[Senate Hearing 106-697]
[From the U.S. Government Publishing Office]
S. Hrg. 106-697
RURAL SATELLITE AND CABLE SYSTEMS LOAN GUARANTEE PROPOSAL AND THE
DIGITAL DIVIDE IN RURAL AMERICA
=======================================================================
HEARING
before the
COMMITTEE ON AGRICULTURE,
NUTRITION, AND FORESTRY
UNITED STATES SENATE
ONE HUNDRED SIXTH CONGRESS
SECOND SESSION
ON
RURAL SATELLITE AND CABLE SYSTEMS LOAN GUARANTEE PROPOSAL AND THE
DIGITAL DIVIDE IN RURAL AMERICA
__________
FEBRUARY 3, 2000
__________
Printed for the use of the
Committee on Agriculture, Nutrition, and Forestry
U.S. GOVERNMENT PRINTING OFFICE
67-316 CC WASHINGTON : 2000
_______________________________________________________________________
For sale by the U.S. Government Printing Office
Superintendent of Documents, Congressional Sales Office, Washington, DC
20402
COMMITTEE ON AGRICULTURE, NUTRITION, AND FORESTRY
RICHARD G. LUGAR, Indiana, Chairman
JESSE HELMS, North Carolina TOM HARKIN, Iowa
THAD COCHRAN, Mississippi PATRICK J. LEAHY, Vermont
MITCH McCONNELL, Kentucky KENT CONRAD, North Dakota
PAUL COVERDELL, Georgia THOMAS A. DASCHLE, South Dakota
PAT ROBERTS, Kansas MAX BAUCUS, Montana
PETER G. FITZGERALD, Illinois J. ROBERT KERREY, Nebraska
CHARLES E. GRASSLEY, Iowa TIM JOHNSON, South Dakota
LARRY E. CRAIG, Idaho BLANCHE L. LINCOLN, Arkansas
RICK SANTORUM, Pennsylvania
Keith Luse, Staff Director
David L. Johnson, Chief Counsel
Robert E. Sturm, Chief Clerk
Mark Halverson, Staff Director for the Minority
(ii)
C O N T E N T S
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Page
Hearing:
Thursday, February 3, 2000, Rural Satellite and Cable Systems
Loan Guarantee Proposal and the Digital Divide in Rural America 1
Appendix:
Thursday, February 3, 2000....................................... 57
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Thursday, February 3, 2000
STATEMENTS PRESENTED BY SENATORS
Lugar, Hon. Richard G., a U.S. Senator from Indiana, Chairman,
Committee on Agriculture, Nutrition, and Forestry.............. 1
Fitzgerald, Hon. Peter G., a U.S. Senator from Illinois.......... 27
Grassley, Hon. Charles E., a U.S. Senator from Iowa.............. 4
Harkin, Hon. Tom, a U.S. Senator from Iowa, Ranking Member,
Committee on Agriculture, Nutrition, and Forestry.............. 3
Leahy, Hon. Patrick J., a U.S. Senator from Vermont.............. 4
Conrad, Hon. Kent, a U.S. Senator from North Dakota.............. 5
Baucus, Hon. Max, a U.S. Senator from Montana.................... 7
Lincoln, Hon. Blanche L., a U.S. Senator from Arkansas........... 35
----------
WITNESSES
Hutchison, John, CEO, LTVS, Inc. Raleigh, North Carolina......... 20
Jay, Dr. Steven, Assistant Dean for Continuing Medical Education,
Indiana University School of Medicine, Indianapolis, Indiana... 40
May, James C., Executive Vice president, Government Relations,
National Association of Broadcasters........................... 15
McLean, Christopher A., Acting Administrator, Rural Utilities
Service, U.S. Department of Agriculture........................ 11
Parkhill, Dave, General Manager, Hamilton County Telephone
Cooperative, Dahlgren, Illinois................................ 18
Rhode, Gregory, Assistant Secretary for Communications and
Information, National Telecommunications and Information
Administration, U.S. Department of Commerce.................... 13
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APPENDIX
Prepared Statements:
Lugar, Hon. Richard G........................................ 58
Craig, Hon. Larry E.......................................... 60
Hutchison, John.............................................. 63
Jay, Stephen J............................................... 90
May, James C................................................. 75
McLean, Christopher.......................................... 67
Parkhill, David E............................................ 20
Rhode, Gregory L............................................. 70
RURAL SATELLITE AND CABLE SYSTEMS LOAN GUARANTEE PROPOSAL AND THE
DIGITAL DIVIDE IN RURAL AMERICA
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THURSDAY, FEBRUARY 3, 2000
U.S. Senate,
Committee on Agriculture, Nutrition, and Forestry,
Washington, DC.
The Committee met, pursuant to notice, at 9:02 a.m., in
room SR-328A, Russell Senate Office Building, Hon. Richard G.
Lugar, (Chairman of the Committee), presiding.
Present or submitting a statement: Senators Lugar,
Fitzgerald, Grassley, Craig, Harkin, Leahy, Conrad, Baucus, and
Lincoln.
STATEMENT OF HON. RICHARD LUGAR, A U.S. SENATOR FROM INDIANA,
CHAIRMAN, COMMITTEE ON AGRICULTURE, NUTRITION, AND FORESTRY
The Chairman. This hearing of the Senate Agriculture
Committee is called to order. Let me just mention for the
benefit of all members, and staff may want to inform them, we
probably will have a roll call vote on the nomination of Alan
Greenspan at about 10:30. At that point, we will interrupt the
hearing so that all Senators can cast that vote. I believe it
will be the only vote, so it should not be a significant
interruption, but we appreciate the patience of witnesses and
all who have come to join us in the hearing room today in sort
of understanding our predicament.
But we will proceed now on time. We have the distinguished
ranking member, the former chairman, indicating the importance
of the hearing. I want to make a short opening statement and
then I will call upon the ranking member for his opening
comments.
Today, the Senate Agriculture Committee is holding a
hearing on two related issues. The first is an examination of a
proposal that would create a loan guarantee program to provide
low-cost money to satellite and cable systems to help them
deliver local broadcast stations to viewers in rural America.
The second issue is the looming presence of the digital
divide in rural America. Rural communities face a number of
unique barriers in the realm of telecommunications. Small-scale
low-density settlement patterns make it costly to deliver these
types of services, and even when the technology is available,
as in the case of satellite television, issues of access still
arise due to the cost constraints inherent in serving a
population that is often remote from the economic centers of
urban America.
Just as the disparity in access to local television signals
for rural Americans is problematic, the disparity in access to
telephones, personal computers, and Internet access between
rural and urban areas is likewise very troubling. A recent
United States Department of Commerce report shows that
regardless of income level, Americans living in rural areas are
lagging behind in Internet access, and even when holding income
constant, Americans living in rural areas are less likely to be
connected by personal computers. Low-income, young, and certain
minority households in rural America are the least connected to
the information highway.
This digital divide contributes to the problems facing
development in rural America. Rural America is an important
source of income, wealth, and well-being for our Nation. The
rural regions of the United States contain 83-percent of the
Nation's land and are home to 21-percent of Americans. Rural
America can gain access to some opportunities only by
connecting to the information highway. By creating necessary
linkages to manufacturers, other businesses in the region,
small towns and cities will be more able to attract
entrepreneurs.
Therefore, telecommunication infrastructure is an important
foundation for job creation. The information highway offers
rural America an unprecedented opportunity to compete on an
equal footing with big cities and with other countries. Access
to information network is already bringing jobs, education, and
health care services. Yet, there is also a danger that some
parts of rural America which already have lower incomes and
lower education levels than the rest of America lack access to
these online resources and could fall further behind.
This hearing will look at the reasons for this disparity as
well as hear testimony on ways of solving the problem. Our
first panel will focus on the rural satellite television issue.
We will hear testimony from two administration witnesses, Mr.
Chris McLean, the Acting Administrator of the Department of
Agriculture's Rural Utilities Service, and Mr. Greg Rhode,
Assistant Secretary for Communications and Information at the
Department of Commerce's National Telecommunications and
Information Administration.
Next, we will hear from Mr. James May, the Executive Vice
President for Government Relations at the National Association
of Broadcasters, and we will hear from Dave Parkhill, the
General Manager of the Hamilton County Telephone Cooperative
located in Dahlgren, Illinois, and from John Hutchinson,
Executive Vice President and Chief Operating Officer of LTVS,
Incorporated, from Raleigh, North Carolina.
[The prepared statement of Senator Lugar can be found in
the appendix on page 58.]
Our second panel will focus on the more general issue of
the digital divide in rural America. Dr. Stephen Jay, Chairman
of the Department of Public Health and Assistant Dean for
Continuing Medical Education at Indiana University School of
Medicine will join Mr. McLean, Mr. Rhode, and Mr. Parkhill for
that discussion.
I welcome all the witnesses to the Committee. Obviously, I
welcome all my colleagues and I call upon one of them now, the
distinguished ranking member, Senator Harkin.
STATEMENT OF HON. TOM HARKIN, A U.S. SENATOR FROM IOWA, RANKING
MEMBER, COMMITTEE ON AGRICULTURE, NUTRITION, AND FORESTRY
Senator Harkin. Thank you very much, Mr. Chairman, and
thank you for holding this very important hearing. I want to
associate myself with everything that you have said this
morning and I might just make a couple of additional comments
to add to it, perhaps.
We are very proud of the technical progress we have made in
America, but even though we have made this progress in
technology, rural America is being left behind. I joined the
Senate Rural Telecommunications Task Force last year in order
to address these issues and work as part of a group to pass
legislation to help rural communities catch up.
Just as cable and telephone companies say that it does not
make good business sense to provide service to a few customers
in sparsely populated areas, we know that without this access,
rural America will, indeed, be left behind. We are not just
talking about high-speed broadband Internet access or reliable
telephone lines. We are talking about just the basic TV
services, local weather, local news for rural residents and
farmers.
You would think it would be easy. You would think that if
you lived on a farm in Iowa, you could just attach an antenna
to your house and get the local weather or local news from the
closest TV station, but it does not work that way and it is not
that easy. An antenna a lot of times does not reach that far.
Cable, they will not extend the lines outside of metropolitan
areas because they say it costs too much.
The satellite dish came along and provided some relief and
access, but satellite companies say they have revenue problems.
They say they cannot afford to include what's called local-
into-local programming into small and rural TV markets. They
can sure do it in a lot of other places, but they say it's not
profitable to do it in rural areas.
Last year, we fought hard to keep our rural loan guarantee
program in the satellite bill, one that would make it easier
for companies or nonprofit cooperatives to provide local TV to
rural customers at no cost to taxpayers. Unfortunately, it was
taken out at the last minute before the bill was passed and
signed into law.
Senator Baucus has introduced a bill, which I cosponsor,
that contains much of the same language that was taken out of
the satellite bill. I believe this bill is a good start in
giving rural customers local TV and I hope we can all work from
there to put together a bipartisan bill that will give rural
America the access that it deserves.
I think we have an obligation to move ahead here in the
Congress to make sure that rural America is not left behind. It
is wrong that residents in DC and other big cities can receive
local programming while customers in Cumming, Iowa and the rest
of rural America cannot.
Thank you very much, Mr. Chairman.
The Chairman. Thank you very much, Senator Harkin.
Senator Grassley, do you have an opening comment?
STATEMENT OF HON. CHARLES GRASSLEY, A U.S. SENATOR FROM IOWA
Senator Grassley. Yes. First of all, my two colleagues who
have just preceded me have probably said it as well as can be
said and said everything that needs to be said.
Iowa, of course, is one of 15-States that does not have
markets big enough to make it economically attractive for the
satellite companies to provide local TV services, and I guess
maybe I do not understand that any more than my colleague from
Iowa, who just said that he understands the technology and does
not understand why we cannot get it. But even if you assume
that, that is right, it seems to me as a matter of fairness we
ought to make sure that we serve all the 15-States and the 25-
percent of the people in this country that do not have it and I
am here to help see that that gets done.
I want to thank Senator Burns on our side of the aisle for
working so hard on this issue in the past. I do not think
anybody has worked harder than he has and I appreciate his and
your attention to this to get it to the top of the agenda.
The Chairman. Thank you very much, Senator Grassley.
Senator Leahy?
STATEMENT OF HON. PATRICK LEAHY, A U.S. SENATOR FROM VERMONT
Senator Leahy. Thank you, Mr. Chairman. I am delighted you
are having this hearing and I agree with what you have said and
what Senator Harkin has said, the importance of it to us in
rural America.
Last year, I worked on the satellite home viewer conference
because part of it was in the Judiciary Committee and I worked
with those around this table and with Senator Lott and Chairman
Hatch and Senators Stevens and McCain, Thurmond, and Chairman
Bliley and Hyde and Kohl and Hollings and Representatives
Dingell, Markey, Conyers, Berman, and others. I think we ironed
out a great satellite bill, and the fact that we got it through
at the very end of the session was an amazing, amazing thing.
But we had one big gaping hole in there and that was the loan
guarantee program.
The rural areas encompass 75-percent of the U.S. landscape,
but it is only 25-percent of the population, but for those of
us who live in there, in that 25-percent, we consider it a
pretty important part of the country, and we might not receive
local-into-local satellite TV until 10- to 20-years after the
urban areas do. I think that is something that will add to this
digital divide that will leave much of rural America behind the
computer revolution, something we do not want to do. We like to
advertise our quality of living, but we also want to make sure
we have jobs and access to the same technology the rest of
America does.
The law we passed last year sets forth the real head-to-
head competition between cable and satellite TV, and I think,
ultimately, that is something that is going to help both
satellite and cable TV. But it will also help in States like
mine. A lot of other States have access to local stations for
the first time over satellite. Potentially, they can have high-
speed Internet access to boot, and in the next four or 5-years,
you will either have high-speed Internet access or you really
do not have Internet access. You will be cut off from most of
the things that the Internet will have, especially in a digital
world, whether it is the downloading of movies, music,
software, or anything else.
Now, in a lot of these rural areas, those that are using
satellites today, many of them have never seen their local
network channels over the air or over satellite. A lot of them
cannot receive some of the local emergency things--there is a
flood, there is a tornado, there is weather or any other type
of thing. They cannot receive it.
So I think a loan guarantee program could assure both
access to local network stations and broadband Internet access.
We could solve two major challenges facing rural America,
access to the Internet and access to local programming. With a
single action, we could help rural America leapfrog over the
wired era directly into the satellite-driven wireless era.
I was convinced when we were meeting last year in the
conference that the USDA should handle this loan guarantee
program because of their 50-years of experience in financing
rural telephone, rural electric, and all these other areas.
They have the largest loan portfolios in this area that there
is.
I still remember my grandparents talking about the first
time they had electric lights in Vermont. My grandfather used
to turn the light on, turn the light off, turn the light on and
off, not having to get out the matches and light up an oil
light. I realize when I start telling these stories, Mr.
Chairman, my children start referring to the geezer attitude,
but------
[Laughter.]
Senator Leahy. But I am not yet sixty, and I remember
talking about that. It was not all that long ago, and to get
telephones into rural areas, the things that you take for
granted in urban areas. Well, this is the same thing, and so I
hope USDA can do it.
I will put my whole statement in the record, Mr. Chairman.
The Chairman. It will be published in full.
Senator Leahy. Thank you.
The Chairman. Thank you very much, Senator Leahy.
The Chairman. Senator Conrad?
STATEMENT OF HON. KENT CONRAD, A U.S. SENATOR FROM NORTH DAKOTA
Senator Conrad. Thank you, Mr. Chairman. Before I talk
about the subject at hand, I am just wondering as a matter of
committee business, will there be an opportunity to vote on the
portraits that are hanging in the Committee hearing room?
[Laughter.]
Senator Leahy. Mr. Chairman, does that not require
unanimous consent, to have any revotes on this?
The Chairman. I think that is a good point.
Senator Leahy. Yes.
The Chairman. Well, the chair does not contemplate any such
action.
Senator Conrad. I regret that, Mr. Chairman.
The Chairman. I understand.
Senator Conrad. I think we do have some votes to make some
changes.
[Laughter.]
Senator Leahy. Mr. Chairman, you still have my proxy for
the rest of the year, as long as you do not put this on the
agenda.
[Laughter.]
Senator Conrad. Thank you, Mr. Chairman. I very much
appreciate your holding this hearing because it is a matter of
real importance in my State.
I hope the number one priority today is to address this
question of areas that are being left out, because being left
out in this area is to be left behind. We have got to, I
believe, ensure that all Americans have access to the
information they need to participate in this remarkable
transformation that is occurring in the world today.
As we all know, when we had the legislation before us last
year, the rural satellite loan program was left out, and in
part, I opposed the appropriations bill for that reason. This
is simply too important to be left out.
In my State, 140,000 of our population, about 23-percent of
the households in North Dakota gets their television from
satellite, and they are, I can tell you, complaining each and
every day about the lack of service. As I think everybody
knows, no city in North Dakota is large enough to qualify as
one of the top markets in the United States. I wish that were
not the case, but it is. Therefore, not one citizen in North
Dakota will benefit from the local-into-local provision that
was included in the recently passed legislation.
I hope very much that we can make certain that the rural
parts of the country are included. It is absolutely essential
that they be included.
