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May 25, 2000, Thursday

SECTION: CAPITOL HILL HEARING

LENGTH: 30171 words

HEADLINE: HEARING OF THE TELECOMMUNICATIONS, TRADE AND CONSUMER PROTECTION SUBCOMMITTEE OF THE HOUSE COMMERCE COMMITTEE

SUBJECT: BROADBAND TECHNOLOGIES

CHAIRED BY: REPRESENTATIVE W.J. TAUZIN (R-LA)

LOCATION: 2123 RAYBURN HOUSE OFFICE BUILDING, WASHINGTON, D.C.

TIME: 11:00 AM. EDT DATE: THURSDAY, MAY 25, 2000

WITNESSES:

REP. ROBERT W. GOODLATTE (R-VA);

REP. CHRISTOPHER CANNON (R-UT);

SUSAN MOLINARI, CO-CHAIR, IADVANCE;

JOHN WINDHAUSEN JR., PRESIDENT, ASSOCIATION FOR LOCAL TELECOMMUNICATIONS SERVICES;

ROY NEEL, PRESIDENT, USTA;

SHELTON JEFFERSON, CEO, NETCOM;

JERRY ELLIG, PROFESSOR OF ECONOMICS, GEORGE MASON UNIVERSITY;

SCOTT CLELAND, MANAGING DIRECTOR, THE LEGG MASON PRECURSOR GROUP;

DON VIAL, MEMBER OF POLICY COMMITTEE, ALLIANCE FOR PUBLIC TECHNOLOGY;

DAVID N. KUNKEL, VICE CHAIRMAN AND EXECUTIVE VICE PRESIDENT, PSINET;

H. RUSSELL FRISBY JR., PRESIDENT, COMPETITIVE TELECOMMUNICATIONS ASSOCIATION;

BODY:
REP. BILLY TAUZIN (R-LA): The Committee will please come to order.

Good morning, and welcome to the second hearing on high-speed broadband deployment issues conducted by this Subcommittee this year.

The Chair will recognize members in order for opening statements, first with himself.

Let me take you back to 1995. The year we spent crafting the legislation that would become the '96 act. Seventy witnesses appeared before the House and Senate Commerce Committee. They represented local, long distance companies, cable and broadcast entities, think tanks, federal and state governments. 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 they appearing before the Committee to protect their new growing digital businesses? It's because, frankly, they understood the bill was not about them. Instead the act's primary purpose was to open the publicly switched telephone network to competition. Internet was not even on the radar screen. When we were debating the act there was no AOL or Hot Mail.

Case in point, the Internet is only mentioned in the act a few times. I brought a Webster's dictionary with me, published in 1995. Look for the word "Internet." You won't find it. The Webster's doesn't even contain a definition of the Internet. As a result, we are faced today with some extraordinary consequences that flow from the '96 act, and we're here to examine them as they affect the deployment of broadband services across America.

One of the biggest concerns is that the act, which was designed to set up a process by which telephone companies would eventually compete in one another's market and was designed to set up a process at the FCC by which evidence of competition would in the local market would allow local companies to compete in the long distance market across lines drawn on a map by a court here in D.C. following the decision to split up AT&T.

We're now faced with a situation where with this entirely new thing called broadband Internet, those old rules are restricting the capacity of competition and deployment across America.

We hear a lot about a thing called a "digital divide" here in Washington, and we hear a lot about how Washington is going to cure that "digital divide" or the proposals advance here in Washington to cure the "digital divide."

And yet consumers across America have invested in miles and miles and thousands of miles of broadband capable fiber optics in the ground they paid for with bills that have been dictated by regulators on the state and local and federal level.

Now, they have paid for all this fiber that still cannot be used, because these old rules defining local and long distant restrict the delivery of broadband services across those networks.

And, so we face a situation where indeed some people are predicting that four years from now half of America will either have one broadband competitor or none at all. And that quarter of America which will have no competitor happens to be rural America and urban center city America -- the poor, the rural. Those who need probably broadband Internet access more than anyone else in this country to catch up with the rest of this country will unfortunately be left out.

I brought with me a couple of maps to illustrate the point. Teddy, would you put up the map illustrating the points of presence, first of all, in Louisiana, just to give you an idea of my own state what the problem looks like.

Point of presence are sort of the landing points, the big airports for the superhighway and broadband. They're the points of presence of the Internet backbone. In my own state we have two -- one in Baton Rouge and one in New Orleans -- and the map illustrates a 60- mile radius around those points of presence. If you live without those 60-mile radiuses, you can have broadband services provided for you in Shreveport or Lafayette or Monroe, but you can't connect to those big broadband points of presence, and so you're left out of the network.

Now, there's an easy solution for connecting. Teddy, if you'll put up the map that illustrates the miles and miles of fiber that's laid across the state, you'll see that Louisiana is well connected. It's well connected with fiber that could carry broadband from all parts of my state to the broadband points of presence in Baton Rouge and New Orleans.

And yet all that fiber crosses those blue lines, called lateral lines, that were drawn on the map by a court to separate voice communications in the local and long distance marketplaces of America. And until my state gets permission from the FCC to allow the local phone company, the Bell company in our state, to compete in long distance, those lateral lines remain as a barrier to the deployment of broad band services across my state, and they serve as a barrier to the connection between the cities across my state, like Lafayette, Alexandria, and Shreveport and Monroe, to broadband access.

That example is duplicated and replicated across the country. And the question arises today as we hear the testimony of our witnesses today, whether or not we can change that; whether or not we have to wait for the FCC to open that door or whether we in Congress should consider opening that door.

And, so we will hear today about broadband deployment, about whether or not Americans will have a "digital divide" and whether or not competition will answer that question or whether in fact regulation will answer that question, whether regulation stands in the way or whether regulation is the salvation for the problems we face in access to broadband.

But I'll tell you what we were not thinking about in 1995: We were not imagining what we saw in Texas this week, as heralded on the front pages of the New York Times. The New York Times contains an amazing story -- Teddy, I want you to put up the document so everyone can see it -- amazing story of a flyer that was placed into the paychecks of Time Warner employees in Texas.

The flyer invited their employees to earn $100 or some free AOL service, I think, if in fact they did the following thing: If they called SBC, the local Bell company in Texas and asked the Bell company to connect them to the Internet on DSL. If they did in fact achieve a connection, they were told to order it disconnected immediately, to abandon the application and then to report back to the Company.

They also, obviously, wanted to know whether or not there were any places that the Bell company could not provide DSL service in order to identify those places in the marketplace where the phone company could not be a competitor to Time Warner in offering these services.

Now, there's two awfully perverse effects here: It illustrates how in 1995 we had no idea that when the Internet and broadband became the issue of the day that companies would be able to game the system they way they're obviously gaming it here. One of the adverse effects, of course, is that the Bell company and its customers in Texas may have a $350 to more expensive charge for each one of these connect, disconnects set up by the employees of a competitor.

But even worse and even more perversely, those disconnects counts as negative points in SBC's application before the FCC right now. Each time one of those employees connects and disconnects on the SBC system, it counts as a negative point against the company as it seeks to break out into long distance competition before the FCC in its application currently being considered by the FCC.

We never guessed that that kind of gaming would occur. We never guessed that CLECs would form up, join in the unions with ISPs, Internet providers, and soak the Bell company and their customers in something called reciprocal compensation, where we found out that one such company even hooked up a horse barn and turned the Internet on and let it run all day so that they could soak money away from the local phone company and its customers and split that profit with the ISP.

We never guessed that those kind of games would be affected upon the marketplace. All we wanted was open and fierce competition. And, so today we're going to examine the elements of whether or not broadband is being deployed openly and in that same sense of fierce competition that we hope or whether or not we have set up a process as defined by Reed Hunt in his book. I hope you read it. Don't buy it, for heaven's sake, borrow my copy; I'll loan it to you.

(Laughter)

But I hope you borrow the book and read it. In it you will get a sense of the arrogance, the intense, amazing sense of power the FCC felt it had as it met with the vice president to discuss -- this is his quote -- "to discuss our agenda in the political year." And as he tells it, how the 1996 act, as the FCC read it, gave them so much power that he became the most powerful person in the country, maybe the world, in communications -- 40 rulemakings, the power to interpret the act anyway they wanted to.

I'm beginning to believe that maybe Mr. McCain was right. Maybe for all the good in the act, maybe we set up the FCC with too much power to regulate, too much power to stand in the way of competition, and maybe it's time for us to take down those regulatory barriers and open this beautiful, new Internet marketplace, this huge potential of broadband to every consumer in America.

I will be sick, sick to death if this high speed train leaves, and the folks in Thibodaux and Lafayette and Alexandria, Shreveport, Monroe, and all the small towns in my state are left behind, left behind immeasurably because we failed to get rid of the regulatory restrictions that currently exist in the law and in the minds of the regulators of the FCC that prevent citizens to use the lines that they paid for, to use the fiber they paid for, in the ground today, waiting to serve them but incapable of connecting them to broadband high speed learning and long distance medicine and the amazing new world of entertainment and information and freedom that broadband is going to give citizens of this world that are going to be denied people in my rural state, because we only have two POPs, and the lines we paid for can't connect to them. It's time we think about doing something about it, and I think we're going to learn a lot about that today.

I yield to my friend from Massachusetts, the gentleman from Massachusetts, the Ranking Minority Member of the Committee.

REP. EDWARD MARKEY (D-MA): I thank the Chairman very much, and I thank you for holding this very important hearing today.

We all question Miriam Webster probably isn't as familiar with the Internet as it should be in its dictionary. But they don't have to be, because this Subcommittee was, whether or not a dictionary catches up with what we know and have known for the last 15 years really isn't relevant. In fact, the reason why the Internet isn't mentioned as often as it should be in 1996 bill was that the Science Committee was very jealous of their jurisdiction, and they didn't want us to use the word. Mr. Boucher is a member of the Science Committee.

So, what we did instead was we used the words "advanced telecommunication services" wherever the word "Internet" should have been. But a rose by any other name -- the Internet by any other name is still the Internet. So, whenever you're looking at the '96 act and you see the words "advanced telecommunication services," assume that we had crossed out the word "Internet" and written it in in order to be sensitive to the Science Committee's feelings about what we were doing with the telecommunications policy of our country in 1996.

Now, let's go back in time a little bit. It's 1967. The United States government goes to AT&T and IBM. They ask them if they'll take money from the federal government to build something called Doppernet (ph), the Internet. AT&T says, "No, we don't want the money. We don't want to build a packet switch network; we already have a monopoly." IBM says, "No, we don't want to build a packet switch network; we already have a monopoly."

And, so they gave the contract to a company up in my district, BB&N, Bolt, Boranic & Newman (sp), and for the next 22 years or so they built the Internet on a government contract. The Internet was built by the government on a government contract, because the private sector didn't want it, because in the telecommunications sector they had monopolies until 1992 when we passed it over to the private sector, which is why people might not have heard of it until then, but it wasn't as though it didn't exist. It wasn't born out of whole cloth immediately in the middle of 1990s. It had to come from someplace -- the federal government.

AT&T, as of 1982, had yet to purchase its first square foot of fiber optics. Hearing after hearing in this Committee indicated quite clearly that they had no intention in doing so, because they were again a virtual monopoly. And, so the government had to break it up. Now, it was after this Subcommittee had voted 15 to nothing at the end of 1981 to break it up, and as we know Judge Green then used the model of our bill to formulate the breakup. Many people in this room were there when we cast that vote.

What happened immediately thereafter? AT&T starts to buy the worldwide supply of fiber optics, because MCI and Sprint and dozens of other companies are now wanting a fiber optic network around the world competition.

In 1987, again this Committee forced the FCC not to move to per minute but rather to flat rate charges for Prodigy, AOL, and CompuServe, the only companies that were really in existence at that time.

And it was after we had a hearing on information services with a virtual hearing with France, with their company Minitel, and the chairman of Minitel who was here showing us what they were doing in information services at that time so that we would create the right policy, and they had been going to per minute, and we realized that was a mistake, and we forced our FCC to move to that direction.

And then in 1996 we passed the Telecommunications Act, breaking down the final barriers so that every one of these ISPs to be -- it's hard to exist if you can't gain access -- ISPs to be would have the ability to be able to reach every consumer in the United States.

So, historically, what this Committee has done is counter- intuitively sided with the companies that didn't exist yet against the larger, existing monopolies. That's really our entire history.

And now we look at the success of the policy. In the year 2000, right now, today, 95 percent of the population of the United States is within 50 miles of a high speed Internet point of presence. What an incredible success story, the envy of the rest of the world. We're now talking about the final five percent. That's a great discussion for us to have, but let's celebrate the incredible success of our policies, especially the 1996 Telecommunications Act, which was a very complex piece of legislation.

But, ultimately, as we know, our goal was to induce paranoia in all sides. So, yes, there's a picture over here of Road Runner, but the reason that Road Runner is so concerned is that Wiley E. Coyote down there in Texas is also trying to figure out how to provide the same service. And why do they each have to think about it? Because if they don't move, the other one will move. And, ultimately, that's the core principle of competition. It's induced paranoia in a marketplace that requires each company to move faster than the other one, because they're not sure if the other one will capture the market before them.

So, the bill is a success. Wile E. Coyote and Road Runner battling it out. And there's other too -- the wireless revolution in '93, a 200 megahertz transfer has helped this whole revolution as well. All of it part of it this great story line of this Subcommittee. And we should all be very careful as we move forward, because, ultimately, we are, at this point, being cautioned by Naruk (ph), by Nasuka (ph), by all of those consumer and regulatory agencies at the state level that we should be very careful in what we're doing, because this is working; it's a success story.

The domino theory really didn't work when we were analyzing Vietnam, but it does work in telecommunications. When one falls, they all fall. When one company starts to do it, they all start to do it. But you have to have many companies out there with different strategies in order to push them all to do it, and that's what we have in the marketplace today. That's what we're seeing in Texas; that's what we're seeing in the rest of the country. Now, let's talk about how we ensure that the final five percent is also served, but that's really -- they're the end of the story not the beginning of the story, which is what I think some people would like to have this hearing represent. We knew what we were doing in 1996. Advanced telecommunications services are now reaching most Americans if they want them, and we should be celebrating that.

Thank you, Mr. Chairman.

REP. TAUZIN: Thank the gentleman.

The Chair wishes, at this point, in fairness to Time Warner, to introduce into the record a letter dated May 25 and directed to Dave Morvintano (ph), my staff, in which Time Warner acknowledges that the actions in Texas were inappropriate, that has been stopped immediately, and they want us to know that Time Warner Cable sincerely regrets the actions occurred and that they intend to toughen and extend awareness of existing compliance programs which guide franchise practices to ensure that events such as this are not repeated. We can have that entered into the record, without objection.

The Chair now recognizes the Chairman of the full committee, Mr. Bliley.

REP. TOM BLILEY (R-VA): Thank you, Mr. Chairman.

This morning, the Subcommittee resumes its inquiry into the state of broadband deployment. Thus far, we've learned quite a bit. More than anything, we've learned that the marketplace is responding to consumer demand.

We know, for example, that DSL technologies are rolling out faster than ever. Analysts project that over 13 million homes will be subscribing to DSL technologies by 2005 and that revenues will surpass $11 billion by then, as well.

Even the local telephone companies are prospering in this rapidly growing market. Their revenue from data services grew between 32 and 41 percent in the first quarter of 2000. That's impressive, indeed, but it isn't surprising. Contrary to what some say, there is nothing under current law that precludes local telephone companies from participating in the residential broadband market.

Meanwhile, we've also learned that the cable industry is responding as well -- 2.5 million homes now use high-speed cable modems to access the Internet. That number is projected to grow to 14 million by 2005.

And wireless and satellite providers are nipping at the heels of the cable and telephone giants. They have broadband dreams of their own, one that frees the consumer of wires and cables.

Who will win this race? Nobody knows, and frankly, I don't care. As long as the rules of the road are fair and predictable, which they are today, I intend to simply watch, and let consumers and the marketplace sort this one out.

Yet some still think consumers and industry need the help of Congress at this point. This puzzles me, because I can't seem to see the problem for which others have a solution.

These current and projected statistics impress me. They convince me that Congress got it right in the 1996 Act. Congressional action at this point in time will, if anything, force investors to pull back and bring deployment to its knees.

Like that old saying: If it ain't broke, don't fix it. I hope that today we'll learn more about precisely what the supposed problem is that requires a governmental solution.

I yield back the balance of my time, Mr. Chairman.

REP. TAUZIN: Thank the gentleman.

The Chair recognizes the Ranking Minority Member of the full committee, the gentleman from Michigan, Mr. Dingell.

REP. JOHN DINGELL (D-MI): Thank you. I commend you for holding this hearing; I think it's very useful.

I'd like to begin by agreeing with my good friend from Massachusetts, Mr. Markey. We used the words "advanced telecommunications service" instead of "Internet." However, I would also note that these words are nowhere to be found in section 251 or section 271 of the act. These are the sections that dictate the extent to which the Bell companies are required to open their network to competitors. I think this is an important point that should be kept before us.

I would note that no one can fined these words, because we intended to break open the local telephone market to competition. But I want this to be known by all, not to regulate advanced telecommunication services provided by these companies. This is precisely the practice in which the FCC is now diligently engaged. And they're probably the biggest to the provision of competition in this particular area of telecommunication services.

I would simply note that we have moved splendidly forward in terms of making these kinds of services available, but I would note also that 90 percent of the market share of the residential broadband market is held by guess who? The cable companies.

