Search Terms: telecommunications act of 1996, House or Senate or Joint
Document 5 of 383.
Copyright 2000
Federal News Service,
Inc.
Federal News Service
View Related Topics
October
6, 2000, Friday
SECTION:
CAPITOL HILL HEARING
LENGTH:
14488 words
HEADLINE:
HEARING OF THE TELECOMMUNICATIONS, TRADE, AND CONSUMER PROTECTION SUBCOMMITTEE OF THE
HOUSE
COMMERCE COMMITTEE
SUBJECT: INTERACTIVE TELEVISION
CHAIRED BY: REPRESENTATIVE W.J. TAUZIN (R-LA)
LOCATION: 2123 RAYBURN
HOUSE
OFFICE BUILDING, WASHINGTON, D.C.
WITNESSES:
LOUIS M. MEISINGER, THE WALT DISNEY COMPANY;
JOHN FROMAN, CIRCUIT CITY STORES;
MAGGIE WILDEROTTER, WINK;
MARGARET HEFFERNAN, iCAST;
LOWELL GRAY, SHORE.NET;
BODY:
REP. BILLY TAUZIN (R-LA): The committee will please come to order. Let me first thank those of you who were downstairs with us to witness and to participate in the tribute to Chairman Bliley upon his retirement. I think probably that was the last mark-up session of the full committee, and so we took a moment to acknowledge the members of our committee who are leaving, Ms. Cubin, Mr. Klink, and Mr. Lazio, but also to honor our chairman, Mr. Bliley. And I wanted to thank those of you who were in attendance to see that tribute and to thank you for being there.
Secondly, I wanted to welcome you to this subcommittee hearing. As you know, we recently heard from the principals of the AOL Time Warner merger with reference to how that merger would impact upon consumer products and services and how in fact that merger would provide both opportunities and challenges for the future world of telecommunications in that it represented the first real combination, the convergence of computer and television on the broad band essentially, with data and video and audio and other services might merge in interactive systems for the benefit of what the '96 act obviously intended which was more and more packages of services delivered to consumers in the kind of one-stop shopping that consumers generally like in America. There were serious questions raised obviously during that hearing regarding instant massaging, and there were questions raised about competitive systems and the nature upon which competing and owned systems might interact with and be a part of the AOL Time Warner system and how consumers might fare in the world where such a tremendous and important convergence was occurring. As part of our hearing last week, we committed to do a second panel. And therefore we're pleased to welcome a second panel today in the interest of hearing other perspectives from those who had differing perspectives on how consumers would in fact fare in the world of post-AOL Time Warner merger.
And so we welcome witnesses today to give us that perspective. I worked with my friend Mr. Markey and Mr. Dingle to ensure that we had witnesses here who would bring to the table some of the concerns that they expressed at the last hearing, and I hope, Mr. Markey and Mr. Dingell, I hope that you have been pleased that we have tried to work well with you in that regard in assembling this panel today. I want to welcome you all and yield back the balance of my time, and welcome my friend Mr. Markey for an opening statement.
REP. MARKEY: Thank you, Mr. Chairman, very much. I really do want to thank you for holding this hearing today. I think it's critical that the perspectives which we are going to hear today be heard by all of the members of the subcommittee. And I think it's going to be the testimony that really helps us to put all of these issues in the proper context.
There are obviously many competitors and innovators and entrepreneurs who have raised concerns about a merger of AOL with Time Warner. In addition, there are a number of consumer advocates who have concerns of a choice in rates and diversity. I believe that the future of interactive TV is a bright one with new, innovative services, burgeoning competition, increased choices and lower prices. But interactive TV will only have that bright, hopeful future if we remain steadfast in our policy of promoting open networks, interoperability and ruthless competition as the best way of serving consumer interest and promoting economic growth.
In last week's opening remarks, I offered proxy statements on behalf of many of the panelists at the witness table today. I look forward to their actual, real-world testimony; and I thank them for being with us. Before I yield back, Mr. Chairman, I would like to extend a special welcome to two witnesses from Massachusetts here today.
REP. TAUZIN: We didn't do that, did we?
REP. EDWARD MARKEY (D-MA): (laughs) In a year, we should have two. So it's like Della Street here at the end of a Perry Mason, and finally they're here, you know, at the very end of the show.
REP. TAUZIN: Massachusetts has been wel -represented, Mr. Markey, by yourself.
(Laughter.)
REP. MARKEY: So, Shore.Net shows us how a relatively small company can move markets and prod competition. Shore.Net was the first Internet provider in New England to offer web-hosting services back in 1994, and Shore.Net was the first in Massachusetts to offer digital subscriber lines in 1997. Lowell Gray is a former programmer at AT&T Bell Laboratories at Bellcore (sp), NIH Core Research Center Laboratories, and at Harvard Medical School.
Another innovative Massachusetts company here today is iCAST. ICAST.com is a multimedia rich entertainment site that empowers individuals with the tools to create, customize and share their personal entertainment interests. ICAST includes a mix of original user-generated and syndicated audio and video content -- entertainment, news, features, and interviews, live and archived events, and more. ICAST has also developed a product called the iCASTer. The iCASTer is a next-generation media player that integrates media search with chat, instant massaging and other services. Notwithstanding the accent you will hear shortly from Margaret Heffernan, I want you to know that she was born in Texas and has a distinguished career in producing, recognizing that the Web would evolve quickly from a print format into a more interactive information-rich entertainment medium. Margaret decided she would use her production expertise at the BBC to create an interactive multimedia-rich website, and she has been the CEO of iCAST the last four years. She received both a BA and MA from Cambridge University, which is not in Massachusetts.
(Laughter.)
But what we would call Harvard Cambridge, they would call Cambridge Harvard.
(Laughter.
)
I don't think we're going to be able to cut that deal. So we very much appreciate Mr. Chairman, your willingness to have both of them.
REP. TAUZIN: Thank you, Mr. Markey.
The gentlelady Ms. Cubin is recognized.
REP. BARBARA CUBIN (R-WY): Thank you, Mr. Chairman. I am pleased that the subcommittee will hear from other companies today that provide or will be providing types of interactive television services as our witnesses last week, AOL and Time Warner. Although last week's witnesses combined will be the dominant player in the interactive television marketplace, it will be good to hear from smaller competitors and learn what products you are bringing to the interactive television marketplace.
In hindsight, after asking questions of the panelists last week, I truly wish that we could have had the panels combined so that I could get information from both sides and compare some answers regarding the accusations of open access competition and interoperability of lack thereof. But suffice it so say we'll cover those areas today.
The importance of open access and consumer choice cannot be overstated. I'd like to quote the AOL website that I mentioned last week. Quote, "As the Internet becomes increasingly integrated into our societal fabric, it is crucial to strike an appropriate balance between the role of government and the role of industry in formulating solutions to Internet policy issues." Continuing the quote, "Finding this balance is the key to ensuring that the Internet will continue to grow and reach its full potential unhampered by unnecessary regulation, but appropriately guided and monitored in crucial areas to protect the safety and security of its users."
Now that's what AOL says on its website. Much of the aforementioned quote applies to every component of the telecommunications infrastructure, not just the Internet. As Congress continues the debate regarding open-access to the existing telecommunications infrastructure, it would be in the industry's best interest, I believe, to resolve this question before the Congress finds it necessary to act. If we expect any advantage in telecommunications we should ensure that systems interact with each other and that consumers have the ability to communicate even though they may not be on the same network.
We will hear today from Disney about the Time Warner cable systems and to what extent Time Warner executives should give the American people assurances that it is willing to provide access to Disney and other companies outside the AOL Time Warner family. Again, Mr. Chairman, thank you for calling this hearing today, and I do look forward to communicating and having a discourse with the panel. Thank you for being here.
REP. TAUZIN: I thank the gentlelady.
The gentleman from Virginia, Mr. Boucher.
REP. RICK BOUCHER (D-VA): Thank you very much, Mr. Chairman.
Last week we focused on the need for an open access structure at the Internet transport level in order to facilitate the arrival of interactive television. Today in the second interactive television hearing we can examine another pressing need for open access, this time at the navigation device level. In the 1996 Telecommunications Act we required the Federal Communications Commission to ensure the competitive availability of navigation devices broadly defined as any appliance that brings to the consumers services offered by cable companies, whether video, data or the interactivity between video and data that we are commonly calling "interactive television."
The intent of this committee in writing that provision was to assure that these next generation set-top boxes be manufactured by a variety of a companies and be sold by a variety of retailers. A competitive market for these devices is essential to the interactive functioning of information technology devices which receive content that is delivered over cable systems. A competitive market for navigation devices will also assure that no single entity or industry controls this critical information gateway into the home. But four and one half years after we imposed the requirement for competition in the development and marketing of these gateway devices, the market remains closed. Only cable companies are distributing the devices at the present time.
