SPEAKERS CONTENTS INSERTS
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67–332
2000
INTERNET FREEDOM ACT AND INTERNET GROWTH AND DEVELOPMENT ACT OF 1999,
PART II
HEARING
BEFORE THE
COMMITTEE ON THE JUDICIARY
HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTH CONGRESS
SECOND SESSION
ON
H.R. 1686 and H.R. 1685
JULY 18, 2000
Serial No. 46
Printed for the use of the Committee on the Judiciary
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For sale by the U.S. Government Printing Office
Superintendent of Documents, Congressional Sales Office, Washington, DC 20402
COMMITTEE ON THE JUDICIARY
HENRY J. HYDE, Illinois, Chairman
F. JAMES SENSENBRENNER, Jr., Wisconsin
BILL McCOLLUM, Florida
GEORGE W. GEKAS, Pennsylvania
HOWARD COBLE, North Carolina
LAMAR S. SMITH, Texas
ELTON GALLEGLY, California
CHARLES T. CANADY, Florida
BOB GOODLATTE, Virginia
STEVE CHABOT, Ohio
BOB BARR, Georgia
WILLIAM L. JENKINS, Tennessee
ASA HUTCHINSON, Arkansas
EDWARD A. PEASE, Indiana
CHRIS CANNON, Utah
JAMES E. ROGAN, California
LINDSEY O. GRAHAM, South Carolina
MARY BONO, California
SPENCER BACHUS, Alabama
JOE SCARBOROUGH, Florida
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DAVID VITTER, Louisiana
JOHN CONYERS, Jr., Michigan
BARNEY FRANK, Massachusetts
HOWARD L. BERMAN, California
RICK BOUCHER, Virginia
JERROLD NADLER, New York
ROBERT C. SCOTT, Virginia
MELVIN L. WATT, North Carolina
ZOE LOFGREN, California
SHEILA JACKSON LEE, Texas
MAXINE WATERS, California
MARTIN T. MEEHAN, Massachusetts
WILLIAM D. DELAHUNT, Massachusetts
ROBERT WEXLER, Florida
STEVEN R. ROTHMAN, New Jersey
TAMMY BALDWIN, Wisconsin
ANTHONY D. WEINER, New York
THOMAS E. MOONEY, SR., General Counsel-Chief of Staff
JULIAN EPSTEIN, Minority Chief Counsel and Staff Director
C O N T E N T S
HEARING DATE
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July 18, 2000
TEXT OF BILLS
H.R. 1686
H.R. 1685
OPENING STATEMENT
Hyde, Hon. Henry J., a Representative in Congress From the State of Illinois, and chairman, Committee on the Judiciary
WITNESSES
Baker, Dave, vice president for law and public policy, EarthLink, Inc., Atlanta, GA, on behalf of the openNET Coalition
Cali, Leonard J., vice president, Federal Government Affairs, AT&T, Washington, DC
Cleland, Scott, CEO, The Precursor Group, Washington, DC
Eshoo, Hon. Anna, a Representative in Congress From the State of California
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Ivey, Glenn, chairman, Maryland Public Service Commission, Baltimore, MD, on behalf of the National Association of Regulatory Utility Commissioners
Kennard, William, Chairman, Federal Communications Commission, Washington, DC
Lowe, Randy, executive vice president and chief legal officer, Prism Communications Services, Inc., Washington, DC
McCurry, Mike, co-chair, iAdvance, Washington, DC
Padden, Preston, executive vice president, The Walt Disney Company, Washington, DC
Sachs, Robert, president and CEO, National Cable Television Association, Washington, DC
Tauke, Tom, senior vice president for public policy and external affairs, Verizon Communications, Washington, DC
Tauzin, Hon. Billy, a Representative in Congress From the State of Louisiana
Wolzien, Tom, senior media analyst, Sanford C. Bernstein & Co., New York, NY
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LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING
Baker, Dave, vice president for law and public policy, EarthLink, Inc., Atlanta, GA, on behalf of the openNET Coalition: Prepared statement
Cali, Leonard J., vice president, Federal Government Affairs, AT&T, Washington, DC: Prepared statement
Cleland, Scott, CEO, The Precursor Group, Washington, DC: Prepared statement
Eshoo, Hon. Anna, a Representative in Congress From the State of California: Prepared statement
Hyde, Hon. Henry J., a Representative in Congress From the State of Illinois, and chairman, Committee on the Judiciary: Prepared statement
Ivey, Glenn, chairman, Maryland Public Service Commission, Baltimore, MD, on behalf of the National Association of Regulatory Utility Commissioners: Prepared statement
Jackson Lee, Hon. Sheila, a Representative in Congress From the State of Texas: Prepared statement
Kennard, William, Chairman, Federal Communications Commission, Washington, DC: Prepared statement
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Lowe, Randy, executive vice president and chief legal officer, Prism Communications Services, Inc., Washington, DC: Prepared statement
McCurry, Mike, co-chair, iAdvance, Washington, DC: Prepared statement
Padden, Preston, executive vice president, The Walt Disney Company, Washington, DC: Prepared statement
Rosenblum, Mark C., vice president for law, AT&T Corporation, Basking Ridge, NJ: Prepared statement
Sachs, Robert, president and CEO, National Cable Television Association, Washington, DC: Prepared statement
Tauke, Tom, senior vice president for public policy and external affairs, Verizon Communications, Washington, DC: Prepared statement
Tauzin, Hon. Billy, a Representative in Congress From the State of Louisiana: Prepared statement
Wolzien, Tom, senior media analyst, Sanford C. Bernstein & Co., New York, NY: Prepared statement
APPENDIX
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Material submitted for the record
INTERNET FREEDOM ACT AND INTERNET GROWTH AND DEVELOPMENT ACT OF 1999,
PART II
TUESDAY, JULY 18, 2000
House of Representatives,
Committee on the Judiciary,
Washington, DC.
The committee met, pursuant to call, at 9:33 a.m. in room 2141, Rayburn House Office Building, Hon. Henry J. Hyde (chairman of the committee) presiding.
Present: Representatives Henry J. Hyde, F. James Sensenbrenner, George W. Gekas, Howard Coble, Bob Goodlatte, Steve Chabot, Bob Barr, William L. Jenkins, Asa Hutchinson, Edward A. Pease, Chris Cannon, James E. Rogan, Mary Bono, Spencer Bachus, Joe Scarborough, David Vitter, John Conyers, Jr., Howard L. Berman, Rick Boucher, Jerrold Nadler, Robert C. Scott, Melvin L. Watt, Zoe Lofgren, Sheila Jackson Lee, Maxine Waters, Martin T. Meehan, William D. Delahunt, Robert Wexler, Steven R. Rothman, and Tammy Baldwin.
Staff Present: Thomas E. Mooney, Sr., general counsel and chief of staff; Diana Schacht, deputy staff director and chief counsel; Daniel M. Freeman, parliamentarian and counsel; Joseph Gibson, chief antitrust counsel; Becky Ward, office manager; Amy Rutkowski, staff assistant; Samuel F. Stratman, communications director; and James B. Farr, financial clerk.
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OPENING STATEMENT OF CHAIRMAN HYDE
Mr. HYDE. The committee will come to order.
Today the committee holds a second hearing on H.R. 1686, the Internet Freedom Act, introduced by Congressman Goodlatte, and H.R. 1685, the Internet Growth and Development Act of 1999, introduced by Congressman Boucher. We held our first hearing on these bills June 30, 1999.
Let me repeat what I said at our first hearing. These two bills seek to enhance the growth of the Internet. They involve two related issues. The first has to do with cable broadband lines and whether their owners will be required to grant access to them on nondiscriminatory terms. The second is whether the regional Bell operating companies will be able to transport data over long distance lines within their regions, something they are currently prohibited from doing. The resolution of both these issues will have profound consequences for the future of the Internet, and, more broadly, the ways that we will communicate in the future.
Having said that, it is important to point out that the environment in which these issues are debated has changed dramatically since our hearing last year.
AT&T has announced its intention to open its cable lines in 2002.
America Online and Time Warner have announced their intention to merge and to open Time Warner's cable lines.
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The United States Court of Appeals for the Ninth Circuit has decided that local governments may not force cable companies to open their lines as a condition of their local franchise agreements.
Two of the regional Bell operating companies, Verizon and SBC Communications, have obtained approval to enter long distance in New York and Texas, respectively.
Finally, WorldCom and Sprint have abandoned their attempt to merge in the face of concerns from both American and European antitrust enforces.
Thus, much has changed and much remains unclear. I called this hearing because I thought it would be helpful to committee members to get an update on these changes and their effects on these bills.
I do not believe we have sufficient support within the committee to move forward on these bills today; however, I remain open to the idea if sufficient support develops. A number of members remain undecided, and perhaps this hearing will help us to understand these issues better.
I want to note that I am especially pleased to have two distinguished members of the Commerce Committee testifying before us today, Representative Billy Tauzin of Louisiana and Representative Anna Eshoo of California. Although we often disagree with our Commerce Committee colleagues over jurisdictional issues, more often than not we end up working together with them to produce worthwhile legislation, including the Telecommunications Act of 1996, so it is an honor to have the two of you to lend us your expertise and we look forward to hearing your testimony.
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I also want to commend my colleagues, Mr. Goodlatte and Mr. Boucher, for their usual outstanding work in keeping these issues before us. They often take the lead in high-technology issues and they are a real credit to this committee, as well as their home State, Virginia.
Let me mention one other topic that is not directly involved in the bills we are considering but is closely related—cable rates. My constituents have recently seen 10 percent increases in their cable bills. When I suggested extending regulation a couple of years ago, the cable industry expressed vehement opposition to that idea and extended many promises of good behavior. I am now wondering whether we made a mistake in deregulating this industry. I know we now have satellite television as a more or less viable competitor, and in a few cases, new entrant cable companies. However, they don't seem to be enough to restrain these increases, so later today I will be writing to FCC Chairman Kennard to ask him to look into the state of competition in the cable industry in my region and give me recommendations as to whether we should consider reimposing rate regulation. Something has to be done to restrain these increases.
With that, let me say I appreciate all of the witnesses coming today. We look forward to your testimony.
I now turn to the ranking member, Mr. Conyers, for an opening statement, then I will recognize the sponsors of these bills, Mr. Goodlatte and Mr. Boucher, for their opening statements.
Mr. Conyers?
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[The bills, H.R. 1686 and H.R. 1685, follow:]
106TH CONGRESS
1ST SESSION
H. R. 1686
To ensure that the Internet remains open to fair competition, free from government regulation, and accessible to American consumers.
IN THE HOUSE OF REPRESENTATIVES
MAY 5, 1999
Mr. GOODLATTE (for himself and Mr. BOUCHER) introduced the following bill; which was referred to the Committee on the Judiciary, and in addition to the Committee on Commerce, for a period to be subsequently determined by the Speaker, in each case for consideration of such provisions as fall within the jurisdiction of the committee concerned
A BILL
To ensure that the Internet remains open to fair competition, free from government regulation, and accessible to American consumers.
Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ''Internet Freedom Act''.
TITLE I—ANTITRUST AND CRIMINAL PROVISIONS
SEC. 101. PROHIBITION ON ANTICOMPETITIVE BEHAVIOR BY INCUMBENT LOCAL EXCHANGE CARRIERS.
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In any civil action based on a claim arising under section 1, 2, or 3 of the Sherman Act (15 U.S.C. 1, 2, 3), evidence that an incumbent local exchange carrier that has market power in the broadband service provider market has willfully and knowingly failed to provide conditioned unbundled local loops when economically reasonable and technically feasible under section 715(a) of the Communications Act of 1934, or restrains unreasonably the ability of a carrier to compete in its provision of broadband services over a local loop, shall be sufficient to establish a presumption of a violation of such section 1, 2, or 3 of the Sherman Act.
SEC. 102. PROHIBITION ON ANTICOMPETITIVE CONTRACTS BY BROADBAND ACCESS TRANSPORT PROVIDERS.
In any civil action based on a claim arising under section 1, 2, or 3 of the Sherman Act (15 U.S.C. 1, 2, 3), evidence that a broadband access transport provider that has market power in the broadband service provider market has offered access to a service provider on terms and conditions, other than terms justified by demonstrable cost differentials, that are less favorable than those offered by such operator to itself, to an affiliated service provider, or to another service provider, or restrains unreasonably the ability of a service provider from competing in its provision of broadband services, shall be sufficient to establish a presumption of a violation of such section.
SEC. 103. PROHIBITION ON ANTICOMPETITIVE OR DISCRIMINATORY BEHAVIOR BY BROADBAND ACCESS TRANSPORT PROVIDERS.
It shall be unlawful for a broadband access transport provider to engage in unfair methods of competition or unfair or deceptive acts or practices, the purpose or effect of which is to discriminate in favor of a service provider that is affiliated with a broadband access transport provider or to restrain unreasonably the ability of a service provider that is not affiliated with a broadband access transport provider from competing in its provision of any of the services provided by a service provider as set forth in section 105(3).
SEC. 104. PROTECTION FROM FRAUDULENT UNSOLICITED E-MAIL.
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Section 1030 of title 18, United States Code, is amended—
(1) in subsection (a)(5)—
(A) by striking ''or'' at the end of subparagraph (B); and
(B) by inserting after subparagraph (C) the following new subparagraphs:
''(D) intentionally and without authorization initiates the transmission of a bulk unsolicited electronic mail message to a protected computer with knowledge that such message falsifies an Internet domain, header information, date or time stamp, originating e-mail address or other identifier; or
''(E) intentionally sells or distributes any computer program that—
''(i) is designed or produced primarily for the purpose of concealing the source or routing information of bulk unsolicited electronic mail messages in a manner prohibited by subparagraph (D) of this paragraph;
''(ii) has only limited commercially significant purpose or use other than to conceal such source or routing information; or
''(iii) is marketed by the violator or another person acting in concert with the violator and with the violator's knowledge for use in concealing the source or routing information of such messages;
(2) in subsection (c)(2)(A)—
(A) by inserting ''(i)'' after ''in the case of an offense''; and
(B) by inserting after ''an offense punishable under this subparagraph;'' the following: ''; or (ii) under subsection (a)(5)(D) or (a)(5)(E) of this section which results in damage to a protected computer'';
(3) in subsection (c)(2), by adding at the end the following new subparagraph:
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''(D) in the case of a violation of subsection (a)(5)(D) or (E), actual monetary loss and statutory damages of $15,000 per violation or an amount of up to $10 per message per violation whichever is greater; and'';
(4) in subsection (e)—
(A) by striking ''and'' at the end of paragraph (8);
(B) by striking the period at the end of paragraph (9); and
(C) by adding at the end the following new paragraphs:
''(10) the term 'initiates the transmission' means, in the case of an electronic mail message, to originate the electronic mail message, and excludes the actions of any interactive computer service whose facilities or services are used by another person to transmit, relay, or otherwise handle such message;
''(11) the term 'Internet domain' means a specific computer system (commonly referred to as a 'host') or collection of computer systems attached to or able to be referenced from the Internet which are assigned a specific reference point on the Internet (commonly referred to as an 'Internet domain name') and registered with an organization recognized by the Internet industry as a registrant of Internet domains;
''(12) the term 'unsolicited electronic mail message' means any substantially identical electronic mail message other than electronic mail initiated by any person to others with whom such person has a prior relationship, including prior business relationship, or electronic mail sent by a source to recipients where such recipients, or their designees, have at any time affirmatively requested to receive communications from that source; and
''(13) the term 'Internet' means all computer and telecommunications facilities, including equipment and operating software, which comprise the interconnected network of networks that employ the Transmission Control Protocol/Internet Protocol, or any predecessor or successor protocols to such protocol, to communicate information of all kinds by wire or radio.''.
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(5) in subsection (g), by inserting ''and reasonable attorneys' fees and other litigation costs reasonably incurred in connection with civil action'' after ''injunctive relief or other equitable relief''.
SEC. 105. DEFINITIONS.
For purposes of this title:
(1) BROADBAND.—The term ''broadband'' refers to a transmission capability in excess of 200 kilobits per second in at least one direction.
(2) BROADBAND ACCESS TRANSPORT PROVIDER.—The term ''broadband access transport provider'' means one who engages in the broadband transmission of data between a user and his service provider's point of interconnection with the broadband access transport provider's facilities. Such term shall also include a service provider who provides to itself, over facilities owned by it or under its control, the broadband transport of services between itself and its users.
(3) SERVICE PROVIDER.—The term ''service provider'' means a person who provides a service that enables users to access content, information, electronic mail, or other services. The term may also include access to proprietary content, information, and other services as part of a package of services offered to consumers.
(4) INTERNET.—The term ''Internet'' means all computer and telecommunications facilities, including equipment and operating software, which comprise the interconnected network of networks that employ the Transmission Control Protocol/Internet Protocol, or any predecessor or successor protocols to such protocol, to communicate information of all kinds by wire or radio.
(5) BROADBAND SERVICE PROVIDER MARKET.—The term ''broadband service provider market'' includes the provision of broadband services over a single broadband access transport provider's facilities.
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TITLE II—ADDITIONAL PROVISIONS
SEC. 201. ACCELERATED DEPLOYMENT OF BROADBAND SERVICES.
Title VII of the Communications Act of 1934 is amended by adding at the end thereof the following new section:
''SEC. 715. ACCELERATED DEPLOYMENT OF BROADBAND SERVICES.
''(a) BROADBAND SERVICES PLANS.—
''(1) PLAN REQUIRED.—Within 180 days after the effective date of this section, each local exchange carrier shall submit to the State commission in each State in which such carrier does business a plan to provide broadband telecommunications service in all local exchange areas in which such carrier has telephone exchange service customers as soon as such broadband telecommunications service is economically reasonably and technically feasible. The plan shall include all terms and conditions, including pricing, under which the services shall be provided. The test of economic reasonability and technical feasibility shall be made separately by the local exchange carrier for each local exchange, and the plan shall be considered certified 45 days after submission unless the State commission rejects the plan within such 45 days. Upon rejection of a plan, successive plans shall be submitted until approval is obtained. The plan shall be implemented within 180 days of the certification of the plan in each local exchange in which the provision of the service is both economically reasonable and technically feasible. Upon certification of its plan, the carrier shall be obligated by terms of the plan (including any modifications that it requests that are thereafter certified) but shall otherwise provide such services free of Federal and State price, rate, rate of return, and profit regulation. Upon a determination by the State commission that a local exchange is served by another provider of broadband telecommunications services, or any broadband Internet access transport provider, or upon a determination by such State commission that the local exchange carrier makes broadband telecommunications services available to 70 percent of the access lines in an exchange, a local exchange carrier shall no longer be obligated by the terms of any such plan in such local exchange.
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''(2) STATE MODIFICATIONS PROHIBITED.—Except upon request of the carrier, the State commission shall have no authority to modify any plan submitted pursuant to paragraph (1).
''(3) NO COMMISSION AUTHORITY.—The Commission shall have no authority with respect to the terms of any plan and shall have no authority with respect to the approval or rejection of any such plan.
''(b) SUPERSESSION OF OTHER REQUIREMENTS.—An incumbent local exchange carrier's provision of broadband local telecommunications services shall not be subject to the requirements of sections 251(c)(3) and 251(c)(4) of the Act in any State in which that carrier certifies to the State commission that—
''(1) in central offices in which it provides local loops that are conditioned for broadband services, it provides such loops to other carriers at least as quickly as it provides them for its own customers;
''(2) in central offices in which it does not currently provide local loops that are conditioned for broadband services, but in which such service is economically reasonable and technically feasible, it will provide such loops within 120 days of a request for such conditioning from another carrier; and
''(3) conditioned loops are provided upon such prices and other terms and conditions as the parties shall agree, or in any event of disagreements, as are determined through commercial arbitration, in which the commercial arbitrator shall establish the price based upon the cost of the loops and the costs for such conditioning that have been incurred by the local exchange carrier plus a reasonable profit.''.
SEC. 202. ACCELERATED DEPLOYMENT OF INTERNET BACKBONE.
(a) INTERLATA INTERNET SERVICES.—Paragraph (21) of section 3 of the Communications Act of 1934 (47 U.S.C. 153(21)), relating to the definition of interLATA service, is amended by inserting before the period the following: '', except that such term shall not include services that consist of or include the transmission of any data or information, including any writing, signs, signals, pictures, or sounds related to the transmission of such data or information, by means of the Internet or any other network that employs Internet Protocol-based or other packet-switched technology''.
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(b) VOICE INTERLATA INTERNET SERVICES.—Neither a Bell operating company, nor any affiliate of a Bell operating company, may provide, by means of the Internet or any other network that employs Internet Protocol-based or other packet-switched technology, two-way voice-only interLATA telecommunications services originating in any of its in-region States until such time as the Federal Communications Commission approves the application of such company for such State pursuant to section 271(d) of the Communications Act of 1934. The terms in this subsection shall have the same respective meanings given such terms in sections 3 and 271 of such Act.
106TH CONGRESS
1ST SESSION
H. R. 1685
To provide for the recognition of electronic signatures for the conduct of interstate and foreign commerce, to restrict the transmission of certain electronic mail advertisements, to authorize the Federal Trade Commission to prescribe rules to protect the privacy of users of commercial Internet websites, to promote the rapid deployment of broadband Internet services, and for other purposes.
IN THE HOUSE OF REPRESENTATIVES
MAY 5, 1999
Mr. BOUCHER (for himself and Mr. GOODLATTE) introduced the following bill; which was referred to the Committee on Commerce, and in addition to the Committee on the Judiciary, for a period to be subsequently determined by the Speaker, in each case for consideration of such provisions as fall within the jurisdiction of the committee concerned
A BILL
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To provide for the recognition of electronic signatures for the conduct of interstate and foreign commerce, to restrict the transmission of certain electronic mail advertisements, to authorize the Federal Trade Commission to prescribe rules to protect the privacy of users of commercial Internet websites, to promote the rapid deployment of broadband Internet services, and for other purposes.
Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ''Internet Growth and Development Act of 1999''.
TITLE I—AUTHORIZATION OF ELECTRONIC SIGNATURES IN COMMERCE
SEC. 101. DEFINITIONS.
For purposes of this title, the following definitions shall apply:
(1) ELECTRONIC COMMERCE.—The term ''electronic commerce'' means the transaction or conduct of any business that is in or that affects interstate or foreign commerce and that is in whole or part transacted or conducted by electronic means.
(2) ELECTRONIC MEANS.—The term ''electronic means'' includes all forms of electronic communication mediated by computer, including telephonic communications, facsimile, electronic mail, electronic data exchanges, satellite, cable, and fiber optic communications.
(3) ELECTRONIC AUTHENTICATION.—The term ''electronic authentication'' means any methodology, technology, or technique intended to—
(A) establish the identity of the maker, sender, or originator of a document or communication in electronic commerce; and
(B) establish the fact that the document or communication has not been altered.
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(4) ELECTRONIC SIGNATURE.—The term ''electronic signature'' means any electronic symbol or series of symbols, created, or processed by a computer, intended by the party using it (or authorizing its use) to have the same legal force and effect as a manual signature.
SEC. 102. VALIDITY OF ELECTRONIC AUTHENTICATION.
(a) VALIDITY OF ELECTRONIC SIGNATURES.—All electronic signatures that have been authenticated through the use of a means of electronic authentication that complies with subsection (d) shall have standing equal to paper-based, written signatures, so that—
(1) any rule of law which requires a record to be in writing shall be deemed satisfied; and
(2) any rule of law which requires a signature shall be deemed satisfied.
(b) VALIDITY OF ELECTRONIC RECORDS.—Electronic records shall not be denied legal effect, validity, or enforceability solely because such records are in electronic form.
(c) VALIDITY OF STATE LAWS.—Nothing in this section shall be construed to preempt the law of a State that enacts legislation governing electronic transactions that is consistent with subsections (a) and (b).
(d) MEANS OF ELECTRONIC AUTHENTICATION.—
(1) IN GENERAL.—For purposes of this title, a means of electronic authentication complies with the requirements of this section if it—
(A) reliably establishes the identity of the maker, sender, or originator of a document or communication in electronic commerce; and
(B) reliably establishes the fact that the document or communication has not been altered.
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(2) METHODS OF PROOF.—A person may demonstrate compliance with the requirements of paragraph (1) by demonstrating that a means of electronic authentication—
(A) uses an identification methodology that is unique to the person making, sending, originating a document or communication;
(B) the identification methodology shall be capable of verifying the identity of such person; and
(C) the identification methodology is linked to the data or communication transmitted in such a manner that if such data or communication has been altered, the authentication becomes invalid.
TITLE II—ELECTRONIC MAIL ADVERTISEMENTS
SEC. 201. UNSOLICITED ELECTRONIC MAIL ADVERTISEMENTS.
Title VII of the Communications Act of 1934 is amended by adding at the end the following section:
''SEC. 715. UNSOLICITED ELECTRONIC MAIL ADVERTISEMENTS.
''(a) COMPLIANCE OF REGISTERED USERS WITH PROVIDER POLICY REQUIRED.—No registered user of an electronic mail service provider shall use or cause to be used that electronic mail service provider's equipment in violation of that electronic mail service provider's policy prohibiting or restricting the use of its service or equipment for the initiation of unsolicited electronic mail advertisements.
''(b) COMPLIANCE BY SENDERS WITH PROVIDER POLICY REQUIRED.—No person or other entity shall use or cause to be used, by initiating an unsolicited electronic mail advertisement, an electronic mail service provider's equipment in violation of that electronic mail service provider's policy prohibiting or restricting the use of its equipment to deliver unsolicited electronic mail advertisements to its registered users.
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''(c) PROVIDER POLICIES NOT REQUIRED.—An electronic mail service provider shall not be required to create a policy prohibiting or restricting the use of its equipment for the initiation or delivery of unsolicited electronic mail advertisements.
''(d) CONTINUED PROTECTION FROM BEING TREATED AS PUBLISHER.—Nothing in this section shall be construed to limit or restrict the rights of an electronic mail service provider under section 230(c)(1) of this Act, or any decision of an electronic mail service provider to permit or to restrict access to or use of its system, or any exercise of its editorial function.
''(e) REMEDIES.—
''(1) PRIVATE ACTIONS BY PROVIDERS.—In addition to any other remedy available under law, any electronic mail service provider whose policy on unsolicited electronic mail advertisements is violated as provided in this section may bring a civil action to recover the actual monetary loss suffered by that provider by reason of that violation, or liquidated damages of $50 for each electronic mail message initiated or delivered in violation of this section, up to a maximum of $25,000 per day, whichever amount is greater.
''(2) ATTORNEY FEES.—In any action brought pursuant to paragraph (1), the court may award reasonable attorney's fees to a prevailing party.
''(3) NOTICE OF POLICY REQUIRED.—In any action brought pursuant to paragraph (1), the electronic mail service provider shall be required to establish as an element of its cause of action that prior to the alleged violation, the defendant had actual notice of both of the following:
''(A) The electronic mail service provider's policy on unsolicited electronic mail advertising and
''(B) The fact that the defendant's unsolicited electronic mail advertisements would use or cause to be used the electronic mail service provider's equipment.
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''(f) DEFINITIONS.—As used in this section:
''(1) ELECTRONIC MAIL ADVERTISEMENT.—The term 'electronic mail advertisement' means any electronic mail message, the principal purpose of which is to promote, directly or indirectly, the sale or other commercial distribution of goods or services to the recipient.
''(2) UNSOLICITED ELECTRONIC MAIL ADVERTISEMENT.—The term 'unsolicited electronic mail advertisement' means any electronic mail advertisement that meets both of the following requirements:
''(A) It is addressed to a recipient with whom the initiator does not have an existing business or personal relationship.
''(B) It is not sent at the request of or with the express consent of the recipient.
''(3) ELECTRONIC MAIL SERVICE PROVIDER.—The term 'electronic mail service provider' means any person or other entity that provides registered users the ability to send or receive electronic mail and that is an intermediary in sending or receiving electronic mail.
''(4) INITIATION.—The term 'initiation' of an unsolicited electronic mail advertisement refers to the action by the initial sender of the electronic mail advertisement. It does not refer to the actions of any intervening electronic mail service provider that may handle or retransmit the electronic message.
''(5) REGISTERED USER.—The term 'registered user' means any person or other entity that maintains an electronic mail address with an electronic mail service provider.''.
TITLE III—ONLINE PRIVACY PROTECTION
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SEC. 301. ONLINE PRIVACY PROTECTION.
(a) INFORMATION COLLECTION REGULATIONS.—Any person operating a commercial Internet website shall clearly and conspicuously provide notice of its collection, use, and disclosure policies with regard to personally identifiable information, including—
(1) the personally identifiable information that the website operator collects from individuals visiting the website; and
(2) the uses that the website operator makes of the personally identifiable information, including whether the operator makes the information available to any third parties.
(b) ENFORCEMENT.—Any knowing violation of the requirements under subsection (a) shall be treated as an unfair or deceptive act or practice under section 5 of the Federal Trade Commission Act (15 U.S.C. 45).
TITLE IV—BROADBAND DEPLOYMENT
SEC. 401. ACCELERATED DEPLOYMENT OF INTERNET BACKBONE.
(a) INTERLATA INTERNET SERVICES.—Paragraph (21) of section 3 of the Communications Act of 1934 (47 U.S.C. 153(21)), relating to the definition of interLATA service, is amended by inserting before the period the following: '', except that such term shall not include services that consist of or include the transmission of any data or information, including any writing, signs, signals, pictures, or sounds related to the transmission of such data or information, by means of the Internet or any other network that employs Internet Protocol-based or other packet-switched technology''.
(b) VOICE INTERLATA INTERNET SERVICES.—Neither a Bell operating company, nor any affiliate of a Bell operating company, may provide, by means of the Internet or any other network that employs Internet Protocol-based or other packet-switched technology, two-way voice-only interLATA telecommunications services originating in any of its in-region States until such time as the Federal Communications Commission approves the application of such company for such State pursuant to section 271(d) of the Communications Act of 1934. The terms in this subsection shall have the same respective meanings given such terms in sections 3 and 271 of such Act.
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SEC. 402. ACCELERATED DEPLOYMENT OF BROADBAND SERVICES.
Title VII of the Communications Act of 1934 is further amended by adding at the end thereof the following new section:
''SEC. 716. ACCELERATED DEPLOYMENT OF BROADBAND SERVICES.
''(a) BROADBAND SERVICES PLANS.—
''(1) PLAN REQUIRED.—Within 180 days after the effective date of this section, each local exchange carrier shall submit to the State commission in each State in which such carrier does business a plan to provide broadband telecommunications service in all local exchange areas in which such carrier has telephone exchange service customers as soon as such broadband telecommunications service is economically reasonably and technically feasible. The plan shall include all terms and conditions, including pricing, under which the services shall be provided. The test of economic reasonability and technical feasibility shall be made separately by the local exchange carrier for each local exchange, and the plan shall be considered certified 45 days after submission unless the State commission rejects the plan within such 45 days. Upon rejection of a plan, successive plans shall be submitted until approval is obtained. The plan shall be implemented within 180 days of the certification of the plan in each local exchange in which the provision of the service is both economically reasonable and technically feasible. Upon certification of its plan, the carrier shall be obligated by terms of the plan (including any modifications that it requests that are thereafter certified) but shall otherwise provide such services free of Federal and State price, rate, rate of return, and profit regulation. Upon a determination by the State commission that a local exchange is served by another provider of broadband telecommunications services, or any broadband Internet access transport provider, or upon a determination by such State commission that the local exchange carrier makes broadband telecommunications services available to 70 percent of the access lines in an exchange, a local exchange carrier shall no longer be obligated by the terms of any such plan in such local exchange.
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''(2) STATE MODIFICATIONS PROHIBITED.—Except upon request of the carrier, the State commission shall have no authority to modify any plan submitted pursuant to paragraph (1).
''(3) NO COMMISSION AUTHORITY.—The Commission shall have no authority with respect to the terms of any plan and shall have no authority with respect to the approval or rejection of any such plan.
''(b) SUPERSESSION OF OTHER REQUIREMENTS.—An incumbent local exchange carrier's provision of broadband local telecommunications services shall not be subject to the requirements of sections 251(c)(3) and 251(c)(4) of the Act in any State in which that carrier certifies to the State commission that—
''(1) in central offices in which it provides local loops that are conditioned for broadband services, it provides such loops to other carriers at least as quickly as it provides them for its own customers;
''(2) in central offices in which it does not currently provide local loops that are conditioned for broadband services, but in which such service is economically reasonable and technically feasible, it will provide such loops within 120 days of a request for such conditioning from another carrier; and
''(3) conditioned loops are provided upon such prices and other terms and conditions as the parties shall agree, or in any event of disagreements, as are determined through commercial arbitration, in which the commercial arbitrator shall establish the price based upon the cost of the loops and the costs for
such conditioning that have been incurred by the local exchange carrier plus a reasonable profit.''.
TITLE V—ANTITRUST AND CRIMINAL PROVISIONS
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SEC. 501. PROHIBITION ON ANTICOMPETITIVE BEHAVIOR BY INCUMBENT LOCAL EXCHANGE CARRIERS.
In any civil action based on a claim arising under section 1, 2, or 3 of the Sherman Act (15 U.S.C. 1, 2, 3), evidence that an incumbent local exchange carrier that has market power in the broadband service provider market has willfully and knowingly failed to provide conditioned unbundled local loops when economically reasonable and technically feasible under section 716(a) of the Communications Act of 1934, or restrains unreasonably the ability of a carrier to compete in its provision of broadband services over a local loop, shall be sufficient to establish a presumption of a violation of such section 1, 2, or 3 of the Sherman Act.
SEC. 502. PROHIBITION ON ANTICOMPETITIVE CONTRACTS BY BROADBAND ACCESS TRANSPORT PROVIDERS.
In any civil action based on a claim arising under section 1, 2, or 3 of the Sherman Act (15 U.S.C. 1, 2, 3), evidence that a broadband access transport provider that has market power in the broadband service provider market has offered access to a service provider on terms and conditions, other than terms justified by demonstrable cost differentials, that are less favorable than those offered by such operator to itself, to an affiliated service provider, or to another service provider, or restrains unreasonably the ability of a service provider from competing in its provision of broadband services, shall be sufficient to establish a presumption of a violation of such section.
SEC. 503. PROHIBITION ON ANTICOMPETITIVE OR DISCRIMINATORY BEHAVIOR BY BROADBAND ACCESS TRANSPORT PROVIDERS.
It shall be unlawful for a broadband access transport provider to engage in unfair methods of competition or unfair or deceptive acts or practices, the purpose or effect of which is to discriminate in favor of a service provider that is affiliated with a broadband access transport provider or to restrain unreasonably the ability of a service provider that is not affiliated with a broadband access transport provider from competing in its provision of any of the services provided by a service provider as set forth in section 505(3).
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SEC. 504. PROTECTION FROM FRAUDULENT UNSOLICITED E-MAIL.
Section 1030 of title 18, United States Code, is amended—
(1) in subsection (a)(5)—
(A) by striking ''or'' at the end of subparagraph (B); and
(B) by inserting after subparagraph (C) the following new subparagraphs:
''(D) intentionally and without authorization initiates the transmission of a bulk unsolicited electronic mail message to a protected computer with knowledge that such message falsifies an Internet domain, header information, date or time stamp, originating e-mail address or other identifier; or
''(E) intentionally sells or distributes any computer program that—
''(i) is designed or produced primarily for the purpose of concealing the source or routing information of bulk unsolicited electronic mail messages in a manner prohibited by subparagraph (D) of this paragraph;
''(ii) has only limited commercially significant purpose or use other than to conceal such source or routing information; or
''(iii) is marketed by the violator or another person acting in concert with the violator and with the violator's knowledge for use in concealing the source or routing information of such messages;'';
(2) in subsection (c)(2)(A)—
(A) by inserting ''(i)'' after ''in the case of an offense''; and
(B) by inserting after ''an offense punishable under this subparagraph;'' the following: ''; or (ii) under subsection (a)(5)(D) or (a)(5)(E) of this section which results in damage to a protected computer'';
(3) in subsection (c)(2), by adding at the end the following new subparagraph:
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''(D) in the case of a violation of subsection (a)(5)(D) or (E), actual monetary loss and statutory damages of $15,000 per violation or an amount of up to $10 per message per violation whichever is greater; and'';
(4) in subsection (e)—
(A) by striking ''and'' at the end of paragraph (8);
(B) by striking the period at the end of paragraph (9); and
(C) by adding at the end the following new paragraphs:
''(10) the term 'initiates the transmission' means, in the case of an electronic mail message, to originate the electronic mail message, and excludes the actions of any interactive computer service whose facilities or services are used by another person to transmit, relay, or otherwise handle such message;
''(11) the term 'Internet domain' means a specific computer system (commonly referred to as a 'host') or collection of computer systems attached to or able to be referenced from the Internet which are assigned a specific reference point on the Internet (commonly referred to as an 'Internet domain name') and registered with an organization recognized by the Internet industry as a registrant of Internet domains;
''(12) the term 'unsolicited electronic mail message' means any substantially identical electronic mail message other than electronic mail initiated by any purpose to others with whom such person has a prior relationship, including prior business relationship, or electronic mail sent by a source to recipients where such recipients, or their designees, have at any time affirmatively requested to receive communications from that source; and
''(13) the term 'Internet' means all computer and telecommunications facilities, including equipment and operating software, which comprise the interconnected network of networks that employ the Transmission Control Protocol/Internet Protocol, or any predecessor or successor protocols to such protocol, to communicate information of all kinds by wire or radio.''.
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(5) in subsection (g), by inserting ''and reasonable attorneys' fees and other litigation costs reasonably incurred in connection with civil action'' after ''injunctive relief or other equitable relief''.
SEC. 505. DEFINITIONS.
For purposes of this title:
(1) BROADBAND.—The term ''broadband'' refers to a transmission capability in excess of 200 kilobits per second in at least one direction.
(2) BROADBAND ACCESS TRANSPORT PROVIDER.—The term ''broadband access transport provider'' means one who engages in the broadband transmission of data between a user and his service provider's point of interconnection with the broadband access transport provider's facilities. Such term shall also include a service provider who provides to itself, over facilities owned by it or under its control, the broadband transport of services between itself and its users.
(3) SERVICE PROVIDER.—The term ''service provider'' means a person who provides a service that enables users to access content, information, electronic mail, or other services. The term may also include access to proprietary content, information, and other services as part of a package of services offered to consumers.
(4) INTERNET.—The term ''Internet'' means all computer and telecommunications facilities, including equipment and operating software, which comprise the interconnected network of networks that employ the Transmission Control Protocol/Internet Protocol, or any predecessor or successor protocols to such protocol, to communicate information of all kinds by wire or radio.
(5) BROADBAND SERVICE PROVIDER MARKET.—The term ''broadband service provider market'' includes the provision of broadband services over a single broadband access transport provider's facilities.
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[The prepared statement of Mr. Hyde follows:]
PREPARED STATEMENT OF HON. HENRY J. HYDE, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF ILLINOIS, AND CHAIRMAN, COMMITTEE ON THE JUDICIARY
Today the Committee holds a second hearing on H.R. 1686, the ''Internet Freedom Act,'' introduced by Congressman Goodlatte, and H.R. 1685, the ''Internet Growth and Development Act of 1999,'' introduced by Congressman Boucher. We held our first hearing on these bills on June 30, 1999.
Let me repeat what I said at our first hearing. These two bills seek to enhance the growth of the Internet. They involve two related issues. The first has to do with cable broadband lines and whether their owners will be required to grant access to them on nondiscriminatory terms. The second is whether the regional Bell operating companies will be able to transport data over long distance lines within their regions—something they are currently prohibited from doing. The resolution of both of these issues will have profound consequences for the future of the Internet, and more broadly, the ways that we will communicate in the future.
Having said that, it is important to point out that the environment in which these issues are debated has changed dramatically since our hearing last year. AT&T has announced its intention to open its cable lines in 2002. America Online and Time Warner have announced their intention to merge and their intention to open Time Warner's cable lines. The United States Court of Appeals for the Ninth Circuit has decided that local governments may not force cable companies to open their lines as a condition of their local franchise agreements. Two of the regional Bell operating companies, Verizon and SBC Communications, have obtained approval to enter long distance in New York and Texas, respectively. Finally, WorldCom and Sprint have abandoned their attempt to merge in the face of concerns from both American and European antitrust enforcers.
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Thus, much has changed, and much remains unclear. I called this hearing because I thought it would be helpful to Committee Members to get an update on these changes and their effects on these bills. I do not believe that we have sufficient support within the Committee to move forward on these bills today. However, I remain open to that idea if sufficient support develops. A number of Members remain undecided and perhaps this hearing will help them to understand these issues better.
I want to note that I am especially pleased to have two distinguished Members of the Commerce Committee testifying before us today, Representative Billy Tauzin and Representative Anna Eshoo. Although we often disagree with our Commerce Committee colleagues over jurisdictional issues, more often than not, we end up working together with them to produce some excellent legislation, including the Telecommunications Act of 1996. So, it is an honor to have the two of you to lend us your expertise, and we look forward to hearing your testimony.
I also want to commend my colleagues, Mr. Goodlatte and Mr. Boucher, for their usual outstanding work in keeping these issues before us. They often take the lead on high technology issues, and they are a credit to the Committee.
