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THE FUTURE OF UNIVERSAL SERVICE: TO WHOM, 

BY WHOM, FOR WHAT, AND HOW MUCH? 

HEARING 

BEFORE THE

SUBCOMMITTEE ON TELECOMMUNICATIONS AND 

THE INTERNET 

OF THE

COMMITTEE ON ENERGY AND 

COMMERCE 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED TENTH CONGRESS 

SECOND SESSION 

JUNE 24, 2008 

Serial No. 110–131 

( 

Printed for the use of the Committee on Energy and Commerce 

energycommerce.house.gov 

COMMITTEE ON ENERGY AND COMMERCE 

JOHN D. DINGELL, Michigan, Chairman 

HENRY A. WAXMAN, California 

EDWARD J. MARKEY, Massachusetts 

RICK BOUCHER, Virginia 

EDOLPHUS TOWNS, New York 

FRANK PALLONE, JR., New Jersey 

BART GORDON, Tennessee 

BOBBY L. RUSH, Illinois 

ANNA G. ESHOO, California 

BART STUPAK, Michigan 

ELIOT L. ENGEL, New York 

GENE GREEN, Texas 

DIANA DEGETTE, Colorado 

Vice Chairman 

LOIS CAPPS, California 

MIKE DOYLE, Pennsylvania 

JANE HARMAN, California 

TOM ALLEN, Maine 

JAN SCHAKOWSKY, Illinois 

HILDA L. SOLIS, California 

CHARLES A. GONZALEZ, Texas 

JAY INSLEE, Washington 

TAMMY BALDWIN, Wisconsin 

MIKE ROSS, Arkansas 

DARLENE HOOLEY, Oregon 

ANTHONY D. WEINER, New York 

JIM MATHESON, Utah 

G.K. BUTTERFIELD, North Carolina 

CHARLIE MELANCON, Louisiana 

JOHN BARROW, Georgia 

DORIS O. MATSUI, California 

JOE BARTON, Texas 

Ranking Member 

RALPH M. HALL, Texas 

FRED UPTON, Michigan 

CLIFF STEARNS, Florida 

NATHAN DEAL, Georgia 

ED WHITFIELD, Kentucky 

BARBARA CUBIN, Wyoming 

JOHN SHIMKUS, Illinois 

HEATHER WILSON, New Mexico 

JOHN SHADEGG, Arizona 

CHARLES W. ‘‘CHIP’’ PICKERING, 

Mississippi 

VITO FOSSELLA, New York 

ROY BLUNT, Missouri 

STEVE BUYER, Indiana 

GEORGE RADANOVICH, California 

JOSEPH R. PITTS, Pennsylvania 

MARY BONO MACK, California 

GREG WALDEN, Oregon 

LEE TERRY, Nebraska 

MIKE FERGUSON, New Jersey 

MIKE ROGERS, Michigan 

SUE WILKINS MYRICK, North Carolina 

JOHN SULLIVAN, Oklahoma 

TIM MURPHY, Pennsylvania 

MICHAEL C. BURGESS, Texas 

MARSHA BLACKBURN, Tennessee 

PROFESSIONAL STAFF

DENNIS B. FITZGIBBONS, Chief of Staff 

GREGG A. ROTHSCHILD, Chief Counsel 

SHARON E. DAVIS, Chief Clerk 

DAVID L. CAVICKE, Minority Staff Director 

(II)

(III) 

SUBCOMMITTEE ON TELECOMMUNICATIONS AND THE INTERNET

EDWARD J. MARKEY, Massachusetts, Chairman 

MIKE DOYLE, Pennsylvania 

Vice Chairman 

JANE HARMAN, California 

CHARLES A. GONZALEZ, Texas 

JAY INSLEE, Washington 

BARON P. HILL, Indiana 

RICK BOUCHER, Virginia 

EDOLPHUS TOWNS, New York 

FRANK PALLONE, JR., New Jersey 

BART GORDON, Tennessee 

BOBBY L. RUSH, Illinois 

ANNA G. ESHOO, California 

BART STUPAK, Michigan 

ELIOT L. ENGEL, New York 

GENE GREEN, Texas 

LOIS CAPPS, California 

HILDA L. SOLIS, California 

JOHN D. DINGELL, Michigan (ex officio) 

CLIFF STEARNS, Florida 

Ranking Member 

FRED UPTON, Michigan 

NATHAN DEAL, Georgia 

BARBARA CUBIN, Wyoming 

JOHN SHIMKUS, Illinois 

HEATHER WILSON, New Mexico 

CHARLES W. ‘‘CHIP’’ PICKERING, 

Mississippi 

VITO FOSELLA, New York 

STEVE BUYER, Indiana 

GEORGE RADANOVICH, California 

MARY BONO MACK, California 

GREG WALDEN, Oregon 

LEE TERRY, Nebraska 

MIKE FERGUSON, New Jersey 

JOE BARTON, Texas (ex officio) 

(V) 

C O N T E N T S 

Page 

Hon. Edward J. Markey, a Representative in Congress from the Commonwealth of Massachusetts, opening statement .................................................... 1 

Hon. Cliff Stearns, a Representative in Congress from the State of Florida, 

opening statement ................................................................................................ 3 

Hon. Mike Doyle, a Representative in Congress from the Commonwealth 

of Pennsylvania, opening statement ................................................................... 4 

Hon. John Shimkus, a Representative in Congress from the State of Illinois, 

opening statement ................................................................................................ 5 

Hon. Rick Boucher, a Representative in Congress from the Commonwealth 

of Virginia, opening statement ............................................................................ 6 

Hon. Lee Terry, a Representative in Congress from the State of Nebraska, 

opening statement ................................................................................................ 7 

Hon. Bart Stupak, a Representative in Congress from the State of Michigan, 

opening statement ................................................................................................ 8 

Hon. Greg Walden, a Representative in Congress from the State of Oregon, 

opening statement ................................................................................................ 9 

Hon. Gene Green, a Representative in Congress from the State of Texas, 

opening statement ................................................................................................ 10 

Hon. Heather Wilson, a Representative in Congress from the State of New 

Mexico, opening statement .................................................................................. 11 

Hon. John D. Dingell, a Representative in Congress from the State of Michigan, opening statement ....................................................................................... 11 

Hon. Fred Upton, a Representative in Congress from the State of Michigan, 

opening statement ................................................................................................ 13 

Hon. Baron P. Hill, a Representative in Congress from the State of Indiana, 

prepared statement .............................................................................................. 13 

WITNESSES

Randolph J. May, President, The Free State Foundation .................................... 14 

Prepared statement .......................................................................................... 16 

Rey Ramsey, Chief Executive Officer, One Economy ........................................... 18 

Prepared statement .......................................................................................... 20 

George Lucas, Chairman, The George Lucas Educational Foundation .............. 33 

Prepared statement .......................................................................................... 35 

Jane Smith Patterson, Executive Director, The E-NC Authority ........................ 44 

Prepared statement .......................................................................................... 46 

Charles Sullivan, Executive Director, International Citizens United for the 

Rehabilitation of Errants (C.U.R.E.) .................................................................. 58 

Prepared statement .......................................................................................... 61 

SUBMITTED MATERIAL

National Tribal Telecommunications Association, statement to committee ....... 83 

Comments to the Federal Communications Commission .............................. 94 

Willard R. Nichols, president of American Public Communications Council, 

Inc., statement to committee ............................................................................... 111 

Chart entitled ‘‘USF High Cost Fund and its Impact on Telephone TakeRates’’ .................................................................................................................... 118

(1) 

THE FUTURE OF UNIVERSAL SERVICE: TO 

WHOM, BY WHOM, FOR WHAT, AND HOW 

MUCH? 

TUESDAY, JUNE 24, 2008 

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON TELECOMMUNICATIONS

AND THE INTERNET, 

COMMITTEE ON ENERGY AND COMMERCE, 

Washington, DC. 

The subcommittee met, pursuant to call, at 9:35 a.m., in room 

2123 of the Rayburn House Office Building, Hon. Edward J. Markey (chairman) presiding. 

Members present: Representatives Markey, Doyle, Inslee, Hill, 

Boucher, Stupak, Green, Dingell (ex officio), Stearns, Upton, Cubin, 

Shimkus, Wilson, Pickering, Walden, Terry, and Barton (ex officio). 

Staff present: Amy Levine, Tim Powderly, Mark Seifert, Colin 

Crowell, David Vogel, Philip Murphy, Neil Fried, Ian Dillner, and 

Garrett Golding. 

OPENING STATEMENT OF HON. EDWARD J. MARKEY, A REPRESENTATIVE IN CONGRESS FROM THE COMMONWEALTH 

OF MASSACHUSETTS 

Mr. MARKEY. Good morning, and welcome to the Subcommittee 

on Telecommunications and the Internet. 

Today we are going to have among the most important hearings 

which we can have, because today’s hearing will focus on the principle of universal service. That principle along with diversity and 

localism has been a hallmark of telecommunications policy for decades. 

The commission has a variety of tools to achieve universal service. It can be achieved and promoted through competition policy, 

franchising policy and wireless policy, through both options designed to spur competition on mandated build out of networks. And 

universal service can also be advanced through mechanisms developed under the law to support subsidies for various universal service funds. 

These funds are currently in four major baskets: for rural high 

cost, for the E-Rate program for K through 12 schools and libraries, 

for the Lifeline and Link-Up programs for low income consumers, 

or for rural healthcare purposes. In analyzing the principle of universal service for the future, I believe it is important to take a step 

backward and to assess what objectives universal service should 

2 

now encompass and analyze how existing programs achieve these 

objectives or how they fail to meet them. 

Rather than getting right into detailed debates about how to 

divvy up the existing subsidy pool, question who qualifies for socalled ETC status, or tackle the pros and cons of the identical support rule or reverse auctions, policymakers should first discuss why 

we do any of this at all and examine questions as to why, for 

whom, for what, by whom, and at what expense. Right now the 

four universal service programs spend approximately $7 billion a 

year, and more than half of it, roughly $4 billion, goes to rural 

high-cost, followed by the E-Rate Program, which is currently 

capped at $2.25 billion per year. Consumers pay approximately an 

11 percent surcharge on their interstate and international calls to 

fund all of this. This is more than double the percentage consumers 

paid a decade ago. Yet, as we look at how to recalibrate the funding 

mechanisms to more equitably garner funding among industry participants, it is vital that we provoke a conversation about what we 

believe universal service should be in the 21st century. This will 

allow us to effectively manage both the imposition of fees as well 

as justify the eligibility and purpose of disbursements. 

There are a host of questions to tackle in various areas. For example, what level of service should be supported for rural consumers? Should the supported services include just plain old telephone service or broadband, wireline, or wireless service, too? If 

competition fails to achieve affordability for a particular service in 

a rural community, should extremely wealthy rural consumers be 

subsidized, or should the program be targeted to assure affordability for non-wealthy consumers in some way? For low-income 

consumers in non-rural areas, should their supported service or 

services be comparable to the level of service provided to rural consumers? Today, for example, it is not. A rural consumer in a highcost area can get multiple lines subsidized, including wireless service. But a low-income consumer in Boston can only obtain one subsidized line. 

How should Congress or the FCC adjust the program for rural 

healthcare? This program has never worked well and its current 

statutory construct no longer makes any sense. 

And what about the future of the schools and libraries program 

for which I coined the term E-Rate to emphasize the education rate 

or educational mission of the program? This is a vital program that 

George Lucas and I first discussed back in August of 1993. Our 

conversation directly led me to fight to include a provision for discounted rates for schools and libraries in the 1994 Telecommunications bill, which I successfully passed through the House but 

which died in the Senate that year. The E-Rate became law when 

Congress enacted it in the succeeding Congress as part of the Telecommunications Act, and we have defended it with political light 

sabers ever since. 

Given the fact that requests for E-Rate funding outpaced the current cap, should the cap now be lifted? Should the nature of supported services be upgraded to include truly high-speed 

connectivity to schools? Should certain supported services to 

schools become free of charge to ensure that all schools keep pace 

3 

in preparing the next generation for the fiercely competitive global 

economy we now face? 

Today we face the challenge of how to achieve universal 

broadband for our Nation. Any overarching policy blueprint for universal broadband will be by necessity inclusive of universal service 

as a component. We must look at this task, however, cognizant of 

the cost consumers will be willing to bear but also mindful of the 

cost of not acting to upgrade our national telecommunications infrastructure and bringing all Americans along. That must be a critical part of that debate. These are costs to education, healthcare, 

job creation, and innovation if the United States fails to develop a 

plan for our digital broadband future. 

I look forward to hearing from our truly excellent witnesses 

today, and I thank them for their willingness to be with us today. 

Mr. MARKEY. And I turn now to recognize the ranking member 

of the subcommittee, the gentleman from Florida, Mr. Stearns. 

OPENING STATEMENT OF HON. CLIFF STEARNS, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF FLORIDA 

Mr. STEARNS. Good morning, and thank you, Mr. Chairman for 

holding this hearing. It has been a long time since we have had a 

hearing on universal service, and I think all of us look forward to 

hearing from our witnesses, and we welcome all of them. I also 

want to commend the Ranking Member, Joe Barton, for his efforts 

to make this hearing and for making universal service a high priority for this side of the aisle. 

Obviously, all of us believe that the universal service needs to be 

reformed. I think we can all agree upon that point. The system is 

fraught with overpayment to a lot of companies in the rural areas, 

as well as the Chairman pointed out to the customers who have an 

11 percent surcharge, which is double a decade ago. So a major 

overhaul is necessary. 

The question before us this morning is what is the appropriate 

way to do this and how do we best achieve these aims through this 

legislation, perhaps. The 1996 Telecom Act codified universal service, but the concept goes back decades earlier to a time when there 

was only one phone company. Now the landscape obviously has 

changed, and the fund is still administered by these outdated rules. 

The entire country has access to phone service. We have more competition, better technology then ever before. 

Yet, the Universal Service Fund continues to grow and grow. As 

of last year, the annual cost of the Fund was $7 billion, more than 

$4 billion of which came from the high-cost fund. Universal service 

fees, as mentioned earlier, now represent 11 percent of the consumers’ monthly bill. That is 11 percent. 

Now is not the time to expand the Fund but rather to reform it. 

For example, we should impose a firm cap to prevent uncontrolled 

growth in the Fund. With a limitless pool of money, carriers have 

no incentive to operate more efficiently. This subsidy chills innovation by propping up older technologies and carriers and making it 

harder for new innovators to compete. So throwing additional 

money at this crumbling program perhaps is not the best way to 

do it. 

4 

Moreover, performance measures are needed to ensure that we 

are getting results. Let us have accountability from the $51 billion 

we have spent over the last 10 years. That is $51 billion has been 

spent over the last 10 years. What impact are these funds having 

when everyone already has access to a phone? This type of transparency and accountability goes a long way, I think, to prevent 

abuse. 

To really add competitive pressure, we also need to move to market-based mechanisms such as reverse auctions that are technologically neutral and fund only the carrier that can provide the 

most efficient service in that particular area. Today we charge even 

middle- and lower-income Americans in urban areas to pay incumbent and wireline phone companies in places like Aspen, Colorado. 