Not only do we not have the competition we were seeking, but a range of additional problems has arisen which threaten the ability of consumers to get full use from their digital TV sets and their ability to engage in legally protected home video recording for time shifting and other commonly acceptable purposes. Today, Circuit City's vice president for Merchandising, Mr. John Froman, can describe in detail the reasons that this committee and its will is being frustrated and will suggest steps that should be taken at the Federal Communications Commission to ensure that the law on open access and true competition for next-generation set-top boxes will be carried out.
And I would like to call the committee's attention to his testimony, and I look forward to the committee receiving it. Thank you, Mr. Chairman.
REP. TAUZIN: I thank the gentleman. We have a vote on the floor. Mr. Shimkus has already made that vote. So I will recognize Mr. Shimkus for an opening statement as well as place him in the chair, and I'll go make that vote, and I'll be right back. Mr. Shimkus will introduce our panel, and then we'll begin discussion as quick as we can. Thank you.
REP. JOHN SHIMKUS (R-IL): Welcome to the panel. We're glad to have you here. And it's a follow-up to the hearing we had last week. And we're all real excited about hearing from you. It's an interesting age and period of time, and as things keep moving forward the interactivity of TV and streaming capabilities and not just through the coaxial cable but also the telephones and direct satellite brings new opportunities. My basic position has always been numerous pipes and numerous choices, and we're kind of like the Cardinals are in the playoffs, and I'm a Cardinal fan, and it's like our baseball game, these late hearings in the year we're in the batter's box, actually in the on-deck circle. We'll probably step in the batter's box in the next Congress to address these things. These are important hearings. They're important for us to learn.
With that, I'll end my opening statement, and I'll go into your opening statements. Your statements are all submitted in total into the record. What we like to do in this committee is have you be conversational. You'll be given five minutes to give an opening statement, and we probably will not be too stringent on that. Try to highlight those simply so that the vast majority of members who are here can get full benefit. They have prepared. They have looked at some of your statements and staffmembers have already tried to prepare some of the members for the testimony.
So with that, I will yield back my time for my opening statement, and I'll open it up for the panel. The first panel is seated, and I'd like to have Ms. Maggie Wilderotter -- is that close enough? -- present, CEO of Wink. Again, your statement's submitted for the record, and you have five minutes. You may begin. We're a high-tech committee, so make sure you pull that microphone closely. And we'll begin.
MS. MAGGIE WILDEROTTER: Thank you very much to the chairman and the members of the committee. I do appreciate the opportunity to appear before you to speak on behalf of Wink Communications regarding interactive television.
Wink is a five-year-old software and services company based in Alameda, California. Our vision is to expand and enhance the television viewing experience by providing convenience, utility and choice to the mass market television video that consumers love. Using our complete solution of products referred to as an end-to-end system, networks and advertisers provide consumers interactive information, entertainment and commerce offers which are synchronized to TV programs and commercials.
Wink enhancements typically appear as graphics and text superimposed on top of a television picture in the location designated by the network or the advertiser. There are no monthly or use fees for the service. Furthermore, it is provided on cable and satellite set-top boxes so consumers do not incur any incremental expense for additional equipment. Consumers use their TV remote control and can interact with Wink enhancements as easily as they change channels or adjust volume.
Consumers are alerted to the availability of interactive enhancements by a small little "i," a scripted "i" symbol, that appears briefly in the upper left-hand corner of their television screen. They are in full control to access the interactive enhancement.
Examples of interactive television enhancements include being able to check current weather forecasts on the Weather Channel, the latest sports scores on ESPN, or request a car brochure or a coupon from Clorox while viewing a 30-second commercial -- all with one simple click. Wink Service has been available in the United States since June of 1998 and is currently provided in markets across the country including New York, Los Angeles, Dallas, Fort Worth, St. Louis, and Jacksonville. Each of the top five cable operators have launched Wink in at least one market. Both major satellite operators have agreed to launch Wink nationwide. And the launch of direct TV will be announced shortly.
The Wink service is expected to be available in 3 million TV households by the end of this year. Central to the Wink proposition is the consumer. The core attributes of our service are fundamental to customer satisfaction -- value, variety, convenience and control. Acceptance is great and remarkably consistent across the 25 communities in which we have launched the service.
Wink interactive TV is provided free of charge to every household with an enabled set-top box, and consumer behavior speaks for itself; 70 percent of households use the service. On average, 20 percent of an audience tuned to a particular show use the Wink interactive enhancements. Customer satisfaction ratings are in the 90 percent range.
Wink creates the experiences that drives the simple evolution of TV as the consumers want it. It's easy to use, it adds entertainment or informational value and keeps the viewer in the driver's seat opting in to use as they choose, and most importantly it is part of watching television.
The television business is a particularly complicated business. In order to facilitate the delivery of interactive enhancements to viewers' favorite TV programs and advertisements, we at Wink have had to enter into agreements with all of the major companies from each of the major constituent groups in the television business. Cable and satellite operators must agree to allow their plant and set-tops to be used to deliver interactive programming to consumers and to collect viewer responses to those interactive offers. Broadcast and cable networks must agree to originate and broadcast interactive enhancements to their programming and to allow advertisers to air interactive enhancements associated with their commercials.
Original copyright holders such as major sports leagues and the Hollywood studies must agree to either create or allow others to create and air interactive enhancements on their programming. Advertisers and their agencies must agree to create and air interactive enhancements to their commercials and to fulfil consumers' orders or requests for information.
And last but not least, manufacturers must agree to enable to the interactive television services on their set-tops and server platforms. It certainly has not been easy. But we have not needed any regulatory relief to craft partnerships with over 90 companies in the business. Our business philosophy has always been to respect the industry's existing business models and customer relationship and provide a win/win for all constituents. We do not attempt to share in existing advertising revenues or subscriber fees and aim to preserve the network's right to determine which content is provided in conjunction with their programming and advertisers with their advertising. And as operators have a right to determine which services are provided to their subscribers, we respect that.
We share our revenues with cable and satellite operators and with networks. Resolving the competing interests of all the parties involved in interactive television will take time. Cable and satellite operators control the final delivery to consumers and any associated two-way communication. The industry has demonstrated an ability to negotiate carriage of a variety of services and arms-length negotiations. We believe interactive television is still evolving at a very rapid pace. It is not clear how technology, access to cable operator networks, or consumer demand will shape this business. The dynamic marketplace must be allowed to develop. As stated earlier, we continue to build our business in the current environment, and we believe that it would be premature to attempt to regulate an industry that is in an embryonic stage.
I'm honored to have the opportunity to present to the committee. Thank you again.
REP. SHIMKUS: Thank you.
Next, we'll turn to Mr. Lewis Meisinger, executive vice president, general counsel, to Walt Disney Corporation. Welcome. And you have five minutes.
MR. LOUIS M. MEISINGER: Thank you, Congressman. My name is Lou Meisinger, and I am the executive vice president and general counsel to the Walt Disney Company.
Let me get right to the issue. What can consumers expect from interactive television? Absent regulatory or legislative intervention, the answer is, regrettably, quite clear. Speaking with remarkable and chilling candor, Time Warner executive Kevin Levy (ph) recently told a New York Times reporter, quote, "What you see on our screen will be our partners," unqoute. Necessarily then, but unstated, what consumers will not see are the interactive offerings of content providers who are not Time Warner partners. AOL Time Warner's plan to dominate interactive television is an active implementation.
The Walt Disney Company tried mightily to secure from Time Warner a simple pledge of nondiscrimination. We sought assurance that Time Warner's interactive cable service would work the same for consumers whether they were interacting with content owned by AOL Time Warner or other content providers. Time Warner said emphatically, no. NBC received similar peremptory treatment at the hands of Time Warner AOL. Other companies with less clout will likely fare much worse, particularly in a post merger environment.
Interactive television is important new entertainment, communications and commerce service that is here today and growing rapidly. We at the Walt Disney Company are investing millions of dollars in its development. Today, interactive television is largely a two-stream experience. But new cable set-top boxes now being deployed contain the necessary computer hardware and software to enable to a single stream experience in which consumers will be able to interact with television programming right on their own television sets.
ABC and ESPN have developed innovative interactive applications for our football broadcasts. While watching the games, consumers are able to pull up statistics and can compete against other viewers around the country in predicting upcoming plays. Despite the inconvenience of the current two-screen experience, more than 650,000 viewers participated in ABC's interactive television offering during our Super Bowl telecast last year -- earlier this year actually.