Let me mention one other topic that is not directly involved in the bills we are considering, but that is closely related: cable rates. My constituents have recently seen 10% increases in their cable bills. When I suggested extending regulation a couple of years ago, the cable industry met me with vehement opposition to that idea and many promises of good behavior. I am now wondering whether we made a mistake in deregulating this industry. I know that we now have satellite television as a viable competitor, and in a few cases, new entrant cable companies. However, they do not seem to be enough to restrain these increases. So later today I will be writing to Chairman Kennard to ask him to look into the state of competition in the cable industry in my district and give me recommendations as to whether we should consider reimposing rate regulation. Something has to be done to restrain these increases.
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With that, let me say that I appreciate all of the witnesses coming today, and we look forward to your testimony. I will now turn to the ranking member, Mr. Conyers. Then, I will recognize the sponsors of these bills, Mr. Goodlatte and Mr. Boucher, for their opening statements.
Mr. CONYERS. Thank you, Chairman Hyde. I want to wish my friends a good morning on the Commerce Committee, Anna Eshoo and Billy Tauzin. We have worked together on lots of technology issues, and we welcome you here today.
You know, sometimes we ought to go before the Commerce Committee. They always come before us.
Mr. HYDE. We would need to have the Capitol Police with us. [Laughter.]
Mr. CONYERS. Maybe that is why we haven't been going before them.
But, at any rate, we are all here. We welcome also William Kennard, the Chairman of the FCC, and other distinguished witnesses that will be following very shortly.
It has, of course, always been my position to support competition in all sectors to give consumers access to the greatest selection of options at the best prices. Of course, that applies to the area of telecommunications. Unfortunately, so far it has not been an impressive record of competition within the telecommunications industry. Cable rates, which are now essentially deregulated under the 1996 law, have gone up 20 percent. Instead of innovation and competition, we have seen a wave of mergers and consolidations. The seven Bells have already shrunk to four. And the cable industry is in the process of being nearly swallowed whole by the long-distance and high-tech industries. If we had only known. If we could have only foreseen.
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And the bill of my Judiciary colleagues, Representatives Boucher and Goodlatte, brings two critical issues before the committee. The first is whether Congress should impose open access requirements on high-speed cable access to the Internet.
Now, part of this issue comes down to whether high-speed access is a monopoly service which can't be duplicated or whether it is one of the many equally-good routes to the Internet. As of now, cable broadband can't be said to be a monopoly.
Although some analysis might say that cable is the superior broadband pipe, right now cable companies have only a small fraction of the broadband market, and this is not a situation that would normally allow a per se violation of the Sherman Act to be found.
In addition, we need to consider what impact, if any, regulating high-speed cable will have on the ability of the cable industry to convert the technology into two-way telephone service which competes with the Bells.
And the final consideration is how regulation could slow the deployment of cable broadband, and relieve competitive pressure on the Bells to roll out their digital subscriber lines, DSL technology.
You know, the second question, my friends, is whether we should relax the statutory restrictions on long-distance service by the Bells so they could enter the field of long-distance data transmission. And so the question is whether the Bells should fully open up their networks to local competition before they can enter long distance for both voice and data.
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The current requirements of the 1996 act serve two purposes: they ensure that the Bells can't use their local phone monopoly to create a monopoly in long distance, and they create a financial incentive for the Bells to open up their own networks to competition.
Now, data transmission represents half of all traffic on the telephone network and will soon go up to 90 percent, and if we are to abandon the market-opening test for data, then I think we ought to be able to see very strong evidence that doing so will not harm competition and will not negatively impact consumers.
While increased competition in the backbone market is a laudable goal, it seems to me that the greater problem is with the monopoly local loop. Right now the Internet backbone can take information from one end of the country to the other instantly, but the ''World-Wide Wait'' occurs when a person tries to download that information onto his or her PC. It is like taking a fire hydrant hose and hooking it up to a straw so that no matter how fast the fire hydrant delivers the water, the straw will limit the amount of water that gets out. Right now the local loop is that straw, and we need policies that will continue to open up that last mile.
So I think this is an important hearing. I praise my colleagues on the committee who have come up with a reason for a second hearing on this subject. But remember, the telecommunications industry was literally born into monopoly, and it took three antitrust suits to finally bring some semblance of competition to Ma Bell.
Competition and antitrust were also at the heart of the long distance restrictions, included in the 1996 Telecommunications Act.
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So, just in case you didn't have any idea of what I was thinking about this morning on the subject, now you have it, and I will be delighted to listen to our colleagues that are with us.
Thank you.
Mr. HYDE. Thank you, Mr. Conyers.
Mr. Goodlatte, the gentleman from Virginia.
Mr. GOODLATTE. Mr. Chairman, I want to thank you for holding this hearing today on an issue that, as evidenced by the size and diversity of the audience here this morning, continues to become increasingly important to more and more Americans.
I think we would all agree that, however you define it, bridging the digital divide, providing digital opportunities, or ensuring that the digital revolution leaves no American behind, encouraging the roll-out of high-speed Internet access to inner city, rural, and under-served areas remains our greatest challenge.
Much has happened since we last examined this issue, but I am hopeful that, as members listen to the testimony from our witnesses this morning, it will become evident that, although industry has made great strides in rolling out high-speed Internet access, the administration continues to hinder this roll-out in the areas that need it most by hiding behind misinterpreted portions of the Telecommunications Act and ignoring others it does not agree with.
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Congressman Boucher and I introduced legislation last year to take action where the FCC would not. Our legislation focuses on two issues that remain critical to the successful closing of the digital divide.
First, the bill removes regulations from the incumbent phone companies that were never intended for the Internet.
The Telecommunications Act of 1996 laid out what was at the time an appropriate plan for introducing competition to the local and long-distance telephony markets; however, the plan was not designed for the Internet and it has not worked for the Internet. Instead, the Internet marketplace has been negatively affected, perhaps permanently, by the misguided application of these ill-fitting telephony regulations.
Starting with the concentration of market power and the backbone market and leading to the lack of competition in the residential Internet market, these regulations have led to limited choices and inflated prices for consumers. Meanwhile, the FCC has stood by and watched as the Internet gradually loses those characteristics that have made it such a revolutionary tool for home, work, and play.
Not only is FCC inaction resulting in a slower roll-out of broadband Internet service, but the move to broadband without adequate FCC oversight has raised the question: what will the Internet look like when it finally gets there?
In districts like mine, where there are few, if any, competitive providers of high-speed Internet service, the ability of consumers to choose the kind of content traveling over the pipe becomes more important. In places like the Silicon Valley or northern Virginia, there are a variety of ISPs and content to choose from. In rural and inner city districts, however, there may be only one provider or none at all.
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How do we ensure that local providers and the communities they serve, including those focused on rural or urban culture, get their chance to participate in the new economy?
Closed access is a logical extension of the digital divide. When an ISP that targets a specific community or group is discriminated against by a technology in their ability to reach their target audience, the community suffers.
I look forward to hearing from witnesses like Mr. McCurry, who represent content from sites like NetNoir or portals like Toto Latino. We need to have access to the greatest number of ISPs and the largest variety of technologies to reach the widest audience possible.
This is not an issue of Government intervention, as many of our witnesses will warn against this morning. Our antitrust laws are meant to protect against anti-competitive behavior by monopolistic providers.
I, too, share the concern of many that, of all the Federal agencies out there to enforce anti-discriminatory rules, the FCC is probably the least preferable. That is why the approach that Congressman Boucher and I took in our legislation was to clarify that, for the purposes of existing antitrust law, cable providers are currently operating as monopoly platforms for Internet service providers. They only allow one ISP, theirs. And if they allow more than one, you have to buy theirs first before you can buy a competitor. This is classic monopolistic behavior, and our legislation would keep enforcement of antitrust laws where it belongs, with the Justice Department.
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So we may hear scary scenarios painted this morning about an FCC run amuck applying common carrier status to cable lines, and we may even hear frightening stories about regulatory proceedings coming from the FCC chairman, himself. But I would caution my colleagues on the committee to look closely at the legislation, because open access should not mean FCC intervention. The antitrust remedies in this legislation require no new bureaus, no new divisions, no new funding, and no new employees. In fact, it relieves the FCC of even having to initiate proceedings in this area. Our legislation relieves the concerns of so many that open access must be accompanied by heavy Government regulation. It doesn't. It simply asks us to think outside the box for a moment by clarifying existing law.
While the lines of the phone companies are already open to competing ISPs by law, other technologies are at a competitive advantage. Because they are not required to grant nondiscriminatory access to other ISPs, the different technologies, whether cable, wireless, or satellite, can provide their Internet service provider at a rate that is below cost or at a speed that is faster than competing ISPs, if allowed on their lines, or that has fewer restrictions on content downloading than other ISPs they might allow on their lines.
Just last year, one company marketed cable routers that enabled the cable company to cash their own ISP, the services provided by their Internet service provider, at a quicker rate than their competitors.
Mr. HYDE. Could the gentleman bring his remarks to conclusion?
Mr. GOODLATTE. I am almost through, Mr. Chairman.
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Mr. HYDE. Thank you.
Mr. GOODLATTE. For more than 6,000 ISPs that do not own a cable company or any kind of transport platform other than the phone line, they are out of luck. Isn't it ironic that the most important thing in the information age isn't information?
Since introducing our legislation last year, we have seen a theoretical acceptance of open access by the cable industry. Not surprisingly, the strongest supporter of open access, America Online, has been the most active since announcing its merger with Time Warner. The two companies issued a joint memorandum of understanding outlining their commitment to open access. In fact, over the past year five of the six largest cable companies endorsed open access of one form or another. However, while the changes in the marketplace are admirable, seeing is believing.
Mr. Chairman, I look forward to hearing from our witnesses this morning. In particular, I welcome my colleagues from the Commerce Committee. I have worked with Ms. Eshoo on many issues, and, while we differ on this one, I look forward to working with her on many other issues in the future, and I particularly welcome the chairman of the Telecommunications Subcommittee, Mr. Tauzin, who, despite the complaints of the ranking member, has invited me to testify before his committee on four separate occasions in this Congress, and I very much appreciate the work that we have done together.
Mr. HYDE. The gentleman's time has expired.
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Mr. GOODLATTE. Thank you, Mr. Chairman.
Mr. HYDE. I am sorry to cut short this interpersonal discussion. It was fascinating. [Laughter.]
The gentleman from Virginia, Mr. Boucher, is recognized for 5 minutes.
Mr. BOUCHER. Mr. Chairman, thank you very much for conducting this second in-depth examination of the proposals that my colleague from Virginia, Mr. Goodlatte, and I have put forward to deregulate the Internet backbone, and in so doing to encourage the provision of backbone services in regions of the Nation, including many rural areas, such as those that Mr. Goodlatte and I represent, that are under-served by high-speed backbone services today.
Our measure would also assure that all customers of Internet services have a choice of Internet access providers without regard to the platform for Internet transport that a particular customer uses. I very much appreciate, Mr. Chairman, the careful attention this committee is paying to these recommendations.
Open access for Internet service providers is a very familiar concept. It is the law today for Internet connections over telephone lines. But that law at the present time does not extend to the other platforms for Internet transport—to the cable modem platform, to the satellite platform, to the wireless platform, all of which will be providing new broadband alternatives for consumers in the not-too-distant future.
I believe that the principle of open access, just as it has worked well for the telephone platform historically, should now be applied to the other platforms that are coming into use for broadband Internet transport.
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Open access produces a range of benefits. First, it provides choice to customers in the Internet access provider that will give service to them. Secondly, it promotes competition and innovation in the offering of Internet access, and many commentators have suggested that, in fact, the major benefit of open access is the innovation that it will bring.
It promotes regulatory parity. Today, we have regulatory disparity. The law treats in one way the telephone platform, but treats in another way the other platforms for Internet transport.
In my view, the law should be neutral in its application to providers of identical services and should not discriminate among them based on what kind of company they happen to be. We have disparity today. Our measure would promote regulatory parity.
It also offers an opportunity for the Nation's approximately 6,000 unaffiliated independent Internet access providers to be able to follow their customers when their customers migrate from the telephone company transport platforms they are using today to the other broadband platforms which, for whatever reason, they may find to be attractive. And, in fact, the very survivor of many of those 6,000 unaffiliated independent Internet access providers may depend upon their ability to follow their customers. Today they don't have that ability. We hope that, through the passage of this bill, it will be provided.
While we still do not have a national policy on open access, it is the law today within the States within the Ninth U.S. Circuit Court of Appeals, which has declared cable modem service to be a telecommunications service. As such, cable modem services are now subject to the regulations that are applicable to telecommunications services, including open access.
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In the wake of the ninth circuit decision, Chairman Kennard has announced that the Federal Communications Commission will commence a proceeding on open access. In that proceeding, I urge the Commission to make universal open access the law, not just in the ninth circuit but throughout the Nation.
As we construct a national open access policy, the Time Warner Company has presented to us a useful set of standards that, in my opinion, should guide our national decision-making. These basic elements of the Time Warner policy are essential and should, in my view, be a part of any national open access policy.
First, there should be no limit on the number of Internet access providers that can attach to the cable company's facilities.
Secondly, they should be able to attach at the cable head ends, and in so doing be able to obtain a competitive alternative for transport between the cable head end and the Internet backbone. That opportunity will favorably affect pricing for the ultimate Internet user.
The connection should be on nondiscriminatory terms and conditions, with all of the ISPs being treated exactly on the same terms that the cable company treats its own affiliated Internet access provider.
And there should be the opportunity for a direct customer relationship between the unaffiliated Internet access provider and the ultimate customer, with the cable company not interfering in that relationship.
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I would welcome comments from today's witnesses on these and other elements that should be a part of our national open access policy.
We should also deregulate the Internet backbone and allow all companies that desire to do so to offer backbone services. The greater competition which would result would lower backbone service pricing, with a benefit for all Internet users. Deregulation would also bring the lower-priced high-speed services to rural areas that today have an insufficient number of access points to the high-speed backbone.
In its suit to block the WorldCom-Sprint merger, the U.S. Department of Justice made the point that the tier one Internet backbone market is highly concentrated. It made the point that one backbone provider, alone, is approaching a point of market dominance in the Internet backbone market.
DOJ confirms that the Internet backbone is congested because of under-investment in some areas.
Mr. HYDE. Could the gentleman bring his remarks to a conclusion?
Mr. BOUCHER. I will be glad to, Mr. Chairman. Thank you.
Mr. HYDE. Thank you.
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Mr. BOUCHER. And it states that the networks have been unable to provide high-quality Internet services to customers because of that.
Our legislation provides a remedy. It would inject competition into the Internet backbone market and resolve these critical problems.
The provision of open access as a national policy and the deregulation of the Internet backbone are two of the most important steps that we can take to promote the growth and development of the Internet.
I thank Mr. Goodlatte for joining with me and making these recommendations, and I thank the chairman for this second hearing on our proposals.
Mr. HYDE. The Chair will ask the members who have opening statements if they would offer them for the record, and they will be made a part of the record, without objection.
Mr. Cannon has asked me if he could make an opening statement, and I want to make him feel as guilty as I can.
Mr. CANNON. I promise the chairman that I will keep my eye on the light and try and go shorter.
Mr. HYDE. I wish you would anticipate the light.
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Mr. CANNON. There is a yellow light, I shall watch that very carefully.
Mr. HYDE. Then Mr. Cannon.
Mr. CANNON. Thank you, Mr. Chairman.
I will start out by saying I am a big fan of the 1996 Telecommunications Act. Shortly after being elected in 1996, I held a series of town hall meetings, and in every one of them irate constituents raised the issue of rising costs for cable. I hope wisely, I said, ''Wait and see.''
Now look what has happened. Many people in America have broadband access. Most people have two or three different cable options, including satellite, now with local news.
I was talking recently with one of the chief technology officers from one of the 10 largest companies in America, and he told me that they had viewed a digital movie, a digital video, on a 600-baud modem. Remember the old days when you had to put a telephone in that little cradle? That is the kind of speed that they watched the digital movie at because someone has come up with a compression algorithm that does marvelous things. So we are seeing this time when really truly remarkable things are happening in the market that we are playing with here. As Mr. Conyers said, if we could have just seen it or if we could have just known what would happen.
I just want the world to know that I believed in the 1996 Telecommunications Act, and it has done remarkable things. We have seen AT&T dive into the cable market at enormous capital investment and risk for the future of that great American company. We have also seen that some of the RBOC have not been very progressive—some of them very progressive, but the RBOC in my area, U.S. West, has a reputation for being the worst player in the market. In fact, the presidents of three of the four major ILECs out there are former U.S. West employees, and the rumor at least is—proven by at least one of those—is that they are out there because they couldn't stand the way U.S. West had operated.
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But, lo and behold, U.S. West has changed. We have a different company there.
You will recall back when Qwest was first rumored to be looking at buying U.S. West that it was somewhat laughed at, and the articles I think were very painful, but if you consider that Joe Nachio, the president of Qwest, is a visionary, a man of great vision and capacity, he has taken that over, and he is now faced with some opportunities and some problems.
On the one hand, he has to divest himself of the quarter of a billion dollars in annual long-distance charges that they pay to the company, and then who knows, but he just may wake up and say, ''Hey, we can change the dynamics in the whole industry.'' Frankly, there are huge resources out there to help him do that.
But I think that tinkering with the 1996 act is not going to help. It is going to put vast investment at risk.
It is okay for competition or innovation to dramatically change the market and create a huge loss or gain in value, but it seems to me—and, Mr. Chairman, I will draw to a close, but it seems to me that we should keep the rules as stable as possible so that the players, the investors, and the risk-takers have the greatest opportunity to succeed within the context of what is before them and that every RBOC and other interested person in this system ought to be taking a look at how they can actually make things work within the rules instead of bringing pressure on Congress to change them.
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Thank you.
I yield back, Mr. Chairman, I note before the light is yellow.
Mr. HYDE. Yes. You did very well.
Our first panel consists of two of our colleagues who serve on the Telecommunications, Trade, and Consumer Protection Subcommittee of the Commerce Committee, so they do have special expertise in these areas.
First we have Representative Billy Tauzin from the 3rd District of Louisiana. He is a graduate of Nichols State University and the Louisiana State University Law School. Before coming to Congress, he served with distinction in the Louisiana State Legislature. He was first elected to Congress in 1980 and has been overwhelmingly reelected since that time. He is a deputy majority whip. He serves on the Resources Committee and the Commerce Committee, where he is chairman of the Telecommunications, Trade, and Consumer Protection Subcommittee.
Next we have Representative Anna Eshoo from the 14th District of California. She is a graduate of Canada College. Before coming to Congress, she served on the staff of the California Legislature and as a member of the San Mateo County Board of Supervisors. She was first elected to Congress in 1992. She is an at-large minority whip and she serves on the Committee on Commerce and its Telecommunications Subcommittee.
We will adhere to our usual practice of not questioning Congressional witnesses so you can move on to your other commitments.
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We welcome both of you. We look forward to your testimony.
Representative Tauzin, you have 5 minutes.
STATEMENT OF HON. BILLY TAUZIN, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF LOUISIANA
Mr. TAUZIN. Mr. Chairman, thank you very much. It is, indeed, an honor to be here. You know of my personal respect and admiration of you, and that extends also to your committee, sir.
I do appreciate the opportunity to talk to you about the Goodlatte-Boucher bill, which has many of the same elements of House Bill 2420, the bill that I have introduced with former Chairman Dingell, which deals with the same issue of deregulating broadband services in America. That bill now has 222 cosponsors, and I want to thank Mr. Goodlatte and Mr. Boucher, because I think their efforts here have given a great deal of momentum to the effort we are undertaking over at the Commerce Committee to do basically the same thing.
Let me first say that we have a difference of opinion on the open access issue. I, frankly, think the ninth circuit made a good decision when it said this should be set on the Federal level. My hope, however, is that the FCC, when it looks at this issue, decides to settle it in favor of deregulating—deregulating not only the cable industry, but the telephone industry, as well, so that deregulation, competition, and an open marketplace become the guiding principles by which these services are provided to Americans.
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Let me focus, instead, on the second part of the Goodlatte-Boucher bill, which is more consistent with the elements of the Tauzin-Dingell bill at the Commerce Committee.
Let me first ask you to consider the term ''digital divide'' and what it means and what it could mean to America.
Mr. Conyers, you correctly used the analogy of the fire hose and the straw. In America today, the backbone by which the high-speed digital services are going to arrive or not arrive at our homes and businesses depends upon the extent to which we can access the points of presence, the big hubs, the places we can connect to that high-speed backbone.
I have a map that indicates the points of presence in my home State in Louisiana. Many States in the Nation don't even have a point of presence. You have to go to another State to access the POP. In my State, we are lucky to have two, one in New Orleans and one in Baton Rouge, Louisiana.
Now, if you live anywhere within a 60-mile radius of Baton Rouge and New Orleans you are in good shape because you can generally access those points of presence. You can get on the high-speed highway. You have got a ramp that gets you there. But if you live anywhere else in our State outside those yellow circles you cannot reach those points of presence. You can have high-speed access in your little community. You can have video and high-speed data transmitting the lines inside of Thibodaux, Louisiana, you just cannot connect to the rest of the world. You can have an oasis where you can drink really sweet water, but you cannot travel to the rest of the world because you cannot connect your speed to their speed.
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Remember, if you are at a low-speed and you connect to somebody at a high-speed, they are dragged down to your speed all of the sudden, so nobody wants to connect to you if you are not on a high-speed network.
That means if you are a business, if you are a learning center, if you are a medical center, and you cannot connect to the high-speed networks that are becoming available, no one will want to connect to you if you are not high-speed. You are left out. You have two choices: you can either go out of that business and suffer or you can move to the cities and towns where there is high-speed access available.
So we can all either move to New Orleans or Baton Rouge, I suppose, in Louisiana, or we can continue to suffer. Why? Because we are on the other side of the digital divide. Why? Why do we need to be on the other side of the digital divide?
On the next chart I will show you a bunch of lines that exist in Louisiana. Chairman Hyde, I tried to get the Illinois map. I am going to show it to you. It is even more illustrative than Louisiana, believe it or not.
In Louisiana you see all those red lines. Those red lines are high-density fiber lines paid for by people in Louisiana. Every time we pay for a toll on the local telephone exchange to make a call in Louisiana, we help give the phone company the assets to build those fiber networks. You can see they cover all over Louisiana. They would literally be the ramps, the high-speed corridors to get us to those points of presence in Baton Rouge, Louisiana, if only we could use them. But there is one thing standing in the way from us using all that fiber in the ground that we paid for that would keep us on the right side of the digital divide. They are called LATA lines. They are the black lines on the map. Those lines that overlay the red lines on the map are the LATA lines that were put in place by a court here in Washington, DC, to separate local and long distance telephone calls, not Internet services. Those are lines that were put in place to separate local and long—I have a sneaky suspicion, by the way, that this was an agreement, this was a consent decree by the telephone company to come up with a plan of making us pay twice for the same phone call. Just draw a line on the map, and if you cross that line you have got to pay another toll.
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The bottom line is that, because those lines are out there, all that fiber cannot be used in my State to keep my citizens on the right side of the digital divide.
And so what does our bill do? It says keep the lines when it comes to telephone calls. Keep the lines, Mr. Conyers, to ensure the telephone companies will, in fact, open up competition in order to get their section 271 long distance relief. Keep that in place. Do not let anybody sell voice communications or market them over those lines until they have gotten permission from the FCC, however long that takes.
But it says for data services, for the high-speed digital stuff that is going to keep my little companies in business and educate my children in Louisiana and keep medical services in my State as efficiently flowing and as inexpensive as we can make them in Louisiana, let those LATA lines free. Turn them loose. Let the companies use them. More importantly, let me use them—me, who paid for them, let me use them to connect to those high-speed hubs so that I can be on the right side of the digital divide. That is what this fight is all about. It is about taking down those lines when it comes to the digital age, the Internet age.
They will tell you, ''Wait a minute. You don't want to change the 1996 act.''
This is Webster's dictionary published in 1995. You won't find the word ''Internet'' in it. The Web browser wasn't even marketed until 1995. The act was not about the Internet. It was about telephone service, pure, old voice service, which, in a few years, according to the folks over in Silicon Valley, we will be giving away free if ever we really open up this marketplace.
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And so the issue for you, the issue for us in the Commerce Committee, is: Are we going to enter an age where we have to regulate the cable and the other providers of Internet service, regulate them into content and delivery and force people to build lines on top of those lines, or are we going to let people use the lines they already paid for in the ground and remove the Government restrictions that keep me and other people in America from using those lines?
We had some great testimony I just want to cite quickly a little bit for you from people who came before our committee and talked about what it means not to be able to connect.
John Brown of Albuquerque, New Mexico, runs a small ISP called IHIGHWAY. In a recent article he says it costs him $120,000 a year to lease the pipe running 330 miles to the UUNET hub because he can't get to the hub.
Here is a guy, Shelton Jefferson of Netcom in the New York area. His own testimony, ''My company is locked out of the broadband Internet marketplace. I can only get access to local cable facilities and must pay inflated prices for transit to the backbone. Prices are so high, and in the hands of a few long distance and cable companies, I can't afford them.''
By the way, you will hear talk about there being a lot more POPs than I describe to you. The POPs they are talking about are those straws. They are at T–1 speed, 1.5 megabits per second, instead of the 45 megabits you should get through a full high-speed pipe, the pipes we are denied in Louisiana and Illinois and across America.
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How about David Kushner, Children's National Medical Center in Washington? He testified before our committee that even in northwest D.C. many impoverished residential areas of our country, including poor and rural parts of America and urban minority poor communities in our country, right in D.C., the most wired city in America, he doesn't have access to POP, while there is fiber in the ground in the most wired city in America that the Bell company here could connect him to and could provide services to.
So the issue is simply this: Are we going to keep artificial, Government-imposed barriers in place that were designed for telephone company age? Are we going to keep them in place to restrict the use of that fiber for Americans who don't want to live on the wrong side of the digital age and who could easily connect to these high-speed networks if only we had the good common sense to take those barriers down and let the companies who built those lines with our money turn them loose to service the communities, the businesses, and the residences of America? It is that simple a question.
To that answer, I say absolutely yes. It is time. Let us take down the Government walls that are creating this digital divide so that we don't have to create new Government solutions to provide services when we could get them today if we simply use the lines we have already paid for in the ground.
Thank you, Mr. Chairman.
Mr. GOODLATTE [assuming Chair]. Thank you, Mr. Tauzin, for that impassioned appeal, for which I share your passion.
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Mr. TAUZIN. Thank you, Mr. Chairman.
[The prepared statement of Mr. Tauzin follows:]
PREPARED STATEMENT OF HON. BILLY TAUZIN, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF LOUISIANA
Good morning, and thank you Chairman Hyde, for inviting me to testify before the full Judiciary Committee today regarding an issue that is very important: Access to high-speed Internet services. I am honored to be here, and I am encouraged that many of my colleagues on this distinguished Committee feel just as strongly about this issue as I do.
My good friends, Messrs. Boucher and Goodlatte, both of Virginia, have really helped John Dingell and I gain momentum in the House for creating full-scale competition in our Internet backbone infrastructure markets as the best way to ensure that the Internet does not further balkanize society into haves and have-nots.
That being said, I am here today to make three simple points which I believe should serve as the guidelines by which Congress adopts broadband-related policy:
1. The federal government should not mandate the terms of open-access. This has been my primary difference with Messrs. Boucher and Goodlatte in this debate, and we are continuing to discuss the issue;
2. The high concentration of Internet backbone control in the US is, as you hold this hearing Chairman Hyde, effectively disenfranchising many Americans, not only in rural areas, but in under-served and poor urban areas as well; and
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3. There is a glaring need to update the Telecommunications Act of 1996 in a way that makes our legal framework compatible with technological advances and the pace of business in the new economy.
THE DEBATE OVER OPEN ACCESS
I support H.R. 1685 and 1686, introduced by Messrs. Boucher and Goodlatte respectively, to the extent that both bills call for InterLATA relief for the provision of Bell Company data services. However, I do not support the provisions of these bills which mandate open access to high-speed broadband networks, though I understand that Mr. Goodlatte has changed H.R. 1686 to require only an open-access study. This, of course, brings H.R. 1686 very close to H.R. 2420, the bill I introduced with Mr. Dingell, which does not mandate open-access. This bill, I might add, now enjoys the support of 222 members of the House.
As I have expressed before, government mandated access to broadband networks runs counter to the notion of deregulating our Internet backbone infrastructure market altogether. Let me explain. Because there are so many diverse providers of content and services out there today, the only open-access provision that Congress can realistically pass is one that is broad and general. Passage of such a provision, of course, would only set the stage for the Federal Communications Commission (FCC) to come in, under the Common Carrier banner no less, and set onerous, ad hoc rules for open-access rates, peering agreements and rates, what constitutes a ''Telecommunications'' service, and preemption of cable franchising authority jurisdiction. You name it, and the FCC will do it!
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We saw this happen when we set the terms for interconnection in the '96 Act. We set up a two page 14 point checklist, and the FCC proceeded to produce about 850 pages of regulations . . . which were challenged in the Supreme Court. In the process, the Common Carrier Bureau postured itself as perhaps the most powerful, legislative-type agency bureau that our nation has ever seen. Even Reed Hundt, former FCC Chairman, has publicly stated in his book—and if you don't have a copy, please don't buy one . . . I'll lend you mine—that the '96 Act's generality allowed the Commission to ''create its own intent'' when interpreting it. Well, the FCC created its own intent no doubt, and as a result the Common Carrier Bureau has more control over the development of local phone service competition than even Congress.
What I urge is that we not make the same mistake in the context of Internet service that we made in the context of local and long-distance voice service. Mandating open-access in legislation . . . and I can just see it now . . . will lead to the creation of a BACKBONE BUREAU down at the FCC that will mirror the Common Carrier Bureau in every way except with respect to the carriers it regulates. And, in a few years, telecommunications networks will be so dependent upon backbone access/capacity, that such a bureau will have produced reams of regulations making it the central arbiter of telecommunications policy for years to come.
While I appreciate why some may favor open-access preliminarily . . . and I think it's out of fear that the surging consolidation in the content industry may prevent many telecommunications and information service providers from having access to the quality content that their consumers demand . . . I believe that the open-access dilemma will be solved if we simply create more competition amongst backbone providers. Once the backbone industry is fully competitive, carriers, networks, and the like will see the full economic value of providing customers with as broad an array of content as possible. Thus, they will understand the benefits of open-access.
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In the last hearing my Subcommittee had on this issue, Mr. Boucher pointed out that Time Warner has already adopted an admirable platform for open-access to its cable system. So we can see evidence that open-access is beginning to take shape without FCC intervention.
So, I urge you all to ask yourselves whether it is wise for us to mandate open-access and subject Internet companies to the cyclical common carrier regulation that has caused us all some heartburn for so many years. We now have our chance to avoid this dire circumstance. But, if we mandate open-access, I fear that we will be headed back down that all too familiar path of common carrier regulation, this time for information-based services. It would be such a shame for us to voluntarily entertain notions again like ''interconnection,'' ''collocation,'' and ''reciprocal compensation'' when formulating Internet-related policy.
So please, I beg of you, think outside the box with me on this one. We should not regulate the cable industry's provision of high-speed data services. Instead, we should leave these services unregulated while deregulating similar services offered by telephone companies.
CLOSING THE DIGITAL DIVIDE
Turning to the digital divide, it's no secret that a huge sector of our nation is not receiving . . . or is not capable of receiving true high speed broadband services. The reason is because hundreds of communities are not near any of the hubs that enable access to Internet backbones—the real information super highways. Moreover, very few companies are building high-speed gathering lines all the way from the backbone points of access to the rural, remote, and impoverished areas because it is too expensive and not profitable enough.
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There is the case of John Brown in Albequerque, New Mexico who runs a small ISP called IHIGHWAY. To quote a recent article about Mr. Brown in Forbes Magazine:
''He'd like to give his clients the fastest possible link to the rest of the Web world—but he can't. That is because Uunet and the few other giant data haulers that dominate Internet traffic don't have the fat, 45-megabit lines in Albuquerque. . . . And Brown can't afford $120,000 a year to lease a pipe running 330 miles to the Uunet hub in Phoenix.''
There is also the case of Shelton Jefferson—the CEO of Netcom, an Internet service provider serving residential and business customers in the New York area. To quote from his own testimony given before my Subcommittee:
''My company is locked out of the broadband Internet market via cable. . . . Not only can I not get access to local cable facilities, I must pay inflated prices for transit to the Internet backbone. These prices are so high because of the concentration of ownership of Internet backbone in the hands of a few long-distance and cable companies.''
Or, how about Dr. David Kushner of the Children's National Medical Center here in Washington. He testified before my Subcommittee that even in Northwest D.C., many impoverished residential areas . . . including the 100 block of Michigan Avenue . . . just right up the road from here . . . have no direct links to an Internet backbone facility, much less to an Internet point of presence or POP, despite that the nation's capital is the most, and I repeat, the MOST, wired city in the United States today.
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What this means, of course, is that those living in areas that are not near POPS, or that are not tied into a backbone facility via a gathering line are being disenfranchised of the fruits of our new economy. Without a high-speed connection to the Internet backbone, these Americans in our rural areas and inner-cities are relegated to a Narrowband Dirt Road that is so incompatible with the rest of our high-speed infrastructure that the flow of communications across our national web-based infrastructures will be significantly impeded. You see, without a Uunet, Sprint, Cable & Wireless, or AT&T, an email that is sent through standard dial-up access must pass through a poky, congested public access point, rather than zap through a broadband hub. Emails back-up quickly . . . Web pages freeze and fold . . . and you can forget streaming video right now. If we all do not operate at high-speeds, then the Internet cannot evolve into the fluid, nation-wide communications network that all of us are hoping it will be. Instead, ISP subscribers will continue to encounter service disruptions and data-transfer delays in every instance where broadband facilitated, high-speed traffic is thrust upon narrowband, slower-speed infrastructure that was designed to carry only voice traffic for short intervals as opposed to large volumes of data for extended intervals.
So, we have this digital divide in the U.S. because many people don't have access to backbone, because of where they live, and the dial-up access that they are limited to affords them only narrowband Internet services.
Now there are many out there who claim to know how to close the digital divide. The FCC has proposed a few things, like targeted InterLATA relief for the Bells to reach areas that clearly have no high-speed choices. Frankly, there are probably many long-term solutions to the problem that we have not even thought of yet.
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But I will tell you right now what will do the most to close the digital divide most efficiently for the short-term: enacting into law the InterLATA relief provisions of H.R. 2420, and 1685 and 1686. Why, you might ask?
Well, today, as this hearing proceeds, the Bell Companies already have a great deal of fiber in the ground extending from most of these rural and inner-city communities to Internet hubs where critical backbone infrastructure exists. The problem is, however, that these fiber lines traverse across these awful 20th Century LATA lines drawn by the courts almost 20 years ago. Those regulations and LATA boundaries were implemented to separate local and long distance calling areas for purposes of regulating VOICE TELEPHONY. They have nothing to do with the data services that are revolutionizing American communications, but nontheless, the Bells cannot utilize their fiber lines to haul data traffic across these constructed boundaries under the FCC's interpretation of the law.
How extensive is Bell Company fiber in the states? Well let's take a look.[Explain the Louisiana chart—emphasize that none of the fiber, which covers every inch of these states, can be used by Bells because they cross blue-colored LATA lines. Also, point out to Chairman Hyde that there is no better example of how LATA lines carve up a state than in Illinois. Tell him you will get the Illinois chart and submit it into the record.]
Despite the existence of this Bell Company infrastructure in the states, the FCC still treats the LATA restriction as an effective club to use in forcing the Bell Companies to agree to market-opening conditions that are not contemplated in the Act. The FCC seems unconcerned, in the meantime, Mr. Chairman, that many of our constituents in Louisiana and Illinois, are being left out of the broadband revolution. My ultimate fear is that by the time these areas have high-speed access, it will be too late for them when you consider the pace of today's Internet economy.
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THE NEED TO UPDATE THE ACT
We are reminded almost daily that privacy and security are matters of paramount concern to users . . . we are also reminded daily that the ''digital divide'' I've discussed seperates huge geographic segments of our nation from the easy and economical access to high-speed services enjoyed by others who are, by design or serendipity, located in strategic proximity to the backbone on-ramps and wired neighborhoods scattered around our cities and states.
Yet, despite these problems, all we hear from those who oppose bills like H.R. 2420, 1685, and 1686 is that the Act is working so we should leave it alone! They are just petrified at the prospect of ''re-opening the Telecommunications Act of 1996,'' as if it were, in fact, the Magna Carta.
They act as if Congress, in its inestimable wisdom, took care of every possible policy nuance that could conceivably arise in this entirely new communications era. To revisit the Act, they contend, would be like some admission that we overlooked something. Never mind the phenomenal growth of the Internet since '96 and its potential to displace or disrupt nearly every other traditional communications delivery medium—including telephone, cable, broadcast, newspaper, movie theatre, and back-fence gossip monger.
Let me take you back to 1995, the year we spent crafting the legislation that would become the Act. Seventy (70) witnesses appeared before the House and Senate Commerce Committees. They represented local and long-distance telephone companies, cable and broadcast entities, think tanks and the federal and state governments.
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Not one of those 70 witnesses was a small Internet service provider or a company whose primary business was operating an Internet backbone. Why weren't those providers up here protecting their new growing digital businesses?
It's because they understood that the Act wasn't about them. Instead, the Act's primary purpose was to open the publicly switched telephone network (PSTN) to competition. The Internet was not on our radar screen. When we were debating the Act, there was no AOL, Hotmail, or PSINet. The Internet is only mentioned in the Act a few times, and this Webster's Dictionary, published in 1995, the same year we wrote the Act, doesn't even contain a definition of the Internet.
In light of this, I do not propose re-opening the Act. Rather, I feel that it must be updated to account for the recent explosion of data service provision that is taking the country by storm.
We can learn some lessons from our struggle to produce the Act, however. One of the underlying premises of this historic legislation was that the American public would benefit from more choice and lower prices brought on by competition in all telecommunications service marketplaces.
We need only look at the positive results of the Act with respect to the wireless industry to understand how best to structure the rules of the game for advanced data services.
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To our credit, we recognized that wireless networks were different than the PSTN, facilitated multiple providers, and posed no bottleneck to entry by new competitors. We deemed wireless services as ''Incidental'' because the Bells exercised no monopoly over the wireless marketplace, and we therefore allowed them to immediately begin offering wireless services subject to no InterLATA restrictions. As a result, consumers are now offered more choices, vibrant alternatives, and lower prices for cellular phone services.
In my view, the same tests we employed for the wireless industry apply to the Internet as well—a network of networks that the FCC has deemed ''technologically and operationally distinct'' from the PSTN. If we had understood the nature of the Internet in ''95, it would have been treated more like wireless was in the '96 Act.
If we fail to miss this important opportunity to update the Act properly . . . if we continue to allow our fear of doing anything ''BAD'' to the Internet prevail at all costs, then we will have kept in place the incoherent and incomplete regulatory structure that has inadvertently created the digital divide, bandwidth capacity shortages, backbone peering problems, open access dilemmas, and an FCC that is entirely out of control.
To that end, the Congress has a great deal of interest in beginning a very specific examination of the Internet, the regulation and deregulation thereof, and the adoption of a coherent high-speed broadband policy for this country that places the consumer on a pedestal.
In the Act we covered everything but advanced services. The Act was enacted to ensure that ILECs no longer exercised monopolies over the PSTN as a condition of providing further competition to traditional IXCs in the InterLATA voice market. Our mission now is to complete the job of full deregulation for data so that the backbone market is fully competitive and serves the entire nation as opposed to only the cherry-picked business markets targeted by the major backbone providers. Only then will we truly be able to say that we carried out the stated purpose of the '96 Act:
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To promote competition and reduce regulation in order to secure lower prices and higher quality services for American consumers and encourage the rapid deployment of new telecommunications technologies.
Mr. GOODLATTE. Ms. Eshoo, we are glad to have you with us, as well.
STATEMENT OF HON. ANNA ESHOO, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF CALIFORNIA
Ms. ESHOO. Good morning, Mr. Chairman, and thank you for holding this hearing. I thank you also for the kind invitation to come and speak to you this morning. To our distinguished ranking member, thank you for what you said, and to each of the members of this wonderful committee.
Mr. Chairman, telecommunications in ancient Greece consisted of Greek leaders giving speeches to large crowds of its citizens. I think Mr. Tauzin would have done well in that setting. And when it came to great leaders of Greece, none was wiser or a better communicator than Pericles. In one of his famous speeches, Pericles gave the Greeks some advice that I think applies to our work here today when he said, ''Time is the wisest counselor of all.''
I had the honor of both serving in the Congress and on the Commerce Committee when the 1996 Telecommunications Act was drafted. I also served as a conferee that helped put all the various pieces, with great difficulty, together between the House and the Senate. My good friend and respected colleague, Mr. Tauzin, was also on the Commerce Committee when the act was shaped.
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As you know, when Congress passed the act, we intended that legislation to deregulate a communications industry in which competition had been choked off by years of monopolistic practices.
Mr. Tauzin, Mr. Goodlatte, Mr. Boucher, and I agree that open and rigorous competition among telecommunications companies is the best guarantee that consumers will receive the broadest range of services at the best prices, and, by definition, it is the most effective means to end monopolistic practices.
