25              MS. BROWN:   I think our  first panel gave  us a

 1    good primer on the kinds of technologies that we are
 2    talking about.
 3              The one thing I want to tell you is that we are
 4    so scrupulous about use of the microphones.  We are
 5    broadcasting over the Internet right now.  And in order
 6    for us to be effective in that medium, we need to use the
 7    microphones.  So, if you would, please step up to the
 8    microphone when you are speaking.  That would be very
 9    helpful to folks who are listening to us over the Net.
10              Our second panel, what we would like to do is to
11    explore a little bit some of the implications for this
12    notion that we call universal service with respect to
13    wireless technologies and the kinds of technologies we
14    have just been talking about.
15              Alex Wolfson, from Columbia, was to be with us. 
16    I think he is lost on the Amtrak right now.  We had
17    invited him because Columbia did a very good program about
18    a year ago on universal service and wireless technologies,
19    which really got a lot of us thinking about what the
20    hurdles were to full deployment of these technologies,
21    really in pursuit of some of our public policy goals.
22              With his absence and with your indulgence, I
23    will try and moderate the panel and get it going.  And if
24    Alex shows in the middle, I am going to turn the podium
25    over to him.

 1              Interestingly, I just returned from India, where
 2    I accompanied Secretary Daley on a trade mission.  And we
 3    talked to the top of the Indian Government on opening
 4    trade to United States businesses, and particularly to
 5    telecom concerns.  And one of the major areas of
 6    discussion and one of the areas I spent enormous time on
 7    was the use of wireless technologies to bring telephony to
 8    the villages of India, where there is no telephone at all.
 9              One of the major goals of the Indian Government
10    is to have one telephone in every village by the year
11    2000.  And a major discussion we had was on particular
12    technologies and the effect of rain, for instance, on
13    those technologies in rural villages, and how those
14    technologies could be deployed to achieve this notion of
15    universal service.
16              Interestingly, while I was about that work, at
17    home here, the debate is boiling and roiling on and on
18    around universal service and how we assure ubiquity of
19    telephone service in this country, how we assure
20    affordable telephone service, and whether and how, and how
21    much, our system of subsidies ought to be.  And it seems
22    to me that these two things come together in sort of an
23    interesting way.
24              We talk about universal service here so much
25    around a subsidy system.  And I think we have to step back

 1    from that and start thinking about a competitive system
 2    and how we can make services affordable and what kind of
 3    alternatives there are in our markets to ensure
 4    affordability.
 5              And I think that the discussion this morning
 6    starts us thinking that way:  Well, if it is economic --
 7    we heard from someone.  And, well, if it really will work,
 8    the technology is there -- we heard from someone else. 
 9    And if there really are solutions to some of these
10    regulatory problems, well, then, where is it?  And can we
11    get it out there?  And can we deploy these technologies in
12    this country?  And can we be as ardent about it here as we
13    are in South America, in India, in Vietnam?  What is in
14    our way?
15              So I am hoping that folks will think about those
16    questions as they are addressing us.  We specifically, in
17    our statute, talk about affordable telephone service to
18    all areas of the country.  We are worried, from a public
19    policy perspective, about our rural areas, about our
20    low-income areas, and about specific institutions in our
21    country -- schools, libraries and rural health care
22    centers.  And I hope, as you are all talking, you will
23    talk to us about how these technologies might work to meet
24    some of our public policy goals.
25              With that,  I  would like  to introduce  Jeanine

 1    Poltronieri, from the FCC.  She is the Associate Chief of
 2    the Wireless Bureau.  And she has primary oversight
 3    responsibility on issues relating to wireless competition.
 5    So I have asked Jeanine to sort of set the stage from us,
 6    tell us about the regulatory framework, and we will move
 7    on from there.
 8              Thank you.
12              MS. POLTRONIERI:  Thank you.
13              We heard this morning about how increasingly one
14    can view wireless services as a substitute for wire line
15    telephony and not merely a complement to wire line
16    telephony.  As the cost of the wire line network declines,
17    that makes wireless clearly an economical choice in many
18    areas.  We especially see this where wire line loops have
19    not yet been installed, the wireless local loop solution
20    becomes very attractive.
21              You heard this morning about the examples we see
22    abroad of this, in the developing world.  And we believe
23    that, as the costs go down wireless local loop will also
24    be a competitor, where wire line loops have already been
25    installed.

 1              I am going to focus a little bit on the
 2    regulatory background of universal service, and try to
 3    give some guidance as to how we are trying to work out
 4    some solutions that make sense to increase competition for
 5    rural areas, as well as satisfy the other principles in
 6    the Act, of providing support for schools and libraries
 7    and hospitals.
 8              As you know, after the 1996 Act was passed, it
 9    included Section 254, which set out the principles for
10    universal service.  At the Commission, we had a pretty big
11    challenge facing us, because we had to take a decades-old
12    system that had provided support through a series of
13    implicit subsidies and turn it into something that could
14    react to the advances that we see in technology, as well
15    as create new programs for schools, libraries and health
16    care providers.
17              For the high-cost areas, in the past, support
18    was based on the actual reported costs of the ILEC, the
19    wire line incumbent.  And we needed to make that a more
20    competitively neutral system so that other competitors,
21    wireless competitors generally, as well as potentially
22    wireless local loop competitors, can become eligible for
23    the support and provide service to those areas.
24              In looking at the universal service support
25    mechanisms  that were  in  place, we  were  guided by  six

 1    principles that were set out for the Commission in Section
 2    254 of the Act.  Important for our discussion today is
 3    that the Commission, guided by the Joint Board -- the
 4    Joint Board was a group of State and Federal regulators
 5    who gave the Commission guidance on how to implement
 6    Section 254 -- chose to add a principle to the principles
 7    that had already been enumerated in Section 254.  They
 8    added the principle of technological neutrality.
 9              So that was one of the guiding principles that
10    we looked at as we looked to revise and update the subsidy
11    program that was in place.  It has been quite a challenge
12    regarding the high cost rural areas, and trying to make
13    sure that we can meet this goal of technological
14    neutrality.  Two ways that we had to fundamentally change
15    the way we had looked at universal service support
16    mechanisms was in the way we calculate and distribute
17    universal service support.
18              Of these, getting the support distributed to a
19    wider range of telecommunications provider was the easier
20    of the two.  We set out a group of services that needed to
21    be provided by a telecom carrier in order for them to
22    receive support from the universal service support for
23    high-cost areas.  And we went to some lengths to ensure
24    that these were fairly basic services that a whole variety
25    of different competitors could provide.

 1              When it comes to being eligible to receive the
 2    support, that is a matter that is largely within the State
 3    control.  The State certifies the carrier is eligible and
 4    also establishes the service area.  And we have been
 5    encouraged to see that at least some wireless providers
 6    have been able to go to the State and receive
 7    certification for eligibility.  So that means if they
 8    provide the enumerated services, they can receive support
 9    from the program.
10              Regarding the service area that the carrier
11    would have to provide service to, again, this is an area
12    that is largely within State control.  But the Commission
13    did give some guidance to the States.  And the guidance
14    was basically that when thinking about service areas, you
15    should think about new competitors and how to encourage
16    them to come in and provide service in your high-cost and
17    rural areas.
18              And the suggestion is that perhaps a service
19    area that was equal to the ILEC service area would not be
20    appropriate in order to encourage new competitors to enter
21    the field.  So that was the first part.  That was
22    determining eligibility for the high-cost and rural
23    program.
24              The second question that has proven to be a much
25    harder problem for us is determining how much support each

 1    carrier would receive for providing the service to the
 2    various areas.  The Commission decided to go through a
 3    modelling process.  And this is an ongoing process at the
 4    Commission right now.  And it is a little bit different
 5    than the typical rulemaking you might see at the
 6    Commission in a number of ways.
 7              For one, there has been a lot of cooperation
 8    with the States on this issue.  And we have had a lot of
 9    dialogue back and forth on how to model a cost model that
10    can make sense for a national policy but, as well, give
11    flexibility to the States.
12              There has also been a lot of back and forth with
13    carriers who are participating in this rulemaking.  And at
14    different stages in this proceeding, the Commission has
15    given guidance to carriers who are working on the
16    modelling process, and trying to make sure that they are
17    receiving from the Commission good guidance as to the
18    direction that we want to go.
19              In this regard, we have had a fair amount of
20    participation from wireless carriers, but we would like to
21    have more participation from wireless carriers.  Because I
22    think it is important that this modelling process not go
23    forward without them.
24              The models that were originally proposed to the
25    Commission were wire line-based models.  And that is where

 1    we are taking off from.  But there is an understanding
 2    that that cannot be the only solution to these problems. 
 3    So we are working with different carriers, and trying to
 4    figure out how to incorporate a wireless solution into
 5    these models, for purposes of determining the amount of
 6    support.
 7              And anyone who wants to participate in that
 8    proceeding, you should know that in the first quarter of
 9    1998, we are going to be giving some broad guidelines on
10    the platform that is going to be used to determine
11    universal service support.  And then, after that, we are
12    going to be going forward to determine what inputs would
13    be appropriate to put in that model.  And this whole
14    modelling process is supposed to tie up in the summer of
15    1998.
16              We are also going to be looking at competitive
17    bidding as a solution.  Although that has taken a little
18    bit of a back seat right now to the modelling process, it
19    is definitely something that the Commission is interested
20    in.  Because we think that it is a way to ensure that
21    different carriers, different telecommunications services,
22    can compete for the universal service funds.
23              So, at some point in the future, the Commission
24    will be issuing a notice on that issue, to look at those
25    issues more fully.

