<DOC>
[106th Congress House Hearings]
[From the U.S. Government Printing Office via GPO Access]
[DOCID: f:64764.wais]
DEPLOYMENT OF BROADBAND TECHNOLOGIES
=======================================================================
HEARING
before the
SUBCOMMITTEE ON TELECOMMUNICATIONS,
TRADE, AND CONSUMER PROTECTION
of the
COMMITTEE ON COMMERCE
HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTH CONGRESS
SECOND SESSION
__________
MAY 25, 2000
__________
Serial No. 106-116
__________
Printed for the use of the Committee on Commerce
__________
U.S. GOVERNMENT PRINTING OFFICE
64-764 WASHINGTON : 2000
COMMITTEE ON COMMERCE
TOM BLILEY, Virginia, Chairman
W.J. ``BILLY'' TAUZIN, Louisiana JOHN D. DINGELL, Michigan
MICHAEL G. OXLEY, Ohio HENRY A. WAXMAN, California
MICHAEL BILIRAKIS, Florida EDWARD J. MARKEY, Massachusetts
JOE BARTON, Texas RALPH M. HALL, Texas
FRED UPTON, Michigan RICK BOUCHER, Virginia
CLIFF STEARNS, Florida EDOLPHUS TOWNS, New York
PAUL E. GILLMOR, Ohio FRANK PALLONE, Jr., New Jersey
Vice Chairman SHERROD BROWN, Ohio
JAMES C. GREENWOOD, Pennsylvania BART GORDON, Tennessee
CHRISTOPHER COX, California PETER DEUTSCH, Florida
NATHAN DEAL, Georgia BOBBY L. RUSH, Illinois
STEVE LARGENT, Oklahoma ANNA G. ESHOO, California
RICHARD BURR, North Carolina RON KLINK, Pennsylvania
BRIAN P. BILBRAY, California BART STUPAK, Michigan
ED WHITFIELD, Kentucky ELIOT L. ENGEL, New York
GREG GANSKE, Iowa TOM SAWYER, Ohio
CHARLIE NORWOOD, Georgia ALBERT R. WYNN, Maryland
TOM A. COBURN, Oklahoma GENE GREEN, Texas
RICK LAZIO, New York KAREN McCARTHY, Missouri
BARBARA CUBIN, Wyoming TED STRICKLAND, Ohio
JAMES E. ROGAN, California DIANA DeGETTE, Colorado
JOHN SHIMKUS, Illinois THOMAS M. BARRETT, Wisconsin
HEATHER WILSON, New Mexico BILL LUTHER, Minnesota
JOHN B. SHADEGG, Arizona LOIS CAPPS, California
CHARLES W. ``CHIP'' PICKERING,
Mississippi
VITO FOSSELLA, New York
ROY BLUNT, Missouri
ED BRYANT, Tennessee
ROBERT L. EHRLICH, Jr., Maryland
James E. Derderian, Chief of Staff
James D. Barnette, General Counsel
Reid P.F. Stuntz, Minority Staff Director and Chief Counsel
______
Subcommittee on Telecommunications, Trade, and Consumer Protection
W.J. ``BILLY'' TAUZIN, Louisiana, Chairman
MICHAEL G. OXLEY, Ohio, EDWARD J. MARKEY, Massachusetts
Vice Chairman RICK BOUCHER, Virginia
CLIFF STEARNS, Florida BART GORDON, Tennessee
PAUL E. GILLMOR, Ohio BOBBY L. RUSH, Illinois
CHRISTOPHER COX, California ANNA G. ESHOO, California
NATHAN DEAL, Georgia ELIOT L. ENGEL, New York
STEVE LARGENT, Oklahoma ALBERT R. WYNN, Maryland
BARBARA CUBIN, Wyoming BILL LUTHER, Minnesota
JAMES E. ROGAN, California RON KLINK, Pennsylvania
JOHN SHIMKUS, Illinois TOM SAWYER, Ohio
HEATHER WILSON, New Mexico GENE GREEN, Texas
CHARLES W. ``CHIP'' PICKERING, KAREN McCARTHY, Missouri
Mississippi JOHN D. DINGELL, Michigan,
VITO FOSSELLA, New York (Ex Officio)
ROY BLUNT, Missouri
ROBERT L. EHRLICH, Jr., Maryland
TOM BLILEY, Virginia,
(Ex Officio)
(ii)
C O N T E N T S
__________
Page
Testimony of:
Cleland, Scott C., Managing Director, the Legg Mason
Precursor Group............................................ 66
Ellig, Jerry, Professor of Economics, George Mason
University, on behalf of Citizens for a Sound Economy
Foundation................................................. 115
Frisby, H. Russell, Jr., President, Competitive
Telecommunications Association............................. 107
Goodlatte, Hon. Bob, a Representative in Congress from the
State of Virginia.......................................... 49
Jefferson, Shelton, Chief Executive Officer, Netcom.......... 103
Kunkel, David N., Vice Chairman and Executive Vice President,
PSINet, on behalf of the Commercial Internet Exchange
Association................................................ 97
Malone, Melvin J., Chairman, Tennessee Regulatory Authority,
on behalf of the National Association of Regulatory Utility
Commissioners.............................................. 63
Molinari, Susan, Co-Chair, iAdvance.......................... 57
Neel, Roy, President and Chief Executive Officer, United
States Telecom Association................................. 89
Vial, Donald, Policy Committee Member, Alliance for Public
Technology................................................. 86
Windhausen, John, Jr., President, Association for Local
Telecommunications Services................................ 74
Material submitted for the record by:
Association of Communications Enterprises, prepared statement
of......................................................... 133
(iii)
DEPLOYMENT OF BROADBAND TECHNOLOGIES
----------
THURSDAY, MAY 25, 2000
House of Representatives,
Committee on Commerce,
Subcommittee on Telecommunications,
Trade, and Consumer Protection,
Washington, DC.
The subcommittee met, pursuant to notice, at 11:06 a.m., in
room 2123, Rayburn House Office Building, Hon. W.J. ``Billy''
Tauzin (chairman) presiding.
Members present: Representatives Tauzin, Oxley, Stearns,
Gillmor, Deal, Largent, Shimkus, Pickering, Fossella, Ehrlich,
Bliley (ex officio), Markey, Boucher, Gordon, Rush, Eshoo,
Wynn, Luther, Sawyer, Green, and Dingell (ex officio).
Staff present: Justin Lilley, majority counsel; Cliff
Riccio, legislative analyst; and Andy Levin, minority counsel.
Mr. Tauzin. The committee will please come to order. Good
morning and welcome to the second hearing on high-speed
broadband deployment issues conducted by the subcommittee this
year. The Chair will recognize members in order for opening
statements, first with himself.
Let me take you back to 1995, the year we spent crafting
the legislation that would become the 1996 Act. Seventy
witnesses appeared before the House and Senate Commerce
Committees. They represented local, long distance companies,
cable and broadcast entities, think tanks, Federal and State
governments. Not one of those 70 witnesses was a small Internet
service provider or a company whose primary business was
operating an Internet backbone.
Why were they not appearing before the committee to protect
their new growing digital businesses? It is because, frankly,
they understood the bill was not about them. Instead, the Act's
primary purpose was to open the publicly switched telephone
network to competition. Internet was not even on the radar
screen. When we were debating the Act, there was no AOL or
Hotmail. Case in point, the Internet is only mentioned in the
Act a few times. I brought a Webster's dictionary with me
published in 1995. Look for the word ``Internet.'' You will not
find it. Webster's does not even contain a definition of the
Internet.
As a result, we are faced today with some extraordinary
consequences that flow from the 1996 Act and we are here to
examine them as they affect the deployment of broadband
services across America.
One of the biggest concerns is that the Act, which was
designed to set up a process by which telephone companies would
eventually compete in one another's market and was designed to
set up a process at the FCC by which evidence of competition
would, in the local market, would allow local companies to
compete in the long distance market across lines drawn on a map
by a court here in DC following the decision to split up AT&T.
We are now faced with a situation where, with this entirely
new thing called broadband Internet, those old rules are
restricting the capacity of competition in deployment across
America. We hear a lot about a thing called a digital divide
here in Washington and we hear a lot about how Washington is
going to cure that digital divide or the proposals advanced
here in Washington to cure the digital divide. And yet,
consumers across America have invested in miles and miles and
thousands of miles of broadband capable fiber optics in the
ground that they have paid for with bills that have been
dictated by regulators on the State and local and Federal
level. Now, they have paid for all this fiber that still cannot
be used because these old rules defining local and long
distance restrict the delivery of broadband services across
those networks.
So we face a situation where, indeed, some people are
predicting that 4 years from now, half of America will either
have one broadband competitor or none at all and that that
quarter of American which will have no competitor happens to be
rural America and urban center city America. The poor, the
rural, those who need probably broadband Internet access more
than anyone else in this country to catch up with the rest of
this country will, unfortunately, be left out.
I brought with me a couple maps to illustrate the point.
Teddy, would you put up the map illustrating the points of
presence, first of all, in Louisiana, just to give you an idea
in my own State what the problem looks like. Points of presence
are sort of the landing points, the big airports for the
superhighway in broadband. They are the points of presence of
the Internet backbone. In my own State, we have two, one in
Baton Rouge and one in New Orleans, and the map illustrates a
60-mile radius around those points of presence. If you live
without those 60-mile radiuses, you can have broadband services
provided for you in Shreveport or Lafayette or Monroe but you
cannot connect to those big broadband points of presence and so
you are left out of the network.
Now, there is an easy solution for connecting, and Teddy,
if you will put up the map that illustrates the miles and miles
of fiber that is laid across the State, you will see that
Louisiana is well connected. It is well connected with fiber
that could carry broadband from all parts of my State to the
broadband points of presence in Baton Rouge and New Orleans,
and yet all that fiber crosses those blue lines called LATA
lines that were drawn on a map by a court to separate voice
communications in the local and long distance marketplaces of
America.
And until my State gets permission from the FCC to allow
the local phone company, the Bell Company in our State, to
compete in long distance, those LATA lines remain as a barrier
to the deployment of broadband services across my State and
they serve as a barrier to the connection between the cities
across my State, like Thibodaux, Lafayette, and Alexandria and
Shreveport and Monroe to broadband access.
That example is duplicated and replicated across the
country and the question arises today as we hear the testimony
of our witnesses today whether or not we can change that,
whether or not we have to wait for the FCC to open that door or
whether we in Congress should consider opening that door. And
so we will hear today about broadband deployment, about whether
or not Americans will have a digital divide and whether or not
competition will answer that question or whether, in fact,
regulation will answer that question, whether regulation stands
in the way or regulation is the salvation for the problems we
face in access to broadband.
But I will tell you what we were not thinking about in
1995. We were not imagining what we saw in Texas this week as
heralded on the front pages of the New York Times. The New York
Times contains an amazing story. Teddy, I want you to put up
the document so everyone can see it. It is an amazing story of
a flyer that was placed into the paychecks of Time-Warner
employees in Texas. The flyer invited their employees to earn
$100 or some free AOL service, I think, if, in fact, they did
the following thing: If they called SBC, the local Bell Company
in Texas, and asked the Bell Company to connect them to the
Internet on DSL.
If they did, in fact, achieve a connection, they were told
to order it disconnected immediately, to abandon the
application, and then to report back to the company. They also
obviously wanted to know whether or not there were any places
that the Bell Company could not provide DSL service in order to
identify those places in the marketplace where the phone
company could not be a competitor to Time-Warner in offering
these services.
Now, there are two awfully perverse effects here. It
illustrates how in 1995 we had no idea that when the Internet
and broadband became the issue of the day, that companies would
be able to game the system the way they are obviously gaming it
here. One of the adverse effects, of course, is that the Bell
Company and its customers in Texas may have a $350 to more
expensive charge for each one of these connect-disconnects set
up by the employees of a competitor.
But even worse and even more perversely, those disconnects
count as negative points in SBC's application before the FCC
right now. Each time one of those employees connects and
disconnects on the SBC system, it counts as a negative point
against the company as it seeks to break out into long distance
competition before the FCC in its application currently being
considered by the FCC.
We never guessed that that kind of gaming would occur. We
never guessed that CLECs would form up, joining the unions with
ISPs, Internet providers, and soak the Bell Company and their
customers in something called reciprocal compensation, where we
found out that one such company even hooked up a horse barn and
turned the Internet on and let it run all day so that they
could soak money away from the local phone company and its
customers and split that profit with the ISP. We never guessed
that those kinds of games would be affected upon the
marketplace. All we wanted was open and fierce competition.
So today, we are going to examine the elements of whether
or not broadband is being deployed openly and in that same
sense of fierce competition that we hoped or whether or not we
have set up a process as defined by Reed Hunt in his book. I
hope you will read it. Do not buy it, for heaven's sakes.
Borrow my copy. I will loan it to you.
But I hope you borrow the book and read it. In it, you will
get a sense of the arrogance, the intense and amazing sense of
power the FCC felt it had as it met with the Vice President to
discuss--this is his quote--to discuss our agenda in the
political year, and as he tells of how the 1996 Act, as the FCC
read it, gave them so much power that he, Reed Hunt, became the
most powerful person in the country, maybe the world, in
communications, 40 rulemakings, the power to interpret the Act
any way they wanted to.
I am beginning to believe maybe Mr. McCain was right. Maybe
for all the good in the Act, maybe we set up the FCC with too
much power to regulate, too much power to stand in the way of
competition, and maybe it is time for us to take down those
regulatory barriers and open this beautiful new Internet
marketplace, this huge potential of broadband to every consumer
in America.
I will be sick, sick to death, if this high-speed train
leaves and the folks in Thibodaux and Lafayette and Alexandria
and Shreveport and Monroe and all the small towns in my State
are left behind, left behind immeasurably because we failed to
get rid of the regulatory restrictions that currently exist in
the law and in the mind of the regulators at the FCC that
prevent citizens to use the lines that they paid for, to use
the fiber they paid for, that is in the ground today waiting to
serve them, but incapable of connecting them to broadband high-
speed learning and long distance medicine and the amazing new
world of entertainment and information and freedom that
broadband is going to give citizens of this world that are
going to be denied people in my rural State because we only
have two POPs and the lines we pay for cannot connect to them.
It is time we think about doing something about it and I think
we are going to learn a lot about that today.
I yield to my friend from Massachusetts, the gentleman from
Massachusetts, the ranking minority member of the committee.
Mr. Markey. I thank the chairman very much. I thank you for
holding this very important hearing today.
Without question, Merriam Webster probably is not as
familiar with the Internet as it should be in its dictionary,
but they do not have to be because this subcommittee was.
Whether or not a dictionary catches up with what we know and
have known for the last 15 years really is not relative. In
fact, the reason why the Internet is not mentioned as often as
it should be in the 1996 bill was that the Science Committee
was very jealous of their jurisdiction and they did not want us
to use the word. Mr. Boucher is a member of the Science
Committee.
So what we did instead was we used the word ``advanced
telecommunications services'' wherever the word Internet should
have been, but a rose by any other name. The Internet by any
other name is still the Internet. So whenever you are looking
at the 1996 Act and you see the word ``advanced
telecommunications services,'' assume that we had crossed out
the word ``Internet'' and written it in in order to be
sensitive to the Science Committee's feelings about what we
were doing with the telecommunications policy of our country in
1996.
Now, let us go back in time a little bit. It is 1967. The
United States government goes to AT&T and IBM. They ask them if
they will take money from the Federal Government to build
something called DARPANET, the Internet. AT&T says, no, we do
not want the money. We do not want to build a packet switch
network. We already have a monopoly. IBM says, no, we do not
want to build a packet switch network. We already have a
monopoly.
And so they gave the contract to a company up in my
district, BB&N, Bolt, Baranick, and Newman, and for the next 22
years or so, they built the Internet on a government contract.
The Internet was built by the government on a government
contract because the private sector did not want it because in
the telecommunications sector they had monopolies until 1992
when we passed it over to the private sector, which is why
people might not have heard of it until then, but it was not as
though it did not exist. It was not born out of whole cloth
immediately in the middle of the 1990's. It had to come from
someplace, the Federal Government.
AT&T as of 1982 had yet to purchase its first square foot
of fiber optics. Hearing after hearing in this committee
indicated quite clearly that they had no intention in doing so
because they were, again, a virtual monopoly. And so the
government had to break it up. Now, it was after this
subcommittee had voted 15 to nothing at the end of 1981 to
break it up, and as we know, Judge Greene then used the model
of our bill to formulate the breakup. Many people in this room
were there when we cast that vote. What happened immediately
thereafter? AT&T starts to buy the worldwide supply of fiber
optic because MCI and Sprint and dozens of other companies are
now deploying a fiber optic network around the world--
competition.
In 1987, again, this committee forced the FCC not to move
to per minute but rather to flat rate charges for Prodigy, AOL,
and CompuServe, the only companies that were really in
existence at that time, and it was after we had a hearing on
information services with a virtual hearing with France with
their company Minitel and the chairman of Minitel who was here
showing us what they were doing in information services at that
time so that we would create the right policy, and they had
been going to per minute and we realized that was a mistake and
we forced our FCC to move us to that direction.
And then in 1996, we passed the Telecommunications Act,
breaking down the final barriers so that every one of these
ISPs to be--it is hard to exist if you cannot gain access--ISPs
to be would have the ability to be able to reach every consumer
in the United States.
So historically, what this committee has done, it has
counterintuitively sided with the companies that did not exist
yet against the larger existing monopolies. That is really our
entire history. And now we look at the success of the policy.
In the year 2000, right now, today, 95 percent of the
population of the United States is within 50 miles of a high-
speed Internet point of presence. What an incredible success
story, the envy of the rest of the world. We are now talking
about the final 5 percent. That is a great discussion for us to
have. Well, let us celebrate the incredible success of our
policies, especially the 1996 Telecommunications Act, which was
a very complex piece of legislation. But ultimately, as we
know, our goal was to induce paranoia in all sides.
So yes, there is a picture over here of Road Runner, but
the reason that Road Runner is so concerned is that Wile E.
Coyote down there in Texas is also trying to figure out how to
provide the same service, and why do they each have to think
about it? Because if they do not move, the other one will move,
and ultimately, that is the core principal of competition. It
is induced paranoia in a marketplace that requires each company
to move faster than the other one because they are not sure if
the other one will capture the market before them.
So the bill is a success, Wile E. Coyote and Road Runner
battling it out, and there are others, too, the wireless
revolution in 1993, 200 megahertz transfer has helped this
whole revolution, as well, all of it part of this great story
line of this subcommittee.
We should all be very careful as we move forward because,
ultimately, we are, at this point, being cautioned by NARUC, by
NASUCA, by all of those consumer and regulatory agencies at the
State level that we should be very careful in what we are doing
because this is working. It is a success story.
The domino theory really did not work when we were
analyzing Vietnam, but it does work in telecommunications. When
one falls, they all fall. When one company starts to do it,
they all start to do it. But you have to have many companies
out there with different strategies in order to force them all
to do it and that is what we have in the marketplace today.
That is what we are seeing in Texas. That is what we are seeing
in the rest of the country.
Now let us talk about how we can ensure that the final 5
percent is also served. But they are the end of the story, not
the beginning of the story, which is what I think some people
would like to have this hearing represent. We knew what we were
doing in 1996. Advanced telecommunications services are now
reaching most Americans if we want them and we should be
celebrating there. Thank you, Mr. Chairman.
Mr. Tauzin. I thank the gentleman.
The Chair wishes at this point, in fairness to Tom Warner,
to introduce into the record a letter dated May 25 and directed
to Dave Marventano on my staff in which Time-Warner
acknowledges that the actions in Texas were inappropriate, that
it has been stopped immediately and they want us to know that
Time-Warner Cable sincerely regrets the actions occurred and
that they intend to toughen and extend awareness of existing
compliance programs which guide franchise practices to ensure
that events such as this are not repeated. We can have that
entered into the record, without objection.
[The letter follows:]
Time Warner
May 25, 2000
Mr. David Marventano
Legislative Director
Honorable W.J. Tauzin
2183 Rayburn House Office Bldg.
Washington, DC 20515
Dear Mr. Marventano: I am writing today in regard to questions
regarding a recent incident in Houston involving Time Warner Cable. I
have looked into the matter, and want to provide you and Mr. Tauzin
with the facts of what happened and assure you that we have taken steps
to correct what was an error in judgement by the local staff.
According to our preliminary investigation, a mid-level manager in
our Houston division sent a flyer to the division's employees, asking
for their assistance in ``locat(ing) areas in Houston that Southwestern
Bell . . . can and cannot service with their high speed online service,
DSL.'' The flyer asked employees to sign up for DSL through
Southwestern Bell, receive a letter from SBC confirming their
installation appointment, and then cancel the appointment.
Local employees undertook these actions intending, to gather
accurate information as to whether DSL was being offered at particular
addresses in their service area, and not to interfere with SBC's
customer service. Nevertheless, their actions were clearly
inappropriate and as soon as senior management learned of it, it was
stopped immediately.
Based on our preliminary investigation, it also appears only a
small fraction of the Houston division employees to whom the flyer was
sent had placed calls to SBC before the initiative was halted.
I want you to know that Time Warner Cable sincerely regrets that
these actions occurred. In addition, we intend to toughen and extend
awareness of our existing compliance programs which guide franchise
practices to ensure that events such as this are not repeated.
As always, we look forward to working with you and to answering any
of your additional questions or concerns.
Sincerely,
Jeff Zimmerman
Assistant General Counsel, Time Warner Cable
Mr. Tauzin. The Chair now recognizes the chairman of the
full committee, Mr. Bliley.
Chairman Bliley. Thank you, Mr. Chairman. This morning, the
subcommittee resumes its inquiry into the state of broadband
deployment. Thus far, we have learned quite a bit. More than
anything, we have learned that the marketplace is responding to
consumer demand. We know, for example, that DSL technologies
are rolling out faster than ever. Analysts project that over 13
million homes will be subscribing to DSL technologies by 2005
and that revenues will surpass $11 billion by then, as well.
Even the local telephone companies are prospering in this
rapidly growing market. Their revenue from data services grew
between 32 and 41 percent in the first quarter of 2000. That is
impressive, indeed, but it is not surprising. Contrary to what
some say, there is nothing under current law that precludes
local telephone companies from participating in the residential
broadband market.
Meanwhile, we have also learned that the cable industry is
responding, as well. Two-point-five million homes now use high-
speed cable modems to access the Internet. That number is
projected to grow to 14 million by 2005. And wireless and
satellite providers are nipping at the heels of the cable and
telephone giants. They have broadband dreams of their own, one
that frees the consumer of wires and cables.
Who will win this race? Nobody knows, and frankly, I do not
care. As long as the rules of the road are fair and
predictable, which they are today, I intend to simply watch and
let consumers and the marketplace sort this one out. Yet some
still think consumers and industry need the help of Congress at
this point. This puzzles me because I cannot seem to see the
problem for which others have a solution.
These current and projected statistics impress me. They
convince me that Congress got it right in the 1996 Act.
Congressional action at this point in time will, if anything,
force investors to pull back and bring deployment to its knees.
Like that old saying, if it ain't broke, don't fix it. I hope
that today we will learn more about precisely what the supposed
problem is that requires a governmental solution.
I yield back the balance of my time, Mr. Chairman.
Mr. Tauzin. I thank the gentleman.
The Chair recognizes the ranking minority member of the
full committee, the gentleman from Michigan, Mr. Dingell.
Mr. Dingell. Mr. Chairman, thank you. I commend you for
holding this hearing. I think it is very useful.
I would like to begin by agreeing with my good friend from
Massachusetts, Mr. Markey. We use the words ``advanced
telecommunications service'' instead of Internet. However, I
would also note that these words are nowhere to be found in
Section 251 or Section 271 of the Act. These are the sections
that dictate the extent to which the Bell Companies are
required to open their network to competitors. I think this is
an important point that should be kept before us.
I would note that no one can find these words because we
intended to break open the local telephone market to
competition, but I want this to be known by all, not to
regulate advanced telecommunications services provided by these
companies. This is precisely the practice in which the FCC is
now diligently engaged, and they are probably the biggest
threat to the provision of competition in this particular area
of telecommunications services.
I would simply note that we have moved splendidly forward
in terms of making these kinds of services available, but I
would note also that 90 percent of the market share of the
residential broadband market is held by, guess who, the cable
companies, and why would this be so? The only thing that we can
assign it to is the simple fact that the FCC regulates the
local service telephone companies in their provision of this
and frees up almost everybody else. Is this a fair, level, even
playing field? Are the consumers permitted to benefit and to
achieve the benefit of competition? Clearly not.
I think that is the purpose of this hearing, and that is to
highlight that and also to find what it is that we can do to
speed it up, because there are no end of people, both in
industry and in also the home market, who are being denied
access to broadband or clear choice in broadband service by
reason of the FCC's diligent holding on to the idea that they
ought to regulate and ought to slow down the provision of
competition for all users of this kind of service.
Today, we address the next logical question after that
which was presented to us in the last hearing of this kind. In
that one, we heard testimony about the critical role of high-
speed Internet applications in building the Nation's new
economy. Today, the next logical question is addressed, not
simply how the country will benefit but how quickly, and I
might note also, why the country is not benefiting more quickly
from this and what it is that is holding it up. Clearly, I
think the answer is the good old FCC that seems to be incapable
of reading the legislation and incapable of moving forward to
competition.
Now, the question then is, how do we encourage the roll-out
of new technologies to all Americans regardless of where they
happen to live in the most expeditious manner? Is this to be
done by impeaching the FCC or burning the building down or just
what? With the resistance of the FCC, it would appear that
certainly something of that kind may ultimately have to be
considered.
There are thornier questions, then, that must be addressed
by the committee and the sooner and the better that we address
them will we see the full benefits of the new economy take root
for the good of all of the consumers in this country of this
kind of service. We began to write the law which became the
1996 Telecommunications Act in 1993. At that time, the vast
majority of the public was scarcely aware of Internet's
existence and potential. In fact, it is amusing to recall that
some of these people we regard today as technological
visionaries, including some who might be, let us say, located
in Redmond, Washington, initially failed to understand the
importance of the World Wide Web.
It should be known that much has changed since then. More
than half the country now does have Internet access and the
number is expected to double in the next few years. But even
with this explosive growth, the Internet is still in many ways
grinding along in low gear. While we hear about the benefits of
the information superhighway, the truth is that most Americans
are relegated to the slow lane. Too many people are still stuck
in the narrow band, low-speed dial-up service. So some folks
are not getting their fair share out of this.
Unfortunately, the Telecom Act did little to create the
proper environment for the deployment of broadband Internet
services. Worse, it unwittingly created disparities in the law
with regard to how different companies would be treated when
they attempt to compete in this area and to provide these
advance services, and I think this is a matter on which this
hearing can well focus today.
Today, several broadband technologies compete to provide
high-speed Internet service, but the two most prevalent are
cable modems and DSL. A recent FCC report shows that the cable
modems currently have a significant advantage in terms of
market penetration. While it is still without question a
nascent market, I repeat, the fact is that the cable companies
now command more than a 90 percent share of residential
broadband market, and if we are to focus on antitrust
questions, this is, I think, at least a nascent antitrust
question.
Certainly, the role of Congress here is not to pick winners
and losers. That would be wrong. But it is our duty to make
sure that the right policies are in place to prevent the
Internet from becoming a de facto monopoly for any one provider
and to see to it that the intent which we expressed in the 1996
law is carried out, that there is competition and that the
forces of competition make available the best possible choice
and the best possible availability of service to the American
people.
As technological conversion allows cable and telephone
wires in every home to deliver virtually the same service to
these American people, it makes no sense to treat these wires
differently under the law and that we should, in fact, address
these as devices for delivering service as opposed to some kind
of different sort of mechanical device. It grossly distorts the
market by giving one wire, then, an artificial advantage over
the other, and that is not in the interest of the consumers or,
indeed, the economy, or, indeed, the United States.
Complicating these matters further, this regulatory
disparity has led to a bitter dispute over broadband open
access policy in the Congress and in cities and States across
the country. At the heart of the debate is whether consumers
who subscribe to broadband Internet service from their local
cable company should be forced to travel through the cable
company's proprietary gateway to the World Wide Web or whether
the consumer should be guaranteed a choice of Internet service
providers. I think it is plain that I come down on the side of
giving the widest choice to the consumers, and I think the
consumers do, too.
In the end, however, it can be noted that the debate may be
beside the point. It accepts the premise that modern cable
modem technology has an impenetrable lock on broadband services
markets, but that monopoly should not happen and does not have
to happen. Chairman Tauzin and I, along with better than 200
members of this body, believe that we can cure this regulatory
anomaly by acting on legislation to deregulate all broadband
Internet services without further delay. Specifically, H.R.
2420 would allow providers to compete on a level playing field
with none able to leverage an antiquated regulatory scheme to
develop a monopoly position or to further entrench an existing
monopoly position.
If we act now, we can see many competitive platforms
flourish and the consumer is going to be the clear beneficiary
instead of some provider of service. In a word, the consumer
will not be held hostage and should not be held hostage.
Freedom of choice would be guaranteed by the market instead of
by the Congress or by the FCC, which is thoroughly dug in on
the matter. Experience teaches us that this is a wiser, more
efficient, better way of promoting good telecommunications
policy. It lets competition flourish and it lets the consumer
get the choice that is best in his judgment and his interest by
using the choice which competition provides.
Thank you, Mr. Chairman.
Mr. Tauzin. I thank the gentleman.
The Chair recognizes the vice chairman of the subcommittee,
Mr. Oxley.
Mr. Oxley. Thank you, Mr. Chairman. The Time-Warner
incident which has been alluded to is but one more example of
what has gone on almost since the day after the bill, the
Telecom Act, was signed into law, and it seems like it is
becoming a commonplace attitude and activity. It is not enough
for firms to try to lower their own cost, they have to try to
drive up competitors' costs. They harass each other in court,
in Congress, and at the FCC. It is not enough to try to reduce
their own regulatory burden. They try to deny regulatory relief
to the competition. Firms should be less concerned with how
they can burden their competitors with discriminatory
regulations and apply more of their energy to serving new
markets.
My rule of thumb is pretty simple. If a regulation has
outlived its usefulness for protecting consumers, whether due
to technological innovation or market competition, it ought to
be revealed. That is why I favor data relief for the Bell
Companies and that is why I am against imposing mandatory open
access regulation and horizontal ownership caps on cable
systems. I can imagine I have been critical, Mr. Chairman, of
the Bells in the past for litigating. I think we lost, frankly,
2 years of broadband advancement as a result of that litigation
and I am frustrated by that delay.
That said, I am rather impressed by the present rate of
broadband deployment. The Telecom Act was enacted a mere 4
years ago last February. That deregulatory legislation is
credited with fueling the Internet economy, spawning billions
of dollars in investment. Four years ago, most consumers had no
choice in local phone and there was virtually no electronic
commerce. Today, there is local phone competition in every
State. Most telecom startups offer a range of services from
telephony to high-speed Internet access services, putting
pressure on incumbents to innovate and to lower prices. Today,
the vast majority of households can reach an ISP with a local
call and upwards to 95 percent of homes can choose from at
least four different ISPs.
There has been tremendous growth in broadband
infrastructure, especially with advanced cable modem services
with about a million subscribers nationally. The competitive
broadband marketplace is developing quickly, with offerings
from ILECs, CLECs, satellite data, and wireless data in
addition to cable. But businesses and individuals always want
more, faster, cheaper Internet access and e-commerce
transactions and I am all for granting additional regulatory
relief to accelerate that deployment.
The goal should be to move all market participants toward
deregulated parity. That is the best way to foster investment,
creativity, innovation, and competition. We started in 1996
with the Telecom Act, which is historic. Many of us on this
panel worked for 10 years to get to where we were. It has had
an enormous impact and it has advanced the cause of broadband
and all telecommunications for these last 4 years.
The effort, it seems to me, over the next several months
for this committee is to take a look at where regulatory
burdens are keeping competitors out of the marketplace and
denying consumers the ability to have high-speed Internet
access and broadband capability. That is a worthy goal, one
that I think the committee is up to, and I yield back the
balance of my time.
Mr. Tauzin. I thank the gentleman.
The Chair recognizes the gentleman from Virginia, Mr.
Boucher.
Mr. Boucher. Thank you very much, Mr. Chairman. I want to
commend you for organizing this discussion today on a very
timely subject. I also want to commend you and the ranking
Democratic member of this committee, Mr. Dingell, for your
success in obtaining the cosponsorship of more than 200 of our
colleagues in the House for your measure that would broadly
deregulate all broadband services. I am pleased to serve as a
cosponsor of that measure and I think it would accomplish a
number of very important public policy objectives.
Chairman Tauzin in his remarks this morning talked about
the fact that there is a broad under-investment in Internet
points of presence in many of the rural reaches of the United
States. That under-investment tends to coincide with the fact
that those areas are served by Bell operating companies. Rural
regions that are served by other local exchange carriers,
independents, do not have that kind of under-investment in
Internet points of presence.
And the reason that the Bell Companies have not made these
investments is very simple, and that is that under existing
law, they simply cannot carry the data from their own point of
presence to the Internet backbone. If it crosses a LATA
boundary, they have to hand that traffic off to somebody else.
And so the incentive for them to make an adequate range of
investments in rural America that will bring the benefits of
broadband service to rural residents simply does not exist.
