Copyright 1999 Federal News Service, Inc.
Federal News Service
JUNE 30, 1999, WEDNESDAY
SECTION: IN THE NEWS
LENGTH:
2166 words
HEADLINE: PREPARED TESTIMONY OF
WILLIAM
P. BARR
EXECUTIVE VICE PRESIDENT AND GENERAL COUNSEL
GTE CORPORATION
BEFORE THE HOUSE COMMITTEE ON THE JUDICIARY
SUBJECT -
H.R. 1685 AND H.R. 1686
BODY:
Thank you, Mr.
Chairman, for the opportunity to testify before the Committee. I am Bill Barr,
Executive Vice President and General Counsel for GTE.
Within the near
future, high-speed or broadband Internet access will become the most important
communications medium in the country. As a result, the Internet soon will become
central not only to our economic vitality, but to our communal life. It will be
the public commons, a forum for ideas, a marketplace, a medium of entertainment,
a vast public library, and the primary means for the dissemination of news,
opinion, and information.
The Internet market currently suffers, however,
from severe constraints on competition caused by ad hoc and irrational
government regulation that has been lifted from the telephone and cable
television markets and haphazardly applied to the very different Internet
market. First, existing law prevents one set of competitors -- local telephone
companies -- from competing freely in the Internet market, thus insulating cable
companies from full competition.
Second, exploiting their insulation from
full competition, cable companies are engaged in a classic anticompetitive
tactic -- tying their services together, which permits cable companies to
leverage control from one market into others. Specifically, AT&T and the
cable giants are requiring consumers who want broadband access transport also to
purchase the cable company's affiliated ISP instead of the ISP of the consumer's
choice.
The bills introduced by Congressmen Goodlatte and Boucher deal
directly with these problems and are highly pro-competitive. The bills would
break down the existing barriers to telephone company competition and
simultaneously prevent improper cable company leveraging -- and thus would
ensure free, equal, and open competition on the Internet, which would greatly
benefit consumers.
First, the bills would allow the local telephone
companies, including the Bell companies, to compete freely in the Internet
transport markets. I want to stress, however, that the bills would not in any
way remove the requirements on the Bell companies to open their local telephone
markets to competition in order to enter the long-distance phone market, but
would simply free them to participate fully in the Internet market. Second, the
bills would prohibit the cable companies' current anticompetitive practice of
tying and would impose open-access requirements on all broadband access
transport providers, cable companies and telephone companies alike.
I.
Guaranteeing Open Access and Freedom of Choice
Let me turn first to open
access.
The principle of open access is not newly minted: It has been the
central tenet of the telecommunications industry for the last 15 years. The
notion has been a simple one: You can install a driveway and get a fair return
from the consumer for installing that driveway, but that does not give you the
right to dictate to the household where they go on the highway.
That
fundamental principle has been applied to open up the telephone markets and to
protect independent programming in the video market.
That's why consumers
today can choose their long-distance carrier. It's not dictated by the local
company. Consumers have a choice. That's open access.
That's why cable
company operators are not allowed to favor video programmers owned by the cable
company in providing cable television service.
And that's also why consumers
have a choice today when they use the telephone line to get to the Internet.
They can choose their ISP - whether America Online or GTE Internetworking or
Mindspring or one of the other ISPs in operation. Again, open access.
This
policy of open access was not dreamed up in some utopian classroom. Rather, it
is the product of bitter experience over the twentieth century. Twice in this
century, large corporations successfully came to dominate key parts of the
telecommunications industry through a simple two-step strategy. First, buy up a
large percentage of the local pipelines into the home. Second, close off
consumer access to any other provider of services - forcing the consumer to do
business only with companies affiliated with the owner of the pipeline into the
home.
In the first decade of this century, as the newborn telephone industry
was exploding, AT&T bought up the bulk of local exchanges and forced its
consumers to choose AT&T as the long-distance provider. Competition quickly
withered away, and AT&T succeeded in establishing its monopoly.
Similarly, in the 1980s, cable companies used their control over cable
access to try to take over video programming and content. The cable companies
used their ownership of the wire to get a piece of the action on content and to
require that content providers be affiliated. The Congress finally took steps to
curb this practice in 1992 and require nondiscriminatory access.
In both of
these cases, regulators eventually stepped in and required open and equal
access. But the key point is that the regulators stepped in only after the
damage had been done - after competition had been thwarted. Through a series of
regulatory devices over the past 15 years, regulators have been struggling to
recreate competition and to return to open access principles in these markets.
It's therefore ironic that the same companies that tried these tactics
earlier - AT&T and the cable giants - are now combining into one huge firm
and putting the same tactics into effect to try to dominate the Internet, which
is the telecommunications marketplace of the 21st century. AT&T is buying a
large percentage of high-speed Internet lines into the home and is also seeking
to close off the consumer's ability to choose any ISP other than one controlled
by AT&T.
Many cable companies, in offering Internet access, are
compelling their customers to sign up for, pay for, and use their ISPs if they
want to use a cable modem. Basically, customers do not have a choice. If they
obtain cable modem service, they must choose the cable company's ISP.
The
cable companies are enforcing their lock on the customer with three penalties.
