Copyright 2001 eMediaMillWorks, Inc.
(f/k/a Federal
Document Clearing House, Inc.)
Federal Document Clearing House
Congressional Testimony
July 19, 2001, Thursday
SECTION: CAPITOL HILL HEARING TESTIMONY
LENGTH: 4471 words
COMMITTEE:
HOUSE AGRICULTURE
HEADLINE: 2002 FARM
BILL
TESTIMONY-BY: MR. BOB PHILLIPS, III, PRESIDENT AND
CEO OF
AFFILIATION: THE NATIONAL RURAL
TELECOMMUNICATIONS COOPERATIVE
BODY: July 19, 2001
Testimony of Mr. Bob Phillips, III President and CEO of
The
National Rural Telecommunications Cooperative
Before the U.S. House of
Representatives
Committee on Agriculture
Introduction
Good morning. My name is Bob Phillips, and I am the President and CEO of
the National Rural Telecommunications Cooperative (NRTC). I greatly appreciate
the opportunity to appear before you today to discuss the Farm Bill Concept
Paper, specifically regarding all the positive implications of expanding
broadband access in rural America.
NRTC supports more than 1,000 rural
utilities and affiliates in 46 states in delivering telecommunications and
information technology solutions to their communities. These NRTC members serve
more than 35 million customers in areas of the country that have been unserved
or under-served by traditional utilities and other businesses. Building on a
foundation of community service, we work - as a cooperative - to ensure that all
Americans share equally in the benefits of the digital age. The timing of this
hearing is extremely appropriate. As someone who has dedicated his career to
helping rural Americans gain access to the same level of telecommunications
services enjoyed by urban and suburban Americans, I am delighted at the
significant interest that
broadband deployment has attracted on
this committee.
Mr. Chairman, you and your colleagues are showing great
foresight in addressing this issue as part of the Rural Economic Development
title of the Farm Bill.
Rural America today needs resources to support
the deployment of broadband services equivalent to those that will be offered in
urban and suburban areas. The economic development of rural communities depends
on the availability of modern communications capabilities. Current RUS programs
have benefited many rural Americans. To build out rural broadband facilities,
however, the federal government must expand its commitment. With access to
high-speed Internet technologies, rural communities will have the tools they
need to attract ne w businesses and infuse new life into existing businesses.
Later in this testimony, I have a list of suggestions for making the
most out of the limited resources available for rural broadband development.
NRTC Background
As a national cooperative, we provide our
members with comprehensive technology solutions that include product research
and development, technical support, marketing assistance, regional support, and
industry representation. NRTC's solutions enable our member utilities to expand
their core competencies and broaden the scope of valued services they provide
their local communities.
The National Rural Electric Cooperative
Association (NRECA) and the National Rural Utilities Cooperative Finance
Corporation (CFC) founded NRTC in 1986 to bring valuable telecommunications
services to rural communities, just as the rural electric cooperative members of
NRECA and CFC had helped bring electricity to rural America in the 1930s and
40s.
NRTC also shares many members and has a working relationship with
the National Telephone Cooperative Association (NTCA).
NRTC entered the
satellite business offering C-band (large dish) television service to rural
communities. In the early 1990s, we forged an important partnership with DIRECTV
Inc., a unit of Hughes Electronics Corporation. NRTC and its members invested
more than $100 million toward launching the nation's first and most successful
high-power direct broadcast satellite (DBS) system. By making its members a
local distribution channel for this valuable service, NRTC has become the
leading distributor of satellite television service and hardware to rural
America. Today, NRTC members and affiliates serve more than 1.8 million rural
consumers, nearly 20 percent of all DIRECTV subscribers.
NRTC's family
of products and services includes dial-up and high- speed Internet services,
power quality products, and utility communications products and services,
including the LINK power quality monitoring system, Cooperative Wireless LLC, a
nationwide 220 MHz wireless communications network, and e-business applications.
Broadband -Key to Economic Development
It is not exaggerating to
say that broadband telecommunications is the next ubiquitous service that we
expect everyone should have, regardless of where they live.
The Texas
Public Utility Commission (PUC) Report to the 77 th Legislature on Advanced
Services in Rural and High Cost Areas in January 2001 stated, "High-speed access
to the Internet is increasingly seen as critical to Texas' economic development,
especially in rural Texas. While some rural areas may be well connected, most
still lack access to the same telecommunications infrastructure or technologies
enjoyed by those living in urban areas."