That deals with the question of television. Also, Internet
access is critically important. I just held my annual
marketplace conference in North Dakota that attracts about
4,500 people in a day that come to talk about economic
opportunity in the State of North Dakota, how we can diversify
farming operations, how we can attract new jobs, how we can
take advantage of technology.
Admiral Bill Owens came and was the keynoter this year, the
former Vice Chairman of the Joint Chiefs of Staff, who is now
the co-executive of Teledesec. Teledesec is the company founded
by Craig McCaw and Bill Gates and Boeing and Motorola to put
satellites in low-earth orbit all around the world to provide
broadband access, to provide that technology. He painted a
picture of what is going to happen in terms of the availability
of this extraordinary technology, the difference it is going to
make in people's lives, and the absolute need to be included or
to be left out and what that will mean.
So, Mr. Chairman, I believe this is one of the most
critical issues facing rural America and I am grateful to you
for holding this hearing.
The Chairman. Thank you very much, Senator Conrad.
Senator Baucus?
STATEMENT OF HON. MAX BAUCUS, A U.S. SENATOR FROM MONTANA
Senator Baucus. Mr. Chairman, I just wanted to be another
member of the choir here. I think all of us are singing from
the same page, the same sheet of music.
I might say that in our State of Montana, we have the
highest per capita use of satellite in the Nation. We have more
satellite dishes per capita than any State in the Nation. Our
State flower is the satellite dish.
[Laughter.]
Senator Baucus. It used to be the bitterroot, but no more.
We have a few TV stations in Montana. None of them begin to
qualify to receive local-to-local service under the scheme that
the satellite companies say that they will help utilize. We
have heard the figures. There are about 210-markets in the
country. The current satellite companies say they will be able
to service about 67 of those markets, not the others. That is a
conservative estimate. A lot of people tell me that it will
probably not be more than 40.
Let me tell you about number 210 on that list, down at the
bottom is Glendive, Montana, and I might say that all the
others, of course, are not in the top 60, just as none in North
Dakota are. I do not know how many in your State, Senator, are
on that, but I know there are 16-States--I think there are 16-
State capitals that will not be served in the Nation. If you
get down to 40, it is going to be obviously fewer. There are a
huge number of Americans just unable to get local-to-local
service.
I do not need to go over all the reasons why local-to-local
is so important, but just to say things like local high school
scores, the weather and charity fundraisers. There is local
news, maybe a shooting, who knows.
Senator Leahy. A lost child.
Senator Baucus. It is a sense of community which is
dissipating and slipping away in some areas.
Let me just give one example. I asked General Barry
McCaffrey to come to Montana last week. He came to Billings,
Montana. Why did I invite him? Because we have a significant
methamphetamine problem in Montana, and in other rural States,
too. It is not just our State. But the whole point of all this
is to get the community to work together. You know, the
treatment providers, the prevention folks, the public and
private prevention people, the Public Health Service, the
doctors, school boards, law enforcement, the sheriff's office,
the police chief, just every facet of that community has to
work together on a holistic zero-sum basis if we are going to
stomp on and basically extinguish--never entirely--
methamphetamine. It is wicked stuff, worse than heroin, worse
than cocaine.
I must say, Mr. Chairman, astoundingly and sadly, the use
of all drugs in America today is about roughly 30-percent
higher in rural America than it is in urban America, and
cocaine, heroin, methamphetamine is utilized twice as much in
rural America compared with urban America.
The communities need to, on a local basis, start to solve
problems and have a sense of community, and I tell you, in this
age of TV, it is not going to happen until we solve this
problem, particularly in rural America. It is not going to
happen, because people watch television and they watch a lot,
we think around this table probably too much. But at least they
should be able to get local-to-local programming so they can
tell their own local community what is going on.
Just think of all the weather warnings, for example, you
know, tornadoes, blizzards, floods. If you cannot get local-to-
local, somebody in Glendive, Montana, gets great programming
out of New York or out of L.A. does not make much difference,
but you need it locally.
In addition, Mr. Chairman, I might add that there are a
couple, three issues here. One is, which entity is best
qualified to administer the program? I think the answer to that
is clearly the Rural Utilities Service [RUS] of the USDA. That
is clear. They have provided such great service in telephone
service, power service. They have the biggest loan portfolio.
It is not just satellite companies or other line companies, it
is cable companies, too. They are qualified to do this.
I also think that you could write in this legislation some
provisions to make it clear that the RUS, obviously the best
qualified, will be fair to everybody, fair to all who want to
compete to provide the service, whether it is wireless or it is
cable or whether it is with satellite. There is a way to get
that in there to make that fair. It makes no sense to set up a
new bureaucracy, a whole new bureaucracy, as is contemplated by
some Senators, to administer a program. They have no idea of
how it works. They would be subject to Senate confirmation. I
mean, there are all kinds of problems that are going to slow up
needed service to people.
So it is very clear, Mr. Chairman, we have got to move very
aggressively on this legislation in this committee and I have a
bill that I have introduced attempting to solve this problem. I
know people amend it and they can improve on it, obviously, but
at least to get the ball rolling in this committee, because
this is the Committee of jurisdiction on this issue. This is
the Committee of experience on generally this issue and it
makes no sense to start a new bureaucracy, but we have to move
aggressively if we are going to make that happen.
Thank you, Mr. Chairman.
The Chairman. Thank you very much, Senator Baucus.
Let me just take the comments that you made as a point of
departure before the panel commences. As the distinguished
Senator from Montana has pointed out, he has proposed
legislation and it has been assigned by the chair to this
committee. Very clearly, the Senator's activities here have
already generated considerable support. There are at least 13
cosponsors of his bill, and maybe more.
In tracing fairly recent history, just to the conference
between the Senate and the House that came, unfortunately,
after the failure of Congress to pass all the appropriation
bills, as you recall, there were five bills and this led, as it
had the year before, to a significant deliberation by Senators.
In the midst of all this, Senator Burns of Montana, a
colleague of Senator Baucus, noted a severe deficiency here.
Senator Gramm of Texas objected very much to Senator Burns's
approach. Senator Baucus and other colleagues who joined him
drafted legislation and asserted that the Agriculture Committee
ought to be the major committee of jurisdiction. Senator Gramm,
who was chairman of the Banking Committee, disputes that, not
that we do not have an interest in it, but that he believes
that his committee, the Banking Committee, likewise has the
major interest.
So I will try to be diplomatic in weaving my way through
the competing proposals, but suffice it to say that we have a
significant piece of legislation offered by Senator Baucus and
referred to this committee. Senator Gramm has advised me, and
by that I mean he has approached me, talked to me about this,
that he is drafting with Senator Burns a bill that will be
heard again. He has had one hearing, and they will be working
in the Banking Committee on legislation.
Now, in the midst of this, we have seen that this is a high
priority. This is just the second hearing in the Committee this
year. We are having a lot of them. But it is important for this
issue, the basic facts that are going to be presented by our
witnesses this morning, to come forward at this stage because
this is a crucial issue for rural America. That was finally
observed by the Congress with some stop-gap legislation so that
signals would not go out all over America on January 1 for many
people, quite apart from those who are unserved, for some who
are served. But that, everyone realized, was a temporary fix
and something more permanent and stable in terms of policy
needs to happen.
So I pledge to the Senator from Montana and to all who have
come to this hearing and already testified in our way as
Senators of our interest that we will try to move ahead. Now,
how we do this, I will ask the cooperation of all Senators so
that this jurisdictional problem does not lead us down the path
to inactivity throughout this Congress. I think that we all
recognize that. We want action. Senator Baucus has been very
gracious in saying the last word in his bill may not be the
last word. He is subject to amendment and suggestion, but he
has asserted with regard to the rural agency that now he has
designated RUS for this, that he thinks that is the best idea.
Obviously, Senator Gramm and maybe Senator Burns, I will
have to determine really how they want to do it and we will
have to make some decisions in the Committees as well as,
ultimately, this is amendable on the floor, as anything is in
the Senate, so decisions will finally be made by our
colleagues. But we will try to enlighten them in these hearings
and in other colloquy as to the basic issues that are involved
here.
Senator Baucus. Mr. Chairman?
The Chairman. Yes?
Senator Baucus. I appreciate your comments, and I am glad
you referenced the efforts of Senator Burns, my colleague from
Montana, because he has worked very hard on this, and the
reason he has and the reason I have, because as I mentioned in
my comments, we have the highest per capita satellite use and
we are in desperate straits for serving our people.
Second, it is clear here we just need to help the people in
our country as quickly as possible. Even if we were able to
pass legislation today, it is still going to take some time
before these people get service. It will take time to put the
financing together, get the satellites up if that is the
primary technology, or if it is cable that they use maybe in
some places. I mean, it just takes time, so it is critical that
we move right away.
All I am saying is, we have got to move, and in my humble
opinion, this committee is the logical committee of
jurisdiction. On something like this, every committee wants
jurisdiction, but you have got to be fair and honest. Which
committee logically has jurisdiction? I think it is clear, this
committee logically has jurisdiction, and I think that some
Senators are pretty assertive around here, but that does not
mean that they are right. But we have to be both assertive
because we have got to serve our people and because it is
right.
Thank you, Mr. Chairman.
The Chairman. I agree with the Senator. Obviously, we have
been assertive, as the Senator knows, as he approached me and
Senator Kerrey, Senator Leahy, and Senator Harkin last year. I
had concluded that we would try to assert jurisdiction, we
would have a hearing, put a stake in the situation.
I hope the Senator understands that I also want to see
legislation, so even while we are asserting this and we will be
very active, we will try to keep an eye out for other
activities, namely the Banking Committee.
Senator Leahy. Mr. Chairman, even though it is almost
unheard of for parochialism to come into debates around this
table, I would note that Vermont has the second highest per
capita use of satellites, and I loved what the Senator from
Montana said.
The Chairman. I am glad you made that point.
[Laughter.]
Senator Leahy. I was counting all this time.
The Chairman. Let me complete the record. Senator Burns had
asked for an opportunity to testify this morning. He withdrew
that request because he needed to be in Montana and has asked
me to announce that, so he will not be appearing at the hearing
this morning.
Senator Baucus. It is a problem in Montana, Mr. Chairman,
Libby, Montana, northwest Montana. Lots of people are suffering
from asbestosis, mesothelioma, and other asbestos-related
diseases.
The Chairman. That is my understanding.
Senator Fitzgerald, while all this was going on, you have
arrived. Do you have a comment before I call upon our panel?
Senator Fitzgerald. No. I will just have questions. Thank
you, Mr. Chairman.
The Chairman. Very well. Thank you.
Without objection, I would like to include a statement from
Senator Craig in the record.
[The prepared statement of Senator Craig can be found in
the appendix on page 60.]
The Chairman. I will ask each of you to testify in the
order that I introduce you, which you may have forgotten, but
it will be in the order that you are, really, from left to
right as you are seated there. We will ask that you try to
summarize your testimony in 5-minutes. If you cannot, we
understand, and there may be overwhelming circumstances. But to
the extent that you can, this will allow more dialogue with the
Senators and their questions.
Mr. McLean?
STATEMENT OF CHRISTOPHER MCLEAN, ACTING ADMINISTRATOR, RURAL
UTILITIES SERVICE, U.S. DEPARTMENT OF AGRICULTURE, WASHINGTON,
DC.
Mr. McLean. Thank you very much, Mr. Chairman. If I may add
a personal note, as a former Senate staffer to Senator Jim Exon
and Senator Bob Kerrey, who have worked so closely with and on
this Committee, it is a distinct personal privilege and honor
to appear before the Committee today.
I am Christopher McLean, the Acting Administrator of the
Rural Utilities Service, the successor to the Rural
Electrification Administration. The RUS administers a $42
billion loan portfolio of more than 9,000 loans for
telecommunications, electric, water, and wastewater
infrastructure projects throughout rural America. Our agency
also administers a program which was introduced by, as I
recall, Senator Leahy, the Distance Learning and Telemedicine
Loan and Grant Program, which is a tremendous success and has
been very, very helpful in closing the digital divide in rural
America. The RUS is also a leading advocate for rural consumers
before Federal and State regulatory authorities.
For nearly 65-years, with the sound and continuing
oversight of this Committee, the Rural Electrification
Administration [REA] and the RUS have been empowering rural
America. Just this last October, the RUS telecommunications
program celebrated its 50th anniversary. In those 50-years, RUS
has helped close the digital divide. The telecommunications
program has maintained an unprecedented level of loan security
over the whole history of the program. RUS is also very
fortunate to have an accomplished core of engineers,
accountants, financial specialists, and rural infrastructure
experts. I am confident that the RUS has the necessary skills
to administer new initiatives that bring the benefits of the
information revolution to all Americans.
For America's rural residents, access to television signals
has long been a challenge. Distance and geography have been
significant impediments to the reception of consistently
viewable broadcast signals. While cable television is available
in many rural towns, it does not reach America's most rural
citizens.
Since its inception, satellite-delivered television and now
direct broadcast satellite services have provided increased
access for all communications services to rural residents.
Satellite television gave America's many rural residents first-
time access to vital sources of news, information, educational
programming, entertainment, and sports. But as good as these
services were, satellite services did not connect rural
residents to their rural communities.
Once the amendments to the Satellite Home Viewers Act are
fully implemented, many rural residents will likely lose their
ability to purchase distant network signals. Many still will be
unable to receive a suitable signal via antenna from their
local broadcaster. Given the capacity limitations of current
satellite providers, the costs of nationwide local-to-local
service, it is doubtful that the current carriers will provide
local signals to many of America's smaller television markets.
The availability of local programming will become more
problematic as the television industry converts to a digital
system of signal delivery. The propagation of digital signals
is different from analog. Analog signals fade out gracefully
from the distance of the transmitter. You are able to see the
signal, it gets a little bit snowy, you can get the audio, and
then the signal fades out and disappears. Digital signals drop
off more suddenly, and the likely result is that some current
rural viewers of broadcast television may lose their ability
even to receive a viewable signal once the conversion to
digital is complete.
Without the ability to retain and perhaps expand their
viewer base, rural broadcasters may not have the financial
ability to upgrade their systems. Once digital conversion is
complete, the technology will make it likely that rural viewers
will be able to receive fewer channels than they receive over
conventional TV antennas.
Access to a full range of news, weather, sports,
entertainment, and information is certainly important to
maintaining and enhancing the rural quality of life, but
maintaining and expanding access to most local sources of news
and weather is critical to public safety. The 1999 violent
tornado season and the recent back-to-back winter storms we
have experienced here in the East and the South highlight the
importance of local television as a means of disseminating
life-saving information.
Linking local residents to their communities of interest is
also important to maintaining and enhancing the viability of
local rural economies and local rural civic life. From both an
educational standpoint and one of public safety, it is in the
public interest that rural citizens have access to local
network programming.
The delivery of local signals to rural viewers will require
significant infrastructure investment regardless of the
technology utilized. RUS loans, loan guarantees, and grants
have helped to bring modern electric, telecommunications, and
water infrastructure to the 80-percent of America that is
rural. This public/private partnership has been the hallmark of
rural infrastructure investment, and the work of the RUS is not
done. The work of the RUS is never done because it is simply
more expensive to provide service to rural areas.
So RUS is capable of helping rural America meet the new
infrastructure challenge. We look forward to working with the
Committee and offer our full expertise to solving the problem
of local-into-local for satellite viewers in rural America.
Thank you very much.
The Chairman. Thank you very much, Mr. McLean, for your
testimony.
[The prepared statement of Mr. McLean can be found in the
appendix on page 67.]
The chair notes the presence of Senator Lincoln. Welcome.
Senator Lincoln. Thank you, Mr. Chairman.
The Chairman. Senator Conrad, do you have a comment before
we have our next witness?
Senator Conrad. Thank you, Mr. Chairman. I would just like
to introduce our next witness, Greg Rhode. Greg is from North
Dakota. He was the top aide to Senator Dorgan for many years in
the Senate on Commerce Department issues and he is now the
Assistant Secretary for Communications and Information.
I just want my colleagues to know, I think Greg has a
deeper understanding and a broader background in these issues
than anybody that I have dealt with. So we are very proud of
him, and I just wanted to make that comment before he had a
chance to testify, and I thank the chair.
The Chairman. We are especially grateful you are here.
Senator Baucus?
Senator Baucus. I just want to add my experience, too. I
have known Greg for several months. The last several months, he
has attended many meetings and I have reached the same
conclusion.
The Chairman. The threshold of expectation rises.
[Laughter.]
Mr. Rhode. It is nice to come to a friendly audience.
The Chairman. Please proceed.
STATEMENT OF GREGORY L. RHODE, ASSISTANT SECRETARY FOR
COMMUNICATIONS AND INFORMATION, NATIONAL TELECOMMUNICATIONS AND
INFORMATION ADMINISTRATION, U.S. DEPARTMENT OF COMMERCE,
WASHINGTON, DC
Mr. Rhode. Thank you very much, and thank you very much,
Senator Conrad and Senator Baucus, for your kind words, and
thank you, Mr. Chairman, for inviting me here to testify.
