<DOC>
[109th Congress House Hearings]
[From the U.S. Government Printing Office via GPO Access]
[DOCID: f:28317.wais]
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THE COMMUNICATIONS
OPPORTUNITY, PROMOTION, AND
ENHANCEMENT ACT OF 2006
_____________________________________________________________________
HEARING
BEFORE THE
SUBCOMMITTEE ON TELECOMMUNICATIONS AND THE INTERNET
OF THE
COMMITTEE ON ENERGY AND
COMMERCE
HOUSE OF REPRESENTATIVES
ONE HUNDRED NINTH CONGRESS
SECOND SESSION
________
MARCH 30, 2006
________
Serial No. 109-83
Printed for the use of the Committee on Energy and Commerce
Available via the World Wide Web:
http://www.access.gpo.gov/congress/house
__________
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_____________________________________________________________________
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COMMITTEE ON ENERGY AND COMMERCE
Joe Barton, Texas, Chairman
Ralph M. Hall, Texas John D. Dingell, Michigan
Michael Bilirakis, Florida Ranking Member
Vice Chairman Henry A. Waxman, California
Fred Upton, Michigan Edward J. Markey, Massachusetts
Cliff Stearns, Florida Rick Boucher, Virginia
Paul E. Gillmor, Ohio Edolphus Towns, New York
Nathan Deal, Georgia Frank Pallone, Jr., New Jersey
Ed Whitfield, Kentucky Sherrod Brown, Ohio
Charlie Norwood, Georgia Bart Gordon, Tennessee
Barbara Cubin, Wyoming Bobby L. Rush, Illinois
John Shimkus, Illinois Anna G. Eshoo, California
Heather Wilson, New Mexico Bart Stupak, Michigan
John B. Shadegg, Arizona Eliot L. Engel, New York
Charles W. "Chip" Pickering, Mississippi Albert R. Wynn, Maryland
Vice Chairman Gene Green, Texas
Vito Fossella, New York Ted Strickland, Ohio
Roy Blunt, Missouri Diana DeGette, Colorado
Steve Buyer, Indiana Lois Capps, California
George Radanovich, California Mike Doyle, Pennsylvania
Charles F. Bass, New Hampshire Tom Allen, Maine
Joseph R. Pitts, Pennsylvania Jim Davis, Florida
Mary Bono, California Jan Schakowsky, Illinois
Greg Walden, Oregon Hilda L. Solis, California
Lee Terry, Nebraska Charles A. Gonzalez, Texas
Mike Ferguson, New Jersey Jay Inslee, Washington
Mike Rogers, Michigan Tammy Baldwin, Wisconsin
C.L. "Butch" Otter, Idaho Mike Ross, Arkansas
Sue Myrick, North Carolina
John Sullivan, Oklahoma
Tim Murphy, Pennsylvania
Michael C. Burgess, Texas
Marsha Blackburn, Tennessee
Bud Albright, Staff Director
David Cavicke, General Counsel
Reid P. F. Stuntz, Minority Staff Director and Chief Counsel
SUBCOMMITTEE ON TELECOMMUNICATIONS AND THE INTERNET
Fred Upton, Michigan, Chairman
Michael Bilirakis, Florida Edward J. Markey, Massachusetts
Cliff Stearns, Florida Ranking Member
Paul E. Gillmor, Ohio Eliot L. Engel, New York
Ed Whitfield, Kentucky Albert R. Wynn, Maryland
Barbara Cubin, Wyoming Mike Doyle, Pennsylvania
John Shimkus, Illinois Charles A. Gonzalez, Texas
Heather Wilson, New Mexico Jay Inslee, Washington
Charles W. "Chip" Pickering, Mississippi Rick Boucher, Virginia
Vito Fossella, New York Edolphus Towns, New York
George Radanovich, California Frank Pallone, Jr., New Jersey
Charles F. Bass, New Hampshire Sherrod Brown, Ohio
Greg Walden, Oregon Bart Gordon, Tennessee
Lee Terry, Nebraska Bobby L. Rush, Illinois
Mike Ferguson, New Jersey Anna G. Eshoo, California
John Sullivan, Oklahoma Bart Stupak, Michigan
Marsha Blackburn, Tennessee John D. Dingell, Michigan
Joe Barton, Texas (Ex Officio)
(Ex Officio)
CONTENTS
________
Page
Testimony of:
Fellman, Hon. Kennety, Esq., Mayor, Arvada Colorado, on
behalf of The National Association of Telecommunications
Officers and Advisors, The National Association of
Counties, The National League of Cities, and The United
States Conference of Mayors............................. 59
McCormick, Walter, President and Chief Executive Officer,
United States Telecom Association....................... 71
McSlarrow, Kyle, President and Chief Executive Officer,
National Cable & Telecommunications Association......... 76
Regan, Timothy, Senior Vice President, Global Government
Affairs, Corning Incorporated........................... 86
Misener, Paul, Vice President for Global Public Policy,
Amazon.com.............................................. 96
Keefe, David J., Chief Executive Officer, Atlantic
Broadband, on behalf of The American Cable Association.. 104
Fritz, Jerry, Senior Vice President for Legal and
Strategic Affairs and General Counsel, Allbritton
Communications Company, on behalf of The National
Association of Broadcasters............................. 108
Citron, Jeffery, Chairman and Chief Strategist, Vonage... 194
Rodriguez-Lopez, Lillian, President, Hispanic Federation. 257
Johnson, Julia, Chairman, Video Access Alliance.......... 260
Riddle, Anthony Thomas, Executive Director, Alliance for
Community Media......................................... 265
Kenney, Jeannine, Senior Policy Analyst, Consumers Union. 282
May, Randolph J., Senior Fellow and Director,
Communications Policy Studies, The Progress & Freedom
Foundation.............................................. 293
Makawa, James, Co-Founder and Chief Executive Officer,
The Africa Channel...................................... 305
Additional material submitted for the record:
Freudentah, Bob, President, American Public Works
Association, prepared statement of...................... 320
McCormick, Walter, President and Chief Executive
Officer, United States Telecom Association, response
for the record.......................................... 323
Misener, Paul, Vice President for Global Public Policy,
Amazon.com, response for the record..................... 325
THE COMMUNICATIONS
OPPORTUNITY, PROMOTION, AND
ENHANCEMENT ACT OF 2006
___________
THURSDAY, MARCH 30, 2006
House of Representatives,
Committee on Energy and Commerce,
Subcommittee on Telecommunications and the Internet,
Washington, DC.
The subcommittee met, pursuant to notice, at 10:08 a.m., in Room 2123
of the Rayburn House Office Building, Hon. Fred Upton (Chairman)
presiding.
Members present: Representatives Bilirakis, Stearns, Gillmor,
Whitfield, Cubin, Shimkus, Pickering, Radanovich, Bass,
Walden, Terry, Ferguson, Blackburn, Barton (ex officio),
Markey, Engel, Wynn, Doyle, Gonzalez, Inslee, Boucher,
Pallone, Gordon, Rush, Stupak, Dingell (ex officio), Solis
and Buyer.
Staff present: Howard Waltzman, Chief Counsel for
Telecommunications and the Internet; Kelly Cole, Counsel;
Billy Harvard, Legislative Clerk; Anh Nguyen, Legislative
Clerk; Jaylyn Jensen, Senior Legislative Analyst; Neil Fried,
Counsel; Will Nordwind, Policy Coordinator; Peter Filon,
Minority Counsel; Johanna Shelton, Minority Counsel; David
Vogel, Minority Research Assistant; and Chris Treanor,
Minority Staff Assistant.
Mr. Upton. Thank you, Mr. Vice Chairman. Good morning. Today's
hearing is on the Communications Opportunity, Promotion, and
Enhancement Act--bipartisan legislation introduced by Chairman
Barton, Mr. Rush, Mr. Pickering, and myself. I want to thank those
Members in particular for their tremendous bipartisan cooperation,
input and work.
The whole effort with this legislation is about removing the
governmental roadblocks which are getting between consumers'
wallets and the increased competition, lower prices, greater
choice, and better service quality in the video marketplace
which they desperately deserve. In the 21st century, with
cable and two competing national satellite TV providers,
which have about a quarter of the MVPD marketplace,
technology has put the days of one-video-provider-per-town
behind us; and with phone companies poised to offer yet
another competitive video choice to consumers, we can truly
kick competition into high gear.
Yet with approximately 33,000 local franchise authorities nationwide,
the current locality-by-locality-by-locality franchise negotiation
process is standing in the way of progress. So, it is time to bring
that process into the 21st century--to catch up with the changes in
technology and the marketplace--so that the consumer can reap the
benefits as soon as possible.
This bipartisan legislation marries up three mutually important
principles.
First, it establishes a national franchise option to
streamline entry into the marketplace and speed-up delivery
of more competitive video choices for consumers.
Second, the bill not only preserves the option for cable operators
and localities to strike their own local franchise deals in lieu of
a national franchise, but also preserves--in the national franchise--
critically important elements of the legacy local franchise
framework, namely: number one, local control over rights-of-way; two,
a franchise of up to five percent of gross revenues; three, required
carriage of public, educational, and governmental programming, PEG;
and four, an additional one percent of gross revenues on top of the
five percent franchise fee for PEG and institutional network support.
Third, the bill seeks to create a level regulatory playing field for
all wireline video providers, given the competitive nature of the
marketplace so that the consumers--and not the government--will
choose the winners and losers in the marketplace.
Moreover, I want to highlight another important element of
the bill which I believe will also be of great value to
local governments. Title IV of the bill prohibits States
from preventing local governments from providing
telecommunications information or cable services. In my
view, if a local government wants to provide, or facilitate
the provision of, its own services for the benefit of its
citizens, then our national communications policy should be
able to permit that.
In closing, I want to also mention all of the work that
Mr. Dingell and Mr. Markey invested with us in this issue.
It is my hope that we can build on the bipartisanship of
the legislation before us today. I look forward to working
with them, Members who have also spent a lot of time on the
issue like Mrs. Blackburn, Mr. Wynn, Mr. Buyer, and all
members of this subcommittee and committee in the days to
come. It is our attention to markup this legislation in
subcommittee next week, and move towards full committee
markup shortly after the Easter District Work Period ends.
Again, I want to commend Chairman Barton, Mr. Rush, Mr. Pickering,
and their staff, all staffs for getting us here today. I look
forward to the testimony of today's witnesses and I yield to the
Ranking Member of the subcommittee, the gentleman from Massachusetts,
my friend, Mr. Markey.
[The prepared statement of Hon. Fred Upton follows:]
Prepared Statement of the Hon. Fred Upton, Chairman, Subcommittee on
Telecommunications and the Internet
Good morning. Today's hearing is on the Communications Opportunity,
Promotion, and Efficiency Act -- bipartisan legislation introduced
by Chairman Barton, Mr. Rush, Mr. Pickering and myself. I want
to thank those Members for their tremendous, bipartisan cooperation,
input, and work.
This whole effort is about removing the governmental roadblocks
which are getting between consumers' wallets and the increased
competition, lower prices, greater choice, and better service quality
in the video marketplace which they desperately deserve.
In the 21st century, with cable and two competing, national satellite
television providers, which have about a quarter of the MVPD
marketplace, technology has put the days of one-video-provider-per-
town behind us; and with phone companies poised to offer yet another
competitive video choice to consumers, we can really kick competition
into high gear.
Yet with approximately 33,000 local franchise authorities nationwide,
the current locality-by-locality-by-locality franchise negotiation
process is standing in the way of progress. So, it's time to bring
that process into the 21st century -- to catch-up with the changes in
technology and the marketplace -- so that the consumer can reap the
benefits as soon as possible.
This bipartisan legislation marries-up three mutually important
principles:
First, it establishes a national franchise option to streamline
entry into the marketplace and speed-up delivery of more
competitive video choices for consumers;
Second, the bill not only preserves the option for cable
operators and localities to strike their own local franchise
deals in lieu of a national franchise, but also preserves --
in the national franchise -- critically important elements of
the legacy local franchise framework, namely: (1) local
control over rights-of-way; (2) a franchise fee of up to 5%
of gross revenues; (3) required carriage of public,
educational, and governmental (PEG) programming; and (4) an
additional 1% of gross revenues - on top of the 5% franchise
fee -- for PEG and institutional network support.
Third, the bill seeks to create a level regulatory playing
field for all wireline video providers, given the competitive
nature of the marketplace, so that consumers--and not the
government--will choose the winners and losers in the
marketplace.
Moreover, I want to highlight another important element of
the bill, which I believe will also be of great value to
local governments. Title IV of the bill prohibits states
from preventing local governments from providing
telecommunications, information, or cable services. In my
view, if a local government wants to provide, or facilitate
the provision of, its own services for the benefit of its
citizens, then our national communications policy should be
to permit that.
In closing, I do want to mention all of the work that
Mr. Dingell and Mr. Markey have invested, with us, in this
issue. It is my hope that we can build on the bipartisanship
of the legislation before us today, and I look forward to
working with them, Members who have spent a lot of time on
this issue like Ms. Blackburn, Mr. Wynn, and Mr. Buyer --
and all Members of this Subcommittee and Committee -- in
the days to come. It is my intention to mark-up this
legislation in Subcommittee next week, and move toward full
Committee mark-up after the Easter District Work Period.
Again, I want to thank Chairman Barton, Mr. Rush, and
Mr. Pickering--and their staffs--for getting us here today,
and I look forward to the testimony of today's witnesses.
Mr. Markey. Thank you, Mr. Chairman, my friend, as well.
We are calling this hearing on this very important
legislation which addresses various subjects, and although
there are a multitude of issues in this bill including
several provisions I wholeheartedly support, such as the
ability of municipalities to provide community broadband
services, I will focus my remarks this morning on just two
items.
First, network neutrality. In my view, rules ensuring
network neutrality are indispensable. I understand that
there are those who argue that we should rely on mere
network neutrality principles or an imprecisely worded FCC
policy statement rather then legally enforceable rules.
Others will advise us to take a wait-and-see approach. Yet
we know from public statements from several industry
executives that the owners of the broadband wires into our
homes would like to start charging fees to Internet content
providers. In other words, they want to artificially
constrain the supply of Internet-based content and services
to high bandwidth consumers. This represents nothing more
than the imposition of a broadband bottleneck tax on
electronic commerce. Such a bottleneck tax for accessing
consumers will undoubtedly have a chilling effect on
investments and innovation.
There are some out there who will inevitably ask the
question, but why shouldn't Google pay? Google certainly
has a very large market gap and presumably could afford to
pay, but that is precisely the wrong question to ask. The
question to ask is whether Larry Page and Sergey Brin could
have afforded to pay around 1998, whether Yahoo Chief Jerry
Yang could have afforded to pay a broadband behemoth around
1995, whether Mark Andresen, the founder of Netscape, could
have afforded to pay anyone anything around 1994. If there
is an entrepreneur in some proverbial garage somewhere today
whose idea is new, whose product is still in beta, their
dreams are just as real and valid as Sergey's and Larry's
and Jerry's and Mark's were an Internet generation ago. We
should be doing everything we can in public policy to ensure
that this successful Internet model continues to drive
innovation, economic growth, and job creation.
Instead, the proposed bill before us effectively condones
online discrimination and then ties the hands of the agency
from promulgating any guidelines to address it. The Barton
bill actually says to the FCC that it can never adopt rules
to protect the Internet experience for the millions of
entrepreneurs and consumers who rely upon it. Think about
that. If there is a problem, even if it widespread or
affects a whole class of users or a whole class of
violators, if consumers are being aggrieved on a daily
basis or even if industry itself feels that certain rules
are useful or necessary, the Barton bill prohibits any
rulemaking authority for the FCC on network neutrality
whatsoever. Rather, it prefers a case-by-case investigation
and adjudication of violations. Does anyone here remember
how long it takes the FCC to deal with individual
complaints? It often takes years. And this bill is
supposed to prepare us for the 21st century broadband
future. This is efficient government? I don't think so.
No, that is neither futuristic nor efficient. That is
chaos. In short, the bill imperils the future of electronic
commerce and innovation to the www, the worldwide whims of
broadband barons and ties the hands of the agency in a way
that will legally prevent it from saving something very
special.
And second, service area parity. I want to briefly address
the proposed bill's lack of a cable service area requirement.
By failing to include a build-out provision to ensure service
area parity between a Bell company entering a franchise area
and the incumbent cable operator, the bill allows a national
franchisee to use public rights-of-way in a community but
serve only select neighborhoods within that community. One
does not need a business degree to have a hunch that they
will focus deployment on the 30 percent of the town that has
70 percent of the revenue potential. The bill, however,
compounds the consumer risk when the omission of a service
area requirement is considered in the context of an incumbent
cable operator qualifying for a national franchise. Under
the proposal, an incumbent cable operator may similarly seek
a national franchise after the phone company arrives in a
franchise area even if the phone company is serving just one
household in the franchise area. The lack of a service area
requirement at the national level then means that the
incumbent cable operator no longer has to serve the entire
franchise area either.
This means that the incumbent cable operator will now be
free to skimp on service upgrades or withdraw service from
any part of their historic service area. The incumbent
cable operator may also immediately raise rates in areas of
the community the phone company is not serving in order to
cross-subsidize its offering in the part of town the phone
company has chosen to serve. In other words, although the
proponents of the bill will trumpet the notion that
consumers will receive lower prices, the reality for many
consumers is that the bill will unwittingly result in the
opposite: higher prices, shoddier practices, lack of
technology upgrades, or outright withdrawal of service.
This represents a truly historic abandonment of decades of
policy and progress to get technology and competition out
to all Americans regardless of where they live. It is
clearly a grave consumer protection flaw in the bill that
needs to be addressed. I thank you, Mr. Chairman, for your
indulgence in giving me a little extra time in my opening
statement in this historic hearing.
Mr. Upton. I am taking it from your minutes of questions.
No, I am not. I would like to make a unanimous consent
request that both Ms. Solis and Mr. Buyer who are not members
of the subcommittee but able to sit in and participate, and
without objection so ordered. I yield at this point for an
opening statement to the gentleman from Florida,
Mr. Bilirakis.
Mr. Bilirakis. Thank you, Mr. Chairman. Mr. Chairman, I
think that everyone agrees certainly that technology has a
dramatic impact on our daily lives. Today there is ever
growing competition in a wide variety of areas. Cell
phones, for example, continue to get smaller and smaller
with expanding capabilities. I am amazed that it is
possible to watch television on a cell phone. Individuals
can find any number of service plans that suit their
communications needs at competitive rates. It is only
natural that consumers want to see greater and greater
choice when it comes to the services and products that are
available in their homes.
The legislation we are examining today is intended to spur
competition in the video market. While I do believe it is
important to expand consumer choice and options, I am
concerned that we take into account the critical role that
local governments play in the video market. Although I do
not believe that local governments and local franchising
authorities should act as a barrier to greater competition,
they do have a responsibility to protect and maintain local
infrastructure and safeguard consumers. So I believe it is
important that they continue to have the ability to act in
the public interest, and in that regard I am anxious to hear
from our wide array, and they are a wide array, of witnesses
today to get their perspectives on this legislative proposal.
Mr. Chairman, thank you. This is a very complicated bill.
I know as a result of hearings like this we are going to
learn much more about it. Thank you, sir.
[The prepared statement of Hon. Michael Bilirakis follows:]
Prepared Statement of the Hon. Michael Bilirakis, A Representative
in Congress from the State of Florida
Thank you, Mr. Chairman.
I think everyone agrees that technology has a dramatic impact on our
daily lives. Today, there is ever growing competition in a wide
variety of areas. Cell phones, for example, continue to get smaller
and smaller with expanding capabilities. I am amazed that it is now
possible to watch television on a cell phone. Individuals can find
any number of service plans that suit their communications needs at
competitive rates. It is only natural that consumers want to see
greater and greater choice when it comes to the services and
products that are available in their homes.
The legislation we are examining today is intended to spur
competition in the video market. While I do believe it is important
to expand consumer choice and options, I am concerned that we take
into the account the critical role that local governments play in
the video market. Although I do not believe that local governments
and local franchising authorities should act as a barrier to greater
competition, they have a responsibility to protect and maintain
local infrastructure and safeguard consumers. I believe it is
important that they continue to have the ability to act in the
public interest. In that regard, I am anxious to hear from our
wide array of witnesses today to get their perspectives on this
legislative proposal.
Thank you, Mr. Chairman. I look forward to working with you and my
colleagues on this important issue as we move forward.
Mr. Upton. I recognize Mr. Dingell for an opening
statement.
Mr. Dingell. Mr. Chairman, I thank you for your courtesy
and I thank you for having this hearing. The title of this
hearing might be a funny thing happened on the way to the
forum. We are well on the road to achieving a bill which
could have had broad bipartisan support, could have addressed
in a real way the concerns of the American people, could have
allowed the Bells to enter into a national franchise and to
have achieved it in a way which would not only have been fair
to American consumers, but which could have been broadly
accepted throughout the industry and which would have had
support of Members on both sides. It was interesting to note
how close we were when all of a sudden the wheels came off
and all of the lashings wrapped around the axle and
everything stopped.
This is an important bill for American consumers and for our
economy. I want to make it clear that I had and hope to
again be a supporter of a national video franchise. I would
note that I have been a long-term friend of the Bell
companies but I do not support the legislation being
discussed today because it is unfair, unwise, and bad public
policy. As drafted, the proposed legislation would allow the
creation of the broadband equivalent of gated communities in
our towns, our cities, our countryside as well as on the
Internet. Public rights-of-way would be hijacked for the
profits of large private companies which are under this draft
freed of the important obligations to serve the public. I
support fair competition, but this bill does not create fair
competition. We should not write legislation at the expense
of leaving some of our communities or some of our citizens
behind and we should not write legislation at the expense of
a free and innovative Internet. Of course, some areas of
our country would likely see faster competition and lower
cable rates as a result of national franchising--some. But
according to this draft, these benefits will not extend to
everyone or everywhere. Significant areas of our country
will be left behind and not all families in the family
community will share in the competitive showdown. So the
less desirable or more remote parts of a town or the less
affluent parts of that town may see the cable rates increase
or watch as providers upgrade service to other parts of the
town and pass them by. With many consumers put at risk by
paying higher cable bills or even losing cable service, this
bill violates the fundamental legislative principle of first
do no harm. So there are tough questions that we have to
ask about this legislation, and we will ask them.
First, why are there no real protections to ensure that
communities and neighborhoods will not be left behind as new
telecommunications infrastructure is deployed? When it
comes to using public rights-of-way to offer cable service,
the current framework has worked in allowing a build-out over
a reasonable period of time at the local level. Why should
we abandon the system of universal service that has served
this nation so well in terms of a profit-making opportunity
for companies of great affluence at the expense of people of
limited means?
Second, when cable operators who become national franchisees
are released from obligations to serve or upgrade certain
parts of town, how will those residents be affected? I think
everyone knows the answer to that. Does this create a legal
entitlement to differing services and differing levels of
service depending on the demographics of a neighborhood? It
certainly looks that way.
Third, will the unfortunate result of this bill be years of
litigation? The national franchise requirements contain many
ambiguities. For example, are new methods of video delivery
covered or should the 1984 constructs be updated to provide
technology-neutral approach to cable service? Those cities
continue to receive fees associated with video services when
these services are integrated with other capabilities. Will
some of the people who will be beneficiaries of this
legislation be able to claim that they are not cable
providers and thus escape major parts of their
responsibilities? That is a question that we intend to
inquire into with more than a little care.
Fourth, the proposed legislation contains some curious
language regarding the issue of network neutrality. What
would be the effect of allowing essentially private taxation
of the Internet? Would the digital economy continue to
thrive? Would consumer expectations be met? Would treatment
be fair to all or would people be enriched in improbable and
improper ways?
In some ways, this bill clearly benefited from the lengthy
bipartisan discussions held over the course of last year and
I want to commend my colleagues who have participated in
those. In general, the bill generally reflects the value to
our citizens of franchise fees and the continuation of
support of diverse public educational and governmental
programming. It recognizes at least in concept that local
governments play a constructive role in the oversight of
the communications infrastructure and the protection of
consumers. It also recognizes that they are going to provide
the rights-of-way and things which are so important to having
this kind of thing move forward. But it leaves other areas
of local responsibilities, rights, and privileges as well as
duties of the licensees or franchisees very much unclear.
Also troubling, the legislation preempts state and local
consumer protection laws and it assures no strong or
enforceable federal protections. We are stripping citizens
of something that they and their governments have been able
to do for them over the years.
This committee has deregulated cable service before. Not
all of us will remember it. But we have only then later
had to step in to address shoddy treatment and poor
treatment of consumers.
Mr. Chairman, I thank you for holding this hearing. The
draft raises many questions which must be answered
carefully. I am not sure that the process is going to
achieve that purpose but we are going to try and see that
it does. It is one thing to promise a new day of
competition. It is quite another to deliver, especially
since the legislation and the vehicle has the number of
visible and obvious errors that we see before us. We do
not want to leave millions of Americans vulnerable, having
to cope with no new services with higher cable rates, with
fewer competitive choices on the Internet, and a situation
which clearly favors certain providers and clearly favors
certain categories of Americans over others. Thank you,
Mr. Chairman.
Mr. Upton. Thank you. I recognize for an opening statement
the Chairman of the full committee, the gentleman from Texas,
Mr. Barton.
Chairman Barton. Thank you, Mr. Chairman, for holding this
important legislative hearing. Today is the culmination of
over a year and a half of discussions by Members on both
sides of the aisle of this subcommittee and full committee,
and if you really look at it, it is half a decade of
discussions by the stakeholders about the need for a new
telecommunications act. Previous attempts at increasing
innovation, choice, and lower prices for consumers have
focused on promoting competition within individual sectors
of the communications industry. Time has shown, however,
that the best way to promote competition and innovation is
to encourage the deployment of advanced facilities-based
networks and competition across sectors. The right approach
will invigorate the technical sector and produce jobs,
growth, and opportunity for all of America. American
consumers will get an array of services and choices that were
unimagined just a few years ago.
This is the approach the committee print before us seeks to take with
respect to increased cable competition and the deployment of advanced
broadband networks. Cable service is interstate in nature, as the
Supreme Court has long recognized. Most video programming carried on
cable systems is produced by national networks and distributed across
State lines to a national audience. Cable systems are also carrying
increasing amounts of Internet-based video, voice and data services
that cross State, as well as national, borders.
Today there are thousands of local franchising authorities,
and each imposes disparate restrictions on the provision of
cable services in its particular franchising area. The
requirement to negotiate such local franchises and the
patchwork of obligations local franchising authorities
impose, are hindering the deployment of advanced broadband
networks that will bring increasingly innovative and
competitive services to consumers. The United States is
not even among the top ten nations in terms of broadband
deployment right now.
The committee print seeks to address this concern and strike the
right balance between national standards and local oversight.
Thus, the committee print before us first of all preserves
municipalities' existing authority to collect a franchise fee of
up to five percent of gross revenues from cable service. Second,
it also preserves the municipalities' control over their local
right-of-way. Third, it continues to require carriage of public,
educational, and governmental channels, otherwise known as PEG
channels, and allows municipalities to increase the number of PEG
channels over time. It also preserves the institution networks
used for governmental and other public safety purposes. It also
allows municipalities to collect an additional one percent of
gross revenues to support PEG channels and institutional networks.
It also allows municipalities, if they wish, to continue to
negotiate a local franchise agreement. It requires the FCC, the
Federal Communications Commission, to establish national consumer
protection and customer service standards that the municipalities
may then enforce.
At the same time, the committee print offers an
alternative, streamlined national franchise process. This
will help expedite competitive cable entry, thereby
promoting the deployment of advanced broadband networks
that can offer new and exciting broadband video, voice and
data services.
We have had multilateral discussions for a number of months with
several members on the Minority side of the aisle. Those
discussions did not bear the total fruit that I thought they would.
Having said that, we have entered into discussions with Congressman
Rush and he has signed on as an original sponsor of the committee
print. We are very, very pleased to have Congressman Rush's support
of the committee print before us. I also want to thank Congressman
Pickering and Congressman Upton for their strong work. I would like
to thank Mr. Dingell and Mr. Markey for their work as well, although
they have not signed on to the committee print before us.
I hope that other members from both sides of the aisle would
take a serious look at the legislative draft before us today
and join us in supporting the draft next week when we mark
it up in the subcommittee. I look forward to today's
testimony and to next week's subcommittee markup, and to
marking it up in full committee within the next four or five
weeks. With that, Mr. Chairman, I yield back.
[The prepared statement of Hon. Joe Barton follows:]
Prepared Statement of the Hon. Joe Barton, Chairman, Committee on
Energy and Commerce
Mr. Chairman, thank you for holding this hearing. We stand on the
threshold of a new age in communications. The 1996
Telecommunications Act served an important purpose, but technology
and the markets have moved on.
Previous attempts at increasing innovation, choice, and lower prices
for consumers have focused on promoting competition within individual
sectors of the communications industry. Time has shown, however,
that the best way to promote competition and innovation is to
encourage the deployment of advanced, facilities-based networks and
competition ACROSS sectors. The right approach will invigorate the
tech sector and produce jobs, growth and opportunity for its workers.
American consumers will get an array of services and choices that
were unimagined just a few years ago.
This is the approach the committee print seeks to take with respect
to increased cable competition and the deployment of advanced
broadband networks. Cable service is interstate in nature, as the
Supreme Court has long recognized. Most video programming carried
on cable systems is produced by national networks and distributed
across state lines to a national audience. Cable systems are also
carrying increasing amounts of Internet-based video, voice, and
data services that cross state, as well as national, borders.
Today, there are thousands of local franchising authorities, and
each may impose disparate restrictions on the provision of cable
service in its local franchising area. The requirement to negotiate
such local franchises, and the patchwork of obligations local
franchising authorities impose, are hindering the deployment of
advanced broadband networks that will bring increasingly innovative
and competitive services to consumers.
The committee print seeks to address this concern and strike the
right balance between national standards and local oversight. Thus,
the committee print:
Preserves municipalities' existing authority to collect a franchise
fee of up to 5 percent of gross revenues from cable service.
Preserves their control over local rights-of-way.
Continues to require carriage of public, educational, and
governmental channels, referred to as PEG channels, and allows
municipalities to increase the number of PEG channels over time.
Preserves institutional networks used for governmental and other
public safety purposes.
Allows municipalities to collect an additional one percent of gross
revenues to support PEG channels and institutional networks.
Allows municipalities to continue to negotiate local franchise
agreements.
Requires the Federal Communications Commission to establish national
consumer protection and customer service standards that the
municipalities may enforce.
At the same time, the committee print offers an alternative,
streamlined national franchise process. This will help expedite
competitive cable entry, thereby promoting the deployment of
advanced broadband networks that can offer new and exiting broadband
video, voice, and data services.
I thank Congressman Rush, the Chairman, and Mr. Pickering for
sponsoring this bipartisan legislation with me. I hope that other
Members from both sides of the aisle will join us in supporting the
bill. I look forward to today's testimony and to an expedited
Subcommittee markup of the legislation. I yield back.
Mr. Upton. Thank you. Mr. Engel?
Mr. Engel. Thank you, Mr. Chairman. I am going to condense
my remarks, and I thank my colleagues for letting me jump
over them. I have to co-chair a hearing in about three
minutes and I will return to the hearing. I want to thank
you, and I realize that not all of the committee's leaders
were able to come to a compromise, but I believe that this
bill before us reflects an enormous step forward from the
previous bill called BITS II. My primary concern, like
everyone else, is to do what is best for the people of my
district and State, and for half the population of my
district, there is no viable competition in video services
because of tall buildings, so I am forced to seek ways to
bring competition to the video service industry. I believe
that this legislation provides a road map by which all the
traditional telephone companies and the incumbent cable
service providers can move forward into a new era of
competition. As Members of Congress, we obviously have to
strike the balance that will promote competition without
unduly benefiting one of those competitors, so I am pleased
that there is language in this bill that provides for fair
treatment of all communities and neighbors without regard to
income level. I have pockets of vast poverty and enormous
wealth and all of these people should be able to avail
themselves of these new services. I understand the language
regarding enforcement of so-called redlining is still under
development so I look forward to developing strong, clear
standards for enforcement.
I am also very pleased about the inclusion of 911 services
for VOIP providers. I believe that it would be
unconscionable for this Congress to adjourn without making
this simple but vital change to our laws. It is a no-brainer
that when someone is in medical distress or the house is on
fire or someone has broken in, that the person calls 911.
Such a call should go seamlessly. That having been said, we
must also require our PSAPs to upgrade their equipment to
handle these new technologies. New York remains the poster
child of what not to do when it comes to cell phone 911
systems. Millions of dollars were collected in cell phone
taxes and little actually spent on PSAP upgrades. The same
thing cannot be allowed to happen again with VOIP.
I have one concern which I hope we will be able to work out
as this bill moves forward. I understand that the bill does
not impose on VOIP providers the same standards for
disability access as other voice providers. As a longtime
champion of disabled and equal regulatory treatment, I want
to work with the Chairman at finding a way of making this
happen.
And finally, let me say that there are net neutrality
provisions in this bill that many people have told me they
are very upset about. I am hearing very different opinions
about what this language means and how it will impact the
future of the nation's telecommunications industry. I want
to urge all parties to start working together to find common
ground. I am open to listening to each and every argument
but there are such vast differences in interpretation, I am
just not sure what to think. So I thank the Chairman and
my colleagues, and I yield back.
[The prepared statement of Hon. Eliot Engel follows:]
Prepared Statement of the Hon. Eliot Engel, A Representative in
Congress from the State of New York
Mr. Chairman:
I want to thank you, Mr. Barton, Mr. Dingell, Mr. Markey and your
staff members for their hard work over the past many months.
Though not all of the Committee's leaders were able to come to a
compromise, I believe the bill before us reflects an enormous step
forward from the previous bill, called BITS II.
My primary concern is -- like everyone else here -- my primary
concern is to do what is best for the people of my district and
state. For half the population of my district there is no viable
competition in video services. The fact that satellite is really
not viable in the Bronx is matter of physics--it is not cable's
fault nor satellite's. Neither they nor this Congress can alter
the laws of physics--though I believe some members of Congress
have tried on a number of occasions.
So I am forced to seek ways to bring competition to the video
services industry. My constituents want this and they want it
yesterday.
I believe that this legislation provides a road map by which all
the traditional telephone companies and the incumbent cable
service providers can move forward into a new era of competition.
As members of Congress we must strive to strike the balance that
will promote competition without unduly benefiting one of those
competitors.
I am pleased that there is language in this bill that provides for
fair treatment of all communities and neighborhoods without regard
to income level. I have pockets of vast poverty and enormous
wealth. All of these people should be able to avail themselves of
these new services.
I understand the language regarding enforcement of the
so-called-red--lining--is still under development. I look forward
to working with the Chairmen and ranking members and my good friend
Bobby Rush in developing strong, clear standards for enforcement.
I am also very pleased about the inclusion of 911 services for
VOIP providers. I believe that it would be unconscionable for
this Congress to adjourn without making this simple, but vital,
change to our laws. It is a no brainer that when someone is in
medical distress, or their house is on fire, or someone has broken
in that the person calls 911. Such a call should go seamlessly.
That having been said, we must also require our PSAPs to upgrade
their equipment to handle these new technologies. New York
remains the poster child of what not to do when it comes to cell
phone 911 systems. Millions of dollars were collected in cell
phone taxes and little actually spent on PSAP upgrades. The same
thing cannot be allowed to happen again with VOIP.
I have one concern which I hope that we will be able to work out
as this bill moves forward. I understand that the bill does not
impose on VOIP providers the same standards for disability access
as other voice providers. As a long time champion of the disabled
and equal regulatory treatment, I want to work with the Chairman
on finding a way of making this happen.
There are net neutrality provisions in this bill that people are
very upset with. I am hearing very different opinions about what
this language means and how it will impact the future of the
nation's telecommunications industry. I urge all parties to start
working together to find common ground. I am open to listening to
each and every argument, but there are such vast differences in
interpretation, I am just not sure what to think.
I thank the chairman and yield back.
Mr. Upton. Yes, I would at this point ask unanimous consent
that all members of the subcommittee be able to insert their
opening statements as part of the record.
Mr. Engel. Thank you, Mr. Chairman. I have Mr. Green's
statement and I thank you for doing that.
Mr. Upton. Without objection, and also remind my
colleagues that if they do not all read their statement,
they will get an extra three minutes on the first round
of questions, and at this point I would yield to
Mr. Gillmor for an opening statement.
Mr. Gillmor. Thank you, Mr. Chairman, and I want to
commend you and your staff for all of the time and the
effort that you have put in to formulating this legislation.
The latest committee print is aimed at furthering
deregulating an industry that has the potential to
revolutionize the way in which we do business, communicate
with family and friends, and conduct everyday tasks. There
are very few opportunities that exist like the one before
the committee today, and I think we have to capitalize on
that opportunity to avoid stunting the growth of this
dynamic sector of our economy.
More than a decade ago, Congress deregulated the wireless
industry and that venture has led to one of the most
competitive and consumer-friendly marketplaces in the tech
sector and I think that the committee print has the potential
for laying a similar path for increased competition in video
services. Streamlining the franchising process will
ultimately result in lower consumer prices and greater access
to advanced telecommunications services including in districts
like mine. However, despite its good intentions, there will
still be areas of the country where these services will not
be immediately within reach for one reason or another. I
think that title IV of the proposed bill strikes the
appropriate balance by allowing public entities to enter
into this dynamic market on a competitively neutral basis
and I believe that the bill makes a concerted effort to
ensure the localities maintain their ability to be effective
stewards of the public domain. I want to point out one
example which came to my attention recently of the advantages
of competition, and that was in France where I understand
that since they have opened their markets to competition,
it is possible now to get broadband Internet service, video,
and telephone all from one provider for less than $40 a
month, which is a far cry from anything that we see in this
country.
This bill presents us with a unique opportunity to
effectively increase marketplace competition and consumer
choice while at the same time decreasing bureaucratic red
tape and the amount that consumers pay for their services
each month, and I yield back.
[The prepared statement of Hon. Paul E. Gillmor follows:]
Prepared Statement of the Hon. Paul Gillmor, A Representative in
Congress from the State of Ohio
Before I begin, I would like to thank you for holding this very
important hearing and commend you and your staff for all of the
time and effort put into formulating this legislation.
Mr. Chairman, after many months of debate and negotiation, I am
pleased to be here today to listen to the panelists and discuss
the latest committee print aimed at further deregulating an
industry that has the potential to revolutionize the way in which
we do business, communicate with family and friends, and attend to
everyday mundane tasks. Very few opportunities exist like that
which currently lies before this committee, and we must capitalize
on this opportunity in order to avoid stunting the growth of this
dynamic sector of our economy.
More than a decade ago, Congress took the leap of faith and
deregulated the wireless industry-that venture has led to one of
the most competitive and consumer-friendly marketplaces in the tech
sector. After reviewing the committee print, it is my belief that
this legislation will lay a similar path for increased competition
in video services.
Streamlining the franchising process will ultimately result in
lower consumer prices and greater access to advanced
telecommunications services. In a rural district such as mine,
I am excited of the possibilities that this legislation could yield,
such as increased access of advanced broadband services for rural,
agricultural communities, more and better programming options at
consumers' fingertips, and increased safety of VOIP telephony
services through the continued integration of E911. However,
despite the well intentions of this legislation, there will still
be areas of the country where these services will not immediately
reach for one reason or another. Therefore, I believe that
Title IV of the proposed bill strikes the appropriate balance by
allowing public entities to enter into this dynamic market on a
competitively neutral basis with commercial providers.
Finally, much has been said and will continue to be said about
local control. As a former Ohio state senator, I believe that
this bill makes a concerted effort to ensure that localities
maintain their ability to be effective stewards of the public
domain. Retaining the remittance of franchise fees, PEG channels,
rights-of-way management, PEG support funding, and the ability to
access fees for to rights-of-way management are just several
examples of the extent that the Committee has gone to in order to
ensure the preservation of local authority.
Mr. Chairman, I would like to conclude my statement by saying that
Chairman Barton's bill, the Communications Opportunity, Promotion,
and Enhancement Act, presents us with a unique opportunity to
effectively increase marketplace competition and consumer choice,
while at the same time decreasing bureaucratic red-tape and the
amount that consumers pay for their service each month.
I look forward to the testimony from all of today's panelists and
to the opportunity to ask several of them questions of my own as
well as engage my colleagues in what is likely to be a lively
debate. Again, thank you Mr. Chairman for holding this important
hearing.
Mr. Upton. I recognize Mr. Boucher for an opening
statement.
Mr. Boucher. Thank you very much, Mr. Chairman. The
bill that is before us today is a mere shadow of its
former self. I regret that it has abandoned the valuable
approach of earlier drafts which defined the permissible
boundaries of the regulation of Internet applications and
made certain that there would be a light regulatory touch.
That measure which Mr. Stearns and I had advanced was not
controversial. It achieved the necessary purpose. It is
not to be in the thin measure that is now before us.
I support a one-stop Federal video franchise opportunity.
I think it is essential in order to provide additional
competition for cable television and satellite television
consumers. The bill, in my view, appropriately addresses
this need, and it also creates a greater legal certainty
for municipalities that are seeking to offer commercial
telecommunications service and I support those provisions.
The major shortcoming in the measure is the green light
that it gives to a practice which I fear will undermine
the openness and the accessibility of the Internet,
qualities that have made the Internet a major driving
force in the nation's economy. Some last-mile broadband
providers have announced an intention to create a fast
lane into the home for content providers who will pay
them for fast-lane access and a slow lane for everyone
else. In addition to limiting customer choice, I am
deeply concerned that this two-lane plan will have a
dramatic adverse effect on innovation. The startup
struggling in a garage somewhere today will not be able
to afford to pay the fees to get into the fast lane over
the last mile and will be relegated to the slow lane.
It is not going to be able to compete with the
established Internet-based companies. The risk that
permitting this dramatic change to the architecture of
the Internet will dampen innovation is real. I think
it is a risk that simply is not worth taking, and we
don't have the luxury of simply sitting back and seeing
how things work out.
Experience teaches us that when companies begin deriving
revenues from a business model, it is exceedingly
difficult to outlaw that model, and this is not something
we are going to be able to take back. If we do nothing
today and five years from now innovation has suffered and
last-mile providers are deriving revenues from this new
business plan of a two-lane Internet, a fast lane and a
slow lane, it is going to be too late to make repairs, and
so as a part of this bill, we need a genuine network
neutrality provision, a provision that says that if a fast
lane is necessary perhaps for video or for gaming, then
all applications of a similar kind, no matter who provides
those applications, applications from any content provider
of that kind should be entitled to fast-lane access without
having to pay a charge.
Mr. Chairman, I look forward to the debate on this needed
provision and I very much look forward to today's witnesses.
Thank you.
Mr. Upton. Thank you. Mr. Shimkus?
Mr. Shimkus. Thank you, Mr. Chairman. I am going to be
real short. One is, I am going to use every public
opportunity to remind people so they can talk to their
parents and grandparents there are 46 days left for
Medicare D signup so all you out there, all you smart people
that can use the Internet, go to your grandmas and grandpas
and your moms and dads, and if they are not signed up, get
them engaged.
Second thing, the draft is good. I really can give the rest
of my opening statement based upon what Eliot Engel said.
The VOIP, the access to database, is a great part of the
bill, and I appreciate that effort. I, as Members do, am
struggling with this whole debate on net neutrality. Is the
bill too hot, is the bill too cold? Can't we find something
that is just right, and hopefully in this process we can do
that. I yield back.
Mr. Upton. Mr. Stupak.
Mr. Stupak. Mr. Chairman, I will waive and save my three
minutes for later. Thank you.
Mr. Upton. Mr. Pallone.
Mr. Pallone. Thank you, Mr. Chairman. I want to thank all
of our witnesses for coming here today to discuss critical
telecommunications issues and particularly mention the
presence of Jeffrey Citron from Vonage, who both lives and
has his headquarters in my home county of Monmouth,
New Jersey.
I have long been a proponent of ensuring consumer choice and
greater competition and I hope that this hearing will help
us craft legislation that strikes a good balance between the
two. It is long past time for us to update the Telecom
Reform Act passed in 1996, and if done properly, our efforts
could reduce rates for video content consumers. While the
proposed legislation provides a good vehicle, there still
remain many questions on how best to provide consumers
competition in the video marketplace and I am interested
in hearing the panel's views on how to ensure aggressive
deployment measures in low-income and rural areas.
There are also many questions about how and to what extent
the Internet should be regulated. I look forward to hearing
how the witnesses feel about the net neutrality language
included in the current legislation. I would also like to
hear what we can do to ensure there is no blocking, slowing
down, or impeding of Internet traffic by content providers.
Telecommunications reform also brings up the issue of E-911.
It is safe to say that all customers deserve access to
life-saving E-911 networks and that is why guardians of the
E-911 network or facilities should do all that they can to
ensure that new services like voice over IP, have all the
tools they need to provide consumers with enhanced emergency
protections. I look forward to hearing why there are parts
of the country taking longer to roll out access to E-911
service by voice over IP providers. Is this caused by
technological hurdles or manmade obstacles?
Crafting appropriate legislation is a delicate process. We
must balance the interests of local and State governments
with the needs of business and fair competition and
obviously achieving that goal is easier said than done.
However, the one thing that we need to keep in mind is how
Congress can best help all of these content providers and
continue to expand services for the American consumer at a
competitive price. Again, I thank all of you for coming in
to talk about these issues with us. Obviously it is crucial.
Thank you, Mr. Chairman.
Mr. Upton. Mr. Bass.
Mr. Bass. Thank you very much, Mr. Chairman, and I want to
thank you for holding this hearing. I think it is going to
be informative and helpful. It is another step in what has
been a long and I think fruitful debate, and I have been
trying to think of a way to discuss this thin measure before
us. I don't think there is anything wrong with thin
measures. They are just as good as fat measures, in my
opinion, and I have really had a mission throughout this
debate that as we approach telecommunications, we want to
create a system that encourages competition, lower prices,
and better service. Tat more access to services in
communities will lead to more innovative services and
better services, which will lead to better competition,
lower prices, and more attention to customers.
It always surprises me that in my hometown, I pay about
$150 a month for high-speed Internet access, for television,
and for telephone. That is more than n probably most of all
of developed countries around the world, maybe some Third
World nations, frankly, and I don't think that is right.
I would like to see the efforts of our debate and our
legislative work create an environment in which a town in
my district, like Washington, can compete with a city like
Washington, or the city of Berlin way up in the middle of
Coos County, can compete with Berlin, Germany. That should
be the objective, and I believe the bill does move
significantly in this direction, firstly by including the
municipal broadband provisions, which I was pleased to work
with my friend from Virginia on, and I recognize that
municipal networks are not always going to be the right
solution, but it is an option that ought to be preserved.
I think the national franchise is a good idea but we ought
to also consider giving the States the ability to have a
franchise. We have States now that are doing it and doing
it successfully, and what is good in one part of the
country, what may be the priority in New Hampshire or Maine
or Vermont or Indiana or any other State, Tennessee, might
be different from what it might be in a more urban State
like New Jersey or frankly Michigan. So having national
franchise with a State option I think really addresses
many of the issues that will lead to more access for
people in different parts of the country.
The last issue which I would like to see debated is the
issue of programming. We really need more information
about how these retransmission contracts are constructed
and how the process of bundling and tying together programs
affects the ability of the distributors, especially if they
are not big distributors, to provide new services and to
provide the same breadth of services that may be provided
in other areas. Again, I remind my friends that the
objective here is to make sure that all the newest and most
interesting products are available everywhere, not just in
some places, that prices are competitive across the United
States and that we have good services and we can compete
over the Internet, understanding that the Internet and
telecommunications is the new form of transportation,
global transportation, and so with that, Mr. Chairman,
I will submit my written statement for the record and
thank you for holding this hearing.
[The prepared statement of Hon. Charles F. Bass follows:]
Prepared Statement of the Hon. Charles F. Bass, A Representative
in Congress from the State of New Hampshire
Before I begin, Mr. Chairman, I hope you know how appreciative I
am--and I think many of us are--that we are having this additional
opportunity to ask questions of these witnesses. This committee
draft starts from a position of being vastly improved over previous
versions and I am grateful for all the work put into the changes.
Mr. Chairman,
First, I am especially pleased that the section on municipal
broadband networks is retained, and I appreciate the Committee's
willingness to work with me and Congressman Boucher on this
throughout the process. Although I recognize that municipal
networks will not be a good solution for most communities, their
options must be preserved.
In case there is any future judicial confusion on this point, we
mean to allow cities and towns to build, promote, organize,
operate, contract for, and in any other manner be involved in
broadband network development and service provision. I hope
that is clear enough.
Next, I am especially pleased that the franchise proposal has
been significantly improved. Competition between service
providers will lead to lower prices, better customer service,
and more innovative products and content choices. Although
legally exclusive video franchise contracts are a thing of the
past and most consumers have satellite choices available today,
we know that head to head video competition between wired
providers will be good for America, and I hope especially good
for rural places in New Hampshire and elsewhere.
I do, however, think we can leave more of the franchising
decisions outside of the beltway. I completely agree that
35 thousand communities would be too many to negotiate with--
even though cable did it--if we are seeking to rapidly bring
direct competition.
Over the past year, several states have taken aggressive action
to address the lack of choices. Perhaps this Committee's
consideration of nationalizing what had been a local prerogative
has helped spur this activity--and for that Mr. Chairman you
should applauded. Texas, Virginia, and Indiana have now enacted
state-based franchise laws. Service providers have as a backstop
a one-stop approval process that can be used to enter communities
in these states. 9 other states have now begun considering
similar legislation, and a few have operated that way for a
longer period of time.
I think a federal franchise is a fine idea to get us started in
the debate and maybe even a way to jump start competition, but I
think it is worth considering that we provide the states further
chance to experiment and develop unique franchises for their
residents. This is something I am exploring and working on for
when we begin active debate on this bill, and I'd like to ask a
few related questions later today on this.
Finally, I think this debate must include programming issues and
consideration of the manner in which the current system limits
content choices that are available to consumers. We did not
consider these problems during debate on the satellite
reauthorization or DTV bills. I think that time has arrived.
During the satellite reauthorization debate, my highest priority
was to ensure that my state's only network affiliate, WMUR in
Manchester, could be accessed by residents of the entire state.
The people in my four northernmost counties certainly consider
themselves Granite Staters and not Mainers or Vermonters. Arcane
and thoroughly obsolete DMA rules had prevented that access
previously, and this Committee was good enough to accommodate our
unique situation.
But the story did not end at the bill's enactment; a retransmission
agreement still had to be reached before anyone could gain this
new access. People who watch government policy making closely
sometime compare it to sausage making. If that is true, then
observing and being part of a retransmission agreement is like the
process that begins the moment that sausage is consumed by a person.
Getting chewed up is only the beginning, and frankly the most
pleasant part.
We clearly must protect private property rights and we should not
inject ourselves needlessly into market-driven negotiations. However,
the DMA rules I already mentioned, network non-duplication rules,
affiliate area exclusivity, program bundling, non-network owned
affiliate agreement clauses, vertical programming ownership, and a
host of other market-power creating factors have already conspired
to tip the scale of market balance in one direction or another.
Although one might be able to argue that in aggregate the imbalances
level out, it does nothing to help consumers in one area who have
artificial restraints on their choices if consumers in another area
are poorly served by some other restraint.
I find it hypocritical on its face that alternate distribution
methods, such as direct episode-by-episode Internet downloads of the
kind that forced the recording industry to turn its business model
upside-down, can be offered by programmers who at the same time rail
against changes to a distribution model that forces bundled services
cloaked in seemingly false concern for localism and the independent
broadcasters.
Members of this Committee time and time again have asked for
information about programming costs and conditions only to be told
that confidentiality clauses prohibit any disclosure. Yet, all
sides come back later to claim that they are being held hostage,
abused, tortured, and raped and pillaged by the other side.
I say prove it. Show us. I think it is time we had some disclosure
of these terms and conditions. Certainly information on any
programming tied or leveraged to the use of the publicly provided
airwaves isn't too much to ask.
Mr. Upton. Mr. Doyle.
Mr. Doyle. Good morning, and thank you, Mr. Chairman, for
scheduling today's proceedings. Pittsburgh is increasingly
becoming a center of high-tech businesses and jobs. However,
my district also has one of the highest concentrations of
senior citizens in America, the majority of which live on
fixed incomes. A vibrant telecommunications industry is of
vital importance to my district. I look forward to seeing
consumers have competition for telephone, television,
Internet, wireless, and more. All Pittsburghers will benefit
from increased competition so long as they all have access
to competition and so long as their only options aren't
pricey packages of services that are bundled with a new
kitchen sink. Franchises with local governments can ensure
all that and more, but it remains to be seen whether the
national franchises in this committee print will offer the
same level of protection and availability.
As I began my service on this subcommittee, we discussed
whether and how dozens of companies would provide telephone
and DSL service. Now we are talking about whether and how
to facilitate a mere two or three choices for television,
phone calls, and the Internet. Currently, the United States
is 16th in the world in the percentage of people with
high-speed Internet at home. This is simply not acceptable
if we want to be able to employ the millions of workers
that we have told to get retained with technology skills,
and it is not acceptable if we want our kids to have a
future as bright as they deserve it to be.
I am sitting here with an open mind. I look forward to
hearing from each of the witnesses and I hope they address
how they think this bill can promote competition, lower
prices, and improved service for every American. Thank you,
Mr. Chairman, for holding, this hearing and I yield back the
balance of my time for questions.
Mr. Upton. Thank you, Mr. Doyle. I would just announce to
Members that we are expecting one vote at 11:00. Mr. Bass,
the Vice Chair, is going to go and vote early and come back
so we can continue the queue that we have towards the Members'
opening statements. We are going to want to run through
this vote so that we can continue and try to adjourn before
early evening. Mr. Ferguson.
Mr. Ferguson. Thank you, Mr. Chairman. Thank you for
holding this hearing and listening to Members' views
concerning the best way to promote more competition in the
marketplace and choice for our constituents.
I have been guided by two principles as we have gone through
this whole process. One, what is the best way to service
consumers today in terms of competition that will bring
prices down. And number two, what is the best way to serve
consumers in the long term, in terms of how we can encourage
investment of capital and infrastructure and in new
technology. It is for those reasons that I support the
video choice provisions of this bill.
When we look at the provisions of this legislation and any
potential amendments, we have to make sure that the
provisions meet the overall goals that we are trying to
achieve. The goal of this legislation should be more
consumer video choice, more broadband deployment and not
unwanted regulation of the Internet. The success of the
Internet was built on its freedom from regulation and we
should make a very strong effort to keep it that way.
I would also like to commend the authors of the bill for
making it a priority to ensure that all providers of
video services are able to compete on a level playing
field. Our goal should be to treat like services alike
and to make sure that one competitor is not saddled with
and disadvantaged by government regulations while another
is free from those burdens. This bill I believe moves us
in that direction.
I am also pleased to see that the VOIP E-911 issue is
addressed. In the post-Katrina world, the issue of E-911
and redundancy in our communications network has become
quite literally a matter of national security. During
Hurricane Katrina, the mayor of New Orleans was able to set
up a call center using the Vonage service of one of his
aides, his first outside contact, allowing him to coordinate
with President Bush and state and local authorities during
a time of real emergency. This VOIP connection provided
the redundancy in the network that served as a communications
hub for an entire city at a critical time. This is a
success story that demonstrates what happens when our
regulatory regime encourages innovation and competition. In
such an environment, new technologies are created and
deployed to the benefit of consumers, often with substantial
cost savings. Customers need access to life-saving E-911
networks regardless of which technology they use. That is
why we need to ensure that new services like VOIP have all
the tools they need to provide consumers with the enhanced
protections that they deserve.
I want to congratulate Chairman Barton, Chairman Upton,
Mr. Pickering, and Mr. Rush for crafting a bipartisan piece
of legislation that promotes fair and effective competition
for our constituents while promoting this committee's
commitment to reducing regulation in the marketplace. I look
forward to hearing our witnesses today, and I thank you,
Mr. Chairman. I yield back.
Mr. Upton. Mr. Inslee.
Mr. Inslee. Thank you. It is true that the hottest places
in Hell are reserved for those who preserve their neutrality
but it is also true that the warmest seats in Heaven are
reserved for those who want to preserve net neutrality, and
the reason is, is that net neutrality will preserve the
utility and the tremendous liberty of innovation that have
made the Internet really the greatest tool for intellectual
improvement and dynamic force since the invention of the
printing press. And I am very concerned that the bill as
currently drafted will allow an arteriosclerosis to develop
in this circulatory system. This marvelous tool that has
developed that has been freely available without the private
taxes that Mr. Dingell alluded to, and while arteriosclerosis
is a disease of the old in humans, it is a disease of the
young and the Internet. Because when we start to impose
these private taxes, the ones who get hurt are the young
innovators, the garage innovators, the small business
innovators, those who have not achieved the great success
of the Googles of the world and it is for those young
innovators that I think our committee ought to take a look
at this bill and really make a firm statement to preserve
net neutrality just not in wishes but in reality. And I am
very concerned that the horse will be out of the barn if
we do not act. Shots across the bow of net neutrality have
already been fired in the press and we should not be in a
position to say that we don't think the levees are going to
be topped. They are going to be topped here if this
committee does not act and so I am hopeful that we can work
together in a bipartisan way to give strength to a net
neutrality provision that will protect those innovators all
across the world and really make the Internet what it
deserves to be, which is the most utilitarian thing we have
ever come up with. Thank you.
Mr. Upton. Mr. Stearns.
