/wiki/Federallylrecognizedltribes.

On this map, the tip of the Aleutian Chain is located in the State of California; 

and the tip of the panhandle of Southeast Alaska reaches all the way to Northwest 

part of Florida.

The Northern most part of the State of Alaska reaches the USA and Canadian 

border and the most Southern part of the mainland Alaska reaches all the way to 

the State of Texas. 

Alaska has one of the largest Native populations in the United States. Alaska Natives make up about 22 percent of the total population in Alaska and our people 

are scattered across the entire breadth of the state. Our Native cultures are landbased, and our occupation and use of our land predates Plymouth Rock and the pyramids. 1

Two hundred thirty-one of the 565 federally recognized tribes are located within 

the boundaries of the State of Alaska. 2

It is important for the committee to review the comments of AFN as the committee considers addressing the issue of ‘‘Universal Service Fund Reform: Ensuring 

a Sustainable and Connected Future for Native Communities.’’ For the record, AFN 

recommends that the committee keep the customers located in rural America—particularly those in rural Alaska and the Native Hawaiian Homelands—in mind when 

it takes corrective action, if any, on this matter in the future. 

The customers in rural Alaska and Native Hawaiian Homelands have some similarities; including but not limited to the fact that there are no interconnecting roads 

or genuine broadband connectivity on which to base employment, improved health 

care, and expanded educational opportunities. The Native Hawaiian Homelands 

have no interconnecting roads between themselves as they are separated by the Pacific Ocean; the Alaska Native communities located in remote and rural parts of the 

State of Alaska have no interconnecting roads as the huge land mass and the mountain ranges separate them. They both are also customers of the service providers 

in their respective regions. 


607a10.eps
95

3 2009 Federal Priorities Alaska Federation of Natives, p 3. 4The federal Communications Commission (FCC) defines broadband as ‘‘advanced communications systems capable of providing high-speed transmission of services such as data, voice, and 

video over the Internet and other networks.’’ 5The Effects of Broadband Deployment on Output and Employment: A Cross-sectional Analysis 

of U.S. Data, The Brookings Institution. 6 Building a Nationwide Broadband Network: Speeding Job Growth, New Millennium Research Council. 7 Home Broadband Adoption 2007, Pew Internet & American Life Project, June 2007. 8 California Broadband Initiative, The State of Connectivity: Building Innovation Through 

Broadband, Final Report of the California Broadband Task Force, January 2008. 9 National Governors’ Association Center for Best Practices Issue Brief: State Efforts to Expand Broadband Access, May 2008.

Broadband Communications Needs in Native Communities 

The American Recovery and Reinvestment Act of 2009 (ARRA) provided two 

major categories of funding for broadband infrastructure, $2.5 billion to the US Department of Agriculture Rural Utilities Service (RUS), and $4.7 billion to the National Technology and Information Administration (NTIA) within the Department of 

Commerce, of which $3.8 billion is directly available for broadband infrastructure 

development. ARRA mandated the Federal Communications Commission (FCC) prepare a broadband plan for the United States of America by February 17, 2010. 3

Advances in technology have already significantly affected rural Alaska and promise to do even more in the near future. Communicating with friends and family is 

easier and less expensive. News, information, and entertainment are widely accessible through the Internet from every comer of the state. Distance education has 

grown more sophisticated and interactive. Yet, large areas of Alaska lack broadband 

access and risk lagging further behind economically and in other ways without such 

access. 

The Knight Commission on the Information Needs of Communities in a Democracy detailed just a few of the things that increased higher-speed or ‘‘broadband’’ 

Internet access means: 4

• People can apply online for jobs, college admissions, and loans.

• They can keep track of their children’s homework assignments and school lunch 

options.

• They can research health websites before they go to the doctor and be prepared 

to discuss ideas and information.

• They can manage their bank accounts and pay bills quickly and efficiently.

Expanding higher speed broadband service to rural Alaska (and other rural parts 

of the country) is an important step towards ensuring that technology continues to 

benefit all of the state’s population and not just the urban areas.

• A 2007 report from the Brookings Institution found that each one-percentage 

point increase in broadband penetration can yield a 0.2 to 0.3 percent increase 

in employment. 5

• A study by the New Millennium Research Council determined that a nationwide 

broadband network would create 1.2 million new, permanent jobs in the United 

States. 6

• As of2007, 73 percent of urban/suburban households had broadband services 

compared to 55 percent of rural households. 7

• A recent California study found that 83 percent of parents of children with special health care needs drive more than one hour to visit a specialist. 8

• Broadband can eliminate geographic barriers and increase access to health care 

for patients living in remote and rural areas.

• In education, broadband also offers great promise for rural Alaska where the 

small number of students often makes it impractical to have teachers with specific expertise in the wide range of subjects taught in the upper grades. Teachers can use video conferencing, interactive online lessons, music, and educational gaming programs to expand what they can offer their students. 9

Although enhanced broadband access cannot solve all of the challenges of living 

in rural Alaska and making villages sustainable economically—as the basic issues 

of expensive transportation costs, both for people and for goods and services, and 

high energy costs remain—it can play an important part in making it possible for 

people to live in isolated, remote areas without giving up their ability to communicate, work, and interact with the rest of the world. 

96

10 Although individual satellite dishes are a partial solution for households and business that 

can afford them, these services are not available everywhere and they suffer deficiencies similar 

to those of other satellite-based systems. Alaska is at the edge of the coverage area for these 

providers. Even if this were not the case, because of limitations on upload rates, they are inadequate for web-based businesses, offices with multiple users, and other high-use consumers. 

We applaud the February 22, 2012 letter that Alaska’s Congressional Delegation 

wrote to the Honorable Julius Genachowski, Chairman, Federal Communications 

Commission in which it jointly informed the FCC Chairman of the challenges FCC 

must consider as it moves forward in creation of in its implementation of Connect 

America. A copy of this letter is attached to my statement for the benefit of the 

members ofU. S. House Subcommittee on Indian and Alaska Native Affairs. 

For the record, Mr. Chairman, AFN recommends the following: 

FCC’s first priority should be proposals that serve unserved areas. ‘‘Unserved’’ 

should be defined as an area without any broadband service, or having access only 

to dial-up service or service that is dependent on a satellite connection. ‘‘Underserved’’ should mean an area with broadband that is not comparable to what is 

available in urban areas. This includes almost, if not all of rural and remote parts 

of this nation, and particularly rural Alaska. 

FCC should establish a comprehensive nationwide inventory map of existing 

broadband service capability and availability in the United States that depicts the 

geographic extent to which broadband service capability is deployed and available 

from a commercial provider or public provider throughout each State. 

FCC program should recognize that, although a plan to deploy broadband to rural 

Alaska should be realistically designed to meet the statutory requirements, Alaska’s 

unique geography, climate, and lack of infrastructure could present unforeseen challenges. For instance, because there are no inter-connecting roads between the metropolitan and rural Alaska, the most cost-effective means of delivering material and 

goods needed for broadband deployment is by ship and barge during the months of 

June, July, August, and September in Western Alaska. 

Broadband capability will not, by itself, resolve overnight the many health, social, 

and economic challenges that people face in the most rural and remote regions of 

our nation. However, reliable, robust, easily accessible broadband alone holds the 

most promise for making a real impact in terms of the opportunities that are so 

acutely needed. 

Rural Alaska is Remote and Unique, and Broadband is Essential to

Educational, Health Care, and Job Opportunities 

Life in rural Alaska is unlike that of any other region in the United States of 

America’s mainland. In rural Alaska, subsistence hunting, fishing and gathering is 

still a predominant way of life and provides a crucial means by which rural Alaskans put food on the table. As previously mentioned, communities there have the 

highest rates of poverty and unemployment of any group of people in America largely because Native villages and communities are not connected, unlike the rest of the 

country, by major state highways or the interstate highway system. 

In addition, unlike many communities in the lower-48, the Alaska Native villages 

are not served by power grid systems for the purposes of distributing electricity. 

Power is produced locally, usually at great cost. Rural Alaskan villages and communities are not connected to one another or the rest of the nation through high-speed, 

reliable broadband, let alone any major city in Alaska. They are isolated, remote, 

and face an exceedingly harsh and unforgiving climate and challenging terrain. The 

high-speed, fiber optic-based broadband-based service available to most of the American public in the lower-48 is simply not available in rural Alaska. 

Internet and other telecommunications in rural Alaska are provided through satellite links. 10 Satellite service has a small throughput, and can barely handle audio 

streaming (much less video streaming), which is essential for robust and effective 

telemedicine, distance learning, and economic development. This is in sharp contrast to urban America, where reliable, state-of the-art fiber optic allows for these 

applications directly or from hubs. In addition, not only is current satellite-based 

Internet service inadequate to handle today’s broadband applications as well as tomorrow’s, but also satellite links are prohibitively expensive. Non-health organizations in Alaska’s regional centers have been quoted prices for T1 connectivity as 

high as $16,000 per month per site (as of2009), or about 70 times the rate in Seattle. This is simply unaffordable. 

As the bandwidth demands of common web applications increase, rural Alaska is 

falling further behind the rest of the United States, whether measured by jobs, education, or health care. Absent some form of intervention such as the construction 

of fiber optic cable backbones, rural Alaska will have no meaningful chance to parVerDate 0ct 09 2002 13:22 Jan 04, 2013 Jkt 077458 PO 00000 Frm 00100 Fmt 6601 Sfmt 6621 S:\DOCS\77458.TXT JACK
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11McDowell Group, Alaska Demographics, p 1. 12The most current income data available by race is from the U.S. Census’ American Community Survey (ACS). The most accurate ACS estimates available are a three-year average of survey responses from 2006–2008. The income data shown here is the average of the three years 

adjusted for inflation to 2008 dollars. 13These are general comparisons only because of the methodological differences between the 

full decennial Census and the sample-based ACS.

ticipate in the global economy, educational, or health care systems and will be simply left behind as it has been for so long. 

There are number of factors to consider in addressing the broadband needs of the 

Alaska Natives and rural Alaskans. These include the population trends, economic 

well-being, social and health trends, and educational trends. Those factors, described as follows, are included in a draft report being developed for the Alaska Federation of Natives (AFN). 

Population Trends 

The state’s Alaska Native population is younger and faster-growing than the nonNative population. Consequently, Alaska Natives are an increasing share of the 

state’s population. With Alaska Native birth rates well above average, this trend is 

expected to continue well into the future. Most Alaska Natives live in Alaska’s larger communities, and migration from rural to urban appears to be continuing slowly 

but steadily, especially among young people.

• In 2009, there were 125,200 Alaska Natives living in Alaska. The Alaska Native 

population has grown at an annual rate of 1.9 percent since 1990 and 1.3 percent since 2000. These growth rates are slightly faster than the overall Alaska 

population, which has increased by 1.2 percent annually since 1990 and 1.1 percent annually since 2000. 11

Economic Well-Being 

Though the income gap has shrunk slightly in recent years, per capita income for 

Alaska Natives remains well below the statewide average, partially the result of 

very limited employment opportunities in rural Alaska. Meanwhile the rising cost 

of living (especially fuel) continues to eat away at the purchasing power of Alaska’s 

rural population.

• Per capita income for Alaska Natives was $16,550 over the 2006–2008 period 

compared to $29,913 for all Alaskans and $27,466 for all Americans. 12

• The gap between per capita income for Alaska Natives and the state’s overall 

population has shrunk somewhat since 1980: in 1980, per capita income for 

Alaska Natives was 50 percent as much as for the state’s total population; in 

both 2000 and the 2006–2008 periods, it was 55 percent.

• Over the two decades from 1960 to 1980, Alaska Native per capita income grew 

significantly faster than the state’s overall per capita income, erasing a substantial portion of a much bigger gap (Alaska Native per capita income was about 

33 percent as much as the state’s overall average in 1960).

• On average over the 2006–2008 period, 51 percent of Alaska Native males between 16 and 64 were employed compared to 76 percent for the overall statewide male population. The percentage for Alaska Native males employed rose 

significantly from 1960–1990, but has remained about the same since then.

• Among female Alaska Natives, 59 percent were employed versus 70 percent for 

the overall state female population. Since 1960, the percentage of Alaska Native 

females has increased dramatically and consistently. Fewer than 15 percent of 

Alaska Native females were employed in 1960.

• About one in five (20 percent) Alaska Natives had income below the poverty 

level in 2008, greater than the Alaska average of eight percent. This does not 

necessarily mean that these Alaska Natives live in poverty. Quality of life and 

standard of living for Alaska Natives, and others, are affected by many factors 

in addition to cash income, such as use of subsistence resources.

• The percentage of Alaska Natives with income below the poverty level is down 

slightly from 22.4 percent measured in the 2000 Census. 13

• Over one-quarter of Alaska Native families use the food stamp program to supplement their income, compared to eight percent of all Alaskan families.

98

Social and Health Trends 

Indicators of health and social welfare often reflect symptoms of underlying economic or cultural dislocation. Still, recognizing and addressing such symptoms is 

critical.

• From 2001 to 2008, Alaska Native suicide death rates have been higher than 

Whites and Alaska as whole. In 2008, the Alaska Native suicide rate was 40.9 

per 100,000, almost twice the rate for Alaska Whites, at 22.0 per 100,000.

• Alaska Native suicide death rates recently peaked in 2004 at 50.8 per 100,000, 

almost twice the 2001 rate of28.1. The rate of40.9 per 100,000 in 2008 marked 

an increase from 2006 (34.9 per 100,000) and 2007 (37.1 per 100,000).

• In 2008, Alaska Native infant death rates, at 12.0 per 100,000 were higher than 

for whites (3.1 per 100,000) and for Alaska as a whole (5.9 per 100,000).

• Alaska Native infant death rates have ranged been between 9.3 and 12.2 per 

100,000 since 2001, while White Alaskan infant death rates have declined 

steadily, from 6.3 to 3.1 per 100,000 during the same period.

Education Trends 

While some progress is evident, Alaska Natives continue to lag non-Natives in 

terms of high school graduation rates and attainment of college degrees.

• Educational attainment among Alaska Natives is low relative to statewide and 

national averages. Only 4.8 percent of Alaska Natives hold a Bachelors degree 

or advanced degrees, compared to 26.5 percent of the general Alaska population 

(over age 24).

• At near 5 percent, however, this rate of college degree attainment reflects 

progress. In 2000, 4 percent of Alaska Natives held a Bachelors degree or higher, and only 3 percent did in 1990.

