<DOC>
[108th Congress House Hearings]
[From the U.S. Government Printing Office via GPO Access]
[DOCID: f:90729.wais]
DIGITAL DIVIDENDS AND OTHER PROPOSALS TO LEVERAGE INVESTMENT IN
TECHNOLOGY
=======================================================================
HEARING
before the
SUBCOMMITTEE ON TELECOMMUNICATIONS AND THE INTERNET
of the
COMMITTEE ON ENERGY AND COMMERCE
HOUSE OF REPRESENTATIVES
ONE HUNDRED EIGHTH CONGRESS
FIRST SESSION
__________
NOVEMBER 19, 2003
__________
Serial No. 108-50
__________
Printed for the use of the Committee on Energy and Commerce
Available via the World Wide Web: http://www.access.gpo.gov/congress/
house
__________
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COMMITTEE ON ENERGY AND COMMERCE
W.J. ``BILLY'' TAUZIN, Louisiana, Chairman
MICHAEL BILIRAKIS, Florida JOHN D. DINGELL, Michigan
JOE BARTON, Texas Ranking Member
FRED UPTON, Michigan HENRY A. WAXMAN, California
CLIFF STEARNS, Florida EDWARD J. MARKEY, Massachusetts
PAUL E. GILLMOR, Ohio RALPH M. HALL, Texas
JAMES C. GREENWOOD, Pennsylvania RICK BOUCHER, Virginia
CHRISTOPHER COX, California EDOLPHUS TOWNS, New York
NATHAN DEAL, Georgia FRANK PALLONE, Jr., New Jersey
RICHARD BURR, North Carolina SHERROD BROWN, Ohio
Vice Chairman BART GORDON, Tennessee
ED WHITFIELD, Kentucky PETER DEUTSCH, Florida
CHARLIE NORWOOD, Georgia BOBBY L. RUSH, Illinois
BARBARA CUBIN, Wyoming ANNA G. ESHOO, California
JOHN SHIMKUS, Illinois BART STUPAK, Michigan
HEATHER WILSON, New Mexico ELIOT L. ENGEL, New York
JOHN B. SHADEGG, Arizona ALBERT R. WYNN, Maryland
CHARLES W. ``CHIP'' PICKERING, GENE GREEN, Texas
Mississippi KAREN McCARTHY, Missouri
VITO FOSSELLA, New York TED STRICKLAND, Ohio
ROY BLUNT, Missouri DIANA DeGETTE, Colorado
STEVE BUYER, Indiana LOIS CAPPS, California
GEORGE RADANOVICH, California MICHAEL F. DOYLE, Pennsylvania
CHARLES F. BASS, New Hampshire CHRISTOPHER JOHN, Louisiana
JOSEPH R. PITTS, Pennsylvania TOM ALLEN, Maine
MARY BONO, California JIM DAVIS, Florida
GREG WALDEN, Oregon JAN SCHAKOWSKY, Illinois
LEE TERRY, Nebraska HILDA L. SOLIS, California
ERNIE FLETCHER, Kentucky
MIKE FERGUSON, New Jersey
MIKE ROGERS, Michigan
DARRELL E. ISSA, California
C.L. ``BUTCH'' OTTER, Idaho
Dan R. Brouillette, Staff Director
James D. Barnette, General Counsel
Reid P.F. Stuntz, Minority Staff Director and Chief Counsel
______
Subcommittee on Telecommunications and the Internet
FRED UPTON, Michigan, Chairman
MICHAEL BILIRAKIS, Florida EDWARD J. MARKEY, Massachusetts
JOE BARTON, Texas Ranking Member
CLIFF STEARNS, Florida BOBBY L. RUSH, Illinois
Vice Chairman KAREN McCARTHY, Missouri
PAUL E. GILLMOR, Ohio MICHAEL F. DOYLE, Pennsylvania
CHRISTOPHER COX, California JIM DAVIS, Florida
NATHAN DEAL, Georgia RICK BOUCHER, Virginia
ED WHITFIELD, Kentucky EDOLPHUS TOWNS, New York
BARBARA CUBIN, Wyoming BART GORDON, Tennessee
JOHN SHIMKUS, Illinois PETER DEUTSCH, Florida
HEATHER WILSON, New Mexico ANNA G. ESHOO, California
CHARLES W. ``CHIP'' PICKERING, BART STUPAK, Michigan
Mississippi ELIOT L. ENGEL, New York
VITO FOSSELLA, New York ALBERT R. WYNN, Maryland
CHARLES F. BASS, New Hampshire GENE GREEN, Texas
MARY BONO, California JOHN D. DINGELL, Michigan,
GREG WALDEN, Oregon (Ex Officio)
LEE TERRY, Nebraska
W.J. ``BILLY'' TAUZIN, Louisiana
(Ex Officio)
(ii)
C O N T E N T S
__________
Page
Testimony of:
Kelly, Eamon M., Professor of International Development,
Payson Center for International Development and Technology
Transfer, Tulane University................................ 15
Lew, Ginger Ehn, Chief Executive Officer, Telecommunications
Development Fund........................................... 23
Minow, Newton N., Senior Counsel, Sidley Austin Brown & Wood. 11
Welbourne, James, Director, New Haven Free Public Library
System, c/o American Library Association................... 20
(iii)
DIGITAL DIVIDENDS AND OTHER PROPOSALS TO LEVERAGE INVESTMENT IN
TECHNOLOGY
----------
WEDNESDAY, NOVEMBER 19, 2003
House of Representatives,
Committee on Energy and Commerce,
Subcommittee on Telecommunications
and the Internet,
Washington, DC.
The subcommittee met, pursuant to notice, at 10:36 a.m., in
room 2322, Rayburn House Office Building, Hon. Fred Upton
(chairman) presiding.
Members present: Representatives Upton, Cox, Whitfield,
Shimkus, Walden, Terry, Markey, McCarthy, Towns, Stupak, Wynn,
and Green.
Staff present: Jaylyn Connaughton, majority professional
staff; Will Nordwind, majority counsel and policy coordinator,
Neil Fried, majority counsel; Will Carty, legislative clerk;
Turney Hall, minority staff assistant; and Gregg Rothschild,
minority counsel.
Mr. Upton. Well, good morning everyone. Today's hearing is
entitled ``Digital Dividends and Other Proposals to Leverage
Investment in Technology.'' Specifically, we will be exploring
proposals to put spectrum auction proceeds in special trust
funds dedicated to the enhancement of technology in education.
As chairman of this subcommittee and as a member of the
House Education and the Workforce Subcommittee on 21st Century
Competitiveness, I visit a school every week in my district and
have seen firsthand the tremendous impact which technology can
bring to a student's learning experience. In today's global
marketplace, we must equip our kids and workers of all ages
with the high tech skills they need to remain competitive with
the rest of the world's workforce and marketplace. Moreover, we
need to make sure that our Nation remains on the technological
cutting edge to maintain its educational and commercial
leadership role in the world.
Today we are going to look at two concepts which are
similar to the extent that they both would need Congress to set
aside at least some proceeds from spectrum auctions into a
special dedicated fund. In the case of the Digital Opportunity
Investment Trust proposal, a significant amount, 30 percent,
would be dedicated to digital, educational and technology
programs among other things. In the case of the
Telecommunications Development Fund, TDF, enhancement proposal,
interest off a portion of winnings, bidders' down payments
would be added to TDF's existing funding for investment in new
technology ventures.
I would add I am the original cosponsor of Mr. Town's bill
to do exactly that.
Both proposals have worthy goals, and I commend both Mr.
Markey and Mr. Towns for focusing our attention on them. Under
each of these proposals, we are generally talking about walling
off spectrum auction proceeds from the normal budgetary
process. It is through the normal budgetary process which those
auction proceeds would otherwise flow to the Congress for use
in our annual appropriations process.
In examining the Digital Opportunity Investment Trust
proposal, we need to think hard about whether the worthy
programs which would be funded through the Digital Opportunity
Investment Trust might preclude funding for other worthy
programs which might not otherwise get funded through the
normal appropriation process such as veterans benefits, highway
construction, homeland security, agriculture disaster support,
among other things. Also I think we need to look at the
entirety of Federal assistance to education and technology in
whatever form it takes, whether it be grants, tax credits, loan
guarantees or programs like E-rate to get a better sense of
where we are in that regard.
Having said all that, I look forward to working with Mr.
Markey and Mr. Towns and other members of this subcommittee to
examine those issues, and look forward to hearing from today's
distinguished witnesses, long-time friends.
And at this point, I yield to the distinguished minority
member, ranking member of the subcommittee, Mr. Markey from
Massachusetts.
Mr. Markey. Thank you, Mr. Chairman, and I very much
appreciate your having this hearing that sets the table for
future discussion on this issue. And I want to thank our
witnesses for coming here today for this very important
discussion. And obviously there is a lot of member interest in
this subject.
When the Federal Communications Commission decides to
proceed with auctions as a means of granting licenses to the
public airwaves, I believe the public deserves to reap the
benefits. These benefits should manifest themselves not only in
the more rapid offering of new competitive commercial wireless
services or the deployment of technological innovations, but
also in the dividends that can be reaped by reinvesting the
auction money wisely.
The legislation I have introduced, the Spectrum Commons and
Digital Dividends Act proposes taking auction revenue and
creating a permanent trust fund in order to fund grants for
public interest telecommunications and educational technology
initiatives. I believe harnessing this resource and reinvesting
it for such initiatives will be vital to our national economic
security, our homeland security and for leaving to the next
generation the cultural and educational assets of our great
country in an accessible digital form.
Economic security: United States is now in a post-NAFTA
post-GATT world of fiercely competitive global markets, where a
knowledge-based economy is the clear future for our country.
Whether it is the training of teachers, retrainingworkers,
supporting after-school computer literacy programs or other
educational technology initiatives, we have to ensure that our
future workers have the skill set necessary to compete for and
create the jobs America needs in order to succeed in a new
global economic environment.
Homeland security: Moreover, in a post-September 11 world,
our homeland security is tied to an educated and prepared
military. After 9/11, we live in a world where local first
responders and national law enforcement now have the task and
must have the capability to fight sophisticated terrorists. In
addition, our country will need its best minds to develop high
tech tools to screen airliners, to test for biological or
chemical toxins in the air or to thwart the designs of any
cyber thugs who threaten our key infrastructure.
In civic cultural and educational legacy: Our Nation's
libraries, museums, universities, are great repositories of
information and possess the tremendous wealth of our cultural
heritage. These treasures can and ought to be digitized in a
way that makes them accessible to all our citizens, both on-
line and over the air, using our National Public Broadcasting
system. This will help to ensure that we have an informed and
skilled citizenry for our civic institutions. Putting these
great educational resources at the heart of the technological
transformation our society is undergoing will strengthen our
democracy in fundamental ways.
For all of these reasons, I believe we must rise to the
challenge of funding advanced research and development for
education and technology training in a way that reflects the
urgent need to do so and the current and adequate resources
being put to these efforts. Telecommunications technology has
an awesome potential to effect change positively by driving
economic growth, preparing our citizens for the tough
challenges ahead and enriching our democracy. Yet without a
plan, it will remain just that, merely the potential and
promise, but not the reality. That is why I believe we ought to
reinvest the auction resources we obtain from winning bidders
in the public's airwaves. A permanent trust fund built from
these funds will go a long way in meeting the need, and that is
what my legislation is designed and intended to do.
I want to commend Mr. Newt Minow for his stellar work in
this area, along with Mr. Larry Grossman who--working with Ann
Murphy, each of them has played a role before this committee in
the past. I also look forward to hearing from Dr. Eamon Kelly
and Mr. James Welbourne in support of legislating such a trust.
In conclusion, allow me to also mention that I strongly
support the Telecommunications Development Fund which was
spearheaded by Representative Ed Towns and which I helped put
into law in the Telecommunications Act. There is a program
which creatively takes revenue from auction deposits before an
auction is fully concluded and puts it to good use as seed
money for small entrepreneurial companies.
And I commend Ginger Lew for her great work as well.
Again, I want to thank you, Mr. Chairman for calling this
hearing and I look forward to hearing from our witnesses.
Mr. Upton. I will remind my colleagues that under the rules
of the committee, if you defer your opening statement from this
point on, you will get an additional 3-minute incentive for
questions.
Mr. Shimkus.
Mr. Shimkus. I cannot be bribed, Mr. Chairman. But let me--
and I am going to be short.
First of all, to my friends here on the committee, December
4 will be the 1-year anniversary of signing of Dot-Kids. I
never want to miss the opportunity to talk about Dot-Kids.us.
We now have Smithsonian on; the State of Minnesota has the Dot-
Kids.us site. Disney and PBS are moving to have sites on the
Dot-Kids site. And I just use the bully pulpit to always talk
about what I think is a great piece of legislation that is
going to help in protecting kids.
And with that I turn to my chairman here and really the
ranking member who was helpful in spearheading this, and I want
to continue to do that. And I want to commend the two Eds on
the other side of the aisle, Ed Markey and Ed Towns, for their
vision and hard work on what to do when we move to auctions and
where the money should go. I think it is a great debate. These
issues need to be addressed in a public forum and I encourage
them to continue to work diligently to help us work this
through.
Mr. Upton. We are likely to have an oversight hearing on
Dot-Kids probably early next year.
Mr. Shimkus. Mr. Chairman, if I may, we are moving for the
House server to make it available for members to get their own
Dot-Kids sites up. Technologically, we are not there, but we
are close. And then I would expect and encourage all Members of
the House to have their own specific member site on the Dot-
Kids.us server.
Mr. Upton. No toy guns.
Mr. Shimkus. Maybe 1 or 2.
Mr. Upton. Mr. Towns.
Mr. Towns. Thank you very much, Mr. Chairman. I would like
to commend you and Ranking Member Markey. I thank you for
holding this hearing today on innovative plans to invest in
technology projects.
I would like to welcome the witnesses today, especially my
friend Ginger Lew, the CEO of the Telecommunications
Development Fund. Welcome.
Long before my career in Congress, I attempted to bridge
what I call the economic opportunity gap in this country
between the rich and poor, whether those rich or poor were in
rural or urban areas. Throughout my tenure on this Commerce
Committee and with the Information Age in full swing, I shifted
much of my efforts to bridge the digital divide through
programs that would increase minority ownership, put modern
computers and equipment in schools to ensure that people in all
parts of this Nation have access to the Internet.