 1              On schools, libraries and health care providers,
 2    there is a pretty broad set of services that can be taken
 3    by any school and library who is eligible under the
 4    program.  So, in that sense, there is a real interest in
 5    having a lot of competition and a lot of different types
 6    of services provided to the schools and to give schools,
 7    libraries and health care providers flexibility in the
 8    sort of technology that they choose.
 9              And as wireless local loop becomes better able
10    to provide access to the Internet, I expect that more
11    schools will be looking to that as a solution, especially
12    where there may be practical problems such as asbestos, or
13    rewiring internally.
14              I see there is a green light right now, so I am
15    going to tie up that right now.  But I am more than happy
16    to talk to anybody more about how things are going forward
17    at the Commission, as well as the broader policies.
18              MS. BROWN:  Thank you, Jeanine.
19              Alex is here, so I am going to bring him up to
20    date.  But let me just get Ed Cameron up here to give you
21    sort of the overview of the rural perspective.  Ed is the
22    Acting Deputy Assistant Administrator of the
23    Telecommunications Section at RUS.  RUS has been very,
24    very, very actively involved in the universal service
25    debate  before the Commission  since the implementation of

 1    the Act.  They have extensive experience with carriers in
 2    rural areas.  And we thought it would be interesting to
 3    hear RUS's perspective, and we are very pleased that Ed is
 4    here.
 5                      ORREN E. CAMERON, III,
 7                     RURAL UTILITIES SERVICE,
 8                   U.S DEPARTMENT OF AGRICULTURE
 9              MR. CAMERON:  Thank you.
10              The Rural Utilities Service is part of the
11    Department of Agriculture.  I will give you just a touch
12    of background.
13              Each year, we lend approximately $900 million to
14    rural telephone companies, which are now called rural
15    LEC's.  And we have about 900 rural LEC's that borrow from
16    us across the country.  I think there are about 1,300
17    telephone companies in the United States right now.  And
18    we finance 900 of them.  At one time, we financed about
19    1,000.  But we have had some companies that have graduated
20    from our program.
21              The universal service issue is our issue.  In
22    this country, we have basically got universal service in
23    rural areas.  And the hard part is to figure out how to
24    keep it.  As we move to a competitive environment, it is
25    very hard to justify support  policies that keep telephone

 1    rates affordable in rural areas.
 2              And a lot of people think of rural areas as
 3    Charlottesville, Virginia.  But I think of rural areas as
 4    Dell City, Texas.  The rural areas that I visit, you would
 5    not even think of them as communities.  The largest
 6    community we can finance has a population of 5,000
 7    inhabitants.  That is in our statute.
 8              We are very interested in the universal service
 9    rulemaking proceeding.  And Jeanine has just discussed
10    half of it -- the half that affects the non-rural LEC's. 
11    And the other half of it is going to start in about a
12    year.  And that is the half that is going to affect the
13    rural LEC's, which are the small companies that serve
14    about half of what is really thought to be rural America.
15              The RBOC's and GTE and some other large,
16    non-rural LEC's actually serve half of the 80 percent of
17    the land mass of the country, which is generally
18    classified by the Department of Agriculture as rural
19    America.
20              And Jeanine mentioned that the supported
21    services were debated and have been defined.  And that is
22    right.  But there is one detail that has not been defined
23    yet.  And that is the local usage component of the
24    supported services.  And that is a critical issue in a
25    wireless forum.

 1              Traditionally -- and the FCC has recognized this
 2    in their orders -- traditionally, wireless services have
 3    been provided with low-cost access but high-cost usage
 4    fees.  And wire line services have been provided with
 5    higher-cost access -- that is your monthly base rate --
 6    and low-cost, or maybe no cost, usage fees for local
 7    service.  And so there we see a fundamental difference in
 8    the pricing structure between traditional wire line and
 9    traditional wireless services.
10              And one thing we have been arguing in our
11    comments to the FCC is that the usage of a telephone for
12    local service has become very dependent upon very low-cost
13    usage.  The wire line network has been able to provide
14    this.  There is not a limit on spectrum.  You create new
15    spectrum every time you lay a wire to the house.  And so
16    spectrum has not been a problem in the wire line network. 
17    And the population, and particularly the rural population
18    of this country, has become accustomed to having all the
19    time on the telephone they need.
20              And a new development in telephone usage that we
21    are seeing, which is Internet usage, is even going to
22    emphasize this further.  If you want rural school children
23    to be able to use the telephone to access the Internet --
24    which is going to be the interim solution for Internet
25    access --  we recognize that a high usage charge, which is

 1    typical of the traditional wireless carriers, is going to
 2    be a back-breaker for rural families.
 3              And so that is one of the things we have
 4    commented on.  But that is a detail -- I believe the FCC,
 5    in the May 8 order, has said that they were going to
 6    specify the local usage component by the end of 1997, by
 7    the end of this year.  I think that is right.
 8              MS. POLTRONIERI:  We have definitely received
 9    comments on in the proxy modelling.
10              MR. CAMERON:  Right.
11              I do not know how you all are getting anything
12    done.  You have so much to do.  I have been to the proxy
13    model workshops on Wednesdays.  And we have commented to
14    you.  I do not know how you can keep up with this.  It is
15    an enormous task that has been given to you.
16              It is an enormous task just to comment on all
17    the notices that you put out.
18              We have had a lot of experience with wireless
19    services in rural areas.  We actually were the catalyst
20    for bringing about the service known as basic exchange
21    telecommunications radio service, BETRS.  We brought
22    together interested parties in the late eighties.  And we
23    petitioned the FCC for some primary frequency allocations
24    for a rural radio product.  Because we knew that wireless
25    was going to be a  tool that we just had to  have to serve

 1    the most remote parts of the country.
 2              So we have financed many BETRS systems.  We have
 3    had many interesting experiences with BETRS systems.  And,
 4    frankly, BETRS has not taken off the way that we hoped it
 5    would.  We have run into quite a bunch of interesting
 6    problems with BETRS.  And I want to tell you some of our
 7    experiences with this.
 8              Right off the bat, I have got to tell you that
 9    BETRS has made possible services in certain areas that
10    would not have been possible physically otherwise.  In
11    Alaska, I have been at a Native village that is across a
12    very angry river, and a seasonal river, from the rest of
13    the larger community.  And without BETRS service,
14    telephone service could not have been extended to that
15    small village.
16              There are some areas along the Mississippi River
17    that are cut off by the Mississippi River, by the rest of
18    the county in certain States.  Because, as you probably
19    know, the Mississippi River has changed courses over the
20    years.  And BETRS is used to serve subscribers across the
21    river from their exchange.  And I would hate to try to run
22    telephone cable across the Mississippi River anywhere that
23    there is not a bridge.
24              So BETRS has been able to do things that we
25    would not have been able  to do otherwise.  Unfortunately,

 1    the average cost per subscriber for a BETRS system -- and
 2    this is just for the outside planned loop; this does not
 3    include central office equipment -- has been, for systems
 4    with about 50 subscribers, which you have to accept is a
 5    relatively large BETRS system in our world -- is about
 6    $10,000 per subscriber.  That is very high.
 7              And if you look at those 50 subscribers, you
 8    have to figure that each one of them would be more
 9    expensive to serve with conventional outside plant or they
10    would not be served by that BETRS system.  So maybe those
11    subscribers would have averaged $15,000 to $20,000 per
12    subscriber to serve, and the BETRS system has saved us
13    money.
14              Most of the systems we have fewer than 50
15    subscribers.  It has been very difficult to get spectrum
16    from the FCC for BETRS.  And I think, in recent years, the
17    spectrum requests have been especially difficult.
18              That $10,000 does not include any cost for
19    spectrum, which we imagine we might have to start paying
20    for.  So all of that spectrum was free.
21              The systems are line of sight.  And customers do
22    not live on hilltops.  So if you have a hilly or
23    mountainous terrain, you have some real service problems
24    getting down into the valleys.
25              We  have run  into  some interesting  regulatory

 1    situations.  The Oregon Public Service Commission required
 2    that one telephone company reimburse customers for power
 3    consumption, because the BETRS system operates off of the
 4    customer's power meter.  And the Oregon PSC regulates
 5    power and telephone service, and they were aware of this
 6    considerable usage.  I think it was a $7- or $8-a-month
 7    cost.  And so we ran into that with one company.  And that
 8    kept that company from buying any more BETRS.
 9              Rural customers do not live in clumps or
10    clusters.  In most parts of the country they tend to be
11    dispersed pretty well.  So it makes it so that you have to
12    have a receiving antenna at each house.
13              Having said all that, I still think that BETRS
14    has been something that we were lucky to get into.  It has
15    done some jobs that would have been very difficult to do
16    otherwise.  We are looking for more wireless loop
17    products.  And we are in contact with manufacturers right
18    now.
19              But I would say that BETRS has not been a
20    successful commercial product in the United States.  And
21    the only reason we can buy the product is that it has a
22    lot of international application.
23              We will finance any technology.  If a company
24    comes to us, we can finance any sort of technology.  We
25    are not bound to wire line facilities.

 1              And my red light is on, so I will stop.
 2              MR. WOLFSON:  Thank you very much, Ed.
 3              I am sorry for my late arrival.  But just before
 4    getting back to the panel, I will just tell you a little
 5    bit of why I am here.
 6              I work at the Columbia Institute for
 7    Tele-Information at Columbia University.  And last
 8    October, we did a little exploratory study, looking at the
 9    role of wireless technology in universal service.  And
10    similar to this, we put together panels on technology, on
11    policy and on the economics.
12              And one of the people that is actually here,
13    Dr. Terry McGarty, who I will introduce now, we are very
14    lucky to have him here.  Because, from an academic world,
15    we like Terry because he thinks a lot and thinks forward
16    looking and has intelligent things to say.  But he is also
17    a practitioner.  So he can sort of take the theory and
18    tell us how it is applied in the real world.
19              I will hand it off to Terry.
20                  TERRENCE P. MCGARTY, PRESIDENT,
21                      THE TELMARC GROUP, INC.
22              MR. MCGARTY:  I want to thank you all for being
23    here, and especially Kathy Brown, because when she spoke
24    to me earlier this morning, I totally rewrote my paper. 
25    So the slides you will see are basically stage props.  And

 1    I enjoy 2-second stimulating discussions, because I think
 2    they did focus me a great deal.
 3              It also was interesting to learn that Larry
 4    Irving was up this morning, dressed in glitter and tinsel.
 6    Which I guess is the Washington way to celebrate
 7    Christmas.  I am from New York, so we do things
 8    differently I think.
 9              Also, a third point -- and Alex did make that
10    point -- I have probably the distinct disadvantage of
11    being one of the only, if not the only, person here today
12    where we actually invest our own money.  So this is a
13    unique experiment.  We make decisions based upon whether
14    or not we want to put my money into something.  And so,
15    therefore, there is instantaneous feedback.  We either are
16    successful or not.
17              Another point which I think is useful, I was at
18    one time COO of Nynex Mobile, prior to going back into my
19    investment firm.  I have not had a cellular phone since I
20    left Nynex Mobile.  I do not use one.  I do not own one. 
21    I would not buy one.  Namely because, if somebody wants to
22    reach me, I still have my pager, which I have had for 10
23    years, and I do not like being bothered.  But that is
24    purely a psychological factor.  There is about .5 percent
25    of the population as weird as I am.

