[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]
IS THE BROADBAND STIMULUS WORKING?
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON COMMUNICATIONS AND TECHNOLOGY
OF THE
COMMITTEE ON ENERGY AND COMMERCE
HOUSE OF REPRESENTATIVES
ONE HUNDRED THIRTEENTH CONGRESS
FIRST SESSION
__________
FEBRUARY 27, 2013
__________
Serial No. 113-9
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COMMITTEE ON ENERGY AND COMMERCE
FRED UPTON, Michigan
Chairman
RALPH M. HALL, Texas HENRY A. WAXMAN, California
JOE BARTON, Texas Ranking Member
Chairman Emeritus JOHN D. DINGELL, Michigan
ED WHITFIELD, Kentucky Chairman Emeritus
JOHN SHIMKUS, Illinois EDWARD J. MARKEY, Massachusetts
JOSEPH R. PITTS, Pennsylvania FRANK PALLONE, Jr., New Jersey
GREG WALDEN, Oregon BOBBY L. RUSH, Illinois
LEE TERRY, Nebraska ANNA G. ESHOO, California
MIKE ROGERS, Michigan ELIOT L. ENGEL, New York
TIM MURPHY, Pennsylvania GENE GREEN, Texas
MICHAEL C. BURGESS, Texas DIANA DeGETTE, Colorado
MARSHA BLACKBURN, Tennessee LOIS CAPPS, California
Vice Chairman MICHAEL F. DOYLE, Pennsylvania
PHIL GINGREY, Georgia JANICE D. SCHAKOWSKY, Illinois
STEVE SCALISE, Louisiana JIM MATHESON, Utah
ROBERT E. LATTA, Ohio G.K. BUTTERFIELD, North Carolina
CATHY McMORRIS RODGERS, Washington JOHN BARROW, Georgia
GREGG HARPER, Mississippi DORIS O. MATSUI, California
LEONARD LANCE, New Jersey DONNA M. CHRISTENSEN, Virgin
BILL CASSIDY, Louisiana Islands
BRETT GUTHRIE, Kentucky KATHY CASTOR, Florida
PETE OLSON, Texas JOHN P. SARBANES, Maryland
DAVID B. McKINLEY, West Virginia JERRY McNERNEY, California
CORY GARDNER, Colorado BRUCE L. BRALEY, Iowa
MIKE POMPEO, Kansas PETER WELCH, Vermont
ADAM KINZINGER, Illinois BEN RAY LUJAN, New Mexico
H. MORGAN GRIFFITH, Virginia PAUL TONKO, New York
GUS M. BILIRAKIS, Florida
BILL JOHNSON, Missouri
BILLY LONG, Missouri
RENEE L. ELLMERS, North Carolina
Subcommittee on Communications and Technology
GREG WALDEN, Oregon
Chairman
ROBERT E. LATTA, Ohio ANNA G. ESHOO, California
Vice Chairman Ranking Member
JOHN SHIMKUS, Illinois EDWARD J. MARKEY, Massachusetts
LEE TERRY, Nebraska MICHAEL F. DOYLE, Pennsylvania
MIKE ROGERS, Michigan DORIS O. MATSUI, California
MARSHA BLACKBURN, Tennessee BRUCE L. BRALEY, Iowa
STEVE SCALISE, Louisiana PETER WELCH, Vermont
LEONARD LANCE, New Jersey BEN RAY LUJAN, New Mexico
BRETT GUTHRIE, Kentucky JOHN D. DINGELL, Michigan
CORY GARDNER, Colorado FRANK PALLONE, Jr., New Jersey
MIKE POMPEO, Kansas BOBBY L. RUSH, Illinois
ADAM KINZINGER, Illinois DIANA DeGETTE, Colorado
BILLY LONG, Missouri JIM MATHESON, Utah
RENEE L. ELLMERS, North Carolina G.K. BUTTERFIELD, North Carolina
JOE BARTON, Texas HENRY A. WAXMAN, California, ex
FRED UPTON, Michigan, ex officio officio
C O N T E N T S
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Page
Hon. Greg Walden, a Representative in Congress from the State of
Oregon, opening statement...................................... 1
Prepared statement........................................... 3
Hon. Anna G. Eshoo, a Representative in Congress from the State
of California, opening statement............................... 4
Hon. Joe Barton, a Representative in Congress from the State of
Texas, opening statement....................................... 5
Hon. Robert E. Latta, a Representative in Congress from the State
of Ohio, opening statement..................................... 6
Hon. Cory Gardner, a Representative in Congress from the State of
Colorado, opening statement.................................... 6
Hon. Henry A. Waxman, a Representative in Congress from the State
of California, opening statement............................... 7
Hon. Leonard Lance, a Representative in Congress from the State
of New Jersey, prepared statement.............................. 163
Hon. Bruce L. Braley, a Representative in Congress from the State
of Iowa, prepared statement.................................... 163
Witnesses
Lawrence E. Strickling, Assistant Secretary for Communications
and Information, and Administrator, National Telecommunications
and Information Administration (NTIA), U.S. Department of
Commerce....................................................... 9
Prepared statement........................................... 12
Answers to submitted questions............................... 243
John Padalino, Acting Administrator, Rural Utilities Service
(RUS), U.S. Department of Agriculture.......................... 28
Prepared statement........................................... 30
Peter Kirchhof, Executive Vice President, Colorado
Telecommunications Association................................. 70
Prepared statement........................................... 72
Answers to submitted questions............................... 251
Ann Eilers, Principal Assistant Inspector General for Audit and
Evaluation, Office of Inspector General, U.S. Department of
Commerce....................................................... 82
Prepared statement........................................... 84
Michael K. Smith, State President-Vermont, Fairpoint
Communications................................................. 107
Prepared statement........................................... 109
Answers to submitted questions............................... 253
Bruce Abraham, Board of Directors, North Georgia Network......... 115
Prepared statement........................................... 118
Joe Freddoso, President and CEO, MCNC............................ 126
Prepared statement........................................... 128
Submitted Material
Letter of February 26, 2013, from the School, Health & Libraries
Broadband Coalition, submitted by Ms. Matsui................... 165
Article entitled, ``Why a one-room West Virginia Library runs a
20,000 Cisco router,'' submitted by Mr. Walden................. 173
Letter of February 26, 2013, from the National Association of
Telecommunications Officers and Advivors, submitted by Mr.
Walden......................................................... 178
Article entitled, ``Waste is Seen in Program to Give Internet
Access to Rural U.S.,''February 11, 2013, the New York Times,
submitted by Ms. Eshoo......................................... 181
Letters of support, submitted by Ms. Degette..................... 185
Chart entitled, ``75 percent of schools in North Caroline have
broadband over 50 Mbps compared to 4 percent of schools in
Colorado,'' submitted by Ms. DeGette........................... 229
Statement of Christopher Thurow, Sr., submitted by Mr. Kinzinger. 230
Letters of support, submitted by Mr. Gardner..................... 232
IS THE BROADBAND STIMULUS WORKING?
----------
WEDNESDAY, FEBRUARY 27, 2013
House of Representatives,
Subcommittee on Communications and Technology,
Committee on Energy and Commerce,
Washington, DC.
The subcommittee met, pursuant to call, at 10:03 a.m., in
room 2322 of the Rayburn House Office Building, Hon. Greg
Walden (chairman of the subcommittee) presiding.
Members present: Representatives Walden, Latta, Shimkus,
Gardner, Pompeo, Kinzinger, Long, Ellmers, Barton, Eshoo,
Doyle, Matsui, Welch, Pallone, DeGette, and Waxman (ex
officio).
Staff present: Ray Baum, Senior Policy Advisor/Director of
Coalitions; Sean Bonyun, Communications Director; Matt Bravo,
Professional Staff Member; Andy Duberstein, Deputy Press
Secretary; Neil Fried, Chief Counsel, Communications and
Technology; Debbee Hancock, Press Secretary; Heidi King, Chief
Economist; Brian McCullough, Senior Professional Staff Member,
Commerce, Manufacturing, and Trade; Gib Mullan, Chief Counsel,
Commerce, Manufacturing, and Trade; Andrew Powaleny, Deputy
Press Secretary; David Redl, Counsel, Telecom; Charlotte
Savercool, Executive Assistant, Legislative Clerk; Roger
Sherman, Democratic Chief Counsel; Shawn Chang, Democratic
Senior Counsel; Margaret McCarthy, Democratic Staff; Patrick
Donovan, FCC Detailee; and Kara van Stralen, Democratic Special
Assistant.
OPENING STATEMENT OF HON. GREG WALDEN, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF OREGON
Mr. Walden. We will call the Subcommittee on Communications
and Technology hearing to order. Our hearing today is entitled,
``The Broadband Stimulus: Is It Working?''
Good morning, everyone. I want to welcome our witnesses
today for this hearing, which will look at all these issues
related to how the stimulus money was spent on building out
broadband.
I am just going to tell you, at a time when President Obama
and his administration is threatening to lay off meat
inspectors, FAA controllers, TSA agents, throw Head Start
students out of class, and cut teachers as the best way to deal
with the sequester, our subcommittee will look at how parts of
the Obama administration have allowed millions, perhaps
hundreds of millions of dollars in overspending, overbuilding,
and waste in their rush to spend the 7 billion in broadband
stimulus money for underserved and unserved areas of this
country.
To be sure, some of the money may be being spent as
intended while other awards have been revoked and the money
returned to the Treasury. When this bill was rushed through
this committee, my Republican colleagues and I raised questions
about how prudent it was to spend the money before the
broadband maps were completed showing where it was spent, where
would be appropriate to spend it in unserved areas. They wanted
to get the money out the door before the maps were drawn.
Republicans pointed out that the private sector was investing
an order of magnitude more extending service all across
America. For the government, which borrows 40 cents of every
dollar it spends, to get in this game seemed unnecessary.
Today, we know that the private sector has spent $65
billion a year on broadband for the past decade, but the
government meanwhile can't find the money to cover veterans who
have to wait in line 2 years to get their claims for benefits
approved because it says it doesn't have the funds.
So the Obama administration's priority was to fund routers
designed to support more than 200 simultaneous users to a
library in West Virginia housed in a single-wide trailer with
just one internet connection. Here is a picture of that
library. To put this in context, even accounting for 100 times
growth in the number of internet users at the library, routers
capable of handling 100 users each cost at least $16,000 less
than were purchased. $16,000 less.
The NTIA and RUS likely made some good choices. In many
areas of the country, the money may have been spent
appropriately, probably was. And that is a good thing. That is
what we would all want. After all, if the money was going to
get spent, then we would all hope it would get spent
appropriately.
However, approximately $611 million of the funding covering
42 projects has been revoked, relinquished, or suspended.
Advocates of the law said it needed to be rushed through
Congress to infuse money into the troubled economy and that the
funding would go to shovel-ready projects. Yet we know even in
West Virginia some of these routers are sitting idle for 3
years. Yet 4 years in to the program only 60 percent of the
broadband funds have been put to use. And of the 553 projects
funded, only 58 are finished or in the finishing stages, even
though all were originally supposed to be completed by next
September.
Allegations of overbuilding persist. Indeed, a spate of
national stories in recent weeks have pointed to the $100
million EAGLE-Net grant in Colorado as a quintessential example
of overbuild. According to the New York Times, the currently
suspended project built a third fiber connection--a third fiber
connection--to an 11-student elementary school in Agate, which
the school said it didn't want or need, instead of to rural
mountain communities desperate for access. The Department of
Commerce Inspector General and the state auditor have both
recently concluded that West Virginia overspent hundreds of
thousands or even millions of dollars on enterprise-grade
servers for small libraries with only a few computers.
By contrast, the private sector has built out broadband to
96 percent of the population last decade and 70 percent of the
country now subscribes. The number of Americans with broadband
at home grew from 8 million to 200 million between 2000 and
2009. Another 20 million signed up by 2011. There was no need
to reinvent this wheel. Doing so is not only inefficient; it is
counterproductive. First, overbuilding provides ``seconds'' or
``thirds'' to some parts of the country before others have even
had ``firsts.'' Second, it unfairly subjects to government-
subsidized competition businesses that have invested their own
funds.
So in conclusion, promoting broadband is a laudable goal.
But there are many laudable goals in our government. And when
the government is borrowing 40 cents on every dollar to fund
government services, we cannot afford them all, especially if
the private sector is succeeding without government
involvement. From what we now know, the government has spent
millions if not hundreds of millions on equipment it did not
need and on stringing fiber to areas that already have it.
Republicans won't tolerate wasteful government spending, and it
appears we have uncovered millions that fit that category. If
the Obama Administration was going to spend this money wisely,
it would have targeted it to the 4 percent of the country where
there is no economic business case to be made for private
sector investment. Increasing stories of overbuilding and waste
suggest the administration has failed to adequately do so.
And I understand as result of our work and other audits and
investigations, there may be deals in the works to actually
reclaim some of this money or at least make other adjustments.
My suggestion to both Colorado and West Virginia, if the money
wasn't supposed to be spent the way you spent it, the federal
taxpayers deserve to have it all back.
And with that I recognize the gentlelady from California.
[The prepared statement of Mr. Walden follows:]
Prepared statement of Hon. Greg Walden
At a time when President Obama and his administration is
threatening to lay off meat inspectors, FAA controllers, TSA
agents, throw head-start students out of class and cut teachers
as the best way to deal with the sequester, our subcommittee
will look at how parts of the Obama administration have allowed
millions--perhaps hundreds of millions--of dollars in
overspending, overbuilding and waste in their rush to spend the
$7 billion in broadband stimulus money for underserved and
unserved areas of the country.
To be sure, some of the money may be being spent as
intended while other awards have been revoked and the money
returned to the treasury. But when this bill was rushed through
this committee, my Republican colleagues and I raised questions
about how prudent it was to spend the money before the
broadband maps were completed showing where the unserved areas
were. Republicans pointed out that the private sector was
investing an order of magnitude more extending service all
across America. For the government, which borrows 40 cents of
every dollar it spends, to get in this game seemed unnecessary.
Today, we know that the private sector has spent $65 billion a
year on broadband for the past decade, but the government makes
veterans wait years to get their claims for benefits approved
because it says it doesn't have the funds.
So the Obama administration's priority was to fund routers
designed to support more than 200 simultaneous users to a
library housed in a single-wide trailer with just one Internet
connection. To put this in context, even accounting for one
hundred times growth in the number of Internet users at the
library, routers capable of handling 100 users each costs at
least $16,000 less than what was purchased.
The NTIA and RUS likely made some good choices. In many
areas of the country the money may have been spent
appropriately. That's a good thing. After all, if the money was
going to get spent, then we would all hope it would get spent
well.
However, approximately $611 million of the funding covering
42 projects has been revoked, relinquished, or suspended.
Advocates of the law said it needed to be rushed through
Congress to infuse money into the troubled economy and that the
funding would go to shovel-ready projects. Yet four years into
the program, only 60 percent of the broadband funds have been
put to use. And of the 553 projects funded, only 58 are
finished or in the finishing stages, even though all were
originally supposed to be completed by September 30, 2013.
Allegations of overbuilding persist. Indeed, a spate of
national stories in recent weeks have pointed to the $100
million EagleNet grant in Colorado as the quintessential
example. According to the New York Times, the currently
suspended project built a third fiber connection to an 11-
student elementary school in Agate-which the school says it
does not need or want-instead of to rural mountain communities
desperate for access. The Department of Commerce Inspector
General and a state auditor have both recently concluded that
West Virginia overspent hundreds of thousands or even millions
of dollars on enterprise-grade servers for small libraries with
only a few computers.
By contrast, the private sector has built out broadband to
96 percent of the population in the last decade and 70 percent
of the country now subscribes. The number of Americans with
broadband at home grew from eight million to 200 million
between 2000 and 2009. Another 20 million signed up by 2011.
There was no need to reinvent the wheel. Doing so is not only
inefficient, it's counter-productive. First, overbuilding
provides ``seconds or thirds'' to some parts of the country
before others have even had ``firsts.'' Second, it unfairly
subjects to government-subsidized competition businesses that
have invested their own funds. This potentially divides the
customer base from which the company can recover costs,
jeopardizing its business and the jobs it created. Third, it
puts the federal dollars at greater risk, since the subsidized
entity must similarly compete with the existing private
businesses.
Promoting broadband is a laudable goal. But there are many
laudable goals. When the government is borrowing almost 40
cents on every dollar to fund government services, we cannot
afford them all, especially if the private sector is succeeding
without our involvement. From what we know now, the government
has spent millions on equipment it did not need and on
stringing fiber to areas that already had it. Republicans won't
tolerate wasteful government spending, and it appears we've
uncovered millions that fit that category. If the Obama
administration was going to spend this money wisely it would
have targeted it to 4 percent of the country where there is no
economic business case for private sector investment.
Increasing stories of overbuilding and waste suggest the Obama
administration failed to adequately do so.
# # #
OPENING STATEMENT OF HON. ANNA G. ESHOO, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF CALIFORNIA
Ms. Eshoo. Good morning, Mr. Chairman, members of the
committee. And to our witnesses, welcome.
I didn't have this in my prepared remarks but I can't help
but say so. What is the answer, sequester? I think that, number
one, the President of the United States, with all due respect
to the Chairman, is not the purchasing agent for this program.
So let us keep things in context.
I think the title of today's hearing--``Is the Broadband
Stimulus Working?''--I believe that it is. Are there some
issues that we need to discuss? Do we need to do serious
oversight of everything to track taxpayer dollars? Of course we
do. That is the responsibility of the Congress. The investments
made in broadband infrastructure are having, I believe, a
profound impact in local communities around the country.
The Chairman said that approximately $611 million of the
BTOP and BIP funding covering 42 projects has been revoked,
relinquished, or suspended. The fact of the matter is, is that
the terminated BTOP projects have spent approximately $11
million representing 0.3 percent of BTOP funds. Should we track
those down? Sure we should. But let us keep things in context.
I mean it is kind of like down boy. We don't need hair on fire
here.
And additionally, approximately $200 million in previously
suspended BTOP grants are now back on track. So thanks to BTOP
funding, the rural Iowa Telehealth Initiative is enabling
Iowans living in rural and medically underserved areas to
receive the affordable healthcare they need. In Oregon the
Monroe Telephone Company has used BIP funds to bring fiber to
the premises to more than 2,300 residents, 29 local businesses
and 7 local institutions. And at the College of Menominee
Nation in Wisconsin, BTOP funding has enabled the reservation
to open a community technology center where previously only
dial-up internet was available. These are real-life stories in
real-life States in real-life communities of how the Act is
working.
As we have discussed in oversight hearings throughout the
last two Congresses, there are always challenges along the way.
I have never seen a program in a Republican administration or a
Democratic administration or a Republican Congress or a
Democratic Congress that doesn't have issues. They are sticky
wickets. Life is not tidy. But it is our responsibility to
track all of that down.
I don't think the solution is to attack the overall merits
of a program. Instead, as I said previously, rigorous oversight
by NTIA, RUS, and the Inspector General of these respective
agencies is necessary to ensure that the projects remain on
track and achieve their intended goals. There is no doubt that
we have much more work ahead of us because something that still
dogs us is the following: 19 million Americans remain unable to
obtain a broadband connection. This is not a source of pride to
our country. So should we blow up what we have set out to do? I
don't think so. I don't think so.
The problem is particularly pervasive in rural and tribal
areas where between \1/4\ and \1/3\ of the population remains
without access to broadband. The BTOP and BIP programs are
helping to tackle these challenges, and with this
subcommittee's continued focus on broadband, we can and one
day, I think, be able to meet the challenge, be the envy of the
world in availability and speed of service.
I am very grateful to each of the witnesses for your
commitment to expanding the deployment and adoption of
broadband nationwide. And in particular, I would like to offer
a special thanks to Bruce Abraham and Joe Freddoso who have
traveled to Washington, as many witnesses do, to share the
successes of the BTOP program. And I don't know. Do I have any
time remaining?
Do you want 14 seconds, Ms. Matsui? You are fine? OK.
With that I will yield back the balance of my time.
Mr. Walden. Gentlelady yields back the balance of her time.
The chair now recognizes the gentleman from Texas, Mr. Barton.
OPENING STATEMENT OF HON. JOE BARTON, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF TEXAS
Mr. Barton. Thank you, Mr. Chairman. I apologize for being
a little bit late, but I am here. So that is good.
The American Reinvestment and Recovery Act was signed into
law in 2009. I didn't support that Act at that time. That law
drastically increased spending. It also created some
opportunities in my opinion for wasteful spending. It appears
that both the Broadband Technology Opportunities Program, which
most people call BTOP, and the Broadband Incentive Program,
which most people call BIP, have fallen victim to the hated
government waste.
During the time that I served as ranking member of the full
committee, I questioned both the National Technology and
Information Administration and the Rural Utility Service
Corporation over their ability to carry out the Broadband
Initiative. When executed correctly--and I want to emphasize
correctly--I believe that both BTOP and BIP are programs that
can add value to the lives of our citizens. The goal of these
programs are to ``provide access to broadband services to
consumers residing in underserved areas.'' Yet, it doesn't
appear to me that the results so far have achieved that goal.
The complaints of overbuilding, we hear from the carriers
and the facts that we see regarding the actual number of
projects, which is abysmal in my opinion, that have been
completed, leads to me to believe that this is a program that
needs to be reviewed very strongly and perhaps restructured.
And with that, Mr. Chairman, I thank you for your time and
I yield back.
Mr. Walden. I now recognize the vice chair of the
subcommittee, Mr. Latta.
OPENING STATEMENT OF HON. ROBERT E. LATTA, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF OHIO
Mr. Latta. Thank you very much, Mr. Chairman. And thank you
very much for holding the hearing today. And I also welcome our
distinguished panel of guests for testifying today.