And why would this be so? The only thing that we can assign it to is the simple fact that the FCC regulates the local service telephone companies in their provision of this and frees up almost everybody else. Is this a fair, level, even playing field? Are the consumers permitted to benefit and to achieve the benefit of competition? Clearly not. I think that's the purpose of this hearing, and that is to highlight that and also to find what it is that we can do to speed it up, because there are no end to people both in industry and in also the home market who are being denied access to broadband or a clear choice in broadband service by reason of the FCC's diligent holding on to the idea that they ought to regulate and ought to slow down the provision of competition for all users of this kind of service.

Today we address the next logical question after that, which was presented to us in the last hearing of this kind. In that one, we heard testimony about the critical role of high speed Internet applications in building the nation's new economy. Today, the next logical question is addressed: Not simply how the country will benefit, but how quickly? And I might note also why the country is not benefiting more quickly from this and what it is that is holding it up. Clearly, I think the answer is the good old FCC that seems to be incapable of reading the legislation and incapable of moving forward to competition.

Now, the question then is how do we encourage the roll-out of new technologies to all Americans, regardless of where they happen to live, in the most expeditious manner. Is this to be done by impeaching the FCC or burning the building down or just what? With the resistance of the FCC, it would appear that certainly something of that kind may ultimately have to be considered.

There are thornier questions then that must be addressed by the Committee, and the sooner and the better that we address them will we see the full benefits of the new economy take root for the good of all of the consumers in this country of this kind of service.

We began to write the law, which became the 1996 Telecommunications Act, in 1993. At that time, the vast majority of the public was scarcely aware of Internet's existence and potential. In fact, it is amusing to recall that some of these people we regard today as technological visionaries, including some who might be, let's say, located in Redmond, Washington, initially failed to understand the importance of the World Wide Web.

It should be known that much has changed since then. More than half the country now does have Internet access, and the number is expected to double in the next few years. But even with this explosive growth, the Internet is still, in many ways, grinding along in low gear. While we hear about the benefits of the information superhighway, the truth is that most Americans are relegated to the slow lane. Too many people are still stuck in the narrow band, low speed, dial-up service. So, some folks are not getting their fair share out of this.

Unfortunately, the Telecom Act did little to create the proper environment for the deployment of broadband Internet services. Worse, it unwittingly created disparities in the law with regard to how different companies would be treated when they attempt to compete in this area and provide these advanced services, and I think this is a matter on which this hearing can well focus today.

Today, several broadband technologies compete to provide high speed Internet service, but the two most prevalent are cable modems and DSL. A recent FCC report shows that the cable modem currently has a significant advantage in terms of market penetration. While it is still without question a nascent market, I repeat, the fact is that the cable companies now command more than a 90 percent share of residential broadband market. And if we are to focus on anti-trust questions, this is, I think, at least a nascent anti-trust question.

Certainly, the role of Congress here is not to pick winners and losers; that would be wrong. But it is our duty to make sure that the right policies are in place to prevent the Internet from becoming a de facto monopoly for any one provider and to see to it that the intent which we expressed in the '96 law is carried out, that there is competition, and that the forces of competition make available the best possible choice and best possible availability of service to the American people.

And as technological conversion allows cable and telephone wires in every home to deliver virtually the same service to these American people, it makes no sense to treat these wires differently under the law. And that we should in fact address these as devices for delivering service as opposed to some kind of different sort of mechanical device. It grossly distorts the market by giving one wire then an artificial advantage over the other, and that is not in the interest of the consumers or indeed the economy or indeed the United States.

Complicating these matters further, this regulatory disparity has lead to a bitter dispute over broadband open access policy in the Congress and in cities and states across the country. At the heart of the debate is whether consumers who subscribe to broadband Internet service from their local cable company should be forced to travel through the cable company's proprietary gateway to the World Wide Web or whether the consumer should be guaranteed a choice of Internet service providers. I think it's plain that I've come down on the side of giving the widest choice to the consumers, and I think the consumers do too.

In the end, however, it can be noted that the debate may be beside the point. It accepts the premise that modern cable modem technology has an impenetrable lock on broadband services markets. But that monopoly should not happen and does not have to happen.

Chairman Tauzin and I, along with better than 200 members of this body, believe that we can cure this regulatory anomaly by acting on legislation to deregulate all broadband Internet services without further delay. Specifically, H.R. 2420 would allow providers to compete on a level playing field with none able to leverage an antiquated regulatory scheme to develop a monopoly position or to further entrench an existing monopoly position.

If we act now, we can see that many competitive platforms flourish, and the consumer is going to be the clear beneficiary instead of some provider of service. In a word, the consumer will not be held hostage and should not be held hostage. Freedom of choice would be guaranteed by the market instead of by the Congress or by the FCC, which is thoroughly dug in on the matter.

Experience teaches us that this is a wiser, more efficient, better way of promoting good telecommunications policy. It lets competition flourish, and it lets the consumer get the choice that is best in his judgment and his interest by using the choice which competition provides.

Thank you, Mr. Chairman.

REP. TAUZIN: Thank the gentleman.

The Chair recognizes the Vice Chairman of the Subcommittee, Mr. Oxley.

REP. MICHAEL OXLEY (R-OH): Thank you, Mr. Chairman.

The Time Warner incident, which has been eluded to, is but one more example of what has gone on almost since the day after the bill the Telecom Act was signed into law. And it seems like it's becoming a commonplace attitude and activity. It's not enough for firms to try to lower their own costs; they have to try to drive up competitors' costs. They harass each other in court, in Congress, and at the FCC. It's not enough to try to reduce their own regulatory burden; they try to deny regulatory relief to the competition.

Firms should be less concerned with how they can burden their competitors with discriminatory regulations, and apply more of their energy to serving new markets.

My rule of thumb is pretty simple: If a regulation has outlived its usefulness for protecting consumers, whether due to technological innovation or market competition, they ought to be repealed. That's why I favor data relief for the Bell companies, and that's why I'm against imposing mandatory open access regulation and horizontal ownership caps on cable systems.

I can imagine, I've been critical of the -- Mr. Chairman, of the Bells in the past for litigating. I think we lost, frankly, two years of broadband advancement as a result of that litigation, and I'm frustrated by that delay.

That said, I'm rather impressed by the present rate of broadband deployment. The Telecom Act was enacted a mere four years ago last February. That deregulatory legislation is credited with fueling the Internet economy, spawning billions of dollars in investment. Four years ago most consumers had no choice in local phone, and there was virtually no electronic commerce. Today, there is local phone competition in every state. Most telecom start-ups offer a range of services from telephony to high speed Internet access services, putting pressure on incumbents to innovate and to lower prices. Today, the vast majority of households can reach an ISP with a local call, and upwards to 95 percent of homes can choose from at least four different ISPs.

There's been tremendous growth in broadband infrastructure, especially with advanced cable modem services, with about a million subscribers nationally. Competitive broadband marketplace is developing quickly with offerings from ILECs (ph), CLECs (ph), satellite data, wireless data, in addition to cable. But businesses and individuals always want more, faster, cheaper Internet access and e-commerce transactions, and I'm all for granting additional regulatory relief to accelerate that deployment.

The goal should be to move all market participants towards deregulated parity. That's the best way to foster investment, creativity, innovation, and competition. We started in '96 with the Telecom Act, which is historic. Many of us on this panel worked for 10 years to get to where we were. It's had an enormous impact and has advanced the cause of broadband and all telecommunications for these last four years.

The effort, it seems to me, over the next several months for this Committee is to take a look at where regulatory burdens are keeping competitors out of the marketplace and denying consumers the ability to have high speed Internet access and broadband capability. That is a worthy goal, one that I think the Committee is up to, and I yield back the balance of my time.

REP. TAUZIN: Thank the gentleman.

The Chair recognizes the gentleman from Virginia, Mr. Boucher.

REP. RICK BOUCHER (D-VA): Thank you very much, Mr. Chairman, and I want to commend you for organizing this discussion today on a very timely subject.

I also want to commend you and the Ranking Democratic Member of this Committee, Mr. Dingell, for your success in obtaining the co- sponsorship of more than 200 of our colleagues for your measure that would broadly deregulate all broadband services. I'm pleased to serve as a cosponsor of that measure, and I think it would accomplish a number of very important public policy objectives.

Chairman Tauzin, in his remarks this morning, talked about the fact that there is a broad under-investment in Internet points of presence in many of the rural reaches of the United States. That under-investment tends to coincide with the fact that those areas are served by Bell operating companies. Rural regions that are served by other local exchange carriers, independents, do not have that kind of under-investment in Internet points of presence.

And the reason that the Bell companies have not made these investments is very simple, and that is that under existing law they simply cannot carry the data from their own point of presence to the Internet backbone. If it crosses a lata boundary, they have to hand that traffic off to somebody else. And, so the incentive for them to make an adequate range of investments in rural America that will bring the benefits of broadband service to rural residents simply doesn't exist.

By deregulating the offering of interlata data services, we can resolve that problem and incent the creation of a sufficient number of points of presence throughout the rural regions of this nation to make sure that this aspect of the "digital divide" is appropriately addressed. Now, that's one very important reason to enact this measure.

Another reason hasn't been mentioned this morning, but let me highlight it, and it relates to the question of the pricing for Internet backbone services. There was a time in the early years of the Internet, as a broad commercial medium in our country, when the owners of the various segments of the Internet backbone treated each other as peers. And what that means is that they agreed without charge to simply transfer each other's traffic from one segment of the backbone to another. They made the rough assumption that each segment was delivering to the other segment an essentially equal share of data.

But as we have seen, concentration and the ownership of the Internet backbone, those peering arrangements have broken down, and now what used to be free passageways have become tollways, and charges are now being imposed when data is transferred from one segment of the backbone to another.

Now, I don't know what the future holds in terms of the potential for even greater concentration in the ownership of the Internet backbone. We certainly have one major merger pending that could potentially have that effect, but even with the existing amount of concentration we are seeing charges imposed where the traffic used to flow for free. And I think this fact argues very strongly for the injection of greater competition into the offering of Internet backbone services.

And the legislation that Chairman Tauzin and Ranking Member Dingell have put forward would accomplish that goal and would bring five very capable companies into the offering of backbone services. It would encourage them to make the investments that are necessary.

Passing this bill, I would add, does no violence to the 1996 act. This point has been debated by some of my colleagues this morning, but let me just add a couple of thoughts. Section 271 is the gateway requirement or the ability of Bell operating companies to offer interlata information. Information and the terms in which we discussed it in 1996 didn't refer to the Internet. We weren't talking in those days about data at all. All of the discussions -- and I sat in on them, so I can testify as a witness -- were about voice-based long distance services. It was an $80 billion market then; I'm sure it's higher than that now.

Voice-based long distance was the subject of section 271. And the carrot of the ability to offer interlata long distance service that is voice-based was held out to the Bell companies as an incentive for them to open their local exchanges. We weren't talking about data. We were not talking about the Internet in 1996.

Now, the legislation which my friends have introduced would simply say that the Bell operating companies could now offer data across lata boundaries. It would not give them the permission to offer voice-based long distance until they get permission to do so under section 271. And it's a very easy matter to determine whether or not they're offering voice-based long distance perhaps through the Internet protocol or other means. You simply look in the phone book and see if the service is being sold. It is not a hard determination to make.

This measure is necessary. I strongly support this deregulation of broadband services. I am pleased that finally this morning we have an opportunity to begin a discussion of this timely and important subject, and I very much hope that this discussion will lead to an early reporting of the Tauzin-Dingell measure from this Subcommittee.

Finally, Mr. Chairman, I just want to say a word of welcome this morning to our first witness, our friend and colleague from Virginia, Bob Goodlatte, who represents a district that adjoins mine. I have the privilege of co-chairing with him the House Internet Caucus, and he and I together have put forward a bill that has many of the elements of the legislation sponsored by Mr. Tauzin and Mr. Dingell.

Our measure is pending in another committee, and perhaps we will be successful in having that measure reported from that committee in the very near future.

We're glad to have Mr. Goodlatte here this morning. He has a deep expertise in this subject, and I'm sure that he will educate us well.

I look forward, also, to hearing the testimony of the other witnesses, and I thank you again, Mr. Chairman, for today's exercise.

REP. TAUZIN: Thank the gentleman.

The Chair reminds the members that the Chairman will call members in the order of appearance when the gavel fell.

Next in line will be the gentleman, Mr. Shimkus.

REP. JOHN SHIMKUS (R-IL): Thank you, Mr. Chairman.

All I want is high speed Internet access that is timely, that competes fairly, and provides service to all geographic areas in the 20th congressional district.

And with that, I yield back my time.

REP. TAUZIN: Thank the gentleman.

The gentleman from Texas, Mr. Green.

REP. GENE GREEN (D-TX): Thank you, Mr. Chairman, and the opening statements are really worth the price of admission this morning. I mean what other committee can you go to in this House and have a ranking member suggest we might need to storm the FCC because of all our frustration with them? Maybe we can borrow Pat Buchanan's pitchforks; they're not being used right now.

Mr. Chairman, when you mentioned the Time Warner-Road Runner situation in Houston -- it's in my district -- and with our ranking member of this Subcommittee's mention of Wiley E. Coyote, and with all due respect to ABC-Disney that's here, hopefully with competition we'll keep us from having a Mickey Mouse system in the Houston area by that competition. And I say that because I know ABC-Disney is here.

The issue in today's hearing has far reaching consequences on the shape of telecommunication policy in the future. Broadband will allow for high speed data traffic to flow to our homes and businesses, ushering in a new level of e-commerce. And while I was reviewing the witnesses' testimony last evening, I noticed a fairly even difference of opinion on whether this Committee should reopen the '96 Telecom Act to more specifically address the issue of data.

I understand this is a complicated issue with a tremendous amount of disinformation hovering overhead. But I want to express the same frustration I think that other members have. This is a complicated issue, and this Subcommittee should begin holding these in-depth hearings to focus directly on the problem, and the continued hide-and- seek over the true nature of scope of the past hearings does nothing to help us address the issue of data.

H.R. 2420, the Internet Freedom and Broadband Deployment Act, which I'm one of those 200 plus cosponsors, seeks to speed the delivery of broadband services throughout our country. It's unfortunate there's disagreement on sectors of the telecommunications community over who should be allowed to offer broadband and under what circumstances.

And I want to say very clearly that our first priority should be for our constituents and our consumers, and they should be able to receive the best broadband service available, regardless of who provides it or in what form it's delivered.

Recently, I had two meetings with two wireless broadband providers that are truly revolutionary technology. They provide consumers with Internet access many times faster than either DSL or cable. While both technologies are still in the early stages of production, the advantage they offer cannot be overlooked, and I don't want to stifle that innovative technology like this that would allow for wide and rapid deployment of broadband.

The passage of the '96 act was a watershed event in deregulating the telephone industry. Unfortunately, we did not foresee, and thus did not create, clear guidelines with respect to data traffic. This confusion left many consumers waiting to fully experience the benefits of broadband. We need to address this issue, hopefully, during this term of Congress.

The telecommunications world is rapidly changing and consolidating to the point that RBOCs and LECs (ph) are quickly becoming irrelevant. The telecommunication industry has gone global. By 2002, over 90 percent of all traffic flowing over our telecommunication system will be data. Congress must ensure that all this data can move seamlessly to every community in America. The Internet's here and growing rapidly.

Mr. Chairman, this is such an important issue for our constituents. I hope that we can move the legislation that you and our ranking member of the full committee have been so successful in gathering cosponsors, and I yield back my time.

REP. TAUZIN: I thank the gentleman.

The gentleman from Florida, Mr. Stearns, is recognized.

REP. CLIFF STEARNS (R-FL): Thank you, Mr. Chairman, and let me commend you for having this hearing. I think many of us have said that -- you've asked us to go on your bill. We said, "Mr. Chairman, we'd rather have a hearing before we go on the bill to fully understand the implications." And, so I commend you for doing that, and I look forward to the testimony.

In listening to some of the opening statements, particularly from Mr. Dingell, who I have great respect for, he had the expression that some folks are not getting their fair share. We also heard him say there's winners and losers, and we as a government should not pick them.

I would say to the audience and to my colleagues that by having the government step in, we actually are setting up more regulation, and we are actually in some ways picking winners and losers. So, I think what I want to hear today whether there is need for regulation, particularly the Goodlatte-Boucher bill, as well as Mr. Tauzin's bill, Chairman Tauzin.

Many of us are aware that there's companies like Covad (ph) that are providing DSL very successfully, and they have a large amount of money invested. There's many, many companies who have gone public, there's billions of dollars invested. If the Tauzin bill passed the House floor, all that money would be in jeopardy.

So, when you hear the expression "some folks are not getting their fair share," you've got to be careful, because the implication is the United States government should step in so that they get their fair share, and that's not what we want to do, which goes back to Mr. Dingell's earlier statement, "We must not pick winners and losers."

I think the Chairman Bliley touched upon a point that we should reflect on, is that there is a great deal of movement towards broadband and that the market will take care of itself. Surely the FCC, whether they're right or wrong, did not exist in the computer industry, and the computer industry has innovated and developed much competition, and so I think if the FCC did nothing, I think we would see, ultimately, broadband coming out there, not just through the land-based carriers but also through companies dealing with satellite Direct TV.

In my home town of Ocala, central Florida they're now providing broadband through satellite. Time Warner is providing it through the Road Runner all throughout central Florida, and it's also coming in in other wireless fashions, and of course there's many companies like Covad that are out there providing DSL.

