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JUNE 24, 1999, THURSDAY

SECTION: IN THE NEWS

LENGTH: 3294 words

HEADLINE: PREPARED STATEMENT OF
MR. GLENN FALCAO
PRESIDENT, INTERNET AND SERVICE PROVIDER NETWORKS
NORTEL NETWORKS
BEFORE THE HOUSE COMMERCE COMMITTEE
TELECOMMUNICATIONS, TRADE
AND CONSUMER PROTECTION SUBCOMMITTEE

BODY:

The following statement presents an equipment provider's perspective on the availability of broadband solutions used in the deployment of data services and applications. Nortel Networks, as a leader in the provision of equipment and cutting-edge technology, is facilitating the development and deployment of reliable and cost effective high- speed access for all data service providers. Nortel Networks also supports open and fair competition in the deployment of data services as demonstrated by the goals of the 1996 Act.
Globalization and deregulation are among the most important drivers of the availability of broadband applications, which are critically important to the continued growth of knowledge sharing, electronic commerce, and electronic entertainment, including the Internet. Because of the importance of broadband services in using fully the capabilities of the Internet through the deployment of data services, it is important to realize that the Internet itself relies on communications networks. What makes all Web-driven opportunities possible is the world's telecommunications infrastructure. Supporting the growth of the Internet have been some key factors: 1. The globalization of business over the last decade created much of the pressure for better communications networks, new services, and more competitive rates. 2. Deregulation opened formerly monopoly networks to competition. In doing so, it created opportunities for new service providers to enter the market and also enriched the world's networks with new technologies.
These changes present a dilemma for policymakers. It becomes increasingly difficult for policymakers to strike the proper balance to facilitate both competition and affordable access to broadband services. Although this dilemma may be difficult to resolve, the fine distinction between protecting competition and allowing individual competitors to remain competitive must be maintained. Competition and technology can provide the building blocks to make advanced services available to everyone, including those in rural and hard-to-reach areas. The telecommunications industry can provide the innovative solutions, if Congress provides the leadership and policies that allow competition to unleash its market driven magic.
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Statement
Chairman Tauzin and distinguished members of the Subcommittee:
My name is Glenn Falcao. I am the President of the Internet and Service Provider Networks division of Nortel Networks. It is my pleasure to appear before you today.
I was asked to present an equipment provider's perspective on the availability of broadband solutions used in the deployment of data services and applications. My comments will be made from the viewpoint of Nortel Networks, a world leader in technology delivering network solutions for telephony and data-based, wireline, and wireless applications. As a leader in the provision of equipment and cutting- edge technology, Nortel Networks is facilitating the development and deployment of reliable and cost effective high-speed access for all data service providers, including transmission via cable, copper wire, fiber optic, and even the power grid.
Nortel Networks supports open and fair competition in the deployment of data services. The Telecommunications Act of 1996 is helping to promote competition and deregulation in the U.S. telecommunications arena. Globalization and deregulation will continue to drive broadband applications, which are critically important to the continued growth of knowledge sharing, electronic commerce, and electronic entertainment. As the Subcommittee considers legislative options in this area, we recommend that you should strive to facilitate the development of broadband capabilities and increased access to those capabilities. Nortel Networks and The Internet
Nortel Networks is one of the world's largest suppliers of digital network solutions that facilitate the deployment of data services. And it is the most broadly diversified developer of high capacity switching, transmission, access, and optics technology. We are at the heart of the Internet. We are a global company with a presence in over 150 countries where we work with customers to build and deliver communications products and networks for voice and data that we call "Unified Networks." We are the best qualified to deliver global applications and services that merge new and existing networking elements and technologies into a seamless network.
Our U.S. presence has been steadily increasing over the past 25 years and our U.S. locations represent our single largest pool of highly skilled people. Since our recent merger with Bay Networks we are an even stronger company with a larger U.S. presence. About 35,000 of our 68,000 employees worldwide work in our U.S. facilities. Nortel Networks has an invested base in the U.S. of $10 billion, and growing. Fifty-six percent of our 1998 revenues were generated in the U.S. Indeed, we export over $2 billion from the U.S. each year.
Like the Internet itself, Nortel Networks is an exciting place to be right now. Early this year Network World's annual Power Issue listed Nortel Networks among the top five networking companies in the world and No. 2 among our competitors.
It is clear to Nortel Networks that our customers and the American public want reliable, affordable, and speedy access to the Internet. In these competitive times of market and technology convergence it is vitally important to be agile, ever ready to anticipate and respond to change, and to remain focused on customers' needs. At Nortel Networks, we are focused on continuing to enhance the value of our broadband application solutions, such as Unified Networks, to provide the building blocks to deliver data, voice, and multimedia capabilities for business and residential customers.
The Internet, Networks, And Broadband Services
Because of the importance of broadband services in fully exploiting the capabilities of the Internet through the deployment of data services, it is important to realize how the Internet itself relies on communications networks. What makes all Web-driven opportunities possible is the world's telecommunications infrastructure. There is no Internet without it. The public perception seems to be that the Internet runs on a separate collection of networking technologies created for some brave new world of cyber communication. Nothing could be further from the truth. In the real world, when consumers and millions of businesses access the Web, they use the existing telecom network's infrastructure and technology. So today, as firms rush to adapt Internet technology to every purpose and create the hardware and software needed to make Web communication ubiquitous, we need to remember that none of this would be possible without the trillion dollars that new and traditional service providers have invested in their infrastructures during the past few decades.
Supporting the growth of the Internet have been some key factors that often are overlooked.