I appreciated your recitation of the recent legislative
history of this legislation. In fact, I recall it very well. As
the Senate was embroiled in debating the provision that came
back in the Satellite Home Viewer Act dealing with the rural
loan guarantee provision, I was in the process of cleaning out
my desk in the Hart Building and making my way down to the
Commerce Department. In fact, the very night that the Senate
was here voting on the omnibus appropriations bill, I was being
sworn in my new post, and that is why Senator Conrad missed my
swearing in ceremony but was here for a good reason.
The irony of that evening, actually, was not lost on me,
because when my predecessor was sworn into the very same job in
1993, there was no operational DBS system providing any service
to any viewer in America. Today, there are 11-million DBS
subscribers in our country. That tells us a lot. It tells us a
lot about what is happening with technology and how fast it is
growing, but it also tells us that one of the blessings of new
technology is it creates new policy challenges.
In 1993, the Congress never would have been having this
debate about how do you get local-to-local over satellite
because people were not imagining that that was possible. So,
because of the changes in technology, it creates new
opportunities, but it also creates very significant new policy
challenges.
The administration was very supportive of the provisions in
the Satellite Home Viewer Improvement Act, which provided for
the first time authorization for satellite systems to carry
local-into-local programming. As a result, today, there are 24-
markets in the country that have local-into-local over
satellite and satellite providers are negotiating for another
20-markets. But the question that still remains is, what about
the remaining 200-or so markets? Are they going to get local-
to-local, and how are they going to get local-to-local?
We also need to remain mindful of the many Americans, rural
Americans especially, who are not passed by cable, who do not
get local-into-local over cable, and who do not get a clear
broadcast signal.
I had the great privilege one summer about 12-years ago of
spending a summer in a very small community in North Dakota
called Foxholm, North Dakota. It has a population of about a
couple dozen people. It actually has more goats than it has
people in that location. It is a small community about 30-miles
outside of Minot, North Dakota. It is a community that grows a
lot of flax, grows a little bit of wheat, but more importantly,
it had a lot of dairy cattle in the area.
I know that in that part of the country, as Senator Conrad
knows from being around it quite a bit, that this part of the
country relies very heavily on the weather. It determines their
lives. When I lived there, there was no cable. We could not get
a clear broadcast signal. I can imagine what a tremendous
benefit it would be to the farmers of that area if they were to
get local-into-local over satellite or some other means, what
it would mean for them.
I know that Senator Conrad and Senator Baucus know from
being in ranch country that at this time of the year people are
watching their television sets to see for livestock warnings,
and in North Dakota, it is not explained. Everybody knows what
it means. It means the weather is getting bad. They need to go
out and protect the cattle. What a benefit it would be to
people who currently cannot get those livestock warnings
because they cannot get a clear local broadcast signal, nor can
they get it over a cable system or a satellite system. So this
is a tremendous issue to address.
NTIA believes that this discussion over how to enhance the
capability of getting local-into-local into small rural markets
should not be limited to a loan guarantee approach. For this
reason, I recently announced that NTIA is going to issue a
Federal Register notice where we are going to seek public
comment and suggestion as to how small rural markets can get
local-into-local programming. All the comments we receive are
going to be posted on our Website, which is at
www.ntia.doc.gov. So these comments will be available for your
information as well as anybody else in the public.
In addition, as part of this process, I intend to host a
roundtable discussion in early March that would invite various
stakeholders, including policy makers and consumers, industry
representatives, as well as technical experts to really examine
this issue as to what are the possibilities out there. What are
all the approaches? What are the things that we can do, whether
it be a rural loan guarantee approach, or maybe there are other
approaches, as well, that can compliment that approach to try
to address this issue.
I want to make it very clear that my intent with this
inquiry is to compliment the debate here in the Congress as
well as the discussions that are occurring at the FCC, as
required under the Satellite Home Viewer Improvement Act. So my
intent is to try to enhance the public debate and participate
and improve upon it.
The administration believes that this question of how
consumers in small rural markets are going to get local-into-
local over satellite systems or other technologies is a very,
very important question and I really commend you for having
these hearings and for looking at this issue and really
wrestling with it. The administration is very eager and willing
to work closely with you on a loan guarantee approach, as well
as any other approach that might be considered as you debate
this issue.
Should the Congress proceed to push legislation on a rural
loan guarantee, I would just offer up three basic principles
which I would ask you to consider in this approach.
First is that any loan guarantee program that you would
establish should be technologically neutral. This is very
important. It is important for innovation, that this program be
part of fostering innovation in the private sector. But it is
also very important to be mindful of the fact that different
technologies might work best in different types of
circumstances.
A second principle that I would urge you to consider is
that any loan guarantee approach should really foster
competition and encourage competition. The authorization of
satellite providers to carry local-into-local programming is
going to allow satellite providers to become a more forceful
competitor to the cable industry. This is a good thing. This is
going to be good for consumers. Any loan guarantee approach
that would be constructed by Congress really should have in
mind how this approach could actually foster competition in the
multi-channel video market.
Third and finally, any loan guarantee program really should
demonstrate fiscal responsibility, and by that I mean it needs
to conform with the existing Federal credit program policies.
The administration has had a range of experiences with other
loan guarantee programs. There are a lot of basic principles
which these programs have operated under and I urge you to
consider those as you consider this legislation.
With that, I would be happy to take any questions you may
have.
The Chairman. Thank you very much, Mr. Rhode.
[The prepared statement of Mr. Rhode can be found in the
appendix on page 70.]
The Chairman. Mr. May.
STATEMENT OF JAMES C. MAY, EXECUTIVE VICE PRESIDENT, GOVERNMENT
RELATIONS, NATIONAL ASSOCIATION OF BROADCASTERS, WASHINGTON,
DC.
Mr. May. Thank you, Mr. Chairman. In addition to handling
government relations responsibilities at NAB, I also am sort of
a project director looking into how broadcasters can take their
own future into their hands in developing a local-to-local
system.
I will not try and repeat today all of the history and
background. We obviously all are very well aware of what
happened with SHVIA and I think what happens in local markets.
We are very concerned that unless an appropriate economic
mechanism can be developed, that there are stations all over
this great land of ours that are not going to see local-to-
local and I think that the benefits of localism that you have
talked about so eloquently this morning and the other members
of this committee are critical and your commitment to localism,
our commitment to localism can only be solved in these small
and rural markets when we have a functioning, working system.
Let us think about for a minute what is at play here. There
are 210-television markets. DirecTV and EchoStar, the two
principal platform providers, are likely to be serving
somewhere between 35 and 40 of those markets with local-to-
local signals. They are in roughly 20-some-odd markets each
today.
My good friend, John Hutchinson, who will testify a little
bit later this morning, is likely to be picking up a number of
additional markets across the country, maybe as high as 68 to
75. That then leaves from market-75 to market-210, a huge
number of citizens of this country, 25-percent of the
population of this country, unserved by local-to-local signals.
Let me further put that into context and tell you there are
17-States without a top-50 market, representing 34 of your
colleagues. There are 800-television stations in those markets
that will not enjoy the benefits of local-to-local as we go
forward unless a system can be developed.
Now, there are clearly a number of economic and technical
hurdles that face anyone trying to create a viable business
plan to develop these local signals in the medium and small
rural markets.
The first, obviously, is the limited number of people that
live in these individual 150 or so markets. In order to make
the service consumer friendly and to hold down costs, we think
that the plan is ultimately going to be to have a company be
developed that wholesales these local stations to the existing
platform providers, an EchoStar or DirecTV. Likely partners in
the relationship could well be EchoStar and DirecTV. Other
partners could easily be satellite manufacturers, and certainly
broadcasters want to partner with people so that we can take
our own destiny into our hands.
But they are going to have a number of other technical
problems. In partnering with a DirecTV, for example, or an
EchoStar, we have any of a series of issues that relate to the
technology of actually delivering those local signals. What
orbital slot might we be in? The large number of stations that
have to be covered, I have said 800-plus stations, are going to
mean that we are probably going to have to have unique orbital
slots, as many as 60-different uplink facilities around this
country, maybe more. We are going to have to use spot beam
technology for the satellites that are going to be able to
deliver this system.
At the end of the day, depending upon the number of markets
that are going to be covered and the level of redundancy that
will be required to protect these markets, either by the
lenders or anyone else, the cost of covering those rural
markets that we are all concerned about is going to range
somewhere between $600 million and $1 billion, not chump change
by anyone's imagination. Now, as I said, that is going to be a
function of redundancy, the number of markets covered.
Now, we certainly are willing to accept this challenge. We
support the concept of having the Government provide economic
incentive. But I think that, Mr. Chairman, there are some key
issues that have to be addressed in providing that economic
incentive.
First, let me suggest that there a lot of people who are
trying to bring the issue of ``must carry'' into this process.
Must carry is a complete red herring. There is an absolute,
easy, simple way to assure that every station will be carried
under a functioning local-to-local plan. Capacity is not the
issue. If we are wholesaling to the retailers, it will not be
an issue at all. We want to follow a policy of inclusion, not a
policy of exclusion. That is the principle on which this
committee is meeting today, to include everyone, and that
includes all stations. The last thing we want to do is give
satellite providers the opportunity to pick and choose who is
going to be carried.
Now, last year, we are all aware there was a loan guarantee
program. Let me give you very quickly some suggestions we have
to improve that.
First, do not put limits on the numbers. Last year's
program, I think, limited the top end at $625 million. We have
told you this is a $600 million to $1 billion program. Anyone
else coming into the business would have been limited to $100
million. I think you want to let the marketplace and whoever is
going to administer this program make a determination.
Do not make it cumbersome. Keep it as simple as possible in
terms of its administration. We think you need to be careful
about the issue of subordination. The history of loan programs
is that the Government does not have to have lenders be
subordinate to the Government. It can be the other way around.
We think that will make access to capital easier. We do not
anticipate you are going to fund 100-percent of the plan. We
need to go out for senior debt. That means senior debt is going
to be more achievable if we do not have the Government be
subordinate.
Finally, we think that you cannot limit this to a nonprofit
environment. You have got to be able to include for-profit
operations, including a DirecTV or an EchoStar. At the end of
the day, this is likely to be a consortium of companies that
are coming together to provide these local signals into small
and rural markets.
We certainly praise your efforts, Mr. Chairman, those of
Secretary Rhode, a great and good friend of ours for many years
when he was up here on the Hill, and we look forward to working
with you to accomplish this goal which we all share. Thanks so
much.
The Chairman. Thank you very much, Mr. May.
[The prepared statement of Mr. May can be found in the
appendix on page 75.]
The Chairman. Senator Fitzgerald.
Senator Fitzgerald. I just wanted to introduce the next
witness.
The Chairman. Yes. Please proceed.
Senator Fitzgerald. Thank you, Mr. Chairman. I just wanted
to interject at this point and introduce one of my
constituents, the next gentleman on the panel, Dave Parkhill,
General Manager of the Hamilton County Telephone Cooperative in
Dahlgren, Illinois. Mr. Parkhill is from Southern Illinois, a
rural part of my State.
Mr. Parkhill, thank you very much for coming and welcome to
the Committee.
Mr. Parkhill. Thank you, Senator.
The Chairman. Please proceed.
STATEMENT OF DAVID E. PARKHILL, GENERAL MANAGER, HAMILTON
COUNTY TELEPHONE COOPERATIVE, DAHLGREN, ILLINOIS
Mr. Parkhill. Chairman Lugar, my name is Dave Parkhill and
I am the General Manager of the Hamilton County Telephone Co-op
in Dahlgren, Illinois. Hamilton County Telephone Co-op is a
member of the National Rural Telecommunications Cooperative.
NRTC is a not-for-profit cooperative association with a
membership of nearly 1,000-rural-utilities located throughout
48-States. Hamilton County Co-op and NRTC's other members
provide electric or telephone service to underserved low
population density areas of the country. NRTC's mission is to
meet the advanced telecommunication needs of American consumers
living in underserved areas.
NRTC, its members, and affiliates currently market and
distribute C-band and direct TV programming to more than 1.4-
million subscribers. Hamilton County Telephone Co-op and its
subsidiary provide these services to a customer base in
Southern Illinois. However, our biggest request is for the
networks, because our location is distant enough from the local
broadcasting stations that we are not able to receive the
networks without the investment of a tall tower, good antenna,
rotator, and an amplifier. In fact, most all of our so-called
local programming is from out of State. Some homes get no over-
air picture at all.
In my testimony today, I intend to address two problems not
addressed by last year's Satellite Home Viewer Improvement Act,
first, the unavailability of local television services in rural
America, and second, the lack of competition to cable. I am
going to propose a satellite solution to both of those problems
and it will require assistance in the form of a loan guarantee
that should be administered through the United States
Department of Agriculture and Rural Utilities Service.
The Department of Agriculture through the Rural Utilities
Service is intimately familiar with the challenges facing rural
and underserved markets. By authorizing the retransmission of
local broadcast signals by satellite, last year's satellite
bill paved the way for the satellite industry to become a
meaningful competitor to cable in some of the Nation's top
markets. But the bill did nothing to close the digital divide
throughout rural America where there is no profit to be made in
delivering local service by satellite.
The big for-profit satellite companies have announced their
intention to provide local digital satellite service only to
the top 33-markets out of a total of 210-markets. That means
that more than half of the Nation's households will not have
access to local digital satellite service. At least 20 States
will be left out entirely, including many of the States
represented by members of this committee.
I have brought a map, and it is sitting over here, that
shows the television markets that will be served with local
channels via satellite. As you can see, many will be left out.
That is unfair and it is contrary to the public interest. These
people will be disenfranchised from the modern information age
simply as a result of where they live.
It is no coincidence that satellite penetration rates in
rural America are 6-times higher than in urban parts of the
country. Satellite is an ideal distribution technology for
less-populated areas. At a fraction of the investment,
satellites can reach where cable and other broadband
technologies will never go. Satellite is ubiquitous. It can
cover wide remote spaces that ground-based technologies will
never reach. In fact, any technology other than satellite will
be ineffective and piecemeal as a tool to bring local service
to the unserved areas.
More than 90-percent of NRTC's 1.4-million satellite
subscribers do not even have access to cable. Why? Because it
costs too much to serve those homes with cable. The cable
industry has little or no economic incentive to build new
plants to serve homes located in more remote, less densely
populated areas. For any given large number of subscribers,
satellite is by far a cheaper deliver technology per household
than cable.
The Department of Agriculture knows that members of NRTC
have a history of serving remote, rural, and underserved areas.
Unlike the cable industry, their motivation and mission is to
bring service to the underserved areas, not to cream-skim the
lucrative markets.
Mr. Chairman, NRTC and its members fought the cable
industry for nearly 10-years here in Congress to obtain the
access to programming so we could help build a digital
satellite industry to serve rural America. Throughout that
debate, the cable industry argued in favor of the digital
divide. They testified that rural and underserved consumers
should pay more for their programming because of where they
lived. We disagreed then and we disagree now.
With the support of Congress, we can construct, launch, and
operate a satellite system to provide local digital service to
all areas not served by the for-profit satellite companies.
Through a common industry platform, we can solve the problems
not addressed by last year's satellite bill. We can make local
service a reality for consumers across the country and provide
meaningful competition to cable. Getting this job done will
require a loan guarantee of at least $1.25 billion to be
supplemented by the satellite industry, as needed.
We also strongly recommend that the loan guarantee program
be implemented on a not-for-profit cooperative basis. A not-
for-profit approach would ensure that the Federal loan
guarantee is not used to enrich large private or corporate
interests. Not-for-profit cooperative utilities have used loan
guarantees to bring utility services to unserved areas since
the 1930s. Rural utilities operating under the RUS program have
an excellent record of Federal loan guarantee repayment. In
fact, as part of the telecom program, I am proud to say that
there has never been a default in its history.
We urge you to establish strong criteria to ensure not only
that any loan guarantee will be repaid, but that preferences
will be given to plans which will provide the most
comprehensive solution and utilize the Federal guarantee in the
most efficient manner possible. It is imperative that all
Americans, not just a few, receive service.
Mr. Chairman, I recognize that some of these communications
issues are beyond the purview of this committee. To accomplish
our goals, we will need the assistance of other committees as
well as the FCC. However, left to its own devices, the FCC will
handle this problem the same way it handled countless others,
by relying solely on the competition to fix it, but competition
will never fix this problem simply because providing this
service is not profitable.
So we will be working with Congress and, hopefully, the FCC
to obtain the necessary spectrum and orbital locations for this
project. Mr. Chairman, if we can get Congress's help and
approval soon, we can use satellite technology to bring service
to the last mile and to provide meaningful competition to
cable. It is a big job and we need to get started. Thank you.
The Chairman. Thank you very much, Mr. Parkhill.
[The prepared statement of Mr. Parkhill can be found in the
appendix on page 94.]
The Chairman. Mr. Hutchinson
STATEMENT OF JOHN HUTCHINSON, EXECUTIVE VICE PRESIDENT AND
CHIEF OPERATING OFFICER, LOCAL TV ON SATELLITE, RALEIGH, NORTH
CAROLINA
Mr. Hutchinson. Thank you. I am John Hutchinson, Executive
Vice President and Chief Operating Officer for Local TV on
Satellite, LLC--I will call it LTVS--which was founded by
Capital Broadcasting Company in Raleigh in 1997, so we have
been at this for a little while, also founded by Capital's
subsidiary, Microspace, Incorporated, so we are one of those
unique companies that has had a foot both in the broadcasting
and satellite worlds.
