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[Senate Hearing 108-969]
[From the U.S. Government Publishing Office]

                                                        S. Hrg. 108-969
 
                        RURAL WIRELESS BROADBAND

=======================================================================

                                HEARING

                               before the

                         COMMITTEE ON COMMERCE,

                      SCIENCE, AND TRANSPORTATION

                          UNITED STATES SENATE

                      ONE HUNDRED EIGHTH CONGRESS

                             FIRST SESSION

                               __________

                              MAY 22, 2003

                               __________

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

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       SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION

                      ONE HUNDRED EIGHTH CONGRESS

                             FIRST SESSION

                     JOHN McCAIN, Arizona, Chairman
TED STEVENS, Alaska                  ERNEST F. HOLLINGS, South 
CONRAD BURNS, Montana                    Carolina, Ranking
TRENT LOTT, Mississippi              DANIEL K. INOUYE, Hawaii
KAY BAILEY HUTCHISON, Texas          JOHN D. ROCKEFELLER IV, West 
OLYMPIA J. SNOWE, Maine                  Virginia
SAM BROWNBACK, Kansas                JOHN F. KERRY, Massachusetts
GORDON H. SMITH, Oregon              JOHN B. BREAUX, Louisiana
PETER G. FITZGERALD, Illinois        BYRON L. DORGAN, North Dakota
JOHN ENSIGN, Nevada                  RON WYDEN, Oregon
GEORGE ALLEN, Virginia               BARBARA BOXER, California
JOHN E. SUNUNU, New Hampshire        BILL NELSON, Florida
                                     MARIA CANTWELL, Washington
                                     FRANK R. LAUTENBERG, New Jersey
      Jeanne Bumpus, Republican Staff Director and General Counsel
             Robert W. Chamberlin, Republican Chief Counsel
      Kevin D. Kayes, Democratic Staff Director and Chief Counsel
                Gregg Elias, Democratic General Counsel
                                 ------                                

                     SUBCOMMITTEE ON COMMUNICATIONS

                    CONRAD BURNS, Montana, Chairman
TED STEVENS, Alaska                  ERNEST F. HOLLINGS, South 
TRENT LOTT, Mississippi                  Carolina, Ranking
KAY BAILEY HUTCHISON, Texas          DANIEL K. INOUYE, Hawaii
OLYMPIA J. SNOWE, Maine              JOHN D. ROCKEFELLER IV, West 
SAM BROWNBACK, Kansas                    Virginia
GORDON H. SMITH, Oregon              JOHN F. KERRY, Massachusetts
PETER G. FITZGERALD, Illinois        JOHN B. BREAUX, Louisiana
JOHN ENSIGN, Nevada                  BYRON L. DORGAN, North Dakota
GEORGE ALLEN, Virginia               RON WYDEN, Oregon
JOHN E. SUNUNU, New Hampshire        BARBARA BOXER, California
                                     BILL NELSON, Florida
                                     MARIA CANTWELL, Washington

                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on May 22, 2003.....................................     1
Statement of Senator Burns.......................................     1
Statement of Senator Stevens.....................................    11
Statement of Senator Sununu......................................     3

                               Witnesses

Bush, Antoinette Cook, Executive Vice President, Northpoint 
  Technology, Ltd................................................     5
    Prepared statement...........................................     8
Hazlett, Thomas W., Senior Fellow, Manhattan Institute for Policy 
  Research.......................................................    20
    Prepared statement...........................................    22
Kirkpatrick, Harold, President and Chief Executive Officer, MDS 
  America, Inc...................................................    16
    Prepared statement...........................................    17
Landrieu, Hon. Mary L., U.S. Senator from Louisiana..............     4
Roadman, Larry S., President, Margaretville Telephone Company, 
  Inc. and Manager, Wireless Access LLC..........................    23
    Prepared statement...........................................    24
Wright, Andrew S., President, Satellite Broadcasting and 
  Communications Association of America..........................    12
    Prepared statement...........................................    13

                                Appendix

Inouye, Hon. Daniel K., U.S. Senator from Hawaii, prepared 
  statement......................................................    39
Lott, Hon. Trent, U.S. Senator from Mississippi, prepared 
  statement......................................................    39

                        RURAL WIRELESS BROADBAND

                              ----------                              

                         THURSDAY, MAY 22, 2003

                               U.S. Senate,
                    Subcommittee on Communications,
        Committee on Commerce, Science, and Transportation,
                                                    Washington, DC.
    The Subcommittee met, pursuant to notice, at 2:44 p.m. in 
room SD-562, Dirksen Senate Office Building, Hon. Conrad Burns, 
Chairman of the Subcommittee presiding.

            OPENING STATEMENT OF HON. CONRAD BURNS, 
                   U.S. SENATOR FROM MONTANA

    Senator Burns. We will call the Subcommittee on 
Communications to order now and thank everybody for coming 
today and in particular the two principals in this issue and 
this is our first hearing.
    The topic of today's hearing is the economic future of our 
nation, I believe, how speed of deployment in the wireless 
high-speed Internet access for rural America. The recent 
history of telecommunications aptly illustrates the demand and 
usefulness of wireless telecommunications access and the 
widespread wireless Internet access to rural America will be an 
even more beneficial service.
    Today's hearing will focus specifically on the Landrieu-
Sununu bill. How did you get your name first?
    Senator Landrieu. Well, we had a long conversation about 
it. It was easy.
    Senator Burns. Did she threaten you?
    Senator Landrieu. He was a good partner to work with.
    Senator Sununu. It was not a long conversation. She said, 
``It is my bill.'' And I said, ``I am happy to help you with 
it.''
    [Laughter.]
    Senator Burns. There was a time, you know, way back when 
Senator Conrad of North Dakota came across the floor and asked 
me to co-sponsor an amendment on the farm bill we were 
discussing. And I said, I would certainly support that. He 
says, good, we will call it the Conrad-Burns amendment. I said 
fine. He got halfway across the floor and came back and said, 
that ain't going to work.
    [Laughter.]
    Senator Burns. So that is good, though.
    We will focus on that bill today, the Emergency 
Communications Competition Act, and I enthusiastically support 
it as an innovative approach to providing both competitive and 
multi-channel video and wireless broadband services to rural 
America. I also note that the bill has already gained the 
support of 16 co-sponsors, including several on the Commerce 
Committee.
    Today's hearing will also address the implementation of the 
Digital Data Services Act, which I authored and which passed 
into law during the final days of the 106th Congress. The 
Digital Data Services bill created a pilot project which 
allowed certain low-powered television stations the flexibility 
to use their spectrum for wireless two-way high-speed Internet 
service.
    This bill builds upon previous legislation that I authored, 
which was the Local TV Act, also, to help ensure that all local 
television stations, just not those with the largest markets, 
are available to consumers. As a former broadcaster, I know 
Montana has some of the smallest in the Nation. Of the 210 
television markets, we rank from 169th down to 210. We have got 
the smallest one in our state and that is Glendive, Montana, 
over on the eastern plains.
    Slowly, DBS operators are carrying more local television 
stations, but I am not crossing my fingers that they will ever 
get to Glendive any time soon. There are about a thousand other 
local television stations that serve larger markets and they 
are based on simple economics which could and should be carried 
first.
    There is one reason why we need this legislation. It will 
enable the rapid deployment of the new Multi-Channel Video 
Programming and Data Distribution Service, MVDDS. This wireless 
service is ideal for rural areas because it can be deployed 
anywhere. I commend the FCC for authorizing this new service. 
It not only promises to bring local channels to all markets 
regardless of size, but it will also provide broadband Internet 
access to rural Americans who have no such access today; and I 
expect the low cost of this wireless technology will translate 
into lower costs for consumers.
    This is precisely the kind of innovative new technology we 
should encourage and promote. The injection of this new 
competition that this service will provide for broadband itself 
should lower the prices. We witnessed a dramatic reduction in 
rates when we got several cellular and PCS competitors into the 
marketplace. We need to promote policies that will bring about 
the same aggressive competition for broadband, particularly in 
rural areas. We must be on guard, however, to make sure that 
the new market entrants are not saddled with the costs that 
others have not borne.
    That brings me to the next point. I am concerned that 
unless we pass this legislation we may never see the deployment 
of this new service. The FCC has determined that the licenses 
for this new service should be auctioned. I have long felt 
strongly that allowing short-term budgetary dictates to 
dominate spectrum policy often results in disastrous public 
policy judgments, which ultimately short-change both the 
treasury and the consumers.
    I have made it very clear that I want to examine how the 
auction system is working overall. The public interest is best 
served when the spectrum is licensed promptly to applicants 
that are ready to deploy the service, not to the highest 
bidders that are ill-prepared to do so. While auctions make 
sense in many instances, this is not always the case.
    Three years ago, Congress passed the ORBIT Act, legislation 
that I authored which in part exempted from auction spectrum 
used for the provision of international or global satellite 
communication services. The legislation which we are examining 
today is narrowly confined to how the FCC is going to issue 
licenses for a specific frequency band, the 12.2 to 12.7 
gigahertz band.
    In the 12 gigahertz band we are confronted with a case of 
first impression in which the FCC has determined to issue 
licenses to both terrestrial and satellite applicants that 
share the same spectrum. Previously this was thought to be 
technologically impossible. In my judgment, the same Federal 
resource must be licenses and the same manner for all 
applicants regardless of the technology which they will employ. 
To do otherwise is to pick industry winners and losers. The 
wireless buildout bill before us today corrects that problem.
    I think it is also something that we should always take 
note of whenever we start making policy here with regard to 
spectrum or anything else in the telecommunications industry. 
Number one, we must do no harm; and number two, we must make it 
technology-neutral, and that allows new ideas, new services, 
new things, to progress.
    I now recognize my good friend from New Hampshire, Senator 
Sununu.

                STATEMENT OF HON. JOHN SUNUNU, 
                U.S. SENATOR FROM NEW HAMPSHIRE

    Senator Sununu. Thank you very much, Mr. Chairman. I 
appreciate you convening this hearing and very much appreciate 
your remarks, especially with regard to the importance of 
maintaining an equitable approach with regard to the way we 
treat spectrum and the use of spectrum and the licensing of 
spectrum and of course maintaining a balanced approach and a 
fair-minded approach in the application of technology and being 
careful not to bias our markets or our regulatory system toward 
one technology or another.
    This is an important issue and I believe a very worthwhile 
piece of legislation. It is a piece of legislation in which we 
see the intersection of a number of new technologies and new 
ideas for terrestrial DBS. We also see a technology that can 
meet a very important need, a need that is out there, that we 
hear about every day as members of the U.S. Senate, a need of 
rural access to broadband, rural access to broadcast services.
    Finally, this obviously deals with the issue of utilization 
of spectrum, using spectrum in a way that is in the public 
interest, in a way that will make a difference, and using 
spectrum in a way that maximizes the efficiency in the process.
    I think that the bill accomplishes those things, but I look 
forward to hearing issues, concerns that might be raised 
regarding its implementation. If there are ways that we can 
improve and strengthen the legislation, I am of an open mind 
and I think other members of the Subcommittee are as well.
    Thank you again for this hearing and I look forward to the 
testimony of the witnesses.
    Senator Burns. Thank you, Senator Sununu, and we thank you 
for your leadership on this, on this particular issue.
    Now we welcome to the Committee, Senator Landrieu of 
Louisiana, and we thank you for coming today.

              STATEMENT OF HON. MARY L. LANDRIEU, 
                  U.S. SENATOR FROM LOUISIANA

    Senator Landrieu. Thank you, Mr. Chairman. First of all, 
thank you for calling this hearing on this very important 
matter and for your comments and your support of the general 
direction in which the legislation that I have authored, 
sponsored with Senator Sununu, is moving forward. He is an 
excellent partner and we, our states, although in different 
parts geographically of the Nation, share some similar 
characteristics--the rural nature of some parts of our state as 
well as Montana. We can speak to this issue representing areas 
that are having trouble not just with price and access, and 
this legislation that 16 Senators have co-sponsored and that is 
the subject of this hearing today seeks to remedy.
    I would like to submit my full testimony, Mr. Chairman, to 
the record and also submit an excellent article in the Tech 
section of the Post this morning, the summary of which is ``Why 
Is Broadband's Spread Slowing?'' It is because access is 
limited and price is not competitive. The legislation that we 
sponsor is something that will correct both of those points.
    Senator Burns. Without objection, all of that will be made 
part of the record.
    Senator Landrieu. Thank you.
    In addition, Louisiana has a fairly large rural population 
and relative to our overall population it is much higher than 
the national average, which is 21 percent. Ours is 32, which is 
one of the reasons that I am before you today.
    In addition, cable rates are up 9.1 percent compared to the 
overall inflation rate of 2.5. There have been many, many 
studies on this issue. One that I just want to cite for the 
record is a GAO recent report that cable systems face 
competition. Most do not, but when they do, rates are lower by 
17 percent.
    The new technology that we are asking just to be placed on 
a level playing field, not given any added advantage, would 
provide competition everywhere, saving consumers billions and 
reaching the rural areas of this nation, who are also entitled 
to accurate local information as well as emergency information 
along with our urban areas.
    There are 210 local markets. There is no local television 
in 134 of those markets, no local TV in eight states. The 
Chairman is aware that one of those states is Montana. The 
other ones are Alaska, Maine, and North Dakota. Rural areas, as 
I said, are also ill served by the current broadband situation 
because they either cannot get it or they cannot afford it.
    This new technology that our bill hopes to again promote 
would improve emergency communication. It would disseminate 
Federal, State, and local emergency alert system warnings to 
all subscribers. Also, of course, with the recent Federal 
legislation, on amber alerts it would be available to not just 
urban communities but to all communities in the Nation.
    The most important thing, regardless of your views on 
auctions--and I am actually sympathetic and feel, as you do, 
Mr. Chairman, and as you do, Senator Sununu, about the 
disadvantages of auctions. But whether you are on one side or 
the other of that argument, no one can be against a level 
playing field for everyone. This legislation that I am putting 
forward would provide, or that we are putting forward, would 
provide a level playing field to all those that can offer this 
type of service. So again, it is about competition, it is about 
lowering price, it is about consumers, it is about rural areas, 
and either we require all applicants for particular spectrum to 
go to auction or none of them. But this situation where we have 
some going through auction and others not and then having the 
rural areas and the consumers pick up the tab for that 
seemingly bifurcated policy is not I think what we should be 
doing.
    So I thank you for your co-sponsorship. There is a 
tremendous amount of interest, Mr. Chairman, in this issue and 
I think this hearing is quite timely, and I thank you all. 
Whatever the bill is called, as long as it passes that is what 
the most important thing is. So thank you all very much.
    Senator Burns. Thank you, Senator Landrieu. I have no 
questions for the Senator.
    You may join us up here if you like and we will start 
listening to the witnesses that have been invited to testify 
today.
    Senator Landrieu. Thank you, and I will stay for a few 
minutes and then have to get back to another meeting. But if 
there are any questions or comments?
    Senator Sununu. Thank you very much.
    Senator Landrieu. Thank you.
    Senator Burns. You are welcome to do so.
    Now we call the panel. We have a panel, only one panel of 
five people: Ms. Antoinette Bush, Executive Vice President, 
Northpoint, here in Washington; Mr. Andrew Wright, who is 
President, Satellite Broadcasting Communications Association of 
America; Mr. Harold Kirkpatrick, President and CEO of MDS 
America; Mr. Thomas Hazlett, Senior Fellow, Manhattan Institute 
of Policy Research; and Mr. Larry Roadman, President, 
Margaretville Telephone Company, from Margaretville, New York.
    We will call on--it is nice to see you back again.
    Ms. Bush. Thank you.
    Senator Burns. We will call on Ms. Bush for your testimony 
now, please.

