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LOAN GUARANTEE PROGRAM TO PROMOTE THE DELIVERY OF DIRECT-TO-HOME SATELLITE SERVICES TO RURAL AMERICA
SUBCOMMITTEE ON DEPARTMENT OPERATIONS,
OVERSIGHT, NUTRITION, AND FORESTRY
COMMITTEE ON AGRICULTURE
HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTH CONGRESS
FEBRUARY 9, 2000
Serial No. 10641
Page 2 PREV PAGE TOP OF DOCPrinted for the use of the Committee on Agriculture
COMMITTEE ON AGRICULTURE
LARRY COMBEST, Texas, Chairman
BILL BARRETT, Nebraska,
JOHN A. BOEHNER, Ohio
THOMAS W. EWING, Illinois
BOB GOODLATTE, Virginia
RICHARD W. POMBO, California
CHARLES T. CANADY, Florida
NICK SMITH, Michigan
TERRY EVERETT, Alabama
FRANK D. LUCAS, Oklahoma
HELEN CHENOWETH-HAGE, Idaho
JOHN N. HOSTETTLER, Indiana
SAXBY CHAMBLISS, Georgia
RAY LaHOOD, Illinois
JERRY MORAN, Kansas
BOB SCHAFFER, Colorado
JOHN R. THUNE, South Dakota
WILLIAM L. JENKINS, Tennessee
JOHN COOKSEY, Louisiana
Page 3 PREV PAGE TOP OF DOCKEN CALVERT, California
GIL GUTKNECHT, Minnesota
BOB RILEY, Alabama
GREG WALDEN, Oregon
MICHAEL K. SIMPSON, Idaho
DOUG OSE, California
ROBIN HAYES, North Carolina
ERNIE FLETCHER, Kentucky
CHARLES W. STENHOLM, Texas,
Ranking Minority Member
GARY A. CONDIT, California
COLLIN C. PETERSON, Minnesota
CALVIN M. DOOLEY, California
EVA M. CLAYTON, North Carolina
DAVID MINGE, Minnesota
EARL F. HILLIARD, Alabama
EARL POMEROY, North Dakota
TIM HOLDEN, Pennsylvania
SANFORD D. BISHOP, Jr., Georgia
BENNIE G. THOMPSON, Mississippi
JOHN ELIAS BALDACCI, Maine
MARION BERRY, Arkansas
MIKE McINTYRE, North Carolina
DEBBIE STABENOW, Michigan
Page 4 PREV PAGE TOP OF DOCBOB ETHERIDGE, North Carolina
CHRISTOPHER JOHN, Louisiana
LEONARD L. BOSWELL, Iowa
DAVID D. PHELPS, Illinois
KEN LUCAS, Kentucky
MIKE THOMPSON, California
BARON P. HILL, Indiana
JOE BACA, California
WILLIAM E. O'CONNER, JR., Staff Director
LANCE KOTSCHWAR, Chief Counsel
STEPHEN HATERIUS, Minority Staff Director
KEITH WILLIAMS, Communications Director
Subcommittee on Department Operations, Oversight, Nutrition, and Forestry
BOB GOODLATTE, Virginia, Chairman
THOMAS W. EWING, Illinois,
RICHARD W. POMBO, California
CHARLES T. CANADY, Florida
JOHN N. HOSTETTLER, Indiana
SAXBY CHAMBLISS, Georgia
Page 5 PREV PAGE TOP OF DOCRAY LaHOOD, Illinois
JERRY MORAN, Kansas
JOHN COOKSEY, Louisiana
GREG WALDEN, Oregon
EVA M. CLAYTON, North Carolina,
Ranking Minority Member
MARION BERRY, Arkansas
BENNIE G. THOMPSON, Mississippi
DAVID D. PHELPS, Illinois
BARON P. HILL, Indiana
MIKE THOMPSON, California
DAVID MINGE, Minnesota
C O N T E N T S
Berry, Hon. Marion, a Representative in Congress from the State of Arkansas, opening statement
Bishp, Hon. Sanford D., Jr., a Representative in Congress from the State of Georgia, prepared statement
Clayton, Hon. Eva M., a Representative in Congress from the State of North Carolina, opening statement
Page 6 PREV PAGE TOP OF DOC Goodlatte, Hon. Bob, a Representative in Congress from the State of Virginia, opening statement
Letter of November 16, 1999 to Speaker Hastert
Walden, Hon. Greg, a Representative in Congress from the State of Oregon, opening statement
Boucher, Hon. Rick, a Representative in Congress from the State of Virginia
Emerson, Hon. Jo Ann, a Representative in Congress from the State of Missouri
Hutchinson, John H., executive vice-president and chief operating officer, Local TV on Satellite
Jones, Tracy, vice-president and general manager, WHSV TV-3, Harrisonburg, VA
May, James C., executive vice-president, government relations, National Association of Broadcasters
McLean, Christopher, Acting Administrator, Rural Utilities Service, U.S. Department of Agriculture
Phillips, B.R. III,chief executive officer, National Rural Telecommunications Cooperative
Page 7 PREV PAGE TOP OF DOCPrepared statement
Hill, Hon. Rick, a Representative in Congress from the State of Montana, statement
Sjoberg, Richard, president and chief executive officer, Sjoberg's Inc., statement
Television Markets Ranked by Size, table
LOAN GUARANTEE PROGRAM TO PROMOTE THE DELIVERY OF DIRECT-TO-HOME SATELLITE SERVICES TO RURAL AMERICA
WEDNESDAY, FEBRUARY 9, 2000
House of Representatives,
Subcommittee on Department Operations,
Oversight, Nutrition, and Forestry,
Committee on Agriculture,
The subcommittee met, pursuant to call, at 11:05 a.m., in room 1300, Longworth House Office Building, Hon. Bob Goodlatte (chairman of the subcommittee) presiding.
Present: Representatives Moran, Walden, Clayton, Berry, Phelps, Hill, Thompson, and Minge.
Staff present: David Ebersole, senior professional staff; Kevin Kramp, subcommittee staff director; Callista Bisek, scheduler/clerk; Wanda Worsham, clerk; and Russell Middleton, minority consultant.
OPENING STATEMENT OF HON. BOB GOODLATTE, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF VIRGINIA
Page 8 PREV PAGE TOP OF DOC Mr. GOODLATTE. Good morning. This hearing of the Subcommittee on Department Operations, Oversight, Nutrition, and Forestry to review legislation that establishes a loan guarantee program to promote the delivery of direct-to-home satellite services to rural America will come to order.
This morning we are going to be examining an issue that has a great impact on millions of Americans in medium-sized and small cities and especially on farms, in small towns and throughout rural America. This issue could make the difference for farmers ranchers and others in rural areas who require up to the minute information about weather forecasts and disaster warnings. The issue we are exploring this morning is the ability of rural Americans to receive their local television broadcast signals and how Congress can promote economic development and even contribute to protecting the lives of rural Americans by encouraging the delivery of these signals to Americans in rural as well as urban areas.
I was proud to be a member of the conference committee on the recently enacted Intellectual Property and Communications Omnibus Reform Act of 1999, which included language to allow direct broadcast satellite providers to immediately begin retransmitting local television broadcast signals into the broadcast stations area subject to a retransmission consent agreement negotiated with each station.
This new law allows satellite providers to become more effective competitors to cable operators who have been able to provide local over-the-air broadcast stations to their subscribers for years. It will also benefit American consumers in markets where local TV via satellite is made available by offering them full service digital television at an affordable price. More importantly, these consumers will benefit from local news, weather reports, information such as natural disasters or community emergencies, local sports, politics and, yes, including election information as well as other information that is vital to the integrity of communities across the country.
Page 9 PREV PAGE TOP OF DOC Local TV via satellite is already available to satellite subscribers in America's 20 largest television markets. In these markets, DirecTV and Echostar, the existing satellite platform providers, have begin retransmission of affiliates of the ABC, CBS, NBC and Fox broadcast networks. DirecTV and Echostar have also announced their intention to begin retransmission of local TV stations in an additional 20 or 30 television markets over the next 24 months. Ultimately, the two existing satellite platform providers will provide legal TV via satellite to households in most, if not all of the 50 largest television markets in the United States.
However, there are 211 markets in the United States in excess of 100 million U.S. TV households. Therefore, if matters are left solely to the initiative of the existing platform providersand I must say I regret that neither of them were able to testify todaymore than 50 percent of existing satellite subscribers over 6 million households will continue to be deprived of their local TV stations. More than 60 percent of existing commercial television stations, over 1,000, will not be available via satellite and more than 30 million U.S. TV households will remain beyond the reach of local TV via satellite.
Put another way, local TV via satellite will not be available in 27 States and in parts of nearly every State.
So while the law enacted last fall has eliminated the legal barriers to delivery of local TV via satellite, it alone will not assure delivery of local TV via satellite to the majority of local TV stations and satellite subscribers. For that reason, and because many folks in parts of my district and in the districts of most members of this committee cannot receive their local signals any other way, I have joined with Congressman Rick Boucher and Congresswoman Jo Ann Emerson and over 240 Members of the House in supporting legislative language that will assure that all Americans, not just those in profitable urban markets, can receive their local TV signals over satellite. Shortly I will introduce legislation to address the problem and with the help of Congressman Boucher, Congresswoman Emerson and others I know it will have strong bipartisan support.
Page 10 PREV PAGE TOP OF DOC I welcome the witnesses who have joined us this morning and I look forward to hearing their testimony. And at this time it is my pleasure to recognize the ranking member of the committee, Congresswoman Clayton.
OPENING STATEMENT OF HON. EVA M. CLAYTON, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF NORTH CAROLINA
Mrs. CLAYTON. Mr. Chairman, I want to thank you for holding this hearing to review the need to establish a loan guaranty programs to promote the delivery of local television transmission to viewers in rural America. Like you and our colleagues Representatives Emerson and Boucher, I live in rural America and represent a predominately rural area. Representative Emerson and I also co-chair the Congressional Rural Caucus. This is an issue that is critical to rural America and indeed critical to all Americans. It is essential that rural Americans not be treated as second class citizens who are denied access to local television station for news, weather, sports and emergency information.
Indeed, one need look no further than my own district in eastern North Carolina to see the critical role that local television news plays when disasters such as hurricanes, tornadoes, blizzards, earthquakes or floods strike. About 2 weeks ago a fast moving snowstorm with near blizzard conditions left a record snowfall, up to 23 inches in parts of my district, as it paralyzed North Carolina, Virginia, Washington, DC, Maryland and other northern States. Rapid accumulation of snow and ice made travel on our highways treacherous. You may have seen coverage on the national news of the hundreds of travelers who were stranded in my district on Interstate 85.
Last fall three hurricanes and a subsequent 500-year flood left floodwaters that covered nearly 20,000 square miles of North Carolina, a land area greater than the size of the State of Maryland. It took weeks for the floodwaters to recede, and disaster relief efforts are still ongoing.
Page 11 PREV PAGE TOP OF DOC In these natural disasters access to local news, emergency management announcements, and weather conditions saves lives. Local news provides vital information on safety procedures, emergency shelter location, and how to obtain assistance. Since the flooding my staff and I have received numerous complaints from constituents who could not obtain disaster information and weather conditions because they do not have access to local North Carolina television stations.
In addition, local television broadcasts crop reports, local news, weather reports, public service announcements, and advertisements of local businesses which are vital to rural development.
Let me repeat, the rural citizens in North Carolina and throughout rural America deserve and must have access to the same network and local television service at the same affordable price as citizens in urban and suburban areas.
The purpose of this hearing is to determine the need for and the use of guaranty loans to finance satellite companies. It is clear that without this financial incentive; that is, a loan guaranty program, many rural markets of the country will not have access to local television signals via satellite. The economic scales in rural areas has to be compensated because a private investor will not or cannot provide the expensive initial investment needed to provide these services. A Federal loan guarantee program will enable affordable capital to be available to finance satellite systems for the delivery of local television signals in rural areas. I believe that such a program belongs under the Rural Utility Service of USDA and the jurisdiction of the Committee on Agriculture.
As this legislation is developed, we cannot apply yesterday's technology or for that matter today's rule to tomorrow's technology. Explosive growth and rapid technological change necessitates that we ensure that the technological advances that are utilized in these ventures cannot be rendered obsolete within the next few years.
Page 12 PREV PAGE TOP OF DOC I am happy to say that I have a representative here from North Carolina. Mr. John Hutchinson, who is the executive vice-president and the chief operating officer of Local TV on Satellite in Raleigh NC, is among our witnesses. I want to extend a warm welcome to all the witnesses. I look forward to your testimony, and assure you that we will give careful consideration to your recommendation and proposal.
Mr. Chairman, I would like to say to you I would like to be one of those who will work with you on this legislation. Again I want to commend you and Mr. Boucher and Mrs. Emerson for taking the leadership in this effort.
Mr. GOODLATTE. Thank you, Mrs. Clayton, for that excellent statement. And we very much welcome your support. We will put you on as an original co-sponsor as soon as we introduce the legislation.
I believe the gentleman from Oregon Mr. Walden has an opening statement.
OPENING STATEMENT OF HON. GREG WALDEN, REPRESENATIVE IN CONGRESS FROM THE STATE OF OREGON
Mr. WALDEN. Thank you very much, Mr. Chairman. I want to thank you for your continued leadership on this issue and on other rural telecommunication issues. I don't think there is another Member of Congress who probably has devoted more time and energy to improving access to telecommunications in rural areas than you have and bringing new technology for help in our economy, especially on the Internet and all.
