[Senate Hearing 108-969]
[From the U.S. Government Publishing Office]
S. Hrg. 108-969
RURAL WIRELESS BROADBAND
=======================================================================
HEARING
before the
COMMITTEE ON COMMERCE,
SCIENCE, AND TRANSPORTATION
UNITED STATES SENATE
ONE HUNDRED EIGHTH CONGRESS
FIRST SESSION
__________
MAY 22, 2003
__________
Printed for the use of the Committee on Commerce, Science, and
Transportation
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SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION
ONE HUNDRED EIGHTH CONGRESS
FIRST SESSION
JOHN McCAIN, Arizona, Chairman
TED STEVENS, Alaska ERNEST F. HOLLINGS, South
CONRAD BURNS, Montana Carolina, Ranking
TRENT LOTT, Mississippi DANIEL K. INOUYE, Hawaii
KAY BAILEY HUTCHISON, Texas JOHN D. ROCKEFELLER IV, West
OLYMPIA J. SNOWE, Maine Virginia
SAM BROWNBACK, Kansas JOHN F. KERRY, Massachusetts
GORDON H. SMITH, Oregon JOHN B. BREAUX, Louisiana
PETER G. FITZGERALD, Illinois BYRON L. DORGAN, North Dakota
JOHN ENSIGN, Nevada RON WYDEN, Oregon
GEORGE ALLEN, Virginia BARBARA BOXER, California
JOHN E. SUNUNU, New Hampshire BILL NELSON, Florida
MARIA CANTWELL, Washington
FRANK R. LAUTENBERG, New Jersey
Jeanne Bumpus, Republican Staff Director and General Counsel
Robert W. Chamberlin, Republican Chief Counsel
Kevin D. Kayes, Democratic Staff Director and Chief Counsel
Gregg Elias, Democratic General Counsel
------
SUBCOMMITTEE ON COMMUNICATIONS
CONRAD BURNS, Montana, Chairman
TED STEVENS, Alaska ERNEST F. HOLLINGS, South
TRENT LOTT, Mississippi Carolina, Ranking
KAY BAILEY HUTCHISON, Texas DANIEL K. INOUYE, Hawaii
OLYMPIA J. SNOWE, Maine JOHN D. ROCKEFELLER IV, West
SAM BROWNBACK, Kansas Virginia
GORDON H. SMITH, Oregon JOHN F. KERRY, Massachusetts
PETER G. FITZGERALD, Illinois JOHN B. BREAUX, Louisiana
JOHN ENSIGN, Nevada BYRON L. DORGAN, North Dakota
GEORGE ALLEN, Virginia RON WYDEN, Oregon
JOHN E. SUNUNU, New Hampshire BARBARA BOXER, California
BILL NELSON, Florida
MARIA CANTWELL, Washington
C O N T E N T S
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Page
Hearing held on May 22, 2003..................................... 1
Statement of Senator Burns....................................... 1
Statement of Senator Stevens..................................... 11
Statement of Senator Sununu...................................... 3
Witnesses
Bush, Antoinette Cook, Executive Vice President, Northpoint
Technology, Ltd................................................ 5
Prepared statement........................................... 8
Hazlett, Thomas W., Senior Fellow, Manhattan Institute for Policy
Research....................................................... 20
Prepared statement........................................... 22
Kirkpatrick, Harold, President and Chief Executive Officer, MDS
America, Inc................................................... 16
Prepared statement........................................... 17
Landrieu, Hon. Mary L., U.S. Senator from Louisiana.............. 4
Roadman, Larry S., President, Margaretville Telephone Company,
Inc. and Manager, Wireless Access LLC.......................... 23
Prepared statement........................................... 24
Wright, Andrew S., President, Satellite Broadcasting and
Communications Association of America.......................... 12
Prepared statement........................................... 13
Appendix
Inouye, Hon. Daniel K., U.S. Senator from Hawaii, prepared
statement...................................................... 39
Lott, Hon. Trent, U.S. Senator from Mississippi, prepared
statement...................................................... 39
RURAL WIRELESS BROADBAND
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THURSDAY, MAY 22, 2003
U.S. Senate,
Subcommittee on Communications,
Committee on Commerce, Science, and Transportation,
Washington, DC.
The Subcommittee met, pursuant to notice, at 2:44 p.m. in
room SD-562, Dirksen Senate Office Building, Hon. Conrad Burns,
Chairman of the Subcommittee presiding.
OPENING STATEMENT OF HON. CONRAD BURNS,
U.S. SENATOR FROM MONTANA
Senator Burns. We will call the Subcommittee on
Communications to order now and thank everybody for coming
today and in particular the two principals in this issue and
this is our first hearing.
The topic of today's hearing is the economic future of our
nation, I believe, how speed of deployment in the wireless
high-speed Internet access for rural America. The recent
history of telecommunications aptly illustrates the demand and
usefulness of wireless telecommunications access and the
widespread wireless Internet access to rural America will be an
even more beneficial service.
Today's hearing will focus specifically on the Landrieu-
Sununu bill. How did you get your name first?
Senator Landrieu. Well, we had a long conversation about
it. It was easy.
Senator Burns. Did she threaten you?
Senator Landrieu. He was a good partner to work with.
Senator Sununu. It was not a long conversation. She said,
``It is my bill.'' And I said, ``I am happy to help you with
it.''
[Laughter.]
Senator Burns. There was a time, you know, way back when
Senator Conrad of North Dakota came across the floor and asked
me to co-sponsor an amendment on the farm bill we were
discussing. And I said, I would certainly support that. He
says, good, we will call it the Conrad-Burns amendment. I said
fine. He got halfway across the floor and came back and said,
that ain't going to work.
[Laughter.]
Senator Burns. So that is good, though.
We will focus on that bill today, the Emergency
Communications Competition Act, and I enthusiastically support
it as an innovative approach to providing both competitive and
multi-channel video and wireless broadband services to rural
America. I also note that the bill has already gained the
support of 16 co-sponsors, including several on the Commerce
Committee.
Today's hearing will also address the implementation of the
Digital Data Services Act, which I authored and which passed
into law during the final days of the 106th Congress. The
Digital Data Services bill created a pilot project which
allowed certain low-powered television stations the flexibility
to use their spectrum for wireless two-way high-speed Internet
service.
This bill builds upon previous legislation that I authored,
which was the Local TV Act, also, to help ensure that all local
television stations, just not those with the largest markets,
are available to consumers. As a former broadcaster, I know
Montana has some of the smallest in the Nation. Of the 210
television markets, we rank from 169th down to 210. We have got
the smallest one in our state and that is Glendive, Montana,
over on the eastern plains.
Slowly, DBS operators are carrying more local television
stations, but I am not crossing my fingers that they will ever
get to Glendive any time soon. There are about a thousand other
local television stations that serve larger markets and they
are based on simple economics which could and should be carried
first.
There is one reason why we need this legislation. It will
enable the rapid deployment of the new Multi-Channel Video
Programming and Data Distribution Service, MVDDS. This wireless
service is ideal for rural areas because it can be deployed
anywhere. I commend the FCC for authorizing this new service.
It not only promises to bring local channels to all markets
regardless of size, but it will also provide broadband Internet
access to rural Americans who have no such access today; and I
expect the low cost of this wireless technology will translate
into lower costs for consumers.
This is precisely the kind of innovative new technology we
should encourage and promote. The injection of this new
competition that this service will provide for broadband itself
should lower the prices. We witnessed a dramatic reduction in
rates when we got several cellular and PCS competitors into the
marketplace. We need to promote policies that will bring about
the same aggressive competition for broadband, particularly in
rural areas. We must be on guard, however, to make sure that
the new market entrants are not saddled with the costs that
others have not borne.
That brings me to the next point. I am concerned that
unless we pass this legislation we may never see the deployment
of this new service. The FCC has determined that the licenses
for this new service should be auctioned. I have long felt
strongly that allowing short-term budgetary dictates to
dominate spectrum policy often results in disastrous public
policy judgments, which ultimately short-change both the
treasury and the consumers.
I have made it very clear that I want to examine how the
auction system is working overall. The public interest is best
served when the spectrum is licensed promptly to applicants
that are ready to deploy the service, not to the highest
bidders that are ill-prepared to do so. While auctions make
sense in many instances, this is not always the case.
Three years ago, Congress passed the ORBIT Act, legislation
that I authored which in part exempted from auction spectrum
used for the provision of international or global satellite
communication services. The legislation which we are examining
today is narrowly confined to how the FCC is going to issue
licenses for a specific frequency band, the 12.2 to 12.7
gigahertz band.
In the 12 gigahertz band we are confronted with a case of
first impression in which the FCC has determined to issue
licenses to both terrestrial and satellite applicants that
share the same spectrum. Previously this was thought to be
technologically impossible. In my judgment, the same Federal
resource must be licenses and the same manner for all
applicants regardless of the technology which they will employ.
To do otherwise is to pick industry winners and losers. The
wireless buildout bill before us today corrects that problem.
I think it is also something that we should always take
note of whenever we start making policy here with regard to
spectrum or anything else in the telecommunications industry.
Number one, we must do no harm; and number two, we must make it
technology-neutral, and that allows new ideas, new services,
new things, to progress.
I now recognize my good friend from New Hampshire, Senator
Sununu.
STATEMENT OF HON. JOHN SUNUNU,
U.S. SENATOR FROM NEW HAMPSHIRE
Senator Sununu. Thank you very much, Mr. Chairman. I
appreciate you convening this hearing and very much appreciate
your remarks, especially with regard to the importance of
maintaining an equitable approach with regard to the way we
treat spectrum and the use of spectrum and the licensing of
spectrum and of course maintaining a balanced approach and a
fair-minded approach in the application of technology and being
careful not to bias our markets or our regulatory system toward
one technology or another.
This is an important issue and I believe a very worthwhile
piece of legislation. It is a piece of legislation in which we
see the intersection of a number of new technologies and new
ideas for terrestrial DBS. We also see a technology that can
meet a very important need, a need that is out there, that we
hear about every day as members of the U.S. Senate, a need of
rural access to broadband, rural access to broadcast services.
Finally, this obviously deals with the issue of utilization
of spectrum, using spectrum in a way that is in the public
interest, in a way that will make a difference, and using
spectrum in a way that maximizes the efficiency in the process.
I think that the bill accomplishes those things, but I look
forward to hearing issues, concerns that might be raised
regarding its implementation. If there are ways that we can
improve and strengthen the legislation, I am of an open mind
and I think other members of the Subcommittee are as well.
Thank you again for this hearing and I look forward to the
testimony of the witnesses.
Senator Burns. Thank you, Senator Sununu, and we thank you
for your leadership on this, on this particular issue.
Now we welcome to the Committee, Senator Landrieu of
Louisiana, and we thank you for coming today.
STATEMENT OF HON. MARY L. LANDRIEU,
U.S. SENATOR FROM LOUISIANA
Senator Landrieu. Thank you, Mr. Chairman. First of all,
thank you for calling this hearing on this very important
matter and for your comments and your support of the general
direction in which the legislation that I have authored,
sponsored with Senator Sununu, is moving forward. He is an
excellent partner and we, our states, although in different
parts geographically of the Nation, share some similar
characteristics--the rural nature of some parts of our state as
well as Montana. We can speak to this issue representing areas
that are having trouble not just with price and access, and
this legislation that 16 Senators have co-sponsored and that is
the subject of this hearing today seeks to remedy.
I would like to submit my full testimony, Mr. Chairman, to
the record and also submit an excellent article in the Tech
section of the Post this morning, the summary of which is ``Why
Is Broadband's Spread Slowing?'' It is because access is
limited and price is not competitive. The legislation that we
sponsor is something that will correct both of those points.
Senator Burns. Without objection, all of that will be made
part of the record.
Senator Landrieu. Thank you.
In addition, Louisiana has a fairly large rural population
and relative to our overall population it is much higher than
the national average, which is 21 percent. Ours is 32, which is
one of the reasons that I am before you today.
In addition, cable rates are up 9.1 percent compared to the
overall inflation rate of 2.5. There have been many, many
studies on this issue. One that I just want to cite for the
record is a GAO recent report that cable systems face
competition. Most do not, but when they do, rates are lower by
17 percent.
The new technology that we are asking just to be placed on
a level playing field, not given any added advantage, would
provide competition everywhere, saving consumers billions and
reaching the rural areas of this nation, who are also entitled
to accurate local information as well as emergency information
along with our urban areas.
There are 210 local markets. There is no local television
in 134 of those markets, no local TV in eight states. The
Chairman is aware that one of those states is Montana. The
other ones are Alaska, Maine, and North Dakota. Rural areas, as
I said, are also ill served by the current broadband situation
because they either cannot get it or they cannot afford it.
This new technology that our bill hopes to again promote
would improve emergency communication. It would disseminate
Federal, State, and local emergency alert system warnings to
all subscribers. Also, of course, with the recent Federal
legislation, on amber alerts it would be available to not just
urban communities but to all communities in the Nation.
The most important thing, regardless of your views on
auctions--and I am actually sympathetic and feel, as you do,
Mr. Chairman, and as you do, Senator Sununu, about the
disadvantages of auctions. But whether you are on one side or
the other of that argument, no one can be against a level
playing field for everyone. This legislation that I am putting
forward would provide, or that we are putting forward, would
provide a level playing field to all those that can offer this
type of service. So again, it is about competition, it is about
lowering price, it is about consumers, it is about rural areas,
and either we require all applicants for particular spectrum to
go to auction or none of them. But this situation where we have
some going through auction and others not and then having the
rural areas and the consumers pick up the tab for that
seemingly bifurcated policy is not I think what we should be
doing.
So I thank you for your co-sponsorship. There is a
tremendous amount of interest, Mr. Chairman, in this issue and
I think this hearing is quite timely, and I thank you all.
Whatever the bill is called, as long as it passes that is what
the most important thing is. So thank you all very much.
Senator Burns. Thank you, Senator Landrieu. I have no
questions for the Senator.
You may join us up here if you like and we will start
listening to the witnesses that have been invited to testify
today.
Senator Landrieu. Thank you, and I will stay for a few
minutes and then have to get back to another meeting. But if
there are any questions or comments?
Senator Sununu. Thank you very much.
Senator Landrieu. Thank you.
Senator Burns. You are welcome to do so.
Now we call the panel. We have a panel, only one panel of
five people: Ms. Antoinette Bush, Executive Vice President,
Northpoint, here in Washington; Mr. Andrew Wright, who is
President, Satellite Broadcasting Communications Association of
America; Mr. Harold Kirkpatrick, President and CEO of MDS
America; Mr. Thomas Hazlett, Senior Fellow, Manhattan Institute
of Policy Research; and Mr. Larry Roadman, President,
Margaretville Telephone Company, from Margaretville, New York.