High-speed broadband has become a necessity of life. It has
already transformed our economy and the possibilities for the
future are endless. I represent not only rural areas of the
State of Ohio but also suburban, and I am keenly aware of the
importance that broadband deployment plays in economic
development and the nexus this access has to job creation. I
feel very strongly that the country's free market private
investment approach to broadband expansion has been very
successful. It is outstanding that the private sector wired and
wireless broadband providers have invested billions each year
since 2002 through 2011.
While there are many positive stories of BTOP and BIP
projects, including several in the state of Ohio, the stories
of waste, fraud, and abuse are alarming. As with all of our
government programs, taxpayers deserve thorough oversight of
the billions of dollars spent on these programs.
And with that, Mr. Chairman, I yield back. Thank you.
Mr. Walden. I now recognize the gentleman from Colorado,
Mr. Gardner.
OPENING STATEMENT OF HON. CORY GARDNER, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF COLORADO
Mr. Gardner. Thank you, Mr. Chairman. And thank you very
much for the time to hold this hearing today, and thank you,
Mr. Strickling, and the other witnesses today. Mr. Kirchhof
from Colorado, thank you for being here.
I guess I had some prepared comments yesterday that we were
going over to talk about this morning's hearing. And then I
spent an hour yesterday listing to a Legislative Audit
Committee in the Colorado State Legislature. It is a bipartisan
committee, equal amount of Republicans and Democrats on this
committee where the end statement by a leading State Senator, a
Democrat, was this: the more we hear about EAGLE-Net, the more
questions we have.
I just read some comments from constituents that I have
before we get into this about EAGLE-Net. And that is the
subject of this hearing. What is happening, what is going on,
and why do we have so much overbuild in Colorado out of $100
million at a time when this government is trying to scrape
money together?
One constituent, PC Telecom, having overbuilt nearly 100
percent of PCT's fiber-optic facilities in Colorado, and we
have another company in Colorado. All of C-Com's network
information was available to EAGLE-Net in advance of their
overbuilds. We have another company, private company in
Colorado. Blanca was more than willing to offer NTIA reasonable
terms that would have saved them an estimated $20 million, but
NTIA, with full knowledge that Blanca served almost every
community institution in its service territory, chose instead
to duplicate their high-speed internet services.
These are private sector jobs. At a time when the White
House, at a time when all of us talk about creating middle-
class jobs, good-paying jobs, we have a $100 million grant that
went to the State of Colorado that is putting at risk private
sector jobs, the very good, middle-class-paying jobs that we
are trying so desperately to create and preserve.
In the Denver Post yesterday there was a story, 96 million
out of the $100 million has already been tied up in this grant,
yet only 25 percent of the more than 220 K through 12 school
districts, libraries, community colleges and other educational
institutions that are supposed to be wired into the network are
actually connected. At the hearing yesterday, the
representatives of EAGLE-Net couldn't tell us who they served,
who their members were, how much has been built, how much money
they have. When a non-partisan audit committee says the more we
hear, the more questions we have, something has gone
dramatically wrong. And the fact is, when we hear statements
from the intergovernmental entity itself that they don't know,
they can't provide the answers, but they have spent almost all
of this and are 25 percent completed, this isn't working.
Mr. Walden. The gentleman's time has expired. The chair
recognizes the ranking member of the committee, Mr. Waxman.
OPENING STATEMENT OF HON. HENRY A. WAXMAN, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF CALIFORNIA
Mr. Waxman. Thank you, Mr. Chairman.
Today is the Committee's seventh oversight hearing
regarding the Broadband Technology Opportunities Program, or
what we call BTOP, and the Broadband Initiative Program, or
BIP. I may not agree with the chairman's conclusions, but I
commend him for his diligence. When we ask questions as part of
our congressional oversight, it helps protect the taxpayers.
I would like to welcome all of our witnesses. In the case
of Assistant Secretary Strickling, welcome back. To our other
witnesses, we appreciate your willingness to share your
perspectives. I am particularly pleased to have two grantees
who can speak directly to the success of the Broadband Recovery
Act Programs. Bruce Abraham is here from North Georgia Network,
a project that is bringing economic and educational benefits to
rural areas of his state. And on behalf of Mr. Butterfield, I
would like to offer a special welcome to Mr. Freddoso, who has
worked extensively with Mr. Butterfield to bring broadband to
unserved and underserved areas of eastern North Carolina.
Oversight of BTOP and BIP began as soon as the ink was dry
on the Recovery Act. Indeed, Congress built oversight into the
very structure of these programs by providing millions of
dollars to the Inspectors General at the Departments of
Commerce and Agriculture in order to conduct vigorous audits
and reviews of the programs. We knew that NTIA and RUS had a
daunting task--investing taxpayers' dollars both quickly and
wisely in a manner that was fair, open and transparent to the
American people. Assistant Secretary Strickling and Acting
Administrator Padalino, your agencies are meeting this
challenge.
The projects funded by BTOP and BIP are transforming
communities across the country. We all recognize and applaud
the billions of dollars in private investments that has
delivered broadband to millions of Americans. But as
demonstrated by the overwhelming demand from applicants when
the programs were launched, public investments are also needed
to connect persistently unserved and underserved areas of our
Nation. Without these investments, some Americans would be
excluded from today's digital economy.
As this committee's continued interest in the broadband
program indicates, we expect NTIA and RUS to be careful
stewards of public dollars. Assistant Secretary Strickling,
NTIA has been a model of transparency and accountability. As
you stated in your testimony, the majority of BTOP projects are
meeting and exceeding their project timetables. And we have
every reason to expect they will be completed on schedule.
Acting Administrator Padalino, as I have said before, I
believe RUS still has work to do on this score. The GAO
recently recommended that your agency collect more reliable
data to assess progress of BIP. I am interested to hear what
your agency is doing to respond to the GAO's recommendations,
and in particular, what steps you are taking to make such
information publicly available.
I am also disappointed that the Office of the Inspector
General from the Department of Agriculture is not testifying
today to update the Committee on its work to ensure BIP funds
are being well-managed.
I thank everybody who is going to be testifying today, and
I want to yield the balance of my time to my fellow Californian
member from Sacramento, Ms. Matsui.
Ms. Matsui. Thank you, Ranking Member Waxman, for yielding
me time and I thank the witnesses for being with us today.
Throughout the BTOP process, I have advocated for broadband
adoption and digital literacy grants for urban underserved and
anchor institutions. In addition to adoption, I believe digital
literacy will be even more important as more and more Americans
rely on their mobile devices, Smartphones and tablets for their
daily communications.
In my opinion, the BTOP program has laid a foundation for
advancing our internet economy. It has connected more than
11,000 community anchor institutions to high-speed broadband
internet services. As a result of the State of California's
Broadband Adoption Grant, community colleges like Los Rios
Community College are now able to provide training and digital
literacy skills for local residents in my district of
Sacramento. Additionally, a BTOP grant allocated to the
California Emerging Technology Fund will initiate an innovative
program that provides computers to low-income middle school
students in Sacramento. While I continue to strive for
universal broadband adoption, I do believe the BTOP program has
provided a path towards helping to close our Nation's digital
divide.
Finally, I would like to ask unanimous consent to enter
into the record a letter from the Schools, Health, and
Libraries Broadband Coalition.
Mr. Walden. Without objection.
[The information appears at the conclusion of the hearing.]
Ms. Matsui. Thank you, and I yield back my time.
Mr. Walden. The gentlelady yields back her time.
I think that covers the scope of opening statements so we
will proceed into the questions. I request--oh, I am sorry.
That is right. We are so eager to get into our questions.
Mr. Strickling. I know you are anxious to ask me questions,
but I----
Mr. Walden. If you want to waive your opening statement, we
can just get right at this. You are right. We are going to go
to opening statements.
And so I want to welcome Hon. Lawrence E. Strickling,
Assistant Secretary for Communications and Information, and
Administrator of the National Telecommunications and
Information Administration--which is a mouthful--U.S.
Department of Commerce; and John Padalino, the Acting
Administrator of Rural Utilities Service (RUS), U.S. Department
of Agriculture.
Mr. Strickling, we welcome both you and Mr. Padalino here
and we look forward to your testimony.
STATEMENTS OF LAWRENCE E. STRICKLING, ASSISTANT SECRETARY FOR
COMMUNICATIONS AND INFORMATION, AND ADMINISTRATOR, NATIONAL
TELECOMMUNICATIONS AND INFORMATION ADMINISTRATION (NTIA), U.S.
DEPARTMENT OF COMMERCE; AND JOHN PADALINO, ACTING
ADMINISTRATOR, RURAL UTILITIES SERVICE (RUS), U.S. DEPARTMENT
OF AGRICULTURE
STATEMENT OF LAWRENCE E. STRICKLING
Mr. Strickling. Well, thank you, Mr. Chairman, and to you,
and to Ranking Member Eshoo, and members of the subcommittee.
I am here today to update this subcommittee on NTIA's work
to expand the availability and adoption of broadband in the
United States. And I am pleased to welcome a new partner to the
witness table, John Padalino, the Administrator of the Rural
Utility Service, who has taken over for Jonathan Adelstein, and
I look forward to working with Administrator Padalino in his
new capacity.
Four years after the American Recovery and Reinvestment
Act, I am pleased to report that our broadband efforts are
delivering substantial and meaningful benefits across the
country. Our grantees are delivering on their promises to
create jobs, stimulate economic development, spur private
sector investment, and open up new opportunities in employment,
education, and healthcare. And they are exceeding the program's
goals for deploying new fiber-optic infrastructure,
constructing new public computer centers, and encouraging
greater internet adoption.
To date, our grantees have deployed or upgraded more than
86,000 miles of broadband infrastructure. They are building
more than 2,300 network nodes in 1,400 communities, and over 80
percent of these communities will receive speeds greater than a
gigabit per second. Our grantees have connected almost 12,000
schools, libraries, and other community anchor institutions to
high-speed broadband. Eventually, they will connect more than
20,000 community anchors in 5,100 communities, and more than 20
percent of these institutions will receive bandwidths greater
than a gigabit per second. They have entered into more than 600
interconnections agreements with other companies and
organizations to allow them to provide new or improved services
to their homes and businesses that they serve.
Our grantees have installed more than 40,000 public
computer workstations, provided nearly 10 million hours of
training to 2.8 million people, and have generated over 500,000
new broadband subscribers. These projects are directly funding
thousands of jobs and delivering training that has allowed
thousands more Americans to find jobs of their own.
From the beginning of this program, NTIA has been cognizant
of the need to design and administer this program in the most
efficient manner possible. And indeed, our costs of
administration are among the lowest of any comparable program
in the government.
Similarly, the need to protect taxpayer funds against
waste, fraud, and abuse and to ensure that the projects deliver
their promised benefits has been of paramount importance to us.
We have performed extensive and diligent oversight of these
projects without micromanaging them. We have provided technical
assistance to recipients to help them perform well and deliver
the benefits they have promised. And this oversight involves a
significant level of effort and requires hard decision-making
at times when necessary to protect taxpayer investments.
The vast majority of our projects have performed well. You
will hear from representatives of two of these projects in the
second panel; Joe Freddoso of MCNC in North Carolina; and Bruce
Abraham of the North Georgia Network. But as with any program
of this size and complexity, we have had cases where
intervention by us was necessary. Fortunately, because we work
hard to identify issues as early as possible, we have been able
to get projects back on track.
One of our oversight tools is project suspension. We use it
sparingly and only after efforts to improve performance with
improvement plans or corrective action programs have not
deliver the desired results. Over the history of this program--
keeping in mind that we have about 220 some grantees--we have
suspended a total of nine projects. But a suspension does not
mean the project is lost. In four cases we worked with the
grant recipients to get their projects back in shape and we
lifted the suspensions after the grantees addressed our
concerns. As a result, those projects are stronger, more
successful, and more responsible stewards of taxpayer dollars
due to our interventions.
And, Mr. Chairman, of the figure you gave of, I think, 600
million of projects suspended/revoked, those projects--those
four projects--account for $221 million, which means those
dollars are back at work in their communities.
The North Florida Broadband Authority Wireless
Infrastructure Project offers a prime example. Our oversight
identified concerns regarding project management and vendor
oversight. We froze distribution of funds to the project,
conducted several site visits, and provided extensive technical
assistance to the grantee. We lifted the project suspension
once the recipient implemented management and vendor changes,
and now, about a year later, that project is nearing completion
and benefiting dozens of communities in rural North Florida.
Currently, we have three projects on suspension for
performance-related issues. And this accounts for $158 million
of the total number that the Chairman presented in his opening
remarks. We are working closely with the recipients and we are
hopeful that they will get their projects back on track at
which time we would be able to lift the suspensions and allow
the grantees to complete their projects. One of those three
projects is EAGLE-Net, which I am sure we will be talking about
in greater detail through the course of the questioning.
There have been two situations where, despite our best
efforts, we had to terminate projects. However, in those cases
our early intervention allowed us to make the difficult
decision to terminate before either grantee had spent much of
its grant award. These projects account for $139 million of the
Chairman's total, but when we terminated, they had only spent
about $11 million of federal funds, which represents
substantially less than even 1 percent of the total grant
dollars awarded under the Recovery Act.
Mr. Chairman, I am grateful to this subcommittee for its
efforts to ensure that NTIA has had the resources it needs to
oversee this program. I look forward to answering your
questions and to continuing to work together to increase
broadband access and adoption across the country in the most
effective and efficient manner possible. Thank you.
[The prepared statement of Mr. Strickling follows:]
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Mr. Walden. Thank you, Mr. Strickling.
We will now go to Mr. John Padalino, the Acting
Administrator, Rural Utility Service. We welcome you here and
look forward to your testimony.
STATEMENT OF JOHN PADALINO
Mr. Padalino. Thank you, Mr. Chairman. And Mr. Chairman,
Ranking Member Eshoo, and members of the subcommittee, thank
you for the opportunity to testify on the U.S. Department of
Agriculture's Broadband Initiative Program, or BIP, and the
progress of the Rural Utility Service broadband investments
under the American Recovery and Reinvestment Act of 2009.
Because access to affordable broadband is crucial for
economic development, the Rural Utility Service remains focused
on the Recovery Act projects. We continue to work to expedite
delivery of affordable, robust broadband service. Broadband
creates jobs when projects are planned and built, adds jobs
when these projects become operational, and again as
communities continue economic expansion.
The Rural Utility Service leveraged its budget authority
appropriated by the Recovery Act to make grants, loans, and
loan/grant combination awards to 320 projects totaling $3.5
billion. The agency targeted grant funds to the most rural
areas and to those in greatest need of service. The Rural
Utility Service also leveraged grant dollars with additional
private investments in broadband infrastructure projects to
help communities gain sufficient access to high-speed broadband
service, to facilitate rural economic development as directed
by the Recovery Act statute.
Rural broadband systems may take 5 years to build out. All
of our U.S. projects must comply with federal and state
environmental, historic preservation, and in some cases, tribal
or intergovernmental reviews that can require significant
consultation with the public prior to receiving loan and/or
grant funds. To ensure recipients comply with the broadband
program's requirements, including the budget and network system
design submitted during the application process, the Rural
Utility Service technical and financial staff review requests
for funding advances and continue to provide technical and
financial oversight throughout the project's life and beyond.
Our rigorous project oversight has led to the rescission of 38
Recovery Act awards and nearly $266 million returned to the
U.S. Treasury.
Under the Recovery Act, contracts signed by awardees
require that all loan grant funds must be advanced by September
30, 2015. Funds not advanced will be rescinded and returned to
the U.S. Treasury. The Rural Utility Service and senior USDA
officials have repeatedly encouraged awardees to complete
Recovery Act projects as quickly as possible. Our 19 technical
assistance awards have been fully disbursed. The Satellite
Broadband Program has now dispersed 86 percent of its $100
million to date.
Infrastructure projects continue to progress. Over 98
percent of the projects have drawn funds. The Rural Utility
Service continues to closely oversee and work with the few
awardees that have not yet drawn down funds.
Since 1949, the Agency has played an important role in
financing rural telecommunications. Our current rural broadband
expansion efforts were initiated through the Rural Utility
Service Telecommunications Infrastructure Loan Program, which
has required that financed projects be broadband-capable since
1995. The 2002 Farm Bill authorized the Rural Broadband Loan
Program, which has provided broadband service to more than half
a million rural subscribers. And the community connect grants
are available to areas completely lacking broadband service.
For this reason, the Recovery Act gave priority in funding
to RUS infrastructure borrowers. For example, Baca Valley
Telephone Company in New Mexico received their first loan in
1979. Today, Baca Valley Telephone Company covers over 2,600
square miles providing rural residential and cellular service,
local internet access, business telephone and security systems,
and network cabling throughout northeastern New Mexico and
southeastern Colorado. Baca Telephone received Recovery Act
funding to provide fiber optic connectivity and deploy a last
mile access system, to provide broadband services to households
and businesses in the northeast area of New Mexico.
Now fully operational, contract savings allowed the project
to expand into unserved areas and provide a solid framework for
future needs. In Oregon, the Confederated Tribes of Warm
Springs received an award for a broadband network on the
reservation to improve public safety, enhance educational
opportunities, and allow access to medical professionals on the
reservation. The new network continues to assist employment
growth as community members start online, home-based
businesses.
With a combined loan portfolio of over $6 billion, the
Rural Utility Service Telecommunications Programs help deliver
affordable, reliable, advanced telecommunication services
critical to the future prosperity of rural communities.
Despite Rule Utility Service investment, rural areas lag
urban and suburban areas in broadband deployment. The RUS
continues to address challenges to bring broadband to rural
communities, yet we remain concerned over the impacts slow
broadband investment may have on rural economies.
Mr. Chairman, I thank the Committee and its members for its
continued interest in the Recovery Act and other Rural Utility
Service broadband programs.
[The prepared statement of Mr. Padalino follows:]
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Mr. Walden. Mr. Padalino, thank you. And Mr. Strickling,
thank you for your testimony.
I request unanimous consent to submit for the record the
Ars Technica story about allegations West Virginia wasted
millions of dollars putting enterprise-grade routers in small
libraries like the one that I held up the picture for earlier.
Without objection.
[The information appears at the conclusion of the hearing.]
Mr. Walden. Assistant Secretary Strickling, the West
Virginia auditor concluded, ``The decision to spend the federal
funds on oversized routers resulted in millions of dollars in
federal funds not being spent on expanding the states fiber-
optic broadband network.'' The auditor said that ``A capacity
and a user's need survey prior to the procurement of the
routers would have determined the appropriate router size, but
such surveys were not conducted.'' The Commerce IG's report
also concluded that West Virginia overspent, noting that West
Virginia ``did not perform a study to determine which size
router would most effectively and efficiently meet its needs.''
Did the NTIA require any kind of site assessment or use-
case analysis before approving a grant or authorizing the
purchase? And if not, should it have? And will you do so going
forward? Are you reviewing any other grants with questionable
purchases? And how are you monitoring these grant recipients to
prevent this from happening again?
As you know this came up in a hearing we had back in May--
--
Mr. Strickling. Yes.
Mr. Walden [continuing]. and we sparred back and forth
about this very situation. And so it is a matter of keen
interest to me and this subcommittee.
Mr. Strickling. Yes, sir. Well, to answer the second part
of your question, as you know, we don't have any more grant
dollars to be giving out. So the issue of what we would do in
terms of looking at a new application is a moot question
because we are not in the business of giving out any new money.
Now, with respect to these findings in West Virginia, I have
had a chance to look over the auditor's report and I am
certainly familiar with the Inspector General's report at the
Department of Commerce. I think it is not at all clear from
those reports that what West Virginia did was unreasonable in
terms of its choice of a platform, a single platform, the Cisco
router, at the time they made it.
And I think part of the confusion we are having here, and
it is reflected in the articles about this project, is we are
confusing cost with capability. There is no question that the
routers that West Virginia chose through its process that it
used are providing superior capabilities. And there is no doubt
that there are places in West Virginia that if those routers
are installed, they are going to have far more capability than
one would expect they would need now and probably in the next
10 years. But what West Virginia did was they were looking in
terms of, how do we do this in the future-proof way?
Because the question we have here is not what do you need
today to serve these facilities? What do we need for the next
10 years?
Mr. Walden. Mr. Strickling, with all due respect, hold up
that library. The Market Public Library is open Thursdays--what
does is it say here--Thursdays, Fridays, and Saturdays--in a
single-wide trailer with one internet connection. Do you really
think that is going to build out to where they have the need
for a couple hundred internet connection router in a community
of 1,500?
Mr. Strickling. I don't know, Mr. Chairman. But I do know
that that community has plans to build a 5500 square foot
library to replace the temporary one that is in your picture.
So----
Mr. Walden. A 5,500 square foot library in a town of 1,500
needs a $20,000 router?
Mr. Strickling. Well, sir, the $20,000 is a list price and
I am not in any way suggesting that every one of these
locations in West Virginia will make full use of these
capabilities. But it still comes back to the cost question. The
question is, how did they waste money if they wasted money? And
the fact is that the financial analysis of this shows that the
prices that were paid in the aggregate by West Virginia are
pretty close to what they would have paid under an alternative
model.
Mr. Walden. So you have read the audit from the West
Virginia.
Mr. Strickling. Our Inspector General did a review of this
project and said that if you assume that they would have gotten
the same level of discount on the lower-class router and if
they had gotten 100 free routers, there might have been a
savings of 2 to 5 percent----
Mr. Walden. Mr. Strickling----
Mr. Strickling [continuing]. but our Inspector General
finally just finished, Mr. Chairman, concluded that if either
of those assumptions wasn't true, if in fact they couldn't get
the 100 free routers, then the cost would have been a wash.