 1              In addition, too, about 5 years ago, we started
 2    out in wireless.  And today we have, other than a CMRS
 3    license, we have absolutely no wireless operations.  We do
 4    IP telephony internationally and we are in the CLEC
 5    business.  And I think some of the things I am going to
 6    talk to you about today are reasons why we have eschewed
 7    wireless operations.
 8              So, very quickly, let me go through the first
 9    slide, if I may.
10              (Slide.)
11              MR. MCGARTY:  This was the universal service
12    issue.  I think the FCC adequately covered that.
13              (Slide.)
14              MR. MCGARTY:  These are basically the things
15    that go into universal service from the FCC's viewpoint. 
16    Very simplistic, but bear with me as I go through it.
17              Single-party service, voice-grade PSDN, DDTMF --
18    which is tone signalling, operator services, some toll
19    limits, 411 information, and 911 help.  Okay.  This is
20    kind of the package of things you got to sell.
21              Now, the question is, what is the platform that
22    you sell these things on?  And that is the key issue.
23              (Slide.)
24              MR. MCGARTY:  And they were driven by Alex's
25    questions  to me,  which  I have  taken  the advantage  of

 1    republishing.  Which is, What is the comparability between
 2    land based and satellite and wireless?  What is the impact
 3    of population density to break-even points?  And what
 4    should government do?  And that was driven by Kathy's
 5    comments earlier.
 6              (Slide.)
 7              MR. MCGARTY:  What is wireless?
 8              Well, it is features and coverage and investment
 9    and a bunch of things.  And wireless is in the eyes of the
10    beholder.  I am very fixated on wireless local loop,
11    mainly because it is direct competition to the incumbent
12    local exchange carrier.  I have looked at LMDS, which is
13    somewhat the rage.  I have got not the most favorable
14    opinion about that from the economic perspective. 
15    Cellular PCS, LEO's, Teledesic, and the others.
16              The problem with the satellite business, of
17    course, is it is really the field of dreams, in the sense
18    that you throw up hundreds of millions of dollars and pray
19    that somebody is going to be there.  I have been in and
20    out of that business probably most of my life.  LEO's and
21    Teledesic are two extremes of that.
22              Wireless local loop is also an issue where
23    coverage is important.  Not as important, obviously, as
24    cellular, where you need 1,000, 2,000, 3,000 square miles
25    of instantaneous coverage.  You can do wireless local loop

 1    with clusters of a few hundred square miles.  But it is
 2    important.
 3              The low-hanging fruit opportunity, of course, is
 4    LMDS, where you can sit out there and say, okay, I am
 5    going to target this building, that building and whatever.
 6              (Slide.)
 7              MR. MCGARTY:  This is a calculation -- and for
 8    those of you sitting in the second row who cannot see it,
 9    I am going to comment on it -- it has some value.  Because
10    we did this -- good Lord -- 5, 6, 7 years ago.  This is
11    the Qualcomm CDMA numbers that we based our initial
12    assumption to spend some money on to get into the C band
13    licensing phase.
14              And this said, for 1,000 square miles -- and the
15    top line is number of subscribers, going from 10,000 to
16    300,000 -- and actually these were the numbers from the
17    Boston market -- these were the total capital per
18    subscriber numbers as we grew from 10,000 subscribers to
19    300,000.  the Boston market is about 4.5 million in the
20    SMSA-type size.  Okay.  I will not get to BTA's and MTA's.
22    It is about BTA size.
23              If you take a look at the bottom line, the
24    capital per subscriber, even at 10,000, was $587.  That is
25    for infrastructure.  It does not include the switch and it

 1    does not include the terminal.  It goes down as low as
 2    around $366.  That is for a 10 megahertz spectrum. 
 3    Because we actually were thinking about 10 megahertz.  It
 4    is about $50 per subscriber less for 30 megahertz.
 5              Which meant you did not have a significant
 6    premium between 10 and 30.  You got clobbered somewhere on
 7    the high end, but it was like about a 15 percent premium,
 8    and that was about it.
 9              (Slide.)
10              MR. MCGARTY:  Then we took a look at -- and this
11    was the telling chart -- we took a look at what we had was
12    the net present value per pop.  And "pop" is the euphemism
13    used in cellular/wireless for people.  And this was a net
14    present value per pop -- I'm sorry, it is not per square
15    mile, but just net present value per pop as a function of
16    the number of pops per square mile.
17              And it really said, gee, if I am at the low end,
18    say, 5 percent penetration, at the 10th year, then it is
19    about $11 that i should bid for this if I have 1,000
20    people per square mile.  That is a hell of a lot of
21    population density.  Okay.  Especially if you are going to
22    talk about universal service and rural applications.
23              As you went below 400 people per square mile, at
24    the low end penetration, it was not worth going into the
25    business.  Now,  let's talk about 5  percent, because that

 1    is a key issue.  The percent penetration in 1993 of
 2    telephones per pop was about 99 percent per household. 
 3    But there are 2.5 people per household.  So, therefore, if
 4    you looked at the percent penetration of telephones per
 5    pop, it was less than 50 percent.
 6              So the 5 percent number meant you got 10 percent
 7    of the market at that time.  Which was rather aggressive,
 8    considering there were 6 or 7 or 8 or 9 or 10 or 11 other
 9    players.  All right.  And you were so good that you were
10    going to get at least pari passu if not better.
11              NextWave bid on a 15 percent penetration, which
12    of course was one-third of the total market, which was a
13    rather aggressive number to bid on -- for those of you
14    that are still watching the bankruptcy of the C band
15    market.
16              These are the types of numbers that we worry
17    about, especially as we take a look at the low end here. 
18    Again, this is CDMA technology, and I am not going to get
19    into a technology battle.
20              (Slide.)
21              MR. MCGARTY:  We will go back to policy issues.
22              It really gets back to some issues that I would
23    like to just sort of bring up very quickly.  If you take a
24    look at five areas that the FCC has worked in -- PCS,
25    satellites,  cable,  local   loop,  and  interexchange  --

 1    interexchange has been successful.  Prices have gone down
 2    threefold in 15 years.
 3              PCS, what do we have?  When I was selling stuff
 4    at Nynex, I had 19.95 a month basic input, and it was at
 5    55 cents a minute off time.  Now, it is 24.95 a month and
 6    75 cents a minute.  Prices have gone up.  Not too good an
 7    idea.
 8              Satellites have been around.  The FCC had a
 9    policy.  Has there been a change in satellites below
10    cable?  No.  They are almost exactly pari passu.
11              Cable rates have gone up and down and up and
12    down and up and down.  We have a lot of price caps.  The
13    net result:  They were 5.95 in 1985.  They were at 10.95
14    in 1990.  And they are 29.95 today.  Inflation has not
15    gone up that much.
16              Local loop, the story has yet to be told.
17              So, therefore, of those five areas, at best, we
18    have one success, one uncertainty and, in my opinion,
19    three failures.
20              Five recommendations.  I think you should open
21    up the C band residuals to open bidding for additional
22    players.  I think the FCC's ruling was a way to get out of
23    the bankruptcy problem, because they did not put the UCC
24    in the agreements.  But we will leave that to the lawyers.
25              I   think  you  have   got  to   allow  spectrum

 1    disaggregation, and specifically unbundling of the current
 2    players.  There are current players that are effectively
 3    de facto CLEC's.  I mean they are owned and held and
 4    controlled by them, and we have petitioned the Commission
 5    on multiple and repeated occasions to do this --
 6    basically, unbundling elements that are there now, as you
 7    unbundle in the local loop.
 8              I think next you have to take a look at CMRS and
 9    CLEC's as equals, and specifically with regard to the
10    access fee.  That is, eliminate it.
11              And, then, finally, I think you ought to take a
12    look at CLEC's, effectively, more working with the ILEC's.
13              MR. WOLFSON:  Thank you, Terry.
14              I think it is interesting to sort of contrast
15    the last two points of view that were presented. 
16    Obviously, what Terry is saying is that if you look at the
17    cost, especially in a low-density situation, there is
18    really not the revenues to support this.  At the same
19    time, this is a technology that is cheaper than some other
20    options.  And somehow, we are going to have to figure out
21    a way, if we want to bring this technology out to these
22    places, and it is better, it is not just going to be the
23    private market.
24              The 1996 Act says opening various things to
25    competition,  but  how   are  you   going  to  make   that

 1    competition happen if a real, legitimate market is not
 2    there?
 3              Next we are going to have Joseph Sandri, who is
 4    Assistant Vice President and Regulatory Counsel for
 5    WinStar, which is doing some very interesting wireless
 6    local loop stuff in the United States.  We had an
 7    interesting yesterday on the phone, when we finally
 8    figured out that we were both going to finally be on the
 9    same panel.  And some of the interesting things that he
10    brought up, which I thought was going to be very important
11    for this panel also, was talking also about the schools
12    and libraries issues, which is a big chunk of the
13    universal service package that has been put out.  And it
14    is going to have to be addressed in some form or another.
15              So, thank you.
16                      JOSEPH M. SANDRI, JR.,
18                   WINSTAR COMMUNICATIONS, INC.
19              DR. DAVIS:  Thank you, Alex.
20              Where is service to schools and libraries? 
21    Where is wireless local loop?  We believe, at WinStar, we
22    are not only doing it right now -- we are funded, we are
23    licensed, and we wanted to sort of give you an overview of
24    what is going on, because there is a lot of questions
25    being asked  about  how operation  is actually  occurring.