We will call on--it is nice to see you back again.
Ms. Bush. Thank you.
Senator Burns. We will call on Ms. Bush for your testimony
now, please.
STATEMENT OF ANTOINETTE COOK BUSH, EXECUTIVE VICE PRESIDENT,
NORTHPOINT TECHNOLOGY, LTD.
Ms. Bush. Thank you, Mr. Chairman, for inviting me to
testify before you today. It is a pleasure to be back before
the Committee, albeit in a different seat.
Senator Burns. How does it feel down there, by the way?
Ms. Bush. It was more fun up there. I want to applaud you
for holding this hearing. Wireless technologies are ideally
suited to address the challenge of serving lightly populated,
but geographically large areas with advanced communications
services.
Northpoint has a patented technology that makes it possible
for satellite and terrestrial users to share the same spectrum
without causing interference. Northpoint has six patents issued
and others pending. Northpoint intends to offer consumers
multi-channel video programming, including all local channels,
at the rate of approximately $20 per month and a broadband
package also for $20 a month. We aim to be a national provider
and are committed to providing the same quality of service in
all markets throughout the United States.
Too many rural Americans cannot get the same level of
service that is offered in urban and suburban communities. Many
cannot get access to a cable system and DBS is woefully
deficient in carriage of local television stations and
emergency alerts. Consumers in rural areas need services and
choices which terrestrial wireless can provide.
With cable rates soaring at three times inflation and with
broadband unavailable or too expensive for most families, why
are consumers still waiting for this technology? The FCC
licensing process is broken. For decades the U.S. licensing
system was based on the limitations of analog systems and the
assumption that satellites and terrestrial systems cannot share
spectrum.
Since 1994 Northpoint has spent millions of dollars proving
that our technology can co-exist with incumbent satellite
services and seeking licensing rules that treat terrestrial
applicants in the same manner as satellite competitors. Last
month the FCC rejected the last challenge from the DBS industry
on the technical rules.
Let me state for the record that Northpoint does not oppose
spectrum auctions in general. When spectrum is available--when
available spectrum will not accommodate multiple qualified
applicants, auctions can be an efficient means to allocate
licenses. In the case of MVDDS, Northpoint and seven other
satellite applicants filed applications on the same day for the
same spectrum. The FCC subsequently concluded that all eight of
us could share the same spectrum. Thus there is no mutual
exclusivity or no basis for an auction under the Communications
Act.
Why, then, is there an auction? The FCC has different rules
for processing satellite versus terrestrial applicants.
Satellite applications are called for during a rulemaking
process and the applicants are then afforded the opportunity to
work out the sharing to figure out if they can share the
spectrum. For terrestrial applications, the applications are
called for after the rulemaking is completed and typically the
rulemaking concludes that there should be an auction for the
licenses and the applicants are not then afforded an
opportunity to see if they can share the spectrum.
Then, a year after our applications were filed, Congress
enacted the ORBIT Act, which exempts from auction spectrum used
for the provision of international satellite services. Congress
could not have realized that the FCC would interpret this
provision as prohibiting an auction of the pending satellite
applications, but requiring an auction for the pending
terrestrial application in the same proceeding.
The competitive disadvantage to terrestrial applicants is
obvious. They will be subjected to costs not borne by their
satellite competitors. The regulatory status quo favors one
technology over another.
We are thankful that Senator Landrieu and Senator Sununu
introduced legislation to end this inequality. We thank all of
the members of the Committee who have co-sponsored this
measure.
A constant refrain we hear from our opponents is that
Northpoint ought to pay for spectrum. The issue, however, is
that the rules changed in the middle of the game. Our
competitors were exempted from auction after our applications
were filed. The satellite applicants with whom we applied on
the same day to share the same spectrum include Hughes,
DIRECTV's parent, Boeing, Alcatel. These multibillion dollar
companies have a huge competitive advantage over terrestrial
applicants now that they are getting their spectrum without
auction. The ultimate result is that terrestrial wireless
customers will have to pay more for service than the customers
of these satellite companies.
Hughes in fact has never participated in a spectrum
auction. This year, EchoStar teamed up with a Gibraltar company
that has access to a U.S. DBS slot to provide DBS service in
the United States through that Gibraltar license without an
auction. Another company teamed up with a Canadian company that
has a satellite slot that serves the United States. Again, they
were given permission to provide service in the United States
without an auction. And in 2001 the FCC awarded nationwide
auction-free licenses in what is called the DBS expansion band
to 11 companies, including Hughes and Pegasus, who will be our
direct competitors in the service we want to provide in the
multi-channel video marketplace and Internet marketplace.
I do not fault the satellite companies for getting their
licenses without an auction. I simply take grave exception to
their efforts to deprive us of getting the same treatment. We
do not seek to be licensed on terms more favorable. We seek
merely to be licensed on the same terms as our satellite
competitors.
Many people do not know that cable systems also have tens
of thousands of licenses, none of which were purchased at an
auction. Again, I am not faulting the cable industry, just
noting a fact. We are expected to be a price competitor with
cable, but they are getting their spectrum from the U.S.
Government on more favorable terms than we would be afforded.
In closing, I want to make two observations. First, in a
striking contrast to the MVDDS auction, this year the FCC
expressly rejected calls to auction spectrum for terrestrial
use in the mobile satellite spectrum.
Second, I think it may be useful to contrast our regulatory
efforts to those of the Wi-Fi industry, a flourishing
technology that burst on the scene in the last couple of years.
It is estimated that Wi-Fi revenues will reach over $5 billion
by the year 2007. Wi-Fi's success is evidence of what happens
when government regulation is not a barrier to entry or to
innovation.
If we are privileged to be licensed, I can assure you that
we will deploy our service across the United States, including
Alaska and Hawaii, within 2 years. We are not opposed to the
licensing of other MVDDS operators. Any company that can
demonstrate that its technology will not cause harmful
interference to DBS as required by the law should be eligible
for a license. This legislation that we are supporting only
requires that that license cannot be awarded by auction.
S. 564 will ensure that all terrestrial and satellite
operators will be licensed in a like manner. Implementation of
this principle will jump-start the successful deployment of
MVDDS, enabling consumers, urban, suburban, and rural, to
receive the benefits of an innovative new service and lower
prices.
Thank you again for letting me testify. I am happy to
answer any questions you might have.
[The prepared statement of Ms. Bush follows:]
Prepared Statement of Antoinette Cook Bush, Executive Vice President,
Northpoint Technology, Ltd.
Thank you, Mr. Chairman, for inviting me to testify before you
today. I also want to thank all members of the Committee for giving
Northpoint the opportunity to appear in support of S. 564, the
Emergency Communications and Competition Act.
I. The Northpoint Technology Is Uniquely Suited To Serving Rural Areas
First, I want to applaud you for holding this hearing to highlight
how wireless technologies can address the needs of rural populations.
Indeed, wireless technologies are ideally suited to address the
challenge of serving lightly populated, but geographically large, areas
with advanced communications services.
In 1994, Northpoint's founders invented a wireless technology that
makes it possible for satellite and terrestrial users to share the same
spectrum, at the same time, in the same place. In essence, Northpoint
found a way to reuse spectrum that was previously assigned to satellite
users on a non-interfering basis. Although much attention has been
focused on Northpoint's business plan to provide video and data
services in competition with both DBS and cable in the 12.2-12.7 GHz
band, this technology can be used in almost any spectrum band currently
allocated to satellite use. Northpoint has six patents issued and
others pending.
In the DBS band, Northpoint proposes to provide multiple channels
of video programming and high-speed broadband service to consumers at
low prices: $20 per month for the video package (including all local
channels) and $20 for the broadband package. Our locally-deployed
systems will have ample capacity to carry all local television channels
and other local community programming and provide a robust broadband
service. We aim to be a national provider and are committed to provide
the same quality of service in all markets, regardless of size.
Too many rural Americans cannot get the same level of service that
is offered in urban and suburban communities. Many rural Americans
cannot access a cable system, and while DBS does an excellent job of
closing the gaps to reach remote households, satellites are woefully
deficient in carriage of local television stations and broadband. In
fact, today there are over 1,000 local television stations that are not
carried by either EchoStar or DIRECTV. DBS does not provide any local
channels in 134 markets and no channels in eight entire states. In
addition, consumers watching DBS will not get Emergency Alert System
warnings in most markets. In contrast, MVDDS will carry these time-
sensitive warnings everywhere.
This Committee is also well versed in the limited broadband service
that is available to rural America. There is a clear need for new
broadband providers in rural areas, and Northpoint's wireless broadband
technology is well suited to provide a cost effective solution. Our
technology is low cost and easy to deploy. The consumer equipment is
also low cost and readily available in the market today. Like Wi-Fi,
Northpoint provides a technology-based solution to address consumers'
needs.
In all markets, there is a clear need for additional competition in
the multichannel video programming distribution and broadband markets.
The FCC and the Justice Department have recently documented the absence
of competition in the multichannel video industry. Even with two DBS
operators and one cable operator, consumers are still paying very high
prices for service. With cable rates soaring at a pace three times
greater than the rate of inflation, and with broadband access
unavailable or too expensive for most families, why are consumers still
waiting for the opportunity to use Northpoint's revolutionary
technology?
II. The FCC's Licensing System Unfairly Discriminates Against
Terrestrial Systems
The FCC licensing process is broken. For decades the U.S. licensing
practice was based on the limitations of analog systems and on the
erroneous assumption that satellite and terrestrial technologies cannot
share the same spectrum. In the past decade, Northpoint has spent
millions of dollars proving that our technology can coexist with
incumbent and planned satellite services. We also have sought licensing
rules that treat terrestrial applicants like us in the same manner as
our satellite competitors.
At first, we were stuck in a Catch-22: we had to conduct tests to
prove that our technology didn't cause harmful interference to
satellites, but the satellite companies strenuously opposed our
requests to carry out those tests on the ground that the technology was
unproven and the tests were bound to cause interference. We finally
received the necessary experimental license in 1997 to test in
Kingsville, TX. We conducted two more tests in 1998 and 1999, in
Austin, TX and Washington, D.C. There has never been a single DBS
customer that has come forward to complain of interference.
In 1998, a subsidiary of the French company Alcatel filed an
application seeking a license to operate a non-geostationary satellite
orbit (NGSO) system in the DBS band. The FCC also called for other
satellite applications but not terrestrial applications. Northpoint
recognized that terrestrial operations would be foreclosed if it did
not step up and file an application along with the seven satellite
applicants in early 1999.
A year later, while the eight applications were pending, Congress
enacted the ORBIT Act, a provision of which exempts from auction
``spectrum used for the provision of international or global satellite
communications services.'' Congress could not have realized at the time
that the FCC would interpret this provision as prohibiting an auction
of the NGSO applications but requiring an auction for terrestrial
applicants.
In late 2000, based chiefly on Northpoint's extensive experimental
record, the FCC determined to create a new Multichannel Video
Distribution and Data Service, or MVDDS, that would share the 12.2 12.7
GHz band with satellite operators.
That same year, at the request of the DBS industry, Congress
included a provision in the LOCAL TV Act that directed the FCC to
retain an independent firm to conduct an independent test of the
terrestrial technology proposed by any applicant that wanted to share
spectrum with DBS satellites. We actually supported the enactment of
that law, because it provided that the testing would be done promptly
and we were fully confident in our technology.
Northpoint was the only company to submit equipment for that
statutorily mandated test in early 2001. The MITRE Corporation, which
conducted the test, concluded that satellite-terrestrial spectrum
sharing is indeed feasible. Subsequently, the FCC adopted technical
rules based on the Northpoint technology, citing the MITRE testing.
On April 29, 2003, the FCC reaffirmed its prior decisions that
MVDDS and DBS can share the same spectrum. The eight year effort to
prove our technology to the FCC has succeeded.
The licensing process is still not complete, however.
Let me note for the record that Northpoint does not oppose spectrum
auctions in general. In ordinary circumstances, where you have more
applicants than spectrum available, auctions can be a legitimate and
efficient means to distribute spectrum licenses.
But auctions in the context of this proceeding are not appropriate.
First, Section 309(j) of the Communications Act requires auctions
only in those cases where ``the Commission accepts mutually exclusive
applications.''
In the FCC proceeding involving the Northpoint and NGSO systems,
Northpoint and seven other satellite applicants filed applications on
the same day for the same spectrum. The FCC subsequently concluded that
all eight can share that spectrum with each other and with the two
incumbent DBS operators. As a preliminary matter, there is no mutual
exclusivity and thus no basis for an auction under the statute.
Some would wonder, why then is there an auction? Well the key words
in the statute are ``accept for filing''. The FCC never accepted the
Northpoint applications, but it did accept the seven satellite
applications. Why the difference in treatment? The FCC has different
rules for processing satellite versus terrestrial applications.
Satellite applications are called for during the rulemaking process,
thereby giving the applicants an opportunity to resolve mutual
exclusivity. Terrestrial applications are called for after the
rulemaking and the terrestrial applicants are not afforded the same
opportunity.
This institutional difference in treatment had never caused any
particular problem before, because until Northpoint came along,
satellite and terrestrial operators were never attempting to use the
same spectrum resource at the same time.
Now, however, the competitive disadvantage this causes terrestrial
applicants is obvious. Terrestrial companies will be subjected to costs
not borne by their satellite competitors. The regulatory status quo
favors one technology over another. Consumers should be the ones who
determine the technology that best serves their needs, not government.
We are thankful that Senators Landrieu and Sununu introduced
legislation to end this blatant inequality. And we thank all the
members of the Committee who have cosponsored this measure.
III. Northpoint Is Not Seeking Special Treatment; It Is Seeking A Level
Regulatory Playing Field For All Terrestrial Applicants
A constant refrain we hear from our opponents is that Northpoint
ought to be willing to pay for the spectrum. The issue is that the
rules changed in the middle of the game: our competitors were exempted
from an auction after the applications were filed.
I've already mentioned the satellite applicants with whom we
applied on the same day for the same spectrum, and who will be getting
their licenses without an auction. These companies include Hughes
(DIRECTV's parent), Boeing, Alcatel and others. These multi-billion
dollar companies were given a huge competitive advantage that was not
afforded terrestrial applicants. The ultimate result is it will cost
consumers more for our service if we are forced into an auction.