By deregulating the offering of interLATA data services, we
can resolve that problem and incent the creation of a
sufficient number of points of presence throughout the rural
regions of this Nation to make sure that this aspect of the
digital divide is appropriately addressed. Now, that is one
very important reason to enact this measure.
Another reason has not been mentioned this morning, but let
me highlight it, and it relates to the question of the pricing
for Internet backbone services. There was a time in the early
years of the Internet as a broad commercial medium in our
country when the owners of the various segments of the Internet
backbone treated each other as peers, and what that means is
that they agreed without charge to simply transfer each other's
traffic from one segment of the backbone to another. They made
the rough assumption that each segment was delivering to the
other segment an essentially equal share of data.
But as we have seen concentration in the ownership of the
Internet backbone, those peering arrangements have broken down
and now what used to be free passages have become tollways and
charges are now being imposed when data is transferred from one
segment of the backbone to another. Now, I do not know what the
future holds in terms of the potential for even greater
concentration in the ownership of the Internet backbone. We
certainly have one major merger pending that could potentially
have that effect. But even with the existing amount of
concentration, we are seeing charges imposed where the traffic
used to flow for free, and I think this fact argues very
strongly for the injection of greater competition into the
offering of Internet backbone services.
The legislation that Chairman Tauzin and Ranking Member
Dingell have put forward would accomplish that goal and would
bring five very capable companies into the offering of backbone
services. It would encourage them to make the investments that
are necessary. Passing this bill, I would add, does no violence
to the 1996 Act. This point has been debated by some of my
colleagues this morning, but let me just add a couple of
thoughts.
Section 271 is the gateway requirement for the ability of
Bell operating companies to offer interLATA information.
Information in the terms in which we discussed it in 1996 did
not refer to the Internet. We were not talking in those days
about data at all. All of the discussions, and I sat in on them
so I can testify as a witness, were about voice-based long
distance services. It was an $80 billion market then. I am sure
it is higher than that now. Voice-based long distance was the
subject of Section 271. And the carrot of the ability to offer
interLATA long distance service that is voice-based was held
out to the Bell Companies as an incentive for them to open
their local exchanges. We were not talking about data. We were
not talking about the Internet in 1996.
Now, the legislation which my friends have introduced would
simply say that the Bell operating companies could now offer
data across LATA boundaries. It would not give them the
permission to offer voice-based long distance until they get
permission to do so under Section 271, and it is a very easy
matter to determine whether or not they are offering voice-
based long distance perhaps through the Internet protocol or
other means. You simply look in the phone book and see if the
service is being sold. It is not a hard determination to make.
This measure is necessary. I strongly support this
deregulation of broadband services. I am pleased that finally
this morning we have an opportunity to begin a discussion of
this timely and important subject and I very much hope that
this discussion will lead to an early reporting of the Tauzin-
Dingell measure from this subcommittee.
Finally, Mr. Chairman, I just want to say a word of welcome
this morning to our first witness, our friend and colleague
from Virginia, Bob Goodlatte, who represents a district that
adjoins mine. I have the privilege of co-chairing with him the
House Internet Caucus and he and I together have put forward a
bill that has many of the elements of the legislation sponsored
by Mr. Tauzin and Mr. Dingell. Our measure is pending in
another committee and perhaps we will be successful in having
that measure reported from that committee in the very near
future. We are glad to have Mr. Goodlatte here this morning. He
has a deep expertise in this subject and I am sure that he will
educate us well.
I look forward also to hearing the testimony of the other
witnesses and I thank you again, Mr. Chairman, for today's
exercise.
Mr. Tauzin. I thank the gentleman.
The Chair reminds the members that the chairman will call
members in the order of appearance when the gavel fell. Next in
line will be the gentleman, Mr. Shimkus.
Mr. Shimkus. Thank you, Mr. Chairman. All I want is high-
speed Internet access that is timely, that competes fairly and
provides service to all geographical areas in the 20th
Congressional district, and with that, I will yield back my
time.
Mr. Tauzin. I thank the gentleman.
The gentleman from Texas, Mr. Green.
Mr. Green. Thank you, Mr. Chairman. The opening statements
are really worth the price of admission this morning. I mean,
what other committee can you go to in this House and have our
ranking member suggest we might need to storm the FCC because
of all our frustration with them. Maybe we can borrow Pat
Buchanan's pitchforks. They are not being used right now.
Mr. Chairman, when you mentioned the Time-Warner Road
Runner situation in Houston that is in my district, and with
our ranking member of this subcommittee's mention of Wile E.
Coyote, with all due respect to ABC-Disney that is here,
hopefully with competition, we will keep us from having a
Mickey Mouse system in the Houston area, and by that,
competition. I say that because I know ABC-Disney is here.
The issue in today's hearing has far-reaching consequences
on the shape of telecommunication policy in the future.
Broadband will allow for high-speed data traffic to flow to our
homes and businesses, ushering in a new level of e-commerce.
And while I was reviewing the witnesses' testimony last
evening, I noticed a fairly even difference of opinion on
whether this committee should reopen the 1996 Telecom Act to
more specifically address the issue of data. I understand that
it is a complicated issue with a tremendous amount of
disinformation hovering overhead, but I want to express the
same frustration, I think, that other members have. This is a
complicated issue and this subcommittee should begin holding
in-depth hearings to focus directly on the problem. The
continued hide and seek over the true nature and scope of the
past hearings does nothing to help us address the issue of
data.
H.R. 2420, the Internet Freedom and Broadband Deployment
Act, which I am one of those 200-plus cosponsors, seeks to
speed the delivery of broadband services throughout our
country. It is unfortunate there is disagreement among
differing sectors of the telecommunications community over who
should be allowed to offer broadband and under what
circumstances. I want to say very clearly that our first
priority should be for our constituents and our consumers. They
should be able to receive the best broadband service available
regardless of who provides it or in what form it is delivered.
Recently, I had meetings with two wireless broadband
providers that represented truly revolutionary technology. They
can provide consumers with Internet access many times faster
than either DSL or cable modem. While both technologies are
still in the early stages of production, the advantage they
offer cannot be overlooked. I do not want to stifle innovative
technology like this that would allow for wide and rapid
deployment of broadband.
The passage of the 1996 Act was a watershed event in
deregulating the telephone industry. Unfortunately, we did not
foresee and thus did not create clear guidelines with respect
to data traffic. This confusion has left many consumers waiting
to fully experience the benefits of broadband. We need to
address this issue, hopefully during this term of Congress.
The telecommunications world is rapidly changing and
consolidating to the point that RBOCs and CLECs are quickly
becoming irrelevant. The telecommunications industry has gone
global. By 2002, over 90 percent of all traffic flowing over
our telecommunications system will be data. Congress must
ensure that all this data can move seamlessly to every
community in America.
The Internet is here and growing rapidly. Mr. Chairman,
this is such an important issue for our constituents. I hope
that we can move the legislation that you and our ranking
member of the full committee have been so successful in
gathering cosponsors, and I yield back my time.
Mr. Tauzin. I thank the gentleman.
The gentleman from Florida, Mr. Stearns, is recognized.
Mr. Stearns. Thank you, Mr. Chairman, and let me commend
you for having this hearing. I think many of us have said, when
you have asked us to go on your bill, we said, Mr. Chairman, we
would rather have a hearing before we go on the bill to fully
understand the implications, and so I commend you for doing
that and I look forward to the testimony.
In listening to some of the opening statements,
particularly from Mr. Dingell, who I have great respect for, he
had the expression that some folks are not getting their fair
share. We also heard him say there are winners and losers and
we as a government should not pick them. I would say to the
audience and to my colleagues that by having the government
step in, we actually are setting up more regulation and we are
actually in some ways picking winners and losers. So I think
what I want to hear today, whether there is need for
regulation, particularly the Goodlatte-Boucher bill, as well as
Chairman Tauzin's bill.
Many of us are aware that there are companies like Covad
that are providing DSL very successfully and they have a large
amount of money invested. There are many, many companies who
have gone public. There are billions of dollars invested. If
the Tauzin bill passed the House floor, all that money would be
in jeopardy. So when you hear the expression, some folks are
not getting their fair share, you have got to be careful
because the implication is the U.S. Government should step in
so that they get their fair share, and that is not what we want
to do, which goes back to Mr. Dingell's earlier statement, we
must not pick winners and losers.
I think Chairman Bliley touched upon a point that we should
reflect on, is that there is a great deal of movement toward
broadband and that the market will take care of itself. Surely
the FCC, whether they are right or wrong, did not exist in the
computer industry and the computer industry has innovated and
developed much competition and so I think if the FCC did
nothing, I think we would see ultimately broadband coming out
there, not just through the land-based carriers but also
through companies dealing with satellite, direct TV.
In my hometown of Ocala, Central Florida, they are now
providing broadband through satellite. Time-Warner is providing
it through the Road Runner all throughout Central Florida and
it is also coming in in other wireless fashions, and, of
course, there are many companies like Covad that are out there
providing DSL.
So I think all of us should be very careful whether we want
to go back and rewrite the Telecom Act of 1996 and we should
let this percolate a little longer. So I urge my colleagues to
attend the hearing and to listen to most of the testimony. And
again, Mr. Chairman, I compliment you, and as I told you in the
beginning with your bill, I think that it is important that you
have this hearing. I would be glad to write letters and so
forth. I think the ultimate result of this hearing will
determine whether you should go to markup in the full committee
or not, so I look forward to the testimony. Thank you, Mr.
Chairman.
Mr. Tauzin. I thank the gentleman.
The Chair recognizes the gentleman from Minnesota, Mr.
Luther.
Mr. Luther. I have no statement.
Mr. Tauzin. Then the gentleman from Illinois, Mr. Rush.
Mr. Rush. Mr. Chairman, I also want to commend you for
having this hearing. This subcommittee has held a series of
hearings on the broadband deployment. Because of these
hearings, I personally have learned a great deal about the
innovative methods being used to deploy broadband and the way
it is being used by the average consumer.
Mr. Chairman, I would like to ask for unanimous consent to
insert into the record a report by Keegan Media Appraisers on
the state of broadband competition.
Mr. Tauzin. The gentleman makes a unanimous consent. Is
there any objection?
[No response.]
Mr. Tauzin. Without objection, the report will be admitted
into the record.
Mr. Rush. Thank you, Mr. Chairman.
[The report follows:]
[GRAPHIC] [TIFF OMITTED] T4764.001
[GRAPHIC] [TIFF OMITTED] T4764.002
[GRAPHIC] [TIFF OMITTED] T4764.003
[GRAPHIC] [TIFF OMITTED] T4764.004
[GRAPHIC] [TIFF OMITTED] T4764.005
[GRAPHIC] [TIFF OMITTED] T4764.006
[GRAPHIC] [TIFF OMITTED] T4764.007
[GRAPHIC] [TIFF OMITTED] T4764.008
[GRAPHIC] [TIFF OMITTED] T4764.009
[GRAPHIC] [TIFF OMITTED] T4764.010
[GRAPHIC] [TIFF OMITTED] T4764.011
[GRAPHIC] [TIFF OMITTED] T4764.012
[GRAPHIC] [TIFF OMITTED] T4764.013
[GRAPHIC] [TIFF OMITTED] T4764.014
[GRAPHIC] [TIFF OMITTED] T4764.015
[GRAPHIC] [TIFF OMITTED] T4764.016
[GRAPHIC] [TIFF OMITTED] T4764.017
[GRAPHIC] [TIFF OMITTED] T4764.018
[GRAPHIC] [TIFF OMITTED] T4764.019
[GRAPHIC] [TIFF OMITTED] T4764.020
[GRAPHIC] [TIFF OMITTED] T4764.021
[GRAPHIC] [TIFF OMITTED] T4764.022
[GRAPHIC] [TIFF OMITTED] T4764.023
[GRAPHIC] [TIFF OMITTED] T4764.024
[GRAPHIC] [TIFF OMITTED] T4764.025
[GRAPHIC] [TIFF OMITTED] T4764.026
[GRAPHIC] [TIFF OMITTED] T4764.027
Mr. Rush. Mr. Chairman, consumers are now more
sophisticated and are demanding better and faster Internet
access. Consumers want to be able to download images, music,
and stream videos at a faster pace. Hence, it is increasingly
important that enhanced Internet access and broadband
deployment be available to Internet users. Broadband is the
technology that fuels the continued growth of the Internet. It
is important that this technology be available to all Americans
and I look forward to today's hearings on the creative uses of
broadband technologies, especially as it relates to bridging
the digital divide. I want to thank you and I yield back the
balance of my time.
Mr. Tauzin. I thank my friend.
The Chair now recognizes the gentleman from Oklahoma, Mr.
Largent, for an opening statement.
Mr. Largent. Thank you, Mr. Chairman. We have heard a lot
about competition this morning already in the opening
testimonies of members of this committee and there is nobody
that believes in competition more than I do. I believe in
competition in broadband. We should have vigorous competition
in broadband. But I also believe in competition in local
exchanges. We should have vigorous competition in local
exchanges, as well. I hope all of my friends on this committee
will agree with that, that we need to see vigorous competition
occurring in the local exchange business as well as in the
broadband business that we are dealing with.
Mr. Chairman, I want to refer back to a word picture that
you drew of a train leaving Thibodaux and Lafayette in your
district and feeling as if Budrow [ph.] was being left behind
in the digital divide. I want to thank you also for having this
hearing because I think what this hearing is about is to find
out if that distant broadband train whistle that we hear in the
distance is actually of a departing train or an approaching
train, whether the market itself is actually moving toward
Lafayette and Thibodaux and where Budrow lives and----
Mr. Tauzin. Would my friend yield?
Mr. Largent. Absolutely.
Mr. Tauzin. I also want to make sure Budrow does not get
run over by that train.
Mr. Largent. Just keep him off the tracks.
But Mr. Chairman, I want to say that I really believe that
this subcommittee and the full committee sent a chilling
message when it comes to competition just this last month when
we rubber-stamped a bill to approve $1.25 billion in a
satellite bill to provide DBS satellite coverage for rural
communities. Again, I think it was an effort by this committee
where we got ahead of the market, and my fear is in the
legislation that we are discussing and as we hear testimony
today about, that again we may be ahead of the market, that the
market itself, perhaps, is headed to Thibodaux and headed to
Lafayette and headed to other communities that are left behind
in the so-called digital divide.
So I look forward to the testimony of the witnesses today
and feel that I, along with the rest of this committee, will be
enlightened as a result of the testimony. I yield back, Mr.
Chairman.
[The prepared statement of Hon. Steve Largent follows:]
PREPARED STATEMENT OF HON. STEVE LARGENT, A REPRESENTATIVE IN CONGRESS
FROM THE STATE OF OKLAHOMA
Mr. Chairman, thank you for holding this morning's oversight
hearing to examine the deployment of broadband technologies.
Four years ago I voted for the 1996 Telecommunications Act with the
hope and expectation that it would foster competition, spur on the
development of new technologies, give greater customer choice, and
lowering consumer prices. I think it is safe to say that every member
of this subcommittee, who was a Member of Congress at the time, voted
in favor of the '96 Telecommunications Act with that same expectation.
Has the '96 act delivered on that promise? I believe it has.
Four years ago, if you had asked the average American what is
broadband--you probably would have received a blank look. Today, the
term ``broadband'' has become commonplace in our every day lexicon.
Broadband is without question, a major driving force for our recent
economic growth.
The '96 act has allowed consumers to choose from a multiple of
technologies for broadband service. These technologies include: digital
subscriber line, cable modem, wireless, as well as satellite delivery.
One of the primary reasons we are holding this oversight hearing is
to determine if section 271 of the act has hindered the Bell operating
companies from delivering broadband services. Curiously, it appears
that some of the primary beneficiaries of the act. Despite what we may
hear from some of the witnesses today, are the Bell companies and GTE.
Here's what wall street is say about their 1st quarter earnings.
``Bell Atlantic 1st quarter revenues grew 7% ahead of our 6%
forecast, with data revenues growing 32%, ahead of the recent 25-26%
rate in the prior four quarters. (Donaldson, Lufkin & Jenrette, (4/26/
00)''
``For Bell South, data revenues contributed 12.5% of total
revenues, we expect data to continue contributing significantly to
revenue growth as Internet, ADSL, and wireless data become more
important sources of growth (Credit Suisse First Boston, 4/28/00).''
``Data continues to represent the primary growth driver for GTE,
representing over half of total growth. (Donaldson, Lufkin & Jenrette
(4/28/00).''
SBC reached over 200,000 subscribers this quarter up 75% from its
year-end levels and has now sold more than 300,000 lines. But even more
impressive were the indications that install rates continue to ramp
very quickly and the company is now installing at a rate of 3,000 per
day which it plans to take to 4,000 to 5,000 per day by midyear.
(Morgan Stanley Dean Witter 4/26/00).''
``Data results continue to be among the key drivers at the local
exchange carriers, and US West remains a leader (Legg Mason Wood Walker
(4/28/00).
I applaud them on their accomplishment.
Mr. Chairman, when it comes to looking at the possibility of
reopening the '96 act--I suggest that we remember the old line, ``if it
ain't broke, don't fix it.''
Full and fair competition, be it in financial services, trucking,
airlines, electricity, telecommunications, and yes even football is
embedded in the American spirit. That is why I was disappointed to read
in yesterday's New York Times of Time Warner Cable's anticompetitive
efforts in the Houston area to have its employees call SBC, order high-
speed internet service, cancel the order if it was confirmed and report
their results to an administrator in Time Warner's Houston office.
This type of corporate behavior is unacceptable.
Mr. Chairman, in closing, I believe the '96 Telecommunications Act
has been a resounding success to all market participants involved:
RBOCS, long distance carriers, CLECS, D-LECS, ISPS, satellite
companies, as well as the American consumer. And I look forward to
hearing from our witnesses.
Mr. Tauzin. And Budrow thanks you for your concern.
The Chair now recognizes the gentlelady from California,
Ms. Eshoo.
Ms. Eshoo. Thank you, Mr. Chairman, and good afternoon and
welcome to our distinguished panelists.
In ancient Greece, telecommunications consisted mainly of
Greek leaders giving speeches to crowds of citizens, and when
it came to great political leaders, I do not think there is
anyone that was greater than Pericles in terms of being a great
communicator. I think that we can learn something from one of
his famous speeches and the advice that he gave because I think
that it applies to what we are going to be discussing today.
Today is a worthy discussion, but he said then, and I think it
applies today, that ``Time is the wisest counselor of all.''
When we shaped the Telecommunications Act, we intended that
legislation to deregulate a communications industry which we
recognized was really choking off competition by its
monopolistic practices that were out there in the marketplace.
Since the law has passed, I think that we have witnessed a
telecommunications revolution that is occurring with
breathtaking speed. No sooner does one technology seem to offer
more speed and capability when along comes another to offer
data at a faster speed.
The Telecom Act has resulted in a larger menu of broadband
delivery options and it has increased competition and I think
that it has produced lower prices for the consumer. One of the
best examples of this is seen in the development of the
competitive local exchange carriers, or what we call CLECs.
These companies, and it has already been mentioned as a very
good example, Covad, are what I call the children of the
Telecommunications Act. They provide DSL-based access to the
Internet through local loops or their own high-speed fiber
networks.
What happened once these companies were permitted to offer
their services? The telephone companies that before had only
offered the more expensive T1 lines began to rapidly expand
their DSL service, the service they could have offered much
earlier. The result was increased broadband services at a
cheaper price, and I think that more successes are just around
the corner. In California, there is a company called Next Level
Communications offering VDSL that is faster than DSL and no
more expensive for the consumer.
So, Mr. Chairman, I hope Congress will follow the wisdom of
Pericles and let time be our advisor on this issue. I think
that we need to be a bit more patient. I think that we should
be refusing to be tempted to meddle in the marketplace while
this revolution in telecommunications is really happening all
around us. No clear or convincing evidence, in my view, has
been offered that consumers are suffering. I think it is quite
to the contrary. I think that consumers seem to be getting more
choices and lower prices.
And I think that the evidence points to something else,
namely, different segments of the industry competing to gain
economic advantage over the other. The forum for that contest,
I think, is in the marketplace, not in the legislature. In
fact, the one way I think that we could deliver some harm to
the consumer would be for Congress to try and insert itself in
this.
But I really am looking forward to the case that people are
going to make at the panel today. As I look across the room, I
think that at least the majority of the people that are here
have poured into my office, so they have yet another
opportunity to present their case, and I thank you, Mr.
Chairman, for continuing the discussion and debate. I think it
is a worthy one, but I think that you are going to have to
present a really convincing case to change my mind based on
what I say today.
So thank you, and I will look forward to hearing you, and
welcome to our former colleague, Susan Molinari. It is always
nice to see you, Susan.
Mr. Tauzin. I thank the gentlelady. I only would observe
that Pericles himself ran out of time. I do not think he is
with us anymore, but I thank the gentlelady.
Ms. Eshoo. It is the way life goes. It is the way God
designed it, Mr. Chairman. There is an end to all of us.
Mr. Tauzin. We are all on our way. The gentleman from
Mississippi, Mr. Pickering, is recognized.
Mr. Pickering. Thank you, Mr. Chairman. I want to commend
you and congratulate you for having this hearing, also for your
efforts of bringing this issue to the forefront. I believe with
your efforts, you have kept the pressure on both industry and
the FCC to move forward to a truly competitive policy.
I want to commend the ranking member, the gentleman from
Massachusetts, for the history that he laid out of the role
this committee has played in bringing us to a competitive
telecommunications policy. I agree with his analysis of what
has happened and how it brings us to the point and to the place
we are today. The only question remaining goes back to 1967 and
whether Al Gore was following the Internet or serving as the
model for ``Love Story'' at that time.
But it is a remarkable place where we find ourselves with
the explosion of the Internet and advanced services, and I
think the question that we have before us today is do we go
back to the past or do we go forward to the future? Do we
compete and converge or do we protect and segregate? The entire
intent and motive of the 1996 Telecommunications Act was to see
the full convergence, voice, video, data. My concern is that
with the proposals before us, that we are segregating again, as
we used to do in the old telecom policy, between local and long
and voice and cable and broadcasting and all those other things
that we want to have a separate policy for data when our intent
in the 1996 Act, and I think our intent today, is for full
convergence so that we do not go back to the past, that we do
go forward in the future.
It is an effort, though, that I think requires us to look
at all the options before us. I think we should continue to
pressure the FCC to move on 271s, to work with Texas and
Florida and Georgia to open the local market and to provide the
opportunities to bring new entrants into long distance. Yes, we
should pressure and continue that pressure as much as we can.
Do we need to find a tax relief like we are passing today
on repealing the Spanish-American tax so that it will free up
capital for investment, for deployment? Do we need to find
possibly other regulatory relief that will speed deployment to
rural areas like Mississippi? Yes. But do we need to reopen the
Telecommunications Act of 1996, the core elements? No, and I
hope that we can go forward with this hearing and others in
finding that right balance of continuing to go forward, of
competition and convergence, but not going back to the old
segregated policy of our telecommunications services. Find the
full convergence.
I am also concerned a little bit of some of the proposals
that would place new regulatory burdens on wireless companies
and wireless technologies and applications. To me, that is the
place where we can find the greatest future opportunity for
both competition but for deployment to rural areas and to
bridge the gap and the digital divide.
So I look forward to the panel today. I look forward to
working with the committee and with the chairman as we go
forward on these very critical issues.
Mr. Tauzin. Thank you, Mr. Pickering.
The Chair recognizes the gentleman from Ohio, Mr. Sawyer,
for an opening statement.
Mr. Sawyer. Thank you very much, Mr. Chairman. We move from
Pericles to Budrow. I am put in mind of the remarks that Vaclav
Havel, the Czech playwright and political leader, made before
this Congress now nearly a decade ago as he recalled the
swiftness of change as it occurred in the fall of 1989 in
Czechoslovakia when he reported to this Congress in his
appearance before a joint session that change had come so
suddenly that we did not have time even to be astonished.
We are in a similar condition today. The future of
broadband is full of uncertainty and change as competing
companies and industries along with lawmakers and regulators
try to anticipate technological advances, market conditions,
consumer preferences, and even cultural and societal trends. It
is clear that Congress should work to ensure that broadband
deployment is timely, that the industry competes fairly, and
that service is provided to all sectors and geographical
locations of American society.
With that, let me in closing just thank the chairman for
this hearing. I look forward to our witnesses today and to
observe that another Louisianan of a century and a half ago,
the first really modern chess player, Paul Murphy, once
observed that in chess, as is true in so many things in life,
that a threat posed is often more powerful than that same
threat played. Mr. Chairman, you have not lost the wisdom of
that insight. I yield back the balance of my time.
Mr. Tauzin. That is pretty good stuff there, Tom. I am
impressed. Thank you.
The gentleman from Maryland, Mr. Ehrlich.
Mr. Ehrlich. Real briefly, I want to welcome Susan back, as
well. I have a statement for the record, but just to put a
bottom line real quickly with respect to new members of this
committee, we are not here in 1996. We have had at least triple
the visits of the folks in this room. I appreciate the chairman
having now two hearings on this issue. The chairman himself has
talked to me about this on numerous occasions, sometimes on the
tennis court.
I just wanted to say, I do appreciate it, particularly for
the folks who were not here, we understand the history. We can
read. We appreciate the excellent lobbying on the issue. But
there are still facts that we would like to get to the bottom
of and that is what this hearing is all about today, so I will
yield back on that note, Mr. Chairman.
Mr. Tauzin. I thank my friend.
The gentleman from Tennessee, Mr. Gordon.
Mr. Gordon. Thank you. Let me just add my welcome to this
stellar and large panel. I think it is time that we hear from
you. Alumnus Susan, we are glad that you are back. I have two
Tennesseans, Roy Neel and Melvin Malone. We are glad to see you
today.
Let me just briefly state, because we do need to hear from
them, that this is a complicated and very important issue and
it is important that we have these hearings and I hope that we
will continue to have them. This is an issue that we are not
going to develop consensus on. This is an issue that we are
going to have to make some choices one way or the other and
that is the reason that we need to be informed and that is the
reason we need to have these hearings, and thank you.
Mr. Tauzin. I thank the gentleman.
The gentleman from New York, Mr. Fossella.
Mr. Fossella. Other than to say hello to my wonderful
predecessor, Susan, let us go.
Mr. Tauzin. I thank the gentleman.
Actually, before we get to Susan, we have another
colleague. The Chair welcomes the first panel, the Honorable
Bob Goodlatte from our sister committee, the Judiciary
Committee, who himself has authored legislation, I believe with
our friend Mr. Boucher, which has been referred to. Mr.
Goodlatte, you are welcome, sir, and please present your
testimony.
STATEMENT OF HON. BOB GOODLATTE, A REPRESENTATIVE IN CONGRESS
FROM THE STATE OF VIRGINIA
Mr. Goodlatte. Thank you very much, Mr. Chairman. I first
want to thank you for holding this hearing and allowing me to
participate and to also commend you for your leadership on this
issue. I want to extend that commendation to the other side of
the aisle, to the ranking member of the full committee, Mr.
Dingell, and to my good friend and colleague, Congressman
Boucher. All of us have been working in a common direction to
achieve the goal that you are providing so much leadership on.
I also want to commend the chairman of the full committee,
Congressman Bliley, and you and the many others who worked to
pass the Telecommunications Reform Act because it has
definitely been a major step in the direction of opening up
competition and new ideas and the advancement of new technology
in this country. I would say that in the 4 years since that
legislation was passed, there has been more change in the area
of telecommunications than in the 40 years prior to the passage
of that legislation.
But it is that very change that has taken place that brings
us back here today to address the need for further deregulation
of this industry and why I am such a strong advocate of taking
action on the Goodlatte-Boucher legislation that was mentioned
by my colleague and on the legislation that you have
introduced, which we certainly want to assist you in advancing.
That change is evident from what has taken place in the
telephone industry during that time. At that time, 90 percent
of the communications on telephones were voice and 10 percent
was data. Today, it is closer to 60 percent data and
significantly less than a majority voice. That change has taken
place because of that legislation opening up the telephone
lines to competition in the area of data.
America Online and 6,000 other Internet service providers
are competing on the Bell Telephone Company's lines, providing
services that the telephone companies also provide, and that
competition, I think, needs to be recognized and acknowledged
in encouraging the rollout of the next step, high-speed
broadband Internet service, by allowing the telephone companies
to compete in the market allowing for the long distance
transmission of data.
For those who are concerned about the fact that we want to
advance additional voice competition on the local telephone
lines, I certainly agree with their objective, but we provide
that continued incentive because there is still a nearly $100
billion market out there that the telephone companies will not
be allowed to enter into until they meet the requirements of
Section 271 of that legislation.
I am here because, unlike what many people think because of
my involvement in Internet issues, I do not represent Northern
Virginia. I represent a district very similar to yours. You
have a lot more water than I do. I have a lot more mountains
than you do. But basically, these are districts comprised of
smaller cities and rural areas, and the fact of the matter is
that according to studies that I have seen, these areas are
going to have very limited choice, if any, in the availability
of broadband Internet access and we need to take the necessary
further steps to deregulate the telephone industry and allow
them to get in and compete.
That is simply what this legislation is all about. That is
simply what we are about in this effort. Allowing them to get
into the long distance backbone market provides a greater
profitability and, therefore, a greater incentive for them to
build out their local DSL services. Now, it is true, they are
going to, and are right now, building out DSL services all
across the country. But the focus is going to be on the major
urban areas and the suburban rings around those areas and it is
going to leave out many smaller cities, many rural areas, and
many inner cities in those urban areas. This change in the law
will simply recognize the change in the marketplace and allow
us to move forward in that direction.
I was pleased to hear the gentleman from Michigan, the
ranking member, also give deference to the issue of open
access, another important competitive area that we need to
encourage the industry to pursue. And while that is not the
principal focus of the hearing today, it is something that is
very much related to assuring that everybody has the
opportunity to compete, the smallest mom-and-pop businesses
with the largest corporations in the world. Let us open it up
to competition. That is what the Telecommunications Act
started.
We are not against the progress made there. We are not
against the efforts of those who want to bring about greater
competition in the local exchanges. But that is something that
can continue to move forward at the same time that we continue
to further deregulate and open up competition in the country.
So I commend you for your leadership, Mr. Chairman, and
thank you for holding this hearing.
Mr. Tauzin. I thank the gentleman.
Mr. Goodlatte, let me ask you, are there any members who
would like to ask any questions of you? Mr. Markey?
Mr. Markey. Thank you so much for your leadership on this
issue. When you talk about the cable open access issue, is that
still part of your legislation, mandating that the cable
companies have to open up their systems to all ISPs in a
nondiscriminatory way?
Mr. Goodlatte. As we speak, Mr. Markey, it is still part of
the legislation. We have had ongoing discussions and review of
the fact that the marketplace has continued to change. We have
been heartened by statements made by a number of the cable
companies that they are moving in the direction of open access.
It started with AT&T, which did not define what they meant. It
then went to Time-Warner, which entered into a memorandum of
understanding with their new partner, America Online, which
became much more specific. And as that evolves and as there has
been an effort at the local level, the State level, the Federal
level, and through the courts to push open access, the voices
of those who say, well, let us see what industry does before we
mandate it is something that we are certainly listening to and
we may very well offer an amendment to the legislation as it
goes forward to have an additional breathing period to allow
that to take place, but nonetheless, to express the intent that
open access be the trend on the Internet and that if it does
not take place, then we will come back and look at it at an
appropriate time.
Mr. Markey. My sense is that, with the exception of AOL, of
course, which is partnered with Time-Warner and, as a result,
they do have full access, that the thousands of other ISPs do
not, and there is no evidence that they do and there is no
actual marketplace evidence that they are now being treated in
a nondiscriminatory fashion, which seems to me to really call
for legislation or regulatory policy changes.
Conversely, SBC and others have a backlog of requests for
DSL installation which they are trying to catch up with,
competing with the companies in that area. So in one area,
there actually is vigorous competition, with the telephone
companies trying to catch up, and in the other area, with the
exception of AOL, the biggest company, of course, the thousands
of other ISPs do not have nondiscriminatory access and it seems
to me that is an area where we should be acting.
So it just seems to me in terms of the policy prescription
here that the by far greater problem is in the area where the
greatest and most important revolution is taking place, which
is the software revolution, this ISP revolution, and that this
broadband deployment revolution is working because of the
paranoia that is being created and the fact that we do already
have a 2-wire world, a 3-wire world in many parts of the
country.
So I understand that you are saying that people are saying
they are going to do the right thing, but I do not see it, at
least in my district, in terms of allowing my ISPs to have
nondiscriminatory access.
Mr. Goodlatte. First of all, I thank you and share your
strong support for open access. Second, I would tell you that
Congressman Boucher and I both share your concern about how it
evolves and our approach, even if we do amend the bill, is one
of trust but verify and that we have a very short timeframe in
which to see that continued growth before we again call upon
the Congress to act.
On the other hand, we have got to have the necessary
momentum of support for that and I think that support is
building, as we see in individual actions at every level of
government all across the country, and I encourage those and
will continue to look for every avenue to push open access.
Mr. Markey. Again, I would say, to conclude, Mr. Chairman,
broadband deployment, hundreds of billions of dollars being
spent, backlogs with every telephone company in America trying
to keep up with demand, very high, in other words, deployment
rate. ISP access to cable systems, very low. So in terms of the
parts of this revolution that are being stifled, I think that,
without question, we should look to where the major problem is
and I wish that we could continue to move forward discussing
them as an integrated subject, not just broadband but also the
software revolution.