Since the 1996 act was signed into law, we have seen the telecommunications revolution occur with breathtaking speed. No sooner does one technology seem to offer more speed and capability when along comes another advancement that offers more data faster.
We know the Telecom Act has resulted in a larger menu of broadband delivery options, and it has increased competition and produced lower prices for consumers all over the country.
One of the best examples of this is seen in the development of the competitive local exchange carriers, or CLECs. These companies, companies like Covad, are what I call the ''children of the Telecom Act.''
Why do I call them that? These companies provide DSL-based access to the Internet through local loops or on their own high-speed fiber networks. Before the Telecom Act, these companies did not and could not exist in a regulated environment. Only the Bells could offer this technology.
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It is important to note that the Bells had DSL technology but did not offer it. Instead, they offered the more-expensive T–1 lines to businesses. But the Telecom Act deregulated the industry and allowed these companies to offer the DSL service, and, once the Telecom Act allowed these companies to offer their services, what happened? Telephone companies that before had only offered the more-expensive T–1 lines began to rapidly expand their DSL service, a service they could have offered much earlier. The result was increased broadband services to consumers at a cheaper price. And more dramatic successes are just around the corner.
For example, there is a company in California called Next Level Communications, offering VDSL that is faster than DSL and no more expensive for the consumer.
So, Mr. Chairman, I hope Congress will follow the wisdom of Pericles and let time be our advisor on this issue. We should be patient. We should refuse the temptation to change course in order to meddle in the marketplace while this revolution in telecommunications is happening around us.
I don't believe clear or convincing evidence has been offered that consumers are suffering. Quite the contrary. Consumers are getting more choices and lower prices. Rather, Mr. Chairman, I am concerned that the evidence points to something else, namely, the different segments of the telecommunications industry are using the Internet as a reason to reopen the old debate that long-distance companies and the RBOCs had regarding deregulation.
I believe the Congress decided in 1996 the forum for that debate is in the marketplace and not the legislature. The development of the Internet is not a reason to reverse this decision. In fact, the one way to guarantee harm to the consumer, in my view, is for Congress to try and reinsert itself into this competition.
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I also want to try, Mr. Chairman, to put to rest a myth that some parties in the telecommunications industry are working hard to create—and we already have heard it—which is that when Congress was writing the Telecom Act of 1996 no one knew about the Internet and how it would impact the telephone industry. Therefore, goes the argument, we should reopen the act to take the Internet into account.
Let me quote from some of the transcripts of the 1995 hearings before the Subcommittee on Telecommunications and Finance, which I was a member of then and am today. These hearings were conducted for three straight days in May 1995 and they were part of the primary proceedings used by the House in gathering information regarding telephone deregulation on the Telecom Act.
First, I want to quote from the statement of Mr. Ken Oshman, the CEO of Echelon, a Silicon Valley company, who told the committee to be sure and focus on the accelerating convergence between communications and the computer industries. Mr. Oshman said, ''Computer and information processing companies, which historically and successfully have operated largely free from Government oversight, are increasingly becoming involved in the communications market. As computing power and innovation continue to increase, we will only see more integration of the computer and communications industries, with applications ranging from the Internet to telecommuting to medical and database retrieval services, all of which will be delivered on a scale that is orders of magnitudes faster and more diverse than today.''
Mr. Oshman went on to note that the convergence of computer and communications industries were in the news every day in 1995. Specifically, Apple Computer sought spectrum allocation for wireless mobile computing, and Intel and AT&T joined forces to create a high-speed network technology for personal computer communications.
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This is not the only example that was offered to us. Larry Harris, who was with MCI at that time, testified before the committee that, ''New fiber optic technologies will soon allow MCI to reach transmission speeds of 10 gigabits and eventually 40 gigabits, enough for nearly 500,000 simultaneous Internet conversations over a single fiber pair.''
Finally, I would like to go to my own opening statement at that time. To the committee I stated the following: ''Consider, for example, that in 1972 there were only 150,000 computers in the world, yet this year—'' keeping in mind that that was 1995—''Intel Corporation, alone, will sell 100 million small microprocessors, each surpassing the capabilities of those computers sold in 1972.''
I went on to say, ''Unfortunately, today's twisted copper wire telephone network is unsuitable for modern computers and software applications which can incorporate voice, video, graphic, and data transmissions and send them simultaneously in real-time exchanges.''
I submit, Mr. Chairman, that the testimony I have recited above and which we heard on those 3 days in 1995 sounds like the description of today's Internet, and so I would submit the legislation that you are considering may be premature.
The so-called ''incentives'' for RBOCs to roll out DSL are unnecessary, because clearly there are signals that competition already exists in this marketplace. Cable companies have two-way high-speed cable technology to compete with RBOCs in the local phone business. And, Mr. Chairman, let me lay down what I think is a very important marker by asking this committee how Internet telephony will affect the legislation you are being asked to consider. If you are being asked to reopen the Telecom Act because of the Internet, how will this legislation affect the developing market that allows telephone calls to be made over the Internet? This technology, already in use, could have a dramatic affect on how we define something as basic as what a telephone call is.
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Why not take the Periclean approach and see where this technological revolution will lead us? To do otherwise I believe will engender more marketplace disruption through pre-regulation than is ultimately necessary.
Again, Mr. Chairman, I thank you for giving me this time and this opportunity to come before this distinguished committee to offer my testimony, and I hope that we can work together on this issue and the many others that we have already partnered on. So thank you, and I appreciate this.
Mr. GOODLATTE. Thank you, Representative Eshoo.
[The prepared statement of Ms. Eshoo follows:]
PREPARED STATEMENT OF HON. ANNA ESHOO, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF CALIFORNIA
Thank you, Mr. Chairman for holding this hearing and for extending to me your kind invitation to address the Committee. I also wish to recognize and thank the distinguished Ranking Member, Mr. Conyers and every member of the Judiciary Committee.
Mr. Chairman, telecommunications in ancient Greece consisted of Greek leaders giving speeches to large crowds of its citizens. And when it came to the great leaders of Greece none was wiser or a better communicator than Pericles.
In one famous speech, Pericles gave the Greeks some advice that I believe applies to our work here today. He said, ''Time is the wisest counselor of all.''
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Mr. Chairman, I had the honor of serving in Congress and on the Commerce Committee when the ''96 Telecom Act was drafted and I served on the Conference Committee that put the Act together.
Our respected colleague, Congressman Tauzin, was also on the Commerce Committee when the Telecommunications Act was shaped in 1996. When Congress passed the Telecom Act, we intended that legislation to deregulate a communications industry in which competition had been choked off by years of monopolistic practices.
Mr. Tauzin, Mr. Goodlatte, Mr. Boucher and I agree that open and rigorous competition among telecommunications companies is the best guarantee that consumers will receive the broadest range of services at the best prices—and by definition, it is the most effective means to end monopolistic practices.
Since the 1996 Act was signed into law, we've seen the telecommunications revolution occur with breathtaking speed. No sooner does one technology seem to offer more speed and capability, when along comes another advancement that offers more data, faster.
We know the Telecom Act has resulted in a larger menu of broadband delivery options. It has increased competition and produced lower prices for the consumer.
One of the best examples of this is seen in the development of the Competitive Local Exchange Carriers—or CLECs. These companies—companies like Covad—are children of the Telecomm Act.
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And why do I call them this? These companies provide DSL-based access to the Internet through local loops or on their own high-speed fiber networks. Before the Telecom Act, these companies could not exist in a regulated environment. Only the Bells could offer this technology. It's important to note that the Bells had DSL technology but did not offer it. Instead, they offered the more expensive ''T–1'' lines to businesses.
But the Telecom Act deregulated the industry and allowed these companies to offer the DSL service. And once the Telecom Act allowed these companies to offer their services, what happened? Telephone companies that before had only offered the more expensive T–1 lines, began to rapidly expand their DSL service—a service they could have offered much earlier. The result was increased broadband services to consumers at a cheaper price.
And more dramatic successes are just around the corner. For example, there is a company in California called Next Level Communications offering VDSL that is faster than DSL and no more expensive for the consumer.
So I hope, Mr. Chairman, that Congress will follow the wisdom of Pericles and let time be our advisor on this issue. We should be patient. We should refuse the temptation to change course in order to meddle in the marketplace while this revolution in telecommunications is happening around us.
I don't believe clear or convincing evidence has been offered that consumers are suffering. Quite the contrary. Consumers are getting more choices and lower prices. Rather, Mr. Chairman, I'm concerned that the evidence points to something else—namely, the different segments of the telecommunications industry are using the Internet as a reason to reopen the old debate that long distance companies and the RBOCs had regarding deregulation.
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I believe Congress decided in 1996 the forum for that debate is in the marketplace, not the legislature. The development of the Internet is not a reason to reverse this decision. In fact, the one way to guarantee harm to the consumer is for Congress to try and re-insert itself into this competition.
I also want to try and put to rest a myth that some parties in the telecommunications industry are working hard to create—and that is when Congress was writing the Telecom Act of 1996 no one knew about the Internet and how it would impact the telephone industry. Therefore, goes the argument, we should re-open the Act to take the Internet into account.
Let me quote from the transcript of the 1995 Hearings before the Subcommittee on Telecommunications and Finance. These hearings were conducted for three straight days in May of 1995. They were part of the primary proceedings used by the House in gathering information regarding telephone deregulation on the Telecom Act.
First, I want to quote from the statement of Mr. Ken Oshman, the CEO of Echelon, a Silicon Valley company, who told the Committee to be sure and focus on the accelerating convergence between the communications and computer industries.
Oshman said, and I quote, ''Computer and information processing companies, which historically and successfully have operated largely free from government oversight, are increasingly becoming involved in communications markets. As computing power and innovation continue to increase, we will only see more integration of the computer and communications industries, with applications ranging from the Internet, to telecommuting, to medical and database-retrieval services, all of which will be delivered on a scale that is orders of magnitude faster and more diverse than today.'' (End quote)
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Mr. Oshman went on to note that the convergence of computer and communications industries were in the news every day in 1995. Specifically, Apple Computer sought spectrum allocation for wireless mobile computing and Intel and AT&T joined forces to create a high-speed network technology for personal computer communications.
This is not the only example. Larry Harris from MCI Communications testified before the Committee that, (quote) ''New fiber optic technologies will soon allow MCI to reach transmission speeds of 10 gigabits and eventually 40 gigabits—enough for nearly 500,000 simultaneous 'Internet' conversations over a single fiber pair.'' (end quote)
Finally, I'd like to refer to my own opening statement on May 10, 1995. To the Committee I stated the following: ''Consider, for example, that in 1972 there were only 150,000 computers in the world, yet this year [1995] Intel Corporation alone will sell 100 million small microprocessers each surpassing the capabilities of those computers sold in 1972.''
I went on to say that, ''Unfortunately, today's twisted copper wire telephone network is unsuitable for modern computers and software applications which can incorporate voice, video, graphic, and data transmissions and send them simultaneously in real-time exchanges.''
I submit that the testimony I just recited and which we heard on those three days in 1995 sounds like the description of today's Internet.
And so I submit that the legislation being considered by you today may be premature. The so-called ''incentives'' for RBOCs to roll out DSL are unnecessary because clearly there are signals that competition already exists in this market. Cable companies have two-way high speed cable technology to potentially compete with RBOCs in the local phone business.
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And finally Mr. Chairman, let me lay an important marker down by asking this Committee how Internet telephony will effect the legislation you're being asked to consider. If you're being asked to reopen the Telecom Act because of the Internet, how will this legislation effect the developing market that allows telephone calls to be made over the Internet? This technology which is already in use, could have a dramatic effect on how we define something as basic as what a telephone call is.
Why not take the Periclean approach and see where this technological revolution will lead? To do otherwise I believe will engender marketplace disruption through pre-regulation than is ultimately necessary.
Again, Mr. Chairman, thank you for giving me the opportunity to appear before the Committee.
Mr. GOODLATTE. Regrettably, the committee's standard practice is for Members of Congress not to be questioned by the committee. That would, obviously, take a good deal of time. But we do want to thank you for your presentation. We also look forward to working with you. I know I speak for Chairman Hyde and Ranking Member Conyers, Mr. Boucher, and myself, and the other members of the committee, that we do want to work with you and Mr. Tauzin and other members of the Commerce Committee to make sure that the wide array of Internet hubs that are available in districts like yours in the Silicon Valley get to districts like mine and Mr. Tauzin's where this competition yet has not reached us. We look forward to continuing to work with you.
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Thank you.
Our second panel consists of one witness. Chairman William Kennard is Chairman of the Federal Communications Commission, the agency responsible for some of the matters that we are considering here today. He is a graduate of Stanford University and Yale Law School. Before becoming Chairman, he was a partner in the Washington law firm of Verner, Liipfert, Bernard, McPherson, and Hand. He joined the Commission first as an Assistant General Counsel, becoming its General Counsel in 1993. He became Chairman in November, 1997, and his term runs until June, 2001.
Chairman Kennard, we are happy to have you with us, and we look forward to hearing your testimony.
STATEMENT OF WILLIAM KENNARD, CHAIRMAN, FEDERAL COMMUNICATIONS COMMISSION, WASHINGTON, DC
Mr. KENNARD. Thank you very much. It is a pleasure to be here.
I very much appreciate the time that you, Congressman Goodlatte, Congressman Boucher, and many other members of this committee and, of course, Chairman Tauzin and Representative Eshoo, have spent in delving into these very, very difficult but important policy issues, and I want to commend you for holding this hearing on this very, very important topic.
My message for you this morning is really a very simple one, and that is that the Telecommunications Act of 1996 is working. It is working well. We have gone through a period of a lot of litigation and confusion, and I believe that it would be wrong not to give the act a chance to continue to work and to bring American consumers the benefits that were promised in that 1996 act.
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I think it is very ironic that we sit here today and debate whether we should, in effect, deregulate what I think are the key market-opening provisions of that act by, in effect, eliminating section 271 when just last week the European Commission adopted directives which would replicate, for the most part, what we have done in this country. They issued directives last week which would require unbundling of the local loop, cost-based interconnection, collocation—all of the principal tenets of the 1996 act—and they did that for a very simple reason: because they look at the United States market, they see that we have created in this marketplace a network of telecommunications services and Internet services that are the envy of the rest of the world, and they want to catch up. It is as simple as that. And I think that it would be unfortunate at this time if we were to reverse course just when the act is really kicking in and starting to work.
If you look around the world, you can see many examples of different approaches that have been tried in this area. New Zealand, for example, adopted an approach quite similar to the legislation that you are considering today. They decided not to adopt a regulatory approach. They imported an antitrust approach. After a number of years of massive court litigation that went nowhere, they abandoned that approach, and now they are trying to adopt the American approach, which is embodied in the 1996 act.
And the fact is that broadband employment in this country is exploding today. It is exploding so fast that the service providers can't keep up with the demand for broadband. Just this week there were articles in the ''Washington Post'' about how difficult it is for Bell Atlantic, now Verizon, to keep up with their requests for broadband connections in the residential market.
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The fact is that every one of our delivery platforms in this country is either going digital or has gone digital, and the marketplace is scrambling to roll out broadband for high-speed Internet access products—the wireless industry, the satellite industry, the broadcast industry, and, of course, the cable industry and the wireline phone network.
What makes this marketplace so dynamic and so different on the wireline side is that we have this unique ability to create a powerful incentive for the Bell companies to open up their market as a condition to getting long-distance entry. In fact, when I talk to my European colleagues, they are envious of what we have. They are envious that we have this tremendous incentive that is pushing the regional Bell companies to open their markets and unbundle and allow competitors to roll out broadband.
I did want to respond somewhat to some of the comments of Chairman Tauzin.
Let me say, first of all, that Chairman Tauzin and I clearly share the same goals. Everybody wants every American to have broadband in their homes and businesses, but we differ pretty profoundly on the means of getting there.
The map that I would like to present to you today—and it is shown here—shows that there is no paucity of long-haul, high-capacity fiber optic capacity in this country. If you look at this map and you look at deployment in Louisiana, in particular, there is plenty of fiber optic capacity in Louisiana. If you look at the cities of—just looking at the map that you have before you—Shreveport, Monroe, Alexandria, Baton Rouge, Lake Charles, LaFayette. That is not our problem. There is plenty of long-haul capacity.
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The problem is the last mile. The last mile is not a fully-open, competitive platform, and that is why we have to keep this incentive structure in place.
Chairman Tauzin is also exactly right. Voice will be given away for free. It will be commoditized. But that is exactly why we have to keep the incentive in place for these companies to open their markets as an incentive to getting into the data markets.
I did want to address the cable access question, because it is a very difficult question that is pending before us at the FCC and obviously before the Congress.
This also is a debate about means and not about ends. Everybody agrees that the success of the Internet has arrived because it is an open platform. Nobody can dispute that. The real question here is how do we achieve that same openness on the cable platform.
At the FCC we have not presumed to know all the answers here, and we have given the marketplace an opportunity to work. We have been monitoring closely the economic relationships that are beginning to form between the cable companies and the ISP community. And we have taken this approach, in large part, because this is a very different transition on the cable side than what we have seen on the telephone side in the past.
Much of the history of regulation in this area has basically been the fight over one wire, the one copper telephone wire into the home. Well, that is changing now with the multiplicity of platforms, both wireless and wire, line.
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So the question is: How do we create this same open platform in cable without replicating all of the labyrinth of regulation of the phone network that we are really trying to work our way out of with more competition. And so we are really searching for what is a new paradigm.
With all respect, I believe that the paradigm that you have proposed in this bill is not the appropriate paradigm. The antitrust paradigm I don't think will work in this particular marketplace. But I do think that it is important that we continue the focus and, frankly, the pressure on the industry to develop an open platform on the cable side.
And, frankly, we have heard a lot of rhetoric and good intentions from the cable industry—not coincidentally, probably, from companies that have major mergers pending before the Government—but I really don't think that this debate will go away or should go away until we really see a cable company, or many cable companies, actually deploy an open network platform for the cable plant.
We have tried to give this marketplace a little time to work because the technology is still being developed, the relationships are still forming, but, as Congressman Boucher mentioned, we are going to commence the proceeding where we are going to a little bit more aggressively look at the marketplace, evaluate the commercial relationships, and determine whether more needs to be done here.
Let me just sum up by saying that I do believe that this legislation at this time threatens to undermine American leadership in the Internet economy, for the simple reason that other things have been tried around the world and everyone is coming back to what we have done, what you have done in the 1996 act.
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I consider myself a veteran of the telecom wars in the wake of the 1996 act. I was general counsel when the act was being debated and written and ultimately passed and when much of the litigation was pending around our implementation of that act. I defended those provisions all the way up to the United States Supreme Court.
The marketplace is settling out now. We have granted two Bell company applications to get into long distance. I am very proud that the FCC unanimously adopted those applications. And if you look at what is happening in those markets in Texas and New York you will see that the blueprint that you gave us is working beautifully. There is robust competition in those States. The incentive structure that you set up is working. So please don't put consumers through the uncertainty of another round of legislation and litigation. If it ain't broke, don't fix it. The act is working. Please give it a chance.
Thank you.
Mr. HYDE [resuming Chair]. Thank you, Chairman Kennard.
[The prepared statement of Mr. Kennard follows:]
PREPARED STATEMENT OF WILLIAM KENNARD, CHAIRMAN, FEDERAL COMMUNICATIONS COMMISSION, WASHINGTON, DC
Thank you Mr. Chairman and Members of the Committee. I appreciate the opportunity to testify before the Committee this morning.
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I would like to state at the outset that I agree wholeheartedly with the objective of speeding deployment of broadband services to all Americans regardless of where they live. Nobody should be left behind in the broadband revolution.
Despite the old saying, however, sometimes you do have to look a gift horse in the mouth, particularly if it is a Trojan Horse. I am afraid that is what this legislation is. It appears to be a gift horse to competition, but it is really just the opposite.
The genius of the Telecommunications Act of 1996 (1996 Act) is the delicate balance it strikes between regulation and deregulation to achieve competition in all forms of communications, and to deploy the fruits of that competition to all of the American people. Indeed, the Judiciary Committee's special role in crafting a dual role for the FCC and the Department of Justice in reviewing Bell company applications under Section 271 deserves mention. The process has worked well, and consumers are better off as a result.
I am sure that increased competition is the well-meant intention of the proposed legislation. Inadvertently, however, I believe this legislation will not only upset the balance struck by the 1996 Act, but it actually would reverse the progress attained by the 1996 Act. In an effort to move us forward, this bill mistakenly moves us backward.
THE 1996 ACT IS A MODEL FOR THE WORLD
Last week the European Commission (EC) issued a bold package of proposed legislation and directives aimed at bringing the Internet revolution to Europe. It is no coincidence that the EC's initiative looks like a close cousin of our Telecommunications Act of 1996. The European Commissioners have concluded that in order to chart a course towards American-style Internet growth they must build a vessel not unlike the 1996 Act. This course includes such staple items included in our Act as local loop unbundling and collocation.
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In fact, government officials from emerging and established nations frequently visit the Commission to study the American network-of-networks that the 1996 Act has created, and how multiple, privately-owned service providers give consumers choices. Increasingly, they endorse the idea of an independent regulatory agency with the power to bust up monopolies, as opposed to relying solely on antitrust litigation to deregulate monopolies. For example, New Zealand is revisiting its efforts to deregulate through antitrust enforcement and considering instead tools similar to those set forth by Congress in the 1996 Act.
We are setting the example for the rest of the world. Changing course midstream by diminishing the BOCs' incentives to open the local markets would not only be detrimental to American consumers, but would also put at risk the leadership role the United States has played in the global telecommunications market.
A FABRIC
The 1996 Act is a fabric, with the thread of each part connected to every other part. Unravel one thread, and you risk unraveling the entire fabric.
That is my concern with the legislation before you.
Pull the thread of data traffic, and the seams of the Section 271 provisions are weakened. Pull the thread of data traffic, and the threads of telephony, video transport, and wireless transmissions will fray. As I tell regulators from other nations, you cannot cherry-pick the 1996 Act. In this age of convergence, no network is an island, and the conduit and content of each is entwined with every other.
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Under our system, the 1996 Act had to be carried out in three stages: rules had to be written, the rules were tested in court, and now the rules are being implemented. Now that implementation is fully underway it would be tragic to change directions.
This is not an insignificant exemption. In fact, as I discuss below, data traffic has already surpassed voice traffic on long haul networks. Eliminating data from Section 271 would eliminate a crucial incentive for the incumbent BOCs to open their local monopoly markets. The opening of local markets is absolutely critical for accelerating broadband deployment.
My message to you today is simple: the Telecommunications Act of 1996 (1996 Act) is working. Because of years of litigation, competition did not take hold as quickly as some had hoped. The fact, however, that it is now working is undeniable. Local markets are being opened, broadband services are being deployed, and competition, including broadband competition, is taking root.
The Commission has a long history of fostering innovation and investment in new technologies, such as the Internet. Specifically, we have consistently refused to impose legacy telecommunication regulations on providers entering new markets. For example, in 1983 the Commission declined to subject information service providers to access charges, concluding that such regulation is unnecessary and would be harmful to the development of the industry. More recently, in order not to stand in the way of successful advanced services deployment, we declined to require incumbent LECs to unbundle packet switched and other advanced services equipment. The Commission found that in a dynamic and evolving market, regulatory restraint was the best way to further the Act's goal of encouraging facilities based investment and innovation. Similarly, as I discuss later, we have thus far refused to impose legacy telecommunications regulation on cable broadband service providers.
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RAPID GROWTH OF BROADBAND DEPLOYMENT
The Commission's faithful implementation of the Act has resulted in an explosion of broadband deployment. As of the beginning of the year 2000, we estimate there were 2.8 million broadband, high-speed telecommunications lines that deliver service of speeds of at least 200 kbps. Two million of those lines were serving residential subscribers. This is a six-fold increase from the previous year.
The DSL business is growing so fast that the BOCs are struggling to keep up with demand. The Wall Street Journal reported last week that SBC is installing about 3,500 DSL lines each day. At the end of the first quarter of 2000 there were approximately 800,000 DSL lines in service in the United States. About 75 percent of those lines are provided by incumbent LECs and 25 percent by competitive carriers.
These trends show no sign of slowing down. Analysts project that deployment of DSL will increase by 300 to 500 percent over the next year. Analysts also estimate that subscribership to cable broadband services will at least double by the end of this year, and by the end of 2005 will have 20 million subscribers. Incumbent LECs and cable operators are predicted to invest over 25 billion dollars in infrastructure improvements over the next four years to bring broadband services to their customers.
The market-opening 1996 Act sparked infrastructure investment in telecommunications facilities by incumbent LECs as well as competing carriers. For example:
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Incumbent LEC investment in infrastructure was flat or declining until the passage of the 1996 Act;
After the 1996 Act, incumbent LEC investment jumped approximately 20 percent;
Aggregate industry investment subsequent to passage of the Act, including both incumbent LECs and competing carriers, nearly doubled, increasing from 30 billion dollars to 60 billion dollars.
These statistics do not paint a picture of incumbent companies prevented by legal requirements from deploying new services to consumers.
The vision of the Act and the vision shared by the FCC—that consumers will have a choice of providers offering a choice of pipes into the home or workplace—is being realized. It is being realized through the opening of markets required by Congress in the 1996 Act. The rapid growth of broadband services is tangible proof that the market-opening requirements of the Act are working.
THE SECTION 271 INCENTIVES TO OPEN LOCAL MARKETS
Simply stated, the Act requires the BOCs to open their local markets to competitors. Section 251 states the rules of the game and Section 271 provides a structured incentive for BOCs to play by the rules. At its core, Section 271 is a simple yet clever proposition: in exchange for opening their local facilities to competitors, the 1996 Act provides the BOCs with the substantial reward of the long distance ''carrot.'' Altering this balance by exempting data traffic from the restrictions in Section 271 would inhibit, rather than further, the Act's goal of fostering robust broadband deployment.
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As local markets are opened, broadband deployment is both stimulated and accelerated. Specifically, it is the opening of those local markets that is driving broadband deployment and innovation. This is true because nondiscriminatory access to the ''last mile'' and the ability to collocate—both components of the competitive checklist—are critical inputs for the provision of DSL service.
Unfortunately, the first three years of the implementation of the 1996 Act were characterized not by cooperation but by confrontation. Litigation instead of collaboration. The result was uncertainty, confusion, and delay. We lost valuable time. Then, in January of 1999, the Supreme Court largely affirmed the Commission's implementation of the market-opening provisions of the Act. Once the smoke cleared, we began to witness a sea change. Finally, the battles began to move out of the courtroom and into the marketplace.
Within approximately the last six months, the Commission has unanimously approved Section 271 applications for both New York and Texas. We need only review the state of competition in New York and Texas to know the Act is working. More activity is on the horizon. The BOCs have indicated that they intend to file applications for numerous states across the nation within the next six to nine months. The Commission welcomes, and looks forward to, these filings.
As I have stated before, opening markets can be difficult work, and establishing competition is not easy or fast. But both Verizon (formerly Bell Atlantic) and Southwestern Bell have shown that it is well within the grasp and control of the BOCs. I commend both of these companies, and the New York and Texas Commissions, for their dedication and hard work in ensuring that the fruits of competition are enjoyed by local and long distance consumers in Texas and New York.
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As envisioned by the 1996 Act, the Section 271 carrot has fueled the growth of local and long distance competition. Because Verizon and Southwestern Bell opened their local facilities to competitors in New York and Texas as required by the Act, competition in the local telephone market has flourished in those states. One analyst estimates that competitors will serve about 20 percent of the local lines (approximately 3 million lines) in New York by the end of this year. That is a substantial increase from the 7 percent of the local lines that competitors served in New York at the end of 1999 (approximately 1 million lines). Verizon is completing over 270,000 local orders each month for competitors in New York. Local competition is thriving in Texas as well. The Department of Justice estimated that competitors served over 800,000 lines in Texas at the end of last year. That is about an 8 percent market share. Competitors' customer base, however, has been steadily increasing. For example, in May—the most recent month for which we have data—competitors added over 170,000 new lines in Texas. And, I am happy to report, that a large portion of the increase in local competition in these states since Section 271 authorization has been in the residential and small business markets.
The hard work of satisfying Section 271 has not only benefited New York and Texas consumers of local services. In the first three months after gaining 271 approval, Verizon captured over 400,000 long distance customers in New York. Analysts estimate that Verizon will take as many as 1.5 million long distance lines in its first year alone (about 10% of the market)—well ahead of the 1 million lines Verizon set as its goal for the year. Verizon expects to capture 25 to 30 percent of the long distance market within 5 years. Analysts predict that they will meet this goal easily. Many predict that Southwestern Bell will have similar success in Texas. This is no small prize. Texas alone represents about 10 percent of the nation's long distance voice and data market.
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The opening of local markets drives competition, innovation, and produces a breadth of offerings. We have witnessed a dynamic market for broadband services develop as a result of the opening of local markets in Texas and New York. Although DSL technology has been available for years, it was not until the passage of the Act that competitive providers—called data LECs or DLECs—specializing in DSL deployment were born and began offering DSL service to consumers. Competitors need to collocate their equipment in BOC central offices and require conditioned local loops before they can even offer facilities-based DSL services. Then, to be competitive, DLECs require timely and cost-based loops and collocation. Once the DLECs had access to the inputs necessary to offer their DSL products to consumers, the threat of such competition spurred the BOCs to develop their own DSL products. Competition from the incumbent monopolies, in turn, is spurring the DLECs to develop even more new and innovative broadband products, services, packages, and prices. It is precisely this sort of competitive cycle that will accelerate the availability of broadband technology for all Americans.
Of course, competition among technologies as well as providers is also driving this investment. Wireless technologies—both terrestrial and satellite—are also on the scene. High-speed Internet service via satellite is available today virtually everywhere in the United States, including rural areas. Analysts project that wireless technologies will have 6 to 12 percent of the broadband market by 2004. Analysts also project that DSL will overtake cable as the overall leading technology for delivery of broadband services as early as 2002, with cable retaining its dominance amongst residential and small business customers until 2004, when cable and DSL will have equal market shares.
I am proud of the FCC's record in holding firm on the requirements of Section 271. As our experiences with New York and Texas have shown, there is no substitute for the hard work of compliance. The rewards of Section 271 compliance are plentiful. For the first time in history consumers are able to choose their local service provider and take advantage of increased competition for their long distance calls as a strong new competitor enters the market. The rewards do not end there. Competitive markets are also bringing consumers new choices in technology for the 21st Century.
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REMOVING INCENTIVES BY EXEMPTING DATA
The great competitive success stories we have been witnessing as a result of the incentive structure established by Section 271 would be few and far between if the proposed legislation becomes law. As currently written, Sections 251 and 271 do not draw a regulatory distinction between voice and data services. Carving out interLATA data traffic from the prohibitions in Section 271 would remove a potent incentive from the 1996 Act.
Currently, the majority of traffic travelling over long haul networks is data—as opposed to voice traffic. Indeed, analysts expect that data traffic will comprise approximately 90 percent of all traffic within four years. The wholesale data service market is expected to generate 41.3 billion dollars in 2005, up from 9.9 billion in 1999. In a world where data is experiencing explosive growth and is rapidly outpacing voice traffic, allowing the BOCs to carry long distance data traffic before they have satisfied the requirements of Section 271 would severely undermine the BOCs' incentive to open their markets.
Changing the rules of the game at this juncture would also undercut the substantial infrastructure investment being made by competitive telecommunications providers. For example, competing carriers have invested 30 billion dollars in new networks since the passage of the Act and are now investing over 1 billion dollars every month in their networks. In 1999, competing carriers have spent over 15 billion dollars on overall capital expenditures, up from about 9 billion the year before. Investors will cut off the spigot when competitors are forced to try to compete with monopoly incumbent providers without full and fair access to the BOC's bottleneck facilities.
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I disagree with the notion that further deregulation is the only way to enable incumbent LEC deployment of broadband services in rural and high cost areas. The BOCs simply do not need to provide access the entire way from the customer to the Internet backbone in order to provide broadband access to their rural customers. Rather, they can provide such broadband services to those customers the same way they serve their urban and suburban customers—by handing data traffic that is headed out of the LATA off to another provider who can carry it across the LATA boundary. That provider then carries the traffic to the Internet backbone.
Is this the most efficient way to provide service to customers? No. Is it the most cost effective? Certainly not. Does it preserve the incentives of the BOCs to open their local monopoly markets to competitors faster than they otherwise might? Absolutely.
The simple reason why rural customers, and other customers in unserved and underserved areas, are not yet being served as robustly as we would like is not caused by legal impediments. Rather it is largely about simple economics. Providing customers with sophisticated services in areas of low density is an expensive undertaking. As such, we are mindful that some rural customers face more limited competitive choices for broadband services at this time. Accordingly, to the extent that there may be instances where a LATA boundary is standing in the way of consumers getting broadband services from BOCs, the Commission has set up a LATA boundary modification process. For example:
A BOC that provides advanced services to customers within a state may demonstrate that it cannot obtain an interLATA provider to connect its in-state network to the Internet and request a LATA modification to allow it to connect its network to the nearest out-of-state Network Access Point;
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A BOC could also request a LATA boundary modification to allow it to serve a particular customer, such as a hospital or university, where the customer cannot obtain an interLATA connection for its network; or
A BOC may also demonstrate that it would not be able to deploy xDSL service to a LATA within a multi-LATA state unless the BOC is allowed to aggregate traffic from one LATA to another, or may be the advanced services provider of last resort for residential customers within a particular state. The BOC may then argue that it is uneconomical to deploy advanced services to such customers without a LATA boundary modification.
Notably, we have not received any requests for LATA modification since adopting this procedure in February 2000, and have received no requests to refile prior petitions. It is difficult to understand how LATA boundaries are a barrier to broadband deployment when no BOCs have even attempted to obtain such relief in the past five months. The Commission has stated its commitment to reviewing, in an expeditious manner, all LATA boundary modification requests that would provide consumers with advanced services.
CABLE ACCESS
Another important issue that the proposed legislation addresses, Mr. Chairman, is the question of whether consumers can choose from among multiple Internet service providers (ISPs) independently of how they connect to their ISP. The issue is most often raised in the context of whether cable operators offering broadband access to the Internet. This is often referred to as the ''open access'' issue, though some call it ''forced access.'' I'll just refer to it as the ''cable access'' issue.
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First, I agree that much of the growth of the Internet can be attributed to the significant choices available to Internet users and the interconnected network of networks that characterize the Internet. Anyone can send an e-mail to anyone else on the Internet. Anyone using an ISP that is connected to the Web can access websites anywhere in the world. This ability is a core characteristic of the Internet and it should continue.
The issue raised by advocates of cable access is whether regulation is needed to ensure this kind of global interconnectedness by providing consumers choices of ISPs if they connect to the Internet via their cable system just as those who connect to the Internet over their dial-up telephone lines.
Advocates of mandatory cable access want regulators to set rules ensuring competitive access.
I believe that before we impose regulation we should see if a problem develops rather than assume the worst and jump in and regulate.
The Commission has been consistent in its approach to cable access. It examined the issue nearly two years ago in the AT&T/TCI merger proceeding and in the first 706 Report to Congress. In both instances we declined to create a new regulatory regime to address what was only a theoretical problem. The Commission again declined to impose cable access rules in the AT&T/Media One merger earlier this year.
We have adopted this market-friendly approach because we believe that imposing access regulation would impose costs on any new entrants into the broadband conduit business, thereby raising a barrier to entry to potential competitors in this market. The Commission would like to encourage such entry, not throttle it; if the market puts pressure on incumbent cable firms to open up their networks to multiple ISPs, imposing duplicative regulatory costs is simply counterproductive to encouraging conduit competition.
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Recent events have been encouraging in this regard. Over the last year, cable operators have made public commitments to allow their subscribers to choose among multiple ISPs. They also have entered into formal memoranda of understanding with ISPs to permit such competitive access. And, AT&T has announced a technical trial in Colorado in which they will provide access to ten ISPs on over its cable network.
These developments support my continued belief that there are powerful marketplace incentives to move the cable platform to an open platform permitting access to multiple ISPs. But it also is time to see how these market driven agreements are translated into concrete commercial arrangements.
Last month the U.S. Court of Appeals for the Ninth Circuit in the AT&T Corp. et al v. City of Portland case confirmed the FCC's role in establishing a national policy for cable access as well as clearly recognizing the Commission's authority to forbear from regulation in this area. In addition, the court found that the provision of Internet access over cable was both a telecommunications service and an information service. The categorization of ''telecommunications'' service does not, however, necessarily mean that the service is subject to all of the traditional common carrier regulations that apply to telephone companies. Indeed, the Commission has the statutory authority to forbear from such regulation.
I plan to propose to my fellow commissioners that we initiate a proceeding that will examine the implications of the Portland decision and establish a framework for cable Internet access. While the current indications are positive, the Commission is of the view that in this fast-changing industry, we must constantly reassess our position on this issue, and be prepared to move quickly should industry conditions change for the worse.
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Similarly, the policy of relying on market forces in the first instance to create a competitive dynamic in the deployment of advances services is working in the wireless and satellite industries in which new competitive entrants are investing in facilities for high speed Internet access with a minimum of regulation.
This preference for a market-driven approach to cable access is often noted by incumbent local exchange carriers to be in contrast to what they see as requiring access by competitors to their broadband services.
The reality is that we've taken a consistent approach to new broadband advanced services across platforms. In the Commission's Advanced Services Order, the Commission declined to require incumbent local exchange carriers to unbundle their advanced DSL equipment such as DSLAMs as long as competing carriers are able to provide their own advanced service.
The 1996 Act is clear that because of their historic monopoly status, incumbent LECs during the transition to competition must permit competitors to lease local loops in order to connect their own equipment. But, once this is possible, the Commission has chosen to encourage incumbent LEC investment in new advanced technologies and services by not requiring that they make those new investments to competitors on an unbundled or discounted basis.
This policy has been enormously successful. According to industry analyst Telechoice, in the six months ending in March, incumbent LECs more than tripled the number of central offices with DSLAMs from about 1,200 to more than 3,800 while increasing deployed DSL lines from 220,000 to 563,000 customers. The growth of broadband services is explosive.
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CONCLUSION
In conclusion, the 1996 Act is working. The explosive growth in the deployment of broadband services and the vigorous local competition in New York and Texas prove that the Act is working. Passage of the proposed legislation at this critical juncture would disrupt the Act's delicate balance between regulation and deregulation, postpone the benefits of competition to consumers by creating uncertainty and litigation, curtail the flow of investment into new markets, and inhibit the Act's goal of fostering broadband deployment. For all of these reasons, I urge you let the Act continue to work.
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Mr. HYDE. We will now ask questions. Mr. Conyers?
Mr. CONYERS. Thank you for your written statement and your remarks. They were consistent and complemented each other.
Mr. KENNARD. Thank you.
Mr. CONYERS. Let me ask you, Chairman Kennard, you indicated in August, 1999, that you believe the FCC already has regulatory authority to require open access if the market tips toward cable broadband. Is there some number of market share that cable would have to achieve before you were to exercise that authority?
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Mr. KENNARD. I think that is one of the things that we will have to evaluate in the proceeding that we intend to have. It is hard for me to say that without having the benefit of a full record, but I think fundamentally we will have to ask the question of whether consumers are able to exercise the choice in an open environment that they have become used to in the narrow band world. I think that is what we owe consumers in all broadband platforms.
Mr. CONYERS. Do you worry about network effects should the market tip toward cable—network effects which might be hard to undo after the fact?
Mr. KENNARD. Yes, I am concerned about that, but I think you have to balance that against the danger of imposing a new regulatory regime in an area that is really quite dynamic and the business relationships are not fully formed, so it is going to be a delicate balancing act that we will have to do.
Mr. CONYERS. I am impressed with your enthusiasm about the success of the 1996 act, but how can you alleviate some of our concerns about the cable rates, which have gone up 20 percent over a 6-year period, that we are still having the Bells merging and getting bigger. It is almost—you know, to talk about Baby Bells, these are the top businesses in America. They are down. The cable industry is in the process of being swallowed up. Are there some pills we should take and see you in the morning about, feel better about all of that? You know, there is another direction here.
Mr. KENNARD. Certainly. Well, I think we have to put all of this in perspective. First of all, we have a tremendous amount of investment in this marketplace. Consumers are using telecommunications services today more than ever before, and rates in many areas of the sector are going down or not going up.
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I share your concern about cable rates. This is a very vexing problem for the country. I think that many people would, in looking back at the 1996 act, probably agree that perhaps we acted precipitously in deregulating cable rates at basically a flash cut by saying in March 1999, the FCC would lose its regulatory authority in this area altogether.
The other side of that coin, though, is that the cable rate experience was a difficult one for the country, and I think Congress' faith in competition is ultimately right. The key, of course, is making sure that there is enough competition from new technologies, different technologies like cable over-builds and the satellite industry, to constrain rates. That is ultimately the way we are going to work our way out of this cable rate issue.
Mr. CONYERS. Yes. On a personal note, are there some goals that you set in mind between now and the end of your term? Are there some things you would like to see that you leave behind in your own legacy here as the general counsel and chairman, which is, I think, an extraordinary feat, and that you were here during the beginning of all of this? Is there work left undone that you would like to get into a tidy arrangement on your desk?