Mr. Chairman, I heard your request to try to conserve our
time and I am going to do that by leaving out some of the
background that will be a matter of record from my text.
The Chairman. It will be included in full in the record.
Mr. Hutchinson. Fine. I would just like to talk to you for
a minute about why the loan guarantee, we think, is necessary
and how this thing might get done, because we have been
studying it probably as long as anybody, and I kind of like
this backdrop over here because we saw this coming, and so we
set out to say, how can we get this to more than 30 or so
markets in the United States? How far can we press it?
So we devised this technical plan with different kind of
spot beams, a new kind of satellite, and we totally used up all
of the capacity in an orbital slot and the biggest two
satellites that could be made today and all the power and
everything else, and it turned out that we got to about 800-TV
stations retransmitted. That translates into 66 of the largest
DMAs, if you start large and go down in a logical way, which is
75-percent of U.S. households.
Then we said, well, what about the rest? It is interesting
that the rest are mirrored in another 800-TV stations serving
the last 25-percent of America. So you have got 800 over here,
75-percent, 800 over here serving 25-percent, but the satellite
ran out after the first 800. So that is what we set about to
try to find a solution to.
Let me go back to my numbers here for a moment, and that is
we have been studying this plan and running business models and
have determined that it just cannot be done without government
assistance for the so-called rural markets, and that is because
private investors, of course, are seeking to maximize their
short-or near-term returns, and so a local-to-local solution
for rural America just cannot be funded purely on a commercial
basis. I say purely, because it can be partly and it can
eventually be profitable. Let me explain.
The capital cost to serve the smaller 144-markets is at
least as great for another satellite as the first 66-markets I
have just talked about. But in the first 66, you have three
times the subscriber potential, three times the revenue to work
with. So that means it pushes out the time period for going
positive, and frankly, the last 144-markets may even cost a
little bit more because there are more uplinks involved to get
from all of those markets, the way they are spread out.
So under these circumstances, the private investment
community would refuse to finance the disproportionately
expensive technical program necessary to serve the smaller
markets. A Federal loan guarantee, therefore, is desirable and
it will enable the capital to be raised to finance satellite
systems for the delivery of local TV signals to rural areas.
Based on our rather conservatively constructed business
model that we have run over and over, we believe that a loan
would be fully repaid, and our business model shows that in
just the first 2-years, a satellite provider of local TV
stations should cover its costs. In year-3, it should generate
enough income to cover its interest costs, and by year-5, there
would be a sufficient positive cash flow to begin amortizing
that loan. In addition, by this date, the enterprise would have
reached a critical mass of subscribers in rural areas that
could then make a more attractive investment opportunity out
there for private investors to come in in a second round. This
additional private capital would be used to further service the
debt. Finally, our business plan does show that the loan would
be fully repaid by year-15 or sooner.
In short, we believe the private marketplace will not do
this alone, will not provide the majority of the initial funds
to construct, launch, and operate this satellite system, so we
do support the Federal loan guarantee.
LTVS believes that a common industry platform can be
developed to ensure that small and rural markets across the
United States can receive this service. In order for the rural
satellite system to work today and in the near future, the
enabling legislation should establish some strong eligibility
criteria. In order to qualify for this loan, a satellite
provider should be able to demonstrate that it can develop a
common industry platform to be efficient to be used by all the
DBS providers, not just one, to design the satellite to carry
the entire 19.4-megabit digital signal that the Government has
mandated we transition to, and to provide full ``must carry.''
I will address each of these.
First, the common industry platform is essential to
minimize unnecessary duplication of the use of government funds
and government allocated spectrum. It is the efficient, right
way to do it. By a common industry platform, I am referring to
a local-to-local satellite system that is technically
compatible with both DirecTV and EchoStar. That is what we have
designed here, the two main providers. The satellite system
would permit, therefore, all subscribers, whether they are with
DirecTV or EchoStar, to receive both their national DBS
channels and all of their local TV stations appropriate for
that market.
The satellite would retransmit all of these stations to the
small markets and deliver the signals right into the
subscribers using the same small dish,just one of them, same
box on the set, and the subscriber receiving one bill, keeping
it simple. Using the common platform approach, both DirecTV and
Echo receivers would be designed to enable their subscribers to
receive and unscramble these local television signals.
To gain the necessary number of subscribers to make this
plan financially viable, both DirecTV and EchoStar should
include these stations in their packages and the capability in
their receivers. By marketing a single unified service similar
to cable, each of them will encourage the purchase of the local
station packages along with other program offerings. In this
way, the consumers will finally have a genuine choice in
selecting a multi-channel video program distributor.
Second, satellite carriers must be required to carry every
station's full digital signal. You see, a satellite is expected
to have a life of 15-years, and you cannot get up there to fix
it or change it once it is in orbit. The issue is that the
Government has mandated by mid-2002 that all the commercial
stations go to this new digital standard, and so it is really
important, in order to be practical, not to build and construct
a satellite that will be obsolete in the early term of its
life.
Finally, in order to ensure parity with cable in terms of
availability of all the local broadcast stations, the
legislation must, of course, require full must-carry. So
through the Satellite Home Viewer Improvement Act, Congress has
allowed consumers to receive their signals of all stations and
that is to happen by January 1, 2002. If no single DBS provider
carried all of the available broadcast programming in the local
market, then the very purpose of SHVIA would be eviscerated. AS
a result, the small and rural market viewers would enjoy the
full benefits of the Satellite Home Viewer Act if it is done
this way.
So, in conclusion, a loan guarantee program to ensure that
the rural viewer can receive local television signals via
satellite would serve an important public interest purpose and
LTVS supports such a loan program. The enabling legislation
should establish strong criteria to ensure that rural viewers
receive the full benefits of a local-to-local service, and
accordingly, the loan guarantee should be available only to
satellite providers that will carry all of the local stations
and all of their full digital signal.
I thank you for this opportunity and I would be happy to
answer any questions. Thank you.
The Chairman. Thank you very much.
[The prepared statement of Mr. Hutchinson can be found in
the appendix on page 63.]
The Chairman. I appreciate, and I am sure all of our
colleagues do, the specifics that each of you have given in
terms of the criteria of public policy as well as the practical
economics of how this ought to be constructed. For my own
information, and hopefully that of other Senators, let me try
to move through the basics that I understand.
Mr. Hutchinson, you outlined some criteria which are
reasonably consistent with other panelists, but I am not
certain that this is so and this is why I want to make certain.
As I understood the idea that you present, and I think Mr. May
touched upon this in his testimony, you envision a satellite, a
common platform, as you are talking about it, that really is
the basis for all these signals that will come to all of rural
America, all the areas to be filled in. Obviously, this is an
expensive project to begin with, the common platform, the
satellite, leaving aside whatever happens after that.
I make that point because as this was discussed anecdotally
by Senators last year during the imbroglio that went on, there
was a view on the part of many that we are talking about
hundreds of small businesses, maybe local television stations,
requiring loans. In other words, the map is filled in by people
who are in these various localities who have to provide signals
to their local subscribers and needed money to do so. Now, that
may not have been the view of all of you who are here who are
sophisticated about this to solve the satellite's common
platform, but the whole loan guarantee situation was not clear
and I just want to make certain I am clear in my own mind.
I am trying to think of who puts up the satellite. Is this
a company? Is it a consortium of companies? For instance, Mr.
May makes a very good point that if you have a limit of $100
million and we are talking about a $625 million to $1 billion
project or what have you, that is obviated to begin with. The
$100 million may work with these small television stations, and
that is what some people thought we were trying to do, but what
I gather you are trying to do is put up a satellite that costs
hundreds of millions of dollars.
Just for the sake of argument, would one company do this?
Who does it? Who makes the application for this money?
Mr. Hutchinson. Well, first of all, Sir, you are correct in
that our plan shows that, after looking at this, that the
common platform is the most efficient means to limit the
Government's risk here, to conserve resources, and to have the
best use of spectrum, not to duplicate or waste that spectrum
by putting 1,600-TV stations up on satellites twice.
In terms of who might do that, one thought would be a
hybrid of a purely commercial enterprise, funded accordingly,
for the largest markets that do pay back soon enough to get
private investors and not put that burden on government, and
then for the Government loan guarantee to come in on that
second 800-stations for some sort of another entity to
compliment the first, but with the same technical architecture.
That would work.
The Chairman. So you have two companies in this case------
Mr. Hutchinson. Cooperating with the same technology, and
we have------
The Chairman. They are still to be formed. In other words,
if there is an idea that this is going to happen, your thought
is that out in private enterprise America, there will be two
groups of people that will form and that will each have a
percentage of this, of the stock or the equity of this or what
have you. They become the applicants.
Mr. Hutchinson. The offer by LTVS, because we want to see
this happen, is that we will give, we will share with any other
qualified entity the entire technical plan and all of the specs
to make the systems compatible. That would save millions of
dollars because that is what we spent over 3-years to develop
it to date. So we want to cooperate fully with an entity that
has the Government loan guarantee to complement that system.
Mr. May. Mr. Chairman?
The Chairman. Yes, Mr. May?
Mr. May. As we have looked at this, first, let me confirm
for you that we think probably the most effective way to do
this, and I know that Hutch feels the same way, is to, in fact,
launch another satellite. It is going, in all likelihood--
almost assuredly, it will be a spot beam satellite. It will
have to cover 800 different stations. It will have roughly 60-
plus uplink facilities, 60- to 70-different uplink facilities.
The technology is something that is developing.
There are issues of compression as to how many megabits are
provided for each station. There are issues of compatibility. I
think when Hutch talks about a common platform, it is an issue
that is slightly separate, actually, from the actual idea of
the satellite itself. It refers more to issues like conditional
access and transmission standards and a variety of other
technical issues that bring together an EchoStar or DirecTV or
whatever.
I think at the end of the day, this entity that does this
is likely to be some sort of a consortium. It could arguably
involve an equity investment by small market broadcasters. It
could arguably involve companies like LTVS. It could certainly
involve satellite companies themselves, a Loral, a Hughes, who
build the satellites that would be necessary for this project.
It certainly could involve EchoStar and/or DirecTV as the basic
platform providers because I think the economic model that we
all recognize would be most effective is one that wholesales
this company, this consortium, this whatever, wholesales those
stations, that service to these folks in a way that makes it
compatible with their existing DBS service.
So it is not an easy project. It does work only with a
longer-term horizon. I would disagree with my friend that I
think you have to be able to have a for-profit motive here at
the end of the day. I do not think it ought to be a not-for-
profit kind of business.
I would finally acknowledge that there may be other
technologies out there that could work. I know the satellite
industry------
The Chairman. Other than the satellite------
Mr. May. Other than the satellite. So I would think from a
policy perspective, being technology neutral is something that
the Congress is likely to want to incorporate because we are
not the be-all, end-all. There may be a lot of people out there
that are a lot smarter than we are that can figure out other
ways to compliment this service.
The Chairman. Obviously, what all of you are saying is that
as we are trying to form this legislation, we have to sort of
stay out of the way of knocking down possibilities. In other
words, you made the interesting point that given the digital
requirements, you can send up this satellite but much of it is
obsolete in a couple of years, given other requirements, so
that if it is to have a 15-year duration, you have to make some
sort of a blue-sky judgment of what happens during that period
of time in which you are amortizing this loan.
I have no idea precisely how the Baucus legislation, the
Gramm bill, or so forth address this problem, so in sort of an
a priori way, we are trying to come to grips that we are
looking probably at one big loan to maybe two entities or one
entity that is made up of a number of stakeholders who are
involved in this problem.
Your suggestion, Mr. May, is that it be not necessarily
not-for-profit but for-profit, it could be either one, and that
has been a big issue, whether we go both of those ways. But if
we exclude one, we then have some problems maybe in putting
together this consortium, or the risk-takers that are required,
but that is a matter of judgment for members as they get into
policy.
Likewise, there is a real question that is being raised by
Senator Gramm and his committee over how much of this guarantee
the Federal Government ought to have. Now, if we are talking
about a $1 billion loan, let us say, in a rough situation,
should the Federal Government guarantee 70-percent of this and
then go to banks or other lending agencies in the private
sector to take the risk for the other 30? That is clearly a
viable issue that some Senators are thinking, not necessarily
70-30, but I throw out those figures because some have actually
used those figures. In other words, are the risk-takers in
America in banks, other people, given the fact that the Federal
Government is going to pick up 70-percent of $1 billion, are
prepared to see a satellite go up hopefully without too many
restrictions so the technologies happen so that we can get this
service?
We cannot really write the legislation here today nor you
figure out the business plan, but I think these are relevant
questions that we are going to have to come to grips with
before we get a bill that passes the Senate. There are so many
ways to block this thing, and I do not start negatively. I
start positively as to how we can try to forge some consensus.
But can any of you make a comment to sort of help me along,
if you were thinking through the parameters of where we start
with this?
Mr. Hutchinson. I can speak to the business model that we
have run, and it is only one, but it does work, and that is if
the capitalization is fully funded, if it is fully funded by
the Government loan guarantee, it is all dead, it comes in just
under about $1.1 billion.
The Chairman. One-point-one billion to do this idea of a
common platform------
Mr. Hutchinson. To service the debt for this long-extended
term until it turns positive. However, our investment banking
consultants have advised me that, knowing the market as they
do, there is a strong possibility that private investors or
equity investors might very well be interested in a five-to
ten-percent stake right from day one and that they will
definitely have an interest in more than that, putting in more
equity than that after year five, when it turns cash positive.
So it looks to us like the maximum liability on a
government loan guarantee is on the order of about $1.1 to, let
us say, $1.2 billion.
The Chairman. The government's part of it?
Mr. Hutchinson. Yes.
The Chairman. Well, now where does the private money come
into this? In other words------
Mr. Hutchinson. That would be the maximum liability, and
depending on the ability to raise the private equity, that
could be reduced perhaps by 5-percent.
The Chairman. By only 5, but not by thirty?
Mr. Hutchinson. Probably not by thirty because of the long
pay-out.
Mr. McLean. Mr. Chairman?
The Chairman. Yes?
Mr. McLean. I think it is important to be able to preserve
as much flexibility to meet the plans that would come forward,
presumably a year or 2-years from now, and there may be
combinations or technologies that at this moment in time we are
unable to anticipate. I think it is also important to consider
the entire project cost as opposed to a pure ratio onto a
particular loan guarantee. You maybe want to look at whether
private capital is at risk in the entire project.
At the Rural Utilities Service, we have both direct loans
and loan guarantees. The loan guarantees that we administer are
100-percent loan guarantees. Yet, that 100-percent loan
guarantee leverages very significant private capital
investments. So if you look at the entire project cost, the
U.S. Government is not bearing 100-percent of the risk, but the
portion of the guaranteed loan that we are supervising is 100-
percent guaranteed.
So I would just urge the Congress that if they could leave
flexibility so that we could work and find the most efficient,
the most feasible project, because there are two things we look
at. We look at loan security as well as Act purpose. So if the
Act binds the administering agency in a way that rules out
workable solutions, several years down the road, that could be
a problem.
The Chairman. I will cease fire for a moment and we may
want to come back on this situation. But I would just comment
that I think the flexibility thing, we all are gaining that
idea.
What I think many Senators who objected last, whenever we
were talking about it, in October or November or so forth, they
were not certain that the Government and the taxpayers are
going to get paid back. In other words, there was real feeling
that this was a speculative venture. So, if we are going to get
into this, we have to construct something in which the taxpayer
is not left holding the sack.
There are many people who would say, well, after all, we
have subsidized all sorts of things in America. Why not
television in rural areas? But still, this is a point of
controversy. So, the question is how you can construct
something that is a pretty big project here, and with a single
platform and the complex business of putting together these
entities, but with some fairly good incentives that several
parties have a reason to want to repay, and in the regular way
at the end of the day.
Mr. McLean. And Senator------
The Chairman. Yes?
Mr. McLean.--the legislation introduced by Senator Baucus,
as well as Senator Burns and Congressman Boucher, had several
very good protections for the taxpayers in there. There was the
ability to have a credit risk premium, where a third party
could bear risk. There were insurance requirements. There were
auditing and review provisions. So you can construct the
soundness and security provisions without hampering the
technology or the business plan.
The Chairman. Senator Fitzgerald?
Senator Fitzgerald. I have some questions. I find this
fascinating. I think it is very important that we provide
satellite TV opportunities to our people in rural communities,
and I have a large rural population in Illinois, but I want to
ask some questions.
Mr. Hutchinson, from your testimony, you said that LTVS has
a very conservatively constructed business plan, and you felt
that based on that model, that such a loan could be fully
repaid, is that correct?
Mr. Hutchinson. Oh, yes, certainly by the end of the life
of the satellite, the business. But we see a scenario by which
it might be sooner.
Senator Fitzgerald. So it could even be sooner than under
your conservative model------
Mr. Hutchinson. Yes.
Senator Fitzgerald.--and your business model shows that in
the first 2-years, a satellite provider of local television
stations should cover its costs?
Mr. Hutchinson. Yes.