While there are many success
stories in rural America, some of which I will discuss later, that statement can
easily apply to my native Kansas, North Carolina, Oklahoma, or any other state
in the Union.
This committee is well aware of the history of bringing
important new services to rural America. In the late 1930s, with the
establishment of the Rural Electrification Administration (REA), the federal
government helped support private citizens in their establishment of rural
electric cooperatives to bring power, both in the sense of electricity and
opportunity to the people of rural America. About a decade later, Congress
amended the REA Act to also help rural Americans keep in touch via the
telephone.
There is no doubt that these programs have been an enormous
success in helping keep rural America vibrant to a point that many non-rural
Americans have come to value the rural lifestyle. Satellite television enhanced
the rural lifestyle even further by giving rural Americans access to the picture
quality and viewing choices that urban and suburban markets had enjoyed through
cable service.
A similar program is needed today to ensure that rural
Americans never again fall behind. The economic development of the rural areas
we care so deeply about is dependent on it.
As Federal Reserve Chairman
Alan Greenspan said in an April 2000 New York Times article, "Like all the
previous episodes of technical advance, the revolution in information technology
already has improved living conditions in numerous ways and it will likely bring
future benefits to rural communities that we now can only scarcely imagine." We
now stand, if not at the dawn of a new day, still very early in the morning with
regard to access and usage of broadband.
Broadband will further allow
individuals to choose where they want to live, instead of dictating where they
have to live. It will give small and large businesses the same freedom in
determining where to locate.
Rural communities depend on the health of
their small businesses for their own future survival. The Small Business
Administration's June 2000 report, "Small Business Expansions in Electronic
Commerce," measures how small businesses are coming to rely on the Internet:
- 85 percent of small businesses will do business over the World Wide
Web by 2002
- Home-based businesses spend an average of $1,100 a year on
Internet systems
- Very small businesses, not home-based, with five or
fewer employees spend about $1,500 on Internet technology.
The SBA
report also concludes, "Firms with fewer than 10 employees invested more
aggressively (in 1999) in e-commerce infrastructure than larger firms." As the
Texas PUC report states, "E-commerce may be especially important for rural
communities because it makes areas of Texas more attractive to businesses and
residents. For the first time, proximity to customers is less significant. Yet
proximity to fast Internet connections remains important, as new high-tech
startups, as well as older, more established firms, are becoming increasingly
dependent upon high-speed Internet connections."
Farms and ranches will
be aided as much as the small towns. There are several applications for farm
management that require high- speed connections. CountryRoads Network in
Minneapolis is an agribusiness-focused portal on the World Wide Web. Its Web
pages are filled with ways for farmers to manage their finances, plan their
planting schedules, monitor commodities futures, and report chemical and
pesticide usage to state and federal regulators. In short, it is an invaluable
business tool giving farmers and ranchers a greater opportunity to maintain a
profitable operation.
A farmer's risk management strategy depends on
being able to work with business partners in various locations. "Examples of
those business partners would be lenders, agronomy and seed advisers, commodity
marketing specialists, and a number of special advisers from extension
universities, as well as equipment and chemical manufacturers," Roger Olson,
president of CountryRoads Network recently told us. "A number of platforms exist
to make these connections possible, but they require high-speed Internet."
Rural Carriers Are Committed to Offering Broadband
The issue
before us today is how we are working together cooperatively in a
federal-private partnership to bring broadband access to rural America. Many
NRTC members and other telecommunications service providers throughout rural
America began building broadband systems years ago. Digital subscriber line
(DSL), cable modem, and fixed wireless are
broadband deployment
options, but they are not always cost-effective for rural America.
Here
are just a few examples of rural providers' commitment:
- Panhandle
Telephone Cooperative in Guymon, Oklahoma. A rural cooperative that provides
15,700 telephone access lines over service area in excess of 6,000 square miles
to a population of 2.71 access lines per square mile. Panhandle's PCTI
subsidiary began offering DSL to its customers in 1999 and now serves about
1,300 subscribers. PCTI started out serving the larger towns in its area and
gradually has expanded to smaller population centers. Panhandle Telephone CEO
Ron Strecker says there has been high customer satisfaction with DSL and that
there is demand for broadband services because it will "allow people to remain
in the area they love while they telecommute with a company in Dallas, L.A.,
anywhere."
