THE DIGITAL FUTURE OF

THE UNITED STATES

HEARINGS

BEFORE THE

SUBCOMMITTEE ON TELECOMMUNICATIONS AND

THE INTERNET

OF THE

COMMITTEE ON ENERGY AND

COMMERCE

HOUSE OF REPRESENTATIVES

ONE HUNDRED TENTH CONGRESS

FIRST SESSION

MARCH 1, 7, APRIL 19, 24,

MAY 10, OCTOBER 2, 2007

Serial No. 110–10

(

Printed for the use of the Committee on Energy and Commerce

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39–604 PDF 2007

THE DIGITAL FUTURE OF

THE UNITED STATES

HEARINGS

BEFORE THE

SUBCOMMITTEE ON TELECOMMUNICATIONS AND

THE INTERNET

OF THE

COMMITTEE ON ENERGY AND

COMMERCE

HOUSE OF REPRESENTATIVES

ONE HUNDRED TENTH CONGRESS

FIRST SESSION

MARCH 1, 7, APRIL 19, 24,

MAY 10, OCTOBER 2, 2007

Serial No. 110–10

(

Printed for the use of the Committee on Energy and Commerce

energycommerce.house.gov

THE DIGITAL FUTURE OF THE UNITED STATES

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

ALBERT R. WYNN, Maryland

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

BARON P. HILL, Indiana

JOE BARTON, Texas

Ranking Member

RALPH M. HALL, Texas

J. DENNIS HASTERT, Illinois

FRED UPTON, Michigan

CLIFF STEARNS, Florida

NATHAN DEAL, Georgia

ED WHITFIELD, Kentucky

BARBARA CUBIN, Wyoming

JOHN SHIMKUS, Illinois

HEATHER WILSON, New Mexico

JOHN B. SHADEGG, Arizona

CHARLES W. ‘‘CHIP’’ PICKERING,

Mississippi

VITO FOSSELLA, New York

STEVE BUYER, Indiana

GEORGE RADANOVICH, California

JOSEPH R. PITTS, Pennsylvania

MARY BONO, 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

BUD ALBRIGHT, Minority Staff Director

(II)

(III)

SUBCOMMITTEE ON TELECOMMUNICATIONS AND THE INTERNET

EDWARD J. MARKEY, Massachusetts, Chairman

MIKE DOYLE, Pennsylvania

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)

FRED UPTON, Michigan

Ranking Minority Member

J. DENNIS HASTERT, Illinois

CLIFF STEARNS, Florida

NATHAN DEAL, Georgia

BARBARA CUBIN, Wyoming

JOHN SHIMKUS, Illinois

HEATHER WILSON, New Mexico

CHARLES W. ‘‘CHIP’’ PICKERING,

Mississippi

VITO FOSELLA, New York

GEORGE RADANOVICH, California

MARY BONO, 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

MARCH 1, 2007—THE FUTURE OF THE WORLD WIDE WEB

Page

Barton, Hon. Joe, a Representative in Congress from the State of Texas,

opening statement ................................................................................................ 4

Prepared statement .......................................................................................... 4

Dingell, Hon. John D., a Representative in Congress from the State of Michigan, opening statement ....................................................................................... 5

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

of Pennsylvania, opening statement ................................................................... 6

Eshoo, Hon. Anna G., a Representative in Congress from the State of California, opening statement ........................................................................................ 3

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

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

Harman, Hon. Jane, a Representative in Congress from the State of California, opening statement ........................................................................................ 7

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

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

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

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

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

Towns, Hon. Edolphus, a Representative in Congress from the State of New

York, prepared statement .................................................................................... 9

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

opening statement ................................................................................................ 2

WITNESS

Berners-Lee, Timothy, Massachusetts Institute of Technology, Cambridge,

MA ......................................................................................................................... 10

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

MARCH 7, 2007—THE FUTURE OF RADIO

Barton, Hon. Joe, a Representative in Congress from the State of Texas,

opening statement ................................................................................................ 48

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

of Virginia, opening statement ............................................................................ 59

Deal, Hon. Nathan, a Representative in Congress from the State of Georgia,

opening statement ................................................................................................ 58

Dingell, Hon. John D., a Representative in Congress from the State of Michigan, opening statement ....................................................................................... 46

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

of Pennsylvania, opening statement ................................................................... 49

Engel, Hon. Eliot L., a Representative in Congress from the State of New

York, opening statement ...................................................................................... 60

Eshoo, Hon. Anna G., a Representative in Congress from the State of California, opening statement ........................................................................................ 52

Ferguson, Hon. Mike, a Representative in Congress from the State of New

Jersey, opening statement ................................................................................... 57

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

opening statement ................................................................................................ 53

Harman, Hon. Jane, a Representative in Congress from the State of California, opening statement ........................................................................................ 50

Page

VI

Markey, Hon. Edward J., a Representative in Congress from the Commonwealth of Massachusetts, opening statement .................................................... 43

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

opening statement ................................................................................................ 50

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

opening statement ................................................................................................ 55

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

opening statement ................................................................................................ 55

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

opening statement ................................................................................................ 53

Towns, Hon. Edolphus, a Representative in Congress from the State of New

York, opening statement ...................................................................................... 58

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

opening statement ................................................................................................ 44

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

opening statement ................................................................................................ 51

WITNESSES

Blackwell, Geoffrey C., director, Strategic Relations and Minority Business

Development, Chickasaw Nation Industries, Inc., on behalf of Native Public

Media and the National Federation of Community Broadcasters ................... 61

Prepared statement .......................................................................................... 93

Karmazin, Mel, chief executive officer, Sirius Satellite Radio Incorporated,

New York, NY ...................................................................................................... 66

Prepared statement .......................................................................................... 127

Kimball, Robert, senior vice president, Legal and Business Affairs,

RealNetworks, Inc. Seattle, WA .......................................................................... 65

Prepared statement .......................................................................................... 137

Kimmelman, Gene, vice president, Federal and International Affairs, Consumers Union, Washington, DC .......................................................................... 68

Prepared statement .......................................................................................... 153

Smyth, Peter H., president and chief executive officer, Greater Media, Inc.,

Braintree, MA ....................................................................................................... 63

Prepared statement .......................................................................................... 102

SUBMITTED MATERIAL

Taylor, Loris Ann, executive director, Native Public Media, letter of March

30, 2007 to Mr. Markey ....................................................................................... 173

APRIL 19, 2007—SPECTRUM OPPORTUNITIES AND THE FUTURE OF

WIRELESS

Capps, Hon. Lois Capps, a Representative in Congress from the State of

California, prepared statement ........................................................................... 211

Dingell, Hon. John D., a Representative in Congress from the State of Michigan, opening statement ....................................................................................... 207

Eshoo, Hon. Anna G., a Representative in Congress from the State of California, opening statement ........................................................................................ 204

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

opening statement ................................................................................................ 209

Harman, Hon. Jane, a Representative in Congress from the State of California, opening statement ........................................................................................ 202

Markey, Hon. Edward J., a Representative in Congress from the Commonwealth of Massachusetts, opening statement .................................................... 199

Pickering, Hon. Charles W. ‘‘Chip’’, a Representative in Congress from the

State of Mississippi, opening statement ............................................................. 203

Solis, Hon. Hilda L., a Representative in Congress from the State of California, opening statement ........................................................................................ 208

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

opening statement ................................................................................................ 206

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

opening statement ................................................................................................ 205

Towns, Hon. Edolphus, a Representative in Congress from the State of New

York, opening statement ...................................................................................... 211

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

opening statement ................................................................................................ 201

Page

VII

WITNESSES

Gallagher, Michael, partner, Perkins Coie, LLP, Washington, DC ..................... 221

Prepared statement .......................................................................................... 321

Meena, Victor H., president, CellularSouth, Incorporated, Jackson, MS ........... 216

Prepared statement .......................................................................................... 331

Muleta, John, chief executive officer, M2Z Networks, Arlington, VA ................. 212

Prepared statement .......................................................................................... 290

Obuchowski, Janice, chairman, Frontline Wireless, LLC, Washington, DC ...... 219

Prepared statement .......................................................................................... 245

Spencer, Shelley, president, Wirefree Partners, LLC, Laytonsville, MD ............ 214

Prepared statement .......................................................................................... 264

West, Barry, chief technology officer, Sprint Nextel Corporation, Herndon,

VA .......................................................................................................................... 218

Prepared statement .......................................................................................... 275

APRIL 24, 2007—BROADBAND LESSONS FROM ABROAD

Barton, Hon. Joe, a Representative in Congress from the State of Texas,

opening statement ................................................................................................ 348

Capps, Hon. Lois, a Representative in Congress from the State of California,

prepared statement .............................................................................................. 355

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

of Pennsylvania, opening statement ................................................................... 351

Engel, Hon. Eliot L., a Representative in Congress from the State of New

York, opening statement ...................................................................................... 356

Eshoo, Hon. Anna G., a Representative in Congress from the State of California, opening statement ........................................................................................ 347

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

opening statement ................................................................................................ 354

Harman, Hon. Jane, a Representative in Congress from the State of California, opening statement ........................................................................................ 346

Markey, Hon. Edward J., a Representative in Congress from the Commonwealth of Massachusetts, opening statement .................................................... 343

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

opening statement ................................................................................................ 352

Solis, Hon. Hilda, a Representative in Congress from the State of California,

opening statement ................................................................................................ 349

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

opening statement ................................................................................................ 353

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

opening statement ................................................................................................ 350

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

opening statement ................................................................................................ 345

WITNESSES

Ford, George, chief economist, Phoenix Center for Advanced Legal and Economic Public Policy Studies, Washington, DC ................................................... 364

Prepared statement .......................................................................................... 387

Hashimoto, Shin, executive vice president, Nippon Telegraph and Telephone

Corporation, Tokyo, Japan .................................................................................. 361

Prepared statement .......................................................................................... 442

Richards, Ed, chief executive officer, OFCOM, London, United Kingdom .......... 358

Prepared statement .......................................................................................... 424

Swain, Hon. Paul, MP, Parliament of New Zealand, Wellington, New Zealand 357

Prepared statement .......................................................................................... 434

Wyler, Gregory, director, Rwandatel, S.A., Manchester, MA .............................. 362

Prepared statement .......................................................................................... 418

SUBMITTED MATERIAL

McSlarrow, Kyle, National Cable & Telecommunications Association, letter

of April 23, 2007 ................................................................................................... 449

‘‘U.S. Falling Behind in Broadband Penetration’’ by Chloe Albanesious, PC

Magazine, submitted by Ms. Eshoo .................................................................... 453

Page

VIII

MAY 10, 2007—THE FUTURE OF VIDEO

Barton, Hon. Joe, a Representative in Congress from the State of Texas,

prepared statement .............................................................................................. 462

Blackburn, Hon. Marsha, a Representative in Congress from the State of

Tennessee, prepared statement .......................................................................... 465

Bono, Hon. Mary, a Representative in Congress from the State of California,

prepared statement .............................................................................................. 464

Capps, Hon. Lois Capps, a Representative in Congress from the State of

California, prepared statement ........................................................................... 461

Cubin, Hon. Barbara, a Representative in Congress from the State of Wyoming, prepared statement ................................................................................... 463

Deal, Hon. Nathan, a Representative in Congress from the State of Georgia,

prepared statement .............................................................................................. 463

Dingell, Hon. John D., a Representative in Congress from the State of Michigan, opening statement ....................................................................................... 459

Eshoo, Hon. Anna G., a Representative in Congress from the State of California, opening statement ........................................................................................ 457

Ferguson, Hon. Mike, a Representative in Congress from the State of New

Jersey, opening statement ................................................................................... 459

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

opening statement ................................................................................................ 460

Hastert, Hon. J. Dennis, a Representative in Congress from the State of

Illinois, prepared statement ................................................................................ 462

Markey, Hon. Edward J., a Representative in Congress from the Commonwealth of Massachusetts, opening statement .................................................... 455

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

opening statement ................................................................................................ 456

WITNESSES

Cuban, Mark, chairman and president, HDNET, Dallas, TX .............................. 466

Prepared statement .......................................................................................... 519

Hurley, Chad, chief executive officer, YouTube, San Bruno, CA ......................... 479

Prepared statement .......................................................................................... 507

Answers to submitted questions ...................................................................... 568

Krikorian, Blake, chairman and chief executive officer, Sling Media Incorporated, Foster City, CA ...................................................................................... 469

Prepared statement .......................................................................................... 560

Lombardi, Gina, president, MediaFLO USA, Incorporated, San Diego, CA ....... 473

Prepared statement .......................................................................................... 531

Answers to submitted questions ...................................................................... 593

Pyne, Benjamin, president, Disney and ESPN Networks, affiliate sales and

marketing, New York, NY ................................................................................... 474

Prepared statement .......................................................................................... 523

Rogers, Thomas S., president and chief executive officer, TiVO, Incorporated,

Alviso, CA ............................................................................................................. 476

Prepared statement .......................................................................................... 542

Rosenthal, Philip, Writers Guild of America West and the Screen Actors

Guild, Los Angeles, Ca ........................................................................................ 471

Prepared statement .......................................................................................... 551

Answers to submitted questions ...................................................................... 589

SUBMITTED MATERIAL

National Association of Broadcasters, statement .................................................. 600

OCTOBER 2, 2007—THE FUTURE OF TELECOMMUNICATIONS

COMPETITION

Blackburn, Hon. Marsha, a Representative in Congress from the State of

Tennessee, opening statement ............................................................................ 613

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

of Virginia, opening statement ............................................................................ 608

Capps, Hon. Lois, a Representative in Congress from the State of California,

prepared statement .............................................................................................. 615

Deal, Hon. Nathan, a Representative in Congress from the State of Georgia,

opening statement ................................................................................................ 607

Page

IX

Dingell, Hon. John D., a Representative in Congress from the State of Michigan, prepared statement ...................................................................................... 633

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

of Pennsylvania, opening statement ................................................................... 606

Eshoo, Hon. Anna G., a Representative in Congress from the State of California, opening statement ........................................................................................ 610

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

opening statement ................................................................................................ 612

Markey, Hon. Edward J., a Representative in Congress from the Commonwealth of Massachusetts, opening statement .................................................... 603

Pallone, Hon. Frank Jr., a Representative in Congress from the State of

New Jersey, opening statement .......................................................................... 609

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

opening statement ................................................................................................ 611

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

prepared statement .............................................................................................. 614

Towns, Hon. Edolphus, a Representative in Congress from the State of New

York, opening statement ...................................................................................... 613

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

opening statement ................................................................................................ 605

WITNESSES

Casto, Parley, assistant vice president, AT&T Business Marketing, AT&T

Operations, Hoffman Estates, IL ........................................................................ 615

Prepared statement .......................................................................................... 659

Cheek, William E., president, Wholesale Markets, Embarq, Overland Park,

KS .......................................................................................................................... 623

Prepared statement .......................................................................................... 710

Evans, Brad, chairman, Cavalier Telephone, Richmond, VA .............................. 625

Prepared statement .......................................................................................... 719

Forsee, Gary D., chairman, chief executive officer, and president, Sprint

Nextel Corporation, Reston, VA .......................................................................... 621

Prepared statement .......................................................................................... 694

Herda, Larissa, president and chief executive officer, Time Warner Telecom ... 617

Prepared statement .......................................................................................... 672

Rosenbalm, Wes, president and chief executive officer, Bristol Virginia Utilities, Bristol, VA .................................................................................................... 627

Prepared statement .......................................................................................... 734

Tauke, Hon. Tom, executive vice president, Verizon, Washington, DC .............. 619

Prepared statement .......................................................................................... 681

SUBMITTED MATERIAL

Cohen, Larry, president, Communications Workers of America, letter of September 26, 2007 to Kevin Martin ....................................................................... 744

Murray, Chris, senior counsel, Consumers Union, letter of October 1, 2007

to Chairman Dingell ............................................................................................ 746

(1)

THE DIGITAL FUTURE OF THE UNITED

STATES

THE FUTURE OF THE WORLD WIDE WEB

THURSDAY, MARCH 1, 2007

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON TELECOMMUNICATIONS

AND THE INTERNET,

COMMITTEE ON ENERGY AND COMMERCE,

Washington, DC.

The subcommittee met, pursuant to other business, at 10:41

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

Members present: Representatives Doyle, Harman, Hill, Eshoo,

Green, Capps, Dingell, Upton, Hastert, Stearns, Pickering,

Fossella, Bono, Walden, and Barton.

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

OF MASSACUSETTS

Mr. MARKEY. The subcommittee will come to order. I will give everybody a couple of seconds here to get settled in.

Twelve years ago when my chairmanship of this subcommittee

was rudely interrupted, I think it is important for us to look at the

digital future of the United States. And this series of oversight

hearings focuses on the different segments of the telecommunications marketplace and public policy. As we proceed, we will have

hearings on voice, video, data markets, competition, innovation, localism, diversity, and universal service.

My goal is that this series of educational hearings brings to the

subcommittee the information and insight we will need to make

sound policy judgments in the months ahead. This morning’s hearing focuses upon the future of the World Wide Web. The World

Wide Web has become indispensable to companies large and small,

and regardless of whether their commercial aspirations are locally

oriented or are of global proportions, it has become a resource that

the Government depends upon and that nurtures communities,

both real and virtual, around the planet.

The Web has grown into a communications medium unto itself

where citizens can communicate and entrepreneurs can innovate.

The Web is evolving from its initial publishing model existence into

a more interactive, sophisticated medium, and observers have

begun to talk about Web 2.0 and Web 3.0 applications and services.

The Web is a precious commodity, and today we have a chance not

2

only to better understand its current nature but to glimpse into its

future. Because of its importance to our national economic security,

to global communications, free speech, and to myriad applications

addressing health care, educational and cultural and civic themes,

I believe it is vital for us to understand what we can do as policymakers to safeguard the Web’s special role and to foster its further

growth and innovation.

In 1999, Time magazine published a list of the 100 greatest people of the 20th century. In the category of most influential scientists and thinkers the list included Einstein, the Wright brothers, Dr. Jonas Salk, Sigmund Freud, Rachel Carson, Enrico Fermi,

Alexander Fleming, but it included in that rarified list our guest

witness this morning, Sir Timothy Berners-Lee. After all, who better to inform us about how we should approach the task of understanding the World Wide Web and its future than its inventor.

We are delighted that he has agreed to be with us this morning,

and I think that it is a good way of kicking off this next 2 years

of the Telecommunications and Internet Subcommittee. I would

like to now turn to recognize the ranking member of the subcommittee, a man with whom I have worked for years in partnership in a bipartisan fashion seeking to frame these issues in a way

that reflects the essential non-partisan way in which technology

issues should be viewed, my good friend, 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. It is a pleasure to

be here. I appreciate you convening today’s hearing. We have had

a unique and wonderful opportunity to have an in-depth, philosophical discussion on the future of the World Wide Web, and I

would just note as you lament your 12 years in minority, but in

Never Never Land perhaps, it has been a pretty productive 12

years in terms of advancement in the technology field, probably not

12 years that we have seen ever in the history of mankind so we

look forward to that continuing and certainly seriously our very

good relationship on a whole host of issues.

There is no question that the Web with great thanks to Mr.

Berners-Lee has indeed transformed our daily lives. Technologies

that were not even dreamed of several years ago are now standard,

and who knows what the future will hold. And I look forward to

that perspective as we listen to your testimony and engage in questions. I also look forward to having a candid discussion on how we

can better protect our citizens, what steps can policymakers and industry folks take to further protect our identities, what can be done

to stifle the explosion of child Internet sex predators. While the

Web had revolutionized the everyday world it has also opened up

a new world of criminals abound. From petty thieves to pedophiles,

a broad range of criminals now have the ability to prowl the Internet in a virtual cloak of anonymity.

And with a continuing abundance of cyber criminals, we must

ensure that the World Wide Web continues to stand for exactly

that, not the wild, wild west. We also must ensure that as we continue to foster an environment of economic growth and technoVerDate 11-SEP-98 10:59 May 06, 2008 Jkt 000000 PO 00000 Frm 00013 Fmt 6633 Sfmt 6633 Q:\DOCS\110-10 SCOM1 PsN: SCOM1
3

logical advancement, we need to ask the question who knows what

tomorrow’s Web will bring, but I am hopeful that this morning’s

discussion might be able to shed a little light on what the future

might hold. I appreciate you coming all this way to share your

thoughts and experiences, and I yield back my time.

Mr. MARKEY. Thank the gentleman. The gentlelady from Silicon

Valley, Ms. Eshoo.

OPENING STATEMENT OF HON. ANNA G. ESHOO, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF CALIFORNIA

Ms. ESHOO. Thank you, Mr. Chairman, and it is wonderful to see

you in the chairman’s seat. And welcome, Sir Berners-Lee. It is

really a pleasure and an honor to have you here at our committee

today. The World Wide Web, which you brought to us in 1989, is

now such a ubiquitous part of our lives that I think we take it for

granted. Its role in virtually all aspects of our economy, our politics, our entertainment is incontrovertible and it continues to grow.

One of the obvious influences the Web has had is in the political

spectrum, and it has had a tremendous impact on the American political system.

During the last presidential election political parties, candidates,

and independent groups utilized the Internet to organize and to

raise money in new and innovative ways, and these activities were

only accelerated in the campaign last year and it is undeniable that

a video posted on YouTube is responsible for the democratic majority in the United States Senate, so it has had a huge impact. The

Internet has also completely changed the manner in which political

campaigns and politics in general are covered in the mainstream

media. The impact of blogs and independent Web sites on traditional news organizations is perhaps the most important phenomenon of the 21st century culture so far.

This nearly limitless diversity of content and views is a revolutionary change in public discourse. It really is the voices of many

speaking to many. It is impossible to overestimate the powerful dynamic that technology and the Internet will have in promoting democracy in our own society and our institutions and ultimately the

world. No longer will an individual be limited by geography, wealth

or disability to have access to this global repository of literature,

science, information, and entertainment. I am concerned that the

diversity of voices on the Internet is under threat and that the

power to control access to information and content is becoming increasingly concentrated in a handful of large media and telecommunications companies.

It is this issue that development of gatekeepers to content and

information on the Internet that really is at the heart of an issue

that has been intensely debated in this subcommittee and the last

Congress called net neutrality. I think the future of the World

Wide Web is in large part dependent on how we resolve this issue,

and I think it is incumbent on Congress to ensure that the voices

of the many can continue to speak to the many whether or not they

have permission from Verizon or AT&T. So I along with all the

members of this important subcommittee look forward to your testimony and salute you for what you have accomplished and what

4

you have given to the world. It is nothing short of remarkable.

Thank you, Mr. Chairman.

Mr. MARKEY. I thank the gentlelady. The gentleman from Texas,

Mr. Barton.

OPENING STATEMENT OF HON. JOE BARTON, A

REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS

Mr. BARTON. Thank you, Mr. Chairman. I am one of those ones

that was pleased that your chairmanship was rudely interrupted

12 years ago, but we are always in a personal way glad to see people get ahead in the world and certainly glad to see you back in

the chair that you think you should be in all the time. We are looking forward to that. I am going to put my statement in the record.

Let me simply say this. Since we have a friend from over the ocean

our great Nation, the United States, was founded on the principle

and the Declaration of Independence that all men are created equal

and that they are endowed with their creator with certain inalienable rights, and among these are life, liberty, and the pursuit of

happiness, and from that we believe that every person makes a difference.

It is very rare that we see one of those people before us that has

made such a difference as you have, sir. Truly, the world is a different and better place, much better place, because of your—the

story says your noodling when you were at CERN. My stepchildren,

my children, and even my grandchildren now are old enough to use

the Internet and do things and go places and get information that

I could have only imagined when I was growing up. You are going

to get to see one of these odd things called a congressional subcommittee hearing, and maybe you can think about that and noodle a little bit and tell us how to improve this very archaic, imprecise, inefficient mechanism of democracy.

But we do salute you. You truly have made a difference. It is an

honor to be in the same room with you, and I look forward to hearing your thoughts about the issue before us today. And with that,

I yield back.

[The prepared statement of Mr. Barton follows:]

PREPARED STATEMENT OF HON. JOE BARTON, A REPRESENTATIVE IN CONGRESS FROM

THE STATE OF TEXAS

We have a tremendous opportunity today. With the World Wide Web, Tim

Berners-Lee created perhaps one of the most useful and accessible applications on

the Internet. The platform he designed has already enabled many other pioneers to

create countless other innovations. I am excited to discuss with him what he believes is on the horizon. My hope is that we use our time wisely. Let us take advantage of this chance to hear what specific insights Mr. Berners-Lee has on how the

Web can address specific needs and problems in our society.

In particular, I’d like to hear Mr. Berners-Lee’s thoughts on how the Web can help

address some of the issues we confront in this Committee. For example, how can

it help reduce health care costs? How can it help public safety officials communicate

with us and each other in times of disaster? As an engineer by training, I’m also

interested in how the Web can be used to improve scientific research.

Lastly, I’d like to hear how he would tackle some of the problems that are popping

up on the Web. How can we better protect our privacy on-line? How can we better

protect our kids from content, and people, we don’t think they should be exposed

to?

We have come to hear Mr. Berners-Lee’s insights, so I will end my statement

there. I yield back my time.

5

Mr. MARKEY. I thank the gentleman. The gentleman from Pennsylvania, the vice chairman of the Telecommunications Subcommittee.

Mr. DINGELL. Mr. Chairman.

Mr. MARKEY. I didn’t see you. I am sorry, Mr. Dingell.

Mr. DINGELL. Don’t be troubled. I just snuck in.

Mr. MARKEY. Let me recognize the gentleman, the chairman of

the full committee, 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, first of all, thank you for holding

this hearing. I commend you. This is an important matter. And I

want to thank the members of the committee for their interest in

this matter. I thank you for bringing before us Sir Timothy

Berners-Lee, who is the man who invented the World Wide Web,

and who has made what most people call the Internet not only pervasive but also as important as it is today. I have seen my share

of disruptive technologies over the years. Indeed, I am someone

who vividly recalls the days when you could deliver a message with

the digits of your hand. Nowadays our thumbs have to type the

tiniest keys on the BlackBerry or some similar device.

Of these disruptive technologies the power of the World Wide

Web to revolutionize our society is like no other. America is the

birthplace of the Internet, and there is serious concern that our

ranking in the global information economy is less than it should be.

Consumers in other countries enjoy broadband connections that are

faster, cheaper, and offered by more providers. Our committee intends to do its part in a national broadband strategy deserving of

this great Nation. And again I want to commend you for your leadership in this matter, and I want you to know that your labors on

this matter and this subcommittee will be very, very important indeed.

We will begin by hearing Sir Berners-Lee’s evaluation of where

the Web stands today and where it will be headed in the future.

I am particularly interested in the answers to these questions.

First, what are the key lessons to be learned from the popularity

and growth of the World Wide Web? What principles can be

gleaned from your experience? Second, how do you see the Web of

the future evolving? What steps must be taken to ensure that the

Web continues to meet the desires and needs of future generations?

I understand that the World Wide Web Consortium is developing

what is called the Semantic Web or the next generation of data integration on the Web. And you have mobile Web initiative to make

access for mobile devices as simple, easy, and convenient as it is

from desktop computers around the world that we are now compelled to stir up, I think, unfortunately for hours on end.

Third, we addressed the question of how we ensure that the digital future of the Internet is a robust one enjoyed by all people. I

support the consortium schools, the true World Wide Web whose

benefits are available to all people regardless of language, culture,

location, network infrastructure, physical or mental ability. Providing all Americans access to the best telecommunications network

6

and services has been a driving principle of the telecommunications

policy since enactment of the Telecommunications Act in 1934. It

will remain so, and I know that you, Mr. Chairman, this committee

and this subcommittee, will be working very hard on that matter

to see to it that those thoughts are realized.

Once again, I thank you, Mr. Chairman, for having this hearing.

We are honored to have this distinguished witness before us today,

and I look forward to his testimony. And I thank you again.

Mr. MARKEY. I thank the gentleman. The gentleman from Oregon, Mr. Walden.

Mr. WALDEN. Thank you, Mr. Chairman. I am going to waive an

opening statement and just extend greetings to our witness and

look forward to questions.

Mr. MARKEY. 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 also am pleased to have

Sir Berners-Lee here today. The Internet and the Web in particular

is the pet cause or scapegoat of practically everyone who comes before our subcommittee these days. I think it is a great idea to have

our committee go to the father of the Web and hear what he has

to say before we get too much deeper into these issues. I believe

that the Internet has the potential to give everyone an equal platform to report about and opine on the goings on around them. An

open and free Internet could be considered the first truly accessible

tool to make the spirit of the first amendment come alive for everyone in the country, but without an Internet available to all that

guarantees fast speeds to anyone’s content that potential is just a

promise.

The reality of the Internet today for most Americans is not really

comparable to its potential. The reality that the FCC considers 200

kilobits as broadband, a speed so inadequate that even video optimized for slower connections like that provided by YouTube requires 500 kilobits, 150 percent faster than 200 kilobits to run in

real time. The reality is that broadband isn’t available even at

those low speeds to tens of millions of Americans. The Web is a valuable, perhaps essential tool, for expanding and enriching public

debate in our country. It has already greatly enhanced the Nation’s

discourse on public affairs. But until it is as pervasive as broadcast

media and newspapers, and until new Web sites truly compete

with those traditional media outlets and the Web sites they control

the Web’s existence should not be used to justify media consolidation, nor should it be held up as the gold standard of openness by

the same people who want to restrict information and act as gatekeepers.

I am interested in what Sir Berners-Lee has to say about these

issues, but I would also appreciate hearing the view on the Internet and Web policy matters from 30,000 feet up, a broader view of

what we might otherwise drill down to in the subcommittee. Mr.

Chairman, I thank you for holding this hearing today, and I yield

back the balance of my time.

7

Mr. MARKEY. I thank the gentleman. The gentleman from Florida, Mr. Stearns.

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

Mr. STEARNS. Mr. Chairman, thank you very much. I am delighted to be here. When you read the Time magazine article about

him and you realize not only was he a great discoverer of this new

technology but he was almost altruistic in his desire because he

wasn’t a person that ran out and tried to make a lot of money, and

he worked for a not-for-profit organization and was behind the

scenes, and in many ways represents this philanthropic way that

he wanted to help the world, and he did so indeed.

According to a December 2006 survey by the Pew Internet in

American Life Project, my colleagues, 70 percent of American

adults use the Internet. That currently represents just under 150

million people. Of those, 91 percent send or read e-mail, 80 percent

look for health or medical information, 71 percent use the Internet

to buy a product, 67 percent went online to get news, and now almost 45 percent use it for online banking. When you look at the

statistics back from the March, 2000 from the same organization,

you see how far we have come.

And I guess the question all of us want to ask him, what does

he see for the future? What does he see for the future in health

care? How could the Internet help us there? Education, scientific

research, public safety, protection of children, there is probably a

host of new areas that he could provide for us. Like in my State

there is online health records. Take the Mayo Clinic in Jacksonville, Florida. Thanks to online health records my constituents in

Florida can see any of the 310 physicians and benefit from a Mayo

wide electronic record. All providers all have access to the same

comprehensive and current medical history, lab results, pharmacy

records and radiology images.

Errors and wasteful duplication are avoided and quality obviously is enhanced. Now this is just one example of how the future

of the Internet will improve our lives, and so it is clear today that

this individual can give us remarkable insight from his perspective

for what we can do for health care, education, as I mentioned, and

others. I want to thank you, Mr. Chairman, for holding this hearing. I think it is a delight for all of us to see this individual because

we have heard so much about him, so I compliment you for bringing him to start this session in the 110th Congress, and welcome

to our witness.

Mr. MARKEY. I thank the gentleman very much. The gentlelady

from California, Ms. Harman.

OPENING STATEMENT OF HON. JANE HARMAN, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF CALIFORNIA

Ms. HARMAN. Thank you, Mr. Chairman. Congratulations on resuming the chairmanship. I am delighted to be a member of this

subcommittee. Fifty years ago a computer filled an entire room,

and processors performed at less than 1/1000ths of the speed they

do today. Our witness, with a twinkle in his mother’s eye or a very

little boy, and the information technology society of the 21st cenVerDate 11-SEP-98 10:59 May 06, 2008 Jkt 000000 PO 00000 Frm 00018 Fmt 6633 Sfmt 6633 Q:\DOCS\110-10 SCOM1 PsN: SCOM1
8

tury was not even the subject of scientists’ wildest speculations. We

have come an amazingly long way. But the information technology

revolution is not over. Fifty years from now our world and our society will likely look radically different.

We have been bad predictors of technological change. In 1899,

Charles Doole, the Commissioner of the U.S. Patent Office, reportedly said everything that can be invented has been invented. How

wrong he was, and I have no doubt that today in a classroom somewhere in America a young, female IT genius is discovering the secrets of the computer that will lead to inconceivable inventions.

Our challenge as policymakers is to try to assure that the innovation that now defines the American economy is available to as

many people as possible world wide, something that many of the

speakers earlier this morning have addressed, but also that it improves lives and helps us solve the world’s most intractable problems.

One big problem yet to be solved is the need for public safety and

intelligence agencies to benefit from the information technology advances we enjoy as private citizens. The 9/11 Commission reported

that before the World Trade Center and Pentagon attacks, the

FBI’s outdated and outmoded computer system prevented agents

from finding and communicating information about the hijackers.

Today, first responders do not have voice and data communication

systems to coordinate emergency responses. These are grave technological liabilities unfitting of our information culture and something that this subcommittee must help resolve.

But there is also a flip side to this. Not only do we need to get

information to those who would keep us safe, but we also need to

think about how to prevent information from getting to people who

are radicalized by it and who learn to make bombs and become terrorists from surfing the Web. So it is a very, very tough problem,

one this committee will have to think about and no witness so far

as I know is more imaginative and more qualified to give us a basis

for proceeding than the witness before us today. So I look forward

to the testimony. And, again, Mr. Chairman, I am very proud to

serve under your leadership. I yield back.

Mr. MARKEY. I thank the gentlelady very much. It was 20 years

ago this month that I became chairman of the subcommittee for the

first time so it is ancient history. The gentlelady from California,

Mrs. Bono.

Mrs. BONO. Thank you, Mr. Chairman. I’m happy to be here also.

I will waive on my opening statement and just welcome our panelist. Thank you.

Mr. MARKEY. The gentleman from Texas, Mr. Green.

Mr. GREEN. Thank you, Mr. Chairman. I would ask that my full

statement be placed in the record.

Mr. MARKEY. Without objection. The gentleman from Texas.

OPENING STATEMENT OF HON. GENE GREEN, A

REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS

Mr. GREEN. I would like to welcome Sir Berners-Lee because of

the success—I come from an area in Houston, and it is an underserved area and so my interest has always been more expansion of

the World Wide Web including the eRate program and limiting the

9

risk of problems on the Internet like spam, identity theft and

fraud. But I have to admit most of my staffers in my office cannot

imagine 10 or 15 years ago doing what we do today without the

Internet and the research capabilities that we have, congressional

research service that instead of going to the library and pick up a

book now it is all right at the desk, and it is amazing.

Like my colleague from California, I know somebody much

younger than you and I are probably developing something, and we

will be surprised 10, 15, or 20 years from now. So welcome, and

I am glad you are here.

Mr. MARKEY. 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. I feel like I am back in

high school again in my German class for the first day. I am a new

member of the committee and anxious to learn all the intricacies

of telecommunications, in particular the World Wide Web. And, Mr.

Chairman, I would echo all the remarks that have already been afforded to you. It is a privilege and a pleasure for me to be on this

committee and you, as the subcommittee chairman. Mr. Chairman,

I appreciate you scheduling this hearing. And, Sir Berners-Lee, I

appreciate you taking the time to appear before us today.

Technology has changed all of our lives. In some ways it has

made it easier to stay in touch through cell phones, wireless calendars and e-mail. In other ways, technology has made life more

difficult through cell phones, wireless calendars, and e-mail. And,

Sir Berners-Lee, you are to blame for all of it. Conducting research,

being able to test drive music, and most importantly stay in touch

with loved ones are all examples of how our lives have improved

through technology. However, one of the most important aspects of

technology is not what is available but who has access to the latest

innovations. The only way the World Wide Web and all of the innovations that have stemmed from its invention has been able to succeed is through consumer access and use.

It is important to remember that we have to concentrate on serving all consumers including those in rural America, and I live in

rural America in southern Indiana with all these wonderful services. Thank you, Mr. Chairman, for holding this hearing, which I

know is only the first in a comprehensive series of hearings that

will fully investigate these issues. I yield back the remainder of my

time.

Mr. MARKEY. I thank the gentleman. I don’t see any other Members at this time so any other statements will be included in the

record at this time.

[The prepared statement of Mr. Towns follows:]

PREPARED STATEMENT OF HON. EDOLPHUS TOWNS, A REPRESENTATIVE IN CONGRESS

FROM THE STATE OF NEW YORK

Thank you, Mr. Chairman. I am very pleased that the subcommittee is holding

this hearing. It is always interesting to try to understand how science fiction becomes reality. I would also like to thank you for inviting Sir Berners-Lee. I am

heartened that he has chosen to help us all reap the benefits of what he creates,

and I am interested to see if he can illuminate some of the pitfalls we can avoid.

I applaud the goals of his new effort, the World Wide Web Consortium. Their

ideas for standards, guidelines, development, and education will be invaluable as we

10

move on to new and better technologies and continue to see the Web grow. In addition, I hope his dedication inspires more of our children to go into academia.

Finally, I hope he can show us how we can make sure all our constituents benefit

as we move into the digital future. They want to know that they can still keep some

of their information private, that they can protect their children, that the Web will

be available to everyone, and that their lives will be easier and more productive

than ever. We still have a long way to go here in the United States and I am grateful that Sir Berners-Lee has come to help us.

Thank you and I yield back the balance of my time.

Mr. MARKEY. We will turn to our witness, Sir Timothy BernersLee, who coined the term World Wide Web, wrote the first World

Wide Web server, authored the first version of the hypertext markup language which evolved into the primary publishing format for

the Web. In 1994, Sir Tim founded the World Wide Web Consortium, and in 2004 he was made a Knight Commander of the Order

of the British Empire by Queen Elizabeth II, but in fact he has

been a Knight for the world in providing this incredible ability to

communicate. It is an honor to have you with us today. Please

when you feel comfortable begin your testimony.

STATEMENT OF SIR TIMOTHY BERNERS-LEE,

MASSACHUSETTS INSTITUTE OF TECHNOLOGY

Mr. BERNERS-LEE. Chairman Markey, Ranking Member Upton,

members of the committee, the honor is truly mine to be here. I

am very honored to be invited, and I will do what I can to answer

some of these questions at least to set the ground work to put before us what the things are I feel most important about the Web

on which we should base its future. So I am here as an engineer.

Engineers define the protocols by which computers talk to each

other. You are legislators. Legislators can define laws, protocols,

constraints on the way human beings communicate.

The Web is not just an engineering construction. The Web is

really a web of people. When something happens on the Web like

something new takes off what happens is a very intricate connection between the little piece of new technology like blog software

and a whole social phenomenon of interacting people. So really the

Web as a whole is humanity connected as connected by the Internet, and so it is very important that the constraints imposed by the

technology and the constraints imposed by the legislation work together harmoniously to provide the very best we can possibly do.

So it is in that spirit that I come here.

I must say that although I have various hats, I wear none of

them. I do not speak for the World Wide Web Consortium or any

of its members or for MIT. Anything I express here is purely my

own personal viewpoint. I would also like to point out that although I did invent the Web, I had the benefit of doing that and

building on the benefit of the Internet, which had been invented

some 20 years earlier, and in fact the e-mail, when you get e-mail

on your BlackBerry, you have other people to blame for that.

So what I will attempt to do then is explain what I think is most

important, explain, if you like, what is essential about the Web

which makes it work which gives it the properties which allow all

these exciting things to happen, and which therefore are those

things which we should take away and make sure that we preserve

11

as we develop the Web. So then I will go into a few specific directions in which I hope that the Web will progress. I don’t as a rule

try to predict the future. I do, however, express my hopes about the

things which I think will happen. It is amazing how all the creative

people out there will then take hopes and turn them into reality.

I will conclude by going back to some of the basic principles upon

which we must depend as we go on and create new things like the

Web and new things built on top of the Web. So what is essential

about the Web? I built the Web personally out of frustration. It

wasn’t my job to build the Web. I had another job to do but I needed the Web. I was working in a very large European physics lab,

CERN. There were a lot of systems which contained information,

documentation systems. They were all different. You had to go to

different computers. You had to use different software programs to

get different pieces of information. Often you had to talk to different experts. The whole thing was very frustrating.

Wouldn’t it have been nice if all those pieces of information were

in the same system? Now I had seen a lot of people decide that and

build the big system to end all systems, and all these attempts, certainly the ones I watched at CERN, were failures. They failed to

include everybody and they failed to include everybody because

they insisted on something. They insisted sometimes that you

would use a particular computer. Sometimes you would use a particular software by a particular company or you would store your

documents in a particular format. You would use a Mac or a PC

other than a Mac to prepare your data. Everything you did had to

be done in English when in fact people at the lab came from all

over the world and spoke all kinds of different languages.

So it was clear to me, first of all, that in fact we could keep all

these systems working but surely we could invent some imaginary

system. The Web, if you like, is an imaginary program. We were

imagining that all these things are in one program but in fact we

are keeping them in all different ones. If you like, the Web is a

white sheet that we are holding up and all these different systems

are projected onto it.

What was clear was the sheet had to be perfectly white, not have

any particular structure. The Web itself could not insist that people

organize their data in a particular fashion in a tree or in a table,

it couldn’t insist they use particular technology. It had to work

with people using any sort of computer systems. So the most important principle of the Web is this universality, the universality

of dependence of hardware and software and dependence of what

culture somebody comes from as well as what language they speak.

One of the nice things that has come out of the Web is one of the

technologies really where people with disabilities have more power

than any other technology because information can be presented in

lots of different ways depending on the abilities of the person who

is perceiving it.

So there is excitement there about that dimension of universality

so it is a universal space. The important thing is that anything

should be able to link to anything. Compared to a lot of transportation systems, mail systems, telephone systems where you can

telephone across the world all these things make the world a smaller place, but the hypertext link, the thing that you click on that

12

takes you from one document to another, has this very interesting

property. Every document, every piece of information has what we

call URI, the thing that starts http normally. That http, whatever

it is, may be long and complicated and horrible looking but it identifies globally without any other context precisely a piece of information.

And when I am creating a hypertext document, for example, if

I am writing a Web blog, I can make a link. When I put that link

and I put a URI, and it can be a link to anywhere that you or I

can be to anything. So that allows me to point out a relationship

between two things where no previous relationship had been anticipated. That is a really important thing to happen when resolving

problems, to spot those relationships and to be able to represent

things, those relationships. Anything can connect to anything. Anybody can publish a Web page. It is very, very cheap to do so. When

they do so, they obviously are bound by the laws of the jurisdiction

in which they live but they should not be bound by the technology.

The technology should not force them to write in a particular style,

to write with a particular policy in a particular language, and so

on. So the World Wide Web is universal. It is an enabler. It is not

there to constrain.

So that is the most important part of it is universality. In practice the reason that it has actually taken off, the reason that so

many things have been developed on top of it the whole part of

that is the fact that the standards, the open standards on which

it is based, the standards which dictate how computers talk to each

other when you click on a link and your computer goes off to get

a piece of information from a Web server somewhere, those standards which the person who wrote those parameters to determine

how the computers talked to each other are royalty free. That has

been very important. It was a given and is relevant to the Internet.

The people who came before me and developed things like the file

transfer protocol and the e-mail protocols never dreamt of trying to

patent them and charge fees for them. When the Web came and

this explosion occurred and at the same time change in acceptable

use allowed commercial use of the net. We have seen from the

amount of spam that you probably get in your own mailboxes there

are huge commercial incentives out there. When there are those

huge commercial incentives there is a lot of money around there is

a temptation for people to say let us see if we can get some money

out of the infrastructure. Now the Web took off in all its glory with

all the diversity of things out there which have happened because

there was a royalty free infrastructure. There was another system

called the Gopher from Minnesota, that came from the University

of Minnesota. The rumor went around that it might not be, might

not be royalty free in the long run. The people that were developing

it in their garage dropped the whole system like a hot potato because they didn’t want to work for the University of Minnesota for

free on the weekends.

People working for large companies were told by their lawyers

not to read a single part of the code or the specs, don’t go near it.

At that point people came to me and said what is the story with

the Web so I managed to get a declaration by CERN that CERN

would not ask for royalties for the technology, and all the compaVerDate 11-SEP-98 10:59 May 06, 2008 Jkt 000000 PO 00000 Frm 00023 Fmt 6633 Sfmt 6633 Q:\DOCS\110-10 SCOM1 PsN: SCOM1
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nies and individuals that come together on the World Wide Web

Consortium through the World Wide Consortium’s patent policy

agree, progressively agree, to put their cards on the table and to

agree that when we have produced the standard nobody will be

charging royalties for it. That is very important basis, something

that is important because the World Wide Web is not important for

itself. It is important for what is built on top of it.

That brings me to another important principle. That is the separation of the layers. When I designed the World Wide Web, I wrote

two programs. I wrote a program to be the browser and a program

to be the server, and I distributed them over the Internet. Now

these programs wherever somebody installed them would just talk

to each other across the Internet. The Internet itself is a communication medium which allows two programs to talk to each other.

It doesn’t require anything of what those programs are about or

trying to do. It is as universal itself as possible so the provision of

the Internet service is sometimes represented as an hourglass.

Above the neck of the hourglass are all the things which use the

facility of communication which is provided by the Internet, and

one of those is the World Wide Web, another is e-mail, and underneath are all kinds of ways in which technology is supporting the

transfer of information, and these connect to the very simple interface, just a stream of 1s and zeros, which that is the service that

is provided.

So I have had the luxury of developing the World Wide Web really without having to worry very much about how those are sent,

and during the time that this has happened I have gone from using

a 300 board connection on one of those telephone couplers to a 3

million board connection, so that is a 10,000 factor. So the technology underneath this has tremendously increased in terms of

speed and functionality, and the Web technology had happened on

top. So the Web technology is also designed just to be a foundation.

Foundation technology is something which tries to be very clean,

very general purpose. It tries to get out of the way and allow other

people because what is the most important thing about the future

of the Web, what is the most important application that is going

to be developed on the Web. It is something which has been developed by somebody, yes, quite likely some woman who is dreaming

about something or frustrated with something, somebody somewhere, and they will develop this thing as a set of Web sites, as

a new protocol, and they will develop it using the Web infrastructure, and they won’t have to come to me to ask me whether we can

solve the World Wide Web construction mode to change the Web

architecture. They will just be able to use it, and we will use the

Internet architecture, and all these things will evolve independently.

So the separation of layers really has been a key to the growth.

This growth would not have happened if one laboratory had been

responsible for developing the whole thing top to bottom. Okay. So

the future, which directions are we going? And there are lots, and

I can only mention a few. One of them is date integration. The documents on a typical computer, you can think of some of them as

data and some of them as documents. The documents, the messages you can put on the Web and people can read. The data, the

14

spreadsheets, the calendars, and so on, you can see perhaps documents representing them on the Web but you can’t get at the data

in such a way that you can put it into a spreadsheet. You can pull

out all the information about the weather, about health care information, and combine it together and manipulate it. So there is a

serious, if you like, whole half of the Web, of the goal of the Web,

was this data.

We succeeded with the documents. We want to do it with data,

and some of the goals that we have include, for example, all the

applications on my desktop I should be able to connect things together. I should be able to take my photographs and drop them

onto my calendar and see where in time they happened and do the

same thing with my bank statements. Very importantly, in the enterprise all the applications and the enterprise tend to be stove

piped at the moment and it is a great impediment to the management of an enterprise that you don’t have a degradation between

these different applications. But more globally applications like disaster management I think would very much be enabled by this web

of data, the thing that we call the Semantic Web, which will allow

what data is available as it becomes available no matter what sudden disaster occurs, no matter what new eventuality, what new

disease arrives, what new earthquake or tsunami occurs, what data

we have should be available so that it can be re-used, so it can be

linked together. A lot of people see the Semantic Web as being a

great boon for health care. They see it being a great boon for drug

discovery. The drug discovery business is very much driven by

huge amounts of very complex data, and we have of course very

dire needs to find out things like drugs for cancer, drugs for AIDS.

There is a huge amount of information. Some of it is genomics,

some of it is proteomics, some of it is clinical trials. All these at

the moment are stove pipes. To be functional as a human race and

solving these problems, we need the Semantic Web technology to

allow all these things to be connected together.

So data integration is one area in which we expect the Web to

explode. Another area which is exploding is the diversity of devices.

You have noticed all these little things. Actually you might find

that it is quite difficult to access the Web on these little devices,

but we have the mobile initiative and consortium, which is trying

to make that much easier to try to show there are ways of getting

the same information in a way that could be accessed with a huge

screen or with a small device. Also, one of the hopes there is that

as these small devices come in very much cheaper forms, these

might be forms that you have, they are coming out very much

cheaper, cell phones with screens that can be used for browsing the

Web so the hope is that this will increase the penetration of Web

access for things like health care, for example, in poorer areas and

also in the developing world.

As the development of devices continues I am absolutely certain

that everything hasn’t been invented. Everything that could be invented has not been invented. We can imagine very soon—have you

noticed how things are being covered with pixels, covered with displays. It hasn’t happened to this room yet but if you go to Times

Square everything is covered with digital displays you can place up

on the sign. Things will be covered to a very long extent with this

15

place, if I don’t have a large display on this phone, if my phone can

communicate with a display that I am next to as I walk into my

hotel room then I will be able to continue doing what I was doing

on the phone except with this very large display. That is what we

are calling ubiquitous where it points to a time where really what

we are doing, our address book is a virtual thing, something which

is out there on the Web, and we use different devices to see it but

it isn’t something which we think is connected with a physical device anymore. Just as the information is now in this space then the

Web will be a space which contains the things which we now associate with physical devices. Does that indicate that I should stop?

Mr. MARKEY. Not at all. We go by bells, a system of bells here,

in the Congress and those bells which are ringing right now are

telling us that there is a roll call on the House floor that we will

have to be there in 15 minutes, but you can continue to proceed.

When it rings the second time, it means that there is more than

one roll call on the floor which we will have to recess at some point.

Mr. BERNERS-LEE. As it happens, I have reached my conclusion.

One of the amazing things about the Web is that things happen

which we didn’t predict. When somebody creates a new phenomenon like a blog, like Wikipedia, they don’t know absolutely that it

will take off and become a world wide phenomenon. Many, many

things don’t, of course, and we don’t hear about them. Many Web

sites start, fizzle out, and just don’t become popular. Some do. So

when people design things, they design something in a small, those

things which are successful have this large effect. They produce a

large hopefully beneficial effect. How are we going to produce new

Web technology and make sure these are beneficial? There are two

ways. One is I think we actually have to be aware of this difference

between the microscopic rules that govern people and govern computers, this relationship between the microscopic and the macroscopic phenomenon, so we are calling it Web science. This awareness of the fact that the Web is now a huge thing. There are more

Web pages than people. The world is a large place. It contains

many people. The brain is a complicated thing. It contains many

neurons. We study those as complex things, and they are complex

things. They do things which you couldn’t imagine by looking at

the individual elements of them.

The Web does things which you can’t imagine by just looking at

the individual elements unless you study it as a Web science. So

we are calling that Web science—one of the things that we do then

is we try to get people together across disciplines because this is

not just computers. It is people. They are governed by laws. They

are governed by psychology and incentives. They are governed by

economics. There are a lot of different ways and different fields

which need to look at this, as well as computer science and network engineering. So that we call Web science. We are not done.

We are just starting. We really, I think, will not see a slowing

down now that we have succeeded on the Web. We will see a speeding up. I am afraid it is going to continue. It is not going to get

any easier to keep up.

What is the second way that we make sure that we do things

right? Well, we use these core values, I guess just as you do creating laws. You base them on core values. You have a rule of thumb

16

that if we stick to certain core values on a microscopic scale good

things will happen on a macroscopic scale. If we stick to the Golden

Rule everybody should be happy. So what we have seen some of

these principles for the Web are those of universality, keeping the

Web universal independent of hardware, independent of software,

independent of who happens to be your Internet service provider at

the moment, the present instance in time, independent of language,

independent of culture, independent of disabilities, so the universality is a very important thing.

We have seen the layering, keeping—the development of the

Internet is a transport of bits, 1s and 0s, independent of things

which are built like the Web, like e-mail, like now some things like

Second Life all built on top of the Internet and making sure that

the Web in turn itself is the blank sheet, the blank canvas, something which does not constrain the innovation which is just around

the corner which somebody is itching to do somewhere. And I suppose most importantly we realize that this thing does not belong

to anybody now. It was based on some ideas that I had. I threw

them out and they were taken up by hundreds, thousands and millions of people.

It started in the United States. The Internet was started mainly

with funding but it spread and it is all over the world. The Internet

and the Web, these two layers are now fundamental infrastructure

for the global society. It is very important as we develop them we

make sure that they don’t become controlled by any one company

or for that matter for any one country. Chairman Markey, Ranking

Member Upton, members of the committee, that is the most important thing I suppose I have to say. I am very anxious to hear any

questions you might have and to help you in any way in understanding and helping manage working together to manage this in

the future. I am very grateful for the honor bestowed on me by

being invited.

[The prepared statement of Mr. Berners-Lee appears at the conclusion of the hearing.]

Mr. MARKEY. Thank you. Let me announce to the Members that

after the 15-minute vote followed by a 5-minute vote, we are going

to come back and continue the hearing for as long as Members do

have questions of this great man. Let me recognize the gentleman

from Michigan right now for any questions you might have. We can

stay here for another 5 minutes or so. So, Fred, if you would like

to ask some questions.

Mr. UPTON. Thank you. I enjoyed the testimony, and we all have

our personal experiences of how this has impacted us and for the

most part it has been very, very positive. As we look back at history for me, for example, I visit a grade school or a school virtually

every week and I can remember 10, 12 years ago I would ask how

many people used the Internet and even among a second or third

grade class and just a few kids maybe. Now of course every hand

is up. And I often follow up with another question how many of you

have seen something that is probably inappropriate, particularly

for these youngsters, and again every hand including mine goes up

as well.

And I guess the question that I have, we have a little bit of a

double-edged sword. There is dangers and there is great advanVerDate 11-SEP-98 10:59 May 06, 2008 Jkt 000000 PO 00000 Frm 00027 Fmt 6633 Sfmt 6633 Q:\DOCS\110-10 SCOM1 PsN: SCOM1
17

tages in many, many ways, families being able to communicate

with their sons and daughters serving overseas, all different

things. I have the world’s largest appliance manufacturer

headquartered in my district, Whirlpool, and when I go through

their lab and I see their new devices in terms of tracking food that

is in there, recipes, turning on ovens, and then all these different

things that are quite revolutionary from where we were 5 or 6

years ago, but what are some of the things that we should be looking at as we look at the future in terms of privacy, in terms of

things that you might want someone not to be able to connect to

in terms of pornography or other issues? How do we handle some

of those issues as we look to the future?

Mr. BERNERS-LEE. Well, this is obviously a huge topic, and we

could talk for hours about it, but I suppose fundamentally the

thing to remember is that every powerful tool can be used for good

or evil and it can be used by people who are doing good things and

people who are doing bad things. And to first order the job of the

Web is to be that wide slate, and of course everybody who does illegal things, fraudulent things, for example, on the Internet is sitting

there in a chair in some jurisdiction where they are subject to laws

and they are breaking those laws, and those laws apply whether

things happen over the Internet or not.

There are things like child pornography which are illegal, always

have been illegal and will continue to be illegal.

Mr. UPTON. And the trouble is that even though we have some

pretty tough laws here in this country and the UK and other places

often these relocate some place else where you don’t have that—

they are international and we don’t have the same type of law enforcement or standards, whatever you want to call it, where they

are able to skirt those laws.

Mr. BERNERS-LEE. Indeed, of course I hope that the committee

will always be aware of the fact that there are other committees

in other parts of the world and in fact the countries working together in general to solve things such as spam, for example, is very

important. So the Web Consortium is an international group of

people. The Internet task force is an international group of people.

And there is a lot of discussion between governments about this

but clearly when you have a difference between jurisdictions there

are issues.

There are some important things which technology can help

with. I suppose one of the general rules is technology should help

make it easy to do the right thing so, for example, when looking

at copyright legislation, if you find a picture out there on the Web

and you want to do the right thing, you would like to use it in a

report but you are not sure whether you can, one of the important

things that is happening now is data about whether what the licensing terms are on that picture is more and more being put into

the picture itself or put into the surrounding documents, automatic

tools. Systems like the creative licenses allowing people to do the

right thing so before trying to create systems which prevent people

from doing bad things, which often is very, very difficult, putting

systems up there which allow people to do the right thing in large

part is very important.

18

An awareness of privacy, of course, is very important. There is

a huge amount of information out there on the global Internet.

What a lot of people didn’t realize early on was behind firewalls it

is very properly guarded. And, in fact, a lot of the most important

data, the most valuable data for companies or for Government

agencies is the stuff which is kept most secret. Some of the things

which I hope to see in the future include systems which are aware

of the policies which relate to the data and the information so that

as the data is moved around it can be—the machines can be aware

of who is supposed to be looking at getting it and also perhaps who

is supposed to be using it for what purpose. So as you track it, for

example, through a Government agency the system will be able to

keep track of which data came from where.

Mr. MARKEY. Thank you, Sir Tim. We are now going to take a

break for about I would say 20 minutes when the Members will be

reassembling here. But we will start again in approximately 20

minutes so the committee will take a brief recess.

[Recess.]

Mr. MARKEY. The committee will reconvene. I would ask Mr.

Berners-Lee if he could come back to the witness table and welcome to a typical day in the United States Congress. People say

what is a typical day and of course it is a day where you cannot

predict anything which is going to occur, not unlike the chaotic nature of the World Wide Web itself. Let me turn and recognize the

gentlelady from California, Mrs. Bono.

Mrs. BONO. Thank you, Mr. Chairman. And again I thank the

witness for being here and your testimony was great to hear. I

wish you would have had about 20 minutes longer to continue on.

As my colleague Fred Upton was asking, I think you closed with

basically what was a definition in my mind of DRM. My big question is of course property rights, intellectual property, on the Internet and how we protect it. You even cite in your testimony Steve

Jobs talking about DRM and the need to do away with DRM, how

it is a closed platform. We have seen podcasts increase but the sale

of music decrease. I was wondering if you could elaborate a little

bit further on this because in my mind, I salute you and all you

have done and the exchange of ideas, but when somebody has a

copyrighted piece of work whether it is a song or a movie that

translation into the Web and the future to me is uncharted territory. Could you elaborate a little bit further on where you see the

world going and how creators of content will be compensated in a

world free of DRM?

Mr. BERNERS-LEE. Well, first of all, what I said then was allowing people to do the right thing is important. You can allow people

to do the right thing without DRM. You can write down what the

copyright situation is. You can make software which will track

whether or not you own this. And it won’t stop you but it will let

you know that if you are playing music which you shouldn’t listen

to or because you backed up somebody else’s machine and so you

got access to it it will make it clear—it will turn pink. If we promote technologies for the method data for information about information, putting on the licensing information, putting on the information about who has got rights to it. If you go back to that Steve

Jobs article he points out a lot of issues with DRM, and I think

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some people haven’t thought about the problem of what happens

when 20 years on they are using totally different technologies, but

I want to go back and see my old LPs and some of my old LPs are

vinyl, and I can buy myself some sort of laser vinyl record player.

Some of them are CDs, which are completely, of course, DRM free.

So if you want to know what Steve points out the DRM free world

is a world of vinyl LPs or CDs.

Mrs. BONO. But is that not the equivalent of having a speed limit

but no enforcement of the speed limit? You could put speed warning signs for the people and it is the same thing with DRM. You

can always tell people the right thing to do is to not download this

for free but without the enforcement mechanism they still will.

Mr. BERNERS-LEE. What is the enforcement for a speed limit?

The speed limit enforcement mechanism is not that the car grinds

to a halt, right? It is not that you put your foot down and suddenly

your car refuses to move.

Mrs. BONO. It might be a great thing actually for my teenager

right now.

Mr. BERNERS-LEE. No. The enforcement for speeding is probably—everybody knows that they are supposed to do. Under some

circumstances people will push the bounds. Other times people will

stay even further within the bounds.

But occasionally the cost of getting caught is sufficiently great in

the long term because the software leads you to do the right thing

and so it is not natural to do the wrong thing because really the

only thing which is going to seriously affect the economy of people

producing music is when things happen on a large scale, and when

things happen on a large scale they are easy to be caught. Then

it might be the disincentive of punishment is sufficient. That sort

of thing I must say I am inclined to try to make software that allows you to do the right thing first. I don’t know, we haven’t tried

the experiment of having something which is like the situation

with CDs and vinyl, which is DRM free, downloadable music. We

don’t know how the public has reacted. We haven’t seen what the

software looks like. We haven’t seen what the user interface looks

like. We haven’t seen what the record company profits would look

like, and so I think this is the sort of thing which needs a lot of—

I don’t have myself a firm opinion as to whether in fact we will be

able to do it completely without some form of DRM or not but I

think we should try to make a system which avoids, for example,

encrypting things in ways that they won’t be able to be read in a

few years time.

Mrs. BONO. I agree. That cross platform problem is a huge problem for all of us. You have an iPod and now you can only use

iTunes and you can’t move it over to your other devices is a problem for me too. But my biggest fear too is in this new business

model what we are going to change is the content creator now has

to become a commercial agent that in order to be paid for your song

or your movie your song is now a ditty. It is promoting a commercial product. And movies as we are seeing anymore anyway are already doing that. So that is my concern in the new world is how

do we prevent that from happening.

And Steve, with great respect to Steve Jobs, he is trying to sell

hardware first and foremost and not the content, and I wonder if

20

he would feel the same way about his patents being on the Internet

free of patent protection so that is my huge concern. And I really

appreciate what you have done and your thoughts here and look

forward to this beautiful future of the World Wide Web, and I know

it is going to be a great place for content providers as well as hardware device makers in the world, so thank you very much for being

here.

Mr. MARKEY. The gentlelady’s time has expired. The gentlelady

from California, Ms. Eshoo.

Ms. ESHOO. Thank you, Mr. Chairman, again for having this

hearing, and thank you for your magnificent testimony. I hope

what I ask hasn’t already been asked. One of the myths that the

big telecom firms like to perpetuate is that the Internet has always

been free from regulation and that net neutrality legislation would

be unprecedented regulation of the Internet. It has really taken the

whole issue of neutrality and kind of twisted it into a pretzel. It

is very curious to me. Now no one knows better than you that from

the inception of the Internet until very recently the Internet was

protected under FCC non-discrimination rules which require telecommunication carriers to take a hands-off approach to the Internet.

So my question is would you describe for us how these rules impacted the evolution of the Web? I think that you more than

touched on it in your opening statement and how an absence of

non-discrimination rules going forward would impact the development of the Web. That is my first question. And my second question is that I am fascinated by your Semantic Web that you spoke

about in your testimony, and all of the descriptions and where we

need to arrive and what we don’t have now and the blending of information. My question is how will an automated Semantic Web be

able to distinguish between legitimate and fraudulent or inaccurate

and accurate content and sources? So those are my two questions.

Mr. BERNERS-LEE. Both good questions. The first one, I can only

answer to a limited extent because I am not a legislator. I haven’t

studied all the various possible types of legislation, and so I can’t

talk about those in detail. I can say that I feel that non-discriminatory Internet provision is very important for society based on the

World Wide Web. I think that is very important. I think that the

communication medium is so important to society that we have to

give it a special treatment. We have in lots of other ways.

When I was growing up, I learned to understand that interfering

with Her Majesty’s mail was an extremely serious offense. Why?

Because, well, the mails are what actually allows the country to

function as a country, it allows the state to function as a state. And

here there is protection of the fourth estate—there is the protection

of the freedom of speech. Because we are only a society inasmuch

as we are human beings communicating, communication has always been held with a special respect, and I think that is very important as the Internet starts to becoming a dominating medium.

So if there were a choice, if there were a possibility that maybe a

compromise of these principles would maybe deliver a world in

which perhaps the markets, open markets, would still function and

perhaps open democracy would still function but it wasn’t absolutely clear, I would always be in favor of erring on the side of

21

keeping the medium to be the blank sheet of allowing me to connect if I connect to the Internet to connect to whoever I want, so

I think that is very, very important. That was the first question.

The Semantic Web, it is a good question how would you decide

what data on the Semantic Web to trust. How do you decide what

information on the Web to trust as it is? The answer is in practice

that you use other people as judges. When you read a blog, you

read one person’s blog because you got appointed from another person’s blog. And every morning if you log on and you have a set of

blogs that you read that is a set which you carefully nurture. You

carefully nurture your bookmarks because they are things which

you trust and which take you to places that you trust. The links

provide this function.

On the Semantic Web it is the same even though there is data

published by many places. All Semantic Web agents out there, all

the semantic programs that help people, all the Semantic Web programs which try to look for disasters and alarm situations will be

taking data. Some of them will be taking data only from fixed

places. They will only be monitoring the tsunami early warning indicators or they will only be looking at the NASDAQ. They will be

hooked up to specific feeds. Others will roam around looking for

data in general, then they will come to tentative conclusions, and

then they will present those conclusions with as an appendix, by

the way, this is where it came from. So we are doing a lot of research on that. And the lab at MIT is trying to make systems more

sophisticated, trying to show how transparent can you make a system, to what extent can you make it policy aware. This, if you like,

is an extension of the solution that generally we found for things

like pornography on the Web. We found in general the solution to

this sort of thing is to allow people to label things, to allow people

to method data, information about information.

You asked about something taking data from the Semantic Web.

Well, somebody that has a child sitting at a terminal and wants

to protect that child can install software which will filter the information coming to that child. There are all kinds of commercial systems that you have a choice of them, you have a choice of different

white lists and black lists, so it is demonstrated that information

about information is very powerful, allows us to provide where we

need it a quality stream of information, information with known

quality properties. And I think very parallel things will happen

with the Semantic Web but probably more sophisticated.

Ms. ESHOO. Thank you. Thank you, Mr. Chairman.

Mr. MARKEY. Thank you. The gentlelady’s time has expired.

On net neutrality, the gentlelady has asked a question about net

neutrality, and we very much appreciate your views on the subject.

Just so that everyone on the committee can know before the end

of the year we are going to hear from all sides on that issue so that

everyone’s perspective is heard and the committee before it deliberates will have had access to it. Let me now turn and recognize

the gentleman from Florida, Mr. Stearns.

Mr. STEARNS. Thank you, Mr. Chairman. In your opening statement, I was intrigued by some of the things you talked about the

future and you mentioned that digital displays will be on the

present, ubiquitous, I think is the word you used. And I think what

22

you are saying when you looked around this room you said there

will probably be some day——

Mr. BERNERS-LEE. I didn’t say anything about this room.

Mr. STEARNS. OK. I had the feeling that you would say that in

a home or in a work environment you would have, are you talking

about digitized high definition videos or are you talking—give me

your idea in the future what these digital displays, you said they

will cover large display areas and so maybe you might just expand

on that future concept.

Mr. BERNERS-LEE. I am sure the committee might have noticed

as I said in Times Square, when you go to Times Square it is no

longer covered in just neon signs. Neon signs are in a minority. It

is covered with digital displays like that, different technologies, but

these are getting cheaper, and so I am a little concerned that perhaps there should be a protection of neon signs for Times Square.

But seriously there will be the ability to put displays so that all

of the taxi cab instead of just the top becomes a moving digital display. So the question I would send back perhaps just supposing

that when you walk into your office the walls are all capable of displaying information and the desktop is all capable of displaying information because it is not very expensive to do that.

Mr. STEARNS. The entire desk.

Mr. BERNERS-LEE. Suppose the entire desk could turn into a virtual——

Mr. STEARNS. And you would just touch your desk and——

Mr. BERNERS-LEE. Then what would you find most powerful?

What would you really want to be able to do? How could you use

that? How would the desk know what to display? How would the

wall know what to display? Your phone happens to be in the middle, for example, of going through a rather tedious exercise of trying to book a return flight from Washington, DC, and the phone,

for example, imagine that the phone, it connects with radio technology such as Blue Tooth to the desk and suppose it determines

that it is your desk, determines that it can trust it with information and you are in a position that you can see it, and instead of

having to communicate on that little screen it then will communicate by putting a map of the flight that it is proposing, some pictures of the restaurants where it is suggesting you are going to eat,

and other related information about your travel in a much larger

format on the desk, on the wall.

To do that, for that to happen, the flight that you are booking

has to break out of the phone device. It has to really be in the abstract medium just as things are on the Web. It has to be able to

have—to the user it has to be able to have independent existence.

Lots of problems have to be solved in between because you don’t

want the phone to put details of your private condo up on the subway.

Mr. STEARNS. So the machine would have to think in this case

and determine whether I have access or not.

Mr. BERNERS-LEE. Well, it turns out, yes, the machine has to be

aware of policies for information, what information could be used.

Mr. STEARNS. Now you sort of indicated that these devices like

this, there is a diversity of devices coming too.

Mr. BERNERS-LEE. Pretty much, yes.

23

Mr. STEARNS. And what in your mind is diverse? I mean like in

this Treo I can get the Web, I can get my mail, I can get telephone

calls, I can get games, I can do all kinds of things. Diversity of devices beyond this, is there something that you imagine beyond this

in terms of diverse devices?

Mr. BERNERS-LEE. Well, there are devices which, for example,

which are all screen and any interaction is gestural and the future

may be with cameras you will be able to simply gesture without

even touching.

Mr. STEARNS. OK. So either voice activated or gesture or your facial contact.

Mr. BERNERS-LEE. Maybe there will be wrist watch size screens,

maybe there will be—I like to have a 17-inch screen in my backpack because I like to be able to really read stuff when I sit down

to read. People have different personal tastes for what they want

to carry around and how they want to use it. You can see tablets

of various sizes coming out so I think there will be large diversity

of devices of this sort of genre, and also there will be new genres

of devices that we haven’t thought of yet. Perhaps something you

wear on your tie which will project onto the person’s seat in front

of you in the plane whether or not their aircraft was provided with

a screen, just hang up your handkerchief and project onto it from

your tie. I am just speculating.

Mr. STEARNS. One thing you also mentioned the manipulation of

data in the future to take data from a software program and throw

it into an Excel sheet and things like that. I mean under the Macintosh G4 you can take any photographs and put them on greeting

cards, you can put them on calendars, you can do all kind of things.

Is that the type of thing you were talking about in terms of manipulation from software to software? Is that what you meant? I

wasn’t clear on that.

Mr. BERNERS-LEE. The Semantic Web is about——

Mr. STEARNS. How do you spell semantic?

Mr. BERNERS-LEE. S-e-m-a-n-t-i-c. I am sorry about the name for

it. It is not a very well-chosen word. I think World Wide Web

seemed to work but Semantic Web really hasn’t, but that is what

we are calling it.

Mr. STEARNS. OK.

Mr. BERNERS-LEE. It is about being able to connect through from

one application to another so for example, imagine that there I am

doing my taxes and I am looking at a bank statement, and I do not

know why I spent a few hundred dollars for that point, is this an

allowable expense. Now the bank statement software only provides

me with a traditional financial analysis. However, there is a date

there. The date actually would fit on my calendar. If I take that

data and try to drop it on my calendar it just doesn’t work. Suppose it did. Suppose I would drop it on the calendar and so now

the bank statements are all up here in some form on my calendar.

I still don’t know what I was doing on the 26th of March. So I take

my roll of film for my photos and I drop that and now I see $400

and then I have all the pictures of these kids going around on

the——

Mr. STEARNS. Disney World.

Mr. BERNERS-LEE. Disney World, right.

24

Mr. STEARNS. So you know.

Mr. BERNERS-LEE. And now, OK, that is not an allowable expense.

Mr. STEARNS. I see. OK.

Mr. BERNERS-LEE. So what I have done is I have gone from the

world of the financial world through the time dimension into personal world of photographs in order to answer a question, not to

mention a scientist trying to figure out where a new virus has come

from.

Mr. STEARNS. And, Mr. Chairman, a machine could probably do

that in the future, analyze, and said this is what you spent on this

day at this time because you throw all that information together

into that one application and it will tell you, and that is what he

is talking about in the future. Thank you.

Mr. MARKEY. The gentleman’s time is expired. The gentleman

from Indiana, Mr. Hill.

Mr. HILL. Thank you, Mr. Chairman. In the last campaign that

we all had, and especially in my district, the issue of health care

came up every single day. I could tell you a thousand stories about

the problems people were having with the cost of their health care.

The one story I will recite is from a jewelry store owner in Salem,

Indiana. He is paying $1,000 a month for his health insurance, he

said, ‘‘Baron, you know, if it goes up any more, I have to drop my

coverage.’’ And I said, ‘‘I get those kind of comments every single

day of the campaign.’’

I don’t know if you can answer this question or not but do you

see any World Wide Web supporting applications for health care?

We are grappling with this problem in Congress, and we are trying

to come up with solutions. And you are the inventor of the World

Wide Web. Is there some relief here that we can provide customers

or tell them about that you can creatively come up with in your

mind?

Mr. BERNERS-LEE. I would like to hope so but I think the health

care problem, I agree, is really important and very difficult as well.

I was discussing with people last week so you ask whether there

could be contribution from the Web to this. Well, I must say to a

certain extent there has been one of the more gratifying stories

from the early days of the Web was from an ex-colleague from Europe took me out to lunch because his son had been suffering from

a very difficult to diagnose condition. He had been given all kinds

of treatments by all kinds of doctors and different drugs which

really worsened this, and he ended up dropping out of school. And

then somebody had mentioned, oh, maybe he has hypoglycemia and

so he had gone to the Web and he found a Web page which says

hypoglycemia, the disease that doctors tend not to diagnose.

And he read all about it and he gave his son a test personally,

and he cured him by changing his diet within three days. So in

that case—so a lot of people are going to the Web for health care

information. This brings up of course the question of whether how

you know what information to trust, how the public knows how to

do that. I know there is a lot of use of the Web for that. There are

also a lot more ways in which I think Web technology could be

used. The patient care record is very important. That has been outstanding in computing for years. Colleagues of mine at MIT have

25

been working on the idea of the patient health care record for years

since before the Web. The complexity of it is of course it involves

a lot of policies, very important policies to who gets to see what information under what circumstances, carrying information around

in a standard format which is what the Semantic Web provides so

that anybody can potentially read it not being impeded by the fact

that they have got their own software.

Meanwhile, if you take down the barriers from the different

types of software which exist currently with patient records so that

if you have something, if you are wearing something which contains your patient record and you have an accident in some part

of the country, some strange part of the country that any EMT can

then pick up that information and find out your blood type and so

on. As you break down those barriers then you have to erect artificial careful barriers of privacy, confidentiality, of course. And so

doing that is very important work. I think it is work we have to

do. I think it is possible so I think it is possible to make the patient

care system more sophisticated.

I think the problem of dividing up a doctor’s time between patients is something which personal one on one time with doctors is

not something which the Web will necessarily solve so to use the

technology where the technology is appropriate to use it for the mechanical things to make sure the computer can do the things which

it can do and people like doctors and nurses are doing the things

that only doctors and nurses can do.

Mr. HILL. You don’t see any applications that might be available

to people to try to acquire some kind of health care. I understand

that there is all kinds of technologies in place on the Web that people can refer to for treatment, but this whole issue of the cost of

health care is becoming a problem. Do you see any applications

that the World Wide Web would be able to offer to give people

some relief?

Mr. BERNERS-LEE. Well, to cut down on the cost of health care,

for example, technology has been used for remote presence and

generally when a remote expert, a consultant is called in, obviously

it cuts down the cost if the doctor doesn’t have to travel. It cuts

down on the doctor’s time if the doctor can be presented with all

the information about the patient including perhaps videos of previous consultants videos and pictures from operations, and so on.

So giving the doctor access to all the data which they legally have

about the patient and all the relevant data also from the sum of

medical knowledge about some other cases giving the doctor that

quickly and easily and intuitively is obviously something which is

going to make health care much more efficient. We have to make

it more efficient if we are going to make it affordable for people and

also pay doctors a living wage.

Mr. MARKEY. The gentleman’s time has expired. The gentleman

from Oregon, Mr. Walden.

Mr. WALDEN. Thank you, Mr. Chairman. Sir, I really enjoyed

your testimony this morning and have been looking forward to asking a few questions. This issue of the Semantic Web is intriguing

to me and what potential is out there for it. We were just talking

here briefly that we sort of do that with dogs now. You plant a chip

in an ISO standard at least for identification purposes, and it

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seems to me that it wouldn’t be that hard if we can do that for our

dogs and our pets to figure out how we could not necessarily implant a chip but certainly carry those data with us as we go around

and yet have privacy so I am intrigued by that.

I want to ask you a question. I know this will come across probably as weird but do you see a potential being an MIT engineer and

a great thinker and visionary where you can ever move not just

data but matter?

Mr. BERNERS-LEE. No. That is for somebody else to see. I don’t

know how to do that.

Mr. WALDEN. I just wondered. You know, these things we chuckle about now, I bet 50 years ago if somebody had said you will

carry a phone in your pocket and everything will be connected and

we would have said never.

Mr. MARKEY. Actually Dick Tracy had that two way wrist radio.

Mr. WALDEN. He did, and we laughed about it. Well, I was too

young. Of course you would have laughed about it. What are you

working on now?

Mr. BERNERS-LEE. In the consortium two hats. The consortium

is working on the mobile Web, making the Web so that it can work

on mobile devices and as part of that hopefully cheaper devices

which can be used in developing countries and poor areas. The Semantic Web clearly. We are also still working on HTML. HTML

still needs work. There are things that need to be in there that our

Web site developers feel that there are a few things that need to

be done there, and every now and again we look at even http. So

there are new graphic formats and so on. There are other languages for user interface, which are always interesting.

So the Web Consortium is in some cases pushing for the bounds,

the Web surfaces technology, for example, which allows enterprise

distributor systems to be built and companies to communicate with

each other and export services, information services. We are active

in lots of different sorts of areas in some cases really leading, having a vision, seeing that it could be different and pushing and then

leading—getting the standards out there, put out there by a few

other people who see the vision and get the twinkle in their eye

and are prepared to invest up front because they realize what it

could be like when everybody does it.

Other times there is a market need for something like the privacy technology which allows—to allow people to set their browser

up to test the privacy policy of a Web site just because, if you like,

a hygiene issue because people want to go shopping. They don’t

want to have to worry about privacy and so on. That is really developed in a very different spirit. We have lots of different activities in the consortium. MIT then looking particularly at the Semantic Web, looking at user interfaces at the Semantic Web. If there

is all this data out there and you have somebody whether it is a

scientist or a government agent or a person at home, how do you

give them the best access to all this. What is the equivalent of a

spreadsheet or whatever it is that you need to browse through all

this data and analyze it and connect things which you never connected before.

And as I mentioned before, the policy aware Web building systems which are aware of the policy around data and software

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which is responsible, software which allows people to be responsible.

Mr. WALDEN. That leads to an issue we have dealt with a lot in

this subcommittee and in the full committee, things like spyware

and popup ads and those sorts of things, and how as a consumer

I can have more control over what comes into my computer, and

it seems like every time we build a firewall or do something to get

at that the smarter people figure out how to get around whatever

was created to stop it. Do you look at those issues as well or are

those just sort of left to the private sector to figure out?

Mr. BERNERS-LEE. Well, I have to admit that the World Wide

Web Consortium felt for a long time that most of that was e-mail

and where http were not—SMTP is the mail protocol. Other people,

the Internet engineering task force does that, the e-mail. But then

when you look at the way a lot of the fishing attacks occurs because the e-mail which is an HTML mail and what the e-mail does

is it pretends to be a link to one place when the user hovers over

it. Now they don’t hover long enough to realize that actually it is

not to the bank, it is linked to bank of dot—something in Nigeria,

so the fact that it is HTML and the fact that it has a link is part

of the security problem there. So now the Web Consortium has an

activity for specifically looking at security of browsers.

I have always felt this should be a tactical problem. It may be

when we send e-mail we won’t be so anonymous but the e-mail system was put together, it was designed originally for an environment where everybody was friends talking to each other, very academic environment in which messages were forwarded from one

machine to another for the public good without worrying really

about who was going to pay for it because the costs were so small

compared with the benefit. So it was designed—it wasn’t designed

for the current situation. That doesn’t mean it is impossible. It is

fairly straightforward to add things. It is such a very large system

so there are various technologies which I think can be rated

against spam.

I know personally at the World Wide Web Consortium we have

a lot of mailing lists and so we put the best technologies we can

find to work on those, and I know that our engineers are talking

with other people at other sites about implementing those. So I

think that in the long term it may be more difficult for you to send

me an e-mail. You may have to show that you are related to an

institution like this but it will be easy for you to do that, and there

will be software which helps you to do that.

Mr. WALDEN. What do you see as the top one or two policy issues

that we should address and what are the top one or two threats

to the World Wide Web that we should be aware of? What should

we be thinking about especially long term?

Mr. BERNERS-LEE. I think—well, I hope the net neutrality thing

is a short-term thing. I think in most of the world people regard

neutrality as such an obvious requirement that I hope it will be

short term. An interesting long-term question is the patent one.

Both in the States and Europe opinions are changing about how

and when it is appropriate to take patents, and I think we are

moving to a situation where large companies which you think as

being the big companies which used to just make money from the

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patent pool have now had an understanding at the senior level that

when there is an open foundation technology like the Internet, like

the Web, like the foundation technologies to come that those standards have to be royalty free, and that understanding is necessary

to protect all the new markets which come in the future.

So I think that understanding has come to American industry in

the majority over the last few years but yet we have to find out

where that settles down and also across all the jurisdictions.

Mr. WALDEN. My time has expired. Thank you, Mr. Chairman.

Thank you for what you have done for the world and thank you for

coming today to share your thoughts with us.

Mr. MARKEY. The gentleman’s time has expired. The gentlelady

from California, Mrs. Capps.

Mrs. CAPPS. Thank you, Chairman Markey. It is a distinct pleasure to be serving on this subcommittee with you and with Ranking

Member Upton and the other distinguished members. Sir Tim,

thank you for taking the time today to speak with us about the future of the World Wide Web and the Internet. I think it is entirely

fitting that the creator of the Web is here to talk about the direction the Web may be going in the future. And I particularly appreciated in your opening statement your listing of some core values.

The phrases I wrote down were universality, independence, blank

canvas, no ownership, global society, and I am going to remember

those.

One of the things that you have written that has caught my attention, Sir Tim, is that some countries have done a better job than

others, including the United States, in making sure that the Internet continues to be a neutral communications medium. That is a

quote, your words. On the other hand, China, for example, has

sharply restricted its citizens’ access for the Web. My question is

to direct you to perhaps talk about some of the policies that these

countries have adopted, the ones we could be learning from and

what are the lessons that we as U.S. policymakers could be taking

away from their experiences.

Mr. BERNERS-LEE. Well, of course chronologically and historically

the U.S. was the place where the Internet was forged and the protocols were produced and it spread across—the Internet spread

across the world, and in fact I was lucky that when I was developing the Web more or less I was at the point where I was at the

leading edge of that explosion. It was just becoming politically acceptable in Europe to talk about using the Internet instead of using

the previously preferred ISO standard protocols. So in many ways

the U.S. has led. My impression is that in other countries that net

neutrality is very much the assumption as opposed to something

which is questioned.

Mrs. CAPPS. So it is assumed in other countries?

Mr. BERNERS-LEE. Yes. When I, in fact, give a talk in other countries, I tend not to mention it. If I do mention it, people tend to

ask what it is. It isn’t an issue, and I hope that continues to be

the same. Now you asked about China. Some countries have restricted policies, some countries try to restrain what people can

read, what people can publish. I feel very at home in the United

States as appreciating free speech and the openness of communication. We talk at some of these debates about policy and very much

29

about the commercial aspects but remember that communication is

not just for commercial reasons. Commercial bias is not the only

bias. Political bias, of course, is if anything a more fundamental

one but without a good political forum in which can be open debate

and accountability then one cannot really set up the commercial

economy, the market economy, which needs the commercial openness and fairness.

I think it is a pity that there are places where the open Internet

connection isn’t allowed. I can see those countries making a change

from a very restricted free Internet society to a more open society

is not something which is easy so I wouldn’t expect——

Mrs. CAPPS. So if you go down a certain road then it is harder

to get back again than to stay open——

Mr. BERNERS-LEE. I am an optimist. I feel that the Internet, that

it is very difficult actually to engineer, give great censorship in the

Internet, and that in general the truth will win out and information will flow, and those countries will have to move with time one

way or another. It is just a question of how they transition.

Mrs. CAPPS. Let me see if I can follow up. As you know, and you

mentioned the business aspect, many of the most successful Internet businesses have been based in the United States. What might

be the implications for some of these businesses and consumers if

we don’t take some of the steps that you have mentioned, for example, to enshrine that neutrality into law, could the U.S. lose its

international competitiveness in this area?

Mr. BERNERS-LEE. If we had a situation in which the U.S. did

not have serious flaws in net neutrality, but, for example, Europe

did have net neutrality. I must say if I was going to start a company, then I would be very tempted to move, yes.

Mrs. CAPPS. Good answer. Thank you. Thank you very much.

Mr. MARKEY. I thank the gentlelady. I have not asked my questions so I think I will take this opportunity at this time, but if anyone else has any question which they would like to pose to Sir Tim,

I think we can accommodate that. You state in your testimony that

when you invented the Web and launched it, you didn’t need to ask

anyone’s permission first and you talked about the universality of

the Web. Tell us what that means in terms of future innovation for

the next Sir Tim.

Mr. BERNERS-LEE. This is the separation of the layers, I suppose.

It is the fact that one layer of the technology and the social conventions which go around which complete that technology form or

blank slate. The Internet technology would allow me to write a program which would communicate with another program. One program signs up for a port number. They agree on a port number.

Then that port number distinguishes the traffic between those two

programs from traffic between other programs, and the Internet

passes that information across.

Now it is true that when we start to go to the extreme bandwidth requirements of video that is not just simply the passage of

data but it is the passage of data with a certain quality of service

which is important. And there has always, of course, been quality

of service issues that some people would have slow connections and

some would have fast connections. Early Web browsers came in at

various places that you could get Web browsers which were better

30

or better configured for running over slow connections. But the essential thing is that the Internet technology was designed so that

anybody could go out and invent whatever they could imagine to

run on top of it just as the computer for my parents——

Mr. MARKEY. So you don’t need anyone’s permission and as a result entrepreneurial activity can flourish.

Mr. BERNERS-LEE. Yes. I would like to be able to download—I

have on this phone a Web browser which didn’t come with it. I

downloaded it from the Internet. I ran it on the phone. So when

anything is an open platform then that means it is open to innovation. The Web is an example of innovation built on the Internet.

We have seen a huge number of examples of innovation built on

the Web, eBay, Flickr, the list is well known.

Mr. MARKEY. So you travel the world. You see broadband speeds

all around the globe. How would the United States compare in

terms of deployment and affordability? What is your impression as

to how the United States is doing in terms of speed that we are

providing to the American people?

Mr. BERNERS-LEE. I shouldn’t attempt to give you a good answer

there because there are people who analyze this and I am sure that

there must be analysts who have tabulated these things. My impression is that in Europe, for example, that Europe is very competitive and some Internet service providers offer very high bandwidth with a very inclusive international phone service for very

competitive rates so one point maybe a year or two ago I remember

there was a claim that the French situation was the French were

actually beating the Americans when it came to the downward

price curve, but I think really the same spirits of making a faster

and cheaper connection is fairly pervasive, but I can’t give you accurate figures.

Mr. MARKEY. Thank you. Now you say that the World Wide Web

Consortium will only standardize new protocols and technologies if

they can be implemented on a royalty-free basis. Could you elaborate on that?

Mr. BERNERS-LEE. The things which have been built up on the

Web have been built because there was not—were enabled largely

because there was no fee payable. There are lots of systems which

have been less successful. In fact, when you look on the Internet

even when you look at streaming video you find that you have to

download different players to play the information from different

places. There are competing standards which are not royalty-free.

You find it is unlikely that you can get an open source copy of

these. There are only a very limited number of the players for

these things. There is a continual frustration to users and information providers alike that they have to make a choice as to which

players that they will use. And as an example of what can happen

when there is a——

Mr. MARKEY. You could have made a lot of money if you charged

for all the work that you did and do and that the World Wide Consortium——

Mr. BERNERS-LEE. Chairman Markey, let me assure you that if

I had charged from the word go, per click, the World Wide Web

would not have taken off at all, and we would not be here talking

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about it and you would not be getting all that information from the

Web browser on your BlackBerry.

Mr. MARKEY. I think it is important for the committee to hear

that sentence uttered.

Mr. BERNERS-LEE. Had there been a fee, there would have been

no investment. The investment people made on the Web was made

by volunteers in their garages late at night. It was made by people,

system managers, who when their work day was done decided that

they needed to install something like a Web browser. And when it

was done by companies allowing me—I, myself, was allowed by my

boss to do it in spare time. People did it in their 10 percent time.

If there had been any form of fee, they wouldn’t have gone anywhere near it.

Mr. MARKEY. Let me ask you a final question, which is that I

would like you to talk about the international nature of the World

Wide Web Consortium and the importance of building consensus

across continents on standards, protocols, guidelines, recommendations, everything that is necessary to maintain this incredible invention.