Senator Fitzgerald. In year three, it should generate
enough income to cover its interest costs?
Mr. Hutchinson. Yes.
Senator Fitzgerald. And by year five, there would be
sufficient positive cash flow to begin amortizing the loan?
Mr. Hutchinson. That is correct.
Senator Fitzgerald. With that in mind, that sounds to me
just like anybody else starting a business in this country.
That is a pretty positive business plan. Why do you need the
Federal Government to come in and guarantee so that it puts all
that risk on the taxpayers?
Mr. Hutchinson. Well, I do not have direct experience in
starting a lot of those businesses, but our investment banking
consultants, who are in the room from Babcock and Brown, could
supply that. Leonard Schavel is here, if you would like to hear
from him.
Senator Fitzgerald. But a business that can make a profit
after 5-years, I know I come from a banking background. You
could start a new bank. If you can be making a profit in 5-
years, that is excellent.
Mr. Hutchinson. The point that we have been advised by the
people who raise this money is that the Federal loan guarantee
not only reduces the interest rate, because there is less
risk------
Senator Fitzgerald. Well, there is no question it would
make it even better for you, but, I mean, why should the
Federal Government be coming in and making it even better for
you and take the risk off you?
Mr. Hutchinson. Because our analysis shows it cannot happen
otherwise. I do not see anyone------
Senator Fitzgerald. You are of the position that the
private sector would never step up to this plate, never ever
provide satellite television around the country unless the
taxpayers come in and guarantee their loans?
Mr. Hutchinson. Excuse me, Leonard------
Senator Fitzgerald. Will you promise that your company will
never do that if there is no loan guarantee from the Federal
Government?
Mr. Hutchinson. Yes.
Senator Fitzgerald. You will make that promise?
Mr. Hutchinson. Yes, because we tried to.
Senator Fitzgerald. Well, you have only been in business
since 1997.
Mr. Hutchinson. Yes.
Senator Fitzgerald. But you have a business plan to do
that. Did you have that business plan before there was talk of
a loan guarantee?
Mr. Hutchinson. We have a business plan to cover the top
75-percent of the population where there is three times the
revenue, so the payout is much sooner and the risk is much
less.
Senator Fitzgerald. If these loans are going to be repaid,
I mean, according to your business plan, why do you need a
government guarantee to such an extent? Are you saying the
loans would not be repaid if there is no government guarantee?
Mr. Hutchinson. We have, based on looking at the markets,
the concern is, would the loans be available with that much
risk at stake, with such a long payout in the market, and would
they be at a favorable interest rate such that------
Senator Fitzgerald. You do not have to raise money from
loans. You can raise private equity, too, so you have no
interest costs.
Mr. Hutchinson. It is a question of the risk over the long
period of pay-out.
Senator Fitzgerald. There are big companies that have the
money to go put up that satellite right now and provide that
without borrowing, that have the cash available to do that.
There are big companies like General Motors or Microsoft that
have a billion or two sitting in their treasury and could put
up a satellite right away and have zero interest costs. I mean,
should these government loans be available to companies like
that?
Mr. Hutchinson. These companies do have that capital, but
the question is, would they do it?
Senator Fitzgerald. You are saying no one will ever provide
this?
Mr. Hutchinson. I cannot say no one, but I say all of our
experience to date in the investment community is that it
cannot happen.
Senator Fitzgerald. Do you think the loan guarantee should
be 100-percent?
Mr. Hutchinson. No. We believe that private capital can
fund some of it, even from day one, and that private capital
can supplement it and accelerate the pay-out after year year.
Senator Fitzgerald. The bill that has been drafted, I guess
Senator Baucus's bill, the way I read it, and I have a
background as a banking lawyer, there is no requirement that
the loan documents be such that the Federal Government would
have access or recourse against the borrower. In other words,
there could be a loan, a set of loan documents that could be
written in a non-recourse way to the borrower and the Federal
Government could come in and guarantee the loan, and under the
bill, as I read it, there would be no requirement that the loan
documents be such that the Federal Government could have a
right to even come after the borrower to recoup any part of
that loan.
Mr. Hutchinson. We have not been a part of the structure in
that particular loan.
Senator Fitzgerald. So you would have no problem if in the
bill it said that the Federal Government, if we had to pay on a
guarantee, we could go and pursue the borrower to collect the
money that the taxpayers forked over?
Mr. Hutchinson. There would be substantial assets in the
entity itself that could be guaranteed.
Senator Fitzgerald. And pledged.
Mr. Hutchinson. Yes.
Senator Fitzgerald. They could be pledged to secure the
guarantee, and your company would be willing, if you were a
participant, to pledge all its assets?
Mr. Hutchinson. Yes, we would--among other things, you are
talking about the hard assets of over a half-billion dollars in
the satellites themselves, which are fungible, which do have
other uses.
Senator Fitzgerald. So the Government could take the
satellite back?
Mr. Hutchinson. Yes.
Senator Fitzgerald. You would have no problem with that?
Mr. Hutchinson. No.
Senator Fitzgerald. You would have no objection? Would
anybody have an objection if the bill provided full recourse
for the taxpayers to go after the borrowers?
Mr. McLean. Mr. Chairman, the Rural Utilities Service would
not consider a loan that did not have adequate security to be
feasible.
Senator Fitzgerald. So there is no problem putting it in
the bill?
Mr. McLean. In fact, Senator Baucus's legislation requires
that the administrator and the lender shall have perfected
security interest in those assets of the borrower fully
sufficient to protect the administrator and the lender.
Senator Fitzgerald. I did not see that.
Mr. McLean. That is on page 17 of S. 1980, at least the
copy that I have.
Senator Fitzgerald. I saw that they should have
reasonable------
Mr. McLean. It says Section (I), and as well as there is
also the insurance requirements in Section (J).
Senator Fitzgerald. Section------
Mr. McLean. But Senator, the most important thing is that
adequate security for the taxpayers is absolutely crucial. The
Rural Utilities Service, if we were entrusted with this
responsibility, would not make an asset-deficient loan. It
would not be sound banking principles.
The Chairman. Let me interject just at this moment, and I
am sorry to stop the Senator. We have a vote and Senator Leahy
cannot return, so I have pledged that he can ask a couple of
questions at this point. But we will all return and the panel
will stay here and we will do some more questioning.
Senator Leahy. Thank you. First off, I should add to what
my friend from Illinois has said. It was always the intent
there would be security on such loans. Our conference report
last year said this. Our discussions on the floor always said
this.
There has been some discussion in here about if you can
talk regarding strategic partnerships without an antitrust
exemption. I am advised by our attorneys that you do not need
an antitrust exemption to have such a strategic partnership
discussion.
But this is a lot more than just TV. It is about a high-
speed Internet access. Mr. Hutchinson, you talk about how you
are moving into this. Frankly, the time might come 20-years
from now or 10-years from now or 15-years from now for totally
private, non-secured, non-government-secured loans that might
get into the area for rural areas. But by that time, the
Internet divide would be so substantial. This is not a time
where the country moves forward incrementally by decades. This
is more than just when you get a telephone and whether you have
a private line at home or you have a two-party line in the
rural areas. I mean, this is something where each month, each
quarter makes a major difference in whether rural America is
left way behind from urban America.
Mr. McLean, you were quite right in pointing out that the
legislation and all of us would require USDA to have
securities. We always do. But you have been doing 65-years of
making--not you personally, but USDA has been doing 65-years of
making rural electric loans, 50-years of making rural telephone
loans, and much of rural America would not have had phones or
electricity until they were so far behind they would not have
caught up if you had not done that.
Can you administer this loan guarantee program without
creating a new bureaucracy? Can you do it within your current
staffing levels and with the expertise you have at USDA?
Mr. McLean. Absolutely, Senator, assuming that the Rural
Utilities Service is able to replace recently retired staff
members and recently detailed staff members, I assume them
back, or we can get them back. I think that, absolutely, we
will be able to administer a program of this size. Again, we
have a tremendous, tremendous talent base of telecommunications
engineers, financial analysts, accountants, and I believe that
we are capable of handling such a program.
Senator Leahy. Because of time constraints, I will submit a
question on the different ways you can do security, but I know
the briefings I have had, I will just note, Mr. Chairman, I am
satisfied that USDA can handle the security of the loan issue
well.
Mr. May, some of the satellite providers want to reopen the
issue of the must carry deadline for local-into-local satellite
TV. Would that have a good or a bad impact, he says as he leads
the witness------
[Laughter.]
Senator Leahy.--on local affiliates and local independent
broadcasters?
Mr. May. Senator, you do not have to lead me very far on
this particular issue. Let me make a generic comment and then a
comment specific to must carry.
Our concern is, as much as we would like to see this loan
guarantee program go forward and recognizing that it is on a
fast track in the Senate because of a unanimous consent
agreement, and recognizing also the problems that can be caused
when it gets to the floor, the chairman talked about the kinds
of amendments that can be made, as strongly as we support this
program, we would be very reluctant to continue our support if
people try and use this vehicle as a means of rewriting SHVIA,
and I think that is a very real concern that we have. Must
carry is one of the principal examples of that.
Let us recognize that at least one of the major satellite
platform providers has already announced plans to launch a spot
beam satellite to accommodate their must carry requirements in
those markets in which they choose to operate, principally the
40-top large markets in the country. Let us recognize also that
Mr. Hutchinson's company is prepared to go from market one to
market 75 with full must carry. Let us recognize that if we can
put a consortium together to cover the remainder of those
markets, that that is going to be done with broadcaster
participation with full must carry.
People who suggest that you need to change the must carry
rules to accomplish this business of providing local signals in
rural markets are raising a complete red herring. They are
doing it for self-interest purposes only so that they can
generate the kind of additional capacity to have pay services
and simply earn more revenue. There is no relationship
whatsoever to the idea of relief on must carry and a greater
opportunity to do local signals in small markets.
Senator Leahy. I appreciate that, because having gone
through all the battle to get a must carry and everything else,
it would be a real mistake to hold back or to let that deadline
slip. I think the companies that have shown a lot of foresight
and innovation, Mr. Hutchinson, yours and others, to say, let
us go forward, are then put at a heck of a disadvantage. I
think let us keep this playing field the way it is.
But also, this is not something, again, as I said, that you
sit around and wait 10-years or 20-years, so like you could at
the beginning of the last century, the 20th century, where you
could say, well, we can go slowly on telephones, slowly on
electricity because it does not make that much difference. Now,
just pick up the paper any day or talk to your 12-year-old
neighbor who probably is far more Internet-adept than most of
us are and just see the innovations going on.
I talked to my son who lives in an urban area who has a DSL
line and he is downloading movies and albums in a matter of
seconds and doing------
Mr. McLean. With appropriate copyright protections.
Senator Leahy.--with appropriate copyright protections.
[Laughter.]
Senator Leahy. In fact, that is the first thing he said to
me. He said, Dad, before you say anything, this is well
registered and everything else.
But Mr. May, you go into another point. In a very short
time because of the digital era, you are at home and you say,
well, I would like to rent such and such a movie. Most places
where you have all of these facilities, you can say, okay,
well, it will be ready in five or 6 minutes because you put the
order in and then you download it. I mean, they do the
appropriate things for how many times it can be replayed or
something like that, but that is what will be done, unless you
are out in an area where you have none of this access.
I am thinking of the commercial implications, but I am also
thinking of the business implications. I want the opportunities
for jobs, for high-tech jobs in rural areas, as there are in
urban areas. Now, if the rural areas do not take advantage of
that, that is one thing. But at least it should be available,
whether it is in my State of Vermont, whether it is in rural
Indiana, or anywhere else. I think this is important. I think
that Mr. Hutchinson has said the low-interest loan program is
an important one for the USDA. It can be done at no risk to
taxpayers, but it can be done at great advantage to rural
America.
That is not parochialism. I have the happy opportunity of
living in both urban America and rural America, urban America
in the Washington area, rural America where I live in Vermont.
There are advantages to both. I will freely admit that. I do
not sit here like I am looking at some kind of a Currier and
Ives print. But we have to have the ability in rural America to
make the same choices you can in urban America on jobs,
especially the IT-type jobs that we face today.
Mr. Chairman, I realize that I have done a little
preaching, but I will submit other questions for the record. I
think this hearing you are having could well turn out to be one
of the most important hearings for rural America for years.
The Chairman. Thank you very much, Senator.
Let me just say to you, as well as to everyone else, I was
misinformed earlier. The vote has not happened. We are in a
quorum call, but I am told the vote is imminent. So I am
hopeful our two colleagues who are waiting over there
expectantly will not------
[Laughter.]
Senator Leahy. There are somewhere out in virtual space.
The Chairman. That is right, and I hope that they will not
return angry that they have been misinformed.
Let me just take advantage of this quorum call to ask a
question. What happens, Mr. Hutchinson, if despite the
prospects of success of this project with the loan guarantee,
in fact, the project fails. By the third year, things do not
work out so well. By the fifth year, the revenues just are
deficient. Is there something else for this satellite to do? In
other words, is security for the loan, the satellite out there,
merchantable in some way, or------
Mr. Hutchinson. Yes, Sir. It could be a very valuable
satellite because unlike the ones that are up there now that
have a footprint of the entire United States, this satellite by
design would have to have specific discreet spot beams with
different content going to individual television markets or
individual cities.
If the satellite were reallocated, for example, to the
delivery of high-speed Internet data, the user who wishes to
see a movie or a Web page in Philadelphia would not be in
competition with the server and the lines with the user who
wants to see something else in New York. You are only in
competition with the others in your own market. So it would be
an extremely efficient very high-speed data delivery system,
and, in fact, that is one of the ancillary opportunities that
exists in this system even with the pretty television pictures.
The Chairman. Are these specifications we should write into
the bill to begin with, so the security that we have for the
taxpayers has all these features that you are suggesting, or is
it axiomatic that they will all occur, I mean, anyone putting
up a satellite would do all the things that you are suggesting?
Mr. Hutchinson. Well, there are certainly different designs
in satellites and I can only speak to the one that we have
studied. We think it is the best way to do it. Perhaps in
reviewing applications for this loan, the entity reviewing it
would want to take that into consideration, the fungibility of
the satellite should something happen to the basic local-to-
local business.
The Chairman. Do you have a comment on that, Mr. McLean?
Mr. McLean. Yes, Senator. That would be key to the loan
feasibility, the value of the assets, under any circumstance.
Mr. May. Senator, I might observe that in the abstract, we
would hope that the Committee and that the Congress would not
place artificial restrictions on the use of the spectrum
available through that satellite and that those that are
investors be permitted the opportunity to expand their horizons
to the extent possible in delivering digital-quality
information, data, video, etc. via this satellite. I think that
would be key to the ultimate success of the project.
The Chairman. Is there an argument about that? Mr. Rhode,
do you have a comment about that?
Mr. Rhode. No, I do not.
The Chairman. Mr. McLean?
Mr. McLean. I do think it is important to ensure, though,
that the fundamental purpose is met so that local-into-local is
the first priority.
The Chairman. Yes. You do the fundamental and then the
additional which makes the assets more valuable------
Mr. McLean. Yes, Sir.
The Chairman.--which undergirds, then, the collateral for
this loan, whoever it is to be made to.
Clearly, Senator Gramm is drafting his bill, so I am not
either mind reading or trying to help him along here, but as I
understand, one concept that he has in mind is that the
governing body would be a panel of three people designated by
such entities as, and the Senator has not made a decision, but
nevertheless, generally broached have been people like the
Chairman of the Federal Reserve Board and the Secretary of the
Treasury and the Secretary of Agriculture, for example, as
three.
If that was the case, I suspect still these three ladies or
gentlemen would not be administering the program, but they are
sort of a super board of directors, and as I understand from
the Banking Committee's focus, they are still worried about the
taxpayers and getting paid. In other words, to have Alan
Greenspan or his designee or Larry Summers or so forth in
addition to our own Secretary of Agriculture and the department
for which we are responsible is to make certain that there is
some public confidence that the budget is not going to be
unbalanced in this deal.
What is your general comment, any of you, about that idea,
without knowing, I suppose, who these three finally are,
whether it is the RUS and it is you, Mr. McLean, or I am not
certain who else in the Government can handle this kind of
thing, but this is being sketched over in that committee, as I
understand it. It clearly is a different concept than the
Baucus bill or the Burns bill that we started out with,
although Senator Burns probably is working with Senator Gramm
in some way, largely because he wants to see a bill passed, as
I do, as Senator Leahy does and Senator Baucus. So this is all
sort of out-of-school work, but can you help contribute while
you are here today as to how any of this might be fleshed out
satisfactorily? Does anyone have an idea on that? Mr. McLean?
Mr. McLean. Two days ago, we did testify before the Banking
Committee and offered our assistance and expertise to Senator
Gramm. There is a model that this committee is responsible for
that might be worth considering. In 1972, Congress created the
Rural Telephone Bank. The Rural Utilities Service provides all
of the staff work, provides all of the due diligence. It
staffs, in fact, the board members of the Rural Telephone Bank,
which are both Presidential appointees and industry-elected
members. So you do have a model or a precedent of the Rural
Utilities Service working with a board.
I think the most important thing is that the loan
guarantees are available in a timely manner. You certainly do
not want to create a new bureaucracy. You do not want to have
to have excruciating levels of review that take away all of the
market benefits from having a loan guarantee by replacing it
with costs involved in that review.