Mr. KENNARD. It is not a question I expected this morning, Mr. Conyers. First of all, I am not going anywhere immediately, I want everyone to know, but there is much, much work to be done. I think that we have made a lot of progress in making sure that the benefits of this information revolution touch all Americans, and I, personally, feel very proud at the FCC that we have worked on many aspects of trying to bridge the digital divide by working hard to bring technology into our schools, particularly our poorer schools, bringing technology to our most distressed populations, like our Native American population and rural areas. We have worked very hard to make sure that the 54 million Americans with disabilities have access to this wondrous technology.
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I want to continue that work. There is a lot more work to be done. Hopefully in the last few years we will have changed the debate around to some of these issues so that they will be somewhat institutionalized so that it is not a question of whether I or anyone else is in the job, but rather this will be a part of our national mission and it will carry on. That is really my ultimate goal.
Mr. CONYERS. I think you have done an excellent job in your career with FCC.
Mr. KENNARD. Thank you.
Mr. CONYERS. Thank you very much.
Mr. HYDE. The Chair recognizes himself for 5 minutes.
Chairman Kennard, I know the thrust of our hearings today has to do with these two pieces of legislation, but ancillary to that is the subject you just talked about, and that is the escalating cable rates.
I am one Republican—perhaps a minority in my group—who believes in antitrust laws. I think they are good. I think they help the system work, and that monopoly is bad. And we are seeing monopolies develop in the cable business, at least in my part of the country, where AT&T is buying up cable company after cable company, and the rates predictably go up 10 percent.
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I am writing you a letter today asking for your help in studying the situation and trying to see what and why and how this is happening.
They tell us that the cost of programming—and they talk about the high cost of sports, which people want. I heard this morning on the radio where some rookie with the Redskins got $10 million as a signing bonus, so I guess that all gets factored into the cost of programming. But people are really upset about it. We did deregulate. We felt uncomfortable about it at the time, but, as you say, faith in the free market, free enterprise system ought to carry the day, but it doesn't provide much of an answer to my constituents who are really furious about this.
So I guess I will write you more extensively of my concerns and ask you for your analysis, but service upgrades and increased programming costs are the reason that AT&T gives. I have their correspondence here to one of my constituents.
Do you see these as generally valid explanations for the kinds of increases, or is this the inevitable result of monopoly?
Mr. KENNARD. Well, we issue a report every year to Congress which assesses the status of competition in the multi-channel video market, which includes cable, satellite, other multi-channel video technologies. And we did recognize what you point out—that increased programming costs are certainly one reason why cable rates are going up.
However, it is clear to me that, if there were more competition to the cable industry, these rates would be moderated, constrained, perhaps even would go down. And we see that. In markets where there is more competition, you tend to have lower rates. So the ultimate answer here is competition.
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I was very pleased when Congress recently passed legislation to allow the satellite industry access to the local broadcast signals, because that will give a little more of a competitive boost to that industry, which appears to be the best prospect of providing real competition to the cable industry.
But we still have a problem, and I look forward to receiving your letter and working with you to see if we can come up with even more solutions to that.
Mr. HYDE. Thank you very much.
Mr. Berman?
[The information referred to follows:]
| Congress of the United States, |
| House of Representatives, |
| Washington, DC, July 19, 2000. |
Hon. WILLIAM KENNARD, Chairman,
Federal Communications Commission,
Washington, DC.
DEAR CHAIRMAN KENNARD: Thank you again for testifying at yesterday's Judiciary Committee hearing on broadband issues. Your testimony was most helpful to the Committee.
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As I mentioned at the hearing, I am very concerned about the recent 10% rise in cable rates in my district. (See attached article from the Chicago Sun-Times). Before cable rate regulation expired in March 1999, I proposed extending it. When I did so, I was met with vehement opposition from the cable industry and many promises of good behavior. However, now that regulation has gone away, we are seeing the seemingly inevitable exorbitant increases.
I am now wondering if we made a mistake in letting regulation expire. It is true that satellite television, which can now provide local broadcast channels, is something of a competitor. In addition, a few communities in my district have a new entrant cable company. However, neither of these competitors seems able to restrain these increases.
I would appreciate your doing a brief study of the state of competition in the cable industry in my district. I would be interested in your advice on whether the justifications offered by AT&T—upgraded service, better programming, and more expensive programming—justify the increases. I would also be interested in your advice as to whether we should consider reimposing rate regulation.
My constituents are suffering under these rate increases, and they need answers. I would appreciate any help that you can offer. Thank you in advance for your response and thank you again for testifying.
Sincerely,
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Enclosure
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67332ac.eps
| Federal Communications Commission, |
| Washington, DC, July 25, 2000. |
Hon. HENRY J. HYDE, Chairman,
Committee on the Judiciary,
House of Representatives, Washington, DC.
DEAR CHAIRMAN HYDE: Thank you for your letter expressing concern about cable television rates, and asking the Commission to conduct a brief study of the state of competition in the multichannel video programming distribution industry in your District. I always appreciate the opportunity to assist members of Congress and to provide information on the state of the telecommunications industries.
In some communities, it appears that cable rates have increased at a rapid pace since the Commission's authority to regulate rates terminated. While competitive video programming alternatives continue to develop, cable television remains the dominant technology for delivering multichannel video programming to consumers.
As you requested, I have asked the Commission's Cable Services Bureau to undertake a brief survey to determine the competitive choices available to consumers in the Sixth Congressional District. I also have directed the Bureau staff to identify and analyze any increase in cable television rates since March 31, 1999 in your District. I will report our findings as soon as the Bureau completes its work, which could take a few weeks.
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In the meantime, I am providing a copy of the Commission's most recent Report on Cable Industry Prices, for your information. This Report compares the prices changed by competitive cable operators with the rates charged by operators that are not subject to competition for the 12-month period ending July 1, 1999. The Commission released this Report last month. I also have enclosed a copy of our Sixth Annual Competitive Report, which surveys competitive developments in the market for video programming. These reports contain information that I hope you will find valuable concerning both the pricing structure for cable television service and the development of competition in the video programming distribution industry.
I appreciate having had the opportunity to appear before the Committee on the Judiciary to testify about developments in the broadband industry. I look forward to working with you to promote competition in the multichannel video programming distribution marketplace. Please let me know if you have any further questions or concerns.
Sincerely,
| William E. Kennard, Chairman. |
Enclosures
Mr. BERMAN. Thank you, Mr. Chairman.
Chairman Kennard, there are two aspects to this legislation about which I would like you to comment with some specificity, one question on each aspect.
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On the mandated ISP access issue, cable is deploying broadband in certain areas—not mine right now, but in certain areas. What is going on in the real world in terms of people's ability to get other ISPs and favoritism toward an affiliated ISP? What are you seeing out there in the real world where this has been deployed?
Mr. KENNARD. Well, again, I think a lot of these business relationships are still being formed, but as a very general matter what we are seeing is that the large cable operators, the MSOs, have entered into exclusivity arrangements with their own Internet service providers, the two principal ones being Excite@Home and the Roadrunner service. And they are, in effect, bundling the provision of high-speed Internet access service with use of that portal.
Now, it is true that most consumers can still access whatever ISP they want, but this really goes to how much they have to pay in order to access that ISP, in some cases the speed with which they can access that ISP, and who ultimately controls the customer.
A lot of what is happening in this marketplace, both in this area and generally in some of the other Internet areas, like instant messaging, for example, is who is going to control the customer.
We have to be very vigilant to make sure that ultimately customers have choice, that they have the ability to determine what service providers they want to go to over these platforms. That is the issues that we will obviously be looking at as we move forward.
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Mr. BERMAN. Just to follow up on this, you have made a number of references to looking at access issues. I take it, in the wake of the ninth circuit decision, you have decided to jump in and what?
Mr. KENNARD. Well, I can't say with a lot of specificity, because we haven't really designed the framework for this proceeding and I need to talk to my colleagues and figure out what makes the most sense. But the ninth circuit decision I think really did tee up an important issue, which we haven't decided, which is whether broadband access over cable, Internet access over cable, is a telecommunications service. The FCC has not decided that issue.
And I have always believed fairly strongly that there should be a national policy here. As you know, some municipalities have taken action, which is why we had the ninth circuit decision. I think the ninth circuit decision appropriately determined that there should be a national policy, and I think it is incumbent on the FCC to speak now on what that national policy should be.
Mr. BERMAN. Alright. On the other aspect of the bill, what did Bell Atlantic do in New York and SBC do in Texas with respect to allowing the kind of competition that the 1996 act designed that isn't going on with the baby Bells in other States that causes you to think that continued adherence to that act will create the dynamic to open up more competition? And are there applications pending and decisions being made in other States that are leading toward approval of long-distance data and telephony by the local Bells?
Mr. KENNARD. Certainly. And, with respect to your first question, what did the companies in Texas and in New York do that the others haven't? The simple answer is that they complied with the law. They were able to realize that they needed to allow their competitors to access their network, to allow their competitors to switch customers over to the competitor's network from the incumbent network. A lot of this revolved on the development of electronic interfaces between the incumbent network and the competitor's network so that there can be a smooth transition, so when you want to switch a competitor from Bell Atlantic to Covad it is a phone call and it happens quickly, just the way you can switch your long-distance service from AT&T to MCI.
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I might add that it took a little time to get those systems in place in the wake of the divestiture of AT&T, so you don't wave a magic wand and this happens. People have to invest. They have to train workers. They have to put the interfaces in place.
And I am happy to report that in the wake of those two cases we now have a pretty clear road map that other Bell companies can follow, and those Bell companies can follow in other States in their region.
That brings me to your next question, are there other applications pending. Not at this time, but we expect that there will be soon. Bell South has announced that they will be filing an application for Georgia next month. There was a story yesterday in Bloomberg where both Verizon and Bell South discussed their plans to file applications. And we expect that we will see multiple applications in the next year or so.
Mr. HYDE. The gentleman's time has expired.
Mr. Goodlatte?
Mr. GOODLATTE. Thank you, Mr. Chairman.
Chairman Kennard, to follow up on Mr. Berman's questions, the purpose of the provisions in the Telecommunications Reform Act that require incumbent local exchange carriers and local telephone companies to make their facilities available to competitors is to encourage competition, consumer choice, and price, is that not correct?
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Mr. KENNARD. Of course.
Mr. GOODLATTE. Now, if I am reading your testimony correctly, you state that competition would be inhibited if cable were to make its facilities available. Can you explain this contradiction?
Mr. KENNARD. Well, I think it is a question of, again, what I said earlier. It is a different transition now. This is not a fight over one wire. This is the goal of creating multiple broadband platforms competing in the marketplace.
Mr. GOODLATTE. In that regard, let me ask you, one of the companies that is on both of these markets, AT&T, which is an Internet service provider over the phone lines with about four million subscribers, one of the largest Internet service providers, is also now one of the largest cable company owners. They have made the conscious decision—they started out heading toward becoming CLEC and competing on the phone lines, and then switched and went into the cable business instead, and offer that competition on cable.
When we see that kind of dramatic change in the strategy that was contemplated by the Telecommunications Reform Act, why wouldn't we change our strategy in response in terms of opening up the telephone lines for the phone companies to compete in the long-distance market, since we have already effectively accomplished by a different means the intention of the act in terms of opening up the phone lines to competition?
Mr. KENNARD. Well, the marketplace is not monolithic in that there are just one or two players. There are literally hundreds of companies out there who are trying to compete to bring local phone service to competitors, and they have different business plans.
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I think Representative Anna Eshoo was exactly right that this act spawned a whole new industry, the CLEC industry, now the DLEC industry, that now has opportunities to provide consumers choice by accessing that local loop. We are not just talking about the cable companies versus the phone companies. There are multiple players out there.
Mr. GOODLATTE. And I agree, and I think that is a good development. We want to encourage those folks. But, at the same time, the dynamic has changed. When the act was written, less than 10 percent of all telecommunications were data and 90 percent was voice. Already, just 5 years later, it is now more than 60 percent data and about 40 percent voice, and it is rapidly headed toward 90 percent data and 10 percent voice.
We already have that competition on the phone lines for data. That is what those 6,000 Internet service providers are that the phone companies have opened up their lines due to total competition. They compete with Bell Atlantic, which also is an Internet service provider, on their lines.
With that fact being the case that we have opened up that kind of competition, why wouldn't it make sense to encourage the phone companies to get in and build out the Internet backbone by allowing them to get into the long-distance market?
Mr. KENNARD. Well, I think it is apples and oranges, to a large extent.
First of all, when the Bell companies get into long distance, that doesn't necessarily mean that they pour investment into the Internet backbone. In fact, that is not what we are seeing.
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When Bell Atlantic, now Verizon, was——
Mr. GOODLATTE. To interrupt for just a second, we don't have Mr. Tauzin's chart here any more, but I think the fact of the matter is that they have already invested billions in building out the capability that can be used for that Internet backbone and it is going to waste in Louisiana and my part of Virginia and a great many other places because it can't be used for this purpose, even though the customers of these companies have already paid for it.
Mr. KENNARD. Well, if the goal of this legislation is to attract investment in the Internet backbone, I really don't think that that is going to happen for a couple of reasons.
One, as I was beginning to say, when Bell companies get into long distance they don't automatically pour investment into the Internet backbone. Indeed, what they do is they look for a partner that has long-haul capacity. Verizon partnered with Sprint, I believe, and SBC has partnered with Williams.
Mr. GOODLATTE. Let me interrupt again, because I am going to run out of time here. Let me ask you about section 706 of the act, what that stipulates.
Mr. KENNARD. Section 706 requires the FCC to ensure that advanced services, including broadband, are deployed to all Americans throughout the country.
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Mr. GOODLATTE. Has the FCC used section 706 to remove any burdensome regulations, as it calls for in that section?
Mr. KENNARD. Well, the section doesn't require the FCC to eliminate regulations. What the section says is really quite general. It says that we have to report to Congress on the status of deployment of advanced services and use our regulatory powers to make sure that advanced services are deployed.
Mr. HYDE. The gentleman's time has expired.
Do you want to finish the answer?
Mr. KENNARD. If I might, Mr. Chairman.
In early August we will be sending our second 706 report to Congress, and I am really excited about it because this time we held field hearings all throughout the country, many in rural parts of the country, to determine how advanced services are being deployed, and I think that it is a pretty hopeful story. I mean, broadband is being deployed in many areas of the country. Some things are working, some things aren't.
Mr. GOODLATTE. But the act has never been used——
Mr. HYDE. Mr. Boucher, the gentleman from Virginia, is recognized for 5 minutes.
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Mr. BOUCHER. Thank you very much, Mr. Chairman.
Mr. Kennard, thank you for taking part in our discussion this morning. We welcome you before this committee, not a customary forum for you.
Mr. KENNARD. Thank you.
Mr. BOUCHER. We hope you will come back on a frequent basis.
Mr. KENNARD. Thank you.
Mr. BOUCHER. I am glad to learn from your testimony that the European Commission has now adopted the same kind of unbundling and interconnection requirements for telecommunications services that we adopted in 1996. I seriously doubt, however, that the European Commission has any restrictions on the long-distance transport of data, as we currently have in section 271.
Let me say that Mr. Goodlatte and I are not proposing any retrenchment, any erosion of the interconnection and unbundling requirements of section 271 and other sections that have promoted local exchange competition. The Europeans, therefore, could take great confidence that the United States is certainly not stepping back from this model that the Europeans have now adopted.
We are also not proposing in our legislation that section 271 be eliminated. You suggested in your testimony that we are. What we are proposing is simply that the Bell operating companies, in order to encourage competition in the offering of backbone services and serve these unserved rural areas that other speakers have identified, be permitted immediately to offer data across LATA boundaries. They would not be permitted to offer voice-based long distance across those boundaries until they get permission under section 271.
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Now, you suggested that there would not be adequate incentives for the Bell companies to open their local networks if we take this step. Let me choose to differ with you on that.
The voice-based long-distance market, alone, just the market for voice, is about $90 billion a year, and you have seen the interest of Bell operating companies in getting permission to enter the market. That has happened now in New York and in Texas. But I would think that a $90 billion market creates ample incentive for the companies to take whatever steps are necessary in order to enter that market.
The other point that I would make to you is that the section 271 requirements for opening the local exchange will remain in place after our legislation passes, and those provisions require that the local exchange be open, incentive or no. The law requires that that happen.
And so, in my humble opinion, we can take these steps and permit data to be carried across LATA boundaries by Bell companies completely consistently with our national policy of promoting local exchange competition and making sure that competition comes into local telephone markets.
The other point I would like to make to you is with reference to your comments about the pace of the section 271 process.
In my opinion, it is pretty slow. Here we are more than 4 years beyond the time that the 1996 act has passed. Two companies have now been permitted into the interLATA long-distance market, and only from two States. It just seems to me that it is going to be several years, at a minimum, even given the fact that new applications will be filed later this year, before the Commission grants section 271 applications that bring these high-speed transport services and the DS–3 backbone services that we so badly need to the rural areas of the Nation that are under-served today. I think those are the last places where the section 271 applications are likely to be granted.
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Well, in the time I have remaining let me just get your response to that. I will give you an opportunity to say what you will.
Mr. KENNARD. Thank you, Mr. Boucher.
First of all, this whole marketplace is going data. We have heard a lot of testimony today about how much data traffic is now moving on our networks. If you, in effect, deregulate 271 and take data out of it—and there are, I think, some difficult technical questions of how you can separate the two technically—then a very simple thing will happen.
Mr. BOUCHER. Mr. Kennard, I can't resist interrupting to say it is very simple. You just look in the phone book and see if they are advertising long distance. If they are advertising voice-based long-distance service, then they are violating the requirement. If they are not, then it ought to be fine.
Mr. KENNARD. But what will happen, Mr. Boucher, is that the Bell companies will just move to IP telephony. IP telephony is a data service and that will eliminate any incentives to move voice traffic over the network at all.
Second of all, if the motivation of the legislation is to ensure that there is deployment of data in rural areas, we have addressed that problem. First and fundamentally, the problem is addressed by requiring the Bell companies to open up their markets. Once they open their markets, they can move data anywhere. There is no restriction at all. That is the beauty of the incentive.
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But, second, the FCC has adopted a waiver process so that any Bell company that can demonstrate to us that the only way to get data into a rural area is over their facilities, we will waive the interLATA restrictions and allow them to do it.
Mr. BOUCHER. Have you ever done——
Mr. KENNARD. Not one Bell company has ever asked us for that waiver.
Mr. HYDE. The gentleman's time has expired.
Mr. BOUCHER. Thank you.
Mr. HYDE. The gentleman from Pennsylvania, Mr. Gekas.
Mr. GEKAS. No questions.
Mr. HYDE. I really admire the gentleman. [Laughter.]
The gentleman from New York, Mr. Nadler.
Mr. NADLER. Thank you, Mr. Chairman.
Chairman Kennard, I apologize if the questions I am asking are repetitive of anything you have said, but Mr. Gekas and I and several other members were at a subcommittee hearing scheduled at the same time as the committee hearing.
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As I understand this bill, it will allow, among other things, cable companies or will mandate that cable companies allow multiple ISPs to use their broadband service; is that correct?
Mr. KENNARD. Yes.
Mr. NADLER. Do you support that, first of all?
Mr. KENNARD. To allow ISPs to use a broadband service?
Mr. NADLER. To mandate that cable companies must allow multiple ISPs to use the broadband service, yes.
Mr. KENNARD. Certainly that is the goal, and I wouldn't dispute that that is what consumers want to have. We want consumers to have a choice of multiple ISPs. The real question is how we get there.
Mr. NADLER. Let me just pursue that for a moment.
Mr. KENNARD. Yes.
Mr. NADLER. If that were done and if we accomplished that, that would—and correct me if I am wrong. I want to make sure I understand this—that would mean, in effect, a common carrier obligation so that the cable companies could not use their control of the broadband access to favor their own programming—their own content over somebody else's content?
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Mr. KENNARD. That may be one way to do it. My own personal view is that the cable broadband pipe is a new pipe.
Mr. NADLER. Say that again?
Mr. KENNARD. The cable broadband pipe is a new pipe, a new network. And I think we need to be careful about automatically imposing all the legacy regulation that we have developed over the last 50 years in this country and are actually trying to work our way out of, pick it up and drop it wholesale on the new pipe.
My own view is that I don't think that would be the appropriate paradigm for cable. People have offered various ways of doing it, and we are going to look at various alternatives.
Mr. NADLER. But I do want to make sure that—right now, the Internet has been developed in a way that basically there is open access to anybody. Nobody can control the pipes on the Internet. We want to make sure, as a lot of the Internet traffic moves to broadband cable, that that is maintained and that no one gets that control, do we not?
Mr. KENNARD. Absolutely.
Mr. NADLER. And are there better ways to do it than that provision?
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Mr. KENNARD. Well, my own view is that I don't believe approaching it from an antitrust perspective is the best way. I think that if you are going to open up that cable pipe, you would have to adopt a regulatory approach. I am not saying that that is necessarily what we should be doing right now.
The FCC has taken the approach thus far that we ought to allow the marketplace an opportunity to develop because we are transitioning from a different place now.
Mr. NADLER. Allow the opportunity for the market to develop until you can see how you must mandate what? Or in the expectation that the market will automatically open up everything? That is something that history says is not very likely to occur.
Mr. KENNARD. Well, we have never seen anything like this period in history. For one thing, people who are likely to go from the narrowband world to the broadband world are migrating from an environment of open access in the narrowband world. Consumers expect access to multiple ISPs.
When cable operators are competing against the DSL platform, an open access platform, we think that there may be some powerful market incentives that will drive them to want to maximize their cable facility by adopting an open ISP environment. That may not be the case. We are going to have to look at it and monitor it.
But my point is that there are costs imposed when we waltz into this marketplace and, in a sort of knee-jerk fashion, say, ''Okay, it worked in the wireline world, we are going to import it to the cable world,'' because that creates a level of confusion and uncertainty in the marketplace that I don't know would be appropriate right now.
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Mr. NADLER. Thank you.
Second, I gather, with respect to the other major thing that this bill does—and I gather it is the other major thing that this bill does, which is to open data transmission, which is to say that the local Bells, as the price for competing interstate, do not have to open up their systems to data, as opposed to voice. That is the other major provision. You are not supporting that?
Mr. KENNARD. That is correct.
Mr. NADLER. And do you believe that there is—and that was the fundamental deal in the 1996 act. Do you believe that anything has occurred since then? Mr. Goodlatte says that, since we have seen much more data than happened in 1996, I don't know that we have seen a shift much more than was expected in 1996.
First of all, could you comment on that?
When this bill was passed in 1996——
Mr. HYDE. The gentleman's time has expired.
Mr. NADLER. I ask unanimous consent for one additional minute so he can answer this question.
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Mr. HYDE. Without objection.
Mr. NADLER. Thank you.
In 1996, when the bill was passed, was there reason to expect—was there reason to contemplate that a very large share, more than the 5 percent at that time of communication, would be data as opposed to voice?
Mr. KENNARD. Well, I think that Representative Eshoo, who testified earlier about her experience as a conferee on that bill, is exactly right. There was discussion of the Internet at that time. In fact, the Internet is mentioned in the bill. So the movement toward data traffic on the networks was beginning.
I think, realistically, few people predicted the explosion of data on our networks, but, in my view, I think this has been a happy outcome in the marketplace and for the 1996 act because what it has done is it has increased the incentives to get these markets open.
I believe section 271 is the heart and soul of this legislation, because I see it in practice every day. It forces the competitors to sit down at the table with the Bell companies and figure out how they are going to get those markets open to competition.
Mr. HYDE. The gentleman from——
Mr. KENNARD. That is why it is being replicated around the world. That is why my colleagues at the State level support it, and virtually every Government official charged with trying to open these markets believes that this provision is a huge benefit, and it would be tragic to deregulate it or undermine it in any way.
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Mr. NADLER. Thank you very much.
Mr. HYDE. The gentleman from Ohio, Mr. Chabot?
Mr. CHABOT. Thank you, Mr. Chairman.
Mr. Kennard, I know your expertise is in communications law rather than in antitrust law, but would you give us again your opinion on whether it makes good sense, from either a legal or an economic standpoint, to create distinct classes of industries or companies which would be subject to special treatment under the antitrust laws? And what is the effect of using antitrust law to regulate in this area? And what are the potential effects of letting the courts make new telecom policy?
Would you again give us your views on that?
Mr. KENNARD. Certainly.
If you look around the world and see how other countries have tried to address this issue of de-monopolozing telecom markets, some have tried, relying on competition policy, antitrust policy, as the principal vehicle. I believe it has been a failure, most recently in New Zealand, when the government there has departed from reliance on antitrust principles.
I believe that there are two fundamental ways that you get these markets open. One is that you use an antitrust approach similar to the approach we used with the divestiture of AT&T, and it worked fairly well. The other is to empower a strong independent regulatory authority with continuing oversight over the market to pry the market open. That is the blueprint of the 1996 act. I think that is working.
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I don't believe you can mix and match them very effectively, and I believe that if you gut the market-opening provisions of the 1996 act what you will have is what Mr. Conyers alluded to in his opening testimony—yet another giant antitrust suit to finish this job.
I fear that if we don't stay the course now and be strong and keep the pressure on the incumbents to open their markets for both voice and data, then years from now people are going to say, ''Well, the 1996 act was a failure, and, unfortunately, this whole industry is in antitrust court all over again,'' and that would be a tragic outcome.
Mr. CHABOT. Thank you.
I yield back the balance of my time.
Mr. HYDE. The gentleman from Virginia, Mr. Scott?
Mr. SCOTT. Thank you, Mr. Chairman.
I want to go back to the open access question and just ask fundamentally whether a person ought to be required to buy Excite@Home if all they want is AOL.
Mr. KENNARD. Well, I believe that there should be open access. I believe that consumers should get the choices that they want. The real question is: Is the cable industry and market forces affecting that industry going to develop a more open platform to give the consumers a choice that you allude to, or will it require the intervention of regulation?
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I think that at this point we haven't decided the answer to that question—at least I haven't.
Mr. SCOTT. Why should the analysis be any different than Microsoft requiring Microsoft Explorer as a condition of getting Windows, giving that away, and what that did to Netscape?
Mr. KENNARD. Well, I am not an expert on that antitrust case and it probably wouldn't be appropriate for me to comment on it.
Mr. SCOTT. Okay. Well, let me ask another question then. In Portland, Oregon, Portland required open access as a condition for the cable franchise. The district court sustained that position. Did other cities take advantage of that law—of course, up until last month when the circuit court reversed?
Mr. KENNARD. The majority of cities, as they have looked at this question, have determined that they are not going to impose an open access ordinance. And many of them, frankly, are looking to the Federal Government for a national policy in this regard. That is what the ninth circuit clearly said in their decision—that there should be a national policy. That is why I believe it is appropriate now for the FCC to commence a proceeding and determine what course we should take.
Mr. SCOTT. In terms of competition for the local dial tone service, if you find there is local competition, obviously there is no problem with the Bell. People can do what they want to do. What progress has been made across the country in developing effective competition for the dial tone service, and what has happened to the price to the consumer as a result of that competition?
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Mr. KENNARD. Well, the way markets work, as I know you know, is that most competitors, most new entrants, design their business plans to target the densely-populated customers, the business customers. That has been our experience in long distance. When MCI was a little upstart company in the late 1970's, their business plan was not about residential service, it was about serving the business customer.
Ultimately, as we had more competition, that business migrated into the residential space, and now we have much more competition for residential long distance.
So flash forward to where we are in competition for dial tone service in the local loop. Most businesses today, particularly large businesses, have many options for service, for dial tone service. Our challenge is to bring residential consumers choice in local phone service. That was the promise of the 1996 act, that everyone would have competition in local phone service. And there we still have a lot of work to do, but we are making progress.
I think one of the most significant things that we did in that area was recently the FCC mandated line sharing. It requires the incumbent Bell companies to share their lines so that competitors who want to provide broadband services can use the single line that the incumbent has brought into the home.
So progress is being made, but, you know, frankly, if you look at the progress that we were making in promoting competition in long distance 4 years after the divestiture of AT&T and compare it to the progress that we are making in local phone service 4 years from the 1996 act, we are making much more progress today, relatively speaking, in large part because we have more technologies, it is a more dynamic marketplace, and because the 1996 act is working quite well.
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Mr. SCOTT. What would happen if you removed the incentive that the local phone companies have—that is, to be able to get into long distance—if you remove that incentive for data, what would happen to the progress in competition for the local dial tone service?
Mr. KENNARD. I think it would gut the incentives to open these markets quickly.
Mr. SCOTT. Technologically, can you tell the difference between voice and data? If you allow just data service and not voice, can you appropriately regulate that?
Mr. KENNARD. Well, certainly you can distinguish between analog voice service and data services, packet switched services. The problem is that it is all merging together, and if you, in effect, deregulate data, then all of the voice services will just migrate over to the data platform. That is, I think, the key reason why this particular legislation would gut those incentives to open the markets, because it would just move voice to another place.
Mr. HYDE. The gentleman's time has expired.
The gentleman from Arkansas, Mr. Hutchinson.
Mr. HUTCHINSON. Thank you, Mr. Chairman.
Mr. Kennard, I appreciate your instructive testimony today. I think I want to ask you, to follow up on your testimony, you indicated, after showing us the map of the backbone across the country—and, looking at Arkansas, there is a good line going through Arkansas, but Arkansas is more than a line. And you pointed out that the problem is not the long-haul routes, but it is the last mile as being the problem.
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Describe what you would define as the last mile? Is this a literal mile? Obviously, it is not, but how big is the last mile and what are the obstacles to get to the last mile?
Mr. KENNARD. Well, in the context of this discussion, it is moving the traffic from the Internet point of presence to the customer's home, and this has been our biggest challenge, frankly, of finding a way to allow competitors access to that last mile facility.
Mr. HUTCHINSON. Well, you are speaking of getting it more into the rural areas or more into the less-dense population and giving the companies the incentive to extend Internet broadband services to those areas. Isn't that what we are speaking of?
Mr. KENNARD. That is right.
Mr. HUTCHINSON. And, whether it is Southwestern Bell or someone else, they say it takes them time, they don't have the economic incentives to do that; is that correct?
Mr. KENNARD. Yes. I think they are asking the wrong question. I mean, if you look at the way these markets develop, people who are providing data services, even the competitors—the Covads and the Rhythms of the world—they are not all building long-haul capacity. What they are doing is they are building out local networks, in many cases their own last mile, and then they are handing off traffic to long-haul providers like the Worldcom network and Sprint and Level Three and Global Crossing.
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We don't have a paucity of long-haul capacity. It is quite amazing in our country, because data traffic is doubling about every hundred days, mainly as a result of the Internet explosion, and we have been able to keep up with that capacity.
The problem is getting the broadband capacity built out locally.
Mr. HUTCHINSON. Thank you.
I would like to yield the balance of my time to the gentleman from Virginia, Mr. Goodlatte.
Mr. GOODLATTE. I thank the gentleman.
To follow up on that, Mr. Kennard, Covad and Rhythms are two very fine companies, but isn't the competition that they bring primarily to business telecommunications rather than to residential service?
Mr. KENNARD. I can't speak particularly to the business plans of those companies. I do know that, as I mentioned earlier, it is a natural migration to serve the business markets first and then migrate down to residential. We have taken some regulatory actions recently that I think will make it easier for competitors to serve the residential marketplace.
Mr. GOODLATTE. To shift gears, in the merger agreement between AT&T and TCI, Liberty Media was granted preferred provider status. What does that mean?
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Mr. KENNARD. I don't know what that means in that context, Mr. Goodlatte.
Mr. GOODLATTE. You don't know if Liberty Media content gets a better price or a better channel placement?
Mr. KENNARD. No, I don't.
Mr. GOODLATTE. Okay. Going back to the section 706 issue that I raised with you earlier and we weren't able to complete, the language of that doesn't require you to deregulate but it does allow you to deregulate, and let me ask you, in that context, the Department of Justice recently entered an objection to the MCI-Sprint merger. Wasn't that, in part, because of a concern for the reduction in competition in the Internet backbone market?
Mr. KENNARD. As I understand the Justice Department's action, they determined that, if that merger were allowed to proceed, then there would be an unacceptable degree of concentration in the Internet backbone market. Yes.
Mr. GOODLATTE. And wouldn't more participants in the market lead to an increase in backbone competition?
Mr. KENNARD. Yes, but, again, if the concern is about more competition in the Internet backbone, our experience with the 271 process to-date is not that the Bell companies pour investment into the Internet backbone when they get into long distance. They, like most of their competitors in that market, hand off traffic to the Internet backbone when you are providing long-distance services over interLATA boundaries.
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Mr. HYDE. The gentleman's time has expired.
The gentleman from North Carolina, Mr. Watt?
Mr. WATT. Thank you, Mr. Chairman.
Mr. Kennard, some of us who are ambivalent about the Goodlatte-Boucher bill or the Tauzin bill or any kind of legislation suggest that our ambivalence has to do with allowing, as you have indicated, the telecom bill to work for some period of time and allowing that process to play itself out.
If you assume that these bills have some merit to them, yet we should still be waiting to allow the telecom bill to play itself out, the questions that I have really are two-fold. Number one, would there be some time frame within which we would be looking to allow the telecom bill and what is happening in the aftermath of that to play itself out? Or, alternatively, would there be some set of triggering devices, evaluative criteria that we might be looking for next year, year after next, 5 years from now, that would either trigger or put to rest the need for additional legislation?
Mr. KENNARD. That is a very good question. I think it is important that we continually assess the progress of this act in a number of respects.
In the area that we are talking about today, deployment of broadband services into rural areas, every year the FCC sends a report to Congress. Our next report will be coming up next month where we will survey the deployment of broadband around the country and probably make some recommendations as to specific actions that need to be taken.
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I am very optimistic about the amount of investment that is pouring into this marketplace, and I think that says something about the 1996 act having struck the right balance.
If you look at every sector of the communications economy, investment is pouring in to provide new services, many broadband services—the wireless industry, cable, DSL, across the board.
My view is that our main challenge is making sure that everybody benefits, that all people in the country have access. And oftentimes ensuring that is not a simple question of, well, do you deregulate the big players so that they have more freedom. Oftentimes, when you find that there are distressed areas like terminal lands or remote rural areas that aren't getting service, sometimes it is a different solution—targeted universal service subsidy support, for example. We are working in those areas at the FCC.
So I think it is too easy a solution to say, ''If you are not satisfied with the progress, deregulate more.'' I mean, that doesn't seem to me to be the right approach.
Mr. WATT. Doesn't that leave you with a framework that gives the independent regulatory agency, FCC, substantial authority? I guess that may be making some people uneasy in that we can't find a legislative group of words that solves this problem once and for all and kind of gets the regulation out of it.
What I hear you saying is that there is going to be an ongoing need for substantial regulatory involvement in evaluating the impact of the Telecommunications Act and in pushing and tugging to make sure that the Telecommunications Act yields all of the results that we might have anticipated. Am I correct in that, or would you elaborate on that a little bit?
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Mr. KENNARD. Certainly. I think you are fundamentally correct. We are constantly tweaking the implementation of the act. When it appears that arteries are blocked or competitors can't get access to things, we are constantly tweaking it. We are also now looking hard at this cable access issue. But I think there will always be tensions. You know, I spend most of my days meeting with people who are out in the industry in companies, businesses, etc., who want the law changed, the regulation changed one way or another, and there is a pattern to all these discussions. Almost everybody wants less regulation for them and more regulation for their competitor, and that is how they define a level playing field. This is the way people arbitrage the process.
I think we just have to assume that that is life and continue to do our job.
Mr. HYDE. The gentleman's time has expired.
The gentleman from Utah, Mr. Cannon?
Mr. CANNON. Thank you, Mr. Chairman, and Chairman Kennard.
I have been thinking here, I often pass the opportunity to ask questions in circumstances like this because it is sometimes better to get on with other testimony, but I think the reason you have had so many questions and the chairman's patience has been so tried is because the issues that you are dealing with are so important to the American people. They are certainly important to people in my district.
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We heard from Chairman Tauzin earlier today, and we have compared our districts. While he has more people in his State, my State is much more urbanized than him. You are talking about the seventh most urban State in the country, and I represent a district that contains just about two-thirds of the whole State of Utah, so I have most of the non-urban but heavily-unpopulated areas of the State of Utah.
I might just say that my rural residents don't whine very much. I love them.
On the other hand, I have lots of people who want—I have a large portion of the State. It is also the beautiful portion of the State and many people want to move in. They want to move in when they have access to high band width data. So these issues are important to me and to the people of my State.
I was personally thrilled when AT&T invested in TCI, and you had a couple of questions already on that and you have dealt with those, I think, well.
Let me just ask this first: Do you believe that the provisions of the bill before us would have a tendency to injure or to put at risk the investment that AT&T has made in cable?
Mr. KENNARD. Well, I typically don't—it is hard for me to answer that question, Congressman, because to a large extent it is irrelevant to me because I have to focus on what is best for the consumer. One of the reasons why we approved the transaction to allow AT&T to buy TCI is because we felt that it would create investment for consumers in a new technology. Although we haven't seen that play out fully, I think our instincts were right because we are now seeing some wonderful competition developing between the telephone companies and the cable companies to roll out new services for consumers.
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So, from the consumers' standpoint, those sorts of transactions are working. That is not to say that every combination or merger is pro-competitive, but that particular one, where you had a long-distance company combining resources with a cable company to compete against the Bell companies in their back yard, the residential marketplace, it was a good deal for consumers.
Mr. CANNON. Frankly, I think it was a great deal for consumers, and I weighed the risk there, and I think it is important, from our point of view, that we keep the rules stable so that people can make those kind of risky investments and make the world a better place for consumers and everyone else.
I appreciated your comment when you were referring to the provisions of this bill. You said they would gut the incentive to open these markets quickly, and then went on to say that is because voice services would migrate to data services. It seems to me that is really the core of what is going on with this bill. If this bill is passed, the RBOCs will move very quickly to voice over the Internet and not open up their services or their access to their operations to the competitive services. I take it that is where you are headed, right?
Mr. KENNARD. That is correct. In fact, I believe that even if voice doesn't migrate quickly to data, to IP telephony, then it is clear. Everybody knows that data is the high growth area of the industry. Everybody wants data. And if you take away the incentive to open up your markets because they basically don't have to worry about data any more, that incentive is gone.
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Mr. CANNON. I am intrigued by your statement that no RBOC has asked for a waiver of the interLATA requirements because of areas that are not receiving Internet services. Could you elaborate a little bit on that? Has there been talk about that? Or are the RBOCs just using that as a lever over the heads of their constituents to create anger that will result in pressure for opening up the whole system?
Mr. KENNARD. It might be better to direct that question to them, and I hope you get an honest answer.
Mr. CANNON. I don't think we would get a straight answer.
Mr. KENNARD. But I think one of the reasons why that provision hasn't been used is because there is a fair amount of long-haul capacity in the country, and we did have a situation in West Virginia not long ago where it was claimed that if we didn't allow the Bell company ability to move traffic over LATA boundaries then people wouldn't get served, and, lo and behold, someone stepped up to provide service, not the Bell company. So there are companies out there that are willing to provide these services.
Mr. HYDE. The gentleman's time has expired.
The gentlelady from California, Ms. Lofgren?
Mr. LOFGREN. Thank you, Mr. Chairman.
And thank you, Mr. Chairman. I really think that you have done a terrific job in your service at the FCC, and really the country is fortunate that you have been willing to put up with the grief that the job sometimes brings.
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As you outline the successes that the country has experienced since 1996, it really is—when you step back from it, it is just stunning what has occurred since 1996 in terms of the roll-out of broadband and the reach of the Internet into so many homes. And we are not there yet. We all know that. And sometimes it is hard to be patient because the role that we have here in Congress—really in the country—is not to decide only what, but also to decide when. Sometimes the when question is even more important than the what question.
Mr. KENNARD. Yes.
Mr. LOFGREN. I obviously represent a primarily urbanized area, where there is, interestingly enough, in the heart of Silicon Valley not much competition from cable because of an antiquated cable system, but there has been rapid roll-out of DSL. That is one of the questions that I have for you, not in terms of changing the law, but in terms of implementing and tweaking and utilizing the tools available to you.
I am concerned that, of the DSL roll-out, only 25 percent is currently being provided by upstarts, the Covads and others. And I know that they have had oftentimes rather energizing experiences in dealing with the incumbents. And I am wondering if there are steps that the Commission is considering that might provide for enhanced competition from not just Covad, but many other upstart companies.
Mr. KENNARD. Well, thank you very much for your opening comments. I am happy to address that.
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Companies like Covad and Rhythms are really the children of the 1996 act, and we have watched them fairly carefully to assess what they need in order to compete effectively in this marketplace, and we have taken a number of steps over the past few years to enhance their ability to collocate, for example. Line sharing, which I mentioned earlier, I think is a very important development for them.
And I think it is very important for the success of the 1996 act for companies like that to be able to compete in this marketplace.
One interesting outcome of the proposed legislation, if it were to pass, I think companies like Covad and Rhythms would immediately become acquisition targets to the Bell companies, because they can move data across LATA boundaries—and these companies have not really matured yet—then you might see some very, very rapid consolidation in this marketplace, and we might be regretting the fact that we would have lost those competitors, so it is something that we have to watch very carefully.
