Copyright 2000 Federal News Service, Inc.
Federal News Service
July 27, 2000, Thursday
SECTION: PREPARED TESTIMONY
LENGTH: 2140 words
HEADLINE:
PREPARED STATEMENT OF MR. JAMES D. ELLIS SENIOR EXECUTIVE VICE PRESIDENT AND
GENERAL COUNSEL SBC COMMUNICATIONS
BEFORE THE
HOUSE COMMERCE COMMITTEE SUBCOMMITTEE ON TELECOMMUNICATIONS
TRADE & CONSUMER PROTECTION
SUBJECT - H.R. 2420, THE INTERNET
FREEDOM AND BROADBAND DEPLOYMENT ACT OF 1999
BODY:
I am Jim Ellis, Senior Executive Vice
President and General Counsel of SBC Communications Inc.
I want to
compliment Chairman Tauzin and Ranking Member Dingell for their leadership in
sponsoring HR 2420. SBC strongly supports HR 2420 and encourages this Committee
to move this legislation to the full House. HR 2420 will have the effect of
increasing competition in the market for high-speed data and Internet access
services, by eliminating much of the regulatory disparity that currently exists
between providers of these services.
There are two fundamental
principles that should guide Congress in considering any legislation in this
area. First, competitive markets should be free from governmental regulation.
Second, if there is some public policy reason for regulating a market, all
service providers should be subject to symmetric regulatory requirements. In the
market for high-speed data and Internet access services, these are the
undisputed facts. First, there is no "bottleneck" in obtaining access to the
customer. Second, the incumbent local exchange carriers (ILECs) are way behind
in the provision of high-speed data and Internet access services. Third, the
ILECs are required to assist their competitors in entering this market. Fourth,
SBC provides high- speed data and Internet access services through separate
affiliates. Finally, SBC's advanced services affiliates and the other Bell
companies are at a competitive disadvantage in that they cannot provide
high-speed data and Internet access services on an interLATA basis.
The
effects of these regulatory disparities include the inefficient deployment of
new technologies, higher costs, fewer choices for consumers, and continuation of
the "digital divide." Hence, elimination of the regulatory disparity between the
ILECs in general and the Bell operating companies (BOCs) in particular, and
their competitors is essential to fulfilling the fundamental principles outlined
above.
Background
Historically, the only telecommunications
pathway or wire to nearly every home and business in this country was the local
copper loop. Until recently, the local loop was part of a circuit-switched
network that was capable of transmitting only narrow-band voice, and slow- speed
switched data services. The local exchange telephone companies provided these
services pursuant to a legally franchised monopoly, and thus were subject to
pervasive regulation at both the state and federal level. As competition began
to develop in the telecommunications marketplace, the local loop continued to be
viewed as the only way for competitors to deliver services to the customer. In
other words, it was considered a "bottleneck."
However, approximately 25
years ago, there developed another telecommunications pathway or second wire to
the home. Cable service began to emerge as an alternative to broadcast
television service, through the use of antennas located at the cable provider's
head-end that received programming from satellites, which was then transmitted
over coaxial cable to homes and businesses. Coaxial cable was different from the
ILECs' local copper loops, in that it was capable of transmitting broadband
video and high-speed data services.
Recently, additional
telecommunications pathways to homes and businesses rapidly developed through
various wireless technologies - in the form of digital satellite service,
cellular and PCS service, and fixed wireless.
Meanwhile, as competition
was developing in the telephone industry, the Internet began to evolve as a
source of new high-speed broadband "advanced services." When the '96 Act was
being debated in Congress, the scope of the Internet and the precise nature in
which these advanced services would be provided to the public was uncertain.
Congress sought to address this new telecommunications phenomenon and the
promising new services it had to offer through passage of Section 706 of the '96
Act. Section 706 established a new national telecommunications policy to
"encourage the deployment on a reasonable and timely basis of advanced
telecommunications capability to all Americans." Specifically, Congress directed
the FCC and state commissions to pursue this objective by "utilizing price cap
regulation, regulatory forbearance, measures that promote competition in the
local telecommunications market, or other regulatory methods that remove
barriers to infrastructure investment."
Unfortunately, the FCC has not
actively sought to eliminate, or even reduce, regulation of the ILECs' offering
of advanced services.
Cable Modem versus xDSL Service
With the
evolution of the Internet, both the cable and telephone industries had to
develop the technologies necessary to provide their customers with high-speed
broadband Internet access and data services. The cable industry developed cable
modems to be used in conjunction with their broadband coaxial cable networks.
The ILECs were at somewhat of a competitive disadvantage, because their
narrow-band local copper loops were not designed nor equipped to provide high-
speed broadband services. Hence, they had to develop a new technology called
Digital Subscriber Line or xDSL service, in order to provide digital information
at high bandwidths over copper loops.
While the ILECs were developing
xDSL service, the cable industry was rapidly deploying its cable modem
technology. The ILECs are now playing catch-up and are scrambling to deploy
Asymmetrical Digital Subscriber Line or ADSL service as a competitive
alternative to cable modem service. But, the cable industry is far ahead of the
ILECs in the actual provisioning of advanced services to consumers. At the end
of the first quarter of 2000, there were approximately 2.5 million residential
broadband subscribers in the United States, of which 1.9 million or 77% were
cable modem subscribers and only 21% were xDSL subscribers.