Mr. Walden. So you are happy with the outcome in West
Virginia is what I hear you defending. Is that correct?
Mr. Strickling. I am saying----
Mr. Walden. You believe that what they did is accurate and
a good use of taxpayer money? Have you read the West Virginia
audit itself? The IG didn't dig as the as the West Virginia
auditor did.
Mr. Strickling. The West Virginia auditor used list prices.
They didn't use the actual prices----
Mr. Walden. And they identify that there was no competitive
that process--just a moment, sir.
Mr. Strickling. Sir----
Mr. Walden. Did they use a competitive bidding process in
West Virginia in accordance with their statutes? No, they did
not according to the auditor. Correct?
Mr. Strickling. Well, I think we need to hear from the
State on that. My understanding is they use a process that they
have used in the past in terms of the----
Mr. Walden. I don't believe that is true. I don't believe
that is true at all. Have you read the West Virginia audit?
Mr. Strickling. I have, sir. But I am telling you that it--
--
Mr. Walden. That clearly identifies the problem and the
waste here and calls for future investigations?
Mr. Strickling. It used list prices, not the actual prices.
Mr. Walden. So you are oK with this little single-wide
trailer having a $15 or $20,000----
Mr. Strickling. That is not what I said, Mr. Chairman.
Mr. Walden. But I believe it is.
Mr. Strickling. I have indicated to you that what we are
talking about is the decision of West Virginia to make----
Mr. Walden. We are talking millions and millions of dollars
being wasted here that we don't have that I expect you to go
after if they have been wasted in West Virginia to give back to
us.
Mr. Strickling. That is my point, sir. There is no real
showing of wasted dollars expended here.
Mr. Walden. Wow.
Mr. Strickling. Look at our IG's report.
Mr. Walden. I have.
Mr. Strickling. Our IG concluded a possible 2 to 5 percent
savings had they used different routers if they would have
gotten 100 free routers, which they got by buying the higher-
capacity gear and if they had gotten the same level of
discount. If they wouldn't have gotten the free routers, the
price of buying the lower capable routers would have been the
same as what they bought. So that is what we are confusing
here, Mr. Chairman. We are confusing the capabilities of what
they are getting with the cost that they paid.
Mr. Walden. Well, it is interesting that we have gotten a
letter from the Chief of Staff of the Governor asking for all
kinds of flexibility now going forward to deal with this issue
of routers that have overcapacity.
My time has expired. I recognize the gentlelady from
California.
Ms. Eshoo. Thank you, Mr. Chairman. I think that if this
little town--wherever it is in West Virginia--had their 5,500
square foot library built with not only capacity for today but
capacity for the future that was purchased that we wouldn't be
having this discussion. It is the shed that doesn't look good.
Because when you look at what is going on, I mean you don't
just buy something with capacity for today. You shortchange
yourself. And there is--if you want to get into the weeds, and
it is important to--that the pricing of these routers are very
important.
Now, just for the record, I have spoken to some of the
companies that are a part of this. Well, first of all, Cisco
did not write up the order. They responded to the customer and
sold them what they asked for. Number two, if there is any kind
of shadow over these dollars, Cisco is willing to refund the
federal program. I don't think that is going to be the case,
but nonetheless, I think it is important to state that.
Now, the GAO recently raised concerns about the quality of
the data being collected by BTOP and BIP. Have your agencies
taken any action to respond to the GAO's recommendations? You
want to be brief because I have got a lot of questions to ask.
Mr. Strickling. In fact there weren't any recommendations--
--
Ms. Eshoo. There weren't?
Mr. Strickling [continuing]. directed at us. In fact they
used us, I think, as a model of a good way to collect data.
They did----
Ms. Eshoo. Terrific.
Mr. Strickling. They did raise some questions about how
they collected data.
Ms. Eshoo. I hope all of the members are listing to this. I
mean we have a tendency to insulate ourselves from any kind of
good news.
Mr. Padalino?
Mr. Padalino. Yes, the recommendation in the GAO audit was
directed at the Rural Utility Service and the Broadband
Initiative Program.
Ms. Eshoo. So what are you doing with it?
Mr. Padalino. At the time the audit was published, we had
at that point developed a dashboard and required project-by-
project reporting so that we could----
Ms. Eshoo. I don't know what that means. What are you doing
with it?
Mr. Padalino. Well, what we are now collecting is the data
similar to what NTIA is collecting as far as network miles,
wireless access points, number of----
Ms. Eshoo. When are you going to finish with your
absorption of that and what you are going to do with
recommendations?
Mr. Padalino. We plan to try to make that data publicly
available.
Ms. Eshoo. But don't try. You need to. You just need to do
it.
Mr. Padalino. Yes, ma'am.
Ms. Eshoo. Try is not good enough. OK? Really. We are in
the public business, all right, or the business of the public.
Now, the RUS has been, I think, less than forthcoming than
NTIA about publicly reporting on the progress of your grantees.
So what are you doing to make sure or ensure that the public
has access to information where BIP projects are building and
whether they are on track to meet their milestones?
Mr. Padalino. One of the first things we do even before an
award is made is have each of the applicants go out for public
comment. And they notify the public that they are seeking RUS
funds. And the public has an opportunity to comment on that
application. Afterwards, as I said, we developed a dashboard so
we are----
Ms. Eshoo. But my question is about the progress of the
grantees. You are talking about who is bidding and the public
knows that Company A, Company B, Company C. That is not what I
asked you.
Mr. Padalino. Earlier this year, we had a webinar with all
of the Broadband Initiative Program awardees, and the very same
question was asked of how we can make this information
available. We are working to get that information available
online so we can report on the progress of our projects.
Ms. Eshoo. Yes, I mean the public needs to know, and in a
very clear way, how they can track the progress of this. That
is essentially what the hearing is about. All right? And it is
very important that you do that.
At the Subcommittee's last hearing on BTOP and BIP in May
of last year, USDA's Deputy Inspector General identified that
the IG had begun an audit of the BIP application process. And
he estimated that the audit would be complete in September of
last year and that a second phase examining the post-award
process would be completed by December of last year. Has either
of these audits been released?
Mr. Padalino. Those audits have not been released yet.
Ms. Eshoo. Why?
Mr. Padalino. I am not sure.
Ms. Eshoo. Do you know?
Mr. Padalino. We could look to the Inspector General's
office to ask why. I think they will be coming out shortly, and
when they are publicly available, we would be happy to discuss
it with you.
Ms. Eshoo. Well, if they are publicly available, then we
will get them, too. Let me ask you this. Are you pressing them
for it?
Mr. Padalino. Yes, we have been working closely with them
on the audit.
Ms. Eshoo. Are you? Good. OK. Do you have a timeline of
when--well, you just said you think it is going to be made
available publicly shortly. Shortly in government time is what,
in the next 6 months or the next 6 weeks?
Mr. Padalino. I think in the next few months. I can't speak
for the Inspector General----
Ms. Eshoo. I know. It is a guess. It is a guess.
I just want to also request, Mr. Chairman, while I still
have some time, that a unanimous consent request that the
letter dated February 26 from the National Association of
Telecommunications Officers and Advisors be made part of the
record.
Mr. Walden. Without objection.
[The information appears at the conclusion of the hearing.]
Ms. Eshoo. Thank you, Mr. Chairman.
And I would also like the majority to follow up on
something that was said at the beginning of the hearing, that
there is documented fraud. And if there is documented fraud, we
need to know about it. I don't know, you know, if it is
documented, if it is speculative, then say if it is speculative
and we will look into it. But fraud is a heavy charge. Some of
these issues, obviously, you can debate them. You know, I don't
think the Cisco router look so great in the shed. You know, it
kind of pulls down, I think, the value of the brand. But on the
other hand, if there is documented fraud, we need to cast a
spotlight on that and examine it.
And with that I yield back.
Mr. Walden. The gentlelady's time has expired and she
yields back.
The Chair recognizes the vice chair of the subcommittee.
Mr. Latta. Mr. Chairman, I will yield 2 minutes to you.
Thank you.
Mr. Walden. I thank the gentleman for yielding.
I want to go to this point of the West Virginia audit. I
will quote from the audit, page 29 of the audit. ``The State
Office of Technology used a purchasing process which is
unauthorized by West Virginia statute or legislative rule to
purchase 1164 Cisco model 3945 branch routers at a cost of 24
million on behalf of the Broad and Technology Opportunity
Program, BTOP, Grant Implementation Team.'' The Office of
Technology used a ``secondary bid process'' on an existing
contract approved by the state purchasing division instead of a
competitive bid process open to non-Cisco vendors as required
by law.
Now, if you go back to some of the points I was making
earlier, according to the audit, ``The auditors research, some
conclusions can be readily drawn. Smaller, less-extensive
routers could have been purchased for the State's 172
libraries. If the average cost savings was 16,265 less per
router, 2.8 million could have been saved.'' Smaller, less-
extensive routers, if necessary, could have been purchased for
the state police for $15,000 less per router saving $1 million
more. Several of the State's public schools are presently able
to meet the 2017 broadband standards set by the State
Educational Technology Directors Association, and in the
opinion of the legislative auditor, routers significantly
smaller than the Cisco model 3945 could have been purchased to
ensure almost all the state schools meet the standards.
Purchasing approximately sized routers, which could have cost
$10,000 less for at least the 368 schools with enrollment less
than 500 which received Cisco 3945 routers could have achieved
the same result for $3.68 million less.''
So these are issues that we are reading in an independent
auditor's report from the State of West Virginia that went much
deeper than the IG's report did--are disturbing.
I yield back to the vice chair.
Mr. Strickling. But if I could just say, Mr. Chairman, they
are still using list prices. They didn't focus on the actual
discounts that were provided.
Mr. Walden. We will look forward to getting the data that
you have.
Mr. Latta. Thank you very much, Mr. Chairman. Reclaiming my
time.
Mr. Padalino, if I could ask you, could you explain the
criteria and application process for the BIP awards, please?
Mr. Padalino. When we are reviewing a BIP award
application, we are looking to see if this is a project that
can promote rural economic development and if it is in an area
to be served is at least 75 percent rural. Then, we take a look
at the technical and financial feasibility of the project. The
project applicant will go out for public comment. They will,
you know, notify the public that they are seeking RUS funding.
We will take those comments, we take application, and then do
the technical and financial feasibility review to see if, based
on the totality of the application, if one, if it is
technically feasible; and two, if it is financially feasible,
and basically, can this loan be repaid?
Mr. Latta. OK. In your testimony you state that nearly $266
million were turned back into the Treasury because after you
had done your oversight there was a rescission of 38 of the
Recovery Act awards. How long did it take you to find that
these 38 awards weren't up to the standards that had been set?
Mr. Padalino. We have a rigorous oversight process even
after the award is made. We continue to work with each and
every project through the life of the construction and even
afterwards. We have auditors and field representatives who
regularly meet with these individual projects as those 38
came--and different reasons. Each one has a slightly different
story. As they would come up to the Agency, a decision at some
point was made that this project couldn't move forward. And
maybe in some cases the applicant just decided they did not
want to pursue it even after the award was made. So those funds
were rescinded and returned to the Treasury.
Mr. Latta. OK. So had the money already been allocated out
to those 38 or how is that done?
Mr. Padalino. The funds had been obligated but they had not
been----
Mr. Latta. They had been allocated. Let me ask this, too.
Now, after these award grants have been rescinded, can those
organizations, groups, et cetera, come back to you and reapply?
Mr. Padalino. They can reapply if they are--well, they can
always reapply under the regular programs that we have. I
mentioned our Traditional Infrastructure Loan Program and our
Broadband Loan Program. The Broadband Initiative Program money,
if those funds are rescinded, go right back to the Treasury and
are no longer available.
Mr. Latta. And so those should be no longer available to
those. But you are saying they could apply it under another
grant?
Mr. Padalino. Under another loan program.
Mr. Latta. But not under BIP? OK.
Mr. Chairman, I see that my time has expired and I yield
back.
Mr. Walden. The gentleman yields back his time. The Chair
now recognizes--I think Mr. Doyle is next with Mr. Waxman out
of the room. So we welcome your comments.
Mr. Doyle. Thank you, Mr. Chairman. To both of our
witnesses, welcome. We appreciate you coming here today to
update us on these important programs.
Mr. Chairman, I think BTOP and BIP are programs we should
be really proud of because they are creating opportunities for
our constituents to have faster, cheaper internet service. I
want to say for the record that I am not happy with the
direction this hearing is taking. I don't really understand how
any of my colleagues can argue that providing that better,
faster internet and more digital literacy training to unserved
and underserved areas of this country is something we should
criticize. Is this program perfect? Of course it is not
perfect. In the 19 years that I have been here I have yet to
see the first perfect government program run at this scale.
If you want to criticize or ask questions about West
Virginia or Colorado, you have every right to do so. And I
support that. What you don't have the right to do is to imply
that this program in its totality is a waste of government
money and hasn't met its mission.
Congress passed the Recovery Act mandating the NTIA and RUS
support programs in unserved and underserved communities, and
that is what they have been doing. In Pittsburgh, BTOP has
funded four public computing centers in low-income
neighborhoods. Mr. Chairman, I have toured these centers and I
have seen firsthand what an important service they provide to
my constituents who don't have computers or internet access at
home or don't know how to use computers. And in Pennsylvania
statewide, BTOP is funding the construction of a massive
middle-mile fiber network called PennREN, which will connect
anchor institutions including universities, K through 12
schools, libraries, and hospitals to a robust internet
backbone. Both of these programs are thriving and are on track.
So I think rather than apologizing for these programs, we
should be proud of them because they are providing real
tangible benefits to our constituents.
Gentlemen, I have question for both of you regarding
interconnection. As you know, one of the requirements put in
place by the Recovery Act is the ability for other providers to
interconnect to BTOP- and BIP-funded facilities on a reasonable
and nondiscriminatory rates and terms. Can you share with us
whether other broadband providers have used interconnection
agreements to leverage the investment being made by BTOP and
BIP?
Mr. Strickling. I will start. And thank you for the
question. Yes, it has been a fundamental feature of our program
from the start that we wanted to use this investment to prime
the pump for additional private sector investment. And as a
result, we do have interconnection and nondiscrimination
obligations that apply to any facilities built with federal
dollars. It is a very clear standard. These dollars come from
the public; the public should benefit from it. And therefore,
the facilities should be open to anyone who wants to use them
to offer new or improved services to their constituents.
To date, we have had 600 interconnection agreements signed
with our various grantees. And what these people are able to do
then is get cheaper backhaul to internet exchange points, which
may allow them to better serve homes and residences that they
want to serve. Our projects, for the most part, do not serve
end-user homes and businesses. We do serve anchor institutions,
but for the most part, we have left it to the private sector to
serve homes and businesses and we think that is the appropriate
way to do it.
What we have done for all those companies, whether they are
incumbents or new entrants, is offering them a lower-cost
middle-mile to get back to the internet exchange points. That
cost for many of these providers is a barrier to expanding or
even entering the business. And we have been able to see
successes with that by virtue of the middle-mile capacity that
we offer.
And I know there has been a lot of comment about overbuild
and I am sure we will hear more, but I say fundamentally, the
construction of middle-mile facilities is not overbuilt in this
country. The amount of internet usage is expanding at a rate so
great that we need as much middle-mile as we can get. And in
fact, the last statistics that I saw is that we expect internet
usage to double from what we had last year to 2016. In 2011 we
had 1 billion devices connected to the network. That is
projected to be 3 billion in 2016.
So what our projects are doing is laying these facilities
out there for anybody to use to help future-proof and improve
our opportunities in the global economy by having this capacity
available as we need it.
Mr. Doyle. I agree totally. Mr. Padalino?
Mr. Padalino. Thank you, Congressman.
Where our projects under the Broadband Initiative Program
focus was on the last mile, the connections to the home. And
many of our awardees are providing service where there was no
service available. And so in many cases they are the only
provider out there.
We heard a number earlier in the testimony or in the
opening statements of 19 million Americans who lack access to
broadband today; 14.5 million of those Americans are in rural
America. And so what we see in our applications are
applications that propose to provide broadband to new areas, to
areas where there has been no service before.
As Assistant Secretary Strickling mentioned, we are aware
of the issues of overbuild and we take those issues very
seriously and work with our federal partners and local
borrowers to ensure that we are dealing with those issues as
they come up.
Mr. Doyle. Thank you, Mr. Chairman. I yield back.
Mr. Walden. The gentleman yields back.
The Chair recognizes the gentleman from Texas, Mr. Barton.
Mr. Barton. Thank you, Mr. Chairman.
I am going to have some technical questions for the record
for some of the FirstNET or NetOne projects down in Texas I
would ask unanimous consent that we have those in the written
format.
Mr. Walden. Without objection.
Mr. Barton. I want to focus on a little bit broader issue.
I am so glad that Congressman Doyle got to go right before me
because he gave a very passionate defense of the program and
how it is helping constituents in his district. And I don't
doubt that for a minute. I don't doubt that for second. If you
spend or are obligated to spend over $7 billion you darn sure
better help somebody. And it is good that that some people in
Pennsylvania have been helped.
But I looked at this, and I haven't focused on the math of
the program, but we obligated or authorized over $7 billion to
be spent on these two programs, and it looks to me like we
spent about $4.5 billion. And it looks like for that $4.5
billion, NTIA has provided access to about a half a million
homes and the RUS, it says, has access--it doesn't say
connections--to about 2.8 million. So I don't know how many of
those people actually signed up.
But it looks like per recipient--and the gentleman from RUS
said that we are not really trying to connect homes; we are
trying to provide that middle mile and then let the private
market do the rest of it. And I don't have a problem with that.
But if you looked at the end result, it is about $100,000 a
home. Now, we could have given everyone of Mike Doyle's
constituents $25,000, and I bet they would have been able to go
out and find some sort of broadband. When 220 million Americans
have access to broadband in their homes and on their iPhones
and iPads, 96 percent of the country has access in some shape,
form, or fashion. It really calls into question why we need the
program. It is not that it is a bad program. It is not that it
is even a wasteful program, but is it a necessary program when
this weekend we are going to have sequestration kick in? It is
going to cut $85 billion, and if you believe President Obama,
the sky is falling.
You know, we are borrowing $1.5 trillion a year. We don't
need the program. We don't need it. It is not that it is a bad
program. It is not that these are bad administrators. These
gentlemen look to me to be very credible, competent, government
servants. I think we could have taken at $7 billion, set up
some sort of a voucher program for people that really needed
it, and we would have been much better off.
So here is my question. We spent over 4.5 billion which
means there is still about 2.5 billion that hasn't been spent.
What would be the harm of just rescinding the funding that has
not yet in been spent saying game over, save the taxpayers $2.5
billion.
Mr. Strickling. Well, first, I wouldn't be a credible and
competent administrator if I didn't at least ask you about your
math. How did you arrive at that number? You used the 500,000
number for NTIA.
Mr. Barton. I just use the numbers provided----
Mr. Strickling. That is the results of our adoption
program. That has nothing to do with the infrastructure
program.
Mr. Barton. Well, it says that NTIA has provided access to
510,000 homes or something like that or has signed up for it.
Mr. Strickling. No. What we report----
Mr. Barton. That number----
Mr. Strickling [continuing]. And what was in my testimony
was the fact that our adoption programs, the digital literacy
training, the low-cost computers, those programs have reported
adding 500,000 adopters as new subscribers to already existing
services.
Mr. Barton. Well, give me your number.
Mr. Strickling. We don't have number for infrastructure
projects.
Mr. Barton. Give me a guess. Give me guess. How many homes?
Mr. Strickling. I don't know because our focus has been on
building the middle-mile infrastructure for private industry.
Mr. Barton. How much money have you spent? Do you accept
the $2.8 billion? Is that a good number?
Mr. Strickling. We have spent 2.8 of the 4.1 we had. But--
--
Mr. Barton. All right. How many people should be getting
service for $2.8 billion?
Mr. Strickling. But you are misapprehending the focus of
our program. Our program focused on----
Mr. Barton. I thought it is to serve people in underserved
areas?
Mr. Strickling [continuing]. Comprehensive community
infrastructure projects where we were extending middle-mile to
try to bring a gigabit into as many communities as we could to
allow private industry--from that, use those facilities to
offer improved and new services to homes and businesses. We
have had 600 interconnection agreements but we don't have any
control over those 600 companies.
Mr. Barton. Well----
Mr. Strickling. I don't know what they have actually
delivered.
Mr. Barton [continuing]. Let me go at it a different way.
Do you dispute the number that 220 million homes have access to
broadband and 96 percent of the population has access to
broadband? Do you dispute that number?
Mr. Strickling. No, sir. Depending again on----
Mr. Barton. So you accept that number?
Mr. Strickling [continuing]. Using a fairly low speed to
define broadband. But what that ignores is the need----
Mr. Barton. Well, we are using the speed----
Mr. Strickling [continuing]. Of our anchor institutions.
Our schools cannot get by with the 3 or 4 megabits per service
that might work perfectly fine in the home of a, you know, a
single family. When we are talking about schools and we are
talking about libraries and were talking hospitals, we are
talking about dozens and in some cases hundreds of students or
people in the library----
Mr. Barton. But you can't justify----
Mr. Strickling [continuing]. Trying to be online the same
time. Those folks need much----
Mr. Barton. You give me----
Mr. Strickling [continuing]. Greater bandwidth than what
can be supplied with 4 megabits per second.
Mr. Barton. You give me your number. Don't accept my
number; give me your number.
Mr. Strickling. But what I am telling you is that our
program is attempting to----
Mr. Barton. What have we got for $2.8 billion?
