Copyright 2000 Federal News Service, Inc.
Federal News Service
July 18, 2000, Tuesday
SECTION: CAPITOL HILL HEARING
LENGTH: 47840 words
HEADLINE:
HEARING OF THE HOUSE JUDICIARY COMMITTEE
SUBJECT: LEGISLATION DEALING WITH THE INTERNET
CHAIRED BY:
REPRESENTATIVE HENRY HYDE (R-IL)
LOCATION: 2141 RAYBURN
HOUSE OFFICE BUILDING, WASHINGTON, D.C.
TIME:
9:30 AM. EDT DATE: TUESDAY, JULY 18, 2000
WITNESSES:
WILLIAM KENNARD, CHAIRMAN, FEDERAL COMMUNICATIONS COMMISSION;
BODY:
REP. HENRY HYDE (R-IL):
Today, the committee holds a second hearing on H.R. 1686, the "Internet Freedom
Act," introduced by Congressman Goodlatte, and H.R. 1685, the "Internet Growth
and Development Act of 1999," introduced by Congressman Boucher. We held our
first hearing on these bills June 30, 1999. Let me repeat what I said at our
first hearing. These two bills seek to enhance the growth of the Internet. They
involve two related issues. The first has to do with cable broadband lines and
whether their owners will be required to grant access to them on
non-discriminatory terms.
The second is whether the regional Bell
operating companies will be able to transport data over long distances lines
within their regions, something they are currently prohibited from doing. The
resolution of both these issues will have profound consequences for the future
of the Internet and, more broadly, the ways that we will communicate in the
future. Having said that, it's important to point out that the environment in
which these issues are debated has changed dramatically since our hearing last
year. AT&T has announced its intention to open its cable lines in 2002.
America Online and Time Warner have announced their intention to merge, and to
open Time Warner's cable line. The United States Court of Appeals for the 9th
Circuit has decided that local governments may not force cable companies to open
their lines as a condition of their local franchise agreement. Two of the
regional Bell operating companies, Verizon and SBC Communications, have obtained
approval to enter long distance in New York and Texas, respectively.
Finally, WorldCom and Sprint have abandoned their attempt to merge in
the face of concerns from both American and European antitrust enforcers. Thus,
much has changed and much remains unclear. I called this hearing because I
thought it would be helpful to committee members to get an update on these
changes and their effect on these bills. I do not believe we have sufficient
support within the committee to move forward on these bills today.
However, I remain open to the idea if sufficient support develops. A
number of members remain undecided, and perhaps this hearing will help us to
understand these issues better. I want to note that I'm especially pleased to
have two distinguished members of the Commerce Committee testifying before us
today, Representative Billy Tauzin of Louisiana and Representative Anna Eshoo of
California. Although we often disagree with our Commerce Committee colleagues
over jurisdictional issues, more often than not we end up working together with
them to produce worthwhile legislation, including the Telecommunications Act of
1996.
So it is an honor to have the two of you to lend us your
expertise, and we look forward to hearing your testimony. I also want to commend
my colleagues, Mr. Goodlatte and Mr. Boucher, for their usual outstanding work
in keeping these issues before us. They often take the lead in high technology
issues, and they're a real credit to this committee, as well as their home
state, Virginia. Let me mention one other topic that is not directly involved in
the bills we are considering, but is closely related -- cable rates.
My
constituents have recently seen 10 percent increases in their cable bill. When I
suggested extending regulation a couple of years ago, the cable industry
expressed vehement opposition to that idea and extended many promises of good
behavior. I'm now wondering whether we made a mistake in deregulating this
industry. I know we now have satellite television as a more or less viable
competitor and, in a few cases, new entrant cable companies. However, they don't
seem to be enough to restrain these increases.
So, later today, I will
be writing to FCC Chairman Kennard to ask him to look into the state of
competition in the cable industry in my region, and give me recommendations as
to whether we should consider reimposing rate regulation. Something has to be
done to restrain these increases. With that, let me say I appreciate all of the
witnesses coming today. We look forward to your testimony, and I now turn to the
ranking member, Mr. Conyers, for an opening statement. Then I will recognize the
sponsors of these bills, Mr. Goodlatte and Mr. Boucher, for their opening
statements. Mr. Conyers.
REP. JOHN CONYERS (D-MI): Thank you, Chairman
Hyde. I want to wish my friends a good morning on the Commerce Committee, Anna
Eshoo and Billy Tauzin. We've worked together on lots of technology issues and
we welcome you here today. You know, sometimes we ought to go before the
Commerce Committee. They always come before us.
REP. HYDE: We'd need to
have the Capitol Police with us, John. (Laughter.)
REP. CONYERS: Maybe
that's why we haven't been going before them. But at any rate, we're all here.
We welcome also William Kennard, the Chairman of FCC and other distinguished
witnesses that will be following very shortly. It's, of course, always been my
position to support competition in all sectors, to give consumers access to the
greatest selection of options at the best prices. And, of course, that applies
to the area of telecommunications.