Mr. Stearns. Thank you, Mr. Chairman. Let me commend you
and the others for your long effort here in negotiation. I
think after listening to Mr. Dingell, I think perhaps you
should realize much like other markups around here, we get
through the subcommittee markup, then we go to full
committee and there are some changes done, and then it goes
to the House and there are more changes, so oftentimes it
is better to keep plodding forward and realize that the
perfect is the enemy of the good here because in every
instance when you talk about this bill, it comes down to
perhaps three areas, the concern about build-out
requirements and obviously there is language in is this
bill that talks about how you can't discriminate, and I
have the language in front of me. The other concern is
the uniform rate requirement and, you know, really we as
Republicans particularly are concerned about putting any
regulation in there and let the competition decide. And
the third area is net neutrality that was just recently
mentioned. There is language I am looking for right in
title II talking about enforcement of the FCC's broadband
policy dealing with net neutrality, so Mr. Upton and
Mr. Barton have put language in there. So it is just a
case of whether you think it is strong enough, and I
think the best way to handle this is, after this hearing,
I urge my colleagues to mark the bill up. There won't
be complete agreement, but then we will be able to find
and put something in the sand that says this is what we
think is the best possibility, and then move from there
to the full committee and have another markup where we
can have amendments and discuss it and work it out.
I was involved with the write-up of the 1996 Telecom Act,
and back then there possibly were about 37 million people
that were online shortly after the bill was passed.
Today we have 220 million Americans that are online so
it has moved tremendously forward, and I think when you
go with a bill this complex, it has a huge impact. We
can see from the audience here, it is standing room only.
There are people out in the hallway. This has huge
financial impacts and I appreciate that any of the
executives and the lobbyists that are involved here are
worried about their clients, and I would say to ease
their concern, is this process we had in the 1996 Telecom
Act was the same way and we just moved forward. And so
I urge my colleagues to hopefully mark this bill up
shortly out of this subcommittee, Mr. Chairman, and move
it to the full committee.
An area that I have concern about, even in the Telecom
Act, was this interconnection. Obviously once these pipes
are made open and the companies have them, they own them.
The question is, should other people have the right to
offer voice, video, and data applications over these and
how do you work out that interconnection, and I think
current law provides for rights and obligations for
interconnection, but I am pleased that the draft attempts
to include those rights going forward for VOIP providers
given the recent FCC decision sand the ongoing debate
concerning what constitutes an information service or
telecom. I want to ensure that all parties have an
opportunity to compete, and I want to also--my colleague,
Mr. Boucher, has pointed out, both he and I have a bill
that we thought should be part of this markup. So I
thank you, Mr. Chairman.
Mr. Upton. Mr. Rush, co-author of the bill.
Mr. Rush. Thank you, Mr. Chairman. Mr. Chairman, I want
to thank both you and Ranking Member Markey for conducting
this very important hearing to allow for a full and fair
and open discussion involving the legislation that I am
sponsoring with Chairman Barton, yourself and Vice
Chairman Pickering. I also would like to thank our
distinguished panel of witnesses for taking the time out
to share with us their insights on this legislation.
Mr. Chairman, this bill represents a huge step in
bringing lower prices, more choices, and better services
not only to my hard-pressed constituents, but to the
entire nation. Specifically, this bill would provide
equitable competition among a variety of video service
providers. Video service providers can compete in
price, quality, and quantity, and consumers can finally
decide which service provider they prefer.
In that respect, I want to ensure that my community,
the African-American community, is better served. As
you know, African-Americans watch more television;
spend billions of dollars on television service, more
than any other demographic group or ethnic group in
the entire nation. Mr. Chairman, their concerns must
be addressed. Specifically, this bill will create a
nationwide approval process for pay TV services. By
streamlining the system, these companies will be able
to offer new television services in many areas while
protecting local interests. Cable providers will be
able to participate in the streamlined system once they
face local competition. This bill would also prohibit
discrimination on the basis of income and give the FCC
the power to revoke the provider's franchise area if
there is willful or repeated violation of discrimination.
This bill will require video service providers to provide
access to leased channels to qualified minority owners.
This bill would also require Internet-based telephone
services to offer 911 capabilities while ensuring
Internet telephone providers that they have all the
access to the necessary 911 infrastructure and technology
that is available. This bill would clarify the FCC
authority to prevent Internet service providers from
blocking or degrading any content or application delivered
over the public Internet. This bill would also preserve
municipalities' rights to collect up to five percent from
any pay TV provider, would allow cities and towns to
develop their own broadband networks, which they are
struggling and striving and most desirous of.
Mr. Chairman, there has been and will continue to be
different opinions about this bill, and I urge this
subcommittee and the full committee to move forward
expeditiously with the markup, and I will also encourage
my colleagues to stay focused on the central objective
of this legislation which is to give those same consumers
a more diversified voice in video. In 2003, the General
Accounting Office found that cities with more than one
cable provider enjoyed 15 percent lower rates than in
cities with a single provider.
This legislation represents a huge step in helping our
American consumer. It creates a fair and equitable
marketplace that should allow competing companies to
thrive and invest, and hopefully provide more jobs in the
service areas and also across the nation. Mr. Chairman,
thank you, and I yield back the balance of my time.
Mr. Upton. Thank you. Mr. Terry? Mr. Pickering.
Mr. Pickering. Mr. Chairman, thank you, and I want to
commend you and Chairman Barton for your work on this
effort. I want to thank Mr. Markey and Mr. Dingell for the
good-faith efforts that we engaged in in the best tradition
of this committee in trying to reach an agreement, a
bipartisan agreement on telecommunications. As we all know
on this committee, it is our tradition to have a bipartisan
approach on telecommunications and I still believe and hope
that we can reach that, and I think you will see on both
sides of the aisle as we move forward that there will be
bipartisan support.
I would like to take a moment to put into context our effort
in the legislation that is before us as we move forward.
Understanding history gives us good insight into the present
and into the future. If you look at the beginning of the
discovery, Alexander Graham Bell's, he started the telephone
and at that time you had AT&T start, you had many independent
providers of telecommunications service but you had no
interconnection policy. And because of no interconnection
policy, you had multiple networks that could not operate,
function, or talk to one another. As a result, in 1934 the
natural monopoly theory was adopted by Congress and that
existed up until the breakup of AT&T in 1984. One of the
great legacies of Ronald Reagan was the collapse of the Iron
Curtain and the freedom that came through that across Eastern
Europe and the former Soviet Union. One thing that is not
often mentioned with the Reagan legacy is the breakup of
AT&T, which changed and started the process that we are still
working on today, and that is to bring competition to
telecommunications.
It is extremely significant that we get this right, and the
reason is because the gains of our economy, the efficiency,
the productivity that has really driven the last decade and
a half of growth, really the last decade of growth, has come
through the telecommunications sector. One of the most
significant things, probably the best thing we did in the
1996 Act that no one disputes, which is a rare thing, is
the removal of barriers to entry. We are continuing that
today, and we also did in the 1996 Act is that we made sure
that we preempted the States and local communities from
blocking competitors in voice, and we set up a path to try
to bring not only long distance competition enhanced but
local voice competition. We hoped at that time that cable
and telephone companies, facility-based providers as well
as CLECs and others would then have a vibrant competitive
opportunity. The reality is, ten years later we are just
now beginning to see it, and this bill we hope will stimulate
what we had hoped ten years ago and that would be that cable
and telephone companies would actually compete against each
other. Today we are seeing among our cable companies their
emergence as voice over Internet providers and offering a
bundle of services, both voice and video. What we did in
this bill and the best thing that I believe we do in this
bill, is that we complete what was started in 1996 and that
we now bring all telecommunications policy to the Federal
level. When you are now talking about IP applications, it
does not make sense to have a patchwork of thousands of
localities in 50 States regulating video in a different way.
This gives both for cable companies and for telephone
companies national franchises and it significantly advances
a Federal policy and will advance competition in the video
marketplace. But equally important is that we maximize
competition in the voice marketplace and we should not lose
sight of that goal. Right now after ten years the local
incumbent telephone companies, the Bell companies control
about 95 percent of the local voice market. In the cable
video market, you have 30 percent penetration through
satellite, so in many ways the video market is more
competitive than the voice market. This bill through
interconnection cable directly to local telephone companies
will help expedite, enhance, and promote voice competition,
and I want to make sure, Mr. Chairman, that I work with you
to make the commitment and to assure that the language that
we now have in the bill achieves that objective of getting
competitive parity to voice over Internet providers so that
they can enter the voice market and compete effectively with
the local telephone companies just as we remove barriers to
entry in the video marketplace there should be parity. I
want to make sure as we move forward today that we get net
neutrality right. It is very critical that we have not only
two choices, but we have and maintain hundreds of choices
for consumers. But this is a good start. It is a good
framework and I am very pleased to join Chairman Barton and
Mr. Upton and Congressman Rush as we start this process of
great significance, and I hope that at the end of the process
that we can say on our side of the aisle that we have
promoted and continue the Reagan legacy of more competition
and free market competition for every sector, every market,
and that we have maximized that intent. Thank you very much.
Mr. Upton. Mr. Gonzalez.
Mr. Gonzalez. Thank you very much, Mr. Chairman. I am going
to be brief. I always believe there are certain topics or
issues that this committee takes up at hearings. I think
opening statements should really be opening prayers and so I
will do my best, and I wrote something quickly. It will only
take me a second, and that is, I hope this committee will
guard against views and even biases formed in years past in
the technological world that no longer exists, that we will
view our concerns through the clear lens that reflects new
technology, its impact on markets, yet that we will be guided
by the enduring principles of fairness, robust competitiveness,
and sound economic policies. Amen. I yield back.
Mr. Upton. Ms. Blackburn.
Mrs. Blackburn. Thank you, Mr. Chairman. I want to thank you
and Chairman Barton for all the work that you have put into
producing this bill and working to reform our franchising laws
and for holding this hearing today, and I am pleased to see,
and I know that my constituents are pleased to see, that this
bill incorporates some of the key concepts of the bill that I
have worked on with Representative Wynn, the Video Choice Act.
This bill--and I tell you, Mr. Boucher and Mr. Bass were
complaining about it being thin. I think thin bills are very
good. Thin is a good thing. If we get less government
regulating and got out of the way, innovation and job creation
could take place. But it makes it clear that we must change
video franchising. We must change the process because it does
stifle competition and innovation. We have great panels
today. We appreciate you all being here. I am looking
forward to talking with you, and wish I could have all my
time for questioning and everybody else's time. But the
facts are clear that we do have to cut red tape and
regulations and promote competition. The price consumers pay
for long distance in their wireless minutes has gone down
consistently in the last ten years, and at the same time
cable costs have gone up 86 percent. That is four times the
rate of the consumer price index. That has to be addressed.
And we know that it is no surprise that the FCC has found
that only 1.5 percent of the markets have head-to-head
competition for cable services. Right now video choice is
limited to a cable provider, satellite, rabbit ears, and
Congress does need to take action on this bill. We know
competition brings lower prices. You can look at the Keller
Texas example, $37 a month, and almost overnight Chartered
Communication cut the price in half.
Finally, I think it is important to note that this is not
just about choices in video service, it is also about
broadband. Chairman Barton mentioned that cutting the
regulations that prevent the companies from entering the
video market will help with both our broadband deployment
and our broadband penetration here in the U.S., and as the
Chairman said, we are now at 16th. That is not acceptable.
And I just that just like the bill that Representative Wynn
and I had co-authored, that this will improve that standing,
so we look forward to having you with us and hearing from
you, and Mr. Chairman, I yield back.
[The prepared statement of Hon. Marsha Blackburn follows:]
Prepared Statement of the Hon. Marsha Blackburn, A Representative in
Congress from the State of Tennessee
Chairman Upton and Chairman Barton I want to thank you for your work
in producing this bill to reform our franchising laws and for holding
this hearing today. I am pleased to see, and I know all our
constituents will be pleased to see that this bill incorporates key
concepts of the bill that I have been working on with Rep. Wynn, the
Video Choice Act.
Our bill, and now the committee's bill, makes it clear that we must
change the video franchising process that currently stifles both
innovation and competition. We have two good panels today, but the
facts are clear -- cutting red tape and regulations to promote
competition helps consumers.
The price consumers pay for long distance or wireless minutes has
gone down significantly in the last ten years, but the price they
pay for cable has gone up 86% over that same period -- that is four
times the rate of the Consumer Price Index. Why is this? Well it
should be no surprise that the FCC has found that only 1.5% of
markets have head-to-head competition for cable services. Right
now video choice is limited to a cable provider, satellite service,
or rabbit ears. Congress needs to act on this bill. We know
competition lowers prices. Right now Verizon is offering its video
package for about $37 dollarsa monthin Keller, TX. Almost
overnight Charter Communications cut its price in half to compete.
Finally, it is important to note that this is not only about choices
in video service. The pipes that deliver this video product will
also have more space for data -- and cutting the regulations that
prevent these companies from entering in the video market will only
help broadband penetration in the US.The United States has fallen
to 16th in the world in broadband penetration and I believe that
like the bill I authored with Rep. Wynn, the chairman's bill will
improve this standing.
The message is simple. Reducing the barriers to video competition
is good for consumers. I want to commend you Mr. Chairman for your
work and I look forward to the testimony.
Mr. Upton. Ms. Cubin.
Ms. Cubin. Thank you, Mr. Chairman. I do believe in the
promise of Internet protocol technology and how it can
improve and enrich American consumers, but I want to ensure
mostly that any legislation that we consider does not harm
those businesses who have made it their business, if you
will, to serve the most remote subscribers in the country
with telecommunications services. I represent the most
rural state in America and we don't even have cell phone
service in many, many places in our state. So I really
want to protect the businesses who have made investments
in rural America, but I also want to protect issues like
access to content, preservation of the universal service
fund, and the freedom to access the Internet in an
unfettered manner, so those will be my guide in this
deliberation. Thank you, Mr. Chairman.
[The prepared statement of Hon. Barbara Cubin follows:]
Prepared Statement of the Hon. Barbara Cubin, A Representative in
Congress from the State of Wyoming
Thank you, Mr. Chairman.
I want to thank you and those who have spent hours, weeks and
months in negotiations to craft this bipartisan bill. We've come
a long way from the start of this Congress when the idea of a
national video franchise was first proposed, to the bill we are
deliberating today. Thanks to the promise of Internet Protocol
(IP)-enabled services and the deployment of fiber-optic
infrastructure, however, we now find ourselves debating the novel
concept of our constituents being able to receive video over
their phone lines.
It wasn't too long ago when everyone was using dial-up connections
to access the Internet and the concept of broadband in one's home
seemed prohibitively expensive and remote. Fast forward 10 years--
as the Internet has become mainstream and commercialized--and
many consumers now have a choice of broadband providers. While
we still have a ways to go before this benefit truly affects all
of those in Wyoming's most rural communities, progress is being
made. As a result of this broadband deployment, we are seeing
intermodal competition and other new innovations no one could have
foreseen. This is really to the benefit of consumers across
America.
I believe in the promise of IP technology and how it can improve
the rich selection of competitive services for consumers. I also
want to ensure that any legislation we consider does not harm
those who have made it their business to serve the most remote
subscribers with advanced telecom services. Issues like access
to content, preservation of the Universal Service Fund and the
freedom to access the Internet in an unfettered manner will guide
me as we proceed on this bill.
I look forward to hearing from both of our distinguished
panels on this draft today and want to continue our dialog
as we tackle legislation modernizing the telecommunications
laws.
I yield back the balance of my time.
Mr. Upton. Thank you. Ms. Solis.
Ms. Solis. Thank you, Mr. Chairman. I want to thank you
for the opportunity to give an opening statement. As a
member of the full committee, I have been following this
issue very closely. Prior to my election to Congress, I
served in the California State Senate on the Utilities and
Commerce Committee and worked back then in 1996 on the
Telecommunications Act. While the world of
telecommunications has changed dramatically since then, some
issues such as the digital divide and redlining remain a
challenge to many in our low-income communities, the
community that I represent in Los Angeles. That is why I
strongly support inclusion of strong enforceable
anti-discriminatory language in the committee bill.
Non-discrimination in telecommunications is critical to
bridging the digital divide, particularly in communities of
color, especially the Hispanic community. While Latinos
are the fastest growing demographic of online users, only
one in eight Latino households has access to broadband
services. Indeed, any reform must ensure that Latino
communities get access to the latest broadband technologies
as quickly as non-Latino communities. In fact, 11 members
of the Congressional Hispanic Caucus and numerous civil
rights organizations, consumer groups, and advocacy groups
support strong enforceable anti-discrimination language in
the video franchising agreements. Included in that is the
leadership conference of the civil rights letters that we
have received, the League of United Latin American Citizens,
the National Hispanic Bar Association, the National Hispanic
Caucus of State Legislators, the National Puerto Rican
Coalition and the Hispanic Federation. I ask for unanimous
consent to enter these letters from these groups into the
record.
To be truly effective, any non-discriminatory broadband
deployment provision adopted by this committee should
carefully and specifically look at a method of enforcement,
and some have suggested that the non-discrimination
provision only applies to community self-selected for access
to video services by new service providers. But such a
policy, in my opinion, would actually encourage
discrimination. Take, for instance, in Los Angeles. If
such a policy would allow a video service provider to
provide service only to residents in Brentwood while
disenfranchising the rest of Los Angeles so long as a
provider didn't discriminate within the boundaries of
Brentwood, in effect video service providers could neglect
service to low-income areas and the other parts of
Los Angeles, for example, in the area I represent in East
Los Angeles as well as South Central Los Angeles. I share
my colleagues' goals of passing legislation which will
promote increased competition, lower prices, improved
quality of service and the development of new advanced
services, but the digital divide remains a reality for my
constituents and many others. We should not let this
opportunity pass. And I am pleased to hear that the latest
draft put forward by Chairman Barton and others includes a
placemaker for anti-redlining enforcement.
I look forward to working with my colleagues on that and
working out particular language that would hopefully phase
in with some strong enforcement language so this is done
over time. I yield back the balance of my time. Thank you.
[The information follows:]
Mr. Upton. Thank you. I would recognize Mr. Buyer, a very
active Member on this issue, and I might ask Mr. Buyer, since
I am the only one that hasn't voted on this, maybe if you
would assume the chair here. You voted, right? Did you vote
on this? We have got about seven minutes to go so--
Mr. Buyer. I want to thank Howard here, because you have
gone through the gamut. Last summer in Indiana I held two
telecommunications forums, you can call them, with industry
leaders last summer and last fall. Through those meetings
we were able to come to agreement on principles which is
extremely important, which is really challenging to do. Get
everyone in this room to agree to a set of principles.
Those principles are--whatever changes we made, we wanted to
ensure economic security, encourage investment. We want to
open markets, be deregulatory, regulate on parity. We want
to empower consumers and be technology neutral. Those are
all the principles which individuals had agreed to.
I then began the process of drafting legislation. Chairman
Barton, Chairman Upton did not want me to do that at all.
Well, I was not a very happy camper. I then met with
Governor Mitch Daniels, asked Governor Daniels, what are you
going to do about telecommunications reform, Mitch. He said
well, Steve, what do you want it to look like. Now, that is
an opportunity. So I sat down with the Governor of Indiana.
I happen to have a State Senator who also works on my
Congressional staff. That is a good thing, because Senator
Brandt Hershman then took that legislation and we even went
a step further, and in Indiana today on a bipartisan basis,
by overwhelming votes, we have the most sweeping
telecommunications reform in the country, and we completely
deregulated phone. It is exciting. So I am pleased about the
road that we have gone. It has been challenging through BITS
I, BITS II, the third draft, now onto the fourth draft. We
are still not there yet. We are getting closer. But there
are a couple words out there that get thrown around that I
don't think I completely understand.
If I were to do an exercise and ask all of colleagues and
everyone here to write on a piece of paper what does net
neutrality mean, how many different definitions do you think
we are going to get? A lot. I love how people throw out
terms and use words but what do they mean? Well, my concern
is right now with the present legislation and I have now
back from legislative counsel my own legislation and I am
going to hold on to it, but I am concerned about the use of
the term "cable services." And I understand that for
drafting purposes, it is easier to use existing language in
the Communications Act, but I believe that the use of the
term -cable services- does not signify the new era of video
providers. So this is more than just semantics. I am also
concerned about the exclusion of satellite from any forward-
looking video programming legislation. I do not favor the
exclusion of satellite. This should be called video
services and satellites should be included in this. And
while the current structure might not support the
development of satellite into the local franchising regime,
we have an opportunity to create a new structure that treats
everyone alike. I am also concerned that the existing
cable providers cannot obtain a national franchise for a
local franchise until a new entrant enters the marketplace.
I believe this is in direct opposition to treating like
services alike, and if we are going to support the creation
of this new structure, then it should embrace all providers
of all like services at the same time. I am also concerned
about the definition of gross revenues. I also have concern
about statewide franchises that are out there right now. We
need to include in this bill grandfathering the choice of
States to either go with what they have got or opt in.
With regard to municipal provisions of services, I have a
strong concern out there that some of these cities and towns
are getting into the business without realizing what they
are getting themselves in to, or how also that competitor is
going to respond and how then the taxpayer is left holding
the bag, and I have some strong concerns about that. So
maybe if we can include something that has a right of first
refusal to an incumbent broadband video provider, perhaps
that should be included in the bill.
I want to thank all of you for coming to provide your
testimony today, and you have got to love the legislative
process.
Mr. Buyer. [Presiding] With that, the committee will be in
recess temporarily for about six minutes.
[Recess.]
Mr. Upton. Okay. We are finished with the opening
statements. Again, all Members will be able to put their
statements into the record.
[Additional statements submitted for the record follows:]
Prepared Statement of the Hon. Anna G. Eshoo, A Representative in
Congress from the State of California
Mr. Chairman, I appreciate the work that you and your staff have
put into this draft, but I'm disappointed that this bill fails to
deal with several critical issues, particularly the need for
strong--Network Neutrality--rules to protect consumers and preserve
the open Internet.
I understand and I support efforts to create more competition in
both the video and broadband markets. We should applaud efforts by
cable and others to provide alternatives to Bell telephone service,
and we should do everything we can to encourage the Bell companies
to build out their networks to compete against Cable TV.
But the end result of this new -IP-based- world can't be a newly
reconstituted AT&T duking it out with the big cable companies. In
order to ensure vigorous competition and innovation we need to make
sure that other entrants have a fighting chance.
And I think the legislation before us falls short.
Congress should provide appropriate rules and policies for new IP
video offerings, and ensure that the Bell companies have the
appropriate incentives and regulatory environment to enter into
competition with cable.
But we shouldn't do this at any cost; Bell entry into video is not
the ultimate goal, but rather a means to a much more important
outcome.
The most important feature of the Internet and IP-based technology
is the potential to provide any form of communication or content -
voice, video, movies, music, messaging, etc. - over a single
network.
This means that through a single Internet connection - regardless
of who the access provider is - consumers and businesses should be
able to receive almost any information, entertainment, or commercial
content.
We have to ensure that the diversity of content and sources of
information that we have on the Internet today does not get locked
down as the Internet converges with the more traditional cable and
telephone networks.
I'm concerned that the bill before us does not provide sufficient
protections for this diversity and appropriate--Net Neutrality--
rules to prevent vertical integration of Internet access and
content. In fact, this legislation is worse than doing nothing -
it prohibits the FCC from doing anything other than preventing
complete blocking of unaffiliated content.
We all support the possibility of additional consumer choices and
competition among broadband providers, but I believe that as we
consider new regulatory -rules of the road- for broadband providers
we should not enable them to stifle competition in the provision of
Internet content, applications, and services.
For the foreseeable future, the cable and phone companies will
serve as a -chokepoint- for Internet access for the vast majority
of Americans, and I believe it's incumbent on this Committee and
Congress to ensure that the non-discriminatory framework that has
allowed both the Internet to thrive, and competition on the Web
to flourish, is preserved.
Without meaningful, enforceable -Net Neutrality- rules, we will be
enabling network operators to fundamentally change the open nature
of the Internet, allowing them to become gatekeepers for Internet
users' access to content.
The major telephone companies have made it clear that they intend
to establish -toll roads- on the Information Superhighway, making
premium service levels available only for their preferred content.
The Bell companies' plans for -tiering- of Internet service would
fundamentally change the way the Internet has always operated -
openly and without barriers to content. There can be arguments
about whether this system is fair or necessary, but it's difficult
to dispute that this will fundamentally change the Internet and the
experiences of Internet users.
I'm also very disappointed that the bill fails to institute any
requirements for new video franchises to provide service throughout
the franchise.
Without such obligations, and without local governments able to
exercise any authority over these franchises, new video providers
will almost certainly gravitate toward the most lucrative - and
often the most wealthy - portions of the service area. They will
have no responsibility to expand service to all consumers, and local
governments will be powerless to prevent the -cream skimming- that
will likely follow.
This Committee must carefully consider these important issues, and
I hope develop a more balanced and more reasonable approach. There
is too much at stake to get this wrong.
Prepared Statement of the Hon. Gene Green, A Representative in
Congress from the State of Texas
Mr. Chairman, although I am not currently a member of this
Subcommittee, as a former member, I want to thank you for allowing
me to submit this statement in writing, to be included in the
hearing record.
America needs legislation to modernize our telecommunications
laws, and this draft proposal is an important first step.
This has been a long, on again, off again negotiating
process. I wish we were marching together now, and I hope
we will be soon in the near future.
We all want competition, and the authors' deserve praise for
their hard work in that direction. Even though it is not a
fully bipartisan draft, it represents good policy in several
areas.
Most importantly, the bill will spur new competition into the video
market nationwide, and it protects the ability of cities to offer
wireless broadband in neighborhoods. It also applies 911 and E911
requirements to VOIP service.
I do however, have several concerns at this early stage, and
I hope we can work on these issues:
I am worried that low-income areas with cable service because of
previous cable build-out requirements might lose cable service
altogether in an era without these requirements for anyone. Perhaps
we should guard against this with a "hold harmless" provision.
We also should spell out the standard for the anti-income
discrimination provision for national franchises--what would be a
violation and how would we enforce against potential violations.
Uncertainly leads to litigation. It feels like income discrimination
if price cuts in high income areas with competition come only at the
expense of price hikes in low income areas without competition.
Given the current digital divide between communities, is there
something else proactive we can and should do to bring the benefit of
competition to all types of communities that won't deter competition
in the first place?
Franchise revenue in the City of Houston and nearby cities supports
police and fire department budgets. I think we should know whether
the new calculation of gross revenues will cause life-supporting
local revenues do go up or down or stay the same.
It is extremely important for cities to maintain control over their
rights-of-way for beneficial public purposes like road and sewer
projects, and perhaps we need to strengthen that control in these
positive areas.
I am also curious whether a state can be a "local franchise
authority" under the bill, and if that make sense for a state as
large as Texas. For thing, that would mean that the State PUC would
be the only option for consumer protection for millions of people,
rather than their localities.
Finally, in what could be the biggest question of all, we may need
to update the definitions of the Title II of the Communications Act
for "cable service" and "video programming" since new kinds of
Internet video could soon allow cable, telecom, or any other company
a loophole out of national franchises. Under this bill, a company
may be able install fiber in public rights of way in order to sell
VOIP service, broadband Internet service, and video products and
avoid this Act, creating a scenario with different regulatory
regimes, just as the old 1996 Act did.
I am confident that we can come to satisfactory
understandings on these and other issues going forwards and
end up with a strong bipartisan bill. I would also note that
other controversial issues, such as wholesale changes to
retransmission consent rules, probably should be left off
this legislation, if we want it to move quickly.
Mr. Chairman, thank you for allowing me to submit this statement.
Mr. Upton. We are going to start on the first panel. I think we
will be okay with votes for a little while. Members will be in
and out, I am sure. Your statements are made part of the record
in their entirety. I am going to try to limit your opening
statements to no more than five minutes.
We are joined by the Honorable Ken Fellman, Esquire, Mayor
of Arvada, Colorado, on behalf of the National Association
of Telecommunications Officers and Advisors, the National
Association of Counties, the National League of Cities, and
the United States Conference of Mayors; Mr. Walter McCormick,
President and CEO of the United States Telecom Association;
Mr. Kyle McSlarrow, President and CEO of the National Cable
and Telecommunications Association; Mr. Tim Regan, Senior
Vice President, Global Government Affairs, Corning
Incorporated; Mr. Paul Misener, Vice President for Global
Public Policy of Amazon.com; Mr. David Keefe, CEO of Atlantic
Broadband; Mr. Jerry Fritz, Senior VP for Legal and Strategic
Affairs and General Counsel for Allbritton; and Mr. Jeffrey
Citron, who was originally going to be on the second panel
but because we have found his chair at the end, Chairman and
Chief Strategist of Vonage. Mr. Fellman, we will start with
you. Thank you. Welcome to the subcommittee.
STATEMENTS OF HON. KENNETH FELLMAN, ESQ., MAYOR, ARVADA, COLORADO,
ON BEHALF OF THE NATIONAL ASSOCIATION OF TELECOMMUNICATIONS OFFICERS
AND ADVISORS, THE NATIONAL ASSOCIATION OF COUNTIES, THE NATIONAL
LEAGUE OF CITIES, AND THE UNITED STATES CONFERENCE OF MAYORS;
MR. WALTER MCCORMICK, PRESIDENT AND CHIEF EXECUTIVE OFFICER, UNITED
STATES TELECOM ASSOCIATION; KYLE MCSLARROW, PRESIDENT AND CHIEF
EXECUTIVE OFFICER, NATIONAL CABLE AND TELECOMMUNICATIONS ASSOCIATION;
TIMOTHY REGAN, SENIOR VICE PRESIDENT, GLOBAL GOVERNMENT AFFAIRS,
CORNING INC.; PAUL MISENER, VICE PRESIDENT FOR GLOBAL PUBLIC POLICY,
AMAZON.COM; DAVID J. KEEFE, ON BEHALF OF THE AMERICAN CABLE
ASSOCIATION, CHIEF EXECUTIVE OFFICER, ATLANTIC BROADBAND;
JERRY FRITZ, SENIOR VICE PRESIDENT FOR LEGAL AND STRATEGIC AFFAIRS
AND GENERAL COUNSEL, ALLBRITTON COMMUNICATIONS COMPANY, ON BEHALF
OF THE NATIONAL ASSOCIATION OF BROADCASTERS; AND JEFFREY CITRON,
CHAIRMAN AND CHIEF STRATEGIST, VONAGE
Mr. Fellman. Mr. Chairman, distinguished members of the committee,
I thank you for the opportunity to be here. I am the mayor of
Arvada, Colorado, and I appear before you today on behalf of
organizations that represent elected and professional officials from
nearly every municipal and county government in the United States.
I commend you, Mr. Chairman, and your colleagues, Chairman Barton,
Representatives Dingell, Markey, Pickering and Rush, who have
worked diligently on these issues. Unfortunately, we have had less
than 72 hours to read, review and consider the full impact of this
draft legislation.
At the outset, we are concerned that as written this bill
nationalizes what is presently an effective Federal local
government partnership and it will likely result in
litigation. The bill does respond favorably to some of the
issues that we have raised with you in the past. However,
we also have significant concerns which we would like to
work with you to address. In particular, we are very
concerned that the bill is unclear as to its applicability
to IP television services. Certainly this debate will
have been in vain if like services are not treated alike.
This issue needs to be addressed. The bill appears to give
telephone companies substantial relief from local
franchising. It does not, however, provide consumers with
the benefits that telephone companies have promised would
follow. In particular, there are no assurances that more
homes, especially those in rural communities, will actually
get competitive broadband. Such assurances must be added
to the bill.
We appreciate the efforts of the members to keep local
government whole with respect to revenues and it appears
that the gross revenues definition would largely do that.
However, there appear to be unintended consequences in a
provision of the bill that would allow providers to deduct
from gross revenues the costs of bonding, indemnity and
even damages and penalties. We trust that we can resolve
this matter with the committee.
With respect to local public access, we hope that the
committee would consider allowing local government to
continue to receive the greater of one percent or the
per-subscriber equivalent that they receive today as was
done in Texas, and that way no local government will be
forced to terminate services that they are currently
providing. We are pleased that the bill recognizes that
managing public rights-of-way is properly a function for
local government. We hope you would agree that disputes
pertaining to that authority do not belong at the FCC,
but rather should be addressed in a local court, as is
the case today. Similarly, we appreciate that the bill
recognizes the authority of local government to provide
services directly to our constituents. We are concerned
that the bill does not provide subscribers with adequate
recourse for consumer complaints. The FCC is not the
appropriate venue to set these standards or address
these complaints. Local governments do not require new
video entrance to deploy to an entire community immediately.
Requiring that entire communities have access to service on
a realistic and equitable timetable, however, is not an
unreasonable barrier. Guarding against economic redlining
and requiring that all neighborhoods in our community see
the benefit of competitive services is properly a function
of local government and is therefore best enforced at the
local level. The proposed bill does not yet sufficiently
protect those interests.
Mr. Chairman and members of the committee, local government
officials recognize the value that competition brings to
local residents and we have actively sought it. Contrary
to what many have maintained, current law regarding video
franchising has not stifled competition. Indeed, the lack
of competition is the result of business decisions made by
telephone companies not to compete. Nationalizing
franchising is not going to solve the problem of whatever
telephone companies actually enter the market and compete.
Furthermore, local video franchising has a long record of
success. Those who are now making claims to the contrary
have not been completely forthcoming about the nature of
the franchising process or about their own recalcitrance
in franchise negotiations. To my knowledge, no telephone
company engaged in this current debate has ever been
denied a video franchise in any community where they have
applied for one. We believe, as you do, that the current
law could be improved to further promote the provision of
competitive video services to America's communities. We
look forward to working with you and your staffs to find
the best way to address our shared goals of greater
competition and wider access to the most modern video
services available. Thank you.
[The prepared statement of Kenneth Fellman follows:]
Prepared Statement of the Hon. Kenneth Fellman, Esq., Mayor,
Arvada, Colorado, On Behalf Of The National Association of
Telecommunications Officers and Advisors, The National Association
of Counties, The National League of Cities, and The United States
Conference of Mayors
Introduction
Good morning Chairman Upton, Representative Markey and other
distinguished members of this Subcommittee. My name is Ken Fellman,
and I am the Mayor of the City of Arvada, Colorado. I want to
thank all the members of the committee that have worked so hard to
get us to this point.
I appear here today on behalf of the local governments across the
nation, as represented by the United States Conference of Mayors
(-USCM-), the National League of Cities (-NLC-), the National
Association of Counties (-NACo-), the National Association of
Telecommunications Officers and Advisors (-NATOA-), the National
Conference of Black Mayors (-NCBM-), the Government Finance
Officers Association (-GFOA-), the International Municipal Lawyers
Association (-IMLA-), and TeleCommUnity.
On behalf of local government, we would like to thank you for the
opportunity to testify on this new legislation. Needless to say,
the short time frame between the release of the draft and this
hearing has presented some interesting challenges in reviewing the
bill, but I hope I can shed some light on our continuing concerns.
To begin, we believe this draft is more responsive to those issues
we have raised with the Committee in the past, and stand ready to
continue working with the Committee to correct what we perceive as
flaws in the legislation. Having said that, we are very concerned
that this new structure will lead to difficult and lengthy
litigation, the will cost everyone dearly.
Hopefully I can dispel many of the untruths that have been
circulated recently pertaining to local government involvement in
video franchising, while responding to specifics of the bill. We
would like to be your -myth-busters- for today - to cut through
some of the deceptive claims and to provide you with a truthful
picture of the status of cable franchising in the market today,
as well as how that franchising supports the desired delivery of
new competitive entrants and services.
Title VI Franchising is a National Framework with an Essential
Local Component
Congress struck the right balance in 1984 when it wrote Title VI
into the Act, and again in 1992 when it made appropriate consumer
protection improvements to it. Title VI established a light-touch
national regulatory framework for cable television video services
that includes appropriate local implementation and enforcement.
The Act currently authorizes local governments to negotiate for
a relatively limited range of obligations imposed on cable
operators. Virtually none of these obligations is mandatory, and
each is subject to decision-making at a local level. The current
legal structure provides for something I hope we would all agree
is important: local decisions about local community needs should
be made locally. The proposed legislation retains the linkage to
Title VI, which we see as appropriate, and attempts to address
these local issues. However, we believe the language can be
improved.
Local governments embrace technological innovation and competition
and actively seek the benefits such changes may bring to our
communities and to our constituents. We want and welcome genuine
competition in video, telephone and broadband services in a
technologically neutral manner, and support deployment as rapidly
as the market will allow. Local governments have been managing
communications competition for many years now "it is not new.
What is exciting is the potential for new entry into video by a
few well-funded and dominant players who appear to have finally
made a commitment to enter into the video arena. We look forward
to developing an even more successful relationship in bringing
these competitive services to our citizens. Unfortunately, this
legislation would effectively remove local governments from helping
to make that competition a reality.
Local government remains concerned that rhetoric and not facts have
led members of Congress to believe that competition and innovation
will flourish only if local government is removed from the equation.
We are here today to help you understand that nothing could be
farther from the truth. Throwing away local franchising is not the
solution that will bring competition or rapid entry by competitive
providers. This legislation does not solve the many questions
associated with accelerated entry into the video business.
Local government has been anxiously seeking the competitive provision
of video services for many years - and indeed the Communications Act
has explicitly guaranteed such opportunities since 1992. Despite
several previous changes in federal law to ease their entry into the
video market, the telecommunications companies seeking new laws today
have not brought forth the competition they promised. The reason is
not local governments. The reason is not the current federal law. The
reason is market place economics. The provision of video services has
not yet proven to be as financially attractive as the telephone
companies apparently require in order to provide the services they
claim are the new lynchpin to their success. I believe that a brief
review of the current law will demonstrate this trend. One of the
shortcomings of the proposed legislation is an adequate definition of
a threshold for competition. Is a single subscriber sufficient to
trigger -cable competition-? The proposed legislation suggests that
it is, and we would argue this is bad public policy. Is it reasonable
for Congress to decree that locally negotiated franchises will be
trumped whenever a competitor gets a national franchise only serving
a small portion of the incumbent's footprint, thereby allowing the
incumbent to walk away from its local franchise and take advantage
of that minor competitor? Also unclear is whether or not a company
offering of IPTV as a video alternative to cable is actually covered
in the definition of -cable operator- in the draft. If IPTV is not
covered by this proposed legislation, is this not a futile exercise?
These are the some examples of the issues that need resolution.
Managing Public Rights-of-Way is a Core Function of Local Government
Even as technologies change, certain things remain the same. Most of
the infrastructure being installed or improved for the provision of
these new services resides in the public streets and sidewalks.
Local leaders are the trustees of public property and must manage it
for the benefit of all. We impose important public safety controls
to ensure that telecommunications uses are compatible with water,
gas, and electric infrastructure also in the right-of-way. Keeping
track of each street and sidewalk and working to ensure that
installation of new services do not cause gas leaks, electrical
outages, and water main breaks are among the core police powers of
local government. And while it seems obvious, these facilities are
located over, under or adjacent to property whose primary use is the
efficient and safe movement of traffic. It is local government that
best manages these competing interests. While citizens want better
programming at lower prices, they do not want potholes in their
roads, dangerous sidewalks, water main breaks, and traffic jams
during rush hour as a consequence. We question whether this
legislation adequately addresses constituent/citizen interests in
protecting and managing the public rights-of-way.
While the legislation preserves local authority, the draft fails
to provide sufficient enforcement authority to assure compliance.
We strongly object to the FCC being the appropriate forum for
resolving local right of way disputes, and while the legislation
is silent on the matter, we believe by default that task would
move to the FCC. Just as with the current Act, a court of
competent jurisdiction is a more appropriate forum for resolving
such disputes.
Neither Franchising nor Current Regulation is a Barrier to
Competition
The concept of franchising is to grant the right to use public
property and then to manage and facilitate that use in an orderly
and timely fashion. For local governments, this is true regardless
of whether we are franchising gas or electric service, or multiple
competing communications facilities - all of which use public
property. As the franchisor we have a fiduciary responsibility to
our citizenry that we take seriously, for which our elected bodies
are held accountable by our residents.
Our constituents demand and deserve real competition to increase
their options, lower prices and improve the quality of services.
As you know, a GAOstudy showed that in markets where there is a
wire-line based competitor to cable, cable rates were, on average,
15% lower. Please understand that local governments are under
plenty of pressure every day to get these agreements in place and
not just from the companies seeking to offer service. I know this
Committee has heard some unflattering descriptions and
anticompetitive accusations regarding the franchise process, and I
would like to discuss with you the reality of that process.
Like Services Alike
We are encouraged that most of the telephone industry executives and
their staff tell us that they fully support local governments'
management and control of rights-of-way; that they are willing to
pay the same fees as cable providers; that they are willing to
provide the capacity and support for Public, Educational and
Governmental (-PEG-) access programming, and even that they are
aware of and agree to carry emergency alert information on their
systems. And yet - at least one company claims it is not subject to
current law and they do not have to do these very things through
local franchise agreements.
Congress must realize that local government franchising has
facilitated the deployment of not only the largest provider of
broadband services in this country - namely the cable industry -
but that we also facilitated the entry of literally thousands of
new telephone entrants immediately after the passage of the 1996
Telecommunications Act. We are well versed in the issues of
deployment of new services, and have managed competitive entry
for the benefit of our communities for many years. Local government
supports treating like services alike.
Private Companies Using Public Land Must Pay Fair Compensation
At the same time that we manage the streets and sidewalks, local
government, acting as trustees on behalf of our constituents, must
ensure the community is appropriately compensated for use of the
public space. In the same way that we charge rent when private
companies make a profit using a public building, and the federal
government auctions spectrum for the use of public airwaves, we
ensure that the public's assets are not wasted by charging
reasonable compensation for use of the public rights-of-way. Local
government has the right and duty to require payment of just and
reasonable compensation for the private use of this public
property - and our ability to continue to charge rent as a
landlord over our tenants must be protected and preserved. We
believe the proposed legislation makes an attempt to do this,
however, it may have fallen short of the goal because even though
it provides for franchise fees, it does not provide for auditing
the payments or provide for enforcing payment obligations.
We are also specifically concerned about some exclusions in the
definition of -gross revenues.- Paragraph C excludes revenue
from -information services- in defining gross revenue. Since the
Brand X decision by the Supreme Court, there has been a move to
define most IP-based services as an -information service.- Some
telephone companies have argued that IP video programming is an
-information service- and not a -cable service.- Is this a
backdoor way to avoid paying franchise fees? Also, Paragraph (E)
excludes from gross revenues -any requirements or charges for
managing the public rights-of-way with respect to a franchise
under this section, including payments for bonds, security funds,
letters of credit, insurance, indemnification, penalties, or
liquidated damages;- We believe this goes substantially beyond
reasonableness and should be stricken from the draft. It would
basically allow companies to exclude from gross revenues any costs
associated with protecting the public or damages incurred as a
result of being a bad actor in the franchising area. Essentially
this language allows a company to take credit against franchise
fee obligations for any damages it may cause in a community. Are
FCC penalties and fees excluded from gross revenue? The draft is
not clear.
It is also unclear as to the definition of the local franchising
areas for new entrants. What is their operational footprint? Who
are they responsible for paying? How is that determined?
Social Obligations Remain Critical Regardless of Technological
Innovation
Communications companies are nothing if not innovative. When you
think back over the course of the past 100 years, the changes in
technology are mind-boggling. At the same time, the social
obligations developed over the last 60 years have endured. I
strongly urge the Committee to engage in a deliberative process,
and take the time necessary to engage in dialogue and debate to
ensure that any legislative changes adopted this year will be as
meaningful 20 years from now as they are today.
Historical and Current Role of Social Obligations
I appreciate the opportunity to discuss with you the important
social obligations inherent in current video regulation, and to
explain why these core functions must be preserved, regardless of
the technology used to provide them. These include the allocation
of capacity for the provision of PEG access channels, prohibitions
on economic redlining, and a basic obligation that local government
evaluates, and the provider meets, the local needs of the community
it serves, including public safety needs.
Public, Educational and Governmental (PEG) Access Channels
Historically and today, locally produced video programming performs
an important civic function by providing essential local news and
information. Under the existing law, local government can require
that a certain amount of cable system capacity and financial support
for that capacity be set aside for the local community's use. This
capacity is most often used in the form of channels carried on the
cable system and are referred to as PEG for public, educational and
governmental channels. Traditionally the local franchising authority
has determined the required number of channels and amount of
financial support required to meet community needs, it then
determines the nature of the use, which may be mixed between any of
the three categories. Public channels are set aside for the public
and are most often run by a free-standing non-profit entity.
Educational channels are typically reserved for and are managed by
various local educational institutions. Government channels allow
citizens to view city and county council meetings, and watch a
wide variety of programming about their local community that would
otherwise never be offered on commercial television, including in
some cases, television shows hosted by our Congressional
representatives. Whether it is video coverage of governmental
meetings, information about government services or special programs,
local law enforcement's most wanted, school closings or classroom
instruction, the government access or PEG programming is used to
disseminate this information and to better serve and interact with
our constituents. Local governments continue to make innovative
uses of this programming capacity as new interactive technology
allows more valuable information to be available to our
constituents.
The proposed legislation acknowledges the importance of these video
offerings and provides for PEG capacity on new entrant systems,
provides for interconnection between existing PEG and INET capacity
to the new entrant and provides a mechanism to make that happen.
The proposed legislation also provides for PEG financial support
and for expansion of PEG capacity every ten years. These are all
very well intentioned, and clearly the Committee heard most of what
local governments were saying about the importance of these
resources. However, the draft provides for only one percent of
gross revenues to go for PEG support. In some jurisdictions, this
will be sufficient. In others it may not. We would recommend that
along with the one percent, those jurisdictions that have negotiated
a higher figure be allowed to maintain that rate per subscriber,
sufficient for maintain existing services. We also recommend that
the financial support use definition be expanded to include
"operations."
Economic Redlining
One of the primary interests served by local franchising is to
ensure that services provided over the cable system are made
available to all residential subscribers within a reasonable period
of time. These franchise obligations are minimal in light of the
significant economic benefits that inure to these businesses that
are given the right to make private use of public property for
profit. While there may be those who find certain franchise build
out obligations unreasonable - we find them to be essential. The
concept of -universal service- in telephone is no less important
than in the case of broadband. Those who are least likely to be
served, as a result of their economic status, are those whom we
need most to protect. This deployment helps to ensure that our
citizens - your constituents -- young and old alike, are provided
the same opportunities to enjoy the benefits of cable and broadband
competition - regardless of income. The capacity that broadband
deployment offers to our communities is the ability of an urban or
rural citizen to become enriched by distance education, and other
opportunities that until recently were not available. But that will
never happen if only the most fortunate of our residents, and the
most affluent of our neighborhoods, are the ones who receive the
enormous benefits of broadband competition. The spectre of
"buildout" requirements haunts the discussion of serving the
full community. Local governments have been managing this
process for decades, and there is no reason to believe it cannot
continue. Local officials have a responsibility to assure that
the citizens of the community have access to competition. At the
same time, we recognize that there needs to be sufficient
flexibility on the part of the local franchising authority to
address real world challenges, such as very low subscriber density,
actual operational footprint of competitors and so on. The proposed
legislation does take on the challenge of opposing redlining, but
once again fails to provide sufficient enforcement authority
(indeed, the draft is incomplete in this area) to protect
constituents. These should be local decisions with local enforcement
based on local factors, not issues decided by Congress or the FCC.
Public Safety and Community Needs
Local leaders often focus on the needs of their first responders
when evaluating community needs. The current law provides that
local governments may require cable franchisees to provide
institutional networks as part of the grant of a franchise. An
institutional network is a network dedicated to the purpose of
governmental and institutional communications needs. These are
essentially -intra-nets- serving government facilities including
police and fire stations, hospitals, schools, libraries and other
government buildings. Institutional networks are typically designed
to use state-of-the-art technology for data, voice, and video and
allow local governments to utilize advanced communications services
at minimal taxpayer expense. It has proven effective not only for
day to day municipal and educational training and operations - but
essential in emergencies such as September 11, 2001.
The proposed legislation does address Emergency Alert Systems in
that it provides for local government utilization of a cable
operator's emergency alerts system. The proposed legislation
should make clear that new entrants can be required to provide
emergency alter systems in our communities. Also in the VoIP
arena, the Committee acknowledges the need for 911 and E911
capability for public safety.
Public Interest
I suggest to the Committee that these public interest obligations,
noted above, continue to serve an important purpose and must be
preserved, regardless of the technology that allows us to make the
programming available. I hope that you would not yield to the
simplistic notion that reducing public obligations on providers is
always the best course. Customer service and consumer protection
are examples of this concern. Should every community be required
to do no more than what the FCC mandates, some citizens may not be
afforded the protection they deserve. Telephone and cable companies
are well versed in these arenas at the local level today. It should
not be a problem for them to maintain (and hopefully improve) their
customer service and consumer protection. Major problems with the
customer service provisions of the legislation are that its local
enforcement decision to be appealed (and ultimately enforced) at
the FCC. Neither consumers nor local governments can afford the
expense of that kind of enforcement mechanism. Moreover, the
legislation allows a local government to charge a "nominal fee" to
cover the cost of issuing enforcement orders. This "nominal fee"
language should be replaced with a provision to cover actual costs,
including reasonable attorney fees. Local government must be able
to enforce these important safeguards, and must be able to the cost
of doing so.
We also believe that at renewal, providers should be subject to a
public hearing to determine whether they have violated any of the
four conditions for revocation, and whether they have met the
customer service and consumer protection standards.
Strong Enforcement
As I have repeatedly said, local government should not be stripped
of its power to enforce these local obligations. Currently, local
government is able to audit companies that submit revenue and to
enforce public safety obligations pertaining to rights-of-way in
federal court. The Federal Communications Commission has no
expertise in these areas and should not be given any authority over
arbitrating revenue disputes or rights-of-way disputes. Such a
radical expansion of federal power into local affairs is not
warranted.
Alternative to National Franchising
Local Franchising is Comparatively Efficient and Must Be Fair to
Protect All Competitors
Franchising need not be a complex or time-consuming process. In
some communities the operator brings a proposed agreement to the
government based on either the existing incumbent's agreement or a
request for proposals, and with little negotiation at all, an
agreement can be adopted. In other communities, where the elected
officials have reason to do so, a community needs assessment is
conducted to ascertain exactly what an acceptable proposal should
include. Once that determination is made, it's up to the operator to
demonstrate that it can provide the services needed over the course
of the agreement or demonstrate that the requirements would be
unreasonable under the conditions of the particular market.
Furthermore, while some of the new entrants have asserted that
franchise negotiations have not proceeded as fast as they would
like, it is important to recognize that every negotiation must
balance the interests of the public with the interests of the new
entrant. Some new entrants have proposed franchise agreements that
violate the current state or federal law and subject local franchise
authorities to liability for unfair treatment of the incumbent cable
operator vis-�-vis new providers. Some also seek waiver of police
powers as a standard term of their agreement. No government can waive
its police powers for the benefit of a private entity. In the same way,
the federal government cannot waive the constitutional rights of its
citizens. Unlike other business contracts that are confidential or
proprietary, local government franchise agreements are public record
documents, so a new provider knows the terms of the incumbent's
agreement well before it approaches a local government about a
competitive franchise.
Local governments are obligated to treat like providers alike, and
we believe in the concept of equity and fair play. In addition, many
states have level playing field statutes, and even more cable
franchises contain these provisions as contractual obligations on the
local government. If the new competitor is seriously committed to
providing as high a quality of service as the incumbent, the franchise
negotiations should not be complicated or unreasonably time consuming.
Moreover, local government has no desire to make new entrants change
their current network footprint to duplicate the incumbent cable
operator's technology or network design. Local government's concern is
to treat all providers fairly, as required by current franchise
agreements, by federal law, and good public policy.
Franchising Provides for Reasonable Deployment Schedules - Objections
to Reasonable Build Obligations are Red Herrings
Nothing in franchising or current federal law requires a new video
entrant to deploy to an entire community immediately. Local
governments have been negotiating franchise agreements with new
entrants for many years. In these cases, newly built developments may
have one schedule while existing areas may have a different schedule.
By managing the deployment as we do, we protect the new provider's
investment in infrastructure. We protect the public from unnecessary
disruption of the rights-of-way, including safe use and enjoyment of
the public rights-of-way. And, we ensure that new entrants are
provided with unfettered access in a reasonable and timely fashion,
while ensuring that they comply with all safety requirements. This
system has worked well for cable, traditional phone and other
providers for many years, and is necessarily performed by the local
government. Congress, when it authored Section 253 of the Act,
preserved local government authority and evidenced its desire to
maintain the federalist, decentralized partnership that has served
our country well for 200 years. Unfortunately, this bill appears to
abrogate these important principles of federalism.
The Current Framework Safeguards Against Abuse and Protects
Competition
The current framework ensures that all competitors face comparable
obligations and receive the same benefits, ensuring a fair playing
field and avoiding regulatory gamesmanship. Federal safeguards protect
against abuse. Local governments generally are prohibited from
requiring a video service network provider to use any particular
technology or infrastructure such as demanding fiber or coaxial cable.
Local governments can require that construction and installation
standards be adhered to and that systems are installed in a safe and
efficient manner. Local governments require compliance with the
National Electric Safety Code to protect against the threat of
electrocution or other property damage. Local rules can also require
that signal quality be up to federal standards, and that systems are
maintained to provide subscribers with state-of-the-art capabilities.
Similarly, it is local government that inspects the physical plant
and ensures compliance on all aspects of operations. We work closely
with our federal partners and cable franchise holders to ensure that
cable signal leaks are quickly repaired before there is disruption or
interference with air traffic safety or with other public safety uses
of spectrum.
Local Government Helps Ensure Broadband Deployment
We all share the concern of a lack of broadband access throughout
America, in urban and rural areas alike. Regardless of the locality,
it is likely that communications technologies will be a driving force
in the economic opportunities enjoyed by these communities that have
access to advanced services. I believe that the Cable Act has
provided significant benefits to consumers and communities alike, and
I believe that local governments should be applauded for ensuring that
those benefits are provided in a timely, fair and efficient manner to
as many constituents as possible. Under the current regulatory regime,
cable enjoys the highest deployment rate of broadband in this nation,
with over 105 million homes having access to cable modem service. The
cable industry is now reaping the economic benefits of an
infrastructure that is capable of providing broadband access to all
of our citizens. It is local government's oversight and diligence,
through the franchise process, that has ensured that our constituents
are not deprived of these services. Local government is the only
entity that can adequately monitor and ensure rapid, safe and efficient
deployment of these new technologies when they are being installed on a
neighborhood-by-neighborhood level in our local rights-of-way.
Changes Local Government Agrees Would Enhance the Competitive
Environment
We appreciate the opportunity to share with the Committee, based on our
extensive expertise, those sections of the Act that, with some
modification, would enhance the provision of competitive services within
our communities, rather than pursue the strategies of this legislation.
Application of Title VI
Local government seeks modifications to clarify that the provision of
multichannel video services through landline facilities, regardless of
the technology used, falls within the scope of Title VI. The Act does
not permit local government to dictate the nature of the technology
employed by the provider. It does permit the local government to
require that once the technology has been selected, that the quality
of the service is acceptable. The quality of service should be
maintained, and it should apply in a technology neutral manner.
Uniform Assignment of Responsibilities Among Levels of Government
Local government should retain authority over local streets and
sidewalks, no matter what provider is offering service, or what
service is being offered. At the same time Congress is considering
allowing federal agencies to determine which companies can offer
video services, all companies in the local rights-of-way should be
responsive to the local government.
Streamlining of Franchise Negotiations
Title VI establishes the broad framework for those elements that may
be negotiated in a local cable franchise. The provision of PEG access
capacity and institutional networks is specifically protected in the
current Act. Requirements in that regard should be presumptively
reasonable, and a local government should be given the flexibility to
determine the appropriate amount of capacity and the appropriate level
and use of funding support necessary to meet its local community's own
particular needs. The current Act permits extensive community needs
assessments, which while valuable, may be costly and time consuming,
and may prove unnecessary when considering the applicability of the
obligation on a new entrant. We believe that when a competitive
franchise is under consideration, the local government should have
discretion to use these tools on an as-needed basis to verify, but
not be obligated to -prove,- the need for the particular PEG or
institutional network requirement. The Act should require a new
entrant to provide at least comparable capacity and support for the
provision of PEG access, as well as for the provision and support of
institutional networks. Similarly, local governments must be
authorized to require the interconnection of these services between
the incumbent provider's system and new entrant's system, to ensure
seamless provision of services to our citizens.
Time Limits for Negotiations
Local governments have experienced just as much frustration as many
in the industry with regard to the time consumed by franchise
negotiations. While it is easy to claim that local governments are
the cause for delay, let me assure you that the industry is also to
blame for not always pursuing negotiations in a timely and efficient
manner. Just as the industry would call upon local government to be
under some time constraint for granting an agreement, so too should
they be held to time frames for providing the necessary information
on which a decision can be made and for responding to requests to
negotiate in good faith. Otherwise, a time frame merely gives the
applicant an incentive not to reach an agreement but to wait until
the time frame expires. We do not believe that it is unreasonable to
establish some time frames within which all parties should act,
whether it is on an application for the grant of an initial franchise,
for renewal, transfer or for grant of additional competitive
franchises. But these obligations must apply to both sides and must
be respectful of the principles of public notice and due process.
Applicants must be required to negotiate in good faith rather than
insisting on their own -form- agreement. No community should be
forced to make a determination without permitting its citizens
"your constituents" the opportunity to voice their opinion if that
is the process that government has put into place for such matters.
Network Neutrality
While traditional cable operators under Title VI operate on closed
platforms, the Act itself does not address the variety of services
or content that may be provided over that platform. Recent press
accounts have indicated that telephone company new entrants in the
video marketplace also want to be able to control the ability of
the end user to access information purchased over the network.
Faster speeds for those who pay more; and faster access to those
locations on the Internet for which the content provider has paid
a higher price to the network owner. Local government believes
that permitting such favoritism and content control by a network
owner is bad for the end user, bad for business and bad for the
future of the Internet. To the extent that such issues need to be
addressed within Title VI, we encourage the Committee to do so.
Consumer Protection and Privacy
The Communications Act has significant and meaningful consumer
protection and privacy provisions. These are national rules with
local enforcement and they include the ability of the local
government to continue to enforce more stringent local consumer
protection requirements. These rules must be extended to all
video providers - to ensure that information on your personal
choices of what you watch on whatever device you choose to
receive your video signal on - is not being used in an
impermissible or improper manner.