What is worse, the incumbent receives the same amount of money 

even when it loses subscribers to competition. The amount of subsidy per line just goes up. Moreover, the company that wins the 

subscriber then gets the subsidy at the higher per line rate, even 

if it can provide service more efficiently. Rather than subsidizing 

multiple carriers in what is by definition an area that is uneconomic to serve, we should be focusing support just on the carrier 

that can provide quality service most efficiently, regardless of that 

technology. 

As this subcommittee considers universal service reform, we 

must also examine the FCC’s performance in managing the E-Rate 

program. How much has been lost to waste, fraud and abuse? The 

FCC’s Inspector General found error rates of 12 percent in the ERate program, which calls into question ratepayer amounts of approximately $250 million a year. We need to take a hard look at 

this program and institute real reform. 

So, Mr. Chairman, I think this is a very appropriate hearing. We 

welcome all the witnesses, and obviously we welcome George Lucas 

who has a long history of supporting an increased role of technology and education, and we are all very respectful of that. We 

also all of us in this room need to support this goal, and I hope this 

hearing brings us into a better understanding of universal access 

and how we can reform it to help the consumers and bring the cost 

down. 

Thank you, Mr. Chairman. 

Mr. MARKEY. I thank the gentleman. The Chair recognizes the 

gentleman from Pennsylvania, Mr. Doyle. 

OPENING STATEMENT OF HON. MIKE DOYLE, A REPRESENTATIVE IN CONGRESS FROM THE COMMONWEALTH OF PENNSYLVANIA 

Mr. DOYLE. Thank you, Mr. Chairman. I do want to thank you 

for holding this hearing and for encouraging us not to get bogged 

down in details today but to keep things very general. 

So generally speaking, Mr. Chairman, I think the Universal 

Service Fund needs to be blown up like the Death Star. We need 

to reevaluate this program’s goals and establish new priorities. We 

need to completely reform the Fund by moving away from subsidizing telephone service and instead put our money toward the 

broadband future. 

5 

For the meantime, I will call this needed reform Universal Service 2.0. I will bet the residents of rural Pennsylvania don’t know 

what the Universal Service Fund has done for their ability to get 

affordable telephone service during the program’s 10 years. And 

that is too bad, because the Fund has also probably helped their 

school get high-speed access to the Internet. And it has helped 

their library link up to other sources of information around the 

world. And if they are struggling to get by, it might have helped 

them afford to keep connected to their community. Those parts of 

the Universal Service Fund haven’t grown too much. What also 

hasn’t grown is the percentage of American households who have 

a telephone. 

Can we get the chart that I have prepared on the screen? Now, 

what has grown up nearly 300 percent from where it first started 

10 years ago is the high-cost fund for local telephone service in 

rural America. That growth is the columns you see on the screen, 

but the top line of that chart shows telephone rates that are staying relatively flat. 

As those red bars have grown exponentially, the impact on my 

constituency has grown, too. Pittsburghers are paying more, regardless of their ability to pay, to provide basic telephone service 

to rural America regardless of the economic need. A single mom in 

my district with a wireline and a wireless phone is paying roughly 

$55 a year into the Universal Service Fund when she might not 

even have broadband in her own home that is essential to further 

her career or her children’s education. 

Perhaps that single mom’s $55 a year investment into our infrastructure into Universal Service 2.0 would be worth it if it paid off 

in economic growth through the Nation and better opportunities for 

her children. Perhaps it would be worth it if it helped her wire her 

affordable housing project with broadband, or if broadband in her 

parent’s home helped her dad manage his diabetes, or if a portion 

of her investment went toward broadband in a community far away 

where her son will take a promotion to manage a plant years from 

now. 

Mr. Chairman, 1996 can be remembered for many things: the 

Telecommunications Act, the Macarena, one witness today was 

working on digitizing the Star Wars Trilogy. I won my first battle 

for reelection in 1996, so I remember 1996. Some things are timeless, like the Trilogy. Some things are better left to that time never 

to be heard of again, like the Macarena. And some things need to 

be completely revamped, like the Universal Service Fund. 

Thanks for holding this hearing on universal service, Mr. Chairman. I yield back my time. 

Mr. MARKEY. I thank the gentleman. The Chair recognizes the 

gentleman from Illinois, Mr. Shimkus. 

OPENING STATEMENT OF HON. JOHN SHIMKUS, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF ILLINOIS 

Mr. SHIMKUS. Thank you, Mr. Chairman. Thank you for the 

hearing. 

I represent parts of 30 counties in deep southern Illinois. Illinois 

has 102 counties, so you can imagine that most of the people who 

have had access in the rural parts of my district benefited from the 

6 

Universal Service Fund. They may be small mom and pop telephone companies like Home Tel Phone Company of Saint Jacob, Illinois, or Madison Telephone Company, or it could be rural co-ops 

like Adams Phone Co-Op. Ways in which people were able to bring 

out telephone service to rural communities when the business 

model was not there for major companies to do that. The Universal 

Service Fund stepped in to help do that. 

The question that, hopefully, you will help us and those in the 

industry when we hear from them later will help us is how do we 

bring transparency to a funding issue and where do we put our 

money to best serve, I still believe, rural America. And I think 

most of us who service rural America know that there are still 

areas that have no cell connectivity. 

And with enhanced 911 and location-finding, many of us really 

focused on 911 emergency issues, when you are traveling down 

rural Illinois Highway 127 and something happens, you are off in 

a ditch, you cannot be found. And that is why enhanced 911 is so 

critical, but you have to have the cell towers up. So that the 911, 

the Universal Service Fund has moved into helping place cell towers where it really is not the business model doesn’t really justify 

it as much. 

Secondly would be broadband deployment and everything that 

people talked about before, whether it is telemedicine, the distances that rural Americans have to drive to really get experts in 

the field of radiology or in the specialties through telemedicine, 

great benefits can be had. And also the ability of education and the 

quality of life in rural America is something that people really desire. And in light of specialties now, if you have access to 

broadband you can live anywhere in the world as long as you have 

that access. 

So I appreciate the debate. I understand the importance of it. 

And we will work hard in the competing bills as we move through 

this Congress and in the next Congress to strike that balance to 

protect it but reform it. 

And with that, Mr. Chairman, I yield back my time. 

Mr. MARKEY. I thank the gentleman, and we now turn and recognize the gentleman from Virginia, Mr. Boucher. 

OPENING STATEMENT OF HON. RICK BOUCHER, A REPRESENTATIVE IN CONGRESS FROM THE COMMONWEALTH 

OF VIRGINIA 

Mr. BOUCHER. Well thank you very much, Mr. Chairman. 

As we focus on the Federal Universal Service program, I think 

three key points should be kept in mind. First, it is appropriate to 

think beyond the confines of the existing four-component program 

and consider how reform legislation can be written in order to meet 

the new realities of the telecommunications marketplace. Service 

providers are rapidly shifting from circuit-switched architectures to 

Internet protocol-based platforms which enable a large expansion of 

the services they are able to provide. The convergent services of 

voice, multi-channel video and data are frequently now offered by 

the same service provider. We should ask whether these dramatic 

technological changes are well-accommodated within the existing 

Universal Service program. 

7 

Second, broadband is the essential new infrastructure, as important to commerce in the 21st century as canals, railroads and highways were in earlier eras. In many of its components, the Universal Service program must be modified in order to encourage 

broadband deployment in rural and underserved areas. That goal 

also, in part, can be met by the committee approving legislation to 

remove the barriers to the provision of broadband services by local 

governments, who in many small communities can fill the gaps 

that have been left by the commercial broadband providers. 

And third, our most urgent need is for a comprehensive statutory 

reform of the high-cost program. It is by far the largest of the four 

programs, and it is under financial pressures caused by long outdated, statutory provisions that are rapidly leading to its 

unsustainability. It is also relatively easy to fix. 

In fact, I have introduced, along with Mr. Terry, a comprehensive 

reform measure which both fixes the obvious problems and enjoys 

broad support. It has been endorsed by the rural local exchange 

carriers who are the beneficiaries of the fund and also by the large 

regional carriers such as AT&T, Qwest and Embarq who are net 

contributors into the fund. We have provisions to promote 

broadband deployment, and by addressing both revenues into the 

Fund and expenditures by the Fund, the bill creates a financially 

sustainable program for the long term. 

As we consider Federal universal service support, it is important 

to keep in mind that the high-cost Fund, by enabling every home 

in the nation to have affordable local telephone service, has made 

our country the most connected in the world, with more than 96 

percent of Americans having local telephone service. All Americans 

benefit from all of us being connected, and a financially-stable 

high-cost Universal Service Fund is as essential in the future as it 

has been to that past high level of connectivity. Rural telephone 

companies need that support to buy and modernize the equipment 

that keeps all of America connected. And so as we look to the future of services that should also be offered in addition to what the 

Fund has supported in the past, we need to keep that key point 

in mind. 

Thank you, Mr. Chairman. I yield back. 

Mr. MARKEY. I thank the gentleman. The Chair recognizes the 

gentleman from Nebraska, Mr. Terry. 

OPENING STATEMENT OF HON. LEE TERRY, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF NEBRASKA 

Mr. TERRY. Thank you. I appreciate, Mr. Chairman, you holding 

an important hearing on universal service and how it could be improved and is it still relevant today. And I certainly think it is. And 

I feel like Rick Boucher and I are the Luke Skywalkers riding in 

to save the Universal Service Fund from those who want to destroy 

it, the Darth Vaders. And when you look at this from 40,000 feet, 

why didn’t we develop universal service back in the 1930s? And 

that is because we felt it was important that all of America be connected to the plain old telephone service, because then it was only 

the urban areas that had telephones. And that perhaps because of 

safety reasons and commerce and others we thought that grandparents out on the farm should have that type of service as well. 

8 

And maybe those that moved into the city could actually call their 

relatives. But a traditional commercial model didn’t work. In order 

for a telephone company to roll out 60 miles of line to get to one 

customer, perhaps they needed some government help and such 

Universal Service Fund. 

Today, as we look at that basic premise of providing basic services to high-cost areas, now just basic rural. That same farmhouse 

60 miles away from the town of 1,500 people still exists today and 

is being served rather well because of universal service help. It 

doesn’t provide 100 percent of the cost. In fact, it provides about 

one-third of the subsidy necessary to supply telephone service. 

Does this Fund need to be modernized? Absolutely. The 1930s 

model does not work well in the 21st century. Where basic services 

have changed or perhaps the methodology of providing those services have changed in a digital world, USF for high-cost areas is 

trapped in that 1930s model. When someone receives the subsidy 

under USF, they only get to use it to maintain. They are forbidden 

to modernize with it. And that is what the Boucher-Terry Bill does, 

is allows them to use those dollars to modernize into the 21st century, so that they have the equal services that we do in suburban 

and urban America. 

And that is what I think universal service should be about. 

Mr. MARKEY. The gentleman’s time has expired. The Chair recognizes the gentleman from Michigan, Mr. Stupak. 

OPENING STATEMENT OF HON. BART STUPAK, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF MICHIGAN 

Mr. STUPAK. Thank you, Mr. Markey. I will be in and out today 

because I am the third bill on the floor today, and so I will be down 

on the floor. But I did want to be here because of very important 

legislation we are considering, or at least the Universal Service 

Fund. And for my district it is critically important that we have the 

Universal Service Fund. Every time I go home to my district, I am 

reminded how far we have come in real telecommunications, but I 

am also reminded how far we have to go. 

When Congress enacted the Telecommunications Act in 1996, we 

committed ourselves to a goal of providing affordable access to the 

telecommunications network for all Americans through the creation 

of the Universal Service Fund. Since its establishment, over $43.5 

billion has been distributed to improve telecommunications access, 

and almost every American today has access to phone service. According to the U.S. Census Bureau, the national telephone penetration rate is 97.6 percent. While the program has been very successful, parts of my district represent the 2.4 percent that do not have 

phone service at all. In total, I have 17 areas that lack service in 

my district due to geographic challenges. 

While the Universal Service Fund has been successful in expanding access, the program does need some reforms. First, funding 

should be prioritized to areas that need it most. The recentlypassed farm bill contains changes to the Rural Utilities Service 

broadband program to focus funding to the rural areas that need 

it most. I believe a similar emphasis should be placed on the universal services funding. 

9 

Second, the universal service concept should include affordable 

broadband access. Universal broadband access is vitally important 

for the rural economy to remain competitive in today’s global market. While broadband access may be a matter of economics to the 

industry, to my constituents it is a matter of necessity. 

And third, the funding mechanisms needed to be expanded and 

diversified to strengthen the future for the Fund. Expanding 

broadband service cannot be done on the cheap. One of the biggest 

challenges facing the Universal Service Fund is that those footing 

the bill are becoming fewer and fewer, while our needs continue to 

grow. 

Mr. Chairman, thanks for holding today’s hearing. I look forward 

to the testimony of our witnesses and discussing with them how we 

should modernize and reform the Universal Service Fund. 

Mr. MARKEY. I thank the gentleman, and I wish the gentleman 

good luck on his bill out on the House floor to get the fraud out 

of the energy futures marketplace. The Chair now recognizes the 

gentleman from Oregon, Mr. Walden. 

OPENING STATEMENT OF HON. GREG WALDEN, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF OREGON 

Mr. WALDEN. Thank you, Mr. Chairman. I am glad you are holding this hearing. 

We have already heard a lot about the issues involving the Universal Service Fund. And I remember well the hearings that we 

had a few years back on some of the waste, fraud and abuse in the 

E-Rate program, and I hope that that situation is being cleared up, 

because it is long overdue. And there are a lot of good entities out 

there that need the funding, and we do not need those that are 

there that are hoarding equipment in warehouses in Puerto Rico 

and elsewhere and ripping off the system. 

My district—you have heard a lot about different districts—mine 

is 70,000 square miles, and it is Mr. Ramsey who spent his best 

years in the great State of Oregon. Seventy thousand square miles, 

one of the first things I did get involved in after being elected to 

Congress in 1998 was help the little town of Granite get its first 

phone service, period, first phone service. I think there are still 

areas in my district where you do not have phone lines all the way 

to the houses. And next week I will be out in the metropolis of Fossil, Oregon, in Wheeler County, and we will be dedicating the first 

cellular service for that community. 

And so in many of these western large areas where it makes little economic sense for companies to come in, the Universal Service 

Fund has played a key role, and new technologies are allowing access where it never existed before. So it is time to look at this program, review it, and refine it, and reform it, and make sure that 

those who are paying for it are getting treated properly and that 

the money is being spent properly. 

So, Mr. Chairman, thanks for the hearing. I will look forward to 

working with you on this issue, and I want to thank our witnesses. 

Mr. MARKEY. I thank the gentleman. The Chair recognizes the 

gentleman from Texas, Mr. Green. 

10 

OPENING STATEMENT OF HON. GENE GREEN, A 

REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS 

Mr. GREEN. Thank you, Mr. Chairman. I want to thank you for 

holding the hearing on the future of universal service, and I particularly appreciate our panel and thank you for listening to us 

while we give our opening statements. Like everyone, I want to 

welcome Mr. Lucas here, but also I want to welcome Charles Sullivan who—Charles and Pauline Sullivan—I worked with for many 

years in the Texas legislature on prison rights and try and make 

it much easier, since we incarcerate so many people in Texas compared to other countries in the world. But thank you for being here. 