Unfortunately, so far it has not been
an impressive record of competition within the telecommunications industry.
Cable rates, which are now essentially deregulated under the 1996 law, have gone
up 20 percent. Instead of innovation and competition, we've seen a wave of
mergers and consolidation. The seven Bells have already shrunk to four. And the
cable industry is in the process of being nearly swallowed whole by the long
distance and high tech industries.
If we had only known. If we could
have only foreseen. And the bill of my Judiciary colleagues, Messrs. Boucher and
Goodlatte, brings two critical issues before the committee. The first is whether
Congress should impose open access requirements on high-speed cable access to
the Internet. Now, part of this issue comes down to whether high-speed access is
a monopoly service, which can't be duplicated, or whether it's one of the many
equally good routes to the Internet. And, as of now, cable broadband can't be
said to be a monopoly.
Although some analysts might say that cable is
the superior broadband pipe, right now cable companies have only a small
fraction of the broadband market. And this is not a situation that would
normally allow a per se violation of the Sherman Act to be found. In addition,
we need to consider what impact, if any, regulating high- speed cable will have
on the ability of the cable industry to convert the technology into two-way
telephone service, which competes with the Bells.
And the final
consideration is how regulation could slow the deployment of cable broadband,
and thereby relieve competitive pressure on the Bells to roll out their digital
subscriber lines, DSL technology. Now, the second question, my friends, is
whether we should relax the statutory restrictions on long distance service by
the Bells so they can enter the field of long distance data transmission. And
so, the question is whether the Bells should fully open up their networks to
local competition before they can enter long distance, for both voice and data.
And the current requirements of the 1996 Act served two purposes. They
ensure that the Bells can't use their local phone monopoly to create a monopoly
in long distance, and they create a financial incentive for the Bells to open up
their own networks to competition. Now, data transmission represents half of all
traffic on the telephone network and will soon go up to 90 percent. And if we're
to abandon the market opening tests for data, than I think we ought to be able
to see very strong evidence that doing so will not harm competition and will not
negatively impact consumers.
While increased competition in the backbone
market is a laudable goal, it seems to me that the greater problem is with the
monopoly local loop. Right now, the Internet backbone can take information from
one end of the country to the other instantly, but the "World Wide Wait" occurs
when a person tries to download that information on to his or her PC. It's like
taking a fire hydrant hose and hooking it up to a straw, so that no matter how
fast the fire hydrant delivers the water, the straw will limit the amount of
water that gets out. And right now, the local loop is that straw and we need
policies that will continue to open up that last mile.
And so I think
this is an important hearing. I praise my colleagues on the committee who have
come up with a reason for a second hearing on this subject. But remember, the
telecommunications industry was literally born into monopoly, and it took three
antitrust suits to finally bring some semblance of competition to Ma Bell.
Competition and antitrust were also at the heart of the long distance
restrictions included in the 1996 Telecommunications Act. And so just in case
you didn't have any idea of what I was thinking about this morning on this
subject, now you have it, and I'll be delighted to listen to our colleagues that
are with us. Thank you, Mr. Chairman.
REP. HYDE: Thank you, Mr. Conyers.
Mr. Goodlatte, the gentleman from Virginia.
MR. BOB GOODLATTE (R-VA):
Mr. Chairman, I want to thank you for holding this hearing today on an issue
that, as evidenced by the size and diversity of the audience here this morning,
continues to become increasingly important to more and more Americans. I think
we would all agree that however you define it, bridging the digital divide,
providing digital opportunities, or ensuring the digital revolution leaves no
American behind, encouraging the roll out of high-speed Internet access to
intercity, rural, and underserved areas, remains our greatest challenge.
Much has happened since we last examined this issue, but I am hopeful
that as members listen to the testimony from our witnesses this morning, it will
become evident that although industry has made great strides in rolling out
high-speed Internet access, the administration continues to hinder this roll out
in the areas that need it most by hiding behind portions of the Telecom Act and
ignoring those it does not agree with. Congressman Boucher and I introduced
legislation last year to take action where the FCC would not. Our legislation
focuses on two issues that remain critical to the successful closing of the
digital divide.
First, the bill removes regulation from the incumbent
phone companies that were never intended for the Internet. The
Telecommunications Act of 1996 laid out what was, at the time, an appropriate
plan for introducing competition to the local and long distance telephony
market. However, the plan was not designed for the Internet, and it has not
worked for the Internet. Instead, the Internet marketplace has been negatively
affected, perhaps permanently, by the misguided application of these ill-fitting
telephony regulations.
Starting with a concentration of market power in
the backbone market and leading to the lack of competition in the residential
Internet market, these regulations have led to limited choices and inflated
prices for consumers. Meanwhile, the FCC has stood by and watched as the
Internet gradually loses those characteristics that have made it such a
revolutionary tool for home, work, and play. Not only is FCC inaction resulting
in a slower roll out of broadband Internet service, but the move to broadband,
with no FCC oversight, has raised the question: What will the Internet look like
when it finally gets there?