Mr. Goodlatte. Well, we certainly have attempted to do that
with our legislation. I thank you. I would also point out that
let us not also look at the need to have competition in all
sectors of this market, including building out the backbone of
the Internet, which is what is intended by this legislation.
Mr. Tauzin. I thank the gentleman.
The gentleman from Florida, Mr. Stearns.
Mr. Stearns. Mr. Chairman, I just wanted to tell you a few
comments. Mr. Goodlatte is perhaps one of the most
knowledgeable men out of the 535 Members of Congress. He has
worked hard, he and his staff. I think, as Mr. Sawyer mentioned
about the chess expert, Mr. Murphy, a threat posed is
oftentimes more effective than a play played. I mean, the fact
that he has even taken the initiative to put these bills
together has got all of us thinking about these and I think he
is to be commended for this. I have been on several trips with
him and his expertise is clearly demonstrated for all to see.
Bob, you had touched upon the similarities between perhaps
your bill and Mr. Tauzin. I do not know if you want to just
touch about the differences. I mean, cable was one area, but
are there any other differences between yours and Tauzin's? If
you would like to make the case today, it certainly is a good
opportunity to do so.
Mr. Goodlatte. Well, there are some modest differences in
the deregulatory approaches that we take, but I would say that
those are modest in comparison to the importance of the concept
of deregulating and taking a more competitive approach here.
The principal approach is that we also address the open
access issue in a broader sense. I know there is also deference
given by Mr. Tauzin to the importance of open access. He and I
have a somewhat different approach on how to do that, but we
are coming closer and closer together as we move forward. So I
am very supportive of his efforts in this regard.
Mr. Stearns. Thank you, Mr. Chairman.
Mr. Tauzin. The Chair recognizes himself briefly. Mr.
Goodlatte, the incumbent local telephone company is an open
platform, is it not?
Mr. Goodlatte. It certainly is.
Mr. Tauzin. If either one of our bills were to pass and the
incumbent local telephone company could cross those LATA lines
and offer broadband Internet services across the country, it
would remain an open platform, would it not?
Mr. Goodlatte. It would certainly do that.
Mr. Tauzin. Under current law. And that means that all ISPs
would have the opportunity of at least one platform as a
carrier of last resort, is that not right?
Mr. Goodlatte. It certainly would be.
Mr. Tauzin. So that if any one of the other platforms, be
they a cable platform or a wireless platform, refused an ISP
carriage, that ISP could always go to the local telephone
company under law and receive mandatory carriage, is that
correct?
Mr. Goodlatte. Well, that is true. I would make two points
about that. One is that the technologies are different between
cable and telephone systems and there is a great deal of
concern about whether the DSL service that would take place can
carry everything as effectively as a cable modem can carry.
Therefore, the need to have open access on all types of
platforms, I think, is important.
Mr. Tauzin. In fact, some DSL systems, because they are
dedicated lines, may be more capable than a cable system
without the proper number of nodes in terms of maintaining the
speed of delivery, is that right?
Mr. Goodlatte. That is correct. That is true.
Mr. Tauzin. So that there are differences in the technology
that delivers the ISP's programs between the two cables or
wires or whatever they are. But at least under the current
conditions of the law, whether or not a cable or any other
carrier which is basically deregulated has a right to either
carry or not carry today, whether that is changed or not, there
is under law today a requirement that the local telephone
company carry, and if we have, as a Congress, if we have, in my
opinion, the good sense to allow them to do so across America
in competition with these other systems that may refuse
carriage, at least the ISPs will always have a carrier of last
resort to turn to, is that not correct?
Mr. Goodlatte. Well, it is true, but it is also true that
there are those, even in the telephone industry, who would love
to have the same kind of circumstances that exist in the cable
industry and the legislation that Congressman Boucher and I
have introduced makes it clear that the open access requirement
should apply to any technology, whether it is telephone, cable,
wireless, satellite, whatever means you may get----
Mr. Tauzin. Yes, but whether a telephone company would like
to be relieved of that common carriage requirement today or
not, they are still bound by it. So the legislation that you
and I have offered would not relieve them of that obligation--
--
Mr. Goodlatte. It would not.
Mr. Tauzin. [continuing] to be a carrier of last resort,
would it not?
Mr. Goodlatte. It would not.
Mr. Tauzin. Thank you.
Mr. Goodlatte. And it is a very good objective.
Mr. Tauzin. I might also add, just as a point of reference
because we have had many conversations and we ought to put it
on record, that while you and I differ on the question of
mandating open carriage on the other systems, that we both
support the concept of open carriage to every extent possible
and I share with him my concern that as many systems as
possible remain open and they not refuse carriage to
competitive ISPs.
The Chair would yield to the gentleman from Virginia.
Mr. Boucher. Thank you very much, Mr. Chairman. I had not
intended to participate in the open access discussion, but some
of the things that have been said compel my entry at this
point.
I agree entirely with the chairman's statement that the
telephone platform is open, and whether our legislation passes
or not, will remain open. But it does not necessarily always
work effectively as a carrier of last resort because the
Internet service provider needs to be able to follow his
customer, and if his customer decides that the cable modem
platform is faster than the local DSL service or, for other
reasons, because of pricing, perhaps, more attractive than the
DSL service, that customer is going to migrate away from the
telephone company platform and become a cable modem customer,
and if the ISP is foreclosed by the practice of that cable
platform from following his customer, then that is a customer
he has lost.
So we believe that open access on cable platforms and, for
that matter, all of the Internet transport platforms, whether
they are telephone-based or wireless or satellite-based, should
follow this open access principle.
The second comment that I would make is that we are seeing
some real progress, I think, in the cable industry generally
acknowledging the appropriateness of open access policies.
Time-Warner, which has 20 percent of the Nation's cable
systems, has announced what I think is a very solid policy,
that Time-Warner has said that it will impose no limits on the
number of ISPs that can reach their customers over the Time-
Warner platform. It will have nondiscriminatory terms and
conditions among the ISPs that connect over that platform. It
will allow them to connect at the cable head end, which is a
very important commitment because that creates competition in
the carriage of traffic from the cable head into the Internet
backbone. That results in better pricing for the end user. And
they also are willing to allow the ISPs to have a direct
contractual relationship with their customer.
Now, these are four principles against which I would
suggest that we measure the strength of the commitment that
other cable systems make to open access. I think it is
noteworthy that something like 80 percent of the cable systems
in the country have now announced their intention to have open
access policies, but Time-Warner alone has been specific in
what open access means and these others have not been specific
in terms of the strength of their commitment, so----
Mr. Tauzin. Would the gentleman yield?
Mr. Boucher. I would be happy to yield, but before I do,
let me just say that I think in order to measure the strength
of that commitment that we need to retain the freedom to come
back to this issue at the appropriate time, and if they have
not taken the very firm stand in support of open access that
Time-Warner has taken, at that point consider passing
legislation that truly would make open access the national
policy.
I would be pleased to yield to the chairman.
Mr. Goodlatte. I believe, if I might respond briefly, I
believe that we are very much on the same page. I am sure the
chairman is about to say that, but I think that is exactly the
approach----
Mr. Tauzin. Indeed, if the gentleman would yield, let me
second the gentleman's comments and congratulate Time-Warner. I
am not going to rap their knuckles this morning. Let me say
that I agree with the gentleman from Virginia. Time-Warner's
policy is exactly what we would hope all the cable systems
adopt as a model policy for open access and open connection and
direct contact with the customer. The principles enunciated by
you are exactly right. I would hope other cable systems adopt
them and I think Time-Warner has laid down exactly the right
model for the others.
My only concern again, and we have shared this privately
and we have shared publicly, is that I would much prefer those
cable companies who have not yet adopted the Time-Warner model
to do it without government having to instruct them on terms of
entry and carriage and connection and all the things that we
currently regulate the telephone companies to do, because,
frankly, I think it is a first step in government management of
the Internet which we are trying to avoid.
But we both agree that Time-Warner has set down the right
model and if the other cable companies were to adopt it, I
think we would all go away very quickly from any interest in
legislating in the area. On the other hand, if open access is
not commonly available, this issue will be here again at some
point, and I thank the gentleman for his comments.
Mr. Boucher. Thank you, Mr. Chairman.
Mr. Goodlatte. We are all watching and the proof is in the
pudding.
Mr. Tauzin. Let me just ask if any other member wishes to
question? Then Mr. Markey for final comments.
Mr. Markey. I thank you, Mr. Chairman. In just 1 minute, I
want to say this. Back in 1996 when we were passing the
Telecommunications Act, the cable industry was saying high-
speed Internet modems. That was their mantra. The Bell
Companies' mantra was, the big enchilada is long distance, two
separate dreams. If we heard big enchilada once, we heard it a
thousand times, long distance.
So what we have now is the good news that Time-Warner is so
paranoid in Texas about SBC finally getting it after 2 or 3
years of going to the Supreme Court with different cases,
calling it a bill of attainder, which we did, although they
were in our office for 4 years asking us to pass the 1996
Telecommunications Act. They are finally moving.
So what we now have is a great situation where SBC is
moving because the marketplace is working finally, because they
have now changed their model from long distance over to data,
which the Bells did not get in 1996, I hate to say it. But they
finally have got it now.
I think, as a result, if we just step back a little bit
longer, this backlog of requests for DSL deployment in urban
and suburban America will quickly be succeeded by requests for
deployment in rural America, as well.
Mr. Goodlatte. If I might respond, I agree with that
observation except for the conclusion, and I think that the
competition that has brought us to that point calls for us to
not step back but to step forward and take this additional step
to allow the Bells to do what they now realize they need to do
and do it everywhere and allow them to compete in that portion
of the marketplace, the data portion, where they are already
receiving vast competition at the local level.
Every time somebody sends an e-mail on AOL or thousands of
other Internet services, they are effectively competing on that
local exchange or taking away what used to be a telephone call
and making it now an e-mail. That competition exists. Let us
award the telephone companies by allowing them into that
portion of the long distance market that relates to data.
Mr. Markey. If I may, the good news is that the telephone
companies are now deploying DSL. The good news is also that
they are opening up their local loop for local competition and
Bell Atlantic in New York is the first of them. So let us not
in the effort to ensure that the first, which is already a
success and moving quickly, is dealt with through legislation
which ultimately then destroys the advances which we have been
making in the opening up of the local loop to local telephone
companies.
Mr. Tauzin. The Chair thanks the gentleman, disagrees with
his conclusion, of course. I would only point out that the
illustration this morning of what happened in Texas was an
illustration of a cable company finding out where the telephone
company could not deploy, obviously to go into those areas
first, when the intent of the act was to create competition
where, in fact, they could both deploy. Something is basically
wrong when the competitors only go in the area where the other
guy cannot go, and that is what we are going to talk about
today.
I thank Mr. Goodlatte a great deal for your contributions
and the Chair will declare a recess until 1:15, a lunch break.
We will come back at 1:15.
[Brief recess.]
Mr. Tauzin. The hearing will please come back to order. Let
me thank you very much for your patience. Susan, you of all
people know how this works.
Ms. Molinari. I have been there.
Mr. Tauzin. We have been running back and forth to votes. I
want to thank you all for being here. We will take you in
order, except I understand that Mr. Malone has a meeting of the
Tennessee Regulatory Authority that we are going to have to try
to help him make this afternoon, so we are going to start with
our former colleague, the Honorable Susan Molinari, the Co-
Chair of iAdvance here in Washington, DC.
Susan, again, welcome. I know that you are not unfamiliar
with these halls and these meeting rooms, and I do not know how
it feels being on the other side yet, but I know that you come
with an awful lot of experience about how this process works.
You know that all your written statements are part of our
record and that we ask that you try to follow the 5-minute
rule. We have such a huge and austere panel today, we want to
make sure everyone gets their word in and that we give members
a chance when they arrive here to do some questions and answers
with you. So please summarize, hit the high points of your
message, and watch those little devices. They will try to warn
you when you are almost up at 5 minutes, and when it gets to
red, try to wrap up without my having to ask you to, if you can
help it.
We will begin with Ms. Molinari.
STATEMENTS OF SUSAN MOLINARI, CO-CHAIR, iADVANCE; MELVIN J.
MALONE, CHAIRMAN, TENNESSEE REGULATORY AUTHORITY, ON BEHALF OF
THE NATIONAL ASSOCIATION OF REGULATORY UTILITY COMMISSIONERS;
SCOTT C. CLELAND, MANAGING DIRECTOR, THE LEGG MASON PRECURSOR
GROUP; JOHN WINDHAUSEN, JR., PRESIDENT, ASSOCIATION FOR LOCAL
TELECOMMUNICATIONS SERVICES; DONALD VIAL, POLICY COMMITTEE
MEMBER, ALLIANCE FOR PUBLIC TECHNOLOGY; ROY NEEL, PRESIDENT AND
CHIEF EXECUTIVE OFFICER, UNITED STATES TELECOM ASSOCIATION;
DAVID N. KUNKEL, VICE CHAIRMAN AND EXECUTIVE VICE PRESIDENT,
PSINET, ON BEHALF OF THE COMMERCIAL INTERNET EXCHANGE
ASSOCIATION; SHELTON JEFFERSON, CHIEF EXECUTIVE OFFICER,
NETCOM; H. RUSSELL FRISBY, JR., PRESIDENT, COMPETITIVE
TELECOMMUNICATIONS ASSOCIATION; AND JERRY ELLIG, PROFESSOR OF
ECONOMICS, GEORGE MASON UNIVERSITY, ON BEHALF OF CITIZENS FOR A
SOUND ECONOMY FOUNDATION
Ms. Molinari. Thank you, Mr. Chairman. I also ask that, in
addition to my written statement, that we have two reports that
we have provided that will also be entered into the record.
Mr. Tauzin. Let me ask unanimous consent that any of you
who want to submit reports or addendum to your written
statements, they will be admitted into the record without
objection. So ordered.
Ms. Molinari. Thank you, Mr. Chairman, and thank you for
having me here this afternoon and thank you for the opportunity
to testify, the commitment you have displayed to broadband
deployment issues, and your hard work in securing more than 200
cosponsors for H.R. 2020. Thank you, Mr. Chairman, for your
unrelenting efforts in this critical area.
Alan Greenspan has spoken in the recent past of ``a deep-
seated and still developing shift in our economic landscape. It
is a transformation occasioned,'' he posits, ``by an unexpected
leap in technology.'' As is the case with most members of the
Central Bank, Greenspan understates, for the economic data
tells a remarkable story. Forresters estimates that there will
be $2.7 trillion in B2B e-commerce by 2004. Internet-related
applications will produce $1 trillion in savings for global
businesses by 2002, $300 billion in estimated Internet revenue
this year alone, and 1 million new jobs, phenomenal. Mr.
Chairman, the Internet is changing the lives and transforming
our world.
Unfortunately, as you all know, not every American is
marching in the parade of Internet prosperity. As the Carter
Commission suggested about race in the 1960's, we increasingly
are two technological Americas, separate and unequal. While
access to computers and the Internet has soared, we have seen
the troubling segregation of the information rich and the
information poor.
According to the National Telecommunications and
Information Association, urban dwellers are twice as likely to
have Internet access as individuals at the same income level in
rural areas. The implications of this disparity are profound.
The absence of band width, opines Nicholas Negroponte, can be
more isolating than the densest forest or the largest desert,
and so can it.
As we worry about our rural communities falling behind, we
also must take note about Europe and Asia leaping ahead.
Consider the following. In Europe, as the December issue of
Communication International states, the race is on to build the
fattest, fastest, and most efficient network. With fewer
regulations and a host of available technologies, the build-out
in Europe represents a significant challenge. And in Asia,
Goldman, Sachs contends that there will be 63 million Internet
users by 2003, a more than threefold increase from today.
According to Fortune, companies like Microsoft are placing
huge bets on Asia's broadband market, and they are not alone.
Asia is developing its own broadband providers, like Taiwan's
Giga Media, the first Asian company listed on the tech-heavy
Nasdaq exchange.
Mr. Chairman, our technological challenges are both foreign
and domestic and they are not imagined and they must be
addressed. So how do we get there? How do we ensure that the
small boy in South Central and the small business in South
Carolina can touch the high-speed Internet world? How do we
guarantee that the United States remains at the forefront of
the e-economy?
The members of iAdvance believe, for our part, that
Congress can start by allowing local telephone companies to
build and operate 21st century Internet facilities without
regard to lines on a 20th century map. The paramount barrier to
investment in new broadband technologies for rural areas, as
you know, are regulations that prohibit the RBOCs from owning
Internet backbone facilities. Without these so-called interLATA
data restrictions, more rural communities and inner city
communities could be served. Similarly, our domestic
telecommunications firms would have a heightened capacity to
contend against international competition.
In conclusion, Mr. Chairman, for the next 45 to 50 minutes,
you are going to hear arguments about why your efforts and
those of the 200-plus members who are cosponsors of H.R. 2420
are off the mark or why they miss the mark. You will be treated
to verbal competition among the competing economic interests
represented on this panel. I would guess that the phrase
``Section 271'' will be taken in vain by some and held up as
the route to Internet salvation by others.
You have two choices. On the one hand, you can let the
battles that mark the almost decade-long debate that ended with
the passage of the 1996 Telecom Act be heaped upon the
challenge this subcommittee is trying to address today. If you
do, you will be caught in the endless spiral of charges and
countercharges, arguments and counterarguments. The Act is
working. It is not working. New competitors are skimming the
cream. Companies are not cooperating. If you do, it will be
years before Congress does something that makes sense for
American consumers, American small business, and American
communities, and years can mean generations in Internet time.
But there is a second choice, a digital road less traveled,
if you will. You can say that the Internet is different, that
making sure that every American community, every American home,
and every American business has access to reliable, affordable,
high-speed connections to the Internet is too important to be
decided by yesterday's fights or yesterday's interpretations.
If you continue to fight the old battles, battles that started
in a world of analog signals, copper lines, and black rotary
phones, you will be stalemated.
Put the old fights aside. Let them play out, and in time,
they will. But the issues before the subcommittee need to be
addressed in Internet time, today. The 21st century is not
about analog signals, copper lines, and black rotary
telephones. It is about fiber optics, bits and bytes and
Internet appliances. We need more players, not fewer, in the
Internet backbone market. We need more, not fewer, companies
investing in high-speed Internet connections. We need more, not
fewer, high-speed on ramps to the information superhighway. We
can have more if we let companies that want to invest invest.
We can have more if we let companies that want to compete
compete.
Mr. Chairman, Congress is poised to open up trade with
China, yet we still have rules on the books that stop four
American companies from investing in the Internet backbone.
China Telecom may be able to invest in Internet backbone in
this country before Bell Atlantic, SBC, U.S. West, and Bell
South. What is wrong with that picture? It is time for this
subcommittee and this Congress to move in Internet time to get
us where we need to be.
Mr. Chairman, we again thank you for your leadership and we
look forward to working with you to make it possible for all
Americans, no matter where they live and work, to enjoy the
possibilities of the Internet age.
[The prepared statement of Susan Molinari follows:]
PREPARED STATEMENT OF SUSAN MOLINARI, CO-CHAIR, IADVANCE
Thank you, Mr.Chairman. On behalf of my co-Chair, Mike McCurry, and
the members of iAdvance, I appreciate the opportunity to testify before
the subcommittee today.
Mr. Chairman, a copy of my testimony along with two studies
released by iAdvance and other background materials has been submitted
to the subcommittee and I ask that that material be included in the
hearing record. Thank you.
Mr. Chairman, our economy is in the midst of the greatest economic
expansion in history. This boom has already created more than 1 million
jobs and over $300 billion in estimated Internet revenue. By 2002, the
Internet is expected to save global businesses over $1 trillion,
resulting in lower cost goods and services in all industries--from
health care to shoes.
The impact of information technology has been so dramatic that many
economists now believe that the US economy can sustain this growth for
years to come, if the Internet is allowed to grow. But this growth is
in jeopardy because of bandwidth constraints and a lack of access to
high-speed Internet backbone hubs.
iAdvance believes that the answer to this challenge is, in part,
lifting outdated regulatory restrictions that prohibit local telephone
companies from investing in broadband technologies. As we reported in
our first study, ``Breaking the Backbone,'' restrictions, which were
never designed to apply to the Internet, have slowed the growth and
diffusion of high-speed Internet backbone across the country.
iAdvance is a coalition of computer companies, public interest
groups, high-tech organizations, Internet companies, telecommunications
companies and other groups at the forefront of the new economy. We are
a diverse group, but we have a common vision. Our members believe that
investment, innovation and competition in the high-tech marketplace
will keep our country and our communities connected and competitive in
the rapidly expanding global economy.
Although it has been only four years since Congress passed the 1996
Telecommunications Act, the world has changed in ways that we could not
have envisioned. Technological convergence has blurred the distinction
between local and long distance telephone service. And wireless
services are, for many, a realistic alternative for residential phone
service; so much so that AT&T proclaims in its advertising that your
wireless telephone is the only one you need.
Of the top 50 global technology and telecom companies today, four
are wireless companies (NTT Mobile Communications, Vodafone Airtouch,
Nokia and Ericsson) and eight are traditional local or long distance
companies. Those four wireless companies have a market capitalization
of one trillion dollars while the other companies are only worth a
combined $670 billion.
The dramatic growth of the wireless industry is a result, in part,
of the soft touch of government regulation. The FCC manages the
spectrum, and sets broad requirements for technical standards and
interconnection. But it does not micromanage how industry achieves
these goals.
This stands in marked contrast to the high-speed Internet market.
Here we strictly regulate everything from which companies can invest in
Internet backbone to the prices charged for interconnection and
wholesale services. It is micro management at its worst.
As a consequence, although the data carrying business has grown
dramatically, it is still dominated by three major Tier 1 providers--
MCI Worldcom, Sprint, and Cable and Wireless. AT&T is a close fourth.
Although they control the market, or, perhaps, because they control the
market, these companies are not deploying Internet backbone to meet
growing demand, nor are they investing in Internet backbone facilities
in rural America.
The Internet is often described as a network of networks. In
reality it is a hierarchy of networks. The top tier providers offer the
best service to each other and their best customers. The service a
small business or residential customer receives depends almost entirely
on where their Internet Service Provider connects in the hierarchy of
networks. The further away from a Tier 1 provider you are, the poorer
and slower your service will be.
While fiber optic cable is being rolled out at a record pace it is
barely keeping up with overall bandwidth demand. ``In the next five
years we don't see any ability of service providers in the US to keep
up with the demand,'' according to Mouli Ramani, director of strategic
marketing at Nortel Networks.
High-speed service providers are increasingly choosing private
high-capacity networks to deliver their services to subscriber-based
audiences because of Internet limitations.
As yet, no broadband online entertainment companies have gone
public and many, such as Digital Entertainment Network, have shed staff
and re-focused their business models away from creating original
broadband content.
Yahoo and Lycos have scaled back content and service plans for
broadband users, citing the basic fact that for every broadband user
there are 50 with basic access.
In March, The Wall Street Journal reported that because traffic
wasoverwhelming the broadband networks of cable companies, the numbers
of houses served by a single cable 'node' were being reduced from
10,000, as originally projected, to 500 or fewer. Many cable companies
were being forced to monitor individual usage.
These developments are disturbing. At a time when the Internet is
just beginning to realize its great potential as an economic and social
tool, its growth is being stifled. Companies that might provide new
broadband solutions for e-commerce, telemedicine, online education, and
other applications for the future are holding back.
The shortage of Internet backbone and high-speed local facilities
persists, in part, because government restrictions impede investment in
new backbone facilities. Local phone companies are prohibited from
carrying the high-speed data traffic beyond the communities they serve.
The result is an Internet backbone that is too skeletal and backbone
networks that are controlled by too few companies. It is these same
companies that, not surprisingly, are the most vocal opponents of what
we at iAdvance are trying to achieve.
The Internet also knows no geographic boundaries. Internet traffic
has to travel from one end of town to the other and from one corner of
the world to another. And sometimes is has to travel from one end of
the country to another just to get across town.
Some of you may remember the old AT&T television commercials
designed to assure consumers that the AT&T network was reliable and
flexible. If you were calling from Philadelphia to New York on Mothers
Day and the lines were crowded, there was no need to worry. Your call
could be routed through Pittsburgh, or Chicago, or Denver. This is how
the Internet works every second of every day. Data packets do not
travel on a straight line between point A and point B. They travel on
the route that is, at that moment in time, the least congested.
Traffic on the Internet doubles every 100 days and the
infrastructure necessary to support that traffic is not keeping pace
with growth. Many consumers cannot access the fastest broadband
facilities, and the backbone networks that carry most net traffic are
clogged at overcrowded hubs. A shortage of these hubs--places where
users climb aboard the broadband network--can slow Internet traffic to
a snail's pace, like that on Washington's beltway at rush hour.
Backbone access problems are particularly acute for rural America.
A recent report issued by the Departments of Commerce and Agriculture
concludes that ``rural areas are currently lagging far behind urban
areas in broadband availability.'' An urban Internet Service Provider
offering broadband services to its customers will typically spend
between $3,000 and $5,000 a month on local loop circuits to connect to
an Internet hub. A rural ISP which desires to supply the same level of
bandwidth cannot buy the same connections. And those who can are
typically forced to cross a LATA boundary, which forces rural ISPs to
spend between $41,000 and $45,000 a month.
Numerous studies from the Department of Commerce, Milken Institute,
the Progressive Policy Institute, and iAdvance have concluded the same
thing: some areas of the country and certain segments of the population
are ill-positioned to take advantage and succeed in the Internet
economy. These problems of a lack of broadband access and transport
facilities are well documented. According to the Competitive Broadband
Coalition, more than 53 million Americans in urban areas will have
access to broadband technologies compared to less than one million in
rural America. This means that urban Americans are 18 times more likely
to be offered broadband services than rural Americans.
A recent posting on a news group that hosts a running discussion on
access to broadband services highlights this problem. Let me quote:
``Broadband is a myth. I live in an area where my normal
connection rate is 26 kilobytes per second using the best 56k
X2 V.90 modem available. There are no plans for the local cable
company to bring in cable modem access nor does the phone
company even consider offering ISP services. [Do] I live in an
isolated rural community ? Wrong . . . I live in the 4th
largest city in New Mexico. Broadband will bypass us and
content heavy Web sites will continue to be too slow to even
consider visiting. Any web developers who buy into the
broadband myth will find themselves excluding a large part of
the webizens and the market that could most use contact with
the outside world.''
That is from someone who lives in the 4th largest city in New
Mexico. The problem is even more acute in rural communities which are
touched by less than 10 percent of high-speed, redundant connections.
The major barrier to investment in new technology for rural areas
are regulations that prohibit the regional Bell companies--companies
that serve two-thirds of rural America--from owning Internet backbone
facilities. Without interLATA data restrictions many more rural
communities would be served. Moreover, the provision of local access is
also heavily regulated. Regulated pricing, corporate structure and
forced resale at regulated rates skew investment decisions. Without
such restrictions, the regional Bell companies would have a greater
incentive to invest in rural and local communities, their existing
customer base.
Lifting the interLATA data restriction and other regulations is an
important component of a strategy to bring affordable high-speed access
to all of Americas small cities and towns, farms and mountain hollows.
But it is not the only component. Wireless, satellite and microwave
technologies will also be important part of the strategy. We will also
rely upon those tools that were used to bring 20th Century
technologies--basic telephone service, electricity, and other
infrastructure--to rural communities. These include tools such as
cooperative arrangements and publicly supported investments.
But Congress can start to address this widening gap today by
allowing the regional Bell companies to build and operate 21st Century
Internet facilities without regard to lines drawn on a map in the 20th
Century.
While rural America falls further and further behind, the rest of
the world has realized the importance of broadband and is taking steps
to insure its development and deployment. There is growing evidence
that the international community is gaining on us in the development,
deployment and use of the broadband Internet for commerce, education,
health care, entertainment and other applications.
Across the globe, demand for broadband Internet services is growing
and foreign companies and governments are moving to meet it. While here
at home, we continue to foreclose the opportunity for new investment in
broadband Internet services.
COMSYS, a British consulting group, reports that demand for
broadband services in Europe and Asia will surpass the United States by
2010. The global broadband market will be worth $580 billion in 2010
and that households and small and medium sized businesses (SMEs), not
big corporate customers, will account for most of the market. By that
time, out of 100 million addressable SMEs in the world, only 14 percent
will be in the U.S.
As reported in the December 1999 issue of Communications
International, ``[t]he race is on to build the fattest, fastest and
most efficient broadband network in Europe.'' With fewer regulatory
restrictions and a wide variety of technologies available, Europe's
broadband build-out may leapfrog that of the U.S.
There are also many examples of broadband ventures that are already
underway across Asia. Hoping to create a regional Internet hub,
Singapore Telecom is investing $60 million in hosting centers
throughout Asia. Just last month, Telekom Malaysia Bhd launched the
country's first high bandwidth telecommunications exchange for Internet
service providers. This will complement the country's Multimedia Super
Corridor zone located outside the capital. In addition, Japan's NEC has
recently been awarded an $800 million contract to supply an undersea
cable system that will link Asia's major markets. With construction
already underway, analysts expect that growing Internet traffic in the
region will quickly fill the capacity on the network.
Goldman Sachs reports that by 2003 there will be 63 million
Internet users in Asia, up from about 20 million today, generating $32
billion in e-commerce activity mainly through broadband services.
According to Fortune, Microsoft has already recognized this opportunity
in Asia and is investing in Asia's broadband market. At the same time,
Asia is developing its own broadband content providers, exemplified by
Taiwan's GigaMedia; Asia's first Nasdaq listed broadband company.
These broadband developments stretch from Europe to Asia and areas
in between. By the end of this year, the Middle East will have its
first ADSL network up and running. From England to Singapore, companies
and governments are experimenting with new ideas and in the process
creating high paying jobs. In the May 2000 edition of Red Herring,
Howard Postley, director of digital media at PricewaterhouseCoopers,
said Singapore is a hot test bed for new data networks because it is
``keen on becoming a networked society.''
In an era when international geo-political boundaries are no longer
barriers to commerce and enterprise, lines drawn on a map of the US
almost twenty years ago continue to define where companies may and may
not build broadband networks. This hurts competition in this country,
leaving too many Americans disconnected as the rest of the world takes
leaps forward in broadband development.
If the domestic environment continues to foreclose opportunities
for investment in broadband here at home, we may lose jobs and the
technological edge that has made us the leading Internet nation in the
world and given us the longest sustained period of economic growth in
our history.
The Internet knows no borders or boundaries. The members of
iAdvance believe that we should be doing everything we can to
encourage, not discourage, investment in Internet backbone. We believe,
with NIT's Nicholas Negroponte that, ``the absence of bandwidth will be
more isolating than the densest forest or largest desert.''
The promise of a bandwidth rich society, one in which every home,
every school, and every small business has a high speed, high bandwidth
connection to the Internet is almost beyond our ability to imagine. The
toys and tools we use on the Internet today will seem archaic when the
Internet backbone is ubiquitous. The Internet will empower and enrich
our lives in ways that we can only guess at today. Not only will
commerce be redefined, but so to will learning, health care,
entertainment, and how we interact on a daily basis with our friends,
our family members and our community.
Some day we will look back with amazement at the policy issues we
are discussing today. We will wonder what the fuss was all about. We
want to get there, we want everyone to get there, sooner rather than
later.
In the new millenium, then, it is essential for Congress to act in
``Internet time'' to meet the challenges of broadband deployment. The
first order of business should be the removal of outdated regulations
that stifle investment and innovation in the Internet backbone.
Thank you.
Mr. Tauzin. Thank you, Ms. Molinari.
Our next witness will be Mr. Melvin Malone, Chairman of the
Tennessee Regulatory Authority in Nashville, Tennessee. Mr.
Malone?
STATEMENT OF MELVIN J. MALONE
Mr. Malone. Mr. Chairman, members of the committee, I
appreciate the privilege to appear before you today. I feel
compelled to be here today because I am committed to supporting
the provisions in the Telecommunications Act of 1996. I do so
willingly and enthusiastically because I sincerely believe that
contained within the text of this law, Congress created a
blueprint by which competition could flourish, bringing with it
the ubiquitous introduction of new technologies along with the
promise of reduced rates and better service quality to the
marketplace.
Congress showed tremendous leadership when it passed the
1996 Act, a landmark statute that challenged the existence of
monopoly interest in favor of consumer choice and innovation.
We must continue these efforts and not go back to where we were
before the Act passed. So far, it has brought unprecedented
prosperity and economic opportunity to all the States. Still,
many critics of the Act have argued that we in the States have
taken too long to bring competition and deregulation to local
markets.
However, unraveling the Act does nothing to hasten the
process of competition. Such action could not be more remote
from Congress' intent to ``promote competition and reduce
regulation in order to secure lower prices and higher quality
services for American telecommunications consumers and
encourage the rapid deployment of new telecommunications
technologies.''
As Tennessee has commented earlier in its letters to each
member of the Tennessee Congressional delegation, we are
convinced that, if enacted, H.R. 2420 and H.R. 1686 would
seriously undermine the key market opening requirements in the
Act and thwart the deployment of broadband services to all
regions. The Act's mandate to require the Bell Companies to
demonstrably open their local markets to competition prior to
receiving authority to provide data services authorized by H.R.