So, I think all of us should be very careful whether we want to go back and rewrite the Telecom Act of 1996, and we should let this percolate a little longer. So, I urge my colleagues to attend the hearing and to listen to most of the testimony.

And, again, Mr. Chairman, I compliment you, and as I told you in the beginning with your bill, I think that it's important that you have this hearing. I'd be glad to write letters and so forth, so I think the ultimate result of this hearing will determine whether you should go to a markup in the full committee or not. So, I look forward to the testimony.

Thank you, Mr. Chairman.

REP. TAUZIN: Thank the gentleman.

The Chair recognizes the gentleman from Minnesota, Mr. Luther.

Then the gentleman from Illinois, Mr. Rush.

REP. BOBBY RUSH (D-IL): Mr. Chairman, I also want to commend you for having this hearing.

This Subcommittee has held a series of hearings on broadband deployment. Because of these hearings, I personally have learned a great deal about the innovative methods being used to deploy broadband and the way it is being used by the average consumer.

Mr. Chairman, I'd like to ask for unanimous consent to insert into the record a report by Kagan (ph) Media Appraisals on the state of broadband competition.

REP. TAUZIN: The gentleman makes a unanimous consent. Is there any objection? Without objection, the report will be admitted into the record.

REP. RUSH: Thank you, Mr. Chairman.

Mr. Chairman, consumers are now more sophisticated and are demanding better and faster Internet access. Consumers want to be able to download images, music, and screen videos at a faster pace. Hence, it is increasingly important that enhanced Internet access and broadband deployment be available to Internet users.

Broadband is the technology that fuels the continued growth of the Internet. It is important that this technology be available to all Americans. And I look forward to today's hearings on the creative uses of broadband technologies, especially as it relates to bridging the "digital divide."

And I want to thank you, and I yield back the balance of my time.

REP. TAUZIN: I thank my friend.

The Chair now recognizes the gentleman from Oklahoma, Mr. Largent, for an opening statement.

REP. STEVE LARGENT (R-OK): Thank you, Mr. Chairman.

We've heard a lot about competition this morning already in the opening testimonies of members of this Committee, and there's nobody that believes in competition more than I do. I believe in competition in broadband. We should have vigorous competition in broadband, but I also believe in competition in local exchanges. We should have vigorous competition in local exchanges as well. And I hope all of my friends on this Committee will agree with that, that we need to see vigorous competition occurring in the local exchange business as well as in the broadband business that we're dealing with.

Mr. Chairman, I want to refer back to a word picture that you drew of a train leaving Thibodaux and Lafayette in your district and feeling as if Boudreaux was being left behind in the "digital divide." I want to thank you also for having this hearing, because I think what this hearing is about is to find out if that distant broadband train whistle that we hear in the distance is actually of a departing train or an approaching train, whether the market itself is actually moving towards Lafayette and Thibodaux and where Boudreaux lives.

REP. TAUZIN: Would my friend yield?

REP. LARGENT: Absolutely.

REP. TAUZIN: I also want to make sure Boudreaux doesn't get run over by that train.

(Laughter)

REP. LARGENT: Just keep him off the tracks.

(Laughter)

But, Mr. Chairman, I want to say that I really believe that this Subcommittee and the full committee sent a chilling message when it comes to competition just this last month when we rubber-stamped a bill to approve $1.25 billion in a satellite bill to provide DBS satellite coverage for rural communities. Again, I think it was an effort by this Committee where we got ahead of the market. And my fear is in the legislation that we're discussing and as we hear testimony today about that again we may be ahead of the market, that the market itself perhaps is headed to Thibodaux and headed to Lafayette and headed to other communities that are left behind in the so-called "digital divide."

And, so I look forward to the testimony of the witnesses today and feel that I, along with the rest of this Committee, will be enlightened as a result of the testimony.

I yield back, Mr. Chairman.

REP. TAUZIN: And Boudreaux, thanks you for your concern.

The Chair now recognizes the gentlelady from California, Ms. Eshoo.

REP. ANNA ESHOO (D-CA): Thank you, Mr. Chairman, and good afternoon, and welcome to our distinguished panelists.

In ancient Greece, telecommunications consisted mainly of Greek leaders giving speeches to crowds of citizens, and when it came to great political leaders, I don't think there is anyone that was greater than Pericles in terms of being a great communicator. And I think that we can learn something from one of his famous speeches and the advice that he gave, because I think that it applies to what we're going to be discussing today. Today is a worthy discussion.

But he said then, and I think it applies today, that time is the wisest counselor of all. When we shaped the Telecommunications Act we intended that that legislation to deregulate a communications industry which we recognized was really choking off competition by its monopolistic practices that were out there in the marketplace.

Since the law has passed, I think that we've witnessed a telecommunications revolution that's occurring with breathtaking speed. No sooner does one technology seem to offer more speed and capability when along comes another to offer data at a faster speed. The Telecom Act has resulted in a larger menu of broadband delivery options, and it has increased competition, and I think that it's 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 what we call CLECs. These companies, and it's already been mentioned as a very good example, Covad, are what I call the children of the Telecommunications Act. They provide DSL-based access to the Internet through local loops or their own high speed fiber networks.

And what happened once these companies were permitted to offer their services? The telephone companies that before had only offered the more expensive T-1 lines began to rapidly expand their DSL service, the service they could have offered much earlier. The result was increased broadband services at a cheaper price. And I think that more successes are just around the corner.

In California, there's a company called Next Level Communications offering VDSL that's 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. I think that we need to be a bit more patient. I think that we should be refusing to be tempted to meddle in the marketplace while this revolution in telecommunications is really happening all around us. No clear or convincing evidence in my view has been offered that consumers are suffering. I think it's quite to the contrary. I think that consumers seem to be getting more choices and lower prices.

And I think that the evidence points to something else, namely different segments of the industry competing to gain economic advantage over the other. The forum for that contest, I think, is in the marketplace, not in the legislature.

In fact, the one way I think that we could deliver some harm to the consumer would be for Congress to try and insert itself in this.

But I really am looking forward to the case that people are going to make at the panel today. As I look across the room, I think that at least the majority of the people that are here have poured into my office. So, they have yet another opportunity to present their case.

And I thank you, Mr. Chairman, for continuing the discussion and debate; I think it's a worthy one. But I think that you're going to have to present a really convincing case to change my mind based on what I see today. So, thank you, and I'll look forward to hearing you, and welcome to our former colleague, Susan Molinari. It's always nice to see you, Susan.

REP. TAUZIN: I thank the gentlelady. I only would observe that Pericles himself ran out of time. I don't think he's with us anymore, but I thank the gentlelady.

The Chair recognizes the --

REP. ESHOO: It's the way life goes. It's the way God designed it, Mr. Chairman; there's an end to all of us.

REP. TAUZIN: We're all on our way.

The gentleman from Mississippi, Mr. Pickering, is recognized.

REP. CHARLES PICKERING (R-MS): Thank you, Mr. Chairman. I want to commend you and congratulate you for having this hearing; also for your efforts of bringing this issue to the forefront. I believe with your efforts you have kept the pressure on both industry and the FCC to move forward to a truly competitive policy.

I want to commend the Ranking Member, the gentleman from Massachusetts, for the history that he laid out of the role this Committee has played in bringing us to a competitive telecommunications policy. I agree with his analysis of what has happened and how it brings us to the point and to the place we are today. The only question remaining goes back to 1967 and whether Al Gore was following the Internet or serving as the model for Love Story at that time.

But it is a remarkable place where we find ourselves with the explosion of the Internet and advanced services. And I think the question that we have before us today is do we go back to the past or do we go forward to the future? Do we compete and converge or do we protect and segregate?

The entire intent and motive of the 1996 Telecommunications Act was to see the full convergence -- voice, video data. My concern is that with the proposals before us that we are segregating again, as we used to do in the old telecom policy, between local and long and voice and cable and broadcasting and all those other things that we want to have a separate policy for data. When our intent in the '96 act, and I think our intent today, is for full convergence so that we don't go back to the past, that we do go forward in the future.

It is an effort, though, that I think requires us to look at all the options before us. Do I think we should continue to pressure the FCC to move on 271s, to work with Texas and Florida and Georgia to open the local market and to provide the opportunities to bring new entrance into long distance? Yes, we should pressure and continue that pressure as much as we can.

Do we need to find a tax relief like we're passing today on repealing the Spanish-American tax so that it will free up capital for investment, for deployment? Do we need to find possibly other regulatory relief that will speed deployment to rural areas like Mississippi? Yes. But do we need to reopen the Telecommunications of 1996, the core elements? No. And I hope that we can go forward with this hearing and others in finding that right balance of continuing to go forward of competition and convergence, but not going back to the old segregated policy of our telecommunication services. Find the full convergence.

I am also concerned a little bit of some of the proposals that would place new regulatory burdens on wireless companies and wireless technologies and applications. To me, that is the place where we can find the greatest future opportunity for both competition but for deployment to rural areas and to bridge the gap in the "digital divide."

So, I look forward to the panel today. I look forward to working with the committee and with the Chairman as we go forward on these critical issues.

REP. TAUZIN: Thank you, Mr. Pickering.

The Chair recognizes the gentleman from Ohio, Mr. Sawyer, for an opening statement.

REP. TOM SAWYER (D-OH): Thank you very much, Mr. Chairman.

We move from Pericles to Boudreaux. I am put in mind of the remarks that Vaclav Havel, the Czech playwright and political leader, made before this Congress now nearly a decade ago as he recalled the swiftness of change as it occurred in the fall of 1989 in Czechoslovakia when he reported to this Congress in his appearance before a joint session that change had come so suddenly that we did not have time even to be astonished. We are in a similar condition today.

The future of broadband is full of uncertainty and change as competing companies and industries along with lawmakers and regulators try to anticipate technological advances, market conditions, consumer preferences, and even cultural and societal trends.

It's clear that Congress should work to ensure that broadband deployment is timely, that the industry competes fairly, and that service is provided to all sectors and geographical locations of American society.

With that, let me, in closing, just thank the Chairman for this hearing. I look forward to our witnesses today and to observe that another Louisianan of a century and a half ago -- the first really modern chess player, Paul Murphy, once observed that in chess, as is true in so many things in life, that a threat posed is often more powerful than that same threat played. Mr. Chairman, you have not lost the wisdom of that insight.

I yield back the balance of my time.

REP. TAUZIN: That's pretty good stuff there, Tom; I'm impressed. Thank you, sir.

The gentleman from Maryland, Mr. Ehrlich.

REP. ROBERT EHRLICH (R-MD): Real briefly, I want to welcome Susan back as well.

I have a statement for the record, but just to put a bottom line real quickly with respect to new members of this Committee who were not here in 1996, who've had at least triple the visits of the folks in this room, I appreciate the Chairman having now two hearings on this issue. The Chairman himself has talked to me about this on numerous occasions, sometimes on the tennis court.

I just want to say I do appreciate it. Particularly for the folks who were not here, we understand the history, we can read, we appreciate the excellent lobbying on the issue, but there's still facts that we'd like to get to the bottom of, and that's what this hearing is all about today.

So, I'll yield back on that note, Mr. Chairman.

REP. TAUZIN: I thank my friend.

The gentleman from Tennessee, Mr. Gordon.

REP. BART GORDON (D-TN): Thank you. Let me just add my welcome to this stellar and large panel. I think it's time that we hear from you. Our alumnus, Susan, we're glad that you're back. I have two Tennesseans, Roy Neel and Melvin Malone; we're glad to see you today.

Let me just briefly say, because we do need to hear from them, that this is a complicated and very important issue, and it's important that we have these hearings, and hopefully we'll continue to have them.

This is an issue that we're not going to develop consensus on. This is an issue that we're going to have to make some choices one way or the other, and that's the reason that we need to be informed, and that's the reason we need to have these hearings.

So, thank you.

REP. TAUZIN: Thank the gentleman.

The gentleman from New York, Mr. Fossella.

REP. VITO FOSSELLA (R-NY): Other than to say hello to my wonderful predecessor, Susan, let's go.

REP. TAUZIN: Thank the gentleman.

And actually before we get to Susan, we have another colleague.

The Chair will welcome the first panel, the Honorable Bob Goodlatte from our sister committee, the Judiciary Committee, who himself has authored legislation I believe with our friend, Mr. Boucher, which has been referred to.

Mr. Goodlatte, you're welcome, sir, and please present your testimony.

REP. BOB GOODLATTE (R-VA): Well, thank you very much, Mr. Chairman.

I, first, want to thank you for holding this hearing and allowing me to participate and to also commend you for your leadership on this issue. I want to extend that commendation to the other side of the aisle to the Ranking Member of the full committee, Mr. Dingell, and to my good friend and colleague, Congressman Boucher. All of us have been working in a common direction to achieve the goal that you are providing so much leadership on.

I also want to commend the Chairman of the full committee, Congressman Bliley, and you and the many others who worked to pass the Telecommunications Reform Act, because it has definitely been a major step in the direction of opening up competition and new ideas and the advancement of new technology in this country.

I would say that in the four years since that legislation was passed there has been more change in the area of telecommunications than in the 40 years prior to the passage of that legislation.

But it is that very change that has taken place that brings us back here today to address the need for further deregulation of this industry and why I am such a strong advocate of taking action on the Goodlatte-Boucher legislation that was mentioned by my colleague and on the legislation that you have introduced, which we certainly want to assist you in advancing.

And that change is evident from what has taken place in the telephone industry during that time. At that time, 90 percent of the communications on telephones were voice and 10 percent was data. Today, it is closer to 60 percent data and significantly less than a majority voice. That change has taken place because of that legislation opening up the telephone lines to competition in the area of data.

America Online and 6,000 other Internet service providers are competing on the Bell telephone companies' lines, providing services that the telephone companies also provide, and that competition, I think, needs to be recognized and acknowledged in encouraging the roll-out of the next step -- high speed broadband Internet service -- by allowing the telephone companies to compete in the market, allowing for the long distance transmission of data.

For those who are concerned about the fact that we want to advance additional voice competition on the local telephone lines, I certainly agree with their objective, but we provide that continued incentive because there is still a nearly $100 billion market out there that the telephone companies will not be allowed to enter into until they meet the requirements of section 271 of that legislation.

I'm here because unlike what many people think because of my involvement in Internet issues, I do not represent Northern Virginia. I represent a district very similar to yours. You have a lot more water than I do; I have a lot more mountains than you do. But basically these are districts comprised of smaller cities and rural areas.

And the fact of the matter is that according to studies that I have seen, these areas are going to have very limited choice, if any, in the availability of broadband Internet access. And we need to take the necessary further steps to deregulate the telephone industry and allow them to get in and compete. That is simply what this legislation is all about. That is simply what we are about in this effort -- allowing them to get into the long distance backbone market, provide a greater profitability and therefore a greater incentive for them to build out their local DSL services.

Now, it is true they're going to, and are right now, building out DSL services all across the country, but the focus is going to be on the major urban areas and the suburban rings around those areas, and it's going to leave out many smaller cities, many rural areas, and many inner cities in those urban areas. This change in the law will simply recognize the change in the marketplace and allow us to move forward in that direction.

I was pleased to hear the gentleman from Michigan, the Ranking Member, also give deference to the issue of open access, another important competitive area that we need to encourage the industry to pursue. And while that is not the principal focus of the hearing today, it is something that is very much related to assuring that everybody has the opportunity to compete -- smallest mom and pop businesses with the largest corporations in the world. Let's open it up to competition. That's what the Telecommunications Act started.

We're not against the progress made there; we're not against the efforts of those who want to bring about greater competition in the local exchanges, but that is something that can continue to move forward at the same time that we continue to further deregulate and open up competition in the country.

So, I commend you for your leadership, Mr. Chairman, and thank you for holding this hearing.

REP. TAUZIN: Thank the gentleman.

Mr. Goodlatte, let me ask, are there any members who would like to ask any questions of you? And I see none -- Mr. Markey does.

Mr. Markey.

REP. MARKEY: Thank you so much for your leadership on this issue.

When you talk about the cable open access issue, is that still part of your legislation, mandating that the cable companies have to open up their systems to all ISPs in a non-discriminatory way?

REP. GOODLATTE: As we speak, Mr. Markey, it is still part of the legislation. We have had ongoing discussions and review of the fact that the marketplace has continued to change. We have been heartened by statements made by a number of the cable companies, that they are moving in the direction of open access. It started with AT&T, which did not define what they meant. It then went to Time Warner, which entered into a memorandum of understanding with their new partner, America Online, which became much more specific. And as that evolves and as there has been an effort at the local level, the state level, the federal level, and through the courts to push open access, the voices of those who say, "Well, let's see what industry does before we mandate it," is something that we are certainly listening to, and we may very well offer an amendment to the legislation as it goes forward to have an additional breathing period to allow that to take place, but nonetheless to express the intent that open access be the trend on the Internet and that if it doesn't take place, then we will come back and look at it at an appropriate time.

REP. MARKEY: Because, see, my sense is that with the exception of AOL, of course, which is partnered with Time Warner and as a result they do have full access, but thousands of other ISPs don't, and there's no evidence that they do, and there's no actual marketplace evidence that they are now being treated in a non-discriminatory fashion, which seems to me to really call for legislation or regulatory policy changes.

Conversely, SBC and others have a backlog of requests for DSL installation, which they're trying to catch up with, competing with the cable companies in that area.

So, in one area there actually is vigorous competition, with the telephone companies trying to catch up. And in the other area, with the exception of AOL, the biggest company, of course, thousands of other ISPs don't have non-discriminatory access, and it seems to me that's an area where we should be acting.

