Chairman Stevens Opening Statement
Today’s hearing addresses two issues – federal, state and local regulatory roles and municipal broadband.
In today’s networked digital world, regional and national services increasingly transcend state and local boundaries.
As a result, service providers can face a patchwork quilt of differing regulations that drive up regulatory cost, bifurcate business practices, and impact consumer costs.
When I was at the NARUC conference yesterday and spoke with a lot of good people, the idea of creating Joint Boards to work out common national standards between states and the FCC on key issues, but leave it to the states to enforce the standards at the local level was discussed.
The joint board approach is not likely to work as well when you get down to the local level because there are simply too many municipalities. But, once you get beyond pure rights-of-way management, it is very difficult to try to achieve consensus at a joint board involving 50,000 different municipalities as opposed to 50 states.
In my view, though, consumer complaint issues must be implemented at the state and local level. They are more equipped to handle a complaint from an Eskimo in my state than the FCC.
We want to hear about municipal broadband today. The Augustine Report that I mentioned, “Rising Above the Gathering Storm” made clear the need for broadband to ensure our country’s competitive position in the digital age.
Concerned that broadband is not happening quickly enough some municipalities want to build and operate their own broadband networks while others want to sponsor them.
Some commercial providers have cried foul and are concerned that they cannot compete fairly against municipalities.
And there are states that have prohibited municipalities from offering telecommunications service and are pondering prohibiting broadband service.
We will hear today from all of you in order to help determine whether municipalities might play a role, how it would interact with Universal Service Fund, and what impact it has on the commercial sector.
Chairman Stevens: Well, Ms. Neff I find that very interesting. I come from a state that’s one-fifth the size of the United States. Not many people live in cities – about half of them. What do you do in Pennsylvania for the people who don’t live in cities? This municipal service that’s free of taxes but will still receive Universal Service assistance won’t pay federal taxes, won’t pay city taxes. How can we fit that into our national system?
Ms. Neff: Actually, Earthlink will pay city taxes, will pay federal taxes as a corporation and they provide a revenue sharing model with Wireless Philadelphia to help us then do the digital inclusion as the digital divide is local and our neighborhood revitalizations are local. And, we’ve looked to a model where Earthlink’s municipal networks division will provide wholesale access to other companies that do pay taxes and provide services.
Chairman Stevens: Is that right Mr. Berryman? Do you think you can provide that service to the whole nation?
Mr. Berryman: We’d like the opportunity to try Senator.
Chairman Stevens: I don’t understand. You’re providing services to a 501(c)3 corporation, aren’t you?
Mr. Berryman: They’re our partner.
Chairman Stevens: As your partner, you provide them the services, right?
Mr. Berryman: No. We provide the citizens of Philadelphia the service.
Chairman Stevens: But you’re contributing to the 501(c)3 corporation. That’s part of the cost, right?
Mr. Berryman: That’s correct.
Chairman Stevens: But you’re still only charging $10 a month?
Mr. Berryman: Only for the digital inclusion, which is a limited number of people in the city of Philadelphia. The rest will pay a market rate that Earthlink will be a retail seller for, as well as others that will come onto the network as wholesalers.
Chairman Stevens: Will those people be outside the city or inside of the city?
Mr. Berryman: They’ll be within, at least to start, within 135 square miles of the city.
Chairman Stevens: Do you believe you’re eligible for Universal Service funding?
Mr. Berryman: We believe we’re eligible for it? I don’t think so.
Chairman Stevens: You plan to claim it, right? You plan to seek Universal Service assistance?
Mr. Berryman: No.
Chairman Stevens: What do the rest of you just think about the concept of municipalities offering broadband services under these circumstances? Have you faced the problem in your states? Mr. Boone, you said you did. Do you have a similar situation with regard to Philadelphia?
Mr. Boone: At this point, what we are facing again is primarily against the municipality directly and the municipality itself is the entity that is providing the service. So, it isn’t through any other form of partnership with any other entity. That municipality has clearly said that it does not intend to serve the rural areas and, yes, they are receiving Universal Service.
Chairman Stevens: I’m not opposed to such a circumstance. In my state, the state owns the ferries. In my state, the state owns the railroad because no one else would operate either one. But, in your situation Mr. Berryman, weren’t there competitors offering service within the City of Philadelphia.
Mr. Berryman: There are. There is the local phone company, Verizon, and the cable company, Comcast. They’re offering those services today.
Chairman Stevens: Thank you. My staff points out that no one is getting Universal Service yet on broadband, but we believe it will come, so I apologize for not being cleared. Do any of the rest of you have any comments about this system? You’d prefer to stay out of the fight, right?
Mr. Boone: Could I answer that?
Chairman Stevens: Yes, sir.