And I hope this may be the last, Mr. Chairman, of analogies to 

your Star Wars, but I would hope those of us who really want to 

reform E-Rate and who would like to have better broadband penetration in our urban district would be really the wise man Obi-Wan 

Kenobi, and Darth Vader would be the ones who are trying to keep 

the status quo in the empire. But the state of communications in 

our country is significant since Congress made the last changes, 

major changes in universal service in 1996, and it is significantly 

different today. With 95 percent of the U.S. population having a 

telephone but funding support still increasing at an unsustainable 

level, it is time we look at what return is being made on this investment and what the future of universal service would look like. 

The future of telecommunications, I believe the future of universal service should be broadband. This is especially true with 

schools and libraries program, or E-Rate. Despite the proven benefits of having schools connected, the E-Rate program is capped, 

while the high-cost program has continued to balloon. Twice as 

many funds are requested through E-Rate then are available, but 

we have capped this program while allowing the high-cost fund to 

continue to balloon with inefficient spending under the identical 

support rule and rate-of-return regulation. This does not have to be 

the case, and it is important that voice and broadband service be 

universal, but the current system is unsustainable because of the 

structure the USF creates such strong disincentives to consolidate 

and reduce cost in the high-cost fund. Meanwhile, hundreds of children are waiting to use computers connected to broadband connection in many of our Nation’s schools. 

In our district, we do not have a high Internet penetration at 

home, because while people may not qualify for low-income phone 

support, they work hard to make ends meet, and they may not be 

able to afford a computer or a monthly broadband payment. 

Schools and libraries are often the only places children have to access the Internet, and the universal service fees that come out of 

our constituents’ phone bills are needed at the school across the 

street or around the block as much as anywhere else. 

Mr. Chairman, the future of universal service should focus on 

making efficient use of the funds that provide broadband, especially in our schools and libraries. 

And I want to again thank the witnesses here, and I thank you 

for holding this hearing. 

Mr. MARKEY. The Chair now recognizes the gentlelady from New 

Mexico, Ms. Wilson. 

11 

OPENING STATEMENT OF HON. HEATHER WILSON, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF NEW MEXICO 

Ms. WILSON. Thank you, Mr. Chairman. 

I listen to folks comment about the access to telephone service 

in their states, and the idea that everyone in the country has access to phone service, I think, is a myth. In my State of New Mexico the Navajo Nation is the size of the State of West Virginia, and 

there are far too many people who live in Indian country who do 

not even have any access to plain old telephone service, let alone 

some of the high-end services that we would all like to see our constituents have. 

Because of the Universal Service Fund, consumers in rural New 

Mexico actually had DSL and broadband before a lot of people in 

Albuquerque. In Des Moines, New Mexico, beautiful downtown Des 

Moines, New Mexico, a thriving metropolis, you have to go three 

and a half hours north of Albuquerque to Raton and then about an 

hour east. This is the part of the country where you can scan your 

entire radio dial and keep scanning for several hours as you drive 

and not come up with a radio station. They had access to DSL in 

Des Moines, New Mexico, because of the telephone co-op in the 

Universal Service Fund earlier than Albuquerque, New Mexico, 

did. 

This is a fund that has helped rural areas substantially, and I 

do not think that we should lose sight of the access that this Fund 

has brought. I also want to make sure as we move forward in making changes to universal service and improving it that we do not 

and we should not lose sight of the ultimate goal, which is to make 

sure that Americans wherever they live have access to technologies 

that can change their lives. 

Just a few weeks ago, my son was sitting on the computer, and 

I said what are you looking at? And he said oh, this is the valve 

that Dad needs to fix the ozonater. My husband and I never would 

have thought to go on the Internet to figure out what the valve was 

that Dad needed to fix the ozonater. That kind of approach to 

learning and information is something that our children have while 

our generation is still thinking about finding the manual that is 

somewhere in the kitchen drawer or looking at it and going down 

to the hardware store and saying to the guy, do you know what 

this is and where I can get a replacement? 

Thank you for being here. I look forward to your testimony. 

Mr. MARKEY. The gentlelady’s time has expired. The Chair recognizes the gentleman from Michigan, Mr. Dingell. 

OPENING STATEMENT OF HON. JOHN D. DINGELL, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF MICHIGAN 

Mr. DINGELL. Mr. Chairman, I thank you for your courtesy, and 

I commend you for this hearing. 

It begins a valuable discussion about universal service and telecommunications. I very much look forward to this dialogue because 

I strongly believe universal service is a fundamental American 

value. Universal service opens the door of opportunity to all, without regard to one’s address or economic status. It provides eduVerDate Nov 24 2008 12:16 Oct 21, 2010 Jkt 037690 PO 00000 Frm 00017 Fmt 6633 Sfmt 6633 C:\DOCUMENTS AND SETTINGS\CWELLS1\HEARINGS\110-131 SCOM1 PsN: JIMC
12 

cational opportunities and makes advances in healthcare widely 

available. It allows those with disabilities a greater chance to be 

fully vested members of our society. It allows everyone to take part 

in the national dialogue that strengthens our democracy, whether 

one lives on a reservation, in the inner city, in the Great Plains, 

or in Appalachia. 

I want to thank our panel members for helping us to understand 

the real benefits of a robust and effective universal service policy. 

I believe it is both wise and proper that we should start this examination of universal service, by focusing on core principles. And 

I commend you for your leadership in this matter. 

I would offer the following for our consideration. First, universal 

service is about consumers, not carriers. As we delve deeper into 

the intricacies of universal service we must ask what is best for 

consumers. That should also be the central question. 

Broadband is the communications platform of the future. Any 

successful universal service program for the future must account 

for this reality. Universal service is about access and affordability. 

A proper universal service program should ensure access and affordability in places and situations where the market forces cannot 

or do not do so. And that is the reason both for universal service 

and for the Universal Service Fund. 

Properly targeting universal service support must ensure consistency, efficiency and fairness. And we must protect the Fund 

against raids and unwise use. Because everyone benefits from universal service, everyone should participate. Spreading the cost of 

the universal service program as widely as possible reduces the impact on each individual and assures a fair situation for all, which 

will achieve greater and broader support. 

The program should be forward-looking, and it should be flexible 

enough to accommodate new technologies and service providers in 

a sensible way, so that we can create incentives for innovations and 

better service at lower prices. A critical examination of universal 

service must examine regulatory disparities between different 

types of providers. If all types of providers are going to participate, 

that participation should be in as equal terms as possible. 

Similarly, we should also examine whether the benefits of universal service are being fairly distributed. Fundamental changes in 

universal service are going to mean transition. It is important that 

we not allow transition issues, however, to bury the fundamental 

changes we seek. 

Finally, the Congress, not the FCC, is better suited to make the 

tough political choices on how best to reform the system. But we 

must be properly informed in the Congress, and we must understand the basic policy of providing universal service to all of our 

people, a principle which goes back to the 1927 Act and to the 1934 

Act, something which was put in place to assure that every American should have full access to the telecommunications network 

that is so important to our national success. By focusing on consumers and principles rather than winners and losers, we stand a 

greater chance of creating a viable, successful universal service 

mechanism for the future. 

13 

I welcome this discussion, and I look forward to working with 

you, Mr. Chairman, and with my colleagues to accomplish this 

great purpose. Thank you. 

Mr. MARKEY. We thank the Chairman, and now we turn and recognize the gentleman from Michigan, Mr. Upton. 

OPENING STATEMENT OF HON. FRED UPTON, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF MICHIGAN 

Mr. UPTON. Well, thank you, Mr. Chairman. 

There is an old saying that if it ain’t broke, don’t fix it. Well, the 

opposite is true here. There is something seriously broken about 

the Universal Service Fund, and it does need to be fixed. We have 

spent some $51 billion over the last 10 years on this program. This 

last year we spent about, or we collected about, $7 billion, b as in 

big. So it is not a small program. We need oversight, and we need 

to identify how we can fix it, and we need to fix it in a bipartisan 

way. And I happen to believe that both the Barton-Stearns Bill or 

is it the Stearns-Barton Bill? Barton is not here so it is the 

Stearns-Barton Bill and probably the Boucher-Terry Bill or the 

Terry-Boucher Bill, in fact, provides some good starts, so that we 

can begin to communicate together on a bipartisan basis. 

I have a particular focus on the E-Rate program, a program that 

I support. And I would note that after the tragedies at Virginia 

Tech and Northern Illinois University in the last year and a half 

or so, we looked at all the different issues at K through 12 schools. 

As well, it would be nice for parents of any junior high student or 

middle school or a high school student to be able to hear from the 

school if there is trouble, whether it be a bus delay, whether it be 

a snow or weather delay, whether it be a water shortage or heaven 

forbid something involving violence. So you could communicate 

with a parent or a guardian about their child’s safety and welfare 

either during the school day or perhaps even before it starts. And 

I would note that Mr. Rush has authored with me a bill that would 

allow the E-Rate to in fact tap funds or allow the schools to tap 

funds to develop a program like many of our universities already 

have done as a worthy experience. 

So I look forward to this hearing and the testimony that we 

have. And, Mr. Chairman, I yield back my time. 

Mr. MARKEY. The gentleman’s time has expired. The Chair recognizes the gentleman from Indiana, Mr. Hill. 

OPENING STATEMENT OF HON. BARON P. HILL, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF INDIANA 

Mr. HILL. Thank you, Mr. Chairman, first of all for holding this 

hearing and also to the panel witnesses for the opportunity to discuss the future of the Universal Service Fund. 

The Universal Service Fund has supported the development and 

provided telephone service to approximately 96 percent of Americans. However, a continued integration of more advanced communications technology in our daily lives leads me to ask: should we 

refocus the Universal Service Fund deployment to focus on advanced services? 

I represent a rural community. I have constituents that are still 

connecting to DSL or have no Internet connections at all. Their 

14 

daily communications are through wireline services. They lack the 

technologies available to develop the skills to compete in today’s 

digital world. 

I see the digital divide daily in small Hoosier communities. The 

Universal Service Fund should undergo reforms that will make the 

deployment of broadband more viable for all communities that are 

targeted under the current program. High-speed communications 

technologies are the future of our nation. Transforming the Universal Service Fund into a program that will bring the latest technologies to communities least likely to see competition is one step 

we can take to ensure the educational needs of children and attract 

businesses to rural markets. 

And, Mr. Chairman, I yield back the balance of my time. 

Mr. MARKEY. Great, and we thank the gentleman for that, and 

all time for opening statement by members has been completed, so 

now we are going to turn to our expert panel, and we are going to 

begin with Randolph May. He is the President of The Free State 

Foundation, an independent, non-profit, Maryland-based, free-market-oriented think tank. The Foundation promotes through research and educational activities understanding a free market, limited government and rule of law principles in Maryland and 

throughout the United States. We welcome you, Mr. May, and 

whenever you are ready, please begin. 

STATEMENT OF RANDOLPH J. MAY, PRESIDENT, THE FREE 

STATE FOUNDATION 

Mr. MAY. Thank you very much, Mr. Chairman and Members of 

the Committee. When I got the call to come down here on Thursday, I thought it was because you wanted some star power in this 

hearing, but all of the photos seem to be directed in the other direction. But I am happy to be with you. 

Since passage of the 1996 Telecom Act, the landscape has 

changed dramatically as a result of vastly increased competition. 

This increase in competition is due in large part to technological 

developments and in part due to the reduction of some legacy regulations. The upshot, as has already been acknowledged this morning, is that the existing universal service reform, the universal 

service regime, needs serious reform if telecommunications services 

are going to be provided in the most cost effective and economical 

manner for the benefit of all consumers. New entrants and new 

technologies have rendered the existing system wasteful, inefficient 

and competition-distorting. 

I was going to cite a whole bunch of figures and facts at this 

point, but I think all I want to do now is mention once again that 

currently all consumers pay 11.4 percent surtax on their interstate 

calls. This is in effect a tax which suppresses telecommunications 

demand and reduces overall consumer welfare. And as has been already noted, currently the telephone penetration rate is about 94 

percent, and it has remained steady at that same rate for the past 

10 years. The data shown from the Census Bureau is that the income level is the key independent variable driving penetration. 

The basic questions to be asked about the future of universal 

service are the ones the Chairman identified. Before providing my 

thoughts on these questions, I want to state two policy principles 

15 

that should guide reform. First, market forces rather than subsidies should be relied on to the greatest extent possible to achieve 

the identified objective. This is more important than ever because 

increasing competition and new technology should drive down the 

cost in making communication services widely available. Second, if 

there are to be subsidies they should be targeted narrowly and financed broadly. The current system is at odds with these principles. 

Without elaborating the specifics here I will simply point out 

that the first principle is disregarded when subsidies are provided 

to carriers serving geographic areas in which market forces already 

have resulted in existing service and when subsidies are provided 

to persons who require none to obtain service. The second principle 

is disregarded because the current system targets subsidies broadly 

to areas and persons who don’t need them, and finances narrowly 

raising contributions from limited kinds of communication service. 

So what should be done? Recognizing that the goal of universal 

service as originally conceived to make voice service ubiquitously 

available has been generally achieved, declare victory, cap the 

high-cost fund. If the penetration level is to be increased at all it 

almost certainly will be by virtue of more vigorous effort to target 

low-income persons to sign up for service. 

Now, I understand that the question of whether a reform or a regime should be extended explicitly to include subsidies for 

broadband services is front and center. In considering this question, have in mind the principles that I enunciated and the lessons 

that we have learned from the existing regime. We can have a lot 

of debate about how rapid the progress has already been in this 

country, and perhaps we will have some of that but it is my contention that due to market forces principally, and not due to government services, there has been rapid dispersion of broadband service 

thus far. But if policymakers determine that some subsidies are 

nevertheless desirable they should be narrowly focused on selected 

high cost geographic areas where service is unavailable or on lowincome persons. 

In keeping with the principle of financing broadly, funding for 

any such subsidies should come from general Treasury appropriations. The targeted subsidies should be awarded through some form 

of competitive bidding process to determine which operator consistent with meeting defined service parameters is the least cost 

provider. Any broadband subsidies deemed necessary should not be 

dispersed or financed through an unreformed universal service regime that resembles the existing one. This would perpetuate a system that is inefficient, wasteful, and competition suppressing. 

A last note of caution in considering whether broadband needs 

any universal subsidies is that we must have in mind the distinction between availability of service and use. There are many different demand-side reasons that people may not subscribe to 

broadband service. The nature of unmet demand has many dimensions and price often plays a minimal role. The point here is that 

there are different demand-side reasons why people do not take 

broadband service where it is available and they will not be addressed by supply-side subsidies directed towards availability. 

16 

Thank you for giving me the opportunity to testify today and I 

will be pleased to answer any questions, Mr. Chairman. 