• Alaska Native graduation rates are consistently about 20 percentage points 

below graduation rates for White students. This differential has not measurably 

changed since 2003 (the earliest year examined in this study).

One of the most important expectations resulting from broadband deployment in 

rural Alaska is its use in the capacity building of the minds of our Alaska Native 

youth. That is, enabling youth living in rural and remote Alaska tribal communities 

to access broadband in the same manner as youth living in urban settings. 

Broadband deployment in rural Alaska will likely foster the development of one of 

the most important, if not, the most important resource Alaska Natives have: the 

Alaska Native youth! 

Economic Opportunity/Standard of Living 

Very little progress has been made in closing the per capita income gap between 

Alaska Natives and non-Natives over the past 30 years. The subsistence way of life 

is still very important to many Alaska Natives and although not a cash-generating 

activity (and therefore not reflected in government reports on economic conditions), 

subsistence clearly enriches people’s lives. 

Geography also plays a role in the Native/non-Native income divide; residents of 

rural areas have fewer employment opportunities than urban residents, often limited to seasonal or other temporary jobs. Full-time jobs in smaller rural communities 

are rare, and generally pay less than comparable jobs in larger communities. Nevertheless, the income discrepancy between Alaska Native and non-Native exists in 

urban Alaska, and likely is the result of lower levels of educational attainment and 

other issues related to workforce preparedness. 

FCC has set aside $50 million dollars for the purposes of creating Internet connections in rural America. This amount, Mr. Chairman, may sound as a sufficient 

amount if Alaska and Hawaii are taken out of the picture; but if in fact, it is the 

goal of FCC to create an absolute Internet connectivity across this great nation this 

amount is totally insufficient! Our recommendation is to increase this amount by 

tenfold. Even then, it may not be enough. 

We agree with Alaska’s Congressional Delegation’s recommendation, as written in 

the second bullet, Underfunding Remote Alaska on page two of the February 22, 

2012 letter to Chairman Genachowski, regarding the underfunding of FCC’s implementation plan for Remote Alaska insofar as deployment of broadband in rural 

Alaska is concerned. 

FCC should also consider grandfathering the tribally owned companies that deploy broadband to the Indian Country, including the tribes in the State of Alaska. 

The issue of grandfathering of such services was addressed by the tribally owned 

service providers, thus, this statement is silent on that. 

99

Tribal Coordination—Outreach to the Tribes in the State of Alaska 

As stated earlier, 231 of the 565 federally tribes of this great nation are located 

within the State of Alaska. The FCC, as any other federal agency, is mandated to 

hold consultation with the federally recognized tribes with all the tribes in this nation, including the tribes located within the boundaries of the State of Alaska. 

Logistically speaking, it would be difficult at best to contact every federally recognized tribe in Alaska for consultation by FCC. However, there are 12 regional tribal 

consortia operating within the State of Alaska operating on behalf of the tribes located within their boundaries. Each tribal consortium operates its programs after 

it receives resolutions from each of the tribes within their boundaries authorizing 

them to act on behalf of the tribes. 

It seems logical that insofar as tribal consultation is concerned in the State of 

Alaska; FCC should consider consulting, at the very least, with each of the 12 nonprofit tribal consortia in its tribal consultation process as well as the 12 regional 

corporations located within the boundaries of the Alaska. The regional corporations 

are the ANCSA regional corporations pursuant to the terms of the Alaska Native 

Claims Settlement Act of December 18, 1971. 

Thank you for giving me an opportunity to testify in front of your committee. If 

you have any questions regarding my statement, I would be willing to entertain 

them at this time. 

Attachments

CONGRESS OF THE U.S. 

Washington, DC, February 22, 2012

Hon. JULIUS GENACHOWSKI, 

Chairman, 

Federal Communications Commission, 

Washington, DC

Dear Mr. Chairman:

We write to raise several significant Alaska-specific concerns regarding the Federal Communication Commission’s (FCC) reform of the high-cost Universal Service 

Fund. We appreciate the time :and serious considerations you gave in addressing 

the unique and challenging Alaska communications market through various mechanisms within the USF/ICC Transformation Order. However, as the FCC and carriers work through the market shifts that accompany such a high-impact change, 

we remain concerned on a number of points, some of which we note below. We believe addressing our additional concerns is important to maintaining, but also expanding the incomplete telecommunications network in Alaska. Further steps must 

be taken in short order to fulfill the critical mission and the statutory obligation of 

providing universal service to our constituents in some of the farthest reaches of our 

country, including rural Alaska. 

As you know, the lack of roads, extreme distances, topographical and climatic 

challenges in rural Alaska result in extraordinarily high construction and operational costs. To bring the most advanced services possible to our rural areas, the 

companies providing those services assumed extremely high burdens of debt. The 

networks built meet Rural Utilities Services standards and requirements, but now 

these companies are faced with uncertainty about their ability to maintain a satisfactory level of debt coverage, and have little opportunity for obtaining the necessary financing to upgrade their networks. 

The FCC’s recent reform of the High-Cost Universal Service Fund and creation 

of the Connect America Fund acknowledged the unique challenges and extreme expense of serving rural Alaska, in part by creating an interim Remote Alaska mechanism. The Commission has said it is intended to ‘‘preserve newly initiated services 

and facilitate additional investment in still unserved and underserved areas during 

the national transition to the Mobility Funds.’’ This goal represents how we believe 

all carriers in Alaska should be treated under Section 254(b) of the Telecommunications Act of 1996, which is intended to establish universal service at comparable 

rates. Specifically, we would like to directly address several core issues:

• Middle Mile Infrastructure: As we have mentioned in the past, the costs of 

maintaining and expanding middle-mile connections in Alaska are extremely 

high. To meet the FCC’s goal of bringing broadband to all Americans, we request more be done to assist and create incentives for companies to build out 

and develop telecommunication networks capable of delivering broadband services to rural Alaskans at comparable and affordable prices. Specifically, we request the CAF be modified to include an Alaska-specific middle mile formula 

to offset Alaska’s extremely and unavoidably high middle mile costs.

100

• Underfunding Remote Alaska: It appears the Remote Alaska mechanism designed to preserve support and facilitate investment will be underfunded by 

more than $20 million, contrary to our expectations and the FCC’s purpose in 

establishing this fund. Without adequate funding, we have little expectation for 

progress in deploying wireless and broadband service in rural Alaska. Petitions 

for reconsideration are before you that seek modest, yet critical, revisions to the 

FCC’s implementation plan for Remote Alaska. We urge you to immediately 

adopt these recommendations and make the revisions necessary to restore anticipated funding levels and fulfill the dual goals of the FCC’s Remote Alaska 

mechanism: preserving newly initiated services and facilitating additional investment in rural Alaska.

• Two-Year Delay for Both CETCs and ILECs: We appreciate the implementation 

delay the FCC gave to the reduction of identical support funding. However, we 

remain concerned about the competitive impact on our state’s telecommunications market and request you expand the two-year delay to all Alaska carriers, including incumbent local exchange carriers (ILECs) and competitive eligible telecommunications companies (CETCs). Given Alaska’s uniqueness in climate, topography, and geography, much of which the FCC has already recognized, the additional time for both CETCs and ILECs will help both wireless 

and wireline sides better adjust to the FCC’s order.

• Improved Waiver Process: As the reform order was being developed, we spoke 

extensively on the importance of allowing waivers to the delivery standards in 

an expedited manner to carriers in rural high-cost areas. We remain concerned 

that the process laid out is still too burdensome and slow. Additionally, questions remain about whether the realities of the costs of middle-mile connections 

are included in the waiver process. You have before you suggestions from multiple carriers in our state, as well as the Regulatory Commission of Alaska 

(RCA), on how to address this issue. We encourage you to consider them in a 

timely manner.

• Carriers of Last Resort: We request you work with the RCA on issues relating 

to carriers of last resort in Alaska. We believe state commissions are in the best 

position to make accurate and timely local determinations regarding the overlap 

of service areas and abilities of providers to serve areas without continued support.

• Tribal Clarifications: We applaud the inclusion of tribal consultations in FCC 

rulemaking. However, we request you work with the tribal groups, carriers and 

the State of Alaska to clarify the tribal consultation requirements included in 

the reform order. Alaska is home to more than 200 federally recognized tribes, 

only one of which is on a reservation similar to the system in place in the Lower 

48. This means service often crosses multiple Native villages, tribal regions, and 

Native corporation lands. By working with Alaska stakeholders to clarify which 

tribal organizations qualify tor consultation, we hope harmony between tribes 

and providers will continue to bring telecom services to our State’s Native communities.

Your quick action is critical. Because of Alaska’s short summer construction season, these issues must be addressed by March 7, 2012, so that providers serving the 

remote areas of Alaska can finalize and execute summer construction plans in a 

timely manner. Providers need time not only to order equipment, but to transport 

that equipment to remote locations. Neither can occur until we know with certainty 

that the full support amount will be available for additional deployment to remote 

Alaska Native villages. At best, this means denying rural Alaska comparable services for at least another year, or at worst, far longer, depending on how the Commission implements the transition to replacement funding mechanisms. Any delay in 

deciding the Petitions for Reconsideration could result in the loss of the entire fourmonth construction season. In this case, a decision delayed truly is a decision denied. This would be unfair to our rural constituents, many of whom still have no 

wireless service today. 

As you move forward, we highly encourage you to consider these Petitions for Reconsideration and related comments concerning the future of telecom service in 

rural America, particularly Alaska. We hope and expect that your timely action will 

prevent the disruption of the forward momentum of building a nationwide telecommunications network. 

We look forward to continuing to work with you and welcome the opportunity to 

meet for further discussions about the unique telecommunications challenges facing 

Alaska. 

Sincerely, 

101

1http://www.einpresswire.com/article/63460-rivada-sea-Jion-joint-venture-wins-arra-grantaward-for-alaska 2http://www.aspenwireless. net/2009/12/17/a-winner-rivada-sea-lion-a warded-rus-bipfunds/

SENATOR MARK BEGICH, SENATOR LISA MURKOWSKI, AND CONGRESSMAN DON

YOUNG

ALASKA FEDERATION OF NATIVES

August 25, 2011

Hon. JULIUS GENACHOWSKI, 

Chairman, 

Federal Communications Commission, 

Washington, DC

Dear Chairman Genachowski:

Thank you for taking the time to visit Alaska and holding a Roundtable discussion on broadband as it applies in Alaska. It is our hope that you visit rural communities while you are in Alaska. 

Introduction 

The Alaska Federation of Natives (AFN) is the largest statewide Native organization in Alaska. Its membership includes 178 villages (both federally-recognized 

tribes and village corporations), 13 regional Native corporations and 12 regional 

nonprofit and tribal consortiums that contract and run federal and state programs. 

AFN is governed by a 37-member Board, which is elected by its membership at the 

annual convention held each October. The mission of AFN is to enhance and promote the cultural, economic and political voice of the entire Alaska Native community. 

American Recovery and Reinvestment Act 

The American Recovery and Reinvestment Act of 2009 (ARRA) provided two 

major categories of funding for broadband infrastructure, $2.5 billion to the US Department of Agriculture Rural Utilities Service (RUS), and $4.7 billion to the National Technology and Information Administration (NTIA) within the Department of 

Commerce, of which $3.8 billion is directly available for broadband infrastructure. 

The ARRA also charged the Federal Communications Commission (FCC) with preparing a national broadband plan, which has since been completed and submitted 

to Congress. 

As part of the implementation of the ARRA, the Obama Administration awarded 

a last-mile grant to Rivada Sea Lion of a $25.3M Grant Award. 1 Rivada Sea Lion 

is a Joint Venture comprised of Sea Lion International (SLI) of Anchorage, AK and 

Rivada Networks of Colorado Springs, CO. SLI is a subsidiary of Sea Lion Corporation, an Alaska Native Village Corporation of Hooper Bay, Alaska. The award, as 

we understand it, is to provide 4G wireless high-speed broadband Internet service 

to approximately 30,000 residents in 53 unserved, subsistence level communities in 

Southwestern Alaska Native villages and was issued on December 18, 2009, the 

38th Anniversary date of the enactment of the Alaska Native Claims Settlement Act 

(ANCSA). Rivada will design, engineer, and construct a multi-mode 4G last-mile remote network that spans 90,000 square miles and connects homes and businesses 

as well as anchor institutions such as health clinics, schools, and tribal government 

facilities. By using wireless and satellite technology rather than copper or fiber, the 

project hopes to provide the first broadband services to these Native Alaskan communities at relatively low cost. 2

Mr. Myron Naneng, a shareholder of Sea Lion Corporation and the President and 

CEO of the Association of Village Council Presidents, recently advised the Human 

Resources Committee, a standing committee of the AFN Board of Directors, that 

while this award was issued on December 18, 2009, the Rivada Sea Lion joint venture has yet to be reimbursed by FCC for the expenses they have incurred on the 

implementation of this award. The billings have been submitted in accordance to the 

terms and conditions of this award remain unpaid. AFN recommends the FCC reimburse this joint-venture for the expenses incurred pursuant to the award and billings submitted to the FCC since the award was issued. 

Broadband Deployment Recommendations 

AFN supports broadband deployment in remote and rural parts of Alaska with 

hopes that it will lead to affordable communications at service and quality levels 

102

comparable to communication services available to the majority of American communities. AFN recommends the FCC consider the following as it moves forward 

with broadband deployment in Alaska:

• FCC should approach broadband deployment as a national endeavor comparable 

to building the interstate highway system in the 1950s and 1960’s, and encourage large scale projects—such as deploying fiber optic cable up the coast of 

Western Alaska, Interior Alaska, and any remaining areas where this technology is absent—as well as the development or immediate upgrading of microwave networks that will link large geographic areas and thousands of rural 

residents to the fiber optic connectivity in Anchorage and beyond.

• FCC’s first priority should be to serve unserved areas. ‘‘Unserved’’ should be defined as an area with no broadband service, having access only to dial-up service, or having service that is dependent on a satellite connection. ‘‘Underserved’’ 

should mean an area with broadband not comparable to what is available in 

urban areas.

• FCC should establish a comprehensive nationwide inventory map of existing 

broadband service capability and availability that depicts the geographic extent 

to which broadband service capability is deployed and available from a commercial provider or public provider.

