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«Chairman Pryor, Ranking Member Wicker and members of the subcommittee, I am Ted Carlson, Chairman of United States Cellular Corporation. Thank you ...»

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For the same reasons discussed above in connection with the 600 MHz incentive auction, U.S. Cellular strongly supports the competitive participation of rural and regional providers in each of these three upcoming spectrum auctions. The spectrum blocks to be offered in these auctions should not be so large as to make them unaffordable by the smaller rural and regional providers. The H Block already has a 2x5 MHz pairing, which is suitable. We recommend that a similar 2x5 MHz channel block size be uniformly implemented as the basic spectrum block size to be offered in the other two upcoming auctions. U.S. Cellular also supports small geographic license areas, such as CMAs, that match the service needs of rural and regional providers, and opposes any license area size larger than EAs. We also reiterate our opposition to the use of package bidding and blind bidding procedures in these auctions.

Universal Service Support is Critical to Improving Service in Rural Areas We must acknowledge that consumers desire both wired and wireline services and the distribution of support under the Federal Universal Service Program needs to appropriately balance those interests in areas that are simply uneconomic to serve without effectively managed support mechanisms. The FCC's underlying goals to reform the Universal Service Program back in 2011 are to be applauded. Although we supported the FCC’s overall goals, we did not agree with all of the decisions the FCC made, and are actively asking the Commission to fine tune the Mobility Fund programs going forward. As we have stated before, consumer demand for mobile broadband continues to skyrocket. Unfortunately, the FCC's Mobility Fund auction failed to allocate sufficient resources to wireless (less than 10% of overall funding) and two-thirds less than was allocated under the legacy program that is currently being phased out. Even though it is readily apparent that consumers suffer from inadequate coverage in many rural areas across the country, the Commission failed to allocate any funding to a number of states including a significant number of the states represented on this Committee. This resulted in an unfair and uneven distribution of funds that may not reflect the true needs of consumers. Those oversights must be addressed if we hope to address the needs of rural consumers everywhere.

In late 2011 the FCC revamped the federal universal service program. Market participants from all quarters have praised and criticized the FCC’s decision, and it will be another year before the U.S. Court of Appeals for the Tenth Circuit decides its fate.

Today, our focus is on what the program has done, and can do going forward, to improve mobile coverage in rural areas.

How Universal Service Has Helped Rural Areas We Serve.

Historically, our government has furthered the societal benefit of ensuring that basic services are made available to all of our citizens. We are a stronger country when everyone has access to modern services. A high-quality mobile wireless network is critical to public safety, it accelerates economic development, and it ensures the viability of rural areas in the same way that water, electricity and basic telephone service did in the last century.

We have strongly endorsed the universal service program and our use of funding support over the years has delivered high-quality services to rural areas that would not otherwise have had them. To summarize, in 1997, we began applying for eligibility to participate in the universal service fund and by 2008 we were eligible in sixteen states.

Using federal support, we have built well over 1000 new towers and upgraded many more in areas where we would not otherwise have built, and in areas that oftentimes had no access to wireless service. We built towers in places with just a few hundred residents. We built in remote areas of West Virginia, in eastern Washington, eastern Oregon, central Maine, central Virginia, northern Wisconsin, central and northern Missouri, central Nebraska, and many more.

In some of these areas, federal funding has helped us keep cell sites on the air when customer revenue was insufficient. We have also used universal service funds to build links between cell sites and add power generators in remote areas, providing critical redundancies that ensure continuous service during catastrophes. In every state where we are eligible, our coverage and service quality has improved commensurate with the support we received. As you might expect, we invested more in areas where we received significant amounts of support. Wherever support was made available, our rural networks are now demonstrably better as a result, and our customers see it. I also truly believe a significant part of the company’s success in J.D. Power network and Forrester customer experience satisfaction surveys is the high-quality network experience we provide in rural areas.

Investments made possible with support generate additional economic activity from local businesses. This is known as the multiplier effect. When we enter a community, it takes people to perform a myriad of jobs. Among other things, people build networks, construct stores, sell devices, and advertise our services. These are high-quality, good paying jobs. In addition, local businesses use mobile wireless service to become more efficient and to access markets around the world. This creates more jobs and local economic activity. Every place we construct a cell site is now a candidate to attract investment from business owners considering a potential move away from areas that lack sufficient telecommunications infrastructure.

The FCC’s discontinued mechanism is phasing out support to participating carriers. As of July 1, 2013, our support will be reduced by 40% and by July 1 of 2016 our support will be gone. As a result of the reduction in support, we are adjusting our investments in new cell sites accordingly, reducing our capital expenditures and using remaining funds to cover operating expenses in existing rural areas we serve. At its peak in the latter part of the last decade, we were building over 200 cell sites per year with this support. This year, we’re planning to construct only 35 sites and as of this date we have no plans to build additional universal service sites in areas funded by the legacy program after 2013 due to this reduction of the program’s funds. We have made that painful decision because we know there simply is no business rationale to build in areas that will never be profitable even though we know from conversations with federal officials, local officials, and consumers that there is a desperate need for those services.

In our experience, the FCC’s now discontinued federal universal service mechanism was very effective in enabling us to build telecommunications facilities in rural areas. We embraced that program and successfully expanded service in ways that would not otherwise have been possible, to the benefit of rural citizens. As discussed below, we are now turning to the new FCC Mobility Fund to assist us in constructing 4G networks in rural areas.

Observations on the FCC’s Mobility Fund.

