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Search Terms: telecommunications act of 1996, House or Senate or Joint

Document 273 of 383.

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JUNE 24, 1999, THURSDAY

SECTION: IN THE NEWS

LENGTH: 4235 words

HEADLINE: PREPARED STATEMENT OF
MR. KIRBY G. "BUDDY" PICKLE
PRESIDENT AND COO
TELIGENT
BEFORE THE HOUSE COMMERCE COMMITTEE
TELECOMMUNICATIONS, TRADE AND CONSUMER PROTECTION SUBCOMMITTEE

BODY:

Teligent 8065 Leesburg Pike, 4th Floor Vienna, VA 22182
Mr. Chairman, Ranking Member and other Members of the Subcommittee, thank you very much for giving me the opportunity to come here today to tell you a little about the part that Teligent is playing in building this country's broadband future.
My name is Buddy Pickle. I'm the President and Chief Operating Officer of Teligent, which is based about 16 miles west of this room, in Vienna, Virginia.
Earlier, I served as president and COO of the MFS Intelenet Companies, and president and COO of UUNET Technologies, Inc., following its acquisition by MFS. As you know, MFS was one of the very first companies to deliver competitive communications services to business customers, and UUNET is one of the nation's largest providers of high- speed Internet access services. Previously, I held a number of positions at Sprint, MCI, and the Southern Bell unit of AT&T, before the 1984 divestiture.
I also serve on the executive committee of the Association for Local Telecommunications Services, or ALTS, the trade association representing facilities-based CLECs. However, the testimony I am presenting here today is solely on behalf of Teligent.
Mr. Chairman, when I joined Teligent more than two and a half years ago, the company was little more than an idea. The idea was to use a new variant on a proven technology B microwave radio transmission B to build scores of new local communications networks across the country B networks that would offer a real choice to customers who wanted not only local and long distance service, but broadband data and Internet services at savings of up to 30 percent off what they are paying today.
Teligent targets small and medium-sized businesses B the most under- served, but fastest growing, segment of the business market. We offer service to businesses with as few as 5 telephone lines B businesses that simply don't have access to the large discounts or personal service that are readily available to the Fortune 500. In fact, most of our current customers have fewer than 25 telephone lines and most of the buildings we serve are not connected to fiber. I like to say that Teligent's mission is to level the playing field for these under served five million companies by giving them the bandwidth and the pricing that they need to compete with the biggest players in the marketplace.
Today, Teligent is offering service to customers in 28 markets around the country, and we intend to be up and running in 40 markets by the end of the year. We launched service in our very first markets at the end of last October, so I would say that we're very much off to a running start. We have more than 2,000 employees -- and coincidentally, we have about 2,000 customers. Obviously we're working hard to increase that ratio, and we expect to do so in the coming weeks and months.
It's important to note that Teligent is a facilities-based company. Jargon aside, that means we are not reselling our voice and data services over existing telephone networks that were built by the big local phone companies over the last 100 years. While we don't resell the incumbent phone company's services, we do rely on them to interconnect with our network and provide the support necessary to cut over customers and complete calls that originate on the Teligent network.
Teligent is investing hundreds of millions of dollars to build our own local voice and data networks to compete with the existing telephone companies. Teligent is offering service in places like New Orleans, Louisiana; Boston, Massachusetts; Richmond, Virginia; Cleveland, Ohio; and Miami, Florida B as well as New York City, Los Angeles, Chicago and twenty other markets around the country. Together, these markets comprise more than 460 cities and towns of all sizes, and represent a combined population of more than 83 million. Eventually, we plan to offer service in 74 markets with more than 550 cities and towns and a total population of 130 million.
Our approach is to build a wholly new local network based primarily on a new type of high frequency, microwave radio technology. We also integrate traditional broadband wireline technology into our local communications networks. Through our local SmartWaveJ networks, Teligent offers customers independent access to technologically sophisticated, high bandwidth capabilities and services. Because Teligent does not need to dig up streets to run wires and conduits, it avoids imposing inconvenience and expense on cities and neighborhoods in which it offers services.
With this combination of fixed wireless and broadband wireline technologies, Teligent is able to reach outside the core urban markets where most of the other new competitive local telephone companies are deploying fiber optic cable. That means we can serve emerging businesses that don't yet have the revenue or the desire to locate offices in the traditional downtown business centers.
To reach our fixed wireless customers, Teligent installs small antennas, often no more than a foot in diameter, on top of customer buildings. When a customer picks up a telephone, accesses the Internet or activates a videoconference, the signal travels over inside wiring to the rooftop antenna. An electronics box, usually situated near the antenna, digitizes all signals, and places them onto a data platform -- we use ATM, or asynchronous transfer mode, for that purpose. The customer building antenna then relays the voice, data or video signals to a Teligent base station antenna.
The base station antenna gathers signals from a cluster of surrounding customer buildings, aggregates the signals and then routes them to a Teligent broadband switching center. At the switching center, Teligent uses ATM switches and data routers along with Nortel DMS switches to hand off the traffic to other networks B the public circuit-switched voice network, the packet-switched Internet, and private data networks.
It's important to note that Teligent operates at the very high-end of the frequency range -- at 24 gigahertz -- using spectrum licensed by the Federal Communications Commission. That means that each Teligent antenna must have a clear line of sight to the base station. The line of sight requirement creates both advantages and disadvantages for us. Because each customer building uses its own, specially-directed Abeam
of spectrum, we can reach many different buildings using the same radio frequency, as long as those buildings are not too close together. On the other hand, our spectrum does not permit us to send signals through trees or around walls. That is a significant drawback when it comes to serving smaller buildings or single-family homes.
As we build our local networks, we are making significant investments in people, property and equipment. In this year alone we expect to spend $300 million on capital equipment. For a company that has been in commercial operation for less than a year, I believe that investment is significant.

