Copyright 2000 Federal News Service, Inc.
Federal News Service
July 27, 2000, Thursday
SECTION: CAPITOL HILL HEARING
LENGTH: 26273 words
HEADLINE:
HEARING OF THE TELECOMMUNICATIONS, TRADE AND CONSUMER PROTECTION SUBCOMMITTEE OF
THE HOUSE COMMERCE COMMITTEE
SUBJECT: INTERNET
ACCESS
CHAIRED BY: REPRESENTATIVE W.J. TAUZIN (R-LA)
LOCATION: 2123 RAYBURN HOUSE OFFICE BUILDING, WASHINGTON,
D.C.
TIME: 11:00 AM. EDT DATE: THURSDAY, JULY 27, 2000
WITNESSES:
JAMES ELLIS, SENIOR EXECUTIVE
VICE PRESIDENT AND GENERAL COUNSEL, SBC COMMUNICATIONS;
EDWARD
YOUNG, SENIOR VICE PRESIDENT OF FEDERAL GOVERNMENT RELATIONS, VERIZON
COMMUNICATIONS;
ARNE HAYNES, PRESIDENT, RAINIER GROUP;
LEN CALI, VICE PRESIDENT OF FEDERAL GOVERNMENT AFFAIRS, AT&T CORP.;
DHRUV KHANNA, EXECUTIVE VICE PRESIDENT, GENERAL COUNSEL AND
SECRETARY, COVAD COMMUNICATIONS;
STEVE POCIASK, EXECUTIVE VICE
PRESIDENT AND CHIEF ECONOMIST, JOEL POPKIN & CO.;
BODY:
REP. W.J. TAUZIN (R-LA): The
hearing will please come to order. - asked to take seats and to be comfortable.
Members are on their way back from a series of votes so they'll be arriving
shortly, but I think we can probably get started because we are going to have an
interruption that I'm going to make clear to all of you in just a minute.
Let me first thank the panel for assembling today. We appreciate very
much your being here. Today is the first legislative hearing on H.R. 2420,
Internet Freedom and Broadband Deployment Act of 1999. My
Ranking Member, Mr. Dingell and I introduced this bill last year and I believe
that it is one of the most important pro consumer pieces of legislation that our
subcommittee has considered this session. Today, the legislation enjoys the
co-sponsorship of a majority of the House of Representatives, fully 225 members
to be exact, including a majority of the Hispanic, Rule and Western Caucus.
While its overwhelming bipartisan support for the bill might surprise some, the
warm response here in the House to H.R. 2420 really shouldn't startle anyone. In
fact, it's a quite simple explanation for how Mr. Dingell and I have built a
broadband coalition in such a short period of time. That it this, that most
members of the House of Representatives understand that policies put forward in
H.R. 2420 are absolutely critical for American consumers. We are, after all, a
consumer organization here in Congress. We represent, first and foremost, the
consumers of America, our constituents.
If enacted, most members realize
that H.R. 2420 will create full scale competition in our Internet backbone
marketplace and thereby insure that the Internet does not further Balkanize our
society to haves and have nots. It's as simple as that. It's no secret that a
huge sector of our nation is not receiving or is not capable of receiving true
high-speed broadband services.
The reason is because hundreds of
communities are not near or not linked to any of the hubs that enable access to
Internet backbone, the real information superhighway. Moreover, very few
companies are building high-speed gathering lines all the way back from the
backbone points of access to the rural, remote and impoverished areas because it
is simply too expensive and not profitable enough at this time.
What
this means of course is that those living in areas that are not near Internet
points of presence or POPs or they're not tied into a backbone facility via a
gathering line are not enjoying the fruits of a new economy. Without a
high-speed connection to the Internet backbone, these Americans in rural areas,
inner cities are regulated to the narrow band dirt road that it so incompatible
with the rest of our high-speed infrastructure that the full communications
across our national Web-based infrastructures will be significantly impeded.
See without a UUNet, a Sprint, a Cable Wireless or AT&T an e-mail
that is sent through a standard dial-up access must pass through a pokey,
congested, public access point rather than zap through a broadband hub. E-mails
back up quickly, Web pages freeze and fold. You can forget about streaming
video. If we do not operate at these high speeds, Internet cannot evolve into a
fluid nationwide communications network that all of us are hoping it will be.
Instead smaller ISP subscribers will continue to encounter service
disruptions, data transfer delays and every instant where broadband facilitated
high-speed traffic is pressed upon narrow band floor speed infrastructure that
were designed to carry only voice for short intervals not the large volumes of
data for extended periods time.
Consider the case of John Brown of
Albuquerque, New Mexico, runs a small ISP called I-highway. A quote in a recent
article about Mr. Brown in "Forbes" magazine quote, "He'd like to give his
clients the fastest possible link to the rest of the world, but he can't because
UUNet and a few other giants, the data haulers that dominate Internet traffic
don't have the fat 45-megabitt lines in Albuquerque and Brown can't afford the
$120,000 a year to lease a pipe running 330 miles to UUNet
Phoenix."
There's also the case of Sheldon Jefferson, CEO of NetCom, an
Internet provider serving residential business customers in the New York area.
To quote from his testimony to this subcommittee, "My company is locked out of
the broadband Internet market via cable. Not only can I not get access to local
cable facilities, I must pay inflated prices for transit to the Internet
backbone. These prices are so high because the concentration of ownership of
Internet backbone in the hands of a few carriers and companies."
Once
more Mr. David Cushion (sp) of the Children's National Medical Clinic here in
Washington who said that even in Northwest D.C., many impoverished residential
areas, including the 100 block of Michigan Avenue, just right up the road, have
no direct links to the Internet backbone facility much less a POP, despite the
fact that the nation's capital is the most, I repeat the most wired city in the
United States today.
So we have a digital divide growing because many
people don't have access to backbone. Either where they live and the dial-up
access they have is limited or affords them only a narrow band Internet
services. To solve the problem, H.R. 2420 does something very simple, very
pragmatic, it lifts the 20-year-old latta restriction to enable the Bell
Companies to haul data traffic from rural and underserved areas to Internet
backbone facilities via their extensive fiber optic networks that are already in
the ground in most states today.
This makes sense because the Bell fiber
infrastructure reaches just about every square mile in states where Bell
provides local service. Moreover, the fiber is available today to serve the
high- speed broadband gathering lines that are absent in many rural and
underserved areas today. We saw in several of our hearings a map we produced
indicating in my own state of Louisiana two POPs, one in Baton Rouge and one in
New Orleans.
And we also saw on those maps, I think Teddy has them
again, we saw the interlacing of fiber optic lines that have been laid and paid
for by the telephone rate-payers of my state that have been laid in the ground
to serve the telephone network in our state, but nevertheless is crossed by the
black latta lines drawn on a map by court here in Washington, D.C. in settlement
of the AT&T breakup. Those latta lines separating communities from the POPs
that exist in New Orleans and Baton Rouge, also separates those customers from
those high-speed POPs.
More importantly those fiber lines that American
citizens in my state paid for can't be effectively used by their own company to
deliver high-speed Internet services for them to those POPs. We also saw some a
competing map of mine at the last hearing, and we may see it again today,
accompanied of course by some new information addressing the state of Internet
POPs across the country. The contention being made, as of yesterday, by those
opposing the bill is that 94.7 percent of the nation lives within 50 miles of an
internet POP of DSC-3 speed or higher, 45 megabits. It's quite a revelation.
Just a few weeks ago it was revealed that many of the POPs, however,
represented to be high-speed at our last meeting were, in fact, no faster than
DS-1 or T-1 speed, not truly a broadband speed, a far cry from the 45 megabits a
second. Now I know the Internet economy moves fast, but I have my doubts about
whether 250 POPs have been upgraded so dramatically in just a few weeks time.
What concerns me most, however, about the materials being distributed is
that they lack description. Despite being a flat contention that every POP
displayed is at least a DS-3 POP or greater, materials being distributed provide
no insight as whether these so- called POPs actually do. It's not clear, in
other words, whether many of these POPs represent mere peering points, points at
which IXCs access local traffic or more importantly whether any of these POPs
actually reach rural and underserved areas via gathering lines as opposed to
serving only certain IXCs, limited number of cable modem customers.
So
while speed is an important issue, no doubt, purpose is every bit as important
and equally important is the central question of why on earth would Washington
tell a few telecommunication companies in this country that it can't compete
when even foreign countries providers can come into America and buy up companies
here and compete for customers, Internet high-speed broadband services? And why
more importantly have we paid for fiber in the ground that we can't use?
Anyway, I'm interesting getting into a fuller discussion about these
so-called POPs and will have a number of questions about them as we move
forward. But let me just say at the outside, despite the contentions being made
about POPs in the U.S. today, we're still inclined to doubt that enough of them
of are actually providing high- speed Internet services to many of the small
ISPs and communities across the country. If there truly were enough POPs to go
around, if in fact there were enough gathering lines extending to backbone and
if we did enjoy true competitive choice among backbone providers today, then I
really doubt that folks like John Brown and Sheldon Jefferson would be up in
front of my committee explaining that they're being shut out of the high-speed
revolution.
I wonder why anyone would be talking about a digital divide
and why one exists, or why companies are predicting that as far out as four
years from now fully half of our country will have, at best, one provider, at
worst, no provider of broadband Internet services? I doubt seriously that Dr.
Kristner's (ph) children's hospital would be so abandoned in most wired capital
city in America if backbone providers today had a business plan to serve it or
the ISP it subscribes to.
In the final analysis , the high concentration
of Internet backbone ownership in the U.S. is, even as we hold this hearing,
effectively disenfranchising many Americans, not only in rural areas, but in
underserved and poor urban areas as well. And because of this there's a glaring
need to update the '96 act so that our legal framework becomes compatible with
consumer demand and desire to facilitate a new Internet economy.
H.R.
2420's promise of allowing the Bell fiber to be used to transport data to and
from areas that are being neglected by the backbone oligopolist is simply the
right thing to do for business and it's the right thing to do for consumers.
It's the right to do for our nation's economy. Two hundred twenty-five members
of the House now recognize this. I'm confident that more will soon follow. One
caveat before I yield to my colleagues, there are those at the FCC who are
predicting today that in as short period as 12 months to 18 months, all of the
country will be experiencing the 271 relief that has been afforded now to the
Bell Companies in New York and Texas.
We are just a year or way or so
from full local long distance competition from 271 and yet we are being told the
fiber that is laid in the ground to serve the data needs of America has to be
held hostage to latta lines drawn on a map to separate local and long distance
years ago when AT&T was broken up. My only point is the sooner we get this
legislation adopted, the sooner that full blown competition that Texas and New
York are finally enjoying will be available to all parts of our country and the
sooner I can be satisfied that folks in Louisiana will have the same advantage
of competition that folks in Texas and folks in New York are currently enjoying.
The chair will yield to my friend from Massachusetts, the Ranking
Minority Member, Mr. Markey for an openings statement.
REP. EDWARD J.
MARKEY (D-MA): Thank you, Mr. Chairman very much and I thank you for calling
this extremely interesting hearing on the broadband revolution that is taking
place on the Internet today. It's happening at a breathtaking pace and it's
sweet and it's unprecedented. It's a rapid revolution. A few mere years after
passage of the Telecommunications Act of 1996, consumers are reaping the digital
dividend of communications competition. Without the competitive forces unleashed
by the Telecom Act we probably wouldn't be having this hearing today.
The feature rich information driven content that is every day igniting
the enthusiasm of our nation's entrepreneurs and investors is riding upon a
telecommunications infrastructure that is the envy of the world. Across the
globe, country after country is trying to emulate the dramatic steps that
America has made in opening historic monopoly markets to marketplace competition
and building bandwidth and in bringing the benefit to all sectors of society.
The cable industry alone makes broadband capability available to 41 percent of
U.S. homes and has over a million subscribers today.
The competitive
local telephone companies have driven broadband deployment on
the competing wire and currently invest roughly a billion dollars per month on
new telecommunications infrastructure around the nation. Bell Atlantic had
proven it can meet the market opening requirements of the Telecom Act in New
York and is poised to file applications in other states in the near future
including, Massachusetts, which they expect to have approved by the end of this
year.
In addition, wireless applications promise ever more capacity and
competition for businesses and residential consumers. In short, the marketplace
is responding the Telecom Act is working as we designed it. Moreover, the
competitive telecommunications industry is exerting tremendous effort to meet
the bandwidth needs of the growing Internet usage in our country. That's because
the goal of the telecommunications policy is not the deployment of a particular
technology or application, but rather the goal of telecommunications policy is
competition everywhere and for everyone.
Competition will determine
whether consumers prefer wireless services, DSL, cable modems or any other
technology and competition will pick winners and losers amongst applications.
The fundamental issue before is whether we will continue our successful policy
or instead insert uncertainty back into the marketplace. The so-called carrot
and stick approach contained in the Telecommunications Act clearly contains
enough incentives to the Bell Companies to open up their local
telecommunications monopolies to free market forces as long as Congress does not
entice them with some alternative.
So I thank you, Mr. Chairman for
giving me this opportunity. I look forward to hearing from our witnesses.
REP. TAUZIN: Thank you, my friend. The chair recognizes the gentleman
from Richmond, Virginia, the chairman of the full committee of commerce, Mr.
Bliley.
REP. TOM BLILEY (R-V): Thank you, Chairman. Today, the
subcommittee returns to the topic of broadband deployment. I am
looking forward to hearing from our distinguished panel of witnesses. I'm
particularly interested in learning how parties might be impacted if Congress
were to deregulate the incumbent phone companies. These same companies tell the
committee repeatedly that they need relief and that they need it now.
But as I said at the last hearing, I'm puzzled because as far as I can
tell this industry and its consumers are prospering under the current set of
rules. Indeed much has happened over the past year alone. We've seen a real
commitment to rolling out broadband service by competitors and incumbents alike,
the numbers are astounding. Let's take SBC, who's with us today as an example.
In November of 1999, SBC pledged six billion to update its network. SBC assured
shareholders that Project Pronto would pay for itself by delivering cost savings
and generating substantial revenue growth.
SBC has already conditioned
15 million customer lines for DSL service and the company aims to install
between four and 5,000 DSL lines each day during the second half of 2000. That's
right, between four and 5,000 DSL lines per day. SBC's customers aren't the only
ones who should be pleased. By every measure its shareholders are doing quite
well too. In the second quarter of this year, SBC data services revenue grew by
an impressive 38 percent and SBC also announced a $1.8 billion
of data services sales in just three months.
Verizon has also made great
strides in just one year reporting 47 percent increase in the number of DSL
subscribers since the first quarter of this year. Morgan Stanley projects that
by 2002 a full 92 percent of Verizon's lines will be DSL capable. In fact I've
read that the real challenge for carriers like Verizon and others is finding
enough technicians to fill the orders that are pouring in.
Covad is with
us today too and it has equally impressive story to tell. Morgan Stanley
recently estimated that Covad is six months ahead of the competition in terms of
market penetration and new product offerings. It's worth noting that future job
creation for Covad and others is dependent on the ability to share lines with
incumbents like SBC, but the legislation before us today would extinguish new
entrants rights to share lines.
I look forward to an explanation as to
why it would be good for the Congress to block new entrants ability to share
line, particularly in light of the fact that future job creation in this
industry is so dependent on line sharing. So forgive me if I remain unconvinced
that there is a problem that requires the help of the federal government.
These facts lead me to conclude that competition is working and that the
1996 act is working. Indeed SBC and Verizon themselves have proved it's working.
They're now offering a full bundle of services to consumers in New York and
Texas. They're both putting downward pressure on long distance prices and I look
forward to Virginians enjoying this kind of price competition and I yield back
the balance of my time.
REP. TAUZIN: I thank my friend. He's just a hard
guy to convince, but I want to thank the chairman. I'm not going to give up. I
want to thank the chairman for the jeering today and for his participation and
his continued interest in the resolution of the issue.
And the chair
wishes now to make unanimous consent that the statement of the Ranking Minority
member of the committee, Mr. Dingell and the written statements of all members
who would like the written statements for the record be accepted in the record
without objection. It is so ordered.
The chair now recognizes the
gentleman from Maryland, Mr. Wynn for an opening statement.