Also, currently available is a play-along application for ABC's Who Wants To Be a Millionaire and election night will provide other exciting opportunities. Still other applications are in the offing. Drilling down for detailed comment on news programs, ordering up different camera angles and audio feeds from sporting events, or watching your friends watch programming together. None of this innovative programming will be possible, of course, unless Disney and other content providers have fair and nondiscriminatory access to consumers. As a content provider, Disney's only objective is a world in which a consumer's right to choose is accompanied by the ability to choose or not to choose Disney's interactive television offerings. This committee should be concerned that consumer choices are not limited or skewed directly or by subtle tactical means in favor of content owned by the company that owns the pipeline to the consumer's home.
Unfortunately for at least the next five years representing the critical formative period for interactive television, cable systems will enjoy a decided advantage over any other distribution platform such as DSL or satellite.
This merger of the world's number one media company and number two cable operator, Time Warner, and the world's number one ISP, AOL, brings together an unprecedented market-dominating collection of assets and capabilities -- monopoly cable pipelines to 20-plus million American homes, a vast content library including many of the leading cable television channels, 50 percent of the narrow band Internet marketplace, a virtual monopoly in instant massaging and other so- called "sticky network effect" creating applications such as e-mail, buddy lists, chat rooms, and instant massaging.
Unfortunately, with this proposed merger AOL has abandoned its year-long advocacy of open access in favor of its own self-interest. Quote, "If gatekeepers want to play in the Internet game, we should require them to play by the Internet rules. We owe consumers no less." Unquote. This is not Disney talking. These were the remarks of AOL's senior officer for global and strategic policy, George Brandenburg, advocating open cable access before the House Judiciary Committee just last year.
Soothing reassurances provided to this subcommittee are not enough. Belying its professed commitment to the consumer, in May of this year Time Warner unilaterally turned off ABC television programming for more than 8 million viewers. AOL has also insisted upon contractual terms that required Disney to remove navigation links to other sites on the Internet and foreclose the sale and promotion of competitive products.
When EarthLink took up AOL Time Warner's pledge to provide nondiscriminatory access to other ISPs, it was met with commercial terms so onerous and so adhesive that doing business was impossible. Non-binding MOUs and platitudes are one thing; real-life conduct is apparently quite another. Again, Mr. Bradenburg's prescience was right on the money last year when he said of AT&T, "AT&T is moving toward a commitment for open access, but the rubber is going to hit the road and really test this in reality when we, AOL, try to enter into enforceable agreements.
Well, Disney, NBC, and EarthLink all tested AOL Time Warner's tires, and the results were a blow-out. The AOL Time Warner merger is a unique combination. There are no other companies that when combined would enjoy similar market dominance in both conduit and content, and interactive television is particularly at risk. Government agencies have an obligation to ensure consumer choice. Specifically, government agencies must assure open, nondiscriminatory access for alternative ISPs through the set-top box and connect it to the video platform.
In addition, because AOL and Time Warner currently and will continue to command the overwhelming majority of customer relationships on their platform, strong nondiscrimination conditions are essential on the AOL Time Warner platform itself. Voluntary negotiations are no substitute for strong and enforceable government- mandated open access. The preservation of consumer choice and robust competition require no less.
Thank you.
REP. SHIMKUS: Thank you.
Next, Mr. John Froman, executive vice president, Circuit City stores. Again, sir, you are recognized for five minutes.
MR. JOHN FROMAN: Thank you, Mr. Shimkus.
The interactive digital broadband pipe into the consumer's home today is the cable wire. Fundamentally, competition in the cable market depends on open access for content-providers to the cable infrastructure and for device manufacturers to the customer's premises. Neither has yet been achieved. Both are necessary. So long as the cable industry continues to control the conditions for entry into each end of its service, the consumer will not receive the benefits of competition.
In the 1996 Telecommunications Act, this committee included a provision that explicitly told the FCC to assure in its regulations the competitive availability of devices that provide access to cable systems. The FCC has tried to do so. But I'm here to tell you today that it will take more than a single act of Congress to overcome five decades of monopoly.
The Bliley-Markey provision to deregulate cable navigation devices ordered the FCC to ensure competitive access in the same manner that telephone customer premises equipment had been deregulated two decades earlier. The FCC in turn issued regulations requiring that by July 1, 2000 cable industry operations and specifications must support the operation of competitive devices on its systems. This date has come and gone; yet there has been no competitive entry.
Today I want to call to your attention three major reasons why competitive manufacturing and retail entrants still do not enjoy open access to the market for cable and navigation devices. First, the motion picture industry has sought to diminish the utility of such devices by insisting on restrictive, anti-consumer licensing terms to which no competitive manufacturing entrant has been willing to agree.
Second, the cable industry's specifications for competitive devices do not thus far support user interactivity. Consumers wanting interactive features would still need to lease a set-top box from their cable operator.
Third, despite Congress's prohibitions on bundling, cable operators are able to subsidize the leasing of digital set-top boxes to the more affluent customers by charging more for leasing obsolete analog set-top boxes to the less-affluent customers.
Under the FCC regulations, in order to enter this market the manufacturer needs a license from the cable industry Cable Labs Consortium, but Cable Labs faces an explicit threat from the Motion Picture Association that content would be withheld from cable systems unless its license were to include severe restrictions on the recording and even the display capabilities of consumer electronics and information technology products. Cable Labs has felt obliged to offer a license draft that does not allow any VCR or PC to be attached directly or work interactively on any cable systems. The draft license would also require manufacturers to cut off the flow of HDTV signals to DTV ready receivers now on the market. To our knowledge, not a single competitive entrant has been willing to sign this license.
The cable industry supports interactivity in the set-top boxes that they lease to consumers, but not thus far in the specifications for competitive entrant devices. In an August 2nd filing with the FCC, the Consumer Electronics Retailers Coalition compiled all the ways in which the cable industry still does not support competitive entry, and I've attached that report to my testimony.
Cable operators appear to be loading the cost of their new digital set-top boxes which they lease to their more affluent customers on to the rental charges for their old analog boxes which they lease to their less-affluent customers. They face no potential competition in the market for fully depreciated analog boxes which are headed for the scrap-heap. This subsidy for the monopoly analog market is unfair to consumers and forestalls entry into the digital market.
What I've described thus far are obstacles to open access to the cable device market, but unless there is more competition for cable services, we could fight through all these roadblocks and still not be able to enter the digital device market. As was the case with the telephone monopoly, dealing with 50 years of a closed cable market will require open access to the service as well as the device. This will oblige cable operators to compete on the basis of efficiency in rendering services and supporting customer equipment. Unless and until the market for cable services is fully competitive, the only way we will achieve a completely level playing field in the device market would be to prohibit service providers from also leasing navigation devices.
Despite Congress having passed a law and the FCC having issued regulations, the retailer market share of devices that provide interactive access to cable programming remains at zero. More needs to be done to get around the set-top roadblock. A reasonable license that is fair to consumers needs to be worked out. Technical specifications for the devices leased by the MSOs must be the same as those for competitive entrant devices. The rules pertaining to the subsidies and leasing of MSO-provided boxes need to be clarified, and the FCC should be encouraged to proceed with achieving open access to the broadband infrastructure across the board.
Mr. Chairman, we greatly appreciate the interest and leadership that has been shown by this subcommittee. Much remains to be done. Circuit City and the other members of the Consumer Electronics Retailers Coalition remain committed to bringing real competition in interactive products to consumers.
REP. TAUZIN: Thank you, Mr. Froman.
The chair is now pleased to welcome Ms. Margaret Heffernan, president and CEO of iCAST, who is more formally introduced by my friend Mr. Markey just recently.
Ms. Heffernan.
MS. MAGGIE HEFFERNAN: Thank you, Mr. Chairman. ICAST is an Internet entertainment company based in the middle of Mr. Markey's district in Wilbraham, Massachusetts. We employ 200 people, and we're located in a warehouse site made famous by the Wilbraham Superfund. Today that site is filled with many new economy companies like mine.
I want to thank you, Mr. Chairman and especially Mr. Markey, for calling this hearing today and giving me the opportunity to testify. I was one of those virtual witnesses that wanted to testify last week, and I want to thank Mr. Markey in particular for previewing the points that I'm going to make on AOL's slow-rolling interoperability.
My story is typical of many companies in the new economy. I was born in Texas, raised in the UK, and I moved back to the United States because of the tremendous opportunities provided here to explore interactive television. To that end, my company iCAST provides an interactive application called the iCASTer which allows members to instant message each other while listening to radio streams or watching webcast. It's one of a number of hybrid applications that pave the way to interactive TV.