Mr. Strickling [continuing]. Increase the level of
broadband capacity in these very important anchor institutions
like schools and libraries and hospitals and government
facilities as a way to then serve as anchors for the rest of
the community.
Mr. Barton. I don't know the number but I expect----
Mr. Strickling. I am telling you that your number is only a
piece of what we are trying to accomplish with this program.
Mr. Barton. Except for some very remote rural schools,
every school in America has access to broadband. It is closer
to 100 percent than it is to 70 percent.
Mr. Strickling. But again----
Mr. Barton. It is probably closer to 100 percent than is to
95 percent. Whatever it is, it is a high number. Do you dispute
that?
Mr. Strickling. The technology directors of the schools in
this country believe that we are in a crisis in terms of
getting broadband to schools because again 4 megabits per
second does not meet our need for schools.
Mr. Barton. If that is the case, sir, give me the number of
the schools that don't have it.
Mr. Strickling. Well, I can----
Mr. Barton. Give us a number. Then, we can have a debate.
Mr. Walden. The gentleman's time has expired.
Mr. Strickling. Well, I know with our national broadband
map, when we issued it, we said that only 25 percent of schools
at that time, 2 years ago, had access to even 25 megabits-per-
second speeds. The state education technology directors say
that today, schools of 1,000 students need at least 100
megabit-per-second service, and in a couple of years, they are
going to need a gigabit-per-second service. Very few schools
have access to that in this country except in those States that
have taken the initiative to deliver that kind of statewide
network.
Mr. Walden. The gentleman's time has expired.
Mr. Barton. Give us the number. Give us the number.
Mr. Walden. The gentleman's time has expired.
The Chair recognizes the gentleman from California, Ms.
Matsui for 5 minutes.
Ms. Matsui. Thank you, Mr. Chairman.
Let me just say that no program of this magnitude will be
perfect. But I do believe that these programs have achieved
laudable goals, most notably, expanding broadband access to
more Americans.
Now, let me switch to the BTOP program, Secretary
Strickling. You will be releasing soon a digital literacy
toolkit that is to serve as best practices for promoting
digital literacy. Can you explain the reason and goals for such
a digital literacy plan?
Mr. Strickling. Yes. As you know, Congress provided us $250
million for sustainable broadband adoption projects. So we have
had a number of very exciting and innovative, very creative
programs performed around the country in terms of delivering
digital literacy training to people to provide job skills
training, to work on providing low-cost computers, finding
discounted service. We are finding that all of these different
elements are required to have an effective adoption strategy to
get people to subscribe to broadband. But we only reached those
communities we could reach with the $250 million in grants we
had. Yet we know this is still a national problem.
As Mr. Barton said, we have got 96 percent availability of
broadband, but today, only about 68 percent of people
subscribe.
Ms. Matsui. Yes.
Mr. Strickling. So the toolkit is an effort to get our best
practices out to the entire country so that other communities
can take advantage of what we have learned from the programs we
have done.
Ms. Matsui. Certainly. And I just want you to expand on
this, too. What do we stand to lose if we leave underserved
areas behind? And I am thinking about all underserved areas.
Will these communities have the same ability to attract
economic development and benefit from educational and
healthcare opportunities that require high bandwidth?
Mr. Strickling. Well----
Ms. Matsui. And I want you to expand on this because anchor
institutions are important. I have advocated for that
previously. And I understand what you are saying about not all
schools have the technology that we believe they should have.
So could you expand on all that?
Mr. Strickling. Sure. So in terms of the question of the
adoption issue in the underserved areas, yes. There is no
question that people who have not been able to adopt broadband
service are going to be left behind in the modern economy. If
you don't know how to go online and write a resume and submit a
job application, you are going to find it hard to get a job. So
we have felt that moving that adoption needle from 68 percent
up to a higher number is critical if we are going to have all
of our citizens able to fully participate in today's economy.
So we do think it is an area of emphasis.
The good news is that it doesn't take a lot of money to
expand adoption. The bad news is you really need a very
comprehensive individualized approach in terms of meeting the
needs of individuals as they are trying to get over that hurdle
of becoming an adopter of broadband service. But it is an
absolutely important area and one in which we want to continue
to work in even after the grant program is completed.
Ms. Matsui. Well, isn't it true that even though we might
say, you know, 95 percent of Americans have access to
broadband, that is not true across the Nation. It depends on
where you live. And I think that that is a situation where you
cannot--it is just apples and oranges. And I would like you to
explain further about some of the differences that occur on,
you know--and I would also think the other witness can chime
in, too--about the difficulties to have broadband access across
the Nation as a whole so all Americans have access.
Mr. Strickling. Right. So we know that businesses look at
this issue and they determine where to locate a plant and to
get new jobs. We have several cases through our State Broadband
Initiative which collects the data for the national broadband
map where we know businesses have been able to use that data
and make decisions only to go into communities that have
adequate broadband infrastructure. And that is where the jobs
are going come.
Ms. Matsui. Right.
Mr. Strickling. So if you are a community that doesn't have
this, you risk being left behind in terms of when companies are
deciding where to locate.
Mr. Matsui. Mr. Padalino, would you like to chime in on
this, too?
Mr. Padalino. I would, and thank you. I mentioned earlier
of the 19 million Americans who lack access to broadband, 14.5
million of those Americans are in rural America. And we applaud
the efforts that NTIA has focused on the anchor institutions.
And at the Rural Utility Service, we also focus on the anchor
institutions. But we also want to focus on those rural
household and rural businesses and all the other subscribers
out there who can take advantage of increased access to
broadband.
Assistant Secretary Strickling mentioned all the benefits
that can come from that, but in rural America, it is so much
more. That means a 2- or 3-hour trip to the metro area could be
avoided because you can take advantage of a telehealth
facility. It means that children can take advantage of distance
learning opportunities and receive educational opportunities
that they may not have been able to benefit from without having
to move from home or take an hour-long drive or 2-hour-long
drive to get to that educational facility. In addition, in the
ag sector where we are seeing a lot of--right now, we have
tractors that--if they had access to all of the broadband
technologies that are available--could, on a square-meter
basis, be able to determine the amount of fertilizer, the
amount of seed, all the different variables that go into
keeping our ag sector the most prosperous, most abundant,
affordable food supply in the world.
Ms. Matsui. Well, thank you very much.
And I see my time has expired. Thank you.
Mr. Walden. Thank you. The gentlelady yields back.
The chair now recognizes the gentleman from Colorado, Mr.
Gardner.
Mr. Gardner. Thank you, Mr. Chairman.
And Mr. Padalino, to your response, I mean we are a farm
equipment dealership. We sell tractors. We have never once
relied on the government to provide our GPS signal. That comes
from satellites; that comes from a tower that we ourselves put
up. That is a private sector solution.
Mr. Strickling. I believe, sir, that GPS satellites are
government satellites, but----
Mr. Gardner. Mr. Chairman, I would request unanimous
consent to submit for the record this New York Times story
describing how EAGLE-Net used its 100 million BTOP award in
Colorado to overbuild existing providers, including building a
third fiber line to an 11-student elementary school that it
says it neither needs nor wanted.
Mr. Walden. Without objection.
[The information appears at the conclusion of the hearing.]
Mr. Gardner. I have several other letters that I would ask
to be unanimous consent.
Mr. Walden. Without objection.
Mr. Gardner. Thank you. Administrator Strickling----
Mr. Walden. Suspend. I am sorry?
Mr. Gardner. Letters from companies in my district and
throughout Colorado, PC Telecom, C-COM, Blanca, one from----
Mr. Walden. Without objection.
[The information appears at the conclusion of the hearing.]
Mr. Gardner. Thank you, Mr. Chairman.
Administrator Strickling, Administrator Padalino, at prior
broadband stimulus oversight hearings, the NTIA and the RUS
have claimed overbuilding is not occurring. Do you still
maintain that position? Mr. Strickling?
Mr. Strickling. Sorry?
Mr. Gardner. Is overbuilding occurring?
Mr. Strickling. Well, that depends on what you mean by
overbuilding. But as I said earlier----
Mr. Gardner. All right. It is just a simple question. Are
we overbuilding? Are you laying fiber where existing fiber
exists?
Mr. Strickling. That is not necessarily overbuilding as I
explained in my previous answer.
Mr. Gardner. Are you laying fiber where existing fiber
exists?
Mr. Strickling. I am sure that some of our grantees are
doing that.
Mr. Gardner. Has EAGLE-Net in Colorado put fiber in the
ground where existing fiber exists?
Mr. Strickling. Yes. But that doesn't tell you whether or
not it is needed or not.
Mr. Gardner. Let me tell you a story about a school in my
district. I spoke at a graduation in southeastern Colorado
several years ago. The graduating class was one. There was one
graduating senior. That school that had one graduating senior
when I spoke there has three fiber connections, C-COM,
FairPoint and EAGLE-Net. Three of them to a school that I spoke
to that had one graduating senior.
I have got a map that I would like to display and it talks
about the overbuild that is occurring, $100 million in
Colorado.
Now, the other question I had yesterday at the hearing in
Colorado before the Audit Committee with EAGLE-Net, they said
that a federal--this is EAGLE-Net testifying--that a federal
handler watches every move we make and are onsite from the
beginning. Yet their grant was suspended. If there is a federal
handler--and they identified NTIA--watching every move they
make, why after several years, after $96 million was committed
out of the 100 million, why did NTIA wait so long to suspend
the grant?
Mr. Strickling. Well, I am not sure what they mean by a
federal handler. We certainly have provided oversight to this
project. But then to the specific question of the suspension--
--
Mr. Gardner. Why were they suspended?
Mr. Strickling. They were suspended because they wanted to
take advantage of the economies of using fiber where originally
they had proposed using microwave. Now, this is a good change.
Mr. Gardner. They blame----
Mr. Strickling. Because this means that they will be able
to have greater capacity than they otherwise would have, but by
doing so, it changes their environmental approval.
Mr. Gardner. In testimony before the State Legislature
yesterday, they blamed the clay-loving buckwheat in Montrose
and the Pagosa Springs blooming plant.
Mr. Strickling. Right. So what happens is when you come off
of the radio towers from microwave and come down to the ground
for fiber, you now have the potential of passing through areas
of habitats of endangered species.
Mr. Gardner. So if you provided oversight, why were they--
and the other comments that they made were that they have to
get a permit from every jurisdiction. Why did they not know
about the clay-loving buckwheat?
Mr. Strickling. Well, I think it is been discovered as part
of the process.
But there are two separate issues here. One is the
permitting that they need to get whether or not they are
federal grantee, but as a federal grantee, they also have to
get an overall environmental assessment.
Mr. Gardner. Let me show you a little bit about this. This
map shows and identifies EAGLE-Net's current route in pink. The
green identifies existing routes of CenturyLink. The purple
identifies existing routes of businesses represented in this
room with the Colorado Telecommunications Association. Look at
the duplication. PC Telecom, a company 60 miles away from my
hometown in rural Colorado, 100 percent overbuilt by EAGLE-Net.
100 percent overbuilt by EAGLE-Net. This is the eastern plains.
Yesterday, they testified, they said that it is built on the
eastern plains first because this is the easiest to get to. But
that is also why you have all of these other companies that
have built existing fiber in the ground while places on the
Western Slope that truly need it because of the mountainous
terrain have received nothing.
Mr. Strickling. Well, that is not true. There has been
plenty of construction on the western part of the State.
But let us back up a second. The EAGLE-Net project is a
statewide educational network----
Mr. Gardner. This is off of Eagle-Net's Website. I mean
this is----
Mr. Strickling. I understand that, sir. But what we are
trying to accomplish with this project is to improve
educational opportunities in the State of Colorado. The fact is
that in Colorado only 4 percent of schools in Colorado are able
to get or subscribe to services of greater than 50 megabits per
second. You are going to hear from----
Mr. Gardner. Let me just interrupt you real quick.
Mr. Strickling [continuing]. Mr. Freddoso at North Carolina
that his network----
Mr. Gardner. So you are saying that this is not----
Mr. Strickling [continuing]. A statewide network is able to
provide much greater speed.
Mr. Gardner [continuing]. Overbuilding; this was all
necessary?
Mr. Strickling. It is not true. If you are going to have a
statewide----
Mr. Gardner. This is not overbuild?
Mr. Strickling. No, I disagree wholeheartedly.
Mr. Gardner. So you are saying that PC Telecom that sent a
letter saying that there is 100 percent overbuild isn't true?
Mr. Strickling. No.
Mr. Gardner. You are saying----
Mr. Strickling. You are missing my point, sir. What I am
trying to say is that what is trying to be accomplished in
EAGLE-Net is to figure out why Colorado--and fix the problem
that Colorado is so far behind the rest of the Nation----
Mr. Gardner. I live in rural Colorado----
Mr. Strickling [continuing]. In terms of broadband at
schools. This has to be accomplished through statewide network.
Mr. Gardner. I live in a town of 3,500 people 30 miles away
from the border of Kansas.
Mr. Strickling. I am sorry?
Mr. Gardner. I live 30 miles away from the border of
Kansas, a town of 3,000 people. I have high-speed DSL. I have
4G connections. I have an incredible--I have two, three other
high-speed internet connections that I can choose from. My
daughter goes to school there. I have never once heard them
come to me saying we don't have the internet that is necessary
for our kids to learn. And my daughter goes to school there.
Now, this----
Mr. Strickling. Well, sir, can I put into the record this
chart that shows that Colorado is behind States like North
Carolina? I mean your problem is that 4 megabits per second to
a school----
Mr. Gardner. Why did EAGLE-Net turn down $20 million? Why
did EAGLE-Net turn down the opportunity to use it, $20 million
worth of technology that a private telecom in Colorado had
offered them instead of overbuilding?
Mr. Strickling. Well, let us go through the facts here
because I think--let us take just a moment to go through this.
At the time at which EAGLE-Net went out to build the eastern
part of the State they went out on an RFP. And a group of the
carriers who are now complaining about this put in a bid to
deal with this. We didn't hear anything about overbuild at that
point in time.
Mr. Gardner. They support EAGLE-Net.
Mr. Strickling. But they put in a bid that was hundreds of
thousands of dollars higher than the lower bidder.
Mr. Gardner. Because of absolute miscommunication from
NTIA.
Mr. Strickling. I disagree. But more importantly most of
the network.
Mr. Walden. Gentleman. Gentlemen. The gentleman's time has
expired.
Mr. Gardner. It is actually using existing----
Mr. Walden. The gentleman's time has expired. The
gentleman's time has expired.
The Chair recognizes the gentleman from California, Mr.
Waxman.
Mr. Waxman. Thank you, Mr. Chairman. I want to move to a
different issue if I might, Mr. Strickling.
Mr. Strickling. I have plenty more to say about EAGLE-Net
if you like to stay there. But----
Mr. Waxman. Well, if I have any time left, I will let you
expand on that because you were interrupted many times.
It is critical that the administration implement the
provisions of the law that set up the Public Safety Response
Program, and your agency is tasked with hosting the First
Responder Network Authority, also known as FirstNET.
NTIA has a critical role in ensuring the success of the
Public Safety Network. In May 2012, NTIA partially suspended
funding for seven public safety BTOP awardees. And I was
encouraged that FirstNET recently adopted a resolution that
could lead to NTIA lifting that partial suspension of these
BTOP Public Safety Program funding.
Can you explain the path forward for the seven public
safety BTOP awardees? What can we tell cities like Los
Angeles--which is of particular interest to me--San Francisco
and Charlotte, as well as States like New Jersey about the
likelihood of retaining their BTOP grants, and how quickly do
you expect FirstNET at NTIA to make their decisions?
Mr. Strickling. Yes, sir. We suspended the projects a year
ago because when FirstNET came into being, we wanted to make
sure FirstNET had an opportunity to evaluate these projects and
make sure that they would continue to be a prudent use of
taxpayer money to build out. These projects were originally
approved in 2010 based on a totally different concept about how
do public safety broadband that was changed in the Middleclass
Tax Relief Act last year where Congress directed this be done
as a single, nationwide network.
So before we spent another dollar on this technology, we
wanted to make sure what was planned would fit in with
FirstNET's plan. So the Board has completed its review. They
have visited every one of these locations and their initial
recommendation is they believe all of these projects can add
value to the ultimate FirstNET build-out, and they would like
to see all of the projects reinstated. They intend to spend the
next 90 days negotiating the spectrum conditions because each
of these localities has to get a spectrum license from
FirstNET.
So they are going to negotiate some conditions on that. And
if they are successful in that, they are then--as I understand
it--going to recommend to us at NTIA to go ahead and lift the
suspensions. And at that point in time when we receive that
information, it is certainly our hope and intent that we would
like to see all those projects continue if they are able to
negotiate the appropriate conditions with FirstNET going
forward.
Mr. Waxman. Thank you. I want to go to this West Virginia
BTOP grant. Did the Inspector General's review of the grant
awarded to the Executive Office of the State of West Virginia
discover any fraud? And was the grantee in noncompliance with
any of the terms of its BTOP grant?
Mr. Strickling. There was no fraud found. The IG certainly
made some recommendations in terms of inventorying and
management of the equipment, all of which West Virginia--as I
understand it--has agreed to do and has either done or is the
process of doing. I don't know that any of those were findings
of noncompliance with grant conditions but they were certainly
improvements that were appropriate and which the IG was fit to
recommend and which West Virginia has gone on to implement.
Mr. Waxman. What is the typical application and award-
monitoring process for these BTOP grantees? Were those
processes followed in the case of the West Virginia BTOP grant?
Mr. Strickling. Yes.
Mr. Waxman. OK. You were asked about overbuilding in areas
where there is already lines or communication systems set up,
in this situation in Colorado particularly. Does that mean if
they have something in place, there is no need for something
else to be in place?
Mr. Strickling. I think some people would like that to be
the definition, but that goes back what I said earlier. I don't
believe any addition of middle-mile capacity to our Nation's
infrastructure should in any way be considered overbuild. And
that is the vast, vast majority of our projects are spending
dollars on. The two towns that Congressman Gardner mentioned--
at least the two towns mentioned in the New York Times article,
Agate and Flagler--sit right on Interstate 70. Maybe it will
become internet 70. And that is, you know, a major east-west
route. This country is going to need lots of capacity along
that highway to allow--as people continue to use more and more
wireless devices, as schools, as homeowners continue to use
more and more bandwidth, we need that.
And the fact is, in 70 percent of the build that EAGLE-Net
is doing in Colorado, they are using existing facilities to do
it. It is part of our program that people should do this in the
lowest-cost manner and use existing facilities where we can.
What we have here is a group of companies that bid on this
project, lost the bid, and then we started to hear about
overbuilding.
Mr. Waxman. I see. Well, my time is expired and I thank you
for that response.
Mr. Walden. The gentleman yields back.
And the chair recognizes the gentleman from Illinois, Mr.
Shimkus, for 5 minutes.
Mr. Shimkus. Thank you, Mr. Chairman.
I guess I have missed some exciting testimony. So I was
another hearing. So I apologize for being absent.
Welcome back, Mr. Strickling. Mr. Padalino, welcome.
And Mr. Strickling, you and I talked about the West
Virginia case last time.
Mr. Strickling. Right, we have talked about a lot here this
morning, too.
Mr. Shimkus. Oh, oK. And I am not going to spend a lot of
time on it, but you did say don't believe everything you read
in the newspaper. And after government review and oversight,
the reality is you can believe what you read in that newspaper
article.
I think the best way to get out of this mess is to just
owning up to when there is problems and also bragging about the
successful deployment. And that is where I hope we go because
we are going to have people on the second panel that actually
have been very appreciative. But there are also problems. It is
oK, you know. We are human. We make mistakes. It is oK. So I am
sorry about the emotionalism, but we are emotive people here.
Mr. Strickling. And actually to your point, Congressman, if
I could just add, there are steps underway to do just that in
West Virginia.
Mr. Shimkus. Excellent.
Mr. Strickling. We sent a letter to them after our IG
issued a report and asked them to do another look at their
long-term capacity requirements, and I understand that----
Mr. Shimkus. Well, that is a great segue----
Mr. Strickling [continuing]. Us today----
Mr. Shimkus [continuing]. Into my question.
Mr. Strickling. Then, I will leave today's news to you.
Mr. Shimkus. So, you know, what can West Virginia do to
remedy this situation? Can West Virginia trade in or sell back
their routers, or does it need NTIA approval to do so?
Mr. Strickling. Well, my understanding is that the governor
and Cisco, who is the supplier of the routers, are going to be
working together along with perhaps some other people as part
of a group the Governor is pulling together.
Mr. Shimkus. But you don't think you have to have a role in
this?
Mr. Strickling. I think it will depend on what they are
able to work out.
Mr. Shimkus. Will you exercise oversight over this as what
they decide to do and make sure that it makes sense----
Mr. Strickling. Yes, sir.
Mr. Shimkus [continuing]. And in the taxpayers' interest
and that--I mean our biggest concern is--there is a lot of
concerns, especially when you are from rural America. One is
that we want the unserved areas served. We really hate
overbuilding of systems that are providing service to rural
America because there are so few people there that to have the
government come in with taxpayers dollars compete against the
private sector is really un-American is the problem. And we
appreciate our people who roll out and assume the risk, raise
the capital, assume the risk to provide access to rural America
and we don't want them competing against the government. So you
understand that. We have talked about that before. Let me----
Mr. Strickling. That guided us in our whole philosophy.
That is why we have chosen the middle-mile approach to
projects.
Mr. Shimkus. OK. Not always, right? Not always.
Let me talk about a specific provider, and this goes to
both of you. Frontier in Illinois has requested wholesale
services for access to the BTOP-funded project. But according
to the rules and fact sheet online, recipients should offer
wholesale broadband services at rates and terms that are
reasonable and nondiscriminatory. The Illinois BTOP recipient,
who is Clearwave, came back with an offer of wholesale prices
that were about 100 percent higher than its retail offering.