2420 and H.R. 1686 is the fundamental driving force behind the
explosion of broadband services across Tennessee. Revoking
through H.R. 2420 and H.R. 1686 the carefully crafted
safeguards woven into the Act jeopardizes efforts currently
underway in many States to close the existing gap between those
that have access to advanced services and those that do not.
Our experience in Tennessee has demonstrated to us that the
Act has been effective. These bills are unnecessary and would
further perpetuate monopoly markets. Current telecommunications
law does not prevent Bell Companies from providing broadband
services to customers if such broadband services do not cross
LATA boundaries. In fact, Bell Companies have already deployed
broadband technology in their home markets and are actively
marketing high-speed Internet access in many areas of Tennessee
using broadband facilities.
Particularly, in Tennessee today, a multitude of new
interests presented us with compelling business plans to help
us roll out advanced services in rural and underserved
communities. Allowing State commissions to fully implement the
Act is the best way to ensure that consumers will get access to
these services. H.R. 2420 and H.R. 1686 would directly
undermine this effort. RBOCs will be able to provide interLATA
services as soon as they have passed muster under Section 271.
In Tennessee, there are ten rural telephone companies
offering broadband Internet access throughout the State.
Additionally, there are 15 CLECs and at least six cable
companies providing broadband technology. Not to be left out
and certainly not surprisingly, Bell South is currently
offering DSL service in nine urban counties that account for 20
percent of its total Tennessee service area.
According to the FCC, the inaccessibility of Internet
access or access to the Internet backbone, however, is not
causing the Nation's digital divide. In February 1999, the FCC
concluded that Internet access was generally available
throughout the Nation in both urban and rural areas. In
Tennessee, every county, urban or rural, has access to at least
two Internet service providers via a toll-free call with 40
percent of the State having access to four or more ISPs via a
toll-free call.
Also delivering advanced service capabilities are a number
of new companies that are purely broadband carriers. These
companies have either been granted operating authority or have
applications that are pending before us. Some of the companies
that have come before us for regulatory approval to provide
advanced services are Covad, Rhythms, DSL Net, Network Access
Solutions, JATO, North point, New Edge, Bluestar, and the list
goes on.
Interestingly enough, and in perfect disharmony with the
view that non-urban areas will be left unserved absent relaxed
regulation for the Bells, these companies provide or plan to
provide broadband technology outside of Tennessee's major
metropolitan areas in cities like Cleveland, Jackson, Martin,
Paris, Sweetwater, Morristown, Johnson City, just to name a
few. This list of smaller and rural service areas goes on.
In conclusion, I urge you to abandon this approach toward
broadband deployment and instead support the continued growth
of innovation stemming from the pro-competitive measures in the
law that Congress worked so hard to pass in 1996. Competition
will eventually eliminate the need for regulation of broadband
services.
[The prepared statement of Melvin J. Malone follows:]
PREPARED STATEMENT OF MELVIN J. MALONE, CHAIRMAN, TENNESSEE REGULATORY
AUTHORITY
I feel compelled to be here today because I am committed to
supporting the provisions in the Telecommunications Act of 1996. I do
so willingly and enthusiastically because I sincerely believe that
contained within the text of this law, Congress created a blueprint by
which competition could flourish--bringing with it the ubiquitous
introduction of new technologies, along with the promise of reduced
rates and better service quality, to the marketplace.
Congress showed tremendous leadership when it passed the 1996 Act--
a landmark statute that challenged the existence of monopoly interests
in favor of consumer choice and innovation. We must continue these
efforts and not go back to where we were before the Act passed. So far,
it has brought unprecedented prosperity and economic opportunity to all
the states.
Still, many critics of the Act have argued that we in the states
have taken too long to bring competition and deregulation to local
markets. However, unraveling the Act does nothing to hasten the process
of competition. Such action could not be more remote from Congress'
intent ``[t]o promote competition and reduce regulation in order to
secure lower prices and higher quality services for American
telecommunications consumers and encourage the rapid deployment of new
telecommunications technologies.'' (Preamble, Telecommunications Act of
1996).
As Tennessee has commented earlier in its letters to each member of
the Tennessee Congressional delegation, we are convinced that if
enacted, H.R. 2420 and H.R. 1686 would seriously undermine the key
market opening requirements in the Act and thwart the deployment of
broadband services to all regions. The Act's mandate to require the
Bell companies to demonstrably open their local markets to competition
prior to receiving authority to provide the data services authorized by
H.R. 2420 and H.R. 1686, is the fundamental driving force behind the
explosion of broadband services across Tennessee.
Revoking, through H.R. 2420 and H.R. 1686, the carefully crafted
safeguards woven into the Act jeopardizes efforts currently underway in
many states to close the existing gap between those that have access to
advanced services and those that don't. Our experience in Tennessee has
demonstrated to us that the Act has been effective. These bills are
unnecessary and would further perpetuate monopoly markets. Current
telecommunications law does not prevent Bell companies from providing
broadband services to customers, if such broadband services do not
cross LATA boundaries. In fact, Bell companies have already deployed
broadband technology in their home markets and are actively marketing
high speed Internet access in many areas of Tennessee utilizing
broadband facilities.
In Tennessee today, a multitude of new entrants presented us with
compelling business plans to help us roll out advanced services in
rural and underserved communities. Allowing state commissions to fully
implement the 1996 Act is the best way to ensure that consumers will
get access to these new services. H.R. 2420/H.R. 1686 would directly
undermine this effort. RBOCs will be able to provide interLATA services
as soon as they have passed muster under section 271.
In Tennessee there are 10 rural telephone companies offering
broadband Internet access throughout the state. Additionally, there are
15 CLECs and at least 6 cable companies providing broadband technology.
Not to be left out, and certainly not surprisingly, BellSouth is
currently offering DSL service in 9 urban counties that account for 20%
of its total Tennessee service area. According to the FCC, the
inaccessibility of Internet access, or access to the Internet backbone,
however, is not causing the nation's digital divide. In February 1999,
the FCC concluded that Internet access was generally available
throughout the nation in both rural and urban areas. In Tennessee,
every county, urban or rural, has access to at least two Internet
service providers via a toll free call with 40% of the state having
access to 4 or more ISPs via a toll free call.
Also delivering advanced service capabilities are a number of new
companies that are purely broadband carriers. These companies have
either been granted operating authority or have applications that are
pending before us. Some of the companies that have come before us for
regulatory approval to provide advanced services are Covad, Rythyms,
DSL Net, Network Access Solutions, JATO, Northpoint, New Edge,
Bluestar, and the list goes on. Interestingly enough and in perfect
disharmony with the view that non-urban areas will be left unserved
absent relaxed regulation for the Bells, these companies provide or
plan to provide broadband technology outside of Tennessee's major
metropolitan areas in cities like Cleveland, Jackson, Martin, Paris,
Sweetwater, Morristown, and Johnson City just to name a few. The list
of smaller and rural areas goes on.
Clearly competition is emerging throughout our state. Moreover,
allowing the RBOC's interLATA relief for broadband services would not
address the central issues contributing to the digital divide as we
know it today. In my view, the problems contributing to the digital
divide are complex, embracing social, economic, and technology sectors.
The solutions to the digital divide can be found in the Act itself.
Before addressing broadband access, Americans must have access to
computers and affordable, quality telephone service. Competition is the
most effective tool to deliver these and other services.
I urge you to leave the Act as it is written and do not interfere
with the hard work of your state colleagues in their ongoing efforts to
implement the goals of the Act. I would like to state for the record
that it is Tennessee's belief that H.R. 2420/ H.R. 1686, if enacted,
will:
<bullet> Endanger crucial pro-consumer policies. H.R. 2420/H.R. 1686
put at risk the requirement that incumbent local telephone
companies share their lines with competitive data local
exchange carriers. This line sharing requirement is a landmark
decision that is absolutely critical to providing advanced
telecommunications services to all Americans at affordable
rates as required by Section 706 of the Act.
<bullet> Give monopoly carriers free rein to enter long distance data
markets without opening their markets to competitors. One of
the main inducements for the Bell companies to open their
markets to competitors is entry to interLATA markets. If
Congress weakens the long distance entry requirements of the
Act with this proposed exception for data communications
services, the Bell companies will largely lose that incentive
to open their local markets to competition.
<bullet> Pre-empt state commission authority to regulate not only high-
speed data services, but also potentially interexchange voice
telephone services carried over packet switched networks.
<bullet> Eliminate the Federal law that currently permits state utility
commissions to enhance competition for local telephone services
by requiring additional points of interconnection with the
incumbent local telephone company network.
<bullet> Drastically reduce incentives for Bell companies to meet their
obligations to open local markets. Data traffic already
comprises roughly half of all telecommunications traffic today.
For several years local telephone companies have possessed
digital subscriber line (DSL) technology. Only recently, and
primarily in response to competitive pressure, have local
telephone companies begun aggressively deploying DSL. Local
competition is the fastest and most effective way for consumers
to obtain broadband services at competitive prices. These bills
undermine that competition.
In conclusion, I urge you to abandon this misguided approach toward
broadband deployment and instead support the continued growth and
innovation stemming from the pro-competitive measures in the law that
Congress worked so hard to pass in 1996. Competition will eventually
eliminate the need for regulation of broadband services.
Mr. Tauzin. Thank you, Mr. Malone.
Mr. Cleland?
STATEMENT OF SCOTT C. CLELAND
Mr. Cleland. Mr. Chairman, thank you for the honor of
testifying. The views here are mine alone.
To begin, I would like to offer the subcommittee two
overarching conclusions. First, that broadband deployment and
the business market is robust and it is not a problem that
should concern this committee. However, the broadband
deployment in the residential or small business market is a
substantial problem and should be a concern of this
subcommittee. I call it the developing residential broadband
gap.
The problem is simple economics. Capital efficiency is what
ultimately drives infrastructure investment. Residences and
small businesses are geographically dispersed and generate
relatively low revenues, making deployment very capital
inefficient and the deployment outlook cloudy. Then next, I
would like to offer three reasons why I think this subcommittee
should care about this issue.
First, the residential broadband infrastructure, another
way to call it consumer band width, it could very well emerge
as the Achilles heel of the new economy, of a video-enabled
Internet, and consumer e-commerce growth. Now, with all the
attention we have right now on trying to clear taxes and
regulation out from the front of the Internet train and keeping
the train fare cheap and free of access charges, many are
missing the obvious, that the Internet train is hurtling
forward on Internet time and it may abruptly run out of
Internet track, consumer band width.
If consumers do not have enough band width, it does not
matter how much video content supply is out there. It does not
matter how much video content is demanded. It will not reach
consumers. That is the disconnect that is the residential
broadband problem.
Finally, I am going to very briefly try and run through
what I see as the ten reasons that this gap exists. It is real.
It is not going away.
No. 1, supply and demand. We can look in isolation at the
deployment that has gone so far. In absolute terms, it is very
impressive. In relative terms to what is needed to keep up with
the video-oriented dot-coms out there and to keep up with the
potential for video streaming, it is not even close to what
demand is. For example, narrow band ISP sign-ups outpace
broadband 8 to 1.
Second, in infrastructure incentive problems. The way the
FCC chose to implement the Telecom Act, they created something
called the unbundled element platform. It created a deeper
discount than what the law had originally intended, and that
was to spur resale competition. The unintended consequence of
that is it massively devalues all infrastructure investment,
whether it is incumbents or competitors, whether it is fiber,
whether it is cable, whether it is fixed wireless. If you can
lease it cheaper than you can build it, why build it in the
first place? They pegged a price too low to stimulate
competition. Actually, it will encumber competition.
Third, revenue efficiency is a problem in the gap. Now, we
know that broadband is 20 to 100 times faster. It requires 20
to 100 times more spectrum than does narrowband voice or data.
Do you think consumers are going to spend 20 to 100 times more
for that product than the others? No. So the economics are a
problem there.
Fourth, depreciation. This is an investment community that
I write for that are concerned. Very ominously, infrastructure
replacement cycles for many fiber and for many wireless
technologies are outpacing their depreciation cycles. In very
simple terms, what that means is investors are not likely to
recoup their initial investment, let alone earn a return on
their investment.
Fifth, the competition residential broadband gap. Our
projects at The Precursor Group are that in the next 3 to 4
years, we project that about 20 percent of the country may have
a choice of 3 to 4 different broadband facilities. About 30
percent of the country may have the choice of two broadband
facilities. And half of the country is either going to have one
or no choice, and we think that is an optimistic projection
given the economics and the way these are being rolled out.
I flag for people, at the end of my testimony, we have a
one-page summary of essentially where the deployment is in the
residential market by technology. It is a very useful kind of
summary.
Sixth, competitive churn. Chairman Tauzin was talking about
this before. One point I would like to make is, there is
negligible after-market churn between DSL and cable. Once
somebody signs up to them, they do not switch. It is too big of
a hassle. It takes too much time. So once DSL or once cable has
them, they have got them. They are locked in.
Seventh, consumer choice, another issue that was talked
about here. There is a big gap between the open choice of ISP
on the telco and fixed wireless platform versus the closed
cable platform. That is a gap.
Eighth, there is a technology gap. There is a wide gap in
the viability of business models. In the investment community,
you try and assess the relative viability of business models,
and cable and DSL have existing plant into most American homes
so they are going to have a massive advantage over anybody that
is starting from scratch. And so when we look at the mass
market, you are going to see a duopoly. You are going to see
cable and you are going to see DSL. To think that the other
technologies are going to come, like the calvary, over the hill
and rescue, it is just not realistic. The cost is billions. It
is not going to happen.
Ninth, the gap is in home computers. Home computers, the
home-installed base of personal computers, is not plug-and-
play. It is not like dial-up where you can just do it easily
for narrowband. There are no standards and there is very little
interoperability.
Then last, my point is there is a big gap on home wiring,
inside wiring. That is a veritable hornet's nest, and
broadband, once it starts trying to link into multiple services
in the home, is going to be very, very problematic.
So to sum it up, my main conclusion is while the business
market is fine, the residential market has some very serious
problems and residential broadband, the reality is not going to
meet expectations. Thank you for the opportunity to testify.
[The prepared statement of Scott C. Cleland follows:]
PREPARED STATEMENT OF SCOTT C. CLELAND, MANAGING DIRECTOR, THE LEGG
MASON PRECURSOR GROUP'
Mr. Chairman, thank you for the honor of testifying before your
Subcommittee on ``Deployment of Broadband Technologies.'' I am Scott
Cleland, Managing Director of the Legg Mason Precursor
Group<SUP>'</SUP>. The views expressed herein are mine alone. I request
that my full written testimony be printed in its entirety in the
hearing record.
By way of introduction, I am not a traditional Wall Street sell-
side analyst who analyzes companies or recommends stocks. For Legg
Mason, I run an investment research group that tracks regulatory,
technological, and competitive developments in the communications,
technology, and e-commerce sectors for large institutional investors.
In that context, I offer the following insights and observations in
hopes that they will be useful to the Subcommittee.
I. INTRODUCTION--BUSINESS MARKET NOT A PROBLEM, RESIDENTIAL MARKET IS
Almost any way one slices it, there is a stark contrast between the
broadband deployment outlook for the large or urban business market
versus the residential or small business market--in other words, there
is a ``developing residential broadband gap.''
While the outlook for the large and urban business market is
bright, the outlook for the residential and small business market is
not. The core reason is economics, because ultimately, capital
efficiency drives infrastructure deployment. Put another way, how much
revenue can be generated by a given capital investment?
In the urban business market, where the customers are densely
located and also generate relatively high revenues per customer,
broadband deployment is more capital-efficient and likely will
flourish. That market does not suffer a broadband deployment problem,
so my discussion of that market will end here.
However, in the residential and small business market, where
customers are geographically dispersed and generate relatively low
revenues, broadband deployment is much less capital-efficient,
consequently, it is tough to see how it will flourish. The rest of my
testimony, then, will focus exclusively on the residential and small
business market in which a broadband gap is developing.
II. WHY A RESIDENTIAL BROADBAND GAP MATTERS
It is increasingly apparent that the residential broadband
infrastructure--consumer bandwidth--could emerge as the ``Achilles'
heel'' of a video-enabled Internet, consumer e-commerce growth, and the
New Economy. With all attention focused on clearing taxes and
regulation from the front of the Internet ``train,'' and keeping the
``train fare'' cheap, many are missing the obvious--that the Internet
``train'' hurtling forward on ``Internet time'' may abruptly run out of
Internet ``track'' (i.e., consumer bandwidth). If consumers don't have
sufficient bandwidth, it doesn't matter how much video content supply
there is, or how much consumer video content demand there is--it is not
going to get delivered as consumers expect.
III. THE TEN DEVELOPING RESIDENTIAL BROADBAND GAPS
A. The Gap in Economics
1. The Broadband Supply & Demand Gap: While actual residential
broadband deployment is making significant headway in absolute terms,
when viewed in relative terms as a critical link in the growth of the
business-to-consumer e-commerce system, it lags substantially behind
demand.
Residential broadband deployment is not keeping up with the
explosion of video-oriented ``dot-coms'' and video streamers, which
will depend increasingly on the availability of dramatically more
consumer bandwidth. (Video transmission can require upwards of 100-200
times more bandwidth or spectrum than narrowband voice or data.)
The eight million new narrowband dial-up customers added in the
last six months of 1999 dwarf the roughly one million residential
broadband customers added in the same period!
Many of the following facets of the developing ``gap'' strongly
suggest that the supply of residential bandwidth is not going to keep
up with the voracious bandwidth demands of burgeoning video-dependent
applications.
2. The Broadband Incentive Gap: We believe the FCC's implementation
of the 1996 Telecom Act's unbundled resale provision has the unintended
consequence of being a major discouragement of broadband facilities
deployment.
Believing that the Act's wholesale (avoided cost) resale
methodology would generate an insufficient discount to spur local
competition, the FCC reengineered the unbundled element resale
methodology to effectively bypass the wholesale provision with a deeper
discount.
By applying forward-looking pricing methodology (TELRIC) to the
entire service by inventing an unbundled element platform (UNE-P), the
FCC effectively bypassed the Telecom Act's intended 10%-20% effective
wholesale discount with a manufactured 50% effective wholesale
discount. This was the FCC's plan to accelerate resale competition.
However, the unintended consequence of the FCC's strategy has been
to effectively devalue all infrastructure investment by everyone,
incumbents and competitors alike, whether it is fiber, cable, or fixed
wireless.
TELRIC pricing is an imaginary price created by regulatory
economists. In this case, TELRIC assumes in advance a resale price
based on what a hypothetical network using state-of-the-art technology
would cost in a competitive market--before competition ever arrives.
By leap-frogging the actual stage of competition, and assuming a
competitive price, the FCC has undercut the incentive to compete with
an overbuild. Why overbuild if one can lease it more cheaply than one
can build it? We strongly suspect that the success of the UNE-P resale
will adversely affect the incentive for facility-based competition.
3. The Broadband Revenue Efficiency Gap: Few have contemplated the
implications of how revenue-inefficient broadband may turn out to be.
To begin with, bandwidth or available spectrum, whether it is wireline
or wireless, is clearly a scarce resource in the last mile.
How does one maximize revenues with a scarce resource? By managing
the scarce resource efficiently.
However, broadband physically consumes 20-100 times the scarce
spectrum or bandwidth that narrowband voice or data currently consumes.
Are consumers going to pay 20-100 times more for broadband than
narrowband? No way.
Since broadband business models use bandwidth so inefficiently,
there had better be additional revenue streams to compensate for this
core inefficiency.
4. The Broadband Depreciation Gap: Few appreciate that
infrastructure replacement cycles for many fiber and wireless
deployments are quietly and ominously outpacing their depreciation
cycles.
What this means is that the pace of the market in ``Internet time''
is so rapid that many infrastructure investors are not getting enough
time as they had planned to recoup their initial investment, let alone
to earn the expected full return on much of it.
For fiber, much of the early-stage fiber that was laid by the
original telecom facility competitors in the 1990s for a narrowband
world has proven significantly out of date only a few years later. Few
realize that many of the new digs of the nation's streets are not new
competitors, but the original competitors redigging the same trenches
because they did not anticipate current broadband demand.
For wireless, the explosive growth of wireless demand may be making
original wireless infrastructure investment obsolete sooner than
depreciation rates originally anticipated.
B. The Gap in Competition
5. The Broadband Competition Gap: We have seen this residential
``competition gap'' before. Competition in the residential broadband
market is developing like facility telephone competition has. Most
competitors build out to serve the same high-end customers, which meet
two criteria: high average customer revenue and geographic density.
Despite industry pledges to offer broadband universally, it probably
won't happen because it will be uneconomic for anyone to compete
against a ``first-mover'' in possibly one-half of the country. In the
next three-to-four years, we project that up to 20% of the country may
have a choice of three-to-four different broadband facilities, roughly
30% of the country may have the choice of two facilities, and one-half
of the country may have only one or no broadband facility choice. We
believe this projection is optimistic, given experience to date.
6. The Broadband Competitive ``Churn'' Gap: So far, residential
broadband competition has effectively been a cable/telco duopoly
contesting for initial sign-ups. There is negligible aftermarket
competition or ``churn'' between broadband facilities because of the
high cost and time hassle of switching. One analyst quipped that
broadband churn is less than moving or death rates!
This means there is a substantial gap between the vertical market
competitiveness of broadband and narrowband. There are substantially
greater barriers to switching among broadband platforms compared with
the modest impediments to switching ISPs on the narrowband platform.
7. The Broadband Consumer Choice Gap: There is a stark gap between
the consumer choices available on the open telco/fixed wireless
broadband platform versus the closed cable broadband platform.
Roughly 20% of the broadband access market currently uses DSL. The
narrowband ISP market has developed under an open network with
interconnection and interoperability obligations in addition to
procompetitive, nondiscrimination policies. Consumers can choose their
ISP freely.
Roughly 80% of the broadband access market currently uses cable.
The cable broadband ISP market is developing under a closed network
with no interconnection or interoperability obligations and no
requirement not to discriminate. Consumers cannot choose their ISP
freely if they want cable broadband.
C. The Gap in Technology:
8. The Broadband Technology Gap: There is also a wide gap in the
business model viability of the different broadband technologies.
Cable: We expect cable to remain the primary residential broadband
facility for the foreseeable future. Cable already has a national
broadband infrastructure into the home, where consumers most need high
bandwidth. It is relatively much cheaper and faster to add to cable a
narrowband return path out of the home to make it two-way for data than
it is to add bandwidth to the existing two-way telco plant or to
construct a new broadband plant.
DSL: We expect DSL to remain the secondary broadband infrastructure
for the foreseeable future. DSL rollout has been largely defensive to
date, chasing cable into markets in which cable already enjoys ``first-
mover'' advantage. And the telcos' pricing to date has been relatively
expensive, a duopoly, not a market-leader approach.
Overbuilds: RCN, the only significant overbuilder, has been very
clear about its ``cream-skimming'' model--targeting only the densest,
high-end markets. That's because it is not viable economically to build
elsewhere.
Fixed Wireless: Since fixed wireless deployment has been
underwhelming to date in the much more lucrative business market, it is
highly questionable if it will be a competitive force in the
foreseeable future in a much less economically viable residential
market. Moreover, the scale players (AT&T, WorldCom, Sprint) all plan
to use fixed wireless as a ``fill-in'' offering in locations where they
have neither cable nor DSL to offer.
Satellite: The technical and business model challenges of deploying
two-way broadband satellite profitably remain substantially more
difficult at all levels than the challenges that doomed the ill-fated
Iridium narrowband business model.
9. The Broadband Personal Computer Gap: The currently installed
base of American home computers is nowhere near broadband ``plug and
play,'' as the current narrowband dial-up market is. If a home personal
computer is more than two years old or does not have Windows 98, it
does not have the internal software drivers capable of handling
broadband modems simply. Broadband ``plug and play'' is still a few
years away for the mass-market.
10. The Broadband ``Inside Wiring'' Gap: Once one gets into the
home, home networking is a veritable hornet's nest of issues. There are
no home broadband standards, and there are major interoperability
disconnects between broadband technologies. Broadband home networking
is a completely different level of complexity beyond narrowband home
networking. Moreover, while cable has the technological advantage over
DSL now in bandwidth and modem deployment, DSL will have the
technological advantage over cable in home networking. It is a much
simpler set of problems for the telcos to resolve than for the cable
companies. Home networking could turn out to be a hodgepodge mess for
the foreseeable future.
In conclusion, all is not well in the residential broadband market.
There are substantial economic, competitive, and technological
impediments, which appear to be creating an increasing gap between
residential broadband deployment expectations and reality.
Mr. Chairman, thank you again for the honor of testifying before
your Subcommittee on this important subject.
Attached is a copy of our February 8, 2000, research piece, ``The
Developing Residential Broadband Gap.'' It includes a one-page overview
of the deployment status and eventual availability of the main
residential broadband technologies.
[GRAPHIC] [TIFF OMITTED] T4764.028
[GRAPHIC] [TIFF OMITTED] T4764.029
Mr. Tauzin. Thank you very much, Mr. Cleland.
Now we welcome Mr. John Windhausen, President of the
Association for Local Telecommunications Services here in
Washington, DC. You are on, John.
STATEMENT OF JOHN WINDHAUSEN, JR.
Mr. Windhausen. Thank you, Mr. Chairman. As you said, I am
John Windhausen, President of the Association for Local
Telecommunications Services, also known as ALTS. ALTS is the
leading trade association representing the facilities-based
competitors to the local telephone companies. We represent the
hundreds of companies that are entering the local telecom
marketplace and we are building new networks. We are not the
long distance companies. AT&T, MCI, and Sprint are not members
of ALTS. Neither are the Bell Companies and GTE. We truly are
the innovators, the entrepreneurs that Congress sought to
foster when it passed the 1996 Telecommunications Act.
ALTS represents in particular Covad, Northpoint, and
Rhythms Net Connections, perhaps the three leading providers of
broadband DSL services in this country. Those three companies
alone already are able to provide service to over 50 percent of
American homes today, and that is just 3 years since this
technology first started to be introduced. Already, 50 percent
of American homes can get access to the service of these
competitors.
But it is not just those three companies that are in this
marketplace. New companies are entering this marketplace every
single day. Bluestar, Trivergent, DSL Net, New Edge Networks,
Digital Broadband Communications, these are all companies that
have just started in the last year or two and they have plans
to deploy service not in the large cities but in the smaller
towns and cities across this country. In fact, one of those
companies alone has plans to deploy service in over 500 markets
around the country, some of those markets with less than 10,000
people in population.
So this whole entire industry is burgeoning and what I
would like to do is bring your attention to a couple of charts
that we have brought here at the end of the table just to give
you a picture of what is happening across the industry.
As the charts demonstrate, this first chart demonstrates
the growth in the amount of money that our sector of the
industry is investing. Again, we are building new networks
because we are deploying our own facilities, broadband
facilities. Over $30 billion has been raised by our sector of
the industry. Over $1 billion every single month is being
invested by our companies in building new technologies.
Now, just to give you a comparison, I have heard that the
cable industry is very proud of the fact that they have spent
$30 billion, as well, in deploying new technologies, and that
is wonderful, as well, but keep in mind the cable industry has
perhaps five times the revenues that our small entrepreneurial
CLECs generate today.
In addition--go to the next chart, please--we are investing
much more of our capital into our networks than the Bell
Companies are. What this chart shows is that we are spending
over 50 percent--almost 60 percent of our revenues go right
back into our networks, as opposed to only about 25 percent of
the revenue earned by the Bell Companies. So we are deploying
our technologies as fast as we can.
In particular, with DSL--the next chart, please--this will
give you an indication of where we are in comparison to the
Bell Companies. As you can see, the leading provider of DSL
services today is SBC Communications. Next, U.S. West. Third is
Covad, a company that was founded just 3\1/2\ years ago.
This chart shows a couple of things. First, that it is the
competitive carriers, such as Covad, Rhythms, and North Point,
that are driving this deployment and the Bell Companies, the
ones that are really concerned about doing it, they are doing
it, as well, in response to the competition. SBC and U.S. West,
they do not need changes in the laws to deploy DSL. They are
doing so already today.
Now, that is the good news. The bad news is that we could
be doing so much more if only we could really open up that
local telephone network to competition as Congress required and
demanded in the 1996 Telecommunications Act. Competitors
continue to face over and over again problems with obtaining
collocation in the central offices. We continue to have very
severe problems getting loops provided to us as is required
under the Act. Our experience is that it takes between 7 and 60
days to get service provided to us when really it should take
the same amount of time as switching your long distance
service. It should only take 3 to 5 days to switch your local
company, but instead, it often takes over a month.
The polite term to describe what the Bell Companies do is
that they engage in strategic incompetence. They simply do not
devote the resources to deploying services and satisfying our
requests for interconnection. But we also have many examples of
fines and penalties that have been imposed on the Bell
Companies because they simply do not perform. In the words of
one of our other executives, the Bell Companies treat
competitors just like they treat their customers, poorly.
Now, one last point. Line sharing is a very, very critical
key to the deployment of broadband services to residential
consumers. Scott just referred to the difficulties in deploying
broadband services in residential areas. Well, I must point out
to this committee that line sharing is perhaps the critical
step that will allow broadband services to be deployed to
residential consumers in an economic manner. However, H.R. 2420
would take away line sharing. It would remove that possibility
and, in fact, would have the direct opposite effect of what
this committee wants to achieve. As Mr. Dingell referenced
earlier, if 90 percent of residential consumers are served by
cable today, that substantial market share is only likely to be
preserved by passing the bill H.R. 2420.
We need to stay the course. If I could summarize in my last
statement, what we need most of all is enforcement of that 1996
Telecommunications Act, not changes to it. The best way to
promote deployment of broadband services is to get that local
market opened up as Congress required in 1996. Thank you.
[The prepared statement of John Windhausen, Jr. follows:]
[GRAPHIC] [TIFF OMITTED] T4764.030
[GRAPHIC] [TIFF OMITTED] T4764.031
[GRAPHIC] [TIFF OMITTED] T4764.032
[GRAPHIC] [TIFF OMITTED] T4764.033
[GRAPHIC] [TIFF OMITTED] T4764.034
[GRAPHIC] [TIFF OMITTED] T4764.035
[GRAPHIC] [TIFF OMITTED] T4764.036
[GRAPHIC] [TIFF OMITTED] T4764.037
[GRAPHIC] [TIFF OMITTED] T4764.038
[GRAPHIC] [TIFF OMITTED] T4764.039
Mr. Tauzin. Thank you very much, sir.
Next will be Mr. Don Vial, Policy Committee Member of the
Alliance for Public Technology here in Washington, DC.
STATEMENT OF DONALD VIAL
Mr. Vial. Thank you for the opportunity to be here and to
represent the Alliance for Public Technology. As you know, we
are an organization that believes strongly in the life-
enhancing, empowering characteristics of the new technology and
our mission has been to do everything possible to provide the
incentives to bring this technology to the communities that are
marginalized by the operation of the marketplace and who are
last to receive the benefits of this technology. My testimony
also, I guess, is colored by the fact that I am a former
regulator, having been a commissioner in California and its
president during the 1980's when we unleashed the creativity
and innovative capacity of market forces.
I think what we have all learned and what we all know is
the regulatory process has had a very difficult time keeping in
step with the market-driven technology advancements of the
digital age. In fact, if you want to be realistic about it, the
regulatory regimes are no match for the creativity and
innovative capacity of the marketplace.
I say this because I think all of us who have been involved
in the regulatory process have learned that technology is
making mincemeat, I mean mincemeat, out of the regulatory
strategies that have put technology in boxes for segmented
bifurcated decisionmaking when, in fact, all of the big
players, and many of the big players that are each other's
throat before this committee in this area of mergers and
acquisitions, are vying for market positions as full-service
providers, all of them offering some technology in broadband.
So I think it is very timely for the Congress to take
another look at the boxed-in strategies embedded in the 1996
Act, at least to clarify the intent for the Federal and State
regulatory agencies required to carry out those mandates. With
the focus on the deployment of broadband capacity and the
rollout of data networks, a good place to begin is the current
segmentation of authority to provide voice-grade services by
local exchanges and interexchange carriers. Whatever the value
has been of that segmentation in promoting competition in the
local exchange, it is a total anomaly when extended to data
networks fostered by the competing broadband technologies.
While positions have hardened around Section 271, reality
is that distance as a regulatory concept is becoming
increasingly meaningless, if not totally meaningless, in
dealing with data networks. So APT agrees with many of the
statements that have been made here that it really is time to
look at what you meant in this 1996 Act in dealing with
advanced technologies.
I think it is important to recognize that broadband
technologies and data networks are ushering in a new era of
bundling and convergence of competitive services, and if you
look at the mergers that are taking place and the acquisitions,
I think it is fair to say that they are driven in large part by
the economies and scale and scope to be realized by being a
full-service provider, and those economies of scale and scope
are eroded by regulatory processes that have been outdated,
have been made irrelevant by technology. They detract from it.
Our concern is that these economies of scale and scope of
being a full-service provider are the same economies of scale
and scope that need to be captured to reach the low end of the
market, that portion of the market that are not full
beneficiaries, so that when you look and think about data
networks and who is providing the services, look at the
economies of scale and scope and how they are used in a market
system in a competitive environment.
Yes, competition takes those economies of scale and scope
under the unbundling process and rebundles them in accordance
with the marketplace, usually to the high end. But you have
also got to look at the carriers that have the residual
responsibility to deal with the low end of the market, and it
is very important that those economies in scale and scope and
being a full-service provider be taken to the low end.