Indeed, Hughes has never participated in a spectrum auction. This
year EchoStar teamed up with a foreign satellite company that has a
full-CONUS slot, to get even more auction-free spectrum capacity to
serve its U.S. subscribers. And Canadian satellites have now been
authorized to serve the U.S. market, also without auction.
In 2001, the FCC awarded nationwide auction-free licenses in the
DBS Expansion Band to eleven companies, including Hughes and Pegasus.
They will be our direct competitors.
I do not mention these facts in an effort to fault the satellite
companies for getting the licenses in the manner they did. But I do
take grave exception to their efforts to deprive us from getting the
same treatment. We do not seek to be licensed on terms more favorable
than satellite companies; we seek merely to be licensed on the same
terms.
The FCC's Flexibility Order allows mobile satellite system
operators to use their satellite licenses to operate an ancillary
terrestrial system. The FCC expressly rejected calls to conduct an
auction for the terrestrial use of this satellite spectrum. This
presents a striking contrast to the MVDDS auction.
Some might note that there is a DBS auction scheduled for August of
this year. We do not believe that the auction can legally go forward,
given that the FCC concluded several years ago that DBS is an
international satellite service, and thus should come within the ORBIT
Act prohibition on auctions of orbital locations or spectrum used for
the provision of international or global satellite services. Moreover,
the particular DBS slots that are up for auction are, with one
exception, the ``rejects'' of the incumbent DBS operators and they are
all ``wing'' slots which are incapable of serving the entire
continental United States.
Finally, I would note that the cable industry has received tens of
thousands of licenses from the FCC, including numerous licenses granted
this very year, none of which were purchased in auction. Again, I am
not faulting the cable industry, just noting a fact: It costs the cable
industry less to do business with the Federal Government than it would
cost us. Yet we are expected to be a price competitor with cable.
In closing, I think it may be useful to contrast our regulatory
efforts to those of the Wi-Fi industry. Here is a technology that burst
onto the scene in just the last couple of years, and it is by all
accounts flourishing. Recent reports estimate that by 2007, Wi-Fi in
the U.S. and Europe will generate revenue of $5.5 billion. Policymakers
often cite Wi-Fi's success as evidence of what happens when government
regulation is no barrier to entry or innovation. Wi-Fi users do not pay
the government for the spectrum they use, nor do they face regulatory
delays.
Terrestrial MVDDS should play on a level playing field with
satellite competitors who utilize the very same spectrum. S. 564
achieves that goal while at the same time ensuring that all consumers,
rural and urban, will have access to local television stations,
emergency information, public interest programming, and broadband
service.
If we're privileged to be licensed, I can assure you that we will
deploy MVDDS across the entire United States, including Alaska and
Hawaii, within two years. Moreover, our service will be affordable.
We are not opposed to the licensing of other MVDDS operators who
can share the spectrum with us. Any company that can demonstrate its
own technology through independent testing, pursuant to the LOCAL TV
Act and S. 564, should be eligible for an MVDDS license.
S. 564 will ensure that all terrestrial and satellite operators
will be licensed in a like manner. Implementation of this principle
will jumpstart the successful deployment of MVDDS, enabling consumers--
urban, suburban and rural--to receive the benefits of an innovative new
service and lower prices!
Thank you again for allowing me to testify. I would be pleased to
answer any questions you might have.
Senator Burns. Thank you.
We have been joined by Senator Stevens of Alaska and we
have just taken the first testimony from the first witness,
Senator Stevens. Have you got an opening statement and then we
will continue on?
STATEMENT OF HON. TED STEVENS,
U.S. SENATOR FROM ALASKA
Senator Stevens. Thank you, Mr. Chairman. I have a
statement. I cannot stay because of other commitments, but I am
pleased to see this bill here today.
I do not know if anyone else has reminded the Committee of
the history. I know that Northpoint has sought a license from
the FCC since 1994. In 1999, at my request, there was a
provision in the Rural Local Broadcasting Signal Act to require
the FCC to act on Northpoint's license application by November
29, 2000. As the time came for that deadline to be fulfilled,
to arrive at that deadline, I met with the FCC chairman at that
time, Mr. Kennard. He told me he would act on the licenses as
required. Instead, he started a new proceeding to determine
whether there should be an auction.
Later we worked on legislation that required there be a
test to determine if Northpoint would cause interference with
existing satellite companies. It was determined that there
would be no interference, but still there would be an auction.
I understand you have before you a bill, Mr. Chairman, to
do what we thought we were going to do in 1999 and I encourage
you to get the bill out of committee as soon as possible.
Thank you very much.
Senator Burns. OK, Senator Stevens. Next is Andrew Wright,
President, Satellite Broadcasting and Communications
Association of America. Thank you for coming, Mr. Wright.
STATEMENT OF ANDREW S. WRIGHT, PRESIDENT, SATELLITE
BROADCASTING AND COMMUNICATIONS ASSOCIATION OF AMERICA
Mr. Wright. Thank you, Mr. Chairman. Thank you, Senator
Burns and Senator Stevens, for inviting me to testify today.
SBCA is the national trade association that represents the
satellite services industry. Our members include satellite
television, radio, and broadband providers, programmers,
equipment manufacturers, distributors, and retailers.
Satellite television has its roots in rural America. We are
extremely proud that we are the only multi-channel video
provider that provides choice and competition to all Americans.
Direct broadcast satellite operators DIRECTV and EchoStar
provide the most advanced television choices in the multi-
channel video market, including high definition television,
interactive, and other advanced services, to all Americans
without discriminating between rural and urban areas.
When Congress passed the Satellite Home Viewer Improvement
Act of 1999, DBS hoped to be able to rebroadcast local channels
to consumers in 20 markets. With considerable investment in
technological improvements, today DBS subscribers in over 70
markets can receive local channels covering over 75 percent of
U.S. television households, and both providers are working hard
to expand that number. By the end of this year, each DBS
operator will bring local service to over 100 markets, reaching
over 85 percent of Americans.
In addition, satellite providers have invested hundreds of
millions of dollars to be the only provider offering one- and
two-way high-speed Internet service to virtually every home and
business nationwide. Today subscribers of the two providers of
satellite broadband, DirectWay and StarBand, expense data rates
that are up to 10 times faster than dial-up Internet service,
and new entrants Spaceway and WildBlue are preparing to launch
the next generation of satellite broadband services. This next
generation service will offer data rates comparable with cable
modem and DSL service and at a competitive price.
However, Mr. Chairman, satellite operators cannot offer
subscribers a competitive alternative to wireline technology if
the satellite signals that currently provide service to
consumers are subjected to interference. Specifically, the
ability of DBS to offer its 20 million households, over 53
million individual viewers, competitive alternatives would be
greatly diminished if satellite signals are subjected to
interference from a television wireless cable service operating
in the spectrum that was allocated to DBS.
Sharing would cause ruinous interference to millions of our
current and future customers. As Members of Congress, you
should be concerned by proposals that would jeopardize the
benefits of increased competition that your constituents now
enjoy.
In an effort to protect current and future DBS subscribers,
SBCA and the DBS providers have appealed a recent decision by
the FCC to the Federal Circuit Court in hopes of reversing the
Commission's spectrum-sharing decision. We expect our appeal
will be heard this fall. However, our greatest concern in this
matter is protecting DBS consumers from harmful interference.
However, we feel strongly that, should the FCC's spectrum-
sharing decision ultimately be upheld, Northpoint should not be
granted its request for a free nationwide exclusive license.
Northpoint is asking Congress to require the commission to
bypass the normal statutorily mandated auction process and to
prefer Northpoint to its wireless, broadband, and DBS
competitors with a gift of publicly owned spectrum. There is no
legal or public policy justification to prefer Northpoint to
its competitors. Indeed, the Bush administration has issued a
statement of administration policy opposing the Northpoint
spectrum grab.
This bill would not level the playing field. Other wireless
cable systems functionally identical to the one proposed by
Northpoint have invested over $1.6 billion at auction for their
licenses. The DBS industry has also purchased spectrum licenses
at auction and in the aftermarket, spending over $734 million,
and another DBS auction is scheduled for August. Moreover, DBS
service providers have invested over $7 billion to bring DBS
service to all Americans.
In closing, DBS is offering consumers across America,
including rural and underserved areas, a competitive option for
television, including high definition video and other advanced
services. The next generation of high-speed Internet via
satellite is just around the corner. The future looks bright.
To threaten the technical integrity and picture quality of this
proven service with guaranteed interference would harm all
consumers.
We look forward to working with you and your staff as you
continue to create communications policy that benefits all
Americans, particularly those in rural areas who otherwise have
few options for the services that DBS offers. Thank you.
[The prepared statement of Mr. Wright follows:]
Prepared Statement of Andrew S. Wright, President, Satellite
Broadcasting and Communications Association
Thank you, Mr. Chairman, Senator Hollings, and members of the
Subcommittee, for inviting me to testify today. My name is Andy Wright,
and I am the President of the Satellite Broadcasting and Communications
Association. SBCA is the national trade association that represents the
satellite services industry. Our members include satellite television,
radio and broadband providers, programmers, equipment manufacturers,
distributors and retailers.
The direct broadcast satellite (or DBS) operators SBCA represents
provide the most advanced television choices in the multichannel video
market, including high-definition television and other advanced
services. The benefit of satellite-delivered technology like DBS is
that it can reach consumers across the country without discriminating
between rural and urban, sparsely or densely populated areas.
When Congress passed the Satellite Home Viewer Improvement Act in
1999, granting DBS providers the ability to offer local channels, DBS
operators DIRECTV and EchoStar hoped to be able to offer local channels
to consumers in 20 markets. However, with technological improvements
and increased broadcast center capabilities, today, DBS subscribers in
over 70 markets can receive local channels, covering over 75 percent of
U.S. television households. Further, both providers are working hard to
expand the number of markets they can serve with local-into-local. By
the end of this year, each DBS operator has said that they will bring
local service to 100 markets or more. Recent consumer research shows
that more than 85 percent of new DBS subscribers are purchasing
packages that include their local channels if they are located in a
market where local-into-local is available.
In addition to providing satellite television service to 20 million
American households, satellite providers also offer one-and two-way
high-speed Internet service to homes and businesses nationwide. Today,
subscribers of the two providers of satellite broadband, DIRECWAY and
StarBand, experience data rates that are up to ten times as fast as
dial-up Internet service.
New entrants SPACEWAY and WildBlue are preparing to launch the next
generation of satellite broadband service. This next-generation service
should be especially appealing to the millions of homes and small
offices that lack access to wireline broadband alternatives. The data
rates for these new services will be comparable to cable modem or
digital subscriber line (DSL) service. A ``digital divide'' will no
longer exist in the market for high-speed Internet service because
satellites reach across the country with a national footprint. Via
satellite, millions of rural consumers that may never be served by
wireline technology will have the opportunity to access the Internet at
the fast data rates available to urban and suburban customers from
cable and DSL.
However, satellite operators can not offer subscribers a
competitive alternative to wireline technology if the satellite signals
that currently provide service to consumers, businesses and the
government are subjected to noise from other services that operate in
or adjacent to the spectrum bands where DBS, satellite radio, and
satellite broadband operate. Specifically, the ability of DBS to offer
subscribers a competitive alternative to wireline technology would be
greatly diminished if the satellite signals which carry DBS services to
the American public are subjected to interference from a terrestrial
wireless service operating in the spectrum that was allocated for DBS's
primary use.
There are now over 20 million DBS subscriber households--comprising
some 53 million individual viewers--which means that one in five
television households across America receive their multichannel video
service via satellite. The issue of permitting a terrestrial wireless
cable service--as Northpoint Technology, Inc. and others propose--to
operate in the spectrum band set aside for DBS is of concern to the DBS
industry because of the threat of ruinous interference that would be
caused to our current and future customers.
As Members of Congress, you should be extremely concerned by any
proposal that would jeopardize the benefits of increased competition
that your constituents now enjoy. Competitive rates, better customer
service, and the quick deployment of advanced telecommunications
offerings are the result of the tireless efforts of Congress and the
Federal Communications Commission (FCC) to create public policy that
spurs competition in the multichannel video program distribution (MVPD)
market.
Last May, the FCC released an Order authorizing the terrestrial use
of the DBS spectrum. Unfortunately, it allows for this new service,
called Multichannel Video Distribution and Data Service (MVDDS), to
increase a DBS customer's signal unavailability by 30 percent or more.
As FCC Commissioner Kevin Martin questioned, in his dissent to the
Order, ``does `in the range of 30 percent or higher' mean 60-90
percent? . . . Unfortunately, these questions seem to lead to only one
conclusion: the majority's technical requirements are driven by a
desire for MVDDS deployment, regardless of cost to DBS licensees and
their customers.''
Commissioner Martin also shares our concern of protecting current
and future DBS consumers from harmful interference. He states, ``By
law, DBS service is entitled to protection from `harmful interference.'
Even more important, existing DBS customers deserve to be protected
from unreasonable interference. This [Order] does neither.''
It is important to note that the increased interference that will
result from Northpoint's proposed service operating in the DBS band is
in addition to the 10 percent increase in unavailability that the DBS
industry was forced to accept from another satellite service (Non-
geostationary satellite orbit, fixed satellite service, or NGSO-FSS). A
third ubiquitous consumer service should not be shoehorned into this
spectrum band at the cost of harming the competition in the
multichannel video marketplace that Congress and the Commission have
worked for over a decade to foster.
In an effort to protect current and future DBS subscribers, SBCA
and the DBS providers have asked the U.S. Court of Appeals for the
District of Columbia Circuit to reverse the Commission's spectrum-
sharing decision. We expect our appeal to be heard this fall.
We do not fear further competition. In fact, the DBS providers,
DIRECTV and EchoStar, asked the FCC to place Northpoint's proposed
service in an adjacent spectrum band, which has the same propagation
characteristics and the same amount of spectrum available, but is not
used to provide a ubiquitous consumer service to 20 million households
and more than 53 million Americans.
We do, however, fear the devastating interference that will occur
if this contamination of the DBS downlink by terrestrial services is
ultimately permitted. Indeed, our fears have been confirmed by a
Congressionally-mandated independent study, performed by the MITRE
Corporation. Specifically, the very first finding of the MITRE Report
is that the terrestrial sharing of the 12.2-12.7 GHz spectrum band,
``poses a significant interference threat to DBS operation in many
realistic operational situations.''
While our greatest concern with this matter is protecting DBS
customers from harmful interference, we feel strongly that should the
FCC's spectrum-sharing decision ultimately be upheld, Northpoint should
not be granted its request for a free, nationwide exclusive license.
Northpoint filed suit in Federal court as well, opposing the
Commission's decision to assign MVDDS licenses via competitive bidding.