• FCC must recognize that a plan to deploy broadband to rural Alaska, in order 

to be realistically designed to meet the statutory requirements, must consider 

Alaska’s unique geography, climate and lack of inter-connecting roads between 

the metropolitan and rural Alaska, all of which will present unforeseen challenges. For example, the most cost-effective means of delivering material and 

goods needed for broadband deployment in Western Alaska is by ships and 

barges during the months of June, July, August and September.

One of the most important net results of broadband deployment in rural Alaska 

will be its use in the developing the minds of our Alaska Native youth. That is, enabling the abilities of the Alaska Native youth living in rural and remote Alaska tribal communities to access broadband (Internet) in the same manner as youth living 

in urban settings through expansive broadband deployment. Youth are one of the 

most important, if not the most important, resources Alaska Natives have and they 

deserve access to educational resources at least on par with their urban counterparts. 

AFN understands that broadband capability/capacity development will not by 

itself resolve the many health, social, economic and other challenges common in remote and rural parts of Alaska and in the most rural and remote regions of our 

nation. However, reliable, robust, and easily accessible broadband provides one of 

the most promising hopes for making a ‘‘sea of change’’ in terms of the opportunities 

that are so acutely needed in rural Alaska. 

Finally, the goals of broadband deployment in rural and remote communities in 

Alaska are consistent with goals set by the White House Executive Order that established the White House Rural Council in the areas of job creation, economic development, expansion of telecommunications, renewable energy and new markets for 

rural communities, increased access to quality health care, education, housing and 

particularly in persistent poverty counties and tribal areas. 

Thank you for your consideration. 

Sincerely, 

NELSON N. ANGAPAK, 

Sr. Senior Vice President 

PREPARED STATEMENT OF JOHN BADAL, CEO, SACRED WIND COMMUNICATIONS, INC. 

Sacred Wind Communications, Inc. thanks the Senate Indian Affairs Committee 

for its interest in studying the forthcoming changes to the Federal Communications 

Commission’s (FCC) Universal Service program as they affect America’s Indian 

tribes. The FCC has successfully managed universal service programs since its inception to the extent that nearly every home in the United States, off tribal lands, 

has had basic telephone services available for the last half century; and, more recently—since its Tribal Order adopted in 2000, in fact—the FCC has turned its attention to achieving ubiquitous telecommunications services on tribal lands. 

In November 2011, the FCC released a watershed decision reforming the federal 

Universal Service Fund (USF) program. A central intent of that reform was to eliminate or reduce waste and inefficiencies in the USF program. To its credit, the FCC 

arrived at a comprehensive and sound plan that portends to reduce waste and ineffiVerDate 0ct 09 2002 13:22 Jan 04, 2013 Jkt 077458 PO 00000 Frm 00106 Fmt 6601 Sfmt 6621 S:\DOCS\77458.TXT JACK
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ciencies in the USF fund’s support of at least one large segment of the telecommunications industry, and has the promise of expanding more broadband to the harder 

to reach rural areas. Unfortunately though, the FCC’s reform may bring harm to 

a number of the smallest rural local exchange carriers (RLECs) that serve some of 

the most neglected rural areas of our country. Essentially, rural local companies 

with some of the highest per capita investments in plant and operating expenses 

are threatened with significant reductions in federal USF support. 

The very nature of the more neglected areas of our country, however, causes the 

higher investments and higher operating costs incurred by telecommunications carriers, with little potential for a return on investment. Low population densities, high 

poverty rates, large land masses encompassing difficult terrain are common components of a tribally-serving telecommunications company. 

Sacred Wind Communications, serving a portion of the Navajo Nation in New 

Mexico, for example, operates in an area the size of Delaware and does not have 

a single incorporated town or village in its entire service territory. 

Sacred Wind purchased the ‘‘last mile’’ assets on Navajo Lands from Qwest Corporation in 2006, at which time less than 25 percent of Navajo homes had access 

to basic voice telephone services and less than 1 percent had access to broadband 

in the home. Thanks to its receipt of a USDA–RUS low interest loan, Sacred Wind 

has built a new telecommunications infrastructure well suited for the terrain and 

the community it serves, at a cost of $40 Million. Even though Sacred Wind’s network is not yet complete, the company has increased telephone availability to over 

70 percent of homes and now makes broadband available to 99 percent of its voice 

customers. 

Sacred Wind’s network infrastructural costs and its operating costs are higher on 

a per subscriber basis than non-rural telecommunications carriers and even many 

rural carriers that serve more dense populations and flatter terrain. This is a simple 

matter of fact in a vast service territory where population densities are low and the 

amount of network infrastructure needed to cover the entire area—flatlands, foothills and canyons—is high. No single technology is appropriate for the entire area—

where the distance between communities and the population density make landline 

deployment unaffordable, where the mountains and canyons within its territory, 

which separate hundreds of Navajo homes in small clusters many miles from each 

other, make mobile wireless communications unworkable in considerable parts of 

Navajo Lands. 

In the FCC’s pursuit within its USF reform order of cost efficiencies in telecommunications systems, a generalization that mobile wireless service is often better suited for low density areas seems to have been accepted. Such generalization 

does not work well where mountain ridges framing canyon lands and setting high 

desert homes apart from their neighbors demand that residents hunt, sometimes for 

miles, for a mobile signal in order to make a call. All Navajos are familiar with the 

hunt for a wireless signal. Sacred Wind, on the other hand, has developed a system 

that sends a signal directly to a person’s house, enabling residents to have 911 service available for emergencies at all times. Sacred Wind’s costs are different from a 

more neglectful mobile wireless alternative, but they are not inefficient. 

On April 25th of this year, the FCC issued an amendment to its November 2011 

USF reform order, making certain adjustments to its analysis of rural carriers’ 

costs. That amendment reduced the financial impact for many rural carriers, including Sacred Wind. For that, we thank the FCC for hearing our concerns and responding. Nonetheless, Sacred Wind and many other rural carriers are still uncertain 

about the full impact of a multifaceted reform program and still have questions 

about whose calculations—the FCC’s or the industry’s consultants—are the most accurate. The consequence of such uncertainty is played out daily in our industry in 

delayed construction projects, job loss, hiring freezes, and postponed plans for future 

investment. 

Ironically, the larger telecommunications carriers in the country are to be benefitted by these reforms. In its drive to reform the USF program, the FCC has made 

changes in every aspect of a rural carrier’s source of revenues, including in the area 

of Inter-Carrier Compensation (ICC). Historically, long distance carriers and Internet providers have had to compensate the local exchange companies for their traffic’s use of the local companies’ systems. Without the local companies’ continued investment in their networks, those long distance companies and Internet providers 

would not find capacity enough to transmit all of their traffic. For some reason, the 

FCC feels that rural local exchange carriers cannot justify charging carriers for the 

use of the local companies’ networks. But, the reverse is true: rural local exchange 

carriers must build networks that are more costly to operate on a per subscriber 

basis than those found in urban areas and require appropriate compensation from 

104

the larger carriers for their larger use of the rural carriers’ networks than the rural 

carriers require for their own subscribers. 

In such remote areas as Navajo Lands in New Mexico, Arizona and Utah, only 

the rural local exchange carriers possess the infrastructure that the long distance 

carriers, the mobile wireless carriers and the Internet providers need to carry their 

traffic. Without Sacred Wind’s infrastructure, in other words, Internet services, mobile services, and long distance services would be bottlenecked in northwest New 

Mexico. The FCC’s ICC reform plan, though, would effectively require the rural carriers to provide the larger carriers nearly free access to our investments. Each year 

the amount the rural carriers charge the larger carriers for terminating their traffic 

in our systems would be reduced by 5 percent, and then be eliminated altogether 

in 9 years. Meanwhile, the rural carriers’ bank payments for the investments they 

have made remain the same. 

Since such intercarrier reform is to begin only at the terminating end of a telecommunications transmission, the most vulnerable rural carriers may be forced to 

raise their fees to long distance companies on the originating side of the call, which 

would disadvantage everyone—including the rural carriers’ themselves—in rural 

areas. 

Tribally Serving Carriers Have Depended on the USF to Reach Their

Customers’ Goals 

The achievements of tribally owned telecommunications companies, and of a few 

locally-based carriers uniquely serving tribal communities, in surmounting the digital divide on tribal lands have been well noted. An easy comparison can be made 

of the availability of telecommunications services on tribal lands as provided by tribally-oriented rural carriers versus larger, out-of-state carriers. Whether tribally 

owned or not, however, certain expenses above those common to all rural carriers 

are incurred on tribal and federally managed lands. Those involve the need and the 

requirement to operate within the culture of the tribe and demands placed by the 

tribe and/or the Federal Government to comply with the appropriate land use and 

other authorization procedures. 

An acceptable use of USF support should be the additional personnel and other 

operating expenses required to acquire rights of way on federally managed lands, 

to acquire rural addressing for remote tribal customers’ access to 911 emergency 

service, and additional expenses necessary to reach, inform and educate our customers on the availability of services. 

Sacred Wind, for example, assigns a bilingual employee to work with the 22 local 

Navajo Chapters (local communities and political subdivisions) for support for rights 

of way applications and to affirm the company’s operating in culturally acceptable 

ways. Even the company’s broadband offering is designed to assure its customers 

of privacy and security (a Navajo principle related to Hozho ̃ and K’e or K’e nisiin, 

a person’s pursuit of harmony through respect of others) and to feature as part of 

its services special applications that are of supreme relevance to its culture, such 

as its history, traditional medicines, native language training, etc. 

For a rural carrier serving a tribal area, the acquisition of right of way on federally-managed lands can represent up to 20 percent of a project’s construction costs. 

Not only does this affect the finances of a rural carrier operating on tribal lands, 

but it distorts the carrier’s operating costs as they are compared to other telecommunications companies. It also points to an uncoordinated mission at the federal 

level: does the federal government want broadband and voice telecommunications 

services established quickly on tribal lands or not? Do the FCC and Department of 

Interior have common goals? Do the state highway and land departments coordinate 

infrastructural development with their Federal Government counterparts? 

Said in another way, a significant piece of federal grant, loan or USF monies used 

today for telecommunications expansion in the West is spent wastefully on a government-driven, heavily bureaucratized right of way process, and some of that money 

goes right back to the federal government in payment of its fees. If the federal government is unable to resolve this policy paradox, it should at least take into account 

the additional effort needed to properly serve the largely unserved tribal areas and 

the additional work to stimulate broadband usage as it develops its new Connect 

America Fund budget. 

Implication of RLECs’ Loss of USF Support 

Many RLECs today operate in areas of the country where no sound business case 

could be made for the provision of basic or broadband services without significant 

USF support. According to a study conducted in 2003, a typical RLEC received 22 

percent of its revenues from interstate long distance carrier access charges, 18 percent from intrastate access charges, 40 percent from federal universal service fundVerDate 0ct 09 2002 13:22 Jan 04, 2013 Jkt 077458 PO 00000 Frm 00108 Fmt 6601 Sfmt 6621 S:\DOCS\77458.TXT JACK
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1 ‘‘Economic Efficiency and the Support of Universal Service in Rural Markets,’’ Parson, Steve 

G., Ph.D., June, 2003. 2Wendell Taylor, Central Texas Telephone Company, before the U.S. Senate Commerce Committee, May 12, 2004. 

ing support and only 20 percent from their customers. 1 From testimony delivered 

to Congress in 2004 by a rural Texas carrier, 31 percent percent of the carrier’s revenues were derived from carrier access charges, 60 percent from the FCC’s USF, 

and only 9 percent from customers. 2 Sacred Wind’s financial structure is not much 

different. Today, with carrier access support reduced through reforms enacted at the 

federal and state levels since these reports were made, USF support for Sacred 

Wind’s customer base is absolutely critical. Further ICC reforms and other reductions to USF funding can be easily and appropriately described as just more nails 

in a coffin. 

A Connect America Fund Can Meet Its Broadband Objectives While

Sustaining Rural Carriers 

Because we firmly believe that the locally based rural carriers, and notably the 

tribally owned and tribally serving rural carriers, have proven their worth in building advanced infrastructures and delivering quality voice and Internet services to 

their customers, we recommend that a reformed USF program be built around them 

and not around the national carriers that have neglected rural America. Sacred 

Wind’s and several tribally owned companies’ newness in the rural telecommunications community has advantaged their customers in terms of having access to the 

most affordable and best available equipment for their voice and broadband needs. 

Many rural carriers, including all tribally owned and tribally serving carriers, exemplify the benefits of ‘‘localizing’’ telecommunications services for their customers—

that is, replacing the negligent national carriers with a locally owned solution. The 

optimum strategy for the FCC in its drive to expand broadband across the nation, 

therefore, would be to support the rural carriers’ improvements to their local telecommunications systems rather than reinventing a universal service program that 

returns this country to an unworkable past effort—one led by the national landline 

and mobile wireless carriers. 

The USDA–RUS’s low interest loan program and the FCC’s USF program have 

worked well for Sacred Wind and our customers. We are proud of the work we have 

done to resolve the digital divide within our service territory on Navajo tribal lands. 

As a recently formed company, having built a new telecommunications infrastructure that is just now attracting scores of new customers every month, we ask the 

FCC and this Committee to further support our efforts to serve the unserved. 

Thanks to the USDA’s low interest loan program and support mechanisms under 

the FCC’s USF program, which included consideration for a return on a rural company’s investment, many companies as ours have taken up the federal challenge to 

improve service to rural America. 

Even that investment is at risk as the FCC is considering reducing the amount 

of return on investment after the investment has already been made. How can the 

federal government encourage more tribes or other private companies to develop 

new telecommunications solutions for tribal customers when the tribal model that 

has been succeeding is set for change? When universal service—built from models 

developed from current federal programs by a handful of tribally-serving companies 

in the country—is just now within reach of many other tribes, why now amend the 

model? 

Can we not simultaneously reform the USF and continue to incent growth of telecommunications systems on tribal and remote lands? Our fear is that the uncertainty built into the current plans would do the opposite. We thank the Committee 

for its attention and consideration. 

PREPARED STATEMENT OF GAYLA HALINIAK-LOYD, PRESIDENT, KALAMAULA

HOMESTEAD ASSOCIATION

Chairman Akaka, Vice Chairman Barrasso, and distinguished members of the 

Committee, thank you for holding this hearing to address the impacts of the Federal 

Communications Commission’s (FCC) Connect America Fund Order (Order) on native communities across the country. My name is Gayla Haliniak-Loyd and I am the 

President of Kalamaula Homestead Association. The Kalama‘ula Homesteaders Association (KHA) was established to...