[The prepared statement of Mr. May follows:] 

STATEMENT OF RANDOLPH J. MAY

Mr. Chairman and Members of the Committee, thank you very much for inviting 

me to testify. I am President of The Free State Foundation, a non-profit, nonpartisan research and educational foundation located in Potomac, Maryland. FSF is 

a free market-oriented think tank that, among other things, does research in the 

communications law and policy and Internet areas. 

It is appropriate to hold a hearing to reexamine the existing universal service regime. In the twelve years since passage of the Telecommunications Act of 1996, the 

communications landscape has changed dramatically as a result of vastly increased 

facilities-based competition. This increase in competition—for example, with mobile 

phones becoming nearly ubiquitous and cable companies already providing digital 

voice service to over 16 million customers—is due in large part to technological developments enabled by the transition from analog to digital technologies. It is also 

due in part to the removal or reduction of some legacy regulations. 

The upshot is that the existing universal regime needs serious reform if telecommunications services are going to be provided in the most cost-effective and economical manner so that overall consumer welfare is enhanced. The fact of the matter is that new competitive entrants and new technologies have rendered the existing system wasteful, inefficient, and competition-distorting. 

Just a few basic figures up front to provide perspective for my contention that the 

current system needs a substantial overhaul. In order to finance the various universal service subsidies, consumers now pay a surcharge, in effect a ‘‘tax,’’ of 11.4% 

on all their interstate and international calls. In contrast, in 2000 the surcharge 

was 5.5%. The doubling of the USF tax burden in such a short period is an easyto-understand measure of how fast the subsidies funded by the surcharge have 

grown under the existing system. Much of the increase, of course, is attributable to 

the rapid growth in the high-cost fund, and my testimony today focuses mainly on 

that fund. The subsidies to support providers in high-cost areas grew from $2.2 billion in 2000 to $4.5 billion today. A final significant figure: Since the passage of the 

1996 Act, Census Bureau data show that the percentage of households with a telephone has hovered close to 94%, give or take a percentage increase or decrease due 

to what appears to be routine fluctuation. Examination of the Census data shows 

that income level is the key independent variable driving penetration. Lower income 

households tend to fall below the national average penetration rate. 

As I transition from highlighting these few but nevertheless key data points to 

a future-oriented discussion of the principles that should guide reform of the current 

regime, I want to make clear I support the notion that government has an appropriate role to play in helping ensure that communications services are available to 

all Americans. Of course, such role may vary over time, so that what may have been 

appropriate 50, 25, or even 10 years ago, may not be appropriate now. The basic 

questions to be asked and answered in thinking about the future of universal service are the ones identified in the hearing’s subtitle, which might be rephrased as 

follows: What is the mission? If the mission requires subsidies to achieve its objective, who should receive them? And how should any subsidies be financed? 

Before providing thoughts on these questions, I want to set forth two interrelated 

fundamental public policy principles that should guide reform of the system. First, 

market forces, rather than subsidies, should be relied on to the greatest extent possible to achieve the identified objective. This is more important today than ever because, under a properly constructed regime, increasing competition and new technologies should drive down the cost of making communications services widely available. Second, as John Mayo, a member of the Free State Foundation’s Board of Academic Advisors and Professor of Economics and former Dean of Georgetown University’s Business School likes to say: If there are to be subsidies, they should be targeted narrowly and financed broadly. Anyone familiar with the current universal 

service system knows it is at odds with these fundamental principles. 

Without elaborating all the specific ‘‘at odds’’ here, I will simply point out the first 

principle is disregarded when subsidies are provided to carriers serving geographic 

areas in which market forces already have resulted in existing service and when 

subsidies are provided to persons who require no subsidy, but who would in any 

event acquire service at market prices. The second, related principle is disregarded 

because rather than targeting subsidies narrowly and contributions broadly, the curVerDate Nov 24 2008 12:16 Oct 21, 2010 Jkt 037690 PO 00000 Frm 00022 Fmt 6633 Sfmt 6633 C:\DOCUMENTS AND SETTINGS\CWELLS1\HEARINGS\110-131 SCOM1 PsN: JIMC
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rent system targets subsidies broadly (to areas and persons who don’t need them) 

and funding narrowly (contributions from only one kind of communications service). 

Ignoring these sound principles is the reason that the current USF surcharge is 

11.4% per interstate call. Like any tax, the surcharge distorts economic behavior. 

Here the effect is to suppress demand for the relatively price-elastic calls subject 

to the surcharge. Economists have estimated the consumer welfare losses from the 

suppression of this demand for telephone services in the billions of dollars. The adverse impact on consumers negatively impacts the entire economy. 

So what should be done? Congress should recognize that the goal of ‘‘universal 

service’’ as originally conceived—to make voice service ubiquitously available—has 

generally been achieved. While the extent to which the existing universal service regime is responsible for such achievement is debatable, no matter. Once in a while 

victory should be declared, the cannons silenced, and the bugles triumphantly 

sounded. The high-cost fund should be permanently capped at its current level. As 

I pointed out earlier, approximately 94% of American households have voice telephone service, and this figure has remained steady for more than a decade. This 

may well be the ‘‘natural’’ high mark for telephone penetration at any one time. But 

if the penetration level is to be increased at all, almost certainly it will be by virtue 

of even more vigorous efforts to target low-income persons to sign up for the existing 

Lifeline and Link-up programs, not because unfocused subsidies continue to be disbursed. 

To the extent there are identifiable remaining high-cost areas without any affordable service, I would rely on competitive mechanisms, such as reverse auctions, to 

select a provider of last resort. This is the most efficient and most technologically 

and competitively-neutral way to make service available in those areas. In my view, 

Representative Barton’s Staff Discussion Draft does a good job of envisioning how 

such a reverse auction system would work to drive costs down over time or to at 

least halt the steady growth in costs experienced under the current regime. Consistent with the principle enunciated earlier, I would finance the remaining subsidies through a telephone numbers-based contribution system. This broad-based financing system, which is also adopted in the Barton Staff Draft, by taxing relatively 

price-inelastic access (with exceptions for low-income subscribers) rather than much 

more price-elastic usage, is a more economically efficient funding method. It would 

have less adverse impact on consumer welfare and the overall economy. 

Now I understand the question whether a reformed regime should be extended 

explicitly to include subsidies for broadband services is front-and-center. In light of 

the importance of the widespread broadband availability to the Nation’s economic 

and social well-being, this is entirely appropriate. In considering the question, it is 

very important to have in mind the principles I have enunciated and the lessons 

we have learned—or should have learned—from the existing regime. To the maximum extent possible, market forces should be relied upon to make broadband service widely available. If any subsidies are deemed necessary, they should be focused 

narrowly and funded broadly. 

I know there is controversy, depending upon one’s perspective, concerning how 

well we are doing in this country regarding broadband deployment and how well 

we are doing vis-a-vis other nations. There have been separate hearings on this subject, and it may well be useful to have more. From my perspective, I want here simply to point out that, by most measures, the nation has witnessed remarkable 

progress in a short time. The FCC’s most recent broadband data, now almost a year 

old, show that more than 99% of the Nation’s zip codes have at least one in-service 

high-speed provider, and more than 99% of the nation’s population lives in those zip 

codes. There are over 100 million high-speed lines in service, and over 65 million 

of these serve primarily residential end users. This represents a rapid dispersion of 

broadband availability. This success is attributable primarily to the private sector 

responding to market forces, with more than $100 billion—and still counting—of investment. The success is not attributable in any significant way to government subsidies. And it is important to understand that market forces have spurred this rapid 

deployment in large part because broadband providers have not been subject to traditional common carrier regulation that prevailed in an earlier monopolistic era. In 

furtherance of promoting any ‘‘universal service’’ policy regarding broadband, policymakers should retain this minimally regulated environment that has encouraged so 

much private sector broadband investment in a relatively short time. 

If policymakers determine that, despite the progress already achieved through 

market forces, some subsidies nevertheless are desirable to achieve more ubiquitous 

deployment at a faster rate, such subsidies should be narrowly focused on selected 

high-cost geographic areas where service is unavailable or on low-income persons 

who otherwise cannot afford service. In keeping with the principle of financing 

broadly, funding for any such subsidies should come from general Treasury approVerDate Nov 24 2008 12:16 Oct 21, 2010 Jkt 037690 PO 00000 Frm 00023 Fmt 6633 Sfmt 6633 C:\DOCUMENTS AND SETTINGS\CWELLS1\HEARINGS\110-131 SCOM1 PsN: JIMC
18 

priations. Carefully targeted subsidies should be awarded through some form of 

competitive bidding process to determine which provider, consistent with meeting 

defined service parameters, is the least cost provider. Any broadband subsidies 

deemed necessary should not be disbursed or financed through an unreformed universal service regime that resembles the existing one. To do so would perpetuate 

a system that is economically inefficient, wasteful, and competition-suppressing. It 

would saddle the broadband world—and the American public—with an outdated 

relic of the narrowband world. 

A last note of caution in considering whether broadband needs any ‘‘universal 

service’’ subsidies. Policymakers should have in mind the distinction between availability and use. As shown above, broadband service is now available to most of the 

Nation’s consumers. But there are many different ‘‘demand-side’’ reasons that people may not subscribe. John Horrigan at the Pew Internet & American Life Project 

has done much good work in this area. His research shows that the nature of unmet 

demand has many dimensions and that price often plays a minimal role in acquisition decisions. Factors include lack of computers at home and concerns relating to 

usability of computers and the Internet; security of online information; and relevance of online content. The point here is that there are different demand-side reasons why people do not take broadband service where it is available. These reasons 

will not be addressed by subsidies directed towards increasing broadband deployment. This is another way of saying that, before adopting any new subsidies, policymakers must carefully consider the costs and benefits of such expenditures. 

Thank you for giving me the opportunity to testify today. I will be pleased to answer any questions. 

Mr. MARKEY. Thank you, Mr. May, very much. Our second witness, Rey Ramsey, is the Chief Executive Officer of One Economy 

Corporation. Under his leadership, One Economy, which he cofounded in 2000, has emerged as one of the Nation’s leading nonprofit organizations in the field of technology. One Economy Corporation is a global nonprofit organization that uses innovative approaches to deliver the power of technology and information to lowincome people, giving them valuable tools for building better lives. 

We welcome you, sir. When you are ready, please begin. 

STATEMENT OF REY RAMSEY, CHIEF EXECUTIVE OFFICER, 

ONE ECONOMY 

Mr. RAMSEY. Chairman Markey, Ranking Member Stearns and 

special recognition to Congressman Walden, who I had the pleasure 

of working with as a fellow Oregonian, it is a great opportunity to 

be here. 

I am Rey Ramsey, Chief Executive Officer of One Economy Corporation, and we got started about 8 years ago, and I want to talk 

a little bit about why we got started, because I think it is very relevant to the subject at hand. I have been working in affordable 

housing as the chairman of Habitat for Humanity and working in 

housing in Oregon and doing anti-poverty work, and in the 1990s 

people started talking about something called the digital divide. 

And we still have a digital divide, but my focus and my choice was 

to focus on what I call the digital opportunity. And a lot of what 

I look at is that we have an enormous opportunity to use digital 

technology to solve some very vexing problems in the country. And 

what I want to say to this committee is that time is of the essence 

in terms of whatever we choose to do in terms of reform. 

It is not my role today to tell you how exactly to reform. I think 

that your wisdom and many others will have their different viewpoints on reform. We certainly support reform, and in addition to 

the submitted remarks that I have, I would like to just lay out a 

19 

couple of key points that I think are important. Obviously, in looking at universal service we need to think about supply and demand, and when we are thinking about those issues I have two 

basic points to make. 

The first is that we need to think about three basic issues. One 

is the issue of connectivity, and when we think about connectivity, 

we have to think about it more broadly. Not only should we be 

talking about is the technology available and I call this the three 

As: the technology should be available, it should be affordable, but 

we also have to focus on is it being adopted and why is it not being 

adopted, so available, affordable and adopted. 

The second issue on the demand-side is that we have an opportunity to use technology in remarkable ways, and it is one I call 

public purpose content, that there are reasons why individuals are 

not online or using broadband, and that is because we haven’t developed some of the applications in health and in education and in 

other areas. And in my written remarks I refer to some of the 

things that are being done. We, this past year, in a partnership 

with E-Trade and H&R Block, have been able to focus on helping 

low-income individuals with applications online to be able to get 

money back in the Earned Income Tax Credit. In this year, $10 

million were returned to individuals by using our service for free, 

working in partnership with the private sector. 

And then the last issue that gets very little attention is human 

capital, and that is digital literacy. There are a lot of people who 

would like to use technology but have no idea how to use it and 

do not understand the applications. And so to that end we have 

launched a program in the country called Digital Connectors, 

where we bring young people to work intergenerationally to help 

people use the technology, working in elderly centers and other 

places. 

Those are the three basic points—the connectivity, the public 

purpose media, and the human capital—that I think we have got 

to expand our notion of thinking about universal service to meet 

the needs and the opportunity of the digital age. 

You know, there are lots of things that are being done on the 

ground. We are working in rural areas, Native American communities, as well as in urban areas where there are low-income individuals. And I started my remarks by saying time is of the essence. 

When you think about this time of year in the spring, people graduate, and I think about every time there is a graduating class 

where there are individuals in that class, students and children 

who do not have access to technology not only in their school but 

in their home, which is where it is most important now to bring 

the technology into the home, it is a shame. And every time there 

is a graduation where we can look up and see one group of children 

who have access and those who do not, it reminds me that there 

still is a divide and that time is of the essence. 

We can do this. I am encouraged by again the partnerships on 

the ground. We have been able to work with local governments 

whether they are from Oregon to Texas to North Carolina or to 

Massachusetts. But we are also able to work with the private sector by always remembering that we are dealing with consumers 

20 

who have the same aspirations as anybody else. They just happen 

to earn a little less money. 

So I submit my remarks and my testimony today, and I appreciate this opportunity on behalf of all the hardworking people at 

One Economy Corporation. 

[The prepared statement of Mr. Ramsey follows:] 

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Mr. MARKEY. Thank you, Mr. Ramsey, very much. We all know 

our next witness through his epic stories captured in the movie series Star Wars and Indiana Jones. But George Lucas is not only 

a storyteller, movie industry visionary, and innovator, he is also 

the Chairman of The George Lucas Educational Foundation. The 

Educational Foundation’s goals are to create a space where children become lifelong learners and develop the technical, cultural, 

and interpersonal skills to succeed in the 21st century. It is our 

honor to have you here, sir. Whenever you feel comfortable, please 

begin. 

STATEMENT OF GEORGE LUCAS, CHAIRMAN, THE GEORGE 

LUCAS EDUCATIONAL FOUNDATION 

Mr. LUCAS. Thank you. My name is George Lucas, and as founder and chairman of The George Lucas Educational Foundation, I 

am pleased to appear before you again. 

And I appeared here in March of 1994 and outlined my vision for 

education in our schools. It was called ‘‘Edutopia’’ to signify a more 

ideal learning environment. Fifteen years ago that vision could 

have been considered futuristic and unattainable, a pipe dream 

that could never come to pass. But now, especially with the growth 

of the Internet, this vision of Edutopia has become a movement. 