 STATEMENT OF ANTOINETTE COOK BUSH, EXECUTIVE VICE PRESIDENT, 
                  NORTHPOINT TECHNOLOGY, LTD.

    Ms. Bush. Thank you, Mr. Chairman, for inviting me to 
testify before you today. It is a pleasure to be back before 
the Committee, albeit in a different seat.
    Senator Burns. How does it feel down there, by the way?
    Ms. Bush. It was more fun up there. I want to applaud you 
for holding this hearing. Wireless technologies are ideally 
suited to address the challenge of serving lightly populated, 
but geographically large areas with advanced communications 
services.
    Northpoint has a patented technology that makes it possible 
for satellite and terrestrial users to share the same spectrum 
without causing interference. Northpoint has six patents issued 
and others pending. Northpoint intends to offer consumers 
multi-channel video programming, including all local channels, 
at the rate of approximately $20 per month and a broadband 
package also for $20 a month. We aim to be a national provider 
and are committed to providing the same quality of service in 
all markets throughout the United States.
    Too many rural Americans cannot get the same level of 
service that is offered in urban and suburban communities. Many 
cannot get access to a cable system and DBS is woefully 
deficient in carriage of local television stations and 
emergency alerts. Consumers in rural areas need services and 
choices which terrestrial wireless can provide.
    With cable rates soaring at three times inflation and with 
broadband unavailable or too expensive for most families, why 
are consumers still waiting for this technology? The FCC 
licensing process is broken. For decades the U.S. licensing 
system was based on the limitations of analog systems and the 
assumption that satellites and terrestrial systems cannot share 
spectrum.
    Since 1994 Northpoint has spent millions of dollars proving 
that our technology can co-exist with incumbent satellite 
services and seeking licensing rules that treat terrestrial 
applicants in the same manner as satellite competitors. Last 
month the FCC rejected the last challenge from the DBS industry 
on the technical rules.
    Let me state for the record that Northpoint does not oppose 
spectrum auctions in general. When spectrum is available--when 
available spectrum will not accommodate multiple qualified 
applicants, auctions can be an efficient means to allocate 
licenses. In the case of MVDDS, Northpoint and seven other 
satellite applicants filed applications on the same day for the 
same spectrum. The FCC subsequently concluded that all eight of 
us could share the same spectrum. Thus there is no mutual 
exclusivity or no basis for an auction under the Communications 
Act.
    Why, then, is there an auction? The FCC has different rules 
for processing satellite versus terrestrial applicants. 
Satellite applications are called for during a rulemaking 
process and the applicants are then afforded the opportunity to 
work out the sharing to figure out if they can share the 
spectrum. For terrestrial applications, the applications are 
called for after the rulemaking is completed and typically the 
rulemaking concludes that there should be an auction for the 
licenses and the applicants are not then afforded an 
opportunity to see if they can share the spectrum.
    Then, a year after our applications were filed, Congress 
enacted the ORBIT Act, which exempts from auction spectrum used 
for the provision of international satellite services. Congress 
could not have realized that the FCC would interpret this 
provision as prohibiting an auction of the pending satellite 
applications, but requiring an auction for the pending 
terrestrial application in the same proceeding.
    The competitive disadvantage to terrestrial applicants is 
obvious. They will be subjected to costs not borne by their 
satellite competitors. The regulatory status quo favors one 
technology over another.
    We are thankful that Senator Landrieu and Senator Sununu 
introduced legislation to end this inequality. We thank all of 
the members of the Committee who have co-sponsored this 
measure.
    A constant refrain we hear from our opponents is that 
Northpoint ought to pay for spectrum. The issue, however, is 
that the rules changed in the middle of the game. Our 
competitors were exempted from auction after our applications 
were filed. The satellite applicants with whom we applied on 
the same day to share the same spectrum include Hughes, 
DIRECTV's parent, Boeing, Alcatel. These multibillion dollar 
companies have a huge competitive advantage over terrestrial 
applicants now that they are getting their spectrum without 
auction. The ultimate result is that terrestrial wireless 
customers will have to pay more for service than the customers 
of these satellite companies.
    Hughes in fact has never participated in a spectrum 
auction. This year, EchoStar teamed up with a Gibraltar company 
that has access to a U.S. DBS slot to provide DBS service in 
the United States through that Gibraltar license without an 
auction. Another company teamed up with a Canadian company that 
has a satellite slot that serves the United States. Again, they 
were given permission to provide service in the United States 
without an auction. And in 2001 the FCC awarded nationwide 
auction-free licenses in what is called the DBS expansion band 
to 11 companies, including Hughes and Pegasus, who will be our 
direct competitors in the service we want to provide in the 
multi-channel video marketplace and Internet marketplace.
    I do not fault the satellite companies for getting their 
licenses without an auction. I simply take grave exception to 
their efforts to deprive us of getting the same treatment. We 
do not seek to be licensed on terms more favorable. We seek 
merely to be licensed on the same terms as our satellite 
competitors.
    Many people do not know that cable systems also have tens 
of thousands of licenses, none of which were purchased at an 
auction. Again, I am not faulting the cable industry, just 
noting a fact. We are expected to be a price competitor with 
cable, but they are getting their spectrum from the U.S. 
Government on more favorable terms than we would be afforded.
    In closing, I want to make two observations. First, in a 
striking contrast to the MVDDS auction, this year the FCC 
expressly rejected calls to auction spectrum for terrestrial 
use in the mobile satellite spectrum.
    Second, I think it may be useful to contrast our regulatory 
efforts to those of the Wi-Fi industry, a flourishing 
technology that burst on the scene in the last couple of years. 
It is estimated that Wi-Fi revenues will reach over $5 billion 
by the year 2007. Wi-Fi's success is evidence of what happens 
when government regulation is not a barrier to entry or to 
innovation.
    If we are privileged to be licensed, I can assure you that 
we will deploy our service across the United States, including 
Alaska and Hawaii, within 2 years. We are not opposed to the 
licensing of other MVDDS operators. Any company that can 
demonstrate that its technology will not cause harmful 
interference to DBS as required by the law should be eligible 
for a license. This legislation that we are supporting only 
requires that that license cannot be awarded by auction.
    S. 564 will ensure that all terrestrial and satellite 
operators will be licensed in a like manner. Implementation of 
this principle will jump-start the successful deployment of 
MVDDS, enabling consumers, urban, suburban, and rural, to 
receive the benefits of an innovative new service and lower 
prices.
    Thank you again for letting me testify. I am happy to 
answer any questions you might have.
    [The prepared statement of Ms. Bush follows:]

 Prepared Statement of Antoinette Cook Bush, Executive Vice President, 
                      Northpoint Technology, Ltd.
    Thank you, Mr. Chairman, for inviting me to testify before you 
today. I also want to thank all members of the Committee for giving 
Northpoint the opportunity to appear in support of S. 564, the 
Emergency Communications and Competition Act.
I. The Northpoint Technology Is Uniquely Suited To Serving Rural Areas
    First, I want to applaud you for holding this hearing to highlight 
how wireless technologies can address the needs of rural populations. 
Indeed, wireless technologies are ideally suited to address the 
challenge of serving lightly populated, but geographically large, areas 
with advanced communications services.
    In 1994, Northpoint's founders invented a wireless technology that 
makes it possible for satellite and terrestrial users to share the same 
spectrum, at the same time, in the same place. In essence, Northpoint 
found a way to reuse spectrum that was previously assigned to satellite 
users on a non-interfering basis. Although much attention has been 
focused on Northpoint's business plan to provide video and data 
services in competition with both DBS and cable in the 12.2-12.7 GHz 
band, this technology can be used in almost any spectrum band currently 
allocated to satellite use. Northpoint has six patents issued and 
others pending.
    In the DBS band, Northpoint proposes to provide multiple channels 
of video programming and high-speed broadband service to consumers at 
low prices: $20 per month for the video package (including all local 
channels) and $20 for the broadband package. Our locally-deployed 
systems will have ample capacity to carry all local television channels 
and other local community programming and provide a robust broadband 
service. We aim to be a national provider and are committed to provide 
the same quality of service in all markets, regardless of size.
    Too many rural Americans cannot get the same level of service that 
is offered in urban and suburban communities. Many rural Americans 
cannot access a cable system, and while DBS does an excellent job of 
closing the gaps to reach remote households, satellites are woefully 
deficient in carriage of local television stations and broadband. In 
fact, today there are over 1,000 local television stations that are not 
carried by either EchoStar or DIRECTV. DBS does not provide any local 
channels in 134 markets and no channels in eight entire states. In 
addition, consumers watching DBS will not get Emergency Alert System 
warnings in most markets. In contrast, MVDDS will carry these time-
sensitive warnings everywhere.
    This Committee is also well versed in the limited broadband service 
that is available to rural America. There is a clear need for new 
broadband providers in rural areas, and Northpoint's wireless broadband 
technology is well suited to provide a cost effective solution. Our 
technology is low cost and easy to deploy. The consumer equipment is 
also low cost and readily available in the market today. Like Wi-Fi, 
Northpoint provides a technology-based solution to address consumers' 
needs.
    In all markets, there is a clear need for additional competition in 
the multichannel video programming distribution and broadband markets. 
The FCC and the Justice Department have recently documented the absence 
of competition in the multichannel video industry. Even with two DBS 
operators and one cable operator, consumers are still paying very high 
prices for service. With cable rates soaring at a pace three times 
greater than the rate of inflation, and with broadband access 
unavailable or too expensive for most families, why are consumers still 
waiting for the opportunity to use Northpoint's revolutionary 
technology?
II. The FCC's Licensing System Unfairly Discriminates Against 
        Terrestrial Systems
    The FCC licensing process is broken. For decades the U.S. licensing 
practice was based on the limitations of analog systems and on the 
erroneous assumption that satellite and terrestrial technologies cannot 
share the same spectrum. In the past decade, Northpoint has spent 
millions of dollars proving that our technology can coexist with 
incumbent and planned satellite services. We also have sought licensing 
rules that treat terrestrial applicants like us in the same manner as 
our satellite competitors.
    At first, we were stuck in a Catch-22: we had to conduct tests to 
prove that our technology didn't cause harmful interference to 
satellites, but the satellite companies strenuously opposed our 
requests to carry out those tests on the ground that the technology was 
unproven and the tests were bound to cause interference. We finally 
received the necessary experimental license in 1997 to test in 
Kingsville, TX. We conducted two more tests in 1998 and 1999, in 
Austin, TX and Washington, D.C. There has never been a single DBS 
customer that has come forward to complain of interference.
    In 1998, a subsidiary of the French company Alcatel filed an 
application seeking a license to operate a non-geostationary satellite 
orbit (NGSO) system in the DBS band. The FCC also called for other 
satellite applications but not terrestrial applications. Northpoint 
recognized that terrestrial operations would be foreclosed if it did 
not step up and file an application along with the seven satellite 
applicants in early 1999.
    A year later, while the eight applications were pending, Congress 
enacted the ORBIT Act, a provision of which exempts from auction 
``spectrum used for the provision of international or global satellite 
communications services.'' Congress could not have realized at the time 
that the FCC would interpret this provision as prohibiting an auction 
of the NGSO applications but requiring an auction for terrestrial 
applicants.
    In late 2000, based chiefly on Northpoint's extensive experimental 
record, the FCC determined to create a new Multichannel Video 
Distribution and Data Service, or MVDDS, that would share the 12.2 12.7 
GHz band with satellite operators.
    That same year, at the request of the DBS industry, Congress 
included a provision in the LOCAL TV Act that directed the FCC to 
retain an independent firm to conduct an independent test of the 
terrestrial technology proposed by any applicant that wanted to share 
spectrum with DBS satellites. We actually supported the enactment of 
that law, because it provided that the testing would be done promptly 
and we were fully confident in our technology.
    Northpoint was the only company to submit equipment for that 
statutorily mandated test in early 2001. The MITRE Corporation, which 
conducted the test, concluded that satellite-terrestrial spectrum 
sharing is indeed feasible. Subsequently, the FCC adopted technical 
rules based on the Northpoint technology, citing the MITRE testing.
    On April 29, 2003, the FCC reaffirmed its prior decisions that 
MVDDS and DBS can share the same spectrum. The eight year effort to 
prove our technology to the FCC has succeeded.
    The licensing process is still not complete, however.
    Let me note for the record that Northpoint does not oppose spectrum 
auctions in general. In ordinary circumstances, where you have more 
applicants than spectrum available, auctions can be a legitimate and 
efficient means to distribute spectrum licenses.
    But auctions in the context of this proceeding are not appropriate.
    First, Section 309(j) of the Communications Act requires auctions 
only in those cases where ``the Commission accepts mutually exclusive 
applications.''
    In the FCC proceeding involving the Northpoint and NGSO systems, 
Northpoint and seven other satellite applicants filed applications on 
the same day for the same spectrum. The FCC subsequently concluded that 
all eight can share that spectrum with each other and with the two 
incumbent DBS operators. As a preliminary matter, there is no mutual 
exclusivity and thus no basis for an auction under the statute.
    Some would wonder, why then is there an auction? Well the key words 
in the statute are ``accept for filing''. The FCC never accepted the 
Northpoint applications, but it did accept the seven satellite 
applications. Why the difference in treatment? The FCC has different 
rules for processing satellite versus terrestrial applications. 
Satellite applications are called for during the rulemaking process, 
thereby giving the applicants an opportunity to resolve mutual 
exclusivity. Terrestrial applications are called for after the 
rulemaking and the terrestrial applicants are not afforded the same 
opportunity.
    This institutional difference in treatment had never caused any 
particular problem before, because until Northpoint came along, 
satellite and terrestrial operators were never attempting to use the 
same spectrum resource at the same time.
    Now, however, the competitive disadvantage this causes terrestrial 
applicants is obvious. Terrestrial companies will be subjected to costs 
not borne by their satellite competitors. The regulatory status quo 
favors one technology over another. Consumers should be the ones who 
determine the technology that best serves their needs, not government. 
We are thankful that Senators Landrieu and Sununu introduced 
legislation to end this blatant inequality. And we thank all the 
members of the Committee who have cosponsored this measure.
III. Northpoint Is Not Seeking Special Treatment; It Is Seeking A Level 
        Regulatory Playing Field For All Terrestrial Applicants
    A constant refrain we hear from our opponents is that Northpoint 
ought to be willing to pay for the spectrum. The issue is that the 
rules changed in the middle of the game: our competitors were exempted 
from an auction after the applications were filed.
    I've already mentioned the satellite applicants with whom we 
applied on the same day for the same spectrum, and who will be getting 
their licenses without an auction. These companies include Hughes 
(DIRECTV's parent), Boeing, Alcatel and others. These multi-billion 
dollar companies were given a huge competitive advantage that was not 
afforded terrestrial applicants. The ultimate result is it will cost 
consumers more for our service if we are forced into an auction.
    Indeed, Hughes has never participated in a spectrum auction. This 
year EchoStar teamed up with a foreign satellite company that has a 
full-CONUS slot, to get even more auction-free spectrum capacity to 
serve its U.S. subscribers. And Canadian satellites have now been 
authorized to serve the U.S. market, also without auction.
    In 2001, the FCC awarded nationwide auction-free licenses in the 
DBS Expansion Band to eleven companies, including Hughes and Pegasus. 
They will be our direct competitors.
    I do not mention these facts in an effort to fault the satellite 
companies for getting the licenses in the manner they did. But I do 
take grave exception to their efforts to deprive us from getting the 
same treatment. We do not seek to be licensed on terms more favorable 
than satellite companies; we seek merely to be licensed on the same 
terms.
    The FCC's Flexibility Order allows mobile satellite system 
operators to use their satellite licenses to operate an ancillary 
terrestrial system. The FCC expressly rejected calls to conduct an 
auction for the terrestrial use of this satellite spectrum. This 
presents a striking contrast to the MVDDS auction.
    Some might note that there is a DBS auction scheduled for August of 
this year. We do not believe that the auction can legally go forward, 
given that the FCC concluded several years ago that DBS is an 
international satellite service, and thus should come within the ORBIT 
Act prohibition on auctions of orbital locations or spectrum used for 
the provision of international or global satellite services. Moreover, 
the particular DBS slots that are up for auction are, with one 
exception, the ``rejects'' of the incumbent DBS operators and they are 
all ``wing'' slots which are incapable of serving the entire 
continental United States.
    Finally, I would note that the cable industry has received tens of 
thousands of licenses from the FCC, including numerous licenses granted 
this very year, none of which were purchased in auction. Again, I am 
not faulting the cable industry, just noting a fact: It costs the cable 
industry less to do business with the Federal Government than it would 
cost us. Yet we are expected to be a price competitor with cable.
    In closing, I think it may be useful to contrast our regulatory 
efforts to those of the Wi-Fi industry. Here is a technology that burst 
onto the scene in just the last couple of years, and it is by all 
accounts flourishing. Recent reports estimate that by 2007, Wi-Fi in 
the U.S. and Europe will generate revenue of $5.5 billion. Policymakers 
often cite Wi-Fi's success as evidence of what happens when government 
regulation is no barrier to entry or innovation. Wi-Fi users do not pay 
the government for the spectrum they use, nor do they face regulatory 
delays.
    Terrestrial MVDDS should play on a level playing field with 
satellite competitors who utilize the very same spectrum. S. 564 
achieves that goal while at the same time ensuring that all consumers, 
rural and urban, will have access to local television stations, 
emergency information, public interest programming, and broadband 
service.
    If we're privileged to be licensed, I can assure you that we will 
deploy MVDDS across the entire United States, including Alaska and 
Hawaii, within two years. Moreover, our service will be affordable.
    We are not opposed to the licensing of other MVDDS operators who 
can share the spectrum with us. Any company that can demonstrate its 
own technology through independent testing, pursuant to the LOCAL TV 
Act and S. 564, should be eligible for an MVDDS license.
    S. 564 will ensure that all terrestrial and satellite operators 
will be licensed in a like manner. Implementation of this principle 
will jumpstart the successful deployment of MVDDS, enabling consumers--
urban, suburban and rural--to receive the benefits of an innovative new 
service and lower prices!
    Thank you again for allowing me to testify. I would be pleased to 
answer any questions you might have.