REP. ALBERT
RUSSELL WYNN (D-MD): Thank you, Mr. Chairman. In view of the shortness of time
and the importance of this hearing, I would defer an opening to submit in the
hopes that we could at least get some of the witnesses before we have to recess.
And with that, Mr. Chairman, I would relinquish my time
REP. TAUZIN: I
thank the gentleman. The gentlelady has an opening statement, Ms. Wilson?
REP. HEATHER WILSON (R-NM): Yes, Mr. Chairman, I'll just be very brief.
I'm of the belief that the 1996 Telecom Act is working and that competition is
growing both in Albuquerque and around in Mexico and that why the local
Albuquerque office gets our local phone service from E-Spire (ph) and I think
that more competition should be the goal of any changes to the act. I support
the idea of more competition in the data backbone market and I am concerned
though about the bill that it might result in less competition in local
exchange, Internet service providers and broadband access markets.
I've
heard from a lot of consumer groups, Internet service providers, competitive
local exchange providers, public utility commissioners, small businesses all
across New Mexico about this bill and almost unanimously they either outright
oppose the bill or they have grave concerns that have to be addressed it should
move forward. I'd like to hear from the witnesses today about the need for the
legislation as I understand the Bell Companies are reporting record profits and
usually crediting their movement into the data world for these record profits.
I'd also like to hear more about the impact this bill is going to have
on backbone competition and I'd like to hear about the impact it's going to have
on our burgeoning competitive telecommunication market across the country and
specifically in New Mexico. I'd also like to make a clarification to a recent
"Forbes" magazine article that suggested that Albuquerque has no high-speed
Internet access. Contrary to the "Forbes" article, my constituents, in fact, can
receive high-speed Internet access.
UUNet, a subsidiary of WorldCom,
provides high-speed access. There's several DSL companies in Albuquerque
including Covad, Rhythms and E-Spire. Comcast Cable is rolling out high-speed
cable modems. In Des Moines, New Mexico, which has I think it's now 400
telephone customers in 2,800 square miles, you can get DSL from the telephone
co-op. US West, however, does not yet offer high-speed Internet access in
Albuquerque. They have announced plans to roll out DSL, however.
I think
that's an important point. All of these things would not have happened and
high-speed access would not be available in New Mexico yet if it were not for
competition. And I do not want to do anything that would jeopardize the future
vitality in competition within this industry and those will be the nature of my
questions. I yield the balance of my time.
REP. TAUZIN: The chair thanks
the gentlelady. The gentlelady from Missouri is recognized, Ms. McCarthy.
REP. KAREN MCCARTHY (D-MO): Thank you, Mr. Chairman. I'm very grateful
for this hearing and I'm going to be very brief and put my extended remarks in
the record so that we can get on with the panel. There are a lot of very
positive developments happening for consumers in my district because of
competition and I do not want to change or act prematurely, a law that is in
place and working well. Any change that might reduce competition I think would
be very adverse and it could lead to increased costs and stifling innovation and
if ain't broke don't fix it. So, Mr. Chairman, I will yield back the balance of
my time and put my remarks in the record.
REP. CLIFF STEARNS (R-FL): I
thank my colleague. The gentleman from Texas is recognized. The gentleman from
Oklahoma is recognized, Mr. Largent.
REP. STEVE LARGENT (R-OK): Thank
you, Mr. Chairman. The chairman of the subcommittee said the chairman of the
full committee may be a hard guy to convince, I may be impossible. In
preparation for this hearing this month, I visited an SBC central office in
Tulsa and it's something that I recommend that every member of this subcommittee
do is take a central office tour if they've not done so. It's extremely
educational and helps to put into context what we're doing with this
legislation.
I came away from the tour with the favorable impression
that Southwestern Bell has made a good faith effort in Oklahoma to abide by the
intent of the '96 Telecommunications Act. More than 50 companies have been
approved by the Oklahoma Corporation Commission to provide local service.
Seventy-three interconnection agreements with SBC have been approved.
Competitive local exchange carriers provide competitive local service in 66 of
the 72 counties that SBC serves.
It is my understanding that SBC is very
close to filing its 271 application in Oklahoma to provide long distance
service.
I was left with the distinct impression that the act is working
as intended CLECs have invested $30 billion in new networks
since the passage of the act and continue to invest over a billion dollars every
month in their networks. Despite the CLECs significant growth incumbent local
exchange carriers continue to serve between 93 and 95 percent of the local
telephone market. Since passage of the act, the Bell Companies and GTE have also
done quite well in data market.
In the first quarter of this year SBC,
Bell Atlantic, Bell South, US West and GTE posted anywhere from 32 to 41 percent
growth because of data. Why have competitors been able to make inroads in an
industry that has been traditionally dominated by a few large monopolies?
Largely because of Section 251, which lays out the interconnection requirements
that incumbent local exchanges must comply with. H.R. 2420 makes some
significant changes to Section 251 as it pertains to data services.
I
believe these changes could hinder competition rather than help it. I refer
members to page seven of the bill beginning on line seven it says and I quote,
"The commission shall not require an incumbent local exchange carrier to A)
provide unbundled access to any network elements used in the provision of any
high-speed data service other than those network elements described in Section
51.319 of the commission's regulation as in effect on January 1, 1999 or B)
offer for resale at wholesale rates any high-speed data service."
So in
essence what we would be doing, if we were to enact this legislation, is to say
to those companies, who have invested billions of dollars to spur competition
and develop innovative technologies, Congress really didn't intend that data
should be considered as a telecommunications service. Throw your business plan
out the window and start over. In my view, that's poor public policy. If we
enact this legislation, why should those in the telecommunications or any other
industry, for that matter that comes before this committee, have any certainty
about how to construct a business model if we change rules of the road because
one side doesn't like the rules.
As members of this subcommittee, our
first goal when developing legislation should be to do no harm. I fear that H.R.
2420 would do significant harm. The act is working and if it ain't broke don't
fix it. I yield back my time.
REP. STEARNS: Thank my colleague. I
understand the gentleman from Minnesota does not have an opening statement. OK.
Chair recognizes himself. Let me just compliment the chairman, who just stepped
out momentarily for his alacrity, he has 220 co-sponsors. He deserves to have a
hearing and I think he's done great work in trying to present his case. I, like
my colleague from Oklahoma, am not one of the 220 members who are on the bill,
but I believe that this hearing is very important and I compliment him for
having this hearing.
Like others, I'm disappointed that the FCC has not
sent a representative I under Mr. Kennard could not make it for personal reasons
and we respect that. I would remind him, though, that this is the sixth time
this year he has not appeared before this subcommittee and I think it's very
important if he can't come that he send someone who shares his feelings about
this so that we have the full benefit of his sage wisdom.
The Telecom
Act of 1996 I think is working and I think the landscape is continuing to
change. Consumers now have mind-numbing options. I mean it's almost either from
DSL or ISDN on long distance providers and packages. Cable of course now is a
legitimate competitor with copper voice and data services, competitive local
exchanges have sprung up around the country effectively competing with
incumbents and bringing competition to the local phone market.
Additionally, new sectors have been given birth in the area of data,
broadband and bandwidth, with data being one of the key components driving the
telecom revolution and the demand for bandwidth and broadband is growing day by
day, if not my colleagues, second by second, bandwidth now being traded as a
commodity. Americans electing to do away with their dial-up modems for
lightening fast speeds being offered through cable and DSL to access the
Internet and this demand is being met, not only by the incumbent phone
companies, but also by the cable providers, CLECs and the LECs.
Furthermore the commission, the commission itself has finally approved
271 applications for Bell Operating companies entry into long distance. In the
last year alone, Bell Atlantic won approval in New York and SBC approval in
Texas. Bell South will soon be filing in Georgia and the flood of applications
will soon make its way to the FCC. Now that the Bells finally have a clear
blueprint for inter- latti (sp) entry I anticipate the landscape to be
significantly different 12 months from today.
So clearly it is an
exciting time for telecommunication, for this revolution. I appreciate the
hearing, as I mentioned, but the real question, members we have to decide, is do
we want to go back and change the Telecom Act of 1996 and that's the main
question before this hearing or should we continue to let this percolate and dry
to seed, let competition solve the problem without more government regulation
and that concludes my opening statement.
Mr. Sawyer is recognized for an
opening statement.
REP. THOMAS G. SAWYER (D-OH): Well, thank you, Mr.
Chairman. I assume that you have already sought unanimous consent for members to
insert their statements into the record.
REP. TAUZIN: The chairman had
already done that. Yes sir.
REP. SAWYER: Well I thank you for the
opportunity to speak, but I won't take advantage of that opportunity and we can
get on with the hearing.
REP. TAUZIN: All right. The gentleman from
California, Mr. Cox, is recognized for his opening statement.
REP.
CHRISTOPHER COX (R-CA): I have no opening statement.
REP. TAUZIN: All
right. The gentleman from Ohio is recognized.
REP. MICHAEL G. OXLEY
(R-OH): Thank you, Mr. Chairman and welcome to our distinguished panel. I
strongly support efforts to support broadband deployment
through deregulation, which is why I've co-sponsored this legislation. If a
regulation has outlived its usefulness for protecting consumers, whether due to
technological innovation or market competition, it ought to simply be repealed.
That's why I favor data relief for the Bell Companies, that's why I'm against
imposing open access regulations and horizontal ownership caps on cable systems.
I believe that when we look at the issue of broadband we need to take a
step back make sure we're seeing the big picture. We want to make sure that
we're closing the so-called digital divide in both urban and rural markets and
we want to be sure that we remain technologically neutral and not promote one
way of addressing the problem over other alternatives. So in addition to ILEC
(sp) deregulation, which is in order, in my opinion we should look at promoting
wireless and cable solutions as well. No option should be ignored.
As
usual, the best thing we can do is pursue deregulatory parity and let the
consumer pick the winners and losers. The most perfect mechanism for choosing
technology isn't the commission or the Congress. It's the competitive
marketplace. I'm sure we'll hear lots of suggestions today on how to help the
market work its magic and I'm anxious to hear them all in due course. I'm also
interesting in hearing about the need to maintain or even increase regulation
based on a competitor's view of fairness although I'm sure we'll hear a fair
amount of that too.
Mr. Chairman, this is a very interesting issue and
critical to the long-term deployment of broadband. I congratulate you for the
effort and I yield back.
REP. TAUZIN: I thank the gentleman and I thank
him for his support and his strong statement. Are there any other members
wishing to make an opening statement? Then I'm pleased to begin the testimony of
our witnesses. As I do, let me announce that there's a special mass in memory of
the life of our good friend, Mr. Stupak's son, who lost his life this year. It
starts at 12:10 and we will begin taking the testimony of the witnesses.
But members obviously will be excused if any would wish to go and attend
that service and we'll try to complete the round of the witnesses and hopefully
by that time members will have returned and we can begin the round of questions
of our witnesses. So if members feel, as I would love to personally attend, if
you want to attend, you're certainly excused to do so as we as we take the
testimony.
Any further opening statements from anyone? Then the chair is
pleased to introduce the panel. The panel is indeed a distinguished panel and
pursuant to the request of the chairman of the Commerce Committee, we have tried
to build a balanced panel. We will hear support and opposition to the bill that
is before us today and we will hear strong support and strong opposition and
that is as it should be.
The panel consists of Mr. James Ellis, Senior
Executive Vice President, General Counsel of SBC Communications, Mr. Edward D.
Young, Senior Vice President, Government Affairs of Verizon Communications, Mr.
Arne Skip Haynes, President of Rainier Group, Mr. Dhruv Khanna, who is the
counsel for Covad Communications, Cindy Schonhaut, Senior Vice President of ICG
of Colorado, Mr. Len Cali, the vice president of federal government affairs, for
AT&T Corporation and Steve Pociask of Joel Popkin & Company here in
Washington, D.C.
Let me also indicate that we did receive a call
suggesting that two people who would love to attend could not make here and I
just wanted to let you know that they did want to make it, first the CEO of
AT&T had called us and let us know that he would personally liked to have
made it and hopefully we an here from him at a future date, Mr. Collins. And
also the chairman of FCC called and expressed his regrets that he could not be
here.
This will go into the fourth or fifth time that it's happened and
I assured my friend, Collins, that this is the first time he's really had a good
excuse and not only a real authentic one, but one I support, he's attending the
adoption hearing for his new son and it's kind of big day for him, an exciting
day and I wanted to acknowledge that today and wish him and his new son and his
family all the best wishes. It's a very big day for him and his family and want
to wish him well and he's certainly excused from being here today.
We'll
begin with Mr. James Ellis, the senior executive vice president and general
counsel for SBC Communications. Mr. Ellis, all written statements of the
panelists are part of our record. So if you will kindly just summarize your
statement within the five-minute rule. Mr. Ellis. The lights will indicate to
you green, yellow and red when you've just about completed your five-minutes
before the committee. Mr. Ellis, please.
MR. JAMES ELLIS: Mr. Chairman
and members of the committee, good afternoon. I appreciate the opportunity to
share my company's views on this important legislation. We support the bill
because we believe it will lead to increased deployment of advanced services,
particularly in the rural areas. It will mean more competition for advanced
services and with that will be more customer choice and competitive prices. It
couldn't come at a more critical time.
The experts say that the amount
of traffic on the Internet doubles roughly every 90 days and certainly the
demand for high-speed access is exploding. It's becoming increasingly clear that
the role of the Internet and high-speed access is vital to all segments of the
economy. We believe in considering your legislation, a beginning point is a
recognition of two fundamental facts. First, there is no bottleneck for advanced
services.
Cable modem, which is provided by the cable companies,
competes directly with our XDSL services. Cable modems provided over their
networks, their facilities, completely independent from ours. In addition, we
have terrestrial wireless alternatives, satellite alternatives. They provide
their services completely independent of our facility. Large customers have
access to AT&T and WorldCom and others who provide direct access to the
Internet over high-speed capacity and again without resort to the telephone
company facility. There simply is no bottleneck.
In addition, we do not
have even a leadership, let alone dominant position with respect to advanced
services. Perhaps the best evidence why there isn't a bottleneck is our
competitors have four or five customers for every one we do. But despite the
fact that there is no bottleneck, no control and despite the fact that we are
not even in a leadership position, we're subject asymmetric regulation. The
result of that asymmetric regulation is, on the one hand our competitors are
completely free to operate the most efficient way they can, at the same time,
we're subject to pervasive regulation.
It means we're handicapped. It
means competitors are protected from competition and ultimately it means that
consumers, the customers are denied a competitive marketplace and the benefits.
Now there are many aspects to this, but the one that is the subject of this bill
is of course the long distance restriction and because of that restriction we
have significant handicaps in deploying broadband services to our customers.
Takes many forms, but let me give a specific example.
Illinois has 12
ladders. We go in there to provide advanced services. That means because of the
long distance restriction, we have to put an ATN switch in each ladder and we
have to put a point of presence to the Internet in each ladder, very expensive,
can't operate in an efficient, when you'd follow normal traffic algorithm and
combine demand and use a combination of switches and trunks, can't do that.
Likewise, we can't demand for high-speed access in one community and
combine it with another community. And in that way operate more efficiently,
have a broader base deployment. The discussion has mentioned Project Pronto. We
have been handicapped. We could have done it more efficiently. We could have
reached many more customers without that restriction. Another example is the
backbone, you all heard of the backbone discussed, the backbone of the Internet.
Well, that's the high-level connection between the Internet hub.
And as
was indicated several weeks ago when the Justice Department and the government
took a position against the WorldCom merger. That was the principal reason
because of the heavy concentration in three companies in provision of that
backbone. We have the facilities, they're in the ground, we're not permitted to
participate in them. Now there've been several suggestions in the comments today
and in other places that we're seeking to turnaround the Telecom Act. That's not
true.
Advanced services, DSL and cable modem, were not in commercial
operation at the time that legislation was debated and certainly the marketplace
and technology have gone well beyond the situation that existed at the time of
the Act. Furthermore, I would tell you, we're not even seeking in any way to
change our obligations to open the network. Indeed, it is absolutely critical
that we be able to offer a complete package or we're not going to have a
business. We must have the opportunity to offer voice telecommunications, fact,
70, 80 percent of our revenues are from voice. That won't change. We will
continue to have that obligation.