Finally, we continue to support the ability of local governments
and the citizens they serve to have self-determination of their
communications needs and infrastructure. Title VI has always
recognized our ability to do so in the video marketplace, and we
hope that Congress will continue to agree that such should be the
case regardless of the services delivered over the network. Where
markets fail or providers refuse, local governments must have the
ability to ensure that all of our citizens are served, even when
it means that we have to do it ourselves.
Conclusion
In the rush to embrace technological innovation, and to enhance
the entry of new competitors into the market, it is still the
responsibility of local government to ensure that the citizens of
our communities are protected and public resources are preserved.
We are concerned that this legislation will undermine all that has
been achieved through years of thoughtful and careful deliberation.
Local control and oversight has served us well in the past and
should not be tossed out simply as the -old way.- This year, as
the discussion of the delivery of new products and services over
the new technology platforms includes not just video but new and
enhanced video products and other potential services, I strongly
encourage this Committee to rethink its headlong rush to judgment
on this legislation. It has been available to the public for just
three days. Certainly it is unnecessary to move so quickly as to
ignore the substantial record of achievement evidenced by what we
have shared with you today. Thank you. I look forward to answering
any questions you may have.
Mr. Upton. Thank you. Mr. McCormick, welcome back.
Mr. McCormick. Thank you, Mr. Chairman. On behalf of the United
States Telecom Association and our member companies, I want to
thank you for the opportunity to be here today to testify. I want
to express our deep appreciation for the enormous work that has
gone into this legislation.
Mr. Chairman, we strongly support your efforts to bring
new video choice to America's consumers. Franchise reform
will unleash new competition, and experience has shown that
competition will result in reduced rates for the nation's
66 million cable television subscribers. Enactment of
franchise reform will also encourage investment in next
generation broadband networks. The ways in which Americans
communicate today, the ways in which they send and receive
information have changed fundamentally since the passage of
the 1996 act. Today you can make a phone call using a
wireline phone or a wireless phone or a cable phone or an
Internet phone. You can get Internet access through DSL,
cable modem, wireless, or satellite, and increasingly over
power lines and municipal wi-fi systems. Technology has made
it possible for cable operators who historically offered only
video to offer voice and Internet services. There are no
franchise barriers to cable operators doing so. Technology
has also made it possible for voice providers to offer video,
but an archaic governmental system that was meant for a time
when technologies were segregated, rather than converged, is
a barrier to competitive entry into video. This legislation
recognizes that it is time to remove this barrier and to
promote the same competition in video that now exists in
voice.
Make no mistake, local franchising requirements impede entry.
They extend the period during which consumers pay artificially
high prices. Let me give you two real-world examples. First,
Ben Loman Telephone Cooperative in McMinnville, Tennessee, has
upgraded its network and has the capacity to offer video
service to approximately 60 percent of its 42,000 customers.
However, in order to offer video, it must apply for and
receive 25 different franchise agreements, some of which are
required for areas in which it services just 100 to 200
customers. After 18 months of trying, the company has
received only 15 franchises. In the case of Verizon, one year
after engaging in franchise negotiations with 95 local
franchising authorities, only 10 have granted franchises and
85 remain in negotiation. Typically the process takes 18 to
24 months.
So Mr. Chairman, the quicker Congress acts, the better it is
for consumers. Time is money. According to a study by the
Phoenix Center, if franchise reform were to be postponed until
the next session of Congress, that one year of delay would cost
consumers an estimated $8 billion. That equates to about
$75 per household per year. So you are doing America a
service by moving forward immediately on video choice, an area
where there is clear consumer benefit as you continue to work
towards finalizing other important telecom reforms relating to
universal service, intercarrier compensation, and unleashing
the full benefit of the free market to traditional voice
services that face competition.
Mr. Chairman, as we share your goal to see action on other
important telecom reforms before the end of this Congress, let
me take a moment to express our concern about three matters
unrelated to franchise reform that have made their way into
this bill, matters that we believe would benefit from further
consideration by the committee.
First, on the issue of so-called net neutrality, our industry
has stated that it will not block, impair, or degrade consumer
access to the Internet and the FCC has made clear that it has
the authority to enforce its broadband principles. Therefore,
legislation in this area we believe is premature. There are
provisions in this legislation that benefit VOIP providers by
giving them rights of telecommunications carriers, without
imposing upon them the corresponding social responsibilities
relating to universal service, consumer privacy, and access
for the disabled. These matters should also be left to
further telecom reform.
And finally, with regard to municipal broadband networks, we
are concerned about this bill's preemption of State authority
over their own municipalities. Again, we would suggest that
this subject be left to the broader telecom reform debate.
Let me conclude, Mr. Chairman, by saying thank you. We
applaud you bringing Americans TV freedom and we look forward
to working with you towards speedy and final action on video
choice in this Congress.
[The prepared statement of Walter McCormick follows:]
Prepared Statement of Walter B. McCormick, Jr., President and Chief
Executive Officer, United States Telecom Association
Mr. Walden. [Presiding] Thank you, Mr. McCormick.
Mr. McSlarrow, welcome. We look forward to your comments.
Mr. McSlarrow. Thank you, Mr. Chairman. At the outset, let me just
say, the cable industry supports reforming and streamlining the
franchising process. We put out last year a roadmap to reform that
consisted primarily of trying to ensure that if time was the issue
for new entrance to get into the marketplace, that should be taken
off the table and we would support any effort to grant them a
franchise within as little as 30 days. We also thought it was
important that there be a level playing field. We are talking
about competing with the telephone companies, some of the largest
communications in the world and certainly the largest in America,
we ought to all be playing on the same field. We also thought it
was important to recognize whether or not the scheme is called
local franchising, national franchising, or even State, that we
needed to grapple with fundamental realities of sets of
responsibilities that are properly subject to the local control to
State, perhaps, and to the Federal government.
The bill last year, and there were two versions, BITS I and
BITS II, we opposed because we thought it was not the right
course. We didn't think it made sense to pick winners and
losers on the basis of technology and so we are pleased that
this bill moves away from that construct. We also have made
the argument that Members have already recognized this
morning, that you need to look at the entire marketplace. In
a bundled world where voice, video, and data are being sold
and marketed by many different providers to consumers, you
need to look at that entire marketplace. We thought it was
important that a recognition of the voice marketplace be
reflected in the bill and so we are pleased that with the
interconnection language that has been put in, that that has
been recognized as well. And ultimately, it is clear that in
this bill as introduced, there really was an effort to seek
to provide a level playing field. So all of that in our view
represents significant progress.
Some practical observations, however, about the bill. Even
though our preferred solution is to reform and streamline the
local franchising process, you can certainly make an
intellectually coherent argument for a national franchising
process. You can do it on the basis of simplicity, regulatory
certainty, and deregulation, but frankly, if those are the
goals of a national franchise, I would submit respectfully,
this doesn't actually accomplish that. A couple of examples.
A telephone company comes into a market and starts offering
video. Under this bill, they get a national franchise. If
they do that, the good news is there is a level playing field
so the incumbent cable operator can get a national franchise.
However, if both the telephone company and a cable company
already have franchises before date of enactment, those local
franchises keep going until expiration. Most bizarrely of all,
if a telephone company gets a national franchise followed by a
cable company and then the telephone company exits the market,
we are at risk of the national franchise and have to go reapply
for a local franchise. Now, I am not certain that that is what
was intended by the drafting, but that is what is present and
so I would suggest and would be happy to work with you, there
needs to be some work done.
When it comes to interconnection, I said a moment ago that we
were pleased that there is a recognition of the voice market.
As currently written, we think that the rights extended to
VOIP providers ought to be expanded to at least match that of
the CLECs, granted in the 1996 Act, and so we look forward to
working with you on that as well.
Another issue that I think bears thinking about is this issue
of non-discrimination, in the provision of video service.
Everybody, every Member that I have talked to, probably
everybody on this panel, certainly my good friend Walter
McCormick and his constituent companies, all say we support
the anti-discrimination language, the anti-redlining language
that is in current law, but how can that possibly be effective
language in a circumstance where you contemplate a company's
ability to self-select the markets they serve. It is just an
illusion. So I would submit you can go down one of two paths.
You can just say it is no longer a bipartisan policy as has
been present for 20 years and just go down that path, or if it
is going to mean something, then I think we need to step back
and think about what non-discrimination means in the context
of a national franchising scheme.
Last point, I hate to agree with my colleague from USTA, but
real concerns that crafting the line on net neutrality where
the marketplace is working and having the Government regulate
the Internet for the first time is a mistake and so we just
urge you to reconsider that as well. Thank you.
[The prepared statement of Kyle McSlarrow follows:]
Prepared Statement of Kyle McSlarrow, President and Chief Executive
Officer, National Cable & Telecommunications Association
Chairman Barton and Members of the Committee, my name is Kyle McSlarrow
and I serve as President and CEO of the National Cable &
Telecommunications Association (NCTA), which is the principal trade
association representing the cable television industry in the United
States. Its members include cable operators serving more than 90% of
the nation's cable television subscribers, as well as more than 200
cable programming networks and services. NCTA's members also include
suppliers of equipment and services to the cable industry. The cable
industry is the nation's largest broadband provider of high speed
Internet access after investing $100 billion over ten years to build
out a two-way interactive network with fiber optic technology. Cable
companies also provide state-of-the-art digital telephone service to
millions of American consumers.
Thank you for inviting me to comment on proposed legislation to reform
the video franchising process. I would also like to thank you,
Chairman Barton, Chairman Upton and Congressmen Dingell, Markey and
Pickering, and the members of this Committee for your work on these
issues and your willingness to listen to the concerns and views of
the cable industry throughout the process.
Cable Embraces Competition and Less Regulation
Mr. Chairman, the cable industry fully embraces, and thrives today
in, a robust, competitive marketplace. Our policy for several decades
has been to minimize regulation on us and our competitors. The cable
industry has never asked Congress for a handout and we don't seek to
obtain regulatory advantages over our competitors. Nor have we
opposed efforts designed to lighten regulatory burdens on our
competitors in order to foster fair competition on a level playing
field.
For example, in 1999 the cable industry supported the Satellite Home
Viewer Improvement Act (SHVIA), which authorized direct broadcast
satellite (DBS) providers to offer local broadcast signals. DBS
providers were given -local-into-local- authority but were required
to follow the same rules as cable and other MVPDs when they offered
local signals. SHVIA established a fair and level playing field for
multichannel video competition. And as a result, growth in DBS
subscribership exploded and competition in the multichannel video
marketplace is thriving. Today, two national DBS providers have
captured nearly 30 percent of the MVPD marketplace.
The cable industry did not oppose a key provision of the 1996
Telecom Act that eliminated rules prohibiting telephone companies
offering video service. Rather, we supported that legislation
because it offered all competitors the ability to enter new markets
on fair, market based terms and established a stable deregulatory
environment.
And, more recently, the cable industry supported the efforts of the
telephone companies to deregulate their high speed Internet access
service so that they could compete with all broadband providers on
a level playing field.
Franchise Reform Legislation Should Streamline the Process and
Establish a Level Playing Field
Our primary interest in franchise reform is to ensure that all
competitors in the video marketplace compete under the same set
of rules, rules that can undoubtedly be streamlined in a more
deregulatory market.
To the extent that Congress believes that the franchise process
needs to be modernized, the cable industry has clearly stated
its preferred path to reform. We have expressed support for
franchise reform that embodies the following principles:
First, in order to expedite entry to market for new
competitors, we believe that Congress should streamline
the process by limiting the time that local franchising
authorities have to consider an application to provide
video service.
Second, it is critical for all providers of video services
to be treated on a level playing field. An incumbent should
have the right to opt into any new franchise agreement that
has better terms and conditions. The government should not
pick winners and losers in the broadband industry by
establishing a different set of rules that favor one
provider over another.
Third, local governments should maintain oversight with
respect to rights-of-way management, meeting community
needs and interests (including the equitable sharing of
PEG and institutional network responsibilities), and
enforcement of non-discrimination requirements.
The Telephone Companies Have Had a Decade to Enter the Video Market
In 1996 when Congress lifted the ban on telephone entry into the
video business, it was a significant change in federal
telecommunications policy. For decades, Congress kept the telephone
companies out of the video business for fear that their monopoly
control over the local phone market would allow them to exert market
power in a way that would harm video competition. This threat was
based on the telephone companies' anticompetitive behavior regarding
pole attachments and their incentive and ability to shift costs
associated with video service into their regulated telephone rate
base and thereby unfairly cross-subsidize their entry into the video
business with revenues from their telephone monopoly.
However, Congress lifted the ban in 1996 largely because the �96
Telecommunications Act also established rules to promote competition
in the local voice market. Congress hoped that such competition would
inhibit the ability of the Bells to use their telephone monopoly to
enter the video marketplace in an anticompetitive manner.
The �96 Act gave the phone companies four options for entering the
video business and expressly stated that if they chose to enter as a
cable system, they would be subject to the same requirements of Title
VI as any other cable operator. At that time, the telephone companies
didn't complain that the local franchising process was a barrier to
entry and Congress evidenced no interest in freeing telephone
companies that chose to enter the cable business from any of the
traditional requirements that apply to cable operators, whether
they were first to the market or last. To the contrary, recognizing
that large incumbent telephone companies were fully capable of
competing vigorously in the video marketplace, Congress stipulated
that cable operators would be free from any remaining rate regulation
whenever a telephone company entered an operator's franchise area.
Now a decade later, having made little effort to enter the video
business, the phone companies are back claiming that they need special
rules that would allow them to enter the video marketplace in a manner
that would give them a regulatory advantage over their competitors. It
is remarkable that Congress would even entertain the Bells new pleas
for special favors when the very rationale for allowing the Bell
companies to enter the video business in the first place has yet to
materialize-competition in the local voice market. Rather than
spending the last ten years offering video competition, as they
promised, they have invested their time and tremendous financial
resources in the courts and at the FCC attempting to frustrate
Congressional efforts to promote voice competition. They have
successfully crushed most of their local voice competitors and
swallowed their long distance competition. Ten years after the passage
of the 1996 Telecom Act, the incumbent telephone companies still have
a vice grip on 85% of the local telephone marketplace.
Meanwhile, during those same ten years, competition to cable operators
from two large DBS companies has increased dramatically. In stark
contrast to the behavior of the Bell companies, the cable industry
responded to the deregulation of the 1996 Telecom Act and vibrant DBS
competition by investing $100 billion in private risk capital to
upgrade its facilities with state of the art fiber optic technology.
The industry made this investment without government subsidies and
with no guarantee of a return on its investment. And just like it
created a multichannel video service from scratch, cable pioneered
the residential broadband marketplace, while the telephone companies
kept DSL technology on the shelf in order to preserve their high
priced T1 business service. Cable's innovation and risk taking created
the nation's largest broadband provider of high speed Internet access.
Cable's broadband platform delivers digital video, high definition
television, digital telephone service, and an array of new interactive
services.
The Existing Franchise Process Is Not a Barrier to Entry
Despite a promise ten years ago that they would compete in video, the
Bells are back, smaller in number but much larger in size with annual
revenues of $150 billion more than twice that of the cable industry,
telling Congress that they can't compete in video, in fact won't
compete in video unless they are granted another special favor. They
want to enter the video business on favored terms without obtaining a
local franchise agreement.
The Bells complain that the franchising process is a barrier to entry
and that it takes too long to obtain franchise agreements. An
examination of the facts shows that those claims are simply unfounded.
Telephone companies - and other new video entrants - have long received
local cable franchises. Shortly after Congress repealed the ban on
telephone companies entering the video business, Ameritech obtained
more than one hundred cable franchises. Ameritech did not waste time
complaining about or seeking to avoid the franchising process. It
simply went about obtaining cable franchises and it did so without
resistance, unreasonable demands or delays by local franchising
authorities. Ameritech's rapid progress in obtaining franchises
continued until the company was acquired by SBC, which promptly sold
off Ameritech's systems just as it terminated the efforts of Pacific
Telesis and Southern New England Telephone to offer competitive cable
service after acquiring those companies.
Smaller broadband competitors with a fraction of the Bells' resources
like WideOpenWest, Knology and RCN have managed to obtain franchises
to compete with cable companies in hundreds of communities across
America. And it looks like the telephone companies are managing to do
so, too.
Verizon CEO Ivan Seidenberg told investors in a January conference
call that his company was making -good progress- on video franchising
and that the franchising process does not pose -any impediment to our
rolling out FiOS during the year 2006. As he explained to Business
Week, -We haven't been turned down anywhere we've gone.
And he's right. Verizon already has franchises covering approximately
two million households, and there are many examples of Verizon
obtaining approval in as little as 19 days to 4 months (Beaumont,
California; Sachse, Texas; Herndon and Fairfax County, VA). In fact,
in several instances Verizon has obtained franchise agreements faster
than they are able to deliver service. For example:
In Sachse, Texas, Verizon obtained a franchise in less than two
months but took over a year to deploy video after being granted a
franchise on December 6, 2004.
In Fairfax County, Virginia, Verizon obtained a franchise in less
than 3 months, but it took more than 5 months after receiving the
franchise before it began offering video service in that community.
In Beaumont, California, where Verizon obtained a franchise in less
than 3 weeks, it did not begin to offer video service until more than
15 months after it was granted a franchise.
In Bellefonte, Delaware, where Verizon obtained a franchise in less
than 50 days, it still does not offer video service more than 3 1/2
months later.
Ironically, some local governments complain that Verizon is actually
responsible for delays in the franchising process. Several counties
in Maryland have told the FCC that Verizon's own internal bureaucratic
machinery creates substantial delay and has significantly contributed
to much of the regulatory lag about which Verizon complains.
The bottom line: a review of Verizon's franchises shows an average of
4.3 months to obtain a franchise, and interestingly, an average of
5.3 months after they get a franchise before they deliver video
service.
Most interestingly of all, AT&T can make no legitimate complaints
about the franchising process at all because they, wrongly, assert
that their video service does not require them even to comply with
federal franchising rules. In other words, they haven't even tried.
What the Bells Truly Seek Is a Green Light to Serve Only "High
Value" Consumers
So the Bells' complaints about process are nothing more than a
smokescreen to hide the fact that what they really seek is to avoid
the obligations that come with obtaining a video franchise.
Specifically, what the Bell monopolies refuse to accept is the
notion that the new competition they promise should be afforded to
all of the communities they serve. It's really that simple. Having
built their networks on the backs of ratepayers as a regulated
monopoly for nearly a century, the Bells do not believe that they
should be required to upgrade those networks in a manner that is
equitable and nondiscriminatory.
The Bells are making the case that their video service will bring
widespread benefits to consumers while, at the same time, telling
Congress that they should not be required to provide such service
to all communities within their service area. For example, SBC (now
AT&T) has announced to Wall Street that it would serve 90% of
"high-value" customers, 70% of -medium-value- customers, and only
5% of what they deem to be -low-value- customers.
Ironically, in the past the Bells attacked voice competitors for
the same type of cherry-picking they now want to practice as they
enter the video business. SBC paid for advertising in major
newspapers criticizing competitors who wanted to selectively target
their customers. -We proudly make SBC service available to everyone,
in every neighborhood, in every region we serve,- the SBC ads
declared. SBC should have added a disclaimer: "But when it comes to
video, we're not interested in serving �low-value' customers."
If Congress believes that increased video competition is an
important public policy, then it must confront how to ensure that
the benefits of competition are made available to all citizens.
Otherwise, the Congressional goal of promoting widespread deployment
of advanced broadband services to all Americans will never be
achieved and households in urban and rural America will be relegated
to second-class service.
The Committee Print is a Significant Step Forward
The committee print under consideration today represents a
significant step forward. Unlike previous drafts, the bill does not
grant regulatory relief based on the technology used to offer video
service. And the current proposal does not include new regulations
on video services.
As we have stated, we believe the better course is to reform and
streamline the existing franchising process; however, we strongly
support the policy decision reflected in the bill to seek to ensure
a level playing field for video competition. While we can continue
to debate the rules upon which new entrants offer video services,
it is critical to ensure that all competitors compete under the
same rules. There are also a number of areas where we believe the
level playing field provisions of the Committee Print can be
strengthened and clarified. Giving all providers of video services
the ability to compete on a level playing field ensures that the
marketplace rather than the government will choose winners and
losers. Competitors will have the freedom to innovate and make
business decisions based on marketplace realities rather than the
vagaries of a skewed regulatory framework.
A level playing field also creates a predictable and stable
regulatory environment which is crucial for continued investment and
innovation. In testimony before the Senate Commerce Committee on
March 14, 2006, Aryeh B. Bourkoff (senior analyst at UBS Investment
Research) said regarding franchise reform, "I stress the importance
of maintaining a level playing field among all operators while
allowing consumer preferences to dictate the changes to current
models. Uncertainly among investors will persist if the rules
surrounding obtaining a video franchise fluctuate based on the
nature of the new entrants."
Establishing a level playing field for video competition should be
welcomed by the Bell companies who have argued for years that they
should operate under the same regulatory framework as cable
operators in the provision of high speed Internet access. AT&T
said it best in comparing the regulatory treatment of cable modem
and DSL service, "companies that provide similar services should
be regulated the same. There is no reason for treating them any
differently."
Rights and Obligations of VoIP Providers
We are pleased that the Committee Print includes language that
seeks to clarify that the interconnection rights Congress
established in 1996 to promote voice competition apply to all
providers of voice services on a technology neutral basis. The 1996
Telecom Act provided interconnection rights to competitive local
exchange carriers (CLECs) so they could exchange traffic with the
Bells on an economic basis, without glitches or delays, in order
to promote local voice competition. Limiting interconnection and
related rights to providers of voice services using traditional
technology would ensure the Bells retain their market dominance
by hampering the introduction of digital voice services - the
best hope for competition in the voice market. The bill correctly
recognizes that any legislation to promote competition would be
incomplete without addressing voice competition where the Bell
companies still control 85% of the market.
Network Neutrality Regulation Threatens Continued Investment
We are concerned, however, that the committee print would, for
the first time, impose regulation on the Internet. While simply
codifying the FCC's network neutrality principles may, at first
blush, look like a reasonable and innocuous attempt to ensure
that network providers maintain openness; it could lead to
endless and expensive litigation.
With bandwidth usage growing at a rapid pace, continued investment
will be needed to keep broadband services robust. If broadband
providers are to continue to make these investments, and if consumers
are going to be given the levels of services and innovative new
products and features they desire, all at prices they can afford,
broadband providers need to have continuing flexibility to develop
new business models and pricing plans. Network neutrality rules will
stifle that flexibility and discourage capital investment.
The marketplace is highly competitive, where no real world problems
needing a solution have been identified, and where the pace of
technological development is breathtaking. There can be no better
circumstances than these to leave regulation to the marketplace
rather than government.
Practical Issues Raised by the Committee Print
While we have only had a few days to review the draft bill, we have
identified a number of practical issues that would create uncertainty
and ambiguity and frustrate the stated objective of replacing local
franchising with a national scheme. We describe these issues below.
They include the limitations imposed on the availability of a national
franchise for incumbent cable operators, but the problems are by no
means limited to that section of the bill. At a minimum, these issues
should be resolved before the bill moves forward.
Clarifying that All Providers Are Covered. While the draft bill
establishes a national franchise to enable faster entry by "new
cable providers" and appears intended to capture video services
provided by the telephone companies, the failure of the bill to amend
the definitions of cable service or cable system undermines this
purpose. AT&T has argued extensively that its proposed service does
not fall within the existing statutory definitions because it has
incorporated IP technology into its delivery system, and that
therefore it should not be subject to any franchise requirements.
Nothing in the draft bill precludes AT&T from continuing to assert
this position. While we believe AT&T's argument is meritless,
Congress should use this opportunity to remove any ambiguity. Not to
do so would abdicate to the FCC and the courts the fundamental
question of whether this bill even applies to AT&T and other "IPTV"
providers which, of course, could easily include cable operators.
One could reasonably ask what the point of this bill is in such a
circumstance.
Ensuring A Level Playing Field. While the bill clearly seeks to
establish a national franchising scheme allowing all providers to
compete on a level playing field, in fact it creates a complicated
structure in which providers offer cable service pursuant to a
hodgepodge of national, state, and local franchises. It is, in short,
a recipe for confusion. For instance, whether an existing cable
operator is eligible for a national franchise is wholly out of its
hands. Instead, it depends on the decisions and even the identity
of its video competitor. In -franchise areas- that are unserved by a
"new operator" on the date of enactment, for instance, an incumbent
operator is ineligible for a national franchise unless and until a
new operator "is providing service under a national franchise." Thus:
No new entrant; no national franchise for the incumbent operator.
New entrant elects a local franchise; no national franchise for the
incumbent operator.
New entrant obtains a national franchise; no national franchise for
the incumbent operator until the new entrant actually starts
providing service.
New entrant's "franchise area" covers only a portion of the incumbent
operator's service area; unclear whether operator can obtain a
national franchise for its entire service area.
In areas where an incumbent local exchange carrier is already
providing service on the date of enactment in competition with an
existing cable operator, neither is eligible for a national
franchise. Each must wait until its current franchise is no longer
in effect until it can obtain a national franchise -- and then can
only do so if the other provider is still providing service in that
area. This means that a cable operator can be locked into a
municipal franchise for years while a telephone company operates
under a more favorable state franchise, and then, when it is finally
eligible for a national franchise, its ability to obtain one is
dependent on the decision of the telephone company to remain in
the market.
Oddly, too, the bill does not even ensure that both providers are
eligible for a national franchise at the same time. Where the
telephone companies have negotiated franchises that allow them to
walk away from the agreement in only a few years, they will be
able to terminate such franchises and enjoy the benefits of a
single, national franchise long before cable operators are eligible
to request one.
All providers must be able to predict their regulatory environment
with more certainty in order to continue investing in the market.
If the policy objective is a national franchise, then that
objective should be available to all providers under the same
terms and conditions. At a minimum, the regulatory status of one
provider should not be dependent on the business decisions of a
competitor.
Snapback Provision. Related uncertainty is created by the
provision that automatically terminates an incumbent operator's
national franchise in any franchise area where there is no
competing cable operator for one year. Upon termination, the
operator is left with no continuing authorization to provide
service. The operator may obtain a new local franchise, but
getting one is not automatic and the terms of the new local
franchise are not established by the bill. Again, the
operator's fate is dictated by the actions of its competitor.
If the competitor pulls out of a market, the operator must
apparently start from scratch to negotiate a new franchise
with the local franchising authority. This entire section is
absurd and should be deleted.
No Meaningful Anti-Redlining. While the bill would prohibit a
national franchisee from denying service to residential
subscribers on the basis of income, it essentially allows a
franchisee to self-define the -franchise areas- it will serve.
A prohibition on redlining is essentially meaningless if a
franchisee can simply limit its rollouts to wealthier
communities or even neighborhoods. At a minimum, a -franchise
area- should be defined as co-extensive with existing political
subdivisions to limit the opportunity for the most blatant
cherry-picking.
The bill also undermines the redlining prohibition by moving
responsibility for oversight of this requirement from localities
to the FCC. Nondiscrimination is most effectively overseen and
enforced by local officials who know their community best, not
by the FCC. Further, the FCC is directed only to ensure that the
cable operator extends access to the avoided group; a national
franchisee violating the anti-redlining requirement faces no
penalty for its discrimination and is not required to make
service available within any particular time limit. Even though
a nationwide franchise is the chosen method to ensure competitive
entry, it is still important to preserve local input into that
process. Localities are best positioned to determine whether
deployment comports with anti-redlining rules.
Large Increase in Fees. The bill substantially increases the fees
paid by cable operators. First, the bill codifies an expansive
definition of the -gross revenue- on which franchise fees are
based, including revenues from advertising and promotional
support. Second, all national franchisees would be required to
pay up to an additional 1 percent of gross revenues to support
PEG programming and institutional networks. This obligation
would fall disproportionately on an existing cable operator which
obtains a national franchise -- first, since 1 percent of its
revenues would far exceed 1 percent of a new entrant's, and second,
because the existing operator would also have to continue to
provide -- apparently in perpetuity -- any institutional network
that was required under its superseded local franchise. By
contrast, local franchising authorities are expressly barred from
requiring other national franchisees from constructing such networks.
Finally, in addition to requiring national franchisees to pay
6 percent of gross revenues -- and forcing existing operators to
continue to provide institutional networks -- the bill authorizes
new -rights-of-way management- fees. The intent may be to limit
these fees to management-type activities such as permitting,
inspection, etc., but unless the bill specifies that these fees
must be -cost-based,- there will inevitably be litigation -- as
there as been over the provision in the 1996 Act authorizing -fair
and reasonable,- rather than -cost-based,- rights-of-way
compensation -- over whether this provision authorizes localities
to collect market-based rents. The bill should impose clear limits
on the fees imposed on all providers, if we are to continue
innovating and offering consumers new services and products. The
bottom line is that the bill represents an increased tax on
consumers for no additional benefits and should be substantially
modified and reduced.
Consumer Protection Requirements. The bill authorizes local
franchising authorities to enforce the FCC's cable consumer
protection rules, permitting them to issue orders requiring
compliance with such rules. What the bill doesn't say is how a
locality would enforce such an order. Would it be able to impose
a fine? Would it be able to take an operator to state court,
leading inevitably to a plethora of inconsistent interpretations
of the FCC's rules? In the absence of further guidance, the
objective of a nationally consistent set of consumer protection
rules will be undermined.
Net Neutrality. I have already explained our strong reservations
about codifying the FCC's principles as binding requirements,
enforceable by the Commission. Here I would only observe that
the adjudication authorized by this section of the bill is
without reference to any procedural safeguards, such as those
applicable to cease-and-desist orders against broadcasters under
section 312(b) of the Act or the imposition of forfeitures under
section 503(b)(4).
Interconnection. We recognize and applaud the bill's inclusion
of a provision to make sections 251 and 252 of the 1996 Act
applicable on a technology-neutral basis to competitive voice
providers using IP technology. It is a step in the right
direction, but what it gives with one hand it may take away with
the other. IP-voice providers get the rights and duties of a
competitive local exchange carrier (CLEC) under sections 251 and
252 of the Communications Act -- but only -with respect to
interconnection- and -associated- rights and duties -necessary
to effectuate interconnection.- Since these sections address
more than just interconnection, such as numbering, access to
unbundled elements of the incumbent's network, and collocation
at incumbent central office, IP-voice providers effectively
have fewer rights than what CLECs presently have. Moreover, the
language invites years of disputes over which parts of sections
251 and 252 are -necessary- to -effectuate- interconnection.
The bill also misses an opportunity to resolve the disputes
pending in a growing number of states between rural carriers
and CLECs over whether the latter can use their interconnection
agreements in the provision of wholesale telecommunications
service to IP-voice providers. While we are hopeful the FCC
will address this issue, Congress can cut years off the process
and provide needed certainty by clarifying the issue in law
rather than also abdicating this issue to the agency and the
courts.
Municipal Broadband. The bill would overturn laws in over a dozen
states that limit municipalities from constructing and operating
broadband networks. These states have made the judgment that the
risks to taxpayers outweigh any putative benefits of letting local
governments enter this risky and competitive industry. The 1996
Act was successful in promoting substantial private sector
investment in broadband facilities. The cable industry alone has
invested nearly $100 billion since 1996. Government-provided
service in areas served by private enterprise will impose
substantial burdens on taxpayers and undermine competition from
non-government providers who must rely on risk capital.
At a minimum, municipal broadband should be limited to areas
where the private sector does not or is not likely to serve. To
oversee their entry into broadband, governments should have to
establish entities separate from the agencies that regulate
communications providers in order to avoid conflicts of interests.
Finally, the possibility of cross-subsidization through a wide
range of devices, from tax revenues to below-cost loans relying
on government borrowing power to discriminatory access to poles
and conduits that are exempt from the Pole Attachment Act,
demand more specific safeguards than the general language
contained in the bill.
Conclusion
As Congress drafts changes to the Telecommunications Act of
1996, we urge you to treat like services alike, preferably in
a deregulatory environment. We will do the rest by raising
private risk capital, investing in new technology, offering
better customer service, creating innovative new programming,
and competing with other multichannel video providers in order
to provide consumers with the best voice, video, and data
services possible.
Mr. Walden. Thank you, Mr. McSlarrow. Mr. Regan, welcome. We
look forward to your comments, sir.
Mr. Regan. Thank you, Mr. Chairman. Mr. Chairman, I am here
on behalf of Corning Incorporated, as well as the
Telecommunications Industry Association. At the outset I would
really like to thank you and thank the members of this committee,
and I am sure few people come here to thank you but I am here to
thank you. I am here to thank you for your leadership on all
the broadband issues.
As you know, the entire telecom equipment industry has
been through some very, very difficult times. Over the
last year after the telecom meltdown, Corning had to lay
off thousands and thousands of people. We had six
fiberoptic plants. We have one left today. And I am
pleased to say because of the leadership of the members
of this committee, we now find ourselves in the situation
where we are actually hiring people again. Folks at this
table are buying fiberoptics once again and I am pleased
to say that since the TRO went into effect, we have added
about 700 people. So it is great to be on the other side
for a while adding people.
We approach the telecom issues from a narrow perspective.
The question for us is really what is going to stimulate
investment in new network technologies, create
facilities-based competition in the interests of both
consumers and producers. We step back, we sort of see
this thing in terms of two technology shifts that are
underway. The first technology shift was from dial-up
access to current generation broadband. It has about a
20-fold increase in capacity. And the next generation is
from current to next and that is another 20 fold. So let
me talk about it in terms of a highway. It is like taking
95 from two lanes to 40 lanes and then taking it yet again
from 40 to 800. This is pretty significant.
Now, the good news is, the first shift is under way.
Today in America, we now have about 40 million people
hooked up to the Internet using current-generation broadband
capability. That is up from five million, about an
eightfold increase since the year 2000. And the thing that
drove this--there are a lot of things--but two things that
Government has control over are pro-competitive deregulatory
policies, and those are the things that have helped drive
this investment. In the case of fiberoptics, we have seen
fiber to the prime increase in terms of home pass by over
15,000 percent in the case of homes served by over 10,000.
Admittedly, they are over small bases. Now, the second
broadband technology shift is just underway. Currently,
there are about one-half of one percent of Americans getting
Internet access over next-generation capability. This is a
very immature industry. So the next step really is to
promote competition through streamlined entry into the
video domain. Video is the applications driver for the
next-generation capability. High-definition bandwidth uses
150 times more bandwidth capacity than dial-up Internet
access. So, it is a huge step forward. Now, we studied
the impact of franchising with respect to our narrow slice
in the world and that is the narrow slice of fiber to the
home or fiber to the prime. We have discovered that there
are three changes that could make a significant difference
in employment. One is speed of entry, critically important
as people move into the triple-play market. The second
thing is to avoid unreasonable build-out requirements, and
the third thing is to avoid and limit these extraneous
obligations that creep into these negotiations. Now, we
think that your bill really makes a strive at getting all
three things and we applaud that.
The second thing that is important is to promote more
competition and that gets us into the question of municipal
entry. Now, muni's were one of the first early adopters for
fiber to the home. It is hard to believe but they were.
Now the courts have blocked that. This bill fixes that and
we encourage that. Significantly, this bill also provides
some level of parity, in that it gives cable companies the
same treatment as telephone companies in competitive
markets. We think that it is a good idea.
And finally, I would like to raise a flag of caution with
regard to the question of net neutrality. Now, it appears
to us that consumers are being protected today with respect
to current generation broadband capability with a set of
connectivity principles that really came out of the
technology community. We developed these and proposed them
to the FCC during the TRO and the FCC has seen light to put
those into effect, and our friends in the carrier community
have all endorsed them. Now, a lot of questions have been
raised about another set of problems and we are concerned
about those problems. We are concerned about those problems
because building these networks is going rough. If you
take a look at the stocks of the companies that are stepping
up, Wall Street is not rewarding them for making those
investments. In fact, you will see that with respect to
fiber to the prim, Verizon, you know, has been criticized
for making these kind of investments. I know that they are
big companies and everybody said they can absorb these kinds
of problems, but the fact remains that it is tough for these
companies to do this and to satisfy their shareholders, so
we would encourage you to move very carefully into this
space to avoid unintended consequences.
Thank you, Mr. Chairman. You are on the right track. We
encourage you to proceed.
[The prepared statement of Timothy Regan follows:]
Prepared Testimony of Timothy Regan, Senior Vice President, Global
Government Affairs, Corning Incorporated.
Summary of Testimony of Timothy J. Regan
We approach telecom policy from a very simple perspective. The
question for us is: What policies will facilitate investment in
network technologies to promote facilities-based competition in the
interest of both producers and consumers alike?
We believe that there are two technology shifts occurring in the
broadband space.
The first broadband technology shift is from dial-up Internet access
to current generation broadband access. This is characterized as a
shift from 56 Kbps narrowband Internet access to 1.5 Mbps broadband
Internet access - about a 20-fold expansion in capacity.
The second broadband technology shift from current generation to next
generation broadband is characterized by yet another 20-fold increase
in Internet capacity from 1.5 Mbps to around 25 or 30 Mbps.
The very good news is that the first shift is well on its way thanks
to Congressional and FCC leadership. Deployment of current
generation broadband in terms of subscribership has grown from five
million subscribers in the year 2000 to nearly 40 million last year,
an 8-fold increase. Pro-competitive and deregulatory policies have
facilitated this transition.
The second broadband technology shift is just beginning. Only 0.5%
of American households have access to next generation broadband.
Congress now must decide whether it wants to facilitate investment
in next generation broadband capability. If so, we recommend that
Congress build on its past success by pursuing a pro-competitive,
deregulatory agenda in the future.
Promoting competition through deregulation in the video realm is the
next logical step. The draft bill before you does this by vastly
streamlining the franchising process. The draft bill also promotes
competition by providing the necessary statutory clarification to
allow municipal entry.
Finally, we raise the flag of caution on the net neutrality issue
because the problem we are trying to solve is not obvious. And,
serious negative consequences on network investment could arise if
the wrong action is taken.
Mr. Chairman, I'm pleased to accept your invitation to testify
today on behalf of both Corning Incorporated and the
Telecommunications Industry Association.
As you know, Corning is the inventor of low-loss optical fiber.
In fact, your former colleague in the House of Representatives,
Amo Houghton, should be properly identified as one of the fathers
of fiber optics. He was at the helm of Corning at the time optical
fiber was invented, and he invested hundreds of millions of dollars
to prove to the world that data can be transmitted over extremely
long distances using glass fibers as thin as hair.
Corning is also a member of the Telecommunications Industry
Association. TIA provides a forum for over 600 member companies,
the manufacturers and suppliers of products, and services used in
global communications. Many TIA members manufacture and supply
products and services used in the deployment of the broadband
infrastructure that enables the distribution of video programming.
Because video programming and the franchise process is the core of
the proposed legislation, my testimony today focuses on TIA'
interest in this area.
We approach telecommunications policy from a very simple
perspective. The question for us is: What policies will
facilitate investment in network technologies to promote
facilities-based competition in the interest of both producers
and consumers?
Contrary to popular view, we do not see the issue before
Congress as a matter of choosing sides among the titans.
Rather, we see the challenge as one of encouraging and allowing
all parties to do their part in developing the most robust
broadband communications network in the world. That is the
outcome that will provide the greatest benefit to all Americans.
The First and Second Broadband Technology Shifts
With that in mind, we think it is helpful to review the recent
history of broadband technology. Essentially, we believe there
are two technology shifts occurring in broadband.
The first broadband technology shift is from dial-up Internet
access to current- generation broadband access. This is
characterized as a shift from 56 kilobit-per-second narrowband
capability to around 1.5 megabit-per-second (-Mbps-) broadband
capability - roughly a 20-fold capacity expansion.
The second broadband technology shift is from current-generation
to next-generation broadband access, characterized by yet another
20-fold capacity, from 1.5 Mbps to as much as 25-30 Mbps.
To give you an example of the effect of these two shifts, let me
use the analogy of a highway. The first broadband technology
shift is like going from a two-lane highway to 40-lane highway.
The second shift is like from going from 40 lanes to 800 lanes.
Just imagine I-95 going from 2 to 40 to 800 lanes.
The good news is that the first shift is well on its way.
Progress in technology deployment is often measured by the
substitution of the new for the old. By this measurement
tremendous progress has been made in the deployment of broadband,
where subscribership increased by more than 700% from 5.1 million
in 2000 to 39.1 million in 2005, while dial-up subscribership
peaked at 47.3 million in 2002 and has since declined to about
40 million subscribers, the level that existed in 2000.
U.S. Current Generation Broadband Subscribers
(in Millions)
Source: In-Stat/MDR, FCC, TIA, Wilkofsky Gruen Associates
The second broadband technology shift has just begun and involves
a number of different technologies, including fiber to the premises
(FTTP), fiber to the node (FTTN), fiber to the curb (FTTC), VDSL,
DOCSIS 2x and DOCSIS 3.0, satellite and various wireless technologies,
all of which hold great promise and are in various stages of
development and deployment.
Although TIA companies are involved in all of these
technologies, I am most familiar with FTTP and will
confine my remarks regarding the second broadband shift to
that technology. With respect to FTTP, the second stage
shift, although in its infancy, has been profound. From
September 2001 to January 2006, FTTP deployment increased
from19,400 homes passed to 3.6 million homes passed, an
18,500 % increase in four years. FTTP subscribership
increased from5,500 inSeptember 2001 to 548,000 in
January 2006, a 10,000% increase over four years.
FTTH Homes Passed (Cumulative-North America) in Thousands
Source: RVA Research
FTTH Homes Connected (Cumulative-North America) in Thousands
Source: RVA Research
While Verizon accounts for much of the FTTP deployment in volume, the
FTTP experience is broadly based. As of October 2005, FTTP had been
deployed in 652 communities across 46 states, with only 34% of those
communities served by Verizon.
The Importance of Pro-Competitive, Deregulatory Telecommunications Policy
The first broadband technology shift was driven by four forces:
competition, deregulation, consumer demand for bandwidth, and technology
advancement. The federal government played a positive and significant
role in the first two of those factors - competition and deregulation.
House passage of the Tauzin-Dingell billin February 2002 spurred three
major decisions by the FCC which created a favorable environment for
broadband investment: the cable modem decision of 2002, the Triennial
Review Order of 2003, and, most recently, the DSL decision of 2005.
Thus, the pro-competitive, deregulatory actions taken by this body and
by the Commission have worked to encourage the first broadband
technology shift.
To best facilitate the second technology shift, Congress should
continue its pro-competitive, deregulatory stance. And indeed,
Congress has already taken steps in this direction. Most recently,
with leadership from this Committee, Congress adopted a -hard date-
for the DTV transitionwhich will release prime spectrum for the
development of new wireless solutions. Congress has also encouraged
the FCC to facilitate competition in the wireline voice market by
applying the light hand of regulation for VoIP, which will enable cable
companies and new entrants to compete with incumbent telephone companies.
Promoting competition through deregulation in the video realm is the
next logical step. Video is the application driver for the deployment
of next generation broadband because video uses an enormous amount of
bandwidth. Even with the latest compression techniques, a high
definition television signal uses approximately 8 to 9 Mbps, several
times faster than current-generation broadband. Therefore, a public
policy facilitating entry of new video providers will result in the
deployment of more robust infrastructure, increased competition and
consequent consumer benefit.
Specific Problems With The Current Video Franchise Process
Problem 1: Delay
Unfortunately, the current video franchise process does not facilitate
the entry of new video providers in a timely fashion. The franchise-
by-franchise negotiation process established under the old monopoly
framework is simply too slow and unwieldy to encourage the speedy
entry of new providers. Verizon has filed documents with the FCC
establishing that, to serve its entire target area with video service,
it must negotiate between 2,000 and 3,500 franchises, excluding those
in Texas. Verizon began negotiations with 320 franchise authorities
in November 2004 and, as of February 2005, had only 26 franchises other
than those that were automatically issued in Texas. For those
franchises that have been successfully negotiated, negotiation time
has ranged between two months and 17 months, with an average of 7.65
months. The more important focus, however, are the negotiations in
which Verizon has not been successful: in over 80% of the franchise
negotiations Verizon initiated in November 2004, a franchise still
has not been granted.
A similar situation has been experienced by BellSouth, which needs
to negotiate 1,000 franchises. As of last month, it had received
only 20 franchises, requiring between 1.5 months and 32 months of
negotiation time for each, at an average of 10 months.
Moreover, this is not just a problem for the Regional Bell Operating
Companies. Smaller companies such as Knology, Grande Communications,
Guadeloupe Valley Telecommunications Cooperative and the Merton Group
have all reported a similarly protracted period of franchise
negotiations, ranging between 9 months and 30 months.
The delayed entry of these competitive video providers results in
less competition, less consumer welfare benefit, and delay in the
second broadband technology shift.
Problem 2: Build Out
The second major problem with the current video franchise process is
the practice of requiring new entrants to build out facilities beyond
the area which they find economical. For example, in the case of a
telephone company entering the video market, video deployment
logically follows the existing wire center footprint, which typically
does not follow franchise area boundaries. If a telephone company
wants to offer video service throughout a wire center which covers,
say, 30% of a local franchise area, the requirement to build out to
the entire franchise area might well make it economically infeasible
to provide video service at all within that franchise area.
This is not merely a whimsical example. We recently analyzed
telephone company wire centers in Texas - where the characteristics
of wire center deployment are typical of the nation on average - and
found that only 3% of the wire centers completely overlap the
geographic area of franchise areas.
Therefore, the requirement that new entrants build out to an entire
franchise area will result, in many instances, in potential
competitors delaying or even abandoning plans to enter new video
markets.
Again, this is not just a Bell Company problem. The National
Telecommunications Cooperative Association has reported that many
of its members, which tend to be small rural telephone companies,
want to get into the cable business but have reported problems with
local franchising authorities - particularly unreasonably short build
out periods or requirements to build outside the carrier's own service
territory.
The solution, we believe, is to establish a franchise process which
does not require such counterproductive build out requirements.
Problem 3: Extraneous Obligations
The third major problem with the current video franchise process is
the imposition of extraneous obligations that exceed 1% of revenues.
The Congress has already indicated its intent to limit payments for
franchises by establishing in Title VI of the Communications Act that
the 5% statutory franchise fee is a ceiling for payments -of any kind-.
Yet, franchise authorities often seek payments that far exceed the
5% fee by imposing requirements like the assumption of all Public,
Education and Government (PEG) costs incurred by the incumbent cable
operator over the entire span of its service, the installation of
institutional networks (I-Nets), the requirement to bury aerial plant,
the assumption of applications and acceptance fees, etc. These
extraneous requirements increase costs and discourage the investment
in next-generation broadband capability thereby delaying the second
technology shift. The solution, we believe, is to prohibit the
imposition of extraneous cost beyond 1% of gross revenues.
Treatment of Existing Video Providers
We are also pleased that the draft bill would make its national
franchise available to existing cable TV providers in competitive
markets. We think this is very important in order to encourage
investment by all providers and to spur healthy competition.
Municipal Broadband
To promote competition, Congress also should enable municipalities
to deploy next generation broadband capability. Particularly
regarding fiber to the premises, municipalities were among the
early leaders, even though recent court decisions have slowed
deployments in a number of states. Although we believe
municipalities should consider all options before entering the
telecom field, if municipal leaders feel that they must build
their own networks in order to provide satisfactory broadband
services to their constituents, they should have the freedom to
make that decision. The draft bill before you includes the
necessary statutory clarification to allow municipal entry.
Net Neutrality
Finally, Congress should avoid taking action which could, in
fact, do harm. This principle must be applied to the issue which
has gained a tremendous amount of attention of late - the so-
called -net neutrality- issue.
Clearly, consumers buying broadband access from any provider should
get the capacity they purchase, it should not be blocked, and they
should be able to connect devices of their choosing, provided such
devices do no harm to the network. These principles were
originally proposed by the High-Tech Broadband Coalition (HTBC), with
the participation of TIA, and were adopted by the FCC last year. TIA
recently released its Broadband Internet Access Connectivity
Principles, which reaffirms and adds to the abovementioned principles.
We attach a copy hereto for your use.
Similarly, unaffiliated applications developers, as consumers of
bandwidth, should have rights, as well. They, too, should be able to
use the bandwidth they purchase without being blocked. However, we
have yet to see significant evidence of an actual problem. Rather,
net neutrality advocates appear to be concerned about potential
misdeeds rather than actual misdeeds.
Conclusion
We feel that it is crucial for the Congress to continue the string of
pro-competitive, deregulatory federal policy actions that have
occurred regarding telecommunications since 2002. The draft
legislation now under consideration by this Committee follows in that
vein. We believe this constitutes good public policy because it will:
1) help meet consumer demand for bandwidth; 2) enhance consumer
welfare through price competition; 3) increase investment;
4) increase jobs; and 5) enhance American competitiveness. We are
pleased to give it our support.
Mr. Walden. Thank you, Mr. Regan. Mr. Misener, welcome. We
look forward to your comments today, sir.
Mr. Misener. Thank you very much, Mr. Chairman, and thank you for
inviting Amazon.com to testify.
Mr. Chairman, the phone and cable companies are going to
fundamentally alter the Internet in America unless Congress
acts to stop them. They have the market power, technical
means, and regulatory permission to control American
consumers' access to broadband Internet content and they have
announced their plans to do so.
Mr. Chairman, as much as we wish it were otherwise, consumers
have little or no real choice of broadband Internet access.
For the foreseeable future, nearly all Americans will have
two or fewer providers available, the phone company, the cable
company or both. Unless Congress acts soon, American consumers
will receive artificially limited choice of broadband Internet
content. Phone and cable companies plan to restrict American
consumers' access to such content based in large part on the
lucrative deals they intend to cut with third parties.
As best as we can tell, the network operators plan to
artificially limit consumer choice of broadband Internet
content in three essential ways. First, each network operator
has or is constructing a fast lane for their affiliated
broadband content provided by itself for its sister company,
and a slow lane for broadband Internet company provided by
others. Second, the network operators intend to offer paid
prioritization, essentially a paid police escort for broadband
Internet content providers. Their plan that as content enters
their slow lanes from an Internet or other network access
point, the speed with which this content transits their
network will be determined in part based on whether the content
owner paid for prioritization. No one is suggesting that
certain types of services be denied prioritization, just like
certain kinds of road traffic like emergency services deserve
police escort, but such police escort should not be made
available for a fee, otherwise those unable to pay the fee
will always be stuck in traffic. And third, network operators
intend to offer downstream content injection, essentially
local on ramps to content providers who are willing to pay.
This would enable content to be delivered from geographic
locations closer to consumers and provide better user
experiences. Although content providers have no expectation
that such local on ramps must be provided for free, network
operators must not offer local on ramps on discriminatory
terms for affiliated traffic.
Mr. Chairman, the bill appropriately addresses the preservation
of American consumers' longstanding freedom of choice of
Internet content in the context of national video franchising
relief. Unfortunately, with all due respect, the bill's
provisions are wholly inadequate to preserve American consumers'
freedom of choice of Internet content. These provisions would
not keep the network operators from cutting paid police escort
deals that would adversely affect the traffic of other content
providers who can't or won't pay and these provisions would not
keep the operators from insisting upon unreasonable or
discriminatory terms for leasing local on ramps.
Mr. Chairman, we respectfully ask that Congress insert and
enact modest, but effective safeguards to reinstate limited
protections that the FCC recently abandoned and thereby
preserve American consumers' longstanding freedom of choice of
Internet content. First, for traffic within the broadband
networks, Internet access lane police escort, a kind of
prioritization, may be provided only based on the kind of
traffic and whether the consumer has paid more for a somewhat
higher speed limit, and second, local on ramps into the
Internet access lane need not be free, but the road owner must
not charge unreasonable or discriminatory rates to favor their
own or some other's traffic.
In conclusion, Mr. Chairman, the phone and cable companies are
going to fundamentally alter the Internet in America unless
Congress acts to stop them. They have the market power,
technical means and regulatory permission to control American
consumers' access to broadband Internet content and they have
announced plans to do so. I urge that you reject as inadequate
the provisions of the bill and instead insert and enact modest
but effective safeguards to preserve American consumers'
longstanding freedom of Internet content and choice. Thank
you very much, and I look forward to your questions.
[The prepared statement of Paul Misener follows:]
Prepared Statement of Paul Misener, Vice President for Global Public
Policy, Amazon.com
Good morning, Chairman Upton, Mr. Markey, and members of the
Subcommittee. My name is Paul Misener. I am Amazon.com's Vice
President for Global Public Policy. Thank you very much for
inviting me to testify on this important matter. I respectfully
request that my entire written statement be included in the
record.
I. INTRODUCTION
Mr. Chairman, the phone and cable companies are going to
fundamentally alter the Internet in America unless Congress
acts to stop them. They have the market power, technical
means, and regulatory permission to control American consumers'
access to broadband Internet content, and they've announced
their plans to do so.
American consumers have little or no real choice of broadband
Internet access and - unless Congress acts soon to reinstate
modest safeguards recently removed by the FCC - consumer choice
of broadband Internet content will be artificially limited.
In my time this morning, I will describe the market power of
network operators and the details of how they intend to
extend that market power to limit consumer choice of content,
such as movies, television, and music. I then will describe
how the Committee Print (the "bill") fails to confront this
clear and present danger. Lastly, I will propose modest but
effective safeguards to preserve American consumers'
longstanding freedom of Internet content choice.
We simply ask that Congress keep the telco and cable operators
from taking their market power over broadband Internet access
and extending it to market power over broadband Internet
content.
Amazon.com, an Internet-based retailer with tens of millions
of American customers, is involved in these discussions because
we want to ensure that our customers retain the unimpaired
ability to access the broadband Internet content of their
choice, including that content available from Amazon.com.
Currently, consumers pay for Internet access, and have the
freedom to select lawful content from providers like Amazon,
who themselves have invested billions of dollars in content
and pay network operators millions of dollars a year for
Internet access. We fear a circumstance in which broadband
network operators, among whom consumers have no real choice,
are permitted to prefer certain content and thereby limit
consumer access to other content. Other large companies,
including eBay, Google, IAC/Interactive, Microsoft, and
Yahoo, join Amazon in expressing this concern.
This is not just a big company concern, however. Earlier this
month, six dozen entities, ranging from the AARP and the
Consumer Federation of America, to Educause and Internet2,
wrote to the full Energy and Commerce Committee to say that,
[w]hile it is appropriate for Congress to develop new
legislation to promote competition among broadband networks,
it must also ensure that consumers and providers continue to
have the right to use those networks to send and receive
content, and to use applications and services, without
interference by network operators.- Amazon hopes that these
views and, most importantly to us, the interests of our
customers, will be thoroughly considered.
II. CONSUMERS HAVE LITTLE OR NO REAL CHOICE OF BROADBAND INTERNET
ACCESS
Mr. Chairman, as much as we wish it were otherwise, consumers
have little or no real choice of broadband Internet access.
For the foreseeable future, nearly all Americans will have two
or fewer providers available: the phone company, the cable
company, or both. And, unfortunately, even the lucky consumers
for whom multiple service providers are available will continue
to face discouragingly high costs of switching among them.
Equipment swaps, inside wiring changes, technician visits,
long term contracts, and the bundling of multiple services all
contribute to these costs.
Despite the common misconception that the Internet grew up in
an unregulated environment, its growth and success were due in
large measure to the extensive rules that governed its
infrastructure until last year when the FCC issued its final
wireline broadband order. Although many of these rules were
outdated and worthy of deregulation, it makes sense to
completely abandon longstanding non-discrimination requirements
only if and when the market is truly competitive. The FCC
believes that the market is competitive, but it is not.
Indeed, the FCC's data on the competitive availability of
broadband access are fundamentally misleading. These data,
which purport to show multiple broadband service providers in
many areas of the country, completely obscure the realities
faced by individual consumers. Unfortunately, however, these
data also were the basis for the Commission's recent actions.
In the first place, the data count as high-speed broadband any
services that deliver as little as 200 kbps in one direction.
Although this may have been a reasonable definition of
broadband a decade ago, it is preposterously slow today,
incapable of delivering even standard definition live video,
and one five-hundredth the speed being deployed to millions of
consumers in Korea and elsewhere. Second, the geographic areas
analyzed are zip codes, not individual neighborhoods or
households. So while there may be three or four true broadband
network operators (for example, two telcos and two cable
companies) serving small separate areas in a zip code, no one
consumer may have access to more than two of them (one telco
and one cable company). And, third, the data include lines of
network operators that serve small businesses (for example, in
office parks) but not residential neighborhoods.
The result of these misleading FCC data is that the amount of
broadband consumer choice is portrayed as wildly optimistic,
particularly when the aforementioned high switching costs are
considered. If it really were easy for Americans to switch
among five, six, or more true broadband Internet access
providers, the market would be competitive and legislated
consumer safeguards would be unnecessary.
What exists, unfortunately, is at best an oligopoly and, for
the vast majority of Americans, a duopoly of the local phone
and cable companies. Widespread deployment of alternative
broadband technologies capable of high quality video remains a
distant hope, and the promise of inter-regional local phone
company competition is all but dead. In such oligopolistic
conditions, firms easily can and do leave consumers with
fewer services, higher prices, or both.
To be clear, we don't oppose network operators' entry into
competing businesses so long as they are not allowed to
leverage their market power over broadband Internet access to
favor these ancillary endeavors. Also, we welcome broadband
network operators' innovations within the network. With
Moore's Law at work, network operators ought to be able to
deploy innovative new technologies and services that, with
increasing efficiency, provide benefits to operators and users
alike. Moreover, we don't begrudge the phone and cable
companies their current market power over the network.
Despite the longstanding desires and noble aspirations of
policy makers, we're stuck with this super-concentrated
broadband Internet access market for the foreseeable future.
Lastly, although we oppose the collection of monopoly rents,
we certainly don't seek to deny network operators a healthy
return on their investments. Content providers currently pay
network operators for the amount of connection capacity they
use, and network operators can charge consumers different
prices depending upon how much bandwidth they use. This sort
of connectivity -tiering- makes perfect sense. And, of course,
network operators will charge consumers for the provision of
any ancillary services, such as affiliated video content.