I want to say at the outset I am a broadcaster, although I am not a TV broadcaster, but I am a radio broadcaster and my company is a member of the National Association of Broadcasters. So if there is any conflict here I want it on the table up front. I don't believe there is, however.
But I join you and my other colleague Mrs. Clayton for your comments with regard to the importance of local broadcasters and providing information to local communities, and that is why I think this legislation is so very important in that when there is a disaster, it hasn't been the satellite company that has downloaded the information about what is going on with the schools are closed or roads wash out or there is a hurricane, it is the local broadcasters. I think that is where it is critical that we have a situation and a way for those local-into-local signals to come back into those local markets. It is essential.
Page 13 PREV PAGE TOP OF DOC Mr. Chairman, as you know, I represent a very large district in Oregon. There are 33 States that would fit within the boundaries of the Second Congressional District of Oregon. In fact nine States would fit in just one county. So to say that most of my constituents live in rural areas is kind of an understatement. And because many of them live far from cable networks and even beyond the reach of over-the-air broadcasts, large numbers of them watch satellite television, which is a good thing. Unfortunately, as we know, they and other rural Americans currently aren't able to receive local stations via those satellite signals. That means they miss out on a wide range of local news and weather and emergency broadcasts and other local broadcasts that are provided for most of our communities in America.
For example, a satellite viewing company in Chiloquin, OR might watch a network affiliate from Denver instead of nearby Klamath Falls simply because they can't get the over-the-air signal. Doesn't make sense. I am glad we are taking steps to allow that family to receive local TV programming. We need to make incentives available for satellite companies to provide local programming in these places in my district and throughout the country. And I think your approach, Mr. Chairman, of providing a Federal loan guarantee is a sound approach.
Additionally, I think it is important we not cap the amount of the loan guarantee per recipient and that the guarantee be administered solely through the USDA's Rural Utility Service. That office has a great deal of experience in administering rural electrification and telecom programs, and it is a natural spot for a new satellite guarantee program.
Furthermore, I would like to commend your aggressive defense of the Agriculture Committee's jurisdiction over this matter. Most all of us represent rural districts so we ought to have a hand in crafting this important legislation for rural America.
I look forward to hearing from our witnesses here today. And with their help and your leadership and others on this committee we should be able to help rural America receive that local-into-local television programming that is so important in providing for effective communication to our communities.
Page 14 PREV PAGE TOP OF DOC So thank you, Mr. Chairman.
Mr. GOODLATTE. I thank the gentleman for his kind words, and I am pleased to recognize the gentleman from Arkansas, Mr. Berry.
OPENING STATEMENT OF HON. MARION BERRY, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF ARKANSAS
Mr. BERRY. Thank you, Mr. Chairman. I want to thank you for holding this hearing today and also for your leadership on this issue. I am hopeful that the legislation establishing a loan guarantee program for satellite services in rural areas can be passed by the Congress as soon as possible. One in every five homes in Arkansas are left without access to local television broadcast with the passage of H.R. 1554 last November. Since that time my office has been flooded with calls to explain a new set of problems created with the passage of that bill. Unfortunately, we hear the same complaint again and again, the inability to get television stations over satellite in rural areas.
As we know, the original conference report contained provisions establishing the loan guarantee program which would help to ensure rural access to these services. I supported this conference report when it passed the House and along with over 110 of my colleagues signed a letter requesting that this provision remain intact in the final version of the conference report. However, due to jurisdictional concerns from the Senate Banking Committee this provision was stripped from the bill.
Because I grew up in rural Arkansas I fully realized the importance of knowing the local news and weather. Over half a million people in Arkansas currently get their television signals from satellite dishes and they need this information for personal as well as business matters. Like a rural safety net for telephone service was in the 20th century, this program is equally as important today to make sure that rural consumers are not left out in the cold. I support this loan guarantee program and I stand ready to assist in any way possible for the quick passage of this legislation so that rural consumers can have the same services as people in larger cities.
Page 15 PREV PAGE TOP OF DOC Thank you, Mr. Chairman.
Mr. GOODLATTE. I thank the gentleman. Any other Members have an opening statement? I have a statement from Congressman Rick Hill that without objection will be made a part of the record.
[The prepared statement of Mr. Hill appears at the conclusion of the hearing.]
Mr. GOODLATTE. And at this time it is my pleasure to welcome our first panel, two Members who I know are very concerned about this issue. Congresswoman Jo Ann Emerson has been a leader in the reformulation of the Rural Caucus and has been very dedicated to issues of making sure that the technological advances in our country reach rural America, and Congressman Rick Boucher, who unquestionably had the initiative in the conference committee that he and I served on to come up with this solution. And I am very pleased to work with him in getting that legislation approved by that conference committee and by the full House of Representatives. And I am sure we had the votes in the Senate as well, all but one, and even we are now ready to proceed in full order. And I welcome very much your partnership in this effort.
Let's start with Mrs. Emerson. Welcome.
STATEMENT OF HON. JO ANN EMERSON, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF MISSOURI
Mrs. EMERSON. Thank you very much, and I really am honored to be able to speak today on behalf of my constituents in southern Missouri as well as for all rural satellite owners throughout our country. I have to say, Mr. Chairman, that your leadership and that of Mr. Boucher has been next to none and I want to commend you both for the work that you have done to further the interests of those of us who live in rural America.
I also want before I start my testimony to really thank Mrs. Clayton again for her role and work so far as co-chair of the Rural Caucus with me. To date we have over 80 Members on the caucus and it is so very important that we raise the voice of rural America on Capitol Hill. Jerry Moran and Earl Pomeroy, both members of the full committee, serve as our recruitment chair people, and they have done a tremendous job with really very little public knowledge to date about the caucus.
Page 16 PREV PAGE TOP OF DOC I also want to thank each and every one of you all members here today because all of you have signed up to be on the Rural Caucus and you realize the importance of speaking with one loud voice instead of many small voices. Somehow we need to do that more often.
I want to say because everything that I have to say echoes precisely what all of you have said, but I don't think that there has been any issue to date in the 3 1/2 years I have been here on which I have received more mail, more phone calls, more interest at town hall meetings than on this particular issue. And my constituents have been very, very angry, and very, very concerned that they have just been given the shaft, if you will, with regard to their television broadcasts.
I represent 26 counties in southern Missouri. The whole eastern border of mine is the Mississippi River, I have part of the Ozarks, and very, very remote areas in the Mark Twain National Forest. And there is no cable service and there is hardly any local television service, and what local television service is available is impossible for my constituents to get in these areas.
So, looking back at the history over the last Congress I was really pretty optimistic that this rural satellite issue would be addressed in last year's Home Viewer Act. I know how hard everyone worked to make sure that happened. Obviously the proposed loan guarantee program would have helped support the launch of satellite systems dedicated specifically to providing television service to hundreds of rural and underserved markets, but as we all know at the last minute the proposal was scrapped due to a jurisdictional squabble, if you will. And that was very, very disappointing to me. I can tell you that evenI do have one large town in my district. It happens to be where I live. It has 33,000 people but it is way far removed from the top 50 television markets that will be able to receive some help in that bill. But the fact of the matter is that Americans who live in rural areas should have access to the same telecommunication service as those who live in larger urban areas.
Page 17 PREV PAGE TOP OF DOC And as all of you have so eloquently stated, that this is not just about the loss of network broadcasts or source of entertainment, but it is really more importantly an issue of personal safety. I have, as I said, the entire eastern border of my district is the Mississippi River. And the floods that we have had in 1993 and 1995 have been devastating. And without any kind of access to local broadcasts, our folks are cut off. They are cut off from the news and information. Not only can they not receive weather alerts, they won't receive any reports on pending natural disasters or agricultural updates or road closings or emergency news, anything that is critical to maintaining their way of life.
And as far as I am concerned this lack of information will do nothing but further alienate rural underserved Americans.
Now, I know that there have been discussions in the Senate to pass a loan guarantee program outside the jurisdiction of the Rural Utility Service, but I think we all agree that the RUS is the right place for this program, because the program has got to be set up on a not for profit basis. And we need to ensure that the Federal loan guarantee is not used to enrich large private or corporate interests. Having worked with the RUS in other endeavors, we know they are familiar with the challenges facing rural markets and really I believe that is the best way to protect the public interest by administering this loan guarantee program through the Department of Agriculture.
Mr. Chairman, passage of a loan guarantee program is critical to making sure that rural and underserved markets are treated fairly. It is allowing those of us who serve rural America and those folks that we represent to really be on a level playing field with those who live in suburban and urban areas. Because we all agree, I think, that for far too long rural America has been left out of the telecommunications boom. And it is only right that all Americans and all communities should have the ability to participate in the modern Information Age. And it is up to us in Congress to make sure that happens.
Page 18 PREV PAGE TOP OF DOC So thanks again for allowing me to speak today. And I look forward to any help I can give throughout the debate.
[The prepared statement of Mrs. Emerson follows:]
TESTIMONY OF HON. JO ANN EMERSON
Thank you for allowing me to testify at today's important hearing on rural satellite service. It is an honor to be here on behalf of my constituents in southern Missouri and on behalf of rural satellite owners throughout our country. Your leadership and the leadership of Congressman Boucher on this issue is greatly appreciated.
Before I start my testimony, let me quickly thank Mrs. Clayton for working so diligently with me as co-chairs of the revived Congressional Rural Caucus. To date, we have 80 Members working with us to raise the voice of rural America on Capitol Hillincluding Chairman Goodlatte. Let me also thank Reps. Jerry Moran and Earl Pomeroy, our Rural Caucus co-chairs for recruitment, who have been actively working on our organizational efforts, and thank the seven other members of this subcommittee who have joined the Rural Caucus. I invite all of the members of the subcommittee to join us on the Rural Caucus.
Over the past year, I have literally received thousands of calls, letters and e-mails regarding the Satellite Home Viewer Act. My constituents, many of whom had their network broadcasts discontinued, want to receive their local network affiliates through their satellite service. Most of the constituents I hear from on this issue live in remote rural areas where there is no cable service and where it is very difficult to receive their local network station through a standard rooftop antenna.
I was very optimistic that this rural satellite issue would be addressed in last year's Home Viewer Act. The proposed guaranteed loan program would have helped support the launch of satellite systems dedicated specifically to providing television service to hundreds of rural and under-served markets. However, at the last minute this proposal was scrapped due to a jurisdictional squabble. The final outcome of this legislation required satellite companies to provide local into local service in only the top media markets. My largest town, of 33,000 people is not even considered a major market. Americans living in rural areas should have access to the same telecommunications service as the larger urban areas do.
Page 19 PREV PAGE TOP OF DOC It is important to note that this satellite TV issue is not just about the loss of network broadcasts or a source of entertainment. This ismore importantlyan issue of personal safety. It is an issue of emergency preparedness. Without access to local broadcasts, many rural American residents will be cut off from local news and information. They will not be able to receive weather alerts. They will not receive reports on pending natural disasters, or agricultural updates, road closings, emergency crime and other critical news available through their local broadcasters. This lack of information will do nothing but further alienate rural and under-served Americans.
I know that there have been some discussions in the Senate to pass a loan guarantee program outside the jurisdiction of the Rural Utility Service. The Rural Utility Service is the right place for this program. This program needs to be set up on a not-for-profit basis. A not-for-profit approach would ensure that the Federal loan guarantee is not used to enrich large, private or corporate interests. The Rural Utility Service is familiar with the challenges facing rural markets, and I believe that the best way to protect the public interest is to administer this loan guarantee program through the Department of Agriculture.
Mr. Chairman, passage of a loan guarantee program is critical to making sure that rural and under-served markets are treated fairly. It's allowing rural America to be on a level playing field with the cities. For far too long, rural America has been left out of so many aspects of the telecommunications boom. All Americans and all communities should have the ability to participate in the modern information age. It's up to Congress to make sure this happens.
Mr. Chairman, thank you for allowing me the time to testify today.
CONGRESSIONAL RURAL CAUCUSCRC MEMBERS ON THE SUBCOMMITTEE AS OF FEBRUARY 9, 2000
Page 20 PREV PAGE TOP OF DOC Bob Goodlatte (VA), chairman; Thomas W. Ewing (IL), Richard Pombo (CA), Charles Canady (FL), John Hostettler (IN), Saxby Chambliss (GA), Ray LaHood (IL), Jerry Moran (KS), John Cooksey (LA), Greg Weldon (OR)
Eva M. Clayton (NC), ranking member; Marion Berry (AR), Bennie G. Thompson (MS), David Phelps (IL), Baron Hill (IN), Mike Thompson (CA), David Minge (MN), and two vacanices
Mr. GOODLATTE. Thank you, Congresswoman Emerson. I understand that you have another engagement so if you need to slip out feel free to do so at any time.
It is now my pleasure to welcome my neighbor and colleague in Virginia, Congressman Boucher.
STATEMENT OF HON. RICK BOUCHER, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF VIRGINIA
Mr. BOUCHER. Thank you very much, Mr. Chairman. I want to commend you for organizing the hearing this morning, which addresses a subject that is of deep concern to the residents of the small and medium sized cities around the United States and to the residents of virtually all of rural America. Beginning about 2 months ago the leading direct broadcast satellite companies, the two companies that offer satellite based television service to Americans, Echostar, which is marketed as the Dish Network, and DirecTV, began to offer in about 12 cities across the United States the new local-into-local service in which the local television stations are up-linked to the satellite and then retransmitted back into the market of their origination, enabling for the very first time the satellite industry to be a full and complete and viable competitor to cable television.