Northpoint has also appealed to Congress to require the Commission to
bypass the normal statutorily-mandated auction process and prefer
Northpoint to its wireless cable and DBS competitors with a gift of
publicly-owned spectrum. There is no legal or public policy
justification to grant that request. Indeed, the Bush Administration
opposes Northpoint's spectrum grab and has issued a Statement of
Administration Policy, stating, ``The Administration would strongly
oppose any amendment that would restrict the FCC's ability to assign,
via competitive bidding, spectrum licenses that could be used by
terrestrial (i.e., non-satellite) services. Such a provision would
interfere with the efficient allocation of Federal spectrum licenses,
provide a windfall to certain users, and reduce Federal revenues.''
Further, there are other service operators that have expressed a
desire to provide MVDDS in the 12.2-12.7 GHz band. In filings to the
FCC, both MDS America and Pegasus Broadband Corporation have opposed
Northpoint's spectrum grab, and urged the Commission to allow for more
than one competitor in the MVDDS market. Even though we remain opposed
to any terrestrial users operating in the DBS spectrum band due to the
resulting interference to which our subscribers would be subjected, it
would be anti-competitive to grant an exclusive nationwide license to
one MVDDS operator for free.
The FCC rejected Northpoint's requests for a free, nationwide
exclusive license, and ruled that MVDDS licenses will be assigned via
its normal competitive bidding procedures. In May 2002, the FCC
correctly ruled on this issue by stating, ``Assigning MVDDS licenses
through competitive bidding also promotes efficient and intensive use
of the spectrum and recovery for the public of a portion of the value
of this scarce resource.'' The auction for MVDDS licenses was recently
postponed, but only until the Commission resolves the question of which
geographic divisions to use to assign MVDDS licenses.
In arguing that the Commission should grant it free terrestrial use
of the DBS spectrum, Northpoint continues its effort to misrepresent
the plain meaning of the Open-market Reorganization for the Betterment
of International Telecommunications Act (``ORBIT Act''). The ORBIT Act
states that, ``the Commission should not have the authority to assign
by competitive bidding orbital locations or spectrum used for the
provision of international or global satellite communications
services.'' The ORBIT Act does not exempt domestic satellite services,
such as DBS, from the normal auction process. In fact, the FCC has
scheduled an auction for this August to assign the remaining DBS
frequencies. The ORBIT Act most certainly does not exempt a non-
satellite provided domestic point-to-multipoint terrestrial wireless
cable service, as Northpoint proposes to provide, from participating in
the normal competitive bidding procedure.
Other wireless cable systems, functionally-identical to the one
proposed by Northpoint, have invested over $1.6 billion at auction for
their licenses, and the DBS industry has paid $734 million to purchase
spectrum at auction and in the aftermarket. Moreover, DBS service
providers have invested over $7 billion to bring DBS service to over 53
million viewers across America. This investment includes the
acquisition of spectrum, as well as money spent to build, insure,
launch and operate DBS satellites, ground systems, uplink facilities
and call centers. DBS operators made their investments in reasonable
reliance upon the Commission's Orders that facilitated an interference-
free environment in which to operate their systems.
In closing, DBS is currently offering consumers across America,
including rural and underserved areas, a competitive option for video
television, including high-definition video and other advanced
services. The future looks bright. To threaten the technical integrity
and picture quality of this proven service with guaranteed interference
would harm rural consumers. We look forward to working with you and
your staff as you continue to create communications policy that
benefits all Americans, particularly those in rural areas who otherwise
have few options for the services DBS offers.
Thank you.
Senator Burns. Thank you.
Now we have Mr. Harold Kirkpatrick, President and CEO of
MDS America. Thank you for coming today.
STATEMENT OF HAROLD KIRKPATRICK, PRESIDENT AND CHIEF EXECUTIVE
OFFICER, MDS AMERICA, INC.
Mr. Kirkpatrick. Thank you, Senator. Chairman Burns,
Senator Sununu, good afternoon and thank you very much for this
opportunity to testify on behalf of MDS America. My name is
Harold Kirkpatrick and I am the President, Chief Executive
Officer, and the founder of MDS America, and I wish to
personally thank you and your outstanding staff for inviting
MDS America to be a witness at this very important hearing. We
hope you will benefit from our point of view.
I have submitted more detailed written testimony to the
Committee for its consideration. In my allotted time, I would
like to briefly introduce you to MDS America and explain why we
support allowing the FCC to swiftly proceed with auctions for
the MVDDS spectrum.
We do not support this proposed legislation and we believe
it is not the best means of delivering broadband services
throughout the United States, particularly to rural and
underserved areas. In fact, Chairman Burns, I am from the
backwoods of north Georgia and I understand rural areas as well
as anybody.
Senator Burns. That is above the gnat line, though.
[Laughter.]
Mr. Kirkpatrick. Who we are. MDS America is a startup
company based in Stuart, Florida, and founded in the year 2000.
We are the exclusive North American licensee of MDS
International, the leading designer of terrestrial broadband
transmission systems in the DBS band. I formed MDS America in
2000 after working in the information technology industry for
15 years and working with MDS International deploying these
systems for 5 years.
What we do. Since 1994, MDS International has actually
deployed terrestrial broadband systems like the ones described
in S. 564 in numerous locations overseas, providing video
programming and high-speed Internet services to many delighted
subscribers. I have helped design and install some of these
systems and seen them work in some of the most challenging
environments known to man, including that of Greenland,
arguably the most rural area in the world.
This technology works, customers love it, and we are ready
to deploy these systems in the U.S. today. MDS systems have
delivered Internet data wirelessly to individual computers at
speeds exceeding 12 megabits per second, faster than any cable
modem or DSL.
As the exclusive U.S. licensee of this technology, MDS has
the legal right, the technical ability, and the financial
backing to bring wireless broadband services to market in the
U.S. just as fast as the FCC can issue these licenses. In fact,
MDS International has just deployed the largest system of this
type in the world, with a channel capacity of over 500 digital
channels, in the United Arab Emirates.
Why we oppose this legislation. If S. 564 were to become
law, MDS America and other hopeful MVDDS providers could be
delayed or denied the opportunity to provide wireless broadband
service in the U.S. because the radio spectrum at issue in this
bill would be given away for free to one company or to an
arbitrarily limited number of potential operators.
To my knowledge, Northpoint Technology has never built or
deployed a commercial broadband system anywhere in the world.
But even if that were not the case, the winners under this
legislation would be chosen only after further contentious
regulatory scrutiny and inevitably the losers in this skirmish
would seek relief in the courts, resulting in even further
delays in deploying these critical services.
Why we support the FCC's licensure plan. As you may know,
the MVDDS radio channels were scheduled to be auctioned by the
FCC commencing on June 25, 2003, but that auction was postponed
due to the FCC's consideration of two changes to its licensing
rules. We understand that the FCC intends to reschedule these
auctions for later this summer and we are ready to participate
in them, as are other companies who have come to us seeking
technology.
These auctions will create a financial incentive to build
out this spectrum. Gifts of spectrum, however, do not provide
this incentive. To paraphrase Winston Churchill, spectrum
auctions may be the worst form of radio licensing known to man,
except for all the others. As Dr. Hazlett and others have
observed, if there is truly a level regulatory playing field
with transparent auction rules and reasonable construction
obligations, this radio spectrum will go to those parties who
are prepared to make a financial commitment to delivering
wireless broadband services throughout the U.S. This is surely
our hope and aspiration.
In closing, we at MDS America urge you to support the FCC's
decision to auction this valuable spectrum under the FCC's
normal spectrum auction procedures as soon as possible.
I would like to thank you once again for the opportunity to
testify here today in this hearing on behalf of MDS America. If
there are any questions from the Committee, I would be
delighted to answer them to the best of my abilities.
[The prepared statement of Mr. Kirkpatrick follows:]
Prepared Statement of Harold Kirkpatrick, President and Chief Executive
Officer, MDS America, Inc.
Chairman Burns, Senator Hollings, and distinguished Members of the
Subcommittee: Good afternoon and thank you for this opportunity to
testify on behalf of MDS America.
My name is Kirk Kirkpatrick and I am the President and Chief
Executive Officer of MDS America. I wish to personally thank you both,
as well as your outstanding staff, for your collective willingness to
include MDS America as a witness at this very important hearing. We
hope you will benefit from our point of view in this proceeding.
We at MDS America fully support the FCC's plan to auction the
Multi-channel Video Data and Distribution Service (``MVDDS'') spectrum
that is the subject of this hearing today. We believe that going
forward with an auction will fulfill the public policy objectives that
Congress meant to accomplish when adopting auctions as the FCC's
primary spectrum licensing mechanism: an auction of the MVDDS spectrum
will ensure that this spectrum is promptly licensed to the parties who
value it most highly, with the added benefit of bringing millions of
dollars into the U.S. Treasury. More importantly, competition among
MVDDS providers will result from an auction; that competition will
ensure that facilities will be built expeditiously and services will be
made available to the public as quickly as possible. This competition
will especially benefit rural America--MVDDS spectrum is particularly
well suited to providing broadband services in rural areas that are not
served or underserved by cable, local telephone, and broadband Internet
access service providers.
MDS America hopes to be one of those competitors in the MVDDS
market. We are based in Stuart, Florida, and we are the North American
licensee of MDS International, the leading designer of terrestrial
broadband transmission equipment in the Direct Broadcast Satellite
(``DBS'') band. MDS International has deployed terrestrial broadband
systems in numerous locations overseas, providing video programming and
high-speed Internet services to many delighted subscribers. Some of
these systems share frequencies on an interference-free basis with DBS-
DTH satellite services in their areas.
MDS America hopes to introduce this innovative terrestrial
broadband technology into the U.S. market. As I noted previously, we
strongly support the FCC's May 2002 decision to auction the MVDDS
spectrum for terrestrial use. By establishing a level playing field,
the FCC will encourage the most efficient and rapid introduction of the
MVDDS spectrum-sharing technology throughout the United States.
If S. 564 were to pass, however, MDS America and other hopeful-
MVDDS providers could be delayed or denied the opportunity to compete,
because the MVDDS spectrum at issue in this hearing today could be
given away, for free, to one company, Northpoint Technology, or to an
arbitrarily limited number of potential operators. This one company,
Northpoint Technology, curiously has never built or deployed a
broadband system anywhere in the world. The only ``systems'' ever built
by Northpoint, to our knowledge, involve one or perhaps two
transmitters with limited bandwidth. MDS America seriously questions
whether Northpoint even has the ability to deploy a commercially viable
broadband system of any type. In any event, should S. 564 become law
the selection of MVDDS spectrum ``winners'' pursuant to this
legislation will be subject to further regulatory scrutiny and delays,
and, inevitably the losers in that FCC proceeding will seek legal
relief in the courts, resulting in even further delays in deploying
these critical services.
Northpoint has been seeking legislative relief for years to
circumvent the FCC's normal spectrum licensing procedures, which, of
course, were put in place by Congress. In January 1999, Northpoint
submitted to the FCC applications and waiver requests for terrestrial
use of the 12 GHz band, arguing that the FCC should waive its rules and
grant it an uncontested license to operate terrestrially on the DBS
spectrum. Northpoint claimed that it was the only company in existence
with a non-interfering terrestrial technology in the 12.2 to 12.7 GHz
band. It also argued to the FCC that its ``unique'' technology
justified its demand that the FCC waive its established procedures and
grant its license applications without consideration of other potential
applicants.
We beg to differ, and so did the FCC. The FCC denied Northpoint's
request and scheduled the 12.2 to 12.7 GHz spectrum for auction, noting
``several parties have indicated that they have the ability to reuse
spectrum in the 12.2 to 12.7 GHz band and seek the opportunity to do so
as well.'' As you know, the MVDDS radio channels were scheduled to be
auctioned by the FCC commencing on June 25, 2003, but the auction was
recently postponed due to the FCC's consideration of changes to its
MVDDS licensing rules.
Despite the FCC's denial of Northpoint's waiver request, Northpoint
continues to urge passage of S. 564 which, if adopted, would prevent
the spectrum from being auctioned, literally give the spectrum away,
for free, and result in the loss of millions of dollars to the U.S.
Treasury. Moreover, passage of S. 564 could mean no competition in the
MVDDS market, and the denial or further delay of broadband services
precisely where such services are needed the most: rural and
underserved areas.
MDS America asks you to oppose Northpoint's unprecedented spectrum
grab through supporting the FCC's decision to auction this very
valuable spectrum under the FCC's normal licensing procedures. We are
not asking for special treatment: MDS America simply wants the
opportunity to bid on the MVDDS spectrum in an FCC auction.
MDS America asks you to consider the following with respect to
Northpoint's efforts seeking passage of S. 564:
Point 1: Northpoint's argument for special treatment is based
on the inaccurate premise that it alone has technology capable
of interference-free use of the 12.2 to 12.7 GHz band.
Through a technology license granted by MDS International, MDS
America holds the exclusive U.S. rights to MDS International's
innovative technology, including terrestrial broadband wireless
technology capable of transmitting video and very high-speed
Internet data at 12.2 to 12.7 GHz, without causing interference
to satellite services sharing the same frequency band. In
addition, MDS International has granted MDS America ownership
of any present or future patents it may hold or apply for. MDS
International's systems have achieved a remarkably robust data
delivery speed of 12 MBPS to the individual consumer.
MDS International has been developing its terrestrial broadband
wireless systems since 1986, which it operates successfully in
other parts of the world. MDS International sold its first
terrestrial broadband wireless system to the U.S. government in
1996 to provide video services to U.S. armed forces stationed
in Oman. In fact, to the best of our knowledge, MDS
International is the only company in the world today with
operational terrestrial systems of this type. Many of these
systems use the same KU-band frequencies as satellites serving
the same localities without any significant interference.
A recent tender in the United Arab Emirates for the largest
MVDDS system ever built was won by MDS International over six
other companies. MDS International subsequently built the first
phase of this system beaming 154 digital TV channels to the
entire area of Al-Ain in the UAE. The signal has been reliably
received at a distance over 70 kilometers from the transmission
site at Jabel Hafite. This system has a total channel capacity
of 500 digital channels spanning 700 MHz of radio bandwidth (by
comparison, the FCC's MVDDS rules will allow 500 MHz of
bandwidth for each licensed system). This means that the MDS
International system is larger than any system that could be
built in the U.S. under present FCC licensure rules and is the
largest system of its type in the world. The UAE company,
Etisalat, that owns this system is owned by the government of
the UAE who would field complaints of DBS interference by
Emirati citizens had there been any. At this writing, this
MVDDS system has been operational for over seven months without
a single interference complaint. In addition, Etisalat has
ordered three additional systems of the same size for the
emirates of Dubai, Sharjah, and the City of Abu-Dhabi from MDS
International. They have announced intentions for ordering
eight more in the near future.