What we seek is more modest, yet far more important: We ask
that Congress keep the telco and cable operators from taking
their market power over broadband Internet access and extending
it to market power over broadband Internet content.
III. CONSUMER CHOICE OF BROADBAND INTERNET CONTENT WILL BE LIMITED
UNLESS CONGRESS ACTS
Mr. Chairman, unless Congress acts soon, American consumers
will receive artificially limited choice of broadband Internet
content. Phone and cable companies plan to restrict American
consumers' access to such content based in large part on
lucrative deals they intend to cut with third parties. Such
business plans might be acceptable if consumers had meaningful
choice among network operators. But, as described before,
consumers have no meaningful choice.
In recent years, the FCC has reclassified broadband Internet
access by wireline service providers, both telco and cable.
Although the Commission adopted a policy statement that
confirms the agency's statutory authority and possible
intentions to act, the statement fails to address some likely
discriminatory behaviors and, in any case, the FCC decided to
make it unenforceable. So, with the exception of weak merger
conditions that apply the FCC's policy statement to a few
network operators, and expires for no apparent reason in
18 months (the market certainly won't be competitive by then),
telcos and cable companies may artificially limit consumer
access to content at will. Because consumer access to content
is in jeopardy, Congress needs to act.
Just as it is clear that the network operators have the market
power to limit consumer choice of broadband Internet content,
it has become equally clear that they fully intend to do so.
Not only have the telcos and cable companies stridently and
steadfastly opposed any meaningful network neutrality rules,
their most senior executives have, over the past six months
(noticeably after the FCC's final reclassification actions),
issued refreshingly honest statements that reveal their plans
for limiting consumer access to content. Simply put, the
network operators are planning to limit consumer choice of
broadband Internet content based in part on deals they intend
to strike with content providers. Although the network
operators have been somewhat less clear on exactly how they
intend to limit consumer access, their FCC filings and public
statements reveal that they plan to do so in three key ways.
Before I describe the three key ways operators plan to limit
consumer access to content, please allow me to summarize their
technology plans. Although there are many differences among
the technologies the duopoly network operators intend to use
(hybrid fiber-coax by the cable operators and either fiber-to-
the-home or fiber-to-the-node plus DSL twisted pair by the
telco operators), all three technologies have been designed to
operate the same way in practice, with two downstream
components: a very high capacity (-fast lane-) cable-like
private network component, and a much lower capacity (-slow
lane-) downstream broadband Internet access component. The
fast lane will be operated as a closed network, while the slow
lane will be more (but, as it turns out, perhaps not entirely)
open.
A. Specific Network Operator Plans
As best as we can tell, the network operators plan to
artificially limit consumer choice of broadband Internet
content in three essential ways: (1) a closed fast lane and
an open slow lane; (2) paid �police escort' within the slow
lane; and (3) preferential -local on-ramps- into the slow lane.
1. Closed Fast Lane and Open Slow Lane. First,
as noted before, each network operator has or is
constructing a fast lane for their affiliated broadband
content provided by a sister company and a slow lane
for broadband Internet content provided by others.
The fast lane they reserve for themselves is a closed,
private network. This has always been the case for
cable operators and, even for the telco operators
deploying broadband, make no mistake: the overall
broadband pipes they're deploying are mostly just
another version of cable TV, not broadband Internet.
Consumers should recognize that despite the nearly
ubiquitous and puffy advertising, it's not about -your
world, delivered,- it's mostly about their world.
2. Paid Police Escort within the Slow Lane.
Second, the network operators intend to offer paid
prioritization (essentially a paid -police escort- in
the slow lane) for broadband Internet content providers.
Their plan is that, as content enters their slow lanes
from an Internet or other network access point, the
speed with which this content transits their network
will be determined, in part, based on whether the
content owner paid for prioritization. The terms of
art the network operators use to describe this
prioritization include "quality of service" and
"tiering." Each term is intentionally confusing. No
one is suggesting that certain types of services be
denied prioritization, just like certain kinds of road
traffic, like emergency services, deserve police escort.
But such police escort should not be made available for
a fee; otherwise those unable to pay the fee will
always be stuck in traffic. Put another way, to
prioritize some traffic is to degrade other traffic.
It's a zero-sum game at any bottleneck. This fact is
intentionally obscured by network operators, who
incorrectly claim that they will not degrade anyone's
content. Neutral prioritization (for example, network
management whereby all live video receives priority
above all text files) would be perfectly acceptable.
But for an operator to offer priority to the highest
bidder, the degradation of service to content providers
who can't or don't pay is unfair, at best.
As should be obvious, small businesses will have a very hard
time innovating if they need to pay for �police escort'
prioritization to compete. When some companies like mine have
noted this previously, some of the network operators respond
with something to the effect of -beware when big companies are
looking out for the interests of little ones.- That response
seeks to change the subject and obscure three key points.
First, it doesn't change the underlying fact that small
entrepreneurs - facing a possible bidding war among big
companies - are going to be hurt unless Congress does something
now. Second, many of the big companies noting this imminent
throttle on small company innovation were, indeed, innovative
small companies only just a few years ago. And, third, on
behalf of our customers, we want to ensure that our
innovations - essentially new businesses operating in start-up
mode by our employees - are not hindered in the same way. We
merely want, as Vint Cerf so clearly puts it, "to innovate
without permission" of the network operators. Surely the
small start-up entrepreneurs of today want the same freedom to
invent.
3. Preferential Local On-Ramps into the Slow Lane.
Lastly, the network operators intend to offer
downstream content injection (essentially -local
on-ramps- for the broadband slow lane) to content
providers who are willing to pay. This would enable
content to be delivered from geographic locations
closer to consumers and provide better user experiences.
Such local on-ramps already are provided in a
competitive access market by companies such as Akamai,
which has servers distributed throughout the United
States so that content can be delivered quickly to
consumers, rather than having to traverse great
distances on the Internet. Although content providers
have no expectation that such local on-ramps must be
provided for free, network operators must not offer
local on-ramps on discriminatory terms for affiliated
traffic.
B. Network Operator Claims
So how do the network operators discuss these plans? They
obfuscate. For example, most network operators say they
won't, quote, "block" websites. This relatively new concession
is neither noble nor comforting and, in fact, it is quite
misleading. While they may not actually block access to a
particular website, they easily could make that site's content
unusable, either by overly constraining capacity (making the
slow lane too slow); by providing prioritization only to those
willing and able to pay (the paid -police escorts-); or by
providing downstream injection (the local on-ramps) only on
unreasonable or discriminatory terms. So it's a matter of
semantics: they may never block content but still could make
it unusable.
Other network operators say, dismissively, that this is a
"solution in search of a problem," or that policymakers should
wait for a problem to arise before acting. But what further
proof is needed? The time to act is now. To ignore the
network operators' economic and technical power, their
strident and steadfast opposition to meaningful safeguards,
their bold announced intentions, and their increasingly clear
specific plans, is truly to turn a blind eye to an obvious
and serious threat to consumers.
IV. THE BILL WOULD FAIL TO PRESERVE CONSUMER FREEDOM OF CHOICE OF
INTERNET CONTENT
Mr. Chairman, the bill appropriately addresses the
preservation of American consumers' longstanding freedom of
choice of Internet content in the context of national video
franchising relief. The principal reason for granting
national video franchising relief is, of course, the
introduction of additional video competition for consumers.
It would be counterproductive, however, to facilitate the
delivery of content of one additional competitor (the phone
company), while limiting the availability of thousands of
other competitors via the Internet. In the interests of
competition and consumer choice, therefore, video
franchising relief must not be granted without meaningful
broadband Internet content safeguards; otherwise, consumers
will receive less, not more, choice of content.
Unfortunately, Mr. Chairman, and with all due respect, the
bill's provisions entitled -Enforcement of Broadband Policy
Statement- are wholly inadequate to preserve American
consumers' freedom of choice of Internet content. The
underlying vague FCC statements of how consumers have various
entitlements need strengthening and elaboration, or otherwise
could result in invitations to litigation in which the courts,
not Congress, make critical policy.
Most fundamentally, these provisions would not keep the
network operators from cutting "paid police escort" deals
that would adversely affect the traffic of other content
providers who can't or don't pay. Entitling consumers to
"access" content and services does not clearly ensure that
such content or services will be usable if it gets
discriminatorily slowed in traffic. And these provisions
would not keep the operators from insisting upon unreasonable
or discriminatory terms for leasing "local on-ramps."
Entitling consumers to competition among content and service
providers doesn't clearly prohibit network operators from
biasing the competition.
In short, the most likely and dangerous anti-consumer
discriminatory behaviors of broadband network operators would
not be thwarted by the provisions of the bill.
Moreover, as I noted in my testimony before this Subcommittee
almost three years ago, and as the FCC recognized in its final
wireline broadband reclassification order last August, the
Commission does not need new authority to act in this area.
What the FCC needs is to be directed by Congress to use its
authority to prevent the network operators from artificially
constraining American consumers' choice of broadband Internet
content. To deny the agency its general rulemaking and
enforcement authority with respect to even the modest
protections of the Commission's earlier policy statement
apparently disregards the operators' power and intentions.
V. MODEST SAFEGUARDS WOULD PRESERVE CONSUMER FREEDOM OF CHOICE
OF INTERNET CONTENT
Mr. Chairman, we respectfully ask that, in lieu of the
current "Enforcement of Broadband Policy Statement" provisions
of the bill, Congress insert and enact modest but effective
safeguards to reinstate limited protections that the FCC
recently abandoned, and thereby preserve American consumers'
longstanding freedom of choice of Internet content. Without
much effort, these safeguards can be narrowly drawn so that
operators' private networks are not invaded and so that
operators are appropriately compensated for the services
they provide.
Two essential consumer safeguards we seek can be summarized
as follows:
Content transiting an operator's broadband Internet access network
may be prioritized only on the basis of the type of content and the
level of bandwidth purchased by the consumer, not ownership, source,
or affiliation of the content. (That is, for traffic within the
broadband network's Internet access lane, "police escort" may be
provided only based on the kind of traffic and whether the consumer
has a paid more for a somewhat higher speed limit.)
The terms for local content injection must be reasonable and
non-discriminatory; network operators must not be allowed to give
preferential deals to affiliated or certain other content providers.
(That is, -local on-ramps- into the Internet access lane need not be
free, but the road owner must not charge unreasonable or discriminatory
rates to favor their own or only some others' traffic.)
With these two modest safeguards, appropriately drafted and
clarified, American consumers could be confident that their
longstanding choice of lawful Internet content will not be
limited by network operators.
VI. CONCLUSION
In conclusion, Mr. Chairman, the phone and cable companies
are going to fundamentally alter the Internet in America
unless Congress acts to stop them. They have the market
power, technical means, and regulatory permission to control
American consumers' access to broadband Internet content,
and they've announced plans to do so.
For the foreseeable future, American consumers will have
little or no real choice of broadband Internet access. And
"unless Congress acts soon to reinstate modest and
longstanding consumer safeguards" consumer choice of
broadband Internet content will be artificially limited. I
urge you and your colleagues to recognize that, despite how
we wish it were otherwise, the market for broadband Internet
access is not competitive and that the network operators fully
intend to extend their market power to limit consumer choice of
content. I also urge that you reject as inadequate the
provisions of the bill and, instead, insert and enact modest
but effective safeguards to preserve American consumers'
longstanding freedom of Internet content choice.
Thank you. I look forward to your questions.
Mr. Walden. Thank you, Mr. Misener. Thank you for your
testimony. Mr. Keefe, welcome. We look forward to your
comments, sir.
Mr. Keefe. Thank you. Good afternoon, Mr. Chairman. My name is
Dave Keefe. I am the CEO and co-founder of Atlantic Broadband, which
operates in six States. I am also a board member of the American Cable
Association which has members in every State.
Mr. Chairman, I would like to separate my remarks into two
distinct elements. To start, and in regards to the committee
print, there are three issues I would like to address.
First, while we didn't ask Congress to alter the franchising
rules, we appreciate that the committee print takes on reform
in a technological and competitively neutral manner. Second,
regarding net neutral, ACA member companies are examining the
effects of this language and will provide more specific
comment to the committee. Finally, while competition is
something our members welcome and experience, we have concerns
with municipal overbills in communities where we have already
invested.
In short, ACA members view favorably the evolution of the
committee print. We appreciate this draft does not include
the market test and uniform rate requirements that have been
rumored for inclusion. Having said that, the American Cable
Association cannot support legislation that is silent on what
we consider to be one of the core issues still unaddressed,
the lack of competition in the video marketplace. If Congress
wants to improve video services as stated here, we must address
the problems retransmission consent is causing.
Mr. Chairman, the ACA is not alone in recognizing the need for
retransmission consent reform. In fact, Echostar, the
National Telecommunications Cooperative Association, OPASTCO,
the Broadband Service Providers Association and many other
interest groups have joined forces for reform. Retransmission
consent rules were put into place to allow local broadcasters
to seek compensation from local cable operators for carriage
of the local broadcast signals. This governmental grant was
provided to free, over-the-air broadcasters, in addition to
the grant of must carry. The Government supplemented these
benefits by also granting broadcasters exclusivity rights in
any given broadcast market to ensure that a competing channel
in a neighboring market cannot be substituted. These
anti-competitive rules guarantee the broadcaster is the sole
supplier of broadcast network in a given market with absolute
pricing power and the leverage to pull that broadcast signal
from the provider. Is it any wonder that such entities like
ACA and Echostar, who see the problems retransmission consent
is creating for consumers, are calling for action while the
monopolists that benefit from the skewed regulatory scheme
are telling Congress that there isn't a problem. Doesn't
that tell you something?
So why must retransmission consent be eliminated? Well,
first, it raises prices for programming without regard for
the value that the consumer may or may not put on it.
Second, it reduces diversity in programming by limiting most
new channels to those offered by conglomerates that can
compel carriage using their governmental-granted spectrum
signal leverage. And third, it does not encourage localism
but it has become a means for extracting unjustified
non-market-based fees for the consumer. Therefore, we urge
you to allow a competitive marketplace to replace the
regulatory scheme that today simply guarantees profits for
the lucky few companies that won the spectrum lottery from
the Government back in the �40s and the �50s. Broadcasters
have attempted to discredit our concerns as misguided in
order to deflect any review of the real story which would
reveal the costs of this scheme to consumers. We have put
some sunshine on this. But I urge you not to be distracted
by their tactics. Listen to what the broadcasters not only
are saying to Congress, but what they are telling Wall
Street. CBS President and CEO Les Moonves was quoted
earlier in the month as bragging to Wall Street that
retransmission consent could, "amount to hundreds of millions
of dollars to the CBS network." Sinclair CEO David Smith
joyfully told an investors' conference earlier this month
that he plans to quadruple retrans revenue to $100 million
within three years, saying that "it is very clear to us,
everybody is going to pay; the only issue is what day and
how much." It appears the networks view retransmission
consent as a means to extract hundreds of millions of
dollars from your constituents, our customers' pockets in
order to receive their free over-the-air signals. Is that
really what you want to tell your constituents you let
happen during this debate?
Mr. Chairman, many argue this topic is not appropriate for
this bill and it should just be swept under the rug, but
it is vitally important for you to consider fixing the
problems for all providers before it is too late, even of
the new entrants you aim to help with this bill. Creating
a competitive pipe that dead ends at the doorstop of
monopoly providers will not provide your constituents a
better experience and will not allow me to innovate and
create products your constituents and our customers would
want us to offer. I urge you now to act to stand with
cable operators, with family, faith-based organizations,
satellite companies, rural telephone companies, rural co-ops,
and consumer groups, a pretty unusual and broad alliance, I
might add, by unleashing the power of the marketplace for
your constituents and my customers. Thanks.
[The prepared statement of David J. Keefe follows:]
Prepared Statement of David J. Keefe, Chief Executive Officer,
Atlantic Broadband, On Behalf Of American Cable Association
Thank you, Mr. Chairman. My name is Dave Keefe, and I am the CEO
of Atlantic Broadband and a board member of the American Cable
Association. My independent cable company, Atlantic Broadband,
serves customers in six states. ACA represents 1,100 smaller and
medium-sized cable companies that primarily serve smaller markets
and rural areas located in every state.
Our members proudly invest their own capital into their systems to
provide many of the services today that your legislation intends to
promote. The advanced video and high-speed Internet access we offer
in many of our more rural markets often represents the only option
our customers have to avoid being on the losing end of the "digital
divide."
I would like to separate my remarks today into two distinct elements.
First, I would like to briefly give ACA's commentary on the language
currently in the Committee Print.
Second, and more importantly, I would like to mention the one issue
that ACA strongly urges the Committee to include in the legislation
if it wants to ensure that the stated goal of promoting and enhancing
broadband development and the many exciting services it can bring
with it is to be realized by the consumers in the smaller and rural
markets we serve.
To start and in regards to the Committee Print, there are three
issues I would like to address.
First, while we did not ask Congress to alter the franchising rules
and have largely enjoyed a productive relationship with our local
franchising authorities, we do not oppose the language in the
Committee Print and appreciate the Committee Print taking on these
reforms in a technology and competitively neutral manner.
Second, the language pertaining to -net neutrality- is another
issue the ACA has not pursued with Congress. ACA member companies
are still examining the effects of this language and I would ask if
the Association be able to follow up with more specific comments
soon. In the interim and on behalf of virtually all of our ACA
member companies that currently offer high-speed Internet service
in smaller and rural markets, I do not today see this language as
posing monumental concerns at this time to ACA.
Lastly, while competition is something our members welcome and
currently experience on multiple fronts, we do have concerns with
municipal overbuild efforts in the communities we have already
invested in and would urge the Committee to encourage municipalities
to invest in areas that are currently unserved by existing providers.
In short, on behalf of the members of the American Cable Association,
we do not oppose the Committee Print and appreciate the Chairman
taking out of the Committee Print the market test based language we
had seen in previous drafts.
Having said this, the American Cable Association cannot support
legislation that is silent on what we consider to be the fundamental
issue facing our members in rural and smaller markets across this
country, specifically the market abuses we witness on a daily basis
by the programmers as a result of retransmission consent rules and
regulations that are just as ripe for reform as the franchising rules
you have addressed in the Committee Print. We are not alone in
recognizing this need for retransmission consent reform. In fact,
EchoStar, the National Telecommunications Cooperative Association,
OPASTCO, and the Broadband Service Providers Association have joined
forces to push for reform. The common link among these diverse voices
is the fact that we are not vertically integrated and do not own
programming.
Retransmission Consent rules were put in place 14 years ago to allow
the local broadcaster to seek compensation from the local cable operator
for carriage of that local broadcast signal. These rules were put into
place as an alternative to broadcasters' must-carry rights which if
exercised, obligate the pay-television provider to carry a broadcast
station. In addition to this guarantee of carriage - whether it be for
free via must-carry or for a price via retransmission consent - the
government also granted the broadcaster exclusivity rights in any given
local broadcast market to ensure that a competing channel in a
neighboring market cannot be substituted.
These anti-competitive rules allow the broadcaster to be the sole
supplier of a broadcast network in a given market with absolute pricing
power and the leverage to pull their broadcast signal from the provider.
No wonder the NAB and the big networks are fighting to make no changes
to the current retransmission consent regime! Over the past 14 years,
the growing media consolidation we have seen in the broadcasting
community has allowed for this regulatory regime to be manipulated to
guarantee profit for the four network conglomerates and major broadcast
groups.
Retransmission consent and exclusivity, coupled with vastly increasing
media consolidation, provide the means today for broadcasters and
networks to extract increased costs from consumers and to force carriage
of unwanted bundles of programming that appeal only to the bottom line
of advertisers.
The broadcasters argue that they do not "require" cable and satellite
operators to carry channels they do not want. Our members experience
something quite different. While they may not "require" us to take
undesirable programming, they instead provide us with a Hobson's
choice: Either take the vast menu of other channels - no matter if
they are objectionable, indecent, undesirable or invaluable to
consumers in our markets - at increased prices and you can have our
local affiliate at a reasonable price, OR don't take the whole menu
and get gouged for the price of the stand-alone affiliate.
Clearly, these retransmission consent negotiations have evolved into
simple exercises to increase the bottom line of the Big Four
television networks and the major broadcast groups: if we choose to
carry additional programming whether our subscribers find it offensive
or not, the broadcaster will make their profit on additional ad
revenue and additional programming fees for the unwanted programming.
If we choose to answer our market's demands and carry only the
broadcast channel, the broadcaster will extract their profit more
directly from my customers and your constituents through direct cash
payments.
The members of the American Cable Association are not asking for you
to give us the broadcast signal for free. Rather, we ask that
Congress address our inability to -negotiate- as a direct result of
the market Congress dictated and designed.
Pay-television providers, particularly those in smaller and rural
markets, have no leverage against these programming conglomerates. We
are offered a price and left with the option to take or leave it.
We are simply asking for your help to level the playing field so that a
real economic market can dictate the true cost and value of programming.
Broadcasters have attempted to discredit our concerns as misguided.
Naturally, as the beneficiaries of the current regime, they plead for
you to make no changes to the current retransmission consent regime.
However, I would urge you to not only listen to what the broadcasters
say to Congress, but also look at what they tell Wall Street.
CBS President and CEO Les Moonves was quoted earlier this month as
saying that retransmission consent negotiations could "amount to
hundreds of millions of dollars in revenue to the CBS network."
Sinclair CEO David Smith told an investor conference earlier this
month that he plans to quadruple retrans revenue to $100 million
within 3 years, saying that, -It's very clear to us everybody is
going to pay; the only issue is what day and how much.-
Again, we are not asking for the broadcast signal for free, but I do
ask, how does a process that gives this much leverage to a few
conglomerates to increase revenue at an alarming rate by pushing down
costs and carriage to my members and your constituents promote
localism? How does this help control cable and satellite rates? How
does this give more flexibility and options to operators to deliver
programming people want to see?
You may ask "why is this relevant to the Committee Print we examine
today?" I am here today to tell you that if the goal of this
legislation is to inject competition in the marketplace in order to
lower rates, you cannot inject competition only on the provider side
of the equation. You must also assess the competition in the video
programming market.
If the government wants to uphold market exclusivity for the local
broadcaster and allow him to seek compensation for his signal, fine.
But Congress must also have a mechanism - whether it be
accountability, transparency or competition for reigning in the
egregious compensation sought by the broadcaster and paid for by the
consumer.
The current archaic regulatory-governed marketplace for programming
gives the video provider two options: take it, or leave it. If an
operator decides to �leave it', he is abandoning localism. If he
agrees to �take it', he is raising cable rates for his subscribers.
Video over IP, which is what your bill intends to promote, will be an
exciting way that consumers will have choices and options they have
never seen or experienced before. Do you really want to promote the
build out of these pipes and leave analog-world rules in place that
limit the operators' flexibility in offering various packages of
programming and impede the innovation we all envision from flowing
through them?
I urge you to see the same problems that ACA, Echostar, the National
Telecommunications Cooperative Association, OPASTCO and the Broadband
Service Providers Association see. Retransmission Consent, as
currently constructed, is broken and must be fixed for this bill to
achieve its stated goal. All the competition and infrastructure in
the world is useless if the content is controlled by a select few who
can use an outdated regulatory scheme to extract profits at any rate
they see fit.
Mr. Walden. Thank you, Mr. Keefe, and Mr. Fritz, it is good
to have you here and representing the broadcasters, somebody
named Fritz, it is unusual, even if it is a different
spelling.
Mr. Fritz. If I could get his checks. Thank you, Mr. Chairman,
members of the subcommittee. My name is Jerry Fritz. I am the Senior
Vice President for Legal and Strategic Affairs for Allbritton
Communications Company. Allbritton operates broadcast television
stations in several markets including here in Washington, Lynchburg,
Virginia, Harrisburg, Little Rock, Tulsa, Birmingham, and Charleston,
South Carolina. We also operate the 24-hour cable news channel here
in the Washington market.
I am testifying today on behalf of the National Association of
Broadcasters, of which I am a former board member. The
television industry is pleased to be testifying about the
proposed legislation. We applaud your effort to promote
competition in the video marketplace. Greater competition
will benefit consumers and broadcasters. We support the
legislation for this reason and because we understand that it
will preserve longstanding policies, including carriage and
retransmission consent for local broadcast signals and local
program exclusivity.
Our comments on this bill are quite limited. As you know,
broadcast TV comes to your constituents in several different
ways. Some get it over the air. Some get it via satellite.
Some get it from telephone companies and now even via cell
phones. Most get it via cable. Broadcast television channels
are the raw materials that cable and satellite operators
package with other channels to sell to your constituents. This
programming costs broadcasters quite a bit of money to produce
or acquire and it has real value. The question is, should
cable and satellite operators pay for that value? This
question was answered 14 years ago and the answer was yes.
Congress created the retransmission consent process in 1992 to
reorient a skewed marketplace that prevented broadcasters
from realizing that value. Congress undertook the complex
task of leveling to permit a free market to flourish where
broadcasters and cable operators could bargain as equals over
the value of this raw material. Then came John Malone, who
operated the largest group of cable systems in America.
Malone drew a line in the sand proclaiming that he would not
pay cash for broadcast channels. The rest of the cable
industry fell in line and lockstep. Broadcasters could play
chicken and risk losing access to 70 percent of their
customers or forego compensation, but Mr. Malone signaled that
he would pay for new value to systems, meaning new program
channels. Up sprang local weather, sports, and regional news
channels. Your television sets in Cannon, Rayburn, Longworth,
and Ford, and those on the Senate side as well, all carry news
channel 8. That is the Allbritton 24-hour cable news channel
co-owned with WJLA that together produce over 16 and half hours
of live news per day. That is over four times the average
news programming from a typical broadcast station. That is
localism. It is similar to broadcaster-owned news channels in
New England, Chicago, Columbus, Seattle, Orlando, Raleigh,
Austin, Albany, Memphis, even Boise, Idaho. These remarkable
channels are fostered by our ability to negotiate with cable
operators. Cable doesn't pay us for WJLA, but they do for
news channel 8. We win, cable operators win, advertisers win.
Our local and regional government representatives win with
daily access to their constituents and most of all, viewers
win. Why? Because the retransmission consent regimen works.
The negotiations are hard and extremely complex. Both sides
come to the table with value. Cable and satellite together
have virtual monopoly gatekeeper control over 80 percent of
our viewers. On the other hand, broadcasters have the most
desirable programming on cable. We each need one another.
The system is working just as Congress had envisioned it. That was
underscored just six months ago when Congress's experts, the FCC,
reported that broadcasters and cable/satellite operators negotiate
on a level playing field. The Commission emphasized that the
carefully balanced combination of copyright, exclusivity rules, and
retransmission consent provides the benefits that Congress had
foreseen. It strongly opposed altering just the retransmission consent
regimen without also addressing other intricate components of the
balance.
In this day of dramatic cable consolidation, it is important
that Congress not put its thumb on the scales of free and
balanced negotiations. We do not need a new Federal mandate
interfering with private negotiations.
Mr. Chairman, broadcasters are happy to provide valuable
channels to cable and satellite packagers, but like the baker
or car manufacturer or homebuilder, our raw materials are
not free. Tinkering with this free-market model that
demonstrably works will have severe unintended consequences
including the loss of programming like news channel 8. This
will dramatically alter the fair allocation of value freely
negotiated. Thank you.
[The prepared statement of Jerry Fritz follows:]
Prepared Statement of Jerry Fritz, Senior Vice President for Legal
and Strategic Affairs and General Counsel, Allbritton communications
Company, On Behalf Of National Association of Broadcasters
Good morning Chairman Upton, Ranking Member Markey, and Members of
the Subcommittee, my name is Jerry Fritz. I am the Senior Vice
President for Legal and Strategic Affairs for Allbritton
Communications Company, the parent company of eight broadcast
television stations including WJLA, Channel 7 here in Washington, DC,
along with NewsChannel 8, the 24-hour cable news channel in
Washington, Maryland and Virginia. Today I am testifying on behalf
of the National Association of Broadcasters (NAB), a trade association
that advocates on behalf of more than 8,300 free, local radio and
television stations and also broadcast networks before Congress, the
Federal Communications Commission and the Courts.
The television industry is pleased to be testifying about the proposed
legislation, which is intended to promote competition in the
multichannel video programming distribution (MVPD) market by
encouraging new entrants. Greater competition in local video
programming markets across the country would benefit consumers and
broadcasters by providing new delivery platforms and more choices.
Broadcasters generally support streamlining the franchising process
as a way to promote entry by new competitors, such as telephone
companies, into the consolidated MVPD marketplace. We support the
proposed legislation on this basis, and on our understanding that it
extends long-standing policies designed to promote localism,
competition and diversity "including carriage and retransmission
consent for local broadcast signals and local program exclusivity"
equally to cable operators obtaining the new national franchise.
Broadcasters understand that Congress' basic public policy goal in
proposing this legislation is to permit a competitive video
marketplace to function. That same public policy goal was the basis
for Congress' 1992 action creating a marketplace in which broadcasters
have the opportunity to negotiate for compensation for MVPDs' use of
their signals to attract paying subscribers. As the Federal
Communications Commission (FCC) recently found, this retransmission
consent marketplace functions as Congress intended and benefits
broadcasters, MVPDs and, most importantly, consumers. Certain cable
and satellite companies have recently asked Congress to interfere with
these market-based negotiations for retransmission consent. These
demands for a federal mandate purely to benefit MVPD self-interests
while usurping the free functioning of the market are fundamentally
unfair, and pose a very real threat to the ability of broadcasters to
provide locally oriented programming to communities throughout the
country.
The Deployment of Competitive MVPD Services Will Benefit Consumers and
Programming Providers, Including Broadcasters
Television broadcasters support efforts to speed the deployment of new
and innovative MVPD services. Particularly in light of massive
consolidation in the cable industry, a new video distribution platform
offers great promise. According to the FCC, the four largest MVPDs
served 63 percent of all MVPD subscribers in 2005, up from 58 percent
in 2004. FCC, Twelfth Annual Report in MB Docket No. 05-255, FCC
06-11 at � 9 (rel. March 3, 2006). MVPD services offered over the
platforms of new competitors have the clear potential to introduce
much needed competition into this regionally and nationally
consolidated marketplace. NAB sees this as a positive development
for cable programming providers unaffiliated with cable operators,
broadcasters and, most importantly, consumers.
Simply put, competition leads to better service at lower prices.
For example, the Government Accountability Office (GAO) has found
that competition to an incumbent cable operator from a wireline
provider resulted in cable rates that were 15 percent lower than in
markets without this competition. GAO, Issues Related to Competition
and Subscriber Rates in the Cable Television Industry, GAO-04-8 at
9-11 (Oct. 2003). In another study comparing markets with competition
from an overbuilder with those lacking such competition, GAO found
that communities with overbuild competition experienced an average of
23 percent lower rates for basic cable and higher quality service.
GAO, Telecommunications: Wire-Based Competition Benefited Consumers
in Selected Markets, GAO-04-241 (Feb. 2004). Without question,
consumers will benefit from the lower prices, improved quality of
service, and increased choices that competition should bring.
Video programming providers will also benefit from the timely
deployment of a new video distribution platform. The emergence of
another platform for the distribution of video programming will
provide programmers unaffiliated with cable operators with potential
new outlets for reaching viewers and therefore with greater
opportunities for success in the marketplace. A number of cable
programming networks and regional sports networks have previously
expressed concern that large, consolidated cable operators are
increasingly able to exclude independent programming networks from
their systems and, thus, from the marketplace. See, e.g., Twelfth
Annual Report at �� 173, 184. The rapid deployment of a competitive
video distribution platform will ameliorate such problems, thereby
also benefiting consumers through additional, diverse programming
options.
Local television broadcasters will similarly benefit from the
emergence of another competitive MVPD service. A new video
distribution platform will represent another outlet for broadcast
programming, including local news and information. Given
broadcasters' dependence on advertising revenue (and thus on
reaching as many viewers as possible), the expansion of our
opportunities for reaching consumers must be regarded as positive.
The development of another video distribution platform for carrying
broadcast programming may also encourage the development of
innovative digital television programming, including multicast and
high definition (HD) programming. If new MVPDs emerge as viable
platforms for carrying local stations' HD and multicast programs,
broadcasters will be encouraged to make the substantial investments
needed to bring their multicast service plans to fruition. In the
end, it is consumers that will benefit by receiving a greater
diversity of programming, including local programming, from
multicasting broadcast stations and unaffiliated cable programmers
via a competitive MVPD.
Consumers will also benefit from extending long-standing policies
designed to promote localism, competition and diversity - including
carriage and retransmission consent for local broadcast signals and
local program exclusivity - equally to the new multichannel
platforms. Over the past decades, Congress and the FCC have adopted
and maintained must-carry, retransmission consent and program
exclusivity policies to preserve the viability of local television
stations and their ability to serve their local communities with a
high quality mix of network and local programming. As Congress has
recognized, and the Supreme Court has affirmed, the preservation of
our system of free, over-the-air local broadcasting is "an important
governmental interest." Turner Broadcasting System, Inc. v. FCC,
512 U.S. 622, 662-63 (1994).
To maintain a level playing field, the well-established carriage,
retransmission consent and program exclusivity policies applicable
to traditional multichannel video providers should apply in a
comparable manner to new competitors providing comparable video
services that will be licensed under the proposed national franchise.
Broadcasters therefore strongly support the extension of must-carry,
retransmission consent and program exclusivity policies to MVPDs that
will be franchised under this legislation. We understand that the
legislation does extend these policies, as the new Section 630(j) of
the Communications Act states that only a very limited number of
specified provisions -shall not apply to cable operators franchised
under this section.- Because must carry, retransmission and program
exclusivity are not specified among these inapplicable provisions,
they must accordingly apply to cable operators franchised under this
new legislation.
The Marketplace Congress Created for Retransmission Consent Works as
Intended to the Benefit of MVPDs, Broadcasters and, Most Importantly,
Consumers
Because broadcasters support promotion of a more competitive video
marketplace, we support Congress' 1992 action creating a marketplace
in which broadcasters have the opportunity to negotiate for
compensation for MVPDs' use of their signals to attract paying
subscribers. As the FCC recently concluded, retransmission consent
has fulfilled Congress' purpose for enacting it and has benefited
broadcasters, MVPDs and consumers alike.
Prior to the Cable Television Consumer Protection and Competition
Act of 1992, cable operators were not required to seek the permission
of a broadcaster before carrying its signal and were certainly not
required to compensate the broadcaster for the value of its signal.
At a time when cable systems had few channels and were limited to an
antenna function of improving the reception of nearby broadcast
signals, this lack of recognition for the rights broadcasters possess
in their signals was less significant. However, the video marketplace
changed dramatically in the 1970s and 1980s. Cable systems began to
include not only local signals, but also distant broadcast signals and
the programming of cable networks and premium services. Cable systems
started to compete with broadcasters for national and local advertising
revenues, but were still allowed to use broadcasters' signals - without
permission or compensation - to attract paying subscribers.
By the early 1990s, Congress concluded that this failure to recognize
broadcasters' rights in their signals had -created a distortion in the
video marketplace.- S. Rep. No. 92, 102d Cong., 1st Sess. at 35 (1991)
(Senate Report). Using the revenues they obtained from carrying
broadcast signals, cable systems had supported the creation of cable
programming and services and were able to sell advertising on these
cable channels in competition with broadcasters. Congress concluded
that public policy should not support -a system under which
broadcasters in effect subsidize the establishment of their chief
competitors.- Id. Noting the continued popularity of broadcast
programming, Congress also found that a very substantial portion of
the fees that consumers pay to cable systems is attributable to the
value they receive from watching broadcast signals. Id. To remedy
this "distortion," Congress in the 1992 Cable Act gave broadcasters
control over the use of their signals and permitted broadcasters to
seek compensation from cable operators and other MVPDs for carriage
of their signals. See 47 U.S.C. � 325.
In establishing retransmission consent, Congress intended to create
a "marketplace for the disposition of the rights to retransmit
broadcast signals." Senate Report at 36. Congress stressed that it
did not intend "to dictate the outcome of the ensuing marketplace
negotiations" between broadcasters and MVPDs. Id. Congress correctly
foresaw that some broadcasters might determine that the benefits of
carriage were sufficient compensation for the use of their signals by
cable systems. Id. at 35. Some broadcasters would likely seek
monetary compensation, while others, Congress explained, would
"negotiate other issues with cable systems, such as joint marketing
efforts, the opportunity to provide news inserts on cable channels,
or the right to program an additional channel on a cable system."
Id. at 36.
Thus, even at the outset, Congress correctly recognized that, in
marketplace negotiations between MVPDs and broadcasters, stations
could appropriately seek a variety of types of compensation for the
carriage of their signals, including cash or carriage of other
programming. And while retransmission consent does not guarantee
that a broadcaster will receive fair compensation from an MVPD for
retransmission of its signal, it does provide a broadcaster with an
opportunity to negotiate for compensation.
The FCC Recently Recommended that No Revisions Be Made to
Retransmission Consent Policies
After some years' experience with retransmission consent, Congress
in late 2004 asked the FCC to evaluate the relative success or
failure of the marketplace created in 1992 for the rights to
retransmit broadcast signals. This evaluation shows that MVPDs'
complaints about retransmission consent disadvantaging them in the
marketplace or somehow harming competition are groundless. In its
September 2005 report to Congress about the impact of retransmission
consent on competition in the video marketplace, the FCC concluded
that the retransmission consent rules did not disadvantage MVPDs and
have in fact fulfilled Congress' purposes for enacting them. The
FCC accordingly recommended no revisions to either statutory or
regulatory provisions relating to retransmission consent. FCC,
Retransmission Consent and Exclusivity Rules: Report to Congress
Pursuant to Section 208 of the Satellite Home Viewer Extension and
Reauthorization Act of 2004 (Sept. 2005) (FCC Report).
In its report, the FCC concluded that local television broadcasters
and MVPDs conduct retransmission consent negotiations on a "level
playing field." Id. at � 44. The FCC observed that the
retransmission consent process provides incentives for both
broadcasters and MVPDs to reach mutually beneficial arrangements
and that both parties in fact benefit when carriage is arranged.
Id. Most importantly, according to the FCC, consumers benefit by
having access to the broadcasters' programming carried via MVPDs.
Id. Overall, the retransmission consent rules have, as Congress
intended, resulted in broadcasters being compensated for the
retransmission of their stations by MVPDs and MVPDs obtaining the
right to carry broadcast signals. Id.
Given these conclusions, the FCC recommended no changes to current
law providing for retransmission consent rights. Moreover, the FCC
explained that the retransmission consent rules are part of a
"carefully balanced combination of laws and regulations governing
carriage of television broadcast signals." Id. at � 45. Thus, if
Congress were to consider proposals to restrict broadcasters'
retransmission consent compensation, the FCC cautioned that review
of other rules, including must carry and copyright compulsory
licensing, would be necessary as well "to maintain a proper
balance." Id. at �� 33, 45.
MVPDs' Complaints about Retransmission Consent Are Groundless
Especially in light of this recent FCC report, the various
repetitive complaints of MVPDs about the alleged unfairness of
retransmission consent ring hollow. For instance, some cable
operators have complained about the retransmission consent fees
purportedly extracted from them by broadcasters. These complaints
are especially puzzling because, as the FCC recently reported,
cable operators have in fact consistently refused to pay cash for
retransmission consent. FCC Report at �� 10, 35. As a result,
most retransmission consent agreements have involved "a cable
operator providing in-kind consideration to the broadcaster," and
cash is not yet "a principal form of consideration for
retransmission consent." Id. at � 10. This in-kind consideration
has included the carriage of affiliated nonbroadcast channels or
other consideration, such as the purchase of advertising time,
cross-promotions and carriage of local news channels. Id. at � 35.
Given that cable companies have rarely paid cash for retransmission
consent of local broadcast signals, this Committee should reject
any MVPD claims that broadcasters' retransmission consent fee
requests are unreasonable or are somehow the cause of cable rates
that for years have increased at more than double the rate of
inflation. In fact, in late 2003, a GAO study did not find that
retransmission consent has lead to higher cable rates. See GAO,
Issues Related to Competition and Subscriber Rates in the Cable
Television Industry, GAO-04-8 at 28-29; 43-44 (Oct. 2003). In
contrast, the two GAO studies discussed above showed the lack of
competition to cable operators, especially by wireline providers,
to be a significant cause of higher cable rates.
Complaints from MVPDs that some broadcasters attempt in
retransmission consent negotiations to obtain carriage for
additional programming channels are ironic, to say the least. As
the FCC found, broadcasters began to negotiate for carriage of
additional program streams in direct response to cable operators'
refusal to pay cash for retransmission consent of broadcast signals.
FCC Report at � 10. Certainly any claims that cable operators somehow
have been forced to carry unwanted programming as the result of
retransmission consent are disingenuous. Under the retransmission
consent regime, no cable operator is compelled to carry any channel,
whether a local broadcast channel or an allegedly "bundled"
programming channel. And if a cable operator prefers not to carry
any channel beyond a broadcaster's local signal, cash alternatives
are offered in retransmission consent negotiations. For example,
EchoStar recently completed negotiations with Hearst-Argyle Television
for a cash-only deal at a marketplace rate. Accordingly, there is no
merit to allegations that broadcasters force MVPDs to carry indecent
programming or that they limit MVPDs' ability to offer "family
friendly" tiers.
Clearly, MVPDs want to have their retransmission cake and eat it too.
In one breath, MVPDs complain that broadcasters are unreasonable in
requesting cash payment for carriage of their local signals; in the
next, they assert that negotiating for carriage of additional
programming is also unreasonable. In essence, MVPDs argue that
retransmission consent is somehow inherently invalid because
broadcasters should give their signals to MVPDs without compensation
in any form. But there is no legal, factual or policy reason that
broadcasters - unique among programming suppliers - should be
singled out not to receive compensation for the programming provided
to MVPDs, especially given MVPDs' increasing competition with
broadcasters for advertising revenue. Indeed, when enacting
retransmission consent, Congress noted that cable operators pay for
the cable programming they offer to customers and that programming
services originating on broadcast channels should be treated no
differently. Senate Report at 35.
Some cable operators have also presented an inaccurate picture of
the video marketplace by contending that, in rural areas and smaller
markets, powerful broadcast companies have undue leverage in
retransmission consent negotiations with local cable operators. This
is not the case. The cable industry as a whole is concentrated
nationally and clustered regionally and is dominated by a smaller and
smaller number of larger and larger entities. See Twelfth Annual
Report at �� 152, 154. This consolidation will only continue
assuming that the pending acquisition of Adelphia Communications by
Comcast and Time Warner is approved. In contrast, a strict FCC
duopoly rule continues to prohibit broadcast television station
combinations in medium and small markets. In fact, a majority of
cable subscribers in Designated Market Areas 100+ are served by one
of the four largest cable MSOs, while only about three percent of the
television stations in these markets are owned by one of the top ten
television station groups. Thus, in many instances in these 100+
markets, small broadcasters - which are facing severe financial
pressures -- must deal with large nationally and regionally
consolidated MVPDs in retransmission consent negotiations. In sum,
local broadcasters in medium and small markets do not possess
unfair leverage over increasingly consolidated cable operators.
Indeed, in small and large markets alike, nationally and regionally
consolidated MVPDs have been able to exert considerable market
power in retransmission consent negotiations, at the expense of
local broadcasters. In actual retransmission consent agreements,
broadcasters have frequently had to accept a number of egregious
terms and conditions, especially with regard to digital carriage.
For example, it is not uncommon for MVPDs in retransmission
agreements to refuse to carry a station's multicast digital signal
that contains any religious programming and/or any programming that
solicits contributions, such as telethons or other charitable
fundraising programming. MVPDs have refused to carry any digital
multicast signal unless the channel is broadcasting 24 hours a day,
seven days a week. This requirement is very difficult for most
digital stations (especially small market ones) to meet, and thereby
makes it virtually impossible for many stations to obtain carriage
of digital multicast signals. Under other retransmission agreements,
the MVPD agreed to carry only the high definition portion of a
broadcast station's digital signal, and the carriage of any portion
of the broadcaster's non-high definition digital signal (including
even the primary digital signal) remained entirely at the discretion
of the MVPD. Other MVPDs have declined to carry the primary digital
signals of non-big four network affiliated stations, unless these
stations achieved certain viewer rankings in their local markets.
Thus, the digital signals of many stations, including WB/UPN
affiliates, Hispanic-oriented stations, religious stations and other
independent stations, would not be carried by these MVPDs. It seems
highly unlikely that broadcasters would accept such disadvantageous
provisions in retransmission agreements, unless the MVPDs had
sufficient market power so as to insist on such provisions.
In light of these real-world examples, Congress should skeptically
view any complaints from MVPDs as to how they are at the mercy of
powerful broadcasters in marketplace retransmission consent
negotiations. The current retransmission consent rules also already
protect all MVPDs by imposing an affirmative obligation on
broadcasters to negotiate in good faith and providing a mechanism to
enforce this obligation. See 47 C.F.R. � 76.65. In fact, EchoStar
was the complainant in the only -good faith- case to be decided on
the merits by the FCC. In that case, the broadcaster was completely
exonerated, while EchoStar was found to have abused the FCC's
processes. EchoStar Satellite Corp. v. Young Broadcasting, Inc., 16
FCC Rcd 15070 (2001). Unwarranted MVPD complaints about
retransmission consent certainly cannot undermine the FCC's
conclusion that MVPDs are not disadvantaged by the existing
retransmission consent process. See FCC Report at � 44.
Some parties have suggested that Congress require baseball style
arbitration for retransmission consent negotiations between
broadcasters and MVPDs. While this may seem like a plausible
approach at first blush, when one considers the complexity of
retransmission consent negotiations, it is clear that arbitration
is not a viable option. This arbitration suggestion implicitly
assumes that retransmission consent negotiations are only about
money, and that one should be able to choose the offer of one side
or the other. That is not the case. In fact, these negotiations
may involve such issues as program insertion options given to the
MVPD, spot sales by the broadcaster, fiber runs between transmitter
and headends, promotion spot guarantees, channel position and tier
placement, DTV channel carriage, system expansion options,
distribution and construction costs, studio/personnel/equipment
sharing, electronic program guide placement and news insertion
options, to name but a few. Particularly when, as noted above, there
is no evidence that the current free market negotiation process fails
to serve the public, Congress should resist the call from MVPDs for a
new federal mandate to interfere with the marketplace.
Consumers Benefit from the Retransmission Consent Process
Finally, I would like to elaborate on the FCC's conclusion in its
report that retransmission consent has benefited the viewing public,
as well as broadcasters and MVPDs. As the FCC specifically noted,
broadcasters' ability to negotiate carriage of additional programming
through retransmission consent benefits viewers by increasing
consumers' access to programming, including local news channels. See
FCC Report at � 35. One excellent example is our company's News
Channel 8 here in the Washington metropolitan area. NewsChannel 8 is
a local cable news network that has expanded as a result of
retransmission consent negotiations over the carriage of Allbritton's
television station WJLA-TV. It provides local news, weather and
public affairs programming, along with coverage of local public
events. Further, this programming is zoned separately to better
serve viewers in Washington, D.C., the Maryland suburbs and Northern
Virginia.
Similarly, Belo used retransmission consent to obtain carriage of its
regional cable news channel NorthWest Cable News (NWCN) on cable
systems serving over two million households in Washington, Oregon,
Idaho, Montana, Alaska and California. NWCN provides regional
up-to-the minute news, weather, sports, entertainment and public
affairs programming to viewers across the Northwest. These efforts
are coordinated with Belo's television stations in Seattle,
Portland, Spokane and Boise.
In addition to local news channels, broadcasters have used
retransmission consent to provide local weather information on
separate channels carried by cable systems. For example, LIN
Television provides these local weather channels in several markets,
including ones with a history of frequent weather emergencies such
as Indianapolis. Broadcasters have moreover used retransmission
consent negotiations to obtain carriage of their digital signals,
thereby both benefiting viewers and, according to the FCC, furthering
the digital transition. See FCC Report at � 45.
Not only has retransmission consent encouraged broadcasters to create
and launch these local news and weather programming services for
carriage on cable systems, retransmission consent promotes localism
in other ways. In particular, allowing local broadcasters to
negotiate in the marketplace for compensation for the fair value of
their signals helps local stations remain competitive in the face of
competition from dozens, or even hundreds, of non-local cable and
satellite channels in their markets. It also at least potentially
provides revenues to help stations better fulfill their obligations
to serve their local communities and their viewers.
Congress Should Reject Demands to Interfere with Free Market
Negotiations for Retransmission Consent
As my testimony makes clear, Congress intended in the 1992 Cable Act
to give broadcasters the opportunity to negotiate in the marketplace
for compensation from MVPDs retransmitting their signals. The FCC
concluded just last September that retransmission consent has
fulfilled Congress' purposes for enacting it, and recommended no
changes to either statutory or regulatory provisions relating to
retransmission consent. This Subcommittee should accept the FCC's
conclusion and continue to let broadcasters and MVPDs negotiate in
the marketplace for retransmission consent. Especially in light of
the FCC's conclusion that local broadcasters and MVPDs generally
negotiate on a -level playing field,- FCC Report at � 44, Congress
has no basis for usurping the free functioning of the retransmission
consent marketplace, as certain cable and satellite operators self-
interestedly urge. Indeed, to do so would undermine the benefits
that consumers gain from a well functioning retransmission consent
market. Thank you for your time and attention.
Mr. Walden. Thank you, Mr. Fritz. We appreciate your
comments. Mr. Citron, welcome. We look forward to your
comments, sir.
Mr. Citron. Thank you, Mr. Chairman, and thank you for the
opportunity to testify before your committee regarding your draft
telecommunications legislation. I will focus my remarks on the
provisions that relate to emergency services.
As policy makers, you should share our vision that every
American have access to E-911 regardless of whether they are
fixed, mobile, or voice over IP communications technology.
Vonage has no higher priority than delivering enhanced 911 to
our customers nationwide and your legislation would help
accelerate that objective. To this end, we have partnered
with the FCC and public safety community officials to enable
more than one million Vonage lines with E-911. This
represents over 70 percent of our customer base as we work
diligently to enable every customer with this service. The
Vonage networks complete nearly 1,000 successful E-911 calls
every day. In addition to dedicating significant resources
to our 911 effort, Vonage has also committed to the
collection and remittance of statewide 911 fees to fund the
build-out and upgrade of our nation's local public safety
answering points.
Vonage's services are inherently nomadic, meaning that they are
capable of operating over any broadband connection anywhere in the
world. For example, when Katrina devastated the Gulf Coast, New
Orleans officials received their first call from President Bush on a
Vonage phone, and as thousands of patients were pouring into Baton
Rouge General Hospital, Vonage was the only long-distance line
available for doctors and emergency medical personnel to use. Our
users can be in New Orleans one day and then the next day in Texas.
This allows flexibility that fixed and mobile services just do not
have. This form of mobility presents enormous possibilities but also
poses unique challenges to an antiquated 911 system, which was built
to be fixed and local. While we have retrofitted our service to be
compatible with this 1960s-style network, we shouldn't limit our
vision to the technology from the 1960s. Nine-one-one should be the
headlights, not the taillights, of the communications industry.
The challenge to you as policy makers and regulators is to
enable all Americans with E-911. We honor the countless hours
members of this committee, particularly Chairman Barton,
Ranking Member Dingell, Congressmen Upton, Pickering, Markey,
and Gordon have spent working on achieving this goal, and we
commend the FCC's endeavors in the scenario, but the FCC has
done everything within its statutory authority and now it is
time for Congress to act. Congress should mandate E-911 to
all Americans regardless of whether it is fixed, mobile, or
voice over IP. Congress should provide liability parity for
all providers of emergency services. Additionally, Congress
should require access to underlying 911 facilities, and
lastly, Congress should grant the FCC authority to create a
forward path for the industry.
Chairman Barton's commitment to public safety and the FCC's
E-911 rules have helped Vonage with the fastest deployment of
nomadic 911 services in history. Despite the FCC's support
and hard work over the last nine months, their powers are
limited to grant VOIP providers the liability parity that
public safety demands, nor can the agency grant access to
critical telecommunications elements that providers use to
offer E-911 to customers. Your legislation would help
overcome the obstacles in gaining access to 911 facilities.
Nomadic voice over IP providers like Vonage need access to
all the 911 elements necessary to provide a comprehensive
solution and the committee print addresses this concern. By
including the 911 access provision in the legislation, you
have ensured that the 911 system is held as a public trust,
not abused as a competitive lever.
In addition to access challenges, liability issues continue
to impede progress in several key areas of the country. Many
911 centers have refused to complete voice over IP emergency
calls without the same liability protections that exist for
wireline and wireless carriers. I underscore public safety's
concerns about the lack of liability parity for voice over IP
emergency calls and request that the committee include this
going forward. We second the National Emergency Numbers
Association's request that a provision for liability parity
be added to the bill.
Finally, Congress should carefully contemplate a forward path
towards building out a flexible, more technologically advanced
911 network while preserving innovation and competition.
Further, it is good policy for lawmakers to guarantee that
every American has access to E-911. Many Americans today
still have no access to E-911 at all on the traditional
wireline phone network. We humbly suggest, as part of going
forward, review and oversight of our nation's communications
system that the leaders on this committee extend the E-911
capabilities to cover every American with a phone.
I will conclude by noting that Vonage strongly supports the
interconnection provisions in the committee's draft and would
hope access to numbering resources would also be included.
In short, Vonage supports this legislation and I want to
thank the sponsors Chairman Barton, Congressmen Upton,
Pickering, and Rush, as well as Representatives Shimkus,
Eshoo, and Gordon for their leadership on 911 issues. We
look forward to working with the committee towards its
passage.
[The prepared statement of Jeffrey Citron follows:]
Prepared Statement of Jeffrey Citron, Chairman and Chief Strategist,
Vonage
Mr. Chairman, thank you for the opportunity to testify before your
committee regarding your draft telecommunications legislation. I
will focus my remarks on the provisions that relate to 911 services.
Vonage has no higher priority than delivering Enhanced 911 to our
customers nationwide, and this legislation would help accelerate
that objective.
Vonage currently delivers Enhanced 911 to more than one
millionsubscriber lines, covering 70% of our base-and we are working
diligently to get this service to 100% of our customers immediately.
We consider ourselves a partner with public safety, and have not only
dedicated significant resources to our 911 effort, but have committed
to paying 911 fees on a statewide basis throughout the country.
Chairman Martin's commitment to public safety and the FCC's E-911
rules have helped Vonage with the fastest deployment of nomadic 911
services in history. Working with our partners at the FCC and the
public safety community, the Vonage network completes nearly a
thousand successful 911 calls every day.
Despite this progress, significant challenges remain and your
legislation would help overcome those obstacles. I want to
make three points. First, nomadic VoIP providers like Vonage
need access to all the 911 elements necessary to provide a
comprehensive solution; the Committee print addresses this
concern. Second, many 911 centers refuse to complete VoIP
emergency calls without the same liability protections that
exist for wireline and wireless carriers; this provision
would need to be added to the bill. Third, Congress should
carefully contemplate a forward path towards building out a
flexible, more technologically advanced 911 network while
preserving innovation and competition.
By including the 911 access provisions in this legislation,
you have ensured that the 911 system is held as a public
trust, not used as a competitive lever.
Next, I would underscore public safety's concerns about the
lack of liability parity for VoIP emergency calls and request
the Committee include this going forward. Unlike wireline
and wireless carriers, VoIP providers do not have any
liability protection for completing 911 calls. Unfortunately,
there are instances today where 911 centers will not accept
our emergency calls without such protection.
In 1999, this Committee and Congress passed the Wireless
Public Safety Act, granting wireless carriers equivalent
liability status to wireline services for 911 calls. We would
simply ask that as this bill moves to the floor, the Committee
consider extending identical liability provisions to VoIP
providers and public safety centers.
Finally, I would like to comment on innovations in communications
technology and how they interact with the nation's 911 system.
Vonage offers a product that is inherently nomadic-meaning it's capable
of operating over any broadband connection, anywhere in the world. Our
users can be in Texas one day and Tokyo the next. This allows
flexibility that fixed services and traditional phone services do not.
For example, when Katrina devastated the Gulf Coast, New Orleans
officials received their first call from President Bush on a
Vonage phone. And as thousands of patients were coming into the
Baton Rouge General Hospital, Vonage was the only long distance
line available to doctors and emergency medical personnel.
This nomadic feature, which allows our service to work over any
high-speed Internet connection anywhere, is the only reason
these calls were able to get through.
This mobility also presents unique challenges to the 911 system
which was built to be fixed and local. While we have
retrofitted our service to be compatible with a 911 network
based on 1968 technology, we shouldn't limit our vision to
1968. 911 should be the head lights, not the tail lights of
communications.
I would like to be clear that we support the FCC's efforts to
bring E-911 to VoIP services. We embrace this obligation, and
Congress can help provide a forward path that is sensible for
public safety and moves us towards next generation 911
infrastructure.
Current E-911 regulations apply to Vonage but not to many other
VoIP providers. If E-911 services are not available to VoIP
providers in some markets, consumers in those markets will
still buy VoIP without E-911. Vonage may not be the provider
for these customers, but another company will be, and the public
safety community will be all the poorer for having countless
Americans without E-911 service.
The challenge for this Congress is to enable Americans who want
VoIP to get those services with E-911 everywhere.
I will conclude by noting that Vonage strongly supports the
interconnection provision in the Committee's draft, and would
hope access to numbers and number portability could be included
with that provision.
In short, Vonage supports this legislation and I want to thank
the sponsors-Chairman Barton, Congressmen Upton, Pickering, and
Rush-as well as Representatives Shimkus, Eshoo, and Gordon for
their leadership on 911 issues. We look forward to working
with the Committee towards its passage.
Mr. Walden. Thank you, Mr. Citron, and thank you to all of our
panelists today. I am going to start off with a question for
Mr. Fellman. Mr. Fellman, I heard pretty quickly from my cities
and their mayors when the first versions of this bill came
forward and they expressed concerns about control over their
rights-of-way, about the franchise fees, about the PEG channels,
and additional fees. From your perspective as a mayor, does
this bill take care or satisfy the issues relative to the
rights-of-way in your community's ability to control the
rights-of-way?