Now that the spectrum and the proceeds from the spectrum
seem to be growing by the day, there should be a healthy debate
as to how best those moneys should be invested. I, for one, am
for making sure that any leftover dollars are used for
telecommunication projects such as education, increasing access
to capital and broadband deployment in our schools. We put
proceeds from the gas tax to the highway fund, so why not put
money from various spectrum auctions toward improving our
information highway? Makes sense to me.
Back in 1996, when the Telecommunications Act was being
rewritten, a bipartisan group of members, including the current
chairman and ranking member of the full committee, along with
others, founded the Telecommunications Development Fund as a
way to assist those entrepreneurs in rural and underserved
areas whose ideas showed promise, but lacked the capital to
succeed in the modern day business environment. I am proud of
the work that the TDF has done and continues to do, and want to
thank my friends, Mr. Upton and Ms. Wilson specifically, for
all their work on behalf of the fund, along with Congressman
Markey from Massachusetts.
I would be remiss if I didn't mention that if H.R. 1320
were to be signed into law, it would be an incredible boon to
the fund by lifting the burden of the Fair Credit Reporting Act
from its shoulders. This is a common-sense bill that the Senate
should enact promptly without the extraneous provisions added
in the markup.
While it is not heard about as much today as it was a few
short years ago, the digital divide is alive and well in this
country. It knows no color or creed, but continues to separate
the haves from the have-nots. Our constituents deserve better.
And I hope, in addition to the ideas already on the table, that
today some new ones will come forward as well. We need to focus
on this digital divide, Mr. Chairman.
On that note, I yield back.
Mr. Upton. Mr. Cox.
Mr. Cox. Thank you, Mr. Chairman, and in particular for
holding this important hearing on a very important topic. And I
want to welcome our witnesses. Having read your testimony as
you have submitted it, we are appreciative of your contribution
to our understanding.
The Internet already is a very valuable educational
resource, and it can become even more valuable, as can the
attendant computer technology, if we simply encourage it in the
right ways. This ought not to be simply a playground for
grownups. This ought to be an opportunity for children and for
students as well.
Roughly 150 million Americans live in homes with Internet
access. That means that about 140 million Americans live in
homes without Internet access. No matter how hard we work to
enhance the value of educational resources on-line, those
resources aren't going to do anything for those Americans who
don't have access. Therefore, the top priority, increasing
access to the educational resources on the Internet, has to be
increasing access to the Internet.
The Pew Internet and American Life Project found that the
major barrier for getting people on-line is the cost of
Internet access. I hasten to point out that although the House
of Representatives and this committee and the Judiciary
Committee have done a splendid job in renewing the ban on
special discriminatory taxes, such as Internet access taxes
that threaten to expand the digital divide, that is now locked
up over in the Senate, and we need to do everything we can this
year to get the Internet Tax Nondiscrimination Act passed into
law. That is the No. 1 thing we can do to expand educational
opportunities for kids and for all Americans on the Internet.
We need to do the same thing to allow students, especially
young ones, with the Dot-Kids proposal that Mr. Shimkus
described, to access the wealth of educational information and
services that are already on-line, weed out those materials
which have no educational value, no cultural benefits and no
redeeming virtues. That means encouraging the development of
technology that permits people who control the portal--not the
government--people who control the portal--to make those
decisions and working, for example, to achieve what is now the
mere raw potential of Dot-Kids. That is the technical challenge
for the hardware industry, the software industry and it is a
legislative challenge for us.
As for the specific question of channeling spectrum auction
proceeds to educational ventures, I think we would be wise to
have a sense of humility here. As much as we all wish for a
more education-oriented Internet, the money collected in
spectrum auctions doesn't belong only to those of us who care
about on-line education, only the companies that wish to deploy
broadband or only the foundations focused on education or
specific agencies of the government. These funds belong to all
American taxpayers. So the potential uses of these funds must
win out in competition with other priorities such as national
defense, health care and the environment.
Government venture capitalist, government as the arbiter of
technological winners and losers will succeed only in using
taxes to distort marketplace competition and impede improvement
in computer technology. We must do everything we can to improve
the ways in which our schools and our students take advantage
of the promise of technology. That means encouraging it in
every way that we know how to improve as fast as it can. And it
means keeping the cost down so the digital divide closes and
more and more people have access.
Thank you, Mr. Chairman.
Mr. Upton. Mr. Green.
Mr. Green. Thank you Mr. Chairman. I would like to ask
unanimous consent to put the full statement in the record and
just paraphrase it for the sake of time. I want to thank you
and our ranking member for holding this hearing. And I would
like to welcome our distinguished panel of witnesses,
particularly Ms. Lew, to our committee.
Both the major proposals discussed in the submitted
testimony aimed to make better use of our spectrum auction
revenue for supporting technology investments, a goal I
wholeheartedly support. Clearly, to free up the spectrum for
auction, we have to be able to compensate government users,
particularly the Pentagon, or else or we are going nowhere, as
we have learned. Our committee in the House was able to pass
the Commercial Spectrum Enhancement Act to do just that.
Revenues from spectrum auctions by the Federal
Communications Commission in excess of compensation for
government users should remain in the telecommunications field.
We have already heard from other members about the success of
the E-rate. There is continuing pressing need for public
technology in our schools and libraries, and we need to
continue to look at that.
The E-rate using universal service fund has been a primary
source for lower income and rural schools and libraries to
update their education resources so that school children have
the skills necessary to succeed in today's economy. And I see
this in every school in my district. The demand for this
program has more than doubled its current funding cap. For year
5, last year's E-rate funding cycle, $5.7 billion in
applications was received for only $2.25 billion in available
funding; and many poor and urban and rural school districts
would greatly benefit from the ability to use Federal
technology for both products and services outside the current
E-rate program.
It is great to be able to wire for telecommunications
services and Internet access, but other information services
and the equipment necessary to take advantage of them are too
often out of the reach of millions of school children in our
country. Maybe the future spectrum revenues can help fill the
gap here and improve our future workforce, technology skills
and, eventually, competitiveness in a global economy.
With that, Mr. Chairman, I yield back my time.
[The prepared statement of Hon. Gene Green follows:]
Prepared Statement of Hon. Gene Green, a Representative in Congress
from the State of Texas
I want to thank Chairman Upton and Ranking Member Markey for the
hearing we are having today on proposals to leverage investments in
technology.
I look forward to hearing the various ideas from our distinguished
panel of witnesses here today.
Both of the major proposals discussed in the submitted testimony
aim to make better use of our spectrum auction revenues for supporting
technology investments, a goal I whole-heartedly support.
Clearly to free up this spectrum for auction we have to be able to
compensate government users, particularly the Pentagon, or else we are
going nowhere.
Our Committee and the House was able to pass the Commercial
Spectrum Enhancement Act to do just that.
Revenues from spectrum auctions by the Federal Communications
Commission in excess of the funding necessary to compensate government
users should remain in the telecommunications field.
There are certainly plenty of pressing public technology needs at
our school and libraries that we should be looking to meet.
The E-rate program using Universal Service fund has been a primary
funding source for lower-income and rural schools and libraries to
update their education resources so that their schoolchildren will have
the skills necessary to succeed in today's economy.
Demand for this program is more than double its current funding
cap. For Year 5, last year's E-Rate funding cycle, $5.7 billion in
applications were received for only $2.25 billion in available funding.
And many poor urban and rural school districts would greatly
benefit from the ability to use federal technology support for products
and services outside the current E-Rate program.
It is great to be able to wire for telecommunications services and
internet access, but other information services and the equipment
necessary to take advantage of them are too often out of the reach of
millions of school children in our country.
Maybe future spectrum revenues can help fill the gap here and
improve our future workforce's technology skills and eventual
competitiveness in the global economy. I look forward to hearing from
our witnesses on that topic.
I also look forward to hearing from our witnesses the number of
ways we can also leverage funding for technology investments in small
start-up businesses in underserved areas.
If we want to move the technology revolution in our economy across
the digital divide, it won't be enough to invest in just in the schools
and libraries, we need to find innovative ways to invest in
entrepreneurs also.
Chairman Upton, Ranking Member Markey, I appreciate the hearing and
yield back the balance of my time.
Mr. Upton. Mr. Terry.
Mr. Terry. Thank you, Mr. Chairman, and I do appreciate
your holding this hearing. And welcome to our panel.
The digital divide in Nebraska is an interesting paradox in
a sense, because in our one urban area that I represent, Omaha,
Nebraska, in our core urban area, the poor area of town, they
are wired. And the digital divide isn't accessed to the system
per se. It is hardware. They can't go to Best Buy or Nebraska
Furniture Mart and buy a computer for $1,000.
That is why a community group--myself, Cox Cable, the Omaha
Chamber--started a program where Omaha citizens and businesses
can donate their PCs to our organization called Connect Kids;
and then we work with the public schools, the Boys and Girls
Club, Chicano Awareness Center, and so far we have been able to
place hardware donated from businesses in 500 children's homes
so they can access the Internet.
Once you get outside of the Omaha urban area, it is access
to a system, especially advanced systems.
And so I think it is important for us, when we discuss the
digital divide, to include not only urban areas, because I
understand Omaha is a unique city in that it is a completely
wired city. But we look at rural areas and wonder if we are
going to leave those folks behind economically, educationally,
if we do not have access to a more advanced system.
In that regard, I would associate myself with Congressman
Cox's remarks about the importance of the Internet for
educational use. I would add economic use. I would also say
that I think it is incumbent upon this subcommittee, in
particular, especially when we have two major RBOCs that have
said they will roll out voice-over Internet protocol in order
to take advantage of the ``no taxes over the Internet'' and
avoid universal service. So I wonder if telephony in those
types of communication and advanced systems will become the
norm in a society but leave out core urban areas and rural
areas if we don't get ahead of that curve as a Congress.
That is why today's hearing is important. It starts us
thinking in that direction. It starts us thinking about the
future. So I welcome the panel and yield back.
Mr. Upton. Mr. Stupak.
Mr. Stupak. Thanks, Mr. Chairman. I will be brief. Thanks
for holding this hearing and thanks to Mr. Markey for his
efforts on this issue.
As a member from a rural district, I wholeheartedly agree
that the Internet offers opportunities that cannot be equaled
in making education, culture, medicine and services available
to all parts of the country and all segments of our population.
For this reason, we must ensure that we maximize the
availability of broadband, the utilization of the Internet and
the education and training of all members of society to take
advantage of this important tool.
I also share the belief that the FCC spectrum auction
proceeds should be directed toward useful and rewarding
purposes rather than being returned to general Treasury
revenues. As a matter of fact, my colleagues, Vito Fossella,
Eliot Engel and I, have introduced H.R. 3370, which would
allocate a portion of the spectrum auction proceeds from the
FCC to create a public safety trust fund.
I know many of my colleagues on the subcommittee have
expressed strong support for assisting public safety with
achieving interoperability and the ability to communicate with
each other, with the hope that as we work in the future on this
important digital divide proposal that we can also incorporate
the worthy goal of aiding public safety with their important
lifesaving needs. There is much good that can be done with the
spectrum auction proceeds and I look forward to legislative
action on these proposals in the future.
With that, Mr. Chairman, I yield back the balance of my
time.
Mr. Upton. Ms. McCarthy.
Ms. McCarthy. Thank you, Mr. Chairman. I am going to put my
remarks in the record. And I thank you for the hearing and
thank Mr. Markey and Mr. Towns for their interest in this. And
I am thrilled, as a former educator, that we can explore how to
use technology to fund arts and cultural programs through the
grants and funds that you promote in the legislation and that
will really stimulate learning.
So I am excited that we have expert witnesses to speak to
those changes in our policy, and I will yield back.
[The prepared statement of Hon. Karen McCarthy follows:]
Prepared Statement of Hon. Karen McCarthy, a Representative in Congress
from the State of Missouri
Mr. Chairman, thank you for convening this hearing. I want to
express my appreciation to the expert panel here today and I look
forward to their testimony.
I commend my colleagues, Mr. Markey and Mr. Towns, for their
continued interest in the important issues before us, and for their
leadership in drafting legislation.
As a former educator, I am deeply interested in how technology can
improve our schools by funding arts and culture programs that stimulate
learning.
Perhaps most urgently, I want to know how to use technology
training to get this economy moving and to teach people the skills they
need to not just earn a living, but to build a life.
Mr. Chairman, I welcome the panel's input on the creation of a
national trust fund to make the nation's art, humanities and culture
available to all Americans for lifelong learning. Let us all try to
look at this issue with the shared goal of delivering the benefits of
technology to our citizens, from young to old, from the classroom to
the factory floor.
Thank you, Mr. Chairman, once again for convening this hearing and
I look forward to today's testimony.
Mr. Upton. I would announce all members of the subcommittee
will have an opportunity to put their opening statements in the
record.
Mr. Whitfield, do you wish to make a opening statement.
Mr. Whitfield. No, Mr. Chairman.
Mr. Upton. You get the 3-minute bonus. You made it just in
time. No brownies for anybody else.
[Additional statements submitted for the record follow:]
Prepared Statement of Hon. Paul E. Gillmor, a Representative in
Congress from the State of Ohio
I thank the Chairman for the opportunity to examine spectrum
management policies and the potential for greater technological
development.
In one of the proposals before us today, we find the goal of
allowing the Telecommunications Development Fund (TDF) to make loans in
furtherance of the objective of enhancing small business and support
services. Of particular interest to rural Northwest Ohio, this proposal
would provide capital for small companies to foster growth and
development in the increasingly important sector of broadband and
wireless technology.
The second measure also serves as a worthy goal, promoting the
continued advancement of opportunities to personnel at schools and
libraries. The purpose of this proposal is to fund computer literacy
programs, offer telecommunications services to individuals with
disabilities, and fund educational software, among others.
I welcome the well-represented panel, look forward to hearing the
testimony of the witnesses, and anticipate a positive debate regarding
these and other proposals that would further the impact and reach of
telecommunications on our society.
Again, I thank the Chairman and yield back the remainder of my
time.
______
Prepared Statement of Hon. Barbara Cubin, a Representative in Congress
from the State of Wyoming
Thank you, Mr. Chairman.
I would like to thank you for holding this hearing to examine a
different ``state of telecom,'' not the health of the industry that we
analyzed earlier this year, but through a more granular focus, we are
going to hear testimony about ways to avoid a gulf between technology
haves and have-nots.