 1    And we are doing it, so we wanted to let you know what is
 2    going on.
 3              What I would like to do is spend about 4 minutes
 4    discussing where our infrastructure is.  And then I would
 5    like to hand over to Gary Markowitz, who is our new Vice
 6    President in charge of WinStar for education.  Gary was
 7    formerly President of Community Schools Network, which
 8    WinStar purchased last month.  And it shows, once we build
 9    a large pipe to a school, are we just giving them a dumb
10    pipe or are we going to give them something that is
11    intelligent?  And Gary will speak to that.
12              Gary is over there.  And sitting next to him is
13    Tom Snenicker, who is going to be doing a lot of our
14    paper, Strictures, with the schools and libraries, helping
15    them through the process that the FCC is so intelligently
16    putting together.
17              First, to the panel here, what is WinStar?  We
18    are a 38 gigahertz technology.  We hold, I believe, more
19    spectrum than anyone in the United States on a terrestrial
20    basis.  In the top 50 cities we have licenses.  In the top
21    20 cities we have at least 500 megahertz.
22              For comparison, the wider PCS players have 25 or
23    I guess up to 50 megahertz in their slots.  They are down
24    at 2 gigahertz.  We are up at 38 gigahertz.  The
25    technology allows for wireless fiber, which is our service

 1    mark.  That means we use an engineered beam that shoots
 2    out to building from a hub site with 99.999 percent
 3    reliability.  Your average RBOC phone is 99.7.
 4              This is basically a fiber optical equivalent. 
 5    And if you do not count fiber optic cuts, it is an
 6    equivalent.  If you count all the cuts that occur when a
 7    fiber optic line gets cut, due to construction, rights of
 8    way issues in urban cores where we are primarily located,
 9    it makes us even a little bit more reliable.
10              We use a hub network.  And we have deployed or
11    we are going to be deployed in the top 20 cities by the
12    end of 1998.  Right now we are in New York, Chicago, San
13    Diego, Washington, D.C., Dallas, and a few other cities
14    that I cannot recall.
15              (Slide.)
16              MR. SANDRI:  We have interconnection agreements
17    with all the RBOC's, with GTE, with a lot of the major
18    independent LEC's.  We are a certified CLEC, competitive
19    local exchange carrier, in 29 jurisdictions.  We are a
20    CAP, competitive access provider, in 38 now.  And we have
21    long distance authority in 47.  So we could bring this
22    entire package, and we have close to
23    three-quarters-of-a-billion dollars in funding.
24              (Slide.)
25              MR. SANDRI:    That just  shows  our  nationwide

 1    license coverage.  The licenses are area-wide licenses. 
 2    They are typically up to 10,000 square miles.  The FCC has
 3    announced an auction to -- any open areas will be
 4    auctioned off on a BTA basis, and we will probably round
 5    out a lot of our areas in that auction.
 6              (Slide.)
 7              MR. SANDRI:  As I was speaking earlier, this is
 8    a high-speed communications link.  It is point-to-point
 9    technology.  We shoot from building to building, and then
10    we tie it back into a Lucent -- primarily a Lucent
11    switching, class 5 switches, which can handle local and
12    long distance services.
13              Right now, our wireless shots are about DS-3
14    level per 100 megahertz.  That is 672 voice-grade lines. 
15    And we can reuse the spectrum quite aggressively.  We can
16    engineer it, because our beams are very narrow.  It is not
17    like TV or radio, where you are out in an omni-directional
18    capacity.  So we can provide multiple links per channel
19    per city, and we have multiple channels per city.
20              (Slide.)
21              MR. SANDRI:  It is microwave.  It is 38
22    gigahertz.
23              That is just sort of a mockup of -- the green,
24    in the middle, is a switch site, where we will have a
25    Lucent switch.  We will sit on either a fiber ring, like a

 1    sonet ring, and the red diamonds are our other hub sites
 2    in a city.  In Washington, D.C., we have three hub sites. 
 3    One or two are up and operating.  We have a switch here on
 4    1850 M Street, a hub up top.  And buildings all over the
 5    city.  We're going to be firing to and try to get line of
 6    sight.
 7              And we engineer usually shots up to a couple of
 8    miles in this area.  We usually do not need to go that
 9    far, though, because our hubs are planted strategically.
10              (Slide.)
11              MR. SANDRI:  That just shows the next
12    generation.  On December 9th, we started testing, in
13    conjunction with Siemens-BNI, a multi-point system.  The
14    FCC has authorized multi-point operations at 38 gig.  And
15    what you can do is you can do bandwidth on demand, up to
16    OC-3 -- which is I guess three or four DS-3's -- per 100
17    megahertz.
18              (Slide.)
19              MR. SANDRI:  That is a hub site that is going up
20    in Chicago.  It is just the little antenna on top.  It is
21    kind of art deco looking.  So they are not ugly --
22    depending on your taste.  And the antennas on the B site
23    buildings are literally little pie plates.  So they are
24    very unobtrusive, and we are not going to run into a lot
25    of  the   issues  that  are   encountered  in  a   lot  of

 1    communities, and zoning issues.
 2              (Slide.)
 3              MR. SANDRI:  And that is just a closeup of it.
 4              So that is the technology.  We are funded and we
 5    are operating.  We are providing local phone service in a
 6    lot of cities.  And we will be providing a lot more as we
 7    roll out this year.  And I wanted to introduce Gary
 8    Markowitz, who is Vice President of WinStar for Education.
 9              MR. MARKOWITZ:  Good morning, everybody.
10              What I would like to do is maybe just change the
11    pace a little bit, or change the direction.  Because as
12    you are talking about all of this technology, what I would
13    like you to keep in mind, particularly with universal
14    service as it relates to the schools and libraries, that
15    what you are really worried about is success -- successful
16    students and teachers and schools.
17              And as we talk about all this technology, keep
18    in mind that what we are trying to do is to bring this
19    technology to the schools and to the students so that they
20    can be competitive in the future.  So that they can go out
21    there and that information technology world that we are
22    talking about, the information economy, and secure
23    high-paying jobs and make a living.
24              And when you do that, you have to look beyond
25    technology.  You  really have to look  at four fundamental

 1    issues when you are talking about the schools.  You have
 2    to look at the funding issue.  And that is what universal
 3    service is all about.  You have to look at the
 4    infrastructure issues.  And today we are here talking
 5    about wireless.  Wireless, it turns out, is particularly
 6    important when you are talking about inner-city schools.
 7              On Monday, I was with the New York City Board of
 8    Education.  And on Monday, we were looking at plans for
 9    various city school buildings.  And I have to tell you
10    that for many of the inner-city school buildings in New
11    York City and here in D.C., also, you cannot get into them
12    with wire, because they are so laden with asbestos and
13    other problems that our wireless solution is perhaps the
14    best solution.  And a totally, totally wireless solution. 
15    Not only the wireless solution that Joe was just talking
16    about, in terms of a T-1 coming to the rooftop of the
17    building, but an internal wireless LAN solution.
18              So the more that we can push these technologies,
19    to make it simpler for schools that have these antiquated
20    facilities, to use them, the better off we are going to
21    be.  But once you get to that point, even when you have
22    gotten to the point of having a T-1 going to your school,
23    and you have solved the problem of the wireless LAN
24    inside, and you have got the PC's and the MacIntoshes and
25    whatever else you need, there are other larger problems to

 1    be solved.
 2              Believe it or not, as difficult as those
 3    problems are, those technology issues, they are the
 4    10-percent issue for the schools.  Once you solve that,
 5    you run into the 90-percent issue.  And the 90-percent
 6    issues revolve around two things.  They revolve around
 7    skills and staff development.  Because no matter how much
 8    technology you push into the schools, unless the teachers
 9    know how to use it, unless they can integrate it into
10    their curriculum, unless they can make it a part of the
11    educational fabric, it will be for nought.  You will have
12    wasted time and money.  And, in fact, if anything, you
13    will have frustrated the educational process.
14              The fourth item that I have got up on that last
15    bullet there is the quality issue.  Because, you see, when
16    I go and I talk to schools, the thing that I see is that
17    most of the schools, first of all, as soon as they get
18    somebody coming in with a suit and representing a
19    telephone company, they start to worry.
20              But what most of the schools are saying is,
21    look, we have been sold this bill of goods on technology
22    so many times.  You know, in the past it was, just buy
23    PC's and that will solve all your educational problems. 
24    Then it was, just buy this software and it will solve your
25    problems.   Now, just  buy this  multimedia CD-ROM  and it

 1    will solve all your educational problems.  Well, it does
 2    not.
 3              And the whole quality issue is that the really
 4    important thing is, how do we raise the reading, the
 5    writing and the mathematic scores of the children?  How do
 6    we also do one other thing -- how do we bring the children
 7    together?  How do we get children from Washington talking
 8    to children from New York, talking to children from the
 9    Fiji Islands, talking to children from Japan and China and
10    elsewhere?  Because that is what is going to be important
11    to our economy in the future.
12              (Slide.)
13              MR. MARKOWITZ:  What the next slide shows is
14    actually the journey that the schools are on.  This is the
15    journey from connectivity, which we are taking a big step
16    forward with the FCC and with universal service.  But they
17    have got to get through content.  They have got to put
18    that content into context.  Because it has got to mean
19    something in the curriculum.  And then, collaboration.
20              And that is what we have done.  We have
21    addressed those tools.  We have built tools for the
22    schools to do that.  And, by the way, we give them away
23    free with all of the WinStar pipes that go to the schools.
24              Beyond collaboration, something that is very,
25    very important  is creativity.   We  have just  hired John

