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Document 47 of 383.

July 18, 2000, Tuesday

SECTION: PREPARED TESTIMONY

LENGTH: 2954 words

HEADLINE: PREPARED TESTIMONY OF LEONARD J. CALI VICE PRESIDENT - FEDERAL GOVERNMENT AFFAIRS, AT&T

BEFORE THE HOUSE COMMITTEE ON THE JUDICIARY

BODY:
Chairman Hyde, Ranking Member Conyers, and members of the Committee, it is a pleasure to be with you today, and to discuss the many developments that have taken place in the telecommunications marketplace since the Committee's last hearing on these issues on June 30, 1999. AT&T and hundreds of competitive providers are working harder than ever to provide consumers with advanced technologies and services at affordable prices. The rapid development and deployment of these new services is a direct result of the opportunities created by the Telecommunications Act of 1996. Congress and this Committee should take great pride in this landmark legislation. It is transforming the way we communicate and increasing competition in the telecommunications marketplace.

My message to you today is this: the marketplace is effectively addressing the primary issues of concern in H.R. 1685, the "Internet Growth and Development Act," and H.R. 1686, the "Internet Freedom Act." It is generating unprecedented investment in new infrastructure and services, and giving millions of consumers new choices, quality services, and lower prices for broadband services. Congress should not jeopardize this remarkable success by gutting the 1996 Act, creating new marketplace uncertainty, and undoing the reforms that made this progress possible. Last year, AT&T testified before this Committee that the provisions of H.R. 1685 and H.R. 1686 that would amend our antitrust laws and modify the long distance restrictions of the 1996 Act were both unwarranted and unwise. The bills address problems that do not exist in the marketplace, and do so in ways that would distort antitrust jurisprudence, retard competitive investments, lead to regulation of the Internet, and subvert the incentive-based framework of the 1996 Act. Rather than restate these arguments, I have attached to this statement a copy of AT&T's written testimony from last year. In addition, I request that the July 29, 1999 letter from Judge Robert H. Bork to you, Mr. Chairman, along with his statement analyzing the legal and policy implications of these two bills, be made a part of today's record. With this introduction, I would like to focus my testimony on developments in the marketplace over the last year that underscore the case against re-opening the Act.

The Broadband Marketplace Is Working, With Rapidly Expanding Availability Of Broadband Offerings And Sharply Declining Prices

Taking advantage of the new opportunities created by the 1996 Act, and with increasing certainty about what the Act provides, industry participants have devoted tremendous resources and staggering investments to the development and deployment of advanced technologies and services. These participants include cable companies, competitive local exchange carriers, satellite providers, wireless providers, and the incumbent local phone companies. There is, in fact, a broadband race underway that is perhaps the most significant development resulting from the 1996 Act, and one that is having a very real impact on consumers. Prior to enactment of the 1996 Act, there were only a handful of potential local exchange competitors, and consumers were only able to access the Internet via dial-up access or an expensive T- 1 line. Today, there are 300-plus competitive local exchange carriers ("CLECs"), (1) and many consumers can choose to access the Internet using competing and high-speed technologies, such as those offered by DSL, cable modems, satellite, and fixed wireless offerings. In addition, notwithstanding contrary claims based on outdated or incomplete data, dozens of competitive providers have, in the last four years, blanketed the Nation with over 1,000 high-speed Internet points of presence ("POPs"). As a result, today 95% of all Americans live within 50 miles of one of these competitively provided POPs (as depicted in the attached maps of the United States). And even this understates the level of access to the Internet backbone because local ISPs aggregate onto high-speed private lines the demand of local communities for transport to the Internet backbone, regardless of the distance to the Internet POP.

As a result of the growth of investment and competitive activity during the last 4 years, increasing numbers of American businesses and residential consumers in all regions of the country are able to choose from a greater number of technologies and broadband offerings at lower costs for their communications needs. For instance, today more than 3 million American subscribe to high-speed data services using either cable modem or DSL technology, and that number is rapidly increasing. Moreover, analysts estimate that cable modems will be available to 54 percent of U.S. households by the end of this year, and more than 80 percent by 2002.(2) In addition, the analysts tell us that DSL service should be available to over 36 percent of U.S. homes by year-end, and 65% in 2002.(3) All of this is the result of the broadband competition that the 1996 Act made possible. This competition means more choices and lower prices - clear evidence that the marketplace is meeting the very needs that these two bills would address.