Historically the cable industry has offered national fare such as CNN, the ESPN stations, movie channels, and the cable industry has also been able to offer local television stations, providing a complete package of programs that is very popular for the consumer market. The satellite industry, however, has only been able to offer the national fare and until very recently with the enactment of our legislation last fall, has effectively been prohibited from offering local television signals.
Page 21 PREV PAGE TOP OF DOC Now the satellite industry for the first time has the potential to be a full and complete competitor for cable television, and the arrival of that event is celebrated not just by people who subscribe to the satellite service. They can for the first time get their local programs, local TV stations by satellite, but it is also an event that will be celebrated by people who elect to continue their cable subscription because cable rates now for the first time will be market based. They will not be based on monopoly pricing, which has been the case in the past. The cable companies are also going to be in a position now to increase their number of programs to improve their services, which they will literally have to do in order to compete effectively with the new satellite services.
So this is an event that serves many purposes and meets many goals for the residents of the areas that will receive the service. I am glad for the residents of the approximately 12 cities that are receiving this service today. I am also very happy for the residents of the approximately 30 cities that will be receiving this new local-into-local service by the end of the year. But the two major satellite providers intend to limit their provision of this service to approximately those 30 largest cities in the country. They simply do not find it to be financially affordable or economically feasible to offer this service beyond those large 30 cities.
Now, as the chairman indicated, there are 211 television markets across the United States. And so the vast majority of the terrain of the United States will not get this service at the hands of the commercial providers. And that is why we need the Federal loan guarantee of $1.25 billion. And I want to commend the chairman of this committee, my friend from Virginia Mr. Goodlatte, for the leadership that he has provided in helping to structure this loan guarantee and working in a bipartisanship way with me as a conferee on the Home Satellite Viewer Improvement Act last fall as we offered the loan guarantee to the conference committee. It was approved unanimously by the conferees. It was approved as a part of the conference report by the House of Representatives with the very strong leadership of Mr. Goodlatte, and but for the objections of a single United States Senator would be law today.
Page 22 PREV PAGE TOP OF DOC As it was deleted from the conference report during the closing days of the session, a very important commitment was made to Mr. Goodlatte, it was made to me, and was made to our Senate partners, including Senator Burns from Montana, that free-standing legislation that we would introduce in this Congress that would provide the loan guarantee for the provision of this local-into-local service on a nationwide basis would be considered on the floor of both Houses no later than April 1 of this year. We welcome that commitment. It is a somewhat unusual commitment for the leadership of both Houses to have made.
And in following through to do our part, legislation will be introduced very shortly by Mr. Goodlatte as chief sponsor. I will be joining with him as co-sponsor as will I am sure and hope will be many members of this committee, our colleague from Missouri Mrs. Emerson. And we will be working very hard to make sure that this legislation achieves its purpose in assuring that the new local-into-local service is made available not just in the largest cities of this Nation but for every resident of the United States.
I want to commend Mrs. Clayton and others on this committee who have eloquently stated the need for the new local-into-local service in terms of people being able to learn about the events that are happening in their communities, to learn about emergencies, to be able to prepare for adverse weather conditions if they are involved in agriculture and other weather sensitive pursuits. These are very important objectives. And I want to be sure, as I know Mr. Goodlatte does, that every American citizen has access to the new local-into-local service.
Let me say that in passing the legislation, we are simply extending a time honored tradition. Just as the Federal Government facilitated the introduction of telephone service into those parts of the United States where the commercial providers of telephone service did not find it affordable to offer that very valuable service, and today we have many telephone cooperatives that are receiving Federal financial loan guarantees and other assistance in order to provide that very valuable telephone service to every American home, we are now extending that time honored principle to the next generation of communications technology which I would suggest is equally important. And we are now going to provide through this measure that every household in America will have access to the new local-into-local satellite delivered television service.
Page 23 PREV PAGE TOP OF DOC I am pleased to be participating with my friend and colleague Mr. Goodlatte in this bipartisan effort. It is time well spent, energy well devoted to a cause that I think will well serve the vast majority of Americans.
And, Mr. Chairman, I thank you for having me here this morning. I look forward to participating actively with you in further steps in this process.
Mr. GOODLATTE. Thank you, Mr. Boucher, for all of your fine work on this matter. Let me take the opportunity to point something out that I think many people may not realize. In addition to the members here who sometimes represent some of the most rural parts of America, there are some pretty major cities affected by this. As was noted in my opening statement and some others, the expectation is that the top 50 cities in the country will probably be pretty well taken care of. And the most optimistic estimates of commercial satellite companies getting into markets reaches up to the top 67 markets in the country.
But below 67 includes some cities people may be surprised to hear: De Moines, IA, is for example No. 70, also not included in the top 67, would be Honolulu, HI; Spokane, WA; Omaha, NE; Syracuse, NY; Tucson, AZ; Springfield, MO; Ft. Meyers-Naples, FL; Columbia, SC; Chattanooga, TN; Jackson, MS; Colorado Springs, CO; Youngstown, OH; Baton Rouge, LA; El Paso, TX; Springfield, MA; Lansing, MI; Reno, NV; Montgomery, AL; Charleston, SC, and the list goes on and on of some 150 plus television markets that may be adversely impacted if we do not pass this legislation and provide the incentive to get this incentive to everybody.
I would ask the gentleman, do you believe that with this legislation necessary incentives will exist to make sure that we get this technology available to every single television household in the country?
Mr. BOUCHER. I think so, Mr. Chairman. In structuring this loan guarantee proposal as we were serving together on the conference committee last fall, we had the benefit of a large amount of advice, technical advice and financial advice, with regard to exactly what it would take to create enough satellite capacity and launch that capacity and then operate that capacity so as to provide the local-into-local service in all 211 television markets nationwide. And the consensus was that a loan guarantee of $1.25 billion was sufficient to that end. And so I think we can have the confidence as we move this measure forward that on passing this legislation we can realize that goal and extend this service nationwide.
Page 24 PREV PAGE TOP OF DOC Mr. GOODLATTE. I thank the gentleman.
Mrs. Clayton, do you have any questions for Mr. Boucher?
Mrs. CLAYTON. Mr. Boucher, you are on the Commerce Committee?
Mr. BOUCHER. In this committee I am reluctant to confess it but I am, yes. I am also on the Judiciary Committee.
Mrs. CLAYTON. I understand that. I know of your eloquent work in Judiciary as well. I am assuming that you are working to negotiate the appropriateness of this being retained for the Rural Utility Service.
Mr. BOUCHER. Yes. I believe that the Rural Utility Service is the appropriate agency to administer this loan guarantee. The Rural Utility Service has extensive experience with administering the Federal financial aid for telephone cooperatives, for example, and administering the Federal financial aid for the Rural Electric Cooperatives. And I think that these are analogous situations to the need that confronts us at this moment. And that is that just as we provided electricity to homes that could not have afforded electricity because of the great cost of extending that service through commercial providers, just as commercial providers were not interested in extending telephone service into rural areas, now we find ourselves in a situation where the commercial satellite companies find it economically inefficient to provide this new local-into-local service, critical as it is, into rural America and into the small and medium sized cities that Mr. Goodlatte mentioned.
And just as the Rural Utility Service administered the Federal facilitation for electric service nationwide, telephone service nationwide, now it is appropriate I think for that same agency with this loan guarantee to facilitate the entry of local-into-local service on a nationwide basis.
Let me further add that I think this committee is the committee that should have primary jurisdiction with regard to the legislation that Mr. Goodlatte and I will be introducing because this committee is responsible for the activities of the Department of Agriculture, including the Rural Utility Service. And it would be an appropriate place to consider all of the various facets of the bill that will make this service possible.
Page 25 PREV PAGE TOP OF DOC Mrs. CLAYTON. You wouldn't be surprised if I agree with you.
Mr. BOUCHER. I am shocked.
Mrs. CLAYTON. I just wondered though how we can proceed to work out the difference in jurisdiction question. And certainly your position is compelling over here in the Agriculture Committee; I am not sure that we would make as compelling an issue in Commerce. But I think the tradition and the history that you have stated is a reason why change, why make a difference in the provision of these rural services when you have an established tradition of how you provide much needed rural services, as you stated, of both electricity, telephone. I also would say about water, in terms of having municipalities who needed to have the utility service of water and sewage systems, again came through USDA.
So I think there is a persuasive and compelling historical reason and I can't find a reason why Commerce would be in this in the first place, but I think Commerce has a legitimate reason for being in the commerce of technology. But I want to make the distinction this is the delivery of services of technology. So I think you need to make that distinction. It may not be a distinction with a difference but I think it is. And I hope you will convey that compellingly to your committee as well. Thank you.
Mr. BOUCHER. We agree. And to the extent that this legislation receives secondary referrals to either the Commerce or Judiciary Committees, I happen to serve on both, and I will be there as best as I can to tend the rapid reporting of the bill from both committees.
Mr. Chairman, thank you.
Mrs. CLAYTON. Both you and the chairman are uniquely positioned on committees to make the gallant fight.
Mr. GOODLATTE. We will do that. We promise. The gentleman from Oregon, do you have any questions.
Page 26 PREV PAGE TOP OF DOC Mr. WALDEN. No.
Mr. GOODLATTE. The gentleman from Arkansas.
Mr. BERRY. No.
Mr. GOODLATTE. I thank you for your ongoing participation in this effort. We still have a ways to go.
Mr. BOUCHER. Thank you.
Mr. GOODLATTE. At this time we are pleased to welcome our second panel. Mr. Christopher McLean is the Acting Administrator for Rural Utilities Service of the U.S. Department of Agriculture; Ms. Tracey Jones is the vice-president and general manager of WHSV TV3 in Harrisonburg, VA; Mr. B.R. Phillips, III, chief executive officer of the National Rural Telecommunications Cooperative, Herndon, VA, Mr. James C. May, the executive vice-president for government relations, the National Association of Broadcasters; and Mr. John Hutchinson, executive vice-president and chief operating officer, Local TV on Satellite, Raleigh, NC.
Mr. McLean, we are pleased to have you with us and your full statement will be made a part of the record. You may begin your testimony whenever you are ready
STATEMENT OF CHRISTOPHER McLEAN, ACTING ADMINISTRATOR, RURAL UTILITIES SERVICE, U.S. DEPARTMENT OF AGRICULTURE
Mr. MCLEAN. Thank you very much, Mr. Chairman. It is a great honor and a great pleasure to testify before this committee and I appreciate the kind comments of the committee about the Rural Utilities Service and the Rural Electrification Administration. We are very proud of that 65-year history and very proud of the 65 years that this committee has supervised the operations of our agency.
Page 27 PREV PAGE TOP OF DOC The Rural Utility Service is a rural development agency of the USDA. We administer a $42 billion loan portfolio of more than 9,000 loans for telecommunications, electric, water and waste water infrastructure projects throughout rural America. We also administer a Distance Learning and Telemedicine loan and grant program and are the leading advocates for rural consumers before both Federal and State regulatory bodies.
For nearly 65 years the REA and RUS has been empowering rural America. Just this last October RUS celebrated the 50th anniversary of its telecommunications program. RUS is fortunate to have an accomplished corps of engineers, accountants, financial specialists and rural infrastructure experts. I am confident that the RUS has necessary skills to administer new initiatives that will bring the benefits of the information revolution to all America.
For America's rural residents, access to television signals has long been a challenge. Distance and geography have been significant impediments to the reception of consistently viewable broadcast signals. While cable television is available in many rural towns, it does not reach America's most rural citizens.
Since its inception, satellite delivered television and now direct broadcast satellite services have provided increased access for all communications services to rural residents. Satellite television gave America's many rural residents first time access to vital sources of news, information, educational programming, entertainment and sports. But as good as these services were, satellite services did not connect rural residents to their local communities.
Since the enactment of the Satellite Home Viewers Act amendments, satellite broadcasters have announced significant new initiatives to provide local signals to viewers. Current satellite carriers are offering local-into-local service primarily, though, to larger urban markets.
The availability of local programming will become also more problematic as the television industry converts to a digital system of signal delivery. The propagation of digital signals is different than analog signals. Analog signals fade out with distance from the transmitter whereas digital signals drop off suddenly. The likely result is that some current rural viewers of broadcast television may also lose their ability to receive a viewable signal once the conversion of digital is complete.
Page 28 PREV PAGE TOP OF DOC Access to a full range of news, weather, sports and entertainment and information is certainly important to maintaining and enhancing a rural quality of life but maintaining and expanding access to the most local sources of news, weather, and information is critical to rural public safety.
The 1999 violent tornado season and the recent weather events, such as last month's back-to-back winter storms in the South and the East, highlight the importance of local television as well as local radio as a means of disseminating lifesaving information. Linking local residents to their communities of interest is also important to maintaining and enhancing the vitality of the local rural economy and civic life. From both an educational standpoint and one of public safety, it is in the public interest that rural citizens have access to local and network programming. Rural America should not fall into a new digital divide.
The delivery of local signals to rural viewers will require significant infrastructure investment, regardless of the technology utilized. RUS loans, loan guarantees and grants have helped to bring modern electric, telecommunications and water infrastructure to the 80 percent of America that is rural. This public-private partnership has been the hallmark of rural infrastructure investment. RUS is capable of helping America meet this new infrastructure challenge.