 1    Conin, who was IBM's top inventor, with over 100 U.S.
 2    patents himself.  And he has developed a whole series of
 3    creative problem-solving tools which we are turning into
 4    Web tools that we will be giving free to all of the
 5    schools.
 6              Those tools are going to teach our children, the
 7    next generation, to be more creative.  Because in
 8    tomorrow's economy, it is intellectual capital that
 9    counts.  It is not brute strength.  It is not muscle.  It
10    is products of the mind, not products of muscle.
11              And beyond that, what we have got to do is we
12    have to teach the children about electronic commerce.  How
13    can they make this happen?  How can they participate in
14    it?  And when we have done that, we will get to the end
15    goal.
16              See, because the end goal is a community of
17    learners, a worldwide community of lifelong learners.  And
18    that is where we are at.  And the FCC and universal
19    service is just the beginning of this entire journey.
20              Thank you very much.
21              MR. WOLFSON:  Well, we got two for the price of
22    one.
23              Next, I would like to introduce Jonathan
24    Chambers.  Jonathan Chambers is the Vice President of
25    External Affairs  and General Counsel  of Sprint PCS.   In

 1    looking over people's backgrounds, it is nice to see that
 2    a number of people on the panel have served in public
 3    service, either at the FCC or in Congress.  And it sort of
 4    gives me hope that some day I will get a paying job, too.
 5              (Laughter.)
 6                  JOHN CHAMBERS, VICE PRESIDENT,
 7                     PUBLIC POLICY, SPRINT PCS
 8              MR. CHAMBERS:  Thank you.
 9              I work for a company called Sprint PCS.  And my
10    end of the business is the legal side, regulatory, both at
11    the Federal and State level.
12              Let me give you just a moment's background on
13    Sprint PCS in case you have not heard of us.  We
14    participated in the A and B block PCS auctions.  We
15    acquired licenses throughout most of the country.  And
16    then, one of our partner companies, Sprint Corporation,
17    acquired licenses in the D and the E block auctions,
18    filling out our footprint.  So that we now have licenses
19    throughout the country, throughout the U.S., from Hawaii
20    to Maine.
21              We began building our network in 1995, after we
22    acquired the licenses.  We have now launched our first
23    phase.  That is, everywhere we acquired an A and B block
24    license.  We are now serving in 134 metropolitan areas in
25    the country.  And we are currently building in D and the E

 1    block licenses, and hope, by the middle of next year or
 2    so, to have built out, so that we will have truly a
 3    nationwide presence.
 4              Where we are launching now -- or where we will
 5    be launching next year -- we are launching in markets
 6    where there are already two incumbent cellular providers,
 7    one or two PCS providers, sometimes three PCS providers,
 8    and oftentimes NexTel.  Which is to say you have, in a lot
 9    of the country right now -- metropolitan areas -- you have
10    four and five and six wireless carriers.
11              As I say, we will be entering markets next year
12    where we will be the sixth of the seventh wireless
13    carrier.  I mention that just to point out that -- I know
14    there has been a lot of hand wringing since passage of the
15    1996 Telecom Act that competition has not developed. 
16    There, most people are talking about competition in the
17    local exchange.
18              The wireless business -- the mobile wireless
19    business anyway -- has been a real success story as far as
20    policy is concerned, as far as the policy of promoting
21    competition in this country.  And I take a bit of slight
22    issue with -- I am not sure what prices you were referring
23    to -- but part of the success is that prices have really
24    come down in wireless.  And I do not expect to sell you a
25    phone, but maybe it is time you look again at the prices.

 1              Prices tend to be, now, down to the
 2    10-cent-a-minute range.  Which is a pretty dramatic drop
 3    since you had a duopoly situation with cellular providers.
 4              As I say, it is a robustly competitive market. 
 5    And I mention that as much because I think when you have
 6    the fifth and the sixth carrier getting into the
 7    marketplace, or the seventh carrier getting into the
 8    marketplace, the carriers are going to have to start
 9    looking at other markets to get into than just serving
10    downtown D.C. or downtown New York or L.A.
11              Part of what I think carriers are going to start
12    looking more seriously at is the local exchange.  And I
13    appreciate NTIA putting on this day-long discussion,
14    because I do think, just as a matter of where you go as an
15    industry, the wireless industry is looking more and more
16    at competing with the local exchange.  I do not think we
17    are there yet.  But I think it is most of the companies'
18    business plans.
19              And the other piece that companies might start
20    looking at is serving, as I say, more than just the
21    metropolitan areas.  And as you build out these systems,
22    you build out -- primarily you start in the more populated
23    areas, and you build out along the highways, to sort of
24    connect the dots.  And it does not take any great genius
25    to see  that as you build along highways, you are building

 1    along rural areas.
 2              So I certainly do not dispute that it is --
 3    where you have low population densities, it is not a great
 4    business to try to spend a lot of money putting CDMA base
 5    stations in to serve 50 or 20 or 100 or a couple of
 6    hundred people, but where you have not incidentally built,
 7    where you have built a network along highways, along
 8    routes, so that your basic customer base can travel from
 9    city to city, you have got capacity that is going unused.
10              And so I do think, as I mentioned, as you have
11    this very intensive competition in metropolitan areas,
12    that will start to spill over into more rural -- and I am
13    not talking about, you know, rural-rural -- it may get
14    there at some point, but you will get into the
15    less-populated areas, you will have wireless deploying
16    more throughout the country, and not just in sort of the
17    traditional metropolitan centers.
18              Which brings me to the universal service point. 
19    And that is the wireless industry is, for the most part,
20    if you have read their comments in proceedings before the
21    FCC or at State commissions, the wireless industry has
22    viewed universal service primarily as a tax.  And I know
23    that is a bit of a loaded word, but it is shorthand for
24    what it looks like to us anyway.
25              When  you  have  a  State  like   Kansas,  which

 1    imposed, earlier this year, a 9 percent charge on your
 2    revenues within the State of Kansas, growing to 14 percent
 3    in 3 years, and you combine that with the Federal charge
 4    of 2 or 3 or 4 percent, or whatever that turns out to be,
 5    it looks like a pretty healthy chunk of change to take out
 6    of your revenues or to pass along to your consumers.  And,
 7    obviously, it looks like a negative to us.
 8              It looks like a negative to us as we begin to
 9    compete more and more for price, as we try to make
10    wireless service available and affordable to all
11    Americans.  And I think, in a way, it actually contradicts
12    sort of the intent of Congress to make telephone service,
13    basis telephone service -- and in this case, basic
14    wireless service -- affordable to all Americans.
15              To the extent that the government imposes more
16    and more good ideas, you know, good service ideas, E-911,
17    number portability, CALEA, that sort of thing, things that
18    look pretty good just on paper, they all impose costs. 
19    And those costs are certainly going to be passed along to
20    consumers -- certainly when there is competition, they are
21    going to be passed along to consumers.
22              And to the extent that those numbers run up into
23    the -- again, just take the State of Kansas, where you
24    have got 15 or 20 percent new tax, new money being taken
25    out,  it  makes   the  service  less  affordable   to  our

 1    customers.
 2              Now, I want to get away a bit from the notion
 3    that it is just a tax.  Because we, as a company, have
 4    been looking at universal service and the funding
 5    mechanisms as a way to help us deploy our service to rural
 6    America, as a way to serve other parts of the country. 
 7    And we have applied -- we are one of the -- Jeanine
 8    mentioned some companies -- I do not know who else -- but
 9    we have applied in several States to be an eligible
10    telecommunications carriers.  That is the term in the 1996
11    Act.
12              In order to be an eligible telecommunications
13    carrier, you have to meet the various criteria set out by
14    the FCC.  You have to provide certain services.  They were
15    shown on a slide just a moment ago.  And you have to be
16    willing to -- you have to be a common carrier, which is
17    what we all are by law.  And you have to advertise your
18    services widely.  And I am sure most people are sick of
19    the advertisements by now -- for wireless service anyway.
20              We applied in several States.  And we have been
21    granted ETC status, at least in Arkansas, and California
22    had their hearing yesterday.  And I have not heard how
23    that came out, but I expect we will have been granted ETC
24    status in California as well.
25              We have done it as much as a defensive mechanism

 1    as anything.  I mean I think, until other service
 2    providers begin to draw from the Universal Service Fund,
 3    begin to compete directly with the carriers that are
 4    receiving subsidies from the Universal Service Fund, that
 5    until that happens, you really will not have a situation
 6    where not only competition develops, but where you will
 7    have competition for the subsidy.  And hopefully, at some
 8    point, the subsidies will come down.
 9              I certainly do not question the goals of serving
10    all of America.  I question the way in which some of the
11    rural telecos have been protected in the Telecom Act.  I
12    am just talking now about the high-cost areas served by
13    non-rural LEC's.  We did not apply to serve rural LEC's,
14    because you cannot really apply to serve in rural LEC
15    territories.  The Telecom Act makes that virtually
16    impossible.
17              And I can get into it a little bit more.  There
18    are some real serious obstacles to overcome in becoming a
19    designated eligible carrier -- eligible to receive funds. 
20    And those obstacles mainly have to do with the way in
21    which the funding mechanisms have been set up, the
22    criteria have been set up.  Because they very much have
23    been set up as if the world was just a wire line world.
24              The service areas that Jeanine mentioned -- and
25    while the FCC encouraged States not to adopt large service

 1    areas, States have -- some States have just adopted the
 2    service area of the serving local exchange carrier.  And
 3    that is not our service area.  And it should not be made
 4    to be our service area.
 5              The local minutes of use -- and I will wrap up
 6    with this -- is another area in which -- as was mentioned,
 7    you have got a different way in which the two
 8    technologies, the two types of carriers price.  So if you
 9    come out with a decision -- if the FCC comes out with a
10    decision which skews local minutes in favor of the way the
11    wire line carriers price, it is obviously going to make it
12    more difficult for wireless carriers to provide service.
13              And with that, I will end and turn it over to
14    the discussion.
15              MR. WOLFSON:  Thank you very much.
16              It would seem that with wireless technologies,
17    things are looking brighter.  We see that the opportunity
18    to have competitive services in urban markets and
19    competitive markets, the big MTA's, is possible.  It gives
20    better consumer surplus.
21              We have also seen that wireless technologies can
22    help reduce costs in urban areas, such as the BETRS
23    system.  But I guess the question I want to bring to the
24    panel is, how do we take from this added surplus, this
25    added value that  we can  get from wireless  technologies,