Mr. BERNERS-LEE. Well, from the word go when I put out the

specs for the first browser and server on the Net, the contributions

came in from across the planet, from Hawaii, from India, from

Israel, so the Web development community has always been international. So from very early days internationalization of the technology has been very important. And when we meet together, we

try to make sure that we are very fair about different cultures and

different languages and that we use the best—input the best volunteer resources that we can get from across the globe, and I think

that this makes the standards very much higher quality.

Mr. MARKEY. Let me ask you one final question. Give us the one

message you would like us to remember as we deliberate over the

next couple of years on all of the issues that could impact on the

World Wide Web. Could you give us just one kind of summary message view that you want us to keep with us as we move forward?

Mr. BERNERS-LEE. I suppose the fact that communication between people is what makes us a society, what makes the human

race the human race, instead of disconnected people behind politics,

and commerce, and education, and romance, and personal diaries,

and all the things that makes our society our society, and some of

those things are very crucial to us. So we have learned over the

generations that protecting the means of communication is really

important. For the World Wide Web there are certain values which

we must maintain such as particularly its universality, and separation of the layers.

If there is one thing that you should take away is that the World

Wide Web is together technology and society. It is computers and

people. It is really a big Web of people. So while I will do my bit

as an engineer it is very, very important that you as members of

the committee should do your bit as legislators.

Mr. MARKEY. Thank you, sir. Any of the other members have any

questions for Sir Tim? Yes.

Mrs. BONO. I am sorry because that was such a beautiful end to

this hearing, but I do have one thing I would love for you to clarify.

And that is in your testimony and what you just said to the chairVerDate 11-SEP-98 10:59 May 06, 2008 Jkt 000000 PO 00000 Frm 00042 Fmt 6633 Sfmt 6633 Q:\DOCS\110-10 SCOM1 PsN: SCOM1
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man in the testimony you write the lesson from the proliferation

of new applications and services on top of the Web infrastructure

is that innovation will happen provided it has a platform of open

technical standards, flexible, scaleable architecture, and access to

these standards under royalty-free terms. You have said that repeatedly. But can you please just differentiate that you do not

mean royalty-free content, because I think some people will confuse

the two, royalty-free platform, the architecture of the World Wide

Web, and it would help, I think, if you could clarify that you do not

mean royalty-free content.

Mr. BERNERS-LEE. No, I do not mean, no—when I talk about the

infrastructure this is like the roadway. It is not the goods carried

in the trucks. So, yes, we are talking about being able to use the

Web technology itself without having to pay a fee for the underlying infrastructure, nothing to do with the royalties which we quite

properly pay on music and so on.

Mrs. BONO. Thank you very much. Thank you, Mr. Chairman.

Mr. MARKEY. Thank you for asking that question. I think that

was very helpful to us. Sir Tim, you don’t know what an honor it

was for the subcommittee to have you testify before us. I can promise you that but for all those roll calls this morning that you would

have had full attendance the whole time. People are commenting,

as Congresswoman Bono did, that they wished that you could have

just gone on at much greater length, and all of the members have

made that comment to me. So we thank you, and if possible we

would like to be able to continue to consult with you over the years

to get your advice as to which is the wisest course in any one of

these areas that our country and the world should pursue. Thank

you. This hearing is adjourned.

[Whereupon, at 12:56 p.m., the subcommittee was adjourned.]

[Material submitted for inclusion in the record follows:]

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(43)

THE DIGITAL FUTURE OF THE UNITED

STATES

THE FUTURE OF RADIO

WEDNESDAY, MARCH 7, 2007

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON TELECOMMUNICATIONS

AND THE INTERNET,

COMMITTEE ON ENERGY AND COMMERCE,

Washington, DC.

The subcommittee met, pursuant to call, at 2:35 p.m., in room

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

Members present: Representatives Doyle, Harman, Inslee, Boucher, Towns, Eshoo, Stupak, Engel, Green, Dingell, Upton, Hastert,

Stearns, Deal, Shimkus, Pickering, Radanovich, Walden, Terry,

Ferguson, and Barton.

OPENING STATEMENT OF HON. ED MARKEY, A REPRESENTATIVE IN CONGRESS FROM THE COMMONWEATLH OF

MASSASCHUSETTS

Mr. MARKEY. Good afternoon, ladies and gentlemen. This is the

second in a series of oversight hearings on the digital future of the

United States that began with testimony last week from the inventor of the World Wide Web, Sir Timothy Berners-Lee. Today we examine the radio industry and assess its power and its promise. And

we have a diverse panel of witnesses before us to illuminate many

of the issues in the radio field. Radio has a long history of democratizing access to information. It is a medium that reaches virtually

every area of the country, and radio stations are powerful communications, assets for the communities that they serve.

Noncommercial low-power and full-power radio in particular help

reach underserved areas, air niche programming formats, and provide local information of value to diverse community segments. I

hope that we can continue to protect and enhance the role of noncommercial voices through low-power radio.

Moreover, as the FCC prepares to open an application window

for new full-power noncommercial stations, it is vital to ensure that

adequate notice is given to the public about opportunities to obtain

licenses to ensure that aspirants for such licenses may broadly represent the great diversity and richness of the country. In the area

of commercial, over-the-air radio, more than 1,000 radio stations

are already broadcasting digital content. Digital technologies allow

free over-the-air radio broadcasters to provide upgraded audio qualVerDate 11-SEP-98 10:59 May 06, 2008 Jkt 000000 PO 00000 Frm 00054 Fmt 6601 Sfmt 6601 Q:\DOCS\110-10 SCOM1 PsN: SCOM1
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ity, as well as the ability to multicast their signal into multiple

feeds. These multiple audio feeds may permit, for example, a radio

broadcaster to air news, sports, weather, traffic, and talk on one

feed while two others simultaneously broadcast music from distinct

musical genres.

As we move towards the digital era, we must also assess the public interest obligations of broadcasters and the effects of marketplace consolidation. The commission is in the midst of reviewing its

media ownership rules, and this review will analyze the effect of

this consolidation on competition, localism, and diversity of viewpoints among many issues.

In addition, I am concerned about the abysmal lack of broadcast

licenses that are held by minority-owned and women-owned businesses. While many licenses were obviously given out to original licensees decades ago, it is important to remember that half the

country is women and approximately 35 percent is minorities. Yet

women and minorities today reportedly hold less than 4 percent of

FCC broadcast licenses. This is something that this Congress and

the FCC should find creative ways to remedy, and the commission

can take an important first step by developing accurate data on

current minority and women-ownership levels, which today is not

readily available information to the public.

I also want to note the recent decision by the Copyright Royalty

Board to hike royalty rates. Previously small Internet radio providers were able to pay a percentage of revenues to cover royalty payments. The decision by the Copyright Royalty Board, which now

sets rates on a per-song, per-listener basis effective retroactively to

2006. This represents a body blow to many nascent Internet radio

broadcasters and further exacerbates the marketplace imbalance

between what different industries pay. It makes little sense to me

for the smallest players to pay proportionately the largest royalty

fee. This decision runs the risk of hurting not only fledging entrepreneurs, but also the online radio services of public broadcasters

and smaller commercial stations.

And finally, I want to briefly address the satellite radio industry.

Obviously XM and Sirius Radio have stated their desire to merge.

This merger raises several public interest issues that this hearing

will help to illuminate. Among these issues are the merger’s potential effect on consumer prices and consumer equipment, its effect

on content and content providers, its effect on localism and the

ability of listeners to both pay and free radio services to obtain information that is local in nature, and its impact on competition

broadly. The merger may also impact telecommunications policy

goals related to spectrum efficiency and the prospects for new competitive entry and innovation.

I want to thank all of our witnesses on this star-studded panel

today for their willingness to testify. Let me now turn and recognize the gentleman from Michigan, the ranking member of the subcommittee, Mr. Upton.

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

Mr. UPTON. Well, thank you, Mr. Chairman, for holding today’s

hearing. We all know that radio does play a very important role in

45

our lives, and I commend all those dedicated folks in the industry

for enriching those lives. The numbers of radio stations in America

has roughly doubled since 1970, with approximately 13,500 stations in operation today. And satellite radio now serves nearly 15

million customers nationwide.

When we discuss the future of radio, we must also have a concurrent discussion regarding the future of broadcast radio ownership

rules. And while there has been tremendous growth and advances

that have been made in the world of radio, not to mention the overall media world over the years, the unfortunate reality is that our

nation’s media ownership laws do not reflect or even acknowledge

such great advancement. Current ownership laws are especially destructive to the ability of broadcasters to compete because they

freeze growth. They stifle experimentation and innovation and perversely diminish diversity of viewpoints. Common sense tells us

that the recent explosion of media sources should eliminate any

concern over a lack of diversity of views in the marketplace and

competition, which have been the principle justifications for the

rule. This growth remains unabated and more than makes the case

for regulatory relief in the broadcast sector.

Let us take a closer look at the local broadcast radio ownership

rules. In a market of 45 stations, the most that a single company

can own is eight. In a market with 145 stations, a single company

can own also only eight stations. Where is the logic? Even setting

aside for just a moment the competition from other media, especially satellite radio, there is absolutely no public good enough to

justify the same local radio ownership cap for Cincinnati as it is

for New York, Chicago, or Los Angeles.

And let us remember that ownership diversity is only a proxy for

viewpoint diversity. The largest markets in the country tend to

have more diverse populations, and thus they demand more diverse

program formats. Yet the maximum number of formats any one

owner can deliver is eight because that cap ownership is maintained by the FCC. Increasing the number of stations that any one

entity could own would translate into an increase in the number

of formats that can be broadcast into that market.

The result would be to increase the quality of free terrestrial

radio services to consumers and increase the availability of foreignlanguage programming to them. Moreover, the economies of scale

that are obtained when commonly owned stations are clustered in

a market make it possible to take risks on new formats that would

not otherwise be feasible. The result will be that owners will experiment with new and different formats, and consumers will be the

beneficiaries. The public will likewise benefit from a healthy radio

industry.

While the FCC’s current regulations recognize that AM and FM

stations compete against each other, they fail to recognize the other

competitors in today’s marketplace, foremost among them obviously

is satellite radio. For the time being, the two satellite radio licenses

can reach approximately 150 channels in every market in the country, compared to the current limit of only eight stations that restrict the terrestrial radio industry. Moreover, licensed radio stations obviously compete against new devices, whether they be

46

iPods, Internet radio, which will soon be broadcast to cars, using

the YBas networks.

The upshot is that terrestrial radio is engaged in an extremely

competitive marketplace and one that is becoming more competitive virtually every day. Against that type of competition, I believe

that it is worthwhile to lighten the regulatory restrictions on ownership that limit the ability of free terrestrial radio to grow in the

largest markets in the country. I continue to firmly believe that in

markets with 60 or more radio outlets, a modest increase in the

number of stations that one entity can own or control will confer

significant public interest benefits. Modest increase would not result in undue concentration. It would allow a single entity to control 10 stations, would mean that no one entity would be able to

control more than 17 percent of that market.

So I look forward to our testimony today from our witnesses,

looking at a number of different issues, and I appreciate the chairman’s hearing this afternoon.

Mr. MARKEY. Thank you. I thank the gentleman. The Chair recognizes the Chairman of the full committee, 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, thank you. I commend you for holding this hearing today. I also thank our witnesses for appearing before the subcommittee. I want to especially welcome Mr. Peter

Smyth of Greater Media, whose company owns three Detroit radio

stations and which does an outstanding job of serving our community. Welcome.

This is the second hearing in the committee’s examination of the

Nation’s digital future, and it is in an important one. Decisions

may soon be made that will affect this structure of the broadcast

marketplace and the level and quality of discourse in our democratic society. Since the formation of commercial broadcasting, Congress has acted deliberately to preserve localism, promote diversity,

and ensure competition in the broadcast media. Rather than establish a national broadcast system, the Congress oversaw the creation of thousands of local stations throughout the Nation that are

required to respond to the needs of their local communities.

So then what is the state of radio today? Many claim that the

consolidation of the radio industry over the past decade has adversely affected diversity on the public airwaves and the service

broadcasters provide to their local communities. I must observe

that there is reason to believe that there is truth in these statements. These concerns then must be taken seriously. Yet we now

find that Clear Channel, the largest group owner, is spinning off

several hundred radio stations. This offers a ray of hope that the

trend of declining media ownership can be reversed. The last count

on this matter shows that minorities own a dismal 4 percent of

radio stations nationwide. And there is reason to believe that this

may be in a downward trend.

I would note that it has been the Congress’s policy for a long

time, longer than I have served in the Congress, that we should

47

have full representation of minority broadcasting and that the Federal law should and the Federal regulatory agencies should encourage that situation to go forward. The FCC now then must speed up

its efforts to spread licenses among entities that better reflect the

diversity of people across our Nation.

The transition to local digital provides an opportunity to reinvigorate local broadcasting. With near CD-quality sound and multicasting capability, digital radio allows broadcasters to improve

service and to remain a vibrant and important part of the local

media landscape. With any luck, we might even see a resurgence

of classical music on the dial, something which would bring me

great personal pleasure. Broadcasters are also joining a variety of

entities using the Internet to serve a worldwide audience. Listeners

now have a broad range of radio entertainment options, including

satellite radio, Internet radio, mobile phone services, and recording

devices such as iPods.

Earlier this week, the Copyright Royalty Review Board set a new

music royalty rate for commercial and noncommercial Webcasters.

I think this committee should look carefully at the implementation

and the implications of that decision, which I think at this time are

not properly understood. The average music consumers are embracing podcasts and interactive modes of delivering your information.

I have found that my own podcasts enable me to better communicate with my constituents.

Now, what can consumers expect to hear in the future? Will the

new operations and the new opportunities translate into more local

and more compelling and more diverse content? Even in this new

world, radio remains an important fabric of our local communities.

We must remember the deliberate vision of a free and local system

of commercial and noncommercial broadcasting spread among the

urban and rural communities that make up our Nation. We must

continue to promote new uses of the spectrum, such as low-power

radio, while protecting existing licenses from interference. Even

today, a healthy free broadcasting service remains an important

and vital source of local news, culture, and most importantly, emergency information. Our national policies must continue to promote

localism, diversity, and competition in the media marketplace.

Those with the privilege of using public airwaves, whether local

or national, should provide a public service. That is the law. That

was the intention of the Congress when we passed the Radio Act

in 1927 and has remained so to this day. The FCC has been far

too laggard in overseeing public interest responsibilities of digital

and satellite radio providers. We must never forget that industries

that distribute information have a greater responsibility to our society, and consolidation among them poses a far more serious concern than, for example, those who distribute toothbrushes or toasters. Today’s hearing begins with an exploration of the merger of

XM and Sirius. I look forward to learning more about this matter

as the FCC and others begin what I expect will be a thorough, objective, competent, and fully transparent review of the transaction

and its effect on consumers and the public interest. Mr. Chairman,

I thank you for your courtesy. I give back the balance of my time.

48

Mr. MARKEY. I thank the gentleman. Chair recognizes the ranking member of the Energy and Commerce Committee, the gentleman from Texas, Mr. Barton.

OPENING STATEMENT OF HON. JOE BARTON, A

REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS

Mr. BARTON. Thank you, Mr. Chairman. I think this is an important hearing, and I appreciate you calling it today. This is the second hearing in your series on the digital future of the United

States telecommunications market. I think it is good to investigate

the opportunity about whether changes in the radio marketplace

require us to rethink our approach to regulating audio services in

this country. Radio has not been immune to the same revolution

that is making the voice, video, and data markets so competitive.

We can get music, baseball, talk, the news, and even other types

of entertainment now over these satellites. We can get what we

want not only over the air from radio stations, but from the satellite, from the Internet streamers, yes, Podcasters and even cell

phones.

The broadcasters themselves are going through a mini-transformation. There is more than 1,000 stations have already embraced digital transmissions. This shift should enable broadcasters

to improve their sound quality and increase the number of channels that each station can provide. Thankfully, the broadcasters

have not needed additional spectrum to do so, making their transition to high definition radio considerably simpler than it is for digital television.

Changes in the voice, video, and data markets have led us to

question legacy regulations, some of which were written when people were sitting around living rooms listening to Little Orphan

Annie over the radio. This hearing presents the opportunity to investigate whether changes in the audio market suggest that radio

regulation also needs reforming. To see the importance of matching

regulations reality, we need to look no further than the FCC’s inability to justify either of its last two rounds of media ownership

restrictions to the satisfaction of the courts.

Judges have decided that strict regulations wouldn’t do, and neither would loose ones because no one could show how either set of

rules actually promoted content diversity and localism in the real

world. At some point, we need to figure out who is on first, us or

the innovators. I wonder if technology and competition won’t do a

better job of serving radio listeners than politicians tinkering with

outmoded regulations in a constant game of catch-up.

Indeed, one issue we will address today, the proposed merger between XM and Sirius, suggests that technological advances make

even defining the relevant market a complex task. This is an important hearing because it impacts the future, the digital revolution in radio. And I am looking forward to hearing our witnesses

and in hearing of the questions too that shows where this committee tends to move its legislation.

With that, Mr. Chairman, thank you again for holding this hearing.

Mr. MARKEY. The Chair recognizes the gentleman from Pennsylvania, Mr. Doyle.

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

Mr. DOYLE. Thank you, Mr. Chairman, and welcome to our witnesses. Mr. Chairman, I want to tell you a little story of a local guy

done good. His name is Greg Gillis, and by day, he is a biomedical

engineer in Pittsburgh. At night, he deejays under the name Girl

Talk. His latest mash-up record made the top albums of 2006 list

from Rolling Stone, Pitchfork, and Spin Magazine amongst others.

His shtick, as the Chicago Tribune wrote about him, is ‘‘based on

the notion that some sampling of copyrighted material, especially

when manipulated and recontextualized into a new art form, is

legit and deserves to be heard.’’

In one example, Mr. Chairman, he blended Elton John, Notorious

BIG, and Destiny’s Child all in the span of 30 seconds. And while

the legal indy music download site, Emusic.com, took his stuff

down for possible copyright violations, he’s now flying all over the

world to open concerts and remix for artists like Beck.

The same cannot be said, however, for Atlanta-based hip-hop mix

tape king DJ Drama. Mix tapes, actually made on CDs, are sold

at Best Buy and local record shops across the country. And they

are seen as crucial to make or break new acts in hip-hop. But even

though artists on major labels are paying DJ Drama and others to

get their next mix tape, the major record labels are leading raids

and sending people like him to jail.

I hope that everyone involved will take a step back and ask

themselves if mashups and mix tapes are really different, or if it

is the same as Paul McCartney admitting that he nicked a Chuck

Berry base riff and used it on the Beatles’ hit ‘‘I Saw Her Standing

There.’’ Maybe it is, and maybe Drama violated some clear, bright

lines. Or maybe mix tapes are a powerful promotional tool, and

maybe mashups are transformative new art that expands the listener’s experience and doesn’t compete with artists as made available on iTunes or at a CD store. And I don’t think Sir Paul asked

permission to borrow that baseline, but every time I listen to that

song, I am a little better off for him having done so.

Until our questions about the future of music get answered, we

first have to look at the future of radio. I want to look at whether

Webcasters saddled with new royalty fees, whether just one satellite radio company, whether low-power FM radio stations can

really help artists break through the clutter and be heard by

enough people to be successful.

And I want to look at how consumers experience music and how

radio shapes that. I look forward to the witnesses talking about

these issues and more. And, Mr. Chairman, with that, I yield back

my time.

Mr. MARKEY. I thank the gentleman very much. The Chair now

recognizes former Speaker of the House of Representatives, Dennis

Hastert.

Mr. HASTERT. Mr. Chairman, I yield back.

Mr. MARKEY. The Chair recognizes the gentleman from Illinois,

Mr. Shimkus.

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

Mr. SHIMKUS. Thank you, Mr. Chairman. I was just trying to figure out half the words that Mike Doyle just mentioned. I am

clueless, but I think you will help me later on. I will be brief. I am

all about multiple pipes for competition. The more pipes, the better.

And that helps consumer choose, and it stirs innovation. But it is

very schizophrenic in this new era as things change. There is a

local service requirement for local broadcasters that I think is very,

very important that we preserve for safety. However, then you talk

about a Katrina event, when towers go down, satellite may be able

to provide a venue by which public safety information can get delivered.

So the world doesn’t stay the same. It changes, and that is why

I appreciate the chairman calling this. I love industries that modernize and technology advance quicker than we can regulate. That

is what I like because then it continues to inspire new services, and

we may be there in this industry. In some sectors right now, there

are schizophrenic tendencies, based upon the ability of the local

service requirements, based upon new technologies, it is appropriate that we address them. And I am glad to be here. Mr. Chairman, I yield back.

Mr. MARKEY. The gentleman’s time has expired. The gentlelady

from California, Ms. Harman.

OPENING STATEMENT OF HON. JANE HARMAN, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF CALIFORNIA

Ms. HARMAN. Thank you, Mr. Chairman. I would observe that it

took one person to educate us about the World Wide Web, and

clearly it takes at least five to help us with radio, which has been

around a much longer time. From FDR to NPR, a radio has remained a primary source of information for millions of Americans,

but obviously changes in radio today parallel the great strides in

Internet, television, and other telecommunication services which

we are learning about in our digital future series of hearings.

Maybe, Mr. Chairman, we should have a digital future series of

hearings about Congress some day too. Digital future, if any, series

of hearings.

At any rate, radio is a source of entertainment too. Digital, highquality entertainment. In fact, today high definition radio stations

broadcast CD quality sound over free airwaves. Wal-Mart is now

selling high definition audio receivers. And in a short time, free

digital quality music will be the standard in every city and town

in America.

But digital radio, whether satellite, Internet, or over the air, is

an example of technology outpacing legal protections for intellectual property. I know that the Judiciary Committee will take a long

look at this issue. But, as you have said, it is an important one for

this committee too.

Competition in the radio market depends on a level playing field

for radio outlets and on fair treatment for musicians, songwriters,

and record labels whose work they broadcast every day. I hope our

look at competition and fairness in the marketplace won’t overlook

the people who make free music in our cars, homes, and office posVerDate 11-SEP-98 10:59 May 06, 2008 Jkt 000000 PO 00000 Frm 00061 Fmt 6601 Sfmt 6601 Q:\DOCS\110-10 SCOM1 PsN: SCOM1
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sible. Many of them, I would observe, come from Los Angeles where

my congressional district is located. I think, Mr. Chairman, this

hearing is timely, and our careful focus is needed. And I confess it

is impressive to learn that Chairman Dingell knows about Podcasts

and that my friend and colleague Mike Doyle is so hip. I yield back.

Mr. MARKEY. Gentleman from Oregon, Mr. Walden.

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

Mr. WALDEN. Thank you very much, Mr. Chairman. Of course,

I am very interested in this hearing. I think, I believe, I am the

only licensee on the committee and in the Congress that actually

owns and operates radio stations, at least for a few more months.

We are in the process of selling them after nearly 21 years in the

business. So I first always disclaim that so nobody accuses me of

a conflict of interest that I haven’t at least acknowledged. But I

have a great passion and interest in radio. My father was in it for

38 years. I grew up obviously around the tower and the transmitter. Based on my receding hairline, you can tell that. And so I am

interested in these issues.

And, Mr. Chairman, I would point out that of your statistics on

4 percent of the licenses are owned by women or minorities, my

wife and I actually share the stock in our company. So it is 50/50,

so we represent, in terms of licensees, probably at least half of one

of those 4 percent in ownership because we have run it and owned

it together. And I have great passion for the industry.

I have great concern about its future. I think in many markets,

consolidation has been very healthy and helpful to enhancing program content, especially in smaller markets were many stations

were on the border of going broke. In our own situation, we started

with two, acquired two others that weren’t in the best of shape and

put another one on the air. So we have actually brought new programming to the marketplace, and one of our stations actually won

a Marconi, an AM station.

And so there is a lot of really good local programming going on

in America in radio, and we hear this talk of the effect of consolidation. And yet I think Clear Channel is the largest owner of radio

stations, owns less than 10 percent of the total number of stations

out there and is selling 400 of those 1,200, just to pick a number

out of the air.

This Congress has also, with the FCC, authorized low-power FM

broadcasters to fill a need in the communities for great diversity,

and virtually anyone who is not in the commercial radio business

can go out and get a LPFM license. And there are hundreds and

hundreds of them on the air, including in the markets that we are

in. And so I think there is enormous diversity. At the end of the

day though, broadcasters are there when there is an emergency.

In our own situation, we have gone commercial-free and programming cancelled in cases of emergency to provide full-time information. I am not alone in that effort. Many of my colleagues

have done that. And as you mentioned, in Katrina, in other crises

around the country, that is just what we do. And we are there. We

are there when the snow piles up on the road and the school buses

can’t run. It is not other forms that are telling you that. It is your

52

local broadcasters, and so sure we can always do better, but I think

we got a great record, and I look forward to the panel today and

hearing from them and where we go with the future on over the

air free broadcasting as well as mergers and consolidations and alternatives for America’s listeners. Thank you.

Mr. MARKEY. The gentlelady from California, Ms. Eshoo.

OPENING STATEMENT OF HON. ANNA G. ESHOO, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF CALIFORNIA

Ms. ESHOO. Thank you, Mr. Chairman, for holding this hearing,

and I expect it is going to be another enlightening one. Just as the

Internet and digitization of content has revolutionized commerce,

digital audio has transformed the way we listen to music, to news,

to sports, and other sources of information and entertainment

today. I think that is indisputable. It has changed. It has changed

rapidly. It is exciting. A lot of people are enjoying it, and it really,

I think, is a mark of the 21st century.

Now, whether delivered by satellite, wi-fi, wireless phone, cable

modem, DSL, digital audio has greatly enhanced choices for consumers, for innovators, and for the competition that exists in our

country. Until very recently, when I think of it, the only music that

I could listen to was from my local radio station from my home or

my car stereo, and really not all that long ago, from my Walkman

when I was on the treadmill. And that seems really almost humorous to think that that was not all that long ago. It seems as if it

is really in the distant past.

Now, our choices are no longer limited by our local broadcast

radio stations or by our personal CD collection. In fact, the choices

are almost limitless. Satellite radio delivers hundreds of channels

to cars or portable devices. IPods carry thousands of songs in the

palms of our hands, and the Internet delivers really any song we

have ever heard of or a radio signal from across the globe to any

connected device.

But unlike other Internet content, these innovations are threatened by dominant broadband providers who have the ability and

the incentive to limit consumers’ access to the content of their

choice. I think it is essential that access to Internet radio and content distribution services remain unimpeded and outside the control of broadband gatekeepers. Without net neutrality, it is possible, I think it is likely that the broad consolidation in terrestrial

and satellite radio ownership and limited consumer choice will be

duplicated in the online environment as broadband providers steer

users to their own services or their partners’ offerings.

Net neutrality is critical to ensure that Internet radio and other

emerging online music and information distribution services have

a chance to compete with incumbent providers.

So welcome to the witnesses. I think that you are also eager to

discuss the potential merger of two of America’s satellite radio providers, and I look forward to you answering my questions. Thank

you, Mr. Chairman.

Mr. MARKEY. The gentleman from Nebraska, Mr. Terry.

53

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

Mr. TERRY. Thank you, Mr. Chairman, for having this important

hearing. Of course, we had the digital television hearing and the

Internet hearing, and now the radio or aural, not O but AU, part

of the digital transition. And for consumers, what an exciting time.

You look at all the consumer products where we can get our music

or talk radio or podcasting. I just wonder what it is going to be like

as we have the digital breakthroughs that are occurring right now,

what it is going to look like 10 or 20 years from now.

I am probably an example of the consumer that we are going to

talk about or should be the focal point of today’s hearing, of how

best to empower the consumer in this changing environment so

that they have access to whatever mechanisms necessary so they

can get the programming that they want.

I have my video iPod. All my kids have their iPods. Even the 6-

year-old has to have his own. My wife’s Christmas present was Sirius for the car and in the house; although; I will have to admit we

had a discussion about whether to get Sirius because of one of their

programs, Howard Stern, on there. And my wife and I said well,

they will probably break Sirius at some point anyway. True discussion.

Maybe we will get the answer to that or not, but certainly having

Mr. Karmazin here today prompts the discussion of whether to ask

a decency question about satellite. I think I will pass on the decency question, but I think we will have a healthy discussion about

whether a merger or creating within the satellite environment a

monopoly is appropriate from the consumer’s standpoint.

The question that I want to ask our panelists today is how would

we define the market today? Certainly if I bought my music from

a record store some time ago, we would not have defined that as

competition; although, I guess in a way it is. But yes, while there

is free over the air, we now have for-pay satellite. We have all

these other mechanisms. Do we throw anything that makes noise

into the world of competition so that we don’t define this merger

as a monopoly?

I think that is one of the questions that should be answered

today. I am certainly skeptical of these two companies coming together as one. I think on the surface that is anti-consumer. We will

ferret that out today. I want to thank all of our panelists for being

here to aid us in our policy decisions, and I yield back.

Mr. MARKEY. Next to the gentleman from Texas, Mr. Green.

OPENING STATEMENT OF HON. GENE GREEN, A

REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS

Mr. GREEN. Thank you, Mr. Chairman, for holding the hearing

on the future of radio. The future of radio is quickly transforming

with many recent changes in the way consumers can assess programming. The emergence of HD radio, which has become more affordable and accessible is providing new and additional programming to consumers.

On the other hand, the proposed Sirius and XM merger raises serious questions the implications would have on localism and consumers even if safeguards are put in place remains unclear at best.

54

Next week, we will hear from the FCC commissioners in front of

this panel. I am sure they will be a prominent topic in both testimony and questioning after today’s New York Times article about

Chairman Martin’s concerns over the merger. It is hard to see how

prices for satellite radio will come down when a big part of the reason for the merger is to make it profitable.

A related issue, which greatly concerns me, is the attempt by satellite radio to offer local radio programming. I have worked with

Mr. Pickering to introduce legislation on this issue, and it sounds

a bit strange. But the FCC intended satellite radio to be a national

service in order to protect local service.

But the remarks we will hear today from Mr. Karmazin, remarks

that call for restrictions on local content were ironic, but I respectfully respond that maybe it is backwards. What is ironic is if national radio, satellite radio, offered local content, it would actually

decrease localism and local news coverage and local emergency coverage.

Under its national license, satellite radio is not obligated to provide public interest services, such as Amber Alerts, coverage and

debate of local issues, important emergency broadcasts during natural disasters, civil disturbances, or terrorist attacks. More importantly, under their infrastructure, satellite radio cannot generate

local content. They can only aggregate it and retransmit it. There

are no boots on the ground, so to speak, to generate their own local

news, community fairs, or emergency coverage.

As evidence, satellite radio only intends to offer and can only

offer the low-cost profitable local service like traffic, weather, and

local ads. And while they are offering local traffic and weather on

national channels for a handful of large cities, they do not hire

local meteorologists for local weather coverage or put traffic reporters in helicopters for traffic coverage.

In contrast, local broadcasters spend huge sums of money to generate that unique local content, as opposed to just retransmitting

basic local information gathered from somewhere else. If satellite

radio is allowed to cherry pick cheap local content and sell local ad

revenue, local broadcasters would be forced to reduce their expensive local content like news and public affairs.

The threat is more serious for local news stations, which are a

major source of local traffic and weather information. If satellite

radio is allowed to pull listeners from these stations, we will see

fewer local news radio stations in this country. In fact, I have that

problem in my Houston area. Our local news station is now mostly

a talk station, and coming from our side of the aisle, the folks they

have on the talk is not one of my favorite people.

Making matters worse when you reduce the investments that

local broadcasters make in the local day-to-day traffic, weather,

news coverage, you reduce the assets available for broadcasters to

use during local emergencies. The result could be catastrophic in

tragedy, since local broadcasters are the only ones that have again

their boots on the ground during emergencies like hurricanes and

terrorist attacks.

The legislation Mr. Pickering and I have introduced, H.R. 983,

the Local Emergency Radio Protection Act, clarifies satellite radio

55

is not allowed to use their repeater network or their receivers to

selectively offer low-cost, local programming and to cut localism.

Mr. Chairman, I want to thank you for holding the hearing, and

I look forward to today’s hearing and next week and also our consideration of Mr. Pickering and my bill.

Mr. MARKEY. I thank the gentleman. The gentleman from Florida, Mr. Stearns.

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

Mr. STEARNS. Thank you, Mr. Chairman, and let me also say

that this is an important, timely hearing. We are glad to have

these distinguished, competent individuals who pay taxes before

us.

When I was looking at this, I am not sure that Congress really

has a distinct role in whether these two radio stations should be

merged or not. Perhaps our responsibility is more into looking at

whether this merger will provide greater localism and diversity on

a combined service or not, and whether this local differentiated

programming undermines free, over the air radio.

I think all of us ought to agree though that the merger of these

two is not going to create a monopoly of any sense because there

is a lot of competition out there with the broadcast and the Internet and the wireless and iPod, as others have mentioned. So in the

end, I think that we just have to see whether competition is going

to be there and whether this merger is going to upset what I feel

is the larger issue, which is diversity and provide localism.

I notice that Chairman Martin of the FCC had a question about

the increased cost for this, and Mr. Karmazin indicated that he

thought the price would not go up. I think he said that in recent

congressional testimony, that subscribers would pay the same

monthly rate and receive significantly more programming. But

then, I think, Mr. Martin went on to say well, I think it’s going to

go above the $12.95. And then in response, Mr. Karmazin then said

that he meant two things. Subscribers wanting to keep their existing service would not face a price increase, and listeners who wanted the best of both services would pay less than the combined rate

of $25.90.

But the long-term outlook on this is that whether they merge or

don’t merge, the price of this will be decided by competition. So

even if they do merge, they are going to have to compete pretty

strongly in the marketplace. They have to offer a better product,

a better price. They must prosper, and the free market will decide

in the end what is going to happen here and perhaps not so much

as this congressional hearing. And I thank you, Mr. Chairman.

Mr. MARKEY. Gentleman’s time has expired. 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. Chairman, and thank you for holding today’s hearing on the future of radio in the digital age. I want

the record to reflect that my good friend, Congressman Mike Doyle,

gave up alcohol for Lent. But after his opening statement, I believe

56

it would be better if he would go back on it. I am sorry he is not

here for the comment.

But the witnesses will provide a snapshot of the radio market

today and instruct us as to what the market will look like in the

future. I think we will find that the market is not easy to define.

Does the real market only consist of AM and FM? How much of a

competitor is satellite radio to AM and FM? In what way is my

iPod a competitor to AM and FM? And in what ways will my iPod

or even my BlackBerry be a competitor to AM and FM radio tomorrow?

Understanding the market is key to Congress legislating and the

Federal Government regulating in this area. For example, how the

Department of Justice defines a radio market will largely affect

whether the Department of Justice approves the proposed merger

between XM and Sirius Satellite Radio. I am pleased we have Mr.

Karmazin of Sirius Radio with us here today to speak about the

proposed merger and his view of the radio market. I would also like

to welcome the other witnesses testifying.

While I hope we discuss other issues such as access to content,

royalties, new platforms, and technologies, I think it is important

that the committee look closely at the proposed satellite radio

merger. I look at this proposed merger through the eyes, or should

I say the ears, of my rural constituents.

Rural Americans depend on local, terrestrial programming for

crop updates, storm warnings, local news, and sports. Whether I

am out hunting, boating, or driving hundreds of miles meeting my

constituents, radio is my lifeline to the world. I always have access

to the radio. I don’t always have access through my cell phone.

Local radio warns me of when another winter storm is rolling in,

and it provides me with play-by-play action of the current Delpino

High School hockey playoff run. I am not sure what my constituents would say is the more important service.

Satellite radio has also taken off in rural America. My constituents have embraced this new option for content they may not otherwise have access to. The success of satellite radio in rural America is similar to the success of satellite television. I believe it is

beneficial for my constituents to have a choice of providers of both

satellite television and satellite radio markets. Just as DirectTV

and EchoStar’s Dish Network competing head to head benefits my

consumers, so does head-to-head competition between XM and Sirius Radio. In both markets, competition has kept prices down, increased innovation, and strengthened consumer service. Ultimately,

I believe a competing satellite provider may be a better check than

a local broadcaster.

In that vein, I’m concerned approving this merger could start us

down a slippery slope of approving mergers between EchoStar and

DirectTV and other providers. That is not something my constituents want. When EchoStar stopped providing distant signals last

year, I heard from many of my constituents upset that they were

effectively left with only one option for satellite television.

I urge the Department of Justice and the Federal Communications Commission to look at this merger with a critical eye and protect the best interest of the public airwaves, not corporations.

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

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Mr. MARKEY. OK. The gentleman’s time has expired. The gentleman from New Jersey, Mr. Ferguson.

OPENING STATEMENT OF HON. MIKE FERGUSON, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF NEW JERSEY

Mr. FERGUSON. Thank you, Mr. Chairman and Mr. Upton for

holding this hearing. This subcommittee can play a key role not

only in highlighting the promise of digital technology and content

for the American consumer, but also highlighting some potential

problems.

Perhaps more important than that is determining whether a true

problem exists at all. There are more options available in the marketplace than ever before. Apple’s iPod is a stunning success story.

Digital audio can now be heard across multiple platforms from

Internet radio, Web casts, and wireless, to HD and satellite radio.

In just a few short years, there are more options available to our

constituents than ever before. I think it is safe to say that members

of this panel want to ensure that the digital marketplace remains

robust and competitive.

In turn, it is important that there remains a maximum choice for

consumers and that the marketplace is a welcome place that encourages innovation. These are indeed exciting times for American

consumers, particularly with regard to the audio industries. And

that is one of the reasons why at this point, I am inclined to be

supportive of this proposed merger of XM and Sirius. However, my

support is primarily contingent on there being a satisfactory resolution of the issue of adequate protection for content creators.

Last Congress, I introduced the Audio Broadcast Flag Licensing

Act. It urged that both satellite companies and broadcasters come

to the table with content creators to work out fair royalties in the

private marketplace. The goal of my legislation was not only to ensure that intellectual property rights are respected and that content creators are treated fairly, but that consumers continue to

have access to new content.

I have long said that my preference is to see the issue of digital

content protection resolved between the respective parties in the

private sector. Sirius, under Mr. Karmizan’s stewardship, set a

standard by negotiating with record labels and illustrating that the

marketplace can work. XM followed a different route, choosing to

litigate the issue in the courts. I am eager to learn today how a

newly merged company might address this particular issue.

Thank you, Mr. Chairman, again for holding this hearing. Radio

in the digital age not only holds an exciting array of products for

our constituents, it also raises many questions for this panel to

consider. And as we strive to ensure that those options not only remain but continue to grow. And I look forward to hearing from our

witnesses. I welcome all of you here today. Thank you, Mr. Chairman. I yield back.

Mr. MARKEY. Thank you, gentleman. The gentleman from New

York, Mr. Towns.

58

OPENING STATEMENT OF HON. EDOLPHUS TOWNS, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF NEW

YORK

Mr. TOWNS. Thank you very much, Mr. Chairman, for holding

this hearing today. Let me welcome the chief executive officer, Mr.

Karmazin from Sirius, a great New Yorker. Thank you for coming

and also the other panelists. Good to see you because we are looking forward to learning a lot from you.

We need to understand how to maintain a competitive marketplace that gives choices and low prices to consumers and created

value for shareholders. I also look forward to learning how more

minorities and women can get into this booming business and how

these companies plan to operate responsibly and in the public interest, using the new options offered to them by digital technologies.

I agree with some comments coming from my colleagues that we

must first view this satellite radio merger from the perspective of

the consumer and whether or not the combination of these two

companies will benefit our Nation’s audio users both in terms of

price and content.

It is clear that the audio market has changed drastically between

1997 and today, when the FCC greenlighted the emergence of XM

and Sirius. And now 10 years ago, when there weren’t nearly as

many audio options as there are today, pitting these two companies

against each other was more logical in terms of diversified consumer choice. Now, however, with iPods in every gym and Internet

radio on every computer, the audio landscape is a bountiful place.

Therefore we must ask ourselves if this merger will continue to

provide consumers with great content, a wide array of choices, and

low prices. And I emphasize low prices. I am eager to hear from

our witnesses on these crucial considerations, and I thank them for

taking the time to appear before us today so we can learn as much

as we can and move forward.

Thank you very much, Mr. Chairman, and on that note, I yield

back.

Mr. MARKEY. I thank the gentleman. The gentleman from Georgia, Mr. Deal.

OPENING STATEMENT OF HON. NATHAN DEAL, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF GEORGIA

Mr. DEAL. Thank you, Mr. Chairman. Thanks for the hearing

and thanks to the witnesses for being here. I think it is certainly

an appropriate time, in light of the proposed merger of the satellite

radio stations. I am interested to learn more about both the

positives and the negatives and how the merger, if it is completed,

will affect rural districts such as mine and not only the constituency but also existing radio station operators.

I understand there are a number of ways, of course, for customers to access programming: iPods, HD radio, over the air broadcast radio. However, I also know that there are many of my constituents who are concerned about what is going to happen if there

is only one satellite radio provider in the marketplace.

One question that I would like to see answered is how we can

be assured that this merger will not result in rising prices to conVerDate 11-SEP-98 10:59 May 06, 2008 Jkt 000000 PO 00000 Frm 00069 Fmt 6601 Sfmt 6601 Q:\DOCS\110-10 SCOM1 PsN: SCOM1
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sumers. Will there continue to be an active and competitive radio

marketplace? What will happen to exclusivity deals and their effects on consumers? Will there continue to be innovation and ingenuity? These are very real concerns for millions of Americans.

I would like to end with one final observation. As I have listened

to the various parties commenting on this merger, I have been

struck by one particular aspect of the debate. Behind the reality of

whether there is competition and parity among the various industries involved, I am struck by this one bit of irony. The broadcasters, when talking about their television programming, seem to

have a different message than the one I am hearing from their

radio interests. When it comes to television programming, they

have been very vocal in asserting their right to negotiate compensation for their product and have asserted their power to withhold their product from anyone not willing to meet their conditions

for payment.

However, when it comes to broadcasting artists’ music, the NAB

is lobbying Congress that they should not be asked to negotiate or

pay for another content owner’s product, even though satellite

radio companies and Webcasters do negotiate payment. I find this

a highly contradictory position. When they control the content, they

demand payment. When they use someone else’s content, they don’t

want to provide payment.

Mr. Chairman, as we consider the merger before us today and

debate whether there is parity among the various services, I would

suggest that we should also consider whether there is parity across

the telecommunications sector on how we treat content owners and

whether it is fair and reasonable. Thank you.

Mr. MARKEY. The Chair recognizes 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. I just

have a few thoughts about the XM/Sirius proposed merger that I

will share with members and others this afternoon. I think there

are pro-consumer benefits, which suggest that the merger is in the

public interest. Both companies maintain separate entertainment

offerings at the present time. The merger would extend to consumers larger choices from among program offerings, including the possibility of a la carte availability to select the channels from a larger

total inventory that each consumer would desire.

The extra bandwidth which the elimination of duplication would

produce could also result in the offering of a broader array of public

interest programming than either company is offering at the

present time. And there appears to be, in my view, no valid reason

to disapprove this merger. It is clear to me that the relevant market for competition purposes is the entire marketplace for audio entertainment. That market includes all of terrestrial radio as evidenced by the repeated statements of some of the major terrestrial

broadcasting companies that they are in competition with satellite

radio. I think the opposition of the National Association of BroadVerDate 11-SEP-98 10:59 May 06, 2008 Jkt 000000 PO 00000 Frm 00070 Fmt 6601 Sfmt 6601 Q:\DOCS\110-10 SCOM1 PsN: SCOM1
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casters to the merger lends credence to the fact that terrestrial and

satellite radio are indeed in competition.

The relevant market also includes Internet radio and both Internet-based streams and downloads to computers and to portable devices. And in that large, highly competitive market, satellite radio

is really a small player. Arbitron’s recent survey that was released

last week shows that satellite radio listening accounts for only 3.4

percent of all radio listening.

That same survey shows that satellite radio listeners are also

avid listeners to terrestrial radio. In fact, satellite radio listeners

are listening to XM or Sirius for 10 hours, 45 minutes per week.

But those satellite subscribers are mostly listening to terrestrial

radio for an average of 14 hours weekly. They listen to Internet

radio 8 hours, 15 minutes weekly. These figures clearly show that

satellite radio is in competition with terrestrial radio and Internet

radio and that satellite radio listeners are listening to the combination of terrestrial and Internet radio more than twice as much as

they are listening either to XM or to Sirius.

There are public benefits to be derived from the merger and in

the market where satellite radio competes. The companies do not

have market power. In fact, combined, they represent a mere 3.4

percent of that market. So, Mr. Chairman, in my view, the public

interest requires approval of this merger. Thank you, and I yield

back.

Mr. MARKEY. The gentleman from California, Mr. Radanovich.

Mr. RADANOVICH. Thank you, Mr. Chairman. I will pass on an

opening statement.

Mr. MARKEY. The gentleman from Mississippi, Mr. Pickering.

Mr. PICKERING. Mr. Chairman, thank you. I too shall pass.

Mr. MARKEY. We are going for the triple. The gentleman from

Washington State, Mr. Inslee.

Mr. INSLEE. I’ll pass.

Mr. MARKEY. There you go. Going to Yankee Stadium here and

Mr. Engel. Let’s see if we can go for the cycle here.

Mr. ENGEL. Well, I am afraid I am going to have to ruin it, Mr.

Chairman. And I will tell you what I will do for you. I won’t read

my speech. I am just going to speak from the heart a little bit, and

I will try to not take the full time.

OPENING STATEMENT OF HON. ELIOT L. ENGEL, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF NEW

YORK

Mr. ENGEL. I want to say, and I have listened to a number of

my colleagues, that I certainly have an open mind about this. I

don’t think that we should automatically assume that the merger

is a bad thing or a bad idea. Like all of us, we represent constituents, and the bottom line is what is best for the constituents. I

think we know that. I think there are differences of opinion about

that. I think we should listen to all sides and come to a conclusion.

I do know one thing. I do know that my kids run around with

iPods and all kinds of things I don’t have time for. And I know that

when we look at the total issue, we cannot, I believe, just look at

the issue of radio standing by itself. I think we have to look at the

totality of the kinds of entertainment people are looking for.

61

So I would say that the onus is on these gentlemen to explain

why this would be good to consumers. I think we should give them

the chance. They should deserve the chance to plead their case, and

there is a thing that I have learned in the 10 or so years I have

been on this committee.

Things are rapidly changing in telecommunications, and the

genie is really out of the bottle. I am not sure that government can

or should attempt to put the genie back in the bottle. I think sometimes we might be better off letting the marketplace decide that as

well.

But again I have an open mind, and I am going to listen to the

testimony, and I think that this committee has a lot of discussion.

And I welcome the people who are here to testify, and I thank you,

Mr. Chairman, for your indulgence.

Mr. MARKEY. I thank the gentleman. All time for opening statements by members of the subcommittee has expired.

I would like to inform our witnesses that you have just been an

eyewitness to history. This is the largest number of members of

any subcommittee that has ever showed up at 3 p.m to make opening statements on any subject at any time in my 30 years in Congress.

I know that you probably are wondering what has been going on,

and history has been made this afternoon. So we welcome you. We

thank you for your patience, and you are the main event obviously.

And we are looking forward to your testimony.

We will begin by hearing from Geoffrey Blackwell, who is testifying on behalf of the Native Public Media, and the National Federation of Community Broadcasters. Mr. Blackwell is currently the director of Strategic Relations and Minority Business Development of

the Chickasaw Nation Industries. He is a member of the Native

Public Media Board of the Tribal Advisors, and he is also the chairperson of the National Congress of American Indian Telecommunications Subcommittee. Mr. Blackwell, you have 5 minutes, as does

have each one of the other witnesses, at which point we will go to

questions from the subcommittee members of the witnesses. Please

begin, Mr. Blackwell.

STATEMENT OF GEOFFREY BLACKWELL, DIRECTOR, STRATEGIC RELATIONS AND MINORITY BUSINESS DEVELOPMENT

OF THE CHICKASAW NATION INDUSTRIES

Mr. BLACKWELL. Mr. Chairman and members of the committee,

my name is Geoffrey Blackwell, and I am honored to represent Native Public Media and the National Federation of Community

Broadcasters at today’s important hearing on the future of radio.

Native Public Media represents 33 Native Public radio stations in

the United States. Native Public Media’s primary focus is strengthening existing American Indian and Alaska Native stations and

promoting ownership for more native communities by serving as an

advocate, national coordinator and resource center.

These stations serve as critical platforms for education and language preservation, public affairs, and cultural dialog. They meaningfully inform the understanding of localism. Their abiding commitment is to serve the diversity in their communities. For example, on the Hopi reservations, remote mesas in northeastern AriVerDate 11-SEP-98 10:59 May 06, 2008 Jkt 000000 PO 00000 Frm 00072 Fmt 6601 Sfmt 6601 Q:\DOCS\110-10 SCOM1 PsN: SCOM1
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zona, KUYI broadcasts a children’s program called Shooting Stars

every morning during the bus ride to school. Produced at the request of the students, the program engages community members

and elders to read stories in both the Hopi and English languages.

The Tohono Od’ham Nation, which is responsible for almost 100

miles of our critical international border with Mexico relies on

KOHN to keep its citizens informed of the local news, national

threat levels, and Homeland Security activities. With these experiences, we have recommendations for Congress and the relevant

agencies to improve the status of non-commercial radio, particularly Native radio.

The first priority must be to increase Federal funding and explore other avenues for supporting Native public radio stations, including full support for the Corporation for Public Broadcasting

and the Public Telecommunications Facilities program and additional funding for community stations on needs-based criteria. In

this regard, KILI, the Lakota radio station, went dark last year

after being struck by lightning. Native Public Media provided KILI

with proposal writing expertise that helped the station secure

emergency funding from the PTFP program and CPB to repair and

resume operations. We learned that even small grants can make a

big difference.

Second, support Native Public Media’s Blueprint Initiative,

which envisions a complete inventory of how Native communities

access and relate to media, both traditional and new advanced telecommunication services. The Blueprint Initiative will find the critical information on which new solutions can be premised.

Third, ensure that there is adequate public notice in advance of

the FCC’s upcoming application window for full-power, noncommercial, educational licenses.

Fourth, pass legislation to lift the prohibition on the FCC’s

issuance of certain low-power FM licenses.

Fifth, protect the basic ability to stream content or post podcasts

at affordable rates without receiving prior consent from major

telecom providers. In addition, access should be increased for Native programming on satellite radio services. The FCC should hold

an official hearing on media ownership issues related to Indian

country as they continue in their review of the existing rules. We

need an in-depth examination of these issues.

And finally, Congress should provide customized tools to the FCC

in the form of new, legal authorities and directions based on basic

recognition of Federal Indian law and policy to work directly with

Native nations, open new proceedings, and create new rules to address barriers to entry and streamline regulatory processes. The

vast majority of Native Americans have no access or only limited

access to media that represents their voices and interests. Nativeowned radio stations account for less than 0.3 percent of the over

13,000 radio stations in the United States. There are more than

562 federally recognized tribes, yet we only have those 33 licenses

for Native public radio stations. For Native people across the country, it is not about having access to big media. It is about having

access to any media.

Profound changes are taking place in the way Americans use

media, and Native Public Media is focused on helping Native comVerDate 11-SEP-98 10:59 May 06, 2008 Jkt 000000 PO 00000 Frm 00073 Fmt 6601 Sfmt 6601 Q:\DOCS\110-10 SCOM1 PsN: SCOM1
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munities leverage new digital and wireless platforms that will help

make it possible to close the existing media divide. Critical to our

efforts is ensuring the policymakers understand the impact of their

actions on Native communities.

In closing, Native nations face several challenges in deploying

critical emerging information in telecommunications technologies

while they work to develop sustainable economies. As you address

the appropriate legal framework in a world of technological convergence, Native nations and organizations remain ready to consult

with you.

Mr. Chairman, members of the committee, on behalf of Native

Public Media, thank you again for the opportunity to testify today.

I look forward to answering any questions you may have.

[The prepared statement of Mr. Blackwell appears at the conclusion of the hearing.]

Mr. MARKEY. Thank you very much, Mr. Blackwell. Our next

witness is Peter Smyth, who is the president and chief executive

officer of Greater Media Incorporated. He is here today representing the National Association of Broadcasters. Since March 2002, he

has been the president and CEO of Greater Media, the parent company of 19 AM and FM radio stations in Boston, Detroit, Philadelphia, and New Jersey. We welcome you, Mr. Smyth. We thank you

for your willingness to testify today. Whenever you are ready,

please begin.

PETER SMYTH, PRESIDENT AND CEO, GREATER MEDIA, INC.

Mr. SMYTH. Thank you. Good afternoon, Chairman Markey,

Ranking Member Upton, and subcommittee members. My name is

Peter Smyth. I am the president and CEO of Greater Media, which

owns and operates 20 local AM and FM stations in Boston, Detroit,

Philadelphia, and New Jersey and 13 community newspapers in

central New Jersey. I am testifying today on behalf of Greater

Media and the National Associations of Broadcasters. I am here to

voice NAB’s opposition to the proposed merger of the country’s only

two satellite radio companies, XM and Sirius.

But first, I want to make several important points about the future of terrestrial radio. As the CEO of Greater Media, a company

that just celebrated its 50th anniversary in radio, I am optimistic

about radio’s future. I have learned from working for a familyowned company that a radio license is not a right, but a great

privilege.

And we need to treat that accordingly, respecting listeners and

delivering quality content to serve their needs. As part of this obligation, we are transitioning to the digital technology, HD radio, to

provide the quality sound and additional data that digital service

offers. We are also focusing on compelling local content that creates

the emotional bond between listeners and their communities.

My colleagues understand that localism is our franchise and ours

alone and that we must retain that unique connection to listeners

that no other medium can provide, which brings me to the satellite

radio and the proposed XM/Sirius merger. As I see it, there are a

multitude of reasons for the Government to reject this monopoly.

First, satellite radio is a national service that provides very similar programming to each listener across the country. There are

64

only two such services, and they compete ferociously against each

other in the marketplace. The undeniable fact is that Mr. Parsons

and Mr. Karmazin want government permission to take two highly

competitive companies and turn them into one.

Second, XM and Sirius are two companies with a track record of

misrepresenting their intentions and not following through on the

rules that have been established and failing to correct those past

transgressions. For example, XM and Sirius for years have operated terrestrial repeaters in blatant violation of FCC rules. XM operated more than 142 repeaters at unauthorized locations. And not

to be outdone, Sirius constructed at least 11 repeaters at locations

different from the city they told the FCC, including one in Michigan built 67 miles from the authorized location. 67 miles.

Moreover, both XM and Sirius promised the FCC nearly a decade

ago that they would have a receiver that receives both XM and Sirius. That receiver does not exist today. And now, many local radio

companies have complained to the FCC that explicit X-rated programming from satellite radio bleeds through to their local stations

without warning. Viewed against this pattern of behavior, why

would the Government trust these two companies to form a monopoly?

Third, if the Government-sanctioned monopoly is approved, consumers will be the loser. Subscription prices will rise because there

will be no competition to restrain a monopoly. Jobs will be eliminated. Innovation will suffer at a crucial time in our evolution. Neither listener nor advertiser will benefit. Put simply, private, corporate interests will benefit. The public will suffer.

Fourth, XM and Sirius, by their own admission, are not failing

companies. Their current highly leveraged position is due to extraordinary fees paid for marketing on-air talent, $83 million in

stock that Sirius awarded to Howard Stern, and on top of the $220

million bonus. But even with these costs, XM and Sirius have made

clear they can succeed without a merger. Let us remember that

when the FCC allocated spectrum to Sirius and XM in 1997, it specifically ruled against a single monopoly provider.

I have heard these companies claim the monopoly should be

granted because local radio competes with XM and Sirius. Let me

be very clear here. Local radio does not compete against satellite

radio in their national market. Local broadcasters’ signals are not

nationwide and are not subscription-based. We are not a substitute

for satellite radio.

Five years ago, the only two nationwide DBS satellite licenses,

EchoStar and DirectTV, tried to blaze a remarkable similar trail

when they proposed to merge. It failed. Indeed, the FCC decided

unanimously the merger was not in the public interest. For these

reasons and others, I respectfully ask that this Government-sanctioned monopoly be rejected.

I thank you, and I look forward to your questions.

[The prepared statement of Mr. Smyth appears at the conclusion

of the hearing.]

Mr. MARKEY. I thank you, Mr. Smyth, very much. Our next witness is Robert Kimball who is the senior vice president for

RealNetworks Incorporated. He serves also as general counsel. We

welcome you here today, sir.

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ROBERT KIMBALL, SENIOR VICE PRESIDENT,

REALNETWORKS, INC.

Mr. KIMBALL. Thank you, Chairman Markey, Ranking Member

Upton, and members of the subcommittee. Thank you for having

me today to talk about Internet radio. RealNetworks, the company

I work for, invented streaming media back in 1995, and last year

we used that technology to deliver over 1 billion song plays to our

customers, and we did pay royalties to the musicians for the use

of that music.

I am here on behalf of both RealNetworks and the Digital Media

Association, a group of leading Internet media companies, including Apple, Microsoft, AOL, Yahoo, and several small Webcasters.

I have good news and bad about the future of Internet radio.

First, the good news. Internet radio provides a rich and diverse

music experience that listeners love, and as a result, they buy more

music. This is great for us and for the music industry.

Now, the bad news. Internet radio suffers from serious statutory

bias that undermines our competitive opportunity because we are

forced to pay higher copyright royalties than our competitors, and

our innovation opportunities are severely restricted. This antiInternet bias is bad for consumers and competition, and it reduces

our industry’s ability to address your media consolidation concerns.

Today, Internet competes, at least in part, with terrestrial and satellite radio. Speaking for RealNetworks, we believe that the XM/

Sirius merger should be put on hold until Congress creates a level

playing field to enable us to fairly compete with the larger consolidated company. Without fair competition, further consolidation in

a favored industry is just bad policy. Internet radio is simply radio

programming transmitted over the Internet. Several thousand

Web-based radio services offer literally hundreds of thousands of

Internet radio channels to satisfy every conceivable musical taste.

Our unlimited supply of diverse channels and features ensures

that every artist can find a fan, and every fan can find a station.

Internet radio enables consumers to choose a station by more than

its call letters or number on the dial. With Internet radio, listeners

can identify genres, time periods, artists, and moods, and the service can provide them a relevant station.

Internet radio enables independent musicians, who never get

airplay on big radio, to find an audience. We enable the small town

listener to have access to music and information that local radio

simply cannot provide. And while listening to our stations, our audience can read music reviews, learn more about the artists and

buy concert tickets. We are good for local musicians and local

economies. We also provide simple ‘‘buy now’’ buttons to sell the

music on the spot if you like the song you are listening to. Every

one of these features benefits recording artists, especially those

who get no airplay on big radio or even on satellite radio. So with

all this opportunity, what is stopping us from competing fairly

against satellite and broadcast radio?

First, the Copyright Act establishes a tiered royalty structure

that requires Internet radio to pay the highest royalties by far

while exempting broadcast radio from any sound recording royalties. Just last Friday, the copyright royalty board imposed a new

minimum of $500 per channel, a charge that is likely to kill the

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very diversity that makes Internet radio so compelling. If this fee

is not overturned, one can easily imagine Web radio looking more

and more homogenized, like homogenized mass market radio.

Second, the Copyright Act does not regulate broadcast radio programming. It only lightly regulates satellite programming, but it

greatly inhibits the programming flexibility for Internet radio companies.

Third, the Copyright Act allows satellite radio and terrestrial

radio companies to offer recording devices and portable radio services and allows them to encourage recording of their radio stations.

Meanwhile, the Copyright Act punitively regulates personalized

Internet radio, which essentially eliminates our most compelling

features.

And finally, while broadcast radio has no copyright litigation exposure, Internet and satellite radio have massive exposure that is

a powerful deterrent to innovation. If we guess wrong about a

Copyright Act provision, the penalty is $150,000 for every song performed. I have personally had to kill several innovative projects

due to legal uncertainty and the potential financial catastrophe

that could result from statutory damages.

As Tim Berners-Lee testified in this subcommittee just last week,

the Internet has become a more mobile and wireless environment.

In the next several years, WiMax and other technologies will

strengthen mobile broadband capability, and the Web and Internet

radio will always be on. And it will always be portable.

In the future, a mobile phone, just like this one, is going to have

three radio services available: broadcast, satellite, and Internet. We

will compete even more directly against one another, especially in

a world where terrestrial radio is moving to digital HD broadcasts.

Why should we pay three different royalties and have three different sets of programming regulations for radio delivered to the

exact same device?

The current state of Internet radio is dominated by two facts. We

pay higher royalties than our competition, and we are subject to

more restrictions on our ability to innovate. The future of Internet

radio and perhaps all digital radio competition may largely be dictated by whether there is a level playing field. Thank you.

[The prepared statement of Mr. Kimball appears at the conclusion of the hearing.]

Mr. MARKEY. I thank the gentleman very much. Our next witness, Mel Karmazin, is the CEO of Sirius Satellite Radio. Mr.

Karmazin has had several top jobs in the broadcasting industry.

He founded Infinity Broadcasting, one of the largest owners and

operators of radio stations in the United States. Working his way

up, he eventually became the president and chief operating officer

of Viacom. Mr. Karmazin joined Sirius in November 2004 as chief

executive officer. We welcome you, Mr. Karmazin. You may begin

your testimony.

MEL KARMAZIN, CEO, SIRIUS SATELLITE RADIO

Mr. KARMAZIN. Thank you very much, Chairman Markey, Congressman Upton, Congressman Barton, Congressman Dingell. I

really appreciate the opportunity to be here today.

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I assumed that when Chairman Markey invited me to attend this

hearing, it was because he wanted to take advantage of my 40

years in radio on this important subject. But in judging by the comments that have been made by the members, I think that rather

than getting into talking about the health of the radio business,

that I spend some time talking about the Sirius/XM merger, since

it seems to be on everyone’s mind.

So let me begin by saying that before we decided to attempt to

do this merger, both Sirius and XM obviously consulted its boards

and had advisors in. We talked about whether or not we believed

that this merger could be approved. There would certainly be no

advantage to either company of announcing a merger if, in fact, it

wouldn’t be approved. And what the advisors told us and what we

have been operating under from the time we have announced it is

that there are two standards that we really need to do.

One standard is that we need to make sure that this merger is

not anti-competitive, and the Department of Justice and the FCC

will take a look at whether or not this is anti-competitive or not.

I think that you all have heard from all of these people talking

about the competition that exists in satellite radio, and we are absolutely convinced that this is not about two companies becoming

one or a duopoly becoming monopoly. It is absolutely ludicrous for

anybody to think that we are not competing with all of these technologies that have been talked about.

I also heard that the NAB has a new point, which apparently is

very different than its members, about whether satellite radio competes with them, because if, in fact, the CEOs of all of these publicly traded radio companies from Clear Channel to CBS to

Entercom to Cox, in their SEC filing that the CEOs have all signed

off on, they all said that they compete with satellite radio so it

seems a little bit disingenuous to talk about the fact that satellite

radio is not competing with them.

So, No. 1, we have to make sure it is not anti-competitive. No.

2, we have to make sure that this merger would be in the public’s

best interest. And that is what we are prepared to say. And when

we go through the process at DOJ and the FCC, if in fact it is in

the public’s best interest, it will get approved. And if in fact it is

not in the public interest, it won’t get approved, and we will move

on.

There is some confusion here about what we have said about

pricing, so I welcome the opportunity to talk a little bit about that

to clarify it if there is any confusion. So the first thing that we said

is that because we compete with free, that the marketplace dictates

it. But we can talk a little bit about how you can hold us accountable for everything that we are saying. And that is that this deal

with not result in higher prices. Test us, and you can come up with

a way of holding our feet to the fire. We will also provide more

choices.

So in the specifics, if you are a Sirius Satellite Radio subscriber,

you pay $12.95. You will not pay more than $12.95 for that service

after the merger. As a matter of fact, we will give you an opportunity to pay a lower price, because today the cheapest price you

could pay is $12.95. But if you don’t want all the choices we give

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you, we will give you an opportunity to have less. So that will be

the first time, and the same thing is true with XM. And, by the way, Sirius started at $12.95, and 5 years later, we are still at $12.95. We have also said that if in fact you like the

idea of having some content from Sirius and some content from

XM, where today what you have to do is buy two radios, pay $12.95

each, that comes to $25.90, that we will make an offering available

for less price. So if consumer choice and lower prices equal public

interest, we think that we pass the test.

We have also heard some things that are just also not relevant.

From a point of view of serving the rural markets, we are proud

of our track record on how we serve rural markets. And we think

that we are really an asset when you compare us with the choices

that we offer to people in smaller markets that they don’t have a

choice.

There was also a point about how we received our licenses and

we paid for that license, to use our spectrum, 10 years ago. And

what we also think is very strange is that if in fact you would use

1997 policy to deal with what is going on in a 2007 marketplace,

but again we will let the FCC decide on that.

So I know my time is up. I don’t want to go over, but I really,

really hope you ask me a lot of questions.

[The prepared statement of Mr. Karmazin appears at the conclusion of the hearing.]

Mr. MARKEY. Yes, I think you won’t be disappointed, Mr.

Karmazin. Mr. Gene Kimmelman is vice president of Federal and

International Affairs for the Consumers Union. He is an expert on

telecommunications policy. He has appeared before this committee

many times in the past. We welcome you today.

GENE KIMMELMAN, VICE PRESIDENT, CONSUMERS UNION

Mr. KIMMELMAN. Thank you, Mr. Chairman, Mr. Upton, members of the subcommittee. On behalf of the Consumers Union, the

print and online publisher of ‘‘Consumer Reports Magazine’’ we appreciate the opportunity to testify this afternoon. The new technologies that have created this explosion of digital opportunities in

radio, in content, create enormous greater potential for consumers

to have all kinds of services.

And it is an exciting time, and for the Congress, we appreciate

you looking into this because, as you look at this burgeoning marketplace of audio availability, there are a number of clouds hanging

out there that we hope you will begin to address immediately. First

off, you heard talk of low-power FM and recent findings that there

is not the interference that people had worried about before. We totally endorse Mr. Blackwell’s idea that there ought to be more

availability of low-power FM across the country.

There are many, many groups. You have a submission from the

Prometheus Radio Project for this hearing today, indicating those

who want to offer the service. Consumers want to receive it. We

hope that you will help open this market to new diversity and opportunities.

The other major cloud you heard about earlier is in this enormous marketplace, the few minority, the few women owners of

media properties from radio across broadcast and on. Why is that

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the case? There clearly is marketplace impediments that are limiting diverse ownership. We hope the committee will move immediately to address those issues. Diversity of owners is very different

than programming that is targeted to audiences but is controlled

by few entrepreneurs who do not reflect the attitudes, the backgrounds of those diverse audiences.

This is an important issue to address, and as you look to what

the marketplace could do, we believe the greatest danger to consumers are many of the proposals to allow broad consolidation of

media properties that concentrate power in the hands of a few owners. The great technologies will not serve the public interest if too

few people control these technologies.

So this afternoon, I’d like to just address the immediate proposed

merger before you to evaluate from a consumer perspective what

this means, the Sirius/XM proposed merger. Many things have already been said about market definition. Mr. Terry, I certainly

hope that this is not the marketplace of noise. But looking carefully

at what consumers need and what they use, there is a very distinct

difference here between a mobile, audio, digital service that local

broadcasters do not offer and cannot offer, that for immediate

sports programming, NFL, NBA, Major League Baseball, you can’t

get on your iPod or other devices. There are some very unique elements to the services that XM and Sirius are offering.

And so you can say that a bike and a plane and a train and a

car all compete on some level, but for the importance of defining

a relevant market for competition that keeps prices down for consumers and options open, that wouldn’t make sense. And we believe in this case this merger suffers from very severe anti-competitive limitations. And unless Mr. Karmazin, who is extremely gifted,

can show us how there are other facts not available right now, we

don’t believe it is in the best interest of consumers to allow this

merger to go through, either from the limitations of the licenses of

the FCC or antitrust review.

I will just speak for a moment about the price promise. I very

much appreciate Mr. Karmazin clarifying what we could get for

$12.95 and the fact that there will be dual offerings for less than

$25. And he indicates there will be more choices from this, but I

would like you to step back as policymakers, not to review the

merger, but as policymakers to think about if there were one satellite radio offering, what would you want to do to lock in that, if

that is the appropriate deal that you would be getting? Do you just

trust it in the marketplace that there is no other mobile satellite

radio provider? Or what conditions, what regulations would you

need? And let me ask you this: Do you think you need two licenses

in the hands of one company to offer that service?

Is it possible that what we are really hearing is if there are benefits of combining these, we could free up some of the spectrum from

satellite radio for mobile digital television, for more broadband possibilities? Is there a policy option here that is really being presented to you that would create more opportunities for consumers?

We urge you to look at those issues in the context of what is

being proposed in the marketplace. And please help us in driving

more innovation and diversity, and please be skeptical about consolidation. Thank you.

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[The prepared statement of Mr. Kimmelman appears at the conclusion of the hearing.]

Mr. MARKEY. Thank you, Mr. Kimmelman, very much.

Mr. Karmazin, will you permit consumers to buy channels a la

carte?

Mr. KARMAZIN. No, at this point, we don’t have the set-top box

such as what exists in your home. What we will do is offer more

choices, and we might be able to get to a la carte-like services. But

the idea of having somebody pay for two channels, if they only

want two channels, is not something that is a financially viable alternative in satellite radio.

Mr. MARKEY. So will prices for consumers stay the same, increase, and how will anything that you say be binding upon your

company?

Mr. KARMAZIN. Sir, we are certainly willing to have discussions

with this committee or with the FCC or any appropriate agency on

crafting a timeframe. But I will make it very clear in answering

that question. No, prices will not go up. Again, if you are a subscriber to one service, it is $12.95, it will not go up. The only increase in pricing would be if you were taking content from both

companies. And there, the price comparison is $25.95, and the

prices will drop significantly from that.

Mr. MARKEY. What is significant? So that if one of them has the

NFL, the other one has Major League Baseball. Now, if someone

wants to get what the company that they now subscribe to doesn’t

provide, will they have to pay the full $12.95 in order to get it, or

will there be a discount for that person as they are now subscribing

to the other channel? And how big is a significant discount? Is that

$10 off or only $2 off?

Mr. KARMAZIN. There will be a significant discount. Without getting into any specifics, Congressman, because we are not prepared

to come up with a specific number. But I will tell you that it looks

closer to $10 than to $2.

Mr. MARKEY. Now, on the issue of local content, such as news,

weather, sports, et cetera, not just national content, there is some

concern by the local broadcasters that this merger will make it

more possible for you to provide more local content which will cut

into the local radio stations’ revenue. Could you answer that question in terms of the threat to the local broadcasting?

Mr. KARMAZIN. Sure, Mr. Chairman. Our business model does

not provide for us to really do local advertising and local content.

I have heard from different people in the course of the last 2 weeks

where some people would like to see us do more local programming. And others are looking for assurance that we are going to do

less or no local programming. So we are happy to work with our

regulators. We are happy to work with this committee in getting

a sense as to what it is we are being asked for. Sometimes we are

being asked to do more in the way of local services, and some people have advanced that. And other people have advanced doing

less. So we don’t currently plan on getting into the local advertising——

Mr. MARKEY. Do you believe that you are a threat to local broadcasters?

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Mr. KARMAZIN. Yes, I believe there is a fact that when we compete with local broadcast, there is no question—and if what you

mean by threat, are they going to be out of business? Absolutely

not. There is an AM/FM button right next door to every satellite

radio subscriber. We are not replacing local radio. So I don’t know

what you mean by threat. Do we compete with them? Absolutely.

They compete with us? Absolutely.

Mr. MARKEY. All right, let us go to Mr. Smyth then. Mr. Smyth,

how do you respond to Mr. Karmazin?

Mr. SMYTH. My response to Mr. Karmazin is first of all, I am a

local business. He is a national business. I do not compete with

him on a national business because my signals in Boston, MA cannot be heard in Lansing, MI or Detroit, MI. If this merger is put

together, he can bring 288 signals into Boston, MA, where I currently have five radio stations. CBS would have five. Entercom

would have four. I think that there is a disadvantage in that. Do

I compete with him in a national arena? No, I don’t. No. 2, my

question is with this terrestrial repeater, when you start to get into

exclusive programming, there are some concerns there that you can

start to see them come into the local markets. Mr. Karmazin just

said that it has been going both ways. Some people want him in.

Some people do not want him in. From my colleagues, they do not

want him in the local markets. I have never heard anybody say we

want you to come in.

Mr. MARKEY. Let me get a quick comment from Mr. Kimmelman.

Then my time is expired.

Mr. KIMMELMAN. Mr. Chairman, I think it is quite clear that this

is a national service that does something unique. It combines national programming, all Major League Baseball, all NFL, all NBA,

with the potential for local programming. Mr. Karmazin says he is

not really in that business, but he can offer it. He would offer it

on some level. So I can understand why local broadcasters would

fear that this could cherry pick some of what they offer.

Mr. MARKEY. And what are the consequences of that, Mr.

Kimmelman, quite quickly?

Mr. KIMMELMAN. Well, I think that this is something local broadcasters are going to have to address, whether there is a merger or

not. It is just a greater problem if there is a merger to them.

Mr. MARKEY. OK, my time has expired. I recognize the gentleman from Michigan, Mr. Upton.

Mr. UPTON. Thank you, Mr. Chairman. I have got a number of

questions as it relates to the merger request as well. And I just

want to thank publicly both the NAB and Mr. Karmazin for actually spending a little time with us in addition to the 5 minutes that

we are allotted today and down the road too.

Mr. Karmazin, are you able to succeed as Sirius or XM, either

one able to succeed if the merger does not come through?

Mr. KARMAZIN. Yes, I believe so.

Mr. UPTON. And let me go into one of Mr. Markey’s questions to

clarify. One of the things that you indicated was that you would

perhaps look at lowering prices if you looked at perhaps a smaller

service field or a smaller number of stations, not exactly a la carte,

as we would like to imagine, but perhaps a couple of fewer stations.

And the question that I have as we relate is one has NFL, the

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other one has baseball. I don’t know what the subscription time period is. When someone signs up for the service, are they billed

monthly? Are they billed yearly? Do you have a choice?

Mr. KARMAZIN. Yes, sir. As a matter of fact, you can sign up for a lifetime subscription for $495. It is done, and you don’t have to

pay any increase ever.

Mr. UPTON. The question I was going to ask though, can you do

a 6 month/6 month so in essence you could sign up for NFL in the

winter and then maybe in March, with the change of Daylight Savings Time, be able to move to the spring games and get baseball

through September, October?

Mr. KARMAZIN. Currently, you need a separate radio. So in the

case today of both services, you have to buy a separate radio. But

there is no minimum required. I would say the vast majority of our

subscribers do an annual plan or more, but you can subscribe on

a monthly basis. And if you wanted to, to pay for a month, disconnect, and go to another service, you can do that.

Mr. UPTON. Now, I am co-chair of the auto caucus with Mr.

Kilby, an important venture in Michigan for sure. So if I buy a new

Ford, and I signed up with—is that Sirius or XM?

Mr. KARMAZIN. That is Sirius.

Mr. UPTON. What happens if I buy this new Ford, and all of a

sudden, I decide that I want the NFL and MLB to be part of that?

What do I do as that relates to the receiver that I have in my vehicle?

Mr. KARMAZIN. If the merger goes through,what we would hope

to offer you, as a Ford customer, is the ability to get both services

on your same radio.

Mr. UPTON. You will be able to do that without changing the receiver or the device that I would have or not?

Mr. KARMAZIN. That is correct, and that is where we made the

analogy of saying that today you would have to buy the second receiver to attach to it and pay a second subscription, $25.90. And

going forward, there would be a substantial reduction, and you will

be able to get it both on the same receiver.

Mr. UPTON. Mr. Smyth, you are shaking your head.

Mr. SMYTH. If I understand the question properly, sir, you asked

if you had a Sirius radio in a Mustang, and the merger came together today, you would have to have another radio in that car.

You could not receive both XM and Sirius on a Ford radio today.

It is inoperable. It would cost the consumer more to do that, and

Mr. Karmazin was saying that. I mean he is far wiser than I, but

I was somewhat of a doubting Thomas to see how did that——

Mr. UPTON. My question is who is going to pay for this receiver

that I am going to get?

Mr. SMYTH. The consumer.

Mr. UPTON. And what is the cost going to be?

Mr. KARMAZIN. Congressman, what we are saying is that every

single receiver that exists today is not going to be obsolete. And in

order for the consumer who has that Ford vehicle today, if the companies merge, you don’t need a second receiver. That we will be

able to provide you with content to your existing receiver without

a new receiver and at a lower price than you currently have the

choice today.

73

Mr. SMYTH. You are saying that the same chip will receive the

same two signals from XM and Sirius?

Mr. KARMAZIN. Is that a question you want me to answer?

Mr. UPTON. Yes.

Mr. KARMAZIN. We didn’t say it is the same chip. What we said

is that we would feed that content via the satellite into that respective service. So we would take XM’s contents. It is not very complicated. You have been in the broadcast business a long time. We

would take the baseball content, if we got permission, and feed that

on the Sirius system into the Ford vehicle.

Mr. UPTON. My time has expired. Thank you.

Mr. MARKEY. We are going to have a series of roll calls on the

House floor that will require all of the Members to leave here in

approximately 5 minutes. We will then recess for about 15 minutes

and come back and reconvene for perhaps only 15 minutes then, at

which point, there will be another couple of votes on the House

floor, after which we will have to make a game time decision as to

what we do. But at this point, I will recognize——

Ms. ESHOO. Mr. Chairman.

Mr. MARKEY. Yes?

Ms. ESHOO. Mr. Chairman, can I have a unanimous consent request that members be able to put questions in writing to the witnesses?

Mr. MARKEY. Without objection.

Ms. ESHOO. Thank you.

Mr. MARKEY. I thank the gentlelady. Let me say this, with the

indulgence of the witnesses, I would like to keep the subcommittee

hearing going even after the second set of roll calls. There are bathrooms easily accessible to everyone here that perhaps during the

break we can take advantage of. I turn now to recognize the vice

chairman of the Telecommunications Subcommittee, the gentleman

from Pennsylvania, Mr. Doyle, and ask him at the conclusion of his

questions to just gavel the committee into recess.

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

set the record straight. My colleague and friend Mr. Stupak had

said I had given up alcohol for Lent, and I want you to know that

is not true. I gave up brussels sprouts.

Mr. MARKEY. You are Irish, after all.

Mr. DOYLE. I want that on record, yes.

Mr. Karmazin, you have acknowledged that both XM and Sirius

have limited channel capacity. So if you have to cut XM stations

to make space for popular Sirius content like Howard Stern and

NFL, for those who want to pay extra to get that, aren’t the people

who just want XM and want to pay $12.95, aren’t they going to end

up paying the same price for fewer stations than they get right

now?

Mr. KARMAZIN. Congressman, there has been tremendous technology advancements including where you are able to squeeze more

channels into the same bandwidth. Compression technologies that

enable you to use the same bandwidth that you have but to be able

to make more choices. We compete with free radio, and if we don’t

satisfy these subscribers for $12.95, we don’t have a very good business model. So to your point about whether or not we are going to

be able to accommodate a number of additional channels on top of

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the core channels that we have today, we believe that we will technically do it with no disadvantage to the Sirius or XM subscriber.

Mr. DOYLE. Excellent. So for that XM subscriber that says I like what I have, I just want to pay $12.95, he is going to get what he

asks?

Mr. KARMAZIN. He is going to get pretty much. I can’t tell you

exactly what because we constantly make changes. So as an example right now, we are not using all of our channel capacity today.

So we have the ability today to put more channels into our existing

service than we are using right now.

Mr. DOYLE. Mr. Kimmelman, when Dish Network tried to purchase DirectTV in 2002, a merger that would have combined the

only two satellite TV providers, you told the Senate Judiciary Committee, and I quote ‘‘that the merger could offer consumers some

significant benefits.’’ So what is different about the satellite radio

market that instead of seeking conditions, you seem to outright oppose the merger?

Mr. KIMMELMAN. With cable rates going up three times the rate

of inflation, we were looking to satellite to try to do something to

bring down prices for consumers. The last time I looked, free over

the air radio is not going up in price. So there is a huge difference

here into who the adjacent market is.

Second, the merger of DirectTV and EchoStar that was proposed

included a significant offer of spectrum divestiture, at that point,

to Cablevision systems which sought to offer a new competing video

service. If something like that were on the table today, that would

be a very interesting addition to the other kind of promises Mr.

Karmazin has made.

Mr. DOYLE. Mr. Karmazin, in response to that last comment by

Mr. Kimmelman, what is the possibility of that?

Mr. KARMAZIN. Yes, if you take a look at the way people get free

over the air television, well over 90 percent of the people get it

from a pay service. So when you take a look at the market, you

are looking at a cable and two satellite companies. So therefore, I

think that merger didn’t happen because there were three companies becoming two. When we talk about today, the vast majority of

all the people are getting satellite radio in addition to their free

radio. 216 million cars have free radio. So the market is very different between satellite radio and the situation with DirectTV and

EchoStar. So we really don’t see it as analogous at all. We see that

they didn’t have free as something to hold their pricing back. And

it is just economics. I don’t know if there is anybody who sort of

follows it a little bit. But when you are trying to get subscribers

and you are charging $12.95, you are more apt to get a subscriber

than if you are going to charge $14.95. So if the option is free, why

on Earth would there be higher prices? But we said, you know

what? Forget whether you buy into that argument, OK. If you don’t

believe the economics, then we believe that we should be held accountable to everything we are saying. And we are prepared to be

accountable for everything that we are saying.

Mr. DOYLE. Thank you. I want to ask Mr. Kimball my final question. Mr. Kimball, I have gotten a lot of calls from constituents

about the Copyright Board’s recent decision to increase the royalty

fees, which I personally think is outrageous that Webcasters pay

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for music right now. If the Webcasters die off because they can’t

afford the new fees, doesn’t that cut into the argument that they

are going to be able to compete with satellite radio?

Mr. KIMBALL. I think that is exactly right. I think the problem

we have today is that the entire Internet radio system is at a disadvantage with satellite radio. We pay a higher royalty than the

satellite system pays, and we are under a different standard to set

that royalty than satellite pays. And I think until we have a level

playing field, the Internet will not be able to compete fairly with

satellite. And that is why I think that this merger should certainly

be reviewed very carefully and, I think, put on hold until we have

a legislative framework that is fair. The Internet should not be disadvantaged.

Mr. DOYLE. Thank you. This hearing is now adjourned until after

the next vote. Thank you. In recess, not adjourned. In recess. Stay

put.

[Recess.]

Mr. MARKEY. Mr. Kimball, what is your reaction to the Copyright

Royalty Board’s decision on Internet radio royalty rates, which rejected all of the arguments made by Webcasters and instead adopted a per-play rate proposal and made this proposal retroactive

through 2006?

Mr. KIMBALL. Well, to say we are disappointed would be, I think,

a bit of an understatement. I think we are very concerned that the

Copyright Royalty Board procedure is still lacking a fundamental

understanding of how the Internet works, what the economics are

on the Internet, how small Webcasters will be affected by this kind

of a ruling, which for companies like RealNetworks that are in the

subscription business is not as significant as for the small

Webcasters, some of whom are going to have to pay multiples of

their total revenue in back royalties. And how they handle that is

really a complete mystery to them. Companies that are small mom

and pop organizations that could have $100,000-plus back royalty

obligations is absolutely disastrous. And what is more is the $500

per channel minimum really has a significant impact on the diversity of programming offered on the Internet. That is truly one of

the best things about Internet radio, that we can provide so many

different channels to satisfy so many different interests. And with

a $500 per channel minimum, companies like Live through 65 and

Pandora and RealNetworks that provide tens of thousands of channels of content, that of every possible conceivable genre and configuration, whether you like classical music and rockabilly, we can

put those two together, if that is what you happen to like. That is

all going away with a $500 per channel minimum.

Mr. MARKEY. OK, thank you, Mr. Kimball. Mr. Blackwell, do you

think the FCC should separately allocate non-commercial radio licenses for tribal lands or other rural areas where spectrum is

abundant, rather than allocating all non-commercial licenses simultaneously? Tell us how important low-power radio is to your people

in your community.

Mr. BLACKWELL. Well, Chairman Markey, I suspect that you

asked me that question perhaps because I am the only man at this

table that wasn’t afraid to wear a necklace to this hearing. Perhaps

I am here because localism and diversity are one of the most imVerDate 11-SEP-98 10:59 May 06, 2008 Jkt 000000 PO 00000 Frm 00086 Fmt 6601 Sfmt 6601 Q:\DOCS\110-10 SCOM1 PsN: SCOM1
76

portant elements of this dialog of this inquiry. In Indian country,

oh that we had the ability to compete with some of the entities that

are sitting at this table. We are among the most underserved areas

in the United States. We would welcome a particularized inquiry

by the Federal Communications Commission as to new services in

Indian country, specific to Indian country.

Mr. MARKEY. OK, great. Mr. Kimmelman, can you address that

issue briefly?

Mr. KIMMELMAN. I think it would be a tremendous service to the

unique local community needs to separately allocate spectrum to

ensure that we really take care of the needs of the tribes. And it

would in no way harm any of the other competitive concerns about

spectrum allocation the FCC needs to address.

Mr. MARKEY. Mr. Karmazin, Mr. Kimmelman noted earlier that

the FCC only had 25 megahertz of spectrum to auction for satellite

radio services. It subsequently allocated all of the available spectrum, 12.5 megahertz each, to Sirius and to XM. You noted that

compression technology allows greater efficiency. So given the efficiencies generated by the merger, can Sirius and XM operate together on a single allocation of 12.5 megahertz?

Mr. KARMAZIN. Mr. Chairman, what we want to do is make sure

that this is not in any way, shape, or form disruptive to the American public. So if you have a Ford vehicle, as was talked about earlier, for at least the next 10, 15 years, we are going to have to provide service into that Ford vehicle. And the only way we can provide that service into the Ford vehicle is through our network. And

the same thing would be true for XM. So we are going to put up

three more satellites over the next 3 to 5 years, each one costing

about $300 million, and each one having a life term of about 10 to

12 years. So the first time that we would be able to consider something like that would be somewhere in the 2017, 2018 where we

would be able to have the ability to use one platform. And again,

if in fact, there was some interest in that area in that timeframe,

of course, like anything else, we would be open to it. We are not

spectrum hogs. We bought our spectrum. We paid for it, and if, in

fact, at any time that we have excess spectrum, we would certainly

be open to hear any suggestions in that regard.

Mr. MARKEY. OK, so, Mr. Kimmelman, could you comment on

that?

Mr. KIMMELMAN. Well, I am just curious, Mr. Chairman, that if

we can compress a lot more and get the same current base in a lot

less capacity, at least consider as a matter of policy, I don’t know

if it makes sense in the merger context, but certainly as a matter

of policy, what could the Government get for 12.5 megahertz

through an auction? And as we have done with the digital television transformation and progression, consider holding consumers

harmless, making sure that monies are used to take care of the

person with the Ford, the person with embedded base radio equipment that would need a new receiver. I would just be curious to

know whether there is a way to actually get more of a benefit by

having the spectrum made available for other purposes, broadband,

mobile, digital, holding consumers harmless. And if it is believed

that it would be better to have one satellite radio company rather

than two, cover all these bases.

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Mr. MARKEY. So let me understand, Mr. Karmazin. When you

swap out the equipment for one half of your subscribers and then

would you continue to operate both systems simultaneously?

Mr. KARMAZIN. No.

Mr. MARKEY. And for how long, if that is your choice, would you

operate both systems?

Mr. KARMAZIN. Mr. Chairman, what we have said is that we do

not want the consumers to be disadvantaged because of this merger

and we don’t want their existing receivers to be made obsolete and

that we are going to continue to have to operate on these two networks for——

Mr. MARKEY. For how long?

Mr. KARMAZIN. I think I mentioned to you somewhere in the

2016, 2017 area because there will still be consumers out there

who will have a General Motors vehicle that would only be able to

take content from the XM satellite so the Sirius—in other words,

we can do some compression technology and shoehorn a few more

channels into our 12.5 megahertz. But we can’t feed their satellites

into our vehicles. And that is why when we are asked a question

about the Ford and getting both content, what we would do is take

the content and put it into our network and vice versa. What we

would need to do if the time came that the technology was such

that we wouldn’t need it, we would certainly be open to it. But that

is not for the foreseeable future.

Mr. MARKEY. OK, so that’s 2016?

Mr. KARMAZIN. I am making up a year.

Mr. MARKEY. I understand.

Mr. KARMAZIN. But it is somewhere in that area.

Mr. MARKEY. About 2016; and 10 years ago, the FCC had a rule

for interoperable receivers. And I know that because obviously I

was a part here of a big discussion at that time. And we are only

beginning to see them now, 10 years later.

Mr.KARMAZIN. But, Mr. Chairman, both companies have spent

$25 million on developing an interoperable receiver and we have

developed an interoperable receiver. And if there was any equipment manufacturer who wanted to make it, we would absolutely

give them our intellectual property so they could make it. The issue

on it is, sir, is that we will not subsidize it today, and the reason

we will not subsidize it today because it is possible that Sirius

would subsidize an interoperable radio, which would result in XM

getting a subscription. It doesn’t make any sense for us to subsidize

a radio where we don’t get a subscription. Post-merger we are prepared to subsidize that radio. We have developed it. We have lived

up to our license. There is not a question. Nobody is going to find

something in that license that said anything other than that we

would develop it. There was never a requirement that said that we

would subsidize it and bring it to the market. We are prepared to

do that in a post merger.