Linking rural viewers to more local signals will enhance the economics of rural broadcasting as well their rural advertisers. In addition, the infrastructure necessary to deliver local-into-local services, regardless of the mode, can bring new broadband capacity to rural areas. Just as the Rural Electrification Administration helped rural America become part of the national economy, the Rural Utility Service can help rural America thrive in the Information Age. We look forward to working with the committee and offer any assistance we can to help the committee solve this very important issue.
Thank you, Mr. Chairman.
Page 29 PREV PAGE TOP OF DOC [The prepared statement of Mr. McLean appears at the conclusion of the hearing.]
Mr. GOODLATTE. Thank you, Mr. McLean. I am now pleased to welcome Tracey Jones, who is the general manager of a station in my congressional district, an ABC affiliate that is in the 181st market.
We wish you had a bigger market but you don't. So all the more important that we have you here today to testify about this legislation which will try to put your station up on a satellite. Ms. Jones, you are welcome and your full testimony will be made a part of the record.
STATEMENT OF TRACEY JONES, VICE-PRESIDENT AND GENERAL MANAGER, WHSV TV3, HARRISONBURG, VA
Ms. JONES. Thank you very much, Mr. Chairman. I am delighted to be here today. And actually I love being in small market TV and in small markets. It is really wonderful to hear the positive comments championing rural America. Obviously I am very much in favor of the legislation that is going to be introduced by Congressman Goodlatte and Congressman Rick Boucher to establish a loan program that will offer the opportunity for small market TV stations to be available via satellite.
I do manage a station that serves primarily rural areas in northwestern Virginia, and I deal with issues that have concerned the Satellite Home Viewer Act. In all of your comments today you have cited so many in regard to weather, but one of the thoughts that I was thinking of as you were speaking about weather issues is leading up to and over the Super Bowl Sunday weekend, we had some pretty severe snow weather in our area. I was thinking about the people who don't have access to local television as there were school closings in 13 counties, and for those people not to have information that could be instantaneous to them is a shame.
And I have spent many, many hours corresponding with and speaking with people who have lost their imported distance signals and it is a big deal to all of these people, a really big deal, to be able to get their local signals. Obviously, Congressional representatives have spoken here today have said that they have had tremendous correspondence on this issue also. To not be able to get local news, weather, sports and particularly the emergency information, road conditions, is a really big deal to your constituents. And obviously I think the great thing about this new legislation is that everybody wins. Consumers have increased choices. Local stations have some protection of their network franchises. And by doing that, that gives us an opportunity in a small market to reinvest and do a better job of providing more local news and weather and emergency information.
Page 30 PREV PAGE TOP OF DOC I think that the passage of this legislation could finally help put this issue to rest for the legislators in Washington. The sooner it passes the better for everyone. Our signal reaches approximately 23 counties in Virginia and West Virginia. Almost all are in rural areas with mountainous terrain. The Harrisonburg is a great representation of why this legislation is so greatly needed.
So I would urge you please to do everything that you can to pass the legislation as quickly as possible.
[The prepared statement of Ms. Jones appears at the conclusion of the hearing.]
Mr. GOODLATTE. Thank you very much. Mr. Phillips. Welcome.
STATEMENT OF B.R. PHILLIPS, III, CHIEF EXECUTIVE OFFICER, NATIONAL RURAL TELECOMMUNICATIONS COOPERATIVE
Mr. PHILLIPS. Thank you, Mr. Chairman. I am Bob Phillips and I am the president of the National Rural Telecommunications Cooperative. In NRTC is a national cooperative which consists of 1,000 rural electric cooperatives and rural telephone systems. These cooperatives serve in 48 States, providing electric and telephone services in the underserved and unserved markets of the Nation. Fourteen years ago these members decided to form a national cooperative, NRTC, to help them bring the benefits of the advanced telecommunication age to their markets.
Back when a hundred million dollars seemed like a lot of money and before satellites were cool, or even thought of as a technology that would be serving throughout the United States, NRTC with the help of its members raised $100 million privately and invested that with DirecTV to make it possible for DirecTV to launch the Nation's first direct broadcast satellite service. Today NRTC through these members serves 1.4 million subscribers in these rural and underserved markets. In the testimony I am giving today I would like to offer two items that were not improved by last year's Satellite Home Viewer Improvement Act. The first is the unavailability of local satellite TV in rural America, and second, competition to cable.
Page 31 PREV PAGE TOP OF DOC I would like to propose a solution to both of those that is satellite based, and I would like to suggest that part of that solution does rely on a Federal loan guarantee. Last year's bill did pave the way for competition to cable in service by the satellite industry in most of the major markets. But as has been discussed here today there are between 30 and 50 markets that are targeted for service. If you will take a look at the map that we have brought, you will see 40 of these markets which we think is the best information to date and please note that the white areas on that map are the new digital divide.
Mr. Chairman, as already has been noted by members of your committee, there are 20 or more States that don't have any presence of satellite delivered local signals and many parts of the remaining States that are underserved. There is no reason to leave these people out or to disenfranchise these consumers, your constituents, from the benefits of the Information Age much less deny them the local broadcast information that everyone has spoken to here this morning.
Satellite is your solution. Unlike other technology satellite is distance insensitive and it can reach places where broadcast or cable nor any other broadband technology will ever reach.
In fact, I would suggest to you that if we utilize any other technology besides satellite, it is going to provide a piecemeal or partial and I would say ineffective approach to solving the local-into-local problem.
Furthermore, I would suggest to you that every cable customer in America deserves a choice and they deserve to have competition. And satellite can bring that competition. In fact, that is why Congress passed the bill last year. It was a bill designed to open up copyright to the satellite industry so we could also compete effectively with cable.
Chairman Goodlatte, you and Congressman Boucher were leaders last year in rallying support for this provision. You gained over 400 votes here. And as you said it was short of one in the Senate, Senator Gramm, but even Senator Gramm said during the debate when he was on the floor that there are some national goals that are not necessarily met by market forces, and we believe that is the case here. These problems can't be fixed because there is not enough money for the satellite providers to serve those wide areas.
Page 32 PREV PAGE TOP OF DOC Getting the job done is going to take some Federal assistance in the form of a loan guarantee, and we strongly recommend that you look at providing that guarantee to a not for profit entity and preferably on a cooperative type basis. In that manner we think that it will have the best chance of serving the most good and not enriching any private or corporate interests and getting the job done. In fact, we also support the Rural Utility Service as the administering agency for this, as has been stated for most of the last decade. The RUS or REA has done an excellent job in providing telephone and electric loan guarantee and loan support to get the job done in those areas.
In fact, it is a model of public and private partnership that we can all be proud of when it comes to effectively delivering services to markets where private enterprize has not gone.
Mr. Chairman, I believe that it is very important to stop yet another digital divide from being created throughout rural America. We want to work with you on this provision, you and Mrs. Clayton, Congressman Boucher and others. I would strongly suggest to you though that a loan guarantee is not everything that will be required to get this job done. We believe it is going to be necessary to have access to spectrum and favorable orbital locations plus good working cooperation in our industry.
Thank you for the opportunity to testify here today and we do look forward working with you on crafting a plan that will get this job done.
[The prepared statement of Mr. Phillips appears at the conclusion of the hearing.]
Mr. GOODLATTE. Thank you, Mr. Phillips. We are now pleased to have Jim May, with the National Association of Broadcasters. Mr. May, welcome.
STATEMENT OF JAMES C. MAY, EXECUTIVE VICE-PRESIDENT, GOVERNMENT RELATIONS, NATIONAL ASSOCIATION OF BROADCASTERS
Page 33 PREV PAGE TOP OF DOC
Mr. MAY. Thank you, Mr. Chairman. First of all, I think this is one of those grand occasions when no one at the witness table or on the dais has a disagreement as to the objective that we are seeking today, and that is the provision of local television signals on satellite. And I think we are all very strongly supportive of that overall effort and we appreciate all that the Congress has done first in last year's SHVIA legislation to make that legal and now beginning to address the practical issues of how we can have that happen in a variety of markets around the country.
Second, I would like to salute those members who have so eloquently recognized the importance of localism in the broadcast industry, because after all, localism is the bedrock, it is the foundation of what we do as broadcasters, and that applies both to the television side and to the radio side of our business. And we certainly note the presence of Congressman Walden here, who has long been active in the business.
I am not going to try and repeat all of the things that have been said this morning about the need for this service or how important it is. What I would like to do is spend a couple of minutes talking about sort of the practical where are we and where are we going kinds of questions that I think are necessary for this committee to think about.
There are, as we have indicated and as others have indicated, approximately 210 television markets in the United States. Given where Echostar, the Dish Network, and DirecTV are headed, we think that some 35 to 40 of those markets are going to be covered with local service some time in the next 12 months if they are not already covered. My good friend to my left, Mr. Hutchinson, has a business plan that may extend that coverage as high as market 68 or 70, and we are all very supportive of that. That, however, as you recognize, leaves fully 25 percent of the population of the United States uncovered and it leaves for our purposes 800 television stations in markets that are similar or smaller than Ms. Jones' market in Harrisonburg all the way ranging up to the list you read for us, Mr. Chairman, of some fairly significant size cities that are not scheduled for that service.
Page 34 PREV PAGE TOP OF DOC So how do we go about accomplishing that objective? Well, first of all I think we need to recognize there are any of a number of both economic and technical hurdles facing anyone trying to do this business. One is sort of the limited numbers of people that live in these 150 or so small markets. That makes it economically more difficult. In order to make this service consumer friendly, hold down costs, we think the rural plan is likely to have a feature of wholesaling signals to the basic platform providers, Echostar, DirecTV, instead of trying to create a system that duplicates what they are doing in retailing direct to customers across the board. We think, therefore, that it is entirely likely that an Echostar or DirecTV, or both, would become partners in this kind of a process.
What we also recognize is that there are other technical problems that could crop up. They have different transmission standards, they have different conditional axis systems, just two examples. We would have to make sure that we hit the right orbital slot for a satellite that could service one or more of those basic platforms. The large number of stations involved, as I said a moment ago, 800 different stations across the country, means that in all likelihood you are going to have a spot beam satellite technology that is just now developing. The net of all that is you are going to have a project that costs somewhere between $600 million and $1 billion to be able to cover these markets.
Now, the difference, the spread there is a function of, No. 1, the total number of markets you want to cover and, No. 2, whether or not your lenders require redundancy that we think they will. So in looking at this challenge, and AB certainly supports very strongly the concept of providing economic incentive, taking a look at last year's plan, we have a series of ideas or thoughts to improve it as you begin to draft for this year.
First of all, we think that you have to support in the long run the time tested principle of must-carry. We recognize there are some that would suggest of doing away with must-carry as part of the solution. We firmly reject that notion.
Page 35 PREV PAGE TOP OF DOC Next we would like to make note of the fact that last year you placed some rather significant limits on the amounts of money that might be available to any one provider during this program. I think we would prefer to let the marketplace do that. We think you involved too many agencies last year. Let's simplify it. RUS is not a bad idea at all. We think that the proposal's handling of subordination deserves a close look. And you need to be careful that you do not subordinate interest in a way that keeps additional loan money from coming in.
We do not agree, Mr. Chairman, that exempting for-profit organizations, including specifically DirecTV and Echostar, is appropriate. It is entirely possible that this could become a for-profit operation and I think you are severely limiting yourself in the long run. At the end of the day we support economic incentive, we do not want this program to create a new bureaucracy and we certainly do not want this program to try and force a business plan to be adopted in one phase or another.
So, Mr. Chairman, we look forward to working with you as we have in the past. We salute you for providing the legal basis for getting the local-into-local accomplished last year, and now let's go after the practical and economic side of it. Thank you for allowing us to participate today.
[The prepared statement of Mr. May appears at the conclusion of the hearing.]
Mr. GOODLATTE. Thank you for your participation.
Mr. Hutchinson, are you from the great State of North Carolina? Are you from Mrs. Clayton's district?
Mr. HUTCHINSON. Just about. I have had all the pestilence I can stand. I think the locusts are coming next.
Mrs. CLAYTON. He is from Raleigh. I will count him.
Mr. GOODLATTE. It is close though. We are delighted to have you with us. I will claim him too if his company is looking to put up the No. 68 market in the country, Roanoke-Lynchburg in my district, and Mr. Boucher's district. We are delighted to have you with us.
Page 36 PREV PAGE TOP OF DOCSTATEMENT OF JOHN H. HUTCHINSON, EXECUTIVE VICE-PRESIDENT AND CHIEF OPERATING OFFICER, LOCAL TV ON SATELLITE
Mr. HUTCHINSON. Thanks so much. I agree with so much of what I heard on the panel, just about everything, with one exception that I will get to, that I am not going to try to repeat testimony in the interest of time.
We are the people who have been studying this problem and the solution for the past 3 years since Capitol Broadcasting first began funding this study in 1997. I suppose we have run down every dead-end street and made every mistake there is. So let me see if I can help us avoid those here and advance the ball a little bit.
When we realized that after loading the satellites in the orbital slot we are talking about for our private enterprise as full as you can get it, we started with the most populous, New York, and as we worked down and filled up the satellite we ran out of everything on the satellite when we got about to Knoxville or so. We said, OK, somebody has got to do something about the 800 stations but with only one-third of the revenue potential because of the population.