Mr. Fellman. Thank you, Mr. Chairman. Not completely. One of
our biggest concerns is it that disputes over interpretation of
what local governments might do go to the FCC. I will tell you
that that in and of itself will probably be cost-prohibitive to
the point of precluding many, especially small and medium-sized
communities, from ever holding firm to their position of what
it means to enforce local rights-of-way. Presently we go to
local court if there is a dispute, whether it is a
telecommunications company, a contractor of another kind, a
utility company like gas or electric. Those issues are dealt
with in local courts. The FCC should not be made the
rights-of-way judge and jury for local governments in this
Nation.
Mr. Walden. All right. The franchise fee issue, it is five
percent, up to five percent gross revenues plus one percent and
some guarantee on PEG channels. Now, I know that is not
everything every city wants but what on average do cities get
today in terms of franchise fees? What percent of gross
revenues?
Mr. Fellman. In my experience, the majority of local
franchising authorities get five percent of gross revenues.
Now, gross revenues is defined differently in different areas
so it is five percent of what piece of the pie.
Mr. Walden. Sure, and the you get nothing from satellite
providers, correct?
Mr. Fellman. That is correct.
Mr. Walden. Now, if we open up the market with technology
expanding, it is perhaps likely that some of these folks who
would come into our cities offering video services for the
first time might take market share away from, say, satellite,
correct? And so your cities might actually get additional
revenue. It is conceivable, at least, that there would be
additional providers in your communities providing service for
which you would get revenue, correct?
Mr. Fellman. That is theoretically possible, yes.
Mr. Walden. All right. Okay. Mr. Misener, I want to go to
you on net neutrality issues and perhaps get some feedback
from Mr. McSlarrow and Mr. McCormick regarding this issue about
the pipe and whether or not the providers, like Mr. Misener is
representing, are going to get sidetracked in this information
age. I know it is a very complex and controversial issue. I
would like to get your response to his comments and then maybe
his response to your comments. You heard his testimony,
Mr. McSlarrow.
Mr. McSlarrow. I think the one issue we can set aside is
whether or not net neutrality means something about whether or
not people are going to get access blocked. I think we can
set that aside. That hasn't happened and it really has been
a red herring. We are now engaged in a much more complex
conversation about what the future of the network architecture
looks like. I think our fundamental position is not that
there isn't good faith behind concerns expressed. It is that
it does not reflect the reality of the world we live in.
Four years ago, people made these same arguments and in that
time, Google has grown to $100 billion market cap. The
providers like Amazon.com and Google are flourishing. So in
the absence of an identifiable problem, recognizing the
networks that are in place today, that will ultimately be
upgraded and who knows what the architecture looks like
will cost vast sums of money and investment. Why would we
risk freezing innovation and investment in place today?
Mr. Walden. All right. I am going to run out of time.
Mr. Misener, very quickly.
Mr. Misener. Yes. Thank you, Mr. Chairman. Mr. McSlarrow
said earlier today that this would be regulating the Internet
for the first time, and I think this is probably one of the
most fundamental misconceptions here. The Internet has
been regulated in the sense of non-discrimination since
its inception until last year, and so the fact that bad
things haven't happened yet is largely as a result of
regulation that was in place, and that has recently been
removed by the FCC. Furthermore, a couple of the telcos
are under merger restrictions that actually prevent them
from, at least for the next 18 months, engaging in this kind
of activity. Lastly, I think it is a big misconception.
Mr. McCormick has said that they will not block, impair, or
degrade content. Well, they also say simultaneously that they
want to provide quality of service for a fee. These are
fundamentally inconsistent statements. It is impossible to
provide quality of service for a fee without degrading some
content.
Mr. Walden. All right. My time has expired. Mr. Markey.
Mr. Markey. Thank you. Mr. McSlarrow, following up on this
line of questioning, whether or not this point made by
Mr. Walden is a red herring or not, I was dismayed to read
recently that cable operators are refusing ads from AT&T and
Verizon about video choice. In the Washington Post, it quotes a
Time Warner spokesman as saying Coke doesn't promote Pepsi;
McDonald's doesn't promote Burger King; NBC doesn't promote ABC.
Now, Mr. McCormick, the article also states that AT&T has filed
a complaint with the FCC on this matter. Now, Mr. McCormick,
what if the cable guys were told they had to accept the ads but
they then aired them on the least watched channel at 3:00 a.m.
in the morning? Would that be acceptable to you? In other
words, they are not blocking the ad, they are just burying it.
So I find it more than a little ironic that you guys are fighting
over something akin to what you claim you won't do to Internet
companies with respect to broadband services. You are having
that fight right now.
So let us go over to you, Mr. Citron. You are an Internet-based
entrepreneur. You are akin to Pepsi to their collective Coke.
Are you reassured by the network neutrality section of this
bill or do you think we need clear anti-discriminatory rules?
Mr. Citron. Sir, I think the bill makes a first good attempt
at providing a framework to move forward, and I commend
everyone's efforts towards that.
Mr. Markey. Are you satisfied, Mr. Citron?
Mr. Citron. I think there is more that we can do to protect
consumers to ensure that they make--
Mr. Markey. On a scale to ten, how far have they gone?
Mr. Citron. They are on the right path but not there yet.
Mr. Markey. Where do you put it on a scale to ten?
Mr. Citron. Oh, probably somewhere about midway along the way.
Mr. Markey. Around what?
Mr. Citron. They are probably at the midpoint.
Mr. Markey. Mr. Misener, you are here representing Google,
eBay, Amazon, all the companies that are leading edge of
revolutionizing our economy. Would you be satisfied if there
were non-opposable standards to protect your companies and
thousands of others?
Mr. Misener. Absolutely not. I think frankly if you were to
give me the one to ten scale, I would give it about a negative
three, and the reason it is negative is it actually takes away
authority from the FCC. It seems to give regulatory authority
to the Commission when, in fact, the Commission already has
the authority, but it actually takes away the rulemaking and
some of the enforcement powers that the Commission currently
has. So frankly, in many respects, it is a step backwards.
Mr. Markey. I thank you, Mr. Misener. Now, so we already see
the problem over here and these are the giants fighting, not
some kid in a garage that is going to be seeking extra access.
Now, Mr. McCormick, you want a deregulatory environment--I
applaud you for that--for video services. You want to get
out there and you want to get the Government out of the way
so that the phone companies and the cable industry can just
go at it in the free market and so I assume that that means
you will be supporting my amendment to eliminate program
access rights for national cable franchises for the telephone
industry, because why should the cable industry have to give
you their programming, their HBOs, their CNNs in the market.
They made the investments. Why should the Government force
them to share it with you, Mr. McCormick? Why should the
Government make--why are you asking us to force the cable
industry to share their programming with you?
Mr. McCormick. I think the issue, Mr. Markey, is this
committee has long taken an interest in new entrants.
Mr. Markey. Well, I agree with that but again, we are
talking about new entrants for net neutrality, okay?
Mr. McCormick. I understand.
Mr. Markey. And that is an interest you don't seem to really
share with us, so what I am saying is, I am going to move back
the other way and say you guys should develop your own
programming.
Mr. McCormick. No, no. I think that what we have said with
regard to net neutrality is that we will not block, impair,
or degrade, that we will provide full access to our networks.
We want to have the same thing with regard to--
Mr. Markey. Do you want program access principles or program
access rules, because I am going to change it to principles
and then leave it to the FCC to enforce. Is that acceptable
to you?
Mr. McCormick. Well, if the FCC said that it has the ability
to enforce any problems that would arise--
Mr. Markey. No, what I am saying is, I am going to change the
program access rules to principles and then you will have to
go to the FCC and get them to enforce the principles. Would
that be acceptable to you?
Mr. McCormick. Well--
Mr. Markey. Yes or no, Mr. McCormick. Yes or no.
Mr. McCormick. We think that the existing law with regard to
programming--
Mr. Markey. You want rules. You want to be protected by
rules. Mr. McSlarrow, can you pledge today that cable
operators who obtain national licenses under the bill will not
withdraw service from any geographic area they are currently
serving?
Mr. McSlarrow. No.
Mr. Markey. Can you pledge that service and technology
upgrades will occur uniformly as they do under local
franchising agreements when operators get national licenses?
Mr. McSlarrow. No.
Mr. Markey. Can you pledge today that cable operators won't
cross-subsidize lower rates to consumers in the part of town
where the Bell company has shown up with higher rates in the
part of town where the Bells have chosen not compete in?
Mr. McSlarrow. No.
Mr. Markey. Mr. McSlarrow, the final question, the remedy
to this is making sure that Mr. McCormick's companies compete
over the same service area that you compete over, then the
marketplace will force consumer-friendly activity, not just
on the rich side of town but on the poor side of town,
because otherwise my fear is, and I think it is going to
happen, is that the poor side of town is going to wind up
subsidizing the rich side of town where the competition is
going to break out. You don't need a business degree from
Harvard Business School to know that that is the plan. Thank
you, Mr. Chairman.
Mr. Upton. Thank you. Sorry that I had to step away for a
few minutes. I appreciate that your testimony was submitted
in advance so I could look at it last night.
Mayor Fellman, I appreciate your recognition in your testimony
that, -this draft is more responsive to those issues you raised
with the committee in the past and your willingness to
continue to work with the committee going forward.- I thank
you for that and I look forward to those discussions.
In your testimony you suggested that the existing franchise
process is not a barrier to entry. However, according to the
Verizon February 13, 2006, filing with the FCC, during 2005
Verizon conducted franchise negotiations with approximately
320 LFAs. Verizon only obtained 44 franchises as of year end
2005 and it obtained seven additional franchises at the time
of their filing. Of those 51 total franchises, 29 were in
Texas and most of those were obtained after the new statewide
franchise law was enacted. Excluding the ones from Texas,
it has often taken Verizon between six and 12 months and
sometimes more to obtain the franchises that it has been
awarded. Verizon estimates that it will need between 2,000
and 3,500 franchises, all told and that obviously is just
them.
We know that there are other phone companies seeking to offer new
video services. We also know that there are approximately 33,000
local franchises across the country. I want to read some excerpts
from some interesting commentary regarding the existing local
franchise process, and I quote: -Rapid technological advancements
of our day require changes to be made to the current regulatory
environment with regard to video service providers. The current
regulatory barriers have not kept up with the latest technology,
and have the effect of slowing down or preventing the American
consumer from either enjoying new technologies or receiving a
better price on existing services which would result from the
increased marketplace competition. The current franchise system
inhibits additional companies who might be subject to it from
entering the marketplace and investing in infrastructure when they
are challenged by the expense and difficulty of attaining enough
market share to recoup costs. The effect of all this in trying to
apply a 20-plus-year-old business model on today's technologies
cities is denying their consumers choice, unnecessarily raising
the cost of such services, and stifling innovation. Competition
has been stifled in the world of video services due to government
regulation.-
Now, my question is a multiple choice. Who do you think
made that statement? Do you think it was a CEO of a Bell,
cable company, Progress and Freedom Foundation, or a mayor
of a large town in California? I think you know: D, the
mayor. The mayor of the city of Anaheim, a city of
345,000 folks, 47 percent Latino, 36 percent white,
12 percent Asian, two percent black with 73 percent of its
population having an income less than $75,000, and those
excerpts are directly from the reply comments which the
mayor filed with the FCC in its ongoing review of the
local franchise process, and I will put that entire part
of that into the record.
My point in raising this is to suggest that it is not
just Chairman Barton, Mr. Rush, Mr. Pickering, myself,
and others sitting here in D.C. who believe that the
local franchise process is standing in the way of
competition for the consumer. At least the mayor of an
ethnically and income-diverse city in California appears
to concur as well. And as I said in my opening statement,
the bill balances the need, I think, for reforming the
franchise process while preserving, in the national
franchise, critical important elements of the legacy
local franchise framework, namely the control over
right-of-way, which we had conferred with before with the
cities, the franchise fee of up to five percent of the
gross with an additional one percent for the carriage of
PEG, something that I support, and as well on top of the
five percent franchise fee. I look forward to your input
and your comments as this process unfolds, and I don't
know if you would like to comment on what we tried to get
the mayor to come today and sit next to you but it didn't
happen.
[The information follows:]
Before the
FEDERAL COMMUNICATIONS COMMISSION
Washington, DC 20554
_______________________________________
In the Matter of )
Implementation of Section 621(a)(1) of )
the Cable Communications Policy Act of 1984 )
MB Docket No. 05-311
as amended by the Cable Television Consumer )
Protection and Competition Act of 1992 )
_______________________________________
REPLY COMMENTS OF THE CITY OF ANAHEIM
These Comments are filed by City of Anaheim. As the
Federal Communications Commission (FCC) reviews
implementation of the Federal Communications Act, we are
confident the Commission will hear from many cities as
well as associations representing municipalities. No
doubt, many of these entities will appeal to the FCC to
maintain the status quo. We believe you will find
Anaheim's comments different from most municipalities.
Anaheim believes that the rapid technological advancements of
our day require changes to be made to the current regulatory
environment with regard to video service providers. The current
regulatory barriers have not kept up with the latest technology,
and have the effect of slowing down or preventing the American
consumer from either enjoying new technologies or receiving a
better price on existing services which would result from the
increased marketplace competition. Anaheim has set out a broader
policy of dismantling outdated barriers to greater consumer
choice, with the goal of eliminating franchise fees on these
services as a relic of the past. In support of this belief, we
wish to inform the Commission about the status of video
franchising in our community and discuss why federal reform is
needed.
Community Information
Anaheim is a city with a population of 345,317. Since
1979, the city of Anaheim has had a franchise agreement
with various cable service providers, the most recent of
which is with Adelphia Communications, and which in turn
is being transferred to Time-Warner Communications.
In order to increase competition and provider greater
options to our residents, the City recently reached an
agreement with AT&T for the delivery of Internet Protocol
Television (IPTV) to Anaheim residents. We believe this
agreement is a model that shows the kind of local
flexibility that an updated regulatory climate would
further foster.
As you would expect, AT&T agreed to offset the city's cost of
impact on local infrastructure. They do not escape any obligation
to work with us scheduling or paying for the impact on streets as
network enhancements are made under our roads. However, AT&T
will not be required to pay the city a franchise fee, nor will
the company be promised, either in writing on in effect, an
exclusive right to provide Anaheim residents with IPTV.
The agreement between AT&T and Anaheim currently includes
provisions to: (1) reimburse Anaheim for any direct costs
associated with the project; (2) provide continued access to
Channel 3, our local Public/Education/Government (PEG) channel;
and (3) maintain consistency with the City's aesthetics,
standards and procedures. This agreement is consistent with our
overall policy described earlier.
Introduction and Summary
The City of Anaheim has expressed its commitment to
provide innovative and robust communication options to
its residents and businesses and to foster competition and
capabilities, all without cost or liability to the City.
City leaders do not believe that government should determine
whether residents receive video content through established
cable providers, growing competition from satellite
television, or new concepts coming on line like internet
protocol television (IPTV), or technologies on the horizon
like Wi-Fi delivery of video content. Anaheim is supportive
of maintaining open market competition in which any
franchise fee is eliminated for consumers and a variety of
service providers have an opportunity to earn customer
support.
The current franchise system inhibits additional companies who might
be subject to it from entering the marketplace and investing in
infrastructure when they are challenged by the expense and
difficulty of attaining enough market share to recoup costs. At the
same time, companies that are clearly exempt from franchising, like
satellite providers, flourish.
Franchise fees and many elements within franchise agreements,
therefore, are merely an artificial intrusion by government into the
consumer marketplace. Attempts to apply franchise fees and
agreements to some providers, while exempting others, effectively
eschews the market. Therefore, eliminating these fees and
impediments, Anaheim contends, will allow equitable competition
amongst the variety of video service providers. In this way, and
without local government interference, the various systems compete
in price, quality and quantity and consumers decide which service
provider they prefer.
It is perhaps most instructive to examine the arguments made by
supporters of the status quo and the reasons why these arguments are
not valid, in Anaheim's experience.
Argument 1: -Local Governments Need Protection From Fiscal Harm-
Many cities argue, essentially, that because they have
gotten used to the revenue from franchise fees, they should
be entitled to continue to receive them forever more, whether
the original justification for the fee still makes sense.
Historically, cities and cable providers have had a mutual
interest in franchise agreements. Cities wanted systems
built out to their whole territory, and the cable provider
wanted protection of the investment they made for citywide
deployment in order to have time to recoup their costs.
However, technology has passed these days by. Some video providers,
by the nature of their technology, can bypass these outmoded models.
For other potential providers, the ability to provide video
entertainment content over their systems is a byproduct of upgrades
they plan to make to their systems whereby they may provide other
data services to potential customers. And, if they foreswore the
ability to provide video entertainment (which would only hurt
consumers) over their systems, municipalities would not have the
ability to impose franchises.
The effect of all this in trying to apply a twenty-plus year old
business model on today's technologies, cities are denying their
consumers choice, unnecessarily raising the costs of such
services, and stifling innovation.
In the past, local governments have been accustomed to
using money brought in from the franchise fee to help pay
for basic city services, such as public safety, traffic
management and street and sidewalk preservation. But, in
fact, cities have created an unfair tax on cable companies
and limited competition in a fast-paced, competitive
marketplace. Furthermore, many cities have used these fees
to fund essential municipal services unrelated to cable,
although the fees simply are not a long-term stable source
of revenue for cities. As an example, just look at the
emergence of satellite services. This, a non-taxed cable
competitor, has increasingly taken a significant share of
the entertainment market. As cable companies have lost
customers to other competing entities, cities have seen a
corresponding drop in the revenues that come from cable
franchise fees. It is a weak fiscal model that subjects
core municipal services such as public safety on a
dwindling source of revenue, regulated by sources out of
direct control of that municipality.
We question why new companies that can provide alternative
video services to their residents outside the original
intent of franchising should have to pay a franchise fee?
If a company that wishes to do business in Anaheim does
need to access government-owned land (for example, to
upgrade networks under city roads, streets and other
right-of-way), we already have the rights and protections
to ensure that the company offsets any costs associated
with the use (as we have done with AT&T's IPTV service
agreement).
Argument 2: - Local Governments Need to Protect Their Control of
Rights-of-Way-
Some local government officials want the federal government
to protect their right to charge impact fees and rent for
the use of public right-of-ways. That is well and good,
but the concept of a franchise agreement is not necessary
for a city to maintain control of their infrastructure.
In Anaheim's agreement with AT&T, they complied with existing state
law, and with our local requests, for control over our right of
way. They are to schedule any such digging up and replacement of
right of way with us, and pay for the full cost, all without a
franchise agreement.
If a company needs to use public-owned land for their service
delivery infrastructure, it makes sense for the local government
to negotiate a fee for the use of that property. However, local
governments shouldn't have the power to prevent, effectively,
other companies from entering in the marketplace. By the same
token, if a private company wants to give away phone service in
exchange for the use of publicly owned infrastructure, that
shouldn't be prohibited. But local governments shouldn't be
allowed to demand that a single company provide an array of free
services in exchange for an effective monopolistic franchise, all
the while preventing other companies from providing competitive
service for their residents.
If a local government rents property or grants the use
of a right-of-way, it is logical that representatives
would ask for compensation as part of contract
negotiations. Alternatively, city leaders can decide
that they don't need to charge any fees for use, as the
City of Anaheim did with our recent agreement with
Earthlink, our Wi-Fi provider. Earthlink will be
installing a Wi-Fi network throughout Anaheim, using
city-owned streetlights and other infrastructure. The
city is not charging a franchise fee, but Earthlink is
not guaranteed a monopoly on wireless service in
Anaheim. They simply contracted with the city to
install a citywide system because our city council
wanted to be sure that our residents could enjoy the
benefits of wireless communication throughout our
community.
In their responsibility as city leaders, local
government representatives have an obligation to manage
their city's rights of way in order to achieve the best
benefit to residents and maximize public value. In
addition, local governments are responsible for providing
access to rights of way within their control in a fair
and even-handed manner. In so doing, governments ensure
that existing users of the rights of way are not unduly
inconvenienced. We believe that when public rights of
ways are responsibly managed, residents receive the best
possible benefit, which includes receiving the most
up-to-date technology with the greatest variety of
choice. All of these goals can be achieved without
strict franchising.
Argument 3: -Local Governments Need the Authority of Franchise
Agreements-
It has been argued that cities need the power of franchise
agreements in order to provide education and government
access channels, local emergency alerts and other public
services. Some believe that private companies should be
required to give free services for police and fire
stations, schools and libraries in exchange for doing
business with and in their city. But we don't believe
that free services like these justifies allowing a single
company to have a de facto monopoly on the market. Again
with our IPTV agreement, we were able to request of AT&T
that they carry our local Channel 3 (PEG), which they
happily agreed to, without a franchise.
Conclusions
In the 21st century, technology is changing on nearly a
day-to-day basis. To the extent that government needs to
be involved in the marketplace in order to be responsible
stewards of the public interest, government leaders at
all levels should be working to create a regulatory
environment that can nimbly respond to market changes
that result from some new exciting technological
breakthrough. In the past, competition has been stifled
in the world of video services due to government
regulations.
The City of Anaheim respectfully requests that the FCC
implement reforms that allow the American consumer to
benefit from increased competition in the marketplace,
enjoying new delivery methods and potentially lower costs
for those services. We invite the commissioners to visit
our city and see a local community that is able to deliver
top-quality video service without a franchise fee, giving
its residents real choice in the marketplace.
Respectfully submitted,
City of Anaheim
By: Mayor Curt Pringle
200 S. Anaheim Blvd., #733
Anaheim, CA 92805
cc: John Norton
Andrew Long
Mr. Fellman. Well, I am sorry he wasn't able to come, but-
Mr. Upton. Just hit your--
Mr. Fellman. It is on. Mr. Chairman, thank you. If I
could respond briefly to just generally two of the points
that you made, Verizon and Anaheim.
Here is what you didn't mention that was part of Verizon's
comments. In that same FCC proceeding, Verizon indicated
that its dedication to getting franchises was demonstrated
by the fact that it had 50 employees dedicated to getting
franchises throughout this country--50. Now, if you added
up the number of lobbyists that Verizon has in every State
where it was trying to end franchising and in this Congress,
I would venture to say it is a few more than 50, and if they
were dedicating appropriate resources to getting franchises,
they would be deployed in half the places they are
complaining about not having franchises now, and as a
specific example, over four months ago Verizon went to the
city of Bellevue, Washington, and said we want to get
permits to start putting in our fiber network and do our
upgrade, and the city of Bellevue, Washington, said let us
start your franchise negotiations now because we want to be
able to have those video services, we want you to be ready to
be deployed when you are done putting in your upgrades. They
said no, we are not ready to do that yet, and in the FCC
filing that I made on behalf of a number of my clients,
because outside of my service as mayor I do work for local
governments in communications issues, there is documentation,
the correspondence between Bellevue and Verizon, showing that
the city is asking, can we start this franchise negotiation
and Verizon saying no, we are not ready yet.
So I think there is another side of the story about how much
some of these telephone companies are really interested in
pursuing franchises. I think with respect to my colleague in
Anaheim, Mr. Chairman, what works in Anaheim doesn't
necessarily work in Arvada or New York or Detroit or any other
city in the country, and that is why localism is important. If
Mayor Pringle thinks that franchising is a bad thing in
Anaheim, then God bless him. Let them do it that way in
Anaheim and maybe it will work for his citizens, maybe it
won't, but he is accountable to his constituents and his city
council is accountable to his constituents by what they do in
Anaheim just as I am accountable to mine, and Congress should
not impose on local governments that accountability that we
have to stand for.
Mr. Upton. I appreciate your comments. I yield for questions
to Mr. Boucher.
Mr. Boucher. Thank you, Mr. Chairman, and I want to extend my
thanks also to the members of this panel for your participation
in our deliberations today. We appreciate your comments.
Mayor Fellman, let me pick up with you. There is a provision
of the bill which I was pleased to note that says that
municipalities may not be prohibited by the States in which
they reside from offering commercial telecommunications
services for their residents. I am sure you have examined
that provision. It is fairly succinct. Do you find it to
be sufficient?
Mr. Fellman. Yes, I do.
Mr. Boucher. And you are not recommending any changes to
that provision to this committee?
Mr. Fellman. Again, it is a short provision and we have
just seen the bill for a few days as many as you have. I
don't know if we might suggest tweaking it a little bit but
the concept of Congress saying that local government should
have the right to provide these services if they decide at
the local level that that is what their citizens--
Mr. Boucher. And the bill does carry forward that
permissible--
Mr. Fellman. I read it that way, yes.
Mr. Boucher. Good. Mr. Regan, would you like to comment
on that? I know your company strongly supports the
opportunity for local governments to be involved in these
endeavors.
Mr. Regan. Yes, sir, Mr. Boucher. The municipalities were
clearly the leaders and early adopters to our technology.
Frankly, the fact that they have been blocked by the courts
has really troubled us so our reading of that statute is,
it does correct the situation and that municipalities, if
that is enacted, will be able to enter back into the market.
Thank you.
Mr. Boucher. Thank you very much. Well, hopefully with that
ringing endorsement from two sources, we can put this issue
to bed. Mr. Misener, let me turn to you. I would welcome
your comment on something that concerns me very much, and I
made reference to this in my opening statement, and that is,
the new business plan that has been announced by some
last-mile providers that essentially would create something
new on the Internet, and that is two lanes over the last mile,
one fast, one slow. Access to the fast lane would be provided
to content originators, the Internet-based companies
operating out on the edge of the network, who could afford to
pay for that access, and then everyone else would be relegated
to the Internet slow lane. My concern is that this kind of
structure, which is dramatically different from the way the
Internet grew up, will have a significant adverse effect on
innovation because the startup company won't have the money
to pay those last-mile fast-lane fees. Is this a valid
concern?
Mr. Misener. Yes, sir, Mr. Boucher, it is. I have spoken
about this on other occasions and I have had folks from the
network operators come up and say well, it is kind of a scary
thing when a big company like yours is purporting to talk on
behalf of small innovators. Two thoughts. One is, it doesn't
change the underlying truth. The small innovators won't be
able to afford the paid police escort to get the
prioritization and, therefore, they won't be able to serve
consumers in the same way the big companies are. Second, it
wasn't long ago that we were a small company. Just a decade
ago we were a small, little innovative company, and if you
count profitability, it was even less long ago that we were
small. Lastly, our companies also operate innovative new
services. We want to be able to develop new services for
our customers and we want to be in a position to offer
those without having to get permission from the network
operators, so it really will affect innovation at the edge.
Mr. Boucher. All right. Thank you very much. What I see as a
simple solution for this is a basic provision that says that if
prioritization is necessary, if fast-lane treatment is required in
order to deliver video effectively or some other high data rate
application like gaming perhaps effectively, then that is fine.
That prioritization could take place. However, if the last-mile
provider is going to prioritize bits of any kind, it should offer
that same prioritized access for bits of a similar kind that
originate from some unaffiliated content provider. That is a
simple solution. Does that solution make sense? Would that
effectively address the problem?
Mr. Misener. Yes, it would for content as it transits the
network operator's network. In many respects, many video
kinds of services, high bandwidth services require local
injection. That is to say, instead of traversing the entire
Internet, it behooves the service providers to inject it
locally. We are not asking for that for free. To be very
clear, we are willing to pay for that, but on reasonable
and non-discriminatory terms that don't favor the network
operator's preferred to affiliated content provider.
Mr. Boucher. All right. Thank you very much. Let me
simply ask Mr. McCormick if he wants to take a moment to
respond. I know your companies have a somewhat different
view.
Mr. McCormick. Yes, thank you, Congressman. Congressman
Boucher, we have said that our companies will not block,
impair, or degrade access to the Internet. We will not
alter, modify, or change the data that consumers want. We
have a hundred-year history of delivering you where you
want to go. If you want to call Macy's, we--
Mr. Boucher. Mr. McCormick, we understand that, and that
is really not the issue. The issue is something that is
very new and different that would not involve blocking or
degrading. It would simply be creating two lanes of
access, charging for one, leaving the slow lane for everyone
who can't afford those fees, and the concern is really what
that kind of structure would do to innovation.
Mr. McCormick. Well, let me respond specifically to that
because, yes, I think the CEOs of each of our companies have
responded in a very thoughtful, candid, and forthcoming way
to those concerns. Most recently, yesterday there was an
article by Mr. Notabart in the Wall Street Journal. I think
the answer is this. Companies like Amazon, Google and
others, consumers will continue to access those Web sites
the way that they always have, but similarly, we have a
history in this country where companies, governments
municipal governments, Federal government, banks, health care
facilities come to us and they ask for us to construct for
them using Internet protocol, networks that are secure that
can maintain privacy, particularly with regard to healthcare
data and financial data. These networks ride over the same
Internet links as do the Google and the Amazon access, and
those networks are called virtual private networks. We
provide them today, we will provide them in the future, and
if a company like Netflix or Disney wants to come and say
will you construct for us a virtual private network that
will be secure, that will have certain quality assurances,
that will have privacy, just as we do that today, we should
be free to do that in the future--
Mr. Boucher. And the effect on innovation. This really is
the question. How do you respond to the concern that the
startup won't be able to afford that prioritized service and
therefore can't compete?
Mr. McCormick. Well, the answer to that question is this,
that if we are talking about the startups along the lines of
when Amazon was a startup or Google was a startup where
consumers need to have access to those sites, there will be
no blocking or impairing of that.
Mr. Boucher. Mr. Chairman, I thank the gentleman and I
yield back my time. Thank you.
Mr. Upton. Mr. Barton.
Chairman Barton. I thank you, Mr. Chairman. I thank you for
holding the hearing. I thank our witnesses for being here.
This end of the panel has kind of been left out of these
questions so far, so I am going to start with our friend from
Vonage. I want just a concise verbal definition, and then I
want you to let your lawyers work on it and send it to us in
writing. I want a definition of net neutrality from each of
you gentlemen, and I wish I could put cotton in your ears so
you couldn't hear everybody else, but let us start with you,
Mr. Citron. What is your definition of net neutrality?
Mr. Citron. I think the hallmark of net neutrality is about
consumer protection. It is the consumer's right to bring
any device they want to the network, it is the consumer's
right to get any access to any lawful content that exists on
the network, the consumer's right that should there be two
lanes and it should be consumers who choose which lane they
get to go ride in, not some other operator's right to go
ahead and decide for them. Those would be the hallmarks of
net neutrality and the final point being that not one
service, not one BIT should be treated favorably at the
penalty or expense of another one.
Chairman Barton. Mr. Fritz, I know NAB has just stayed up
nights worrying about net neutrality.
Mr. Fritz. Fortunately, we have no position and no
definition.
Chairman Barton. Okay. Mr. Keefe?
Mr. Keefe. Same for me, Congressman. We are, you know,
studying the issues and don't have a position yet. I mean,
we don't practice any blocking in our company. I can tell
you that.
Chairman Barton. No, I just want a definition. I am not
alleging wrongdoing. I just want to see if we can get a
definition. I know Mr. Misener has got a definition.
Mr. Misener. Yes, sir. I think fundamentally it is
preventing the extension of market power over the network
to market power over content. I have tried to be super
specific on the things that they are planning and how we
would get at them and legislation so we could narrowly
tailor it, but at base it is taking the market power that
they have got over the network and extending it to market
power over content, in a way that has never been possible
before, because of law, regulation and frankly because of
technology. That has changed.
Chairman Barton. All right. Mr. Regan?
Mr. Regan. You got a minute?
Chairman Barton. I got about 30 seconds.
Mr. Regan. Our points are all consumer related. Basically
bottom line is, consumers ought to be able to get access to
the bandwidth they buy. They ought to be able to run the
applications that they choose to run within the constraints
of the plan they buy. They ought to be able to attach
devices to their Internet connection that don't cause harm
to the network, and they ought to be able to go on the
Internet where they want to go within the bounds of their
service plan.
Chairman Barton. All right. Mr. McSlarrow--notice nobody
has given anywhere close to the same definition yet. Just
an editorial comment.
Mr. McSlarrow. Mr. Chairman, I guess my definition is that
it is the first time regulation of the Internet will freeze
investment and innovation.
Chairman Barton. That is your definition?
Mr. McSlarrow. That is my definition.
Chairman Barton. Okay.
Mr. McSlarrow. Otherwise I will have to turn to lawyers.
Chairman Barton. Mr. McCormick?
Mr. McCormick. Mr. Chairman, I would agree. We are dealing
with what-if questions and hypotheticals, so I don't have an
effective definition of what is meant by--
Chairman Barton. Well, that is an honest answer, and our
friend, the mayor.
Mr. Fellman. Mr. Chairman, the associations that I am
representing have not come up with their own definition and
some have not even taken a position on net neutrality, but my
personal feeling, and in an effort to allow you to say that at
least some of us are in agreement is, I tend to agree with
Mr. Citron.
Chairman Barton. All right. Now, I want the members of the
committee to notice, we got one, two, three, four, five,
six, seven, eight gentlemen that represent some of the
largest trade groups and some of the brightest minds in the
country, and not one of them really gave a--Mr. Misener
probably came closer than anybody. I would have to give
him the best grade. Mr. McSlarrow gave a very negative
kind of anti-definition, and we are tried up in knots in
this bill potentially over something that we don't even
yet have a universally recognized definition of what it is.
Now, the bill before us definitely gives the FCC the authority to
enforce net neutrality, whatever it is. If anybody violates the
principles that the FCC has put out on net neutrality, whoever
that villain is, the bill explicitly gives the FCC the authority,
on a case-by-case basis, to punish the villain. Now, since we
don't even know what it is, I think that is a pretty good start.
Now, I understand the concerns and all that, but I think the
committee print is headed in the right direction on net neutrality.
I next want to ask Mr. McSlarrow under current law, are cable
operators subject to price regulation in any locality that they
serve?
Mr. McSlarrow. Yes, under current law, what is called a
uniform price requirement throughout an entire franchise
area for the basic package, so the 10 or 12 channels, not
the full-blown expanded basic but for the basic package
is in place until that market is deemed subject to, quote,
unquote, -effective competition.- That happens in two
instances under current law, satellite companies reach
30 percent market penetration or upon entry of a telephone
company.
Chairman Barton. But you get to set your price. You can
set it. It has to be the same for everybody in the
territory that you are serving. Is that correct?
Mr. McSlarrow. For the basic package, it is still a
regulated rate.
Chairman Barton. And who--
Mr. McSlarrow. Congress deregulated the--
Chairman Barton. Who regulates that rate?
Mr. McSlarrow. The localities under a formula I think
derived from the FCC, but it is delegated to them.
Chairman Barton. Okay. Well, my time is expired,
Mr. Chairman. I have about five other questions. I do
want a written definition from each of you on net
neutrality, if your trade group doesn't have a dog in the
hunt, just send us a letter that says we don't have a dog
in the hunt and we won't worry with you.
Mr. Upton. Mr. Stupak.
Mr. Stupak. Thank you, Mr. Chairman. Before I start my
questions, I would like to thank Chairman Barton and
Chairman Upton for respecting the process and holding a
hearing on this proposed legislation. Earlier this
month, I and other members of the subcommittee had urged
the committee to hold a hearing on the bill which if
enacted would fundamentally alter our cable laws. I
would also like to commend the authors for including
sections on interconnection, municipal broadband, and
ensuring that VOIP customers have access to 911. Earlier
this year the Congressional Rural Caucus Telecommunications
Task Force, which I co-chair, re-released our
telecommunications rewrite principles. These principles
included USF reform, intercarrier compensation,
interconnection, and advanced access to broadband in rural
areas to preserve strong phone service and promote strong
broadband service. Mr. McCormick, I am pleased that you
included USF and intercarrier compensation in your testimony.
How important is it that Congress act on these issues this
year?
Mr. McCormick. It is very important, Mr. Stupak, and we are
hopeful that the committee will turn to those issues once it
moves forward on the video choice legislation, as the
Chairman has assured us that the committee will
Mr. Stupak. Thanks. On interconnection, it is crucial to
preserving both competition in the voice market and
affordable phone service in rural areas. That is why the
rural caucus included in our principles for
telecommunications reform the requirement for strong
interconnection language. I am pleased that the draft of
the legislation includes language. However, I see some
room for ambiguity. Mr. McSlarrow, if you will, do you
think the committee print should be clarified or do you
think this section will be subject to litigation for years
on what is or considered, quote, necessary, end quote and
effectuate interconnection? Could you comment on that for
me?
Mr. McSlarrow. I think as currently drafted, it would risk
litigation. I think we can clarify it by making clear that
just as the competitive local exchange carriers have access
under Sections 251 and 252 to all the necessary requirements
and rights for interconnection that regardless of the
technology, and if you are a VOIP provider that you can get
all the same rights under those same two sections.
Mr. Stupak. Does anyone else care to comment on that?
Mr. McCormick. Yes. I think part of that you may want to
include, regardless of regulatory statutory classification,
since there is a definitional differential between certain
types of providers.
Mr. Stupak. Anyone else? Okay. Let me ask about national
franchise, and it is another issue that I have spoken about
often in this committee, about my concern that we close the
digital divide that the haves and the have-nots are not
determined by region or city. I am concerned that this bill
will actually turn the digital divide into a micro problem,
as well where the haves and have-nots are determined by the
neighborhood. While the bill does include an
anti-discrimination provision, there is no enforcement
language to enforce the provision and the bill includes no
build-out obligations. The Telecommunications Act currently
says that cable providers must build-out to all households
in a franchise area, so Mr. Mayor, if I may ask Mayor Fellman
to speak to my concerns, what specific enforcement tools and
obligations do you need that are not in the bill right now,
and also can you address my concern that it is unclear on how
the rights-of-way disputes will be resolved?
Mr. Fellman. Thank you, Congressman Stupak. I am glad you
raised that issue. I was hoping that Chairman Barton would
also ask us for our definitions of competitive cable services
because I think you would get different definitions there,
and your point about build-out goes to that point. Well,
under existing cable franchises today there is a variety of
mechanisms that local governments use to enforce build-out.
It is not uncommon to see build-out or upgrade requirements
phased in over a period of years with a provision that fines
or penalties are paid by the operator if they do not meet
those deadlines. Another option would be a court order
mandating compliance within a certain period of time.
Companies are usually required to post security in the form
of bonds or letters of credit which have the potential to be
forfeited if those requirements are not met. So having first
the requirements to allow a reasonable deployment over a
period of time to serve all citizens and the mechanism to
enforce that through these variety of financial means is
absolutely essential in our opinion going forward.
To your question about rights-of-way, again, similarly, we
have bonds and letters of credit posted. If rights-of-way
ordinances or regulations are violated, there is potential
for financial penalties. Some of these violations could be
violations not of franchises but of local police power
ordinances where the remedy might be a citation to appear in
municipal court and pay the fine that the court would impose
for that. Our biggest concern, as I mentioned earlier, is
that under the draft bill it appears that the only remedy for
someone--for a company challenging local enforcement of
rights-of-way provisions--is to take that to the FCC. Number
one, we are not comfortable with the FCC being the national
right-of-way judge, but number two, I think it would be
cost-prohibitive for many communities to come to Washington
to defend their rights-of-way regulations.
Mr. Stupak. Does anyone else care to comment? Mr. Keefe?
Mr. Keefe. I have two quick points. Two quick points, and
it gets back to the issue of, you know, how effective the
telephone companies are being in the licensing process. In
our experience at Atlantic, we haven't seen telephone
companies come in and say oh, we will take what the local
franchise--just, you know, take that license, cross out their
name, put in ours and we will move forward. They are always
looking for a difference, and the two differences we have
seen are, there is no specific deployment of network so you
get a license and you turn it on whenever you want and not in
our areas but wherever you want in some areas, and they have
a right to withdraw without penalty, so if things don't go
well, presumably they close up shop and move away. None of my
licenses have that right.
Mr. Stupak. Mr. McSlarrow?
Mr. McSlarrow. I think on the issue of non-discrimination,
the problem we have is that with self-selection and the ability
to cherry pick community by community and neighborhood by
neighborhood is, you can have the language and it sounds good,
but it is just an illusion. The issues about build-out, I mean,
I represent the competitor. It would be an odd thing for me to
urge you to tell the competitor to compete with us every place,
but as a public policy matter, currently under law, that
negotiation is placed with the localities to negotiate with
providers. That makes sense to us.
Mr. Stupak. Mr. McCormick?
Mr. McCormick. Mr. Stupak, thank you. The cable industry
deployed voice services over its network without any build-out
requirement. They deployed Internet access services without
any build-out requirement. There is a redlining prohibition
in the bill. The redlining provision is enforceable in two
ways. First, the FCC is given authority to require a
build-out to specific communities or parts of the communities
upon application. Secondly, there is a death penalty
provision. If you redline and you are found guilty of a
willful or repeated violation, the FCC can revoke your
franchise. Those are pretty powerful enforcement provisions
for redlining and they are provisions that do not in any way
apply to the cable industry's entrance into the voice market or
any other competitor's entry into the voice market.
Mr. Stupak. Going back to what Mr. Keefe said that, you know,
there are two problems he has with it. There is no specific
deployment requirement and there is a right to withdraw. I
mean, by the time you get the FCC, you will never get there.
You withdraw, then you assess a penalty to something that
doesn't exist?
Mr. McCormick. Well, if you withdraw, you lose your
investment. This is an area where this committee has had
wonderful success in bringing competition in telecommunications
and in every area, whether it was CLEC entry into voice,
whether it was the wireless industry, you have always allowed
companies to enter the market and begin to design and build-out
a business--
Mr. Stupak. Well, we have greater reporting requirements, and
this legislation for franchise, if you want to go for a
national franchise, all I see you have to put down there is
your name, who you are, your address. There is nothing in
there who, when, or where are you going to deploy and what
timeframe or anything. I think the reporting requirements
would certainly have to be increased in this legislation, a
national franchise at least. I thank you, Mr. Chairman. Thank
you, gentlemen.
Mr. Upton. Mr. Ferguson.
Mr. Ferguson. Thank you, Mr. Chairman. I want to begin with a
question for Mr. Citron from New Jersey. Welcome, glad to have
you here. In your testimony you had emphasized how access to
E-911 infrastructure by VOIP providers is essential to provide
consumers with the protections of E-911. You mentioned in your
testimony that in Verizon service areas, particularly in our
home state of New Jersey--it seems that Vonage is totally
compliant--it provides consumers with fully enhanced 911 service.
First, thanks for this cooperation. Your work with Verizon is
really a model for how this sort of partnership can work and
should work nationwide. In your opinion, why are other parts of
the country taking longer to roll out E-911 service by VOIP
providers? Are there technological hurdles, and if so, whatever
the hurdles are, how have you and Verizon in working together,
how have you overcome some of those hurdles?
Mr. Citron. Thank you. It is a great question. Verizon has
been an excellent partner to voice over IP industry. When we
got together with Verizon at the enactment of the FCC order,
Verizon came up with a plan with Vonage to create one set of
standards for interconnection to the entire Verizon E-911
network in every single local jurisdiction that they served.
That has allowed us to nearly complete our entire build-out in
this company with Verizon.
By the same token, many of the other operators that are both RBOCs and
more local exchange carriers do not have such capability or have not
instituted one. So in those cases, we actually have to negotiate
interconnection capabilities and the technical standards in each and
every local market. As a matter of fact, in some markets like Illinois,
the one where we are finally making good progress but have had a lot of
frustration, the incumbent operators and even the State operators have
had difficulty in deciding how it is we would actually transmit those
calls and under which standards we would use even though a number of
national standards have already been published. By granting access
rights to the underlying infrastructure, these operators will be forced
to come to the conclusion in a reasonable period of time and grant
access.
Mr. Ferguson. Thank you. Again, it is an example of something
that had gone right and it is an example of a market and the
private sector working cooperatively in a way that is really
benefiting consumers and certainly from a public safety
standpoint. Mr. Misener, I have a question. Here are some
quotations I want to share. Bill Gates in June of 2003: "I am
really pleased with how the cable industry has been providing
openness on the cable model platform. There is a lot of
openness being provided by that platform so I think the cable
industry is to be congratulated for that." Chairman Powell
said in 2003 also: "I don't know that I have yet seen sort of
a compelling record that we have a clear and demonstrable
problem on this issue," when he is talking about whether the
FCC should regulate broadband providers in terms of content.
Commissioner Adelstein said also in 2003 on this issue: "We
don't have overwhelming evidence of a problem right now and
there would have to be substantial evidence that such mandates
are now a solution," she said a solution awaiting a problem.
We have a Republican, we have a Democrat, we have a billionaire
innovator. All seem to be describing the same thing. They are
saying that net neutrality regulation, it seems to be a solution
in search of a problem, and until we have evidence, suggesting
caution. What evidence do we have, or what evidence are you
aware of that there is blocking or a problem in terms of
access? What evidence do we have?
Mr. Misener. Thank you, Mr. Ferguson, very much. Currently,
very little, but that doesn't mean it is not going to happen.
They have the power to do it. They have announced their
intentions to do it and the regulations that prevented them from
doing it just were released last year.
So they couldn't do it earlier. They were waiting for both FCC
action and court decision. They have been on their very best
behavior, and noticeably, some of the CEO statements coming out
of the telcos were issued after the FCC's final decisions. So
they have announced their intentions to engage in this kind of
discrimination that I have described.
Moreover Microsoft is part of a coalition that I am involved
with, so they're very concerned about this as well as Amazon,
and other players here. Just because it hasn't happened, it
doesn't mean that we have to turn a blind eye to the reality of
them planning to make it happen. And they have, you know, been
refreshingly honest I have to say about their intentions. And
so, it is nice to know that that is what they want to do, a nice
try. But they ought not to be allowed as a matter of public
policy to take their market power over the network and extend
it to market power over content, in a way that has never been
allowed before.
Mr. Ferguson. I would just echo, and my time is about up, what
Chairman Barton was talking about before in terms of it is very
difficult to address a problem unless we can really get our
arms around it. And unless we can turn to the experts to help
us get our arms around it, it doesn't seem like there is any
chance whatsoever, in the near future at least, that there will
be any kind of consensus in terms of the experts, you all who
we turn to get our arms around this problem. And it seems to
me that the language that is included in this draft, in a very
reasonable way in the short-term addresses this problem in an
appropriate way. It leaves open the possibility obviously, of
looking at this as we gather evidence. But I would, I don't
have any time left, but I appreciate your comments. I thank
all of you for being here today.
Mr. Upton. Mr. Pallone?
Mr. Pallone. Thank you, Mr. Chairman. I wanted to ask about
the emergency services also. And I know that Mr. Citron talked
about his success in basically rolling out E-911 to 70 percent
of the subscribers. So maybe I will ask Mr. McSlarrow, what is
happening in terms of your voice over IP services in addressing
E-911 in that issue?
Mr. McSlarrow. We are a facilities-based provider industry.
And as such, we are fully compliant with E-911 today, and we
think that what is in the bill today is a great step forward.
Mr. Pallone. Okay. And then in terms of--going back to
Mr. Citron again, you said that you are at 70 percent. What
would it take to build up the other 30 percent? I know you
addressed that a little bit to Mr. Ferguson's question.
Mr. Citron. Sure. We have plans in place currently to
build-out to everyone of our customers E-911 capability. I
think there are two points here that we should recognize.
First, today, the requirements for E-911 should be really
extended to all Americans, not just those who use voice over
IP. Secondarily, in order to continue to build that we
absolutely need liability parity. There are emergency
operation centers in this country who refuse to answer a
Vonage voice or IP 911 call, because they are afraid of
liability. Nina has actually written on this topic to this
committee, and we would urge the committees to move forward
to ensure that liability parity is provided. Then following
access to underlying elements, one of the differences between
us and the cable operators, we are not facilities based. So
our consumers move around a lot. And therefore we need to
build that now, not just where we physically have
infrastructure, but the places where we don't. And therefore
we will need access to those underlying elements.
Mr. Pallone. I wasn't going to ask about the liability issue,
only because it is really not within this committee's
jurisdiction. I guess it is more with Judiciary. But I, you
know, I understand the concern over that regard, but we just
don't normally deal with it in this committee. Let me ask the
Mayor, in terms of these E-911 issues, in terms of, you know,
local access or whatever. Would you want to comment on any
of this in terms of, you know, the significance of it?
Mr. Fellman. Well thank you, Congressman. I think anything
that improves public safety we support. And we have in other
proceedings at the FCC, the national associations have been
pushing for, ever since VoIP was on the screen of requiring
911 services to be available on that kind of a service. So
we appreciate the fact that it is in this bill. Personally,
I am a little concerned that the FCC is going to have the
authority to determine or to require it unless it is not
technically or economically feasible. And I think if we are
going to deploy this technology to all Americans, then all
Americans ought to have access and to be able to call 911 if
they have an emergency. And in just the concept that the
Commission might say, well it might cost too much to do it
with the kind of technology you are doing, so we won't require
it in that circumstance, gives me cause for concern.
Mr. Pallone. Okay. I have about a minute-and-a-half left,
so if you want to talk about the liability a little more. I
mean I know again, it is not within this committee, but if
you want to talk about how that impacts you, you know, I
would appreciate your comments.
Mr. Citron. Well absolutely. Well as recognized in my
testimony, we do agree and share and worked with mayors in
many towns about doing whatever is capable for making E-911
available to everyone. And the biggest problem we have is we
have literally jurisdictions who will not take that call.
And if mayors are empowered or other legislators, or let us
say the bodies to afford the liability protection to mandate
the ability to take those calls, of course that would be very
helpful. The thing, and another note that has been raised as
well and in reference to my testimony, is that we also do
collect 911 fees and remit it back to States. And one of the
things that we would ask for as well, is to make sure that
these States use these fees to continue to upgrade the
build-out of the 911 centers. So that they can have the most
advanced technology in order to rapidly respond to a
customer's call.
Mr. Pallone. Okay, thank you. Thank you, Mr. Chairman.
Mr. Upton. Mr. Bass?
Mr. Bass. Thank you very much, Mr. Chairman. I have to
preside in exactly seven minutes. So I am only going to ask
one question. I was wondering if those of you who have not
made any comment yet, could you comment on the issue of a
single Federal franchise, all local franchises, or the hybrid
idea that I am pushing for which is to have a Federal
franchise as a backstop, but enable the States to have a
franchising option which they could adopt and implement in
their own territories. Anybody want to comment? Yes, sir?
Mr. Fellman. Congressman, thank you. I have listened with
interest in your opening comments about the need for, in your
opinion, States to have the flexibility to deal with their
localities because of the unique nature. And I would just
take that one step further and say we currently have in
Title VI of the Communications Act a Federal franchise
framework that allows for a local role in that process. So
I guess where I would disagree with you, sir, is to continue
to reform the Federal framework for franchising, but to allow
the local decisions to be made locally, and not at the 50
State capitals.
Mr. McCormick. Thank you, Congressman, for our national
scheme. And just get onto it. Allow consumers to have the
benefits of choice.
Mr. McSlarrow. And like Mayor Fellman, I think our preference
is to take the existent system and streamline it, and reform
that. I think probably the least preferable would be one
where we remove the local accountability. We don't have
national uniformity and we end up going to State PUCs.
Mr. Bass. Anybody else want to comment? If you don't, I
will yield back, Mr. Chairman.
Mr. Upton. Mr. Inslee?
Mr. Inslee. Thank you. Mr. Misener, you talked about taking
issue with the statement that we have had no protection or
regulation of the Internet before. You asserted that we had
an environment in that regard, and that has been successful
until fairly recently in preventing discrimination and
preventing the violation, sort of a neutrality principle.
Could you elaborate on that and tell us from a historical
standpoint, what you mean has occurred in that regard?
Mr. Misener. Certainly, Mr. Inslee. We had a circumstance
where over the past three or four years, the FCC aggressively
deregulated the broadband infrastructure, the broadband
networks. In many of the rules that had heretofore applied
to broadband networks provided by the telecos, primarily the
wireline providers, truly were outdated and needed to be
dispensed with. And it made a lot of sense to get rid of
them. But unfortunately, we believe the Commission went too
far and got rid of all the rules. And, in particular, it
would make sense to us to remove a non-discrimination
requirement only after it was shown that the market were
truly competitive. That is to say that a consumer had access
to more than just true broadband service providers. And that
simply isn't the case now, as much as we would like it to be,
and it won't be the case anytime soon. And so we are asking
essentially for a reinstatement of just the non-discrimination
provisions. Not all the other things, tariff for filing
requirements, entry/exit rules, those sorts of burdensome
rules. And so it is just trying to preserve the longstanding
environment in which the Internet in this country grew up and
has been so successful.
Mr. Inslee. Now folk who have sort of suggested we don't need
a net neutrality provision have argued that they do not intend
on degrading transmissions, like putting those annoying bells
on your transmission. But you have made the argument they are
essentially charging for additional services, that in a sense
is degradation or an equivalent of that. Could you tell us
what you mean by that?
Mr. Misener. It is a great point. And I think this is one
that is missed frequently. That somehow you can prioritize
some content without degrading other content. The way the
Internet works is there are lots of very high capacity
computers spread all around it, they are called routers. And
these routers take information in, and they pump it out. And
the way a router typically works, is the first bit of
information that comes in, is the first one that goes out.
But if you are in a circumstance where someone has been able
to pay to have priority, that means that their bits could
arrive later, at a later moment and actually is leapfrog over
the prior arrived bits and be sent out first. Well that
means that the other guys bits are degraded. It is not
possible to offer paid quality of service, or prioritization
in this way, without degrading other traffic. What we said
is it is fine to prioritize some kinds of traffic, be it
emergency services, be it live video over say data files
which can be delayed a couple of seconds, and no one will
care. But when you start getting payment for it, that means
that some other people who can't or don't pay will
necessarily have their service degraded.
Mr. Inslee. Thanks. Mr. McCormick, I wanted, one of the
things that is troublesome to me in this draft is that I
think for the first time that I am aware of would especially
prohibit this agency from moving forward in what I consider a
positive direction in net neutrality, and would sort of neuter
this agency to be able to deal with that issue. And that
causes concern to me. That in combination with this bill that
simply talks about principles, you know, the good book has the
Ten Commandments, it doesn't have the ten suggestions, or the
ten principles. And even the Ten Commandments aren't always
honored I am told. If we really want to have this principle
to be followed, to be respected, if you bought these concepts
that we would need to have a non-discrimination between bits
on the Internet, shouldn't we have a stronger regulation?
And shouldn't we stop removing the tools that are available
for the FCC and move forward?
Mr. McCormick. Congressman, let me see if I can respond to
that in a thoughtful word. The principles say here that
consumers are entitled to competition among application
service providers and content providers. And the bill says
you shall not do rulemaking on that. So if the FCC were to
have rulemaking authority, and if the concern was not about
Amazon, but about the next Amazon. And the issue is how does
the little garage store guy even get noticed on the search
engine that categorizes searches by the most frequent
searches? So if Amazon is already number one, then Amazon is
always going to be number one on a Google search engine. So
should the FCC prescribe that, because that is really not net
neutrality, but if the FCC were able to write rules under
these principles it could do so? Or similarly, if somebody
were to say, we are really concerned that Google, what if
Google begins to sensor political speech as it has done in
China? It has done that. We are concerned it may do that
here. So maybe we should apply to the FCC to write
regulations to make sure that content and service providers
don't do that.
Congressman, this is a very dangerous thing. We would be the first
country in the world to be regulating the Internet. And other
countries may then say, well if the United States is going to regulate
the Internet pursuant to its culture and its values, then we should be
regulating the Internet pursuant to our culture and our values as
well. In the absence of a real problem, we should not give regulatory
authorities this kind of jurisdiction.
Mr. Inslee. Just a quick follow-up. Our time is concluded,
we have more to deal with tomorrow. Thank you.
Mr. Upton. Let me just say that we have a series of votes on
the floor. I want to go to Mr. Terry, and after Mr. Terry is
done, we will adjourn for about 20 minutes and come back. We
are trying to get your hearing in the Senate delayed a little
bit as we talk. So, Mr. Terry?
Mr. Terry. Thank you, Mr. Chairman. And I do appreciate the
level of work that you and Chairman Barton and Jeff had put
into this bill. And my focus is going to be on the franchise
aspect of this. And Mayor Fellman, I am going to put this
question to you. I spent eight years on the Omaha, Nebraska
City Council before I came here. So when the issue of a
national franchising plan was brought to this committee and
myself, the first thing I thought of was the cities and their
roles in here, considering I was Chairman of our Cable
Subcommittee, and helped negotiate the city's latest agreement
with Cox Cable. So to make a long story short, I went through
and I came up with a list of principles that I thought were
appropriate in the sense that competition with video is
appropriate. It is good. I have seen that in Omaha. It
gives consumers or my constituents choices. I also thought
that a streamlined approach would help the rule out of this
competition. But I wanted to preserve some involvement by
the cities. And so I developed a draft discussion that
preserved the city's role by what I call most favored
nation. That a new entrant could automatically, it could do
one of two things. If they wanted to streamline it and not
have to sit down and negotiate with Omaha or Denver, they
could just accept what the city had already adopted on the
major contract elements. Or they can opt for negotiations.
That was, I thought, the best deal for the cities, but the
League of Cities disagreed with me and said, it didn't go far
enough for them. And that left me with the impression that
they wanted an all or nothing approach, which really
frustrated me in this process, and left me without any, my
whole point was to protect the cities' roles in this. I just
wanted to ask you in your discussions, you are the
representative from the League of Cities here today. What
did they tell you has been their involvement and the League
of Cities true desire if they were to write this bill, just
status quo?
Mr. Fellman. Congressman, thank you for that question,
because I think there is a disconnect here. I serve on the
National League of Cities Information Technology and
Communications Committee, I am the past chair of that
committee, and I have been one of the elected officials from
the League that has been involved in some of these discussions.
I don't recall ever being told about your proposal, so I
apologize if there has been a disconnect. What you described
is actually very similar, not exactly the same but similar, to
the principles that Senator Burns and Senator Inoue have come
out on the Senate's part.
Mr. Terry. Yes, although I came out with it first.
Mr. Fellman. Well then I am here to give you credit for that.
We support the principles and while I would tweak, and of
course the devil's always in the details, I would love to work
with you and your staff on the framework that you just
described. I am surprised to hear you say that the League
said it was a non-starter or something like that. So I would--
Mr. Terry. I will verify who told us that, because when even
the League of Cities wouldn't support it, it went on a shelf.