As a consequence the merger of Time Warner and AOL is of grave concern to us. Why? Because in our own attempt to enter the instant massaging market we've discovered how closed AOL has made it. Although our iCASTer is technically interoperable with AOL's instant messenger, AOL has deliberately blocked us since we launched. They continue to do so, and when we protest they maintain they believe in interoperability but not right now.
This market dominance is a problem therefore right now. In the old world of AT&T, who would have dared to start Sprint? Where would we have found a market? The merger takes a big problem and makes it bigger, makes the market dominance that AOL currently enjoys more secure and makes any semblance of competition a foregone defeat. If I didn't have nerve and daring, I wouldn't work in new technology, but even I know that the odds favor Goliath against David. This merger makes Goliath bigger and heavier and, as far as I can discern, no nicer. Everyone involved in the debate over instant massaging agrees this is a major application and a major market. Lehman Brothers valued AOL's instant massaging market at nearly $
6 billion. The CEO of Verizon called AOL's IM network the "biggest communications market in the world."
So we all agree it's big. Everyone agrees that interoperability is an absolute good and an absolute need and the sooner the better. So the debate resolves down a single issue -- can AOL Time Warner be trusted to live up to its public commitment to fast-track interoperability? The record speaks for itself.
In July 1999 AOL wrote that it would fast-track its efforts to create a standard for interoperability with the Internet Engineering Task Force. Here is the full record of their contribution. This organization works through e-mail. You can see on the chart AOL's stunning leadership.
Last week Mr. Case sat here and told you that AOL was providing leadership to this process and mentioned that they'd submitted a proposal to the IETF (ph). But what he didn't tell you was that it was instantly thrown out because it was last-minute and insubstantial. It was a cover-up for inaction.
When the Wall Street Journal documented how AOL had begun to make its own two services interoperable, AOL said it wasn't true; but the chat rooms of the Internet are full of people using it. When he sat her last week, Mr. Case told you that filtering companies like Net Nanny work happily with AOL's instant massaging. But as Net Nanny wrote Congressman Pickering yesterday, that isn't true either. Net Nanny has not been able to strike a deal with AOL's instant massaging service. As their CEO wrote, "The chief obstacle we face is the lack of an industry-wide, open standard that we can use to develop our software."
When he sat here last week Mr. Case told you the merger would spur new innovation that consumers want, but our iCASTer users want to be able to talk to AOL users. What spur does Mr. Case provide to them by blocking them? Mr. Case and Mr. Levin told you they were committed to consumer choice, but what choice have they offered their own customers when they communicate with other instant messengers? Believing these motherhood statements is like believing that the Berlin Wall was really built for the safety of East German citizens.
When he came here last week Mr. Levin said, the Internet is the technology of human freedom; but he clearly has one kind of freedom in mind for his company and another for everybody else's. Mr. Levin espoused the belief in openness and innovation, but what kind of openness is it that exaggerates IETF contributions, hides AIM and ICQ interoperability, and denies parents the choice of filtering safeguards?
I am very grateful to the members for the penetrating questions they asked last week. It is no small matter for a small young company like mine to go up against the Goliath that is AOL, but we have no choice. In the absence of any evidence that AOL will live up to its public commitments, we have to ask that the committee help protect consumer interests. History teaches us consumers benefit from interoperability, and this committee knows that better than anyone. Where would our phone system and e-mail system be without it? This committee, which has to protect consumers when market forces cannot, must address the simple question, can AOL be trusted to do this themselves? The record says no.
If AOL Time Warner is allowed to merge without a clear and certain path for interoperability, consumers will be denied the benefits that an open market can bring.
REP. TAUZIN: Thank you, Ms. Heffernan.
The chair is now pleased to welcome Mr. Lowell Gray, the general manager of Shore.Net of, indeed, Lynn, Massachusetts.
Mr. Gray.
MR. LOWELL GRAY: Thank you. Thank you for holding this hearing and inviting me to discuss the future of interactive television marketplace. It's an honor to be here, and I appreciate the opportunity to share my views on this important topic with members of the subcommittee.
As the founder of one of the largest Internet service providers in New England, I've been fortunate to be actively involved in the incredible Internet and telecommunications revolution happening around us. I started Shore.Net in 1993 as a dial-up Internet provider. My goal was to empower individuals with the resources then becoming available thanks to the public Internet. For $
9.00 a month, anybody with a modem and a terminal could get an e-mail address, join worldwide discussion groups, and access vast archives of information at universities, libraries and the government.
The Internet was not commercial yet. When the NSF then ended its role as supporter of the network in 1994, the community debated how commercial presence would change the Internet for better or worse. To me it was obvious -- getting the Internet into the private sector would unshackle it from its limited roots and lead to amazing new advances with benefits for everyone. But I also agreed with people who said that advertising unsolicited e-mail would be harmful to the free and open Internet we knew.
In hindsight, these discussions seem quaint. None of us could imagine then how quickly the Internet would explode throughout our society and how soon all these issues would reach critical mass. Right after the commercial Internet was born in 1994, the world soon learned about a new development, the worldwide Web. We set up our first web server and gave all our customers the ability to publish their own web pages. Then we started offering domain name registration and virtual web hosting for businesses and other organizations. Our business took off beyond our wildest dreams, and it was still true to my original mission. We empowered the little guy as an equal on the level playing field of the Internet. For pennies a day a small entrepreneur could have presence on the Internet, peer to peer with the largest corporations.
The whole nature of the Internet is a decentralized, peer-to-peer network.
When I think of a free and open Internet, I think of it in the sense of liberty, freedom of expression, freedom of association, the core values that we hold dear as Americans. This does not mean a free ride which is the spin that some parts of the industry are trying to create.
ISPs like Shore.Net pay retail prices to telecom vendors to carry customer traffic. In Massachusetts, for example, we pay millions of dollars every year to companies like Verizon and WorldCom and other carriers. Along with our other ISP peers we represent the telecommunication companies' fastest growing source of revenue nationwide. Each part of the Internet has been built and paid for by the community that connected to it.
ISPs have also been called freeloaders since the earliest days of the commercial Internet. The phone companies blamed us, their customers, for the inability to keep up with demand. They tried to make us pay more for a line just because we wanted to use it to carry data. Fortunately, the
Telecommunications Act of 1996
changed all that. Now new CLECs emerged who gave them real competition and gave consumers more choices and lower prices.
But there have been unfortunate side effects too. For example, our local telephone company has been out of facilities in our Lynn central office for most of this year and won't deliver more capacity until next year. This is choking the growth of our company and other newly emerging inner city businesses in our Lynn cyberdistrict.
We are facing similar problems with new CLEC competitors. Endemic lost records, missed appointments, finger-pointing among the vendors has all plagued DSL provisioning. But the advent of DSL is a very positive development. If we keep an open, competitive marketplace these problems can be solved. Similarly, if ISPs have the choice of buying from cable companies as well as the LEC, the competition will encourage all carriers to improve service quality.
Instead, they accuse us of wanting a free ride over cable internet systems. This is simply not true. For years we have offered to pay full retail price to lease capacity on two-way cable systems, but their owners without exception have refused to do business with anyone other than their own subsidiaries. Cable broadband systems should be subject to the same basic open access requirements that any new entrant into the telecommunications business is required to meet.
Why is open access important to the future of inactive television and other broadband services? I believe that much more is at stake than just the narrow issue of open access to cable systems. The real issue here is about ensuring the future of the Internet as a free and open marketplace where our American constitutional values can survive.
Mr. Levin said last week that the Internet is the technology of human freedom -- we both observed. But it can also be the technology of oppression or control. I believe that vertical integration of content and communication, combined with the lack of data privacy protections is a grave threat to our nation. It's not the government as Big Brother that I worry about; it's the giant all-seeing corporation with its database marketing and cookies tracking our every move, selling our personal identities to its advertisers and business partners and even controlling what information we receive.
Imagine monopoly power over the flow your personal data. It goes to the heart of who you are, your individuality, your entire being. That's why competition consumer choice is so essential in our telecommunications marketplace, and that is why open access requirements must be a foundation of converged telecommunications networks. I'm not suggesting that we apply Bell-style regulations to cable television networks. (pause) Sorry.
REP. TAUZIN: Your time is expired, Mr. Gray. If you can wrap, I'll give you a second to do that.
MR. GRAY: Thank you for the opportunity.
REP. TAUZIN: Good wrap.
Let me depart from the usual procedure of recognizing myself first. I understand, Ms. Heffernan, that we have the problem of a virtual congressman. Mr. Markey is going to have to leave. So we're going to have to -- (laughter) -- I'm going to recognize Mr. Markey while he's real and here.