So we put our investment banking consultants on the job to do some financial models and technical models and they came up with exactly where we seem to be going here. I certainly endorse the Federal Loan Guarantee Program. Specifically though, we also would like to make some recommendations with regard to some criteria for this program in our view to be successful and fully responsible.
First, we believe the Government's interest should be secured by the in orbit satellite and the ground stations, the hard assets that will be worth about $750 million for the rural market part half of the country. And these satellites are fungible. That is to say, if for some reason this program didn't develop as it should they can be used for broadband data. They would be very good for that. But that is not what we want. The rural markets need them to work for television.
Page 37 PREV PAGE TOP OF DOC Now, I will point out that with the interest in broadband data and in rural America the new digital television stations that would go through this satellite design can deliver very high speed Internet type data. And we can give access to rural America through this system where the cable lines do not go and the phone lines are just too slow. And that is what we would like to do here. I am referring to datacasting, which is a part of the new digital standard that Capitol Broadcasting is exploring. Here is the basic plan: To be consistent with the Federal mandate and public policy, we agree that this system should be built for full must-carry, carry one carry all, in a market, and that it should support the digital television rollout in America by carrying the entire signal, and that it should provide meaningful competition to cable, which is where some of this legislative initiative started.
First, why must-carry. Why not? For one thing the existing providers already are sitting on Federal licenses for enough orbital slots unused that they could very well serve all of America. And it is the law. Also we need to point out that without this, smaller stations would be choked off from their markets and we would have the unintended consequences of having the satellite carriers effectively pick which broadcast stations survive and which ones don't as multi-channel penetration for satellite grows. That is particularly important in rural America, where the station margins, Ms. Jones, are a little slimmer.
Second, the entire signal. Why? Well, first, all commercial TV stations are mandated to make the investment and to build the digital transmitting facilities by May 2002, about the time this system would be up and running. So if the satellite doesn't carry all of that, it is going to fail. And one of the reasons for doing it that way is going to fail too, which is that the Government can't expect to recapture the analog spectrum that it planned for auctions to help with the national budget.
With the carriage of the entire signal in such a system we have the pretty pictures in high definition TV that rural America should also have when the Super Bowl is on or the Grammy's, multicasting which are multiple signals on the same station, and this high speed datacasting I have referenced that is particularly important, I think, to rural America.
Page 38 PREV PAGE TOP OF DOC We agree that we just don't want to see rural America as second class citizens in the Information Age. And we also ask why not the whole signal on this signal? Well, why not?
Because the system we are proposing is so efficient by using a common platform approach, so conservative of resources and efficient that either provider could do it or private enterprise or the entity that is now contemplated. We have to recognize that the rural stations, these 800 stations in smaller markets, are going to have to spend in excess of $2 billion to make this digital transition. And in order to get that money back they are go to have to have passed the entire signal.
But here is the real thing: These satellites last 15 years. And cable and everything else is going digital so if we don't pass the whole signal through the satellites, they are going to be obsolete too soon, early in their life. You know, you can't get back up there 23,000 miles in space to fix satellites. What you do when a satellite becomes obsolete is you blow it up or send it to get lost in space.
So we want to protect the American taxpayer in this system by not having them invest in a substandard design that would be like investing in a black and white TV company that can't change, when we know color is the thing.
Now, next why do we say the common platform. That is because otherwise to build this thing by several parties twice, to be redundant, would be very wasteful of spectrum and it would duplicate the billion dollar cost. Instead we are proposing the singal common platform parked in between the current providers so that whether you are an Echostar subscriber or DirecTV you can get local stations on the same small dish. And that is important also to drive penetration so that the business plan for the rural markets works. We need both of the DBS providers to make this service available. It certainly conserves resources. And by doing it this way the loan gets paid back.
Page 39 PREV PAGE TOP OF DOC Finally, we do believe that private funding will supplement the debt portion of this program. Not as much private equity as in the larger markets, but to some extent. And we just really don't see any justification for why the most qualified candidates shouldn't all be considered, not just limiting the recipient of this loan guarantee to nonprofits.
We certainly don't have any quarrel with the agency, with RUS, being the administering agency, but we do think that all qualified recipients should be looked at. Somebody could have a better idea. If we do this, we have a business plan that we have looked at for rural markets where the cash flow in years 2 to 3 start supporting payment of the interest: in year 5 we can begin amortizing the loan. And by year 15 have the loan paid off if not sooner, perhaps by year 11, if we can get more private investment in this thing by doing it the right way.
So in summary we certainly support the work of this subcommittee and we want to foster this development in rural America through quality local-to-local television on satellite. We believe the Government guarantee of a secured commercial loan is the way to go and it won't happen otherwise.
We think that inclusion of some of the criteria I have talked about, the fiscal and public policy criteria mentioned for awarding that support, the right kind of Government loan is really important to deliver this television and broadband data to rural America and to protect the taxpayer. It is based on sound business principles for the long term. It is a nondiscriminatory system and a system that will be forward compatible and not prematurely obsolete.
Thanks a lot for allowing us to comment on this since we have been looking at it for some time.
[The prepared statement of Mr. Hutchinson appears at the conclusion of the hearing.]
Mr. GOODLATTE. Thank you, Mr. Hutchinson.
Page 40 PREV PAGE TOP OF DOC Mr. McLean, can you elaborate on the level of experience your agency has in administering loan guarantee programs?
Mr. MCLEAN. Thank you, Mr. Chairman. Well, we have 65 years of experience with a loan portfolio of $42 billion with over 9,000 projects in telecommunications and electricity, water, waste water, distance learning and telemedicine. The RUS is also blessed with what I think is one of the finest corps of engineers in the entire U.S. Government. Every day they make me proud with the technical competence that they have as well as an excellent corps of an accountants and financial analysts. So that I believe that we do have the technical skills available to do the job.
Mr. GOODLATTE. You alluded in your testimony to the digital divide, something I know many of us have been concerned about and I think you have a unique perspective on that. The digital divide has actually been around in one form or another for over 50 years and RUS has been working to close the divide from the beginning. In addition to the administrative expertise of the RUS in administering loan guarantees, can you elaborate on your technical expertise in working on telecommunications issues beyond what you just said.
Mr. MCLEAN. Yes, sir. When President Truman signed the telecommunications amendments to the Rural Electrification Act into law 50 years ago about 40 percent of America's farmers had telephones. And today we are in the high 90's in many rural areas. Now the job is not done in terms of closing the digital divide. There are still 6 million Americans without telephone service. Approximately a third of them live in rural areas. But that progress over 50 years of going from 40 percent telephone penetration to very close to the national average I think is very remarkable.
The other thing that I think is extraordinary about the Rural Utility Service Telecommunications Program is that if you compare the technology that is used by a typical RUS borrower to that of larger company in a similar rural exchange, you will find, hands down, that the RUS borrower has some of the most advantaged telecommunications technology available. And it also comes at a very affordable price because of the buying power of the whole system.
Page 41 PREV PAGE TOP OF DOC But that is our mission to close the digital divide. It has been for 50 years in telecommunications, for 65 years in electricity. And as we move into the new era of broadband communications and satellite communications, we are going to do everything that we can to try to prevent a future digital divide, particularly in the area of television.
Mr. GOODLATTE. Thank you. Ms. Jones, do you know how many folks in your market right now subscribe to satellite television service?
Ms. JONES. Actually about 18 percent of the homes in our designated market area subscribe.
Mr. GOODLATTE. And most of those folks I would assume either get a distance signal for their ABC programming or go without all together. I bet not too many of them fiddle with going back and forth between the satellite and antenna. Do you know?
Ms. JONES. Well, for those people who truly cannot get an over the air signal from us, yes, they would either do without or I do believe that for those people who can get us via antennas since the Satellite Home Viewer Act has begun being enforced have gone back and forth. So they get the balance of their channels via satellite and they do get our station by antenna.
Mr. GOODLATTE. But they don't like it, do they?
Ms. JONES. No, they don't like it.
Mr. GOODLATTE. They write to you and they write to me and tell me about it.
In addition, you are losing out on a portion of what would be your market by those who are getting the distance signal or those who are going without. So there would be by bringing local-into-local an expansion of your station's reach to more of the customers that you want to serve. Is that right?
Ms. JONES. Absolutely.
Page 42 PREV PAGE TOP OF DOC Mr. GOODLATTE. What kinds of community information do you make available on your station that those folks can't get right now?
Ms. JONES. Well, I would say probably the most important always is going to be weather or emergency related information that they would have virtually no access to. And I am aware of people who are in areas that cannot get a local signal off the air and virtually they are calling family members to find out if road conditions are drivable or if their children's school is closed. And that is really a difficult position to be in.
Mr. GOODLATTE. Or if their Congressman were to hold a town meeting they might not hear about it.
Ms. JONES. That is right.
Under the current business plans that you have heard about from the various existing satellite companies and those who are proposing to put up satellites, when would you anticipate that the Harrisonburg market would be served by local-to-local without this legislation?
Ms. JONES. I don't have any anticipation that it necessarily ever would.
Mr. GOODLATTE. The 180th market would be
Ms. JONES. Would be way down on the list.
Mr. GOODLATTE. I agree with that. And that is why I strongly support in legislation.
Mrs. CLAYTON. Mr. Chairman, first I want to say that Representative Bishop had asked if his testimony could be put in the record.
Mr. GOODLATTE. Absolutely. Without objection. So ordered.
[The prepared statement of Mr. Bishop appears at the conclusion of the hearing.]
Page 43 PREV PAGE TOP OF DOC Mrs. CLAYTON. Thank you. I would first like to congratulate Mr. McLean for being nominated and confirmed in his new job. He was acting and now he is official as the Administrator. Congratulations and I hope that things go well and that the great tradition of RUS continues. I would like to direct one question to you. Given the history that we have had, do you see a need for new legislation, do you need new authority in order to do this? Will you need a new division? And second, what sort of appropriation issues do you see that we would probably need when this legislation is enacted.
Mr. MCLEAN. First, thank you very much for the kind comments, and I appreciate your support and your encouragement and it will be an honor to serve and bring the vision of this committee to life at the Rural Utility Service in this new capacity.
In terms of the staff requirements of administering a loan program the size contemplated by the legislation that was part of last year's conference, I believe that the Rural Utility Service can do that with our current full time equivalent ceiling with the assumption that I am able to fill vacancies that have been created by recent requirements. We would expect that there would be a handful of loans, although some of those loans may be very large in size, but we believe that the volume of loan activity is something that we could handle. And as I had mentioned earlier, we do have the technical expertise. And in the legislation considered last year there were means for the agency to seek outside counsel and outside consulting in order to fill in any gaps that might occur with a particular loan application.
As to appropriations, last year's legislation utilized a financing technique which was for the first time used in the transportation bill in TEA21 for railroad infrastructure, another very large infrastructure intensive project that again was aimed at rural areas. And in that financing technique, the credit risk premium was used which would create the option for a third party, or a nongovernmental entity to put up the equivalent of budget authority. When the Congress enacted that legislation in 1998, the Congressional Budget Office scored it as no net cost to the Government. So that is a feature that is worth contemplating in terms of whether there would be any budget authority required for this program.
Page 44 PREV PAGE TOP OF DOC Now, if the credit risk premium were not to be used, budget authority pursuant to the credit reform formulas of calculating the risk of a particular project would apply.
There would be no loan subsidy, because this is a loan guarantee. So you would not have any below market interest rates. So that would also dramatically limit any budget authority cost to the program like this.
Mrs. CLAYTON. What is your current loan capacity now, with all your aggregate programs, your portfolio?
Mr. MCLEAN. The entire portfolio is $42 billion with well over 9,000 projects. In telecommunications, there are about 800 active loans right now. And again I believe we could do the job. Our annual program level is about $4 billion a year.
Mrs. CLAYTON. The chairman had raised a question or asked you to comment on the technical competence of RUS being able to handle this program. I know some of the work that RUS is doing in terms of telemedicine and working with the universities and just the transmission of varied details, x-rays and procedures that save lives, I know at East Carolina University we have one and other universities that are looking forward to doing that. So I think there is some basis for you already doing that. So it is not something brand new.
Mr. MCLEAN. The Distance Learning Telemedicine Program, which this committee has been so strong in supporting, has really given us a tremendous insight into cutting edge technologies. There are about over 300 distance learning telemedicine projects all across the United States. And again we believe we have the technical capabilities as well as access to technical capabilities in other agencies of the Government as well.
Mrs. CLAYTON. Mr. Hutchinson, just would you explain to me if Mr. Phillips' and Mr. Hutchinson's ideas could coexist? What is the name of your organization, Mr. Phillips?
Page 45 PREV PAGE TOP OF DOC Mr. PHILLIPS. The National Rural Telecommunications.
Mrs. CLAYTON. Do I understand you tht all those red dots on the chart that the red means that is where you are currently serving up there on the board?
Mr. PHILLIPS. Our members, the rural electric cooperatives and the rural telephone systems, are borrowers of RUS. Those are the ones that provide the electric and telephone service through out the country.
Mrs. CLAYTON. And you see an opportunity for you to provide the satellite services in those areas, right?
Mr. PHILLIPS. Absolutely, Mrs. Clayton.
Mrs. CLAYTON. And I guess my question is to understand if there is opportunity for both models, and I just refer to your model as your name. And Mr. Hutchinson has a great plan for making sure that there is the technology and the finance and work. I just want to know about the ability of these plans to coexist. If either one of can you comment on that.