But the fact is the basic underlying
principles behind the '96 act. That is existence of a bottleneck and dominant
control of the local exchange simply do not apply in the case of advanced
services. That is we have neither bottleneck nor a dominant position. I'd make
one other point that's been referenced to how many POPs there I would simply say
that the real question is whether the rural customer has the access to
high-speed, access to the Internet? And the fact is according to NTIA, about
five percent of rural customers have that access and we'd like to change it.
Thank you.
REP. STEARNS: Thank you very much, sir. We'd like to now
welcome the senior vice president federal government relations for Verizon
Communications here in Washington, D.C., Mr. Edward Young.
REP. MARKEY:
Mr. Chairman. When I was a boy growing up, Mr. Chairman, we had a nice company
it was called New England Telephone.
We all knew how to pronounce that
and it was passed on by or mothers and our fathers and then about 15 years ago,
Mr. Chairman, after paying about paying about a million dollars, they decided to
change the name into something that was absolutely unpronounceable NYNEX and it
took us about 10 years to figure out to say this word, okay, because it's some
kind of test that you would give to, you know, someone who was in some advanced
foreign language course.
This would be the last word you'd give someone
learning the English language NYNEX and so we all finally mastered it.
Then Bell Atlantic purchases or merges with NYNEX and they decide to
give up this word and then we all have to learn in my hometown, a new word, Bell
Atlantic, which we'd just about gotten used to saying. Then this year paying
another million dollars, not withstanding the fact that 98 percent of all people
who look at say Verizon, which is probably how they should pronounce if that's
how the public wants to pronounce, there's a new name called Verizon. Now it
captures a whole bunch of concepts that are supposed to be subliminally
influencing up towards this horizon.
REP. TAUZIN: It's pronounced
Verizon. (Laughter.)
REP. MARKEY: Yes, Mr. Chairman. So now after
another million dollars, we now have a new name for this company, all providing
the exact same services in my hometown with the hope that they will receive
relief by the end of this year so they can move into them with a new horizon of
new services, but the company is Verizon.
REP. TAUZIN: Thank you very
much, Mr. Markey. (Laughter.) Mr. Young of Verizon Communications.
MR.
EDWARD D. YOUNG: Thank you, Mr. Chairman. Good afternoon to the members of the
committee and Congressman Markey, thank you for correcting that. The combination
of Horizon and Vericas (sp), which we can talk about later, I should note that
this is the first appearance before this subcommittee by Verizon. We were formed
by a merger with GTE at the end of last month and I'm delighted that this first
appearance is in support of H.R. 2420. The legislation that you, Mr. Chairman
and Mr. Dingell have introduced to assure that all the urchins will realize the
benefits of the Internet as fast as possible and affording more choices. That
the bill has already gathered 225 co-sponsors is a testament to your leadership
and the importance of this issue.
In my brief time, I'd like to
emphasize two key points, first H.R.2420 will help bring more quickly advanced
Internet services to more Americans and at competitive prices. And then
secondly, I want to emphasize that this bill does not, does not undercut the
incentives that were put in place in the act to open up local markets to
competition. Okay, how will 2420 accelerate deployment of Internet services?
Well, the Bell Companies have the unique ability to provide vital pieces of the
high-speed Internet infrastructure, the links and hubs in the middle of the
Internet architecture.
At one end you have the high-speed Internet
backbone, at the other end you have the local connections that connect pounds
and businesses to the Internet, but in between there's a whole host of links,
hubs, interconnections, interoffice facilities that the Bell Companies have at
their disposal as a result of providing ubiquitous local service that could be
used to increase the capacity of the Internet and to provide more access to more
customers. A good analogy is if you think of the big Internet backbone as the
interstate highway what we provide is we provide the state roads, the access
roads that run next to the highways and the onramp that allow that interstate to
get to the local communities to provide Internet service.
So we have
hundreds of thousands of miles of fiber among all the local exchange companies
to help provide these services and the benefits that H.R. 2420 provide is it
allows us to use those facilities for a very narrow purpose and that's just to
provide Internet data services. It allows us to use these backbones in places
where there aren't facilities today, Charleston, West Virginia, Duluth,
Minnesota, Batesville, Arkansas where we'll be able to use those facilities once
this bill passes so that anybody can deploy high-speed Internet services. I
emphasize anybody, Covad, Rhythms can take advantage of this local architecture.
They'll have equal access to it to offer their own services under the Internet.
So they won't have to go as far to get high-speed connections. They'll be able
to provide services as well as we will and therefore the customer wins.
Now I say this a narrow exemption because it only applies to data. This
does not affect at all the requirement that we meet the 271 requirements for
long distance relief for voice services. So what we're focusing on is a narrow
exemption, an incidental inter-light (ph) exemption in the same way that you saw
fit to allow us to provide cellular long distance service. So if this bill as a
narrow focus benefits everyone, why do people oppose it? Well the main
opposition comes from those who claim that this bill would gut the incentives in
the act to open up our local markets and that's just simply not so for a number
of reasons.
First of all, this bill does nothing to eliminate Section
251 of the act. Section 251 contains the market opening provisions, the 14-
point checklist if you will that the Bell Companies have to meet in order to get
into the long distance business. The interconnection obligation still remains.
The bill does nothing with respect to that. With respect to voice service,
there's still a valuable incentive for us to get into that market. It's a
hundred billion dollar plus market a year. We have every incentive to get into
it.
Secondly, under our merger conditions, we have every incentive to
get into it. Verizon, for example, cannot offer long distance service through
its data affiliate, which it had to separate at its merger with GTE until it
meets the 271 requirements. So the point here is that there are lots of
incentives for us to continue to meet the 251 requirements. The FCC has
enforcement authority under which it can continue to monitor the hundreds of
measures that we have to report to them every month to demonstrate that our
markets are open.
So in sum, Mr. Chairman, we support this bill. We
think that the incentives to open up the markets remain, but we think that the
benefits to all Americans of getting more access to the Internet should start
now.
REP. TAUZIN: Thank you very much, Mr. Young. We're next pleased to
welcome Mr. Arne "Skip" Haynes, president of the Rainier Group. Now what's
interesting about Skip here is that in his bio he tells us that his great
grandfather, Pete, won the company in a pinochle game in 1912. Your great
grandfather actually won the company in a pinochle game in 1912?
MR.
ARNE "SKIP" HAYNES: Yes sir.
REP. TAUZIN: That's amazing.
MR.
HAYNES: The actual story is there're not sure if he won the company or if he won
enough change to buy the company. (Laughter.) Because I can all tell you I'm
fourth generation manager of our company and when my father took over the
company in 1954, the gross revenues were $32,000 a year and
we're still very small.
REP. TAUZIN: Mr. Haynes, you're recognized, sir,
for five minutes.
MR. HAYNES: Thank you very much. The point of my
testimony here, sir, is to support H.R. 2420. I thank you, Mr. Chairman and
members of the committee for the opportunity to give that support. I have
submitted a record of the testimony and just for the record my son just
graduated from college. He's joined the firm in our interactive media business
and we have a commitment to telecommunications in small communities.
REP. TAUZIN: You're not doing pinochle on the Internet year are you?
MR. HAYNES: No, no. (Laughter.)
REP. TAUZIN: Thank you.
MR. HAYNES: We also have a lot of small company friends around the
country. For example, Smokey Scanlan (sp) down in E-tel (sp) is competing with
Bell South in New Orleans and many of our friends throughout the country, small
companies, are competing. I'm going to be moving into Mr. Stearns area and
competing in Ocala with high-speed wireless data and anxious to do that, looking
forward to it.
Again, I want to stress we're a small company. Our
incumbent phone company has 3,800 access lines. That's fewer than the number of
employees in most of the companies here. We have about a thousand cable
customers. Those we've acquired since the act was passed in '96. We have about a
thousand Internet customers and we have about 400 CLEC customers and those are
primarily residential and small business. I think our largest CLEC customer so
far is six lines.
We're excited about being in telecommunications,
staying in telecommunications and I would note that our employee base is now up
to 50 individuals, which is about triple what it was when the act passed in
1996. I'm testifying on behalf of our company as well as the United States
Telecom Association of which I am vice chairman.
The competitors we have
include AT&T, Quest, with their former US West operation. We also provide
long distance service so we compete with IXCs and a myriad of Internet service
providers.
We need relief from regulation both at the federal and the
state level and I'd like to point out that's extremely important and there are
some aspects of deregulatory effort here and more of that should continue for
small companies as well as all companies. There is no digital divide in the
operations that we serve. We have cable modem service available to our cable
customers. We will be rolling out DSL within 90 days to 100 percent of our
incumbent customers as well as our CLEC customers and that's in the state of
Washington. Our wireless, they haven't even got the technology to where they're
selling it for public use yet, but that is where we're going soon in California
and Florida.
I'm either a very bright person for working the last 10
years to develop a data oriented telecommunications network or I'm really stupid
because I invested millions of dollars of our shareholders money to make a
data-ready network. And I'd like to invite Mr. Largent and any member of the
committee to come to the foothills of Mount Rainier so that I could show you why
line sharing, as the FCC put it forward, would devastate the operations of our
company and be absolutely a bad thing for residual customers who only want to
use voice services.
The line-sharing concept is flawed. I've submitted
some of the details in the record and I would be happy to explore those with
anyone. And I would also like to suggest that, while the record indicates our
costs are high in our incumbent area approaching a hundred dollars a month to
serve a customer, 20 or so of which we get out of local rates, those are not
unusual or unrealistic costs in rural areas. Any RBOC will also have high-cost
areas to serve as any mid-size company would. It's a question of geography and
the cost of facilities and the cost of employees who have to maintain these
networks.
So again, it costs money to run these businesses, competition
is opening a lot of opportunities. It would be better served without any
regulation, but the regulation needs to be much lighter and much more fair that
what it's been to incumbents. I think that H.R. 2420, if passed, would allow us
to continue to expand our operations in Washington State. If that and other
regulatory efforts continue, we will be in trouble and that's not good for any
of our customers. I'm amazed and I see my red light's already come on, but a
couple of points, if just have a second.
State regulators are drooling
to fill a vacuum that any FCC regulation relief might come with. So I'm pleased
that every effort you make will be to reduce state regulation as well. Relieving
the large companies of the inter-latti obligation is very positive for our
customers because as Mr. Young point out, there's a link that's broken and it's
not at our end and it's not in the middle and we high-speed all the way through
and that'll benefit our customers. Thank you, Mr. Chairman.
REP. TAUZIN:
Thank you very much, Mr. Haynes. Next we're pleased to welcome Mr. Dhruv Khanna,
the executive vice president and general counsel of Covad Communications. I
understand one of the founders of Covad, actually helped create it, not even in
a pinochle game. We welcome you, Mr. Khanna.
MR. DHRUV KHANNA: Thank you
very much. Good afternoon. I am Dhruv Khanna. I'm co-found and EVP and general
counsel, helped start Covad.
REP. TAUZIN: See if you can get the mike
real close because we've got a recorder who has to pick up your words.
MR. KHANNA: I recall sending NYNEX a interconnection request from my
home fax machine on March the 7th, 1997. Thank you, Mr. Chairman and members of
the subcommittee. Thank you very much for the Telecom Act of 1996, but for the
Telecom Act of 1996, Covad would not exist. When the Telecom Act was being
debated in Congress in 1995, the first of the Internet stocks, Netscape, went
public back in the fall of 1995. There were a couple of things that we knew. I
was an in-house counsel at Intel at the time.
I knew about the massive
demand for bandwidth. I knew about the massive PC penetration into the homes
across the United States. I also knew about the Netscape IPO and about the
Internet revolution that was brewing at the time. I also knew about DSL
technology, a technology that the local phone companies had hoarded, had put in
mothballs because they did not want to deploy the service that would radically
cut their T-1 revenues.
The Telecom Act of 1996 allowed us to break into
that marketplace and compete with the phone companies and we've done so
reasonably well. To date, standing here today or sitting here today, Covac
provides service to almost 40 percent of all homes and businesses in the United
States. By the end of this year, we've gone on record saying it'll be 50
percent. By the end of next year, we have gone on record promising it will be 75
percent of all homes and businesses in the United States.
So I'm proud
to sit here today and state that our footprint, our network deployment exceeds
that of SBC's and that of Bell Atlantic with respect to DSL. While were busy
exercising our entrepreneurial wicks and growing our footprint, the phone
companies chose instead to merge. There was the number two employee at US West,
Mr. Bob Knolling (sp), who decided to quit that company and join Covad as our
CEO. We have recently acquired Blue Star, a small data CLEC based in the
Southeast, that competes in rural areas with Bell South.
To give you an
idea of our growth, we are today one of the fastest growing companies in the
United States. Our quarter-over- quarter line and revenue growth is
approximately 40 percent. We did this, as I said, through our enterprise and
based on the Telecom Act of 1996. Our footprint towards that of Bell Atlantic
and of SBC, we beat them to marketplace. We were the first to offer two-wire
DSL. We were the first to cut prices. We brought prices down for consumers, for
example in the US West territory, from $200 a month ISDN to
$20 a month for greater bandwidth.
We are today
providing service from almost 2, 000 central offices nationwide and we are today
the largest national local telephone company. Thirty-three percent of our lines
are consumer lines even without the implementation of line sharing, our consumer
base has grown rapidly up from 15 percent earlier this year and by next year, we
expect to see our consumer business exceed our business business. Our success
has been based on two things the FCC did in 1999. The first was cageless
co-location.
The Telecom Act, in several places, speaks about
nondiscrimination. But sir and madams, we have been discriminated against, we
were denied cageless co-location by the phone companies upon request, we were
denied line sharing, which is something that the incumbents use to provide data
services themselves. They're able to do so at much reduced cost, at a much
better price to consumers because they're able to share lines themselves. Our
requests for line sharing were ignored.
We went to the FCC and were
successful in persuading the FCC to take the pro consumer action to in fact
implement your intent of nondiscrimination by giving us cageless co-location and
line sharing and those are the two devices that have promoted Covad, have
prompted Covad to go into the consumer space and we shall soon be competing very
vigorously with the phone companies and the cable modem service using our right
to the line sharing, which is something this bill would take away.
This
bill would also take away cageless co-location in addition to line sharing. If
Congress is serious about bringing broadband services to rural areas what
Congress should do is to eliminate the exemption from competition that has been
granted to the rural carriers and we would also request that Congress take far
more seriously the enforcement of the Telecom Act as it exists today. My company
has been subjected to not only violations of the Telecom Act, we've had our
contracts breached and fraud has been committed on our company as well.
There was a central office in Menlo Park, which Mr. Ellis's company
denied us space for over a year-and-a-half. We proved that. We won a
$27.5 million verdict from the arbitration and that is the
first success that we expect to see the series of legal actions that we have
been forced to undertake to enforce our legal rights. Thank you.
REP.
TAUZIN: Thank you very much, Mr. Khanna. Next, Ms. Cindy Schonhaut, I understand
the Executive Government and External Affairs Vice President for ICG. You've
just been promoted.
MS. CINDY SCHONHAUT: No, but that last promotion was
a tough one to get.
REP. TAUZIN: That's a long title. But, welcome, and
you're recognized for five minutes.
MS. SCHONHAUT: Thank you, sir. I am
Cindy Schonhaut, and I work for ICG Communications. I'm also here representing
two trade associations representing competitors, Comtel (ph) and All (ph). ICG
is a competitive local telephone company that has actually been around since the
late 1980s. We started in Denver, and that's where we're headquartered now.
Myself, I've been in telecom almost exactly 20 years, and 10 of those years,
I've worked in local competition.
So, myself and the company really do
both predate the Telecom Act. Yesterday, I was sitting on the Senate side in
Senator Brownback's hearing on his broadband deregulation bill, and somebody
passed me a note and asked me if I could testify here today because a witness
became unavailable. Well, I really did jump out of my chair, because I have been
wanting to talk to this subcommittee for a really long time. First of all, to
tell you what I know, and what I've learned in my experience. And, second of
all, to also thank you, like Mr. Khanna did, for the Telecom Act that you passed
-- not just because it keeps me employed, although of course I like that, but
also because it has done so much for this country, and given this country an
opportunity to see the economic benefits of competition.
Before the Act
passed, there were local competitors. ICG existed. We could provide very few
services, to very few people, in very few places. There was no way our industry
was going to survive, and really we were not going to be able to thrive at all.
