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