In districts like mine, where there are few,
if any, competitive providers of high-speed Internet service, the ability of
consumers to choose the kind of content traveling over the pipe becomes more
important. In places like the Silicon Valley, or Northern Virginia, there are a
variety of ISPs and content to choose from. In rural and intercity districts,
however, there may be only one provider or none at all. How do we ensure that
local providers and the communities they serve, whether they be focused on rural
or urban culture, get their chance to participate in the new economy?
Closed access is a logical extension of the digital divide. When an ISP
that targets a specific community or group is discriminated against by a
technology in their ability to reach their target audience, the community
suffers. I look forward to hearing from witnesses like Mr. McCurry, who
represent content from sites like Net Nuare (ph) or portals like Toto Latino
(ph), who need to have access to the greatest number of ISPs and the largest
variety of technologies to reach the widest audience possible. This is not an
issue of government intervention, as many of our witnesses will warn against
this morning.
Our antitrust laws are meant to protect against
anti-competitive behavior by monopolistic providers. I, too, share the concern
of many that of all the federal agencies out there to enforce anti-
discriminatory rules, the FCC is probably my least preferred. That is why the
approach that Congressman Boucher and I took in our legislation was to clarify
that for the purposes of existing antitrust law, cable providers are currently
operating as monopoly platforms for Internet service providers. They only allow
one -- theirs -- and if they allow more than one, you have to buy theirs first
before you can buy a competitor. This is classic monopolistic behavior, and our
legislation would keep enforcement of antitrust laws where it belongs with the
Justice Department.
So we hear scary scenarios painted this morning
about an FCC run amok, applying common carrier status to cable lines. And we may
even hear frightening stories about regulatory proceedings coming from the FCC
chairman himself. But I would caution my colleagues on the committee to look
closely at the legislation, because open access should not mean FCC
intervention. The antitrust remedies in this legislation require no new bureaus,
no new divisions, no new funding, and no new employees. In fact, it relieves the
FCC of even having to initiate proceedings in this area. Our legislation
relieves the concerns of so many that open access must be accompanied by heavy
government regulation. It doesn't.
It simply asks us to think outside
the box for a moment by clarifying existing law. While the phone companies are
already open to competing ISPs by law, other technologies are at a competitive
advantage. Because they are not required to grant non-discriminatory access to
other ISPs, the different technologies -- whether cable, wireless or satellite
-- can provide their Internet service provider at a rate that is below cost, or
at a speed that is faster than competing ISPs, if allowed on their lines, or
that has fewer restrictions on content downloading than other ISPs they might
allow on their lines.
Just last year, one company marketed cable routers
that enabled the cable company to cash their own ISP, the services provided by
their Internet service provider, at a quicker rate than their competitors.
REP. HYDE: Could the gentleman bring his remarks --
REP.
GOODLATTE: I'm almost done, Mr. Chairman. For more than 6,000 ISPs that do not
own a cable company or any kind of transport platform other than the phone line,
they're out of luck. Isn't it ironic that the most important thing in the
information age isn't information? Since introducing our legislation last year,
we have seen a theoretical acceptance of open access by the cable industry. Not
surprisingly, the strongest supporter of open access, America Online, has been
the most active since announcing its merger with Time Warner.
The two
companies issued a joint Memorandum of Understanding outlining their commitment
to open access. In fact, over the past year, five of the six largest cable
companies endorsed open access of one form or another.
However, while
the changes in the marketplace are admirable, seeing is believing. Mr. Chairman,
I look forward to hearing from our witnesses this morning. In particular, I
welcome my colleagues from the Commerce Committee. I have worked with Ms. Eshoo
on many issues, and while we differ on this one, I look forward to working with
her on many other issues in the future.
And I particularly welcome the
Chairman of the Telecommunications Subcommittee, Mr. Tauzin, who despite the
complaints of the ranking member, has invited me to testify before his committee
on four separate occasions in this Congress, and I very much appreciate the work
that we have done together.
REP. HYDE: The gentleman's time has expired.
REP. GOODLATTE: Thank you, Mr. Chairman.
REP. HYDE: Sorry to cut
short this interpersonal discussion. It was fascinating. (Laughter.) The
gentleman from Virginia, Mr. Boucher, is recognized for five minutes.
REP. RICK BOUCHER (D-VA): Mr. Chairman, thank you very much for
conducting this second in-depth examination of the proposals that my colleague
from Virginia, Mr. Goodlatte, and I have put forward to deregulate the Internet
backbone. And in so doing, to encourage the provision of backbone services in
regions of the nation, including many rural areas, such as those that Mr.
Goodlatte and I represent, that are underserved by high-speed backbone services
today.