I mentioned a moment ago that when I joined Teligent, the company was little more than an idea. But that idea didn't just strike like a bolt of lightning. That idea -- and through it this company -- owes its life to three major developments. I'd like to take a moment to discuss each of those right now.
The first and most important factor in Teligent's genesis was the passage of the Telecommunications Act of 1996. In a very real sense, my company is a child of the Telecom Act. We wouldn't be here today if it had not been passed. Our business of providing competitive local communications services literally was illegal in many of the states in this country prior to the enactment of the Act.
The Act created ground rules, agreed to by the entire industry, which accelerated local competition and opened up opportunities for companies like Teligent. Because of the Act, which ensured that we would not be harmed by the historic, government-sanctioned advantages granted to the incumbent telephone companies, we were able to raise the capital we needed to build our business.
We now are finally near the end of a cycle of industry-wide litigation that has created uncertainty and delayed new competitors' ability to offer choice and new services to customers. If Congress were to reopen a debate over the key principles of the Act, it would only create more confusion and further delay the benefits of competition. Bluntly put, high-paid lawyers from the best law firms in Washington would tie us up for years.
The Act is not perfect, but it has set in motion an irreversible push toward more and more competition in our industry that will over time benefit all consumers. Most countries across the globe are racing to emulate the U.S. model, so their citizens and companies won't be left behind as the world moves into the information age. For that, we are very grateful to you. In a very real sense, each of you who helped shape the Act enabled us to create this company.
We also owe our existence to some dramatic improvements in technology, particularly the rapidly increasing capacity and declining cost of high-frequency radio technology. Microwave technology has been around for a long time. The military used it in World War II to develop radar defenses for our sailors, aviators and ground troops. MCI used it in the 1970s and early 1980s to create the very first competition in the long distance market. Remember, the letters M-C-I originally stood for Microwave Communications, Inc. Now we are using the latest advances in point-to-point and point-to-multipoint microwave radio technology to build competitive local communications networks in the local loop.
Until just a few years ago, the very high end of the radio spectrum in which we and other so-called )fixed wireless' carriers operate was virtually unusable for commercial communications applications. Now, advances in technology have turned that spectrum into a communications medium that is not only usable, but highly reliable and very cost effective. It's so cost effective, that we are able to offer our customers that 30 percent discount off current pricing that I mentioned earlier. So in a large measure, we owe our creation to these technological advances, which we expect not only to continue, but to accelerate.
Finally, we owe our life to a significant shift in customer needs, especially the demand for broadband services -- a demand that is driving almost everything going on today in the communications industry.
I think the best analogy for what is happening today relates to the history of municipal water systems. Before the turn of the century, most homes didn't have any water pipes that connected them to the system. Demand was relatively low, and most needs were met by a well in the basement or the backyard. But with the advent of new technology -- steam heat, indoor plumbing -- the demand for water delivery to businesses and homes dramatically increased -- and builders and municipalities began installing water pipes directly to homes and businesses.