- Grand River Mutual Telephone in Princeton, Missouri. Since
1999, Grand River has been building out a copper-based broadband network in its
service areas on both sides of the Missouri/Iowa border. It is building what
developers call "Ethernet in the First Mile" (EFM), which is an improvement over
more common DSL copper Internet services. While asymmetrical DSL services have a
limit of about 18,000 feet from the service provider's central office, Grand
River's farthest EFM subscriber is 24,700 feet away. Grand River currently
offers 1 Mbps downstream (Internet to the user) service and 500 kbps upstream
(user to the Internet). It has attracted a number of business subscribers,
including schools, car dealerships, grain elevators, and local government
agencies. With advanced telecommunications systems in place, "businesses will
relocate here because of the quality of life," said Ron Hinds, Grand River's
director of marketing.
- Diller Telephone Company in Diller, Nebraska.
Through its subsidiary, Diode Communications, this multifaceted communications
company offers telephone, cable TV, satellite TV, and dial-up Internet service
to subscribers in southeast Nebraska and northeast Kansas. Within a few weeks,
Diode plans also to offer high-speed satellite Internet service. In addition, it
has begun a trial broadband Internet service using a fixed wireless network. So
far, about 30 households are participating in the trial, and several others are
on a waiting list. The network now includes 5 towers that transmit two -way data
services over the 2.4 GHz unlicensed band. Diode can reach subscribers about
five miles in all directions from each tower, depending on the terrain. (The
Diller area has a number of rolling hills.) One tower transmits to a subscriber
eight miles from a tower. Diode is offering a variety of high-speed services
ranging from 128 kbps residential service for $40 a month to 1 Mbps business
service for $110 a month. As Representative Tom Osborne (R- Nebraska) said
during a recent visit to Diller: "I'd heard briefly about the telephone company
here and some of the things they've been doing. There are a handful of companies
that I think are doing outstanding things in smaller communities, and this is
one of them."
- StarBand Communications Inc. StarBand, a satellite
high-speed Internet company, serves many of the most remote regions of Alaska,
including areas above the Arctic Circle. In May 2001, it began a distance
learning service to 25 remote Alaska schools in cooperation with the Alaska
Distance Learning and Technology Consortium, and the University of Alaska.
The Promise Of Satellite
For much of rural America, satellite
networks will be the best broadband Internet option. In some cases, it will be
the only option. Satellite-based solutions available today travel over the
Ku-band (frequencies near 12 GHz). These systems have all the elements needed to
close a digital divide:
1. Ubiquity - Because they are 22,000 miles
above the Earth, satellites are able to offer full coverage to just about every
home regardless of how rugged the terrain. The consumer does not have to live
near a central switching point or tower.
2. Fast, Packet-Switched Access
- No more waiting for the initial dial-up routines.
With a
packet-switched satellite Internet connection, the user has an "always-on"
connection. The computer and the Internet browser can be left on all the time.
Once online, the user travels on the Internet up to seven times faster than
standard 56 kilobit per second (kbps) dial-up Internet speeds.
3.
Available Now - Many consumers living in rural, and even urban areas are still
waiting for wired Internet access to the home to come to their neighborhoods.
Virtually any home in America could receive satellite Internet.
4.
Supports Advanced Applications - Satellite Internet will support streaming
audio/video, large file transfers, and new entertainment options.
5.
Distance Learning - Rural students have a wider range of opportunities to study
subjects their schools do not offer.
6. Telemedicine - Hospitals and
doctors offices have access to advanced telemedicine capabilities to offer
life-saving medical treatment in areas where medical specialists do not
practice.
NRTC has distribution agreements with the two Ku-band carriers
that currently offer high-speed Internet to North America. DIRECWAY is a
subsidiary of Hughes Network Systems-- the same people who brought us DIRECTV.
StarBand has substantial backing from EchoStar, providers of the DISH Network.
EchoStar recently announced that it is increasing its StarBand investment to 60
percent ownership of the company. Both DIRECWAY and StarBand have made
substantial commitments to serving rural America. NRTC has pilots and is begging
to offer DIRECTWAY and StarBand through its membership network.
The
Ku-band carriers offer downstream data rates of up to 400 kbps, while the
upstream speeds can reach 128 kbps. Satellite Internet can reach any home that
has a clear view of the southern sky. The 21 x 36-inch DIRECWAY dish and 24 x
36-inch StarBand dish are somewhat larger than dishes DIRECTV and EchoStar use
to provide TV-only service on the Ku-band. However, a satellite Internet
subscriber has the option of receiving TV service using an Internet dish.