That is why APT has consistently advocated a combination of
forbearance and proactive regulatory approaches to developing
community-based market-sensitive vehicles, and I am talking
about partnerships with the converged communications industry,
that bring the communication needs and priorities of the
underserved within the orbit of R&D investments for real market
development and demand aggregation.
Our premise is that what we are doing today in promoting
community technology centers, all the organizations at the
community level in diffusing technologies are important in
diffusion technology, but all of this has to be social capital
that comes into the communities and that works with the
competitors in bringing real investments into the community.
Those are the enduring solutions that we need, and I am
working in Oakland and these areas. I would be happy to tell
you how we are working with all the competitors that are at
each other's throat in dealing with this essential problem, but
I know that there is not time for it and I thank you for the
opportunity to be here.
[The prepared statement of Donald Vial follows:]
PREPARED STATEMENT OF DONALD VIAL, ALLIANCE FOR PUBLIC TECHNOLOGY
My name is Donald Vial. I currently chair the California Foundation
on the Environment and the Economy (CFEE), a 501(c)3 non-profit
foundation engaged in consensus building activities in the public
policy arena. I was as a member of the California Public Utilities
Commission during the 1980s, serving as its President, when we
unleashed in California the creativity and innovative capacity of
market forces in the restructuring of our telecommunications and energy
utilities. It is from this perspective, as a former regulator at the
state level as well as past chairman and a current member of the Policy
Committee of Alliance for Public Technology (APT), that I make my
comments today.
APT represents almost 300 non-profit organizations and individuals
that serve thousands of people, including low-income families, rural
residents, consumers, minorities, senior citizens, people with
disabilities, and small business owners whose lives could be greatly
improved by access to advanced telecommunications networks. By making
possible distance and life-long learning, telemedicine, and independent
living for senior citizens and people with disabilities, these and
other creative applications delivered over high-speed, broadband
networks can most benefit the nation's least advantaged residents by
helping them overcome the social, economic and political challenges
they face.
The Alliance for Public Technology welcomes the opportunity to
provide further comments on the deployment of advanced
telecommunications services to all Americans.
APT believes advanced telecommunications technology is developing
rapidly due to the utilization of the innovative and creative capacity
of the marketplace. There is no way to predict how far and how fast
these technological innovations will proceed, particularly as we enter
the Internet 3 phase of development and applications. What is obvious
is that the regulatory regimes of the Federal Communications
Commission, and collateral action taken by the states, is no match for
the creativity and innovative capacity of the marketplace. It is my
view that the regulatory process has impeded the deployment of advanced
services throughout America.
Nowhere is this more clear than in the current interpretation of
the 1996 Telecommunications Act. It is time for Congress to recognize
that broadband technologies and data networks are ushering in a new era
of bundling and convergence of competitive services and product
offerings. It is a forgone conclusion that without market-oriented
public policy incentives, major sectors of our society will always be
left in the dust of the digital age.
That is why APT has been advancing the need for the ubiquitous
deployment of advanced telecommunications services throughout the
nation. Most importantly, from APT's perspective, abandoning the
current efforts to impose voice restrictions on data networks will
enable regulators to focus more attention on implementing Section 706
of the Act. Clearing the deck of these obsolete requirements, in my
view, will advance the consideration of new options for the use of
regulatory forbearance and pro-active regulatory incentives to
implement the ubiquity commitment of the nation in Section 706 to
deploy ``advanced telecommunications capability to all Americans''.
The ``digital divide'' still exists in this nation and the have
nots are losing the considerable rewards to be found in the new E-
economy that is being driven by the development and deployment of
advanced services. APT urges Congress to sharpen its focus on how the
creativity and innovative capacity of the marketplace might be extended
to communities marginalized by the very operation of market forces.
In recent weeks we have seen a heightened, bipartisan focus on
closing the ``digital divide.'' The continued regulatory regimes, which
limit the incentives for the deployment of advanced services, threaten
to undermine the creative and innovative potential of the marketplace
in the development and deployment of advanced telecommunications and
information technologies for all Americans. Relieved of compliance with
regulatory restrictions, the deployment of broadband capability and
upgraded networks needs to be focused more specifically on applications
and content crafted to the needs, priorities, and cultures of
underserved communities, both rural and urban.
In advocating the use of regulatory forbearance tools to foster the
deployment of broadband infrastructure, APT has consistently advocated
a combination of forbearance with pro-active regulatory approaches to
developing community-based, market-sensitive vehicles (partnerships
with the converged communications industry) that bring the
communications needs and priorities of the underserved within the orbit
of R&D investments for real market development and demand aggregation.
I am currently pursuing this concept of bridging the digital divide
in an Oakland-based regional project, sponsored by the California
Foundation on the Environment and the Economy, that enjoys broad
support of telecommunications adversaries. Our premise is that ``social
capital'' (dispensed as philanthropy, corporate ``good will'' grants or
public programs to support technology diffusion through community
technology centers, school, and libraries, etc.) can be and is
effective in helping to diffuse the advanced technologies among those
on the ``wrong side'' of the digital divide. However, in a vibrant
market system, enduring solutions to the digital divide must have a
market-driven investment base to be effective.
For APT the challenge remains on how to ensure that all consumers
have affordable access to broadband services. APT believes that one
necessary component to connect all of us is to look at avenues to open
up more competition in the broadband marketplace. There can never be
enough broadband to serve the increasing needs of our technology driven
economy and society. To compete effectively in this market, companies
cannot be constrained by the old regulatory distinctions between local
and long distance and voice and data traffic. The broadband network and
markets are not constrained by distance or geography.
For these reasons APT supports legislation designed to increase
competition by lifting the long distance interLATA data restrictions on
regional Bell operating companies. We agree with former Representative
Jack Fields that members of the 104th Congress, in the drafting of the
Telecommunications Act of 1996, did not intend that a legal or
regulatory structure designed for an era of local and long distance
voice traffic, be employed to limit investment, competition and
consumer choice in the emerging broadband era.
In conclusion, it appears evident that broadband capability and
data networks are critical elements in the race of competitors to
become full service providers. In large part, I view mergers and
acquisitions are being driven by the economies of scale and scope
attached to being a full-service provider of services integrating
voice, video, data, graphics and Internet technologies. Those economies
are diminished when we attempt to maintain inter-exchange restrictions
on the data networks overrun by technology. Their elimination is a
starting point to encourage the capturing of some of the economies of
scale and scope in being a full service providers to address the
growing problems of a society of ``haves and have nots'' in the digital
age.
Thank you, Mr. Chairman and members of the Committee.
Mr. Tauzin. Thank you very much, sir.
Now Mr. Roy Neel, President of USTA here in Washington, DC.
STATEMENT OF ROY NEEL
Mr. Neel. Thank you, Mr. Chairman. There has been a great
deal of self-congratulation over the last few months, last
year, from policymakers and others who are saying, we are not
going to regulate the Internet. We are going to keep hands off
the Internet. The fact is, the hands are on the Internet.
The Internet is heavily regulated, if for no other reason
than a large part of the engine of the information economy is
not allowed to serve their customers with the kind of high-
speed Internet access service, the Internet access and services
across these arbitrary lines that could push this technology
out to everyone wherever they live, whether it is rural
Louisiana or Oklahoma or Florida or Ohio or Tennessee or
wherever, because even though you have got a lot of these
companies, these CLECs and others as well as these mega-
companies, AT&T, Media One, MCI, Sprint, Worldcom--it is all
kind of one name now--the fact is, they are not serving these
rural areas.
Out of the 1,000 POPs or points of presence for these high-
speed backbones around this country over the last few years,
only 100, or one-tenth, of these are in anything other than
urban areas. It is a fact. We are not talking about dial-up
modem services, your just basic Internet access services. And
we are not talking about a little capacity. We are talking
about being able to push a whole lot of data down a pipe very
fast so small businesses in little towns everywhere and for
everyone can do that work in competition with large companies
everywhere.
If you are a really big company, you can buy whatever you
want from folks at this table or elsewhere, or if you are in an
urban area, you can get whatever you want and there is a lot of
competition. But if you are in a rural area, you cannot get it,
and it does not matter how much DSL service there is in a
little community. If you do not have the backbone to push all
that stuff with everybody working at once into a pipe and move
it to Denver and elsewhere, you have got a big problem on your
hands.
The anecdotes abound. We have stories of auto dealers in
Montana that drive all the way to Denver to download
information data to move it to Kansas City or somewhere because
they cannot move it across those LATA boundaries and none of
these new competitors is going to serve them with those kinds
of services.
We have got Land's End, their e-business out of Minnesota.
They had to relocate to Madison from a small community because
they could not move the massive amounts of data required to
service that business just a few miles across a LATA boundary
and the competitors would not go in there and they will not go
in there because the business economics of it do not work. It
is a great business.
John Windhausen showed us a chart, a great chart, a great
business deal where there are billions of dollars flowing into
that industry. Those folks are not scared of 271 relief. In
fact, when Bell Atlantic got relief in New York City, the CLEC
stocks went up. There was nothing to be feared there. But they
are not going to go out there in those areas that you are
worried about that represent the digital divide, so you have
got to decide what problem you want to solve.
The 1996 Act was not about making the CLECs rich or
guaranteeing them a profit or allowing them to game the system.
It was about making competitive opportunities available to
everyone wherever they live and pushing out these new
technologies to everyone wherever they live and leveling the
playing field and backing the government out of this industry.
The FCC did not get the message. It does not matter whether or
not you envisioned data and the Internet when you were debating
this, the 1996 Act, 4\1/2\, 5 years ago. It really does not
matter. If the problem is there, you need to fix it.
The fact is, it is true that a bit is a bit, but the market
is still in voice. The Bell Companies have every incentive to
open those markets to get 271 relief for voice. H.R. 2420, your
legislation with Mr. Dingell, does not affect voice traffic. It
is very critical and it is very easy to police that. It does
not affect voice traffic and the Bell Companies have every
incentive to get those markets open and to keep them open in
order to get 271 relief. It is a $100 billion-plus industry
compared to a fraction of that for the wholesale data business
right now. They have every incentive to open those markets.
The anecdotes go on and on, but one thing that the ACt did
not envision was the kind of gaming that does need to be fixed.
We have seen any number of cases where this has happened, but
let me just quote Communications Daily, sort of the bible of
what goes on, about a conference that just was held down in
Orlando between the CLEC community and the ISP community. Now,
I do not think that this panel envisioned this when they were
writing the 1996 Act, and I will quote.
``One ISP leader complained that CLECs never shared much
reciprocal compensation money, barely even offering her company
discounted phone rates when they clearly profited from every
call. Another one,'' and this is in open session, ``another one
apologetically talked of her annual battle to get her kickback
until she decided to become a CLEC herself.'' The conference
went on to show ISPs how to make that transition to CLEC status
to ensure that they reap the profits from this system of
arbitrage.
Now, I do not think you envision that. Now, that is one
piece of this. But the point here I want to make is there is a
problem. There is a digital divide. You have an obligation to
fix it whether or not it was envisioned in the 1996 Act, and
the way to do that is to deregulate these data services, let
these companies flip the switch. Two-hundred-seventy-five-
thousand miles of fiber is embedded out there that can serve
every rural customer in this country and you are not allowing
them to do it.
All you have to do is pass this legislation and the
Goodlatte-Boucher bills and make this happen. Thank you, Mr.
Chairman.
[The prepared statement of Roy Neel follows:]
PREPARED STATEMENT OF ROY NEEL, PRESIDENT AND CEO, UNITED STATES
TELECOM ASSOCIATION
Thank you Mr. Chairman for giving me the opportunity to testify on
behalf of USTA regarding the deployment of broadband facilities and
services throughout the United States. USTA represents over 1100 local
telephone companies that are deploying advanced services despite
significant regulatory obstacles that are being applied to data
service.
The Chairman of the Federal Communications Commission describes the
advanced services market as a ``no-opoly''. Since monopoly and
bottleneck are the traditional justification for common carrier
regulation, and the advanced services market is a ``no-opoly'', why
then are the ILECS regulated in their offerings of advanced services?
This does not pass the common sense test!
There are many legislative efforts under way to accelerate
broadband deployment especially in rural areas. These bills take
basically three approaches: First, there are bills that provide tax
incentives to encourage deployment; second, there are bills that
provide for universal telephone service funding mechanisms in order to
subsidize the deployment of broadband services; and third, there are
bills that provide for significant deregulation.
At the end of the day, I believe that the universal service and tax
approaches may be necessary for some of our most remote areas.
Nevertheless, before we take a subsidized or tax incentive approach, I
agree with you Mr. Chairman, we need to deregulate. Deregulation will
significantly accelerate broadband deployment in almost all areas. If
you deregulate first, areas that cannot be served because of their
remoteness and high cost can then be readily identified, so that
additional measures such as tax incentives or universal service support
can be applied with precision to those remote areas. We should not
subject the offering of these new advanced services to the costly,
complicated and intricate world of subsidies--an area the FCC is still
trying to sort through with respect to traditional phone service--
without first deregulating.
High Speed Internet Access--Buildout
Today, only 1.45% of Americans has access to high-speed Internet
access. Given the economic and educational benefits that the Internet
and high-speed Internet access provide, we need to improve this
percentage. As we all know having high-speed Internet access capability
allows people to telecommute, to shop online, communicate with friends
and family, and to research any subject known to man. For both large
and small businesses, having high-speed Internet access impacts where a
business will locate because businesses use the Internet to order
supplies, to check current prices, download bulky documents,
communicate with customers and with co-workers within the same company
and to track their inventory.
With business to business commerce (B2B) and business to customer
commerce (B2C) expected to reach $6.8 trillion in 2004, a business
cannot afford to be located in a town where they cannot get high-speed
connections to the Internet. There is no question that in the 21st
century, a business needs to have high-speed access to the Internet to
stay competitive. If we do not ensure that every town and every
business has high-speed access to the Internet, we are going to be
picking winners and losers among towns and businesses.
Companies are already relocating because of their inability to get
high-speed Internet access. One well known example of this is Lands
End. Lands End was forced to move their e-commerce business from
Dodgeville, Wisconsin, (population 4,213), to Madison, Wisconsin, which
is 45 miles from Dodgeville because they could not get high-speed
Internet access in Dodgeville. Lands End, like so many companies, needs
high-speed access to stay competitive and keep in touch with their
stores, customers, suppliers, etc. We must take action now to ensure
that other rural towns do not lose lucrative businesses, jobs, and tax
revenues because they do not have a high-speed access ramp to the
Internet.
In January of 1997, the FCC concluded that over 90% of Americans
were capable of accessing the Internet using dial-up access with a
speed of 56 kilobits, but only .4% had high-speed Internet access. Here
are some examples of accessing the Internet with a standard modem speed
of 56 kilobits as opposed to DSL high-speed Internet access:
An encyclopedia that is 10,000 pages long or 160 megabytes
would take 8 hours and 45 minutes using a standard modem as
compared to 33 minutes using DSL. A half hour TV show with no
commercials that is 60 megabytes would take 3 hours and 20
minutes using a standard modem but only 13 minutes using DSL.A
two-hour movie that 1.2 Gigabytes would take well over 8 hours
to download using a standard modem but only one hour using DSL.
Clearly, anyone who does not have high-speed Internet access in the
near future will be left behind in this fast moving digital economy.
Further, if legislative action is not taken this year, we will have a
generation of technology haves and have nots.
Even though so few Americans have high-speed Internet access, the
FCC has declined to use any of the deregulatory incentives included in
Section 706 of the 1996 Telecommunications Act. I know full well that
this was not what Congress had in mind when it enacted Section 706 as a
part of the Telecommunications Act of 1996. Thus, since the FCC will
not deregulate these services, Congress must take legislative action to
encourage deployment of broadband networks.
Legislative Remedies
Mr. Chairman, we at USTA believe that the right approach to this
issue is the one taken in your bill,HR 2420, as well as the similar
approaches taken in the bills introduced by Senator McCain (S. 1043),
Senator Brownback (S. 877), Congressman Goodlatte (HR 1686) and
Congressman Boucher (HR 1685). I commend all of these Members who are
taking action to ensure that all Americans get access to these advanced
services. These are pro-consumer bills. All of these bills provide
regulatory relief. If we do away with these costly and burdensome
regulations, our companies can use those resources to more quickly
buildout their high-speed infrastructure.
ILECS Are Deploying DSL Despite Regulatory Obstacles
Notwithstanding these regulatory obstacles, our companies are truly
devoted to providing high speed Internet access to its customers
throughout the nation--not slow dial up access that cannot exceed the
very low access speed of 56 kilobits, under the best of circumstances.
Our companies are committed to deploying high speed digital subscriber
line service (DSL) to the maximum extent possible.
USTA represents nearly 800 small companies that provide telephone
service throughout the country mainly in rural areas. Even though these
companies cover only approximately 5% of the nation, they are a success
story when it comes to deploying DSL. As of the end of last year, 151
companies were offering DSL and 93 additional companies were in the
process of rolling out DSL. These companies cover 42 states and have
close to two million access lines. Despite this success, however, these
small companies need high cost support mechanisms that are sufficient
to continue this rollout and to continue to effectively serve its
customers.
Our 25 mid-size companies have also been quick to roll out DSL
service to their customers. Nearly every month one of them announces a
major capital expenditure program to hasten the deployment of DSL
service. These companies also serve largely rural areas where the
largest community may be around 20,00-50,000 population.
For example, Roseville Telephone Company, located in Roseville,
California, with a population of 73,814 has made DSL available to
nearly 95% of their XXX customers. CMF serves about 40,000 access
lines. They provide DSL service today to nearly 40% of those customers
and plan to make it available to another 40% by the end of this year.
Century Telephone Company, located in Monroe, Louisiana recently
announced a major initiative to get DSL service to the vast majority of
their 1.2 million customers. At the end of 1999, around 80% of their
lines were DSL capable and DSL was available to 11%. By the end of this
year, availability will rise to 40% and they have plans to continue at
that pace through 2001, and 2002.
Cincinnati Bell, one of the larger mid-size companies, has made
ADSL service available to 75% of the homes in its regions. These
companies are not just serving high-end business markets--they're
serving small businesses, hospitals and schools.
Our large local exchange carriers are also deploying high-speed
Internet access in areas in which regulatory burdens do not make DSL
cost prohibitive. Bell Atlantic, for instance, has 70,000 DSL customers
and expects to have DSL available to 20 million lines (which is half of
all their access lines) by the end of the year and has spent about $1
billion deploying DSL. Just this past week, Bell South together with
the Governor of Georgia, announced a major, multiyear initiative that
would provide access to high-speed services for 17 communities and
hundreds of thousands of residents in rural parts of Georgia. This
initiative is the largest statewide deployment of broadband capability
ever and demonstrates that our companies are committed to serving rural
America. US West currently has 167,000 DSL and VDSL subscribers and has
just announced that it will provide high-speed DSL Internet connections
to small and mid-sized businesses in certain districts in California.
SBC announced last year that they will spend $6 billion to ensure that
80% of their customers will have high-speed Internet access capability.
Notwithstanding these companies efforts to deploy DSL in select
areas, these companies continue to be pervasively regulated not only
for plain old telephone service but for these new advanced services.
Without regulatory relief for these new, advanced services, our
companies will not be able to get these services to all of its
customers, particularly those in areas that are costly to serve.
Regulatory Parity
Onerous regulations that were intended for voice communications are
being wrongly applied to the nascent data market. This burdensome
regulation is so costly, however, that it acts as a disincentive to
deploying high-speed infrastructure. Further, these regulations are not
applied to other technologies such as cable modems that compete to
provide high-speed Internet access. Below is a chart that sets forth
how the ILECs are regulated in their offering of DSL as opposed to
cable modem service.
DSL v. CABLE MODEM SERVICE
ILECs--CABLE OPERATORS
------------------------------------------------------------------------
DSL Service (an
interstate Cable Modem
telecommunications Service (a cable
service) service)
------------------------------------------------------------------------
Common Carrier Duty............ Every common carrier No Comparable
must furnish Requirement
communications
services upon
request and
establish physical
connections Sec.
201(a).
Discrimination and Preferences. It shall be unlawful No Comparable
for any common Requirement--Loc
carrier to make any al franchise
unjust or authority only
unreasonable regulates basic
charges, practices cable television
or classification rates and
Sec. 202(a). equipment; no
rate regulation
of cable modem
service
Tariffs........................ Every common carrier No Comparable
must file with the Requirement--Cab
FCC schedules le operator must
showing all charges file rates for
for services basic tier and
provided Sec. equipment with
203(b). local franchise
authority
Extension of Lines............. No carrier shall No Comparable
construct a new Requirement--Loc
line nor terminate al franchise
an existing line authority
without FCC negotiates build-
approval Sec. out requirements
214(a). with cable
operator
Annual Reports................. The FCC is No Comparable
authorized to Requirement
require carriers to
file annual reports.
Depreciation................... The FCC may No Comparable
prescribe Requirement
depreciation
charges Sec.
220(b).
Accounts....................... The FCC may No Comparable
prescribe the forms Requirement
for any and all
accounts and
establish a uniform
system of accounts
Sec. 220(a).
Subscriber List Information.... A telecommunications No Comparable
carrier shall Requirement
provide subscriber
list information
available on an
unbundled and
nondiscriminatory
basis Sec. 222(e).
Interconnection................ Incumbent Local No Comparable
Exchange Carriers Requirement
(ILECs) have a duty
to interconnect
with the facility
and equipment of
any requesting
telecommunications
carriers Sec.
251(c)(1).
Resale......................... ILEC must offer its No Comparable
telecommunications Requirement--Lea
services at sed access
wholesale rates obligations--10-
251(c)(4). 15% based on
channel capacity
Number Portability............. Local exchange No Comparable
carriers (LECs) Requirement
must provide number
portability to the
extent technically
feasible Sec.
251(c)(2).
Dialing Parity................. LEC must provide No Comparable
dialing parity to Requirement
competing providers
Sec. 251(b)(3).
Reciprocal Compensation........ LECs have the duty No Comparable
to establish Requirement
reciprocal
compensation
arrangements Sec.
251(b)(5).
Duty to Negotiate.............. ILECs have the duty No Comparable
to negotiate access Requirement
to their networks
with any requesting
telecommunications
carrier.
Unbundled Access............... ILECs have the duty No Comparable
to provide any Requirement
requesting
telecommunications
carrier with non-
discriminatory
access to network
elements on an
unbundled basis
Sec. 251(c)(3).
Collocation.................... ILECs have a duty to No Comparable
provide physical Requirement
collocation of
equipment necessary
for interconnection
or unbundled access
Sec. 251(c)(6).
Universal Service.............. All No Comparable
telecommunications Requirement
carriers shall
provide schools,
libraries, and
health care
providers access to
services at
discounted rates
Sec. 254(h).
InterLATA...................... No Bell operating No Comparable
company may provide Requirement
interLATA DSL
services without
prior FCC approval
and competitive
checklist
compliance Sec.
271.
Separate Subsidiaries.......... InterLATA No Comparable
telecommunications Requirement
and information
services must be
provided through a
separate affiliate
Sec. 272(a)(2).
Electronic Publishing.......... BOCs may provide No Comparable
electronic Requirement
publishing only
through a separate
affiliate Sec. 274.
Alarm Monitoring............... BOCs cannot provide No Comparable
alarm monitoring Requirement
until 2001.
Computer III/ONA............... BOC/GTE required to No Comparable
provide access and Requirement
unbundling for ESPs
(ISPs).
------------------------------------------------------------------------
By subjecting DSL to these regulations, the government is
regulating the Internet. Clearly this is not what Congress intends.
Chairman Kennard testified that the two services, cable modem provided
by cable operators and DSL provided by ILECs are functionally
equivalent. Thus, DSL needs to be deregulated which will spur
deployment and make the Internet cheaper, faster, and more accessible.
Digital Divides
When you read about digital divide studies, such as the Department
of Commerce's Falling Through the Net (11/99) their primary focus is
the ``digital divide'' between demographic groups. This is the first
digital divide. This and similar studies are conducted by considering
such factors as computer ownership and telephone penetration The second
digital divide is urban/rural. My testimony today will point out still
a third digital divide which occurs even within otherwise affluent
urban/suburban areas. This third digital divide relates to high speed
access to the Internet.
Today, high speed Internet access is made available on an
economically reasonable basis three ways. First, there is fiber optic
cable. This is being provided primarily by Competitive Local Exchange
Carriers (CLECs). The second way is Digital Subscriber Line service
(DSL). DSL is a service that incumbent telephone companies (ILECs)
provide. Data Local Exchange Carriers (DLECs) also offer DSL service,
but it is almost an entirely derivative service, as DLECs are able to
provide their service only by collocating their equipment in the ILEC's
central telephone office and by making use of the ILECs local telephone
wires, which ILECs are required by law to provide to DLECs at very low
rates. Third, cable operators provide a high-speed access to the
Internet by means of their high capacity (broadband) cable wires. This
is called cable modem service and is primarily a residential service.
What then is the third Digital Divide? The CLECs provision of high
speed access is almost exclusively limited to business customers
located in downtown business areas or in an edge city. (Please see maps
attached to testimony.) In Washington, for instance, that means the K
Street corridor and Tysons Corner. Cable operators are located and
provide service to primarily residential customers. So, if you area
business not located downtown or in an edge city, your only real
possibility for high-speed Internet access is DSL, and unfortunately
DSL is the only one of these three approaches subject to significant
regulatory constraints and requirements. This possibility of DSL
service only exists in some areas, even in urban areas, because
pervasive regulation is retarding deployment. If you are either a
business or residential customer in a rural area where their exists
limited Internet backbone facilities and little or no high speed access
you are doubly burdened in your ability to obtain high speed Internet
access, as you will have neither local nor long haul Internet access.
If you are a residential customer and want a competitive option to
cable modem service, DSL is your only choice, because the CLECs fiber
is not coming your way right now. If you are business customer located
in a downtown business district and you want a competitor to the CLEC
service, DSL is your only option, because again cable modem service is
primarily located in the residential areas. Again, obviously, we need
to encourage the deployment of DSL instead of hampering it with
unnecessary government regulation.
THERE IS A DIGITAL DIVIDE AND IT CONTINUES
So, my testimony today is that there are multiple digital divides.
The digital divide exists at the local level for high speed Internet
access and on the long distance level for Internet backbone. The
primary reasons for this failure to close the high speed access digital
divide and Internet backbone divide is regulatory constraints which add
cost, time, effort and lack of flexibility to services being offered in
a market that one considers to be a monopoly.
For the residential customer, high-speed Internet access is a way
to avoid the ``world-wide wait.'' To the business customer, high-speed
access may be essential, even for many businesses that we ordinarily do
not consider to be part of the new economy. If your business is located
in the downtown area of a major city or in an edge city (e.g., Tysons
Corner), you have a plethora of high speed access service providers and
service options and more are coming all of the time. If you are a small
or medium size business outside those limited geographic areas, your
high-speed Internet access options are very limited--if they exist at
all.
This is just not my view, but the investment community concurs.
Scott Cleland of The Precursor Group said the following in his February
8, 2000 Research Report on this subject:
(1) ``Most of all the CLECs built out to serve the same high-end
customers, which met two criteria; high average customer
revenue and geographic density. Despite industry pledges to
offer broadband universally, it probably won't happen because
it will be uneconomic....''
(2) ``In the next three to four years, TPG projects that up to 20%of
the country may have a choice of three to four different
broadband facilities, roughly 30%of the country may have the
choice of two and half of the country may have only on or no
broadband facility to choose from.''
(3) ``TPG expects cable to remain the primary residential broadband
facility for the foreseeable future.''
(4) ``TPG expects DSL to remain the secondary broadband infrastructure
for the foreseeable future.''
INTERNET BACK BONE--STILL ANOTHER DIGITAL DIVIDE
In many rural areas there is still another digital divide. This
occurs when a region of this country is located a great distance from
the Internet backbone. These regions are not located near an Internet
POP (point of presence) sometimes also called an Internet hub. A POP or
hub is a high speed ramp putting you on the Internet. No ramp--no high
speed access.
These Internet POPs are like train stations using a rail analogy
and the Internet backbone can be analogized to the rail network
connecting the cites. If you are an ISP, you need to be able if you are
an ISP to get to this POP (hub) in order to participate in the Internet
and all of its e-functions. The greater the distance from a town to an
Internet hub (POP), the more expensive the service, the constrained the
speed of the service, and the more limited the service offerings. These
towns can get on the slower, narrowband Internet, but cannot acquire
high speed broadband connectivity at a reasonable price, if at all.
The backbone hubs necessary for providing the benefits of e-
commerce, however, are to a large extent available only in the
country's largest metropolitan areas. Smaller cities and non-
metropolitan areas do not have the same access to these high-speed
connection to a backbone hub, and while over one thousand hubs (POPs)
have been put in place, less than one hundred are in non-metropolitan
areas--do not have the same access to these high-speed connection
points. In fact, 60.7 percent of all metropolitan areas do not have a
connection to a Internet backbone hub (POP), and while over one
thousand hubs have been put in place, less than one hundred are in non-
metropolitan areas--and most of these are in university towns. The vast
majority of Americans do not have direct access to the Internet
backbone in their own communities.
Network economics and the nature of telecom markets give strong
incentives to deploy networks in densely populated and high-income
areas. In addition, regulations affecting investment, markets, and
suppliers also impact backbone deployment. The prohibition against
Regional Holding Companies (RHCs) offering data across interLATA (or
local) boundaries exacerbates this disparity in overall number of
backbone hubs per state.
Let me not fail to mention one additional thought: The Internet
backbone is being increasingly concentrated in a few hands--evidence
the merge of MCI WorldCom and Sprint. For competitive reasons, BOCs
entry into this market will go a long way causing this concern to
evaporate.
MYTHS ABOUT INTERLATA DATA RELIEF
(1) Internet relief will undo the reforms of the 1996
Telecommunications Act. Not true. As I pointed out earlier, the '96 Act
did not consider the Internet in any detail other than with respect to
schools, obscenity and regulatory relief for advanced services. The
commercial Internet was still in its infancy. The '96 Act dealt with
opening the local telephone market to competition. The new bills deal
only with the Internet--leaving the current regulation of telephony
intact. The '96 Act was intended in its common carrier provisions to
open up the voice telephone market for competition and to provide the
BOCs with a method to eliminate their MFJ line of business
restrictions.
(2) Internet relief removes the Bells' incentive to satisfy section
271 of the Telecom Act, which requires the companies to open their
local markets to competition before entering the long distance market.
Not true. For the Bell companies to be competitive--they must be able
to offer full bundles of services, including voice long distance. These
bills do not change voice regulations. The BOCs cannot offer voice long
distance until they get section 271 approval from the FCC. About 80
cents of every dollar for long distance service is for voice service--
this presents quite a market incentive.
(3) Internet relief would permit immediate large-scale BOC entry
into long distance. Not true. These bills apply to Internet traffic
only. They do not affect voice long distance service. Further, they do
not permit the BOCs to offer or sell voice long distance service, over
the Internet or their regular network, until the FCC has approved their
Section 271 application--after they have fully opened their local
markets to competition.
(4) It's impossible to enforce a data versus voice distinction. Not
true. Bits are bits, but services are easily distinguished from one
another. Internet data relief does not relieve the Bells from any of
the Section 271 checklist requirements for entering the voice long
distance market. These requirements, designed for traditional voice
service, are wrongly being applied to the Internet.
(5) Internet relief would allow incumbent telephone companies to
provide much higher quality loops to themselves. Not true. These bills
require that incumbent local telcos must either unbundle their services
under Section 251 of the Act of they must provide competitors with the
same conditioned loops they use themselves.
(6) There is no Digital Divide between urban and rural areas.
(There is a definite digital divide. High-speed services are being
deployed in densely populated areas near back-bone POPs. Smaller
markets are being passed by.
(7) Internet Relief will cause CLEC financing to dry up. Not
True.--Bell Atlantic received interLATA relief in New York and
financing is still available for CLECs. They continue to grow.
CONCLUSION
So let me conclude by recapping what we consider to be the current
factors limiting the future development of the Internet, especially for
rural, residential and small and medium business customers. First,
there is the fact that DSL is pervasively regulated and the other
providers are not. Second, especially in rural areas, but also
generally everywhere, the restriction on the BOCs which limits their
ability to transmit data across LATA (local access and transport area)
lines limits the opportunity to expand the Internet backbone. The 1996
Act provisions that were intended to ameliorate this situation have not
prove effective and the interLATA relief contemplated by the 1996 Act
has produced to date authority to cross LATA lines in only one state.
These LATA lines are the product of the 1982 AT&T breakup, so they were
clearly not drawn with the Internet in mind, but these 1982 lines are
frustrating the development of the Internet, especially in rural areas.
Third, there is no reason, for instance, why DSL which is an interstate
telecommunications service should be regulated differently from Cable
Modem Service, a cable service, but it is! DSL is pervasively regulated
as a telecommunications service, but cable modem service is virtually
unregulated as a cable service.
Congress needs to address the digital divided issue this year.
Clearly, we are beyond debating whether there really is a digital
divide--with five bills introduced that address high speed Internet
access and deployment to rural areas everyone acknowledges there is a
problem. We support all Members that have taken the lead on this issue
and strongly urge that any legislative solution deregulate the offering
of DSL and provide InterLATA relief to the RBOCs for data.