Our measure would also assure that all customers of Internet
services have a choice of Internet access providers, without regard to the
platform for Internet transport that particular customer uses. I very much
appreciate, Mr. Chairman, the careful attention this committee is paying to
these recommendations. Open access for Internet service providers is a very
familiar concept. It's the law today for Internet connections over telephone
lines. But that law, at the present time, does not extend to the other platforms
for Internet transport -- to the cable modem platform, to the satellite
platform, to the wireless platform -- all of which will be providing new
broadband alternatives for consumers in the not too distant future.
I
believe that the principle of open access, just as it has worked well for the
telephone platform historically, should now be applied to the other platforms
that are coming into use for broadband Internet transport. Open access produces
a range of benefits. First, it provides choice to customers in the Internet
access provider that will give service to them. Secondly, it promotes
competition and innovation in the offering of Internet access. And many
commentators have suggested that, in fact, the major benefit of open access is
the innovation that it will bring.
It promotes regulatory parity. Today,
we have regulatory disparity. The law treats in one way the telephone platform.
It treats in another way the other platforms for Internet transport. In my view,
the law should be neutral in its application to providers of identical services,
and should not discriminate among them based on what kind of company they happen
to be. We have disparity today. Our measure would promote regulatory parity.
It also offers an opportunity for the nation's approximately 6,000
unaffiliated, independent Internet access providers to be able to follow their
customers when their customers migrate from the telephone company transport
platforms they're using today, to the other broadband platforms, which for
whatever reason they may find to be attractive. And, in fact, the very survival
of many of those 6,000 unaffiliated, independent Internet access providers may
depend upon their ability to follow their customers. Today, they don't have that
ability. We hope that through the passage of this bill, it will be provided.
While we still do not have a national policy on open access, it is the
law today within the states, within the 9th US Circuit Court of Appeals, which
has declared cable modem service to be a telecommunications service. As such,
cable modem services are now subject to the regulations that are applicable to
telecommunications services, including open access. In the wake of the 9th
Circuit decision, Chairman Kennard has announced that the Federal Communications
Commission will commence a proceeding on open access. In that proceeding, I urge
the Commission to make universal open access the law, not just in the 9th
Circuit, but throughout the nation.
As we construct a national open
access policy, the Time Warner company has presented to us a useful set of
standards that, in my opinion, should guide our national decision making. These
basic elements of the Time Warner policy are essential and should, in my view,
be a part of any national open access policy. First, there should be no limit on
the number of Internet access providers that can attach to the cable company's
facility. Secondly, they should be able to attach at the cable head-in (ph), and
in so doing, be able to obtain a competitive alternative for transport between
the cable head- in and the Internet backbone. That opportunity will favorably
affect pricing for the ultimate Internet user.
The connection should be
on non-discriminatory terms and conditions with all of the ISPs being treated
exactly on the same terms that the cable company treats its own affiliated
Internet access provider. And there should be the opportunity for a direct
customer relationship between the unaffiliated Internet access provider and the
ultimate customer, with the cable company not interfering in that relationship.
I would welcome comments from today's witnesses on these and other elements that
should be a part of our national open access policy.
We should also
deregulate the Internet backbone and allow all companies, that desire to do so,
to offer backbone services. The greater competition which would result, would
lower backbone service pricing, with a benefit for all Internet users.
Deregulation would also bring lower priced high-speed services to rural areas
that today have an insufficient number of access points to the high-speed
backbone. In its suit to block the WorldCom/Sprint merger, the US Department of
Justice made the point that the Tier 1 Internet backbone market is highly
concentrated. It made the point that one backbone provider alone is approaching
a point of market dominance in the Internet backbone market.
DOJ
confirms that the Internet backbone is congested because of under-investment in
some areas.
REP. HYDE: Could the gentleman bring his remarks to a
conclusion?
REP. BOUCHER: I'll be glad to, Mr. Chairman. Thank you. And
it states that the networks have been unable to provide high quality Internet
services to customers because of that. Our legislation provides a remedy. It
would inject competition into the Internet backbone market, and resolve these
critical problems. The provision of open access as a national policy, and the
deregulation of the Internet backbone, are two of the most important steps that
we can take to promote the growth and development of the Internet.
I
thank Mr. Goodlatte for joining with me in making these recommendations, and I
thank the chairman for this second hearing on our proposals.
REP. HYDE:
The chair will ask the members who have opening statements if they would offer
them for the record, and they will be made a part of the record without
objection. Mr. Cannon has asked me if he could make an opening statement, and if
I can make him feel as guilty as I can --
REP. CHRIS CANNON (R-UT): I
promise the chairman that I will keep my eye on the light and try to go shorter
--
REP. HYDE: I wish you would anticipate the light getting red.
REP. CANNON: Well, there's a yellow light and I shall watch that very
carefully.
REP. HYDE: Then Mr. Cannon.