The rules state that ``recipients that failed to accept or
comply with the terms listed above may be considered in default
or breach of their loan or grant agreements.'' RUS and NTIA may
exercise all available remedies to cure the default. Assuming
the parties do not work this out--and of course that is the
best solution--what are the next steps for NTIA to remedy the
situation?
Mr. Strickling. Well, I am not going to speculate on that,
but I will say this, that this is a hallmark of our program. We
are going to make every effort to ensure that Frontier is able
to get the wholesale service that they are entitled to under
the rules of our program. I mean, it goes right to the heart of
why we want to use these investments to prime the pump for
private investment. And it doesn't work if our grantees are not
offering wholesale services at reasonable prices. That is why
that is a requirement of our program.
And the case you described was one we first heard about
last summer. We had urged the parties to work it out, and
frankly, we hadn't heard back from Frontier until yesterday,
the day before the hearing. Everybody kind of gets their house
in order the day before a hearing.
Mr. Shimkus. As we receive testimony sometimes, even the
day of, so it comes both ways.
Mr. Strickling. Yes, sir. So we are on this. We will go
right back and look at this but this is a very serious issue
for us because it is part of the whole philosophy of our
program.
Mr. Shimkus. Please do. Thank you.
Mr. Walden. The gentleman's time has expired and yields
back.
And next is the gentlelady from Colorado, Ms. DeGette.
Ms. DeGette. Thank you very much, Mr. Chairman.
Mr. Strickling, I am going to be honest. Some of the facts
of this EAGLE-Net project don't look very good. And I want to
ask you a series of questions. I feel like the questions you
have been asked so far have not really been designed to get
answers from you. So what I am trying to do in the 5 minutes
that I have is get some answers. If you could listen closely to
these questions and if possible, answer yes or no, or short as
you can, that would be helpful because I want to clear up the
record. I think it is important.
Now the first thing is, this program that EAGLE-Net has its
funding under is approximately, I believe, a $4 billion
program. Is that correct?
Mr. Strickling. Yes.
Ms. DeGette. And the EAGLE-Net program is $100 million. Is
that correct?
Mr. Strickling. Of federal dollars. The state will supply a
match.
Ms. DeGette. Of federal dollars. It is $100 million of
federal dollars. And I am going to assume that your agency--
part of your oversight obligation--is to make sure that that
$100 million, or for that matter the $4 billion, is not
misspent in any way. Is that correct?
Mr. Strickling. Yes.
Ms. DeGette. And the NTIA has been aware of difficulties--
many of them political--around the EAGLE-Net project for many
months now. Is that correct?
Mr. Strickling. We first started hearing about this late
last summer.
Mr. DeGette. So you have been aware of these problems for
many months?
Mr. Strickling. Yes.
Ms. DeGette. And you are investigating these allegations in
a robust manner, aren't you?
Mr. Strickling. Yes. We have made a number of trips out
there. I personally----
Ms. DeGette. OK.
Mr. Strickling [continuing]. Was on the ground a couple of
weeks ago with some of the parties.
Ms. DeGette. And you have also asked for a lot of data
around this. Is that correct?
Mr. Strickling. Yes.
Ms. DeGette. And EAGLE-Net's grant is under suspension
right now. Is that correct?
Mr. Strickling. Yes.
Ms. DeGette. And it is under suspension because--and you
tried to say this before but you got cut off--it is under
suspension because the original application was for microwave
technology and EAGLE-Net decided to abandon that and go to
fiber. Is that right?
Mr. Strickling. In part, that is right.
Ms. DeGette. And you like fiber better. I think that is
what you were trying to say, right?
Mr. Strickling. Absolutely.
Ms. DeGette. But the problem is EAGLE-Net didn't get the
environmental approvals to lay that fiber. That is also what
you were trying to say. Is that right?
Mr. Strickling. And that is why it was suspended.
Ms. DeGette. And so that is why you put them under
suspension, right?
Mr. Strickling. Yes. And we are working through those
issues now with the hope the suspension will be lifted shortly.
Ms. DeGette. OK. So now I have got to admit, I don't
understand either. And Mr. Gardner, my colleague from the
Eastern Plains, was asking you this question. Why would EAGLE-
Net be going so much into these markets in eastern Colorado
where there is already fiber laid and not going into the areas
in western Colorado which are underserved? Can you please
explain clearly why that is happening and why the NTIA approves
of that or doesn't approve of that? Or, what is your position
on that?
Mr. Strickling. Well, that is not a true statement in terms
of----
Ms. DeGette. OK.
Mr. Strickling [continuing]. Not going into western
Colorado. This is a statewide project. The reason western
Colorado is underserved is because there has never been an
economic case for serving it. What we have is we had a group of
educational organizations that wanted to deal with educational
needs on a statewide basis. So that means building the entire
State or providing network in the entire State. In order to be
able to economically serve the western part of the State, you
need to have enough people on this network that you are able to
have the project be sustainable.
Ms. DeGette. So it is for economics? That is why they are
building in the east first?
Mr. Strickling. In part. Sustainability is key, but there
are huge advantages to a State they can bring all of their K to
12 schools onto a single network. There are advantages in terms
of the speeds that can be provided, in terms of the security
that can be provided, in terms of the applications--the ability
for schools to be connected with each other, to have distance-
learning, to have, you know, courses from colleges provided.
There are huge advantages to a statewide approach to this. And
you will hear about that in the next panel from Joe Freddoso,
because he is doing exactly that in North Carolina.
Ms. DeGette. OK. So what you are saying is that duplication
doesn't necessarily mean waste, fraud, and abuse.
Mr. Strickling. That is right.
Ms. DeGette. And if there was a waste, fraud, and abuse,
you feel that your agency has the procedures in place to
identify that and to either suspend or eliminate the funding.
Is that correct?
Mr. Strickling. Yes. But if I could just say, having said
all of this, we would like to see peace in Colorado. I have
been out--I have worked with the Congressman--we would like to
find a way to accommodate everybody out there even those
bidders who were unsuccessful before. If there is a way to find
a win-win here, which is the goal of all of our projects, we
want to do that.
Ms. DeGette. Mr. Strickling, I will say to date I really
haven't been part of those discussions, but as a senior member
of this committee, I will make you the offer and I will make
Mr. Gardner the offer. I would be happy to sit down on a
bipartisan basis with him and with your office and see if we
can make peace in Colorado. I think that would be a win-win
situation for everybody, especially these school children.
And I yield back.
Mr. Walden. The gentlelady yields back and her time has
expired.
The gentleman from Kansas, Mr. Pompeo, is recognized for 5
minutes.
Mr. Pompeo. Thank you, Mr. Chairman.
You know, as I am sitting here listening to this discussion
today, this reminds me an awful lot of the Solyndra hearings
where you had enormous amounts of federal money being rushed
out the door under tight deadlines and constraints, and it just
went scattershot. And you see the GAO report, you see your
efforts, and I take you at good faith that you are trying to
collect data and make sure that you are overseeing these funds
in a way. You all were given a task that was darn near
possible.
Mr. Strickling. I disagree.
Mr. Pompeo. But no, you haven't succeeded. I will say that
much. In my judgment, you have not succeeded.
Mr. Strickling. Well, I disagree.
Mr. Pompeo. I understand. I haven't asked a question yet.
You will get a chance to talk. You have a different view. You
think it has been wildly successful. I have a fundamentally
different view of this.
Let me ask a couple of yes or no questions because I want
to be as quick as I can today. Yes or no, do you both think
that teaching someone to create an email account is a proper
task for the United States Federal Government?
Mr. Strickling. Yes.
Mr. Padalino. Yes.
Mr. Pompeo. Wow. So you don't think a city could do that?
You don't think a school board could do that? You don't think a
county could do that, a state could do that? You think Kansans
ought to teach people from New Mexico to create an email
account and folks in Alaska ought to pay to teach someone in
Illinois to create an email account? Is that correct also?
Mr. Strickling. Well, maybe I didn't understand your
question. We have funded programs to let local institutions do
just that.
Mr. Pompeo. It is federal taxpayer dollars, sir. With all
due respect----
Mr. Strickling. Yes.
Mr. Pompeo [continuing]. This is federal money that is
going for the tasks that I----
Mr. Strickling. Right. So I think it is appropriate to use
federal money. Who actually does the teaching, we have left up
to the local communities to do that.
Mr. Pompeo. Great. You talked, Mr. Strickland, for a moment
about how much speed was there, and I have heard this
discussion--I am amazed that the chairman's not here--but you
had the discussion about the right size of routers in
broadband. To see Members of Congress discussing this at the
federal level when I have trouble figuring it out at Best Buy,
and so does every one of my constituents. But they can make
good value decisions for themselves and cities can, too,
whether it is in Hays, Kansas, where this program was overbuilt
just like we are talking about Colorado today. And that was
from a previous hearing. I don't really want to spend much time
going back into that today.
To hear that discussion here, how do you know what the
right speed is? You said, well, they don't have enough
megabits, or in the case of schools, gigabits. How do you know
what the right speed is?
Mr. Strickling. Well, I am relying on the experts--the
state educational technology directors. These recommended
speeds are based on the work that they have done. But it is
also based on some simple math. If we agree that 4 megabits per
second is an appropriate speed for a homeowner today in terms
of their day-to-day needs, all you have to do is now project
that to a library or project it to a school where you now have
several hundred people all trying to use that bandwidth at the
same time. Just do the math. It is not hard to see how we are
up to 100 megabits per second as a basic need for schools.
Mr. Pompeo. I don't dispute that. It might be 1,000
tomorrow. And the challenge here----
Mr. Strickling. It is going to be a----
Mr. Pompeo. The challenge is you have no idea and you have
no incentive to get it right because you don't have your own
personal skin in the game. You have no risk. You have the
taxpayers' money making arbitrary decisions about the proper
speed at the proper location instead of risk-taking people
making evaluations for themselves about the right risk to take.
And with that I will yield the balance of my time to Mr.
Gardner.
Mr. Walden. The gentleman yields.
Mr. Gardner. I thank the gentleman from Kansas for his
additional time.
And I just want to read a House Joint Resolution that was
passed in Colorado back in 2010 ``whereas every effort should
be made to prioritize the provision of broadband service to
unserved customers throughout the efficient distribution of
resources to avoid overbuilding of existing facilities and to
strongly encourage the use of private sector local
telecommunication providers.'' Has that been achieved in
Colorado?
Mr. Strickling. It has been attempted.
Mr. Gardner. Has that been achieved? If you can grade
EAGLE-Net on a scale of A to F, what would you give EAGLE-Net?
Mr. Strickling. I wouldn't speculate on a grade, but what I
can tell you is that the process that was used gave everybody
an opportunity to bid on this project to provide these
services. Not everybody could be selected. But the fact is
there was an open competitive process to do just this. And
again, in light of that resolution, as I said earlier, 70
percent of the build-out there is on existing facilities.
Mr. Gardner. But you have 100 percent build-out of PC
Telecom. The town that I mentioned that had one graduating
senior, that wasn't on I-70. That is in Kiowa County out by the
Kansas border. It is a long way away from I-70.
Mr. Strickling. Yes.
Mr. Gardner. It is closer to Kansas. Three fiber
connections. But yet EAGLE-Net is providing service to the
Denver Museum of Natural History, to Cherry Creek School
District in the Denver Metro area----
Mr. Strickling. Yes.
Mr. Gardner [continuing]. One of the State's largest and
wealthiest school districts. They have approached the City of
Lone Tree, which has a Nordstrom's in it, about whether or not
they should receive EAGLE-Net Service. After a build-out in
Yuma County, Colorado, of the local private internet provider,
EAGLE-Net went and approached them about peeling off their
anchor institutions. You were asked earlier whether or not you
believed there was waste in West Virginia. Is there waste in
Colorado?
Mr. Strickling. I can't answer that. But I do believe that
the process----
Mr. Gardner. NTIA has oversight.
Mr. Strickling. Yes.
Mr. Gardner. You know this project. Is there waste in
Colorado?
Mr. Strickling. I can't answer that yes or no today.
Mr. Walden. The----
Mr. Strickling. What we know is that the process that has
been used has gotten us to result where we have people who are
complaining about the project. We have been working to try to
resolve those complaints. I absolutely believe this is a
critical project for the future of education in Colorado. We
would like to see it succeed to deal with the fact it Colorado
has such slow speeds across the state in terms of broadband
into its schools. That is what we are trying to accomplish
here. What we would like to find is an opportunity for
everybody to come together in support of this project. And we
are still committed to doing that.
Mr. Walden. Thank you. The gentleman's time has expired.
The chair now recognizes the gentleman from New Mexico, Mr.
Lujan, for 5 minutes.
Mr. Lujan. Thank you very much, Mr. Chairman. And Mr.
Chairman, I look forward to the day when consumers across
America are able to go to that Best Buy and make decisions on
those routers because they can go home and use them. It doesn't
matter which one they may get their hands on, that they can go
home--they have speeds--the ability to use the pipe, the
bandwidth, the amount of information and data that can stream
in this magical realm sometimes that is lit up by light rather
than an old copper wire that provides plain old telephone
service that oftentimes is paired, which means is split over
and over and over and loses its capacity.
There is a reason why we pave our roads in America. I still
come from rural America. We have a lot of dirt roads. But a lot
of people don't drive their cars on those dirt roads. They
drive bigger pickup trucks or vehicles they don't mind getting
beat up a little bit. I am hoping that we can pave the
information highway for America. We have talked about this a
lot, and that is what this is.
Mr. Strickling, I very much appreciate your willingness
based on the questioning from Ms. DeGette to go and make peace
in Colorado. That is all we should ever want. And for you to go
and solve this problem out there and be willing to do that is
important.
Ranking Member Eshoo talked about the importance of
cracking down on waste, fraud, and abuse. We can't emphasize
that enough. I hope that that is something we both share as
Democrats and Republicans in this Congress. And I appreciate
your willingness to help us work on that.
To the witnesses, I am going to read a few statements and
ask you if you agree or disagree that these statements support
the goals of what this program was. All-encompassing and
affordable broadband connectivity will go a long way toward
returning our region to long-term growth and productivity for
which it is known. Would you agree that that is the goal of the
program?
Mr. Strickling. Yes.
Mr. Padalino. Yes, I agree.
Mr. Lujan. A BIP grant to extend broadband service would
help the poor and underserved areas become highly productive.
Would you agree?
Mr. Strickling. Yes.
Mr. Padalino. Yes.
Mr. Lujan. With these grants, providers could expand
educational opportunities; assist hospital patients, families,
and nurses; improve services for the disabled; empower the
elderly to use technology; offer job training and retraining;
help displaced workers in the area; and establish additional
libraries. Do you agree?
Mr. Strickling. Yes.
Mr. Padalino. Yes.
Mr. Lujan. Could bring us into true integrated
technological advances that we ask our communities to strive
for but are unable to achieve since they are at the mercy of
companies only looking for densely populated areas. Do you
agree?
Mr. Padalino. Yes.
Mr. Strickling. I guess I don't want to castigate industry.
I think industry is doing the economically reasonable thing
here. But when they do that, it is still going to leave behind
areas where they just can't find the economic case to serve
them.
Mr. Lujan. I appreciate that, Mr. Strickland.
Mr. Padalino. And if I could expand on that little bit.
Mr. Lujan. Please.
Mr. Padalino. I think that touches on the issue of
overbuild. And, you know, we take that issue very seriously. I
mentioned earlier that we go out for public comment and at
times we will receive a comment from a provider who may provide
service in that densely populated rural town but not in the
outer reaches, on those dirt road areas that you mentioned. And
that is a lot of times what the applications that we are
entertaining at the Rural Utility Service.
Mr. Lujan. I appreciate that.
This project is part of a larger plan to not only upgrade
and extend high-speed broadband access across the State but
transform our State's economy. Would you agree?
Mr. Padalino. Yes.
Mr. Strickling. Yes.
Mr. Lujan. And I will just read one more. These areas
either do not have high-speed access to the internet or it is
available only at speeds that are insufficient for the
bandwidth intensive applications essential for delivering
programs such as telemedicine, distance learning, public
safety, economic development that will create and maintain jobs
and improve the lives of all of our constituents.
Mr. Padalino. Yes, I agree.
Mr. Strickling. Yes.
Mr. Lujan. I was intrigued, Chairman, when I saw the title
of the hearing--named ``Is the Broadband Stimulus Working''--
and thought that that is something that we would be tackling
and talking about today. The statements that I read were from
my Republican colleagues in support of these projects to you
guys to your departments. It is working. The instances where we
found fraud and abuse or problems or where peace needs be found
and healed, we need to work on. But in the same way that RUS
benefits rural America from electrifying it, because there are
places in America that still raise our crops and produce our
beef or lamb like our family raises, these areas of the country
need a little bit of help. And that federal investment goes a
long way. These are immense benefits.
And Mr. Chairman, I certainly hope that we can find more
common ground as we talk about the commonalities and the kind
words that I just read, which I agree with wholeheartedly,
where different parts of America have benefited, let us talk
about those areas and let us work together to make sure that we
go and heal and help our brothers and sisters up in Colorado.
And if there is anything that I can do, Ms. DeGette and Mr.
Gardner, to provide some assistance from a neighbor to the
south, you got it.
With that, Mr. Chairman, I yield back the balance of my
time.
Mr. Walden. Thank you very much. The gentleman yields back.
And the chair now recognizes the gentleman from Missouri,
Mr. Long, for 5 minutes.
Mr. Long. Thank you, Mr. Chairman.
Mr. Strickling, when a baseball player gets suspended for
steroids or something like that, normally they have done a bad
thing. Suspension in this case, I believe you said there are
three contracts under suspension at this time?
Mr. Strickling. That is correct.
Mr. Long. Is that a good thing or a bad thing? When you
were talking about EAGLE-Net, you described it as they have
come up with better technology. They want to from microwave to
fiber. So it is like we suspended them because they are going
to do a good thing. So is suspension normally--and the other
two cases--is that a good thing or bad thing?
Mr. Strickling. Well, the reason for the suspension in the
case of EAGLE-Net is, having made that good decision to move to
fiber, it had consequences in terms of their compliance with
the grant conditions, in particular, the need to go back and do
an environmental review, which brought us into the two
endangered species that Congressman Gardner talked about. So
they have to work that through with the Fish and Wildlife
Service in order to be able to resume construction. And they
are in the process of doing that right now.
Mr. Long. And the other two instances, do you know off the
top of your head whether they are good things or bad things
they have been suspended for?
Mr. Strickling. I think in the case of the other two
projects, we have some management challenges that we need to
see fixed there in order to allow them to continue to spend
money. Yes. And so----
Mr. Long. So we might have one good thing and two bad
things?
Mr. Strickling. I am not sure how to respond to that. But
it is not----
Mr. Long. I am not trying to be argumentative. I am just
trying to--because my original question was going to be how
does one get suspended? But then, as I sat here waiting for all
my other colleagues to go ahead of me, I came to realize that
EAGLE-Net, who we have heard a lot of complaints about today--I
don't know if their proven or not--but we have heard a lot of
complaints about them. And when I heard they were suspended, I
thought, oh, they have done something bad. But now we have
learned that they are suspended because they are doing
something good. So I am just trying to get a handle on how one
would get suspended.
Mr. Strickling. Well, it is not something you should aspire
to do. I guess I would say that.
Mr. Long. OK. Let us see. You also referenced two her three
times--you seem to be upset with one of my colleagues; I can't
remember which one--but the fact that they were using----
Mr. Strickling. Sir, I am not upset with anybody. We are
just having an active discussion.
Mr. Long. Then, don't come back when you are upset. But you
have mentioned two or three times that--you spoke in a louder
tone, perhaps--that they----
Mr. Strickling. Guilty as charged.
Mr. Long [continuing]. Were not using discounts and they
should of been or should not have been using a discounted
figure on the equipment cost, I presume.
Mr. Strickling. What we were talking about was the West
Virginia auditor's report and the way the auditor came up with
the alleged millions of dollars of overspend was, I believe--I
am not entirely certain because the report is a little
ambiguous on this--but it looked to be based on list prices of
routers. And I only say that because when we did our
calculation, we came up with an average price, including the
discounts, for what they bought at about $12,000. That doesn't
even include the 100 free routers they got. And in one case the
auditor referred that they could of save $16,000 per router.
Well, that suggests to me they weren't using a discounted price
when they did that analysis.
Mr. Long. And this was in West Virginia, correct?
Mr. Strickling. Yes, we are talking about West Virginia.
Mr. Long. OK.
Mr. Strickling. Now, if you look, our Inspector General did
a report where they looked at the same exact issue and
concluded that possibly West Virginia could have saved 2 to 5
percent on the router purchases had they bought lower capacity
routers. But our IG made an assumption that they would have
still gotten the 100 free routers even under that scenario. And
they acknowledged that, if in fact the 100 free routers weren't
available under the alternative purchase, that there would have
been no net savings by going to the lower-capacity routers.
Mr. Long. But my question that I am trying to lead up to is
that in West Virginia, which we are speaking now, we agree they
used no competitive bid process?
Mr. Strickling. That has been raised by the West Virginia
auditor in its report.
Mr. Long. Right. OK. So the West Virginia auditor believes
they used no competitive bid process. Later----
Mr. Strickling. We understood that they certainly got
multiple bids on Cisco routers----
Mr. Long. Later in your----
Mr. Strickling [continuing]. But I think it is correct that
they didn't have bids from other company gear.
Mr. Long. Later in your testimony, you said EAGLE-Net went
out on an RFP, Request for Proposal. So are these contracting
things handled differently in different States? I mean, if
somebody goes out on an RFP, they have to prove their worth.