The globalization of business over the last decade created much of the pressure for better communications networks, new services, and more competitive rates. These, in turn, drove what is now a global process of deregulation, which has increased competition among local and national communications network providers. Deregulation opened formerly monopoly networks to competition. In doing so, it created opportunities for new service providers to enter the market and also enriched the world's networks with new technologies.
The result has been the unleashing of both Moore's Law, that microchip processing performance doubles every 18 months, and Metcalf's Law, that the value of a network expands in proportion to the number of users connected to it. These notions explain the worldwide explosion in the use of networked personal computers, which paved the way for the rise of the Internet and contributed greatly to networks becoming the new growth engine for wealth creation.
Wireless, fiberoptic, and other high-speed access technologies have provided low-cost networks to developing regions and introduced vast new economies in long-distance services as network capacity increased. In the past five years, Nortel Networks has doubled the carrying capacity of a fiber every nine months, twice the rate of Moore's Law, and we expect to continue that for the foreseeable future. Our customers will collectively install more transport capacity in the next three years than the industry implemented in the past century.
Users are demanding such broadband capacity. Internet traffic is doubling every four months, a growth rate that over the next three years will result in cumulative traffic more than 500 times what it is today. By 2002, two million additional businesses will be connected to the Internet and 30 million more consumers will join the 130 million already online. As dial-up access speeds increase from tens of kilobits per second to thousands of kilobits per second, e-commerce will flourish.
The market changes caused by exploding Internet use require service providers to reconsider their business strategies. As the Internet and corporate intranets have grown, so has the amount of data. From virtually nothing in the 1970s, data traffic now accounts for more than 50 percent of total traffic across the average cross-section of the North American public network. Data traffic in North America grows by 30 to 40 percent a year, which means that data will account for at least 80 percent of all traffic by 2005. Nortel Networks has undertaken four leadership initiatives that are good examples of the directions in which the Internet is growing:
- Intranet services, in which corporate networks and the Internet combine to create new applications and business models that leverage investments in information technology.
- Internet telephony, the convergence of telephony services and packet technologies. As these services develop, the existing public networks must be transformed to help wireline and wireless service providers begin the migration to next-generation packet networks.
- The wireless Internet. The next frontier in wireless is the networking of laptops, palmtops, and other web-enabled devices.
- The optical Internet. Nortel Networks is building high-speed, high- performance, IP-optimized optical backbones. We're focusing on high- speed access for the "first mile" of the network, using wireline and wireless solutions to bring "megabits to the masses."
The Need for Policies That Promote Competition
As the foregoing discussion shows, the Internet is revolutionizing communications. It offers us a portal for communication, education, commerce, and entertainment. It impacts every aspect of our private and public lives. We know our customers are facing new challenges, brought on by the Internet, deregulation of markets around the globe, changing consumer behavior, and converging technologies. These events change the traditional boundaries between service providers and enterprises, between local and global networks.
These changing boundaries present a dilemma for policymakers. As new competitors begin to catch up with or even accelerate beyond incumbents, and entrants from the cable television, wireless, utilities, and other industries vie in the lucrative data services market, it becomes increasingly difficult for policymakers to strike the proper balance to facilitate both competition and affordable access to broadband services. Although this dilemma may be difficult to resolve, the fine distinction between protecting competition and allowing individual competitors to remain competitive must be maintained.
Solutions providers like Nortel Networks play an extremely important role in helping solve these public policy dilemmas by providing the means for the full, fair, and open service competition contemplated by the 1996 Act. Simply stated, it is in our business interest as well as the public's interest to see competition flourish in the provision of broadband services. We can't tell you specifically how law or regulation should treat one group of providers as opposed to another group of providers, but the result must be a competitive market. However, in a real sense, the interests of solutions providers in the development of broadband services are consistent with the public interest in promoting competition. Nortel Networks is on the side of competition. We believe technology solutions that promote competition in broadband applications and services are in the best interest of the American public. Only true competition will provide the solutions to the issues you are struggling with today.
Broadband Solutions
You are constantly hearing from all sides of the broadband access debate: the incumbent carriers, the new competitors, the Internet service providers, the cable companies, and the wireless providers, to name a few from a growing list. But I suspect you also are hearing from your business and residential constituents who want what I think we all want and need: ready, reliable access to multi-media services and applications at affordable prices that are the product of competition.
We believe that the current 64 kilobit-based infrastructure is the key bottleneck to enabling new services. Access is critical. The majority of carrier investments, between 50 and 75 per cent, are spent on access for the new networks. Residential customers need Internet connectivity at affordable prices enabled by industry leading technology like 1-Meg Modem and G.lite. Business customers need bandwidth greater than 500kb to enable Virtual Private Networks, e- commerce, and Internet telephony across a single access pipe.
Another trend we are seeing is the movement of intelligence out of the central office to the "edge" of networks. Line cards have been migrating to colocation cages for the past five years. Now the line card is being combined with DSL, wireless, cable products to migrate directly to the home or business offering great economies of scale and rich feature content.
As a major Internet equipment provider, with 75 percent of all Internet traffic traveling over Nortel Networks infrastructure, we meet our service provider customers' demands for broadband solutions so that they can, in turn, provide the services demanded by your constituents. Our customers from all sides of the broadband access issue are challenging us to meet their demands:
(1) to protect their existing revenue sources;
(2) to reduce the costs of operating their networks;
(3) to help them start new businesses, which drive new revenue streams;
(4) to help them be successful by serving their customers' needs.
By providing broadband solutions that meet our customers' demands we provide incentives for them to deploy affordable broadband access and applications to all Americans. For example, our Succession Network helps our customers transform their existing circuit-switched (voice) networks into packet-switched (data) networks without having to abandon the investment in their current infrastructure, making broadband access easier to implement cost effectively nationwide. The Succession Network helps customers to preserve their investment because it is not a separate infrastructure layered onto an existing network - it transforms the existing network. In our many years as an equipment provider we know that technology solutions that lower network operating costs and increase revenue from data-based services will give our customers the incentives they need to expand broadband access to their customers.