But we opened up the market, and what we did in return to thank you for passing
the Telecom Act, is that we instigated the technological revolution that we have
today in telecommunications. It just would not have happened without
competition. And that's why I'm sort of puzzled by this bill, because
deregulating the ILECs and the Bell companies to allow them to provide data
services in order to incent and instigate the broadband
deployment of more data services, doesn't make sense to me.
A
monopoly is just not going to do it. And here's a good example. When the Act
passed -- right after the Act passed, Ameritech came to Colorado and got
certified to be a local competitor. They never did use that certification. And,
of course, they're not the RBOC there. That's US West. So, Ameritech was
thinking of competing in Denver and never did it. And when they came along and
decided to merge with SBC, Ameritech said, well, we couldn't of gone to places
like Denver because we didn't have the critical mass necessary to compete in
Denver against US West. We only had 35 million access lines. When we merge with
SBC and we have 65 million access lines, we will have the critical mass to come
and compete against US West in Denver.
Well, you could only imagine how
that is received by investors in my company, because we have no critical mass
whatsoever. We are there and we are competing. We're struggling, but we're going
to make it. And an RBOC can't even comprehend how to go about doing that unless
they have something like 65 million lines. Mr. Young says the bill will not
deregulate services because voice services will remain subject to the provisions
of the Telecom Act. But that misses the point. What's happening right now today
is that voice services are fading. They're going to be given away free.
I don't know if anybody watched any of the NBA games, but Net Zero (ph)
was sponsoring those shows, and they said they give away free voice long
distance service. It's already here today. It's going to be given away free, and
90 percent of the revenue within three years in the telecommunications industry
is going to be from data. Data and voice are going to intertwined. That is what
we're talking about today. Voice will continue to be regulated, but nobody will
be using it, so it's really not a relevant point.
I just want to make
one point about the bill, and I'm trying to sort of comprehend how I can
persuade you to sort of wait out until competition does reach all these places
with broadband services. The problem I see with the bill is that it treats
competitors like we're the problem, but we really are the solution. And I think
we've proven that where we compete now. And we're starting to raise more money
and compete further. I want to speak briefly about interLATA relief. The Bell
companies know exactly how to get interLATA relief. They know how to do it. Even
SBC did it in Texas.
If the Bell companies comply with the checklist,
they will get interLATA relief, and my company will be able to succeed. We both
want the same goals. We're not in the long distance business. I don't care if
they provide long distance service, but I care if they comply with the
checklist. And if they do, my company will succeed. I have the same goals. I
will come here. I will be the first to tell you they should be allowed to get
into long distance. But they haven't met it yet, and it's not in their business
interest to meet it unless you make them, and unless the regulators that you
rely on also make them.
I'll just end by saying that Congress, you
created us. You created my company. You gave us the opportunity. You also have
the power to destroy us, and I'm worried about that. And I want you to know that
we will be able to make it. We will be able to become a profitable industry and
survive, as long as you don't change the Act. And I thank you for giving me this
time, and I hope that we'll have the opportunity to discuss this further. Thank
you.
REP. TAUZIN: Thank you, Ms. Schonhaut. And now we welcome Mr. Len
Cali, Vice President, Federal Government Affairs, for AT&T Corporation. Mr.
Cali.
MR. LEN CALI: Mr. Chairman and members of the subcommittee, it is
a pleasure to be with you today. Thank you for this opportunity to share
AT&T's views. H.R. 2420 raises an issue of profound interest. We all want
broadband services deployed more quickly, more cheaply, and more broadly. The
question is how best to achieve this outcome. For the reasons set forth in my
written statement, we do not believe that H.R. 2420 is the right approach.
As you consider this bill, we ask you to consider in particular the
following five points. First, the marketplace for broadband is working. It is
generating unprecedented investment in new infrastructure and services, and
giving millions of customers new choices, quality services, and lower prices for
broadband services. Today, more than three million Americans subscribe to
high-speed data services, up many fold from just two years ago. Analysts
estimate that high-speed Internet access will be available to 54 percent of US
households by the end of this year, and more than 80 percent by 2002.
Dozens of competitive providers have blanketed the nation with over
1,000 high-speed DS-3 (ph) Internet points of presence, and nearly 95 percent of
Americans now live within 50 miles of one of these competitively provided POPs.
The cable companies have invested more than $36 billion to date
of private risk capital since 1996, and the CLECs have installed 1,400 data
switches and laid 162,000 route miles of fiber. This competition has spurred the
incumbent local carriers finally to deploy their decade old DSL technology.
We now hear, for example, as we've heard earlier, that SBC will devote
$6 billion to provide 80 percent of its customers with DSL
service by 2002. Verizon, formerly Bell Atlantic, will invest
$1 billion per year until 2005 to develop its fiber network.
And US West will expand its DSL services to 30 new cities. And while deployment
is expanding, prices are plummeting, at least where competition exists. Bell
Atlantic recently announced that it is lowering its DSL rates from
$49.95 to $39.95. Other Bell companies have
similarly slashed prices. In fact, in one instance, Pacific Bell was charging
$89 a month in 1998. Today, it's charging $39.
And rural customers have not been forgotten. In addition to the efforts
of the many competitors, satellite providers are racing to provide high-speed
Internet access on a national basis. For example, Pegasus Communications
Corporation has announced that in conjunction with DirectPC (ph), it will begin
to offer high-speed Internet access by satellite to rural households in the
fourth quarter of this year. Pegasus goes on to state that the service will
enable consumers to obtain high-speed Internet connections -- I am quoting --
"virtually anywhere in the continental United States, no matter how remote,"
unquote.
There's no public interest reason to change the rules that have
given rise to these benefits.
Second, these facts confirm that the Bell
companies to not need long distance relief in order to deploy broadband
services. Moreover, under the existing law, the Bell companies hold the keys to
any interLATA authority they desire. The FCC granted long distance authority to
Bell Atlantic in New York, and SBC in Texas confirmed that the requirements of
the '96 Act can be met if a Bell company will take steps to open its market.
Third, the proposed interLATA relief would undermine prospects for local
exchange competition by reducing the Bell companies' incentives and some of
their obligations to open their markets to competition. This is particularly
significant, because notwithstanding the growth of broadband competition, the
Bell companies continue to dominate the provision of local exchange services,
particularly for residential customers. Passage of this legislation would
particularly hurt consumers in the 47 jurisdictions where the Bell companies
have not yet obtained long distance authority.
If the legislation is
enacted, the Bells in those states would have no incentive to open their
markets. As a result, competitive investment dollars would flow toward New York
and Texas, and away from the remaining states where fewer opportunities would
exist. Fourth, the interLATA relief proposed in this bill would not necessarily
enhance deployment of broadband in the Internet backbone or anywhere else. As to
the backbone, Bell Atlantic is already affiliated with Genuity, SBC with
Williams (ph), and US West and Bell South with Quest, all of which are existing
Internet backbone providers.
In addition, Bell companies today can
provide connections between their local exchanges and inter-exchange carriers,
who can then transport traffic across LATA boundaries. In this regard, the
problem is not the LATA boundaries, it is the inflated prices the Bells insist
on charging for those access connections. Nothing in this legislation would
change that.
Fifth, even if I'm wrong on all of these points, this
legislation is over broad. It would gut the carefully considered incentive-based
structure of the '96 Act in order to enhance the extraordinary broadband
deployment that is already occurring. If there is a problem with
broadband deployment, the solution should be tailored to the
problem. The FCC has established an expedited process to target LATA boundary
relief if a Bell company can demonstrate that such a modification is appropriate
for the deployment of advanced services. Yet, the FCC has not received any
requests for LATA modifications under this process.
In short, we
respectfully urge the subcommittee to promote continued deployment of broadband
that is swift, widespread, in a commercially reasonable manner by maintaining
the competitive incentives provided under the '96 Act. Thank you.
REP.
TAUZIN: Thank you very much, Mr. Cali. And, finally, Mr. Steve Pociask,
Executive Vice President, Chief Economist at Joel Popkin & Company, here in
Washington, DC. Mr. Pociask.
MR. STEVE POCIASK: Mr. Chairman and members
of the subcommittee, thank you for inviting me here today to give my views on
the Internet market and broadband competition. In our study entitled, "MCI
WorldCom's Sprint Toward Monopoly," published by the Economic Policy Institute,
Dr. Jack Rutner and I find interLATA data restrictions to be a barrier to entry,
in effect contributing to the concentration of the backbone market.
The
first chart in my written testimony -- over here to the side of the room -- by
various measures show that much of the Internet is in the hands of few backbone
providers. That's not due to lack of desire among potential entrants. In
general, barriers act to maintain market power, restrict supply, and increase
market prices. Our study finds evidence of anticompetitive affects in the
Internet backbone, and I would direct you to my written testimony for examples
of rejected orders of high-speed circuits, degraded service quality, price
discrimination, and problems with cooperative interconnection.
These
problems negatively affect small ISPs, rural ISPs, and ultimately their
customers. Now, don't get me wrong. Big can be good. And if you look at the
second chart here, when increases in the volume of production lead to falling
per unit cost, large firms can be more efficient. This is commonly referred to
as economies of scale. However, as the next chart shows, the reality is that
prices are upward slopping with respect to size, not downward slopping as you
would expect in a competitive market. This is the result of network effects,
where dominant backbone providers have no incentive to cooperatively
interconnect with smaller ISP networks.
Since large backbone providers
see their networks as more valuable, they demand higher prices from smaller
backbone providers and ISPs. Thus, large Internet backbone providers have an
advantage not from productive efficiencies, and not from economies of scale, but
from their ability to extract value from not interconnecting with smaller firms
on equal terms. These network effects lead to tipping, whereby large firms stay
large, and small firms stay small. The interLATA restrictions contribute to this
problem by limiting supplier choice.
The final piece of evidence that
the market is not competitive is demonstrated on the last chart, which shows the
supernormal profits of the large three interstate backbone companies. This chart
shows that the earnings-to-assets ratio has been going up rapidly compared to
that of other non-financial corporations. In economics, high profits normally
attract entry and lower prices. But this is not the case of interstate backbone
market of voice and data, where interLATA restrictions prevent market entry. So
I ask you, does this look like an industry that needs protection.
H.R.
2420 will encourage the RBOCs to invest in backbone facilities and in interstate
points of presence. Interesting enough, what I see is that once these
investments become sunk, the desire to leverage their presence beyond the local
market into full range of telecommunications services should increase.
Therefore, the RBOCs will urgently seek Section 271 approvals. After all, the
$105 billion long distance market is a much greater prize than
the smaller $6 billion wholesale broadband market that we see
in the backbone.
As fast as the Internet market is growing, the market
is big enough for all comers. As far as local competition is concerned, the
state regulators still have Section 251 to open things up. Consumers should have
more choice. Having interLATA data relief gives customers choice and that's why
I support H.R. 2420. Permitting full ownership of investments will keep costs
lower and lead to higher broadband penetration. Let me explain to you why low
regulatory costs are very important here. Broadband services appear to be much
more price sensitive than telecom services, like local services. What that means
is that small increases in taxes or regulatory costs will have large decreases
in economic benefits. They can have very big impacts in reducing the number of
subscribers.
On the other hand, reductions in regulations, such as those
proposed in H.R. 2420, will have large stimulative affects and, therefore, huge
economic benefits or consumer benefits. You've seen the empirical evidence
today. Regulations need to stop protecting competitors. Instead, they need to
promote competition, and the market will do the rest, and consumers will
benefit. In closing, I support H.R. 2420. Thank you.
REP. TAUZIN: Thank
you, Mr. Pociask. The chair recognizes himself, and members in order for five
minutes. Let me first of all make the argument, Mr. Pociask, the opponents of
2420 made. And that is even though the bill specifically retains the
requirements on the Bell companies that they open up their markets in order to
get into the long distance market, which as you point out is worth
$105 billion even though the incentives are still in the bill
to open up the market to get to this $105 billion long distance
market, they argue that if we give interLATA data relief through this bill, that
somehow this $6 billion wholesale backbone market is going to
eliminate the incentive for the Bell companies to continue their progress on 271
petitions and open up their local markets. You say that's poppycock.
MR.
POCIASK: In fact, the opposite may be true because --
REP. TAUZIN: Pull
the mike a little closer, Mr. Pociask, so we can hear you.
MR. POCIASK:
In fact, the opposite may be true because once you begin building out interstate
facilities and points of presence, the ones who provide the full range of
services increases.
So, to that extent, it may be an incentive to build
out.
REP. TAUZIN: Your argument is that once they've sunk all the money
they have to sink into building Internet backbone facilities for the broadband
market, that currently is worth considerably less than the long distance voice
market, that they will be incentivized to maximize profits from that investment
by completing their efforts to get 271 relief.
MR. POCIASK: That's
exactly right.
REP. TAUZIN: And, therefore, the bill will actually serve
as an incentive for the Bell companies to continue opening up their local
markets. Is that right?
MR. POCIASK: That's right. Even if it's not the
case, 251 is still there to --
REP. TAUZIN: It's still there. You make a
heck of an analogy in your written statement. I want you to read it. You
indicate that fully one-third of the customers today -- they're spending fully
one- third of their time, rather, waiting for computer screens to fill because
they're at low speed and can't get high speed services. And you make a point
that customers abandon their online shopping carts. They're just disconnecting,
reconnecting, and reloading screens. It's a little reminiscent of the long lines
in the old USSR. Lots of demand, but supply is controlled and regulated. Big
lines at the supermarket, but no cabbage or potatoes in the store.
MR.
POCIASK: $31 billion of lost time is taken up on the Internet.
REP. TAUZIN: And you also conclude in your economic review that the
current interLATA data restrictions are entry barriers that support the
concentration of ownership in the backbone, which you point out is very high.
They maintain market power in those concentrations, and they lead to restricted
supply, likely higher prices to ISPs and, therefore, ultimately to consumers.
You conclude that this bill is very definitely pro-consumer?
MR.
POCIASK: Absolutely.
REP. TAUZIN: Let me turn to you, Mr. Cali. The
questions submitted by a colleague who can't be here, so let me -- he asked me
to ask it of you. In your testimony, you argue that in favor of each of the
regulatory requirements, including the interLATA data restrictions that
currently exist in the law, this bill would repeal. You argue that the ILECs
would continue to face them until they finally get 271 relief. The question is,
as the industry increasingly converges around similar products and services,
you, AT&T, are in fact providing many of the same services to your own
customers by cable modem, but you're not saddled with the same regulatory
burdens.
And the question is, do you believe that the presence of these
regulations is essential for the Bell companies, why wouldn't you want those
same regulations applied to your company when you provide the very same
services?
MR. CALI: Okay. Let's look at why the regulations were
applied. But if I may first, so we're careful not to overstate the regulatory
burden on the Bell companies and make clear that the FCC has been very careful
to ensure that there is some flexibility for the Bell companies when providing
advanced facilities and services. Consequently, packet switching and data
facilities, such as the D-SLAM (ph) are not subject to the unbundling
obligation. And when a Bell company provides advanced services through a
separate subsidiary, it is treated like a CLEC in terms of obligation.
With that said, you are quite correct. There are a number of obligations
imposed on the Bell companies, designed to open their local telephone market to
competition. Those obligations were imposed in an effort to erode a near century
old, very resilient monopoly -- one that persists to this day. That is a good
public policy goal. The long distance restriction, in particular, was needed to
provide incentive to the Bell companies to give up this monopoly -- to provide
them some reward for opening their markets. These are good goals. In addition,
when one recognizes, as Verizon has done in New York and SBC has done in Texas,
that the past (suparity?) or the keys to long distance relief lay with the
RBOCs, and that those keys will also unlock the local telephone markets to
competition, there is good public policy reason to pursue those goals.
REP. TAUZIN: And, so, you think they still ought to be applied to the
Bell companies, but not to AT&T when it provides the same service. I just
want to make a point, because my time is up. I had this conversation with FCC
officials just recently. I think we can each draw our own conclusions from the
New York and Texas experiences. It's possible, as Chairman Bliley did, to
conclude that finally the Bell company in New York and Texas opened up their
markets enough for the competitors to really go after the residential customers
finally and, therefore, they're doing it today.
