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67–101 PDF 2012

UNIVERSAL SERVICE: REFORMING THE HIGH-COST 

FUND 

HEARING 

BEFORE THE

SUBCOMMITTEE ON COMMUNICATIONS, 

TECHNOLOGY, AND THE INTERNET 

OF THE

COMMITTEE ON ENERGY AND 

COMMERCE 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED ELEVENTH CONGRESS 

FIRST SESSION 

MARCH 12, 2009 

Serial No. 111–13 

( 

Printed for the use of the Committee on Energy and Commerce 

energycommerce.house.gov 


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COMMITTEE ON ENERGY AND COMMERCE 

HENRY A. WAXMAN, California 

Chairman 

JOHN D. DINGELL, Michigan 

Chairman Emeritus 

EDWARD J. MARKEY, Massachusetts 

RICK BOUCHER, Virginia 

FRANK PALLONE, JR., New Jersey 

BART GORDON, Tennessee 

BOBBY L. RUSH, Illinois 

ANNA G. ESHOO, California 

BART STUPAK, Michigan 

ELIOT L. ENGEL, New York 

GENE GREEN, Texas 

DIANA DEGETTE, Colorado 

Vice Chairman 

LOIS CAPPS, California 

MICHAEL F. DOYLE, Pennsylvania 

JANE HARMAN, California 

TOM ALLEN, Maine 

JANICE D. SCHAKOWSKY, Illinois 

HILDA L. SOLIS, California 

CHARLES A. GONZALEZ, Texas 

JAY INSLEE, Washington 

TAMMY BALDWIN, Wisconsin 

MIKE ROSS, Arkansas 

ANTHONY D. WEINER, New York 

JIM MATHESON, Utah 

G.K. BUTTERFIELD, North Carolina 

CHARLIE MELANCON, Louisiana 

JOHN BARROW, Georgia 

BARON P. HILL, Indiana 

DORIS O. MATSUI, California 

DONNA M. CHRISTENSEN, Virgin Islands 

KATHY CASTOR, Florida 

JOHN P. SARBANES, Maryland 

CHRISTOPHER MURPHY, Connecticut 

ZACHARY T. SPACE, Ohio 

JERRY MCNERNEY, California 

BETTY SUTTON, Ohio 

BRUCE BRALEY, Iowa 

PETER WELCH, Vermont 

JOE BARTON, Texas 

Ranking Member 

RALPH M. HALL, Texas 

FRED UPTON, Michigan 

CLIFF STEARNS, Florida 

NATHAN DEAL, Georgia 

ED WHITFIELD, Kentucky 

JOHN SHIMKUS, Illinois 

JOHN B. SHADEGG, Arizona 

ROY BLUNT, Missouri 

STEVE BUYER, Indiana 

GEORGE RADANOVICH, California 

JOSEPH R. PITTS, Pennsylvania 

MARY BONO MACK, California 

GREG WALDEN, Oregon 

LEE TERRY, Nebraska 

MIKE ROGERS, Michigan 

SUE WILKINS MYRICK, North Carolina 

JOHN SULLIVAN, Oklahoma 

TIM MURPHY, Pennsylvania 

MICHAEL C. BURGESS, Texas 

MARSHA BLACKBURN, Tennessee 

PHIL GINGREY, Georgia 

STEVE SCALISE, Louisiana 


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SUBCOMMITTEE ON COMMUNICATIONS, TECHNOLOGY, AND THE INTERNET

RICK BOUCHER, Virginia 

Chairman 

EDWARD J. MARKEY, Massachusetts 

BART GORDON, Tennessee 

BOBBY L. RUSH, Illinois 

ANNA G. ESHOO, California 

BART STUPAK, Michigan 

DIANA DEGETTE, Colorado 

MICHAEL F. DOYLE, Pennsylvania 

JAY INSLEE, Washington 

ANTHONY D. WEINER, New York 

G.K. BUTTERFIELD, North Carolina 

CHARLIE MELANCON, Louisiana 

BARON P. HILL, Indiana 

DORIS O. MATSUI, California 

DONNA M. CHRISTENSEN, Virgin Islands 

KATHY CASTOR, Florida 

CHRISTOPHER S. MURPHY, Connecticut 

ZACHARY T. SPACE, Ohio 

JERRY MCNERNEY, California 

PETER WELCH, Vermont 

JOHN D. DINGELL, Michigan (ex officio) 

FRED UPTON, Michigan 

Ranking 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 MACK, California 

GREG WALDEN, Oregon 

LEE TERRY, Nebraska 

MIKE FERGUSON, New Jersey 


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C O N T E N T S 

Page 

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

of Virginia, opening statement ............................................................................ 1 

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

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

opening statement ................................................................................................ 6 

Hon. Henry A. Waxman, a Representative in Congress from the State of 

California, opening statement ............................................................................. 10 

Prepared statement .......................................................................................... 12 

Hon. Zachary T. Space, a Representative in Congress from the State of 

Ohio, prepared statement .................................................................................... 17 

Hon. John D. Dingell, a Representative in Congress from the State of Michigan, prepared statement ...................................................................................... 220 

WITNESSES

Steve Davis, Senior Vice President, Public Policy and Government Relations, 

Qwest Corporation ............................................................................................... 19 

Prepared statement .......................................................................................... 22 

Answers to submitted questions ...................................................................... 237 

Joel E. Lubin, Vice President, Public Policy, AT&T ............................................. 41 

Prepared statement .......................................................................................... 43 

Answers to submitted questions ...................................................................... 240 

Leroy T. Carlson, Jr., Chairman of the Board, U.S. Cellular .............................. 63 

Prepared statement .......................................................................................... 65 

Mark Gailey, President and General Manager, Totah Communications ............ 85 

Prepared statement .......................................................................................... 87 

Derek Turner, Research Director, Free Press ....................................................... 93 

Prepared statement .......................................................................................... 95 

Answers to submitted questions ...................................................................... 244 

Tom Tauke, Executive Vice President, Public Affairs, Policy and Communications, Verizon ........................................................................................................ 122 

Prepared statement .......................................................................................... 124 

Answers to submitted questions ...................................................................... 248 

Tom Gerke, Chief Executive Officer, Embarq ....................................................... 135 

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

Gregory Hale, General Manager, Logan Telephone Cooperative, Inc. ................ 142 

Prepared statement .......................................................................................... 144 

Scott Wallsten, Vice President for Research and Senior Fellow, The Technology Policy Institute ......................................................................................... 169 

Prepared statement .......................................................................................... 172 

SUBMITTED MATERIAL

Statement of Jerry Elig, Ph.D., Senior Research Fellow, Mercatus Center, 

George Mason University, submitted by Mr. Boucher ...................................... 222 

Statement of the American Homeowners Grassroots Alliance, submitted by 

Mr. Boucher .......................................................................................................... 231 


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UNIVERSAL SERVICE: REFORMING THE 

HIGH–COST FUND 

THURSDAY, MARCH 12, 2009 

HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON COMMUNICATIONS, TECHNOLOGY, AND THE INTERNET, COMMITTEE ON ENERGY AND COMMERCE, Washington, DC. 

The subcommittee met, pursuant to call, at 10:05 a.m., in Room 

2123 of the Rayburn House Office Building, Hon. Rick Boucher 

(chairman) presiding. 

Members present: Representatives Boucher, Rush, Stupak, 

DeGette, Doyle, Weiner, Butterfield, Christensen, Castor, Space, 

McNerney, Welch, Waxman (ex officio), Stearns, Deal, Shimkus, 

Shadegg, Blunt, Radanovich, Walden, Terry, Blackburn and Barton 

(ex officio). 

Staff present: Amy Levine, Telecommunications Counsel; Roger 

Sherman, Senior Counsel; Tim Powderly, Counsel; Shawn Chang, 

Counsel; Greg Guice, Counsel; Jennifer Schneider, Mr. Boucher’s 

Chief of Staff; Pat Delgado, Telecommunications Policy Coordinator; Philip Murphy, Legislative Clerk; Neil Fried, Minority Senior Counsel; Amy Bender, Minority Counsel; and Garrett Golding, 

Legislative Analyst. 

OPENING STATEMENT OF HON. RICK BOUCHER 

Mr. BOUCHER. The committee will come to order. 

Our subject this morning is comprehensive reform of the Universal Service High-Cost Fund, a matter on which the subcommittee will act in the near future. Universal service support is 

as essential to our national economic future as it has been historically. In this time when electronic communications are at the very 

heart of the national economy, it is perhaps more essential than 

ever before that all Americans remain connected. Affordable telephone service not only benefits the individual users of that service 

but at a time when electronic commerce and communications are 

central to national economy performance, having all of America 

connected should be a priority for rural and metropolitan residents 

alike. 

The Universal Service Fund that assures affordable rural telephone service has come under increasing pressure and comprehensive reform is now a necessity. New technologies and new business 

plans are combining to diminish the long-distance revenues that 

have historically been relied upon in order to support universal 

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communications infrastructure. In reforming the USF, other funding sources must be tapped, and new controls must be placed on 

expenditures from the fund. We should also reexamine which networks and services deserve USF support. 

In an effort to achieve these goals in a manner that is fair to the 

rural telephone companies that are the net beneficiaries of USF 

support and the large regional carriers that are net contributors 

into the fund, my colleague from Nebraska, Mr. Terry, and I have 

worked together for the last 3 years and in the last Congress introduced a comprehensive reform bill based on that 3 years of effort. 

We consulted with dozens of stakeholders and sought consensus 

among various competing interests. We intend to continue that 

process this year and shortly will introduce a revised version of 

that legislation, and we welcome the suggestions and the cosponsorship of our measure by other members of the subcommittee on 

a bipartisan basis. 

Our goal is to expand the revenue base for the fund. We would 

give the FCC discretion to use a revenues or a numbers approach 

to contributions or some combination of those two approaches. We 

would allow the assessment for the fund of intrastate as well as 

interstate revenues. We would also impose strict limitations on 

growth of the fund by capping the entire find and basing payments 

on a carrier’s actual cost rather than the cost of the incumbent 

telecommunications carrier in the region. We would improve the efficiency of expenditures from the fund by requiring that all recipients meet minimum FCC standards in order to receive support. We 

would also future-proof the fund by requiring that all recipients 

offer broadband at preset minimum speeds. To receive support that 

broadband offering would be a condition. Broadband is to communities today what electricity and basic telephone service were 100 

years ago. It is the new essential infrastructure for the commercial 

success of all communities and clearly deserving, in my view, of 

USF support. 

Other elements of our measure would include a better targeting 

of support to high-cost areas by switching from statewide to wire 

center averaging, fixing the phantom traffic problem by requiring 

carriers to pass through call identifying information, making rural 

exchanges more marketable for telephone companies that may desire to sell them by repairing the parent trap, and making permanent the Antideficiency Act exemption to the Universal Service 

Fund rather than requiring an annual appropriations waiver of 

that ADA provision, which happens at the present time. 

There are other matters that I think we should consider and 

about which I would welcome the insights of our distinguished 

panel this morning. For example, how, if at all, should the $7.2 billion of broadband stimulus money affect inclusion of broadband in 

the universal service reform measure? Another question is when 

we eliminate the identical support rule, how should the actual cost 

of the recipients of universal service funding be calculated? As another question, should we eliminate the distinction between rural 

and non-rural carriers presently embedded as a consequence of an 

FCC order? I hope that our witnesses will address this morning 

these and other matters. 


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I want to thank today’s witnesses for their participation, for preparing their testimony and engaging in this important discussion 

with us. 

[The prepared statement of Mr. Boucher follows:] 


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Mr. BOUCHER. I now recognize the gentleman from Florida, the 

ranking Republican of our subcommittee, Mr. Stearns, for 5 minutes. 

OPENING STATEMENT OF HON. CLIFF STEARNS 

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

thank you for having this hearing. There has been many, many 

ideas including your legislation that have been discussed and so I 

look forward to hearing from our witnesses this morning and hearing how best to move forward. 

I think all of us this morning agree that the USF needs to be 

reformed and reformed quickly. The system is fraught with waste, 

fraud and abuse, in our opinion. A major overhaul is necessary. So 

a question before us this morning is what are the appropriate goals 

of the program and of course how best do we achieve them. The 

1996 Telecom Act codified universal service but the concept goes 

back decades earlier to a time when there was really only one 

phone company. Now the landscape looks a whole lot different and 

yet the fund is still administered by outdated rules. 

This hearing will focus on the High-Cost Fund, the largest component of the USF and the program most in need of reform. The 

cost of this fund has more than tripled in the last decade, soaring 

from $1.3 billion in 1997 to almost $4.5 billion last year. The FCC’s 

high-cost rules do not reflect the dramatic changes in the marketplace including multi-facilities-based providers entering markets 

throughout the Nation. Now nearly the entire country has access 

to phone service. We have more competition and better technology 

than ever before. Yet the Universal Service Fund has grown out of 

control and can continue to do this unless we adopt meaningful reforms. 

The universal service fees have topped 11 percent of the consumer’s monthly bill. Accordingly, there is a need to reform the 

program away from subsidies, in our opinion, that may no longer 

be necessary as technology and services improve and become more 

and more widespread. Instead, we need to move towards a solution 

that ensures the goals of universal service but minimizes consumer 

cost. Without fundamental reform, now is not the time to expand 

the fund to include just broadband. The recently enacted stimulus 

package already provides $7 billion, an entire year’s worth of USF, 

to bring broadband to unserved areas. It will take at least 2 years 

for the stimulus money to be fully distributed and the program to 

be completely implemented. For now let us take the 2 years while 

the stimulus package is being used and examine the effectiveness 

of the current program. Instead of adding new broadband requirements to universal service, we should engage in oversight evaluation of these existing programs. 

In addition, we should impose a firm cap to prevent uncontrolled 

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

little incentive to operate more efficiently. The subsidy chills innovation by propping up older technologies and carriers and making 

it harder for new innovators to compete. Throwing additional 

money at this crumbling program makes no sense. Moreover, performance measurements are needed to ensure we are getting results from the over $50 billion we have spent in the last decade. 


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What impact are these funds having when everyone already has access to phone service? This type of transparency and accountability 

goes a long way towards preventing abuse. 

To really add competitive pressure, however, we also need to 

move to market-based mechanisms that are technology-neutral and 

fund the carrier that can provide the most effective service in that 

area. A report by the GAO shows that the FCC needs to improve 

oversight and management of the USF. The GAO has also criticized the FCC for failing to develop specific performance goals and 

measurements for this high-cost program. One question we might 

ask is, how much has been lost to waste, fraud and abuse. The 

FCC’s inspector general found error rates of close to 25 percent in 

the High-Cost Fund, which translates to improper payments of approximately $1 billion. The inspector general also found that all 

four universal service programs to be ‘‘at risk.’’ We need to take a 

hard look at this program and institute real reform. 

So Mr. Chairman, I again commend you for having this hearing 

to examine the goals and assess the results of the existing program. We all agree that the system needs reform. I hope we are 

able to work together towards a solution that is fair to all consumers. 

Mr. BOUCHER. Thank you very much, Mr. Stearns. 

The gentleman from Michigan, Mr. Stupak, is recognized for 2 

minutes. 

Mr. STUPAK. Thank you, Mr. Boucher, and thank you for holding 

this hearing on how we should reform the Universal Service Fund. 

I appreciate that we are taking up this issue quickly considering 

we almost had the FCC make dramatic changes to the program 

late last year. 

USF is important to rural Americans so significant changes to 

the program should come from Congress where it can be done in 

an open manner with direct member input through the legislative 

process, not with the FCC. Now, this is not to say that this will 

be an easy process since there are many differing views on how we 

should reform USF but the one thing I think we can all agree on 

is that the USF should be reformed to promote broadband deployment. Communities that lack broadband access in today’s world are 

at a disadvantage on all fronts. Businesses without broadband cannot compete in a globalized market. Schools without broadband 

cannot properly prepare their students today for the workforce of 

tomorrow and hospitals without broadband cannot access the latest 

advances in telemedicine. 