We participated in the FCC’s first auction of mobility fund support, held in September of 2012. This auction provided $300 million in “one time” support for eligible carriers to invest in modern 3G and 4G networks. We won the right to access approximately $40 million in federal support, which must be used to serve 2,162 total road miles in 10 states. We anticipate that the FCC will grant our applications in the near future and we intend to implement 4G mobile broadband service in all of those eligible areas. This is a very exciting time for us as a builder of rural networks, to be able to tell rural communities that high-quality mobile broadband service is on the way.

It is important for this Committee to understand the magnitude of the task at hand for our nation. The map below, taken from the FCC’s web site, illustrates where Mobility Fund Support was awarded in the Continental United States.30 As you can see from the Support was also awarded in Alaska, however, we have not included a map here. Suffice it to say there remain significant unserved areas in places where Alaskans live, work and travel.

FCC’s mapping software, the blue areas represent how small are areas that the $300 million in Mobility Fund will cover infilling in dead zones.

When you compare this map to the one above, you get a sense of the magnitude of the gap to be bridged. The FCC’s National Broadband Plan estimated that $24 billion is needed to provide access to terrestrial broadband infrastructure for the 14 million people who currently do not have such access. If half of that gap were filled by private investment, then the FCC could finish the job of providing access in twelve years by allocating $1 billion per year to the task. That is roughly 30% less than the FCC was providing to mobile carriers under the legacy universal service program.

My observation here is that the task of finishing ubiquitous deployment is too large for the amount of funding that the FCC allocated to mobile broadband. Rural communities can’t wait twenty more years. If the Committee believes as I do that mobile broadband is so critical, then we must bring to bear sufficient resources to cover substantially all of the area where rural people live, work and travel.

Moreover, the current Mobility Fund auction mechanism was designed to provide funds to the lowest-cost areas first, in order to maximize the number of road miles covered. While we do not dispute that there is value in the FCC’s choice of how to distribute funds, it has left behind the highest-cost areas. For example, none of our bids to cover rural New Hampshire were selected, simply because we had to bid more per road mile to cover more mountainous areas in the central and northern areas of the state.

Within the next year, the FCC is expected to conduct Phase II of the Mobility Fund. It proposes to distribute up to $500 million per year, dedicated to construction and operational support for mobile broadband infrastructure. We are active in the FCC’s rulemaking proceeding that will finalize rules for how support is distributed.

We continue to oppose the use of auctions to distribute support, because while auctions may create competition in the auction room, they drive out competition in the markets themselves. We believe the better course is for the FCC to use a forwardlooking cost model, as they are proposing to do in the Connect America Fund, to determine how much support is needed in a particular area, and then permit carriers to compete for that support in the marketplace, with the same construction obligations currently expected of all carriers receiving funds. In our experience, providing support only to the service providers that consumers choose drives greater efficiency, investment and competition. We support a mechanism where carriers charge a market price and consumers receive a credit for any service they choose. The carrier with the most efficient cost structure, lowest prices, and best services would have the advantage, as they should in a normally functioning marketplace.

In sum, our observation is that basic economic forces apply here. It costs more to serve some areas and policy makers must seek efficient providers to deliver services at the lowest possible cost. Without additional funding and increased efficiency, the higher cost areas are going to be left behind for a substantial period of time. We therefore urge both the Congress and the FCC to reassess the task at hand and set a goal to deliver mobile wireless coverage to substantially all of rural America within ten years.

Suggestions for Increasing Program Efficiency.

At the outset, it is important to note that the FCC has decided to reduce universal service funding for mobile broadband by two-thirds, at a time when consumer demand for mobility is skyrocketing and when the coverage maps show much work left to be done.

We are mindful of the program’s financial constraints and competing policy interests. So, we are suggesting ways to increase funding for mobile networks without increasing the overall fund.

First, there is approximately $185 million of unused support from the Connect America Fund Phase I program. Some $300 million was offered to telephone companies and only $115 million was accepted. The rejected funding lies fallow. The FCC could easily add that $185 million to the Mobility Fund, where wireless carriers are ready, willing and able to deploy service to rural areas and their bids to serve additional areas of Rural America went unfunded. We ask for your support in getting those funds invested in rural areas at the earliest possible date.

Second, we would support the same result for any funds that may be rejected by winners of the Mobility Fund Phase I auction. If any winning bidder does not follow on auction bids, the funding can be distributed to fund the bids that were not accepted at the initial auction. Rural areas where bidders, including us, sought funding to construct would see immediate benefits.

Third, in the new Connect America Fund for wireline carriers, the FCC adopted a Right of First Refusal (“RoFR”) which allows the largest carriers to accept an amount of support offered by the FCC for five years, without competition. We have opposed this from the very beginning, because reserving support for one class of carrier for five years will inevitably confer enormous market power on that carrier.

Here is the worst thing about the RoFR: A large wireline carrier that also owns wireless licenses can meet its wireline build out obligations by building a 4G wireless network. That is, the FCC will provide exclusive support to a wireline carrier based on the costs of building a wireline network, but if it is more cost effective to use 4G wireless, the carrier is free to do so and to pocket the windfall. Ironically, the FCC just rejected this methodology for distributing support when it did away with the identical support rule for wireless carriers.

There is no public benefit to segregating support to one carrier in a market, and then allowing that carrier to build without competition. As explained by William P.

Rogerson, Professor of Economics at Northwestern University and formerly the FCC’s Chief Economist, limiting universal service support to a single carrier in a market may


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