The same thing is happening today in the communications world, albeit much more dramatically. The advent of new technology -- the Internet and e-commerce -- is fueling a demand for communications services that is far outstripping the capacity of the small communications pipes that serve most homes and businesses in this country.
In this case, those small communications pipes are the copper telephone lines that lead into an office building or a house. These lines were built to deliver analog voice traffic and were intended to be in use only a few minutes out of every hour. In communications parlance, these lines are referred to as the last mile.
The futurist George Gilder calls them the copper cage.
As we move from an analog to a digital world, and from a voice world to a data world, these little copper pipes are no longer adequate to handle the surge of new data traffic coming to and from end-users. The highest data speed that most people can squeeze out of these copper pipes today using a conventional computer modem is roughly 56 kilobits per second. At that rate, it takes more than six hours to download the Encyclopaedia Britannica. By contrast, Teligent today can deliver customers speeds of up to 45 megabits per second. At 45 megabits per second, it would take only 27.5 seconds to download that same encyclopaedia. And we expect to see dramatic improvements in that performance in the not too distant future.
Why do people need bigger information pipes?
As you know, we're not only crossing the threshold into a new millennium. We're also crossing into a new world of communications -- one that's been compared to the advent of electricity in terms of the revolutionary changes that will come in its wake.
I think that comparison is right on target. It's true not only in terms of how electricity shaped the world we now live in. But also in terms of how people in the past century viewed the transition to electric power.
Back then most people couldn't easily think beyond the advantages of a gas lamp. A bigger lamp, with maybe a longer lasting wick, or better burning fuel, was viewed as quite acceptable progress. Change was conceived in increments of what existed. We're at a similar point today. But that is about to change very quickly.
Forrester Research recently predicted that the U.S. market for broadband access and Internet service is ready to -- and I use their word -- explode.
Just three years ago, the entire U.S. Internet services industry amounted to about $1.3 billion. But last year alone, the business segment of that market had already grown to nearly $4 billion. Forrester predicts that by 2003 that number will hit nearly $60 billion.
Datamonitor recently predicted that IP traffic will surpass telephone voice traffic sometime during 2000. That's not hard to believe when IP traffic is doubling every 9 to 12 months, compared with under 10% growth for voice.
Anecdotal experience confirms these projections. At Teligent, we're already seeing a heightened interest in data and Internet services from our base of small and mid-sized business customers. Nearly a fifth of them are ordering some type of broadband access service -- a much higher percentage than we had expected.
We think this foreshadows ever-greater demand for bigger and bigger pipes. Already, more than five million businesses have created their own Internet sites. In fact, business-to-business commerce on the net is expected to blow through the $1 trillion -- that's trillion with a AT
-- market in the next five years, according to Forrester. With all that traffic pumping through the system, businesses who must rely on a 56 kilobit per second dial up connection through their local network literally will be left in the dust on the Information Superhighway.
Why do I emphasize the world local?
Since the federal courts broke up the AT&T long distance monopoly 15 years ago, companies like MCI and Sprint -- and now Qwest, Williams and Level 3 -- have been building big backbone data pipes -- analogous to the water mains in the streets -- to carry high volumes of traffic across the country, across the states and across large metropolitan areas.