Reforming USF should mean retooling it so it reflects advancements in technology to meet the needs of tomorrow’s economy. Reform should not be mischaracterized as a means to cut overall federal investment into our rural communities. We cannot obtain more 

broadband deployment with a smaller investment or a weaker support structure for rural telecommunications. I look forward to hearing from our witnesses on how we can modernize the USF to continue meeting its goal of providing universally accessible and affordable telecommunications for all Americans. 

Thank you, Mr. Chairman. I yield back the remaining 20 seconds. 

Mr. BOUCHER. Thank you very much, Mr. Stupak. 


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The gentleman from Missouri, Mr. Blunt, is recognized for 2 minutes. 

Mr. BLUNT. Thank you, Mr. Chairman, and thank you for holding this hearing today and to have the opportunity to hear from 

this group of really well-grounded and distinguished witnesses. I 

know this an area, Mr. Chairman, where you have shown great 

leadership in the past and I know all the members of the subcommittee are looking forward to working with you to see if we can 

find ways to reform and update the Universal Service Fund. 

We all understand the fund needs serious reform. The cost of the 

program soared, tripling in the past 12 years alone, and the impact 

on consumers is uneven and often arduous. Allegations of waste, 

fraud and abuse have arisen and no suitable accounting mechanism exists to appropriately monitor where the money is going. In 

short, this program is broken and the Congress should act. However, it should act responsibly and within the mission of ensuring 

that valuable services remain available to parts of the country that 

need it. Congress should carefully consider whether it is appropriate to add new components such as broadband access to the Universal Service Fund. We need to stop the soaring cost of the program but do it in a way that ensures that unserved communities 

continue to get service where the market is challenged to deliver 

it. 

I want to thank you, Mr. Chairman, for calling this hearing. I 

also want to thank both Mr. Terry and Mr. Barton, our full committee ranking, for their leadership on this issue. Most importantly, I want to thank our witnesses today who come with incredible information on this topic. I look forward to a bipartisan bill to 

address this program. 

Mr. BOUCHER. Thank you very much, Mr. Blunt. That is my goal 

as well. 

The gentleman from Pennsylvania, Mr. Doyle, is recognized for 

2 minutes. 

Mr. DOYLE. Thank you, Mr. Chairman, for holding this hearing 

on universal service. I hope that we are able to draw some conclusions after this hearing that will help us expedite the process to 

make sure that all Americans are able to communicate with each 

other however they choose. 

At our last subcommittee hearing on this issue, I said that the 

Universal Service Fund’s best purpose as we conceived it in the 

Telecom Act in 1996 had fundamentally changed. At that time I 

said that ‘‘we need to completely reform the fund by moving away 

from subsidizing telephone service and instead put our money towards the broadband future.’’ For now I will call this needed reform Universal Service 2.0. Mr. Chairman, Universal Service 2.0 

means that all Americans have access and are able to use fast 

broadband. Universal Service 2.0 recognizes that using cost-efficient technologies is critical when some parts of the country are 

asked to pay for others. Universal Service 2.0 recognizes that competition is still vital to drive down consumer prices and required 

subsidies, and Mr. Chairman, Universal Service 2.0 means that 

local governments have a role to play, and I want to say to you, 

Mr. Chairman, that I will join you in educating anyone at today’s 

witness table that disagrees that they do. 


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Thanks, and I will yield back my time. 

Mr. BOUCHER. Thank you very much, Mr. Doyle. 

The gentleman from Oregon, Mr. Walden, is next. I believe he 

has departed at least temporarily. The gentleman from Nebraska, 

Mr. Terry, is recognized for 2 minutes. 

Mr. TERRY. Well, thank you, Mr. Chairman, for holding this 

hearing on Universal Service Fund. I have enjoyed our time working together to develop this bill and the framework. 

I set out several years ago, almost 4 years ago, to reform USF 

because I felt that the principles and goals of universal service are 

relevant today just as they were at the origination of this program. 

However, the Universal Service Fund had failed to adapt to the 

changing telecommunications environment. The fact that 

broadband is still not a supported goal of USF reflects the need for 

reform. The FCC has built a tremendous record on USF reform 

over the last few years and now it is time for this committee to act. 

I will note that I represent an urban suburban area. I have more 

concrete than grass in my district yet I see the need to continue 

universal service and modernize it. I recognize the importance of 

ubiquitous broadband network and the value my constituents receive from being able to connect to anyone anywhere in the country 

and hope that my colleagues do too. Now, as we move forward on 

reform, we must not lose sight that USF is about providing customers in all regions of the Nation living in rural, insular and 

high-cost areas access to affordable telecommunications and information services. 

I yield back. 

Mr. BOUCHER. Thank you very much, Mr. Terry, and thank you 

for your outstanding work on this measure. 

The gentlelady from the Virgin Islands, Mrs. Christensen, is recognized for 2 minutes. 

Mrs. CHRISTENSEN. Thank you, Mr. Chairman. 

Chairman Boucher and Ranking Member Stearns, as a representative of a district that is a high-cost insular area which reportedly received $25.5 million in high-cost support in 2007 and 

has benefited from the other programs as well, I thank you for 

holding this hearing and for both of your long-term legislative efforts to try to keep the Universal Service Fund in sync with a rapidly changing landscape. I think everyone has agreed on the need 

for reform but also to preserving the intent codified in 1996 that 

all consumers across our Nation should have access to the broad 

spectrum of communication possibilities at affordable rates, although with some expansion of that. 

The broadband provisions in the recent recovery package will 

give a welcome boost to the goal of making technology equally accessible to everyone everywhere as well as create more demand for 

broadband as we look to transform our health care system beginning with health information technology, and so on the areas that 

present challenges to taking the Universal Service Fund into the 

21st century, I look forward to the testimonies and welcome our 

panelists this morning. 

Mr. BOUCHER. Thank you very much, Mrs. Christensen. 

The gentleman from Georgia, Mr. Deal, is recognized for 2 minutes. 


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Mr. DEAL. Thank you, Mr. Chairman. I want to welcome our witnesses, and in order to expedite the hearing of their testimony I 

will waive my opening statement. 

Mr. BOUCHER. Thank you very much, Mr. Deal. We will be 

pleased to add 2 minutes to your time for questioning our witnesses. 

The chairman of the full committee, the gentleman from California, Mr. Waxman, is recognized for 5 minutes. 

OPENING STATEMENT OF HON. HENRY A. WAXMAN 

Mr. WAXMAN. Thank you very much, Mr. Chairman. I am 

pleased that the subcommittee is beginning its review today of the 

Nation’s Universal Service Fund. I suspect that we all agree that 

the program is in need of repair and that the High-Cost Fund is 

a good place to start. 

I would like to outline a few principles that will guide me during 

this process. First, I believe the goals of universal service are as 

important now in the age of broadband as they have ever been. 

Simply put, we cannot allow any part of the country, urban or 

rural, to be left behind. 

Second, we need to modify the program by looking forward, not 

by looking back. We need a Universal Service Fund that supports 

the broadband networks of the future, uses public money wisely 

and efficiently and spreads responsibility for the program as broadly and equitably as possible. 

Third, we must recognize that public obligations accompany pub- lic money. The $7 billion Universal Service Fund is financed by 

consumers. Service providers are simply conduits that transfer to 

the fund an 11 percent fee on top of the ordinary changes for the 

long-distance and international calls. We should ensure that recipients of these public funds meet certain obligations that benefit the 

consumers who pay these fees. For example, last Congress I introduced legislation to require wireless companies that receive USF 

subsidies to open their networks to other carriers for roaming purposes. I plan to reintroduce that measure shortly. Going forward, 

this committee will look closely at whether additional public interest conditions are appropriate. 

Fourth, we must ensure full accountability and transparency in 

this program. As GAO included in a June 2008 report, despite the 

investment of over $30 billion in the High-Cost Fund over the last 

12 years, there are no data to show what this massive investment 

has produced. I know Ranking Member Barton feels strongly about 

this point, and I look forward to working with him and other committee members who share our concern about performance measures and potential waste, fraud and abuse. 

As chairman of the Committee on Oversight and Government Reform during the last Congress, I asked the FCC to provide a list 

of the 10 largest recipients of high-cost program subsidy dollars for 

2006 through 2008 as well as a list of the 10 largest per-line subsidies by location for 2006 and 2007. This was not secret information, but it had not been collected or released in this format before. 

The results of this inquiry raise additional questions about the 

high-cost program. For instance, three companies in Hawaii, Sandwich Isle Communications, Sprint Nextel and Moby PCS each reVerDate Mar 15 2010 13:47 Mar 02, 2012 Jkt 067101 PO 00000 Frm 00016 Fmt 6633 Sfmt 6633 E:\HR\OC\A101.XXX A101

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ceive a subsidy of close to $13,000 a year per line to serve the same 

insular area. Over the past 3 years these three companies received 

a total of more than $120 million in support. Under current rules, 

a single household in this part of Hawaii might have a landline 

phone connection from Sandwich Isle Communications, a wireless 

phone from Sprint Nextel and a wireless phone from Moby PCS, resulting in a federal subsidy of $39,000 per year. 

As we consider reforms to the High-Cost Fund, we should ask 

tough questions and be open to creative solutions. For example, 

where is the money going and to whom? Is this really the best use 

of public dollars? Are companies adequately demonstrating that 

funds are being used for their intended purposes? Are there less expensive ways to provide service by using different technologies? 

Should we consider competitive bidding for what are in effect government contracts? For how long and at what level should carriers 

be supported after they build facilities? Should we consider requiring State matching grants? Now that over 90 percent of American 

households have access to wireline broadband, should we consider 

shifting the funds to also support consumer adoption of broadband? 

I know universal service legislation is a priority for you, Mr. 

Chairman. I look forward to working with you, Ranking Members 

Stearns and Barton and the other members of this committee to 

figure out the best way forward. Thank you. 

[The prepared statement of Mr. Waxman follows:] 


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Mr. BOUCHER. Thank you very much, Mr. Chairman, and I look 

forward to working with you and others on this committee on a bipartisan basis to achieve those goals. 

The gentleman from Arizona, Mr. Shadegg, is recognized for 2 

minutes. 

Mr. SHADEGG. Thank you, Mr. Chairman, and thank you for 

holding this hearing. 

I want to begin by welcoming Mr. Steve Davis, the senior vice 

president of Public Policy and Government Relations for Qwest 

Communications. Qwest plays a large role in my Congressional district and I look forward to his testimony as well as that of the 

other witnesses. 

I would like to associate my views with the remarks of the ranking member, Mr. Stearns. I believe he articulated my views here 

well. I would also like to commend Congressman Lee Terry and 

Ranking Member Barton for their work in this area. 

I look forward to the discussion of the Universal Service Fund 

and to learning ways in which we should improve and reform the 

system. We have come a long way since the concept of a Universal 

Service Fund first came forward. We have worked as a Nation to 

ensure that affordable basic telecommunications services are available to everyone regardless of where they live but we are now at 

a crossroads as our technology evolves and improves, and I believe 

it is essential that we reevaluate the Universal Service Fund and 

how it is used. It is clear that some reform is necessary, and given 

the current status of our economy, we must find ways to make the 

system more cost-effective. An audit from July 2006 to June 2007 

revealed that roughly $1 billion of Universal Service Fund funds 

were awarded erroneously. We simply cannot afford nor defend 

that kind of waste in our system. We must find ways to make sure 

that these errors do not occur in the future because they will only 

hurt our economy and our constituents. 

I very much look forward to the testimony of our witnesses here 

today on how we can improve the system and use technology to 

make it better serve the Nation at a more economical cost, and 

again, Mr. Chairman, I thank you for the hearing. 

Mr. BOUCHER. Thank you very much, Mr. Shadegg. 

The gentleman from Vermont, Mr. Welch, is recognized for 2 

minutes. 

Mr. WELCH. Thank you very much, Mr. Chairman. 

Two things. It has mostly been said. But, one, the need is enormous and it has to include broadband. That would make a huge 

difference everywhere but especially to rural States like Vermont. 

We get many companies that can decide whether to come to 

Vermont or not, depending on whether in the rural area they want 

to locate there is access to broadband. 

Second, we have to reform the amount of money and how it is 

being spent, how it is being deployed, it has been said, but just the 

witnesses here at this table represent companies who received in 

the range of $5 billion for the universal fund, and the question obviously is, to the users, to your customers, are you using that 

money well, are you getting the job done, and you face the tension 

because on the one hand, you have an obligation to the shareholders of your company that suggest that you maximize profit, but 


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on the other hand, you have a public trust and that requires that 

you extend access to this essential utility service to every single 

American. 

I look forward to working with you, Mr. Chairman, and the members of the committee to improve this bill. Thank you. 

Mr. BOUCHER. Thank you very much, Mr. Welch. 

The gentleman from Oregon, Mr. Walden, is recognized for 2 

minutes. 

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

opening statement in lieu of more time in the questioning period. 

Mr. BOUCHER. Thank you very much, Mr. Walden. 

The gentlelady from Florida, Ms. Castor, is recognized for 2 minutes. 

Ms. CASTOR. Thank you, Mr. Chairman. I will ask unanimous 

consent to submit my opening statement for the record and waive 

at this time. 

Mr. BOUCHER. Without objection, the opening statements of all 

members who desire to submit them will be received for the record, 

and the chair thanks the gentlelady. 

[The prepared statement of Mr. Space follows:] 


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Mr. BOUCHER. The gentleman from Illinois, Mr. Shimkus, is recognized for 2 minutes. 

Mr. SHIMKUS. Thank you, Mr. Chairman. I will be brief. 

It is great to have the panel. We need to move on legislation. 

Broadband deployment is key in rural America. I represent 30 

counties, parts of 30 of 102 in the State of Illinois, so this has been 

very helpful. I also co-chair with Congresswoman Eshoo the E–911 

caucus, you know, stellar delivery and location identification is critical to rural America, especially when health and safety issues are 

concerned. 

We have some challenges as we move forward, Mr. Chairman, 

but I look forward to working with you as we make those challenges and accept those and move forward. I yield back. 

Mr. BOUCHER. Thank you very much, Mr. Shimkus. 

The gentleman from New York, Mr. Weiner, is recognized for 2 

minutes. 

Mr. WEINER. In the interest of more time for questions, I yield 

my opening statement. 

Mr. BOUCHER. Thank you, Mr. Weiner. 

The gentleman from California, Mr. McNerney, is recognized for 

2 minutes. 

Mr. MCNERNEY. Thank you, Mr. Chairman. 

Well, we certainly have seen a tremendous change in the technology since the last legislation on this in 1996. It was difficult 

then to foresee what we would be having now and it is going to be 

hard for us to see what we are going to see in the next 10 years, 

so we are going to look to you all to give us guidance on that. We 

are going to work on both sides of the aisle and we will come up 

with some good legislation. Thank you. 

Mr. BOUCHER. Thank you very much, Mr. McNerney. 

Mr. Rush from Illinois is recognized for 2 minutes. 

Mr. RUSH. Mr. Chairman, I think I will defer for an additional 

2 minutes of questioning. 

Mr. BOUCHER. Thank you, Mr. Rush. 

All members having been recognized for opening statements, we 

now turn to our panel of witnesses, and I want to express appreciation to each of them for their appearance here this morning and for 

their participation in this conversation regarding universal service 

reform. Our panel consists of Mr. Steve Davis, senior vice president 

for public and policy and government relations for Qwest; Mr. Joel 

Lubin, vice president for public policy at AT&T; Mr. Ted Carlson, 

chairman of the Board of United States Cellular Corporation; Mr. 

Mark Gailey, chairman of the board of the Organization for the 

Promotion of Advancement of Small Telecommunications Companies and a board member of the Western Telecommunications Alliance; he is also president and general manager of Totah Communications. Mr. Derek Turner is research director at Free Press. Mr. 

Tom Tauke, a former member of this committee, is the executive 

vice president for public policy affairs and communications at 

Verizon. Mr. Tom Gerke is the chief executive officer of Embarq. 