Next-generation Ka-band (frequencies near 18 GHz) technologies offer
faster data rates and service equal to or better than the landline Internet
services that will be available in urban areas. For example, WildBlue
Communications Inc., a Ka-band service provider, plans to offer satellite
service at 3 Mbps downstream/400 kbps upstream beginning next year. Hughes plans
to offer its Ka-band SPACEWAY service with downstream rates up to 16 Mbps within
the next two years. Teledesic, a consortium of investors including Microsoft's
Bill Gates and Nextel's Craig McCaw, plans to begin offering a global service
with up to 64 Mbps downstream using a constellation of 288 low earth orbiting
satellites.
An Integrated Approach
Nothing we say in this
testimony should imply that satellite should be the only technology available to
rural Americans. As the case studies we cited make clear, rural carriers are
deploying a variety of networks that make use of the copper telephone wire
already in place, as well as fiber optic links, coaxial cable, and fixed
wireless technologies.
We see satellite Internet as yet another option
for rural service providers. In many cases, the carrier will integrate satellite
service with other technologies to ensure that all of their subscribers have
access to advanced technologies.
Diode Communications, for example,
expects to reach 75 percent of its subscribers with its fixed wireless service.
Grand River Mutual Telephone's EFM service will pass 70 percent of the carrier's
subscribers. While Panhandle Telephone has been able to extend DSL to some small
communities, it also cannot offer the copper-based service to everyone. After a
certain distance from a carrier's central office or fixed wireless tower site,
it is no longer cost-effective to build out broadband service to subscribers
living in the most remote areas. Once you can count the number of subscribers
per line mile or per tower on your hand, it is impossible to cost justify
expansion of a terrestrial network. As Diode's Randy Sandman said to us, "The
cost of equipment is prohibitive."
Diode, Grand River, and Panhandle
Telephone plan to offer satellite Internet to fill in their remaining service
areas. The same scenario is forming throughout rural America as consumers
realize there is no reason the locations of their households should block them
from receiving advanced telecommunications services.
Cost Obstacles
Remain
The cost of providing rural broadband service is considerable,
whether it is a terrestrial approach, a satellite approach, or a combination of
the two. Our case studies demonstrate how rural carriers are forging ahead with
their broadband business plans, but each of those carriers would agree that they
need assistance to finish the job.
The National Exchange Carrier
Association (NECA) has given us a good estimate of how much it will cost to roll
out copper-based services. Last year it released the results of a DSL cost study
requested by NTCA and other rural telephone organizations. NECA estimated that
it would cost $10.9 billion to upgrade 3.3 million rural telephone lines that
have not been conditioned to support DSL transmissions.
That cost does
not include the eventual cost of consumer premises equipment (CPE). NECA
estimates that there are approximately 1.7 million rural households located
beyond 18,000 feet of a telephone central office. Terrestrial
broadband
deployment also includes the cost of digging trenches for approaches
that require fiber optic facilities, and building transmission towers for fixed
wireless systems.
To deploy a broadband satellite system, a company
must: construct a satellite(s), purchase launch services, obtain insurance
against launch/on-orbit failure, install a gateway ground infrastructure, and
significantly subsidize the cost of the end- user equipment. Much of that cost
can pass to the rural Internet provider, which sometimes will negotiate for
transponder space. In addition, the cost of launching satellite businesses can
affect the cost of CPE units. Satellite CPE costs can amount to nearly $1,000,
even if equipment manufacturers subsidize the purchase, as they are planning to
do. All rural broadband carriers will need some additional assistance. Congress
should take into account the entire cost of deploying the infrastructure of both
terrestrial and satellite networks when setting the qualification requirements.
Any assistance program should be "technology neutral." Carriers should be
eligible to receive assistance with costs of building the network and deploying
CPE units.
The Need for Funding
One of the greatest obstacles to
rural
broadband deployment is getting the funding to build
rural broadband networks on a wide- scale basis.
The Federal Reserve
Bank of Kansas City in its 2000 Annual report said, "For most rural Americans
the digital divide is a stubborn reality. Advanced services like broadband are
offered to communities solely at the discretion of the provider - and many rural
areas simply are not attractive markets."
The Rural Utilities Service
(RUS) of the United States Department of Agriculture (USDA) historically has
been the entity that aided rural telecommunications carriers in getting past the
marketplace barriers. RUS currently has a $100 million broadband initiative.