. . . challenge and inspire youth who live on homestead land to achieve their 

full potential by providing support and opportunities for advancement in education;

106

. . . promote better health for our Kalama‘ula community and homesteaders 

outside of Kalama‘ula through education; and

. . . preserve and protect Hawai‘i’s natural environment, including Kiowea Park 

in Kalama‘ula in particular, through the stewardship of our lands consistent with 

Hawaiian culture and values and traditional methods of resource management.

I appreciate the opportunity to provide testimony on this critical issue that could 

have devastating impacts on our operations and ability to serve our Native Hawaiian constituents. When no one else would, SIC owned and run by Native Hawaiians, 

provided and continues to provide us with affordable and reliable telecommunications services.

We humbly request your assistance to ensure SIC’s investment in desperately 

needed telecommunications infrastructure in our underserved indigenous communities continues. We have tremendous hopes for our future as native people of this 

great nation and believe that our ability to compete in an increasingly global economy is directly tied to our ability to access broadband communications infrastructure. Once complete, SIC’s robust and reliable statewide fiber optic network will expand broadband capabilities and provide affordable access for community anchor institutions, like ours. This will result in substantial benefits for the entire state, but 

especially our rural and remote communities, delivering improved education, 

healthcare, and economic development opportunities in a way only broadband can 

provide. 

As Hawaii’s only Rural Local Exchange Carrier (RLEC), SIC is the only carrier 

that has consistently demonstrated its commitment to ensuring Hawaii’s rural and 

remote areas have access to broadband infrastructure. SIC has and will continue to, 

if given the opportunity, provide broadband access in Hawaii’s most rural and remote areas, squarely in line with the spirit and intent of Universal Service. Plainly 

put, we strongly believe the future broadband capabilities of our organization and 

our community hinge on SIC’s ability to continue to fund critical infrastructure investments in our rural communities. 

We respectfully request your assistance to ensure that SIC continue to receive 

adequate funding to fulfill Congress’s vision of Universal Service for ALL Americans, and to ensure that native communities, like ours, are not left behind. 

PREPARED STATEMENT OF JAMES J. KAIL, EXECUTIVE COMMITTEE MEMBER, SMALL

COMPANY COALITION (SCC); PRESIDENT/CEO, LAUREL HIGHLAND TELEPHONE COMPANY (LHTC) & YUKON-WALTZ TELEPHONE COMPANY

Chairman Akaka, Vice Chairman Barrasso, and Members of the Committee: 

Introduction 

Thank you for the opportunity to submit testimony regarding USF reform and its 

impact on Tribal telecommunications carriers as well as small rural companies serving Tribal lands. My name is James J. Kail and I am writing on behalf of the Small 

Company Coalition (SCC) of which I am an Executive Committee Member. Our Coalition was founded earlier this year in direct response to the concerns of many in 

the industry that the FCC’s USF/ICC Reform Order will have a destructive impact 

on small rural carriers, Tribal and non-Tribal, as well as the rural and Tribal communities that they serve. Among those tribally-affiliated carriers, the SCC represents Mescalero Apache Telecom, Inc. (MATI), for whom Alfred Lapaz and Godfrey Enjady have testified at this hearing, as well as Sacred Wind Communications, 

a rural New Mexico carrier serving Tribal lands. 

Similar to the Tribal service offered by MATI (information which may be gleaned 

from their oral and written testimony now on record), Sacred Wind Communications 

(SWC) provides advanced telecommunications and broadband to Navajo communities with service currently available to 70 percent of 6,800 homes across the region. At present, Sacred Wind serves 2,850 access lines, a figure that has seen 

steady monthly growth, with 79 percent of residential customers on the Tribal Lifeline program for low-income tribal members. SWC has received national attention 

for its work, as it won the American Express/NBC Universal-sponsored ‘‘Shine a 

Light’’ competition, which recognized the company’s vital role in providing advanced 

technology to the Navajo nation; service crucial to the Tribe’s modernization and 

progression. 

Unfortunately, many of the reforms discussed in the June 7th hearing create an 

industry-wide atmosphere of uncertainty and thereby imperil the ability of well-run, 

community-oriented carriers such as MATI and SWC to invest in their networks 

107

and continue reaching out to those customers who, absent predictable and sufficient 

USF support, will remain unserved. 

General Comments on Hearing 

Many of the questions and arguments presented at the hearing warrant further 

investigation and response. In the interest of providing additional dialogue on the 

urgent matters discussed, I would like to offer direct engagement with many of the 

written and verbal statements now on record with the Committee. 

A primary motif of the Commission and its representatives is that the regulatory 

process has thus far been ‘‘open and engaging,’’ that their ‘‘doors are open,’’ and that 

they have worked with and will continue to work with the industry to take our concerns into account. Incidentally, I have personally been a party to this ‘‘open and 

engaging’’ process. 

At a recent telecommunications conference in New Mexico, following a presentation by FCC Chief of the Office of Native Affairs and Policy, Geoffrey C. Blackwell, 

I expressed fundamental concerns with various regulatory mechanisms implemented 

by the Order and the nature with which the Commission treats the USF itself. At 

this meeting, the Commission went on record as declaring the USF to be ‘‘federal 

money’’—a strange notion, considering that not a dime of taxpayer money is involved, but rather, it is comprised entirely of user fees. That is to say, those who 

use the nationally-connected telecommunications network pay to do so. While I 

hoped for an adequate response, I was ultimately instead told to formally voice 

these thoughts on the record with the Commission so they could properly be addressed. This would indeed be an encouraging statement if one had not already done 

so—as a board member of the Organization for Promotion and Advancement of 

Small Telecommunications Companies (OPASTCO), I have long been involved in the 

process and noted that in the Order itself, rural and Tribal input are routinely rejected or altogether ignored. 

To this end, Paragraph 796 of the Order offers a lesson in dismissiveness, as it 

addresses state objections to the national regulatory approach adopted by the Commission:

‘‘Some commenters argued that the uniform approach we take today is inappropriate because states should be allowed to pursue tailored intrastate access reforms. We appreciate and respect the expertise and on-the-ground 

knowledge of our state partners concerning intrastate telecommunications [bold added] [. . .] With respect to the ultimate ICC framework and 

the intervening transition, however, we find that a uniform national approach 

will best create predictability for carriers and promote efficient pricing and new 

investment to the benefit of consumers [b.a.].’’

As an active leader within the Associations and the Coalition for whom I offer this 

testimony today, I may say that the consideration we as an industry have received 

is similar. Though our collective ‘‘expertise and on-the-ground knowledge’’ might 

seem to suggest that we know best how to run our businesses, the FCC ultimately 

deemed their own experience in boardroom discussions to be more pertinent. Not 

surprisingly, a lawsuit is now pending in the 10th Circuit Court in Denver, of which 

my own Pennsylvania Public Utility Commission (PUC) and Gila River Telecom, a 

Tribal LEC, are both filing parties. In addition, valuable members of the rural and 

Tribal telecommunications industry have now testified before the Committee, giving 

voice to a common sentiment: the Commission heard us, but did not listen. 

With this in mind, some quick work in Microsoft Word reveals that ‘‘reject/rejected’’ appear 75 times throughout the Order, while reading the context in which 

they appear shows that they are typically used in relation to suggestions made by 

representatives of the Tribal providers and small rural industry at large. In short, 

‘‘open and engaging’’ rarely equates to ‘‘adoption,’’ at least in relation to the interests of the rural and Tribal carriers in this case. 

Similarly, word searches for ‘‘Verizon’’ and ‘‘AT&T’’ will net 465 matches, while 

two of the largest trade associations for the rural industry, NTCA and OPASTCO 

(both of whom represent Tribally-affiliated carriers and those serving Tribal lands), 

garner less than 49. This is not an attack upon the larger carriers; on the contrary, 

it is expected that their voice should be well-heard in a matter of national regulation. However, the sheer disparity of accepted input should raise a considerable red 

flag in regard to how effective the ‘‘open door’’ process is when it comes to actually 

putting ink to paper. 

The Waiver Process as Post-Modern Epic 

In the tradition of Frodo’s march into Mordor, the Biblical Jacob’s pursuit of Rachel, and the quest for the Golden Fleece, any company wishing to obtain a waiver 

108

from the immanent damage within the Order, as currently written, must first complete a series of daunting tasks and trials. To follow this metaphor, Commissioner 

Clyburn’s remarks (subsequently echoed by Mr. Blackwell’s oral testimony in the 

June 8 Natural Resources hearing in the House) that prospective waiver applicants 

need not hire outside experts and consultants to assist in the process is equivalent 

to telling Jason to leave the Argonauts at home as he’s required to yoke the firebreathing oxen, sow the field with dragon teeth, defeat the army, slay the dragon 

and so on and so forth. 

Senator Murkowski raised these concerns about the onerous nature of the waiver 

application, as well as the projected $100K–$180K cost that relief applicants may 

incur in order to complete the process, and the ultimate reality that even after such 

effort, it still remains unlikely that many companies will be granted the waiver. As 

a matter of fact, the FCC themselves state in paragraph 540 of the November Order 

that:

‘‘We do not, however, expect to grant waiver requests routinely [bold 

added], and caution petitioners that we intend to subject such requests to a rigorous, thorough and searching review comparable to a total company earnings 

review. In particular, we intend to take into account not only all revenues derived from network facilities that are supported by universal service but also 

revenues derived from unregulated and unsupported services as well.’’

Alarmingly, by the Commission’s own admission, any entity seeking a waiver is 

already facing an up-hill battle, as the stated expectation to not ‘‘grant waiver requests routinely’’ may be paraphrased quite simply as: ‘‘We declare many of you to 

be ‘inefficient’ and know that these reforms will put you out of business, but if you 

still want to try your luck, go ahead.’’

Continuing in Paragraph 540, the Commission states:

‘‘We envision granting relief only in those circumstances in which the petitioner 

can demonstrate that the reduction in existing high-cost support would put consumers at risk of losing voice [italics added] services, with no alternative terrestrial providers available to provide voice telephony service using the same or 

other technologies that provide the functionalities required for supported voice

[i.a.] service.’’

One of the most striking contradictions of the entire Order, the stated purpose 

of which is to connect 18 million Americans to broadband, is that a waiver will only 

be granted if voice service is rendered unavailable. 

Paragraph 542 reiterates the call for proof of very specific, severe harm, stating 

that ‘‘Conclusory assertions that reductions in support will cause harm to the carrier or make it difficult to invest in the future will not be sufficient.’’ In other words, 

though a company may perfectly well be harmed and/or inhibited in future investment, that ‘‘conclusory assertion’’ alone is worthless until proven beyond a shadow 

of a doubt by providing all requested information to complete the waiver process. 

On top of that, the impact must be so severe as to ‘‘put consumers at risk of losing 

voice services,’’ a tremendously high threshold which bears no relation whatsoever 

to the Commission’s National Broadband Plan goal of ensuring high-speed Internet 

connectivity to all Americans. Sufficient demonstration of such impact on small carriers leaves them no choice but to turn to outside consultants for assistance, and 

indeed, as Mr. Hee of Sandwich Isles Communications stated in his testimony, it 

perversely parodies the American judicial doctrine of ‘‘innocent until proven guilty.’’

It should be noted that included in this mandatory information are demands for 

access to ‘‘specific details on the make-up of corporate operations expenses such as 

corporate salaries [italics added]’’ among other things. In case one is tempted to not 

take the letter-of-the-law seriously here, the Commission reminds us in Paragraph 

543 that ‘‘Failure to provide the listed information shall be grounds for dismissal without prejudice [bold added]. In addition to the above, the petitioner 

shall respond and provide any additional information as requested by Commission staff [b.a.].’’ Under this rigid structure, it is entirely conceivable for a redlining company to be denied waiver relief for not having provided the proper paper, 

or for paying a corporate salary viewed as too high by the Commission—an example 

of the Order’s oft-cited ‘‘wastefulness’’ and ‘‘inefficiency.’’

Ms. Clyburn, in her oral testimony before the Committee, consistently relied upon 

the assertion that all companies practicing GAAP (Generally Accepted Accounting 

Principles) should, by default, possess the Commission-requested information in totality. That is to say, that companies going about their daily business, in the course 

of such business, would have and/or should have accumulated material adequate to 

satisfy all demands of the Commission, in addition to having an in-house ability to 

109

1 Connect America Fund, A National Broadband Plan for Our Future, Establishing Just and 

Reasonable Rates for Local Exchange Carriers, High-Cost Universal Service Support, Developing 

a Unified Intercarrier Compensation Regime, Federal-State Joint Board on Universal Service, 

Continued

fully comprehend the impacts of the new reductions, cuts, and transitions contained 

within the Order. These include, but are not limited to:

• Quantile Regression Analysis (QRA) Revision—roughly 100 companies still exceed the Commission’s arbitrarily imposed cap (the oft-quoted 90th percentile 

cap), even after the revision.

• 2011 ‘‘Frozen Baseline’’ (comprised of traffic-sensitive interstate revenue requirement, terminating state access revenues, and reciprocal compensation revenue) is still reduced by 5 percent annually for 9 years.

• Local Switching Support (LSS)—an explicit USF mechanism included in the 

‘‘frozen baseline,’’ eliminated entirely, effective July 1, 2012. Reduced 5 percent 

annually thereafter. No offsetting revenue recovery mechanisms are introduced.

• Safety Net Additive (SNA)—a program which rewarded investment in building 

out infrastructure, many RUS loans were taken out with this support factored 

into the decision. SNA, like LSS, is eliminated in its entirety with no offsetting 

revenue recovery mechanisms introduced.

• $250/line/month ($3,000/line/year) cap remains in place, despite its completely 

arbitrary nature. There is absolutely no empirical data sufficient to support 

such a one-size-fits-all approach. This cap applies equally to Arctic Slope Telephone Cooperative, Inc., as it does to an urban carrier serving the heart of New 

York City even though cost models, the nature of expenses, and ability to recover revenue (in which population density is paramount) are completely dissimilar. Under no circumstance can a carrier receive more than $250/line/month 

without losing support dollar-for-dollar for each dollar over the cap. Additionally, very little is known about where this cap will fall in the coming years, a 

shock of uncertainty certain only to paralyze investment.

• Many other rulemaking issues are still pending: Interstate Common Line Support (ICLS) Regression, Rate of Return (RoR) represcription, and the Unsubsidized Competitor Rule, among others.