Mr. Gregory Hale is speaking on behalf of the National Telecommunications Cooperative Association. He is general manager of 

the Logan Telephone Cooperative. And Mr. Scott Wallsten is vice 


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president for research and a senior fellow at the Technology Policy 

Institute. 

Without objection, all of your prepared written statements will be 

entered into the record and we would welcome your oral summaries 

and ask that you keep those to approximately 5 minutes so that 

we have ample time for questions. Mr. Davis, we will be pleased 

to hear from you first. 

STATEMENTS OF STEVE DAVIS, SENIOR VICE PRESIDENT, 

PUBLIC POLICY AND GOVERNMENT RELATIONS, QWEST 

CORPORATION; JOEL E. LUBIN, VICE PRESIDENT, PUBLIC 

POLICY, AT&T; LEROY T. CARLSON, JR., CHAIRMAN OF THE 

BOARD, U.S. CELLULAR; MARK GAILEY, PRESIDENT AND 

GENERAL MANAGER, TOTAH COMMUNICATIONS; DEREK 

TURNER, RESEARCH DIRECTOR, FREE PRESS; TOM TAUKE, 

EXECUTIVE VICE PRESIDENT, PUBLIC AFFAIRS, POLICY AND 

COMMUNICATIONS, VERIZON; TOM GERKE, CHIEF EXECUTIVE OFFICER, EMBARQ; GREGORY HALE, GENERAL MANAGER, LOGAN TELEPHONE COOPERATIVE, INC.; AND SCOTT 

WALLSTEN, VICE PRESIDENT FOR RESEARCH AND SENIOR 

FELLOW, THE TECHNOLOGY POLICY INSTITUTE 

STATEMENT OF STEVE DAVIS 

Mr. DAVIS. Good morning. Thank you, Mr. Chairman, and members of the committee. My name is Steve Davis and I am senior 

vice president for public policy and government relations for Qwest. 

I appreciate the opportunity to share Qwest’s views with you this 

morning on universal service. 

Before I address the universal service issues directly, I would 

like to tell you a bit about Qwest and why we care so much about 

these issues. Qwest provides voice data, Internet and video services 

nationwide and globally, and we provide local telephone service and 

broadband service in 14 western States. As of December 31, 2008, 

Qwest provided 11.6 million voice-grade access lines and 2.8 million broadband lines to customers in our territory, and we currently 

have broadband available to 86 percent of our customer base. Our 

local service territory is very diverse. It includes urban areas like 

Denver, Seattle, Minneapolis and Phoenix but it also includes 

many smaller towns and cities and many rural communities with 

low household density. In fact, 42 percent of our 1,300 wire centers 

serving 2.2 million homes and businesses are located outside of 

metropolitan areas. We have 34 wire centers that serve areas comparable or larger than the size of Rhode Island. Needless to say, 

these are very sparely populated areas. 

Although Qwest serves extremely rural areas in all the 14 States 

in which we provide local service, we only receive high-cost federal 

universal service support in four States. Qwest receives no highcost support in such rural States as North Dakota, Idaho, Iowa, 

New Mexico. In 2009, Qwest is projected to receive approximately 

1 percent of the total $2.3 billion federal high-cost assistance. 

I would like to commend Chairman Boucher for his longstanding 

recognition of the need for universal service reform and for holding 

this hearing to address these important issues. Qwest supported 

the proposed universal service reform bill of Chairman Boucher 


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and Congressman Terry in the last Congress and we look forward 

to continued efforts to accomplish significant universal service reform in this Congress. 

Currently, there are different mechanisms for distributing highcost support to carriers depending on whether they are deemed 

rural or non-rural under the FCC’s rules, and despite the massive 

rural territory served by Qwest, under the FCC’s rules we have 

been deemed a non-rural carrier and thus excluded from access to 

the vast majority of the federal high-cost assistance. Qwest and 

other non-rural carriers receive limited support under a mechanism 

that has twice been held invalid by the 10th Circuit Court of Appeals yet this flawed system for distributing high-cost support remains in place. High-cost support should be based on the areas 

served and not the size or identity of the carrier providing the service. Qwest agrees with the approach of Chairman Boucher and 

Congressman Terry’s USF reform bill that high-cost support to 

non-rural carriers should be retargeted to individual wire centers. 

The purpose of high-cost support has been to enable telecommunications service in areas where it is not otherwise economic 

for a carrier to provide the service. It should not be used to support 

multiple carriers in an area where it is uneconomic for even one 

to provide service. Unfortunately, in many areas the current highcost support program does just that. High-cost support to duplicate 

network providers, primarily wireless carriers, has caused the 

enormous growth in the High-Cost Support Fund in recent years. 

While high-cost support to incumbent carriers has been flat since 

2003, support to these duplicative network providers has grown 

from approximately $17 million in 2001 to a projected $1.4 billion 

in 2009. In order to return the High-Cost Fund to its core principle 

of universal service, high-cost support for all carriers should be 

based on their costs of providing the support services. 

As Chairman Boucher, Congressman Terry and many others 

have recognized, it is also time to promote universal access to 

broadband through universal service support. Qwest currently offers broadband services to approximately 86 percent of the households in our region. However, in the absence of additional federal 

assistance, the necessary upgrades to expand our footprint are not 

economically feasible in many rural areas. The grants for 

broadband deployment established in the stimulus are a start but 

are not sufficient to result in ubiquitous deployment of high-speed 

broadband. There remains a crucial role for universal service funding. 

Qwest believes that the primary purpose of any broadband deployment subsidization should be to aid construction of facility in 

unserved areas but high-cost support should not provide ongoing 

operational subsidies nor should the support subsidize competition 

or build duplicate networks. In 2007, Qwest proposed a new federal 

universal service program that would provide one-time grants to 

selected applicants to deploy broadband to unserved areas, and we 

commend that proposal to the subcommittee for its consideration. 

Congress has an important opportunity here to structure an improved program for supporting universal access to basic telephone 

service and a new program for supporting universal access to 

broadband. 


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Again, I thank you for the opportunity to testify today on these 

issues and I look forward to your questions. 

[The prepared statement of Mr. Davis follows:] 


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Mr. BOUCHER. Thank you very much, Mr. Davis. 

Mr. Lubin, we will be pleased to hear from you. 

STATEMENT OF JOEL E. LUBIN 

Mr. LUBIN. Good morning. Thank you, Chairman Boucher, Ranking Member Stearns and members of the subcommittee for inviting 

me here today. AT&T is a long-time supporter of our national policy of universal service and of recent efforts to sustain that policy 

through meaningful reform. In this regard, we salute your leadership and the work of the entire committee. 

AT&T is the single largest provider of telephone service in rural 

America today. AT&T provides service to 7 million rural telephone 

customers. AT&T remains committed to serve our customers regardless of where they live and where they work. AT&T’s unique 

experience serving a diverse set of customers has shown us the 

value of broadband services. 

Today’s hearing is on point. The current universal service highcost system is broken and will not create the proper incentives for 

broadband deployment in high-cost areas. Let me explain with a 

personal experience of mine that happened 5 years ago. Five years 

ago, my daughter and son-in-law came to us and said we have got 

some good news and bad news. I said share the bad news first. 

They said well, we live 6 miles away today, we are moving 6,000 

miles tomorrow. I said what is the good news. The good news is, 

we will back in about 1 or 2 years but I already got online, I have 

an apartment, I got a broadband connection, and did you ever hear 

about this thing called voice over the Internet. I said yes. They said 

well, you know what, I can even keep the same local number. That 

was a big deal. That was a big deal for them because they didn’t 

have to send out a number to everyone. It was a big deal for my 

wife and I because we could be in contact as a local call speaking 

to our granddaughter virtually every day. 

Let me try to unpack what I just said. I call old technology, let 

us call that the narrowband local service that you know and you 

have today. That narrowband pipe is paid by a combination of local 

rate line items on a customer’s bill, State and federal access 

charges paid by carriers that are then in turn recovered not from 

that particular customer but from a host of customers including 

that one who has the pipe. In addition, it recovers who are paid 

by existing federal and State universal service funds. For this old 

technology to work, it is essential to know where the call originated 

and terminated. By the way, I am going to describe a new technology where it just doesn’t matter. The new technology, let us call 

it a broadband pipe. It is paid directly by the end user. You will 

not need to know where the call, I actually should say packets, 

where the packets originate and terminate. Just like when my kids 

moved 6,000 miles away, I still dialed the same number and lo and 

behold it arrived and we spoke. 

I am sharing this story because it clearly shows that broadband 

technology is a disruptive technology. It simply redefines the game 

including the local calling area, not just to be the small local calling area but it redefines it to be in effect the whole USA or, in my 

example, the globe. In a broadband world, there are no access 

charges. There is no federal local service line charge on the bill. It 


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also turns out that the broadband service offers much more capability to the customers. That is why we are talking about it. And 

I hope you see that it doesn’t have the complexity of the old 

narrowband pipe nor do I hope we ever take the baggage of the old 

technology and drive it into the new world. What a shame that 

would be. 

So what to do? I would like to identify three things, because one 

needs to start thinking about a comprehensive solution to the dilemma and the issue is, do I want broadband deployed. We will 

talk about that shortly. But comprehensive reform needs to address 

three things. 

First, number one, we need to replace the existing collection 

mechanism from interstate retail revenues to a broader based collection mechanism which we would suggest telephone numbers or 

a combination of telephone numbers and connections, which is a 

more stable collection mechanism, reform intercarrier to preserve 

universal service during the transition to a fully deployed 

broadband world, and let me very clear on this point. Access 

charges are going to vaporize. They are going to go away. They are 

not going to exist, and it is an issue that needs to be dealt with. 

Reform of the existing federal high-cost funding mechanism to promote deployment of next-generation broadband and expanded and 

improved wireless service in rural areas is important. 

I would like to make one final point, and we need to clearly understand adjusting to the new world, this old world where you have 

very small local calling areas, and I am going to focus on a small 

rural calling area. That small rural calling area may have a local 

rate that is 40 to 50 percent lower than the urban rate but yet the 

cost of that service in the rural areas could be 5, 10, 20 or more 

times greater than the cost in the urban area. I just observe that 

the local calling area of the old world is going to ultimately expand 

to be in effect the whole USA or maybe the globe, and the issue 

here ultimately is, how do we reconcile these differences and create 

that comprehensive solution. 

My final point: remember, universal service funds and access 

charges didn’t exist 25 years ago in 1984 and access charges won’t 

exist in a broadband world. 

I look forward to your questions and working with you to find solutions. Thank you. 

[The prepared statement of Mr. Lubin follows:] 


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Mr. BOUCHER. Thank you very much, Mr. Lubin. 

Mr. Carlson. 

STATEMENT OF LEROY T. CARLSON, JR. 

Mr. CARLSON. Chairman Boucher, Ranking Member Stearns and 

members of the—— 

Mr. BOUCHER. Mr. Carlson, please pull the microphone over, get 

it very close, turn it on. Thank you. 

Mr. CARLSON. There we go. Sorry about that. 

Mr. BOUCHER. A little technology lecture here. Thank you. 

Mr. CARLSON. I am not an engineer. I am sorry. 

Chairman Boucher, Ranking Member Stearns and members of 

the subcommittee, good morning. As you continue your review of 

the universal service program, I have observed from my decades of 

experience, there are several core principles that should guide you 

when you reform the program. 

First, you must recognize—— 

Mr. BOUCHER. Mr. Carlson, I hate to raise the issue, but I think 

your microphone is off. 

Mr. CARLSON. No, it did go off there. 

Mr. BOUCHER. There we go. 

Mr. CARLSON. First we must recognize that the money involved 

is not the government’s as one of you said nor the telecommunications provider’s; it is the consumer’s money. Second, collectively, 

government and the participating carriers must be superb stewards 

of these precious funds. Third, while progress has been made, there 

are still many areas of the country that are expensive to reach and 

serve with quality service and without assistance will not be successfully served and thus the program continues to be needed. And 

finally, that the core principles of competitive telecommunications 

for every American remains an important and worthy goal. 

Based upon these principles, I believe there are three questions 

for the committee to address. First, what is the proper role and 

scope of the universal service program? One of you mentioned that. 

Second, what investments should be made in the future? And finally, how do you structure the program effectively and efficiently 

so as to maximize the benefits to consumers, as something you 

pointed out. 

As to the first question, I agree with the current law but the 

proper role of this program must be to ensure that high-cost areas 

have modern, high-quality telecommunications services that are 

reasonably comparable to those available in our urban and suburban centers and at reasonably comparable rates. Because if universal service were limited to a phone that was tethered to the 

kitchen wall, rural Americans would be denied access to the mobility tools that they need to compete with urban citizens both here 

in the United States and abroad, and we commend your bill that 

you introduced in the prior session in that regard. 

With respect to the second question, there are two observations 

that I would offer. First, broadband services and mobile wireless 

services are two must-have functionalities that consumers expect 

and demand for personal and business use. Therefore, the program 

should be expanded to make broadband eligible for USF support. 

Second, however, significant additional investment is still required 


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to bring high-quality mobile services to all Americans. Remaining 

committed to that investment in mobility will enable companies to 

bring essential economic development and public safety benefits to 

rural areas and through the network effect to all Americans. As a 

carrier that serves vast rural areas, I know that many Americans 

do not have sufficient access to high-quality mobile wireless services. My company’s use of USF support has enabled us to extend 

service to literally hundreds of small communities that previously 

had no service or poor service, and we have made some huge coverage gains in places where we have been eligible for those funds 

such as Oregon, Washington and Maine. There is also much work 

still to be done extending and improving service in States represented on this committee such as Virginia, Illinois, North Carolina, Tennessee and Missouri, States where we have just recently 

been designated as an eligible telecommunications carrier. 

For those of you who represent rural districts or anyone who visits rural America, you know how your Smart Phone can stop working or you have noticed how dropped calls and dead zones can increase when you leave heavily traveled roads. I believe a reform 

program can effectively and efficiently address these problems, and 

if tailored correctly can be complementing the program that has 

just recently been authorized, the American Recovery and Reinvestment Act. To be clear, we now serve many rural areas that do 

not generate sufficient revenues to meet ongoing operations expenses and to maintain a high quality of service. There is no escaping the reality that the USF program is critically important to the 

viability of providing basic mobile services for millions of Americans. 

Some additional points that we would like to see we make sure 

that goes into the legislation from our standpoint, the legislation 

should not favor any class of carrier or technology because by not 

doing so, we will foster innovation and competition. We believe we 

should look at a cost model rather than carriers’ own costs because 

a cost model would save significant cost and expense. And we believe that the legislation should reject any amendments that would 

foster a single market winner, for example, through reverse auctions, because a single market winner would relegate rural America to the days of a monopoly carrier requiring enormous and unnecessary regulatory oversight to protect consumers. 

Thank you. 

[The prepared statement of Mr. Carlson follows:] 


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Mr. BOUCHER. Thank you, very much, Mr. Carlson. 

Mr. Gailey. 

STATEMENT OF MARK GAILEY 

Mr. GAILEY. Chairman Boucher, Ranking Member Stearns and 

members of the subcommittee, thank you for inviting me here 

today. I am Mark Gailey, president and general manager of Totah 

Communications located in Ochelata, Oklahoma. Our family-owned 

company serves over 3,000 telephone subscribers and more than 

1,000 DSL subscribers in sparsely populated areas of Oklahoma 

and Kansas. I come before you as chairman of the board of the Organization for the Promotion and Advancement of Small Telecommunications Companies and as a board member of the Western 

Telecommunications Alliance. The companies and cooperatives represented by these associations provide numerous services to their 

communities including voice, broadband Internet access, video and 

wireless. 

The recent enactment of the American Recovery and Reinvestment Act of 2009 has brought more attention and focus than ever 

on the efforts to provide broadband service to all citizens of our Nation. The broadband infrastructure funding included in that law 

should further the goals set forth by Congress and the Administration. However, as significant as the funding levels were for 

broadband build-out, it will not get the entire job done, nor will 

these grants and loans provide for the ongoing operations, maintenance and upgrades of broadband networks. 