As our nation continues its evolution toward a fully wired and
``paperless'' economy, and where a great deal of government-related
services have now migrated to an electronic platform, the need for an
Internet-savvy citizenry is increasingly important. After all, the
speed and efficacy of the Internet in disseminating information creates
efficiencies that millions of federal workers cannot duplicate. This,
of course, translates to substantial future fiscal savings and improved
federal services.
I'm somewhat dubious, however, as to what role Congress in general
and the Committee specifically, play in this matter. Some of my
colleagues endeavor to have a cradle-to-the-grave government care
model, and think everything is a federal responsibility, while I and
others believe in the preservation liberty and self determination.
Somewhere in there lies the mutual obligation of taxpaying Americans to
fund initiatives for the public good.
There is no end what folks would like to do, only if they had
federal money with which to do it. I know because I see them all the
time here in Washington, and it makes me wonder sometimes how anything
got done prior to federally-funded programs like the National Endowment
for the Arts (NEA). Clearly there are no instances of masterpieces
created prior to 1965 when the government came to the rescue with the
creation of the NEA.
Nevertheless, as a Member representing rural Wyoming, where the
Internet keeps us connected to the rest of America, I have a great deal
of interest in ensuring e-commerce is a vibrant and accessible
component of our economy. Also, I look to our educational institutions
and job training programs such as the Workforce Investment Act as the
vehicles to provide lifetime education and other services, not creating
more self perpetuating, often duplicative and forever growing federal
programs.
We have the opportunity in today's hearing to determine the proper
place and funding mechanisms for digital outreach and hear from this
distinguished panel their assessment of where we are, and where we need
to go.
Thank you Mr. Chairman, I yield back the balance of my time.
Mr. Upton. We are delighted to have the panel that is with
us today. And I looked at the testimony last night. I would
note that the testimony is part of the record. We will allow
you each to summarize it in a 5-minute period. There is a
little clock, that should be working, in front of you. Is that
actually on? Because the lights on this side are not on.
We are delighted to have Mr. Newt Minow, former Chairman of
the FCC and Senior Counsel with Sidley, Austin, Brown & Wood
from Chicago; Dr. Eamon Kelly, Professor of International
Development at the Payson Center for International Development
and Technology Transfer at Tulane University; Mr. James
Welbourne, Director of the New Haven Free Public Library
System, the American Library Association here in Washington;
and Ms. Ginger Lew, CEO of the Telecommunications Development
Fund, also here in Washington.
Mr. Minow, we will start with you.
STATEMENTS OF NEWTON N. MINOW, SENIOR COUNSEL, SIDLEY AUSTIN
BROWN & WOOD; EAMON M. KELLY, PROFESSOR OF INTERNATIONAL
DEVELOPMENT, PAYSON CENTER FOR INTERNATIONAL DEVELOPMENT AND
TECHNOLOGY TRANSFER, TULANE UNIVERSITY; JAMES WELBOURNE,
DIRECTOR, NEW HAVEN FREE PUBLIC LIBRARY SYSTEM, c/o AMERICAN
LIBRARY ASSOCIATION; AND GINGER EHN LEW, CHIEF EXECUTIVE
OFFICER, TELECOMMUNICATIONS DEVELOPMENT FUND
Mr. Minow. Mr. Chairman, Mr. Markey, members of the
committee, my statement is submitted for the record.
Coming here this morning and walking into the Rayburn
Building reminded me of the day I started as Chairman of the
Federal Communications Commission many years ago. I went to see
the then-Speaker of the House, Mr. Rayburn, whom I had met, and
we talked; and he said, Young man, son, he said, you and I will
get along just fine if you remember one thing. I said, What is
that, sir? He said, You work for me. And I never forgot it,
because the FCC, as you know, is an arm of the Congress, and I
testified before this committee so many times.
There was a Congressman in the 19th century who served 43
years in the Congress and the Senate. He was a Republican from
Vermont. He was an uneducated farmer. His name was Justin Smith
Morrill. He made a major contribution to this country because
he suggested in the 1860's what became the Land Grant College
Act. The Land Grant College Act was defeated time and time
again in Congress, but finally during the Civil War, it was
passed. And Abraham Lincoln signed it as President. The Land
Grant College Act, unlike the laws Congress passes today, was
as big as my hand. That was the entire law. But it changed
American history, because the law said that each State would
receive 30,000 acres of federally owned land for each Member of
Congress and each Senator on the condition that the State would
create a land grant college.
At that time the people who went to colleges and
universities in America were white males studying to be a
lawyer, doctor or minister. Nobody else. No women, no
minorities. And the result of the land grant college law, which
now has 105 land grant colleges in the United States, the whole
California system, great universities like Cornell and MIT, all
got their start as land grant colleges because in the midst of
the Civil War the Congress decided that an investment in
education in the form of land would benefit the country. That
was in the 19th century.
In the 18 century we did the same thing. When this country
first started, we created public schools by using land. The
Northwest Ordinance provided that Federal land would be set
aside for schools.
In the 20th century, by a one margin vote in the House of
Representatives--let me emphasize that, a one margin vote in
the House of Representatives--in the midst of World War II, the
GI bill was passed, one vote. The GI bill enabled millions and
millions of Americans who would never have gone to college, who
would never have had a higher education, to go to school to
become productive citizens of our society. Those are the 18th,
19th, 20th century precedents.
What are we going to do in the 21st century? The 21st
century, I would submit, is the equivalent of land today,
federally owned land, as something we can't see. It is in the
airwaves. And as Congressman Cox said, it belongs to every
single one of us. It doesn't belong to the people who use it.
It belongs to every single one of us.
And we started, and Congress provided, to auction off the
airwaves years ago and it provided a enormous amount of money
nobody thought was possible, billions upon billions of dollars.
The money, however, was not designated for any particular use,
unlike the Northwest Ordinance, unlike the Land Grant College
Act, unlike the GI bill, the money simply went into the Federal
Treasury where it evaporated in a matter of hours. Instead of
going for investors' lifetimes, it was gone, poof, in a matter
of hours.
That is why, we think--Larry Grossman and I were asked 3
years ago by a group of foundations to address the question,
what does this revolution, this digital revolution, what
opportunities are there for the not-for-profit sector, for the
schools, for the libraries, for the universities. And we
developed and we went around the country and talked to a lot of
people, interviewed many people and talked to many scholars,
people who weren't scholars; and we wrote a book and we came up
with this proposal, the Digital Opportunity Trust.
We think that it is imperative in the world we are going
into that everybody have an opportunity to participate in this
communications revolution, this digital revolution, this
technology revolution. I happen to chair an advisory committee
for the Department of Defense on privacy and modern technology.
In fact, we are meeting here, and our meetings are in the
Senate tomorrow and Friday. And I have learned a lot about
technology as a result of that.
There is no question that we are only at the beginning. We
are only at the beginning of what this is all about. And I
believe--and am very grateful to you, Mr. Chairman, and I know
you have a deep interest in the area of technology and
education. Think what it would mean at Benton Harbor if these
kids all had a chance to participate in this.
And to you, Congressman Markey, who has taken a lead in
this, we are very grateful, because we think--and there is
legislation pending in the Senate as well as the House--we
think this is a magnificent opportunity.
I was very discouraged with the economic situation, and we
realized after 9/11 that the problems of the budget would be
greatly affected, but we still say that this investment, just
like the Land Grant College Act, just like the GI bill, just
like the Northwest Ordinance, is going to make history for this
country; and we ask you to be the makers of that history.
[The prepared statement of Newton N. Minow follows:]
Prepared Statement of Newton N. Minow
digital opportunity investment trust: progress toward the promise
Thank you Mr. Chairman, Congressman Markey and distinguished
Members of the Committee. Thank you on behalf of myself and my friend
and Co-Chairman of the Digital Promise Project, Larry Grossman who
spoke before the Committee on this subject last spring. We are both
very appreciative of this opportunity to be here today to give you
information about current developments in the work we have been doing.
It has been a pleasure working with the excellent members of your
staff. We hope that this hearing engenders a comprehensive discussion
of the Digital Opportunity Investment Trust and we look forward to your
comments and questions.
First, let me summarize our proposal. We seek to create a Trust for
the American people that will transform teaching, learning and training
for the 21st Century. This Trust that we call the Digital Opportunity
Investment Trust or DO IT, draws inspiration from several sound and
highly successful examples. DO IT will be an incubator for ideas,
research and development of advances in education and training in the
same way that the NSF functions for science or the NIH functions for
health and medical science. My esteemed colleague and former Chairman
of the National Science Board, Dr. Eamon Kelly will elaborate on the
parallels we have drawn with the NSF. What is clear is that the
disciplines of education and training must be given the same level of
priority and benefit of raw American ingenuity and academic genius if
we are to remain at the vanguard of competitiveness as a nation and
retain a healthy and just society.
The Need
Let me take a step back first, to how the concept of a Trust to
transform teaching and learning for the 21st Century came about. Three
years ago Larry Grossman, whom you know as a former president of NBC
News and the Public Broadcasting Service, and I started talking about
the information and revolution through digital technology. Larry and I
have spent the measure of our careers embroiled in the issues of
communications technology and helping to create and oversee the content
that technology provides to millions of Americans. We looked at the
information revolution taking place in our society over the past twenty
years and we saw that the fruits of the new digital era were not
automatically shared widely by non-profit, public service, educational
and cultural institutions. The institutions in question are those
charged with being the repositories for the scientific, cultural and
historical DNA of our country.
In addition, we saw that education and training, rather than being
at the epicenter of this technological revolution, were suffering from
inadequate resources and too often playing ``catch up'' to the
commercial marketplace. The long-term effects of continuing to give
education and training a back seat in the digital era would only grow
more staggering with time. We envisioned the creation of the Digital
Opportunity Investment Trust that would serve as a venture capital fund
dedicated to innovation and research in using new technologies to
transform education, training and lifelong learning for all Americans.
While our country struggles to get Democracy to thrive in other
places; I submit that we should also take a profound look at what we
need to keep our Democracy thriving right here at home. The answer is
that Democracy thrives when an educated citizenry has access to
information and the critical thinking skills to make informed choices.
Education is the cornerstone of our Democracy, and technology is
rapidly becoming the primary vehicle for education and lifelong
learning. We must use technology for improved education and training or
we will pay a price we cannot afford.
In the global knowledge economy of the 21st Century, education and
training equals jobs. As the manufacturing and manual labor base of our
workplace erodes, the jobs that allow people to be productive and self-
reliant members of society rely on the proficient use of information
technology. Other nations are quick to exploit the transient nature of
global labor markets and now some of America's largest companies employ
IT service workers in other countries or end up importing special visa
holders because they cannot recruit qualified American IT workers.
DO IT would ensure that our education system provides all students
with a world-class education system that fully integrates technology
and learning. And, DO IT would develop a structure for the delivery of
training materials to workers in all fields so that Americans would be
technologically capable to fill those high-paying IT jobs even at the
mid-points in their careers. DO IT would also make America's growing
population of seniors a priority. As life expectancies grow for a
greater-than-ever portion of the population we must ensure that
productivity and self-reliance is possible for seniors as well.
Technology is the key to life-long learning and productivity which will
be fundamental for our society to remain economically viable as more
than 70 million Americans will be over the age of 65 by the year 2030.
Another staggering need that must be addressed through the kinds of
education research and training that DO IT would provide is that of
national security. Here, I quote the report titled The U.S. Commission
on National Security in the 21st Century, chaired by former Senators
Warren Rudman and Gary Hart. Now known as the ``Hart-Rudman Report'' it
warns that, ``the inadequacies of our systems of research and education
pose a greater threat to U.S. national security over the next quarter
century than any potential conventional war that we might imagine.
American national leadership must understand those deficiencies as
threats to national security. If we do not invest heavily and wisely in
rebuilding these two core strengths, America will be incapable of
maintaining its global position long into the 21st Century.'' And this
dire warning, I will add, was issued prior to September 11th 2001 and
the imposing array of challenges revealed for training first-responders
and citizens in the face of far-reaching emergencies.
I could also quote from various reports such as Congress's
bipartisan Web-based Commission, President Bush's Technology Advisory
Commission, the Department of Commerce's ``2020 Visions'' Report, the
Business-Higher Education Forum, among others, that all point to the
same thing: we must put advanced research and development for education
and training at the vanguard of our priorities if America is to remain
competitive in the world, and our current systems and resources are
inadequate. The question is: when will we act? When will we streamline
and coordinate all of the disparate federal initiatives currently
taking place and apply research gains where appropriate and bring
programs to scale? When will we make the kind of investment that
matches this enormous and imperative need?
Status of our Proposal
We have a clear mission that is supported by a broad coalition of
respected public and private entities including hundreds of
universities, corporations, museums, libraries, civic and cultural
organizations, labor unions, organizationss for senior citizens and
leading members of the education, arts and workforce development
communities, and the Conference of Mayors. (A list of our coalition
members has been submitted with this testimony). Our research has been
conducted and corroborated by individuals and entities from across the
political spectrum, including a major summit hosted by the Secretaries
of Commerce and Education at the Department of Commerce last fall. We
also went to the next generation of leaders to get their ideas. I am
submitting for the record the winning papers in a call issued by the
Digital Promise and the Learning Federation. These papers written by
students from Florida and Hawaii expand on but two of the kinds of
proposals that could be developed by DO IT. In the spring of 2003,
through PL 108-7, Congress asked us to produce a detailed report on our
recommendations for the creation of DO IT. This report includes a
detailed rationale, a proposed structure and governance plan as well as
a specific research and development roadmap that will lead to the kind
of innovations in scientific applications for teaching and learning
that are so vital to the improvement of education in our country. We
formally presented the Report to Congress last month. Senators Dodd and
Snowe, along with Senator Durbin, have subsequently introduced S-1854
titled ``The Digital Opportunity Investment Trust Act.'' Today, we are
called to discuss legislation pending before this Committee that has
been introduced by Congressman Markey and calls for the creation of a
Trust that provides ``digital dividends'' for many of the same critical
purposes outlined in our report.
Our Nation's Legacy
Congress has made this kind of investment in the past. We have
history to lean on to understand, that even in times of great
adversity, Congress has had the farsighted wisdom to fortify our
society for future generations by investing in education.
In the period following the American Revolution, Congress passed
the Northwest Ordinance that set aside public land whose revenues would
support the creation of public schools in every new state. This was the
genesis of the nation's pioneering system of public education.