It should be noted that none of these measures described above, those implemented or still nascent, aim to give extended support to Tribal or small rural carriers, but rather unequivocally remove it. Ms. Clyburn’s contention, then, that the 

small rural carriers and Tribal carriers under the weight of these new regulations, 

and those on the horizon, do not need to hire experts and consultants to evaluate 

the impact on their companies would be downright laughable if it came from an outside observer. The fact that such a calloused statement comes from one of the very 

individuals who will arbitrate the waiver process is utterly chilling. 

It must also be mentioned that the very process of understanding the impact such 

complex formulas as the QRA alone—which creates annually changing caps (a concept referred to within the industry as a ‘‘moving target’’)—employed by the Commission is a significant burden in and of itself, as many of these Tribal and small 

rural carriers simply are not staffed with economists and mathematicians able to 

quickly decipher the effect of the reforms. Other revenue cuts and program eliminations, such as SNA and LSS, as well as the transition to bill-and-keep (the practice of reducing Inter-Carrier Compensation, or ICC, to zero), produce such a profound effect of unpredictability that even well-staffed, experienced companies must 

turn to consultants and specialists to gain a better grasp for the financial positions 

of their businesses. The cynic may find his proverbial ‘‘cherry’’ on top in the form 

of the acknowledged erroneous data used in the creation of the now-authoritative 

QRA model, a point to which Ms. Shirley Bloomfield testified and on which Senator 

Barrasso questioned Commissioner Clyburn, who could only respond that ‘‘[the 

FCC’s] doors are open.’’

Finally, to touch upon the testimony of the most experienced waiver veteran (a 

matter still pending, one half-year after initial application, despite the FCC’s assurance of a 45-day ‘‘shot clock’’), Mr. Hee, similar to the assertion presented here, described in his opening remarks the FCC’s treatment of small rural companies as 

‘‘guilty until proven innocent.’’ In fact, the Commission’s manner of addressing small 

rural carriers seems to demonstrate systematic disdain. In a Notice of Proposed 

Rulemaking (NPRM) from February of 2011, the Commission seems to encourage 

mergers, as it seeks comment on ‘‘Streamlining the study area waiver process to 

eliminate barriers to consolidation and rationalization of service territories.’’ 1 NatuVerDate 0ct 09 2002 13:22 Jan 04, 2013 Jkt 077458 PO 00000 Frm 00113 Fmt 6601 Sfmt 6621 S:\DOCS\77458.TXT JACK
110

Lifeline and Link-Up: Notice of Proposed Rulemaking and Further Notice of Proposed Rulemaking, WC Docket No. 10-90, GN Docket No. 09-51, WC Docket No. 07-135, WC Docket No. 

05-337, CC Docket No. 01-92, CC Docket No. 96-45, WC Docket No. 03-109, FCC 11–13, at paragraph 21 (2011) (NPRM). 

rally, eliminating barriers to consolidation and rationalization of service territories 

eliminates barriers to the consolidation of the providers to those territories. If the 

NPRM of February may be seen as a prophecy of things to come, the November 

Order works to promptly fulfill it. 

The June 8 Natural Resources Committee hearing in the House featured a performance by Chairman Young in which he began stacking waiver applications each 

thick enough to make the most thorough study Bible envious. This has come to be 

known in the industry as the ‘‘waiver race,’’ in which companies, fueled by post-regulatory uncertainty and in panicked anticipation of the lobotomy to come, have 

begun jockeying for position to be one of the few (according to the FCC’s own admission) to claim exemption from the ruthless rules. 

Paragraph 542 of the November Order, directed toward mobile providers, offers 

more support of the ‘‘guilty until proven innocent’’ concept:

‘‘To the extent that a mobile provider makes arguments in its waiver petition 

based on the profitability of specific cell sites, petitioner must explain why its 

cost allocation methodology is reasonable [italics added].’’

In essence, whoever stands before the Commission in the hope of obtaining a 

waiver does so from a position of presumed inefficiency; in this case, their cost allocation methodology will inherently be assumed unreasonable, which necessitates an 

explanation on the applicants’ behalf as to why it is, in fact, ‘‘reasonable.’’ Naturally, 

such a subjective assessment is treacherous when the applicant is already standing 

in a shadow of doubt. 

Though at this point it is mere speculation, it does not require much insight to 

make a marriage of the Commission’s stated proclivity for consolidation and the November Order mayhem—small rural carriers may indeed find themselves walking 

down the aisle in the near future. 

Conclusion 

When Chairman Young of the House Natural Resources Committee asked the 

FCC’s Geoffrey Blackwell, ‘‘Who supported [the Order]?’’ he was met with the response that the Commission gave unanimous approval. To this, Congressman Young 

replied ‘‘Who is the Commission?’’ This exchange resonates because it is indicative 

of a problem rooted deeply in the rulemaking process behind this Order. While Ms. 

Clyburn, Mr. Blackwell, and other FCC representatives are quick to recite the party 

line of ‘‘open doors’’ and ‘‘engagement,’’ the first phase of this Order is timed to commence July 1 of this year, yet the Tribal carriers, carriers serving Tribal lands, and 

the rural telecommunications industry at large are still scrambling for a halt and 

revision. 

According to the National Broadband Plan, ‘‘Tribes need substantially greater financial support than is presently available to them, and accelerating Tribal 

broadband deployment will require increased funding.’’ However, though this Order 

provides Tribal funding, the combined effect of the previously mentioned cuts and 

reductions, in actuality, leaves the Tribes with less support than before. If this truly 

has been a good-faith negotiation, as the Commission will readily contend, why is 

it that the regulated are in virtually unanimous disapproval of the resulting regulation? 

On behalf of the Small Company Coalition, representing rural independent telcos, 

Tribal companies, and those serving Tribal lands, I implore you, Chairman Akaka, 

Vice Chairman Barrasso, and members of the Committee to reciprocate the FCC’s 

call for ‘‘accountability and transparency,’’ a loaded challenge misapplied to the 

small carriers such as MATI and SWC with impeccable track records of superior 

service to Tribal and insular areas, and demand that this mechanically broken and 

logically bankrupt regulation be remanded to the Commission for meaningful revision and equitable return. 

PREPARED STATEMENT OF MEAHILAHILA KELLING, EXECUTIVE DIRECTOR, KAI LOA

INC. 

Chairman Akaka, Vice Chairman Barrasso, and distinguished members of the 

Committee, thank you for holding this hearing to address the impacts of the Federal 

Communications Commission’s (FCC) Connect America Fund Order (Order) on native communities across the country. My name is I. Meahilahila Kelling and I am 

111

the Executive Director of Kai Loa, the non-profit support organization of Ke Kula 

‘o Samuel M. Kamakau, LPCS. In honor of Kamakau’s legacy as a ‘‘great Hawaiian 

historian who also served his community as an outstanding writer, scholar, jurist, 

and legislator, in 2000 a Hawaiian immersion charter school was formed in his 

name. In July of this year we are opening our new site in Haiku Valley, Ka ̃ne‘ohe 

on Oahu. 

I appreciate the opportunity to provide testimony on this critical issue that could 

have devastating impacts on our operations and ability to serve our Native Hawaiian constituents. Sandwich Isles Communications, Inc. (SIC), owned and run by Native Hawaiians, provided and continues to provide us with affordable and reliable 

telecommunications services. We will soon have their telecommunications and DSL 

services in July of this year at our new campus located in Ha’iku ̄ Valley on the island of Oahu. Ke Kula ’o Samuel M. Kamakau, a laboratory public charter school, 

is a Pre- School through 12th grade Hawaiian-Medium Education Program with an 

enrollment of 127 students. This school is a program of choice with special requirements for participation, the primary one being enrollment as a family. As a laboratory school program of the Hawaiian language college of the University of Hawai’i 

Ka Haka ’Ula o Ke’elikolani, we are committed to the improvement of Hawaiian language education. This includes the development of innovative ideas in research, curriculum development, teacher training, and program development. We are gravely 

concerned that if nothing is done to stop the calamitous effects of the FCC’s new 

Order, we will lose the service we rely on to serve our students and families. Access 

to affordable and reliable telecommunications is critical to ensuring we can keep 

costs down so we can focus on our educational philosophy, which integrates high 

standards in language, culture and values into the daily lives of participants as a 

community. Without service from SIC, we could not talk about all the needs that 

they usually provide to help serve Native Hawaiians. 

We humbly request your assistance to ensure SIC’s investment in desperately 

needed telecommunications infrastructure in our underserved indigenous communities continues. We have tremendous hopes for our future as native people and believe that our ability to compete in an increasingly global economy is directly tied 

to our ability to access broadband communications infrastructure. Once complete, 

SIC’s robust and reliable statewide fiber optic network will expand broadband capabilities and provide affordable access for community anchor institutions, like ours. 

This will result in substantial benefits for the entire state, but especially our rural 

and remote communities, delivering improved education, healthcare, and economic 

development opportunities in a way only broadband can provide. 

As Hawaii’s only Rural Local Exchange Carrier (RLEC), SIC is the only carrier 

that has consistently demonstrated its commitment to ensuring Hawaii’s rural and 

remote areas have access to broadband infrastructure. SIC has and will continue to, 

if given the opportunity, provide broadband access in Hawaii’s most rural and remote areas, squarely in line with the spirit and intent of Universal Service. Plainly 

put, we strongly believe the future broadband capabilities of our organization and 

our community hinge on SIC’s ability to continue to fund critical infrastructure investments in our rural communities. 

We respectfully request your assistance to ensure that SIC continue to receive 

adequate funding to fulfill Congress’s vision of Universal Service for ALL Americans, and to ensure that native communities, like ours, are not left behind. 

Mahalo no ka ho‘olohe ‘ana mai. 

PREPARED STATEMENT OF ALVIN PARKER, PRINCIPAL, KA WAIHONA O KA NA‘AUAO

PCS 

Chairman Young and distinguished members of the Subcommittee, thank you for 

holding this hearing to address the impacts of the Federal Communications Commission’s (FCC) Connect America Fund Order (Order) on native communities across 

the country. My name is Alvin Parker, Principal of Ka Waihona o ka Na‘auao Public 

Charter School (PCS). Ka Waihona o ka Na‘auao PCS is located on the island of 

Oahu and has over 600 students enrolled in grades K through 8. Our enrollment 

continues to increase and we will soon expand our facilities to have the first ninth 

grade class in the school year 2015–2016. We’ve also secured a 35-year lease with 

the Department of Hawaiian Home Lands (DHHL) and are reassured knowing our 

students and staff at Ka Waihona o ka Na‘auao PCS will continue to receive the 

same high-level of services from Sandwich Isles Communications, Inc. (SIC) 

throughout our lease agreement. 

I appreciate the opportunity to provide testimony on this critical issue that could 

have devastating impacts on our operations and ability to serve our Native HawaiVerDate 0ct 09 2002 13:22 Jan 04, 2013 Jkt 077458 PO 00000 Frm 00115 Fmt 6601 Sfmt 6621 S:\DOCS\77458.TXT JACK
112

ian students and families. When no one else would, SIC owned and run by Native 

Hawaiians, provided and continues to provide us with affordable and reliable telecommunications services. We currently have (14) landlines from SIC and will receive 

DSL service from SIC soon. We are gravely concerned that if nothing is done to stop 

the calamitous effects of the FCC’s new Order, we will lose the service we rely on 

to serve our Native Hawaiian communities. Affordable and reliable telecommunications access is critical to ensuring we can keep costs down so we can focus on our 

educational philosophy which integrates high standards in language, culture and 

values into the daily lives of participants as a community. Without service from SIC, 

we could not talk about all our current and future needs that would help serve our 

Native Hawaiian students and families. 

We humbly request your assistance to ensure SIC’s investment in desperately 

needed telecommunications infrastructure in our underserved indigenous communities continues. We have tremendous hopes for our future as native people of this 

great nation and believe that our ability to compete in an increasingly global economy is directly tied to our ability to access broadband communications infrastructure. Once complete, SIC’s robust and reliable statewide fiber optic network will expand broadband capabilities and provide affordable access for community anchor institutions, like ours. This will result in substantial benefits for the entire state, but 

especially our rural and remote communities, delivering improved education, 

healthcare, and economic development opportunities in a way only broadband can 

provide. 

As Hawaii’s only Rural Local Exchange Carrier (RLEC), SIC is the only carrier 

that has consistently demonstrated its commitment to ensuring Hawaii’s rural and 

remote areas have access to broadband infrastructure. SIC has and will continue to, 

if given the opportunity, provide broadband access in Hawaii’s most rural and remote areas, squarely in line with the spirit and intent of Universal Service. Plainly 

put, we strongly believe the future broadband capabilities of our organization and 

our community hinge on SIC’s ability to continue to fund critical infrastructure investments in our rural communities. 

We respectfully request your assistance to ensure that SIC continue to receive 

adequate funding to fulfill Congress’s vision of Universal Service for ALL Americans, and to ensure that native communities, like ours, are not left behind. 

113

PREPARED STATEMENT OF THE NATIONAL CONGRESS OF AMERICAN INDIANS (NCAI)


607b1.eps

INTRODUCTION 

The National Congress of American Indians (NeAl) is the oldest, largest, and moot 

representative congress of American Indiutl!; and Alaska Natives in Ih", United Stales, 

NCAI was created bytriba! leaders in 19<1if a.-; a response to termination and 

assimiiction policies 1hat threatened the cxiste:lcc of Arr..cncan llKiian and Alaska 

Native trib(lS, Since then, NeAl hus fought to preserve the I~eaty rights and sovereign 

status oftrlbal governments, w111lccnsurlng that Indian peopiemay fully participate in 

the political system, As the most represent<ltive organization of American Tndi1ll1 and 

Alaska NMrve tribes, NeAT serves the broad Interests of tribal governments llcroSS the 

nation. 

TilE UNIVERSAL SERVICE INITIATfi'E AND ITS EFFECT IN INOIANCOtrNTRY 

In 1996 Congre..~s enacled the Telecommunications Act, which created the Universal 

Service Fund (USF) to provide suPflOTl: mechanisms forteleoommunications comicrs 10 

buitdout to unserved and ur..d.;:rscrvcd areas, The USF is comprised of the High Cost 

Program. Low Cost Pr(}£ram (Lifeline aud Link Up), the Schools and Uhtaries 

Program (i'""Rate), and the Rurnl Healthcarc Program. 