The Northpoint system, if it indeed exists, has never been
commercially deployed anywhere in the world. In the above-
mentioned tender, Northpoint was not even qualified to bid.
Point 2: Northpoint's legal claims were rejected by the FCC.
After a lengthy rulemaking proceeding at the FCC during which a
wide variety of views and concerns were expressed, the FCC
rejected Northpoint's request for an exclusive nationwide
license for the terrestrial use of the DBS spectrum. Upon a
close examination of all relevant statutes and citing
Congressional intent, the FCC explicitly rejected Northpoint's
legal claim that both the ORBIT Act and the LOCAL TV Act bar
the use of competitive bidding procedures to assign licenses
for MVDDS in the DBS band. The FCC's decision to license
competitive MVDDS services, reached after years' worth of
deliberation, reflects a ``carefully crafted balance of
technical and policy concerns.''
Point 3: The MDS America Position: Pro-Competition, Pro-
Consumer, Pro-Taxpayer.
Northpoint's anticompetitive effort to get MVDDS licenses
without an auction, through the adoption of S. 564, should be
rejected. Instead, the spectrum auction should proceed as
planned. In this way, potential MVDDS providers will have the
opportunity to compete to offer the best products,
technologies, and services at the best prices. This is pro-
consumer, pro-taxpayer, and consistent with the goals of the
Communications Act. The FCC's rules are ``technologically
neutral,'' which is how it should be. The carriers with the
best technologies will compete to offer the best services.
Point 4: The MDS America system has been successfully tested.
In May 2001, the FCC granted MDS America an experimental
license to demonstrate that its MVDDS technology, already
successful in other parts of the world, would not cause harmful
interference with DBS transmissions in the U.S. Pursuant to
this license, LCC International, an internationally recognized
engineering and consulting firm working independently of MDS
America, conducted a series of tests of the MDS system in 12
separate locations around Florida. In its written report, which
has been submitted to the FCC and which has not been questioned
by any interested party other than Northpoint, LCC concluded
that the MDS system can be successfully deployed without
causing harmful interference with DBS systems operating at the
same frequencies. A copy of the LCC report is available on MDS
America's website at www.mdsamerica.com. Moreover, the FCC's
rules have been carefully designed to guard against harmful
interference to satellite systems.
Point 5: The MDS America System is economically viable in Rural
America.
MDS America's MVDDS system, as deployed elsewhere, is
particularly well suited for deployment in rural areas
untouched by cable and served exclusively by DBS operators. MDS
MVDDS cells, using technology like that used in the UAE, can
reach the curve of the earth, allowing MDS America to deliver
signal over thousands of square miles. With their extensive
coverage capabilities, MDS America's cells are likely to reach
enough of the population in rural areas of the U.S. to actually
pay for the deployment of an MVDDS system. According to
Northpoint's own press filings, the cell range of their system
is only 100 square miles, not enough to make it an economically
viable venture in the least populated areas of the U.S.
Conclusion
In closing, we at MDS America urge you to support the FCC's
decision to auction this very valuable spectrum under the FCC's normal
spectrum auction procedures. I would like to thank you again for the
opportunity to testify here today in this hearing on behalf of MDS
America.
Senator Burns. Thank you, Mr. Kirkpatrick. We appreciate
that very much.
Now we have Mr. Thomas Hazlett, Senior Fellow, Manhattan
Institute for Policy Research. Thank you for coming today.
STATEMENT OF THOMAS W. HAZLETT, SENIOR FELLOW, MANHATTAN
INSTITUTE FOR POLICY RESEARCH
Mr. Hazlett. Thanks for having me----
Senator Burns. You want to pull that microphone over so
that we have got you on record here, the dulcet tones.
Mr. Hazlett. --thank you, Senator. I am Thomas Hazlett and
I am a senior fellow at the Manhattan Institute for Policy
Research, as you note. I am also a former chief economist of
the Federal Communications Commission and I have written
extensively about spectrum allocation policies in the United
States and around the world. I have also previously served as a
consultant to Northpoint Technology and have submitted
testimony to the Federal Communications Commission on their
behalf.
The case of Northpoint Technology reveals ongoing
infirmities in the U.S. spectrum allocation system. In a more
efficient world, innovative wireless companies such as
Northpoint would simply buy the spectrum they need, much as any
company buys labor, raw materials, and capital inputs. Barriers
to entry would be low and new competitors could quickly test
their technologies with consumers in the marketplace.
But, despite license auctions, the U.S. does not have
anything approaching competitive bidding for spectrum. Firms
attempting to offer novel wireless services must first convince
the Federal Communications Commission planners that it would be
in the public interest for spectrum to be allocated for their
project. It is an understatement to say that this is a costly
and time-consuming process. In it, the applicant must reveal
its business plan, negotiate endless regulatory details with
agency staff, negotiate spectrum- sharing rules with incumbent
users, and do virtually all the heavy lifting in surmounting
regulatory barricades designed, not to welcome rivals, but to
foreclose them. License auctions, ironically, lift the walls.
Should a competitive technology, however improbably, get
past the allocation contest, it must now buy back its business
plan from the Federal Government. In this, it will compete with
established service providers which have strong incentives to
outbid the potential entrant simply to lessen the impact of new
competition.
In Northpoint's case, I have estimated that either of the
two incumbent satellite TV suppliers would bid several billion
dollars above the highest bid that Northpoint might plausibly
make for MVDDS licenses owing to the economic gain associated
with avoiding price reductions. On an annual basis, cable and
DBS subscribers would expect to pay at least $2.75 billion less
in subscription fees were Northpoint to enter the market. It
should also be noted that these gains have been lost for
several years already simply due to the delay imposed on
Northpoint's entry by the FCC rulemaking process.
License auctions are very useful for assigning rights among
roughly comparable applicants. The firm willing to pay the most
to offer service is, all else equal, the firm that will likely
do the best job of providing service to the public. But where
applicants are distinguished, other assignment rules can be
more efficient. Indeed, many, if not most, FCC licenses are
still assigned by non-auction procedures because of the
disruptive effect auctions have on telecommunications
investment.
Specifically, the FCC does not invite competing bids for
incumbents' license renewals. To do so would destroy incentives
for licensees to invest in technology, capital, or a reputation
for high quality service. All such investments could be
substantially appropriated by others, including the Government,
were a license to be put up for bids at expiration.
Policymakers realize this and avoid economic losses by simply
renewing licenses for law-abiding licensees.
But FCC regulators do not recognize that the same economic
misallocation occurs when new entrants are appropriated after
investing substantial resources in gaining spectrum allocation,
the case of Northpoint Technology. The message this sends to
innovators is clear: Give up early. If you seek to move the FCC
to allocate spectrum to a new technology, you will invest years
of hard labor, millions of dollars, for the right, if you
succeed, to bid for a license against other interests who
contributed not a kopek. Innovation grinds to a halt while
entrepreneurs wait for someone else to shoulder spectrum
allocation burdens.
Let me just read to you, by the way, the FCC's language. I
should say this is two commissioners, the Chairman and
Commissioner Kathleen Abernathy--in a recent rulemaking on
MVDDS. This note says, ``Northpoint arrived at the commission
many years ago with a proposal for a new and innovative way to
share the DBS spectrum. There is little question that had it
not been for Northpoint the MVDDS service would not be ready to
move forward today. Northpoint has put significant time and
resources into developing its service model, as well as its
commission and congressional advocacy over a long period of
time. We applaud these efforts.''
That is the end of the quote. My comment: the applause
leads to congratulations and an invitation to join an auction
to bid against their rivals for the opportunity, the business
opportunity they have created.
This tragedy of the commons leads to underinvestment,
underinvestment in innovation, and consumers lose valuable new
wireless options while paying higher prices for less
competitive services.
The long-term solution is to reform spectrum allocation,
allowing markets to efficiently shift bandwidth from less
useful enterprises without government approval. In the near
term, applicants who do invest substantial resources to bring
about productive new uses of radio spectrum should not be
appropriated, but rewarded. I think that the legislation being
considered here is a step in that direction.
I have outlined--on my part, I have outlined a simple two-
part test for regulators at the Federal Communications
Commission to use. This is outlined in my paper ``Anti-
Competitive Uses of Competitive Bidding, the FCC's MVDDS
Rulemaking,'' a very snappy title. I am happy to make this
paper available today to any interested party or
electronically. My address is [email protected].
Thank you very much.
[The prepared statement of Mr. Hazlett follows:]
Prepared Statement of Thomas W. Hazlett, Senior Fellow,
Manhattan Institute for Policy Research
My name is Thomas Hazlett, and I am Senior Fellow at the Manhattan
Institute for Policy Research. I am a former Chief Economist of the
Federal Communications Commission, and I have written extensively about
spectrum allocation policies in the U.S. and around the world.
The case of Northpoint Technology reveals ongoing infirmities in
the U.S. spectrum allocation system. In a more efficient world,
innovative wireless companies such as Northpoint would simply buy the
spectrum they need, much as any company buys labor, raw materials, and
capital inputs. Barriers to entry would be low, and new competitors
could quickly test their technologies with consumers in the
marketplace.
But, despite license auctions, the U.S. does not have anything
approaching competitive bidding for spectrum. Firms attempting to offer
novel wireless services must first convince Federal Communications
Commission planners that it would be in the public interest for
spectrum to be allocated for their project.
It is an understatement to say that this is a costly and time
consuming process. In it, the applicant must reveal its business plan,
negotiate endless regulatory details with agency staff, negotiate
spectrum sharing rules with incumbent users, and do virtually all of
the heavy lifting in surmounting regulatory barricades designed not to
welcome rivals but to foreclose them.
License auctions ironically lift the walls. Should a competitive
technology, however improbably, get past the allocation contest, it
must now buy back its business plan from the Federal government. In
this it will compete with established service providers which have
strong incentives to outbid the potential entrant simply to lessen the
impact of new competition. In Northpoint's case, I have estimated that
either of the two incumbent satellite TV suppliers would bid several
billion dollars above the highest bid Northpoint might plausibly make
for MVDDS licenses, owing to the economic gain associated with avoiding
price reductions. On an annual basis, cable and DBS subscribers would
expect to pay at least $2.75 billion less in subscription fees. It
should also be noted that these gains have been lost for several years
simply due to the delay imposed on Northpoint's entry by the FCC
rulemaking process.
License auctions are very useful for assigning rights among roughly
comparable applicants. The firm willing to pay the most to offer
service is, all else equal, the firm that will likely do the best job
of providing service to the public.
But where applicants are distinguished, other assignment rules can
be more efficient. Indeed, many if not most FCC licenses are still
assigned by non-auction procedures because of the disruptive effect
auctions would have on telecommunications investment. Specifically, the
FCC does not invite competing bids for incumbents' license renewals. To
do so would destroy incentives for licensees to invest in technology,
capital, or a reputation for high-quality service. All such investments
could be substantially appropriated by others (including the
government) were a license to be put up for bids at expiration. Policy
makers realize this, and avoid economic losses by simply renewing
licenses for law-abiding licensees.
But FCC regulators do not recognize that the same economic
misallocation occurs when new entrants are appropriated after investing
substantial resources in gaining a spectrum allocation--the case of
Northpoint Technology. The message it sends to innovators is: give up
early. If you seek to move the FCC to allocate spectrum to a new
technology you will invest years of hard labor, and millions of
dollars, for the right (if you succeed!) to bid for a license against
other interests who contributed not a kopek. Innovation grinds to a
halt while entrepreneurs wait for some one else to shoulder spectrum
allocation burdens.
This tragedy of the commons leads to under-investment, and
consumers lose valuable new wireless options while paying higher prices
for less competitive services. The long-term solution is to reform
spectrum allocation, allowing markets to efficiently shift bandwidth
from less useful enterprises without government approval. In the near-
term, applicants who do invest substantial resources to bring about
productive new uses of radio spectrum should not be appropriated but
rewarded. I have outlined a simple two-part test in my paper,
``Anticompetitive Uses of Competitive Bidding: The FCC's MVDDS
Rulemaking,'' which would allow regulators to distinguish when license
auctions are appropriate under the current spectrum allocation process.
I am happy to make this paper available to any interested party today,
or electronically. My address is: [email protected].
Senator Burns. Now we have Mr. Larry Roadman, President,
Marketville--Margaretville Telephone Company, Margaretville,
New York.
STATEMENT OF LARRY S. ROADMAN, PRESIDENT,
MARGARETVILLE TELEPHONE COMPANY, INC.
AND MANAGER, WIRELESS ACCESS LLC
Mr. Roadman. Mr. Chairman, I am not familiar with the
procedures and my testimony is going to diverge into--I could
plead that it is going to bring us back down to earth in the
700 megahertz and LPTV spectrum. But I wonder if I could
request that my testimony be submitted in full into the record
and that I be available for questions on LPTV and 700
megahertz, but I am clearly going to digress from the rather
interesting interchange that is going to occur.
Senator Burns. Without objection, your full statement will
be made part of the record. Is there some way you want to--
maybe you can summarize it?
Mr. Roadman. In what I wanted to do--I represent an
independent local exchange carrier, a small telephone company,
a little cable company, a little ISP in upstate New York, which
is not all that different from Montana or New Hampshire. But I
wanted to make some points, and my testimony does, as far as,
one, making clear--and I think everybody recognizes this, but
sometimes it is good to clarify--that we are really not
talking, when we are talking about underserved areas, we are
really not talking about rural areas alone.
I happen to live 28 miles from New York City. New York City
is wonderfully served by broadband. My customers at 150 miles
from New York City have wonderful access to broadband, both DSL
and cable modem. But I, 28 miles from New York in Westchester
County, a rich suburb of New York City, commuting suburb, have
been told, just do not bother asking for DSL. And I just got
access to cable modem service about a month-and-a-half ago.
Senator Burns. Do you like it?
Mr. Roadman. Yes, sir.
Senator Burns. Good.
Mr. Roadman. Again, there are some things in my testimony,
requests for action by Congress in the 700 megahertz and in the
unlicensed spectrum, that are fine in the record. I really do
not want to digress from--I do want to thank you, though,
chairman, for all of your efforts, both on the LPTV bill a
couple years ago and in the ongoing efforts like the broadband
investment, rural broadband investment expensing.
But I will digress from here and I do not want to do that.