Mr. Markey.
REP. MARKEY: Thank you.
Ms. Heffernan, let me ask you, please. You made reference early. You have a chart over there. If somebody could put up Ms. Heffernan's chart for me, please?
REP. TAUZIN: (Imitating Mr. Markey's accent) "Chaat", put up the "chaat".
(Laughter.)
REP. MARKEY: Communications that exists between AOL and the rest of the industry in terms of trying to resolve this interoperability question on instant massaging. So what is the -- in your opinion -- the prognosis for this to be resolved given that track record in the near term? And if you don't think it can be resolved because the ISP revolution, this whole thing is so central to the opportunity for the United States, what role do you see the government playing in ensuring that this interoperability is created?
MS. HEFFERNAN: Thank you, Mr. Markey. I'd like to thank you for representing our views when I was a virtual witness last week, and it's very nice to be a real witness this week.
REP. MARKEY: And when I become a virtual congressman in five minutes you can represent me.
MS. HEFFERNAN: I'm sure I wouldn't do as good a job.
REP. MARKEY: Thank you.
MS. HEFFERNAN: I think the chart does indeed tell an extremely interesting story. Since the Internet Engineering Task Force works almost exclusively via e-mail, I think the quality of commitment that AOL has brought to their leadership position speaks for itself.
We have certainly had no indication that this is going to change. Indeed, after a certain amount of reporting that the FCC and the FTC had some interest -- you see this little blip in June 2000 and then nothing further after that. So I'm afraid that I have seen nothing either in the IETF interactions or in industry interactions that suggest that AOL can be taken at its word that it is going to fast- track or even track creating a standard for the industry.
As a consequence, we have been forced to look to the government to ask that as a condition of the merger AOL commit to a hard date by which either the IETF protocol is implemented or de facto interoperability is allowed to occur.
REP. MARKEY: Let me ask Mr. Gray the same question. You tried to negotiate open access. You have not been able thus far to reach any agreement. In the absence of effective rules in this area, do you think that there would be as bright a future as we hoped for this entire ISP revolution? I think there's 8,000 or 9,000 of them now in the country, and of course that's where the fastest-growing part of our economy is and job creation and in really the whole telecommunication revolution.
MR. GRAY: I think the open evolution of a competitive ISP industry is going to be greatly thwarted. The continued waves of consolidation are just going to get worse. I think we're going to lead to a dismal future where AT&T and AOL Time Warner -- you know, if we're lucky the two of them will compete, but it might even be one. For example, in Massachusetts back this spring a representative of AT&T came to visit me because of the ballot initiative and a memorandum of understanding was signed between a Massachusetts coalition and them. But that has no teeth in it, and I think it's just empty promises.
I don't see them moving forward even to live up to their commitment to hold trials by next year.
REP. MARKEY: Very briefly, what does that mean for you and thousands of companies like you?
MR. GRAY: It means that future broadband markets are going to be off-limits to us.
REP. MARKEY: Mr. Froman, very briefly, the '96 Telecom Act has a provision -- so-called navigational devices which includes set-top boxes. In that provision, we built into the law an anti-subsidy provision to help unbundle such devices and promote competition and open standards. Can you elaborate briefly whether these antisubsidy provisions are working effectively and what the FCC needs to do to promote greater competition?
MR. FROMAN: I believe that the anti-subsidy provisions are not working effectively, Mr. Markey. And it's because today cable companies under Section 623 of the Communications Act are allowed to aggregate the costs of all of their equipment and spread over their entire network. What this means in practice is that some cable systems like the one in Lincoln, Massachusetts are fully analog. Those customers are now paying much more for their analog obsolete boxes than other customers in the same cable-vision system perhaps in New York. And Section 623 allows this cost aggregation. It allows cable companies to take a box that we're told cost $
400 and charge their digital customers $
3.50 a month. And that's pretty compelling for an 11-year payback in that case.
I believe what Congress and the FCC needs to do is work out, eliminate that provision. And there's several other things. A reasonable license that I mentioned earlier. The quickest way to make this all work is to have the elimination of cost aggregation and have an open standard that competitive entrants can compete with the same standard as the MSOs are providing.
REP. MARKEY: We will try to work on that. I have one final quick question I'd like to ask Mr. Meisinger if I could. You're ABC. You're huge. You represent a big company, and you're here testifying before us today. I think it would be helpful for us to understand what you think consumers will never see -- will never see in terms of a couple of services that you think might be stifled without open systems and nondiscriminatory access. Could you kind of paint a very quick, brief picture for us of --
REP. TAUZIN: The gentleman's time is expired, but we'd be pleased if you'd respond to the gentleman.
MR. MEISINGER: Well, it's hard to say, Mr. Markey, because I'm not part of our programming contingent, but there is no question that the type of content that has been forthcoming form the Walt Disney Company for many decades will be foreclosed unless we have access to the AOL Time Warner platform and to the platforms of other competitive (ISP-OSPs ?) because that ultimately is where consumers will derive a choice.
Our concern, frankly, as a large company is that even our content may be foreclosed from the marketplace. That is a rather daunting prospect when you consider how desirable and appealing our content has been historically. But we are not asking this committee to mandate the carriage of our content. Our objective is to make sure that if AOL Time Warner chooses to place our content and make it available to their customers that we will have nondiscriminatory treatment. Now it may very well be said that people don't have that much of an interest in seeing Who Wants to Be a Millionaire or watching ABC Monday Night Football, but as my colleague said, nor do we want to see for our news only Ted Turner. Nor do we want to see Peter Jennings. We want the consumer to have a broad choice of content. That is our objective.
REP. MARKEY: Thank you, Mr. Chairman.
REP. TAUZIN: Thank you, Mr. Markey.
The chair will recognize the gentlelady, Ms. Cubin.
I want to make an editorial comment here. I understand the ranking minority member of the full committee, Mr. Dingell, got caught up in the votes and he is on crutches right now having a little slower time getting around. I'm going to recognize him after this to make his full opening statement and recognize him for a round of questions after that. But I'll now recognize Ms. Cubin --
REP. DINGELL: Mr. Chairman, you were enormously kind. I will put my opening statement in the record.
REP. TAUZIN: Oh, fine.
REP. DINGELL: It's an excellent one.
(Laughter)
I think rather than to say anything I think I would want to commend you for holding this hearing. You have honored a commitment you've given us. We have a lot to do to make sure that the results of these events now ongoing in the telecommunications industry are both fair and, quite honestly, to all of the people in that industry, fair to the consumers, and that they establish us the best possible telecommunications system in the world.
REP. TAUZIN: I thank the gentleman.
Without objection, the gentleman's opening statement will be made a part of the record as are all opening statements. The chair will recognize Ms. Cubin. I'll return to Mr. Dingell.
REP. DINGELL: That's fine, Mr. Chairman.
REP. TAUZIN: Ms. Cubin.
REP. CUBIN: Thank you, Mr. Chairman. Last week when I was questioning Steve Case about interoperability and the Internet Engineering Task Force and AOL's participation in it, I was under the impression that AOL wasn't actually participating very much. But Mr. Case's answer to me was this. I'll quote. "We are a member of the committee. We are active participants in the process. Perhaps this can be explored in your subsequent hearing next week," which means today's hearing. "Maybe some of those companies can on the record talk about what AOL has or hasn't done. I think there's a lot of misinformation on this topic, and when people really look at the facts they will see that AOL has done a lot already, and it's committed to doing more through the proper Internet standards body."
So obviously Mr. Case opened the door to this question.
I would just like a couple of you to tell the committee what your companies' experiences have been in dealing with AOL on this subject. I have this report here which is the history of AOL's support or lack of support on the task force. In a statement USA Today news article, it says, this is a statement from AOL, that they oppose fast-tracking of the process of interoperability. And then I have a letter from Barry Schuler (sp) that says AOL is fast-tracking our efforts. And these are all of the -- this is the report of the task force.
And as I have looked through it and read the statements, they are contradictory. I want you to tell me what your experiences have actually been and what you would want me to ask Barry Schuler or what you'd want me to say to him. Just a couple of you.
MS. HEFFERNAN: I'll take that first. I think there are a couple of things. First of all, since obviously our message isn't very appealing, Mr. Case is trying to shoot the messenger by claiming us to be misleading or misrepresenting. I think the facts of the chart really speak for themselves that that shows the quality of engagement that AOL has brought to their relationship with the IETF. And it's important to remember that in July of 1999 Mr. Case committed to a leadership position in developing the standard for interoperability.