This brings me to the subject of today’s hearing, the Federal Universal Service Fund. OPASTCO and WTA believe very strongly 

that the Universal Service Fund high-cost program should explicitly support broadband. The goal of universal service policy has 

been to ensure that every American regardless of their location has 

access to affordable, high-quality public switch network. For rural 

incumbent local exchange carriers, high-cost universal service support is a cost recovery program designed to promote investment in 

areas where it would not otherwise be feasible for carriers to provide quality service today or in the future, and the future of communications, as we know, is broadband. 

While the availability of broadband service is necessary, just as 

important is the adoption of broadband service. There are many 

factors that spur adoption of broadband. Computer availability and 

training come to mind, but the major factors are price and speed 

of the service, and USF plays a very important role in making 

broadband both affordable and attractive for consumers. Health 

care, education and commerce have joined communications and entertainment as applications that now make high-speed broadband 

Internet connection a necessity. 

USF needs other significant reforms. The USF contribution base 

must be expanded to include all broadband and voice connections, 

thus leading to smaller USF line items on consumers’ bills and 

more funding availability. The so-called Identical Support Rule 

should be eliminated, which would result in cost savings to the 

USF and prudent use of funds based on real investment levels of 

competitive carriers, not the investment levels of an incumbent carrier. 


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OPASTCO and WTA strongly believe that no cap should be imposed on the high-cost program or any portion of it so that sufficient funds are available for ongoing broadband investment and upgrades. Continual investment is critical because broadband connections that are available today are not the networks that will enable 

rural areas and the rest of the country to compete globally 5 years 

from now. A high-quality broadband network can enable existing 

businesses in rural areas to grow as well as to attract new business 

to the areas, both of which will energize the local economy. 

We also request that the USF be permanently exempt from the 

Antideficiency Act accounting standards. The imposition of the 

ADA on the USF or even the threat of such action brings about uncertainty regarding future USF payments that thwart investment 

in communications and network services. OPASTCO and WTA also 

oppose the implementation of reverse auctions, State grants, vouchers and other mechanisms that will only diminish the usefulness 

of USF. 

Chairman Boucher, I wish to thank you and Congressman Terry 

for the insight and leadership you have shown on this issue. Introduced in the previous Congress, the Boucher-Terry USF reform legislation was supported by both OPASTCO and WTA. Many of the 

reforms to USF that we requested in this testimony were contained 

in that bill. We look forward to working with you once again to 

move forward with progressive reforms to this very important program. 

I would like to move to an important aspect of any USF reform 

effort: oversight and accountability. OPASTCO and WTA pledge to 

work with Congress and the Administration to continue the highcost program’s accountability to the public. On the issue of transparency and the operation of the USF, all parties involved must 

work toward realistic processes and fair solutions to better administer the funds collected from communications customers. 

In conclusion, for nearly 75 years our Nation has supported the 

policy of universal communications services for its citizens. 

Throughout those years, those meant telecommunications or voice 

service. Our country, our economy and in fact our entire world has 

vastly changed and it is well past time to reform the USF. 

Thank you. 

[The prepared statement of Mr. Gailey follows:] 


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Mr. BOUCHER. Thank you very much, Mr. Gailey. 

Mr. Turner. 

STATEMENT OF DEREK TURNER 

Mr. TURNER. Chairman Boucher, Ranking Member Stearns, Mr. 

Barton and members of the committee, I thank you for the opportunity to testify today on the important issue of high-cost reform. 

I am the research director for Free Press, a public interest organization dedicated to public education and consumer advocacy on 

communications policy. 

Technology is rapidly changing the way Americans interact, 

learn and do business, and all for the better, but the rules governing our communications markets are not keeping up with this 

rapid pace of change and consumers are suffering as a result. 

When the current universal service regime was created in 1996, 

the Internet was an application that rode on top of the telephone 

infrastructure. Today it is the opposite. Telephony is just one of 

many applications that ride on top of broadband infrastructure. 

With this convergence comes the opportunity to ensure universal 

affordable broadband access while also reducing the future burden 

on the fund. We strongly support the goals of universal service. Everyone benefits when rural consumers have access to affordable 

high-quality communications services. But as advocates for the consumers whose monthly bills support the fund, we want to ensure 

that our system of universal service is both fair and efficient. 

Consumers in the 21st century marketplace should not be forced 

to subsidize a 20th century technology. We believe a bold and 

transformative shift in USF policy is needed. Done properly, we 

can bring affordable broadband to all Americans while also substantially reducing the size of the fund in the long term. Here is 

how. We must begin by asking two basic questions: how much 

money is each USF supported line receiving each month, and is 

that support actually needed. Our research shows that 40 percent 

of the high-cost fund, nearly $2 billion annually, goes to subsidizing 

lines that receive less than $10 per month. This is also true for 

small rate-of-return carriers. Two-thirds of these lines receive less 

than $10 per month in high-cost support. Now, these subsidies may 

be justified but it begs the question: Is this the best use of that $2 

billion? We also should ask whether rates in these areas are already below the national average, and should we instead be using 

this money for broadband deployment to bring rural customers 

more than just a telephone line. 

The path to universal broadband and the ending of the over-reliance on subsidies begins with recognizing how convergence has 

changed the business of telecommunications. Before broadband, 

carriers were only able to earn perhaps $20 per customer each 

month selling local phone service. In today’s converged world, a 

carrier can earn well over $100 on that same line by offering 

phone, TV and Internet services. Unfortunately, our current regulatory structure does not account for this potential, ignoring that 

with this additional revenue many high-cost carriers can operate 

profitably without ongoing subsidies. Instead, it tries to clumsily 

separate out regulated from unregulated cost revenues and really 

results in overpayments and anticompetitive subsidies. 


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As an alternative to this broken process, we suggest basing ongoing high-cost support on total revenue earning potential and forward-looking infrastructure costs calculated for each carrier on a 

granular disaggregated basis. This modernized regulatory structure 

will reduce the need for ongoing support as many carriers will be 

able to recoup network costs and earn healthy profits from tripleplay services. However, for some carriers, the upfront cost for deploying broadband into currently unserved areas is just too high. 

Here is where we have the opportunity to turn the regulatory 

structure on its head. We should use the fund to pay these upfront 

costs and then only provide ongoing support where it is truly needed. We propose a 10-year transition where the new total cost potential revenue support model is phased in and the resulting cost savings are used to fund the build-out of open access broadband infrastructure into unserved areas. We estimate that after this transition, the total size of the High-Cost Fund could be reduced by twothirds to less than $1.5 billion per year. Now, the $7 billion in broadband stimulus funds presents policymakers with a window of opportunity to transform USF. Here, a 

substantial portion of the upfront costs for rural networks may be 

financed by taxpayer dollars. The carriers operating these networks 

will thus have little capital costs to recover and therefore little 

need for ongoing support. But unless the FCC moves to modernize 

the regulatory structure, we may see double dipping. Now, by that 

I mean carriers might ask ratepayers to reimburse them for the 

networks already paid for by taxpayers. 

Now, getting universal service policy right isn’t the only thing we 

need to do to ensure universal service. For rural carriers, the viability of the self-supporting triple-play business model depends on 

getting fair rates and terms for transport and special access services and getting fair access to video programming. 

In closing, we urge Congress to maintain its commitment to universal service but to do so with policies that are flexible and that 

benefit all consumers. I thank you for your attention and I look forward to your questions. 

[The prepared statement of Mr. Turner follows:] 


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Mr. WEINER [Presiding]. Thank you. 

Mr. Tauke, you are recognized for 5 minutes. 

STATEMENT OF TOM TAUKE 

Mr. TAUKE. Thank you, Mr. Chairman, Ranking Member Stearns 

and Ranking Member Barton. We appreciate the opportunity to 

testify before this committee on this important issue. 

We have come a long way. Just a year ago, we were spending our 

time talking about the need for a capital fund to cover the upfront 

investment costs for broadband and we were talking about the 

need to reform universal service in order to be able to ensure that 

it was focused on operational costs where necessary. We also talked 

about mapping in order to identify the areas of the country that 

were unserved so we could focus the money on the unserved areas. 

Well, now, a year later, the mapping legislation has been approved 

by the Congress, the capital funds are available through the stimulus package and we are now back to looking at the Universal 

Service Fund. 

I think it is fair to say that there is consensus that Universal 

Service Fund needs to be reformed. I would offer four quick suggestions as to what you should focus on in this reform. 

First, cap the fund. The bottom line is that is not that we are 

spending too little money. The problem is, we aren’t targeting the 

money we spend to the right places. And so the first effort is to try 

to force that retargeting of money to broadband and to mobile wireless services. 

Second, consumers want access not just to fixed services or 

wireline services, they want access to wireless services, and the 

Congress recognized that 10 years ago. But the bottom line is, the 

mechanism for reimbursing mobile wireless carriers has been, well, 

it is frankly a travesty. Nobody any longer steps up and defends 

the Identical Support Rule, which says that every wireless carrier 

that comes into the community gets the same amount of support 

as the underlying wireline carrier in that community. Nobody defends that anymore. Now the argument is over what is the new 

mechanism for giving support to wireless carriers. We strongly 

urge you to use a mechanism of reverse auctions or competitive 

bidding in order to enter into contracts with wireless carriers to 

provide service to unserved areas. 

You know, today the reality of life is that we have four, five, six 

and in some cases more carriers receiving reimbursement to provide service to areas, areas where many carriers are providing 

service without subsidy. There just is no rationale for this. So some 

way we should use a cost-based system for all of those carriers that 

want to provide service. The first question is, why do we want to 

subsidize all of these carriers. But the second question is, what is 

the practical reality of trying to implement a cost-based system. A 

cost-based system is a can of worms. Look, on the wireline side, 

you have infrastructure that is devoted to a single residence, and 

on the wireless side, you don’t have that. On the wireline side, you 

have an accounting system that has in place for years to identify 

costs associated with that infrastructure that goes to the individual 

household. You don’t have that on the wireless side. The bottom 

line is, trying to impose a cost system on the wireless side is going 


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to be a mess. So we encourage you to take a hard look at having 

some kind of reverse auction or some kind of competitive bidding 

as you do for other government contracts when you are in essence 

purchasing services. 

Third point, middle mile. This hasn’t received much discussion, 

but when you look at the world of broadband, here is the reality. 

The cost of the last mile is high but in many cases the cost of the 

middle mile from what we will call the central office to the longhaul network is even greater per customer. We haven’t paid much 

attention to this issue in the past, but as we look more closely at 

delivering broadband services through more rural areas, we have 

to look at that middle mile issue, and in my written testimony I 

offer some suggestions. 

Finally, we should pay into the fund on the basis of numbers. 

Last year a broad coalition of players in this space filed with the 

FCC a numbers-based plan. I am not saying it is the only plan but 

I am saying a lot of work has been done, a lot of support has been 

developed from a broad coalition. It is simple, it is fair and it is 

workable, and therefore it is something that should be considered. 

We look forward to working with you, Mr. Chairman, and all the 

members of the committee in your efforts to reform this important 

program. 

[The prepared statement of Mr. Tauke follows:] 


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Mr. BOUCHER. Thank you very much, Mr. Tauke. 

Mr. Gerke. 

STATEMENT OF TOM GERKE 

Mr. GERKE. Good morning, Chairman Boucher, Ranking Member 

Stearns and members of the committee. Thank you for the opportunity to testify today on behalf of my employer, Embarq, a primarily rural provider of voice, Internet, video and other services. 

Reforming the Federal Universal Service Fund offers an opportunity to accelerate broadband deployment to customers in 

unserved areas while maintaining affordable access to critical voice 

connectivity. Embarq commends Chairman Boucher and Congressman Terry on their introduction of H.R. 2054, the Universal Service Reform Act, which included a transition to a broadband-focused 

fund, a more targeted support mechanism and appropriate carrierof-last-resort obligations, all critical elements of USF reform. We 

also commend Congressmen Barton and Stearns on some of the key 

provisions in H.R. 6356, the Universal Service Reform Accountability and Efficiency Act, which sought to more precisely direct 

USF support to truly high-cost areas and tie USF more directly to 

carrier-of-last-resort obligations. 

Policymakers, stakeholders and providers are increasingly coming to the conclusion that the Universal Service Fund is ready to 

enhance its mission by adding a focus on expanding and supporting 

broadband availability to all Americans. After all, broadband is increasingly an essential service. It is important in keeping people 

connected, enhancing public safety, enabling education and telemedicine, and creating jobs. Of course, there are important considerations in this effort such as ensuring that the current mission of 

reliable, affordable voice service from a carrier of last resort is not 

abandoned and targeting USF support to places where the market 

would not otherwise deliver broadband. 

Incumbent phone providers have a very specific carrier-of-last-resort mandate associated with universal service. To illustrate, we 

have brought a diagram today of a rural market in Goodland, Indiana. Each of the green dots here represents a household. As you 

can see, most of the households are clustered in a town center and 

that is the most economical place to serve, but as a carrier of last 

resort, we are required to serve all of the outlying areas as well 

where the cost to provide such service is much higher. In this case, 

costs are well over 10 times higher. The challenge here is, how to 

layer on and expand the availability of broadband throughout lowdensity areas while maintaining the voice service that is critical. 

The policy of universal service was conceived to bring and maintain reliable, affordable service to places where the market forces 

alone would not otherwise provide it. The Universal Service Fund 

was created in 1996 because Congress realized that as competition 

emerged, service providers in high-cost rural areas would no longer 

be able to maintain the implicit urban-to-rural subsidies and they 

would need to be replaced with explicit support in the form of the 

Universal Service Fund. The contemplated competition has become 

a reality. Under today’s system, universal service support has been 

calculated and distributed on the basis of broad statewide geoVerDate Mar 15 2010 13:47 Mar 02, 2012 Jkt 067101 PO 00000 Frm 00141 Fmt 6633 Sfmt 6633 E:\HR\OC\A101.XXX A101

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graphic study areas averaging together low- and high-density areas 

that could be literally hundreds of miles apart. 

In closing, and to illustrate our concerns, let us take another look 

at the map of Goodland, Indiana. The average cost to serve the 452 

households clustered in or near the town center is $19 per line per 

month. The remaining households are dispersed throughout the 

outlying areas and the cost per line is $266 per month. With facts 

like these, here is what can happen. First, a dense area can knock 

out support for an extremely remote area. This is particularly egregious if the dense area is hundreds of miles away on the other side 

of the State. Second, without the carrier-of-last-resort requirement, 

you run the risk of multiple carriers receiving unnecessary support 

to serve only the town center, creating duplication and waste. If 

you think about the situation like a donut and a hole, the answer 

is crystal clear: The hole will take care of itself. The purpose of section 254 has always been to serve the donut. We look forward to 

working with you on USF reform to accomplish just that. 

[The prepared statement of Mr. Gerke follows:] 


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Mr. BOUCHER. Thank you, Mr. Gerke. 

Mr. Hale. 

STATEMENT OF GREGORY HALE 

Mr. HALE. Thank you. Mr. Chairman, Ranking Member Stearns 

and subcommittee members, I thank you for the invitation to participate in today’s discussion regarding the critical importance of 

the universal service program and how best to strengthen it for the 

future. 

I serve as general manager of Logan Telephone Cooperative in 

Auburn, Kentucky, and I also currently serve as the region 3 director on the board of the National Telecommunications Cooperative 

Association, NTCA. My remarks today are on behalf of Logan Telephone as well as NTCA and our 579 other members that serve 

rural areas throughout the Nation. Organized as a cooperative, 

Logan Telephone’s top priority has always been to provide every 

one of our customers, who are also our owners, with the very best 

telecommunications and customer service possible. We serve 5,961 

customer lines across our 596-square-mile service area, which adds 

up to about 10 customers per square mile. Rural is different. We 

have approximately 1,100 small rural counterparts in our industry 

who together serve 50 percent of the Nation’s land mass yet less 

than 10 percent of the population. Rural Americans throughout the 

markets of NTCA member are enjoying universal telephone service, 

access to broadband Internet services, access to advanced video 

services and enhanced emergency preparedness. 