Eligible rural entities have over-subscribed the program. The Administration
proposes to fund the program again next year at the same level.
According to the October 2000 Joint Report of the Iowa Utilities Board
and the Iowa Department of Economic Development, "Small rural telephone
companies have done a better job of providing universal telephone service than
large companies serving rural areas. The affordability of high-speed Internet
access technologies, particularly for low-income Iowans, remains questionable."
RUS loans are made to small rural companies, which are best suited for
maximizing the economic potential of broadband and all telecommunications
services to low-population areas. Rural providers have the facilities and
knowledge of the community to best provide basic service, maintenance, technical
support, and content-based online services.
Congress should consider
expanding the RUS broadband initiative, both in dollar amount and in the types
of broadband services that would be eligible for financial assistance.
Transmission Speeds
Congress also must take care when setting
the technical benchmarks for carrier's assistance eligibility. As mentioned
before, the downlink speeds for current two-way satellite broadband services are
about 400 kbps while the uplink speed averages 128 kbps. Many current-generation
copper-based networks offer similar throughputs. However, the FCC defines
"broadband" as services that exceed 200 kbps both upstream and downstream. Some
industry and government entities set the benchmark even higher.
Eligibility for participation in any federal program should have a speed
requirement consistent with what the current rural service providers can offer.
As technology advances, Congress could readjust minimum data rate benchmarks
when appropriate. Because technological advancement is swift, Congress may find
it appropriate to delegate the authority to make the adjustments to the agencies
that will administer the broadband assistance programs.
Possible Options
I greatly appreciate all of the hard work many members of this committee
and many others in Congress have committed to expanding that opportunity.
The $100 million RUS Broadband Pilot Program has proven to be very
valuable with 55 applications for more than $400 million. This is a Treasury
rate program with a $2 million set-aside for grants. Fifty-one million dollars
out of the original $100 million in the program already has been approved.
We applaud the RUS and the Administration, which has announced its
intention to continue this program. At the same time, we believe it is our
obligation to point out several aspects that could improve the program.
The funding level should be increased. We are cognizant that the amount
of funds available is limited. There are ways to help leverage those scarce
resources.
Here are some possibilities:
1. Treasury Rate Program
- This should be a relatively low-cost program to administer, as the only costs
are potential defaults and staff time. There is no interest rate subsidy.
2. Loan Guarantee Program - Create a new option with a 90 percent
guarantee.
This would cost less than the Treasury rate program, as a
private market lender would assume some risk. The added benefit is that you help
foster the public-private partnership.
3. Hardship Program - Create a
program with an interest rate below the Treasury rate. This would cost somewhat
more but could help foster the public policy benefit of bringing broadband to
the more remote or lower-income areas of the country.
4. Grant Program -
A grant program is, of course, the highest cost because there is no repayment to
the Treasury other than increased economic activity. It may be appropriate to
have some funds set aside for grants.
5. Concurrent Loans - The program
should be administered in a way that allows for but does not mandate concurrent
loans so that even more private participation may be encouraged.
Program
Rules
It is absolutely essential that the minimum speeds required be
consistent with what all technologies can adequately deliver. The current pilot
program requires speeds of 200 kbps each way and puts satellite and some other
technologies at a disadvantage. It is equally essential that CPE units be made
eligible for any program designed to deliver broadband to rural America. Terms
of the loans should be for the expected useful life of the asset.
Other
Congressional Initiatives
Congress is considering several bills intended
to help deliver broadband to rural America.
As a cooperative, we feel
that a not-for-profit status is the right model for many of our members, given
their locations. Some proposed programs would give rural carriers tax incentives
to provide high-speed services. There is a danger that such systems will be
designed for tax-paying carriers only, and will lack the needed flexibility to
provide incentives to tax-exempt organizations. At the very least, any
legislation to provide tax credit incentives should allow tax-exempt
organizations to sell or trade their tax credits.
Conclusion
Federal broadband assistance programs should recognize that multiple
technologies from various providers, including cooperatives, represent our best
chance to deploy broadband fully and all of its applications in the most timely
and cost-efficient manner. A clear commitment to rural America and other
unserved/underserved communities should be, at a minimum, a requirement of any
company requesting any type of federal assistance.
Broadband has the
capability to change the lives of rural Americans. It is an issue that needs
immediate attention. Your attention to this issue today is timely. We need your
support to ensure that the potential of broadband service touches all Americans.
LOAD-DATE: July 23, 2001