The Chairman. Did you offer that testimony to the Banking
Committee in your appearance there, or give them these ideas?
Mr. McLean. We told Senator Gramm that we would work with
him and work with all members of Congress to make the system
work.
The Chairman. Tactfully stated. Let me at this point
indicate that the vote finally has begun, so I will recess the
Committee. Mr. Rhode, I understand that you need to be excused
because another committee wants to see you, so you are excused
and we really appreciate your appearance and your testimony. If
the others of you can stay, I would gather imminently, Senator
Fitzgerald, who was in mid-flight when I stopped him and he
went to vote, may well have some more questions, and Senator
Lincoln has not had an opportunity at all. If either of those
should return, I might ask staff simply to indicate that they
may commence chairing the Committee and start asking questions
and I will return as soon as possible to conclude with this
panel, and then we look forward to another panel right after
you.
So for the moment, we are recessed until a Senator appears
and begins the questioning.
[Recess.]
STATEMENT OF HON. BLANCHE L. LINCOLN, A U.S. SENATOR FROM
ARKANSAS
Senator Lincoln. [Presiding.] I think I am supposed to
reconvene this hearing. I very much appreciate the chairman
allowing me to do that, because we all do have other things to
move to.
In his absence, I would certainly like to compliment the
chairman for holding this hearing, scheduling the hearing here
today, but also for his attention to issues that affect rural
America, and I think this is definitely one. I have mentioned
to some of you all before that I am the ultimate consumer to
testify on this issue. I live in the middle of nowhere and have
had some unbelievable lack of opportunities in many of what I
have been able to get, whether it is through my phone service
or whether it is through my television outlets or whatever that
may be.
I will indulge myself and request that my entire statement,
since I was a little bit tardy this morning, be included in the
record.
Senator Lincoln. I have said many times in floor statements
in Arkansas that this is an extremely important issue. It is a
very important issue to us in Arkansas and to my constituents.
My colleagues and I sometimes jokingly refer to one another
as sharing a State flower, a flower that is up in the front
yards of many of our constituents, and that is a satellite
dish. We tease about that sometimes, but it is an important
issue for many of us that do live in rural America, to be able
to have access to local information. Oftentimes, we have to go
to a portable radio in order to get farm information, local
weather information, disaster, a school closing, whatever it
may be, and it is going to be very critical, I think, for us to
make sure that we look at this issue closely and recognize what
it means to all Americans.
I would also like to thank my colleagues on this committee,
Senator Baucus and Senator Johnson, and especially Senator
Leahy who was on the conference committee here, who I think
stood firm and worked very hard. Their leadership on this issue
has certainly been very important, and also Senator Burns, who
is the chairman of the Telecom Subcommittee in the Senate. He
is not here, obviously, today, but he has also done a great
deal of work on that and I have enjoyed working with my
colleagues and want to continue to.
I mentioned out in the hallway how pleased I am to see such
a very diverse and very well-versed panel that we have here
today. Chris and Greg, from your experience here on the Hill, I
not only want to thank you on this issue, but also in the way
that you worked with me and my staff. You were very helpful
during the conference committee on the 1996 Telecom Act, and I
really appreciate that and am proud that you all have achieved
what you have and that you are here again to help us work
through some of these issues.
Mr. McLean. Thank you, Senator.
Senator Lincoln. Without a doubt, I think Jim May has got
history here beyond bounds that he brings to this today.
This issue is critical because 20-percent of all of the
homes in Arkansas were left without access to in-State
television broadcasts through their satellite service last
November when the Senate adjourned without adopting the rural
loan provision in the satellite bill. We are here today to talk
about what is the best way to achieve access and certainly
visibility to individuals in rural areas. I am pleased with
some of the ideas, also some of the questions, that have been
brought up that point out to all of us that we are looking for
a solution that is going to benefit everybody, not just
consumers. Obviously, I say to the industries that could be
serving these consumers, we want to be able to work with you to
come up with something that is going to be beneficial to
everybody.
I do believe, though, that there is a solution out there,
and I hope that as we work to get to that, that everybody is
going to be willing to come to the table and realize that we
all have to give a little bit to get something out in return.
Since January of 1999, my office has received more letters
and phone calls on this issue, the satellite legislation, than
almost any other issue, and that is one of the reasons I have
been very passionate and involved in this issue. I can identify
with them because I live out in the rural areas and I
understand what they are up against.
It was never more obvious to me than when, some of you all
will remember, when I was in the House, having twins. After
those twins were born, I was stuck out in the middle of
nowhere, pretty much isolated with small children. Being able
to get local news was very important to me. But also in terms
of the schedule and the life that I led, I could not get local
news, and at feeding time and at bath time, I missed any kind
of local news that there may have been, which was really not
even Arkansas news, it was Tennessee news. Then after feeding
time, I would wait for the nightly news, which was usually
Seattle, Atlanta, or Boston, which was completely irrelevant in
rural Arkansas.
But this is an important issue and one that I definitely
intend to play a role in. The frustration level has increased,
obviously, for the constituents that we serve, and they want to
know why their next-door neighbor, after what has happened in
November and what has transpired since then, why their neighbor
who has a satellite dish and has had one for years can now get
FOX and CBS but they cannot as the next-door neighbor with a
new satellite.
My staff assistants who are answering the calls that are
coming in from these constituents really deserve combat pay in
trying to explain this legislation. They first explain the
disparity in the service between the next-door neighbor's and
theirs, and then they also have to explain why folks in
Washington, DC., can get local-to-local while folks in Arkansas
cannot. That really smacks right dab in the middle of inside-
the-beltway favoritism to them in Arkansas. So I have had to
put hazardous duty pay on that front office when they take
those calls.
But it is truly, I think, somewhat a lack of understanding
in terms of what rural America is up against and I want to
compliment the chairman, as I did earlier, Mr. Chairman, on the
way that you have taken the initiative to really focus on the
issues of quality of life in rural America.
I would like to ask just a couple of questions. Mr. McLean,
one point of contention seems to be determining which group is
best equipped to administer the rural loan fund. In terms of
your views of who is going to be the best to do that, if you
could express to us, and others may have some point of view
there.
Mr. McLean. Well, very humbly, Senator, I certainly believe
that the Rural Utilities Service is very capable of performing
that service. We have some of the Federal Government's very
best telecommunications engineers. We have a top core of
accountants. We have excellent financial analysts. I think most
importantly, the Rural Utilities Service understands rural
America and understands the challenges of both distance and
density.
So I think that we have the skills and I think that we also
have, given the size of the program we are talking about; very
large loans, but we are talking about, I think, a manageable
volume of loans that I believe we would be able to accommodate
under current FTE ceilings.
Senator Lincoln. If you thought there were any drawbacks in
your capability, would it be the size of the loan?
Mr. McLean. I do not think that that--if there were------
Senator Lincoln. Or weaknesses, if you felt like there were
any weaknesses where we needed to shore up in order for your
capabilities to be there.
Mr. McLean. Right. I think the wonderful thing about the
Baucus legislation as well as the Burns and Boucher legislation
is that it does give the administrator the ability to seek
outside advisors, either financial analysts or technology
analysts, if it were necessary, to analyze a particular loan.
So I think that there is sufficient flexibility to be able to
manage any shortcomings that might exist in staff at the
current time.
Senator Lincoln. Mr. Hutchinson, you mentioned that the
Government loan guarantee made this a desirable approach, or a
desirable project. I mean, do you think that was an
understatement? Later on, you did mention to Senator Fitzgerald
that you felt like the only way that you could accomplish it,
was if that incentive were there. Do you strongly believe that?
Mr. Hutchinson. Yes. I believe if the incentive is there,
that there are several entities I know about that will be
applying. We might be among them. I am not making a commitment
right now. But I do make the commitment that whatever the
entity, we think we are in the best position with what we have
done technologically to date to sort of be the back room,
economies of scale, and that we have the conditional access
system, we have the architecture, and I think it is really
important, just as we talk about the common platform for
efficiency, that the system be built to be fully compatible
with the other markets so that, for example, if someone moves
from one market to the other, the box still works. You do not
have two sets of boxes or standards across the land.
Senator Lincoln. Continuity is important, and the long-term
technology that is going to be out there, I agree, we need to
be prepared for.
I have been out there with a lot of small Arkansas
telecommunications companies who know what it costs. They know
what it takes to lay the line to reach Ms. Irene that is living
out on a gravel road and recognizing what it costs to service
those customers out there. The universal service fund is a way
that really helps those companies and some of those really,
rural customers to be served.
Do you think that there is any merit in some type of a cost
sharing or investment from the industry side in terms of what
investment we make? Obviously, the loan guarantee is important,
but do you see any responsibility from the industry? I know
Senator Fitzgerald touched a little bit on the fact that if it
seems to be a good business investment, if these are places
where the industry wants to play and these are good
marketplaces for them, does it not make sense for them to at
least share in some of that?
Mr. Hutchinson. In what we call the phase one plan for the
larger markets, which is mirrored for the smaller markets, our
preference is for strategic partners who have more than just an
economic stake in it, who it really fits their business, the
satellite providers, the satellite builders, those sorts of
entities. So the answer is yes.
Now, with regard to the technical platform, I do favor
satellite because we have talked about the last mile there and
it just seems to us that the one special attribute of satellite
is that it is like rain. It falls on everyone. There is really
no added cost for that last mile. So, when you are talking
about these geographically disperse areas, we think satellite
technology does an especially good job of assuring that every
last citizen is served.
Senator Lincoln. Mr. May, I met with other Senators with
some of the major network anchors the other day and they were
talking about the importance of dovetailing and how important
the telecommunications industry, the computer, the Web, and all
of that infrastructure has become to network television and
what it is going to mean for them. I, myself, am amazed at how
we have progressed even much further than my wildest dreams
from the 1996 Telecom Act. We have come a lot further a lot
quicker than I thought we would.
Do you think that it stands to benefit those networks in
terms of increasing their visibility in markets that are going
to be enhanced by the information highway? When you start
talking about the increase in telecommuting, you start talking
about the advantages that it provides to rural America, I am
just seeing in my constituency those that have been able to
build their businesses on a Website like eBAY, for instance,
and have been able to build an industry in rural America. Does
it not really stand to truly benefit those networks to be able
to access that market?
Mr. May. Senator, certainly the networks themselves could
benefit and therein the business, if you will, of convergence
with these different technologies. But I think the more
important benefit to what we are talking about here today is
not the networks but the local stations. It gives the local
stations greater incentive and opportunity to engage in
convergence. It gives them--you and the Congress have mandated,
for example, that these stations be up and running in digital
technology by 2006.
Senator Lincoln. I know. I am hearing from them.
Mr. May. That is a huge investment on the part of stations.
Yet this gives stations an opportunity to be broadcasting, if
you will, from satellite in digital throughout their entire
market overnight, if they can be carried, and I think that
gives them the opportunity to engage in other lines of
business, again, a matter of convergence.
So we are very high on the positive opportunities that
local-to-local in all size markets, but in particular rural
markets, provides. We discussed that with Senator Leahy just a
minute ago.
I would make one other observation, Senator, if you would
permit me, and that is that it is a good thing when you are at
home with your new babies and you did not have access to local
television, that you did have access to local radio.
[Laughter.]
Senator Lincoln. Point well taken. I appreciate that and am
glad to know that it is a good prospect in terms of a market. I
do think, without a doubt, that local network affiliate is a
good conduit for the networks, because I know for my own sake,
it is hard to run a campaign in a State where you do not even
get the State affiliate station's local news, so------
Mr. May. At the end of the day, Senator, we are very
sensitive to the kind of combat pay that your front office
staff require because we hear from those consumers, too,
because they are our consumers. They are our viewers, as well.
I think the beauty of local-to-local being provided in all
markets, 210 across the country, is that, that really does wipe
out any of the real concerns about access to entertainment and
news and programming for anyone who chooses to have access to a
satellite.
Senator Lincoln. Well, I appreciate it, and thank you, Mr.
Chairman. I have taken more than my time, but would like to
encourage all of the panel that we can work together to come up
with a plausible solution in terms of how we actually make this
happen. Knowing that technology-neutral is something that
people are interested in, let us make sure that we are doing it
fair. Thank you again, Mr. Chairman, for your leadership on
this issue. I appreciate it.
The Chairman. [Presiding.] Thank you, Senator Lincoln, for
attending the hearing and raising some very important
questions.
I just wanted to conclude. Mr. May, in your testimony, I
just do this for clarification, you mentioned that the bill
appears to exclude two existing DBS operators. The bill you are
referring to is the Baucus bill?
Mr. May. No, Sir. I was referring to last year's conference
bill, where it sort of excluded, if I recall correctly, both
DirecTV and EchoStar's platform------
The Chairman. You are suggesting that if we do this again,
we should not exclude them because of the reasons that you----
--
Mr. May. That is correct.
The Chairman. I appreciate very much all of you coming and
your staying with us throughout this period. I think this
testimony is very helpful to Senators who attended and
certainly through the record to all the rest as we really try
to work our way through a very important project and try to do
so in a timely way.
As I mentioned in our first hearing on another subject on
Tuesday, we have a fairly small window of opportunity this
year, largely imposed by the fact that the leadership is intent
upon passing the appropriation bills this year and having them
signed at an early time. So this backs up into the
discretionary period for those subjects that are not
appropriation bills or not the budget, and essentially a time
frame of this month, next month, and maybe April. This is why I
am intent in trying to push this thing and accelerate it. We
have the support of our members in doing that, as was evident
today.
We thank you all for your testimony. We look forward, if we
may, to calling upon you for additional information. As Senator
Leahy has indicated, he will have some additional questions,
and so may other Senators. If you could respond to those
promptly, we would appreciate it. Thank you very much.
The Chairman. I now call upon a second panel. Some of you
will be participating in that, but we will also have Dr.
Stephen Jay, Chair of the Department of Public Health and
Professor of Medicine at Indiana University of Medicine,
joining Mr. McLean, Mr. Rhode, and Mr. Parkhill.
Dr. Jay, we welcome you to the hearing to join your
colleagues who are already tested by this morning's question
and answer as well as their own testimony. As perhaps you heard
from the last time, we are asking that initial testimony be
summarized, preferably in 5-minutes or a little bit more, and
we will not be rigorous, because for the moment I am not joined
by other Senators, so the pressing issue of hoards of questions
is not upon us, but we really want to explore this subject
carefully.
If you would proceed with your testimony, and then I will
ask that you be followed by Mr. McLean, Mr. Rhode, and Mr.
Parkhill. Dr. Jay?
STATEMENT OF STEPHEN J. JAY, M.D., ASSISTANT DEAN, CONTINUING
MEDICAL EDUCATION, INDIANA UNIVERSITY SCHOOL OF MEDICINE,
INDIANAPOLIS, INDIANA
Dr. Jay. Mr. Chairman, thank you for the privilege of
testifying on this critically important issue. I am Stephen
Jay. I am a practicing internist from Indiana. I am on the
faculty of the Indiana University School of Medicine and Chair
of the Department of Public Health and have been involved in
one way or another in telecommunications, telemedicine, to
support patient care and the education of health professionals
for about 25-years.
In his State of the Union address just recently, the
President spoke of the digital divide which separates
technology haves from have-nots and Secretary Shalala and
Surgeon General Satcher issued a related call last week in
announcing the goals of Healthy People 2010, those to improve
quality and duration of life and to eliminate disparities in
health care. This digital divide, specifically the issue of
telemedicine, threatens the ability of our Nation and of
particular rural States like Indiana to meet these challenges
of Healthy People 2010.
Among our most vulnerable citizens are the medically
underserved populations of rural communities, and telemedicine,
in particular, the application of telecommunications
technologies to health care, is one of those strategies that
Indiana and other States have used to address rural health care
challenges.
Telemedicine offers three key advantages to rural
communities. First, it can provide clinical care benefits,
including greater access and reduced disparity in health care.
Indiana, for example, has compelling needs in these areas.
Sixty-percent of Indiana's 92-counties are Federally designated
non-metropolitan counties. Thirty-percent of our population,
too, of the 6-million people in Indiana live in these areas.
The rural populus is disproportionately poor and older than
average and only about 13-percent of Indiana's active patient
care physicians serve in these rural areas.
Experience nationally and in Indiana indicates that
telemedicine can improve care for these populations, benefits
through less time to travel and the cost of such for health
care, less delays in treatment, increased access to specialty
care, and importantly, as was alluded to earlier, improved
capacity for community-based care.
In Indiana, for example, the Department of Agriculture's
distance learning and telemedicine grant program supports an
innovative partnership project of Union Hospital in Terre
Haute, Indiana, the Midwest Center for Rural Health, the
Clarian Health Partners, and this comprehensive telemedicine
project provides benefits for patients in rural Western Indiana
that include electronic medical records networks among multiple
care sites, which ensures continuity of care, obstetric
consultation services that eliminate dangerous and costly
travel for high-risk obstetric patients, and interactive multi-
site distance learning activities for health professions.