REP. CUBIN: I think what I'm talking about more than what they actually did on the task force is what your companies have actually dealt with in trying to deal, in trying to work out interoperability instant massaging with AOL.
MS. HEFFERNAN: Sure. I can certainly speak from firsthand experience in that regard which is that when they first began to block the iCASTer we called up AOL and said, what are you doing? Maybe it's a mistake. Maybe it's a misunderstanding. And I should emphasize here that the technical protocol we use to interoperate with AOL is one that AOL published itself and has validated itself.
AOL's senior executives confirmed that they were blocking us. They confirmed that it was deliberate. They confirmed that they would continue to do so.
I said, well, gee, I thought you guys were on the record as being committed to interoperability. They said, we believe in it, but we really want to work with the IETF make it happen. And I said, well, we all know that's going to take a lot of time, and if you really want to work with them why don't you work with them? And they said, well, that's a matter for another part of AOL.
REP. CUBIN: Excuse me?
MS. HEFFERNAN: For another part of AOL.
So then I said, okay. So even if we all recognize that creating the standard may take some time, how about as a gesture of good faith to show you mean this you allow us to continue to interoperate with you until such time as the IETF standard is produced? To which their simple response was, we don't want to do that. And that was essentially the end of the discussion.
I think actions speak louder than words, and we've had a lot of public statements about commitment. We've also had, as you've said, contradictory statements. We want to fast-track it or slow-track it or whatever. I have seen nothing firsthand or through the many other companies that I have talked to on this issue.
REP. CUBIN: I just have a couple seconds. My time is running out. So I want to ask each and every one of you, are you advocating that the government condition or mandate open access to both ISPs and cable networks for this merger? Is that what every one of you are advocating? Yes or no?
REP. TAUZIN: If you can quickly go through the line and --
MS. WILDEROTTER: No.
MR. MEISINGER: Yes. We are advocating open access for ISPs.
REP. TAUZIN: Mr. Froman.
MR. FROMAN: We believe in open access broadly for the navigation devices as well as the service cable providers.
MS. HEFFERNAN: As a mandate by the government. Okay.
REP. TAUZIN: Ms. Heffernan.
MS. HEFFERNAN: And we are asking that the government mandate interoperability on the subject of instant massaging.
REP. TAUZIN: Mr. Gray.
MR. GRAY: We are not in favor of mandating as a condition of the merger, but we believe that open access should be a requirement across the industry.
WITNESS: May I make it clear, we are asking for that as a condition of the merger, not in any broader national policy sense at this time.
MS. HEFFERNAN: And I want to say that the no is geared around a government mandate. I think the marketplace needs to work it out.
REP. TAUZIN: Thank the gentlelady.
The chair recognizes Mr. Dingell for a round of questions.
REP. DINGELL: Mr. Chairman, thank you.
Mr. Meisinger, I heard your comment just a bit back. I want to reinforce the record here on this matter. So I'm going to ask you a question about that. If the FTC or FCC were to impose open access conditions on AOL Time Warner as you propose, would that give other cable companies such as AT&T the ability to demand such access on Time Warner systems? If so, is that a fair result, or should these rules if appropriate apply to all companies in the industry, and does the public have any say or concern in this matter?
MR. MEISINGER: I believe that open access is open access.
REP. TAUZIN: Let me ask you each to pull the mike close to you when you speak.
MR. MEISINGER: We are not advocating any differential treatment. Our concerns at this juncture, Mr. Dingell, pertain to this specific transaction that we have a --
REP. DINGELL: Well, let's address that because I get the impression you're talking about this specific transaction. This will give you, if that is all that happens, the privilege of equal access to AOL Time Warner. But your company will not be compelled to give equal access to others and/or to other cable companies or, for that matter, to AOL Time Warner.
MR. MEISINGER: Equal access to? To what?
REP. DINGELL: Equal access --
MR. MEISINGER: Pardon me?
REP. DINGELL: I don't have -- you know what equal access is. I don't have to define it for you.
MR. MEISINGER: We are advocating that other ISPs have equal access to the Time Warner cable platform. Our product, to the extent we are a content provider, is accessible to all companies as far as I know. We do not discriminate at this juncture, and we --
REP. DINGELL: We're not talking about that. We're talking about equal access to the services so that everybody can have the same access to transmission and things of that kind. And I'm trying to understand, you're kind of giving me the unfortunate impression that you're talking about that you get equal access but others don't.
MR. MEISINGER: We are, we are --
REP. DINGELL: Or that equal access will be imposed on AOL Time Warner but not on certain others. That leaves us with -- well, for example, like AT&T. So we get this rather curious result where some folks are at a disadvantage, some folks are at a fine advantage, and the public doesn't get a break. Now maybe -- that's the way I understand what you're telling us, and I just want you to say yes I'm right in my appreciation or no I'm not right in my appreciation. Which are the facts, Mr. Meisinger?
MR. MEISINGER: I believe our position is that in connection with this transaction that --
REP. DINGELL: So what you're saying is, you just want a fair advantage?
MR. MEISINGER: We want, we want for our content nondiscriminatory treatment on the AOL Time Warner platform. We believe to give the consumer the broadest range of choice other ISPs have the ability to create competitive platforms. That is our position.
REP. DINGELL: Let me try and ask this question going right across starting with Ms. Wilderotter. I think I pronounced it correctly. Have I?
MS. WILDEROTTER: Okay.
REP. DINGELL: I always try to do that. It's a simple courtesy. How many of you favor or oppose the idea that there should be fair rules which would apply equally to all providers and participants in the industry?
MS. WILDEROTTER: I do agree that there should be fair rules to all providers in the industry.
REP. DINGELL: Okay. Mr. Meisinger, apparently you don't subscribe to that?
MR. MEISINGER: No, I -- that is an absolute, perfect prescription for the Walt Disney Company, fair rules for all providers at all levels of the distribution channel.
REP. DINGELL: So are you advocating equal access and open access to all or just to Time Warner?
MR. MEISINGER: Well, eventually when the issue becomes broader than the merger we would consider that, but at this juncture I'm --
REP. DINGELL: -- Time Warner --
MR. MEISINGER: -- proposing equal access to on behalf of all ISPs to other cable platforms as well.
REP. DINGELL: But at this time the answer I guess to the question is no.
Mr. Froman?
MR. FROMAN: I'm very much in fairness to all participants in the industry and all consumers.
MS. HEFFERNAN: And we absolutely believe that interoperability should be required of all instant massaging companies, not just ours and not just AOL's.
REP. DINGELL: I cordially agree with that statement. Go ahead.
MR. FROMAN: I believe that fair rules should apply to all participants in the industry.
REP. DINGELL: So I think I would infer from comments you've all said, Mr. Meisinger who seems to have a unique view here on this matter, that you would generally favor having the FCC then to set up fair rules which would apply equally to all persons in the industry. Is that correct?
MR. MEISINGER: Mr. Dingell, respectfully, we have testified about our support for open access to equal treatment.
REP. DINGELL: At some future date.
MR. MEISINGER: No, even --
REP. DINGELL: I find that impressive. And I would simply remind you that in the orderly passage of time all of us will be dead and perhaps none of us will then have to confront --
MR. MEISINGER: We believe it's timely now, and we have testified specifically on that subject.
REP. DINGELL: Are you reviewing then your position and indicating --
MR. MEISINGER: No, I'm not, sir. I wanted to make it clear that the position we are advocating this morning is with respect to the proceedings being conducted by the FTC and the FCC.
REP. DINGELL: You are leading me --
MR. MEISINGER: We have no problem with fair treatment for all participants in the business. No problem whatsoever.
REP. DINGELL: Do you then believe that the FCC should come forward with rules that would cover everybody?
MR. MEISINGER: I think that would be a prudent thing to do at some point in time, and I know that is being studied now.
REP. DINGELL: Okay. Is it just yes or no to all? I think I'm getting close to the borders of my time, Mr. Chairman. Am I not fair then in assuming that the notion of government mandates on one industry player imposed in the context of a merger transaction may lead to anticompetitive results in the marketplace?
REP. TAUZIN: I'd ask you all please to answer that hopefully in the affirmative. (laughs)
Ms. Wilderotter.
MS. WILDEROTTER: So what do you really mean, Chairman? (laughs) Absolutely I think it has to be a level playing field for all the participants in the business.
REP. DINGELL: I have this curious view that level playing fields is the fairest way. So I gather you accord with my view.
MS. WILDEROTTER: Yes.
REP. DINGELL: Now, Mr. Meisinger.
MR. MEISINGER: Yes.
REP. DINGELL: You've been giving me some rather ambiguous answers. I'm going to give you time to set them out with sufficient --
REP. TAUZIN: But not a lot of time.