Mr. Tauzin. Thank you, Mr. Neel. I hated to slow you down,
but your time was up. Thank you.
Mr. David Kunkel, Vice Chairman and Executive Vice
President of PSINet. Mr. Kunkel?
STATEMENT OF DAVID N. KUNKEL
Mr. Kunkel. Thank you, Mr. Chairman. In contradistinction
to my colleague on my right, we are the competition and we do
not agree.
As you said, Mr. Chairman, I am the Executive Vice
President and Vice Chairman of PSINet headquartered across the
river in Ashburn, Virginia. We are the first and the largest
independent facilities-based ISP in the world that started in
1989, before much of, of course, what you were talking about
this morning ever occurred. I am also testifying today on
behalf of the Commercial Internet Exchange Association, CIX.
That is the largest trade association of Internet service
providers, of which we were the founding member and host of
their equipment for years.
In our experience, the key to broadband deployment is
opening up the local telecom markets to competition. To the
extent that there is any problem in broadband deployment in
this country, the problem lies with the local exchange, not in
the highly competitive backbone market. That problem is caused
by barriers to competition in the local market, barriers that
amount to a bottleneck that are maintained by the monopoly
ILECs.
The Bell Companies try to justify their desire for
interLATA relief by claiming there is a backbone capacity
shortage. Nothing could be further from the truth. The Internet
backbone marketplace is a remarkable competitive success story
and it continues to grow at exponential rates. PSINet alone
maintains more than 275 points of presence in the United States
that are connected by high-speed dedicated circuits, including
over 10,000 miles of OC-48 and OC-192 fiber optic cable.
And PSINet is only one of the many ISPs in this highly
competitive market. The market remains wide open to new
entrants. Indeed, several significant competitors in this
space, such as Level Three, Global Crossing, and Qwest, had
negligible or non-existent market shares only a few years ago.
As you consider what the correct Federal policy is on
broadband, we ask you whether you trust a monopoly to provide
service more than you trust a robust open and competitive
market, and this is the counterintuitive part, but I want to
underscore this.
We submit that if you deregulate local telecom monopolies
and eliminate incentives for them to crack open their markets,
you will retard broadband deployment in this country
significantly. You will also leave monopolies free to charge
artificially high prices and to price broadband service out of
the reach of many of the consumers that you are concerned
about.
The two monopoly deregulation bills pending before this
subcommittee, H.R. 2420 and H.R. 1685, are well intentioned but
they suffer from precisely these flaws. They would strike a
potentially mortal blow to broadband competition in the local
loop by allowing monopoly carriers to discriminate in pricing
against the competitive local exchange carriers and ISPs. They
would give the RBOCs that have not opened their local markets
to competition the power to leverage their local monopolies to
distort competition in this vibrant Internet backbone market.
The best means of accomplishing national broadband
deployment is to stay the course set forth in the 1996 Telecom
Act. The RBOCs should not be allowed to provide interLATA data
service in areas where they have monopoly power until they
comply with the Act by opening their local markets to
competition, just as Bell Atlantic has done, although somewhat
imperfectly, in New York.
Just as important, local telecom monopolies must be
required to provide cost-base access to the network elements
needed for competitors to offer broadband service over the
local loop.
If we stay the course with the 1996 Act, the unprecedented
growth of the Internet will continue. A truly competitive
marketplace is, in fact, the best way to bring broadband
services to all Americans.
Mr. Chairman, thank you for this opportunity to testify.
[The prepared statement of David Kunkel follows:]
PREPARED STATEMENT OF DAVID KUNKEL, VICE CHAIRMAN AND EXECUTIVE VICE
PRESIDENT, PSINET INC.
Good Morning, Mr. Chairman, and thank you for the opportunity to
appear before your Subcommittee as it examines the deployment of
broadband communications. I am David Kunkel, Vice-Chairman and
Executive Vice-President of PSINet. I am here to offer testimony on
behalf of my company and on behalf of the largest trade association of
Internet service providers (``ISPs''), the Commercial Internet eXchange
Association, of which PSINet is a founding member.
PSINet was founded in 1989 and was the first commercial provider of
Internet service in the United States. In those early days of planning
and growth of PSINet, our company consciously optimized our network for
Internet applications, rather than taking short cuts in developing our
infrastructure. Our network was built for a future that would demand
performance, speed, and reliability in Internet connectivity. We
continue to be a leader in deploying high-speed, high-performance
Internet services.
PSINet, headquartered in Ashburn, Virginia, is now the largest
independent facilities-based ISP in the world, with operating units in
28 countries on 5 continents. We are not owned by any telephone
company, and we compete in highly competitive marketplace for Internet
backbone service and Internet applications. The PSINet network includes
more than 275 points of presence (``PoPs'') in the United States, and
more than 800 PoPs worldwide, each designed and built specifically to
handle Internet traffic from customers that employ a range of access
methods. Submitted with this testimony is a route map showing PSINet's
extensive backbone network in the United States and throughout the
world.
The PSINet Carrier and ISP services unit offers consumer and
business Internet services on a private label basis to a community of
more than 6,000 U.S.-based ISPs, as well as some 500 large
telecommunications providers. PSINet also offers a full line of
services to business, government, and educational customers, including
many of the Fortune 100 companies and various federal agencies.
PSINet engineers and executives have developed many of the most
significant technical and product innovations in the Internet's
history, and are at the forefront of broadband Internet backbone
investment and deployment. PSINet has a major stake in delivering to
its customers throughout this country high-quality, high-speed
broadband communications capability. Where there is significant demand
for Internet backbone services, we stand ready to deploy PoPs, and are
actively developing satellite and wireless delivery mechanisms in rural
and other underserved areas.
The ISP segment of the Internet industry has grown magnificently--
there are now more than 6,000 ISPs--and over 95% of Americans have a
choice of at least four ISPs within their local calling area.
Mr. Chairman, broadband services are also being deployed rapidly.
The market is working, as we see the development of different means of
broadband deployment for different areas of the country. The
fundamental factor in the competitive and rapid deployment of broadband
services is the development of a competitive local telecommunications
marketplace. With competitive telecommunications inputs, PSINet and
other providers of broadband Internet services will be able to offer
their services throughout the country at affordable prices. The best
means of accomplishing national broadband deployment is to stay the
course set forth in the Telecommunications Act of 1996 by continuing to
require that the Bell Companies open their local networks to
competition before they provide interLATA voice or data services, as
Bell Atlantic has done in New York, and continuing to require that
local telecommunications monopolies provide access to the network
elements necessary for competition in local high-speed services.
I. THE INTERNET BACKBONE MARKETPLACE CONTINUES TO GROW AT AN
UNPRECEDENTED PACE
The Internet backbone marketplace is a remarkable competitive
success story, and continues exponential growth. After losing their
litigation challenges to the Telecommunications Act of 1996, the Bell
Companies and their lobby groups have attempted to justify their desire
for interLATA relief on the basis of an alleged ``backbone capacity
shortage.'' As the FCC and independent analysis have consistently
affirmed, nothing could be further from the truth.
PSINet alone maintains more than 275 points of presence (``PoPs'')
in the U.S. that are connected by high-speed dedicated lines, including
over 10,000 miles of OC-48 and OC-192 backbone arrangements. These PoPs
are displayed in the large map attached to my testimony. Our network
backbone as it is currently being deployed will be capable of 3.2
Terabytes of capacity. As Exhibit B to this testimony shows, this year
we are deploying fiber-optic bandwidth on several routes that cross our
nation and are adding new PoPs in locations such as Scottsville,
Virginia; Kernersville, North Carolina; and Clermont and Wolfolk,
Florida. Simply stated, PSINet's network is designed to deliver
enormous backbone capacity, as demanded by the customer. PSINet's
national PoP deployment illustrates how Internet backbone providers are
serving smaller communities with high-speed network access points, even
if demand in that community may not yet be able to support a large DS-3
PoP. PSINet and other Internet backbone providers are doing their
part--bringing high-speed Internet access to rural, as well as urban
America. As the attached map shows, the PSINet network traverses the
country.
Several features of PSINet's network advance the goal of rural
broadband service. For example, PSINet allows other ISPs to peer
(exchange traffic) with more than 100 PSINet PoPs in the U.S., for
free. These direct connections to the Internet speed data traffic
significantly by avoiding potential congestion points on the Internet.
As PSINet's free peering arrangements illustrate, rural ISPs may access
PSINet's backbone-quality services at numerous PSINet PoPs.
Keep in mind, as you think of our network, that PSINet is only one
of many ISPs in the highly competitive Internet backbone market that
provide backbone access and services to all Americans. Unlike the local
telecommunications marketplace, the Internet backbone marketplace is
wide open to new entrants. Indeed, several significant competitors in
this market, such as Level 3, Global Crossing, and Qwest, had
negligible or non-existent marketshare only a few years ago.
Furthermore, other technologies than Bell Company wireline facilities,
such as wireless and satellite delivery systems, offer tremendous
potential to deliver additional high-capacity broadband service to
high-cost areas of the country. It does not make sense to deregulate
the telecom monopolies' provision of interLATA services to ``solve a
backbone shortage'' because no such shortage exists (except in the
minds of inventive lobbyists) and because the rapidly expanding, open
Internet backbone market will respond to future market demand.
Moreover, the 1996 Telecommunications Act already provides a
sensible framework for Bell Company deregulation in this area. Current
law does not saddle Bell Companies with any regulations that they do
not have the power to release themselves from. Instead it very sensibly
provides that deregulation be preceded by specific and significant
demonstrations from the Bell Companies that they have, indeed, opened
their local monopolies to competition. The Congress should let the Bell
Companies deregulate themselves, as current law provides.
II. PROPOSALS TO DEREGULATE MONOPOLY FACILITIES USED TO PROVIDE
BROADBAND SERVICE WOULD SIGNIFICANTLY RETARD THE DEPLOYMENT OF
BROADBAND SERVICES
In PSINet's experience, the key to broadband deployment is
competition in local telecommunications markets. To the extent that
there is ``a problem'' in broadband deployment in this country, the
problem is in the local exchange, not the highly competitive backbone
market. That problem is caused by the significant barriers for
competitors seeking to enter local markets where they confront
bottlenecks caused by monopoly incumbent Local Exchange Carriers
(ILECs).
But competition is coming to the local exchange, thanks to pro-
competitive rules set by the Congress and the FCC--especially now that
the ILECs have stopped tying up the local competition provisions of the
Telecommunications Act of 1996 in court. Competition from Competitive
Local Exchange Carriers (``CLECs'') and Data Local Exchange Carriers
(``DLECs'') and from cable broadband operators is finally pushing
telephone monopolies to roll out DSL technologies that have been
available since the mid-1990s. In our experience, where there is a CLEC
or DLEC alternative to the telephone monopoly, broadband deployment
over phone lines occurs more quickly, prices decrease significantly and
consumers receive a wider array of service options and higher quality
of service. This in turn spurs demand for PSINet's backbone services
and other broadband applications. For this reason, we have a major
stake in the success of local competition. PSINet finds that CLECs and
DLECs try harder than their monopolist competitors and are very
responsive partners with us in serving broadband customers.
As you think about what is the right federal policy on broadband,
we ask you whether you trust a monopoly to provide service more than
you trust a robust, open, competitive market. We submit that if you
deregulate local telephone monopolies and eliminate incentives for them
to meaningfully open their markets, you will retard broadband
deployment in this country significantly. You will also leave
monopolies free to charge monopoly prices and to price broadband
service out of the reach of many consumers.
III. BROADBAND BILLS THAT DEREGULATE MONOPOLY FACILITIES WOULD HARM THE
ISP MARKETPLACE
Two monopoly broadband deregulation bills, H.R. 2420 and H.R. 1685,
are pending and have been referred to this subcommittee. I respect the
sponsors of these bills and do not doubt that they have good intentions
in promoting these bills. However, the approaches of both bills would
set back broadband deployment and do serious harm to the vibrant ISP
marketplace.
The bills would fundamentally reverse the 1996 Telecommunications
Act just as it is beginning to work, and would be detrimental to
consumers and to competition. First, both bills would eliminate the
major incentive for the monopoly Bell Companies to open their local
markets to competition. The bills would do this by exempting interLATA
data services from the long distance checklist requirements of Section
271 of the Act. Ordinarily, monopolists have every incentive to use
their control of bottleneck facilities (like the phone lines that
connect every office in Congress to BellAtlantic's nearest central
office) to delay competition as long as possible. Section 271 is
important because it is the only effective tool to overcome this
incentive to delay competition. By scrapping Section 271 for data
services, the bills would directly set back the cause of competition.
Moreover, voice traffic can readily be ``packetized'' or converted to
data traffic. Therefore, it would be very difficult for regulators to
contain this exemption to what is today considered data traffic.
Furthermore, ushering the BOCs into the interLATA data market
before their local markets are open to competition would allow them to
leverage their bottleneck control of the local marketplace--by either
cross-subsidizing their backbone service or raising the costs to their
competitors in the backbone market in a way that advantages the BOC's
backbone service. Far from providing a needed boost to competition in
the already highly competitive backbone market, these proposals risk
distorting that market through anti-competitive conduct by monopolists.
Second, both bills would go much further than letting the Bells
into the long distance data market. They would strike potentially
mortal blows to the independent CLEC and DLEC industry, thereby ending
the competition in local broadband service that is so important to the
fast deployment of affordable broadband service. H.R. 2420 would
empower local telecommunications monopolies to engage in price
discrimination against telecommunications competitors. It would also
eliminate FCC rules requiring monopoly carriers to unbundle several
network elements that are widely used to provide broadband services
(through rules on line-sharing <SUP>1</SUP> and access to unused fiber
and subloops). These rules currently allow competitive local broadband
providers to access and use telecommunications monopolies' spare and
unused network facilities, rather than requiring them to engage in
overbuilding the network within prohibitively expensive, redundant
facilities.
---------------------------------------------------------------------------
\1\ Broadband line sharing permits CLECs and DLECs to sell high-
speed (ADSL) services to consumers that also subscribe to the ILEC's
voice telephone service, without requiring the installation or use of
extra copper wires. Line sharing is technologically and economically
efficient because it uses all of a copper phone line's transmission
capabilities, and allows new competitors to focus all of their
resources on fast deployment of high-speed Internet access services.
---------------------------------------------------------------------------
H.R. 1685 would scrap existing local competition regulation of
broadband facilities based upon a series of monopoly certifications to
state commissions. Those certifications would undoubtedly be subject to
differing interpretations, and to hearings and litigation, while
competition was being stifled. H.R. 1685 would also eliminate all
federal and state price regulation of local broadband facilities if
just a single small competitor was doing business in a local telephone
exchange. Price regulation would also be eliminated if 70% of a
monopolist's lines in a state were conditioned for broadband service.
Neither bill would counter the recent trend among GTE and the BOCs
of selling off rural exchanges. Indeed, by rewarding monopoly carriers
with deregulation if 70% of their lines in a state are conditioned for
broadband service, H.R. 1685 would actually create a strong incentive
for the BOCs and GTE to unload rural exchanges to which they have no
desire to provide broadband service.
The end result would likely be to reserve access to monopoly
telecommunications facilities and functionalities to monopoly carriers
and to establish insurmountable barriers to competitive advanced
services deployment by CLECs and DLECs.
This, in turn, would seriously damage competition in the expanding
ISP market. ISPs resell telecommunications capacity provided by a
telecommunications carrier while providing additional value-added
services. If either bill became law, independent ISPs would lose the
competitive alternative of obtaining broadband facilities from
competitive, as well as monopoly, carriers. This is a serious matter
because all the telecommunications monopolies also provide broadband
ISP service in competition with independent ISPs, and have a
significant incentive to leverage their control of the bottleneck to
the customer to the advantage of their own ISP.
Although H.R. 2420 gives ISPs limited rights to interconnect and
collocate with a broadband provider, it expressly prevents either the
FCC or even state public utility commissions from regulating either the
price or the quality of the service that ISPs would receive. As a
result, independent ISPs would remain at the mercy of local monopoly
broadband carriers to reach consumers.
Thus the bill would provide ISPs with only limited rights to
interconnect to monopoly telecommunications company's essential
facilities, at whatever prices the monopolies wish to charge. These
costs invariably would be passed on to consumers in the form of higher
Internet access rates. The ultimate effect would be to decrease
consumer choice of ISPs and needlessly to raise prices for Internet
access. Consumers would be left with a narrow option of ISPs who
receive favorable pricing and service quality from the ILEC that
controls access to the customer. The independent ISP market (i.e.,
those ISPs not affiliated with the ILECs) would be severely harmed. The
inevitable result for consumers will be slower broadband deployment,
higher prices and less consumer choice of ISPs.
CONCLUSION
PSINet commends the Chairman and the members of this subcommittee
for their work and leadership on these issues. We share the desire to
help deploy broadband services to all Americans in a timely manner. And
we are convinced that the best services at the best prices will be
available only in a competitive broadband services marketplace
supported by pro-competitive regulation of monopoly facilities. A
highly competitive backbone market already exists today. This
competition will continue, and a competitive local broadband market
will emerge, if Congress does not disturb the pro-competitive local
competition framework of the 1996 Telecommunications Act. Thank you for
the opportunity to express the views of PSINet. We look forward to
continuing to discuss these important issues with the members of the
Subcommittee.
[GRAPHIC] [TIFF OMITTED] T4764.040
Mr. Tauzin. Thank you, Mr. Kunkel.
Now, Mr. Shelton Jefferson, CEO of Netcom in Brooklyn, New
York. Mr. Jefferson?
STATEMENT OF SHELTON JEFFERSON
Mr. Jefferson. I would like to thank the committee for this
opportunity to testify. I operate a small business called
Netcom Technological Solutions. We design, build, and maintain
computer networks, particularly Internets.
Netcom and other small businesses foster innovations in
products and services that many times reach the American
consumer first. It is the economic health of small companies
such as Netcom that is key to continuing the current U.S.
economic expansion.
My plea to Congress is a simple one. As a small
businessman, I seek relief from the burdens of competitive
disadvantage, lack of access, and lack of choice
unintentionally caused by the 1996 Telecom Act. The Act is a
great effort by Congress that is being taken advantage of by a
few companies to the disadvantage of us all.
As an Internet service provider, I provide dial-up and
dedicated Internet access services to my residential and
business customers at affordable prices that meet their quality
requirements. However, my company is locked out of providing
broadband Internet services by a cable at any price. Not only
my company, but 98 percent of all ISPs in America are locked
out of a very cost-effective, high-quality broadband medium for
the transmission of Internet services at any price.
The broadband option that I do have access to in some
communities is DSL, a service that cannot match the speed or
quality of cable and has mileage limitations of 3 miles. DSL
operates at maximum speeds of seven megabits while cable can
operate at speeds of 100 megabits.
In my opinion, DSL technology is not an effective
competitive choice over cable Internet service. However, unlike
the cable companies, Bell Atlantic is willing to allow me to
private label their DSL service to my Internet customers. As a
matter of fact, we have the opportunity to resell Internet
service and/or purchase transit rights from nearly every
carrier in America except cable.
Not only can we not get access to local cable broadband
facilities, we must also pay inflated prices for transit to the
Internet backbone, prices that are so high because of the
concentration of ownership of the Internet backbone in the
hands of a few long distance and cable companies.
While I think the RBOCs need to deploy a broadband
capability that better competes with cable Internet, I
understand the disincentive in current regulation that may be
holding them back. Any RBOC who deploys a competitive Internet
broadband product falls prey to Federal regulation that gives
their competitors immediate below-cost access to the new
advanced facilities.
As a businessman, it would be financially irresponsible to
invest in facilities that I had to sell to my competitors at
prices below my actual cost. It is common sense. The same,
however, holds true for cable and long distance companies where
they are equally constrained by regulation.
The big three long distance carriers have parlayed their
massive market power into control over the Internet backbone.
Their control over the backbone is relevant to me because I
have to buy backbone transit to deliver connectivity to my
customers. Backbone location and transit prices are always
important, but they become critically important when we
consider offering broadband. For broadband service, I need big
pipes. I need backbone access at T3 speeds, 45 megabits. I need
to be able to offer customers reliable connections of between 3
to 10 megabytes. We are talking about transmitting video, not
data. That is the convergence or point that we are at.
The locations of backbone points of presence dictates where
I can offer high-speed Internet service at affordable prices.
Outside urban areas, the distance to reach a backbone point of
presence is going to be fairly long and so the private line
costs are going to be higher. You pay based on mileage.
As you would expect, every ISP prefers lower prices for
private lines and for backbone transit, but what makes limited
location choices and high transit prices so bad is knowing that
constraints apply need not be so. The largest providers with
abundant fiber out outside urban areas are the RBOCs. Their
fiber routes cover every town, village, and corner inside their
LATAs. They could quickly introduce new Internet points of
presence and transit price competition, but they are forbidden
from offering me these solutions. Therefore, I cannot pass
along any of these choices, savings, and speed increases that
my customers are demanding.
Regulations that prevent the private sector from offering
remedies to higher prices and constraint supply are laws that
need stern and frequent scrutiny. The 1996 Telecom Act contains
no statements that suggest Congress wanted cable or long
distance companies to concentrate ownership in Internet
backbone and broadband services to the disadvantage of small
businesses, such as my own.
Regarding my recommendations to this Congress, I say the
real issue is whether there are enough affordable broadband
Internet choices available to consumers in all urban areas, not
just some urban areas, and available in all rural areas, not
just some rural areas. The real answer is no. If the claims of
those companies controlling Internet backbones and closed cable
Internet systems are 100 percent correct, market forces will
produce the desired results within a year and Congress needs to
do nothing.
In a perfectly competitive world, this would be a
reasonable expectation. In the real world, my experience as a
small IST is that competition is being stifled and Congress
should act in favor of more consumer choice and competitive
pressure that pushes Internet backbone availability beyond
affluent urban areas and into everyone's community now.
Thank you for your attention and the opportunity of
addressing you.
[The prepared statement of Shelton Jefferson follows:]
PREPARED STATEMENT OF SHELTON JEFFERSON, CEO, NETCOM TECHNOLOGICAL
SOLUTIONS
INTRODUCTION
My name is Shelton Jefferson. I am a Telecommunications System
Integrator and Internet Service Provider. I operate a small business
called Netcom that provides Internet service to residential and
business consumers in the New York area.
Netcom and other small businesses are a major force in our domestic
economy. Small companies such as Netcom foster innovations in products
and services that many times reach the American consumer first. It is
the economic health of small companies such as Netcom that is key to
continuing the current US economic expansion.
My plea to Congress is a simple one. As a small businessman, I seek
relief from the burdens of competitive disadvantage, lack of access and
lack of choice unintentionally caused by the 1996 Telecom Act. The Act
is a great effort by Congress that is being taken advantage of by a few
to the disadvantage of us all.
The Issues from an Internet Service Provider's perspective.
As an Internet service provider, I provide dialup and dedicated
Internet access services to my residential and business customers, at
affordable prices that meet their quality requirements. I have
repeatedly asked various cable operators for Internet carriage over
their cable modem systems. In private I have been told not to waste my
time and that ``it won't happen''. In public, I'm told the same story
as you have heard--that in a few years it will be an option.
Specifically, my company is effectively locked out of providing
broadband Internet service viafor cable--at any price. Not only my
company but 98% of all ISP's in America are locked out of a very cost
effective, high quality broadband medium for the transmission of
Internet services--at any price.\1\
---------------------------------------------------------------------------
\1\ ``Wholesale Carrier Services: U.S. Market Supply and Demand,''
Yankee Group, Data Communications, Vol. 14. Number 14, September 1999.
---------------------------------------------------------------------------
The broadband option that I do have access to in some communities
is DSL, a service that as a broadband Internet service cannot match the
speed or quality of cable and has mileage limitations of three miles.
DSL operates at maximum speeds of 7 megabits while cable can operate at
speeds of 100 megabits. In my opinion, DSL technology is not an
effective competitive choice over cable Internet service. However,
unlike the cable companies, Bell Atlantic is willing to allow me to
private label their DSL service to my Internet service customers. As a
matter of fact, we have the opportunity to resell Internet service from
nearly every carrier in America, except cable.
Not only can we not get access to local cable broadband facilities;
we must also pay inflated prices for transit to the Internet backbone,
prices that are so high because of the concentration of ownership of
Internet backbone in the hands of a few long distance and cable
companies.
My ability to compete as a provider of broadband Internet access
and broadband services Competition is stifled stifled by both law and
regulation--regulations that I'm confident were not intended to prevent
competition, but they do. and wSmall businesses peopleand American
consumers are paying the price for this . correctable injustice.
While I think RBOCs need to deploy a broadband capability that
better competes with cable Internet, I understand the disincentive in
current regulation that may be holding them back. Any What is the
incentive fRBOC who deploys velop a competitive Internet broadband
product based on the speed and reliability of fiber optics, falls prey
to Federal regulation that gives their competitors immediate, below-
cost access to the new advanced facilities. As a businessman, it would
be financially irresponsible to invest in facilities I had to sell to
my competitors at prices below my actual costs. It's just common sense
and prudent business behavior. The same holds true for cable and long
distance companies--where they are equally constrained by regulation.if
cable and long distance companies will have an immediate and absolute
right to access their networks.
Long distance companies have enjoyed an exclusive right in
interLATA voice and data services since 1984. The big 3 long distance
carriers (soon to be big 2) parlayed their massive market power into
control over the Internet backbones, some by building new capacity, and
some by buying existing providers. Their control over Internet backbone
is relevant to me because I have to buy backbone transit to deliver the
connectivity my customers require.
Backbone location and transit prices are always important, but they
become critically important when we consider offering broadband. For
broadband service, I need big pipes. I need backbone access at T3
speeds (45 megabytes). I need to be able to offer customers reliable
connections of 10 megabytes or more.
The locations of backbone points of presence dictates where I can
offer high speed Internet service at affordable prices. For example in
New York State, there are no backbone points of presence along the
southern tier of counties. If I want to offer service there, I'll need
to find an affordable way to haul my customer's Internet traffic to a
backbone point of presence. If I have to carry my customer's traffic a
great distance to reach an Internet point of presence, my private line
costs will overwhelm my small operating margin.
Outside urban areas, the distance to reach a backbone point of
presence would be very long and so private line costs are very high.
Even if I did arrange to haul traffic to a backbone point of presence,
I must still negotiate transit prices that make broadband Internet
viable. Netcom is not a member of the Internet backbone oligopoly that
allows members the right to connect as ``peers''. So my costs as a
small business are much higher than they should be. I pay based on my
lack of membership not my usage.
As you would expect, every ISP prefers lower prices for private
lines and backbone transit. But what makes limited location choices and
high transit prices so bad is knowing that constrained supply need not
be so. The largest providers with abundant fiber-routes outside urban
areas are the RBOCs. Their fiber routes cover every town, village and
corner inside each LATA. They could quickly introduce new Internet
points of presence, transit price competition, and lower interLATA
private line rates for Internet service, but they are forbidden from
offering me these solutions; therefore, I cannot pass along any of the
choices, savings and speed increases my customers are demanding.
WHAT DO LEGISLATORS INTEND?
Regulations that prevent the private sector from offering remedies
to high prices and constrained supply are laws that need stern and
frequent scrutiny. The 1996 Telecom Act contains no statements that
suggest Congress wanted that eithercable or long distance companies
wouldto concentrate ownership in Internet backbone and broadband
services to the disadvantage of small businesses such as my own. On the
contrary, and to the detriment of the general public.
Congress stated its intent--competition is to be encouraged and all
Americans should have timely access to advanced Telecom services at
affordable prices.
Noticeably, State and local legislators are worried about the
limited broadband Internet choices consumers have, and the higher
prices caused by lack of competition. For instance, cities such as
Portland Oregon took action to remedy the blocked cable Internet access
unaffiliated ISPs face. Right or wrong, the FCC bent over backwards to
permit discrimination in cable Internet access. It intervened in the
Portland case opposing the cable authority's local jurisdiction over
cable Internet, while at the same time refusing to declare that cable
Internet service is telecom. If cable Internet were telecom, providers
could not discriminate in favor of their own affiliates. If cable
Internet were cable, the local Cable authority could decide on open
access as a franchise matter. Why is it that Internet service provided
by cable companies is not telecom and Internet service provided by
everyone else is closely regulated ``telecom''? The FCC thwarted local
government control that I believe congress clearly intended. How long
will Congress allow this to go on?
Regardless of why the FCC is unwilling to discourage results that
favor the cable industry, Congress should provide leadership for open
access to cable Internet. If Congress cannot decide, then it should at
minimum allow local authorities to regulate cable Internet as the Act
intended. After all, it is local authorities that know the competitive
climate in their locales best and more important it is local
authorities that grant monopoly franchises to cable companies.
Noticeably, NY Assemblyman, Albert Vann, Chairman of the
Telecommunications Committee for the National Black Caucus of State
Legislators called for nationwide State initiatives to ensure broadband
access for all at affordable prices. Vann stated that
``if Congress can't or won't act then the States must ensure
that their individual public utility commissions and
municipalities are armed with the information and power to
promote fair and open competition for the public good.\2\
---------------------------------------------------------------------------
\2\ Albert Vann, Chairman of New York State Assembly Committee on
Corporations, Authorities and Commissions, (having legislative
oversight of the State Public Service Commission.) Speaking to the
National Convention of NBCSL, Baltimore Maryland, December 1999.
---------------------------------------------------------------------------
CONCERNS OF STATE AND LOCAL GOVERNMENT
State and local legislators are concerned about the higher prices
caused by lack of competition and lack of consumer choice.\3\
---------------------------------------------------------------------------
\3\ Section 253(b) of the 1996 Telecommunications Act specifically
grants states the right to promote and legislate ``on a competitively
neutral basis and consistent with Section 254 (Universal service),
requirements necessary to preserve and advance universal service,
protect the public safety and welfare, ensure the continued quality of
telecommunications services, and safeguard the rights of consumers.''
---------------------------------------------------------------------------
As a result States such as Washington, have required a local cable
franchise to provide open access to their network in return for the
franchise. The FCC is concerned about a proliferation of individual,
rules, regulation and requirements by State and local authorities.
Albert Vann, Chairman of Telecommunications Committee for the
National Black Caucus of State Legislators has called for national
State initiatives to ensure broadband access for all at affordable
prices. Vann stated that ``if Congress can't or won't act then the
States must ensure that their individuals public utility commissions
and municipalities are armed with the information and power to promote
fair and open competition for the public good.\4\
---------------------------------------------------------------------------
\4\ Albert Vann, Chairman of New York State Assembly Committee on
Corporations, Authorities and Commissions, (having legislative
oversight of the State Public Service Commission.) (Speaking to the
National Convention of NBCSL, Baltimore Maryland, December 1999.
---------------------------------------------------------------------------
RECOMMENDATION
Regarding my recommendations to this Congress, I say; the issue we
need your help on does not amount to a choice between telephone versus
cable. Nor is it a choice between local telephone companies and long
distance companies. You may have heard the issue framed that way, but
that is not true.
The real issue is whether there are enough affordable broadband
Internet choices available to consumers in all urban areas--not just
some urban areas--and available in all rural areas, not just some rural
areas. The real answer is ``no''.
Netcom wants to make those choices possible, but we cannot due to
unintended effects of law and regulation. We believe that delayed
access to affordable choices in broadband Internet continues to burden
some communities with economic scars that may take years to heal. The
Digital Divide only gets larger without your help.
If the claims of those companies controlling Internet backbones and
closed cable Internet systems are 100% correct, market forces will
produce the desired results within a year and Congress need do nothing.
In a perfectly competitive world this would be a reasonable
expectation.
In the real world, my experience as a small ISP is that competition
is being stifled and Congress should act in favor of more consumer
choices and competitive pressure that pushes Internet backbone
availability beyond affluent urban areas, and into everyone's
community, now.
I implore Congress to pass legislation that will open broadband
Internet markets to real competition. If Congress fails to act, small
ISPs and non-cable based ISP's will be bankrupted or we will be
consigned to provide inferior and or costly broadband Internet
services. On behalf of Netcom and similarly situated businesses, I beg
you to provide us with the access and price relief that we need. In
return, I know that prices will be decreased, innovation will be
encouraged and true competition will be brought to a vital sector of
the American economy.
Thank you for your attention and I will be happy to provide you
with any additional information requested.
Mr. Tauzin. Thank you, Mr. Jefferson.
Mr. Frisby, you are in trouble a little bit. It is your
turn, sir. President of the Competitive Telecommunications
Association, Mr. Russell Frisby.
STATEMENT OF H. RUSSELL FRISBY, JR.
Mr. Frisby. Thank you, Mr. Chairman, distinguished members
of the committee. I am Russell Frisby, President of the
Competitive Telecommunications Association. CompTel, as you may
know, is the national industry association representing the
full range of competitive exchange carriers of all kinds,
whether they are ISPs, CLECs, or IXCs.
The goal of the Telecommunications Act was to create
competition in the local telecom market. The challenge Congress
faced when crafting the Act was how to engineer an incentive
for the RBOCs to open up their local bottlenecks. Congress came
up with the proper incentive, which was to allow the box to
provide in-region long distance services once they met the 14-
point checklist. This incentive is working.