That is a request to earn the proposal but yet then we go to
West Virginia and they don't even bid competitively,
apparently, according to their auditor.
Mr. Strickling. So each State has to--if it is a state
government organization--has to comply with their own
procurement rules. We don't have a set of federal procurement
regulations for our grants other than you have to follow the
rules that apply to you in your State.
Mr. Long. OK.
Mr. Strickling. So, yes, you could have different
procurements happening in different States based on differences
in their laws and regulations.
Mr. Long. OK. I was going to yield to someone else but I
have taken up too much of my time.
So Mr. Chairman, I yield back.
Mr. Walden. The gentleman yields back. Mr. Welch, I
believe, is next.
Mr. Welch. Thank you very much, Mr. Chairman.
Mr. Strickling, I would like to clarify some of the
discussion about the West Virginia project. Did NTIA approve
individual contracts executed by West Virginia or any grantee?
Mr. Strickling. I am sorry. Could you repeat that? I am not
sure I understand the question.
Mr. Welch. Well, does the NTIA approve every purchase made
by every grantee----
Mr. Strickling. No, no.
Mr. Welch [continuing]. Or do grantees have to follow
guidelines set by the NTIA?
Mr. Strickling. So we approve the grantee's budget at the
beginning of the project, and then we would look at their
quarterly spend reports to see if there had been anything that
got out of line. But no, for the typical project we don't
review individual purchases. Now, in some cases when we get a
project that is somewhat challenged, we will put them on a
reimbursement-basis only at which point we are looking at
individual invoices and making sure those are appropriate to be
paid.
Mr. Welch. OK. And we have heard the suggestion today that
because 95 percent of the population already has access,
government action to extend broadband is unnecessary. That is
an argument some folks are making. But is it the case that
extending infrastructure to every corner of our country, and
especially in rural areas--and a lot of us on this committee
represent rural areas--always require some public resources in
participation?
Mr. Strickling. I am not sure that I can give you a
categorical answer to it. But what I can tell you is that the
95 or 96 percent figure is a figure for the mass market. We
know from our program, and it is been well documented, that
these anchor institutions have much higher needs for broadband,
much greater speed requirements. Those aren't factored into
that 96 percent. And as I said before, we know that schools
overall have been at the low end of what their needs are. So
our program has been trying to deal with some of these specific
needs of anchor institutions which was set out as a standalone
obligation or purpose under the Recovery Act. It was to serve
unserved and underserved areas and to serve anchor
institutions. And we have taken that to heart in the philosophy
of our program.
Mr. Welch. Good. Yes. And, you know, the private sector has
spent billions and that is tremendous. But I believe it is the
case that these investments have been enabled, to some extent,
by public resources including the Universal Service Fund and
the RUS loans. Is that your sense as well?
Mr. Strickling. Well, there is no question that in rural
areas the USF money and the RUS support has definitely had an
impact. Yes.
Mr. Welch. OK. Thank you.
I yield back, Mr. Chairman.
Mr. Walden. The gentleman yields back the balance of his
time. Does that cover----
Ms. DeGette. Mr. Chairman?
Mr. Walden. Oh, Ms. DeGette.
Ms. DeGette. I ask unanimous consent to place the documents
that Mr. Strickling was referring to----
Mr. Walden. Oh, absolutely.
Ms. DeGette [continuing]. The charts into the record.
Mr. Walden. Yes, without objection. Of course.
[The information appears at the conclusion of the hearing.]
Mr. Walden. And I think we have covered everybody who had
to step out. Right? Or have you gone, Mr. Kinzinger? Oh, oK.
Mr. Kinzinger, for 5 minutes.
Mr. Kinzinger. Thank you, Mr. Chairman.
Mr. Walden. Oh, but before you start.
Mr. Kinzinger. Uh-oh.
Ms. DeGette. Yes, we want to----
Mr. Walden. This is his birthday.
Ms. DeGette. This is his birthday so we have----
Mr. Strickling. Do we get to sing, and does it come off his
time?
Mr. Walden. What is that? Yes, it comes off as questioning
time, Mr. Strickling. So happy birthday to our colleague, Mr.
Kinzinger.
Mr. Kinzinger. Thank you. I am now old enough to have----
Mr. Walden. I look good for 70; he looks good for 35.
Mr. Kinzinger. Well, thank you. And thank you all for
coming out. I know this was touched on a bit. I want to change
gears from what we have been talking about, talking about
FirstNET. Our subcommittee did help to create this authority in
order to establish a nationwide interoperability public safety
broadband network. But there were some differences of opinion
on what this board, among other things, should look like. That
being said, it is now our job to have a bit of oversight on the
activities of this board with respect to the NTIA. In the most
recent FirstNET board meeting, there were a couple of
resolutions adopted in order to move forward with last year's
previously suspended public safety BTOP projects. These
resolutions stated that the suspensions were to be resolved
within 90 days. And I was glad to hear this since there are
States and localities who have committed vast amounts of
resources to these now dormant projects.
My concern in these resolutions is the special award
conditions being required to end the suspensions, specifically,
the condition which ensures BTOP projects systems from
interoperability problems and the requirement that a State's
BTOP public safety assets be transferred to FirstNET. The
former seems like an overly broad indemnification, while the
latter seems a bit premature since States don't even know what
options they will have in regards to a FirstNET network. My
question to Secretary Strickling is this: Why has the
reinstatement of these BTOP public safety project awards taken
so long and are those special conditions really necessary?
Mr. Strickling. Well, the board only met a week ago.
Mr. Kinzinger. Yes. It is 2013 so I was just, like, you
know----
Mr. Strickling. Right. So they were on suspension to give
the board an opportunity to go visit the projects and to make
their recommendation. The board didn't come into being until
last September when they had their first meeting. One of the
first tasks they organized to do was to conduct a review of the
projects. They have now been out; they have been on the ground
to visit every one of them, and that led to recommendation that
they just passed last week.
Mr. Kinzinger. We are hoping then that can move forward
very quickly.
Mr. Strickling. Yes. And again, they are going to take the
90 days to sit down with each of these projects.
Mr. Kinzinger. And then, what are your thoughts on the
special conditions on them?
Mr. Strickling. I will reserve judgment on those until they
are presented back to us as part of the process.
Mr. Kinzinger. Then I can submit that for the record, if
you wouldn't mind getting back to me on them.
Mr. Strickling. Yes. Sure.
Mr. Kinzinger. And also, while your testimony highlights
the ability to get grants back on track after suspensions, we
have been contacted by a number of people who remain very
concerned about the grant to the North Florida Broadband
Authority. Mr. Chairman, I seek unanimous consent to enter into
the record a letter from Mr. Chris Thurow, Sr., a former North
Florida Broadband Authority board member raising concerns about
the program.
Mr. Walden. Without objection, so ordered.
[The information appears at the conclusion of the record.]
Mr. Kinzinger. My understanding is it has had problems from
the start and NTIA suspended the grant for a period in 2011----
Mr. Strickling. Yes.
Mr. Kinzinger [continuing]. Requiring a corrective action
plan. The outside contractor, law firm, and compliance firm
have been replaced. Additionally, 7 of the 14 counties have
dropped out of the project. We have been told the project has
very few paying customers left and its revenue is only a
fraction of the monthly operating expenses. A few questions on
this. Is the project financially sustainable? If not, what
happens next? Because, specifically, 7 of the 14 counties have
withdrawn because they see a project. So what is it that the
NTIA sees regarding its viability that the local counties are
missing?
Mr. Strickling. Well, as of right now, we still think it is
a good project and it is sustainable. And I will tell you that
even in the case of at least one of the counties, the project
is still picking up customers within that county even though
that county might have dropped out. It is the Suwannee County,
but the City of Live Oak has remained a customer and is very
interested in the project. So I think the fact that the 7
counties have left--while not a great event for us or for North
Florida--doesn't necessarily mean that those counties are not
going to continue to supply customers.
Mr. Kinzinger. You still see this to be a financially
feasible venture?
Mr. Strickling. Yes. At this time, yes.
Mr. Kinzinger. All right, then we will obviously see how
this goes over time.
Mr. Strickling. Right.
Mr. Kinzinger. With my remaining minute I would like to
yield to Mr. Gardner of Colorado.
Mr. Gardner. I would like to thank the gentleman from
Illinois for the time. And just a couple of follow-up questions
on what he asked.
Mr. Padalino, are you concerned that these rural telecoms
in Colorado that have RUS loans may be unable to pay their
loans due to competition from EAGLE-Net?
Mr. Padalino. We have been monitoring the situation
closely. We have heard from some of the borrowers in Colorado.
We forwarded that correspondence over to NTIA. The rural
development undersecretary Mr. Strickling met I think late last
summer and we allowed NTIA to take the lead as it was there
awardee.
Mr. Gardner. So that is a concern?
Mr. Padalino. Well, we are concerned with all of our
borrowers to make sure that the loans are repaid.
Mr. Gardner. Thank you. And Mr. Strickling, is EAGLE-Net
sustainable financially?
Mr. Strickling. I think that is still to be determined.
Mr. Gardner. Wasn't that a condition of the grant, that
they be sustainable?
Mr. Strickling. As presented to us, yes. But I think we
certainly are watching it carefully. The events of the
suspension, the events of the controversy clearly could have an
impact on its ultimate sustainability, which is why I would
like to work with you and Congresswoman DeGette and the entire
delegation to find a way to make sure this project is
sustainable and can serve the schoolchildren of Colorado.
Mr. Gardner. Will the grant be reinstated before the issues
are worked out in Colorado?
Mr. Strickling. The grant suspension would be lifted once
they work out the environmental issues. But as you know, and we
have committed to you to work and make sure EAGLE-Net is
working with all of the stakeholders out there to try to
resolve these other issues as quickly as we can.
Mr. Gardner. And the last question. I am out of time. With
96 million out of the $109 obligated or spent, is there enough
money to finish the west slope build-out?
Mr. Strickling. Well, that doesn't include a bank loan that
they also had sought and I think they are still working through
some of the issues with the bank because of the delays in the
project. There are some issues about whether the bank will
continue on or not. So yes, I think ultimate financing is a
concern, and again, that is an issue we would like to work with
you on to make sure that the bank might carry through on that
or that other sources of funding could be found.
Mr. Gardner. That is a bank loan they haven't received yet.
Or they have?
Mr. Strickling. They haven't received all of the proceeds
of it. I think they have received a small amount of the loan so
far.
Mr. Gardner. They told the audit committee about $500,000.
I don't know if that is the same loan.
Mr. Strickling. I think that is what they have received so
far. Yes, sir.
Mr. Walden. All right. The gentleman's time has expired.
I want to thank our two public servants for being here
today and answering our questions--or attempting to--to the
best of your abilities. And we look forward to continuing the
discussion. And again, thank you for your service and we
appreciate your participation in our hearing.
We are going to move on now to the second panel. As we
change out here, we will have Mr. Pete Kirchhof, Executive Vice
President, Colorado Telecommunications Association; Ann Eilers,
the Principal Assistant Inspector General for Audit and
Evaluation, Office of Inspector General, U.S. Department of
Commerce; Michael K. Smith, the State President, Vermont,
FairPoint Communications; and Bruce Abraham, Board of
Directors, North Georgia Network; and Joe Freddoso, President
and CEO of MCNC. I hope I got all those names correct.
And if you all will take your seats and I will just tell
you with regards to these microphones, they do have an actuator
button there at the base. And the closer you are between the
microphone and your mouth, the better we will be able to hear
you once the light is lit.
So we thank all of you for coming today to help enlighten
us on what is working and what is not this program, and to how
we can be good stewards of the taxpayers' money. So with that--
--
Ms. DeGette. May I take a moment, sir?
Mr. Walden [continuing]. I would like to recognize my
friend and colleague from Colorado, Ms. DeGette----
Ms. DeGette. Thank you.
Mr. Walden [continuing]. To introduce our first witness.
Ms. DeGette. Thank you very much, Mr. Chairman.
I am really delighted to introduce our first witness
because he is an elementary school classmate of mine from St.
John's Elementary School in Denver, Colorado. And he does a
wonderful job in his current role--I am getting his exact
title--Executive Vice President of the Colorado
Telecommunications Association. And we are hoping he can sort
all this out for us in 5 minutes or less. Thanks, Mr. Chairman.
Mr. Walden. So Mr. Kirchhof, if you would like to lead off.
We are delighted to have a fellow westerner out here. And
please go ahead.
STATEMENTS OF PETER KIRCHHOF, EXECUTIVE VICE PRESIDENT,
COLORADO TELECOMMUNICATIONS ASSOCIATION; ANN EILERS, PRINCIPAL
ASSISTANT INSPECTOR GENERAL FOR AUDIT AND EVALUATION, OFFICE OF
INSPECTOR GENERAL, U.S. DEPARTMENT OF COMMERCE; MICHAEL K.
SMITH, STATE PRESIDENT-VERMONT, FAIRPOINT COMMUNICATIONS; BRUCE
ABRAHAM, BOARD OF DIRECTORS, NORTH GEORGIA NETWORK; AND JOE
FREDDOSO, PRESIDENT AND CEO, MCNC
STATEMENT OF PETER KIRCHHOF
Mr. Kirchhof. Thank you, Chairman Walden, Ranking Member
DeGette, now, I guess it is. And I hope the elementary school
comment does not become part of the permanent record.
But to the rest of the committee members, my name is Pete
Kirchhof, Executive Vice President of the Colorado
Telecommunications Association. CTA represents 25 small rural
communications companies that provide voice, video, and data
service to approximately 30,000 customers located in 25,000
square miles, a very diverse geography. That equates to
approximately 1.2 customers per square mile, which presents
huge challenges in providing services to these customers where
the cost is determined by distance and density.
Attached to my written testimony is a colored service area
map that shows you graphically those large geographic areas
served by our members.
CTA members receive support from two federal programs, the
Universal Service Fund and the Rural Utility Service. Both of
these programs were and are instrumental in helping our members
grow their companies, upgrade their networks, and provide high-
quality affordable communications service. CTA members
appreciate the confidence shown by these agencies in supporting
service for rural Colorado.
In 2010, NTIA was awarded a grant to an entity called
EAGLE-Net. The purpose of the grant was to provide broadband
service to unserved, underserved entities through construction
of a middle-mile infrastructure and in collaboration with local
telecommunication companies like CTA members. Several CTA
members sent letters of support to NTIA and were referenced as
potential partners by EAGLE-Net in their original application.
Our members truly believed that this project would be a
tremendous benefit to rural communities. EAGLE-Net would build
facilities where needed, i.e. fill in the gaps or reinforce
existing facilities or lease existing facilities from companies
where possible to provide broadband service to these targeted
institutions.
It now appears to us that this project was not intended to
serve unserved or underserved areas or to collaborate with the
local providers but rather to build a government-owned and
operated duplicative network, overbuilding hundreds of miles of
existing fiber infrastructure from our members and other
providers throughout the State to serve as many government
entities as possible, including many in urban, highly
competitive and densely populated areas.
As I discussed in my written testimony, the attached maps
also demonstrate there are several examples of where duplicate
facilities were built. And even more troubling, they were
funded by three different federal programs.
In addition, facilities and services are being provided to
customers in Denver, hardly unserved or underserved by anyone's
definition.
Congressman Gardner referenced the resolution passed, the
House Joint Resolution 26. I won't read the section. He and I
had the same sections to discuss. But the overall, I think,
goal of the State Legislature was to make sure that there was
not duplicating facilities and that there was use of the
private sector facilities where possible.
In our opinion, EAGLE-Net has done just the opposite by
overbuilding existing networks on the eastern plains, south-
central Colorado, the Denver Metro area, as well as Laramie,
Wyoming, while largely ignoring the western slope communities
where broadband facilities are desperately needed and would be
welcomed by those communities.
CTA member service areas have small populations, are costly
to serve, and generate limited revenues. Supporting even one
network under those circumstances is a challenge even with the
subsidies. Maintaining two competitive government-funded
networks is highly unlikely. And since most of the CTA members
RUS funding is in terms of loans, not grants, overbuilding
presents a serious impact to the financial stability of our
members and ultimately to RUS if our ability to repay those
loans is compromised.
First and foremost in our mind, federal agencies should
ensure that taxpayer dollars are not used to duplicate
infrastructure development in rural communities. The Federal
Government is the Federal Government. Any conflicts should be
resolved through an interagency agreement or cooperation.
I do want to publicly thank Assistant Secretary Strickling
for his attention and for recently meeting with us in Colorado.
But in conclusion, I would say this: CTA members still support
the mission of EAGLE-Net as it was originally constituted, but
I think what has happened is is it has gone far from what the
original intent was. We respectfully ask committee members to
encourage EAGLE-Net to negotiate with local providers in good
faith to avoid duplicating facilities. And we would hope that
any additional monies left over could be redirected to the
western slope.
Thank you, Mr. Chairman and members of the committee, for
your time.
[The prepared statement of Mr. Kirchhof follows:]
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Mr. Walden. Mr. Kirchhof, thank you for your testimony. We
appreciate your participation in our hearing.
We will turn now to Ann Eilers, the Principal Assistant
Inspector General for Audit and Evaluation, Office of the
Inspector General, U.S. Department of Commerce.
Ms. Eilers, thank you for being here this afternoon. We
look forward to your testimony.
STATEMENT OF ANN EILERS
Ms. Eilers. Great. Thank you, Chairman Walden, Ranking
Member DeGette, and members of the subcommittee. I appreciate
the opportunity to appear before you today to discuss our
continued oversight of the Broadband Technology Opportunities
Program, or BTOP.
The American Recovery and Reinvestment Act of 2009 was
signed into law 4 years ago. The Act provided the National
Telecommunications and Information Administration, or NTIA,
approximately 4.7 billion to establish BTOP. Since then, BTOP
has developed into a program of approximately 225 projects that
are providing broadband services. NTIA issued grants in three
major areas: comprehensive community infrastructure, public
computing centers, and sustainable broadband adoption. Many of
the projects are nearing completion, with the last projects
scheduled for September of this year. Extensions have been
granted to a number of grantees, some through September 2013.
Additionally, we understand NTIA has requested a waiver from
OMB for grant funds to be spent after September 2013.
The Recovery Act also established a central role for the
Offices of the Inspector General to monitor their agencies use
of funds to prevent fraud, waste, and abuse. Our oversight
began immediately after the passage of the Act. We have
provided over 50 sessions of compliance and controls training
to program staff and grant recipients. We also assisted with
the development of the program-specific Audit Guide for for-
profit BTOP award recipients.
Our oversight efforts have continued, and to date, we have
both assessed the program operations of BTOP and reviewed
specific issues with some individual awards. Our work includes
10 published products containing over 40 recommendations
developed to improve BTOP administration and monitoring of the
grant awards. Additionally, our review of single- and program-
audit reports has identified findings and questioned costs
within the grant operations.
Finally, we have established procedures to closely monitor,
follow up on, and analyze complaints made to our hotline. The
hotline is available online by telephone. It provides
stakeholders a fast, anonymous, or confidential means to report
fraud, waste, and abuse.
Since appearing before the Subcommittee last May, we have
reported that BTOP continues to face challenges with issues in
grant match, acquisition and implementation of equipment, and
sub-recipient monitoring. Most recently, we issued reports on
the need for sub-recipient monitoring to be strengthened and
problems associated with an infrastructure award to West
Virginia.
We reviewed the West Virginia award at the request of this
committee. We found that the grantee had not demonstrated it
had used award funds cost-effectively to purchase routers. We
also identified problems with the grantee's inventory
management.
We currently have two BTOP reviews in progress. One is on
assessing the internal controls NTIA has in place to monitor
grantee equipment procurement and deployments. The other is to
review NTIA's closeout operations as they assess that all laws,
regulations, and grant terms are met by these projects.
Finally, we will continue to work on BTOP hotline
complaints and tracking audit issues identified in audits
performed by independent accounting firms.
Again, we appreciate the opportunity to appear before the
Subcommittee. I am pleased to respond to any questions that you
may have.
[The prepared statement of Ms. Eilers follows:]
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Mr. Walden. Ms. Eilers, thank you very much for the work
you and your team do. We appreciate it. It is very valuable in
the course of our activities.
We will turn out to Mr. Michael K. Smith, State President-
Vermont, FairPoint Communications.
Mr. Smith, thank you for being here today. We look forward
to your testimony.
STATEMENT OF MICHAEL K. SMITH
Mr. Smith. Well, thank you very much. I want to thank the
Subcommittee Chairman Walden and Ranking Member DeGette for
allowing me here to testify. I also wanted to thank Hon. Peter
Welch of my home State of Vermont for his continuing dedication
and attention to the needs of Vermonters who are unserved and
waiting for reliable high-speed broadband connections. He has
been a great partner with us, especially in our efforts to
thwart scammers who prey on our elderly.
My name is Michael Smith and I am the Vermont State
President for FairPoint Communications. I have more than 30
years of experience in executive leadership positions in both
the public and private sector, most recently as secretary of
administration under Governor Jim Douglas, and now with
FairPoint Communications.
My testimony will concentrate on providing some specific
examples of how well intentioned public policies can go off
track when put into implementation opening the possibility of
wasting millions of dollars of taxpayers' money and potentially
leaving people without the promise of reliable broadband
access.
As a State President in Vermont, I have been very vocal
that public money used to overbuild existing networks is
duplicative of private sector efforts, and in many cases,
undercuts those efforts. The key term I would ask you to focus
is on overbuild. This practice is wasteful and does not provide
broadband to those who are now unserved.
Let me give you a specific example. Vermont was awarded the
stimulus award of $33 million that went to the Vermont
Telecommunications Authority on behalf of its private partner
Cybernet. As an aside, I can tell you that when I was secretary
of administration, I helped create the VTA. It was not to
create a publicly financed competitor aimed at putting
FairPoint and other private providers at a competitive
disadvantage.