Now more than ever, our country’s domestic, economic and personal security needs are intricately linked to our national universal 

service policy. American consumers and businesses are dramatically altering their communications expectations and rural communication providers continue to respond to this challenge, but the 

fulfillment of our mission is not without tremendous cost. Universal service plays an integral role in helping providers that are 

committed to serving the Nation’s economically challenging markets and consumers overcome these financial challenges. 

Clearly, our highest priority must center on strengthening and 

preserving the universal service policies. We also emphatically support proper oversight and accountability of the program yet we do 

not believe this is occurring as is vividly detailed in a February 

12th report from USAC, which I am making available for inclusion 

in your hearing record. We believe it is crucial that we work together to again acknowledge the program’s value in a way that restores America’s communications preeminence. Our specific recommendations include the following. 

One, include broadband in the definition of universal service and 

expand the contribution base to include all broadband service providers while retaining revenues as the basis for assessing contributions. Two, reform of universal service support should focus on providing consumers with affordable and comparable services and not 

be used to stimulate competition. Three, allow universal service 

and intercarrier compensation reform to occur simultaneously by 

reducing or freezing access rates and allowing carriers to recover 

lost access revenues through supplemental ICOS or IES support. 

And going along with that, we should require recipients of any new 


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supplemental ICOS or IES access cost recovery to voluntarily agree 

to Title II regulation of the broadband services and forego the retention of any excess earnings. 

During the transition from the public switch telephone network 

to a complete IP broadband network, we must require all providers 

of IPPSTN traffic including interconnected VOIP traffic to pay applicable universal service access and intercarrier compensation 

charges. We should require tandem switching rates and special access transport rates to be cost based, strengthen the process for securing universal service eligibility, or ETC status, eliminate the 

Identical Support Rule and provide support based on a carrier’s 

own costs, reject ideas to distribute support via auctions, vouchers 

or any other untested means, allow the program to operate as envisioned by lifting programs caps and freezes, and remove this private program from the federal budgeting process. 

Advanced communications services rely upon a healthy and robust network infrastructure. The biggest issue that must be resolved to ensure the existence of such a network is cost recovery. 

Without adequate cost recovery, there will be no network for any 

communication service to reach rural consumers, be it wireline, 

wireless or other medium. We may well need to modify the program periodically but the key is to have the network in existence 

and operational in the first place. We must invest in this critical 

infrastructure or be left behind by the world. The words of our new 

President ring true when we apply it to universal service: the challenges we face are real, they are serious and they are many but 

the members of NTCA are ready to meet these challenges to ensure 

that no one is left behind. Only through your help and maintaining 

a strong USF program will be able to succeed. 

Mr. Chairman, we are excited to have someone with your knowledge of our industry and your commitment to rural America and 

a position to lead and develop policies that will ensure America’s 

broadband and communications preeminence will shine once again. 

I thank you for the opportunity to speak here today and I look forward to answering any questions from you or the subcommittee. 

[The prepared statement of Mr. Hale follows:] 


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Mr. BOUCHER. Thank you Mr. Hale. 

Mr. Wallsten. 

STATEMENT OF SCOTT WALLSTEN 

Mr. WALLSTEN. Mr. Chairman and members of the committee, 

thank you for giving me the opportunity to testify here today. 

The current Universal Service High-Cost Fund is inefficient, inequitable and growing at an alarming rate, especially because the 

program is funded by taxes on telecommunications services paid by 

all users including low-income people, most of whom get no benefit 

from any part of the Universal Service Fund. The program is in urgent need of reform. The good news is that we have the tools to 

increase build-out, increase penetration and reduce costs. We can 

do it by eliminating the current system and replacing it with competitive procurement. 

The current high-cost mechanism is not only expensive but also 

discourages competition and does little to benefit consumers. A 

study by Gregory Roston and Bradley Wimmer, for example, concluded that completely eliminating the High-Cost Fund would decrease telephone penetration by only about one-half of 1 percent. 

This result is consistent with nearly every other economic study 

published in peer review journals. Since then the proliferation of 

wireless alternatives means that the effect on connections would 

probably be even less. The 1996 Telecommunications Act tried to 

address the competition problem by opening up the system to entrants called competitive eligible telecommunications carriers, or 

CETCs. Some contend that we can control the growth by eliminating the rule under which CETCs receive the same subsidy as 

the incumbents. After all, they say, most of the increase in the 

fund is from subsidies to competitive entrants, most of which are 

wireless companies that have lower costs. That is partly correct. It 

makes no economic sense to pay entrants with lower costs the high 

subsidies that incumbents currently get. But it also makes no sense 

to subsidize a firm’s high costs when a lower cost option is available. Thus, rather than eliminating the Identical Support Rule, we 

should rewrite it so that all firms including the incumbent get the 

smallest, not the biggest, subsidy required for a firm to provide 

service. So, for example, if a wireless entrant can provide service 

in the area for only half the subsidy the incumbent receives, then 

all eligible carriers in the area including the incumbent should receive only that smaller subsidy. 

But we can do even better than that. An efficient program would 

provide just enough of a subsidy to make it profitable to provide 

the service. The problem is, how to determine what that subsidy 

should be, or even whether a subsidy is really necessary. Fortunately, the government has a tried-and-true method for getting the 

biggest bang for its buck. When the government wants a good or 

service, it asks for bids and generally awards the contract to the 

lowest bidder, all else equal. The government uses competitive bidding for buying products as simple as paper to those as complex as 

weapons system. Everyone understands this concept and recognizes 

the importance of getting multiple bids, whether it is for work on 

your car or for providing services to the U.S. military in Iraq. This 


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every day commonsense approach is sometimes called a reverse 

auction. 

Universal service is just another type of government procurement. In this case, the government is buying some minimum set 

of telecommunications services that society believes everyone 

should have at a specific price. The current system, however, is 

akin to awarding no-bid contracts that last forever. We know that 

no-bids contracts are more costly and less transparent than are 

contracts awarded in a more open and competitive manner. For 

that reason, we generally don’t tolerate no-bid contracts yet they 

have become so accepted in universal service that anything else is 

considered radical. 

But there is no reason for the no-bid perpetual-contract approach 

to continue. The High-Cost Fund could begin procuring universal 

service using the same competitive bidding approach that the government uses for almost everything else. In reverse auction for universal service, firms tell the government how much of a subsidy 

they would need to provide particular telecom services in particular 

areas. The government then chooses the firm that can provide the 

service for the smallest subsidy. 

Reverse auctions are not a new idea. Aside from the government 

using them for nearly all procurement, other companies have already used this method to provide telecommunications services in 

rural areas. This experience, which I review in a paper forthcoming 

in the Federal Communications Law Journal and that I am submitting as part of my testimony, has important lessons. In particular, 

reverse auctions for universal service are feasible and typically lead 

to much smaller subsidies than the incumbent and beneficiaries 

previously said was necessary, thus using less taxpayer money to 

provide more services. In some cases, the auctions revealed that 

firms were willing to provide service with no subsidy at all, and the 

very worst outcome from using reverse auctions was one that 

ended up with the incumbents winning everything. In other words, 

the worst outcome from using reverse auctions in universal service 

was what we accept as the status quo today. 

I do not, however, want to give the impression that just because 

reverse auctions are feasible they would be easy. The details of the 

auction matter a lot. For example, would you want to allow multiple winners in any given area? Allowing multiple winners would 

facilitate service competition but could actually increase universal 

service obligations at least in the short run. Another issue is how 

to handle the incumbent. On the one hand, the incumbent may 

have an advantage in an auction because it already has facilities 

in the area, potentially discouraging other firms from bidding. On 

the other hand, if the incumbent loses, could it or should it still be 

the carrier of last resort. 

These problems, however, can be solved. Auctions for spectrum 

too were once widely considered impractical yet the FCC successfully implemented spectrum auctions and they are now used routinely around the world. Moving from no-bid perpetual contracts to 

competitive bidding for universal service provision would help 

bring the High-Cost Fund under control. Reducing the High-Cost 

Fund would in turn go a long way towards facilitating an efficient 

and fair universal service program. 


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Thank you. I look forward to answering your questions. 

[The prepared statement of Mr. Wallsten follows:] 


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Mr. BOUCHER. Thank you very much, Mr. Wallsten, and thanks 

to all of our witnesses for their testimony here this morning. The 

chair recognizes himself for a first round of questions. In the recently enacted stimulus measure, fully $7.2 billion has 

now been made available for broadband deployment. That money 

will be distributed through grants, loans, loan guarantees by NTA 

and by the Rural Utilities Service and the U.S. Department of Agriculture, and to my way of thinking, that to some extent changes 

the dynamic for how we should consider universal service and specifically broadband. So my questions to any who desire to respond 

would be this: how should we consider the availability of that stimulus money, $7.2 billion, as we consider, number one, making 

broadband an eligible expenditure for universal service funding, 

and potentially number two, requiring that the recipients of universal service funding provide broadband at certain minimum 

speeds throughout their entire service territory? Does the availability of that stimulus funding now make it feasible with a potential funding source in order to impose that requirement? And who 

would like to respond? Mr. Davis. 

Mr. DAVIS. At least I will start. Mr. Chairman, first we applaud 

the efforts of the Congress in the stimulus to address broadband 

and to create that stimulus package. We think it creates a very 

good starting point. When we look at the cost of deploying 

broadband to additional areas, rural areas of our territory, it appeared to us or we estimated that the cost of increasing our deployment from 85 percent to 95 percent would have taken around $3 

billion or thereabouts. And so I think the stimulus package adopted 

by the Congress is a good starting point and will get us on the 

right path, but I think if we are talking about ubiquitous 

broadband across America, then I think it is a starting point but 

more needs to be done and that is why we suggest that universal 

service be extended to broadband facilities. 

I also think that it gives us a point to begin the discussion of 

what speeds are adequate with respect to deploying broadband, 

what is the speed that we need to meet today’s needs and yet not 

goldplate the expenditures. 

Mr. BOUCHER. Let me put the question very specifically. Current 

law says that USF money may not be spent for broadband. I would 

assume there is fairly broad agreement here that we ought to modify that to at least say it is an eligible subject for expenditure. 

Would you agree with that, Mr. Davis? 

Mr. DAVIS. I would. 

Mr. BOUCHER. Would anyone disagree with that? There is no disagreement. The better question is whether or not as the draft that 

Mr. Terry and I have put forward would require that we actually 

impose an obligation on the recipients of universal service funding 

to provide broadband, to do so throughout their service territories 

and to do so at a certain minimum speed. It is a pretty low speed. 

I think we have got a megabit per second, which on today’s metric 

is not extraordinarily high. So my question is this: Does the availability of 7.2 billion on a nationwide basis in the stimulus measure 

for broadband make it more feasible to impose that obligation, that 

if you are going to receive USF money, you have to deploy it. 

Mr. DAVIS. I think—— 


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Mr. BOUCHER. And Mr. Davis, I think a yes or no at this point 

from you, because I want to give others a chance. 

Mr. DAVIS. The answer would be no. 

Mr. BOUCHER. All right. Others care to comment on that? Yes, 

Mr. Gerke. 

Mr. GERKE. Thank you, Chairman. We certainly applaud the efforts in the stimulus and very much want to participate there. We 

definitely agree that broadband should be eligible. We have done 

a similar estimate to what Mr. Davis talked about, and for our 

part, to get us up to 100 percent, it would be about $2 billion. That 

would not be economical without assistance. So what we are going 

to get from stimulus, and you know how that works and hopefully 

it get directed to unserved areas, and what we can continue under 

USF would not come close to fulfilling that. We would certainly 

commit to utilize all the money that we get to continue to fulfill 

our USF obligation of extending the service, maintaining it and 

keeping that service alive and available to those rural residents. 

Mr. BOUCHER. All right. Others care to comment on that question? Mr. Hale? 

Mr. HALE. I would just say that most of our members are deploying broadband in their areas but there could be extremely high-cost 

areas with a cap on the fund where there wouldn’t be cost recovery 

for those areas, so there could be extreme—you know, in general, 

yes, we would deploy it and we are deploying it but there could be 

very, very small rural areas that it would be difficult to deploy with 

the cap on the fund. 

Mr. BOUCHER. I am detecting some hesitation about whether or 

not we should impose that requirement. Mr. Tauke? 

Mr. TAUKE. There is no question but it is a stretch for a lot of 

carriers to be able to meet a requirement to deliver broadband even 

at the speeds you mentioned within the 5-year period, but I think 

it really hard from a public policy perspective to say that we are 

going to indefinitely provide funding for voice services when voice 

services is not what the future is about. So whether it is 5 years 

or 7 years or 4 years, I don’t know the answer to that question, but 

I think once the mapping is completed and you have a better handle on what it is out there that is unserved, then you can begin 

to get a better handle on how much capital is needed in order to 

be able to meet those needs. Maybe there will have to be a little 

more capital provided besides what is in the stimulus package. But 

I don’t think it is unreasonable to have some kind of requirement 

for broadband for those who are receiving those funds. 

Mr. BOUCHER. Thank you very much, Mr. Tauke. 

Mr. TAUKE. I have one point that I would like to make, Mr. 

Chairman, if I could have the opportunity, is that I think it is really important that this committee provide good oversight and perhaps even direction to the Administration’s agencies that are administering the stimulus funds. There are a lot of new people 

there, a lot of great people, but I think this committee has a lot 

of history and I think probably can give some good guidance the 

way in which these funds are administered to achieve the objective. 

Mr. BOUCHER. Thank you very much, Mr. Tauke, and I might 

comment that we are in the process of doing precisely that now 

through conversations with both of the grant-making agencies with 


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the Administration and we will actually move to an oversight hearing on that very issue in the not too distant future. 

My time is expired. The gentleman from Florida is recognized for 

5 minutes. 

Mr. STEARNS. Thank you, Mr. Chairman. 

Mr. Wallsten, let me just ask a blunt question. I mean, obviously 

everybody in the room agrees that the Universal Service Fund is 

broken and it is not working to taxpayers’ advantage and we need 

to do something. What about just eliminating the Universal Service 

Fund? Now, I say that because when AT&T started, they were the 

one carrier and that is how the program got started. Now you can 

go to—Mr. Gerke, even in my Congressional district, which you 

serve, is a lot of rural areas, they can get service from more than 

Embarq, so forget for a second broadband, just talking about Universal Service Fund for land lease lines. Why is it still necessary 

to do this? 

Mr. WALLSTEN. Well, I think that is a good point. It was originally started to make sure that we brought telecommunications 

services to areas and once it was there—— 

Mr. STEARNS. Can I just ask you, do you agree there is a possibility we don’t even need Universal Service Fund for what it is 

doing now? 

Mr. WALLSTEN. I am sure there are definitely areas where that 

is true, and if we have reverse auctions in areas like that, if all carriers were eligible, you would find places where firms bid zero, possibly even were willing to pay. 

Mr. STEARNS. In the bill that Mr. Barton and I dropped in the 

last Congress, we listed that we no longer have companies get reimbursed for artwork, cafeteria, lunchrooms, vending machines, 

charitable contributions, lobbying, public relations, janitorial service. All these were the costs that people like Mr. Gailey or Mr. Hale 

used in their reimbursement expenses that they would put on top 

and give to the FCC. And so in our bill we said, gee, we didn’t 

think sewage or water utilities or membership fees in social and 

political clubs and recreational clubs were necessary to be expenses. So we said, you know, let us make sure that they don’t be 

incurred. As Mr. Tauke said and I think Mr. Waxman is sort of 

looking at and which is very encouraging for me to talk about reverse auctions, and Mr. Wallsten, you had indicated that would be 

the key here, and particularly you talked about this Identical Support Rule and if we did away with that and we had reverse auctions, bingo, then we would be out of this business of getting reimbursed upon the membership fees and dues in social and political 

services. Is that correct? 

Mr. WALLSTEN. Yes. If these auctions were done correctly, firms 

are going to want to win the auction and they are not going to include costs like that because then they wouldn’t win. 