Across the globe, ministries of education in many nations, including Singapore, China, Australia and the United Kingdom, are all 

moving ahead with plans to recreate their schools for the 21st century skills. They are investing substantially in Internet access, 

hardware and software for schools, and training for teachers to enable their students to achieve at the highest levels and fuel the economic growth of their countries. According to a recent report from 

the Organization of Economic Cooperation and Development in 

Paris, the U.S. ranks fifteenth in broadband Internet access and is 

outpaced by Denmark, the Netherlands, Finland, Korea, France, 

and Canada. 

There have been two revolutionary changes in telecommunications in recent years: broadband and wireless technologies. The 

processing speed and memory of computers has continued to double 

roughly every 2 years, following Moore’s famous law. In just the 

past 4 years, we have seen an explosive growth of multimedia on 

the Web. 

The narrow goal of universal service must be redefined to include 

much faster broadband access to current multimedia content and 

address the next generation of broadband technologies to come. I 

encourage the subcommittee to anticipate broadband speeds that 

enable current applications and plan for the much higher speed 

networks that are currently available only in universities and research centers. 

The other transformation in Internet access has been wireless 

networks and mobile computing. Now it is possible for students to 

access the world’s knowledge without being tethered to a wire at 

school and libraries. Teachers tell the staff at my foundation of students who sit in their cars in high school parking lots in order to 

access the wireless Internet hub inside. While the school doors are 

closed, their minds are still open. 

35 

In order to support this vision of 21st century schools, it is very 

important that we not rest on the accomplishments of the E-Rate 

funding and the Telecommunications Act of 1996. We should not 

simply declare that the program has been a success. Instead, we 

must recognize the even greater possibilities made possible by 

broadband and wireless and expand the program to keep pace with 

technology. 

I urge the subcommittee to go beyond the current E-Rate discounts for public schools and libraries. Our goal should be to extend the definition of universal service to include modern 

broadband connectivity. We also need to define speed and bandwidth in terms of what a student sees on their computer, not just 

one connection to a school or library that must be divided among 

many users. 

The current cap on E-Rate needs to be increased. I note as reported in the Education and Library Networks Coalition, the administrator for the E-Rate program, E-Rate discount requests for 

2008 total $4.3 billion but were at $2.25 billion. So we still have 

work to do to achieve the goal of universal access. I agree with the 

2005 statement of the Education and Library Networks Coalition 

that ‘‘all students, educators, and library patrons should have highspeed Internet connectivity to fully participate and learn in an information-dominated economy and world.’’ 

I applaud the program of E-Rate discounts to schools and libraries, ranging from 20 percent to 90 percent based on the economic 

status of communities. But I believe that the eventual goal should 

be to make these connections free, free for all schools and libraries. 

This goal is ambitious and as important as the coalition of free 

public schools and libraries themselves, free and open to all. 

Telecommunications provides the new learning platform of this 

century and is replacing the textbook as the medium through 

which modern education is provided. The world’s knowledge is now 

available online, far beyond what books and materials can provide 

in schools and libraries themselves. 

Just as access to quality education is a civil right, access to modern telecommunications tools for education should be viewed as a 

digital civil right. We should seek to guarantee that right to every 

student, regardless of their ability to pay. 

Thank you. 

[The prepared statement of Mr. Lucas follows:] 

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Mr. MARKEY. Thank you, Mr. Lucas, very much. Our next witness is Jane Smith Patterson, who is the Executive Director of the 

E-NC Authority. The E-NC Authority was created by the North 

Carolina legislature for the purpose of improving broadband Internet access across the State by encouraging North Carolinians to 

use the Internet in providing opportunities to gain new skills. ENC is building connected communities in a more economically competitive State. We welcome you. 

STATEMENT OF JANE SMITH PATTERSON, EXECUTIVE 

DIRECTOR, THE E-NC AUTHORITY 

Ms. PATTERSON. Thank you, Mr. Chairman. Chairman Markey 

and Ranking Member Mr. Stearns and other members of the 

House, I am pleased to be here today to talk with you about our 

opinion about universal service. 

Let me say we have submitted remarks, and I will be briefer in 

my comments. You should read my remarks to get the full report 

of my remarks. 

The E-NC Authority has been working for 7 years to try to make 

certain that every citizen in North Carolina has access to the Internet, knows how to use a computer and knows how to access the applications that are there. 

Today 82 percent of our households in North Carolina can receive 

if they wish and can pay for broadband access in the State. We are 

not yet at one gig to the home but we would like to see ultimately 

100 megabits to the home, in North Carolina. We have worked very 

hard with all of the various companies in the State, both wireline 

and wireless, and cable and telephone co-ops, even electric co-ops, 

to try to make certain that access on the supply-side is there for 

everyone in North Carolina. 

Recently, we worked also to say how can we go back out on a second go around to our citizens to work with and to explain to them 

why it is important for them to learn and to get online. So we have 

developed Capturing the Promise of Broadband for North Carolina 

and America. We released that yesterday, and we hope that you 

will have a chance to look at that. We think that it is the best compilation of what is going on in this country and the applications 

that are there for the citizens of the United States. 

Let me say to you I am going to skip and say a couple things 

about universal services. Number one, universal service is important to all of the United States. It is important the we move forward to and move to broadband as a central part of universal service. A 2.0 plus, as Mr. Doyle said, 2.0, I would say shoot for the 

puck for where it should be and to be very flexible in moving 

broadband services across the country. 

It is important to, I think, understand that all persons who use 

this should pay into the USF. All companies should be eligible to 

receive. I believe that in the E-Rate that everyone should be able 

to pay in and receive. And I think that except for wiring contractors. I won’t get into that, but you might ask about that later. 

I think it is important to also assist nonprofits and private and 

also the public. When it is important when you cannot get the companies to go into areas and local governments need to step up, we 

should support that as well. 

46 

I would like to just extend a couple of comments about Lifeline 

Link-Up. I think this is the finest part of the universal services 

area, and I believe that Lifeline should be changed and morphed 

into a situation where we support low-income individuals who are 

having trouble economically and that we should, in fact, make it 

so that we could have that for broadband access. I think it is important to realize that we have come to a point where telephones 

are ubiquitous and that perhaps now that you can use voice if you 

wish to call, and you have access in the Lifeline/Link-Up program. 

This program is a State-Federal program, so the State is sharing 

with the Federal Government on this, and I think that is important 

that the State share with this in the Federal Government in this 

aspect. So I would encourage you to look at Lifeline/Link-Up as a 

special issue and a very important one for this. 

On the E-rate, we feel strongly in North Carolina now we have 

1 gig to the local education agency. One hundred megabits to every 

school is because of E-Rate that we have that. And with the ERate, the State is paying a share of this for the schools, and then 

the Feds are also picking up a share. 

I think the hospital program is in its second go around now in 

15 years. The health program needs some additional assistance in 

listening to some of the people who have to implement that out at 

the local level. 

I would also say that I do not know how much. I think the Benton Foundation has done an excellent job in looking at this, and we 

would certainly bow to them with their knowledge of how much 

should be in the Universal Service Fund. 

The investment in broadband will pay off immeasurably for us 

in this country. You can look at the fact that economically we have 

now an estimated $500 billion in economic growth and an additional $1.2 million high wage jobs if in fact broadband is ubiquitous. 

Those are the remarks that I would like to submit to you, and 

I would encourage any kind of questions about our efforts in North 

Carolina. 

[The prepared statement of Ms. Patterson follows:] 

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Mr. MARKEY. Thank you, Ms. Patterson, very much. There is a 

roll call on the House floor. There is only 5 minutes left to go for 

the members to go over and to make that vote. So what I would 

recommend is that we briefly adjourn for 10 minutes. We will return, and we will hear from Mr. Sullivan, and then we will begin 

the questioning of the panel by the subcommittee members. This 

hearing is in brief recess. 

[Recess.] 

Mr. MARKEY. The Subcommittee on Telecommunications and the 

Internet is called to order once again so that we may recognize for 

his opening statement our final opening witness. His name is 

Charles Sullivan. My mother was a Sullivan, and she said they 

were very intelligent people, and so I am looking forward to his testimony. He is the Executive Director of International CURE, Citizens United for the Rehabilitation of Errants. CURE works to ensure that prisoners have all the rehabilitative opportunities they 

need to turn their lives around. CURE was founded in 1972 by 

Charles and Pauline Sullivan as a membership organization of 

families of prisoners, former prisoners and other concerned citizens 

who work to reduce crime through the criminal justice reform 

movement. We thank you, sir. Whenever you are ready, please 

begin. 

STATEMENT OF CHARLES SULLIVAN, EXECUTIVE DIRECTOR, 

INTERNATIONAL CITIZENS UNITED FOR THE REHABILITATION OF ERRANTS (C.U.R.E.) 

Mr. SULLIVAN. Mr. Chairman, I would like to especially thank 

you for this hearing and also Congressman Inslee, we have met at 

Congressman Strickland’s functions. Thank you for this opportunity to talk with you. 

My name as you said is Charlie Sullivan. I am Executive Director and cofounder with my wife, Pauline, of CURE. We are a grassroots prison reform organization that began in San Antonio, Texas, 

in 1972 and expanded to a national organization in 1985. Our 

members come from every State in the Union. They are for the 

most part people incarcerated and their loved ones. A strong argument could be made that they are unfortunately the most economically disadvantaged segment in our society today. 

The number of people affected by the prison experience is staggering. Although we only have 5 percent of the world’s population, 

we incarcerate 25 percent of the world’s prisoner population. A recent study points out that one in a hundred persons in our country 

is now in prison. 

Thus, it would not surprise you that CURE was one of the many 

organizations that celebrated this year’s passage of the Second 

Chance Act. This Act is an acknowledgement of just how important 

after-prison support is and how it must begin in prison. Our members understand this need on a very personal level. People being 

released know they need crucial social support, which loved ones 

in the free world often provide. In fact, studies show that if persons 

stay connected to their families while in prison, they have a six 

times better chance of not recidivating. 

But, Mr. Chairman, sustaining these vital family ties is not easy. 

Visiting is not always possible because of the cost of travel, espeVerDate Nov 24 2008 12:16 Oct 21, 2010 Jkt 037690 PO 00000 Frm 00065 Fmt 6633 Sfmt 6633 C:\DOCUMENTS AND SETTINGS\CWELLS1\HEARINGS\110-131 SCOM1 PsN: JIMC
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cially now with such high gas prices. Although letter writing is important, phone calls are the main method used to sustain this allimportant connection. 

And this leads to the issue I wish to discuss. The high cost of 

prison phone calls. For more than 10 years, CURE has been working to reduce these costs. In 2000, we organized a nationwide campaign, the Equitable Telephone Charges Campaign, to mobilize 

family members of prisoners and other concerned citizens to advocate for changes, and this campaign continues today. It has been 

a long campaign, but we are proud of the fact that we have seen 

substantial progress. When we started, only six states offered a reduced rate debit calling system as an option to the expensive collect 

calls. Now 20 states have a debit or prepaid option at reduced 

rates. 

Despite the progress in many areas, there is one area that continues to be very troubling, and that is the high cost of interstate 

phone calls from many state prison systems. The reason these calls 

are so expensive is because the contracted phone company pays the 

prison system a commission for each call. These commissions can 

be as high as 60 percent. 

But there are some states that have made pro-family decisions 

to make interstate phone systems much less costly. For example, 

family-friendly systems like Florida charge only $1.80 for a collect 

and $1.62 for debit or prepaid. In contrast, Washington State 

charges $17.41 for a 15-minute interstate call with no reduction in 

debit or prepaid. The handout that I have attached to my statement shows the latest information we have compiled on these 

interstate rates. Keep in mind that all of these systems have similar security features. Thus, there is no logical explanation for these 

significant differences. 

We have not been alone in our efforts and want to take this opportunity to thank Congressman Bobby Rush for his leadership on 

trying to solve this problem by assuring affordability to those families who have loved ones in prisons. He introduced The Family 

Telephone Connection Protection Act last Congress and again this 

Congress, which is H.R. 555 on the table. We have a brochure on 

this piece of legislation. This legislation would authorize the Federal Communications Commission to one, prescribe maximum 

rates; two, require both collect and debit calling; three, prohibit 

commissions; four, require competition; and five, prohibit call blocking solely because there is not a billing agreement in place. 

In closing, I want to express again how vital it is for prisoners 

and their families to be able to communicate with each other. 

I would like to end with a very moving example of an extremely 

moving study that involved Walter Lomax, who spent 39 years in 

prison and was found innocent. His family stayed in contact with 

him by visiting, writing, and phone calls. And also he even in a 

way walked his daughter down the aisle when she married. At her 

wedding a relative held up a cell phone switched to speaker mode. 

Mr. Lomax listened on the other end from a phone in a Maryland 

prison. When the minister asked who was there to give his daughter, Wanda, away, it was Mr. Lomax who answered I do. 

61 

Needless to say we would be happy to work with the subcommittee to explore any and all possible solutions to making all 

interstate phone calls affordable for families of prisoners. 

Thank you, Mr. Chairman. 

[The prepared statement of Mr. Sullivan follows:] 

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Mr. MARKEY. Thank you, Mr. Sullivan. And thank you to your 

wife as well, and we do want to work with you. Absolutely something that cannot continue. 

The Chair will now recognize himself for a round of questions 

and I want to begin with you, Mr. Lucas. Could you please elaborate, talk about what higher-speed broadband can do for the classroom by way of course content, collaboration by students, and new 

applications? 

Mr. LUCAS. Well, some of the things that we have experienced in 

the foundation are the fact that using the Internet in order to teach 

the children to find information, assess that information, and find 

out what is true and what is not true and then use that information creatively becomes the basis of sort of the 21st century school. 

It is a matter—it is very difficult now to teach all children all the 

facts, all the knowledge, everything they need to know. 

But what we can do is teach them how to learn and how to find 

information. The Internet is absolutely crucial for that. We have 

had situations where people have been able to use the Internet to 

get to universities, the K through 12 students to look through 

microtelescopes to learn things, to help with their studies, to watch 

surgery in progress and to watch NASA launch spaceships. It 

brings a whole wealth of information into the classroom. It also allows the students to collaborate with kids from other countries. 

And it also means that we can bring in experts from all kinds of 

institutions, be it from the Library of Congress or the NFL, into 

the classroom to help the students to understand what they are 

learning. 

Mr. MARKEY. And could you talk to us a little bit more about this 

concept of free in terms of the service which you propose be made 

available to children as the great equalizer in American society? 

Mr. LUCAS. Well, again, we are moving ahead very fast, and 

wireless is the wave of the future, and if we are going to wireless 

then you are assigning and or giving away or however you want 

to describe it, frequencies to the phone companies and to the people 

who are using, you know, I mean providing the service. My feeling 

is that as a part of that access to the public airways, that a certain 

amount of the service be restricted, and say this is only allowed for 

educational institutions. Part of it I feel that we have a—there is 

an example of a system in Glasgow, Scotland, that has an Internet 

built through their schools and their whole educational system 

which works for free to all the schools and all the students. It is 

a very powerful system, and I think that possibly an educational 

Internet, a third Internet that is only for education and that is not 

charged and that the carriers cannot charge, would be a rather 

simple way to solve the problem. The idea of taxing people and taking the money away and then giving it back seems like a very cumbersome way to do something that you are already—you are charging people to use the system as it is. So if you are making people 

pay for the right to have the frequencies, why don’t you just say 

well you can have it for a little bit less but you have to give the 

schools something for free. 