Thus, the
consumer market for the delivery of high-speed broadband Internet access and
data services is a highly competitive market between the cable industry and the
ILECs. It is a market in which cable modem service and xDSL service will provide
the same high-speed Internet access and offer to the same residential and small
business customers the same advanced and high-speed data services.
Most
importantly, the ILECs had no "head-start" in the deployment of advanced service
technologies. The ILECs possess neither de facto nor de jure monopoly in the
provision of broadband Internet access, advanced services, nor high-speed data
services. And finally, it is absolutely clear that the ILECs' local copper loop
is no "bottleneck" in the provision of these services to consumers.
Asymmetric Regulation
Unfortunately, the rules and regulations
that apply to the provision of advanced services by the cable industry and the
ILECs are entirely different.
The cable industry is essentially
unregulated in the provision of cable modem service. Under Title VI of the
Communications Act, the cable industry is not required to interconnect with its
competitors, nor unbundle its facilities and make them available to competitors,
nor resell its services. Moreover, the cable industry is not currently required
to give its customers a choice of an Internet service provider. This
unparalleled ability of the cable industry to control both the means of access
to the Internet, combined with its control of the content that is delivered to
consumers provides it with an enormous competitive advantage in the marketplace.
For example, AT&T/TCI/Media One and Time Warner alone control vast holdings
in the access and content market. AT&T/TCI/Media One is the largest cable
provider and provides cable modem service to almost 30% of all cable modem
customers. Time Warner directly and through its ownership of RoadRunner provides
cable modem service to approximately 38% of cable modem customers. Together, the
Time Warner and AT&T consortia also own 8 of the top 15 video programming
services, including 4 of the top 5. In addition, it is no secret that AT&T
has been trying to negotiate a joint venture with Time Warner, and Time Warner
and AOL, the largest Internet service provider, are planning to merge. This
creates a situation where the cable industry could well develop a dominant
position in the provision of certain forms of broadband Internet access,
advanced services, and high-speed data services.
This is in stark
contrast to the telephone industry, where the ILECs remain pervasively regulated
today. Under Title II of the Communications Act, they are subject to common
carrier regulation in their provision of broadband Internet access, advanced
services, and high-speed data services. In addition, the ILECs are obliged to
assist their competitors in offering competing xDSL services through the
interconnection, unbundling, and collocation requirements of Section 251(a) and
(c) of the '96 Act. Moreover, SBC's advanced services affiliates, through which
SBC provides Internet access and high-speed data services, are required to
provide interconnection under Section 251(a) and resale under Section 251(b).
Unfortunately, under such an asymmetric regulatory scheme, the
regulators frequently determine the winners or losers in the marketplace, and
not the consumer. This significantly affects the growth of new services and the
availability of choice. Accordingly, any legislation addressing high-speed data
and Internet access services should eliminate the regulatory disparity between
the cable and telephone industries.
HR 2420 goes a long way toward
accomplishing this objective by exempting high-speed data and Internet access
service, and the facilities used to provide such services from regulation, and
by eliminating any further unbundling requirements and the resale requirement in
respect to high speed data service.
InterLATA Restrictions
One
of the key regulatory disparities in the market for high-speed data and Internet
access services is the interLATA restriction. Section 271(c) of the '96 Act
prevents the Bell operating companies (BOCs) and their affiliates from providing
these services across LATA boundaries and Internet backbone service itself.
Neither the cable companies, the interexchange carriers, nor the CLECs are
subject to this restriction.
The interLATA restriction thus places the
BOCs at a significant competitive disadvantage in the provision of these
services, particularly to business customers.
Most medium and large
business customers have offices in multiple locations, states or even countries
that need to be interconnected for the exchange of high-speed data
communications. Frequently, these business customers also want someone to manage
these high-speed data networks, including for example the ATM and Frame Relay
engines, SONET rings, and interLATA transport. This requirement places the BOCs
at a distinct competitive disadvantage, because they are unable to be a full
service provider to these large business customers.
There is no need for
the interLATA restrictions in respect to these services. As the FCC has found,
the business market for high-speed broadband services is separate and distinct
from the consumer market for the same services.(1) Virtually all business
customers have access to high-speed broadband service that is typically provided
over T-1 lines, and business customers have many competitive alternatives for
obtaining that high-speed broadband access.(2) Accordingly, there is no
"bottleneck" in the "last mile" to the business customer.
Finally, the
interLATA restriction artificially inflates the BOCs' costs of deploying
advanced service technologies, and renders that deployment less efficient.
Further, it means that significant portions of our nation, particularly in rural
areas, cannot receive high-speed access to the Internet because they are not
close enough to a hub that can connect them to the Internet backbone. With
interLATA relief, the BOCs will be in a position to connect these communities to
the Internet, thus providing rural consumers and businesses with access to the
same Internet access and high-speed data services that are available in urban
areas.
Conclusion
HR 2420 has gained the support of many members
of this Committee and over 220 members of the House. It is a major step in the
right direction to correct the imbalance in regulation and close the "digital
divide." We look forward to working with the Committee and the Congress to
achieve these objectives.
NOTES:
1 In the Matter of Inquiry
Concerning the Deployment of Advanced Telecommunications Capability to All
Americans in a Reasonable and Timely Fashion, and Possible Steps to Accelerate
Such Deployment Pursuant to Section 706 of the Telecommunications Act of 1996,
Report, CC Docket No. 98-146 at 28 (released February 2, 1999).
2 Id. at
26.
END
LOAD-DATE: August 1, 2000