And I told our Chairman that I had no amendment to that, even
though I had drafted one, because I wasn't going to introduce
something that wasn't going to be supported by you all.
Mr. Fellman. I will commit to you on behalf of the League
that we will sit down with you and your staff between now and
the time of markup. And if what you are describing is
consistent with our position, and I think we can reach some
agreement to allow you to offer an amendment concerning your--
Mr. Terry. Well I appreciate that support, but I am not sure
it is going to be welcomed above, the--at this level in the
discussions. But I wanted to get that out. I appreciate that
that is something that you felt was important. I am going to
go back and track down where the disconnect was from the people
we talked to and you.
Mr. Fellman. And I will do the same.
Mr. Terry. But then I also want to talk to Mr. McSlarrow from
NCTA. I am sorry I missed your discussion. It is one of those
days where you have a bazillion meetings, and you try and get
here for the important parts. Now where do you stand on this
committee's draft, on the franchising language?
Mr. McSlarrow. Our preference is still along the lines, very
much of actually what you described, which is reform and
streamline the local franchising process. But as I have told
the Chairman, I think this draft represents a significant
process. If you are going to go down a national franchising
route, I think there are fixes that I would recommend to this
committee. But fundamentally, we think that you don't have
to throw everything over board. You can actually fix this
system and ensure a speedy entry by new competitors.
Mr. Terry. Very good. That is all the questions. I think
I will yield back.
Mr. Upton. Yeah, we have got four minutes to go. So we
will come back in 25 minutes.
[Recess.]
Mr. Upton. I know that the members of the first panel are
anxious to move along to various things, airplanes, and
Senator Stevens. And we are going to continue--ou can shut
those doors--with Mr. Gonzalez. Mr. Gonzalez?
Mr. Gonzalez. Thank you very much, Mr. Chairman. And I
will try to hurry along. Mr. McSlarrow, let me ask you. The
cable industry as we know it today, historically speaking,
did it ever engage in any of the practices that you fear some
of the new entrants may be engaging in, such as cherry
picking, the selectivity that you were talking about?
Mr. McSlarrow. No, because in each case the rollout of the
network itself, which initially was essentially just to
deliver video service, was something that was negotiated with
the community. And so there was recognition that you would
provide service as broadly as possible within the community,
there might be some places where that was uneconomic, but
that was subject to negotiation with the cities. And then
later, when we rolled out voice services and high speed
data, we rolled those out to the entire network that was
already in place.
Mr. Gonzalez. But when you were a first entrant, because
you were the first of course in the video, the truth is you
were incredibly selective, at least if I remember the
experience in my city. And the reason for that is because
economic models dictate that you have to basically survive
the rollout and the build-out in order to continue to
service all areas, as many areas as possible. And I think
the mayor was talking about how you can do that, phasing it
in and such. And you don't think any of that is going to
be applicable to let us say the phone companies, or Verizon,
and Colorado, Texas or whatever, or in bigger areas? That
there is not going to be any kind of negotiation at any
level if we had a Federal franchise that will obligate them
working within a reasonable economic model to provide their
service?
Mr. McSlarrow. I don't know is the short answer. I think
you put your finger on it. Economic actors are going to do
what is in their best interest. I am not pretending to have
a white hat, no industry does. They will pursue their
opportunities as they think makes sense economically. What
is different historically in terms of how cable service has
been delivered is that it wasn't just up to us. We had to
negotiate with someone. And that someone, the city
municipality, whoever, may or may not have gotten it right.
But they were an objective third party that was part of that
equation.
Mr. Gonzalez. And you don't think any other type of formal
process, or economic factors, the realities of the
marketplace will be in play that will basically result in
these same companies, the new entrants taking into
consideration the same factors that the initial cable
providers did when they first rolled out and built out?
Mr. McSlarrow. It is quite possible. The only point I
would make is that if you look at what SBC told Wall Street
just months ago, they basically said that is not our plan.
Our plan is we are going to go to particular neighborhoods,
so-called high value neighborhoods. And we are not going to
go to low value neighborhoods. So it may or may not turn
out to be the case, but that is the plan.
Mr. Gonzalez. I am not real sure if that is the statement
that was made in the complete form and such, because I don't
think that is what is going to happen. Nevertheless, I
think we do have that responsibility, and that we are very
mindful of it. But I think you ought to advance an argument,
and I know some of my colleagues are, and we need to be
careful about it, that the new entrant is going to come and
cherry pick. And so if they are coming into Los Angeles,
they are only going to go ahead and go into Brentwood, or
whatever it is. Do you truly believe that is going to be
the case?
Mr. McSlarrow. If you just look at it where they have
announced that they are going to serve, I think it is plainly
the case. I mean you can--
Mr. Gonzalez. No, that is your honest opinion, that is fine.
I understand where you guys are already out there. Your
build-out is built out. Now let me ask you, some of the new
services that you have, a voice over Internet protocol, your
broadband, Roadrunner in San Antonio and such, do you
selectively, and do you pick and choose certain market
areas within your service area, to more aggressively promote
those particular services?
Mr. McSlarrow. I am sure we do and--
Mr. Gonzalez. Now why would you do that?
Mr. McSlarrow. In part, because it is subject to whatever
competitive pressures you are under. I mean in other words,
what is happening right now is with two satellite providers,
you have got promotions and discounts happening all over the
place, you know.
Mr. Gonzalez. Well, but you are ruling out a new service,
this is new territory for you. It makes sense that if you
want to be successful and be able to continue it, and to
expand your market share, is to promote it in those areas
where you probably have a more likely customer, doesn't it?
Mr. McSlarrow. It could.
Mr. Gonzalez. Well I, you know, I never had a small business.
I was a sole practitioner in law. But it seems to me that a
lot of these things that you always talk about market forces,
you do have some objection to it, and you would like to see
the Government come in and maybe have a more direct approach
to things. And we will explore all of that. My time is up,
and I will submit some written questions to you and to other
members of the first panel. Thank you very much for your time.
Mr. Upton. Mr. Pickering?
Mr. Pickering. Thank you, Mr. Chairman. Mr. McCormick, how
are you today?
Mr. McCormick. I thank you, Congressman.
Mr. Pickering. Are you in support of a number portability
dialing parity for competitors?
Mr. McCormick. Pardon?
Mr. Pickering. Do you support number portability dialing
parity for competitors?
Mr. McCormick. Yes, we do.
Mr. Pickering. So you wouldn't have any problem if the
language is unclear on the interconnection, or the rights
and obligations for VOIP, making sure that as cable enters
that they would have the rights to numbers and dialing
parity? So that wouldn't be a problem to just clarify, in
the underlying text?
Mr. McCormick. Well we think that if the VOIP providers
wanted to be treated as telecommunications carriers, they
should come in subject to the full societal responsibilities
that obtain, including universal service, access for people
with disabilities, and protections of customer privacy.
Mr. Pickering. So you would say, you know, CLECs today
have interconnection rights to numbers and portability, and
a limited access to network elements. And that is the
current access and cable today goes through CLECs to get
access to provide VOIP services. In the underlying bill we
want to give cable that direct, same rights and obligations.
You wouldn't have a problem with that would you?
Mr. McCormick. Well, I guess I am not completely following
your question, Congressman. If what you are saying is that
IP voice providers want to be treated not as information
services, but instead as telecommunications services, and
you want to afford them the rights that are inherent with
being telecommunication service providers, we have no
objection to that, so long as they also undertake the
obligations that obtain to telecommunications service
providers. And those obligations are sort of fundamental,
the societal fabric of our Nation. Access for persons with
disabilities, customer proprietary network information,
issues like those. So I think we are quite open to the
competition in this area.
Mr. Pickering. So if we included those obligations, you
would have no trouble giving cable the same rights and
obligations as CLECs have?
Mr. McCormick. Well I think, yeah, I think the way the
language is that in effect says that the VOIP providers will
be considered, and elect to be considered providers of
telecommunication services when it comes to voice services.
Mr. Pickering. So you have no problem with that provision?
Mr. McCormick. I already clarified that they have rights to
numbers--
Mr. Pickering. Obligations the same, right?
Mr. McCormick. Yeah, parity and obligations should go with
parity to rights. So just to clarify, the intent of the
interconnection, or VOIP rights and obligations, is to have
competitive symmetry. So that as cable enters into voice
services that they have the same rights, and importantly, the
same obligations as CLECs currently have. And no more, no
less, so that there is regulatory and competitive parity as we
facilitate, just as we are removing barriers as you enter into
the video market. There have been cases, for example, in
South Carolina, where CLECs who are VOIP providers have been
denied certificates as a telecommunications provider or
service provider.
Mr. Pickering. And so we just want to remove any barrier on
both sides of the fence, and I think that we are in agreement,
is that correct?
Mr. McCormick. Well, I am aware of those cases, and what I am
suggesting to you is that language in this legislation goes
halfway. It confers rights, without conferring the
corresponding obligations. Those obligations--
Mr. Pickering. But at the same time you don't owe the same
obligations that--as you are a new entrant into video. Should
you have the same obligations as cable companies have in
providing video service?
Mr. McCormick. We believe, I am saying that with regard to
VOIP operators, those telecommunications services with regard
to interconnections should be subject to the same societal
obligations with regard to any other services.
Mr. Pickering. I understand what you are saying as far as
their entry into your market. If you entered into their
market--
Mr. McCormick. We have never suggested that CLECs or VOIP
providers be subject to the full panoply of common carrier
regulation that applies to voice. So there are at least nine
specific requirements that apply to incumbent voice operators
that don't apply to either CLECs or to VOIP operators. And
this committee has historically said that with regard to new
entrants, we shouldn't apply the legacy monopoly regulation.
So in connection with video entry, we are willing to undertake
those obligations of a competitive nature such as paying
franchise fees, and having PEG channels. But with regard to
requirements to build-out to a footprint that doesn't match
our footprint, those requirements were imposed in an era
where there was in many cases a single provider who was
receiving the franchise.
Mr. Pickering. Mr. McCormick, I understand what you are
saying.
Mr. McCormick. Okay.
Mr. Pickering. But just again to clarify here.
Mr. McSlarrow, how important is this provision for you, just
as we want to accelerate video entry and maximize video
competition? How important is this provision for cable and
VOIP providers to provide voice competition and bundle
services--voice, video, data and wireless--so that you can
compete? And let me say this, for those who want build-out,
the best way to get built out is to make sure that both Bells
and cables completely compete in their full footprints.
Interconnection policy is critical to having full competition
in all services in both markets. And if you want build-out,
getting this provision right is critical from a market
perspective and having capital incentives, so that you don't
lose market share, instead of some government mandate driving
market interaction and investment. So Mr. McSlarrow, how
critical is that to cable that we get this right? And do we
have it right in the current form?
Mr. McSlarrow. It is critical. You said it better than I
could. I mean the reality is that in the video marketplace,
we have satellite competition that already has 30 percent
market share and cable 65. When you look at voice, ILECs
have 85 percent plus market share. Fundamentally encouraging
voice competition is important. With VOIP we have an
opportunity for the first time, both with facilities-based and
non-facilities based, to bring that kind of voice competition
to America. Two things I would say--and you kind of hit on
one of them already, or both of them, probably--that I would
recommend we change is adding to the language on
interconnection that is in the draft today, to make clearer
that the other rights that CLECs have to number portability
and things like that are also being referenced. And number
two, to make sure that a VOIP provider really has two paths.
They can either have direct interconnection rights, or they
can go through a CLEC if they choose. And either way works.
Mr. Pickering. Thank you, Mr. Chairman.
Mr. Upton. Mr. Dingell?
Mr. Dingell. Thank you. First question to Mr. McCormick and
to Mr. Fellman. Gentlemen, yes or no, would you characterize
the wireless industry as competitive? Mr. McCormick and
Mr. Fellman, what is your answer to that?
Mr. McCormick. Yes.
Mr. Dingell. Yes. Mr. Fellman?
Mr. Fellman. Yes.
Mr. Dingell. Okay. Now to you, Mr. Fellman, does existing
law allow localities to grant exclusive cable franchises?
Mr. Fellman. No.
Mr. Dingell. It does not. Would you agree--oh, I am sorry.
So when the localities impose franchise requirements on cable
operators, the basis for doing so is not that the provider is
a monopoly provider, but rather the basis for the franchise
requirements is because the provider seeks to use public
rights-of-way to offer service for profit. Is that right?
Mr. Fellman. Absolutely correct, Congressman.
Mr. Dingell. So then again, Mr. Fellman, so it is the use
of the public's property interest, not the monopoly or
exclusive rights that underlies the redlining provision in
existing laws, and the requirements to build-out service to
all residential households? Is that right?
Mr. Fellman. That's right.
Mr. Dingell. And then when residents of the town through
their elected officials turn over valuable public property
rights for commercial use by the private company, it is
reasonable to ask in return that the public participate in
the benefits of that use, is it not?
Mr. Fellman. Yes.
Mr. Dingell. Do you differ with that, Mr. McCormick?
Mr. McCormick. No.
Mr. Dingell. And in fact that the Federal government when
it turns over its property rights, it imposes similar
requirements on private entities who they gave the right to
use such valuable public property for their own commercial
interest? Is that right, Mr. Fellman?
Mr. Fellman. That is my understanding, yes.
Mr. Dingell. Now for example, the wireless industry, which
both you and Mr. McCormick agree is a competitive industry,
the Federal government imposes requirements on the use of
its public property interests, in this case the spectrum?
Is that correct?
Mr. Fellman. Yes.
Mr. Dingell. Now in granting spectrum rights, the Federal
government imposes construction and build-out requirements
to foster ambiguous deployment of service, particularly in
rural areas? Is that correct?
Mr. Fellman. Yes, it is.
Mr. Dingell. Do you agree with that, Mr. McCormick? Yes
or no?
Mr. McCormick. On a license basis, I do.
Mr. Dingell. I am sorry?
Mr. McCormick. Yes.
Mr. Dingell. Okay. Now some other companies are required
to serve 75 percent of their marketer rights within 36
months. And PCS licensees are subject to geographic and
population-based benchmarks, to ensure that licensees
build-out their systems, or face automatic forfeiture of
their license? Is that right, Mr. Fellman?
Mr. Fellman. That is my understanding, yes.
Mr. Dingell. That meant that PCS licensees had to serve
one-third of their market's population within five years,
two-thirds within ten years. Yet, nobody claimed then, or do
they claim now that these where less companies were monopolies,
is that correct?
Mr. Fellman. That is correct.
Mr. Dingell. So when we heard the arguments that
non-discrimination in build-out requirements, are mere vestiges
of the cable monopoly area era, that is not correct, is it?
Mr. Fellman. I would agree with you, that is not correct.
Mr. Dingell. All right. And without a build-out requirement,
this bill then would confer on a private company the rights to
use the public's property for service, to only a select few
people? Is that correct?
Mr. Fellman. Yes, it would.
Mr. Dingell. Now tell Mr. Fellman, as a custodian of the
people's property in your city, would this be considered by
your citizens to be a responsible use of public property?
Mr. Fellman. I don't believe that it would.
Mr. Dingell. Thank you. Mr. Chairman, this is going to
surprise you greatly. I yield back the balance of my time.
Mr. Upton. Thank you. Mrs. Blackburn?
Mrs. Blackburn. Thank you, Mr. Chairman. And thank you all
for your patience today, we appreciate it. We are interested
in the issue and are anxious to hear your remarks.
Mr. McCormick, I was listening to Mr. Fellman's testimony and
I got the not so subtle impression that he likes the status
quo. And so I was thinking about my good friend, Leroy
Knowles, over in McMinville and Shelbyville with Bendlum and
Telephone Company, and I just would like for you to very
briefly, 30 seconds, tell me what you think Leroy would have
thought of this testimony?
Mr. McCormick. Thank you Congressman. Well as you know,
Leroy Knowles serves a little over 40,000 customers in middle
Tennessee and, you know, his telephone company is a co-op. It
is owned by its customers, and they have invested to upgrade
their plant, so that it is capable of offering high-speed
Internet access and video. But in order to offer video to the
customers that own the cooperative, Leroy Knowles has to get
25 separate franchises. He's been at it for a year-and-a-half,
he doesn't have half of those 25 franchises yet. And one of
the reasons he doesn't have the franchises is that every
franchise area he goes into, he's challenged by the incumbent
cable operator. And some of those franchises he may only have
100 customers in that particular franchise area, because he
crosses three rural counties in Tennessee. And the franchise
authorities want him to build-out to the rest of the franchise
area. So he may touch the corner of a county with 100 homes,
and they say sorry, you can't have a franchise until you
build-out to the rest of the county. So as a result, his
customers are being denied a choice, a choice that as owners
of the cooperative they've invested in, but they can't obtain.
Mrs. Blackburn. Thank you, I appreciate that. Mr. Fellman,
thank you for being here today. I need to ask you something.
Reading your testimony, I understood you were here as the
Mayor of Arvada, is that correct?
Mr. Fellman. That is correct.
Mrs. Blackburn. Arvada?
Mr. Fellman. Arvada, right.
Mrs. Blackburn. Well, I am southern girl. Arvada works
real well with me.
Mr. Fellman. However, you would like--
Mrs. Blackburn. Okay, let me ask you this then. You said
you have a legal practice, and you also represent cities and
counties, so are you imposing your position on representing
cities, municipalities, on these issues into your testimony?
Mr. Fellman. No.
Mrs. Blackburn. No. So that doesn't color your opinion at
all?
Mr. Fellman. Not at all.
Mrs. Blackburn. Okay. Now let me ask you this. It is my
understanding that you have got two cable companies that
serve Arvada, correct?
Mr. Fellman. Two that serve today, actually three that have
franchises. Two that--
Mrs. Blackburn. Okay, so two that are serving. Do these
two compete head-to-head?
Mr. Fellman. They do not.
Mrs. Blackburn. They do not. Now I had my staff call when
I found out--
Mr. Fellman. I am aware.
Mrs. Blackburn. You are?
Mr. Fellman. Yes.
Mrs. Blackburn. Okay. And I asked them why they didn't
compete. Do you know what their answer was to me?
Mr. Fellman. I know what my Assistant City Manager told me
his answer was. I don't know how that was described to you
by your staff members.
Mrs. Blackburn. Their answer was because they don't want to.
That was the answer. Is that they don't want to. They serve
different areas.
Mr. Fellman. My Assistant City Manager advised me that he
began to describe the various legal threats and potential
litigation and regulatory hearings that began when the
council tried to bring this to a head. And that the
conversation then took a different direction, so he didn't
complete his explanation.
Mrs. Blackburn. Okay. All right, and the third franchise
that has been granted is to Champion Broadband?
Mr. Fellman. That is correct.
Mrs. Blackburn. Okay. And how much of the city does
Champion Broadband serve?
Mr. Fellman. As I mentioned, they don't serve anyone.
Mrs. Blackburn. They don't serve anybody at all. Okay.
And let me ask you this. Looking at the situation that you
have there, where you have two franchise operators that do
not compete head-to-head, that are in separate areas, and
then you have a third one that hasn't been able to get off
the ground. In your capacity representing the mayors in
the cities, and looking at your experience that you have
had, where build-out requirements promoted new entrants to
come in and compete with, where you had to have the build-
out requirements. In your situation where you have to have
build-out requirements, does this help or hinder your
customers? Is it helping with competition in your city? Is
it hindering competition? Are your constituents better
served looking at it not as legal counsel, but looking at it
as the Mayor?
Mr. Fellman. With respect to Champion Broadband, I don't
believe that the build-out requirements had anything to do
with that company's decision not to serve. They obtained
franchises in almost every city in the metro Denver area,
which is over 30 communities; they actually do serve in two
cities. And when the market fell out on the industry in the
late �90s, around 2000, they ran out of money and they stopped
building their system. So the build-out requirement did not
stop them, the market stopped them. As far as how build-out
requirements help or hurt our customers and our citizens, I
don't believe that the build-out requirements are impacting
it. When we had our legal battles with, I think it was AT&T
Broadband at the time and U.S. Cable, it was more--
Mrs. Blackburn. So let me interrupt you, just a little bit
there. So you don't think build-out requirements have any
affect on this at all whatsoever?
Mr. Fellman. I think it has some affect on it, absolutely.
Mrs. Blackburn. Okay.
Mr. Fellman. But I don't think it hurts our subscribers.
I think the reason we don't require that competition is not
because of the build-out.
Mrs. Blackburn. Okay. Do you represent any of these in the
greater Denver area, of those 30 communities, do you
represent as legal counsel any of those?
Mr. Fellman. On a periodic basis, yes, I do.
Mrs. Blackburn. Okay, all right. Thank you, Mr. Chairman,
I yield back.
Mr. Fellman. Including if I might add, communities that do
have wire line competitors today.
Mrs. Blackburn. Okay. Thank you.
Mr. Upton. Just trying to move along, because I know the
Senate Hearing is starting very soon. Mr. Rush?
Mr. Rush. Thank you, Mr. Chairman. Mr. McSlarrow, you have
indicated that cable always welcomes competition. And
frankly, I want to say that you have been a passionate
champion for minority rights. And as I said after this
hearing, I really want to talk to you more about the lack of
programming on cable networks. But the question that I have
right now is what specific suggestions do you have that might
address the issue of adequate enforcement to ensure
non-discrimination that we might consider as a part of this
draft?
Mr. McSlarrow. I can think of two.
Mr. Rush. And whether or not you want to address the issue
before the sources are rolled out, or look back and make a
judgment after they have been rolled out? If you want to do
it beforehand, I guess I would, even in a national
franchising framework, wonder why a local community, whatever
the jurisdiction is defined, couldn't participate in a
deployment schedule with whatever the provider is? If you
want to do it after the fact, and just make it an enforcement
mechanism and make a judgment, then I would say you could do
two things. One, how do you judge the selection process of
the communities that are being served? And number two, I
would say that the enforcement mechanism should.
Mr. McCormick, do you have any response to that at all?
Mr. McCormick. Yes. First Congressman, we really appreciate
your support for this legislation for video competition and
video choice. We think that the legislation takes a very
appropriate approach to the issue of redlining, or where
there is any part of the community that is not being served
on the basis of economic value. And that the penalty is
basically injunctive relief, or revocation of license. So
the FCC that can direct upon application of a community that
there is an area not being served and it must be served.
In the case of a willful repeated violation, it is a death
penalty provision that says that the Commission can revoke
a license. The cable industry 22 years ago came to this
committee and said that there needed to be a Federal scheme,
because of overreaching by cities. And we are coming to
you today and saying with regard to introducing new
competition there has been overreaching, and it is time for
some more Federal schemes. So that is our position.
Mr. Rush. All right. Thank you, Mr. Chairman. I yield
back.
Mr. Upton. Mr. Gillmor?
Mr. Gillmor. Thank you, Mr. Chairman, and a couple of
questions for Mr. McCormick. I mentioned in my opening
statement I represent a rural district in Ohio, and unlike
many of the metropolitan areas, my constituents lack the
availability of a lot of advanced telecommunication services
that are generally commonplace and even expected in urban
areas. Realistically, what are the prospects that this
legislation will enable rural telephone companies to go into
competition with local cable providers?
Mr. McCormick. Well realistically, a very high possibility.
There is no group, or disadvantage in small rural telephone
companies by the franchising process. In Minnesota for
example, in Lakedale, Minnesota, it is a small community.
It has one traffic light, one gas station, one grocery
store. But there are four wireless providers of voice.
There is a cable television operator who provides voice
service. And there is a telephone company that provides
voice service. So the telephone company upgraded its plant
to deploy video, but the local franchising authority won't
let them offer it. They have for over two years taken this
all the way to the Minnesota Supreme Court. And build-out
requirements that go beyond the footprint of the telephone
company have precluded that telephone company from being
able to offer video service. So for small telephone
companies to be able to compete head-to-head, they have to
be able to offer the bundle of voice, video, and Internet
access. So this is very important to rural companies.
Mr. Gillmor. Okay, thank you. Let me bring up something
else, that is Ohio specific. The Cleveland Indians are
partnering with local cable systems on a new channel that
published reports have stated is going to be priced at
nearly double the rate that the Indians games cost consumers
last year. And I have been an Indians fan for a long time
and I know what their record is. I am not sure why anybody
would pay double of what they did last year, but some people
apparently are willing to do that. In your opinion, is this
increase in price going to hinder your member company's
ability to compete with the incumbent video provider?
Mr. McCormick. Congressman, we think it is very important
that there be access to programming. Particularly that
programming that is integrated with a multi-channel video
provider. This committee has previously passed legislation
to deal with that in the nature of satellite delivered
programming. We think that when it comes to regional
sports networks and others, that that is an appropriate
area for action by this committee.
Mr. Gillmor. Thank you very much. I yield back.
Mr. Upton. Thank you. Mr. Buyer I know is going to ask
questions, and as I understand it, he does not have questions
for Mr. McCormick, or Mr. McSlarrow. So you two are excused.
We will send you a note. Give Senator Stevens our best. And
thank him for allowing us to keep you a little bit long. And
I yield to Mr. Buyer.
Mr. Buyer. Thank you, Mr. Chairman. You are very kind to let
me sit in, as I am not a member of the committee. And this
legislation is going to continue in the process, I would love
to talk to the two gentlemen, but I am not going to hold them
up. I am a little concerned when I was listening to the
questioning by Mrs. Blackburn, and the mayor, because mayor,
you are in a tough position. I don't know who invited you to
come here to testify, but I probably would have declined had I
been you. Because you are a Mayor, you are also an attorney,
you also represent individuals out there, you negotiate these
deals. And how you can separate your views and opinions
without having a conflict, you are a better man than I am,
because I was just listening to the exchange, and it makes it
pretty tough because you are making money out there, and
supporting a family. And based upon contracts that you have,
and that has to influence your judgments and your testimony.
So there is a reason that we ask all of our witnesses what are
your contacts, what are your communications, what are your
consulting fees. So that the counsel that individuals give
to us, that we can have our best judgments. You must be a
lot better than I am. But I know that somebody has put you
in a very tough position.
Mr. Fellman. Well Congressman, I put myself in that position,
but it is no different than the position of my local elected
official colleagues, who work for the telephone companies and
the cable companies. And there are many, and we have very
heated and passionate discussions over these public policy
issues.
Mr. Buyer. Yeah, I am quite certain. I was intrigued by the
first question from the Ranking Member, Mr. Dingell when he
was really kind of excited about the competition, really that
there is in wireless. Well yeah, it is thriving and it does
really well because it is not regulated. Right? I mean so
what do we want to do? We want to get in there and let
everybody sort of have at it, push the bounds of technology,
we all get the benefit. So whether it is the telephony
versus others in voice, or in broadband. Let me ask this, is
it an open question. I haven't a clue how all of you would
answer. Do any of you share my concerns beyond the semantics,
about us, the difference between calling these things cable
service versus a video service? Should we actually use the
word cable? Is it better for us just to call it video
services, since the beyond is undefined, or are you saying
Steve, it is just semantics, don't worry about it? Are there
any thoughts, nobody? Great, I am the only one that gives a
damn about it, huh? I think that is pretty sad ,guys, because
none of you want to, you don't care, or you don't tackle, or
don't worry about it?
Mr. Fellman. Congressman, I will jump in. You know, I
think the real issue is how we treat the services. And if
we end up with legislation that treats like services alike,
then we will be doing the right thing. And whether we call
it cable, and we define it to include IP television services,
or whether we call it video programming services, I am not
sure that matters.
Mr. Buyer. Right, if we are going to treat all services
alike, rather than get into this whole issue about
reimbursement for what we do in the rights-of-way. You know,
what they do in Florida, maybe is the smart way to do this.
They do it as an entertainment tax and everybody is included,
and everybody is treated the same. That is why it is pretty
much preferable to call this a video service, and you include
satellite in this. Does anybody have any thoughts on that?
Mr. Fellman. I would love to see it--
Mr. Buyer. No, I don't want to hear anymore. These guys are
being too quiet. Does anybody have any thoughts about
including satellite? Thank you, Mayor.
Mr. Misener. Mr. Buyer, not specifically on that, but to
your broader point of looking at this holistically, I
completely agree with you. That is why we think it is right
to be talking about that with neutrality, or the ability of
consumers to get their video services from Internet based
sources in the context of national video franchising, because
the ultimate goal of all policymakers here is to give consumers
more choice. And we see the overwhelming choice picture, the
more competition coming in the future from the Internet, rather
than from just one more content provider. So rather than
looking at this, as sort of doubling the number of providers
that are available, we ought to be looking at it as hundred
fold, thousand fold increase of possible video providers in
the coming years. And so, I agree with you, we ought to look
at video holistically, and also consider how regulatory
changes recently could actually serve to constrict the amount
of video competition, rather than enhance it.
Mr. Buyer. Should we have any concerns out there with regard
to these municipalities that want to get into the business
where they can provide a service, and then find themselves in
competition? And then find themselves in dire straits? Is
this something that we should say, yes, municipalities you
want to get into this business, it is okay? Does anybody
have an opinion on this?
Mr. Keefe. I would say a couple of things about that. First
of all, the question was municipalities getting into video or
Internet, or even the telephone business. I think that the
programs that we have seen from some municipalities don't
really take into consideration the financial risks that they
are putting their cities in front of. And the programs that
we have seen in places like Miami Beach, in our opinion are
tremendously under the gun given the competition that is in
the marketplace. They want to get into the business because
they want free Internet for tourists. And it seems like a
cool thing to do, and it has been done in other cities. But
you know, the issue of network security, who has access to
that network, what it is used for, whether or not it is
available to fire and police, and the security that comes
around that, are all issues that haven't been answered. So I
think the financial risk reward is some thing that hasn't been
investigated, and I think taxpayer dollars are not well served,
getting into this business. And, you know, in my view there
is a bit of today, of talking about competition like the
telephone companies are going to bring competition to the
video business. I got news for you; there are a lot of the
satellite guys today that are out there competing very strongly
in the marketplace. In some of our markets like Miami Beach,
where we can't buy media effectively because we are a small
player in that marketplace, Echostar and DirectTV are pounding
that market as well as BellSouth with their products, every
second of every day. We don't have that same capability, so we
have to compete in other ways. So this isn't bringing more
competition to the marketplace, it is already there. If it is
a new entrant, that is fine.
Mr. Buyer. All right. Thank you, Mr. Chairman.
Mr. Upton. Ms. Cubin?
Ms. Cubin. Thank you, Mr. Chairman. I have only two
questions because I know that the hour is getting late. But
I would like to ask Mr. Misener, you were discussing premium
charges for higher speed and the actions on the Internet.
And, you know, talking about why you didn't think that that
was right. I agree with the four Internet freedoms that
Chairman Powell brought forward and that I know you are
familiar with, and he didn't mention anything against
premium charges. And if premium charges are so
objectionable, why do you suppose he didn't mention that?
And then, you know, I make the analogy to a postage stamp.
I can pay 39 cents for first class mail, or I can have bulk
mail, or I can pay for three-day priority or whatever and,
you know, I get different speed, but I have the choice on
that. So go into the objection a little better if you will
for me?
Mr. Misener. Yes, certainly. Thank you, Ms. Cubin. I have
heard this mail analogy before, and there is a shipping
analogy, and obviously Amazon does a lot of shipping itself,
and so we are sort of familiar with that business. I will
try to give you three different perspectives. From the
consumer perspective, sitting in her home she has the choice
of shipping companies coming to her. She has the choice of
at least four, USPS, UPS, DHL and FedEx, probably more. And
she can choose among them freely. In fact she can have
things delivered to her from two different shippers in the
same day at the same moment. Contrast that with delivery
over the network, she has the choice of two, either the cable
company or the phone company, if she is lucky for broadband
content. And the switching costs among them are astronomical.
They are very hard. There are long-term contracts, there are
equipment rolls, and there are truck rolls, equipment changes;
that sort of thing.
From the perspective of the shipper or the content sender, like in
Amazon who does both, we send out content on the Internet, and we
also ship. We also have four choices of shippers that we can use
freely. It is a competitive market. When it comes down to sending
content to that one consumer in her home, we face an absolute
monopoly. There is nobody else. No consumer takes two broadband
Internet connections simultaneously, so it is a monopoly to get
through there. And lastly from the perspective, and this may be the
most important point of all, the perspective of the other shipper.
The LL Beans of the world, LL Bean and Amazon could both give
competing free shipping, great priority service deals to the same
customer simultaneously. There is not, there is no capacity
constraint that will prevent LL Bean or Amazon from doing a deal
with FedEx and UPS, or both simultaneously. That is not the case
on the network. If the network operator prioritizes some content
over others, by definition, the others get degraded. And so if LL
Bean does a great deal with the network operator, Amazon is
actually physically precluded from doing the same deal.
Ms. Cubin. And the consumer, how much responsibility does
the consumer have to find out those things, before they
subscribe to one or another.
Mr. Misener. Well assuming they have a real choice among
them. And assuming if there were a competitive--
Ms. Cubin. Or if there are two, you know, then they have a
choice?
Mr. Misener. Not as a matter of either practice or sort of
theory, I mean the dualopolies do not behave like competitive
markets. That has certainly been the experience, and
especially when there was such high switching costs. A
consumer sitting in her home, faced with this sort of a
circumstance, is not going to want to call the truck to come
out and switch out the boxes, and give up her year long
contract, just--
Ms. Cubin. Why do you suppose Chairman Powell didn't
mention anything about the premium charges?
Mr. Misener. Well, he didn't get very specific. These are
extremely high level principles that we are adopting. In
fact, one of the principles that we are talking about
adopting today is one that entitles consumers to competition
among network operators. I mean, who is going to be the
first person who files that complaint, based on this law,
that entitles consumers to network competition, and I don't
know how that happens.
Ms. Cubin. Okay. I would like to ask this very quickly of
anyone. I wanted to ask Mr. McCormick, but what do you think
the scope of Section 717, and this is where VOIP service
provider shall have the same rights, duties, and obligations
as a requesting telecommunications carrier under Section so
on and so on. Where do you think those rights, duties, and
obligations are? Does it go so far as to include that cable
companies should be able to access the Universal Service Fund?
Do you know the section I am talking about in the bill? None
of you know? Do you know? We know and you don't know? I
think this is an important question, because I am just going
to take the time to just read the section, so that you
understand. Let me put the glasses on. A VOIP service
provider shall have the same rights, duties, and obligations
as a requesting telecommunications carrier under Section 251
and 252 of such Telecommunications Act, with respect to
interconnection, including associated rights, duties, and
obligations necessary to effectuate such interconnection if
the provider elects to assert such rights. So you don't
have any idea what those rights, duties, and obligations
are?
Mr. Citron. Sure, maybe I will take a stab at this one for
a second. So as a leading voice of every VOIP provider in
this country, we would like to have the opportunity to
purchase services directly from network owners and operators.
Today statutorily we are prevented from getting access to
underlying elements inside the network. We are statutorily
barred from having direct inner connect from getting phone
members, from number portability. And so today, in order to
get those services, we actually have to go through a third
party, a competitive local exchange carrier. There aren't
C-locks everywhere in this country, we will have to go and
negotiate such deals. So part of the rights that this bill
might afford us would be the choice, the choice to go ahead
and get access to those elements as specified under Sections
251 and 252. Now those are telecommunication provisions.
Ms. Cubin. Right.
Mr. Citron. I think that the bill itself has made a remarkable
step forward in this area. I think that it is has been offered
some proffers, that a little extra clarity on what some of those
rights are, should be included inside the bill. Also one of the
other things I testified to earlier is that when doing so, I want
you to also make sure not to lump us in as a non-facilities based
voice IP provider, job obligations that don't make sense to us.
Obviously obligations to put wires in the ground would not be
something that may be appropriate. So we have to figure out a
way of having those rights and obligations without actually
worrying about the statutory classification that would exist
for our provider.
Ms. Cubin. But does everybody agree, that the Universal
Service Fund would not be accessed by cable companies?
Mr. Citron. I think the question of Universal Service is
actually being raised in a number of different proceedings right
now, because there is a question about how this function moved
forward. There are questions about who should be able to put
in, or be obligated to put in, under what mechanism they should
put in, and who would have the rights to go ahead and draw out
funding. That is something that needs to be resolved by the
Congress.
Ms. Cubin. Thank you.
Mr. Upton. Mr. Markey assures me he has one question, a yes
or no question, and a unanimous consent to request?
Mr. Markey. Yes. I ask unanimous consent to add into the
record letters from the AARP, the Association of Public Safety
Communications Officials, and a letter signed by over 100 mayors,
including mayors from some of the largest cities in the United
States, in opposition to the bill. And I make that unanimous
request?
Mr. Upton. Without objection.
[The information follows:]
Mr. Markey. Mr. Citron, just one quick question so we can get
it on the record. Is it technically and operationally feasible
for Vonage to provide enhanced 911 service today?
Mr. Citron. Yes, when the underlying PSAP allows us to test
at inner camp. As I testified earlier to, PSAP where the
clause would actually be entered by, have said we will not
take your call unless you have liability parity. And without
that, it is absolutely completely impossible. I would call
that operationally impossible, although I admit, it is not
all operational difficulty, it is the operation difficulty of
the PSAP.
Mr. Markey. Is it technically and operationally feasible for
Vonage to offer just 911 service today?
Mr. Citron. It would be the same problem with the PSAP. The
PSAP will not take a phone call from Vonage, as specified in a
letter to this committee by NENA, the National Emergency
Numbering Association, which specifies that their members will
not take our calls without liability parity.
Mr. Markey. Okay, thank you.
Mr. Citron. You are welcome.
Mr. Upton. Five hours and 25 minutes, you are now excused.
Thank you, and I hope you make your flights. I appreciate
your testimony today. We are going to take a four- or
five-minute break, to get prepared for the second panel to
step up.
[Break.]
Mr. Upton. We are ready to start the second panel. We thank
you for your indulgence. We sort of knew that it was going to
go long, the first panel. And I understand that Ms. Rodriguez-
Lopez has an important phone call to make at 4:15. So we will
let you, at the proper time slip away, as long as you promise
to return, which I know you will. We are joined by Ms Lillian
Rodriguez-Lopez, President of the Hispanic Federation;
Ms. Julia Johnson, Chairwoman of the Video Access Alliance;
Mr. Anthony Thomas Riddle, Executive Director of Alliance for
Community Media; Ms. Jeannine Kenney, Senior Policy Analyst for
the Consumers Union; Mr. Randolph May, Senior Fellow and
Director of Communications Policy Studies for The Progress and
Freedom Foundation; and Mr. James Makawa--
Mr. Makawa. Makawa.
Mr. Upton. Makawa, I am sorry. Co-Founder and CEO of The
Africa Channel. Welcome all of you. And we will try to limit
your presentation to no more than five minutes. Your testimony
is part of the record in its entirety. Ms. Rodriguez-Lopez,
welcome, we will start with you. You just need to press the
button.
STATEMENTS OF LILLIAN RODRIQUEZ-LOPEZ, PRESIDENT, HISPANIC FEDERATION;
JULIA JOHNSON, CHAIRMAN, VIDEO ACCESS ALLIANCE; ANTHONY THOMAS RIDDLE,
EXECUTIVE DIRECTOR, ALLIANCE FOR COMMUNITY MEDIA; JEANNINE KENNEY,
SENIOR POLICY ANALYST, CONSUMERS UNION; RANDOLPH J. MAY, SENIOR FELLOW
AND DIRECTOR, COMMUNICATIONS POLICY STUDIES, THE PROGRESS & FREEDOM
FOUNDATION; AND JAMES MAKAWA, CO-FOUNDER AND CHIEF EXECUTIVE OFFICER,
THE AFRICA CHANNEL
Ms. Rodriguez-Lopez. Thank you, I pressed the button. Thank you,
Mr. Chairman and members of the committee. I want to really tell you
how appreciative I am and thankful for you inviting me to testify here
today on behalf of the Hispanic Federation, a human service
organization serving over one million Hispanic Americans. I am also
a co-chair of Broadband Everywhere, a coalition of voices, supported
by the American Cable Association and NCTA, that is focused on public
polices that promote broadband deployment to every neighborhood in
America.
I have met and discussed this issue with intelligent people
representing both industries in an effort to better understand
the implications of a Federal broadband bill. I feel it is
important, very important to make clear from the outset that
I am not anti-Bell. I clearly support their entry into the
market given the possibility of additional competition and
programming in the video marketplace. I think all the
industries--cable, telephone and other technology industries--
have offered a lot to this country, and at the end of the day,
must all work together.
But I am here today to echo the position of many leading
Hispanic civic organizations across the country--the position
that any franchising reform legislation must contain provision
that guarantee us a reasonable and equitable deployment in
Hispanic communities. And the question is, will the current
legislation bring broadband competition to our neighborhoods
in this equitable and reasonable way? That is the central
question for me, and the focus of my work in this area.
And I would pose a central question for this body. Today,
only one in eight Latino households has broadband services.
So the stakes are high. Thus, any video franchising reform
legislation must ensure that Hispanic communities get access
to the latest technologies as fast as other communities.
Nothing more, and nothing less.
I want to state that for starters, the rationale for sweeping
Federal legislative reform has yet to be proven. I believe
that through the involvement of municipal and State
governments, we can arrive at solutions that speed entry into
the market while ensuring that every neighborhood sees the
benefits of broadband and video competition. On average,
there are three to four cable and satellite competitors in
most markets today. And as I have learned by receiving
information from the telecom companies, it seems that most
new entrants get franchises relatively quickly. We can make
a judgment as to whether 30, 60, 90, or 120 days is quick.
But given other things that happen in this country and how
we have to wait for processes to kind of unravel, it seems
reasonable.
But if we are going to deregulate new entrants into the video
services industry, we must have meaningful non-discrimination
provisions. Therefore, I urge the committee to include
provisions that require all providers, new and existing, to
make available their latest broadband and digital services
to all communities within a particular service footprint,
regardless of an area's income, within a reasonable time
period.
Just one example, in Dallas, Texas a limited
non-discrimination provision as some have proposed, that
allows a provider to limit deployment only to areas self-
selected by new providers, would mean that a new provider
could provide these services only to Park Cities, while
potentially writing off, or delaying for a significant
number of years service to the largely Hispanic Arcadia Park,
so long as it didn't discriminate within Park Cities.
In my home state of New Jersey, I and other Hispanic leaders
insist that we--I apologize, I am slightly nervous. I and
other Hispanic leaders want to see a deployment that includes
a significant number of low-income, urban, rural, and minority
communities in a reasonable timeframe. I am not na�ve. I do
understand that deployment must occur in stages, and that
certain priorities will be established. But at the same time,
we need to maintain a legal system that protects the critical
role of local governments in ensuring that historically under-
served communities are guaranteed access to the latest
broadband video services within a reasonable and enforceable
time period. Both the telecom and cable industries must
continuously work to erase the digital divide that afflicts
both under-served and middle class communities.
And Congress must support policies and laws that serve to
close the digital divide and promote American competitiveness
and productivity. Only with policies that address those two
priorities can the Hispanic community truly benefit. So
the access test of any meaningful reform legislation is that
it protects the access to the latest broadband technologies
for the greatest number of Americans, including our poor,
urban, and minority communities, within a provider's entire
service footprint.
And finally, non-discrimination provisions must have teeth.
Indeed, the old saying that a right without a remedy is no
right at all, is clearly applicable here. Federal and State
enforcement authorities must therefore have the explicit
authority to revoke licenses of any telecom or cable provider
that discriminates in the provision of new advanced broadband
and video services. I believe that Congress can pass
legislation that will reform the process without doing damage
to protections that have been in place for nearly 20 years,
and would serve as the only meaningful national broadband
policy in place today. But video franchising legislation
without these protections and oversight will set our
communities back decades in an age of information technology,
and global competition where none of us, least of all
Hispanic Americans, has a moment to lose.
Thank you so much, Mr. Chairman.
[The prepared statement of Lillian Rodriguez-Lopez follows:]
Prepared Statement of Lillian Rodriguez-Lopez, President, Hispanic
Federation
Mr. Chairman, members of the Committee, I want to thank you for
inviting me to testify here today on behalf of the Hispanic
Federation, a human service organization serving over 1 million
Hispanic Americans. I am also a co-chair of Broadband Everywhere, a
coalition of voices, supported by the American Cable Association and
NCTA, that is focused on public policies that promote broadband
deployment to every neighborhood in America.
I have met and discussed this issue with intelligent people
representing both industries in an effort to better understand the
implications of a federal broadband bill. I feel it's important to
make clear from the outset that I am not anti-Bell. I clearly support
their entry into the market given the possibility of additional
competition and programming in the video marketplace. I think the
cable, telephone and other technology industries have offered a lot
to this country and, at the end of the day, must all work together.
But I am here today to echo the position of many leading Hispanic
civic organizations across the country - the position that any
franchising reform legislation must contain provisions that guarantee
us a reasonable and equitable deployment in Hispanic communities.
Will the current legislation bring broadband competition to our
neighborhoods in an equitable and reasonable deployment? That is the
central question for me, and the focus of my work in this area.
Today, only one in eight Latino households has broadband services,
so the stakes are high. Thus any video franchising reform
legislation must ensure that Hispanic communities get access to the
latest broadband technologies as fast as other communities. Nothing
more, and nothing less.
For starters, the rationale for sweeping federal legislative reform
has yet to be proven. I believe that, through the involvement of
municipal and state governments, we can arrive at solutions that
speed entry into the video market while ensuring that every
neighborhood sees the benefits of broadband and video competition.
On average, there are three to four cable and satellite competitors
in most markets today. As I have learned, new entrants seem to get
franchises relatively quickly.
But if we are going to deregulate new entrants into the video
services industry, we must have meaningful non-discrimination
provisions. Therefore, I urge that the Committee include provisions
that require all providers - new and existing - to make available
their latest broadband and digital services to all communities within
their service footprint, regardless of an area's income, within a
reasonable time period.
For example, in Dallas Texas, a limited non-discrimination
provision, as some have proposed, that allows a provider to
limit deployment only to areas self-selected by new providers
would mean that a new provider could provide new video
services only to Park Cities while potentially writing off, or
delaying for many, many years, service to the largely- Hispanic
Arcadia Park, so long as it didn't discriminate within Park
Cities! In Detroit, this kind of limited non-discrimination
provision would mean that a service provider would first bring
service to wealthier communities such as Bloomfield Hills
while totally ignoring or intolerably delaying deployment to
Dearborn Heights and Detroit, so long as the provider did not
discriminate within Bloomfield Hills!
In my home state of New Jersey, I and other Hispanic leaders insist
that we see deployment that includes a significant number of low-
income, urban, and minority communities in a reasonable timeframe.
I am not na�ve. I do understand that deployment must occur in stages
and that certain priorities will be established. But, at the same
time, we need to maintain a legal system that protects the critical
role of local governments in ensuring that historically underserved
communities are guaranteed access to the latest broadband and video
services within a reasonable and enforceable time period. Both the
telecom and cable industries must continuously work to erase the
digital divide that afflicts both underserved and middle class
communities. And Congress must support policies and laws that
serve to close the digital divide and promote American
competitiveness and productivity. Only with policies that address
those two priorities can the Hispanic community truly benefit.
Thus, the acid test of any meaningful reform legislation is that it
protects the access to the latest broadband technologies for the
greatest number of Americans, including the poor, urban and minority
communities within a provider's entire service footprint.
Finally, non-discrimination provisions must have teeth.
Indeed, the old saying that -a right without a remedy is no
right at all- is clearly applicable here. Federal and state
enforcement authorities must therefore have the explicit
authority to revoke licenses of any telecom or cable provider
that impermissibly discriminates in the provision of new
advanced broadband and video services.
I believe that Congress can pass legislation that will reform the
process without doing damage to protections that have been in place
for nearly 20 years, and which serve as the only meaningful national
broadband policy in place today. But video franchising legislation
without enforceable protections and oversight will set our
communities back decades in an age of information technology and
global competition where none of us - least of all Hispanic
Americans -- has a moment to lose.
Mr. Upton. Ms. Johnson?
Ms. Johnson. Thank you, Mr. Chairman and members of the committee.
The invitation today to speak to you regarding video reform is an
honor. The last time I had the opportunity to speak with many of
you was about ten years ago, in my capacity as the Chair of the
floor at a Public Service Commission. At that point, we were
considering the 1996 Act. I say that in a twisted way, this
proceeding is a celebration of your success. I know that you may
be feeling like victims of your own success. But Congressman
Stearns said it well, when he spoke of the progress that this
Nation has made under the leadership, our Federal leadership in
implementing laws that allowed for the continued advanced
communications development in information innovation, and
infrastructure. Rapid introduction of video competition
epitomizes that continued success.
Allow me to tell you a bit about the Video Access Alliance.
We are a not-for-profit organization dedicated to promoting
policies that encourage rapid deployment of innovative new
video platforms. We serve as an advocacy and advisory
group for independent, emerging and minority networks,
content providers, programmers, entertainers, and industry
participants. We are not against cable. We are not against
the telephone companies. Unfortunately for consumers, much
of the current debate has turned on a cable versus telecom
fight. Much of the dialogue has focused on the policies and
the benefits of competitors. We firmly believe that the
focus should consistently, and relentlessly, be on the benefits
to consumers. The Alliance is focused on ensuring that there
are multiple platforms for the distribution and expansion of
more robust content, at lower prices for Americans, and our
everyday consumers.
Allow me to elaborate. Creating an environment that allows
for rapid investment and deployment in new video platforms
will have a compounding consumer benefit. That is to say,
competition will lead to the underlying video distribution
providers offering lower prices for that carriage.
Additionally with competition, there will be a need for
networks to distinguish their offerings, which will allow for
more diverse and higher quality content. Furthermore,
competition and programming in the content space will lead to
more competitively priced programming, providing independent
channels entering the market, and that will allow for downward
pressures on affiliate channels. The results will be
extraordinary savings for consumers, higher quality
programming, and greater choice for all consumers.
We all recognize that the current market environment denies
these full benefits to consumers. The facts are undeniable.
Independent networks as a group are summarily excluded under
the current structure. Recent research indicates that under
the current market structure, the top video distribution
networks carried on a non-premium national basis is less than
one percent of channels with no media affiliation.
The only way to ensure diversity of information sources,
lower prices for cable TV, higher quality programming, and
more consumer choice is to create an environment that allows
for rapid deployment of more platforms with greater choice.
We believe that new choice and programming is just one of the
benefits of reforming our video franchise laws. Equally
important to minority communities is that, and to the minority
communities that our coalition members serve, are the
technological advances and increased capabilities that
competition will create. As a great number of our members are
minorities, or are focused on minority markets, the issue of
availability of these offerings to our community is
tremendously important to us.
The Alliance believes that the best way to ensure networks are
built and are available to all is to allow the markets to work.
Giving minority consumers enormous buying power, minority
consumers will be particularly attractive to all providers in
the video distribution marketplace. Minority consumers have
been shown in recent studies to spend more on media products
and services than other demographics. We over indexed in each
category. We support the comments made earlier by Congressman
Rush, as he talked about the need for anti-discriminatory
standards and enforcement mechanisms. We look forward to
working with you in those endeavors.
I applaud you again for your efforts, and I ask that you
continue to make video franchise reform a priority this year.
Thank you.
[The prepared statement of Julia Johnson follows:]
Prepared Statement of Julia Johnson, Chairman, Video Access Alliance
Good morning Mr. Chairman and members of the committee. Thank you for
your invitation. I am Julia Johnson, Chairperson of the Video Access
Alliance. I am honored today for this opportunity to speak to you
about video franchise reform. We applaud your leadership and action
in working on this very important issue.
First I would like to tell you briefly about the Video Access
Alliance. We are a not-for-profit organization dedicated to promoting
policies that encourage rapid deployment of innovative new video
platforms. We serve as an advocacy and advisory group for independent,
emerging and minority networks, content providers, programmers,
entertainers and other industry participants. We believe that as more
platforms with greater capacity to carry programming are deployed,
our independent and innovative voices-minority in particular-can be
heard. Our coalition consists of entrepreneurs and executives from
several different independent networks including ImaginAsian TV,
MultiChannel Ventures, The Employment & Career Channel, The America
Channel, and the Black Television News Channel, LLC.
We are on the consumer's side. We are on the entrepreneur's side.
We are on the side of economic development for our communities. We
believe that all consumers, particularly minorities, have the most to
gain from expanded video platforms.
We are not against cable. We are not against telephone companies.
Unfortunately for consumers, much of the current debate has turned
into a cable versus telecom fight. Much of the dialogue has focused
on polices that benefit competitors; we firmly believe the focus
should consistently and relentlessly be on the benefits to consumers.
The Alliance is focused on ensuring that there are multiple platforms
for the distribution of expanded and more robust content at lower
prices for America's everyday consumers.
We believe that consumers deserve more choices for their TV and
entertainment services. We strongly support the need for more video
distribution systems and encourage the use of advanced digital
technologies and broadband deployment into communities to bring
consumers innovative options.
We support greater competition in the video delivery market-and
we're hopeful this legislation will do just that. We would like
to see telecommunications companies expand their video networks as
quickly as possible. We'd like to see the cable companies expand
their networks as quickly as possible. Doing so could serve as an
extraordinary opportunity for minorities and other entrepreneurs.
And we again applaud the committees' efforts in working to do so.
Competition will super-charge the video delivery market and have a
favorable economic impact on our economy. In a competitive and open
market, video distribution networks will provide more opportunities for
independent programmers to distinguish their service from their
competitors. This will lead to greater content choice for consumers.
The FCC found that cable television providers offer at least 6 percent
fewer programs in the absence of competition. The mere presence of
competing providers would give independent networks-like my
members-more opportunities and give consumers greater choice. In
fact, already we're seeing new channels come online and programmers
reach new audiences-we need to accelerate that process.
We believe that new choice in programming is just one benefit of
reforming our video franchise laws. Equally important to the minority
communities that many of our coalition members serve are the
technological advances and increased capacity that competition would
undoubtedly create. When competing companies vie over customers, they
create a storm of innovation. We strongly believe that innovation,
open markets and fair competition will encourage investment in
infrastructure that will allow for the new applications and
distribution models. These applications, many of which have yet to be
invented, will bring opportunities like distance education, global
commerce and telemedicine closer to all consumers. These are
innovations that can truly change lives.
Ultimately video franchise reform will provide the incentives for new
networks with capacity that we can't even envision today.
As a great number of our members are minorities or focus on
minority markets, the issue of availability of these new
offerings is of tremendous importance to our supporters.
We have a unique interest-both socially and economically-to ensure
that consumers have access to all the amazing innovations video
franchise reform will bring.
We believe that the best way to ensure networks are built and
available to all is to let the markets work. Given minority
consumers' enormous buying power, we firmly believe that minority
consumers will be particularly attractive to all providers in the
video distribution marketplace.
Minority consumers have been shown in recent studies to spend more
on media products and services than other demographics. According
to a study by Horowitz Associates, minorities are the top subscribers
to premium channels and have higher penetration rates for digital
television.
A market-driven solution, as proposed in the legislation, is the best
solution to ensure all consumers benefit from video franchise reform.
In sum, the more choices consumers have the better. We believe that
expanded video distribution networks will result in lower consumer
prices, higher quality consumer programming and greater consumer
choice. Moreover, we know that with this expansion come greater
opportunities for independent, minority and emerging networks to be
distributed into all communities.
I again applaud your efforts and ask that you continue to make video
franchise reform a priority this year.
Thank you for inviting me to testify today and I would be happy to
answer any questions you may have.
Mr. Upton. Thank you. Mr. Riddle?
Mr. Riddle. I thank you, Chairman Upton. I would also like to thank--
Mr. Upton. Is that mic button on, just make sure.
Mr. Riddle. --the entire committee for having us here, the
sub-committee, and I would also like to give out a special
thanks to staff who have spent a lot of time with us over the
past few months working with you.
I represent the Alliance for Community Media, which for
30 years has represented the interest of the public
educational and government access community in the United
States. The Alliance members are localism in action, but we
are tied to two communities, both civic and corporate.
First, we represent 3,000 channels, 250,000 organizations,
1.2 million volunteers that use those channels every year.
We are the local election debate. We are participants in
the local budget process. We are the town council meeting
and the land-use hearing. We are tens of thousands of
religious organizations, which find their only outlet on PEG
channels. We are you. Many of your colleagues use our
channels frequently to get their message out to the community
on an unfiltered basis. But we are equally bound to the
visionary pioneers of science and industry who have created a
bridge work of light, sound, data, and dreams that can connect
communities of like spirited people. We are bound to the
economic success of giant corporations who vie to deliver our
dreams, and to the freedom of millions of small innovators who
blaze a trail to the future.
We would like to thank you for the wonderful work that has been
done on this bill. There are many things that we can be
thankful for that are in the bill, namely, the interconnection
language that governs interconnection between the PEG
facilities and the new providers. If that wasn't there, then
there would be the possibility that new providers would
actually be a source of extra expenditure to the PEG community.
We appreciate the language around marketing and promotion.
And we particularly are pleased to see that there is funding for
PEG based on gross revenues. The one percent funding for PEG is
a good first step. We have some members which will not be made
whole by that because they do have agreements that were
previously created that exceed the one percent. But we are
glad to see that we have moved in this direction.
Some of those benefits that our members have are the result of
processes that included a community-wide public needs
assessment, and numerous public meetings. And we ask that
such an engaging political process be supported by
grandfathering of agreements that were derived from that.
There would be some difficulty in smaller towns and rural
areas, or other communities that have opted to devote more
resources to PEG. There is a level of funding below which the
doors just don't open. For this reason, the Alliance has
prepared a sliding scale national standard for funding large
and small communities. PEG support would be paid to the
municipality on an inverse basis according to gross revenues.
That is just a way of saying that if you have a very small
community with very low gross revenues, the one percent might
not make it, although it would be very useful in a large
community like New York. The national standard sliding scales
distribute resources according to local community needs.