Mr. STEARNS. Now, Mr. Davis, I am a little concerned to hear 

you say when you talk about broadband the $7.2 billion that is in 

the stimulus package, you say that is just the beginning. So you 

are asking the government to continue to tax people who are getting phones lines for a lot more than the $7.2 billion. Because you 

realize, if we spend that $7.2 billion this year and the Universal 

Service Fund is about $7 billion now, so if we are going to tax them 


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next year, it is going to go from 11 percent of the bill to 22 percent 

of the bill. So we are really working backwards. I think Mr. Gerke 

said we are going to spend $2 billion in broadband and we could 

use the help. I think those were your words. So now you are coming here and asking us here on the committee to give you $7.2 billion this year and more money this year, and if Mr. Gerke needs 

$2 billion, then I assume you need $2 billion, and I am sure everybody in this room including the people in the last row could use 

$2 billion. 

So Mr. Wallsten, am I wrong? I mean, why should I tax people 

when AT&T just announced it plans to spend $12 billion in capital 

expenditures on broadband in 2009? And I applaud them for doing 

that, you know, but if the private sector is going to go out and do 

it, I mean, I am not clear, Mr. Davis, why you are saying this is 

just the beginning, you want the government to continue to fund 

this through the Universal Service Fund. That is what you are saying. 

Mr. DAVIS. Mr. Congressman, what I would say first is that we 

believe that the size of the fund should not be increased. The size 

of the fund does not need—— 

Mr. STEARNS. But you—— 

Mr. DAVIS. —larger for us to spend—— 

Mr. STEARNS. But you believe we should tax the people who use 

the phone for this money is what you are saying? 

Mr. DAVIS. I believe that we can more wisely use the fund, reform the fund without increasing the size of the fund, we can provide universal broadband service. 

Mr. STEARNS. Mr. Wallsten, even if we do the reverse auction 

and we did away with the Identical Support Rule, and let us just 

talk about broadband, how in the world can we go back and ask 

the taxpayers to pay for this broadband when it looks like the private sector is willing to do it? 

Mr. WALLSTEN. Well, as you are pointing out and as others have 

pointed out here, there are two issues. One is how we raise the 

money and the other is how we distribute the funds, and the way 

we raise the money is especially inefficient. Every user of telecommunications services has to pay into this fund including lowincome users, most of whom don’t receive anything. There have 

been many studies on this. A paper by Jerry Houseman estimated 

that each dollar raised in taxes on wireless services costs the economy an extra 72 cents to $1.14. Jerry Ellig estimated that these 

taxes on wireless services and interstate long distance to support 

universal service reduced economic welfare by about $2 billion a 

year. So on raising the fund size, it is inefficient and inequitable, 

inefficient because it is not a good way to raise taxes. You are taxing a price-sensitive service. And it is inequitable because you are 

imposing the tax including low-income people, and then to turn 

around and use it to subsidize people who are not necessarily low 

income, so that is the—— 

Mr. STEARNS. Thank you, Mr. Chairman. 

Mr. BOUCHER. Thank you very much, Mr. Stearns. 

The gentlelady from the Virgin Islands, Mrs. Christensen, is recognized for 5 minutes. 


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Mrs. CHRISTENSEN. Thank you, Mr. Chairman. I hope my questions, well, they will probably let you know that I am new to telecommunications but I do have a few questions to ask. 

I will start with Mr. Tauke. You are a strong proponent of capping the High-Cost Fund, and opponents say that it could have unintended consequences that could undermine the universal service 

goals so how would you respond to that concern? 

Mr. TAUKE. I think the key is to direct the money to the area 

where it is needed. Today we provide a lot of support for old technology and we provide support for multiple recipients in a given 

area, so using Mr. Gerke’s chart before of Indiana, a lot of money 

is going into the hole in that donut when the need is outside in the 

donut itself, and so if you can redirect the funds to the area where 

it is needed, I think you can meet the needs without spending more 

money. But if you don’t cap the fund, I think what will happen is, 

is that we will keep adding on more things, so we need to redirect, 

not just add on. Because consumers are paying the bill and right 

now the bill is, you know, hovering around 91⁄2 to 11 percent on the 

bottom of the bill. 

Mrs. CHRISTENSEN. Thank you. 

Mr. Davis, obviously this hearing is in part about some of the inequities in the system, and one you raise is how the rural side of 

your business, the services you provide to the rural areas doesn’t 

get the support. Are you recommending the same treatment for 

rural and non-rural or are you just recommending that your service 

to your rural areas get the support even though you are not considered a rural provider? 

Mr. DAVIS. I am suggesting the same treatment for rural and 

non-rural carriers such that we look at the specific geography and 

whether or not it is rural and support it irrespective of whether or 

not the company also serves urban areas. 

Mrs. CHRISTENSEN. I understand. 

Mr. Tauke and Mr. Lubin, as I understand, both of you support 

going to a numbers-based system. How would you address concerns 

raised that this could raise the cost to consumers? 

Mr. LUBIN. With regard to the question, will it raise the cost to 

consumers, my belief is, I believe it will reduce the overall contribution paid by the residential consumer, that the value of having 

a telephone number collection mechanism is first you get certainty. 

You know what it is. It doesn’t fluctuate month by month. Sometimes you will pay 50 cents because you are not making a lot of 

calls. The next month maybe you have some family positive life 

event and you make a significant amount of calls and all of a sudden you can see a USF line item for $5 because you made a lot of 

calls. So you see a lot more stability but the beauty of what the 

coalition did that Tom Tauke talked about, which AT&T participated in, is that the actual telephone number rate when you look 

at it in aggregate over the residential user was paying less. In addition, that coalition exempted lifeline customers. So a lifeline customer would not pay the line item. And you heard the previous 

speaker highlight that in the ways in which you collect it today, 

customers who are on lifeline are still contributing to it on certain 

portions of their revenue. 


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Mr. TAUKE. I would reiterate everything Mr. Lubin said. Bottom 

line is that the number system and the way it was designed and 

the submission that a number of us made to the FCC slightly shifts 

the cost from residential to consumer, or from consumer to commercial, so from residential to commercial. So it lowers the overall 

costs for consumers and at the same time it takes care of the lowincome consumer. 

Mrs. CHRISTENSEN. Mr. Wallsten, you are supportive of reverse 

auctions. Why not base it on carrier costs as others would suggest? 

Mr. WALLSTEN. The main problem with using carrier costs is 

that it is impossible to know what they are, and companies will always have an incentive to say that their costs are higher than they 

are so that they can increase their subsidy and it reduces any incentive for them to work more efficiently, because the higher their 

costs are, the bigger the subsidy they get and so you can end up 

in sort of a constant spiral of increasing subsidies. 

Mrs. CHRISTENSEN. Thank you, Mr. Chairman. I have no further 

questions. 

Mr. BOUCHER. Thank you very much, Mrs. Christensen. 

The gentleman from Texas, Mr. Barton, the ranking member of 

the full committee, is recognized for 5 minutes. 

Mr. BARTON. Well, thank you, Mr. Chairman. I commend you for 

rescuing me from climate change hearing fatigue. We have our second one of those of the week going on upstairs, so it is nice to come 

down and participate in a hearing that is on something else. It is 

also nice to have a hearing entitled ‘‘Universal Service Fund: Reforming High-Cost Support.’’ We have got the word ‘‘reform’’ in 

there, which is good; universal service, which is good. I wish instead of ‘‘reforming’’ you would have ‘‘repealing’’ but that is just 

wishful thinking on my part. 

It is ironic to me that we have a program looking for a need to 

continue to exist. I would have voted for universal service in the 

beginning back in the 1930s when my district in rural Texas had 

very few telephones outside of the small communities and the few 

cities in the district. I still support some sort of a universal service 

requirement, I suppose, but I am at a loss to figure out why we 

need to change the definition. But maybe if you can’t kill the 

snake, it may be time to change it in such a way that we get some 

benefit, and I thought your question, Mr. Chairman, about a requirement if you are going to receive universal service funds you 

should have to provide broadband. I think that is a very good question. If you can’t kill it, at least require something that is useful 

today, so I am intrigued by that. 

Mr. Tauke, I thought you gave one of the more articulate opening 

statements. I know that is because you used to be a member of this 

committee, which is not widely known and you don’t talk about in 

polite company much more these days, but you were a member of 

this committee. Why would somebody oppose a reverse auction or 

why would somebody support a cost-based system reimbursement? 

If we are going to have it, why not do reverse auctions? Why not 

do competitive bidding? I mean, obviously that would save money 

and you would still have the basic requirement to provide the services. 


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Mr. TAUKE. I am probably not the best person to answer that 

question since we support reverse auctions and competitive bidding, but as I understand the arguments of those who oppose it, 

the first argument is that they favor having multiple carriers in a 

given area. Parenthetically, I guess first we don’t think—just as a 

company it is our view that—— 

Mr. BARTON. Well, then go to competitive bidding. 

Mr. TAUKE. If you have an unserved area, we don’t see why you 

should support multiple carriers in that area, especially because as 

technology develops, those multiple carriers are going to come anyway. But for the near term, why should the government subsidize 

multiple players? 

But secondly, if you decided you really wanted multiple players, 

you could through a competitive bidding process provide that support to two or three carriers if you wanted to do that. But to try 

to have a system that is focused on determining costs, I think, is 

going to be counterproductive in a whole variety of ways, which I 

have already alluded to. 

Mr. BARTON. I am going to ask the gentleman next to you, who 

is an advocate of classic universal service, why couldn’t you exist 

in a world of competitive bidding or reverse auction? I thought your 

chart was informative. You know, I still have areas in my district 

that have significant rural areas. So why couldn’t you exist in a 

competitive bidding reverse auction world? 

Mr. GERKE. I think the most critical thing to emphasize is one 

of the points that Mr. Wallsten made, which is you have to tie it 

to carrier of last resort. A lot of the proposals with respect to reverse auctions allow people to come in, identify areas and cherrypick those and then leave me or similarly situated people to try to 

figure out how you make a profit on $266 per month of cost and 

a $25 or whatever receipt, and so if we can’t isolate and leave behind those Americans, which is exactly what 254 was intended to 

stop or avoid, I think it is absolutely key that that concept—— 

Mr. BARTON. Well, do you accept as a carrier of last resort that 

you can be served in a wireless mode as opposed to a wireline 

mode? 

Mr. GERKE. Well, that is my point. If a wireless carrier would 

win, they would need to take that obligation to serve the entire 

area and relieve the underlying carrier so we wouldn’t have that 

unprofitable operation separated and forced upon you. 

Mr. BARTON. I know my time is expired, but if we accepted that 

a wireless carrier is acceptable for the carrier of last resort, and I 

am not saying that you have to accept that, but if you do, is it not 

true that the cost to serve as last resort would not be $266 per 

month? 

Mr. GERKE. They would have to calculate their own costs. With 

our network already in the ground and because their CFOs don’t 

have them building out to those most rural areas, I am assuming 

they have got a cost that doesn’t make sense for them. 

Mr. BARTON. Thank you, Mr. Chairman. 

Mr. BOUCHER. Thank you very much, Mr. Barton. 

The gentleman from Michigan, Mr. Stupak, is recognized for 5 

minutes. 

Mr. STUPAK. Thank you, Mr. Chairman. 


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Mr. Gerke, in your testimony you mentioned about using the 

data that we have from a broadband inventory map as a means to 

retarget high-cost support either at the wire center level or even 

more granular. Can you explain what you mean by a more granular targeting? 

Mr. GERKE. Well, I am just open to dialog among the industry 

and with the committee. My thought is, you want to make sure 

that you separate out from providing service or pollute the calculation with numbers that, you know, represent a different market 

than what is really being targeted under 254, which is the rural 

market, and the statewide averaging does that, so the wire center 

is a great way to target it. I think it just was an expression of our 

openness to figure out what is the most laser-like manner in which 

we can proceed. 

Mr. STUPAK. Right, but isn’t the wire center at times targeting 

too narrow, considering the size of the rural area? 

Mr. GERKE. Well, as long as you are talking within a particular 

rural area, you can look at the different wire centers that are there 

and then calculate the cost based on that. 

Mr. STUPAK. OK. Mr. Carlson, if I may, I share some of U.S. 

Cellular’s concern that the FCC does not have accurate mobile 

wireless service coverage data. What level of detail do you believe 

is appropriate for the Commission to have to improve their ability 

to administer funds, and are we talking about creating something 

similar to the broadband inventory map for wireless carriers? 

Mr. CARLSON. Yes. I think the detail needs to go down below the 

zip code level, because if you work with a zip code you could have 

areas that were both high density and low density within the same 

zip code, and I think ultimately what we need to do is identify the 

cost characteristics of each area so that we could introduce a cost 

model. That would take us away from this issue of subsidizing inefficient carriers. With a cost model approach, we would be subsidizing only those areas which truly were low density and therefore for any carrier to serve them with high-quality service would 

have relatively high cost. So we are advocates of high-cost model 

system which would require us to get down to that very granular, 

below zip code level. 

Mr. STUPAK. OK. Thanks. 

Mr. Tauke, you raised an interesting proposal for the creation of 

the subsidy of the middle mile, the long haul between a rural Internet end user and the network. Are the costs associated with developing a connection not fully supported by the current USF because 

it is strictly broadband in nature? 

Mr. TAUKE. The costs of the middle mile are not currently subsidized to the extent that it is necessary in order to deliver 

broadband services to consumers. So when we look at the challenges of delivering service to, let us say the eastern shore of Maryland or western Maryland or Congressman Boucher’s district or 

parts of West Virginia, various areas we serve, the bottom line is 

that sometimes the costs of providing the last mile in a community 

or area is much less than the ongoing costs of the 50 miles of transport you have to build. And so that is why when we looked at this 

issue, we said this is an area that needs to be addressed, hopefully 

that some of the stimulus money would go to building that middle 


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mile, but in the interim it seemed to us that there was a need for 

some kind of program to address that issue and that is why we proposed establishing a separate fund in that area. In some cases the 

cost is almost $100 a month that we have seen for just the transport piece per customer. 

Mr. STUPAK. Well, you mentioned the economic recovery package, 

that that may be some source of it. Would it go for construction 

then, that money? Would you say that? Or are we talking about operations and maintenance? And since you are suggesting there be 

a temporary support, how long should it last? 

Mr. TAUKE. We believe that the primary issue is an issue of construction or capital expenditure. Two things happen over time. One 

is that you get more broadband penetration so you have more customers using that middle mile, and once the middle mile is developed and the customers have access to broadband, they are buying 

more services so therefore the revenue per customer goes up. So 

the combination of more customers and more revenue per customer 

probably would allow for the operation and some maintenance costs 

of the last mile and the middle mile to be supported in most instances. But the upfront capital expenditure is big. 

Mr. STUPAK. So how long it would last just depends on how long 

that middle mile got developed, how many users got in before you 

could—— 

Mr. TAUKE. We are working on it. Maybe I will have a better answer in weeks but right now I don’t have a firm answer. Our sense 

is that, you know, it is something that should be looked at in 5 

years. You could put it in place, have the FCC review it in 5 years, 

something like that, but I think that we just need to do more work 

and maybe we will come up with a better answer for you a few 

weeks down the road. 

Mr. STUPAK. Thanks. 

Mr. BOUCHER. Thank you, Mr. Stupak. 

The gentleman from Oregon, Mr. Walden, is recognized for a 

total of 7 minutes. 

Mr. WALDEN. Thank you, Mr. Chairman. I appreciate it, and I 

appreciate all the testimony of the witnesses. 

Mr. Carlson, I want to especially draw some attention to you because I appreciate your company’s willingness to come into the 

great metropolis of Fossil, Oregon, where there are 208 households, 

469 souls as of the 2000 census. I would like you to write down the 

words Ione, Oregon, population 321, also seeking cellular coverage 

for the first time in its history, and then they are approaching you 

and all. But I throw that out there because I know USF played a 

key role in serving an area. Fossil, by the way, is the county seat 

of Wheeler County, and there were very serious, legitimate concerns the community had about having no cell service when it gets 

a lot of people floating in the nearby river and there are traffic accidents and things, so I do appreciate that. Can you speak, though, 

a bit about the High-Cost Fund and how the wireline, the wireless 

industries each get out of this—what they get out and how much 

customers pay into the fund. How do we make this work so we get 

wireless service out there? What works for you and what would be 

detrimental to getting that first and only service out there? 