The cable industry has taken a leading role in bringing broadband offerings to residential consumers. Cable modems provide Internet access at speeds up to 100 times faster than dial-up telephone modems. Since 1996, the cable industry has invested more than $31 billion - and the number is growing everyday - to enable this technology by rebuilding cable plant and making cable facilities two-way interactive systems through the use of hybrid fiber coax networks.(4) As of May 2000, there were over 2 million cable modem subscribers in the United States, and cable modem service was available to more than 48 million homes in the U.S and Canada, or 44 percent of the homes in the cable service area. Analysts project that 7,500 high-speed cable modem service subscriptions are being added every day in North America, with an overwhelming majority of those in the United States.(5)

The cable industry has not been alone among the competitors. Fixed wireless providers, including companies such as AT&T, Winstar, Nextlink, and Teligent are investing significant resources to develop fixed wireless technologies that will use radio frequency to transmit large amounts of data and permit American businesses and consumers to obtain high speed Internet access. In addition, competitive local exchange carriers that have come to be known as "data LECs" or "DLECs" are rapidly deploying DSL technology for high-speed Internet access. (See attached chart of annual investment in infrastructure.) As of June, 2000, more than one million Americans subscribe to DSL services provided by competitive and incumbent local exchange carriers, and analysts project that number will exceed 2.1 million subscribers by year's end.(6) As of the end of the first quarter of this year, three of the top eight DSL service providers are competitive carriers, representing 22 percent of DSL subscribers. Some of these companies, like Covad Communications, did not even exist prior to enactment of the 1996 Act.

DSL technology has existed for more than 10 years, but until recently the incumbent monopoly providers have had no incentive to deploy it. In recent months, however, spurred by this growing broadband competition, the incumbent carriers have responded with their own burgeoning DSL deployment. For example, SBC announced in October that it will devote $6 billion to provide 80 percent of its customers with DSL service by 2002. Bell Atlantic has also announced that it will invest $1 billion per year until 2005 to further develop its fiber network. And just last month, US West announced that it was expanding its DSL service to 30 new cities.(7)

Developing competition is not only driving the incumbent carriers to deploy DSL, but where competition exists, it is also forcing the incumbent carriers to reduce their DSL charges to consumers.

Bell Atlantic, for instance, just announced that it is lowering its DSL rates from $49.95 to $39.95 per month. Other Bell companies have similarly slashed their charges, with one Bell company having been forced to reduce its monthly charge from $89 in 1998 to $49 in 1999 and again to $39 in 2000. (See attached chart of RBOCs DSL pricing changes.) While these companies might be commended for these efforts, it is only the developing competition - and the prospect of greater competition - that is driving these aggressive roll out strategies and price reductions.

In short, during the past 12 months, market participants in all regions of the country have greatly increased their deployment of various broadband technologies. At the same time, prices for these services have fallen dramatically. The deployment to date has required vast sums of capital that the companies have been able to raise in the marketplace because of the growing regulatory certainty and framework provided by the 1996 Act. Congress should not jeopardize the further deployment of these technologies nor the competition that exists today by passing legislation that would re-open the 1996 Act and create new and uncertain obligations.

The Bell Companies Have Demonstrated The Ability And Incentive To Deploy Broadband Services Without Obtaining Further Long Distance Relief, And Such Relief Is, In All Events, Within Their Reach

This discussion also confirms that, notwithstanding their claims to the contrary, the Bell companies do not need long distance "relief" to deploy broadband services. They are amply able to do so, and have done so under the spur of developing broadband competition.

Since the Committee's last hearing on these bills, moreover, it has been confirmed that the Bell companies themselves hold the key to obtaining the authority to provide long distance services, and that they will make efforts to open their local markets in order to do so. For example, in December, the FCC granted Bell Atlantic permission under Section 271 of the Act to provide interLATA service in New York. Little more than two weeks ago, the FCC also granted SBC approval to provide interLATA service in Texas. Although AT&T believes that each of these Bell company applications fell short of what the Act requires in particular respects, it is clear that the requirements of Section 271 of the Act are attainable and can be met, if a Bell Company takes steps to open its local markets to competition.

This is a particularly significant point. As AT&T testified before this Committee last year, in order to foster local competition, the 1996 Act permits in-region interLATA authority only after a Bell company has opened its market to competition. This incentive-based approach takes full advantage of the long distance restriction to provide the Bell companies reason to open their local markets for the benefit of all consumers. Too much remains to be done for Congress now to remove or lessen this incentive. If one thing has not changed since this Committee's last hearing on this bill, it is the continuing dominance of the local exchange market by the Bell companies and other incumbent local carriers. CLECs account for only about 6 to 8 percent of the total local telecommunications market,(8) and far less of residential local telephone service. As a result, and notwithstanding the growth of broadband competition, the Bell companies continue to dominate local exchange telephone services, particularly for residential consumers. By permitting Bell companies to enter the interLATA market without first opening their local markets, H.R. 1685 and H.R. 1686, as well as H.R. 2420 sponsored by Representative Tauzin, would substantially reduce the prospects that this dominance will end. As such we strongly encourage you to oppose these measures.