A second benefit of telemedicine is its role in
strengthening community-based health professions education and
training, and here, we have had about 30-years of experience in
Indiana through the Statewide system of medical education that
was embarked on in the late 1960s. Recently, in fact, last
month, Indiana has begun to build on that platform through the
HRSA area Health Education Centers Program. Indiana has just
submitted the AHEC proposal, and a key element of bridging
between academic medical centers and small communities,
particularly rural communities in Indiana, is the telemedicine
technology.
A third benefit of telemedicine is the ability to expand
systemwide capacity for data collection, research, and so on,
and here, the EPICS program in Southern Indiana is particularly
innovative in bringing and linking together hospitals, clinics,
and other providers in a very innovative way.
There are barriers, and I will list just a few before
closing. The barriers to implementing telemedicine are several-
fold. Licensure is an issue which needs to be addressed at
various levels. Reimbursement continues to be somewhat limited
and complex. The operating and start-up costs for small
institutions, particularly in hub-and-spoke sort of
arrangements, continues to be a barrier. Infrastructure,
communities lack the needed infrastructure to support
telemedicine.
Liability is also an issue in that there is uncertainty
among telemedicine practitioners as to what their legal
exposure is, and also, recently, the OIG advisory opinion
concerning the anti-kickback violation issues has raised
concern and questions among those who are participating in
collaborative telemedicine ventures.
We have learned through our experience in Indiana, these
pilot programs and others, that success, critical success,
involves involvement of community leaders in all levels of
planning and implementation and evaluation of these programs
and partnerships, which was mentioned earlier, among State and
Federal Governments, State and local health departments,
academic health science centers, and private sector and NGOs.
While significant barriers remain to rapid development of
telemedicine, we believe that progress is being made, and by
building on these successes, we can hopefully accomplish the
goals that were set out in Healthy People 2010.
Mr. Chairman, we applaud your holding these important
hearings on this critical issue to rural America. Thank you.
The Chairman. Thank you very much, Dr. Jay, for coming
today and offering that testimony and very specific instances
of telecommunications and telemedicine in our State. We
appreciate it.
[The prepared statement of Dr. Jay can be found in the
appendix on page 90.]
The Chairman. Mr. McLean, would you proceed with your
testimony? We are on the digital divide panel now, as you and
the audience know.
Mr. Mclean.
Mr. McLean. Yes, thank you, and it is a great pleasure to
serve on a double-header here. This is terrific.
Yesterday, President Clinton announced initiatives to close
the digital divide and gave a little preview of the budget and
I would ask the chairman if I could have a statement related to
that included into the record.
The Chairman. Yes. It will be placed in the record in full.
Mr. McLean. This Committee has not only been responsible
for closing the digital divide, but also creating digital
opportunity throughout rural America. If I could just use a few
moments to highlight some of the accomplishments of the Rural
Utilities Service, again, under the oversight of this
Committee.
Since 1993, the deployment of fiber optic cable in Rural
Utilities Service-financed plant has doubled, representing one
in every ten miles of cable in rural local loops. That is a
tremendous fiber-rich diet for telecommunications. Since 1993
through 1999, RUS has financed $1.2 billion in fiber optic
facilities and $790 million in digital switching systems and
enhanced feature softwares. Today, RUS-financed borrowers
provide 99-percent digital switching. It is unparalleled
compared to rural exchanges outside of the RUS family. Since
1993, 306-distance learning and telemedicine projects totaling
$83 million have been funded in 44-States and two territories.
The Rural Utilities Service is absolutely committed to
closing the digital divide. We are bringing, in many cases, new
service, first-time phone service to folks right now in the
year 2000. Last year, I had the great privilege of presiding
over a ribbon-cutting ceremony in Bylas, Arizona, where the San
Carlos Apache tribe connected 450-families to phone service for
the very first time. This had a profound effect on the
community. One of the first things that happened is the police
department hired more police because now they could have people
to call in for 911 service and have a rapid response. So just
by the addition of that technology, the safety and security of
that community increased. There are new opportunities for jobs.
There are new opportunities to participate in the digital
economy.
We are so fortunate to have your longstanding and strong
support for our program. Rural America is benefitting very
much. So thank you for the support of the Rural Utilities
Service and the distance learning/telemedicine program.
The Chairman. Thank you very much for that historical
outline. It is a fairly short history, but an intense period of
discovery and application. We appreciate that.
Mr. Rhode?
Mr. Rhode. Yes. Thank you. First, I should explain my
reappearance, as you were kind enough to excuse me------
[Laughter.]
The Chairman. We are grateful.
Mr. Rhode.--but the hearing in which I was supposed to
appear is delayed, so if you will have me back, I thought I
would return and I may have to go a little later.
The Chairman. Yes, indeed. We are grateful you are here.
Mr. Rhode. I am glad to be here again to talk about this
subject.
I grew up in Rural America, and I grew up in what was the
second-largest city in North Dakota, which is a town of about
50,000-people. So to a lot of people, that is considered a
pretty small town. To us, it was a big town. But I grew up in a
State where all but just a couple of counties have experienced
out-migration over the last two censuses that have been
conducted.
So I fully understand the unique challenges that small
communities face, particularly those communities that are in
economically distressed areas, such as the communities that I
have grown up in the farm belt. But I also understand the
tremendous potential that information technologies offer many
of these rural residents to improve the way they live, work,
the way they learn and obtain health care, and getting good
access to advanced telecommunications and information services.
Last summer, many people are aware that the Commerce
Department released a report called ``Falling Through the Net:
Defining the Digital Divide'' which was a combination of
efforts from NTIA, the Agency which I now administer, as well
as the Census Bureau, using census data. That report
highlighted a number of positive things. For example, computer
ownership has doubled in the last 4-years in the United States.
Internet access has increased by more than 40-percent, just in
the last year alone. Also, more than a quarter of American
households now have access to the Internet.
However, that same report had some rather disturbing news.
It also found that at almost every income level, households
that are in rural areas are less likely to own computers than
households that are in urban areas. The report also found that
at almost every income level, households in rural areas are
half as likely to have Internet access at the home than
households in urban areas. The report also found that black,
Hispanic, and Native American households are much less likely
to have computers and access to the Internet than white
households are.
The point of this is that while there is tremendous growth
and a lot of wonderful things occurring in our economy with
respect to access to information technologies, what this report
found is that the gap between urban and rural, between poor and
affluent, and between minority and white is growing.
For example, in 1997, 8.7-percent of Hispanic households
had access to the Internet while 21.2-percent of white American
households had access to the Internet. We found that within 1-
year, the increase for Hispanic households went to 12.6-
percent, while in white households increased to 29.8-percent.
With respect to African American households, we found a
similar pattern, that in 1997, only 7.7-percent of black
households had access to the Internet while 21.2-white
households had access. The white household access increased to
29.8-percent in 1-year, while the black households only
increased to 11.2-percent. The point is, the trend lines are
showing an increasing chasm between minorities, between low-
income and affluent, and between rural and urban America.
Now, yesterday, as my colleague Mr. McLean just announced,
President Clinton at Ballou High School in Southeast
Washington, DC., unveiled his budget package for his initiative
to close the digital divide, and yesterday, the President said,
``We must make access to computers and the Internet as
universal as the telephone is today.'' To help achieve this
goal, the President announced the following initiatives that I
would just like to briefly run through for you.
First, the President is proposing to triple the funding for
the Technology Opportunity Program which is administered by
NTIA. Currently, that program is funded at $15 million. The
President is proposing to increase that funding to $45 million.
Since 1994, the TOP program has been working to close the
digital divide, providing over $118 million worth of Federal
grants to nonprofit community-based organizations who provide
for innovative telecommunications and information technology
applications to address a range of issues, such as public
safety, health care, education, community-wide networking, and
business development. That funding has leveraged over $184
million in non-Federal dollars.
Another initiative of the President is to create a new
program to expand home access to the Internet and computers,
which will be funded at $50 million.
There are other programs, as well, such as a $25 million
program at the EDA, as well as the RUS, to accelerate broadband
deployment in rural communities and inner-city areas.
The President is also proposing to triple the funding for
the community technology centers, which is currently
administered by the Department of Education. That funding would
increase from $32 million to $100 million. Also, to double the
funding that we currently provide at the Department of
Education to train teachers, new teachers. The President also
is proposing a $10 million program at the National Science
Foundation to help prepare Native Americans for careers in
information technology fields, and also a $2 billion package
over 10-years for tax incentives to encourage private sector
donation of computers, technology training for workers, and
sponsorship for community technology centers.
This package of proposals is part of the administration's
effort to close the digital divide. In addition to this, the
administration will continue to promote policies that are
faithful to the Telecommunications Act of 1996, policies that
foster competition and policies that preserve and advance
universal service in a manner that is consistent with the Act
to ensure that access to advanced telecommunications and
information services are available to consumers in all regions
of the Nation.
Finally, the one last comment I would make is that as part
of NTIA's role and working on the administration's efforts to
close the digital divide, we have created a new Website called
digitaldivide.gov, and the purpose of this Website is to
provide for a clearinghouse for those that are interested in
following the administration's activities to close the digital
divide, as well as to find additional information about private
sector initiatives. There is an enormous amount of activity in
the private sector by private companies that are providing for
grants, providing donation of workers for training, donation of
equipment, and we are trying to provide a means for the public
to easily access a number of these programs, and so I would
encourage people who are interested to check our Website. Thank
you.
The Chairman. Thank you very much, Mr. Rhode.
Mr. Parkhill.
Mr. Parkhill. I appreciate the opportunity to come before
you today to talk about the digital divide in rural America. As
I introduced myself a while ago, I am Dave Parkhill. I am from
rural America. I am the General Manager of Hamilton County
Telephone Co-op in Dahlgren, Illinois.
Hamilton County Telephone Co-op is a member of the National
Rural Telecommunications Cooperative. NRTC is a not-for-profit
cooperative association with a membership of nearly 1,000 rural
utilities located throughout 48-States. Like Hamilton County
Telephone Co-op, NRTC's other members provide electric or
telephone service to underserved low population density areas
of the country.
Mr. Chairman, Dahlgren, Illinois, is the second-largest
town in Hamilton County, Illinois, and we have a population of
about 500-people. In our telephone service, we provide services
to approximately 2,400-subscribers and we cover approximately
463-square miles in parts of seven counties. That is a lot of
land and not a whole lot of people there.
Our area of Illinois is agricultural. We grow corn,
soybeans, wheat, and other crops, raise cattle, hogs, and other
livestock. The average family income in our service territory
is well below the national average. I do not have the figures
here, but I believe the average income in those seven counties
is just a little bit over $17,000 per year.
About 4-years ago, Hamilton County Telephone Co-op
partnered with Midwest Internet to bring the first local
Internet service to our community. Four-years later, we are
still the only local dial-up Internet service in our area. We
have about 525-subscribers and each pay about $20 a month for
Internet access.
Most of our subscribers are farmers using the Internet to
get the vital information they need to conduct their
businesses. They use it for pricing and ordering supplies and
checking the weather. They use it to buy and sell products,
keep an eye on the grain market and other commodities. We have
school kids that use the Internet access to study and do their
homework and to learn, and their parents use it for a host of
the other services that the Internet offers.
Without the Internet access service, Mr. Chairman, Dahlgren
and surrounding areas would have no local dial-up service, none
at all. As far as high-speed access goes, it is simply cost
prohibitive. We do not have enough people to justify the
expense of providing it. If we were to offer ISDN service, we
would have to charge maybe $200 a month more to provide it. The
DSL service would more than likely be in the $100 per month
range. Our subscribers do not have the incomes necessary to
support these kinds of charges.
I had a chance recently to review the report issued last
year by the National Telecommunications and Information
Administration entitled, ``Falling Through the Net: Defining
the Digital Divide.'' Mr. Chairman, there is shocking
information in that report, and based on my experience as the
only Internet service provider in Hamilton County, Illinois, it
is true.
NTIA says that at almost every income level, households in
rural areas are less likely to own computers than households in
urban or central city areas. At every income level, households
in rural areas are significantly less likely, sometimes half as
likely to have home Internet access than those in urban or
central city areas. Black households in rural areas, in
particular, are one-third less likely to own a computer than
the average U.S. black household and are two-fifths less likely
to access the Internet than the average U.S. black household.
According to the NTIA report, a digital divide exists among
different geographic areas of the country. Even though the
number of Americans accessing the Internet has grown rapidly in
the past year, NTIA says that the digital divide between
information haves and have-nots continues to widen.
Mr. Chairman, NTIA is right. There is a digital divide and
Hamilton County and the rest of rural America is on the wrong
side of it. That is a problem and it has got to be fixed.
I am sure there are many other home towns that view this
problem just as seriously as I do, and I am sure that anything
your committee could do to help fix it would be deeply
appreciated in Hamilton County and throughout rural America.
Thank you very much.
The Chairman. Thank you very much, Mr. Parkhill.
Let me just make some general comments before commencing
questions of you, because all of you have touched upon
something that is very important not only to our committee but
to the country, the digital divide issue the President has
addressed. Both you, Mr. McLean and Rhode, have cited specific
programs that the President has advanced.
But the reason we have coupled these two hearings is
obvious, one of which is, in the first half of our hearing, we
discussed a bold proposal for technology, for this common
platform, that has all sorts of possibilities. I think as you,
Mr. Rhode, or Mr. McLean pointed out, if you have this
satellite there, the least-accessible American in terms of what
used to be the stringing of telephone lines or rural electrical
lines or what have you really becomes accessible in a way that
we could not have envisioned at the beginning of rural
electrification or the telephone service.
These have been basic quests for us, because
philosophically, we have said although these individual persons
may be more expensive on a unit cost basis to service, we were
simply all one country and we wanted to have that sense of
indivisibility, unlike countries that have tried to repopulate
their areas, often at great expense and often of human liberty
of people who simply did not want to go to Siberia or wherever
else.
In rural America, people have wanted to live. They have
liked the quality of lifestyle. The dilemma that puts this
together with our previous hearing when we were talking about
rural income, the safety net, these sorts of problems, you
discover rapidly there are great divides among farmers in terms
of their sophistication to market their grain.
I have a computer and I can at night, when I have nothing
else on my mind but the price of corn, go to the, say, the CBOT
Website and get a chart for corn, daily, weekly, historically,
and get a pretty good idea, and even note what other people are
saying about the price of corn. I may get sort of a twitch to
get into the market the next day to make a sale, perhaps. That,
I have the opportunity to do.
As you pointed out today, if a farmer does not have a
computer, and in many counties of our country, a majority of
farmers do not have computers, quite afar from people who are
not farmers in rural America, why, they have got a problem. You
could probably get the Wall Street Journal, but maybe that is
not altogether accessible. In fact, the degree of
sophistication that comes through learning courses that come
from our universities, from all the people who are available if
you can get them on the Net are likewise not available.
So although we are asking farmers to become more
sophisticated and more market-oriented, and they really must,
there is no way out of this problem. Their return on investment
will continue to decline unless they are just very lucky. Until
there really is something, we are trying to come to grips today
just with basic income of producers.
Now, in terms of the quality of life, and Dr. Jay has
addressed this, we all want to be healthy Americans and the
problems there are manifest, but so are the possibilities. It
is sort of an exciting idea as to why as a national project we
ought to undergird getting the satellite up and getting the
signals there so that we not only have entertainment and news,
but we have all the benefits of education and even of medical
service that can come. Granted, the problems of licensure and
reimbursement and other aspects cannot be forgotten.
I just make these points to try to buttress why this
committee, or most of us, believe we have some responsibility
in this and how we meld together the market forces. I am not
oblivious to the fact that the ingenuity of Americans making
investments and seeing these needs is clearly there, but the
problem that we saw earlier with the electrification and
telephone issues and so forth impelled a broader strategy and
that has created a lot of opportunities.
Sort of commingled with this is the fact that, as we talked
about demographics in agriculture, there is not a one-way flow
from people from the country to the city. I cited in a press
conference on Monday, I think it was, the fact that the
largest-growing farm population in the country are those who
are on farms of one to 50-acres. In other words, sort of the
broadcast treatment of this journalistically that farms are
decreasing almost inevitably in America has been true for most
of our century, but not necessarily very much true of the last
5-years.
One reason is there were a lot of farm families who left,
say, in a group of people from 51-acres to 500. This seems to
be a more vulnerable group of people, but not so of those who
are, say, in the 18-percent of Americans who produce 85-percent
of all that is produced. These are, by and large, people with
500-acres, usually 600-acres or more, and these folks are
moving ahead. They are capitalized to be superior marketers and
competitors.
But then at the level of one to 50, this must mean a lot of
Americans are choosing a more rural lifestyle. They may just
want to get away and have a little space. This leads to a whole
new group of people who are interested in what we are talking
about today. Many of these people may have lived in the middle
of New York City or Indianapolis and they now, by choice, find
themselves in a situation that may still pick up the
metropolitan market signals or what have you, may not have gone
that far, but some do, reach the point where the signal becomes
fuzzy, as you were describing today, or may stop altogether.
So this is a new, not lobbying group, but an advocacy group
that say, we want the benefits of our 50-acres out here and we
are classified as farmers because we sell at least $1,000 off
of that, so that qualifies your farm. There are a lot more
people on the 50-acre farms that do not sell $1,000, but there
are many that do. Hundreds of thousands of people start showing
up in these new farm situations. But they are often doctors,
they are lawyers, they are business people, and given
transportation possibilities, they can do that sort of thing.