    Senator Burns. Thank you.
    We have been joined by Senator Stevens of Alaska and we 
have just taken the first testimony from the first witness, 
Senator Stevens. Have you got an opening statement and then we 
will continue on?

                STATEMENT OF HON. TED STEVENS, 
                    U.S. SENATOR FROM ALASKA

    Senator Stevens. Thank you, Mr. Chairman. I have a 
statement. I cannot stay because of other commitments, but I am 
pleased to see this bill here today.
    I do not know if anyone else has reminded the Committee of 
the history. I know that Northpoint has sought a license from 
the FCC since 1994. In 1999, at my request, there was a 
provision in the Rural Local Broadcasting Signal Act to require 
the FCC to act on Northpoint's license application by November 
29, 2000. As the time came for that deadline to be fulfilled, 
to arrive at that deadline, I met with the FCC chairman at that 
time, Mr. Kennard. He told me he would act on the licenses as 
required. Instead, he started a new proceeding to determine 
whether there should be an auction.
    Later we worked on legislation that required there be a 
test to determine if Northpoint would cause interference with 
existing satellite companies. It was determined that there 
would be no interference, but still there would be an auction.
    I understand you have before you a bill, Mr. Chairman, to 
do what we thought we were going to do in 1999 and I encourage 
you to get the bill out of committee as soon as possible.
    Thank you very much.
    Senator Burns. OK, Senator Stevens. Next is Andrew Wright, 
President, Satellite Broadcasting and Communications 
Association of America. Thank you for coming, Mr. Wright.

      STATEMENT OF ANDREW S. WRIGHT, PRESIDENT, SATELLITE 
     BROADCASTING AND COMMUNICATIONS ASSOCIATION OF AMERICA

    Mr. Wright. Thank you, Mr. Chairman. Thank you, Senator 
Burns and Senator Stevens, for inviting me to testify today. 
SBCA is the national trade association that represents the 
satellite services industry. Our members include satellite 
television, radio, and broadband providers, programmers, 
equipment manufacturers, distributors, and retailers.
    Satellite television has its roots in rural America. We are 
extremely proud that we are the only multi-channel video 
provider that provides choice and competition to all Americans. 
Direct broadcast satellite operators DIRECTV and EchoStar 
provide the most advanced television choices in the multi-
channel video market, including high definition television, 
interactive, and other advanced services, to all Americans 
without discriminating between rural and urban areas.
    When Congress passed the Satellite Home Viewer Improvement 
Act of 1999, DBS hoped to be able to rebroadcast local channels 
to consumers in 20 markets. With considerable investment in 
technological improvements, today DBS subscribers in over 70 
markets can receive local channels covering over 75 percent of 
U.S. television households, and both providers are working hard 
to expand that number. By the end of this year, each DBS 
operator will bring local service to over 100 markets, reaching 
over 85 percent of Americans.
    In addition, satellite providers have invested hundreds of 
millions of dollars to be the only provider offering one- and 
two-way high-speed Internet service to virtually every home and 
business nationwide. Today subscribers of the two providers of 
satellite broadband, DirectWay and StarBand, expense data rates 
that are up to 10 times faster than dial-up Internet service, 
and new entrants Spaceway and WildBlue are preparing to launch 
the next generation of satellite broadband services. This next 
generation service will offer data rates comparable with cable 
modem and DSL service and at a competitive price.
    However, Mr. Chairman, satellite operators cannot offer 
subscribers a competitive alternative to wireline technology if 
the satellite signals that currently provide service to 
consumers are subjected to interference. Specifically, the 
ability of DBS to offer its 20 million households, over 53 
million individual viewers, competitive alternatives would be 
greatly diminished if satellite signals are subjected to 
interference from a television wireless cable service operating 
in the spectrum that was allocated to DBS.
    Sharing would cause ruinous interference to millions of our 
current and future customers. As Members of Congress, you 
should be concerned by proposals that would jeopardize the 
benefits of increased competition that your constituents now 
enjoy.
    In an effort to protect current and future DBS subscribers, 
SBCA and the DBS providers have appealed a recent decision by 
the FCC to the Federal Circuit Court in hopes of reversing the 
Commission's spectrum-sharing decision. We expect our appeal 
will be heard this fall. However, our greatest concern in this 
matter is protecting DBS consumers from harmful interference.
    However, we feel strongly that, should the FCC's spectrum-
sharing decision ultimately be upheld, Northpoint should not be 
granted its request for a free nationwide exclusive license. 
Northpoint is asking Congress to require the commission to 
bypass the normal statutorily mandated auction process and to 
prefer Northpoint to its wireless, broadband, and DBS 
competitors with a gift of publicly owned spectrum. There is no 
legal or public policy justification to prefer Northpoint to 
its competitors. Indeed, the Bush administration has issued a 
statement of administration policy opposing the Northpoint 
spectrum grab.
    This bill would not level the playing field. Other wireless 
cable systems functionally identical to the one proposed by 
Northpoint have invested over $1.6 billion at auction for their 
licenses. The DBS industry has also purchased spectrum licenses 
at auction and in the aftermarket, spending over $734 million, 
and another DBS auction is scheduled for August. Moreover, DBS 
service providers have invested over $7 billion to bring DBS 
service to all Americans.
    In closing, DBS is offering consumers across America, 
including rural and underserved areas, a competitive option for 
television, including high definition video and other advanced 
services. The next generation of high-speed Internet via 
satellite is just around the corner. The future looks bright. 
To threaten the technical integrity and picture quality of this 
proven service with guaranteed interference would harm all 
consumers.
    We look forward to working with you and your staff as you 
continue to create communications policy that benefits all 
Americans, particularly those in rural areas who otherwise have 
few options for the services that DBS offers. Thank you.
    [The prepared statement of Mr. Wright follows:]

     Prepared Statement of Andrew S. Wright, President, Satellite 
              Broadcasting and Communications Association
    Thank you, Mr. Chairman, Senator Hollings, and members of the 
Subcommittee, for inviting me to testify today. My name is Andy Wright, 
and I am the President of the Satellite Broadcasting and Communications 
Association. SBCA is the national trade association that represents the 
satellite services industry. Our members include satellite television, 
radio and broadband providers, programmers, equipment manufacturers, 
distributors and retailers.
    The direct broadcast satellite (or DBS) operators SBCA represents 
provide the most advanced television choices in the multichannel video 
market, including high-definition television and other advanced 
services. The benefit of satellite-delivered technology like DBS is 
that it can reach consumers across the country without discriminating 
between rural and urban, sparsely or densely populated areas.
    When Congress passed the Satellite Home Viewer Improvement Act in 
1999, granting DBS providers the ability to offer local channels, DBS 
operators DIRECTV and EchoStar hoped to be able to offer local channels 
to consumers in 20 markets. However, with technological improvements 
and increased broadcast center capabilities, today, DBS subscribers in 
over 70 markets can receive local channels, covering over 75 percent of 
U.S. television households. Further, both providers are working hard to 
expand the number of markets they can serve with local-into-local. By 
the end of this year, each DBS operator has said that they will bring 
local service to 100 markets or more. Recent consumer research shows 
that more than 85 percent of new DBS subscribers are purchasing 
packages that include their local channels if they are located in a 
market where local-into-local is available.
    In addition to providing satellite television service to 20 million 
American households, satellite providers also offer one-and two-way 
high-speed Internet service to homes and businesses nationwide. Today, 
subscribers of the two providers of satellite broadband, DIRECWAY and 
StarBand, experience data rates that are up to ten times as fast as 
dial-up Internet service.
    New entrants SPACEWAY and WildBlue are preparing to launch the next 
generation of satellite broadband service. This next-generation service 
should be especially appealing to the millions of homes and small 
offices that lack access to wireline broadband alternatives. The data 
rates for these new services will be comparable to cable modem or 
digital subscriber line (DSL) service. A ``digital divide'' will no 
longer exist in the market for high-speed Internet service because 
satellites reach across the country with a national footprint. Via 
satellite, millions of rural consumers that may never be served by 
wireline technology will have the opportunity to access the Internet at 
the fast data rates available to urban and suburban customers from 
cable and DSL.
    However, satellite operators can not offer subscribers a 
competitive alternative to wireline technology if the satellite signals 
that currently provide service to consumers, businesses and the 
government are subjected to noise from other services that operate in 
or adjacent to the spectrum bands where DBS, satellite radio, and 
satellite broadband operate. Specifically, the ability of DBS to offer 
subscribers a competitive alternative to wireline technology would be 
greatly diminished if the satellite signals which carry DBS services to 
the American public are subjected to interference from a terrestrial 
wireless service operating in the spectrum that was allocated for DBS's 
primary use.
    There are now over 20 million DBS subscriber households--comprising 
some 53 million individual viewers--which means that one in five 
television households across America receive their multichannel video 
service via satellite. The issue of permitting a terrestrial wireless 
cable service--as Northpoint Technology, Inc. and others propose--to 
operate in the spectrum band set aside for DBS is of concern to the DBS 
industry because of the threat of ruinous interference that would be 
caused to our current and future customers.
    As Members of Congress, you should be extremely concerned by any 
proposal that would jeopardize the benefits of increased competition 
that your constituents now enjoy. Competitive rates, better customer 
service, and the quick deployment of advanced telecommunications 
offerings are the result of the tireless efforts of Congress and the 
Federal Communications Commission (FCC) to create public policy that 
spurs competition in the multichannel video program distribution (MVPD) 
market.
    Last May, the FCC released an Order authorizing the terrestrial use 
of the DBS spectrum. Unfortunately, it allows for this new service, 
called Multichannel Video Distribution and Data Service (MVDDS), to 
increase a DBS customer's signal unavailability by 30 percent or more. 
As FCC Commissioner Kevin Martin questioned, in his dissent to the 
Order, ``does `in the range of 30 percent or higher' mean 60-90 
percent? . . . Unfortunately, these questions seem to lead to only one 
conclusion: the majority's technical requirements are driven by a 
desire for MVDDS deployment, regardless of cost to DBS licensees and 
their customers.''
    Commissioner Martin also shares our concern of protecting current 
and future DBS consumers from harmful interference. He states, ``By 
law, DBS service is entitled to protection from `harmful interference.' 
Even more important, existing DBS customers deserve to be protected 
from unreasonable interference. This [Order] does neither.''
    It is important to note that the increased interference that will 
result from Northpoint's proposed service operating in the DBS band is 
in addition to the 10 percent increase in unavailability that the DBS 
industry was forced to accept from another satellite service (Non-
geostationary satellite orbit, fixed satellite service, or NGSO-FSS). A 
third ubiquitous consumer service should not be shoehorned into this 
spectrum band at the cost of harming the competition in the 
multichannel video marketplace that Congress and the Commission have 
worked for over a decade to foster.
    In an effort to protect current and future DBS subscribers, SBCA 
and the DBS providers have asked the U.S. Court of Appeals for the 
District of Columbia Circuit to reverse the Commission's spectrum-
sharing decision. We expect our appeal to be heard this fall.
    We do not fear further competition. In fact, the DBS providers, 
DIRECTV and EchoStar, asked the FCC to place Northpoint's proposed 
service in an adjacent spectrum band, which has the same propagation 
characteristics and the same amount of spectrum available, but is not 
used to provide a ubiquitous consumer service to 20 million households 
and more than 53 million Americans.
    We do, however, fear the devastating interference that will occur 
if this contamination of the DBS downlink by terrestrial services is 
ultimately permitted. Indeed, our fears have been confirmed by a 
Congressionally-mandated independent study, performed by the MITRE 
Corporation. Specifically, the very first finding of the MITRE Report 
is that the terrestrial sharing of the 12.2-12.7 GHz spectrum band, 
``poses a significant interference threat to DBS operation in many 
realistic operational situations.''
    While our greatest concern with this matter is protecting DBS 
customers from harmful interference, we feel strongly that should the 
FCC's spectrum-sharing decision ultimately be upheld, Northpoint should 
not be granted its request for a free, nationwide exclusive license. 
Northpoint filed suit in Federal court as well, opposing the 
Commission's decision to assign MVDDS licenses via competitive bidding. 
Northpoint has also appealed to Congress to require the Commission to 
bypass the normal statutorily-mandated auction process and prefer 
Northpoint to its wireless cable and DBS competitors with a gift of 
publicly-owned spectrum. There is no legal or public policy 
justification to grant that request. Indeed, the Bush Administration 
opposes Northpoint's spectrum grab and has issued a Statement of 
Administration Policy, stating, ``The Administration would strongly 
oppose any amendment that would restrict the FCC's ability to assign, 
via competitive bidding, spectrum licenses that could be used by 
terrestrial (i.e., non-satellite) services. Such a provision would 
interfere with the efficient allocation of Federal spectrum licenses, 
provide a windfall to certain users, and reduce Federal revenues.''
    Further, there are other service operators that have expressed a 
desire to provide MVDDS in the 12.2-12.7 GHz band. In filings to the 
FCC, both MDS America and Pegasus Broadband Corporation have opposed 
Northpoint's spectrum grab, and urged the Commission to allow for more 
than one competitor in the MVDDS market. Even though we remain opposed 
to any terrestrial users operating in the DBS spectrum band due to the 
resulting interference to which our subscribers would be subjected, it 
would be anti-competitive to grant an exclusive nationwide license to 
one MVDDS operator for free.
    The FCC rejected Northpoint's requests for a free, nationwide 
exclusive license, and ruled that MVDDS licenses will be assigned via 
its normal competitive bidding procedures. In May 2002, the FCC 
correctly ruled on this issue by stating, ``Assigning MVDDS licenses 
through competitive bidding also promotes efficient and intensive use 
of the spectrum and recovery for the public of a portion of the value 
of this scarce resource.'' The auction for MVDDS licenses was recently 
postponed, but only until the Commission resolves the question of which 
geographic divisions to use to assign MVDDS licenses.
    In arguing that the Commission should grant it free terrestrial use 
of the DBS spectrum, Northpoint continues its effort to misrepresent 
the plain meaning of the Open-market Reorganization for the Betterment 
of International Telecommunications Act (``ORBIT Act''). The ORBIT Act 
states that, ``the Commission should not have the authority to assign 
by competitive bidding orbital locations or spectrum used for the 
provision of international or global satellite communications 
services.'' The ORBIT Act does not exempt domestic satellite services, 
such as DBS, from the normal auction process. In fact, the FCC has 
scheduled an auction for this August to assign the remaining DBS 
frequencies. The ORBIT Act most certainly does not exempt a non-
satellite provided domestic point-to-multipoint terrestrial wireless 
cable service, as Northpoint proposes to provide, from participating in 
the normal competitive bidding procedure.
    Other wireless cable systems, functionally-identical to the one 
proposed by Northpoint, have invested over $1.6 billion at auction for 
their licenses, and the DBS industry has paid $734 million to purchase 
spectrum at auction and in the aftermarket. Moreover, DBS service 
providers have invested over $7 billion to bring DBS service to over 53 
million viewers across America. This investment includes the 
acquisition of spectrum, as well as money spent to build, insure, 
launch and operate DBS satellites, ground systems, uplink facilities 
and call centers. DBS operators made their investments in reasonable 
reliance upon the Commission's Orders that facilitated an interference-
free environment in which to operate their systems.
    In closing, DBS is currently offering consumers across America, 
including rural and underserved areas, a competitive option for video 
television, including high-definition video and other advanced 
services. The future looks bright. To threaten the technical integrity 
and picture quality of this proven service with guaranteed interference 
would harm rural consumers. We look forward to working with you and 
your staff as you continue to create communications policy that 
benefits all Americans, particularly those in rural areas who otherwise 
have few options for the services DBS offers.
    Thank you.