It's equally possible to
conclude that competitors who could have gone after the residential customer
withheld doing so until they had to -- until it was very clear that the Bell
company was going to get its relief in Texas and in New York. And, therefore,
this question arises, and I'll just leave it as a rhetorical question for the
record, because my time is expired. If in fact when 271 relief is finally
granted on voice, which is a bigger market, as Mr. Pociask points out, the
competition really heats up at that point. If I'm right in my conclusion, that
if the FCC speeded up the process of 271, we'd already have healthy competition
for residential customers going on right now, because you guys would have to be
competing in all markets.
I think Mr. Pociask is equally correct. That
if we're smart enough to pass this bill, we're going to get more incentives for
full blown competition, not less. Because that's the nature of removing barriers
to entry. Mr. Pociask, I think you put your finger on it. Entry barriers protect
competitors. They don't protect consumers. There's no case I can make for
keeping stores out of my town in an effort to protect my consumers. I can make a
huge case for bringing more stores and more competition into my town. But I find
it very difficult to argue in preserving restrictions on one competitor helping
my consumers get a better deal.
That's the problem with the current law.
And I finally want to say, if in fact we're really going to get 271 relief over
the next 12 months to 18 months for everybody in America, as the FCC is now
saying is possible -- if that really is going to happen, then it's time for us
to cut this thing loose and let competition flow. The chair will yield to the
gentleman from Texas, Mr. Green, for a round of questions.
REP. GREEN:
Thank you, Mr. Chairman. I was surprised I was the only Democrat left here.
REP. TAUZIN: Let me again say that I want to recognize again that we
excused members to attend that memorial service. I want to apologize to any
members who had to leave and couldn't hear this testimony. But we were obliged
to do so, because we have some witnesses who have schedule arrangements. I wish
you would convey that to any member who might have been offended by own
decision. Mr. Green.
REP. GREEN: No problem, Mr. Chairman. In fact, our
colleague on our committee, Bart Stupak. There is a memorial service, although I
was actually on the floor, (on?) the rule a few minutes ago and I appreciate the
forbearance of our panel always. Mr. Ellis, first I want to congratulate SBC's
271 application, and hopefully your approval will be used as an example for
future 271 applications, and allow the FCC to expedite what so far as been a
very laborious approval process. And I know the committee shares that, having
watched that experience.
In reference to your 271 approval in Texas, if
H.R. 2420 had passed, say, two years ago and you were given the ability to cross
the interLATA boundaries, would you have still gone ahead with your 271
application?
MR. ELLIS: Absolutely, Congressman. I think it's been
discussed here. We had no choice under the law but to open our networks. But
beyond that, we have a tremendous incentive to pursue the voice market not just
because in and of itself there's $100 billion there in revenue,
but it is an essential to our ability to market our full range of services to
offer the complete package, the one-stop shop. That's what's driving our
industry.
REP. GREEN: That takes care of my next question, and while
we're on that topic though of long distance -- are consumers currently able to
purchase software that allows them to make long distance calls through their
personal computer?
MR. ELLIS: Yes, they are. They do. And, of course,
they bypass the whole regiment of access charges. That is a reality today.
REP. GREEN: I know Chairman Kennard recently stated this ability to make
these long distance calls over the Internet is one of the main reasons not to
give interLATA relief. What is your response to Chairman Kennard's solution?
MR. ELLIS: Well, my response is that with respect to the world of data
and data high-speed advanced services, there's no bottleneck. It wasn't
contemplated under the Act. The CLECs are seeking to take an unfair competitive
advantage of the Act that didn't contemplate DSL, didn't contemplate the growth
in the Internet. And, ultimately, the high-speed access is something that is
going to happen, and the question is really whether particularly the rural areas
are going to be denied that benefit for some period of time, or whether they're
going to enjoy the same benefits that the urban and less rural areas are.
REP. GREEN: Thank you. Mr. Young, I know my staff -- Mr. Chairman, I
understood we had a difference on the pronunciation of the new Bell Atlantic,
but at least in my area of Texas, GTE is now Verizon. Is that correct, Mr.
Chairman, how we pronounce, or do we have to --
REP. TAUZIN: We've had
several variations here, if you want to play with it. Verizon is correct.
REP. GREEN: Verizon. Okay. Sounds pretty good until our colleague -- our
ranking member comes back. And Massachusetts, I've always had trouble with some
of their pronunciations. Our California folks have trouble with mine. To date
the FCC has approved the two 271 applications. Taking into account the length of
time the FCC has needed to complete their reviews, do you believe that the FCC
is capable of completing more than one 271 each year? And, again, coming from
Bell Atlantic arm of Verizon.
MR. YOUNG: Yes. I believe they are capable
of handling more than one application at a time. Otherwise, it would take about
nine years to get through -- literally, if they were to handle one right after
the other in the statutory time period --
REP. GREEN: And then it would
be time for us to do another Telecom reform act.
MR. YOUNG: Well,
there'd be the Internet III or something at that point. I do believe that they
have the ability to do that, and that's why I'm confident that the 271 process
will go forward for voice. It is a large market -- $100 billion
plus. Our customers require us to be full service providers -- that is, to offer
local, long distance, wireless, and data, all in one convenient form for them to
use and to be billed for. So, there's a tremendous incentive to continue the 271
process.
We believe that the template has been identified. We have two
examples of it in New York and Texas. We're going to be filing in Massachusetts
and Connecticut this year, and then we'll be able to roll that template along
into other states. So, I'm quite confident that the 271 process will continue.
REP. GREEN: Okay. Thank you, Mr. Chairman. I yield back my time.
REP. TAUZIN: I thank the gentleman. The gentleman from Florida, Mr.
Stearns, is recognized for five minutes.
REP. STEARNS: Thank you, Mr.
Chairman. Mr. Khanna and Ms. Schonhaut, this question is for you. When we passed
the Telecom Act, we talked about the 14 points that the Bell operating companies
would have to comply with before they get into long distance. And over the
years, they found that the FCC has increased these points beyond the 14, and
depending on what state you go in, the public service commission has made
additional requirements. So, what would you say to the argument that they're
having trouble complying with the 14 original points in the Telecom Act because
the FCC has made it more difficult for them, and so they're at a disadvantage?
MS. SCHONHAUT: I think I would say to that, that that's a superficial
view, frankly.
REP. STEARNS: That's a what?
MS. SCHONHAUT: A
superficial view of how the 271 process works. In each state, and it's happened
in New York and Texas, competitors in the Bell companies attend what is called
workshops, which are really cooperative processes of --
REP. STEARNS: If
you can keep this real short, I've got about three or four questions.
MS. SCHONHAUT: Okay. I think my point is that states work with the
RBOCs. The RBOCs are very involved in how the 271s are granted. And they
influence the process, and it's a compromise process. And, so, I don't think
that you could say that it's unfair.
REP. STEARNS: You just don't agree.
MS. SCHONHAUT: Yes. No, I don't.
REP. STEARNS: Okay. Mr. Khanna.
MR. KHANNA: Well, I think it's very simple. They ought to implement the
act on nondiscriminatory terms. That was one of the checklist items. So, they
should have given me collocation. They should have given me line sharing. I
shouldn't have had to go to the FCC to get it. If they'd gotten the 271s, I
would've supported them six months ago instead of three years ago, had they
given me what I'd asked for.
REP. STEARNS: Okay. Mr. Young, would you
like to reply? I mean, you obviously agree with what I said, I assume.
MR. YOUNG: Yes. The process at the state level has been very thorough. A
lot of what is in the act came out of the New York regulatory process before the
act was introduced. The collaborative process gives companies an opportunity to
present their views and have them taken into account. It's quite unprecedented,
but it has worked successfully.
REP. STEARNS: Okay. Mr. Cali of AT&T
had mentioned the waiver process. Let me ask Mr. Ellis, have you taken advantage
of the waiver process for the long distance data for the rural locations?
MR. ELLIS: Yes. We joined in a 706 petition. Bell Atlantic filed for a
specific waiver, and the FCC applied a set of rules that make it virtually
impossible. You can only get a waiver to provide across the LATA if you can show
there is no other long distance interLATA carrier in that LATA, and it's
impossible. You can't. That is not a solution to this problem.
REP.
STEARNS: Okay. Mr. Pociask, let's talk about the investment that these other
folks have made. You have supported the bill, but what happens to this
investment, in your opinion, in the event that this bill is passed? Wouldn't all
these folks be hurt?
MR. POCIASK: Well, no, not really. Because by
various accounts, you have the Internet doubling every few months, and others
have said that it's only --
REP. STEARNS: So Covad's investment of
$4-5 billion in one area like that --
MR. POCIASK: I
think there's plenty of growth.
REP. STEARNS: And you think that that
wouldn't affect their business at all.
MR. POCIASK: Only to the extent
that when the backbone operates as a cartel, that there's umbrella pricing. But
I think the more important thing here is that we have competitive prices. I
don't think we need to inflate those prices or protect them. And if that's the
case in their business' case, I don't know. But I think what we really need is
competitive prices, and I'm sure that backbone is not going to go to waste.
Believe me.
REP. STEARNS: Mr. Khanna, do you think your company will be
affected financially if this bill is passed?
MR. KHANNA: Absolutely. We
would be denied the cable collocation. We'd be denied line sharing. We would not
be able to compete for consumers.
REP. STEARNS: Okay. Ms. Schonhaut.
MS. SCHONHAUT: The way I look at it is that when the elephants dance,
the mice get crushed. I saw three large companies up on the board when Mr.
Pociask talked. There are two of the RBOCs here. We are little mice. And if one
relies on competition from all those companies, we will really be destroyed.
REP. STEARNS: Okay. In New York, they've approved your company going in.
I was just curious, Mr. Young, how that's going? I mean, are you happy with how
it's going? Is it going quickly enough? Are you excited about it? Because you're
the Bell weather here.
MR. YOUNG: Well, it's been quite successful. We
are ahead of projections in getting long distance customers. One of the main
reasons is we're targeting a market that's been largely ignored, and that is the
sort of low volume consumers that usually get stuck with the minimum usage fees.
We eliminated minimum usage fees for them. We've given them flat rate pricing so
they see exactly what it is they're paying, and it's been quite a big hit in New
York.
REP. STEARNS: There's been some claims here on this panel that the
RBOCs have violations and committed these violations with the intent here -- and
I would certainly want to have you have the opportunity to respond to the use of
the word fraud. I thought that you should have every right to respond to that.
Would you like to comment?
MR. YOUNG: I don't believe that Mr. Khanna
was referring to Verizon. He may be --
REP. STEARNS: I know he wasn't.
But he was saying, in a vernacular sense, that they've had a very difficult time
implementing, and getting agreements. And once they have, they find it's
difficult because the lines would be shifted and be transferred, and so forth
like that. So, I was curious if you'd like to comment.
MR. YOUNG: I
think that given the enormous number of transactions that are being handled on a
daily basis, it's tens of thousands in New York, inevitably claims arise. I
didn't hear Mr.
Khanna say that there was a lack of forums that he could
go to, to have his claims considered. And I think that he'll make his claims,
and in some cases, he'll be victorious. In other cases, others will win. But the
point is, and I want to hammer this home, the requirements of Section 251 will
exist after this bill is passed, and there will be recourse at the FCC, and
appropriate federal district courts, in the event that people believe that
they've been wronged and that markets aren't open.
In addition, both SBC
and Verizon, under our merger conditions, have to file regular reports to
demonstrate that our markets are open. So you combine the enforcement activities
that the FCC engages in under Section 251. You combine the availability of
reports that are going to demonstrate that our markets are open. You combine the
market incentives to continue to get 271 relief. I think that these are all
going to benefit consumers, and that the bill can only be positive.
REP.
STEARNS: Mr. Chairman, could I have unanimous consent just to ask one more
question?
REP. TAUZIN: The gentleman's time ended. Without objection,
the gentleman asks for an additional minute, and without objection --
REP. STEARNS: Mr. Cali, what the RBOCs are saying -- they have all this
regulation and the other folks don't -- isn't that a legitimate argument that
how can they compete if -- they're trying to compete with cable, direct
television, people like Covad, and yet they have all this burden -- onerous
regulation. Isn't that a valid argument?
MR. CALI: When set in context,
it's not.
REP. STEARNS: Say again.
MR. CALI: When set in
context. Let's look at the history. These are broadband services they did not
deploy. They did not deploy them until competition spurred them into deploying
them. Now that they feel the spur of competition, they are deploying quite well
and they are competing quite vigorously. And, again, we have to look at the
other public policy concern here that the rules of the '96 Act were designed to
open the local exchange markets to competition, something that remains
unachieved -- undone.
REP. STEARNS: Mr. Ellis, anything you'd like to
comment to that?
MR. ELLIS: I sure would. Thank you, Mr. Congressman.
Just so everyone is clear, there are two sets of wires that go into most
residences -- cable and telephone. The cable people provide the exact same kind
of advanced service over their pair of wires. They do it with their own network,
completely independent of our facilities. At the same time, we want to provide
the exact type service over our pair of wires. And what we have now is a system
of asymmetric regulations.
We are totally regulated, and they're
unregulated, and we're in the same market.
And what's important, I think
as a public policy matter for the future, they are permitted to absolutely
discriminate, to refuse to interconnect, and they do --
REP. STEARNS:
They being the cable companies, and in particular, AT&T. They also have the
right to refuse to provide open access. They have the right to acquire content.
If you want to see in the future, and have access to instant messaging, to talk
about AOL for a minute. AOL and Time Warner merge. If you want access under
instant messaging from Time Warner, they have the right -- whether they do it or
not is another question -- they have the right to tell you as a subscriber, they
only way you get access is if you take our cable modem access as opposed to the
telephone companies.
They have the right, in other words, to leverage
content over transmission, and transmission over content. That's something we
don't have. Our position is simply this. In a competitive market, there should
not be government intervention over the rates, terms, and conditions. But if
you're going to have regulation, then it ought to apply equally to all providers
in that market, specifically the cable people, and the DSL people, and the
wireless people, and the satellite people. Either regulate us the same, or don't
regulate anybody.
REP. TAUZIN: The gentleman's time is expired. Anyone
else who wishes to respond, may certainly do so.
MS. SCHONHAUT: Again,
the elephants are yelling at each other, and I'm a mouse here. And I will say
that my company will volunteer to be regulated exactly as the RBOCs are. I will
unbundle. I will interconnect. I'll do telerick (ph), whatever it is, if that's
what it takes to keep the Act the way it is.
REP. STEARNS: Without
passing of the bill.
MS. SCHONHAUT: Yes.
MR. CALI: May I make
one point? I think it's particularly telling that some of the most vocal
proponents for forced access to cable systems or regulating the cable systems
are the incumbent local carriers. And one has to ask why is that. What benefit
do they gain? They're by and large not ISPs. Why are they doing this? The reason
they're doing it, is the cable industry is investing tens of billions of dollars
of capital, at risk, to create local telephone competition. To the extent they
can create cost, impose delay, and otherwise create marketplace uncertainty,
they will slow the cable industry down.
And right now, the cable
industry, as far as residential, local telephone service is concerned, is the
greatest hope that consumers will have that facilities-based choice for
telephone service.
REP. TAUZIN: Anybody else would like to throw any
invectives at anybody else? Mr. Haynes might respond. Mr. Pociask. We'll let you
both respond, and then the gentlelady from California. Mr. Haynes first, and
then Mr. Pociask.
MR. HAYNES: Mr. Chairman, are you still restricting
251, or can I say something about line sharing?
REP. TAUZIN: Please do.
MR. HAYNES: The line sharing issue, when I listen to Covad worrying
about being a small company, it sort of gets my attention. Our equity is
somewhere between two and five percent of the equity of Covad, and we're a
privately-held company. Most of that money came from competitive enterprises
since 1983, when we started getting involved in cellular. We provide our own
loops everywhere we provide service. We intend to provide our own loops where we
go. The line sharing is devastating to existing customers, and I just don't get
this, "I'm too small," at their size argument.
REP. TAUZIN: Mr. Pociask,
and then I'll have to wrap this. I need to go to the gentlelady from California.
Your final response.
MR. POCIASK: Two short things. One, we should point
out that it was the FCC that initially denied video dial tone, which was the
ADSL. So, when we say who came first, it was, I believe, Bell Atlantic that had
to go to the Supreme Court to have a right to provide video content over an ADSL
line. So, that's one thing we should point out. The last thing is back to the
initial question. We should point out that if you look at the three days before
the 271 approval in New York to the three days after to see how the stock market
reacted to the business cases.