During the darkest days of the Civil War, again using the valuable
asset of public land, Congress passed and Abraham Lincoln signed the
Land Grant Colleges Act of 1862. It provided for the sale of public
lands to support the establishment of a public college and university
in every state, so that higher education would be accessible to farmers
and workers, not just to the elite and wealthy few. Today, the nation's
system of 105 land-grant colleges provides the foundation of American
higher education, and its creation heralded America's economic
ascendancy into the industrial age.
In the midst of World War II, Congress made its third
transformative public investment in education. It passed, and President
Roosevelt signed the GI Bill which sent millions of American service
men and women to college. The prosperity and security that followed in
the wake of the GI Bill helped America become the world's economic and
political leader. The wisdom of the nation's innovative investments in
education in times of crisis has been borne out in each century of the
nation's history.
Today we stand at another crossroads. It is a time of great
uncertainty in our history, and we face the sweeping changes of the
information age. The citizens who are best equipped to meet the
challenges of this new age are those who have access to information
technology and who have dexterity in using technology as a working and
learning tool throughout their lives. It will be costly to ensure that
all of our people are ready to meet those challenges--how can we pay
for it?
As we developed the Digital Promise proposal, we looked to history
for the precedent of how to fund such an intensive investment in
education, and there is a sound model that has been accepted and
supported by the American people. In the cases of the Northwest
Ordinance and Land Grant Colleges Act, Congress enabled major
investments in public education to be made through the proceeds from
the public asset of land.
Today, the public asset in question is the highly valuable
electromagnetic spectrum. It is the equivalent of the bountiful public
lands of times gone by. We recommend that the Digital Opportunity
Investment Trust be created through a portion--a percentage only--of
the revenues from the sale, auctions and/or fees from the public asset
of the public airwaves. Even a small percentage of such revenues over a
specified and reasonable period of time would allow for an endowment
that would secure enormous benefit for future generations.
The model for a Trust from spectrum revenues is also not new. The
Minorities in Telecommunications Fund that is also under review in this
hearing was created through an initiative by Congress to ensure equal
access to capital for minority held telecommunications businesses. The
creation of this trust proved that revenues from the spectrum could be
Congressionally mandated to be moved into a trust for a higher purpose
within the parameters of the annual budget and appropriations cycles.
The Digital Opportunity Investment Trust would be created through this
same tested financial mechanism that would allow for a portion of
spectrum revenues to be placed in an interest bearing account. This
Trust would be governed by a Board appointed with the advice and
consent of Congress and the President and Congress would examine and
evaluate the Trust's performance and approve its budget and activities.
The Opportunity for Leadership
In closing, I respectfully submit that yours is the helm as we face
this next great task. We have worked diligently with the members of our
coalition and a small staff to move this vision forward. But the true
opportunity for leadership lies in your hands. You will be in very good
company; President Thomas Jefferson, Senator Justin Morrill, President
Lincoln and President Franklin Roosevelt saw to fruition the
investments in education that enabled previous generations to prosper
and to move America into a position of leadership in the world. The
Digital Opportunity Investment Trust is the next such great and pivotal
investment to be made for the sake of generations to come. It is clear
that these ideas have been given serious thought by Congressman Markey,
and I know that you, Mr. Chairman, have a dedication to using
technology to improve education. We look forward to working with you
and your staffs in developing proposals that will transform learning
environments in this country and worldwide Thank you again for inviting
me to testify today. I would be happy to answer any questions at this
time.
Mr. Upton. We appreciate your testimony and your interest
and remember it was one of the first discussions you and I had
several years ago at length in my office.
Mr. Kelly. Welcome to the subcommittee.
STATEMENT OF EAMON M. KELLY
Mr. Kelly. Thank you, Mr. Chairman, Congressman Markey and
distinguished members. I appreciate the opportunity to testify
before you in support of the Digital Opportunity Investment
Trust. I previously have served as Chairman of the National
Science Board from 1998 to 2002, and I would like to begin by
thanking the committee for its long-term commitment to ensuring
that the citizens of our country can share equally in the
services made available by advanced telecommunications and have
an opportunity to participate in the development of a strong
and vibrant economy.
I have been a supporter of the Digital Opportunity
Investment Trust or DO IT from the beginning. As alluded to by
the digital promise report to the Congress, the DO IT will do
for education and training what NSF does for science.
Let me explore from my vantage point as past Chairman of
the National Science Board some of the parallels between the
National Science Foundation and DO IT and explain why DO IT is
so vitally important to our Nation at this point in time.
In the past two decades, our knowledge has expanded at a
rapid rate. Our world has grown more complex. Knowledge is now
the principal source of wealth creation and new jobs in the
U.S. And globally. This new knowledge-based economy has brought
significant changes with profound implications for society. It
has placed new demands on education and training for all of our
citizens, not just K through 12 schooling, but throughout a
person's lifetime. There is a critical need for an educational
paradigm that reflects the needs of a diverse population and
addresses all aspects of lifelong learning. DO IT will address
this important need.
The overarching objective of DO IT is one vital to our
Nation's prosperity, to encourage, educate and enlist citizens
into jobs and professions that drive the new knowledge economy,
contribute to social well-being and safeguard the basic values
of our society. DO IT will be an incubator for innovation
playing a role similar to that of the National Science
Foundation to nurture the people, ideas and tools needed to
generate new scientific knowledge and new technologies. Federal
investment in the basic sciences through the National Science
Foundation have produced many benefits, including new
industries such as E-commerce and biotechnology, new medical
technologies, such as MRI and genetic mapping, new discoveries
in areas such as nanotechnology, cognitive neuroscience and
biocomplexity. Similarly, DO IT will intensify and focus
research and development to harness the power of advanced
technology to improve learning.
This is an area of R&D that is greatly underfunded given
its importance to our Nation. Unfortunately, the practices
recommended by educational psychologists and cognitive
scientists are not pervasive in our country's classrooms and
training centers. Individualized instruction, subject matter
experts and rich curricula activities are often simply too
expensive.
Emerging technologies make it practical now to approach
learning in ways that learning scientists have advocated for
many years. But we can achieve this goal only by undertaking a
long-term, large-scale effort to develop tests and disseminate
tools for building advanced learning systems.
The R&D supported by DO IT will lead to a wide range of
learning content and software tools that can lower the cost of
entry for educational materials and assistance. This will
enable vastly improved learning systems to become routinely
available to all Americans inside and outside of the classroom
in both urban and rural communities.
The funding programs supported by DO IT will develop a
pipeline of well-educated researchers to contribute to this
important field. Some of these researchers will become faculty
members and help educate future generations of researchers.
Many others will join the workforce to develop next-generation
products and services to contribute to U.S. Leadership in the
education and training sector in areas such as E-learning
services and educational software.
Mr. Chairman, I am convinced that the 50-year-plus legacy
of the National Science Foundation has been the driving force
in the overall leadership of the United States in the fields of
science and technology. The nature of the world we face today
requires that the same kind of incubation of ideas and
innovation in the areas of education and training if we are to
remain competitive on a global level.
My experience as past Chairman of the National Science
Board gives me every confidence that an entity such as DO IT
can be effectively governed and structured to achieve these
goals and to be thoroughly accountable to Congress and to the
public trust.
At this point, I would like to close my formal remarks. I
thank the committee for allowing me to comment on the Digital
Opportunity Investment Trust. I look forward to future
opportunities for discussion of this highly important national
initiative. Thank you.
[The prepared statement of Eamon M. Kelly follows:]
Prepared Statement of Eamon M. Kelly, Former Chairman, National Science
Board
introduction
Thank you Mr. Chairman, Congressman Markey, and distinguished
Members of the Committee. I appreciate the opportunity to testify
before you in support of the Digital Opportunity Investment Trust. I am
Eamon Kelly, President Emeritus and Professor in the Payson Center for
International Development & Technology Transfer at Tulane University. I
served as Chairman of the National Science Board from 1998-2002.
I would like to begin by thanking the Committee for its long-term
commitment to ensuring that the citizens of our country can share
equally in the services made available by advanced telecommunications--
enhanced ways to communicate, learn, do business, and be entertained.
The strength of our democracy has rested from the start on the
principle that we are a land of opportunity enabled by an
extraordinarily diverse citizenry. But in our technologically
sophisticated society, fast-paced change often puts the most expansive
opportunities out-of-reach for many. The Committee's groundbreaking
work on legislation that provides for innovation in and expanded access
to high speed Internet services has contributed greatly to assuring
that all Americans have an opportunity to contribute to the development
of a strong and vibrant economy.
I have been a supporter of the Digital Opportunity Investment
Trust, or DO IT, from the beginning. As alluded to by the Digital
Promise report to the Congress, DO IT will do for education and
training what NSF does for science. Let me explore from my vantage
point as past National Science Board Chairman some of the parallels
between the National Science Foundation and DO IT and explain why DO IT
is so vitally important to our Nation at this point in time.
the need for an equivalent education and training effort as for science
As the members of this Subcommittee know so well, something new and
exciting is happening in the 21st century. We are in the midst of a new
era of discovery, learning, and innovation. In the past two decades,
our knowledge has expanded at a rapid rate; our world has grown more
complex. Knowledge is now the principle source of wealth creation and
new jobs in the U.S. and globally. This new knowledge-based economy has
brought significant changes with profound implications for society. It
has transformed the way we live and work.
These truths of our times and our broader national values demand
that we embrace the imperative of preparing people to take advantage of
these opportunities. We are talking about opportunities not only for
individuals. We are also talking about ways to create expanded
opportunities for the U.S. to compete and prosper.
Education and training have always been vital to the success of
individuals. In today's knowledge-based economy, it is also an
investment in our collective future as a nation and a society. The
knowledge-based economy has placed new demands on education and
training for all our citizens--not just K-12 schooling, but throughout
a person's lifetime. There is a heightened sense of urgency to the task
of identifying new learning and institutional strategies that will open
the door to economic prosperity and improved well-being to the full
diversity that is the face of America.
The National Science Foundation (NSF) focuses on building and
sustaining a competent and diverse scientific, mathematics,
engineering, and technology workforce. The scientific and technological
leadership enjoyed by the U.S. today, is due in large part to the
funding and programs of the NSF. There is also a critical need to for
an educational paradigm that reflects the needs of a diverse population
and addresses the humanities, the arts, workforce training, and all
aspects of lifelong learning. DO IT will address this important need.
The overarching objective of the Digital Opportunity Investment Trust
is one vital to our nation's prosperity--to encourage, educate, and
enlist citizens into jobs and professions that drive the new knowledge
economy, contribute to social well being, and safeguard the basic
values of our society.
do it as an incubator for innovation
The NSF plays a vital role in nurturing the people, ideas, and
tools needed to generate new scientific knowledge and new technologies.
Federal investments in the basic sciences through the National Science
Foundation have produced many benefits, including:
New industries, such as E-commerce and biotechnology,
New medical technologies, such as MRI and genetic mapping,
New discoveries with great future promise in areas such as
nanotechnology, cognitive neuroscience, and biocomplexity.
NSF has accomplished this by funding innovative, peer-reviewed
science and engineering research, educating a highly skilled science
and engineering workforce, and building partnerships with other federal
programs, non-profits and industry to foster transfer of knowledge,
methods and tools.
DO IT will play a similar role to foster a community of researchers
and developers. DO IT will give academia, non-profits and industry the
resources to develop learning content, methods, and models that will
provide learners, teachers, and instructors with new tools. Some tools
will be as basic as interactive digital aids to reading, writing, math,
and languages, and some will be as sophisticated as simulations,
visualizations, and distributed collaborative projects. Given an
aggressive and successful program of research, computer simulations
could let learners tinker with chemical reactions in living cells,
practice operating and repairing expensive equipment, or evaluate
marketing techniques. Simulations could make it easier to grasp complex
concepts and transfer this understanding quickly to practical problems.
New communication tools could enable learners to collaborate on complex
projects and ask for help from teachers and experts from around the
world. Learning systems could adapt to differences in student
interests, backgrounds, learning styles, and aptitudes. They could
provide continuous measures of competence, integral to the learning
process. Such measures could help teachers work more effectively with
individuals and leave a record of competence that is compelling to
students and to employers.
The gap in student achievement is a major challenge before us and
one that is central to the new No Child Left Behind legislation.
Without new models and tools for teaching and learning, we are stuck in
classrooms that haven't changed much since the turn of the last
century, educating our children on an agrarian calendar schedule, with
methodologies that do not fully integrate and utilize the technology
that permeates every other sector of our lives. Imagine the impact that
the ability to refine teaching techniques could have in truly changing
outcomes when each child has a personalized learning plan, customized
through technology, to meet his or her specific learning style. High
student to teacher ratios, often the case in failing schools, would
then not be such an impediment and testing would become much more
capable of aiding learning. And new tools could allow continuous
evaluation and improvement of the learning programs and systems.
DO IT will intensify and focus R&D to harness the power of advanced
technology to improve learning. This is an area of R&D that is greatly
unfunded given its importance to our nation. President's Committee of
Advisors on Science and Technology (PCAST) in its Report to the
President on Educational Technology (1997) reported that in 1995 the
U.S. spent about $70 billion on prescription and nonprescription
medications, and invested about 23% of this amount on drug development
and testing. By way of contrast, our nation spent about $300 billion on
public K-12 education in 1995, but invested less than 0.1% of that
amount to determine what educational techniques actually work, and to
find ways to improve them.'' <SUP>1</SUP>
---------------------------------------------------------------------------
\1\ Report to the President on the Use of Technology to Strengthen
K-12 Education in the United States, President's Committee of Advisors,
on Science and Technology, Panel on Educational Technology, March 1997
---------------------------------------------------------------------------
Emerging technologies make it practical now to approach learning in
ways that learning scientists have advocated for many years.
Unfortunately, the practices recommended by educational psychologists
and cognitive scientists are not pervasive in our country's classrooms
and training centers. Individualized instruction, subject-matter
experts, and rich curricular activities are often simply too expensive.
Expense and related challenges often cause both formal education and
corporate training to rely on strategies that ignore the findings of
learning research. For the first time in history, technology exists
that can make vastly improved learning systems routinely available.