An article in the McKinsey Quarterly this month reckons that if all the fiber announced by U.S. operators were fully utilized, the backbone capacity of the U.S. could increase by as much as 200 times during the next 3 to 5 years. And that's great news for this country.
But what happens when you get to the neighborhood? The reality of the Information Age is that more than 95 percent of the communications customers -- businesses and consumers alike -- are bound by that 56 kilobit per second copper cage that we discussed earlier. That's the bottleneck that Teligent is trying to break -- the bottleneck of copper that separates those broadband fiber backbone networks from the end-user.
Obviously, there is more than one company working on the problem -- and there is more than one technology that can get you there.
First, of course, there is DSL -- digital subscriber line technology. DSL in a sense is an attempt to teach a very old dog new tricks by using new electronics to enhance the speed and capacity of the old copper networks.
DSL technology has an important place in this new communications landscape. But it also has some limitations.
First of all, DSL can't be installed everywhere. Lines have to be groomed, often at considerable expense, and central offices must be ADSL-ready.
Some have suggested that only about half the central offices in the country will be able to accommodate DSL equipment.
DSL has distance limitations -- 18,000 feet is a generous estimate. There also are questions about the kind of network speeds that can be achieved in the real world -- as opposed to the engineering world.
But there's an even more important point to be made about DSL limitations. No matter how you spell it, D-S-L still equals R-B-O-C. In other words, when you're dealing with DSL, you're still dealing with the RBOC networks -- the copper cage. You must still lease or resell RBOC service. And we all know about the burden that exercise imposes on competitive carriers. That's not to say that DSL doesn't have an important role to play. In fact, Teligent has found a way to secure many of the benefits of DSL technology while avoiding many of the issues usually associated with DSL deployment, including the need to co-locate facilities in LEC central offices. Two days ago, we announced that we will be combining DSL technology on copper wiring inside customer buildings with Teligent's SmartWaveJ fixed wireless networks outside the buildings to provide a lower cost, entry level data service for smaller companies.
Another solution, obviously, is fiber optic cable. Fiber is terrific stuff, no question about it. But, as I've mentioned, fiber generally reaches only the highest density buildings, because, simply put, it costs a lot of money to dig up streets.
To date, only 3 percent of the approximately 750,000 commercial office buildings in the United States are directly connected to fiber. In fairness, those buildings account for roughly one third of the 60 million or so business lines in the country. But that still means that 40 million business lines cannot get a high-speed connection via fiber, because it costs too much to reach them.
What about coaxial cable? A lot of very smart people and some very big companies are betting that cable will provide an important broadband pipe to the home. Frankly, I don't disagree. But cable passes very few businesses today, including small businesses. So that need remains to be met.
Satellite? Teledesic, Iridium, GlobalStar and others have some very ambitious plans. For the larger companies that can afford these services, I think they will provide an important alternative. But I don't believe that broadband satellite services will offer a real alternative to the residential market or to small and medium-sized businesses. And that's the market that will be in the forefront of demanding new, broadband connections.
So what's the answer? In terms of general principles, the most important answer is competition. If we allow the Telecom Act to do the job it was intended to do -- open local communications markets to full competition -- we'll go a long way toward spawning the innovation and investment that will bring the benefits of lower costs and greater choice to customers and consumers -- big and small -- all across the country.
In terms of the technology that will get us there, I don't believe that there is ONE answer. But I do believe that fixed broadband wireless will play a very important role as an enabling technology that breaks open the copper cage for the small and medium-sized business market in the United States -- and around the globe.
At Teligent, we have branded it as digital "SmartWave" technology. But whatever you call it, it offers communications providers a leg up on their competition. What are the principal advantages of fixed wireless technology? I hope you'll pardon me for using one of Teligent's advertising slogans, but I think it sums up my point nicely: Big Savings; Big Service; Big Bandwidth.