Also, the Act is working because it has unleashed an
entrepreneurial explosion. Competitors are investing over $1
billion a month in broadband connectivity alone. To deploy
these technologies, our companies, however, must have RBOC
cooperation so they may interconnect their facilities,
particularly that vital last mile. Unfortunately, our members
consistently tell us that even with the market-opening
incentives, they are having trouble getting timely cooperation
from the Bells.
For instance, when it comes to provisioning of DSL-capable
loops, we find that the RBOCs are frequently able to provide
their own customers with vital components within days, but it
may take our members months to get the same type of loop.
It is important for the committee to remember one key fact.
We would not be using the word ``broadband'' today were it not
for the 1996 Act and the pro-competitive regulatory environment
it created. It is the competitors, not the incumbents, who
first brought broadband services to American customers. It was
only after the entrepreneurs had blazed the way that the RBOCs
followed, even though DSL was a rather old technology.
I am going to spend the remaining part of my time focusing
on two charts. Those charts are going to show that the digital
divide is being breached in rural areas by companies such as
McLeod, Touch America, South Dakota Network, and in inner
cities customers are receiving DSL service from companies such
as Allied, Integrity, and Covad. I encourage all of you to read
the report published last month by the National
Telecommunications Information Agency and the U.S. Department
of Agriculture.
Now, the first chart you see up here shows every locale in
which a competitor has deployed a high-speed Internet POP. That
is DS-3 or higher. In 1996, that chart would have been blank.
Now we have a situation in which competitors have built over
1,000 high-speed Internet points of presence. They have
actually built POPs in every LATA in the country except for
two.
The second chart, if we could go to the second chart, shows
the population effect. The population effect is that 95 percent
of all Americans are within 50 miles of a high-speed POPs, and
these POPs are not just located in densely populated areas but
in cities such as Owatonna--and I apologize, I am from
Maryland--Minnesota, Ocala, Florida, Joplin, Missouri.
Mr. Chairman, over the lunch break, we checked our records
and we find that in Louisiana, there are 17 POPs. There are 4
in New Orleans, 4 in Shreveport, 3 in Baton Rouge, 1 is
Slydell, 1 in Monroe, 2 in Lafayette, and 2 in Lake Charles,
and those POPs are deployed by companies such as PSINet, Inter
Media, KMC, McLeod, AT&T, Worldcom, and Sprint. So clearly, new
entrants are equipped to offer these facilities and we are
doing it. The ACt is working and entrepreneurs are leading the
way in bringing innovative new technologies to the doorstep of
every American consumer.
In summation, I would like just to cover two points that
were discussed earlier. First of all, with regard to Land's
End, we would like to submit an article dated March 22 from the
Wisconsin State Journal. Land's End is not moving from
Dodgeville. It is opening a new facility in Stevens Point
because the State, Portage County, and the city of Stevens
Point have offered approximately $11 million of incentives.
Second, we recently, as was alluded earlier, recently held
a conference in Orlando in which we brought ISPs and CLECs and
IXEs together. The reason we brought them together is because
there is a real convergence going on, and at our seminar when
we talked about how to be a CLEC, what we found is a number of
ASPs and ISPs are now becoming CLECs because that is the best
way they can serve their customers. They are throwing up their
hands. They are not getting the services that they need from
the local operating company, so they have decided to go into
business for themselves as CLECs.
I think that is what Congress envisioned when it passed the
Act, that it could open a door so entrepreneurial companies
could come in and serve their customers the best way they can.
So we say, keep up the good work and stay the course. Thank
you, Mr. Chairman.
[The prepared statement of H. Russell Frisby, Jr. follows:]
PREPARED STATEMENT OF H. RUSSELL FRISBY, JR., PRESIDENT, COMPETITIVE
TELECOMMUNICATIONS ASSOCIATION
Good morning. Mr. Chairman and distinguished Members of the
Committee, thank you for inviting me here today to discuss broadband
deployment and the technological benefits being brought to all American
consumers by robust competition in the telecommunications marketplace.
I am Russell Frisby, President of the Competitive Telecommunications
Association.
CompTel is the principal national industry association representing
competitive local exchange carriers, interexchange carriers, Internet
backbone providers as well as Internet service providers, integrated
communications providers and related suppliers. Our members offer a
wide variety of services both on a local and regional basis as well as
across the globe.
Many of CompTel's members would not exist were it not for the
Telecommunications Act of 1996. In the wake of the 1984 break-up of
AT&T--which created competition in the long-distance market--the goal
of the Telecommunications Act of 1996 was to create competition in the
local telecom market. For over 100 years, these markets have been the
sole domain of government-guaranteed monopolies. The challenge Congress
faced when crafting the 1996 Act was how to engineer an incentive for
the Regional Bell Operating Companies to open up their local
bottlenecks and give up their monopolies. The only incentive in the Act
is simple: allow the BOCs into in-region long-distance services once
they have met the 14-point competitive checklist under Section 271.
Meeting the checklist shows that a Bell is cooperating with competitive
carriers to the point where the local market is irreversibly open.
Without the in-region interLATA market-opening incentive, the rational
economic behavior of an RBOC would be to maintain its grip on its
monopoly.
And, by the way, under the 1996 Act, Congress allowed the Bells to
build out-of-region interLATA data networks any time they want to, but
none has done so.
The Act's incentives have unleashed an explosion of entrepreneurial
brilliance never before seen in American economic history. Competitors,
like CompTel's members, are investing over a billion dollars a month in
``last mile'' broadband connectivity alone, not to mention global data
backbone facilities and innovative technologies such as wireless MMDS
Internet access. To deploy these innovative technologies, our companies
must have the BOCs' cooperation so that they may interconnect with
their facilities, especially the vital ``last mile'' copper loop.
Without fail, our members consistently tell us that even with the Act's
market-opening incentives in place, getting timely cooperation from the
Bells is problematic, at best. For instance, when it comes to the
provisioning of DSL-capable loops, the BOCs are frequently able to
provide their own customers with these vital components within days.
When it comes time for the same BOC to provide a competitor phone
company with the same loop, it can take weeks or months. To date, only
one RBOC has met the 14-point competitive checklist in one state: New
York. Now is not the time to repeal the rules and jeopardize the
phenomenal growth of data services.
It is important for this Committee to remember one key fact: we
would not be using the word ``broadband'' today were it not for the
1996 Act and the pro-competition regulatory environment it created. It
was competitors, not the incumbents, who first brought broadband
services to American consumers. Only after entrepreneurs had blazed the
broadband trail did the BOCs follow, even though they had developed DSL
technologies more than a decade earlier.
The ``Digital Divide'' is being bridged in rural areas by companies
such as McLeod USA, Touch America, South Dakota Network and Birch who
are laying fiber across the heartland. Meanwhile, the BOCs and GTE are
selling off their rural exchanges. Inner-city consumers are receiving
DSL services from companies with names like Allied, Ntegrity and Covad.
In many instances, the Bells and GTE are ignoring these areas, opting
instead to target higher-end business customers. But don't take my word
for it; I encourage each of you to read the report published last month
by the National Telecommunications and Information Agency and the U.S.
Department of Agriculture, which arrived at the same conclusion.
Additionally, competitors have built over 1,000 high-speed Internet
points-of-presence, or POPs, in all but two LATAs in America. As a
result, an analysis by the Competitive Broadband Coalition indicates
that over 94% of all Americans are within 50 miles of a high-speed POP.
These POPs are not just in densely populated urban centers, but in
areas such as: Owatonna, Minnesota; Ocala, Florida and Joplin,
Missouri. The notion that new entrants are not equipped to offer these
facilities is simply wrong. New entrants have set the standard.
The Bells have two avenues that they can take to enter the
interLATA markets: 1) start building outside of their home regions
now--just like the competitors are doing, and 2) comply with the 14-
point checklist to be able to provide such services in their home
regions. The Committee should also remember that there is no
distinction between voice and data. It's all ``ones and zeroes'' in
this digital world, and Congress's recognition of that fact is embodied
in the Act.
In conclusion, the Telecommunications Act of 1996 is working as
Congress envisioned over four years ago. Entrepreneurs are leading the
way in bringing innovative new technologies to the doorstep of every
American consumer. The Act is working because of the incentives it
created for the monopolies to open up their networks to competitors.
Let competition take hold. Don't amend the Act.
Thank you.
[GRAPHIC] [TIFF OMITTED] T4764.041
[GRAPHIC] [TIFF OMITTED] T4764.042
[GRAPHIC] [TIFF OMITTED] T4764.043
[GRAPHIC] [TIFF OMITTED] T4764.044
Mr. Tauzin. Thank you, Mr. Frisby.
Finally, Jerry Ellig, Professor of Economics at George
Mason University here in Arlington, Virginia. Mr. Ellig?
STATEMENT OF JERRY ELLIG
Mr. Ellig. Thank you, Mr. Chairman. I am a research fellow
at the Mercata Center at George Mason University. I am also a
research fellow at Citizens for a Sound Economy Foundation and
I am here today actually on behalf of CSE Foundation. The
reason is to summarize a couple of studies that the foundation
has published that I authored that look at several issues
related to broadband markets and that are related to a lot of
the topics we are talking about here today.
Just by way of background, Citizens for a Sound Economy
Foundation is an educational foundation. We have 250,000
individual members and supporters nationwide. We have been in
existence since 1984 and we have been doing work on
telecommunications since 1987. I know, because I was the
research director at the time when that project started.
So in Internet time, we have been doing this forever and we
have consistently been trying to figure out what is the best
way to get competition into these telecommunications
industries, and we recognize that people of good will can
sometimes disagree on that kind of thing, but let me give you
our take on it, and I will only make two points, rather than
the traditional three that speech coaches say you are supposed
to make.
The first point is, if we look at a lot of the policy
proposals out there when we talk about forced open access,
forced unbundling, sale of unbundled network elements at
various types of regulated rates, line sharing, and so forth,
we need to realize that those types of policy solutions come
from a model of a regulated monopoly industry where the only
way to get competition is through those kind of mandates.
Broadband access is not that type of industry. Broadband
access is quite competitive. We have had some more recent
figures quoted here, but in 1999, the Yankee Group reports that
there were 300,000 DSL subscribers, a little over a million
cable subscribers getting broadband, 40,000 getting it through
wireless. There are various figures that have come out that
suggest that those figures are a lot higher now than they were
in 1999, maybe double the number of folks on cable. The Yankee
Group projects that by 2004, 70 percent of U.S. households are
going to have access to DSL and cable, and it is usually going
to be the same 70 percent will have access to both.
CSE Foundation also took a look at other technologies in a
study that we published back in December and figured out that
if productivity and costs in this industry in broadband access
show the same behavior that they showed in other parts of the
competitive telecommunications industry after the AT&T breakup,
by 2004, we will probably have four technologies that are all
available for between $20 and $40 a month. In addition to DSL
and cable, wireless and satellite, as well.
The Federal Communications Commission was wise to recognize
this when they decided not to impose forced access or forced
unbundling on cable. We wish they had been as wise when they
looked at DSL and local telephone companies, and, of course,
H.R. 2420 does look at that and say, wait a minute. This is
competitive. It is not clear why we need forced unbundling in
this kind of a competitive industry.
The second finding we came up with is it looks like there
are going to be net benefits to consumers if you allow the Bell
Companies to offer interLATA data services. We have to keep in
mind that this is not a situation like long distance and local
access where traditionally the local phone companies have had a
monopoly on local access and so they may have very strong
incentives to discriminate against competitors in the long
distance business.
If, in fact, as our studies suggest, the broadband access
market is competitive, then the local Bell Companies have much
less of an incentive to discriminate against competitors who
are also trying to provide Internet backbone or other types of
services that would compete with the Bells' interLATA data
services. That does not mean that they would never want to
discriminate against a competitor, but when there is
competition, discrimination against a competitor does not
translate into harm to consumers. If a Bell Company
discriminates for reasons that are anti-consumer, all they do
is give the consumers a reason to switch to cable. So customers
have options to protect themselves in the broadband market that
they do not have in the local telephone market.
[The prepared statement of Jerry Ellig follows:]
PREPARED STATEMENT OF JERRY ELLIG, RESEARCH FELLOW, CITIZENS FOR A
SOUND ECONOMY FOUNDATION
Mr. Chairman and Members of the Subcommittee, thank you for the
opportunity to appear today to discuss broadband issues. My name is
Jerry Ellig, and I am a research fellow at Citizens for a Sound Economy
Foundation. I am also a senior research fellow at the Mercatus Center
at George Mason University. I am appearing here today on behalf of
Citizens for a Sound Economy Foundation to summarize two of our recent
studies that are relevant to the ongoing debate over broadband
policy.\1\ (The studies are appended to this testimony.)
---------------------------------------------------------------------------
\1\ Jerry Ellig, ``Broadband Forced Access: An Idea Whose Time Has
Gone,'' CSE Foundation Issue Analysis No. 99 (December 16, 1999); Jerry
Ellig, ``Costs and Benefits of the Bells' InterLATA Data Prohibition,''
CSE Foundation Issue Analysis No. 104 (May 25, 2000).
---------------------------------------------------------------------------
Citizens for a Sound Economy Foundation is a consumer education
organization that promotes free market solutions to public policy
problems. Our 250,000 members and supporters constantly remind us that
decisions made in Washington, DC, are felt in places far away from
here. Competition, consumer choice, and individual freedom have been
CSE Foundation's watchwords since our founding in 1984. These
principles have continually informed our research and educational
activity on telecommunications, which began in 1987.
Our most recent pair of studies on the broadband market continue in
this tradition. There are two key findings relevant to the topic of
today's hearing:
1. Broadband is not a monopoly; consumers can rely on competition,
rather than economic regulation, for protection.
2. Allowing the Bell companies to carry data across Local Access and
Transport Area (LATA) lines will likely create net benefits for
consumers.
Let me expand on each of these in greater detail.
1. broadband is not a monopoly, and so consumers can rely on
competition rather than economic regulation for protection.
Large business customers already have a wide variety of broadband
options. Therefore, most policy discussion involves the ``residential''
broadband market, which serves both residences and small businesses.\2\
---------------------------------------------------------------------------
\2\ Federal Communications Commission, Broadband Report 1999, CC
Docket No. 98-146 (January 28, 1999), para. 26.
---------------------------------------------------------------------------
Cable TV companies currently serve the majority of residential
broadband customers. The Yankee Group estimated that there were 300,000
DSL subscribers in 1999, compared to 1.1 million cable modem
subscribers. The Yankee Group also projects that 70 percent of U.S.
households will have access to cable modems and DSL by 2004, and
households with access to one will usually have access to the other.\3\
---------------------------------------------------------------------------
\3\ Federal Conununications Conunission Broadband Report 1999,
para. 54; Yankee Group, ``Cable Modems and DSL,'' Media and
Entertaimnent Strategies Report Vol. 3, No. 18, p. 6.
---------------------------------------------------------------------------
In addition to cable and DSL, other options exist as well:
<bullet> Hughes Network Systems' DirectPC offers high-speed download
via satellite. Uplink is accomplished via phone lines.
<bullet> Multichannel Multipoint Distribution System (MMDS) transmits
data via wireless spectrum.
<bullet> Local Multipoint Distribution Service (LMDS) also uses
wireless spectrum. Unlike MMDS but like satellites, uplink
occurs via phone lines.
Cable and DSL currently have a lead in subscribers, but there is no
guarantee that they will dominate the broadband market in the future.
Experience shows that competitive telecommunications markets produce
continuous productivity improvement and price reduction as well as new
technologies. CSE Foundation estimates that, with plausible assumptions
about cost trends, the current cost gap between technologies will
narrow considerably. As the accompanying table shows, five years from
now, four out of five broadband technologies could be available for
$20-40/month--less than most Americans pay for cable TV today.\4\
---------------------------------------------------------------------------
\4\ The average cable bill is about $40. See ``Comments of the
Progress and Freedom Foundation'' in FCC CC Docket No.98-146 (Sept. 14,
1998) at http://www.pfforg/pffdocket.html.
Cost of Residential Internet Access
----------------------------------------------------------------------------------------------------------------
Total Projected
Speed for Average Customer Monthly Monthly Monthly
Method Home Installation Equipment Fees* Cost, Cost,
(KBPS) Cost Cost 1998 2003
----------------------------------------------------------------------------------------------------------------
Satellite.................................. 400 $50 $300 $30-50 $50.81 $25.68
Terrestrial Wireless--MMDS................. 1000 $100 $400 $50-70 $75.44 $38.06
Terrestrial Wireless--LMDS................. 1500 $200 $1000 $50 $87.06 $46.23
ADSL....................................... 1500 $100 $200 $50-60 $64.26 $31.96
Cable Modem................................ 3000 $75-150 ***0 $40 $43.58 $21.35
----------------------------------------------------------------------------------------------------------------
*Includes average monthly cost of basic hookup to the network plus Internet access fees, if any.
**Assumes use of primary phone line, so no installation cost for second phone line is included.
***Included in installation fees.
Source: Raw data arefrom Federal Communications Commission Broadband Report 1999, CC Docket No. 98-146 (January
28, 1999), Charts 2 and 3. Calculations are described in Jerry Ellig, ``Broadband Forced Access: An Idea Whose
Time Has Gone, `` CSE Foundation Issue Analysis No. 99 (December 16. 1999).
In short, there are many different technological options, and
multiple competitors are trying each. Some will succeed, and some will
fail. But it is highly unlikely that a single firm will dominate the
broadband market. With a market this far from monopoly, there is no
justification for price regulation, mandated unbundling, or forced
access to competitors' facilities. The Federal Communications
Commission's refusal to impose forced access in cable, and H.R. 2420's
prohibition on forced unbundling of local phone companies' advanced
data networks, are both consistent with this conclusion.
2. ALLOWING THE BELL COMPANIES TO CARRY DATA ACROSS LOCAL ACCESS AND
TRANSPORT AREA (LATA) LINES WILL LIKELY CREATE NET BENEFITS FOR
CONSUMERS.
Faster Internet Speeds
It is a commonly-held belief that the relatively slow ``last mile''
of the telephone network is the only factor preventing many business
and most household Internet users from enjoying fast data speeds.
According to this theory, the ``World Wide Wait'' will disappear once
all users have access to some type of broadband hookup.
Although the ``last mile'' is an obvious constraint, there are
other points in the data transmission system that could also slow
performance. They include telephone company central offices, which were
not designed to handle the traffic volumes generated by lengthy
Internet sessions; Internet backbone providers' points of presence,
which are often connected to the backbone by T1 or other relatively
slow transmission lines; and the backbone itself, whose speed can slow
if too much data is sent at once. Growing demand for bandwidth could
place pressure on some or all of these elements. Analysts at Morgan
Stanley Dean Witter estimate that the number of consumers online will
nearly double, from 30 million in 1999 to 58.5 million in 2004.
About half of them will use high-speed, broadband Internet
connections, primarily cable modems or DSL. Similarly, businesses will
continue upgrading to faster Internet connections via fiber optics,
DSL, and fixed wireless.\5\ The rest of the Internet will need to
expand its capacity and speed in order to accommodate the increased
demand for more and faster data transmission. As an executive from one
startup backbone company noted, ``The biggest problem for service
providers that are providing high-speed access, whether over DSL or
cable, is the difference between what customers expect in performance
and what they get. The backbone-distribution bottlenecks only get worse
when you add high-speed access, because people are pulling in more
content at a faster rate than they did over dial-up lines.'' \6\
---------------------------------------------------------------------------
\5\ Jeffrey Camp, Stephen Flynn, et. al., ``The Internet Data
Services Report,'' Morgan Stanley Dean Witter (Aug. 11, 1999), pp. 17-
19.
\6\ Fred Watson, ``Backbone Help on the Way, From Start-Ups Enron,
Edgix,'' Broadband Week (February 7, 2000).
---------------------------------------------------------------------------
The Bell companies could mitigate data transmission bottlenecks by
deploying more Internet backbone and building regional data networks.
Bell-owned Internet backbones would ease congestion and perhaps
lower the cost of data transmission by increasing the amount of
backbone available in the market. The Bells would start with a dense
concentration of fiber optic cable already in place within LATAs--an
asset that would let them enter the backbone market at a low
incremental cost.
Regional data networks could bypass the telephone companies'
central offices, backbone companies' points of presence, network access
points, and leased lines. Such bypass would ease congestion and cut
costs for many Internet Service Providers.
The Bell companies can offer DSL, but some industry observers
believe that they could be more effective competitors in DSL if they
had their own regional data networks and backbones that could be
configured to support the DSL offerings.\7\ Regulatory requirements
that phone companies must sell ``unbundled'' elements of their DSL
networks to competitors also deter the Bells from making the
investments required to offer DSL.
---------------------------------------------------------------------------
\7\ An article on Sprint's broadband business noted, ``Sprint is
taking advantage of its high-speed IP (Internet protocol) backbone and
its strategic positioning of local caching servers to facilitate
delivery of content and applications at high speeds on an end-to-end
basis . . . Bell companies, barred from the long-distance business,
must rely on third parties for this kind of support, which most have
been hesitant to do for cost concerns.'' Fred Dawson, ``Sprint's ION in
Va. Sees Consumer DSL Launch,'' Broadband Week (May 24, 1999).
---------------------------------------------------------------------------
Arguments Against Bell Entry Into InterLATA Data Markets
There are two principal arguments against allowing the Bell
companies to engage in interLATA data transmission. One involves a
potential threat to consumer welfare, and the other simply seeks to
hold out entry into the data market as a ``carrot'' to induce the Bells
to open their local telephone networks to competition.
Threat to Consumers is Illusory
A genuine threat to consumer welfare would occur if the Bell
companies could use their control over the local phone lines to thwart
competition in interLATA data transmission. This is the same type of
reason that the Bells have been prohibited from offering long-distance
phone service. Under that theory, a Bell company might degrade the
quality or raise the cost of competitors' long-distance services by
giving them connections to the local network or contract terms for
interconnection that are inferior to those enjoyed by the Bell's own
long-distance company.\8\ Would a Bell engage in discrimination to
disadvantage Internet backbone firms and other competitors who carry
data across LATA lines, in the hope that it would then capture some of
their dissatisfied customers in its region?
---------------------------------------------------------------------------
\8\ A Bell would have incentives to do this only if regulation
constrained the price it could charge for local phone service. In that
case, disadvantaging long-distance competitors would allow the Bell to
charge a higher price for long-distance service, effectively reaping
some of the monopoly profits that regulation of local service prevented
it from capturing. If regulation does not constrain local service
prices, then the Bell would be just as well off charging a monopoly
price for local service and allowing all long-distance competitors to
compete on an equal footing. See Robert Crandall, ``Managed Competition
in U.S. Telecommunications,'' AEI-Brookings Joint Center for Regulatory
Studies Working Paper 99-1 (March 1999).
---------------------------------------------------------------------------
Fortunately for consumers, the nature of Internet interconnection
neutralizes the danger of discrimination. The largest Internet
companies interconnect and exchange traffic under ``peering''
agreements that essentially obligate each party to accept all traffic
from the others at no charge. Such agreements give the companies the
opportunity to offer their customers access to all other customers
using the Internet. A Bell-owned interLATA data network would surely
include enough subscribers to be an attractive peering partner, and the
Bell company would receive large benefits from peering. But the peering
agreement would require the Bell company to interconnect and accept
traffic on the same terms as the other companies. Therefore, the terms
of the agreement would prevent a Bell from discriminating in a way that
disadvantages other Internet firms and harms consumers. Since peering
is the most economical way to achieve interconnection, the Bells would
have a strong incentive to abide by the peering agreements.
If a Bell did not obtain peering and instead had to pay for
interconnection with other backbone companies, it would still face
incentives to offer high-quality interconnection to competitors. In
this situation, the Bell is really providing the other Internet firms
with two things: a cash payment, plus access to the Bell's local
customers. A Bell that offered its competitors inferior access to its
local customers would thus have to pay more for interconnection to
compensate for the fact that discriminatory interconnection is less
valuable to the competitors. Bells lack a similar incentive to avoid
discriminatory interconnection for long-distance voice competitors,
because federal policy mandates that long-distance companies pay
regulated access charges to local phone companies.
Even without the incentives created by peering and interconnection
agreements, the Bells have much less of an incentive to discriminate
against data competitors than voice competitors. In either voice or
data markets, the incentive to discriminate disappears if the local
phone company lacks monopoly control over access to customers. Market
share data show conclusively that the Bells do not dominate the
broadband Internet access market in the same way that they dominate
local phone service. Cable modem service is available to an estimated
25 percent of U.S. households now, and industry analysts project it
will be available to half of all U.S. households by the end of 2001 and
70 percent by 2004.\9\ Where this directly competitive alternative is
widely available, the Bells can gain nothing through discriminatory
interconnection. Discriminatory interconnection would simply induce
customers to switch to cable or other technologies for Internet access.
---------------------------------------------------------------------------
\9\ Camp, Flynn, et. al., ``Internet Data Services Report,'' p. 19;
Yankee Group, ``Cable Modems and DSL.''
---------------------------------------------------------------------------
The InterLATA Prohibition as a Carrot
A second, distinct argument for maintaining the interLATA data
restriction is that it gives the Bells a much stronger incentive to
open up local telephone markets to competition. The idea is not that
interLATA data transmission by the Bells poses any threat to consumer
welfare, but rather that permission to enter this market should be held
out as a carrot to prompt the Bells to do other things that benefit
consumers.
This ``carrot'' argument is creative but ignores the fact that the
opportunity to offer long-distance service already gives the Bell
companies a powerful incentive to open their local markets to
competition. Removing the interLATA data prohibition would allow the
Bell companies to compete in the wholesale Internet data transport
market. Total revenues in this market were approximately $6 billion in
1999, compared to $105 billion for the retail long-distance market.\10\
The opportunity to participate in the large, high-margin long-distance
market remains a strong incentive, even if permission to compete in a
much smaller market is granted.
---------------------------------------------------------------------------
\10\ Yankee Group, ``Wholesale Carrier Services: U.S. Market Supply
and Demand,'' Data Communications Series Vol. 14, No. 14 (September
1999), and Industry Analysis Division, Common Carrier Bureau, Federal
Communications Commission, Trends in Telephone Service (March 2000),
Table 11.2. The relevant comparison is between the wholesale data
transport market and the retail long-distance market because the Bells
are barred from the retail, interLATA long-distance market but
permitted to offer retail Internet services, as long as those services
do not cross LATA boundaries.
---------------------------------------------------------------------------
The ``carrot'' argument also ignores the importance of bundling in
today's consumer market, which gives the Bells a strong incentive to
open their local markets to competition. This incentive is especially
attractive to the extent that customers want a single source for all of
their communications needs. In the recent spate of merger filings
before the FCC, both Bell and nonBell companies have argued that the
ability to offer all communications services in one package, with a
single point of accountability, confers a significant competitive
advantage.\11\ Even if a Bell can offer interLATA data services, its
inability to offer long-distance phone service places the company at a
competitive disadvantage with those customers who value one-stop
shopping.
---------------------------------------------------------------------------
\11\ AT&T Proxy Statement/Prospectus on the Merger of AT&T and TCI
(Jan. 8, 1999), pp. 31, 35; Federal Communications Commission, In re
Applications of Pacific Telesis and SBC, para. 71; WorldCom-MCI Public
Interest Showing (Oct. 1, 1997), Sec. III.B.1; Kahan Affidavit in SBC-
Ameritech, ``Description of the Transaction, Public Interest Showing,
and Related Demonstrations'' (July 28, 1999), p. 12.
---------------------------------------------------------------------------
Unfortunately, the ``carrot'' argument boils down to a gamble that
depriving consumers of interLATA data competition now will make
competition in local phone service occur more quickly. This is the same
type of logic that underlies policies against ``predatory pricing:''
make consumers pay higher prices now to prevent the threat of a
monopoly later. It's also the logic underlying the use of international
trade sanctions to open up foreign markets: make consumers pay more for
imported goods and services now so that markets will be open to
American exports later. Experience shows, however, that consumers
usually end up losers when they are asked to give up vigorous
competition today in exchange for a promise of other benefits at some
future date.\12\
---------------------------------------------------------------------------
\12\ Predatory pricing, for example, is often alleged but rarely
found in practice; a vigorous and widespread campaign against predatory
pricing would likely impose costs on consumers with no offsetting
benefit. U.S. Seventh Circuit Court of Appeals Judge Frank Easterbrook
noted, ``Studies of many industries find little evidence of profitable
predatory practices in the United States or abroad. These studies are
consistent with the result of litigation; courts routinely find that
there has been no predation.'' See Frank H. Easterbrook, ``Predatory
Strategies and Counter-Strategies,'' U. of Chicago Law Review 48
(1981), pp. 313-14. International trade sanctions, meanwhile, are often
costly to consumers, but they rarely achieve their intended purposes.
See Jerry Ellig, ``One More Time: How Free Trade Benefits Americans,''
CSE Foundation Issue Analysis (November 1999).
---------------------------------------------------------------------------
CONCLUSION
For residential and small business customers, the broadband access
market is growing rapidly but still in its infancy. Two competing
technologies--cable and DSL--already have strong footholds, but others
could close the competitive gap over time. In such a competitive
environment, neither price regulation nor forced unbundling is
necessary to protect consumers.
However, it takes more than a fast last mile to ensure that
consumers receive high-speed, affordable Internet service that actually
delivers its full promise. To minimize the chance of bottlenecks
developing in other parts of the system, public policy should leave all
competitors free to enter the data transmission market, unless the
entry of a particular competitor can be shown to harm consumers.
Neither theory nor facts support the claim that Bell provision of
interLATA data services can harm consumer welfare. Therefore, the costs
of the prohibition on the Bells offering interLATA data services surely
exceed the benefits.
Mr. Tauzin. Thank you very much, Mr. Ellig.
The Chair recognizes himself for 5 minutes and other
members in order.
Let me first of all help shed some light on this dispute as
to how many POPs exist out there. It pretty much depends on
what you define as a POP, does it not, Mr. Frisby?
Mr. Frisby. Absolutely.
Mr. Tauzin. In fact, PSI testified on the Senate side that
it alone had more than 230 POPs, but many of those POPs were
only T1 circuits, right, and those T1 circuits have the
capacity, I think, of 1.5 megabits, is that right, Mr. Kunkel?
Mr. Kunkel. Mr. Chairman, as I testified today, we have now
275 POPs at high-speed access, that we define as being T3 and
above.
Mr. Tauzin. Are those DS-3 and above?
Mr. Kunkel. Yes, sir.
Mr. Tauzin. Because Broad Watch Magazine, which shows the
networks of 43 different backbones, considers a major backbone
hub to be a connection of DS-3 or above only, not these T1
connects which have been identified as POPs in some of the
testimonies, is that correct?
Mr. Frisby. If I could clarify, Mr. Chairman----
Mr. Tauzin. Mr. Frisby, yes?
Mr. Frisby. This was information that was developed by the
Competitive Broadband Coalition over the last week. Those were
DS-3 and above. The problem I think we are running into, that
this is very sensitive commercial information and until very
recently, some of the companies have not been willing to fully
disclose where all their POPs were.
Mr. Tauzin. It is going to be important in terms of the way
we understand all of your testimony that we all talk the same
language, so if you can in whatever you submit to us in
writing, if you can identify what are you talking about when
you talk about one of your POPs and----
Mr. Kunkel. We will be happy to, Mr. Chairman.
Mr. Tauzin. Thank you. Second, Mr. Jefferson, you made the
point, and I want to see Mr. Neel and you and perhaps Ms.
Molinari or any one of you want to help me understand this
thoroughly. You made the point that the four big Bell Companies
are limited by law in special ways when it comes to data
transmission, that we do have these LATA lines on the maps that
apply to them. We do have the unbundling requirements of 251.
We do have the prohibition against going over those LATA lines
until they get 271 relief from the FCC.
You made the point, Mr. Jefferson, why are we so surprised
that they have not rushed out to build broadband networks when
they cannot fully use them and when their competitors can use
them. It sometimes costs less than their own cost of extending
those networks. I have asked someone to think about that. I am
trying to get an analogy that I can understand at home. Is that
a little bit like someone suggesting to me that I should buy a
new car but that the understanding is that I cannot use it to
go maybe further than a few blocks, but all my neighbors can
use it and some of them can run taxi service on it if they want
to, and why would I invest in that new car under those
circumstances? Is that similar? Ms. Molinari?
Ms. Molinari. Mr. Chairman, the analogy that perhaps I can
bring home to this group in my interpretation is, it would be
as if you go out and you devise your campaign plan and you go
hire a consultant and then you then do a market analysis and
target your likely voters and then you are asked after you
developed all that to share it with your competitors in a
primary or general election. You would not be predisposed to
move too quickly to expend those resources if you had to share
it directly with your opponent, particularly if one hand was
tied behind your back and therefore you could not participate
in the debates.
Mr. Tauzin. I mean, it is one thing for us to help
deregulate the voice communication marketplace, which you had
indicated is a $100 billion marketplace yet for the Bells to
want to aspire to, by providing these kinds of restrictions and
these requirements on competitive access to the lines that were
laid and built for voice communications with monopoly products.
It is another thing to say now that those lines which might be
available for all these new businesses in broadband services
have to lay idle or other people can use them if you do go out
and put a lot of money into them to expand those new services,
to put a great deal, in fact, of new investments as we
understand it takes to make this work, and then not to be able
to fully utilize them yourself--you have to hand off the
traffic to someone else--and also make them available to your
competitors in this unbundled requirement of 251. That is a
totally different proposition.
Mr. Cleland, you want to comment on that?