Mr. MARKEY. Yes, let me go to you, Mr. Smyth. Any comments

in that area?

Mr. SMYTH. I would have two comments on that. I think that if

you said 10 years ago that you were going to build an interoperability capability, then don’t say what you can’t deliver. What concerns me today, when you put two companies together, what hapVerDate 11-SEP-98 10:59 May 06, 2008 Jkt 000000 PO 00000 Frm 00088 Fmt 6601 Sfmt 6601 Q:\DOCS\110-10 SCOM1 PsN: SCOM1
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pens is innovation is taken out of the equation. No. 2, I think there

is something that I had mentioned to Mr. Karmazin, and he is far

wiser about this than I. That if you have the Ford car that we used

earlier and the Ford car is the one receiving Sirius programming

and you want to shoehorn in additional channels and their content,

that is going to come in at a lower bit rate. And that audio quality

is going to be depreciated, and therefore if the consumer is going

to be paying more money eventually for that, they are going to be

getting a lower quality at a higher price.

So my question would be if you are waiting until 2016—and I

know that that is a hypothetical date, that is not a fixed date, but

still those are questions that would go through my mind. Again,

the whole digital revolution is about quality of sound and the ability to use this at its best rates. And I just think that when you

start to get into cutting these bit rates, there is only so much you

can cut them.

Mr. MARKEY. So, Mr. Smyth, let me ask you this. The threat that

is posed by satellite theoretically to terrestrial broadcasting is that

it lowers the value as well of terrestrial AM/FM radio stations.

Can you just give me a little bit of a sense of what is happening

in the radio market? As I said, in terms of resale value of radio stations, what has been the impact of the first 14 or 15 million people

subscribing to XM and Sirius in terms of the values of local radio

broadcast stations?

Mr. SMYTH. I think in the major markets, the values for radio

stations held a bouquet. I think there is a lot of different issues.

There has been no growth in the overall radio advertising market

over the past 4 to 5 years. I think zero to negative growth, and I

think that that has definitely hurt the economic viability of it. The

issue about satellite really comes down to when you look at—not

on a national basis, I don’t compete with Mr. Karmazin on a national basis, not at all, I compete with him on the local basis that

he would have—if you combined these companies, you would have

288 signals to my five. And under current regulations, I am allowed to have five FMs and two AMs, and that’s it.

Mr. MARKEY. All right, so I got that. Let me go back to Mr.

Karmazin. How do you respond to that?

Mr. KARMAZIN. I will do anything you want me to, Mr. Chairman, if this is a debate. So first of all, if HD radio has the ability

of having an improved sound or multiplexing a whole bunch more

channels in it, they clearly are using that spectrum to shoehorn

more stations in there. Second, there is clearly on, I believe, Greater Media Stations, though I don’t follow them a great deal—they

are carrying programs like Sean Hannity and Rush Limbaugh,

which, I guess, aren’t local programs. I am saying it is fine. I don’t

object to anything that they are doing. If they want to carry national programming in their local market, certainly we have no objection to it. I think I can give you a good answer on how terrestrial

radio is doing, 14 million subscribers with satellite radio, is Clear

Channel is about to do an LBO, which is one of the largest LBOs

in this history of business, so I don’t see any signs where they have

poverty. If you take the $21.5 billion of revenue that is represented

by what terrestrial radio is doing, our local advertising, so they do

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$21.5 billion of advertising revenue. Our combined companies do

$60 million of advertising, $60 million of $21 billion.

Mr. MARKEY. I’ll give Mr. Smyth the final word on this round.

Mr. SMYTH. Thank you, Mr. Chairman. First of all, I am a local

broadcaster, the most successful radio—I ran Magic in Boston for

many years. The reason Magic was successful was because it was

grounded in the community and it is local. Greater Media does not

carry Sean Hannity and the other individual that he mentioned. I

believe that if you look at national syndication for radio personalities, there is probably two or three who have ever made it, and

that is it. So successful radio in America is local.

Mr. MARKEY. Should there be additional public interest obligations placed upon the radio industry, given that they will have this

new digital service capability?

Mr. KIMMELMAN. Well, Mr. Chairman, we have had a hard time

having the radio industry and the broadcast television industry live

up to the previous public interest obligations that they have had.

Mr. MARKEY. What new ones would you impose? What makes

sense to you as we get into this?

Mr. KIMMELMAN. I believe Congress ought to look at a different

model for how we approach public interest obligations. As you do

the compression and the multiplexing that Mr. Karmazin is talking

about in the digital era, there is an enormous capacity for radio

and for broadcast television. I believe they should be asked to share

that with the public, make it available to the public and not try

to regulate the content on those stations but share what has been

given to them for free. And in that way, I think we can have more

public access available on all of these platforms that will be generated by the community and by consumers rather than by broadcasters.

Mr. MARKEY. This is what I would like to continue the conversation looking at. Back when we did the Cable Act in 1992 and we

were looking at what the new public interest standards should be

for the direct broadcast era, for the satellite era, this committee determined that 4 to 7 percent of the transponder capacity should be

for non-commercial educational programming from alternative

sources. Just briefly, Mr. Smyth, does that make any sense to you?

What do you think about additional public interest obligations for

the local?

Mr. SMYTH. Well, I can speak for my own company. I mean we

just introduced a program in Boston where we had the new Governor, Deval Patrick, has a show every first Thursday of every

month.

Mr. MARKEY. No, I don’t mean program, but I mean a generic set

of rules that are on the books in terms of the public interest responsibilities.

Mr. SMYTH. I think that the broadcaster has the responsibility to

be reflective of what is going on in his community.

Mr. MARKEY. So should we put that in the rules as we move into

the digital era, more specifically that is?

Mr. SMYTH. I think we have to have more time to discuss because I think it is very hard to make a generic rule because each

market has different issues and things that need to be addressed.

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I think that country radio, in general, has done an incredible job

in helping St. Jude’s.

Mr. MARKEY. No, I understand that. Now, Mr. Karmazin, very

briefly, would you support a 4 to 7 percent set aside?

Mr. KARMAZIN. Yes, I don’t have a horse in that race, and I will

leave it to the terrestrial broadcasters to decide what is in the public interest.

Mr. MARKEY. How about in your service?

Mr. KARMAZIN. Yes, in our service, if, in fact, that is something

that you are asking us to consider what we have said is that we

would be open to considering things in connection with the merger.

Mr. MARKEY. I appreciate that. I have to again recess the committee for about another 10 minutes, and then the committee members will be coming back. Thank you.

[Recess.]

Mr. MARKEY. With apologies again to the witnesses, I think that

our attention is now focused exclusively upon you. The roll calls on

the House floor, I think, are pretty much over for the rest of the

evening. So let me turn now and recognize the gentleman from

New Jersey, Mr. Ferguson.

Mr. FERGUSON. Thank you, Mr. Chairman. Mr. Karmazin, I mentioned in my opening statement, of which we had many, last year

I introduced legislation, which I did so because I was concerned

about new, portable devices turning satellite radio or performance

services into distribution services. The new devices have enabled

consumers to cherry pick songs or create an unlicensed music library without necessarily paying artists that, frankly, help make

radio so compelling.

I am concerned about the same thing happening when HD radio

rolls out. Your company, as I mentioned before, had reached an accommodation that compensates artists and their record labels for

distributions that are made possible by the S50 and the stiletto devices. Last week, Congressman Berman mentioned as he commended your leadership for taking this action, and you had mentioned that you tend not to like to use the courts to achieve your

goals but to use the marketplace. I said in my statement that I obviously agree with you on that and I commend you for that.

But I want to ask about this proposed new company, a merged

company. What is going to be your policy going forward on this

particular issue? And are you going to essentially adhere to this

perspective with the new merged company?

Mr. KARMAZIN. Congressman, thank you. I think you know what

my viewpoint is because we are implementing my viewpoint at Sirius to where we have obviously made an accommodation with the

various labels to compensate them for this service. So that will give

you a sense as to what I believe should be done. After the merger,

I will be the CEO of the combined company, and all I can say is

that you know my viewpoint on the subject. But there is obviously

a court action that is taking place as we speak. I have no idea if,

in fact, before the merger is approved hopefully that there will be

a result of that either through a negotiation or what. My hope is

that we can continue to have a terrific partnership with the music

industry because their content is very valuable to us. And we are

paying for it.

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Mr. FERGUSON. I want to pick up also on something that Mr.

Boucher had referenced earlier, this recent Arbritron survey, showing that satellite radio currently, I guess, accounts for 3.5 percent

of all radio listening in the fall of 2006. The survey also found that

satellite subscribers actually spend more time listening to traditional radio than to satellite radio, which I think is interesting, at

the very least. Given these findings, can you reply, I guess, or address NAB’s concerns or the suggestions that this is going to create

a monopoly? Is that an accurate characterization of the market

right now?

Mr. KARMAZIN. Congressman, first of all, my comment on that

3.4 percent is that I am sad about it because I certainly would like

it to be higher.

I think that it is really very disingenuous. We play music. Terrestrial radio plays music. We play sports. Terrestrial radio has

sports. We have talk. They have talk. It is hard to see how they

are not, in fact, competing in fact and we are competing with them.

I just don’t even begin to see it, and I have to believe that the fact

that they are here today must be for some reason. They are not at

the global warming conferences that took place today. They are at

the satellite merger today. So they must have a greater interest in

satellite radio, and if they don’t compete with it, I don’t know how

they should be worried about that. They should be worried about

global warming, and they weren’t at that hearing.

Mr. MARKEY. I was at both hearings.

Mr. FERGUSON. We were trying to keep things light here, but

now we have gotten very—you piqued the chairman. I appreciate

that. Mr. Chairman, that is all the questions I have right now.

Mr. MARKEY. The gentleman from Texas, Mr. Green.

Mr. GREEN. Thank you, Mr. Chairman, and I wasn’t at the global

warming conference. I surely wouldn’t want Congressman Markey

not to think I am really concerned about global warming. Mr.

Karmazin, you know my concern. You heard my opening statement

about satellite radio cherry picking a low cost, and I think they do

compete. I think satellite radio and my terrestrial radio, my over

the air competes. And my concern is about picking low-cost radio

services without the high-cost services. You are doing your job as

a salesman today in being real flexible about whatever conditions.

But if DOJ and the FCC determines the merger is in the public interest, I would expect numerous conditions to be applied to protect

localism and consumers. My concern is with the past history

though of satellite operators over the years about repeaters, receivers, and the attempts to evade the commitment of the national

service, can you give us some assurance of our fear of that?

Mr. KARMAZIN. Sure, Congressman. I don’t think it is proper for

any company to violate any FCC rules. I have been a licensee of

the FCC for the better part of 40 years, and you should play by

the rules. And the FM modulator issue and the repeater issue are

things that should not have happened. So that is clear. But those

things don’t challenge the character of us as a licensee or our ability to do this merger. And just as an example, this week a very

large number of broadcasters were fined for payola rules. And a

number of companies have paid fines dealing with political advertising and indecency, and we are not suggesting that Clear ChanVerDate 11-SEP-98 10:59 May 06, 2008 Jkt 000000 PO 00000 Frm 00092 Fmt 6601 Sfmt 6601 Q:\DOCS\110-10 SCOM1 PsN: SCOM1
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nel shouldn’t be allowed to do their multi, multi-billion dollar

transaction because they have violated various rules in the 30 or

so years that they have done it. So, yes, we believe in following the

rules. I apologize even though I wasn’t here at the time, but it took

place in our company, and we should be playing by the rules. And

I assure you that we will continue to play by the rules, and if we

make a mistake, then there should be a penalty, just like there was

on payola, or just like there was where Univision just paid a $24

million fine for violating children’s programming rules on television. I don’t see those two related, other than that we should be

a good corporate citizen, and I believe we are.

Mr. GREEN. Well, I don’t know about comparing Univision with

decency because I know there has been some discussion about requiring satellite radio to also match the decency requirements that,

for example, Univision or some of our over the air radio has to compete with.

Mr. KARMAZIN. And I think the answer on that, sir, is the fact

that one of the great interests on indecency was protecting children, and there was no mechanism at the time, and I still believe

today, to where you can have a radio that gets the Boston radio

stations and you can block out that station from coming through

that clock radio or that car radio. We are a subscription service.

You need to pay $12.95 in order to get that service. If you don’t

want any of our content, we have the ability to block it from that

receiver. You have the ability to block it. We broadcast the Catholic

Church channel. There are some people in our subscription service

that don’t want that channel. You can block it, and it never comes

into your home, and you have paid for it. So therefore, we think

that it is a very different model than the free over the air model

where children have access to all of these radios. So I think it is

different.

Mr. GREEN. Well, I also understand because I was waiting for

Congressman Upton or Congressman Dingell because I bought a

Chevy Tahoe, and I have, what, 90 days of satellite radio. And

there are things, I was hoping to have the Astros, because up here

in DC, even the Washington Post doesn’t cover them. But there are

things that I could see how you would compete. And again, the concern I have is that the things that I listen to, that Amber Alert.

Congress was involved a few years ago to make sure that my local

TV and radio stations would have Amber Alerts and things like

that.

Mr. KARMAZIN. And we would like to do it, Congressman. In

other words, we are hearing sort of little conflicting things. So in

some ways, people are saying we don’t want to give the consumer

that much choice by allowing satellite radio to do some of this content. And what we are saying is: do you want us to do Amber

Alerts? Because we are. But if you are saying we shouldn’t do local

things like Amber Alerts, then someone needs to tell us. We are

hearing again conflicting things.

Mr. GREEN. No, I am not saying you should do it. If you are

going to compete with over the air terrestrial radio, then you ought

to have the same hoops they jump through, which would include

decency requirements, even though you have a subscription service.

And that is the concern because again I can see why people would

83

both want a subscription but also with taking away local ad revenue, we could end up with many, many fewer stations. If Congressman Walden is trying to sell his, I am sure the value of them

would go down very quickly.

Mr. KARMAZIN. Yes, I know there are differences. Again we paid

for our spectrum, and terrestrial radio broadcasters have not paid

for their spectrum. We pay royalties to performers, and terrestrial

radios don’t. So I think that there are a number of areas where we

are different and again coexist. In other words, we are not trying

to say that terrestrial radio is not doing a good job.

Mr. GREEN. I think that shows I have run out of my time.

Mr. MARKEY. The gentleman’s time has expired. The gentleman

from Illinois, Mr. Shimkus.

Mr. SHIMKUS. Thank you, Mr. Chairman. And just to follow up,

Mr. Karmazin, that is kind of the schizophrenia that I was mentioning in the opening statement because I really do support my

local broadcasters because of local interest. But the reality is, in

the post-Katrina world, there may be some benefits in the digital

carriage, and we just can’t dismiss that. But if we say do it on the

one hand and don’t do it on another. So it is good public policy concern, and I don’t have any answers. But I readily admit the schizophrenia that you observed is what we are observing also.

Mr. Kimball, Internet radio clearly reaches across states, not to

mention countries. But can Internet radio promote localism?

Mr. KIMBALL. Absolutely. One of the great things about Internet

radio is that it is very simple and very inexpensive for anybody to

set up a channel from anywhere. So it doesn’t require that you

have the kind of capital to put up a satellite for $300 million or

buy a radio tower. You can get free, open-source software in your

own media room connected to the Internet and be broadcasting

your own Internet radio channel with local information. I have that

in my small hometown. We have local guys who love the weather

and put up all the information about the weather. It is the same

thing for radio. You could put together a channel that is about local

bands, the local music scene, local concerts, local information and

put that up on the Web. And it would be extremely inexpensive to

do that, but for the CRB minimums and some of the royalties that

you would have to pay, which frankly the broadcasters don’t have

to pay at all, and which the satellite companies pay less, we would

just like a level playing field for those small, local broadcasters to

flourish.

Mr. SHIMKUS. Thank you. Mr. Blackwell, you indicate in your

testimony that the Internet streaming and satellite transmission of

radio is helping Native American audiences. Can you elaborate on

that?

Mr. BLACKWELL. Thank you very much for that question. I do believe that every platform that is represented at this table is utilized

to one level or another in Indian country. And one of the challenges, however, is for Internet service. We like broadband service

in Indian country. While telephone service nationwide is about 95

percent, telephone service in Indian country is somewhere just

south of 70 percent. There is no reliable data for broadband development, for the deployment of broadband services. One hears rumors that it is 5 percent or 8 percent. Those are just rumors. What

84

we need are better metrics to be able to answer that question accurately. But it does certainly have great possibility, as each of these

services does in Indian country.

Mr. SHIMKUS. Thank you. Mr. Smyth, can you talk about the

transition to digital, and how is it going, and what benefits do you

see from that?

Mr. SMYTH. I would be glad to, Congressman. Thank you for asking. I think it is a gradual evolution. Today we have about 1,100

stations that are broadcasting in HD quality on their primary

channel. I can tell you that in Detroit, for example, we own a station, WRIF, and RIF–2 has become a station that is really targeted

towards kids between the ages of 12 and probably 18. It has given

access to local bands in the community. It is programmed by a programmer who is probably 21 years of age. It has got the buzz of

Detroit, MI today, and what it does is it gives them great access

and affordability where normally they wouldn’t find those in other

venues.

So I also think that the HD–2 channels will have a multitude of

different effects as we move forward. I think in terms of the community, that they will be able to offer literacy channels. I think

they will be able to work on Head Start. I think they will be able

to do a lot of other different things that people really haven’t

thought about today, and I think that those will have community

and economic benefits to the people that own those. I know, and

as I said earlier, you know, we are doing an Irish channel in Boston, kind of obvious. But I do think that the limitations are only

in the creative people’s minds, and I think that what you have to

do when you move into the digital world is try to take back as

many of these barriers to success as possible and open the floodgates to creative license.

So I feel pretty good with what we are doing, but we have got

a long road to go. I think Congresswoman Harman said it earlier.

Wal-Mart has just racked the product, and we are starting to get

some good retail distribution. And I think we will just get some

good distribution in Detroit very shortly.

Mr. SHIMKUS. Well, since the chairman found that chair, I am

going to move the previous question. No.

Mr. GREEN [presiding]. Whatever you would like, sir.

Mr. SHIMKUS. That is right. No, I will end by saying Mr.

Karmazin, I was in another hearing this morning on global warming, and I talked about being the Neanderthal because I am a Creationist. And that is probably not politically correct, but I do have

concerns on the decency issue, and I have been on that side of saying it is going over the airwaves. We should have standards. So I

just want to put that on public record and hope that we can help

clean up the airwaves a little bit. And with that, I yield to Mr.

Green, yield back my time.

Mr. GREEN. Do you believe Eddie Markey gave me the gavel?

Mr. SHIMKUS. Take a chair. That is what I would do.

Mr. GREEN. The Chair recognizes Congressman Walden.

Mr. WALDEN. Hey, Mr. Chairman, did you want to get into global

warming now? Well, you have the gavel.

Mr. GREEN. I am just glad my colleague from Illinois didn’t call

me a Neanderthal on global warming.

85

Mr. WALDEN. Again, I appreciate having this hearing today, and

you have heard a lot about indecency and all. I think, Mr.

Karmazin, you were here when we had the discussion on the wardrobe failure, I think, during the Viacom era and CBS, and so you

have been here before us. And we have dealt with those issues.

Now, I want to ask a couple of questions. Mr. Karmazin, you have

said repeatedly, and so have your counterparts at XM, you bought

your spectrum, in a sense, from the FCC. You paid for your spectrum, right, your license?

Mr. KARMAZIN. Yes, that is factually correct.

Mr. WALDEN. And was that in an auction?

Mr. KARMAZIN. I was not there at the time.

Mr. WALDEN. Sirius, though.

Mr. KARMAZIN. Yes, Sirius paid $80 some odd million, and XM

paid $80 some odd million for that spectrum.

Mr. WALDEN. Right.

Mr. KARMAZIN. I assume that there was an auction. I assume it

had other people bidding for that spectrum.

Mr. WALDEN. So, Mr. Smyth, don’t broadcasters occasionally

show up bidding in an auction for spectrum today?

Mr. SMYTH. I would say that——

Mr. WALDEN. The answer is yes.

Mr. SMYTH. Yes, they do.

Mr. WALDEN. Let me assure you the answer is yes.

Mr. SMYTH. Yes, they do.

Mr. WALDEN. If going to an auction and getting the allocation of

the frequency, why is that different between him and you then in

terms of how you are managed? It is different because of the legacy

rules that are in place, right?

Mr. SMYTH. Correct.

Mr. WALDEN. Now, I think Mr. Karmazin made an interesting

reference to the fact that the rules under which you all operate

date back to 1997.

Mr. SMYTH. We were granted the license in 1997, and I think

what I responded to was a question where a statement was made

about the two companies owning it. That’s correct.

Mr. WALDEN. The monopoly issue.

Mr. SMYTH. Yes.

Mr. WALDEN. And the rules at that time, as I understand it—I

have not gone back and read them—said two companies won’t be

merged. Two separate, so we have a competing environment out

there in this particular product line of delivering national satellite

audio.

Mr. SMYTH. Yes.

Mr. WALDEN. That was the theory.

Mr. SMYTH. Yes, I know I am in the minority by not being a lawyer.

Mr. WALDEN. That will be two of us.

Mr. SMYTH. I do not believe it is a law. I mean it is not as a rule.

I don’t believe it is a rule. I think it was a policy statement that

was made at the time the license was given, but I don’t believe that

if you were to go into the rulebook of the FCC there is such a rule.

Mr. WALDEN. I try to avoid that book if possible.

86

Mr. SMYTH. It doesn’t mean that that is still not the belief, but

that is just the fact.

Mr. WALDEN. Because I was going to say that we operate, as

broadcasters, under the 1927 rules, the 1934 rules, the 1996 Act.

And so I think that we see this industry evolving. The thing that

is troubling to me, whether or not the merger makes sense, and

then that will get argued out somewhere else, it is the issue of this

hearing, which is the future of radio. And as I see it, the over the

air free broadcasters in the communities are providing a service at

no charge. So anybody in America basically can turn on a radio.

They get the entertainment or information. They can push a button

if they don’t like a channel. Somebody is indecent, they can turn

it off or they can’t do exactly what you do. And they can’t do subscription service. All they can do is advertising, and the only thing

that drives advertising rates is audience. And so I know you would

like to get your Arbitron ratings up, and I understand if I were in

your shoes, I would too. But for this committee and for public policy for the country, you say what happens to those who can’t afford

$12.95 or whatever your combined fee might be a month? What

happens to them down the road if commercial broadcasters, who

are not only licensed by the Federal Government, but required to

do public interest obligations, public commentary? What happens to

that service down the road if you and a combined effort become a

market force and take a huge chunk of the audience away?

Mr. KARMAZIN. Sir, I have been a broadcaster for an awful long

time and I could tell you that the first radio station went on the

air in 1926, KBKA in Pittsburgh. It was a Westinghouse station.

It is still one of the top two radio stations.

Mr. WALDEN. How old is satellite?

Mr. KARMAZIN. Five years. From the point at which we got our

first subscriber. I can assure you that local radio is very important

to the consumer. Free radio will always coexist with satellite radio,

no matter how successful satellite radio is. And I can give you an

analogy, sir. If you take a look at cable and the local broadcasters,

so that the local TV stations, local ABC and NBC and CBS affiliates, absolutely are vital today but so is HBO and so is ESPN.

Mr. WALDEN. Do your local translators, the repeaters, are they

mechanically electronically set up so that you could insert local

programming?

Mr. KARMAZIN. Yes, I can’t tell you whether or not they are

rigged that way, but I can assure you that we have no interest in

using the local repeaters for local advertising or local programming.

That is not our business model. Whether or not they are rigged

that way or they aren’t rigged that way is academic because we

have no plans to use them that way. And again remember what I

said earlier, I am sure everything I said you could figure out a way

to hold me accountable.

Mr. WALDEN. Thank you.

Mr. DOYLE [presiding]. Mr. Pickering from Mississippi.

Mr. PICKERING. Thank you, Mr. Chairman. I just have a few

questions and again having not taken any position on the merger

but wanting to understand how we can make sure from a policy

point of view that whatever happens is pro-competitive. And so I

just have a few questions, and I know that you have had a discusVerDate 11-SEP-98 10:59 May 06, 2008 Jkt 000000 PO 00000 Frm 00097 Fmt 6601 Sfmt 6601 Q:\DOCS\110-10 SCOM1 PsN: SCOM1
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sion with the chairman, Mr. Markey, as it relates to the policy at

the time your licenses were granted, and there is a requirement of

the policy that there should be two. If the merger goes forward, my

question relates to the spectrum, the combined spectrum of both

companies. Would there be any gained efficiencies between the

merger of the two in such a way that there could be, as part of the

merger condition, divestment of some of that spectrum so that if

there were in the future a new entrant or a possibility of a new

entrant, are you going to use that spectrum so that you could

maintain the policy as you strengthen the financial standing of

your two companies? Do you understand my question?

Mr. KARMAZIN. I do, sir, and it is possible that that kind of technology could be worked out so that the consumer is not deprived

of the service on their receivers today, but it would probably be

somewhere in the 10-year timeframe. And I know, as you look at

things, that may not be that long, because of when these spectrum

things. But we don’t see how before 2016, 2017 that that could be

done. But it is possible that it could be done with our next generation of satellites that we can do to make the receivers, and the way

it would work is that we would design the satellites and the repeater network so that they could feed either of the radios that currently exist today as a way of not making those radios obsolete. So

it is a possibility down the road.

Mr. PICKERING. What would have to be done to make that?

Mr. KARMAZIN. I think what would need to be done is that you

would need to get the new satellite configuration to be able to feed

both companies’ receivers and terrestrial repeater networks.

Mr. PICKERING. And is there a way to accelerate that timetable?

Mr. KARMAZIN. Well, we are going to be launching our next generation, we mentioned earlier, Congressman, that we have two

more satellites, each one for $300 million that we are going to be

launching over the next 3 or 4 years. Those things have been committed to. Those things will not be able to handle this, and we

haven’t gotten the merger approved. And we are going to be

launching one in 2008. So the idea would be that it would have to

be the next generation of satellites after this generation.

Mr. PICKERING. Well, let me ask a hypothetical question. If, as

part of the merger approval by the FCC, they required an acceleration of that timetable, an upgrading of your investment, so that it

could be possible to give back or divest some of the spectrum in a

more rapid time period so that you could have a pro-competitive

possibility within your market segment, is that something that

would make the merger impossible, unattractive?

Mr. KARMAZIN. Yes, I don’t think it is possible for us to be able

to do it, but again, I am not an expert on satellites. If I am going

to give you an answer, I just need to make sure that my answer

is right. So without being an expert on satellites, I don’t believe it

would be possible for us to accelerate that timeframe without

spending hundreds of millions of dollars for satellites. And the reason we are fighting so hard for this merger is that we feel it is justified, but there is also about $300 million or so that the analysts

have said that are available in synergy. If in fact, we have said,

on pricing, we are going to give the consumer some of that advantage on synergy, and if, in fact, we are going to use all of the other

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synergy for the ability of spending more money on an infrastructure that we don’t really feel serves any purpose, then it really defeats any of the purpose of the merger. And it just may not make

sense to do the merger.

Mr. PICKERING. Mr. Smyth, do you have any comments?

Mr. SMYTH. Yes, I do. Thank you, Congressman. First of all,

some of the statements that Mr. Karmazin made earlier about all

the bills in radio, I would remind him that he did run CBS Radio

also. So I wouldn’t forget that. And No. 2, I think important to note

here is—that the question that keeps running through my mind as

you were talking, Congressman, is if these two companies, these individuals have said they could run their two companies by themselves, they would survive, and Mel just basically said that if you

can reach some of these different terms you talked about. Why

would we put these two companies together, form one company,

and lose all that innovation? Why would we take that innovation

out of the marketplace when the digital era is just starting to come

into its own? And we are going to take these two companies together, and we are going to stop that. And again it is about 288

signals going into your market, your market, your market, where

the local broadcaster in your market can own a maximum of seven

signals or eight. And you are going to have 288 signals. Why? If

these companies are doing well, what you are doing is stopping innovation.

Mr. PICKERING. Mr. Karmazin.

Mr. KARMAZIN. So, first of all, you have that today. I don’t really

know what he is talking about. I mean we are talking about the

fact that XM has these channels and Sirius does today. So that is

not new information that there are these channels in the market.

No. 2, the innovation would not be hampered, and the reason that

you would, if the merger is approved, is because you believe that

it is in the consumer’s best interest because they get lower prices

and more choice. At the end of the day, the reason for the merger

would be that. If you don’t believe you are going to get more innovation, more choice, and lower price, then you wouldn’t approve it.

Mr. PICKERING. But this is my concern. We are going from two

companies to one, and it is a little bit counterintuitive to say that

is more choice. Having said that, I do see some legitimacy in your

argument that there are multiple platforms, Internet, iPod, radio,

traditional as well as satellite. And your financial health and condition does not appear to be very strong at this point. So is it a matter of surviving as one or losing both?

Mr. KARMAZIN. No, I don’t think so. I mean I know it is an easy

argument to make that we have lost $3.8 billion so far since we

have started. We have not made a dime. Probably a low-power

radio station has made more money than we have made to date.

Also the idea is that this last 12 months, we have lost a billion dollars. We believe that we have a high fixed-cost business. We have

launched the satellites, and when we get more subscribers, our

profitability will improve. So we are not making a failing company

argument. We believe both companies, if in fact it is decided that

this merger is not allowed to go forward, that XM and Sirius—I believe both will be OK, but I can speak for Sirius—will be a very

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healthy company. So this is not about survival. This is only about

whether you believe the consumer is better off or not.

Mr. PICKERING. I appreciate your comments and your answers.

I am concerned that if you draw up the drawbridge and there is

the impossibility of a new entrant, as you go from two to one, is

that pro-competitive or not? And so I just want to see if over time

we can have additional investment, additional entry, and the innovation that will come from that, the competition that comes from

that, and the choice that comes from that. And so, Mr. Chairman,

I yield back my time.

Mr. ENGEL [presiding]. Thank you. The gentleman’s time has expired. I yield myself 5 minutes.

Mr. Kimball, in your testimony before, you were talking a great

deal about Internet radio, and I took some notes before on how

Internet radio is the same and is different from over the air radio,

and you were talking about it. Don’t you approve of Mr. Karmazin’s

point that when we are talking about choices, we cannot just look

at radio, paid-for radio in a box, but that people can have many

choices? They can turn on their AM/FM radio, or they can go to the

Internet or use an iPod. Aren’t you actually making that case?

Mr. KIMBALL. I actually think the market definition questions

that Mel is going to have to deal with, as part of getting this merger approved, are fantastically complicated, and I won’t begin to pretend I am an economist who can solve how you slice that market.

It is complex. I do believe that there are areas in which we compete

with satellite radio, particularly when somebody is in their office

or somewhere where they have an existing broadband connection

in their home. We don’t currently compete with satellite radio

somewhere like the car, and how an economist is going to slice that

market and make a decision about where you get market power is

very difficult to say. But I will say that if satellite had a 10-year

running start to build all the radios in all the cars over 10 years,

it would be very difficult for a new market entrant to step in there

and win back that car business. And I think the car is a pivotal

place for the use of music.

Mr. ENGEL. Mr. Karmazin, I again made notes, and you will excuse me. I don’t remember who said it, but it wasn’t you, said that

the merger should not go forward, and they compared it to the

EchoStar and DirectTV merger. I would suspect that you would

disagree with that, that you would say that it is not a parallel. I

would like you to explain why it wouldn’t be a parallel.

Mr. KARMAZIN. While you were out of the room at a vote, I mentioned it, but if you will allow me to repeat myself. That in the case

of EchoStar and DirectTV, virtually every consumer gets their television through a cable or satellite. There are very few people who

are getting it with the rabbit ears. There is probably about 10 percent of the population on a national level that gets it with the rabbit ears. So in the case of EchoStar and DirectTV, there were three

companies: a cable company and two satellite television companies,

all pay services that were competing. That was going down to two.

In our scenario—and I have had conversations with this gentleman’s boss about Internet radio and getting into the car and things

that they have planned to do with WiMAX and things like that, not

only are we competing with free, which is very different than

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EchoStar and DirectTV, but we are also competing with Internet

radio. We are competing with jacks that are now inserted into vehicles so you could plug your iPod into it. We also are competing with

cell phones that have content because 802.11 and BlueTooth, you

are able to put your cell phone in your vehicle and be able to get

through your speaker system, through your radio, so you are able

to get whatever content that you have on your cell phone. And

there is an awful lot of talk content. There is a lot of sports content. There is a lot of music that is on the cell phone. So, unlike

EchoStar and DirectTV, we are competing with all of these options,

and therefore that is what will encourage competition. And that is

why this one is not eliminating a competitor.

Mr. ENGEL. I have read a lot of the editorials, both pro and con,

and the editorials that say the merger should continue basically

what Mr. Karmazin said and what I had said in my opening remarks. That when we look at people’s entertainment, we have to

look at the whole situation. Mr. Kimmelman, why is that not the

case? Can we really go back to the way things were 10 years ago

and pretend that we can put everything in neat little packages?

Mr. KIMMELMAN. Absolutely not, Mr. Engel. But the point here

is what segment of consumers is desiring what form of radio entertainment. You have it at home. You have it in the office, but there

is a unique segment in the car. And it is not just any car. It is people who drive maybe more than 25 miles can’t get over the air

broadcast signals to keep going across that distance. People who

want to hear National League baseball games from outside their

own community or the NFL or the NBA. There is a unique product

that has been developed. I congratulate Mr. Karmazin’s company

for doing it well and XM. More than 14 million people buy it. About

50 percent increase in subscribership last year, almost 60 percent

increase in revenue last year from subscribers. Yes, I hear all the

crying about the red ink, but they are growing like gangbusters because a lot of people want this. But that is different from what you

maybe want to do at home, different from the people who don’t

drive more than 25 miles. So I would suggest for competition policy, that is a unique segment of the public that wants choice, wants

competition. And I believe that is a somewhat unique service. Just

like cars and airplanes and trains are all forms of transportation,

on many levels they don’t really compete for people, and I would

suggest that that is the same here. It is not going back 10 years.

It is just realizing the reality. Maybe Internet radio will become

that. Maybe cell phones ultimately will have some of this, but

today they don’t compete for that segment of the public.

Mr. ENGEL. But if I buy a car, and I am locked into XM or Sirius,

and I cannot get the things that I might want to listen to, why am

I not better served if I can get a car and can get the best of both?

Why is that somehow hurting me as a consumer? It would seem

to me that if I have to choose between the NFL or Major League

Baseball, and I get a car and maybe it is already in and I can only

get Major League Baseball, am I not better served by being able

to get both?

Mr. KIMMELMAN. Well, I think it would be wonderful to get both,

and I wish that we had the interoperable radio so that people could

choose between the one or the other, and it was promised many

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years ago. It is now like the consumer, as you are describing, is

held hostage. That we don’t have the interoperable radio so is the

only solution to merge? I would suggest there are other ways in

order to get the maximum choices for consumers at the lowest

prices. And if the merger is not the best way, Mr. Karmazin is offering some concessions. I think if you get to the point of looking

at that, you should look carefully as to whether you can really oversee those kind of concessions and still get the maximum consumer

benefits.

Mr. ENGEL. Mr. Karmazin, I would like to give you the chance

to rebut, and then I see our chairman has come.

Mr. KARMAZIN. I think what we have asked for is that we get a

fair opportunity to present our case, and it is amazing how people

have formulated these opinions without any facts. So we have yet

to file our Hart-Scott-Rodino filing, which we will do next week. We

have yet to make our public interest argument with the FCC,

which we will do shortly after it. But I think that everyone has already, without the facts, formulated an opinion. And all we have

asked for is that we be allowed to go through the process. And that

if, in fact, our merger is deemed to be in the public interest, it be

approved. And if it is not, we understand. But to have experts making comments without knowing what the facts are is a little bit

troubling for me.

Mr. ENGEL. OK, thank you. I am way over my time. I see our

chairman has arrived, so I will vacate the seat.

Mr. MARKEY[presiding]. I thank the gentleman from New York

for chairing, and that completes the time for questions from the

members. What I am going to ask is each one of you to give us a

1-minute summation of what it is that you want the committee

members to remember as we are going forward in terms of all the

issues that we were discussing today. What is the core, one-minute

message you want to give to us? We will begin with you, Mr.

Blackwell.

Mr. BLACKWELL. The first priority would have to be increased

Federal funding, and Federal funding that works in Indian country, in economically distressed communities. Second, we need better metrics in Indian country. The Blueprint Initiative is aimed at

getting the information that you can act on appropriately. Indian

country can measure itself well in this regard. And finally, you

should provide customized tools for the FCC to open up new regulations, to create new procedures that deal with the challenges,

particular challenges in Indian country.

Mr. MARKEY. Thank you, Mr. Blackwell. Mr. Smyth.

Mr. SMYTH. Thank you, Mr. Chairman, for having us here today.

I applaud your efforts in what you are doing. I think if I had to

leave one impression on this committee, I think that I would say

that we are in the midst of a great digital revolution, and I think

that we should do everything to encourage that. No. 2, I think that

we should recognize that what we are looking at here today are two

companies that can sustain themselves on their own efforts. Putting them together for what reason, I don’t understand. I think it

inhibits innovation, and I think it causes too much consolidation in

the national radio market. I think that you have to look at this is

that I am a local broadcaster. I compete with Mel in Boston, MA.

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I do not compete with him on a national basis. For him to have 288

signals in Boston, MA and Paducah, KY with a repeater network

sitting out there, I think is something that everybody should reflect

upon. And they should also make sure that the most successful

thing radio has today is its commitment to public service in the

communities that it operates in. And I hope that we will in that

vein. Thank you for inviting me here today.

Mr. MARKEY. Thank you, Mr. Smyth, very much. Mr. Kimball.

Mr. KIMBALL. Thank you, Mr. Chairman. We completely agree

that there is a digital revolution underway, and we ask that the

Internet be allowed to participate in that revolution without one

hand tied behind our backs. There is a clear statutory bias against

the Internet in this space. It should not matter what method of

transmission you use to send your radio station to this device. In

the future, it simply should not matter, and I think that Congress

should do something to level the playing field before it allows consolidation.

Mr. MARKEY. Thank you, Mr. Kimball. Mr. Karmazin.

Mr. KARMAZIN. In my one minute, I would like to say that I believe that we ought to be thinking in terms of what is in the consumer best interest and whether or not a combination of these two

companies are going to give the consumer better pricing and more

choice. And if that is the case, there is a public interest standard

in doing it, and there clearly is a public interest standard from a

regulatory point of view that this merger is not anti-competitive because you have heard all of these people talking about how we compete with each other. So I think we would like to have a fair hearing. We would like to go through the process, and we will deal with

what the regulations think should happen.

Mr. MARKEY. Thank you, and, Mr. Kimmelman.

Mr. KIMMELMAN. Thank you, Mr. Chairman. I think we all know

that technology has great promise, but it really means nothing for

us. It cannot deliver us competition. It cannot promote our democracy unless we have diverse owners of the media, the means of

using that technology to deliver diversity of entertainment, news,

information from radio across all media. And we hope that Congress will continue to ensure that consumers get those benefits as

the technology progresses.

Mr. MARKEY. Thank you. We apologize to the witnesses for the

inconveniences of this afternoon. You have greatly enlightened our

committee. We thank you. We wish, if possible, to work with you

over the next several weeks and months as we are developing policies in these areas. And without objection, Members will be permitted to ask post-hearing questions of the witnesses. And the witnesses may also, if they wish, supplement any comments which

they have made or answers to the questions which they have given

here today. Without objection, that will be so ordered. And with

that and the thanks of the committee, this hearing is adjourned.

[Whereupon, at 6:15 p.m., the subcommittee was adjourned.]

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(199)

DIGITAL FUTURE OF THE UNITED STATES

SPECTRUM OPPORTUNITIES AND THE FUTURE OF WIRELESS

THURSDAY, APRIL 19, 2007

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON TELECOMMUNICATIONS

AND THE INTERNET,

COMMITTEE ON ENERGY AND COMMERCE,

Washington, DC.

The subcommittee met, pursuant to call, at 10:00 a.m., in room

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

Members present: Representatives Doyle, Harman, Gonzalez,

Inslee, Hill, Towns, Eshoo, Stupak, Green, Capps, Solis, Dingell,

Upton, Hastert, Stearns, Shimkus, Pickering, Fossella, Radanovich,

Bono, Terry, Barton.

Also present: Representative Blackburn.

Staff present: Johanna Shelton, Colin Crowell, Mark Seifert, Tim

Powderly, David Vogel, and Jesse Levine.

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

OF MASSACHUSETTS

Mr. MARKEY. Good morning. Today we have another in the series

of hearings that we began with Sir Timothy Berners-Lee on the future of the World Wide Web.

We have sought oversight hearings on the FCC, the NTIA, digital television, public safety interoperability, and the radio industry.

Today, we look at wireless services.

As television broadcasters move out of TV channels 52 to 69 as

part of the digital TV transition, a significant and valuable amount

of spectrum will become available for other purposes in 2009. Congress stipulated that 24 megahertz of this spectrum, the area today

occupied by TV channels 63, 64, 68, and 69, should be allocated for

public safety use. And last year’s budget bill required the auction

of another 60 megahertz of this spectrum, an option which must

begin by January 28, 2008. This upcoming auction presents a huge

opportunity to achieve important public policy objectives, including

addressing public safety needs.

So what should guide the development of the FCC’s auction rules

and the band plan for those frequencies over the next few weeks?

The answer is the policy objectives Congress mandated the Commission to promote in the underlying auction. In general, the law

specifies that the Commission should seek to achieve the following:

200

No. 1, the development and rapid deployment of new technologies, products, and services for the benefit of the public, including those residing in rural areas, without administrative or judicial

delays.

No. 2, promoting economic opportunity and competition and ensuring that new and innovative technologies are readily accessible

to the American people by avoiding excessive concentration of licenses and by disseminating licenses among a wide variety of applicants, including small businesses, rural telephone companies,

and businesses owned by members of minority groups and women.

No. 3, using auctions as a way to obtain, for the public, a portion

of the value of the frequencies made available while avoiding unjust enrichment when using such options.

No. 4, the efficient and intensive use of the spectrum.

No. 5, ensuring that, in the scheduling of any auction, that interested parties have sufficient time to develop business plans, assess

market conditions, and evaluate the availability of equipment for

the relevant service.

These objectives underscore that Congress knew that simply

throwing more spectrum into the marketplace by selling it to the

highest bidder does not, in itself, create the greatest value for consumers. Moreover, absent sufficient competition, the sale of more

licenses for additional spectrum does not, in itself, mean innovative

new services and gadgets will necessarily arrive for all consumers

in all neighborhoods or arrive in a timely fashion.

While it is alluring to budget policy types to raise billions of dollars, literally, out of thin air, telecommunications policymakers

know that the taxpayers are also consumers, and the consuming

public will get more in the form of lower prices, innovative new

services, increased service quality, and job creation if the auctions

are done the way Congress intended than any benefit a short-term

injection of cash provides to the Treasury from this, or any, auction. For this reason, the subcommittee will be watching the FCC’s

implementation of the auction law, with respect to these auctions,

very closely over the next several weeks.

Today’s panel will also allow us to look at issues beyond the upcoming auction, including how to get service to rural markets, how

smaller companies can participate, the level of competition and the

policies needed to ensure wireless competition in the future, how

business plans that encompass a wholesale or open-access model

might reach the market, and how we can best advance public safety interests. Today’s panel will also allow the subcommittee to analyze how the Commission addresses, in an efficient and equitable

manner, requests to utilize spectrum that is otherwise not being

used. With a market segment as broad as the wireless industry, it

is obvious we could have several hearings. And we may well return

to the wireless area to look at some other important issues in the

coming weeks, such as the so-called wireless policy, use of unlicensed spectrum, or white spaces, consumer protection issues,

State preemption, public interest obligations, municipal wireless

issues, and others.

I want to thank the witnesses for their willingness to participate

in today’s very important hearing.

201

Let me now turn and recognize the ranking member of the subcommittee, the gentleman from Michigan, Mr. Upton.

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

Mr. UPTON. Thank you, Mr. Chairman. Good morning.

I want to also thank the witnesses for testifying today on this

very important issue, and I commend you for holding this important hearing.

The topic of our hearing today is spectrum opportunities and the

future of wireless, and I think that we would all agree that the explosion of wireless services and devices is nothing short of amazing,

and the wireless industry has revolutionized the way that we communicate. I also believe that Congress has taken some critically-important strides in spectrum policy, which will help fuel the continued explosion, not to mention greatly advance the cause of public

safety communications.

As a Member coming from a diverse district, I understand the incredible opportunity that the 700-megahertz auction presents. The

technical properties of the 700-megahertz spectrum makes it particularly valuable when it comes to serving rural areas. Carriers

can use this technology to cover large geographic areas in a more

economic way, enabling them to serve regions like southwest Michigan, where customers may be spread out over a large geographic

area.

Between those benefits and the benefits that will come from the

24 megahertz and $1 billion for public safety, we cannot allow

other factors to delay or sideline that auction or transition.

The horrible tragedy that occurred just earlier this week at Virginia Tech further demonstrates the important role that wireless

technology can play in times of crisis. Heartbreaking tragedy has

given us yet another reason and another example for why we must

make this spectrum auction a success.

There are lessons to be learned from the tragedy this week, and

some of them speak directly to our hearing today. I would like our

witnesses to address in their testimony, and I will ask, how they

think we can better use wireless services to directly, and swiftly,

notify students or other large populations about threats to their

safety. Technology currently exists for as little as $2 per year per

student for a text message-based emergency warning system.

During a disaster, there are many important lifelines of communications, all of which are instrumental in relaying important information and, hopefully, saving lives. One lifeline comes from the

communication between first responders. Another lifeline comes

from our local broadcasters delivering important public safety messages over the radio or TV. And the third lifeline comes from direct

communications, often by cell phone, e-mail, text messages, between the people on the scene and their friends, family, and loved

ones. And it is so important. And in a disaster, all three of those

lifelines can be used simultaneously as redundant layers.

I am aware that proposals have been made to combine the first

responders network with the commercial broadband network. And

while I remain open-minded and look forward to hearing this testimony, I am highly skeptical of proposals to rig the auction for parVerDate 11-SEP-98 10:59 May 06, 2008 Jkt 000000 PO 00000 Frm 00212 Fmt 6601 Sfmt 6601 Q:\DOCS\110-10 SCOM1 PsN: SCOM1
202

ticular parties. The proposals are very complex, and the odds that

the Government finds the right balance in advance in such a tight

timeframe is not necessarily good.

After 10 years of legislation, plannings, hearings, roundtables,

negotiations, which culminated in the passage of the DTV Act, I

am very concerned about the 11th-hour calls for 700-megahertz

rules that may significantly lower the value of the spectrum in the

eyes of potential bidders, thereby depressing interest in the bidding

and jeopardizing auction proceeds for the billion-dollar Public Safety Interoperability Grant Program, and the $1.5-billion set-top box

program.

While the proposals may have the best intentions and promise to

give first responders preferred access in times of need, the better

course may be to let public safety negotiate with the winners of the

auction, or any other spectrum holder, for construction of a public

safety network in exchange for sharing of the public safety program. It is not clear why the Government should be hard-wiring,

particularly, business models into the auction rules at the onset.

Again, I thank you all for being here this morning, and I yield

back the balance of my time.

Mr. MARKEY. The gentleman’s time has expired.

The Chair recognizes the gentlelady from California, Ms. Harman.

OPENING STATEMENT OF HON. JANE HARMAN, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF CALIFORNIA

Ms. HARMAN. I thank the chairman for yielding and welcome our

witnesses.

Though we are here to discuss the long-term future of wireless

services, we cannot ignore its short-term future, which is specifically the 700-megahertz spectrum to be auctioned in coming

months.

I listened to the last speaker’s comments, and I think I disagree,

to some extent, and here is why. It seems to me that we are in the

process of building out a lot of operable emergency networks

throughout our country. And we are going to share $1 billion, and

maybe $4 billion if money is added in the conference report on the

9/11 bill. But I am not for a national collection of operable networks. What I am for is a national interoperable network. That is

the only way that we will keep our communities safe in the future

if we have another terrorist attack or another natural disaster on

the scale of Katrina.

So I do think, in this case, and I may disagree with Mr. Upton,

that the FCC is right to try to chart a course here that will give

clear direction to the auction that we have set up for much of this

spectrum. And I am watching carefully to see both what the FCC

rule, which will come out shortly, says and what our witnesses

have to say about the best way to get this done. We, obviously,

have talented people here. We have an enormously innovative private sector, and I think through innovation, like the M2Z idea and

some of the other ideas we are going to hear, will come the right

answer, which is to have this innovation create a space for emergency communications, which will then pull all these operable networks into true interoperability. I do not think it will happen if we

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leave law enforcement alone. I think we will waste a lot of money

and actually move backwards. I think it will only happen if we couple law enforcement with our innovative private sector.

And I think that the FCC is the key to do this and clear and focused oversight by this subcommittee to keep everybody on course.

Thank you, Mr. Chairman. I yield back.

Mr. MARKEY. The gentlelady’s time has expired.

The gentleman from Illinois, Mr. Shimkus, is recognized.

Mr. SHIMKUS. Thank you, Mr. Chairman. I will waive.

Mr. MARKEY. The gentleman from Mississippi, Mr. Pickering, is

recognized.

OPENING STATEMENT OF HON. CHARLES W. ‘‘CHIP’’ PICKERING, A REPRESENTATIVE IN CONGRESS FROM THE STATE

OF MISSISSIPPI

Mr. PICKERING. Mr. Chairman, thank you for having this hearing. It is of critical importance that we get this right. The 700

megahertz is the best, and I believe the last, opportunity for us to

have the broadband services in rural areas across the country. The

specific, distinct and unique characteristics of 700 megahertz for its

propagation in rural areas, being able to cover large geographic territory very efficiently and with broadband capability is why, for my

State and many States like mine, getting this right with the market sizes, with the build-out requirements, and for the public safety, I think, is vitally important.

So I am glad to have this hearing. I look forward to the witnesses

today.

As it relates to public safety, the proposal by a number of different advocates is worthy of our consideration. I happen to think

that it is more dangerous not to have an interoperable network

than it is to worry about the complexities of the particular auction

proposal.

As we have learned from 9/11 and from Katrina and the tragedy

at Virginia Tech, it is time that we have not only an interoperable

system that is compatible with devices, but it is critically important

that we have a network that serves the entire Nation, the public

safety community and can advance and advocate very important,

pro-competitive principles.

And so I am looking forward to the testimony on that.

I do want to share some concerns of the purported recommendations or proposal on the 700 megahertz. Even though this is

uniquely and distinctly suited for rural areas, I am afraid the current proposals are more suited for urban areas, high density populated areas, and for the larger companies. It is not as balanced as

I would like to see as far as small markets, mid-sized markets, and

having the geographic build-outs that I think can be effective in

keeping the very valuable spectrum from being squatted, squandered, or speculated in a way that does not bring us service into

rural areas.

And so, I am looking forward to the hearing today and seeing if

we can find the right balance. I believe the AWS model, the most

recently concluded auction, was extremely successful, and it is a

model that we should look to and build upon as we go forward in

this auction, because it did look at the balance between small, meVerDate 11-SEP-98 10:59 May 06, 2008 Jkt 000000 PO 00000 Frm 00214 Fmt 6601 Sfmt 6601 Q:\DOCS\110-10 SCOM1 PsN: SCOM1
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dium, and large, and it is a balance that I think we should replicate in the upcoming auction.

Mr. Chairman, thank you for this hearing. I look forward to the

testimony from the panel.

Mr. MARKEY. I thank the gentleman. The gentlelady from California, Ms. Eshoo.

OPENING STATEMENT OF HON. ANNA G. ESHOO, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF CALIFORNIA

Ms. ESHOO. Thank you for recognizing me, Mr. Chairman, and

welcome to all of our witnesses.

I would particularly like to welcome John Muleta, whose company, M2Z Networks, is based in my congressional district, and he

has made a very exciting new company, one of the most exciting,

I think, in recent decades. And M2Z is emerging from Sand Hill

Road in Menlo Park, an address that many people from outside my

district recognize.

When we embarked on this series of hearings last month, the

chairman of our committee began the series with one of the most

distinguished individuals in the world, Sir Tim Berners-Lee, inventor of the World Wide Web. And he told us that wireless

connectivity and mobile broadband services will likely be the most

important development in our digital future. That is quite a statement that he laid down. So it is important that we examine the

wireless industry and our Nation’s spectrum policy very, very carefully and thoroughly.

It is particularly crucial that we conduct oversight related to the

distribution of the valuable 108 megahertz of the communication

spectrum that will be relinquished by television broadcasters as

part of the digital TV transition. This spectrum and the 700-megahertz band is considered, I call it ‘‘beachfront property’’ by telecommunications carriers, because wireless signals, at this frequency range, pass easily through buildings, trees, and other interference, so it’s highly, highly valuable. You can tell by how many

people are in the room today, I think.

I believe the DTV spectrum offers a historic opportunity to provide the equivalent of a third wire into the home, an alternative

to telephone or cable broadband access, and that is why I have supported the efforts in this committee to ensure a swift completion of

the DTV transition. I am very pleased that we were able to enact

a hard date of February 17, 2009 and that the DTV spectrum auctions are scheduled to occur by January of next year. I have been

waiting for a long time, in fact, since I came onto this committee

in January 1995.

I am encouraged that the FCC is steadily moving forward with

the auction process, but I am concerned that there hasn’t been sufficient attention paid to the auction rules and the policies that underlie the distribution of spectrum. Without incentives for new entrants and innovative services to participate in these auctions, this,

what I call ‘‘beachfront’’ spectrum property, could become, what I

call, the ‘‘new wing of the mega hotels’’ that already dominate the

shoreline.

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So if the bulk of the spectrum that becomes available is purchased by incumbent wireless carriers, many of whom are not utilizing all of their current capacity, I think we will have lost a oncein-a-lifetime opportunity to create new competition and incentives

for new entrants, innovation, and broader service offerings. The

committee’s DTV legislation included an amendment I offered

which describes the opportunities of this spectrum and the FCC’s

responsibility to promote the deployment of new technologies, economic opportunity, and competition.

So it is critical for the FCC and Congress to establish a spectrum

policy for these new options that encourages new entrants and

competitive services, and I look forward to working with my colleagues on the committee and the Commission to ensure that we

don’t miss this historic opportunity.

Thank you, Mr. Chairman.

Mr. MARKEY. The gentleman from Nebraska, Mr. Terry.

Mr. TERRY. I will waive.

Mr. MARKEY. 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. Chairman, and thanks for holding

today’s important hearing.

The digital future of the United States hearings have been very

informative and helpful.

In my district today, we have several wireless hotspots and entire wireless communities, including Gladstone and Mackinaw Island. Wireless Internet is fully taking hold in my district. In fact,

just about every day, another marina is deploying wireless communications, because the people who vacation in my district expect to

have Internet access from their boats when they dock.

Now is the time to move beyond ‘‘hot spots’’ to efforts to cover

entire regions. The 700-megahertz spectrum is the ‘‘beachfront

spectrum’’ and especially well suited to do the job. Its propagation

properties allow for fewer towers to be built, making wireless an

efficient alternative for rural America.

But the promise of this spectrum to rural America will only be

realized if networks are built there. That is why it is critical that

the 700-megahertz auction is done right. I have long advocated for

the auction to be conducted in a way that allows small- and medium-sized carriers and new entrants to compete. I am encouraged

about what the FCC has said in the past, and I urge the FCC to

construct the auction rules in a way that will maximize both competition and build-out in rural America.

Of course, public safety is my key constituency who would benefit

from this spectrum. By statute, public safety receives an additional

24 megahertz. The FCC has several different proposals before it to

determine how public safety can utilize this 24 megahertz and additional spectrum.

It is important for policymakers and the FCC to carefully consider public safety’s views on the broadband proposals. We must

structure our spectrum policy in a way that allows public safety to

participate in the wireless broadband revolution.

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We must also have a spectrum policy that encourages interoperability, not discourages it. As co-chair of the Northern Border Caucus and the Law Enforcement Caucus, and as a representative of

a border community, I hear often from law enforcement, Border Patrol, and Canadian officials about communications interoperability

between the two borders. The spectrum must be divided in a way

that protects the ability of border law enforcement to communicate

with their colleagues along our borders with Mexico and Canada.

Any plans that hinder law enforcement to communicate should not

be tolerated by Congress.

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

Mr. MARKEY. The Chair recognizes the gentleman from Florida,

Mr. Stearns.

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

Mr. STEARNS. Thank you, Mr. Chairman. And again, I compliment you on having this hearing.

The wireless industry is, perhaps, one of the fastest-growing and

most competitive sectors in the United States economy. Congress

has, more or less, let the industry alone and let consumers decide.

Obviously, a lot of us think the consumers are the best judge of

this industry. Congress laid the groundwork, however, in 1993 to

create a competitive wireless industry.

During that time, the number of wireless subscribers has leaped

from about 16 million to more than 233 million today. In addition,

the wireless penetration is now more than 76 percent of total in the

U.S. population.

I think, like many of the members here, we have a BlackBerry.

I have a Treo. And on the Treo, you can stream video, download

video clips, take pictures, and as well as get your e-mail, and obviously use the phone. So this new technology is available at our fingertips. And what is so exciting is that with the continuation of

wireless, there will be even more opportunities for high definition

as well as broadband.

The content is outstanding. For example, when one thinks of

large-content providers, they obviously think of Disney in Orlando

and others and Amazon, Google, and even Yahoo. All of these folks

come to mind. But it is not just these companies. The sports industry has a tremendous amount of deliverable content that they

would like to provide. Major League Baseball and college basketball games can be streamed over the Internet to a compatible device so that rabid fans, I represent the University of Florida, recent

with its championship in both basketball and football, these rabid

sports fans would love to be able to look at that game with the

Buckeyes again, and again, and again. And they could do it in their

spare moments while they’re waiting for the train or the bus. And

so we want to help them out. So this is a simply outstanding technology that we want to continue.

Now, I imagine that these newer 4–G technologies are going to

require much more bandwidth going forward, so I look forward to

hearing from our witnesses Mr. Chairman, how do they plan to

manage all this required bandwidth, and what are they going to do

to ensure that the users do not experience too much congestion or

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other service delay as this amount of data increases. Do these technologies require the dedicated circuits for wireless companies to

transport voice and data from the cell towers? If so, who supplies

these circuits, and how does this process work?

I imagine many wireless providers, with the exception of a couple, do not have a sufficient wireline network to handle this

amount of traffic. The electronics industry is converging rapidly,

and each segment of the telecommunications industry is reliant

upon another to deliver its services. How this process works and

whether or not it is competitive should be a clear focus of this committee.

And I thank you, Mr. Chairman, and I look forward to this hearing.

Mr. MARKEY. The Chair recognizes the chairman of the full committee, 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, thank you. I commend you for this

hearing today. And today, we will hear about the future of wireless

communications. We will be focusing on the upcoming spectrum

auction. I expect further opportunities to hear from a broader

range of interests on what American consumers can expect in the

mobile environment of the future.

The Nation’s airwaves are a scarce natural resource, and the

Congress is entrusted with the high duty to manage them on the

public’s behalf. This committee has worked diligently to promote

competition in the wireless industry, and we have also worked to

see to it that the allocation of spectrum was done fairly and in the

broad public interest. These efforts will, and should, continue

today. It is critical and crucial that this committee pay close attention to the upcoming 700-megahertz auction. This auction holds

great promise to bring more competition in the delivery of voice,

video, and data services to consumers. The propagation characteristics make this spectrum particularly well suited to a third pipe in

the home.

Next week, the Federal Communications Commission is expected

to release a preliminary set of service rules and to seek further

comment on particulars of the band plan. Unfortunately, the FCC

must resolve important questions. These include the size of available spectrum blocks; the geographic scope of the licenses; build-out

obligations, a matter of particular concern to me; the structure of

small business credits; the rights of minorities; and whether the

band plan will advance the utilization of public safety spectrum. I

am also concerned that the end result be fair and in the interest

of all and that no special preferences, beyond that required by the

public interest, be afforded here.

I expect the FCC to proceed with a transparent and a sound auction structure based on the congressional objectives set forth in the

statute, and the committee will monitor these matters carefully to

assure that that is so.

The threshold question here is whether the auction structure will

produce greater competition in the broadband marketplace. This

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auction presents an opportunity for new entrants to emerge as a

national broadband competitor. The FCC should adopt rules that

maximize the opportunity for new entrants to obtain sufficient

spectrum.

Next, the FCC must adopt robust build-out requirements to help

speed the deployment of wireless broadband to people’s homes, particularly in rural areas. The auction structure should provide for licenses of different geographic sizes. Sufficient blocks of spectrum

auctioned in smaller geographic areas, combined with robust buildout requirements should produce meaningful deployment in rural

and underserved areas. The auction structure should promote a variety of business models such that both large and smaller entities

have a realistic chance to obtain spectrum licenses.

Diversity in wireless communications is no less important than

diversity in other communications and media industries.

I expect the FCC to provide smaller companies with a workable

program and sufficient time to prepare for this auction. I also expect the allocation of spectrum will be done in the best overall fashion with regard to seeing to it that everybody gets what is needed,

but not more than what is required for any particular special interest.

Finally, the band plan must promote efficient overall use of the

spectrum. Public safety has a strong need for a nationwide, interoperable broadband network. Small carriers seek a nationwide,

wholesale provider. Proposals, such as Frontline, appear to provide

a technologically-efficient way to achieve worthwhile policy objectives while preserving an open auction format. Installed accountability measures will be required to assure that the public receives

the benefit of such proposals, as the proposals produce the intended

result.

Mr. Chairman, I thank you for your courtesy. I yield back the

balance of my time.

Mr. MARKEY. The Chair recognizes the gentleman from California, Mr. Radanovich.

Mr. RADANOVICH. I thank you, Mr. Chairman. I waive for questions.

Mr. MARKEY. All right. The Chair recognizes the gentlewoman

from California, Ms. Solis.

OPENING STATEMENT OF HON. HILDA L. SOLIS, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF CALIFORNIA

Ms. SOLIS. Thank you, Mr. Chairman and Ranking Member

Upton, for holding this very important hearing today.

I want to thank our witnesses for being here and for your expertise that you are going to lend our committee.

As an advocate for diversity in media, I am pleased that today’s

hearing will give us an opportunity to discuss the role of small

businesses in spectrum auctions. And as we all know, but sometimes need to be reminded of, spectrum is a public resource. It is

not sold; it is licensed. License holders have a responsibility to act

in the public interest, in addition to the services they provide using

spectrum.

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As we approach the 700-megahertz auction, we must continue to

examine whether the rules that will govern this auction are serving

the public interest. The auction is one of the most important opportunities in the near future to encourage diversity among spectrum

license holders. The auction could also help foster innovative solutions to close the digital divide and accelerate broadband deployment throughout the country.

We need to find a balance that protects the public interest and

levels the playing field for spectrum auctions, and I look forward

to hearing from our witnesses today on that topic.

And I am looking forward to learning more about proposals to expand wireless broadband Internet throughout the country. As we

weigh in on broadband deployment strategies, we must ensure that

minority and low-income communities are not left behind. Approximately half of the Latino community, about 56 percent, goes online

as opposed to 71 percent of whites who use the Internet.

Proposals such as M2Z Networks’ to efficiently use spectrum to

provide free wireless Internet across the country could be an important part of the broader discussion of how to close the digital divide. I look forward to hearing more about this proposal. We must

increase access to high-speed Internet and other communication

services for all consumers and eliminate these disparities that currently exist in minority communities.

Thank you, again, to our witnesses, and I look forward to hearing

from you.

I yield back the balance of my time.

Mr. MARKEY. The Chair recognizes the gentleman from Texas,

Mr. Gonzalez.

Mr. GONZALEZ. I will waive.

Mr. MARKEY. The gentleman waives.

The Chair recognizes the gentleman from Indiana, Mr. Hill.

Mr. HILL. I will waive an opening statement.

Mr. MARKEY. The gentleman waives.

The Chair recognizes the gentleman from Texas, Mr. Green.

OPENING STATEMENT OF HON. GENE GREEN, A

REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS

Mr. GREEN. Thank you, Mr. Chairman. I was just checking to

make sure I didn’t step in front of you, and I have concern, we are

from Texas, of getting in front of our California members.

Mr. Chairman, I have a full statement I would like to place into

the record. And I am just saying, after yesterday’s interruption to

BlackBerry service, even some of those who are not technologically

proficient realized that we can’t function now without the technology we have. And when we see a rollout of the faster mobile

broadband service technologies, such as WiMAX, I look forward to

hearing from Mr. West on his company’s use of WiMAX. WiMAX

will offer the wireless convenience of Wi-Fi, but with greater mobility, and the deployment of this technology will increase competition

and benefit consumers by offering what is a third broadband pipe.

By increasing competition, companies will be forced to provide consumers the information and service they want at speeds they want,

or these consumers will find another service that can.

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We also have an opportunity today to look at the plan for public

safety and use of the spectrum we will set aside during the digital

transition. There are several proposals for addressing public safety

broadband needs, and I am not convinced the proposals put forward to this point are the best to the public safety and the consumers, but I believe a public/private partnership of some kind to address the public safety broadband needs deserves attention. And

while the recent proposals from Cyren Call and Frontline Wireless,

who are here today, have generated a great deal of controversy

among wireless carriers and policymakers, even Verizon Wireless

recently made some proposals at the recent Southern Governors

Meeting, which are interesting. And I encourage all our panelists

today, along with others involved in public safety communications,

consider innovative solutions involving commercial wireless providers and the public safety. To make more efficient use of our valuable spectrum that will be set aside for public safety, a public/private partnership would be more economical for creating a public

safety broadband network. And maybe compromise is not possible,

but since we have a short window of opportunity, all parties should

engage in good faith negotiations about their options.

Given that timeframe, the FCC will likely be the source of any

plans to involve public safety in the upcoming 700-megahertz auction, but Congress has an important role.

Mr. Chairman, before I close, I would like to also note my concern with the upcoming public safety grant distribution by NTIA

and DHS. Apparently, these funds it has now been decided will be

divided into 50 blocks and according to formulas for the States to

distribute. I am very concerned that this approach will not produce

tangible benefits and interoperability in our major metropolitan

areas of the country, which are the primary terrorist targets of our

country. Hopefully, our subcommittee will continue our strong oversight on the public safety grant distribution to see what benefits

we will actually see from that $1 billion that now will be divided

into 50 parts. And again, we will see what happens in our States,

if they actually get to the higher-risk areas instead of what we

have seen happen with our other funding in Congress.

So, I yield back my time.

Mr. MARKEY. The gentleman’s time has expired.

The gentlelady from California, Ms. Capps, is recognized.

Ms. CAPPS. Thank you, Mr. Chairman, for holding this hearing

and to our witnesses for appearing and your testimony, and I will

submit my opening statement for the record.

Mr. MARKEY. The gentlelady will reserve her time.

The gentleman from Washington State, Mr. Inslee, is recognized.

Mr. INSLEE. I waive, Mr. Chairman.

Mr. MARKEY. The gentleman from Washington State reserves his

time.

The gentleman from New York, Mr. Towns.

Mr. TOWNS. Thank you very much, Mr. Chairman.

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OPENING STATEMENT OF HON. EDOLPHUS TOWNS, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF NEW

YORK

Let me begin by thanking you and Ranking Member Upton for

holding this hearing.

It is important that we understand what the future holds for our

constituents in the wireless arena. It is our responsibility to oversee how the public airwaves are used, with special attention to

public service requirements, build-out requirements, mitigation efforts, equipment, compatibility and public safety requirements.

The upcoming 700-megahertz auction will bring a new generation of products and services to our consumers and improve the

way our public safety professionals communicate. I look forward to

working with my colleagues to ensure that the benefits of this spectrum are maximized in a positive way for the public.

Let me say this. The wireless industry has been a huge success

for consumers and the economy. Wireless customers are pleased

with their choices. The use of these services has led to tremendous

productivity, gains for businesses and families, and has contributed

billions in taxes and fees to our Government and has spurred innovation and competition all over the world. Just look around here,

on any given day, and you will see everybody checking their cell

phone.

I look forward to hearing from the witnesses today on how best

to manage this spectrum. Each of them has an important perspective to contribute. There have been a few hiccups in spectrum management in the past, and we must admit that.

It is my hope that the testimony today will help us determine the

best way to move forward. Our constituents want us to make sure

that none of the spectrum goes unused.

I am a primary sponsor of the Telecommunications Development

Fund, which uses auction’s deposit interest to give small telecom

startup access to capital. And I am particularly interested in assuring that it receives maximum funding from the auction. This will

require that the spectrum be auctioned under the most competitive

process without conditions that reduce its value. I also want to

make sure that the designated entity program works so that small

and minority businesses can participate and win.

On that note, Mr. Chairman, I yield back, and I look forward to

hearing from the witnesses.

Mr. MARKEY. All right. That completes all opening statements by

members of the subcommittee. Other statements for the record will

be accepted at this time.

[The prepared statement of Mrs. Capps follows:]

PREPARED STATEMENT OF HON. LOIS CAPPS, A REPRESENTATIVE IN CONGRESS FROM

THE STATE OF CALIFORNIA

Thank you Chairman Markey for holding another important hearing on our country’s digital future.

At the earlier hearings this subcommittee has held, I have called on the FCC and

NTIA to do a better job measuring and encouraging broadband deployment in the

United States.

Study after study has shown that the United States is no longer the leader in

broadband deployment and access, and this could have dire effects for our economy

in the future.

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Most Americans have just one or two choices for broadband access today—cable

or DSL, and some don’t even have those choices.

We need to do more to promote a third and fourth pipe into homes, and I’m

pleased that we will be hearing from companies like Sprint, Frontline, and M2Z that

have innovative ideas to provide Americans with wireless broadband access.

The upcoming 700 MHz auction could be a great opportunity to increase quality,

choice, and competition in the wireless and broadband markets.

It’s important that we keep the DTV transition on track so that we can get the

spectrum into commercial use quickly and also to provide the 24MHz of spectrum

to improve interoperability for our brave first responders.

I want the FCC to ensure that the auction rules allow small businesses to compete for this valuable spectrum.

Mr. MARKEY.We will now turn to our very distinguished panel,

which consists of Mr. John Muleta, who is the chief executive officer of M2Z Networks. Mr. Muleta also served as the wireless bureau chief at the Federal Communications Commission and as a

vice president of PSINet.

Ms. Shelley Spencer is the president of Wirefree Partners, a

small wireless company. Ms. Spencer has been actively involved in

managing and forming wireless companies for over 15 years. Mr.

Victor ‘‘Hu’’ Meena, Mr. Meena is the president of CellularSouth,

a rural cell phone company. CellularSouth is the largest privatelyowned wireless carrier in the United States.

Mr. Barry West is the chief technology officer and president of

mobile broadband at Sprint Nextel Corporation. Prior to joining

Sprint, Mr. West spent 35 years at British Telecom. Ms. Janice

Obuchowski is chairman of Frontline Wireless. She is also a former

head of the National Telecommunications and Information Administration. And Mr. Michael Gallagher is a partner at the law firm

of Perkins Coie. He also served as the head of NTIA for the Bush

administration, and more importantly, as a chief of staff for a

member of this committee, Rick White.

So, we welcome each of you to our committee today. You will

each have 5 minutes to make your opening statement.

Mr. Muleta, when you are ready, please begin.

STATEMENT OF JOHN B. MULETA, CEO, M2Z NETWORKS

Mr. MULETA. Mr. Chairman and Ranking Member Upton and

members of the committee, my name is John Muleta, and I am the

co-founder and CEO of M2Z Networks, and I thank you for the

honor of inviting me to testify on spectrum and our country’s digital future.

As an initial matter, I would like to request that my testimony

and supporting documents are incorporated into the record of this

hearing.

Mr. MARKEY. Without objection, that will be included in the

record.

[Editor’s note: Because of its size, Mr. Muleta’s supporting documents are on file with the committee.]

Mr. MULETA. Thank you.

Let me start by quickly telling you about M2Z.

My business partner, Milo Medin, and I founded the company in

2005 with the support of three leading Silicon Valley venture capital firms. Our goal was to use spectrum and wireless technologies

to solve two of the more pressing problems in the communications

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industry today. these challenges are: first, how to provide for affordable, universally-available and accessible broadband to the over

100 million Americans today, and their children, who continue to

be stranded on the wrong side of the digital divide, to our country’s

ultimate disadvantage; second, how to make better use of underutilized fallow spectrum, one of the country’s most precious natural

resources, with innovative technologies so that it benefits American

consumers of all types and all means, just as Congress intends

spectrum to be used.

In light of these challenges, the key to equitable and effective use

of spectrum is a transparent and timely assignment process that

is driven by well-defined public interest objectives, such as solving

the broadband divide. There is bipartisan support for this idea, led

by the President and the Speaker of the House, that the public interest today is best served by a renewed and aggressive commitment to solve the broadband divide. It is also manifestly clear, despite what you might hear otherwise, that auctions are not the

shorthand for determining such public interests. In its license application, M2Z has transparently demonstrated that it is the best

and highest use of the 20 megahertz of unpaired and fallow spectrum, found at 2155 to 2175 megahertz band.

M2Z is committed to building a family-friendly, nationwide

broadband network that provides the public the following immediate and direct benefits: access to an always-on, free broadband

connectivity at least six times faster than dial-up; the filtering of

pornography and other indecent material from the free network so

it is safe and accessible to our children; a free secondary, interoperable broadband data network for public safety officials and first responders; and payments to the Federal Treasury of 5 percent of our

gross annual revenues from premium subscription services.

Most importantly, M2Z is using private sector funding to build

this competitive, nationwide third pipe that will reach a minimum

of 95 percent of the U.S. population, all without taking any monies

from the Universal Service’s funds.

Today, perhaps the greatest impediment to our Nation’s digital

future is the sad fact that the U.S. broadband market is a duopoly

that limits consumer choice and discourages price competition. This

is not a statement that I am making of my own accord. In fact,

both the GAO and the Congressional Research Service reported

this very same fact to Congress last year. Likewise, the FCC’s annual status report on broadband Internet access shows that incumbent phone and cable operators have a 95 percent market share in

the broadband market.

Without a doubt, U.S. broadband consumers are starving for

services and prices like those that M2Z will bring to the marketplace. As you know, spectrum is a critical, if not the only, means

for new, nationwide, broadband players, like M2Z, to enter the

market and create the vibrant competition that is needed to close

the broadband divide today. M2Z wants to recognize and thank

Congress for having the wisdom and the vision to mandate transparent and timely procedures that invite innovative entrepreneurs

like us to remedy this problem. Congress has done so by empowering the FCC with numerous statutory tools that facilitate the goal

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of providing universal and affordable broadband access to the

American public.

The FCC can use its statutory tools for authority found in section

7, section 10, section 309, and section 706 to immediately act on

M2Z’s license application. The FCC has already acted wisely by establishing a full and complete record on the merits of the M2Z license application. The FCC record contains uncontested economic

analysis as well as the support of thousands of citizens and Government officials from nearly every part of America who are in

overwhelming support of M2Z’s use of the spectrum. That support

is based on M2Zs transparent and vigorous public interest commitments and I am proud to say the character of its principles. Nevertheless, but for Congress’s vision, M2Z would not have the means

or the incentive to forward its innovative plans to the FCC, and,

most importantly, to the American public.

In closing, the M2Z team has the technology, has the capital, has

the energy, and the overwhelming public support to make

Congress’s call for a broadband future for all Americans a reality.

M2Z has made explicit and enforceable commitments that will significantly advance the public interest. There is no reason to wait

any longer in granting M2Z’s license to provide a free, fast, and

family-friendly broadband network to all Americans.

So I thank you very much for asking me to speak here today, and

I look forward to answering your questions.

[The prepared statement of Mr. Muleta appears at the conclusion

of the hearing.]

Mr. MARKEY. Thank you, Mr. Muleta.

Ms. Spencer.

STATEMENT OF SHELLEY SPENCER, PRESIDENT, WIREFREE

PARTMERS, LLC

Ms. SPENCER. Thank you, Chairman Markey, Ranking Member

Upton, and members of the committee.

I am pleased to participate today and reflect the perspective of

a small business that has participated over 10 years in spectrum

auctions.

[Slide shown]

As you can see from this panel, innovation often comes from the

small, new entrants that are seeking to create new jobs, create opportunity, and use spectrum in a wise way.

Small businesses like mine are at the forefront of bringing innovation and new services.

Based on our decades of experience in participating in spectrum

auctions as a small business, we have three recommendations for

spectrum policy that are important to keep in mind for the 700-

megahertz auction.

First, bidding credits have proven critical for small business participation. Bidding credits allow small businesses to accommodate

for their difficulty in accessing capital and compete against large

incumbents who also come to the auction.

Second, less Government regulation versus more once we acquire

the spectrum and start to run our businesses are important. Innovation takes different forms at different stages of a company’s life,

and without the ability to have a flexible business plan and adapt

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to the changing market conditions, small businesses will not be

successful in the use of their spectrum.

Third, we need adequate and sufficient advanced notice of auction rules. We are close to May, and this auction, as has been

pointed out today, is supposed to start in January. Small businesses typically need 6 to 12 months to begin to raise capital,

which we have raised from Sand Hill Road, as well, and we are

closely becoming very close to the close of that window to have an

adequate chance to participate.

As has been pointed out this morning, small businesses were concerned when the FCC was granted auction authority. Specifically,

Congress recognized that the FCC must design auction rules so

that small businesses and businesses owned by women, such as

myself, and minorities, have an adequate opportunity to provide

spectrum-based services.

To implement this mandate, the FCC established the Designated

Entity Program, which has been used over the past 10 years in

many different forms. My company’s experience in bidding on spectrum provides an interesting reflection on how that program has

worked.

In each auction we have participated in, we have taken a disciplined, business approach. And the first large PCS auction in

1996 for small businesses, we left that auction, and we sent our

$20 million back to Sand Hill Road, others did the same, because

we didn’t want to bid outrageous prices and experience business

failure.

In subsequent auctions, where we did purchase spectrum, we always honored our commitment to pay in full for those licenses.

In the late 1990s, we created a company that built a network in

the southeastern United States from the ground up, creating over

200 new jobs, bringing new competition to the market, and creating

a financing standard that allowed other companies to follow behind

us. Significantly, those companies were also start-up companies.

Most recently, we raised over $150 million of our own equity and

debt to fund the purchase of 16 licenses. We are currently rolling

out a network on half of that spectrum that we need for our business, and the other half we are leasing to Sprint Nextel.

Significantly, despite our success, the last auction of AWS spectrum shows that small businesses are not faring well under the

current auction rules. The auction results also show that small

businesses are not acquiring spectrum at the same degree that

they participate in the U.S. economy.

According to the last auction results, small businesses by revenue, value, or designated entities won only 4 percent of the licenses

auctioned in that auction. We hope that will not be repeated in the

auction to start in January.

According to SBA, small businesses fuel economic growth in our

country. Small businesses generate 60 to 80 percent of all the new

jobs in the United States. We are responsible for 45 percent of the

private payroll. Small businesses receive 13 to 14 percent or more

patents than large patenting firms, showing we are leaders in innovation. And women, such as myself, own 6.5 million businesses in

the United States, generating over $940 billion in revenues and

employing 7.1 million workers.

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In wireless, it takes a lot of money to be a small business. The AWS auction raised $13 billion. T-Mobile spent over $4 billion. The

10 MHz license in Boston sold for $30 million. Pittsburgh was $10

million. And Detroit cost $50 million for a single, 10-MHz license.

Not surprisingly, none of these licenses were won by small businesses.

Our experience in starting a wireless company leads us to our

second recommendation: less Government regulation of ongoing

business operations versus more is better for small business success.

While we applaud FCC efforts to ensure that ownership and control truly rest with small business entrepreneurs, regulations beyond these standards stifle innovation and the ability to raise capital. Streamlined regulation is also consistent with section 257 of

the Act, where Congress asked the FCC to report on any regulations that could eliminate market entry barriers.

Finally, we need adequate notice of auction and service rules.

The statute expressly requires that adequate notice be given to

bidders so they have time to develop a business plan. I regret to

inform you that that opportunity is quickly slipping away.

Thank you.

[The prepared statement of Ms. Spencer appears at the conclusion of the hearing.]

Mr. MARKEY. I thank the gentlelady very much.

And now we turn to Mr. Meena. Welcome.

STATEMENT OF VICTOR ‘‘HU’’ MEENA, JR., PRESIDENT,

CELLULARSOUTH, INC., JACKSON, MS

Mr. MEENA. Thank you for providing this opportunity to let me

testify.

CellularSouth serves all of Mississippi and portions of four other

southeastern States. Most of the areas we serve are rural areas,

and it is critically important that the future of wireless services include rural customers.

In many ways, this hearing could not come at a more crucial

time. The FCC is preparing to auction the last block of spectrum

suitable for providing wireless services to rural areas. And it is considering dramatic changes to the Universal Service Fund. It is important to note that these two topics are not separate, and the

issues are closely linked. Decisions regarding the 700-MHz auction

and USF will determine the future of broadband services in rural

America.

Because of its physical characteristics, 700 MHz offers the last

realistic chance to provide broadband to rural areas. Lower-frequency spectrum, such as 700 MHz, travels farther than the higher

frequency spectrum, making it ideal for serving rural areas. By

contrast, spectrum in the higher frequency ranges is abundant and

well-suited for serving urban areas.

Today, there is a digital divide in our country. This is particularly true in rural America. The United States ranks 15th in the

world in broadband penetration, due, in part, to the large rural

areas in the United States that don’t have broadband access.

Wireline networks have not filled this need, and broadband access

via satellite remains prohibitively expensive.

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The upcoming 700-MHz auction promises wireless carriers a

method of delivering broadband to unserved areas, while USF support offers the means to provide the service. The Universal Service

system is already in place to aid in providing services to rural and

high-cost areas, and rulemakings should allow, or even require,

carriers to use these funds to deliver these services to rural America.

In the upcoming 700-MHz auction, carriers should be committed

to serving all customers with the spectrum they acquire. FCC

Chairman Kevin Martin recognized the importance of 700 MHz to

rural America in his testimony before this subcommittee earlier

this year when he stated that the FCC ‘‘should consider policies to

make sure that people are actually building out and utilizing the

spectrum they are purchasing in geographic areas.’’ We agree with

the chairman. Because CellularSouth is serious about, and firmly

committed to, continuing to deliver advanced services to rural

areas, we support strong geographic build-out rules. This can and

should be done, and it is the only way that rural America will be

built out with 700 MHz.

In the 2006 AWS spectrum auction, the FCC used a well-balanced mix of small-, medium-, and large-sized licenses, which allowed numerous carriers to participate. The success of that auction

was due to the significant opportunities available to small- and

mid-sized carriers.

Recent reports are that the proposed 700-MHz band plan is not

even close to the band plan utilized for the AWS auction where

over half the spectrum was licensed on either a CMA or EA basis.

In order to provide small- and mid-sized carriers an opportunity

to acquire 700 MHz, there must be at least three blocks of spectrum designated as small CMA licenses or medium-sized EA licenses. And each of these blocks must contain at least 10 MHz of

paired spectrum. If the FCC does not have multiple small and medium blocks, all regional carriers will be forced to compete against

each other in one or two blocks of spectrum, while the large carriers and others will have the very large spectrum blocks to themselves.

We support Frontline’s proposal, because it addresses crucial

public safety needs and also provides opportunities for regional carriers, like CellularSouth, to provide nationwide broadband services

to our customers when they leave our network. The FCC currently

has no rule in place that requires wireless carriers to cooperate

with one another through roaming agreements to provide customers with automatic access to advanced wireless services when

they travel outside the area served by their home wireless carriers.

The Frontline proposal addresses this important issue.

As you can see, this is an important time for the wireless industry and for the future of telecommunications. Decisions made over

the coming weeks may determine whether we succeed in connecting our entire country through a comprehensive broadband wireless

network.

Thank you, again, for the opportunity to be here today.

[The prepared statement Mr. Meena appears at the conclusion of

the hearing.]

Mr. MARKEY. We thank you, Mr. Meena, very much.

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At 11 o’clock today, there is a Holocaust remembrance event, and

I think it would be appropriate for this subcommittee to pause at

this point for a minute to reflect upon the Holocaust, but also to

remember in our prayers the families and the victims from Virginia

Tech. So let us just pause here for a moment.

[Moment of silence observed.]

Let us now turn to you, Mr. West. We welcome you. Please begin

your testimony.

STATEMENT OF BARRY WEST, CHIEF TECHNOLOGY OFFICER,

SPRINT NEXTEL CORPORATION

Mr. WEST. Good morning, Chairman Markey, Ranking Member

Upton, and members of the subcommittee.

I recently became a U.S. citizen, a country that I am very passionate about, and I am honored to testify before you today on a

topic that I am also passionate about: the future of wireless technology.

I head a division at Sprint that has a task no less than launching

a service to revolutionize communications. Our vision coincides

with the increasing prevalence of two powerful forces: the Internet

and mobility. We plan to mobilize the Internet.

Sprint Nextel is using its 2.5-gigahertz spectrum to build a 4G

nationwide broadband mobile network. This transformational technology is designed to offer consumers and business customers faster speeds, lower costs, greater convenience, and enhanced multimedia quality using WiMAX-enabled devices.

With our new network and its speeds of 2 to 4 megabits per second, four times faster than today’s best wireless networks, you will

be able to send photos wirelessly from your digital camera to a

printer, share content you have created wherever there is Internet

access, enjoy high-quality videoconferencing from your laptop, and

do business anywhere.

With our new service, you will be able to have a more rewarding

conversation with full motion video. With my grandchildren in the

UK, I have four wonderful grandchildren, I look forward to the day

when my daughter can take a video camera with her and a laptop

PC and granddad can ‘‘be there’’ when my granddaughter takes her

first ballet lessons. That can be a reality.

We are bringing this vision to life. By the end of next year, we

expect to reach 100 million Americans with our new network. Once

in place, our service will enable customers to obtain business information and personal entertainment easily and inexpensively in

ways in which one day we will wonder how we lived without, just

as we do mobile voice today.

But our mobility broadband services and the broadband services

of others face a significant impediment in the United States. That

impediment is the market failure of last-mile special access connection.

Sprint Nextel, like other providers, is heavily dependent on

Verizon and the new AT&T to provide last-mile special access services. At 99 percent of our cell sites in their territories, we find that

either Verizon or the new AT&T is the only choice to connect our

sites back to our network. Sprint Nextel would very much prefer

to have the option to obtain these dedicated special access circuits

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from someone other than the parents of our largest competitors. Indeed, the GAO recently concluded that there are significant barriers to competition for the BOC’s special access.

In an industry with an FCC-authorized rate of return of 11.25

percent, Verizon reported a 51-percent rate of return, and AT&T

reported 100-percent rate of return on special access for 2006.

These returns were not a 1-year aberration. Special access rates of

return have grown steadily.

Special access will become even more critical as the capacity

needs explode to support the broadband services that this subcommittee is committed to encouraging.

Congress needs to mandate the FCC impose a price discipline

that the marketplace has failed to provide. Failure to reduce special access rates will impede broadband development and competition in the United States.

The FCC also has before it a number of complex policy decisions

in the 700-MHz spectrum band. It is critical for public safety communications that the FCC not cobble together a hasty hash of rules

for this spectrum. Also, if the FCC is interested in allowing commercial and public safety entities to use spectrum jointly, it should

consider joint use in other spectrum outside of 700.

America has the opportunity to foster a revolutionary change in

telecommunications with the marriage of the Internet and mobility

in wireless broadband. Sprint Nextel is building the most advanced

wireless network ever, and we are doing it now. We have the technology and the know-how, and you can help bring broadband to

America faster by fixing this critical marketplace failure.

Thank you.

[The prepared statement of Mr. West appears at the conclusion

of the hearing.]

Mr. MARKEY. Thank you, Mr. West, very much.

And now we turn to you, Mrs. Obuchowski. Welcome back to the

committee.

STATEMENT OF JANICE OBUCHOWSKI, CHAIRMAN,

FRONTLINE WIRELESS, WASHINGTON, DC

Mrs. OBUCHOWSKI. After 18 years, still talking about spectrum.

Mr. MARKEY. Welcome back.

Mrs. OBUCHOWSKI. Thank you.

Mr. Chairman, Ranking Member Upton, members of the committee, thank you for welcoming me back and welcoming Frontline.

Due to your hard work and your vision, the hard work of this

Congress, and ultimately, the consent of the President of the

United States, our country is about to embark on something virtually unprecedented, a mandatory, mandated, technology transition.

As a result, we are asking many of our citizens, often among the

poorer, and some of whom are quite old, to part with their old television sets, to buy a subsidized converter box, and to free the radio

waves for a higher and better purpose.

This is a good decision, but it causes all of us to reflect that these

airwaves are a public good. Going digital in the United States

should answer many of the problems of public safety. Going digital

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in the United States wireless industry should open access for greater innovation and leadership moving forward.

Failure is not an option. We must ensure that the radio spectrum

adequately serves those first responders, who, in turn, serve all of

us. This is why this real estate, the product of this seismic technology shift affecting many, not be predestined to control by an entrenched few.

OBRA ’93, the legislative vehicle that launched this program, to

which you eluded, Mr. Chairman, envisioned this result when it directed the FCC to rely on spectrum auctions to promote competition in licensing new spectrum-based services.

Frontline has put forward a proposal that would achieve common

ground, we hope. We build upon the sound work in the FCC’s 9th

NPRM to bring a public/private partnership approach to solve this

chronic problem of public safety interoperability.