For the target market of small to medium-sized businesses, businesses that have between, say, five to five hundred DS-0s, fixed wireless offer significant cost advantages. In fact, we're pricing our package of services at 30 percent below what customers are currently paying their incumbent carriers.
How can we do this? In the world of fixed wireless, 80 percent of our costs are associated with electronics. Anyone who has bought a computer or a stereo lately knows those costs are declining at dizzying rates.
In addition to the cost advantage, fixed wireless has a speed advantage. By that I mean both network speed -- bandwidth -- and speed of deployment. Most of the businesses we're targeting today don't have access to the Internet. Those that do most likely have a dial-up account using that 56 kilobit per second modem that I mentioned earlier.
In the past, they never even considered T-1 dedicated access because of the prohibitive cost of obtaining that service from a Bell company or an existing ISP. But Teligent and other fixed wireless carriers can offer them that bandwidth at a reasonable cost. And that, for the first time, is opening up a new world of e-commerce and the Internet to small and medium businesses.
We chose fixed wireless because we think it is absolutely the best way to bring bandwidth and broadband services to this tremendously important segment of the business market.
Each of us at this table is a pioneer. We are part of a revolution and part of a new solution. Our challenge is to keep our gaze fixed beyond the next quarter and into the future to continue to drive competition and to level the playing field for our customers.
We need to focus on what we do best. Keep the race fair and open to all runners. Drive innovation. Put the customer first. That's our mission. In closing, I'll note briefly how I believe Congress can help facilities-based carriers more rapidly deliver on that promise and bring the benefits of broadband services to our customers.
Notwithstanding the laudable success of the 1996 Act, some barriers to competition remain.
First, Congress should insist that all players comply with the provisions of the 1996 Telecom Act. Specifically, the incumbent local telephone companies must comply with the Act's requirement to open their local markets for competition before they are permitted to enter the long distance market. ILECs control essential facilities to which many competitive carriers require access before they can begin to offer competitive service. Even fully facilities-based carriers such as Teligent must have adequate interconnection with the incumbent so that networks communicate seamlessly and traffic flows smoothly. No matter how competitive the industry becomes, prompt and seamless interconnection with the existing local networks will remain an imperative. Shortcomings in this area are being addressed, but we are far from achieving full compliance.
Another remaining barrier -- and an issue addressed by this subcommittee in its recent hearing -- is the impediments that new, facilities-based competitors face in bringing broadband services to customers in multi-tenant buildings in a reasonable and timely manner.
The multi-tenant building market is not inconsequential -- about one- third of all Americans live in multi-tenant buildings and an even higher percentage of businesses are located there. When consumers decide that they want to take advantage of competitive choices, it is important that they be given the ability to do so -- and the ability to obtain the competitive benefits quickly.
In our experience, we've found that many landlords recognize the benefits that accrue to their tenants -- and frankly, themselves -- by providing timely access to competitive communications carriers in their buildings. Competitive services make buildings more attractive to tenants -- and more valuable in the real estate marketplace. We agree with the members of this subcommittee who believe that a fair balance can and should be struck between the legitimate property rights of building owners including reasonable, safety and security concerns and the need to bring broadband services to all sectors of the economy.
By providing for reasonable and nondiscriminatory access to customers in multi-tenant buildings, Congress can ensure that building owners and competitive carriers work together to bring more rapid development and widespread availability of competitive broadband services. Similarly, securing access on reasonable terms to the wiring inside these buildings is another critical factor, a task that is further complicated when the inside wiring is controlled by the incumbent local telephone company. I believe that Congress can and should address these issues.
Working together, Congress and new carriers such as Teligent can create a new broadband world that enables open, fair competition among all competitors, no matter how big they are. And that will make a world of difference for customers and consumers.
Thank you all for your kind attention.
END

LOAD-DATE: June 26, 1999

Document 273 of 383.


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