Mr. LOFGREN. Looking ahead, the chairman indicated his concern with cable fees, not for Internet access but for more-traditional media and the concerns expressed to him by his constituents and I think all of us have experienced that phenomenon at one time or another. I am wondering if you have considered—it is really not the FCC's job, but as we are melding the various technologies in broadband and video and the like—I have recently read an article that there is a small company in Texas that claims that they have broadcast-quality video on DSL as a trial. Looking ahead, we will see, I think, traditional media streaming on DSL. We haven't seen the end of compression technology. So essentially we will have competition not just for what we now use the Internet for, but for movies and TV—TV actually is not the word we will have to use.
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How is that going to play into the whole copyright issue that has been recently raised in the Senate? I don't favor the proposal made by the chairman and ranking member of the Judiciary Committee, but, looking ahead at the convergence of technology, is there a role for the FCC to give opinions on the whole issue of copyright and making sure that the convergence of technology continues to be successful?
Mr. KENNARD. Well, you have touched on what I think is one of the most challenging issues facing us as we move into the world of digital content, and I feel very fortunate that, because I have enough problems, I don't have to deal with copyright issues, so whatever observation I gave you would just be a personal observation. I would be happy to give it to you, if you would like.
Mr. LOFGREN. I would love it.
Mr. HYDE. The gentlelady's time has expired.
Mr. KENNARD. Thank God. [Laughter.]
Mr. LOFGREN. Perhaps after the hearing you can give me your opinion.
Mr. HYDE. Just in the nick of time.
The gentleman from Alabama.
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Mr. BACHUS. Thank you.
Chairman Kennard, you said data is doubling every 80 days?
Mr. KENNARD. Every 100 days, sir.
Mr. BACHUS. Every 100 days. Everybody wants data. Everybody needs data. It is a matter of being able to compete. It is a level playing field. And I think you said it ought to be a national policy that we get access to everyone as soon as possible. Is that correct?
Mr. KENNARD. That is right.
Mr. BACHUS. Would you agree that allowing the Bells into long-distance data would bring broadband services to the under-served areas and do it quickly?
Mr. KENNARD. No. I think it would have actually the opposite effect because it would eliminate from the marketplace lots of competitors that are trying to serve consumers with data services.
Mr. BACHUS. You mean allowing the Bells to deliver data, long-distance data to under-served areas would actually restrict the amount of services in those areas? How would that eliminate competitors? Or you said let the marketplace?
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Mr. KENNARD. Maybe I didn't explain my answer fully. As I have testified earlier——
Mr. BACHUS. Did you say this? I will just maybe pose this question. You are saying allowing the Bells into long-distance data wouldn't speed up the deployment of broadband services to under-served areas? I thought that was a given.
Mr. KENNARD. No. Actually, I don't think that would happen. First of all, I think it is important to note that if any Bell company comes to the FCC and says it has the desire to serve an unserved area with data services and it has not been granted 271 authority and it seeks a waiver to do that and can demonstrate that no one else will serve that community, we will grant the waiver.
Mr. BACHUS. Well, you mean no one else? I thought you were promoting competition. Shouldn't the market create a demand, and if they want to go out and sell to that area that would be an evidence of demand?
Mr. KENNARD. They can. The only thing that is preventing Bell companies today from moving data across these LATA boundaries is the fact that they haven't yet demonstrated to their State regulators and the FCC that they have opened their market to competition.
Mr. BACHUS. I understand that, but you are talking about they haven't done something else they should do, but we are talking about the narrow focus. There is a great demand out there for broadband services and the Bells can deliver a tremendous amount of that service to under-served areas. I mean, surely you agree with that.
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Mr. KENNARD. Of course they can, but what I am saying is that——
Mr. BACHUS. They could do it quickly, and what you are saying is someone else may be able to do that, but then you have talked about the need for competition. Why would you have a national policy to exclude probably the group that could deliver those services quicker than anyone else and maybe cheaper? And, I mean, is it up to the FCC to decide who goes in and who doesn't?
Mr. KENNARD. First of all——
Mr. BACHUS. I mean, you actually said in the statement that we ought to rely on the FCC to make these decisions. Shouldn't we just open it up for everyone?
Mr. KENNARD. I think it is important to note—and it hasn't been said yet today—that most of our rural areas in America are not served by the Bell companies, they are served by small, independent, rural telephone companies. Many of those companies—not all of them, but many of those companies are providing state-of-the-art broadband services in rural communities, and they have developed business plans that allow them to, in part with the help of Federal and State subsidies, which allow them to provide state-of-the-art broadband services, so it is not appropriate to say that the Bell companies are the only companies in America that are going to serve these rural areas.
Mr. BACHUS. But wouldn't you say that the Bell companies do serve a lot of rural areas that need broadband services?
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Mr. KENNARD. Some of them do, but I also think that if you deregulate the laws to allow the Bell companies to move data across LATA boundaries, I think you will find that they will target data into large metropolitan areas because that is the main driver for those companies, for every company in this marketplace.
Mr. BACHUS. I understand, but you are not saying they wouldn't also go into the rural areas?
Mr. KENNARD. I am saying that if they want to go into the rural areas and no one is serving those rural areas today, they should come and talk to us. There is a pathway that we have provided for them. Not one has shown up yet.
Mr. BACHUS. Let me ask you this about the city of Portland case. You are for promoting local competition. In the city of Portland they said, ''We will give you a cable franchise, but you open up your cable to other content providers.'' Now, that is something you would like to promote, too, wouldn't you?
Mr. KENNARD. Absolutely.
Mr. BACHUS. So you are a little disappointed with this decision, aren't you? I mean, you say that you like the decision because there ought to be a national policy, but shouldn't the national policy be that these cable systems be open to all content providers?
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Mr. KENNARD. My philosophy, Congressman, particularly in this very dynamic, unpredictable marketplace, is that we, as regulators, can't presume to know everything that is going to happen. Many people——
Mr. BACHUS. I would say this. You just said——
Mr. HYDE. The gentleman's time has expired.
Mr. BACHUS. Let me complete this question.
Mr. HYDE. Yes.
Mr. BACHUS. You said you presume the Bell systems might not do this and would do that, which I agree you shouldn't be presuming those things, but let me ask you about the Portland case. It ought to be a national policy that these local cable systems open up their cables to all sorts of providers, right?
Mr. KENNARD. Yes.
Mr. BACHUS. Is that correct?
Mr. KENNARD. That is correct.
Mr. BACHUS. And the Portland case actually now stops local governments from doing just that, does it not?
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Mr. KENNARD. Yes.
Mr. BACHUS. So that is bad news for consumers, isn't it?
Mr. KENNARD. Not necessarily now.
Mr. HYDE. Now the gentleman's time has really expired. [Laughter.]
The gentlelady from Texas——
Mr. BACHUS. I would like to say for the record he said ''not necessarily.''
Mr. HYDE. Okay. The gentlelady from Texas.
Ms. JACKSON LEE. I thank the chairman very much and I thank the ranking member both for holding a very vital and crucial hearing on legislation that I think we should have the opportunity to review. Juxtaposed to that point, I would say that I am also eager to see how we balance the desires of the present legislative initiatives with what I think have been some very telling comments made by Chairman Kennard.
Allow me also to add my appreciation for the combined service that you have given to American consumers. Particularly let me applaud you for your tenacious fight over the e-rate that I can proudly say to you that there are now some 50,000 schools, and growing, I hope. Of course, we have additional issues of software and training that we have to address, but your tenacious fight put us where we are and I thank you very much for your leadership.
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Mr. Chairman, I would like to submit in the record my remarks and ask unanimous consent that my opening statement be submitted into the record.
Mr. GOODLATTE [assuming Chair]. Without objection.
Ms. JACKSON LEE. Thank you very much.
[The prepared statement of Ms. Jackson Lee follows:]
PREPARED STATEMENT OF HON. SHEILA JACKSON LEE, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS
Chairman Hyde, and Ranking Member John Conyers, I would like to thank both for this opportunity to discuss the most influential development in the history of our nation's economy, the commercialization of the Internet. As a cosponsor of both H.R. 1686, the Internet Freedom Act and H.R. 1685, the Internet Growth and Development Act, I am pleased to see the committee taking up consideration on both measures.
This hearing will provide an opportunity for members, like myself, who have a strong interest in how the commercial phase of the Internet progresses. I have been and will continue to be involved in Congresses efforts to legislate in a manner, which is expressly designed to avoid the creation of electronic commerce disincentives especially during the early development of the Internet.
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As a member of the House Committees on Judiciary and Science, and cosponsor of both pieces of legislation before us today, I have had a great opportunity to participate in the legislative efforts that are designed to encourage the commercial development of the Internet.
The role of the Judiciary Committee is strictly concerned with the legal and policy aspects of the new cyber-commercial environment of the world's first global Internet. Because of the focus of this full Judiciary Committee Hearing I will reframe from discussion of the more technical aspects of Internet commercial development and will limit my observations to those regarding the purview of this Committee.
I would like to state for the record that, although I am a cosponsor of both bills before us today, that I do have questions regarding the ultimate application of these bills in the Internet market place should they become law. H.R. 1686 is described in its official title as a bill to ensure that the Internet remains open to fair competition, free from government regulation, and accessible to American consumers. First and foremost, the Internet would not have been created if its existence had been left solely to commercial sources for funding and development. We should not forget nor minimize the fact that the Internet is a creation of the federal government, which has been freely turned over for the world's business, education, and public entities to develop into a full service medium for the transmission of all forms of digitized information.
In short, the Internet is an international collection of co-operating computer network of computer networks. A network exists when one machine is able to access information on a remote computer without any indication to the user that they are crossing from on computer to another which might be locate within close proximity of the other or hundreds or even thousands of miles away. For this reason no one group, organization, government entity, national, or business owns nor controls the activity, which takes place over the Internet. However, this does not mean that use of the Internet is free, on the contrary the bulk of the cost for the Internet's is borne by universities, national laboratories, high-tech corporations and governments, which includes all of the fifty states and the federal government.
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I would caution that this body should not indite all government efforts regarding the Internet as being necessarily bad just because of their origin, after all government's reason for being is the public interest. The government acted in the public's best interest in development of the Internet and once again it acted in the public's best interest by making it freely available to everyone. Further, the sole motivation of private business, as it should be, is profit. This motivation has no public interest incentives other than those spurred by increasing revenue, which does not create a requirement for openness, fairness, nor public interest or rights of any description for the consuming public other than those, which are defined or established through our nation's legal system.
My concerns regarding H.R. 1685, a bill to provide for the recognition of electronic signatures for the condut of interstate and foreign commerce, to restrict the transmission of certain electronic mail advertisements, to authorize the Federal Trade Commission to prescribe rules that protect the privacy of users of commercial internet. I would like to make one observation regarding the long title of this bill regarding the word ''Internet.'' The word ''Internet'' should only be capitalized when referring to the Internet, but should not be capitalized when referencing any other network of computers, which forms an internet. I would assume that we are seeking to develop legislation, which would give direction to any public internet developer. Therefore, I would assume that the word ''Internet,'' which is used in the long title of this bill should start with a lower case ''I'' instead of the capital letter.
I believe that the goal of H.R. 1685 has merit in that the commercial transactions of the Internet requires the ability of businesses and consumers to agree on the conditions of commercial exchange, and should a difference of opinion arise that the transaction be in such a form that an independent observer may make certain assumptions regarding the conditions which define an agreement between the two parties.
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The development and broad use of digital signatures is the single most important advancement in the realization of electronic commerce. Because of the global nature of the Internet it would be very difficult to validate the identity of all persons who seek to engage in commercial transactions over the Internet. Consequently, the requirements of digital signatures offers hope for viable electronic commerce for our nation's businesses and consumers.
For this reason as well as the fact that the Internet reaches far beyond our nation's boarders, it is important to develop the conditions, which define what a digital signature is not just in our country, but throughout the world. Therefore, a digital signature protocol must be able to confirm the originator, date, and time signature of all transactions. Second, the digital signature must be able to authenticate, or affirm without question, the contents of the communications sent by the originator to the business via the Internet. Last, the digital signature must be verifiable by third parties, such as our judicial system, so that differences between parties can be resolved.
An effective digital signature protocol must establish that a particular digital message has: a bit pattern that depends on the message being sent; an easy signature to produce; easily recognized, computationally infeasible to forge, and who's cost of retention in computer storage is low.
Regarding Section 102 of H.R. 1685, the Internet Growth and Development Act, I would like to offer for this body's consideration that the legal strength of the written signatures of millions of American consumers is rapidly being degraded by the business practices of many retail merchants. I am referring to the electronic capturing of the signatures of those consumers who use check cards or credit cards to affect person to person transactions. This is accomplished whenever a consumer signs their name to a receipt, which is positioned over a electronic signature pad. These electronic pad create a computer representation of the customers signature and forever, negates the customers ability control where and how their signature might be used by others. Currently, there is no federal regulation regarding the capture of personal signatures, and I fear that we as legislators will wait until the signature method of authenticating person to person transactions is damaged, which would endanger other forms of non-Internet related transactions.
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I look forward to the testimony of those who will come before us today. I thank them for taking time away from their busy schedules in order to enhance congressional understanding of their perspectives regarding public policy developments regarding Internet commerce.
Thank you.
Ms. JACKSON LEE. Let me pose some questions briefly and ask you to use DSL time frame answers because I am chuck full of questions, and I thank you for recognizing how important this hearing is.
You made a statement that the direction that we might be going or the moving of such legislative initiatives, which I know my colleagues have put forward to increase competition—and I have a strong advocacy for that position—but you said something in your remarks that the direction might undermine the U.S. leadership in Internet economy.
Having been involved in local government with the emerging cable technology, primarily hooking up folks' television and hearing all of the complaints of cost, I really thought in the involvement of 1996 act we would see high or speedy competition and diminished rates. I think what you see today in this hearing room is a concern for whether or not the consumer is actually benefiting from such.
Now I will come to my question. Recognized, of course, that the Internet—and I hope this statement doesn't draw some of the smiles of some other statement about the Internet, but it is a creature of the Government. I mean, the research started there and it sort of belongs to us all.
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What is your response to that? Or how do you define your statement that you made that it might undermine the U.S. leadership in Internet economy, the direction that we might be going?
Mr. KENNARD. Well, I think it is undeniable at this point that most countries around the world are replicating the 1996 act and the incentives around it, and my concern is that, if we were to gut what I believe are the key market-opening provisions of the act, then we would slow down the deployment of Internet technology on our networks and that would be a tragedy for the American public and for our economy.
Ms. JACKSON LEE. Let me follow up with that and ask the question somewhat that my colleague asked, and also to mention an example, I think, because it is public record now and we are allowed to do so—the SBC request for long distance. That took a period of time.
Some might argue that the delays in that decision augment a decision or the opinion that competition is not moving the way we would like.
How do you answer that question with respect to the processes that the FCC used? I think we got a good product, but I think it is important to respond to how you analyze that and its period of time that it took.
And then I would like to find out whether the 1996 act has given opportunity for startups and minority participation through the dereg that we had hoped that it would have occurred.
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Mr. KENNARD. With respect to your question about SBC's application in Texas, I feel very good about voting in favor of the grant of that application. Opening these markets takes time. It doesn't involve just going down and marking off a check list. That is part of the process. But it also involves investing in systems and people to make sure that we can have confidence that the market is open and will stay open.
I was very pleased that in Texas we were able to work with a State regulatory commission that took its job very, very seriously, went to the hard work of working with all of the players in that marketplace to make sure that, by the time the application got to the FCC, it was one that was a solid application.
That wasn't the case all the time. In the applications we denied the main difference is the State regulatory authorities did not do the hard work of presenting that application.
Now, with respect to your question about minority participation, I am very concerned about the lack of opportunities for not only minority companies but all small businesses in this sector. I think we have seen a tremendous amount of consolidation in recent years, some of it triggered by the 1996 act, that has foreclosed opportunities for new entrants.
We are working, notwithstanding the 1996 act, where we can to create more opportunity. We are trying to create a new low-power FM radio service for small community-based organizations, nonprofits, churches, schools, community groups, to get access to the air waves as a small but significant antidote to this consolidation.
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Mr. HYDE [resuming Chair]. The gentleman from Georgia, Mr. Barr?
Mr. BARR. No questions.
Mr. HYDE. No questions. The gentlelady from California, Ms. Waters?
Ms. WATERS. Thank you very much, Mr. Chairman. I, too, would like to thank you and our ranking member for this hearing. We need more of this. We are all trying to keep up with all of the latest developments in telecommunications, and it is very important for us to have an opportunity to talk with you and others. I thank you for being here too, Mr. Kennard.
I am trying desperately not to get caught up in the market share battles. We watched as AT&T and OAL created this big discussion about access when AT&T bought up all the cable companies. Well, at one level it looked to me as if AT&T had, indeed, made a very smart move to be able to provide broadband services, and that there is something about the American marketplace that promotes the ability for smart people to get the edge, and it seems as if that is what they did.
The discussion stopped when OAL merged with Time Warner and it found itself in equal position, I suppose, with AT&T, having access, significant cable capability.
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Now, having said all of that, and not wanting to get caught up in these fights, I suspect what you are trying to tell us makes good sense—that whatever is going to happen in all of this has not occurred yet, and if we allow it to play itself out that the relationships that can be developed may be relationships that will even a lot of this out rather than trying to regulate so early what takes place, and that is where I think I am at this point.
Even though there are some questions about access—and we all, I think, would like to see access so that we can have the kind of competition that will drive competitive prices, all of that. So I am trying to follow you and wait it out and let it play itself out rather than us getting involved in this kind of legislation.
Now, having said that, I am concerned that when AT&T was a monopoly it did not provide good comprehensive services to inner cities, and I suspect to rural communities, and when the cable companies started to develop their capability they did not provide good services to inner cities, and I suspect rural areas, and it seems to me we still have some questions on the table today that we have had historically.
There are public housing projects that don't have cable even today. There are communities that do not have comprehensive local telephone services. For example, in south central Los Angeles I know I thought that we had moved to a time where, no matter where you lived, you could have the kind of local telephone service that would not cause you to have to pay extra money to maintain a prefix number, for example, but that is not true, and people are still paying to retain their prefix service if they move, extra money. It seems to me we should be much more advanced than that in just basic telephone service.
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Also, with this deregulation, some of the local telephone companies have not opened up their lines so that smaller telephone companies can get in there and provide services, so right now what I am interested in is what can you do to continue to work on access at the very basic levels for inner cities and rural communities before we even get into some of this discussion about whether or not the local companies are going to be allowed to provide data services? I want to know what they are going to do to improve their services to the local communities that are unrealized.
I will just leave it with that.
Mr. KENNARD. Thank you.
Many of these issues of the actual deployment of networks at the local level are dealt with by State regulators. We do have a role, however, and a role that we take very seriously.
Oftentimes, in the context of these major mergers that have come before us, we have pressed the companies on their plans to roll out services, particularly advanced services, to rural areas and low-income inner city areas, and if you look at the mergers that we have approved in recent years—AT&T/TCI/SBC/Ameritech, and others—we have, as a condition to our approval, insisted that these companies demonstrate that they are going to roll out services in these historically under-served areas.
I do think it is one of the most important things that we do as a government, which is to make sure that everybody has an ability to participate in this growing sector of the economy. Our view, though, is that we have to make sure that we match the regulatory incentives, the statutory incentives, with the goals.
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Much has been said about this proposed legislation as solving the so-called ''digital divide'' issue. I don't think that it will, because the issue, and particularly in rural areas, is not so much deregulating the big players, but rather it is targeting subsidies to companies, oftentimes smaller companies, that are willing to provide service in those distressed areas.
Mr. HYDE. The gentlelady's time has expired.
The gentleman from Florida and the gentleman from New Jersey, Mr. Kennard has an appointment; however, I am sure if you will be extra brief he will be able to accommodate you, if you don't mind.
Mr. KENNARD. Mr. Chairman, I will stay as long as it takes.
Mr. HYDE. Will you?
Mr. KENNARD. Yes.
Ms. WATERS. Okay. Very well.
Mr. Wexler?
Mr. WEXLER. Thank you. I will be brief.
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I, too, want to thank the chairman and the ranking member for having the hearing, and I want to commend Chairman Kennard for bringing what seems to me an extraordinary amount of integrity to this process.
Mr. KENNARD. Thank you.
Mr. WEXLER. And I think that consumers all across America benefit from your objectivity.
Having said that, I am baffled as to your response to the gentleman from Alabama, Mr. Bachus. If I understood his question or his inquiry correctly, he essentially inquired of you as to what the benefits would be to consumers if the regional Bells were allowed into the market to provide Internet service, and I assume long-distance market. And if I understood your answer correctly, you basically said none or little because it would inhibit competition with respect to that market.
I would understand your response if you said yes, there would be substantial benefits to consumers if the regional Bells were allowed in to certain markets that they are not in now; however, that benefit must be weighed against any loss of incentive for the regional Bells to open up their local markets. It would seem to me that would be a fairer response, and then it would be up to the appropriate regulators to determine those benefits.
But your response—and please correct me if I am wrong—seems to suggest a bias against allowing the regional Bells to compete where they now cannot compete, and a bias for competition with respect to local services, which I don't understand.
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Mr. KENNARD. Maybe I didn't explain my answer as fully as I should have, Congressman.
I agree with you. This is a balancing of the incentives to open the market versus whatever benefits the Bell companies could bring to serving those rural areas. The point that I was trying to make is, one, ultimately consumers are benefitted primarily by having competition in all these markets in all areas of the country. We have embarked on a very ambitious effort to open these markets to competition by creating this incentive structure in the act, and I fear that if we gut it then, sure, maybe the Bell companies would provide service to those rural areas, but they will be the only choice that the people in those rural areas will ever get, because we will have eliminated the hope of robust competition across the board.
And, second, the point that I was trying to make—which is a balancing act, as you mentioned——
Mr. WEXLER. Could we just stop there for a moment?
Mr. KENNARD. Yes.
Mr. WEXLER. Are you suggesting that simply by regional Bells having permission to operate in markets that they do not have, that that, by its very nature, eliminates competition?
Mr. KENNARD. If it guts whatever incentive they have to open their markets across the board, yes.
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Mr. WEXLER. Okay. So then that is a very different answer, unless I misunderstood your answer, than what you gave to Mr. Bachus. And the answer is—and I don't want to put words in your mouth—that yes, there are substantial benefits; however, you have to weigh them with other factors.
Mr. KENNARD. Yes. Thank you for clarifying my testimony.
Mr. WEXLER. You know more than me.
Mr. KENNARD. But the second point that I was struggling to make in response to his questioning is that, if there is a situation brought before the FCC where a Bell company can show that it is the only provider or the only prospective provider of service to that rural area, we will be sympathetic, and our rules allow them to get entry. They just haven't come forward.
And I suspect what is happening here is that there is a motivation to create a scare tactic here that the only way to serve rural America is to deregulate the Bell companies, and I have seen this around the world. As governments have tried to open historic monopoly markets to competition, the first response is that your most remote, distressed citizens will go without. Unfortunately, if we buy into that argument, we will lose focus on what is the central goal here, which is to open the markets, all of the markets, to competitors so that people around the country can get service from competitive choice.
Mr. WEXLER. Thank you.
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Mr. HYDE. The gentleman from New Jersey?
Mr. ROTHMAN. I thank the chairman and my ranking member for calling this hearing, and I thank Chairman Kennard, as well. All the great things said about you, I agree with.
Mr. KENNARD. Thank you very much.
Mr. ROTHMAN. You know, I have been trying to think of the right analogy for these situations, and I know I don't have a perfect one. It may not even be a good one, but it is one that amuses me. You know, there is a goal of allowing people to get to the ocean to enjoy the beach, but somebody owns a piece of property on one stretch of the beach and they don't want to let people cross their property all the time, only under their conditions.
Mr. KENNARD. Yes.
Mr. ROTHMAN. And so some people say, ''Well, make that person allow us to cross his property to get to the beach.'' I suppose if that were the only access point to the ocean, there would be a public purpose in condemning the property that that person worked so hard to buy.
I sound like a Republican, don't I? [Laughter.]
But, you know, it depends on—where you stand depends on where you sit, right? You said that earlier, in essence.
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So I find it amusing that those who were so intent on protecting private property—and I voted for the Private Property Rights Act, by the way—would ignore the tremendous investment by a certain segment of the industry. It is now 1 percent, the cable's share of this market, and certainly I would want all Americans—I wouldn't want to wait until it had 99 percent.
The question is—and I think my friend Mel Watt asked earlier—when does it rise to the level of real concern where this kind of what you described as antitrust regulation would be appropriate? And you said, ''Well, we are working on it and we will see.'' Is that about right?
Mr. KENNARD. Yes.
Mr. ROTHMAN. That is about right. I don't want to use the phrase ''unclean hands,'' because it is too dramatic and maybe it is excessive, but it seems to me if, under the prior act, the deal was, the quid pro quo was if the local Bells provide greater access to their service they can get something in return. Now they are saying, ''We don't want to live up to that, but we want the benefits of this new technology.'' Doesn't that seem unfair?
Now, I suppose if it were a national emergency or some great national interest involved we would feel the necessity of giving something even though they hadn't lived up to the terms of that precondition imposed in the 1996 act. How does that strike you?
Mr. KENNARD. Well, I am not here to demonize the Bell companies. I mean, they are market actors and their goals as market actors are to maximize their profits. And I think that we saw, in the wake of the 1996 act, a change in philosophy and attitude.
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The 1996 act was, I think, a masterful compromise that was struck by the Congress where they basically balanced the incentives. They told the Bell companies that if you open your markets to competition then you will be able to get into long distance, which they want very badly. But when we went to implement that act we were faced with lots of resistance in the courts, before my agency, now in the Congress, in the press.
This is natural. We see it all over the world. Nobody wants to give up a monopoly position in the marketplace if they don't have to.
But my point is that we have one real shot at getting this right, and the whole world is watching us, and I think it is very important that we stay the course and keep the incentives in place that the 1996 act——
Mr. ROTHMAN. Let me interrupt you because I see the yellow light.
Mr. KENNARD. Okay.
Mr. ROTHMAN. And, again, I have no wish to demonize my friends in the Bell industry. I think baby Bells provide a wonderful service. But it would make it easier for me to grant relief if I knew that they were living up to the responsibilities of the act.
I did want to echo my distinguished chairman's concerns about cable rates and choice, consumer choice in selecting what programs they see on cable. I mean, I think I have four cooking channels on mine. I have no choice but to take four cooking channels—and not to denigrate cooking or eating, but I wish I could have some other choice.
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So, to the extent that you can find a way to give consumers more choice in their cable programming and avoid the kind of excessive fees that many of my constituents have mentioned to me and complained about, that would be great and be very important. So if it was a $9 million signing bonus I don't imagine it would be a great loss, Mr. Chairman.
Mr. HYDE. We thank the gentleman from New Jersey, whose time has just expired.
Ms. WATERS. Mr. Chairman, I would like unanimous consent to correct America Online. I kept referring to them as something else, and I just wanted to correct that—AOL. I referred to them as OAL in my testimony.
Mr. HYDE. Certainly.
Thank you, Chairman Kennard, for your helpful testimony this morning.
Mr. KENNARD. Thank you very much.
Mr. HYDE. We appreciate your patience.
Mr. KENNARD. It is a pleasure.
Mr. HYDE. Our third panel consists of 10 witnesses from industry who will provide us with a variety of perspectives on these issues.
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First we have The Honorable Tom Tauke, the senior vice president for public policy and external affairs at Verizon Communications. He is a graduate of Loris College and the University of Iowa Law School. Before coming to Congress, he practiced law in Iowa and served in the State legislature. He was first elected to Congress in 1978 and served through 1990. After that he went to NYNEX, which in turn became Bell Atlantic, which in turn became Verizon. In addition, he is an old friend and I want to extend to him a very special welcome.
Next we have Mr. Mike McCurry, the co-chair of iAdvance, a coalition of telecommunications and technology companies. He is a graduate of Princeton University and Georgetown University. He served on the staff of the Senate Committee on Labor and Human Resources and on the staff of Senator Daniel Patrick Moynihan. He has also served with a number of Democratic presidential campaigns and is well known to us all as the President's former spokesman, where he served from 1995 until 1998.
Next we have Mr. Randy Lowe, the executive vice president and chief legal officer of Prism Communications Services. He has a long career in telecommunications, working in the legal departments of AT&T and ITT. He has also worked in private practice for the Washington law firms of Jones, Day and Piper Marbury. He is also widely known as a writer and speaker on these topics.
Next I will turn to Mr. Conyers to introduce Chairman Ivey.
Mr. CONYERS. Thank you, Mr. Chairman.
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Glenn Ivey is an old friend of ours. He worked here on the Hill and then became a U.S. attorney. He became a Senate counsel to the Banking Committee, and then later served with minority leader Tom Daschle as chief counsel before Governor Glendening, who appointed him to the Public Service Commission, where he is now chairman. He came through all of those by way of Princeton University and a graduate of Harvard Law School, and we are happy to have him up on the Hill again.
Welcome, Chairman Ivey.
Mr. HYDE. Next we have Mr. Scott Cleland, the chief executive officer of The Precursor Group. Mr. Cleland has a bachelor's degree from Kalamazoo College, a master's degree from the University of Texas. He has a long career in Government, serving in the State Department, the Treasury Department, and the Office of Management and Budget. He also has extensive experience in the private sector working with Booz, Allen, and Hamilton, Charles Schwab and Company and Legg Mason. He recently founded his own company, The Precursor Group, an independent research company.
Next we have Mr. Preston Padden, the executive vice president for government relations of the Walt Disney Company. He is a graduate of the University of Maryland and the George Washington University Law School. He has been president of Television and News Corporation, the CEO of American Sky Broadcasting, and president of ABC Television. He took his current position in 1998.
Next we have Mr. Dave Baker, vice president for law and public policy of EarthLink. Mr. Baker is a graduate of Johns Hopkins University and the Washington Lee University Law School. Before coming to EarthLink, he was chairman of the Georgia Public Service Commission and took his current position in 1998, and he appears here today on behalf of the openNET Coalition.
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Next we have Mr. Len Cali, the vice president for federal government affairs at AT&T. He is a graduate of Fordham University and the University of Michigan Law School. Before coming to AT&T, he practiced law for many years with the law firm of Cadwalader, Wickersham, and Taft. He joined AT&T in 1988, and since that time has served in several positions in its law and public policy group.
And next we have Mr. Tom Wolzien, the senior medial analyst for Sanford C. Bernstein and Company. He is a graduate of the University of Denver. After serving a tour with the Army in Vietnam, he worked as a reporter for local television stations in Denver, Green Bay, and St. Louis, and spent 16 years with NBC in various positions, including helping to found the cable channel CNBC. He joined Sanford Bernstein in 1991.
Finally, we have Mr. Robert Sachs, the president and chief executive officer of the National Cable Television Association. He is a graduate of the University of Rochester, Columbia University, and the Georgetown University Law School. He began his career serving on the staff of several Members of Congress and in the White House. After that, he worked in a number of positions for Continental Cablevision and took his current position in 1999.
We welcome all of you. We recognize your patience and appreciate it, and we look forward to your testimony.
Mr. Tauke?
STATEMENT OF TOM TAUKE, SENIOR VICE PRESIDENT FOR PUBLIC POLICY AND EXTERNAL AFFAIRS, VERIZON COMMUNICATIONS, WASHINGTON, DC
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Mr. TAUKE. Mr. Chairman, I have always had a warm spot in my heart for you, and it is a great pleasure to be here with you and your distinguished colleagues.
I have rewritten my testimony several times while I have been sitting here this morning. Let me take a moment to just try to clarify a few issues.
First of all, when we think about the Internet, it is important to understand that there are three pieces that make up the Internet from the standpoint of the average consumer. The first piece is the last mile, from the home, let us say, or small business to the central office. Then there is the piece that we might call a ''regional network,'' which takes the traffic from a central office to a network access point. Then the third piece is these long backbones that go cross-country.
Now, Chairman Kennard talked about the first piece, the last mile, and he talked about the backbone, and he said there is lots of backbone and the problem is in the last mile. I agree with both of those statements.
But the problem is, as of yet no one has focused on the middle piece, the regional networks. I look at this a little bit the way the airline system works. I, as you know, used to represent the State of Iowa, and all of these flights would be going from New York to Los Angeles. They would all be going over Iowa. Didn't do us a bit of good in the State of Iowa. We could look at maps that showed lots of airline traffic over the State. That didn't help us. What we needed was a regional airport to get us to Chicago and some jets that would make that flight.
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That is the same thing here. Those LATA boundaries prevent the creation of the regional networks that carry the traffic for Verizon, for all of the small telephone companies in those regions, which is why the small telephone companies support legislation lifting the restrictions on interLATA data relief, so that those regional networks can be created that will carry the traffic to the main network access points, the hubs, if you will. That is what this legislation is about.
Consumers want that access. They need that access. They need speed, and they need it at a reasonable cost.
Now, what happens when you don't get it? Well, in the State of Wisconsin we have a very good example. There is a south-central Wisconsin library system. It has over 300 libraries. If a library is located within the same LATA as the headquarters for the south-central library system, they pay $200 a month for high-speed Internet access. But if they are across a LATA boundary, they have to pay over $820 a month for high-speed access, the same service but a few miles further. Why? Because the regional Bell companies are unable to construct the network to make that available for the whole system.
Now, Chairman Kennard said, ''Well, we have a system. Anybody can come in and apply to provide service if we don't have it—'' I will tell you I was outraged. Bell Atlantic filed for the State of West Virginia under 706, and the petition sat at the FCC for 2 years. Then they came forward with a procedure for applying for that relief to serve under-served areas, and they didn't even take into account the price.
So, for example, the library sitting outside the LATA boundary wouldn't be able to say, ''Well, we have got to pay over $800 when we should be paying $150 or $200.'' That wouldn't count.
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Well, of course if there is no limit to price it is pretty hard to demonstrate that there is a limit in the ability or the access to the service that is available. This is important not just for libraries and for hospitals and for schools, but it is important for small businesses and communities.
And yes, it is time. We are all going to be into the long-distance market in 3, 4, 5, 6 years. The question for you and for your communities is: Can the Nation afford to have these people sitting there without Internet access, even though the networks are essentially in place but unable to be used? Can the Nation afford to waste those resources and keep people disconnected for 3, 4, 5, or 6 years?
Time is of the essence in this world, and I don't think we have a lot of it to waste.
So I think the bottom line here is that time is not our friend. Time is our enemy. We have huge incentives, which I can get into, to continue to comply with the act. We are required to comply with the act, regardless of 271. The money is in the voice market, not the data market today. And so this act is designed to ensure that consumers who today cannot get high-speed access have the ability to get it tomorrow.
Mr. HYDE. Thank you, Mr. Tauke.
[The prepared statement of Mr. Tauke follows:]
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PREPARED STATEMENT OF TOM TAUKE, SENIOR VICE PRESIDENT FOR PUBLIC POLICY AND EXTERNAL AFFAIRS, VERIZON COMMUNICATIONS, WASHINGTON, DC
Thank you, Mr. Chairman, for the opportunity to testify before the Committee. I am Tom Tauke, Senior Vice President for Public Policy and External Affairs of Verizon Communications, the new company formed by the merger of Bell Atlantic and GTE.
Last year, Bill Barr of GTE, one of our predecessor companies, urged you to quickly pass these bills. Nothing has changed in those 13 months to make passage any less important. In fact, recent developments demonstrate that Congressional action is even more urgent.
Last year, we explained how the Internet market suffered from severe constraints on competition caused by ad hoc and irrational government regulation that has been lifted from the telephone and cable television markets and haphazardly applied to the very different Internet market. These conditions still exist.
First, existing law prevents one set of competitors—local telephone companies like Verizon—from competing freely in the Internet market, thus insulating cable companies, such as AT&T, and the largest long distance companies—again such as AT&T and WorldCom and Sprint—from full competition.
These bills introduced by Congressmen Goodlatte and Boucher deal directly with this problem. They would break down the existing barriers to telephone company competition and would allow the local telephone companies, including the Bell companies, to compete freely in the Internet transport markets. I want to stress, however, that the bills would not in any way remove the requirements on these companies to open their local telephone markets to competition in order to enter the long-distance telephone market, but would simply free them to participate fully in the Internet market.
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The Antitrust Division of the Justice Department agrees that the Internet transport market needs more competition. In its complaint to enjoin the WorldCom-Sprint merger, the Department found that the provision of Internet backbone services is a relevant market for antitrust purposes and that this market is ''highly concentrated.'' Verizon wants an opportunity to decrease this concentration by bringing new competition to this marketplace.
The Internet is an end-to-end system based on hundreds of connections between different networks. At the top of this system is the Internet backbone, which links together thousands of web sites and Internet providers and takes traffic back and forth at high speeds across the United States. Internet speed is a very important issue to users. And the faster that data can get to the backbone and the more backbone capacity there is, the better the connection and the higher the quality of the data transmitted.
There are vast areas of the United States that simply have no nearby backbone connections. The largest backbone providers have little incentive to connect their systems with smaller providers or to locate hubs away from major urban centers. Many Internet providers have no way to get their data traffic to the backbone efficiently and without numerous back-ups and delays. Many are simply located too far away from convenient backbone connections. And when they do get to the backbone, they find that the lack of adequate capacity slows their customers' service.
An example is illustrative: an ISP in a community like Shreveport, LA, or Fargo, ND, must buy high-capacity circuits to carry its traffic to the nearest Internet hub. These charges are distance sensitive, so the farther away the ISP is, the more it pays to get to the Internet. And because these links to the Internet are almost always interLATA, the ISP pays the very same long distance companies that operate the Internet backbones.
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However, the Bell companies already have high-speed fiber-optic facilities connecting virtually every city and town they serve. A Bell company could use this network to solve this Internet connection problem. That company could provide Internet hubs closer to the ISPs in these communities and use the fiber that is already in place—but which cannot now be used for these purposes—to connect them to the Internet backbone. That same fiber-optic facility could also be used to deliver Internet traffic collected by other hub providers to the main Internet backbone. These option would offer the ISPs in these communities better service at a lower price.
The speed at which a consumer gets her data—a web page being transmitted to her home for example—is only as fast as the slowest link in the communications chain. Moreover, if it is slowed at any point in the transmission, data can be lost, the connection may drop and some of the more exciting applications for education and telemedicine involving video, for example, will simply be impossible.
Whole new industries based on a more advanced Internet will be stymied and the continued development of our high tech and computer industries will be slowed. The Internet has driven the growth of the high tech sector. There is a very real danger that if the Internet does not advance to a new level, one capable of providing higher speed, higher quality connections, the growth our economy has enjoyed because of the explosion of information technology could well be undermined.
Rural areas in particular lack high-speed connections to the Internet backbone. Without these connections, it will be difficult for rural areas to retain businesses or to attract new businesses, especially those in the high growth area of today's information economy.
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Companies like Verizon have the resources and the capabilities to make new backbone capacity and interconnection points available quickly to improve Internet services. But, today, the government says we may not do this.
Keeping Verizon and other new entrants out of the Internet backbone business has other harmful effects. In particular, it slows the deployment of high-speed local Internet access technologies (such as DSL), particularly in rural areas. Many rural areas of the country have no connections to the Internet backbone. In these areas, interLATA restrictions aimed at long distance voice services have had the inadvertent effect of preventing Verizon from providing high-speed Internet services, including DSL access. The reason is simple: There is little reason that Verizon or any other company would invest to provide DSL in a remote area if there is no cost-effective way to get the data to the Internet.
Finally, these restrictions do more than merely prevent us from improving the Internet—these restrictions, and the resulting high level of market concentration, have anticompetitive consequences as well. The Big-Three long distance companies (which includes the number one cable company) can dominate the market, discriminate against other backbone providers and drive customers to their own backbones. This enables backbone providers to leverage downstream their backbone market power into the ISP and content markets. Bell company entry into the Internet backbone market would preserve competitive parity, however. With their resources, Verizon and the other Bells could rapidly enter the backbone market and be treated as peers by the existing major backbone providers.
Second, exploiting their insulation from full competition, some cable companies are engaged in a classic anticompetitive tactic—tying their services together, which permits cable companies to leverage control from one market into others. Specifically, AT&T and other cable giants are denying access to other providers and requiring consumers who also want broadband access to purchase the cable company's affiliated ISP instead of the ISP of the consumer's choice.
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Verizon supports open access. The principle of open access is nothing new: It has been the central tenet of the telecommunications industry for more than 15 years. That fundamental principle has been applied to open up the telephone markets and to protect independent programming in the video market.
That's why consumers today can choose their long-distance carrier. It's not dictated by the local company. Consumers have a choice. That's open access.
That's why cable company operators are not allowed to favor video programmers owned by the cable company in providing cable television service.
And that's also why consumers have a choice today when they use the telephone line to get to the Internet. They can choose their ISP—whether America Online or Verizon.net or Mindspring or one of the other ISPs in operation. Again, open access.
We support the open access requirements for all providers.