The progroll1S 'Ilu(lor the USF were intended to provide funds to deploy ubiquitous 

telecommunications services throu~bout th~ OOllnlry. USf funds raised the telephone 

availability j'ate 10 96 percent of households in the United States.' However, tribal 

lands and many rural communities aeross the counU)' received limited to no be[lefilS of 

connc~tivity, 

While a nmjority oflne coWllry rCl.:eived trle be[lcfi! ofuniversaJ telephone service, the 

latest data illustrates a dismal pict'Jr'Co fur tribal lands experiencing a relephoneSCl".'ice 

penetration rate ofahout 68 perc~n1:," While;he telephone ser\'icc penetralion r1'-tes in 

Imiiar. Country arc considcnlbly [ower!Mn the reSE of the country, mete have boon 

some sllccess/lIt outcomes ofth(l USP, 

For instanoo, the Tribal Lifeline and Link Up progrgms experIenced a slgnifi~ant 

increase in 8ubscribcrship from 2000 through 2011. Ellgible Telecommtll1i()atio:ls 
114


607b2.eps

Carriers (ETCs) reported in :.aOI J that there were 24 times as many people 5ubs~ribed to Ticr4 

Trib~1 Lifeline than there wm; in lhe ycar2000.;'; Siruilatly, ETC. reported there were 90 times as 

mauy people timt utilized ihe Tribal Link Up prognuu in De~mber :.aOII than had in 2000," 

'l'RANS1TION TO THE CO!'>'NECT AMERICA FuND 

The Federal CcmmunicBtkms Commis~ion (FCC) reeognizeci tIIat with tOO constantly changbg 

environment of technology, the fund was beeoming arehaic in its mission. WhUe funds WeN 

specifically targeted at prov!ding ubiquitous analog telephonescrviee, it did 110t necessarlly Ineet 

the growing broadband technology needs orlhe Unitt:cl States. 

Traditional plain old telephone service (POTS) relyir.g on a fixed wireline infrastructure gavc way 

to an explosion ofadv8nced broadb~nd technologies Ihatsupported Voice over Internet Protocol 

(VolP) and other high-speed internet based Ilpplicatlons. Fb:ed terrestrial networks ~uch 35 Dial-Up 

internet became unable to SI.lpportlhese advancements ~nd pOlwd th~ IVllY for dewlopmL1l! of 

Digit~1 SlIb,cribcr Line (ooL) and hi!)l-gpcw fiber .ervices, 

A complCie overhilll! ofrele~()mmunkatlons reg~l1ations W'£ nC0ded 10 shilt iJSF resources fi'om 

POTS to broadband oap~blo devices. On NQvemb~r IS, 2011 tllc FCC reieased n Reran: and Order 

and Further Notice ofl'fQPOged RulclllakingoverhnuHng the USF and 5Ubslantial!y revisinj; it.!; 

intercarrier compensntion (ICC) mcdmnisms.· This Ord~r adapted a new Connel:t AlllCrica Fund 

(CAF). and II new Mobility Fund including a Sl:t-aside 'Triblll Mobilit)' FllJlll". TIlis FCC Order, 759 

pages in lenglh_ represents a sisnilicant Qverhaul ofle)ecomrnunlcntions regulation in nearly a 

century. 

TilE MOBILITY FreID A!'mTR!BALMoBILm- FUND 

On Mny 25, 2012 lhc FCC re~ea~ed r. Public Notice ::eslgmting the proc:ldurez for lite Mobility 

Fund Phase I lluction to occur on September21.1012. Known ~s Al~ion 901 _ this I'elli:rs£: 2uction 

will TIWlUd $300 million ;1: one-lime SUppMto Cfl-rricrs commuted to prOl'iding 30 or bettermabilc 

services In unscr\'ed arens. Phase I Mobility Funds are aimed at rna:"imizing Ibe !llImhi.:r ofrond 

miles covered by mobilu. services and CmTlcrS must COll11l1it to the provision of3G SCrvice5 \\;thin 

two years, or 4G scrl'ices widlin three ~nrs."; 

Allhaugh tribally owned or controlled provider, will be eligible to pnrticipate in dIe Mohltity Fund 

PIi= I auction. ~nd rc~oive ~ 25 pel'cent bidding credit fnr this ~uction_ there will be an additional 

$50 I\lillion nltocated spec:ificaUy fortribes lhat will $0 to auction in 2013.'" The rules nnd 

I'\!gulal!ons have nol been releasoo forthe Tribal Mobllity Fund Phase I am:liOIl as 1OO!'CC h~s yel 

to release II Nolice so!kitmll C<.lmme!'l!s. l~r<l wi![ ~Iso b", SIlOO:eqllcnlllwllrdS Ilftl;e Mobility Fund 

Il~d Tribal Mobill\\' Fund. Tile Mobilily Fund P[lO.W i1 mlcticm wlll c:mslst of$500 ml1lion. while 

there will beon odd:tlOl),[l[ $100 millioo set aside fora Tribal Mobility Fund PhsI,': H,·,I( 

SUPPORT FOR T8E CA'F '1'RllMJ. ENGAGEMF.NT PROVISIONS' 

In this Digillli Age, broadband has become essential to any l~gitimilte notion ofeqllal opportunity; 

I~~t year the United Nations announced lhal access 10 the internet is n basic hum~n right and W~ 

firmly believe this ill hold true for Ameri<:an Inc!innsuru:! Alaska Native~." According to tlle 

Na.tional Broadband Pt~n 95 p~rcont oCthe U.S. tol~lpoptllll1ion resides in houslng units lhnt hnve 

Recess \0 terr(lS{rial broadb!llld infiT,slrllcturc,~ while ~n est!mateii less tban ten percent ortriba! 

Innrls hwe aeeess to -rernstrla! illternet ser'li~s.'; 
115


607b3.eps

UnfortunntcIy, mnny uflls whu live nnd work in rndhm Countly have experienced first-hand this 

disadvllIltage ofinsuff1Clel1t nncess to high-speed nnd affordable wiraless and wirelino broadband 

servi~es. A~ess to broooha.1.d services on tribal lands is vilal to health ~-ervi~'\ls and first responders, 

educatioo filoillties, amI growing ami creating new b~llY.:s~ andjobs for tribc.~ attcl tbeir 

membership. i3roadb~nd aC\ress also otTers Ih", opportunity fottribesto stimulate state and local. 

ecOllOw.r...s. 

Recognizing the need for broadband in Indian Cuuntry, NCAI is pleased that the FCC has "Included 

much n~eded 'Tribal Encagement Provisions' for ETCs l~eiving CAF Funds. Paragraph 604 ofthe 

CAF Order ~rules that: 

ETCs serving Tribal lands m\l~l inch,d~ in (h~ir '''1'0,15 dOCUIU~lIt$ Of information 

demonstrating that they having m~aningfully engaged Tribal governments in their 

supported ureas. The demonstration mu"tdocumenlthat they had discussiOOs th!\!, at 

a m:ni!l'um, inc1uill:d: (1) a ncells assessmen~ and deployment planning with a [OCUli 

on Tribal wi'l1!\l!mity gnehor mmitutiou:;; (2) feasiboility and sustaingbili!y p;annillli; 

(3) marhting se.-viCt.l in a culturally sensitive manIWr; (4) :ights of way prOl'e1:S~, 

hmd use permitting, facilities siting, environmentill and culLuml p:"e5ervatl.on rev.iew 

processes; and (5) compliano;:<;wilh Tribal business and licensing rl!Cjulrrunents.~" 

Through these provisions rhe FCC hIlS increased 3ccoontability measures for USF fund recipients, 

ensured preservation ofth~ USF for the future, and re~\lgnizcd tribal sovereignty und the fbderal 

trust relationship. Establishment ofthese reqnirement; ft)f ETC. serving tribal hmd:! wiU enable 

tribal governments to orn.creise their sovereign right to self..determinltion. 

OPPOSlTIONS TO PETmONs FOR RECOj'<-SIlYERA .JON ON 'TruBAL ENCA(iE.'dENT PROVlSlO."iS' 

Al,hm'gh there hU\"C been Petitions fur ReCO!lside!ali~n flied agaInst ('lC Tribal Ellgagement 

Prm'isions, NCA! :l:?dNative Public Mcdia (NP.M) have responded with Oppc~it'.on m!ng5. foOl' 

instance, II gl'O"'.Ip of'Rura! Incumbent LOI;:l[I Exchang~ Carriers Serving Tr:ool Lomb' submitted a 

Petition for Re-::onsideration staling lhat the Tribnl En!.lll8ement Provisions wer~ not supported by 

the record offilingll with 1he FCC; inconsistent with theTelecommunications Act, state, and f~dcral 

law; "unconstitutional'; and unduly burdensome fer ETCs serving tribal lands.'itl 

NeAl and NPM filed a Joint Opposition to this Petitiou for Reconsideration stntinglhat,. ''The CAF 

Order takes a major positive$ll':p toward fulfilling th~ FCC's obligations to empower NulivcTribes 

10 help guide the depl[Jyment of high speed broadb<t:14 in Indian Connl!)" by rccognizingcertain 

soverelg,"! rightS of'lrioos over their internal affairs.""" Similarly, NCAl and NPM addressed each 

cfthe oppositions fikd by InC 'Rutl'llncumbe.."1t L()e~l 6xdlll.ng~ Carriers Serving Tribal Ltrr.ds· 

sruting that: 

None ofthese arguments are persuasl~e. The FCC's actions in this regard are fully 

supported by the record in these proeeediuB' and oonsistent with so\1nd, historic 

constitutional prineiples. This Pctilioilis a throwback to a time before Tribal 

sovereignty rights hod been reoognized by the Commi5sian. IL is too Itlle to turn bnck 

the clock, however. Petitioners should not be allowed to sl;lek to rllllp the benefit of 

their incumOOnI51atus, and tm: \:;Qnomic support pwvided by US!' or CAr funding, 

while ignoring lhe 3()\"qci.cn rightofTriba! govet11l"i'..ents Ie determine thenceds of 

Na\iv~ peoples.'''' 
116


607b4.eps

NCAI, NPM, and numerous ()tll~1" tribal govcmment~. teleC(lmmunications companies, ~jJd 

organizations have part1dpal~d in over a d~eadeofproC\:e(\ings witlllllc FCC to ,gain these 

importa."Itengago.lment provisions Ib~t lribes !lave olJl~l!\ed thrc1.ighthc CAF Ord~. The FCC's 

NaiOOllI Broadband Pilm jlK'lcdet tlll.prCcwenred input from theafnrementlrocd tribal cntit!cs ami, 

"illJfter reoogruz1ng !he diresitllaiiOll in iOOian Country_the FCC ~d rev>'..rru proccedin~ and 

re::ciV'e:i:!l!mdrod5 of <:ommenl$ relatc1 '0 thespt<elnJ tcleC(l:nmU!'J~tloIl5 meds 0[7 riiY'...s."w;Tffi: 

re&ll1:softhat ir.puthave tt~suited in the fCC's c:cclafation ~nd s:lp?Crtofthe 'Tribal Eltga£l'mc/1! 

Provisions'. 

CONGRESS SHOUt\} :ESTAlILISH A NAT1VE NATIONS nlWAIJIIAI'iJJ FUNIl 

While the CAF Order has If)~hlded over n decade oftrillitllnput and has resulted in 'tribes' and 

'tribal entitie!;' refuren(:<)d thtoughou~ the 759 page order, there is stilt woEk to be donts IDr 

broadtmnd ooploym<rut ill lucian Country. EstnbJishmenloflhe Mobility Funds and Tribal Mobillt)· 

Fundswer'l.ll goooJ initial S!epttl bringing bwndband Sl)fVK!(Il; to lmliall Country. f;OI'/<oVCt" 

Cnn~ shouW af'l Oil ~ommendatl= l"mlded inth¢ Naliomtl Br.;~(fwIld P'l"" (NBP). POI' 

instnt'.ee,. as sr-eclil~:n theNBP, '"Re<.:~.;!lm~!ldlllion 8.1&: {'~HhcuW eCWiid~r0StabEilhmf: a 

Trllial Brondband i"ood to support wru.in~b!1:' broadMml deploymeutand Il40ptJM in Tribal lanJs, 

and all fede:nl agCllclM that u?j,'I"we connectivity Oil. Trlt>ai lands s\ro1.,'d c{l()rdilla~ ~uch upgrades 

wllll Tribal governments and the Tribal Broadband Pund Br.1rr1-making process.-"'" 

Thi~ Tribal Broadband Fund, or Native Nations Broadband Fund, would provide grllnt~ to tribes 10 

connect anchor institutions, conduct planning <IUd feasi~illty ~tudies. business development alld. 

!mf'l~m!mtation, :r.nd-most ilnportanlly--liigilal lil\lr£lCY and technical assistance trait1jll!l,'~Llt As a 

o;mscnsus based o;ganiUlliQll, NCAl's membership has passe.:! num~rous Re:rolu;ion,~ ~~!!il\gfcr 

the crea!icm IJf ll. Native Nations Brcadtmml oc Tribal Mobility Fum! iucluding R~oJQttnn# RAPIQ.OO6.""' R=l.ut[onl. R.4p·'o..oo9,"" and Rcso!\lli\m# ABQ-Hi-06l,""" 

Sut'PORT A DEmcll.TED ntlOOIl.T rOR ,1m FCC'S OffiCE OrNATIVE AFFAIRS AND POf.,Ir,;V 

NeAl is pleased that the FCC created the Offi~~ orN~t\"e AJ:fairs nnd POlley. Tbe NPB's 

recommendation 9.14 r,tated Ihat Ihe FCC should c.-eatt, an Offire of'rribal affiaiTs 10, " •.• consult 

regularly with Triballea.ders, to develop and drive a Tribal agenda in coordination with othor FCC 

burenus and offices .. :"''''' This Ornce has served as the ror,~l point oflhe FCC's con~Ul11l1ion offorls 

and the resulls of this havo beell witnas~cd in nLimcroU9 rulemakings that have proceeded since the 

Office's creation. 