The VTA Cybernet project that is underway is a middle-mile
project. Vermont is a State unlike other States in the country
that has plenty of existing middle-mile networks built and
maintained by FairPoint, as well as other private sector
providers. In my opinion, stimulus funding should be directed
to the last mile where the need is greatest.
The Vermont Telecommunications Authority stimulus-funded
project simply overbuilds existing privately funded middle-mile
networks. It is a waste of taxpayers' money and duplicates
existing networks and does not bring meaningful last mile
broadband to Vermonters. In fact, it actually undercuts the
private investment that has already been made in Vermont.
There are other examples of stimulus money being used to
overbuild existing networks. In New Hampshire, the University
of New Hampshire received $65.8 million to overbuild the
existing private sector networks. What is worse is the Federal
Government permitted UNH to essentially give away most of this
network to a private for-profit company named Waveguide. When
this project is complete, not a single residential or business
customer in New Hampshire will have the ability to call UNH or
Waveguide and request internet access service.
In Maine there is a similar example of $25 million in
stimulus money being used to overbuild existing private sector-
funded networks. Between VTA and VTel, the other large
recipient of stimulus funds, a large portion of stimulus money
is being spent on overbuilding existing middle-mile networks.
With that in mind, I asked our engineers to do a quick estimate
to find out if we had been awarded all the stimulus grant funds
that are being used for middle-mile overbuilds in Vermont,
could we have built broadband to every last unserved location
in the State? The answer is yes. And in New Hampshire, the
benefits to residents and businesses would be that they could
actually call and order services.
So you asked me the question: Is broadband stimulus
working? Succinctly, I don't believe it is working as
efficiently and as effectively as it should be. And the
programs I am familiar with actually undercut the efforts of
private broadband infrastructure investment. In my view, the
implementation of the program did result in ways that
unwarranted competitive harm to companies whose networks were
overbuilt with federal money.
In closing, FairPoint will to continue to work with NTIA,
RUS, FCC, Congress, U.S. Telecom, ITTA, and the BTOP and BIP
awardees to ensure taxpayer dollars are used to better benefit
the shared public policy goal of nearly ubiquitous broadband.
Thank you. And I would be more than happy to answer any
questions.
[The prepared statement of Mr. Smith follows:]
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Mr. Walden. Mr. Smith, I am sure we will have some and we
appreciate your testimony. It is very enlightening.
Mr. Welch. Mr. Chairman, just one objection. I wasn't here
when I understand this witness said a few things about me.
Mr. Walden. He said nice things about you.
Mr. Welch. Well, I want it on the record that I object to
me not being here to hear that.
Mr. Walden. Is there any objection to his----
Ms. DeGette. I will be happy to move to strike that
testimony from the record because you weren't here.
Mr. Walden. Mr. Smith said very nice things about you. We
did have that removed from the record. No.
Let us go now to Mr. Bruce Abraham. He is on the Board of
Directors of the North Georgia Network.
Mr. Abraham, thank you for being here this afternoon. We
look forward to your testimony, sir.
STATEMENT OF BRUCE ABRAHAM
Mr. Abraham. Thank you, sir, Mr. Walden.
Mr. Walden. If you will pull that microphone close and push
the little button.
Mr. Abraham. There we go. I am a country boy.
Thank you, Chairman Walden, members of the subcommittee. It
is a great honor for me to be here today to talk about the
effects of the National Broadband Opportunities Program on my
home community in North Georgia. I very much appreciate this. I
will remember this all my life and I will tell my grandkids
about this and the great things that we did here today.
I would also like to thank our partners in this project,
the University of North Georgia, Habersham and Blue Ridge,
Mountain EMCs, as well as the State of Georgia who together we
put up $9 million in matching money to leverage $33 million in
federal money to bring modern high-speed internet to our
region.
I would most like to thank my group of economic developers
in the region, who supported this project with their money and
their time and who, like me 4 years ago, faced a barrier to
expanding and recruiting jobs to this region. Our region had
lost about 22,000 jobs before this project started. And in
Dahlonega, where I worked, we closed the doors of our largest
employer--a textile manufacturing operation that employed 365
people, most of who had quit school to go to work there at an
early age. My group of economic developers and I were losing
jobs and business prospects not only because of the national
economic downturn, but also because our local companies told us
they had inadequate broadband.
My community owned a 65,000 square foot building that a
prospective internet company walked away from because they told
me ``it would be too painful to get the broadband that they
needed there.'' Our local medical lab that does breast cancer
analysis was trying to communicate with other hospitals in
Georgia and they told me they may have to move back to Atlanta
because they could not get patient medical information files
back and forth on the internet.
Our local university was doubling their student enrollment
and their internet service from their provider was only 50
megabits of service for 5,000 students. The college internet
went down for 37 hours as they began a new school year, so some
classes' course information, homework, and assignments were
inaccessible to students and to teachers. The university tried
to dramatically up their internet speed and reliability but
their single provider said it was just not cost-effective.
In rural Georgia, our local governments in economic
development are constantly challenged to remove barriers to
growth whether it is by improving a road, running a water line,
or building a sewer plant. I can tell you from 20 years of
local economic development experience that companies won't
locate to areas where they operate off of wells or septic tanks
or one-lane roads. And now, high-speed broadband is right up
there with the must-haves to get jobs and growth in rural
America.
As part of their strategic plan, the State of Georgia made
almost $10 million in broadband investments in Georgia. Georgia
provided us with the original funding for a study, and this was
no pie-in-the-sky research. We sat down with our schools,
colleges, libraries, governments, hospitals--asked them how
they use the internet. They said they needed more internet, and
many of them said they need what is called redundant internet
so if it breaks down with one provider, they can get it from
another provider.
When we finished our community study, the National
Broadband Program came along and we reached out to break our
internet barrier. Our communities in the State applied and we
built 1,100 thousand miles of fiber optic network that we just
finished in December. Already, we have eight school systems
connected with the majority of them getting a gigabit of
service, whereas before, they had less than 50 megabits. We
provided our schools at no cost a 10 gigabit network so they
can share distance learning with the university, they can share
online coursework, textbooks, and meetings. The university is
also happy because we provided them a gigabit of service at
less cost than they would have paid for 100 megabits of service
from their old provider.
Now, the physician at Dahlonega Foot and Ankle does not
have to drive over to the hospital to pick up his x-rays.
Impulse Manufacturing fabricates products for global
distribution can now talk to companies overseas without choppy
internet. And they can operate in what is called the Fortune
500 Protocol.
Even our churches can now broadcast their services live
online. And they are reaching the elderly, homebound, and
hospitalized members. They report that 90 percent of their
internet viewing is live during their church services.
Our local community bank can now communicate between its
branch offices and safely store their financial information on
their network. The Louver Shop that makes louvers in Dahlonega
can communicate with their West Coast office and conduct live
business meetings. Telecommuters who live in our region don't
have to wait until midnight to send their work over the
internet to their office in Atlanta.
We now have two technology parks in the region. And in a
final example, we have attracted our first data center to the
region. And because of this network--one of our local economic
developers should announce this in March--the company proposes
to make an $800 million investment in this facility. They will
initially hire 10 people at $100,000 per job. The company needs
2 gigabits of internet. This is an unheard-of investment in our
region. This increases our local county tax base by \1/4\ and
$1 million in payroll equals 60 jobs that would normally pay $8
an hour in our region.
In closing, let me say thank you again for this investment
you made in our communities. And let me sum up what you did for
us. We have a low-wage, low-skilled, low-tech economy in rural
America and you helped us reach for a high-skilled, high-wage,
high-tech economy that we all see ahead.
We are mindful as a generation, right behind us the young
digital Americans--the guy sitting right behind you--who were
born under the influence of this powerful internet engine. They
are not going to tolerate 1990s internet as they start a
business, look for job, or move into positions of business
leadership and public decision-making. They will move out of
internet lazy rural towns that do not provide robust internet
connectivity. They will go, as we all did, to where there is
promising economic opportunity. And that opportunity, as far as
we can see, is being created right now by the high-speed
internet.
Thank you very much. God bless you.
[The prepared statement of Mr. Abraham follows:]
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Mr. Walden. Mr. Abraham, thank you very much. Thank you for
your very kind comments and your very valuable testimony. We
appreciate your participation today. And no matter how much you
shower us with compliments, we are still going to ask you
questions.
Mr. Abraham. That will work.
Mr. Walden. I am just kidding.
Mr. Freddoso, we appreciate you being here today from--let
me get this right--president and CEO of MCNC. And so we welcome
you and look forward to your comments as well, sir.
STATEMENT OF JOE FREDDOSO
Mr. Freddoso. Well, thank you, Chairman Walden and Ranking
Member DeGette and members of the subcommittee for this
opportunity to present congressional testimony regarding the
successful implementation of broadband stimulus funds in North
Carolina. I particularly want to thank Congresswoman Renee
Ellmers from MCNC's home State of North Carolina. She
represents the great people of North Carolina's 2nd District
and is a champion of better healthcare education and access to
technology.
Mr. Chairman, for over 25 years the private nonprofit
organization that I lead, MCNC, has operated North Carolina's
fiber-optic highway of innovation, the North Carolina Research
and Education Network, or NCREN. While the roots of NCREN are
in serving the vast research needs of the University of North
Carolina system, the community of connectors at NCREN has grown
in the last several years to include connections to more than
450 community anchor institutions, including all of K through
20 public education, many private universities, numerous
nonprofit healthcare providers, and several state and federal
research organizations.
The anchor institutions that we serve require large amounts
of low latency high-speed connectivity and collectively, their
demand for bandwidth doubles every 2 years. A couple of
examples: since 2011, the 58 community colleges we serve have
reported a fivefold increase in bandwidth demand. And since
2007, our K through 12 public school districts have recorded a
20-fold increase in bandwidth use. Students in our community
colleges now directly access and program advanced manufacturing
equipment virtually over NCREN to get current skills needed in
the workforce while the colleges avoid having to spend precious
capital purchasing these machines directly.
MCNC also has a long history of cooperative work with our
incumbent service providers, telephone membership cooperatives,
electric membership cooperatives and independent
telecommunications companies in North Carolina. We spend about
$9 million per year for local circuits and internet bandwidth
with these providers.
In 2007 in our meetings with our private sector service
provider partners, it became evident that NCREN's need for
bandwidth--particularly in rural North Carolina--was going to
outstrip the capacity of the existing middle-mile fiber in the
State. There was either no fiber available in certain sections
of North Carolina or a limited fiber capacity to meet the
growing needs of the anchor institutions served by our network.
We also found that these service providers, even supported
by a proposed $8 million investment from MCNC, lacked the
business case to build in the areas with no fiber or to add
fiber capacity in underserved areas.
To serve the needs of the students, healthcare providers,
and research institutions connected to NCREN, MCNC made the
decision to pursue BTOP funds. For matching funds, we allocated
$8 million from our capital refresh fund. We also raised $4
million from private sector wholesale service provider FRC. We
raise $24 million from North Carolina's nonprofit Golden Leaf
Foundation, and $4 million in donated conduit and land. MCNC
brought a total of $40 million to the table in a vision for a
statewide network that would bring broadband to some of the
most rural mountainous and difficult areas to reach in the
State.
Leveraging these matching funds, MCNC applied for and won
two rounds of BTOP funding totaling $104 million. Today, MCNC
is within 50 miles of completing a 2,600-mile middle-mile
network. The network is comprised of 1,800 miles of new build
fiber, and 800 miles of leased fiber. MCNC leased 800 miles of
fiber from service providers, typically under 20-year terms.
These leases are tangible demonstrations of the solid
relationships that we enjoy with our service provider partners
and how MCNC was able to leverage local infrastructure into its
statewide broadband network.
The construction phase of the project has given a badly
needed infusion of revenue to private sector companies. Our
fiber and conduit supply company is CommScope. CommScope is
headquartered in Hickory, North Carolina. When we chose
CommScope as our supplier, their conduit plant was idled.
During the height of our project over a 2-year period, they
operated 24/7 with more than 100 workers to keep up with
demand.
Much of the BTOP fiber is already in use, benefiting the
450 community anchor institutions served by NCREN and allowing
us to serve 1,500 more community anchor institutions. The BTOP
award will allow us to scale connectivity to these institutions
to the multi-gigabit level they demand as they need additional
bandwidth. And our sustainability plan will allow this
scalability to happen at today's costs.
Also, MCNC is in discussions with more than 10 wholesale
and last-mile service providers interested in the new fiber
build. Many are looking to enter areas previously unavailable
to them. Rural broadband is migrating quickly from wired
services like DSL to wireless services like WiMAX, Wi-Fi mesh
and 4G LTE as last-mile solutions. The commonality in all of
these over-the-air last-mile services is the need for fiber-
based backhaul and transport services.
Mr. Chairman, our story is a great success story. It is
based on leveraging privately raised matching funds, utilizing
existing local infrastructure, and attracting BTOP federal
investment to build the digital highway that directly supports
innovative research, idea formation, equity of access to
education, better healthcare outcomes for North Carolinians,
and also supports the private sector as they look to put new
wireless services into rural areas of the State.
Thank you.
[The prepared statement of Mr. Freddoso follows:]
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Mr. Walden. Thank you very much to all of our panelists for
your testimony.
Mr. Freddoso, thank you especially for yours here at the
end.
In my district, 70,000 square miles--regular watchers of
our hearings know I have used this before--but it would stretch
from the Atlantic to Ohio, larger than just about any State
east of the Mississippi. And so I am very familiar with very
rural areas--remote areas--that lack broadband.
And so my view here is that 4 percent is a lot of my
district that didn't have access to broadband and that the
federal money should go into those areas where it is really
difficult to make a financial case for broadband on a
commercial basis. If we are going to spend money out, that is
where it should have gone. That is my point in this oversight
hearing and in the arguments I made, frankly, when this bill
was being marked up a number of years ago to say go serve the
unserved areas first, the places you all have talked about, and
avoid overbuilding where we already have commercial networks,
which by the way will be made less viable because the
government has come on with another competitor on top. And so
this leads to this oversight.
Probably most of this money has been spent appropriately.
We will find out over time whether or not we got our money for
it. Obviously, in your areas, you feel it has and it has got
great benefit. And we have seen that in some projects even in
my own district, an Indian reservation that frankly, the
incumbent carrier hadn't done much there and, you know, they
got one of these grants and now they got broadband. That made
sense. And same in another area in central Oregon where it made
sense to fill in.
One of my questions, though, is how is this money getting
spent? Where are the stewards of the taxpayers' dollars? I hear
about this in every town hall I have. I have done 18 so far
this year in 18 counties.
And, Ms. Eilers, you have heard our discussion here today
about the West Virginia audit. You all looked at some of these
questions for us kind of at a top level. Have you had a chance
to review the West Virginia audit in any detail? Because it is,
to me--and this is my money in effect--it is pretty damning.
Ms. Eilers. I have reviewed the West Virginia report. Yes.
Mr. Walden. And my understanding is that there may be a
delta here of about $9 million that maybe didn't have to be
spent and that they didn't follow their own contracting rules
and laws. Is that----
Ms. Eilers. I am not going to speak for the West Virginia
report. But yes, based on my reviews, it does appear----
Mr. Walden. And so wouldn't it make sense whether--I know
Mr. Strickling has said, look, we have spent this money. It is
out. It is allocated, whatever. But going forward if one of
these programs were to spring up again or money get put out,
what recommendations would you have for these agencies to make
sure that sort of waste doesn't occur that has been identified
in the West Virginia audit? Did they need to do a site
analysis? Does that need to be a requirement? How do we prevent
this from happening again?
Ms. Eilers. I mean, both the West Virginia auditor and our
audit team cited that there should have been a detailed study
of all the locations to size the routers appropriately. So yes,
we were looking for that same due diligence.
Mr. Walden. And are you confident now, knowing what we
know, that the agencies will either have put those requirements
into their RFPs or whatever going forward or are they still
were they were? Or can you tell?
Ms. Eilers. As I understand it--and I can just speak for
how they are looking at West Virginia right now--they are going
back and doing some due diligence on the sites to----
Mr. Walden. Right.
Ms. Eilers [continuing]. Make an appropriate size, if you
will, of the communications ability. For the other grants, I
can't speak to the other 255 grants and how this would impact
them.
Mr. Walden. You know this really came to our attention, as
I recall, from a newspaper article somebody shared with me. And
that kind of led the Committee into its look and our questions
to you. And I don't know if that is what triggered the auditor
or not in West Virginia, but it raises a troubling set of
questions about how the government's money--the taxpayers'
money--is actually being spent.
Mr. Kirchhof, Mr. Smith, this overbuild issue is something
that seems to me there is always going to be a little bit
because you have got to connect somewhere, right? So you are
always going to have some overbuild. But I was really
concerned, Mr. Smith, especially in your Vermont discussion,
about how the middle mile got overbuilt and the last mile
didn't get built in effect. And aren't we really after the last
mile that--I mean you need both. I get the notion that more
people using the internet means you need more capacity on the
overall internet. I get that. I understand that. It is not the
number of subscribers per se, it is both. But it is the amount
of data that is being transmitted back and forth so you need
capacity, but you also need access. So from your perspective,
is it last mile, is it middle mile, is it both but not
overbuild?
Mr. Smith. Mr. Chair, from my perspective, it is last mile
in Vermont. I mean, no one has invested more in broadband in
Vermont than FairPoint over the last few years. And I think it
is safe to say that, you know, the horse is out of the barn
now. I mean, this is for future reference but it is safe to say
I would think most Vermonters feel that if you are going to use
money, use it for the last mile and not overbuild an existing
network that provides the same service as the networks being
built, and actually, the fiber being put up on the same polls
that the fiber that we are running on. So it is an issue.
Mr. Walden. My time has expired. Do you have any
disagreement with that, Mr. Kirchhof?
Mr. Kirchhof. I don't, Mr. Chairman. The only thing I would
add is you do need both, right, in some cases. That is why you
need to go area-by-area and do an evaluation to see what is
needed there. I think we do have probably a little bit of a
fundamental disagreement on how you define middle mile. To us
middle mile is very similar to the federal interstate system,
that you use the backbone to be able to get that traffic out to
the world, right, but you rely on the local roads and the state
highways to provide that. So I think there is a fundamental
disagreement with what we consider middle mile.
Mr. Walden. All right. Thank you all again for your
participation.
I now turn to my friend and colleague from Colorado, Ms.
DeGette, for 5 minutes.
Ms. DeGette. Thank you very much, Mr. Chairman.
Mr. Smith, you said in Vermont the middle mile is not the
issue; it is really the last mile. But you are speaking for
Vermont, right?
Mr. Smith. I am----
Ms. DeGette. Yes.
Mr. Smith [continuing]. Where I most know it. And I----
Ms. DeGette. Where you most know. And here is the other
thing though, I mean, our concept is to get this broadband
everywhere. And so actually, the last mile providers benefit
from the middle mile, right?
Mr. Smith. Well----
Ms. DeGette. If they build out the middle mile, then the
last-mile providers benefit from that, right?
Mr. Smith. That is right----
Ms. DeGette. And FairPoint, in fact, has been paid $7
million as a vendor to these BTOP grantees, right?
Mr. Smith. Say that again? I am sorry.
Ms. DeGette. FairPoint has been paid approximately $7
million as a vendor to BTOP grantees?
Mr. Smith. Yes, I am not familiar with that number but I
will look.
Ms. DeGette. But they have been paid money. I mean, they
have benefited from some of this federal money, right?
Mr. Smith. I am sure that we have had middle-mile
participants giving money to FairPoint for some services.
Ms. DeGette. Vermont Telecommunications Authority, right?
Mr. Smith. Oh, I see what you are saying.
Ms. DeGette. Yes.
Mr. Smith. OK. OK.
Ms. DeGette. Yes.
Mr. Smith. Vermont Telecommunications Authority has----
Ms. DeGette. And Vermont Telephone Company, right?
Mr. Smith. Vermont Telephone Company.
Ms. DeGette. ION NewCo and Maine Fiber, you have got money
from them, right?
Mr. Smith. Let me just go back, Congresswoman, to sort of
go from there. We have got money to build last-mile----
Ms. DeGette. Right.
Mr. Smith [continuing]. From the VTA.
Ms. DeGette. Right.
Mr. Smith. Absolutely.
Ms. DeGette. Right.
Mr. Smith. OK.
Ms. DeGette. And that is some of this federal money. They
are getting the federal money and then they are giving it to--
--
Mr. Smith. In the case of the VTA, I believe it is all
state money.
Ms. DeGette. OK. Well, we can check that out. But, you
know, the whole point is we are trying to get broadband to
everybody, right, Mr. Abraham?
Mr. Abraham. Yes.
Ms. DeGette. I mean, it doesn't help you if you have the
last mile if you don't have the middle.
Mr. Abraham. That is right.
Ms. DeGette. You need it all, right? And also you, too, Mr.
Freddoso, right?
Mr. Freddoso. Right, Ms. DeGette. I think the leap we have
to take care here is that you are looking at a critical
infrastructure now. So you have got to look at it from both
perspectives. The last mile in a lot of rural areas is going to
move towards wireless.
Ms. DeGette. Right.
Mr. Freddoso. Wireless needs to find fiber as quickly as
possible for backhaul traffic.
Ms. DeGette. Right.
Mr. Freddoso. Our providers in North Carolina have told us
that their deployments into rural areas like some of the
eastern parts of the State that Congresswoman Ellmers
represents is going to be 4G LTE or WiMAX or Wi-Fi. There is
not enough middle-mile fiber right now along specific routes in
the area. We did this verification because we were trying to
serve schools----
Ms. DeGette. Right.