REP. GOODLATTE: Well, I share --

REP. MARKEY: So, it just seems to me, in terms of the policy prescription here, that the by far greater problem is in the area where the greatest and most important revolution is taking place, which is the software revolution, this ISP revolution, and that this broadband deployment revolution is working because of the paranoia that's being created and the fact that we do already have a two-wire world, a three-wire world in many parts of the country.

So, I'm just -- I understand that you're saying that people are saying they're going to do the right thing, but I don't see it, at least in my district, in terms of allowing my ISPs to have non- discriminatory access.

REP. GOODLATTE: First of all, I thank you and share your strong support for open access. Second, I would tell you that Congressman Boucher and I both share your concern about how it evolves, and our approach, even if we do amend the bill, is one of trust but verify, and that we have a very short time frame in which to see that continued growth before we then call upon the Congress to act.

On the other hand, we have got to have the necessary momentum of support for that, and I think that support is building, as we see in individual actions at every level of government all across the country. And I encourage those and will continue to look for every avenue to push open access.

REP. MARKEY: Again, I would say, Mr. Chairman, broadband deployment, hundreds of billions of dollars being spent, backlogs with every telephone company in America trying to keep up with demand, very high, in other words, deployment rate; ISP access to cable systems very low.

So, in terms of the parts of this revolution that are being stifled, I think that without question we should look to where the major problem is. And I wish that we could continue to move forward discussing them as an integrated subject, not just broadband but also the software revolution.

REP. GOODLATTE: Well, we certainly have attempted to do that with our legislation. I thank you. And I would also point out that let's not also look at the need to have competition in all sectors of this market, including building out the backbone of the Internet, which is what is intended by this legislation.

REP. TAUZIN: I thank the gentleman.

The gentleman from Florida, Mr. Stearns.

REP. STEARNS: Mr. Chairman, I just wanted to say a few comments. Mr. Goodlatte is perhaps one of the most knowledgeable men out of 535 members of Congress. He's worked hard, he and his staff, and I think, as Mr. Sawyer mentioned about the chess expert, Mr. Murphy, a threat posed is oftentimes more effective than a play played.

I think the fact that he has even taken the initiative and put these bills together has got all of us thinking about these, and I think he's to be commended for this. I've been on several trips with him, and his expertise is truly -- is very demonstrated for all to see.

Bob, you had touched upon the similarities between perhaps your bill and Mr. Tauzin. I don't know if you want to just touch about the differences. I mean cable is one area, but are there any other differences between yours and Tauzin's you would like to make the case today, and it's certainly a good opportunity to do so?

REP. GOODLATTE: Well, there are some modest differences in the deregulatory approaches that we take, but I would say that those are modest in comparison to the importance of the concept of deregulating and taking a more competitive approach here. The principal difference is that we also address the open access issue in a broader sense. I know there is also deference given by Mr. Tauzin to the importance of open access. He and I have a somewhat different approach on how to do that, but we're coming closer and closer together as we move forward. So, I am very supportive of his efforts in this regard.

REP. STEARNS: Thank you, Mr. Chairman.

REP. TAUZIN: The Chair recognizes himself briefly.

Mr. Goodlatte, the incumbent local telephone company is an open platform, is it not?

REP. GOODLATTE: It certainly is.

REP. TAUZIN: If either one of our bills were to pass and the incumbent local telephone company could cross those lata lines and offer broadband Internet services across the country, it would remain an open platform, would it not?

REP. GOODLATTE: It would certainly do that.

REP. TAUZIN: Under current law. And that means that all ISPs would have the opportunity of at least one platform as a carrier of last resort, is that not right?

REP. GOODLATTE: It certainly would be.

REP. TAUZIN: So, that if any one of the other platforms, be it a cable platform or a wireless platform, refused an ISP carriage, that ISP could always go to the local telephone company under law and receive mandatory carriage; is that correct?

REP. GOODLATTE: That's true. I would make two points about that. One is that the technologies are different between cable and telephone systems, and there's a great deal of concern about whether the DSL service that would take place can carry everything as effectively as the cable modem can carry. And therefore the need to have open access on all types of platforms I think is important.

REP. TAUZIN: In fact, some DSL systems, because they're dedicated lines, may be more capable than a cable system without the proper number of nodes, in terms of maintaining the speed of delivery; is that right?

REP. GOODLATTE: That's correct; that is true.

REP. TAUZIN: So, that there are differences in the technology that delivers the ISP's program between the two cables, wires or whatever they are. But at least under the current conditions of the law, whether or not a cable or any other carrier, which is basically deregulated, has a right to either carry or not carry today, whether that is changed or not, there is under the law today the requirement that the local telephone company carry.

And if we have -- as a Congress, if we have, in my opinion, the good sense to allow them to do so across America in competition with these other systems that may refuse carriage, at least the ISPs will always have a carrier of last resort to turn to. Is that not correct?

REP. GOODLATTE: Well, it is true, but it's also true that there are those even in the telephone industry who would love to have the same kind of circumstances that exist in the cable industry, and the legislation that Congressman Boucher and I have introduced makes it clear that the open access requirement should apply to any technology, whether it is telephone, cable, wireless, satellite, whatever means you've got.

REP. TAUZIN: Whether a telephone company would like to be relieved of that common carriage requirement today or not, they are still bound by it. And, so that the legislation that you and I have offered would not relieve them of that obligation --

REP. GOODLATTE: It would not.

REP. TAUZIN: -- to be a carrier of last resort, would it not?

REP. GOODLATTE: It would not, and it is a very good objective.

REP. TAUZIN: And as I might also add, just as a point of reference -- because we have had many conversations, and we ought to put it on record -- that while you and I differ on the question of mandating open carriers on the other systems, that we both support the concept of open carriage to every extent possible, and I share with him my concern that as many systems as possible remain open and they not refuse carriage to competitive ISPs.

The Chair will yield to the gentleman from Virginia.

REP. BOUCHER: Well, thank you very much, Mr. Chairman.

I had not intended to participate in the open access discussion, but some of the things that have said compel my entry at this point.

I agree entirely with the Chairman's statement that the telephone platform is open and whether our legislation passes or not will remain open. But it doesn't necessarily always work effectively as a carrier of last resort, because the Internet service provider needs to be able to follow his customer. And if his customer decides that the cable modem platform is faster than the local DSL service or for other reasons, because of pricing perhaps, more attractive than the DSL service, that customer is going to migrate away from the telephone company platform and become a cable modem customer. And if the ISP is foreclosed by the practice of that cable platform from following his customer, then that's a customer he's lost.

And, so we believe that open access on cable platforms and for that matter all of the Internet transport platforms, whether they are telephone based or wireless or satellite based, should follow this open access principle.

The second comment that I would make is that we are seeing some real progress I think in the cable industry, generally, acknowledging the appropriateness of open access policies. Time Warner, which has 20 percent of the nation's cable systems has announced what I think is a very solid policy: That Time Warner has said that it will impose no limit on the number of ISPs that can reach their customers over the Time Warner platform.

It will have non-discriminatory terms and conditions among the ISPs that connect over that platform. It will allow them to connect at the cable head-in, which is a very important commitment, because that creates competition in the carriage of traffic from the cable head-in to the Internet backbone. That results in better pricing for the end user. And they also are willing to allow the ISPs to have a direct contractual relationship with their customer.

Now, these are four principles against which I would suggest that we measure the strength of the commitment that other cable systems make to open access.

I think it's noteworthy that something like 80 percent of the cable systems in the country have now announced their intention to have open access policies. But Time Warner alone has been specific in what open access means. And these others have not been specific in terms of the strength of their commitment.

REP. TAUZIN: Will the gentleman yield?

REP. BOUCHER: I'd be happy to yield, but before I do let me just say that I think in order to measure the strength of that commitment that we need to retain the freedom to come back to this issue at the appropriate time. And if they have not taken the very firm stand in support of open access that Time Warner has taken at that point consider passing legislation that truly would make open access the national policy.

And I'd be pleased to yield to the Chairman.

REP. GOODLATTE: If I might respond briefly, I believe that we are very much on the same path. I'm sure the Chairman was about to say that, but I think that's exactly the approach he's taking.

REP. TAUZIN: Indeed, if the gentleman would yield.

Let me second the gentleman's comments and congratulate Time Warner. I think I wrapped their knuckles this morning. Let me say that I agree with the gentleman from Virginia. Time Warner's policy is exactly what we would hope all the cable systems adopt as a model policy for open access and open connection and direct contact with the customer. The principles enunciated by you are exactly right, and I would hope other cable systems adopt them, and I think Time Warner had laid down exactly the right model for the others.

My only concern again -- and we have shared this privately; let me share it publicly -- is that I would much prefer those cable companies who have not yet adopted the Time Warner model to do it without government having to instruct them on terms of entry and carriage and connection and all the things that we currently regulate the telephone companies to do. Because, frankly, I think it's a first step in government management of the Internet, which we're trying to avoid.

But we both agree that Time Warner has set down the right model. If the other cable companies were to adopt it, I think we would all go away very quickly from any interest in legislating in the area. On the other hand, if open access is not commonly available, this issue will be here again at some point.

And I thank the gentleman for his comments.

REP. GOODLATTE: Thank you, Mr. Chairman.

REP. BOUCHER: We're all watching, and the proof is in the pudding.

REP. MARKEY: Mr. Chairman?

REP. TAUZIN: Yes. Let me first ask if any other member wishes then Mr. Markey for a final comment.

REP. MARKEY: I thank, Mr. Chairman, and just in one minute say this: Back in 1996 when we were passing the Telecommunications Act, the cable industry was saying high speed Internet modems. That was their mantra. The Bell companies' mantra was the big enchilada is one business. Two separate dreams. If we've heard big enchilada once, we've heard a thousand times -- long distance.

So, what we have now is the good news that Time Warner is so paranoid in Texas about SBC finally getting it after two or three years of going to the Supreme Court with different cases, calling in a bill of attainder which we do, although they were in our office for four years asking us to pass the '96 Telecommunications Act.

They're finally moving. And, so what we now have is a great situation where SBC is moving, because the marketplace is working finally.

Because they've now changed their model from long distance over to data, which the Bells didn't get in 1996, I hate to say it. But they finally have got it now, and I think as a result if we just step back a little bit longer, this backlog of requests for DSL deployment in urban and suburban America will quickly be succeeded by requests for deployment in rural America as well.

REP. GOODLATTE: If I might respond, I agree with that observation except for the conclusion. And I think that the competition that has brought us to that point calls for us to not step back but to step forward and take this additional step to allow the Bells to do what they now realize they need to do, and do it everywhere and allow them to compete in that portion of the marketplace, the data portion, where they are already receiving vast competition at the local level.

Every time somebody sends an e-mail on AOL or thousands of other Internet services, they are effectively competing on that local exchange or taking away what used to be a telephone call and making it now an e-mail. That competition exists. Let's reward the telephone companies by allowing them into that portion of the long distance market that relates to data.

REP. MARKEY: If I may, the good news is that the telcos are now deploying DSL. The good news is also that they're opening up their local loop for the local competition, and Bell Atlantic in New York is the first of them. So, let us not in the effort to ensure that the first, which is already a success and moving quickly, is dealt with through legislation, which ultimately then destroys the advances which we are making in the opening up of the local loop to local telephone companies.

REP. TAUZIN: The Chair thanks the gentleman and does agree to his conclusion, and only point out that the illustration this morning of what happened in Texas was an illustration of a cable company finding out where the telephone company could not deploy, obviously, to go into those areas first, when the intent of the act was to create competition where in fact they could both deploy. Something's basically wrong when the competitors only go in the area where the other guy can't go, and that's what we're going to talk about today.

I thank you, Mr. Goodlatte, a great deal for your contributions. And the Chair will declare a recess until 1:15, a lunch break. We'll come back at 1:15.

(Recess)

REP. TAUZIN: The hearing will please come back to order.

Let me thank you very much for your patience. Susan, you of all people know how this works.

MS. MOLINARI: I've been there.

REP. TAUZIN: We've been running back and forth to votes.

I want to thank you all for being here, and we'll take you in order except I understand that Mr. Malone has a meeting of the Tennessee Regulatory Authority that we're going to have to try to help him make this afternoon.

So, we're going to start with our former colleague, the Honorable Susan Molinari, the Co-Chair of iAdvance here in D.C., and Susan, again, welcome. I know that you're not unfamiliar with these halls and these meeting rooms, and I don't know how it feels to be on the other side yet, but I know that you come with an awful lot of experience about how this process works.

You know that all your written statements are part of our record and that we ask you to try to follow the five-minute rule. We have such a huge and austere panel today, we want to make sure everyone gets their word in and that we give members a chance when they arrive here to do some Q&A with you. So, please summarize, hit the high points of your message, and watch those little devices. I'll try to warn you when you're almost up at five minutes, and when they get to red try to wrap up without my having to ask you to if you can help it.

We'll begin with Ms. Molinari.

MS. MOLINARI: Thank you, Mr. Chairman.

I also ask that in addition to my written statement that we have two reports that we've provided that will also be introduced today.

REP. TAUZIN: Let me ask unanimous consent that any of you who want to submit reports or addendums to your written statements, they'll be admitted into the record, without objection; so ordered.

MS. MOLINARI: Thank you, Mr. Chairman, and thank you for having me here this afternoon, and thank you for the opportunity to testify, the commitment you've displayed to broadband deployment issues, and your hard work in securing more than 200 cosponsors for H.R. 2420. Thank you, Mr. Chairman, for your unrelenting efforts in this critical area.

Now, Alan Greenspan has spoken in the recent past of, quote, "a deep seeded and still developing shift in our economic landscape. It is a transformation occasion," he posits, "by an unexpected leap in technology."

As is the case with most members of the Central Bank, Greenspan understates, for the economic data tells a remarkable story. Forrester's (ph) estimates that there will be $2.7 trillion in B-to-B e-commerce by 2004. Internet-related applications will produce $1 trillion in savings for global businesses by 2002; $300 billion in estimated Internet revenue this year alone, and one million new jobs phenomenal.

Mr. Chairman, the Internet is changing the lives and transforming our world. Unfortunately, as you well know, not every American is marching in the parade of Internet prosperity. As the Carter Commission suggested about race in the 1960s, we increasingly are two technological Americas -- separate and unequal. While access to computers and the Internet has soared, we have seen the troubling segregation of the information rich and the information poor.

According to the National Telecommunications and Information Association, urban dwellers are twice as likely to have Internet access as individuals at the same income level in rural areas. The implications of this disparity are profound. "The absence of bandwidth," opines Nicholas Negriponte (ph), "can be more isolating than the densest forest or the largest desert." And so can it.

As we worry about our rural communities falling behind, we also must take note about Europe and Asia leaping ahead. Consider the following: In Europe, as the December issue of Communication International states, "The race is on to build the fattest, fastest, and most efficient network with fewer regulations and a host of available technologies. The build out in Europe represents a significant challenge." And in Asia, Goldman Sachs contends that there will be 63 million Internet users by 2003, a more than three- fold increase from today.

According to Fortune, companies like Microsoft are placing huge bets on Asia's broadband market, and they're not alone. Asia is developing its own broadband providers, like Taiwan's Gigamedia, the first Asian company listed on the tech-heavy NASDAQ exchange.

Mr. Chairman, our technological challenges are both foreign and domestic, and they are not imagined, and they must be addressed. So, how do we get there? How do we ensure that the small boy in South Central and the small business in South Carolina can touch the high speed Internet world? How do we guarantee that the United States remains at the forefront of the economy?

The members of iAdvance believe for our part that Congress can start by allowing local telephone companies to build and operate 21st century Internet facilities without regard to lines on a 20th century map. The paramount barrier to investment in new broadband technologies for rural areas, as you know, are regulations that prohibit the RBOCs from owning Internet backbone facilities. Without these so-called interlata data restrictions more rural communities and inner city communities could be served. Similarly, our domestic telecommunication firms would have a heightened capacity to contend against international competition.

In conclusion, Mr. Chairman, for the next 45 to 50 minutes you're going to hear arguments about why your efforts and those of the 200 plus members are cosponsors of 2420 are off the mark. Well, why did they miss the mark? You will be treated to verbal competition among the competing economic interest represented on this panel.

I would guess that the phrase, section 271, will be taken in vain by some and held up as the route to Internet salvation by others.

You have two choices: On the one hand, you can let the battles that mark the almost decade-long debate that ended with the passage of the 1996 Telecom Act be heaped upon the challenge this Subcommittee is trying to address today. If you do, you will be caught in the endless spiral of charges and countercharges, arguments and counter-arguments, the act is working, it's not working, new competitors are skimming the cream, companies are no cooperating.

If you do, it will be years before Congress does something that makes sense for American consumers, American small business, and American communities. And years can mean generations in Internet time.

But there is a second choice, a digital road less traveled, if you will. You can say that the Internet is different, that making sure that every American community, every American home, and every American business has access to reliable, affordable, high speed connections to the Internet is too important to be decided by yesterday's fights or yesterday's interpretations.

If you continue to fight the old battles, battles that started in a world of analog signals, copper lines, and black rotary phones, you will be stalemated. Put the old fights aside; let them play out, and in time they will. But the issues before the Subcommittee need to be addressed in Internet time -- today. The 21st century is not about analog signals, copper lines, and black rotary telephones. It is about fiber optics, bits, and bytes, and Internet appliances.

We need more players not fewer in the Internet backbone market. We need more not fewer companies investing in high speed Internet connections. We need more not fewer high speed on-ramps to the information superhighway. We can have more if we let companies that want to invest invest. We can have more if we let companies that want to compete compete.