[The prepared statement of Mr. Roadman follows:]
Prepared Statement of Larry S. Roadman, President, Margaretville
Telephone Co. Inc. Manager, Wireless Access LLC
Good afternoon, Chairman Burns and members of the subcommittee. I
am honored to testify before you today on an issue of extreme
importance to rural Americans and the rural telecommunications carriers
that serve them. Mr. Chairman, I want to recognize and commend your
ongoing effort to promote the economic health of rural areas.
Specifically I want to recognize the LPTV Digital Data Services Pilot
Project legislation passed in 2000 and your current bill proposing the
expensing of rural broadband capital investments.
My company, Margaretville Telephone Company, doing business as MTC,
is an Independent Local Exchange Carrier (ILEC) serving the central
Catskill region of upstate New York--an area that is indeed rural and
economically challenged. MTC has been family owned and operated since
1916, though under an ESOP formed in 1985, the 17 non-family employees
own 30 percent of the company. MTC serves over 4600 telephone access
lines. In addition, MTC's cable subsidiary serves over 1700 subscriber
units and our ISP, Catskill On Line (COL--a joint venture with a
neighboring ILEC, Delhi Telephone Company) serves over 8300 Internet
subscribers in four upstate New York counties.
Within its telephone service territory, MTC offers DSL to 95
percent of its telephone subscribers and cable modems to all cable
subscribers. Outside of its service territory, MTC offers cable modem
service where it has built cable facilities to serve villages near
Margaretville and wireless high speed data connections in Oneonta, New
York, a tertiary market city 45 miles from Margaretville. Since early
2001, we have deployed equipment in the unlicensed 2.4Ghz spectrum and
are currently using 802.11 equipment to create a ``hot zone'' service,
covering much of the City of Oneonta.
In anticipation of offering high speed services throughout the
underserved central Catskill region, MTC has sought spectrum assets
over the past eight years. Through FCC auctions, it has purchased whole
or partnership interests in PCS, LMDS and 700Mhz licenses. In addition,
it joined with several other companies to form Wireless Access, LLC,
the owner of three low-power TV (LPTV) licenses designated as test
stations under in the LPTV Services Pilot Project legislation of 2000.
We are eager and ready to deploy LPTV and/or 700Mhz broadband services
when equipment is readily and economically available.
* * * * * *
*
Policymakers, service providers and subscribers all recognize there
is, or soon will be, a very real need for broadband accessibility
wherever you live and work, whether it is in rural Montana, suburban
New York or downtown Washington, D.C. The extent and actual location of
the underserved areas in this country may not be as well understood.
While my customers in Margaretville, 150 miles from New York City
and in the northern reaches of the Appalachian poverty belt, have had
access to DSL or cable modem broadband services, or both, for almost
two years, I, living in Westchester County, just 28 miles from New York
City and in one of the richest counties in the country, have only had
access to cable modem service since early this year and have been told
repeatedly not to expect DSL access any time soon. Interestingly, the
latest survey by the National Telephone Cooperative Association shows
that, by the end of this year (2003), 47 percent of its member
companies plan to offer broadband services to all customers within
twelve thousand feet of any fiber-fed nod in their systems. By that
time only 5 percent of the companies intend to be offering only dial-up
Internet service.
By making broadband services to their customers, one thousand plus
independent telephone companies are acting as very effective ``economic
engines'' in rural America. By offering these services in areas outside
their traditional territories, by actually ``reaching out'' into
tertiary and, even, secondary markets, most often using wireless
technologies, these companies are complimenting the efforts of the
larger providers who are primarily focused on the urban, primary
markets.
* * * * * *
*
Utilization of the LPTV and 700Mhz spectrum bands holds great
promise for broadband delivery in secondary, tertiary and rural
markets, and even in urban industrial areas not traditionally served by
cable. These frequencies allow robust and non-line-of-site service
provision, well-suited for use in sparsely populated plains or
mountainous regions, as well as in built up large cities or suburban
centers. Recognizing this promise ILECS were some of the first
investors in early LPTV two-way data efforts (even before the
supporting legislation) and ILECS makeup approximately 60 percent of
the successful bidders in the initial 700Mhz auction in 2002.
In addition to expanding and accelerating broadband deployment,
opening up the use of these spectrum bands offers Congress and the FCC
three other opportunities. First, the establishment of licensed-band
data services will enable the development of a stable, quality of
service high speed data marketplace. Second, the addition of these two
bands to the market will firmly establish a broad, competitive
marketplace in high speed data. The active LPTV option and straight
purchase market will determine what portion of the LPTV spectrum will
be used for broadcast and what portion for two-way data. Third, unlike
the expanding use of unlicensed spectrum, the expanding use of these
two frequency bands will offer the opportunity of expanding government
revenues through increased auction values and the growth of usage based
fee revenues.
* * * * * *
*
At least four actions by Congress and the FCC will significantly
accelerate and enhance the development of a broad-based, healthily
competitive broadband marketplace.
(1) Legislation: Legislation like Senator Burns' current bill
proposing the expensing capital costs for broadband deployment
will make business plans more achievable, aiding in the
currently uphill battle for funding.
(2) Focus on Licensed Spectrum: Furthering the deployment of
licensed sustainable, higher quality, economically efficient
broadband marketplace.
(3) LPTV Spectrum Availability: The current economic situation has
blocked efforts to raise funding necessary for progress on the
Pilot Project, though an improving investment climate holds the
promise of testing and development action in 2003. Robust
development of the LPTV spectrum band will depend on a clear
awareness that the FCC will expand two-way data usage past the
initial 13 legislative test stations. I call on Congress to
exact that commitment from the FCC.
(4) Clearing of 700 Mhz Spectrum: A significant portion of one 700
Mhz license block was acuctioned in 2002. The remainder of that
block (along with one other block) will be auctioned in the
next several months. Current license holders await the delivery
of equipment from manufacturers. However manufacturers, as well
as investors, are hesitant to move forward while broadcasters
remain incumbent on many of the stations sold in the auction.
The dates set for broadcasters to vacate these stations seem to
be loosely administered and do not appear to be ``dates
certain''. In order to assure the ability of license holders to
use the 700 Mhz for broadband deployment, i.e., to move
manufacturers and investors forward, I call on Congress to
investigate what actions Congress and the FCC might take in
either or both the broadcast and broadband markets to enhance
and accelerate the viability of broadcasters vacating and
licensees using the auctioned 700 Mhz and then to ensure that
``dates certain'' for vacating are both set and enforced.
Senator Burns. You do not want to start the fight too early
here.
I have a question for Mr. Hazlett, and thank you all for
coming today and your statement, your full statement, will be
made a part of the record and thank you.
How do you define the marketplace that MVDDS would enter?
Should we look at competition between MVDDS companies or should
we look at the competition among that technology of MVDDS along
with cable and satellite and every other technology? How should
we base our decision on making policy up here?
Mr. Hazlett. Do you have an easier question? You are asking
me to define a market that does not exist yet?
Senator Burns. Yes, that is right.
Mr. Hazlett.If it is defined as MVDDS, so that is rough. My
approach has been to look at the multi-channel video market,
MVPD, as defined by the Federal Communications Commission, and
I think actually this has been the FCC approach. So I am sort
of comfortable looking at it that way, even though broadband,
of course, is part of that and that can constitute competition
with other service providers.
Senator Burns. How much of the Wi-Fi industry's success can
be attributed to the fact that its innovators are not subject
to costs and delays of auctions? In other words, how have
auctions affected their costs, and the difference between
allocations and auctions?
Mr. Hazlett. Well, the ready access, the fact that they are
unlicensed, means there is no license holdup, and so it is
everything that goes with licensing, including the auctions.
That is in there on the one side. That helps Wi-Fi a lot.
What helps Wi-Fi maybe just as much or more is the fact
that there are other problems everywhere else on the bandwidth
licenses and with spectrum allocations. So Wi-Fi has been the
one place where the action can take place. So on both sides of
that, Wi-Fi has benefited.
Senator Burns. I would ask all of you the same questions
and you can comment on it. Should we look at competition
between different MVDDS companies or should we look at
competition among that technology plus cable, satellite, and so
forth? I would like to hear all of you comment on that, please.
Mr. Kirkpatrick. Chairman Burns, if I can comment on a
couple things. First of all, Dr. Hazlett talked about the $2
billion that the DBS industry could pay to keep people like me
out of the market. That is ignoring the fact that 12.2 to 12.7
is not the only spectrum that a system like mine operates on.
There is existing spectrum out there, 20 gigahertz, 40
gigahertz, 2.6 gigahertz, that we can and will build systems
for that would exploit that as well.
To answer your question about the competition in the
market, this is specifically what we are after. At MDS America
and MDS International we consider ourselves to be the only
company in the world building systems in this frequency right
now. We do not have at this present time competition. So when
Dr. Hazlett talks about a new and innovative technology, for us
this is not new. We have been deploying it almost 10 years now,
so it is not a new and innovative technology for us.
Senator Burns. Mr. Wright?
Mr. Wright. Thanks, Mr. Chairman. I would say that the
market is the multi-channel video marketplace. That is
certainly what the FCC has been looking at and certainly how we
look at it.
I would like to respond to something Mr. Hazlett said,
which is that he was suggesting that Charlie Ergen, the
President of EchoStar Communications, might bid billions of
dollars too much for a license. I would have to suggest that he
probably has not been listening to testimony over the last few
years. I cannot imagine that happening.
I would like to emphasize again what Kirkpatrick has just
said, which is we are not interested--the DBS industry does not
want to stop Northpoint or MDS America or anyone else from
entering this market. There is plenty of spectrum out there
that a wireless cable system such as the one proposed by
Northpoint could use. You would hear no objections from us if
they were going to the LMDS or MMDS or the CARS band. We have
gone out of our way to suggest spectrum that we think would be
just as good or better for propagation purposes for their
system.
We are just interested in them not interfering with us. We
are also interested in them not being given a leg up against
us, against DBS, against Mr. Kirkpatrick, against the other
wireless cable providers. There is no public policy that we can
see that would support giving them a gift of the public
spectrum.
Senator Burns. Ms. Bush?
Ms. Bush. First I would like to remind everybody that when
Northpoint filed its application in January 1999, we were the
only company to file an application seeking terrestrial use,
and we were the only company for many years to participate in
this proceeding before the FCC.
But the other point that I want to make is there were seven
other companies who applied on the same day to use the exact
same resource that Northpoint sought to use. People lose sight
of that by trying to narrow this down to we are only going to
look at MVDDS. The point is is that technology has advanced.
With the move to digital, there are a lot more things we can do
with spectrum than we used to be able to, and the idea that we
are going to continue to put technologies in little niches and
only look at them that way does not make sense.
The issue is getting service to consumers and service to
consumers in a way that is fair from the Federal Government's
standpoint to the applicants that are coming before the agency.
So what we are talking about--people are saying we are trying
to keep MDS out. That is not our intent. Our point is that we
applied with seven other companies. The rules changed in the
middle of the game. All we are saying is the rules should be
the same for all applicants.
Under S. 564, MDS America can participate in independent
testing and be licensed. It does not prohibit or limit who can
be licensed and it does not mandate in fact that the FCC give
out any licenses. The FCC could conclude that there is nobody
qualified to be licensed under this bill. It is simply a matter
that if a company spends a decade at the FCC seeking a license
that they ought to be licensed the same way.
To your question, Senator Burns, of what the marketplace
should be, I believe it should be the multi-channel video
marketplace, which would include cable, it would include DBS,
and it would include other Internet providers, that that is the
market that we are looking to compete in, and on a going-
forward basis all these entities should be licensed the same
way.
Mr. Wright. Mr. Chairman, may I respond to that?
Senator Burns. You bet.
Mr. Wright. Mr. Chairman, I think it is important to point
out Tony does not, Tony Cook Bush does not, point out the fact
that the application that they filed those several years ago
was rejected as having been improperly filed. They filed in a
procedure that had to do with the licensure of satellite
spectrum and so the FCC properly rejected that application and
started a whole new proceeding on this MVDDS to utilize to see
who could best utilize the terrestrial use of the 12.2 to 12.7.
Certainly MDS America has filed, Pegasus has filed. We
suspect that if this goes to auction there will be several
companies who will file. As Tony points out, technology has
moved forward, and we suspect that there will be several
companies that will file to use this spectrum. So although we
think that the sharing should not be allowed, if it is going to
be allowed then it certainly should not be granted to just one
of the parties. Everybody who thinks they have a usage for the
spectrum ought to have the opportunity to bid on it. Certainly
I think my companies would be interested and I think that there
are tons of other companies that would as well.
Senator Burns. Mr. Roadman? I want to finish this off. Mr.
Roadman, do you want to comment on this?
Mr. Roadman. I just agree that it should look across the
market at the multi-channel video.
Senator Burns. OK. Do you want to follow up?
Mr. Kirkpatrick. Yes, Chairman Burns. I just wanted to say
that obviously had the FCC opened a window for applying for
terrestrial broadcasting in this spectrum, MDS would have filed
an application as well. The window was open for non-
geostationary satellite systems, which we do not build. We do
not have anything to do with non-geostationary satellite
systems and therefore we did not file an application in the
non-geostationary satellite system window. It did not make any
sense for us to do so.
That being said, if the interest, and I am sure the
Committee's interest is, in rolling out this service quickly to
rural areas, it would make sense that MDS America, representing
MDS International, as the only company who has ever done it in
this spectrum would be uniquely qualified to roll out the
spectrum quicker than anybody, simply because all of the
subsystems other than just the transmitter and the delivery of
the radio signal we have in place. We have built these before,
we are building them now.
Senator Burns. Senator Sununu.
Senator Sununu. Thank you, Mr. Chairman.
Ms. Bush. Excuse me, Senator. I just cannot resist, and I
apologize for this. But in response to what SBCA said, that we
filed our application at an inopportune time, the only point I
would make was that it was clear the FCC was not going to give
us an opportunity to file an application. They did not believe
our technology worked, they did not believe that terrestrial
and satellite systems could share at the time. Had we not filed
in that proceeding, we would--none of us would be sitting here
today.
Senator Sununu. Thank you.
Mr. Hazlett, you did not really imply that the managers of
the DBS satellite servers, Mr. Ergen or anyone else, would
overpay by $2 billion for this spectrum if it was auctioned
off, did you?
Mr. Hazlett. Not even close, no.
Senator Sununu. Do you want to clarify the point that you
were making, because I think it is an important point.
Mr. Hazlett. Yes. Let us just take the official position of
the United States Department of Justice in an interesting case,
an antitrust adjudication in 1998. There you had a situation
where PrimeStar, which then was the third satellite TV company,
was going to buy some assets, some satellite assets, from
NewsCorp-MCI. And the DOJ moved in to block that combination.