REP. CANNON: Thank you,
Mr. Chairman. I ought to start out by saying I'm a big fan of the 1996
Telecommunications Act. Shortly after getting elected in '96, I held a series of
town halls, and in every one of them, my irate constituents raised the issue of
rising costs for cable. I hope wisely I said, "wait and see." And now look
what's happened. Many people in America have broadband access. Most people have
two or three different cable options, including satellite, now with local news.
I was talking recently with one of the chief technology officers from
one of the 10 largest companies in America and he told me that they had viewed a
digital movie -- a digital video on a 600-baud modem. Remember in the old days
when you had to put a telephone in that little cradle.
That's the kind
of speed that they watched a digital movie on because someone has come up with a
compression algorithm that does marvelous things. So we're sitting in this time
where really truly remarkable things are happening in the market that we're
playing with here.
As Mr. Conyers said, if we could've just seen or if
we could've just known what would happen. I just want the world to know that I
believed in the '96 Telecommunications Act and it's done remarkable things. You
know, we've seen AT&T dive into the cable market at enormous capital
investment and risk for the future of that great American company. We've also
seek that some of the RBOCs have not been very progressive. Some have been very
progressive, but the RBOC in my area, US West, has a reputation for being the
worst player in the market.
And, in fact, the presidents of three of the
four major ILECs out there are former US West employees, and the rumor at least
is -- confirmed by at least one of those -- is they're out there because they
couldn't stand the way US West had operated. But, lo and behold, US West has
changed. We have a different company there. You will recall back when Quest was
first -- rumored of being looking at buying US West, that it was somewhat
laughed at. The articles, I think, were very painful. But if you consider that
Joe Nochio (ph), the President of Quest, is a visionary -- a man of great vision
and capacity, has taken that over and he is now faced with some opportunities
and some problems.
On the one hand, he has to divest himself of the
quarter of a billion dollars in annual long distance charges that they take as a
company. And then who knows, but he may just wake up and say, hey, we can change
the dynamic in the whole industry. And, frankly, there are huge resources out
there to help him do that. But I think that tinkering with the '96 Act is not
going to help. It's going to put a vast investment at risk. It's okay for
competition or innovation to dramatically change the market and create a huge
loss or gain in value.
But it seems to me -- and here, Mr. Chairman,
I'll draw to a close -- but it seems to me that we should keep the rules as
stable as possible so that the players, the investors, the risk takers, have the
greatest opportunity to succeed within the context of what is before them, and
that every RBOC and other interested person in this system ought to be taking a
look at how they can actually make things work within the rules, instead of
bringing pressure on Congress to change them. Thank you and I yield back, Mr.
Chairman, I note before the light is yellow.
REP. HYDE: Yes. You did
very well. Our first panel consists of two of our colleagues, who serve on the
Telecommunications, Trade, and Consumer Protection Subcommittee of the Commerce
Committee, so they do have special expertise in these areas. First, we have
Representative Billy Tauzin from the 3rd District of Louisiana. He's a graduate
of Nicholls State University and the Louisiana State University Law School.
Before coming to Congress, he served with distinction in the Louisiana State
Legislature. He was first elected to Congress in 1980, and has been
overwhelmingly reelected since that time. He is a Deputy Majority Whip. He
serves on the Resources Committee and the Commerce Committee, where he is
Chairman of the Telecommunications, Trade, and Consumer Protection Subcommittee.
Next, we have Representative Anna Eshoo from the 14th District of
California. She is a graduate of Canada College. Before coming to Congress, she
served on the staff of the California Legislature, and as a member of the San
Mateo County Board of Supervisors. She was first elected to Congress in 1992.
She's an at-large Minority Whip, and she serves on the Committee on Commerce and
its Telecommunications Subcommittee. We will adhere to our usual practice of not
questioning Congressional witnesses so you can move on to your other
commitments. We welcome both of you. We look forward to your testimony, and
Representative Tauzin, you have five minutes.
REP. BILLY TAUZIN (R-LA):
Mr. Chairman, it's indeed an honor to be here. You know of my personal respect
and admiration of you, and that extends also to your committee, sir. I do
appreciate the opportunity to talk to you about the Goodlatte-Boucher bill,
which has many of the same elements of House Bill 2420, which is the bill that
I've introduced with former Chairman Dingell, which deals with the same issue of
deregulating broadband services in America. That bill now has 222 co-sponsors,
and I want to thank Mr. Goodlatte and Mr. Boucher, because I think their efforts
here have given a great deal of momentum to the effort we're undertaking over in
the Commerce Committee to do basically the same thing.
Let me first say
that we have a difference of opinion on the open access issue. And I frankly
think the 9th Circuit made a good decision when it said this should be set on
the federal level. My hope, however, is that the FCC, when it looks at this
issue, decides to settle it in favor of deregulating -- deregulating not only
the cable industry, but the telephone industry as well, so that deregulation,
competition, and open marketplace becomes the guiding principle by which these
services are provided to Americans.