Recent legal developments take a major step in the direction of open access. A resounding victory in the fight for open access was won just last month when the U.S. Court of Appeals for the Ninth Circuit ruled that AT&T provides a ''telecommunications service''—not a ''cable service''—when it provides high-speed Internet service over its cable lines.(see footnote 1) While AT&T won on its narrow claim that the City of Portland did not have authority to impose open access (because the City had acted only pursuant to its authority to regulate cable services), it lost a much bigger battle. As the Ninth Circuit held, the principles of nondiscrimination and interconnection that apply to common carriers of telecommunications apply fully to cable broadband because it is a telecommunications service.
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What this means is that AT&T and other providers of cable broadband service, by force of existing law and without any further action from the FCC, are now subject to open access obligations in all the States in the Ninth Circuit. In particular, providers of cable broadband service must ''interconnect directly or indirectly with the facilities and equipment of other telecommunications carriers'' (section 251(a)(1) of the Communications Act) and must furnish their services to everyone (including unaffiliated ISPs) on request and without discrimination (sections 201 and 202).
The open access war, however, is far from over. The issue decided by the Ninth Circuit remains to be addressed and decided in other circuits. We, of course, have never advocated a state-by-state, circuit-by-circuit, or other fragmented treatment of open access, believing that a national open access approach of the sort contained in these bills to be the proper public policy outcome.
In light of the Portland decision, the FCC has indicated that it will open a proceeding regarding the appropriate regulatory treatment of cable Internet access. While we welcome this action, there are very significant dangers. First, the FCC could succumb to further delay, which only allows ISPs affiliated with cable operators to lock up market share and lock out independent ISP in the interim. Second, and perhaps more important, we expect AT&T and other cable broadband providers to ask the FCC to forbear from applying to them the provisions of the Communications Act that effectively impose open access on them. But it would be patently unreasonable for the FCC to forbear from applying these provisions to cable broadband providers without also forbearing from applying them to DSL providers. Cable broadband, after all, is the market leader. Congress must, therefore, be vigilant to ensure that the FCC does not try to use its forbearance authority to exercise such arbitrary discrimination.
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Some of the opponents of open access claim that open access is ''regulation of the Internet.'' This is dead wrong. It is simply access to the Internet and Internet interconnections to guarantee competition on the Internet and freedom of choice for the consumer. The principle of open access is a free-market principle that if imposed now, will avoid the need for truly massive regulation later.
The Internet has already become central not only to our economic vitality, but also to our communal life. High-speed Internet access will become the most important communications medium in the country. In the end, the fundamental issue with respect to the Internet, as with all telecommunications, is how to allow the consumer to communicate with and obtain information from anyone anywhere in the world. There are only two ways this can occur: either monopoly control of the entire network of wires and connections, or a network of networks governed by principles of interconnection, open access, and free competition. The choice between those two approaches for the Internet is now before us. The choice must be made, and inaction itself will be a choice. Will Congress side with AT&T and the other cable giants and allow a replay of the 20th century—this time in the Internet market rather than the telephone market? Or will the Congress heed the lessons of history and ensure free competition by all?
Thank you.
67332b.eps
67332c.eps
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67332d.eps
Mr. HYDE. Mr. McCurry?
STATEMENT OF MIKE MCCURRY, CO-CHAIR, iADVANCE, WASHINGTON, DC
Mr. MCCURRY. Thank you, Mr. Chairman. I will spare you my longer statement and, in the interest of this long panel, make only a few very brief points.
I am here in my capacity as co-chair of iAdvance. I have that position, along with your former colleague, Susan Molinari, and it is a pleasure on behalf of that coalition to represent a range of companies' interest from the high-tech field, the telecommunications field, and those who actually use this amazing technology that we are talking about today. I would like to put on that hat and represent the views of those who really need the extensive resources of the broadband Internet, those who use it, and those who are making the quality of life better in America because of it.
We represent folks who are involved in the fields of telemedicine, those who are now providing distance medicine to people who might otherwise not have access to high-quality health care. We represent those who are bringing technologies in the field of learning to people who would otherwise be under-served. We represent those that are in development organizations trying to attract economic commerce to regions of our country that have been sometimes left behind, that have not been part of the growth and expansion in the American economy and history.
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Those people, as they see how the Internet is developing, becoming a critical factor in all of their walks of life, are anxious about the capacity of this network of networks that we are building and whether in the future it is really going to be able to provide the kind of fast, efficient connections to this tool that they all will need.
Now, I am not a veteran of the telecommunications fights of the 20th century, as are many here. I watched kind of on the sidelines and also from the White House as many of the debates, often very bitter, took place here. And some of the discussion has been about whether or not we want to go back and revisit the 1996 act.
You can argue a lot about what the applications of various sections of that bill are to the situation we are in now, but I think one thing is indisputable: no one at the time of the 1996 act predicted the transforming effect that these technologies would have on the American people as they thought about the situation we would be in now here in the 21st century. To try to adapt the regulatory structure that affects telephony to make it work for this brand new field that we are in seems to me a pretty daunting challenge for all of you.
This really is a new field and, in addition to the transforming effects I have discussed, it is going to affect us all in all areas. It is going to affect the ability to communicate with your constituents, to bring information to them, to convey to them the choices that have to be made in public policy. The very active citizenship in this democracy will depend on a rich, robust network that can carry lots of traffic, video, audio, etc., into the American home, into the business place.
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Now, given that reality, let us look at what is happening.
Chairman Kennard said Internet traffic is doubling every 100 days. That may be. At the very least it is going to be doubling every year, or maybe even less than every year, and that is going to stretch the capacity of the network that we have today.
So few people have connections in the home to what we call the ''broadband Internet'' that we can't even foresee the things that might happen as we start to see congestion build on the Internet.
When the Department of Justice looked at a recent merger and looked at the quality of this current network, they were convinced that we are already seeing the telltale signs of an incapacity of this network to deliver traffic to the places it needs to go, and they were rightly concerned about the concentrations that exist in that market.
My point to you, in conclusion, is this: We are at the beginning of something brand new and we have the ability to get it right. If we try to transpose the telephony regulations of the 20th century and create that as the paradigm that governs the regulation of the Internet going forward in the future—which we are, in effect, doing by leaving the current restrictions that exist on the Bell companies in place, then I think we are going to get it wrong, and several years from now we are going to look back at this period of time as a lost opportunity.
iAdvance and the coalition of people it represents commend Congressman Boucher and Congressman Goodlatte for this legislation, which we strongly support.
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[The prepared statement of Mr. McCurry follows:]
PREPARED STATEMENT OF MIKE MCCURRY, CO-CHAIR, IADVANCE, WASHINGTON, DC
Thank you, Mr.Chairman. On behalf of my co-Chair, Susan Molinari, and the members of iAdvance, I appreciate the opportunity to testify before the Judiciary Committee today.
Mr. Chairman, a copy of my testimony and other background materials has been submitted to the Committee and I ask that that material be included in the hearing record.
Mr. Chairman, our economy is in the midst of the greatest economic expansion in history. This boom has already created more than 1 million jobs and over $300 billion in estimated Internet revenue. The impact of information technology has been so dramatic that many economists now believe that the US economy can sustain this growth for years to come, if the Internet is allowed to grow. But this growth is in jeopardy because of bandwidth constraints and a lack of access to high-speed Internet backbone hubs.
iAdvance believes that the challenge of universal, high-speed access can be answered, in part, by the lifting outdated regulatory restrictions that prohibit local telephone companies from investing in broadband technologies. As we reported in our first study, ''Breaking the Backbone,''(see footnote 2) restrictions, which were never designed to apply to the Internet, have slowed the growth and diffusion of high-speed Internet backbone across the country.
At stake are not only economic prosperity, but also new forms of empowerment and engagement. From the elderly woman who can be examined by a distant specialist in the comfort of her home, to the farmer who takes distance learning classes from the university that is hundreds of miles away, to the grassroots voices that can come together from all points of the country to be heard by Congress, the Internet is creating a digital revolution.
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Just as it essential to ensure that every American has access to a high-speed connection to the Internet, it is also vital to ensure consumer access to the robust content that can be carried by this medium. Technology and business models that discriminate against content and content providers are less likely to empower individuals and communities.
iAdvance is a coalition of computer companies, public interest groups, high-tech organizations, Internet companies, telecommunications companies and other groups at the forefront of the new economy. We are a diverse group, but we have a common vision. Our members believe that investment, innovation, choice and competition in the high-tech marketplace will keep our country and our communities connected and competitive in the rapidly expanding global economy.
iAdvance supports H.R. 1686 and H.R. 1685 and we applaud Representatives Bob Goodlatte and Rick Boucher for their leadership and their vision. The National Journal recently dubbed them ''the country boys of high tech.'' We think the country they were referring to extends well beyond the Shenandoah Valley and New River Valley that cut through their Virginia districts.
Although it has been only four years since Congress passed the 1996 Telecommunications Act, the world has changed in ways that we could not have envisioned. Technological convergence has blurred the distinction between local and long distance telephone service. And wireless services are, for many, a realistic alternative for residential phone service; so much so that AT&T proclaims in its advertising that your wireless telephone is the only one you need.
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Of the top 50 global technology and telecom companies today, four are wireless companies and eight are traditional local or long distance companies. Thee four wireless companies have a market capitalization of one trillion dollars while the other companies are only worth a combined $670 billion.
The dramatic growth of the wireless industry is a result, in part, of the soft touch of government regulation. The FCC manages the spectrum, and sets broad requirements for technical standards and interconnection. But it does not micromanage how industry achieves these goals. The results, measured by falling prices and new technologies, have been astounding.
This stands in marked contrast to the high-speed Internet market. Here we strictly regulate everything from which companies can invest in Internet backbone to the prices charged for interconnection and wholesale services. It is micro management at its worst.
As a consequence, although the data carrying business has grown dramatically, it is still dominated by three major Tier 1 providers—WorldCom, Sprint, and Cable and Wireless. AT&T is a close fourth. Although they control the market, or, perhaps, because they control the market, these companies are not deploying Internet backbone to meet growing demand, nor are they investing in Internet backbone facilities in rural America. And they are discriminating in the provision of top tier backbone services. The best service, the quickest connections, and the most attractive pricing are reserved for the largest corporate customers.
A recent article in Forbes magazine titled ''Backbone Bullies'' (see attached) describes the real, day-to-day realities of life on the Internet. It discusses how a few major providers of Internet backbone services have transformed the Internet into a hierarchical network of networks where the fastest, most reliable service is only available to the largest and most profitable customers.
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The Internet is a complex web of big and small fiber-optic networks, private interconnection and carriage agreements, and public ''peering'' or traffic exchange points where all bits and bytes are not equal. ISPs, small businesses, schools, small and rural communities, and consumers that have to rely on overcrowded public connections to the Internet surf at horse and buggy speeds.
According to the article:
''The big carriers serve who and where they want and require everyone who deals with them to keep the terms secret. Nor do they fear competition from their most formidable natural rivals, the regional Bell companies, because the Bells are barred from carrying traffic long distance.''(emphasis added)
Isn't it time to put a little fear in their hearts the good, old-fashioned American way—competition?
While fiber optic cable is being rolled out at a record pace it is barely keeping up with overall bandwidth demand. ''In the next five years we don't see any ability of service providers in the US to keep up with the demand,'' according to Mouli Ramani, director of strategic marketing for the optical Internet at Nortel Networks.
To quote a preliminary report by AT&T researchers released last week, ''We do not think the carrying capacity of the network, at least the long haul national backbone network(s), can or will grow to accommodate arbitrary traffic growth rates. In fact we believe that if traffic grows by factors of more than two or three a year for any sustained period, the transport backbones are likely to become a very serious bottleneck.''(see footnote 3)
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These researchers speculate that Internet traffic is likely to settle at a doubling every year. At the same time, however, they also acknowledge that what they call ''disruptive innovations,'' including bandwidth-intensive applications, may generate huge amounts of traffic and have serious impact on major networks. What AT&T calls ''disruptive innovations'' are just the kind of new applications and content that we want to see on the Internet.
Given the uncertainty of what is to come, we must ensure that telemedicine, distance learning, streaming media and the many other applications of the Internet that we can not even imagine today are universally available.
There is evidence those who are developing high bandwidth applications are holding back due to the delays in broadband deployment. As yet, no broadband online entertainment companies have gone public and many, such as Digital Entertainment Network, have shed staff and re-focused their business models away from creating original broadband content. Yahoo and Lycos have scaled back content and service plans for broadband users, citing the basic fact that for every broadband user there are 50 with basic access. At a time when the Internet is just beginning to realize its great potential as an economic and social tool, its growth is being stifled.
The shortage of Internet backbone and high-speed local facilities persists, in part, because government restrictions impede investment in new backbone facilities. Local telephone companies are prohibited from carrying the high-speed data traffic beyond the communities they serve. The result is an Internet backbone that is too skeletal and backbone networks that are controlled by too few companies. It is these same companies that, not surprisingly, are the most vocal opponents of what we at iAdvance are trying to achieve.
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Backbone access problems are particularly acute for rural America. A recent report issued by the Departments of Commerce and Agriculture concludes that rural areas are currently lagging far behind urban areas in broadband availability. An urban Internet Service Providers providing broadband services to its customers will typically spend between $3,000 and $5,000 a month on local loop circuits to connect to an Internet hub. A rural ISP which desires to supply the same level of broadband cannot buy the same connections, but those who can are typically forced to cross a LATA boundary, which forces rural ISPs to spend between $41,000 and $45,000 a month.
Numerous studies from the Department of Commerce, Milken Institute, and the Progressive Policy Institute, and iAdvance have concluded the same thing: some areas of the country and certain segments of the population are ill-positioned to take advantage and succeed in the Internet economy. These problems of a lack of broadband access and transport facilities are well documented. According to the Competitive Broadband Coalition, more than 53 million Americans in urban areas will have access to broadband technologies compared to less than 1 million in rural America. This means that urban Americans are 18 times more likely to be offered broadband services than rural Americans.
A recent posting on a news group that hosts a running discussion on access to broadband services highlights this problem. Let me quote:
Broadband is a myth. I live in an area where my normal connection rate is 26 kilobytes per second using the best 56k X2 V.90 modem available. There are no plans for the local cable company to bring in cable modem access nor does the phone company even consider offering ISP services. [Do] I live in an isolated rural community ? Wrong...I live in the 4th largest city in New Mexico. Broadband will bypass us and content heavy Web sites will continue to be too slow to even consider visiting. Any web developers who buy into the broadband myth will find themselves excluding a large part of the webizens and the market that could most use contact with the outside world.
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That is from someone who lives in the 4th largest city in New Mexico. The problem is even more acute in rural communities which are touched by less than 10 percent of high-speed, redundant connections.
The major barrier to investment in new technology for rural areas are regulations that prohibit the regional Bell companies—companies that serve two-thirds of rural America—from owning Internet backbone facilities. Without interLATA data restrictions many more rural communities would be served. Moreover, the provision of local access is also heavily regulated. Regulated pricing, corporate structure and forced resale at regulated rates skew investment decisions. Without such restrictions, the regional Bell companies would have a greater incentive to invest in rural and local communities, their existing client-base.
Lifting the interLATA data restriction and other regulations is an important component of a strategy to bring affordable high-speed access to all of Americas small cities and towns, farms and mountain hollows. But it is not the only component. Wireless, satellite and microwave technologies will also be important part of the strategy. We will also rely upon those tools that were used to bring 20th Century technologies—basic telephone service, electricity, and other infrastructure—to rural communities. These include tools such as cooperative arrangements and publicly supported investments.
But Congress can start to address this widening gap today by allowing the regional Bell companies to build and operate 21st Century Internet facilities without regard to lines drawn on a map in the 20th Century.
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The divide is not only between rural and urban areas. High-speed service providers are increasingly choosing private high-capacity networks to deliver their services to subscriber-based audiences because of Internet limitations. This growing number of closed networks is a disturbing trend and threatens the democratic nature of the Internet. Some may get to participate and reap the benefits from the next generation Internet, others may not.
Similarly, if those who control the conduit choose only to allow access to some content, the democratic ideal is lost. Technological advances now allow for discriminatory routing and caching of information. Some information may not be as easily accessible as other information. Other information may not be accessible at all. In short, consumers may only see what an Internet provider wants them to see.
As the New York Times stated in an editorial following a dispute in May involving Time Warner and ABC:
Democracy requires an open communication environment. Monopoly control over cable access threatens the flow of ideas and opinion that feeds the democratic process, not to mention the emerging electronic economy. For now, perhaps only the principle of non-discrimination can be declared, with the rule book to be written as conditions require.(see footnote 4)
The Internet knows no borders or boundaries. The members of iAdvance believe that we should be doing everything we can to encourage, not discourage, investment in Internet backbone. We believe, with NIT's Nicholas Negroponte that, ''the absence of bandwidth will be more isolating than the densest forest or largest desert.''
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The promise of a bandwidth rich society, one in which every home, every school, and every small business has a high speed, high bandwidth connection to the Internet is almost beyond our ability to imagine. The toys and tools we use on the Internet today will seem archaic when the Internet backbone is ubiquitous. With nondiscriminatory access not only to the technology, but also to the information it can provide, the Internet will empower and enrich our lives in ways that we can only guess at today. Not only will commerce be redefined, but so to will learning, health care, entertainment, and how we interact on a daily basis with our friends, our family members and our community.
Now is the time to begin to work towards this vision of the future. By removing outdated regulations that stifle investment and innovation in the Internet backbone and by ensuring access to the information that traverses its pipes, we can help overcome digital divides, empower consumers and strengthen democracy.
Thank you.
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Mr. HYDE. Mr. Lowe?
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STATEMENT OF RANDY LOWE, EXECUTIVE VICE PRESIDENT AND CHIEF LEGAL OFFICER, PRISM COMMUNICATIONS SERVICES, INC., WASHINGTON, DC
Mr. LOWE. Mr. Chairman, Mr. Conyers, members of this committee, I appreciate being here this afternoon. Indeed, I am both flattered and honored by my presence here today, honored because of the esteemed history of this committee, but flattered because I do believe that it is a recognition of the time spent by my company, Prism Communications Services, to do what we were allowed to do by the 1996 Telecommunications Act.
Prism Communications Services is a subsidiary of ComDisco out in Rosemont, Illinois, and as such is a member of the Competitive Telecommunications Association, CompTel, as well as the Association for Local Communications Services, otherwise known as ALCS.
We, however, unlike the DLECs, which you have heard about here this morning, are a true CLEC, a competitive local exchange carrier, as we believe was envisioned by the act. By that I mean we not only provide data services, but we provide, on an integrated basis, both voice and data services in 33 cities, 27 States, including the District of Columbia, in 900-plus locations serving 57 million telephone lines. We are in the process of rolling that out, because over the last year-and-a-half we have spent $400 million and will continue to spend at that rate money to build out our network in order to do what, again, we believe the Telecommunications Act of 1996 has allowed us to do.
Up to about a year ago, I was nicely ensconced here in town in private practice and was brought out for a reason, and the reason was that my experience in the long-distance business, dating back some 20 to 25 years, is identical to what we perceive to be the experience in this market, and that is the difficulty of getting access to the various elements of the local network that we need in order to compete and as we believe the 1996 act has required the Bell operating companies to provide to companies such as ourselves.
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The act was a perfect balance, as Chairman Kennard said, we believe, between opening up the local marketplace and providing us the tools by which we need to get into that marketplace, and at the same time providing the incentive to the Bell operating companies to give us those tools by allowing us to get into long-distance, both data and voice.
The Telecommunications Act of 1996, back when it was passed then and I believe firmly now, is a watershed in the history of this country. In particular, it determined that communications is communications, data and voice. It doesn't matter. It goes over the same lines to the same places reaching the same people, albeit it for different purposes going in and different purposes going out, but it is communications.
Within that construct, this Congress declared that, in fact, we should be allowed to have access to a network which is built on the backs of the American ratepayer over the last 100 years—that is, the local telecommunications networks of the Bell operating companies, and it is that interconnection and the unbundling associated with that interconnection that we must, as an industry, have in order to survive, in order to provide the type of competitive services that Congress decided we should provide to the American people back in 1996.
But because it is a watershed, 4 years is not enough to build a network and provide those types of services to the American ratepayer. Four years in the scheme of things—and, again, considering that the network that we are presently faced with was built over the course of 100 years—is a small amount of time in order to accomplish that goal, but that goal, indeed, we are accomplishing.
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As Chairman Kennard said, the act is working. The act is a masterful piece of legislation turned into law that is, indeed, working.
Unfortunately, the proposals before this committee—in particular, the H.R. 1686 and H.R. 1685 initiative—will not accomplish that goal but, in fact, will upset substantially that balance. It will take away the unbundling aspects of the act. It will also disallow us from resale, which is a traditional way by which to enter into a particular market. But, most importantly, again, as Chairman Kennard said, it will take away the most fundamental portion of the 1996 act, and that was the incentive created by section 271.
I firmly believe that if, in fact, we allow the Bell operating companies to cross LATA boundaries—which are not anachronisms, by the way, but were designed specifically for purposes of determining what is local and what is long distance, not telephony versus data—then we will, in fact, take away completely the incentive that they have now to give us what we need in order to compete and in order to provide services to the American public.
Thank you, Mr. Chairman.
Mr. HYDE. Thank you, Mr. Lowe.
[The prepared statement of Mr. Lowe follows:]
PREPARED STATEMENT OF RANDY LOWE, EXECUTIVE VICE PRESIDENT AND CHIEF LEGAL OFFICER, PRISM COMMUNICATIONS SERVICES, INC., WASHINGTON, DC
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Good Morning, Mr. Chairman, members of the Committee. Thank you for the opportunity to appear before your Committee as it examines the ''Internet Freedom Act'' and the ''Internet Growth and Development Act of 1999.'' My name is Randall B. Lowe. I am the Executive Vice President and Chief Legal Officer of Prism Communication Services, Inc. I also serve as a Board Member for CompTel, the Competitive Telecommunications Association, of which Prism is a member. Prism is also an active member of ALTS, the Association for Local Telecommunications Services.
Prism is a facilities-based competitive local exchange carrier and Internet service provider offering innovative broadband data and voice solutions to customers nationwide. Founded in 1997 in direct response to the passage of the Telecommunications Act of 1996 (the '''96 Act''), Prism is precisely the kind of entrepreneurial, integrated communications carrier that Congress sought to nurture by adoption of the '96 Act. Prism is fulfilling the Act's vision by building a national communications network to meet the exploding demand for broadband services, integrated with traditional voice offerings.
Mr. Chairman, you have asked me to testify today concerning the deployment of broadband services as addressed by two specific pieces of legislation, the ''Internet Freedom Act'' and the ''Internet Growth and Development Act of 1999.'' However, before doing so, I want to first summarize Prism's principal message.
In my experience as a veteran involved with the opening of the marketplace for long distance services, competition is the key to lower prices and innovative services for the consumer. Prism's experience with the opening of the marketplace for broadband services is no exception. Competition is the force that is driving broadband deployment today in the local telecommunications market. It is clear, therefore, that the best means of accomplishing rapid deployment of broadband services is to stay the course set forth in the '96 Act—that is, open up monopoly local networks to competition. Stated differently, stricter enforcement of the pro-competitive provisions of the '96 Act, not deregulating monopolies, is critical to the rapid deployment of broadband services to all Americans—just as Congress intended. Indeed, it would be tragically ironic if the very monopolists who have been slowing the deployment of broadband services by constantly litigating the interpretation and application of the '96 Act, are granted the relief provided by HR 1686 and HR 1685.
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In my testimony today, I will first review the significant impact competition has made on the deployment of broadband services. I will also discuss the significant, inevitable harm to both consumers and competition in the broadband services marketplace should HR 1686 and HR 1685 pass.
I. COMPETITIVE CARRIERS ARE DRIVING RAPID, UBIQUITOUS BROADBAND DEPLOYMENT, NOT MONOPOLIES.
In the four years since the passage of the '96 Act, it has been competitive carriers like Prism that have invested in, built and deployed broadband networks nationwide to deliver innovative consumer broadband offerings.
Competitors have invested over $30 billion in new networks and are now investing more than $1 billion every month. (Source: PaineWebber, New Paradigm Resources Group). As a result, even the most rural states, including Alaska, Montana and West Virginia, have at least one competitive carrier and the 'average' state currently has 20 to 30 competitive carriers. (Source: The Association for Local Telecommunications Services).
Prism alone has spent over $400 million in the past one and one half years on the build-out of its facilities-based high-speed communications network. In doing so, Prism has taken no shortcuts. Instead, the company has built an advanced digital ATM network to support simultaneous voice, data and Internet access and to guarantee its customers speed, simplicity and a choice of services.
Prism launched its services in January 1999 and as shown by the attached map, the company's national footprint at the completion of its expansion will include 33 markets and 27 states and the District of Columbia. Prism's network is comprised of switches and proprietary advanced digital technology that will ultimately reach over 57 million phone lines.
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Prism's state-of-the-art network is also particularly well suited to bringing the rapid deployment of broadband services to urban areas and inner cities because it uses a technology that is cheaper and more efficient than the technology used by the incumbents. As a result, Prism can more quickly and easily reach those communities where affordable high-speed access was previously out of reach. These include areas such as Washington, DC, Chicago, San Francisco, Philadelphia, Dallas, Miami, Los Angeles, San Francisco, Newark and New York—markets where Prism is already or will soon be providing its services.
In short, and as pointed out in the 1999 Economic Report of the President, the Council of Economic Advisers, it is the broadband service carriers like Prism, and not the monopolies, which bring about dynamic technological innovation and widespread deployment.
''The incumbents' decision finally to offer DSL service followed closely the emergence of competitive pressure from cable television networks delivering similar high-speed services, and the entry of new direct competitors attempting to use the local-competition provisions of the Telecommunications Act of 1996 to provide DSL over the incumbents' facilities.''
What all this tells us is that competition is the fastest and most effective way for consumers to get broadband services, and is precisely the type of movement—competition driving innovation and rapid deployment—that Congress intended. Considering that the economic strength of this country is founded on this principle, it comes as no surprise.
II. BROADBAND BILLS THAT DEREGULATE MONOPOLIES REVERSE THE PRESENT COMPETITVE MOVEMENT AND HARM CONSUMERS.
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The companion monopoly deregulation bills, HR 1686 and HR 1685, though well-intended by its sponsors, effectively reverse the dynamic course I discussed earlier—the movement towards innovation and widespread broadband deployment that competitors have put into place. Both bills would no less than repeal the core pro-competitive provisions of the '96 Act that drive deployment of broadband services today and that ensure viable, open telecommunications markets.
The bills would allow incumbents to immediately send data across LATA boundaries by exempting data from the definition of interLATA services, and thus from the long distance checklist requirements of Section 271 of the '96 Act. Section 271, however, is critical to competitive carriers since it requires incumbents to interconnect with other broadband carriers before competing in the long distance market. Without the leverage of Section 271 as expertly understood and crafted by Congress, the monopoly has no incentive to interconnect with competitive carriers. Because competitive carriers must interconnect with the incumbents' network in order to connect with their customers, eliminating these requirements seriously jeopardizes broadband competition and the benefits it brings to the consumer. Moreover, since voice traffic can readily be ''packetized'' or converted to data traffic, an exemption for data is an exemption for voice.
The proposed legislation would also prevent connection to the consumer by competitive broadband carriers by repealing the monopolies' unbundling and resale obligations under the '96 Act for facilities and services used for broadband offerings. Competitive broadband carriers like Prism are dependent upon these obligations because they allow access to the incumbent monopoly's local network and services. Without access to these key bottlenecks, a carrier such as Prism would not be able to access its customers or provide any of its services. There are no alternatives. The suggestion that competitors might build out their own duplicative local network is not an option—even assuming it is not cost prohibitive, it is extremely difficult for most carriers to justify the expense duplicating a telecommunications network built on the backs of American ratepayers.
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Ironically, while Congress considers scrapping the '96 Act's key unbundling protections which have so aptly brought about competition, the European Commission (EC), in an attempt to catch up to the United States in e-commerce, has made local loop unbundling a centerpiece of its telecommunications policy. Not surprisingly, the EC's formal proposal includes the requirement that incumbents provide operators with ''full and shared unbundled access to their local copper loops on fair, reasonable and nondiscriminatory terms,'' as well as ''cost-oriented'' access.(see footnote 5)
The bills would also allow the monopolists to avoid state and federal rate regulation by simply submitting a plan to provide broadband services only when they are ''economically reasonable and technically feasible.'' Thus, charges for the critical facilities used by carriers such as Prism to interconnect to the incumbents' network and to deploy broadband services will no longer be cost-based.
In addition, the bills do nothing to address the deployment of broadband services to rural areas and inner cities. Instead, the bills actually permit the monopolists to avoid providing broadband services to any rural area or inner city by claiming that serving any such area is not ''economically reasonable and technically feasible.''
Of equal importance, a monopolist is freed entirely from any deployment obligations if just one competitor offers service in a telephone exchange, or if the monopolist offers DSL over 70% of the phone lines in an exchange area. Consumers would inevitably see higher prices, reduced service offerings, lower quality of service, and slower deployment of broadband services.
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The current Internet marketplace is highly competitive, with users enjoying a choice of many providers. The proposed legislation will only serve to deter broadband deployment and harm consumers. Not only will competitive broadband providers be unable to adequately serve their customers, but a change by Congress in the rules mid-stream will create great uncertainty in financial markets and jeopardize the ability of new and existing competitors to raise the capital needed to build and sustain their networks.
CONCLUSION
Prism urges the Committee to stay the course set forth in the '96 Act as the best means of accomplishing rapid deployment of broadband services. The choice at hand is whether you trust a monopoly provider over a robust, open, competitive marketplace to offer services. Ultimately, what is best for the consumer? It is the consumer, not the monopoly, that deserves ''freedom''—freedom to choose a provider and freedom from local monopoly control. Let's allow competition to pick the winners and the losers in the race to provide broadband deployment.
Thank you.
SUMMARY
Mr. Chairman, members of the Committee. Thank you for the opportunity to appear before your Committee as it examines the ''Internet Freedom Act,'' HR 1686, and the ''Internet Growth and Development Act of 1999,'' HR 1685. I am Randy Lowe, Executive Vice President and Chief Legal Officer of Prism Communication Services, Inc. Prism is a facilities-based competitive local exchange carrier and Internet service provider offering innovative data and voice solutions. Founded in 1997, Prism is precisely the kind of entrepreneurial, integrated communications provider that Congress sought to nurture by adoption of the Telecommunications Act of 1996 (the '''96 Act''). Prism is fulfilling the '96 Act's vision by building a national communications network to meet the exploding demand for bandwidth, integrated with traditional voice service offerings.
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In my experience as a veteran involved with the opening of the marketplace for long distance services, competition is the key to lower prices and innovative services for the consumer. Prism's experience with the opening of the marketplace for broadband services is no exception. Competition is the force that is driving broadband deployment today in the local telecommunications market. In the four years since the passage of the '96 Act, it has been competitive carriers like Prism that have invested in, built and deployed high speed Internet access services nationwide to deliver innovative consumer broadband offerings. Competitors have invested over $30 billion in new networks and are now investing more than $1 billion every month. Prism alone has spent over 400 million dollars over the past one and one half years on the build-out of its facilities-based high-speed communications network into 33 markets and 28 states. This fury of investment and deployment by competitive carriers has spurred incumbent local exchange companies (''ILECs'') to upgrade their own systems in response to competitive pressure. What all this tells us is that local competition is the fastest and most effective way for consumers to get broadband services.
The companion bills HR 1686 and 1685, though well-intended, effectively reverse this dynamic course by repealing the core pro-competitive provisions of the '96 Act that drive deployment of broadband services today and that ensure viable, open telecommunications markets. By repealing market-opening requirements of the '96 Act, the bills restrict competitors from accessing key network bottlenecks and adequately serving their customers, and effectively remove any ILEC incentive to cooperate with competitors. They also create uncertainty in financial markets and jeopardize the ability of new and existing competitors to raise the capital needed to build and sustain networks.
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Prism urges the Committee to stay the course set forth in the '96 Act as the best means of accomplishing rapid deployment of broadband services. The choice at hand is whether you trust a monopoly provider over a robust, open, competitive market to offer services. Ultimately, what is best for the consumer? It is the consumer, not the monopoly that deserves ''freedom''—freedom to choose a provider and freedom from local monopoly control. Let's allow competition, rather than Congress, to pick the winners and the losers in the race to provide broadband deployment.
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Mr. HYDE. Chairman Ivey?
STATEMENT OF GLENN IVEY, CHAIRMAN, MARYLAND PUBLIC SERVICE COMMISSION, BALTIMORE, MD, ON BEHALF OF THE NATIONAL ASSOCIATION OF REGULATORY UTILITY COMMISSIONERS
Mr. IVEY. Thank you, Mr. Chairman, members of the committee. My name is Glenn Ivey. I am here to represent NARUC this morning in our strong opposition to H.R. 1686, and we oppose it for several reasons.
First of all, H.R. 1686 would allow the Bells to transport data cross LATA boundaries immediately. In essence what this would do is allow ILECs to become long-distance carriers of data, which they can't do under the act until they meet the section 271 requirements to open their local markets to competition.
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If the Bells are allowed to transport long-distance traffic without first having to comply with the section 271 checklist, State commissions and the FCC would lose the primary tool for promoting local telephone competition.
Circumventing the incentives that Congress put in place would derail ongoing efforts to bring advanced services to local markets. States currently in the midst of arbitrating market entry disputes regarding advanced services could be required to revisit those previously-resolved issues and, in addition, the legislation would give the ILECs competitive advantage in broadband deployment without providing, in return, any demonstrable gains in local competition.
Secondly, data now accounts for at least 60 percent of the traffic on the public network and is projected to account for as much as 90 percent in 3 to 5 years. So, as Mr. Cannon pointed out, if we move forward with the legislation as drafted, data will overtake voice and essentially circumvent the balancing aspects of the Telecom Act.
In the interest of brevity, I will make one last point, and that goes to the issue of the Telecom Act being replaced by the Sherman Act in the bill. I am very troubled by that, because I think it means that the Sherman Act could be used certainly to prohibit anti-competitive activities by ILECs. At this point legislative changes to the current legal and regulatory structure would exacerbate an already litigious relationship between ILECs and their potential competitors.
Since litigation has been an essential factor in delaying full implementation of the Telecom Act, and because antitrust litigation is extremely expensive and protracted, it seems clear that shifting emphasis to the Sherman Act would delay rather than hasten broadband deployment.
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I thank you for the chance to express our views to the committee, and I will submit the full statement for the record.
Mr. HYDE. Thank you, Chairman Ivey.
[The prepared statement of Mr. Ivey follows:]
PREPARED STATEMENT OF GLENN IVEY, CHAIRMAN, MARYLAND PUBLIC SERVICE COMMISSION, BALTIMORE, MD, ON BEHALF OF THE NATIONAL ASSOCIATION OF REGULATORY UTILITY COMMISSIONERS
Thank you for inviting me to testify before the Committee today. My name is Glenn Ivey. I am Chairman of the Maryland Public Service Commission and President of the Mid-Atlantic Conference of Regulatory Utility Commissioners. I offer my testimony this morning on behalf of the National Association of Regulatory Utility Commissioners (''NARUC''), which strongly opposes H.R. 1686 and H.R. 2420.
Congress crafted the Telecommunications Act of 1996 (''the Act'') to promote competition, and thereby to secure lower prices and the ubiquitous deployment of advanced technologies. This was to be achieved by balancing the rights and responsibilities of ILECs and CLECs considering relative strengths, economic costs and proper incentives. Unfortunately, the pending legislation would undermine that balance and extend the ILEC's monopoly powers under the guise of accelerating broadband deployment. Passage of H.R. 1686 and H.R. 2420 would jeopardize the ability of states to open local markets to competition and advance the goals of the Act.
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H.R. 1686 and H.R. 2420 would allow ILECs to transport data across local access and transport areas, or LATA, boundaries immediately. In essence, ILECs would become long distance carriers of data, something they cannot currently do under the Act until they meet the Section 271 requirements to open their local markets to competition. If the Bell companies were allowed to transport long distance data traffic without first having to comply with the Section 271 checklist, state commissions and the FCC would lose the primary tool for promoting local telephone competition.
Circumventing the incentives that Congress put in place would derail ongoing efforts to bring advanced services to local markets. States currently in the midst of arbitrating market entry disputes regarding advanced services could be required to revisit previously resolved issues. This legislation would give the ILECs a competitive advantage in broadband deployment without providing in return any demonstrable gains in local competition. Furthermore, history has shown that major shifts in telecommunications policy lead to contentious, multi-forum litigation in the courts, before the state commissions and before the FCC.
Data now accounts for more than 80% of the traffic on the public network and is projected to account for as much as 90% in three to five years. H.R. 1686 and H.R. 2420 would prohibit both the FCC and the states from promoting the deployment of high-speed data services. Until a recent FCC order became effective, competitors were unable to utilize line-sharing, and therefore had to use a separate line to provide DSL services. This hindered access to broadband services by artificially raising the prices for these services.
Although the rationale for the legislation may have been to extend broadband services to underserved areas, this legislation could actually undermine that goal. The primary factor stimulating deployment of broadband infrastructure is competition. In those areas where competition exists, the Bell companies have provided more broadband services at lower prices than where there is little or no competition. For example, SBC reduced its DSL price by more than 40%, including Internet access service, in response to competitive pressures. Similarly, Bell Atlantic reduced the price of its Infospeed service by approximately 20% in response to increased competition from cable companies and competitive carriers.
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In addition, there are increasing numbers of companies who are willing and able to provide data services. These companies have already begun to establish the facilities to provide these services. For example, in Maryland, like most states, broadband services are proliferating. To date, we have authorized over 100 competitive carriers, half of which are facility-based and many of which provide broadband services. Nationally, we have experienced a 50% increase in DSL lines in the first three months of this year alone. So clearly we are moving in the right direction. Yet residential markets are not experiencing robust local competition. Competition is still too nascent to abandon the pro-competitive elements of the Act.
Finally, I am also troubled by the legislation's provisions that would replace the Telecom Act with the Sherman Act as the means for prohibiting anti-competitive activities by ILECs. At this point, legislative changes to the current legal and regulatory structure would exacerbate an already litigious relationship between ILECs and their potential competitors. Since litigation has been a central factor in delaying full implementation of the Telecom Act, and because antitrust litigation is extremely expensive and protracted, it seems clear that a shifting emphasis to the Sherman Act would delay rather than hasten broadband deployment.
I have attached to my testimony NARUC's resolution opposing legislation like H.R. 1686 and H.R. 2420. This resolution was passed unanimously by the NARUC Telecommunications Committee in March of this year. I have also attached a May 11, 2000 letter to Chairman Hyde sent by, among others, NARUC President Bob Rowe and Telecommunications Chair Joan Smith. This letter also explains our reasons for opposing H.R. 1686.
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We share the Committee's desire to deploy broadband services to all areas. We simply ask that you address broadband deployment in a competitively and technologically neutral way—not by removing the Bell's incentives to open their local markets. This legislation is harmful to the development of local competition and could actually delay the deployment of broadband services. Therefore, we urge you to oppose the passage of H.R. 1686 or H.R. 2420.
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Mr. HYDE. Mr. Cleland?
STATEMENT OF SCOTT CLELAND, CEO, THE PRECURSOR GROUP, WASHINGTON, DC
Mr. CLELAND. Mr. Chairman and Mr. Conyers, thank you for the honor of testifying before your committee.
At The Precursor Group, we are structured to be independent so that we avoid the common financial conflicts of interest. We don't do any investment banking, any stock picking, any money management or proprietary trading, so in that context I offer kind of the following big picture insights.
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I have one main message today, and that is that I think the lack of a balanced national Internet broadband policy actually devalues the Internet and it risks killing the goose that laid the golden egg.
Both H.R. 1685 and 1686 recognize that something is seriously wrong with the Internet. These bills also recognize that the current implementation of the Telecom Act is out of balance and it is not enhancing the value of the Internet.
Now, what has happened, I believe, is that industry lobbying has effectively undermined longstanding bipartisan public policy that has fostered growth, competition, consumer choice, and innovation on the Internet.
Now, specifically, if you look at the state of schizophrenic infrastructure regulation between telecom and cable, it is what is contributing to the breakdown of what makes the Internet valuable.
For the local telecos, the FCC has a hyper-regulatory policy. Essentially, it is micro-managing most prices and product terms to achieve desired market outcomes. Now, for the cable operators, essentially the FCC effectively has what I call the ''trust and don't verify'' policy, where even contemplating regulatory enforcement appears to be taboo.
Essentially, the FCC has picked cable as its winner. It has picked cable as the winning technology. I think that that has made the implementation of the Telecom Act and the process of the Internet be very out of balance.
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So let us talk real briefly about what makes the Internet valuable. Why is this the goose that laid the proverbial golden egg?
What makes it valuable is, first of all, it is interconnected. It brings everybody together.
Second, it is interoperable. It integrates otherwise totally incompatible technologies and it allows a phenomenal increase in efficiency, in convenience, in productivity.
Third, what makes it valuable is it has few barriers; therefore, it allows easy competitive entry for new businesses. Essentially, it is supposed to be open, competitive, and a high-growth marketplace.
Fourth, the Internet is an engine of economic growth and innovation. It enables new businesses and new ways of doing business because it decentralizes control and gives it to the end user.