They said that the deal here was that PrimeStar was owned by
cable companies and they did not really have an interest in
using those DBS assets to compete with the other satellite TV
companies and cable companies; they just wanted to sort of
stockpile these assets and have sort of a low-ball competition
that maybe offered medium service out where they did not have
cable systems. They said that PrimeStar actually had been
engaged in that strategy since 1990 when it got going. So
anyway, they blocked that.
Now the same exact logic is here, that the DBS providers
would pay up to several billion dollars more. Now, of course
Northpoint or some entrant would drop out way before that. I
say this clearly in my paper. So they would never overpay, but
they would pay enough to protect their profits, and that is why
setting up an auction this way is inherently anticompetitive.
Senator Sununu. The point as I understand it is that where
the resource is, the resource spectrum, is limited, the
incumbent broadcaster would have an economic value to bid,
quite significantly potentially, for the assets in order to
keep them off the market and protect their competitive
position?
Mr. Hazlett. Right, and that bid is not associated with
efficiency, but with keeping prices higher.
Senator Sununu. I think that point was made to a certain
extent in a similar way in the chairman's opening comments,
that while auctions are in many cases efficient systems where
the resources are limited, we are always going to have concerns
that the public service--the public is being served and that
the resource is being used in an economically efficient way.
Mr. Hazlett. Right.
Senator Sununu. Mr. Wright, how many channels are allocated
to DBS in the United States?
Mr. Wright. Senator, I am sorry; I do not know the answer
to that question. I will have to get back to you. I will have
to submit that for the record. I mean, we certainly carry
hundreds of channels.
[The information referred to was not available at time of
print.]
Senator Sununu. Maybe, is there anybody else here that
works in the satellite industry that might have the answer to
that question?
Ms. Bush. I believe they allocate them by slots and each
slot has 32 channels. And I believe there are approximately 200
channels amongst all the slots.
Senator Sununu. But how many, how many slots are there
existing? In other words, how many slots of spectrum have been
provided to DBS carriers over time?
Ms. Bush. Well, there are a total of 256 slots. EchoStar
has approximately 190 of those. DirecTV has about 46 of those.
There is a company RLDBS which I believe has a few.
Senator Sununu. A couple of hundred, though, certainly?
Ms. Bush. Right.
Senator Sununu. Mr. Wright, how many of those have been
allocated through a competitive bidding process?
Mr. Wright. Mr. Chairman, all of the slots that have been
allocated since Congress enacted the competitive bidding system
have been allocated by AFL-CIO, and there are additional
slots----
Senator Sununu. Well, but there are 200, 225 plus. How many
of those went through the bidding, the competitive bidding
process?
Mr. Wright. Mr. Chairman, when the early slots were
allocated there was not a bidding process. So therefore those
slots were not----
Senator Sununu. I understand that. I understand we are
living in a modern age and time passes and things happen and
you have auctions, you do not have auctions. But there are 226
slots out there that create the competitive environment for
DBS. How many of them were auctioned?
Mr. Wright. I do not know the answer to that, Mr. Chairman.
Senator Sununu. Would you get me the answer to that for the
record?
Mr. Wright. I can get back to you on that, yes, sir.
[The information referred to was not available at time of
print.]
Senator Sununu. Please.
Mr. Hazlett, Ms. Bush?
Ms. Bush. There were two slots that were auctioned and,
unfortunately, I do not know if they were full 32 channels
each. All of the rest of the slots had not been auctioned----
Senator Sununu. Are you suggesting two out of the 225?
Ms. Bush. No, I am suggesting something less than 60 out of
the 225 channels were subject to an auction.
Mr. Wright. Mr. Chairman, someone just handed me a note
saying 64 have been auctioned thus far, and I believe 98 were
allocated prior to that without auction. But again, I will
confirm that and get back to you with an exact number.
Senator Sununu. I appreciate that. This is an important
point because we are discussing a level playing field, one way
or another how to ensure that we have both a level playing
field and the efficiency of use that I talked about earlier.
Mr. Kirkpatrick, do you believe that those channels that
were not auctioned off should be retaken by the Federal
Government and auctioned?
Mr. Kirkpatrick. Senator Sununu, I do not believe that
those channels should be taken back and re-auctioned. In fact,
in pleading ignorance I think it is inappropriate for me to
answer the question. I would like to comment on it this way.
The DBS industry and MVDDS are not the only players in this
market. The big player in this market is the cable industry and
the DBS industry, far from spending $2 billion to quash
Northpoint and MDS America, has a much higher vested interest
in competing with an established cable industry.
The one thing that we all need to keep in mind here, and
you have to keep in mind that I am a technical person; I am not
a lawyer, that the cable people have a pipe running into the
house which has unlimited bandwidth. The satellite people do
not. Neither do MVDDS providers. So even were the DBS providers
to bid in this auction, it would be senseless for them to
warehouse the spectrum since they could come to MDS America,
for example, implement MDS America-type systems to vastly
increase their available bandwidth to compete with cable in the
markets where they are losing against cable in urban areas.
Senator Sununu. I appreciate that point, although no one
suggested that they would warehouse the spectrum. The point
that was made, and it is an important point, is that they have
by virtue of their incumbency, have an economic value that they
can place on that spectrum that is much higher than non-
incumbent carriers, regardless of what they choose to do with
it. There is a price at which it would be of economic value for
them to warehouse it.
But you are right, they probably would not do that. But
regardless of whether they resell it, whether they use it
themselves, or whether they warehouse it, the economic point
Mr. Hazlett is making is that they have a greater economic
value for that spectrum than other non-incumbent carriers.
Mr. Hazlett is gesturing. Please, if you want to add a
comment.
Mr. Hazlett. Yes, I just wanted to emphasize that. The
argument is not that they would warehouse it, but quite the
reverse. They would use it. It would be deployed. They just
would not lower their prices. So it would keep prices higher
and consumers would suffer because of the lack of competition.
Mr. Wright. Well, Mr. Chairman, Mr. Sununu, if I can
respond to that. Obviously the incumbent here, the real
incumbent here, is cable, and they are the ones who have
practically a monopoly position. They have had a monopoly
position in the market, and only now are we beginning to see
some signs of competition as DBS, which has worked for 9 years
now to get to 20 percent of the market.
The issue here is not is DBS some sort of powerful
incumbent----
Senator Sununu. No, no. That is a very good point. But all
you are suggesting is that there are other incumbent
broadcasters like cable that might also have an interest in
bidding, bidding at a very high level for the spectrum, again
that they have a higher economic value than other non-
incumbents. Whether a DBS incumbent or a cable incumbent, you
may still have the same economic incentive.
Let me run through my questions and obviously you will have
a chance to comment further.
License fees. Ms. Bush, would you object to a system where
the Government would charge a fee, a license fee, to everyone
providing multi-channel service in the 12.2 to 12.7 range?
Ms. Bush. Well, I think the key issue is to everyone
providing service in spectrum, because I think this then falls
into the trap we keep falling into, which is, of being too
narrow, because for example in this proceeding you have seven
non-geostationary satellite applicants, who are also going to
be sharing the spectrum. While they are not going to be
providing multi-channel video, they are going to be providing
Internet service, so they are going to be a competitor in part
of the market with us.
So I think the issue from Northpoint's standpoint is
regulatory fairness across the board, that we have got to treat
all of the applicants using spectrum the same way.
Senator Sununu. Mr. Wright, do you support that?
Mr. Wright. Yes, thank you, Mr. Sununu. It is only in
circumstances where there are multiple competitors wishing to
use the same spectrum where an auction situation applies, and
NGSOFSS was excluded by Congress. In other words, the FCC could
not have chosen to auction that spectrum off because of the----
Senator Sununu. I am sorry, I am not talking about an
auction, though. I am talking about annual fees for the use of
the spectrum.
Mr. Wright. Well, of course annual fees are already charged
for the use of the spectrum.
Senator Sununu. I stand corrected.
Ms. Bush, I think Mr. Wright used the term ruinous
interference. Under what circumstances would your proposed
system cause ruinous interference to those that are enjoying
their DirecTV or other satellite services at home?
Ms. Bush. Under no circumstances. We have tested our system
now four times. Actually we tested it three times. The FCC
tested it once through the MITRE Company and the DBS industry
got a license for experimental testing of our system as well.
The point I would make is that we operate our system, the
DBS industry had the opportunity to operate our system without
our involvement or approval, and under no circumstance was
there any interference to any existing DBS customers.
Northpoint tested in Washington, D.C., on the USA Today
Building for 2 months non-stop, including through Hurricane
Floyd. The DBS industry, DirecTV and EchoStar, conducted
testing in Washington, D.C., as well in an effort to prove this
ruinous interference which they claimed would happen, and they
were not able to provide to the FCC evidence of one DBS
customer that received interference.
So our point is that the DBS industry could not prove
through their testing that there was interference and that
ultimately was the FCC's conclusion, that throughout all this
testing there was no interference.
Mr. Wright. Mr. Chairman.
Senator Sununu. Do you agree with all of that?
Mr. Wright. Obviously this is an area where we have serious
disagreement.
Senator Sununu. I appreciate that, but try to be clear in
at least describing where the important areas of disagreement
are.
Mr. Wright. Yes, thank you. Our position is that it will
cause serious interference, and that is what the MITRE test,
the only independent test, the MITRE test, showed, that it
would cause serious interference to DBS.
The issue, of course, at the FCC was not whether or not it
is going to cause interference, but whether or not it would
cause significant harmful interference. Harmful interference is
a subjective standard. So far we have not been able to persuade
the FCC that it is going to cause harmful interference, so we
are taking it to court.
But the point is that no matter what kind of testing you do
and what kind of operation you do, DBS subscribers are not
going to know that--they are going to know that their system
does not work as well as it used to. They are not going to know
that Northpoint is out there. They are not going to say, well,
gee, this is too bad that Northpoint is causing interference to
my system.
What they are going to say is, gee, my DBS system that used
to be so reliable is no longer reliable, so I am going to go
back to cable. That is going to be the result in the market.
That is our concern.
Senator Sununu. What interest would those technically
competent people at the FCC possibly have in claiming that
there would not be harmful interference when, at least in your
opinion, there would be ruinous interference? How could the FCC
be so blind to what is or is not a technical reality?
Mr. Wright. Well, Mr. Sununu, what Northpoint is proposing
to do is to build 15,000 towers around the United States to
provide their service. The closer you are to the service, the
more interference your DBS system is going to receive. So while
it is millions of DBS subscribers, it is certainly not all DBS
subscribers; and what the FCC has decided is that the amount of
interference, the increased amount of unavailability that
Northpoint will introduce into the DBS system, is in their
opinion offset by the introduction of a new player into the
market. We disagree with that.
Mr. Kirkpatrick. Senator Sununu.
Senator Sununu. Mr. Hazlett, you raised your hand first,
and then we will hear from Mr. Kirkpatrick. Thank you.
Mr. Hazlett. Thank you, Senator. I have read about what the
FCC has said about the maximum allowable new interference,
which by the way, there is possible interference from any new
wireless service anywhere. If you had a zero tolerance policy
you would have zero wireless service. So it is all about what
is harmful and what is the de minimis standard.
So I have read what the FCC has concluded on this and it
really is pennies, just pennies of interference, even if you
take the maximum allowable interference on a monthly basis.
Remember this: If you insert another competitor, and let us
call this Multi-Channel Video for a minute, so you get two DBS,
one cable and you add a fourth competitor; by the FCC's
competitive analysis, that is going to lower prices by at least
5 percent, at least 5 percent.
The average DBS customer pays about $60 a month in revenue
right now. Five percent of that is $3 a month. The loss to the
DBS customer is not from harmful interference from the new
entrant. The loss is from blocking the competition that is
going to lower his or her price. So the economics of this are
very, very straightforward and the FCC has decided this
interference issue in a way that makes it very simple to see
that keeping out the new entrant does not protect the current
subscribers, but hurts them.
Mr. Kirkpatrick. Senator Sununu, one other thing I would
just like to add. Prior to the MITRE test, MDS America offered
our equipment to the FCC for testing by MITRE and the FCC told
us that Congress had not funded testing equipment for people
who had not applied in the NGSO window.
MDS America then offered to pay MITRE directly through the
FCC for us to fund the test ourselves, at which time we were
also informed that MITRE was prohibited by charter from taking
private funding for doing the test. MDS America then hired an
independent testing firm, LCC International out of McLean, who
came to southern Florida and, pursuant to an FCC experimental
license, did test our system independently of us in a real
world environment, not in an anechoic chamber in a laboratory,
but by actually putting our transmitter, our system, out on a
tower in the presence of existing DBS customers and testing it
over a period of several weeks.
We received no complaints whatsoever. We now are in the
middle of a phase two testing where we have been broadcasting
from the top of the tower at a much higher power level than the
MVDDS order allows, but again pursuant to our experimental
license, and again we have not received a single complaint of
interference to DBS anywhere in southern Florida.
Senator Sununu. So you do not believe that your
terrestrial-based broadcasting system will cause ruinous
interference to existing DBS users?
Mr. Kirkpatrick. It has not since 1994 in the places it has
been installed all over the world.
Mr. Wright. Mr. Sununu, may I follow up on that?
Senator Sununu. Sure.
Mr. Wright. There are already in this spectrum, in the 12.2
to 12.7 spectrum, there are already two ubiquitous consumer
services. There is DBS and there is NGSOFSS. When we were
required to negotiate by the two satellite systems that share
it, NGSO and DBS, it is much easier for satellite-to-satellite
to share than satellite-to-terrestrial. And when we negotiated
that there was a requirement that the NGSO entrant into the
market not increase the unavailability of DBS by more than 10
percent. So now we had that 10 percent of unavailability
increase in the market.
The FCC itself has said that the introduction of Northpoint
will cause an additional 30 percent increase in unavailability.
We can quibble about the word ruinous, but to us increasing
unavailability by 30 percent, and Commissioner Martin in his
dissent said that it could be 60 percent or 90 percent
increase.
Senator Sununu. I am sorry, I do not understand that. If
the regulation is 30 percent, how could it be 90 percent?
Mr. Wright. What the FCC said is at a minimum the increase
in unavailability will be 30 percent. Commissioner Martin in
his dissent said, at 30 percent, you are not setting it at 30
percent; you are saying it could be 30 percent; it could be 60
percent, it could be 90 percent. So we think that it is a very
serious challenge to our consumers.