Let me focus instead on the second
part of the Goodlatte-Boucher bill, which is more consistent with the elements
of the Tauzin-Dingell bill of the Commerce Committee. Let me first ask you to
consider the term digital divide and what it means, and what it could mean to
America. Mr. Conyers, you correctly used the analogy of the fire hose and the
straw. In America today, the backbone by which the high-speed digital services
are going to arrive or not arrive at our homes and businesses, depends upon the
extent to which we can access the points of presence -- the big hubs, the places
we can connect to that high- speed backbone.
I have a map -- Teddy, if
you would show first of all the points of presence map. I have a map that
indicates the points of presence in my home state in Louisiana. Many states in
the nation don't even have a point of presence. They have to go to another state
to access the POP. In my state, we're lucky to have two -- one in New Orleans
and one in Baton Rouge, Louisiana. Now, if you live anywhere within a 60-mile
radius of Baton Rouge and New Orleans, you're in good shape because you can
access -- generally access those points of presence. You can get on the
high-speed highway. You've got a ramp that gets you there.
But if you
live anywhere else in our state outside those yellow circles, you can't reach
those points of presence. You can have high- speed access in your little
community. You can talk fast to everybody in town. You can have video and
high-speed data transiting the lines inside of Thibodaux, Louisiana. You just
can't connect to the rest of the world. You can have an oasis where you can
drink really sweet water, but you can't travel to the rest of the world because
you can't connect your speed to their speed.
And remember, if you're at
low speed and you connect to somebody at high-speed, they're at your speed all
of a sudden. So nobody wants to connect to you if you're not on a high-speed
network. It means if you're a business, if you're a learning center, if you're a
medical center, and you can't connect to the high-speed networks that are
coming. No one will want to connect to you if you're not high-speed. You're left
out. You have two choices. You can either go out of that business and suffer, or
you can move to the cities, the towns, where there's high-speed access
available.
So we can all either move to New Orleans or Baton Rouge, I
suppose, in Louisiana, or we can continue to suffer. Why? Because we're on the
other side of the digital divide. Why? Why do we need to be on the other side of
the digital divide? Teddy, if you'll flip the chart over. I'll show you a bunch
of lines that exist in Louisiana. And, Chairman Hyde, I tried to get the
Illinois map. I'm going to send it to you. It's even more illustrative than
Louisiana, believe it or not.
In Louisiana -- you see all those red
lines. Those red lines are high density fiber lines, paid for by people in
Louisiana. Every time we paid for a toll on the local telephone exchange to make
a call in Louisiana, we helped give the phone company the assets to build those
fiber networks. You can see they cover all over Louisiana. They would literally
be the ramps, the high-speed corridors to get us to those points of presence in
Baton Rouge, Louisiana, if only we could use them. But there's one thing
standing in the way from us using all that fiber in the ground that we paid for
that could keep us on the right side of the digital divide. They're called LATA
lines. They're the black lines on the map.
Those lines that overlay the
red lines on the map are the LATA lines that were put in place by a court here
in Washington, DC, to separate local and long distance -- telephone calls, not
Internet services. Those are the lines that were put in place to separate local
and long distance. I have a sneaky suspicious, by the way, this was an agreement
-- this was a consent decree by the telephone companies.
It's a clever
way of making us pay twice for the same phone call. We'll draw a line on the
map. If you cross that line, you've got to pay another toll.
The bottom
line is that because those lines are out there, all that fiber can't be used in
my state to keep my citizens on the right side of the digital divide. And so
what does our bill do? It says keep the lines when it comes to telephone calls.
Keep the lines, Mr. Conyers, to ensure that telephone companies will, in fact,
open up competition in order to get their 271 long distance relief. Keep that in
place. Don't let anybody sell voice communications or market them over those
lines until they've gotten permission from the FCC -- I guess however long that
takes.
But it says for data services, for the high-speed digital stuff
that's going to keep my little companies in business and educate my children in
Louisiana and keep medical services in my state as efficiently flowing and as
cheap as we can make them in Louisiana, let those LATA lines free. Turn them
loose. Let the companies use them. More importantly, let me use them -- me who
paid for them. Let me use them to connect to those high-speed ups so that I can
be on the right side of the digital divide. That's what this fight is all about.
It's about taking down those lines when it comes to the digital age -- the
Internet age.
And they'll tell you, oh, wait a minute. You don't want to
change the '96 Act. This is Webster's dictionary, published in 1995. You won't
even find the word Internet in it. The web browser wasn't even marketed until
'95. The Act wasn't about the Internet. It was about telephone service. Pure old
voice service, which in a few years, according to the folks over at Silicon
Valley, will be given away free. You know, if ever we really open up this
marketplace.
And so the issue for you -- the issue for us at the
Commerce Committee, is are we going to enter an age when we have to regulate the
cable and the other providers of Internet service -- regulate them into content
and delivery and force people to build lines on top of those lines. Or are we
going to let people use the lines they've already paid for in the ground, and
remove the government restrictions that keep me and other people in America from
using those lines?