By leveraging private-sector investment to yield public safety

benefits, Frontline’s proposal is a bipartisan effort to put these beliefs into action. Frontline was formed by former FCC Chairman

Reed Hundt; Haynes Griffin of Pioneer Cellular; Jim Barksdale, a

high-tech pioneer and a leader of the Gulf Coast renewal postKatrina; and Ron Shriram and John Doerr, two legendary Silicon

Valley entrepreneurs and investors, together with myself.

We propose that 10 MHz of the airwaves be designated to meet

public safety’s needs and to promote competition and innovation

after the auction. Public safety will get a free nationwide build-out

of its spectrum, as well as increased spectrum access. This plan delivers nationwide interoperability, a goal which public safety has

not otherwise been given the resources to achieve on its own.

The unique propagation characteristics of 700 MHz makes this

the most important auction ever held. The FCC has a once-in-ageneration opportunity to write rules of the road for the use and

auction of these airwaves that provides advanced tools for first responders and also innovative choices for consumers.

We believe that robust auctions should promote competition. We

do not believe that these auctions ultimately are destined for

warehousing of spectrum or increased dominance and stifling of

competition and innovation. Frontline’s proposal would open the

spectrum to a cross-section of competitors, from technology

innovators to rural entrepreneurs and optimize Government revenues. To maximize competition for the spectrum for diverse bidders, the small business credit should be available for this slice of

spectrum, as it is for other spectrum.

An urgent problem we face is a rapidly-consolidating wireless

market. In its most recent competition report, the FCC found that

the wireless market was heavily concentrated. The wireless market’s concentration index stands at roughly 2,700. The Department

of Justice considers an index over 1,800 to be highly concentrated.

This index is growing higher, having increased by 250 points over

the past year.

Finally, Frontline’s plan would promote innovation by proposing

open-access requirements on this limited slice of spectrum, which

would be open to any choice of equipment selected by public safety

agencies, individual device users, and different retail service providers.

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That is why the stakes are so high. We need to ensure that the

next market shift in technology advance to emerge from the backyard of a curious child, comes from an American child, in an American garage, and can find its way directly into the American market.

The stakes are so high because we need to make sure that the

public radio spectrum adequately serves those who respond first to

local, regional, or national trauma. To those people who cynically

call this a ‘‘spectrum game,’’ let them look at the people of the Gulf

area after Katrina or New York City after 9/11, and you will realize

that this is no game. The Commission is at a crossroads in spectrum auctions, and this committee should give it guidance. It can

use the spectrum auctions to provide public safety and open access.

Thank you very much.

[The prepared statement of Mrs. Obuchowski appears at the conclusion of the hearing.]

Mr. MARKEY. Thank you, Mrs. Obuchowski, very much.

And now, our final witness, Mr. Gallagher. Please begin when

you feel ready.

STATEMENT OF MICHAEL D. GALLAGHER, PARTNER, PERKINS

COIE

Mr. GALLAGHER. Thank you, Chairman Markey, Ranking Member Upton, and the other members of this great committee.

It is an honor to be testifying before the committee where I started my policy career 12 years ago working on wireless, Internet, and

technology issues for Congressman White.

I also had the privilege of working closely with this committee

during my 4 years at NTIA, where we collaborated on a number

of spectrum policy successes, including the authorization of ultra

wideband technology; finding the spectrum for 3G that was recently auctioned at the AWS auction; passing the Commercial

Spectrum Enhancement Act, which is the foundation for the relocation of a billion dollars of Federal systems; and the successful auction that was just concluded, doubling the amount of spectrum for

Wi-Fi at 5 gigahertz, opening up the 70, 80, and 90 gigahertz

bands for commercial use, and standing firm on behalf of innovation and private-sector leadership as the guidepost for the future

of the Internet, rather than turning it over to an international bureaucracy.

Today, I am pleased to share my views on the importance of

spectrum policy and wireless technologies in our economy today

and the fabulous devices and services that lie ahead.

Spectrum is, indeed, the ‘‘rocket fuel’’ of the next wave of technological innovation. The rapidly-declining cost of computing power

and computing memory, coupled with worldwide economies of scope

and scale and the provision of network equipment, fused with the

availability of capital and limited regulation, have delivered us to

a communications renaissance.

Our Nation’s broadband networks are many, growing, competitive, and an integral part of our economy and the fabric of our daily

lives. We enjoy investments in cable, DSL, fiber, licensed and unlicensed platforms, and the services offered on those platforms are

developed, launched, and consumed at breathtaking speed. Things

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like Google, Slingbox, TiVo, iPods, YouTube, high-definition DVRs,

and now iPhones, Twitter, and Second Life are now launched in a

period of months and receive vast consumer acceptance in a matter

of days. And spectrum is the resource that gives untethered life to

all of them and those applications that lie ahead.

Convergence is truly at hand, whether it is on the high-definition

plasma screens in this room, on the VoIP phone on your desk, on

your video iPod, and in the broadband-enabled MP3 player camera

television in your hand that we curiously still call the ‘‘cell phone.’’

In 1993, this committee gave the FCC auction authority for the

first time. Those PCS auctions gave rise to much of the success of

the industry today. The auction rules were clear, market-based,

and easily understood, and the market responded to the benefit of

the American consumer and the U.S. Treasury. Since that time, the

industry has flourished and delivered outstanding value to American families and businesses. In 1993, the industry had 16 million

customers. Today, it enjoys over 230 million. It employed 30,000

Americans. Today, it employs nearly 200,000. Minutes of use in

1993 were measured in the tens of millions, and today stand at 2

trillion. The average bill, interestingly, in 1993, was $61.50. It has

declined now to $50.

The committee built on that success with the recently-concluded AWS auction. That auction delivered $14 billion to the U.S. Treasury and is paying for $1 billion in new radio systems for key Federal Government missions. In addition, that market-based auction

has given rise to yet another potential competitor, the cable companies, who purchased licenses reaching virtually the entire United

States.

Of course, the committee should keep a watchful eye on the Government’s process in clearing that spectrum and delivering the full

use of it to the spectrum winners as soon as possible.

What lies ahead is also exciting. We have four nationwide, wellresourced, well-capitalized competitors. Plus, WiMAX and new

competitors, like Clearwire, are on the horizon.

Technology evolution paths are also clear, economical, and robust. HSPA to LTE, CDMA Rev A to Rev C, and enhanced WiMAX,

all promise the potential of 100 megabits per second to your hand.

What is needed is the availability of spectrum.

Unfortunately, our policy record is not perfect. The FCC strayed

from clear, transparent, and market-based principles where the entity who valued the spectrum the most paid for it, and those detours cost the American public greatly. The C block and NextWave

experience should not be repeated.

The issue before the committee today is the leadership to provide

in the upcoming 700-MHz auction. I believe the country will be

best served if we move forward with the auction as soon as possible, we follow the successful precedent of the PCS and AWS auctions, and deliver the historic endowment of 24 MHz for public

safety, but only for truly modern communications systems. My colleague and former Assistant Secretary, Larry Irving, and I published a roadmap for accomplishing just that.

So we should complete the DTV transition. We are committed to

it, as a country. Let us reap the benefits.

And again, I thank you and look forward to your questions.

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[The prepared statement of Mr. Gallagher appears at the conclusion of the hearing.]

Mr. MARKEY. Thank you, Mr. Gallagher, very much. And thank

you for mentioning Larry Irving’s name so we can have a seamless

transition. The first Bush administration all the way through the

last one at NTIA.

Now, let us turn to the subcommittee members for questions.

The Chair will recognize himself and turn to you, Mr. West, first.

I am very enthusiastic about your fourth-generation wireless

strategy. What impact has wireline consolidation had on your plan

and your ability to be able to deploy? How has the consolidation of

the wireline industry affected your ability, as a wireless company,

to be able to, in an affordable and pragmatic way, deploy your technology?

Mr. WEST. Thank you for the question you have, Mr. Chairman.

The wireline is an important part of any wireless business, because the radio signals go from your handheld device to a tower.

But from there, to get to the switching centers and the points of

presence for the Internet, they have to generally travel over fixedline services. So the recent combination of some of the larger Bell

Operating Companies into the new AT&T, the FCC did actually

provide a standstill on special access pricing. But really, it has

done nothing to improve the prices of those services. And the net

effect of that is that monies that would have gone into more aggressively rolling out the radio technology is now going to be spent

with our competitors in providing those services.

Mr. MARKEY. OK. Thank you.

Mrs. Obuchowski, Mr. Muleta, you each have intriguing proposals as to how the new spectrum should be used. You are proposing

a free broadband service that you would provide, Mr. Muleta. You,

Mrs. Obuchowski, are promising a build-out of a national public

safety network. You each, however, are using an open access

wholesale strategy as part of your plan as well. Could you talk

about that model and what you think, that is what that open access wholesale model offers as a new competitive strategy in the

wireless marketplace?

Mr. MULETA. I will defer to Mrs. Obuchowski.

Mrs. OBUCHOWSKI. Well, thank you very much.

We appreciate that wireless is increasingly a nationwide gain.

When I got going in cellular, you could have a regional carrier, and

you would know that if you were leaving that region, you might not

have full coverage, but that was OK, because you had a discounted

plan. But increasingly, it is a nationwide gain.

So, it is important to new entrants, be they new device manufacturers, access manufacturers. And it is also important for rural

America that they have access on fair and even-handed conditions

to a nationwide network. So, we see our network limited, indeed,

in terms of spectrum capacity, because it would be 10 MHz, or whoever wins this spectrum——

Mr. MARKEY. What happens if your strategy doesn’t pan out,

commercially? What happens to the spectrum then? What do you

envision happening?

Mrs. OBUCHOWSKI. I want to allude to a red herring from Mr.

Gallagher. There is no aspect of not panning out, financially. There

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is no longer incentive payments or delayed payment. So in terms

of the financial commitments, those will be made right up front.

But, second, in terms of the vision, we believe, because this is the

last and best spectrum coming online, that it is critical that the

FCC require aggressive build-out criteria. And those criteria would

be applicable to us, or anyone else, and the FCC has the same enforcement authority over any carrier that——

Mr. MARKEY. OK. So, your argument is now it is cash up front,

not at the back end.

Mrs. OBUCHOWSKI. Absolutely.

Mr. MARKEY. You have paid for it. If it doesn’t pan out, you have

assumed a risk.

Let us go to you, Mr. Muleta. Could you go through your wholesale strategy?

Mr. MULETA. Our wholesale strategy is really focused on the fact

that in 2005, the FCC made a seminal decision about deregulating

broadband services, that is fiber, DSL, and cable broadband and

not requiring unbundled access. That has created a tremendous

amount of demand in the marketplace for people that already have

existing subscriber relationships to partner with somebody who can

deliver the heart of the broadband bundle. And so we believe that

our model, which is a pure IP-platform that is very focused on delivering data services, that would be a component of bundles for

rural carriers, for potentially satellite and other carriers. So, the

fundamental thing that we are focused on is making sure that our

partners have a way of integrating our services to deliver a total

bundle of services into the marketplace. So, that is how our model

works. It is focused on pricing of the services and on the technical

details that allow integration of this.

Mr. MARKEY. OK. Thank you. My time has expired.

Let me turn and recognize the gentleman from Michigan, Mr.

Upton.

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

I want to come back to this Frontline proposal. And Mr. Gallagher, welcome back, first of all. I am glad that you cited your

friend, our friend, Larry Irving, as well; the two of you have written on some public safety spectrum issues, and I understand,

though I have not read them, I am told, that they are quite good,

and I look forward to taking it with me on my next Northwest

flight back to Michigan.

I have a question. Can’t public safety negotiate with the winner

of the auction? Is there anything to prevent that from happening,

or with any spectrum holder, for the build-out of a public safety

network in exchange for the shared use of the public safety spectrum? I mean, isn’t that one of the conditions that we would expect?

Mr. GALLAGHER. Thank you, Mr. Upton, and you should be able

to read the entire thing before the plane takes off. Larry and I both

have a short attention span, so we were very concise on how we

wrote the paper.

My way to respond to the question is that is the best way for

public safety to get what it wants as opposed to what others might

dictate to it. We can go forward. We can have this auction. Auctions are proven to work. The track record with the PCS auctions,

225

with the most recent AWS auction, show that that is the best

mechanism to transfer the spectrum to where it is going to be used

immediately. These other things that we do that hamper, hinder,

or otherwise make the spectrum less attractive, are risky. Public

safety, then, is in a position to say, ‘‘We have our own resources,’’

this 24 MHz that is from Congress. And they are in the position

to come together and then to negotiate with whoever might want

to provide them capacity on an overflow basis or a pre-empted

basis.

Mr. UPTON. Because if we somehow rig the auction and it goes

wrong, who is to say that the public safety folks would be able to

negotiate with someone or be in support of what is ultimately

there. Is that not right?

Mr. GALLAGHER. Well, you raise a very good point, because there

are at least two impacts if something goes wrong. One is certainly

the impact to public safety. Encumbering their resource in this way

and then not delivering on the promise would be a failure of a national level that we cannot afford. And so, allowing a risky venture

to take this and experiment to go forward is not the right path, as

has been proposed, and in addition, you would be encumbering the

other 10 MHz of the commercial spectrum that then would be tied

up in the same problem or set of issues. And as we know, it takes

us a long time, as a country, to unwind those.

Mr. UPTON. Now, how is Frontline’s proposal consistent with section 337 of the statute?

Mr. GALLAGHER. I think that there are questions that you can

raise. It is a legality under 337. And the concern that that raises

in my mind is that could lead to a delay in the auction or a delay

in receipt of the spectrum in the marketplace that could sidetrack

our march forward and the conversion to digital television.

Mr. UPTON. That has been one of my points as I have sat down

with the FCC folks, and it is very important that this timeline stay

consistent with what we ask, because, in fact, it would delay the

transition to digital, delay the receipts, delay the NTIA being able

to process the applications for first responders for the billion-dollar

fund and also impact the converter box, something I know all of us

here are very concerned about, particularly with the hearing that

we had a couple weeks ago.

I asked, in my opening statement, for you all to think about, in

light of the Virginia Tech tragedy earlier this week, how we might

be able to use the wireless technology more efficiently to communicate with large groups of folks, whether they be students or employees, whatever the situation might be. And in talking to a couple of our former House staff people, Billy Pitts, who I think many

of you know, and some of the different proposals that are out there,

it seems as though we are capable of having a system that, in fact,

could warn students or large groups of folks of the pending disaster

and take some caution. And I know many of us who have college

students. It is kids and others, we hear this news, and we just

wonder how we could prevent it from ever happening again. And

I just wonder if any of you want to comment on something like

that, Mr. Muleta, and maybe go down.

Mr. MULETA. Congressman Upton, I think that is a very important question. And I think I harken back to, actually, Katrina,

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where we learned the lesson of having vast communities that are

dislocated from the communications systems, and not just students,

but other folks, who can’t afford to get that. And when you asked

the question originally, you mentioned that we had three models of

how we can communicate: free over the air television and radio, the

cellular system, and the traditional public telephone switched system. And I think one of the things that when the M2Z team got

together, one of our goals has been, actually, to make sure that

there are lots of affordable devices and free services available, similar to television, but on two-way interactive so you can send a message and get the message back and by making cheap devices, IP

platforms available, and having a free nonrecurring service. You

mentioned that there would be a $2 message per user.

Mr. UPTON. Per year as well.

Mr. MULETA. Per year. And I think, based on my experience, that

is actually a very important point, and those services are overlay

services on top. But what we have to remember is that even if you

assume the great success of wireless, there are still about 70 million people today that are not connected to the cellular system that

would not benefit from that.

Mr. UPTON. And I know my time is expiring, but just to get to

Mr. West and Mr. Meena, a response.

Mr. MARKEY. That is all right.

Mr. UPTON. It was the BlackBerries that we were able to get

after 9/11, because we could not communicate with our old-fashioned beepers.

Mr. MEENA. One technology that should not be overlooked is text

messaging. Text messaging is a low-bandwidth product that allows

us to communicate with multiple users in a matter of seconds. We

are already in talks at the University of Mississippi and Mississippi State University about such a warning system. And we feel

like that is a great technology for those types of applications.

Mr. MARKEY. OK. The gentleman’s time has expired.

The Chair recognizes the gentlelady from California, Ms. Eshoo.

Ms. ESHOO. OK. Thank you, Mr. Chairman.

First off, I want to compliment you and the work that you did

with the minority to put this panel together. This has really been,

I think, one of the most effective panels of witnesses since I have

been on this subcommittee. I mean, and the way you presented

your testimony, I think, has been helpful to all of us, so thank you,

Mr. Chairman, and thank you to all the witnesses.

I would like to start out with Ms. Spencer and Mr. Meena first.

I pointed out in my opening statement that I was able to add an

amendment to the committee bill that reiterated the FCC’s responsibility to promote spectrum policies that encourage the deployment of new technologies, economic opportunity, and competition.

And I think that it was mentioned during the course of the testimony this morning that recent auctions have been less than successful in this regard. The recent AWS auction resulted in only 4

percent of the licenses being awarded to small businesses. This is

troubling to me. I don’t have anything against the big guys. I am

glad that they have grown and have been successful. But they

didn’t start out big. They started out small. Somehow there were

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the atmospherics that were there so that they could compete and

grow. And we have to keep assuring that.

So my broad question to the two of you is how can we actually

ensure that the results of the 700-MHz auction produce better results and really fulfill the Commission’s statutory mandate? And if

you could be succinct in the recommendations that you make to us.

If you were going to list the top three things or four things or two

things, what would they be?

Mr. WEST. OK. One thing, to speak to the AWS auction, one of

the reasons that they may not have had as great a success is that

that particular spectrum is an upper-band frequency that works

better in metropolitan areas.

Ms. ESHOO. I see.

Mr. MEENA Most smaller companies, and we have actually grown

from a tier three company to a tier two, so we’re a small- to midsized company, but most companies that focus on rural areas are

highly interested in and have utilized spectrum in the lower band

to deliver services to rural areas. That is what is so important

about the 700-MHz auction is that that is the perfect spectrum for

us to deliver advanced services to wireless areas, so——

Ms. ESHOO. Thank you. Can we go to Ms. Spencer, because I

have a limited amount of time, and I have three questions.

Ms. SPENCER. Thank you. I think I have a less optimistic view

of that auction. And I think what happened is we had rule changes

very shortly before that auction that specifically restricted a lot of

the business plans you hear here. Small businesses are no longer

allowed to be wholesale providers.

Ms. ESHOO. And you spoke to that about the lead-time that you

need.

Ms. SPENCER. Yes, you can’t be a wholesale provider and qualify

as a small business today, so the companies on this panel would

not be eligible for that program and their new entrants. So, I think

we saw real changes before that auction. They weren’t good for

small businesses, and they were too late, so people couldn’t raise

the money.

Ms. ESHOO. To Mr. Muleta, and again, Ms. Spencer and Mr.

Meena, but we will start with John.

I am just going to go to the question without giving much of the

background, because I think that you understand the background

better than most. Do you think it is time to reconsider the imposition of a cap on total spectrum holdings so that we do end up with

diversity and competition and the dissemination of spectrum licenses? Because really, what we are talking about here is what belongs to the public. If you buy spectrum and hold it and not use

it, I mean, it could be argued that if you buy it, I mean, you paid

for it. On the other hand, is that in the public’s interest?

Mr. MULETA. I think that is a very spot-on question. I think most

people don’t remember that between 1993 and 2003, there was actually a spectrum cap in place that prevented. For example, the

PCS auction was 120 MHz of spectrum of which two-thirds of that

was actually designated. In each market, however you want to size

up the market, two-thirds of that was for a new entrant. So what

happened between 1993 to 2003 was you basically had two incumbents and then four new entrants. The market is consolidated.

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There are good reasons for that and good benefits that are coming

from it, but it is very important for new entrants. So the choice,

I think, policymakers have is do you want to apply rules on mergers and conditions or do you want to just force the market by allowing new entrants, like ourselves and other folks at the table, to

come into the market and sort of jazz it up.

Ms. ESHOO. How long has your application been before the FCC?

Mr. MULETA. Our application has been with the FCC for 11

months and a number of days. Almost a year.

Ms. ESHOO. There you go.

Thank you, Mr. Chairman.

Mr. DOYLE [presiding]. Thank you.

The Chair now recognizes the gentleman from Illinois, Mr.

Shimkus, for 8 minutes.

Mr. SHIMKUS. Thank you, Mr. Chairman.

First question. Is the 24-MHz allocated for public safety enough

for them to do the job of interoperable communication to address

the concern highlighted on September 11 and Katrina? And as

close to a yes or no response. Maybe you want to add a little bit,

but if you would start, Mr. Muleta.

Mr. MULETA. Unfortunately, I am going to have to say maybe. It

really depends on a set of parameters that have to develop on what

the real specific demands are for public safety and that——

Mr. SHIMKUS. And who will do that?

Mr. MULETA. I think there are 40,000 public safety agencies, and

there are a number of groups that represent them, but it also requires input from the Federal resources of DHS, so it is hard to say

how we can come to one set of requirements.

Mr. SHIMKUS. OK. Let me go to Ms. Spencer.

Ms. SPENCER. Public safety is a very unique issue, and I don’t

think, unfortunately, we are in the position to comment on it, because it does vary, as John points out from——

Mr. SHIMKUS. OK. Mr. Meena, that is fine.

Mr. MEENA. Yes. Yes, public safety could most certainly benefit

from 24 MHz of spectrum. That is an ample amount, but the right

rules have to be in place so that the spectrum can be used properly

to address the interoperability issues.

Mr. SHIMKUS. OK. Thank you.

Mr. West.

Mr. WEST. I believe 24 MHz is sufficient, but the real issue is

the public safety networks are built for a steady-state demand.

What happened at 9/11 and the other instances, a very heavy load

comes on those networks, and so solutions have to be built that

allow for those high demands. So a public/private partnership has

some merit.

Mr. SHIMKUS. Public/private as in needing to add to the 24 MHz

in time of national need. Is that what you are referring to? Or public/private in ensuring that the technology within the 24 MHz is

sufficient and effectively used?

Mr. WEST. Well, much more the form of it. It is almost impossible to build for that kind of demand, and so having access to a

public network in those times can provide for——

Mr. SHIMKUS. Some of these proposals here, and I agree with my

colleague, Anna Eshoo. I have been listening. I have been reading,

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because we do numerous things. I think it has been a very good

hearing, but the basic premise, I think, is 24 is enough. There are

proposals out there saying it is 24-plus, so then people want special

conditions at the auction, because they are willing to give up some,

and I think there are going to be some different views as I go

down, but that is kind of what I am getting from this hearing.

Mr. WEST. Congressman, to my point and my submission, these

are very complex things, and they really need to be thought

through before a decision is made. We have heard over and over

this is a unique opportunity. I really believe that, and it is a time

where we can actually do something very positive.

Mr. SHIMKUS. Mrs. Obuchowski?

Mrs. OBUCHOWSKI. The answer to your question is no, in a crisis

situation; yes, in all others. And to the further point you raised

about interoperability, that is also addressed by several of these

proposals. It is 5 years after September 11, and we are still talking

about individual groups, statewide grants programs. That is part

of the proposal Verizon put forward to the National Governors Association. That is not working. And that is why the public safety

community has turned to these public/private partnerships. It is interesting. You have got a group of experts here, all with corporate

approaches. But the public safety community has concluded that

going through an individualized grants program isn’t going to get

us the interoperable solution that we need. And it is they who are

now leading the charge. It can be Cyren Call. It can be Frontline.

It is probably somebody entirely different who wins at the auction,

because we are proposing an auction, but overflow capacity and a

set of rules that promote interoperability is key. I mean, I repeat,

we are clearing this spectrum nationwide, forcing people to a dislocation. And if we are so shy about putting some kind of condition

on 10 MHz of this to ensure interoperability, we have failed those

people.

Mr. SHIMKUS. It is interesting in your proposal, because you pull

out 10 that you are willing to release in a major public crisis. But

I would think that that would mean, as a consumer, that I would

get a discounted price, because it is not 100-percent coverage 100

percent of the time. So I would assume there is a discount, because

they are agreeing not to really have full access if you, then,

through the national emergency, say, free it up. So I mean, again,

that is kind of the question. And I would like to go to Mr. Gallagher and have him respond, and then I have got a follow-up one

for you.

Mr. GALLAGHER. Very good. Yes, I will give you an answer in 20

seconds or less. Yes, 24 MHz is a huge amount of spectrum with

today’s technologies. Today’s technologies, especially when you look

at the forward path for HSPA and for CDMA Rev-A through RevC, very robust amount of spectrum that can handle a huge amount

of communications capacity.

And the final point is, remember, we view adequacy of this

amount in the context of the spectrum that public safety already

has. They are not giving that up. They get to keep that as well.

When you look at it all together, it should be enough to accomplish

their mission.

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Mr. SHIMKUS. And the NTIA is not here, but the couple years I

have sat in that position, you are the stewards of that, is that correct? I mean, in your former position, the NTIA is a steward of that

MHz spectrum.

Mr. GALLAGHER. Technically, it is the FCC that is in charge of

the public safety spectrum.

Mr. SHIMKUS. So they will set the standards on how people are

actually going to communicate. I keep thinking of the Fire Act. It

is one of the greatest programs that we have done, and it has

helped our rural firefighters, volunteer fire departments, I have

tons, to upgrade equipment and its turnout gear, its air packs, its

radios, primarily. Great program. I keep thinking about the fire

chief on vacation from Illinois, a volunteer fire department, and he

has got his radio with him. Something goes down bad in San Francisco, and that is where he is at. And he is going to volunteer. He

is a volunteer. He is a great American Midwesterner, who is going

to run to the call. Will his radio work?

Mr. GALLAGHER. More than likely not.

Mr. SHIMKUS. I mean now. Will it work later?

Mr. GALLAGHER. Well, in the future, that is the expectation is

that we would have——

Mr. SHIMKUS. Well, I know now it doesn’t.

Mr. GALLAGHER. In the future, and hopefully it is a near future,

you have a ubiquitous system where it is more like laptop PCs

work on——

Mr. SHIMKUS. And that is the 24-MHz question.

Mrs. OBUCHOWSKI. Well, and that is precisely why we cannot

walk away from this decision now, because when this spectrum is

gone, you will certainly hear the carriers telling you, ‘‘We cannot

impose these requirements retroactively. We will take you to court,

because we have bought and paid for this spectrum.’’

Mr. SHIMKUS. OK. I want to make two quick points, and I appreciate it, and I am sorry to cut you off. I have 20 seconds left. One

is I just wanted to talk to Mr. Muleta and just the appealing aspect

of his proposal is a free access that has decency standards. A lot

of us are involved with that, and that is free over the air. And I

wanted to throw that on the table.

And Mr. West, if you could give us some information on some of

this, and you don’t have to do it now, but there are two FCC outstanding dockets on special access. If you could follow up with our

office, from your perspective, how that is going, I would like to get

that information.

Thank you, Mr. Chairman. I yield back.

Mr. DOYLE. Thank you.

The Chair now recognizes my friend from Michigan, Mr. Stupak,

for 5 minutes.

Mr. STUPAK. Thank you, Mr. Chairman.

Mr. Chairman, respectfully, but forcefully, I would like to say to

my colleagues, I have heard a lot of heartfelt statements over Virginia Tech today, and I think we all agree on that. But please, in

light of the lack of action by this committee and this Congress, for

the past several years, I think some of the statements ring hollow.

As smart as Members of Congress think we are, we do not know

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aster, or, heaven forbid, another terrorist attack on our country.

We have done very little over the last 12 years to address this

issue. I will wait and see from all of the reports on Virginia Tech

what happened there, but did first responders, law enforcement,

really have interoperability available to them to talk to each other

to try to isolate the shooter? We all watched them running on TV

clips with their guns out, but could they communicate? Were they

interoperable? Wireless communications did save a lot of lives up

in Virginia, because cell phones of the wounded students could call

people who then called the hospital so they were prepared. But

could every law enforcement officer who responded from many different jurisdictions talk to each other on their wireless cell phone?

Maybe their jurisdiction, or maybe their partners and departments,

but no one else.

So I hope we would sort of cut the rhetoric and do the right

thing. Mrs. Obuchowski said in her statement, right at the end, the

best case scenario is that patches of public safety broadband networks without uniform interoperability might be constructed in

communities with the resources and the political will to do so. So

I would challenge Members of Congress that is us who must have

the leadership, not the speeches. It is up to Congress to provide the

resources and permanent funding source, and not a billion dollars,

when experts tell us it will take at least $18 billion. We beat this

so much over the last 10 years I have been on the committee. I

would hope we take some action.

So with that, Mr. Gallagher, if I may ask this question. As

former head of NTIA and someone who studied this issue, we talk

about the billion dollars we have set aside. I am encouraging NTIA

to think outside the box. I also plan on reintroducing our legislation to make the grant program permanent and fund it through the

proceeds of this auction. I would like to hear your thoughts on

what should be done with the money now and in the future.

Mr. GALLAGHER. Thank you, Mr. Stupak.

And with respect to the billion dollars that NTIA has today, it

is a significant challenge that NTIA has. It is a policy organization

that has now been called upon to distribute at least $2 billion of

the proceeds between those funds as well as the converter box program. And the intent, I am sure, I am not running NTIA right now,

and I am sure that John, who is the Assistant Secretary, is working closely with the Secretary to make sure that they are using

their resources adequately, they are leveraging DHS capabilities

that are in place to be the arms and legs on the grant program.

It is critical that this billion dollars be a catalyst for the 21st century communications systems that public safety should be using

and not simply enabling——

Mr. STUPAK. Where are the rest of the resources going to come

from? That is a billion-dollar catalyst. How do we get the other $17

billion that we need?

Mr. GALLAGHER. Yes, looking to the future. I believe, once Congress and the States, who, by the way, spend a lot more money on

this than Congress does, it, up until recently, was a completely

State responsibility. Now, we Federalized the mission somewhat.

The funding sources are going to have to be Federalized as well.

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But Congress will be more willing to fund those activities when

they see they work, when there is actual demonstrations.

Mr. STUPAK. Why not make the proceeds from this spectrum auction, which will more than cover the cost of interoperability, if we

are really serious about it?

Mr. GALLAGHER. Larry Irving and I have had good discussions

about funding ideas, and we will be submitting those shortly.

Mr. STUPAK. Because interoperability, we can’t leave to the

whims of congressional appropriation, with all due respect to appropriators. It shouldn’t be left to the whims of it. We have to do

this. I mean, 9/11, Hurricane Rita, Katrina, now this.

So Mrs. Obuchowski is raising her hand to go ahead.

Mrs. OBUCHOWSKI. I was just going to comment that, again, 5

years into this process, we can’t be hoping for further appropriations, hoping. Even Verizon and its proposal to the Governors Association, was giving the numbers for purely the local part of the deployment at $13 to $19 billion, total deployment costs of $35 billion

to $61 billion and suggesting, if public safety used its infrastructure, that might be somewhat discounted. That was that approach.

But those are the appropriated funds, if it is going to be subject

to appropriations. That is a hope that I don’t really believe is realistic in the relevant timeframe.

Mr. STUPAK. Well, let me cut you off.

Mrs. OBUCHOWSKI. And that is why public safety has turned to

these partnerships.

Mr. STUPAK. Mr. Muleta, in your plan, you mentioned 95 percent

of the country will be covered. I am the 5 percent that never gets

covered, plus I am a border community, I mentioned in my opening

statement. How do we do the 5 percent, and when will you do the

last 5 percent?

Mr. MULETA. We believe the 5 percent, as Mr. West explained,

problem comes from the fact that the telephone network only

reaches 94.6 percent of the population, and so the minimum

threshold for us is to reach 95 percent. We plan to be there by

working with rural carriers who need a data-roaming partner nationwide. So one of the appeals of our plan to rural carriers is the

fact that they have, as Congressman Shimkus noted, when you go

to San Francisco from a rural town, you still need connectivity and

you need a national partner. So we hope, by working with them

and getting the telephone infrastructure going out there, that is

another important reason why we don’t want to take from the Universal Service Fund, because those monies could be used to build

to that last 5 percent. That is really what Congress wants to happen.

Mr. DOYLE. The gentleman’s time has expired.

Mr. STUPAK. Thank you, Mr. Chairman.

Mr. DOYLE. The Chair now recognizes the gentleman from Mississippi, Mr. Pickering, for 5 minutes.

Mr. PICKERING. Thank you, Mr. Chairman.

And I also want to join Chairman Markey in welcoming Hu

Meena here on behalf of CellularSouth. They provide great service

to my home State of Mississippi, building out advanced networks,

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sume communication during that critical time. And so we welcome

you to the committee and your insight.

Real quickly, I am glad that Mr. Gallagher and Mr. Meena both

agreed that the AWS auction is the successful model. And the reason that it was successful, it had small, medium, and large blocks

of spectrum in which there was full competition in each of those

blocks.

My concern is that, in the reported proposed auction blocks and

rules that the FCC is currently considering, it is going away from

that model, and it will be heavily weighted to large blocks and one

small block but no medium blocks. And that would, I think, devalue the spectrum if we do it in that way without full competition

in each of the blocks. And for those of us on our side, who want

to avoid regulation or inclusion into the market, the best place to

do that is through the new entrants. And the best way to do that,

to have a healthy market, is to have wholesale. Not only retail, but

wholesale. And so I am encouraged by Mr. Muleta and Mrs.

Obuchowski’s proposals to give innovative new entrants a chance

in the marketplace and bring health into a market that could

evolve into something with too high of a concentration.

Mr. Meena, in that context, tell me, what would be the recommendations that you would have based on the current draft recommendations or proposals on the 700 MHz? How can we make

sure that it is balanced and maximizes the benefit to rural and

urban areas in the 700 MHz? What would you propose on the size

of the blocks of the spectrum?

Mr. MEENA. Thank you, Congressman Pickering, for those kind

words. We appreciate what you do for our State and also for the

communications industry, in general, and your understanding of

that.

We see that the threat, as has been purported in the recent proposal, is that too many licenses are being potentially auctioned on

a REAG basis. REAG basis includes multiple-stage regions of

States. We would like to see more blocks include CMAs, which

there are 734 CMAs within the United States, or EAs, which is a

number that is a medium-sized block. EAs or CMAs give more people the opportunity to bid for this very valuable spectrum. And as

you said, the AWS auction was a good model where you had more

than half of the markets were auctioned on a CMA basis or the EA

basis. So we would like to see that occur not only in the lower band

of the 700-MHz auction but also the upper band.

Mr. PICKERING. You also, in your testimony, raised questions on

the buildout, making sure that we have got the build-out language

right. Currently, the proposal is to do it based on population. Tell

me what the flaws are as that relates to rural build-out areas, and

what would you propose to rectify that?

Mr. MEENA. Well, we have seen it in the PCS A and B block, for

example, that when you do that, the carriers who are awarded

those licenses only build the population centers. Well, that precludes those who are serving the rural areas from providing advanced wireless services, because the spectrum goes unused. The

700-MHz spectrum is too valuable to not be used, so therefore, we

are calling for geographic build-out requirements where those who

win in these auctions are required to build X amount of geography.

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And we have specific proposals that I will be glad to provide to the

subcommittee, and it is based on a 3-, 5-, and 8-year period, but

the geographic areas must be built out for 700, because 700 is the

beachfront property that allows rural carriers the opportunity to

provide advanced wireless services to their constituents.

Mr. PICKERING. And Mr. Meena, there are some that have raised

questions that they will be in western States, in States like Alaska

or States where you have large tracts of public lands, there might

be a problem with geographic buildouts. Could you and your language address those concerns so that there could be a nice balance

between areas where geographic buildout makes sense and exemptions where it may not make sense?

Mr. MEENA. We could see rulemaking that might have one set

of rules for States east of the Mississippi and another set of rules,

or maybe some options, for those States west of the Mississippi.

Mr. PICKERING. Mr. Chairman, if I could, just one last question

to Mr. West.

A second ago, you mentioned, as you buildout your 4G, the impediments that you face. Could you quantify how much you invest

in your networks and how much you pay in special access?

Mr. WEST. Yes, sir. This year, we will invest over $7 billion in our network, $7.2 billion, of which $800 million is in our new

WiMAX network. We spend, on special access, over a billion dollars

a year, nearly $2 billion, actually. And at those rates, that is taking

money from where we would like to invest it to pay our competitors.

Mr. PICKERING. Thank you, Mr. Chairman.

Mr. DOYLE. The gentleman’s time is expired.

The Chair now recognizes the gentleman from Texas, Mr. Gonzalez, for 8 minutes.

Mr. GONZALEZ. Thank you very much, Mr. Chairman.

First of all, we have entitled today’s hearing spectrum opportunities and the future of wireless. And I am going to agree with Mrs.

Obuchowski that the future is now. Whatever we establish, however we go through with this auction, and the parameters and any

conditions pretty well sets the pattern and the parameters, of

course, of what we are going to be able to do within the context

of that sale. So it is very important.

This committee has been primarily concerned with, of course, the

Internet, its expansion in a global marketplace, and the fact that

we aren’t where we are supposed to be when it comes to

broadband. Wireless is the alternative to cable and DSL, when all

is said and done. And that is what we are talking about here.

The beauty of wireless, if you start looking at Wi-Fi, WiMAX, are

all the players that are involved in this technology. I was looking

over it, and just a few of the articles I was recently reading, we

have got Sprint, Intel, AT&T, Google, QUALCOMM, Samsung,

EarthLink. You don’t know you are an ISP anymore or a network

or a content provider. And that is the beauty of the marketplace.

And I think, first and foremost, that should be our guiding star.

Now, if it is not a level playing field, if it doesn’t promote the

public interest, then we do move then. And I think Congress, then,

should act. At this point, we are having that discussion. We are

having a dialogue, and we are having that debate.

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The first question I have really will go to Mr. West, because I

am very interested in some of your remarks that were kind of separate more than anybody else’s testimony and really centered on

special access fees. And I think that is the legitimate concern. Your

WiMAX partners, it is my understanding, are Intel, Motorola, and

Samsung, right?

Mr. WEST. And Nokia, sir.

Mr. GONZALEZ. OK. Those are business relationships. And you

can appreciate business relationships, right?

Mr. WEST. Yes, sir.

Mr. GONZALEZ. I would assume that you are going to be utilizing

their technology. But you also will be promoting products and services that your partners have out there in the marketplace. That is

the first observation I want to make.

Second, utilization of assets by any business, and I know this is

going to be a real simplification, but I really do want to make it,

and full disclosure, AT&T is in my district, all right. But it is always one direction. I understand that last mile and the utilization

of assets by, let us say, someone like AT&T, Verizon, and so on.

I would like to take it the other direction. If we have a network,

if we have an AT&T or Verizon that would like to access Sprint’s

wireless network by going back the other direction, I think some

people might have some real concerns about that, and they would

say, ‘‘I am not sure if that is fair. Let us make sure that there is

going to be an access fee and such.’’ And we try to promote something of that nature. The next thing is the advantages of ownership

and the considerations of ownership. I am going to read from a

story back in August when you were announcing WiMAX. ‘‘The economics of Wi-Fi were unattractive to large carriers, because the

service relies on unlicensed radio spectrum, allowing even tiny

Internet service providers that own no radio spectrum to compete.

A service using spectrum owned by the providers would be more

exclusive.’’ I think what they meant there are business advantages

and benefits if you are the owner of the spectrum.

My understanding is that WiMAX does utilize spectrum that is

owned by the provider. And there is nothing wrong with that. I am

just saying that if we start looking at business models and such,

the point I am leading up to is simply a question that there has

to be some addressing your concern, which may be legitimate and

may not be. However, it is looking, as far as the source of the answer to your concerns, is it possible that your access needs could

be addressed through the wireless wholesale providers?

Mr. WEST. That is a lump question, and if I may——

Mr. GONZALEZ. I will tell you right now, can your access needs

be addressed through wireless wholesale providers?

Mr. WEST. Certain parts of it can. It is not possible to reach all

of our cell sites by alternative access technologies. We are looking

very aggressively at using those technologies, but we are, for a significant part of that field, dependent on the local exchange carriers.

And, sir, if I may answer the licensed versus unlicensed. Wi-Fi,

for me, is a great technology. It has been very successful, and we

don’t mind the competition. Actually, we are very big supporters of

competition. The issue around unlicensed becomes an interference

model. As more and more people use it, you cannot manage that.

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It is also unsecure, whereas the WiMAX technology offers a managed service that is secure.

Mr. GONZALEZ. No, and I understand, Mr. West, and I am going

to have to cut you short, because I have got 2 minutes, and I have

one question that I wanted to pose, I guess, to Ms. Spencer and Mr.

Meena. This is from today’s Communication Daily, April 19: ‘‘The

Martin band plan would have no cellular marketing areas, CMAs,’’

and I am not sure if Mr. Pickering covered it, I excused myself at

that moment, ‘‘in the upper 700-MHz bands and only one 12-MHz,

two 6-MHz paired slice of CMA block in the lower band.’’ Your comments regarding that particular proposal, which I think will be

voted on, more or less, on April 25, and its impact, as you see it?

Ms. SPENCER. Well, certainly, for small businesses, we have

found that smaller markets are better, because if you have to buy

the REAGs that Mr. Meena talked about, it is in the hundreds of

millions of dollars, but they need to be sizeable enough so you could

start the business from scratch if you don’t have a rural telephone

company. So we would actually advocate, like, the economic theory

is a little larger than the CMAs, so you can get enough of an aggregation of spectrum geographically.

Mr. GONZALEZ. Mr. Meena.

Mr. MEENA. And we do have concerns, because in the report that

has been circulated, there is only one block that has been divided

up into smaller CMAs, and we think that is not what is going to

best serve those who want to provide services to those throughout

our country, especially in rural areas. We need more smaller

blocks, more medium-sized blocks.

Mr. GONZALEZ. And lastly, another, just, observation, and I am

not saying these things clash or whatever when we go into the auction, but Mrs. Obuchowski, I think, in your testimony, you said, finally, although maximizing auction revenues is not a relevant consideration of the Communications Act, we have already put a price

tag. We put a bottom price tag on this thing a long time ago, and

I think when we voted on the budget reduction act, whatever we

called it back then, when the Republicans were in the majority, I

think we got a floor, and it is so tempting to maximize that. Yet,

I understand that maybe that may be inconsistent with maybe the

best efforts that we should be making.

Mrs. OBUCHOWSKI. Well, let me redirect. We can accommodate

that floor and put the limited conditions that we are suggesting

into the regulations. It is not necessarily revenue-maximizing to do

what the gains theorists have recommended, for example Verizon,

very large chunks of spectrum going on the block. It is the equivalent of saying, ‘‘The revenue-maximizing market is all $6 million

homes.’’ No. You are not bringing into the auction people such as

Mr. Meena who have plenty of money to spend to cover geographic

areas that they really think they can cover.

Mr. GONZALEZ. Thank you very much.

Mr. MARKEY [presiding]. The gentleman’s time has expired.

There are two roll calls on the floor. And so what we will do right

now is recognize the gentleman from Texas, Mr. Barton, for 5 minutes.

Mr. BARTON. Mr. Chairman, thank you.

237

Since we have got a vote on, and I just arrived, I will submit my

questions for the record.

Mr. MARKEY. I don’t think that is necessary at all. I think there

is plenty of time for you to ask your questions, Mr. Barton.

Mr. BARTON. OK. I just was trying to expedite the process, but

that is fine.

My basic question is to the entire panel, and it goes to the proposal by Frontline to basically buildout a public safety network in

return for getting some of the spectrum that would have been given

to the public safety providers. Is that, generically, a good idea or

a bad idea? Anybody that wants to take a pop at it, except the

gentlelady who is actually in favor of it, because it is her idea.

Mr. MULETA. Well, if I could address the question, all of these

proposals are actually trying to solve a major problem, so I think

they are all good. I think if you look at the M2Z plan, what we

have committed to do is to build a consumer-scale network on fallow spectrum that will provide actual, day-to-day, free network access on a secondary basis to public safety. So we believe that giving

public safety more networks of networks, more options to use networks with very low-cost devices and no recurring cost, actually addresses a significant amount of their needs. Now, without going

into specific proposals, which would be best covered by Mrs.

Obuchowski, I think what we are actually looking for is a network

of networks, all kinds of networks, to actually be purposed for public safety.

Mr. BARTON. But I am not enunciating the question as clearly as

I should. My generic question is, as it is currently configured, we

are going to give 24 MHz of spectrum to public safety and that is

going to be allocated by the FCC, and there is no auction, as I understand it. But then we are auctioning off this other spectrum,

and whoever wins the auction can use it for whatever they want

to. So you have a public purpose use that is not auctioned, and you

have an auctioned use that can be used for any viable commercial

opportunity that meets the general standards of the FCC and the

Federal statutes. And as I understand the Frontline proposal, it is

trying to have a little bit of both, but it is sweetening it by putting

a carrot out: ‘‘If you let me have this, I will do that for free.’’ And

that is my question. Is it a good idea to blur the line between nonauctioned public spectrum that has been set aside for public safety

uses and auctioning spectrum that is for commercial opportunities,

whatever they may be?

Ms. SPENCER. It has been our experience that auctions should be

objective and not pick particular business plans, and I think the

business plan decision is made with your investors and shouldn’t

be made in the auction context.

Mr. MEENA. And we think the Frontline proposal addresses two

critical issues: one, the public safety needs and the interoperability

related to that, as well as providing regional carriers opportunity

to have access to a broadband, national network, which will be

wholesaling to carriers like ourselves.

Mr. BARTON. You think it is a good idea?

Mr. MEENA. Yes, sir.

238

Mr. BARTON. She didn’t think it was a good idea. I am not sure

what the first one told me, because I didn’t ask him. I think you

said it was sort of a good idea.

Mr. MULETA. To be specific, as Chief of the Wireless Bureau at

the FCC, the complexity of the public safety problem as such it is

really a federalism question, because the threats that we face today

are significantly different than traditionally what we faced in the

United States. So whether it is Katrina or 9/11 or even something

like what happened at Virginia Tech, the problem is that at any

one point in time, the solutions that we can envision don’t really

envision the problems that might be coming up, and so my answer

is to actually give more options of different kinds of networks for

public safety, whether it is our network or it is the network that

is being contemplated by any of the folks that are sitting at the

table, or other networks. So what we have to find is can we get it

to the price point where public safety officials, the chief information

officer can actually say, ‘‘This is actually a good solution that I can

integrate and provide the kind of interoperability that we need for

some future threat that we can’t predict today.’’

So it sounds a bit complex, and I apologize for that.

Mr. BARTON. That is a great answer. I am not sure it is to my

question, but it is a great answer.

Mr. WEST. Public safety has had spectrum for a long time, but

we still don’t have the interoperability or the capacity in an event

like 9/11 to deal with it, and again, this is a very complex subject,

and it is a one-time opportunity. I do believe that we should take

the time to examine all the potential proposals to make sure we

have a holistic solution to this problem. Our first responders are

terrific people, and they do a great job. We must make sure they

have the means and the ability to do that job at the least risk to

themselves. So a little time, I think, is more than merited on looking at these different solutions.

Mr. BARTON. I know you think it is a good idea.

Mrs. OBUCHOWSKI. Could I say something?

Mr. BARTON. It is your idea.

Mrs. OBUCHOWSKI. Mr. Barton, you said recently something wonderful, that it is too late for further excuses.

We have a few months, even, to get this auction off on time and

give people, legitimately, the time they need to build capital to get

this right. We build upon what the FCC has proposed. Indeed, they

have proposed a public/private partnership to address this

broadband in the public safety space. And one thing we are very

directive of, and I want to clarify this, is we will never hold that

license over that 12 MHz. That is public safety’s held in trust. The

commitment of whoever wins the commercial/public safety license

is to buildout a network capable of accommodating them, capable

of solving public safety’s needs. But they will govern that license

and can govern access to it.

Thank you.

Mr. INSLEE. And I thank you, ma’am.

Speaking of time, we need to adjourn for votes. We will recess

until 12:30. Thank you.

[Recess.]

Mr. MARKEY. The subcommittee will reconvene.

239

And the Chair will recognize the gentlelady from California, Mrs.

Capps. The early bird gets the recognition of the Chair.

Mrs. CAPPS. I was kind of hoping that it might turn out this way.

We have a wonderful panel of witnesses with very interesting

stories to tell. I only have 5 minutes, so I have selected two of

you——

Mr. MARKEY. The gentlelady actually has 8 minutes, because she

waived her statement.

Mrs. CAPPS. Oh, that is even better.

But there is still not enough time to get into all that I would like

to ask about, so I have chosen to ask a couple of you a set of questions, brief ones, and I will start with you, Mrs. Obuchowski.

I appreciate your testimony and your long record of service here,

and I find Frontline’s proposal to be very interesting and encouraging, for me, to hear of a plan that could buildout a nationwide

interoperable network for public safety. I am a public health nurse,

so I am very interested in that aspect of it. Your proposal suggests

an open-access model for the network, meaning that customers

could connect devices of their own choosing to that network. And

this seems to be different from the way most wireless networks

currently in use operate. But are there some technical issues, just

briefly, that you could mention to this type of open-access network?

That is the first of three questions I will ask you.

Mrs. OBUCHOWSKI. Sure. Well, clearly, when you are proposing

a nationwide interoperable broadband network, there are technical

issues, but they are soluble and issues that have been solved.

Mrs. CAPPS. OK.

Mrs. OBUCHOWSKI. FourG technology is now making its way into

both the commercial and the public safety space, clearly, because

you have got the wonders of the Internet associated and the ability

of the underlying technology to make devices compatible, and also

to develop hierarchies to say what traffic is higher priority or

lower. You can solve a great number of these problems. That is

why, I would say, some people say our company is high-tech needs

public safety. We have two wonderful California investors, John

Doerr and Ron Shriram, investing in us as angels, and I think that

is in part because they see the same problem and opportunity of

taking this 4G technology and putting it to work in a different way.

Mrs. CAPPS. So whatever technical problems there might be can

be——

Mrs. OBUCHOWSKI. Yes. I would assume that all the panelists——

Mrs. CAPPS. Just because some of us aren’t very sophisticated

about this maybe even also for the record, are there some advantages to consumers in an open-access network? Spell that out, just

a little bit, as to how that would be of benefit.

Mrs. OBUCHOWSKI. We can debate the numbers. Is this a fullycompetitive market? Is this a market that is competitive but is becoming more concentrated? But in any event, you see a great deal

of concern associated with two or three points, one being the ability

of folks to roam, to access a network on fair and equal conditions,

not to be essentially seeking to roam and compete with their own

competitor. So that is one issue where open access is desirable, particularly to rural companies.

240

A second issue is the issue of open access to devices. There is a

proposal out there put in by Skype that seeks open access across

the board. We would not support that, in that it is retroactively applied, but when you look at the future and you say now if you have

a device and you are seeking to bring it to market, you need, typically, to negotiate with one of the large carriers. And it really depends on their business model whether they are accepting of that

or not.

Mrs. CAPPS. I see.

Mrs. OBUCHOWSKI. I would say there are absolute innovation advantages, and again, that is why I think we have a great deal of

support, particularly from the people that are concerned about innovation.

Mrs. CAPPS. All right. A final question for you in a different tack.

One of the most common arguments against Frontline, that I

have heard, has been that it isn’t really a true auction, because

under your plan, several conditions are placed on the spectrum, including network neutrality, open access, wholesaling, and roaming,

as you have mentioned. Do you agree with this assessment that is

a little bit more negative and/or do you believe auctions are the

best way for a government to allocate spectrum?

Mrs. OBUCHOWSKI. Yes, I absolutely believe that auctions, and

we absolutely believe that auctions are the best way to allocate. I

think that is, again, an utter red herring going all the way back

to over 1993. This committee and then the Congress and then the

President decided that spectrum auctions are a good way to assign

spectrum. They don’t define all the rules of the road. That is flatly

not the case. And I need to make one more point, which is that I

would not assume this auction is going to be competitive. I mean,

one of the Holy Grails has been why isn’t Silicon Valley involved

in spectrum auctions. And I think you see, both with Mr. Muleta’s

proposal and ours and others, that increasingly, people from other

sectors, not the cable and the telephones, which are great, are looking. They understand that cellular and wireless undergirds vastly

more than that, and they have become interested. I think they will

be in this auction, and I don’t see that they will be stepping away,

because some public safety conditions are——

Mrs. CAPPS. All right. Thank you.

Now I just have 2 minutes, Mr. Muleta, but I appreciated hearing about your company’s creativity as well in developing a proposal to roll out free wireless broadband access to most of America.

It sounds like a good idea. Your company wants the FCC to grant

you spectrum without an auction.

So I will pose the same question to you. Do you believe that auctions are the best way, and why aren’t you choosing that model?

Mr. MULETA. It really, fundamentally, comes down to the spectrum that we would like to use. The spectrum has been in the marketplace for 7 years, has had zero demand for its use, until we

came around. Now there are some claim-jumpers that have stepped

into the frame. But the bottom line is the FCC has been given a

panoply of tools to assign spectrum in the public interest. What we

believe is that we would like to get it to the marketplace as quickly

as possible. We would like to make sure that the rules of the road

for an auction are not encumbered in such a way that it prevents

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new entrants from coming in and will be done and be very transparent and explicit about what the direct consumer benefits are. I

just ask you, when you go back to California and you land on the

plane, when the plane lands, today, you can take out your cell

phone, and you can connect. But if you take out your laptop, you

hope maybe there is broadband connectivity. And I think that is

really our vision is to have the kind of model, free, over the air type

of television model with very low-cost equipment to get it out in the

marketplace.

The issue about auctions really has to do with is this spectrum

fallow, and will other people have an incentive to prevent entry?

How can it be designed in that way?

Mrs. CAPPS. Thank you. I see there is time for one more quick

question.

If the 700-MHz band is beachfront property in terms of its quality and desirability, what is the area you are looking at? Is it going

to be technically feasible to build a nationwide broadband network,

including high-speed, in the 2.15-GHz band?

Mr. MULETA. Yes, it is. Absolutely. The reason that the demand

for the spectrum has been so low in the marketplace, and again,

7 years of lying fallow, has been because it is unpaired spectrum,

which means if you want to try and develop voice types of services

that are voice that maybe do data, it is very unattractive for a lot

of the existing players. And so what we have focused on is providing an IP-only, a data-only service, and we think, at that level, the

2155 to 2175 spectrum can be very much used to deploy that. The

other thing is, when you are thinking about computing services,

our company’s investors are Charles River Ventures, Red Point

Ventures, who has backed TiVo and MySpace, as well as a client

of Perkins when Mr. Doerr was on our board, have also invested

in a lot of these interesting applications. What they need are data

applications, a data open platform to provide these services.

Mrs. CAPPS. Thank you, Mr. Chairman.

Mr. MARKEY. The gentlelady’s time has expired.

You can take this beachfront property analogy too far because in

the same way there is climate change affecting beachfront properties all across the planet, well, we have learned that there can

be economic climate changes, too, that affect this beachfront property. We learned that with a lot of wireless licenses in the 1990s.

The Chair recognizes the gentleman from Texas, Mr. Green.

Mr. GREEN. Thank you, Mr. Chairman.

Mr. West, in most areas, consumers have only two choices for

broadband, the telephone company, the DSL, or the cable company.

Several wireless carriers are now offering wireless broadband service over their cell networks as well. Sprint is notable in that, unlike

Verizon Wireless and Cingular, it is not affiliated with a DSL provider. Would you say that Sprint is offering a third source of

broadband, which many of us are seeking for many years in becoming closer to a fully competitive market in broadband?

Mr. WEST. Thank you for the question, sir. Yes, I do. I think that

the move to mobile broadband increases competition. But more importantly, like with mobile voice, it creates a larger market, and

that larger market leads to economic growth, and that is what I

think is the big prize here: great economic growth.

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Mr. GREEN. Well, the third choice for consumers in broadband on

issues like speed, price, and access or restrictions on content, what

is the impact of a third choice for both the speed, the price, and

the access or restrictions on content?

Mr. WEST. Well, in terms of speed, it is not possible for a wireless network, economically, to match the speeds of a wireline-based

network, particularly a fiber optic-based network. But then again,

I like to use the example, I have a service from one of the cable

operators that has 400 video channels, 200 audio channels. I have

five TVs, and there is Julie and me. So there are only two of us

that can consume it at any one time, and I do believe that wireless

broadband can actually serve the public.

Mr. GREEN. I think Congressman Markey might want us to have

those TV stations on all those TVs that we all have in our home,

we might turn them off more often.

On the WiMAX service, is that WiMAX service going to improve

the current offering, more over more traditional cellular networks?

Mr. WEST. Yes, sir, because the tonnage, the amount of megabytes that will be consumed in this wireless broadband market, it

is very difficult to support that from an economic viewpoint and

reach the price points that the public expects. The price points are

really set by DSL and cable access. And to deliver that kind of

connectivity with current technology, because of the nature of the

narrow band, is very difficult.

Mr. GREEN. And are you planning to not only market it to business consumers but also individuals?

Mr. WEST. Yes, sir. I mean, it is a completely new model. It is

an open model. People will buy devices with WiMAX chips and

those will automatically connect to the WiMAX network, so this is

not the closed models that we have seen so far in the cellular world

necessary to support the subsidies. This is a world with no subsidy.

Mr. GREEN. And our goal, obviously, from the 1996 Act, was to

have competition in services, and I would hope that customers

would know that there is a third way or another way that you can

have a service provider.

So Mrs. Obuchowski, is Frontline’s proposal a final proposal, or

is your group interested in considering other options to provide a

public safety broadband network?

Mrs. OBUCHOWSKI. Well, it is certainly our best proposal. We are

committed to it. I am hesitating a bit, because I am not sure what

that means, ‘‘Is it your final proposal?’’ We have submitted our

business case and our regulatory proposal, and we think this is the

best approach to bring interoperability to the country.

Mr. GREEN. But again, we know also negotiations take place to

make sure it can work. There will probably be lots of other folks,

I think, that will probably contact you. What are the obstacles to

getting public safety broadband access into the traditional wireless

networks, especially providers bidding in that upcoming auction?

What are your obstacles to getting public safety broadband access?

Mrs. OBUCHOWSKI. Well, clearly, No. 1 is, in terms of spectrum

policy, to make sure that there is adequate spectrum, not just for

the regular load, but for the emergency load. And that is where,

I think, public safety has been supportive of approaches such as

our, not solely ours but such as ours.

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Second, obviously, it is an issue of interoperability and funding.

And while this Congress has been very generous giving resources,

talking about a billion dollars for one fund and $1.5 billion for another, to build a nationwide, interoperable, broadband network is

just a matter of $20 billion, $30 billion, $40 billion, and not just

that, but it is the constant renewal. It is the renewal that happens

in commercial networks. You know better than I how the appropriations cycle doesn’t really support that type of approach.

We have seen public/private partnerships developing networks

for the military. The Government uses it for its own internal needs.

And it is, frankly, almost mind-boggling that we are in 2007 and

there are questions raised about whether commercial entities could

now serve this purpose. People use the word risk associated with

our business case. I would say, as with any business case, it has

risks, but a far riskier approach would be to hope that, at some

point, 50 States will come together with a proposal and that will

be funded.

Mr. GREEN. Mr. Chairman, could I just see if Mr. West had a response to that on public/private partnerships, because——

Mr. WEST. Well, I do believe that the capacity issues are best addressed through public/private solutions. It is almost impossible to

design a cellular network that can handle the sorts of loads that

we saw at 9/11 or like at the Virginia Tech incident. So the more

you can share the capacity, the better.

Mr. GREEN. And we experienced that on 9/11, too, here in Washington.

Mr. WEST. Yes.

Mr. GREEN. Thank you, Mr. Chairman.

Mr. MARKEY. The gentleman’s time has expired.

I am just going to ask a couple of questions and then wrap up

the hearing, at the committee’s approval.

Mr. Gallagher, could you tell us, who paid for the report that you

were referring to here, that you completed?

Mr. GALLAGHER. Yes, well, Larry Irving and I co-wrote the document, so I can’t speak for Larry, but my law firm represents a wide

range of communications clients, hardware/software companies,

networks, wired and wireless——

Mr. MARKEY. They paid for it?

Mr. GALLAGHER. They didn’t directly write a check for the report,

no.

Mr. MARKEY. OK. Can you give us a couple of the companies’

names?

Mr. GALLAGHER. You bet, yes. On the wired side, the firm represents Verizon and Qwest. On the wireless side, we represent all

of the major wireless providers for different things.

Mr. MARKEY. I just think, for the record, it is important to have

that out here for the permanent record.

Quickly, I mean very, very, very briefly, Mr. Muleta, what happens if you don’t get this spectrum that you are looking for? What

will happen with that spectrum?

Mr. MULETA. We don’t know. There are no plans for the spectrum. There is no assignment process, and it will remain fallow.

What we are hoping for is that this sorry state of affairs is not extended. There are two economic studies that we submitted into the

244

record today that show that consumers would benefit, over the license period of 15 years, $18 to $32.4 billion of net consumer benefits. And that has not been contested, so we hope that there is swift

action on our proposal.

Mr. MARKEY. Thank you.

Mrs. Obuchowski, who will build the public safety network if you

don’t build it? Can you give us your view of that?

Mrs. OBUCHOWSKI. I don’t think that this public safety network

will be built in an interoperable fashion in the relevant timetable

if you do not go to a commercial public/private partnership. It is

not going to happen. I mean, it hasn’t happened. The funding isn’t

there, despite your best efforts, and that is exactly why you see

public safety having, over the last year or so, really very much

changing their mindset about a public/private approach. They want

to hold the license. They will hold that license. They want to control the negotiation. But in terms of a public/private partnership,

I think that mindset has completely changed.

Mr. MARKEY. OK. Well, we thank you.

And we thank you, Ms. Spencer, for bringing the woman entrepreneurial perspective to this committee. It is very, very important.

And you, Mr. Meena, for focusing upon the rural aspect of this

issue. It has to be an indispensable part of the formula.

You, Mr. West, for pointing out how important it is for reasonable interconnection to be available along with this wireline network is the indispensable part of our ability to provide real competition on an affordable basis.

And to you, Mr. Gallagher, for bringing your expertise along with

Mrs. Obuchowski and Mr. Muleta.

I really wanted to go off on a whole Carterphone issue here, and

for those who are watching us, that just means that when you buy

your device and you want to move to another service, is it going

to cost you another fortune to buy the device? And we kind of established back in 1968 that you wouldn’t have to do that if it was

your phone back at home. But if I had one complaint, I have had

1,000 complaints of people just coming up to me who were very

upset about that issue, and it is just something that we have to

focus on in another hearing at another time, but it is moving up

there as a big consumer complaint.

With that, we thank all the witnesses. This hearing is adjourned.

Thank you.

[Whereupon, at 12:55 p.m., the subcommittee was adjourned.]

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(343)

THE DIGITAL FUTURE OF THE UNITED

STATES

BROADBAND LESSONS FROM ABROAD

TUESDAY, APRIL 24, 2007

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON TELECOMMUNICATIONS

AND THE INTERNET,

COMMITTEE ON ENERGY AND COMMERCE,

Washington, DC.

The subcommittee met, pursuant to call, at 10:05 a.m., in room

2322 of the Rayburn House Office Building, Hon. Edward J. Markey (chairman of the subcommittee) presiding.

Members present: Representatives Doyle, Harman, Gonzalez,

Inslee, Hill, Boucher, Eshoo, Green, Capps, Solis, Upton, Hastert,

Stearns, Shimkus, Pickering, Walden, Terry and Barton.

Staff present: Johanna Shelton, Tim Powderly, Mark Seifert,

Colin Crowell, David Vogel, Neil Fried, and Courtney Reinhard.

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

OF MASSACHUSETTS

Mr. MARKEY. Good morning. We welcome you. Today’s hearing

adds to the series of educational oversight hearings which began

with the inventor of the World Wide Web, Sir Timothy BernersLee, and which is designed to illuminate telecommunications policy

issues for the subcommittee this year.

This morning we have several distinguished witnesses to assist

us in learning about international broadband deployment, competition and consumer adoption. I want to particularly thank the witnesses this morning who have traveled great distances from New

Zealand, the United Kingdom and Japan to testify.

It is clearly time for us to look beyond our borders in developing

our Nation’s broadband strategy. While U.S. broadband adoption is

certainly increasing and deployment continues, in international

broadband rankings, a nation must essentially run in order to

stand still. Relative to other countries, however, it appears as if

America’s broadband penetration is stalling at dial-up speeds while

other nations have developed national plans and are moving ahead.

When the Organization for Economic Cooperation and Development first ranked its 30 member nations on broadband penetration

in 2000, just 4 years after initial implementation of the Telecommunications Act of 1996, the United States was ranked fourth.

By 2004, the United States had dropped to 12th, and as of yesterVerDate 11-SEP-98 10:59 May 06, 2008 Jkt 000000 PO 00000 Frm 00354 Fmt 6601 Sfmt 6601 Q:\DOCS\110-10 SCOM1 PsN: SCOM1
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day, newly released data show the United States has dropped three

more places to the No. 15 spot on the list, down to 15th out of 30.

Thank goodness, there are only 30 members of the OECD so that

we can never drop below No. 30.

Now, some will argue that rankings on broadband penetration

don’t tell the whole story. That is true. Because merely looking at

broadband penetration does not highlight that broadband elsewhere also tends to be both significantly faster and far cheaper.

Others may say that our panelists’ experiences cannot be replicated

here in the United States based on differences in factors such as

geography, population density and telecommunications infrastructure. Certainly no two countries are exactly alike. Yet despite the

fact that most of the American population lives in urban or suburban areas, which are less costly to serve, we still don’t enjoy the

same broadband speeds or prices or the sheer number of consumer

choices for broadband that are found in Japan or the U.K. In other

words, our dilemma is that it is not simply that fast, affordable

broadband is not available in Wyoming, it is also not available in

Boston, where a 30-megabit-per-second fiber connection from

Verizon costs about $180 per month, assuming you can even get

one. In contrast, in Japan a consumer can get even faster service,

50-megabit service, for the equivalent of $30 a month.

Advanced high-speed broadband service is the indispensable infrastructure of the 21st century. It will be the vehicle through

which countless other economic, civic and cultural activities occur.

As we assess where we stand today, I think the way to achieve

greater progress is not from more oratory rhetoric or excuses for

poor rankings. The United States needs a plan. In my view, the

United States started out on the right path. The 1996 Telecommunications Act mandated a robust unbundling and interconnection regime designed to jumpstart competition both between

and among technology platforms. The idea was that competition

would reduce prices, improve service and spur innovation including

the deployment of broadband by incumbents and competitors.

Gradually, however, we lost our way as regulators became convinced that competition within a platform actually hindered overall

broadband and as a result we now have a residential broadband

duopoly marked by relatively slow speeds and high prices.

Many other nations took one look at our broadband situation,

learned from our experience and took the opposite approach. In

Japan and the U.K., for instance, they implemented policies such

as local loop unbundling and broadband resale that facilitate competition using the incumbent’s plant regardless of technology. As a

result, Japan and the U.K. today have faster broadband, cheaper

broadband and more broadband choices.

I believe this hearing on Broadband: Lessons from Abroad will

assist the subcommittee greatly in assessing what we consider for

a broadband plan here at home.

Again, I thank our witnesses. I look forward to their testimony.

I turn and recognize the ranking member, the gentleman from

Michigan, Mr. Upton, for his opening statement.

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

Mr. UPTON. Thank you, Mr. Chairman, for this important hearing.

Today one of the focal points for our review of this issue is the

benchmark that many cite as the measure of broadband deployment in countries throughout the world, the Organization for Economic Cooperation and Development, OECD, broadband statistics.

December 2006 data released yesterday ranks the United States as

15th, as you indicated, in broadband penetration based on percentage of population. I believe, however, that it is important to understand two things: first, the methodology that the OECD uses to

produce these relative rankings and how it understates the actual

level of broadband connections in the United States, and second,

that this ranking reflects the fact that we are just now overcoming

the anti-infrastructure, anti-investment, anti-broadband decisions

made by the FCC in its implementation of the 1996 Act during the

1996 to 2002 time frame.

As to the OECD rankings, I have come to learn that the methodology used by OECD to measure the extent of broadband connections is this. It adds up the business and residential broadband

connections, then divides the number by the population of that particular country. The business broadband connections in the United

States that are affected by the use of special access services are not

counted for some unknown reason and only those that use DSL,

cable modem or other technologies such as satellite and wireless

are. That has the effect of greatly understating our broadband penetration as compared to that of Europe, which primarily relies on

DSL. Part of the problem too is that the FCC until relatively recently was making decisions under the guise of implementing the

1996 Act that were in fact decidedly anti-investment by their very

nature. What this committee came to realize back in 2001 and 2002

during the consideration of the Tauzin-Dingell bill was that the

pace of deployment for broadband services and facilities was, as the

committee indicated, ‘‘inextricably linked with the manner in which

such services are regulated.’’ Consequently, the legislation recognized that the unnecessary application of title II common carrier

legacy regulation would stifle the deployment of broadband services

and facilities.

When the House passed Tauzin-Dingell in February 2002 by a

vote of 273 to 157, DSL was fully regulated as telecommunications

services under title II. We didn’t know whether cable modem was

a telecommunications service or an information service, and

broadband facilities were subject to unbundling requirements. After

years of reversals, court decisions and revised FCC decisions, these

matters now have been rectified, answered and decided, and we are

catching up for lost time. Even though Tauzin-Dingell was never

enacted, its underlying principles of promoting broadband investment and deregulatory parity have been the influential guideposts

for subsequent FCC decisions and some of those decisions have established the broadband policy that we have been lacking. Consider

this: March 14, 2002, less than 3 weeks after House passage of

Tauzin-Dingell, the FCC determined cable modem service to be an

information service not subject to title II regulations, and that was

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affirmed by the Supreme Court. In February 2003, the FCC determined not to require the unbundling of broadband facilities such as

fiber to the home, and that decision also was affirmed by the Court

of Appeals in March of 2004. In August 2005 the FCC determined

that wireline broadband access service, in other words, DSL, was

an information service not subject to title II, and then in November

2006 the FCC determined that the broadband over power line was

an information service not subject to title II regulation, heretofore

dismissed by anyone as a viable broadband alternative. One should

note the fact that the OECD report that lists Denmark as the leader in broadband penetration observes further that Danish power

companies are rolling out fiber to consumers as they work to bury

overhead power lines. In December 2006, the FCC adopted its video

franchising report order, accelerating the process for new entrants.

Video will be, as we know, a major driver for broadband deployment. In March 2007, just last month, the FCC determined that

wireless broadband was an information service not subject to title

II regulation. As a result of these FCC and judicial actions, we at

long last have the semblance of a national broadband policy that

promotes competition, is pro-investment, not anti-investment, and

that imposes minimal Government regulations upon broadband

services and facilities. I know that these long-sought-upon

broadband policy decisions will greatly accelerate broadband. They

are now only taking hold as a regulatory uncertainty that has hung

over broadband was, as we thought in 2002, an investment-stifling

factor.

We heard last week at the wireless hearing about the spectrum

resulting from the DTV transition that will permit wireless providers to provide significant broadband services, so rather than look

for new regulatory solutions, we must continue to promote competition, promote new technologies, promote and foster broadband network investment and rely on competition and deregulatory, not

Government regulations.

I yield back. Thank you.

Mr. MARKEY. The Chair recognizes the gentlelady from California, Ms. Harman.

OPENING STATEMENT OF HON. JANE HARMAN, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF CALIFORNIA

Ms. HARMAN. Thank you, Mr. Chairman. I am glad to see you

are fully recovered. We were all quite worried a few weeks ago.

Mr. Chairman, your statement and that of Ranking Member

Upton are very depressing. America is clearly lagging in broadband

development despite clear legislative intent by the U.S. Congress.

I remember 1996, but we all had hoped that we would have a robust broadband build-out by now.

To summarize what you said, broadband deployment in the

United States is slower, more expensive and less extensive than in

many other countries, and I say shame on us. The advantages of

broadband for the e-economy are obvious and so are the disadvantages of leaving 200 million Americans in the Stone Age. I come

from a part of the country where movies and music pay salaries

and mortgages, CD sales are declining, media outlets are consolidating and piracy is rampant. Expanding broadband will bring new

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markets to the entertainment industry and other industries, and I

think that those markets will benefit, not just my constituents but

constituents of members of this committee around the country.

There is still some dispute about how we stack up against other

nations, but I think there is no dispute that the news is basically

bad, and I am glad we are having this hearing to see if we can

chart a way forward.

Thank you, Mr. Chairman.

Mr. MARKEY. The gentlelady’s time has expired.

Speaker Hastert, the gentleman from Illinois.

Mr. HASTERT. I will pass.

Mr. MARKEY. The Chair recognizes the gentleman from Texas,

Mr. Gonzalez.

Mr. GONZALEZ. I will waive.

Mr. MARKEY. The gentleman’s time will be reserved.

The gentleman from Virginia, Mr. Boucher.

Mr. BOUCHER. I will waive.

Mr. MARKEY. The gentleman from southwestern Virginia waives

his time.

The gentlelady from California, Ms. Eshoo.

OPENING STATEMENT OF HON. ANNA G. ESHOO, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF CALIFORNIA

Ms. ESHOO. Thank you, Mr. Chairman, and thank you for now

the eighth telecom hearing of this year. I think that there were

eight held in the entirety of last year, so we are on a move here,

and we need to be.

I want to welcome the witnesses to our country, to the Congress

and to the House of Representatives to this hearing. It is an important one.

What brings us here today is reflected is one simple statistic. The

United States now ranks 12th in broadband penetration, I think it

is 15th as of yesterday, among all industrialized countries according to the OECD. The International Telecommunications Union has

us rated even lower at 15th. Whatever No. 1 goes by, and

whoever’s ranking one chooses, one thing is absolutely clear: we are

a long way from first, and we are not doing the things we need to

do to get there. Yesterday, Mr. Chairman, PC Magazine came out

with an article that is not complimentary of the United States and

where we are, and I would like to, with unanimous consent, place

it in the record because I think it should be part of this hearing.

Mr. MARKEY. Without objection.

Ms. ESHOO. Later this morning I am going to join the Speaker

and several of my House colleagues including Chairman Markey to

announce the Innovation Agenda, a legislative package to promote

American competitiveness and ensure that we continue to lead the

world in critical innovation and technology. Central to this agenda

is a commitment to provide universal broadband access for all

Americans within 5 years. I think it can be done in a shorter period of time but certainly within that time. Universal broadband

isn’t just something we should do; it is something we must do if

we are to remain competitive in the 21st century. Unfortunately,

our country, and our Government have not been committed to this

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difficult task, and in the last several years we have lost significant

ground to the rest of the world. No longer is the country that created the Internet and the most connected nation in a leadership position, and Americans shouldn’t settle for 12th or 15th or 20th.

That is not who and what we are. We need to rethink our

broadband policies and look at what has worked in other countries,

and that is why this hearing is such an important one and the witnesses that are here to be instructive to us.

We also have to provide what has been most lacking in this area,

and simply put, it is leadership or the lack thereof. Broadband access has not been the focal point in our country because no one has

made it a priority. Chairman Markey has made it clear that he intends to make this a priority, commencing his chairmanship with

a series of hearings on the digital future of our country and certainly the Speaker has made this her commitment as well. I look

forward to working with everyone on the committee. We have a lot

of work to do, and I look forward to getting it done.

Thank you, Mr. Chairman, for your leadership, and I yield back

the balance of my time, if there is any.

Mr. MARKEY. The gentlelady’s time has expired.

The Chair recognizes the ranking member of the full committee,

the gentleman from Texas, Mr. Barton.

OPENING STATEMENT OF HON. JOE BARTON, A

REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS

Mr. BARTON. Thank you, Mr. Chairman.

I would like to clarify a few misconceptions about broadband deployment in this country that are giving us an inferiority complex.

While it is true that the current rankings in the OECD list Denmark as No. 1 and United States as No. 15 in overall broadband

penetration, it is a little bit misleading. For example, the OECD

doesn’t count the special access lines that any U.S. businesses use

for broadband. As a result, the OECD rankings greatly underrepresent U.S. businesses as compared to those in other countries

which use DSL.

Focusing on penetration can also be misleading sometimes. Other

OECD data rank the United States first with the most subscribers—we had over 58 million as of December 2006. In fact, of all the

broadband connections in all of the OECD’s 30 members, nearly a

third are in the United States by itself. The OECD rankings do not

account for the widely varying geographies and population densities. As Chairman Markey has pointed out, comparisons are questionable when most people in Iceland live in one community, Reykjavik, and most people in South Korea live in Seoul, the capital.

If we break U.S. residential broadband penetration down by

State based on a May 2006 Pew study, the size comparisons become more realistic. Doing so, we find that the top three States

have higher penetration than Denmark’s 49 percent: New Jersey

has 53 percent, California has 53, Connecticut has 51. In fact, the

United States takes eight of the top 10 spots in terms of residential

broadband penetration if ranked with the European Union countries. Even the bottom three states would be above the EU average

of 23 percent. Vermont, for example, has 31 percent, Mississippi

has 29 percent and West Virginia has 27 percent.

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U.S. broadband penetration is also continuing to grow rapidly,

thanks to our deregulatory policies. Recent FCC data show that

since DSL was classified as an information service, the number of

DSL lines has increased by 38 percent and the total number of

high-speed lines has increased by 52 percent. Even better numbers

are expected this year.

The United States also benefits from robust competition between

cable and phone companies that other countries lack. In the United

States, 51 percent of broadband penetration is attributable to cable

modem, 42 percent coming from DSL and 7 percent from other

sources, according to an HSBC report. By comparison, about 79

percent of the market in Europe is DSL. It is this lack of platform

alternatives that has led the EU to rely on regulatory approaches,

such as unbundling.

Their lack of platform alternatives and their reliance on network

sharing is also the reason why the EU countries will soon be

slowed by the speed and capacity limitations presented by technology. Companies in Europe generally are not deploying cable or

fiber-optic facilities to the same extent as we are in the United

States, and it is those types of facilities that will be necessary for

the next generation of services.

We also have a flourishing wireless industry that is adding yet

another broadband alternative. If we get the rules right for the upcoming 700 MHz auction made possible by our DTV legislation, we

will have even more spectrum available that is ideal for next generation broadband services.

Mr. Chairman, I appreciate you doing this hearing, and I yield

back my time.

Mr. MARKEY. The gentleman’s time has expired.

The gentlelady from California, Ms. Solis.

OPENING STATEMENT OF HON. HILDA L. SOLIS, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF CALIFORNIA

Ms. SOLIS. Thank you, Mr. Chairman, and thank you, Ranking

Member Upton, and also welcome to our visitors from abroad who

are here to testify.

Today, as you know, we have an opportunity to examine the best

practices of other nations around the world in deploying high-speed

communication technology. We know that this is going to require

a significant investment to upgrade our infrastructure. Some of the

questions I have are: what we will do here in the United States as

we currently rank 15 among 30 industrialized nations as members

of the Organization for Economic Cooperation and Development. I

represent a very diverse district in Los Angeles. In fact, in some

portions of the district we are known as Little Taiwan. We have

a very large Asian Pacific Islander community, about 22 percent

and growing, and I notice on this chart that we will probably be

reviewing that China and Taiwan are not listed on our chart.

So we need to increase our communication and obviously deploy

this very valuable tool, but more importantly, there are also some

socioeconomic factors that need to be addressed, and that is the

other part of the community I represent, which is East Los Angeles, heavily Latino, a lot of socioeconomic challenges there, and the

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digital divide exists in our classrooms and in many of our homes.

So I am looking forward to hearing how we can lower the cost,

spread broadband out in communities that are currently underserved, and also figure out how we can do a better job of reaching

out to our underrepresented communities both economically and

culturally.

Thank you.

Mr. MARKEY. The gentlelady’s time has expired.

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, Mr. Chairman. I appreciate this hearing

in particular as I think one of the issues that we need to work

through to better shape this argument, broadband deployment, is

really to look at how deep the deployment is.

There is no doubt in my mind from my experience on this committee that we have been saddled with the baggage of the past, legacy-type technologies and the regulatory schemes that are equally

as ancient. While other countries may not have had that type of

issue to deal with, we have also had a telecom recession that

slowed down the dollars flowing into the market where other countries that were using Government dollars perhaps had a speedier

time of outlaying a system. But I really believe that we are on

track to have the best system in a matter of time. It is just a matter of how we conduct the inventory because even in my State of

Nebraska, we claim almost universal deployment of broadband, but

when you go into certain communities, they are saying where is it.

So one of the things I think we need to do a better job is a real

or actual inventory because what I see in my travels around the

country is that we have got great assets, infrastructure and competition within larger, denser populated areas and then once you

get outside of that, it is like falling off a cliff.

I want to tell a story about when I spent last August traveling

around several small communities in the State of Nebraska, even

though I only represent the city of Omaha, and talked to areas that

wanted broadband and others that didn’t. I want to tell you a story.

Diller, NE, 298 people, it is the Diller telephone exchange. There

are 800 people in the entire area, 800 lines, but they are very progressive, especially in broadband deployment. They have gone wireless. They put out fiber. So what has that meant to the community?

Well, let me tell you a story of a little butcher ship in Diller, just

about ready to go out of business, third generation running it, decided that they were going to start selling boxed beef over the

Internet. So it went from three family members employed there to

now 50 in a matter of 4 years. They buy all of their cattle locally

near Beatrice, NE. They have sold to every State in the country

and Canada, and they now employ 50 people using a broadband

business plan. That is what it means for America and that is why

this hearing is so important, so we can make sure that everyone

has access to this type of technology and can compete in a 21st century global economy no matter where they reside.

I yield back.

Mr. MARKEY. The gentleman’s time has expired.

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The Chair recognizes the gentleman from Pennsylvania, the vice

chair of the subcommittee, Mr. Doyle.

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

Mr. DOYLE. Thank you, Mr. Chairman, and welcome to our panelists.

Mr. Chairman, it seems like only a few weeks ago I was bemoaning our OECD broadband subscriber ranking at number 12. I want

to congratulate Chairman Markey for holding a hearing about our

standing in the international broadband rankings the day after we

fall from 12th to 15th. Mr. Chairman, your timing is certainly better than Rich Little’s was at the White House correspondents’ dinner this weekend.

I appreciate getting letters from companies and industries who

want to tell me that we shouldn’t worry about our place in the

broadband world. It doesn’t matter, they tell me, that tens of millions of Americans don’t have a fast connection to the Internet. An

open and free Internet could be considered the first truly accessible

tool to make the spirit of the First Amendment come alive for everyone in this country, but without an Internet available to all that

guarantees fast speeds to anyone’s content, that potential is just a

promise.

I am hesitant to believe those who would tell us that the

rankings aren’t meaningful and that we should instead find a new

way to look at the data. Frankly, I believe those views are what

is holding us back. To say that we can’t learn from other countries

whose policies are clearly working better than ours seems to come

from the same mindset that hinders our foreign policy and other

matters. Each different way I looked at the rankings, and I have

turned them upside down and looked at them sideways, it still

shows we are in the middle, and when you look at the data over

time, we are falling. We are falling behind to countries that are

doing what we tried first, lost patience with and gave up on. That

is right: Other nations are seeing success with what should have

been our policy from the start, a policy that unbundled services

from the wire those services travel on, a policy that recognized our

infrastructure should be ripe for competition, new services, faster

speeds and lower prices.

Chairman Markey, to paraphrase something Archie and Edith

Bunker could have sung in 1996, hair was short and skirts were

long, Celine Dion really sold a song, I don’t know just what went

wrong, those should have been the days.

Mr. Chairman, the lesson it seems from U.S. telecom policy is,

do what we said in 1996, not as we actually did in 2003, and with

that, Mr. Chairman, I will yield back.

Mr. MARKEY. Excellent. They should have had you, not Rich Little, on Saturday night.

The Chair recognizes the gentleman from Illinois, Mr. Shimkus.

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

Mr. SHIMKUS. Thank you, Mr. Chairman. I am wondering if

Colin is moonlighting for Doyle in the script and songwriting area,

so better check his compensation schedule there.

A couple quick things. First of all, I think we ought to be going

to some of these countries that are represented here talking about

our successes because we all know we can do better, but I think

my colleague, Mr. Doyle, is wrong. I think we have a great story

of success to tell, and I think we can go to some of the countries

that are represented here and make the case why what we have

done in some aspects has been very successful. I am a competitivemarket guy, and I want more pipes, more competition and really

not dictated by a large Federal bureaucracy.

Let me give you a couple points here. In absolute figures, even

the OECD statistics indicate that the United States has the largest

number of broadband subscribers with 58.1 million as of December

2006. That is roughly 30 percent of the broadband connections in

all the OECD countries combined. By aggregating business and

residential data, the OECD report also fails to show that residential broadband penetration is higher in the United States than

most other countries at 42 percent, according to a May 2006 Pew

study. That is less than Denmark’s, the Netherlands’ or Sweden’s

but more than each of the other EU member states. The rankings

do not account for geography and population density. If we make

the size comparisons more apt by breaking residential broadband

penetration down by State to the top three, New Jersey, California

and Connecticut, we beat number one-ranked Denmark. Even the

bottom three States would beat the average penetration in the EU

countries.

As many of you know, I am involved with the Baltic countries,

Estonia, Latvia, Lithuania, very closely. Estonia has a great success story of penetration through cellular high-speed. Why did they

get there? Because of a free, unfettered market and the fact that

they could bypass the incumbents and bring competition to the

world. It is truly a great story. Competition, competitive markets

always beat government. That is where I stand, and I think we

have got a good story to tell.

I yield back my time, Mr. Chairman.

Mr. MARKEY. The gentleman’s time has expired.

The gentlelady from California, Mrs. Capps.

Mrs. CAPPS. Thank you, Mr. Chairman. I welcome our witnesses

today and I will submit my statement for the record.

Mr. MARKEY. The gentlelady’s time will be reserved.

The gentleman from Indiana, Mr. Hill.

Mr. HILL. I would waive an opening statement.

Mr. MARKEY. The gentleman’s time will be reserved as well.

I see Mr. Stearns has just arrived. Would the gentleman like to

be recognized to make an opening statement?

Mr. STEARNS. Thank you, Mr. Chairman.

Mr. MARKEY. The gentleman from Florida is recognized.

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

Mr. STEARNS. Let me compliment you for having these series of

hearings. I think this is a diverse panel of witnesses that have

broad experience.

I caution my colleagues not to go overboard in comparing the experience of other nations to the United States. In many cases, it

would be comparing apples to oranges. The recent broadband ranking by the Organization for Economic Cooperation and Development puts the United States right in the middle of broadband subscribers. These rankings provide an interesting snapshot but are in

many ways flawed and misleading. The OECD underrepresents

U.S. broadband penetration, in part because they do not count

business lines in the United States. Furthermore, the rankings do

not take into account the varying geographics and population densities of each country. The United States, as we know, is very geographically diverse, especially compared to other countries on the

OECD list. In an apples-to-apples comparison of broadband penetration by household, the U.S. outranks Europe. A more appropriate measure would be to break U.S. residential broadband penetration down by State to make the size comparisons. The top three

U.S. States have broadband penetration rates greater than all European Union member states except the Netherlands. The average

U.S. broadband penetration rate for all States is greater than the

EU average.

As flawed as these rankings may be, we still have a lot of room

for improvement, but we need to have better data than is currently

available to make the best-informed policy decisions. I believe the

United States is on the right track, but there is more that Congress

can do by promoting wireless broadband, by identifying more spectrum and focusing on cooperative programs to stimulate rural

broadband deployment. The last thing Congress should do is impose anticipatory regulation.

One area of improvement is on download speeds and prices.

Other countries certainly have higher average download speeds

and lower average prices than the United States. However, it is important to see whether prices are sustainable. Download speeds can

be increased in the future and where upload speeds are adequate

or capable of increasing. France, for example, does have lower

prices for 20-megabits-per-second broadband service but France

telecom is selling that service at half the real cost. How sustainable

is that? DSL download speed in Europe varies from 8 to 50 megabits per second because EU loop lengths are very short in comparison to the United States loop length. Even so, U.S. speeds on average are higher than Europeans’ to a significant degree because the

United States has platform competition.

So Mr. Chairman, I thank you for holding this hearing. I look

forward to hearing the witnesses and working with my colleagues

to increase broadband subscribership and penetration in the

United States.

Mr. MARKEY. The gentleman’s time has expired.

The Chair recognizes the gentleman from Texas, Mr. Green.

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OPENING STATEMENT OF HON. GENE GREEN, A

REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS

Mr. GREEN. Thank you, Mr. Chairman, for holding this hearing

on broadband deployment around the globe, and I know this is our

continuing series and I look forward to our witnesses today.

We have been looking at the digital future of the United States

for several weeks now, and last week we heard from several witnesses on plans to deliver wireless broadband. Consumers here in

the United States are paying double, triple or more per megabits

per second of bandwidth than consumers in other countries. The

lack of affordable broadband access with comparable speeds could

eventually hurt U.S. businesses struggling to grow and create jobs.

Accelerating broadband deployment is critical to the long-term

health of the U.S. technology sector that provides the building

blocks for our new networks. The U.S. does differ greatly from

many foreign countries, however, because we have multiple platforms building networks competing for customers. Cable, DSL and

soon WiMAX will each offer broadband service to the home and to

business, and this competition could benefit consumers by driving

down prices and forcing companies to invest in their networks and

increase these speeds and stay competitive. Unbundling worked

overseas because there was primarily only one platform to deliver

broadband. It is unclear if that approach could work in the United

States because of slow investment in networks that impede competition between the different platforms. In fact, many members of

this committee supported the Tauzin-Dingell legislation to help

push the FCC to roll back most of the unbundling regime from the

1996 Act. Congress did not accurately see the future in 1996 because the future of phone competition was not unbundling but instead with voice-over Internet. Cable companies and other voiceover Internet companies have successfully taken millions of former

telephone subscribers and that competition has reduced the rates.