What is going to end up happening here is you have got an
industry that has spent a tremendous amount of money and energy
and time to create a real competitor to cable and now you are
going to introduce all of this additional. You are trying to
shoehorn a third ubiquitous consumer service into this 12.2 to
12.7 band. It is unprecedented, and we think that it certainly
will cause serious interference to our consumers and will be
anticompetitive and will reduce choice in the market.
Senator Burns. Well, Mr. Wright, in this bill, though,
there is if there is any serious interference that they cannot
operate there. I think that is the way it is worded, is it not,
Senator Sununu?
Senator Sununu. That is correct, and I am curious to hear
Ms. Bush's response to the suggestion that there will be a 30
percent loss of performance.
Ms. Bush. I think that is an incorrect reading of the FCC
order. The FCC came up with the way that both the satellite
companies and the DBS, I mean, the terrestrial operators that
are going to share the DBS band. The FCC set certain limits to
ensure that at a consumer's home you would not cause
interference above a certain level, which can be measured. It
is a formula that you use similarly for the satellite companies
and for the terrestrial companies.
The FCC did not conclude that at a minimum there would be
30 percent interference and I am, to be honest, not sure where
that came from in the order. The FCC did not use a percentage
as the basis for determining it, but an actual number, a power
limit at which when you are at the consumer's home that would
be it.
Northpoint was very comfortable with that. It is the same
measurement that is used for determining whether there is
interference caused by other satellite operators who are
sharing the DBS band and we think that is an appropriate way to
go.
But again, I would go back to the point that what we are
talking about is a situation where there has been a substantial
amount of testing and testing done by the DBS operators
themselves. The DBS operators themselves could have set up a
DBS system in an apartment building in Washington when these
tests were going on to prove that there was harmful
interference. They had the opportunity to bring the FCC to that
location to demonstrate harmful interference during their own
testing, and they were not able to operate the system in a way
that it did that.
Senator Sununu. Mr. Wright, last year there was some
discussion about merging EchoStar and DirecTV and I think you
suggested that that merger was very important, if not
essential, to get local channels broadcast into all local
markets. Does that mean that in the absence of the merger the
industry is unable to perform that important function of
getting local access into the local markets?
Mr. Wright. Senator Sununu, there is no question that
local-into-local to all 210 markets is a very serious challenge
to the DBS industry. As I pointed out in my testimony, when we
got this authority in early 2000, we were hopeful that we would
be able to serve 20 markets. We are already at 70 markets,
which will provide service to about 85 percent or about 80
percent. By the end of this year we will be at 100 markets.
EchoStar has already said that, as you said earlier,
technology marches on. And the industry has expended hundreds
of millions of dollars, an extreme amount of money, in order to
be able to put up spot beam satellites to extend the number of
markets that we can serve. EchoStar is already targeting 150
markets, which would be over 90 percent of the population. And
today, before the Senate Commerce Committee, Rupert Murdoch
said that if he is permitted to buy DirecTV that it is
certainly his intention to do everything he can to dramatically
increase the 100 markets that DirecTV is hoping to serve by the
end of this year and that he hopes that he can reach 210
markets as soon as it is, I think he said, economically and
technologically feasible.
So yes, I think eventually we will be able to do that.
Senator Sununu. Were you wrong then when you suggested that
the merger of the two was essential to being able to achieve
this goal of local-into-local?
Mr. Wright. Well, Senator, I never said that. But I think
what was said by the companies as they were attempting to merge
is that if, if the merger were able to go through, that it
would certainly hasten the time, and they made it a commitment
to serve all 210 markets. I do not think they ever meant that
they would never be able to do so.
Senator Sununu. Ms. Bush, this local-into-local is
obviously a perceived value of the terrestrial-based service.
Could you speak a little bit more broadly about the kind of
service that you would intend to offer and what parts of the
country it would be ready to be deployed in a timely way?
Ms. Bush. Thank you, Senator. Northpoint's technology was
in fact invented to solve the local signal problem. The
inventors of Northpoint recognized that DBS was not designed to
provide local programming to small communities, that that's not
the strength of a satellite system, and they designed the
system to solve that problem.
It is our intention, and we have always viewed it as a
critical part of our business plan, to serve all 210 local
television markets with their local signals and other locally
based community programming. I mean, that is the unique thing
about having a system that will be built and deployed in each
of the 210 television markets, is that it will have the ability
to carry unique programming for that market, educational
programming, programming directed to schools and universities,
as well as local television signals.
In addition, that is what will also make our Internet
system so robust, is that we will be building the system to
serve communities in each market. So we think that is an
important feature, which is one of the reasons why we are very
pleased to see that the must-carry rules are part of S. 564.
Senator Sununu. It has been pointed out, and I think
rightly so, that Northpoint I suppose has been working at this
for a number of years, and we have gone through that, the
delays, but you have not deployed a system before. This is
something of a new venture and with any new venture there are
always concerns about utilizing spectrum that might be provided
through this piece of legislation or any others.
Would you support and do you support a firm time limit
under which the service has to be provided, the spectrum has to
be used, otherwise it reverts back to the public?
Ms. Bush. Yes, we support the shorter buildout requirement
that is contained in S. 564 of 5 years versus 10 years. In
fact, 3 years ago Northpoint, testifying in another hearing,
committed that we would build our system within 2 years of
receiving a license, and we still stand by that commitment.
Senator Sununu. Finally, back to a question where I was
somewhat confused before, Mr. Wright. I was asking not about
the existing fees that fund the FCC, but the administration's
proposal to change the way that we license spectrum and collect
fees for the utilization of spectrum on an ongoing basis. You
may not be familiar with the budget proposal that was submitted
by the President at the beginning of this year, but it would
effectively allocate much more significant fees for the use of
license.
My question was whether you support that proposal to the
extent that it is applied effectively across all satellite or
terrestrial-based DBS systems?
Mr. Wright. Senator Sununu, I must apologize; I am not
familiar with that proposal. However, I would say that in a
situation--I think it has been proven through our experience
that in a situation where you have multiple applicants for one
piece of spectrum that the auction process is a very efficient
way to allocate the spectrum.
If I may, I would also like to respond to something that
Ms. Bush said just a few moments ago, which is that indeed the
Northpoint business plan has morphed over the years and shifted
pretty dramatically. I think the ultimate refutation of what
Northpoint is proposing is the fact that their original
proposal was to be an adjunct service to DBS, to be able to
allow DBS, back before we ever imagined that we could do local-
into-local, to give us a way to do that.
Believe me, Mr. Sununu, if our engineers had believed that,
my company's engineers had believed, that that was possible
without severe interference, they would have jumped at that
opportunity, because being able to provide local-into-local is
a key for us to be able to be truly competitive with cable and
it is something that we have desired ever since day one and we
have worked very hard to accomplish.
Senator Sununu. Mr. Hazlett, I am tempted to ask you to
carry on a little bit about the efficiency of Federal spectrum
auctions, particularly with regard to the Nextel process, but I
do not think we quite have enough time.
Thank you very much, Mr. Chairman.
Senator Burns. We have got the building leased for all day.
[Laughter.]
Senator Burns. I have a question for Mr. Roadman. The
investment climate has been difficult, to say the least, over
the past few years since the passage of the LPTV Internet Act.
Has progress been made since then and are you still hopeful
that you will be able to offer wireless broadband under the
terms of that pilot project?
Mr. Roadman. We are. For a number of years the primary
mover in the LPTV spectrum was able to offer one-way
successfully commercially. They were unable to raise funds, but
did conduct a one-way test and a one-way commercial operation
successfully.
We have put together the management team and the right mix
to go forward if we can get financing to finance the test, and
we believe that we will have that financing in 2003 and should
be able to complete the test in 2003.
Senator Burns. I just wondered how that was coming because
we have hit some rocky times and capital formation has been
pretty tough.
If the pilot project under this Internet Act proves
successful, could wireless broadband be rolled out across the
country over a low-power band?
Mr. Roadman. Yes.
Senator Burns. It can be done?
Mr. Roadman. Well, there are the existing stations, and we
would need the help of Congress and the FCC to make the
legislation--make it extend past the 13 legislative stations,
to do that. But that is not a technology question; that is a
legislative regulatory question.
Senator Burns. I think most of the questions have been
asked that I wanted to ask, and we have had--I have always
loved this kind of a give and take at the table because we
learn a lot more from that.
Is there anything else you want to explore there, Senator?
Senator Sununu. I simply want to thank the Chairman and the
panelists. I know this is a fairly complex subject and, as I
said in my opening, we have got bits of technology and spectrum
issues, but at the end of the day I feel this is about doing
what is right for the public and the consumers with regard to
access and competition and giving them choices.
I appreciate you all being here to help shed some light on
what we can do to either strengthen this bill or get this
passed, to make a difference for consumers.
Finally, I would just ask unanimous consent, Mr. Chairman,
to enter a letter from Consumer's Union providing their views
on S. 564.
Senator Burns. Without objection, it shall be.
[The information referred to was not available at time of
print.]
Senator Sununu. Thank you, Mr. Chairman.
Senator Burns. You know, I agree with you on most of that,
but I will tell you also, I am always cautious. I am cautious
that there is sometimes, there is unintentional consequences,
and we will continue to explore where they may be and be pretty
solid in our investigation and we would hope that we would come
up with something fair, not only for the industry, too. You
have got to take into consideration what is good for the
industry and good for the consumers because both of them kind
of got to grow together because they are the ones that provide
the jobs and the opportunity at a lower price to the consumer,
and of course that is a good thing.
I want to thank each of you for coming here today and
sharing your thoughts. There will be some questions. Senator--
the little guy that sat right here--Stevens--happy? We are
going to call him the Good Humor man from now on--has a couple
questions and I am sure he will forward those to you and if you
could respond to him and the Committee that would be terrific,
and any other Senator, and we will leave the record open for a
couple of weeks.
Thank you again for coming. These hearings are closed.
[Whereupon, at 4:12 p.m., the hearing was adjourned.]
A P P E N D I X
Prepared Statement of Hon. Daniel K. Inouye, U.S. Senator from Hawaii
Thank you, Chairman Burns, and let me commend you for calling
today's hearing to revisit two important issues--the assignment of
licenses for Multichannel Video Distribution and Data Services (MVDDS),
and the use of low power television to provide digital data services.
Let me begin by welcoming today's witnesses and, in particular, a
former staff member of the Committee, Toni Bush, who is here today to
testify in her current capacity as the Executive Vice President of
Northpoint.
In addition, let me welcome our colleague, Senator Landrieu who is
here to give some remarks regarding her bill S. 564, The Emergency
Communications and Competition Act, of which I am a proud cosponsor.
This bill would direct the FCC to assign licenses for fixed terrestrial
services such as MVDDS without an auction and would ensure prompt
licensing and deployment of these services. We must remember that not
all Americans live in a metropolitan areas. In fact many reside in
rural and under-served areas such as Hawaii and Montana where there are
not an abundance of service providers and where there is not ready
access to high-speed data services.
Over the years, we have seen efforts to provide MVDDS spark a
firestorm of controversy. DBS providers contend that terrestrial MVDDS
that share frequencies can cause harmful interference. Would-be MVDDS
providers dispute such claims and believe that the sharing of
frequencies represents an efficient way to utilize spectrum. Yet
another question strongly debated is whether these licenses should be
subject to the FCC spectrum auction process. It is my hope that
testimony from today's witnesses will help us get to the bottom of
these disputes.
I am of the opinion that spectrum can be more efficiently utilized.
Since there is a finite amount of spectrum available, we should
encourage the development and deployment of technology that allows us
to maximize the natural resources available to us.
I look forward to the testimony today and hope that we give MVDDS
technology a chance to flourish in the best interests of the American
people.
______
Prepared Statement of Hon. Trent Lott, U.S. Senator from Mississippi
Mr. Chairman, I want to thank you for holding this important
hearing today on rural wireless broadband. As you know, my home state
of Mississippi is a rural state, and I am always seeking ways to insure
that the people of my state have access to the latest communications
technology. I am especially interested in technology which is designed
to equalize the options that are available to those people who live in
urban areas, and those people who live in rural areas.
When technology has been developed that can provide another
competitive option for constituents to receive multi-channel video and
broadband services, naturally I am interested in insuring that this
technology is made available in the marketplace.
Therefore, I was delighted to learn about new technology a few
years ago that can provide multi-channel video and broadband services
on a terrestrial system as another choice for Americans who live in
rural areas. I am disappointed that the FCC's review and approval
process for the deployment of Multichannel Video Distribution and Data
Services--or MVDDS--took so long, and I regret that the Commission
chose to auction the necessary licenses to operate this new terrestrial
service.
In order to guarantee the most efficient and productive plan for
deploying MVDDS technology, I believe that Congress must act. I am
happy to join as a co-sponsor of S. 564, the Emergency Communications
and Competition Act of 2003, because it will speed up the deployment of
this new technology and insure that Americans who live in rural areas
will have another option for receiving affordable multi-channel video
and broadband services. An important key component of the bill is its
requirement that licensees must disseminate Emergency Alert System
warnings to all subscribers, further insuring the safety of the
American public.
Mr. Chairman, this legislation directs the FCC to assign--rather
than auction--licenses in the 12.2-12.7 gigahertz band for the
operation of fixed terrestrial communications services. In this way,
the MVDDS licensees--or Terrestrial Direct Broadcast Service licensees
as the service is renamed in the bill, would be treated in the same way
as their Direct Broadcast Satellite competitors who operate in the same
spectrum band. The bill is fair and thoughtful in requiring that any
company can compete in the license assignment process which can
demonstrate that they have the necessary technology and legal rights to
deploy such technology, and that their technology does not interfere
with competing Direct Broadcast Satellite services.
The public will receive additional benefits from this new
multichannel video and data service, in that 4 percent of a licensee's
capacity must be utilized for public interest offerings such as
telemedicine and distance learning. I am pleased that licensees
operating in this new Terrestrial Direct Broadcast Service will also be
required to comply with all rules governing the carriage of local
television station signals, and all indecency and obscenity rules.
Finally, the bill insures the speedy deployment of this new service by
requiring the FCC to issue licenses to all qualified applicants within
six months of its enactment, and it requires that authorized licensees
build out their systems within five years.
I am looking forward to hearing the testimony of the witnesses
today as we seek the most productive approach for deploying
Multichannel Video Distribution and Data Services technology--which in
the bill we are planning to call the Terrestrial Direct Broadcast
Service. I am also interested in hearing about the progress we are
making on other fronts as this Subcommittee does everything we can to
guarantee that Americans who live in rural areas have the same
competitive options to utilize the latest in wireless broadband
technology.