Mr. MARKEY. Thank you, Mr. Lucas. Mr. Ramsey, you say that 

low-income citizens adopt broadband at a much lower rate then 

higher incomes. Can you talk about the adoption part of the A trilVerDate Nov 24 2008 12:16 Oct 21, 2010 Jkt 037690 PO 00000 Frm 00072 Fmt 6633 Sfmt 6633 C:\DOCUMENTS AND SETTINGS\CWELLS1\HEARINGS\110-131 SCOM1 PsN: JIMC
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ogy which you laid out here for us in terms of how that impacts 

the low-income community now and into the long term? 

Mr. RAMSEY. Thank you, Mr. Chairman. On the adoption side, 

when you look at the statistics and you look at behavior, low-income individuals will adopt at the same rate as other individuals. 

The question is what applications are available and are we doing 

anything particularly on the literacy side, on the human capital 

side, helping individuals who might have some literacy or language 

barriers to be able to adapt to using the Internet. But in terms of 

the aspiration, the goals, it is there for everybody, and it is just as 

strong with that population. There isn’t any inherent inhibition to 

wanting to use broadband or the Internet in terms of that population. 

Mr. MARKEY. I thank the gentleman, and I thank him for his 

work in that area. 

To the gentleman from Florida, I have a bit of a problem right 

now. I have not made this roll call, so I have to run over to make 

the roll call, and is the gentlelady going to go over and make the 

roll call as well? OK. Well, then we won’t have a member and majority to chair. I was hoping that was the case. So we will again, 

we will take a brief 10-minute recess, and the first Democrat that 

arrives who has made the roll call, we will ask them to reconvene 

the hearing and recognize the gentleman from Florida, Mr. 

Stearns. We will take another brief recess. 

[Recess.] 

Mr. MARKEY. The Subcommittee on Telecommunications and the 

Internet is reconvened. We apologize again to our witnesses. Congressional efficiency is an oxymoron, like jumbo shrimp or Salt 

Lake City nightlife, there is no such thing, and so this delay is 

something that is unavoidable but a part of, an integral part of, our 

system. Let me turn and recognize the gentleman from Florida, Mr. 

Stearns. 

Mr. STEARNS. Thank you, Mr. Chairman. I don’t know if Utah is 

going to appreciate your comments, but before I start I want to— 

I didn’t hear Mr. Sullivan’s opening statement, but I did look 

through it during the break, and I just want to commend him for 

what he is doing for the prisoners and working with the facilities 

there to get the support so that prisoners can actually talk to their 

families. And I notice as he pointed out that Florida is number one 

in terms of providing support for the prisoners so they can speak 

to their families and also in some ways help their children through 

that connection. 

Mr. May, I am going to start out my question for you, which is, 

Mr. Barton and I are dropping a bill dealing with the universal 

service. As all the members know it is $7 billion a year, which most 

of the fraud, waste, and abuse that we have talked about is in the 

high-cost portion of that. The other portion is the low-cost as well 

as the rural healthcare and then the E-Rate, which Mr. Lucas has 

talked about. But if you would tell me just briefly why the Barton 

bill would—what it would do to solve this problem, and maybe that 

would help all of us. 

Mr. MAY. Thank you, Mr. Stearns, and in my written testimony 

I did point out some very good features concerning the Barton bill 

that I didn’t have a chance to address earlier. But basically the 

68 

Barton bill does these things which I think are very important in 

terms of actually furthering the principles that I talked about in 

our oral testimony. Number one, it caps the size of the funds, 

which is important to staunch the growth that everyone has talked 

about that has led to the 11 percent surtax that everyone pays 

now. 

Number two, the Barton bill relies on a competitive bidding 

mechanism to affect the distribution of funds over time and this 

competitive mechanism is frequently referred to as reverse auctions. They have been talked about now for several years. There 

have been studies on this type of mechanism, but what it would do, 

would be over time it should ratchet down the subsidies to these 

high-cost areas as providers of last resort. There would be one provider that would be awarded the subsidy under the reverse auction 

and because of the technology continuing to improve and so forth, 

competition, the subsidy should go down. And then finally, and this 

is important on the financing side, it adopts a broad-based type of 

approach, largely a numbers—an assessment on numbers, which is 

broader than the current regime, and that is a good thing as well. 

So it does those things, which are very important. 

Mr. STEARNS. You heard Mr. Lucas say he would recommend raising the $2.25 billion cap on the E-Rate program, extending it 

to provide free broadband for schools. Do you recommend that, yes 

or no, just yes or no? 

Mr. MAY. No. 

Mr. STEARNS. OK. 

Mr. MAY. There are no free lunches. 

Mr. STEARNS. All right. Mr. Lucas, as I pointed out or you pointed out, you want to provide free broadband to schools. Right now 

under the universal service and the E-Rate, some of the most 

wealthy communities in the country, for example, Greenwich, Connecticut, gets a subsidy of about $248 million a year, and in Berkeley Hills, their library gets $75 million a year. So this is being 

funded some of the most expensive libraries in the country, and 

perhaps they don’t need it. Do you think perhaps we could do this 

without raising the rate, perhaps just try to find some way in the 

E-Rate program to maybe find some efficiency here? 

Mr. LUCAS. Can I just say that when you meant thousand, not 

million. 

Mr. STEARNS. Yes, thousands, excuse me, thousands. I am sorry, 

$248,000 for Greenwich, Connecticut. 

Mr. LUCAS. OK. Thank you. 

Mr. STEARNS. $75,000 for Berkeley Hills, yes. 

Mr. LUCAS. What I am suggesting is as we move into the future 

most everything is going to end up wireless and as it ends up wireless you are going to be auctioning off bandwidth and as you auction this off all I am saying is why don’t you just hold some back 

for schools and libraries. It doesn’t cost you anything. You don’t 

have this cumbersome system of taking money and then giving it 

back. You simply say this is an area you can’t exploit and that is 

the price you pay to get this bandwidth or get these frequencies. 

Mr. STEARNS. Would you consider going into the high cost part 

of the Universal Fund where most of us all talk about. Not all of 

the members agree here as you could here but in the high cost porVerDate Nov 24 2008 12:16 Oct 21, 2010 Jkt 037690 PO 00000 Frm 00074 Fmt 6633 Sfmt 6633 C:\DOCUMENTS AND SETTINGS\CWELLS1\HEARINGS\110-131 SCOM1 PsN: JIMC
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tion do you think there is a possibility of eliminating waste and the 

fraud that is in that program and transferring it over to the E-Rate 

instead of using your language of raising the cap on the E-Rate 

program? 

Mr. LUCAS. Well, I mean raising the cap is a short-term solution. 

You are going to have to ask yourself again in all of these, I think 

we all agree that having this service is extremely important to our 

country. It is extremely important to the educational system. It is 

extremely important to the people that have been left behind and 

to bring them back into society. And arguing about who is going 

to pay and how it is going to work, that is basically the job of you 

guys to figure that out. 

Mr. STEARNS. All right. 

Mr. LUCAS. If I had an answer I would give you, I would say this 

is the way you can do this. The service is necessary. It needs a lot 

of really bright minds and clever people to figure out how to solve 

that problem. I am not advocating—I haven’t read the bill—but 

anything that works. I am a taxpayer too. I think that the cheaper 

you can do it, the better, but the service has to be provided. 

Mr. STEARNS. So, Mr. Chairman, I assume that Mr. Lucas is endorsing the Barton Bill today, is that what you hear? 

Mr. LUCAS. No, I am just saying yes, as a taxpayer I am saying 

do it the most inexpensive way possible. 

Mr. MARKEY. All right. 

Mr. LUCAS. Cut the waste, and as somebody that is advocating 

schools or whether it is prisons or whether it is the Internet or 

whether it is Internet access to the underserved, that has to happen somehow. So you have to figure out how to do that. 

Mr. MARKEY. All right. 

Mr. LUCAS. It is just like roads. Why don’t we just get rid of all 

the roads and replace it with the Internet because, we got gas problems, we got car problems, we got everything. Why don’t you just 

take all the money you spend on roads and spend it on the Internet? Because hey, 150 years ago that is what they would have 

done. They spent it on roads. 

Mr. STEARNS. Thank you, Mr. Chairman. 

Mr. MARKEY. The Chair recognizes the gentleman from Washington State, Mr. Inslee. 

Mr. INSLEE. Thank you. Mr. Sullivan, first I want to thank you. 

There is a certain governor who will be real proud of your testimony and confirm his belief you are the most compassionate guy 

in Washington, D.C., and I will report your comments to him. 

I want to ask just a question for the whole panel about a particular group that is seriously underserved, not for broadband but 

for any band. They don’t even have a phone connection, and that 

is our tribal community and many reservations, many of which are 

geographically isolated. And the numbers just blew me away when 

I saw them this morning. We have 98 percent coverage for the rest 

of Americans. For the original Americans we have just maybe twothirds just having a phone connection. We haven’t even gotten to 

that level yet. And I just wonder if any of you have any thoughts 

specifically about the best way to address that issue for that particular group of Americans or just having a little brainstorming 

session here for free advice. 

70 

Mr. RAMSEY. If I might, Rey Ramsey here, with One Economy we 

are working on several tribal lands in Oregon, the Warm Springs 

and Umatilla and several other tribal organizations. The issue is, 

I think, in order for it to be successful, and what I have seen in 

terms of success, it is making sure that programs address not only 

just saying, oh is it available? And it gets back to the three-part 

test that I mentioned earlier but that it is more comprehensive in 

scope. Some of the tribes I have seen have been ripped off by folks 

who have come in and said, we are going to put this wireless mesh 

over the reservation, but there is no adoption. There are no applications for people that are culturally appropriate. Folks want to 

have content in some cases that speaks to them. Some of it is language-based. Some of it is cultural-based. There has to be a focus 

on the human capacity side in terms of digital literacy, getting 

young people involved. So in Warm Springs we are working with 

them on getting the young folks involved and trained so that they 

can train elders. There is content that we are producing that is culturally appropriate and in some of the native languages, as well as 

deploying wireless to make it work just given the geographic expanse to many of the places. So we have written grants we have 

gotten and supported by foundations and other entities. So there 

are gaps in the way we look at tribal access, affordability and adoption. So I would say that it has to be more comprehensive then just 

saying here is the conduit or money for switching or things like 

that. That is not going to ultimately when you step back and say 

are we successful. You aren’t going to be successful if you are just 

putting money in narrow bands. 

Mr. INSLEE. Well, that brings up kind of a broader question, too. 

As we have gone forward, we have always focused just on 

connectivity, and if it doesn’t get used because someone can’t afford 

the machine to connect to it or for some other reason we are not 

doing. Does this whole thing need reevaluation between our investment in connectivity and our investment in what it takes to actually get people to utilize broadband services? Is there a whole new 

issue discussion we should be having in that regard? 

Mr. RAMSEY. If I just might and then I will stop. I would say that 

in terms of when we talk about digital divide, the definition now 

has changed. It would only be measured in the past in terms of do 

you have access or not. We now have a divide that deals with content. There is a content divide, which is the applications of technology. And I think we have to expand the way we are thinking 

about these divides, or the flip side the opportunity, and we have 

to look at the human capacity side. And I would just say one other 

thing in terms of ‘‘digital divide efforts’’ is that if you look at it in 

the United States, we have focused a lot on building centers, community centers, and E-Rate, which I support, which is a good program that still needs some tweaking but it is a very good program. 

But I would posit to you that the learning environment of the future extends beyond the school and that the learning environment 

is a full learning environment which includes the home. There is 

no place more powerful to bring technology then bringing it into 

the home. We have housing authorities in this country where we 

are building and subsidizing affordable housing, and we do nothing 

to make sure that connectivity goes to housing authorities. There 

71 

are 3,600 housing authorities in America, and I would say start 

there. 

Mr. INSLEE. I want to make sure Mr. May can get a comment 

here. 

Mr. MAY. Thank you very much. Two things, and I think Mr. 

Ramsey has illustrated these. Number one, on the question of 

availability, which was part of your original question in terms of 

the reservations or areas, again the important thing is where there 

are unserved areas, we need to do a much better job of targeting 

the subsidies narrowly if we are going to have subsidies. And you 

can do that through mechanisms that are being used now. Secondly, everything that Mr. Ramsey has said today, I appreciate it 

a lot, because he is emphasizing that the issue that we ought to 

be discussing is not just the availability of service, but also part of 

the focus should be on adoption and reasons why people don’t have 

broadband. Because the fact of the matter is there are a lot of pockets, but we have made extremely rapid progress in this Nation actually in dispersing the availability of broadband. And there are 

ways when you talk about people not having computers or some of 

the cultural things he is talking about, they are much harder to get 

at through throwing money at, I believe, and subsidies. 

Mr. INSLEE. Thank you. 

Mr. MARKEY. I thank the gentleman very much. The gentleman’s 

time has expired. The Chair recognizes the gentleman from Nebraska, Mr. Terry. 

Mr. TERRY. Thank you. I appreciate that, Mr. Chairman. Mr. 

May, have you also read the Terry-Boucher or Boucher-Terry bill, 

as well? 

Mr. MAY. Last year I know I did. It has been awhile. 

Mr. TERRY. Very good. You do remember that it had caps in it 

as well, capping it at its current state. 

Mr. MAY. That is good. 

Mr. TERRY. That is OK. I will remind you of that. That also in 

the side of the reform that we include phone numbers but we also 

put in IP addresses and other things that we just don’t imagine 

today may be the moniker of defining the communication, so we 

give that type of breadth that you complimented the other bill, so 

we share that. Also, in the Terry-Boucher bill you raise the issue 

of competitive bidding through reverse auctions to be more like the 

carrier of last resort. And in our bill we kind of worked through 

that issue and decided what we would do is just define that to be 

eligible for the funds that you have to walk like a duck and actually be a carrier of last resort, as opposed to just come in and picking off some of the bigger population areas. But keep in mind bigger population areas and the high-cost area may be 1,500 or 2,500 

people. So keeping that in mind, do you think that is an admirable 

goal that we keep it to the universal service funding whether 

through reverse auction or actual distribution of funds to people or 

to an entity that is a carrier of last resort? 

Mr. MAY. Yes, Mr. Terry, I think those are admirable goals, and 

I guess the only thing I would just emphasize again, and your bill 

goes a ways towards this in the ways that you suggested. But I 

think ultimately the competitive—the distribution method is important to achieve greater efficiency, and I would urge the use of a 

72 

mechanism like the reverse auction to make sure that we are continuing to ramp down the cost of these programs to take advantage 

of the lower cost from new technology. 

Mr. TERRY. Well, and one of the things that I would like to stress 

here, and we could get into this at the next hearing, and maybe 

you could be at that one as well, but the explosion in the high-cost 

fund is because now there are areas that one area of 2,500 people 

has three entities or more getting Universal Service funding, which 

to me defies the logic of its original intent. 