I look forward to hearing from our witnesses and working with

the subcommittee on the future of broadband deployment and access and yield back my time.

Mr. MARKEY. The gentleman’s time has expired.

All time for opening statements by members of the subcommittee

has expired. Statements will be accepted for the record.

[The prepared statements of Mrs. Capps and Mr. Engel follow:]

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We will now turn to our panel. We have an incredibly distinguished group of witnesses before us today. The Honorable Paul

Swain has been a Labour member of the New Zealand Parliament

for nearly 17 years. During his tenure, he has held a number of

ministerial positions, including the minister of communications and

information technologies. Mr. Ed Richards is the chief executive officer of the Office of Communications, the regulatory authority of

the telecommunications and media sectors in the United Kingdom.

Mr. Richards is the Kevin Martin, he is the equivalent of the Chair

of the Federal Communications Commission for Great Britain.

Mr. Shin Hashimoto is executive vice president of Nippon Telephone and Telegraph Corporation, the parent corporation of Japan’s two incumbent telephone companies, NTT East and NTT

West, and its dominant mobile wireless provider, Dokomo. Mr.

Greg Wyler is cofounder and director of Rwandatel and Terracom

Communications, providers of broadband Internet access in Rwanda, and Dr. George Ford is the chief economist for the Phoenix

Center for Advanced Legal and Economic Public Policy Studies, a

think tank that studies issues related to the law and economics of

the telecommunications and high-tech industries.

So we will turn to you, Mr. Swain, and each witness will have

5 minutes to make their opening statement, but you can see there

is plenty of pent-up interest in questioning the witnesses.

We will begin with you. Welcome.

STATEMENT OF HON. PAUL SWAIN, MP, PARLIAMENT OF NEW

ZEALAND, WELLINGTON, NEW ZEALAND

Mr. SWAIN. Thank you, Mr. Chairman and members. It is a great

honor for me to be here in your country and be invited to participate in this hearing related to international perspectives on the

provision of broadband. I will firstly say, Mr. Chairman, I hope I

am not asked to sing, because I think that would lead to the clearing of the room.

As has been said, I am Paul Swain. I have been a member of

Parliament for 17 years and the minister of communications and

information technology from 1999 to 2004. New Zealand is a small

country and like all countries is dependent on high broadband penetration rates for economic growth and social development. Like

many countries, yourself included, looking at our penetration rates

relative to the OECD, and I have to acknowledge, Mr. Chairman,

that our ranking is 21 out of 30, and that is during a period probably of the last decade of one of the most light-handed regulatory

regimes in the world, and we have just recently introduced some

new measures to boost our country’s performance.

Just a little background. Telecommunications in New Zealand

was originally owned by the Government. In the late 1980s, the

telecommunication market was deregulated and Telecom New Zealand was privatized in 1990. No specific teleco regulations were introduced at that time. The industry relied on general antitrust law

to resolve disputes and issues. It was arguably the most deregulated market in the world. While there was some investment in

competitive infrastructure in the 1990s, this stalled alongside a

growing dissatisfaction with the growing regulatory regime and the

levels of competition in New Zealand. In 2001, I was responsible

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for a new telco regulatory regime which promoted the interests of

consumers, established a telco regulator and introduced regulation

of interconnection and wholesaling, national roaming and cell-site

co-location and number portability. Local loop unbundling was not

introduced at this time. In 2002, the government provided $45 million New Zealand to the private sector to lift broadband penetration rates in sparsely populated areas of New Zealand centered and

focused around the nation’s schools. In 2003, following a mandate,

the telco recommended against local loop unbundling once again,

and the government reluctantly agreed on the basis of voluntary

commitments from the incumbent to increase investment of penetration rates in its Next Generation Network, NGN. Many of the

investment and penetration targets were simply not met.

So in 2006, following a stocktake of New Zealand’s broadband

performance relative to the OECD and wide dissatisfaction with

the competitive environment, particularly facilities-based competition, the government introduced local loop unbundling and required

functional separation of the incumbent Telecom New Zealand into

three business units, an access network, wholesale and retail business unit. Strong equivalents of inputs requirements whereby the

incumbent is required to provide access to its network on the same

terms and conditions as it provides access to its own was also introduced similar to the model adopted in the U.K. by OFCOM and

British Telecom. Details are currently being worked through, with

agreements expected to be reached by the end of the year. We anticipate better broadband penetration rates as a result.

In conclusion, Mr. Chairman, New Zealand is determined to improve the provision of broadband services given their critical impact on economic growth, and given that we are primarily an agricultural nation, the broadband penetration rates are as important

to us as the introduction of the freezer ship was in the 1880s,

which allowed our agricultural products to be taken from New Zealand to British markets. Our experience over two decades is that

it is extremely difficult to achieve greater competition and investment in broadband services under a light-handed regulatory regime, given that incumbents do what incumbents always do. We

believe that full unbundling of the local loop with functional separation of the incumbent will deliver better results for all consumers.

Thank you once again, Mr. Chairman and members, for this opportunity, and I wish you well for your deliberations.

[The prepared statement of Mr. Swain appears at the conclusion

of the hearing.]

Mr. MARKEY. Thank you, sir. Thank you for being here today.

Mr. Richards, again, we are honored to have you here today.

Whenever you feel comfortable, please begin.

STATEMENT OF ED RICHARDS, CHIEF EXECUTIVE OFFICER,

OFCOM, LONDON, UNITED KINGDOM

Mr. RICHARDS. Thank you very much. Good morning, Chairman

Markey, Ranking Member Upton and all members of the committee.

As you have heard, my name is Ed Richards. I am the chief executive of OFCOM, the Office of Communications, with the reguVerDate 11-SEP-98 10:59 May 06, 2008 Jkt 000000 PO 00000 Frm 00369 Fmt 6601 Sfmt 6601 Q:\DOCS\110-10 SCOM1 PsN: SCOM1
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latory authority for telecommunications and the media in the

United Kingdom. It is a great honor to be asked to appear here

today.

Now, I know that the committee has been considering the future

trajectory of communications regulation here in the United States,

and as you can imagine, that is a subject of great interest in the

U.K. as well. I very much hope that insights from our experience

can be of some value to work with your committee. We were created very much as a response to convergence so we have responsibilities that set across broadcasting, across telecom and indeed

we are the spectrum management agency for the United Kingdom

as well. We are also the antitrust authority for the sectors within

our remit. We work very closely with the U.K. Government but we

also are very clearly independent from the U.K. Government.

The U.K. telecoms market is similar to the United States in

many ways and our operators are facing very similar challenges to

your own. Revenues are shifting from traditional fixed voice services to both wireless and to broadband. Given this shift, I think in

our view broadband is the key strategic product from industry,

from consumer and from a regulatory perspective.

The British broadband market is now I believe making very

rapid advances. We have seen market penetration increase from 39

households in every 100 to over 50 households in every 100 during

the course of the last year. The total number of connections has

risen by some 31 percent in that time. Now, part of that change

can be attributed to a reinvigorated market environment as a result of significant change in our regulatory policy. In our written

evidence we have explained how the U.S. and U.K. telecoms regulatory policy, despite a very strong shared commitment to promoting competition, investment and open markets, have often pursued

different trajectories over the last 25 years. That I believe to a

large extent simply reflects different market realities.

When we were formed in 2003, we found that the U.K. was very

much underperforming other nations in telecoms. In particular, we

were very concerned about our approach to the rollout of massmarket broadband. When we examined that situation, we saw that

the overall volume and activity of regulation had steadily increased

over the years but that had not led to the conditions which would

support sustainable competition. In fact, competitors to BT, our incumbent, were fragmented and weak, and they were overly reliant

upon regulation themselves. That didn’t suit anyone. It didn’t suit

the competitors and nor in fact did it suit the incumbent, who faced

an ever-expanding regulatory burden and a significant overhead of

regulatory risk and uncertainty. In our strategic review which followed, we looked all around the world for ways to address the problems. We looked very closely at U.S. policy and in particular the

conclusions of the 2003 Triennial Review. We considered the option

of regulatory forbearance, but our market conditions differed from

yours in a number of respects, perhaps more crucially, the fact that

cable is not as extensively rolled out in the U.K. as it is here in

the United States. We also considered a model of your Bell breakup, which would have meant the forced legal separation of BT’s access business from its other activities, but we judged that that

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would have been complex, time-consuming and would have created,

rather than eliminated, regulatory uncertainty.

So we sought a different solution. That solution is now being

called functional separation, with the natural monopoly infrastructure parts of our incumbent separated into a different business

unit, a new business unit called Openreach with its own offices, its

own management, its own remuneration schemes and indeed company identity but still owned by BT Group PLC on an arm’s-length

basis. We coupled that change with the introduction of tough rules

on discriminatory treatment, which we termed equivalence of

input. The equivalence of input means that BT’s own downstream

business and those of its rivals receive exactly the same products

at the same price for the same quality of service and on the same

terms and conditions at all times. The results so far have been significant. We have certainly seen a surge of new investment in

broadband infrastructure and indeed a price wall. New operators

are coming to market with higher bandwidth services offered at

lower prices and services are being packaged in more innovative

ways. This approach has prompted interest from elsewhere as well.

We expect functional separation to become a part of the armory

available to all European regulators. As Mr. Swain has explained,

the New Zealand Government has begun to look closely at our approach. Its communications minister is proposing a new law that

will grant its national regulator similar powers and a similar approach to U.K. policy, and many other countries are expressing interest as well.

One question we are often asked in this context is, what is in it

for the incumbent, what was in it for BT? Well, on the downside,

we made very clear that the only alternative was a multi-year inquiry, which could have led to forced legal separation. On the other

hand, the voluntary agreement to separate its business and introduce equivalence of input has allowed us to grant more freedom to

the incumbent to compete in downstream retail markets. So as a

consequence, we actually have been able to deregulate as well. We

have also been able to offer BT greater certainty on the regulatory

treatment of its Next Generation Network. Within the framework

of a guaranteed regime of fair access, we were able to make clear

that BT will be compensated appropriately for the risks that it

takes today in terms of the regulatory pricing associated with

wholesale prices.

I believe the committee is also closely tracking the evolution of

spectrum policy as well, which we believe is increasingly related to

an effective communications policy and an effective broadband policy. The U.K. and the U.S. I think share a similar vision of the importance of spectrum as an economic resort. We share a belief in

the need for flexibility in a complex and fast-moving environment.

In the U.K., where historically 95 percent of our spectrum has been

subject to a command and control model, our vision is to move by

2010 to a predominantly market-led approach, with 70 percent of

spectrum available for use for any purpose and with any technology

subject only to a minimum set of restrictions to prevent interference. We have a major program of spectrum release to be conducted over the next 4 years, which will put some 350-MHz of spectrum into the market, in each case allowing flexible use and freeVerDate 11-SEP-98 10:59 May 06, 2008 Jkt 000000 PO 00000 Frm 00371 Fmt 6601 Sfmt 6601 Q:\DOCS\110-10 SCOM1 PsN: SCOM1
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dom over the choice of technology. Our European Union partners

are of course extremely important in our development in this area

as are other countries, so we look forward to close cooperation with

many countries ahead of the World Radio Conference later this

year.

Mr. Chairman, we can see many points of similarity between our

two nations in relation to these challenges. I think we are both

deeply committed to market-based policies which promote innovation, investment and competition. I very much hope that we can

maintain a strong and fruitful dialog over the coming months.

[The prepared statement of Mr. Richards appears at the conclusion of the hearing.]

Mr. MARKEY. Thank you, Mr. Richards, very much.

Now, Mr. Hashimoto, we know that you have taken extraordinary efforts to be here today, which we very much appreciate.

Whenever you feel comfortable, please begin.

STATEMENT OF SHIN HASHIMOTO, EXECUTIVE VICE

PRESIDNT, NIPPON TELEGRAPH AND TELEPHONE CORPORATION, TOKYO, JAPAN

Mr. HASHIMOTO. Thank you. Well, Chairman Markey, Ranking

Member Upton and members of the subcommittee, it is an honor

and a privilege for me to appear before you today. As a summary

of my statement, I would like to share with you some information

about the current status and the future of broadband and next generation networks in Japan.

As indicated in the chart in the supplementary material on page

5, in Japan more than 7 million people are enjoying fiber to the

homes subsidies and there has been some loss for FTTH subsidy.

FTTH subsidies are already widely available throughout Japan and

the typical monthly charge for a 100-megabit connection is around

5,300 yen, or $46 U.S. NTT is now engaged in building a next generation network named NGN. In recent years, there has been increasingly momentum of utilizing fiber-based broadband services,

much higher speed and more stable connectivity. NTT still owns

large legacy public networks that need to be upgraded in the near

future. In view of these circumstances, NTT has decided to build

its own next generation network in conjunction with fiber-based

broadband access and the new network infrastructure through

which a wide variety of broadband services can be very good. Our

next generation network will be able to meet various needs of our

customers by providing a wide range of services and reverse security functionalities of NGN comprised of standards adopted by

international organizations. It is our belief that our NGN as new

communication infrastructure should have interconnectivity with

other service providers inside and outside of Japan. NTT wishes to

develop new business models that best utilize the NGN for correlation with partners in a relationship of mutual trust to create rich

diversity of new businesses and services. Specifications of

connectivity interface have been made available to the public.

The first step of our next generation network implementation

began a few trials in December 2006. This was intended to verify

the technological and operational issues of our NGN commercial

deployment. A number of companies have been participating in our

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field trials conducting interoperability testing interfaces. They have

been developing new business models and discovering numerous

opportunities by using various applications over NGN platforms.

I am very pleased to have this opportunity to share NTT’s plans

with you today. Since the introduction of the Bell system to our

country, Japanese telecommunication industry was viewed upon

generous collaboration growth by the United States. Now it is our

time to share energy and experience and fiber optic technology as

much as possible with various U.S. industries to fuse new next generation networks together. I hope it strengthens our two countries’

relationship even more.

Once again, I appreciate the opportunity to speak to the committee today.

[The prepared statement of Mr. Hashimoto appears at the conclusion of the hearing.]

Mr. MARKEY. Thank you, Mr. Hashimoto, very much.

And now we turn to Mr. Wyler. The subcommittee thought it

would be interesting to hear a story from the developing world, and

Mr. Wyler is intimately involved in what has happened in Rwanda.

Welcome, Mr. Wyler. Whenever you feel comfortable, please begin.

STATEMENT OF GREGORY WYLER, DIRECTOR, RWANDATEL,

S.A., MANCHESTER, MA

Mr. WYLER. Thank you, Chairman Markey, Ranking Member

Upton and members of the committee. I am honored by your request for my attendance at this hearing. More so, I am appreciative

that the positive impact of broadband on developing nations is

given an opportunity to take the stage in your decision making. I

have but one of many small success stories in the developing world

where broadband has helped bring economic empowerment, equality, democracy and change to a developing area. I am also here as

an American to testify that it is in America’s interest both economically and socially to help bring broadband infrastructure to developing worlds.

In the early 1990s I had left graduate school to found a company,

and we developed semiconductor cooling technologies. I was able to

do that because I had an infrastructure around me. I had entrepreneurs, financial expertise and help. I had the ability to buy

goods and services very easily. Later after that, I took a turn to

look at the developing world to try to see what we could do to

change things for them.

In Rwanda, we have developed world-class infrastructure including the first African deployments of both fiber to the premise and

EVDO mobile broadband. I personally witnessed the positive impact of broadband on many parts of this rural, growing economy including successful poverty reduction and medical treatment strategies. Two examples: The efficient distribution of AIDS requires

electronic infrastructure to determine patterns, dosage and effect.

Software from Voxiva in Maryland creates Web sites to visually

map these items and electronically collect the data from the various health centers. The broadband implementation allows this to

happen. Because of a desperate need in 2004 when I went to Rwanda, we formed a small ISP to connect Internet to schools. Hiring

an entirely local staff, we climbed roofs, laid fiber and brought the

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latest technologies to Rwanda. We now have almost 400 Rwandan

employees and provide Internet access to approximately 50,000 end

users. The fiber network designed, installed and maintained entirely by Rwandans covers almost 400 kilometers, interconnecting

approximately 150 buildings including six of the seven public colleges and all the government ministries. Our EVDO broadband deployment brings high-speed mobile networking throughout the

country, including every city and many rural areas.

What I have seen and had the opportunity to experience is a

growth of a country that had very little broadband, there was only

about 22 connections when I got there, to now something which is

one of the leaders in Africa, and what I have seen is the economic

growth and the interdependent web of businesses that have grown,

and I will give you an example. When I got there, a deposit in one

branch of a bank couldn’t be in another branch. That created a tremendous friction in commerce. So after we put in the broadband

to connect the branches, some people left our company and left another bank and developed another software company to create the

financial software to create those interconnections. That reduced

the friction on commerce, and of course we have seen the growth

that has happened in Rwanda. There are many examples of this

that are going where you have a multi-tiered, independent web of

business-to-business commerce that is happening inside Rwanda.

With all these positives, there is still a long way to go. Internet

backhaul costs and quality hamper development of nations. As will

be detailed, even if geo-satellite costs were reduced, the quality of

Internet over geo-satellite is so poor it prevents participation of the

developing world in the new high-bandwidth Internet. Solving this

problem requires a significant investment in geo-satellite technology and fiber networks. The entirety of Africa and most of the

developing world is not on fiber, so we get all of our access over

satellites. The incredible latency of satellite of 700 milliseconds,

over half a second between the time when you type something and

it reaches a server or your Google or Yahoo server slows down the

access tremendously. When you go to CNN, it takes 24 seconds. It

populates very slowly. This really prevents people from accessing

and being part of the community.

Often overlooked besides the economics is the significant and

crucial role the Internet plays in fostering democracy. Internet access eliminates a one-way channel of communication, enhancing

participatory government through both authored and anonymous

critique. Furthermore, wide accessibility creates an open looking

glass for peer review for the goings-on in any particular country.

In extreme instances, significant deprivations of human rights can

quickly be seen by the world. The recent history of Rwanda would

have been far different had access been available. In part, the belief that communications can free people drove this project.

Beyond the sale of equipment and cost to create infrastructure

from America, the United States exports a significant amount of

Web-based services. For example, almost half of eBay and Google

sales are international, Yahoo’s profit growth is entirely from international sales, and all the 20 most popular Web sites are American. Because American companies continue to lead the world in

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monetizing Web users, it is also in our economic interest to help

develop the other three billion people onto the Web.

Slow access speeds in the 1990s hindered the growth of the

‘‘World Wide Wait.’’ New Internet applications such as video, Web

2.0 and Ajax require higher bandwidth. Unfortunately, most of the

developing world is stuck with extremely slow Internet access

speeds.

It is my hope this testimony will offer guidance on the importance of broadband for development. Broadband creates significant

efficiencies for every other initiative whether for health, education,

economy or democracy and its need is often overlooked because it

plays only a supporting role. Broadband does not cure disease but

it can make the cure affordable.

[The prepared statement of Mr. Wyler appears at the conclusion

of the hearing.]

Mr. MARKEY. We very much appreciate your testimony, Mr.

Wyler.

Mr. Ford, we welcome you and we look forward to your testimony.

STATEMENT OF GEORGE FORD, CHIEF ECONOMIST, PHOENIX

CENTER FOR ADVANCED LEGAL AND ECONOMIC PUBLIC

POLICY STUDIES, WASHINGTON, DC

Mr. FORD. Thank you, Mr. Chairman, Ranking Member Upton

and members of the subcommittee. Good morning and thank you

for inviting me to testify today among these distinguished guests.

I haven’t traveled as far as they have, but some of you may think

Birmingham, AL is farther away than Tokyo from Washington, DC.

I am the chief economist of the Phoenix Center for Advanced

Legal and Economic Public Policy Studies. The economics of the

communications industry has been the focus of my career starting

with my Ph.D. dissertation on competition in the cable television

industry. The Phoenix Center is a nonprofit 501(c)(3) organization

with a particular emphasis on the law and economics of telecommunications and high-tech industries. The Phoenix Center does

not endorse or support any particular piece of Federal or State legislation or proposed regulation. Our mission is not to tell policymakers what to think about an issue but how to think about it. All

of our research is available for free on our Web site, www.PhoenixCenter.org, and unlike any other organization such as ours of which

I am aware, you will also find posted critiques of our research with

rebuttal. Much of our work is published so receives independent review as well.

The topic today is broadband communications and lessons from

abroad. As a result of this hearing and those like it, we are laying

the groundwork for the development of a national broadband strategy for the United States. In my view, developing and implementing a national broadband strategy is perhaps the key issue for modern communications policy, particularly as Internet usage explodes

exponentially, and massive additional infrastructure investment is

required to keep pace. From what I have heard today, there appears to be a general consensus on this point, though some differences about how to accomplish this.

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On this issue I wish to make three points today. First, I believe

that the rankings across countries of broadband subscriptions frequently used in the debate over broadband policy are exceedingly

crude measures of relative performance and I encourage you to

think more deeply about broadband policy than what the rankings

tell us, not necessarily to ignore them but to respect their limitations. Integrating broadband into our economy is not a collegiate

sport and there is no prize for who has the most subscriptions per

capita to some inconsistently and vaguely defined service. Rather,

broadband is an essential component of our Nation’s infrastructure

and we should seek to develop the best communications opportunities and service possible. The problems with the rankings are not

the fault of the OECD or ITU. These organizations provide a summary of the data collected by the individual countries. The problem

lies with those who do not temper their advocacy to reflect the considerable defects with the data such as how connections are defined

and counted. One serious defect in the rankings data is easily demonstrated by ranking countries in the hypothetical broadband nirvana where every home and business in the OECD countries has

a broadband connection. You might think we would all be tied for

first in this world but in fact the United States ranks 20th among

OECD countries in this nirvana and it is further from first place

than it is today.

The rankings in subscription rates in this nirvana are provided

in table 1 of my written testimony. This thought experiment reveals the important role that expressing connections in per capita

terms has on rankings. Dividing by population seems innocuous

but it actually adds to differences in broadband connections such

economic and demographic factors such as household size and average business size. The experiment also suggests that the subscription numbers are not on the same scale and thus ranking them is

illegitimate. Comparing rankings is a bit like concluding that a student with a 3.9 GPA on a 4-point scale is a worse student than one

with a 4.0 GPA on a 5-point scale.

An alternative to per capita calculations is to divide connections

by household. Table 2 of my written testimony shows that this

seemingly trivial adjustment is not so trivial since Sweden falls

from 8th to 16th and Australia rises from 17th to 4th. I doubt the

economic significance of their broadband infrastructure is so sensitive to definitions and neither is ours. None of these simple calculations get close to measuring what is important, which is whether or not our broadband infrastructure is capable of supporting economic growth in the global economy. Further, I believe that increasing the subscription rate in this country to a 200-kilobit service is not a legitimate goal of a national broadband strategy but

that is all a focus on the ranking data gets you. In fact, we could

magically convert every broadband connection in this country to at

least 100-megabit fiber-optic circuit offered by ten different facilities-based providers and we would still rank 15th in the OECD

rankings. Rather than focus on rank, our intellectual resources

should be devoted to figuring out effective and efficient ways to

augment the geographic coverage, increase productive use and expand network capacity and enhance network capabilities of our

broadband infrastructure.

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Second, I encourage you to recognize the limitations of public policy in determining broadband subscription. Variations across countries and subscription rates are in large part a product of factors

outside the realm of communications policy. Much of the variation

in broadband subscription rates is driven by non-policy factors including age, household size, education, income and so forth. My

written testimony provides a list of factors that drive broadband

subscription rates and some estimates of their relative influence. A

healthy respect for what policy can and cannot do is important, but

I would mention that price can cover up a variety of ills.

Finally, I propose that what is most needed is for this country

to state plainly and with reasonable detail the desired outcome for

broadband services and then establish a framework to evaluate policy proposals in reference to obtaining that explicit goal. My written testimony provides a more detailed framework for evaluating

policy. I believe the desired outcome is augmented geographic coverage, more productive use of services and expanded network capacity and enhanced network capabilities of broadband infrastructure.

Thank you.

[The prepared statement of Mr. Ford appears at the conclusion

of the hearing.]

Mr. MARKEY. I thank the gentleman, and now we will turn to

questions from the subcommittee.

Mr. Richards, in the U.K., you forced BT to unbundle loops for

its competitors so they could use these facilities to offer their own

broadband services. As a result of this competition, BT now has

less than 25 percent of the retail broadband market. So I have

three questions for you. Did competition created by mandatory loop

unbundling drive down the price of broadband? Second, did competition increase broadband speeds? And third, did competition increase consumer demand for broadband?

Mr. RICHARDS. I think the headline answer to those questions is

undoubtedly yes. Did competition drive down price and has it increased broadband speeds? Yes, it has. Our story is one of very significant change in the last few years, and if we went back to 2001,

we were in a perilous state in relation to broadband. We were at

the bottom of whatever rankings you wanted to take. You could

have five different rankings and we would be at the bottom of

them. And there is no question that over that period the policy

framework changes have made a difference. We certainly changed

as a result of regulation the attractiveness for investment,

attractiveness for competitive provision of broadband through the

local loop unbundling policy. That has certainly affected the overall

levels of speed, and it certainly affected the retail price. Consumer

demand, I think where we have seen benefits there is what you see

is very aggressive competitive marketing, and that has stimulated

our consumer interest. You have also seen very aggressive competitive innovation around speeds on the kinds of services offered. So

I would answer that in the U.K. at least that has been part of the

story which has seen us improve our position over the last 3 years.

Mr. MARKEY. Thank you, Mr. Richards.

Mr. Hashimoto, did unbundling remove NTT’s incentive to invest

in fiber or did it compel NTT to accelerate its fiber deployment?

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Ms. GALE. Please allow him to use an interpreter.

Mr. MARKEY. OK, please.

Mr. HASHIMOTO. I believe that your question is whether or not

unbundling caused any change in NTT’s investment, and as a result of unbundling, it is very clear that we had more new entrants,

those who provide service on DSL. However, the situation in Japan

is somewhat different than in the United States. Ever since NTT

was privatized, NTT has been very steadily preparing itself for deployment of broadband. It started with 64 Kbps, which was called

ISDN. And then from early on, NTT had had a plan to use fiber

optics as a successor for ISDN. And the turning point for us that

happened in 1995 when Microsoft introduced Windows. So the introduction of Windows in 1995 opened up the access to Internet,

and I became keenly aware that there will be a strong demand for

Internet access in Japan and also the requirements for high-speed

connection. The DSL technology was not commercialized prior to

1995 or prior to the 1996 telecommunications act. One of the

unique competitive situations in Japan is the competition against

utilities which provide the broadband access. Backed by very good

financial situation, the utilities were very ambitious about deployment of fiber optics network. And so against that backdrop, the

NTT started investment in fiber optics in 1995. However, at that

point the coverage by fiber optics was extremely low in Japan, so

as a transition we started to provide ADSL.

Mr. MARKEY. Mr. Hashimoto, I apologize to you but I only have

5 minutes allotted for my questions, and I do apologize to you, sir.

The Chair recognizes the gentleman from Michigan, Mr. Upton.

Mr. UPTON. Thank you, Mr. Chairman. Before I start my questions, I just want to put in a letter from the NCTA, Kyle

McSlarrow, into the record and just note a particular paragraph

that he writes, and that is, ‘‘Based on company data collected by

the FCC as of June 30, 2006, cable high-speed Internet service was

available to 93 percent of households that could access cable TV

service. We think that number is even higher. A recent report by

Kagan Research shows that cable broadband service is available to

more than 94 percent of all U.S. homes,’’ and I will just share that

for the record.

Mr. MARKEY. Without objection, we will include that in the

record.

Mr. UPTON. I am going to ask sort of a long question and I would

like Messrs. Swain, Richards and Ford to answer this, and that is,

as I look through the data, and this goes back I think to Mr. Ford’s

comments, that it really is sort of apples and oranges in terms of

where we are, and I look forward to having a hearing 2 or 3 years

from now to see how this data might change as we sort of pry it

apart like an onion to look at DSL, cable and fiber to the land, and

I would just like to say too, and starting my question, Mr. Swain,

to Mr. Richards, about 51 percent of our broadband comes from

cable, 51 percent; 42 percent from phone companies and 7 percent

from other sources such as wireless. Such figures platform competition tends to drive broadband deployment. How much of broadband

service in your two nations comes from the phone company and

how much from other sources like cable or wireless, and where do

you expect broadband provided by DSL to go 3 to 5 years from now,

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and in particular, where do you think, particularly Mr. Richards,

as you look at the functional separation, where do you see as a percentage per hundred inhabitants fiber itself, and then I want Mr.

Ford to conclude. Mr. Swain.

Mr. SWAIN. Thank you.

Mr. UPTON. We look forward, by the way, to having a subcommittee trip to both of your nations.

Mr. SWAIN. You would be very welcome.

Mr. MARKEY. Not on the same trip though.

Mr. SWAIN. Having sat on similar committees in New Zealand,

we are always looking for opportunities to come north as well, so

you would be most welcome in New Zealand.

The first point is recognizing the difference between the United

States and, for example, New Zealand, with your cable infrastructure. About 93 percent of particularly our DSL service comes via

the telecommunications, primarily the telecommunications incumbent, and about 7 percent comes from wireless——

Mr. UPTON. According to this these factors were 0.0 for fiber per

hundred.

Mr. SWAIN. Yes. So we have primarily two sources, if you like.

One is the incumbent telecommunications company over copper,

and 93 percent of that comes from there and the rest comes from

satellite and wireless. And so therefore the issues of the difference

between cable layout here and New Zealand are marked and significant. However, I will make two quick points if I may. The first

one, looking at the future of wireless, as a minister I put a lot of

store and faith in the development of wireless. Because of the geographic nature of New Zealand, I thought this would be a great solution. Lots of the promises and pledges around wireless had not

materialized, and I have come to the view that wireless—I may of

course be wrong but this is my personal view, that in the end wireless will always complement other infrastructures. My view is that

it will still be cable and copper that will be the main driver of the

processes here.

Mr. UPTON. I am running out of time, and since I don’t have the

gavel I am not able to give myself an extra 4 minutes.

So you would say just briefly here that your 0.7, which is in essence wireless, is going to stay about the same and your 0.0 for

fiber will go up pretty small?

Mr. SWAIN. Yes, it will go up small.

Mr. UPTON. Mr. Richards.

Mr. RICHARDS. Cable is very, very different here. In the U.K. it

is about 54 percent coverage, about 98 percent here. That is a very

significant difference and why you have to——

Mr. UPTON. And you are also at 0.0 for fiber?

Mr. RICHARDS. Well, let me tell you about that in the 30 seconds

I have. Broadband is about 75 percent DSL, so there is a significant cable portion, but it is smaller than it is here. We don’t count

3G or wireless services at the moment. We will in due course. I do

expect those to play a very significant part for lower bandwidth

broadband. I do not expect them to compete in the long term

against high-bandwidth ADSL, cable or indeed fiber optic cable.

The answer to your question on fiber is that we have scarcely any

at the moment and that is, we do not regard that as a problem at

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the moment. Fiber optic cable should be invested in when it is an

efficient investment, and it is not yet an efficient investment in the

U.K., and one of the reasons for that is because we expect because

of the shorter copper loops in the U.K. to stretch to 24 megabits

per second. So in the U.K. copper has got a long way further to go,

and we expect, we want the incentives to be very clearly in place

such that when fiber is an efficient investment to make, it is made.

Mr. UPTON. So to conclude, do you think your number of 0.0 on

fiber is going to dramatically increase? Because I expect that to

happen here in the United States too.

Mr. RICHARDS. It will increase over time. I expect fiber to be further ahead in the United States because of the different geographic

nature of the country. I don’t think that is a surprise or a shock.

There are always differences between countries, and we can get a

lot more out of copper because of the shorter loops than you can

in the United States and therefore you would expect fiber to roll

out more quickly here. You expect fiber to roll out more quickly in

places like South Korea, which it has, because the economics of

density are very, very different in South Korea than they are in the

U.K. So none of these things are surprises. The question for us,

and I think the question for every country is, do you have the incentives in place which make efficient investments logical for competitive provisions of the telecommunications infrastructure.

Mr. UPTON. And Mr. Ford, if you could just answer briefly, that

would be great.

Mr. FORD. I will be very short. The diversity of platforms is very

important in terms of penetration for a variety of reasons that

cover different areas. EVDO adds to these numbers so will increase

our ranking as people subscribe to that service. Of these numbers

here, we are one of eight countries, I believe, that have any fiber

deployed, and I think there is no question that fiber is the platform

of the future. So that is certainly encouraging for this country, and

that number will be rising sharply I think over time.

Mr. UPTON. Mr. Chairman, thank you for the indulgence.

Mr. MARKEY. There is no problem, and we had to have time for

the translation from Japanese and time for the translation from

Alabama, so we were kind of each allocated more time.

Let me turn and recognize the gentleman from Texas, Mr. Gonzalez.

Mr. GONZALEZ. Thank you very much, Mr. Chairman, and welcome one and all to the panel.

Some observations that have already been made, and I think the

backdrop is so important, and that is, we were making these comparisons to take into account something that may not be taken into

account when we say where does the United States rank. Special

access lines, I think we have had some discussion about that that

we don’t count and we don’t have reflected. The other thing of

course is the robust competition between our telecom, our telephone companies in essence, and the cable providers, which is really I don’t believe duplicated anywhere else in large measure the

way we have it here. The fact that we do have different platforms

for the delivery of broadband that is available and is of course developing and we need to encourage of course the build-out.

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My first question will be to Mr. Swain, and I do appreciate your

testimony and I am going to read from it, that the New Zealand

Government introduced a major initiative, Project Probe. The first

aspect of it was a pretty substantial investment in the way of New

Zealand dollars and that regional tenders were sought. The objectives of the project were to increase deployment, to lower prices, to

promote greater competition. While four of the 15 tenders were

awarded to non-incumbent providers, new facilities-based competition, particularly wireless, did not emerge. These are some lessons

that the United States probably can learn from your experience

and that of the other witnesses. There was a review by the New

Zealand Government. At the conclusion of this investigation, the

telecommunications commissioner advised against implementing

full local loop unbundling and instead recommended the introduction of a limited-speed unbundled bitstream service. The government reluctantly agreed with this recommendation so as not to

delay the process further, on the basis that the decision would lead

to the development of a competitive broadband wholesale market

and would provide incentives for Telecom, the New Zealand incumbent, to deliver greater penetration rates and to quickly deploy its

next generation network. I guess what I gleaned from your testimony is that sometimes what might be an incentive to a reseller

may be a disincentive to an incumbent, and somewhere you have

got to draw the line and figure what works and what doesn’t work.

Again, reviewing the regime that you had and any particular situation in New Zealand, what was your experience in trying to balance

when you have an incentive that may act as an incentive of a certain player but not necessarily to another party?

Mr. SWAIN. Well, thank you. It is right, and for policymakers and

for legislators, the difficulty always is that balance between providing pro-investment, pro-competition policies on the one hand but on

the other hand, trying to ensure that potential monopoly or duopoly

of incumbency is overcome to provide greater opportunities for people to compete for the consumer. In our own experience in New

Zealand, we did try that particular program. It was an up-front

subsidy working as a private-public partnership with the private

sector to increase deployment rates. I had hoped that as a result

of that there a number of new technologies would emerge and particularly around the wireless space, but because of arguments

about protocol and because of the fact that it was an immature

market at that time, it didn’t emerge. So we then went to the position of saying well, if we gave the incumbent more time, would

they reinvest, would they attack the deployment of penetration

rates, would they move on their NGN, and the ultimate answer to

that is no, and I think finally I should say that if we look at the

next 10 years out, it is still my view that the greatest service to

the consumer is going to come from the existing infrastructure that

we have at the moment, and the problem for policymakers is, how

are we going to deal, whether it is a monopoly or a duopoly, with

incumbency, and I have come to the position reluctantly to a certain extent myself after having spent many, many years on this,

unless you can deal with the problems of incumbency and unless

you can actually deal with the issues such as local loop unbundling

and ultimately functional separation, it is going to be very, very

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difficult to get a proper good deal in terms of price and coverage

and services for the consumer, which ultimately as a member of

Parliament is my ultimate concern.

Mr. GONZALEZ. Thank you very much.

Mr. Richards, how do you see the United States’ position, again

who we have as providers, competing platforms, the fact that our

percentages as far as how the inhabitants per thousand receive

broadband almost evenly if you look at DSL and cable, how does

that play—in other words, I know your experience in the United

Kingdom, but what considerations, what do we take into account

as we attempt to find some sort of not necessarily regulatory

scheme but again the economic incentives that play to all of the

participants in trying to extend broadband in the United States?

Mr. RICHARDS. Well, I would be cautious about making observations about the U.S. market because my own experience is, you

have to understand your own markets in real detail to understand

what the appropriate policy response is. So in a sense I think it up

to others to interpret the lessons that I can offer from our own experience and apply them to your country. The difference is very significant between the presence you have of a very, very well-builtout competitive cable industry alongside the DSL proposition.

There is no question about that. We have only a part of that. We

still have only a part of that. I think the geographic diversity and

the rural nature of some parts of the U.S. is also a more significant

challenge than it is in the U.K. With that said, one of the key

things that we have learned so far, I think it is that if you get to

a situation where there is a real, there is an accommodation between the existing players, which is what I would describe as the

situation we were in in 2001–02, where really no one was taking

initiative of any kind, I would describe that for any country to be

a very, very dangerous place to be in. That is where we found ourselves, and therefore we felt that we had to act fairly quickly to

tackle the level of competition in the market and make judgments

about incentives and the regulatory approach in particular to the

DSL incumbent. That has been reasonably successful but others

have pointed out our next challenge will be next generation access,

fiber to the curb, fiber to the home, and that is a very significant

issue for us looking forward where clearly in the United States

there is progress already being made. My key observation I think

would be not enormously different to Mr. Swain’s. I don’t believe,

we don’t believe that in the long-term wireless platform certainly

in the next 5 years or so will provide really profound competition

or really significant competition at the high-bandwidth end. I think

you absolutely will at the lower bandwidth end of services. I think

we should expect that and that will provide effective competition

in a number of countries around the world. And if you take that

as your starting point, you have to think very, very carefully about

the level of competitive intensity for the fixed line services.

Mr. GONZALEZ. Thank you very much.

Thank you, Mr. Chairman.

Mr. MARKEY. The gentleman’s time has expired. Speaker Hastert

is recognized for 8 minutes.

Mr. HASTERT. I thank the chairman. I also want to say to the

chairman I am glad I didn’t give an opening statement because my

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staff would have had a little ditty in there for me to sing and I just

thought it would benefit the whole committee that I didn’t sing

anything.

Mr. MARKEY. The committee thanks the Speaker.

Mr. HASTERT. As I listened to each testimony, I think of my own

situation. I live out in the country. Now, we don’t have natural gas

piped out to us out in the country, and we don’t really have cable

out in the country so anything we have to do, it either comes from

space or comes from hard wire. But there is a company down the

street that happens to be a nursery, which is a fairly large entity

and they have a special access line and their high-capacity connection is pretty common with business.

Mr. Ford, I understand the OECD statistics underestimates

United States broadband penetration because they didn’t count

high-capacity connections, is that correct, that most businesses or

many, many businesses use?

Mr. FORD. I think the OECD uses what we report or the FCC

reports and it doesn’t include special access so that is probably the

case.

Mr. HASTERT. So when you talk about a half a percentage point

or 11⁄2 percentage points, it moves us up and down the scale maybe

5 or 10 points and would that be significant?

Mr. FORD. It could be.

Mr. HASTERT. Just to clear that up.

I was interested in listening especially to the testimony of the

gentleman from New Zealand, Mr. Swain, and the gentleman from

Japan, Mr. Hashimoto. I think I heard that you said that when you

unbundled, competition really went to different entities but real

competition didn’t increase. In other words, when we talk about

competition, there are two things that we think should happen

from competition: No. 1, prices should decrease, and No. 2, you

should get a better menu of services.

Very briefly, Mr. Swain, I think you said that, but I wanted to

have you clarify that, and Mr. Hashimoto, if you would clarify that

as well.

Mr. SWAIN. Well, that is the expectation of competition. That is

certainly right. We don’t have unbundling at the moment, but we

are introducing it, and our expectation absolutely is as a result of

that, particularly for the consumer and the small business owner,

that price and quality of service will improve. That is the objective

of the process.

Mr. HASTERT. And your unbundling right now is basically a copper wire, right?

Mr. SWAIN. It is copper wire.

Mr. HASTERT. Let me just follow up on that. The new Telecom

New Zealand chairman, Mr. Boyd, has threatened to sell off its copper line network rather than submit to Government-imposed regulation that would split the company three ways. How do regulatory

proposals affect the way the company operates its business, and if

the company proceeds with the sale, how will New Zealand be able

to deploy advanced broadband facilities in the future?

Mr. SWAIN. You are absolutely right to pick up on that issue and

it has been in the media now publicly for about a month. It is not

clear what the intent of the incumbent is. That would be a strucVerDate 11-SEP-98 10:59 May 06, 2008 Jkt 000000 PO 00000 Frm 00383 Fmt 6601 Sfmt 6601 Q:\DOCS\110-10 SCOM1 PsN: SCOM1
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tural separation that it would do to itself. It is not clear whether

it will proceed with that. I think it is probably floating an idea to

see what support it might get. Of course, any company is entitled

to restructure itself in any way. The concern I suppose that we

would have is that if it were to break off whether it would start

to compete with its formerly existing wholesale and retail services

and we would back into an issue of trying to make sure that there

was equivalence of service for those things. But I think that at the

moment, my expectation is that the model will emerge similar to

the BT model, the one that was pointed out to you where there is

common ownership but functional separation below the level of the

board, and because it is such early days, these issues are being discussed, and it is not clearly exactly what the outcome will be. I

think we will be clearer on that in my view in about 6 months’

time.

Mr. HASTERT. So it is a little clouded still?

Mr. SWAIN. Yes, yes.

Mr. HASTERT. Thank you, Mr. Swain.

Mr. Hashimoto, the first question about unbundling and competitive expectations creating more competition, has that lowered costs

in Japan, and are there more services for the customers?

Mr. HASHIMOTO. I didn’t have a chance to finish my response to

the chairman’s question earlier, but definitely unbundling was useful for the promotion of competition including lowering the price,

and we talked about ADSL and competition. When competition was

introduced in ADSL, we tried to increase our competitiveness in

the ADSL area but at the same time we developed the fiber optic

technology which could be economically competitive. More specifically, the distance to the house in Japan, an average distance to

a house in Japan is much, much shorter than that in the United

States. It is about 200 meters. And then the percentage of the

apartments is about 30 percent nationwide, and in a place like

Tokyo, almost 40 percent. So we are able to provide high-capacity,

high-speed, the fiber to the apartment complex and costs can be

shared by all the tenants, or we also introduced a technology called

PON, and that separates the span of the fiber cable. By doing so,

we were able to lower the cost for fiber optics deployment.

Mr. HASTERT. Thank you. Arigato. Mr. HASHIMOTO. You are welcome.

Mr. MARKEY. The gentleman’s time has expired.

The Chair recognizes the gentlelady from California, Ms. Eshoo.

Ms. ESHOO. Thank you again, Mr. Chairman, for this extraordinary hearing. To all of our witnesses, thank you. I wish the CSPAN cameras were here so that the American people could hear

what you are saying, because I think that it is so noteworthy and

so instructive.

Mr. Richards, my first question to you is, would you like to be

chairman of the FCC in the United States of America? I would love

to recruit you. As you know, in the United States the FCC essentially has given incumbent exchange carriers a regulatory holiday,

and I think therein lies the problem for the United States. They

have exempted their next generation network infrastructure from

any meaningful competitive obligations. Essentially the Bells argue

that they need this, no competitive obligations, I mean, which is

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really something that takes my breath away and goes to the heart

of why we are where we are today. Even though Mr. Ford says that

the numbers are something other than that, I think we should recognize what the numbers are and stop digging a hole. It is just incredible to me that the United States of America is in the position

that she is in.

Mr. Richards, you have obligations. What I would like you to tell

the committee about is what investments have accompanied your

policy? We are always looking for investments. In fact, people that

are on the opposite side of this debate say that we have attracted

investments, that this has been great for us. Well, our position isn’t

great. I don’t think we are attracting the kind of investment or the

competition that we have so can you just kind of briefly tell us

about what investments have accompanied your policy?

Mr. RICHARDS. Sure. The critical change has been investment by

competitive providers who are unbundling, of which there are a

number. I think it ends up being three, four, five or possibly six

in the dense urban areas and two or three in addition to the incumbent outside of that area, and they have made very significant

investments to compete, so that has definitely happened. I can’t

give you an exact number.

Ms. ESHOO. Small companies?

Mr. RICHARDS. Some small, some very substantial, so investments by Orange or by France Telecom, investments by Sky, who

are owned by News Corporation, investments by Cable and Wireless, another big British company, but also some start-up companies, one called B Unlimited, which is a very small company. It has

since been taken over. So you have seen a range of different companies coming to the market at this stage. Now, they have required

sufficient regulatory certainty and sufficient predictability to make

that investment, and I think that was absent in the U.K. in prior

years, so that has been a very significant change. People are not,

as has been observed at the moment investing in fiber other than

in new builds where it is happening, and we would expect that to

change over time, but as I said, it is a problem at the moment.

Ms. ESHOO. Great. Thank you very much.

For Mr. Swain, thank you again for your important testimony.

Following your country’s efforts to impose new competitive regulation on the telecommunications sector, how has investment in advanced telecommunication infrastructure been affected in New Zealand? It follows on I think along the lines of my question to Mr.

Richards. But I would like to hear from you how it is playing out

in New Zealand.

Mr. SWAIN. Well, briefly there are probably three periods, the period of non-regulation up until 2001, where no doubt there was

some new investment and some intent to try and get some facilities-based competition but the incumbent competed so hard against

the new facilities-based competitor that basically they gave up because they couldn’t compete. From 2001 to 2006, the period that I

was involved myself, there was a quite significant increase in investment particularly in those people wanting to purchase wholesaling arrangements from the incumbent. However, our view is

that if people are able to get access to the local loop, investment

will increase quite significantly. Not only that, in our view the

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range of services will increase. As a result, prices should fall, and

as a result the consumer should be better off, and part of the problem for me as a legislator is that is the ultimate goal is to try and

ensure that the consumer gets a better deal, and our view is that

with the arrangements that we are putting in place, ultimately the

consumer will get a better deal.

Ms. ESHOO. Thank you very much.

Can I just add, Mr. Chairman, my congratulations to Mr. Wyler

for your work? I read your testimony. It is a provocative, wonderful

story, and I salute you for what you have done, and Mr.

Hashimoto, thank you for traveling so far to be a teacher to us.

Thank you.

Mr. MARKEY. The gentlelady’s time has expired. By the way, Mr.

Wyler, the story of fiber to the home in Rwanda, they started this

7 months before Verizon did in the United States.

The Chair recognizes the gentleman from Illinois, Mr. Shimkus.

Mr. SHIMKUS. Thank you, Mr. Chairman. I think a couple things

are important. One is that we have evolved through a system of

multiple pipes. If I just look at my own use of high-speed Internet

access at home, we have voice over Internet protocol through the

cable. In the townhouse here I have a couple roommates. When one

of my roommates goes back to the townhouse and he wants to access the World Wide Web, he uses cellular Internet cable because

we have no landline—we are cheap. We have no landline connections to our townhouse because we all use our cell phones, and he

uses the cellular high-speed Internet accessibility. Here, you know,

we are connected through copper wires and stuff so our system has

developed into a multiple-pipe system which I think provides us

some competition and choices of services and ability to move from

one place to another. The other thing is, this is my first question.

It is just to make a point. If you drive 4 hours at 105 kilometers

per hour, how far can you get in the respective areas that you are

representing? In fact, let us start with New Zealand. How far can

you travel? Probably the width of the island except for you have

got some mountains there. So how far could you go?

Mr. SWAIN. Probably from Wellington, the capital city, halfway

up the north island.

Mr. SHIMKUS. OK, halfway up the north island.

Mr. SWAIN. Roughly. Very roughly.

Mr. SHIMKUS. That is close enough.

Let us just go down. Mr. Richards, how far could you get in theMr. RICHARDS. Same question?

Mr. SHIMKUS. Yes.

Mr. RICHARDS. You could comfortably go from London to Wales.

Mr. SHIMKUS. London to Wales. Thank you.

Mr. Hashimoto?

Mr. HASHIMOTO. Well, the size of Japan is almost equivalent to

California, so it is probably from Tokyo to Osaka, like Los Angeles

to San Francisco.

Mr. SHIMKUS. Thank you.

Let us see. Can you cover the whole country of Rwanda?

Mr. WYLER. I don’t have a chance of doing 105 kilometers an

hour in Rwanda but hypothetically——

Mr. SHIMKUS. How about 55 miles per hour?

376

Mr. WYLER. About 30 on the roads. But we are about the size of

Maryland.

Mr. SHIMKUS. And my point is, it takes from the northern part

of my district to the southern part of my district, going 65 miles

per hour, it takes me 4 hours to travel. Now, I am one of 435 Members of Congress. Many districts are very similar to mine. You have

to take some acceptance and some acknowledgement of size and

scope about this great country we have, and we do offer incredible

services. We do have issues that we have to address though and

that is what the hearing is, to make us better, and we just don’t

want to go backwards. We want to keep moving forward.

Mr. Ford, you used to work for MCI when the company relied on

unbundling for its business model. What is your experience with

that?

Mr. FORD. I also worked for Ztel Communications, which was my

last position before the Phoenix Center, which relied exclusively on

unbundled elements. I think there is a lot to learn from that experience. The point for me of unbundling, and this is documented in

my writings, was to create a non-incumbent demand for facilities

to move customers away from the incumbent into the hands of nonincumbent firms and then allow those customer bases to be aggregated such that they demand an alternative network and that demand for an alternative network would lead to platform entry, and

we have achieved that to a large extent. I mean, we are still trying

to get a lot of the regulation out of the way to allow our platforms

to compete and invest. Franchise reform is one case. So, to some

extent my view of what unbundling was for has been accomplished.

My greatest fear about doing unbundling again is, would anybody

show up to the dance. After being in that business for a long time,

you always knew that it took one decision to put everybody out of

business, and I think everybody really realizes that at this point

and I just don’t know if people would have the courage to step up

and play that game again. I don’t think I would.

Mr. SHIMKUS. Thank you. That is a great observation. My time

up so I will just end with two statements.

Mr. Richards, our fiber to the home only came about after we

ruled that unbundling would not apply and so that is when we

started seeing our fiber to the home. And on a side note, I don’t

think Speaker Hastert has helped his rumors about other jobs, I

don’t think he has helped that based upon his use of Japanese in

this hearing, and I yield back my time.

Mr. MARKEY. I thank the gentleman. The gentleman’s time has

expired.

The gentleman from Pennsylvania, Mr. Doyle.

Mr. DOYLE. Thank you, Mr. Chairman.

Mr. Wyler, I want to say also that it is good that we have people

like you in the country. I didn’t have prepared questions for you,

but I am going to ask you, you have listened to all of this debate

and I have seen what you have done over—I read your story in

Rwanda and this discussion we are having about unbundling. I

would say, Mr. Ford, yes, I don’t know how many would show up

either after what we did to them. We set out in 1996 to encourage

all these little companies to compete and then we pulled the rug

377

from under them. I would be skeptical if we redid it too, but I don’t

think that means that it shouldn’t have stayed.

What do you think about this idea of unbundling and separation

to encourage lower prices? I am just curious of your take after you

have heard all these panelists speak.

Mr. WYLER. I think Mr. Ford did hit the nail on the head, just

from my friends who have been through the process and a customer of unbundled service that went away suddenly. A lot of the

discussion has been on fiber technology and unbundling. I am not

sure how unbundling and fiber are related because when you are

using a passive optical network, a PON system like he talked

about, there is no real incentive to unbundle it because it is usually

one thing. Or there might be technically. You might be able to get

there. So if you are looking at fiber, unbundling is nothing, but you

want to back up a little bit because everybody has a central office.

That central office, is there a way to—if you want to put fiber in

the home, you need to get access to that fiber in the first place,

which means you need to have access at the central office at 100

megabits or a gigabit or something in order to bring in customers.

So I haven’t heard any discussion of how if I want to stay a fiber

in the home project in my town, I would get access to the backbone

in my town first of all.

Mr. DOYLE. Interesting.

Mr. Ford, I know you don’t put much stock in the rankings but

tell me, do you think if the United States had followed policies like

those in Japan and in the U.K. and France, do you think we would

have more or fewer Americans with broadband connections at

home?

Mr. FORD. I really don’t know if it is possible to tell. I mean, for

a network that was built at zero percent interest rates, I mean, if

we could accomplish that, what would our ranking be then? I

mean, if we gave money away essentially to carriers, what would

get built? I don’t know. The U.K. situation is very different.

Unbundling in a regime that is primarily a single firm and you expect it to be that way for a long time is one thing to adopt sort of

a perpetual unbundling model where we really don’t expect things

are going to change. In this country I think our view was that the

unbundling was a step to platform-based competition, not a perpetual situation. So I don’t know how much that helps. I mean, there

is one thing I have learned about unbundling is the devil is in the

details, and we always say things like that, but it really was. What

was the impact, and we have unbundling in this country. Yes, but

you couldn’t get unbundled switching if you needed more than four

lines of it. And we had all these little rules, you couldn’t mix local

service and long-distance service on the same circuit, and all these

things that made unbundling not unbundling generally but a very

specific regime, and to understand the impact of regimes, you have

to know the very specific regime that you are talking about but I

think you ask yourself the simple question: Is Verizon going to stop

if you make them unbundle it? I am not going to tell you what the

answer is, and I don’t know what the answer is but I think it is

a good question to ask yourself.

Mr. DOYLE. I think we all know what the answer is.

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Mr. Swain, when you were developing—by the way, I have been

to your country. It is a beautiful country and I would like to get

back. When you were developing your new strategy, your new

broadband strategy, what countries did you try to emulate and

why?

Mr. SWAIN. Well, we obviously looked around the world. Usually

our first port of call is Australia, which had been a program of

unbundling, and also bitstream unbundling, as we had done, but

I think that we were most tempted by the U.K. model, primarily

because it seemed to us there were two key elements to it, and I

think the two key elements go hand in hand. One is an unbundling

regime and the other is the ability for competitors to get equivalent

access to the network at the same terms and conditions and we see

those two things being really two sides of the same coin, because

you can have an unbundled regime but still the incumbent making

it extremely difficult to get a satisfactory arrangement for them, so

the answer to the question, sir, is essentially that we did look

around the world but we were heavily influenced by the work that

was being done in the U.K. because it had these two elements together.

Mr. DOYLE. Thank you. I see my time is up, Mr. Chairman.

Mr. MARKEY. The gentleman’s time is expired.

The Chair recognizes the gentleman from Mississippi, Mr. Pickering.

Mr. PICKERING. Thank you, Mr. Chairman, for this hearing. As

most of you all know, in 1996 the United States started a policy

to open incumbent networks and move toward competition to

unbundle to provide for nondiscriminatory access to those elements. We followed that policy for roughly 5 years, and over the

last 5 years we have probably seen a reduction of that direction toward more of a multiple-platform-based and less of a reduced access to network elements. We are I think making progress in multiple-platform competition but this is always, as Mr. Ford said, the

devil is in the details and the question is, what is the right balance

and what are the minimum guarantees that we need to make sure

that we achieve both broadband deployment and competition. Mr.

Ford asked would Verizon continue to deploy if it had unbundling

requirements.

Mr. Richards, British Telecom has unbundling requirements. Are

they still deploying?

Mr. RICHARDS. Well, depending on what you mean by deploying.

I mean, are they still competing in the market, are they still investing in new structure? Absolutely. They are about to put a very,

very substantial amount of money into a new core network, which

they refer to as their next generation network, that will move their

entire backbone in the U.K. onto IP protocol. They are still very aggressive competitors in the U.K. market. They have become more

aggressive competitors in international markets. So there is no evidence I think from the U.K. at least that this suggests that the incumbent somehow backs out of the market. I think there is another

question you were trying to drive at which is, does it affect their

incentive to deploy fiber, for example, and as I said I think once

or twice, I don’t think the U.K. market is at the right point for that

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trary to a firm, whether it be the incumbent or somebody else,

making that investment when the commercial logic makes sense,

which is when we think it should be made.

Mr. PICKERING. So you would look at it as a market evolves or

the incentives evolve for fiber deployment as to whether you could

have any regulatory relief to further incent them. Is that what you

are saying?

Mr. RICHARDS. No. We are looking at our regulatory approach to

fiber deployment at the moment but we would not expect in the

U.K. context, in the U.K. circumstances, which as I said are different than the United States, so I think one has to be careful

about reading across completely but in our context, we would not

anticipate a full regulatory holiday because we think the key is to

make sure that competition is maintained into a next generation

access world, into a fiber-optic world. We think it would be a problem for us if the price we had to pay for investment in fiber was

the elimination of all competition for the next decade or even

longer. So we don’t necessarily see, and I wouldn’t accept, that

competition and investment in further deployment are mutually exclusive. I wouldn’t accept that proposition.

Mr. PICKERING. I think that is a very important point for our policymakers to consider because I think that we sometimes are told

and there is a misunderstanding that it is mutually exclusive, that

either you unbundle and have competition or you don’t unbundle

and you do not get deployment, and I really think that is a false

choice and it is not mutually exclusive, and one drives the other.

I think competition drives the investment, and lack of competition

then shifts to a tipping point where instead of having an economic

incentive to deploy and compete, you have an economic incentive

to contain cost which is the opposite of deployment, I am hopeful

that as we go forward that we maintain multiple facility-based

platforms but we have some guarantees of minimal access to loops

and a guarantee to cross platforms interconnection policy because

without those core interconnection and minimum access, I think we

could lose the progress we have made in this country as far as competition and then we will lose the incentive to actually get the deployment that we seek.

Would you agree with that, Mr. Ford?

Mr. FORD. Yes. I mean, I think you are absolutely right. Some

of our papers address this issue empirically and theoretically, that

it is not just a one up, you either do this and you don’t get investment or you don’t. There is some competitive pressure and there

was some evidence of investment available, questioned evidence,

but there was some evidence that unbundling led to investment.

But there is an even sort of deeper issue. It is not that there is

unbundling or not and investment or not. The issue comes in the

regulation. OK, if you are going to force somebody to do something

that they otherwise wouldn’t do, you are going to have to regulate

their price as well, and that is where the problem comes. It is the

regulation of the prices that causes the defect. If you say you have

to unbundle and they say OK, well, I will unbundle and set my

own price, then it is not an issue. Firms do that all the time. I sell

things all the time to people. The long-distance business has been

that way for a long time, people selling their network to other peoVerDate 11-SEP-98 10:59 May 06, 2008 Jkt 000000 PO 00000 Frm 00390 Fmt 6601 Sfmt 6601 Q:\DOCS\110-10 SCOM1 PsN: SCOM1
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ple. The incentive to do that and to invest heavily in that network

is because the firm gets to set the price. In that case, it is a competitive price. But in this case, it is regulating a monopoly price

and that might cause sabotage or something like that. That is the

issue.

Mr. MARKEY. The gentleman’s time has expired.

The Chair recognizes the gentleman from Washington State, Mr.

Inslee.

Mr. INSLEE. Thank you. I am looking at our chart of penetration

of broadband in various nations around the world, and I just wanted to ask kind of an open-ended question of what you all see as the

reasons for Denmark, the Netherlands, Iceland, Korea, Switzerland, Norway being in the top third, Poland, Slovakia, Greece, Turkey, Mexico being in the bottom tier. We are I think No. 15 or

somewhere along that line. How do you all look at the reasons for

the variety of success or lack of success of those various countries?

Did you draw any sort of broad conclusions from that? Open-ended

question, anybody can take a shot.

Mr. FORD. My testimony dealt with that primarily. There are

some very interesting things and many of them are contained in

my testimony. What is the income of the country? I mean, to a

large extent in this country we have a demand problem as much

as anything, and you could argue that is the price but you could

also argue there is just sort of an apathy towards the purchase of

broadband service. My mother was called by BellSouth one day,

she has a DSL connection, and they said well, we will basically

double your speed for $2, and she told them no. I said why not. But

there is this lack of understanding of the service and just a lack

of interest. She said well, what I have is fine, OK, so that is part

of the problem.

Japan has very low prices in fiber yet they rank one spot higher

than we do on these charts, so what exactly is that telling you?

There are a number of factors that determine the demand for the

service absent the supply of the service, OK, and my guess is that

most of it is determined by factors such as that. The other issue

is that right now we are 15th. Twelve of the people above us should

be above us in the broadband nirvana where everybody has a connection, so you could explain roughly a good part of the people

ranking above us just because of the relationship of household size

across countries and business establishments per capita across

countries because we are dividing by population and there is more

to population than meets the eye. So there is a lot of reasons. Now,

is that to say that we are not lagging or that we need to do more?

I don’t think so. We just need to focus more on what the issue is,

and the issue is that we need better networks, augmented supply,

which may require subsidization, and we need to have better services and higher capacity. That is the issue, not how many accounts

we have.

Mr. INSLEE. Does anyone else want to take a crack at that?

Mr. RICHARDS. I think there are probably four main factors. One

is the economics of density, so the different geographic environments of different countries. You will notice a number of small

countries at the top of the list. That is definitely a factor because

it affects the cost structure that underlies what can be provided.

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Second is the pattern of consumer demand. You will also notice

that a number of Scandinavian countries that are always at the top

of the list. You will see that by and large in all areas of ICT adoption. That has to do in some ways with the levels of education and

the pattern of demand in those countries. The third is certainly income. Average income is absolutely a relevant factor, and you will

see some of the poorer countries at the bottom of the list. But the

fourth, and the U.K. is the exemplar for this, is that the policy

framework does make a difference. So there are a range of different

factors but ultimately the policy framework does matter in tables

and assessments of this kind.

Mr. INSLEE. And could you describe generally the subsidization

in various countries, to what extent has it existed, how would people quantify it and where has it worked and not worked?

Mr. FORD. I think that there is some evidence of Korea’s extensive subsidization of its deployment, I think $20 billion or something like that so, I mean, there is a lot of money spent on that,

and you can spend money to deploy in New York City or you can

spend the money to augment in rural areas that may not have access, and that is a very important policy decision. It would be interesting possibly to see what is the extent of government spending

on, say, DSL coverage or something like that but I haven’t seen

that study. It may exist but that is probably something worthy of

looking at from an empirical perspective, I think.

Mr. SWAIN. I will just make one quick comment on our own is

that there are general problems with subsidies because you are not

sure whether you are doing something that the private sector

would do anyway and so there is always that tension. We have only

stepped into the subsidy area for one specific purpose and that was

really to try and help the business case for low-density areas, particularly around the education sector, so we had a specific purpose

to look at increasing and improving deployment, and that was because from the private sector point of view, the business case is

hard to make when you have got very small groups of people. But

if you want to avoid the digital divide, if you want to try and make

sure that every citizen has the ability to take part in the community, then you do need to make an effort. So the subsidy, if you

would like to try and bundle groups of people together to try and

provide competitive tenders and to get a service rollout, results

show some progress in that.

Mr. MARKEY. The gentleman’s time has expired.

The Chair recognizes the gentleman from Oregon, Mr. Walden.

Mr. WALDEN. Thank you, Mr. Chairman, and thank you for holding this hearing.

I want to go back to something. Mr. Ford, your testimony I

thought was really enlightening for me because I have heard these

statistical numbers about where we rank versus other countries,

and I am concerned about that. My district is a very rural one, so

we are always trying to figure out how do you get broadband into

really remote and in some cases even frontier areas, and did I hear

you correctly that if every person in the United States or all the

OECD countries had broadband, we would rank 20th?

Mr. FORD. Twentieth, yes.

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Mr. WALDEN. So if we fully penetrate, we would be 20th. So it

is a measurement issue we are working on here that really can

skew how we perceive our progress?

Mr. FORD. Yes, that is a factor because we are dividing by population, and some people have large families and some people have

none. You need one connection per house, say, which I think is a

reasonable assumption, and some countries you have five people in

a house and sometimes you have two and a half people in a house.

Mr. WALDEN. I remember in my own house, at one point we had

dial-up, wow, we got up to 14.4 or something, and then we went

to cable modem, and I have got a router inside my house and sometimes there are four or five of us doing business online with one

connection now, and that is really the point you are making?

Mr. FORD. Well, no, the point is——

Mr. WALDEN. Is that there is new technology that allows more

people to be on so the measurement——

Mr. FORD. I think at the nirvana, the point is that even in the

best of all worlds, we are not all tied for first. I mean, there is this

perception that this number varies from zero to one and those guys

closest to one are in the best position, and that is not necessarily

true. Like in our country, and I don’t remember exactly what the

number is, but if everybody had it and every business had it, we

would be 0.38 or something like that, OK? Well, does that mean—

and another country might be 0.5, so for the other country, they

should be a little bit higher than us even if half the businesses

have it and half the households have it, they are going to have a

higher number than we do just because they have smaller families

than we do or larger families that we do.

Mr. WALDEN. It helps because we hear this all the time about

where we rank, and that is important as we try to figure out where

to go. We need to know what we are hearing.

Mr. Swain, welcome, by the way. I come from the State of Oregon. The current ambassador to New Zealand is a friend of mine,

Bill McCormick. He is a terrific gentleman who has great restaurants, by the way. That is not a plug but I just know that. And

Butch Swindell before that, also from Oregon. Some have argued

that the introduction of greater regulation in New Zealand has

driven increased broadband deployment. Regulatory intervention

has been quite recent however, it is my understanding with

bitstream access available in 2005, local loop unbundling in 2006,

and the functional separation requirement has been adopted but I

guess has not yet been implemented. Isn’t it more likely the steady

increase in broadband uptake since 2000 has been the result of

many factors including those in effect prior to the regulatory intervention?

Mr. SWAIN. Well, firstly, can I say that yes, I know both the current ambassador and the former ambassador, both great gentlemen, and I have also been to Oregon. It is a beautiful State which

reminds us very much of New Zealand actually, and so my regards

to the people there.

I think the first point really is that yes, there has been an increase in deployment over a period of time and of course that was

in periods of relatively to what we have got now light-handed regulation, but we also look at the tables notwithstanding the discusVerDate 11-SEP-98 10:59 May 06, 2008 Jkt 000000 PO 00000 Frm 00393 Fmt 6601 Sfmt 6601 Q:\DOCS\110-10 SCOM1 PsN: SCOM1
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sion about how you measure and we are in an area where our GDP

growth is pretty good but we are at the bottom half of the OECD.

We look at our distance and we also look at our population density,

and there are certain challenges that we have, geographic challenges because of the shape of the country, and in the end it is kind

of a line call really. If we were to leave the regulatory regime in

place, would we be better off, worse off or stay the same, and of

course this is a very difficult problem that legislators have, which

is why everybody has an opinion on what we should do. But we

have come to the view after quite a considerable period of not just

looking at our own performance but comparing it, that we think

that we can get better penetration rates if we go to the step that

other countries have taken because of the fact of incumbency in

New Zealand and because of the fact that we think that there is

lots of opportunities for new investment and greater services available to the consumer if we take that step. So the answer to your

question is that it is difficult to know but on our own experience,

what we have decided is that we are to move up the rankings,

whatever that means or whatever they are, and for New Zealand

it is most important because for us it is next stop Antarctica. We

are a long way away from anywhere. And so for us, the importance

is that we get ourselves up those rankings, and the way to do that,

we feel, is the kind of policies that we have implemented.

Mr. WALDEN. Thank you. Thanks for coming to testify to all our

panelists. I appreciate your input. It is helpful as we deliberate

these issues as well.

Thank you, Mr. Chairman.

Mr. MARKEY. Thank you.

I was going to ask Mr. Richards if Boston, Massachusetts, reminds you of London the way Oregon reminds Mr. Swain of New

Zealand, but I won’t go there.

Mr. Hashimoto, does your country allow NTT to rip out the copper wires as you deploy fiber-optic cable, or must NTT leave the

copper wire there for competitors to use?

Mr. HASHIMOTO. Well, the government hasn’t yet come up with

specific policy on that. Currently there are about five dominion

fiber access lines for new generation network available. However,

we have 50 dominion copper lines.

Mr. MARKEY. So is NTT removing the copper wires as they deploy fiber optic?

Mr. HASHIMOTO. Yes. As we are deploying the new generation

network, we are considering the possibility of removing the current

fixed line network as well as copper lines.

Mr. MARKEY. Thank you.

I am going to ask Mr. Richards one final question. Then I am

going to ask each one of you in reverse order of the opening statements to make a 1-minute summation to us to tell us what you

would like us to remember and highlight from your testimony.

I am going to ask, Mr. Richards, you have made a decision to ban

all junk food advertising to kids. In the United States, obesity has

become an epidemic amongst U.S. children, and I surmise that

there is a similar problem in the U.K. Could you talk a little bit

about your reasoning on that?

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Mr. RICHARDS. By all means. Obesity is a rising problem in the

U.K., as it is in most developed countries. We did a serious piece

of work over the course of 2 years to identify what the causes of

that were and the role in particular of television advertising. We

concluded that television advertising played a modest but direct effect, so there are all sorts of other factors as well, but we concluded

it did have a modest and direct effect and also an unqualifiable indirect effect, and as a result of that we have introduced some limitations on the advertising of foods which are high in fat, salt and

sugar which people often refer to them as junk food, and that is

now in place. It is not a total ban. It is a restriction, in particular

around children’s airtime and programs which are of particular appeal to children. So it is a fairly limited restriction but we do think

it will reduce the exposure that children have to junk food advertising.

Mr. MARKEY. I thank you, Mr. Richards.

Mr. Hashimoto, just to clarify a little bit, as you do remove the

copper, NTT is required then to unbundle the fiber optic for competitors. Is that correct?

Mr. HASHIMOTO. Currently we are maintaining the fiber optics as

well as copper, and in order not to discourage NTT, the further investing on fiber optics currently that NTT is asking the government not to impose unbundling on the fiber optics. Well, our goal

or plan is to provide 30 million fixed line by fiber optics by year

2010. However, we have some geographical issues in Japan as well,

and there are a lot of challenges with respect to providing fiber optics to rural areas so there are a lot of issues we have to overcome

in order to provide fiber-optic connection to the rural, isolated

areas.

Mr. MARKEY. Thank you. So it seems that you are maintaining

both networks right now and unbundling both networks at the

same time, and that helps us to understand Japan’s policy a little

bit better.

Mr. Ford, we will begin with you. Thank you for your testimony.

Mr. FORD. I guess my point in 1 minute would be that these are

very complicated issues and people that tell you they are not are

lying to you. I think that probably the most important thing for

policymakers is to establish what your goals are: augmented coverage, better networks, lower prices, whatever it may be and then

require people who come in and tell you what they want you to do

to explain explicitly and precisely how would they propose makes

things better rather than just come in and say here is what I want,

can I have it, please, which is a lot of what is going on today.

Mr. MARKEY. Thank you.

Mr. Wyler.

Mr. WYLER. Just establishing for businesses, establishing goals

and metrics for businesses to follow them will allow them to come

up and use their ideas to create what you are looking for, and of

course having an understanding—you want to know what the visibility is of the legislation, how long it will last in order to invest,

so I would put that together with metrics and goals.

Mr. MARKEY. Thank you.

Mr. Hashimoto, you have 1 minute to summarize.

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Mr. HASHIMOTO. Well, this unbundling, the requirement imposed

on us is a very, very severe requirement in view of the harsh competition. Of course, it is good for promotion of competition, but it

is a tough requirement on us in view of the harsh environment of

competition. However, I think that it is possible to provide the

value added, not relying on unbundling, and I would like to emphasize here the fact that we are focusing on long-term strategy rather

than short-term strategy.

Mr. MARKEY. Thank you.

Mr. Richards.

Mr. RICHARDS. Four simple points, I think. The first is that I absolutely agree that policy in this area is complicated and it needs,

in our view, constant vigilance and attention. Second is that every

country does indeed need to be carefully assessed on its own merits. Every country is different. Third, the lesson I think from the

U.K., if there is a clear one, is that the policy framework does matter and does make a difference. And fourthly, I think we would

hold out for the proposition that competition and investment are

not necessarily mutually exclusive.

Mr. MARKEY. Thank you, Mr. Richards.

Mr. Swain.

Mr. SWAIN. Well, in addition to those points, I think that we all

agree that improved broadband service is fundamental for economic

growth. We have a goal in our policy framework to achieve that in

the interests of the long-term benefit of the consumer. We have had

an interesting journey from the most deregulated environment to

now international orthodoxy. The key issue for us is how to promote competition and investment and how we deal with the issues

of incumbency, and we think that our solution will do that for New

Zealand, and I thank you, Mr. Chairman, for this opportunity to

present here today, perhaps on behalf of all of us. It has been an

honor to be here, and on behalf of the New Zealand tourism industry, if you ever want to come to New Zealand, you would be most

welcome.

Mr. MARKEY. I think we might all take you up on that invitation

so that we can follow your course from the lower rankings to the

higher rankings which, from my perspective, is inevitable if you

adopt the U.K.’s policies.

We thank each of you for testifying today. The challenge for the

United States is really whether or not in this whole broadband

area we are going to adopt a Lake Wobegon standard, which is that

every country can be above average, depending upon how you look

at the rankings, and actually that is an argument I used to make

to my mother when I brought home my report card that as I got

older I decided there were certain subjects I just wasn’t that interested in, and so I would just try to persuade my mother that I was

doing very well in the areas that I wanted to do well in, and that

was not a standard my mother accepted easily, and I think that is

going to be the test for America going forward because even if we

actually just looked at the areas where the United States or the

Bush administration says it wants to do well and that is all we

looked at, we still wouldn’t be number one, much less all the areas

that we are not doing well in in terms of broadband deployment.

So the witnesses today have really issued a challenge to us to reVerDate 11-SEP-98 10:59 May 06, 2008 Jkt 000000 PO 00000 Frm 00396 Fmt 6601 Sfmt 6601 Q:\DOCS\110-10 SCOM1 PsN: SCOM1
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spond to this international ranking, and I promise you, it is going

to be very helpful in the months and years ahead.

With that, this hearing is adjourned.

[Whereupon, at 12:40 p.m., the subcommittee was adjourned.]

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Testimony of Dr. George Ford

Page 31 of 31

render better results and eliminate the waste of resources devoted to quibbling over bad ideas.

Mr. Chairman, thank you again for the invitation to testify. I

would welcome any questions the subcommittee might have.

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(455)

THE DIGITAL FUTURE OF THE UNITED

STATES

THE FUTURE OF VIDEO

THURSDAY, MAY 10, 2007

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON TELECOMMUNICATIONS

AND THE INTERNET,

COMMITTEE ON ENERGY AND COMMERCE,

Washington, DC.

The subcommittee met, pursuant to call, at 9:30 a.m., in room

2123 of the Rayburn Building, Hon. Edward J. Markey (chairman

of the subcommittee) presiding.

Members present: Representatives Doyle, Gonzalez, Inslee, Boucher, Eshoo, Stupak, Green, Capps, Solis, Dingell, Upton, Stearns,

Deal, Shimkus, Radanovich, Bono, Walden, Terry, and Ferguson.

Staff present: Johanna Shelton, Colin Crowell, Maureen Flood,

Tim Powderly, Mark Seifert, David Vogel, Kyle Chapman, Neil

Fried, and Courtney Reinhard.

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

OF MASSACHUSETTS

Mr. MARKEY. Thank you, ladies and gentlemen. Good morning.

Today we have an all-star lineup to help this subcommittee learn

about the next part in our series of oversight hearings on the Digital Future of the United States. Today’s focus is on the future of

video.

We have already had a few hearings that address the topic of the

transition of free over the air broadcast television to digital technology. Twenty years ago I chaired the first hearing on high definition television in this subcommittee in this room, so this transition

has been a long time in coming. But now we can see a light at the

end of the tunnel or rather at the end of the tuner. And our hope

is that if we plan comprehensively and the relevant agencies work

diligently the broadcasting industry can switch over in February of

2009 to full digital service.

Today the subcommittee will explore the future of video more

broadly. This inquiry will run the gamut from high resolution, high

definition digital on big screens to digital wireless video services on

mobile gadgets and finally to the video services and technologies

enhanced by a high speed open architecture Internet. It is a future

characterized by services that may compete with the movies or traditional television as well as by services and technologies that will

456

compliment the video experience consumers have been using for

years.

New technology such as TiVo and the Slingbox are fascinating

technologies that help to make consumers the masters of their

video universe, no longer tethered to the networks’ time schedules

or the physical space of the living room. Moreover, broadband wireless technologies will give consumers even greater chances to have

video on the go as they roam.

These technologies often supplement efforts by existing TV networks and content creators themselves to find other apertures and

distribution mechanisms for their video content.

In our inquiry today we will examine how the explosion of video

services and technologies affect consumers, as well as existing businesses, practices, rules and regulations. All of this is happening at

a breathtaking pace.

For instance, 2 years ago in January 2005, YouTube didn’t even

exist. Today there are 100,000,000 downloads per day on the site.

The openness of the broadband Internet helps to ensure that innovation can continue to drive opportunity, entrepreneurial investment and economic growth in this area.

The fact that today any consumer can be a programmer and get

their video content up on the Internet is changing the way consumers view the Web, their creative opportunities and even how politicians run for President of the United States.

Last December Time magazine named you as the Person of the

Year in a salute to consumer-generated media. In that spirit, today

we are going to film a brief clip that we will put up on YouTube

because we have all become programmers. And I thought that perhaps we could have the first ever YouTube video of a committee

hearing from the chairman’s perspective. Could the witnesses

waive for a second just so that everyone will know that we are—

and how about the audience? The audience is looking great today.

So what we will do is we will file this. We will put it up on

YouTube later on, and it will show that congressional expert is an

oxymoron, like jumbo shrimp or Salt Lake City nightlife. There

really is no such thing. But anyone can put their video up on

YouTube, and we are going to prove that later on today or in a few

more days. So we thank all of you. We look forward to your testimony.

I am going to the gentleman from Illinois, Mr. Shimkus, for his

opening statement.

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

Mr. SHIMKUS. Thank you, Mr. Chairman. I see you have your

makeup on, but I did not quite get there, that is the disadvantage

of being a minority. You do not get advice about all these great

plans coming up here. But we do thank you for holding this hearing. And the Ranking Member is going to be a few minutes late.

Hopefully he will get here to share his opening comments. But this

is a very exciting and important hearing as we continue to followup on these series of hearings.

The video industry truly has flourished over the last several

years. And one of the big reasons for this has been minimal regulaVerDate 11-SEP-98 10:59 May 06, 2008 Jkt 000000 PO 00000 Frm 00467 Fmt 6601 Sfmt 6601 Q:\DOCS\110-10 SCOM1 PsN: SCOM1
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tion. Just think back about 10 years or so when TiVo came out.

That is coincidently when I got elected into Congress. Just think

about those periods of time and all the changes. TiVo has allowed

viewers to watch what they want when they want. Back then TiVo

was a novelty. Now it and other DVRs are on many cable boxes

and satellite receivers.

TVs certainly have changed as well. Remember back to TVs that

weighed a ton and were the size of a small refrigerator. In fact, if

I were to ask the audience to raise their hand and see how many

still have those big TVs that are the size of small refrigerators they

would probably raise their hand. But that debate is really for another hearing and how we deal with those leftover analog TVs.

Now we have the flat panels that hang on the wall, various sizes

and various cost prices. And we can find these TVs in all sizes and

price ranges. It has really been remarkable to watch and very, very

exciting.

As the video industry continues to develop and we move into an

increasingly digital world we need to continue investment into the

network and bring quality and competition to consumers. We must

revisit old rules and make sure they apply to a new playing field.

What we do not need is heavy regulation that stifles growth, access

and competition.

The future of video is very bright and I look forward to working

with the industry and my colleagues to make sure that it continues

to make great strides. Thanks again, Mr. Chairman, for holding

this hearing and thanks to the witnesses for sharing their testimony. I yield back my time.

Mr. MARKEY. The gentleman’s time is expired. The gentlelady

from California, Ms. Eshoo.

OPENING STATEMENT OF HON. ANNA G. ESHOO, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF CALIFORNIA

Ms. ESHOO. It is always exciting, Mr. Chairman, to come to the

subcommittee meetings that you chair. Thank you.

I would particularly like to welcome Mr. Hurley and Mr.

Krikorian from YouTube and Slingbox and congratulate, again, the

Chairman on continuing to attract the best and the brightest from

my district to these excellent hearings.

We are witnessing an upheaval in the evolution of video programming, and this hearing, I think, is yet another exciting opportunity to explore many of the implications of this creative disruption of the video marketplace.

Until recently, video has been transmitted to the public in a push

fashion, delivered to consumers at certain times and limited instances and in restricted formats. The broadcast media, motion picture producers determine the content they would develop. They

would present it when they chose. And viewers could decide to

watch it or not. Digital technology and the Internet have changed

all of that. Now Internet users pull the information they want to

use, they want to see, whenever they choose in whatever format

they decide to watch it in. When a TV show is broadcast at 8

o’clock tonight I could watch it live. I can watch it next week on

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my TiVo. I can download it onto my iPod, and I can watch it when

I fly home tomorrow.

Disintermediation of the delivery of video is also transforming

the diversity and the types of content available. User-generated

content is exploding on YouTube and other Web sites. And we no

longer have to be attached to a global media conglomerate to broadcast interesting video to the masses.

I am concerned that the almost limitless diversity of voices on

the Internet is threatened and that the power to control access to

information and content is becoming increasingly concentrated in a

handful of large media and telecommunications companies. It is

this issue, the development of gatekeepers to content and information on the Internet that I think is at the heart of an issue that

has been intensely debated in this subcommittee and the Congress,

net neutrality.

I think the future of video will depend in large part on how we

resolve this issue, and I think Congress has to ensure that the

voices of the many can continue to speak to the many. Consumers

have to be able to access the content of their choice, and they must

also be able to access that content in the manner in which they

choose. Internet access providers and video providers should not be

able to dictate to consumers how they will view content and programming and they should not be able to force them to buy equipment from them to view it if other equipment is available.

I have worked hard during this committee’s consideration of the

1996 Telecom Act, that seems like almost a century ago today, to

secure the inclusion of a provision in the Act, section 629, to enable

cable customers to buy set-top cable boxes from someone other than

their local cable companies. While there have been repeated delays

in the implementation of this law, cable operators are required to

comply with the standard set forth by that section by supplying

interoperable cable cards by July 1 of this year.

I am concerned that despite the implementation of this mandate

many cable operators will either hobble or render competitive settop boxes unusable by deploying new channel switching technology

that will not work with other boxes. This is but one example of how

content providers can limit the use of technology by creating artificial barriers to access that impede competition and innovation. So

I look forward to the testimony. I welcome all the witnesses and

also the response to our questions. Thank you again, Mr. Chairman, for these terrific hearings.

Mr. MARKEY. Thank you. The gentlelady’s time has expired. The

gentleman from Oregon, Mr. Walden.

Mr. WALDEN. Mr. Chairman, thank you for holding the hearing.

I am going to waive my opening in lieu of additional time for questions.

Mr. MARKEY. Thank you. The gentleman from New Jersey, Mr.

Ferguson.

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OPENING STATEMENT OF HON. MIKE FERGUSON, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF NEW JERSEY

Mr. FERGUSON. Thank you. Mr. Chairman, thanks for holding

this hearing and for putting together a really distinguished panel.

Thank you all to all of our witnesses for being here today.

This subcommittee can serve an important and constructive role

in examining the area of digital video content, ensuring that a

playing field exists that fosters competition in the marketplace and

encourages creativity and innovation. These are exciting times for

consumers, from IP video to digital cable, from webcasting to wireless. There are more video options in the digital marketplace than

ever before on multiple platforms.

But the American consumer has a wealth of video content to

enjoy, and it is in this committee’s interest to ensure that options

for the consumer continue to grow. How do we achieve the most options? Avoiding burdensome regulatory policy is naturally one

route to take. However, of equal importance is encouraging creativity and innovation by ensuring that intellectual property rights are

not only protected by law but respected by those who deliver content to our constituents.

The consumer enjoyment and ultimate success of digital video

content was not born out of unauthorized uploading nor was it

achieved by circumventing copy protection technology under the

banner of fair use. Thankfully, the majority of U.S. companies have

done the right thing and ensured that the video content that they

carry is indeed legal. I am sure the video you are creating today,

Mr. Chairman, will be a completely legal upload. A great example

is Verizon Wireless’s VCAST technology, a company I am pleased

to say is headquartered in my district in New Jersey. But unfortunately not everybody in our country has followed suit.

With all of the exciting options for consumers that the consumers

have to access video on the Web, it is all too easy to overlook the

fact that much of this content is being transmitted illegally. The

plain fact is this: If we want to continue to see a flow of new and

exciting technology to our constituents, if we want to ensure that

the most options are available, if we want to encourage creativity

and innovation, if we want to have truly a pro-consumer digital

marketplace, then creative content must be respected.

I thank you again, Mr. Chairman. I thank you for putting together this very distinguished panel of witnesses. I look forward to

their testimony. I look forward to the opportunity for questions.

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

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, and good morning. I

also want to thank you for holding the hearing. And I wish to also

welcome the distinguished panel of witnesses who will appear before us today.

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This is the fifth in a series of important oversight hearings that

are going to examine the digital future of the United States. Each

of these hearings is focused on how digital technologies are changing the communications marketplace.

Like many of my colleagues, I have embraced the new digital

technologies. My iPod holds the kind of music not normally heard

enough on the airways: Classical music. And I hope someday I can

find a way to watch the History Channel more than I do now. I

suspect a number of the witnesses here could help me with that.

Today’s hearing focuses on digital video. I have paid particular

attention to the impact of digital video on local media outlets. This

committee has worked in the past to see to it that local media outlets, including television broadcasters, adequately serve the local

communities. It is clear that the advent of digital video is both an

opportunity and a challenge for local broadcasters. It is an opportunity to better serve local communities with increased coverage

and more delivery options. It also presents challenges to a business

model which is centered on advertising.

The growth of Internet video and the upcoming digital TV transition will make more content available to consumers through many

avenues: over the air, cable, satellite, Internet and wireless

handsets. I am interested in how this growth could affect consumer

access to programming no matter how they receive it.

And not only must we examine the consumer access to programming, but also what the growth of digital video means to those who

create it. Broadband is just starting to flex its muscles in the marketplace. A successful broadband policy will focus on how we are

to foster increased investment by both network operators and those

who provide content over these networks.

I have been witness to more than a few fundamental changes in

the telecommunications technology. I have had the opportunity to

see video move from black and white to color to HD to fiber optic

cables and to cell phones. The core principles of localism, diversity

and competition in the local market have guided our decisions in

the past. And I would note they must continue to do so now.

No matter the method or matter of delivery, these people and

these issues and the way that we provide what we need in the way

of service through the media is always going to be an important responsibility that we have to American citizens.

Again, Mr. Chairman, I thank you for your courtesy. I commend

you for the hearing, and I look forward to the testimony of our witnesses.

Mr. MARKEY. The gentleman’s time has expired. The gentleman

from California, Mr. Radanovich.

Mr. RADANOVICH. I will waive.

Mr. MARKEY. The gentleman will waive. The gentleman from

Texas, Mr. Green.

OPENING STATEMENT OF HON. GENE GREEN, A

REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS

Mr. GREEN. Thank you, Mr. Chairman, for recognizing me and

for holding the hearing on the future of video. And I would like to

welcome our witnesses like our other members.

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Just 15 years ago consumers had to set up their VCRs to record

a program if they wanted to watch it later. Today they do not even

need television access because of products like digital video recorders, Slingboxes and technology like Cable on Demand, giving consumers more options to view the programming they want, when

and how they want to view it. Programs like iTunes allow users to

download unlimited previously broadcast programs for small fees.

When you look at the future of video, one issue I think is uncertain and I plan to ask our witnesses about is the viability of delivering full screen broadcast quality video over the Internet. It is still

unclear how feasible or desirable this would be. If demand increases dramatically down the road it could strain the network capacity, especially in that last mile.

Applications like Joost are coming online and offer full screen

broadcast quality programming. Many other sites, like Amazon and

Netflix are offering downloadable movies to buy or rent directly

over the Internet and sent to a computer hard drive or a TiVo player. Unfortunately, many Internet users are also sharing the

downloaded video content and other media files illegally over peerto-peer networks.

Not only are they illegally downloading the content but with the

price of hard drives and storage dropping dramatically, they can

store and share large quantities of it that clog the network and

could degrade service for the legitimate Internet users.

While there are legitimate uses for peer-to-peer, it consumes

large amounts of bandwidth in an area where it is limited, that

last mile of the network.

These are issues the industry and the Congress must work

through to ensure that illegal uses of the Internet do not affect the

network as a whole and users that pay to use the Internet for legitimate applications.

Again, Mr. Chairman, thank you for holding these hearings.

Mr. MARKEY. The gentleman’s time has expired. The gentleman

from Texas, Mr. Gonzalez.

Mr. GONZALEZ. I waive.

Mr. MARKEY. The gentlelady from California, Ms. Capps.

Ms. CAPPS. Thank you for having the hearing. I will waive my

opening statement.

Mr. MARKEY. So we will turn to our panel. Mr. Terry?

Mr. TERRY. I will waive.

Mr. MARKEY. Who will waive. Thank you. Any other statements

for the record will be accepted at this time.