    Senator Burns. Thank you.
    Now we have Mr. Harold Kirkpatrick, President and CEO of 
MDS America. Thank you for coming today.

STATEMENT OF HAROLD KIRKPATRICK, PRESIDENT AND CHIEF EXECUTIVE 
                   OFFICER, MDS AMERICA, INC.

    Mr. Kirkpatrick. Thank you, Senator. Chairman Burns, 
Senator Sununu, good afternoon and thank you very much for this 
opportunity to testify on behalf of MDS America. My name is 
Harold Kirkpatrick and I am the President, Chief Executive 
Officer, and the founder of MDS America, and I wish to 
personally thank you and your outstanding staff for inviting 
MDS America to be a witness at this very important hearing. We 
hope you will benefit from our point of view.
    I have submitted more detailed written testimony to the 
Committee for its consideration. In my allotted time, I would 
like to briefly introduce you to MDS America and explain why we 
support allowing the FCC to swiftly proceed with auctions for 
the MVDDS spectrum.
    We do not support this proposed legislation and we believe 
it is not the best means of delivering broadband services 
throughout the United States, particularly to rural and 
underserved areas. In fact, Chairman Burns, I am from the 
backwoods of north Georgia and I understand rural areas as well 
as anybody.
    Senator Burns. That is above the gnat line, though.
    [Laughter.]
    Mr. Kirkpatrick. Who we are. MDS America is a startup 
company based in Stuart, Florida, and founded in the year 2000. 
We are the exclusive North American licensee of MDS 
International, the leading designer of terrestrial broadband 
transmission systems in the DBS band. I formed MDS America in 
2000 after working in the information technology industry for 
15 years and working with MDS International deploying these 
systems for 5 years.
    What we do. Since 1994, MDS International has actually 
deployed terrestrial broadband systems like the ones described 
in S. 564 in numerous locations overseas, providing video 
programming and high-speed Internet services to many delighted 
subscribers. I have helped design and install some of these 
systems and seen them work in some of the most challenging 
environments known to man, including that of Greenland, 
arguably the most rural area in the world.
    This technology works, customers love it, and we are ready 
to deploy these systems in the U.S. today. MDS systems have 
delivered Internet data wirelessly to individual computers at 
speeds exceeding 12 megabits per second, faster than any cable 
modem or DSL.
    As the exclusive U.S. licensee of this technology, MDS has 
the legal right, the technical ability, and the financial 
backing to bring wireless broadband services to market in the 
U.S. just as fast as the FCC can issue these licenses. In fact, 
MDS International has just deployed the largest system of this 
type in the world, with a channel capacity of over 500 digital 
channels, in the United Arab Emirates.
    Why we oppose this legislation. If S. 564 were to become 
law, MDS America and other hopeful MVDDS providers could be 
delayed or denied the opportunity to provide wireless broadband 
service in the U.S. because the radio spectrum at issue in this 
bill would be given away for free to one company or to an 
arbitrarily limited number of potential operators.
    To my knowledge, Northpoint Technology has never built or 
deployed a commercial broadband system anywhere in the world. 
But even if that were not the case, the winners under this 
legislation would be chosen only after further contentious 
regulatory scrutiny and inevitably the losers in this skirmish 
would seek relief in the courts, resulting in even further 
delays in deploying these critical services.
    Why we support the FCC's licensure plan. As you may know, 
the MVDDS radio channels were scheduled to be auctioned by the 
FCC commencing on June 25, 2003, but that auction was postponed 
due to the FCC's consideration of two changes to its licensing 
rules. We understand that the FCC intends to reschedule these 
auctions for later this summer and we are ready to participate 
in them, as are other companies who have come to us seeking 
technology.
    These auctions will create a financial incentive to build 
out this spectrum. Gifts of spectrum, however, do not provide 
this incentive. To paraphrase Winston Churchill, spectrum 
auctions may be the worst form of radio licensing known to man, 
except for all the others. As Dr. Hazlett and others have 
observed, if there is truly a level regulatory playing field 
with transparent auction rules and reasonable construction 
obligations, this radio spectrum will go to those parties who 
are prepared to make a financial commitment to delivering 
wireless broadband services throughout the U.S. This is surely 
our hope and aspiration.
    In closing, we at MDS America urge you to support the FCC's 
decision to auction this valuable spectrum under the FCC's 
normal spectrum auction procedures as soon as possible.
    I would like to thank you once again for the opportunity to 
testify here today in this hearing on behalf of MDS America. If 
there are any questions from the Committee, I would be 
delighted to answer them to the best of my abilities.
    [The prepared statement of Mr. Kirkpatrick follows:]

Prepared Statement of Harold Kirkpatrick, President and Chief Executive 
                       Officer, MDS America, Inc.
    Chairman Burns, Senator Hollings, and distinguished Members of the 
Subcommittee: Good afternoon and thank you for this opportunity to 
testify on behalf of MDS America.
    My name is Kirk Kirkpatrick and I am the President and Chief 
Executive Officer of MDS America. I wish to personally thank you both, 
as well as your outstanding staff, for your collective willingness to 
include MDS America as a witness at this very important hearing. We 
hope you will benefit from our point of view in this proceeding.
    We at MDS America fully support the FCC's plan to auction the 
Multi-channel Video Data and Distribution Service (``MVDDS'') spectrum 
that is the subject of this hearing today. We believe that going 
forward with an auction will fulfill the public policy objectives that 
Congress meant to accomplish when adopting auctions as the FCC's 
primary spectrum licensing mechanism: an auction of the MVDDS spectrum 
will ensure that this spectrum is promptly licensed to the parties who 
value it most highly, with the added benefit of bringing millions of 
dollars into the U.S. Treasury. More importantly, competition among 
MVDDS providers will result from an auction; that competition will 
ensure that facilities will be built expeditiously and services will be 
made available to the public as quickly as possible. This competition 
will especially benefit rural America--MVDDS spectrum is particularly 
well suited to providing broadband services in rural areas that are not 
served or underserved by cable, local telephone, and broadband Internet 
access service providers.
    MDS America hopes to be one of those competitors in the MVDDS 
market. We are based in Stuart, Florida, and we are the North American 
licensee of MDS International, the leading designer of terrestrial 
broadband transmission equipment in the Direct Broadcast Satellite 
(``DBS'') band. MDS International has deployed terrestrial broadband 
systems in numerous locations overseas, providing video programming and 
high-speed Internet services to many delighted subscribers. Some of 
these systems share frequencies on an interference-free basis with DBS-
DTH satellite services in their areas.
    MDS America hopes to introduce this innovative terrestrial 
broadband technology into the U.S. market. As I noted previously, we 
strongly support the FCC's May 2002 decision to auction the MVDDS 
spectrum for terrestrial use. By establishing a level playing field, 
the FCC will encourage the most efficient and rapid introduction of the 
MVDDS spectrum-sharing technology throughout the United States.
    If S. 564 were to pass, however, MDS America and other hopeful-
MVDDS providers could be delayed or denied the opportunity to compete, 
because the MVDDS spectrum at issue in this hearing today could be 
given away, for free, to one company, Northpoint Technology, or to an 
arbitrarily limited number of potential operators. This one company, 
Northpoint Technology, curiously has never built or deployed a 
broadband system anywhere in the world. The only ``systems'' ever built 
by Northpoint, to our knowledge, involve one or perhaps two 
transmitters with limited bandwidth. MDS America seriously questions 
whether Northpoint even has the ability to deploy a commercially viable 
broadband system of any type. In any event, should S. 564 become law 
the selection of MVDDS spectrum ``winners'' pursuant to this 
legislation will be subject to further regulatory scrutiny and delays, 
and, inevitably the losers in that FCC proceeding will seek legal 
relief in the courts, resulting in even further delays in deploying 
these critical services.
    Northpoint has been seeking legislative relief for years to 
circumvent the FCC's normal spectrum licensing procedures, which, of 
course, were put in place by Congress. In January 1999, Northpoint 
submitted to the FCC applications and waiver requests for terrestrial 
use of the 12 GHz band, arguing that the FCC should waive its rules and 
grant it an uncontested license to operate terrestrially on the DBS 
spectrum. Northpoint claimed that it was the only company in existence 
with a non-interfering terrestrial technology in the 12.2 to 12.7 GHz 
band. It also argued to the FCC that its ``unique'' technology 
justified its demand that the FCC waive its established procedures and 
grant its license applications without consideration of other potential 
applicants.
    We beg to differ, and so did the FCC. The FCC denied Northpoint's 
request and scheduled the 12.2 to 12.7 GHz spectrum for auction, noting 
``several parties have indicated that they have the ability to reuse 
spectrum in the 12.2 to 12.7 GHz band and seek the opportunity to do so 
as well.'' As you know, the MVDDS radio channels were scheduled to be 
auctioned by the FCC commencing on June 25, 2003, but the auction was 
recently postponed due to the FCC's consideration of changes to its 
MVDDS licensing rules.
    Despite the FCC's denial of Northpoint's waiver request, Northpoint 
continues to urge passage of S. 564 which, if adopted, would prevent 
the spectrum from being auctioned, literally give the spectrum away, 
for free, and result in the loss of millions of dollars to the U.S. 
Treasury. Moreover, passage of S. 564 could mean no competition in the 
MVDDS market, and the denial or further delay of broadband services 
precisely where such services are needed the most: rural and 
underserved areas.
    MDS America asks you to oppose Northpoint's unprecedented spectrum 
grab through supporting the FCC's decision to auction this very 
valuable spectrum under the FCC's normal licensing procedures. We are 
not asking for special treatment: MDS America simply wants the 
opportunity to bid on the MVDDS spectrum in an FCC auction.
    MDS America asks you to consider the following with respect to 
Northpoint's efforts seeking passage of S. 564:

        Point 1: Northpoint's argument for special treatment is based 
        on the inaccurate premise that it alone has technology capable 
        of interference-free use of the 12.2 to 12.7 GHz band.

        Through a technology license granted by MDS International, MDS 
        America holds the exclusive U.S. rights to MDS International's 
        innovative technology, including terrestrial broadband wireless 
        technology capable of transmitting video and very high-speed 
        Internet data at 12.2 to 12.7 GHz, without causing interference 
        to satellite services sharing the same frequency band. In 
        addition, MDS International has granted MDS America ownership 
        of any present or future patents it may hold or apply for. MDS 
        International's systems have achieved a remarkably robust data 
        delivery speed of 12 MBPS to the individual consumer.

        MDS International has been developing its terrestrial broadband 
        wireless systems since 1986, which it operates successfully in 
        other parts of the world. MDS International sold its first 
        terrestrial broadband wireless system to the U.S. government in 
        1996 to provide video services to U.S. armed forces stationed 
        in Oman. In fact, to the best of our knowledge, MDS 
        International is the only company in the world today with 
        operational terrestrial systems of this type. Many of these 
        systems use the same KU-band frequencies as satellites serving 
        the same localities without any significant interference.

        A recent tender in the United Arab Emirates for the largest 
        MVDDS system ever built was won by MDS International over six 
        other companies. MDS International subsequently built the first 
        phase of this system beaming 154 digital TV channels to the 
        entire area of Al-Ain in the UAE. The signal has been reliably 
        received at a distance over 70 kilometers from the transmission 
        site at Jabel Hafite. This system has a total channel capacity 
        of 500 digital channels spanning 700 MHz of radio bandwidth (by 
        comparison, the FCC's MVDDS rules will allow 500 MHz of 
        bandwidth for each licensed system). This means that the MDS 
        International system is larger than any system that could be 
        built in the U.S. under present FCC licensure rules and is the 
        largest system of its type in the world. The UAE company, 
        Etisalat, that owns this system is owned by the government of 
        the UAE who would field complaints of DBS interference by 
        Emirati citizens had there been any. At this writing, this 
        MVDDS system has been operational for over seven months without 
        a single interference complaint. In addition, Etisalat has 
        ordered three additional systems of the same size for the 
        emirates of Dubai, Sharjah, and the City of Abu-Dhabi from MDS 
        International. They have announced intentions for ordering 
        eight more in the near future.