Making the best use of existing infrastructure can also accelerate broadband access to a larger base of the American public. For example, fiber optics promises to be a competitive option for the provision of broadband access, particularly when the existing fiber infrastructure is combined with bandwidth-enhancing technology, such as OPTera - Nortel Networks' Dense Wavelength Division Multiplexing (DWDM) technology. When applied to existing fiber optic networks, DWDM can greatly expand transmission capacity and can turn a traditional voice- only network into a powerful multi-media conduit delivering megabits to end users.
Let me illustrate the power of this technology. Using Nortel Networks' OPTera broadband solution, a single optic fiber could be expanded to transport the entire 4 million-book collection of the U.S. Library of Congress from Washington, D.C., to Los Angeles in just seconds. Or, using a highway analogy OPTera converts a 10-lane highway into a mega- highway of 160, 10-lane highways stacked on top of each other. If broadband access is the goal, this technology is the solution that could provide simultaneous access to the Internet for 28 million households.
Rural Communities
An even greater challenge to broadband access is the difficult business case presented by service to rural communities. Yet here, too, technology and competition are beginning to provide solutions. Companies, including Nortel Networks, are pioneering broadband technologies that can expand conduits such as power lines and the electrical wiring in buildings, to carry high-speed data. This type of broadband application is being deployed now in the United Kingdom and Europe, and in the future will surely be available in the United States.
Another possible low-cost solution for rural areas could be one that does not rely on wired infrastructure. Fixed wireless technologies, using unobtrusive antennas similar to the direct broadcast satellite pizza dish-size receivers, have been launched in various countries around the world, and in the United States on an experimental basis using Nortel Networks applications on an Indian reservation that previously did not have easily accessible telephone service. Wireless applications could make it possible for even the most remote areas to receive both basic services and high-speed broadband access. Of course these wireless solutions require access to appropriate spectrum, an issue we are currently addressing with NTIA and the FCC.
Bandwidth applications and solutions like the ones I have described will bring the promise of the Internet to all Americans and help telecommunications service providers and the public benefit from converging technologies. By keeping the costs low, through competition and technological advances, we can help make the dream of broadband access for all Americans, as envisioned by Congress three years ago, a reality.
Conclusion
The technological reality that I described here today should give you confidence that the telecommunications industry has the technology and the ability to place the power of the Web into the hands of each and every American. The dramatic technological advances taking place make it possible to deliver ever-larger streams of information at lower costs, making deployment of data services more affordable. In other words, the cost of technology has plummeted while its capabilities have soared.
In 1996 Congress gave the FCC authority to facilitate availability of advanced services to all Americans. Competition and technology can provide the building blocks to make advanced services available to everyone, including those in rural and hard-to-reach areas. With your help, the telecommunications industry can provide the innovative solutions, if you provide the leadership and policies that allow competition to unleash its market driven magic.
We at Nortel Networks look forward to working with you.
I want to thank the Subcommittee again for inviting me to appear before you, and I would be pleased to answer any of your questions.
END

LOAD-DATE: June 29, 1999

Document 276 of 383.


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