[The prepared statements follow:]

PREPARED STATEMENT OF HON. LOIS CAPPS, A REPRESENTATIVE IN CONGRESS FROM

THE STATE OF CALIFORNIA

Thank you Chairman Markey for holding what I’m sure will be another informative hearing on the digital future of our country.

This is an exciting time to be a consumer of video.

TV remains vibrant, and new technologies—like those represented by TiVo and

Slingbox at our hearing today—allow consumers to watch video when they want and

increasingly where they want.

And video on the Internet has arrived, as all of us saw in the last election. Today

you can find videos for any taste or interest on the Internet.

The new technologies, however, raise many questions for us as policymakers.

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We must balance the rights of copyright holders with the principle of fair use, especially on the Internet.

We must examine the erosion—perceived or real—of network television’s advertising base and the subsequent rise of product placement within programs.

We should explore if the regulations on broadcast television that have been in

place for many years are still prudent in today’s media environment.

Finally, we must also consider what policies will encourage innovation and consumer choice in video services.

Finally, we must also consider what policies will encourage innovation and consumer choice in video services.

For every consumer of video to benefit from the range of offerings, we need to increase broadband access.

I trust we will explore these questions today.

STATEMENT OF HON. J. DENNIS HASTERT, A REPRESENTATIVE IN CONGRESS FROM THE

STATE OF ILLINOIS

Thank you, Mr. Chairman.

I would like to welcome the panel here today, and I look forward to hearing about

the future of video.

Competition in the video marketplace has dramatically changed since 1984 when

I first got involved in telecommunications issues. Video is now available through

competing platforms such as cable, satellite, wireline and wireless. In addition,

video is now present on the Internet on video sharing Web sites like ABC and

JOOST. Innovative products, like the ones that will be showcased today, are key

players in the future of video.

This diversity requires a robust infrastructure. Cable, phone and satellite providers are already making large investments in upgrading and deploying broadband.

Broadcasters and programmers, likewise, are incurring large costs to create and

transmit their product digitally.

Congress must continue to promote policies that encourage investments in technology and not set policies that will stifle competition. Consumers benefit from new

innovative products and services. Market forces do work. It is critical that we do

not enact regulatory burdens that hinder investment and delay the roll out of video

services to consumers.

Thank you and I look forward to hearing from our witnesses today. I yield back

my time.

PREPARED STATEMENT OF HON. JOE BARTON, A REPRESENTATIVE IN CONGRESS FROM

THE STATE OF TEXAS

Thank you, Chairman Markey, for holding this hearing on the future of video.

The video market has never been more competitive. ABC, CBS, and NBC are no

longer the only networks. From 1992 to 2005, cable operator share of the multichannel video market has dropped from 96 percent to 69 percent while direct broadcast satellite share has grown from zero to 28 percent. Add video over the Internet,

over phone lines, and over cell phones and you get even more programming outlets.

As the video industry moves to a digital environment, what we need is investment. Downloading a single, half-hour television show uses more bandwidth than

receiving 200 e-mail messages a day for a year. A high-definition movie requires

more bandwidth than 35,000 Web pages or 2,300 songs. Without significant additional investment, the public Internet will not be able to provide streaming, fulllength video programming—let alone high-definition content—to a mass audience in

a way that will be acceptable to consumers. Even apart from the Internet, offering

digital programming over existing video platforms is requiring broadcasters, cable

operators, and satellite providers to incur large costs for equipment, capacity, and

content.

Last month’s international broadband hearing reminded us once again, however,

that regulation stifles investment, especially in markets with multiple, evolving

platforms. If new and old platforms are going to grow into viable outlets for digital

video, we must resist the temptation to create new regulations.

We must also question our existing regulations. They were built around old business models, and to a certain extent protect those business models. They may have

been created in the name of promoting diversity and competition, but they often end

up just advantaging one company over another and preventing consumers from getting what they really want.

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The must-carry rules, for example, simply set aside shelf space for broadcast programming as compared to non-broadcast programming, regardless of whether anyone really wants to watch it. The program access rules make it easier for cable and

satellite providers to all carry the same existing content produced by others, rather

than create their own diverse and innovative programming to compete. Should existing regulations continue to apply to video services in a competitive, digital age?

Should YouTube and video on cell phones be regulated like cable and satellite service when they offer multiple channels of broadcast-quality video? How will geography-based rules that were designed around the physical reach of broadcast signals

work when content can be sent anywhere using Internet-based services or devices?

What happens to our broadcast model when networks and affiliates are putting programming on Web pages?

In an increasingly competitive market, it is not the role of government to level

the playing field with regulations. We don’t want a level playing field; we want a

fair playing field. That means removing regulations that are hindering competition;

not adding regulations that give particular participants a leg up in the guise of promoting competition and diversity. Market forces will promote competition and diversity, and it will do so on consumers’ terms, not regulators’.

PREPARED STATEMENT OF HON. NATHAN DEAL, A REPRESENTATIVE IN CONGRESS

FROM THE STATE OF GEORGIA

I thank our witnesses for joining us today. The future of video certainly is an interesting topic to explore. I find it interesting to learn more about new technologies

which are revolutionizing the way in which consumers receive the video content

they most desire. I am pleased anytime I learn of instances in which the consumers

are being provided more choice and opportunities. After all, fostering a free video

market where distributors have the ability to provide consumers with the content

they demand is the goal we should seek to achieve.

As these witnesses will attest, rapidly evolving services and technologies are creating a whole new forum by which viewers can access video content. There now exists a whole host of tools by which a viewer can, at the time and place of their

choosing, watch his or her favorite television show. These realities are forcing

change and adaptation within the video industry.

The question for members of this committee is how Government regulations are

affecting the video marketplace. As one who has studied these issues, I have come

to believe that much of the current regulatory regime is designed to prop up old,

outdated, business models which do not necessarily reflect consumer demand.

In contrast to such old models, we have new technologies such as the Slingbox

which allow viewers to watch their local news when they are away from home. The

success of the Slingbox indicates to me that consumers enjoy and demand being able

to watch their local broadcast stations even when they are not within the boundaries of the local DMA. I have heard rumors that Members on this committee make

use of the Slingbox. I am even considering it for myself. Yet, oddly enough it is exactly this service, the ability to provide consumers with out of market broadcast stations, which we specifically deny to other distributors of video content. Because of

two components of the current retransmission consent regulatory regime—the network non-duplication rule and the syndicated exclusivity rule—neither satellite nor

cable companies can negotiate to provide out of market broadcast signals to their

subscribers. It seems that if this committee were to be consistent it would find the

Slingbox in violation of the spirit, if not the letter, of these rules. Yet, I don’t think

any of us here want to do that. We want to encourage these new technologies which

are pro-consumer and drive new innovation. Why then, do we continue to impose

anti-market and anti-consumer rules on other video distributors? It is my hope this

hearing will serve as a catalyst for change in the current regulatory regime toward

rules which are more market and consumer friendly so that it is not simply these

new and unique technologies which allow consumers to enjoy the services they demand.

PREPARED STATEMENT OF HON. BARBARA CUBIN, A REPRESENTATIVE IN CONGRESS

FROM THE STATE OF WYOMING

Thank you Mr. Chairman. I must admit that I am in awe of the technologies

available today in the video marketplace. Not speaking for myself, of course—I’m

much too young—but many up here on the dais well remember when it was a big

deal for a family to own one television. Before we knew it, two televisions and a

home personal computer was the height of luxury. Now we’re talking about teleVerDate 11-SEP-98 10:59 May 06, 2008 Jkt 000000 PO 00000 Frm 00474 Fmt 6601 Sfmt 6601 Q:\DOCS\110-10 SCOM1 PsN: SCOM1
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vision broadcasts from satellites, in high definition, that can be saved for later viewing and ‘‘slung’’ to my laptop. These are truly exciting times for consumers of video

content.

But while these new technologies continue to be released at breathtaking speeds,

the Federal Government moves at its usual turtle’s pace. Our laws and regulations

that govern the video market were designed for a bygone era, even though that bygone era was only a decade ago in some cases. In an age of mobile, digital video,

it is high time we look again at these laws and regulations to determine if they are

best for consumers.

One of these arcane laws is the current system by which we define our local markets for video broadcasts. In a previous hearing I discussed the absurdity of Direct

Market Areas in Wyoming, where the ‘‘local’’ markets in some communities originate from broadcasts almost 400 miles away. That would be like Washington DC’s

local market originating in Boston. While I’m sure the chairman would be just fine

with that idea, I think we can agree it would be absurd in practice.

That is why Representative Mike Ross from Arkansas and I will be introducing

a bill to change the definition of what a local market is, in effect, to allow cable

and satellite companies the option to offer customers broadcasts not from 400 miles

away, but from an adjacent market that offers true local programming. The bill is

a reasonable approach that still protects local broadcasters from national intrusion,

but makes a heck of a lot more sense in this digital age. Just like most folks have

the choice of what service and device they use to enjoy video broadcasts, they also

ought to have the choice of viewing content that is truly local.

PREPARED STATEMENT OF HON. MARY BONO, A REPRESENTATIVE IN CONGRESS FROM

THE STATE OF CALIFORNIA

Good Morning. I would like thank to Chairman Markey and Ranking Member

Upton for holding this very important hearing. Today we have an extremely diverse

panel and I would like to welcome each of you to our committee. As a result of this

panel’s diversity, our hearing has the potential to go in a variety of directions. This

will certainly lead to a lively discussion.

When I look at today’s panel one area of particular interests and concern comes

to mind. The issue surrounds the treatment of intellectual property in the digital

age—specifically when that property is online.

Most people who know me realize that I am a moderate when it comes to a lot

of issues. However, when it comes to the protection of intellectual property rights

I have very strong and uncompromising beliefs. The copyright industries are a significant part of our economy. For instance, according to the International Intellectual Property Alliance the United States ‘‘total’’ copyright industries accounted for

an estimated $1.38 trillion or 11.12 percent of GDP in 2005. Protecting this industry

is directly connected to the overall health of our economy.

This is why I am so concerned with the behavior Google, and particularly

YouTube, when it comes to its approach and apparent arrogant disregard for copyright protections. The idea behind YouTube is very innovative. However, its business practices leave room for improvement. Let’s examine YouTube’s business and

economic models in light of the Digital Millennium Copyright Act. First, there is little doubt that YouTube is a for profit organization. If it wasn’t, I seriously doubt

Google would have invested $1.6 billion into acquiring YouTube. In short, YouTube

makes a lot of money by attracting people to its Web site and selling ads. The ad

revenue increases when traffic increases. Thus, the more entertaining the content,

the more visitors to the site. It’s not rocket science.

Second, with respect to that content, ‘‘Does YouTube have knowledge of the material on its site?’’ The facts point to yes. If YouTube’s managers know when hate content is posted or when pornography is posted on its site, then it is easy for me to

believe that they know when copyrighted material such as NBC’s ‘‘The Office’’ or

the latest music video from MTV is posted.

Third, ‘‘Does YouTube have the power and ability to remove content posted on its

Web site?’’ Again, the answer is yes. When that same hate content or pornography

is posted, it gets pulled down. All of these facts—financial benefit, actual knowledge,

and power and ability—in my opinion lead to legal liability for YouTube in its failing to provide adequate copyright protections on its Web site. Now, YouTube may

cry foul and claim that it is the responsibility of the content owner to patrol its site

and request that the content be removed. This seems backwards and overly burdensome on the individual copyright holders. If large media companies can’t find all of

their content on YouTube then how does an independent artist stand a chance?

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As freelance journalist Robert Tur put it: It’s past time for the Tony Soprano online business model—Where:

• You don’t pay for anything;

• You get your content for nothing; and,

• You sell to the highest advertiser

To come to an end; and for companies who don’t comply to suffer the legal consequences.

Thank you, and I yield back my time.

PREPARED STATEMENT OF HON. MARSHA BLACKBURN, A REPRESENTATIVE IN

CONGRESS FROM THE STATE OF TENNESSEE

Good morning Mr. Chairman. I thank you and Ranking Member Upton for once

again allowing me to participate in today’s proceedings.

The topic of today’s subcommittee hearing on the future of video is of paramount

importance to Tennessee’s seventh district and is of great interest to me personally.

And while our esteemed witnesses will cover a wide variety of important subject

matters, I want to focus my brief comments on two issues that currently face the

FCC and Congress: video choice and intellectual property protection in the digital

age.

Simply put, constituents in the seventh district do not have access to the breadth

of competitive choices in the video market that they would like.

In most of my counties consumers typically have three choices for video access;

cable, satellite, and over the air rabbit ear signals. While this is a vast improvement

from a bygone era where consumers had no choice at all, it is still a far cry from

what is possible if deregulation and market forces are allowed to carry the day. Yet

complex, arcane franchise agreements at the municipal level are holding that process back.

That is why I introduced H.R. 3146, the Video Choice Act of 2005, in the 109th

Congress along with my good friend Rep. Wynn. The legislation sought to promote

the deployment of competitive video services and eliminate redundant and unnecessary regulation that holds back competition.

While Rep. Wynn and I were unsuccessful in passing the legislation last year, our

effort has yielded a state-by-state effort to deregulate local franchise agreements

that is already bearing fruit. Eight States adopted centralized franchise agreements

between 2005 and 2006, and at least 12 bills are currently circulating through legislatures around the country. These state-based franchise agreements are already promoting a competitive landscape and offering consumers more choice, low prices and

increased service.

It is a shame that our panel does not include a witness prepared to speak to this

important issue. However, it is my hope the subcommittee will refocus on video

franchise in the future and include appropriate witnesses who can speak to the matter before Members take up any potential legislation regarding video service.

I also want to focus on the intellectual property concerns that impact the creative

community in the digital era. While more and more content is available to consumers on television, the Internet, and personal digital recording devices attached to

computers and TVs, Congress and the FCC must ensure that the innovators who

create this content are properly compensated and protected.

I share my colleagues’ desire to prepare for a not-so-distant future where consumers will make full use of the Internet for their entertainment needs. However, the

content our constituents download—be it streamed video from the Country Music

Channel or live music from the Grand Ole Opry—must remain safe, legal, and subject to the same intellectual property laws that we adhere to today.

I look forward to the testimony of our witnesses and yield back the remainder of

my time.

Mr. MARKEY. We will turn to our panel. It is an exceptionally

distinguished panel. And I am honored to have our first witness

with us, Mark Cuban.

Mark Cuban was the founder of Broadcast.com, the co-founder of

HDNet. He is a revolutionary in this media and for all of us who

watch big sports, big productions in HD quality, your support, your

investments in high definition are most welcome here. And by conVerDate 11-SEP-98 10:59 May 06, 2008 Jkt 000000 PO 00000 Frm 00476 Fmt 6601 Sfmt 6601 Q:\DOCS\110-10 SCOM1 PsN: SCOM1
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sumers across the country, it really is a pleasure to have you here,

Mr. Cuban. And whenever you feel comfortable, please begin.

Mr. CUBAN. Thank you.

STATEMENT OF MARK CUBAN, CHAIRMAN AND PRESIDENT,

HDNET, DALLAS, TX

Mr. CUBAN. Chairman Markey, Ranking Member Upton, other

members of the subcommittee, my name is Mark Cuban. I appreciate the introduction, so I will leave out my bio here.

New technology can be incredibly exciting. It seems to always be

improving, getting faster, cheaper, smaller, with seemingly no end

to that trend in site. While that was always the case in the 1980s

and 1990s and early 2000, it is no longer the case that all technology improves with age.

What I am about to tell you will sound like heresy to many, particularly some of us here at the witness table, but the reality is

that the consumer Internet as it is constructed today has matured

and its future, unless there is significant investment, will constrain

economic development in this country.

First, let me say that there is plenty of bandwidth and upside

for the backbone of the Internet. Those fibers that connect the networks of Internet providers have plenty of room to grow. Unfortunately, the quality of the Internet experience to consumers and the

opportunity to provide products and services, particularly using

video, over the Internet to the consumer are only as good as its

weakest link. Right now, with limited exceptions, those links are

pretty weak.

The vast majority of broadband users in this country today are

connected via coaxial cable or copper wiring. Coaxial cable was exciting in the 1970s and early 1980s, but was used as the foundation

of major cable system upgrades in the 1990s. For telco broadband

users, basic phone wiring is still the primary method of access for

DSL subscribers. Although Verizon’s FiOS product and some other

companies have installed fiber to or close to the home, they are still

small in number.

Both of these technologies are limited not only by their intrinsic

bandwidth capacity, but also by the networks they can be attached

to and the distances over which they can deliver bits. The bottom

line is that the future of broadband and consumer connectivity for

more than 95 percent of broadband users is built upon ancient, I

use this word lightly, technology. That is a problem for our country.

This bandwidth limitation for the last mile of consumer Internet

connectivity means we are severely limited in heavy bandwidth

consuming applications that exist today, such as video, and completely precludes and excludes unique applications that could positively impact not only our economy but our quality of life.

The issue of Internet neutrality is the perfect example of how

constrained bandwidth creates conflicts between the interests of

consumers and broadband providers. Internet consumers are concerned that their favorite Web sites will either cost more due to increased hosting costs or will be slow or erratic when accessed because they are not given the priority of those who pay more. This

issue goes away completely if bandwidth constraints go away. In an

all fiber network as an example, bandwidth is gigabits per second

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to the home and throughout the network, making network neutrality a non-issue.

I will give the analogy—it is not in my testimony—our highway

system. If you have a highway system with 100 lanes or 1,000

lanes, there is no need for an HOV. There is plenty of room for everybody. Unfortunately right now in our broadband environment

there is not enough room for everybody.

In our current bandwidth constrained environment, the concept

of Internet video replacing standard definition TV is laughable. The

perspective that it could replace HDTV programming is not even

on the radar. With the current design of the Internet, every single

video stream must be delivered individually to the consumer. It

does not matter if the video stream is transported from a centralized host server, from a locally hosted server, or from a peer or a

P2P network. You may have noticed that CBS made a big deal of

delivering 300,000 simultaneous video streams at 350k of bandwidth, less than TV quality, of the NCAA final four games this

year. They said the demand was far greater, but 300,000 was the

most they could support at a single time. They could have served

many, many more had they been able to, but the Internet does not

have the capacity nor are the costs reasonable to be able to deliver

live TV over the Internet. That is not going to change in our current environment.

Now there are some that will tell you that Internet video will replace TV using peer-to-peer technology but it will not happen. Peerto-peer technology does not reduce the amount of bandwidth required to deliver video content over the Internet. In fact, it moves

much of the requirement for bandwidth from the backbone, which

is built primarily on fiber and has basically no bandwidth limits,

to the individual consumer where the user must not only receive

the entire amount of bits required for the delivery of the video they

have chosen but must retransmit it to peers on the network, resulting in significant inefficiencies and overconsumption of bandwidth.

The reason this method of delivery has become so popular is that

it shifts the cost from the distributor of the video to the consumer

of the video.

This is not to say that consumers will not want and will not consume video and TV programming over the Internet. They will. In

particular, Internet video consumption is very high during the day.

At work, people will watch their favorite shows that they missed

at lunch or hopefully at lunch or on breaks. They can stream it,

they can download it, and they may save it to their iPods or

phones. There is certainly a market for video content on PCs, but

it is a complementary market, not a primary market for content.

People of all ages will watch video on their PCs, their mobile devices and phones or PDAs, whatever devices happen to exist when

they do not have access to their TVs. It is in essence a convenience.

Over the last few years the technology industry and the media

have become fixated on Internet video. The explosive success of

YouTube has convinced many that it foreshadows a future of people sitting in front of their PCs watching user generated videos. It

does not. The area of consumer video consumption that is going

through the most significant change and upheaval is not Internet

video. It is high definition television.

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If you look at the PC on your desk at home or at work it looks

and works pretty much exactly like it did 5, 10 even 20 years ago

except that it is faster. There was a time when people felt that upgrading their PC was a rite of passage that happened every few

years. We all went through that period where we said oh, if I just

buy it now it is just going to get better, cheaper, faster. Why am

I doing this? Well, that period is gone. It is no longer in existence.

There was a time when new PC based software was coming out on

a regular basis impacting our work productivity or creating new

entertainment options for us. Not anymore. It is stagnant. If you

go through the list of top-selling personal computer software, it has

not changed in years, particularly in the office environment.

The same applies to Internet applications. What we call Web 2.0

is not a reflection of new and exciting technology. It is a reflection

of the maturity of the Web from Web 1.0 to 2.0. MySpace,

Facebook, YouTube, Digg, any Web 2.0 site you can think of are

certainly not technological breakthroughs. They are applications

developed with mature programming tools that users feel confident

to use. They are very excitable. They are very innovative. But from

a technological basis, there is nothing new there.

Contrast that with what is happening in the high definition television market. Like the PCs of yesteryear, HDTVs are getting bigger, faster, cheaper, better on almost a monthly basis. It was just

3 years ago that if you were in the market for a new television you

would expect to go to the store and pay $800 or more for a 27-inch

tube TV that could weigh 300 pounds or more. It was just 3 years

ago that if your friend had a big screen TV, which probably was

a 40-inch or more monstrosity that cost $3,000 or more, you went

over to his or her house for the big game or the big show.

Today, those types of TVs cannot even be found on retailers’

shelves. They are gone. They are no longer even being made. They

are part of history. Instead, tens of millions of homes have purchased LCD and plasma TVs that hang on the wall such as we see

here. And you might remember when that was a Jetsons-like fantasy that we could hang a TV across the wall.

Mr. MARKEY. Mr. Cuban, I am feeling a little bit like David

Stern here and I apologize for that. But you are 81⁄2 minutes into

it and it is all fabulous. I have read it and it is great. I think you

are going to have plenty of interest from the Members——

Mr. CUBAN. No problem. I read slower than I practiced.

Mr. MARKEY. So if you can summarize.

Mr. CUBAN. I will summarize very quickly here at the bottom of

the testimony. The reality is that technology improves where there

is the greatest opportunity. And where the greatest opportunity

and change is happening is in acquisition devices for digital video.

You are starting to see 3D movies. You are starting to see 4k cameras. You are starting to see 4k cinema. That is where we are

heading in terms of digital video. If we are trying to support that

as a community, as a country, and broadband buyer to the home

we will see medical and security and all kinds of unique applications. Then that is what we have to look at. The Internet today is

not prepared to do that.

[The prepared statement of Mr. Cuban appears at the conclusion

of the hearing.]

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Mr. MARKEY. Thank you, Mr. Cuban, very much. Our next witness, another revolutionary, Blake Krikorian, who is chairman and

chief executive officer of Sling Media, Incorporated. This new technology is changing the consumer experience. It has taken off like

wildfire. It is an honor to have you here today, Mr. Krikorian.

Whenever you are ready, please begin.

STATEMENT OF BLAKE KRIKORIAN, CHAIRMAN AND CHIEF

EXECUTIVE OFFICER, SLING MEDIA INC., FOSTER CITY, CA

Mr. KRIKORIAN. Thank you very much, Chairman Markey and

the members of the subcommittee. It is a great, great opportunity.

I never thought I would find myself here, but it is an honor. I am

just an everyday consumer and really just want to explain to you

a little bit about what we have been doing and how we even came

about. It is all based on consumer frustration, this thing called a

Slingbox, place-shifting.

In fact, a few years ago in the summer of 2002, my brother and

I, we were born and raised in the Bay area, big San Francisco Giants fans. And it was the year the Giants were actually doing quite

well and headed to the Series. Unfortunately, they choked in the

sixth game, which is a different story. But it is a 5-month thing,

by the way, or four outs away, I believe. So we found ourselves

though sitting in the office quite a bit working day and night in

the consulting practice we had. But we also found ourselves traveling quite a bit.

I remember vividly one day in the summer they were playing the

Cubbies and it was a day game, and we wanted to watch this

game. Got to see it. And we looked around to try to see if there

was various ways we could do it when we were in the office or

when we were abroad. At this point we were in the office. And we

ended up realizing there was no way we could get our Giants game.

We said well, wait a second, here. Here we are as consumers. We

are spending more and more time outside of our living room. We

are spending more and more time in front of display devices other

than that TV. Like, we are more in front of PCs and laptops, mobile phones, media players. And everything is connected via the

Internet. Why the heck can we not just watch our home living

room television regardless of where we are, regardless of what displays we happen to be on. And at the same time, of course, I was

also a big TiVo user, still am. And a lot of the content that I love

to watch actually, besides sports, a lot of it was time-shifted. And

so it was actually sitting in my living room on my TiVo hard drive.

I said I just want access to the stuff. Why the heck can’t I watch

it? And so we came up with this product called the Slingbox.

And really, this is one of the versions of the Slingbox. We sell it

in over 5,000 stores now, retail: Best Buy, Circuit City, CompUSA.

And it is a very low-priced product. It is about $149 to $249, depending on which model you get. And the way that it works is you

put this little box in your home and you plug your TV signal into

it. Now we do not care if that is your TiVo or if it is your analog

cable for those of you who still have it or your DirecTV or cable.

It does not matter. Plug your TV signal in and connect it to your

home network. Now you need to have broadband. But as we know,

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most people do, so we can have faster and faster uploading speed.

We would have even better and better experiences.

But you plug it into your home network. Once you have done

that you leave that guy there. And then regardless of location,

whether you are in China, whether you are in the district office—

Congressman Dingell could actually watch the History Channel

when he is here at the office during lunch break. You can be really

anywhere in the world and you can watch and control your living

room TV off of your laptop or even on your mobile phone. And in

fact, right now on my Treo with the Sprint Network I am watching

live Good Morning America from my home in San Mateo right now.

And I can change the channels. I can pause. I can rewind and so

forth.

So I want to give you a few different recent examples of how I

have used it and also how we are seeing the product being used

via the marketplace. I just had this this last Sunday, my wife and

I went with some friends to the Kentucky Derby, which was an

amazing experience. The one downside was Saturday night we

were with a bunch of friends and the de la Hoya/Mayweather fight

was on. And we were scrambling around downtown trying to find

out where it might be on. We went back to the hotel room and

found out there was no Pay Per View in the hotel room either for

the fight. So I fired up my little laptop. And yes, I would have loved

it to be a 16-inch plasma. My friends gave me grief even though

I gave them the game anyway. We fired up the laptop. We had 30

people around. I connected that to my Comcast back home via my

Slingbox, ordered the Pay Per View, and we watched the fight.

Another example that we see used quite a bit is hundreds if not

thousands of our servicemen and women are using the product actually in Iraq where they put the Slingbox in their family’s home

here in the States and they are able to watch their television programming when they are over there. That has been really fun. We

have been doing some pretty cool things with some of the troops’

mother groups in the Bay area.

In addition to that, you as Congressmen and women, I think the

Slingbox is something that would be great for you guys as well. In

fact, you could stay connected to your district office back home. You

could put a Slingbox there and you could be watching your local

news every single day.

Now last but not least, I know I am just about out of time here,

the thing that is kind of really interesting is we found all sorts of

interesting new applications that we had never thought of. There

was an article in CNet yesterday. It was a video article where they

gave an example of the CBS local affiliate in the Bay area who is

actually using Slingboxes around the Bay area on ferries, by the

Golden Gate Bridge. They are plugging cameras into the Slingbox

and it created basically an ability to have traffic cameras scattered

around the Bay area at a fraction of the cost of what it cost them

before. So we are seeing all sorts of interesting applications.

I would conclude here just by saying as Mr. Munoz from CBS

had pointed out, the Slingbox is one of these technologies that

turns local to global. And thank heaven for the notions of fair use

and for allowing us to basically create this company in the beginVerDate 11-SEP-98 10:59 May 06, 2008 Jkt 000000 PO 00000 Frm 00481 Fmt 6601 Sfmt 6601 Q:\DOCS\110-10 SCOM1 PsN: SCOM1
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ning and innovate without asking for a whole bunch of permission.

Thank you very much.

[The prepared statement of Mr. Krikorian appears at the conclusion of the hearing.]

Mr. MARKEY. Thank you, Mr. Krikorian, very much. And just for

the Members, there is a roll call on the House floor at this time.

We cannot, however, use the Slingbox yet to vote over in the House

floor and be here simultaneously, so we will try to make a determination as to what our exact status is over there.

Our next witness is a Hollywood legend, a real creative genius,

the creator and executive producer of ‘‘Everybody Loves Raymond’’.

He is testifying on behalf of the Writers Guild of America and the

Screen Actors Guild, Phil Rosenthal. It is an honor to have you

here today. Whenever you feel comfortable, please begin.

STATEMENT OF PHILIP ROSENTHAL, WRITERS GUILD OF

AMERICA WEST AND THE SCREEN ACTORS GUILD, LOS ANGELES, CA

Mr. ROSENTHAL. Thank you. Good morning, Chairman Markey

and members of the subcommittee. Thank you for the opportunity

to appear today. My name is Philip Rosenthal. I am a writer and

an actor in the television industry. I did create and was executive

producer of the comedy ‘‘Everybody Loves Raymond,’’ which ran on

CBS for 9 years. I am here today on behalf of the Writers Guild

of America, West, that is the Guild that represents Hollywood’s

screen and television writers, and the Screen Actors Guild which

represents Hollywood’s performers. I am a member of both guilds

and the Directors Guild of America. At home I have no say whatsoever.

My brief testimony discusses our concerns about three issues:

fair compensation for new platform content; independent production; and product integration. But for time’s sake today, I will just

limit my remarks to product integration.

Now we are all accustomed to seeing an actor in a movie or a

TV show hold a beverage with its label clear for the entire world

to see. This is commonly referred to as product placement. On an

artistic level I am not crazy about this, but the story flows regardless of whether the drink is a Pepsi or a Yoo-hoo or an unmarked

can.

The new policy now hoisted upon the creative community by production companies and studios is product integration. This is the

practice of not only placing the product in a scene but making the

product a part of the story line and the character is required to

talk about the product as well. The studios and production companies claim that no one is watching commercials anymore because

of the DVR. So they have decided to just turn the shows that sell

into commercials.

In 2006, product integration occurred more than 4,000 times on

network prime time television. A recent episode of Desperate

Housewives, for instance, featured characters discussing the cool

features of a Nissan Xterra. On Smallville, contact lenses helped

one crime fighter with her duties, prompting another character to

say, ‘‘Acuvue to the rescue.’’ Oreo cookies were a major part of the

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plot in two separate episodes of the family drama Seventh Heaven.

We have a clip.

That is a beautiful story, yes? Maybe if the writers and actors

were not so worried about covering that engagement ring in

creamy filling they could have taken a look at the line: ‘‘Will you

marry me on our wedding day?’’ surely a nominee for ‘‘Most Terrible Anything.’’

In addition, reality television programs are chock full of integrated props. The poor contestants on American Idol must make

Ford commercials every week which are then presented on the

show as hip videos. And the judges cannot say anything about it

because their mouths are full of Coca-Cola.

If we are concerned about the effect commercials identified as

commercials have on our children, how much more insidious is this

new practice? This is a level of corporate pressure that impinges

upon free expression over the airwaves and the long-established

protection of viewers against stealth advertising.

As writers, we believe our creative rights are affected when we

are told we must incorporate a commercial product into the story

lines we have written. Actors are subjected to forced endorsement

when their character must extol the virtues of a product within a

television program, a practice that can seriously impact an actor’s

ability to get endorsement and commercial deals.

For the public, product integration exploits the emotional connection viewers have with shows and their characters in order to sell

merchandise. It also raises the serious issue of adequate disclosure.

We believe that writers and actors as creators of television should

have the opportunity to refuse integrations if they believe it will

harm the integrity of the program.

To protect viewers, we support disclosure that both adequately

reveals product integration, is legible, and held on the screen long

enough for viewers to read. Maybe at the beginning of such shows

it could say, ‘‘This program contains references to ‘Reynolds Wrap.’

The network has been paid for this inclusion. The writers and actors have not.’’ Maybe this would end the problem.

But right now, individual writers and actors are nearly powerless

against the companies who require them to perform these commercial services and consumers are often unsuspectingly deceived in

the process.

The problem of product integration is exacerbated by the fact

that 20 years ago there were 29 dominant entertainment firms and

today there are six. Our kids are watching. We are watching.

Would we have wanted our memories of Casablanca to be Bogart

saying to Ingrid Bergman as they said goodbye, ‘‘You’re part of his

life, the thing that keeps him going. Now get on that plane and

enjoy United’s non-stop three-class service to Paris with seats that

recline to a full 180 degrees.’’

Thank you for the opportunity to testify.

[The prepared statement of Mr. Rosenthal appears at the conclusion of the hearing.]

Mr. MARKEY. Thank you, Mr. Rosenthal, very much. Our next

witness, Gina Lombardi, is the president of MediaFLO USA, which

is a division of QUALCOMM. This is a world-class innovative comVerDate 11-SEP-98 10:59 May 06, 2008 Jkt 000000 PO 00000 Frm 00483 Fmt 6601 Sfmt 6601 Q:\DOCS\110-10 SCOM1 PsN: SCOM1
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pany which is bringing video to wireless. We welcome you, Ms.

Lombardi. Whenever you feel comfortable, please begin.

STATEMENT OF GINA LOMBARDI, PRESIDENT, MEDIAFLO,

USA, INC., SAN DIEGO, CA

Ms. LOMBARDI. Thank you. Good morning, Chairman Markey,

Ranking Member Upton, members of the subcommittee. I am Gina

Lombardi, and I am the president of MediaFLO USA. We are a

wholly-owned subsidiary of QUALCOMM, Incorporated, which is a

technology-innovative company.

And I want to start by thanking members of the subcommittee

for the DTV hard transition date. February 17, 2009 is quite an important date for us. We have acquired spectrum UHF Channel 55

nationwide, and we are building a multi-cast network to bring live

television to the mobile phone. So the DTV transition date has

been very important to us as many more markets will be available

to consumers to experience our service as that date rolls around.

We are currently launched in 27 markets across the country with

our launch partner, Verizon Wireless. The service is called VCAST

Mobile TV. We will be launching with AT&T this fall providing

that same type of service to consumers.

So the way our service works is we have come up with the technology that is unique to the cell phone. QUALCOMM is a company

who has prided themselves in coming up with mobile technologies

and how to bring more and more value to the consumer. So in creating this technology, there were several attributes we wanted to

focus on. Mobility from the ground up. We wanted to make sure

that consumers had the same TV experience they have in their

homes. We wanted fast channel-switching time so they could feel

like they were holding their remote control in their hand. And we

wanted to make sure the battery life of the device was equivalent

to talk time. So there are two devices in the marketplace today.

One by LG that has a swivel phone. Another one by Samsung,

much smaller, and has a cute little TV-type antenna.

So to enable this, we thought the easiest thing for a consumer

would be to have a button on the phone, a TV button. The consumer hits that TV button and very quickly will be able to access

the many different channels that are available. And what we have

done is we have launched with Verizon on March 1 in 27 markets

with brand-name content providers. So our partners from a content

point of view are ESPN, CBS, FOX, the VIACOM properties, as

well as NBC. And so we have eight different channels available

today for consumers from live sports with ESPN and CBS and

FOX, as well as live news with NBC who has combined a NBC/

CNBC/MSNBC news channel along with the Today Show.

And so many of the shows are simulcast live. And what the content providers have done is created unique content made for mobile

offering. We only have 6 MHz on UHF channel 55, so we are limited on how many actual channels and services we can have. We

have got eight. We can go up to 20 video channels and 10 audio

channels.

So what I thought I would do is share with the subcommittee a

video that kind of puts this all in perspective on what we are actually doing.

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To give you some additional perspective, QUALCOMM and MediaFLO USA is spending over $800 million to bring this type of

service to consumers and we plan to add more and more carriers

and content providers as well as consumers to the service.

So thank you very much for the opportunity.

[The prepared statement of Ms. Lombardi appears at the conclusion of the hearing.]

Mr. MARKEY. Thank you, Ms. Lombardi, very much. Our next

witness is Benjamin Pyne. He is here representing the Disney

Company and ESPN Networks, which is a major content creator

and embracing new media strategies. And we are very glad to have

you here with us, Mr. Pyne. Whenever you are ready, please begin.

STATEMENT OF BENJAMIN PYNE, PRESIDENT, DISNEY AND

ESPN NETWORKS, AFFILIATE SALES AND MARKETING, NEW

YORK, NY

Mr. PYNE. Thank you, Congressman Markey and Congressman

Upton and other members of the subcommittee this morning. My

name is Ben Pyne, and I am president of Disney and ESPN Networks Affiliate Sales and Marketing. I appreciate the invitation to

talk with you today about the future of video.

At Disney, we recognize that technology has empowered the consumer more than ever before, and we create and use technology to

create and deliver quality content. Consumers today want to access

content from Disney, ABC, and ESPN in so many different ways

and we have made responding to that demand in new and innovative ways one of the highest priorities in our company.

Now and in the future, getting the balance right between convenience and pricing is a challenge facing all of us who create and distribute content. Adding to that challenge is the problem of piracy.

While there is no one answer to the challenge of piracy, we believe

the best place to start is to bring content to market on a well-timed

and well-priced basis.

We are now firmly in the ‘‘Consumer Era,’’ where consumers

want their content to be available anytime, anywhere, on devices

ranging from TVs to cell phones. Disney led all video producers in

moving this ‘‘on demand’’ digital era from theory to reality with our

groundbreaking agreement to make television content available for

video downloading from iTunes 18 months ago. That deal allowed

consumers not only to download their favorite shows but also to

make them portable between shared devices on a single iTunes account.

Today, the variety of Disney video content available on iTunes

continues to expand: movies, TV shows, sports and news. Over 20

million episodes of our series have been downloaded on iTunes, including many of our most popular shows. Everything from ABC’s

Grey’s Anatomy to Lost to Disney Channel’s Hannah Montana and

High School Musical and to ABC News. Here is a screen shot from

iTunes to give you a sample of some of the content available. And

also from ESPN.

On the movie studio side, last year Disney was the first movie

studio to announce a deal with Apple to enable downloading a fulllength feature film through iTunes, including copies to multiple

PCs and portability using iPod devices. We have also reached sepaVerDate 11-SEP-98 10:59 May 06, 2008 Jkt 000000 PO 00000 Frm 00485 Fmt 6601 Sfmt 6601 Q:\DOCS\110-10 SCOM1 PsN: SCOM1
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rate digital distribution deals with Wal-Mart, Movielink, and

CinemaNow here in the United States.

Disney’s next innovation was its Emmy award-winning full episode broadband player. We have made our most popular content,

including much of ABC’s prime time schedule and original programming from the Disney Channel and ABC Family, available on

the Internet in high quality video streaming format. Right now a

consumer can go to the Internet to ABC.com and watch individual

episodes of ABC or Disney Channel programs if they want to for

free. This is an effort to continue the evolution we started with

iTunes but is different in a number of ways. Specifically, unlike

iTunes, content on ABC.com is free to viewers but it also includes

limited commercial breaks. Since the fall of 2006, the ABC.com

media player alone has served over 87 million episode requests.

Notably, in support of our local broadcasters, we work with our

ABC affiliates to design a version of the media player for ABC content in which both the network and the affiliate are able to participate. Affiliates can brand the player with their station’s channel

number and call letters including local advertising and provide

links to local news and information that broadcasters provide their

communities. Here are a few screen shots of the ABC broadband

player that show the variety of programming, the advertising experience, and how the media player is accessible from our local stations’ Web sites. Here is the player. Some pause functionality. And

then how you get in from your local broadcaster’s Web site.

And finally, just this January Disney announced its latest Internet innovation, this time in the Web space, Disney XD. Disney XD

is broadband entertainment taken to the next level: Disney-style

content with safety in mind. It is a customizable experience with

Disney games, music, trivia, and high quality engaging videos including kids’ favorite Disney Channel shows plus movie clips and

previews. I think one more slide. There you go.

Video on Demand is yet another way we make Disney, ESPN,

and ABC content available for viewers to watch whenever they

want. Just this week we announced an agreement with Cox Communications to allow Cox customers to watch our most popular

ABC television content, including Grey’s Anatomy and Lost, on demand. Similarly, we are discussing opportunities with our local affiliates to help monetize this.

Disney has moved aggressively to ensure that our content travels

with our viewers, wherever they are, including on their cell phones

and mobile devices. ABC News Now is available to 4 million subscribers. ESPN is also available through MediaFLO with Verizon.

Finally, Disney consistently has been a leader in high definition

television. ABC was the first network to produce its morning news

show, Good Morning America in HD. Now virtually the entire ABC

prime time schedule is broadcast in high definition.

With the launch of ESPN HD and ESPN2 HD, between the two

of them ESPN will provide 9,000 hours of original HD content. And

in early 2008, we will add to that with ESPN News HD, Disney

Channel, ToonDisney HD, and ABC Family HD.

Disney is also a leading supporter of high definition content on

next-generation high definition packaged media. We have already

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announced more than 50 titles for release on Blu-ray Disc, which

we believe will further drive HD adoption.

Finally, at Disney we will continue to work to be the first choice

for digital and interactive entertainment and information in the

most convenient and timely ways possible.

Thank you again for inviting me to testify today.

[The prepared statement of Mr. Pyne appears at the conclusion

of the hearing.]

Mr. MARKEY. Thank you very much, Mr. Pyne. Our next witness,

Tom Rogers, is the president and chief executive officer of TiVo Incorporated. Mr. Rogers and his company are revolutionary. I know

it has revolutionized my life, TiVo. These west coast basketball

games, Mr. Cuban, I have to TiVo. At a certain point you get into

a negotiation with your wife around 11:30, 11:45. And I have lost

every one of them so far. But I gamble with the pickup, because

of TiVo, the rest of the action at some future point in my life.

But Mr. Rogers is an alumnus of this committee. He was the

chief counsel of the Telecommunications Subcommittee long ago

and far away in another life. He was a visionary then in terms of

the changes that he felt had to be made in American law in order

to open up this innovation which we have seen today. We welcome

you back, Tom. Whenever you are ready, please begin.

STATEMENT OF THOMAS S. ROGERS, PRESIDENT, CHIEF

EXECUTIVE OFFICER, TIVO, INC., ALVISO, CA

Mr. ROGERS. Thank you, Mr. Chairman. I have to say I am exceedingly uncomfortable sitting here. You have no idea. I feel like

I should be up there passing you notes. And being down here just

does not seem quite right. I do feel like this is my alma mater. I

am not quite sure if it is like being a cheering love returning for

a football game or a former student returning for disciplinary action. But in any case, I am very pleased to be here. Actually, in

deference to you and Mr. Cuban I should have said returning for

a basketball game. Excuse me.

Mr. MARKEY. I was going to ask you to tell the truth, the whole

truth, and nothing but the truth.

Mr. ROGERS. I had to do that as a staffer and I will continue to

do so. Thank you. I guess going back 25 years ago—and to be

truthful and honest I was counsel to this subcommittee from 1981

to 1986, so I can actually speak in terms of 25 years ago of what

the subcommittee was looking at. We were asking the same question. What is the future of television and how can this subcommittee guide it?

I have to say, I think this subcommittee has had an unbelievably

strong legacy in guiding the future of television. I go back to the

1984 Cable Act, which I had some hand in. And that certainly

helped to very much encourage the number of cable channels that

developed over the course of the 1980s. The 1996 Telecom Act, of

course, has had a major impact on the growth of the Internet.

And along the way, the subcommittee has always had a clear

view of not letting incumbents choke off competition. And I think

back to distant broadcast signals being carried by cable and how

the subcommittee avoided competition by cable broadcast being

choked off by ensuring access to those broadcast signals. The issue

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came up again with satellite and cable and making sure that direct

broadcast satellite had access to cable channels. More recently, the

issue of requiring cable to open up consumer access to cable settop boxes. And I will return to that point in a minute.

But the last 25 years both in terms of TV policy and the business

arena, in terms of both, it has been all about getting viewers more

choices. And now we are going from an era of consumer choice to

an era of consumer control, where the consumers’ decision of what

they see, when they see it, where they see it, how they see it, that

is all decisions now that the consumer can make about how they

take television into their lives.

TiVo has been a pioneer in terms of leading the way with this.

Many other innovators are contributing to this. Sling is a perfect

example. We made it much easier for people to find and record any

show. A number of innovations since the initial development, such

as you are out to dinner, a friend mentions to you a great show and

you say I wish I had recorded that, you can pull out your cell phone

now, type in a code, talk to your TiVo from dinner and make sure

it records it at home. Or you are late at work at the office and you

can do the same thing over the Internet. And many other innovations which I will not go into now.

But I think for purposes of this subcommittee, maybe our most

important innovation goes to an issue that you have been grappling

with even before my time, which is kids’ television and all aspects

of kids’ television: quality kids’ television; violence on kids’ television; how to keep inappropriate content out of the view of kids.

And this has been a really, really tough issue in terms of the Government’s ability to solve. How do you get all the great kids’ TV

that is actually out there, Disney being a perfect example of somebody that provides it. How do you get all that great television that

is actually out there and make sure when the child turns on the

television set that—those TV shows are actually the ones sitting

there in front of the set and at the same time how do you block

all the bad stuff from coming in? It is a double order. And if the

future of TV in this country, in my opinion, having toiled heavily

in these issues going back to my subcommittee days—if that future

is going to be bright one this issue has to be solved. And we believe

that TiVo may have solved it.

Congressman Upton last year actually took the lead in helping

us announce this new feature called TiVo Kids Zone. Supporters include Senators Clinton and Obama. We also have support from the

National Evangelicals Association, the YWCA and the NEA. And

you say how do you put together a group like that? And I guess

my answer is we came up with a private sector technology-based

non-regulatory approach to solving the kids’ TV issue.

And we recognize there are limits as to just how far the Government can go in solving any problem, and that is why we felt we

had to take it upon ourselves to help try to solve it. And what we

did is we created a really easy way for parents to create the ideal

kids’ world in the household. The V-chip has gone unused and all

this great television programming that you have helped encourage

be out there for kids has largely gone unseen. So how did we do

that?

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Well, we allow various groups, Parents Television Council, Common Sense Media are two groups I know the subcommittee is well

aware of—on a daily basis try to give parents guidance on what are

the best shows to watch. And we let them create menus, maybe 30

shows a week, that are delivered automatically to the television set

and nothing else gets through unless the parent wants something

else to get through.

So we have created this way of an ease for a parent. You have

got to let the kids use the remote control. You cannot deny them

that. And anything the parent wants is behind a wall that the children cannot see. And it is a free service as part of the TiVo service.

One great innovation that we think has a lot to do with making

the video future bright.

Let me just close by going back to the CableCARD issue. Because

if a company like TiVo as an independent consumer electronics

company is going to continue to flourish, companies like us need to

continue to have access to the digital signals that are being provided. And CableCARDs in that respect are key. Our new boxes are

going to be CableCARD based. And CableCARDs, of course, are the

regulatory response to the policy this subcommittee created in

terms of opening up set-top box competition.

But a potential problem has emerged. And that is that

CableCARDs could be rendered useless. And why could they be

rendered useless? Because cable companies are beginning to send

their signals with a new technology called switched digital that the

CableCARDs cannot read. And that creates a real problem. It creates a potential black eye for the FCC, for this subcommittee, for

NCTA, for TiVo, for other consumer electronics companies.

And I will close by simply saying there is good news. We pointed

out this problem to the cable industry and to their great credit they

said we want to work this out. We want to work this through. Consumers should be able to get this kind of expectation, the

CableCARDs and new technologies like this will work. And we are

hopeful it will be solved. And Mr. Chairman, I well remember how

mad I got when people went over their allotted times, so I profusely apologize.

[The prepared statement of Mr. Rogers appears at the conclusion

of the hearing.]

Mr. MARKEY. He got the former staffer courtesy testimony extra

minute and 54 seconds. And we thank you, Mr. Rogers.

Our final witness is an innovator and an entrepreneur who has

put his stamp on the Internet and its history. He is a historic figure. He stands with Jerry Yang at Yahoo! and Jeff Bezos at Amazon and Sergey Brin and Larry Page at Google as someone who has

revolutionized the relationship between not only the American people but the people of the world and this technology. We really are

so glad that you are able to come here today.

YouTube has revolutionized the complimentary video media, empowered consumers. Chad Hurley is the chief executive officer and

co-founder of YouTube. We welcome you here today, Mr. Hurley.

Whenever you are ready, please begin.

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STATEMENT OF CHAD HURLEY, CHIEF EXECUTIVE OFFICER,

YOUTUBE, SAN BRUNO, CA

Mr. HURLEY. Chairman Markey and members of the committee,

it is a great pleasure to be with you this morning. My name is

Chad Hurley, and I am the CEO and co-founder of YouTube. This

is my first appearance before a congressional committee and hopefully I will not mess this up. Because if I do, it could end up on

YouTube. I thought we would open with a YouTube video that you

in particular would enjoy.

So today I am here specifically to talk about three of YouTube’s

goals: promoting community, advancing democracy, and driving

economic growth.

Let me start with a few facts about YouTube. YouTube is the

world’s leading online video community. YouTube allows people to

watch, discover and share originally created videos. We started the

company after realizing there is no easy way to share homemade

videos with our friends. Two years later things have changed.

Every day people upload hundreds of thousands of videos to

YouTube and watch hundreds of millions of videos on the platform.

The way YouTube works is simple. An individual creates a video,

then posts it to our site. The community of viewers then decide

what rises to the top. They connect and engage around videos that

inspire, teach and entertain them. Videos that are less compelling

to the masses, for an example a video about how to make omelets

in a Ziploc bag, still will find an audience on our site.

Videos that include unauthorized copyrights are removed as soon

as we are made aware by the rights holder. And those that violate

our community guidelines come down minutes after users flag

them. And as a father of two, that last part is particularly important to me.

YouTube is helping a wide range of video producers reach a new

audience in a changing marketplace. For example, we currently

have more than 1,000 partnerships with organizations ranging

from the NBA to 10 Downing Street.

Now let me turn to our goal of promoting community. Content

creators such as entertainers, educators, authors, medical students

and U.S. military are building audiences on YouTube. You can

even learn how to remove a tree from your sewer drain by tuning

in to ‘‘Ask the Builder.’’

Then there are stories like that of Leigh Buckley, a mother of

two from Derry, NH, who discovered that she was suffering from

leukemia. A family friend made and posted a video about Leigh’s

search for a bone marrow donor on YouTube. That video helped

draw more than 1,000 people to a registry drive. A donor was found

and she underwent treatment. Through the power of video, people

came together to help a complete stranger.

Now I will turn to advancing democracy. YouTube is a new platform for putting democracy in action, a great forum for the free exchange of ideas where everyone is provided equal opportunity to be

heard.

Our new You Choose ’08 platform creates the world’s largest

town hall. 17 presidential candidates are currently on YouTube,

and they have combined to post over 500 videos, and they have

been viewed millions of times.

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We believe that YouTube provides another way to promote the

values of freedom and liberty, to strengthen democracies and to let

citizens from other countries give an authentic voice to their most

urgent needs and common dreams.

Turning to economic growth, many examples arise. Owners of

small businesses, such as real estate agents and music teachers,

have a much less expensive way of finding new customers on

YouTube. Musicians are selling their own CDs and in some cases

signing with record labels, as Terra Naomi did with Island Records.

YouTube would never have launched had it not been for this

country’s commitment to an open Internet. We share with many

the belief that access to the Internet must be open to all users and

services on fair and equal terms.

So where is online video headed next? If I had to identify a few

trends to watch for in the future I would point to the following.

First, originally created video content will continue to establish

itself as a new form of communication. Second, a critical mass of

content will continue to be built from small communities online.

Third, YouTube will increasingly empower users to take control of

how they create and consume media.

Finally, as more and more countries utilize YouTube, citizens

from around the world will have the opportunity to communicate

across borders. Even when nations disagree, video brings a human

element to our dialog that enhances understanding.

Mr. Chairman and members of the committee, thank you for letting me appear here today. And I look forward to answering your

questions.

[The prepared statement of Mr. Hurley appears at the conclusion

of the hearing.]

Mr. MARKEY. Thank you, Mr. Hurley, very much. The Chair will

now recognize myself for a round of questions. And my first question will go to you, Mr. Rosenthal. Do you think the television industry should be permitted to use programming—not advertising

but programming—in order to sell Oreos or other unhealthy products knowing that it is targeting a child audience and knowing that

we have a childhood obesity epidemic in the United States? Do you

think that the industry should be allowed to do that?

Mr. ROSENTHAL. There would be a conscience that would self-regulate it. But in lieu of that there might have to be some kind of

restrictions placed in the same way that you cannot sell alcohol on

television or cigarettes anymore on television. This is a major

health issue and maybe it should be looked at.

Mr. MARKEY. OK. And thank you, Mr. Rosenthal. Do you think

it is harmful for movie producers to include the use of tobacco products in their movies knowing that they cannot advertise on television and knowing that in certain G and PG movies that the kids

are going to be looking up at this huge screen seeing the actor or

the actress smoking cigarettes? Do you think that that is an appropriate thing for movies that are specifically targeted at the G and

the PG audience?

Mr. ROSENTHAL. I think the ratings should dictate whether or

not this is to be allowed. I think that is a very good point.

Mr. MARKEY. I thank you, Mr. Rosenthal. My next question goes

to the panel. And that is a question that refers back to our first

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hearing this year where Sir Tim Berners-Lee, who is the creator

of the World Wide Web, was our first witness this year. And here

is what he told the committee. He said that if the Internet had not

been open, and he likened the Internet to a white piece of paper,

that he would not have been able to create the World Wide Web

because someone would have told him no, that his idea was not acceptable.

Mr. Cuban, Mr. Rogers, Mr. Krikorian, Mr. Hurley, do you agree

with that assessment? And please give us an example, if you have

any, of how openness actually helps in the creative process to revolutionize the Internet on an ongoing basis. Mr. Hurley?

Mr. HURLEY. Yes. I mean, you can take our own site as a perfect

example. It did not exist over 2 years ago. Because of an open

Internet we were able to look at problems that we were personally

faced with and that was how to deal with video online, how to

make that easy. And we were trying to address those needs. And

we were able to develop a service that was able to compete with

other competitors in the market. And because of that we have been

able to provide a service that has been helpful for people and have

been able to spur innovation in the video market online.

Mr. MARKEY. Mr. Krikorian?

Mr. KRIKORIAN. I will just give you just our example. First off,

we clearly have enough large industry folks who would rather see

us go away, so we had some challenges there from the start. But

just quite simply, we got laughed at a lot of different capital firms

for just talking about building a hardware product with a U.S.

based company—questions about copyright and so forth. If we had

another going on there in the business plan which would set—the

first thing we need to accomplish is get approval from AT&T or

something like that to do this, I mean, we would have been kicked

in the pants on the floor. I mean, there is just no way that any of

these new technologies would make it.

It is not to say anything bad about AT&T. It is just the fact of

the matter is that things are being created every day that none of

us ever even thought about before. And without having that open

flexibility there is just no way in heck this stuff could ever come

to life.

Mr. MARKEY. Mr. Cuban?

Mr. CUBAN. I guess I am always the contrary. Before the Internet there was CompuServe. There was The Source. There were a

variety of companies that offered services that were host-based

computers that offered content but none of them were graphically

driven—and offered hyperlinks which Mr. Burn and the folks that

put together Mozilla/Mosaic originally used as a step forward.

So in essence, our beautiful capitalistic system is really what propelled us to this point. And I do not think that it can be constrained at this point because communications and telecom activity

was here and will continue to be here no matter what happens.

Mr. MARKEY. And a quick word, Mr. Rogers?

Mr. ROGERS. We look at the Internet in terms of the combination

of your two jurisdictions. Where does the Internet meet television?

And ultimately the Internet connected directly to the television set

is what is going to give people the ability to choose what they want

to see when they want to see it anytime.

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In addition to YouTube via broadband on the Internet, every

movie company, every television company, every program company

today is putting its content on the Internet. Most of it is only

viewable on a PC. What we have started to do is make it viewable

straight to the TV set. We look through Amazon today directly to

your TV. You can download any number of movies to your television set. If the Internet is not open that promise of ultimate

choice to the TV will totally be frustrated.

Mr. MARKEY. Thank you, Mr. Rogers. My time is expired. The

Chair recognizes the ranking member of the subcommittee, the

gentleman from Michigan, Mr. Upton.

Mr. UPTON. Thank you, Mr. Chairman. I appreciated too the testimony of all of you. And I have got a couple questions before these

long series of votes here this morning.

Mr. MARKEY. If the gentleman would yield just briefly. What we

have is, for the Members, a 15-minute vote followed by two 5-

minute votes. Then there will be 10 minutes of debate and a vote

on recommital.

The plan that the Chair is going to try to execute would be to

continue for an additional 10 minutes to recognize Mr. Upton and

then to recognize Ms. Eshoo, then to break so that we can make

the 15-minute vote and then the two 5-minute votes. I will then

immediately return to reconvene the hearing and then try to get

in 20 minutes of additional questioning before the vote on

recommital.

So any members that wish to be recognized should return. I will

try to recognize them there in that 20-minute period. The gentleman from Michigan is recognized.

Mr. UPTON. Thank you. Mr. Hurley, am I correct that YouTube

proactively filters out adult content and child pornography?

Mr. HURLEY. We provide those tools to our users. We made it

very clear to our community what it is about and not to violate our

Terms of Use. And we have been able to provide the tools where

they are easily able to flag content that they can identify as——

Mr. UPTON. And when that appears, a consumer can actually report in. Is that right?

Mr. HURLEY. That is correct.

Mr. UPTON. And then take it off? Now is there a reason why you

wouldn’t think about looking at filtering out copyrighted content as

well? Can you address that at all?

Mr. HURLEY. Visually when you get a piece of video content you

cannot tell who owns the rights, so a perfect example is marketing

departments within studios and networks uploading content to our

site and then the next day we receive the calls from the lawyers

to take it down.

Mr. UPTON. Did it work?

Mr. HURLEY. Yes. We take it down when it is requested to do so.

But it is hard for our users to make that decision. And we are

working with thousands of media companies that are fighting us

for officially licensed content.

Mr. UPTON. Mr. Rogers, it is a good welcome back. It is good to

see you. And I was pleased to participate last summer. You talked

about TiVo consumers being able to send messages from their cell

phones as it related to taping and then viewing content from their

483

homes. I wonder if TiVo devices, and maybe the Sling devices as

well, ought to be perhaps regulated to ensure that they comply

with existing geographic limitations, whether it be network non-duplication, syndicated exclusivity or something that Mr. Markey and

I care deeply about, that is sports blackouts as it relates to our

Cubs and Red Sox and Wolverines.

Mr. ROGERS. From TiVo’s point of view, those are really not

issues for us because TiVo can only be used within the household.

You can watch things on your television set or transfer something

within your house to another consumer electronics device, but we

do not provide for the ability to transfer things out of the household. They must be part of the same subnet.

Mr. UPTON. Mr. Krikorian, do you want to comment on that?

Mr. KRIKORIAN. We absolutely enable a consumer to watch their

TV wherever the heck they are, so a few things there. One is if you

look at one of the examples I gave you earlier, it was Saturday

night and we were watching the de la Hoya fight. I paid $50 while

I am sitting in a Kentucky hotel room. It was pretty good for me

and pretty good for the industry I would say.

If you look at the appearance perspective first off, does the Internet and the Slingbox bring in the question the decades old notion

of geographic boundaries? Absolutely. And that cat is out of the

bag. Now if we look at it from a true perspective, an industry perspective, think about what is happening. First off with the

Slingbox—I have a Slingbox at my home. Things such as blackouts,

let us say the San Francisco 49ers are blacked out. If I am sitting

here in Washington, DC——

Mr. UPTON. I believe that.

Mr. KRIKORIAN. What is that?

Mr. UPTON. Based on their record, that might be a good thing.

Mr. KRIKORIAN. Yes. Tell me about it. The Raiders are blacked

out, thank gosh. If I am sitting here in my hotel room in Washington, DC and I want to watch the 49ers game, I am thinking back

home. The blackouts are basically maintained just as they were intended for me as a consumer. So it sort of follows you. If you look

at it from the local broadcaster perspective, when the technology

first came out there was a lot of concerns.

But if you stop and you really look at what we are doing, we are

turning local into global. We are giving the consumer the ability to

watch and control their, like, local television programs wherever

they are. That for the local broadcasters is a wonderful thing. And

by the way, it is actually very measurable with the existing Nielsen

rating system.

Now some people do not like it because it brings into question

these boundaries that were thought about 50 years ago. But from

a pure economic perspective, I think it is a great thing.

Mr. UPTON. Mr. Cuban, I wanted to finish up. Can the Internet

currently handle the free streaming of live full length digital high

def programming on that scale?

Mr. CUBAN. No.

Mr. UPTON. How much investment do you think that would take?

I do not want to watch a sports game on a screen that is this small

and look for that little ball constantly.

484

Mr. CUBAN. The costs are declining, but the reality is the amount

they need to deliver is limited by that last mile. If we get fiber to

the home—and from my perspective of everything we should encourage that, then not only can you get high definition as we know

it today with ATSC standards but you will get ultra high definition. At some point, that will enable a 4k camera that will be sitting in front of Grandpa with that picture transmitted to a doctor

somewhere around the world at the best hospitals and enable

health care. So there is not only high definition applications for

sports but for our welfare as well.

Mr. MARKEY. The gentleman’s time has expired. The Chair recognizes the gentlelady from California, Ms. Eshoo.

Ms. ESHOO. Thank you for recognizing me, Mr. Chairman. First,

I just want to make an observation. In Silicon Valley we like to

talk about disruptive ideas. And we have heard some of them

today. And the technologies that make the shifts to new paradigms

and fundamentally change the status quo. YouTube has certainly

had this affect on the Internet, on media and on politics and our

culture generally. And I might say that the new majority party in

the Congress owes something to YouTube as well. It helped change

another shift in our country.

What I would like you, Mr. Hurley, to just comment briefly on

because I have another question to ask is how an open Internet

really facilitates all of this. There are some here on the committee

that really tend toward gate keeping and chokepoints. And I think

what the testimony today really highlights and underscores is that

that really is a thing of the past. We cannot afford to sit on old

platforms and old ideas. So would you just comment on that, Mr.

Rogers?

Mr. MARKEY. Was that to Mr. Hurley or Mr. Rogers?

Ms. ESHOO. I mean Mr. Hurley. I am sorry.

Mr. HURLEY. Yes. I believe an open Internet allows the ability

for not only businesses to participate and be innovative, but it is

giving consumers choice and it has allowed them also to participate, allowed them to look for media, to distribute their media

through services like our own and a chance to decide what they

want to consume, not only when but where they want to do that.

So I feel because of that open Internet this is all possible.

Ms. ESHOO. And to Mr. Rogers, I was taken with your phrase

that we are moving from consumer choice to consumer control. And

I did mention in my opening statement the part of the Telecom Act

that I worked so hard on to enact, section 629. You only were able

to spend just a few seconds on that. Would you elaborate, please,

and maybe refresh the memory of the committee about that and

what that means and where it is going now and if it is not fully

realized, that section, the effect that it will have?

Mr. ROGERS. Well, I will try to be very brief. It is a very important provision of legislation to appoint some time for the FCC actually to construct the policies that they are supposed to put together

from that legislation. What emerged from it was a way to open up

set-top box competition to allow independent players like Barcel to

be able to provide alternative ways for people to think about controlling their media life in their home. The CableCARD emerged as

the way to do that. The CableCARD has just begun to roll out. It

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is a one-way CableCARD, meaning it was worked out by the FCC

with the industry. It does not allow for two-way services to be read.

The new technology that cable is using to transmit signals to the

home, I referred to as switched digital, is a two-way technology

that cannot be read by a one-way CableCARD. That is the conflict.

All of the sudden this whole promise that this committee created

is going to be frustrated to the extent an issue like that is allowed

to continue. As I said, I am hopeful it will be worked out because

I do not think any of us want the black eye that comes from a

bunch of consumers who rightfully went out to buy consumer electronics devices dependent on these new CableCARDs and not have

them work. So the good will of ourselves and the cable industry,

which I said indicated a willingness to work this out, will hopefully

take care of this problem for consumers. But it is obviously one this

subcommittee needs to keep a close eye on.

Ms. ESHOO. I think some cable operators in some parts of the

country are doing a better job than others.

Mr. ROGERS. There is no doubt. There are some cable operators

that comply easily with CableCARDs. There are other consumers

that call up and they are told, what, a CableCARD? Jeez, to get

a CableCARD we have to come out to your house and we have to

hand deliver it to you and you have to be there when we say you

have to be there and all kinds of things that causes people to jump

through hoops simply to get a card that could be mailed to easily

operate a set-top box.

Ms. ESHOO. Thank you very much. I commend all of you on terrific and creative testimony today. Thank you.

Mr. MARKEY. The gentlelady’s time is expired. There are 3 minutes left on the House floor for this roll call so what we will do is

we will adjourn right now. I urge the Members to come back after

we have the second 5-minute vote. We will reconvene. So to the

witnesses, you have about an 18-minute break right now. Thank

you. This hearing is recessed.

[Recess.]

Mr. MARKEY. The hearing is reconvened and the Chair recognizes the gentleman from Illinois, Mr. Shimkus.

Mr. SHIMKUS. Thank you, Mr. Chairman. I will just move rapidly. First of all, I want to thank the panel for being here. And I

also want to especially recognize the Disney representation. It just

highlights something that the chairman and I have been working

on, our kids.us, ABC.kids.us. You have been there on that site for

many years. My 4-year-old actually said it is the fall site, so he

thinks he is going on the Internet. He is in a limited way—protected. He cannot get out of it.

I want to use this opportunity to thank you. I also encourage you

to put a Disney lineup on there and an ESPN lineup on there. We

are working with NTIA to restructure some of the cost, but for good

corporate citizens like yourself, I do not think it is much to ask.

And I want to encourage all of you to use your ability to leverage

your positions to help explore the kids.us Web site, which is one

way that you can really protect kids and give them that initial experience. And they really do think they are on the Web. They are

but they cannot get out of it there. So I just wanted to raise that.

486

Mr. MARKEY. I have worked together with the gentleman over all

these years. I think it is excellent work.

Mr. SHIMKUS. Thank you. The other issue that is the real elephant in the room of this hearing is net neutrality. And this is the

way I tried to explain it to folks, and you can correct me if I am

wrong. I want Mr. Cuban to talk. I have my notes here, but since

I had to run from microphone to microphone I have kind of lost

them.

There are a lot of things that have been said. There is open

Internet. There is gate keeping. There is choke points, fiber to the

home, and I like the highway analogy. What I use to talk about it

to constituents or people that are saying oh, we want to have an

open access and net neutrality so innovation can aspire, I talk

about the pipeline. And the fear is that someone is going to choke

off innovation.

I have always came to the premise that you really have to—if

Mr. Cuban is right and technology is going to be driven by digital

video—I think in his opening statement he said there is not enough

broadband. There is not enough spectrum. So the public policy debate that we need to hear from you is how do we expand more

pipeline.

Mr. CUBAN. Right.

Mr. SHIMKUS. And Mr. Cuban, if you could follow up on that. Because I am a supply guy. The more supply we have the greater opportunity we have. The limited supply we have you all are always

going to be fighting over this part.

Mr. CUBAN. Thank you, sir. There is no question bandwidth will

cure it all. I think in all these discussions we are recognizing that

the Internet family itself is actually a utility. Like other utilities,

whether it is transportation over a highway, whether it is electricity, you have to have enough to power the applications that the

entrepreneurs, that the innovators in this country envisioned.

Unfortunately right now because of what is happening here via

the witnesses and other companies, we are consuming all the utility that is available. And we are arguing about the fact of who gets

it when in reality we should be focusing on how do we get bandwidth to the next level so that any constraints go away.

And so if we are saying where to start and how to do it, I cannot

sit here and give you dollar figures. But I can tell you from an application perspective and as an entrepreneur, an opportunity perspective, that until we get to 1 gigabit per second switched to the

home we are not going to really entertain competitive opportunities

that make us a power in the global economy. We will find ourselves

always fighting limitations, and that is unfortunate.

Mr. SHIMKUS. Let me follow up. Do you think regulation limits

that ability to get to that 1 gigabit?

Mr. CUBAN. I do not think regulation limits it per se. I think it

misdirects. I think it puts a focus where it should not be. I think

it is just the nature of where we are that everybody is trying to

get something. I think we have got to just supersede that and just

say what we need. And right now people are trying to get more

bandwidth but more bandwidth is not enough.

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Mr. SHIMKUS. One thing I love about this committee is that technology, you guys are all proof of it, it moves faster than we can regulate.

Mr. CUBAN. The reality is the fact that we are here, we jumped

the shark, to use some Hollywood terminology. It would move so

fast that, like you said, you could not keep up with it, but we are

keeping up with it. We are putting constraints of 10 minutes of

video. We are happy to have Slingbox because there is not enough

bandwidth to go around. We are happy to store it to our TiVos because we cannot just get it when we want it, how we want it,

where we want it. Those are all responses to constrained bandwidth. If we had the gigabits at home who knows how long that

would last—all those constraints go away.

Mr. MARKEY. All right. The gentleman’s time has expired. The

Chair recognizes the gentleman from Texas, Mr. Green.

Mr. GREEN. Thank you, Mr. Chairman. And I think all of us experience amazement with our panel and what they have done on

the cutting edge of technology. We just need somebody to show us

how to turn on the button, to make our lights even work. But Mr.

Hurley, there is a difference in video on YouTube and full screen

and broadcast quality video, but many people, especially you, who

believe there is a future in the service you started. I know there

are limitations on the video length and quality users post on

YouTube. Do you see YouTube trying to get into longer, better

quality video?

Mr. HURLEY. No, not at this time. We are offering a different experience than the TV. We are offering low quality short clips that

can easily be viewed by everyone and ways for them to interact

with that video. It is far from full length high quality television

programming. What we do, we provide this chance for people to get

in front of media that they would not have otherwise had an opportunity to do. But the cases with our partners, like CBS for example, providing clips on our site, they have probably said that it has

helped increase their ratings by 5 to 7 percent. So we are just seeing that it is just an opportunity for them to enjoy basic content

and provide them the best experience possible without being TV.

Mr. GREEN. Do you have comments on Mr. Cuban’s concern

about the past view, the limitations on the current consumer Internet infrastructure?

Mr. HURLEY. No. We are not seeing those limitations.

Mr. GREEN. Mr. Cuban, before you did HDNet—I am from Houston. Obviously, I am a Rockets fan. I am glad at least both of our

teams made it to the playoffs, but we did not make it after the first

round. I know you more as the Mavericks’ owner, but when you

mentioned in your answer just now that the utility of it—that the

Internet is a utility—and I guess as a lawyer that comes from a

different side.

A utility is something that needs to be regulated, needs to be

shared with everyone. But I go from 1996 and the Telecom Act.

And since then it is to try and eliminate that utility and have lots

of competitors in there with comparable service, so I can have a

competition between my cable and satellite. So that is why I am

glad our Bells are getting into it so we do have a competition and

not necessarily ‘‘a utility.’’

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But you started your testimony discussing current capacity limitations on the Internet. I think you made a good point, especially

regarding P2P. Do you think software applications can become

more efficient or will the real problem be the capacity, the actual

lines into my home?

Mr. CUBAN. The real problem is in the capacity in the actual

lines into your home. You cannot fit more into it than what it has

capacity for.

Mr. GREEN. OK. The broadband speeds in a number of countries

overseas dwarf the speeds that we have. And do you see anything

that Congress should or should not do to help the U.S. close that

gap and do we think the competition with DSL, cable, and wireless

will force those increased speeds and solve our capacity problems?

Mr. CUBAN. It is hard to say. I will tell you that if we do not go

much further than where we are, we will not be able to compete

in the global environment. We will see an exodus of people who deliver content to those countries who can. And that is how eventually we want to be.

Mr. GREEN. Because my colleague from Illinois says these are so

much Telecom issues and not partisan issues, because I have a concern about that last mile and the net neutrality issue. My concern

is how do we pay for that? If it is AT&T that last mile then they

are going to charge me if they happen to be my Internet service

provider instead of the folks who end up making money on it,

whether someone else through—and I guess that is our bottom

line. I do not want them to control your access or YouTube. How

do we pay to get that last mile there? And if they are going to

charge us as a utility, and I have a district that tends to be underserved by Internet, I want the monthly charge to be cheap so I can

encourage our families to get on it.

Mr. CUBAN. I understand completely. What I would tell you is

what we can see is all we can see. But if we start as an economic

policy, I do not understand how you guys do all that you do unfortunately.

Mr. GREEN. We do not either.

Mr. CUBAN. But if we start an economic policy of 1 gigabit to the

home then you will start to see other applications that will pay for

it. So in other words, there will be medical applications that insurance companies will look to pay for, that hospitals will look to pay

for, that pharmaceutical companies will look—because their costs

drop dramatically. There will be security applications that will enable us to better monitor our neighborhoods. There will be other

applications that I cannot even envision.

When we went from no PCs to PCs, we started to see applications. When the PCs started becoming practical, smart people came

up with new applications we never envisioned. The platform for our

future of this country is bandwidth.

Mr. MARKEY. OK. The gentleman’s time has expired. The Chair

recognizes the gentleman from New Jersey, Mr. Ferguson.

Mr. FERGUSON. Thank you, Mr. Chairman. I want to go back to

a line of questioning, Mr. Hurley, that Mr. Upton had been talking

about before.

When someone posts something on YouTube that is not appropriate, do you have a way of just pulling it down?

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Mr. HURLEY. Yes. First of all, that is not what our site is about

and we are not experiencing those problems because we have been

able to have effective policies. We also have effective technology

that we provide to our users. And we leverage the power of millions

of people on our site to police it.

Mr. FERGUSON. If someone does not follow the rules, they put

something up there that is obviously offensive or pornographic or

something inappropriate, what do you do? Do you have some people

viewing it?

Mr. HURLEY. Our community understands that that is not what

our site is about. They flag that piece of material. We have people

24/7 reviewing what is being flagged, and they are removed from

the site within minutes.

Mr. FERGUSON. Now before, when Mr. Upton asked what about

something that is copyrighted that is put up there you said that

it is impossible for someone to know everything that is copyrighted

or not copyrighted. But clearly that is probably technically in all

cases may be true, but clearly if somebody puts a clip of a movie

or a show from FOX or ABC or some copyrighted basketball game

or something that is very obviously copyrighted, why would——

Mr. HURLEY. Well, we have a lot of partners. And in the case of

the NBA, we do have a partnership with them. So we are relying

on our users as like a content to correctly——

Mr. FERGUSON. What about someone who you do not have a partnership with?

Mr. HURLEY. Well, we provide them with industry leading tools

to let us know and make it more easily identifiable to let us know.

Mr. FERGUSON. But I could get on a computer right now and go

to YouTube and I could pull up hundreds more clips of copyrighted

work that is very obviously copyrighted work. Why do you not take

that stuff down?

Mr. HURLEY. Because the DMCA has a cooperation between content creators and——

Mr. FERGUSON. That leads me to my next question, actually. Mr.

Cuban, I keep reading and I have heard many times in the press

and other places that Google, who now owns YouTube, they are

protected by the DMCA. You are obviously a successful business

person. You are a high tech person. You have had a lot of experience in this regard. Is that your opinion as well?

Mr. CUBAN. No, it is not.

Mr. FERGUSON. Why?

Mr. CUBAN. No, I do not feel they are. Again, I am not going to

try to play the lawyer here. But we had Broadcast.com and we

were active in the initial thoughts of the DMCA. It was just the

concept of hosting or being a service provider was so that Comcast

or any ISP could post whatever a user wanted to upload and not

be liable for it. And there were constraints put in. They were saying we generated revenue or if something was red flag obvious that

you had to be responsible for it just for cases like YouTube.

And what is happening now is that YouTube/Google has a choice.

They can hide there behind the DMCA or be proactive, and I do

not think they have the right to hide behind the DMCA. They are

earning revenue. There is obviously red flag knowledge. Chad, all

he has to do is go on to his site. I am sure if he searched for ComVerDate 11-SEP-98 10:59 May 06, 2008 Jkt 000000 PO 00000 Frm 00500 Fmt 6601 Sfmt 6601 Q:\DOCS\110-10 SCOM1 PsN: SCOM1
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edy Central or whatever he could bring it down. And so I think it

is just a misapplication of the DMCA.

And as a content owner, the concept of takedown, it was not so

that we had to continuously monitor the host and service providers

every single one of them on a 24/7 basis. One of our most is Enron,

the smartest guys in the room, and others goodnight, good luck. We

have to monitor continuously. For some of our smaller movies we

spent more monitoring than we made on the movies. And so I think

it is a definite misapplication and they do not fall behind the

DMCA.

Mr. FERGUSON. Mr. Hurley, back to you. Eric Schmidt, who is a

CEO of your parent company, Google, recently said at an investor

conference, this is a quotation, ‘‘Traditional media argue that content has a certain intrinsic value while Google says, ‘Prove it.’ Ultimately, product value is determined if people view it,’’ Schmidt argued. ‘‘They vote with their clicks. They vote where they go.’’ Do

you agree with him that—or with Google that the number of clicks

should determine the value of somebody else’s property? I mean, it

just seems to me that is a very dangerous road to go down.

Google’s search engine technologies, they have invested a good

bit of money in developing that and something that is their property, if someone got access to that and just put it out there for free

for everyone else to use would you say or would Eric Schmidt say

that that is a violation of Google’s intellectual property rights or

would they say that is really just a big motion for people?

Mr. MARKEY. The gentleman’s time has expired. Mr. Hurley, you

can answer the question.

Mr. HURLEY. Our site is not about copyrighted material.That is

what it has never been about. The word YouTube is about you, the

people.

Mr. FERGUSON. But it is. I understand that. It is a great product.

I use it all the time.

Mr. MARKEY. The gentleman’s time has expired. I want to be

able to recognize Mrs. Capps, if you can you answer, Mr. Hurley?

Mr. HURLEY. What we are doing, we go up and be on with DMCA

and we have always been proactive because we want it to be about

the community. And we put 10-minute limits on our videos. So it

does discourage people uploading full length content of copyrighted

material. We also take a half of each individual file we take down

from the site so it does not make it back into our system. And then

we strictly enforce our policy to keep people off of our services that

violate our Terms of Use.

Mr. FERGUSON. Thank you. Mr. Chairman, just for the record, if

somebody wants to watch a 30-minute TV program they could go

to three different sections of Google and watch three 10-minute

clips.

Mr. MARKEY. The gentleman’s time has expired. There are 10

minutes left to go on the roll call on the floor. The gentlelady from

California has 8 minutes to be recognized. I am going to leave it

with her discretion as to when she leaves to go make the vote on

the floor. We will then have two votes and then we will return approximately 10 minutes after the point at which the gentlelady

completes her questions. And the gentlelady is recognized for 8

minutes.

491

Mrs. CAPPS. Thank you, Mr. Chairman. This has been a fascinating hearing. I am kind of dreaming of a sequel hearing, more like

a round table. These entrepreneurs, I would love to see them talk

with each other as well as to us. It would be fascinating. I am

going to try to do three sets of questions.

Mr. Rosenthal, you raised some important questions about product integration in TV shows and the decline of independent producers. As you know, there are FCC regulations providing for children’s programming during certain hours. The United Kingdom

has also limited advertising for unhealthy foods during children’s

programming. Do you think that product placement during children’s programming could undermine current and potential regulations about advertising?

Mr. ROSENTHAL. Let us get back to you in writing on that.

Mrs. CAPPS. All right.

Let me try this. I was going to say anybody else, but I think we

may be flooded. Do you believe that the rise of YouTube and other

user-generated content mostly available on the Internet will counteract the trends of product placement and the consolidation of the

media? And can new media pressure old media then to reform its

practices?

Mr. ROSENTHAL. Well, where I am coming from whether you are

watching on TV or a big screen or a little screen or your computer

or your phone, it is all content. And the people who create that content should be compensated. So that is our concern.

Mrs. CAPPS. I understand.

Mr. ROSENTHAL. Yes.

Mrs. CAPPS. Well, how about the new media pressuring old

media to reform its practices? Do you think there is any validity

there or——

Mr. ROSENTHAL. I do not know.

Mrs. CAPPS. You do not know?

Mr. ROSENTHAL. No.

Mrs. CAPPS. Well then, Mr. Hurley, we are talking about you

maybe. Would you comment on that question and what effect do

you think YouTube will have on TV programming, especially with

regard to the issues that I attempted to get out of Mr. Rosenthal?

Mr. HURLEY. Well, in terms of our effects on television programming—and like I said, I think we are a great promotional platform,

a way for people to experience media and drive them to a better

experience, which would be on TV. And we are committed to that.

And we are committed to allowing everyone the opportunity to participate in that process where before they would not have had the

opportunity to.

Mrs. CAPPS. Do you feel that YouTube and other non-traditional

video providers would prod mainstream? Is it a push or a pull into

increasing the diversity of its—can you make them be better, mainstream? And curtailing what some would see as perhaps excessive

product placement?

Mr. HURLEY. I think so, because you are allowing more people to

participate in the process. And you are also allowing talent to be

discovered, to take what they are creating to the next level. We

have had many examples on our sites, users that are signed not

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only with record labels but with major television networks. And

this is just a new resource for people to expose their talents on.

Mrs. CAPPS. Thank you, Mr. Hurley. And one more round, but I

will maybe have time to go back to that, my first question, and

open it up.

I would like to ask you, Mr. Krikorian. The Slingbox sounds like

a fascinating device. I can hardly imagine how it happens but I can

only appreciate it. As you say in your testimony, it is a great example of American innovation. You also state that it is extremely important for companies creating new devices to know that consumers are able to attach any device they please to broadband networks.

How do you see the balance between the ability of consumers to

attach devices to the network, the potentially large demands on the

network made by these devices, and the network providers’ desire

to maintain high quality of service for all?

Mr. KRIKORIAN. These products are in demand. I would actually

call that a high class problem.

Mrs. CAPPS. What do you mean by high class?

Mr. KRIKORIAN. It is a high class problem. I mean, what drives

innovation? What drives investment? What drives broadband,

newer services, higher tiers? They can charge more and so forth.

Without innovation they commonly become stagnant. If you are a

service provider—and let us say—on a contrary view, let us say you

are a service provider and we are the business—you believe you are

the business of selling gym memberships, so to speak, where you

are going to charge consumers and hope to gosh they do not use

the product. Well certainly having more and more products using

the network is a bad thing.

I will give you a specific case in point with the Slingbox. So in

my local area, Comcast has one service that they charge, let us say

it is $29 and it is for 3 megabits down and 384 kilobits up. Now

they also have a service that they call the Plus Pack, or something

like that, that they charge another $10 a month for and you actually get 6 meg down and 768 up.

Now we actually get complaints from our customers who call us

and tell us hey, I see this product called the Slingbox that you guys

have. When I am sitting at work I realize that if I have higher

speed I get a better quality. I am calling my local cable company

and telling them I want to pay them that money, I want to pay

them $10—and how often do you hear that, by the way? Right?

Mrs. CAPPS. Exactly.

Mr. KRIKORIAN. And I get in an argument with the customer

service operator because they do not even know the thing exists.

Mrs. CAPPS. I guess that is a good definition of high class.

Mr. KRIKORIAN. That is a high class problem, I would say.

Mrs. CAPPS. Now I am going to run real fast and vote so I am

going to take a little bit more time. A lot of parents and many of

us are concerned about advertising on kids’ programs. We have an

obesity problem. We have lots of kids being bombarded with—even

though the show—the content might be OK, that the advertising

of food products is anything but OK in terms of their healthy lifestyle. So the United Kingdom has limited advertising for unhealthy

foods. Do you think that this kind of product placement during chilVerDate 11-SEP-98 10:59 May 06, 2008 Jkt 000000 PO 00000 Frm 00503 Fmt 6601 Sfmt 6601 Q:\DOCS\110-10 SCOM1 PsN: SCOM1
493

dren’s programs could undermine current and potential regulations

about advertising? Anybody. Yes, Mr. Pyne?

Mr. PYNE. Just a couple of points here. One is that product placement in children’s programming is—our understanding is it is illegal so we do not do any at the Walt Disney Company for any of

our services, product placement within children’s programming. In

addition, the one——

Mrs. CAPPS. Well, do you think we should make it legal?

Mr. PYNE. No.

Mrs. CAPPS. OK.

Mr. PYNE. In addition, the Walt Disney Company, as I think

many of you know, has taken a real leadership role from Bob Iger,

our CEO, on down to change its licensing practices to really take

on the challenge of obesity and really revamped how it works.

Mrs. CAPPS. Even though the advertising might run counter to

that goal?

Mr. PYNE. We have changed throughout the company, our licensing, our advertising, throughout the whole company. We would like

to try to take a proactive step to address the issue that you raised.

Mrs. CAPPS. OK. Mr. Rogers?

Mr. ROGERS. I will say since I was with the subcommittee when

the issue was there were too many commercials attached to kids’

programming and those commercials were influencing kids in ways

that was not healthy, TiVo and DVRs have dealt with that because

what we find is that the people who fast forward through ads more

than anyone else are kids. They know how to do that. And so then

you face other issues once that happens, none the least of which

is the product placement issue you mentioned, although there are

regulations related to product placement in kids’ programming. But

kids have gotten really smart about figuring out what they do not

need to see or want to see and commercials are first on that list.

Mrs. CAPPS. So you think that is taking care of the problem. Of

course, you have to have a TiVo.

Mr. ROGERS. I will not say it is taking care of the problem but

it does show how new technology, to your original question, can influence old media in a way that may have a good public policy impact.

Mrs. CAPPS. I think I am out of time. Thank you.

Mr. MARKEY. All right. The hearing is recessed for 10 minutes.

[Recess.]

Mr. MARKEY. The hearing is reconvened. Without objection I

would like to submit a statement from the National Association of

Broadcasters into the record. Hearing no objection it is so ordered.

Let me now turn and recognize the gentleman from Texas, Mr.

Gonzalez.

Mr. GONZALEZ. Thank you very much, Mr. Chairman. And welcome to the witnesses. The first observation is I know that my colleague from Illinois said that the elephant in the room is net neutrality. I do not believe that it is. It is to the extent that the Congressman has put it in the room. It is really not necessary. It is

not relevant. It is not material to what we are discussing and the

common goals that we all share.

All of you represent a different actor or player in a system. And

innovation will determine, as Mr. Krikorian has indicated, whether

494

you are successful or not. The obligation of Congress is that we

have a level playing field and that we encourage investment and

such. I think Mr. Cuban has touched on that.

This is a delicate balancing act for us. We are talking about

buildout of broadband and the expense that it takes. And who are

the individuals know that are going to do that and who is going

to make those investments? And then now it is whether it is going

to be backboned infrastructure or are we going to be talking about

peer to peer? You know more about it than any of us up here.

But we also still would like to apply those historical principles

of law that have served this country so well. And I am talking

about patents. And I am talking about copyrights. I am talking

about trademarks. And I am talking about the sanctity of contract.

Technology does not really change any of that.

We have had individuals in court that have said it does. It was

not that many years ago that somebody in this universe of the

Internet and computers said we really ought to have temporary

monopolies in this country because technology allows that and it

will thrive if we have monopolies. That is not true. It was not true

in that case and it is not true today.

The other issue I know that Mr. Markey said he was going to

have a statement submitted by the National Association of Broadcasters, and I think that is an important point here. In this whole

debate, Congress’s nexus—what it authorizes us to pass laws that

truly impact what is out there for the people because we represent

the people. And they do have use and they do have values. And

they would like those somehow translated and reflected in some

programming. And it is really the broadcasters out there. That is

the only nexus is the public use of this spectrum by the broadcasters. And we have to, I think, be real sensitive as to as we proceed if we diminish their role and make them less competitive then

what impact do the people have? All of that.

Then we go into something else that you also discussed. The

international impact of this, to allow us to continue to be competitive and not let other countries that maybe do not safeguard this

business environment. I will ask Mr. Rogers. This is really interesting. Because we have had I guess the effect of what TiVo has done

in essence, which I think is a wonderful, wonderful device. But nevertheless it impacts ad revenue, does it not? And so if we have

these new business models out there that are changing basically

how people do business, who pays for the production? Who pays for

the product and such? So how do you all view your role in changing

that particular landscape?

Mr. ROGERS. Well, that is a great question, Congressman. The

first thing I would say is that the trend related to local over-theair broadcasting has been one of audience erosion for the last 25

years as cable has emerged and Video on Demand, satellite channels have emerged. It has met a steady erosion of audience from

broadcasting.

And what TiVo has meant is for the first time there is the new

technology which has actually caused an increase in broadcast

viewing, which is critically important, I think, from a policy point

of view. Today when you look at prime time shares, it is about 50

percent broadcast, 50 percent cable. When you look at replay of

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programming, about 70 percent of what gets replayed in TiVo

homes is of a broadcast nature. So what we actually see is broadcast viewing increasing.

That leads to another question, which is OK, the viewing may be

increasing, but if the commercials are not necessarily getting seen,

what is the revenue impact for the public licensees that you are

concerned about. And there we are seeing some very positive things

as well.

What we have introduced is all kinds of new advertising inventory which allows advertisers to find ways to engage viewers when

they might otherwise be fast forwarding through an ad to do something to prompt a response, to get them to go deeper, to get them

to instead of seeing something for 30 seconds see a 2 or 3-minute

clip of some kind which may be a much deeper way to engage with

that advertising product or service.

And we are getting the kind of response from advertisers that

suggests that makes television advertising more valuable, not less.

So the combination of higher viewing on broadcast and greater opportunities to engage the viewer and create a more valuable advertising experience makes me quite optimistic, actually, that this

technology is going to help broadcasting.

Mr. GONZALEZ. Mr. Rogers, I hope you are right. But it also leads

to other things, as Mr. Rosenthal has pointed out. We are hoping

that the marketplace and you guys will be able to figure it out and

you all survive because we need each and every one of you.