Furthermore, networking bandwidth capacity, computational power, and
graphics capability will improve dramatically in the next few years. We
will have even more powerful, less expensive technologies available to
support teaching and learning. But we will not be able to take
advantage of these advances unless we undertake a long-term, large-
scale effort to develop, test, and disseminate tools for building
advanced learning systems. The R&D supported by DO IT will lead to a
wide-range of interoperable, well-performing, extensible software tools
that can lower the cost of entry for educational materials and systems.
This will enable the types of learning I just described to become
routinely available to Americans, both inside and outside of the
classroom, in both urban and rural communities.
The funding programs supported by DO IT will develop a pipeline of
well-educated researchers to contribute to this important field. Some
of these researchers will become faculty members and help educate
future generations of researchers. Many others will join the workforce
to develop next-generation products and services to contribute to U.S.
leadership in the education and training sector, in areas such as e-
learning services and educational software publishing.
do it structure and governance
I feel very confident endorsing the structure and governance model
proposed in the Digital Promise's Report to Congress. It is important
that the management structure provide ultimate accountability to the
Congress, but also ensure that the management enjoys the stability and
independence from political interference needed to guarantee the
highest-quality product. The NSF provides a model for meeting this goal
and the governance proposed for DO IT is, in general, modeled on this
sound and very accountable structure. The NSF Director is appointed to
a six-year term and reports to a strong, independent board. Similarly,
DO IT would be overseen by a Board of Directors whose members would
serve with the advice and consent of the Senate. The DO IT governing
board would function much like the National Science Board, the
governing board of the NSF. Like the National Science Board, the DO IT
Board would be responsible for setting direction and budget guidelines
and providing oversight of DO IT. The DO IT Board would be available to
Congress whenever needed, just like the National Science Board. The
Director of DO IT would be selected by, and serve at the discretion of,
the Board of Directors.
conclusion
Mr. Chairman, I am convinced that the fifty-year plus legacy of the
National Science Foundation has been the driving force in the overall
leadership of the United States in the fields of science and
technology. The nature of the world we face today requires that same
kind of incubation of ideas and innovation in the areas of education
and training if we are to remain a competitive global leader. My
experience as a past Chairman of the National Science Board gives me
every confidence that an entity such as DO IT can be effectively
governed and structured so as to be thoroughly accountable to Congress
and to the public trust. At this point I would like to close my formal
remarks. I thank the Committee for allowing me to comment on the
Digital Opportunity Investment Trust. I look forward to future
opportunities for discussion of this highly important national
initiative.
Mr. Upton. Thank you.
Mr. Welbourne.
STATEMENT OF JAMES WELBOURNE
Mr. Welbourne. Good morning, Mr. Chairman and members of
the subcommittee. My name is James Welbourne, and today I
represent the American Library Association. I am also the
Director of the New Haven Free Public Library in New Haven,
Connecticut. And I am very pleased to be here to speak in favor
of the Digital Opportunity Investment Trust, or DO IT. I love
that acronym.
Today's libraries are dynamic, modern community centers for
learning, gathering information and entertainment. At the New
Haven Free Public Library, we are proud of the many community-
based activities we offer our citizens, from book clubs and
author talks to infant and toddler literacy resources to
technology access and job training.
Information has become the great equalizer in today's
society and libraries play an increasingly critical role in
leveling the playing field by providing communities with no-fee
access to technology and information resources. DO IT would
allow libraries to bring technology and information resources
to an even greater population in both urban and rural
communities across the country.
A chain is only as strong as its weakest link, and DO IT
would be another important link in building a strong chain to
close the digital divide and to meet our Nation's
opportunities. Coupled with programs such as the E-rate and
Library Services and Technology Act, as well as other local,
State and national programs, we can provide equitable and
affordable access. We need all these links to meet the needs
for accessibility for all.
Modeled after Abraham Lincoln's Land Grant Colleges Act,
which authorized the sale and use of public lands to support
the establishment of public colleges and universities, DO IT
would create an education trust fund by using the billions of
dollars in revenue from auctions of unused, publicly owned
telecommunications spectrum. The trust fund would support
research and development of new educational models and
prototypes, taking full advantage of the Internet and other new
digital telecommunications technologies. It would support a
more robust Internet, where people can find tools for job
training and retraining, for education training and more.
At the New Haven Public Library, funds from this trust
could be used to help establish a technology and development
fund, which would support the triennial replacement of library
personal computers. Funds could extend technology access
centers to remote community-based locations such as public
housing centers, youth development organizations and police
substations, and funds could go to updating hardware and
software accessories in providing critical technology support
services to the public and library staff. The trust fund would
enhance public participation in civic activities and could be
used to invest in new technologies and promote lifelong
learning.
The American Library Association is working to ensure that
libraries take the lead in providing equitable access to
library services and materials for everyone, regardless of age,
ethnicity, physical ability, income, language, geographic
location or the type of library they are using.
Both rural and urban libraries face barriers to providing
equitable services because of both geographical and
technological barriers. School, college and university
libraries struggle not only with providing basic access to
students, but also with the need to provide skill-building and
training opportunities for staff. DO IT funds would provide
opportunities to enhance staff development and training, break
down geographic barriers to access and promote new educational
opportunities.
In my system, technology is regularly used to help out-of-
work adults search for new sources of employment, provide the
tools and expertise needed by job seekers in developing
effective resumes or for preparing for occupational testing. We
are the first resort for homework assistance by young people
using the Internet and CD ROM technology. We provide local
businesses with remote access to electronic data bases and
commercial information services, and we provide health
information and on-line consumer health advice through the
electronic health information network.
In each of our neighborhood branch libraries, citizens have
not only access to the Internet and e-mail, but are also
offered skill training on word processing, spreadsheet
applications, World Wide Web searching, Internet and computer
basics. These services have proved critical to average citizens
trying to keep current with the demands of the technology-
driven society.
DO IT can also provide the means for libraries to digitize
special collections. Many libraries, like the one at Yale
University, have unique collections and materials that should
be accessible to the general public, via the Internet. With new
capabilities, patrons will be able to view interactive 3-D
versions of each item in the special collection without having
to travel outside of their own community. A student could visit
the Library of Congress from any State in the country and be
able to virtually walk through the doors of the library into
the Great Hall, to page through the Gutenberg Bible and to
graph the maps in the Hammond collection.
I would like to thank Chairman Upton, Mr. Markey, Mr. Towns
and other members of the subcommittee for presenting me the
opportunity to speak with you today. And I also would like to
thank the National Science Foundation for their generous grants
to support workshops and research and collaborative
opportunities for libraries in advanced networking.
[The prepared statement of James Welbourne follows:]
Prepared Statement of James Welbourne, Director, New Haven Free
Library, Connecticut
Good Morning Mr. Chairman and Members of the subcommittee.
My name is James Welbourne. I represent the American Library
Association (ALA) and am the Director of the New Haven Free Public
Library in New Haven, Connecticut. I am very pleased to be here to
speak in favor of the Digital Opportunity Investment Trust, or ``DO
IT.''
The American Library Association is the oldest and largest library
association in the world. Among its 65,000 members are public,
academic, and school librarians, library trustees, members of the
library business community and friends of libraries. Today, there are
more than 124,000 libraries in the United States. In addition to public
libraries in almost every community, there are thousands of libraries
in schools, colleges and universities, hospitals, law firms,
businesses, the armed forces and more. Because libraries offer free
access to information for all, they bring opportunity to all.
Today's libraries are dynamic, modern community centers for
learning, gathering information, and entertainment. The New Haven Free
Public Library is proud of the many community-based activities we offer
our citizens--from book groups and author talks to infant and toddler
literacy resources, to technology access and job training. Information
has become the great equalizer in today's society, and libraries play
an increasingly critical role in leveling the playing field by
providing communities with no-fee access to technology and information
resources. DO IT would allow libraries to bring technology and
information resources to an even greater population in both urban and
rural communities across the country.
A chain is only as strong as its weakest link and DO IT would be
another important link in building a strong chain to close the Digital
Divide and to meet our Nation's Digital Opportunities. Coupled with
programs such as the E-rate and the Library Services and Technology Act
as well as other local, state and national programs, we can provide
equitable and affordable access. We need all these links to meet the
need for accessibility for all.
Modeled after Abraham Lincoln's Land Grant Colleges Act, which
authorized the sale and use of public lands to support the
establishment of public colleges and universities, DO IT would create
an education trust fund by using the billions of dollars in revenue
from auctions of unused, publicly-owned telecommunications spectrum.
The trust fund would support research and development of new
educational models and prototypes, taking full advantage of the
Internet and other new digital telecommunications technologies. It
would support a more robust Internet where people can find tools for
job training and retraining, for education training, and more.
At the New Haven Public Library, funds from this trust could be
used to help establish a Technology Development Fund, which would
support the tri-annual replacement of library personal computers. Funds
could extend Technology Access Centers (TAC) to remote community-based
locations such as public housing centers, youth development
organizations, and police sub-stations; and funds could go to updating
hardware and software accessories and providing critical technology
support services to the public and library staff.
The trust fund would enhance public participation in civic
activities and could be used to invest in new technologies and promote
lifelong learning.
The American Library Association is working to ensure that
libraries take the lead in providing equitable access to library
services and materials for everyone regardless of age, ethnicity,
physical ability, income, language, geographic location or the type of
library they are using. Both rural and urban libraries face barriers to
providing equitable services because of both geographical and
technological barriers. School, college, and university libraries
struggle not only with providing basic access to students, but also
with the need to provide skill-building and training opportunities for
staff. DO IT funds would provide opportunities to enhance staff
development and training, break down geographic barriers to access, and
promote new educational opportunities.
As Director of the New Haven Free Public Library, I oversee a
library system that serves a resident population of 123,000, and a
daily commuting population averaging around 72,000 individuals. In my
system, technology is regularly used to help out-of-work adults search
for new sources of employment; provide the tools and expertise needed
by job seekers in developing effective resumes or preparing for
occupational testing. We are the first resort for homework assistance
by young people using the Internet and CD-ROM technology; we provide
local businesses with remote access to electronic databases and
commercial information services, and we provide health information and
online consumer health advice through our electronic Health Information
Network. In each of our neighborhood branch libraries, citizens not
only have access to the Internet and e-mail, but are also offered
skills training on Word Processing, Spreadsheet applications, World
Wide Web searching, Internet, and Computer Basics. These services have
proved critical to average citizens trying to keep current with the
demands of a technology driven society.
Imagine a scenario where the hospitals and medical systems in the
city use a network to share MRI images over the Internet while also
videocasting views from surgery. Or imagine researchers, located at
various geographical sites, using the system to hold a videoconference
to discuss the latest research on genetically modified organisms where
computer generated models are viewed at all sites simultaneously.
At the same time, a student studying a foreign language connects
with a class in Europe learning English. ``Listening in'' at the
nearest local library branch is the student's instructor--there to
assist in the learning process. Or, a student travels to the local
library and logs on to the library's computer to access an online tutor
with whom she works in real time, manipulating computer generated
images in order to complete the student's report.
These scenarios envision linking institutions together to benefit
both the city and its citizens. These are the types of advanced
networking opportunities the DO IT fund can provide for cities like New
Haven as well as for rural communities where, with new technologies,
even the most geographically isolated patrons could be participants in
a collaborative virtual environment they would otherwise be unable to
afford.
DO IT can also provide the means for libraries to digitize special
collections. Many libraries, like the one at Yale University, have
unique collections and materials that should be accessible to the
general public via the Internet. With new capabilities, patrons will be
able to view interactive, 3-D versions of each item in the special
collection without having to travel outside of their own community. A
student could visit the Library of Congress from any state in the
country and be able to virtually walk through the doors of the Library
into the Great Hall, to page through the Gutenberg Bible, and to graph
the maps in the Hammond Collection.
Many scenarios are possible with investment in research and with
the development of new tools, systems, and content based on digital
technologies. DO IT will leverage the use of private funds in pursuit
of new information technology developments in the public interest. It
will stimulate ideas and models designed to enhance the use of
technology for teaching and learning. If we are all connected to
resources and linked together in a collaborative environment, we can
erase digital divide issues, bring down virtual and physical barriers,
and unify public and private institutions, businesses, government and
citizens.
I would like to thank the Chairman and Members of the subcommittee
for presenting me the opportunity to speak with you today. I would also
like to thank the National Science Foundation for their generous grants
to support workshops and research into collaborative opportunities for
libraries in advanced networking.
Mr. Upton. Thank you.
Ms. Lew.
STATEMENT OF GINGER EHN LEW
Ms. Lew. Mr. Chairman, members of the subcommittee, my name
is Ginger Lew. I am the CEO and Managing Partner of the
Telecommunications Development Fund.
TDF is a private, nonprofit corporation based in
Washington, DC. Congress established us with bipartisan support
as part of the Telecommunications Act of 1996 to promote access
to capital for small businesses, to strengthen competition in
the communications industry, to stimulate new technologies and
to enhance delivery of communication services to rural and
underserved markets.
We receive our funds--in fact, our funds are nontaxpayer
dollars. Actually, we receive our funds from a private
financial institution that now pays interest on the spectrum
auction upfront deposits, an innovative funding mechanism
developed through the innovative mind of Congressman Towns and
others who sponsored this legislation.
TDF has two key missions first to provide education and
training to entrepreneurs in the communications industry; and
second, to make investments in small, early stage
communications companies. We cast a wide net to find these
opportunities by participating in entrepreneurial outreach
activities and programs throughout the United States. We
believe that there are smart, bright entrepreneurs with
innovative technologies and promising businesses in places in
addition to the traditional venues that we hear about all the
time--Silicon Valley and the Northeast Corridor which
collectively receive 73 percent of all venture capital. We have
been to Maine, Illinois, New Mexico, Florida, Georgia, Kansas,
Oklahoma and elsewhere in urban and rural communities in search
of these companies.
The sad fact is that there continues to be a significant
lack of capital for small businesses in nontraditional
communities. If you are a first-time entrepreneur, trying to
find that first half million dollars, and perhaps even up to $3
million, that is a Herculean effort especially for the
communications sector.
At the height of the Internet bubble, communications
investments received about 39 percent of all the venture
capital invested. Today, it is less than 6 percent. According
to the National Venture Capital Association, during the past
four quarters, the venture capital industry invested
approximately $18 billion. Unfortunately, the National
Association of Investment Companies, a trade association for
minority-led investment funds, estimates that less than one-
half of 1 percent of all venture capital are invested in
companies led by people of color.