Hcwewr. a ded~J1.ted budset fur the FCC's Office of Native Affuirs has yet ~ 00 estab!ish~rl. 111e 

Office :relie:o {In (l Ctntinuing Resolution fm- fun>!lllll lIS the so;e point of <;C!I[act mtd COl\S,llhrtkm 

fo:; triot'S.1t mllst r;ccive.a drni!<:al-ed budget \0 heoome fully staffed :l!Id <;(.'ffilllue jl3 vl1:al 

eperntions. NCAl's mmlll>~.!$\lip hns paS5cG RC50lutkm#MKI;>! 1-006 calling for full furtdiog of 

!he Office in the arnonni oC$:;>. rnil!ion.>«~1 

COi'iCI.US10N 

While !here have bcen strong cOllccms regarding l1io. FCC'~ April 25, 2012 Benchmarks Order, 

complete Congressional owrhQul aflhe COllnCCI America Fund Order would be dotrirn~n!~110 

tribes. There ~re lmportHll1 provislo:1S tbat have been lm:lud<:d in llre [lCC's CQn.1ect Amet'!ca Fund 

Order that include. tribes, lhm. mellloor;;,:and theit gov~rnments. Since;;re~!i~'Il ofthe fCC'sOffire 

c;.fNallvc Al1:qirs lIn(\ ?olicy there has been increased indusirnt mhl re$."re!lcdo tribes ia FCC 
117


607b5.eps

rulcmakings and notices. However, to ensure filH tribal Inclusion there must he estah1i~hed a 

dedicated hudget for the FCC's Office of Native Affilirs and Policy to carry out consultations with 

tribes acruss the country und further build a recoro ofbroadbnnd disparities in mbal communities. 

NeAl will continue to work witl: tribes aCfOiiS the nation to ensure !lmt meRtlingful consultation and 

incil!Sion is OCCllITi.."S- We must all work in acoonlinatw drOIt to bring broadband servkes In 

trlb:!l.:md r!m!l OOITh"!l'.mities acrw" the country fw thc benefits of(clcmed~clll"C, IOllg diSlan~ 

learning, and e--..onomk devclopurent 

, S"" ""1""hOl'" Sub,o,ibo.-.hip in !he Unit«! Stot .. (Dotn lhrough July 2010). federal Coll1munieations CQmm";si"", 

R~loascd May 2011. "«..,,od June 6, 2012. Aml/alll' at.!l!!ruMt.'1']!!Ihllt'.f<e.govlC"doo_'Uluhlicl'!!l.~1Q.QQ: 

JnG152AI.pdf. 

IOS~" Improving Commun!c~ti<ln; S~"'e.,. fu,Narive Nation, hj' i'mmoli"ll Or"",", U,il;""lion crSp",-'lrUU' ,,"er 

Trib.1 born.. Wl" Dod"'l No. ! 1-40. NOli« orPrapru;ot! Ru1cmcl>;jr'l- Federal CommuniCLltions Comm;s,;Qo, Rol""",d 

Mo:"b ;,20-1 L .\OO\)~ Ju~~ G, :Wl1. '!wlfftt!JIa 0' Ili'p:l!hro-.J!l\(@~_fu!c_o:!l'!'!"dm:.. ""hlid~~"ch!l!1l\fbTCC. 1 1-

~'?t'--1pA~ 

'" S.., LIl'" l"oomo MIl VtrHklltlor. R"'~lts (We ~ Nos, 11--42, 03-109; CC Dookel No. %-4~» (hj¥~""l 

SeNk, Admlniru-:.ttvcC::ompany. I'G«ed 1<) 1"" FCC's llIeotrwle C\:m<n<mt l'1~ng S)'"I"'" 00 .lan~"", 24, 11112, 

A="d J"". 6. 201 2. IhwllrIbI .. ,,( 1,tL1n:/ioP!!f. !i:o.l!',.,.tccr"dgc"l!!\!~!!1Ivi" llI?id 7G2 I 75 5073. 

NOla: ,rib,l Link Up .Iubsc;ibel$ illCroasetl from 2,038 in 2000 to la4.00J in ;WI I. Tribal LifcHn, '1'10(4 .,-ub><:<ib.", 

]"']'I:.,od fmm 17.913 in 2000 to 444,515 in 2011. 

" /d. 

" S •• tit' Connoct Amon"" Fund Report and Order onu Further Nolice "fPropos,d RulemoJ.:ing. F~d>lrat 

Communiroti""s Commission. llI~ctronlc Commonl FlI1ng SySlCm, we Do,k"l Nc. 10_90. Adopted by the 

Comml"lon O,tober 27, 20) I, ,cI.",.d Novcmbor t8, 2011. A=ili:d JUtl. 6, 2012. -!,·~jl"ble 01 

~U~'lihruu!l[Q;i' f.." ,oy'om' o~ltlic!Q~oohmntcl"FCC_tl_1G1Al eM, 

Se~ Fed,,,1 Communl"-.;19n,, C~moni,,,;,,,, Public Notice DA 12-641. Mohili!)' Fund PlIllS" 1I\uc:lo~ Sohedul.d Illr 

S'~I"mbcr 2"), 2IlI=<; N<:liee ill'" Filing 'e<;u;rernenls ~!ld other ProoO(hr..., for Auot;"n 901. Publi,hod May 2. 2012. 

Ae~=<l -"JtO 6, 2IJ 12, .4 ,W/obi<' nt !J!!I1'lltr:l""i''''QX"".""ytJJ~.i!L Rcl!OilS\;iJj)ailt n",'W5Ipfl!2!slM5WIIl,\ -12-

~ \ Se" tho Co~ncc.t ,\morlca;:-und Ropwl "...J Oro",,,,,,l Fu:lh~' Noti,e oIProp<>sed full"",oking. F~dtml 

CommuniOd,jun' Cummi";Q", 1.'.lr;o'mni.:: Comm,n' Filing Syncm. we Docke!. No. 10-90. P""'!:'"J'h 4)0.. Moplod by 

the Commi',""" Q,[Obcr 21, 2011, rele~ N~vombcr 18, 2011. A,=~1I1uno~, 20 12. A''<lII~h1e al 

hllp'IIh"tlnlb"".roo,go~I"<l"", n"hlirJollad,m,I,hIPCC-11-1 6!A l.mI£ ~"{d. I"""grnph 497. 
118

PREPARED STATEMENT OF THE OFFICE OF HAWAIIAN AFFAIRS (OHA) 

Aloha e Committee Members. The Office of Hawaiian Affairs (OHA) thanks the 

committee for providing indigenous communities the opportunity to comment on this 

important issue. OHA is deeply concerned by the Federal Communications Commission’s (FCC) order that would ‘‘reform’’ the Universal Service Fund (USF) by July 

1, 2012. This ‘‘reform’’ would actually stifle efforts to provide equal access to telecommunications in native Hawaiian communities and ultimately exacerbate the digital divide in America. 

As background, OHA is a unique, quasi-independent state agency established by 

the Hawai‘i State Constitution and state statutes. Our purpose is to better the conditions of all Native Hawaiians, regardless of blood quantum. Guided by nine trustees elected by the voters of Hawai‘i, OHA advances the interests of Native Hawaiians and serves as a fiduciary for Native Hawaiian public trust funds and other resources. 

As our society becomes increasingly dependent on technology, it is critical that 

residents of native communities—such as our Department of Hawaiian Home Lands 

(DHHL) communities—have equal access to telecommunication services. In many 

ways, telecommunication services, such as telephone, broadband and wireless technologies, empower these often-isolated native communities to maintain their distinct 

character and cultural traditions while keeping them connected to the rapidly 

changing world around them. 


607b6.eps
119

The unique nature of DHHL communities presents challenges for telecommunication service providers. Enacted in 1921, the federal Hawaiian Homes Commission 

Act established a trust of 200,000 acres of land to provide for the rehabilitation of 

the ‘‘native Hawaiian’’ people through a government-sponsored homesteading program. The act defined native Hawaiian as any descendant of not less than one-half 

part of the blood of the races inhabiting the Hawaiian Islands previous to 1778. 

Today, these DHHL homestead communities are located on six of the eight main 

Hawaiian Islands and are found primarily in remote, rural areas—with a few in 

urban areas—and are separated by both private- and government-owned properties 

and the open ocean. These communities have geographic accessibility issues that 

create the kind of high costs that are unattractive to most carriers. Sandwich Isles 

Communications, Inc., (SIC) was created to serve these communities when large carriers would not. 

The FCC’s new ‘‘reform’’ rules would result in funding cuts to SIC that will severely reduce its ability to finance its telecommunication services and could bankrupt the company, potentially leaving 6,400 native Hawaiians without telecommunication services. 

The USF was established to encourage telecommunications companies to provide 

access to telecommunication services to all Americans—the universal service concept. We respectfully request that Congress continue its active role in supporting 

the universal service concept by ensuring that USF reforms do not disproportionately affect native Hawaiians and other native populations. 

Thank you for the opportunity to comment. 

PREPARED STATEMENT OF HON. TERRY RAMBLER, CHAIRMAN, SAN CARLOS APACHE

TRIBE

Introduction 

Good afternoon, Chairman Akaka, Vice Chairman Barrasso, and Members of the 

Committee. My name is Terry Rambler and I am the Chairman of the San Carlos 

Apache Tribe. Thank you for the opportunity to submit this testimony about the impacts of the Federal Communications Commission’s (FCC) Universal Service Fund 

(USF) and Intercarrier Compensation (ICC) reforms on the San Carlos Apache Tribe 

(Tribe) and the San Carlos Apache Telecommunications Utility, Inc. (SCATUI), a 

tribally owned provider. 

We are greatly concerned that the FCC Connect America Fund Order (Order), 

which is scheduled to take effect on July 1, 2012, will cause substantial harm to 

SCATUI and the telecommunications services provided to tribal members on the 

San Carlos Apache Reservation (Reservation). The Order provides for comprehensive reforms of the USF and ICC support mechanisms. The stated goals of the Order 

are to prevent waste, fraud, and abuse and to address the broadband gap in rural 

and underserved communities. Our hope is that the Order will do what it is intended to do and actually help SCATUI and the Tribe instead of hindering our 

progress or our ability to provide telecommunications services to our residents. 

Background 

The Tribe entered into the Apache Treaty of Santa Fe with the United States in 

1852. The Treaty promised the Tribe a permanent homeland in its aboriginal territory. In exchange, the Tribe agreed to end hostilities with the United States. The 

aboriginal territory of the Tribe included the western part of Texas, the current 

states of Arizona and New Mexico, and part of Mexico. 

The Reservation was established by executive order on November 9, 1871. As a 

result of removal policies of the United States, various bands of Apache were forcibly removed to the Reservation. These bands included the Coyoteros, Mimbrenos, 

Mongollon, Aravaipa, Yavapai, San Carlos, Chiricahua, Warm Springs and Tonto 

Apaches. Famous Apache leaders who were located on the Reservation included Geronimo, Cochise, Loco, Eskiminzin, Nachie, Chatto, and others. The United States 

diminished the Reservation several times by executive orders due to the discovery 

of silver, copper, coal, water and other minerals and natural resources. 

The Reservation is located within part of our aboriginal territory, and spans 1.8 

million acres in southeastern Arizona. The Reservation is isolated and rural with 

difficult terrain. The Reservation lacks infrastructure due to the deep stands of timber, jagged outcroppings, and rocky canyons. The Reservation is home to approximately 11,000 tribal members. 

The socioeconomic status of the Tribe is comparable to many reservations. The 

unemployment rate on the Reservation is about 68 percent. Approximately 72 percent of Reservation residents live at or below the poverty line. In addition, 75 perVerDate 0ct 09 2002 13:22 Jan 04, 2013 Jkt 077458 PO 00000 Frm 00123 Fmt 6601 Sfmt 6621 S:\DOCS\77458.TXT JACK
120

cent of SCATUI’s customers are recipients of FCC’s Lifeline program, which provides monthly discounts to low-income customers. 

Throughout the 1900s, the Reservation had limited telecommunications and information services. The service provider from approximately the 1960s to the mid1990s was US West (now Century Link). US West charged thousands of dollars for 

basic phone service that left a vast majority of tribal members without any service. 

Mild rainstorms would shut down our old system, and it would take US West an 

average of three weeks to come to the Reservation to fix the system. As late as 1995, 

US West’s system served only 28 percent of the residents and businesses on the 

Reservation. The system served 607 access lines, which encompassed 122 residential 

customers. 

During this time, public phone service on the Reservation was generally limited 

to the police department, the health clinic, and the mission church. The few tribal 

members who had phone service shared a party line with neighbors. The police department also had one pay phone at this time. As a result, most residents would 

collect coins and line up outside of the pay phone to wait for the opportunity to 

speak to relatives and loved ones that were traveling, working off reservation, or 

serving in the military. 

To address this wide gap in phone services, the San Carlos Apache Tribal Council 

established SCATUI in 1994 and bought out US West in 1995. SCATUI is a telecommunications provider wholly owned by the Tribe. SCATUI’s mission is to develop, finance, construct and operate a telecommunications company on the Reservation. Today, SCATUI serves approximately 2,436 access lines throughout the Reservation, which includes 1,662 homes. Increasing residential telecommunications 

service on the Reservation twelve-fold during SCATUI’s eighteen years of existence 

is a remarkable achievement. 

In addition to traditional voice services, SCATUI provides Digital Subscriber Line 

Broadband, Cable Television, Internet Protocol Television (IPTV), and managed IT 

services. SCATUI is the only tribal telecom in the Nation that provides IPTV. More 

than 207 miles of copper and fiber optic lines on the Reservation ensures quality 

service is being provided to tribal members. SCATUI operates with remarkable proficiency despite numerous barriers that are common in Indian country. For example, 

the Tribe is located on mountainous terrain, faces considerable distances between 

communities with geographically scattered housing, and has a high volume of lowincome residents. These factors, combined with high infrastructure costs and limited 

access to capital, make providing telecommunications services on the Reservation 

challenging. These circumstances provide little to no incentive for other providers 

to serve our Reservation. Without SCATUI, our Reservation could easily return to 

the days of extremely limited service. 

SCATUI relies significantly on two federal programs—the USDA’s Rural Utilities 

Service (RUS) lending program and the FCC’s USF and ICC programs. SCATUI 

based its business model on the consistent interaction of these programs. SCATUI 

sought, and USDA approved, RUS loans to build out infrastructure for our system. 

These loans were based on the anticipated funding from FCC’s support programs 

(USF and ICC) as they existed at the time. Because of RUS, SCATUI was able to 

build the service network that is in use today. Through the FCC support programs, 

SCATUI’s customers have been able to access affordable telecommunications services on our Reservation that were unimaginable just 15 years ago. 

FCC’s Proposed Reforms Will Harm Telecommunications Services on the 

Reservation 

The Tribe supports the goal of limiting waste while expanding broadband to rural 

and underserved communities. However, if the Order is implemented without any 

changes, the Tribe will quickly return to the days of limited connectivity, which is 

at odds with the FCC’s goals. This result is also contrary to the goals in the National Broadband Plan, which acknowledges that tribes ‘‘need substantially greater 

financial support than is presently available to them, and accelerating tribal 

broadband deployment will require increased funding.’’