Passage of this legislation would also hurt consumers in another way, in the 47 jurisdictions where the Bell companies have not yet sufficiently opened their local markets to obtain interLATA authority. Recent press reports indicate that other Section 271 applications may soon be filed.(9) But if this legislation were enacted, the Bell companies in those states and others would have no incentive to take any steps to open their local markets to competition. That means that CLECs and other competitive providers would have substantially fewer opportunities to compete in those states than would otherwise exist, and less than exist in New York and Texas today. As a result, investment dollars would be directed toward the latter two states, and away from the remaining states in the Nation.

Cable Companies Will Offer Their Consumers A Choice Of ISPs Over Their Broadband Cable Facilities

Last June, AT&T told this Committee that, free from government mandate and regulation, AT&T would ensure that consumers are able to access the content of their choice over its cable facilities. Over the last year we have worked diligently toward fulfilling this vision. On December 6, 1999, AT&T publicly confirmed, in a letter to FCC Chairman William E. Kennard, that it would, upon expiration in 2002 of its exclusive contract with Excite Home, provide consumers with a choice of ISPs and that it would enter into commercial negotiations with unaffiliated ISPs that wish to offer high speed Internet access over AT&T's broadband cable facilities. Earlier this summer, AT&T also announced that it will conduct two trials to work out the technical issues involved in offering customers a choice of ISPs on its cable system. These trials will take place in Boulder, Colorado this Fall and in Massachusetts next Fall. ISPs representing a broad cross- section of popular national and local providers have indicated an interest in participating in these trials.

These actions further confirm AT&T's commitment to provide its customers with a choice of ISPs over its broadband systems. We were the first company in our industry to commit to choice, we were first to agree to a set of principles with an unaffiliated ISP to provide connectivity, and now we're first to commit to meaningful technical trials.

These efforts are hardly surprising, however. AT&T has invested billions of dollars in its cable facilities, and its own self-interest is driving it to provide consumers the choices and access they desire over those facilities. This is because the more that AT&T satisfies its customers, the more customers it will have, the more traffic it will carry, and the more likely it will be to sell to customers its other cable, broadband, and telephony offerings. And now three of the other largest cable providers - Time Warner, Comcast, and Cox Communications - have also indicated that they would offer their customers a choice of ISPs. These steps confirm that the marketplace is addressing the concerns reflected in H.R. 1685 and H.R. 1686. There is no need for legislative action that would create marketplace uncertainty, give rise to litigation, and slow deployment of competitive offerings.

This explains also why, in the face of these facts, some of the most vocal proponents of forced access to cable facilities are the incumbent local exchange carriers. They stand to benefit the most if unnecessary legal and regulatory requirements impose greater cost, uncertainty, and delay on the conversion of cable facilities to an advanced infrastructure that is capable of providing competitive broadband and residential local telephone services. There is no public interest benefit in such an outcome.

Conclusion

Mr. Chairman and members of the Committee, the marketplace for broadband offerings is working. Notwithstanding the costs, technical hurdles, and, at times, hostility and resistance of the incumbent local carriers, broadband services are being rapidly deployed in a competitive framework. As a result, American consumers are enjoying new technologies and services at lower prices. Analysts predict that by 2005, 38 million U.S. households will access the Internet via broadband services.(10) In addition, the major cable companies have indicated that they will offer their consumers a choice of ISPs over their broadband cable facilities, and AT&T is taking the necessary steps in preparation for doing so. We respectfully urge the Committee to promote continued deployment of broadband in a quick, widespread, and commercially reasonable manner by maintaining the competitive incentives provided under the 1996 Act.

FOOTNOTES:

1. C.E. Unterberg, Towbin, Broadband Communications Providers, June 14, 2000, p. 5.

2. Morgan Stanley Dean Witter, The Broadband Report, May 1 2000, p. 8.

3. Morgan Stanley Dean Witter, The Broadband Report, May 1 2000, p. 8.

4. Remarks of James Ewalt, Vice President of Public Affairs, National Cable Television Association, to the Economic Development Forum, Economic Development Administration and the U.S. Conference of Mayors, Albuquerque, New Mexico, June 1, 2000.

5. C.E. Unterberg, Towbin, Broadband Communications Providers, June 14, 2000, p. 8.

6. Telechoice, One Millionth DSL Customer!!!, June 6, 2000; see also C.E. Unterberg, Towbin, Broadband Communications Providers, June 14, 2000, p. 7 (DSL Line Chart).

7. US West Newsrelease, US West Jumps Out of the Blocks in the Race to Speed Super-Fast Internet to Mass Market-30 New Cities, Hot Multi- Media Portal & World's Fastest Man, June 19, 2000

8. C.E. Unterberg, Towbin, Broadband Communications Providers, June 14, 2000, p. 5.

9. Communications Daily, Bell Companies Predict Increase in Sec. 271 Applications, July 10, 2000.

10. Merrill Lynch, Internet / e-commerce, June 15, 2000, p.7.

END

LOAD-DATE: July 20, 2000

Document 47 of 383.


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