And the Kauffman Foundation estimates that less than 5
percent of all venture capital is invested in companies led by
women. This is despite the fact that women own more than 26
percent of all the small businesses in the United States, and
minorities own 15 percent of all the small businesses in the
United States.
While TDF is race and gender neutral in our investment
criteria, we cast a wide net to look for people-of-color- and
women-led companies. I am pleased that more than 60 percent of
the companies that we have invested in have founding members
who are people of color and women.
TDF believes that it provides essential seed capital to a
significantly underserved small business segment. For example,
in 2001, TDF made a investment in a company based in rural
Kansas. The company had developed some very interesting
wireless technologies. The company was being looked at by a
number of small investors who were very reluctant to make the
investment because they lacked industry expertise.
When TDF got involved, we pulled together an investment
group. Over the course of the past 2\1/2\ years, we have worked
closely with this company, served on its board and brought new,
experienced management to the company. Today, the company is
getting ready to launch its products in a number of industry
verticals and has working partnerships with well-known PDA
manufacturers.
This is an example of a company that would not have
received any investment moneys had TDF not participated. These
jobs would not have been created and this technology would not
have been launched.
Starting new businesses can be a challenge. Recent studies
show that 24 percent fail in their first 2 years; 53 percent
fail in the first 4 years. Investing in early stage
communication companies face similar challenges. While capital
is a component to success, another is entrepreneurial training.
This brings me to TDF's second critical mission, to provide
educational training and outreach to entrepreneurs and would-be
entrepreneurs. In 2002, our six-person investment staff
participated in more than 400 events and more than 22 States
that reached a estimated 10,000 entrepreneurs.
Last year, via TDF's Web site, we launched a self-guided
course on the basics of corporate governance geared toward
entrepreneurs. It explains why corporate governance is
important and why an entrepreneur should include this in their
business. It was the first of its kind and we received praise
from such organizations as the National Association of
Corporate Directors.
We have worked with organizations, such as the National
Science Foundation, to help them develop a matchmaker program
to introduce SBIR grantees to outside private investors. The
key point here is that we have been able to reach many
entrepreneurs with a small staff by leveraging limited
resources and forming partnerships with many organizations.
These are just a few examples of what TDF has done.
Thank you for the opportunity to testify. I would like to
express my appreciation to Chairman Upton, Congressman Markey,
especially Congressman Towns and Mr. Wynn for their continued
support of TDF and for H.R. 747.
[The prepared statement of Ginger Ehn Lew follows:]
Prepared Statement of Ginger Ehn Lew, CEO and Managing Partner,
Telecommunications Development Fund
Mr. Chairman, Committee Members, Ladies and Gentleman, my name is
Ginger Lew and I am the CEO and Managing Partner of the
Telecommunications Development Fund (TDF), a private, non-profit
corporation based in Washington, DC that provides education and
training for entrepreneurs in the communications industries, and makes
equity investments in small, early stage communications businesses.
I thank you for the opportunity to testify today regarding your
important topic, ``Digital Dividends and Other Proposals to Leverage
Investments in Technology.'' Because TDF has been intensely involved in
promoting the growth of technology in the communications sector since
our inception, I would like to tell you about our background and
mission, and describe our goals for the future and how they may be
affected positively by currently proposed legislation, H.R. 747.
The Telecommunications Development Fund (TDF) was established by
Congress with bi-partisan support as part of the Telecommunications Act
of 1996. It was the brainchild of Congressman Edolphus Towns of New
York. Congressman Towns conceived TDF as a means of expanding the reach
of our telecommunications system for the benefit of all Americans, and
as a way to assist new entrepreneurs who have the talent to develop
brilliant technology but are hampered by a lack of access to capital
and the management tools they need to succeed.
As defined by Congress, TDF's mission is to act as a catalyst for
the creation and enhancement of a first-class communications system for
all Americans, by
Promoting access to capital for small businesses;
Strengthening competition in the telecommunications industry;
Stimulating new technological growth and development;
Promoting universal service; and
Enhancing the delivery of telecommunications services to rural and
underserved areas.
In accordance with its statute, TDF has a seven member Board of
Directors appointed by the Chairman of the Federal Communications
Commission (FCC). The statute specifies that the Board consists of
seven members, four from the private sector and three from the public
sector, with one representative each from the FCC, the Small Business
Administration (SBA) and the Department of the Treasury (Treasury).
Members of the Board serve for a term of five (5) years.
The Board of Directors was empowered by statute to determine the
best ways to carry out TDF's mission. In furtherance of the mission,
the Board formed TDF, Inc., a 501(c)(4) corporation that would provide
education and outreach to emerging entrepreneurs. To fulfill the
funding side of its mission, the Board thoroughly reviewed a number of
options and concluded that making equity investments in early stage
communications companies would be the best course to follow. Therefore,
the Board created an investment entity, TDFund, LP, an early stage
venture capital firm, wholly owned by TDF, Inc., that makes equity
investments in small telecommunications businesses and provides them
with ongoing management guidance. TDFund, LP is an ``evergreen'' fund,
which means the return on its investments comes back to TDF, Inc. and
to be reinvested in new companies.
Our Board provides guidance to TDF in matters of corporate
governance, financial and investment policies and general industry
expertise. The Board members provide guidance about overall investment
policies of TDF. However, in order to ensure that no actual or
perceived conflicts of interest or compromise of regulatory
independence occur, the representatives of the FCC, Treasury, and SBA
do not receive any investment-specific information. TDF continues to be
very fortunate to have dedicated Board members who give freely of their
industry and corporate expertise. All TDF Board members serve without
compensation, and have declined any reimbursement for out-of-pocket
expenses.
The members of the Board and the dates on which their terms expire
are listed below.
private-sector members
W. Don Cornwell, Chairman, Chairman and Chief Executive Officer,
Granite Broadcasting Corporation, New York, NY.
Thomas A. Hart, Jr., Vice-Chairman, Partner, Shook, Hardy & Bacon,
Washington, DC.
Richard L. Fields, Managing Director, Allen & Company,
Incorporated, New York, NY.
Debra L. Lee, President and Chief Operating Officer, BET Holdings,
Inc., Washington, DC.
public-sector members
Michael Powell, Chairman, Federal Communications Commission,
Washington, DC.
Melanie Sabelhaus, Deputy Administrator, U.S. Small Business
Administration, Washington, DC.
U.S. Department of the Treasury, Washington, DC, vacant.
Congress created a unique funding mechanism for TDF. Section
309(j)(8) of 47 U.S.C. was amended to state:
(C) Deposit and Use of Auction Escrow Accounts--Any deposits
the Commission may require for the qualification of any person
to bid in a system of competitive bidding shall be deposited
into an interest bearing account at a financial institution . .
.''
Despite the statutory language and the intent of the authors of the
legislation, the FCC chose to interpret the phrase ``deposit'' to apply
only to the ``up front'' money portion of the deposit moneys.
The upfront payments are those initial bids that private companies
submit, along with their spectrum auction applications. The funds are
placed in an interest-bearing account in a private banking institution
and the interest is passed on to TDF after the winners are named.
Previously, this ``up front'' money was placed with the U.S. Treasury
Department and earned no interest.
This is how the bid process works:
The FCC announces a Spectrum License Auction. Companies that
wish to bid submit an application that states the amount they
intend to bid. Included with the application is 5% of the
amount of money they intend to bid as an ``up-front'' payment.
These up front payments are placed in an interest-bearing
custodial account in a private financial institution.
Within 45 days of the closing of the auction, the up-front
payments of unsuccessful bidders are returned to them. The up-
front deposits of successful bidders are transferred to the US
Treasury and no further interest is earned. All the interest
accrued on the up-front payments held during the auction
process is transferred by the private financial institution to
TDF.
Successful bidders are required to make an additional down
payment on their winning bid for a spectrum license to the US
Treasury, for a total of 20% of the successful price. At this
stage the initial up front deposit and the additional down
payment are held by the US Treasury in a non-interest bearing
account.
TDF does not receive any interest from money held at this
stage. There is no interest on these deposits.
Pursuant to negotiations, successful bidders are required to
pay the full price of the spectrum pursuant to the terms of an
agreement reached with the FCC. Once agreement is reached on
payment terms, licenses may be issued.
Since 1996, TDF has received a total of $49.9 million in
contributions from the interest earned on the upfront payments for
spectrum license auctions.
Contributions breakdown:
1996.................................................... 6,515,700.00
1997.................................................... 14,457,285.00
1998.................................................... 3,314,995.11
1999.................................................... 2,557,584.47
2000.................................................... 3,052,324.34
2001.................................................... 19,710,639.27
2002.................................................... 267,647.77
2003.................................................... 9,249.06
TOTAL:................................................ 49,885,425.06
TDF officially began its operations in 1998 by undertaking certain
organizational and start-up activities such as leasing office space and
hiring staff. When these basics were completed, we embarked on working
to fulfill our mission through entrepreneurial outreach and education,
investments and portfolio management. Our first investment closed on
December 31, 1999, and TDF is therefore characterized as a vintage 2000
fund.
investments and portfolio management
TDF's investment activities are guided by the statutory mission of
the Fund, by the size of the Fund and by established investment
industry management principles. Consistent with its mission to promote
competition in the communications industry and catalyze the development
of new communications products and services for consumers and
businesses of all sizes, the Fund strictly limits its investment
activities to the communications sector. Within this sector, however,
the Fund seeks to operate broadly, entertaining investment
opportunities related to the transmission of voice, data and/or video
in wireline, wireless or ``casting'' environments through software,
hardware or services mediums.
Also consistent with its mission, TDF casts a wide net in search of
high quality entrepreneurs and businesses. As a result, the Fund seeks
investment opportunities from a highly diverse group of entrepreneurs
with widely varying degrees of past entrepreneurial experiences,
including first time entrepreneurs.
These emerging business leaders operate enterprises headquartered
in urban, suburban, ex-urban and rural areas. In addition to providing
capital, TDF commits valuable advisory services that assist new
entrepreneurs in building the corporate infrastructure necessary to
operate successfully.
Because of the early-stage characteristics of investment
opportunities in this sector, the Fund invests its capital in exchange
for equity in the portfolio company. Before such an investment is made,
each opportunity is subjected to extensive and rigorous review.
Initially, the Fund establishes that the opportunity matches TDF's
overall investment criteria and that an investment in the company is
consistent with TDF's mission. Before funding is forthcoming, TDF
pursues in-depth due diligence review on many decision factors. These
factors include, but are by no means limited to, the background of the
management team, the strength of the company's core technology, the end
user value proposition, the size and segmentation of the market, the
relative strength of current and potential competitors, and
characteristics of the distribution channel. Overall, the Fund seeks to
create a portfolio of communications investments consistent with
prudent investment principles. As a result, the amount of capital
committed to any single portfolio company is generally limited to 10%
of the funds under management. Given the current size of the Fund this
translates to a maximum of $5 million. The Fund typically invests this
capital in stages as the portfolio company progresses in its
development.
The Investment Team, which consists of the CEO, Chief Investment
Officer, a Vice-President, two Associates and a Market Analyst,
conducts the due diligence and business plan review. TDF's investment
criteria and the review process are described through the Website
homepage, creating transparency and offering guidance.
TDF has continued to be very active in its deal-sourcing efforts
through the economic downturn of the past few years, which saw a steep
decline in overall private equity investing, and especially in early
stage investing.
To date, TDF has invested approximately $12 million in 12 start-up
communications companies and $25 million is available for investment.
Telecommunications Development Fund Geographic Diversity of Portfolio
Northeast.................................................. 2
Mid-Atlantic............................................... 4
Southwest.................................................. 1
Midwest.................................................... 3
Southeast.................................................. 0
Pacific.................................................... 2
Telecommunications Development Fund Portfolio Distribution by
Communications Sector
Wireless................................................... 4
Wireline................................................... 3
Internet................................................... 2
Media...................................................... 3
entrepreneur assistance and outreach
Virtual Educational Courses
Consistent with its mission, TDF provides technical and management
assistance to entrepreneurs. In an effort to reach a wider range and
larger numbers of entrepreneurs, TDF has designed online, virtual
courses accessible 24 hours a day, seven days a week via the Internet.
The online educational courses continue to be a highly accessed section
of the TDF Homepage.
Basic Venture Capital Process
After conducting a review of available training materials and
coursework on equity financing and finding very few quality resources,
TDF created a virtual Equity Financing Course that may be taken by an
entrepreneur at any time, anywhere. In order to maximize its outreach,
TDF partnered with the Small Business Administration (SBA) as a co-host
through SBA's online or virtual classrooms because the SBA classroom
model already was tested and established. TDF provided the expertise on
a new subject, equity financing, to complement the materials already
available on other means of financing small businesses.
The Equity Financing Course, available since late 2000 on the TDF
homepage (www.tdfund.com) and the SBA web site (www.sba.gov), presents
basic information on equity financing, the types of investors (angels
and venture capitalists), and suggestions for working with investors.
The course includes a description of the elements of a business plan
written for investors and an example of a plan and executive summary.
An extensive glossary of venture capital terminology is included as
well as numerous links to other useful information sites and resources.
Throughout the course are brief audio introductions to each section
reflecting the diversity of successful entrepreneurs and investors
working with TDF.
This is a self-paced, easily accessible virtual classroom that
provides extensive information on equity funding consolidated in one
location that may be accessed from any location and at any time of the
day or night. The course is available in both English and Spanish, and
TDF remains open to inquiries for translations into other languages.
TDF continues to receive positive feedback from entrepreneurs and
resource providers about the Equity Financing Course.
Corporate Governance
In 2002, TDF completed development of additional educational
content for entrepreneurs that focused on basic facts and practices
relating to corporate governance for young companies. This important
text, Building Your Board: A Corporate Governance Guide for
Entrepreneurs, was previously unavailable in any format. This
significant course content was posted on the TDF website and has been
available at no charge since the fall of 2002.
TDF collaborated with the National Association of Corporate
Directors, knowledgeable legal experts, experienced corporate directors
and successful entrepreneurs for the development and review of the
content. Building Your Board has also received endorsements and online
hyper links to the course from many venture capital and corporate
governance focused associations. Wide distribution and endorsements
demonstrate the value of such information and the need for this ground-
breaking material.
As a result of the interest raised with the national press coverage
of the posting of the course, TDF staff has spoken at many meetings,
forums, and seminars on the basics of developing sound corporate
governance within early stage companies. Additionally, the content has
been incorporated into appropriate materials for additional ``training
the trainers'' courses and seminars.