 1    and use it to make the existing system better?  Where does
 2    wireless really fit in universal service?
 3              And you can either take it one way, make a
 4    comment, or if you could do one thing to change the system
 5    to make it better, how would you change it?
 6              And maybe we will just go down the panel,
 7    beginning with Ed.
 8              MR. CAMERON:  The question was, where does
 9    wireless fit in universal service?
10              I want you to focus the question a little bit
11    for me.
12              MR. WOLFSON:  Okay.  The question is, if we are
13    gaining consumer surplus, either by reducing cost in
14    providing to rural areas or having a more competitive
15    environment in urban areas, how can we use this
16    undercurrent of change brought about by wireless to make
17    the universal service program work better?
18              MR. CAMERON:  Every time we make a loan to a
19    rural LEC, we do a feasibility study.  And one of the
20    tests we perform on it is whether or not that loan would
21    be feasible without universal service contributions.  And
22    almost without exception, they would not be feasible
23    without universal service contributions.
24              Wireless loops may cut the cost some.  I mean we
25    have used them  whenever they have  in the past.   And new

 1    technologies, I have to believe, being an optimistic
 2    engineer, will cause lower costs and lower costs and lower
 3    costs.  But it would take negative costs to make the rural
 4    companies feasible using any technology.  There is just no
 5    way.
 6              The chart that you saw up here, showing the
 7    relationship between population density and feasibility of
 8    wireless local loop companies, that is about the same
 9    chart you have with wire line systems.  And the 900
10    companies that we finance, the areas they serve, and
11    similar areas served by the RBOC's, just have such low
12    density that there is nothing we can do, short of magic,
13    to get the costs down so that you do not need the
14    universal service support mechanism.
15              Now, anything short of that, any money we save,
16    is certainly going to be a boon to the entire system.  It
17    is going to cut the need for funding from the universal
18    service support mechanism.
19              But the situation is so dire in rural America,
20    in really rural America, that it does not seem like the
21    problem with competition -- or the challenge with
22    competition is that the local companies will face much
23    competition, because nobody is going to come into their
24    areas to serve.  The problem is that they are going to
25    lose  the funding that  they need  to survive and  to keep

 1    rates affordable.
 2              MR. WOLFSON:  Thank you.
 3              John?
 4              MR. CHAMBERS:  Well, I think it is still very
 5    much an open question of whether wireless can take
 6    advantage of the funding mechanisms or whether it is
 7    economic to do so.  And part of that, as most of you know,
 8    a lot of what 1998 is going to be about in universal
 9    service is determining the proxy models and, by
10    determining the proxy models, determining what the level
11    of subsidy is going to be for serving high-cost areas. 
12    And once you know what the subsidy is that is going to be
13    available, you will be able to make an economic
14    calculation as to whether it is worth serving that area.
15              The policy change that I would suggest is while
16    we can meet the eligibility criteria that were set out by
17    the FCC, the FCC only addressed their part of it, their 25
18    percent part of it.  And they have left it up to the
19    States to design any type of funding mechanism they would
20    like, so long as the rules are not inconsistent with their
21    rules -- whatever that means.
22              And it makes it more difficult.  You would think
23    that if you meet eligibility criteria for one set of
24    rules, it should be enough.  You should not have to have
25    then a  second set of rules that  might be a different set

 1    of rules in order to be eligible.  And if you can only
 2    take advantage of 25 percent of the funds, then it may not
 3    be the same economic calculation if you could take
 4    advantage of 100 percent of the funds.  And obviously it
 5    will not be the same economic calculation.
 6              The policy change -- I think the FCC needs to --
 7    maybe together with the States -- but just say, all right,
 8    here is the -- if you are designated as eligible, you are
 9    eligible for both the Federal and the State funds.  You do
10    not just have an eligibility criteria for one set of funds
11    and then you have to do something else.  And in doing
12    that, as I mentioned, I think they really ought to be
13    technology neutral -- getting to your question of how do
14    you allow wireless to contribute to this -- they really
15    ought to be technology neutral rules.  Which I realize is,
16    in a way, in the eye of the beholder.
17              MR. WOLFSON:  Thank you.
18              Terry?
19              MR. MCGARTY:  I think one of the first comments
20    is that the perception is that policy is typically based
21    upon past practices.  And the comments that have been made
22    today, even about the current models that are going
23    through -- and there is very interesting debates about the
24    cost models -- in many cases they are based somewhat
25    against past practices.

 1              And when people enter the market -- and one of
 2    the questions we were asked before by some of the hardware
 3    companies that were here:  how do you make decisions to
 4    markets -- it really is not just an engineering decision,
 5    it is you have to understand the regulatory policy as
 6    currently in place at the time you decide to engineer and
 7    build the system.  And there is a great deal of regulatory
 8    twisting and turning on how you design a system.  All
 9    right.
10              If somehow or other the regulatory process could
11    really be positioned to enhance and support new
12    alternatives -- not necessarily being based on past
13    paradigms -- I think there would be a lot more flexibility
14    there.
15              But let me just give you a quick numerical
16    example which gets back to John's contretemps to me.  Why
17    do we make a decision to focus more on CLEC than on
18    wireless?  It was just a bottom-line number decision.  We
19    took a look at the 1996 Act.  And we can buy local loops,
20    twisted pair from Nynex, for about $8.50 a month, with no
21    investment.  I do not have to bid for an auction.  I do
22    not have to do anything if I want to be in the business of
23    doing local phone service.
24              If I had to do the same thing in a PCS
25    environment, if you look at  my prior numbers, it is  $300

 1    for the infrastructure, $100 for the switch $300 for the
 2    phone, and then add another allocated cost for winning a
 3    license if we were so lucky, and you are around 16.50 a
 4    month per access line.  That is assuming good penetration.
 5              So the interesting thing is you have got to take
 6    a look at these economics on a state-by-state basis. 
 7    There is an intertwining playoff here between what the
 8    local commissions are doing on CLEC -- on unbundled
 9    elements and what you are going to do if you are in a
10    wireless environment.  And then you take a look at
11    universal service, and what is happening is that portion
12    that is subject to effective universal service competition
13    is getting pushed more and more into a corner, which
14    becomes less and less economically attractive.
15              So there really is an issue of, again, from the
16    policymakers, trying to understand -- and it is difficult,
17    because you cannot predict the future -- policy is based
18    on past paradigms, but you have got to be able to do so in
19    such a way that you enhance or enable the new
20    alternatives.  And that is a very difficult challenge. 
21    But I think that is the challenge -- at least from my
22    perspective -- that the policy people have.
23              MS. POLTRONIERI:  It seems to me that just as I
24    went through the process of the universal service
25    reform -- and now  I am currently at  the Wireless Bureau,

 1    but prior to this I was over at the Common Carrier Bureau
 2    working on universal service -- so the process of what we
 3    did at the Agency is something that I was pretty
 4    intimately involved with.
 5              And it is not surprising to me that there would
 6    be a lot of controversy and a lot of problems, given what
 7    the task was at the outset and given the time frame the
 8    Commission and the States and the carriers all had to work
 9    on this.  We took a decades-old system of monopoly
10    subsidized service and tried to move that into a
11    competitive paradigm and tried to make implicit subsidies
12    explicit and also add onto that additional funding for
13    schools, libraries and health care providers.  So the
14    level of kind of controversy and rhetoric that surrounded
15    this process is really not that surprising given all the
16    sort of different, varying interests that were coming to
17    bear on this proceeding.
18              So I guess I am definitely sensitive to the
19    points that are being made today.  And I think that there
20    is definitely -- I agree that a lot of what we did was
21    based on what was already existing in the United States,
22    and kind of that was what we looked to as our starting
23    point.  We are continually trying to make it a better
24    process and we are continually trying to make sure that we
25    can  include  a  whole  bunch  of different  technologies,

 1    including wireless technologies.
 2              So I guess my only suggestion would be that if
 3    people can maybe just drop the level of kind of criticism
 4    or controversy about these things and try to work with us
 5    on this, I think that, over time, we will be able to come
 6    up with some better solutions.  And we are continuing to
 7    work on it now.
 8              MR. SANDRI:  I guess, in line with what Jeanine
 9    is saying, once the FCC completes what has got to be for
10    them an excruciating task of simmering through a variety
11    of conflicting viewpoints, if the final FCC order comes
12    out and you can turn it over and, right in the back, five
13    points.  And those five points would probably be can a
14    school order a T-1 regardless of the technology, freely,
15    that would be nice.  And then two through five would be
16    one.  Thanks.
17              MR. WOLFSON:  I think we will open it up to
18    questions.  If you do have a question, if you could step
19    up to the microphone and let us know who you are.
20              QUESTION:  Good morning.  I guess my question is
21    directed to Mr. Sandri.
22              I wanted to get an assessment of WinStar's view
23    of the residential market, in terms of a potential
24    customer base for you.  I can see that Washington is one
25    of  your major cities  where you  are operating, and  I am

 1    wondering, as a resident of Washington, could I call today
 2    to get my residential service from you?  And if not, what
 3    is the reasonable time frame for me to expect that to be
 4    available?
 5              MR. SANDRI:  We launched our network September
 6    25th of this year.  And that was our first hub, on 1850 M
 7    Street.  And if you are in line of sight of 1850 M Street
 8    and you also had a need that is roughly equivalent to a
 9    T-1 -- I think we have sold all the way down to partial or
10    fractional T-1's.  If you have got some serious
11    Intel-based chips in your house in some computers, yes, we
12    could shoot to you, as long as you are within line of
13    sight, as we grow out to the residential areas, up in
14    Virginia and Maryland.  We are looking to serve them.
15              There is a curve that we are looking at.  Right
16    now, our equipment -- if you went to a fiber-based
17    company, for example, or the incumbent LEC, and said, I
18    need a couple of T-1's to my house -- or fiber optics, for
19    example -- to get a fiber optic line that was truly
20    state-of-the-art, you are going to run into a few hundred
21    grand-type of costs.  And you are going to run into months
22    of delay, permitting processes, cracking the streets to
23    lay the glass.
24              We can do that within our line of sight -- and
25    other CLEC's can do -- there are a couple of  other CLEC's