Mr. Freddoso [continuing]. That take that backhaul traffic.
Ms. DeGette. OK.
Mr. Freddoso. The second piece of this is that it is
critical infrastructure.
Ms. DeGette. Yes. Right.
Mr. Freddoso. And you are not going to run a hospital that
you are putting on healthcare information exchange or
telehealth on one single fiber connection to that hospital.
Ms. DeGette. Right.
Mr. Freddoso. And that is what the middle-mile serves
directly.
Ms. DeGette. Right.
Mr. Freddoso. So you need multiple paths.
Ms. DeGette. And you know something else I was thinking
about while I was sitting here, Mr. Kirchhof, in looking at
your map is, you know, the whole purpose of these BTOP and BIP
programs was so that we could build out these systems but then
they wouldn't be dependent on federal dollars for the rest of
their existence. And so in doing that, I suppose you would have
to have some kind of business model. Otherwise, to do these 5
percent that aren't built out right now, then you would have to
just subsidize them indefinitely. Do you understand? Does that
make sense to you?
Mr. Kirchhof. Thank you, Congresswoman. I do understand,
but I guess what I would be concerned about is, we agree with
Secretary Strickling on the 50,000 foot level----
Ms. DeGette. Right.
Mr. Kirchhof [continuing]. Of what we are all trying to do.
Ms. DeGette. Right.
Mr. Kirchhof. But when it came down to what is being done
in Colorado, we believe you should have done an area-by-area
assessment to look at what the needs were. Are they middle
mile? Are they the last mile?
Ms. DeGette. Right.
Mr. Kirchhof. Instead, what we believe has happened is the
goal ended up to be to build a statewide network for the
government to be in the telecom business for the long haul
instead of reinforcing or using existing facilities. So if the
goal is to build a sustainable model for the government to be
in the telecom business, then I think that what they are doing
is probably accurate. But if it was to come in and provide
broadband to unserved and underserved areas, I don't believe
that is what they have done.
Ms. DeGette. Right. I mean, I don't know. I am not here to
defend anybody. But what I am hearing is that EAGLE-Net is
trying to get contracts for some of the existing company and
access some of the existing fiber so that they can build out
into some of these underserved areas. And I think what we might
have here--I was talking to the Chairman about this--is we
really do need to all sit down. And I will make the same offer
to you that I made to the previous witness, which is if I can
do something with Mr. Gardner to sit down and try to sort this
all out, you know, we are happy to sit down and do it.
We actually had delegation breakfast yesterday morning
where we all sat down and said, you know, people be surprised
of how we can work together in a bipartisan way in our
delegation because we don't want to see private, you know,
telecom companies being hurt by this government program. But on
the other hand, we all have an interest in having this be built
out to communities like Mr. Abraham's and Mr. Freddoso's. I
think you would agree with that, too.
Mr. Kirchhof. I do, thank you, Congresswoman.
Ms. DeGette. Thank you.
Mr. Gardner. [Presiding] The gentlelady's time has expired.
And I will yield myself 5 minutes. To Mr. Smith and Mr.
Kirchhof, I mentioned to Mr. Padalino the question about
whether or not you have concerns or know of concerns in the
industry about the ability to repay RUS loans if competition by
government-backed BTOP programs were to interfere with their
business model. Are there concerns, Mr. Kirchhof, that you have
heard of, know about?
Mr. Kirchhof. Yes, thank you, Mr. Gardner. I think what we
are concerned about is that what is being proposed as middle
mile is actually putting fiber facilities directly to an end-
user customer and then encouraging that customer to leave
member's network and to go with EAGLE-Net. As you know, because
of where you live, the larger government institutions--schools,
community anchor institutions--provide a source of revenue to
those companies today. And so if you remove that revenue--and
yes, Mr. Strickling said that we are not providing to residents
and businesses--that is true--but those are also the high-cost,
low-revenue customers. So the community anchor institutions are
a very important part of our financing. So depending on if a
company lost a number of those, it could hurt them financially.
Mr. Gardner. So let me follow up with that, too, because I
think you bring up an interesting point. If an anchor
institution like a school or library bought more bandwidth or
was provided with more bandwidth than they needed, could they
turn around then and sell that excess bandwidth?
Mr. Kirchhof. In our belief, yes. And in fact I have stated
in my testimony that, in fact, we think that they are
subsidizing potential new competitors to come into the market.
And in many cases we want that. I understand that. But in rural
communities, as I said before, there is a limited amount of
revenue to support a limited amount of networks to be built
there.
Mr. Gardner. Mr. Kirchhof, do you believe that there is
overbuild in Colorado?
Mr. Kirchhof. My members do definitely believe that. When
EAGLE-Net is laying fiber literally right next to the existing
fiber optics, we believe that is an overbuild.
Mr. Gardner. Mr. Smith?
Mr. Smith. I definitely believe there is an overbuild in
Vermont and I believe there is an overbuild in New Hampshire
and I believe there is an overbuild in Maine, although I am
primarily concentrated on Vermont.
Mr. Gardner. And Mr. Kirchhof, going back to you, have the
terms of the House Joint Resolution in Colorado been met? Do
you believe it was focused on unserved and underserved areas
and not in competition with the private sector? Has that been
adhered to?
Mr. Kirchhof. No, I do not believe that, particularly the
section you highlighted earlier.
Mr. Gardner. And a couple of other questions that I have
for you relating to today's testimony, following up on that
statement, EAGLE-Net clearly has gone beyond its mission at
that point. Would you agree?
Mr. Kirchhof. Yes.
Mr. Gardner. And are there areas of the State that still
need fiber in the ground where EAGLE-Net has not gone?
Mr. Kirchhof. Well, from our understanding--and they have
made changes to their network--but we believe that the western
slope, while there may be some service coming from EAGLE-Net,
there is certainly not going to be as much as there is on the
eastern plains.
Mr. Gardner. Do you think that their business model is
sustainable?
Mr. Kirchhof. I don't know. I don't have any ability to
know that.
Mr. Gardner. I understand.
Mr. Kirchhof. But having said that, you know, our companies
have been in business for decades and we struggle occasionally
and we require subsidies from you to make that work. So I don't
know how you can sustain that model going forward.
Mr. Gardner. And in the testimony that Mr. Strickling
presented, he talked about how--you have also mention this in
your testimony--were supportive of EAGLE-Net's efforts. But
there was an element almost of sour grapes that was trying to
be implied in terms of the opposition and concerns with EAGLE-
Net today over the grant. But as I believe, you were bidding on
apples and oranges. Is that correct?
Mr. Kirchhof. Well, I would say I did take exception to the
fact that it does sound like it is sour grapes. But we have
been trying for 3 years to work with EAGLE-Net to get something
done. There was an RFP that was submitted by a group of
northeast Colorado companies that was rejected. I don't know
the reason. I heard today it was financial reasons, but I don't
know if that was the only reason that was out there.
Mr. Gardner. Some of the letters that I have received, and
I don't know if you have had a chance to see them or not, but
they were submitted for the record, one talking about Blanca,
others talking about PC Telecom where they said they were
trying to work with NTIA trying to convince them that, hey, if
you use this infrastructure, we could save you $20 million, I
think, was the Blanca letter where they said we could save $20
million if you use this infrastructure, but they never received
a response. Do you believe that money was wasted by and through
the overbuild?
Mr. Kirchhof. I can't speak to the savings that those
companies are suggesting, but I really believe that there were
opportunities for more efficiencies, to be able to take that
money then and spend it where it is really needed.
Mr. Gardner. I see that my time has expired. The gentleman
from Vermont is recognized for 5 minutes.
Mr. Welch. Thank you very much, Mr. Chairman.
Mr. Smith, thank you so much for coming and it is good to
have you here.
Many of us on this panel do represent rural areas. And this
is an open-ended question. Would you have suggestions for this
panel about what policies the Federal Government could pursue
that would be best helpful in deploying a full range of
broadband to our rural areas?
Mr. Smith. I do, Congressman. I think, you know, in
retrospect looking at how this program rolled out, I don't
think there was enough emphasis on the last mile. You know, in
our State and in other States, particularly in northern New
England, the middle mile isn't the issue. I understand there
are other States where the middle mile maybe the issue. There
is plenty of competition in the middle mile. In fact, there is
a lot of competition going to the very anchor institutions that
we talked about. So putting on a government-funded middle-mile
program in those sort of States makes no sense at all because
what you are doing is just undercutting the private investment.
We have invested $200 million in northern New England--in
Maine, New Hampshire, and Vermont. You undercut that
investment. So what I would say is, particularly in areas where
we are familiar with, concentrate on the last mile. And----
Mr. Welch. So is it your thought that policy would be
helpful whether it was our district in Vermont or Ms. Ellmers'
district where she is in eastern--you are applying this
generally to rural areas?
Mr. Smith. Right. And Congressman, I think that is where
the downfall the program lies because there are different needs
in different places. And if I was going to give some advice, I
would say look at the regions in terms of what their specific
needs are.
In our region, it is last mile. It is not middle mile; it
is the last mile. The other thing that I would do sort of, you
know, now that everything is sort of out the door, I would
monitor these programs continuously in terms of what is being
spent.
The third thing that I would do, is that any unspent money
needs to come back to the Treasury in terms of what happens.
And the fourth thing I would do is hold these entities to
deadlines that they have promised to obtain. So those are the
sort of things off the top of my head that I can think of.
Mr. Welch. Well, thank you very much. Mr. Abraham and Mr.
Freddoso, we have heard the argument from some of the incumbent
broadband providers that there was no need for Recovery Act
funding. They can't compete with networks funded in part with
public dollars and BTOP recipients are overbuilding their
networks. What has been your experience with getting private
investment for the deployment of broadband in your communities?
Mr. Abraham. When we started this project, we went to our
private providers and asked them to participate. My county
commissioner went with me and said, why don't you let Bruce
leverage this money and help you get this? And they said we
don't really want to mess with a government project. We have
got plenty of infrastructure out there. And then I said, well,
if you can't do that, could you show us where your
infrastructure is? So well, no. I mean, as an economic
development guy, I would like to know where the water and sewer
lines are. And they said that was proprietary information.
So when this started there was kind of wall between us and
the private providers. Since then, we have met with all of them
and talk about interconnections and working with them to get
places where they want to go because we have very robust
network in the areas where they don't now, but----
Mr. Welch. Mr. Freddoso, thank you.
Mr. Freddoso. Thank you, Mr. Welch. I think an important
fact to know is that we are a private nonprofit and we have
been operating this network for 25 years. So we have built
really good relationships with our private sector service
providers in North Carolina.
We had similar discussions to what Mr. Abraham had in
Georgia. But let me give you one example. We had to upgrade one
route, one connection between Rocky Mount and Greenville--part
of it touches Congresswoman Ellmers' district. And we get a
quote of 5 times the price for 2 times the bandwidth. And the
reason was is that we lack fiber availability. The carrier
lacked fiber availability.
So we took it upon ourselves to partner with them, figure
out where they had availability, lease from them as part of the
BTOP program, but then build in the gaps in the State so we
could serve these anchor institutions. And we serve all of K
through 20 public education. Their need is growing greatly. But
this also now offers North Carolina an opportunity to be a test
bed for some these wireless technologies in the last mile, work
with these private sector service providers to make fiber
available to them on attractive terms to allow them to deploy
these services in areas that they couldn't reach before.
So our stories are a bit different. I don't know Colorado.
I don't know Vermont. But I know that we did the diligence
upfront to make certain that the overbuild was kept to a
minimum to interconnect points.
Mr. Welch. OK. Thank you. I yield back.
Mr. Gardner. The gentleman yields back. The gentlelady from
North Carolina is recognized for 5 minutes.
Mrs. Ellmers. Thank you, Mr. Chairman.
My question is for Mr. Freddoso, and I have been listening
carefully to your testimony. My questioning is about the
opinion from the private sector that the middle-mile network
has been overbuilt. You just gave us information that you built
a very strong relationship with the private sector. With
government-subsidized entities there is an opportunity to pick
lucrative places to serve rather than build the underserved
areas?
Mr. Freddoso. I would agree with Mr. Smith and Mr.
Kirchhof. There has to be some regional assessment,
Congresswoman Ellmers, of what is available in those areas. I
believe that we are entering a time, particularly for rural
economic development and for rural healthcare, that more than
one path of fiber is going to be needed into some rural
communities.
Mrs. Ellmers. Yes.
Mr. Freddoso. You are very familiar, obviously, with the
healthcare industry being a nurse. As we move more into
telehealth for critical areas that touches part of your
district and the healthcare providers that work, if we are
doing telehealth over these connections, I wouldn't want one
route of fiber into that hospital.
Mrs. Ellmers. Yes.
Mr. Freddoso. If we are delivering healthcare based on
these connections, it would be like saying I have one road in
and out of the hospital and if it is blocked by a car wreck----
Mrs. Ellmers. Yes.
Mr. Freddoso [continuing]. I can't get to the hospital. If
I have one path of fiber to a hospital and that gets cut, I
don't want healthcare to stop in the hospital.
Mrs. Ellmers.
Mr. Freddoso. I don't want to healthcare to effectively
stop. So you have got to be smart about those things.
Mrs. Ellmers. Right. So what I am hearing you say is that
although some may view overbuild in one instance, there may
also be a need for additional infrastructure.
Mr. Freddoso. Yes, exactly.
Mrs. Ellmers. Now----
Mr. Freddoso. Exactly. And you are familiar with the parts
of the State--one more example, and I am sorry.
Mrs. Ellmers. Sure.
Mr. Freddoso. But you are familiar with the parts of the
State and Rutherfordton and Shelby----
Mrs. Ellmers. Yes.
Mr. Freddoso [continuing]. That have attracted a lot of
data centers. Facebook is not going to build a data center in
Rutherfordton, North Carolina, unless they have three or four
paths of fiber alternatives there. If they get one fiber cut
and their data goes down from that data center, it costs them
literally millions of dollars. They could build their own fiber
and justify that based on the return on investment. So it has
got to be a regional approach. You have got to look at what the
economic drivers and what the education drivers are in those
regions----
Mrs. Ellmers. Yes.
Mr. Freddoso [continuing]. And understand what the
infrastructure is needed to serve those.
Mrs. Ellmers. Yes. And you do agree that the underserved
areas should definitely be a focus as well?
Mr. Freddoso. Absolutely. And we had a requirement of the
grant that we had to terminate at least one endpoint on every
segment that we built in underserved area.
Mrs. Ellmers. Yes.
Mr. Freddoso. And we have done that in North Carolina
through the implementation.
Mrs. Ellmers. OK. Mr. Kirchhof, would you agreed with some
of the comments that Mr. Freddoso has made in relation to your
geographical area?
Mr. Freddoso. Thank you, Congresswoman. Yes, I would. And I
am sitting here thinking that is the model that I wish we could
have used in Colorado to be quite frank because it sounds
against working very well.
Mrs. Ellmers. Yes. Yes. Well, thank you. And I appreciate
that.
Now, Mr. Freddoso, along this line of thinking, I know that
in your testimony you point out that you are 50 miles from
completing the 2,600 middle-mile network. Where are you now
with subsidized funding? Are you up and running and
sustainable?
Mr. Freddoso. Oh, yes. We have operated the network, as you
know, Congresswoman for 25 years----
Mrs. Ellmers. Yes.
Mr. Freddoso [continuing]. With the community anchor
institutions as our key constituents on the network. We can
operate the network, financially and fiscally, with those
endpoints on the network and keep prices relatively flat. We
are depending on interest in the fiber strands for commercial
use in rural parts of the State and we are seeing strong demand
for those.
So, for example, wholesalers are coming to us and wanting
to buy fiber to supply a data center. Or they are wanting to
buy fiber to the tower in rural areas to deploy 4G LTE
services----
Mrs. Ellmers. Yes.
Mr. Freddoso [continuing]. Enhancing the broadband
offerings in those areas. So it is a large part of our
sustainability plan to close those deals, but we feel very
confident will be able to have a sustainable model for the
long-term, serve those education and healthcare institutions
that we serve.
Mrs. Ellmers. So in your opinion--and I have got 10 seconds
left--you will or will not need additional federal funds?
Mr. Freddoso. We will not need additional federal funds.
Mrs. Ellmers. OK. Thank you, sir. And I yield back the
remainder of my time.
Mr. Gardner. The gentlelady yields back at this time.
Seeing no more questions, I want to thank the panel. I ask that
the witnesses----
Ms. DeGette. Mr. Chairman, before----
Mr. Gardner. The gentlelady from Colorado?
Ms. DeGette. I would ask unanimous consent to put into the
record some more letters that I was just handed regarding this
EAGLE-Net situation. I think they complete the record.
Mr. Gardner. Without objection.
[The information appears at the conclusion of the hearing]
Ms. DeGette. Thank you.
Mr. Gardner. And the members will have 10 days to submit
additional items for the record. And I want to thank the
witnesses for being here today.
And this meeting is adjourned.
[Whereupon, at 1:03 p.m., the subcommittee was adjourned.]
[Material submitted for inclusion in the record follows:]
Prepared statement of Hon. Leonard Lance
I thank our witness for joining us today and providing
their respective insights into the Broadband Technology
Opportunities Program. Like many stimulus bill programs I think
the goals of the BTOP are laudable. Particularly in today's
information based economy we should be finding ways to ensure
that those who live in the most rural communities have access
to the true broadband internet connections. More broadband
access for Americans means more opportunities for professional
development and education.
Unfortunately, after reviewing the information provided to
the subcommittee in preparation for this hearing I am left with
significant concerns about the true efficacy and efficiency of
the use of taxpayer funds under this program. It is true that
there are a number of success stories, instances where
consumers who were truly ``un-served'' by any commercial
broadband provider now have access due to this program. At the
same time there seems to be a troubling amount of evidence of
waste and abuse under this program.
In particular, the numerous instances where BTOP grantees
have overlapped existing broadband infrastructure rather than
build out to new truly un-served areas is disturbing to me.
Each of these instances represents waste of hundreds of
thousands of taxpayer dollars. We have witnesses on our second
panel today who will talk about some specific and egregious
cases and I have read a number of press reports of others such
as rural schools being connected to second or even third high
speed connections that they don't need while other rural
communities continue to rely on dial up access only.
The funds the government uses to promote and expand
broadband access rightfully belong to all of our constituents
and we must always act as responsible stewards of that money.
Allowing one commercial entity to overbuild another using
taxpayer funds, thereby putting the incumbent provider who
built the network with either private funds or loans, at a
competitive disadvantage while at the same time leaving other
consumers in the dark is not being responsible with our
constituents money.
I am also concerned with some of the testimony provided by
the Commerce Department Inspector General's Office and how it
in some ways conflicts with the testimony provided by the NTIA
relating to how the projects that have received the BTOP funds
are coming along. The NTIA tells us that for the most part
these projects are moving along and meeting their markers for
completing their projects by the end of September. At the same
time the Inspector General's Office testimony implies that a
considerable number of these projects are woefully behind in
using the provided funding with only seven months left until
the projects are meant to be completed.
In conclusion, I will reiterate that while I find the goals
of the BTOP to be laudable I am very concerned that the
program, in reality, has not done the best job possible in
accomplishing its goals while at the same time living up the
fiduciary responsibilities of the federal government.
----------
Prepared statement of Hon. Bruce L. Braley
I'm glad to see the Subcommittee tackling the issue of
broadband expansion this early in the Congress, because there
is an important link between broadband expansion and economic
development. Providing access to broadband services around the
country, and especially in rural areas, increases the strength
of local economies and improves the quality of life for
American families. It's good for Congress to take a look at the
effectiveness of some of our broadband investments, and, even
though this hearing is focused on the Recovery Act, I hope we
don't lose sight of the broader positive impacts of our ongoing
investments in rural broadband, and the impact on families,
businesses and communities in rural areas.
There are many Iowa telecom companies that have had a long
and successful history with the USDA Rural Utilities Service.
RUS has done a great job in my home state, under the leadership
of our Rural Development Director Bill Menner, and there are
thousands of Iowans who now have broadband service thanks to
RUS programs. In fact, many of these investments in Iowa and in
other rural states are only possible because of the public/
private partnership between rural providers, RUS and the
Universal Service Fund.
For example, OmniTel Communications in Floyd County, Iowa,
serves a number of communities, including some very rural parts
of North Iowa. Funds from the Recovery Act allowed them to
replace old technology in some communities, and to build fiber
to higher cost, remote communities that were previously too far
out for broadband. Much of this area had no broadband, no
video, and no other advanced services. This is an example of an
investment working, where it needs to work, and thousands of
Iowa families, businesses and students benefiting as a result.
Another successful RUS project was a $7 million loan for
Interstate Communications in Truro, south of Des Moines, to
extend fiber to exchanges in Truro, St. Charles and St. Marys.
The network expansion has helped the I-35 School District and
has developed a space that can be used to recruit a call
center, and the jobs to come with it, to St. Charles. This is a
real example of economic development thanks to these types of
investments in rural broadband.
All of that said, I recognize that not everywhere is a
success story. And it's frustrating to see when loans or grants
go where they aren't needed, or are used in ways that aren't
targeted, or are duplicative. The focus should be on the
customer--those families, students and businesses who are put
at a competitive disadvantage because they don't happen to live
in a place that has affordable access to this type of
technology.
About 150,000 Iowans are still unserved. As we examine
these needs, I'd be interested to hear about lessons learned
that can be applied in the future. I would hope we all agree on
some of the goals: serving those areas that need broadband, and
doing it in a way that is using taxpayer money smartly and
effectively. Thank you to the witnesses for being here today,
and I look forward to today's testimony. Thank you Mr.
Chairman.
----------
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