Unfortunately, the Order has the potential to harm tribally owned providers like 

SCATUI. For example, the Order contemplates reducing the interstate rate-of-return, which is currently set at 11.25 percent. The FCC believes that the current rate 

does not reflect current market realities and is considering rates between 8–10 percent. FCC’s preliminary analysis determines ‘‘that the authorized rate-of-return 

should be no more than 9 percent.’’ The effect of decreasing the rate-of-return will 

lead to a massive reduction for SCATUI. SCATUI estimates that a 9 percent rateof-return will lead to an annual loss of $335,481. An 8 percent rate-of-return would 

negatively impact SCATUI $463,171 annually. 

121

Even at the current rate of 11.25 percent, SCATUI is operating at a deficit and 

is experiencing serious difficulties in meeting its RUS loan repayment and other obligations. This proposed scheme would seriously undermine SCATUI’s ability to continue as a viable business. Without broadband Internet access and reliable voice 

service, SCATUI’s plans for expansion and upgrades of services would cease. This 

situation would be detrimental to the tribal government’s plan for economic growth 

on the Reservation. We urge the FCC to carefully consider the unique challenges 

of tribally owned providers like SCATUI as it continues to make decisions about implementation of the CAF Order. Furthermore, we urge the FCC to keep the 11.25 

percent rate-of-return in place until the impact of the other reforms on Indian country can be assessed. 

To mitigate the adverse impacts of the Order, the FCC offers the waiver process. 

This process is available to providers who face significant financial impacts as a result of the Order. At this point, SCATUI does not plan to apply for a waiver; however, if the rate-of-return percentage decreases, then SCATUI will be forced to 

apply. If a waiver ends up needing to be filed, we have several concerns about the 

waiver process itself. According to the Order, the waiver application will be subjected to a ‘‘rigorous, thorough and searching review comparable to a total company 

earnings review.’’ The Tribe is concerned that this process may require disclosures 

of proprietary and sensitive information about the tribal government and tribal government-owned enterprises. Further, even though the FCC has told us that consultants are not needed to file a waiver application, SCATUI does not have sufficient 

staff nor the expertise in-house to do so and, thus, would need to hire experts to 

prepare and file the waiver. Also, the FCC’s $8,000 waiver application fee alone—

not to mention all the costs that we would incur to put the application together—

is a tremendous cost for SCATUI, which is already struggling to meet its financial 

obligations. Moreover, the process is uncertain and there is no guarantee that the 

FCC would grant our waiver request. We urge the FCC to consider streamlining the 

waiver process for tribally owned telecommunications providers to establish certainty in the process, to address the cost burdens on filing a waiver, and respect 

tribal sovereignty and the federal government’s treaty and trust obligations to Indian tribes. 

The current environment of uncertainty has prevented SCATUI from moving forward to expand service to cover the many ‘‘dead zones’’ on our Reservation. These 

delays, in turn, pose significant health and safety threats to our people. In 2010, 

an American Recovery and Reinvestment Act of 2009 (ARRA) Broadband Initiatives 

Program (BIP) grant—loan was awarded to SCATUI through RUS. A sizeable portion of the funds has been allocated to build towers in an unserved area to alleviate 

dead zones in areas where residents conduct ranching and outdoor recreation activities. However, because of the uncertainty about the impacts of the Order and its 

perceived reduction of revenue streams, SCATUI’s build out has stalled. 

The lack of phone service in the dead zones causes delay in getting emergency 

help to tribal members. The nearest phone is often 30 minutes away. The Tribe is 

concerned that delays in medical treatment may actually make medical conditions 

worse. These impacts are unacceptable. Telecommunications can mean the difference between life and death. 

The Tribe is also concerned that the FCC failed to conduct meaningful consultation with tribal governments on the Order. Tribal consultation is clearly contemplated in the FCC’s Statement of Policy regarding its relationship with tribal 

governments. Moreover, meaningful consultation during which affected tribal governments engage with senior officials falls within the spirit of Executive Order 

13175, ‘‘Consultation and Coordination with Tribal Governments,’’ which requires 

all federal agencies to consult on matters that have significant impacts on tribes. 

The Tribe urges the FCC to recognize its own policy and engage in government-togovernment consultation with all federally recognized Indian tribes that will be impacted by the Order prior to its full implementation. We were encouraged to hear 

recently though that the FCC plans to travel to Arizona to meet with us and other 

tribes to discuss the Order and its impacts on us. 

Conclusion 

The San Carlos Apache Tribe is still assessing the impacts of the Order on 

SCATUI and on our Reservation. Without adequate support and relief mechanisms 

in place, SCATUI will be left behind as FCC moves the rest of the country into the 

21st century. We urge the Committee to assist us in ensuring that SCATUI is not 

negatively impacted by the Order and that it has adequate resources to continue 

providing necessary telecommunications services on our Reservation in all the 

places that it is needed. 

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Thank you for the opportunity to submit this testimony on behalf of the San Carlos Apache Tribe. 

PREPARED STATEMENT OF THE CONFEDERATED TRIBES OF THE WARM SPRINGS

RESERVATION OF OREGON

This statement is being presented on behalf of the Confederated Tribes of the 

Warm Springs Reservation of Oregon as written testimony addressing ‘‘ Universal 

Service Fund Reform: Ensuring a Sustainable and Connected Future for Native 

Communities’’. We appreciate the Senate Committee on Indian Affairs’ attention to 

this matter and its willingness to accept tribal community comment and testimony. 

Last month, the Confederated Tribes of Warm Springs, in Oregon, became the 9th 

tribally owned, operated and certificated telecommunications company to offer telephone service and high-speed, broadband Internet to our reservation. It has taken 

many years and a lot of hard work to get to this point in the development of our 

company. However, we are now beginning the process of serving every home, business and government agency on the reservation with these services. Someday, we 

hope to also offer video services. 

Like many other tribal nations, Warm Springs lacked basic telecommunications 

services throughout much of the reservation. With only about 60 percent of our 

members having a telephone and limited Internet access, school teachers couldn’t 

call parents to tell them about their sick child, a son couldn’t call anyone to report 

that his father had a heart attack and needed emergency medical care, and students 

couldn’t come home from high school to do their homework on-line like their counterparts in the neighboring town, where our tribe’s students attend school. 

In addition, Warm Springs has 60 percent unemployment in our community. Jobs, 

especially good jobs, are hard to come by. We have tried to get companies to move 

to our reservation and build new industry, but without fiber optic cable capacity and 

broadband availability, businesses were not interested. 

In 2002, we started telecommunications planning with a needs assessment, then 

followed by a telecommunications strategic plan, that identified the lack of telephone, Internet, television but probably most importantly, public safety radio capabilities. Our police and fire two-way radio network was so limited that we only had 

one frequency to be shared by both the police and fire to use at the same time. After 

working with consultants, we received nearly $2 million from FEMA, Homeland Security grants, to build out this very important network in a phased approach. The 

work continues as we add new towers, frequencies, a new dispatch console, and new 

computer aided dispatch equipment to use with this network to meet federal standards for interoperability. 

The biggest challenge has been to improve the telephone and Internet services on 

the reservation. After many years of working with the incumbent phone company 

to try to secure enhanced services, it became clear that the local phone company 

could not justify the cost of the substantial capital investment necessary to upgrade 

the legacy network. Even securing basic phone service has been a challenge, with 

remote residents being asked to pay $1,000 line extension fees. The only way to ensure the quality and capability of service that tribal members deserved was to take 

matters into our own hands and create a tribally owned telephone and Internet 

company. This mirrors the experience of the other tribally owned telephone companies. 

Building our own phone company has been a very long, tedious project. We received grant money from RUS and EDA for strategic planning. After years of determining the best plans, we were exceedingly lucky that as we were ready to go to 

pursue funding options when broadband funding from the American Recovery and 

Reinvestment Act became available, and we received $5.6 million in grants and 

loans. 

Getting the funding was only part of the process. We formed a tribally recognized 

enterprise corporation and then filed with the state of Oregon as a foreign corporation. We worked hard to receive all the regulatory authority certifications. After a 

number of years working with the Oregon Public Utility Commission and the FCC, 

we were able to receive all the needed regulatory certifications. Once all these elements were in place, we signed an interconnect agreement with the local telephone 

provider and found other companies that would transport our signal off the reservation. We then hired an engineering company with great experience, who not only 

has designed our network, but has helped with purchasing all the necessary equipment to create a carrier-class telecommunications company, Warm Springs Telecom. 

Ten staff have since been hired and, except for some people with specialized technical expertise, all are from Warm Springs. Eventually we will fill up to 19 posiVerDate 0ct 09 2002 13:22 Jan 04, 2013 Jkt 077458 PO 00000 Frm 00126 Fmt 6601 Sfmt 6621 S:\DOCS\77458.TXT JACK
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tions, which may not sound like a lot of jobs, but these are good jobs, educated jobs, 

jobs with a future for our young people. We also believe that this state-of-the-art 

telecommunications network will attract new businesses to the reservation, creating 

more jobs and raising the overall quality of life for tribal members. 

This is just a very quick overview of our new Telco. But the message the Confederated Tribes of Warm Springs want to leave with this Committee is that telecommunications infrastructure is critical for everyone, including tribal nations. 

Without telecommunications, including fiber based broadband networks, there is no 

way to create jobs, improve healthcare and offer new educational opportunities for 

our people. But it is a very hard, long road to travel down, as Warm Springs has 

discovered. 

It is important that this Committee work to ensure that tribal lands are not neglected once again. As this is a complicated and expensive process, it is necessary 

to help with funding and regulations that will enable tribal lands to serve their people in a way that each Tribe sees fit and that respects tribal sovereignty. Tribes 

have been overlooked and unserved by the incumbent companies that were selected 

to serve them. It is time for Tribes to be able to get these services to their people. 

This committee must consider the options available. This includes:

• regulations that will help facilitate this process at the federal and state levels;

• financial support for poor tribal communities; and,

• technical expertise to help tribes understand and work with the consultants and 

engineers who are needed to make this a reality.

Thank you for consideration of our comments and recommendations. 

PREPARED STATEMENT OF KALI WATSON, CHAIRMAN, ECONOMIC DEVELOPMENT AND

HOUSING COMMITTEE, SOVEREIGN COUNCILS OF THE HAWAIIAN HOMELANDS AS- SEMBLY

Chairman Akaka, Vice Chairman Barrasso, and distinguished members of the 

Committee, thank you for holding this hearing to address the impacts of the Federal 

Communications Commission’s (FCC) Connect America Fund Order (Order) on native communities across the country. My name is Kali Watson and I am the Chairman of the Economic Development and Housing Committee for the Sovereign Councils of the Hawaiian Homelands Assembly, formerly the State Council of Hawaiian 

Homestead Associations, which was founded in 1987 about 25 years ago to unite 

homestead communities and to advocate for the beneficiaries of the Hawaiian 

Homes Commission Act of 1920. The SCHHA is the oldest statewide advocacy organization representing the interests of more than 30,000 beneficiaries and families 

residing in the communities of the Hawaiian Home Land Trust. Its mission is to 

promote the self-determination of native Hawaiians and the well-being of the people 

within the various homestead communities. The SCHHA has over 30 homestead associations as members, and also includes the Association of Hawaiians for Homestead Lands (AHHL), which is composed of individuals who have applied for and 

are waiting to be awarded a lease. According to the DHHL 2011 Annual Report, 

there are over 41,000 eligible applicants waiting for a residential, agricultural or 

pastoral lease. As a collective group, we understand the important role SIC has in 

providing affordable telecommunications and broadband services to homesteads. 

I appreciate the opportunity to provide testimony on this critical issue that could 

have devastating impacts on our operations and ability to serve our Native Hawaiian constituents. When no one else would, Sandwich Isles Communications, Inc. 

(SIC) owned and run by Native Hawaiians, provided and continues to provide us 

with affordable and reliable telecommunications services. After several years of intensive community-based planning, the Nanakuli Hawaiian Homestead Community 

Association (NHHCA) is developing a major ‘‘village center’’ project that will include 

a multi-purpose cultural community center, a 48-unit affordable rental housing complex, commercial retail spaces with a CVS Store as the major anchor tenant, and 

the Waianae Coast Comprehensive Health Center. This exciting community development project which will be located on a 13.57 acre site centrally located in the 

Nanakuli community (adjacent to the Nanaikapono Elementary School and the new 

YET Boys & Girls Club), was awarded a long-term 65-year lease from Department 

of Hawaiian Home Lands. 

We will soon have landlines and DSL from SIC. We are gravely concerned that 

if nothing is done to stop the calamitous effects of the FCC’s new Order, we will 

lose the service we rely on to serve our Native Hawaiian communities. Affordable 

and reliable telecommunications access is critical to ensuring we can keep costs 

down while providing the necessary services to our clients on all islands. Without 

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service from SIC, we could not talk about all our current and future needs that 

would help serve our Native Hawaiian clients. 

We humbly request your assistance to ensure SIC’s investment in desperately 

needed telecommunications infrastructure in our underserved indigenous communities continues. We have tremendous hopes for our future as native people of this 

great nation and believe that our ability to compete in an increasingly global economy is directly tied to our ability to access broadband communications infrastructure. Once complete, SIC’s robust and reliable statewide fiber optic network will expand broadband capabilities and provide affordable access for community anchor institutions, like ours. This will result in substantial benefits for the entire state, but 

especially our rural and remote communities, delivering improved education, 

healthcare, and economic development opportunities in a way only broadband can 

provide. 

As Hawaii’s only Rural Local Exchange Carrier (RLEC), SIC is the only carrier 

that has consistently demonstrated its commitment to ensuring Hawaii’s rural and 

remote areas have access to broadband infrastructure. SIC has and will continue to, 

if given the opportunity, provide broadband access in Hawaii’s most rural and remote areas, squarely in line with the spirit and intent of Universal Service. Plainly 

put, we strongly believe the future broadband capabilities of our organization and 

our community hinge on SIC’s ability to continue to fund critical infrastructure investments in our rural communities. 

We respectfully request your assistance to ensure that SIC continue to receive 

adequate funding to fulfill Congress’s vision of Universal Service for ALL Americans, and to ensure that native communities, like ours, are not left behind.

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