        The Northpoint system, if it indeed exists, has never been 
        commercially deployed anywhere in the world. In the above-
        mentioned tender, Northpoint was not even qualified to bid.

        Point 2: Northpoint's legal claims were rejected by the FCC.

        After a lengthy rulemaking proceeding at the FCC during which a 
        wide variety of views and concerns were expressed, the FCC 
        rejected Northpoint's request for an exclusive nationwide 
        license for the terrestrial use of the DBS spectrum. Upon a 
        close examination of all relevant statutes and citing 
        Congressional intent, the FCC explicitly rejected Northpoint's 
        legal claim that both the ORBIT Act and the LOCAL TV Act bar 
        the use of competitive bidding procedures to assign licenses 
        for MVDDS in the DBS band. The FCC's decision to license 
        competitive MVDDS services, reached after years' worth of 
        deliberation, reflects a ``carefully crafted balance of 
        technical and policy concerns.''

        Point 3: The MDS America Position: Pro-Competition, Pro-
        Consumer, Pro-Taxpayer.

        Northpoint's anticompetitive effort to get MVDDS licenses 
        without an auction, through the adoption of S. 564, should be 
        rejected. Instead, the spectrum auction should proceed as 
        planned. In this way, potential MVDDS providers will have the 
        opportunity to compete to offer the best products, 
        technologies, and services at the best prices. This is pro-
        consumer, pro-taxpayer, and consistent with the goals of the 
        Communications Act. The FCC's rules are ``technologically 
        neutral,'' which is how it should be. The carriers with the 
        best technologies will compete to offer the best services.

        Point 4: The MDS America system has been successfully tested.

        In May 2001, the FCC granted MDS America an experimental 
        license to demonstrate that its MVDDS technology, already 
        successful in other parts of the world, would not cause harmful 
        interference with DBS transmissions in the U.S. Pursuant to 
        this license, LCC International, an internationally recognized 
        engineering and consulting firm working independently of MDS 
        America, conducted a series of tests of the MDS system in 12 
        separate locations around Florida. In its written report, which 
        has been submitted to the FCC and which has not been questioned 
        by any interested party other than Northpoint, LCC concluded 
        that the MDS system can be successfully deployed without 
        causing harmful interference with DBS systems operating at the 
        same frequencies. A copy of the LCC report is available on MDS 
        America's website at www.mdsamerica.com. Moreover, the FCC's 
        rules have been carefully designed to guard against harmful 
        interference to satellite systems.

        Point 5: The MDS America System is economically viable in Rural 
        America.

        MDS America's MVDDS system, as deployed elsewhere, is 
        particularly well suited for deployment in rural areas 
        untouched by cable and served exclusively by DBS operators. MDS 
        MVDDS cells, using technology like that used in the UAE, can 
        reach the curve of the earth, allowing MDS America to deliver 
        signal over thousands of square miles. With their extensive 
        coverage capabilities, MDS America's cells are likely to reach 
        enough of the population in rural areas of the U.S. to actually 
        pay for the deployment of an MVDDS system. According to 
        Northpoint's own press filings, the cell range of their system 
        is only 100 square miles, not enough to make it an economically 
        viable venture in the least populated areas of the U.S.
Conclusion
    In closing, we at MDS America urge you to support the FCC's 
decision to auction this very valuable spectrum under the FCC's normal 
spectrum auction procedures. I would like to thank you again for the 
opportunity to testify here today in this hearing on behalf of MDS 
America.

    Senator Burns. Thank you, Mr. Kirkpatrick. We appreciate 
that very much.
    Now we have Mr. Thomas Hazlett, Senior Fellow, Manhattan 
Institute for Policy Research. Thank you for coming today.

   STATEMENT OF THOMAS W. HAZLETT, SENIOR FELLOW, MANHATTAN 
                 INSTITUTE FOR POLICY RESEARCH

    Mr. Hazlett. Thanks for having me----
    Senator Burns. You want to pull that microphone over so 
that we have got you on record here, the dulcet tones.
    Mr. Hazlett. --thank you, Senator. I am Thomas Hazlett and 
I am a senior fellow at the Manhattan Institute for Policy 
Research, as you note. I am also a former chief economist of 
the Federal Communications Commission and I have written 
extensively about spectrum allocation policies in the United 
States and around the world. I have also previously served as a 
consultant to Northpoint Technology and have submitted 
testimony to the Federal Communications Commission on their 
behalf.
    The case of Northpoint Technology reveals ongoing 
infirmities in the U.S. spectrum allocation system. In a more 
efficient world, innovative wireless companies such as 
Northpoint would simply buy the spectrum they need, much as any 
company buys labor, raw materials, and capital inputs. Barriers 
to entry would be low and new competitors could quickly test 
their technologies with consumers in the marketplace.
    But, despite license auctions, the U.S. does not have 
anything approaching competitive bidding for spectrum. Firms 
attempting to offer novel wireless services must first convince 
the Federal Communications Commission planners that it would be 
in the public interest for spectrum to be allocated for their 
project. It is an understatement to say that this is a costly 
and time-consuming process. In it, the applicant must reveal 
its business plan, negotiate endless regulatory details with 
agency staff, negotiate spectrum- sharing rules with incumbent 
users, and do virtually all the heavy lifting in surmounting 
regulatory barricades designed, not to welcome rivals, but to 
foreclose them. License auctions, ironically, lift the walls.
    Should a competitive technology, however improbably, get 
past the allocation contest, it must now buy back its business 
plan from the Federal Government. In this, it will compete with 
established service providers which have strong incentives to 
outbid the potential entrant simply to lessen the impact of new 
competition.
    In Northpoint's case, I have estimated that either of the 
two incumbent satellite TV suppliers would bid several billion 
dollars above the highest bid that Northpoint might plausibly 
make for MVDDS licenses owing to the economic gain associated 
with avoiding price reductions. On an annual basis, cable and 
DBS subscribers would expect to pay at least $2.75 billion less 
in subscription fees were Northpoint to enter the market. It 
should also be noted that these gains have been lost for 
several years already simply due to the delay imposed on 
Northpoint's entry by the FCC rulemaking process.
    License auctions are very useful for assigning rights among 
roughly comparable applicants. The firm willing to pay the most 
to offer service is, all else equal, the firm that will likely 
do the best job of providing service to the public. But where 
applicants are distinguished, other assignment rules can be 
more efficient. Indeed, many, if not most, FCC licenses are 
still assigned by non-auction procedures because of the 
disruptive effect auctions have on telecommunications 
investment.
    Specifically, the FCC does not invite competing bids for 
incumbents' license renewals. To do so would destroy incentives 
for licensees to invest in technology, capital, or a reputation 
for high quality service. All such investments could be 
substantially appropriated by others, including the Government, 
were a license to be put up for bids at expiration. 
Policymakers realize this and avoid economic losses by simply 
renewing licenses for law-abiding licensees.
    But FCC regulators do not recognize that the same economic 
misallocation occurs when new entrants are appropriated after 
investing substantial resources in gaining spectrum allocation, 
the case of Northpoint Technology. The message this sends to 
innovators is clear: Give up early. If you seek to move the FCC 
to allocate spectrum to a new technology, you will invest years 
of hard labor, millions of dollars, for the right, if you 
succeed, to bid for a license against other interests who 
contributed not a kopek. Innovation grinds to a halt while 
entrepreneurs wait for someone else to shoulder spectrum 
allocation burdens.
    Let me just read to you, by the way, the FCC's language. I 
should say this is two commissioners, the Chairman and 
Commissioner Kathleen Abernathy--in a recent rulemaking on 
MVDDS. This note says, ``Northpoint arrived at the commission 
many years ago with a proposal for a new and innovative way to 
share the DBS spectrum. There is little question that had it 
not been for Northpoint the MVDDS service would not be ready to 
move forward today. Northpoint has put significant time and 
resources into developing its service model, as well as its 
commission and congressional advocacy over a long period of 
time. We applaud these efforts.''
    That is the end of the quote. My comment: the applause 
leads to congratulations and an invitation to join an auction 
to bid against their rivals for the opportunity, the business 
opportunity they have created.
    This tragedy of the commons leads to underinvestment, 
underinvestment in innovation, and consumers lose valuable new 
wireless options while paying higher prices for less 
competitive services.
    The long-term solution is to reform spectrum allocation, 
allowing markets to efficiently shift bandwidth from less 
useful enterprises without government approval. In the near 
term, applicants who do invest substantial resources to bring 
about productive new uses of radio spectrum should not be 
appropriated, but rewarded. I think that the legislation being 
considered here is a step in that direction.
    I have outlined--on my part, I have outlined a simple two-
part test for regulators at the Federal Communications 
Commission to use. This is outlined in my paper ``Anti-
Competitive Uses of Competitive Bidding, the FCC's MVDDS 
Rulemaking,'' a very snappy title. I am happy to make this 
paper available today to any interested party or 
electronically. My address is [email protected].
    Thank you very much.
    [The prepared statement of Mr. Hazlett follows:]

        Prepared Statement of Thomas W. Hazlett, Senior Fellow, 
                Manhattan Institute for Policy Research
    My name is Thomas Hazlett, and I am Senior Fellow at the Manhattan 
Institute for Policy Research. I am a former Chief Economist of the 
Federal Communications Commission, and I have written extensively about 
spectrum allocation policies in the U.S. and around the world.
    The case of Northpoint Technology reveals ongoing infirmities in 
the U.S. spectrum allocation system. In a more efficient world, 
innovative wireless companies such as Northpoint would simply buy the 
spectrum they need, much as any company buys labor, raw materials, and 
capital inputs. Barriers to entry would be low, and new competitors 
could quickly test their technologies with consumers in the 
marketplace.
    But, despite license auctions, the U.S. does not have anything 
approaching competitive bidding for spectrum. Firms attempting to offer 
novel wireless services must first convince Federal Communications 
Commission planners that it would be in the public interest for 
spectrum to be allocated for their project.
    It is an understatement to say that this is a costly and time 
consuming process. In it, the applicant must reveal its business plan, 
negotiate endless regulatory details with agency staff, negotiate 
spectrum sharing rules with incumbent users, and do virtually all of 
the heavy lifting in surmounting regulatory barricades designed not to 
welcome rivals but to foreclose them.
    License auctions ironically lift the walls. Should a competitive 
technology, however improbably, get past the allocation contest, it 
must now buy back its business plan from the Federal government. In 
this it will compete with established service providers which have 
strong incentives to outbid the potential entrant simply to lessen the 
impact of new competition. In Northpoint's case, I have estimated that 
either of the two incumbent satellite TV suppliers would bid several 
billion dollars above the highest bid Northpoint might plausibly make 
for MVDDS licenses, owing to the economic gain associated with avoiding 
price reductions. On an annual basis, cable and DBS subscribers would 
expect to pay at least $2.75 billion less in subscription fees. It 
should also be noted that these gains have been lost for several years 
simply due to the delay imposed on Northpoint's entry by the FCC 
rulemaking process.
    License auctions are very useful for assigning rights among roughly 
comparable applicants. The firm willing to pay the most to offer 
service is, all else equal, the firm that will likely do the best job 
of providing service to the public.
    But where applicants are distinguished, other assignment rules can 
be more efficient. Indeed, many if not most FCC licenses are still 
assigned by non-auction procedures because of the disruptive effect 
auctions would have on telecommunications investment. Specifically, the 
FCC does not invite competing bids for incumbents' license renewals. To 
do so would destroy incentives for licensees to invest in technology, 
capital, or a reputation for high-quality service. All such investments 
could be substantially appropriated by others (including the 
government) were a license to be put up for bids at expiration. Policy 
makers realize this, and avoid economic losses by simply renewing 
licenses for law-abiding licensees.
    But FCC regulators do not recognize that the same economic 
misallocation occurs when new entrants are appropriated after investing 
substantial resources in gaining a spectrum allocation--the case of 
Northpoint Technology. The message it sends to innovators is: give up 
early. If you seek to move the FCC to allocate spectrum to a new 
technology you will invest years of hard labor, and millions of 
dollars, for the right (if you succeed!) to bid for a license against 
other interests who contributed not a kopek. Innovation grinds to a 
halt while entrepreneurs wait for some one else to shoulder spectrum 
allocation burdens.
    This tragedy of the commons leads to under-investment, and 
consumers lose valuable new wireless options while paying higher prices 
for less competitive services. The long-term solution is to reform 
spectrum allocation, allowing markets to efficiently shift bandwidth 
from less useful enterprises without government approval. In the near-
term, applicants who do invest substantial resources to bring about 
productive new uses of radio spectrum should not be appropriated but 
rewarded. I have outlined a simple two-part test in my paper, 
``Anticompetitive Uses of Competitive Bidding: The FCC's MVDDS 
Rulemaking,'' which would allow regulators to distinguish when license 
auctions are appropriate under the current spectrum allocation process. 
I am happy to make this paper available to any interested party today, 
or electronically. My address is: [email protected].

    Senator Burns. Now we have Mr. Larry Roadman, President, 
Marketville--Margaretville Telephone Company, Margaretville, 
New York.

           STATEMENT OF LARRY S. ROADMAN, PRESIDENT,

             MARGARETVILLE TELEPHONE COMPANY, INC.