We ask that the franchise fee revenue base not be reduced, and
we are in complete agreement with the League of Cities and the
Cities Group on this matter. We think it is a good idea that
new video competitors match the existing number of PEG
channels in most cases. It saves negotiation time and offers a
level playing field. There are a few suggestions we would make
though. The language of the bill covers two cases of channels,
and those of the existing incumbent and those where there is no
incumbent, and therefore no channels. But it doesn't cover the
situation where there is an incumbent but no channels, and
offers no ability to negotiate for those channels in the
future. So we would like to direct the subcommittee to look at
the standards that we suggest for use in those communities
where there are currently no PEG channels. Our suggested
national standard for PEG channel capacity uses a bell curve,
in which the vast majority of systems would have four PEG
channels. The needs of both smaller and large communities are
met by a balanced market based test.
We ask Congress to either adopt such standards or ask that the
FCC consider the Alliance's national standard sliding scale in
any proposed rulemaking on PEG channel capacity. The Alliance
also feels that there must be clear language governing IPTV
and how that affects channel capacity and funding. Fixing PEG
at a reasonable percentage of bandwidth based on current
channel allotments, eliminates this tendency to redefine PEG
out of existence and prevents PEG capacity from being reduced.
A brief word on network neutrality. We do have at least a
passing interest in this, since we expect that most of the PEG
channels will be within the IPTV, or the Internet part of the
bandwidth at some point. And we don't want to be left behind
in a slower part of that system. We do have an interest in
stronger language on build-out or redlining, although we don't
have technical ideas on how that should be done. But our
interest is that nobody be left out of the kinds of
conversations that PEG offers, and those folks that are not
receiving the services will not be able to participate.
And I would just point to one quick piece on the Texas
legislation and an unintended consequence that happened in
San Antonio where the franchise ran out about the same time
as the law went into effect. And there was unintended
consequence of the PEG channels going dark immediately. We
would like to see the language in your bill constitute a
minimum below which State laws could not drop.
And you know again, we would like to recognize the hard work
that has brought us to this point. We reaffirm our permanent
relationship with the big cities and the small towns in which
we live, and the governments, including the Congress, which
we as free people have chosen to represent our interests. We
hope you will continue this conversation with us, as we
together design not a television system, but a brave new
world.
We welcome your comments and questions.
[The prepared statement of Anthony Thomas Riddle follows:]
Prepared Statement of Anthony Thomas Riddle, Executive Director,
Alliance for Community Media
Mr. Walden. [Presiding] Mr. Riddle, thank you for your
testimony. Ms. Kenney, welcome and we look forward to your
comments.
Ms. Kenney. Thank you. We very much appreciate the opportunity to
testify today, and I am testifying on behalf of the Consumer Federation
of America, Consumers Union, and Free Press. We are glad to be here
particularly since, as Ms. Johnson noted, this battle really has been
presented to you as a pitched battle among industries. And while
they have a lot of stake in this fight, and it is a good sport to some
to fight over who cares about consumers more. At the end of the day,
consumers will be the ultimate winners or losers of this. And what
you do here matters very much in that outcome. We are very grateful
for your interests in promoting new video competition to provide
consumers with some great relief from skyrocketing cable prices that
have increased anywhere from 64 percent or more, depending on which
number you pick over the last ten years.
Regardless of the number, we know that number is high, and we know
the increases are the result of the market power of the cable
monopolies who force consumers to pay more each year for bigger
bundles of channels that many of them never watch. So we know we
need new competition in cable, and we are eager for it. We look to
the video franchising debate, and the interest of the Bells in
providing video services as an opportunity for at least a second
wire line competitor in cable.
And as Ms. Blackburn noted, this is also about broadband.
This is about bringing broadband access to people who don't
have it right now. And while two providers are better than
one, more are needed. And without strong network neutrality
policies, the opportunity for video competition offered over
the Internet will be lost. That concern is made even greater
by FCC's DSL and cable modem order.
So having said that, we believe this is the time for the
committee to be looking at the video franchising process,
and to balance the consumer needs and community interest
against the need for new entrants, and create strong
enforceable network neutrality policies.
Having said that, we believe that the Act before the committee
fails on both counts. We also believe those problems can be
solved. We are grateful for the inclusion of provisions that
protect the right of communities to offer their own broadband
services. But we fear that under this bill Americans who are
already frustrated with their cable TV prices, basic service,
and limited choices will get more of the same or worse.
Rather than promote competition in a manner that will benefit
all consumers, it rolls back protections they currently have
without any assurances that they will get new competition.
Let me briefly highlight our concerns. Obviously we are
concerned that there is no build-out requirement for telephone
companies that will allow them to effectively redline, picking
the wealthiest neighborhoods and leaving middle and low-income
families behind. It releases the cable companies from their
obligations to build-out, to upgrade, and to provide for a
uniform restructure when the Bell company serves just one
consumer. Consumers who don't get that service, don't get a
competitive service from the Bell company, get hit many times.
They don't have a competitive choice. They may face higher
prices because cable is no longer obligated to provide for a
uniform rate structure, and they may have reduced service
quality.
The bottom line is that cable should not be released from its uniform
rate obligations, from its build-out and upgrade obligations, unless
the Bell competitors are required to build-out to the entire franchise
area over a reasonable period of time.
Let me talk to you just for a moment about network neutrality.
This issue in particular has been presented as a battle
etween big Internet companies and big telecommunications and
cable companies. In reality, this is the one provision of the
bill that could most hurt consumers if it is not addressed.
Currently, the bill strips the FCC of its authority to do more
to protect consumers from network discrimination. History
shows us that telecommunications and media giants will use
their network power to discriminate. You don't need to look
much further than the media clips from the last few weeks to
see that that's happening. Cable is complaining about
interconnection, Verizon is complaining about lack of access
to program carriage, and telephone companies are complaining
about their inability to get ads carried on cable television
networks. They are different networks, but it is the same
incentive to block access to competitors. The impact on
consumers will be enormous. Innovation will be stifled
without solid network neutrality policies. If the
telecommunications and cable companies provide for access tiers,
consumers will pay twice, because whatever the Internet
companies charge will be passed on to them eventually, and
there is an opportunity for competitive services offered over
the Internet.
Let me speak briefly about bundling. This was a concern that
Mr. Bass noted earlier today and Mr. Keefe alluded to. One of
our significant concerns associated with video competition is
access to programming on a fair and competitive basis. If the
Bell entrants do not have the ability to negotiate fairly for
program carriage, consumers will be left behind in terms of
opportunities for more competitive bundles, more competitive
prices, and more specialty tiers and so forth. Until we
address anti-competitive bundling and tying arrangements
that the dominant program providers require currently of
distributors, you are going to have a difficult time. It
will be very difficult for the new video distributors to offer
carriage in a manner that is competitive.
We do not think these concerns are insurmountable. We think
they can be rectified with reasonable build-out requirements
for new entrants or in lieu thereof. Resources for the
community to provide better broadband access for underserved
communities with higher competitive thresholds before cable
is released from its own build-out obligations and uniform
rate requirements, meaningful and enforceable network
neutrality provisions, and strong consumer protections that
are enforceable at the State and local level.
Thank you.
[The prepared statement of Jeannine Kenney follows:]
Prepared Statement of Jeannine Kenney, Senior Policy Analyst, Consumers
Union
Summary
Consumers Union,Consumer Federation of America,and Free Pressappreciate
the opportunity to testify on the issue of national video franchising
and competition in video services. We welcome the Subcommittee's
interest in fostering greater consumer choice by promoting competition
in the concentrated cable marketplace.
Consumers have suffered under monopolistic cable pricing that has
resulted in a 64 percent increase in rates-approximately two and a
half times the rate of inflation-since Congress deregulated the cable
industry in the 1996 Telecommunications Act. In addition to
skyrocketing rates, consumers have virtually no choice of providers
or channel offerings. Satellite television, the primary competitor to
cable, has had little price disciplining effect. In the few areas
where actual facilities-based competition exists, consumers enjoy
cable prices that are 15 percent lower than non-competitive markets. A
national franchise system with strong consumer protections and
appropriate provisions to meet local needs could foster new video
competition and discipline ever-rising cable rates.
Unfortunately, the Communications Opportunity, Promotion and
Enhancement Act not only fails to ensurethe national franchising
system it createswill benefit consumers, it almost surely represents
a significant step backward. While the legislation laudably protects
community rights to establish broadband networks, it eliminates other
protections that ensure all residents have access to competitive,
advanced communications services. The legislation abolishes
communities' authority to ensure all residents are served by new and
existing cable providers without establishing any federal build-out
requirements in its place, opening a wide door to redlining. It rolls
back state and local authority to establish and enforce consumer
protections without requiring new, strong federal protections. Andit
strips the Federal Communications Commission of its authority to
establish rules ensuring that broadband network owners do not impair
or block consumer access to competitive Internet content, services or
applications. Moreover, enforcement provisions within the legislation
are weak or absent. In short, the legislation not only fails to ensure
that consumers will benefit from new video competition, it may expose
them to the risk of higher cable rates, reduced quality and reduced
access to competitive choices offered via the Internet.
Consumers who most need competition will be the least likely to receive
it because the legislation does not require new cable providers
operating under a national franchise to serve all consumers
within a franchise area, new entrants will be free to offer
service to only wealthy neighborhoods, leaving behind middle and
low-income consumers who most need cable rate relief. It also
eliminates the existing authority of communities to require that
cable providers serve all residents something virtually every
franchising authority has done. To ensure that the benefits of
competition come to those who need it most, the legislation should
require telephone companies entering the video market to build out
their services to all consumers within a franchise area over a
reasonable period of time, with appropriate accommodations for very
low-density areas. This is not only critical to ensure video competition
will discipline cable rates, it is also central to reversing the alarming
trends in the broadband market. Next generation cable services bring
broadband as well. Absent a build-out requirement, underserved areas
will be permanently stranded on the wrong side of the digital divide.
Skepticism that telephone companies will offer their video
services to all residents rather than just the wealthiest is
particularly warranted given SBC's statements last year that it
would roll out Project Lightspeed, the company's IPTV video
offering, to 90 percent of its high-value customers. It defined
"high-value" customers as those willing to spend up to $200 on
communications services per month. They make up just 25 percent
of SBC's subscriber base. SBC also contended it would provide
the video service to just 5 percent of low-value customers that
constitute 35 percent of its customer base. Assurances that
"low-value customers" would still be able to receive satellite
video through SBC's affiliation with Dish Network ring hollow,
given the failure of satellite to provide meaningful price
discipline. Instead, SBC's statements suggest it will offer
services only in largely affluent areas, disregarding
communities made up predominantly of low- or middle-income
consumers.
Similarly, Verizon's conduct to date strongly suggests it is
seeking franchise agreements for its FiOS service in only the
wealthiest counties in the country. For example, Verizon has
negotiated or signed franchise agreements with largely affluent
local franchise areas-such as in Fairfax County, Va. (where it
has four franchise agreements in place for Herndon, Fairfax
County, Fairfax City and Falls Church); Howard County, Md.;
Massepequa Park in Nassau County, N.Y.; Nyack and South Nyack,
in Rockland County, N.Y.; and Woburn in Middlesex County, Mass.
In terms of median family income, Fairfax County ranks No.1
nationally; Howard ranks fourth; Nassau 10th; Rockland 12th
and Middlesex 17th.New Jersey, in which Verizon is seeking a
statewide franchise but resisting state-wide build-out
requirements, is home to 12 of the top 100 richest counties in
the nation.
Verizon has agreed to universal or nearly universal build-out
requirements in several of its franchise agreements. Given the
wealth of those areas and the current authority of those
franchise authorities to require build-out, Verizon's
agreement reveals little about whether the company will
voluntarily build-out to all parts of mixed-income franchise
areas, assuming it even enters them. What those commitments do
show is both that build-out has been important to those
localities and that it need not be a barrier to the company's
entry. On the contrary, Verizon has quickly negotiated
agreements that offer substantial community services and
consumer protections.
SBC's lightly veiled admission of its plans for economic
redlining and Verizon's video franchising practices suggest new
entrants will enter only largely affluent, densely populated
franchise areas and that if they enter mixed-income franchise
areas (those with both high and low income populations),
they'll provide service only to portions of those markets
unless required to serve all residents.
To effectively enhance competition and ensure that its benefits
come to all consumers, any national franchising legislation
must require new entrants to build-out their services to all
consumers over a reasonable period of time. Particularly in
areas where telephone companies already have facilities,
build-out should be timely and mandatory.
In the absence of national build-out requirements, Congress
should establish financial incentives for new entrants to serve
the entire community. Telephone companies that do not agree to
serve the entire community should be required to provide
sufficient financial resources to local communities, in
addition to reasonable rights-of-way fees paid, for use in
fostering alternative means of ensuring broadband competition.
Those resources could be used to establish community broadband
networks, competitive commercial services to areas unserved by
the new entrant, or other means of assistance to help
low-income consumers access advanced telecommunications
services at affordable prices and meet local community
communications needs.
Consumers May Be Denied Service Upgrades By Incumbent Cable Providers
The legislation allows incumbent cable providers to jettison
the build-out and upgrade requirements to which they are bound
under local franchise agreements whenever a new market entrant
offers service to just one household in the franchise area. If
a telephone company offers its video service in only part of
the franchise area, as they are allowed to do under the
legislation, an incumbent cable provider will have both the
ability and the financial incentive to offer service upgrades
to competitive areas while denying them to customers in
neighborhoods not served by the new entrant. Even the National
Cable and Telecommunications Association has pointed out the
importance of providing network upgrades in an equitable and
non-discriminatory manner.Unfortunately, under the legislation,
incumbent cable providers will be under no obligation to do so,
and the communities they serve will be stripped of their
ability to require non-discriminatory upgrades. Even more
troubling, a cable incumbent operating under a national
franchise would be equally free to withdraw service entirely
from neighborhoods it currently serves.
Consumers May See Their Cable Rates Rise, Not Fall
The legislation also fails to protect consumers from
discriminatory pricing that may result when local exchange
carriers begin offering video service in a franchise area.
Under current law, cable providers need no longer comply with
the statutory requirement that they charge uniform rates across
the franchise area once a common carrier offers video service to
just a single household in that area. The legislation does
nothing to change that. Therefore, under the legislation, an
incumbent cable provider could lower rates in areas served by
new competitors and raise them elsewhere to offset discounts.
And regardless of how limited the competition, cable is given
free-reign to price discriminate. Consumers who are not served
by the new Bell competitor would be hit twice-they will lack a
competitive alternative to the incumbent and they may face
higher cable rates and declining service quality. If Congress
does not require that new entrants build out to the entire
ranchise area, it must, at a minimum, require that cable
incumbents maintain a uniform rate structure until uptake of
competitive telecommunication video services reaches a
significant threshold.
Anti-Redlining Provisions Are Insufficient To Ensure Low- And Middle
Income Consumers Are Not Left Behind
The legislation appropriately prohibits redlining based on
income. Unfortunately, in the absence of build out
requirements, the anti-redlining provision, on its own, will
be not be sufficient to ensure low-income areas will be served
by new video providers. Existing Title VI anti-redlining
provisions have only been effective because they exist in tandem
with the ability of local franchise authorities to require
service throughout the franchise area over time. Without
requirements for build-out, anti-redlining provisions are
toothless.
Moreover, redlining, particularly as defined in this bill,
will be difficult to prove and violations will be difficult to
enforce. So long as the burden lies with authorities to prove
that income is the sole reason a cable company has denied
service or upgrades, the anti-redlining provision will be
largely symbolic. Providers may justify failure to provide
service to particular neighborhoods based on insufficient demand
or economic infeasibility. Therefore, any anti-redlining
prohibition should place the burden of proof on cable providers,
not local, state or federal authorities. That is, the providers
should be required to prove that service denial is justified for
reasons other than income.
The legislation should also provide for concurrent
anti-redlining enforcement by states and localities and include
strong penalties for violations. Localities, in particular,
have specific knowledge of local economic circumstances; a
providers' service history in the community; and other knowledge
that allows them to identify redlining concerns. They are also
more accountable and responsive to their citizens than federal
regulators and are more likely to take timely action to resolve
redlining concerns.
In addition, to improve the effectiveness of anti-redlining
enforcement, the legislation should require the FCC to collect
data that will allow enforcement authorities to identify
redlining violations. Currently, FCC lacks data that would help
identify patterns of service and potential redlining in broadband
the technology over which telephone companies will deliver video
services. Additional reporting requirements and analysis should be
part of the systematic process of oversight. Cable service providers
should be required to submit regular reports about the location,
density, and level of service offered in each franchise area. Finally,
the bill should provide for cross-tabulation of census data with the
cable service provider reports to identify.
Consumer Protections Are Weakened
Under current law, states and localities have authority to
establish more stringent cable customer service standards than
required by federal law. Localities are able to enforce those
standards through the terms of and renewal process for their
local franchising agreements. Many franchise authorities have
staff and offices dedicated to resolution of cable complaints
that provide for speedy resolution of customer billing concerns,
service outages and more. Penalties in the form of liquidated
damages or mandatory discounts for customers harmed by a
provider's violation of customer service standards are not
uncommon.
The Communications Opportunity, Promotion and Enhancement Act
strips states and localities of their authority to both establish
and enforce consumer protections that exceed the federal minimum
standards and gives enforcement authority solely to FCC,
significantly weakening consumer protections. States and
localities will have only the ability to issue compliance orders
when providers violate Commission standards. They can take no
enforcementaction of their own unless FCC regulations so
prescribe, raising serious concerns about the timeliness and
resolution of complaints. Communities, now empowered to resolve
customer disputes with their cable provider, would be left with
only the ability to issue compliance orders that FCC alone may
enforce.
Any national franchise legislation should retain state and
local authority to establish customer service standards and
consumer protections. Consumers must have a means for timely
and local resolution of complaints against their service
providers. Federalizing consumer protection is neither workable
nor acceptable. The Federal Communications Commission is
ill-equipped to address billing, services and outages
complaints in a timely manner. Customer service, the process
for resolving complaints, reporting requirements and
accountability of providers to officials must remain local,
with appropriate and meaningful sanctions for violations. At
a minimum, the legislation should provide for strong federal
minimum consumer protection requirements that reflect the more
stringent criteria established to date by states and localities
and provide states and localities with concurrent enforcement
authority.
Finally, the legislation inexplicably and immediately eliminates
the existing federal requirement that cable companies provide
consumers with 30-day advance written notice before changing
channel assignments. This uniform and common sense provision
helps reduce consumer confusion and improves the accountability
of cable providers. Even on the theory that competition under a
national franchise may help discipline anti-consumer practices,
under the legislation as drafted, many consumers in a given
market will be without that competitive alternative. In fact,
even if a telephone company offers service to just one household
or one neighborhood, the dominant incumbent cable provider in
that franchise area could seek a national franchise and be
released from the written notice provision. Congress should
maintain this commonsense consumer protection.
Broadband Discrimination Protections Are Inadequate
It is critical that any video franchising legislation include
strong, enforceable network neutrality policies required to
protect consumers and preserve the Internet as a source of
innovation and competition. However, as drafted, the network
neutrality provisions in Section 201 of the Communications
Opportunity, Promotion, and Enhancement Act are inadequate to
protect consumers from network-owner discrimination against
competitive, Internet-based content, applications, and services.
Relying on the FCC's policy statement on network
nondiscrimination is insufficient. There is no mention in that
statement of protection against the practice many network
operators have announced they will undertake-dividing the
Internet into pay-for-play tiers of service, or "access
tiering." Unfortunately, the legislation not only fails to
provide for stronger protections than encompassed in FCC's
policy, it simultaneously strips the FCC of its rulemaking
authority to protect consumers from discriminatory network
practices and provides for only case-by-case enforcement of
FCC's already weak network neutrality policy.
Services, content and applications delivered via broadband
offer consumers new opportunities for competitive
telecommunications and video services. But the telephone and
cable companies that dominate the broadband market have strong
incentives to shut out those competitors through access
tiering, by impairing transmission, or by prohibiting use of
devices or applications on their networks. To protect consumers,
Congress should pass clear legislation and require the FCC to
issue strict and enforceable regulations prohibiting
discriminatory practices. The enforcement process must be
timely and require the network operator to bear the burden of
proof. We must ensure that no entrepreneur is posthumously
vindicated by the FCC after a complaint process drags on for
months. In short, the FCC's authority must be expansive and
its direction clear.
As subscription video services are increasingly offered using
Internet-based technologies, maintaining the Internet as a
neutral platform on which network owners cannot discriminate
becomes even more essential. The Bells are not the only
providers who could compete with cable. Increasingly, "video
on demand" is being offered over the Internet, where consumers
can access movies or pay to watch a single episode of a single
program. As Congress considers ways to increase competition in
video services, it must not overlook independent Internet
content providers as a third competitor. But that source of
competition will be squelched without strong, enforceable
prohibitions on network discrimination. Both cable and
telephone companies can use their network control to
prioritize their own video content over others.
Moreover, a network neutrality policy that permits "access
tiering" virtually guarantees higher consumer prices. Recent
media reports describe operators' plans to create "access
tiers" of service that will charge Internet companies fees to
bring their products and services to subscribers. The fees
charged to content and service providers will inevitably be
passed onto consumers who have already paid for high-speed
access. Though this may be rational market behavior for
short-term return on investment, it is patently discriminatory
and reflects a fundamental change in the nature of the Internet.
Only those companies who can afford to pay for access will be
able to reach consumers, stifling innovation, impeding
competition and hiking end user costs. Hidden costs and
discriminatory prices are anathema to consumer interests.
Ironically, both cable and telephone companies who now
object to strong network neutrality legislation have a
lengthy record of using their market control to
preclude competition. And in recent weeks, these same
players have complained about the discriminatory
practices of their own competitors. AT&T has complained
that Time Warner has refused to run telephone industry
advertisements supporting national franchising on its
cable network. Time Warner has filed complaints against
incumbent telephone companies over refusals to provide
interconnection for its VOIP services. And Verizon has
complained that Rainbow Media, and its parent company
Cablevision, are denying Verizon carriage of its
regional sports cable networks. The complaint explicitly
sites the discriminatory practices of a cable operator
using market power to eliminate competition.
In each of these cases, the discriminating party is using its control
over the network to preclude a competitor. There is every reason to
believe the both dominant cable and telephone providers will likewise
use their control over broadband networks to discriminate against
Internet-based companies that offer services that compete with their
own.
With a strong network discrimination prohibition, the promise
for competition in video will come not just from Verizon and
AT&T, but from any other entrepreneurial company that offers
video via the Internet in a manner more appealing to consumers.
Without such a prohibition, however, that promise of competition
and innovation will be lost.
More Protections are Required to Ensure Community Needs Are Met
While the legislation includes requirements that any provider
operating under a national franchise meet basic obligations to
serve the community, we are concerned that the legislation falls
short in a number of areas.
Institutional Networks: The legislation maintains existing obligations
of incumbent cable companies to provide institutional networks (I-Nets)
for schools, libraries and government buildings under their local
franchise agreement, but makes no provision for communities who may not
yet have an I-Net but have existing authority to negotiate for one.
I-Nets have played an important role in providing communities with
advanced communications services and have been critical in helping to
bridge the digital divide. If localities are to be stripped of their
ability to negotiate for these networks, any national franchise should
also provide for national uniform requirements for I-Nets in communities
that lack them.
Local, Independent and Diverse Programming: The legislation laudably
requires new entrants to carry any public, education and government
(PEG) access channels already carried by incumbents under incumbent
franchise agreements and provides for incremental improvements in
capacity over time. But, as with I-Nets, it fails to establish a
national minimum requirement for carriage of local, independent
channels, leaving those communities who lack carriage of such channels
currently, but retain authority to negotiate for them, with no
recourse. The legislation could remedy this by establishing a national
minimum carriage requirements in all franchise areas.
Moreover, while establishing national requirements for
financial support of institutional networks and public access
channels, carriage of PEG channels, and local franchise fees,
the bill provides for no explicit enforcement of those
requirements.
The only penalty for noncompliance appears to be franchise
revocation a heavy hammer FCC
will be reluctant to bring down.
Currently, localities enforce
those provisions through their
franchise agreements. Communities
can prevent violation of franchise
agreements before they occur by
including penalties within their
agreements. National franchise legislation must provide for
explicit enforcement of franchise conditions in a manner that
empowers communities and states to ensure the needs of
communities are being met by video providers.
To Foster Video Competition, The Legislation Should Include Prohibitions
On Programmer Tying Arrangements
In order for true price competition to emerge in multichannel
video markets, Congress must also address anticompetitive
tying requirements imposed by dominant media companies.
At the same time that the cable distribution market has
consolidated, concentration in video programming has increased
dramatically. Broadcast giants and cable programmers have
merged; broadcast and satellite distributors have merged; and
cable distributors increasingly offer their own programming
or have gained ownership stake in other video programmers.
The anticompetitive effects ofconcentration in video programming
decreases the likelihood that new Bell video market entrants
will be able to effectively compete on price and on channel
offerings.
Program carriage contracts typically stipulate that distributors
offer several or all of the programmer's channelsin the most
widely viewed tier (usually the expanded basic tier), regardless
of consumer demand for them,and prohibit channels from being
offered to consumers individually or in specialty tiers. These
bundling requirementshave contributed to increased size and
price of the expanded basic tier, which has increased in cost
by two and a half times compared to the basic tier.
Media companies can secure these commitments because of their
market power. Six media giants, including the top four
broadcasters, dominate the programming landscape, accounting
for three-fourths of the channels that dominate prime time.
Four are networks (ABC, CBS, FOX and NBC) and two are cable
operators (Time Warner and Comcast). The networks use the
retransmission consent negotiations for carriage of the local
stations they own and operate to leverage local cable carriage
of their other channels. These six companies also completely
dominate the expanded basic tiers and the realm of networks
that have achieved substantial cable carriage. These six
entities account for almost 80 percent of the more than 90
cable networks with carriage above the 20 million subscriber
mark.
Moreover, cable operators are majority owners of one-fifth of
the top 90 national networks a substantial stake in the programming
market. They also own minority stakes in other networks, as well. The
Government Accountability Office found that vertically integrated
distributors or those affiliated with media companies are more likely
to carry their own programming, contributing to the size and cost of
the expanded basic tier. These vertically integrated networks continue
to have the largest number of subscribers,and are the most popular.
Program ownership by dominant incumbent cable distributors also
provides the incentive to withhold carriage of cable networks they
own from competitive video distributors. This is the basis of
Verizon's recent complaint against Rainbow Media and Cablevision
over sports channel carriage.
Independent, unaffiliated cable distributors that do not own
their own programming have consistently expressed concerns
about exclusionary tactics, contractual bundling requirements,
and coercive retransmission consent negotiations that limit
their ability to respond to customer demand for more choice
in program packages and for lower prices.
It is therefore essential that Congress include in any national
franchise legislation provision that address anticompetitive
and coercive contractual requirements, including retransmission
consent abuse. Failure to do so will impede the ability of any
new video market entrant, including Verizon and AT&T, to compete
on price. They'll be forced to buy the same channels their
competitor is carrying; pay the same or greater licensing fees;
and offer the same packages. Worse, they will be precluded from
offering consumers channels individually or in specialty tiers,
rather than in a large and costly bundle, even though doing so
may give them an opportunity to differentiate their services
from the incumbent cable monopoly and respond to strong
consumer demand for greater channel choice.
The Right of Municipalities to Provide Broadband Networks is Protected
We offer our strong and unqualified support for Section 401 of
the legislation, which prohibits state preemption of municipal
broadband networks-a critical component of any legislative
package that seeks to increase consumer access to advanced
telecommunications services and foster competition in data,
video and voice services, and expand affordable high-speed
Internet access to all Americans.
Hundreds of communities have responded to the lack of
affordable broadband access by creating their own networks
through public-private partnerships, offering new opportunities
for entrepreneurs. Community broadband networks offer an
important option for communities in which broadband services
reach only certain areas or are offered at prices out of reach
for many consumers. Equally important, the mere possibility
that a community may develop a broadband network helps
discipline the marketplace.
Efforts to prohibit these community networks stifle competition
across a range of telecommunications services, stall local
economic development efforts, and foreclose new educational
opportunities. Section 401 ensures that communities that want
to foster broadband access are not precluded from doing so.
Conclusion
The need for greater competition in the monopolistic video
marketplace is an urgent one-but it has been urgent for a
decade. We urge Congress to take the time to consider the many
policy issues that must be addressed before abandoning the
fundamental consumer protections encompassed in current law.
These include mandatory build out requirements or in lieu
thereof resources to meet the needs of underserved consumers;
provisions that prevent cable providers from backsliding on
their current obligations to serve the entire community;
strong consumer protections with state and local enforcement
authority; prohibitions on anticompetitive contractual channel
bundling requirements that reduce consumer choice and prevent
product differentiation; and a strong enforceable prohibitions
on broadband network discrimination.
We thank the Subcommittee for the opportunity to testify and
look forward to working with you on legislation that promotes
competition in the video marketplace that benefits all
Americans.
Mr. Upton. Mr. May?
Mr. May. Mr. Chairman and members of the committee, thank you very
much for inviting me here to testify today. I am Senior Fellow and
Director of Communications Policy Studies at the Progress and Freedom
Foundation, a non-profit, non-partisan research and educational
foundation located here in Washington.
During the past year, I have chaired PFF's Digital Age
Communications Act Project, the purpose of which has been to
draft a new model communications law. While my views have
been informed by the work of the participants in the DACA
project and my PFF colleagues, the positions I express here
today are my own.
When Congress passed the 1996 Act and I was glad Ms. Johnson
actually referred back to it, it stated that it intended "to
provide for a pro-competitive deregulatory national policy
framework." While the 1996 Act in my view should have been
much more unambiguously deregulatory and should have gone
further in creating a national policy framework at that time
due in part to the changes of law and policy brought about by
the Act and to an even greater measure to the rapid fire
technological changes enabled by the digital revolution.
We now enjoy a communications marketplace characterized by
competition and convergence. I do not have time today to
belabor this point by citing the readings of statistics or the
very latest news stories about new competitive entrance or new
services or new applications. It should be sufficient to point
out that we live in a world in which firms that we still
sometimes call cable television companies provide voice
services to their subscribers at every increasing rates.
Companies we still call telephone companies are racing to
provide video services and competition with cable and
satellite television providers. New market entrants like
Vonage, which calls itself the broadband telephone company,
utilize super efficient internet connection to carry voice
traffic. Wireless providers we still call cell phone
companies integrate voice, video, and data for delivery any
time anywhere to a small screen, which you carry in your
pocket. They now even distribute television programming. And
popular websites such as those operated by Yahoo, Google,
Microsoft, and thousands and thousands more that are not as
dominant as those companies, but which have their own
intensely loyal viewers, compete with the traditional cable
companies and broadcasters, not to mention newspapers and
magazines for consumer's eyeballs. While we may quibble
around the edges about degree, competition and convergence of
services are realities in today's communications marketplace.
Now in my written testimony, I have outlined a broader program
of more comprehensive communications reform. But with the time
that I have available for the initial statement, I want to
focus on the broadband section of the bill because in the form
proposed, it has the real potential to cause substantial harm
to the broadband marketplace. This section of course provides
that the FCC has the authority to enforce the four broadband
connectivity principles the agency adopted in August 2005. In
essence, the FCC principles embody the bundle of access rights
that are commonly referred to as net neutrality mandates.
Congress should not enact into law any specific neutrality
provision mandating access rights and non-discrimination
obligations. Assuming for the sake of argument that Congress
nevertheless is intent on doing so, any net neutrality-specific
provision should be revised in the manner that I will suggest.
The increasing competitiveness in the existing contestability
of the broadband marketplace makes it very unlikely that
broadband operators will take any actions of the type intended
to be prohibited by the net neutrality prohibitions. If they
did and as we already heard this morning, thus far, essentially
they have not. Broadband operators which, excuse me, consumers
would switch providers. Broadband operations are in the
distribution business. Consumers do not demand bare broadband
by itself. They want the content that broadband distribution
provides. If broadband operators are going to invest billions
of dollars building out new broadband networks, operators will
not find it in their interest to block, or impair, or degrade
subscribers from accessing services and content that the
consumers find valuable.
It is also true that when broadband operators contemplate
investing billions of dollars in new high speed networks, the
ability to bundle distribution with content and to enter into
efficient business arrangements with unaffiliated content and
application providers may be crucial to providing the
incentive to invest. And the ability of an operator to
differentiate its service from that of another operator may be
critical to the decision to invest in new networks and service
applications.
Competitive markets often involve legitimate price and service
discrimination and network owners often are pursuing legitimate
technological or business objectives in particular cases when
they differentiate their services. Take one example, I think
which illustrates this point vividly. Clearwire is a new
wireless entrant into the marketplace. Clearwire gave Bell
Canada exclusive rights to distribute VOIP over Clearwire's
new wireless broadband network in exchange for $100 million
investment by Bell Canada. Would consumers be better off if
this discrimination were prohibited as it would be under any
neutrality provision and Clearwire's new network not be built?
I do not think so.
So I do not think Congress should enact a neutrality-specific
provision. But if Congress is going to do so, it is very
important that it not enact a broad overly inclusive mandate.
To prevent this, the committee should incorporate into the
provision an unfair competition standard that should
explicitly tie the FCC's authority to enforce the broadband
principles to this unfair competition standard. While the
preference in the bill for adjudicatory proceedings is
positive, alone it is not sufficient that the new law will
not be interpreted by the agency or by the courts on
reviewing the agency's decision in a way that is essentially
equivalent to traditional common carrier principles.
The hallmark of common carriage is the obligation not to discriminate
and charge reasonable rates. Without the competition, without tying
these principles to a competition base provision that looks at
particular markets, the market structure and market power, it is very
likely that these principles will be interpreted in a way that equates
precisely with traditional notions of common carriage.
When Chairman Barton asked all of the participants this
morning on the first panel this afternoon to define net
neutrality, we heard a bunch of different definitions. But
Mr. Misener from Amazon, who is a proponent of net neutrality,
actually came close, I think, to having it right. He said
basically that net neutrality is market power extended into
other markets. But the way to deal with it is to ensure that
if there is going to be any determinations made, that they are
dealt with in adjudications, as you provided, and specific
circumstances looking at particular facts so the situations
like the Clearwire example probably would not constitute a
violation of net neutrality.
Mr. Upton. If you could sum up, you have gone four minutes
longer than the five.
Mr. May. Okay. I am outnumbered here about four to one but I
will do that, thank you, Mr. Chairman.
The way I would sum up is just this, that I think that what is
important for the committee to focus on as it goes forward is to
import into this bill notions of regulations that are tied very
specifically to competition assessments and standards.
Thank you.
[The prepared statement of Randolph J. May follows:]
Prepared Statement of Randolph J. May, Senior Fellow and Director,
Communications Policy Studies, The Progress & Freedom Foundation
SUMMARY
The Committee should be commended for the substantial progress
it has made since the earlier two staff drafts in proposing a
bill that will represent sound communications policy.
Especially with regard to the national cable franchise
proposal, in many respects the proposal furthers the worthy
intent stated by Congress when it passed the
Telecommunications Act to adopt a -pro-competitive,
deregulatory national policy framework.-
As for the Broadband Policy section, it would be far
preferable for Congress not to include a net neutrality-specific
provision in the bill. There certainly have not been more than
a few scattered instances of alleged marketplace abuses.
Moreover, in the increasingly competitive broadband marketplace,
there is no reason to anticipate that broadband operators will
not be responsive to making available services that consumers
value. Assuming for the sake of argument that Congress is
intent on including a net-neutrality-specific provision,
however, it should explicitly tie enforcement of the FCC's
broadband principles to determinations made under a market-
oriented unfair competition standard such as the one I suggest
in my testimony. Absent clearly tying FCC authority to a
competition-based standard that will require the agency to
undertake a rigorous fact-based economic analysis of the
particular marketplace circumstances that exist at the time,
there is a great danger that enforcement of the access mandates
at the core of the broadband principles will turn into a
general common carrier regime for broadband operators.
Extending the non-discrimination obligations and rate
regulation requirements that are hallmarks of a common carrier
regime, and which may have been appropriate in a monopolistic
narrowband era, to the competitive broadband era will certainly
stifle new investment and innovation and impose an overall
drag on the nation's economy.
In light of the competition that already exists in the video
marketplace, and the potential for even more competition from
telephone companies and other new entrants, there is no longer
any rationale for local franchising authorities to play a
public utility-type economic regulatory role. This is true
for new entrants such as the telephone companies and for
incumbent cable operators alike. The proposal for a national
franchise will speed the development of further video
competition and, indeed, the deployment of new broadband
networks. At the same time, the Committee should consider
further improvements in the video section of the bill suggested
in my testimony, such as eliminating the PEG and institutional
network mandates.
Mr. Chairman and Members of the Committee, thank you very much for
inviting me to testify today. I am Senior Fellow and Director of
Communications Policy Studies at The Progress and Freedom Foundation,
a non-profit, nonpartisan research and educational foundation
located in Washington, DC. PFF is a market-oriented think tank that
studies digital revolution and its implications for public policy.
During the past year, I have also co-chaired our Digital Age
Communications Age (-DACA-) project. The purpose of this project has
been to draft a new model communications law. In order to carry out
this purpose, PFF assembled into working groups a diverse group of
leading academics and think tank scholars-lawyers, economists, and
engineers-who are experts in the field of communications policy. The
views I express here today have been informed by the work of the
participants in the DACA project. But I want to emphasize at the
outset that while my colleagues at PFF, and other participants in
the DACA project, may share many of my views, the positions I express
here today are my own.
Introduction
It has been ten years since enactment of the Telecommunications Act of
1996. Recall that when Congress passed the 1996 Act, it stated that it
intended -to provide a for a pro-competitive, deregulatory national
policy framework designed to accelerate rapidly private sector
deployment of advanced telecommunications and information technologies
and services to all Americans by opening all telecommunications markets
to competition.- While I believe that the 1996 Act could have been
much more unambiguously deregulatory, the fact of the matter is that,
due in part to the changes in law and policy brought about by the act,
and due in even greater measure to rapid-fire and ongoing technological
changes enabled by the digital revolution, we now enjoy a communications
marketplace characterized by competition and convergence. I am not
going to belabor this point here by citing reams of statistics or the
very latest (usually this morning's!) news story about a new
competitive entrant or a new communications service or application.
For my purpose today, it is sufficient to point out that we live in a
world in which firms we still sometimes call "cable television"
companies provide voice services to their subscribers at ever
increasing rates. Companies we still call "telephone companies" or
"telecommunications providers" are racing to provide video services
in competition with cable and satellite television providers. New
market entrants like Vonage, which calls itself "the broadband
telephone company," utilize super-efficient Internet connections to
carry voice traffic. Wireless providers we still sometimes call
cellphone companies integrate voice, video and data for delivery
anytime, anywhere to a screen you carry in your pocket. They now
distribute popular -television- programming. And popular web sites,
such as those operated by Yahoo, Google, Microsoft, and thousands
and thousands more that are not as dominant but which have their
own intensely loyal "viewers", compete with traditional
broadcasters and cablecasters, not to mention newspapers and
magazines, for consumers' eyeballs.
So while we may quibble around the edges about degree, competition
and convergence of services are realities in today's communications
marketplace. That being the case, any communications law reforms
enacted should be consistent with the pro-competitive, deregulatory,
and national policy goals Congress articulated in the 1996 Act, and
it is against those objectives that I will consider the present bill.
Before addressing more specifically the bill before us, I do want to
sketch briefly what I believe, ideally, communications reform
legislation should include.In light of the realities of the current
communications marketplace, ideally, Congress would jettison most of
the current statue, that at its core is grounded in many different
service definitions ("telecommunications", "information service",
"cable service, "mobile service", and so on). These existing
service definitions are based on what I have called -techno-
functional constructs.-I use this term because the service
definitions are all tied to some combination of technical
characteristics or functional capabilities. In a world of
convergence driven by technological change, drawing distinctions
for regulatory purposes between and among the variously-denominated
services becomes a largely metaphysical exercise.
In today's digital age, this regime of so-called "stovepipe"
regulation should be replaced by a new market-oriented regulatory
paradigm based on competition law principles grounded in antitrust-
like jurisprudence enforced by the Federal Communications Commission.
Under the DACA proposal, most of the FCC's regulatory actions would
be subject to an -unfair competition- standard-akin to the standard
employed by the FTC under the Federal Trade Act. This unfair
competition standard, which would be at the heart of the new
communications law, would anchor the FCC's regulatory activities
firmly in market-oriented competition analysis. I will say more
about this proposed regime, which like antitrust law, makes
competition and consumer welfare paramount, when I discuss Title II,
the bill's broadband provision. Here I just want to add that, it
light of the radical marketplace changes I have described, ideally
Congress would enact a comprehensive reform of the nation's
communications laws that would include, in addition to the change
in regulatory paradigm, (1) alteration of the division of
jurisdictional authority that recognizes the increasingly national
and international nature of communications; (2) reform of the
universal service system of subsidies that recognizes the extent
to which consumers in rural areas and low income consumers have
opportunities to avail themselves of new, lower-cost communications
technologies than those traditionally supported by the subsidies;
and (3) reform of spectrum policy that recognizes that increased
flexibility of use and more secure property-like rights leads to
more efficient and consumer-welfare enhancing use of this valuable
resource.
The Net Neutrality Provision
Now I want to turn to the bill before us. Although it is
only two pages, I first want to address Title II,
"Enforcement of Broadband Policy Statement.- This section
is very important, in a fundamental sense, to the future
development of the broadband and Internet markets, and,
indeed, to the future of sound communications law reform. In
essence, this section provides that the FCC has authority to
enforce, through adjudications and not rulemakings, the four
"connectivity" principles the agency adopted in August 2005.
The bill provides that if "the Commission determines that
such a violation [of the principles] has occurred, the
Commission shall have authority to adopt an order to require
the entity subject to the complaint to comply with the
broadband policy statement and the principles incorporated
therein."
The FCC's September 2005 policy statement describes the broadband
principles as follows: (1) consumers are entitled to access the
lawful Internet content of their choice; (2) consumers are entitled
to run applications and services of their choice; (3) consumers are
entitled to connect their choice of legal devices that do not harm
the network; and (4) consumers are entitled to competition among
network providers, application and services providers, and content
providers.(Note here that this last principle, as I read it, appears
to extend the FCC purview to application and content providers, such
as Google, EBay, and Yahoo, perhaps providing a basis for complaints
to the FCC that the market segments in which they participate are not
"competitive".) When adopted, the Commission characterized the
principles as "guidance'-, not rules in the sense of positive law,
although it said that -to ensure consumers benefit from innovation
that comes from competition, the Commission will incorporate the
above principles into its ongoing policymaking activities.-
The FCC's principles embody the bundle of access rights that are
often referred to as "Net Neutrality" mandates. I want to explain
first why it is far preferable for Congress not to enact into law
any specific net neutrality provision mandating access rights and
non-discrimination obligations. And then I want to explain why,
assuming for the sake of argument that it nevertheless does so,
any such net neutrality-specific provision, such as the one
included in the bill, should be revised as I suggest below.
It is important to emphasize again here the increasing
competitiveness, and the existing contestability, of the broadband
marketplace, makes it very unlikely that broadband operators will
take any actions of the type intended to be prohibited by the net
neutrality prohibitions which consumers value. If they did, consumers
would switch broadband providers. Broadband operators are in the
distribution business. Consumers don't demand -bare- broadband by
itself, of course; they want the content that broadband distribution
provides. If they are going to invest billions of dollars building
out new broadband networks, it is safe to assume that the operators
will not find it in their interest to block or impede subscribers from
accessing services and content that the customers find valuable.
It is also true that when broadband operators contemplate investing
billions of dollars in new high-speed networks, the ability to bundle
distribution with content, and to enter into efficient business
arrangements with unaffiliated content and applications providers,
may be crucial to providing the incentive to invest. In this regard,
the ability of an operator to differentiate its service from that of
another operator, or even in some circumstances to discriminate among
unaffiliated providers, may be critical to the decision to invest in
new networks and service applications. As the members of the DACA
Regulatory Framework Working Group explained in a recent joint
statement: -Competitive markets often involve legitimate price and
service discrimination, and network owners often are pursuing
legitimate technological or business objectives in particular cases.-
To take one example, new broadband wireless entrant Clearwire
apparently gave Bell Canada exclusive rights to distribute VoIP over
Clearwire's broadband network in exchange for a $100 million
investment by Bell Canada. Would consumers be better off if this
-discrimination- were prohibited and Clearwire's new network not
built? I don't think so.
In any event, although we have yet to see more than a handful of
claimed instances of abuse occur, my purpose here is not to argue
that, in today's environment, there might not be some instances in
which, due to the particular marketplace circumstances, we ought to
be concerned about discriminatory conduct or denial of access rights
of the type encompassed by the FCC's broadband principles. Perhaps
the oft-cited case involving Madison River, in which the dominant
local telephone company allegedly refused to provide access to its
network to independent VoIP providers is just such an instance. My
purpose here is to suggest that it is important that Congress not
enact a provision that is-or that even possibly will be turned
into-a broad, overly-inclusive net neutrality mandate. Rather, if
Congress insists on dealing with this issue in this bill, it should
incorporate into the provision the unfair competition standard that
is at the heart of PFF's DACA regulatory framework. And it should
specifically tie the FCC's authority to enforce the broadband
principles to violations of the unfair competition standard.
The bill already adopts one of the key elements of the DACA
recommendation in that the Commission must proceed through
adjudication in deciding whether the broadband principles have been
violated. Because rulemakings, especially as the FCC has conducted
them in the past decade or so, often are interminable proceedings
that, when completed, lead to overly broad and vague anticipatory
prohibitions, the bill's preference for case-by-case adjudications is
very commendable. The Committee might consider imposing a time limit
upon the Commission for deciding complaints to ensure that net
neutrality-like complaints are decided in a timely fashion, and it
might make clear that the agency has the authority, upon a strict
showing that there is a substantial likelihood the complainant will
prevail on the merits and will otherwise suffer substantial and
irreparable harm, to issue administrative injunctive relief, pending
the prompt final decision.
While the preference for adjudicatory proceedings is positive, alone
it is not sufficient to ensure that the new law will not be
interpreted by the agency, or by the courts upon review of the
agency's decisions, in a way that is essentially equivalent to
traditional common carrier principles. Indeed, that is what the net
neutrality advocates seek. The hallmark of common carriage is the
obligation not to discriminate and to charge -reasonable- rates. In
effect, it is a very short (or non-existent) leap from enforcing the
principle that consumers are entitled to access any content of their
choice to determining that the provider may not differentiate its
service from another provider by favoring some content and applications
over others. Such common carrier regulation may have been appropriate
in an era generally characterized by monopolistic service providers,
but it is not appropriate in today's competitive broadband environment.
As explained above, in a competitive marketplace, imposing common
carrier-like obligations stifles investment and innovation and puts a
drag on the overall economy.
Therefore, the Committee should revise the broadband section to
provide that the FCC may find a violation of the broadband principles
only if it finds that the broadband operator has committed an unfair
competitive practice. An unfair competitive practice should be defined
as an act that presents -a threat of abuse of significant and
non-transitory market power as determined by the Commission consistent
with the application of jurisprudential principles grounded in market-
oriented competition analysis- such as that commonly employed by the
FTC and the Department of Justice in enforcing the antitrust law.
Incorporation of this competition standard will force the FCC to ground
its decisions in rigorous economic analysis based on the marketplace
realities at the time of the complaint. Under the specific circumstances
of the case, the FCC would examine factors such as the number of
existing and potential competitors, barriers to entry, technological
dynamism in the markets at issue, and impacts on investment and
innovation. Thus, for example, in a case such as Madison River, the
agency might well find that that the complainant has proved an
anticompetitive practice that should be remedied, while in the Clearwire
example, the agency might well determine that under those circumstances
that the exclusive arrangement does not constitute an anticompetitive
practice. Moreover, if the agency does find that an unfair competitive
practice has been committed, in the adjudicatory proceeding that the
bill wisely envisions, it can tailor the remedy to fit the circumstances.
So, in conclusion, if the broadband section is to remain in the bill
despite my recommendation that it not be included, a competition
standard such as I have suggested should be married with the requirement
for case-by-case adjudications.
Video Competition
The section of the bill creating a national franchise for cable
operatorsis a positive step that will further enhance and speed up the
development of competition in the multichannel video market and, more
broadly, the broadband market. Harking back to the stated goals of the
1996 Act that I mentioned earlier-pro-competitive, deregulatory, and a
national policy-the video section generally furthers those goals.
Nevertheless, in light of the competition that presently exists and
which will continue to develop, the Committee should consider going
further to reduce the regulatory requirements applicable to the cable
operators, especially in the area of content regulation, where the
First Amendment rights of the providers are implicated. And, once it
establishes a national framework for cable operators applicable to
new entrants and incumbents, as much as possible, it should apply to
them in like manner.
Competition in the video marketplace has been increasing steadily
over the past decade or so. I went back and examined the FCC Annual
Video Competition Report that was issued in January 2000. There,
while noting that cable and satellite operators dominated the
marketplace, the FCC stated that the following entities were also
providing video programming alternatives in some places: wireless
cable operators, SMATV systems, local telephone companies, Internet
video, home video sales and rentals, and electric utilities.
Obviously, not all of these entities (for example, electric utilities
or local telcos) were meaningful competitors or even, at that time,
exerted meaningful pressure on the market as potential competitors.
But, looking ahead, it was easy for the FCC to conclude then that,
"[t]he technological advances that will permit MVPDs to increase both
quantity of service (ie., an increased number of channels using the
same amount of bandwidth or spectrum space) and types of offerings
(e.g. interactive services) continue.-
Fast forward to this year. In its 12th Annual Video Competition
Report, the FCC recently concluded:
In this year's Video Competition Report, the FCC finds that the
competitive MVPD market continues to provide consumers with increased
choice, better picture quality, and greater technological innovation.
The report concludes that almost all consumers may opt to receive
video services from over-the-air broadcast television, a cable
service, and at least two DBS providers. In addition, a growing
number of consumers can access video programming through digital
broadcast spectrum, fiber to the node or to the premises, or video
over the Internet. Moreover, once consumers have selected a
provider, technology such as advanced set-top boxes, digital video
recorders, and mobile video services give them even more control
over what, when, and how they receive information. Furthermore,
many MVPDs offer nonvideo services in tandem with their traditional
video services.
So, we have seen the video marketplace become increasingly
competitive over the past decade, due largely to
technological advances. But there is no doubt that the
market will become even more competitive-even more quickly-
if national franchises are available as an option to replace
the more than existing 30,000 local franchising authorities
("LFAs"). In the past, in granting and overseeing franchises
to cable operators, the LFAs played a role akin to a
traditional public utility regulator. While they served
other claimed purposes as well, such as managing the cable
operators' use of public rights-of ways and imposing social
obligations such as making available free of charge Public,
Educational, and Government (-PEG-) channels and
institutional facilities for government use, in essence the
LFAs primarily were seen by the local governments as a way
to constrain market power. This public utility-type
regulatory function demonstrably is no longer necessary.
Under a general national franchise regime such as that
proposed in the bill, the authority of the LFAs to manage
ROWs can still be maintained and properly constrained, and
Congress can make judgments concerning, whether in the
current and anticipated market environment, it is consistent
with sound policy to maintain the non-economic regulatory
social obligations.
While endorsing the national franchise approach, and commending the
Committee for avoiding the imposition of unnecessary build-out
requirements, here are some suggestions to consider for improving
the bill further:
Once a decision is made to implement a national franchise regime in
light of the changed competitive environment and lack of need for
traditional economic regulation, it is not clear why the LFA should
be able to petition to revoke a national franchise obtained by an
incumbent cable operator if no new competitor provides service in
the franchise area during a one year period. There is a sound
policy basis for providing the national franchise option that is
not dependent on whether a particular competitor enters or remains
in the market.
Again, in light of the changes in the competitive environment, it is
time to consider eliminating the PEG and institutional network
mandates. In an environment in which there are a multiplicity of
information sources for educational and government programming
activities, the rationale for maintaining that "cable operators",
incumbent or otherwise, (as opposed to local newspapers, Internet
sites, broadcasters, etc.) must turn over their facilities for
PEG channels is very weak. Whatever the original merits of the
extraction of these channels for public use, the purposes for
which they are intended can be met-and almost certainly are being
met today-in the free marketplace absent government compulsion.
Certainly government mandates on private communications systems to
carry particular types of programming implicates First Amendment
free speech interests. And the PEG mandates, along with the mandate
for continued support of the institutional networks of the
localities implicates the property rights of the private operators
under the Fifth Amendment. I suggest that, in the competitive
marketplace environment that is now a reality, increased sensitivity
to these free speech and property-rights constitutional
considerations by Congress will also point the way towards sound
communications law and policy.
Conclusion
The Committee should be commended for the substantial progress it
has made since the earlier two staff drafts in proposing a bill that
will represent sound communications policy. As for the Broadband
Policy section, it would be far preferable for Congress to do
nothing at all now to include a net neutrality-specific provision in
the bill. There certainly have not been more than a few scattered
instances of alleged marketplace abuses. Moreover, in the
increasingly competitive broadband marketplace, there is no reason
to anticipate that broadband operators will not be responsive to
making available services that consumers value. Assuming for the
sake of argument that Congress is intent on including a
net-neutrality-specific provision, however, it should explicitly
tie enforcement of the FCC's broadband principles to determinations
made under a market-oriented unfair competition standard such as
the one I suggest in my testimony. Absent clearly tying any FCC
authority to a competition-based standard that will require the
FCC to undertake a rigorous fact-based economic analysis on the
particular marketplace circumstances at the time, there is a
great danger that enforcement of the access mandates at the core
of the broadband principles will turn into a general common carrier
mandate for broadband operators. Extending the non-discrimination
obligations and rate regulation requirements that are hallmarks of
a common carrier regime and which may have been appropriate in a
monopolistic narrowband environment to the competitive broadband
era will certainly stifle new investment and innovation and impose
an overall drag on the nation's economy.
In light of the competition that already exists in the video
marketplace, and the potential for even more competition from
telephone companies and other new entrants, there is no longer
any rationale for local franchising authorities to play a public
utility-type economic regulatory role. This is true for new
entrants such as the telephone companies and for incumbent cable
operators alike. The proposal for a national franchise will speed
the development of further competition. At the same time, the
Committee should consider further improvements in the video
section of the bill suggested in my testimony.
ATTACHMENT A
The Digital Age Communications Act's Regulatory Framework
and Network Neutrality
----
A Statement of the DACA Regulatory Framework Working Group
Randolph J. May
James B. Speta
Co-Chairs
Kyle B. Dixon
James L. Gattuso
Raymond L. Gifford
Howard A Shelanski
Douglas C. Sicker
Dennis Weisman
Members
One of the hottest issues in the current telecommunications
reform debate is the discussion of "Network Neutrality,"
which generally refers to a nondiscrimination mandate for all
broadband Internet networks similar to the common-carrier rule
that applied to traditional telecommunications services in a
monopolistic era. Most of the legislative proposals for
telecom reform include a Network Neutrality rule,and the FCC
in 2005 issued a policy statement in which it backed a version
of Net Neutrality principles. The exception to this trend is
Senator Jim DeMint's "Digital Age Communications Act."
Senator DeMint's bill echoes much of the position taken by the
DACA Regulatory Framework Working Group. This release explains
the general structure of the DACA proposal, and explains why it
provides a better framework for dealing with Network Neutrality
issues. In brief, DACA adopts an "unfair competition" standard
which is based on competition law and economics and which is
robust enough to deal with truly anticompetitive instances of
exclusion on the Internet, but without prejudging business
practices that may spur investment and deployment of new
facilities and services. DACA's case-by-case approach to
Network Neutrality is superior, because it avoids thickets of
ex ante rules while maintaining the availability of ex post
relief.
The DACA Regulatory Framework In General
The DACA framework is designed to respond to two well-known
and, in our view, largely incontestable developments. First,
communications markets are increasingly competitive.
Although that competition is not perfect and does not mirror
the stylized markets of microeconomics textbooks with very
large number of competitors, technological developments have
increased - and are likely to continue to increase -
competition in communications. Second, those same
technological developments mean that service-based regulatory
categories - one kind of regulation for telecommunications
carriers, another for information services, and another for
cable services - are no longer sustainable.
The DACA is a technologically neutral regulatory paradigm,
in that the Federal Communications Commission is given the
same regulatory authority over all electronic communications
networks. That regulatory authority is two-fold. The
agency's principal authority is to punish and prevent
-unfair methods of competition,- which is a phrase
intentionally borrowed from the Federal Trade Commission Act.
The core idea is to punish and prevent practices that violate
competition law principles (or that potentially would do so).
Thus, DACA charges the agency to condemn -practices that
present a threat of abuse of significant and non-transitory
market power- consistent with market-oriented competition
principles.
Beyond the general incorporation of competition law principles,
DACA also states that it is an unfair method of competition to
substantially impede the interconnection of public
communications facilities and services in circumstances in
which the denial of interconnection causes substantial harm
to consumer welfare. This -interconnection authority- is not
necessarily dependent on traditional antitrust doctrine. Given
the result of the Trinko caseand the importance of
interconnection in communications markets, the DACA provides
separate authority for the FCC to order interconnection. But
this authority, under DACA, must still be linked to a theory of
consumer welfare. It is important to recognize that net
neutrality is linked to the welfare of independent content and
applications providers, but not to a sound theory of consumer
or aggregate welfare. Even the most nuanced versions of network
neutrality limit a network's ability to charge an application
that imposes comparatively high costs on a network accordingly,
leaving the network to recover at least some of those costs
through subscription prices paid by consumers. Net neutrality
thus risks being regressive: relatively low use consumers
within a service tier may end up subsidizing those consumers
whose use imposes relatively high costs on the network.
A last, general point about DACA: the regulatory framework is
expressly tilted towards resolving competition problems that
arise through adjudication and ex post remedies. The agency is
still given rulemaking authority, although it must meet a higher
evidentiary burden before promulgating rules. But the statute
contemplates, and we prefer, the agency to act not through the
development of a thicket of rules, but through case-by-case
considerations.