Website
The TDF Website is continually revised and refreshed as a dynamic
information source for the general public. A Library Section containing
helpful articles has been added, and the online, searchable database,
which includes links to business advisors throughout the United States,
has been expanded and refined to help entrepreneurs find useful
professional resources in their geographic location. The database
contains approximately 5,000 entries and is continually updated and
expanded. By migrating to a web-enabled database, TDF utilizes the
latest technology allowing instantaneous changes to be incorporated
into the system. Keeping in mind that some entrepreneurs may be
accessing the Internet at public facilities such as schools and
libraries, TDF's Website was designed to be accessible via most
computer and dial-up systems.
Outreach
Our activities last year present an accurate example of outreach
efforts. In 2002 alone, TDF participated in more than 400 events in
more than 22 states that reached an estimated 10,000 entrepreneurs and
would-be entrepreneurs from traditional and non-traditional
communities. TDF reached entrepreneurs through a number of different
forums.
TDF was the first investment fund recruited as a continuing sponsor
for the third year of Springboard Enterprises venture capital forums
because TDF recognizes the growing economic impact of women-led
businesses. Springboard Enterprises leads a series of venture capital
forums that has showcased over 250 women-led companies to date
including three sites during 2002; the Southwest Forum was held in
Dallas in mid-March hosted at the Fidelity Investments Campus, the
Southeast Forum on the campus of the University of North Carolina at
Chapel Hill held in September, and the New England forum held in
November at the Massachusetts Institute of Technology. Organized as
regional events, each of the forums recruited women-led businesses from
rural areas as well as urban environments to present their companies to
hundreds of private and corporate investors in a daylong event.
After ten venture forums to date, over 3,000 companies submitted
applications, more than 250 women entrepreneurs presented to more than
2,000 investors, and involved many more investors, financiers and
business development professionals in screening, selection and
coaching. The presenting companies have secured over $1 billion in
equity financing, one company has had a successful Initial Public
Offering (IPO), and many of the companies have completed mergers or
acquisitions. Over 40% of the presenting companies received funding
during a declining market period and over 80% of the presenting
companies remain viable, operating companies.
Recognizing the importance of developing a pipeline of companies
preparing for high growth and the need for equity capital, TDF has
worked closely with Springboard Enterprises to launch additional
``products'' for developing entrepreneurs and their companies,
particularly in second and third tier markets. The VC Tune-Up programs
were launched in Kansas City, Missouri to assist very early-stage
entrepreneurs. For slightly more mature companies, Springboard Boot
Camps were designed to provide intensive interaction with investors and
learning through interactive case studies. TDF actively sponsored and
participated in Boot Camps held in Washington, DC (at George Washington
University), New York City (at Goldman Sachs Headquarters) and Los
Angeles, California (at the Milken Institute).
Since recognizing the success of the Springboard model, TDF has
worked closely with the Emerging Venture Network and the Emerging
Business Forum as well as the National Science Foundation to
incorporate lessons learned and best practices helpful for minority led
companies and those commercializing technologies funded under the
federal Small Business Innovative Research (SBIR) programs.
In fulfilling the mission of TDF, we seek ways to assist new and
emerging telecommunications businesses access to technical and
management assistance. To that end, TDF has identified key resource
providers throughout the United States, established a dialogue and
working relationships to raise awareness of the needs of the business
owners, examined key factors in obtaining capital infusion for
entrepreneurs, and made that information readily available to
entrepreneurs across the U. S. TDF staff continued to expand the
training course presentations targeting groups of resource providers
who can, in turn, expand and enhance information provided to
entrepreneurs investigating equity financing in local business centers.
The TDF ``training of the trainers'' seminars resumed in 2002 and have
been recognized as a strong training and resource component by business
advisors throughout the United States.
TDF continues to build beneficial relationships with the expanding
network of business specialists assisting small business owners.
Informal public-private partnering relationships have been identified
and fostered. Small Business Development Centers (SBDCs) and the Angel
Capital Electronic Network (ACE-Net) Operators, originally under the
auspices of the Office of the Chief Advocate at SBA, provide the
backbone of the network in all fifty states and U. S. territories.
Additional federal resources such as Small Business Investment
Companies (SBICs), the Minority Business Development Agency (MBDA),
National Telecommunications and Information Agency (NTIA), college and
university entrepreneurial centers as well as resources on the state
and local level are working with business and investment specialists
from the private sector to assist and train entrepreneurs.
Although many entities in the business resource network have been
affected by the downturn in the economy, TDF continued to work with
remaining business incubators and accelerators, professional and trade
associations, women's business centers, online assistance sites and
professional services providers in order to expand our outreach across
the United States. TDF has also fostered working relationships with
colleges and universities as they expand their interest and course
offerings in entrepreneurship. As with federal research laboratories
and the SBIR grantees program, the university relationships have
extended into preliminary work on technology transfer and
commercialization of research technologies.
Either via telephone or through the TDF Inquiries electronic mail
system, general requests for information or a review of a company's
financial needs average about 250 per month. TDF receives many business
plans that do not meet the Fund's published investment criteria and,
therefore, the entrepreneurs are sent letters declining the opportunity
to provide investment financing to a particular company. As much as
possible, TDF provides feedback to those applicants, often detailing
TDF's specific suggestions for improving the company's presentation or
other key components needed to interest an investor. When appropriate,
a localized, targeted list of assistance sites is provided so that
those entrepreneurs receive an outline of suggested next steps for that
business in finding capital.
In building a network of resources, TDF reaches outside the
organization to develop collegial and productive relationships within
the venture investment community. Accordingly, TDF representatives work
with a number of organizations such as the National Venture Capital
Association, the Baltimore-Washington Venture Group, The Private
Investors Network, George Mason University's Grubstake Breakfast
Series, the Mid-Atlantic Venture Association, the Illinois Venture
Capital Association, the National Association of Investment Companies,
the National Association of Small Business Investment Companies, the
National Association of Seed and Venture Funds, WomenAngels.Net, and
other angel and industry groups. These forums enable TDF to meet other
private investors with whom it could co-invest and leverage its funds
while expanding resources for entrepreneurs. TDF staff members have
taken an active leadership role particularly in coaching and mentoring
those entrepreneurs presenting their companies to investors in a
variety of ``forum'' settings.
TDF reaches underserved audiences of entrepreneurs through
organizations such as Springboard Enterprises, the Forum for Women
Entrepreneurs, the Center for Women Entrepreneurs, the Capital Telecom
Professionals, the Minority Media & Telecommunications Council. TDF has
identified resources such as the Ewing F. Kauffman Foundation, the Ford
Foundation, the National Commission on Entrepreneurship, the Northern
Virginia Technology Council, Capital Venue as well as many
entrepreneurial centers operating close to major colleges and
universities. These relationships enable TDF to leverage its advisory
services by forming a network of resource and technical advisors. TDF
staff members have participated as moderators and panel participants
often throughout the year sharing views on the telecommunications
industry outlook, the venture capital climate, corporate governance for
early stage companies, and advising entrepreneurs on a wide range of
topics.
TDF works closely with significant private sector resource
providers and industry analysts to expand the resource network
available to entrepreneurs competing in new telecommunications
businesses. Talented and prestigious legal, accounting and consulting
firms have established small business practices, often working at
reduced rates for new businesses, to ensure well structured and sound
establishment of young businesses. TDF has worked with established
telecommunications and small business practices in the leading
consulting organizations such as Legg Mason, KPMG, Deloitte & Touche,
Grant Thornton, McKinsey & Company, PriceWater-houseCoopers and now
International Business Machines (IBM).
Additionally, TDF worked with many non-profit groups that mentor or
nurture new businesses such as the MIT Enterprise Forum, the Center for
Innovative Technology, the National Congress for Community Economic
Development, and the National Association of Seed and Venture Funds.
Technology resource relationships have been developed through the
extensive federal research lab commercialization offices and the Small
Business Innovation Research (SBIR) program. TDF has worked closely
with the National Science Foundation (NSF) on the SBIR/STTR advisory
board. Through that relationship, TDF and NSF developed the Match Maker
project to introduce grantees to outside investors that launched in
early 2002.
continuing to fulfill tdf's mission
TDF's role in contributing to the creation of a first class
communications system for all Americans was given added urgency with
the events of September 11, 2001. Communications technology is
especially needed for the military and for homeland security and these
technologies are often developed by the kind of emerging communications
companies in which TDF invests. Also, there are still many underserved
areas that desire broadband services and other new communications
technologies that are needed to enhance their safety.
Additionally, by increasing investments in early-stage
communications industries, TDF will play an important role in creating
the next level of technology that will stimulate our country's economic
growth.
Congressman Edolphus Towns, the originator of the legislation that
created TDF, has said that it was his intention that not only the ``up-
front'' money paid by bidders in spectrum auctions but also the ``down
payment money'' would be put in interest-bearing accounts, with TDF
receiving the interest payments at the conclusion of the auctions.
However, because of a regulatory misunderstanding, the funding
mechanism was set up so that only ``up-front'' payments were deposited
in interest-bearing accounts. Because of this error, it is estimated
that TDF was denied approximately $100 million.
To correct this inequity, Congressman Towns, along with Chairman
Upton and Congresswoman Heather Wilson, have introduced H. R. 747. This
legislation would mandate that down payments made by winning bidders in
spectrum auctions held after H.R. 747 is enacted would be deposited in
interest-bearing accounts. This interest earned on these accounts would
be passed on to TDF at the conclusion of the auctions.
We at TDF thank you, Chairman Upton, as well as Congressman Towns
and Congresswoman Wilson, for the confidence you have demonstrated in
our ability to continue to fulfill our important mission. We urge your
colleagues to join you in supporting H.R. 747.
Mr. Upton. Thank you very much.
We will move to questions and we will rotate with 5
minutes. Again, all opening statements will be part of the
record for those members who choose to make one.
Mr. Minow, I think you hit it on the head at the beginning
when you talked about the deficit; and those of us who are
fiscal hawks are more than alarmed at the way things have gone
the last couple of years and different things that are tugging
every which way.
I just wonder if you know, as proposed, whether the DO IT
bill is funded by the receipt of 30 percent of the revenues
from the spectrum auctions as well as the license fees
authorized. Have you done a back-of-the-envelope projection in
terms of the amount that would be collected.
Mr. Minow. Mr. Chairman, we have. But subject to the fact
that we don't know how many auctions there will be----
Mr. Upton. I know just two in the upcoming--the 700
megahertz auction, and that is hoping maybe $5 billion; and 3G
auction, triple that.
Mr. Minow. We have used the $20 billion number based on a
back-of-the-envelope estimate over a period of years for future
auctions. I don't think there is any question that the demand,
particularly of the cell phone people for spectrum space is
intense.
I don't think the prices that were paid in the late 1980's,
early 1990's are going to be as much in the future as they were
then. There were a lot of bubbles in that. But I think it is
fair to say that a $20 billion number over a period of time and
what we are suggesting--and obviously Congress will have to
give this a lot of study and debate, we are suggesting that the
interest only, the interest only on that go to DO IT, not the
full amount; the 20 would remain in taxpayer Federal funds.
Mr. Upton. Are there any other programs that would be
offset, taken away, whether it be earmarks or other line item
budget amounts, that we might be able to offset the new program
that you have identified.
Mr. Minow. When we started on this, Mr. Chairman, I went to
see the CHAIRMAN of the Senate Appropriations Committee, Ted
Stevens, whom I happen to have known long before he went into
politics; we had a case together in Alaska. And he said, Newt,
you don't have to persuade me. I went to college on the GI bill
and I went to a land grant college. He said, Where is the money
coming from? I am the chairman of the Senate Appropriations
Committee.
So we explained it to him, about the interest only, and I
grant you that was before 9/11, but I do believe that there is
enough room there if we are only talking about the interest to
fund it.
And I come back to what I said earlier. The precedents were
during wartime. Congress decided in the midst of the Civil War,
right after the Revolutionary War, and World War II you had to
make an investment in the education.
Mr. Upton. Mr. Welbourne, Mr. Kelly and Ms. Lew, any
thoughts in that regard.
Ms. Lew. Mr. Chairman, I can only comment that TDF receives
interest paid by financial institutions that holds the upfront
deposit moneys in an escrow account during the period that the
auction is held. So it is a very short window, and it is a
very--has been extremely difficult to make an estimate as to
how much money would be generated through this process when the
TDF legislation was first considered. The estimates were as
high as $350 million that we could get from this process.
In reality, it has taken us almost 6 years to gather $50
million. So it really is a difficult process to estimate the
impact in this legislation.
Mr. Upton. Mr. Kelly?
Mr. Kelly. Let me comment. When I took over as President of
Tulane University in 1980, we purchased the first university
computers. They were the size of the entire area here.
That cost $8 million. I now have a personal computer that
is about half the size of this, weighs 3 pounds. It cost $1,500
and it has 10 times the power of that roomful of computers.
Moore's law will continue, and the cost of computing is going
to continue to decline. You add on to that nanotechnology, the
technology of the molecular or the atomic, we are operating at
that size. In the very near future, within 3 years we are going
to have the equivalent of infinite bandwidth and infinite
processing power. The costs are going to continue to decline.
Everything will be moving into some form of wireless or other.
That means that the telecommunications is going to become as
ubiquitous as the handheld telephone. It is going to
dramatically change all of education, and that educational
change is going to determine the economic activity of this
country as well as the economic opportunities for all of our
citizens.
This is a critical investment at a critical point in time
that will have a leveraging effect that is simply enormous, in
my judgment, will outdistance them all, will outdistance the
G.I. Bill and its impact. The entire learning is going to
change dramatically. This is a critical investment. I know you
have difficult priority questions, but this may be the single
most important investment that this country can change at this
time.
Mr. Upton. Mr. Markey.
Mr. Markey. Thank you, Mr. Chairman, very much.
I think that the issue isn't whether we can afford it. The
question is, really, can we afford not to do it? You know,
there are reports that the United States could lose 3 to 7
million jobs over the next 5 to 10 years to countries like
India and others that are also focusing upon this whole area of
software and information, and more and more American companies
are actually using those countries as places where they will do
their work. So we have a real challenge ahead for ourselves.