The CLECs had over a five percent
increase in growth over that period, whereas the long distance and local
incumbents were negative on average. So, I would say that the market won't
blink. There's plenty of growth out there. Thank you.
REP. TAUZIN: The
chair now yields to the gentlelady from California, Ms. Eshoo, and Ms. Eshoo,
I'll be as generous with time as I can be.
REP. ANNA ESHOO (D-CA): Thank
you, Mr. Chairman, and good afternoon to you, my colleagues, and to everyone
that's here to testify. First, I'm assuming that you've done a unanimous
consent. There's been a request for unanimous consent for -- REP. TAUZIN: Yes.
REP. ESHOO: Unanimous consent request for statements to be placed in the
record, and I will place my full statement in that record. Mr. Chairman, I want
to thank you for holding this hearing. It's a very important issue. I'm sensing
that there was some apparent confusion today and some last minute changes
regarding this legislative hearing. Many of us were at St. Peters for the
memorial mass for B.J. Stupak, for the witnesses that are at the table. Bart
Stupak is a member of this committee, and he and his wife lost one of their
sons. So, we joined together over there.
I feel like I'm diving into the
ocean instead of, you know, one of the feeders for this. So, if I'm asking
questions that have been asked before, I don't think very many people really
came to this. We were going to take a break to accommodate that.
REP.
TAUZIN: Will the gentlelady --
REP. ESHOO: What I'm after is another
legislative hearing on this issue when we come back.
REP. TAUZIN: Will
the gentlelady yield?
REP. ESHOO: I'd be glad to.
REP. TAUZIN:
Again, let me apologize to the gentlelady. Our problems basically were
compounded when we had to start 40-some odd minutes late. We have witnesses who
have commitments and time slots at the airport. I could not to anything but move
on. I apologize for that.
REP. ESHOO: I understand. Everyone is
wondering what the two of us are talking about. We had a lovely chat yesterday
on the floor, and there was going to be a break taken, lunch, in quotes, while
we went over for the mass. But, at any rate, thank you, Mr. Chairman, and I look
forward to a continuation of this legislative hearing on this very important
issue. Now, let me get to my questions. To Verizon, and whomever else would like
to jump in. It's my understanding or view from the information that I've
gathered that the 271 process is working. SBC in Texas and in New York. And that
this can indeed work nationwide.
Now that the two applications have been
approved, would you comment on what you think we will have in terms of a
national blueprint in this area? Let me get another question down. I think I
used quite a bit of time with my conversation with the chairman. I'd like to ask
Mr. Khanna from Covad about the court cases. I don't know whether this has been
touched on, but I want to get some of this down for the record. Both PacBell and
SBC have been found guilty of bad acts. Are you still facing collocation
problems, and what's the status of the antitrust cases, and what forced you to
file them? If you could comment on that. And then I have another question. But
let's see if we can get to these first.
MR. YOUNG: Okay. I do believe
that there is a pattern or a blueprint -- a roadmap, if you will, for other
companies to get 271 approved. And the aspects involved, some sort of testing of
your systems to demonstrate that they do operate in a nondiscriminatory way, and
that they can handle the volume of orders placed by competitors over your
systems. Both SBC in Texas and Verizon in New York have demonstrated that. I'm
pleased to report that we plan on filing additional applications this year in
Massachusetts and Connecticut, based on the same blueprint, if you will, that
was successful in Texas.
And it's for that reason, that I believe that
-- you know, initially when the Act was passed, you sort of had the incentive
for Bell companies to get into long distance would open up your markets. What
we're seeing now is we're opening up our markets anyway, and that we now have
the blueprint for the 271. But there's this additional benefit that could be
realized if we had interLATA data relief, and that is, is that we could bring
advanced high-speed services closer to the local communities, provide more
capacity, and you can do that without sacrificing the incentive that's inherent
in the 271 process.
And that's why I was emphasizing the market is a
$100 billion market. The Internet backbone business, if you
will, is only a $6 billion market. So, what we're trying to do
here is preserve the incentives to open up the local markets, which is
happening, while at the same time providing Internet access to others. One
additional point, both SBC and Verizon have been through mergers, and as a
result of those merger conditions, we also have additional incentives to open up
the marketplace. Mr. Chairman, I do want to clarify a comment I made earlier. I
misspoke when I said that part of our merger --
REP. ESHOO: I don't want
you to use my time clarifying. You can do that afterwards. Maybe the chairman
can ask you what you want to clarify. Because I think that I'm getting close to
running out of time. Let me just ask you since you're just finishing up on that.
How does the elimination of line sharing accomplish the purposes of the
legislation?
MR. YOUNG: Well, one of the challenges when you're
deploying high-speed services is there's a lot of innovation involved. There's a
lot of investment in equipment involved. And one of the challenges for companies
that want to deploy this new technology, as well as for regulators in trying to
make sure that things are deployed in an evenhanded way, is how do you permit
companies to benefit from their innovation and from their commitment to
investment while at the same time making sure that markets are open.
REP. ESHOO: Well, I think you're giving me a response and not an answer,
but we'll get to that another time because we're going to have another
legislative hearing on this gigantic issue. Mr. Khanna, can you address yourself
to the issues that I raised?
MR. KHANNA: Thank you. I'd be pleased to
respond. With respect to our court cases, we have several arbitration
proceedings pending with the SBC company, Pacific Bell. In the first instance,
they were found to have engaged in pervasive and fundamental bad faith in
addressing our collocation and other issues. There was a subsequent award of
$27.5 million. That's excluding the attorney fees and costs
that we were awarded.
Our antitrust is currently pending and is set for
trial for September of next year. Our cases against Bell Atlantic, we'd file an
antitrust case, which has continued to proceed toward trial. Their counter
lawsuit against us on patent infringement was dismissed on a summary basis. So,
at this point, it's fair to say that we have won 100 percent of our actions
against the phone companies.
REP. ESHOO: What forced you to file these
cases?
MR. KHANNA: It was a pattern of behavior that we saw, for
example, excluding us from central offices on the grounds that there was no
space, when in fact, we were aware that there was space in those central
offices. So when we don't have access to a central office, we are unable to
provide service to anybody served by that central office. Similarly, we were put
in a position of a price squeeze with respect to the denial of line sharing,
which we now have.
That line sharing does not require any innovation. It
is simply a physical division of the frequencies on the use of a copper wire.
It's plain old copper wire that's been in the ground for about a hundred years.
And we were denied line sharing until the FCC expressly ordered it, and that has
allowed us to serve consumers and bring competition for consumers, and really
bring Covad into the consumer's (face?) in a big way.
REP. ESHOO: Thank
you. And thank you, Mr. Chairman, for your commitment to have a further hearing
on the issue. I appreciate it, and this is -- I mean, where are where we are on
these issues. Some members really haven't made up their minds on what you're
offering legislatively, but I think that we all benefit when many of us are
here. We have some very lively -- it's always lively at your side of the table
because we have excellent witnesses. But we need more members engaged in this,
and I appreciate your commitment.
REP. TAUZIN: I thank the gentlelady. I
would respond that of course we did have a hearing on the issue. It was much
more widely attended, and we had some interesting give and take in that hearing.
But, this is not over yet, but we're certainly well on way, I think, to building
consensus around here. I thank the gentlelady. The chair recognizes the vice
chairman of the committee, Mr. Oxley, for a round of questions.
REP.
MICHAEL OXLEY (R-OH): Thank you, Mr. Chairman. Mr. Khanna, is this your map? Is
this a part of your testimony -- the map of Ohio showing the services of SBC and
non-SBC?
MR. KHANNA: I believe it is.
REP. OXLEY: And I'm not
quite sure exactly where this is, but it's my understanding that this map would
indicate that the Bell companies don't serve areas like my home county of
Hancock. And it's my understanding -- well, I know that, because I've seen the
articles in the paper, that Ameritech serves Findley (ph) and our neighboring
communities, many of them rural. And, in fact, Ameritech is installing D-SLAM in
order to provide DSL service this year. Was your testimony prepared before that
was the case?
MR. KHANNA: I'm not exactly certain as to when Ameritech
was rolling out its -- or SBC were rolling out their D-SLAMs (ph) in those
central offices. But I do know that in most markets, we have been forced to
market prior to the incumbent offering their DSL services from those central
offices.
REP. OXLEY: Well, as you know, Findley and Springfield in Ohio
are separated by an interLATA barrier. And with the passage of this legislation,
Ameritech would be able to combine high-speed services and equipment in Findley,
and also be able to efficiently provide new services in Springfield, which is
probably about 65 or 70 miles south of Findley. And if indeed Ameritech were
able to do that, wouldn't that open up the market then for Covad to provide DSL
competitive services in Findley and Springfield?
MR. KHANNA: I believe
the markets are currently already open to Covad. The markets would be open to
the incumbents as soon as they comply with the 271 process, which is frankly an
area where we'd like to see them comply. And it's a disappointment, frankly, to
us that only two of the incumbents have in fact complied, and have demonstrated
compliance with the Telecom Act. We'd frankly like to see more of them do that.
REP. OXLEY: What kind of base of service do you have in those regions I
mentioned?
MR. KHANNA: My understanding of our standard configuration
for our D-SLAM services to afford at least five versions of DSL service. We
offer not only ADSL. We also offer SDSL services, which is a symmetric DSL
service. So we offer our customers a menu of DSL services that is far more rich
than the range of services afforded and offered by the incumbents.
REP.
OXLEY: And where are those services available?
MR. KHANNA: I don't have
a detailed list in front of me. That list is being revised every day. We are
opening up new central offices. My belief is that we are today offering service
in terms of in Columbus, Cincinnati, Cleveland, and Akron. Those are definitely
--
REP. OXLEY: Those are all urban areas.
MR. KHANNA: We provide
service both in the urban areas, as well as the suburbs, and going into -- is
what we sometime be called rural areas. In fact, we have an IDSL service, which
allows us to serve our customers that are served by long loops. In rural areas,
for example, you will typically have a customer --
REP. OXLEY: Well, in
these rural areas that are apparently the white parts of the map, what part of
those, particularly in northwestern Ohio, do you serve?
MR. KHANNA: It
would depend on which point in time we're talking. Currently, for example --
REP. OXLEY: I'm talking about right now. It reminds me of the story
about people asked Yogi Berra what time it is. He said, "You mean right now."
MR. KHANNA: That's a fair comment. Our business is changing. We are
expanding very, very quickly. But at this point in time, I am aware that we are
offering service in Columbus, Cincinnati, Cleveland, Akron, both in the urban
and suburban areas.
REP. OXLEY: Okay. Well, that's pretty urban and
suburban. This issue is rural, of course. Let me turn to Mr. Cali. Mr. Cali, by
your estimation, by how long did the litigation that followed passage of the '96
Act set back the process of opening local and long distance markets to
competition?
MR. CALI: It is difficult to estimate and it is continuing
to set back, to some extent, local competition. There was an 8th Circuit order
recently concerning the pricing methodology. And that is one of the problems.
The marketplace needs certainty to invest. There was extensive litigation
following passage of the Act. We have started to move beyond that. As I said,
there's a recent 8th Circuit decision which introduces more uncertainty and more
concern currently.
REP. OXLEY: But you say there's still some vestiges
of that litigation still hanging out there.
MR. CALI: Right. It is being
resolved as we move forward, but there is still some vestige.
REP.
OXLEY: Mr. Young, GTE was never subject to the long distance restriction, as you
know, under the MFJ for Section 271. In the wake of your companies merger with
GTE, Verizon now serves a substantial portion of my district, including Marion,
Wyandotte, and Hancock counties. As a matter of fact, GTE has a substantial
presence in Marion, as you know. What steps is or will the newly emerged company
be taking to offer high-speed data service in those areas?
MR. YOUNG:
Well, we have a DSL offering underway in those areas. We have signed, despite
the fact that there is no 271 requirement hanging over GTE, GTE has signed over
1,400 interconnection agreements nationwide. So the point is, is that our
markets are open. Mr. Khanna was able to use them to get inversed, as he so
noted.
REP. OXLEY: But precisely because we don't have that concern, my
question was specifically to those areas. And it seems to me that despite the
litigation and all of the stuff that went on, you lost a lot of time in
providing high-speed Internet access service to those particular areas, did you
not?
MR. YOUNG: Yes, we did.
REP. OXLEY: And you're trying to
play catch-up now, hopefully?
MR. YOUNG: That's correct. Yes.
REP. OXLEY: Thank you. I yield back.
REP. TAUZIN: I thank the
gentleman. The chair will recognize himself for another round, and I believe Mr.
Dingell is on his way down, and I know he wants to engage you all as well. So,
we'll keep this going a little longer. Let me turn to the question of capacity
of the broadband networks. And, Mr. Cali, I want to talk with you just a second
about that. Two studies done by AT&T's own engineers entitled, "Internet
Growth: Is There Moore's (ph) Law for Data Traffic," which were done July 11 --
came out July 11, 2000 -- points up the need for, indeed, a great deal more
backbone capacity, simply to make sure we don't face this serious backup.
And this is the observation your own studies make, quote, "The
conventional wisdom is that the exploding increase in Internet traffic is the
main driver of the expansion of the networks -- the backbone networks." It also
seems to be implied that the ever increasing capacity of WDM, wavelength
division multiplexing systems, both in terms of the number of channels and the
individual channel rates, coupled with the forecasted fiber glut, will result in
the national networks being easily able to accommodate whatever growth rates the
Internet throws at it.
We do not think the carrying capacity of the
network, at least the long haul national backbone networks, can or will grow to
accommodate arbitrary traffic growth rates. And here's the real kicker. In fact,
we believe that if traffic grows by factors of more than two or three times a
year for any sustained period, the transport backbones are likely to become a
serious bottleneck. The point again is that with the ever increasing growth rate
of broadband usage that is predicted, if in fact we have this explosive growth
once Americans feel the full capability of broadband -- once, in fact, video
becomes part, as it appears to be real soon to be a part of the broadband
Internet systems, your own studies indicate we're going to be in trouble. We're
going to have real problems with capacity.
And your own studies seem to
indicate that the more players out there investing in backbone, the more likely
the whole systems are going to work better -- yours, as well as the systems that
your competitors in this marketplace will need in order to give all Americans
full access to full backbone marketplaces. What's your comment about, again,
your own studies in that regard?
MR. CALI: Let me say that I am
unfamiliar with the specifics of those studies, but we do know that there are
more than 40 Internet backbone providers. This year and next, six new networks
are coming online that represent an $18 billion investment.
Capital has been pouring into the industry. And the reason it's been pouring
into the industry, and the Congress should be very proud of this, is because of
the framework and certainty provided by the Act. We believe the growth will
continue if we have the marketplace certainty we need and we rely on the
competitive market to drive investment.
And the final point I would make
is the point I made in my opening statement, that we should recall that the Bell
companies are currently affiliated with Internet backbone providers, and it is
not at all clear if this act would drive more deployment than those affiliates
are currently providing.
REP. TAUZIN: We also seeing in those studies an
indication that all of this there are controversies about how many POP's exist
and how many of these POP's are fully capable at high speeds depending upon on
who's definition of high is. And we all hear different definitions of it.
We're told that there are an average of 17 router hops on Internet
connections today. That's an indication that the so called POP's, if there out
there, there not as connected to as many ISP backbones and there not certainly
as close to where the users live. What is your comment about that statement?
MR. CALI: Well the point and the point we make with our map will be more
then a thousand POP's being deployed is, what is relevant for a customer to
access a high-speed node that would deliver traffic and data to the Internet at
high-speed. And that seems to be the most relevant measure to whether customers
dispersed across the country can get access to the Internet at high-speed.
REP TAUZIN: Well the point the studies made, the point we're seeing here
is that capacity, supposedly widely available, is in fact strained, and that
ironically your own studies seem to back that up.
And let me turn
quickly to Mr. Pociask. If that is correct, if AT&T's studies about capacity
being strained, if the reports that we have of (robber pops ?) and strained
conditions and lack of interconnections to those POP's are true, and yet the
demand is there for these services, are we facing a problem for consumers where
a few companies own the only backbone that's available and the backbone ain't
enough to get around.