Mr. Chairman, Congress is poised to open up trade with China yet we still have rules on the books that stop four American companies from investing in the Internet backbone. China telecom may be able to invest in Internet backbone in this country before Bell Atlantic, SBC, US West, and BellSouth. What's wrong with that picture?

It is time for this Subcommittee and this Congress to move in Internet time to get us where we need to be. Mr. Chairman, we again thank you for your leadership, and we look forward to working with you to make it possible for all Americans, no matter where they live and work, to enjoy the possibilities of the Internet age.

REP. TAUZIN: Thank you, Ms. Molinari.

Our next witness will be Mr. Melvin Malone, Chairman of the Tennessee Regulatory Authority, Nashville, Tennessee.

Mr. Malone.

MR. MALONE: Mr. Chairman, members of the Committee, I appreciate the privilege to appear before you today.

I feel compelled to be here today, because I am committed to supporting the provisions in the Telecommunications Act of 1996. I do so willingly and enthusiastically, because I sincerely believe that contained within the text of this law, Congress created a blueprint by which competition could flourish, bringing with it the ubiquitous introduction of new technologies, along with the promise of reduced rates and better service quality, to the marketplace.

Congress showed tremendous leadership when it passed the 1996 Act, a landmark statute that challenged the existence of monopoly interests in favor of consumer choice and innovation. We must continue these efforts and not go back to where we were before the act passed. So far, it has brought unprecedented prosperity and economic opportunity to all the states.

Still, many critics of the act have argued that we in the states have taken too long to bring competition and deregulation to local markets. However, unraveling the act does nothing to hasten the process of competition. Such action could not be more remote from Congress' intent to, quote, "promote competition and reduce regulation in order to secure lower prices and higher quality services for American telecommunications consumers and encourage the rapid deployment of new telecommunications technologies," closed quote.

As Tennessee has commented earlier in its letters to each member of the Tennessee Congressional delegation, we are convinced that if enacted, 2420 and 1686 would seriously undermine the key market opening requirements in the act and thwart the deployment of broadband services to all regions. The act's mandate to require the Bell companies to demonstrably open their local markets to competition prior to receiving authority to provide data services, authorized by 2420 and 1686, is the fundamental driving force behind the explosion of broadband services across Tennessee.

Revoking, through 2420 and 1686, the carefully crafted safeguards woven into the act jeopardizes efforts currently underway in many states to close the existing gap between those that have access to advanced services and those that don't. Our experience in Tennessee has demonstrated to us that the act has been effective. These bills are unnecessary and would further perpetuate monopoly markets.

Current telecommunications law does not prevent Bell companies from providing broadband services to customers, if such broadband services do not cross lata boundaries. In fact, Bell companies have already deployed broadband technology in their home markets and are actively marketing high speed Internet access in many areas of Tennessee utilizing broadband facilities.

Particularly, in Tennessee today, a multitude of new entrants presented us with compelling business plans to help us roll-out advanced services in rural and under-served communities. Allowing state commissions to fully implement the act is the best way to ensure that consumers will get access to these new services. 2420 and 1686 would directly undermine this effort. RBOCs will be able to provide interlata services as soon as they have passed muster under section 271.

In Tennessee there are 10 rural telephone companies offering broadband Internet access throughout the state. Additionally, there are 15 CLECs and at least six cable companies providing broadband technology. Not to be left out, and certainly not surprisingly, BellSouth is currently offering DSL service in nine urban counties that account for 20 percent of its total Tennessee service area.

According to the FCC, the inaccessibility of Internet access, or access to the Internet backbone, however, is not causing the nation's "digital divide." In February 1999, the FCC concluded that Internet access was generally available throughout the nation in both rural and urban areas. In Tennessee, every county, urban or rural, has access to at least two Internet service providers via a toll free call with 40 percent of the state having access to four or more ISPs via a toll free call.

Also delivering advanced service capabilities are a number of new companies that are purely broadband carriers. These companies have either been granted operating authority or have applications that are pending before us. Some of the companies that have come before us for regulatory approval to provide advanced services are Covad, Rhythms, DSL Net, Network Access Solutions, JATO, NorthPoint, New Edge, Bluestar, and the list goes on.

Interestingly enough and in perfect disharmony with the view that non-urban areas will be left unserved about relaxed regulation for the Bells, these companies provide or plan to provide broadband technology outside of Tennessee's major metropolitan areas in cities like Cleveland, Jackson, Martin, Paris, Sweetwater, Morristown, and Johnson City just to name a few. This list of smaller and rural areas goes on.

In conclusion, I urge you to abandon this approach toward broadband deployment and instead support the continued growth of innovation stemming from the pro-competitive measures in the law that Congress worked so hard to pass in '96. Competition will eventually eliminate the need for regulation of broadband services.

REP. OXLEY: (presiding) Thank you, Mr. Malone.

Mr. Cleland?

MR. CLELAND: Mr. Chairman, thank you for the honor of testifying. The views here are mine alone.

To begin, I'd like to offer the Subcommittee two overarching conclusions. First, that broadband deployment in the business market is robust, and it's not a problem that should concern this Committee. However, the broadband deployment in the residential or small business market is a substantial problem and should be a concern of this Subcommittee. I call it the "developing residential broadband gap."

The problem is simple economics. Capital efficiency is what ultimately drives infrastructure investment. Residences and small businesses are geographically dispersed and generate relatively low revenues making deployment very capital inefficient and the deployment outlook cloudy.

Next, I'd like to offer three reasons why I think this Subcommittee should care about this issue. Well, first the residential broadband infrastructure -- another way to call it, consumer bandwidth -- it could very well emerge as the Achilles' heel of the new economy, of a video-enabled Internet, and consumer e- commerce growth.

Now, with all the attention we have right now on trying to clear taxes and regulation out from the front of the Internet train and keeping the train fair cheap and free of access charges, many are missing the obvious: That the Internet train is hurdling forward on Internet time, and it may abruptly run out of Internet track, consumer bandwidth.

If consumers don't have enough bandwidth, it doesn't matter how much video content supply is out there. It doesn't matter how much video content is demanded. It won't reach consumers. That's the disconnect that's the residential broadband problem.

Finally, I'm going to very briefly try and run through what I see as the 10 reasons that this gap exists. It's real; it's not going away.

Number one, supply and demand. We can look in isolation at the deployment that's gone so far. In absolute terms, it's very impressive. Relative terms to what is needed to keep up with the video-oriented dot-coms out there and to keep up with the potential for video streaming, it's not even close to what demand is. For example, narrow band sign-ups, ISP sign-ups, outpace broadband eight to one.

Second, an infrastructure incentive problems. The way the FCC chose to implement the Telecom Act, they created something called the unbundled element platform. They created a deeper discount than what the law had originally intended, and that was to spur resale competition. The unintended consequence of that is it massively devalues all infrastructure investment, whether it is incumbents or competitors, whether it's fiber, whether it's cable, whether it's fixed wireless. If you can lease it cheaper than you can build it, why build it in the first place. They pegged a priced too low to stimulate competition. Actually it will encumber competition.

Third, revenue efficiency is a problem in a gap. Now, we know that broadband is 20 to 100 times faster and requires 20 to 100 times more spectrum than does narrow band voice or data. Do you think consumers are going to spend 20 to 100 times for that product than the others? No. So, the economics are a problem there.

Fourth, depreciation. This is the investment community that I write for that are concerned. Very ominously, infrastructure replacement cycles for many fiber and for many wireless technologies are outpacing the appreciation cycles. In very simple terms, what that means is investors are not likely to recoup their initial investment let alone earn a return on their investment.

Fifth, the competition residential broadband gap. Our projections at the Precursor Group are that in the next three to four years we project that about 20 percent of the country may have a choice of three to four different broadband facilities. About 30 percent of the country may have the choice of two broadband facilities. And half of the country is either going to have one or no choice. And we think that's an optimistic projection given the economics and the way that these are being rolled out.

And I flag for people at the end of my testimony we have a one- page summary of essentially where the deployment is in the residential market by technology; a very useful kind of summary.

Sixth, competitive churn. Chairman Tauzin was talking about this before. One point I'd like to make is there is negligible after- market churn between DSL and cable. Once somebody signs up to them, they don't switch. It's too big a hassle; it takes too much time. So, once DSL or once cable has them, they've got them; they're locked in.

Seventh, consumer choice -- another issue that was talked about here. There's a big gap between the open choice of ISP on the telco and fixed wireless platform versus the closed cable platform. That's a gap.

Eighth, there's a technology gap. There is a wide gap in the viability of business models. The investment community you try and assess the relative viability of business models. And cable and DSL have existing plant into most American homes, so they are going to have a massive advantage over anybody that's starting from scratch. And, so when we look at the mass market, you're going to see a duopoly. You're going to see cable, and you're going to see DSL. To think that the other technologies are going to come like the cavalry over the hill and rescue, it's just not realistic. The cost is billions. It's not going to happen.

Ninth, the gap is in home computers. Home computers, the home- installed base of personal computers is not plug-n-play. It is not like dial-up where you can just do it easily for narrow band. There are no standards, and there's very little interoperability.

Then last, my point is is there's a big gap on home wiring, inside wiring. That is a veritable hornet's nest, and broadband, once it starts trying to link into multiple services in the home, it's going to be very, very problematic.

So, to sum it up, my main conclusion is while the business market is fine, the residential market has some very serious problems, and residential broadband, the reality is not going to meet expectations.

Thank you for the opportunity to testify.

REP. TAUZIN: (presiding) Thank you very much, Mr. Cleland.

And now we welcome Mr. John Windhausen, President of Association of Local Telecommunication Services here in Washington, D.C.

You're on, John.

MR. WINDHAUSEN: Thank you, Mr. Chairman.

As you said, I'm John Windhausen, President of the Association for Local Telecommunications Services, also known as ALTS. ALTS is the leading trade association representing the facilities-based competitors to the local telephone companies.

We represent the hundreds of companies that are entering the local telecom marketplace, and we're building new networks. We are not the long distance companies. AT&T, MCI, Sprint are not members of ALTS; neither are the Bell companies and GTE. We truly are the innovators, the entrepreneurs that Congress sought to foster when it passed the 1996 Telecommunications Act.

ALTS represents in particular Covad, NorthPoint, and Rhythms NetConnections; perhaps the three leading providers of broadband DSL services in this country. Those three companies alone already are able to provide service to over 50 percent of American homes today, and that's just three years since this technology first started to be introduced. Already 50 percent of American homes can get access to the service of these competitors.

But it's not just those three companies that are in this marketplace. New companies are entering this marketplace every single day -- Blue Star, Trivergent, DSL Net, New Edge Networks, Digital Broadband Communications. These are all companies that have just started in the last year or two, and they have plans to deploy service not in the large cities but in the smaller towns and cities across this country.

In fact, one of those companies alone has plans to deploy service in over 500 markets around the country, some of those markets with less than 10,000 people in population.

So, this whole entire industry is burgeoning, and what I'd like to do is bring your attention to a couple of charts that we brought here at the end of the table just to give you a picture of what's happening across the industry.

As the charts demonstrate, this first chart demonstrates the growth in the amount of money that our sector of the industry is investing. Again, we're building new networks, because we're deploying our own facilities, broadband facilities. Over $30 billion has been raised by our sector of the industry. Over $1 billion every single month is being invested by our companies in building new technologies.

Now, just to give you a comparison, I've heard that the cable industry is very proud of the fact that they have spent $30 billion, as well, in deploying new technologies, and that's wonderful as well. But keep in mind the cable industry has perhaps five times the revenues that our small entrepreneurial CLECs generate today.

In addition -- go to the next chart, please -- we're investing much more of our capital into our networks than the Bell companies are. What this chart shows is that we are spending about almost over 50 percent, almost 60 percent of our revenues go right back into our networks as opposed to only about 25 percent of the revenue earned by the Bell companies. So, we are deploying our technologies as fast as we can.

In particular, with DSL, I'd like to -- the next chart, please -- this will give you an indication of where we are in comparison to the Bell companies. As you can see, the leading provider of DSL services today is SBC Communications; next US West; third is Covad, a company that was founded just three and a half years ago.

This chart shows a couple of things: First, that it's the competitive carrier, such as Covad, Rhythms, and NorthPoint that are driving this deployment, and the Bell companies, the ones that are really concerned about doing it, they're doing it as well in response to the competition. SBC and US West, they don't need changes in the laws to deploy DSL; they're doing so already today.

Now, that's the good news. The bad news is that we could be doing so much more, if only we could really open up that local telephone network to competition, as Congress required and demanded in the 1996 Telecom Act. Competitors continue to face over and over again problems with obtaining co-location in the central offices. We continue to have very severe problems getting loops provided to us, as is required under the act.

Our experience is that it takes between seven and 60 days to get service provided to us, when really it should take the same amount of time as switching your long distance service. It should only take three to five days to switch your local company, but instead it often takes over a month.

The polite terms to describe what the Bell companies do is that they engage in strategic incompetence. They simply do not devote the resources to deploying services and satisfying our request for interconnection.

But we also have many examples of fines and penalties that have been posed on the Bell companies, because they simply don't perform. In the words of one of our other executives, "The Bell companies treat competitors just like they treat their customers -- poorly."

Now, one last point. Line sharing is a very, very critical key to deployment of broadband services to residential consumers. Scott just referred to the difficulties in deploying broadband services in residential areas. Well, I must point out to this Committee that line sharing is perhaps the critical step that will allow broadband services to be deployed to residential consumers in an economic manner.

However, H.R. 2420 would take away line sharing. It would remove that possibility and in fact would have the direct opposite effect of what this Committee wants to achieve. As Mr. Dingell referenced earlier, if 90 percent of residential consumers are served by cable today, that substantial market share is only likely to be preserved by passing the bill, H.R. 2420. We need to stay the course.

If I could summarize, and my last statement, what we need most of all is enforcement of that 1996 Telecom Act, not changes to it. The best way to promote deployment of broadband services is to get that local market opened up, as Congress required in 1996.

Thank you.

REP. TAUZIN: Thank you very much, sir.

And next will be Mr. Don Vial, Policy Committee Chairman of the Alliance for Public Technology here in Washington, D.C.

Did I pronounce the name correctly? Is it Vial?

MR. VIAL: Well, Vial is proper, but everybody calls me --

REP. TAUZIN: Vial is the way we say it back home in Cajun country.

MR. VIAL: Just don't call me a vial person.

REP. TAUZIN: I understand.

Mr. Vial.

MR. VIAL: Well, thank you for the opportunity to be here and to represent the Alliance for Public Technology.

As you know, we are an organization that believes strongly in the life-enhancing, empowering characteristics of the new technology, and our mission has been to do everything possible to provide the incentives to bring this technology to the communities that are marginalized by the operation of the marketplace and who are last to receive the benefits of this technology.

My testimony also, I guess, is colored by the fact that I'm a former regulator, having been a commissioner in California and its President during the '80s when we unleashed the creativity and innovative capacity of market forces.

And I think what we have all learned and what we all know is that the regulatory process has had a very difficult time keeping in step with the market-driven technology advancements of the digital age. In fact, if you want to be realistic about it, regulatory regimes are no match for the creativity and innovative capacity of the marketplace.

And I say this because I think all of us that have been involved in regulatory process have learned that technology is making mince meat, I mean mince meat, out of the regulatory strategies that have put technology in boxes for segmented, bifurcated decision-making, when in fact all of the big players -- and many of the big players that are at each other's throat before this Committee -- in this era of mergers and acquisitions are vying for market positions as full service providers, all of them offering some technology and broadband.

So, I think it's very timely for the Congress to take another look at the boxed-in strategies embedded in the 1996 act, at least to clarify the intent for the federal and state regulatory agencies required to carry out those mandates. With the focus on the deployment of broadband capacity and the roll-out of data networks, a good place to begin is the current segmentation of authority to provide voice-grade services by local exchanges and interexchange carriers.

Whatever the value has been of that segmentation in promoting competition in the local exchange, it is a total anomaly when extended to data networks fostered by the competing broadband technologies. And while positions have hardened around section 271, reality is that distance as a regulatory concept is becoming increasingly meaningless if not totally meaningless in dealing with data networks.

So, APT agrees with many of the statements that have made here. There really is time to look at what you meant in this 1996 act in dealing with advanced technologies.

I think it is important to recognize that broadband technologies and data networks are ushering in a new era of bundling and convergence of competitive services. And if you look at the mergers that are taking place and the acquisitions, I think it's fair to say that they are driven in large part by the economies at scale and scope to be realized by being a full service provider.

And those economies of scale and scope are eroded by regulatory processes that have been outdated and been made irrelevant by technology; they detract from it. And our concern is that these economies of scale and scope of being a full service provider are the same economies of scale and scope that need to be captured to reach the low end of the market, that portion of the market that are not full beneficiaries.

So that when you look and think about data networks and who is providing the services, look at the economies of scale and scope and how they are used in a market system, in a competitive environment. Yes, competition takes those economies of scale and scope and the unbundling process and rebundles them in accordance with the marketplace, usually to the high end. But you've also got to look at the carriers that have the residual responsibility to deal with the low end of the market.

And it's very important that those economies of scale and scope and being a full service provider be taken to the low end. And that is why APT has consistently advocated a combination of forbearance and proactive regulatory approaches to developing community-based, market- sensitive vehicles, and I'm talking about partnerships with the converged communications industry, to bring the communication needs and priorities of the under-served within the orbit of R&D investments for real market development and demand aggregation.