So they want to have all these things, so that has probably
been helpful. As opposed to simply a one-way tour to the city,
we have got a little spreading out in America, maybe some
potential for revival of some county seats.
I do not want to overdo it, but Mr. Rhode, in your State of
North Dakota, we have had testimony for several years of people
trying to do things that could otherwise be done on the New
York Stock Exchange or through commercial clearinghouses or so
forth, but you can do it in North Dakota or South Dakota if you
have the electronic and communications mechanisms to do that,
employ people in sophisticated ways. This still requires very
sizeable leadership at the local level and the State level and
the imagination of business people to do that.
Having said all that, the fact is, as you point out, the
divide is very great. Because this seems to be racing along at
a very fast pace, that is the whole telecommunications age or
computers or bandwidth or so forth, without there being some
thoughtfulness about this, there is every prediction that the
gap will get wider still. Eventually, something may happen at
the lower end of the band, but then the other folks may be off
somewhere else by this time. So the need to compress this time
frame is at hand.
I am curious, Dr. Jay to begin with, granted that a lot of
good things can happen in telemedicine. Describe the
infrastructure of what is required to make this work. There has
to be somebody back at the hospital or at the medical school or
at the headquarters, I suppose, so that even though you are
extending your empire in terms of information, advice, can you
fill in the gaps of how you have tried to organize that or how
you would suggest that we improve that situation?
Dr. Jay. Briefly, we have used virtually all of the
communications technologies that have been discussed here
today. I guess I see some strengths in having several arrows in
the quiver, so to speak, in terms of adapting and approaching
the need of a particular community in linking the technology
required to that particular need, and probably one will need
several arrows as opposed to one.
We use satellite technology for medical education programs.
We use two-way V-tel type of communication technologies for
two-way video, two-way audio conferencing with patients in the
prison systems and other formats. We use Internet with
technology that includes compress and store forward for things
like teleradiology, teledermetology, telepathology, where the
microscopic findings can be transmitted.
So the short answer is, we use multiple technologies and, I
think, probably will need to continue to explore and use and
adapt multiple technologies in the future. I am not sure there
is one single answer to your question in terms of the
technology, specific technology.
The Chairman. Do you do surgery, not over the Net, of
course, but do you have a master surgeon at some point who
guides the surgeon at the local level via some network?
Dr. Jay. Yes, and again, the simplest technology could be a
phone. It could be your computer, your PC. Or it could be the
kind of video interactive sorts of technologies that we are
talking about.
The Chairman. On which you could show the surgeon how to
go?
Dr. Jay. Yes.
The Chairman. He can actually see something there that is
helpful.
Dr. Jay. Exactly. So you can basically send and forward the
clinical information of a particular patient. You can send the
data, the information, the laboratory information. You can send
the images, the radiology images, and the ultimate image, the
image of the patient themselves, to the consultant at a
distance.
The Chairman. Mr. McLean, at RUS, obviously, you are
involved in all these issues broadly because your portfolio
covers people doing lots of things, but can you give some
overall comment as to all we are discussing here and how your
agency specifically is being helpful or could be more helpful
if we were to do the right things?
Mr. McLean. Well, Senator, first of all, I do not think you
overstate the case at all in your comments. In my heart, I
believe we really are on the verge of a rural renaissance.
Because of the technologies of telecommunications, it makes it
possible to do anything anywhere and we can bring the very best
medical minds to a rural patient in a rural clinic.
Surprisingly to many people, the digital technologies that are
utilized to examine a patient via telemedicine will provide in
many cases a superior diagnostic tool than a visual examination
of a doctor coming into your office, because if the scope is in
your ear and it is projecting a digital picture, it has a much
more accurate resolution than the naked eye would have. So we
see where telemedicine is not a second choice for rural
communities, but in many cases, telemedicine can enhance the
quality of health care.
Then in education, it is just tremendous, the power of this
technology. Rural schools can combine together and share
teachers which any one of those schools would not otherwise be
able to afford. Kids in distance learning classrooms develop an
etiquette that is relevant to having a camera in the classroom,
and in some ways have kids being more polite to each other
because they know they can only talk one at a time, kids have
to raise their hand, because you have the technology in the
room, and in a sense, they are on television. So there are all
kinds of tremendous fringe benefits that relate to this.
We found in our distance learning/telemedicine projects
that once you establish a facility, it becomes a community
asset. During the week, on Monday through Friday, on school
days, it is used by kids for education. In the evenings, the
facility is used by the fire department or for the nursing
homes to do continuing education. On the weekend, it might be
used for a community club.
We were not too long ago, Greg and I, together in Montana
and we visited a hospital where they said they used their
community telemedicine room, when it is not utilized for
medical purposes, for community groups, and they had the Girl
Scouts in, and because there was a few second delay in the
transmission, they were singing songs together, but it turns
out they were singing in round, so it worked out pretty nicely
to be able to use the technology for the kids to sing together.
So we can, by bringing these technologies to rural America,
have a profound effect on the economy, on the community, and
the quality of life, and the brilliance of both the distance
learning/telemedicine program and to e-rate and as well as what
you are contemplating in bringing modes of transmission for
local-to-local, these applications become magnets for
infrastructure upon which businesses can grow and you can have
new economic activity that just was not possible before.
The Chairman. This is much like when I was mayor of
Indianapolis some 25- or 30-years ago. The extension of the
sewer lines made all the difference in terms of the economic
activity and the vitality. Hopefully, it will be easier to do
the communication lines than it was that.
Certainly, this whole idea of the satellite, that it
happens all at once, everybody is accessible, it is a very,
very exciting idea. That could never have occurred when you are
laying it a pipe at a time or what have you.
I had an experience, and I think one other Senator has had
this more, but in our television studios here, we now have the
opportunity to teach classes in our home States, wherever they
are. So last week, two classes, one in South Bend, one in
Evansville, wanted to discuss the whole State of the Union
process, what happens, who does what and so forth, and so I was
the teacher. Now, the point, too, we are making about the
courtesy situation, in order to speak or to be heard out there,
I had to guide my mouse to click on the right button and keep
it there or I fade from the picture altogether. Likewise, the
student questioning me--I can see the classroom out there and
the students, whether they are restless or whether they are
not, but the person questioning me has to likewise manipulate
the mouse and I have to be quiet. But nevertheless, it is a
fascinating idea.
The thing that came to my mind, though, is this really
requires very creative teachers. Let us say all of us get our
work done today and all these lines get laid down and all these
things could happen in medicine or education or with farmers
becoming more sophisticated, but the will to do so, the
organization of this, the optimization of the opportunity is
really something else, too. But, nevertheless, our work right
now is the block-and-tackle work of infrastructure which
hopefully the creative Americans will have the ingenuity to
fill in.
Mr. Rhode, you have already been commended by Senators, and
rightly so because you have been active in this in the
legislative process, now administrative, but give us your
overall views to try to fill out this hearing.
Mr. Rhode. I think I would start by quoting Steve Case, who
is the CEO of AOL. He said yesterday, the Internet is big
enough to matter but still small enough to shape. The fact is,
we are in the midst of a tremendous communications revolution
in this country and in this world. New technologies are
providing incredibly new, wonderful services for distance
learning, health care, and a whole range of things, and we are
seeing the tremendous benefits of all that.
But as this industry is growing enormously, and it is
growing very, very fast, as there is nothing like that. I mean,
just compare the statistics for electronic commerce from this
last Christmas shopping season to the previous one. They went
from about $3 billion to well over exceeding $12 billion. It is
just a phenomenal amount of activity that is occurring. Our
economy is quickly becoming an electronic economy and we are
becoming an information society.
But the fact is that because of all this growth and because
of all this excitement of what is going on, now is really the
time to establish the policies and establish the programs and
to make sure that all Americans can benefit from this wonderful
revolution.
Congress had this vision in 1996 when it passed the
Telecommunications Act. There are provisions in that Act that
did not exist before in the statute. For decades, we have had a
universal service system, and it is in large part because of
the programs that the Rural Utilities Service has provided loan
financing to small companies, but also because of a universal
service system, what we had as a value in this country, that
everybody was going to have a telephone.
We have largely succeeded in that venture. Now, over 94-
percent of American homes have telephones. We still have
segments of our population, as Chris pointed out, turning on
basic phone service for some people for the first time. But for
the most part, we have really succeeded in having basic
telephone service. We are now moving into the next generation
of communications services, such as broadband capability and
advanced telecommunications and information services.
So in the 1996 Act, Congress was very specific in
establishing a vision that all Americans were going to have
access. The words that access to advanced telecommunications
and information service should be available to consumers in all
regions of the Nation is right from Section-254 of the
Telecommunications Act. That did not exist in statute before.
So Congress has already laid the groundwork and established the
objective of which we need to implement the policies now and we
also need to establish the other programs, such as programs
that the President has articulated and is going to propose in
his budget next week, which really help connect more and more
Americans to that infrastructure.
I believe if we are faithful to the design of the
Telecommunications Act, we are going to see the kind of
construction that occurs in the streets of Washington, DC., now
that Mayor Williams has to wrestle with, with all these
telecommunications companies tearing up the street to lay down
fiber. That is exciting. It is exciting for the people of
Washington.
The question is, is this going to get to the smaller
communities across America, and if we are faithful to the
principles of promoting competition, which is what is driving
the investment in a city like Washington, DC., if we can
promote competition, extend that competitive dynamic to more
and more communities, we are going to see more and more
investment and this great infrastructure that can be laid out,
and then that needs to be complimented with the faithful
implementation of a universal service program so we can have
the infrastructure so that residents who live in very small
communities can access the kind of health care that Dr. Jay
talked about, access the kind of educational opportunities that
Chris just described.
The Chairman. Apropos what you are saying, Mr. Rhode, a
week from today, our committee will be hearing again from Alan
Greenspan and Mr. Summers and the Secretary and what have you,
but this time on the Commodity Futures Trading Corporation's
reauthorization. This is, as you know, the oversight for the
Chicago Mercantile and the Board of Trade and others who are
involved in agricultural commodities, but now increasingly
Treasury securities, energy, all this sort of thing.
We had a hearing last year in which a commodity trader
brought in a computer and he brought in a screen so we could
all see this, and he executed a trade selling 10,000-bushels of
corn or whatever the unit was on a market in London. This is
right from our committee room. There was confirmation of the
trade and this was a real trade, not just simply an exhibit for
the Committee.
The point he was making is, our CFTC, we reauthorize this
all the time. We try to construct guidelines so that markets
have confidence in this country. But since we did this the last
time, there has been an electronic market worldwide that covers
a lot of volume that was beyond our purview. The New York Stock
Exchange is wrestling with this, as is the SEC, and quite apart
from people out in Chicago with open outcry, the normal way of
doing this sort of thing as opposed to people who are trading
electronically all over the world.
My point is that as we try to get into the subject that we
are dealing with today, we really need all of you sort of
looking over our shoulder because each of you have made points,
as did the panel before. If we put restrictions and limits of
various sorts, we can thwart this situation in ways that really
make the kind of idealism we are discussing possible.
On the other hand, there is a public responsibility to keep
this thing within bounds if there are public funds and
responsibilities available. I think there is a desire, which
you have heard several, that if we have guarantees and we have
loans, there is the full thought of repayment and the security
has to be whole, even as we are trying to think of an
infrastructure that has unlimited possibility. These are not
incompatible, but they are not altogether easy.
I have no critique of the Burns bill last year or the
Baucus bill this year or whatever Senator Gramm is doing, but
our responsibility in this committee is to do the best that we
can, working with all of these colleagues and whatever
jurisdictions and interests that they have. I think that we
start with a good bipartisan basis here of doing that, as well
as you, Mr. Rhode and Mr. McLean, representing responsible
agencies in the administration, speaking for the President and
others, working with the leadership of the other party in this
Congress. All of these folks will have to come in harness.
So if there is impatience with any of these people, I am
going to try to ignore that. We are not getting into editorial
comments, we are just trying to steer things along if we can.
Mr. Parkhill, you are out there on the firing line, a
practitioner, but what would be helpful to you as you have
heard this? You have already testified a little bit about that
in the previous session, as we discussed the satellites and
this type of thing, but given all the services we have been
talking about now, the medicine, the educational features and
so forth, these are very important, as you are saying, to maybe
2,400 subscribers of the telephone operation there or others
who might have other needs. Can you fill in any more of that
terrain?
Mr. Parkhill. Within Hamilton County, we have one hospital.
It is a small hospital. They do not have the facilities that
they would have in a larger area.
The Chairman. Yes.
Mr. Parkhill. So telemedicine would be a great benefit to
them.
The Chairman. Are they tied together? Dr. Jay has cited the
Clarian Network in the State of Indiana. There is no reason why
you would know about that, but I am just wondering, in
Illinois, is there a comparable thing with larger hospitals
sharing in some ways?
Mr. Parkhill. I am not sure if they are tied in with any of
the others, not on a network such as that. With the hospital
being located within McLeansboro, it is served by GTE and so I
do not know what services they are trying to offer them. I do
know that the high school and the junior high are tied in with
the junior college, which is several miles away, trying to
bring them and several other high schools together on some T1
lines, which is very expensive. Whenever you go to crossing
LATA boundaries and everything, you start incurring some great
costs. So with what is available out there today, it really
gets into the taxpayers' pocket real heavily.
My feeling, and I believe that it is NRTC's feeling, as
well, that by doing this through a satellite-type connection,
this could be tied in with the local-to-local satellites that
we talked about earlier. Going through the RUS for funding, we
could get funding that way, and with the loan guarantees, it
would drive the interest rate down to where it would be more
affordable. Therefore, you would be able to pay it off,
hopefully, within 15, 20-years, something like that. It might
take a little bit longer. It depends upon how everything comes
up, because models and everything, you try to project, but
sometimes you goof a little bit.
The Chairman. Just on the interest rate problem alone,
there is no way you could project this because interest rates,
even as we speak, are in fluctuation, or at least they were
yesterday. But we speak of lower than market and maybe double
the market, but can you give some idea of what kind of rates
that you think happen in those two scenarios, that is, market
only or one in which you see something less than market
occurring.
Mr. Parkhill. With the loan guarantees from the Congress
going through RUS, I think that we could look at loan rates
possibly in the 7-percent, 6.5-percent area. Going out on the
open market, I would say you are going to be looking at 12, 14-
percent.
The Chairman. Would you agree with that, Mr. McLean, from
your portfolio experience?
Mr. McLean. Yes, Sir. I would say that if we had that
authority today and we were looking at an application today,
that is about the right spread. The common thing that runs
through rural electrification, rural telecommunications, rural
water is that, and the universal service program in the
Telecommunications Act, is how do you get private sector people
to do things that they would not otherwise do left to basic
market forces.
That 75/25-percent ratio that we heard over and over today
recurs in our work all the time. Seventy-five percent of the
market is profitable. Twenty-five percent is difficult to
serve. Seventy-five percent of the geography is rural. Twenty-
five percent of the population is rural. It just recurs over
and over again, even in individual businesses. I always hear,
25-percent of my customers provide me 75-percent of my
revenues. So I think it is a very profound statistic that kind
of guides our work.
So how can we fix that 25-percent? If we can bring down the
cost of capital, then it is affordable for the private sector
to move in and bring the service that we need, and I think it
is going to be a multi-modal solution to meeting the
telecommunications needs. There is incredible hunger and demand
for bandwidth, and we are going to need everything. We are
going to need satellite. We are going to need wireless. We are
going to need fiber optics. Even in data transmissions, we will
have large amounts of bandwidth with data coming down from the
satellite, but likely, at least initially, we are going to have
to connect to the satellite through the telephone network. To
ride the Internet, you need to be on the telephone network.
Again, this committee has been in the vanguard of that
vision of one Nation indivisible, and when President Truman
signed the telephone amendments to the Rural Electrification
Act into law, 40-percent of American farmers had telephone
service, and as Greg just mentioned, we are almost completely
there. But the job does not stop, because it is three times
more expensive to serve rural citizens than it is to serve
urban citizens. There is always going to be a need to be able
to help bring those costs down.
The Chairman. As you gentlemen and others have noticed,
this committee has a bias toward rural America. A good number
of our members come from there, and each one of the States that
is around this table has a great sensitivity to constituencies
that we are talking about today.
We sort of start, then, with a full head of enthusiasm
coming out of the Committee and approach the Senate as a whole,
and in fairness, there is a resonance, at least, of interest in
rural America with people who have left rural America. They
still want somebody to do something out there.
So I think there will be broad support, but we need to get
it right. As I listened again and again carefully, the
technical aspects of this are very important, the prohibitions
and the stoppers and so forth. This is musing out loud, but it
is a part of the hearing process, to perfect the situation,
which you have all contributed to a great deal.
At this point, let me thank you and thank all who have
attended our hearing. We look forward, if you will, to your
responses to questions that other Senators that have not been
able to attend this hearing in person may wish to ask so that
we will have a complete hearing record.
Thank you very much. The hearing is adjourned.
[Whereupon, at 12:13 p.m., the Committee was adjourned.]
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A P P E N D I X
February 3, 2000
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