                AND MANAGER, WIRELESS ACCESS LLC

    Mr. Roadman. Mr. Chairman, I am not familiar with the 
procedures and my testimony is going to diverge into--I could 
plead that it is going to bring us back down to earth in the 
700 megahertz and LPTV spectrum. But I wonder if I could 
request that my testimony be submitted in full into the record 
and that I be available for questions on LPTV and 700 
megahertz, but I am clearly going to digress from the rather 
interesting interchange that is going to occur.
    Senator Burns. Without objection, your full statement will 
be made part of the record. Is there some way you want to--
maybe you can summarize it?
    Mr. Roadman. In what I wanted to do--I represent an 
independent local exchange carrier, a small telephone company, 
a little cable company, a little ISP in upstate New York, which 
is not all that different from Montana or New Hampshire. But I 
wanted to make some points, and my testimony does, as far as, 
one, making clear--and I think everybody recognizes this, but 
sometimes it is good to clarify--that we are really not 
talking, when we are talking about underserved areas, we are 
really not talking about rural areas alone.
    I happen to live 28 miles from New York City. New York City 
is wonderfully served by broadband. My customers at 150 miles 
from New York City have wonderful access to broadband, both DSL 
and cable modem. But I, 28 miles from New York in Westchester 
County, a rich suburb of New York City, commuting suburb, have 
been told, just do not bother asking for DSL. And I just got 
access to cable modem service about a month-and-a-half ago.
    Senator Burns. Do you like it?
    Mr. Roadman. Yes, sir.
    Senator Burns. Good.
    Mr. Roadman. Again, there are some things in my testimony, 
requests for action by Congress in the 700 megahertz and in the 
unlicensed spectrum, that are fine in the record. I really do 
not want to digress from--I do want to thank you, though, 
chairman, for all of your efforts, both on the LPTV bill a 
couple years ago and in the ongoing efforts like the broadband 
investment, rural broadband investment expensing.
    But I will digress from here and I do not want to do that.
    [The prepared statement of Mr. Roadman follows:]

   Prepared Statement of Larry S. Roadman, President, Margaretville 
            Telephone Co. Inc. Manager, Wireless Access LLC
    Good afternoon, Chairman Burns and members of the subcommittee. I 
am honored to testify before you today on an issue of extreme 
importance to rural Americans and the rural telecommunications carriers 
that serve them. Mr. Chairman, I want to recognize and commend your 
ongoing effort to promote the economic health of rural areas. 
Specifically I want to recognize the LPTV Digital Data Services Pilot 
Project legislation passed in 2000 and your current bill proposing the 
expensing of rural broadband capital investments.
    My company, Margaretville Telephone Company, doing business as MTC, 
is an Independent Local Exchange Carrier (ILEC) serving the central 
Catskill region of upstate New York--an area that is indeed rural and 
economically challenged. MTC has been family owned and operated since 
1916, though under an ESOP formed in 1985, the 17 non-family employees 
own 30 percent of the company. MTC serves over 4600 telephone access 
lines. In addition, MTC's cable subsidiary serves over 1700 subscriber 
units and our ISP, Catskill On Line (COL--a joint venture with a 
neighboring ILEC, Delhi Telephone Company) serves over 8300 Internet 
subscribers in four upstate New York counties.
    Within its telephone service territory, MTC offers DSL to 95 
percent of its telephone subscribers and cable modems to all cable 
subscribers. Outside of its service territory, MTC offers cable modem 
service where it has built cable facilities to serve villages near 
Margaretville and wireless high speed data connections in Oneonta, New 
York, a tertiary market city 45 miles from Margaretville. Since early 
2001, we have deployed equipment in the unlicensed 2.4Ghz spectrum and 
are currently using 802.11 equipment to create a ``hot zone'' service, 
covering much of the City of Oneonta.
    In anticipation of offering high speed services throughout the 
underserved central Catskill region, MTC has sought spectrum assets 
over the past eight years. Through FCC auctions, it has purchased whole 
or partnership interests in PCS, LMDS and 700Mhz licenses. In addition, 
it joined with several other companies to form Wireless Access, LLC, 
the owner of three low-power TV (LPTV) licenses designated as test 
stations under in the LPTV Services Pilot Project legislation of 2000. 
We are eager and ready to deploy LPTV and/or 700Mhz broadband services 
when equipment is readily and economically available.
          *        *        *        *        *        *      
            *
    Policymakers, service providers and subscribers all recognize there 
is, or soon will be, a very real need for broadband accessibility 
wherever you live and work, whether it is in rural Montana, suburban 
New York or downtown Washington, D.C. The extent and actual location of 
the underserved areas in this country may not be as well understood.
    While my customers in Margaretville, 150 miles from New York City 
and in the northern reaches of the Appalachian poverty belt, have had 
access to DSL or cable modem broadband services, or both, for almost 
two years, I, living in Westchester County, just 28 miles from New York 
City and in one of the richest counties in the country, have only had 
access to cable modem service since early this year and have been told 
repeatedly not to expect DSL access any time soon. Interestingly, the 
latest survey by the National Telephone Cooperative Association shows 
that, by the end of this year (2003), 47 percent of its member 
companies plan to offer broadband services to all customers within 
twelve thousand feet of any fiber-fed nod in their systems. By that 
time only 5 percent of the companies intend to be offering only dial-up 
Internet service.
    By making broadband services to their customers, one thousand plus 
independent telephone companies are acting as very effective ``economic 
engines'' in rural America. By offering these services in areas outside 
their traditional territories, by actually ``reaching out'' into 
tertiary and, even, secondary markets, most often using wireless 
technologies, these companies are complimenting the efforts of the 
larger providers who are primarily focused on the urban, primary 
markets.
          *        *        *        *        *        *      
            *
    Utilization of the LPTV and 700Mhz spectrum bands holds great 
promise for broadband delivery in secondary, tertiary and rural 
markets, and even in urban industrial areas not traditionally served by 
cable. These frequencies allow robust and non-line-of-site service 
provision, well-suited for use in sparsely populated plains or 
mountainous regions, as well as in built up large cities or suburban 
centers. Recognizing this promise ILECS were some of the first 
investors in early LPTV two-way data efforts (even before the 
supporting legislation) and ILECS makeup approximately 60 percent of 
the successful bidders in the initial 700Mhz auction in 2002.
    In addition to expanding and accelerating broadband deployment, 
opening up the use of these spectrum bands offers Congress and the FCC 
three other opportunities. First, the establishment of licensed-band 
data services will enable the development of a stable, quality of 
service high speed data marketplace. Second, the addition of these two 
bands to the market will firmly establish a broad, competitive 
marketplace in high speed data. The active LPTV option and straight 
purchase market will determine what portion of the LPTV spectrum will 
be used for broadcast and what portion for two-way data. Third, unlike 
the expanding use of unlicensed spectrum, the expanding use of these 
two frequency bands will offer the opportunity of expanding government 
revenues through increased auction values and the growth of usage based 
fee revenues.
          *        *        *        *        *        *      
            *
    At least four actions by Congress and the FCC will significantly 
accelerate and enhance the development of a broad-based, healthily 
competitive broadband marketplace.

  (1)  Legislation: Legislation like Senator Burns' current bill 
        proposing the expensing capital costs for broadband deployment 
        will make business plans more achievable, aiding in the 
        currently uphill battle for funding.

  (2)  Focus on Licensed Spectrum: Furthering the deployment of 
        licensed sustainable, higher quality, economically efficient 
        broadband marketplace.

  (3)  LPTV Spectrum Availability: The current economic situation has 
        blocked efforts to raise funding necessary for progress on the 
        Pilot Project, though an improving investment climate holds the 
        promise of testing and development action in 2003. Robust 
        development of the LPTV spectrum band will depend on a clear 
        awareness that the FCC will expand two-way data usage past the 
        initial 13 legislative test stations. I call on Congress to 
        exact that commitment from the FCC.

  (4)  Clearing of 700 Mhz Spectrum: A significant portion of one 700 
        Mhz license block was acuctioned in 2002. The remainder of that 
        block (along with one other block) will be auctioned in the 
        next several months. Current license holders await the delivery 
        of equipment from manufacturers. However manufacturers, as well 
        as investors, are hesitant to move forward while broadcasters 
        remain incumbent on many of the stations sold in the auction. 
        The dates set for broadcasters to vacate these stations seem to 
        be loosely administered and do not appear to be ``dates 
        certain''. In order to assure the ability of license holders to 
        use the 700 Mhz for broadband deployment, i.e., to move 
        manufacturers and investors forward, I call on Congress to 
        investigate what actions Congress and the FCC might take in 
        either or both the broadcast and broadband markets to enhance 
        and accelerate the viability of broadcasters vacating and 
        licensees using the auctioned 700 Mhz and then to ensure that 
        ``dates certain'' for vacating are both set and enforced.