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Mr. CARLSON. Well, I think that today it is important to remember that wireless today, wireless is receiving only about 25 percent 

of the total program funds as opposed to wireline, which receives 

about 75 percent, and, you know, I am not smart enough to know 

if that is the right balance or not but what I do know is that wireless more and more is becoming, you know, the dominant form of 

people communicating, certainly for voice services, and I think that 

the data services are growing rapidly with wireless. So I would 

hope that the committee in its judgment would consider to think 

about the future for technology and not be looking backward about 

where technology investments have been made but look at where 

the country needs to go, and I believe that when you think about 

that, wireless will play an ever-bigger role in bringing the best 

service, best quality service out to rural Americans. 

Mr. WALDEN. And I don’t disagree with that. I think there are 

issues related to that compensation level and the costs, and I think 

that is something we are all going to struggle with, and I am not 

sure I agree with Mr. Wallsten about once it is built you can walk 

away from it, and maybe I am mischaracterizing your comments, 

sir, but I sense that once it is out there, then whoever is cheapest 

at providing the service should be the one that gets reimbursed or 

that is the reimbursement rate, and it strikes me that that means 

a cellular carrier who may have a lot cheaper ability to provide cellular service might set the rate and yet a lot of people may not 

have cell phones but have a line into their home, and if you are 

out in rural Wheeler County or Morrow County, it is going to be 

much more expensive to have that hard wireline, and I guess my 

question to you is, is that what you were saying in your testimony, 

that we find the cheapest reimbursement, the provider that can do 

it cheapest, and that would become the rate? 

Mr. WALLSTEN. Well, you have to first define what exactly it is 

that you want, and then you want to find the lowest cost method 

of reimbursing that, and if what you want is, well, in this case we 

are talking the fund currently focuses on voice service, then you do 

want the lowest cost mechanism of doing it and you don’t want to 

continue supporting a very high-cost approach just because it has 

always been there. 

Mr. WALDEN. So I did understand you correctly then? 

Mr. WALLSTEN. If they can bid and can continue offering that 

service at a low cost, then that would be fine. 

Mr. WALDEN. OK. I want to go next to our witness from Verizon. 

What are the pros and cons of using actual cost versus a reverse 

auction or competitive bidding to determining the distribution of 

those amounts, Mr. Tauke? 

Mr. TAUKE. First, to be clear, we favor reverse auctions for mobile carriers, not for fixed carriers, because in fixed carriers we 

have generally only one in a community. We think customers want 

both mobile and fixed in a community, and we have a mechanism 

in place whether we like it or not that works for determining cost 

for fixed carriers. For wireless carriers, the problem is that first, 

unlike wireline where you have an access line that goes to the 

home, with wireless—and you can measure how long that is, what 

the cost of it is and so on. With wireless, you don’t have anything 

like that. There has been no structure in place from an auditing 


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perspective or accounting perspective, I should say, to keep track 

of all the costs and how you assign then to individual residences. 

You have a host of other issues such as how you value the spectrum and so on would go into determining cost, so I think what I 

would say to you is, if you want years of legal challenges, go to a 

cost-based system for wireless and you will be in court for a long 

time, but if you want a system that will work, go to a competitive 

bidding system. 

Mr. WALDEN. But what you are suggesting is a competitive system for each type of service delivery, competitive for line if there 

is more than one carrier, or how do you—— 

Mr. TAUKE. For the time being we would stick with the costbased system for wireline; for wireless, use the competitive. 

Mr. WALDEN. The question I would have, if you can figure out 

the cost-based system for a wireline, are you suggesting that wireless can’t figure out a cost-based system for delivering their service? 

Mr. TAUKE. I am saying it is much harder for wireless because 

you don’t have dedicated facilities. If you are talking about the 

donut, for example, and the area around it, you don’t have dedicated facilities for the area around it so you can’t figure out what 

the cost is for the area around it versus the area in the donut. Second point that I would make is that there has been a whole history 

of accounting systems set up to determine cost on the wireline side. 

We don’t have anything like that on the wireless side. And so the 

challenge of putting a new system in place is very significant. So 

trying to come up with the cost will be tough, and as soon as you 

come up with a method, that is going to be challenged in court by 

the carriers. 

Mr. WALDEN. Mr. Davis, should a universal service broadband 

program operate in the same manner as voice telephone service 

program or should it be structured differently? 

Mr. DAVIS. I would structure the broadband system differently. 

I have learned from what we have done in the past. I would base 

the broadband grants on a bidding process. The low bidder for a 

particular geographic area would be the only carrier that would be 

subsidized. We would not subsidize mobile carriers and we would 

through the bidding process subsidize the low-cost carrier. The 

other thing I would do would make it a one-time grant, a grant 

necessary to build out the facilities at a certain service level and 

price but a one-time grant, not an ongoing subsidy. 

Mr. WALDEN. My time is going to run out. Mr. Lubin, and then 

I have just one comment I want to make. 

Mr. LUBIN. I just want to make the following observation, given 

AT&T spending $17 billion to $18 billion in terms of its capital 

budget, roughly two-thirds of it going for broadband and wireless, 

and the bottom line is that even with that amount of expenditure, 

we are going to have to figure out if you want to see broadband 

and wireless in high-cost areas, there is going to have to be some 

way to address that, and so in the broadband world, what we highlight is a competitive bidding process, one-time dollars, and only 

one time, underserved areas and one party gets it. 

Mr. WALDEN. I thank you, and Mr. Chairman, I would just conclude by saying I would take disagreement with my ranking memVerDate Mar 15 2010 13:47 Mar 02, 2012 Jkt 067101 PO 00000 Frm 00215 Fmt 6633 Sfmt 6633 E:\HR\OC\A101.XXX A101

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ber’s position that water and sewer shouldn’t be included in the reimbursement mechanism because I actually favor flush toilets over 

the outhouse. Thank you, Mr. Chairman. 

Mr. BOUCHER. Thank you very much, Mr. Walden. 

The gentleman from New York, Mr. Weiner, is recognized for 2 

minutes. 

Mr. WEINER. It is actually news to this member that you have 

indoor plumbing in your district. 

Mr. WALDEN. Actually we do have both. 

Mr. WEINER. Let me just say it strikes me, and to some degree 

this is an economic question for the citizens of my district. They 

are not underserved. They wind up, though, being donor citizens in 

this program. We want it to succeed. We want broadband access 

and we want telephone services available. But it does beg the question that the chairman mentioned in his line of questioning. It 

seems if you are running pipes, if you are trying to envision how 

we get information, how we get technology to these homes, that we 

should look at it in a holistic way, especially since you have this 

money in the stimulus bill and we have a focus on extending 

broadband. It seems that we make mistakes in this Congress when 

we try to envision technology as it is today and write legislation 

for it when in fact what we should be doing is trying to create as 

open enough of a process that new technologies can emerge. 

You know, I think that the argument for the reverse auction is 

pretty powerful and I frankly don’t see why you couldn’t transition 

the present formula for wireline service to reverse auction as well. 

I mean, the ideas being we are trying to incentivize reduced costs 

and people think more efficiently and evolving technologies that 

might be able to do these things at lower cost. Let us just talk 

about the wireless side since that is the side that Mr. Tauke said 

would be the best for the reverse auction. Let me hear someone, 

and you can decide, someone make the best argument against the 

reverse auction model. Yes, sir. 

Mr. CARLSON. Well, I tried to make some of that position against 

the reverse auction in my opening comments when I said that if 

you create a single winner system, what you will have will be a 

single wireless provider, which means that that single wireless provider would only provide the services that it chose to provide to the 

people. 

Mr. WEINER. Why could you not have a reverse auction that the 

top two bidders win or why could you not have a rolling system 

whereby if someone during the—look, we did something similar at 

the advent of cable television in places like New York City where 

we said listen, it is difficult, it probably doesn’t make a lot of sense 

to have three or four people digging trenches, so let us go ahead 

and give one the opportunity and then as a result you then agree 

if you do that, you are going to be subjected to a greater regulatory 

regime to make sure you provide quality service and the like. 

Mr. CARLSON. Well, I think that, you know, it kind of takes you 

back, what are you trying to create as a nation and I think that 

the 1996 Act recognized that monopoly provision of services was 

not in the interest of the Nation in an era when technology was 

driving huge opportunities for innovation, and by opening up to innovation we would create an immense amount of national wealth. 


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Mr. WEINER. If I can interrupt here, but I mean, you are creating 

a straw man, are you not? Isn’t the problem that we are trying to 

find areas that have zero service that yes, one service is definitely 

less advantageous than three or four but that is a false choice in 

the cases of most of these communities like those in Mr. Walden’s 

district, is it not? Aren’t we trying to first and foremost get a player to come in? Isn’t that the purpose of the Universal Service Fund 

in the first place? 

Mr. CARLSON. Well, we totally agree with that, that the program 

needs to have more targeting so that we direct more of the funds 

toward those areas that Congressman Walden spoke about which 

have no service today or very, very poor service, but we believe that 

that can be done within the context of the 1996 Act where there 

is competition. What we need is giving direction to the FCC to target the funds toward those areas while preserving competition. 

Mr. WEINER. Right, but I think I see that. I guess the question 

that I am trying to get to here is, once you reach the point where 

you say all right, we want to target this community but we also 

want to do it in a way that we are incentivizing whoever comes in 

there to give us, meaning we, the taxpayer, the best possible deal 

to provide that service. It doesn’t seem—I mean, I think we can almost stipulate to the idea that it doesn’t seem we are getting the 

best possible value with the way this is structured presently. So if 

you have a model that incentivizes the players who are represented 

at that table and elsewhere to say you know what, I think I can 

go in there and provide this community service for an average 

whatever dollar per household and three other firms go in there 

and say I wonder if we can beat that, let us figure out how we can 

make it more efficient. We are operating now in an environment 

where we are trying to apportion scarce resources in a more efficient way, and I want to just caution you all, the challenge that 

you face is, you have lost confidence that this fund—people are 

wondering, and Mr. Barton is coming at it from one economic perspective, some of us come at it from a different one. If you don’t 

figure out a way to start incentivizing the providers to do it in a 

more efficient way, we are going to lose complete confidence that 

this fund should exist at all, and I think one of the ways you do 

that is to say you know what, we are going to start making the 

marketplace work for us for a moment here, and I don’t know if 

there is anyone else who wants to rise to the defense of the cost 

model here. 

Can I ask one other question then? You know, voice is a relatively tiny part of what the larger conversation about information 

is really about at this point. I mean, most of it is data, video and 

everything else. Why shouldn’t we just take the stimulus money, 

take this money, put it into a big pot and say let us figure out 

using a model that works, it may be the reverse auction model or 

another one and say let us just see what technology, what people 

come to us and say you know what, we can provide the full panoply 

of services. Why are we saying that you know what, let us create 

a fund to get this little sliver of the service to these communities. 

I think that if we are going to do this for the amount of money that 

we are investing, let us figure out a way to do it right. Let us try 

to really figure out a way to grow the marketplace for the services 


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that come along with broadband and everything else by putting everything in one basket and saying we are going to try to plow into 

these communities and give them the same opportunities that my 

constituents have. Why shouldn’t we do that? Is that too ambitious? Yes, sir, American Telephone and Telegraph. 

Mr. LUBIN. On one hand I would say what you are suggesting is 

a clever point, and the clever point is, let us see how much of the 

stimulus dollars get used in unserved areas, and so Chairman Boucher asked a question in the beginning, what is the linkage between the stimulus package and universal service. For me, the 

linkage is at some point however this $7 billion gets disbursed over 

the 2-year period, hopefully that gets used to get more broadband 

deployed. When that happens, you are going to have less unserved 

areas. My only point here is that you have money. That money is 

going to be put out there relatively quickly. Find out, can it work, 

and it is a bidding process so it is a competitive bidding process. 

So you will see, you will have empirical information if it works. My 

guess, as you heard the other speaker say, $7 billion is not enough. 

Maybe they are right, maybe they are wrong, but you will get empirical information once and for all. My own particular bias—and 

again, it is up to you. You are the policymakers that say if you 

want broadband and you are the policymaker that says do you 

want mobility, and if the answer is yes, then my particular belief 

is, you shouldn’t be waiting, you should be figuring out how to create the sea change, figure it out in a way which is a coherent way, 

and if in fact this investment gets deployed and you have less 

unserved areas, that is a huge win and now you are going to have 

whatever remains and then you go from there. 

Mr. WEINER. Thank you, Mr. Chairman. 

Mr. BOUCHER. Thank you very much, Mr. Weiner. 

The gentleman from Nebraska, Mr. Terry, is recognized for 5 

minutes. 

Mr. TERRY. Thank you, Mr. Chairman, and I want to thank the 

panel. This has been a great discussion and very helpful, I think. 

Every one of you have done an excellent job. A couple of points that 

I want to make is, first of all, we talk about advanced services, and 

frankly, advanced services a year ago are mainstream services 

today. I walked into the Verizon store with my wife trying to get 

her phone fixed for about the sixth time, but we won’t go into that, 

but I saw their new VOIP system for homes. Very cool, nice monitor and we can do video on it and the whole nine yards. And now 

that is being sold with all the regular phones, a little bit more expensive right now. But the point is that in today’s society what is 

advanced a few months ago or a few years is mainstream today 

and we have to think of it that way. I am pleased that Mr. Barton 

wants to treat the snake differently, and that is exactly the conclusion I came to is, how do we get ubiquitous rollout of broadband. 

Two advantages that this bill brings is, number one, we use the 

same pot of dollars that already exists without creating one new 

dollar on the taxpayer to get ubiquitous rollout within our rural 

America. Number two in that is that by making it mandatory, 

what we do is say for the Mr. Gaileys and Mr. Hales that represent 

really the sparsest areas, they have risen up and they provided 

without the help of universal service but just other revenues, they 


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have rolled out high-speed broadband to their customers but not 

every rural provider has and I am not sure every rural provider 

would unless that is a requirement to take, and so this is the way 

that we really ensure that all the universal service dollars provide 

that universal telecommunications services that is mainstream 

today. But my colleagues bring up a couple of decent points about 

that universal service should be used in an accountable way for the 

services of which it is intended, whatever that service may be as 

determined by this committee hopefully and not the FCC. 

So Mr. Gailey and Mr. Hale, I want to ask you this general question of how should we go about ensuring that these tax dollars are 

properly used, what systems would you suggest to us—and by the 

way, I want to use the phrase here, that the analogy with the 

donut, make sure that you people that are serving that donut and 

not the hole, that the dough must go to the donut, OK? So Mr. 

Gailey first. 

Mr. GAILEY. Well, the first thing I would like to say is that annually my company provides a cost—which tells them what the costs 

are that we have incurred in a year. That is submitted to USAC 

and then 2 years after we incur those costs we receive recovery on 

those costs. Annually we also go through an accounting audit by an 

independent accountant so we do have oversight over, in my opinion, my company today. Now, some of the stuff that is in the report 

from OIG has been contradicted in this report from USAC and we 

all know that some of the things that have been reported could be 

interpreted in one or two ways. Now, my company will go through 

a USAC audit in May so I can better address if there is any refinement needed to be made to that type of audit system but we 

haven’t opposed an audit system per se. We just want to know 

what the rules are before we go through it. 

Mr. HALE. We think that audits should be performed. The ways 

that they are being performed are the problems that we have with 

the current system. In the past—I haven’t been in the business as 

long as some of our other folks here but in the past there are cost 

models and those things have been looked at. It is just very difficult. At some point it always came to embedded costs because our 

membership, we are not alike. Sometimes someone looks at rural 

and says we are all rural but we are a very diverse membership 

that serves a lot of different geographic areas, so it is difficult, but 

I mean, we would be open to discussing those things, I think, but 

it is very difficult to do that with a model or that type of thing. 

Mr. TERRY. My time is up but I will predict that will be one of 

the things that Rick and I work on for our last draft. 