Our premise is that what we are doing today in promoting community technology centers, all the organizations at the community level in diffusing technologies are important in diffusing technology. But all of this has to be social capital that comes into the community and that works with the competitors in bringing real investments into the community.

Those are the enduring solutions that we need. And I'm working in Oakland in these areas. I'd be happy to tell you how we're working with all the competitors that are at each other's throat in dealing with this essential problem, but I know that there isn't time for it, and I thank you for the opportunity to be here.

REP. TAUZIN: Thank you very much, sir.

And now Mr. Roy Neel, President of USTA here in Washington, D.C.

MR. NEEL: Thank you, Mr. Chairman.

There's been a great deal of self-congratulation over the last few months, last year from policymakers and others who are saying, "We're not going to regulate the Internet. We're going to keep hands- off the Internet." The fact is the hands are on the Internet.

The Internet is heavily regulated if for no other reason than a large part of the engine of the information economy is not allowed to serve their customers with the kind of high speed Internet access service -- Internet access and services across these arbitrary lines that could push this technology out to everyone wherever they live, whether it's rural Louisiana or Oklahoma or Florida, Ohio, or Tennessee or wherever.

Because even though you've got a lot of these companies, these CLECs and others as well as these mega companies -- AT&T, Media One, MCI, Sprint, Worldcom; it's all kind of one name now -- the fact is they're not serving these rural areas. Out of the 1,000 POPs, or points of presence, for these high speed backbones around this country over the last few years, only 100 or one-tenth of these are in anything other than urban areas. It's a fact.

We're not talking about dial-up modem services, your just basic Internet access services, and we're not talking about a little capacity. We're talking about being able to push a whole lot of data down a pipe very fast so small businesses in little towns everywhere and for everyone can do that work in competition with large companies everywhere.

If you're a really big company, you can buy whatever you want from folks at this table or elsewhere or if you are in an urban area, you can get whatever you want, and there's a lot of competition. But if you're in a rural area, you can't get it. And it doesn't matter how much DSL service there is in a little community. If you don't have the backbone to push all that stuff, with everybody working at once, into a pipe and move it to Denver and elsewhere, you've got a big problem on your hand.

The anecdotes abound. We have stories of auto dealers in Montana that drive all the way to Denver to download information data to move it to Kansas City or somewhere, because they can't move it across those lata boundaries, and none of these new competitors is going to serve them with those kinds of services.

We've got Lands End, their e-business out of Minnesota. They had to relocate to Madison from a small community, because they couldn't move the data, massive amounts of data required to service that business just a few miles across a lata boundary, and the competitors wouldn't go in there, and they're not going in there, because the business economics of it don't work. It's a great business.

John Windhausen showed us a chart, a great chart, a great business deal where there are billions of dollars flowing into that industry. Those folks aren't scared of 271 relief; in fact, when Bell Atlantic got relief in New York City, the CLEC stocks went up. There was nothing to be feared there. But they're not going to go out there, and those are the areas that you're worried about that represent the "digital divide."

So, you've got to decide what problem you want to solve. The '96 act wasn't about making the CLECs rich or guarantee them a profit or allow them to game the system. It was about making competitive opportunities available to everyone, wherever they live, and pushing out these new technologies to everyone, wherever they live, and leveling the playing field and backing the government out of this industry.

The FCC didn't get the message. It doesn't matter whether or not you envisioned data and the Internet when you were debating the '96 act four and a half, five years ago. It really doesn't matter. If the problem is there, you need to fix it, because the fact is it is true that a bit is a bit.

But the market is still in voice. The Bell companies have every incentive to open those markets to get 271 relief for voice. H.R. 2420, your legislation with Mr. Dingell, does not affect voice traffic. It's very critical, and it's very easy to police that. It doesn't affect voice traffic, and the Bell companies have every incentive to get those markets open and keep them open in order to get 271 relief. It's $100-billion plus industry compared to a fraction of that for the wholesale data business right now. They have every incentive to open those markets. The anecdotes go on and on.

But one thing that I didn't envision was the kind of gaming that does need to be fixed. We've seen cases, any number of cases where this has happened, but let me just quote Communications Daily, sort of the Bible of what goes on, about a conference that just was held down in Orlando between the CLEC community and the ISP community. Now, I don't think that this panel envisioned this when they were writing the '96 act.

And I'll quote, "One ISP leader complained that CLECs never shared much reciprocal compensation money, barely even offering her company discounted phone rates when they clearly profited from every call. Another one" -- and this is in open session -- "Another one apologetically talked of her annual battle to get her kickback until she decided to become a CLEC herself." And the conference went on to show ISPs how to make that transition to CLEC status to ensure that they reap the profits from this system of arbitrate.

Now, I don't think you envisioned that. Now, that's one piece of this. But the point here I want to make is that there is a problem, there is a "digital divide." You have an obligation to fix it, whether or not it was envisioned in the '96 act. And the way to do that is to deregulate these data services, let these companies flip the switch. Two hundred seventy-five thousand miles of fiber is embedded out there that can serve every rural customer in this country, and you're not allowing them to do it. And all you got to do is pass this legislation and the Goodlatte-Boucher bills and make this happen.

Thank you, Mr. Chairman.

REP. TAUZIN: Thank you, Mr. Neel. I hated to slow you down, but your time was up. Thank you.

Mr. David Kunkel, Vice Chairman and the Executive Vice President of PSINet.

Mr. Kunkel?

MR. KUNKEL: Thank you, Mr. Chairman.

Well, in counter distinction to my colleague on my right, we are the competition, and we don't agree.

As you said, Mr. Chairman, I am the Executive Vice President and Vice Chairman of PSINet, headquartered across the river in Ashburn, Virginia. We are the first and the largest independent facilities- based ISP in the world that started in 1989 before much of, of course, what you were talking about this morning ever occurred.

I'm also testifying today on behalf of the Commercial Internet Exchange Association, CIX. That's the largest trade association of Internet service providers, of which we were the founding member and host of their equipment for years.

In our experience, the key to broadband deployment is opening up the local telecom markets to competition. To the extent that there's any problem in broadband deployment in this country, the problem lies with the local exchange, not in the highly competitive backbone market. That problem is caused by barriers to competition in the local market, barriers that amount to a bottleneck that are maintained by the monopoly ILECs.

The Bell companies try to justify their desire for interlata relief by claiming there's a backbone capacity shortage. Nothing could be further from the truth. The Internet backbone marketplace is a remarkable competitive success story, and it continues to grow at exponential rates. PSINet alone maintains more than 275 points of presence in the United States that are connected by high speed dedicated circuits, including over 10,000 miles of OC-48 and OC-192 fiber optic cable. And PSINet is only one of the many ISPs in this highly competitive market.

The market remains wide open to new entrants; indeed several significant competitors in this space, such as Level 3, Global Crossing, and Qwest, had negligible or non-existent marketshares only a few years ago.

As you consider what the correct federal policy is on broadband, we ask you to trust -- whether you trust a monopoly to provide service more than you trust a robust, open, and competitive market?

And this is the counterintuitive part, but I want to underscore this: We submit that if you deregulate local telecom monopolies and eliminate incentives for them to crack open their markets, you will retard broadband deployment in this country significantly. You'll also leave monopolies free to charge artificially high prices and to price broadband service out of the reach of many of the consumers that you're concerned about.

The two monopoly deregulation bills pending before this Subcommittee, H.R. 2420 and 1685 are well-intentioned, but they suffer from precisely these flaws. They would strike a potentially mortal blow to broadband competition in the local loop by allowing monopoly carriers to discriminate in pricing against the competitive local exchange carriers and ISPs. They would give the RBOCs that have not opened their local markets to competition the power to leverage their local monopolies to distort competition in this vibrant Internet backbone market.

The best means of accomplishing national broadband deployment is to stay the course set forth in the '96 Telecom Act. The RBOCs should not be allowed to provide interlata data service in areas where they have monopoly power until they comply with the act by opening their local markets to competition, just as Bell Atlantic has done, although somewhat imperfectly, in New York.

Just as important, local telecom monopolies must be required to provide cost-based access to the network elements needed for competitors to offer broadband service over the local loop.

If we stay the course with the '96 act, the unprecedented growth of the Internet will continue. A truly competitive marketplace is in fact the best way to bring broadband services to all Americans.

Mr. Chairman, thank you for this opportunity to testify.

REP. TAUZIN: Thank you, Mr. Kunkel.

And now Mr. Shelton Jefferson, CEO of Netcom, Brooklyn, New York.

Mr. Jefferson. Yes, please take the mike, Mr. Jefferson.

MR. JEFFERSON: I would like to thank the Committee for this opportunity to testify. I operate a small business called Netcom Technological Solutions. We design, build, and maintain computer networks, particularly Internets.

Netcom and other small businesses foster innovations and products and services that many times reach the American consumer first. It is the economic health of small companies, such as Netcom, that is key to continuing the current U.S. economic expansion.

My plea to Congress is a simple one: As a small businessman, I seek relief from the burdens from competitive disadvantage, lack of access, and lack of choice unintentionally caused by the 1996 Telecom Act. The act is a great effort by Congress that is being taken advantage of by a few companies to the disadvantage of us all.

As an Internet service provider, I provide dial-up and dedicated Internet access services to my residential and business customers at affordable prices that meet their quality requirements. However, my Company is locked out of providing broadband Internet services via cable at any price. Not only my Company but 98 percent of all ISPs in America are locked out of a very cost effective, high quality broadband medium for the transmission of Internet services at any price.

The broadband option that I do have access to in some communities is DSL, a service that cannot match the speed or quality of cable and has mileage limitations of three miles. DSL operates at maximum speeds of seven megabits, while cable can operate at speeds of 100 megabits.

In my opinion, DSL technology is not an effective, competitive choice over cable Internet service. However, unlike the cable companies, Bell Atlantic is willing to allow me to private label their DSL service to my Internet customers. As a matter of fact, we have the opportunity to resell Internet service and/or purchase transit rights from nearly every carrier in America except cable.

Not only can we not get access to local cable broadband facilities, we must also pay inflated prices for transit to the Internet backbone, prices that are so high because of the concentration of ownership of Internet backbone in the hands of a few long distance and cable companies.

While I think the RBOCs need to deploy a broadband capability that better competes with cable Internet, I understand the disincentive in current regulation that may be holding them back. Any RBOC who deploys a competitive Internet broadband product falls prey to federal regulation that gives their competitors immediate, below cost access to the new advanced facilities.

As a businessman, it would be financially irresponsible to invest in facilities that I had to sell to my competitors at prices below my actual cost. It's common sense. The same, however, holds true for cable and long distance companies where they are equally constrained by regulation.

The big three long distance carriers have parlayed their massive market power into control over the Internet backbone. Their control over the backbone is relevant to me, because I have to buy backbone transit to deliver connectivity to my customers. Backbone location and transit prices are always important, but they become critically important when we consider offering broadband.

For broadband service, I need big pipe. I need backbone access at T-3 speeds, 45 megabits.

I need to be able to offer customers reliable connections of between three to 10 megabytes. We're talking about transmitting video, not data. That is the convergence or point that we're at.

The locations of backbone points of presence dictates where I can offer high speed Internet service at affordable prices. Outside urban areas, the distance to reach a backbone point of presence is going to be fairly long, and so the private line costs are going to be higher. You pay based on mileage.

As you would expect, every ISP prefers lower prices for private lines and for backbone transit, but what makes limited location choices and high transit prices so bad is knowing that constraint supply need not be so.

The largest providers with abundant fiber routes outside urban areas are the RBOCs. Their fiber routes cover every town, village, and corner inside their lata. They could quickly introduce new Internet points of presence and transit price competition, but they are forbidden from offering me these solutions. Therefore, I cannot pass along any of these choices, savings, and speed increases that my customers are demanding.

Regulations that prevent the private sector from offering remedies to high prices and constraint supply are laws that need stern and frequent scrutiny. The 1996 Telecom Act contains no statements that suggest Congress wanted cable or long distance companies to concentrate ownership in Internet backbone and broadband services to the disadvantage of small businesses such as my own.

Regarding my recommendations to this Congress, I say the real issue is whether there are enough affordable broadband Internet choices available to consumers in all urban areas, not just some urban areas, and available in all rural areas, not just some rural areas. The real answer is no. If the claims of those companies controlling Internet backbones and closed-cable Internet systems are 100 percent correct, market forces will produce the desired results within a year, and Congress needs to do nothing.

In a perfectly competitive world, this would be a reasonable expectation. In the real world, my experience as a small ISP is that competition is being stifled, and Congress should act in favor of more consumer choice and competitive pressure that pushes Internet backbone availability beyond affluent urban areas and into everyone's community now.

Thank you for your attention and the opportunity of addressing you.

REP. TAUZIN: Thank you, Mr. Jefferson.

Mr. Frisbee, it's your turn, sir. President of the Competitive Telecommunications Association, Mr. Russell Frisbee.

MR. H. RUSSELL FRISBY, JR.: Thank you, Mr. Chairman, distinguished members of the Committee.

I'm Russell Frisbee, President of the Competitive Telecommunications Association. CompTel, as you may know, is the national industry association representing the full range of competitive exchange carriers of all kinds, whether they're ISPs, CLECs or IXCs.

The goal of the Telecommunications Act was to create competition in the local telecom market. The challenge Congress faced when crafting the act was how to engineer an incentive for the RBOCs to open up their local bottlenecks. Congress came up with the proper incentive which was to allow the BOCs to provide in-region long distance services once they met the 14-point checklist. This incentive is working.

Also the act is working, because it has unleashed an entrepreneurial explosion. Competitors are investing over $1 billion a month in broadband connectivity alone. To deploy these technologies, our companies, however, must have RBOC cooperation so they may interconnect their facilities, particularly that vital last mile.

Unfortunately, our members consistently tell us that even with the markets -- act's market opening incentives, they are having trouble getting timely cooperation from the Bells. For instance, when it comes to provisioning of DSL-capable loops, we find that the RBOCs are frequently able to provide their own customers with vital components within days, but it may take our members months to get the same type of loop.

It is important for the Committee to remember one key fact: We would not be using the word "broadband" today were it not for the '96 act and the pro-competitor regulatory environment it created. It's the competitors not the incumbents who first brought broadband services to American customers. It was only after the entrepreneurs had blazed the way that the RBOCs followed even though DSL was rather old technology.

I'm going to spend the remaining part of my time focusing on two charts. Those charts are going to show that the "digital divide" is being bridged in rural areas by companies such as McCleod, Touch America, South Dakota Network, and in inner cities customers are receiving DSL service from companies such as Allied, Integrity, and Covad. And I urge all of you to read the report published last month by the National Telecommunications Information Agency and the U.S. Department of Agriculture.

Now, the first chart you see up here shows every locale in which a competitor has deployed a high speed Internet POP, that's DS-3 or higher. In 1996, that chart would have been blank. Now, we have a situation in which competitors have built over 1,000 high speed Internet points of presence. They've actually built POPs in every lata in the country except for two.

The second chart -- if we could go to the second chart -- shows the population effect. The population effect is that 95 percent of all Americans are within 50 miles of a high speed POPs, and these POPs are not just located in densely populated areas, but in cities such as Owatonna (ph) -- and I apologize; I'm from Maryland -- Minnesota; Ocala, Florida; Joplin, Missouri.

Now, Mr. Chairman, over the lunch break, we checked our records, and we find that in Louisiana there are 17 POPs. There are four in New Orleans, four in Shreveport, three in Baton Rouge, one in Slidell, one in Monroe, two in Lafayette, and two in Lake Charles. And those POPs are deployed by companies such as PSINet, Intermedia, KMT, McCleod, AT&T, Worldcom, and Sprint. So, clearly, new entrants are equipped to offer these facilities, and we are doing it. The act is working, and entrepreneurs are leading the way in bringing innovative new technologies to the doorstep of every American consumer.

In summation, I would like just to cover two points that were discussed earlier. First of all, with regard to Land's End, we would like to submit an article dated March 22 from the Wisconsin State Journal. Land's End is not moving from Dodge, Bill; it's opening a new facility in Steven's Point, because the state, Portage County, and the city of Steven's Point have offered approximately $11 million of incentives.

Secondly, we recently, as was alluded earlier, recently held a conference in Orlando in which we brought ISPs and CLECs and IXCs together. The reason we brought them together is because there is a real convergence going on. And at our seminar when we talked about how to be a CLEC what we found is a number of ASPs and ISPs are now becoming CLECs, because that is the best way they can serve their customers.

They're throwing up their hands; they're not getting the services that they need from the local operating companies, so they have decided to go into business for themselves as CLECs, and I think that's what Congress envisioned when it passed the act, that it could open doors so entrepreneurial companies could come in and serve their customers the best way they can. So, we say keep up the good work and stay the course.

Thank you, Mr. Chairman.

REP. TAUZIN: Thank you, Mr. Frisbee.

Finally, Mr. Jerry Ellig, Professor of Economics at George Mason University here in Arlington, Virginia.

Mr. Ellig?

MR. JERRY ELLIG: Thank you, Mr. Chairman.

I am a research fellow at the Mercatus Center, George Mason University. I'm also a Research Fellow at Citizens for a Sound Economy Foundation, and I'm here today actually on behalf of CSE Foundation.

The reason is to summarize a couple of studies that the Foundation has published that I authored, that look at several issues related to broadband markets and that are related to a lot of the topics we're talking about here today.

Just by way of background, Citizens for a Sound Economy Foundation is an educational foundation. We have 250,000 individual members and supporters nationwide. We have been in existence since 1984, and we've been doing work on telecommunications since 1987. I know, because I was the Research Director at the time when that project started.