MR. MEISINGER: I regret the confusion. We believe in the concept of open access. We also believe for the particular imposition of conditions on this particular transaction, and we believe that this committee and others should study the issue along with the FCC, and I know that's being done.
REP. DINGELL: Mr. Froman.
MR. FROMAN: Yes. We agree, Mr. Dingell.
REP. DINGELL: Ms. Heffernan.
MS. HEFFERNAN: Equality is at the heart of interoperability.
REP. DINGELL: Mr. Gray.
MR. GRAY: Yes. I agree that we need to apply this fairly across the board or it would be instrument --
REP. TAUZIN: Thank you very much. Thank you, Mr. Dingell.
REP. DINGELL: The chairman's patience is appreciated.
REP. TAUZIN: Indeed, although I would suggest that if somebody's going to make these rules, we might want to do it right here, Mr. Dingell, instead of at the FCC. I think you have some similar feelings about that.
The chair recognizes the gentleman from Illinois, Mr. Shimkus.
REP. SHIMKUS: Thank you, Mr. Chairman.
Let me ask Mr. Meisinger. It's kind of a follow-up to the ranking member. Disney Corporation, what are the major -- do you have major cable holdings or direct satellite or part holdings in direct satellite or any of those types that I referred to in my opening statement?
MR. MEISINGER: No, sir.
REP. SHIMKUS: And that's where I was a little bit confused because I think the question, and I don't dare try to speak for the ranking member, but the question was, you seek equal access to -- you know, if AOL Time Warner develops an exclusionary rule, and I thought the intent of the discussion was if you had pipes would you not allow -- you know, would you want the opposite of what you're asking for for AOL Time Warner?
MR. MEISINGER: If that was the question which I now understand you to be asking, the answer to that is, we would obviously be compelled to follow the same paradigm as the rest of the industry.
REP. SHIMKUS: Thank you. That helps clarify that, this debate and discussion for myself.
Help me out. In my opening statement I mentioned multiple pipes, multiple choices. To have that, doesn't that rely on consistent industry standards? Isn't that a requirement? And if you'd just start and answer across the table. I'm just a layman. I'm just a simple country boy from Southern Illinois, so we're trying to handle this high-tech issue, and I think it does speak to some consistent standards. And I want to see if you all agree.
MS. WILDEROTTER: Well, I do think that it requires consistency in order to deliver multiple products and services into the home. I do think that every pipe have a different paradigm associated with that to optimize how a consumer experiences interactive television in the home. So I think that if you look at the cable pipe -- and there are a number of efforts going on in the cable industry today on interoperability and there are services being delivered where we deliver our service of enhanced broadcasting. We are coexisting with video-on-demand companies, with electronic program guides with Internet access capability, all in one box in the home.
So we have a number of constituents on the vendor side that are providing multiple services in a very competitive environment delivering services. So too on the satellite side. So I do think that whether it's a standard or not it's less important than the interoperability really works to what's the consumer experience going to be in the home from the user interface perspective.
REP. SHIMKUS: Thank you.
Mr. Meisinger?
MR. MEISINGER: From my perspective, we are interested in standards which make it clear that our content will be equally accessible to our consumers across all platforms on which we can distribute our product.
MR. FROMAN: We believe standards, open standards, consistent standards are the most important thing to a competitive marketplace; and it is the one thing that threatens to negate competition in the cable marketplace today. For example, competitive navigation devices, set-top boxes with pod interfaces, are not being made available to competitive entrants. The specification for these devices is different than the specification for the devices that the MSOs are able to provide on their own. And the date with which the FCC has set for those standards to be the same is January 1, 2005. And in private conversations with executives from specific MSOs they've told us that as long as they have the ability to have a different standard and use a proprietary box in their system and aggregate the cost and sell it for much cheaper than the market value for a sustained period of time, they are interested in doing that, and they're not interested in changing.
Open standards is the solution, and it's the easiest thing the commission can do to make this work.
REP. SHIMKUS: Ms. Heffernan?
MS. HEFFERNAN: Yes. Absolutely industry standards are essential. Let me just give you one interesting --
REP. SHIMKUS: Briefly, quickly.
MS. HEFFERNAN: Sure.
REP. SHIMKUS: My time is running.
MS. HEFFERNAN: Net Nanny provides, builds filtering software so that parents can protect what kind of information they get through instant massaging devices. What they've said is, we don't have the resources to write specific software for 10-plus standards today. Writing for one standard, we could provide multiple products that would filter different things for different parents according to the ages of their child and the preferences of their parents.
So this is a perfect example of where an industry standard would provide more choice to consumers of a kind that they can't access today.
MR. GRAY: I got to use an old joke which is, the great thing about standards is that there's so many to choose from.
REP. TAUZIN: That is an old joke. Must have heard it from an old guy.
MR. GRAY: Well, but the standards process in the Internet, I mean first of all, the whole Internet has become a success because of the standardization of the Internet protocol and interoperability, but if you look at the IETF process it's not paper standards that count. What's great about IETF is that what makes a standard accepted is when there are real-world solutions that implement it. That's what makes a standard.
REP. SHIMKUS: And I'll just close. I'm not going to follow up with a question, Mr. Chairman. But I think what we need to be cautious about, because I think we all agree with that -- but who sets the standard, and is it a standard that then you lock in and you do not allow for new advancement? -- especially when government gets involved. I mean, we set a standard -- we see it at FCC all the time.
REP. TAUZIN: There's always a tension. That's right.
REP. SHIMKUS: And so it's got to be dynamic somehow, and if we get involve legally-based, it's no longer dynamic. It's monumental and overcoming to try to change. So with that, Mr. Chairman, I yield back.
REP. TAUZIN: Thank the gentleman for identifying that tension. It does exist in all these areas.
Let me, the chair recognize himself. I'm going to give you additional time, if any colleagues on this side want to have additional time. You might let them know that if they'd like another round.
Let me first try to set the stage for the question I'm going to ask. This is very almost Yogi Berra deja vu all over again in a sense that there was a time when AT&T was the telephone company; the common carrier broke it up at some point, and now a lot of attempts to put it back together in different forms but it's been broken up.
When the competitors to long distance AT&T began to arrive a lot of similar problems -- interconnection and interoperabilities and complaints about, you know, meetings missed and contracts not signed and technical difficulties and all sorts of problems like that. So there is a sort of sense of deja vu. But difference here is that we're dealing primarily with a cable structure which is not a common carrier, which is essentially deregulated.
In the world of AT&T, Sprint, MCI, et cetera, we were dealing with basic telephone service which was heavily regulated, subsidized with universal service obligations, and heavily impacted with open access requirements, common carrier requirements. But here we're dealing with a cable structure. Satellite is not a common carrier, and yet satellite carries Internet services. Wireless services can be telephone or not, so they can be common carriers or not depending upon what form of the wireless service. And we know the Internet is carried in all four of those forms, and before too long perhaps on some new ones, perhaps on electric lines, perhaps with some new concepts such as time domain recommends to us and ultra broadband wireless technology.
The question I'm asking is, if in fact we are to avoid what Mr. Dingell has cautioned against -- that is, government regulation subjectively on some companies but not on their competitors which I have complained about as much I believe as Mr. Dingell has -- of FTCs and FCCs that simply get you in the room when they got you and make you agree to regulations and conditions or else you don't get out of the room, which is I think where we find ourselves too often in these merger decisions.
And if we are going to make policy for the new world of broadband interactive converged Internet services, over all these forms -- some common carriers and some not -- what is the right policy? Should we take the telephone model and begin allowing the FCC to dictate the terms of interoperability and common carriage, open access if you want to call it that, technical nondiscrimination issues and issues of cost aggregation, all the incredible ways in which the government has intricately regulated the common carriage of telephone service.
Or should we find a different model? Did the '96 Act point us in a different direction, or did it point us in the direction that some of you are asking us to take, to gin up the regulators to begin regulating this new world of broadband services and interactive television?
Come back to me.
Mr. Froman.
MR. FROMAN: Fundamentally, we believe as I said earlier, in the case of navigation devices which will receive the interactive television, what we're asking for is common standard. And when we say level playing field, the MSOs and the competitive entrants, the SONYs and the Panasonics, consumer electronics manufacturers, just need to have the same standard that they're working off of. The MSOs just need to be playing on the same field.
I think you can avoid regulation if you were just to say by January 1, 2002 these industries need to have this standard.
REP. TAUZIN: Do it on your own. Come up with some standard.
MR. FROMAN: Just set the date.
REP. TAUZIN: Ms. Wilderotter.