Finally, why the Internet is valuable is because it increases consumer choice and it decreases supplier control. It is these extraordinary synergies and network effects and efficiencies that make the Internet overall worth a whole lot more than the sum of its parts.
So what is the problem? Well, I believe that public policy neglect is actually devaluing the Internet. The FCC shift to a hands-off policy after 30 years of a bipartisan hands-on policy that led to the Internet is essentially they are allowing an erosion of what I call the ''public value'' of the Internet, and they are encouraging a corporate tug of war to fight over the Internet.
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Like the goose that laid the golden egg, when you pull apart the pieces of the goose, the goose either is crippled or it is going to die. Nobody appears to be defending the goose that laid the golden eggs.
So what do I mean? There are three main big problems that are going on in this debate.
Number one, the Government is allowing fragmentation of the Internet. The Internet grows in value by being interconnected, by being interoperable. That is essentially section 251A of the Telecom Act and section 256, which is inter-connectivity. But the neglectful hands-off policy devalues the Internet.
Now, the Government is allowing cable, the leading broadband facility going forward, to disconnect competitors from the underlying Internet infrastructure.
Problem two is cartelization. Rather than ensuring that the Internet remains open and competitive, the FCC has acquiesced to cable market power, it has permitted cable to erect all sorts of competitive barriers to entry, and it has tacitly promoted a first mover advantage by cable, and that is a problem because there is virtually no after-market competition in the broadband market.
Finally, problem three is politicization. After three decades of bipartisanship promoting competition and innovation through open networks, industry has successfully driven a partisan wedge on Internet policy by making the Government out to be this Internet boogie man. It is a ridiculous charge. The Government developed, subsidized, and then commercialized the Internet, and it suckled its growth through massive subsidies and very minimal regulation.
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Thank you, Mr. Chairman, for the honor of testifying before the committee.
Mr. HYDE. Thank you, Mr. Cleland.
[The prepared statement of Mr. Cleland follows:]
PREPARED STATEMENT OF SCOTT CLELAND, CEO, THE PRECURSOR GROUP, WASHINGTON, DC
Mr. Chairman, thank you for the honor of testifying before your Committee on HR 1685 and HR 1686. I am Scott Cleland, CEO of The Precursor Group''. The views expressed here are mine alone. I request that my full written testimony be printed in its entirety in the hearing record.
By way of introduction, The Precursor Group is an independent, employee-owned and -controlled research company structured to avoid the common financial-conflicts-of-interest rife in Wall Street research. The Precursor Group does no investment banking, money management, proprietary trading or stock picking. We help institutional investors anticipate change in regulation, technology, competition and globalization so that they can invest more proactively than reactively. In that context, I offer the following insights and observations in hopes that they will be useful to the subcommittee.
I. LACK OF A BALANCED NATIONAL INTERNET/BROADBAND POLICY DEVALUES THE INTERNET
Both HR 1685 and HR 1686 implicitly recognize that all is not well in the development of the Internet.
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These bills also recognize that current implementation of the Telecom Act is out of balance and not enhancing the value of the Internet.
I caution those who believe the government's ''hands off the Internet'' policy actually promotes its growth. That's overly simplistic. I believe the lack of a vigilant national Internet/broadband policy is actually threatening to devalue the Internet and risks ''killing the goose that laid the golden egg.'' Industry lobbying has effectively undermined long-standing bipartisan public policy that has fostered growth, competition, consumer choice and innovation of the Internet.
Specifically, the current state of schizophrenic infrastructure regulation (telecom vs cable) is leading to a breakdown of what makes the Internet valuable.
For local telcos, the FCC has a hyper-regulatory policy, micromanaging most prices and product terms to achieve predetermined market outcomes.
For cable operators, the FCC effectively has a ''trust and don't verify'' policy where even contemplating regulatory enforcement is taboo.
Essentially, the FCC tacitly has picked cable technology as its broadband winner. However, exclusively encouraging cable deployment neglects the big picture: development of a BALANCED national broadband policy to ENHANCE THE VALUE of the Internet OVERALL.
II. WHAT'S THE ORIGIN OF THE INTERNET'S VALUE?
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The Internet has been a public commons that no one owns, but everyone can use freely. The Internet is not the physical infrastructure, but the virtual world of communications and e-commerce that rides on top of the various technologies. It's a collection of universal communications protocols, open network rules, and cooperative agreements. While largely unregulated and free of government micro-management, the Internet is not a law enforcement-free zone as many imply.
The Internet is a fragile network and market dependent on government stewardship to protect the ''public'' attributes that make it so valuable. AOL, Yahoo, E-Bay, Amazon, ISPs and dot.coms simply would not exist in their current form, if not for the government's long-standing, bipartisan, national policy. That policy promoted growth, competition, consumer choice, and innovation by ensuring: (a) non-discriminatory access to the network; (b) open network architecture; (c) cheap online usage; (d) commercial development; and (e) minimal regulation.
III. WHAT MAKES THE INTERNET VALUABLE?
Why is the Internet the proverbial ''goose that laid the golden egg?''
(1) The Internet is interconnected—it brings everyone together. Metcalfe's Law says the value of a network increases exponentially with the number of users connected to it.
(2) The Internet is interoperable; it integrates otherwise incompatible technologies fueling phenomenal increases in productivity, convenience, and efficiency.
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(3) With few barriers to entry, the Internet allows easy competitive entry for new businesses; it's an open, competitive, high-growth marketplace.
(4) The Internet is an engine of growth and innovation. It enables new business models and ways of doing business by decentralizing control of the network and empowering end users.
(5) The Internet increases consumer choice and decreases suppliers' control over markets.
In sum, these extraordinary Internet synergies, efficiencies, and network effects make the Internet overall worth more than the breakup sum of its parts.
IV. THE DEVALUING OF THE INTERNET:
The FCC's shift towards a ''hands off'' policy has eroded the ''public'' value of the Internet, and incited a corporate tug-of-war over the ''goose that laid the golden egg.'' The risk is that this tug-of-war for corporate control of the Internet's public attributes could cripple or kill the proverbial ''goose'' so it cannot lay any more ''golden eggs.''
(1) Fragmentation: Rather than ensuring the Internet grows in value by fostering interconnection and interoperability (sections 251a and 256 of the 1996 Telecom Act), a neglectful ''hands off'' government policy devalues the Internet. The government is allowing cable, the leading residential broadband facility going forward, to disconnect competitors from their underlying Internet infrastructure and to maintain proprietary ''telecom'' standards when every other telecom carrier must be interoperable by law. By not even bothering to ask whether cable broadband is a ''telecom'' common carrier service as the Ninth Circuit recently ruled, the FCC thus far has unwittingly added to the investment uncertainty.
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(2) Cartelization: Rather than ensuring the Internet remains open and competitive, the FCC has acquiesced to cable's market power, permitted cable to erect multiple barriers to competitive entry, and tacitly promoted cable's first-mover advantage in a market where there is virtually no after-market customer switching. And four years after passage of the Telecom Act, which required ''competitive availability of navigation devices'' and telecom ''interconnectivity,'' those procompetitive interoperability mandates have been unenforced by the FCC.
(3) Politicization: After decades of bipartisanship promotion of competition and innovation through open networks, industry has successfully driven a partisan wedge in Internet policy by making the government out to be the Internet ''boogieman.'' That is a ridiculous charge given that the government developed, subsidized and commercialized the Internet and has a long suckled its growth through subsidies and minimal regulation.
Mr. Chairman, thank you again; it is an honor to testify before your committee.
Mr. HYDE. Mr. Padden?
STATEMENT OF PRESTON PADDEN, EXECUTIVE VICE PRESIDENT, THE WALT DISNEY COMPANY, WASHINGTON, DC
Mr. PADDEN. Thank you, Mr. Chairman. With your consent, I would ask that my written testimony and the three letters attached be entered in the record.
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Mr. HYDE. Without objection, all your statements in full will be made a part of the record and any attachments thereto.
Mr. PADDEN. Thank you, Mr. Chairman.
The Walt Disney Company is honored to be here today to support H.R. 1685 and H.R. 1686 and, in particular, we want to commend Congressmen Goodlatte and Boucher for their focus on consumer choice.
I want to begin by explaining why the Walt Disney Company is here, because we don't own any of the facilities that have been discussed all day today. We don't own any telephone wires, we don't own any cable wires, so we don't stand to be regulated or deregulated by any of this. Our sole interest is that we produce television programming and Internet content and what we are looking for is a world where the customer has the right to choose or to not choose our content based solely on how good a job we do of creating that content and promoting it, and to not have that choice limited or skewed by the conflicted business interest of the company that owns the pipeline to their home, that last mile you have heard about today.
In particular, as we go forward with this legislative process, we would ask you to focus on consumer choice in the context of what is the emerging part of this marketplace, and that is interactive television. Interactive television represents the convergence of traditional one-way cable television, which is regulated under title VI of the Communications Act, converging with two-way Internet content regulated under title II of the Communications Act.
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And let me give you just a couple of examples. We are going to be doing a demonstration for your staffs next Monday over in the Capitol. We have sent an invitation around to them so they can see examples of interactive television. But the consumer will be able to call up the television they want by genre. There will be an icon on the screen that says ''news,'' and the consumer will be able to click on that icon and something will happen. What happens is going to depend, in part, on what you do with this legislation. Either the consumer will get the choice of a lot of competing news services, or they might get the choice of the news service owned by the company that owns the pipe to their home.
The consumer will also be able to view both traditional television content and Internet content on the same screen at the same time. They will be able to drill down in a newscast and say, ''This is a subject about which I would like to know more'' and get transported right from the newscast to a broadband Website rich with detail about that news story. They will be able to interact with ads. If they see a car they really like being advertised, they will be able to click to indicate they would like to test drive. And they will even be able to do their e-mail and chat right over top of the television screen at the same time.
Now, the pending merger of AOL, Time Warner, and EMI, in fact, embodies this coming together of interactive television. This one company, if the merger is consummated, will own monopoly cable pipelines to about 20 million homes. They will own half of the narrow band Internet marketplace. They will own a vast collection of content—motion pictures, cable networks, television programs. They will own the set top box hardware that the customer uses to access all of this. They will own the operating system that runs that set top box. They will own a monopoly in instant messaging, sticky applications like e-mail and chat that tend to bind the customer forever to their first choice, and they will own the largest collection of music publishing rights in the world.
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Now, as you can imagine, as an unaffiliated content owner interested, remember, just in the customer having the opportunity to choose our content, we look at all of this with some trepidation, so we sent some letters to our friends at Time Warner, and they are attached to my testimony, and we said, ''Gee, could you assure us that consumers will have the same level of opportunity to interact with our content that they have to interact with your content.''
We are pretty sure if the customer wants to drill down on that news story in CNN that the system that Time Warner and AOL will be deploying will work for them. Our question is if the customer wants to drill down on more detail on an ABC news story will it work. We are pretty sure that interactive ad for a Jeep or a Chevrolet, the interactive functions will work when that ad runs on a channel that Time Warner owns like TNT or TBS, but we asked, ''Assure us that same interactivity will occur if the ad is running on ABC or ESPN.'' Unfortunately, we didn't get any satisfactory response to our request. You will see in the letters what we got was, ''Trust us. We will be good guys and take care of things.''
That response stood in stark contrast to AOL's testimony on this same legislation just 1 year ago before this same committee where they said, ''Strong, unequivocal Congressional action is required.'' And we would associate ourselves with AOL's view a year ago as opposed to their view today.
We are also influenced in believing that there is a role for the Government here by the history of anti-competitive practices of both of these companies, and I won't go into that a whole lot.
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I will wind up just by saying there has been a lot of talk here about DSL today. We love DSL. We want to see the telephone companies encouraged. But we hope the committee will focus on the fact that today DSL is not a substitute to give consumers an alternative path to interactive television. Just to quote from one report, ''Today's DSL deployments in technology are largely incapable of providing video,'' so when we think about this marketplace, please don't make the mistake of thinking that DSL, while it is a great substitute for higher-speed Internet access, it is not a good substitute for interactive television.
Thank you very much.
Mr. HYDE. Thank you, Mr. Padden.
[The prepared statement of Mr. Padden follows:]
PREPARED STATEMENT OF PRESTON PADDEN, EXECUTIVE VICE PRESIDENT, THE WALT DISNEY COMPANY, WASHINGTON, DC
Thank you Mr. Chairman. My name is Preston Padden. I am Executive Vice President, Government Relations, The Walt Disney Company. Disney strongly supports H.R. 1685 and H.R. 1686 and we commend Congressman Goodlatte and Congressman Boucher for their visionary leadership to preserve consumer choice in the emerging Internet marketplace.
At the outset, I would like to clearly define the interest of The Walt Disney Company regarding this legislation. Disney is a provider of creative content and services for Internet and television distribution. We are investing millions to develop compelling Internet content and services and to apply new technology to traditional television content to significantly enhance consumers' experience. But, we do not own any cable, telco or satellite pipelines to consumers' homes. Our sole interest in this legislation is to help foster a marketplace where consumers have the unfettered opportunity to choose—or to not choose—our creative content and our services based solely on how good a job we do in creating and promoting our content and services. For us, and for consumers, the enemy is a marketplace where consumer choice is artificially limited or skewed by the conflicted business interests of companies that own both content and services of their own and a bottleneck pipeline to the consumers' home.
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As this legislation moves forward, we urge the Congress to stay focused on enhancing consumer choice. After all, consumer choice is the touchstone of our national anti-trust and competition public policy. Specifically, we urge the Congress to focus on consumer choice in the context of the emerging Interactive Television marketplace. Interactive Television defines the content and services created by the convergence of traditional television and 2-way Internet service. Interactive Television will:
empower consumers to select television and Internet content by genre (example: ''click here for news'');
empower consumers to view simultaneously on a single screen both a television program and Internet content related to that television program (examples: ''click here for real time statistics on this football game'' or ''click here to play along with Who Wants To Be A Millionaire'');
empower consumers to interact with e-mail, instant messaging or chat rooms while watching television on the same screen (example: ''click here to participate in a chat room or live poll regarding this political debate'');
empower consumers to drill down to obtain more detail about a particular news story (example: ''click here to get more detailed information about this Presidential nominating convention'');
empower consumers to interact with advertising messages (example: ''click here to register to test drive this new Jeep''); and
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empower consumers to purchase goods and services featured in a television program (example: ''click here to buy Regis Philbin's shirt'').
As I hope you can see from these examples, assuring unlimited and unfettered consumer choice in Interactive Television content and services is critical to preserving fundamental American anti-trust, competition and First Amendment values. Because the narrowband Internet rides on open telephone facilities, consumers have enjoyed access to content and services from an unlimited array of diverse sources. As we move into broadband and into Interactive Television, we must assure that consumer choice is preserved. We look forward to working with the Committee, and with the sponsors of H.R. 1685 and H.R. 1686, to make sure that the legislative language is sufficient to safeguard consumer choice in the emerging market for Interactive Television.
The emergence of this new market is virtually defined by the proposed merger of AOL, Time Warner and EMI. The media colossus created by this proposed merger would represent an unprecedented concentration of content, bottleneck pipelines, ''sticky applications'' and operating systems. AOL/Time Warner/EMI would control:
monopoly hybrid fiber-coax distribution pipelines reaching more than 20 million U.S. households;
more than 50% of the U.S. residential dial-up Internet subscribers;
one of the world's largest libraries of motion pictures and television programs and more than a dozen of the top cable channels including HBO, CNN, TNT, Cinemax, TBS and the Cartoon Network;
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set-top box hardware and software;
the overwhelmingly dominant provider of Instant Messaging with more than 155 million users translating into 90% of the market;
''sticky'' applications such as chat rooms, buddy lists and e-mail; and
80% of the most popular music licensed by film and television producers
Preserving consumer choice within the AOL/Time Warner/EMI Interactive Television service is critical because millions of consumers will have little or no opportunity to obtain Interactive Television services from a different pipeline provider. AOL/Time Warner/EMI's two-way broadband, hybrid fiber-coax networks will enjoy inherent technical advantages in the provision of Interactive Television services. At least for the foreseeable future, telco twisted copper, even with DSL electronics, will not provide consumers with an alternative source of Interactive Television service. Even satellite will not be a good substitute. Satellite service is simply not available to millions of Americans who live in multi-family buildings or who lack a Southwest exposure. In addition, satellite is currently limited to a narrowband, twisted copper return path and future advances promising two-way broadband satellite service, if they develop, are not likely to be cost competitive with the AOL/Time Warner/EMI hybrid, fiber-coax offering.
Because consumers will not enjoy good alternative sources of Interactive Television service, H.R. 1685 and H.R. 1686 should be crafted to assure open and unfettered consumer choice within the AOL/Time Warner/EMI service. It would be hard for me to express the public policy imperative any more eloquently than did AOL's George Vradenburg in a hearing on this same legislation just one year ago. Before striking a deal to buy Time Warner's bottleneck cable pipelines, Mr. Vradenburg stated:
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''As we move to the broadband world, real and substantial threats are emerging to the competitive Internet access market that necessitate strong, immediate and unequivocal Congressional action to preserve competition and openness in the Internet marketplace across all facilities.
''The Goodlatte/Boucher legislation does this by proscribing specific kinds of anti-competitive conduct that would threaten the continuation of today's fierce competition in the Internet access market as we move to the broadband world. The legislation does so for the right reasons: to ensure that consumers have choices in prices and services, and to ensure that Congressional policy to mandate and encourage competition in the delivery to telecommunications services at all levels is not thwarted.''
Unfortunately, AOL's planned merger with Time Warner and EMI has produced a dramatic turn around in AOL's call for government action to protect consumer choice. Instead of ''immediate and unequivocal Congressional action,'' AOL now favors forbearance in deference to the promise of voluntary openness—a ''Trust Us'' appeal. Unfortunately, consumers cannot rely on ''Trust Us'' because both AOL and Time Warner have demonstrated their propensity to restrict rather than enhance consumer choice. For example, AOL:
refuses to allow interoperability with its Instant Messaging service;
requires content partners in its ''walled garden'' to limit or eliminate links to sites outside the walled garden, thereby trapping consumers inside that restricted area for as much as 85% of their time online (by AOL's own admission); and
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designs client software that automatically disables the client software of competing ISPs.
And Time Warner:
unilaterally shut off access to ABC Network programs and ABC local news to 8 million viewers;
refused to carry state and regional cable news channels in Texas, Florida, Ohio, New England and the Northwest in order to prevent competition to its own existing and planned news channels;
granted favorable channel positions to its own networks in New York;
refused to carry Disney Channel on the basic tier (in order to favor its own Cartoon Network) on most of its cable systems; and
blocks consumer access to electronic program guides (such as Gemstar) that compete with Time Warner's own program guides.
Both Time Warner and AOL have taken steps to moderate their anti-competitive behavior while their merger is being reviewed by government authorities. However, the history outlined above shows that ''Trust us'' is not enough. Disney tried to negotiate meaningful and specific commitments that AOL/Time Warner/EMI would provide consumers with access to our content and services no less favorable than they provide to their own content and services. As evident from the attached correspondence, those efforts failed. Absent the passage of strong legislation such as H.R. 1685 and H.R. 1686, AOL/Time Warner/EMI will abuse their ownership of both bottleneck conduit and content to limit and to skew consumer choice by:
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excluding competing content and services (e.g., dropping ABC);
force-feeding AOL/Time Warner/EMI content (e.g., sending the customer to CNN when he or she clicks on a ''news'' icon, instead of offering a selection of competitive news choices);
transmitting its own content ''downstream'' to consumers at preferential (i.e., faster) data rates;
blocking critical, interactive ''return path'' communications between customers and competing content providers and services;
limiting customers' ability to access locally ''cached'' data to their own content;
favoring its own content in navigation systems and links; and
favoring its own content with more simple and convenient consumer interfaces.
With the ever present touchstone of preserving consumer choice, Disney looks forward to working with this Committee and with the sponsors of H.R. 1685 and H.R. 1686 to make sure that our fundamental public policy values of anti-trust, competition and free expression are preserved in the emerging Interactive Television marketplace.
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Mr. HYDE. Mr. Baker?
STATEMENT OF DAVE BAKER, VICE PRESIDENT FOR LAW AND PUBLIC POLICY, EARTHLINK, INC., ATLANTA, GA, ON BEHALF OF THE OPENNET COALITION
Mr. BAKER. Chairman Hyde, Ranking Member Conyers, and members of the committee, I am Dave Baker, vice president for law and policy for EarthLink, headquartered in Atlanta. EarthLink is now the Nation's second-largest Internet service provider, serving approximately 3.5 million customers throughout the country.
I am pleased to appear today on behalf of the OpenNET Coalition, of which EarthLink is a charter member. OpenNET is a national coalition of more than 980 local, regional, and national ISPs and communications providers that have joined together to promote the rights of all consumers to obtain affordable, high-speed access to the Internet from the ISP of their choice.
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Founded in 1999, OpenNET has quickly grown to become the largest organization of ISPs in the country. Thank you for the opportunity to share with you today OpenNET's views regarding the open access provisions of H.R. 1686 and H.R. 1685.
OpenNET commends Congressmen Goodlatte and Boucher for their early understanding of the open access debate, its implications for consumers, ISP competition, and the future architecture of the Internet. In their legislation, they have shown great foresight in authoring provisions which would quickly establish an enforceable national open access policy for the broadband environment in a direct, non-regulatory way. These provisions would ensure that consumers of broadband Internet services have multiple competitive ISP choices, regardless of the platform they use.
Such legislation is needed because incumbent cable companies that offer broadband services do not provide open access to their systems. If a consumer today wants high-speed Internet access through a cable modem, he or she has no choice but to buy and use the bundled offering of their cable company's own affiliated ISP. Cable companies are tying their transmission and ISP offerings together in making their affiliated ISP exclusive. They have implemented this structure notwithstanding their dominance over central transmission facilities and their 90 percent market share in the broadband market.
There has been some progress in recent months toward open access, but there is still a long way to go. Within the past year, the cable industry's opposing arguments that open access was technically infeasible or would chill investment or would slow deployment or is bad for business, these arguments have eroded. An increasing number of large cable companies have begun to at least promise eventual open access; however, we remain concerned that the cable industry still seeks to delay open access for as long as possible. This would allow them to gain a first mover advantage, and, by their own admission, rope off from competition as many customers of their bundled high-speed broadband services as possible.
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Given the continued resistance of the cable industry toward open access, a catalyst is needed if there will be any meaningful, wide-spread open access any time soon. The open access provisions of H.R. 1686 and H.R. 1685 provide this catalyst.
Among the positive developments we mentioned, these seek to emphasize rather than diminish the importance of this legislation. In December 1999, when my company was still known as Mindspring, I negotiated a statement of principles with AT&T which we submitted to the FCC. I noted at that time AT&T's commitment toward eventual open access was a step in the right direction but were, nonetheless, too limited and indefinite to stand in lieu of a comprehensive national policy.
In February of this year, AOL and Time Warner issued their memorandum of understanding which set forth more-detailed open access principles.
And in a landmark decision just last month in the AT&T v. City of Portland case, the U.S. court of appeals for the ninth circuit ruled that cable broadband service is a telecommunications service. As such, it is subject to Federal law requiring nondiscriminatory access and interconnection.
In light of this decision, the FCC announced on June 30th that it would finally initiate a long-requested proceeding to address cable Internet access; however, as the FCC, itself, has indicated many times in the past, such a proceeding will take time, and then we will still have to face litigation following that.
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Consumers of emerging high-speed broadband services should not have to wait years for cable companies with market power to unilaterally decide whether or when they might offer access to unaffiliated ISPs so that consumers can have choice.
Mr. Chairman, open access has a proven track record of promoting consumer choice, competition, and innovation. Because of open access policies and narrow band, 97 percent of Internet users throughout the country can choose from among several, even hundreds of ISPs. Compare this to cable, where 97 percent of customers have no choice in who their cable company is or in the content they provide.
As we begin to offer high-speed Internet access over cable, we are at a crossroads. Will we follow the open, pro-consumer choice model of the Internet or the closed, no-choice model of cable?
At every turn, policy-makers have sought to give consumers greater choice in their communications services. This committee has played a leading role in crafting many of the laws that foster competition. Broadband Internet access over cable should be no exception.
Thank you again for inviting me to share OpenNET's views, and I look forward to your questions.
Mr. HYDE. Thank you, Mr. Baker.
[The prepared statement of Mr. Baker follows:]
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PREPARED STATEMENT OF DAVE BAKER, VICE PRESIDENT FOR LAW AND PUBLIC POLICY, EARTHLINK, INC., ATLANTA, GA, ON BEHALF OF THE OPENNET COALITION
SUMMARY
Chairman Hyde, Ranking Member Conyers, and Members of the Committee on the Judiciary, thank you for the opportunity to testify before you today regarding the open access provisions of H.R. 1686, the ''Internet Freedom Act,'' introduced by Congressman Goodlatte, and H.R. 1685, the ''Internet Growth and Development Act of 1999,'' introduced by Congressman Boucher.
I am Dave Baker, Vice President for Law and Public Policy with EarthLink, Inc., the nation's second largest Internet Service Provider (ISP) serving approximately 3.5 million customers throughout the country. I am pleased to appear today on behalf of the openNET Coalition, a national organization of more than 980 local, regional and national ISPs that have joined together to promote the rights of all consumers to obtain affordable, high speed access to the Internet from the ISP of their choice.
Incumbent cable companies currently offering broadband cable services do not provide open access to their systems by unaffiliated ISPs. A consumer of cable broadband transmission service must buy the ISP service bundled into the offering by the cable company (generally the ISP owned by or affiliated with the cable company). If a cable broadband consumer wants to use the services of any other ISP, he or she does not currently have the option of buying only the broadband transmission service from the cable company. In effect, such consumers have to pay for two ISPs to get the one they want.
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The openNET coalition believes that a national open access policy is required to ensure that consumers have multiple ISP choices in the new broadband environment. OpenNET endorses the open access provisions in H.R. 1686 and H.R. 1685 because they would firmly establish an enforceable national nondiscriminatory policy applicable to cable broadband providers. Significantly, this approach would not negate the ability of parties to negotiate specific terms and conditions for open access in the marketplace. Enactment of these open access provisions would quickly end the cable companies' classic anticompetitive practice of tying their cable broadband transport services to ''exclusive'' ISP services provided by their affiliated ISP.
The openNET coalition maintains support for a federal legislative approach to open access notwithstanding several positive events that have recently occurred in the marketplace which have significantly advanced the progress of openNET's cause, including the acceptance of open access ''in concept'' by a number of the nation's largest cable operators. OpenNET also believes that the Ninth Circuit's recent ruling that cable broadband service is a ''telecommunications service'' fully confirms the need for a national open access policy which Congress is well-suited to establish.
OpenNET is encouraged by these recent developments, but none of them substitutes for the near-term establishment of a national open access policy which can be effectively enforced nationwide. OpenNET believes that this national open access policy should be established as soon as possible. Given the resistance of the cable industry to move quickly to implement open access, openNET submits that a catalyst is required to make the cable industry's implementation of open access a near-term reality. Enactment of federal open access legislation—such as the direct, nonregulatory antitrust provisions of H.R. 1686 and H.R. 1685—would provide that catalyst. These provisions would accelerate the national implementation of open access by cable providers; support marketplace negotiations while affording ISPs with an effective means of enforcement; sustain the open nature of the Internet's architecture and provide incentives for new innovation; and, most importantly, ensure that cable broadband consumers gain the benefits of competition, choice and innovation which are hallmarks of our Nation's telecommunications policy.
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STATEMENT
Chairman Hyde, Ranking Member Conyers, and Members of the Committee on the Judiciary, thank you for the opportunity to testify before you today regarding the open access provisions of H.R. 1686, the ''Internet Freedom Act,'' introduced by Congressman Goodlatte, and H.R. 1685, the ''Internet Growth and Development Act of 1999,'' introduced by Congressman Boucher.
I am Dave Baker, Vice President for Law and Public Policy with EarthLink, Inc. Headquartered in Atlanta, EarthLink is now the nation's second largest Internet Service Provider (ISP) serving approximately 3.5 million customers throughout the country.
I am pleased to appear today on behalf of the OpenNet Coalition, of which EarthLink is a charter member. OpenNet is a national organization of more than 980 local, regional and national ISPs and communications providers that have joined together to promote the rights of all consumers to obtain affordable, high speed access to the Internet from the ISP of their choice. Founded in early 1999, OpenNet has grown to become the largest ISP organization in the country. OpenNet supports ''open access''—the ability of consumers to use their ISP of choice over a broadband cable line the same way that they have always been able to do using a telephone line. OpenNet firmly believes that ''open access'' policies applied to the emerging broadband environment are critical for sustaining the Internet's open, end-to-end architecture. This open design has been the source of the Internet's explosive expansion, the catalyst for sustained information technology innovation, and the driver of extraordinary economic growth and efficiency.
When consumers today get Internet access over telephone company networks, either through narrowband dial-up access or through broadband digital subscriber lines (DSL), they already enjoy the benefits of an open access framework. Put simply, consumers are not forced to use or pay for their local phone company's affiliated ISP. Almost all consumers throughout the country can choose from among several Internet Service Providers; those in large cities can choose from among hundreds serving their area.
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There are over 6,000 ISPs nationwide. Most are local ''Mom and Pop'' small businesses. Without the open access policies which apply to the phone companies' provision of Internet transmission services, the vast majority of these ISPs would not exist. Open access policy provided the foundation for the investment, innovation, services and competition which these 6,000+ ISPs have brought to consumers over the past several years.
By contrast, incumbent cable companies providing broadband services do not provide open access to their systems. If a consumer today wants high speed Internet access through a cable modem, he or she has no choice but to buy and use the bundled offering of their cable company's own affiliated ISP. From the start, cable companies are establishing their broadband offerings in a classically anticompetitive way by tying their transmission and ISP offerings together and making their affiliated ISP exclusive. They have implemented this structure notwithstanding their dominance over essential transmission facilities in the broadband market.
Since its inception, OpenNet has led the national fight for open access and against closed cable monopolies. We are glad to report that some progress has been made, but there is still a long way to go. Within the past year, the cable industry's opposing arguments—that open access is impossible, or is ''technically infeasible,'' or would chill investment, or would slow deployment, or is ''bad for business''—have eroded. An increasing number of large cable operators have begun to at least pay lip service to open access.
OpenNet remains concerned, however, that the cable industry still seeks to delay open access for as long as possible. This would allow them to gain a ''first mover'' advantage and ''rope off'' from competition as many customers of their bundled high speed cable broadband services as possible. Given the continued resistance of the cable industry towards open access, a catalyst is required if there will be any meaningful widespread open access any time soon. In other words, a coherent national policy supporting open access is more important than ever.
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The open access provisions of H.R. 1686 and H.R. 1685 provide this catalyst. They would ensure that consumers throughout the country could enjoy the benefits of open access, without having to wait on the artificial timeframes that cable companies have established before they will even begin to open their systems. The open access provisions of H.R. 1686 and H.R. 1685 would firmly establish an enforceable national framework for nondiscriminatory access to cable broadband facilities without restricting the ability of parties to negotiate specific terms and conditions for open access in the marketplace. Enactment of these open access provisions would quickly end the cable companies' ongoing, classic anticompetitive practice of tying their cable broadband transport services to exclusive ISP services provided by their affiliated ISP. H.R. 1686 and H.R. 1685 would require broadband transport service providers, both cable companies and telephone companies alike, to abide by open access requirements so that consumers have a free and fair choice to select from a range of competitive ISPs regardless of the broadband platform they use for transport.
There have been some positive developments both in the marketplace and in the courts with regard to open access in recent months. However, they serve to emphasize, rather than diminish, the importance of the open access provisions of H.R. 1686 and H.R. 1685.
In December, 1999, AT&T, now the nation's largest cable operator, signed a statement of principles with MindSpring Enterprises, as my company was then known, which we submitted to the FCC. I noted at that time that AT&T's commitments toward eventual open access were a step in the right direction, but were nonetheless too limited and indefinite to stand in lieu of a comprehensive national policy for open access.
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More recently, AT&T announced that it would conduct future open access trials in Massachusetts and Boulder, Colorado. My company, EarthLink, and several other OpenNet members hope to be able to participate in these trials.
In February, 2000, AOL and Time Warner signed their Memorandum of Understanding (MOU) which set forth more detailed open access principles which could serve as the foundation for a national open access standard implemented by the entire cable broadband industry.
And, in a landmark decision issued on June 22, 2000, in AT&T v. City of Portland, the U.S. Court of Appeals for the Ninth Circuit ruled that local governments could not require open access as a condition of transferring a local cable franchise because cable broadband service is a ''telecommunications service.'' As such, it is subject to federal law requiring nondiscriminatory access and establishing interconnection rights for other telecommunications carriers.
While OpenNet is encouraged by these recent developments, none of them substitutes for a comprehensive, enforceable national open access policy. To date, none of the various voluntary open access commitments by some large cable companies is close to meaningful implementation and the enforcement of these commitments remains unclear at best. In most cases, they raise more questions than they answer. When will implementation happen specifically? Will these voluntary commitments support robust competition or only favor a few ''preferred'' ISPs? How will cable operators ensure that they do not discriminate against unaffiliated ISPs? How will ISPs enforce these commitments?
In light of the recent Ninth Circuit decision, the FCC announced on June 30 that it would finally initiate a long-requested proceeding to address cable Internet access. However, as the FCC itself has indicated many times in the past, such a proceeding could take years to complete. And any eventual FCC rule establishing open access would undoubtedly be challenged in court creating further delay, litigation expenses and business uncertainty.
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Consumers of emerging high-speed broadband services should not have to wait for cable companies with market power to unilaterally decide whether or when they might offer access to unaffiliated ISPs so that their broadband customers have a choice of multiple ISPs. Similarly, consumers should not have to wait the years it would require for the FCC to complete an open access proceeding, already compounded by the lack of any FCC action to date. And while the Ninth Circuit decision has established clarity in the law in at least one portion of the country, the process by which that decision could be given national applicability would again take several years and would require the commitment of substantial litigation resources.
To retain the ability to reach their customers as the market continues its transition to high speed, broadband technologies, the 6,000+ ISPs operating today need a near-term opportunity for open access to broadband infrastructures. They require a certain and decisive way to enforce on a national basis the policy of open access which has now won at least grudging support from its critics in the cable industry.
The Goodlatte and Boucher open access provisions before the Committee provide ISPs and consumers with the immediate national enforcement capability needed to make a national open access policy effective. H.R. 1686 and H.R. 1685 set forth an efficient, nonregulatory approach to open access by establishing a presumption of an antitrust violation if a broadband transport provider with market power, such as an incumbent cable company, does not provide open, nondiscriminatory access to unaffiliated ISPs. For aggrieved ISPs denied access to a cable broadband system or discriminated against in the type of access provided to them by the cable provider, these measures provide an efficient, case-by-case enforcement tool. As the marketplace moves in the direction of high speed broadband technologies, this nonregulatory, direct antitrust approach to open access would ensure that cable broadband providers do not lock out unaffiliated ISPs from their broadband networks and would deter cable companies from discriminating against them when they provide access.
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Enactment of the Goodlatte and Boucher open access approach would avoid the need for protracted regulatory analyses and proceedings by the FCC which, at this point, could serve to delay the establishment of an enforceable national open access policy in the broadband Internet environment. Had the FCC expeditiously exercised jurisdiction and initiated a rulemaking shortly after the national open access debate fully ignited in late 1998, it is conceivable that a national open access policy could have been established by the FCC by now. Given the FCC's past decision not to act, the rapid pace at which support for open access as a national policy has grown in less than two years, and the well-reasoned decision of the Ninth Circuit that cable broadband transport is a ''telecommunications service,'' OpenNet believes that a federal legislative approach—such as the open access provisions of H.R. 1685 and H.R. 1686—is a direct and timely way to resolve the open access debate in favor of consumers, competition and innovation.
OpenNet believes that in order to be effective, negotiated open access arrangements must include the following seven minimum standards:
Consumers of broadband cable services should have a choice among multiple ISPs, without being forced to pay for or go through their cable company's affiliated ISP.
Cable broadband providers must negotiate at arms-length nondiscriminatory commercial arrangements with both affiliated ISPs and non-affiliated ISP's (including ''first screen'' placement).
ISPs should have the choice of operating on a national, regional, or local basis.
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Cable operators must provide nondiscriminatory network management of their systems.
ISPs should be allowed to purchase broadband backbone transport services of their choice.
Both the ISP and the cable operator should have the opportunity for a direct relationship with the customer.
ISPs should be allowed to provide video streaming and there should be no discriminatory restrictions on provision of content.
These elements should be used by policymakers as a minimum standard by which to measure whether private negotiations are working to implement open access and should inform the process by which open access obligations are enforced. To date, the AOL and Time Warner MOU comes closest to fulfilling these requirements and could form the basis for an effective national open access policy for cable broadband providers. AOL and Time Warner have committed to running an open system, but questions regarding the MOU's implementation timing and enforcement remain to be resolved. Enactment of federal legislation, such as the Goodlatte and Boucher open access provisions, would accelerate the rollout of these and other open access commitments, apply the obligation uniformly to broadband providers, and provide a means of effective enforcement.
Mr. Chairman, in closing, let me underscore that the proper resolution of the open access debate is critically important to the future of the Internet. Open access has a proven track record of producing consumer choice, competition and innovation. Because of open access policies applied to the narrowband marketplace, over 97% of Internet users throughout the country, even in the smallest towns, can choose from among several Internet Service Providers. Compare this to cable, where over 97% of customers throughout the country have NO choice in the selection of their cable company.
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It has been consistent policy in this country for over 30 years to give consumers greater choice in their telecommunications services. The federal court decision that broke up AT&T in 1984 and created competition in long distance helped create a competitive market in which rates today are 2/3 lower than they were then. In the Telecommunications Act of 1996, Congress established the framework to bring these same benefits of competition to local phone service and to wireless. Recent legislation such as the Satellite Home Viewer Act seeks to end cable's longstanding monopoly over multi-channel video programming. And consumers have always had competitive choice in ISPs in large part because FCC decisions over the past thirty years allowed such information services to travel unfettered over phone lines.
At every turn, policymakers have sought to give consumers greater choice in their communications services. Mr. Chairman, this Committee has played a leading role in crafting many of the laws that have fostered that competition. Broadband Internet access over cable should be no exception.
The OpenNet coalition urges you and the Committee to ensure that open access is the law of the land as the Internet makes a transition to high speed, broadband applications. We commend Committee Members Congressman Goodlatte and Congressman Boucher for their early understanding of this critical policy debate and for demonstrating the leadership to author a nonregulatory, legislative approach that would quickly establish a national open access policy.
Thank you again for inviting me to share OpenNet's views. I would be pleased to answer any questions you may have.
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Mr. HYDE. Mr. Cali?
STATEMENT OF LEONARD J. CALI, VICE PRESIDENT, FEDERAL GOVERNMENT AFFAIRS, AT&T, WASHINGTON, DC
Mr. CALI. Chairman Hyde, Ranking Member Conyers, and members of the committee, it is a pleasure to be here with you today.
My message is this: The marketplace is effectively addressing the primary issues of concern in H.R. 1685 and H.R. 1686, and this has been confirmed since this committee last held hearings on these bills.
There is no public interest reason to change these rules. To the contrary, the proposals would destroy the incentive-based framework of the 1996 act, create new marketplace uncertainty, introduce renewed opportunities for litigation, and otherwise impose unnecessary costs on competitive carriers.
First, the marketplace is working. Today more than three million subscribers to DSL and cable modem services enjoy high-speed Internet access. Analysts tell us by the end of this year high-speed technology will be available to 54 percent or more of American homes, and that will rise to 80 percent by the year 2002.
When considering my written submission, I would ask the members of the committee, in particular, to consider two attachments to the back of the testimony. Those are two maps. The first map depicts more than 1,000 high-speed Internet points of access that have been deployed in the last 4 years by the competitive industry. As a result of that deployment, more than 94 percent—94.7 percent of Americans live within 50 miles of one of these high-speed POPs.
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The second map depicts by State the percent of Americans in each State living within 50 miles of one of these high-speed Internet POPs.
This is the result of more than 40 Internet backbone providers competing, and six new major networks coming online, and we need to step back and consider what achieved this outcome. It is competition. We have some staggering numbers. In the last 4 years, the cable industry has spent $36 billion to upgrade its networks and convert them to an advanced infrastructure. In addition, the CLECs have deployed 1,400 data switches and deployed 162,000 fiber route miles.
As a result, the Bell companies have begun to announce major deployments in the last year. SBC has announced that it will invest $6 billion to reach 80 percent of its households in its territory. Bell Atlantic will invest $1 billion a year until 2005 to upgrade its network. And U.S. West has recently announced that it will extend DSL deployments to 30 cities.
Meanwhile, competition is driving down prices. Just last week Verizon announced that it was reducing DSL rates from $49.95 to $39.95. In my testimony, I have also identified that other Bells have done the same. In fact, in one instance one Bell company has reduced DSL monthly charges from $89 in 1998 to $39 today.
Meanwhile, the residential local exchange market remains dominated by the Bell companies. And what we are hearing today about rural DSL deployment or broadband deployment by the Bell companies is very familiar. It is what we have heard before as to broadband deployment, generally. But what we now know is that the Bell companies can, and, in fact, have deployed broadband.