In my last 2 minutes, Mr. Cuban—and it is wonderful to see you

here as opposed to on the floor of the Spurs’ arena. I wish the Mavericks were in there, and I wish the Rockets had made it. It would

be wonderful.

In the time that is remaining, you likened or you made a comparison to a thousand-lane highway and how do we encourage the

builder of that highway to make that kind of investment? And we

say, an open Internet, net neutrality. It all sounds good. And we

are not at that crisis state at this point. But we are also, by the

same token, not building out as we should broadband applicability

and the new technologies.

If you were the one that was going to build that thousand-lane

highway and I told you well, someone can buy 85 percent of your

lanes. You cannot do anything about it. I still want you to make

that investment. 90 percent of your lanes. 95 percent of your lanes.

Would you still go and make that investment? And those individuals that are occupying the 85, 90 percent or whatever it is of the

lanes, you may not be able to negotiate anything with them. You

are a businessman. Where are we in that debate?

Mr. CUBAN. Well, I think our problem is we are looking at consumer-driven applications as how we fill that family pocket as opposed to commercial applications. I think we have got a lot of

issues in this country with technology. Although it may not be able

to solve it, it could have an impact on it. I alluded to this one earlier: health care.

If I was being an entrepreneur and there were 1 gigabit platforms, then as I mentioned earlier, I would be going to health care

providers commercially—in other words, I would look at commercial applications and say if we were to enable a 1 gigabit platform,

496

what type of new commercial application could you provide, put

your thinking caps on, and how would you be willing to contribute

to paying for this? Because you can move the cost from physical

and other types to digital. I think that is the unique opportunity

we have to leverage.

Mr. GONZALEZ. Thank you very much. Yield back.

Mr. MARKEY. The gentleman’s time has expired. The gentleman

from Nebraska, Mr. Terry.

Mr. TERRY. Thank you, Mr. Chairman. And may I suggest, Mr.

Chairman, that for future hearings we take Mr. Rosenthal’s testimony, download it to YouTube and e-mail that testimony to any of

our potential witnesses so they can see the new standards that

have been set for this subcommittee.

Mr. MARKEY. Can I just augment what you said without taking

away from your time is that Mr. Rosenthal probably is not aware

that he is the first witness to ever be applauded by the Members

of Congress.

Mr. TERRY. Yes.

Mr. MARKEY. So that is an unprecedented moment in my 31

years.

Mr. ROSENTHAL. I am going to come here more often.

Mr. MARKEY. I have never seen that. Anyway, the gentleman is

recognized for 8 minutes.

Mr. TERRY. Thank you, Mr. Chairman. And just to follow up, Mr.

Rosenthal, to your comment that at home we all seem to have our

neutral setting. And I understand that. Our spouses’ sometimes

missions are to humble us and mine does a great job.

With that, I do not think I have ever felt as inadequate with the

panel. I mean, all of you are impressive and successful. And I am

a Congressman, and I am glad my wife did not see this because

she is going to say why can’t you be more like them. But with that,

let me, Mr. Rosenthal, just throw something out to you.

I have noticed the trend of embedding into scenes commercial

products. I think one of the first ones I saw was maybe it was a

Sprint phone where they got to download their music and in one

of the many cop shows on they were sitting there talking about

downloading and naming a product specifically. But then on the

other side of that, let us not talk a product of Oreos or specific

phones but political speech.

For example, I do not watch Law and Order. I got tired of that

entertainment and me being told as a conservative Republican how

bad I am for supporting certain ideals. And then even in the speaking parts of the characters would take slaps at specific Republicans

in Congress. Is that OK but Oreos are bad?

Mr. ROSENTHAL. In that case you are talking about honestly an

exchange of ideas and free speech.

Mr. TERRY. Oreos are not?

Mr. ROSENTHAL. Well, you are selling a product. If you have

Rush Limbaugh for the other side. Right?

Mr. TERRY. All right. I just wanted to lay that out, because I

think that is an irony that needs to be discussed.

Mr. ROSENTHAL. We are in America. Thank God for that we can

do that.

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Mr. TERRY. So as long as it does not involve an Oreo but it involves——

Mr. ROSENTHAL. The moment Law and Order says that you

should eat these Oreos, then I think it——

Mr. TERRY. OK. But as long as you vote for Hillary Clinton and

Republicans are bad then it is OK politically?

Mr. ROSENTHAL. I am actually fine with that.

Mr. TERRY. Yes. I thought you would be. So is Dick Wolf, and

that is why I do not watch that show anymore because there is a

lot of other good shows on that do not slap my politics while I am

watching it.

I appreciate that. I just wanted to lay that out there. It has been

one of my frustrations with nighttime television is how political

they have become, especially that show.

Speaking of shows, I really appreciate ABC making a commitment to 9,000 hours of HD programming. I think as we move to

the digital switch with our hard date in place, the programming

has to be there in place. So I compliment you on that. I am going

to ask you for some help on something. I have an HD set at home

and I cannot watch my HD programming on my HD set because

your local affiliate refuses to allow it to be shown. Would you help

the HD roll out and tell your affiliates to quit hijacking their HD

signal from me? Will you do that?

It is Hearst Argyle, Omaha, Nebraska. I will give you their

phone number.

Mr. PYNE. We only have 10 owned stations for which we have retransmission consent. And all of our stations have digital retrans

that will give the signal to all those consumers in those areas. ABC

has 215 affiliates, Hearst being one of them, that could control that

conversation and negotiation between them and your Omaha station.

Mr. TERRY. Well, we are going on almost a 1-year anniversary.

And I think it is atrocious. And I do think you have a say with

your affiliates. But does it not disturb ABC, your national company, that you are denying me something that you are bragging

about? Or not you but your affiliate is doing it. Are they not hurting our relationship by doing that? Are they not hurting the HD

rollout by doing that?

Mr. PYNE. I mean, clearly as I think from the testimony and I

think practice with the 9,000 hours, our goal is to get as broad an

HD roll out of our viewership of all of our programming as we possibly can. But there are also local negotiations that take place that

quite frankly our relationship with the affiliate is——

Mr. TERRY. So it is OK with ABC national, the corporate, that

this is going on? That I am being denied, my constituents are

not——

Mr. PYNE. We do not——

Mr. TERRY. I am going to move on because I only have 2 more

minutes. Mr. Rogers, you brought up the CableCARD and it has

come to my attention that the CableCARD is becoming an issue between the consumer and the cable companies. I have been told by

our cable company what a huge problem these CableCARDs are.

That they do not work. They are losing a lot of time having to work

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with them. Are you aware of this problem? Is that a separate one

than the CableCARD that enables the product to work?

Mr. ROGERS. No. It is the same CableCARD. And the

CableCARDs generally do work. There are issues getting the

CableCARDs into consumers’ hands, which are really cable company operational issues relating to their own marketing and how

easily they want to make it for customers to access those cards.

And most of the friction for customers has been on actually getting

their card in their hand from their cable company, the requirement

that you schedule a visit from your cable operator to actually come

and hand you the card, as opposed to being able to get it through

the mail, easier ways to access it.

The issue I was pointing to is actually an operational issue relating to the CableCARD where cable operators are moving to a technology called switched digital. And that is beginning to create actual issues with the CableCARDs not functioning, which would undermine the entire ability of CableCARD technology and

CableCARD set-top boxes such as ours to work. Though as I said

earlier, the cable industry has indicated——

Mr. TERRY. Do you think the cable company is doing this to

eliminate your product in that the consumer can only buy their

DVR?

Mr. ROGERS. No. The particular issue that I was referred to is

actually one where the cable operators are going to switched technology to be more efficient with the use of their bandwidth. It just

happens to be a technology that isn’t able to work with

CableCARDs and somehow that is going to end up being a big

problem for consumers that support that.

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

Mr. STUPAK. Thank you, Mr. Chairman. And thank you for putting together this panel and this hearing. It has been an excellent

hearing. I apologize for being in and out as we were doing other

things with food safety and gas price gouging. But I did catch a lot

of it and read the testimony.

So I would like to start with Mr. Hurley if I may. I understand

that YouTube has a feature that allows users to designate the

video they upload as private and that users can then share them

with friends of their choosing. Right now is there any way for a

copyright owner to search through private videos to determine

whether any of them are unauthorized copies of copyrighted owners’ works?

Mr. HURLEY. Yes. We provide a tool where they are able to easily

identify content in our system. And they are industry leading tools

that we have been working on for quite some time. We provide

them to everyone that is working with us. And what we are doing

is giving a choice for them to not only have the opportunity to remove material from the site but after——

Mr. STUPAK. But who is making the determination that—if it is

in violation of copyright laws?

Mr. HURLEY. Well, under DMCA, they notify us that something

is rigid.

Mr. STUPAK. Who are ‘‘they’?

Mr. HURLEY. The media company, the rights owner.

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Mr. STUPAK. If they are private, how would they access them on

YouTube?

Mr. HURLEY. Yes. With private videos in particular, they are not

accessible through the tools. It is a private feature that is limited

to the user.

Mr. STUPAK. It is limited to the user but not possibly the owner

of the copyrighted works. And they have no way of determining

whether or not their copyrighted work was being put on this private videos then, right?

Mr. HURLEY. Yes. We are working on technology to make it more

effective to those——

Mr. STUPAK. OK.

This leads to my next question. Violating private or copyrighted

stuff, we have got copy laws to take care of that. Last year we held

10 hearings on child pornography, exploitation of children on the

Internet. What we saw was disgusting. We have sexual predators

now taking part in peer-to-peer sharing of videos of children, babies

often being sexually exploited. They trade these images and now

videos just like baseball cards. So can you or can you not monitor

this?

Mr. HURLEY. Yes.

Mr. STUPAK. There is no way you can underneath your privates,

in these so-called private videos. How would you monitor that?

Mr. HURLEY. Well, we made very clear in the Terms of Use we

do not tolerate any of that content in our system.

Mr. STUPAK. Well, no one does.

Mr. HURLEY. Yes.

Mr. STUPAK. But there is literally millions of them out there. So

how do you do that at YouTube?

Mr. HURLEY. We monitor the activity that is happening on the

site. And we, when notified of anything inappropriate—and our

users have done a very good job of letting us know when something

should not belong.

Mr. STUPAK. Well, let me ask you this. In your testimony you

said that videos that violate Community Guidelines come down

minutes after users flag them. So what are these Community

Guidelines? You never mention them in your testimony. Who determines Community Guidelines?

Mr. HURLEY. We have a very clear set of Community Guidelines

that clearly states things such as adult content, violent content,

hate. All of these are against our Terms of Use and our Community

Guidelines and also make it very clear to our users that is what

we are about.

Mr. STUPAK. So it is really up to the users to flag the violations?

Mr. HURLEY. Yes. We are seeing that not being an issue on our

site. Very few of the videos that are being uploaded to our system

are actually private. The main drive for people putting video on our

system is to be seen and to be heard, to get views, to get comments

and to interact with our community.

Mr. STUPAK. Sure. Do you monitor these private videos? Having

these Community Guidelines is like the FDA on food safety giving

the industry voluntary non-binding non-enforceable management

practices. But if no one is enforcing, how are they being enforced?

What are the consequences?

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Mr. HURLEY. Well, we enforce our Terms of Use, and we eliminate users that violate that. And what we are seeing is that it is

not a problem, and we are aggressively working on technology to

address all the issues potentially with our system.

Mr. STUPAK. OK. Thanks. Mr. Cuban, a number of questions, but

first of all, I come from a very, very rural district. In addition to

the satellite cable we have several wireless broadband efforts. We

literally have water towers instead of cell towers being used to provide wireless broadband. But the upcoming 700 MHz auction—everyone is talking about wireless broadband becoming the true third

pipe for Internet content. And you talked and you discussed about

the need to upgrade the infrastructure of the current cable and copper-based Internet system to fiber to regrow the Internet into the

future. So a couple questions. Do you think the Government has a

role in encouraging fiber to the home?

Mr. CUBAN. Yes.

Mr. STUPAK. And including investment, to encourage that investment to get that last mile as we talked about?

Mr. CUBAN. Yes, I do. As much as I would like to call myself a

Libertarian, just like building highways, just like putting the right

of way in place for electrical wires and telephone wires, I think

there is a place simply because from a competitive perspective if we

find ourselves without it we will have problems. I am not qualified

to say that we cannot get there on the road we are on already but

it would be something that would be appropriate.

Mr. STUPAK. Well, let me ask you this, if I may. Is it in your view

going to be a true competitor to fiber? Can it offer the same quality

in bandwidth? And how do we build a wireless network that is forward looking that can handle videos, gaming and other high bandwidth applications?

Mr. CUBAN. I think it is an interim competitor but not a longterm competitor. It is a shared medium, which means the more

people that use it and the more heavy the use, the slower everybody gets. And that has a point of diminishing returns.

Mr. STUPAK. Thank you. Thank you, Mr. Chairman.

Mr. MARKEY. The gentleman’s time has expired. The Chair recognizes the gentleman from Florida, Mr. Stearns.

Mr. STEARNS. Thank you, Mr. Chairman. This is for Mr. Pyne.

I have a headline from the Internet here which says, ‘‘Walt Disney

Sells 23.7 Million TV Shows and 2 Million Movies via Apple iTunes

Store.’’

So my question is a little bit tied in to what Mr. Terry talked

about when he asked Mr. Rosenthal about the product placement.

Just give me maybe a personal opinion here. Is this subscriber

model that I just read from this headline, how far is this away perhaps where you can actually see a day when consumers would say

I am just not going to watch the TV. I am just going to go to my

shows here, download it, and then I will have it.

And advertising people say golly, we cannot even get to this person. Now we have got to get to them through the Internet. So the

first question is do you think this subscriber model is going to replace anything in the near future and if so, when?

Mr. PYNE. I do not think it will replace our current broadcast

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works. I think our view and what we have seen through all of our

research is that today’s audience—and 10 years ago, 15 years ago,

people would come home from whatever they were doing during the

day, school, work, whatever, and they would go to the TV set.

Mr. STEARNS. Yes.

Mr. PYNE. In today’s world, given all the plethora of technology

that has been enabled, that is out there, our audience just gets it

in so many different ways. They still, whether it is at their 52-inch

HD set, they still go to the TV. But what we have found is whether

it is what we do with Apple, what we do with our ABC.com player,

or what we are testing now with Cox with via free VOD, all of that

we have found is complimentary to the broadcast. In fact, we have

seen ratings go up. We have seen increased viewership.

Mr. STEARNS. You have heard Mr. Rosenthal. He suggested that

product placement should be regulated. I think that is what we are

hearing from you. Did you agree with his idea?

Mr. PYNE. I do not agree.

Mr. STEARNS. This has probably already been covered, if you will

bear with me here.

Mr. PYNE. For the record, the Nissan ad that was referred to before we checked with our sources and in fact the actual dialog that

was referred to did not take place. Our standards and practices

took that out of the broadcast. In addition, we have no product

placement in children’s programming and following the rules any

time we integrate, and this is a producer’s decision. It is not our

companies’. It is the producer’s who is very entwined with the creative process. There are something called a 317, so that there are

specific——

Mr. STEARNS. But you do not think we need to have product

placement regulated by the Government?

Mr. PYNE. I do not.

Mr. STEARNS. OK. And Mr. Rosenthal, is there a point, though,

where you pick up a show and you watch maybe a man and woman

pick up a cigarette and it is a Lucky Strike and that actual use of

that cigarette at that moment creates the authority and the drama

which carries full scene? And maybe it is not a Lucky Strike. It is

a Marlboro. Or maybe it is a Coke or maybe it is whatever. Isn’t

there some creative freedom here that should be allowed instead of

having product placement under Government——

Mr. ROSENTHAL. I think what Mr. Markey was talking about,

and I concur, is that we are only talking about in the—in terms

of how it looks to kids who are watching. So he—what he is suggesting is that for rated G and PG movies that the ‘‘cool’’ character

is not portrayed as smoking because that is what the kids are responding to.

Mr. STEARNS. OK.

Mr. ROSENTHAL. I just want to apologize if there was any misinformation in the last thing. The other thing is I do not think we

are talking about regulating. I think we are only coming from, and

I speak for the WGA and SAG, is disclosure.

Mr. STEARNS. I have this Treo and sometimes it is frustrating because there is so much information on it and I get fooling with it

and really I am wasting a lot of time.

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And I guess the other question that goes for I guess Blake

Krikorian and Mark Cuban. Use of the bandwidth is intensely used

when you have streaming video. What is the best way for wireless

carriers to manage the various funds—voice, video, data traffic? Because I cannot imagine if this had video it is even more addictive.

How do you even as a consumer go about disciplining yourself so

that you are not fooling with it?

I see Members on the floor, and I see them on the subway, everywhere. They are just fooling with this thing. How do wireless carriers go about managing all those various forms of voice, video, and

data traffic?

Mr. KRIKORIAN. First off, you get a Sling player on there because

that will make you more educated as opposed to destroying your

productivity. Yes. I think first off there is probably a couple of

questions in there. No. 1, in terms of these applications that are

going to drive or are going to require more and more bandwidth—

again, back to my earlier point, I view a lot of that as a high class

problem. I think that the way that a mobile operator should deal

with it is to certainly not discriminate between services they are

providing and other ones that are available on the Internet.

But for those people who are actually using the bandwidth quite

a bit, it is all about a pricing game. Something we just did in the

UK, actually, with Three and Hutchison, they are the first mobile

operators to really embrace the Slingbox. And what they did is they

created another tier of service called the X-Series. I cannot remember exactly what it was because it was in pounds. But you paid an

incremental amount and you basically get things such as Slingbox

functionality and even Skype, believe it or not. And they found that

to have quite a bit of good amount of success.

Mr. STEARNS. My time is expired. Is it possible to have Mr.

Cuban answer that question?

Mr. CUBAN. Just very quickly, kind of the mantra of the management is bits for bits. In the digital world, it does not matter what

the application is. To the provider, it is all just digital bits. On the

consumption side, though, it gets to be an issue because there once

you start filling up the pipe other people suffer. And right now we

are in the scenario where most bandwidth is being priced on an allyou-can-eat basis. And that might change to a revenue per bit or

a cost per bit basis. And that will have different implications.

Mr. STEARNS. Thank you.

Mr. MARKEY. The gentleman’s time has expired. I do not know

if any other members are going to return. But what I am going to

do is I am going to ask each one of you to give us your summation,

1 minute that you want us to retain out of your visit here to the

Subcommittee on Telecommunications and the Internet. While you

are thinking about that, let me just ask you, Ms. Lombardi. Channel 55 all across America is going black on February 17, 2009. No

more Channel 55. You will have MediaFLO on that. How long after

February 17, 2009 will it take for you to be up and fully operational across the whole country?

Ms. LOMBARDI. We have 27 markets today. We will be continuing

to buildout, and by the time we get to early 2009 we hope to have

the top 100 cities in the United States fully functional.

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Mr. MARKEY. Excellent. Thank you. And you, Mr. Pyne, you are

an old business but without an old business model. How do you negotiate this relationship between your affiliates that are the old

model and this new business strategy which you have? How do you

negotiate that tension?

Mr. PYNE. Carefully. We have in terms of our local broadcast affiliates, again we have over 210 of them. We have tried to work

with them collectively as we delve into this new media. So for instance, our dot com player, our ABC.com player, we include them

in the advertising so that they can monetize it. They can take advantage. And in addition, we allow them to co-brand their local station with the ABC brand. So the viewers in that community can

actually access through the local Web site. You can see local news

but that can be brought to the ABC.com player.

In addition to what we just announced this week with Cox Communications on a VOD model that was broadband, we look forward

to doing a similar type of thing and we have got a strong interest.

Mr. MARKEY. Mr. Shimkus, do you have a final question?

Mr. SHIMKUS. Just two follow ups.

Ms. Lombardi, what does the free spectrum from the DTV transition mean for MediaFLO and for wireless video innovation generally?

Ms. LOMBARDI. Sir, QUALCOMM is a company that continues to

innovate and look at new wireless technologies. And the fact that

the United States Government had spectrum available that we

could acquire and utilize to bring consumers more choice, every

content, like ESPN, to consumers wherever they go on their

handset—the picture quality is fantastic. People up to 70 years old

are willing to watch the screen. And to be able to do that across

the country is very compelling, we think, to the marketplace.

Mr. SHIMKUS. Ms. Lombardi, could MediaFLO have gotten off the

ground if the spectrum auction it participated in had rigid conditions on how the spectrum could be used?

Ms. LOMBARDI. No. The rules have been very good to us, and we

have complied with the requirements of the FCC, and that has enabled us to launch this service across 27 markets.

Mr. SHIMKUS. Thank you, Mr. Chairman.

Mr. MARKEY. The gentleman’s time has expired. So we will turn

now to the members of our witness panel. You have been outstanding. We thank you for that. Your one-minute summation to the

committee is very much appreciated. Mr. Cuban, we will begin with

you.

Mr. CUBAN. I will try to get to the one minute. First, in terms

of the February 2009 cutoff date, I think what has not been anticipated is that it is going to be a retail bonanza for consumers. As

cable competes with satellite, TV manufacturers try to take advantage of the conversion, we are going to see some of the best deals

for multi-video distribution that we have ever seen in our lifetime,

so it is going to be interesting.

Two, I think there needs to be significant respect for copyrights

because if we do not deal with it, whether it is YouTube, whether

it is other video-hosting environments, that content providers are

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tent and that is going to be a significant negative for consumers

over the long haul.

And three, in terms of bandwidth for consumers, we need to start

thinking in terms of 1 gigabit and up, not just merely incremental

increases, simply because the consumers benefit, the commercial

opportunities that are created with that platform will propel this

country in a competitive basis in all things we have been considering at this point.

Mr. MARKEY. Thank you, Mr. Cuban. Mr. Krikorian?

Mr. KRIKORIAN. OK. So I think if I could leave you with one

thing I would say that when we talk about disruption, disruption

and invasion are very much synonymous. You hear them mentioned in the same breath many times. And one thing that I really

thank you guys for giving us the opportunity to come here. I encourage you to keep doing that because as you really see things

that can be viewed as disruptive end up becoming actually great

things for the people who were threatened by it.

And I do not need to remind you too much, but I will just a little

bit. Remember when radio came out. People were saying no one

was going to provide music. We all know what happened with the

Betamax issue and where we went there. And in fact, we saw last

year $9 billion in movie ticket sales and $24 billion in this little

thing called DVD and VHS. There are certainly challenges, even

TiVo brings up in terms of people skipping commercials. But at the

same time I am confident that in fact what Mr. Rogers was saying

that there is going to be new innovations there that are going to

address that and perhaps make advertising even more successful.

I urge you to keep the forums that you are having here because

a lot of times—I am a big believer in copyright, as an example, but

I am not a big believer in using copyright to protect business models.

And so I think it is very important that all of us really understand what this technology means, what it does, and keep an open

mind on how it can be used to the industry’s advantage as well as

the consumers’ advantage. Thank you.

Mr. MARKEY. Thank you. Mr. Rosenthal?

Mr. ROSENTHAL. I just want to thank you for having these. I

learned a lot today and it has been such a pleasure listening to

these brilliant people.

I disagree a little bit with Marsha Blackburn’s statement that

‘‘the medium is the message.’’ I believe that the message is still the

message. And all I would ask of these geniuses is that as new technology is implemented that they continue to respect the creators of

the cup.

Mr. MARKEY. Thank you, Mr. Rosenthal. Ms. Lombardi?

Ms. LOMBARDI. Sir, one thing that I would like to put on the

record, mobile TV has existed in the world for a while. In Korea

they have had mobile TV and now Europe is rolling it out. What

we have done here in the U.S. is leapfrog what exists in the marketplace today. And with the flexibility, with the DTV transition

date, with the flexibility here in the United States, we are able to

innovate, create a new technology, create a new service, and provide consumers a real value. And so I want you to realize that the

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U.S. is driving things faster than other countries because of your

flexibility. Thank you.

Mr. MARKEY. Thank you, Ms. Lombardi. Mr. Pyne?

Mr. PYNE. Thank you. Clearly I think the technologies have enabled the consumer to access content in so many ways that I think

5 years ago were completely unthought of. And we as a company

and content creators want to make sure that we are in the forefront of that and to work with, to be out funding, and to be

proactive. Clearly creating quality content the way we do every day

is expensive, it requires a tremendous commitment of resources

and time. And we are committed to looking for new models to make

all of this possible.

Just to reiterate one point, section 317 of the Communications

Act actually already requires disclosure of product placement. So

just to reiterate the point before, we do not believe any new law

is needed. Thank you.

Mr. MARKEY. Thank you, Mr. Pyne. Mr. Rogers?

Mr. ROGERS. I would simply say that this subcommittee has always been guided by creating more competition and creating more

consumer choice. And you do not create innovations. But this committee does define the future in terms of whether those innovations

are going to succeed.

And I must simply say as you always have done, do not allow

incumbents to choke off new competition, new choice, be it in

broadband or new set-tops or wherever it might emerge. This subcommittee has always been a great guider of innovations being able

to emerge in that sense. And I think if you continue in that role

the video future will be a bright one.

Mr. MARKEY. Mr. Hurley?

Mr. HURLEY. Yes. I would like to say first of all thank you for

having me here today. And secondly, that YouTube is more than

an entertainment destination. YouTube is truly a site that informs,

inspires and empowers people to communicate their messages to

the world.

We hear stories about children in Africa having the opportunity

to go to computer centers. And they are actually viewing YouTube.

And this is acting like a window to the world for them, where they

have a chance to see what is happening beyond their borders. And

we really feel in the future it is going to be able to really promote

understanding between cultures.

Another thing with what we are working on is we take copyright

seriously. We are going to continue to work on technologies and

work with our rights holders and partners that are currently working with us to create new markets to exist for them to promote and

create new revenue services. Thank you.

Mr. MARKEY. Thank you, Mr. Hurley, very much. I cannot tell

you how much the subcommittee appreciates the incredible expertise that this panel represents. And I cannot tell you how many

times I have been complimented during the breaks by the members. They very much appreciated your testimony and really feel illuminated.

Mr. Krikorian, even going back before radio, the disruptive technology, when they moved from silent movies to talkies it put 20,000

piano players out of business who were playing in each theater

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across America as the movie was up there. It was probably a very

tough time for piano players in America in 1928 and 1929.

When I arrived here 31 years ago on the Telecommunications

Subcommittee we had one phone company that had 1.2 million employees. It was bigger than the next five companies in America

combined. And we were all using a rotary dial phone even though

they had invented touchtone phones 20 years before.

The cable industry was in its nascent form. So was FM radio.

There was no Internet. Cell phones were just something that was

in the imagination of telephone companies but not of the inventors.

And so this subcommittee over the years has played a role in

breaking down these barriers—as Mr. Rogers said, moving over 200

MHz of spectrum in 1993 so that a third, fourth, fifth, and sixth

cell phone company could be created; passed the 1996 Telecom Act,

the 1992 Cable Act, all of them with the intention of further making it possible for technological innovation. And I think to a very

large extent this hearing would not have been possible without all

of those changes.

And hopefully we will be guided by your testimony so that we

can continue to adapt and change in a way that in another 5 or

10 years there is a whole new panel of people who are sitting down

here that the committee members can basically say wow, look at

those people down there. Look how they are changing not only our

country but the world.

With the thanks of the subcommittee, this hearing is adjourned.

Thank you.

[Whereupon, at 12:55 p.m., the subcommittee was adjourned.]

[Material submitted for inclusion in the record follows:]

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STATEMENT OF MARK CUBAN

CO-FOUNDER, HDNET

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STATEMENT OF THE NATIONAL ASSOCIATION OF BROADCASTERS

The National Association of Broadcasters (NAB) respectfully submits this statement for the record in the subcommittee’s hearing on Digital Future of the United

States: Part V: The Future of Video. NAB is a trade association that advocates on

behalf of more than 8,300 free, local radio and television stations and also broadcast

networks before Congress, the Federal Communications Commission and other Federal agencies, and the Courts.

The future of video clearly includes free over the air television. The broadcast television industry has invested and continues to invest very significant time, effort and

financial resources to complete the transition to digital broadcasting successfully,

expeditiously, and in a consumer-friendly manner. The local television stations that

today keep their communities—and your constituents—informed and connected intend to remain a vibrant part of the media landscape in the 21st century. Innovations such as digital broadcasting will enhance broadcasters’ competitiveness and

ability to serve local communities and viewers in numerous ways.

Beyond ensuring a smooth digital transition by February 17, 2009, broadcasters

must also look towards a future where the Internet and its myriad applications will

alter profoundly the video marketplace. Despite rumors of their demise, however,

local television broadcasters and national networks will also play an important role

on new distribution platforms, including Internet delivery, vodcasting, and mobile

video. In the coming years, with local programming as the backbone, broadcasters

will effectively compete in a ‘‘wherever, whenever’’ video environment.

BROADCASTERS HAVE MADE TREMENDOUS STRIDES TOWARD COMPLETION OF THE

DIGITAL TELEVISION TRANSITION, TO THE BENEFIT OF CONSUMERS

Broadcast stations have made remarkable progress and are fully committed to

completing the digital television (DTV) transition in a timely manner—and in a

manner that is as seamless as possible for consumers. As of May 7, 2007, 1600 fullpower television stations in 211 Designated Market Areas across the United States

were providing programming in digital. Why have television broadcasters embraced

DTV? In short, because digital technology is the future of video—it will enable us

to better serve our local viewers and communities and to remain competitive in a

marketplace where all communications services and media will be digital.

Digital technology offers service of far higher quality—high definition (HD) pictures, improved sound, and screen dimensions better suited to the human eye. This

technology also allows broadcasters to offer additional, free programming streams

within each television licensee’s six MHz channel. Because digital technologies are

more robust than traditional analog technology, stations can be packed closer together without causing destructive interference to the public’s over the air service,

thereby reducing the amount of spectrum needed for over the air television stations.

At the end of the DTV transition, this ‘‘left-over’’ spectrum will be returned to the

government. Some of the returned spectrum will be used for vital public safety

needs—needs we have all become acutely aware of in light of the events of September 11, 2001. Some of the freed spectrum will be auctioned for other innovative uses

at substantial benefit to the U.S. Treasury.

Indeed, even though the digital transition is not yet completed, consumers have

already benefited from it. The major broadcast networks provide their most popular

programming, including prime-time programming and major sporting events, in HD.

About 45 local stations throughout the country, including WUSA-TV here in Washington, broadcast their local news in HD. Hundreds of local stations are also using

their digital channels to provide multiple program streams within their digital signal, and many more are considering doing so in the future. Decisionmark, a media

technology and software and information firm, estimated in late 2006 that approximately 780 television stations were offering multiple program streams, including

news, weather, entertainment, sports, religious and ethnic-oriented programs. Even

local stations in medium and small markets, including markets as small as Boise,

Idaho, are providing numerous news, sports and weather services to their local communities over their digital signals.

Clearly, the public—even those who view television through cable—would be

served by access to these new program streams. So far, however, many broadcasters

have encountered resistance from cable operators who have denied, delayed or otherwise impeded delivery of the full digital signal to cable consumers. Stripping out

these services is contrary to the terms of the 1992 Cable Television Consumer Protection and Competition Act, and threatens the health and vitality of broadcast services for all viewers. Congress should accordingly direct the Federal Communications

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1 Members of this Coalition include the Association for Maximum Service Television, Inc.; the

National Cable and Telecommunications Association; the Consumer Electronics Association; the

Association of Public Television Stations; the Consumer Electronics Retailers Coalition; the

Leadership Conference on Civil Rights; and many others.

Commission (FCC) to prohibit cable and satellite operators from stripping out programming streams from broadcasters’ digital transmissions.

Congress, the FCC and the National Telecommunications and Information Administration (NTIA), as well as all sectors of the television industry, must also work

to educate the public about the DTV transition. In particular, members of the public

need to know what steps they must take to continue to have access to the television

programming they rely upon after the analog television cut-off on February 17,

2009.

NAB has formed a Digital Television Transition Team to spearhead the broadcast

industry’s efforts to provide information about digital transition issues. Managed by

a new Vice President of Digital Television Transition, with a full-time media relations director, two directors of outreach, and a multimillion-dollar budget, this team

will coordinate a national public affairs and consumer education campaign with the

goal of ensuring that no consumer is left unprepared, by lack of information, for the

end of analog broadcasting. Specifically, the NAB consumer education campaign has

and will continue to utilize both survey research and focus groups to identify and

market to those impacted by the transition. The campaign’s media relations director

will be making sure DTV has a presence in local, as well as national, publications

and programming. With the help of local affiliates, NAB will spearhead a national

speaker’s bureau aiming for thousands of local speaking engagements throughout

the country about the transition. NAB will produce and distribute high-quality public service announcements for play on networks and local stations. NAB’s digital

transition team will also help coordinate the Digital Television Transition Coalition,

a coalition of (to date) about 85 member organizations that have joined together to

raise consumer awareness of the digital transition.1

This Coalition, which intends to work closely with NTIA and the FCC, will launch

public education efforts (including media placements) to convey accurate, consistent

and needed information to the public.

BROADCASTERS CONTINUE TO EXPLORE NEW DISTRIBUTION PLATFORMS FOR NEWS,

INFORMATION AND ENTERTAINMENT

Traditionally, broadcasters have relied on transmission through the television signal to reach local communities with national and local news and entertainment.

That distribution medium will remain, and in fact thrive, in the digital future, as

outlined above. In addition, broadcasters are actively embracing a future where

video is consumed through multiple outlets, including the Internet, cell phones,

portable gaming devices, iPods and personal digital assistants (PDAs). Each of these

distribution channels provides broadcasters with new opportunities, both to extend

their current business model, and to create new models that will take advantage

of each medium’s unique characteristics.

Broadcasters have long used the Web to provide local news, both in text form and

through video clips. The Web offers broadcasters more flexibility to provide deeper

coverage of their local communities. Concurrent with the expansion of broadband

penetration in the United States, broadcasters have accelerated Web video offerings,

including longer versions of stories that originally appeared on their local newscasts.

Plus, many broadcasters are providing live local news simulcasts through their Web

sites. As the convergence of television and the Internet comes to fruition, broadcasters expect to provide a virtual bridge between the technologies, so that in the

future, as the so-called ‘‘I Generation’’ matures, the local television brand will extend seamlessly across multiple platforms.

Much of the attention at today’s hearing focuses on ‘‘new media’’ initiatives in the

video marketplace, and with good reason. The remarkable rise of YouTube, for example, illustrates the volatile nature of an industry that for decades has relied upon

established, larger media companies. Today, a 16-year-old auteur in Des Moines can

film a clip of his friends skateboarding that could be viewed by thousands, even millions, of global viewers within a week. The Internet is breeding ‘‘video stars’’ like

Lonelygirl15 who have never appeared on television or in the movies. And with the

combination of more powerful computing, faster broadband speeds and lowering

costs of storage, this trend will only continue and quicken.

In many households, appointment television has been replaced by recorded television with the increasing use of personal video recorders like the Tivo. And consumer expectations are shifting with the technology. For example, digital cable conVerDate 11-SEP-98 10:59 May 06, 2008 Jkt 000000 PO 00000 Frm 00612 Fmt 6601 Sfmt 6601 Q:\DOCS\110-10 SCOM1 PsN: SCOM1
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sumers can count close to 4,000 programs available through on demand services,

most of which are free to cable subscribers. With Apple TV or Sling Media’s

SlingCatcher, consumers with a wireless home network can stream almost anything

they see on the Internet directly to their television. In a virtual sense, the

broadband Internet connection is now just a few inches away from the television.

And when it finally gets plugged in, it will open an infinite channel universe

through which consumers will merely point-and-click, rather than change the channel.

But, even in the face of increased competition, broadcasters remain confident that

the very best products and programming will still draw the most eyeballs. High-definition television is the killer application for television in the digital age. It may be

more than a decade before the Internet can provide a comparable quality picture

to an over the air signal. As the price of high-definition televisions continues to

drop, consumers will look for the very best signal to fill their screens. And broadcasters will be there, providing local and national news, high-quality entertainment,

and, when necessary, life-saving emergency information.

Broadcasters are not satisfied to merely provide the best signal to your television,

however. They are actively looking to extend their content to other devices, including cell phones, as well. In the last six months, major technology companies have

announced two exciting standards that could help broadcasters reach millions of

consumers when they are away from their home televisions. Samsung’s Advanced

Vestigial Sideband (AVS) standard, and the LG/Harris MPH In-Band Mobile DTV

System, each enable portable devices to receive broadcaster signals independent of

a cellular network. Local broadcasters, with little infrastructure investment, can use

capacity in their digital stream to accommodate each new standard, and reach onthe-go consumers with real-time, high quality video signals. Soon consumers will be

able to catch American Idol or The Office on their cell phones just as they can on

their home televisions. The new technology will also work well with Mp3 players

like the iPod, PDAs, and in-vehicle television screens, even at speeds as fast as 80

miles per hour. While latency issues and low quality have impeded adoption of mobile television by consumers in the United States, these new standards foretell a

revolution for broadcasters and cellular companies alike.

Even in this Web 2.0 world, broadcasters will play a prominent role in the way

consumers watch video long into the future. With the promise of digital television,

and the advent of new distribution streams, broadcasters are well positioned to provide top quality video programming to every American, just as they have for the

past 60 years. The National Association of Broadcasters, local television stations,

and national networks look forward to working with Congress to ensure that free,

over the air television remains an important part of any conversation about the future of video.

(603)

THE DIGITAL FUTURE OF THE UNITED

STATES

THE FUTURE OF TELECOMMUNICATIONS COMPETITION

TUESDAY, OCTOBER 2, 2007

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON TELECOMMUNICATIONS

AND THE INTERNET,

COMMITTEE ON ENERGY AND COMMERCE,

Washington, DC.

The subcommittee met, pursuant to call, at 9:37 a.m., in room

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

Members present: Representatives Doyle, Harman, Gonzalez,

Inslee, Boucher, Towns, Pallone, Eshoo, Stupak, Engel, Green,

Capps, Dingell, Upton, Stearns, Deal, Shimkus, Pickering, Fossella,

Radanovich, Walden, Terry, and Ferguson

Also present: Representative Blackburn.

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

OF MASSACHUSETTS

Mr. MARKEY. Good morning. Today’s hearing is about the future

of telecommunications competition in the United States. But I also

feel a certain sense of deja vu. In April, the subcommittee held a

hearing on broadband deployment competition and consumer adoption in other nations, including Japan, New Zealand, the United

Kingdom and Rwanda. That hearing took place the day after the

United States dropped from 12th to 15th out of the 30 countries

in the OECD broadband rankings. And mind you there is no excuse

for the fact that America is falling behind. This is because the

United States started out on the right path by implementing provisions in the 1996 Telecommunications Act designed to jumpstart

competition both between and among technology platforms. Gradually, however, we lost our way. As regulators became convinced

that competition within a platform actually hindered overall

broadband deployment and took market opening rules off the

books, it is as if the FCC several years ago picked up a loose football on the field after a collision and started running with the ball

full speed towards the wrong end zone.

Our international competitors look on at what we are doing and

must be stunned, and that is because we started this Internet

game ranked No. 1 in the world because we invented it and now

we are No. 15. People quibble with the methodology of the OECD

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rankings, but regardless of how you slice it, price, speed, percentage of subscribers, the United States is no longer in the top tier

and we continue to drop.

Many other nations took one look at our broadband situation,

learned from our experience and took the opposite approach. Japan

and the United Kingdom implemented the very polices that the

FCC had gradually eliminated in recent years such as local loop

unbundling and broadband resale which facilitate competition

using the incumbents’ plan regardless of technology.

These foreign competitors are now enjoying broadband success

stories. The United States, however, continues taking the opposite

approach. We are digging ourselves a hole, and now we are in violation of the first law of holes, which is if you are in one, stop

digging. Take the issue of forbearance. Some incumbent phone

companies have asked the FCC to eliminate their essential network

sharing arrangements under section 10 of the Act. One of today’s

witnesses, Cavalier Telephone, leases copper phone lines for the

last mile and provides residential consumers with the triple play

bundle of voice, 150 channels of cable TV, and high speed

broadband for approximately $80 a month. But if the forbearance

petitions are granted, Cavalier, Time Warner Telecom and other

broadband competitors will lose access to the critical bottleneck facilities that they need.

A related issue is special access. Special access circuits are the

lifeblood connections for wireless carriers such as Sprint Wireless,

and as a result wireless carriers depend on special access which

will grow as they deploy broadband networks that deliver greater

bandwidth but correspondingly require more capacity.

The GAO found that the FCC’s deregulatory pricing regime for

special access has resulted in higher prices and little competitive

choice for special access circuits. Because prices today are higher

than what a truly competitive market would support, current and

future wireless providers will expend funds on special access that

would be better spent reducing prices to consumers or deploying

more and better broadband facilities. Unless this market failure is

corrected, special access could have a negative impact on all wireless broadband deployment, including deployment that facilitates

interoperability between public safety organizations.

But the most outrageous issue is copper retirement. In this sense

interpret the word retirement the way Luca Brasi used to retire

competitors to the Corleone family. Some incumbent telephone

companies are disabling perfectly functioning copper loops that

could be used by competitive broadband providers such as Cavalier

after the incumbent deploys its own fiber facilities. Like Sherman’s

march to the sea these incumbents leave scorched earth in their

wakes cementing the broadband duopoly between the incumbent

phone company and the cable company.

In the final analysis, today’s hearing goes to the core of our nation’s broadband policy. How many apertures will consumers have

to reach the broadband Internet, one, two or many more? At what

speed? At what price? Will municipalities be permitted to serve

their citizens and provide the best broadband service they can? I

have certainly battled for such rights. These choices are vital.

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For example, we recently saw Verizon’s initial and quick reversal

of a decision to block certain text messages on its service, as well

as the fine print in AT&T’s contract terms which seem to indicate

it might censor messages it finds unpleasant.

Network neutrality rules could safeguard consumer rights in

such instances, but more and better broadband choices would help,

too. And we are simply not going to reach that goal if regulators

keep knee-capping those who would provide consumers such much

needed broadband choice.

I look forward to hearing from our witnesses.

I turn to recognize the ranking member of the subcommittee, the

gentleman from Michigan, Mr. Upton.

Mr. UPTON. Well, thank you, Mr. Chairman. I might just ask initially that all members be able to submit their statements for the

record. We have a Republican conference this morning that runs

until a little bit after 10:00.

Mr. MARKEY. Without objection.

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

Mr. UPTON. Good morning. I would like to start by welcoming

our witnesses and particularly you for holding yet another hearing

on the digital future of the U.S.: today’s installment, the future of

telecommunications competition.

The trend in the telecommunications sector is towards deployment of advanced technologies and increased competition. Deregulation has successfully promoted investment, innovation and more

competition, benefiting consumers. The growth statistics are impressive and further bolster the arguments for a deregulatory posture. VoIP subscribers grew an eye-popping 709 percent from 1999

to 2006. The number of wireless subscribers grew 372 percent from

1996 to 2005. The number of competitive local exchange carrier

lines grew 263 percent from 1999 to 2006. And meanwhile the

number of incumbent local exchange carrier lines dropped 5.6 percent from 1996 to 2005. And as the saying goes, the numbers do

not lie. And even more telling about the strong state of competition,

as of June of last year the number of high-speed data lines was

nearly equally split between incumbent phone companies on one

hand and non-incumbent cable providers on the other.

The business market is particularly competitive for computer

networking, Ethernet services, with no one entity having more

than a fifth of the market. Time Warner Telecom, the third largest

provider with 14 percent behind AT&T and Verizon, and the rest

spread among many other entities. The number of consumer

choices and services available has significantly grown as we trend

away from regulation. Where competition is present we must continue the course away from regulation. As new services and technologies become available we must avoid the lure of government

red tape.

Another issue that will be addressed today is municipal

broadband. Chairman Boucher and I have recently introduced H.R.

3281, the Community Broadband Act of 2007. Our legislation preempts States from prohibiting municipalities from providing

broadband, voice data or other video service. It is important to note

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that the bill requires municipalities to apply all of their regulations

to their own broadband service without any preference. And before

a municipality may provide broadband service it must seek public

and industry comment on the cost and benefits of the proposal and

any alternatives.

While there are clearly risks associated with municipalities offering broadband services, it may prove to be a value in communities

where there is no commercial provider. Municipalities and their

citizens should have the right to decide for themselves whether to

enter the market and should be allowed to succeed or fail like any

other broadband provider.

Lastly, I would like to again recommend the auctioning of white

spaces. The market is much better than the regulators at determining the value of and best uses for this spectrum. There are likely

a number of possible uses, and one that has recently been raised

is an alternative to special access. All potential providers and services should be given an opportunity to compete for this spectrum

in a fair auction. Licensing would also have the added benefit of

protecting against any interference with digital TV should it arise.

The recent test results released by the FCC demonstrate that that

indeed may be a problem. At a minimum, additional FCC testing

is needed.

Again, I thank our witnesses for joining us today, and I look forward to your testimony. I yield back the balance of my time.

Mr. MARKEY. Gentleman’s time has expired. 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. Mr. Chairman, it is kind

of funny. Everyone downtown is worried that I might be up here

this morning with an ax to grind. I just want to let everybody know

that I woke up on the right side of the bed this morning. I had my

Starbucks and I had a rather delicious bacon, egg and cheese sandwich on multigrain toast and I am feeling pretty good.

I just want to take a step back and talk about the future of competition. I read an article by Art Brodsky in The Huffington Post

about a man in the United Kingdom who built a spreadsheet to

compare his options for broadband services. And some estimate

that there are now over 200 ISPs in the UK. Across the pond there

is competition on price, speed, installation cost, Web storage space

and more.

Mr. Chairman, have you ever been to a grocery store and you see

a hundred different bottles of wine on the shelf fighting their way

into your basket? That is the kind of choice this guy has, except

wine is better than broadband in that it doesn’t hit you with a $200

early termination fee if it is not any good. Give Americans the

same choice for Internet providers that the people in England have.

Isn’t as catchy a slogan as ‘‘one if by land, two if by sea’’ or ‘‘the

Redcoats are coming.’’ But it is an important question I hope my

colleagues on the committee have considered.

Now I wouldn’t blame the CEOs and executives on today’s panel

if they had been afraid of having to compete with 200 Internet

607

service providers. But we don’t live in that world. Instead, Cavalier

has to hope that Verizon isn’t successful in killing the competition

rules that will allow it to survive until 2008. And Sprint Nextel

and T-Mobile have to hope that special access rates don’t eat a hole

in their bottom line so big that it will slow them down from rolling

out faster technology.

Now I suspect there will be much talk about Verizon Wireless

blocking pro-choice groups sending text messages to its supporters,

and they quickly changed their policy, a smart move. But I say to

my friends who oppose net neutrality because competition will take

care of any problems, we can’t cut competition off at the knees and

then expect it to save us.

A few months ago I said the debate over special access should

really be called critical access, that these special access lines are

critical to broadband deployment and competition. These lines

allow America’s businesses to bring growth and development to farflung areas. They allow us to stay connected to our data and to the

world around us. These are not small issues with funny names.

They are our link to the broadband future, Mr. Chairman, and we

can’t get this one wrong.

I yield back.

Mr. MARKEY. The gentleman’s time has expired. The Chair recognizes the gentleman from Georgia, Mr. Deal.

OPENING STATEMENT OF HON. NATHAN DEAL, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF GEORGIA

Mr. DEAL. Thank you, Mr. Chairman. I want to thank our witnesses for joining us today. I think the future of telecommunication

competition is certainly one of the more important issues facing our

committee and one that we should continue to explore.

As I have expressed in the past, I believe it is critical for our

telecommunications infrastructure to be grounded in competition

where market forces create proper incentives and pricing. We

should strive to avoid regulation whenever possible. The Government should not interfere when competitive forces are at work, but

at the same time where a free competitive market has yet to evolve

it remains necessary to uphold protections which ensure the public

interest is met while promoting increased competition.

The forbearance petitions currently pending before the FCC are

excellent examples of how these questions are being played out in

the marketplace. We here in Congress do not have the expertise to

know which particular markets are competitive and which are not.

This responsibility rests with the FCC, which has been tasked with

encouraging competition whenever possible while simultaneously

ensuring that deregulation does not occur where competition is absent.

I am interested to hear from today’s witnesses as to their views

on how the forbearance petitions allow them to work with the Commission to ensure that adequate data and information is provided

in a timely manner. The various industry participants feel they are

afforded sufficient time and opportunity to respond to data and

statements submitted to the FCC in the forbearance petitions. Do

they feel that the FCC is doing a good job of analyzing competition

in all aspects of the market, both residential and business?

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In large part these questions also apply to the special access

market. I know certain industries have expressed concern that the

special access market is broken. These companies describe a pervasive problem where a lack of competition in certain segments of

their local markets, where inflated prices are increasing as are

anti-competitive terms and conditions.

Finally, I would note the pending retirement of the copper facilities. I am interested to learn if the incumbent carriers, when they

decide to retire the copper wire, are open and willing to sell the

copper network in the last mile to allow for another carrier to purchase them. It doesn’t seem beneficial to the public interest if we

simply allow this valuable network to be retired when numerous

companies have expressed interest in purchasing it.

Thank you, Mr. Chairman. I look forward to hearing from our

witnesses, and I yield back my time.

Mr. MARKEY. The gentleman’s time has expired. The Chair recognizes the gentleman from Washington State, Mr. Inslee.

Mr. INSLEE. Thank you. I just look forward to the testimony

about these multiple forbearance issues and I hope we can reach

a consensus on the truth of special access. That will be a bright

day. Thank you.

Mr. MARKEY. The Chair recognizes 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. And I

particularly want to express my appreciation to you for making a

part of today’s hearing the subject of State barriers to the provision

of broadband and other commercial telecom services by municipalities.

A century ago as the electricity industry was emerging it was

deemed to be in the public interest to permit local governments to

offer the new electricity services to their residents in places where

the investor-owned utilities had declined to make investments.

Broadband today, I would argue, is as essential to the economic future of communities as the new electricity services were to the people of America 100 years ago. And where broadband is either not

available or is available only at unaffordable prices, municipalities

clearly have a role to play in filling the gap.

We stand, as the chairman pointed out in his opening statement,

fifteenth in the world in the deployment of broadband, and for the

sake of our national economy we have got to do a lot better. Freeing local governments to offer the service is one way in which we

clearly can do better. Today 14 States bar in whole or in part the

provision of telecommunication services in commercial form by local

governments. The ranking member, Mr. Upton, and I have introduced the Community Broadband Act of 2007, which would bar

States from enacting laws that prohibit or have the effect of prohibiting the offering of these services by their localities. This measure

is very similar to a provision in the telecommunications legislation

that was approved in this committee and passed by the full House

during the course of the last Congress. And my recollection is that

609

when that measure was a part of the base bill that was approved

in this committee there were no amendments offered to remove it.

In fact, it was not even the subject of debate or further discussion

beyond a mere description of its presence in the bill. So that provision was not controversial last year, and I think this year it clearly

deserves to be enacted on a freestanding basis.

Across the Nation there are many examples of municipal networks that have stimulated economic growth. And I would note the

presence on our panel today of Mr. Wes Rosenbalm, who is the

chief executive officer of Bristol Virginia Utilities. That is a municipal broadband provider with a great story to tell about how that

investment has stimulated the arrival of a very large number of

technology-based jobs and we welcome Mr. Rosenbalm and look forward to his presentation of that testimony.

The Community Broadband Act would open the door for additional communities to enjoy that progress. I appreciate the subcommittee’s focus on this need, and I very much look forward to the

testimony of our witnesses.

And that said, Mr. Chairman, I yield back.

Mr. MARKEY. The gentleman’s time has expired. The Chair recognizes the gentleman from Nebraska, Mr. Terry.

Mr. TERRY. Mr. Chairman, thanks for calling this hearing. It is

an important one but I want to waive to reserve enough time for

questions.

Mr. MARKEY. The Chair recognizes the gentleman from New Jersey, Mr. Pallone.

OPENING STATEMENT OF HON. FRANK PALLONE, JR., A REPRESENTATIVE IN CONGRESS FROM THE STATE OF NEW JERSEY

Mr. PALLONE. Thank you, Mr. Chairman, and thanks to the witnesses here today. I am happy to take part in what is sure to be

an interesting look at the telecommunications marketplace and

what lies in its future.

Studies have increasingly shown that consumers benefit tremendously from competition in the telephone marketplace. I have continually been a firm believer that all consumers, both individuals

and businesses, deserve to have many choices when deciding on

their telecommunications services. I also believe that there is a role

for the Government in the telecommunications sector to ensure

that competition is vibrant. That role, however, is a tricky one as

we must make sure that the level of regulation is appropriate to

the level of competition. And I am hoping that our witnesses will

shed some light on this and flesh out the debate on some of the

issues we have been hearing so much about this past year including special access services.

The FCC began decreasing regulation of special access to increase competition and investment, and I am interested to hear

whether some of our witnesses think that this approach is working.

But I suspect that our panel will present compelling evidence on

both sides.

And finally, Mr. Chairman, I would like to bring a letter to my

colleagues’ attention. Last week the Communications Workers of

America filed a letter at the FCC with respect to special access

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services, and I would like to ask unanimous consent that this letter

be made part of the record of this hearing. I believe their position

on the issue deserves a place in this debate.

Thank you, Mr. Chairman.

Mr. MARKEY. Gentleman’s time has expired. The Chair recognizes the gentlelady from California, Ms. Eshoo.

OPENING STATEMENT OF HON. ANNA G. ESHOO, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF CALIFORNIA

Ms. ESHOO. Thank you, Mr. Chairman. Welcome to the witnesses, and thank you for yet another important hearing that you

are holding this year.

The preamble of the Telecommunications Act of 1996 states, ‘‘An

Act to promote competition and reduce regulation in order to secure

lower prices and high-quality services for American telecommunications consumers and encourage the rapid deployment of new telecommunications technologies.’’

So I think that we need to ask ourselves if the 1996 Act has lived

up to its preamble. I don’t believe that it has fully, in most frankly,

in any way, shape or form. That may be a harsh judgment but we

are more than a decade past the passage of that, and what I think

many of us have observed is a crest of a wave that is unprecedented consolidation in the telecommunications market in our

country.

Now I recognize that not all consolidation and mergers are bad.

And realignment of a dynamic industry such as telecommunications is inevitable. But the course of events that has led us here,

I think is really rather distressing. So I am very glad we are having this hearing this morning.

The competition that I envisioned and I think that many of us

envisioned in the 1996 Act has largely been frustrated. One bottleneck to the competition is the last mile and I think many of us are

going to raise questions about this this morning.

Michael Powell, the previous FCC Chairman, and others had

their solutions to the last mile, broadband over power lines. Proponents of this technology assured us it was just years away. Well,

we are years away from those rather bold pronouncements and

broadband over power lines has just 0.008 percent of the

broadband market. I want to repeat that, 0.008 percent of the

broadband market. I really don’t think that’s the American way

and I don’t think anyone can say that we have leapfrogged into the

future. That is a dismal percentage. So surely this isn’t the answer

that we bring competition to the last mile.

This morning I want to hear the assessment of our witnesses

that are here today about competition in the last mile, and, also,

on special access lines. These two parts of the network are critical

bottlenecks that can be used by incumbents to actually strangle

competition. I think that Congress has the responsibility to ensure

that nascent competition is given the opportunity to take root and

that emerging avenues of access to potential customers remain

open to innovators and new entrants.

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So thank you again, Mr. Chairman, for holding this hearing. I

look forward to the testimony and the answers to the questions

that we pose to the witnesses.

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

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

Mr. STEARNS. Thank you, Mr. Chairman. I am not sure I agree

with the gentlelady from California. Where there once were separate phone companies and cable companies and wireless and other

industries all providing distinct services, we now see, I think, a

blur, convergence, all competing against each other offering

broadband, voice and video services and more. I think we see the

iPhone now is moving us all ahead in terms of our cell phones and

what we will see in the future. Even the copper network once

thought a dinosaur for traditional voice services can now offer triple play services and up to 100 megabits per second.

So I think the future looks good and I think we are moving in

the right direction. I think after the Internet bubble burst, the core

investment dropped to about 85 billion at the end of 2002 but that

has rebounded to almost 120 billion in 2005. And I think that is

due in no small part to the deregulatory framework that we had

in Congress and the FCC.

Furthermore, it’s not just one set of companies investing billions

in new technologies. The witnesses before us today all are investing, bringing new innovation and applications that will drive tomorrow’s digital economy.

And my colleagues, against this backdrop the proper course is to

continue the trend away from regulation of new services and towards deregulation of traditional services where competition is

present. At minimum we must be mindful of re-regulation of particular services absent a compelling showing of market failure for

certain services.

At our hearing in July I questioned the FCC’s implementation of

the forbearance statute in section 10 of the 1996 Act. As I said

then, I am well aware of Congress’s intent in this matter to deregulate based on proper analysis of the competitive market. However,

I am concerned about whether or not adequate procedures are in

place to ensure that a rigorous analysis is conducted. Are there

adequate rules in place? If not, what should the FCC do to ensure

an equitable process? I understand that there is a pending petition

before the FCC to adopt a certain set of rules for forbearance petitions. I think this might be a good idea.

So I look forward to our witnesses’ views on this subject in particular because they are in one way or the other obviously going

to be affected by the outcome. Let me be clear, I am not taking a

position one way or another on the merits of the actual petitions.

I am merely saying that there needs to be a proper process in deciding whether or not these petitions should be granted.

So, Mr. Chairman, I thank you for this hearing. I look forward

to hearing from our witnesses and ensuring that a tremendous

technological growth continues in a deregulatory environment.

Thank you.

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Mr. MARKEY. The gentleman’s time has expired. The Chair recognizes the gentleman from Texas, Mr. Green.

OPENING STATEMENT OF HON. GENE GREEN, A

REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS

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

for holding the hearing and I want to thank, like my colleagues,

I want to thank our witnesses for being here. But I am not going

to share with you what I had for breakfast.

In the series of hearings the subcommittee has had over the last

9 months, and I frequently talked about promoting competition to

consumer choice, last month in my hometown of Houston, like

many other cities around the country, experienced its plans for a

municipal WiFi network fall through. The Houston system was

planned to be the largest in North America, covering 600 square

miles and it would have offered low-income individuals and households with reduced rates for the service. It also would have greatly

benefited public safety and our city employees as well as increasing

broadband coverage and local competition.

Our Houston system would vary significantly from Mr.

Rosenbalm’s, who is on our second panel. I look forward to hearing

from him on the fiber optic system deployed in Bristol, VA and

hope we can take away some of the ideas for building a successful

municipal network.

I look forward to hearing from today’s panels on another issue.

There seems to be a lot of interest in special access. I believe the

Federal Communications Commission should make a thorough review and analysis of the special access marketplace in competition

as well as significant impacts on rolling back phase 1 and phase

2 flexibility could have on this market and on the jobs it creates.

Many of these companies are the same companies investing significantly in residential and next generation broadband networks, investment necessary to meet consumer demand for broadband bandwidth now and in the future.

Additionally, I look forward to hearing from our witnesses on the

issue of forbearance. As the technology and telecommunication industry evolves, I think the forbearance process is important both

from the industry side and the Commission side as regulations become unnecessary and outdated. And I am concerned, however,

that with other procedural issues at the Commission right now that

if a lot of these conditions are not acted on, Congress may have to

revisit the issue.

And, again, I thank the chairman for holding the hearing. I look

forward to the testimony.

Mr. MARKEY. The gentleman’s time has expired. The Chair recognizes the gentleman from Mississippi, Mr. Pickering.

Mr. PICKERING. Mr. Chairman, I want to thank you and commend you for having this hearing. I would yield the balance of my

time, reserve those for the questions, please.

Mr. MARKEY. The gentleman’s time is reserved. The Chair recognizes the gentleman from New York, Mr. Towns.

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OPENING STATEMENT OF HON. EDOLPHUS TOWNS, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF NEW

YORK

Mr. TOWNS. Thank you very much, Chairman Markey, and of

course, Ranking Member Upton for holding this hearing. I also

want to thank the witnesses. And it is also good to see a former

member, Tom Tauke, who is here. It shows you that there is life

after this place. It is good to know.

I am sure many of my colleagues on this committee will agree

with my views when I say that I hope that the future of telecom

competition is vibrant, sustainable and beneficial to the consumers.

Hailing from New York it is safe to say that the consumers and

businesses probably benefit from as much competition as any city

in the United States. New York City’s dense population and heavy

concentration of businesses make it a target rich environment for

telecommunication carriers, especially for business customers.

I do believe that facilities-based competition is very healthy for

the market, beneficial to the consumers and sustainable in the long

term. And it illustrates why the FCC needs to stay the course set

by former chairman Bill Kennard back in 1999, and ignore the

calls to re-regulate the special access market.

Mr. Chairman, thank you again for holding this hearing today,

and I look forward to hearing from our witnesses, and on that note

I yield back.

Mr. MARKEY. The gentleman’s time has expired. The Chair, by

unanimous consent, will recognize the gentlelady from Tennessee,

Mrs. Blackburn, who is not a member of the subcommittee. Welcome.

OPENING STATEMENT OF HON. MARSHA BLACKBURN, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF TENNESSEE

Mrs. BLACKBURN. Thank you, Mr. Chairman, and I thank you

and Ranking Member Upton for allowing me to continue to participate in the hearings that we have. And I thank you for the hearing

that you are going to have today because I do believe it is a timely

and really a critical matter that there should be a discussion about.

Over the weekend I did what a lot of Americans do, I watched

a little bit of football. The Tennessee Titans were off for the weekend, but Indianapolis had to come to Tennessee to find them a

quarterback, and I had to check in on him and make certain that

he was carrying forth in the appropriate manner. And like a lot of

Americans I kind of glanced through the football game but I pay

a lot of attention to the commercials. I like to see what is being

marketed out there, and I was struck this weekend with how much

time was being spent on telecommunications providers and the new

options that are being rolled out there. My goodness, traditional

video services, their expanded triple-play options, voice video,

phone, broadband, voice-over Internet protocol, everybody was marketing their low-cost service. And it just seemed to go on and on

for the weekend. I think it does say a couple of things. Number 1,

competition is robust. It is quite robust and there is a market that

is there and there is a void to be filled. If it was not, you all

wouldn’t be advertising like you are advertising on Sunday football.

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Until recently, as Mr. Stearns said, everybody operated in a

stove pipe, providing one or the other. But now companies that are

both large and small companies can compete with one another on

a regulatory playing field that doesn’t force competitors to line up

and choose sides. Today’s industry leaders are playing a different

game in an environment that provides for robust telecommunications competition and the American consumer is the winner in

this. VoIP subscribers grew by 709 percent from 1999 to 2006, the

number of wireless subscribers by 372 percent from 1996 to 2005,

local exchange lines grew by 263.5 percent.

So the companies are increasing. A lot of this has happened because of the Telecom Act of 1996 and the framework that it put in

place. The current deregulatory regime seems to be working. I am

looking forward to hearing from our witnesses and I appreciate the

courtesy of the chairman and ranking member, I yield back.

Mr. MARKEY. We thank the gentlelady for participating. We also

thank her for raising college football. We Boston College football

fans are quite dismayed, actually, that we have now risen to No.

7 in the Associated Press Poll. But Boston College football fans are

also dismayed that the United States has dropped to No. 15 in the

OECD broadband rankings and those two subjects have been commanding my attention for the last 2 days.

Any other statements for the record will be accepted at this time.

[The prepared statements of Mr. Stupak and Mrs. Capps follow:]

PREPARED STATEMENT OF HON. BART STUPAK, A REPRESENTATIVE IN CONGRESS

FROM THE STATE OF MICHIGAN

Thank you, Chairman Markey for holding this hearing on the future of telecommunications competition.

The timing of this hearing could not have come soon enough, with the recent developments regarding pending forbearance petitions at the Federal Communications

Commission. The FCC’s decision on these petitions will have far reaching consequences for Competitive Local Exchange Carriers.

I am concerned that the FCC is implementing section 10 of the Communications

Act, which allows forbearance, in a manner that is inconsistent with sound agency

practice. I am specifically interested in how the FCC’s failure to act results in a petition to be ‘‘deemed granted.’’

If the granting of forbearance is supposed to be in the public’s interest, it is difficult for me to believe that failure to act can ultimately serve that purpose.

In the case of the 2006 Verizon petition for forbearance, the FCC was under gridlock with a split 2–2 vote because it had only 4 commissioners at the time.

The lack of majority should have resulted in a rejection of the petition. However,

because the rules governing the process by which forbearance petitions are handled

are not clearly stated, the petition was ‘‘deemed granted.’’

I find it troubling that according to the GAO, decisions to deregulate are guided

by insufficient data used to predict future market competition.

Another issue that we are discussing today is the implications of ‘‘copper retirement.’’

I understand the difficult position of companies that invest large sums of money

in deploying fiber optic lines while maintaining their old copper network. However,

I feel that the current ‘‘Copper Retirement Procedure’’ can use some slight modifications to be more fair and open.

I welcome suggestions from the witnesses here today in how to properly address

the issue, so that Americans don’t suddenly find that their rights to competitive

choice were pre-emptively disconnected.

Lastly, the issue of barriers to municipality provided broadband. It is unfortunate

that communities that need broadband the most, rural communities such as the

ones I represent, are swept up in the legal and lobby battles between big cities,

States, and the telecom companies.

How can we expect rural Americans to compete and their communities to thrive

if we do not ensure them broadband access to the Internet?

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The reality is, broadband access is as essential to an economy as electricity. It is

my belief that communities simply will not be able to survive and thrive in the 21st

century without high-speed, broadband Internet access.

Mr. Chairman, thank you again for holding today’s hearing. I look forward to the

testimony of our witnesses, and I hope we can find answers to these very important

questions.

PREPARED STATEMENT OF HON. LOIS CAPPS, A REPRESENTATIVE IN CONGRESS FROM

THE STATE OF CALIFORNIA

Thank you, Chairman Markey, for holding this important and timely hearing on

competition in telecommunications.

As we are all aware, pending FCC decisions regarding special access and forbearance petitions will play a major role in shaping the competitive landscape of the

telecommunications industry.

My district experiences changes in the telecom industry rather distinctly. Not only

because of its urban and rural settings, but also because of its geographic composition.

Mountain ranges and remote areas can restrict access to communications technology for my constituents.

With that in mind I am especially interested in ensuring that competition remains

vibrant and fair, so that smaller telecom companies can continue to provide services

where others may not recognize an opportunity.

In particular, I am concerned that special access costs may present a barrier to

entry for some broadband companies and may stifle deployment.

As I have stated in the past before this committee, the FCC should continue to

work for greater transparency in the special access market, and I commend it for

reopening the record on this issue.

The FCC should ensure that these fees are fair and not set or collected in a manner that reduces competition.

Finally, I would like to take a moment to address the need to reform the forbearance process.

Deregulation requires careful consideration and an active response to the realities

of the market—not tacit approval borne of insufficient time or consideration. I am

concerned that the ‘‘deemed granted’’ language in the statute makes it difficult for

the FCC to make good decisions. And since we are talking about the core competition provisions of the Act, I believe we may need to take a look at forbearance.

As technology and media continue their convergence toward advanced communications technologies that we cannot know, robust oversight of competition is necessary

to ensure market fairness and consumer protection.

I again want to commend Chairman Markey for holding this hearing and look forward to hearing from the witnesses.

Thank you.

Mr. MARKEY. And our panel here today can help us to unravel

the mystery of the second phenomenon which is of great consequence for our Nation’s future. And we are going to begin our

distinguished panel today with Mr. Parley Casto. Mr. Casto is an

assistant vice president in the AT&T Business Marketing Division.

He is responsible for all aspects of AT&T’s pricing for a dedicated

Internet line sold to competitors, can’t be a more important person

in the country in terms of these issues. We welcome you, Mr.

Casto. When you are ready, please begin.

STATEMENT OF PARLEY CASTO, ASSISTANT VICE PRESIDENT,

AT&T BUSINESS MARKETING, AT&T OPERATIONS

Mr. CASTO. Thank you. Chairman Markey, Ranking Minority

Member Upton and other distinguished members of this subcommittee, thank you for the opportunity to testify at today’s hearing on the future of telecommunications competition.

My name is Parley Casto, and I am assistant vice president,

Strategic Pricing, AT&T Business Marketing. I am responsible for

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all aspects of pricing for AT&T wholesale products and services, including services sold to interexchange carriers, wireless carriers,

CLECs, content providers, systems intergrators and Internet service providers. Insofar as I am responsible for wholesale products

and services, I am well aware of the competitive alternatives that

are available to and utilized by AT&Ts wholesale customers. Since

the FCC implemented its pricing flexibility framework for special

access services in 1999, that competition has dramatically increased.

AT&T faces both intra-modal competition and increasingly intermodal competition from wireless and cable-based technology platforms. I will focus my testimony today on the competition AT&T

faces in the wholesale enterprise market. AT&T faces intense business market competition from a very large number of competitors.

Traditional wireline CLECs have continued to expand their fiber

networks to virtually all areas where there is demand for special

access services. Indeed, CLEC fiber blankets most major metropolitan areas of the country where large businesses that use special access services are concentrated and increasingly in more remote

areas, as well. This intense competition is recognized by analysts,

one of which recently reported that CLEC competition for wholesale private lines services rates a 9 out of 10.

In recent years CLEC competition has been accompanied by the

advent and rapid growth of inter-modal competition from cable and

broadband wireless providers. With fiber and coaxial networks that

blanket nearly all locations where people live and work, cable operators can and increasingly do provide all levels of service including

to business customers.

Broadband wireless providers likewise are actively and successfully competing against AT&T. All the major wireless carriers now

rely heavily on wireless backhaul. According to one study, roughly

20 percent of mobile base stations in the United States are already

served via wireless technology, and that percentage is expected to

double by 2011.

AT&T has responded aggressively to these competitive pressures.

AT&T has significantly lowered its prices for DS1 and DS3 circuits

including where rates have been deregulated. Rates are far lower

today than they were at the time the FCC established its pricing

flexibility regime. Moreover, AT&T is taking other steps to meet its

customer specialized needs, including dramatically increasing investments in its network and deploying more innovative service offerings.

These trends, characterized by declining prices, increased investment and increased innovation, demonstrate that re-regulation of

special access services is unnecessary and inappropriate. To be

sure, any large business would welcome a Government mandate of

price reduction in the cost of its input. But the FCC was right in

1999 to introduce pricing flexibility where AT&T faced competition.

Eight years later competition for special access services are even

fiercer and the justification for pricing flexibility is even greater.

AT&T special access customers constantly remind AT&T that

they can turn to alternative providers. In fact, Sprint has repeatedly pointed out that it has many other options to meet its

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viders, as well as its ability to self-supply special access via microwave solutions.

These are not hollow threats. In August, Sprint announced that

fiber power will provide backhaul services in seven of Sprint’s initial WiMax markets and that is just one example of this competition. As a result, my team at AT&T is constantly looking for ways

to provide special access service to our customers more efficiently

at lower cost and higher quality in ways that are better tailored

to customers’ individual and diverse needs.

It is not necessary for me to rely solely on customers to confirm

that there are a myriad of special access alternatives throughout

the country. My colleagues in AT&T Mobility have confirmed that

AT&T Mobility generally has multiple alternatives for backhaul

suppliers at its many cell sites. AT&T purchases thousands of

backhaul facilities from broadband wireless and cable companies

outside of AT&T’s local service territory.

The reality is that prices are lower and differentiation is greater,

both of these thanks to the introduction of robust, facilities based

competition. This competition obviates the need for re-regulation

which would destroy the incentives that all companies currently

have to constantly approve their service offerings and enhance

their networks.

Mr. Chairman, thank you for the opportunity to testify today.

[The prepared statement of Mr. Casto appears at the conclusion

of the hearing.]

Mr. MARKEY. Thank you, sir, very much. Our next witness is Ms.

Larissa Herda. Ms. Herda is the chairman, president and chief executive operator of Time Warner Telecom. She also serves on the

Economic Advisory Council of the Federal Reserve Board of Kansas

City. We welcome you, Ms. Herda. Whenever you are ready, please,

begin.

STATEMENT OF LARISSA HERDA, PRESIDENT, CEO, AND

CHAIRMAN, TIME WARNER TELECOM

Ms. HERDA. Thank you, Mr. Chairman. Thank you, members of

the subcommittee.

My name is Larissa Herda. I am chairman, president and CEO

of Time Warner Telecom. And let me be perfectly clear. We have

absolutely no association with Time Warner, Inc. or Time Warner

Cable. We are a separately traded company, and we simply lease

their name. That lease runs out next summer.

It is an honor to appear before you here today to discuss the future of broadband in this country. This is an issue that not only

impacts my business but the bottom line of every American business that wants to take advantage of the additional bandwidth

cost-savings and efficiencies that broadband technology provides.

In order for American businesses to have access to this technology, the FCC must not forbear from regulating the ILECs because unlike the residential market the ILECs still control the only

last mile transmission facility or local loop to the vast majority of

office buildings nationwide. Instead, the FCC needs to revise the

current regulatory regime to recognize the fact that the ILECs still

control the last mile connection to the business customer regardless

of what technology is used to provide the service.

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Time Warner Telecom has invested billions of dollars to connect

approximately 8,000 buildings with our own fiber network, more

than any other non-incumbent telecommunications carrier in the

country. But there are many locations where it is simply uneconomical to build our own network facilities. In such locations we

have no choice but to rely on facilities we lease from the ILECs to

meet customer demand. In fact, we have no choice but to serve a

high percentage of our customer locations by leasing incumbent facilities.

At Time Warner Telecom we are focused on serving the data and

communications needs of enterprise customers. We are particularly

focused on providing those customers a service that is called Ethernet. I want to explain a bit about Ethernet because it is such an

important tool for business and the ILEC petitions for forbearance

that are currently pending at the FCC threaten the potential economic benefits of Ethernet.

Ethernet is a plug and play transmission technology that allows

customers to converge all of their data communications needs on to

a single transmission facility. Older technologies like ATM and

frame relay require a piece of equipment to translate between various different kinds of equipment used by end users and carriers.

Ethernet technology eliminates the need for these translations

making it simple and cheap for customers to add new services and

capacity to their communication services. The qualitative difference

for businesses between Ethernet and older and more complicated

technology such as ATM and frame is like the difference between

dial up broadband and cable modem or DSL service.

Ethernet allows businesses to function more efficiently in countless ways. For example, Ethernet enables medical institutions to

send urgent messages and information between locations in seconds. It also enables banks to improve response times and process

more information in significantly less time. It supports all customers with data and disaster recovery capabilities crucial to protecting the electronic files critical to both business and public institutions.

Despite the great benefits of Ethernet, most businesses are unable to purchase this service today. It is an economic burden on

business development that businesses across the country don’t have

access to the benefits of this technology. It places the United States

at a disadvantage vis-a-vis other countries. In striking contrast to

what is available to American businesses, Ethernet is widely available in the UK. The question is then why aren’t more businesses

receiving the benefits of Ethernet in this country? The answer is

quite simple. The ILECs have relatively no incentive to promote

Ethernet aggressively because it cannibalizes their huge legacy, the

old generation of frame-relay and ATM services.

Not only is Ethernet unavailable from the incumbents in most office buildings, the cable companies generally do not offer it to a significant degree. And in reality, we are in more business buildings

than they are. That means it is up to competitors like Time Warner

Telecom to drive the rollout of Ethernet.

In fact, Time Warner Telecom is the No. 3 provider of Ethernet

in the country. But we are the third biggest fish in a very small

pond, and we do not have the power to make it much bigger beVerDate 11-SEP-98 10:59 May 06, 2008 Jkt 000000 PO 00000 Frm 00629 Fmt 6601 Sfmt 6601 Q:\DOCS\110-10 SCOM1 PsN: SCOM1
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cause we cannot economically reach most business locations without our own network. Only 25 percent of our customer locations are

on our network. For the remaining 75 percent of customer locations

I rarely have a choice but to lease the ILEC network facilities in

order to provide service the customers demand.

Even where the ILECs offer Ethernet on a wholesale basis, they

charge extremely high prices for services as illustrated in the

charts that are supposed to show up on that up there. Well, they

should be showing up there, and what you will see, there we go,

the color code there is ivory is Time Warner Telecom and the red

are the various different incumbent local exchange carriers. And I

think we have got Qwest, Verizon and AT&T up there.

In most cases, as you can see, our prices are considerably lower.

In most cases it is not economical to purchase wholesale Ethernet

and combine it with our non-Ethernet product, in order to sell customers the complete service offering they need to manage their

communications needs most effectively.

Mr. MARKEY. If you could summarize your statement, please.

Ms. HERDA. Yes, I have been told countless times, well, I have

been told countless times from a diverse group of customers that

they could not purchase Ethernet until it was offered by Time Warner Telecom. And the reality, let’s see, that won’t happen if the

FCC forbears Ethernet services, we will not be able to have a discussion on special access because Ethernet is special access. Thank

you.

[The prepared statement of Ms. Herda appears at the conclusion

of the hearing; because of its length, the appendix of her statement

is on file with the committee.]

Mr. MARKEY. Thank you so much, Ms. Herda. And now we will

hear from one of the most distinguished alumni of this committee,

Tom Tauke, who was a member of this subcommittee for 12 years,

and he is now the executive vice president at Verizon for Public Affairs, Policy and Communication. Welcome back, Tom. Whenever

you are ready, please, begin.

STATEMENT OF HON. THOMAS J. TAUKE, EXECUTIVE VICE

PRESIDENT, VERIZON

Mr. TAUKE. Thank you very much, Mr. Chairman. I first must

note I spent the weekend, parents weekend at Boston College,

watching the soaring Eagles, and I do want you to note that the

poll that counts is the Coaches Poll, that counts in BCS and there

we are No. 6.

Mr. MARKEY. There BC is No. 6.

Mr. TAUKE. BC is No. 6.

Mr. MARKEY. Let me just tell the audience this that Tom, this

is not, can we go back to 5 minutes, that Tom is actually a graduate of Loras College, which is a Jesuit school in Iowa, and up

until there was an unbundling of Notre Dame’s control over Catholic high school graduates playing football for them there was no

chance that somebody from Iowa was going to Boston College at

the campus, so it just shows you what happens when a competitive

football marketplace opens up and kids are allowed to make their

own decisions as to where they are going.

Mr. TAUKE. And we are grateful for that, Mr. Chairman.

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Mr. TERRY. Mr. Chairman, as the gentleman from Nebraska and

maybe the gentleman from Michigan, this football talk is making

us a little uncomfortable.

Mr. TAUKE. Here I thought I was watching the Iowa-Indiana

game this last week.

Mr. TERRY. Well you notice how I moved from Iowa to Boston

College very quickly.

Mr. MARKEY. So the gentleman is recognized for 5 minutes.

Mr. TAUKE. Mr. Chairman, members of the committee. The world

of telecommunications keeps changing ever more rapidly. Since

Congress and the FCC have adopted policies that permit adaptations to the market technology in the marketplace have unleashed

a host of new communications services and we have seen the development of a highly competitive telecommunications market.

Now we have TV services being offered by companies like

Verizon and AT&T. Phone services from Comcast, Cox, and other

cable companies. And, of course, we have the most aggressive and

most advanced wireless mobile communications market in the

world. Not only do we have four national carriers but we have dozens of regional carriers like Alltel, U.S. Cellular, Leap, that are

providing a host of new services to consumers. Not just voice, not

just data, but text-messaging, video, and now even live broadcast

services.

The U.S. wireless consumer is not only benefiting from this advancement of new services, but the wireless market is also driving

down prices and serving consumers well. When you look at the U.S.

versus Europe, for example, here consumers pay 60 percent less for

their wireless services and they use, not surprisingly, twice as

much service on a per capita basis.

Similarly the investment in broadband has been a good success

story. The adoption rate for broadband is remarkable. The fact is

that the adoption rate for broadband is faster than it was for TV

or even cell phones, and prices are going down. Consumers in most

parts of the country have at least three competing platforms for

broadband, and the speeds that those platforms are offering go up,

up, up.

But is it good enough? Definitely not. We do need to be No. 1,

Mr. Chairman, not only in deployment and availability but also in

the innovation and the services that are offered. It is important

that the Congress and the FCC do two things, I think, as you look

to the future. First, stick with those policies that are working, and

secondly, adopt new policies that will address challenges in certain

areas. Two that I will mention briefly are universal service and

broadband adoption.

First, let us talk about the existing policies, the forbearance petitions. Creating broadband service for the underpriced market with

the light regulatory touch is working. It has been demonstrated by

the forbearance Verizon received a year ago and what has happened as we have entered into agreements with hundreds of companies since then to offer services to those entities. This kind of

market-based competition allows for investment, innovation and

competition.

Second, the traditional special access services policy is on target.

These are services that connect business locations obviously to each

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other and cellular services to the landline network. What Chairman Bill Kennard did has proven to be successful. Prices in this

market are falling 5 percent a year in real terms since he adopted

these policies, and more players are entering the market, and there

is more competition in the special access market.

Now let me mention a couple of those issues that need attention,

first, broadband deployment to underserved areas. We support

Congress’s effort to create programs to gather more information.

We need to know who is not being served in order to focus attention on those areas. We believe the Connected Nation process has

been a good process. It was used as Connect Kentucky in Kentucky,

and as you know, it found out where the problems existed. It focused attention on those areas, and it created a public/private partnership, and Kentucky leaders tell us they will be at 100 percent

availability for broadband by the end of the year.

As we look elsewhere in the country, it is not just broadband

availability, however, it is also adoption that is a problem. And as

the Consumer Electronics Association study recently showed part

of the problem is that 26 percent of households have no home computer. That also is an issue that needs to be addressed.

The second issue, Mr. Chairman, is the Universal Service Fund.

This fund is badly in need of reform. In the past 8 years the highcost funding has grown from $1.7 billion to $4.1 billion. And we are

seeing a distortion in the way this money is distributed which we

can talk more about later. The bottom line is this needs urgent action or that percent that is in the bottom of the bill, which is currently 11.1 percent the consumers are paying for universal service

is going to move to 15 percent in a few years, and 22 percent 5

years out. Something needs to be done to correct this issue, and it

is going to be easier if Congress acts now. We urge the FCC to

adopt the recommendation made by the joint board to try to put

some kind of a cap on the Universal Service Fund. And we support

a reverse auction to try to fairly distribute these funds in the future.

The bottom line, Mr. Chairman, Congress, and the FCC have

generally done a very good job in creating policies which are allowing this marketplace to grow, and to bring new services. Is it good

enough? No, but we are making good progress.

[The prepared statement of Mr. Tauke appears at the conclusion

of the hearing.]

Mr. MARKEY. We thank the gentleman, and now we turn to Gary

Forsee who is the chairman and chief executive officer of Sprint

Nextel Corporation. He is also the chairman of the President’s National Security Telecommunications Advisory Committee. We welcome you, Mr. Forsee. Whenever you are ready, please, begin.

STATEMENT OF GARY D. FORSEE, CHAIRMAN, CEO, AND

PRESIDENT, SPRINT NEXTEL CORPORATION

Mr. FORSEE. Good morning, Chairman Markey, and Ranking

Member Upton, members of the subcommittee. Thank you for the

invitation to be here.

I am Gary Forsee, chairman, and chief executive officer of the

Sprint Nextel Corporation. I would like to thank you for the opportunity to testify about a substantial barrier to bringing broadband

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to the American public. As Chairman Markey recently wrote to the

FCC, the special access market failure directly affects the pace of

broadband deployment, and I urge you to let the FCC know that

it must fulfill its statutory obligation to ensure that special access

rates are just and reasonable.

Let me point out that Sprint takes a backseat to no one when

it comes to advocating free markets, and we commend you for your

key role in creating the competition we see in telecommunications

today. Thanks to your efforts over time Sprint brought competition

to the long-distance market with the first all-digital fiber optic network in the 1980s. Sprint and Nextel brought competition in the

1990s to the wireless market that had been a duopoly, and we continue to invest in our wireless markets to the tune of $5.7 billion

this year.

We are also investing an additional $5 billion to bring competition to the broadband marketplace through our announced plans to

deploy the world’s first mobile broadband network using WiMax

technology. However, when markets fail the Government must act

to protect consumers. This is a primary obligation of the FCC.

As someone who has been in this industry for 35 years, I have

been around the block and including a few chairs at this table, I

can tell you that the failure in the special access market is obvious

and I think it is also unique given what would also be considered

the hyper-competitive aspect of this industry. But it is obvious due

to the overwhelming and increasing market share of the two dominant special access providers, AT&T and Verizon. It is obvious in

their vast and increasing special access revenues and their inflated

special access prices and in their exclusionary lockup terms and

conditions.

The FCC relied on its hopes and predictions of competition for

special access in granting the dominant providers pricing latitudes.

But special access competition has not developed. The incumbent

LECs’ share of the wholesale market as shown on this chart grew

to more than 94 percent in 2005, 94 percent. Having acquired

AT&T and MCI, the two biggest proponents of special access reform in addition to Sprint and the two biggest alternative providers

of special access, AT&T and Verizon now account for 81 percent of

the incumbent LEC special access revenues. Even in the largest

markets, including New York, the incumbent LECs dominate. As

this map shows, nearly 98 percent of our connections to our over

60,000 cell sites are provided by incumbent LECs, again, primarily

AT&T and Verizon. With no competition, special access prices are

substantially inflated.

So compare the prices for similar capacity services in competitive

markets. As this table shows, Verizon’s FiOS service is $39.99 a

month. But DS1s, which we rely on substantially for our cell sites

and for our ability to provide commercial services to our retail customers are nearly 10 times that price. Again, for a similar capacity

oriented service.

As the next slide shows, with no competition AT&T’s after tax

special access return grew from an already excessive 40 percent in

2000 to 100 percent in 2006. Verizon’s more than tripled in that

same period in growing from 15 percent to 52 percent. In 2006

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alone, AT&T and Verizon brought in $6.3 billion over what they

would have earned in an 11.25 percent rate of return.

I understand that there is some assertion that there is not sufficient data available to analyze the market. I respectfully disagree.

The data on this chart combined with the fact that Sprint purchases 98 percent of its special access, which is about $2 billion,

from one source, meaning the ILECs, is more than sufficient to

demonstrate that this market has indeed failed.

As Sprint Nextel and the other independent providers are being

over-charged, we are subsidizing AT&T and Verizon, our largest

wireless and long-distance competitors. These subsidies directly affect the availability of broadband and other special services that we

provide.

Let me give you an example. Special access represents about 33

percent of our cost to operate a cell site. Since we are paying at

least twice a cost-based price, that 33 percent figure includes funds

that are going to be diverted from our deploying this fourth generation WiMax global broadband network.

There is a ready solution to the obvious special access market

failure. The FCC has the tools, the evidentiary record, and the congressionally mandated obligation to ensure that special access

prices are just and reasonable. I urge this subcommittee to let the

FCC know that it must meet its obligations to reduce special access

rates to reasonable levels and supply effective incentive-based regulation until the LECs face competition for special access services.

That is not, by the way, accomplished by granting forbearance and

giving them even greater latitude to overprice special access service.

Addressing the special access market failure will produce tangible benefits for consumers today, including a choice of providers

into the future, other than AT&T and Verizon, improved service

quality, and faster rollout of broadband markets in the United

States.

Thank you, Mr. Chairman.

[The prepared statement of Mr. Forsee appears at the conclusion

of the hearing.]

Mr. MARKEY. Thank you, Mr. Forsee, very much. Our next witness is William Cheek. He is the president of the Wholesale Markets Division of Embarq. Embarq is a local phone and wireless

company with operations in 18 States. Welcome, Mr. Cheek.

STATEMENT OF WILLIAM E. CHEEK, PRESIDENT, WHOLESALE

MARKETS, EMBARQ

Mr. CHEEK. Mr. Chairman, Ranking Member Upton, and members of the subcommittee. Thank you for the opportunity to testify

today.

I am Bill Cheek, president of Wholesale Markets for Embarq.

Headquartered in Overland Park, Kansas, Embarq is a full-service

communications provider delivering voice, Internet, wireless, and

entertainment products to about 6.5 million access lines in 18

States. We serve primarily rural communities, which typically have

higher cost to serve, and we are always mindful of the role robust

communications networks play in enhancing rural economies.

Embarq was established 16 months ago when Sprint Nextel spun

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off its local exchange operations, and we have been operating independently since that time. It is also a privilege for me today to testify on the same panel as my former chief executive, Mr. Forsee.

While we may now approach telecom policy from different perspectives we continue to enjoy a relationship of great mutual respect.

We commend the subcommittee for convening this hearing on the

future of telecommunications competition.

One particularly timely topic for this hearing is the call by some

for the FCC to reverse the trend of deregulation and reimpose price

controls and other regulations on the market for special access.

While we fully appreciate and participate in the Commission’s recent steps to refresh the record in its special access rule-making,

we find the prospect of re-regulating the market that was initially

deregulated 8 years ago to be inconsistent with competitive conditions in the marketplace today.

To put the issue in perspective, about 71 percent of Embarq’s

special access revenues are still subject to price cap regulation because they are provided in geographic areas where the Commission

has not found the indicia of competition under current law. At the

same time, 75 percent of our special access lines are subject to either CLEC or cable competition. In a more densely populated, lowcost market we typically face five or more competitors. Also, more

than 70 percent of our special access revenues come from sales to

carriers that are at least twice our size. And in fact, in most cases

they are six times our size or larger.

Increasingly, large buyers are putting their special access needs

out for competitive bids, especially in the wireless backhaul markets where Embarq bids against multiple competitors, all of whom

can see our public price schedules and few of whom are regulated

to the same extent we are.

Just this past month we submitted competitive bids for two

multi-million dollar backhaul contracts in Nevada and the Carolinas. In both cases more than a dozen competitors submitted bids.