MS. WILDEROTTER: Yes, Mr. Chairman. I thought that was very eloquent in terms of the complexity of what we all have to deal with in this environment. But I think it's extremely important that we make sure that markets are able to develop to the point of really knowing if there is a necessity for regulation. And by putting the consumer in the middle of this and making sure that there are services and choices for consumers is really what the most important thing is. I truly believe that the broadband environment today is a competitive environment. I think there are multiple choices for consumers in terms of how they get interactive television.
REP. TAUZIN: Let me stop you. We have to go make another vote again. Do you think it will be competitive enough? Is AOL Time Warner going to be such a dominant player that we're going to end up having to write rules for AOL Time Warner would reference to all of these concerns? For example, are we going to really have to get in and dictate the terms of the contracts that Disney signs with AOL Time Warner for the carriage of ESPN to makes sure that they are technically equal, that they have the same rights to their consumers as any other programming? I mean, that's essentially what Disney is asking the regulators to do, to try to enforce right now through this process on this company, on this merged company.
Are we going to find ourselves doing that? Will there be enough competitive pipes fully capable, available to consumers to choose from so we have less need for us to use the old telephone model of heavy government regulation and more reliance upon the Internet model of free-flowing competition?
MS. WILDEROTTER: I definitely think there's enough competition and there's enough free flow to give choice in the marketplace.
REP. TAUZIN: Anyone else?
MR. GRAY: I respectfully disagree a bit.
REP. TAUZIN: Tell me why you disagree.
MR. GRAY: Absolutely. I totally agree on the content side. And if you look at a company like Disney, the Internet model is great. There is no need for regulation at all at the content level, the Internet level. But in the real world there is a limited number of pipes. And so if you're looking at the physical media, there's only so many telephone poles and radio towers that people want in their neighborhood.
REP. TAUZIN: But you see the content level you say it is, but Disney will say, wait a minute -- even if government doesn't give us a right to be on AOL Time Warner system, we saw Mickey Mouse roar. We know Mickey Mouse got some leverage and managed, you know, to get back on. You know, we can do that in the private sector. We can take ABC off and Time Warner realize our consumers want ABC programs so they'll get back on.
But the point they're making is, well, we might get back on but we might be differently treated. Our consumers may not be able to interact with our programming the same way they interact with other programming. Does government really have to get into all that, or can't that be negotiated in a competitive marketplace of broadband interactive services?
MR. GRAY: I think if you openly route IP packets, Internet packets across the network, that will be fine. But cable still has that head end which they control, okay? So if they discriminate on how they carry packets across their network, that's the limited resource that does need regulatory --
REP. TAUZIN: One or two more. Do you have one you want to get in before we leave, Barbara? I want to ask you this. Assuming that either the agencies involved with this merger or the agencies after this merger or this Congress begins writing rules as Mr. Dingell suggested to apply to all the players in this new field on interoperability, on open access, on technical nondiscrimination, on elimination of cost aggravation, and I could think of about eight or ten others -- colocations you know, agreements, price terms, conditions of fairness. You know, we do a lot of that stuff around here. Assuming we entered into all that activity, would that be reregulating cable? Yes or no?
MS. WILDEROTTER: Absolutely it would be. No doubt about it. Again, I just want to make a comment. As a small company in a very new business of interactive television that does not have a big parent behind us -- we're a public company and we've built this company from scratch -- we are working within the existing model, and we will be deployed in 12 million homes over the next couple years with a number of these partners.
REP. TAUZIN: I commend you for that. I want to see more of it, frankly.
MR. MEISINGER: There's no question under your hypothetical it would be regulating cable. Our concern is that in the absence of free market solutions --
REP. TAUZIN: You want government pressure.
MR. MEISINGER: -- we think, and in the case of, in this particular instance it was clear that that would not work, that there are times when regulators need to intervene.
REP. TAUZIN: But you see, Mr. Dingell made the case, and I sympathize with some of the problems you have. I really do. I think he does too. But you see we're left with this case-by-case business. The government sort of makes a case-by-case rule and then it doesn't apply to the other competitors. And he made the point very well. We really don't want to do it that way.
MR. MEISINGER: That's a timing issue, Mr. Chairman. The problem is that Time Warner AOL did not wait for the regulators to complete the process.
REP. TAUZIN: But the point I'm making is, we can't put them all in the room at the same time unless we do a rule-making or a law. And so you've only got one in the room at a time, and then you regulate in subjective. You understand the concern we have with that.
MR. MEISINGER: Of course I do. And you need to have a rational system of regulation if you have one. But the Clayton Act contemplates that the FTC and the public interest requires that the FCC take a look at individual transactions. That's being done here, but that doesn't supplant the need or the potential inquiry into the need for further regulation so that everybody has equal access and consumers are not denied choice.
REP. TAUZIN: I'd caution you to be careful what you ask for.
Anyone else?
MR. FROMAN: Yes, Mr. Chairman. It strikes me that the issue we're talking about here has several component parts, and when you ask the question, is the pipe big enough for everybody? is it the only pipe? -- well, there are competitive access for ISPs. You have satellite, you have DSL, you've got dial-up -- even though it's not broadband.
REP. TAUZIN: The point is, if there are enough competitors do we need to regulate each one?
MR. FROMAN: Absolutely, and we agree with the point. But the other issue, on the video side -
REP. TAUZIN: Wait. I want to stop you. Your answer is yes, we should regulate each one?
MR. FROMAN: No, sir.
REP. TAUZIN: Oh, your answer is no.
MR. FROMAN: I do not believe that. I think we need to have broad guidelines established by the FCC to keep us moving in the right direction. The video side is a little different. There are not the competitive entrants on video cable. DBS has done remarkably well and has, and we're very enthusiastic supporters of DBS, but it's not for everyone. There are antenna issues, dish issues on homes, line of sight, multiple dwelling units. So cable has -- the cable companies today have the ability to block more content than just Internet access. Their electronic program guides the customers buy in televisions can be blocked.
So we need just some broader guidelines so the industries can keep it moving forward.
REP. TAUZIN: Please proceed.
MS. HEFFERNAN: I'd just like to make one point very clear. We are not asking that the Internet be regulated. I think the notion that interoperability is a principle that industry bodies like the IETF figure out the details and the protocols, I think that works extremely well.
REP. TAUZIN: Ms. Heffernan, just quickly, so you work them all out, you got the protocols in what interoperability requires, but somebody doesn't want to sign you up?
MS. HEFFERNAN: Right.
REP. TAUZIN: Do you need government to force them to?
MS. HEFFERNAN: I don't need government to force people to use my application. Apparently I need government to help AOL live up to its public commitments, the commitments it's made to the government --
REP. TAUZIN: What you're saying is that if AOL Time Warner behaves in a way that allows for real interoperability and works out your problems in the marketplace that the government can go away and so can we. And of course that's true. If you get what you want in the marketplace. But suppose you don't? That's the big question. Suppose you don't get it. Will you still be up here asking us to come in and order all of the players, not just AOL Time Warner but all of those pipes to treat you the same? And I don't know yet. I mean, we have to think about that.
Mr. Gray.
MR. GRAY: Well, cable, the cable systems are a de facto monopoly today. If you look at the future of my business I need to deliver high speed broadband services to our customers, and there's simply no choice of what's available to us. DSL has an insignificant market share. It's really not a true competitor.
REP. TAUZIN: You see, Mr. Gray, I'm glad we got you on each end of the table because that's the range of opinion that we're forced to work in. I've got about three and a half minutes, so we're going to have to wrap, but I just want to point out to you that that is exactly the struggle that we face in trying to philosophically think this through in a real, not a virtual, the real world of consumers trying to get these services and companies trying to form up and build the assets that Time Warner and AOL are obviously trying to put together to deliver these interactive services.
At the same time, we're also facing a world where very soon, you know, the video side and the data side and the telephony side are all going to be just one anyhow. It's not going to make a lot of difference how they're coming to us or where they're coming to us. What's really going to be a question is, can we get everything we want in an easy, useful, affordable way from enough different companies so that we feel like we're going shopping and there are a lot of stores out there, and if we don't like what the Giant is carrying we can move over to the Safeway, whatever it is.
If we don't have that same marketplace, we're going to be back here talking about reregulating cable and satellites and wireless services again. I just hope we can avoid that.
Thank you very much for your contributions. And the hearing stands adjourned.
END
LOAD-DATE:
October 11, 2000
Document 5 of 383.
Search Terms: telecommunications act of 1996, House or Senate or Joint
To narrow your search, please enter a word or phrase:
Copyright © 2002, LEXIS-NEXIS®, a division of Reed Elsevier Inc. All Rights Reserved.