So, in Internet time, we've been doing this forever, and we've consistently been trying to figure out what's the best way to get competition into these telecommunications industries, and we recognize that people of good will can sometimes disagree on that kind of thing. But let me give you our take on it, and I'll only make two points, rather than the traditional three that speech coaches say you're supposed to make.

First point is if we look at a lot of the policy proposals out there when we talk about forced open access, forced unbundling, sale of unbundled network elements of various types of regulated rates, line sharing, and so forth, we need to realize that those types of policy solutions come from a model of a regulated monopoly industry where the only way to get competition is through those kind of mandates.

Broadband access is not that type of industry. Broadband access is quite competitive. We've had some more recent figures quoted here, but in 1999 the Yankee Group reports that there were 300,000 DSL subscribers, a little over a million cable subscribers getting broadband, 40,000 getting it through wireless. There are various that have come out that suggest that those figures are a lot higher now than they were in 1999, maybe double the number of folks on cable.

Yankee Group projects that by 2004 70 percent of U.S. households are going to have access DSL and cable, and it's usually going to be the same 70 percent will have access to both.

CSE Foundation also took a look at other technologies in a study that we published back in December and figured out that if productivity and costs in this industry, in broadband access show the same behavior that they showed in other parts of the competitive telecommunications industry after the AT&T breakup, by 2004 we'll probably have four technologies that are available for between $20 and $40 a month in addition to DSL and cable and wireless and satellite as well.

The Federal Communication Commission was wise to recognize this when they decided not to impose forced access or forced unbundling on cable. We wish they had been as wise when they looked at DSL and local telephone companies, and of course H.R. 2420 does look at that and say, "Wait a minute, this is competitive. It's not clear why we need forced unbundling in this kind of a competitive industry."

Second finding we came up with is it looked like there were going to be net benefits to consumers if you allowed the Bell companies to offer Interlata data services. We have to keep in mind that this is not a situation like long distance and local access where traditionally the local phone companies have had a monopoly on local access, and so they may have very strong incentives to discriminate against competitors in the long distance business.

If in fact, as our studies suggest, the broadband access market is competitive, then the local Bell companies have much less of an incentive to discriminate against competitors who are also trying to provide Internet backbone or other types of services that would compete with the Bells interlata data services.

That doesn't mean that they would never want to discriminate against a competitor, but when there is competition discrimination against the competitor does not translate into harm to consumers. If a Bell company discriminates for reasons that are anti-consumer, all they do is give the consumers a reason to switch to cable. So, customers have options to protect themselves in the broadband market that they do not have in the local telephone market.

REP. TAUZIN: Thank you very much, Mr. Ellig.

The Chair recognizes himself for five minutes and then the members in order.

Let me, first of all, help shed some light on this dispute as to how many POPs exist out there. It pretty much depends on what you define as a POP, doesn't it, Mr. Frisbee?

MR. FRISBY: Absolutely.

REP. TAUZIN: In fact, PSI testified on the Senate side that it alone had more than 30 POPs, but many of those POPs were only T-1 circuits, right? And those T-1 circuits, sir, have the capacity, I think, of 1.5 megabits. Is that right, Mr. Kunkel?

MR. KUNKEL: Well, Mr. Chairman, as I testified today --

REP. TAUZIN: Yes, use the mike when you respond, any one of you.

MR. KUNKEL: As I testified today, we have now 275 POPs at high speed access. We define that as being T-3 and above.

REP. TAUZIN: Are those DS-3 and above?

MR. KUNKEL: Yes, sir.

REP. TAUZIN: Because Broad Watch magazine, which has a chosen network of 43 different backbones, considers a major backbone hub to be a connection of DS-3 above only, not these T-1 connects, which have been identified as POPs in some of the testimonies; is that correct?

MR. FRISBY: If I could clarify, Mr. Chairman?

REP. TAUZIN: Mr. Frisby, yes.

MR. FRISBY: Mr. Tauzin, this was information that was developed by the Competitive Broadband Coalition over the last week. Those were DS-3 and above. The problem I think we're running into that this is very insensitive, commercial information, and until very recently some of the companies have not been willing to fully disclose where all their POPs are.

REP. TAUZIN: Well, it's going to be important, in terms of the way we understand all of your testimony, that we all talk the same language. So, if you can and if you can in whatever you submit to us in writing, if you can identify what are you talking about when you talk about one of your POPs.

MR. FRISBY: We'll be happy to. Thank you, Mr. Chairman.

REP. TAUZIN: Secondly, Mr. Jefferson, you made the point -- and I want to see if Mr. Neel and you and perhaps Ms. Molinari, if anyone of you want to help me understand this thoroughly -- you made the point that the four big Bell companies are limited by law in special ways when it comes to data transmission, that we do have these lata lines on the maps that apply to them; we do have the unbundling requirements of 251; we do have the prohibition against going over those lata lines until they get 271 relief from the FCC.

And you made the point, Mr. Jefferson, why are we so surprised that they haven't rushed out to build broadband networks when they can't fully use them. And when their competitors can use them, it sometimes costs less than their own cost of extending those networks.

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HSE-COMM-TELCOM PAGE 75 05/25/2000 May 30, 2000 12:22 ET .EOF I've asked someone to think about that.

Is that like -- I'm trying to get an analogy that I can understand at home -- is a little bit like someone suggesting to me that I should buy a new car but that the understanding is that I can't use it to go maybe further than a few blocks, but all my neighbors can use it and some of them can run taxi service out of it if they want to? And why would I invest in that new car under those circumstances? Is that similar?

Ms. Molinari?

MS. MOLINARI: Mr. Chairman, the analogy that perhaps I can bring home to this group in my interpretation is it would be as if you go out and you devise your campaign plan, and you go hire a consultant, and you then do a market analysis and target your likely voters, and then you're asked after you developed all that to share it with your competitors in a primary general election. You would not be predisposed to move too quickly to expend those resources if you had to share it directly with your opponent, particularly if one hand was tied behind your back and therefore you couldn't participate in the debates.

REP. TAUZIN: I mean it's one thing for us to help deregulate the voice communication marketplace, but you had indicated it's a $100 billion marketplace here for the Bells to want to aspire to by providing these kinds of restrictions and these requirements on competitive access to the lines that were laid and built for voice communications with monopoly profits.

It's another thing to say now that those lines, which might be available for all these new businesses in broadband services, have to lay idle or other people can use them. And if you do go out and put a lot of money into them, expand those new services to put a great deal, in fact, in new investments, as we understand it takes to make this work and then not to be able to fully utilize them yourself, you have to hand off the traffic to someone else, and also make them available to your competitors in this unbundled requirement of 251, that's a totally different proposition.

Mr. Cleland, you want to comment on it?

MR. CLELAND: Yes. The metaphor I think you're looking for is essentially it's a reversed patent, where you invest and only your competitors get to earn a profit on it.

REP. TAUZIN: So, you get the patent, you get to own it, but others get to use it.

MR. CLELAND: Right, and you don't.

REP. TAUZIN: That's a cool idea. So, we're supposed to be surprised that the systems are not being deployed the Bells are not rushing out to provide them for other people to use them for their own customers? We're supposed to be shocked by that?

Mr. Frisby.

MR. FRISBY: Well, Mr. Chairman, a couple of points: First of all, as was pointed out earlier, most of the DSL lines in this country are being provided already by the Bells. So, they are deploying them, and it is their largest fastest growing area of profit.

And what we're talking about is interlata data transfer, and there's a very easy solution. It happened in New York. Bell Atlantic complied with the checklist. The 271 application was granted. It can go forward in New York.

REP. TAUZIN: Mr. Jefferson, are you satisfied with DSL? Are your customers happy with just DSL?

Take the microphone, sir.

MR. JEFFERSON: At this particular point my customers would prefer to have three megabits, 10 megabits. We can't get that out of DSL.

REP. TAUZIN: Here's the problem for your customers, isn't it, I mean we heard a discussion from Mr. Neel about it: If one of your customers is going to be on a supply network and he doesn't have fast enough connection; he's stuck with an old connection; he can't get to the POP without buying a very expensive connection; he's at a disadvantage; he's a small business; he doesn't have the resources to go out and buy that T-1 line himself and pay that $4,000 or $5,000 a month for that connection, then pretty soon he's left out of the loop, isn't he, because people that connect to him are his speed, right?

MR. JEFFERSON: Exactly. And usually what's going to happen, they're going to go to whomever can provide them at a competitive price at speeds that they want.

REP. TAUZIN: They're either going to take the business to somebody else or you have to move your business to someplace where you can connect to the high speed, right?

MR. JEFFERSON: Exactly.

REP. TAUZIN: Isn't that what's happening, Mr. Neel?

MR. NEEL: Well, several things happening. There are companies that would have to move -- the Land's End example I mentioned. There are companies that will never locate in some of these areas, because these are the interstate highways of the 21st century.

REP. TAUZIN: And isn't it sad, Mr. Neel, that fiber optics available to them for them to make the connection from that smallest town to the hub located that great ramp that will take them into future, the fiber in the ground that they've already paid for in their phone rates, and they can't use it.

MR. NEEL: It is bad throughout this country in rural areas. Let me give you an example: If Mr. Jefferson were in Cortez, Colorado, he would face the same problem as the big hospital does there. They serve parts of Colorado, Utah, and New Mexico, but to serve Farmington, New Mexico, which is 80 miles away, it's got to have a high-speed data connection.

For the hospital to send that data from Farmington to Cortez, 80 miles, it has to travel 1,000 miles instead of the direct 80 miles, because the provider, US West, is not allowed to flip a switch, and none of these CLECs are going to come in there and serve that hospital for that reason. There's no money there. It's like John Dillinger. They asked him why does he rob banks, and he said, "That's because that's where the money is." And that's why they're going to go in those markets. So, if you want to solve that problem --

REP. TAUZIN: Thank you. And I don't want to leave, Mr. Frisby my time is up -- but I want to make one point: I'm reading this report of this conference, and the conference attendees made it very clear that they want to get these kickbacks. When the ISP connects up to a CLEC, it's taken a reciprocal cap off of the Bell system and its customers. They want those kickbacks, and they were learning at the conference how to become CLECs so that they could get not just the kickback but the full reciprocal compensation, the full benefit of the scam. Isn't that right?

MR. FRISBY: Well, unfortunately, I was not at that particular session, and I have not seen the article, but I was --

REP. TAUZIN: It's a pretty hot article.

MR. FRISBY: I was former Chairman of the Maryland Public Service Commission when the whole issue came up, and the issue was really one of reimbursement for cost and that there are costs in termination.

REP. TAUZIN: Yes, there are costs; we understand it. But I mean when one of the members actually calls them what they really are, kickbacks, and they're saying that's not enough. We had a hard enough time getting our kickbacks, we want the whole thing, so we're going to become a CLEC to get it all.

Mr. Markey's recognized.

REP. MARKEY: Thank you very much.

Mr. Frisby, I thought I heard you mention McCleod.

MR. FRISBY: Yes.

REP. MARKEY: Now, McCleod is in Cedar Rapids, Iowa.

MR. FRISBY: Yes, it is, Mr. Markey.

REP. MARKEY: I have three stuffed cows in front of the Hilltop Steakhouse in the middle of my district, and that's our relationship to farm economy.

(Laughter)

My father delivered milk door to door. We were at the retail end of it. So, how does McCleod deploy this broadband in Cedar Rapids and all of those remote parts of the country? Mr. Neel is saying they're not going to serve those remote hospitals, but isn't that actually the business plan of McCleod to go to all of those places where US West isn't right now? And aren't they already out there and serving tens and perhaps hundreds of thousands of people with this broadband in rural America?

MR. FRISBY: Absolutely. They're doing it the old-fashioned way. They're building it, and they're going to the second, third, even fifth-tier markets, because that's where the opportunities are. And they have a staging plan. What they've done is they've begun to go first start by resale, but eventually in many of these situations they are building out, they are laying the fiber, they are acquiring companies. They are doing it the old-fashioned way.

REP. MARKEY: Now, McCleod believes, does it not, that there's a very successful business plan, which can be deployed, which will provide Internet, cable, local, long distance service to rural Americans?

MR. FRISBY: Absolutely.

REP. MARKEY: And their Company is now capitalized at $10 billion, and they project it to be $40 billion in another three or four years, making it a greater value than US West.

MR. FRISBY: Absolutely.

REP. MARKEY: So, how can a small company start up in four years and do such a marvelous job in deploying broadband in rural America when the largest company in that region hasn't been able to do so?

MR. FRISBY: Well, I can't answer why the largest company can't, but you have a strong management team, you have adequate financing, and you have a market. In some areas, what has happened is McCleod now has something like 40 percent of all business lines in Iowa. And that's because it goes in, it offers a service for value, and it's happening all throughout the Midwest.

REP. MARKEY: So, it doesn't compete on price; it competes on the value offered.

MR. FRISBY: The value and price.

REP. MARKEY: Yes, but mostly value.

MR. FRISBY: Mostly value, yes.

REP. MARKEY: Mr. Windhausen, you said earlier that 50 percent of the country now has access to a competing broadband service. Can you elaborate upon that a little bit?

MR. WINDHAUSEN: Sure, and that's just from those three main companies. That's not including all the new companies that are getting in the market right now, today, to serve the second- and third-tier markets. So, we're going to be well past the 75 percent mark probably in another year from now.

There's another example I think which you may be familiar with in your home state of Massachusetts: Digital broadband communications recently competed for and won a contract with the state educational system to provide DSL services to every single town and locality in this whole state of Massachusetts. And they won that contract after bidding against Bell Atlantic. They'll offer that price, the same price to every single city, whether it's rural, urban, suburban, in every single town.

The advantage of their network deployment is once they're co- located in those central offices, then they will also have the facilities available to serve all the residential customers.

REP. MARKEY: So, every residential customer in Massachusetts, no matter where they may be in the rural part of our state -- and people don't understand that 60 percent of our state is rural -- will have access to it.

MR. WINDHAUSEN: Will have access to it through the competitive deployment of this service.

REP. MARKEY: Now, how many other states have put together plans the way Massachusetts has?

MR. WINDHAUSEN: Well, I'll tell you, a lot of them are looking at those plans based on --

REP. MARKEY: Are we the first?

MR. WINDHAUSEN: Massachusetts is the first that I'm aware of.

REP. MARKEY: So, if other states adopted our plan, they could very easily guarantee that same access for their rural --

MR. WINDHAUSEN: That's exactly right.

REP. MARKEY: So, the states themselves have the ability to do that.

Mr. Kunkel, you heard Mr. Jefferson's problem here.

MR. KUNKEL: Yes, sir; I was about to give him my card.

(Laughter)

REP. MARKEY: I thought that there was a certain appropriateness of the seating chart here that the two of you were sitting right next to each other. And I was just wondering, listening to both your testimonies back to back, is there a way you might be able to help Mr. Jefferson?

MR. KUNKEL: Absolutely.

REP. MARKEY: How would you be able to help him?

MR. KUNKEL: Well, we have privately deployed OC-192 fiber or OC- 48 fiber I believe in most of Mr. Jefferson's customer service territory, and be happy to quote him prices for whatever service he thinks he needs, wherever we can give it to him.

REP. MARKEY: Mr. Jefferson, were you aware that Mr. Kunkel is actually in your service area and could provide you with a competing broadband alternative?

MR. JEFFERSON: I absolutely was. As a matter of fact, about three years ago we had a contract to provide services to the National Black Caucus of State Legislators, and each legislator needed to be near a point of presence in their hometown so that they could get access, and this was the general contract. One of the companies that we went to was, of course, PSI. They could not do it, because they weren't near the rural points of presence. UUNet could not do it. The only company that came fairly close at that particular time was AT&T. I have not looked at PSI -- REP. MARKEY: When was that? How many years ago?

MR. JEFFERSON: That was three years ago.

REP. MARKEY: Three years ago. But, Mr. Kunkel, has this whole movement -- it's pretty much only a four-year old movement, so are you now able to provide these services?

MR. KUNKEL: Well, I'd be happy to engage Mr. Jefferson in a discussion. We've invested about $5 billion in our architecture in the last three years, Mr. Markey.

REP. MARKEY: Great. That's great news. Excellent. Yes, because I think that's really the good news, is that the world has been radically changed over the last three years, and I think when people come back and look at the alternatives now, they might find that there's a highly desirable alternative way in which you, Mr. Jefferson, and others might be able to go than looking at that traditional source that I think people had come to rely upon for 100 years.

Thank you, Mr. Chairman.

REP. TAUZIN: Thank you, Mr. Markey.

The gentleman from Ohio, Mr. Oxley, is recognized.

REP. OXLEY: Thank you, Mr. Chairman.

Don't ask for a finder's fee.

(Laughter)

Let me ask Mr. Neel the argument abounds somewhat regularly that giving the RBOCs 271 relief would lessen the RBOCs' desire to enter broadband and to comply with a checklist particularly. Is that a fair assessment.

MR. NEEL: No, Mr. Oxley. I think it couldn't be further off- base. The relief that's being sought in Chairman Tauzin and Mr. Dingell's bill would provide interlata relief specifically for data, specifically for data. Now, the data market, as I said earlier, was just a fraction -- the wholesale data market is just a fraction of the long haul market.

The long distance voice market is well over $100 billion a year. That's a huge incentive to get into that market, and the H.R. 2420 does not change anything about a Bell company's requirements to get into that market. They have to meet the checklist. They have every incentive to open and keep open those markets. They have interconnection requirements. There is every reason to continue that market opening process to get 271 relief for voice traffic.