We're going to have some great testimony. I just want
to cite quickly a little bit for you, from people who came before our committee
and talked about what it means not to be able to connect. John Brown of
Albuquerque, New Mexico, runs a small ISP called IHighway (ph). This is a recent
article. He said it would cost him $120,000 a year to lease the
pipe running 330 miles to the UUNet (ph) hub because he can't get to the hub.
Here's a guy, Shelton Jefferson, of Netcom in the New York area. His own
testimony, "My company is locked out of the broadband Internet marketplace. I
can only get access to local cable facilities and must pay inflated prices for
transit to the backbone. Prices are so high and in the hands of a few long
distance and cable companies, I can't afford them." By the way, you will hear
talk about there being a lot more POPs than I've described to you. The POPs
they're talking about are those straws.
They're at T-1 speed (ph), one
and a half megabits per second, instead of the 45 megabits you should get
through full high-speed pipes -- the pipes we're denied in Louisiana and in
Illinois, and across America. How about David Kushner, Children's National
Medical Center here in Washington. He testified before our committee that even
in Northwest, DC, many impoverished residential areas of our country, including
poor and rural parts of America and urban minority poor communities in our
country -- right in DC, the most wired city in America -- he doesn't have access
to POP, while there's fiber in the ground, in the most wired city in America,
that the Bell company here could connect him to and could provide services to.
So, the issue is simply this. Are we going to keep artificial
government-imposed barriers in place that were designed for telephone company
age? Are we going to keep them in place to restrict the use of that fiber for
Americans who don't want to live on the wrong side of the digital age, and who
could easily connect to these high-speed networks if only we had the good common
sense to take those barriers down and let the companies, who built those lines
with our money, turn them loose to service the communities, the businesses, and
the residences of America? It is that simple a question.
To that answer,
I say absolutely yes. It is time. Let us take the government walls down that are
creating this digital divide, so that we don't have to create new government
solutions to provide services when we could get them today if we simply use the
lines we've already paid for in the ground. Thank you, Mr. Chairman.
REP. GOODLATTE: Thank you, Mr. Tauzin, for that impassioned appeal, for
which I share your passion. Ms. Eshoo, we're glad to have you with us as well.
REP. ANNA ESHOO (D-CA): Good morning, Mr. Chairman, and thank you for
holding this hearing. I thank you also for the kind invitation to come and speak
to you this morning. To our distinguished ranking member, thank you for what you
said, and to each of the members of this wonderful committee. Mr. Chairman,
telecommunications in ancient Greece consisted of Greek leaders giving speeches
to large crowds of its citizens. I think Mr. Tauzin would have done well in that
setting.
And when it came to great leaders of Greece, none was wiser or
a better communicator than Pericles. In one of his famous speeches, Pericles
gave the Greeks some advice that I think applies to our work here today, when he
said, "Time is the wisest counselor of all." I had the honor of both serving in
the Congress and on the Commerce Committee when the 1996 Telecommunications Act
was drafted. I also served as a conferee that helped put all the various pieces,
with great difficulty, together between the House and the Senate.
My
good friend and respected colleague, Mr. Tauzin, was also on the Commerce
Committee when the Act was shaped. And as you know, when Congress passed the
Act, we intended that legislation to deregulate a communications industry in
which competition had been choked off by years of monopolistic practices. Mr.
Tauzin, Mr. Goodlatte, Mr. Boucher and I agree that open and rigorous
competition among telecommunications companies is the best guarantee that
consumers will receive the broadest range of services at the best prices. And by
definition, it's the most effective means to end monopolistic practices.
Since the '96 Act was signed into law, we've seen the telecommunications
revolution occur with breathtaking speed. No sooner does one technology seem to
offer more speed and capability, when along comes another advancement that
offers more data, faster. We know the Telecom Act has resulted in a larger menu
of broadband delivery options, and it's increased competition and produced lower
prices for consumers all over the country.
One of the best examples of
this is seen in the development of the Competitive Local Exchange Carriers or
CLECs. These companies -- companies like Kovad (ph) -- are what I call the
children of the Telecom Act. Now, why do I call them that? These companies
provide DSL-based access to the Internet through local loops, or on their own
high-speed fiber networks. Before the Telecom Act, these companies did not and
could not exist in the regulated environment. Only the Bells could offer this
technology. It's important to note that the Bells had DSL technology, but did
not offer it.
Instead, they offered the more expensive T-1 lines to
businesses. But the Telecom Act deregulated the industry and allowed these
companies to offer the DSL service. And once the Telecom Act allowed these
companies to offer their services, what happened? Telephone companies that
before had only offered the more expensive T-1 lines, began to rapidly expand
their DSL service -- a service they could have offered much earlier. The result
was increased broadband services to consumers at a cheaper price.
