[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 Printed for the use of the Committee on Energy and Commerce energycommerce.house.gov U.S. GOVERNMENT PRINTING OFFICE 80-019 WASHINGTON : 2014 ----------------------------------------------------------------------- For sale by the Superintendent of Documents, U.S. Government Printing Office, http://bookstore.gpo.gov. For more information, contact the GPO Customer Contact Center, U.S. Government Printing Office. Phone 202�09512�091800, or 866�09512�091800 (toll-free). E-mail, [email protected]. 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 ---------- 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:] [GRAPHIC] [TIFF OMITTED] T0019.001 [GRAPHIC] [TIFF OMITTED] T0019.002 [GRAPHIC] [TIFF OMITTED] T0019.003 [GRAPHIC] [TIFF OMITTED] T0019.004 [GRAPHIC] [TIFF OMITTED] T0019.005 [GRAPHIC] [TIFF OMITTED] T0019.006 [GRAPHIC] [TIFF OMITTED] T0019.007 [GRAPHIC] [TIFF OMITTED] T0019.008 [GRAPHIC] [TIFF OMITTED] T0019.009 [GRAPHIC] [TIFF OMITTED] T0019.010 [GRAPHIC] [TIFF OMITTED] T0019.011 [GRAPHIC] [TIFF OMITTED] T0019.012 [GRAPHIC] [TIFF OMITTED] T0019.013 [GRAPHIC] [TIFF OMITTED] T0019.014 [GRAPHIC] [TIFF OMITTED] T0019.015 [GRAPHIC] [TIFF OMITTED] T0019.016 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:] [GRAPHIC] [TIFF OMITTED] T0019.017 [GRAPHIC] [TIFF OMITTED] T0019.018 [GRAPHIC] [TIFF OMITTED] T0019.019 [GRAPHIC] [TIFF OMITTED] T0019.020 [GRAPHIC] [TIFF OMITTED] T0019.021 [GRAPHIC] [TIFF OMITTED] T0019.022 [GRAPHIC] [TIFF OMITTED] T0019.023 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:] [GRAPHIC] [TIFF OMITTED] T0019.024 [GRAPHIC] [TIFF OMITTED] T0019.025 [GRAPHIC] [TIFF OMITTED] T0019.026 [GRAPHIC] [TIFF OMITTED] T0019.027 [GRAPHIC] [TIFF OMITTED] T0019.028 [GRAPHIC] [TIFF OMITTED] T0019.029 [GRAPHIC] [TIFF OMITTED] T0019.030 [GRAPHIC] [TIFF OMITTED] T0019.031 [GRAPHIC] [TIFF OMITTED] T0019.032 [GRAPHIC] [TIFF OMITTED] T0019.033 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:] [GRAPHIC] [TIFF OMITTED] T0019.034 [GRAPHIC] [TIFF OMITTED] T0019.035 [GRAPHIC] [TIFF OMITTED] T0019.036 [GRAPHIC] [TIFF OMITTED] T0019.037 [GRAPHIC] [TIFF OMITTED] T0019.038 [GRAPHIC] [TIFF OMITTED] T0019.039 [GRAPHIC] [TIFF OMITTED] T0019.040 [GRAPHIC] [TIFF OMITTED] T0019.041 [GRAPHIC] [TIFF OMITTED] T0019.042 [GRAPHIC] [TIFF OMITTED] T0019.043 [GRAPHIC] [TIFF OMITTED] T0019.044 [GRAPHIC] [TIFF OMITTED] T0019.045 [GRAPHIC] [TIFF OMITTED] T0019.046 [GRAPHIC] [TIFF OMITTED] T0019.047 [GRAPHIC] [TIFF OMITTED] T0019.048 [GRAPHIC] [TIFF OMITTED] T0019.049 [GRAPHIC] [TIFF OMITTED] T0019.050 [GRAPHIC] [TIFF OMITTED] T0019.051 [GRAPHIC] [TIFF OMITTED] T0019.052 [GRAPHIC] [TIFF OMITTED] T0019.053 [GRAPHIC] [TIFF OMITTED] T0019.054 [GRAPHIC] [TIFF OMITTED] T0019.055 [GRAPHIC] [TIFF OMITTED] T0019.056 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:] [GRAPHIC] [TIFF OMITTED] T0019.057 [GRAPHIC] [TIFF OMITTED] T0019.058 [GRAPHIC] [TIFF OMITTED] T0019.059 [GRAPHIC] [TIFF OMITTED] T0019.060 [GRAPHIC] [TIFF OMITTED] T0019.061 [GRAPHIC] [TIFF OMITTED] T0019.062 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:] [GRAPHIC] [TIFF OMITTED] T0019.063 [GRAPHIC] [TIFF OMITTED] T0019.064 [GRAPHIC] [TIFF OMITTED] T0019.065 [GRAPHIC] [TIFF OMITTED] T0019.066 [GRAPHIC] [TIFF OMITTED] T0019.067 [GRAPHIC] [TIFF OMITTED] T0019.068 [GRAPHIC] [TIFF OMITTED] T0019.069 [GRAPHIC] [TIFF OMITTED] T0019.070 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:] [GRAPHIC] [TIFF OMITTED] T0019.071 [GRAPHIC] [TIFF OMITTED] T0019.072 [GRAPHIC] [TIFF OMITTED] T0019.073 [GRAPHIC] [TIFF OMITTED] T0019.074 [GRAPHIC] [TIFF OMITTED] T0019.075 [GRAPHIC] [TIFF OMITTED] T0019.076 [GRAPHIC] [TIFF OMITTED] T0019.077 [GRAPHIC] [TIFF OMITTED] T0019.078 [GRAPHIC] [TIFF OMITTED] T0019.079 [GRAPHIC] [TIFF OMITTED] T0019.080 [GRAPHIC] [TIFF OMITTED] T0019.081 [GRAPHIC] [TIFF OMITTED] T0019.082 [GRAPHIC] [TIFF OMITTED] T0019.083 [GRAPHIC] [TIFF OMITTED] T0019.084 [GRAPHIC] [TIFF OMITTED] T0019.085 [GRAPHIC] [TIFF OMITTED] T0019.086 [GRAPHIC] [TIFF OMITTED] T0019.087 [GRAPHIC] [TIFF OMITTED] T0019.088 [GRAPHIC] [TIFF OMITTED] T0019.089 [GRAPHIC] [TIFF OMITTED] T0019.090 [GRAPHIC] [TIFF OMITTED] T0019.091 [GRAPHIC] [TIFF OMITTED] T0019.092 [GRAPHIC] [TIFF OMITTED] T0019.093 [GRAPHIC] [TIFF OMITTED] T0019.094 [GRAPHIC] [TIFF OMITTED] T0019.095 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. 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