Mr. BOUCHER. Thank you very much, Mr. Terry. 

The gentleman from Illinois, Mr. Rush, is recognized for 7 minutes. 

Mr. RUSH. Thank you, Mr. Chairman. First of all, Mr. Chairman, 

I want to just take a moment to welcome my friend from Chicago, 

Mr. Carlson, who is president of U.S. Cellular. We worked together 

on many issues and I am so glad to see you here as a part of this 

panel, and I want to extend a heartfelt welcome to you as well as 

to all the other panelists. 

Mr. Chairman, this panel and this hearing will not touch upon 

an area that I am intensely interested in, and that is the area of 


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access to telephone services and the lessening of the burden that 

the cost of telephone services has been placed on low-income families, especially for those who are incarcerated. It is not the subject 

of this hearing, but Mr. Chairman, I do want us to at least take 

that up as a part of our future deliberations on the reforming of 

the Universal Service Fund. I do have a bill that I have introduced, 

H.R. 1133, the Family Telephone Connection Protection Act, that 

would require the FCC to regulate the rates so that they are reasonable. There are a lot of families who now are immensely overburdened because of the high cost that the telephone companies are 

charging incarcerated prisoners and their families to communicate 

with them, and so that will be a part of the discussion that I want 

to engage in in the future. It is not the subject right here. 

Mr. BOUCHER. Would the gentleman yield to me for a moment? 

Mr. RUSH. Yes, Mr. Chairman. 

Mr. BOUCHER. I thank the gentleman for yielding. I share the 

gentleman’s concern, and this is a matter that I also would like to 

look at and I look forward to working with the gentleman as we 

try to find a constructive way to address it. 

Mr. RUSH. Thank you, Mr. Chairman, and with that I also just 

want to say hello to my friend, Charlie Sullivan, over there who 

has been a proponent of this for the last few years, for a lot of 

years, really. 

Mr. Chairman, I do have a number of questions. First of all, I 

want to ask all the panel for the limited time that I have remaining, I want to ask the panel to answer this first question with either a response of yes or no. We can go down the line. The question, is broadband really a universal service? Is it so essential to 

everyday life like electricity was a century ago that we should ensure that all Americans have access to broadband? Either yes or 

no. 

Mr. DAVIS. Yes. 

Mr. LUBIN. Yes. 

Mr. CARLSON. Yes, and I would add, it should be also mobile 

broadband. 

Mr. GAILEY. I agree, yes, it should be. 

Mr. TURNER. Yes, absolutely. 

Mr. TAUKE. Yes. 

Mr. GERKE. Yes. 

Mr. HALE. Yes. 

Mr. WALLSTEN. As the economist, I will say it depends. I think 

our resources are limited and I would much prefer to first see 

things like health care be available to everybody. 

Mr. RUSH. All right. So after we get the health care, then we get 

the broadband. Is that what you are saying? All right. 

Section 254 of the 1996 Telecom Act states that universal service 

policies shall promote, one, the availability of quality services at 

just, reasonable and affordable rates, and two, access to advanced 

telecommunications and information services in all regions of the 

Nation. Mr. Turner and the rest of the panel, do you think our universal service policies have achieved these goals? 

Mr. TURNER. Not directly, sir. The problem is, is that the FCC 

has not updated its definitions of what services are supported to include broadband. However, through the magic of accounting, lots of 


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USF-supported carriers have actually used the money that they are 

getting to deploy broadband services so I think instead of doing 

this funny and tricky accounting we should just make it explicit 

and actually recognize that broadband is already being supported 

by the fund and let us make it explicit and let us cost it out and 

let us see what support would actually be needed to bring it into 

the areas that don’t currently have it. 

Mr. RUSH. Is there anybody else on the panel that wants to respond? 

Mr. HALE. I think we are still working on the goal. I think there 

is a misconception that when we draw money from the fund the 

networks are paid for. Most of our companies or a lot of our companies are financing these networks through RUS loans and the 

amount of USF money they receive is based on the depreciation of 

that plant 2 years prior. So we still have debt service to do on the 

networks that we built for universal service, so I still think it is 

work in progress. 

Mr. RUSH. Mr. Gerke. 

Mr. GERKE. Yes, Congressman. I agree it is a work in progress. 

I do think we have shown that we can deliver universal voice and 

have done a good job on it. I think the targeting that is suggested 

in this bill to get the money where it needs to go is important. I 

am very encouraged by people understanding the connection to the 

carrier-of-last-resort obligation and making that part of the discussion. Broadband’s inclusion I think is a big plus and can move us 

forward. I agree with those comments. And last, I would echo that 

we are out every day making investment in new plants based on 

an understanding of the USF support that is there. We have maintenance, we have enhancement, words that come from 254 that we 

have to live up to, and we have shareholders who are expecting 

that when we make those kind of investments in a stable enough 

environment that it is predictable for them. The lack of stability 

sometimes really creates a challenge for us to move forward. Thank 

you, Congressman. 

Mr. RUSH. Does anybody else want to comment on this? 

Mr. CARLSON. I know that many members here, you know, don’t 

want to talk about expanding the program but there was one element of the program that was not properly implemented by the 

FCC, and that was when the cap was imposed there were a number of States, and I could list some of them that we are familiar 

with, North Carolina, Nebraska, Virginia, Tennessee, Michigan, 

Oregon and Washington and a smaller amount in Illinois, States 

that were unfairly treated in the way in which the cap was imposed, and fixing that would cost about $350 million additional to 

the fund which would raise the contribution level from today 91⁄2

percent to 10 percent, a very modest increase which would make 

it fair across America. 

Mr. RUSH. Mr. Chairman, I see my time is up but I want to 

thank you for this opportunity. 

Mr. BOUCHER. Thank you very much, Mr. Rush. 

The gentleman from Illinois, Mr. Shimkus, is recognized for 5 

minutes. 


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Mr. SHIMKUS. Thank you, Mr. Chairman. I was picking on you 

upstairs. You got the televised hearing. Climate change and the 

ending of the world did not, so kudos for you. 

Mr. BOUCHER. Thank you. We deserve a few pats on the back 

here today. 

Mr. SHIMKUS. You have more people at the panel by two. I have 

been bouncing back and forth. I apologize for that. I know the 

chairman would like to but he has to manage the chair here. 

Rural America, many of you know my district. We have benefited 

from USF. There are challenges. Let me just ask, as we look at 

USF funds to facilitate broadband deployment, does wireless 

broadband have a role, a practical application, and if we can just 

go quickly Mr. Davis through Mr. Wallsten. 

Mr. DAVIS. I think the broadband support should be technologyneutral, so I think that once we determine what the speed, the 

level of service and the price should be, it shouldn’t depend—that 

any technology should be available. 

Mr. SHIMKUS. Thank you. 

Mr. LUBIN. I also think it should be technology-neutral but I also 

think clearly the policymakers, namely yourselves, need to decide 

whether mobility, advanced mobility is important as well as fixed 

broadband, and if they are, then you need to figure out what is a 

rational plan for both. 

Mr. SHIMKUS. Because I have successfully tried to stay on the 

fence in this process so far so I am trying to figure it all out. 

Mr. Carlson. 

Mr. CARLSON. Yes, I think both are important. I think the speed 

that is capable in a wired system is higher than it is in a mobile 

system so that target speed for mobility should be set a level that 

is different than the target speed for wireless. 

Mr. SHIMKUS. Mr. Gailey. 

Mr. GAILEY. I would agree with Mr. Carlson that wired can provide bigger pipes to a residence. The mobile can provide a smaller 

pipe that you can carry with you to different locations. 

Mr. SHIMKUS. Keep going. 

Mr. TURNER. I think they both have their utility. Wireless is definitely going to play a role in the areas that are most extremely 

high cost to service but wireless will always have the advantage of 

having more capacity and not being a shared medium. So I think 

we really need to look at that. I am not sure at this point that 

checking your Facebook while driving 70 miles down the road is an 

essential service that should be subsidized. 

Mr. SHIMKUS. You haven’t talked to my son yet. 

Mr. TAUKE. Just to be clear, I think it should be fixed versus mobile, and fixed should be reimbursed as it is today and generally 

we call that wireline but it also can be fixed wireless, and the other 

is mobile and I think Americans today see mobile as essential. 

Mr. SHIMKUS. Well, I think that is a good point because I tell 

you, in a rural community that has a couple hundred residents, 

wire, hooking it up versus have a tower that is fixed wireless is a 

different ballgame than checking your Facebook as you are driving 

down the road. 

Mr. Gerke. 


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Mr. GERKE. Yes, I think it is real important as mentioned before 

to define exactly the criteria you are going after. I think generally 

the wireline plan is what is going to get you there and then making 

sure that that obligation is to serve the entire donut that you don’t 

just serve part of it but you have that carrier-of-last-resort obligation to serve all of it. 

Mr. SHIMKUS. And being in rural America, there are problems 

with line of sight and terrain and stuff, and I understand that also. 

Mr. Hale. 

Mr. HALE. I believe it should be technology-neutral. I don’t think 

we can imagine tomorrow’s technology, what we are going to ask 

to use for broadband deployment. As long as the minimum speeds 

and those standards are high enough to support what we need for 

the future of the country, technology shouldn’t play a role. 

Mr. SHIMKUS. Mr. Wallsten. 

Mr. WALLSTEN. I mean, once you decide what type of service it 

is that you want to guarantee, then it should be, as everyone has 

said, basically be technology-neutral. I think the key is to make 

sure that you don’t define the service in a way that arbitrarily benefits one type of provider just in order to benefit that provider. 

Mr. SHIMKUS. Thank you. Two final questions just to one panelist, Mr. Chairman, if I may. 

Mr. Turner, Ranking Member Barton has a credible beef of some 

of the abuse of the USF and that is going to cause a lot of challenge for us in this committee. Have you identified in the way highcost funding is currently distributed to wireline or wireless carriers 

or what excesses have you identified? 

Mr. TURNER. Well, I think one of the most important things that 

hasn’t come up in this hearing is, is a lot of these rural carriers 

are supported based on historical cost when the most efficient way 

of supporting them should be a forward-looking cost if we are going 

to use cost models. The often talked about $970 million in overpayments identified by the FCC OIG, it is not that there was actually 

$970 million in overpayments, it is that these companies didn’t 

keep good historical records of their costs and the audit triggered 

that being an overpayment. I think going forward with forwardlooking costs is the best way to go. It is economical. I certainly 

would like to be able to recover the historical cost for my house 

that I bought 2 years ago but unfortunately that is not what the 

market will bear today. 

Mr. GERKE. Congressman. 

Mr. BOUCHER. Mr. Gerke, go ahead. 

Mr. GERKE. I just want to make sure I get on the record, we absolutely encourage transparency and we are willing to make sure 

that we do whatever is necessary so that you can see that these 

dollars are spent exactly the way they should be. In 2008 we had 

seven audits. No material weakness, deficiencies. We weren’t penalized, no consent agreements. There was $92,000 more that 

should have been paid to us. There was $18,000 more that we 

should have paid in, so net we were shorted $74,000. We are not 

looking for that. But it shows up as a $110,000 mistake the way 

it is counted, and so I don’t know how much of those eight audits 

go into the 23 percent but I suspect whatever those dollars were, 

they actually were in our favor and the costs we incur, we want 


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transparency, let us do it in a manner that doesn’t drive costs that 

way, way exceed the numbers that we are talking about. Thank 

you very much. 

Mr. SHIMKUS. Thank you, Mr. Chairman. I would just end by 

saying, I wonder how much the actual audits cost. 

Mr. BOUCHER. Thank you very much, Mr. Shimkus, and I am 

glad you raised the question of the legitimacy of the audit itself because I think there are some substantial questions about the methodology that it used, and that is a matter into which we will inquire further at the proper time. 

The gentleman from North Carolina, Mr. Butterfield, is recognized for 5 minutes. 

Mr. BUTTERFIELD. Thank you, Mr. Chairman, for convening this 

very important hearing and I will try not to consume my entire 5 

minutes. Like John Shimkus, I would like to apologize to you for 

being late for your hearing. We have been bouncing between two 

subcommittees both in this building, but thank you very much. I 

thank the witnesses for your testimony today. 

Mr. Chairman, I look forward to working with you as you chair 

this committee. You and I are friends and we have similar Congressional districts and I pledge to you my complete support as we 

go forward with this subcommittee. 

Mr. Chairman, according to a recent analysis from the 2007 

American Community Survey, my district in eastern North Carolina now has the fourth lowest median household income out of all 

435 Congressional districts in the House. That figure along with 

the sprawling, very rural geographic characteristics of my Congressional district make issues like this very important to me. While 

there is no question that an escalating contribution factor is rightfully a concern for carriers and policymakers and certainly the 

FCC, I remain confident that a sensible resolution can be achieved 

that recognizes and upholds the universal service concept, makes 

advanced telecommunication service including broadband a part of 

the universal service scope and oppose those principles outlined in 

section 254, and so thank you very much for convening this hearing 

today. I thank the witnesses for coming including my good friend, 

Tom Gerke, who represents Embarq, who is a good corporate citizen in my district, and thank you for all that you do. 

I have one brief question and then I will close. Let me address 

this to my friend from Verizon, the former member of this body, 

Mr. Tauke. There have been proposals floated to allow the lifeline 

and linkup program to help lower-income people purchase computers so they can access the Internet. There were also proposals 

to allow the program to pay for broadband. Are these good ideas? 

Should the government be looking at other ways to increase computer ownership and subsidize monthly broadband access for lowincome consumers? 

Mr. TAUKE. First, on the issue of subsidizing broadband access 

for low-income consumers, we believe it is appropriate to look at 

the feasibility of having a lifeline-type program for broadband access. We don’t have a specific proposal. I think there are issues 

that need to be addressed relating to it. But I think that it is something worth looking at and also that it should be done at the federal level since broadband services are federally regulated. 


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On the issue of computers, I don’t think we would look to use the 

Universal Service Fund to support computers because the Universal Service Fund is paid for, as Mr. Carlson noted, is really consumers’ money that we collect and it is consumers of communication services, so while we would feel comfortable using that funding 

for communication services, I don’t know that we would agree that 

it should be used for computers. However, if you ask my boss, the 

CEO of Verizon, what could we do to encourage broadband deployment, he would say the most important thing you can do is to increase demand and the most important way to increase demand is 

to get a computer in the hands of every kid in America. So I think 

we recognize that that is very valuable. 

Mr. BUTTERFIELD. Thank you. Would AT&T associate itself with 

those comments in substance? 

Mr. LUBIN. Yes. In fact, AT&T has been looking and recently 

shared some thoughts in terms of how to potentially have a lifeline 

program on broadband and we would be glad to share that with 

you. 

Mr. BUTTERFIELD. Thank you very much. 

And speaking of association, Mr. Chairman, I also want to associate myself with the comments of Chairman Rush a few minutes 

ago about H.R. 1133. That is a very significant piece of legislation. 

Before I had a life in this body, I served as a judge and I received 

very heartbreaking letters from families about the expensive cost 

of long-distance phone calls for their loved ones in prison. It is an 

issue that we need to talk about and come to a sensible solution. 

I yield back. 

Mr. BOUCHER. Thank you very much, Mr. Butterfield, and I 

share the concerns you and Mr. Rush have expressed about that 

matter as well. 

I want to ask unanimous consent that there be included in the 

record a written statement from the Mercatus Center at George 

Mason University and a written statement of testimony from the 

American Homeowners Grassroots Alliance. Without objection, so 

ordered. 

[The information appears at the conclusion of the hearing.] 

Mr. BOUCHER. The record of this hearing will remain open for a 

reasonable period until members can submit written questions to 

our panel of witnesses. When they are received by you, I hope you 

will respond promptly, and with the chair’s thanks for what has 

been, I think an interesting and stimulating discussion today. We 

appreciate your being with us and sharing your very useful information. 

This hearing is adjourned. 

[Whereupon, at 12:35 p.m., the subcommittee was adjourned.] 

[Material submitted for inclusion in the record follows:] 


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