Unfortunately, our most aggressive competitors aren’t counted

under the current competitive trigger analysis the FCC uses to determine when a particular geographic market should be deregulated.

The problem is that current rules only count competitors who

physically co-locate their equipment in the incumbent’s central office. But many of the new generation of competitors, cable, fixed

wireless, and other new entrants, bypass Embarq’s network altogether and are never included when competition is measured. Despite the FCC’s recent invitation to refresh the record, our top

cable and fixed wireless competitors did not file their data. In fact,

our own analysis indicates at least one of our currently regulated

markets would merit pricing flexibility in deregulation if all of our

competitors were counted because we are in direct competition with

a cable provider, a fixed wireless provider, and a local electric utility that has entered the special access business in that city.

In August and September, Embarq filed substantial data with

the FCC showing our special access competitive losses as well as

the continuing impact of price cap regulation on our rates. In fact,

Embarq demonstrated that our DS1 channel terminations which

are often used to connect cell towers are on average priced below

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forward-looking economic costs to providing the service. Prices for

our high capacity DS3 services have declined 35 percent since deregulation in 2001. Just this year, to meet growing competitive

threats, Embarq more than doubled fiber investment plans for

wireless backhaul even as our prices have generally held steady or

declined in some cases. Perhaps most tellingly, a November 2006

study by the GAO found that since the beginning of deregulation

the average price per unit actually paid for special access has declined.

Ultimately we believe that if the Commission were to take action

on the special access rule-making a necessary prerequisite would

be to close a gaping hole in the record by obtaining data from all

new competitors in our filings and those of other ILECs in ensuring

that services provided by such providers were considered in any

eventual rule change.

On the question of regulatory forbearance our chief concern is

that once a market has become competitive and new entrants are

strong and healthy, it is unfair to impose extensive economic regulations on just one provider even if only by regulatory inertia while

others grow their share unburdened. Congress seemed to anticipate

this danger, and deliberately structured such intents so regulators

would periodically reaffirm the public interest in maintaining economic regulations or otherwise pare them back.

In conclusion, ultimately we believe the best course for policymakers is to pursue a technologically neutral approach that lets

the market choose winners, and losers, not government, and recognizes that competition often comes about in ways very different, excuse me, from how it was originally predicted.

We thank you for the opportunity to appear and look forward to

working with the members of this subcommittee. Thank you.

[The prepared statement of Mr. Cheek appears at the conclusion

of the hearing.]

Mr. MARKEY. Thank you, Mr. Cheek, very much. Our next witness is Brad Evans. He is the chairman of Cavalier Telephone.

Cavalier is the third successful competitive carrier that Mr. Evans

founded. We now turn to you for 5 minutes. Whenever you are

ready, please, begin.

STATEMENT OF BRAD EVANS, CHAIRMAN, CAVALIER

TELEPHONE

Mr. EVANS. Thank you, Mr. Chairman, and members of the committee.

I am Brad Evans, founder and chairman of Cavalier Telephone.

Thank you for the opportunity to testify here today. I will briefly

introduce Cavalier and then discuss the threat to competition posed

by forbearance petitions pending at the FCC. We need congressional help to stop these petitions filed by AT&T, Verizon, and

Qwest.

Our company is a success story of the new, competitive marketplace mandated by the Telecommunications Act of 1996. Cavalier,

we launched voice service on its first switch in Virginia in 1999.

Since that humble beginning we have grown to become a profitable

company with over $650 million in revenues and over 2,000 employees. Cavalier, we embrace the residential market, and we are

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adding approximately 25,000 new customers each month. We have

made significant capital investments, and we now own over 11,000

miles of fiber, and we have saved customers untold millions on

their telephone bill.

Cavalier is a facilities-based provider. The only part of the network that we don’t own is the so-called last mile. These are the

copper lines that run from a local central office directly to a customer’s home or office. These last mile facilities are essential for

telecom competition and were the underpinning of the 1996

Telecom Act, and it is access to these facilities that forbearance

threatens to eliminate.

Cavalier has super charged the legacy copper network with the

latest technology. Our super charged broadband provides up to 15

megabits to the home, to users. And Cavalier is an industry pioneer in competitive TV service that uses IP technology to provide

150 channels of television over Cavalier’s broadband network.

Unlike Verizon’s FiOS, our TV service runs over existing copper

loops. That means we can serve the older neighborhoods with copper facilities, not just the gated, suburban communities with the

newly built fiber networks. Cavalier is a low-cost provider. Most of

our 400,000 residential customers are in the lower-income brackets

and enjoy the 20 percent monthly savings Cavalier offers. Our triple-play customers save $70 per month compared to the monopoly

prices.

As part of its FiOS rollout, Verizon is removing copper loop facilities built with rate-payer dollars. Why? Because Verizon wants to

remove the copper facilities that competitors can use, replacing it

with a fiber that the FCC has exempted from any unbundling requirements.

We believe Congress and the FCC should not allow the dismantling of a valuable American asset, America’s copper network. Forbearance permits the FCC to consider changes to the Act if those

proposed changes will promote competition. Our problem is not

with section 10. Our problem is that the FCC has permitted

changes to occur using a process that is deeply flawed. Last minute

evidence dumped into the record with no opportunity for other parties to respond. Orders being issued so no one even knows what relief was granted, and an agency process riddled with confidentiality

and secrecy that makes a mockery of administrative transparency.

Verizon has admitted using E911 data that was flawed in overstating competition in a proceeding before the Virginia State Corporation Commission. The word is now out. The way you get the

relief you want from market opening protections in the Act is simply to file forbearance petitions. There is no due process. The forbearance proceedings are effectively a kangaroo court.

Past forbearance petitions have been limited to small markets

like Omaha, Nebraska, and Anchorage, Alaska. However, the Bells

are now seeking forbearance in major markets like New York, Boston, and Denver.

Cavalier alone has over 90,000 residential customers and another

50,000 business lines affected by the pending Verizon petitions in

Philadelphia and Virginia Beach. All told 47 million Americans live

in areas affected by these petitions, and no one should kid themselves. Just as we saw in the grant of the Qwest forbearance petiVerDate 11-SEP-98 10:59 May 06, 2008 Jkt 000000 PO 00000 Frm 00637 Fmt 6601 Sfmt 6601 Q:\DOCS\110-10 SCOM1 PsN: SCOM1
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tion, the Bell companies will not offer meaningful commercial

terms. Once our right to access is removed through forbearance it

will only be a matter of time before they choke off the remaining

competition. Congress did not intend such intent of the Telecommunications Act to be a weasel clause for the Bells to eliminate

competition.

In conclusion, we ask Congress to urge the FCC to just say no

by rejecting the pending petitions and setting clear standards or

processes by which future forbearance petitions will be judged.

Thank you.

[The prepared statement of Mr. Evans appears at the conclusion

of the hearing.]

Mr. MARKEY. Thank you, Mr. Evans, very much. And our final

witness is Mr. Wes Rosenbalm. He is the president and chief executive officer of Bristol Virginia Utilities. He is responsible for managing the municipal broadband network in Bristol, Virginia. Welcome, sir.

STATEMENT OF WES ROSENBALM, PRESIDENT, AND CEO,

BRISTOL VIRGINIA UTILITIES

Mr. ROSENBALM. Good morning, Mr. Chairman, Representative

Upton, and subcommittee members.

My name is Wes Rosenbalm. I am president and CEO of Bristol

Virginia Utilities. I would like to thank you for this opportunity to

be here today.

Bristol Virginia Utilities is a city owned, public utility offering

water, sewer, electricity, phone, data, and cable television. We

manage over 50,000 traditional utility and telecom accounts with

an annual budget of $64-plus million. Bristol Virginia Utilities

began a process of entering the telecom and information service

business in 1999 because Bristol and its region were losing population. It was losing most of its manufacturing base. It was losing

its most lucrative cash crop, and it was losing its highest paying

jobs. Sharing Congressman Boucher’s vision, city leaders decided

that the city should install an infrastructure that would permit this

area to compete in the information society if the city was to survive. It was not otherwise going to happen.

We felt it was important that the people of our community have

broadband options sooner rather than later. At an expense of $2.5

million in legal and regulatory costs plus capital expenditures,

Bristol Virginia Utilities began offering services. The $2.5 million

is equivalent to the approximate cost of initiating service to an additional 2,000 customers. By July 1, 2003, Bristol Virginia Utilities

was able offer all three of its current services, phone, cable, and

data, via a state-of-the-art fiber to the premise network.

Have we been successful? We believe our success can be seen in

the following facts. We currently enjoy a 65 percent residential

penetration rate within the city of Bristol, Virginia. We have recently won the prestigious 2007 Cornerstone Award for customer

service. We have stabilized rates in our community, thereby improving the quality of life. Because this infrastructure is now in

place, we have launched a comprehensive economic development effort titled ‘‘Access Bristol.’’ It is our belief that broadband is the

new essential infrastructure. That point was re emphasized reVerDate 11-SEP-98 10:59 May 06, 2008 Jkt 000000 PO 00000 Frm 00638 Fmt 6601 Sfmt 6601 Q:\DOCS\110-10 SCOM1 PsN: SCOM1
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cently by Virginia’s Secretary of Commerce and Trade Patrick

Gottschalk, who supported the launch of this economic development effort.

Most recently we have been noticed on a regional basis. Economic development partnerships in the southwest Virginia counties

of Washington, Smith, Wythe, Buchanan, Russell, Tazewell, and

Wise have all requested that our infrastructure be expanded from

Bristol into their communities with the help of economic development money and encouragement from State and Federal legislators. Many of them now have the broadband access that they so

desperately need to thrive in the high-tech 21st century.

Last, and potentially most important is regional outreach has

brought new companies and jobs to our region. Fortune 500 companies Northrop Grumman and CGI Group, two highly broadband dependent companies, are locating 700 jobs in Russell County alone.

They pay an annual average salary of $50,000, significantly higher

than the region’s current average salary. Both companies attributed their decision to locate in our region in part to Bristol Virginia

Utilities high capacity fiber optic infrastructure. The president of

CGI Group stated in a letter to the editor of the Bristol Herald

Courier that the fiber optic infrastructure was just like those found

in northern Virginia.

Because of this we have been contacted by as many as 50 public

entities with the assistance of the American Public Power Association, most of whom are facing the same lack of broadband technology opportunities in their communities. These municipalities are

seeking from us solutions for their communities that will allow for

the same level of choice and economic availability that we have

now. They are telling us that the infrastructure in their city to provide broadband technology opportunities is not developing. The

Community Broadband Act of 2007 will empower other communities to bring these same advantages to their residential and corporate citizens without delay and added expense.

As has been noted this morning, according to the Organization

for Economic Cooperation Development, the United States has

dropped to fifteenth place on the global list. The Community

Broadband Act of 2007 will remove the legal and regulatory barriers that prevent communities from uniformly providing the essential broadband infrastructure they so desperately need. For the

hundreds of small, rural communities that want a robust

broadband network available at a fair and stable price, providing

for that infrastructure is a top priority. The Community Broadband

Act of 2007 will allow municipalities to improve the quality of life

in their communities, and enhance their economic development opportunities.

I cannot say enough to express the debt we owe Congressman

Rick Boucher for his efforts not only on behalf of Bristol but on behalf of all our country’s needs for this new essential utility, high

speed broadband service.

Thank you, Mr. Chairman.

[The prepared statement of Mr. Rosenbalm appears at the conclusion of the hearing.]

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Mr. MARKEY. Thank you, Mr. Rosenbalm, very much. That completes the time for opening statements from our witnesses, so we

will now turn to questions from the subcommittee.

Let me just begin by saying that at our international broadband

hearing I asked an executive from NTT, Japan’s incumbent telephone company whether NTT was allowed to disable copper loops

after it deployed fiber to a home or business. He responded that as

much as NTT would like to do so, to dismantle the copper, that the

Japanese Government had not allowed this practice because it

would prevent broadband competitors from using the copper. So let

me begin by asking you Mr. Tauke, does Verizon have a legitimate

business reason for disabling the copper loops, or is Verizon just

simply afraid of a truly competitive broadband market with more

than two competitors the way it exists in Japan?

Mr. TAUKE. Let us start, Mr. Chairman, with the fact. The fact

is that we don’t disable the copper loops. We have not disabled copper loops to any home to which we have extended fiber, and we

continue to provide services to competitors over copper loops in

areas where we provide fiber. The FCC has established a process

that we would have to go through if we decided to disable copper

loops. Now there are instances where because of connections to the

home or something, the last wire from the pole to the home, in

some cases aesthetics and some cases other issues such as poor

wire, is taken down. But we have an obligation under current rules

to provide that copper loop or last wire from the pole to the home

to a competitor if they choose to purchase that service from us.

Mr. MARKEY. Well let me go to——

Mr. TAUKE.I will just say that we have a timeframe within which

that must be installed as we do for other duties.

Mr. MARKEY. OK. So would you oppose any efforts to disable

such loops?

Mr. TAUKE. Well, Mr. Chairman, I think that the bottom line is

that this is the technology that is getting older. We are replacing

the network. At some point down the road there will be a point

where either you have to put a lot of money into rebuilding the copper network or you decide to not continue to maintain it. And our

view of that is a decision that we should be able to make down the

road depending on what is going on in the marketplace, what customers want, and so on.

Mr. MARKEY. So let us go to——

Mr. TAUKE. It is not an issue that we think is, frankly, ripe right

now.

Mr. MARKEY. Who owns that copper wire? Is it Verizon or the

consumer?

Mr. TAUKE. Verizon owns the copper wire.

Mr. MARKEY. You don’t think the consumer owns it?

Mr. TAUKE. No, the consumer doesn’t own it. The shareholders

of Verizon are the ones that put up the money to continue to invest

in the infrastructure.

Mr. MARKEY. Well, again, I disagree with that. I do believe that

the consumers have through their rates spent billions of dollars in

helping to create that lifeline to their homes, a competitive lifeline

to their homes as well in the future. And I think therein lies the

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core of this debate, and I would like to go to Mr. Evans who depends upon this copper wire as a means of competition.

Mr. EVANS. Yes, Mr. Chairman. Verizon is knowingly cutting off

the wire into the homes when they put in the fiber. They are removing the NID, the box that interconnects the copper wire, and

totally disconnecting the customer’s home. They are putting a roadblock upon the local road so we can’t get access. And so in order

to do that then they would have to go back. We would have to issue

a special order. Have a truck roll to pay charges for and re-put a

box on a customer’s house. There is no reason to take that box off

the house. They are just doing it so that it is not easy for competitors to get to use that copper network.

Mr. MARKEY. So Mr. Tauke says that that would just be an accident or aesthetics that would have the removal.

Mr. EVANS. We have had proceedings in Virginia and Pennsylvania. It is not an accident. It is happening all the time. It is commonplace.

Mr. MARKEY. It is commonplace. So let me then move on to a

question for Mr. Casto. You assert that special access prices have

declined since 1999, but the GAO found that list prices and average

revenues are higher in areas where AT&T and Verizon were granted unconstrained pricing authority then in those areas where

prices are still capped by Federal regulation. How do you explain

that outcome, Mr. Casto?

Mr. CASTO. Well, Mr. Chairman, I would at first reiterate that,

in fact, prices have declined since the advent of pricing flexibility,

in fact, double digit declines over that period of time. I think what

the report indicates is that list prices as outlined in the deregulated section of tariff, which by the way are analogous to the prices

on the sticker of a car are the prices that are, in fact, perhaps

slightly higher. And those list prices are not prices that very many

customers pay at all.

Mr. MARKEY. OK. Where you have been given so-called phase

two flexibility to set your own special access rates, those rates have

actually risen. Ms. Herda, could you deal with that question?

Ms. HERDA. I would love to comment on that actually. I think

that the statement that their prices have gone down is extremely

misleading. In fact, that sticker price has gone up but what they

have done is they have been locking up companies, customers, and

user customers, as well as carriers into these long term contracts

that I not so affectionately refer to as the heroin drip. The more

you buy the more you have to buy in order to be able to get the

discounts where you can be competitive. And every year the requirement gets higher and higher and higher, and this is a very

anticompetitive practice. In fact, Mr. Forsee over there has major

commitments. We have major commitments. I have tried to sell to

Sprint, and the problem is that we can’t bring our prices low

enough to make up for the penalties that Sprint would have to pay

if they move some of their services to us because they are not meeting those commitments. So it may appear, I think what is important is context here. If you see the prices look like they are going

down, it is the result of these long term contracts that are very,

very bad for us. One of the issues we have today is that as the

world is moving to Ethernet, and Ethernet is special access. Even

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the incumbents have it in their tariffs as special access, in the category of special access. As the world is moving to Ethernet they are

not even allowing us to put Ethernet into these revenue commitments so that, as we have to get bigger, and bigger commitments

every year for special access, and the world moves to Ethernets, we

are all going to be stuck with these big commitments with huge

penalties at the end of the day without having any kind of recourse.

Mr. MARKEY. Let me just conclude by saying that in the United

Kingdom, in Japan, and other countries around the world they are

using the age of copper to move to a bright broadband future for

their countries. And I think it is very important for us to understand that this copper is invaluable in ensuring that there is real

competition out in the marketplace.

Let me turn now and recognize the gentleman from Michigan for

his questioning.

Mr. UPTON. Thank you, Mr. Chairman. I just want to go back to

the dialog between Mr. Evans and Mr. Tauke. Mr. Evans, you seem

to indicate that, in fact, the copper is, in fact, disconnected, disabled. Mr. Tauke, you said it was not.

Mr. TAUKE. First, let us have definitions. The loop is from the

central office to the home.

Mr. UPTON. Right.

Mr. TAUKE. The bulk of the loop is up to the pole. If you disconnect the wire from the pole to the home, which we do regularly——

Mr. UPTON. When you put in the fiber.

Mr. TAUKE [continuing.] When we bring in the fiber, in part for

aesthetic reasons and in part because it reduces maintenance costs

we do that on a periodic basis. Not in all parts of the country, but

we do that in many areas. However, if the customer wants the copper or if a customer wants another carrier to use copper we put

that copper back in, and we have rules that require us to do it

within the same timeframe as we provide any unbundled network

element. So there is no instance in which we are denying a carrier

access to copper infrastructure to a consumer.

Mr. UPTON. You don’t remove that last mile copper.

Mr. TAUKE. We are not removing the last mile. In no instance

have we removed the last mile. Now I will say down the road as

you know, obviously we are putting our investment into fiber. It is

tough to invest and maintain two networks. We are putting the investment into fiber, but we are continuing to use the copper ourselves. Some others use copper but, frankly, not many customers

want the copper services after they have the fiber available.

Mr. UPTON. So, Mr. Evans, what is wrong with that?

Mr. EVANS. Well the last mile loop is pretty useless if it stops

at the telephone pole. I can’t, haven’t had many of my customers

like on Green Acres.

Mr. UPTON. Yes, but they are able to reconnect it though is what

Mr. Tauke is saying.

Mr. EVANS. It never works as easy as what he makes it out to

be. When you try to order a loop they will say they do not have

one available. We have to expedite and go around the process, and

they have very stringent processes. They charge us truck rolls.

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They charge us reconnect fees for a piece of cable that should just

stay in the ground and be where it is. They are only doing it to

hamper competition. They don’t have to maintain it if it is not in

use. It just sits in the ground.

Mr. UPTON. Mr. Tauke.

Mr. TAUKE. There is no charge for reconnecting the drop from

the pole to the home. We do not charge for that. For the customer

we don’t charge, and we don’t charge the CLEC for it.

Mr. UPTON. All right. This question is for Mr. Tauke, Mr. Casto,

and Mr. Cheek. There has been some confusion about whether the

forbearance petitions at the FCC also apply to the facilities and the

special access proceeding. The facilities and special access proceedings are called DS1s and DS3s. If the forbearance petitions were

granted would either of these two be affected? Mr. Tauke or you

can go ahead, Mr. Casto.

Mr. CASTO. Although I am not familiar with all the procedural

aspects of it I can tell you from AT&T’s perspective we are only

seeking relief on switched and packet based services. In fact, DS1s,

and DS3s will continue to be made available pursuant to the existing tariffs today.

Mr. UPTON. Go ahead.

Ms. HERDA. I would love to be able to respond to that. As I said

earlier, Ethernet is special access. It is simply an access technology

that takes a customer from one location to the other. It is less expensive than special access. It doesn’t require all the equipment.

We have Ethernet in this building, and most business buildings

have Ethernet. You go to another building, and they have Ethernet

in their LAN. What special access does is convert Ethernet to another technology to just turn back into Ethernet in the next building. What we have done is created a product that allows customers

to take Ethernet all the way through so it reduces the electronics.

The technology is slightly different. It is less expensive but it is the

same concept, and Ethernet is part of the forbearance proceedings.

If they allow it to forbear Ethernet then we will not be able to address Ethernet in the forbearance proceedings.

Mr. UPTON. Mr. Tauke.

Mr. TAUKE. Mr. Upton, again, I think definitions are helpful

here. Just understand that under FCC terms you have a switched

access bucket and you have a special access bucket, and everything

that isn’t in switched is thrown in special. But as you go further

things like DSL have been taken out in our forbearance petition.

The FCC further refined its definitions so that there are two categories. Special access is the traditional ATM services such as DS1

and DS3. The more advanced services like IP based services, Ethernet services, those things were put into the high speed broadband

category, as the FCC did with the broadband marketplace, and residential, they looked at a nationwide market for broadband for the

high speed business market. Now understand this is for the high

speed customer. The Fortune 500 companies, these aren’t the poor

residential customers, these are the Fortune 500 companies. And,

yes, that category of services, those high speed services are the

subject of the forbearance petition. But they are not traditional special access services such as DS1, and DS3.

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Ms. HERDA. I want to correct one thing that Mr. Tauke just said.

The FCC did not redefine anything in their forbearance petition. It

was strictly done by default. There was no process. There was no

discussion. There was no debate. It just happened, and no decision

was made.

Mr. FORSEE. And those DS1, DS3 services are the exact services

we rely on today to get access to our networks for wireless, and for

our retail customers, so it is at the heart of broadband deployment

in this country, and again, to let that lapse, and not take action,

again, will ensure that we will be, again, on the slow road to 18th

place instead of 16th.

Mr. MARKEY. The gentleman’s time has expired. The Chair recognizes Chairman Dingell from the State of Michigan.

Mr. DINGELL. Mr. Chairman, I commend you for holding this

hearing. I believe it is both timely, and valuable. I ask unanimous

consent that my opening statement appear in the record in an appropriate fashion.

Mr. MARKEY. Without objection, it will be.

[The prepared statement of Chairman Dingell follows:]

PREPARED STATEMENT OF HON. JOHN D. DINGELL, A REPRESENTATIVE IN CONGRESS

FROM THE STATE OF MICHIGAN

Mr. Chairman, thank you for holding this hearing. I am pleased that we have this

distinguished panel before us today, and I thank the witnesses for being here.

The focus of today’s hearing is on the future of telecommunications competition.

We will hear about four issues concerning broadband, and the pace of broadband

deployment. Underlying any decision must be the twin goals of promoting greater

broadband deployment, and greater choice for consumers.

The first issue I wish to highlight is that of regulatory forbearance. Section 10

of the Communications Act permits the Federal Communications Commission to forbear from applying certain statutory requirements to telecommunications carriers.

It is unusual for Congress to vest such power with a regulatory agency. For that

reason, when Congress passed section 10, we included several provisions to protect

consumers, and protect the ability of Congress to conduct oversight.

Unfortunately, to date, I believe that the forbearance process lacks the necessary

level of transparency. In one instance the FCC permitted a petition to be ‘‘deemed

granted,’’ and did so without issuing a written order. I am not expressing an opinion

on the merits of that petition. However, the lack of a written order renders unclear

the scope of relief, prevents the Congress from conducting appropriate oversight,

and may hinder the FCC’s ability to defend such action in court. This cannot be permitted to happen again.

Second, entities petitioning for relief have been permitted to make substantive

changes to their petitions at a very late date—so late that opposing parties have

been denied a meaningful chance to respond. I believe that we must make sure that

the forbearance process is fair, open, and transparent in the future.

Next on the list is special access. The FCC granted providers a measure of regulatory relief in 1999 and is now reviewing the marketplace to determine what, if

any, changes are necessary to protect consumers, and promote continued investment

in infrastructure. Much has changed since 1999. The market structure changed

when the largest local, and long distance companies merged. And the incumbents

are facing new competition from cable, and wireless companies, and others.

The FCC must have all the relevant data if it is going to make an informed decision. I am troubled by reports that those seeking re-regulation have thus far been

less forthcoming than they might be with data about their facilities. I expect to hear

commitments from the witnesses today that they will make sure that the FCC is

kept properly informed.

Similarly, it is not the business of the Government to simply effect the transfer

of funds from one set of private actors to another. Therefore, I also hope to hear

specific commitments concerning how consumers will benefit from any reductions in

special access rates.

Finally, I want to mention municipal broadband.

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Municipal broadband networks are becoming more important in ensuring that all

Americans have access to advanced broadband services. Provided that all competitors are treated fairly, it makes little sense for the law to prohibit investment in

advanced broadband networks by municipalities, particularly in those areas least

likely to attract private sector investment. I wonder if the panel, and the Members

of this Committee can reach agreement around that simple principle.

Again, I am pleased that we are holding this hearing today, and I look forward

to the testimony of the witnesses.

Mr. DINGELL. I may have a lot of questions here, and so I am

going to have to hurry the process. I am going to ask these questions in this way. Does anyone at the table disagree that the public

has a right to know specifically which statutory and regulatory provisions the FCC is forbearing from? I take it that you all then

agree with that statement. Do you all agree that the FCC should

issue a written order to clearly set out the exact scope of the relief

granted and to set forth the rationale underlying the agency’s decision?

Mr. TAUKE. Mr. Chairman.

Mr. DINGELL. Yes.

Mr. TAUKE. If I may, let me comment on that. The statute that

Congress passed suggested that if the FCC did not issue an order

that the forbearance petition was granted. That was designed to

force the FCC to address the issue.

Mr. DINGELL. Is that a quite different result though? The different result is that all of a sudden we have orders issued by the

FCC which are unappealable, which are unwritten, which no one

has an opportunity to comment on, and which no one has a right

to get any justice on simply because the FCC has failed to act. That

is very wrong, isn’t it?

Mr. TAUKE. Mr. Chairman, I don’t think that is the right process

either. But under the statute that is what happened, and what my

concern would be is if you require an FCC order, and the FCC

doesn’t issue one, and many of us have waited years for the——

Mr. DINGELL. Well, I am aware of that.

Mr. TAUKE. Then the forbearance piece falls apart.

Mr. DINGELL. But it is quite probable that there are better ways

of addressing this problem, and that is one of the things that I intend for this committee to do. Now, does anyone disagree with this?

Because the deemed granted language of the statute has resulted

in petitions being granted without a written order would you agree

that the deemed granted language should be removed from the

statute? Is there anyone who disagrees with that statement? Would

you want to tell us why?

Mr. TAUKE. Mr. Chairman, without knowing how you are going

to force the FCC to act within the 15 months and issue an order

I am reluctant to agree that the deemed granted piece should be

removed because in essence what that does is put us back to where

we were in the past where the FCC, there was no forcing mechanism to require the FCC to address an issue.

Mr. DINGELL. And so would you agree that we have substituted

one abomination for another?

Mr. TAUKE. That could be, but I guess that the point is, Mr.

Chairman, is what we want to do is to have some mechanism to

force the FCC to act. If we can get an order that is even better.

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Mr. DINGELL. Does anyone disagree with this statement: Any interested party should have a fair opportunity to comment on the

merits of the petition? No disagreement. Would any disagree that

if a petitioner revises its petition in the midst of a proceeding all

interested parties should have a meaningful chance to comment on

the change? I assume that all, therefore, agree. And then would

anyone disagree that the FCC should adopt procedural safeguards

to ensure that interested parties have sufficient opportunity to

weigh in on revised forbearance petitions? No disagreement. And I

want to be fair, but you have got to understand time is limited

here. Now would any disagree with the statement that the FCC

needs a clear picture of the state of the telecommunications market

to make informed decisions concerning special access?

Mr. FORSEE. Mr. Chairman, I would submit that in disagreement

with the GAO report that, in fact, that record has been established,

and the facts that we have showed today that represent a $16 billion market for the ILECs, with excess profits that we would estimate in the $8 billion range, that that record is clear, that the market hasn’t developed, and that the FCC should act on.

Mr. DINGELL. Of course, it should be observed that the FCC does

need that clear picture, does it not?

Mr. FORSEE. They had the picture. The record has been established.

Mr. DINGELL. Are you satisfied that they had that?

Mr. FORSEE. They don’t need more data to make that determination.

Mr. DINGELL. Now is there any disagreement with this statement, that to get a clear picture of the market the FCC needs to

know where some of these exist, and where they do not exist, is

that a fair statement? Anybody disagree with that? All right. Now

then let me ask this, would each of you commit to ensuring that

your company provides the FCC with all the data it needs to make

an informed decision? Is there anyone who will do that?

Ms. HERDA. Yes, Mr. Chairman, if I may? At Time Warner

Telecom we are the largest competitive provider in terms of actual

buildings connected with fiber in the country. We have 8,000 buildings connected with fiber, and we have participated in all of the

proceedings. We have given our information to the GAO. We have

given it to the FCC as recently as last month, and last year, and

whenever they ask for it. And as part of the Department of Justice

process with regard to the merger activities they had subpoena

power.

Mr. DINGELL. The question, however, is just this, would all of you

commit to ensuring that your company provides the FCC with all

the necessary data it has to have to move forward with an informed decision?

Ms. HERDA. We do, and we have. Absolutely.

Mr. DINGELL. Very good. Is there anyone who would not agree

to file periodic reports to the FCC providing data that the Commission determines it needs to remain informed about the telecommunications marketplace, and the state of affairs there? Very

well. Now is there anyone there who would not agree that if the

FCC decides to lower special access rates the amount your company spends on special access will decrease?

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Mr. TAUKE. Could you repeat that?

Mr. DINGELL. Well in other words, if the FCC decides to lower

special access rates the amount that each of the companies there

will spend on special access will, in fact, decrease? Is there any disagreement with that statement?

Mr. FORSEE. Well, in fact, if prices were decreased as you suggest

that may allow faster deployment of broadband, and our special access deployment may accelerate as a result of that so on an apples

to apples basis the prices roll back.

Mr. DINGELL. So you qualify the statement but you——

Ms. HERDA. Actually that depends because a lot of the commitments that the incumbents have required us to commit to have our

rates down as a result of those so it would depend on where the

rates would actually go.

Mr. DINGELL. Now which of the companies at the table will pass

the savings on to the consumers in the form of lower rates, and

which will use the savings for other purposes? Starting at your

right, ladies and gentlemen, at your left and going across to your

right.

Mr. ROSENBALM. This really is not an issue for Bristol Virginia

Utilities. We are facilities-based and defined in geographic region

so it is not our issue.

Mr. DINGELL. Sir.

Mr. EVANS. Cavalier would pass it on. We have lower access

rates in Detroit, for example, because AT&T charges us about half

of what Verizon charges us for special access already.

Mr. DINGELL. Sir.

Mr. CHEEK. As a local exchange carrier, Embarq, we are not really faced with the pass on question. That is really for those that

would be charged the rates that we have for special access if our

rates go down.

Mr. DINGELL. Sir.

Mr. FORSEE. Yes, in some cases today as we provide retail services to Fortune 1000 customers, in fact, we are not competitive

today because we are having to rely on special access services so

there could be an opportunity for us to pass that along and to be

more competitive and ensure that there is robust competition for

long distance. Related to wireless, it is our opportunity to be more

innovative, to deploy more broadband services, and to deploy a

more robust wireless network, and we would intend to use those

sources for that purpose.

Mr. DINGELL. Mr. Tauke.

Mr. TAUKE. Mr. Chairman, we would be paying less to some carriers obviously for special access services, but we would be receiving less on the other side, so I suspect it is something of a wash

for us.

Mr. DINGELL. Ma’am.

Ms. HERDA. If the rates actually do go down below what we are

paying today it would allow us to be more competitive and would

also allow us to make more investment in adding fiber into more

buildings across the country so that there actually are distinct, separate alternatives for the local exchange carriers.

Mr. DINGELL. Sir.

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Mr. CASTO. AT&T is in much the same position as Verizon, as

we are both a seller and a purchaser of special access so it depends.

I think it probably would be a wash. I would be interested in making one observation and that is that the prices that all of these customers currently pay for special access with AT&T is going down.

I would be interested if they would pass those on to the consumers.

Mr. DINGELL. All right. I guess that is the questions that I have.

Mr. Chairman, thank you for your courtesy.

Mr. MARKEY. The Chair recognizes the gentleman from Nebraska, Mr. Terry, for 8 minutes.

Mr. TERRY. Thank you, Mr. Chairman. I am going to start off

with you, Tom. Actually, your opening statement piqued this question regarding the Universal Service Fund, and I appreciate your

comments in bringing it up, and I simply say that I think I would

agree with all of the principles that you brought up from prior conversations. We may have disagreements about details of how to implement those principles, though. But I did want to express my appreciation for you bringing up the Universal Service Fund. Now in

comparison to the special access issue and the forbearance petitions, if Congress had to act on one thing this year, in your mind,

in your opinion should we be focusing on the special access issue

or the Universal Service Fund?

Mr. TAUKE. Well the special access issue has to deal with the

high end of the marketplace, and we can discuss these statistics

that have been offered, but the way I look at the marketplace it

is highly competitive. We have seven or eight national carriers who

are providing special access services. There is vast deployment of

new capability every year. So we see this as a very highly competitive market that serves the high end of the market, and there the

customers, by the way, are driving down prices because they have

choices. I think the biggest area of concern that the Congress

should address is this area of broadband deployment. While we

have made great progress on broadband deployment the fact remains that we have some areas of the country that don’t have

broadband capability yet. And as several of the Members said in

opening statements, this is the future. This is how you are connected to the world. This is how you grow your economy. This is

how you are going to get health services and various other education services. So I think that is what is most important, and that

is why we would like to see Congress move on these efforts to do

mapping, to try to establish public/private partnerships to get this

broadband deployed in the hard to serve areas.

Ms. HERDA. Congressman, may I just make one correction in

what Mr. Tauke said when he said special access is.

Mr. TERRY. We will just allow you to make a correction to Mr.

Tauke for the request.

Ms. HERDA. I just want to give you the names of a couple of businesses of the 25,000 or so that we have that are served via special

access, and these are not the Fortune 500 companies of the world.

Blue River Hardware.

Mr. TERRY. Before you start, would you endorse my USF bill?

That is really where I was going with the question.

Ms. HERDA. You have Duke School for Children in Raleigh which

is a preschool. You have Robert’s Printing which is a printing comVerDate 11-SEP-98 10:59 May 06, 2008 Jkt 000000 PO 00000 Frm 00648 Fmt 6601 Sfmt 6601 Q:\DOCS\110-10 SCOM1 PsN: SCOM1
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pany in Tampa. You have Amsterdam Family Practice which is a

healthcare organization. You have Michael Willis Architect which

is an architect firm. These are small business customers that are

impacted by special access. This is not a big business issue. This

is an all business issue.

Mr. TERRY. All right. Reclaiming my time. Mr. Evans you mentioned, I am not going to ask you a question but I do appreciate

you bringing up my hometown, Omaha, Nebraska. It is interesting

because the incumbent company there, Qwest, is the minority provider both of residential, and it is probably close to a 50–50 split

on business, and you have Cox Cable that is now the Cox Communications, sorry, wrong name. Now as I am frequently corrected by

them. Cox Communications has been very aggressive. They run

commercials about their small business package. They brag about

the Fortune 500 companies in Omaha that they provide service to,

and as I understand in the special access, Cox Communications

doesn’t have to open up their systems to anybody but the incumbent, Qwest, does, is that an accurate understanding of the status

quo?

Mr. EVANS. Yes, the Telecom Act was aimed at unbundling the

copper network that rate payers had paid for over the last 100

years. Cox being a private company didn’t have the benefits of all

the subsidization and the rate of return to build that copper network.

Mr. TERRY. All right. Would you agree with the level of competition in Omaha, Nebraska that forbearance should have been granted?

Mr. EVANS. No, I do not agree.

Mr. TERRY. All right.

Mr. EVANS. Forbearance didn’t help Qwest compete. It just took

out another competitor or multiple competitors, and if that happens

everywhere there will just be Cox and the telephone company, and

so all the smaller guys that really get innovative, really save consumers more money, it will be a duopoly, and that is what they

want. They want to go back to a duopoly where they both can have

a big share of the market and both can charge exorbitant rates.

Mr. TERRY. Well I would have to say that by observation the vicious competition between the two have driven down prices.

Mr. EVANS. Well if those two were so great in Richmond they will

wipe us out anyway so we still find a way to have 25,000 customers. When I compete in Virginia Beach with Cox, I compete

with Verizon. We do not compete with Qwest.

Mr. TERRY. I understand the point, although I would somewhat

disagree. Mr. Cheek, Embarq is in a unique position from all the

other folks at this table today, for which I will have to compliment

our chairman. Once again, this is a pretty blue ribbon panel for us

to have this level of discussion with. But it seems my interpretation is that you agree with Verizon and AT&T on the forbearance

and special access issues but you come at it from kind of a rural

position, or thought process, or philosophy versus theirs. And I just

want you to go through for me, as kind of the rural protector, of

why your position is different. Your position is different from the

other companies on forbearance.

639

Mr. CHEEK. From forbearance we did file a forbearance petition

that is very similar to the forbearance that was granted to Verizon

and the other petitions that are filed. It only applies to the higher

capacity broadband services that is above the DS3 level. So in our

case the answer to the Congressman’s question earlier this morning, DS1 and DS3, we are not seeking forbearance for those regulatory services. We are different than Verizon and AT&T in that

we are not an integrated carrier. All right. We don’t own a long distance company. We buy long distance minutes from Sprint. We also

are not a wireless company. We have to buy every minute that we

sell through our wireless company that we have formed. We have

to sell every minute that we purchase from another provider as an

MVNO provider. So we are different in those regards. We do operate in rural territories as I said. USF is extremely important to us,

and to answer your previous question, we believe that should take

front, and center attention by this subcommittee and, frankly, by

the FCC.

Mr. TERRY. I appreciate it. Now, well my time is almost up so

I will yield back my 13 seconds.

Mr. DOYLE [presiding]. Thank the gentleman. The Chair now recognizes himself. This question is for Mr. Tauke, Mr. Casto, Mr.

Forsee, Mr. Evans, and Mr. Cheek, and very quickly just a yes or

no answer. By Labor Day next year over 53 million numbers will

be automatically removed from the Federal do-not-call list. And

since many of you have to report numbers that disconnect to scrub

the do-not-call list clean, and since a few of you sitting there are

responsible for calling me at dinnertime to ask me if I am happy

with my long distance carrier, I just want to know will you support

the bill that I introduced with my good friend, Chip Pickering,

making the do-not-call registry numbers permanent? It is just a

quick yes or no, folks.

Mr. TAUKE. Yes.

Mr. CASTO. I am not familiar with the bill, but I will tell you that

from a consumer standpoint I am on a do-not-call list, but that is

about the extent of my expertise in that area.

Mr. DOYLE. I will take that as a yes.

Mr. FORSEE. Yes.

Mr. CHEEK. Yes.

Mr. DOYLE. OK. Very good. Mr. Evans.

Mr. EVANS. Yes.

Mr. DOYLE. Now I understand Cavalier is launching service in

the Pittsburgh area next week. Can you tell me where you are offering service?

Mr. EVANS. Yes, we just built a new switching center, deployed

fiber to 18 Verizon central offices throughout the Greater Pittsburgh area from downtown to East Liberty to Northside, Oakland,

Squirrel Hill, Perrysville, Sharpsburg, Robinson, and Wilkinsburg.

So we build very big networks so we can offer services to all the

consumers in that region. Once we get established and start getting successful then we typically expand out to even more offices

to provide greater coverage.

Mr. DOYLE. And you are going to be able to do that by what

date?

Mr. EVANS. We are turning on the service the 10th of October.

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Mr. DOYLE. The 10th of October. Mr. Tauke, can you pledge on

behalf of Verizon, that you will roll out FiOS to all those areas that

Mr. Evans just described in my district by, what is it, October

what, Mr. Evans?

Mr. EVANS. Tenth.

Mr. DOYLE. October 10.

Mr. TAUKE. We won’t make it by October 10.

Mr. DOYLE. Well I see, well, listen I want you to know I appreciate the progress that Verizon is making. I saw your initial buildout plans in Allegheny County, and I sort of felt hurt that it

seemed like all the FiOS was going north and south of me, but

more recently I see a little bit more of my district is being included.

But tell me, Mr. Tauke, how do I explain to my constituents and

small and midsize business owners that I sit here on the Telecommunications and Internet Subcommittee and I sat back and

saw Verizon kill their new Internet provider by playing games with

these FCC rules on forbearance?

Mr. TAUKE. I am not sure what carrier we killed.

Mr. EVANS. If your forbearance is successful we will have to shut

down Pittsburgh. Without the last mile loops we have nothing to

offer.

Mr. DOYLE. So how do I explain that back home to the folks?

Mr. TAUKE. Mr. Chairman, let us just be clear here. Just because

there is forbearance doesn’t mean that we aren’t selling services to

our carriers. We have had forbearance, and we have had removal

of rules of selling services——

Mr. DOYLE. So you negotiate rates with Cavalier.

Mr. TAUKE. We have negotiated contracts. When the UNE-P

went away the view was, oh, the world is going to collapse because

there will be no UNE-P. We negotiated contracts with all of the

carriers who were using UNE-P, and we still have four or five.

Mr. DOYLE. But you are the only game in town so if they can’t

pay your rates they have got to walk, don’t they?

Mr. EVANS. I can give you a great example of that. We just

bought a company in December of last year that was one of the

largest UNE-P providers. They had contracts with Verizon. It basically put them in a negative cash flow so they had to be sold. They

were a public company. Cavalier bought them, and the rates for

UNE-P went from around $18 on average before Verizon did their

commercial agreement to around $35 per customer. There is no economic model that we can pay a cost of $35 and recover that in the

chart. That is just for a plain phone service. So we are harvesting

those customers. They are going away. We are not adding new customers or marketing new customers. It is not a viable business

when Verizon does their commercial agreement.

Ms. HERDA. We have had the same experience. We recently

bought a company that had UNE-Ps, and we have had to let those

customers go because you just can’t make any money on it, in fact,

it is a money loser.

Mr. FORSEE. Just to go back to the time UNE-P rates were

changed both Sprint, AT&T, and MCI were the largest providers

of UNE-P services, and all three of those companies dramatically

exited that business as soon as that rule changed because it wasn’t

economical to stay in it.

641

Mr. TAUKE. If I might point out, Mr. Chairman, all of those companies went under or were forced to sell at a time when the rates

were heavily regulated by the FCC and the State Commissions.

Rate regulation was not the problem with the UNE-P. It was that

the business model was a faulty business model.

Mr. DOYLE. Yes, thank you, Mr. Tauke. I have a little bit of time

left, and I don’t want Mr. Casto to feel left out. Mr. Casto, in your

testimony I saw where you said that you are ‘‘not aware of any significant commercial area where AT&T does not face facilities based

special access competition today.’’ And I think that is great because

I love competition but I am confused. Could you describe to me

what you mean by the term significant commercial area?

Mr. CASTO. Sure, they are generally the MSAs within our 22

State footprint. You can look at our pricing flexibility record, and

we have been granted pricing flexibility in a number of these MSAs

and, in fact, in areas where we haven’t been granted pricing flexibility we run into competition and were unable to respond because

we haven’t been granted flexibility pursuant to the——

Mr. DOYLE. But within an MSA would you concede that there are

some areas where there is obviously some places where you don’t

have significant conversations?

Mr. CASTO. If you mean is there a building that is not lit or

something like that?

Mr. DOYLE. Yes.

Mr. CASTO. Absolutely, there are instances like that.

Mr. DOYLE. OK. So there are some areas obviously where AT&T

is indeed the only supplier of special access, right?

Mr. CASTO. Consequently there are areas where we are not the

supplier within our territory.

Mr. DOYLE. There are some areas where you are the only provider, is that correct?

Mr. CASTO. In a particular building that may be the case.

Mr. DOYLE. So in cases where AT&T is the only game in town,

do you use that to leverage other areas where you do face competition?

Mr. CASTO. It actually works quite the opposite. When customers

come in and negotiate broad master agreements with us they utilize that to get us to extend prices across the entire MSA or across

the entire region, including favorable terms and conditions across

every area. And that is traditional practice that is occurring in the

negotiations, and in fact, the way the pricing flexibility rules work

we are not allowed to price down to a building level. We, in fact,

have to extend this pricing either to an MSA level or broader on

a State or regional level.

Mr. DOYLE. Thank you. Ms. Herda and Mr. Forsee, isn’t this

really one of the most important parts of this special access debate,

that the big guys can sort of leverage where they are the only game

in town to take business in areas where there is competition?

Mr. FORSEE. We sent out in February of this year a request to

77 supposed alternative access providers for our 52,000 cell sites.

We had a response from 16 of the 77 that could cover 1 percent

of our 52,000 cell sites. The market has not developed with all the

efforts of this committee, of the Commission, of competitors around

the table, the market has not developed, 52,000 cell sites, 16 reVerDate 11-SEP-98 10:59 May 06, 2008 Jkt 000000 PO 00000 Frm 00652 Fmt 6601 Sfmt 6601 Q:\DOCS\110-10 SCOM1 PsN: SCOM1
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sponses covering 1 percent of our cell sites. The market has not developed.

Mr. DOYLE. Ms. Herda.

Ms. HERDA. Yes, sir, it is all about the buildings. At the end of

the day if there is not another provider who actually has a physical

infrastructure into a building there are no other alternatives than

the incumbents. Even the Department of Justice as part of the

Verizon/MCI case indicated that the vast majority, and this is after

getting all the data that they got from everybody through subpoenas, the vast majority of commercial buildings in its territory that

they were the only last mile provider. That they controlled the access, and that is really the key to competition not a central office.

It actually amazes me that the FCC used the central office co-locations as a means to determine that there was competition. The only

reason why companies build into central offices is to use the loops

that the local exchange carriers have out of the central offices. So

when you deregulate them you have essentially killed competition

because now they can no longer get reasonable prices on those

loops.

Mr. DOYLE. OK. Thank you, Ms. Herda. I am well past my time.

The Chair recognizes the gentleman from Florida.

Mr. STEARNS. Thank you, Mr. Chairman. And perhaps you might

be willing to offer some more time as we go along here, to others

on this side.

Mr. DOYLE. We will see.

Mr. STEARNS. OK.

Mr. DOYLE. Depends on the questions you are asking.

Mr. STEARNS. Mr. Forsee, if you don’t mind I wouldn’t mind you

putting your charts up again. If you could have your staff put your

charts up.

Mr. FORSEE. I would be pleased to.

Mr. STEARNS. The beauty about this situation is that you have

offered your charts, and you have made some pretty charges. And

in an open forum like this I think people like myself are actually,

honest to goodness, we are trying to understand this and also see

who is right. And I think it is an opportunity. Keep moving the

charts down. Keep the next one. Get to the one where they say

they are paying 10 times the rate, yes. Yes, this is the one, that

you make these claims, and I think most members are looking at

this and saying is this true? So I was going to give Mr. Tauke and

Mr. Casto an opportunity to respond to these charts. You have

made these claims, and I think, judging from sitting up here it is

a pretty dramatic chart, and what you are indicating in this chart

is you are paying 10 times what AT&T and Verizon FiOS is paying,

and so I want to give Mr. Casto an opportunity to respond to that.

Mr. CASTO. Sure, thank you.

Mr. STEARNS. And not a lot but I mean just——

Mr. CASTO. Let me just offer a couple observations.

Mr. STEARNS. Yes, maybe you could tell us first of all, do you

agree with the chart?

Mr. CASTO. I disagree with the number completely.

Mr. STEARNS. OK.

Mr. CASTO. Looking at that number, and I have done an analysis

personally and had my team do an analysis of the rates, Mr. Forsee

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and his company paid AT&T, and that is not the rates. In fact,

they are much lower than that. I know that is a representative example. I would also take exception with the example that it is not

characteristic of the way the network is actually architected or purchased from AT&T, in fact, there is not generally two channel terminations, there is one. The average distance is shorter, so I think

it is a mischaracterization of the facts. And, in fact, the rates are

much lower than that.

Mr. STEARNS. Is there a discrepancy instead of 10 times? Is there

a three times or one time or what is your opinion? If we used your

figures.

Mr. CASTO. Right. They may be half.

Mr. STEARNS. Half, so instead of $390 it would be roughly $200.

Mr. CASTO. The other point that I need to make is it is not really

an apples to apples comparison example.

Mr. STEARNS. One is fiber, one is copper, you are saying.

Mr. CASTO. Not necessarily, but one is a best effort. Ethernet

broadband service that is servicing consumers, Mr. Forsee’s business has very sophisticated needs in terms of carrying both data

and voice, and he needs services that are more a dedicated nature

and therefore, they are more reliable, and there are different characteristics to the provisioning of the services that drive.

Mr. STEARNS. But I hear you characterizing the graph as incorrect but the proportion would be half of that. OK. Mr. Forsee, I am

going to let you respond after Mr. Tauke. So I will let Mr. Tauke,

your response.

Mr. TAUKE. The chart is meaningless in my view.

Mr. STEARNS. OK.

Mr. TAUKE. It is like saying that well, we have Chevys and we

have John Deere tractors and comparing the prices for them. I

mean they perform different services. They perform different functions. One is to a residential customer that has much less usage

then for a business customer that has larger usage. But the biggest

factor is that there are quality of service requirements that are

much tighter on a DS1 than it is for a residential customer, and

the second is that it is asymmetrical, while the residential customer is symmetrical. So they are just different services, and suggesting that there is a comparison between the two is wrong.

Mr. STEARNS. So in your opinion the chart is not only wrong but

the information is being used improperly because they are comparing apples, and oranges.

Mr. TAUKE. Right. It is like the John Deere tractor and the

Chevy. They are used for different purposes and different functions, and, yes, the John Deere tractor costs a whole lot more than

that.

Mr. STEARNS. OK. But Mr. Casto says that the chart approximately makes the argument that instead of $390 it is roughly twice

or $200. So he is at least giving.

Mr. TAUKE. I would stipulate the price is squarely more for a

DS1 because it is a totally different service then it is for broadband

connection to the home.

Mr. STEARNS. OK. Mr. Forsee, your opportunity to respond.

Mr. FORSEE. Yes, I will try to follow the tractor analogy. I think

we are talking a different kind of tractors here than we are tractors

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and sedans. We are talking about broadband pipes. And we are

talking about services that on the end that I——

Mr. STEARNS. But aren’t these broadband pipes that these folks

have put in?

Mr. FORSEE. Absolutely, and they put them in over 100 years of

infrastructure and switches and all of the participation and the

regulatory framework, but the pipes at the end of the day, as you

can see by how much traffic is being carried, it is the same technology. It is the same stuff that is going out there, and the fact

that they acknowledge, Verizon has acknowledged in their filings

that FiOS represents similar services which is a term I used in my

testimony, it is similar services using the same technology bandwidth going out to consumers and business customers. It is the

same stuff and to be charged 10 times as much in one case because

it is their competitive market that is special access that is still,

again, being dealt with in a different environment where competition hasn’t developed. That is the issue.

Mr. STEARNS. On one of your charts I think you talked about the

profits to competitors. You folks made a profit too, didn’t you?

Mr. FORSEE. Yes, and my margins are 100 basis points less than AT&T and Verizon’s today, part of which is the result of the $6 billion of special access profits that they enjoy beyond the rate of return that would otherwise be calculated. That is the difference.

Mr. STEARNS. OK. Thank you, Mr. Chairman. I wonder if I have

forbearance here just to ask one more question?

Mr. DOYLE. We are not granting any forbearance petitions here

on this committee. Yes, one more, Mr. Stearns, and make it quick.

Mr. STEARNS. This question is for the entire panel. Have special

access rates gone up or down? Is the market keeping rates competitive or is it the regulation? Just left to right.

Mr. DOYLE. Very quickly left to right.

Mr. STEARNS. Yes, very quickly, and have special access rates

gone up or down? Is the market keeping the rates competitive or

is it the regulation?

Mr. CASTO. Special access rates are dramatically down, and it is

the result of the competition we face in the marketplace. Period.

Mr. STEARNS. OK. Ms. Herda.

Ms. HERDA. Our special access rates are down, but the incumbent rates are significantly up.

Mr. STEARNS. Mr. Tauke.

Mr. TAUKE. That is interesting because the rates where we are

saving are going dramatically down; the payments have been averaging over 5 percent reduction a year in real terms.

Mr. FORSEE. Retail customers and a filing to the FCC earlier this

year estimated that in 2007–09 that special access pricing could

cost as much as 234,000 jobs and $66 billion in economic profit.

That was filed by the Ad Hoc Telecommunications Users Committee earlier this year.

Mr. CHEEK. As I said in my testimony our special access rates

for DS3 have gone done 35 percent since price flexibility was implemented. And also, our DS1 prices are actually below cost as we also

have testified to today.

Mr. EVANS. They have gone down slightly and more so in competitive buildings, but the technology cost, the capital cost to proVerDate 11-SEP-98 10:59 May 06, 2008 Jkt 000000 PO 00000 Frm 00655 Fmt 6601 Sfmt 6601 Q:\DOCS\110-10 SCOM1 PsN: SCOM1
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vide DS1 now is so much lower than it was 3 years ago. It is a fraction of what it was. So it should be down much greater if there was

true competition in all buildings.

Mr. ROSENBALM. We do not operate in that market, so I can’t answer your question.

Mr. STEARNS. Thank you.

Mr. DOYLE. The gentleman’s time has expired. The Chair now

recognizes the gentlelady from California, Ms. Harman.

Ms. HARMAN. Thank you, Mr. Chairman. I am impressed to see

you in the Chair and appreciate your good humor. This is a fascinating hearing. It is good to take this kind of broad look at where

the industry is, but it also offers some lessons, at least it does to

me for a short-term issue or a shorter term issue, which is the 700

MHz band auction. I think a lot of the issues we are talking about

now, what is happening with competition and innovation, what is

happening with access are playing out there, and in fact, at least

one of the companies sitting here is also playing a big role there.

So since at least for this member that auction is absolutely critical

because it will either make us have an interoperability solution for

public service agencies or it won’t, I am paying close attention to

what you are saying here. And let me say while I am at it that I

hope the FCC is paying close attention to what is being said here

because I think the FCC rulemaking is highly innovative and highly significant. And I worry that because of lawsuits and other actions that some companies are taking that highly innovative proposal may be changed, and changed so significantly that we don’t

have a chance to have the innovation and have the access for our

first responders that I think their situation requires. So having

said that let me just ask if anybody has a comment on this 700

MHz auction. Any of the witnesses. I am surprised that Verizon

wouldn’t have a comment.

Mr. TAUKE. I presume your comments were directed my way so

I do want to at least offer a couple of observations. One instance

that we have filed suit against the provisions relating to the Cblock, that did not do anything on the provisions relating to the

segment of the block that dealt with public safety. We have asked

the court to expedite the proceeding because we, too, want the auction to go forward as rapidly as possible.

Ms. HARMAN. Well, I hope your lawsuit, whatever its merits are,

does not delay this auction. It has already been delayed by Congress at the request of many outside once, and I don’t think we can

wait for an inoperability solution. But let me just ask you about access, the subject of access. I just recently changed my carrier for

my BlackBerry, and I am an addicted crack berry operator, but I

am not the most skilled operator, and I am struggling with the features of this new device. And every time I ask somebody a lot

smarter than I, who could be almost anyone who works for me,

‘‘why do I have to do this?’’ The answer is because that is what you

have to do if you want this device, and if you want to do what you

did with your other device then you got to go back to the other device. So I feel trapped in this piece of technology that I would like

to change to be more friendly to me. And I think a lot of people

feel the same way. My access to features that I would prefer is denied, and I am not accusing any of your companies. I am saying

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I think that this is generally true. So, again, taking that, and applying back to trying to have these first responders structure a solution that would work best for them. Would anyone like to comment on the subject of access? Again, practices that you have. My

understanding, well, let me ask Verizon. Is it true that for the foreseeable future your customers will not be able to access your network with any device or run any application over it? For Sprint

Nextel, you are building a new WiMax network which will bring a

fourth generation broadband Internet technology to a hundred million American consumers. Are you going to let consumers use devices of their choosing, such as computers and all kinds of cell

phones to access your WiMax network?

Mr. TAUKE. Well first on the relating to Verizon and the open access, two things. One is that yesterday, in fact, we issued a news

release announcing a new policy related to changing devices which

if you happen to have your BlackBerry from us maybe you can use

because you can change your devices without doing a new contract.

So that may be something that part of the ongoing effort I think

to try to facilitate more consumer movement in the marketplace.

We, also, by the way have a phase out system for our early termination fees. In response to the second issue of open access, in most

cases the blocking of access is contained in the device, not in networks. Our issue, not to get into too much detail here, but our

issue with the FCC on the open access provisions relating to the

C-block is that they do not accommodate devices that are manufactured by other companies and that block access to certain things

on the Internet. And we didn’t believe that because we had a customer base that has devices that we don’t make that deny access

to certain services on the Internet that that should preclude us

from being able to bid, and use that spectrum.

Mr. DOYLE. The gentlelady’s time has expired.

Ms. HARMAN. Mr. Chairman, could I just get the Sprint Nextel

witness to respond to the question?

Mr. DOYLE. Sure.

Ms. HARMAN. I appreciate it.

Mr. FORSEE. There is a lot of good news coming as we begin the

deployment of our WiMax which is a mobile broadband network.

We will start turning up markets as early as the first part of next

year, and that will allow, again, for the first time in this country

and actually worldwide a mobile broadband network. That model

is a different model. It will allow open access for those chip sets

that are deployed and embedded in computers and in devices because the network and the technology will be unique. So they will

be able to be bought by service, be able to be activated on occasion

as opposed to contracted force. It will be a different model, and I

think will be very much in tune with the line of your questions.

Ms. HARMAN. Thank you, Mr. Chairman, for indulging me. I do

worry though about the 700 MHz auction, and I hope we will all

pay careful attention. Thank you.

Mr. DOYLE. I thank the gentlelady. Thank you. The Chair now

recognizes my friend from Mississippi, Mr. Pickering, for 8 minutes.

Mr. PICKERING. Mr. Chairman, thank you. Please forgive me if

I reminisce. When I first came to Washington at the young age of

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26, I was working for the first President Bush, and working on

East European and Soviet programs, and reforms for economic, and

political freedom, and as I came to the Hill in 1991 to begin working on telecommunications reform, hoping to take monopoly

telecom policy to an economic policy of freedom choice competition.

And as you look at the parallels between the two, we see across

Eastern Europe and in the former Soviet Union primarily success,

more freedom, more political freedom, stronger democracies. You

look at the Ukraine, you look at Eastern Europe. But if you look

at Russia we can probably say that we have seen some setbacks

or rollbacks. And so just like in economic policy or political policy

you can have success and progress or you can have failures,

rollbacks, setbacks. And so as we look at telecommunications competition and the state of where the industry is today I think we can

see a number of successes. If we look at the IP applications and

market increasing competition towards freedom. You look at wireless, a fairly strong, healthy, vibrant competitive sector. But as we

go forward, how do we assure or guarantee that we don’t have

rollbacks or setbacks as far as economic freedom, telecommunications and competition and choice. And before us we have some

key policy areas that I think will assure that we go forward in the

right direction and path and continuing to see greater competition

and choice. But we can also have setbacks and failures if we choose

wrongly or poorly. I think on the forbearance petitions that are before the FCC right now, if we take away the access the competitors

now have for the last mile and for the last loops then we could see,

just like we lost in the early part of 2000 an entire sector of telecommunications long distance, we could see the loss of C-sector

that gives very important competition and choice to competitors.

In 1999 when special access was granted those reforms, you had

AT&T and MCI. You had hundreds of other long distance providers, and facilities based competition in special access. Well since

that time all those companies have either disappeared or been acquired, and four regional Bells are now two national carriers of

consolidation and concentration, local, and long. And so if you look

at that market we could say there is actually less choice today then

we had when the reform was adopted in 1999. And what do we

need to do to make sure that special access stays competitive and

economically priced?

As the FCC looks at forbearance I would like to ask the political

dissidents at the table, Mr. Evans, and Ms. Herda, what would

happen if the FCC granted the current forbearance petitions to

your business model and your ability to compete?

Mr. EVANS. Our business model would be decimated. Without the

local loops we cannot offer service. There are no other alternatives.

We are paying Verizon $11 a month just to rent a pair of wires.

For every wire, we have over 500,000 loops that we are paying. We

pay Verizon alone $72 million dollars a year. So it is just to eliminate competition. We have no other choices. We tried wireless. We

tried WiMax. We have been working with broadband over power.

There is no other solution. The copper network is the best network

available to give us the lowest prices.

Ms. HERDA. We are primarily concerned with the forbearance of

Ethernet services and OCN services. In the case of Ethernet servVerDate 11-SEP-98 10:59 May 06, 2008 Jkt 000000 PO 00000 Frm 00658 Fmt 6601 Sfmt 6601 Q:\DOCS\110-10 SCOM1 PsN: SCOM1
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ices today we have been unable to get any agreements with the

various different incumbents, large incumbent carriers to be able

to buy wholesale Ethernet services and in fact, the prices that they

are charging which were on the slides that I showed earlier are

higher than the retail prices that we are seeing them charge to retail customers in the market. So it is very uneconomic for us to buy

those services. We can’t be everywhere. We have spent billions of

dollars building infrastructure in 75 markets across the country.

We have 8,000 buildings connected with fiber. We are feverishly

making investments every single day to build more fiber into more

buildings, but our customers want us to be able to serve them

where they want us to be. Wherever their services they have a

need. If it is in Fargo, ND or if it is in Boise or whatever markets.

If we are not in that particular building we have to acquire the

service from someone, and that someone is inevitably always the

incumbent carrier. So the problem with forbearance particularly of

Ethernet services is that we will not be able to have a discussion

about that pricing of Ethernet services during the special access

proceedings, which is critical to the future of telecommunications

service.

Mr. PICKERING. Mr. Tauke, one of the points of your testimony

was on broadband deployment and how USF can either be used to

help that or hurt that. You also talked about wireless broadband

as a competitive force in the market and as a substitute for the incumbent Y-line capability. But you support a cap or a reverse auction. Wouldn’t that actually restrict wireless broadband, especially

in the small and rural markets, eliminating competition and choice

in broadband deployment especially as we get ready for the 700

auction. So how do you reconcile your USF position with broadband

objectives of increasing that across the country?

Mr. TAUKE. Here is the problem that we face today. You have in

many areas of the country now 4 or 5, 6, in some cases 9 and 10

carriers who are receiving universal service support to serve hardto-serve areas. OK. Generally the amount that each carrier receives

is based on the cost to the wireline carrier. So let us say there is

a community with 500 homes. The wireline carrier when it had 500

homes maybe was receiving $10 a month in subsidy. As other carriers come in and take customers from the wireline carrier maybe

now they have 250 homes. So then they get a subsidy of $20 a

month because their costs haven’t declined. Not only do they get

$20 a month but the other five carriers all get $20 a month, and

this is driving up the amount of money that is going into the community. The community obviously isn’t that hard to serve because

it has multiple carriers, and these multiple carriers are getting

ever larger amounts of money to serve the community. This system

is broken. Our suggestion has been a reverse auction. I am not saying it is the only one, by the way. And I think that you raise a

point that should be taken into consideration when we look at a reverse auction.

Mr. PICKERING. A reverse auction could go to just one carrier.

Would you agree that the only thing worse then subsidizing competition would be subsidizing monopoly?

Mr. TAUKE. Well I think that this is an important public policy

decision for the Congress. If you have a hard-to-serve area, how

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many carriers do you want to serve? How many carriers do you

want to support to serve that area? I would argue that in the past

the position of the objective of universal service has been to provide

service to areas. I don’t know how many carriers you think would

be sufficient. But I do think that in that town of 500 people or

many of the communities that we are familiar with in our native

States that four, five, six, seven carriers in the community makes

no sense. Economically it only is supported by the strangeness of

the Universal Service Fund.

Mr. PICKERING. Mr. Chairman, my time is up, but I do hope that

as a panel that we work. I don’t think the outcome of two to three

competitors in a market is a good outcome, and I do hope that we

look to have policies that promote multiple choices for the greatest

degree of economic freedom in telecommunications. Thank you, Mr.

Chairman.

Mr. DOYLE. I thank my friend. The Chair now recognizes Mr.

Inslee for, Jay did you have an opening statement or did you wait?

Mr. INSLEE. I had a brief opening statement.

Mr. DOYLE. For 5 minutes.

Mr. INSLEE. Thank you. I wonder if someone could help me put

that chart up again that we were looking at because I wanted to

make sure that I understood everybody’s position on it. I understood Mr. Casto, Mr. Tauke basically you were saying this is an apples and oranges or Cadillacs and John Deeres, and I wanted to

ask them both is there a comparison actually it was the other one.

We were looking at the bar graph showing the various costs, the

various services. Is there a non-Cadillac to John Deere comparison

associated with this type of matrix that we should be familiar with,

Chevy as, excuse me.

Mr. CASTO. Not that I am aware of. I really do think it is, again,

it is the Cadillac and the John Deere, they are completely different

services and serve different purposes, and they are provisioned differently, architected differently, and purchased differently.

Mr. TAUKE. It seems to me that we have to recognize that a company like Verizon is a major purchaser of special access services,

as well as a seller of special access services. So our Verizon Wireless company in 75 percent of the country is in the same boat as

Mr. Forsee’s company. We have to go and buy special access services from other carriers. So what do we do? Well first in many instances we use microwave in order to not have to go with any of

the incumbent carriers. Then we look at the carriers that are available in that marketplace, and usually there are several, and we

bargain with them to try to figure out what is the best price we

can get. But we are in the same boat as a wireless company that

he is in 75 percent of the country because we don’t have wireline

facilities, special access facilities in all of those areas. And so I

guess the point that I want to make is that our wireless company

figures out how to compete, and we do it by buying services from

a wide variety of people, and there are a wide variety of people who

offer those services. I have sheets of names if you would like me

to put them in the record. And we don’t see that this is a market

where as a wireless company we have few choices.

Mr. INSLEE. Mr. Forsee, do you want to comment on their responses?

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Mr. FORSEE. I would reiterate what I said earlier that we put out

a request to 77 providers, probably most of the same names that

were on that list. We got 16 responses that covered 1 percent of our

cell sites. There is no alternative except to go the incumbent local

exchange companies. They built out these networks over 100 years.

They are dispersed. They are deployed where cell sites have to be

located in order to serve and provide better service to municipalities. That is the fact. And our WiMax network plan which is now

being launched, we put out a request for microwave support because we want an alternative. But at the end of the day we will

move the needle ever so slightly. We will move that needle from

98 percent over 3 years or 4 years to 93 or 94 percent. That is the

fact. There is no other alternative except to rely on the regional

Bells, now the ILECs, for that type of service.

Mr. CASTO. I would just like to extend an offer to Mr. Forsee that

if he is interested we would certainly be interested in talking about

providing special access in the New York and Boston area. And in

the Verizon territories, as I am sure Verizon would be willing to

extend that same offer in Chicago, and other markets where they

provide service.

Ms. HERDA. I think the difference here, and when you look at

that chart and forget about the numbers for a second and think of

the difference in the prices, and even if that is $100 under the DS1

line, I know in the 8,000 buildings that we have connected with

fiber we sell special access in those buildings. But in every single

one of those buildings we have a competitor, and it is the incumbent local exchange carrier. In all the buildings that were buying

services if we had another alternative than the incumbent carrier,

I could tell you right now I would love to buy from someone else.

We try to buy from someone else. We have gone to other competitive carriers. We have gone to the cable companies. The problem

is that we are in more buildings than they are, and they can’t really help us. We continue to look for alternatives in those buildings

but in order to even get the kinds of rates that are on those charts

you have to make big commitments and ever-growing commitments

to the local exchange carriers to get the discount.

Mr. TAUKE. Mr. Inslee, we get the impression here that all these

prices are deregulated. Let me just make this simple point. If there

is any failure in the FCC process it is that the last mile prices for

special access remain heavily regulated under price caps. In Boston, New York, Washington, DC, Baltimore, Philadelphia, five of

the most competitive places in the country we are still under price

cap for the last mile for special access, DS1s and DS3s. We still

have all our rates regulated by the FCC. This is when Cablevision

is advertising in New York they have more fiber than any phone

company reaching more buildings then any phone company. Time

Warner says to Wall Street they have access to 900,000 buildings.

Now how can it be that she says 8,000, and they say to Wall Street

900,000? Well it is because the issue is not whether you have lit

a building, the issue is do you have access to that building?

Ms. HERDA. And you are providing the access.

Mr. TAUKE. No. What happens is if what you are telling others,

and what is the story that the investment community is told and

what the Department of Justice uses in its assessments is you put

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on a fiber ring. And when you put on a fiber ring you don’t go light

a building if there is no customer there to order the services. But

once a customer comes to order the services you split off fiber from

that ring and you go to the building. If I have a 50 square foot

building and three tenants in that building, and nobody is choosing

Time Warner as a carrier, of course they are not going to take fiber

to the building. They aren’t going to light the building. But if it is

close to their fiber ring, are they going to light the building when

a customer wants service? Of course. So I think that you have to

understand that there is a lot of competition in these urban areas

in particular. The rates are still capped by the FCC. The failure

has been that the process used at the FCC has been so slow in freeing this market.

Ms. HERDA. I think it is important to understand. We are physically in around, a little less than 8,000 buildings with our network. If we have a building right here, and our fiber is going right

by the building right next to it, we may never be able to economically go into that building. We have to get a return on our investment. When we go into a building we have to have a customer contract, and it can cost anywhere on the low end of say $50,000 to

build fiber into a building even if the fiber is going right down the

street. And it can cost as much as $300,000, and so you have to

be able to get enough revenue in that building. And I can tell you

if we can’t build into the building with as big as our networks are

that do go in so many different places, nobody else is going to be

building. The capital markets are not going to fund another competitive player to do that.

Mr. MARKEY [presiding]. The gentleman’s time has expired. The

Chair recognizes the gentleman from Illinois, Mr. Shimkus.

Mr. SHIMKUS. Thank you, Mr. Chairman. I am going to ask Ms.

Herda if she will respond to questions that I pose to her and not

jump in on questions that I don’t pose to her. I have seen that frequently this morning, and I find that troubling and disconcerting.

And I would like to start with Mr. Tauke, another problem which

really troubled me with Mr. Markey was his comment about who

owns what. So Mr. Tauke, assume my friend rents an apartment,

and he has been paying rent for multiple years. A lot like many

Members here. Does he own that apartment any more than your

customers who rent part of your network or the last mile as Mr.

Markey made the assumption?

Mr. TAUKE. I notice we pay the taxes on the network.

Mr. SHIMKUS. It is a very real problem. This is the keyhole of

telecommunications. If you pay rent on an item do you own it? And

I am not for takings. And the chairman of this committee has

talked numerous times about when the Federal Government takes

things the Federal Government has to compensate. Just because

you pay rent doesn’t mean you own it. Now there may be other

ways to address this concern, but assuming that someone who pays

rent owns the property, that obviously struck a tough cord in a personal property rights Member like I like to be. But let me go to Mr.

Tauke, Mr. Casto, and Mr. Cheek, and you tried to identify this before. When you sell special access services to business customers

how much leverage do these customers have, and Mr. Casto why

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don’t you go first. If you go briefly I have a couple of other questions.

Mr. CASTO. They are really carrying the cards given the environment that we operate in today, and they are very sophisticated customers, are well aware of their options, and they utilize those options, including the customers the representatives at this table

when they purchase special access from us.

Mr. SHIMKUS. Thank you, Mr. Tauke.

Mr. TAUKE. I will simply repeat what he said.

Mr. SHIMKUS. And Mr. Cheek.

Mr. CHEEK. Along the same lines, if you look at our territory in

Florida alone, we have in excess of 24 active competitors. I should

say all of our Florida markets, the majority of our Florida markets.

So there is plenty of leverage in the marketplace because it is a

competitive marketplace.

Mr. SHIMKUS. And I appreciate, you have been pretty quiet on

the panel compared to the opening statements and stuff, and I

think the frustrating thing is if we were in the old days of a monopoly instead of seven people sitting up here we would have one.

Now comments have been made during the break. I walked off the

floor. I met with some constituents, and I kind of told them over

the TV what we were doing. And he says, boy, I yearn for those

old Ma Bell days. Talking about the frustration of dealing with the

billing, and for consumers to have choices, and I said but if we

were in the old Ma Bell days what would we have? We would have

no cell phones. We would have no broadband. We would have no

competition. And my fear is that people who yearn for the old days

of a monopoly provider, you all are perfect examples of the competitive market trying to deal in the arena that we have obviously

there is some regulations still there. Regulations that Mr. Tauke

has mentioned. Regulations that Mr. Forsee has mentioned. And so

my final point based upon these questions, Mr. Evans you talked

about your triple play option. How much do you charge for that?

Mr. EVANS. Seventy-nine dollars.

Mr. SHIMKUS. Mr. Rosenbalm, and I appreciate because you are

a provider by the local municipality, correct?

Mr. ROSENBALM. Correct.

Mr. SHIMKUS. What does yours cost?

Mr. ROSENBALM. Around $80.

Mr. SHIMKUS. Around $80. I need you all to deploy to my area.

I have the triple play, the one thing about this committee, too, is

we all deal with these services that we are fighting about, right?

And right now mine is $99.97 for my phone, voice, my video

broadband, and home phone services, but I have other options, too.

AT&T is trying to roll out to get in my neighborhood. So I would

ask Mr. Rosenbalm because if it is a utility does the other aspects

of the utility help subsidize or roll out or was there any Government real development or State development loans that helped you

do this?

Mr. ROSENBALM. There were no loans from the State. We

launched our network in Bristol itself with bond issue back from

the venture. Since then we have received some EDA grant funding

to expand in southwest Virginia, as well as the Virginia Tobacco

Commission has extended funding.

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Mr. SHIMKUS. I just want to applaud that. I have 30 counties in

southern Illinois, and I think going that direction where it is more

difficult for other people to provide is a good answer. Thank you,

Mr. Chairman.

Mr. MARKEY. Thank you. The gentleman’s time has expired. And,

of course, the reason Mr. Rosenbalm is here is that many States

are now, well at the behest of large incumbent companies trying to

prohibit municipalities like Mr. Rosenbalm from deploying their

broadband which gives an extra option for the community, and that

is something that Mr. Boucher and myself and many others here

are going to try to make sure it doesn’t happen. Up until the 1992

Cable Act it was most of the local cable contracts actually prohibited the municipality from allowing another company to come into

that community, which the 1992 Act voided so that communities

could bring in other competitors to compete against the incumbent

cable companies. So this is not a new phenomenon. It is something

that this committee has had to deal with over the years. I have a

letter here from the Consumers Union addressed to the subcommittee on the issues before us today which by unanimous consent I

would like to have it included in the record and turn and recognize

the gentlelady from the State of California, from Silicon Valley, Ms.

Eshoo.

Ms. ESHOO. Thank you, Mr. Chairman. And thank you to all the

witnesses. I have had the advantage of being here since 9:30 this

morning and having heard the give and the take certainly the testimony, and I think it has been highly instructive. I can’t help but

think of something that my father used to say, and it is the following. That it is a great deal if you are willing to buy back what you

are offering. And so I think that for everyone at the table that is

a consideration to make. I doubt that most frankly the incumbents

would do that. Honestly, I think that there is a tilted case here.

It is somewhat rigged for a variety of reasons, but I come down on

that side as I have for sometime, not because I don’t have any

friends that work with the incumbents. I respect the American

companies but there is not a fairness to this. And I think that it

really is American to have competition, and when you look at the

numbers it is not there. Do we have a proliferation of services in

our country? We do, and I welcome that, and I want to see more

of it. But I don’t think there should be only two or three that get

to have a leg-up on it. So I want to ask Mr. Casto, you are in the

business marketing end of your company, and I learned something

that is in section 5 of your terms of service. There are a couple of

things in it that I don’t have any problem with, but part of it says

that AT&T may immediately terminate or suspend all or a portion

of your service, this means the consumer, any member ID, electronic mail address, IP address, universal resource locator or domain name used by you, again the consumer, without notice for

conduct that AT&T believes tends to damage the name or reputation of AT&T or its parents, affiliates, and subsidiaries. Now my

question to you: have you booted anyone’s service as a result of this

policy in your terms of service? I think it is really disturbing. I

thought that people can pretty much say and write their opinions

even if they are harsh. Have you booted anyone’s service?

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Mr. CASTO. I will apologize in advance. This is not my area of

expertise.

Ms. ESHOO. OK. Whose is it?

Mr. CASTO. I am in the marketing side of special access, but I

would be glad to take this back and find out.

Ms. ESHOO. I would really, I think we need an answer to that.

It is menacing I think to have a stated policy like that. To Mr.

Forsee, according to the GAO report on special access in a particular case in San Jose, CA, while that is not in my district, it is in

my region, competitors only have access to only 6.2 percent of all

buildings. That is a paltry percentage I think by anyone’s measure.

To put it another way, the incumbent provider is the only provider

of access in 93.8 percent of all the buildings. How would you reverse this?

Mr. FORSEE. I think the policy opportunity before this committee

and before Congress to understand forbearance, understand what

it means to this very specific area. We talked earlier about competition has developed. Developed very robustly across a wide range of

services. In this particular case in special access it hasn’t developed. It is an opportunity to ensure that competition can develop

by ensuring that the right balance of rate structure, and competition as a result of FCC action takes place.

Ms. ESHOO. OK. To Mr. Tauke, those who are forced to buy special access services from you claim that in order to receive the deep

discounts, because there are discounts, that they have to sign longterm contracts that lock them into revenue guarantees and requirements for shifting business away from competitors and severe termination penalties. Can you tell us how these practices encourage

competitive investment? Or do you just not agree with the terminology that describes these practices?

Mr. TAUKE. There is no question but that if you are willing to

sign a long-term contract and if you are willing to give assurances

as to the volume that you will purchase from Verizon that you get

a lower price than if you are purchasing a smaller volume. No

question about that or for a shorter term.

Ms. ESHOO. What is considered short term, what is considered

long term?

Mr. TAUKE. I think we are talking 1 to 3 years.

Ms. ESHOO. Short term?

Mr. TAUKE. No, I mean that would be the range of these contracts.

Ms. ESHOO. I see.

Mr. CASTO. Can I comment on this point? At least with AT&T’s

experience since the advent of pricing flexibility back in 1999 we

filed between three and four hundred contracts. We have more

than half of those do not have any kinds of those terms that are

required in terms of a spend commitment. They are very circuit

specific. These agreements are really tailored based on the negotiations on a business to business basis between the parties. The

other comment I wanted to make was that over the last 6 months

AT&T has received roughly 700 RFPs or bid responses for special

access. You can look at the public record. We filed about 90 to 95

contract tariffs which are the vehicle to effectuate the pricing and

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the terms and conditions associated with those contracts which is

a very low win rate.

Ms. ESHOO. OK. Mr. Chairman, just 10 seconds to say something. I just want to say to Ms. Herda that if there are any young

people that are tuned in to this hearing today, I think it is very

powerful for girls and young women to see a woman testifying as

a president, as a CEO, and a chairman. Thank you. Thank you,

Mr. Chairman.

Mr. MARKEY. And to be questioned by a woman who represents

the Silicon Valley I think is especially because of that. Let me turn

and recognize the gentleman from California, Mr. Radanovich.

Mr. RADANOVICH. Thank you, Mr. Chairman for holding this

hearing, and I do have a couple of questions of some of the folks.

Mr. Tauke, thank you for being here today. I wanted to ask that

even under the current pricing flexibility regime can’t competing

carriers file complaints if there is a problem, and if so how many

have been filed?

Mr. TAUKE. I don’t know how many have been filed. Complaints

can be filed, but I don’t know how many of them, I guess I am not

aware of any at the current time.

Mr. RADANOVICH. Can you, there is time for a written comment

on this, can you respond, I believe, that regular time is within 10

days or so with a written response to that question?

Mr. TAUKE. I would be happy to.

Mr. RADANOVICH. If you would that would be most helpful. Also,

I have a question for Ms. Herda, Mr. Forsee, and Mr. Evans. Mr.

Casto states in his testimony that AT&T has lowered its prices for

DS1 and DS3 circuits and that rates are lower today then they

were when the FCC established its pricing flexibility regime. Did

you agree with that statement?

Ms. HERDA. Specifically, with AT&T’s rates, no, they have their

wholesale rates, and they have been locked out. They have had

their restrictions as a result of the acquisitions that they’ve made

on increasing rates. We have seen carriers like Qwest for instance

who raised their rates in 2004, 17 to 18 percent across their entire

region. So we have seen a slow rise, or actually in that case that

was a rather large rise. It was quite expensive to our business that

we couldn’t do anything about it because they were allowed to

make those changes.

Mr. RADANOVICH. Thank you. Mr. Forsee.

Mr. FORSEE. We try to distinguish between rates, in fact, may

have come down. I can’t speak specifically to the rates of return

that the companies are earning as a result of the rates that remain

in place. So while the cost of providing that service has come down

more dramatically as was represented earlier, more dramatically,

yet the rates may have come down disproportionately not as much.

Mr. RADANOVICH. All right. Thank you. Mr. Evans, please.

Mr. EVANS. Yes, I am not personally familiar with whether they

have gone up or down. They are lower in AT&T’s region then they

are in Verizon’s region.

Mr. RADANOVICH. Thank you very much. One last question. Mr.

Forsee, your company used to own what is now Embarq, and is it

true that you sold off the special access facilities in a spin off?

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Mr. FORSEE. Yes, we spun off Embarq to our shareholders.

Embarq represented about 6 percent of the access lines in the

country and was a small footprint on a national company, and

again, it wasn’t sufficient to have made a difference in our overall

special access pricing on that particular question.

Mr. RADANOVICH. OK. Because my question is if you do need special access as you had stated in your testimony, why would you sell

off Embarq?

Mr. FORSEE. It was a small 6 percent of our total requirements

of 100 percent of the country.

Mr. RADANOVICH. OK. All right.

Mr. FORSEE. It wasn’t large enough.

Mr. RADANOVICH. Thank you very much, and I yield back my

time, Mr. Chairman.

Mr. MARKEY. I thank you, Mr. Radanovich, very much. And we

thank, oh let me turn and recognize the gentleman from San Antonio, Mr. Gonzalez.

Mr. GONZALEZ. Thank you very much, Mr. Chairman, and I will

start off and probably start and end with my questioning of Mr.

Forsee because I think your testimony has been very forceful.

When you view what is going on here, and I really think when you

have a contest among AT&T, Verizon, and Sprint, there are no little guys involved in this one. And my general understanding is that

they usually can take care of themselves pretty well. There are a

lot of other people that can’t, and that is when I think Government

needs to come in. But, Mr. Forsee, you seem to indicate that special

access fees could almost spell doom for Sprint. I don’t think you

really intend to say that, but if you read your testimony it is pretty

dire. But is it to the extent where maybe Google and Clearwire

should reconsider the partnership they have formed with you in

rolling out this whole new system in which I really sincerely wish

you great success. I venture to guess when the smart guys from

Google and the brilliant guys from Clearwire got together with you

they looked at pretty much what special access fees constituted and

said guess what? You are still going to do well. We are going to

do well together. I think you understand the concept that if someone uses someone else’s infrastructure or system there should be

some fair compensation. I don’t think that the issue here truly is

then one of what is fair.

In San Antonio I had a little tier-two provider, Cricket, come to

me complaining about roaming charges that AT&T, Verizon, and

Sprint charge. Now they don’t think those are fair, just as you

don’t think the special access fees are fair. They also alluded to,

were not complaining at this point about what they pay to rent or

lease space on a cell tower. My understanding is that you lease

them, you got them, and then you can sublease or you own them,

and you can lease space on those things. But I am not sure they

think that is a fair arrangement but they are not much in a position to contest a lot of this. And I think sooner or later we are

going to go and talk about the Crickets and the Pockets of this

world, but today I am just trying to establish conceptually you understand that AT&T and Verizon are due something. And what is

that? What determines what is fair, and what you charge someone

like Cricket for roaming? Or what you charge someone like Cricket

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for renting space on a cell tower that you may own? Is there regulation out there that establishes some parameters? Because this is

what you state in your testimony about the access fees. This figure

is at least twice what it should be if special access prices were even

remotely related to the cost of providing special access.

So I want you to apply your same standard and test to what you

charge for roaming fees and what you charge for basically rent on

cell towers. Should it really be any more than what is the cost of

providing that particular service or access? It is very interesting

because I think Cricket and others would say, no, it is not related

at all. And they would mimic pretty much what you are saying

about AT&T and Verizon here today. I am going to stop there because I am using up most of my time. If you can go ahead and just

respond.

The other thing is it is interesting when we had the chart up

there, are you saying that you would like to be treated and placed

in the same shoes as an AT&T or Verizon customer of a particular

service rather than being charged, it is contested, $390. Maybe it

is $200. Because if you adopt that reasoning then why don’t you

treat the Cricket customer in the same way? In other words don’t

charge them any more, piecemeal it out, than you would charge

someone that you provide that service for. Why charge Cricket any

more or their customers for that cell tower. I am just saying let us

just go in and apply all the same reasoning that you wish for us

to apply today to AT&T and Verizon, and remember Cricket is complaining about all three of you. But I am just saying today do you

have one philosophy in how you deal with a Cricket and another

philosophy or business model when you deal with Verizon and

AT&T?

Mr. FORSEE. What we know today is that 100 percent rate of return is what is being applied to this market called special access.

And as you mentioned we are, in fact, going to deploy a WiMax

network that will rely on the special access, and our ability to deploy that network could, in fact, and the speed of that deployment

could be impacted by the rates that we are being charged. So what

we are looking for is fair and reasonable. A 100 percent rate of return is not fair and reasonable.

Mr. CASTO. May I comment? I want to comment on the returns

comment made by Mr. Forsee in the chart placed up there. Similar

to the special access pricing that was placed up there, there are serious flaws with the margin analysis presented. My assumption is

that is based on ARMIS, and ARMIS basically has frozen the cost

allocations associated with the inputs while the revenues have not

been frozen. Albeit the revenues have increased, demand has greatly outpaced the revenues, which is a direct result of pricing coming

down. Also, based on my experience with the competitive opportunities across my desk, I talked about 700 of them, the returns do

not get anywhere near the returns presented on those charts.

Mr. RADANOVICH. Thank you, Mr. Chairman.

Mr. MARKEY. The gentleman’s time has expired, and all time for

questions from the subcommittee members has expired. I think everyone will agree that this has been a fascinating hearing or as fascinating as a hearing on special access and forbearance can be to

anyone.

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But I thought that I would note that a lot has changed since

1999 when pricing flexibility went into place. And at that time we

still had the seven Bell companies that had been born out of Ma

Bell. When it was broken up Pac Bell, Southwestern Bell,

BellSouth, U.S. West, Ameritech, Bell Atlantic, Nynex, and we had

an incredible battle going on against AT&T, MCI, Sprint, and dozens of other companies. But today to quote Paul Simon, and his famous song we have seen a mother and child reunion with Ma Bell

bringing the children back together, and while they were doing it,

gobbling up AT&T and MCI, and then SBC changing its name to

AT&T. As Sergeant Joe Friday would say to protect someone. And

so AT&T is now over SBC so a lot has changed, and I think the

FCC obviously has to recalibrate its rules in order to deal with that

change in the marketplace.

We can’t be looking at the future in a rearview mirror, and I

think what we are seeing here is that this examination of key

building blocks in our competition policy is vital so that we can ensure that as time goes on that we have enough people at the table

to have a real conversation about competition in the telecommunications marketplace. And so it is not right for the FCC to forbear

without giving real justification. It is not right to allow incumbents

to modify their petitions without allowing the other competitors a

right to be able to respond in a timely fashion. It is not right to

have special access fees that aren’t allowing for competitors to be

able to buildout their own competitive systems. These are all central questions in terms of the long term marketplace in the United

States.

And the reason it is important is that we are in an international

competition. We are actually becoming the Notre Dame of international broadband policy where we are dropping like a rock, and

our goal has to be to find a way to become No. 1 again looking over

our shoulders at Nos. 2, 3, and 4 in pricing, in access, and in the

power of the broadband which we are providing. And this hearing

today, I think, has gone a long way in helping to illuminate those

somewhat arcane and obscure issues but in a way that makes it

quite clear that all Americans have a stake in its outcome.

I know that at 7 Towson Street in Malden, Massachusetts, we

have paid thousands and thousands of dollars to New England

Telephone and its successors to have that copper wire coming down

our street. And we didn’t really have a choice because that is all

there was, was New England Telephone. So we didn’t have any

competitors that we could have given our money to, and so we did

kind of have a feeling that we owned it too. And I for one don’t like

the idea that it can just be ripped up and so limits my ability to

have other competitors that my family and other families can

choose.

And so these are all very important debates about what the relationship between competition and consumers and innovation is. We

are going to continue in this series as the months go by.

We couldn’t have had a better panel. We thank you all for coming, especially you Tom Tauke returning to our committee once

again. Thank you. This hearing is adjourned.

[Whereupon at 12:37 p.m., the subcommittee was adjourned.]

[Material submitted for inclusion in the record follows:]

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