    Senator Burns. You do not want to start the fight too early 
here.
    I have a question for Mr. Hazlett, and thank you all for 
coming today and your statement, your full statement, will be 
made a part of the record and thank you.
    How do you define the marketplace that MVDDS would enter? 
Should we look at competition between MVDDS companies or should 
we look at the competition among that technology of MVDDS along 
with cable and satellite and every other technology? How should 
we base our decision on making policy up here?
    Mr. Hazlett. Do you have an easier question? You are asking 
me to define a market that does not exist yet?
    Senator Burns. Yes, that is right.
    Mr. Hazlett.If it is defined as MVDDS, so that is rough. My 
approach has been to look at the multi-channel video market, 
MVPD, as defined by the Federal Communications Commission, and 
I think actually this has been the FCC approach. So I am sort 
of comfortable looking at it that way, even though broadband, 
of course, is part of that and that can constitute competition 
with other service providers.
    Senator Burns. How much of the Wi-Fi industry's success can 
be attributed to the fact that its innovators are not subject 
to costs and delays of auctions? In other words, how have 
auctions affected their costs, and the difference between 
allocations and auctions?
    Mr. Hazlett. Well, the ready access, the fact that they are 
unlicensed, means there is no license holdup, and so it is 
everything that goes with licensing, including the auctions. 
That is in there on the one side. That helps Wi-Fi a lot.
    What helps Wi-Fi maybe just as much or more is the fact 
that there are other problems everywhere else on the bandwidth 
licenses and with spectrum allocations. So Wi-Fi has been the 
one place where the action can take place. So on both sides of 
that, Wi-Fi has benefited.
    Senator Burns. I would ask all of you the same questions 
and you can comment on it. Should we look at competition 
between different MVDDS companies or should we look at 
competition among that technology plus cable, satellite, and so 
forth? I would like to hear all of you comment on that, please.
    Mr. Kirkpatrick. Chairman Burns, if I can comment on a 
couple things. First of all, Dr. Hazlett talked about the $2 
billion that the DBS industry could pay to keep people like me 
out of the market. That is ignoring the fact that 12.2 to 12.7 
is not the only spectrum that a system like mine operates on. 
There is existing spectrum out there, 20 gigahertz, 40 
gigahertz, 2.6 gigahertz, that we can and will build systems 
for that would exploit that as well.
    To answer your question about the competition in the 
market, this is specifically what we are after. At MDS America 
and MDS International we consider ourselves to be the only 
company in the world building systems in this frequency right 
now. We do not have at this present time competition. So when 
Dr. Hazlett talks about a new and innovative technology, for us 
this is not new. We have been deploying it almost 10 years now, 
so it is not a new and innovative technology for us.
    Senator Burns. Mr. Wright?
    Mr. Wright. Thanks, Mr. Chairman. I would say that the 
market is the multi-channel video marketplace. That is 
certainly what the FCC has been looking at and certainly how we 
look at it.
    I would like to respond to something Mr. Hazlett said, 
which is that he was suggesting that Charlie Ergen, the 
President of EchoStar Communications, might bid billions of 
dollars too much for a license. I would have to suggest that he 
probably has not been listening to testimony over the last few 
years. I cannot imagine that happening.
    I would like to emphasize again what Kirkpatrick has just 
said, which is we are not interested--the DBS industry does not 
want to stop Northpoint or MDS America or anyone else from 
entering this market. There is plenty of spectrum out there 
that a wireless cable system such as the one proposed by 
Northpoint could use. You would hear no objections from us if 
they were going to the LMDS or MMDS or the CARS band. We have 
gone out of our way to suggest spectrum that we think would be 
just as good or better for propagation purposes for their 
system.
    We are just interested in them not interfering with us. We 
are also interested in them not being given a leg up against 
us, against DBS, against Mr. Kirkpatrick, against the other 
wireless cable providers. There is no public policy that we can 
see that would support giving them a gift of the public 
spectrum.
    Senator Burns. Ms. Bush?
    Ms. Bush. First I would like to remind everybody that when 
Northpoint filed its application in January 1999, we were the 
only company to file an application seeking terrestrial use, 
and we were the only company for many years to participate in 
this proceeding before the FCC.
    But the other point that I want to make is there were seven 
other companies who applied on the same day to use the exact 
same resource that Northpoint sought to use. People lose sight 
of that by trying to narrow this down to we are only going to 
look at MVDDS. The point is is that technology has advanced. 
With the move to digital, there are a lot more things we can do 
with spectrum than we used to be able to, and the idea that we 
are going to continue to put technologies in little niches and 
only look at them that way does not make sense.
    The issue is getting service to consumers and service to 
consumers in a way that is fair from the Federal Government's 
standpoint to the applicants that are coming before the agency. 
So what we are talking about--people are saying we are trying 
to keep MDS out. That is not our intent. Our point is that we 
applied with seven other companies. The rules changed in the 
middle of the game. All we are saying is the rules should be 
the same for all applicants.
    Under S. 564, MDS America can participate in independent 
testing and be licensed. It does not prohibit or limit who can 
be licensed and it does not mandate in fact that the FCC give 
out any licenses. The FCC could conclude that there is nobody 
qualified to be licensed under this bill. It is simply a matter 
that if a company spends a decade at the FCC seeking a license 
that they ought to be licensed the same way.
    To your question, Senator Burns, of what the marketplace 
should be, I believe it should be the multi-channel video 
marketplace, which would include cable, it would include DBS, 
and it would include other Internet providers, that that is the 
market that we are looking to compete in, and on a going- 
forward basis all these entities should be licensed the same 
way.
    Mr. Wright. Mr. Chairman, may I respond to that?
    Senator Burns. You bet.
    Mr. Wright. Mr. Chairman, I think it is important to point 
out Tony does not, Tony Cook Bush does not, point out the fact 
that the application that they filed those several years ago 
was rejected as having been improperly filed. They filed in a 
procedure that had to do with the licensure of satellite 
spectrum and so the FCC properly rejected that application and 
started a whole new proceeding on this MVDDS to utilize to see 
who could best utilize the terrestrial use of the 12.2 to 12.7.
    Certainly MDS America has filed, Pegasus has filed. We 
suspect that if this goes to auction there will be several 
companies who will file. As Tony points out, technology has 
moved forward, and we suspect that there will be several 
companies that will file to use this spectrum. So although we 
think that the sharing should not be allowed, if it is going to 
be allowed then it certainly should not be granted to just one 
of the parties. Everybody who thinks they have a usage for the 
spectrum ought to have the opportunity to bid on it. Certainly 
I think my companies would be interested and I think that there 
are tons of other companies that would as well.
    Senator Burns. Mr. Roadman? I want to finish this off. Mr. 
Roadman, do you want to comment on this?
    Mr. Roadman. I just agree that it should look across the 
market at the multi-channel video.
    Senator Burns. OK. Do you want to follow up?
    Mr. Kirkpatrick. Yes, Chairman Burns. I just wanted to say 
that obviously had the FCC opened a window for applying for 
terrestrial broadcasting in this spectrum, MDS would have filed 
an application as well. The window was open for non- 
geostationary satellite systems, which we do not build. We do 
not have anything to do with non-geostationary satellite 
systems and therefore we did not file an application in the 
non-geostationary satellite system window. It did not make any 
sense for us to do so.
    That being said, if the interest, and I am sure the 
Committee's interest is, in rolling out this service quickly to 
rural areas, it would make sense that MDS America, representing 
MDS International, as the only company who has ever done it in 
this spectrum would be uniquely qualified to roll out the 
spectrum quicker than anybody, simply because all of the 
subsystems other than just the transmitter and the delivery of 
the radio signal we have in place. We have built these before, 
we are building them now.
    Senator Burns. Senator Sununu.
    Senator Sununu. Thank you, Mr. Chairman.
    Ms. Bush. Excuse me, Senator. I just cannot resist, and I 
apologize for this. But in response to what SBCA said, that we 
filed our application at an inopportune time, the only point I 
would make was that it was clear the FCC was not going to give 
us an opportunity to file an application. They did not believe 
our technology worked, they did not believe that terrestrial 
and satellite systems could share at the time. Had we not filed 
in that proceeding, we would--none of us would be sitting here 
today.
    Senator Sununu. Thank you.
    Mr. Hazlett, you did not really imply that the managers of 
the DBS satellite servers, Mr. Ergen or anyone else, would 
overpay by $2 billion for this spectrum if it was auctioned 
off, did you?
    Mr. Hazlett. Not even close, no.
    Senator Sununu. Do you want to clarify the point that you 
were making, because I think it is an important point.
    Mr. Hazlett. Yes. Let us just take the official position of 
the United States Department of Justice in an interesting case, 
an antitrust adjudication in 1998. There you had a situation 
where PrimeStar, which then was the third satellite TV company, 
was going to buy some assets, some satellite assets, from 
NewsCorp-MCI. And the DOJ moved in to block that combination. 
They said that the deal here was that PrimeStar was owned by 
cable companies and they did not really have an interest in 
using those DBS assets to compete with the other satellite TV 
companies and cable companies; they just wanted to sort of 
stockpile these assets and have sort of a low-ball competition 
that maybe offered medium service out where they did not have 
cable systems. They said that PrimeStar actually had been 
engaged in that strategy since 1990 when it got going. So 
anyway, they blocked that.
    Now the same exact logic is here, that the DBS providers 
would pay up to several billion dollars more. Now, of course 
Northpoint or some entrant would drop out way before that. I 
say this clearly in my paper. So they would never overpay, but 
they would pay enough to protect their profits, and that is why 
setting up an auction this way is inherently anticompetitive.
    Senator Sununu. The point as I understand it is that where 
the resource is, the resource spectrum, is limited, the 
incumbent broadcaster would have an economic value to bid, 
quite significantly potentially, for the assets in order to 
keep them off the market and protect their competitive 
position?
    Mr. Hazlett. Right, and that bid is not associated with 
efficiency, but with keeping prices higher.
    Senator Sununu. I think that point was made to a certain 
extent in a similar way in the chairman's opening comments, 
that while auctions are in many cases efficient systems where 
the resources are limited, we are always going to have concerns 
that the public service--the public is being served and that 
the resource is being used in an economically efficient way.
    Mr. Hazlett. Right.
    Senator Sununu. Mr. Wright, how many channels are allocated 
to DBS in the United States?
    Mr. Wright. Senator, I am sorry; I do not know the answer 
to that question. I will have to get back to you. I will have 
to submit that for the record. I mean, we certainly carry 
hundreds of channels.
    [The information referred to was not available at time of 
print.]
    Senator Sununu. Maybe, is there anybody else here that 
works in the satellite industry that might have the answer to 
that question?
    Ms. Bush. I believe they allocate them by slots and each 
slot has 32 channels. And I believe there are approximately 200 
channels amongst all the slots.
    Senator Sununu. But how many, how many slots are there 
existing? In other words, how many slots of spectrum have been 
provided to DBS carriers over time?
    Ms. Bush. Well, there are a total of 256 slots. EchoStar 
has approximately 190 of those. DirecTV has about 46 of those. 
There is a company RLDBS which I believe has a few.
    Senator Sununu. A couple of hundred, though, certainly?
    Ms. Bush. Right.
    Senator Sununu. Mr. Wright, how many of those have been 
allocated through a competitive bidding process?
    Mr. Wright. Mr. Chairman, all of the slots that have been 
allocated since Congress enacted the competitive bidding system 
have been allocated by AFL-CIO, and there are additional 
slots----
    Senator Sununu. Well, but there are 200, 225 plus. How many 
of those went through the bidding, the competitive bidding 
process?
    Mr. Wright. Mr. Chairman, when the early slots were 
allocated there was not a bidding process. So therefore those 
slots were not----
    Senator Sununu. I understand that. I understand we are 
living in a modern age and time passes and things happen and 
you have auctions, you do not have auctions. But there are 226 
slots out there that create the competitive environment for 
DBS. How many of them were auctioned?
    Mr. Wright. I do not know the answer to that, Mr. Chairman.
    Senator Sununu. Would you get me the answer to that for the 
record?
    Mr. Wright. I can get back to you on that, yes, sir.
    [The information referred to was not available at time of 
print.]
    Senator Sununu. Please.
    Mr. Hazlett, Ms. Bush?
    Ms. Bush. There were two slots that were auctioned and, 
unfortunately, I do not know if they were full 32 channels 
each. All of the rest of the slots had not been auctioned----
    Senator Sununu. Are you suggesting two out of the 225?
    Ms. Bush. No, I am suggesting something less than 60 out of 
the 225 channels were subject to an auction.
    Mr. Wright. Mr. Chairman, someone just handed me a note 
saying 64 have been auctioned thus far, and I believe 98 were 
allocated prior to that without auction. But again, I will 
confirm that and get back to you with an exact number.
    Senator Sununu. I appreciate that. This is an important 
point because we are discussing a level playing field, one way 
or another how to ensure that we have both a level playing 
field and the efficiency of use that I talked about earlier.
    Mr. Kirkpatrick, do you believe that those channels that 
were not auctioned off should be retaken by the Federal 
Government and auctioned?
    Mr. Kirkpatrick. Senator Sununu, I do not believe that 
those channels should be taken back and re-auctioned. In fact, 
in pleading ignorance I think it is inappropriate for me to 
answer the question. I would like to comment on it this way. 
The DBS industry and MVDDS are not the only players in this 
market. The big player in this market is the cable industry and 
the DBS industry, far from spending $2 billion to quash 
Northpoint and MDS America, has a much higher vested interest 
in competing with an established cable industry.
    The one thing that we all need to keep in mind here, and 
you have to keep in mind that I am a technical person; I am not 
a lawyer, that the cable people have a pipe running into the 
house which has unlimited bandwidth. The satellite people do 
not. Neither do MVDDS providers. So even were the DBS providers 
to bid in this auction, it would be senseless for them to 
warehouse the spectrum since they could come to MDS America, 
for example, implement MDS America-type systems to vastly 
increase their available bandwidth to compete with cable in the 
markets where they are losing against cable in urban areas.
    Senator Sununu. I appreciate that point, although no one 
suggested that they would warehouse the spectrum. The point 
that was made, and it is an important point, is that they have 
by virtue of their incumbency, have an economic value that they 
can place on that spectrum that is much higher than non-
incumbent carriers, regardless of what they choose to do with 
it. There is a price at which it would be of economic value for 
them to warehouse it.
    But you are right, they probably would not do that. But 
regardless of whether they resell it, whether they use it 
themselves, or whether they warehouse it, the economic point 
Mr. Hazlett is making is that they have a greater economic 
value for that spectrum than other non-incumbent carriers.
    Mr. Hazlett is gesturing. Please, if you want to add a 
comment.
    Mr. Hazlett. Yes, I just wanted to emphasize that. The 
argument is not that they would warehouse it, but quite the 
reverse. They would use it. It would be deployed. They just 
would not lower their prices. So it would keep prices higher 
and consumers would suffer because of the lack of competition.
    Mr. Wright. Well, Mr. Chairman, Mr. Sununu, if I can 
respond to that. Obviously the incumbent here, the real 
incumbent here, is cable, and they are the ones who have 
practically a monopoly position. They have had a monopoly 
position in the market, and only now are we beginning to see 
some signs of competition as DBS, which has worked for 9 years 
now to get to 20 percent of the market.
    The issue here is not is DBS some sort of powerful 
incumbent----
    Senator Sununu. No, no. That is a very good point. But all 
you are suggesting is that there are other incumbent 
broadcasters like cable that might also have an interest in 
bidding, bidding at a very high level for the spectrum, again 
that they have a higher economic value than other non-
incumbents. Whether a DBS incumbent or a cable incumbent, you 
may still have the same economic incentive.
    Let me run through my questions and obviously you will have 
a chance to comment further.
    License fees. Ms. Bush, would you object to a system where 
the Government would charge a fee, a license fee, to everyone 
providing multi-channel service in the 12.2 to 12.7 range?
    Ms. Bush. Well, I think the key issue is to everyone 
providing service in spectrum, because I think this then falls 
into the trap we keep falling into, which is, of being too 
narrow, because for example in this proceeding you have seven 
non-geostationary satellite applicants, who are also going to 
be sharing the spectrum. While they are not going to be 
providing multi-channel video, they are going to be providing 
Internet service, so they are going to be a competitor in part 
of the market with us.
    So I think the issue from Northpoint's standpoint is 
regulatory fairness across the board, that we have got to treat 
all of the applicants using spectrum the same way.
    Senator Sununu. Mr. Wright, do you support that?
    Mr. Wright. Yes, thank you, Mr. Sununu. It is only in 
circumstances where there are multiple competitors wishing to 
use the same spectrum where an auction situation applies, and 
NGSOFSS was excluded by Congress. In other words, the FCC could 
not have chosen to auction that spectrum off because of the----
    Senator Sununu. I am sorry, I am not talking about an 
auction, though. I am talking about annual fees for the use of 
the spectrum.
    Mr. Wright. Well, of course annual fees are already charged 
for the use of the spectrum.
    Senator Sununu. I stand corrected.
    Ms. Bush, I think Mr. Wright used the term ruinous 
interference. Under what circumstances would your proposed 
system cause ruinous interference to those that are enjoying 
their DirecTV or other satellite services at home?
    Ms. Bush. Under no circumstances. We have tested our system 
now four times. Actually we tested it three times. The FCC 
tested it once through the MITRE Company and the DBS industry 
got a license for experimental testing of our system as well.
    The point I would make is that we operate our system, the 
DBS industry had the opportunity to operate our system without 
our involvement or approval, and under no circumstance was 
there any interference to any existing DBS customers. 
Northpoint tested in Washington, D.C., on the USA Today 
Building for 2 months non-stop, including through Hurricane 
Floyd. The DBS industry, DirecTV and EchoStar, conducted 
testing in Washington, D.C., as well in an effort to prove this 
ruinous interference which they claimed would happen, and they 
were not able to provide to the FCC evidence of one DBS 
customer that received interference.
    So our point is that the DBS industry could not prove 
through their testing that there was interference and that 
ultimately was the FCC's conclusion, that throughout all this 
testing there was no interference.
    Mr. Wright. Mr. Chairman.
    Senator Sununu. Do you agree with all of that?
    Mr. Wright. Obviously this is an area where we have serious 
disagreement.
    Senator Sununu. I appreciate that, but try to be clear in 
at least describing where the important areas of disagreement 
are.
    Mr. Wright. Yes, thank you. Our position is that it will 
cause serious interference, and that is what the MITRE test, 
the only independent test, the MITRE test, showed, that it 
would cause serious interference to DBS.
    The issue, of course, at the FCC was not whether or not it 
is going to cause interference, but whether or not it would 
cause significant harmful interference. Harmful interference is 
a subjective standard. So far we have not been able to persuade 
the FCC that it is going to cause harmful interference, so we 
are taking it to court.
    But the point is that no matter what kind of testing you do 
and what kind of operation you do, DBS subscribers are not 
going to know that--they are going to know that their system 
does not work as well as it used to. They are not going to know 
that Northpoint is out there. They are not going to say, well, 
gee, this is too bad that Northpoint is causing interference to 
my system.
    What they are going to say is, gee, my DBS system that used 
to be so reliable is no longer reliable, so I am going to go 
back to cable. That is going to be the result in the market. 
That is our concern.
    Senator Sununu. What interest would those technically 
competent people at the FCC possibly have in claiming that 
there would not be harmful interference when, at least in your 
opinion, there would be ruinous interference? How could the FCC 
be so blind to what is or is not a technical reality?
    Mr. Wright. Well, Mr. Sununu, what Northpoint is proposing 
to do is to build 15,000 towers around the United States to 
provide their service. The closer you are to the service, the 
more interference your DBS system is going to receive. So while 
it is millions of DBS subscribers, it is certainly not all DBS 
subscribers; and what the FCC has decided is that the amount of 
interference, the increased amount of unavailability that 
Northpoint will introduce into the DBS system, is in their 
opinion offset by the introduction of a new player into the 
market. We disagree with that.
    Mr. Kirkpatrick. Senator Sununu.
    Senator Sununu. Mr. Hazlett, you raised your hand first, 
and then we will hear from Mr. Kirkpatrick. Thank you.
    Mr. Hazlett. Thank you, Senator. I have read about what the 
FCC has said about the maximum allowable new interference, 
which by the way, there is possible interference from any new 
wireless service anywhere. If you had a zero tolerance policy 
you would have zero wireless service. So it is all about what 
is harmful and what is the de minimis standard.
    So I have read what the FCC has concluded on this and it 
really is pennies, just pennies of interference, even if you 
take the maximum allowable interference on a monthly basis. 
Remember this: If you insert another competitor, and let us 
call this Multi-Channel Video for a minute, so you get two DBS, 
one cable and you add a fourth competitor; by the FCC's 
competitive analysis, that is going to lower prices by at least 
5 percent, at least 5 percent.
    The average DBS customer pays about $60 a month in revenue 
right now. Five percent of that is $3 a month. The loss to the 
DBS customer is not from harmful interference from the new 
entrant. The loss is from blocking the competition that is 
going to lower his or her price. So the economics of this are 
very, very straightforward and the FCC has decided this 
interference issue in a way that makes it very simple to see 
that keeping out the new entrant does not protect the current 
subscribers, but hurts them.
    Mr. Kirkpatrick. Senator Sununu, one other thing I would 
just like to add. Prior to the MITRE test, MDS America offered 
our equipment to the FCC for testing by MITRE and the FCC told 
us that Congress had not funded testing equipment for people 
who had not applied in the NGSO window.
    MDS America then offered to pay MITRE directly through the 
FCC for us to fund the test ourselves, at which time we were 
also informed that MITRE was prohibited by charter from taking 
private funding for doing the test. MDS America then hired an 
independent testing firm, LCC International out of McLean, who 
came to southern Florida and, pursuant to an FCC experimental 
license, did test our system independently of us in a real 
world environment, not in an anechoic chamber in a laboratory, 
but by actually putting our transmitter, our system, out on a 
tower in the presence of existing DBS customers and testing it 
over a period of several weeks.
    We received no complaints whatsoever. We now are in the 
middle of a phase two testing where we have been broadcasting 
from the top of the tower at a much higher power level than the 
MVDDS order allows, but again pursuant to our experimental 
license, and again we have not received a single complaint of 
interference to DBS anywhere in southern Florida.
    Senator Sununu. So you do not believe that your 
terrestrial-based broadcasting system will cause ruinous 
interference to existing DBS users?
    Mr. Kirkpatrick. It has not since 1994 in the places it has 
been installed all over the world.
    Mr. Wright. Mr. Sununu, may I follow up on that?
    Senator Sununu. Sure.
    Mr. Wright. There are already in this spectrum, in the 12.2 
to 12.7 spectrum, there are already two ubiquitous consumer 
services. There is DBS and there is NGSOFSS. When we were 
required to negotiate by the two satellite systems that share 
it, NGSO and DBS, it is much easier for satellite-to-satellite 
to share than satellite-to-terrestrial. And when we negotiated 
that there was a requirement that the NGSO entrant into the 
market not increase the unavailability of DBS by more than 10 
percent. So now we had that 10 percent of unavailability 
increase in the market.
    The FCC itself has said that the introduction of Northpoint 
will cause an additional 30 percent increase in unavailability. 
We can quibble about the word ruinous, but to us increasing 
unavailability by 30 percent, and Commissioner Martin in his 
dissent said that it could be 60 percent or 90 percent 
increase.
    Senator Sununu. I am sorry, I do not understand that. If 
the regulation is 30 percent, how could it be 90 percent?
    Mr. Wright. What the FCC said is at a minimum the increase 
in unavailability will be 30 percent. Commissioner Martin in 
his dissent said, at 30 percent, you are not setting it at 30 
percent; you are saying it could be 30 percent; it could be 60 
percent, it could be 90 percent. So we think that it is a very 
serious challenge to our consumers.
    What is going to end up happening here is you have got an 
industry that has spent a tremendous amount of money and energy 
and time to create a real competitor to cable and now you are 
going to introduce all of this additional. You are trying to 
shoehorn a third ubiquitous consumer service into this 12.2 to 
12.7 band. It is unprecedented, and we think that it certainly 
will cause serious interference to our consumers and will be 
anticompetitive and will reduce choice in the market.
    Senator Burns. Well, Mr. Wright, in this bill, though, 
there is if there is any serious interference that they cannot 
operate there. I think that is the way it is worded, is it not, 
Senator Sununu?
    Senator Sununu. That is correct, and I am curious to hear 
Ms. Bush's response to the suggestion that there will be a 30 
percent loss of performance.
    Ms. Bush. I think that is an incorrect reading of the FCC 
order. The FCC came up with the way that both the satellite 
companies and the DBS, I mean, the terrestrial operators that 
are going to share the DBS band. The FCC set certain limits to 
ensure that at a consumer's home you would not cause 
interference above a certain level, which can be measured. It 
is a formula that you use similarly for the satellite companies 
and for the terrestrial companies.
    The FCC did not conclude that at a minimum there would be 
30 percent interference and I am, to be honest, not sure where 
that came from in the order. The FCC did not use a percentage 
as the basis for determining it, but an actual number, a power 
limit at which when you are at the consumer's home that would 
be it.
    Northpoint was very comfortable with that. It is the same 
measurement that is used for determining whether there is 
interference caused by other satellite operators who are 
sharing the DBS band and we think that is an appropriate way to 
go.
    But again, I would go back to the point that what we are 
talking about is a situation where there has been a substantial 
amount of testing and testing done by the DBS operators 
themselves. The DBS operators themselves could have set up a 
DBS system in an apartment building in Washington when these 
tests were going on to prove that there was harmful 
interference. They had the opportunity to bring the FCC to that 
location to demonstrate harmful interference during their own 
testing, and they were not able to operate the system in a way 
that it did that.
    Senator Sununu. Mr. Wright, last year there was some 
discussion about merging EchoStar and DirecTV and I think you 
suggested that that merger was very important, if not 
essential, to get local channels broadcast into all local 
markets. Does that mean that in the absence of the merger the 
industry is unable to perform that important function of 
getting local access into the local markets?
    Mr. Wright. Senator Sununu, there is no question that 
local-into-local to all 210 markets is a very serious challenge 
to the DBS industry. As I pointed out in my testimony, when we 
got this authority in early 2000, we were hopeful that we would 
be able to serve 20 markets. We are already at 70 markets, 
which will provide service to about 85 percent or about 80 
percent. By the end of this year we will be at 100 markets.
    EchoStar has already said that, as you said earlier, 
technology marches on. And the industry has expended hundreds 
of millions of dollars, an extreme amount of money, in order to 
be able to put up spot beam satellites to extend the number of 
markets that we can serve. EchoStar is already targeting 150 
markets, which would be over 90 percent of the population. And 
today, before the Senate Commerce Committee, Rupert Murdoch 
said that if he is permitted to buy DirecTV that it is 
certainly his intention to do everything he can to dramatically 
increase the 100 markets that DirecTV is hoping to serve by the 
end of this year and that he hopes that he can reach 210 
markets as soon as it is, I think he said, economically and 
technologically feasible.
    So yes, I think eventually we will be able to do that.
    Senator Sununu. Were you wrong then when you suggested that 
the merger of the two was essential to being able to achieve 
this goal of local-into-local?
    Mr. Wright. Well, Senator, I never said that. But I think 
what was said by the companies as they were attempting to merge 
is that if, if the merger were able to go through, that it 
would certainly hasten the time, and they made it a commitment 
to serve all 210 markets. I do not think they ever meant that 
they would never be able to do so.
    Senator Sununu. Ms. Bush, this local-into-local is 
obviously a perceived value of the terrestrial-based service. 
Could you speak a little bit more broadly about the kind of 
service that you would intend to offer and what parts of the 
country it would be ready to be deployed in a timely way?
    Ms. Bush. Thank you, Senator. Northpoint's technology was 
in fact invented to solve the local signal problem. The 
inventors of Northpoint recognized that DBS was not designed to 
provide local programming to small communities, that that's not 
the strength of a satellite system, and they designed the 
system to solve that problem.
    It is our intention, and we have always viewed it as a 
critical part of our business plan, to serve all 210 local 
television markets with their local signals and other locally 
based community programming. I mean, that is the unique thing 
about having a system that will be built and deployed in each 
of the 210 television markets, is that it will have the ability 
to carry unique programming for that market, educational 
programming, programming directed to schools and universities, 
as well as local television signals.
    In addition, that is what will also make our Internet 
system so robust, is that we will be building the system to 
serve communities in each market. So we think that is an 
important feature, which is one of the reasons why we are very 
pleased to see that the must-carry rules are part of S. 564.
    Senator Sununu. It has been pointed out, and I think 
rightly so, that Northpoint I suppose has been working at this 
for a number of years, and we have gone through that, the 
delays, but you have not deployed a system before. This is 
something of a new venture and with any new venture there are 
always concerns about utilizing spectrum that might be provided 
through this piece of legislation or any others.
    Would you support and do you support a firm time limit 
under which the service has to be provided, the spectrum has to 
be used, otherwise it reverts back to the public?
    Ms. Bush. Yes, we support the shorter buildout requirement 
that is contained in S. 564 of 5 years versus 10 years. In 
fact, 3 years ago Northpoint, testifying in another hearing, 
committed that we would build our system within 2 years of 
receiving a license, and we still stand by that commitment.
    Senator Sununu. Finally, back to a question where I was 
somewhat confused before, Mr. Wright. I was asking not about 
the existing fees that fund the FCC, but the administration's 
proposal to change the way that we license spectrum and collect 
fees for the utilization of spectrum on an ongoing basis. You 
may not be familiar with the budget proposal that was submitted 
by the President at the beginning of this year, but it would 
effectively allocate much more significant fees for the use of 
license.
    My question was whether you support that proposal to the 
extent that it is applied effectively across all satellite or 
terrestrial-based DBS systems?
    Mr. Wright. Senator Sununu, I must apologize; I am not 
familiar with that proposal. However, I would say that in a 
situation--I think it has been proven through our experience 
that in a situation where you have multiple applicants for one 
piece of spectrum that the auction process is a very efficient 
way to allocate the spectrum.
    If I may, I would also like to respond to something that 
Ms. Bush said just a few moments ago, which is that indeed the 
Northpoint business plan has morphed over the years and shifted 
pretty dramatically. I think the ultimate refutation of what 
Northpoint is proposing is the fact that their original 
proposal was to be an adjunct service to DBS, to be able to 
allow DBS, back before we ever imagined that we could do local-
into-local, to give us a way to do that.
    Believe me, Mr. Sununu, if our engineers had believed that, 
my company's engineers had believed, that that was possible 
without severe interference, they would have jumped at that 
opportunity, because being able to provide local-into-local is 
a key for us to be able to be truly competitive with cable and 
it is something that we have desired ever since day one and we 
have worked very hard to accomplish.
    Senator Sununu. Mr. Hazlett, I am tempted to ask you to 
carry on a little bit about the efficiency of Federal spectrum 
auctions, particularly with regard to the Nextel process, but I 
do not think we quite have enough time.
    Thank you very much, Mr. Chairman.
    Senator Burns. We have got the building leased for all day.
    [Laughter.]
    Senator Burns. I have a question for Mr. Roadman. The 
investment climate has been difficult, to say the least, over 
the past few years since the passage of the LPTV Internet Act. 
Has progress been made since then and are you still hopeful 
that you will be able to offer wireless broadband under the 
terms of that pilot project?
    Mr. Roadman. We are. For a number of years the primary 
mover in the LPTV spectrum was able to offer one-way 
successfully commercially. They were unable to raise funds, but 
did conduct a one-way test and a one-way commercial operation 
successfully.
    We have put together the management team and the right mix 
to go forward if we can get financing to finance the test, and 
we believe that we will have that financing in 2003 and should 
be able to complete the test in 2003.
    Senator Burns. I just wondered how that was coming because 
we have hit some rocky times and capital formation has been 
pretty tough.
    If the pilot project under this Internet Act proves 
successful, could wireless broadband be rolled out across the 
country over a low-power band?
    Mr. Roadman. Yes.
    Senator Burns. It can be done?
    Mr. Roadman. Well, there are the existing stations, and we 
would need the help of Congress and the FCC to make the 
legislation--make it extend past the 13 legislative stations, 
to do that. But that is not a technology question; that is a 
legislative regulatory question.
    Senator Burns. I think most of the questions have been 
asked that I wanted to ask, and we have had--I have always 
loved this kind of a give and take at the table because we 
learn a lot more from that.
    Is there anything else you want to explore there, Senator?
    Senator Sununu. I simply want to thank the Chairman and the 
panelists. I know this is a fairly complex subject and, as I 
said in my opening, we have got bits of technology and spectrum 
issues, but at the end of the day I feel this is about doing 
what is right for the public and the consumers with regard to 
access and competition and giving them choices.
    I appreciate you all being here to help shed some light on 
what we can do to either strengthen this bill or get this 
passed, to make a difference for consumers.
    Finally, I would just ask unanimous consent, Mr. Chairman, 
to enter a letter from Consumer's Union providing their views 
on S. 564.
    Senator Burns. Without objection, it shall be.
    [The information referred to was not available at time of 
print.]
    Senator Sununu. Thank you, Mr. Chairman.
    Senator Burns. You know, I agree with you on most of that, 
but I will tell you also, I am always cautious. I am cautious 
that there is sometimes, there is unintentional consequences, 
and we will continue to explore where they may be and be pretty 
solid in our investigation and we would hope that we would come 
up with something fair, not only for the industry, too. You 
have got to take into consideration what is good for the 
industry and good for the consumers because both of them kind 
of got to grow together because they are the ones that provide 
the jobs and the opportunity at a lower price to the consumer, 
and of course that is a good thing.
    I want to thank each of you for coming here today and 
sharing your thoughts. There will be some questions. Senator--
the little guy that sat right here--Stevens--happy? We are 
going to call him the Good Humor man from now on--has a couple 
questions and I am sure he will forward those to you and if you 
could respond to him and the Committee that would be terrific, 
and any other Senator, and we will leave the record open for a 
couple of weeks.
    Thank you again for coming. These hearings are closed.
    [Whereupon, at 4:12 p.m., the hearing was adjourned.]
                            A P P E N D I X