Now, with my last 2 minutes here I would like to start with Mr. 

May and go on down to Mr. Sullivan, if they think the other, probably the more controversial, item of the Boucher-Terry bill is that 

we say if you are going to get universal service monies that you 

should now in the 21st century combine plain old telephone service 

with broadband. We equate that today those are pretty much one 

and the same or equally as necessary in a 21st century. Do you 

think if we are going to subsidize either through the traditional 

means of universal service checks or through a reverse auction that 

you should also have to supply broadband? 

Mr. MAY. The preference would be to make a cleaner break with 

the existing regime in the past and recognizing the importance of 

broadband as I did in my testimony, and in recognizing that there 

may be a need for some subsidies, I would prefer actually to do it 

separately and have broadband funded through general appropriations. 

Mr. RAMSEY. Yes, I would add that I probably concur closely with 

Mr. May but with a heavy preference on more subsidy for 

broadband, recognizing there are pockets in terms of phone, particularly tribal lands and a few other rural places, which shouldn’t 

be ignored but much more preference for broadband-related subsidy. 

Mr. TERRY. Actually, I think your answer would probably agree 

with my statement more. 

Mr. RAMSEY. Yes, if we are going to spend a dollar on upgrading 

a system, it should also include broadband in it too, yes. 

Mr. TERRY. Mr. Lucas. 

Mr. LUCAS. Well, obviously broadband is essential now to schools 

and that is the sort of the key application that we have been pushing for the last 15 years, because once you get to be able to move 

video back and forth and to telecommute and that sort of thing 

with schools, it makes it a whole different ballgame. 

Mr. TERRY. Ms. Patterson. 

Ms. PATTERSON. I would make sure that we move more towards 

the broadband side and look at the technology to enable you to be 

able to get the plain old telephone service. I would also say that 

I think it is important for us to move forward to the 100 megabit 

nation, which is still below others, and the resolution in the House 

that is out there is very important between Markey, Doyle, and 

Eshoo. 

Mr. MARKEY. I thank you very much, and the gentleman’s time 

has expired. We now recognize the gentlelady from California, Ms. 

Harman. 

Ms. HARMAN. Thank you, Mr. Chairman. First, let me commend 

you for holding this hearing. We have held a lot of hearings in this 

73 

subcommittee. Some of them have landed you and me in the—to 

be quoted by comedians late at night—but others have been on topics very significant. This is probably up there in terms of the most 

significant topic we could address. And I want to quote something 

you said during the Telecom Act of 1996 debate in support of the 

E-Rate program. You said we must bring all kids along to the future. And I think the key is what we are talking about today. 

There is no question in my mind that if we don’t provide resources 

to schools and libraries, especially schools, to give our kids 21st 

century learning tools, those kids won’t come along to the future, 

and they will be left behind by kids in other countries whose 

schools and libraries will have those tools. We are behind already, 

and there are really no excuses for this country to be behind in this 

area. And so I want to salute everyone, every witness here, for the 

efforts you are all making to help us move faster, whether that be 

in terms of federal funding, charitable giving, pushing the private 

sector, all those efforts are going to be necessary so we don’t leave 

any child out of the future. 

I want to imagine what our schools will look like in 10 years if 

we do this right. My three grandchildren are 2, 6, and 5 months, 

and they are all geniuses, and I am sure that the grandchildren 

that are children of other members of this committee and of all of 

you are geniuses as well, or potential geniuses, and a lot of kids 

in a lot of inner city neighborhoods are, too. So I want to start with 

you, Mr. Lucas, you have imagined the future in many creative 

ways for many years, and you are passionate about this subject, 

and I think you are a father and possibly grandfather yourself. 

What could you imagine our schools will be capable of doing in 10 

years? 

Mr. LUCAS. The advantages of the Internet in the school system 

is just—completely it is going to revolutionize our educational system, because it can get information in the schools much faster and 

much cheaper, and it gives access to the students to unlimited 

amounts of information and training and tutoring. The issue really 

comes down now which is to help the schools. I know that is not 

the part of this committee’s worries, but the educational, part of 

the educational thing that has to happen here is the teachers need 

to be trained to use the technology, need to be trained to use the 

Internet. And that is a big facet of all of this, and it would be great 

if this committee and the education committee could work together 

to try to make sure that there are some kinds of programs put in 

place that if we do get broadband visibility in the schools that the 

teachers have the availability to learn how to use them. We have 

come a long way, and when I was here before, we had only 4 percent of the schools that were connected to the Internet, and now 

94 percent is connected to the Internet. Except according to the Department of Commerce, out of 55 industries, education is dead last 

in its use of technology. Now, education is the one that is training 

the people to work in these 55 industries, and unless students 

know how to use the Internet, and how to use the computers, and 

how to use the technology, and have access to information, and 

know how to use that information, they are not going to be viable 

for the industries that are the future. 

74 

Ms. HARMAN. Well, thank you. Let me ask other witnesses as 

well. I really was asking about the creative possibilities for students, and I would just observe regardless of the jurisdiction of this 

committee, which is quite broad, shame on us as parents and 

grandparents if as members of Congress we don’t do everything we 

can to make certain that every kid has the maximum opportunity 

to be creative and to be a constructive citizen of the world. Do others have comments on what the educational workplace could look 

like 10 years from now if we do our best not just with the E-Rate 

but with broadband deployment? 

Ms. PATTERSON. I would like to make a comment if I could. I 

think that 10 years from now if broadband is ubiquitous to the 

schools and to the students at home, whether they are wirelessly 

connected or whether they are connected through wires, that you 

will find that the schoolplace is not just in the school. It is a school 

without walls and that they are learning at night and on weekends. And I think yesterday Educause made a statement about a 

very small percentage of time of students today are actually spent 

inside the schools learning, and it is important to realize that students train the teachers today. The teachers are not trained to be 

able to work with the broadband, and it takes 5 years for a teacher 

to be trained and to use that technology to be able to do the kind 

of learning that Mr. Lucas speaks about. But I think it is important to note just for everyone here that the adoption in our State, 

it does not matter whether you are Indian, whether you are Latino, 

whether you are Caucasian, or whether you are African American 

in our State, if you have a computer in your home, and predominantly you will if you have students in schools. And that 89 percent 

of them are connected to the Internet. The issue you need to be 

concerned about is the ability of the folks to pay for this at home 

to be able to get access to that broadband, because they are learning at home at night and using it for all library searches, et cetera. 

Ms. HARMAN. Thank you, Mr. Chairman. My time has expired. 

I just would hope that 10 years from now there are a lot of little 

George Lucases running around who are as creative as you have 

been and have the tools in their schools, which I don’t think you 

did, to dream big. 

Thank you. I yield back. 

Mr. MARKEY. The gentlelady’s time has expired. The Chair now 

recognizes the gentlelady from Wyoming, Ms. Cubin. 

Ms. CUBIN. Thank you, Mr. Chairman. As I sit here I fully appreciate the testimony from the panel, but I have to tell you that I am 

very, very worried about the future of the Universal Service Fund. 

Wyoming is the smallest populated State in the Union, and it covers about 100,000 square miles. And some of the small companies 

in Wyoming serve three people per square mile. And I just wonder, 

especially you Mr. May, if you have any concept of this kind of situation when you are talking about a market forced to deal with this. 

But we will get back to that in just a minute. 

I want to give a few examples of what the Universal Service 

Fund has done in Wyoming. A small co-op in Wyoming has been 

able to offer fiber-to-the-home technology in Ten Sleep, Wyoming, 

and as a result of that there is a business that has been set up to 

teach English to people in South Korea. It employs 170 people. 

75 

Rural school districts—Ten Sleep, Wyoming, by the way, has a population of 304 people. Rural school districts in Dubois, Wyoming, 

a population of 983 people, and the Wind River Indian Reservation 

use the E-Rate program to ensure that students can connect to the 

University of Wyoming. These schools are located hundreds of 

miles away from the University. Cheyenne Medical Regional Center connects to drug treatment centers around the State, clinics 

around the State. And so those are wonderful things that the Universal Service Fund has done. 

But let me tell you what losing the universal service would do. 

There is a school in a town has a total enrollment in this school 

from grades 1 to 12 of 20 kids. And there is a really bright, bright 

boy in this school. He is a junior in high school. If you live in Casper or Cheyenne, you can take calculus when you are a junior or 

senior, but this boy can’t. And that happens all over the State of 

Wyoming all the time. 

And our small providers are very willing to talk about any kind 

of solution to reforming the Universal Service Fund, but I have to 

speak frankly here. Many of these small businesses, and also I, see 

dark clouds on the horizon, because I am afraid that this reform 

of the inefficiencies is a veiled attempt to eliminate the Universal 

Service Fund. And I think that has to be dealt with right up front. 

And if people are committed to it, they need to be committed to it. 

But you have to realize it is not just Wyoming where those situations exist. Every State in the Union has situations like some that 

I have described where there is absolutely no service. If you, a 

rancher and you need to get your cattle to market, you need service. If you work in the oil fields or the energy fields, you have to 

be able to get in touch with customers and train your employees. 

And it is just not possible without the Universal Service Fund. 

So, Mr. May, you noted in your testimony that The Free State 

Foundation understands that government has a role to play in 

helping ensure communications services are available to everyone. 

I appreciate that. However, you go on to say that in terms of 

broadband deployment, market forces should be relied upon. That 

paradox that you laid out accurately describes the kind of dilemma 

that rural members like me face with regard to the USF. I am in 

general a believer in free markets, more so then most members of 

Congress, I can tell you that. But I can take you to places in my 

State where market principles simply do not meet our connectivity 

goals. How does the free market solve these problems, and how 

should the government respond to these kind of conditions? 

Mr. MAY. Thank you, congresswoman. In my testimony, I am 

pretty sure what I said was that to the greatest extent possible 

that we should rely on market forces. And I believe that is important, because the market, free market, is bringing service to most 

places through new technologies that develop wireless, and there 

are even, there are satellite phones, and we can talk about those. 

But I went on to say beyond that, that I understand there are 

places, and Wyoming would be a good example, where if the market, the free market forces haven’t provided service to everywhere, 

that there may be a need for government subsidies. And I understand that. And then the important thing is that when you get to 

that point, you need to do it in a way that is different from the way 

76 

that the current Universal Service Fund works, because I talked 

about the principle of targeting the distributions narrowly and 

funding it broadly. And the current system is totally at odds with 

those principles. It turns them on its head. So you can find a way 

to serve those pockets that need to be served, getting money to 

them but doing it in a much more focused way that is more efficient and less costly. 

Mr. MARKEY. The gentlelady’s time has expired. 

Ms. CUBIN. Thank you, Mr. Chairman. I will submit further 

questions to the panel. 

Mr. MARKEY. And we would ask in writing that that question be 

answered back to the committee. The Chair recognizes the gentleman from Illinois, Mr. Shimkus. 

Mr. SHIMKUS. Thank you, Mr. Chairman. Thanks for the witnesses. Sorry that our schedule is such that we are coming and 

going and missing a lot of this. We appreciate you coming here. 

This is for the whole panel one after another. Is it your perspective that broadband today is as important to all Americans as telephone connectivity in the 1930s, when the USF was established? 

Mr. May, would you start? 

Mr. MAY. Yes, I think it is as important. Then the next question 

is what approaches do you take to make sure that it gets to as 

many Americans as possible on the least costly basis, because we 

all have to pay for these things, and that is the important question. 

Mr. SHIMKUS. And that is correct, and of course, from our side 

we understand that there is no free lunch for anything. Someone 

is going to have to bear the cost. Mr. Ramsey. 

Mr. RAMSEY. I would probably say, Mr. Congressman, that it is 

more important today. For example, you have a plethora of companies that will require that you apply for the job online. So if you 

don’t have that kind of access, you are out of luck for employment. 

And there are many other examples like that with E-government 

and other things the way we are moving, so it is more crucial. 

Mr. SHIMKUS. I think that is a good point. Mr. Lucas. 

Mr. LUCAS. Yes, I agree that, especially in terms of education, 

broadband is really the backbone of the new educational system. 

Mr. SHIMKUS. I have young kids, so it is amazing what they do 

on their research versus what we did grabbing the old encyclopedia. 

Mr. LUCAS. There is a generational thing. It is hard to sit here 

and have this discussion when there is a generation sitting there 

right now using broadband, using the Internet, using all of these 

things, and it is an integral part of their life. I mean absolutely 

crucial part of their life. 

Mr. SHIMKUS. Ms. Patterson. 

Ms. PATTERSON. Yes, and I would say that you just underscore 

what I hope everyone in the, on the panel will take as central to 

what I am saying is that economic development of this country, the 

creation of wealth in rural communities and the distressed areas 

of urban areas, it is critical to that. And I think we should remember that. It is critical to the education, but you have to have the 

creation of wealth in our country, and it is critical to that. 

Mr. SHIMKUS. And, Mr. Sullivan. 

77 

Mr. SULLIVAN. Well, let me say, Congressman, that of course we 

are concerned about the telephone issue with families of prisoners 

being able to communicate with their loved ones and vice versa, 

where prisoners can communicate with their children. There are 

only three ways that prisoners can communicate. That is through 

visiting, through letter writing, and through the telephone. And we 

have learned through the telephone the concern of course is security. And I think this is an area that maybe we would—the question came about the 10 years in the future—that we can begin to 

do this and hit the right note in regard to security where there 

would not be abuses. I think we could move in that direction. But, 

of course, what we are at now we are trying to do is, of course, the 

phone issue that I brought to the Committee’s attention today. 

Mr. SHIMKUS. Thank you. And I don’t want to make—I have 

been a johnny one-note on energy now for a long time, and I don’t 

want to turn this into an energy debate, Mr. Chairman, but with 

the escalating costs of gas and diesel fuel, especially in rural America, can’t you make the argument that you have to deploy 

broadband? I mentioned in my opening statement about telemedicine activities and driving multiple hours to get to specialists 

versus being able today. Isn’t that another critical piece for—in reality we open up OCS. We go to quota liquid. We do all this stuff. 

Demand is going up. Prices are not going to go down to the consumer any time soon, so we need to find new ways to get information to rural America. Is that a safe segue as far as the benefits 

of broadband? 

Ms. PATTERSON. There are many studies, Mr. Shimkus, I am 

sorry, that show that telemedicine brings tremendous efficiencies 

into the healthcare system, and for individuals it means that they 

have a greater ability to get more quality care when they can interact directly with specialists from wherever they are. And they save 

the money from driving the car to get to the specialist, and they 

save the money from their company having to pay somebody else 

to take their place while they are driving to the specialist. 

Mr. SHIMKUS. And we have with the veterans issue in going to 

VA hospital if they have retired in rural America and they have 

a VA hospital like John Cochran in Saint Louis or Marion in Marion, Illinois. Many are driving two hours to have access to that care 

that is owed them by the government because of their service. So 

those are important things, but I think broadband is a critical part 

of this whole debate. Mr. Chairman, I yield back. 

Mr. MARKEY. I thank the gentleman, and as the gentleman 

knows I am an anyone-note on energy issues, taking the opposite 

position of the johnny one-note. But on this issue, you and I agree. 