MR. POCIASK: The observation that there are
shortages is typical of what you would see in something that -- a cartel or
legopoly in the sense where you have limited supply and higher prices as a
result. I should direct you to PR News, December 6th, news report that AT&T
announced an agreement with three telecom companies to construct 16,500 miles of
fiber to an existing 30 cities.
It wouldn't be there if, they wouldn't
be building this if there wasn't a shortage. I think what we're seeing is that
there is a lot of demand out there and it is important that we get some supply.
REP. TAUZIN: As a final question, Mr. Ellis, would you like to respond
to Congresswoman Eshoo's concerns with the Pack Bell and SBC problem?
MR. ELLIS: Thank you, Mr. Chairman, I would. I would point out that SBC
has well over 2,000 inter-connection agreements across the country with
hundreds, literally hundreds of carriers. In the almost five years since the act
is passed, we have this single arbitration decision in California that was
adverse to us. That's on appeal, we're in the courts challenging it. I am
hopeful that it will be set aside.
But I believe when you look at our
record of the thousands of transactions that have taken place with countless
carriers, in Texas alone for instance, we have almost 400 carriers,
interconnection agreements, interactions all of the time. We have a record we're
proud of in meeting our obligations under the act. I regret deeply that the
arbitrators reached a different conclusion; we are on appeal, and I am hopeful
that we will eventually prevail. Thank you, Mr. Chairman.
REP. TAUZIN:
Thank you, Mr. Ellis. The Chair yields to the ranking minority member, Mr.
Markey, for a round of questions.
REP. MARKEY: Thank you, Mr. Chairman.
Mr. Ellis, do you believe that Mr. Tauzin's Bill is a Bill of attainder?
(Laughter)
MR. ELLIS: No it's just testimony. (Laughter)
REP.
MARKEY: We're going to check from now on, you know, the last time SBC they were
encouraging us to pass the bill and then they sued on us so, is it a bill of
attainder a no? (Laughter) So we rule that out?
MR. ELLIS: Unfortunately
we lost that one, Congressman.
REP. MARKEY: Yeah that's what I'm saying,
that's what I'm wondering about. I mean how many...
REP. TAUZIN: The
Chairman is a bill of attainder. (Laughter)
REP. MARKEY: Good question.
Now, Mr. Ellis, Mr. Young, both of you have statements in your testimony on the
first page that I would like to read and ask you a question about to get to the
heart of your philosophy.
Mr. Ellis, on the first page of your testimony
you say, all service providers should be subject to symmetric regulator
requirements.
And Mr. Young, you state, however, that policy makers must
avoid applying old regulator models to an entirely new competitive technology.
So my question to you guys is, how these statements reflect on whether there
should be per minute charges, access charges, on Internet telephone calls, IP
telephony.
Should we treat everyone the same and apply such charges to
Internet calls, (forbear ?) from applying them to a new competitive technology,
or take the opportunity to revamp the old blotted access charge regime that
today exists and deregulate charges and drive out historic subsides? Which way
would you go on that?
MR. ELLIS: Well, Congressman, the first point I
would say, our basic position is in competitive markets there shouldn't be any
regulation by government rates and terms and conditions. That is the threshold
point. But to get to your point --
REP. MARKEY: So you would agree to
get rid of those subsidies then? No longer would the government be able to
protect.
MR. ELLIS: No, my position is, the government can have it
either way. Either you can have a deregulatory regime and that's fine, if you're
going to have pervasive regulation. The fact is there are subsidies that are
reflected in those access charges that are not reflected in local rates.
In Texas, our local rate after 110 years is less then
$10 dollars. No one would contend the local rate, the cost, is
ten dollars. It's $20, $30, we could argue
about it but it is substantial. The difference between the $20
dollar rate and the $30 dollars of cost, in round numbers, in
our jurisdiction, in Massachusetts, everywhere, there is different levels of
subsidy. It's not something that we dreamed up, it was a public policy.
REP. MARKEY: So would you get rid of the -- so you would keep the old
access charges. Would you have access charges for IP too?
MR. ELLIS: No,
I'm saying, I'm comfortable, let's go to a deregulatory model. Fine, let's do
it.
REP. MARKEY: But get rid of the old access charges.
MR.
ELLIS: That's fine, get rid of them.
REP. MARKEY: (Cross talk) -- takes
a low but your being subsidized, would you get rid of all those subsidies coming
from the competitive companies or?
MR. ELLIS: The system that you all
put in place was supposed to get rid of those subsidies called the Universal
Service. We've been waiting for five, almost five years for that to happen.
We're not here to argue for subsidy. What we're here to say that lets have
deregulation's but what I submit the country is not ready for is to have a local
rate in my state of Texas to go for $9.85, which it is on
average.
REP. MARKEY: Will you help us get rid of those subsidies that
are built into the system for the local companies.
MR. ELLIS: The FCC
was charged by...
REP MARKEY: Okay, do you support us in that, getting
rid of subsidies?
MR. ELLIS: I would support the rationalization of the
subsidies, absolutely.
REP. MARKEY: All right, that's important. Let me
ask one final question and I'm sorry, Mr. Young, I don't want to take up to much
time. But there is a lot of emphasis being placed into the base on getting
broadband services to rural America. Something on which I am not as familiar as
I am with urban and suburban America.
The Telecom Act is working quite
well in fact in urban and suburban America. I don't think there is any debate
about that; it does work there. But critics of the Telecom Act allege that
competition and high-speed capability lag in rural communities.
My
question is, how much of this alleged problem is that the Bell companies have
not been permitted long distance carriage to and from those rural communities?
How much of it is due to a national time line for growing competitive
alternatives to grow out into rural America? And how much is due to the fact
that the Telecom Act actually exempted rural communities from competition at the
request of the rural members here in congress? That is something that I
acquiesce to because that was a request made to me. Mr. Young.
MR.
YOUNG: Well, the issue of service to rural America has historical roots in how
companies choose to deploy service based on the ability to recover those costs.
And obviously there has been a system of subsidies that is designed to make sure
that rural America has had voice grade telephone service.
Now the
question arises as we get to high-speed service, how should we make sure that
the rural America is connected. And the interesting thing here is that this bill
helps because the local companies already have those little inner office
facilities that are needed, the state roads, the on ramps, the access roads,
they are already in place to provide local service. So it is just a question of
turning them on to cross the latta boundaries to provide high-speed data
service.
Let me give you an example. Charleston, West Virginia there was
no high-speed POP. Customers in West Virginia came to us and said, can you
provide the service? Well Pittsburgh is the nearest high- speed Internet
facility so we asked the FCC for permission to cross the latta boundary to go to
Pittsburgh to hall the facility back into Charleston. That was a 706 request
that you all authorized us to ask.
What happened at the end of this
situation is that faced with this request, suddenly where no inter-exchange
carrier had offered in the past offered to provide the service, suddenly wanted
to appear. And the FCC said, oh well there is someone here to do it and so they
denied our petition.
Now the fact of the matter is, if that's the way
we're going to deploy high-speed data or data services in rural America, I think
that that's unacceptable. That we have to wait for someone to come in and
provide it when in fact we have the facilities already in place and can do it
much cheaper. So I think that the time is now, I think that in the context of
this bill it's appropriate to make that narrow exception to allow us to do it.
REP. MARKEY: Thank you. Mr. Khanna could you just respond to this
question.
MR. KHANNA: I'm itching to respond. If the rural area is
served by a Bell company, I have no problem because I can go in there and
compete with them. So, just as we have brought competition to urban and suburban
areas within the Bell operating companies, we will do that. So I submit to you
that this bill has it backwards, which this bill should eliminate the exemption
for rural carriers because you can rely on competition.
And we have
demonstrated -- I stand on our record, 40 percent today, 50 percent by the end
of this year, 75 percent by the end of next year, and on, there on. So, my point
is competition in the Telecom Act will bring competition to the Bell operating
area that include the rural areas, but will not reach the areas from which I am
excluded, which are the areas that are exempt under the existing law.
MR. TAUZIN: I thank the gentleman. The Chair recognizes the gentleman
from Michigan, the Ranking Minority Member of the full committee for a round of
question.
REP. DINGELL: Thank you, Mr. Chairman.
This question
is for Mr. Cali, yes or no. Your company AT&T provides high-speed Internet
service using cable modems, yes or no?
MR. CALI: Yes.
REP.
DINGELL: Mr. Ellis, your company, SBC, provides high-speed Internet or DSL using
telephone wires, yes or no?
MR. ELLIS: Yes.
REP. DINGELL: And,
Mr. Young, is that true in your case?
MR.YOUNG: Yes.
REP.
DINGELL: Now, Mr. Ellis, I understand there, this again is a yes or no. I
understand that there my be differences in the relative technologies but these
are functionally equivalent services, are they not?
MR. ELLIS: Yes.
REP. DINGELL: Mr. Young?
MR. YOUNG: Yes they are.
REP.
DINGELL: How about you, Mr. Cali? Yes or no?
MR. CALI: I hesitate to
answer yes or no only because I know that many of the Bells or at least one of
the Bell's is currently in an ad campaign competing with cable modem service,
pointing out the differences.
REP. DINGELL: Can't you just give me a yes
or no answer?
MR. CALI: They do both provide high-speed Internet access.
REP. DINGELL: Pardon?
MR. CALI: They do both provide high-speed
Internet access, yes.
REP. DINGELL: And you do too. Functionally
equivalent?
MR. CALI: To my knowledge, you know, I hesitate to say
functionally equivalent" we're a shared medium, their not a shared medium.
REP. DINGELL: Functionally equivalent?
MR. CALI: But it is
high-speed Internet access.
REP. DINGELL: Same services, the same
people? Can you tell me why -- is there a reason why AT&T has such great
difficulty in answering a question yes or no?
MR. CALI: Because I am
unsure of the meaning of "functionally identical".
REP. DINGELL: Mr.
Pociask, do you agree?
MR. POCIASK: I think they are functionally
equivalent.
REP. DINGELL: Okay, now, lets look at the regulatory
situation here. Mr. Ellis, your company is subject to interconnection
obligations with competitors when it provides high-speed Internet services, yes
or no?
MR. ELLIS: Yes.
REP. DINGELL: Is that true with regard to
you, Mr. Young?
MR. YOUNG: Yes it is.
REP. DINGELL: Now how
about you, Mr. Cali, is that true with regard to you?
MR. CALI: Yes.
REP. DINGELL: It is?
MR. CALI: I'm sorry, can you repeat the
question? (Laughter)
REP. DINGELL: The question is, your company is...
MR. CALI: Make sure we're right. (Laughter)
REP. DINGELL:
AT&T, let me say, your company is subject to interconnection obligations
with competitors?
MR. CALI: Oh, I'm sorry. No.
REP. DINGELL: It
does not. Then, yes or no again, AT&T is subject to the same obligations to
interconnect with competitors when it provides high speed Internet service using
cable modems?
MR. CALI: No.
REP. DINGELL: No. So I guess I'm
coming to the conclusion that you're treated differently then these other two
companies, is that correct?
MR. CALI: That is correct.
REP.
DINGELL: I see. Now, Mr. Ellis, is DSL required to be sold to competitors as
wholesale rates that are determined by the FCC?
MR. ELLIS: Yes.
REP. DINGELL: Ah, Mr. Young, are you subject to the same burdens?
MR. YOUNG: Yes we are.
REP. DINGELL: Ah, Mr. Cali, are you
subject to those burdens at AT&T?
MR. CALI: No we are not.
REP. DINGELL: Mr. Cali, is AT&T required to sell it's cable modem
service to competitors at wholesale prices or does the free- market dictate your
companies choices in this regard?
MR. CALI: It is free-market.
REP. DINGELL: Free-market. Mr. Ellis, are Bell companies required to
unbundle their networks and lease out pieces or parts to competitors at cost
based rates for the purposes of providing high- speed Internet service.
MR. ELLIS: Yes.
REP. DINGELL: Is that true with your company,
Mr. Young?
MR. YOUNG: Yes it is.
REP. DINGELL: Mr. Cali,
AT&T is not subject to similar obligations under the law is it?
MR.
CALI: That is correct.
REP. DINGELL: Now, Mr. Cali, H.R. 2420 would
provide a level playing field between telephone and cable companies by
deregulating high-speed Internet services offered by both types of companies, is
that correct?
MR. CALI: No, I do not believe it is, sir.
REP.
DINGELL: You don't? Well I guess AT&T is again incapable of a simple yes or
no answer. What is the answer to that, Mr. Pociask?
MR. POCIASK: H.R.
2420 will put the different services on the same playing field.
REP.
DINGELL: Put them on the same playing field. Do you agree with that, Mr. Cali,
yes or no?
MR. CALI: The reason I am not going to give you a yes or no
is because we have different facilities, different context, different
industries.
REP. DINGELL: Please, I have a limited time and I want to
help you because you have great difficulty in answering my questions.
And what I am trying to find out is, would H.R.2420 put AT&T and the
former baby Bell's on a level playing field?
MR. CALI: My concern is
that we are comparing different networks, different histories, and I do not
believe it would be a level playing field.
REP. DINGELL: But you are
providing identical service?
MR. CALI: We are both providing high-speed
Internet access. Other carriers are also providing high-speed Internet access.
REP. DINGELL: Functionally identical services?
MR. CALI:
Congressman, the issue is this.
REP. DINGELL: Functionally identical
services, we've already agreed on that.
MR. CALI: The point I made
earlier was that the Bell companies...
REP. DINGELL: Mr. Cali, I think
you're a fine fellow, but is it impossible for you to just answer these
questions simply rather than advocating the matters? Now lets go back...
MR. CALI: I think it is more complex, Congressman, and that is my
concern. There were two points that I made earlier that were worth noting.
REP. DINGELL: I'm sure it is but if you don't mind I'll ask the
questions. Now, Mr. Cali, do you think that existing regulatory mandates on
telephone companies are necessary to ensure competitive roll out of broadband
services to consumers?
MR. CALI: Yes.
REP. DINGELL: You do. Now,
if regulation and high-speed Internet services results in these benefits would
not the same benefits flow to the public if these regulations are also applied
to cable companies offering similar services?
MR. CALI: They would not
because of the different history and different context.
REP. DINGELL:
Now why do you say this? What is the difference between telephone and cable, and
what is the difference between AT&T when they offer a service and the
service is offered by Mr. Ellis and Mr. Young's companies?
MR. CALI:
There difference is -- there is a couple of basis for the difference, sir.
REP. DINGELL: One of them is clear to me and that is it gives your
company and economic advantage. I'm sure you wish to hold on to that, but what
are the other differences?
MR. CALI: In implementing the act the FCC has
gone to great lengths to ensure that the Bell companies, when providing advanced
services and facilities, enjoy the same flexibility as other carriers providing
those same advance services.
REP. DINGELL: You are having great
difficulty giving me a simple yes or no answer, or a simple...
MR. CALI:
I am because I believe the issue is more complex.
REP. DINGELL: I'm sure
that you're happy to make it so, but to me you have a service which is offered
by AT&T, one which is offered by SBC, one which is offered by Verizon's...
MR. YOUNG: Verizon. (Laughter)
REP. DINGELL: They are also --
REP. TAUZIN: Would the gentleman yield? Would the gentleman yield for a
second? We went through an extensive...
REP. DINGELL: I appreciate that,
I appreciate that, Mr. Chairman. It is always difficult to function in the face
of obstination.
REP. TAUZIN: I was just saying, even before any of that
began, we had trouble with Verizon, so I just wanted to make the gentleman aware
that we have agreed on the pronunciation is Verizon.
REP. DINGELL: I am
not a defender of anybody; nor am I a defender of obstination.
REP.
TAUZIN: But let me ask unanimous consent here. The gentleman's time has expired,
does the gentleman wish to proceed?
REP. DINGELL: I would. I'd ask two
minutes to assist Mr. Cali who is having great difficulty.
REP. TAUZIN:
Is there any objection? The gentleman is recognized for two additional minutes.
REP. DINGELL: Now, Mr. Cali, what is the argument for giving different
treatment to SBC, Verizon...
MR. YOUNG: Verizon.
REP. DINGELL:
... Verizon, and AT&T?
MR. CALI: Okay the argument is this...