Mr. Boone: As I listen to the different comments and about recognizing how this is compares to cable franchise, I guess in Iowa at least the cable franchise is non-exclusive and I guess one of the difficult things that I have with some of the partnership opportunities that may exist between city and private enterprise, would be that once that partnership has begun, in effect, the winner has been chosen. It’s difficult, unless there is a true open access network that the municipal government is offering, they really have chosen who the private winner will be and I just think that’s makes it awfully difficult, again, especially when I think about the very small rural areas that I serve.
Chairman Stevens: Senator Lautenberg, I don’t think we meant this to be a hearing on your bill, but that is one of the issues involved in this situation. Is Mr. Berryman going to have a franchise, Ms. Neff?
Ms. Neff: No. It’s not a franchise.
Chairman Stevens: Are there going to be franchises available through the City of Philadelphia?
Ms. Neff: The City of Philadelphia only franchises in the cable area. These are agreements to use city-owned assets for which Earthlink will pay a fee. So, it’s additional income to the city.
Chairman Stevens: Let me go back to some of the other issues. Yesterday I commented upon the need I think for a federal-state Joint Board to try and work out some of the problems that relate to this area. None of you I think have really commented on that and I don’t know whether I’ve reached an accord, the possibility of agreement with you or not. Ms. Munns you’re the president of the national association, what do you think about it?
Ms. Munns: Well, I appreciate your remarks and we really did appreciate your reaching out because we think like some other mechanisms that’s one of the things that you could use in ensuring that rules that were made were not just made in Washington, but took into concerns are those issues at the state. That’s one way you could set it up. Other things that you might do, I think the real question is when issues come up, how much experimentation do you allow before you know that it’s time to go to a federal rule on something? Because as I said before, I don’t know that we’re necessarily opposed. We understand that concept of a federal framework, but how do you know what to put into place until you’ve had some experimentation?
Chairman Stevens: What about the size of the font of a bill or the length of the franchise or the necessity for it being fair and equal, level-handed about dealing with separate application for franchise? What about the situation of whether cable is going to get a franchise, but over-the-air is not going to get a franchise unless they do specific things. Do you agree with us that someone has to make some decisions? We can’t have 40,000 different franchises in order to get a competitor into an area that has a monopoly right now.
Ms. Munns: Right, and I think in my comments I said you know we are very supportive of technology-neutral kinds of rules. We’re supportive and understand the need for a federal framework. It’s at what point do you go to that and how much flexibility do you allow to deal with new and novel situations or to deal with just local concerns? What kind of mechanisms do you say to people you can try some experimentation out there, at some point you have the right to petition the FCC and they will take it up within a certain amount of time, deal with it on a national level, allowing the states to continue with what they’re doing until there is a federal rule. What John Perkins talked about was the truth in billing and I think, that’s a federal approach to consumer issues. To the extent it went, that is a federal framework. But, again it gets to the issue of how much flexibility do you have back at the states under that federal framework and at what point do you move things to the national level and at what point are you pre-emptive and say, “these are what the rules are, you can do nothing different even if you have consumer complaints or local concerns”?
Chairman Stevens: If we create the authority for a Joint Board it would have to be done in the bill that we’re talking about, the telecom bill. It wouldn’t come into effect until next year. It would be a couple of years before it goes down the path and we get some report from the Joint Board. Would your national association be willing to sit down with our staff and work out what kind of subjects could be put in that Joint Board if we created one?
Ms. Munns: Oh, yes, we would. We’ve had experience with Joint Board in the past on, I think we have a Universal Service Joint Board where we’ve had very good experience sitting down and making recommendations.
Chairman Stevens: Mr. Perkins, what about the consumer interest in that?
Mr. Perkins: We certainly would welcome the opportunity to be part of such a discussion, Senator. And I’d just add that probably the overarching issue that the Congress ought to reach in this is one that Ms. Munns alluded to and Senator Ensign did also, and, that’s the issue of should Congress even get involved in this area of municipal versus private enterprise or is that more properly a state issue, that individual states ought to be left alone to decide within their states whether they are going to allow their municipalities to compete or not compete. And I don’t have an opinion on that, I just throw that out as something I think the Congress ought to consider very heavily, as I’m sure you will.
Chairman Stevens: Well, if you’re in a municipality that already has a football field and the franchise is going to come up for renewal soon, and there’s a competitors that’s going to come in, you want to have bidding to see who builds the baseball field to provide communications service to that municipality. Our problem is that there seems to be a quid pro quo for these franchises that goes beyond communications, goes beyond a fee for the municipality and it’s who is willing to do things beyond communications. By the way, that ultimately comes out at the cost to the consumer doesn’t it?
Mr. Perkins: Sure. Absolutely, it does, Senator. My only point was the issue of not whether that’s proper of improper. The issue, I believe is more, should a state legislature deal with that issue within its state boundaries or should Congress deal with that issue on a national level?