This is a—even a blind squirrel anyway. And so we should work 

together on this. 

The Chair recognizes now the gentleman from Oregon, Mr. Walden. 

Mr. WALDEN. I want to follow up where my colleague from Illinois left off in terms of getting broadband out into the rural areas. 

As I mentioned, my district is about 70,000 square miles, and so 

if you want to talk about rural, we got it. And that is a big challenge. And, Ms. Patterson, you mentioned telemedicine. I visited a 

hospital out in John Day a few years ago that had just been able 

78 

to hook up into broadband, and precisely what you outlined is the 

case. A gentleman who used to have to commute to Bend, and it 

was several hours drive, and if the roads were snowy and icy, 

which they frequently are from about oh, October until about oh, 

October he didn’t have to do that for whatever the procedure was. 

He could sit in the hospital there in John Day. They communicate 

over broadband with Saint Charles. And it would be a 20-minute 

visit in the hospital, but he would have to drive several hours each 

way to achieve that. And so it strikes me that when it comes to 

our healthcare, Mr. Lucas, when it comes to our education and, Mr. 

Ramsey, when it comes to reaching out into Native American 

tribes, it is all about getting this wire or wireless communication. 

And so I am curious, Mr. Ramsey, in terms of the work you are 

doing with the Umatilla and the Warm Springs, how much of this 

is an issue there is no wire to the house, versus other socioeconomic issues? And can we trump all of that as Mr. Lucas has 

indicated by going wireless, which being an old radio broadcaster, 

we were sort of there before it was popular to do the wireless thing. 

Mr. RAMSEY. Well, congressman, there is no question that wireless opens up a lot of possibilities, because you have always had 

the last mile issue. So when large rural areas, when you look at 

the promise of issues like WiMAX and what that might potentially 

do again, it opens up the opportunity to get people access. And we 

still have to make sure it is affordable. And then we still have to 

work on the application side of it so that we can make sure adoption occurs. In a lot of rural areas, one of the issues that comes up 

is the ability to age in place. And so technology gives you the ability to age in place, because it opens up opportunities. Intel is doing 

some amazing work around aging in place. You also have chronic 

disease management. 

Mr. WALDEN. Right. 

Mr. RAMSEY. And there are more opportunities being opened up 

by using that. So these are all crucial issues, urban and rural, but 

clearly greater opportunities to take advantage of this in rural 

areas. 

Mr. WALDEN. Mr. Lucas, in terms of the wireless future, can we 

just sort of leapfrog from where we are with USF and do you think 

go into the wireless future that is broadband and get your phone 

and your Internet or not? 

Mr. LUCAS. I work all over the world, and it is an interesting conundrum that in the United States in Wyoming we can’t get wireless. But I work in the middle of Africa, in the middle of nowhere, 

and I can get wireless. 

Mr. WALDEN. Right. 

Mr. LUCAS. I can get it in Eastern Europe, I can get wireless. I 

can get wireless almost any place in the world except in the United 

States. So something is not working, and that is what is important. 

Mr. WALDEN. And is that because we have the embedded cost 

structure with a wired system, and so you have sort of that cost 

everybody is trying to deal with where these other countries have 

leapfrogged to wireless? I woke up in the middle of the night, and 

I don’t know, some show on about, is it the panacea where they are 

doing all of the with cell phones in India and elsewhere doing all 

their banking now, texting. 

79 

Mr. LUCAS. Well, in a lot of schools in Africa, they are using little 

cell phones to do their schoolwork. They are using them as computers. And they are getting their information. 

Mr. WALDEN. From each other, no. 

Mr. LUCAS. From the Internet. 

Mr. WALDEN. Not during the test now. 

Mr. LUCAS. The thing about wireless is that ultimately there is 

lots of technology and lots of ways of acquiring that. Then you 

break it up into a lot of different issues, which is what kind of unit 

do you have at the end of the system. 

Mr. WALDEN. Right. 

Mr. LUCAS. And you can have a wide range of those. Some that 

are extremely inexpensive and you can give away. And some of 

them which are more complicated that cost money. And you also 

have local Internet wireless, and you have satellite wireless. So 

there is—it is much easier then actually running a wire someplace, 

which is a guy on a pole, which is a lot of work. 

Mr. WALDEN. Yes, and one of the places I mentioned earlier in 

Wheeler County is going to get its first cell service. The guy who 

used to run the electric co-op was on the board, told me that one 

person for every 9 miles of powerline. And so when you think about 

that and in terms of the telecommunications strategy, Ms. Patterson, you were sort of shaking your head about this leapfrog concept. 

Ms. PATTERSON. I think that far be it for me to disagree with Mr. 

Lucas, but I do feel that from my past experience in technology 

that wireless is appropriate. All technologies are appropriate. Wireless is very possible to be in Africa in many different small spaces. 

But ultimately you have to have a fiber connection. You don’t have 

today the capability of wireless to carry the same bandwidth that 

the fiber carries. Nor does it have the capability to survive a lot 

of the weather conditions that you have with wireless, so I think 

you are going to have all technologies. And I would hate for the 

panel to begin to think that it is just going to be totally wireless, 

because fiber plays a very important part in this. 

Mr. MARKEY. The gentleman’s time has expired. 

Mr. WALDEN. Thank you. 

Mr. MARKEY. Let me just note right now that Mr. Pickering, if 

no one else arrives, will be our final questioner. Then what I am 

going to do is ask each one of you to give us our final 1-minute 

summation that you want the subcommittee to remember as we go 

forward, and then we will adjourn the hearing. So the Chair recognizes the gentleman from Mississippi, Mr. Pickering. 

Mr. PICKERING. Mr. Chairman, thank you, and I appreciate you 

having this very important hearing. I would like to put a few 

things in context. In 1934, our policy was universal and monopoly. 

In 1996, our policy changed to universal but competitive. Under the 

premise that there is only one thing worse then subsidizing, I mean 

there is only one thing worse then subsidizing competition, and 

that is subsidizing monopoly, that with competition you give choice 

in investment, innovation into all markets. And so what I am concerned, Mr. May, with reverse auctions, could reverse auctions take 

us back to subsidizing monopoly and simply locking in in a lot of 

markets, rural markets, one provider so that there is no choice in 

80 

rural America? What is your belief if we went to reverse auctions? 

What would be the outcome in those types of markets, would we 

have competition or not? 

Mr. MAY. Well, I would only recommend, and I have recommended, that you do reverse auctions and that you provide subsidies in unserved areas. So we are talking about areas that are 

by definition presently unserved. I think the reverse auction is the 

way of identifying the least costly way to serve that area. It doesn’t 

preclude others from coming in on top of the provider of last resort 

if they can provide a competitive service. And as part of the reverse 

auction mechanism, periodically over some period of time you rebid and so if you have a lower bidder. But keep in mind that you 

are talking about areas in which you are assuming that there is 

no one who has come in to provide service. That is the way I think 

of using it. 

Mr. PICKERING. But then there is no place in the country where 

we don’t have service, because remember we are universal. So 

every market there is someone who is being subsidized. Now, right 

now we are subsidizing competition, both the incumbent wireline, 

new interest in wireless and independent wireless, if they come 

into a market they can receive those subsidies. And so we have 

multiple providers receiving subsidies but, and this is where I 

think it would be a better policy. Instead of going to reverse auction where the incumbents or the large companies, AT&T or others, 

would simply be able to underbid and low bid to eliminate competition, I think it would be better and based on right now it is on 

identical support, which is on the least efficient technology, the 

wireline cost. Should we move to a transition where we allow competition to continue but is based on the most efficient technology 

or the lowest cost technology over time, and that would be primarily wireless, would that be a better type of reform? Going to a 

declining cost, most efficient technology, but maintaining competition? 

Mr. MAY. The problem I have with the way you stated it, Mr. 

Pickering, is, and it is somewhat of the same mind when I was 

thinking about Mr. Lucas, I don’t think it is useful or ultimately 

productive to identify, think that you can identify for policymakers 

in advance what the least cost technology over time will be. That 

is counter to the whole history of telecommunications. 

Mr. PICKERING. Well, let me say this, Mr. May. I agree with you. 

It should be technology neutral, but I do think that it is fairly obvious that wireless is a more efficient technology. Now, I agree with 

Ms. Patterson that today wireless does not have the robustness, the 

reliability, the capacity as fiber. But we have just done the 700 

auction, and we are about to see 4G wireless, broadband wireless 

and over the next 10 years, wireless will be as robust, reliable and 

have the broadband capabilities that today wireline has, but it will 

be lower cost. And it can reach into geographic areas in smaller 

markets more efficiently and at a lower cost. I think what our policy should be, Mr. Chairman, is to look over a 10 year transition. 

How do we incentivize broadband? How do we get to the least cost, 

which is probably wireless, and how do we maintain competition? 

I don’t think that two providers, a duopoly or a monopoly, is what 

our government’s policy should be, and we should try to find the 

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incentives to get us there in education, telemedicine, and in competition. Mr. Chairman, with that, I yield back. 

Mr. MARKEY. Great, the gentleman yields back, and without objection I move to enter into the record the following, the testimony 

for this hearing by the National Tribal Telecommunications Association including their comments, in the FCC’s ongoing proceeding, 

and a statement by Willard Nichols, President of the American 

Public Communications Council. 

Now, we are going to recognize each of you for 1 minute. Tell us 

what you want us to know as we go forward looking at reforming 

the Universal Service Fund. What should our goals be? We will 

begin with you, Mr. May. 

Mr. MAY. Thank you, Mr. Markey, and thanks for holding the 

hearing. I think it is very important to focus on the future of universal service, and I think this has been a useful discussion. 

I think there is significant agreement that with respect to 

narrowband service, the original goals of universal service have 

been largely achieved, and that is why the focus has been on 

broadband today. I just want to reiterate that as we examine that 

issue, the basic principles that should guide us are really important. 

Number one, market forces should be relied on to the greatest 

extent possible in order to avoid the cost that we incur when we 

provide subsidies. In places where market forces aren’t going to 

provide service or haven’t provided service, then subsidies may be 

appropriate. And in distributing those subsidies, it is important 

that they be targeted as narrowly as possible to achieve the objective. And it is important the financing system for those subsidies 

be as broad as possible. And I would say that actually the subsidies 

should be financed through the general treasury if this is an important national goal, the promotion of broadband. But those principles are in my view very important to keep in mind as you think 

about how to get broadband dispersed to the country as widely as 

we want it to be without market forces. 

Mr. MARKEY. Thank you, Mr. May, very much. Mr. Ramsey. 

Mr. RAMSEY. Mr. Chairman and committee, the key principle for 

me is that as we live in the 21st century, to reform the universal 

service to think not only in terms of supply but also demand. As 

I mentioned earlier, to not only look at the issue of access, but to 

make sure we are looking at affordability, as well as the applications, the adoption of that technology. And as we are thinking 

about education, to think about an expanded 21st century-learning 

environment that is both the school, the home, as well as the community. And one very specific issue is again to think about, as we 

expand opportunities potentially for digital technology in thinking 

about the home, let us think about low-income people who live in 

public housing in every community in this country. We could do 

something very targeted, very focused, much like how we focused 

on schools, we could do that in housing for the poorest of the poor 

and really bring digital opportunity to every single person. 

Mr. MARKEY. I would like to work with you on that, Mr. Ramsey, 

as we are going forward. I think it is a very important problem. 

Mr. Lucas. 

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Mr. LUCAS. I think I want to move to Mississippi, because he 

seems to have the right idea about things. 

But it is extremely important to bring wireless and broadband 

into the schools as well as the rest of our country. What we are arguing here is to invest in the printing press. Abraham Lincoln 

couldn’t read his books by the fire if we didn’t have the printing 

press in rural Illinois. And at the same time we are also thinking 

about financing federal roads so that people that are lost out in the 

wilderness, people who need to get their products from market to 

homes and that sort of thing, have a way of doing it. That is what 

this is. This is the transportation system of the future. This is the 

printing press of the future. And our schools won’t be able to exist 

without it. 

Mr. MARKEY. Thank you, Mr. Lucas, very much. Ms. Patterson. 

Ms. PATTERSON. Well, I would like to say that Abraham Lincoln 

probably could not have won the Civil War without the telegraph, 

so I would point out that technology is very important. We need to 

have a national commitment to broadband and as House members 

should, in fact, I think, support that. Secondly, we should revamp 

the Universal Service Fund and move it towards broadband. Third, 

it should be a partnership between State, Federal, and local government. And fourth, we should invite everyone to participate. The 

private sector should lead if at all possible, but if not, we should 

really provide the subsidies to bring about universal broadband. 

Mr. MARKEY. Thank you, Ms. Patterson. We will just wait 10 seconds. Yes, you are recognized, Mr. Sullivan. 

Mr. SULLIVAN. Mr. Chairman, phone communication is the most 

important means of keeping people in prison together with their 

families and not recidivating. Our progress on reducing these high 

costs of these phone calls has been made in regard to intrastate 

calls but not in regard to interstate calls. I wanted to share with 

Mr. Terry, and maybe his staff is here, that Nebraska did a very 

good thing a few years ago. Because of the pro-family policy, they 

cut out the commissions that they were receiving from the phone 

company. Even though Florida has the best system right now, Nebraska is very close. And so it can be done. Passage of H.R. 555 

by Congressman Bobby Rush of this committee would go a long 

way to reducing the high cost of these interstate phone calls. 555 

is basically a resolution. It does not tie the hands of the FCC. It 

just encourages them to do something about the exorbitant rates 

that families are being charged to communicate with their loved 

ones. 

Mr. MARKEY. Thank you, Mr. Sullivan, for your testimony. We 

thank each of you. 

We can look back now at the 1996 Telecommunications Act and 

we can see that on the day that it passed, only 4 percent of schools 

had access to the Internet, and now 94 percent of schools have access. So that is a success. But as we analyze it today, we can see 

that there are problems with the rising of rural rates, that there 

are problems in the rural healthcare communications program, 

that there are 11 percent now fees on telephone calls. But at the 

same time, we can see this rapid pace of technological change as 

well, and we have to make sure that the poorest children are kept 

up to speed. You can’t support NAFTA and GATT the way I did 

83 

speeding up the economy and not simultaneously speed up the rate 

at which the young people in our country gain access to the skill 

sets for these new jobs, or else we will be continually besieged by 

high tech firms begging us to have more H1B visas that we can 

bring people in from around the world who are being given these 

skills. As Mr. Lucas says, we put our own young people at a disadvantage if we don’t give them access to those skill sets. 

So in many respects what we did in 1996 seems like a galaxy far, 

far away in terms of these modern technologies. And it is our responsibility to focus not only on that but on the future and what 

we have to do while we are protecting ratepayers, making sure it 

is more efficient, but also making sure that we make our country 

a brighter, more prosperous place not just for the well-to-do but for 

everyone. We owe that to all of the young people in our country, 

and your testimony today helps us to focus upon that objective. 

With that and the thanks of this committee, this hearing is adjourned. 

[Whereupon, at 12:20 p.m., the subcommittee was adjourned.] 

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