 1    who are following what we are doing -- they can do that. 
 2    All of us can do it if we had to in a matter of a day or
 3    two if you are within line of a sight of a hub system.
 4              So we will come to you.  But our long-term look
 5    is really, now that we have signed large agreements with
 6    large household name corporations to build especially this
 7    multi-point system I threw up real quickly, we are hoping
 8    at some point it will come down to about 250 buck per
 9    household to get the equipment in.  Sort of like -- you
10    know, our dish is smaller than a DirectTV dish.
11              And once we get to that point, just like VCR's
12    when they first came out were 1,500 bucks and now you can
13    go to Circuit City -- I checked on Sunday -- $99, we are
14    hoping that the LMDS auction, Teligent at 24 gigs, other
15    folks, they are going to drive equipment prices down.  The
16    fiber costs are still going to go up, because that is a
17    labor intensive -- and wire line costs are still going to
18    go up -- that is a labor-intensive industry.
19              So the long answer -- and if I could sum it
20    up -- is yes, we would like to get to you.  And if you are
21    within line of sight and you really need it, we will give
22    it to you now.  And also, MDU's, multi-dwelling units in
23    downtown areas, we can shoot and we are actively
24    targeting.
25              QUESTION:   How about regular  residential areas

 1    further out?
 2              MR. SANDRI:  Do you mean residential downtown or
 3    suburban?
 4              QUESTION:  Residential suburban.
 5              MR. SANDRI:  Suburban.  Let's say Montgomery
 6    County.  We have a shot now -- we are shooting from 1850
 7    M.  I think we can hit like National Cathedral.  And let's
 8    say you are north of National Cathedral and you have got a
 9    line of sight -- or we get to a street and we get on an
10    electric utility pole and hit your neighborhood -- as long
11    as you are within line of sight, the technology is there.
12              I am not sure if the economics are there at this
13    point, but we are aggressively monitoring that.  And at
14    some point, when we can get to you for 250 bucks, in your
15    house -- or if you have a home business, where you really
16    need the capacity today and you want to pay the fiber
17    costs, we are definitely cheaper and we want your
18    business.
19              MR. CLYER:  My name is Logan Clyer and I work
20    for WinStar actually here in the Virginia area.  So I am
21    fairly intimately familiar with your question also, which,
22    if you want to talk about it later, is fine.  But my
23    question now is back towards universal service.  Seeing as
24    how the mantra on universal service seems to be towards
25    affordable access, I am curious  if any of you think  that

 1    given that it is somewhat of an efficiency equity debate
 2    in economic terms, being you think it is an efficient idea
 3    to perhaps increase prices for rural users by a few
 4    dollars, seeing as how local phone service, the basic
 5    line, is probably an inelastic good and that with that
 6    increase in price there might be some efficiencies for
 7    companies like Sprint PCS that, using those extra dollars
 8    that are available to them, they can do other things in
 9    the larger markets or perhaps expand at a faster rate.
10              MR. CAMERON:  I think we probably want to let
11    the Congress answer that.  They addressed it in the
12    universal service, Section 254 of the Act.
13              No, I do not believe that it is national policy
14    for us to have premium prices for infrastructure in rural
15    areas.  Rural users do not pay more for roads and they
16    cost more per person.  They do not pay more for other
17    forms of infrastructure.  And I think the Congress
18    reaffirmed that in Section 254.
19              Does the FCC agree?
20              MS. POLTRONIERI:  Yes.  I mean what a particular
21    company might choose to do is something that is probably
22    best left to them.  But one of the things that we were
23    trying to do was to get rid of implicit subsidies and make
24    them explicit.  And that is one of the primary directions.
25              So I think  what you are talking  about would be

 1    sort of an internal company cross-subsidy sort of
 2    situation.  So I do not know if the FCC would want to
 3    direct something like that or just --
 4              MR. CAMERON:  Well, I have to follow up on that.
 6    There are over 1,200 rural telephone companies in this
 7    country that do not have urban areas to subsidize the
 8    rural areas.  And for the RBOC's, asking them to
 9    subsidize -- if you expect subsidies from urban areas to
10    go into rural areas, which has been the practice in the
11    past, but under the new competitive environment that is
12    being created, you cannot expect that, because the RBOC's
13    are going to be facing severe competition in their urban
14    markets.
15              What I think is going to happen -- and I have
16    been saying this for quite some time -- I think the small
17    telephone companies in rural areas are going to provide
18    good service to their customers.  I think the rural
19    customers that are really at risk are probably the rural
20    customers of the RBOC's.  Because what is going to happen
21    is there is going to be an enormous demand for the RBOC's
22    and the non-rural LEC's to dedicate their resources to
23    their tough markets.  And the rural areas are not their
24    tough markets.
25              And so I  think what we  are going to see  is we

 1    are going to see a real slowing of infrastructure
 2    investment in rural areas served by the larger companies. 
 3    In the past, toll settlements and toll revenues were based
 4    on investments.  But in the new system, they will not be
 5    based on investments.  And if they are not based on
 6    investments, then your revenues from the universal service
 7    support mechanism will be the same whether you have got
 8    $300 invested in serving a rural subscriber or $3,000.  So
 9    there is not going to be any incentive in the new
10    system -- as it looks like it is going right now -- for
11    the RBOC's to invest money in serving rural subscribers.
12              MR. KAMOSKI:  My name is Kenneth Kamoski, and I
13    am here representing the Nationwide Coalition of Nonprofit
14    Organizations interested in Universal Service.  We are
15    involved in working in communities where we are trying to
16    distribute the 35 million used computers that were created
17    by this economy last year to the households of low-income
18    people -- the 17 million poverty-level households in this
19    country and the other 5 million or 6 million working poor
20    households, which represent about 25 percent of the
21    households in the 100 million frame of this country.
22              My question is:  Are there players here -- is it
23    Mr. Cameron, is it Mr. Markowitz from WinStar -- who are
24    willing to work with us in a proposal that we have talked
25    to people on the Hill about for a low-cost wireless modem,

 1    operating with spectrum hopping and collision detection
 2    and correction, which could do the following things: 
 3    enable us to provide at-home access to the over 1,000 kids
 4    on the Chicago South Side who have learned and earned
 5    their home computers?  We never give a computer away;
 6    computers have value.  When you learn it you have earned
 7    it.
 8              We need a way of connecting those kids to a
 9    local network.  The coalition is called LINC, Learning and
10    Information Networking for Community via telenetworking or
11    telecomputing.  And we are in a number of communities
12    around this country.  We are going to soon be asking the
13    FCC for an experimental bubble to work in Phoenix, where
14    we are working with a community of 1,800 households -- 26
15    percent do not have telephone connectivity -- 30 percent
16    of the adults, by the way, are illiterate in Spanish. 
17    They are Hispanic and they are illiterate in Spanish.
18              This is a large part of America today.  And as
19    Mr. Markowitz said, the name of the game is really
20    lifelong learning and being able to bring not only the
21    children but the adults now.  Let's not lose that
22    potential market of 17 million poverty-level households. 
23    We have work-fare people in Long Island who are learning
24    and earning their computers and getting jobs.  We have
25    free Internet access for these  people through the Suffolk

 1    Cooperative Library System.  If they learn and earn a
 2    computer, they are on the Net.
 3              I am here to see whether there are partners for
 4    this nonprofit nationwide coalition.
 5              MR. MARKOWITZ:  I would like to respond.  The
 6    answer is yes.  And I would be happy to meet with you
 7    afterwards.
 8              We are working with the I Have a Dream
 9    Foundation in communities and schools.  So I would be very
10    happy to sit down with you and talk to you about what you
11    would like to do, particularly as it comes to both the
12    wireless part, but more importantly, from my perspective,
13    for the communities.  That is what it is all about --
14    providing those tools for children to be able to access
15    other children and access all the educational materials
16    and be involved in a lifelong learning process.
17              MR. KAMOSKI:  And from their homes.  Because
18    children only spend 19 percent of their time in the course
19    of a year in school.  And for low-income people, home is
20    where the time is.  And if they can get a computer in
21    their home, you are going to increase learning time. 
22    Those kids who have earned computers in Chicago do it by
23    tutoring younger kids on their time, after school.  They
24    are doing the hard work of learning on their time and
25    their reward is a computer they can take home.