Mr. PHILLIPS. I would like to have a shot at that. I am sure Mr. Hutchinson would as well. I really appreciate the question because there is something that has been bothering me that I want to make sure the committee understands that has not been discussed here today and your question goes right to it.
First of all, we are in the satellite business. We have been in it for 14 years. We have put up $100 million to help get it going. We serve 1,400,000 subscribers through our members in those white areas. We are a player. Mr. Hutchinson's organization, I thinknot to beto speak down to him but just so we understand this, Capitol Broadcasting came to Congress about 2 years ago and said if you give us copyright authority we will serve all the markets. We will convince DirecTV and Echostar to work with us on our plan and get it done. We said that would be fine if that would work. They came back later and said we can't do it. We want to our high definition TV. Our bankers won't support it.
Page 46 PREV PAGE TOP OF DOC Now today it sounds like Mr. Hutchinson is ready to go. I would say to you that perhaps he is, but I would want to point out this job is a tremendous job from a standpoint of financial, technology and market risk. First of all, from the technology, as was stated, you need a spot beam technology. We agree with that. Our plan would encompass the same thing. You have tremendous capital that is going to have to be invested. One and a quarter billion dollars in our mind is not enough. We think that will have to be supplemented by additional private funds. The market risk is that we need to have all the customers and potential customers subscribe. We need a high penetration, and particularly in the lower or the markets that are towards 211 because there are so few customers in those local markets.
If for example, Mr. Hutchinson's group, as he suggested they are ready to step up and serve the 40th to the 68th market, if they do that, our plan says that if you don't serve the 40th to the 211th as a cooperative, as a full approach whether you are private or not for profit, your payback on a cashflow basis just on an annual, not cumulative but annual, is going to be pushed from 2 years to 5 years.
And that is because those next few markets are so populated and so much of an opportunity to return the margins or profit that is going to be needed.
So this is a tough job. We think a coordinated comprehensive approach is best. We are in the industry. We work with DirecTV. And we try to work with Echostar. These are the same DirecTV and Echostar companies that are now embroiled in an antitrust lawsuit, the same companies that Mr. Hutchinson's company has not been able to do a contract with him to get started.
That is why when I said in my testimony we need a loan guarantee, we need an assistance in the form of additional spectrum from the FCC, we need favorable orbital locations and we need industry cooperation, that is why I said those things. I really believe it is important. I would be pleased to work with the broadcasters and with Mr. Hutchinson. They have not been willing to sit down with us and meet or even discuss the plan. We stand ready and willing to do that. We think it is going to take a cooperative effort. I hope you understand those facts.
Page 47 PREV PAGE TOP OF DOC Thank you.
Mrs. CLAYTON. Sure, you can respond quickly.
Mr. HUTCHINSON. Thank you. Mr. Phillips, we welcome that discussion and enjoy the day we spent with your three people in Raleigh laying out the plan that we had invested in. I would sort of like to take credit where credit is due here on why Local TV on Satellite changed its plan from all stations, all markets to being able to serve the top 75 percent of the United States. It is because we recognized early on a different kind of ''digital divide.'' The fact that digital television was a reality in America, that it was federally mandated that all stations be there by 2002, about the time we would launch, and if we had stayed with the original plan before that change in the landscape, before that sea change occurred, we would have a system that would be technologically obsolete early, perhaps within the first 5 years of that 15-year plan, and would fail. And so that is why we shifted.
The new digital television standard that I am talking about takes about six times the capacity of the old analog SD standard. And that is what ate up all the satellite capacity. So that development is when we went to work finding out how the rest of the country could be served, the other 800 stations. And this plan provides for that. I think one of the reasons that our organization was able to see that early is that we were the first experimental high definition digital television station on the air in America down in Raleigh and it is still on.
And we have a laboratory where we are experimenting with the multicasting and the datacasting I have referenced. So we have actually done these things, seen their potential, and I believe have a handle on where it is going.
So we want to protect the taxpayers from investing in a system that would be obsolete about the time it launched. That is the reason for the change. And in terms of getting the satellite carriers to sign, it is true that we have not yet formally announced signing one or the other or both but we believe we will by April. We are very close on that. There are some legislative issues that have probably slowed that down in the lobbying process.
Page 48 PREV PAGE TOP OF DOC So I believe that we are consistent in many ways but wanted to make it clear what did change about the television landscape and that we recognize that change and need to be cognizant of it.
Now, the system for the first 75 percent can survive with only one or the other of the providers being the distributor for this wholesale system, either Echostar or DirecTV. One or the other would make it work. But when we looked at the business plan for that last 25 percent of the population it will require both providers or indeed, as Mr. Phillips points out, it would be way too long on the payback. In fact we believe this loan guarantee could turn into a Federal subsidy if it is not a common platform, if it is not a single recipient who works to conserve resources in the most cost effective and efficient way. That is why we believe in the common platform that has to be distributed by both providers, especially for those smaller markets. Thank you.
Mr. GOODLATTE. Thank you. Mr. Walden.
Mr. WALDEN. Thank you, Mr. Chairman. I would like to get to probably the question my constituents would ask most often is OK, that is all fine but when am I going to get local-to-local into my market. And since my district is probably that bottom 25 percent, without a common platform am I ever going to see it? And I will throw that open to anybody to respond to briefly.
Mr. PHILLIPS. Mr. Walden, I can't speak for DirecTV or Echostar but I can tell you I have spoken with them as recently as this past week about this issue at the highest levels, and they don't believe that they will get to those markets even with a loan guarantee unless we have some relief in the form of additional spectrum. They would like to relieve the must-carry requirements. I am not speaking to that. But if you allow the next tranche of markets to be served, as Mr. Hutchinson is saying, if that happens and those competitors would be happy to do it because it gives them greater market share, it helps lift their business, it makes it even longer to get to Bend, OR. I mean, that is the reality of this. That is why we do need a comprehensive solution. I would support a common platform but I think you have an issue of DirecTV has accepted in the United States the standard for encryption and Echostar has the international standard and neither one wants to give up or accept the others.
Page 49 PREV PAGE TOP OF DOC So some type of a common or different or universal platform would have to be developed. We believe that too in our plan. Frankly, that is why I think RUS has a lot of expertise in this area, could help us a lot. They could also ferret out who can do what they say they are going to do and who is going to deliver what. And I think that is going to be important here when you decide to allow someone to take a Federal loan guarantee and supplement it.
Mr. WALDEN. Because I have got to tell you there isn't much for me if I hear that it will never get to my market. Mr. Hutchinson.
Mr. HUTCHINSON. I would like to comment that based on the architecture that we have designed, the common platform will accommodate the encryption from both Echostar and DirecTV. That is an essential part of the design, it has to work with both, both for the large markets and especially the small. Second, if we get on with it here it is possible that the rural markets could be served with local-to-local, every one of them, in addition to the large markets by 2003. It takes about 33 to 36 months to construct these new satellites and it can be done.
Mr. WALDEN. Mr. May, would you like to comment on that especially in relation to the must-carry provision? Because without it do you think that stations would actually get picked up in these smaller markets and be retransmitted.
Mr. MAY. I would like to come to the must-carry but I would also like to address your first question. I don't think that I really fundamentally disagree with either of the folks sitting to one side or the other of me. As a practical matter, if Dish and DirecTV are left to their own devices, I think they are perfectly happy operating in simply the largest markets.
Mr. WALDEN. Sure.
Mr. MAY. If at the end of the day Mr. Hutchinson can do a deal with Echostar and pick up some of the additional markets, he may go as high as 70. That is going to leave either market 71 through 211 or 211 and one platform, arguably markets 35 or 40 through 210 on a second platform. I think we would all love to see a common platform but I am not sure in fairness and with no disrespect to the members, I am not sure you are going to find a way to mandate a business plan that forces a common platform. You can condition the use of a loan guarantee as to whether or not there is a common platform but that doesn't mean that you can force either of those two companies to participate in that.
Page 50 PREV PAGE TOP OF DOC So I would be focusing on the positive nature of getting a business under way, trying to expedite it to the extent possible, butand while we all agree that a common platform is appropriate and nice to have, I am not convinced that you can sort of mandate that as a requirement of having a business. Because it may well be that there is a business that can be developed, especially if it starts at market 40 as opposed to market 70, that could be productive. And I think it is at the end of the day going to be a process that involves DirecTV or an Echostar or an NRTC broadcaster participation and so on.
As to the question of must-carry I think the easiest, simplest way to kill small market coverage is to modify must-carry. Let's face it, one of the single biggest economic incentives for Echostar and DirecTV is going to be must-carry. They have to carry in any market in which they choose to offer all of those stations. And if they can avoid that requirement, they can tell you that they are going to be in small marketsI promise you it will never be Bend or Harrisonburgand make a great case, but as a practical matter the only thing that really causes this to happen at the end of the day is must-carry and we are strongly supportive of that.
This is a process of inclusion, not exclusion, and I don't want anybody to be a determinant as to which station gets carried and which doesn't in whatever size market we are talking about. I think you need to keep must-carry. I think at the end of the day all of us need to be there. Three years to 4 years lead time is what is going to be needed to get the job done. I think we all agree on that. And so we get this deal done this year, you get economic incentives created. You create it in a way that it can be actually used in a positive fashion by the business people that want to get this deal done, and then I think you are looking at 3-plus years after that to make it happen.
Mr. WALDEN. Mr. Chairman, could I ask one other question?
Mr. GOODLATTE. Sure.
Mr. WALDEN. Is a common platform a requirement to be able to do datacasting?
Page 51 PREV PAGE TOP OF DOC Mr. MAY. No.
Mr. WALDEN. One of the issues I have is thatonce again I have a community just this year just got granted telephone service, Granite, OR, 22 people, first time in history they got landline. I see high speed fiber go right through my district and there is no offering. And the cost of stringing fiber is so high it looks to me there will have to be a digital connection via satellite. So I want to see that as a component of this process.
Mr. MAY. We think it is a terrific opportunity. I know the other people on this panel agree. It is one of the ancillary businesses that could very much be a part of this delivery system. It is one of the reasons we think that you ought not to restrict the profit motive because it could well be the profit motive that drives this the fastest to get it into the marketplace, again depending on what size market you start with.
Mr. PHILLIPS. May I add to that?
Mr. WALDEN. It is fine with me. It is up to the chairman.
Mr. GOODLATTE. Briefly.
Mr. PHILLIPS. The common platform has been discussed. I want to point out that will mean there will be some additional cost to the satellite receiving equipment. I want to agree with you also that we see a plan that is complemented with broadband delivery local as very appropriate. I would like to suggest to you that you don't necessarily have to have DirecTV and Echostar agree to that. I think that should be explored in the plans that are put forward too. Not that it is incompatible, but you don't have to necessarily have their agreement.
Mr. HUTCHINSON. May I clarify our position on common platform?
Mr. GOODLATTE. Go ahead very briefly, please.
Mr. HUTCHINSON. We haven't suggested that the common platform be mandated. I agree with Mr. May on that. What we have said is that it be among the key criteria for selecting the best qualified candidate. We believe that the existing DBS providers would jump at an opportunity to have someone pick up and wholesale to them this burden as they see it, because I think we have recognized that they don't really want to do this themselves. And by using a common platform each of them saves their own valuable capacity. They simply pay the entity a wholesale rate for each subscriber that signs up. There is no risk. It is off balance sheet, off credit doesn't use their spectrum. So we think there is a really good possibility they would want to use a common platform.
Page 52 PREV PAGE TOP OF DOC Mr. GOODLATTE. Thank you. The gentleman from Minnesota, Mr. Minge.
Mr. MINGE. Thank you, Mr. Chairman. I live on the edge of that eight-State area that has no dots on it, and as a consequence I have a keen interest in this. It falls into sort of two or three different categories. One is it make sure that we have reasonably priced access to all of the digital information and services that are out there. When you look at western Minnesota, the Dakotas, Montana, Wyoming, Idaho, Nebraska, Kansas and Oklahoma, you can see that we are talking about a fairly large portion of the United States. And Iowa I see has no dot. I would just like to make sure what when the dust settles with this effort that the rates that those of us that live in the rural areas that have a lower per capita income than the rest of the country are not higher rates than the rest of the country but instead are parallel rates and parallel opportunities, and that we have the competition that we need so that the marketplace can make sure that we have parallel rates and we aren't dependent upon some regulatory force and the appealing and everything that goes along with that and the frustration and delay and often the failure to enjoy those rates.
Second, I have a concern that we not just focus on television but that we recognize that there is broadband access. That is important to people, and hopefully this bill is the beginning of something that will deal with that particular issue.
The third thing I would like to mention is that we have a number of entrepreneurial families that have gone in and tried to cobble together different types of service for small rural communities. They have made an investment, they are struggling to survive, they are parts of the communities in these States. And it is a very awkward situation. We don't want to somehow punish them for their entrepreneurship and for the service that they have provided, but at the same time, they can't hold an effort to improve service that those that currently don't have service hostage until every issue that they feel is important has been adequately resolved.
Page 53 PREV PAGE TOP OF DOC As we proceed here I would just like to raise for comment by those of you that have joined us this morning this issue of how can we assure some modicum of fairness to those entities. And we are talking here, at least in my opinion, about very small, often mom and pop cable systems that have been wired in. And I have seen some of these systems, some of these local telephone companies that have expanded and done things that the Baby Bells refuse to do in rural areas and sabotage all the other larger investor-owned telephone companies. And I would like to ask is there a way we can proceed so that somehow we don't end up snuffing out those companies as we proceed with legislation at the Federal level. And I don't have a good answer as to how that is done but I am interested in your take on that.