REP. DINGELL: Why shouldn't the same service to the consuming public be
priced the same way to all of the above?
MR. CALI: Four years ago the
Congress imposed certain obligations on incumbent carriers in an effort to erode
their monopoly. A near century old resilient monopoly that persist till today.
The FCC in implementing those rules has attempted to reduce the regulation where
it relates to advance services and facilities, but has continued to adhere to
the requirements of the act in an effort to open the local markets to
competition. That is an important public policy goal that is worth adhering to.
REP. DINGELL: Mr. Cali, you only got two minutes and you have used a lot
of it. You do have, essentially, a monopoly on cable do you not in this country?
MR. CALI: No we don't. We do not agree with that.
REP. DINGELL:
In the markets you serve you do, don't you?
MR. CALI: In the markets we
serve there has been -- there is a strong public policy to introduce competition
for cable and I would submit that public policy is far more advanced then for
local telephone service.
REP. DINGELL: What's your market share for
cable in the markets you serve?
MR. CALI: In the markets I serve I do
not know, I could give you an overall.
REP. DINGELL: It's on the order
of 100 percent.
MR. CALI: No that isn't correct. Over -- the satellite
industry has taken 15 to 20 percent of the multi channel video distribution
market.
REP. DINGELL: Eighty-five percent then?
MR. CALI: That
is correct and the satellite industry is winning two out of three new customers.
REP. DINGELL: Alright, my two minutes is rushing towards expiration. Mr.
Pociask, you're a man of enormous patients, your sitting next to that nice Mr.
Cali and I know that you and I both want to help him. We have this awkward
problem that Mr. Cali is offering an identical service to that which is offered
by Mr. Ellis and Mr. Young and also by cable people in other parts of the
country and also by other carriers.
Is there any reason why these all
ought not be treated the same way for regulatory purposes?
MR. POCIASK:
As I pointed out in my oral testimony today, because of the price sensitivity,
if you impose a cost on these services you will have a big drop off in
subscribership. So it is no surprise that cable modem service commands almost 90
percent of the market today. I think the answer is to have a level playing
field, to have these services go head to head. I really hope cable modem service
does well.
REP. DINGELL: The consumer benefits from this doesn't he?
MR. POCIASK: Absolutely.
REP. DINGELL: And if the playing field
is slanted a little bit towards Mr. Cali, Mr. Cali has a huge benefit doesn't
he?
MR. POCIASK: That's right...
REP. DINGELL: And that comes at
the expense of Mr. Ellis and Mr. Young and at the expense of the consumers,
isn't that right?
MR. POCIASK: My concern is the consumers that's right.
REP. DINGELL: So it therefore explains why Mr. Cali likes this situation
so well that he and his company are deriving an immense benefit at the expense
of consumers and at the expense of there competitors, isn't that right?
MR. POCIASK: I can't speculate for his motives but...
REP.
TAUZIN: The gentleman's time has expired again.
REP. DINGELL: Thank you,
Mr. Chairman and thank you, Mr. Cali.
REP. TAUZIN: I thank the
gentleman. The chair would ask any other members who would like a second round.
The gentlelady -- let me first ask the gentleman from Texas would you request a
second round, Mr. Green? The gentlelady from California.
REP. ESHOO:
Thank you, Mr. Chairman. I want to go back to some of the things our colleague,
Mr. Markey, was exploring. I just switched this switch to have my microphone go
on. Let's just pretend that we flipped the switch and the legislation that's on
the table is law right now. Let me ask the Bell people, what's your plan for
rural America and when would it be implemented?
MR. ELLIS: We have a
plan that by 2002 we'll have service to 80 percent of our customers. If this
legislation passes...
REP. ESHOO: When you say customers, who are they?
Identify them.
MR. ELLIS: Well our customers are in rural, and urban,
and...
REP. ESHOO: I'm not talking about urban and I'm not talking about
suburban. See the reason that I raise this and this is one of the things that
I've grappled with in this whole discussion of broadband is that when anyone
comes to the congress and says, do I have a deal for you.
Where
constituents in rural America, and there are many members of congress that have
totally rural districts or some parts of their district are rural. So your
automatically going to get their ear because, of course, they want their
constituents to enjoy the best of what another congressional district already
has. And so it kind of puts a hook in them and every American goes for open
verses closed.
So these are very powerful words that are used relative
to this whole argument. I don't think this argument is really about the Internet
because, believe it or not, the World Wide Web was up and we knew an awful lot
about the Internet when we passed the Telecom Act, but very specifically we
flipped the switch, what do you have for rural America? What are you going to
do?
MR. ELLIS: Ma'am...
REP. ESHOO: What's the plan?
MR.
ELLIS: The plan is, NTIA has a study that says, 5 percent of the rural
population has access to high-speed advanced services (cross talk)
REP.
ESHOO: I want to know what your going to bring to them because, remember, we
flipped this switch now, this legislation is law and the promise of this
legislation is to bring something to rural America because their not getting it.
Tell us what your going to deliver and by when.
MR. ELLIS: What we will
do is take the six billion dollar investment that we are making and use that
money more efficiently to expand, to go into areas that we cannot afford to do
it, it does not make financial sense to cover that other 20 percent.
REP. ESHOO: If you can't afford to deliver it today, why is it that you
can deliver it because we just flipped the switch?
MR. ELLIS: Well I'll
give you a specific example. Congressman Oxley was mentioning Ohio. There are
eight lattas in Ohio, eight. That means we cannot combine demand across those
latta boundaries. Today, under our plan, under the law we would have to put
eight switches, eight ATM switches, eight Internet hubs, in each latta, each one
would have to have one.
If you pass this piece of legislation we will be
able to follow conventional networking plans, the same that our cable
competitors can plan and probable get by in Ohio with maybe two. By doing
conventional engineering that saves money, lets us build out, lets us close that
gap then give to the customers in our areas the opportunity to have, not slow
speed but high-speed access.
REP. ESHOO: Can you, ah, let me just --
excuse me. Can you give to us, to members of this committee, your plan for rural
America? The rural communities so that we can see how the promise will be kept.
Because, you know, being at this side of the table I'm very sensitive about
advertising, about marketing.
We are in the marketing and in the
communications business at this side of the day as well and I really want to
pull back the layers of onionskin here. I want to test what the promise is from
your part. You can convince members that you're really going to do what you're
promising to do then it becomes something else. I'm not convinced of it, I
really am not.
And when you say rural, I'm not talking about the
businesses, I'm talking about the homes that are way out in the middle of
nowhere. I mean, what do you have for Turlock, California and Tulare and the
backwaters of Bakersfield? I mean, I'd really like to know that, I'm just naming
off some communities in California.
I'm not convinced of that, I think
that this is under the guise of something else, myself. Because you haven't --
you didn't even do what you were supposed to do, what you signed off with in the
Telecommunications Act. That is where you lose me, that's where you lose me.
There was a checklist, you all came to town, you lobbied for God knows how long
and you never -- and as soon as the ink was dry, you sued on what you agreed to.
Now I don't know where your competition is in the local market with what
you promised before you get into the long distance. You didn't even do that.
MR. ELLIS: May I tell you?
REP. ESHOO: Well, I don't know, I
think my time is running out, I see a red light. You have time to talk, I don't.
So yes you can respond to that. But I really want to press on this rural...
REP. TAUZIN: Will the gentlelady yield a second?
REP. ESHOO: ...
because I don't see it and there are valid references to it and yet that's what
the advertisement to the bill is.
REP. TAUZIN: The Chair would ask the
gentlelady to yield for just a second. I am going to extend the time to the
gentlelady because I would like for everybody to have a chance to respond that
wants to. We're going to have some problems with witnesses having to make plane
connections and I want to let you all know, if you have to leave kind of raise
your hand and let me know, I don't want any of you to miss that. The gentlelady
has asked if anyone else wants to respond. Mr. Haynes, please.
MR.
HAYNES: Mr. Chairman, thank you. Congresswoman Eshoo, I'd like to tell you what
we plan to do in Rosset County. We intend to compete with Pacific Bell / SBC
with high-speed wireless to residences, initially starting with businesses, with
closer in, new businesses don't start up immediately but we have a county wide
license, we are a CLEC (ph) in the state of Washington. We provide high-speed
data services in the state of Washington.
I have built a network that I
could show any member of the committee how line sharing could devastate
incumbent customers who don't use high-speed data. And I cab show you, ma'am,
how we can provide competitive high-speed data services.
Two things are
going to happen if H.R. 2420 passes. The Internet will become more valuable. I
have a cable modem on my desk at my office, a DSL at my home and I still get
bogged down because of the state and county links that don't work. This improves
the state and county links. And the rest of us, my 800 and some peers as small
companies, are itching to get the competitive ball further rolling; we've
already started it. And I thank you for the opportunity to comment.
REP.
TAUZIN: Anyone else? Mr. Young, Mr. Cali?
MR. YOUNG: There are two
phases to the rural -- or two parts to the rural issue. As I mentioned before,
all of our offices today are interconnected with fiber, but we have to
artificially constrain traffic across latta boundaries. So the day that you flip
the switch and we have the legislation, we can flip the switch and end those
constraints so that that provides more high-speed data, more interconnectivity.
So day one there is a benefit when this bill passes.
Then my colleague,
Mr. Ellis, points out the other piece. And by the way, Verizon has more rural
customers then any other local telephone company so this is a very real problem
for us, is we can now do the, sort of, regional planning.
Congressman
Markey mentioned New England Tel, well that is an operational entity that has
historically has planned its services as a regional group. So that for example
there might be a hub in Massachusetts, there might be a hub in Maine or New
Hampshire that is used to serve the whole region. Again, because of the inter
latta restrictions we can't engage in that sort of regional engineering that
historically we have been able to do for local telephone service.
In
Charleston, West Virginia, which now we have to go to Pittsburgh, it's an inter
lateral link, in order to provide high-speed service, we could provide those
kinds of services. So there is sort of two pieces, what we can do today and then
what we can do as a result of the planning that we could now do without the
inter latta restriction.
REP. TAUZIN: Mr. Khanna wanted to respond.
MR. KHANNA: The first point that I'd like to make is that the FCC and
the six billion-dollar investment has to do with remote terminals. This is in an
area between the central office and the customer preemies; this has nothing to
do with ATM switching which is what Mr. Ellis was talking about.
I also
want to talk about what Covad is doing today. Our idea of self-service goes the
distance. It goes five miles, six miles, beyond that. So we are able to provide
service to our customers in Half Moon Bay, in Santa Cruse, people who are
commuting into Santa Clare who software developers hour and a half from Santa
Cruse, regardless of the distance they are from the central office. And they are
able to get IDSL service from Covad today.
None of the incumbents, rural
or urban or suburbs and none of the Bells, not GTE offers IDSL service in
combination with our high-speed service. That is an innovation that Covad has
brought to the marketplace. Other CLEC's have copied us but we have brought that
innovation to people who live in remote locations who are not close to the
central offices today.
REP. ESHOO: Mr. Chairman, can I just ask one
quick follow up question?
REP. TAUZIN: The gentlelady certainly may;
would you like to let all of the witnesses respond first to your first question
or...?
REP ESHOO: I'm dying to ask this one.
REP. TAUZIN: Go
ahead.
REP. ESHOO: Now what happens to what you just described if,
again, we flip the switch, this bill becomes law. What happens to you and what
you just described?
MR. KHANNA: Two things happen. One our ability to
co-locate in central offices in rural areas rapidly diminishes because the cost
of caseless co- locations is much lower then the cost of case co- locations.
Secondly, we would lose line sharing. Line sharing is nothing but
unadulterated, 100 percent consumer benefit. There is no negative impact to any
consumer from line sharing because if there were the incumbents would not have
deployed it themselves. The consequence of denying us, taking line sharing away
from us, which is a consumer benefit we are providing today, would be to
adversely effect consumers in urban, suburban, and rural America.
REP.
ESHOO: So, Mr. Ellis, why do you want to snuff him out?
MR. ELLIS: That
is absolutely not the case.
REP. ESHOO: Well, I mean, that's what he is
suggesting.
MR. ELLIS: Well he's wrong.
REP. ESHOO: I'm just
paraphrasing.
MR. ELLIS: Well he's wrong. Let me just address line
sharing for just a minute so everyone understands. First of all our position on
line sharing is simply this, for a long time Covad and every other carrier can
take the loop from the local company, put voice and data on it just like we do.
They've had that right and nothing here is going to change that. This piece of
legislation does not change it.
What Covad and other companies do not
want to do, they don't want to offer the voice piece, the less attractive piece.
So when they talk about line sharing it's, they want to take the line that we
provide the voice on and while we provide the voice, in my example the
$9.85 voice line in Texas the one that is subsidized, they want
to then put their data on it. That's what they mean by line sharing. Our
position on that is, as far as we're concerned they can continue to do line
sharing. We are committed to that and we will let them keep doing line sharing
regardless of what happens with this piece of legislation.
REP. TAUZIN:
We're going to run out of time because we have a vote on the floor. Let me
recognize the gentleman from Massachusetts for closing comments.
REP.
MARKEY: Thank you, Mr. Chairman, very much. First of all I want to congratulate
SBC and Bell Atlantic for their success in Texas and in New York. Much like
George Bush and Al Gore, your both going where the electoral college piles up
the most -- (laughter) -- credit for industry and for Presidential Candidates.
And I expect that by this time next year we will see a lot more success in those
delegate rich electoral states.
I think that it is most likely that at
the end of the day we will come back here in a year and we really will have a
rural issue because you each have a stake in solving the large state issues, you
know. Like Presidential Candidates you just don't tend to spend as much money in
those smaller states if you're going to try to maximize your dollar. So we will
have that left over.
We have, I think, something that will be viewed as
a success but there will be a rural kind of anomaly. Partially driven by the
exemption, which we were requested to build into the pact, which is an urban
American I had very little ability to analyze in terms of its impact upon those
residence.
Now with regard to, again, the cable industry, I do believe
that the Telecom Act quite specifically said that all telecommunication services
should be treated and regulated identically and I do believe that Internet
access is a telecommunications service. So my goal is now and continues to be,
you know, attempting to reach that point in which everyone is doing everything.
And ultimately we can just pull the federal government out of this whole area
and let the free market determine what is in the best interest of the consumers.
I thank you all for a fabulous hearing today. I yield back the balance of my
time.
REP. TAUZIN: I thank the gentleman. Let me, first, for the record
on behalf Mr. Dingell introduce a comparison of regulatory requirements as he
went through the list with you witnesses, prepared by SBC Communications, into
the record.
Let me also, by Mr. Blunt's request, introduce a similar
comparison that I think talked about at our previous hearing into the record
that was prepared, I think, by the United States Telephone Association. And let
me also say a few words in conclusion with a great deal of thanks to our
witnesses; I know you have to move, we too.
Let me point out that the
Department of Justice findings in the court challenge to the Word Com. / Sprint
merger give us, I think, a very important view as we go into legislative action
on this piece of legislation. It basically said about the backbone, the most
important part of this whole system were discussing, that it is dominated by
several key players. In fact, in paragraph 32 of June 28 filling it says, Union
Net is by far the largest tier-one by any relevant measure it is approaching a
dominate position in that backbone market. It is critical, I believe, as Mr.
Pociask has pointed out to us, that we have more competition.
As your
own studies point out, I think, Mr. Cali. More competition in creating the
backbones, more competition in creating the infrastructures. And I would say to
my friends who are concerned about what kind of proposals are going to be made
for rural America, rural America is always, unfortunately, going to be the last
to be served. But where there is fiber in the ground and where there is systems
prepared to deliver services to rural America, it is insane for us to retain
federal restrictions that prevent use of that fiber to bring those Americans
into the loop.
And what we are suggesting is that if over the next 12
and 18 months, 271 relief is finally going to come to places like Louisiana and
Wyoming, which are not delegate rich states and have to wait in the back of the
line before we can join the high-speed world of commerce that the sooner we can
pass legislation to introduce as many of my consumers in Louisiana and in
Wyoming and in other western states, to this high-speed commerce world and, in
fact, to this new economy then the better. That is why this legislation is and
remains so important.
Again, I want to thank you for your contributions
today. I want to thank my friends who have joined in this spirited debate and
the hearing must, unfortunately, be adjourned.
END
LOAD-DATE: July 29, 2000 