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Just this May, Bell South announced that it will deploy a high-speed infrastructure in every LATA in Georgia, including rural LATAs.
But in all events, since last year we now know that the 1996 act requirements for entry into the LD market are attainable. They were attained in New York and they were attained in Texas. And other companies can attain entry into the interLATA market if they just open their local exchange market.
This is a crucial point. That remains a market dominated by the local exchange carriers. So when we look at the promising growth of competition in broadband deployment, we look at the local exchange market, particularly for residential customers, and we realize that it is dominated by the local exchange carriers. Granting the relief proposed here will only solidify that position.
In addition, you should also consider this: Passage of this legislation would hurt consumers in the 47 jurisdictions where the Bell companies do not today have relief, and that is because if this legislation were enacted, for all the reasons you have heard this morning, the Bells would have no incentive to open markets in those States. As a result, the competitive investment dollars that have been flowing since the 1996 act was passed will flow to New York and Texas but away from those States where less competitive opportunities exist.
In addition, I would like to mention that the marketplace is also working in a second important respect. Cable companies will offer choice of ISPs to their consumers. Last June, AT&T told this committee that it would provide consumers access to content of their choice. In a December letter to Chairman Kennard, AT&T confirmed that it would, upon expiration of its exclusive contract with Excite@Home, provide consumers with a choice of ISPs. And earlier this summer AT&T announced that it will conduct two trials to work out the technical issues involved in offering choice.
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This is a result of our own self interest. The more that we meet our customers' needs, the more customers we will have, the more traffic we will carry, and the more likely we will be able to sell other cable and telephony offers.
Now we hear that other cable providers are also indicating that they will provide customers with choice. These steps confirm that the marketplace is addressing these concerns. There is no need for legislative action that would create uncertainty, give rise to litigation, and slow deployment of competitive offerings.
Mr. Chairman and members of the committee, we respectfully urge the committee to promote continued deployment of broadband in a swift, widespread, and commercially reasonable manner by maintaining the act's competitive incentives.
Thank you.
Mr. HYDE. Thank you, Mr. Cali.
[The prepared statement of Mr. Cali follows:]
PREPARED STATEMENT OF LEONARD J. CALI, VICE PRESIDENT, FEDERAL GOVERNMENT AFFAIRS, AT&T, WASHINGTON, DC
Chairman Hyde, Ranking Member Conyers, and members of the Committee, it is a pleasure to be with you today, and to discuss the many developments that have taken place in the telecommunications marketplace since the Committee's last hearing on these issues on June 30, 1999. AT&T and hundreds of competitive providers are working harder than ever to provide consumers with advanced technologies and services at affordable prices. The rapid development and deployment of these new services is a direct result of the opportunities created by the Telecommunications Act of 1996. Congress and this Committee should take great pride in this landmark legislation. It is transforming the way we communicate and increasing competition in the telecommunications marketplace.
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My message to you today is this: the marketplace is effectively addressing the primary issues of concern in H.R. 1685, the ''Internet Growth and Development Act,'' and H.R. 1686, the ''Internet Freedom Act.'' It is generating unprecedented investment in new infrastructure and services, and giving millions of consumers new choices, quality services, and lower prices for broadband services. Congress should not jeopardize this remarkable success by gutting the 1996 Act, creating new marketplace uncertainty, and undoing the reforms that made this progress possible.
Last year, AT&T testified before this Committee that the provisions of H.R. 1685 and H.R. 1686 that would amend our antitrust laws and modify the long distance restrictions of the 1996 Act were both unwarranted and unwise. The bills address problems that do not exist in the marketplace, and do so in ways that would distort antitrust jurisprudence, retard competitive investments, lead to regulation of the Internet, and subvert the incentive-based framework of the 1996 Act. Rather than restate these arguments, I have attached to this statement a copy of AT&T's written testimony from last year. In addition, I request that the July 29, 1999 letter from Judge Robert H. Bork to you, Mr. Chairman, along with his statement analyzing the legal and policy implications of these two bills, be made a part of today's record. With this introduction, I would like to focus my testimony on developments in the marketplace over the last year that underscore the case against re-opening the Act.
The Broadband Marketplace Is Working, With Rapidly Expanding Availability Of Broadband Offerings And Sharply Declining Prices
Taking advantage of the new opportunities created by the 1996 Act, and with increasing certainty about what the Act provides, industry participants have devoted tremendous resources and staggering investments to the development and deployment of advanced technologies and services. These participants include cable companies, competitive local exchange carriers, satellite providers, wireless providers, and the incumbent local phone companies. There is, in fact, a broadband race underway that is perhaps the most significant development resulting from the 1996 Act, and one that is having a very real impact on consumers. Prior to enactment of the 1996 Act, there were only a handful of potential local exchange competitors, and consumers were only able to access the Internet via dial-up access or an expensive T–1 line. Today, there are 300-plus competitive local exchange carriers (''CLECs''),(see footnote 6) and many consumers can choose to access the Internet using competing and high-speed technologies, such as those offered by DSL, cable modems, satellite, and fixed wireless offerings. In addition, notwithstanding contrary claims based on outdated or incomplete data, dozens of competitive providers have, in the last four years, blanketed the Nation with over 1,000 high-speed Internet points of presence (''POPs''). As a result, today 95% of all Americans live within 50 miles of one of these competitively provided POPs (as depicted in the attached maps of the United States). And even this understates the level of access to the Internet backbone because local ISPs aggregate onto high-speed private lines the demand of local communities for transport to the Internet backbone, regardless of the distance to the Internet POP.
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As a result of the growth of investment and competitive activity during the last 4 years, increasing numbers of American businesses and residential consumers in all regions of the country are able to choose from a greater number of technologies and broadband offerings at lower costs for their communications needs. For instance, today more than 3 million American subscribe to high-speed data services using either cable modem or DSL technology, and that number is rapidly increasing. Moreover, analysts estimate that cable modems will be available to 54 percent of U.S. households by the end of this year, and more than 80 percent by 2002.(see footnote 7) In addition, the analysts tell us that DSL service should be available to over 36 percent of U.S. homes by year-end, and 65% in 2002.(see footnote 8) All of this is the result of the broadband competition that the 1996 Act made possible. This competition means more choices and lower prices—clear evidence that the marketplace is meeting the very needs that these two bills would address.
The cable industry has taken a leading role in bringing broadband offerings to residential consumers. Cable modems provide Internet access at speeds up to 100 times faster than dial-up telephone modems. Since 1996, the cable industry has invested more than $31 billion—and the number is growing everyday—to enable this technology by rebuilding cable plant and making cable facilities two-way interactive systems through the use of hybrid fiber coax networks.(see footnote 9) As of May 2000, there were over 2 million cable modem subscribers in the United States, and cable modem service was available to more than 48 million homes in the U.S and Canada, or 44 percent of the homes in the cable service area. Analysts project that 7,500 high-speed cable modem service subscriptions are being added every day in North America, with an overwhelming majority of those in the United States.(see footnote 10)
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The cable industry has not been alone among the competitors. Fixed wireless providers, including companies such as AT&T, Winstar, Nextlink, and Teligent are investing significant resources to develop fixed wireless technologies that will use radio frequency to transmit large amounts of data and permit American businesses and consumers to obtain high speed Internet access. In addition, competitive local exchange carriers that have come to be known as ''data LECs'' or ''DLECs'' are rapidly deploying DSL technology for high-speed Internet access. (See attached chart of annual investment in infrastructure.) As of June, 2000, more than one million Americans subscribe to DSL services provided by competitive and incumbent local exchange carriers, and analysts project that number will exceed 2.1 million subscribers by year's end.(see footnote 11) As of the end of the first quarter of this year, three of the top eight DSL service providers are competitive carriers, representing 22 percent of DSL subscribers. Some of these companies, like Covad Communications, did not even exist prior to enactment of the 1996 Act.
DSL technology has existed for more than 10 years, but until recently the incumbent monopoly providers have had no incentive to deploy it. In recent months, however, spurred by this growing broadband competition, the incumbent carriers have responded with their own burgeoning DSL deployment. For example, SBC announced in October that it will devote $6 billion to provide 80 percent of its customers with DSL service by 2002. Bell Atlantic has also announced that it will invest $1 billion per year until 2005 to further develop its fiber network. And just last month, US West announced that it was expanding its DSL service to 30 new cities.(see footnote 12)
Developing competition is not only driving the incumbent carriers to deploy DSL, but where competition exists, it is also forcing the incumbent carriers to reduce their DSL charges to consumers. Bell Atlantic, for instance, just announced that it is lowering its DSL rates from $49.95 to $39.95 per month. Other Bell companies have similarly slashed their charges, with one Bell company having been forced to reduce its monthly charge from $89 in 1998 to $49 in 1999 and again to $39 in 2000. (See attached chart of RBOCs DSL pricing changes.) While these companies might be commended for these efforts, it is only the developing competition—and the prospect of greater competition—that is driving these aggressive roll out strategies and price reductions.
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In short, during the past 12 months, market participants in all regions of the country have greatly increased their deployment of various broadband technologies. At the same time, prices for these services have fallen dramatically. The deployment to date has required vast sums of capital that the companies have been able to raise in the marketplace because of the growing regulatory certainty and framework provided by the 1996 Act. Congress should not jeopardize the further deployment of these technologies nor the competition that exists today by passing legislation that would re-open the 1996 Act and create new and uncertain obligations.
The Bell Companies Have Demonstrated The Ability And Incentive To Deploy Broadband Services Without Obtaining Further Long Distance Relief, And Such Relief Is, In All Events, Within Their Reach
This discussion also confirms that, notwithstanding their claims to the contrary, the Bell companies do not need long distance ''relief'' to deploy broadband services. They are amply able to do so, and have done so under the spur of developing broadband competition.
Since the Committee's last hearing on these bills, moreover, it has been confirmed that the Bell companies themselves hold the key to obtaining the authority to provide long distance services, and that they will make efforts to open their local markets in order to do so. For example, in December, the FCC granted Bell Atlantic permission under Section 271 of the Act to provide interLATA service in New York. Little more than two weeks ago, the FCC also granted SBC approval to provide interLATA service in Texas. Although AT&T believes that each of these Bell company applications fell short of what the Act requires in particular respects, it is clear that the requirements of Section 271 of the Act are attainable and can be met, if a Bell Company takes steps to open its local markets to competition.
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This is a particularly significant point. As AT&T testified before this Committee last year, in order to foster local competition, the 1996 Act permits in-region interLATA authority only after a Bell company has opened its market to competition. This incentive-based approach takes full advantage of the long distance restriction to provide the Bell companies reason to open their local markets for the benefit of all consumers. Too much remains to be done for Congress now to remove or lessen this incentive. If one thing has not changed since this Committee's last hearing on this bill, it is the continuing dominance of the local exchange market by the Bell companies and other incumbent local carriers. CLECs account for only about 6 to 8 percent of the total local telecommunications market,(see footnote 13) and far less of residential local telephone service. As a result, and notwithstanding the growth of broadband competition, the Bell companies continue to dominate local exchange telephone services, particularly for residential consumers. By permitting Bell companies to enter the interLATA market without first opening their local markets, H.R. 1685 and H.R. 1686, as well as H.R. 2420 sponsored by Representative Tauzin, would substantially reduce the prospects that this dominance will end. As such we strongly encourage you to oppose these measures.
Passage of this legislation would also hurt consumers in another way, in the 47 jurisdictions where the Bell companies have not yet sufficiently opened their local markets to obtain interLATA authority. Recent press reports indicate that other Section 271 applications may soon be filed.(see footnote 14) But if this legislation were enacted, the Bell companies in those states and others would have no incentive to take any steps to open their local markets to competition. That means that CLECs and other competitive providers would have substantially fewer opportunities to compete in those states than would otherwise exist, and less than exist in New York and Texas today. As a result, investment dollars would be directed toward the latter two states, and away from the remaining states in the Nation.
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Cable Companies Will Offer Their Consumers A Choice Of ISPs Over Their Broadband Cable Facilities
Last June, AT&T told this Committee that, free from government mandate and regulation, AT&T would ensure that consumers are able to access the content of their choice over its cable facilities. Over the last year we have worked diligently toward fulfilling this vision. On December 6, 1999, AT&T publicly confirmed, in a letter to FCC Chairman William E. Kennard, that it would, upon expiration in 2002 of its exclusive contract with Excite@Home, provide consumers with a choice of ISPs and that it would enter into commercial negotiations with unaffiliated ISPs that wish to offer high speed Internet access over AT&T's broadband cable facilities. Earlier this summer, AT&T also announced that it will conduct two trials to work out the technical issues involved in offering customers a choice of ISPs on its cable system. These trials will take place in Boulder, Colorado this Fall and in Massachusetts next Fall. ISPs representing a broad cross-section of popular national and local providers have indicated an interest in participating in these trials.
These actions further confirm AT&T's commitment to provide its customers with a choice of ISPs over its broadband systems. We were the first company in our industry to commit to choice, we were first to agree to a set of principles with an unaffiliated ISP to provide connectivity, and now we're first to commit to meaningful technical trials.
These efforts are hardly surprising, however. AT&T has invested billions of dollars in its cable facilities, and its own self-interest is driving it to provide consumers the choices and access they desire over those facilities. This is because the more that AT&T satisfies its customers, the more customers it will have, the more traffic it will carry, and the more likely it will be to sell to customers its other cable, broadband, and telephony offerings. And now three of the other largest cable providers—Time Warner, Comcast, and Cox Communications—have also indicated that they would offer their customers a choice of ISPs. These steps confirm that the marketplace is addressing the concerns reflected in H.R. 1685 and H.R. 1686. There is no need for legislative action that would create marketplace uncertainty, give rise to litigation, and slow deployment of competitive offerings.
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This explains also why, in the face of these facts, some of the most vocal proponents of forced access to cable facilities are the incumbent local exchange carriers. They stand to benefit the most if unnecessary legal and regulatory requirements impose greater cost, uncertainty, and delay on the conversion of cable facilities to an advanced infrastructure that is capable of providing competitive broadband and residential local telephone services. There is no public interest benefit in such an outcome.
Conclusion
Mr. Chairman and members of the Committee, the marketplace for broadband offerings is working. Notwithstanding the costs, technical hurdles, and, at times, hostility and resistance of the incumbent local carriers, broadband services are being rapidly deployed in a competitive framework. As a result, American consumers are enjoying new technologies and services at lower prices. Analysts predict that by 2005, 38 million U.S. households will access the Internet via broadband services.(see footnote 15) In addition, the major cable companies have indicated that they will offer their consumers a choice of ISPs over their broadband cable facilities, and AT&T is taking the necessary steps in preparation for doing so. We respectfully urge the Committee to promote continued deployment of broadband in a quick, widespread, and commercially reasonable manner by maintaining the competitive incentives provided under the 1996 Act.
67332f.eps
67332g.eps
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67332h.eps
67332i.eps
PREPARED STATEMENT OF MARK C. ROSENBLUM, VICE PRESIDENT FOR LAW, AT&T CORPORATION, BASKING RIDGE, NJ
It is a pleasure to appear before this Committee today to discuss H.R. 1685 and H.R. 1686. We commend the Committee for the leadership role it has played in the last three years in ensuring appropriate enforcement of the antitrust laws in the telecommunications industry.
Before passage of the Telecommunications Act of 1996 (the ''Telecom Act''), investment in the cable and telecom industries was sluggish. Now, with the legal and regulatory certainty the Act provides, investors are flocking not only to cable providers and incumbent monopolies, but also to competitive local exchange carriers, wireless providers, and other telecom companies.
We at AT&T believe that government policies that encourage entry and investment by, and promote competition among, providers of broadband services promise enormous benefits to all Americans. AT&T has embarked on a mission of investing the widest possible deployment of broadband technology and services to consumers. For us, broadband technology is not merely an effort to promote high-speed Internet access, important though that is. Rather, we've always been a communications company, and our plan is to use our broadband capabilities to compete in local phone markets across the country, offering spirited competition to the incumbent monopoly local exchange carriers—all resulting in lower prices, better service, and more choices for millions of residential consumers. Our actions in the marketplace are fulfilling the promise of the Telecom Act. We will use cable technology to provide local phone service. We approach the issue of the proposed Goodlatte-Boucher legislation from this perspective.
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If we have learned anything in the few short years that the Internet has become such an important part of the fabric of our national life, it is this: we cannot legislate technology. To do so would distort not only the workings of markets, but the development of technology itself. Further, it would stifle investment—the very investment that permits entrepreneurs to develop and market powerful and innovative new technologies. Competition among technologies, as well as among companies, will lead to the quickest possible deployment of broadband services. We certainly hope that high-speed access to the Internet through cable succeeds in the marketplace, but we know that will occur only through competition among cable, satellite, and DSL providers.
Yet the proposed legislation would violate the most basic antitrust principles by requiring Federal courts to ignore the reality of intense rivalry among alternative broadband technologies. It would thus discourage, rather than encourage, investment and competition and harm rather than help consumers. Of course, any attempt to replace the antitrust laws' traditional focus on case-by-case consideration of the relevant markets and the competitive forces in those markets with inflexible legislative determinations should be approached with great caution. But this is especially true in markets characterized by rapidly evolving technologies. There is simply no reason even to try to do so here. Market forces, buttressed by existing antitrust laws and specially-tailored regulatory protections—in particular, the Telecom Act provisions designed to prevent the incumbent local telephone companies from extending or abusing their monopolies—are a superior approach.
Since enactment of the Telecom Act, AT&T has led the telecommunications and cable industries in investing billions of dollars to upgrade cable facilities to provide Internet and local telephone services—a risky proposition given that the dominant local telephone monopolies and Internet providers have virtually all of the customers today. But we and others are making those investments on the understanding that the national policy embodied in the Telecom Act requires that we do our part to foster the local phone competition that is the central promise of the Act.
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Preserving competitors' incentives to make these investments is not simply important in its own right. The mere announcement of our cable upgrades—and particularly AT&T's unrivalled public commitment to short-term and large-scale deployment—have, in turn, spurred the local telephone monopolies and others to finally deploy the broadband technologies they have had sitting on the shelves for years and, equally important, to enter into commercial arrangements with Internet providers (notably AOL) to bring even broader choice to consumers.
The proposed legislation, in contrast, would denying the cable companies that have largely stimulated these vibrant market forces the right to respond to market forces in balancing customer demands, technology constraints, and legitimate network congestion concerns and in pursuing commercially-negotiated arrangements of their own. Ironically, this could only discourage both cable investments and the long-overdue competitive response to those investments by today's dominant providers of Internet and local telephone services.
That would be a very high price to pay, particularly given the reality of the marketplace. Competition will ensure that consumer demands for the services they want are met. Any cable provider that fails to offer customers the services and choices they demand will simply lose in the marketplace. AT&T recognizes this reality, and having committed more than $100 billion of its shareholders' resources to acquire TCI and MediaOne and upgrade their cable facilities, is fully committed to making sure that consumers are able to access the content of their choice—a point our Chairman, C. Michael Armstrong, has made publicly on numerous occasions. If we don't give consumers what they want, they will simply go somewhere else—or, more precisely, given that we are just getting started here, stay somewhere else, which is with the incumbent local phone companies.
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Thus, the question here is not whether cable systems will be ''open,'' but whether new facilities and services that offer the most viable near-term hope for legitimate local competition should be allowed to develop in accordance with customer demands and market forces—rather than through protracted and costly litigation that will discourage the very investment necessary to generate this rivalry and the ensuing consumer benefits.
The remainder of this testimony is organized in two parts. First, it discusses why we believe existing laws are more than adequate to address potential anticompetitive conduct in the broadband area and that the proposed legislation is fundamentally flawed. No new legislation is necessary to protect consumers of broadband services. Moreover, the proposed legislation is fundamentally flawed from the perspective of antitrust jurisprudence and economics. Second, we believe the proposed legislation would in fact retard the rapid deployment of broadband technologies both by placing unwarranted new regulatory constraints on cable companies and by removing existing protections against anticompetitive conduct by local telephone monopolies. By contrast, the best way to make sure that all consumers have access to a variety of broadband technologies and services, including both cable-based systems and systems provided by the local telephone monopolies, iis to allow market forces, constrained by existing regulatory protections, to continue working.
The Existing Antitrust Laws Are Working
Regardless of one's perspective on the appropriate role of government in the deployment of broadband, there would still remain many reasons to oppose attempting to change the Federal antitrust laws in the manner proposed in this legislation. From the perspective of antitrust law and antitrust economics, there are a number of serious shortcomings in this proposed legislation.
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First, this bill imposes an inflexible statutory definition of the relevant ''market'' (the ''broadband service provider market'') which is inaccurate at best and more generally inappropriate. In the normal course, under well-developed case law, an antitrust plaintiff must prove that the defendant has the power to control prices and output and exclude competitors in a relevant market. The appropriate definition of the relevant market is thus the starting point of traditional antitrust analysis. To determine what the relevant market actually is, agencies and courts must consider the facts as to whether customers have alternatives that effectively prevent a firm from raising prices or limiting choice without losing business—in antitrust jargon, the ''elasticities.''
This bill, in contrast, would foreclose the usual role that economic realities and evidence play in this determination and force an artificial definition of the market. Not only does the bill decree that broadband services are the relevant market—even though broadband Internet access services plainly compete with narrowband services today—the bill further declares that the facilities of a single broadband access provider constitute the relevant market. In essence, this bill would bypass relevant case law and deem individual broadband networks to be ''essential facilities'' (i.e., those that are essential for competition in the relevant market) without finding any ability to exercise monopoly power and notwithstanding that those seeking access to such a network have alternative suppliers that can provide the same or similar high-speed capabilities. This ignores long-developed precedent on the essential facilities doctrine by asserting a presumption of a Sherman Act violation based only on a broadband access provider's legitimate business decision.
Problems with this statutorily-mandated definition will grow even worse as technology evolves in the coming years and even more alternative for communications and broadband technology appear in the market. Rather than forcing Congress to perpetually revisit this question of the appropriate market definition, therefore, the easier and more logical course is surely to preserve traditional antitrust principles and analysis by letting administrative agencies and courts determine the relevant market in any enforcement or damages action.
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Second, the bill's proposed new procedural rules in antitrust suits involving broadband Internet access threaten to sow considerable confusion and lead to a litigation and regulation explosion. For example, Section 102 of the bill establishes a presumption of a Sherman Act violation any time a cable company that provides broadband Internet access seeks to negotiate terms and conditions for access with one ISP that are in any way different from those offered to any other ISP. But the legislation is silent as to how this would work in practice. What does it mean to say this is a presumption? What evidence would suffice to rebut it? What happens in Sherman Act cases after the applicability of the presumption has been established. More fundamentally, the procedure envisioned in the legislation would inevitably enmesh the Federal courts in all 50 States in setting, overseeing and administering the rates, terms, and conditions for interconnection between literally thousands of broadband and Internet providers. This is certain to be extraordinarily costly and cumbersome. It would also foreclose the very innovation that the antitrust laws otherwise seek to foster by preventing new firms with new ideas from investing in new approaches that may require different interconnection arrangements.
Stated broadly, we are seriously concerned that the proposed legislation would lead to sharply increased litigation, rather than healthy industry competition. The bill creates the ''presumption'' of a Sherman Act violation any time a broadband service provider merely offers more favorable terms or conditions to one ISP. This presumption would apply without regard to whether this access was the result of fair commercial bargaining between the parties or the need of broadband service providers to recoup their investments. In effect, the bill would establish a new cause of action for the more than six thousand ISPs every time a broadband provider enters into an agreement with an ISP.
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Because the bill gives special advantages to plaintiffs, defendants would have the scales tipped against them. As noted above, the legislation is unclear regarding whether the presumption of a Sherman Act violation is rebuttable and how defendants may challenge the presumption in court. It follows naturally that accepted procedural devices for quick dismissal of meritless litigation, such as motions to dismiss or motions for summary judgment, would be difficult, if not impossible, for defendants to obtain. This would considerably increase the costs of litigation for all parties, as even meritless claims could proceed only to trial or settlement.
Finally, this bill marks a sharp departure from the philosophy that has animated antitrust jurisprudence for over a century. The Sherman Act was intentionally written in language that is somewhat simple and general to ensure that courts have adequate flexibility to respond to rapidly changing market conditions and to new economic developments regarding the nature of the competitive process in particular markets.(see footnote 16) Moreover, courts have uniformly recognized that the Sherman Act is a law of general application and is for the ''protection of competition, not competitors.''(see footnote 17) Historically, the Federal antitrust statutes have been laws of general application. Accordingly, courts have generally rejected special, narrow presumptions or exceptions. Similarly, Congress has appropriately rejected prior legislative proposals suggesting specific presumptions or exceptions covering the health care, transportation, and energy industries, even in the face of asserted public health and safety rationales.
In sharp contrast, this bill is written in industry-specific and frankly protectionist terms that are contrary to the pro-competitive spirit of long-standing Federal antitrust laws. Likewise, rather than giving competitors and courts the ability to respond to new market conditions and to economic developments, it artificially dictates the relevant market and decrees that each broadband provider's system is an essential facility. Not only is this approach unprecedented, but the legislation would prevent broadband access providers from demonstrating in court that actual competition exists between or among different broadband companies and technologies. In short, this bill would protect competitors at the expense of competition.
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Surely Congress cannot desire this result: to adopt this legislation would retard the competition among technologies that lies at the heart of innovation. Any new technology, by virtue of its newness, its challenge to the established way of doing things, would be seen as a potential monopoly—a strong deterrent to innovation.
Towards the Broadband Future
Of equal importance to the consideration of the proposed legislation is the question of whether this bill would further or retard an important public policy goal: achieving the rapid deployment of all types of competing broadband technologies to consumers. AT&T has a strong interest, shared by many on this Committee, in ensuring that this broadband technology is deployed quickly and widely to all types of consumers. Regrettably, this bill, while intended to spur the deployment of advanced telecommunications services, would actually undermine the pro-competitive policies of the Telecom Act in several important ways.
First, as explained above, competition, not regulation, provides the best incentive for broadband deployment. In fact, had this legislation already been enacted, we would not be witnessing the current dramatic explosion in competition to provide consumers with high-speed Internet access. Since cable companies have entered the broadband market, deployment of all types of advanced broadband services has skyrocketed. While DSL broadband technology has been around for years, the RBOCs and GTE began stepping up their deployment and lowering their prices only in response to the emerging competition from CLECs, cable companies, wireless, and satellite providers.
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The FCC has noted that investment in broadband facilities by cable operators and CLECs ''spurred incumbent LECs to construct competing facilities.''(see footnote 18) Wall Street analysts have likewise observed that competition from cable and CLECs is the primary force spurring incumbent LECs to increase their investment.(see footnote 19) This appears to be the case in markets around the country, where the ILECs have lowered their prices and expanded their coverage areas in response to the entry of competitors.(see footnote 20)
Indeed, four RBOCs (SBC, BellSouth, U S WEST and Bell Atlantic) and GTE expect to be able to offer DSL service to over 31 million homes in their regions by the end of this year. Competition keeps driving deployment ever faster and prices ever lower. For instance, in January 1999, SBC accelerated its deployment timetable by two years and reduced its price for 384 kbps DSL service about 30% to $39 per month. Likewise, in May 1999, U S WEST dropped its price for 256 kbps DSL service 25%, to only $29.95 per month, making it a much more attractive offering.
Particularly since AT&T announced its intent to use cable systems to provide high speed Internet access, deployment of all types of advanced broadband services has skyrocketed. Having amassed a dominant share of Internet subscribers while ignoring demand for broadband Internet access for years, AOL has now announced a series of initiatives with the RBOCs to provide high speed access over telephone lines. Likewise, AOL has just announced a venture with Hughes to deliver broadband service via satellites.
Second, the proposed legislation would directly undermine the pro-competitive policies of the Telecom Act that have accelerated investment in new state-of-the-art local networks. As a direct consequence of the landmark Telecom Act, over 150 competitive local exchange carriers (CLECs) are in business today, providing new jobs and investing billions of dollars in the Nation's telecommunications infrastructure.
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This progress, however, has not come quickly or easily and has still not brought meaningful local competition to the overwhelming majority of Americans. Rather than complying with the Act's market-opening requirements, the incumbent local exchange carriers (ILECs) have opted to delay the onset of local competition by challenging the constitutionality of the Act and appealing almost every state and FCC decision adverse to their interests, or by simply refusing to do what the Act plainly requires. The ILECs continue to control 97% of their local markets, and the very popularity of second lines devoted to data services has only served to reinforce this level of market dominance. Thus, new entrants and competitive companies continue to face an uphill battle as they work and invest to make local competition a reality.
After almost three full years of litigation, having now failed in that effort, the RBOCs and GTE are now asking Congress to reward their recalcitrance by making exceptions in the Act for the provision of data services, including across LATA (local access and transport area) boundaries. They claim that this legislative ''relief'' is needed to foster broadband deployment.
Yet this claim is based on several false premises.
First, the Act is technologically neutral; its pro-competitive policies apply equally to both voice and data. Recognizing that Americans deserve a competitive choice both when they use the phone and log on to a computer, Congress made no distinction between voice and data traffic in the Act. The Act, like the 1984 antitrust decree before it, encompasses all telecom services, and already provides the relief the ILECs seek—when they open their local monopolies to competition.
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Second, granting ''limited'' relief covering data is functionally equivalent to granting total, unconditional relief from the requirements of Sections 251 and 271 to the ILECs. Over half of today's telecommunications traffic is data, and data traffic is growing at 30% per year, according to the Dataquest research firm.(see footnote 21) Another estimate has data ''outgrowing voice 15:1,'' noting that ''90% of data is long-haul rather than local.''(see footnote 22)
In addition—as the ILECs well know—with the advent of Internet Protocol (IP) technology, the distinction between ''voice'' and ''data'' traffic, already blurred, is quickly disappearing. Indeed, voice and data are transported over the same network, not two distinct networks. As an SBC executive recently stated, ''DSL is a bigger deal than high-speed access to the Internet; it's about renewing our networks.''(see footnote 23) This view is supported by industry analysis: one report affirms that ''[t]he telecommunications industry is making a fundamental shift from circuit switched voice networks with data overlays to packet switched data networks with voice overlays.''(see footnote 24) Thus, although the proposed legislation would exclude voice-only services from this LATA relief, the reality is that under today's technology, there may be no such thing as a voice-only service.
Far from fostering broadband deployment in rural and other underserved areas, this legislation would actually hinder it. The ILECs have argued that legislative action is necessary for the deployment of broadband in rural areas. In actuality, however, large incumbent monopoly carriers have been abandoning their rural customers and selling off rural lines. U S WEST and GTE, in particular, have been active in selling off small rural exchanges to concentrate on urban and suburban markets; U S WEST alone has sold over 400 rural exchanges since 1994, while GTE is currently shedding 1.6 million lines, including all of its wireline exchanges in Alaska, Arkansas, Arizona, Iowa, Minnesota, Nebraska, New Mexico, and Oklahoma. Notably, one securities analyst noted observed that ''[w]e believe the large ILECs would be inclined to divest more rural properties if they judged that they could do so without political fallout.''(see footnote 25) All this raises serious questions about the commitment of the RBOCs and GTE to serving rural customers, with or without the relief they seek in this legislation.
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Moreover, the scope of this legislation is not limited to rural areas. For example, provisions in the legislation would bar competitors from leasing DSL-equipped lines from the incumbents, limiting their ability to compete at all in rural or other areas.
Conclusion
In short, the market, properly constrained by existing antitrust and regulatory protections, is working. Incumbent carriers are already responding to the pressure of even modest market entry by new competitors, and the benefits of this rivalry can only accelerate as new entry becomes more significant. In these circumstances, the proposed bill can only do harm. Government should not tamper with this evidence of a market that is working. Experience has shown that the best way to encourage broadband deployment is to encourage and ensure competition for local monopolies and Internet giants. In short, the Act is beginning to work just as Congress intended; now is not the time to reopen the Act.
We respectfully urge this Committee to promote quick and wide deployment of broadband technologies in the best way possible: by standing with the Act and existing antitrust laws and opposing efforts such as this legislation to rewrite them in furtherance of narrow interests that are in direct conflict with the public good.
Mr. HYDE. Mr. Wolzien?
STATEMENT OF TOM WOLZIEN, SENIOR MEDIA ANALYST, SANFORD C. BERNSTEIN & CO., NEW YORK, NY
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Mr. WOLZIEN. Thank you, Mr. Chairman, members of the committee. As senior media analyst for Sanford C. Bernstein, a Wall Street research and investment firm providing research on publicly-traded entertainment and cable companies to the large institutional investors, the managers of pension and mutual funds, I cover Disney, AOL, Time Warner, Viacom, Comcast, Cox Communications, and Liberty Media, putting me on at least two sides, if not more, of these broadband discussions.
Since Bernstein is not involved in investment banking, none of these companies is a client.
Today, at the invitation of the committee, I will make four points dealing with investor concerns over mandated access, potential cable reactions, the legitimate concerns of content providers that don't own cable systems, and to note the unique opportunity companies have now to cooperate to use this new technology to assist efforts in the public interest.
Point one, what investors expect. The traditional cable business of offering video channels is a mature business. It is the new digital businesses that provide investors with the potential returns that provide the rationale to invest in cable today. If the rationale goes away, so may some of the investments.
Cable companies are past the mid-point of investing more than $20 billion to provide upgraded plants that can handle traditional analog video signals and the two-way transmission of data bits to open up new applications in the online, pay-per-view, television-based commerce and digital telephone areas.
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The improved economic returns justifying the expenditure are not based simply on common carriage of data bits at some bulk price; rather, they are based on the much higher returns that are anticipated for those new bit-using applications, for the applications, not the transport.
Here is an example of what cable investors fear. An ISP taking advantage of mandated access, for example, might transmit streaming movies on demand, in direct competition with the same movies provided by the cable company elsewhere on that same cable, but the ISP might pay the cable company only a flat rate for the number of bits transmitted, keeping the up side for entertainment value carried in those bits for the ISP, itself.
Conversely, in a negotiated business deal, the ISP might still be providing those streaming pay-per-view movies to the detriment of the cable company, but the cable operator might have negotiated to share in the pay-per-view up side and would see his returns made whole because the ISP might deliver millions more new subscribers to the cable company's digital services.
Such a negotiation, of course, presupposes that the ISP brings something of value to the table.
Point two, mandated access could damage implementation of the second wired infrastructure. If mandated access threatens cable's expected returns, a cable company can either quit building out its plant at halfway or 60 percent of where we are today, leaving the country stuck with about half the plant upgraded, or it might avoid offering a retail data service and shift emphasis, instead, to other services that might not fall in the common carrier arena. For example, it could focus its two-way plant on digital pay-per-view or television-based commerce but forego the data-related businesses that might put that portion of its business under regulation.
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Without an aggressive roll-out of cable data services, I think it is reasonable to ask if the RBOCs would continue to be as motivated to expend the capital necessary to build out their own broadband infrastructure.
Point three, there is risk to content companies. Worries that a cable company could provide preferential technical treatment to services it owns I think are legitimate. Think of the customer reaction to a slow response of a music video service not owned by a cable company versus one playing the music instantly because the cable company owns it and technically assures a faster response.
This is a risk, I believe, and I think it must be watched closely, but the lack of protective legislation is not damaging entertainment company investors today, and in the 1992 act, of course, there is precedent for dealing with cable companies that abused their positions as content owner and distributor.
Point four, a unique opportunity. No investor I have ever spoken with has complained about companies doing good works. And now is the time for content and distribution companies, alike, to begin defining programs of interactive public service announcements in the public interest. For example, an AIDS announcement runs on TV, click to get additional info. An Army ad runs, and click and a recruiter is at the door before the end of the show. An anti-alcoholism or drug abuse spot runs and click and there is information there for the closest AA meeting, and so on.
Finally, a pragmatic public policy question: The digital plant is being built, competition is beginning, and the dynamic marketplace is seeming to start to respond. Why change the rules now and regulate this area before the construction of the digital plant is completed and risk slowing or stopping the roll-out of digital services?
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Politically-astute cable companies know they must find a way to open up access. They know legislation is likely if they use technology to discriminate against content providers. And if legislation comes, those same cable companies know they will be severely punished by investors, just as they were in the mid-1990's after re-regulation was necessary then to correct abuses.
Thank you very much.
Mr. HYDE. Thank you, sir.
[The prepared statement of Mr. Wolzien follows:]
PREPARED STATEMENT OF TOM WOLZIEN, SENIOR MEDIA ANALYST, SANFORD C. BERNSTEIN & CO., NEW YORK, NY
Good Morning. I am Tom Wolzien, the Senior Media Analyst for Sanford C. Bernstein & Co, a Wall Street Research and investment management firm. I provide research on publicly traded entertainment and cable companies to large institutional investors'the managers of pension and mutual funds. I cover Disney, AOL and Time Warner, Viacom, Comcast, Cox Communications, and Liberty Media . . . putting me on at least two sides of these Broadband discussions. Since Bernstein is not involved in investment banking, none of these companies is a client.
I have been at Bernstein for nearly nine years, after a 25 year career in broadcast news and cable programming, working for NBC, CBS, Pulitzer, Time-Life, McGraw Hill, and the US Army as officer in charge of a combat photography unit in Vietnam. In the interests of full disclosure, I have some personal involvement in interactivity, having been awarded a patent for a process to connect television and radio programming with the Internet.(see footnote 26)
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Today at the invitation of the committee, I will make four points dealing with investor concerns over mandated access, potential cable reactions, the legitimate concerns of content providers that don't own cable systems, and to note the unique opportunity companies have to cooperate to use this new technology to assist efforts in the public interest.
Point One—What Investors Expect: The traditional cable business of offering video channels is mature, and it is new digital businesses that provide investors with the potential returns that provide the rationale to invest in cable. If the rationale goes away, so will the investments. Cable companies are past the midpoint in investing $20 billion or more to provide upgraded plant that can handle traditional analog video signals and the two way transmission of data bits to open up new applications in the online, pay per view, television based commerce, and digital telephone areas. The improved economic returns justifying the expenditure are not based simply on the common carriage of data bits at some bulk price. Rather they are based on the much higher returns that are anticipated for those new bit-using applications.
Here's an example of what cable investors fear: An ISP taking advantage of mandated access might transmit streaming movies on demand, in direct competition with the same movies provide by the cable company elsewhere on the same cable, but the ISP would pay the cable company only a flat rate for the number of bits transmitted, keeping the upside for the entertainment value carried in those bits for the ISP itself. Conversely, in a negotiated business deal, the ISP might still provide streaming pay per view movies to the detriment of the cable company, but the cable operator might negotiate to share in the pay per view upside, and would see his returns made whole because the ISP would deliver millions more new subscribers to the cable company's digital service. Such a negotiation, of course, presupposes that the ISP brings something of value to the table.
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Point Two—Mandated Access Could Damage Implementation of the Second Wired Infrastructure. If mandated access threatens cable's expected returns, a cable company could either quit building out its plant—leaving the country stuck with about half the plant upgraded—or it might avoid offering a retail data service and shift emphasis to other services that wouldn't fall in the common carrier arena. For example, it could focus its two way plant on digital pay per view and television based commerce, but forego the data-related businesses that would put it under regulation. And without an aggressive rollout of cable data services, it is reasonable to ask if the RBOCs would be as motivated to expand the capital necessary to build out their own broadband infrastructure.
Point Three—There Is Risk to Content Companies: Worries that a cable company could provide preferential technical treatment to services it owns are legitimate. Think of the consumer reaction to the slow response of a music video service not owned by a cable company versus one playing the music instantly because the cable company owns it and technically assures a faster response. This is a risk and it must be watched closely, but the lack of protective legislation is not damaging entertainment company investors today. And, in the ''92 Act, there is precedent for dealing with cable companies that abuse their positions as content owner and distributor.
Point Four—A Unique Opportunity: No investor I've ever spoken with has complained about companies doing good works. Now is the time for both content and distribution companies to begin defining programs of interactive public service announcements. For example, an Aids announcement runs on TV—click to get additional info. Army ad runs and click, a recruiter is at the door before the show's over. Anti alcoholism or drug abuse spot runs, click for the closest AA meeting and so on.
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Finally, a pragmatic public policy question. The digital plant is being built, competition is beginning, and the dynamic marketplace is responding. Why change the rules now and regulate this area before the construction of the digital plant is completed...and risk of slowing or stopping the rollout of digital services? Politically astute cable companies know they must find a way to open up access. They know legislation is likely if they use technology to discriminate against content providers. And if legislation comes, those same cable companies know that they will be severely punished by investors just as they were in the mid ''90s after reregulation was necessary to correct abuses.
Thank you.
Mr. HYDE. Mr. Sachs?
STATEMENT OF ROBERT SACHS, PRESIDENT AND CEO, NATIONAL CABLE TELEVISION ASSOCIATION, WASHINGTON, DC
Mr. SACHS. Mr. Chairman, Congressman Conyers, and members of the Judiciary Committee, my name is Robert Sachs and I am president and CEO of the National Cable Television Association. Thank you very much for the opportunity to express the cable industry's views on H.R. 1685 and H.R. 1686.
NCTA strongly believes that this legislation is unnecessary and unwarranted in light of developments in the broadband market where