Net Neutrality Claims Under the DACA Framework
Although there is some - indeed, it is fair to say, much -
disagreement about how a network neutrality rule would operate
in practice, such a rule is essentially an attempt to impose on
the Internet the sort of nondiscrimination rule that traditional
common carrier regulation has long imposed on telephone
companies. The supposed point of network neutrality is to
ensure access for applications and content providers, against
the alleged incentives that network providers might have to
deny or degrade access to certain unaffiliated content and
services.
DACA proposes to handle these issues without the necessity of a
specific rule, and without the need for a blanket rule that
tries to anticipate every imaginable harm, and which would
present opportunities for regulatory litigation. Antitrust
law and economics has a well-developed body of learning about
acts of vertical foreclosure - which is what denials of access
would be. Network neutrality may be a new label, but it is just
a specific example of a more general competition issue with
which there is over a century of enforcement experience and
accumulated knowledge. Antitrust analysis takes into account
the possibility of foreclosure, but also looks on a case-by-
case basis for justified or efficient business arrangements.
Competitive markets often involve legitimate price and service
discrimination, and network owners often are pursuing
legitimate technological or business objectives in particular
cases. The -unfair competition- prohibition in DACA provides
sufficient authority for the FCC to condemn and prevent
anticompetitive violations of network neutrality. Indeed, DACA
goes beyond antitrust law by giving the FCC authority to
regulate vertical interconnection where necessary to protect
consumers. For Congress to legislate such interconnection in
advance of actual market experience to justify its necessity
risks economic harm to consumers and producers-harm that has
not been adequately considered in the case for network
neutrality. An ex ante approach to actual harm, backed by the
FCC's proposed authority under DACA, provides a more targeted
approach to real harms. To take only the most famous case to
date of a Network Neutrality complaint, the Madison River
foreclosure of a competing VoIP provider,antitrust analysis
would handle this as a classic monopoly maintenance scenario.
At the same time, DACA's case-by-case approach preserves the
space companies need to develop new network facilities and
services and to enter into new business arrangements.
In addition, DACA's interconnection authority would also
achieve a substantial amount of the same openness that network
neutrality proponents claim to be seeking. In particular, net
neutrality would allow applications and content providers to
reach users of all interconnected carriers, so long as they
are able to reach a negotiated agreement with some carrier.
The necessity of one negotiated agreement is an important
check on regulatory opportunism, however. It channels efforts
at entry into the marketplace and away from litigation at the
FCC.
Conclusion
Given that DACA has the analytic power and the regulatory
tools necessary to handle truly anticompetitive network
neutrality issues, institutional design becomes all important.
And the institutional design of the DACA framework and the way
that it would handle net neutrality issues comes back to its
fundamental premises. One of DACA's fundamental premises is
that, given developing competition, an extensive web of ex
ante rules would have unintended consequences that would harm
consumers and likely stifle markets. DACA is also premised on
the view that infrastructure providers will act, in general,
to promote applications and services that consumers want.
Consumers do not purchase bandwidth for its own sake; they
buy connections if those connections provide services and
applications that consumers want.
And so, if the evidence supports the requisite conditions - that the
markets will be reasonably competitive, that the risks of truly
anticompetitive actions are reasonably small, and that antitrust-based
competition analysis is powerful enough to address it when it happens -
then DACA is the right framework through which to address net
neutrality.
Mr. Upton. Thank you, Joe.
Mr. Makawa?
Mr. Makawa. Thank you, Mr. Chairman.
I will get right to it. I am CEO and Co-Founder of the Africa
Channel and I come before you with probably one of the most
compelling media projects of our generation. The reason I say
that, I am one of those guys that was working in the garage
five years ago to try to get something like this off the
ground.
The Africa Channel is everything the political media and
consumer landscape in this country is ready to engage and to
experience. I have got something to show you in 90 seconds.
[Video]
Chairman, the Africa Channel is here in the name of diversity.
America stands for diversity. Our cable, telephone, and
satellite companies say they understand the importance of
diversity. We embrace that position, support that position,
and pray that we are not getting hollow promises and lip
service. The landscape has got to change. Africa is about
diversity. All our roots, collectively here take us back
there. It is the cradle of mankind. It is the most diverse
place on earth. With that diversity comes a host of realities
like the celebration of life, conflict, tragedy, vibrant
cultures, adventure, wildlife, dance, music, history, food,
tranquility, all part of the African experience unmatched or
experienced anywhere else on the planet, something truly unique.
Double click on any one of these realities and you get some of
the most compelling stories and pictures to share with the rest
of the world. In this case, the United States of America. It
is this experience that as an independent network, we have been
able to capture the imagination of cable companies that have
committed to carry us, in this case COX and COMCAST. We
applaud them for that, but they must do more. And the
incumbent telcos must do more. More markets, audiences that we
are reaching, are elated and so are the cable operators.
So where are we with all the other carriers? We are either
under discussion or negotiation depending on who you are
dealing with. The process is either swift or moves at the
speed of molasses which is why we embrace competition.
Competition is good, it is healthy. It means choice and access
for everyone. That is the American way. One or two
gatekeepers is unacceptable. It is downright un-American. New
technologies are opening up bandwidth, something that continues
to challenge the cable companies. We just want a level playing
field. We want the opportunity to compete on every platform.
Whether that be cable, telco, satellite, broadband, wireless,
and future platforms still to come. We have enough fresh
quality content to fill all the digital pipes. Case in point,
it does not matter whether the consumer is in Detroit, New York,
or Chicago, every consumer should have the opportunity to
access what we have to offer. If the telcos are going to be in
Washington, D.C., why shouldn't all consumers of Washington,
D.C. have access to that platform?
We have almost 1800 hours yet to be seen in this country, a
case where opportunity meets the right cause. Let us not
forget the Africa Channel is not the problem, we are part of
the solution. In demystifying Africa, people start to become
aware of how important Africa is to America's future, its
resources, energy, and ultimately security. We are a catalyst
in ramping up trade and commerce. Our channel brings forth
access for those with a hunger to learn, those with a hunger
for history, those with a hunger for business opportunities,
those with a hunger to simply connect and understand, those
who also want to be entertained. We are here doing something
positive to that end. We have done everything the MSOs and
the telcos have asked us. Bring forth a quality product they
say. Be relevant to the community. Have a business model that
makes sense and make sure you can market your product and add
value to our business. To all of the above, we can, we are,
and we will.
I thank you.
[The prepared statement of James Makawa follows:]
Prepared Statement of James Makawa, Co-Founder and Chief Executive
Officer, The Africa Channel
I COME BEFORE YOU WITH ONE OF THE MOST COMPELLING MEDIA COMPANIES OF
OUR GENERATION.
THE AFRICA CHANNEL IS EVERYTHING THE POLITICAL, MEDIA AND CONSUMER
LANDSCAPE IN THIS COUNTRY IS READY TO ENGAGE AND EXPERIENCE.
(ROLL VIDEO TAPE: Running time 1:20secs.)
THE AFRICA CHANNEL IS HERE IN THE NAME OF DIVERSITY.
AMERICA STANDS FOR DIVERSITY. BOTH CABLE, TELEPHONE AND SATELLITE
COMPANIES SAY THEY UNDERSTAND THE IMPORTANCE OF DIVERSITY.
WE EMBRACE THAT POSITION, SUPPORT THAT POSITION AND PRAY THEY WE
ARE NOT GETTING HOLLOW PROMISES OR LIP SERVICE.
AFRICA IS ABOUT DIVERSITY. ALL OUR ROOTS TAKE US BACK THERE�..IT IS
THE MOST DIVERSE PLACE ON EARTH.
WITH THAT DIVERSITY COMES CELEBRATION, CONFLICT, TRAGEDY VIBRANCY
IN THE NAME OF CULTURE, ADVENTURE, WILDLIFE, DANCE, MUSIC,
HISTORY, FOOD, TRANQUILITY�..ALL PART OF THE
EXPERIENCE-UNMATCHED OR EXPERIENCED ANYWHERE ELSE ON THE PLANET.
DOUBLE -CLICK ON ANY ONE OF THESE CATEGORIES AND YOU GET SOME OF
THE MOST COMPELLING STORIES AND PICTURES TO SHARE WITH THE REST OF
THE WORLD�..IN THIS CASE THE UNITED STATES OF AMERICA.
IT IS THIS EXPERIENCE THAT AS AN INDEPENDENT NETWORK WE HAVE BEEN
ABLE TO CAPTURE THE IMAGINATION OF CABLE COMPANIES THAT HAVE
COMMITTED TO CARRY US. IN THIS CASE COX AND COMCAST. ALL THE OTHER
PLAYERS ARE UNDER DISCUSSION OR NEGOTIATION. DEPENDING ON WHO YOU'RE
DEALING WITH, THE PROCESS IS EITHER SWIFT OR MOVES AT THE SPEED OF
MOLASSES.
WHICH IS WHY WE EMBRACE COMPETITION��COMPETITION IS GOOD, ITS HEALTHY,
IT MEANS CHOICE AND ACCESS. THAT IS THE AMERICAN WAY. ONE OR TWO
GATEKEEPERS IS UNACCEPTABLE�..IT IS DOWNRIGHT UNAMERICAN.
NEW TECHNOLOGIES ARE OPENING UP BANDWIDTH, SOMETHING THAT CONTINUES
TO CHALLENGE THE CABLE COMPANIES. WE JUST WANT A LEVEL PLAYING FIELD.
WE WANT THE OPPORTUNITY TO COMPETE ON EVERYPLATFORM�..WHETHER THAT BE
CABLE, TELCO, SATELLITE OR BROADBAND.
IT DOES NOT MATTER WHETHER THE CONSUMER IS IN DETROIT, NEW YORK,
WASHINGTON DC , LOS ANGELES OR ST. LOUIS MISSOURI. EVERY CONSUMER
SHOULD HAVE THE OPPORTUNITY TO ACCESS WHAT WE HAVE TO OFFER��IF THE
TELCOS ARE GOING TO BE IN WASHINGTON DC WHY SHOULD'NT CONSUMERS IN
ALL OF WASHINGTON DC HAVE ACCESS TO THEIR PLATFORM?
WE HAVE ALMOST 1800 HOURS OF CONTENT YET TO BE SEEN IN THIS COUNTRY�.
A CASE WHERE OPPORTUNITY MEETS THE RIGHT CAUSE.
LET US NOT FORGET, THE AFRICA CHANNEL IS NOT THE PROBLEM BUT PART OF
THE SOLUTION WITH DIVERSITY.
IN DEMISTYFYING AFRICA�.PEOPLE START TO BECOME AWARE OF HOW IMPORTANT
AFRICA IS TO AMERICAS FUTURE�.ITS RESOURCES, ENERGY AND SECURITY.
OUR CHANNEL BRINGS FORTH ACCESS FOR THOSE WITH A HUNGER TO LEARN,
THOSE WITH A HUNGER FOR HISTORY, THOSE WITH A HUNGER
FOR BUSINESS OPPORTUNITIES THOSE WITH A HUNGER TO SIMPLY CONNECT AND
UNDERSTAND
WE ARE HERE DOING SOMETHING POSITIVE TO THAT END. WE HAVE DONE
EVERYTHING THE MSO'S AND TELCOS HAVE ASKED OF US. BRING FORTH A
QUALITY PRODUCT, BE RELEVANT TO THE COMMUNITY AND HAVE A BUSINESS
MODEL THAT MAKES SENSE AND MAKE SURE YOU CAN MARKET YOUR PRODUCT AND
ADD VALUE TO OUR BUSINESS.
TO ALL OF THE ABOVE, WE CAN�.WE ARE� AND�. WE WILL. VISIT OUR WEBSITE
AT WWW.THEAFRICACHANNEL.COM AND YOU SEE WHY WE ARE READY FOR BUSINESS
AND WELCOME AN OPPORTUNITY TO PARTICIPATE ON A LEVEL PLAYING FIELD IN
THIS DIGITAL AGE.
THANK YOU.
Mr. Upton. Well thank you very much.
And I know Ms. Rodriguez you have got to take a conference
call shortly so you are watching the clock so--
Ms. Rodriguez-Lopez. Actually--
Mr. Upton. You did it already?
Ms. Rodriguez-Lopez. No.
Mr. Upton. I appreciate your testimony.
A couple of question that I have, I do not know that I will
take my whole five minutes. Ms. Johnson, as I listened to your
testimony, as I listened to Ms. Rodriguez-Lopez's testimony,
to a degree they were very much on the same page. Now you are
talking about diversity and choice, and actually, Mr. Makawa
as well. The need for rapid deployment, it is equally
important that we have competition availability. Obviously, we
need to make sure that there are strong non-discrimination
policies and I will bet that Mr. Rush is going to want to talk
about that, so I will not steal his thunder.
Ms. Johnson, the one thing that I did not hear you say in your
comments, as we look towards trying to see that competition, is
your comment specifically on the draft that we released earlier
this week. Do you think that we, it is a good draft, that it
accomplishes the very things that you sought in your testimony?
Ms. Johnson. I think that it is an extraordinary start. I
and my members are excited about the draft. We believe that
it will open up markets, that it will allow for expeditious
investment. Our members are negotiating as well with both
cable and telecommunications infrastructure providers and
believe that this will help initiate and jumpstart even more
opportunities for us to provide that diverse content. As well
as we look at the issue of and I know there has been quite a
bit of discussion, while we do not consider ourselves experts
with respect to the build-out requirements, we do look at market
trends and do quite a bit of economic analysis. Our livelihood
also depends upon those that take our service. And as we look
at our minority communities, and I have heard lots of people
talk about the high valued customer and in that they sort of
assumed that that would not be minority communities, but as
all of the surveys and all of the research that we have seen
demonstrates that there is extraordinary buying power in those
communities and to the extent that there are, that the companies
are allowed to make the investment, that they too will be
investing in our communities. So we are very encouraged by
what we have seen to date.
Mr. Upton. Great, thank you.
Mr. Riddle, you may know that in an earlier hearing, I want to
say it was last summer, we heard testimony from many of the
same organizations that we heard today, that PEG channels were
ably represented by one of my constituents, who is in the room
actually sitting a little bit behind you, and met with him
recently back in Kalamazoo. I advocated then at the hearing,
as I do now, that I support PEG channels. I am interested in
your thoughts as we, as part of our draft, you know, we added
one percent on top of the five percent for gross to make sure
that PEG channels are adequately funded. What is your sense,
in terms of that in essence the mandate that we put into that
as part of our bill with the addition on future years of
adding additional channels as well?
Mr. Riddle. I think overall it is the right move in the
right direction. I think I am being instructed a little bit
by a question I got by Senator Stevens when we testified. He
only asked one question, which was how many channels do you
want? And, you know, I thought about it and, you know,
because he was proposing four. And I thought about it and I
used to work in Manhattan and we had ten PEG channels more
or less and it was entirely uncomfortable because of the
large size of the population, and yet we have a lot of
communities where two or three might be entirely adequate.
So it occurred to us that we ought to set up a scale. Of
course the numbers we are not discussing, but a scale both
for funding and for channel capacity which would eliminate
the need for people to be able to have to go in and negotiate
what is the specific community need that we would tie these
to, you know, the size of the community or the size of the
gross and that we would really make the commitment to try to
stick around those kind of median, those sorts of numbers
that you had discussed before either the one percent or in
his case the four channels so that we are hovering around
those numbers.
Mr. Upton. So as my time expires, you are pretty happy with
that one percent that we added in the bill, and it was
probably, if I could put words in your mouth, a surprise
perhaps, pleasant surprise.
Mr. Riddle. Because of what we had heard might have been
happening, we were happy with that as it was. We would
like to make some adjustments just to help the rural
communities and the small towns so that if you are talking
about one percent in a very small town, it might be hard
to pay the rent with that, so you are talking about a small
amount of money if you increase the percentage there but we
think with the larger cities, they will kill me for this,
but the one percent may get them close to being where a lot
of their agreements are.
Mr. Upton. Thank you.
Mr. Markey? He is only moving because this mic does not
work.
Mr. Markey. Thank you, Mr. Chairman.
Ms. Johnson, welcome back.
Ms. Johnson. Thank you.
Mr. Markey. In a March 9 Technology Daily story you are
quoted as saying that your group opposes a build-out
requirement, but you said that your group's opposition on
that would change if there is evidence of segments of the
minority community seeking service but being denied it
within a reasonable period of time. What is a reasonable
period of time in your opinion for the Bells to serve the
minority community in a city that they are deploying this
new technology?
Ms. Johnson. Sir, it would be, and I am not punting, but
I guess I do not know what a reasonable amount of time
would be in terms of an absolute number.
Mr. Markey. Yes. Would 20 years be too long?
Ms. Johnson. Would 20 years be too long to build-out to--
Mr. Markey. To build-out to the minority community.
Ms. Johnson. I would think that 20 years would be too
long.
Mr. Markey. Is ten years too long?
Ms. Johnson. I would think that where we should focus is on
where the market would take us. I think that--
Mr. Markey. I know, but what I am saying is if the market
does not go there and they just decide not to go there, is
ten years too long for them to still build-out in the minority
community? The cable companies have built out the entirety of
the cable community. Do you think ten years is too long for
the Bells to have to build-out?
Ms. Johnson. I do not think that there should be a number
attached to the build-out requirement.
Mr. Markey. But you say a reasonable period of time. What
is reasonable?
Ms. Johnson. I think that reasonable will be dictated by
the circumstances.
Mr. Markey. So you do not think we should actually be
talking about any specific time frames then in the bill?
Ms. Johnson. You know at first blush as I have watched the
build-outs that have occurred in the areas where they have
penetrated the market, they appear to have a very diverse
build-out in terms of minority communities, in terms of
full communities. So the process seems to be working.
Mr. Markey. Okay. So should the local community have an
ability to determine what is reasonable?
Ms. Johnson. I think that the process has been outlined
to date is a good start and that has a Federal process in
place.
Mr. Markey. A Federal process. Is your organization
financially supported by the Bell companies in any way?
Ms. Johnson. No we are not.
Mr. Markey. At all?
Ms. Johnson. Yes, and let me elaborate upon that, too. We
are a relatively new organization.
Mr. Markey. No, that is okay, I can go along with that
answer. That is fine, thank you. And are you compensated
in any way by the Bell companies?
Ms. Johnson. I have a consulting firm that works for a
variety of companies generally in the regulatory space we
had--
Mr. Markey. But are the Bell companies amongst those
companies that--
Ms. Johnson. Yes.
Mr. Markey. --that pay you. Okay, thank you.
Let me ask you, Ms. Rodriguez-Lopez. You said that only one
in eight Hispanic families have access.
Ms. Rodriguez-Lopez. Correct.
Mr. Markey. So there has been plenty of opportunity here for
the companies to reach the minority, the Hispanic community
but they have not done so. Do you think that we should put
in a time limit in terms of the company's responsibilities to
reach the Hispanic community?
Ms. Rodriguez-Lopez. I have a little bit of a different take
on that and my specific answer would be, I am really looking
for equity in the deployment from day one.
Mr. Markey. Right, I am with you.
Ms. Rodriguez-Lopez. Which is a little different. People
are saying, well, I believe that they are going to reach the
diverse markets. I just believe that we need to look at the
markets--Hispanic, African American, low-income, urban,
minority communities--and from day one say we are going into
those communities because we could never reach every community
as they deploy.
Mr. Markey. Do you think that should be in the bill that they
have that requirement or just leave it to the company to
decide?
Ms. Rodriguez-Lopez. No, I would leave that to the great
minds that are on that side.
Mr. Markey. Thank you so much.
Ms. Rodriguez-Lopez. If it is possible to build that in as
a principle then I would hope, but that has been what I have
been articulating.
Mr. Markey. I thank you. Well great minds are not thinking
alike at this point in time. We are hoping we can get them
all to agree on that. And this is--
Ms. Rodriguez-Lopez. They are not thinking alike here
either.
Mr. Markey. Yeah.
Mr. Makawa, you say in your testimony, you say if the telcos
are going to be in Washington, D.C., why should not all
consumers and all of Washington, D.C. have access to their
platform. So do you support a requirement that would be built
in the bill that the Bells would have to serve all parts of
Washington, D.C.?
Mr. Makawa. Absolutely.
Mr. Markey. And would you support a provision here that
required build-out to all parts of the community?
Mr. Makawa. Absolutely.
Mr. Markey. Excellent.
And Ms. Kenney, on the first panel I asked the head of the
cable industry association, Mr. McSlarrow, whether he could
pledge when cable operators get national franchises and have
no local service obligations that incumbent cable operators
have. One, would that they would not withdraw service from
certain areas, two, would not fail to upgrade service and
technology uniformly, three, would not raise rates on consumers
in the part of town that did not have deployment by the Bell
company in order to lower prices for those lucky enough to be
on the good side of town, the wealthier part of town where the
Bell company has chosen to serve. He would not pledge to any
of those three items. So in the absence of a build-out
requirement ensuring service area parity so all consumers get
the benefits and all providers compete across the franchise
area isn't there great risk of harm to consumers there?
Ms. Kenney. Oh, absolutely Congressman Markey. I mean that
is probably what is most concerning in this bill, the
opportunity to look at video franchising and provide new
competition to consumers is really exciting, but that
competition has to come to everyone for people to truly
benefit from it. And if it does not, then you have to at a
minimum make sure that those consumers who are getting that
competitive service are not harmed, and under this bill and
based on Mr. McSlarrow's comments, it certainly seems like
they would be.
Mr. Markey. Okay, I thank you.
I thank you, Mr. Chairman.
Mr. Upton. Mr. Barton.
Chairman Barton. Thank you, Mr. Chairman and I want to thank
this panel for being so patient and waiting half a day to
testify to five congressmen. But you have got five quality
congressman and women here. I am telling you, you have got
four of us that have been negotiating the bill for over a
year and a half and Mrs. Blackburn is the author of a similar
bill down in Tennessee and has been very involved in the
negotiations in following them and has introduced her own bill
along with, I think Mr. Inslee, so while you do not have a
full subcommittee here, the people that are still here are
very interested in what you have got to say.
Mr. May, your group is kind of a think tank I think. Would
that be an adequate characterization?
Mr. May. We are, exactly.
Chairman Barton. Mr. Markey's premise in our negotiations was
that these new entrants in the video services, almost by
definition, were not going to try to serve the minority
community for some reason and we went round and round with him
on build-out requirements and uniform pricing requirements
and things of this, in very honest, open dialogue. On the
other hand, Mr. Rush who has a congressional district that
probably is a majority minority district, I do not know that
for a fact, but my guess is it probably is and has looked at
the same set of circumstances and feels like, that at least
the minority community that he represents is going to be well
served by a national franchise with no build-out requirement
or things like this.
From just a think tank economic perspective, what is your version of
the reality with the Verizons and the AT&Ts and these new entrants,
do you think they are going to go in and just serve white effluent
America or do you think they are going to look at wherever if there
is a large demand for these type of services, regardless of ethnicity
or whatever, they are going to serve where they can feel like they
get the biggest take rate from the beginning?
Mr. May. It is going to be exactly the latter of course,
Mr. Chairman. I mean one thing I am sure of is that they
have no interest in this competitive environment that we are
now in. Basically I think while you were out of the room
or--and in my written testimony, the video marketplace is
already, you know, somewhat competitive or quite competitive.
And this national franchise, which I think is a very positive
step, will make it even more competitive than it already is
at this time. And the basic fact is that none of these
companies are going to make any judgment based on race,
ethnicity, or anything like that. They are fighting for
market share and they are going to go where the market is
and they have incentives to do that. The danger is really in
trying to regulate in that type of environment and dictate to
them, you know, where to go first, exactly how quickly, and
under what timetables you have to get there and assume that
as smart as you are and even with the right Congress people
in this room right now, that you are going to be able to know
how to do that better than the marketplace, which will drive
these companies in exactly the direction that you suggest.
Chairman Barton. What is your view, Mr. May, of the number
of new entrants that would tend to come into a market if you
have an incumbent cable provider that is already there and
you have a satellite provider that is already there. Do you,
would the incumbent telephone company, who I tend to think
might be the first new entrant, would a wireless entrant also
tend to come in rather early or do you think the wireless
guys are going to wait to see how the phone companies fair in
this competition?
Mr. May. I think in some of these markets that there will be
room for the wireless guys to come in as well, and they might
do that. You know, I think that it is just the, I think it is
very positive to establish the national franchise and move
away from the local franchises, which really were originally
a way of getting what was thought to be a monopoly problem.
Now it is obviously true that the cities need to manage their
rights-of-way and you take care of that, well you can take
care of it, but the franchises were really an economic
regulatory device. We are in a situation now where with the
competitors that exist and with the technology being as
dynamic as it is to include wireless. I mentioned again in
my earlier statement that, you know there are people,
including my daughter for one, who watches television over
her cell phone now. I mean there are people that are doing
that. That is video competition. It is not perfectly
substitutable. But the thing that I think you do not want
to do is to dictate and try and define in advance what the
parameters of that competition should be.
Chairman Barton. Okay. I just have one final question
Ms. Johnson. Tell me a little bit about what the Video
Access Alliance is.
Ms. Johnson. The Video Access Alliance is made up of
independent networks, TV channels that are providing
programming very similar to the Africa Channel of independent
networks not affiliated with any of the providers. And our
group serves as an advisory group, as well as, an advocacy
group for their interests. We are extraordinarily interested
in this process of video franchise reform because we see
multiple platforms as a means for us to achieve greater
carriage.
Chairman Barton. So your group is primarily interested in
providing support to get your channels carried by these as you
call them platforms.
Ms. Johnson. Absolutely.
Chairman Barton. So it is not really a mouthpiece for the Bell
companies or anything like that?
Ms. Johnson. Absolutely not. We are interested in providing
quality programming and we believe that if we are allowed to
provide that quality programming that all consumers will benefit
by lower rates, as well as having a diverse group of voices to
be heard.
Chairman Barton. Okay, thank you.
Ms. Johnson. Thank you.
Mr. Upton. Mr. Rush?
Mr. Rush. Thank you, Mr. Chairman.
Ms. Johnson in, to be in addition to the Chairman's comments, I
want to just ask you because I have a little concern that we do
not send wrong messages here.
Ms. Johnson. Sure.
Mr. Rush. There are most members of this committee and members
of this body who accept contributions from all kinds of people,
including the telephone companies, the Bells and almost every
other industry that comes before this committee including the
industries that have a legitimate interest in the discussions.
And most take the positions that although we might accept
campaign contributions from them, there is no way that those
contributions dictate or influence our positions here. So my
question to you is have you, are you here at the behest of any
of the providers, any of your contractors or your ones that you
consult with or are you at the behest of an independent
organization representing their interests?
Ms. Johnson. Yes, sir, I am here at the request and honorably
here at the request of my members. My members are independent
networks made up a diverse collection of entrepreneurs who are
providing diverse rich content that adds value for all
consumers.
Mr. Rush. And so any implications that you might be a
spokesperson or a mouthpiece for any stakeholder in these
discussions other than your independent providers would be
absolutely incorrect. Is that--
Ms. Johnson. Yes, sir, absolutely incorrect.
Mr. Rush. Okay. Let me just lead to the next question that
I have. In your statement, now this is Ms. Kenney's statement,
I am sorry, we will move onto Ms. Kenney very quickly.
Ms. Kenney, in your statement and you talked about the anti-
redline prohibitions, that the burden of proof should be placed
on the cable providers. Do you think that this will strengthen
the anti-redlining provisions of this bill if the--and what do
you mean by that?
Ms. Kenney. Well, first of all, we do not believe that anti-
redlining provisions on their own are sufficient to actually
prevent redlining. You know, cable has the act, currently has
an anti-redlining provision in it as well. We have not seen
redlining in cable to date because communities have had the
ability to require build-out albeit over too slow of a time
period, but redlining provisions in the absence of build-out
we do not believe are effective.
Secondly, we would rather not see that redlining occur in the first
place. We would rather not have to litigate for consumers to get
access to competitive services. So flipping the presumption of proof,
requiring a provider to demonstrate that they are not providing
service in an area for reasons other than the income of that particular
area would certainly make it easier for a community to demonstrate
that redlining was or was not occurring. Otherwise, the community has
to prove that income is the reason. There are lots of excuses we
believe that providers can and have made in the past for why they have
not provided a service in a particular area.
Mr. Rush. Mr. Makawa, would you give us some brief synopsis
of your experiences in terms of how difficult it was for you to
get the Africa Channel, get that on any kind of channel at all
and service to provide it.
Mr. Makawa. It is probably the most arduous journey I have
ever been on to be perfectly honest and perfectly blunt. But
nonetheless, independent channels trying to get on today, there
is probably a handful of us and part of the reason I am for
this specific direction that this body is taking is with all
due respect to the cable companies when you walk into them, some
of them have been very friendly but the first thing out of
somebody's mouth when they say hello to you is we do not have
any bandwidth. That is the first thing that is said. Now with
all the technological geniuses that exist in this country, how
is it that the toilet pipes are going to clog up? I do not
understand it. So all of these folks have said, you know,
one thing Congressman that people are not unpacking here, it
is not just the cable companies, it is not just the telcos,
it has got to do with the price of content. The price of
content has gone through the roof. And those are issues that
have to be addressed. Now, I am perfectly comfortable coming
before this body and saying to you that we did not take
$100 million to launch this network, we launched this network
for less than $8 million bucks. Those pictures you saw there,
we did not spend $100 million on that. And when we walked into
every cable company, we walk in and they say Africa, they go
oh, it is going to be grainy, there is no value, and then all
of a sudden the attitude changes. But we have had to walk in
with a business proposal, number one, with content with high
quality at a low price, and we have had to deliver things
that other people have not even had to think about. The
playing field is not level, it has got to change.
Mr. Rush. Okay, yeah.
Ms. Johnson, I have sat here all day and I have heard about
these high performing clientele of this group that is the
high preference group and the low preference group and I just
wondered can you, I mean I kind of instinctively, you know,
react to that because I know that in every instance in my
community, where I live and where I work and what I represent,
every time there is a new technology, the people I represent
to my amazement become the greatest, they have the greatest
market share of that technology. I remember when the cell
technology for wireless phones first came. You know, all of
a sudden they discovered that and the so-called low performing
communities that there was a significant market, a great
market, and I think that competitively speaking that that
community has more cell telephones than any other community
now. The same thing with cable, you know, the poor people,
the African Americans, minority communities, they have the
greatest market share in terms of cable television. Do you
see any difference between what this bill offers and what has
been the past experience and how do you react again to this
distinction that folks have about minorities being low
preference or low performing or have some kind of a low
interest. How do you react to that kind of--
Ms. Johnson. I react in a similar manner to which you have
reacted and most of that reaction is based on real life
experience, Sunday afternoon at my mamma's house understanding
that the services that they use and that they value. And I
understand that they are the high value customer and I
understand the power that that brings. One of my concerns
with respect to onerous build-out requirements is that, my
first concern is what will that do to, or will that stifle
the investment being made because, see, these people do not
have a choice as to whether or not to invest that money.
And then secondarily, let us assume that it doesn't stop at
investment. What would that do to the cost of service? I
submit to you that that would increase the cost of service
to even these high-value customers. Specifically to your
question, many studies have shown, and if you will allow me,
I will give a few stats, particularly with respect to the
minority communities. Minorities have higher penetration
rates for digital TV, premium channels, and are the best pay
per view customers. Minorities are the top subscribers to
premium channels including HBO and Showtime. Seventy-four
percent of black urban cable users, 63 percent of Asians are
users, and 61 percent Hispanic subscribe to more than one
extra fee service, compared to 43 percent white. Blacks spend
59 percent on cable satellite, 20 percent more than whites.
Blacks spend $27 on premium channels, 23 percent more than
whites. I submit to you that if you are looking at the
high-value customers that are looking for these services, that
will receive these services, this is the community that will
have the biggest benefit. And if you overlay that with new
content--the gentleman with the Africa Channel talked about
his offering--if you overlay the content competition which
will help decrease the price of content and couple that with
where the market will take you, I submit to you that all
consumers will benefit but particularly African Americans.
Mr. Rush. In summation, you know, there is a real simple
reason for it. The cable, these channels, they are the ones
that offer programs that have, in their content, they have
African Americans so they have more African American family
shows, more African American music, and that is why your
channel, the Africa Channel is going to really be quite a
success if we can get it more broadly seen because of the
fact that there is just a demand for more programs that feature
African Americans. That is the reason why cable is such a
success in African American communities, exactly the reason.
Mr. Upton. Thank you.
Mrs. Blackburn.
Mrs. Blackburn. I know you all are all so glad to see me come
around. That means I am the last one.
Ms. Johnson, I appreciate so much what you have had to say. I
represent a little bit of Memphis, a little bit of Nashville in
my district and have worked for many years with some of our
content producers down there and also our content providers and
do recognize the distinction and appreciate the distinction
between the two of those. I actually have spent some time
working on this issue as a small business issue. Mr. Makawa, as
you were saying, it is entrepreneurs that have a dream. They
want to get in there, they want to produce their product, they
want to find an outlet for that product, they want access to the
marketplace, they want access to consumers so that they can build
a constituency for their programming. And it takes a lot of hard
work. It takes a lot of time. And when I do a town hall meeting
in my district with all of these songwriters and producers and
content great thinkers, as I like to say, or great creative
community, one of the things I hear from them regularly is when in
the world are you all going to put the pencil to the paper and free
up this marketplace and start deregulating this thing and free up
some of this bandwidth and open up these pipes and let us have
more access to the marketplace. That is what we hear from them
regularly.
So my question is I want to be sure I understand you all on this.
Ms. Johnson, you all do not favor a build-out requirement. Is
that correct?
Ms. Johnson. That is correct.
Mrs. Blackburn. Okay. Mr. Makawa, I was confused, I thought, I
could not, I did not realize what you said. Do you favor
build-out or do you not favor build-out requirements?
Mr. Makawa. Yes, Ms. Blackburn, I do favor it. Here is the
thing.
Mrs. Blackburn. Okay.
Mr. Makawa. This is not--
Mrs. Blackburn. No, I just need a yes or no from you, we are
quick on time.
Okay, Ms. Kenney, you favor build-out?
Ms. Kenney. Yes.
Mrs. Blackburn. Okay, all right. That is--and Mr. Riddle?
Mr. Riddle. I think that is one remedy. I do favor correcting
market--
Mrs. Blackburn. You favor build-out, okay. You see that--
Mr. Riddle. Well perhaps.
Mrs. Blackburn. Perhaps?
Mr. Riddle. Yes.
Mrs. Blackburn. Mr. May?
Mr. May. No.
Mrs. Blackburn. You do not favor build-out, okay. See, when
you talk about freeing up the marketplace and you talk about
opening up and having access, I get a little bit confused when
you say you favor build-out. Now Mr. Makawa go ahead and finish
what you were going to say very fast, 30 seconds.
Mr. Makawa. Thirty seconds. If these people are not going to
build-out, but we know that we have got community to spend in
excess of $700 billion a year and they are going to go into
Brentwood instead of going into Compton, then we are going to
have issues.
Mrs. Blackburn. Okay, all righty. You know, I do not see how
you can be on both sides of that argument but if it is your
opinion, it is your opinion.
Very quickly some of you have mentioned net neutrality. I will
tell you what I want to do with that and just have you respond
to me in writing. When we look at Section 201 and then you go
in and we have a study in here Point C is a study. I would like
to hear from each of you how you would define that neutrality and
how you would address that issue. If you conducted this study on
behalf of your members, on behalf of the groups that you work
with, then what would you want us to know? How would you write
that provision? How would you have the FCC address that?
And Mr. May, I am going to come to you with my last question.
I am down to 58 seconds. The DACA project, I have read some on
that. I appreciate the work that you all have done on this
project and I agree completely with two of the premises that
you mentioned, that the markets are increasingly competitive,
and with the technological developments that service based
regulatory categories that we have got to look at one kind of
regulation for Telcom and other for information and another for
cable. And I would like for you just to talk a little bit for,
we have got 19 seconds so it might not even be possible about
how you would approach that division in regulation on services,
not on technology, but on services.
Mr. May. Well, thank you, Congresswoman. It is really
important to replace the service definitions including cable
operator, that kept coming up this morning and all the others
which are based on what I have called the techno functional
constructs. They are all linked to technical characteristics
and functional capabilities. Just replace all of those with a
provision or the heart of the new act should be typing
regulatory activity to a competition standard so that the
regulator is judging whether to intervene based upon where
there is a potential for anti-competitive abuse. We have
suggested as you know in our DACA project, a standard that
does that. It is an anti-trust like standard. It is not
totally coincident with the anti-trust laws. But in that way
when there is an allegation of abuse, say a net neutrality-
like allegation, then the FCC would look at the particular
circumstances of the allegation, it would look at the market
power, the market structure, the potential entry, the
technological dynamism, and it would make a decision on that
case and it could impose a remedy that would be very
particular. It is very important in this environment we are
in now, where the technology is changing so quickly, the
marketplace is changing, to establish a regime in which the
regulation takes place--
Mrs. Blackburn. Mr. May if I can cut you off right there.
Let me just--but what you are--also this would be a more
flexible structure to work from and--
Mr. May. It would be absolutely more flexible and it would
not--
Mrs. Blackburn. --would allow for new and emerging
technologies and delivery systems.
Mr. May. Exactly. You would not anticipate in advance all
of the potential harms which may then well cut off the new
technologies, the new services because you have anticipated
too broadly without understanding what developments may take
place. So it is more flexible. It is more targeted, but it
also allows you to remedy true marketplace abuses.
Mrs. Blackburn. Abuse problems. Thank you, sir, I
appreciate that.
Mr. Chairman, thank you.
Mr. Upton. Mr. Markey wants me to ask, as we conclude this
hearing, if you had one thing you wanted us to remember from
your testimony today that we should think about as we mark-up
next week, if you could try to sum it up in 30 seconds each.
We will start at this end since you were gone from the room,
but Mr. Makawa we will go right down the line and then we will
finish up the hearing. Mr. Makawa, one thing for us to
remember next week.
Mr. Makawa. Do not try to regulate the Internet. It is the
biggest aggregator and that is the one leveling playing field
that is going to gravitate from where we are currently. There
are developments that are happening with the telcos and the
cable companies, that needs to play itself out but until some
of these companies can behave like good little boys and good
little girls, somebody needs to be the watch dog.
Mr. Upton. Mr. May?
Mr. May. In 1980, I was Associate General Counsel at the
Federal Communications Commission and I remember at that time
when Congress was beginning to look at telecommunications
reform of the existing 1934 Act, sitting in Mr. Markey's
office for one long evening talking about how we need a new
act, how the world was beginning to change at that time. It
was a wonderful conversation. So the thing that I would want
all of you to remember is that fortunately due to technological
change we are in a very much different environment than we were
when Mr. Markey and I had that conversation back in 1980 here
in 2005. Thank you very much.
Mr. Upton. Ms. Kenney?
Ms. Kenney. I would urge the committee to consider that as
you look at a national franchising model, you are giving a lot
of local control up and a lot of consumer protection up in the
form of customer service standards and local enforcement and
build-out requirements. And so as you move to a national
franchise, which we do not object to, you have got to figure
out how to maintain those protections at the national level
to ensure that if competition comes, it comes to everyone.
Mr. Upton. Mr. Riddle?
Mr. Riddle. Local design and control, standardize PEG funding,
standardized PEG channel capacity, Federal minimum supersedes
State law and protect this agreement against the migration of
services to an IP or other technically different system.
Mr. Upton. Ms. Johnson?
Ms. Johnson. That consumers will benefit from multiple
platforms by way of diverse content, lower prices, more choice,
and to couple with that an understanding and respect for the
fact that minorities are high value customers.
Mr. Upton. Thank you. Ms. Rodriguez-Lopez?
Ms. Rodriguez-Lopez. Thank you so much again, Mr. Chairman.
You are a very patient man. I appreciate you giving me the
time to go out.
I am going to draw an analogy. When I was asked how I felt
about abortion rights and the constitutional right, I said
there are protections that exist in the constitution, the
right to bear arms because reasonable people call on certain
things when they require them. This bill must contain the
anti-discrimination provisions. It must contain those
protections. If we believed that every one would always do
the right thing at the right time, we would not have laws in
place to govern. And so in an ideal world, everyone will be
deployed equally and benefit from competition, but we also
know that we have a history of not always doing the right
thing. So thank you so much for this opportunity.
Mr. Upton. Well again, I want to thank all of you for being
patient with us since we started seven hours ago and
appreciate your testimony. I told my friend, Mr. Markey,
that we intend to have opening statements next week on
Tuesday at 5:00. We will do opening statements as long as
it takes. I know it is 6:30, so there is a doorstop there
and we will resume with the markup then on Wednesday, at
10:00 a.m., and hopefully be finished on Wednesday, but if
we have to carry over to Thursday we will. So with that,
again I appreciate everyone's testimony and we are now
adjourned.
[Whereupon, at 4:55 p.m., the subcommittee was adjourned.]
Submission for the Record by Bob Freudentha, President, American
Public Works Association
Mr. Chairman and members of the committee, thank you for the
opportunity to submit this testimony for the hearing titled
Communications Promotion and Enhancement. My name is Bob Freudenthal,
President of the American Public Works Association (APWA), and Deputy
General Manager of the Hendersonville Utility District in
Hendersonville, TN. I submit this statement today on behalf of the
27,000 public works officials who are members of APWA, including our
nearly 2,000 public agency members. We appreciate the opportunity to
submit a statement with regard to this new legislation.
APWA is an organization dedicated to providing public works
infrastructure and services to millions of people in rural and urban
communities, both small and large. Working in the public interest,
APWA members design, build, operate and maintain transportation and
rights-of-way; natural gas, electricity and steam distribution
facilities; water supply, sewage, and refuse disposal systems; public
buildings and other structures and facilities essential to our
nation's economy and way of life.
I appreciate the opportunity to address the important role local
governments and public works departments play in managing local public
rights-of-way and how local franchising supports that role. APWA has
been and will continue to be an advocate for the development of
policies which ensure the safe and efficient management of public
rights-of-way. We urge your support for two important principles
relating to local governments and rights-of-way management when
advancing legislation to rewrite the nation's communications laws and
policies.
The first is that local government officials have a fiduciary
responsibility on behalf of the citizens we serve to manage public
property, including the public rights-of-way, a public asset with an
estimated value of more than $7 trillion. Respect for local control
and local governments' long-standing authority to manage rights-of-way
is necessary to ensure their safe and efficient operation. It is
vital that local governments and other public agencies retain their
authority to fulfill their statutory obligations and duties related to
managing public rights-of-way.
This authority includes the ability to establish permit, location,
inspection and pavement restoration controls and rights-of-way
restoration; to encourage cooperation among and develop scheduling and
coordination mechanisms for all rights-of-way users; to obtain and
maintain accurate information for locating existing and new facilities
in the public rights-of-way; to hold responsible parties accountable
for the restoration of the public rights-of-way; and to charge and
receive compensation for the use of the public rights-of-way.
The second principle is that local governments support competition in
communications services and technology. We embrace innovations that
make possible competition in video, telephone and broadband services.
Moreover, we support deployment of these technologies as rapidly as
possible. However, as new communications technologies and services
enter the marketplace, local governments must be kept whole and our
authority to manage public rights-of-way preserved.
We share the concerns of our local government partners regarding the
impact of the legislation on managing rights-of-way. Without a
franchise agreement, the only effective mechanisms that local
government has to manage its public rights-of-way, ensure competition
for everyone and collect franchise fees are eliminated. Another
concern is that, although the legislation preserves local authority
over the management of rights-of-way, it does not provide sufficient
enforcement authority to assure compliance. In addition, while the
legislation is silent on the appropriate forum for resolving local
rights-of-way disputes, by default that task would move to the
Federal Communications Commission.
Preserving full local franchising authority is critically important
to rights-of-way management. Franchises do not just provide
permission to offer video services; they are the core tool local
governments use to manage streets and sidewalks, provide for public
safety and emergency response capability, enhance competition and
collect compensation for private use of public land. Eliminating or
limiting local franchises will cause chaos, undermine safety and
deprive local government of the power to perform its basic functions.
Public agencies have the responsibility to keep public rights-of-way
in a state of good repair and free of unnecessary encumbrances. The
public expects local governments to ensure that the deployment of new
services does not result in potholes, traffic backups and congestion,
damaged sidewalks, ruptured water or gas lines, disrupted electrical
power or diminished community aesthetics, particularly with respect
to managing above ground versus below ground installations.
The right to obtain and use land for public benefit is a long-standing
tradition and is provided for by law. For more than a century, the
concept of accommodating both public and privately owned utilities in
the public rights-of-way has been recognized to be in the public
interest. Public rights-of-way are normally acquired and developed
by public agencies for transportation routes, water supply, waste
disposal, power distribution, means of communications and similar
services. Such services are provided for the common good of the public,
and are generally authorized and directed by public agencies, which
have an obligation to regulate and manage the use of public rights-of-way
in the interest of the convenience, health, safety and welfare of the
public.
It is our duty and responsibility as public agencies and that of elected
officials to be good stewards of the public rights-of-way and to adopt
reasonable ordinances that allow public officials to: manage the public
rights-of-way on behalf of their citizens to ensure public health, safety
and convenience; manage the surface of the public rights-of-way to ensure
structural integrity, availability, safety and a smooth street surface
for the traveling public; manage the space below the surface of the
public rights-of-way to ensure safe and economical access for all
current and future users of the rights-of-way; and manage the space
above the surface of the public rights-of-way, including the placement
of overhead utility facilities, to ensure efficient use of space and to
minimize safety hazards and impact on community aesthetics.
As the pace of implementing new communications technologies accelerates,
the number of damages incurred by owners of both private and public
utilities is sure to grow, if local governments are not allowed to
manage their rights-of-way. Managing public rights-of-way is complex,
and decisions regarding management and control of local public
rights-of-way belong to local governments. Each utility provider
installs a separate system in its own unique location within the public
rights-of-way. The systems are often installed on existing pole lines,
in narrow trenches or in conduits that are bored into place. There
is a correlation between the number of excavations and corresponding
damage, and repeatedly cutting and repairing streets can permanently
damage street pavement structures. Moreover, in the absence of
compensation from utilities, taxpayers bear the burden of significantly
increased street maintenance costs.
APWA has a Utility and Public Rights-of Way Technical Committee whose
members provide education and information to raise awareness and
promote the best use of the public rights-of-way for the public good.
Our committee provides a forum where stakeholders can come together
to discuss common issues and best management practices that will
promote the effective integration of all users and stakeholders
within the public rights-of-way.
In conclusion, APWA supports competition and the rapid deployment
of communications technologies and services in the communities we
serve. We support a balanced approach that encourages innovation
and preserves local governments' long-standing authority to manage
public rights-of-way and to receive fair and reasonable compensation
for their use. Franchising authority is a core tool local governments
use to manage rights-of-way in the public interest in order to protect
public safety and public infrastructure.
Mr. Chairman, we are especially grateful to you and Committee members
for the opportunity to submit this statement. APWA and our members
stand ready to assist you and the Committee in any way we can.
Contact: Jim Fahey
Director of Government Affairs
American Public Works Association
202-218-6730
jfahey@apwa.net
Response for the Record by Walter McCormick, President and Chief
Executive Officer, United States Telecom Association
The Honorable Barbara Cubin
Question 1
The scope of Section 717's -rights, duties and obligations- clause is
restricted to those rights, duties and obligations set out in Sections
251 and 252 of the Telecommunications Act of 1996. Those sections deal
exclusively with interconnection and do not apply to universal service
contribution or reimbursement, which are dealt with in Sections 214 and
254. If VoIP providers are to be accorded the same rights, duties and
obligations under Sections 251 and 252 as telecommunications service
providers, they should also have the same social obligations, including
being required to contribute to the universal service fund.
The Honorable Anna Eshoo
Question 1
Yes, up to now the Internet has experienced significant growth and
innovation precisely because the government has maintained a virtual
hand-offs approach. However, this so called -Net Neutrality-
regulation, and I take strong exception to the name because I believe
it is extremely misleading, would dramatically alter the way the
Internet works today- replacing the freedom to innovate and American
entrepreneurial spirit with heavy-handed government interference.
Today, consumers have a variety of choices in obtaining high speed
internet access. They can choose high speed internet access from
cable, from DSL, from wireless, from satellite, and in some areas from
new technologies such as wi-fi and wi-max systems or Broadband Over
Power Line. According to the FCC, as of June 2005, consumers living
in 75% of zip codes have three or more high speed lines in service to
choose from, 60% of zip codes have four or more high-speed lines to
choose from, and 17.5% of zip codes have ten or more high-speed lines
to choose from. In California, on April 27th, the California Public
Utilities Commission voted to allow the state's electric utilities to
deploy broadband over power line technology, and in doing so, cited a
California PUC report that in the state's most densely populated
areas -- metropolitan San Francisco, Los Angeles and San Diego -
consumers have up to 23 choices for high-speed internet access.
Indeed, among the many choices consumers have for high-speed internet
access is that offered by Google and Earthlink which provides consumers
with a fast lane of 1Mbps for $20 per month, or a slower lane of
300Kbps that is offered without charge in exchange for viewing local
advertising through Google. (This latter offering, of course, comes
at some cost in time spent wading through ads and in consumer privacy.)
In San Francisco, and across the nation, the number of broadband
providers is exploding due to the fact that anyone who is willing to
invest has the ability to enter the business free of archaic, stifling,
and discriminatory economic regulation. Indeed, the number of high
speed providers in the United States nearly tripled, from 485 to 1,270,
between June 2004 and June 2005. This is extraordinary growth, given
the fact that in June 2001 there were just 160 such providers around
the country. One of the biggest investors in high-speed internet
access is Google, which has found it easy to enter the market both
through investments in both wireless and BPL technologies.
As a result of this broad choice and intense competition, prices for
internet access have fallen and penetration has increased. On May 28th,
the Associated Press reported that -Middle and working-class Americans
signed up for high-speed internet access in record numbers in the past
year, apparently lured by a price war among phone companies.-
Clearly, consumers are benefiting from the free market environment.
According to the Associated Press, citing a survey by the Pew Internet
and American Life Project:
Broadband adoption increased 59 percent from March last year to
March 2006 among U.S. households with incomes between $30,000 and
$50,000.
It increased 40 percent in households making less than $30,000 per
year
It increased 121 percent among blacks.
Overall, 42 percent of adult Americans, or 84 million people, have
broadband, compared to 30 percent a year ago.
Therefore, it is clear that the marketplace is working. There is no
problem that requires Congressional action. Telephone and cable
companies have indicated that they will not block, impair or degrade
access to any website, and they are not doing so. If they did, the
Chairman of the FCC has said that he has the authority to stop them,
and that he will use it. And, with the choices available, consumers
would clearly go elsewhere.
But, all this investment, all this innovation, could come to an end
if the government begins adding new regulation. Wall Street has
warned that enacting -Net Neutrality- regulations in the absence of
a definable problem would be premature and could trigger substantial,
negative unintended consequences. As Craig E. Moffitt, a VP and
senior analyst at Sanford C. Bernstein and Co., told the Senate
Commerce Committee in March:
-Mandated -Net Neutrality- would further sour Wall Street's taste for
broadband infrastructure investments, making it increasingly difficult
to sustain the necessary capital investments. It would also likely mean
that consumers alone would be required to foot the bill for whatever
future network investments that do get made. That would result in much
higher end-user prices, much steeper subsidies of heavy users by
occasional ones, and, in all likelihood, a much sharper �digital divide.'
� The United States as a whole would, in all likelihood, fall further
behind other countries in broadband availability and reliability.-
Many of the leading telecom manufacturers, such as 3M, ADC and Cisco,
have all expressed similar reservations about prematurely enacting
-Net Neutrality- regulations.
The Internet is the success it is today because the government
has maintained a vigilant, hands-off approach that has allowed
companies to innovate in direct response to the evolving wants
and needs of their customers. The marketplace today is
Competitive, and as the barriers to entry are low, the market
is also contestable. Regulatory or legislative solutions wholly
without justification in marketplace activities would stifle,
not enhance the Internet. Laws can be inflexible and difficult
to fine-tune-particularly when applied to technologies that are
rapidly evolving.
Question 2
-Tiered- internet is your term, not ours. It is inaccurate and
misleading. There are, today, voice networks, data networks, and
various managed networks and virtual private networks that provide
increased level of security and reliability for financial, governmental,
and healthcare purposes that all operate on internet protocol and involve
various levels of prioritization. We are not proposing to change the
internet experience. We have indicated that we will not block, impair
or degrade access to any website. The internet experience that the
consumer has today, and that those who operate websites have today,
they will have tomorrow. The consumer will be in control of making his
or her own choices with regard to the amount of speed and bandwidth
purchased. This is as it should be. Consumers should not be forced to
purchase a higher level of speed simply because a Google, or an Amazon,
or some other company wants to profit off of offering a new service
that would benefit from a higher speed.
There is nothing that telephone or cable companies have proposed that
would inhibit the next Jeff Bezos to build an on-line bookstore, or the
next Google to come along. Indeed, to the contrary, locking new -Net
Neutrality- rules in place would actually hurt new, innovative companies
from competing against established Internet companies as such rules
would make it more difficult for start-up companies to differentiate
themselves in the market.
Currently, Google is spending $800 million on servers and other
electronics to be deployed all over the country to speed access to its
websites. How many start ups have $800 million on hand to do the same
thing? The fact is that one way a start-up can compete with Google,
and one way consumers would benefit from more competition for Google-
type services, is if the start-up could purchase private network
services to compete on a more equal footing.
Allowing commercial arrangements with companies that seek to purchase
high levels of security and reliability from network providers may be
one way for new companies to distinguish themselves in the market and
compete with incumbents like Google and Amazon.
Our member companies simply want to deliver an additional choice-both
to consumers and to business.
Response for the Record by Paul Misener, Vice President for Global
Public Policy, Amazon.com
VIA EMAIL AND US MAIL
June 7, 2006
The Honorable Anna Eshoo
Member
Subcommittee on Telecommunications and the Internet
Committee on Energy and Commerce
U.S. House of Representatives
Washington, DC 20515
Dear Representative Eshoo:
Thank you very much for your support for meaningful,
enforceable -net neutrality- legislation. Thank you also for
your two additional questions after the Subcommittee's recent
hearing on the subject. Please accept my apologies for being
so tardy with my response; I was traveling in Europe. My
answers follow each of your questions below:
Q1.As indicated in my opening statement, I have great concerns about
where this legislation could lead the Internet, and your testimony
certainly does nothing to allay those fears. In Silicon Valley, we take
it as an article of faith that the reason the Internet has flourished
and become the most important instrument of change in our lifetime is
its open architecture. Anyone in the world can post virtually anything
they wish on the Net, and it can be viewed by anyone else in the world,
without barriers. Most broadband providers say the concerns you and I
share regarding the preservation of "Net Neutrality" are speculative
and farfetched. So, is this a real problem? Is it necessary to protect
"Net Neutrality"?
A1. Yes, the problem is real, and net neutrality needs to be protected
by law, as it was before last summer. It reasonably is an article of
faith that the openness of the Internet was the reason it flourished
with the obvious benefits to consumers and innovation. But, in ways
never before possible, consumer broadband Internet service providers
(the phone and cable companies) recently have acquired the technical
means and regulatory permissions to restrict that openness, and
several of their top executives have announced their plans to do so.
And, because there are, and will be for the foreseeable future, only
one or two such network operators widely available to consumers, they
have the ability to constrict content choice without losing business.
Amazon seeks to reinstate the historic non-discrimination rules,
dropped by the FCC last summer, in order to ensure that our customers
retain unimpaired access to our current and future content and services
without us having to seek permission from network operators, both here
and abroad.
Some of these network operators say that government should let the
competitive free market work. Yet, as I noted before, the market is
far from competitive: in the U.S., according to the FCC, some 99.5%
of residential broadband subscribers get their advanced (broadband)
Internet access from a phone company or a cable company and, of
course, such a duopoly is not meaningfully competitive. (The
situation is at least as bad elsewhere around the world, where
state-owned operators often have an absolute monopoly.) The network
operators also say net neutrality would regulate the Internet for the
first time. Not true. As I indicated above, consumer Internet access
has been regulated. Until last summer, federal non-discrimination
rules governed most, and arguably all, American consumers' Internet
access. Similar rules are in place, but under attack, in other
countries, including Germany.
So we are on the side of maintaining the open paradigm of the
Internet. It has been good for our customers and for innovative
companies, including many in Silicon Valley. Years from now, we hope
to see vibrant competition among broadband network operators. But
until then, we will continue to oppose efforts by the network operators
to leverage their position over access to artificially constrain
consumer choice and content provider innovation.
Q2.There's been a lot of discussion about "tiers" on the Internet, and
I'd like you to help clear up what we're really talking about. The
telephone companies maintain that they need to have the flexibility to
manage the network to ensure performance and security. Internet
companies that I have spoken with acknowledge that these are important
concerns, and support some sort of controls that would manage the
traffic for the benefit of all. Please distinguish for us what network
management is necessary to make the Internet function well for all of
us and what network management would likely have only an
anti-competitive purpose?
A2. The fairly simple answer is that network management, with few
exceptions (e.g., for law enforcement and anti-spam efforts) should
be allowed only on a non-discriminatory basis - i.e., without regard
to the source or ownership of the bits being transmitted. That is,
network operators may decide to prioritize (give faster speeds to),
e.g., Internet video services over, say, transmission of static data
files, but they may not prioritize based on the source of the Internet
video service or who owns the video bits. Or they may choose to
prioritize telemedicine traffic over all other traffic. But they must
not be allowed to favor one health care organization over another.
Otherwise the network operators become the equivalent of HMOs,
deciding which medical services are most readily available to
consumers.
Of course, we believe they should be allowed (as many do today) to
charge different rates for different capacity. But again, this sort
of -tiering- (where, for example a 24/7 gamer would pay more per
month than an occasional email sender, or where Amazon.com pays more
for access than a small website because we need more capacity to
connect to the Internet) must not be discriminatory, favoring some
bits over others on the basis of their source or ownership. In sum,
we believe that non-discriminatory network management and end-user
tiering, both at the consumer and content provider connections to
the Internet, should be permitted.
Thank you again for your interest in net neutrality and for your
support for reinstating longstanding nondiscrimination safeguards.
Sincerely yours,
Paul Misener
Vice President for Global Public Policy
Amazon.com