 Prepared Statement of Hon. Daniel K. Inouye, U.S. Senator from Hawaii
    Thank you, Chairman Burns, and let me commend you for calling 
today's hearing to revisit two important issues--the assignment of 
licenses for Multichannel Video Distribution and Data Services (MVDDS), 
and the use of low power television to provide digital data services. 
Let me begin by welcoming today's witnesses and, in particular, a 
former staff member of the Committee, Toni Bush, who is here today to 
testify in her current capacity as the Executive Vice President of 
Northpoint.
    In addition, let me welcome our colleague, Senator Landrieu who is 
here to give some remarks regarding her bill S. 564, The Emergency 
Communications and Competition Act, of which I am a proud cosponsor. 
This bill would direct the FCC to assign licenses for fixed terrestrial 
services such as MVDDS without an auction and would ensure prompt 
licensing and deployment of these services. We must remember that not 
all Americans live in a metropolitan areas. In fact many reside in 
rural and under-served areas such as Hawaii and Montana where there are 
not an abundance of service providers and where there is not ready 
access to high-speed data services.
    Over the years, we have seen efforts to provide MVDDS spark a 
firestorm of controversy. DBS providers contend that terrestrial MVDDS 
that share frequencies can cause harmful interference. Would-be MVDDS 
providers dispute such claims and believe that the sharing of 
frequencies represents an efficient way to utilize spectrum. Yet 
another question strongly debated is whether these licenses should be 
subject to the FCC spectrum auction process. It is my hope that 
testimony from today's witnesses will help us get to the bottom of 
these disputes.
    I am of the opinion that spectrum can be more efficiently utilized. 
Since there is a finite amount of spectrum available, we should 
encourage the development and deployment of technology that allows us 
to maximize the natural resources available to us.
    I look forward to the testimony today and hope that we give MVDDS 
technology a chance to flourish in the best interests of the American 
people.
                                 ______
                                 
  Prepared Statement of Hon. Trent Lott, U.S. Senator from Mississippi
    Mr. Chairman, I want to thank you for holding this important 
hearing today on rural wireless broadband. As you know, my home state 
of Mississippi is a rural state, and I am always seeking ways to insure 
that the people of my state have access to the latest communications 
technology. I am especially interested in technology which is designed 
to equalize the options that are available to those people who live in 
urban areas, and those people who live in rural areas.
    When technology has been developed that can provide another 
competitive option for constituents to receive multi-channel video and 
broadband services, naturally I am interested in insuring that this 
technology is made available in the marketplace.
    Therefore, I was delighted to learn about new technology a few 
years ago that can provide multi-channel video and broadband services 
on a terrestrial system as another choice for Americans who live in 
rural areas. I am disappointed that the FCC's review and approval 
process for the deployment of Multichannel Video Distribution and Data 
Services--or MVDDS--took so long, and I regret that the Commission 
chose to auction the necessary licenses to operate this new terrestrial 
service.
    In order to guarantee the most efficient and productive plan for 
deploying MVDDS technology, I believe that Congress must act. I am 
happy to join as a co-sponsor of S. 564, the Emergency Communications 
and Competition Act of 2003, because it will speed up the deployment of 
this new technology and insure that Americans who live in rural areas 
will have another option for receiving affordable multi-channel video 
and broadband services. An important key component of the bill is its 
requirement that licensees must disseminate Emergency Alert System 
warnings to all subscribers, further insuring the safety of the 
American public.
    Mr. Chairman, this legislation directs the FCC to assign--rather 
than auction--licenses in the 12.2-12.7 gigahertz band for the 
operation of fixed terrestrial communications services. In this way, 
the MVDDS licensees--or Terrestrial Direct Broadcast Service licensees 
as the service is renamed in the bill, would be treated in the same way 
as their Direct Broadcast Satellite competitors who operate in the same 
spectrum band. The bill is fair and thoughtful in requiring that any 
company can compete in the license assignment process which can 
demonstrate that they have the necessary technology and legal rights to 
deploy such technology, and that their technology does not interfere 
with competing Direct Broadcast Satellite services.
    The public will receive additional benefits from this new 
multichannel video and data service, in that 4 percent of a licensee's 
capacity must be utilized for public interest offerings such as 
telemedicine and distance learning. I am pleased that licensees 
operating in this new Terrestrial Direct Broadcast Service will also be 
required to comply with all rules governing the carriage of local 
television station signals, and all indecency and obscenity rules. 
Finally, the bill insures the speedy deployment of this new service by 
requiring the FCC to issue licenses to all qualified applicants within 
six months of its enactment, and it requires that authorized licensees 
build out their systems within five years.
    I am looking forward to hearing the testimony of the witnesses 
today as we seek the most productive approach for deploying 
Multichannel Video Distribution and Data Services technology--which in 
the bill we are planning to call the Terrestrial Direct Broadcast 
Service. I am also interested in hearing about the progress we are 
making on other fronts as this Subcommittee does everything we can to 
guarantee that Americans who live in rural areas have the same 
competitive options to utilize the latest in wireless broadband 
technology.

                                  
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