Mr. Cleland. Yes. The metaphor I think you are looking for
is essentially it is a reverse patent, where you invest and
only your competitors get to earn a profit on it.
Mr. Tauzin. So you get the patent. You get to own it, but
others get to use it.
Mr. Cleland. Right, and you do not.
Mr. Tauzin. That is a cool idea. So we are supposed to be
surprised that these systems are not being deployed and the
Bells are not rushing out to provide them for other people to
use them for their own customers? We are supposed to be shocked
by that? Mr. Frisby?
Mr. Frisby. Mr. Chairman, a couple of points. First of all,
as was pointed out earlier, most of the DSL lines in this
country are being provided already by the Bells. So they are
deploying them and it is their largest, fastest growing area of
profit.
What we are talking about is interLATA data transfer and
there is a very easy solution. It happened in New York. Bell
Atlantic complied with the checklist. The 271 application was
granted. It can go forward in New York.
Mr. Tauzin. Mr. Jefferson, are you satisfied with DSL? Are
your customers happy with just DSL?
Mr. Jefferson. At this particular point, my customers would
prefer to have 3 megabits, 10 megabits. We cannot get that out
of DSL.
Mr. Tauzin. Here is the problem for your customers, is it
not. I mean, we heard a discussion from Mr. Neel about it. If
one of your customers is going to be on a supply network and he
does not have a fast enough connection, he is stuck with an old
connection. He cannot get to the POP without buying a very
expensive connection. He is at a disadvantage. He is a small
business. He does not have the resources to go out and buy that
T1 line himself and pay that $4,000 or $5,000 a month for that
connection. Then pretty soon, he is left out of the loop, is he
not, because the people that connect to him are at his speed,
right?
Mr. Jefferson. Exactly, and usually what is going to
happen, they are going to go to whomever can provide them at a
competitive price----
Mr. Tauzin. He has either got to move--they are either
going to take the business to somebody else or you have to move
your business to someplace where you can connect to the high
speed, right?
Mr. Jefferson. Exactly.
Mr. Tauzin. Is that not what is happening, Mr. Neel?
Mr. Neel. Well, there are several things happening. There
are companies that would have to move, the Land's End example I
mentioned. There are companies that will never locate in some
of these areas because these are the interstate highways of the
21st century.
Mr. Tauzin. And is it not sad, Mr. Neel that the fiber
optics available to them for them to make the connection from
that smallest town to the hub, that high-speed hub, that great
ramp that will take them into the future, the fiber in the
ground that they have already paid for in their phone rates and
they cannot use it.
Mr. Neel. It is bad throughout this country in rural areas.
Let me give you an example. If Mr. Jefferson were in Cortez,
Colorado, he would face the same problem that the big hospital
does there. They serve parts of Colorado, Utah, and New Mexico,
but to serve Farmington, New Mexico, which is 80 miles away, it
has got to have a high-speed data connection. For the hospital
to send that data from Farmington to Cortez, 80 miles, it has
to travel 1,000 miles instead of the direct 80 miles because
the provider, U.S. West, is not allowed to flip a switch and
none of these CLECs are going to come in there and serve that
hospital for that reason. There is no money there.
It is like John Dillinger. They asked him, ``Why did you
rob banks?'' and he said, ``That is because that is where the
money is.'' And that is why they are going to go in those
markets.
Mr. Tauzin. Thank you.
Mr. Frisby. So if you want to solve that problem----
Mr. Tauzin. I do not want to leave, Mr. Frisby. My time is
up, but I want to make one point. I am reading this report of
this conference and the conference attendees made it very clear
that they want to get these kickbacks when the ISP connects up
to a CLEC that is taking reciprocal COP off of the Bell system
and its customers. They want those kickbacks and they were
learning at the conference how to become CLECs so they could
get not just the kickback but the full reciprocal compensation,
the full benefit of the scam, is that not right?
Mr. Frisby. Well, unfortunately, I was not at that
particular session and I have not seen the article, but I was--
--
Mr. Tauzin. It is a pretty hot article. I just read it.
Mr. Frisby. I was former chairman of the Maryland Public
Service Commission when the whole issue came up and the issue
was really one of reimbursement for costs and that there are
costs in termination.
Mr. Tauzin. Yes, there are some costs. We understand that.
But when one of the members actually calls them what they
really are, kickbacks, and then they are saying, that is not
enough. We had a hard enough time getting our kickbacks. We
want the whole thing, so we are going to become a CLEC to get
it all.
Mr. Markey is recognized.
Mr. Markey. Thank you very much. Mr. Frisby, I thought I
heard you mention McLeod.
Mr. Frisby. Yes.
Mr. Markey. Now, McLeod is in Cedar Rapids, Iowa.
Mr. Frisby. Yes, it is, Mr. Markey.
Mr. Markey. I have three stuffed cows in front of the
Hilltop Steakhouse in the middle of my district and that is our
relationship to the farm economy.
My father delivered milk door to door. We were at the
retail end of it. So how does McLeod deploy this broadband in
Cedar Rapids and all those remote parts of the country? Mr.
Neel is saying they are not going to serve those remote
hospitals, but is that not actually the business plan of
McLeod, to go to all of those places where U.S. West is not
right now, and are they not already out there and serving tens
and perhaps hundreds of thousands of people with this broadband
in rural America?
Mr. Frisby. Absolutely. They are doing it the old fashioned
way. They are building it and they are going to the market,
they are going to the second, third, even fifth tier markets
because that is where the opportunities are and they have this
staging plan. What they have done is they have begun to go,
first start by resale, but eventually in many of these
situations, they are building out, they are laying the fiber,
they are acquiring companies. They are doing it the old
fashioned way.
Mr. Markey. Now, McLeod believes, does it not, that there
is a very successful business plan which can be deployed which
will provide Internet, cable, local, long distance service to
rural Americans----
Mr. Frisby. Absolutely.
Mr. Markey. [continuing] and their company is now
capitalized at $10 billion and they project it to be $40
billion in another 3 or 4 years, making it a greater value than
U.S. West.
Mr. Frisby. Absolutely.
Mr. Markey. So how can a small company startup in 4 years
and do such a marvelous job in deploying broadband in rural
America when the largest company in that region has been unable
to do so?
Mr. Frisby. Well, I answered why the largest company
cannot, but you have a strong management team, you have
adequate financing and you have a market. In some areas, what
has happened is McLeod now has something like 40 percent of all
business lines in Iowa and that is because it goes in, it
offers a service for value, and it is happening all throughout
the Midwest.
Mr. Markey. So it does not compete on price, it competes on
the value offered?
Mr. Frisby. Value and price.
Mr. Markey. Yes, but mostly value.
Mr. Frisby. Mostly value, yes.
Mr. Markey. Mr. Windhausen, you said earlier that 50
percent of the country now has access to a competing broadband
service. Can you elaborate upon that a little bit?
Mr. Windhausen. Sure, and that is just from those three
main companies. That is not including all the new companies
that are getting in the market right now, today, to serve the
second and third-tier markets. So we are going to be well past
the 75 percent mark probably in another year from now.
There is another example, I think, which you may be
familiar with in your home State of Massachusetts. Digital
broadband communications recently competed for and won a
contract with the State educational system to provide DSL
services to every single town and locality in this whole State
of Massachusetts and they won that contract after bidding
against Bell Atlantic. They will offer that price, the same
price, to every single city, whether it is rural, urban,
suburban, and every single town.
The advantage of their network deployment is once they are
collocated in those central offices, then they will also have
the facilities available to serve all the residential
customers.
Mr. Markey. So every residential customer in Massachusetts,
no matter where they may be in the rural part of our State, and
people do not understand that 60 percent of our State is rural,
will have access to it.
Mr. Frisby. Will have access to it through the competitive
deployment of this service.
Mr. Markey. Now, how many other States have put together
plans the way Massachusetts has?
Mr. Frisby. Well, I will tell you, a lot of them are
looking at those plans based on the success of----
Mr. Markey. Are we first?
Mr. Frisby. Massachusetts is the first that I'm aware of.
Mr. Markey. So if other States adopted our plan, they could
very easily guarantee that same access for the rural----
Mr. Frisby. That is exactly right.
Mr. Markey. So the States themselves have the ability to do
that.
Mr. Kunkel, you heard Mr. Jefferson's problem here.
Mr. Kunkel. Yes, sir. I was about to give him my card.
Mr. Markey. I thought that there was a certain
appropriateness of the seating chart here, that the two of you
were sitting right next to each other, and I was just
wondering, listening to both your testimonies back to back, is
there a way you might be able to help Mr. Jefferson?
Mr. Kunkel. Absolutely.
Mr. Markey. How would you be able to help him?
Mr. Kunkel. We have privately deployed OC-192 fiber, OC-48
fiber, I believe, in most of Mr. Jefferson's customer service
territory and I would be happy to quote him prices for whatever
service he thinks he needs where we can give it to him.
Mr. Markey. Mr. Jefferson, were you aware that Mr. Kunkel
is actually in your service area and could provide you with a
competing broadband alternative?
Mr. Jefferson. I absolutely was. As a matter of fact, about
3 years ago, we had a contract to provide services to the
National Black Caucus of State Legislators and each legislator
needed to be near a point of presence in their hometown so that
they could get access and this was the general contract.
One of the companies that we went to was, of course, PSI.
They could not do it because they were not near the rural
points of presence. UUNet could not do it. The only company
that came fairly close at that particular time was AT&T. I have
not looked at PSI----
Mr. Markey. When was that, how many years ago?
Mr. Jefferson. That was 3 years ago.
Mr. Markey. Three years ago. Mr. Kunkel, has this whole
movement--it is pretty much only a 4-year-old movement, so are
you now able to provide these services to Mr. Jefferson?
Mr. Kunkel. I would be happy to engage Mr. Jefferson in a
discussion. We have invested about $56 billion in our
architectures in the last 3 years, Mr. Markey.
Mr. Markey. Great. That is great news. Excellent, because I
think that is really the good news, is that the world has been
radically changed over the last 3 years and I think when people
come back and look at the alternatives now, they might find
that there is a highly desirable alternative way in which you,
Mr. Jefferson, and others might be able to go than looking at
that traditional source that I think people had come to rely
upon for 100 years.
Thank you, Mr. Chairman.
Mr. Tauzin. Thank you, Mr. Markey.
The gentleman from Ohio, Mr. Oxley, is recognized.
Mr. Oxley. Thank you, Mr. Chairman. Do not ask for a
finder's fee.
Let me ask Mr. Neel, the argument abounds somewhat
regularly that giving the RBOCs the 271 relief would lessen the
RBOCs' desire to enter broadband and to comply with a checklist
particularly. Is that a fair assessment?
Mr. Neel. No, Mr. Oxley. I think it could not be further
off base. The relief that is being sought in Chairman Tauzin
and Mr. Dingell's bill would provide interLATA relief
specifically for data, specifically for data. Now, the data
market, as I said earlier, was just a fraction. The wholesale
data market is just a fraction of the long haul market. The
long distance voice market is well over $100 billion a year.
That is a huge incentive to get into that market, and H.R. 2420
does not change anything about a Bell Company's requirements to
get into that market.
They have to meet the checklist. They have every incentive
to open and keep open those markets. They have interconnection
requirements. There is every reason to continue that market
opening process to get 271 relief for voice traffic. So getting
the relief for data would in no way affect a Bell Company's
requirements to get into the voice market, as you are
suggesting.
Mr. Oxley. Some would also argue that bits are bits and
that if, indeed, this bill were to pass and you were to provide
interLATA data relief, that you would also automatically get
into voice. How would you argue against that?
Mr. Neel. The only reason why you would want to get into it
would be to sell it, right, to be able to recover your costs.
You have got to market it and it is really easy to police the
marketing and selling of voice services. The first time there
would be an ad or a salesman route whispering behind a table,
would you like to also buy your long distance voice traffic,
then the company would be in direct violation of the current
law.
So from a practical standpoint, even though bits are bits,
there is no way you could sell it, no way you could market it,
no way you could reap any kind of profits from it.
Mr. Oxley. Mr. Windhausen, do you want to take a crack at
that?
Mr. Windhausen. Yes, if I may. In our view, the effort to
try to distinguish in the legislation between data traffic and
voice traffic would be a giant step backwards. One of the big
accomplishments of the 1996 Act was to start getting rid of
these categories that we had throughout our history of this is
cable, this is broadcast, this is data, this is voice. Congress
wisely recognized that it is all one network. It is the same
copper wire that runs from your home to the central office
switch that carries both voice and data traffic.
In fact, I have an article attached to my testimony, and I
will just read one sentence from it. It is an article talking
about the future of this network and it says, ``The key to
convergence, a converged network, that carries both data and
packetized voice traffic and supports multiple applications.''
That is the future of this network. That is where the
technology is driving.
For Congress to consider now legislating a different
treatment for data traffic on the one hand and voice traffic,
it is just not realistically--it does not work with the current
market.
Mr. Oxley. Before we go back to Mr. Neel, let me ask you,
Mr. Windhausen, do you support the 271 relief process?
Mr. Windhausen. Absolutely.
Mr. Oxley. And you supported the Bell Atlantic 271
approval?
Mr. Windhausen. We did not support the Bell Atlantic
approval because, in our view, they had not done a good enough
job at that time of providing DSL loops. Since that time, Bell
Atlantic has made significant process in providing those DSL
loops.
Mr. Oxley. How about the SBC application in Texas?
Mr. Windhausen. No. The SBC application is a far different
story from New York.
Mr. Oxley. So you selectively support some 271 process and
others you do not?
Mr. Windhausen. Well, we support the process totally, but
we have different conclusions based on the facts, and the facts
are in Texas, SBC has not done as good a job as Bell Atlantic
did in New York. Once they do, then we will support SBC, as
well.
Mr. Oxley. Mr. Neel?
Mr. Neel. Mr. Oxley, if all of this information is the same
and convergence is the goal, why do we regulate all these
services so dramatically differently? There is virtually no
regulation on CLEC enterprises, ISPs, cable modems, but the
services provided by the local exchange companies are heavily
regulated. In my testimony, there are 25 or 30 heavy
regulations that are not applied to anyone but the local
exchange companies.
Chairman Kennard says we have really a no-opoly because the
cable modem service and DSL services are essentially the same.
But yet he and public policy maintain that those very services
are to be heavily regulated when they are provided for one kind
of carrier but not for the other one. So we have a severe
discrepancy here in how these markets are regulated and that is
going to massively restrain investment in those very markets.
Mr. Oxley. My time has expired, Mr. Chairman. Thank you.
Mr. Tauzin. I thank the gentleman.
The gentleman from Oklahoma, Mr. Largent, is recognized.
Mr. Largent. Thank you, Mr. Chairman. I want to say, first
of all, that the testimony has been very enlightening. I have
enjoyed it and learned a lot.
Mr. Neel, I had some questions for you. You mentioned this
case with Land's End. They were originally located where?
Mr. Neel. Well, their main headquarters is in Minnesota and
they wanted to open a business, an e-business service in a
smaller community in Minnesota.
Mr. Largent. Dodgeville? Dodgeville, Wisconsin, and they
had to move to where?
Mr. Neel. Madison.
Mr. Largent. Madison. And why did they have to do that?
Mr. Neel. Well, because there was no one that could carry
the massive amounts of traffic from the smaller community out
into the country. They needed more than just a T1 line or dial-
up modem services. They had to move a whole lot of data and
there was no one that can carry it, and U.S. West, who is the
carrier in Minnesota, is prohibited from carrying that service.
So they had no choice but to relocate that enterprise, that
part of their business, into Madison.
Mr. Largent. I mean, I would think a company like Mr.
Kunkel's would be all over a customer who had large amounts of
data that they wanted to move, that that would be highly
profitable and there would be no problem whatsoever to get
somebody to service that.
But my question was, and you made reference to this,
because of these arbitrary LATA lines that they had to move
from Dodgeville to Madison. There are two points that I would
like to ask you about. First of all, it is my understanding
that both of these territories are served by GTE, which is not
restricted by interLATA restrictions.
Second, both Dodgeville and Madison are located within the
same LATA. You do not have to cross a LATA line to go from
Dodgeville to Madison. It has nothing to do with this
particular situation in Wisconsin.
Mr. Neel. Well, but Mr. Largent, the point is that they
could not move--not from Dodgeville to Madison, the data--they
could not move that information, all that data from Dodgeville
to Denver, Seattle, and elsewhere because then you are carrying
it across LATA boundaries because Land's End's e-business is a
national--international enterprise.
Mr. Cleland. If I could add one point to that, the reason
why, Mr. Largent, that does not occur is it is not capital
efficient. In the sense that there is one outlier business way
out there, it costs a lot of money to lay competitive fiber out
there and for one little customer, even if they are a big
customer, it is a tremendous amount of upfront fixed costs and
so it is just not economically efficient to build that way.
That is the reason why the CLECs have all built to big
buildings in urban, dense areas.
Mr. Largent. Yet we had testimony from Mr. Malone, who
unfortunately had to leave, that says in February 1999, the FCC
concluded that the Internet access was generally available
throughout the Nation in both rural and urban areas, and in
Tennessee, every county, urban and rural, has access to at
least two Internet service providers via a toll-free call, with
40 percent of the State having access to four or more ISPs via
a toll-free call.
Mr. Cleland. Narrowband, not broadband.
Mr. Largent. Okay. I wanted to ask Mr. Windhausen, it is my
understanding that you were counsel for Senator Hollings during
the discussions, the conference on the 1996 Act?
Mr. Windhausen. Yes, sir.
Mr. Largent. Talk to me about the discussions at that time.
Right now, what we have is that USTA, I assume--I will ask you,
Mr. Neel. USTA in 1996 supported the 1996 Act?
Mr. Neel. Yes, we did.
Mr. Tauzin. Okay. My question to you, Mr. Windhausen, is
that during these discussions, was data brought up? Was that a
topic of discussion or was this like something that was totally
unforseen?
Mr. Windhausen. No, it was--data discussions, they were a
very big part of the deliberations and you can see that from
several provisions of the Telecommunications Act and also from
much of the debate on the floor of both the House and the
Senate. I can mention a few examples.
Of course, there was Senator Exon's provision in the Senate
and then a parallel provision in the House dealing with
indecency over the Internet that was a big issue at that time.
On the House side, there was a Cox-Wyden amendment that
attempted to say that there shall be no regulation of the
Internet and the word ``Internet'' was used in that provision.
That ultimately was dropped out of the bill, was not included
in the final bill. There was a Senator Kerry amendment to
Section 271 which specifically exempt from the Section 271
process Internet services to schools.
And so it was very clear that Congress did consider the
Internet at that time. It was an intention to open up local
phone markets for both voice and data services and there is, I
think, a very strong record once you look at it very closely in
the floor statements and in the committee hearings that will
support that.
Mr. Largent. Thank you. Mr. Chairman, if I could just say
one other thing, it was Mr. Neel who quoted Dillinger when
asked, ``Why do you rob banks?'' He said, ``That is where the
money is.'' It sure appears to me, Mr. Neel, that now we had
the 1996 Act, which USTA supported. Now the discovery is all
the money is in data and that is why the RBOCs want to get to
it because that is where the money is.
Mr. Neel. No, Mr. Largent, the money is not all in data. If
you look at the--we have submitted this chart that----
Mr. Largent. What about the growth of long distance? It is
in data overwhelmingly over voice, is it not?
Mr. Neel. The traffic is moving toward data.
Mr. Largent. Exactly.
Mr. Neel. If you are going to be a player, if the local
exchange companies are going to be able to compete and serve
everyone, they are going to have to offer a full bundle of
services and they are the only ones kept out of that market
right now.
Let me clarify one thing. USTA supported the 1996 Act
because there was a very careful balancing of interests and we
certainly never dreamed that the FCC would interpret it in the
ways that it has, by extending a 14-point checklist to what
some have characterized as a 600-point checklist.
So we supported the Act aggressively, but we have strongly
objected to the way the FCC has interpreted that Act and that
is precisely the reason that Congress needs to act now, to
clean up the vagueness that existed in a law, the basis of
which was 4\1/2\ to 5 years ago, which is a lifetime in the
Internet economy.
Mr. Tauzin. The gentleman's time has expired.
The gentleman from Florida, Mr. Stearns.
Mr. Stearns. Thank you, Mr. Chairman. Let me just open by
saying, Susan, how impressively you seem to be able to handle
all these very difficult subjects. You are welcome in my office
at any time to see me and help me understand these. I think
some people said, people of good will can disagree, and I think
that is where we are. I have friends on both sides. The fact
that I have not gone on the bill would show you that I am
trying to understand this. Obviously, when Mr. Tauzin lobbies
you, that is about the best lobby you can find anywhere because
he is very effective and very knowledgeable. But, obviously, it
is nice to see you again and I think all our colleagues enjoy
seeing you frequently, and so it is fun.
Let me see if I can ask questions which are sort of more
broadly based. Mr. Neel, I think it was Mr. Frisby said that 90
percent of Americans are within 50 miles of having broadband.
Mr. Neel. Or point of presence.
Mr. Stearns. Pardon?
Mr. Neel. Approximately 95 percent of all Americans are
within 50 miles of a competitor's point of presence or POP.
Mr. Stearns. I think I want to give you an opportunity to
answer that, because what he is saying is there is no digital
divide, so I want to give you an opportunity to answer that.
Mr. Neel. Well, it would be a bit like telling some guy in
the desert who is drowning there is a water fountain 50 miles
away. If that water is not in front of you, it is not going to
do you a whole lot of good.
Also, what kind of pipe do you need? I mean, if all you can
get is even a T1 line with certain capacity and you want to
operate a small business there to compete with Sears for some
kind of mail order thing, that is not going to help you,
either. These definitional problems are extremely important as
to how much capacity. Sure, just about everyone can dial up and
get Internet access----
Mr. Stearns. Mr. Neel, let us ask him. When you make those
claims, what type of broadband are you talking about? Are you
talking about DSL, an ISTN line? Are you talking about an T1
line?
Mr. Frisby. What we are talking about is proximity to a DS-
3. Now, you are right. The question is the hop from the end
user to the point of presence, but that is not an interstate
issue in most cases. That is a local issue and it is a question
of the local availability of DSL and what one of the reasons we
are pushing so hard for H.R. 271 is it is our experience that
absent the stick of 271, we cannot get the connections to--
necessary connections in many instances--to make that hop.
Mr. Stearns. Okay. Mr. Windhausen, LATAs are arbitrary
lines that are set up designating where the Bells could and
could not carry the traffic. Are now these arbitrary lines
really something that makes it difficult for them? Why should
these LATA restrictions also be imposed on data?
Mr. Windhausen. The purpose of the restrictions that were
in the 1996 Act were to give the incentive to the phone
companies to open up their networks to competition. The answer,
when Roy complains that the Bell Companies have a hand tied
behind their back by these LATA restrictions, they can untie
that rope themselves. They have the means of freeing themselves
and getting rid of these LATA restrictions.
Mr. Stearns. You mean through the facility-based
competition? Is that what you are saying?
Mr. Windhausen. If they would just provide us with the
collocation that we need and the loops that we need. We are
actually the ones who have not just one hand tied behind our
back, we often have both hands tied behind our back because we
cannot get the essential facilities we need to serve consumers.
Mr. Stearns. Because the RBOCs will not help you?
Mr. Windhausen. Because the RBOCs will not do what they are
told to do.
Mr. Stearns. Are you the one that used the term ``strategic
enrollment''? Did you use that word?
Mr. Windhausen. Strategic incompetence.
Mr. Stearns. Strategic what?
Mr. Windhausen. Strategic incompetence.
Mr. Stearns. Incompetence, okay. You said incompetent.
What do you say, Mr. Neel, when they say telecommunication
had a facility-based competition. Now, when Bell South is in my
area, they say yes, but the FCC changed it. It is no longer 14
points or 13 points. It has escalated, and the long distance
people will say, well, why do you not just comply with the
facility-based competition? Why do you not do it? Just tell us
why, for example, it is not getting done, because they have
done it in New York. Will not this whole question be moot if
all the RBOCs went ahead and complied and we get it over with?
Mr. Neel. Well, Mr. Stearns, the Bell Companies are
complying. They are spending billions to open their markets.
The law specifically requires the kinds of interconnection and
also the kind of arbitration proceedings where a competitor can
come in and fight it out in a State commission and get a final
decision.
But let us remember one thing. There is intense competition
in urban areas, intense competition, which is where the money
really is. Where there are markets, where CLECs are going into,
the long distance carriers, and they are picking off local
business customers primarily--they really do not care much
about residential customers. They are picking off high volume,
profitable business customers. There is intense competition.
Frankly, that alone should force the FCC to declare these
markets open in these States and allow the Bell Companies to
compete and extend these services into rural areas where these
CLECs are not going to go.
Mr. Stearns. Thank you, Mr. Chairman.
Mr. Tauzin. I think the gentleman.
We do have votes on the floor and we are going to have to
wrap. I want to wrap by simply doing something that I think is
important for the record.
Mr. Windhausen, you have mentioned that we should not be
regulating differently. They are going to be the same thing. It
is all merging. I want to go through a bunch of duties and ask
you whether they applied to DSL service and whether they apply
to cable modem service.
Common carrier duty? Yes to DSL, no to cable.
Prohibition against discriminatory treatment? Yes to the
telephone companies and DSL. No to cable.
Requirement to file tariffs? Yes, no.
FCC approval to extend lines? Yes, no, cable.
Annual reports? Yes to the telephone companies. No to
cable.
Prescribed appreciation charges? Yes to DSL, no to cable.
Prescribed uniform system of accounts and accounting forms?
Yes to telephone companies and DSL. No to the cable modems.
Duty to provide subscriber list information? Yes and no.
Duty to provide interconnects? Yes to the DSL telephone
companies. No to cable.
Duty to offer resale? Yes, no.
Duty to provide number portability? Duty to provide dialing
parity? Duty to establish reciprocal compensation? Duty to
negotiate access to networks? Duty to provide unbundled access?
Duty to grant physical collocation? Duty to support universal
service? Duty to provide interLATA DSL services?
Requirement to use separate subsidiaries for interLATA
communications. Requirement to use separate affiliates for
electronic publishing. Prohibition against a lower monitoring
until 2001. A duty to unbundle for their ISPs.
The answer to every one of those requirements on the DSL is
yes, and the answer on cable and modems is no. It is a one-page
list of disparate regulatory treatment, one heavily regulated,
one not.
I want to make one final comment and then I will wrap. Yes,
I see the day coming, Mr. Windhausen, when, indeed, this
Internet community is going to fully merge in a digital age
with this regulated telephone industry. And when it comes
together and telephony becomes part, if voice becomes a real
and vital part of broadband Internet services, you will have
merged with one of the most regulated entities on earth and the
Internet, the Internet will have been infected with some of the
worst and most powerful regulators in American history, those
who serve on the FCC who call themselves the most powerful
communications people on earth and who, in that wonderful book
I cited to you that I hope you borrow from me--claim that they
can interpret these laws any way they want. They can interpret
them any way they want. And you will have inherited that same
regulatory authority over the Internet.
Would it not be wonderful if before that full merger
occurs, if instead of merging with this awfully, deeply,
completely regulated entity, you are merging with instead a
fully deregulated, competitive form of business. When telephony
on the Internet is treated no more differently as you would
like to see it treated, than you have described in your
testimony.
Getting there is the trick. I understand that. And I
understand that all of you have different perspectives on how
best to achieve that open competitive marketplace. Some of you
support our proposal and some of you do not for that reason.
But getting there is imperative.
Mr. Cleland, the point you make in your testimony about
churn is the one I want to leave on everybody's thoughts today.
The one who gets there first may be the only one who serves the
customer, and if we do not have two competitors trying to get
there at the same time, if we do not have two competitors fully
capable of trying to get there at the same tim,e if we restrict
some and only allow one in, we are going to have a world where,
indeed, consumers are served by one competitor alone because
the churn rate is, as you said, like death. It is motionless.
You get hooked up to one provider and you stick with them, and
you know what? I have been there before. I have been there
before when Americans were stuck with one provider, and I
remember what happened here.
My friends, we are calling upon us to reregulate cable,
1992, and my friends will be calling upon us to reregulate
again, and I desperately want to avoid that. So I urge you to
think this through with me. I know you have got different
points of view and I know there are a lot of dollars involved
here.
Mr. Stearns. Mr. Chairman?
Mr. Tauzin. But getting from here to there is going to be
critical.
Mr. Stearns?
Mr. Stearns. I think the solution could be for the RBOCs to
buy cable companies.
Mr. Tauzin. Maybe. But I suspect it may be that the cable
companies are buying the RBOCs before it is over with.
Gentlemen and ladies, thank you so much. As Mr. Stearns has
pointed out--you have heard this from a number of members, Mr.
Markey made the comment, too--this has been a remarkably well
balanced and very informative panel, and for that we thank you.
The hearing stands adjourned.
[Whereupon, at 3:16 p.m., the subcommittee was adjourned.]
[Additional material submitted for the record follows:]
PREPARED STATEMENT OF THE ASSOCIATION OF COMMUNICATIONS ENTERPRISES
Mr. Chairman and Subcommittee Members, my name is Ernest B. Kelly,
and I am president of the Association of Communications Enterprises
(ASCENT). On behalf of the organization's more than 700 members, we
appreciate the opportunity to offer our remarks on the advancement and
deployment of broadband technologies.
ASCENT, incidentally, was formerly the Telecommunications Resellers
Association (TRA). We are the preeminent trade organization
representing the interests of entrepreneurial communication firms.
Founded in 1992 and headquartered in Washington, D.C., ASCENT's mandate
is to encourage and help facilitate the opening of communications
markets worldwide to full and fair competition while also proactively
advancing the business interests of its member companies. ASCENT
represents companies involved in the provisioning of domestic and
international long distance, local network, wireless, Internet, data
and advanced services.
We applaud the efforts made by this panel to ensure that all
Americans are given access to the current benefits and future potential
of the Internet. We too are interested in seeing that broadband
services are deployed as quickly as is possible. It is critical to note
that ASCENT members, the vast majority of which are competitive
communications service providers, have been on the forefront of
advancing technological change at a rate never before seen. They are
raising billions of dollars in capital to invest in the necessary
infrastructure for these new and exciting services. And, almost on a
daily basis, are offering these services in new geographic areas,
including third and fourth tier markets and rural areas. I think it is
fair to say that none of us would have expected us to be have come this
far, this fast in just 4 years since the passage of the Telecom Act.
As a nation of technology dependent consumers we have become
impatient with a 56-kilobit per second pace for sending and receiving
information over the Internet. We demand and expect instantaneous
answers to complex mathematical equations, to real-time valuations of
our stock portfolios and information to help us with our children's
homework. This expectation of instantaneous access to information has
lead to our failure in some instances to appreciate the pace at which
the great enabler of this instant information--high speed internet
access--has been deployed across the country. Many others loose sight
of the fact that the very deployment and benefits of high speed
internet access are a direct result of the pro-competitive provisions
of the 1996 Telecommunications Act, which unleashed a wave of new and
innovative service providers. Unfortunately, this useful purpose is
being confused with the efforts by the Bell Operating Companies to
wiggle out from under these responsibilities under the 96 Act.
While we understand the intent behind H.R. 2420, the Internet
Freedom and Broadband Deployment Act of 1999, and H.R. 1686, the
Internet Freedom Act, we do not believe they would promote either
Internet freedom or broadband deployment. Indeed, the only
beneficiaries of the legislation's ``freedom'' would be the four
remaining Regional Bell Operating Companies, because they would be
freed of their statutory obligation of opening their local markets to
competition as set forth in the Telecommunications Act of 1996. On the
other hand, the legislation provides anything but ``freedom'' for
consumers and competitive service providers. In fact, the bills would
deny consumers the freedom of choice in service providers and deny
competitors the freedom to compete for those consumers as promised by
the 1996 Act.
H.R. 2420 and H.R. 1685, if enacted, would be especially harmful to
our member companies. their employees and their customers. The ability
of our member companies to effectively execute their business plans,
secure additional funding and deliver new services to consumers is
based upon the premise that the Bells will open their local markets to
fall and fair competition before they are allowed to enter the
interLATA services market. This was promised to our members, indeed to
all Americans, by the 1996 Telecom Act. These measures would renege on
that promise.
There are three fundamental questions that should be addressed
regarding any legislation seeking to offer Regional Bell Operating
Companies (RBOCs) exemption from interLATA data service restrictions.
First, does there currently exist a statute that would effectively
provide for the relief purportedly being sought by new legislation?
Second, are new emerging competitive service providers deploying such
broadband services? Finally, are the RBOCs themselves deploying
broadband high speed Internet access to their customers?
Even the most cursory analysis of the facts will lead to a
resounding YES to each of these queries and the conclusion that any new
legislation concerning broadband deployment is unnecessary. What is
needed is time and patience. The plain fact is the 1996 Act states in
unambiguous terms that compliance with the 14-point checklist contained
in section 271 will result in the relief from interLATA restrictions
the BOCs seek. This essential quid pro quo process can and will work,
and it would be completely counterproductive to override the process in
place by enacting the legislation before us today.
We urge the members of this Committee to uphold the 1996
Telecommunications Act and to ``stay the course'' on behalf of
competition and American consumers. By allowing the 1996 Act to
continue to deliver the promise of competition, enterprising
communications providers like those that belong to ASCENT will continue
bringing high speed internet access and choice in service providers to
consumers across the country.