And as you said, Mr. Minow, not only did the G.I. Bill only
pass by one vote, but President James Buchanan actually vetoed
to the Land Grant Act the first time it came out of Congress to
the President's desk, and then Lincoln had the vision
subsequently to sign it.
So my question to you is, in this age of terrorism and
global competition increasingly, and as symbolized by the role
that India is now playing and draining jobs out of our country
at the high end, the information end, could you elaborate on
the role that this fund could play in this era of terrorism and
global information competition.
Mr. Minow. Let me give you one specific example.
Congressman Regula heard our story. He persuaded the Congress
to award 750,000 to enable us to do the report, which we have
filed with every Member of Congress. We had a little money left
over, and we are using that, with his okay, to fund a course
for first responders to acts of terrorism. We are creating a
course which will be first used in New York City, but then made
available throughout the country to firemen, policemen,
hospital people, ambulance, to train them through modern
technology in the needs of what a first responder has to do.
We think this technology is so powerful that this is a
perfect example at this time of terror in the country to use
it, and we think that same technology can be used over and over
again in all parts of the country for all lifetime learners.
Not just kids, but all lifetime learners. But that is a very
good example of what we are about.
Mr. Markey. I would just correct you on one thing: It is
not that Mr. Regula convinces Congress to do things; Congress
tries to convince Mr. Regula to do things.
Let me go to you, Mr. Kelly. What is the role of
universities in this era? So you are saying that this could be
even more important than the land grant? So what is the role of
innovation, development of new ideas that you believe the
university community can provide if we put together this kind
of trust fund.
Mr. Kelly. Well, first let me comment on your previous
question briefly. I serve as a consultant to the Southern
Defense Command. In terms of disaster prevention throughout
Latin America, the Southern Defense Commander did an absolutely
great job on that. Their entire approach, both their training
approach and their research approach, was virtual. And so the
information technology had that kind of an impact in that
program; it would have the same or will have a similar impact
and be the key, in my judgment, in terms of our anti-terror
programs.
So the universities, the universities have their
responsibility both to participate in the training and the
research of people that are going to be working in this area.
And, more specifically, they have, I think, a responsibility of
using their faculties and using their resources to work with
the local public school systems and with the libraries in terms
of seeing that this information technology is used to its
highest and best potential.
Mr. Markey. Mr. Welbourne, Mr. Shimkus made reference
earlier to a piece of legislation which he and I passed last
year, which is DotKids.us, which creates this kind of green
zone, safe zone for kids on the Web, 12 and under. And the
Smithsonian has been willing to provide its digitized content
for this Web site. There are countless other libraries and
museums across the country that just don't have the resources
to digitize their assets that then can be made available to
this DotKids site. So what role do you think this trust fund
could play in kind of closing that divide?
Mr. Welbourne. It is a very important contribution that
this fund could make in that regard. Libraries are known for
the collection sometimes at the local level, the very unique
collections that they have acquired or developed themselves,
but they are unable to share these broadly or cost effectively.
Something that is designed at the national level to encourage
libraries along with university libraries to pool this kind of
a resource together would be responded to very effectively,
both by boards of public libraries as well as directors. And I
think that this is a very unique but valuable potential in this
area of collection digitizing. And I applaud the DotKids effort
as a great model.
Mr. Markey. Thank you.
Mr. Upton. Mr. Walden.
Mr. Walden. Mr. Chairman, I have no questions at this time.
Mr. Upton. Mr. Towns.
Mr. Towns. Thank you very much, Mr. Chairman.
Let me begin with Ms. Lew. Everyone knows that the telecom
sector lost billions after the downturn in the economy. How are
some of the companies that TDF has invested in during this
period, recognizing that it has been a difficult period, how
have the companies done.
Ms. Lew. Congressman Towns, as you just mentioned, the
telecommunications industry has undergone a seismic shift in
its financial well-being over the last 2\1/2\ years. For
example, the Baby Bells cut their capital expenditure budgets
in half from $78 billion to 2003, $36 billion. Many young
startup companies, communications companies were planning to
sell to these Baby Bells and other large enterprises have found
that their sales cycles have gone from 6-month to 12-month and
as long as 18-month.
So these startup companies are having a difficult time. On
the other hand, they have been nimble in terms of repositioning
themselves. They have been smart in trying to find new
customers and new opportunities. And I think the other key
factor that has occurred at the same time with the downturn in
the telecommunications arena has been the significant
withdrawal of investment monies from the capital markets.
Again, at the height of the bubble, over $100 billion was
invested in the year 2000. As I mentioned earlier, this year it
has been about $18 billion, a huge, huge decline.
So young companies are looking for new funds, are in search
of ever more scarce resources. Had TDF had more money available
rather than its current $50 million, we could be investing,
providing just essential capital to many of these companies who
need a longer runway to make it to break even on profitability.
So it has been a challenging time for many of these companies.
Mr. Towns. Thank you. Let me ask--is it Mr. Minow.
Mr. Minow. Right.
Mr. Towns. At the present time, it is my understanding,
that there is no set time on an auction. In other words, it
could be a year, 2 years, whatever. Do you think that a set
time would help us to be able to determine in terms of how much
money would actually be raised? I think when the question comes
up as to how much money would this generate, everybody sort of
says, well, you know, maybe this, maybe that. But I think that
if we had a time set, we would be able to sort of predict how
much money we would be able to generate. How do you feel about
setting a time?
Mr. Minow. Congressman Towns, my understanding is the FCC
has set two auctions with dates. And as to the future, a lot
will depend on something the FCC does not have control over.
That is, the Department of Defense issue of whether its current
use of the spectrum is going to be changed. I think that it is
almost impossible at this point to tell you that there could be
specific dates until that issue is resolved.
Mr. Towns. I think what I am saying is that, should we
legislate it? That is what I am asking.
Mr. Minow. I am not sure that I know enough about that to
give you an intelligent answer.
Mr. Towns. Anyone else want to take a crack at it? Because
we are trying to figure out, you know, how do we determine how
much money, you know, that the potential here? And, of course,
if auction goes real fast, I mean, let us face it, less money.
So that is the reason why I raise this issue. And that may be
something that we need to do on this side to help us to be able
to determine. Anybody else? No? Thank you for your help.
I yield back, Mr. Chairman.
Mr. Upton. Mr. Shimkus.
Mr. Shimkus. Thank you, Mr. Chairman. And I want to
apologize to the panel for coming in and going out. I do have
my crack staffer behind me who has helped me sort through this;
but I do appreciate the testimony, and I do have a couple
questions. And I want to welcome Dr. Minow. I am an Illinoisan.
I am a downstater, though. But here.
Mr. Minow. I live in Springfield.
Mr. Shimkus. Good. That is not downstate enough for me. But
it is part of my district, so it is great to have you here.
Let me start like this. I am a market-oriented, as my
friend knows, conservative, competition-oriented Republican.
So, in that world view, let me ask this: Do you see these
investment plans and partnerships raising concerns of anti-
competitiveness in the business community by investing in areas
of technology or intellectual property that will then be made
available free to the public? Will you not run the risk of
putting other companies who work in the same areas out of
business, therefore possibly running the risk of stifling
further development? And how would you minimize the chances of
issues like this?
Mr. Minow. The list of companies that support our proposal
is very impressive, mostly high-tech companies who would regard
this as totally consistent with their best interest as well as
the public interest. So I think it is very clear that the
business community welcomes this, largely because they know
that the more education there is, the better they are going to
succeed in the market place.
Mr. Shimkus. Well, and we have success legislatively when
we work together as, again, we know on this committee. And I
would encourage you that, if that is the case, that you
mobilize those individuals in that sector to help promote the
benefits of that. And that will be helpful to many of us here.
Mr. Minow. That is good advice. Thank you.
Mr. Shimkus. Dr. Kelly, you wanted to add something? I saw
some gyrations there.
Mr. Kelly. The National Science Foundation--the Internet
was originally started by DARPA, taken over by NSF, and in
fact, before it was privatized, the Internet was the NSF net.
But that has led to tremendous economic boom. The MRI is now a
major private sector industry that came out of the scientific
research.
So in the same way that the National Science Foundation has
really stimulated competition, stimulated economic activity, I
think DO IT will have the same impact in terms of all kinds of
electronic materials, in terms of systems, and in terms of
increased competition.
Mr. Shimkus. Well, let us talk about DO IT for a second
since you brought it up, and I wanted to follow up on that,
too. Can you provide insights in to how the NSF chose the
programs or institutions it provides funds to.
Mr. Kelly. Well, the NSF has set up a very firm established
merit review system. So essentially what it has done is set out
requests for proposals and then evaluated those proposals on a
merit review system. And I would anticipate that DO IT would
operate in a similar fashion.
Mr. Shimkus. Fairly transparent.
Mr. Kelly. Totally.
Mr. Shimkus. That is something that, again, Congressman
Markey and I have addressed on some other types of issues on
the transparency issues, of the winners and losers, and the
losers have to understand why they lost they lost.
Mr. Kelly. Absolutely.
Mr. Shimkus. And if there is not transparency, at least
mischievous undertakings----
Mr. Kelly. NSF responds to every proposal, and indicates
the reason for success and the reason for lack of success in
the competition.
Mr. Shimkus. And let me move to Ms. Lew.
What kind of incentives are in place at TDF to insure wise
investment decisions.
Ms. Lew. TDF has in place a due diligence procedure that
looks at every business plan that we receive, and we make an
assessment based on the quality of the investment management
team, the quality--the size of the market, the quality of the
technology, and the opportunity for seeking returns on our
investment. Because TDF is set up to be what is referred to as
an evergreen fund. That is, the proceeds from our successful
investments come back to TDF so we can make new investments. So
we are not oriented toward making, how would you say, socially
driven investments. Our goal is to make investments that yield
return, and hopefully additional money so you can make new
investments.
I might want to add that the due diligence process at TDF
with respect to any new investment takes anywhere from 4 to 6
months in terms of doing a thorough background check
investigation and review.
Mr. Shimkus. And since I told the Chairman I couldn't be
bribed for additional minutes, I hesitate to ask. But if I
could follow up with my colleagues for one more question? Thank
you.
And I want to follow up with Ms. Lew. Can you tell us a
little bit about the companies you have funded, what areas of
telecommunications and technologies they specialize in and why
you chose them.
Ms. Lew. We have invested in three broad sectors, what we
refer to as wire line software and hardware technologies and
services, wireless hardware, software, and services. And what
we refer to as casting, that is, anywhere from broadcast
opportunities to distribution of content through the Internet.
We have looked at opportunities to, No. 1, manage the
unauthorized sharing of content--in other words, the peer-to-
peer sharing, try and prevent the Napster issue. We have
invested in technologies that would enable workers to remotely
access enterprises through a secure virtual private network.
We invested in another technology, which is a location-
based instant messaging secure service that is now being looked
at by some Federal agencies. Why we chose these technologies
and companies was because we thought they were great market
opportunities led by very promising strong management teams.
Mr. Shimkus. Thank you. Thank my colleagues, and thank you.
Mr. Walden [presiding]. Indeed. The Chair now recognize Mr.
Markey for another question.
Mr. Markey. Well, I guess my--you are not going to ask
questions? Okay. I guess what I would ask is, could each one of
you give us a 1-minute summary of what you want the committee
to remember out of your testimony, just so we have got your
highlight of what, as we begin during this break to talk about
what we will do on this issue, you know, what you want us to
remember. Could we start with you, Ms. Lew.
Ms. Lew. Thank you, Congressman Markey. I would ask that
the subcommittee give serious consideration hopefully support
to H.R. 747 that has been introduced by Congressman Upton,
Congresswoman Wilson, and Congressman Towns. The goal of H.R.
747 is to make a technical correction to TDF's original
legislation. More importantly, it will delete the reference to
the Federal Credit Reform Act, which we think was inadvertently
placed in TDF's legislation. The Credit Reform Act applies only
to government agencies, and requires government agencies to
seek an appropriation before they make loans, before they can
extend the full faith and credit in a loan process.
Well, TDF is a private corporation. We would like to make
loans to small businesses, but we can't because the Federal
Credit Reform Act currently applies to us. And we certainly
don't want to seek an appropriation. We would want to make
loans from our own proceeds. So I hope that we can seek your
support in this effort. Thank you.
Mr. Markey. Thank you. Mr. Welbourne.
Mr. Welbourne. Yes. I think as libraries, particularly
public school and academic libraries, are situated in the
country, I would like us to realize that access to this
technology in the most cost-effective manner, as represented by
those institutions, how they are placed today. We think that
with the education of the public generally with technology, we
will, in fact, create an economic base in this country for a
higher investment advancement of technology simply because the
marketplace will increase with the ability to understand and
respond to the private sector.
I do want the committee to realize that the private sector
really ups its competitive advantage once the whole has
achieved a certain level of understanding, and that we can only
advance further as we begin to look at using these educational
resources to do just that kind of dissemination broadly.
Mr. Markey. Thank you.
Mr. Kelly.
Mr. Kelly. Education is really the creation, the
development, the transmission of knowledge. Information
technology is the creation, development, and transmission of
information. They are inextricably intertwined. And in an
information society, our education is going to be totally
dependent on the technologies that transmit it. And so by
making an investment in DO IT, the leverage in terms of its
educational impact and therefore its economic impact will be
simply enormous.
Mr. Markey. Thank you.
Mr. Minow.
Mr. Minow. I would ask Congress to do in the 21st century
what it did in the 18th, 19th and 20th centuries by having a
visionary approach to using Federal property that all of us own
to advance education. To be very specific, I would urge that
the Markey bill be adopted by the Congress.
Mr. Shimkus. What bill?
Mr. Markey. Markey-Shimkus bill.
Mr. Minow. Excuse me. Incidentally, Congressman Shimkus,
when you asked me the question about the businesses involved;
the Internet, as you know, was invented by the Department of
Defense, not by Al Gore. But the people who developed it were
private industry, and that is the same thing that will happen
here.
Mr. Shimkus. Thank you.
Mr. Markey. Thank you. And I thank each one of you. And I
think you are right, Mr. Minow. It is a real challenge to this
committee and to this Congress as to whether or not we have the
vision to put in place policies that will serve generations yet
to come. And I hope that we are up to the challenge about it.
We thank each of you for coming here today.
Mr. Walden. I want to thank our witnesses. Thank you for
your participation , your testimony. And our members for
participating. And we are adjourned.
[Whereupon, at 11:59 a.m., the subcommittee was adjourned.]
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