And Mr. McLean, I know that this is part of your charge at RUS and, Mr. Phillips, I have worked with NRTC before I became involved in the political arena and I have a lot of respect for what you have done with the Rural Electric Cooperatives. I am sure this is something you have had to struggle with there. I am not sure about the others on the panel.
Mr. MCLEAN. The issues you address, Congressman, are the very core values of the Rural Utility Service. In our telecommunications portfolio, which is right now about $4.6 billion, we have a fairly strong principle that we will not have zone or mileage charges so that you have a rural rate as opposed to an urban rate. Congress spoke very clearly in the Telecommunications Act of 1996 that rates have to be comparable between rural and urban areas for telecommunications services. And even in the legislation that was considered in conference, there was a priority provision that focused on delivering service to the most rural areas and a requirement that there be a sub-basic tier of service. I think your observation is extraordinarily important because in order to gain access to that information, it has to be at an affordable rate. And I think that the strength of the application will be enhanced if it embraces the principle that you suggest, that there is an affordable rate, because in order for the business plan to succeed, as Mr. Phillips mentioned, particularly in those most rural areas, you need very significant penetration.
Page 54 PREV PAGE TOP OF DOC Now, as to the issue of cable, we have in our statute a prohibition on financing community antenna television, the old-fashioned term that was used for early generation cable television. Administratively, however, we are reading that as narrowly as possible. In other words, Congress also in 1993, in an amendment that came out of this committee offered by Congressman English called for state modernization planning for telecommunications and it in fact encouraged us to take on broadband services.
And so administratively we are interpreting that older provision to not apply to a new broadband service that combines voice, video and data.
And in addition, finally, in the President's budget there is a new initiative, a pilot program that is an adjunct to our very successful Distance Learning Telemedicine Program, that will focus on broadband services so that we can overcome some of the statutory difficulties that we have in our basic program.
There are significant needs to upgrade and modernize cable systems in rural areas and they are a tremendous source of information. The big difficulty with cable services right now, however, is that they don't reach the most rural areas. They are confined mostly to small town America. And even if we made very, very major investments to upgrade cable systems there still would be I think a significant digital divide in the most rural communities for access to local signals.
Mr. PHILLIPS. Thank you for your comments. I would say to you that I grew up in Kansas and I care about those rural States you are talking about. That Midwest and upper Midwest is probably where we have the most penetration of NRTC subscribers, television viewers as well as electric and telephone constituents. So we want to bring services to those markets. In fact, some of the cooperatives have also built out repeaters and translators to help the broadcasters get into those markets, particularly in Minnesota, an area that I know of.
I believe in answer to your last question, though, how do we not disenfranchise or punish those who have tried to serve on a local basis, that the small operators are going to have to move to broadband or offer a service that is high quality and unique, and perhaps uniqueness means every customer doesn't want 200 channels of television. They may just want a good quality local video feed and other channels that can be supplemented by the local operator. Of course, if you can offer broadband over your cable system that would be a tremendous advantage at the local level.
Page 55 PREV PAGE TOP OF DOC The other comment that I would have is NRTC was feared, when we started to get involved in satellite, by the satellite industry and the satellite dealers and we solved that by including them. There are members of NRTC who were involved in the project who are distributors with us who are satellite dealers. They are private companies. We want to play with others in the industry. I am happy Mr. Hutchinson has agreed to reopen our discussions with him that he closed. And I would like to have a policy of inclusion rather than exclusion with regard to the local operators as well as the national and the industry players that are going to be needed to get this job done. This is a big job. That was my real point to the committee here.
Mr. MINGE. Thank you.
Mr. GOODLATTE. Thank you, Mr. Minge. I want to thank all the members of the panel. This has been a very good discussion. We have even some competitive ideas here. So we will take all of those into consideration as we move forward with this legislation, which we intend to introduce hopefully later today. And we hope to move forward as quickly as possible and to meet the commitment described earlier by Congressman Boucher of the leadership in both the House and the Senate to get in legislation done by the first of April. Hopefully, we can get America working on making sure that every single television household in every single television market and every single television station, including those in Harrisonburg, Virginia and elsewhere, is able to offer this service and that every citizen can get it because I think it is vitally important, not only for the television service available today but for other means of communications, including broadband access to the Internet in the future.
The Chair would seek unanimous consent to allow the record of today's hearing to remain open for 10 days to receive additional material and supplementary written responses by witnesses to any question posed by a member of the panel. Without objection it is so ordered. And this hearing of the Subcommittee on Department Operations, Oversight, Nutrition, and Forestry is adjourned.
Page 56 PREV PAGE TOP OF DOC [Whereupon, at 12:53 p.m., the subcommittee was adjourned, subject to the call of the Chair.]
[Material submitted for inclusion in the record follows.]
Testimony of Christopher McLean
Mr. Chairman, it is an honor to testify today on the idea of a new loan guarantee program to finance the delivery of local television programming to subscribers of satellite television in rural and small markets. United States Department of Agriculture (USDA) appreciates the committee's concern, both in the existing coverage of rural access to local broadcasting and the possibility that developing technologies can broaden that problem.
The Rural Utilities Service (RUS) is a rural development agency of USDA. We administer a $42 billion loan portfolio of more than 9,000 loans for telecommunications, electric and water and wastewater infrastructure projects throughout rural America. Our agency also administers the Distance Learning and Telemedicine loan and grant program and is a leading advocate for rural consumers before Federal and state regulatory bodies.
RUS RECORD OF SUCCESS
For nearly 65 years the REA and RUS have been empowering rural America. Just this last October, the RUS telecommunications program celebrated its 50th anniversary. In those 50 years, the RUS telecommunications program has helped close the digital divide in rural areas. The telecommunications program has maintained an unprecedented level of loan security over the history of the program.
Since 1993, the RUS has financed more than $1 billion in fiber optic facilities and more than $725 million in digital switching for telecommunications companies and cooperatives serving rural areas. In 1999 alone, RUS provided nearly half a billion dollars in financing for rural telecommunications infrastructure. In addition, since its inception in 1993, the RUS Distance Learning and Telemedicine (DLT) program has provided $83 million in funding to 306 projects in 44 States and two territories.
Page 57 PREV PAGE TOP OF DOC The RUS is fortunate to have an accomplished corps of engineers, accountants, financial specialists and rural infrastructure experts. I am confident that the RUS has the necessary skills to administer new initiatives that will bring the benefits of the information revolution to all America.
THE NEED FOR LOCAL ACCESS
For America's rural residents, access to television signals has long been a challenge. Distance and geography have been significant impediments to the reception of consistently viewable broadcast signals. While cable television is available in many rural towns, it does not reach America's most rural citizens.
Since its inception, satellite delivered television and now direct broadcast satellite services have provided increased access for all communications services to rural residents. Satellite television gave America's many rural residents first time access to vital sources of news, information, educational programming, entertainment and sports. As good as these services were, satellite services did not connect rural residents to their local communities.
The 1999 amendments to the Satellite Home Viewers Act (SHVA) dramatically changed the dimensions of satellite service by giving carriers the right to deliver local television signals to viewers via satellite. However, that legislation limited the ability of these carriers to deliver distant network programming to consumers.
Since the enactment of the SHVA amendments, satellite broadcasters have announced significant new initiatives to provide local signals to viewers. Current satellite carriers are offering local into local service primarily to larger urban markets. There is little evidence that under current conditions significant local into local offerings will be made in the markets below the 40th largest markets. The smaller the market, the more rural residents will be impacted.
Page 58 PREV PAGE TOP OF DOC Once the amendments to the SHVA are fully implemented, many rural residents will likely lose their ability to purchase distant network signals. Many will still be unable to receive a suitable signal via antennae from their local broadcaster. Given the capacity limitations of current satellite providers, and the cost of nationwide local to local service, it is doubtful that current carriers will provide local signals to many smaller markets.
The availability of local programming will become more problematic as the television industry converts to a digital system of signal delivery. The propagation of digital signals is different from analog signals. Analog signals fade out with distance from the transmitters. Digital signals drop off suddenly. The likely result is that some current rural viewers of broadcast television may lose their ability to receive a viewable signal once the conversion to digital is complete.
Without the ability to retain and perhaps expand their viewer base, rural broadcasters may not have the financial ability to upgrade their systems. Once digital conversion is complete, the technology will make it likely that rural viewers will be able to receive fewer channels over a conventional TV antenna than currently available in analog mode.
ENSURING PUBLIC SAFETY
Access to a full range of news, weather, sports, entertainment and information is certainly important to maintaining and enhancing rural quality of life. But maintaining expanding access to the most local sources of news, weather and information is critical to rural public safety. The 1999 violent tornado season, and recent weather events such as this month's back to back winter storms in the South and East, highlight the importance of local television as a means of disseminating life saving information.
Linking local residents to their communities of interest is also important to maintaining and enhancing the vitality of the local rural economy and civic life. From both an educational standpoint and one of public safety, it is in the public interest that rural citizens have access to local and network programming. Rural America should not fall into a new digital divide: either as a result of the amendments to the SHVA or the coming conversion to digital television.
Page 59 PREV PAGE TOP OF DOCLOAN GUARANTEES
The delivery of local signals to rural viewers will require significant infrastructure investment, regardless of the technology utilized. RUS loans, loan guarantees and grants have helped bring modern electric, telecommunications, and water infrastructure to the 80 percent of America that is rural. This public-private partnership has been the hallmark of rural infrastructure investment. RUS is capable of helping rural America meet this new infrastructure challenge.
We welcome the opportunity to comment on any specific legislative language and look forward to working with the committee. We believe that legislation should be technologically neutral, expand consumer choice, and be consistent with Federal credit policies.
Preserving and enhancing access to local and network television signals is important not only for rural quality of life, but is vital to rural public safety and community. Linking rural viewers to more local signals will also enhance the economics of rural broadcasting and their rural advertisers. In addition, the infrastructure necessary to deliver local into local services, regardless of mode, can bring new broadband capacity to rural areas. Just as the Rural Electrification Administration helped rural America become part of the national economy, the Rural Utilities Service can help rural America thrive in the information age.
Thank you Mr. Chairman.
Testimony of B. R. Phillips, III
My name is Bob Phillips, and I am president and chief executive officer of the National Rural Telecommunications Cooperative. I appreciate the opportunity to testify today about the importance of local satellite service to rural America, why we need a loan guarantee to bring that service to unserved areas, and why the Loan Guarantee Program should be administered through the U.S. Department of Agriculture and the Rural Utility Service.
Page 60 PREV PAGE TOP OF DOC Before I start, I want to thank both Chairman Goodlatte and Representative Boucher for their leadership on the issue of bringing local signals via satellite to rural markets. Without your extraordinary efforts last year, rural Americans most likely would be deprived of local signals for years to come. As a result of your work, we now have an historic opportunity to bring local programming to homes in every TV market, not just those in major metropolitan areas.
THE NATIONAL RURAL TELECOMMUNICATIONS COOPERATIVE.
NRTC is a not-for-profit cooperative association with a membership of nearly 1,000 rural utilities (550 rural electric cooperatives and 279 telephone systems) located throughout 48 States. Our members provide electric or telephone service to underserved, low population density areas of the country.
NRTC's mission is to meet the advanced telecommunications needs of America consumers living in underserved areas. In furtherance of that mission, in 1992 NRTC paid DirecTV more than $100 million to capitalize the launch of the Nation's first Direct Broadcast Satellite (DBS) business. In return, NRTC received program distribution and other rights to market and distribute DirecTV programming services throughout large portions of rural America. NRTC, its members and affiliates currently market and distribute DirecTV programming to more than 1.4 million households (more than 20 percent of all DirecTV subscribers) using digital DBS technology. NRTC also distributes C-Band or large dish satellite programming to some 50,000 subscribers.
USDA AND RUS ADMINISTRATION OF THE LOAN GUARANTEE.
In my testimony today I intend to address two problems not addressed by last year's Satellite Home Viewer Improvement Act: first, the unavailability of local television service in rural America, and, second, the lack of competition to cable. I'm going to propose a satellite solution to both of these problems, and it will require your assistance in the form of a loan guarantee that should be administered through the USDA and the RUS.
Page 61 PREV PAGE TOP OF DOCLOCAL SERVICE IS UNAVAILABLE THROUGHOUT AMERICA.
By authorizing the retransmission of local broadcast signals by satellite, last year's satellite bill paved the way for the satellite industry to become a meaningful competitor to cable in some of the nation's top markets. But the bill did nothing to close the Digital Divide throughout much of the rest of America, where there is no profit to be made in delivering local service by satellite.
Because of the bleak economics, the for-profit satellite companies have announced their intention to provide local digital satellite service only to the top 33 markets out of a total of 210. That means that more than half of the Nation's households will not have access to local digital satellite service. At least 20 States will be left out entirely, including many of the States represented by members of this committee. In many instances, these are the same areas where local television is not available off-air or through cable systems.
Without access to digital local satellite service, many in rural America will be cut off from the local news and information that their urban counterparts take for granted. They will not be able to receive weather alerts, reports on natural disastershurricanes, tornadoes, fires and snowstormsagricultural updates, political and campaign news, road closings, emergency crime and security updates and other critical news available only through their local broadcasters.