First, they are telling customers who want to use another ISP that they still
have to pay for the cable company's ISP - in other words, a consumer who wants
choice has to pay twice. Second, beyond this financial penalty, they impose a
performance penalty. They provide a direct connection to their own ISP, but the
traffic of customers who want to reach another ISP travels on the public
Internet, leading to a lower-quality connection. This is discrimination pure and
simple.
Finally, by making customers go through their ISP, the cable
companies can block competitive products from reaching their customers.
A perfect example is the cable companies' anticompetitive limit on video
streaming over the Internet - a restriction obviously designed to insulate their
own television product from competition.
All that is required to end the
cable companies' current monopoly leveraging is a simple legal mandate that
cable operators deliver traffic on an open and nondiscriminatory basis to other
ISPs. The bills offered by Congressmen Goodlatte and Boucher would accomplish
that goal and thus would greatly promote competition and consumer choice.
Cable companies respond that, regardless of the policy justifications, it is
not technically feasible for them to provide open access to other ISPs. But GTE
has proved just the opposite in trials recently conducted in Clearwater,
Florida. Open access to the cable system is technically feasible.
Open
access is not regulation of the Internet, as some opponents suggest, but simply
ensures access to the Internet and Internet interconnection to guarantee
competition on the Internet and freedom of choice for the consumer. The
principle of open access is a free- market principle that if imposed now, will
avoid the need for truly massive regulation later. In that regard, recall that
the Telecom Act of 1996 was largely necessary because of the failure to impose
open- access requirements at the dawn of a previous communications medium: the
telephone.
The policy of open access thus not only is necessary, but is
necessary now. Those who are taking a "wait and see" attitude with respect to
open access to the Internet are wrong. Once a firm gets a head start in closing
off competition - as AT&T is attempting to do in the Internet access and ISP
markets - the results can take years to undo. In fast-growing, network
industries, anticompetitive tactics can lead to disastrous results very quickly.
It is therefore imperative for legislators and regulators to act now to ensure
open access.
II. Removing Restrictions on Local Telephone Companies in
Internet Transport Markets
Existing government policies are also hindering
competition by crippling the ability of local telephone companies even to
compete in the Internet market. First, the FCC is interpreting the
Telecommunications Act to prohibit the Bells from transporting data to the
Internet backbone. The Bells' inability to compete in these Internet transport
markets creates powerful disincentives for the Bells to deploy broadband
DSL service. Many rural areas of the country have no nearby
connections to the Internet backbone. In these areas, interLATA restrictions
aimed at long-distance voice services have had the inadvertent effect of
preventing the Bells from providing high-speed Internet services, including
DSL access. The reason is elementary: There is little reason
that a company would invest to provide DSL in a remote area if
the company is blocked from carrying traffic on its own high-speed lines to the
Internet. If the existing interLATA restrictions did not apply to IP data, the
Bells would be able to bring high-speed Internet access to rural areas much
sooner.
AT&T contends that, in order for it to have incentive to deploy
cable modem broadband service, it needs not only to compete in all of the
various Internet markets, but also to tie together its services in vertical
markets, to leverage its power from one market to the next. All that the Bell
companies seek, by contrast, is the ability simply to compete in the Internet
markets.
The existing prohibitions on the Bell companies in carrying
Internet traffic also prevent full competition in the backbone market. There is
a strong public interest in competitive parity among major backbone providers.
Indeed, it is only because of competitive parity that the major backbone
providers have had an incentive to maintain high- quality peering arrangements
with each other. Competitive parity among backbone providers is in serious
peril, however. The Big-Three long- distance companies could soon dominate the
market, discriminate against other backbone providers, and drive customers to
their own backbones. This would enable the backbone provider to leverage
downstream its backbone market power into the ISP and content markets.
Bell
entry into the Internet backbone market would preserve competitive parity,
however. With their resources, the Baby Bells could rapidly enter the backbone
market and be treated as peers by the existing major backbone providers.
Second, under existing law, there is a regulatory overhang on all local
phone companies because the FCC is threatening to impose the entirety of
telephone regulation, including unbundling requirements, on telephone companies
engaged in the Internet market. This is a further deterrent to investment in
DSL: If a company cannot recover any meaningful profit from its
investment because of onerous unbundling rules that were designed for an
entirely different medium, common sense tells us that will deter investment. The
existing regulatory posture yet again highlights the gross regulatory disparity
that currently exists between cable companies and telephone companies and that
thwarts the kind of real competition on the Internet that would benefit
consumers.
* * *
In the end, the fundamental issue with respect to the
Internet, as with all telecommunications, is how to allow the consumer to
communicate with and obtain information from anyone anywhere in the world. There
are only two ways this can occur: either (i) monopoly control of the entire
network of wires and connections, or (ii) a network of networks governed by
principles of interconnection, open access, and free competition. The choice
between those two approaches for the Internet now faces this Congress. The
choice must be made, and inaction itself will be a choice. Will Congress side
with AT&T and the cable giants and allow a replay of the 20th century - this
time in the Internet market rather than the telephone market? Or will the
Congress heed the lessons of history and ensure open access, freedom of choice,
interconnection, and competition on the Internet? We believe that the right
decision is clear, that Congress should ensure open access and free and fair
competition on the Internet.
Thank you.
END
LOAD-DATE: July 1, 1999 