So, getting the relief for data would in no way affect a Bell company's requirements to get into the voice market, as you're suggesting.

REP. OXLEY: Some would also argue that bits are bits, and that if indeed this bill were to pass and you were to provide interlata data relief, that you would also automatically get into voice. How would you argue against that?

MR. NEEL: Well, if you're going -- the only reason you'd want to get into it would be to sell it, right, to be able to recover your costs. You've got to market it, and it's really easy to police the marketing and selling of voice services. The first time there would be an add or a salesman route saying -- whispering behind a table, "Would you like to also buy your long distance voice traffic," then the company would be in direct violation of the current law.

So, from a practical standpoint, even though bits are bits, there's no way you could sell it, no way you could market it, no way you could reap any kind of profits from it.

REP. OXLEY: Mr. Windhausen, do you want to take a crack at that?

MR. WINDHAUSEN: Yes, if I may. In our view, the effort to try to distinguish in legislation between data traffic and voice traffic would be a giant step backwards. One of the big accomplishments of the 1996 act was to start getting rid of these categories that we had throughout our history of this is cable, this is broadcast, this is data, this is voice. Congress wisely recognized that it's all one network; it's the same copper wire that runs from your home to the central office switch that carries both voice and data traffic.

In fact, I have an article attached to my testimony, and I'll just read one sentence from it. It's an article talking about the future of this network, and it says, "The key to convergence, a converged network, that carriers both data and packetized voice traffic and supports multiple applications, that's the future of this network, that's where the technology is driving."

For Congress to consider now legislating a different treatment for data traffic on the one hand and the voice traffic, it's just not realistically -- it doesn't work with the current market.

REP. OXLEY: Before we go back to Mr. Neel, let me ask you, Mr. Windhausen, do you support the 271 relief process?

MR. WINDHAUSEN: Absolutely.

REP. OXLEY: And you supported the Bell Atlantic 271 approval?

MR. WINDHAUSEN: We did not support the Bell Atlantic approval, because in our view they had not done a good enough job at that time of providing DSL loops. Since that time, Bell Atlantic has made significant progress in providing those DSL loops.

REP. OXLEY: How about the SBC application in Texas?

MR. WINDHAUSEN: No. SBC application is a far different story from New York.

REP. OXLEY: So, you selectively support some 271 process, and others you don't?

MR. WINDHAUSEN: Well, we support the process totally, but we have different conclusions based on the facts, and the facts are in Texas SBC has not done as good a job as Bell Atlantic did in New York. Once they do, then we will support SBC as well.

REP. OXLEY: Mr. Neel?

MR. NEEL: Well, Mr. Oxley, if all of this information is the same and convergence is the goal, why do we regulate all these services so dramatically differently. There's virtually no regulation on CLEC enterprises, ISPs, cable modems. But the services provided by the local exchange companies are heavily regulated. In my testimony, there are 25 or 30 heavy regulations that are not applied to anyone but the local exchange companies.

Chairman Kennard says we have really a no-opoly, because the cable modem services and DSL services are essentially the same. But yet he and public policy maintain that those very services are to be heavily regulated when they're provided for one kind of carrier but not for the other ones. So, we have a severe discrepancy here in how these markets are regulated, and that's going to massively restrain investments in those very markets.

REP. OXLEY: My time has expired. Mr. Chairman, thank you.

REP. TAUZIN: Thank the gentleman.

The gentleman from Oklahoma, Mr. Largent, is recognized.

REP. LARGENT: Thank you, Mr. Chairman.

I want to say, first of all, that the testimony has been very enlightening. I have enjoyed it and learned a lot.

Mr. Neel, I have some questions for you. You mentioned this case with Land's End. They were originally located where?

MR. NEEL: Well, their main headquarters is in Minnesota, and they wanted to open a business, an e-business service in a smaller community in Minnesota.

REP. LARGENT: Dodgeville?

MR. NEEL: I think that's right.

REP. LARGENT: Dodgeville, Wisconsin? And they had to move to where?

MR. NEEL: Madison.

REP. LARGENT: Madison.

And why did they have to do that?

MR. NEEL: Well, because there was no one that could carry the massive amounts of traffic from the smaller community out into the country. They needed more than just a T-1 line or dial-up modem services. They had to move a whole lot data, and there was no one that could carry it, and US West, who is the carrier in the Minnesota, is prohibited from carrying that service. So, they had no choice but to relocate that enterprise, that part of their business into Madison.

REP. LARGENT: I mean I would think a company like Mr. Kunkel's would be all over a customer who had large amounts of data that they wanted to move, that that would be highly profitable, and there would be no problem whatsoever to get somebody to service that.

But my question was, and you made reference to this, because of these arbitrary lata lines, that they had to move from Dodgeville to Madison. Two points that I'd like to ask you about: First of all, it's my understanding that both of these territories are served by GTE, which is not restricted by interlata restrictions; secondly, both Dodgeville and Madison are located within the same lata. You don't have to cross a lata line to go from Dodgeville to Madison. That has nothing to do with this particular situation in Wisconsin.

MR. NEEL: No, no. Well, but, Mr. Largent, the point is that they couldn't move it not from Dodgeville to Madison, the data; they couldn't that information, all that data, from Dodgeville to Denver, Seattle, and elsewhere. You're carrying it across lata, because Land's End's e-business is a international enterprise.

MR. CLELAND: If I could add one point to that. The reason why, Mr. Largent, that doesn't occur is it's not capital-efficient. In the sense that's one outlier business way out there, it costs a lot of money to lay competitive fiber out there, and if you're one little company, even they're a big customer, it's a tremendous amount of up- front fixed cost. And, so it's just not economically efficient to build that way. That's the reason why the CLECs have all built to big buildings in urban, dense areas.

REP. LARGENT: And yet we have testimony from Mr. Malone, who unfortunately had to leave, that says, "In February '99, the FCC concluded that the Internet access was generally available throughout the nation, both rural and urban areas. And in Tennessee, every county, urban and rural, has access to at least two Internet service providers via a toll-free call, with 40 percent of the state having access to four or more ISPs via a toll-free call."

MR. CLELAND: Narrow band not broadband.

REP. LARGENT: Okay. And I wanted to ask Mr. Windhausen, it's my understanding that you were a counsel for Senator Hollings during the discussions -- the conference on the '96 act?

MR. WINDHAUSEN: Yes, sir.

REP. LARGENT: Talk to me about the discussions at that time. Right now, what we have is that USTA, I assume -- I'll ask you, Mr. Neel -- USTA in 1996 supported the '96 act?

MR. NEEL: Yes, we did.

REP. LARGENT: Okay. And my question to you, Mr. Windhausen, is that during these discussions was data brought up? Was that a topic of discussion or was this like something that was totally unforeseen?

MR. WINDHAUSEN: No. Data discussions were -- they were a very big part of the deliberations, and you can see that from several provisions of the Telecommunications Act and also from much of the debate on the floor of both the House and the Senate. I can mention a few examples.

Of course, there was Senator Exon's provision in the Senate and then a parallel provision in the House dealing with indecency over the Internet that was a big issue at that time.

In the House side, there was a Cox-Wyden amendment that attempted to say that there shall be no regulation of the Internet, and the word "Internet" was used in that provision. That ultimately was dropped out of the bill, was not included in the final bill.

There was a Senator Kerry amendment to section 271, which specifically exempt from the section 271 process Internet services to schools. And, so it was very clear that Congress did consider the Internet at that time.

It was an intention to open up local phone markets for both voice and data services, and there's I think a very strong record once you look at it very closely in the floor statements and in the committee hearings that will support that.

REP. OXLEY: Thank you. Mr. Chairman, if I can just say one other thing. It was Mr. Neel who quoted Dillinger when asked, "Why do you rob banks," he said, "That's where the money is." It sure appears to me, Mr. Neel, that now we have the '96 act which USTA supported. Now, the discovery is all the money is in data, and that's why the RBOCs want to get to it, because that's where the money is.

MR. NEEL: No, Mr. Largent, the money is not all in data. If you look at the -- we've submitted this chart --

REP. LARGENT: What about the growth of long distance? It is in data overwhelmingly over voice, is it not?

MR. NEEL: The traffic is moving toward data.

REP. LARGENT: Exactly.

MR. NEEL: If you're going to be a player -- if the local exchange companies are going to be able to compete and serve everyone, they're going to have to offer a full bundle of services, and they're the only ones kept out of that market right now.

Let me clarify one thing: USTA supported the '96 act, because there was a very careful balancing of interest, and we certainly never dreamed that the FCC would interpret it in the ways that it has, by extending a 14-point checklist to what some have characterized as a 600-point checklist.

So, we supported the act aggressively, but we have strongly objected to the way the FCC has interpreted that act, and that's precisely the reason that Congress needs to act now to clean up the vagueness that exists in law, the basis of which was four and a half to five years ago, which is a lifetime in the Internet economy.

REP. TAUZIN: The gentleman's time has expired.

The gentleman from Florida, Mr. Stearns.

REP. STEARNS: Thank you, Mr. Chairman.

Let me just open by saying, Susan, how impressed you seem to be able to handle all these very difficult subjects, and you're welcome in my office at any time to see me and help me understand these. I think people said people of good will can disagree, and I think that's where we are. I have friends on both sides, and the fact that I haven't gone on the bill would show you that I'm trying to understand this. And, obviously, when Mr. Tauzin lobbies you, that's about the best lobby you can find anywhere, because he's very effective and very knowledgeable.

But, obviously, it's nice to see you again, and I think all our colleagues enjoy seeing you frequently, and so it's fun.

Let me see if I can ask questions which are sort of more broadly- based. Mr. Neel, I think it was Mr. Frisby said that 90 percent of Americans are within 50 miles of having broadband.

MR. FRISBY: From a point of presence.

REP. STEARNS: Huh?

MR. FRISBY: Approximately 95 percent of all Americans are within 50 miles of a competitor's point of presence, or POP.

REP. STEARNS: Okay. I think I want to give you an opportunity to answer that, because what he's saying is that there's not "digital divide," so I want to give you an opportunity to answer that.

MR. NEEL: Well, it would be a bit like telling some guy in the desert who's drowning, "There's a water fountain 50 miles away." If that water's not in front of you, it's not going to do you a whole lot of good. Also, what kind of Pipe do you need? I mean if all you can get is even a T-1 line with certain capacity and you want to operate a small business there to compete with Sears for some kind of mail order thing, that's not going to help you either. These definitional problems are extremely important, as how much capacity? Sure, just about everyone can dial up and get Internet access.

REP. STEARNS: Okay. Mr. Neel, let's ask him. When you make those claims, what type of broadband are you talking about? Are you talking about DSL, and ISDN line? Are you talking about a T-1 line?

MR. FRISBY: What we're talking about is proximity to a DS-3. You're right, the question is the hop from the end user to the point of presence, but that's not an interstate issue in most cases. That is a local issue, and it's a question of the local availability of DSL. And one of the reasons we are pushing so hard for 271 is it's our experience that absent the stick of 271, we can't get the connections to -- necessary connections, in many instances, to make that hop.

REP. STEARNS: Okay. Mr. Windhausen, latas are arbitrary lines that are set up, designating where the Bells could and could not carry the traffic. Aren't these arbitrary lines really something that makes it difficult for them? And why should these lata restrictions also be imposed on data?

MR. WINDHAUSEN: The purpose of the restrictions that were in the 1996 act were to give the incentive to the phone companies to open up their networks to competition. The answer -- when Roy complains that the Bell companies have a hand tied behind their back by these lata restrictions, they can untie that rope themselves. They have the means of freeing themselves and getting rid of these lata restrictions.

REP. STEARNS: You mean through the facility-based competition?

MR. WINDHAUSEN: If they would just provide us with the co- location that we need and the loops that we need -- we're actually the ones who have not just one hand tied behind our back; we often have both hands tied behind our back, because we can't get the essential facilities we need to serve consumers.

REP. STEARNS: Because the RBOCs won't help you.

MR. WINDHAUSEN: Because the RBOCs won't do what you want them to do.

REP. STEARNS: Were you the one that used the term "strategic enrollment?" Did you use that word?

MR. WINDHAUSEN: Strategic incompetence.

REP. STEARNS: Strategic what?

MR. WINDHAUSEN: Strategic incompetence.

REP. STEARNS: Incompetence, okay; you said incompetence.

What do you say, Mr. Neel, when they say the telecommunication had a facility-based competition? Now, when BellSouth is in my area, they say, "Yes, but the FCC changed it. It's no longer 14 points or 13 points; it's escalated." And the long distance people will say, "Well, why don't you just comply with the facility-based competition? Why don't you do it?" Tell us why, for example, it's not done, because they've done it in New York. Won't this whole question be moot if all the RBOCs went ahead and complied and we get it over with?

MR. NEEL: Well, Mr. Stearns, the Bell companies are complying. They're spending billions to open their markets. The law specifically requires the kinds of interconnection and also the kind of arbitration proceedings where a competitor can come in and fight it out in a state commission and get a final decision.

But let's remember one thing: There is intense competition in urban areas, intense competition, which is where the money really is. And where there are markets where CLECs are going into the long distance carriers and they're picking off local business customers primarily. They really don't care much about residential customers. They're picking off high volume, profitable business customers. There is intense competition.

Frankly, that alone should force the FCC to declare these markets open in these states and allow the Bell companies to compete and extend these services into rural areas where these CLECs are not going to go.

REP. STEARNS: Thank you, Mr. Chairman.

REP. TAUZIN: Thank the gentleman.

We do have votes on the floor. We're going to have to wrap.

I want to wrap by simply doing something I think is important for the record. Mr. Windhausen, you mentioned that we shouldn't be regulating differently. It's all going to be the same thing; it's all merging. I want to go through a bunch of duties and ask you whether they apply to DSL service and whether they apply to cable modem service.

Common carrier duty? Yes, DSL; no, to cable.

Prohibition against discriminatory treatment? Yes, to the telephone companies, DSL; no to cable.

Requirement to file tariffs? Yes; no.

FCC approval to extend lines? Yes; no, cable.

Annual reports? Yes, to the telephone companies; no, to cable.

Prescribed appreciation charges? Yes, DSL; no to cable.

Prescribed uniform system of accounts and accounting forms? Yes, to telephone companies and DSL; no, to the cable modems.

Duty to provide subscriber list information? Yes, and no.

Duty to provide interconnects? Yes, to the DSL, telephone companies; no, to cable.

Duty to offer resale? Yes; no.

Duty to provide number portability? Duty to provide dialing parity? Duty to establish reciprocal compensation? Duty to negotiate access to networks? Duty to provide unbundled access? Duty to grant physical co-location? Duty to support universal service? Duty to provide interlata DSL service? Requirement to use separate subsidiaries for interlata telecommunications? Requirement to use separate affiliates for electronic publishing? Prohibition against law monitoring until 2001? Duty to unbundle further ISPs?

The answer to every one of those requirements on the DSL is yes, and the answer on cable modems is no. It's a one-page list of disparate regulatory treatment. One heavily regulated, one not.

I want to make one final comment, and then I'll wrap: Yes, I see the day coming, Mr. Windhausen when indeed this Internet community is going to fully merge in a digital age with this regulated telephone industry, and when it comes together and telephony becomes part, voice becomes a real and vital part of broadband Internet services, you will have merged with one of the most regulated entities on Earth.

And the Internet, the Internet will have been infected with some of the worst and most powerful regulators in American history, those who serve in the FCC, who call themselves the most powerful communications people on Earth. And who, in that wonderful book I cited to you, and I hope you borrow from me, claim that they can interpret these laws any way they want. They can interpret them any way they want. And you will have inherited that same regulatory authority over the Internet.

Wouldn't it be wonderful if before that full merger occurs, if instead of merging with this awfully, deeply, completely regulated entity you were merging with instead a fully deregulated, competitive form of business, when telephony on the Internet were treated no more differently as you would like to see it treated than you described in your testimony?

Getting there is the trick; I understand that. And I understand that all of you have different perspectives on how best to achieve that open, competitive marketplace. Some of you support our proposal, and some of you don't for that reason. But getting there is imperative.

And, Mr. Cleland, the point you make in your testimony about churn is the one I want to leave on everybody's thoughts today. The one who gets there first may be the only one who serves the customer, and if we don't have two competitors trying to get there at the same time, if we don't have two competitors fully capable of trying to get there at the same time, if we restrict some and only allow one in, we're going to have a world where indeed consumers are served by one competitor alone, because the churn rate is, as you said, like death; it's motionless. You get hooked up to one provider, and you stick with them.

And you know what? I've been there before. I've been there before when Americans were stuck with one provider, and I remember what happened here. My friends were calling upon us to re-regulate cable in 1992, and my friends will be calling upon us to re-regulate again, and I desperately want to avoid that. So, I urge you to think this through with me. I know you've got different points of view, and I know there's a lot of dollars involved here -- REP. STEARNS: Mr. Chairman?

REP. TAUZIN: -- but getting from here to there is going to be critical.

Mr. Stearns?

REP. STEARNS: I think the solution could be is for the RBOCs to buy cable companies.

(Laughter)

REP. TAUZIN: Maybe. But I suspect it might be that the cable companies are buying the RBOCs before it's over with.

Gentlemen and ladies, thank you so much.

As Mr. Stearns pointed out -- you've heard this from a number of members, Mr. Markey made the comment too -- this has been a remarkably well balanced and very informative panel, and for that we thank you.

The hearing stands adjourned.

END

LOAD-DATE: May 31, 2000

Document 45 of 133.


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