Chairman Stevens: But, you’ve got cable (and satellite) with 80 percent penetration of all the homes in the country. Now we have broadband coming in and we have new competitors wanting to come in and compete with them, and the franchise as I pointed out yesterday, they’re getting one a year, with 40,000 out there to get to compete fully on a national basis. Now, am I wrong to think there is a federal interest in seeing to it that there is national as well as local competition.
Mr. Perkins: Well, you’ve quickly outstripped my knowledge in this area Senator, I’m afraid.
Chairman Stevens: Ms. Munns?
Ms. Munns: We were talking earlier about how, you know, these different platforms did different things, like cable did video and the copper wires provided voice and that we’ve really had convergence where we’re able to deliver same or similar services over these same networks. So, we said, “Approach these in a technology-neutral way.” I think everybody wants these services and we want these services in our communities just as quickly as we can get them. I think that the cities will say we have some legitimate issues on franchising, things that, you know, use of city services and those things should be dealt with. But, I think the ultimate, what we’re trying to do here is get these different platforms, bringing as many consumer choices to people as we can.
Chairman Stevens: Well, I’m told now that you either get a cell phone or the new iPod and you can pick up television, pick up your messaging, pick up your telephone, you can even stream down a movie and watch it while you’re on a bus. Now, if I’m in Philadelphia and I’ve got one of those, am I going to be subject to some problem in Philadelphia? You know, the people who are providing it through fixed wire or cable or through the over-the-air today, they are all subject to some regulation from the federal government all the way down to the cities. These things, these totally ambulatory systems, can do all of those things without a franchise from anybody. You know, I think we’re going to have to get together and figure out what’s right and what’s wrong. Clearly the telephone systems now have the ability to go broadband and we have all this spectrum that’s going to be auctioned here soon. It’s going to be really rampant competition. But shouldn’t somehow or other we have a framework so it’s fair? Aren’t you the people we ought to talk to to determine what you think is your jurisdiction as opposed to what we think we ought to do on a national level? So, I would urge your association to see your way clear to work with us soon on this. This bill is going to have to start moving in March.
Mr. Perkins: We would welcome that opportunity.
Chairman Stevens: Mr. Altschul you made a comment before, I read it in the paper or something yesterday, about Universal Service concepts. You didn’t mention that in your statement today.
Mr. Altschul: We weren’t invited to, but I’d be happy to mention it. The wireless industry today pays into Universal Service and increasingly we’ve been able to expand into…
Chairman Stevens: But, you said you weren’t getting as much out as you pay in.
Mr. Altschul: That’s quite true.
Chairman Stevens: I don’t think anybody does.
Mr. Altschul: Well, wireline carriers because of the additional amounts that we’re paying in, the wireline industry in a whole is now getting more out than they pay in, for example. There are two things that are going on in Universal Service. As intended, it certainly does move funds to support high-cost, rural areas and build out important services in those areas. But, it also across competitive technologies today is moving money from one kind of competitive industry to another. And, what we support is a system that fulfills I think everyone’s goal, which is to be able to encourage these new modern services in high-cost, underserved rural areas, but in a way that also promotes the same competitive benefits that consumers in urban areas receive and don’t think twice about. Today they have all the choices. The same kinds of choices and the same benefits of competition should be available in all markets.
Chairman Stevens: I don’t intend to prolong this. Senator Inouye and I, as I said yesterday to the PUC group, initiated the process which started the movement toward Universal Service – the interstate rate pool and then Universal Service. We did that to be able to take the modern world to places where they didn’t have service at all. We’ve still got 100 villages out of our 241 that don’t have any Internet at all. But, more than half of our Universal Service Fund is being spent in the inner-core city now to take the service to people who can’t afford it. And I don’t argue with that except the balance is not there anymore. We still haven’t finished the job of taking it in either Hawaii or Alaska into places where they are still in the 19th century. I really think, however, that the problem has to be addressed from the point-of-view of who pays now and out into the future world into the Universal Service Fund and who gets what out of it. We’ve got to deal with that. We haven’t had that full hearing yet, but I hope we will have it and it will be a provocative one I’m sure. I do thank you all for coming and I hope that Ms. Munns you’ll discuss with your association the concepts we’re looking at. We don’t want to create a Joint Board if no one is going to come to the party, okay? Thank you all very much.
Ms. Munns: We vote for any opportunity to have this partnership.
Chairman Stevens: I hope it will be very productive partnership. Thank you all very much.
Witness Panel 1
Mr. Robert SahrCommissionerSouth Dakota Public Utilities Commission
Ms. Diane MunnsPresidentNational Association of Regulatory Utility Commissioners
Mr. John PerkinsPresidentNational Association of State Utility Consumer Advocates
Mr. Michael F. AltschulSenior Vice President and General CounselCTIA - The Wireless Association
Mr. Douglas A. BooneChief Executive OfficerPremier Communications
Mr. Donald BerrymanPresident of Municipal NetworksEarthlink Inc.
Ms. Dianah NeffChief Information OfficerCity of Philadelphia