This is the type of information that creates cohesive, thriving communities and strong local identities and local economies. Rural America needs this information and deserves to receive it.
Americans located in these unserved areas will be disenfranchised from the modern Information Age simply as a result of where they live. This is unacceptable to NRTC. And I believe it will be unacceptable to your constituents when they learn that as a result of the satellite bill passed by Congress last year, their urban neighbors are already receiving service they may never receive.
Page 62 PREV PAGE TOP OF DOCSATELLITE TECHNOLOGY IS THE ONLY COMPREHENSIVE SOLUTION.
It is no coincidence that satellite penetration rates in rural America are six times higher than in urban parts of the country. Satellite is an ideal distribution technology for less populated areas. Unlike other technologies, satellite is distance insensitive. At a fraction of the investment, satellites can reach where cable and other broadband technologies will never go.
Satellite is ubiquitous. It can cover wide, remote spaces that ground-based technologies will never reach. In fact, any technology other than satellite will be ineffective and piecemeal as a tool to bring local service to the unserved areas.
The cable industry will never build-out the entire country. More than 90 percent of NRTC's 1.4 million satellite subscribers do not even have access to cable. Why? Because it costs too much to serve these homes with cable.
We estimate that there are at least 10M homes that do not have access to cable. Even Cablevision, the cable industry publication, cites statistics from the National Cable Television Association to confirm that there are nearly 9 million households unserved by cable.
How much is the cable industry willing to spend to extend their lines to serve these unserved homes? Apparently, not much. According to the FCC, cable companies spent $7.7 billion in 1998. But the great bulk of that money was for upgrades and rebuilds of existing plant, not for the construction of new plant. Many of the large cable companies spent more than half a billion dollars each on ugrades and rebuilds. And while $600 million of the $7.7 billion was spent for new plant, it was not spent to bring service to previously unserved markets. Their new builds simply kept pace with the increase in the number of TV households.
COMPETITION TO CABLE
Mr. Chairman, NRTC fought the cable industry for nearly 10 years here in Congress to obtain access to programming so we could help build a digital satellite industry to serve rural America. Throughout that debate, the cable industry argued in favor of the Digital Divide. They testified that rural and underserved consumers should pay more for their programming because of where they live. We disagreed then, and we disagree now.
Page 63 PREV PAGE TOP OF DOC Not only can satellite technology extend local service to the unserved markets where cable is not available, it can also provide competition to cable in the underserved markets where cable is available. But for the satellite industry to provide effective competition to cable and fulfill the goal of the Satellite Home Viewer Improvement Act, we need to provide local signals.
Every cable consumer in America needs a choice in service providers. Satellite technology can provide that choice. That's why Congress passed the satellite bill last year. If local digital satellite service doesn't reach every home in the United States and cable becomes the only choice in the markets not served by DirecTV and EchoStar, cable will never be subject to effective competition. Cable rates will continue to increase, and additional regulation will be required.
Access to local service should not be driven solely by concerns of profitability. It's a much bigger issue. All Americans should be entitled to receive the benefits of the modern Information Age, even those living on the other side of the Digital Divide where the delivery of local service is not a money-maker.
To bring local service to unserved areas across the country and to provide competition to cable, we need a comprehensive, universal plan based on the right technologynot a patchwork of different and incompatible ground-based systems. Only satellite technology holds the promise to serve everyone and to provide much needed competition to cable.
With the support of Congress, we can construct, launch and operate a satellite system to provide local digital service to all areas not served by the for-profit satellite companies. Through a common industry platform, we can solve the problems not addressed by last year's satellite bill. We can make local service a reality for consumers across the country and provide meaningful competition to cable.
Page 64 PREV PAGE TOP OF DOC Getting this job done will require a loan guarantee of at least $1.25 billion. We strongly recommend that it be available for use only on a not-for-profit, cooperative basis. A not-for-profit approach would ensure that the Federal loan guarantee is not used to enrich large, private or corporate interests.
The U.S. Department of Agriculture, through the Rural Utility Service, is intimately familiar with the challenges facing rural and underserved markets. Not-for-profit, cooperative utilities operating under the RUS program have used loan guarantees to bring electric services to unserved areas since the 1930's. They have an excellent record of Federal loan and loan guarantee repayment. Through the same type of loan guarantee program, these same cooperatives can ensure that these same areas are brought into the modern Information Age.
We urge you to establish strong criteria to ensure not only that any loan guarantee is repaid, but that preferences are given to those plans which will provide the most comprehensive solution to this problem while utilizing the Federal guarantee in the most efficient manner possible. That's the best way to protect the public interest with this form of Federal support.
Mr. Chairman, I recognize that some of these communications issues are beyond the purview of this committee. To accomplish our goals, we will need the assistance of other committees as well as the Federal Communications Commission. So we expect to be working with the Congress, and hopefully the FCC, to obtain the necessary spectrum and orbital location(s) and other regulatory support necessary for the success of this project.
However, left to its own devices, the FCC would undoubtedly handle this problem the same way it has handled countless others: by relying solely on competition to fix it. But competition has been woefully ineffective in fixing this problem so far, and in fact helped to create it in the first place.
Competition has caused the two largest DBS companies, DirecTV and EchoStar, to use incompatible technology and to transmit the same, duplicated local signals to the big cities. This wastes scarce spectrum across the rest of the country, it cuts out rural America, and it is contrary to the purpose behind the Loan Guarantee and the Rural Local Satellite Service. Competition will never fix this problem.
Page 65 PREV PAGE TOP OF DOC Mr. Chairman, if we can get Congress' help and approval soon, and if the Department of Agriculture and the Rural Utility Service can become actively involved, we can use satellite technology and a cooperative spirit to fix this problem. We can bring local service to rural America and provide meaningful competition to cable. It's a big job, and we need to get started.
Statement of John Hutchinson
Thank you for inviting me to speak.
I am John Hutchinson, executive vice-president and chief operating officer of Local TV on Satellite, LLC (LTVS).
LTVS was founded by Capitol Broadcasting and its subsidiary, Microspace, in 1997 to develop a solution for the delivery of local television stations by satellite. Since then, we have studied technical and business models that led to our present design criteria.
Since the SHVIA passed last fall, LTVS has made significant progress toward delivery of a system that will (1) enable all DBS providers to offer a local station package from a cost-efficient common platform, (2) deliver local signals to almost 75 percent of US households, and (3) avoid pre-mature obsolescence through forward compatibility with the full digital TV standard.
While complex and expensive to build, the LTVS solution provides an easy solution for consumers to receive the complete multichannel complement of both local and national programming. A ''one dish, one box, one bill'' satellite alternative to cable is offered to subscribers living in urban, suburban and rural areas of the approximately 66 largest markets which LTVS can serve with its private commercial business plan.
While that reach is the most extensive local service solution proposed to date, it is obviously incomplete. And, if you live in rural America, it's useless.
Page 66 PREV PAGE TOP OF DOC Why then cannot LTVS build out a similar system to serve 100 percent of America? What is the problem?
After spending considerable resources for R&D to optimize the system design, we learned that two of the largest, fully loaded satellites ever to be launched can be stretched to deliver the full digital signals of some 800 local television stations back into their respective markets. Those stations are concentrated in about the top 66 most populous markets, representing 75 percent of total U.S. viewing households. Think of it as serving New York down through Knoxville [DMA #64], or a bit deeper.
But, there are a total of twice that many stations on-the-air in America as a wholealmost 1,600 operating in 210 TV markets nationwidewhich would require exactly twice the capacity of the single LTVS orbital slot and its satellites.
That means 800 stations in 144 smaller markets with 25 percent of the population are still unserved by local-to-local satellite.
To serve the latter markets, a mirror-image of the LTVS plan is needed with a second orbital slot into which two more large satellites are launched. The difficulty with that is the economics: the same hefty start-up capitalon the order of $1 billionto generate subscription revenue from only one-third the potential customers base: the 25 percent served by 800 smaller market stations versus 75 percent served by 800 other larger market stations. The 75 percent plan works commercially soon enough to attract private equity and debt. The 25 percent does not.
Therefore, our investment banking consultants were asked to come up with a model for rural America. And, they found an alternative public/private business plan that we believe works.
If the government guarantees a loan for commercial debt funding of a substantial amount of the total capitalization, (including sufficient to cover losses in the early years) the market should support the mirror-image plan extended to all smaller marketsbeginning with the 4,000 households in Market No. 210(Glendive, Montana) and working upward into the mid-sixties (around Green Bay) where private enterprise alone can take over.
Page 67 PREV PAGE TOP OF DOC This plan is consistent with how 800 stations just fit into each of two orbital slots, based upon technical capacity. In effect, the satellite system divides the local station service into halves: 800 stations delivered from each of two orbital slots for the 1,600 total signals.
The loan guarantee is a venture-starter, not a subsidy. Our analysis demonstrates that it can be paid back within the economic life of the satellites, given certain key criteria which I will explain.
The Government's interest would be secured by in-orbit satellite and ground station hard assets with an approximate value of $750 million. Even assuming that local-to-local TV service were not to develop as forecast, the system would be excellent for the alternative use of the delivery of the highest speed broadband data available. That could be a very profitable business itself. Rural America needs the local TV business plan to work. That is why we looked for the most cost-effective approach that stands the greatest chance.
And, even with local television, these smaller markets could still use a part of the system for high speed internet push data access where cable lines do not go and phone lines are too slow. I am referring to datacasting by digital television stations in the future, an application Capitol Broadcasting has also been exploring.
Back to the basic plan: The recipient of the loan guarantee must structure a system that meets the goal and mandates of established Federal communications policy: Must Carry, the DTV rollout and, of course, competition to cable.
First: (1) Why Must Carry? Why not! The two DBS providers are each already licensed for enough [Ka-Band] orbital spectrum to retransmit all local stations to all markets. Again, it's not a technical capacity issue, but rather it is a business choice for the use of that capacity. And, Must Carry is the law.
Without it, some local stations would be choked off from their viewers, by allowing satellite carriers to simply pick which ones survive in each market served. That's a formula for failure of the free broadcasting system, especially in rural America where station margins are thinner. We must avoid such unintended consequences.
Page 68 PREV PAGE TOP OF DOC Second: (2) Why DTV [passing the entire digital standard signal of stations]?
By Federal mandate, all commercial TV stations in America must construct and transmit on new digital facilities by mid2002about the time the local satellite systems launch. And, like Must Carry, if their entire signal cannot be passed by the satellite, digital television fails and the Government's analog TV channels recapture plan to help balance the budget through spectrum auctions will never materialize.
With satellite carriage of the entire digital signal, whether ''high definition'', multicasting or high-speed datacasting, rural Americans need not be second class citizens in the information age.
And, again, ''why not?''
The LTVS solution is so efficient that the full potential of digital television across the Nation need not be compromised. It has the potential capacity to carry it all: all stations, all markets and the entire digital signal of each by using two [Ka-Band] orbital slotsa set of which each DBS provider already has open and waiting for some useful purpose.
A system design to carry the entire digital standard signal of TV stations helps to secure the government guaranteed loan and enables rural market broadcasters to recover the $2-plus billion small stations must invest in the mandated transition.
These satellites have a life of 15 years. To relegate the rural system to a lesser quality standard definition system (as some have suggested) means pre-mature obsolescence. Such a limited system would become less valuable each time a new digital TV is sold.
And, we cannot go 22,300 miles in space to fix or upgrade these satellites, once launched in orbit. For the government to accept sub-standard design specifications would be like investing taxpayer money in a black-and-white TV company that can't change, when we know color is the thing.
Page 69 PREV PAGE TOP OF DOC Next: (3) Let's turn to why the two DBS providers or other parties should not duplicate billion dollar costs and waste valuable satellite spectrum by constructing redundant local-to-local systems. Such waste dooms a rural market plan, even with the government loan guarantee.
The LTVS plan envisions instead a single common platform parked in space in-between the existing national DBS satellites.
That means that a viewer's single small dish can pick up both the national and local signals seamlessly, whether subscribing to DirecTV or EchoStar. Any rural plan depends upon wholesale subscription fees from bothdriven by sufficient penetration levels.
The common platform approach conserves resources, including spectrum and provides the necessary universe of potential subscribers to pay back a government-guaranteed loan.
Finally: (4) In order to maximize private funding to supplement the government guaranteed debt, all credible business plans should be carefully considered. We can see no justification for why qualified candidates for this loan guarantee necessarily have to be a non-profit.
If these design criteria are met, the business model LTVS has developed to serve the remaining 25 percent of US households forecasts the following schedule to retire the debt:
Year 23: Cash flow is sufficient to support interest payments.
Year 5: Subscriber penetration and revenue is high enough to begin amortizing the loan, also opening the possibility of attracting more private funding to retire the debt sooner.
Year 15: The loan is fully amortized within the life-of-satellite, or sooner, (perhaps as early as Year 11) depending upon rate of penetration and private investment.
Page 70 PREV PAGE TOP OF DOC In summary: LTVS supports the Committee's initiative to foster rural market, quality local-to-local television via satellite through government guarantee of a secured commercial loan, not otherwise available.
With inclusion of the fiscal and public policy criteria for awarding this support, the right government loan guarantee can both bring local TV and other broadband data services to rural America and protect the tax payer through sound business principles for the long term . . . a non-discriminatory system that is forward compatible.
Thank you for this opportunity to share what LTVS has learned about the local-to-local satellite business and technical dynamics.
We would be pleased to answer any questions.
"The Official Committee record contains additional material here."