 1              MR. WOLFSON:  One last question.
 2              MR. TRINKMON:  My question actually follows on
 3    from the comments of that gentleman, and I will come and
 4    see you afterwards, because Nortel would like to help you,
 5    too.
 6              The question is really focused around the
 7    "service" part of universal service, and mainly aimed at
 8    the FCC, I believe.  In the universal service orders last
 9    year, the FCC deliberately held back from defining
10    anything other than basic voice service with DTMF and 911
11    and so on, as was on the chart.  We understood that that
12    was to specifically allow PCS and cellular operators to be
13    able to come into the market and try and offer solutions
14    to some of the universal service problems, as opposed to
15    mandating ISDN or data rates or other things to be part of
16    the pot.
17              The criteria that had been laid down for the
18    proxy cost models requires the wire line networks, which
19    is what the cost models are based around at the moment, to
20    be engineered to be ready for advanced services.  So
21    no-loading coils, and the implication is that you can come
22    along and add on some ADSL modems or cable modems or other
23    things, and therefore the infrastructure has to be
24    advanced-services ready.
25              Over and  above that,  if you  talk to  research

 1    communities, native bands and so on, there are not many
 2    customers out there who really just want to get to 2400
 3    baud data speeds, which is what some of the State
 4    regulations require, and they want to be on the same sort
 5    of services and choices as the urban areas.  And whereas
 6    the problem has always been basic dial tone, they are now
 7    falling further and further behind as urban areas get
 8    multiple operators, multiple speeds and services and so
 9    on.  So the whole universal service issue is a moving
10    target.
11              And I just wondered if there was some way of
12    rationalizing this definition of the services which are
13    there to be supported or subsidized.  And I think, as we
14    just heard, people at home rural areas do not just need
15    dial tone any more.  It is one thing to have the kids at
16    school find out what the Internet can do for them, they
17    need something to do at home as well.  So it does concern
18    me that we have got an anomaly between the two parts of
19    the universal service process.
20              MS. POLTRONIERI:  In terms of the services to be
21    supported, we were to look at a number of criteria that
22    are set out in the Act.  And one of them which leaps to
23    mind is whether it is subscribed to by a majority of
24    citizens was one of the factors we were looking towards. 
25    We certainly considered the idea of advanced services, and

 1    kind of left the door open that in the future we may
 2    revisit that issue.  But at this time, we felt that we
 3    were kind of prescribing a set of services that we thought
 4    were accessible and that were really the core that is
 5    needed right now.
 6              In terms of the modelling process, I think the
 7    language that is used there is that you provide technology
 8    that would not impede advanced services at some point in
 9    the future.  And there is some tension between what goes
10    on in the modelling process and what is set out in the
11    services to be provided.  I think some of that is the
12    modelling process is really aimed towards figuring out a
13    network and then figuring out the cost of that network for
14    purposes of providing the support.
15              I do not know that you can really draw from that
16    any larger conclusions about what we are going to look to
17    support in the future.  But it is really more of a very
18    technical exercise that is being undertaken to replace
19    what we have done in the past, which is we have looked at
20    the ILECs' reported costs of their infrastructure and
21    given it to them.  And this was an attempt to make things
22    a little bit more technologically neutral and a little bit
23    less dependent on the ILECs' costs.
24              Of course, it is not there yet.  We are still
25    using  a  wire line  network.    And  we  are  looking  at

 1    different ways to incorporate a wireless solution into the
 2    model.
 3              MR. TRINKMON:  Apart from putting these criteria
 4    in which will increase the cost of that model network,
 5    does that mean that a wireless carrier, such as a cellular
 6    or PCS carrier, who is not advanced services ready in that
 7    same way, does that make them ineligible?
 8              MS. POLTRONIERI:  No, I would not think so. 
 9    Because as long as they can comply with the supported
10    services that are set out in the eligibility criteria,
11    they will be okay.
12              MR. TRINKMON:  Okay, thank you.
13              MR. WOLFSON:  Thank you very much.  I would like
14    to thank the panelists for enlightening all of us in this
15    issue, and thank Kathy Brown and the NTIA for having this
16    great event.
17              (Applause.)
18              MS. BROWN:  Thank you.
19              We are going to break for lunch, until 1:30.
20              If I can hold you one more minute, though.  As I
21    was sitting here thinking, I was hoping you would take
22    some thoughts away, because this afternoon we are going to
23    talk more about regulatory issues and we are going to talk
24    a little more about competition issues.  And it seems to
25    me we are starting to get to a place where we are focusing

 1    on some particular issues that we ought to talk about.
 2              One I heard was this notion that our policies
 3    are backward looking and they need to be forward looking,
 4    in terms of bringing on new alternatives, and query
 5    whether doing costing models based on the cost of
 6    incumbent LEC's is a way to think about how subsidies
 7    ought to be distributed question.
 8              If that raises a question, then what are some
 9    other ways of thinking about, in a market that we just
10    heard where there is no market, where we know there will
11    be ongoing subsidies, well, then, how do you get in, and
12    how do you, Jonathan, be able to compete for those
13    subsidies so that you can make a business case and use
14    these technologies, which you are telling me are more
15    effective, more efficient, for these areas?
16              Those are the kinds of questions we need to
17    grapple with and we would really like to discuss this
18    afternoon.  So chew on that over lunch and come back ready
19    to talk at 1:30.
20              Thank you.
21              (Whereupon, at 12:50 p.m., the Forum recessed
22    for lunch, to reconvene this same day at 1:40 p.m.)

 1                         AFTERNOON SESSION
 2                                                   (1:40 p.m.)
 3              MS. BROWN:  Welcome back.
 4              Just a couple of organizing remarks before we
 5    start the afternoon.
 6              This afternoon, I think our first panel, we are
 7    going to talk some more about the regulatory issues that
 8    we started to discuss this morning.  And I think we have
 9    some very interesting perspectives to follow on this
10    morning's discussion.  So I am actually very much looking
11    forward to this discussion and to your comments on how we
12    might be able to confront some of the nettlesome issues
13    that have been raised thus far about full deployment of
14    these technologies, whether in fact it is economic,
15    whether in fact the technology will do it and sort of what
16    is up.
17              I wanted to just take a minute -- and I hope you
18    will allow me to do this -- just to thank my own staff and
19    folks at NTIA.  As you know, these things always take an
20    effort to put on a day like this, and certainly to
21    organize folks and to get people here.  So I want to
22    particularly recognize the staff of OPAD, the Office of
23    Policy Analysis and Development, who are here around the
24    room and who actually, day in and day out, do this kind of
25    policy analysis and are thinking through this question.

 1              Our office, together with the office of counsel
 2    and OIA and the others, OSM, and our office out in
 3    Colorado, have been very engaged in this whole
 4    pro-competitive dialogue for a very long time.
 5              In that regard, I want to specifically recognize
 6    Joe Gattuso, who is my deputy in the office.  He has long
 7    been involved with wireless issues and has worked very
 8    hard on spectrum issues, and has really been instrumental
 9    in putting the day together.  So he and Anne, who I do not
10    know where she is, are really the folks who have organized
11    this day.  And I owe you a lot of thanks.
12              With that, Joe, why don't you take over, and
13    introduce this afternoon's panel and sort of set the
14    stage.
15              MR. GATTUSO:  Thank you, boss.  Thank you,
16    Kathy.
17              Good afternoon, and welcome back, or welcome to
18    those of you who were not here this morning, to this part
19    of the Wireless Local Loop Forum.  We are here this
20    afternoon to pick up on the regulatory issues that we
21    dived into fairly quickly this morning, when we went,
22    first, very fast over understanding what types of
23    technologies we are talking about, and then went into
24    questions about universal service and universal
25    availability.

 1              It will be my pleasure to introduce the next two
 2    panels, and the panelists and our moderators for them. 
 3    But, of course, since Kathy let me have the microphone,
 4    that gives me my chance to tell my wireless local loop
 5    story, which is brand-new as of last night so I have to
 6    tell it.  It has to do with my brother -- my evil brother.
 8    Some of you know that I have a brother who also works in
 9    this field, in telecommunications.  And if anything goes
10    wrong, it is always his fault, by the way -- if you hear
11    it is a Gattuso.  If it is successful, it is me.
12              But he took to Timbuktu on a trip a couple of
13    weeks ago, and came back last night, and of course called
14    me from the airport with only $2 left in his pocket and
15    40,000 West African francs, which are pretty useless at
16    National Airport.  So I had to go pick him up.  I had not
17    heard from him in 2 weeks, and I asked him why he did not
18    call.  I could understand from Timbuktu, the service
19    probably was not very good telephone-wise.
20              But it turns out he was back in Spain on
21    Wednesday, and I asked why he had not called.  He said,
22    well, the folks he was staying at were out in the
23    mountains, out in a research district.  And I said, well,
24    they don't have telephone service?  He said, well,
25    actually, they do have telephone  service.  But they chose

 1    to go with the cellular.  Because, in fact, the wireless,
 2    the mobile phone, turned out to be less expensive and just
 3    as good as the wire line.  And they had to drop one.  They
 4    dropped the wire line service.
 5              And so, in fact, here was rural area, somebody
 6    in Spain, using a wireless phone in place of the wire line
 7    service.  And there is not much lesson there, because he
 8    still did not call me.
 9              (Laughter.)
10              MR. GATTUSO:  Not that I worry about my little
11    brother, but service is only as good as the people who use
12    it.
13              (Laughter.)
14              MR. GATTUSO:  But we are here today to discuss,
15    aside from not wanting to and not knowing how to use a
16    wireless phone, what does it mean to be in a position to
17    choose between the wired and the wireless.
18              Our next panel is going to discuss some of the
19    regulatory issues -- and I think there are several of
20    them -- that can affect whether or not wireless does in
21    fact become something that in the future we look to as an
22    alternative to our wired service or a supplement to our
23    wired service.  If it is going to happen, there is going
24    to be a government involvement, for good or for bad.  And
25    there are government regulators at  the Federal, State and

 1    local level who are making a lot of decisions in a lot of
 2    contexts.  And they have a very great importance to what
 3    we are talking about today.
 4              I would like to introduce our moderator of this
 5    panel, who will introduce the panelists to you.  David
 6    Aylward founded National Strategies, Inc., in 1985, after
 7    8 years of service on the staff of the U.S. House of
 8    Representatives.  From 1981 to 1984, Mr. Aylward was Chief
 9    Counsel and Staff Director of the U.S. House of
10    Representatives Subcommittee on Telecommunications,
11    Consumer Protection and Finance, which has jurisdiction
12    over Federal communications regulation and other aspects
13    of the United States securities industry and financial
14    markets, and other areas.
15              From 1977 to 1981, he was Legislative Director
16    to U.S. Senator Timothy Wirth, the Democrat from Colorado,
17    then a member of the House.  He also has extensive private
18    sector experience, starting communications companies and
19    advising clients on business strategy.
20              He holds a B.A. from Dartmouth College and a
21    J.D. with high honors from the National Law Center of
22    George Washington University.  Based on his public and
23    private sector experience, he is an expert in the
24    intersection of public policy and private initiatives in
25    U.S. domestic and international communications.

 1              So, David, I introduced you, and start the panel
 2    discussion.  Thank you.

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