And
more dramatic successes are just around the corner. For example, there's a
company in California called Next Level Communications, offering V -- V as in
victory -- DSL, that is faster than DSL and no more expensive for the consumer.
So, Mr. Chairman, I hope Congress will follow the wisdom of Pericles and let
time be our advisor on this issue. We should be patient. We should refuse the
temptation to change course in order to meddle in the marketplace while this
revolution in telecommunications is happening around us.
I don't believe
clear or convincing evidence has been offered that consumers are suffering.
Quite the contrary, consumers are getting more choices and lower prices.
Rather, Mr. Chairman, I'm concerned that the evidence points to
something else. Namely, the different segments of the telecommunications
industry are using the Internet as a reason to reopen the old debate that long
distance companies and the RBOCs had that they had regarding deregulation. I
believe the Congress decided in 1996, the forum for that debate is in the
marketplace and not the legislature.
The development of the Internet is
not a reason to reverse this decision. In fact, the one way to guarantee harm to
the consumer, in my view, is for Congress to try and reinsert itself into this
competition. I also want to try, Mr. Chairman, and put to rest that some parties
in the telecommunications industry are working hard to create, and we already
have heard it, which is that when Congress was writing the Telecom Act of 1996,
no one knew about the Internet and how it would impact the telephone industry.
Therefore, it goes the argument, we should reopen the Act to take the Internet
into account.
Let me quote from some of the transcripts of the 1995
hearing before the Subcommittee on Telecommunications and Finance, which I was a
member of then and am today. These hearings were conducted for three straight
days in May of 1995, and they were part of the primary proceedings used by the
House in gathering information regarding telephone deregulation and the Telecom
Act. First, I want to quote from a statement of Mr. Ken Oushman (ph), the CEO of
Echelon, a Silicon Valley company, who told the committee to be sure and focus
on the accelerating convergence between communications and the computer
industries.
Mr. Oushman said and I quote, "Computer and information
processing companies, which historically and successfully have operated largely
free from government oversight, are increasingly becoming involved in the
communications market. As computing power and innovation continue to increase,
we will only see more integration of the computer and communications industries
with applications ranging from the Internet, to telecommuting, to medical and
database retrieval services -- all of which will be delivered on a scale that is
orders of magnitude faster and more diverse than today," end quote.
Mr.
Oushman went on to note that the convergence of computer and communications
industries were in the news every day in 1995. Specifically, Apple Computers
sought spectrum allocation for wireless mobile computing, and Intel and AT&T
joined forces to create a high- speed network technology for personal computer
communications. This is not the only example that was offered to us. Larry
Harris, who was with MCI at that time, testified before the committee that,
quote, "New fiber optic technologies will soon allow MCI to reach transmission
speeds of 10 gigabits and eventually 40 gigabits, enough for nearly 500,000
simultaneous Internet conversations over a single fiber pair."
Finally,
I'd like to go to my own opening statement at that time. To the committee I said
the following, quote, "Consider, for example, that in 1972, there were only
150,000 computers in the world. Yet, this year -- keeping in mind that that was
1995 -- Intel Corporation alone will sell 100 million small microprocessors,
each surpassing the capabilities of those computers sold in 1972." I went on to
say that, "Unfortunately, today's twisted copper wire telephone network is
unsuitable for modern computers and software applications, which can incorporate
voice, video, graphic, and data transmissions and send them simultaneously in
real time exchanges."
I submit, Mr. Chairman, that the testimony I've
recited above and which we heard on those three days in 1995, sounds like the
description of today's Internet. And so I would submit the legislation that you
are considering may be premature. The so-called, quote, "incentives" for RBOCs
to roll out DSL are unnecessary, because clearly there are signals that
competition already exists in this marketplace. Cable companies have two-way,
high-speed cable technology to compete with RBOCs in the local phone business.
And, Mr. Chairman, let me lay down what I think is a very important
marker, by asking this committee how Internet telephony will affect the
legislation you're being asked to consider. If you're being asked to reopen the
Telecom Act because of the Internet, how will this legislation affect the
developing market that allows telephone calls to be made over the Internet? This
technology, already in use, could have a dramatic affect on how we define
something as basic as what a telephone call is. Why not take the Periclean
approach and see where this technological revolution will lead us? To do
otherwise, I believe, will engender marketplace disruption through
pre-regulation than is ultimately necessary.
Again, Mr. Chairman, I
thank you for giving me this time and this opportunity to come before this
distinguished committee to offer my testimony, and I hope that we can work
together on this issue and the many others that we've already partnered on, I'm
very grateful to. So, thank you and I appreciate this.
REP. GOODLATTE:
Thank you, Representative Eshoo. Regrettably, the committee's standard practice
is for members of Congress not to be questioned by the committee. That would
obviously take a good deal of time. But, we do want to thank you for your
presentation. We also look forward to working with you. I know I speak for
Chairman Hyde, and Ranking Member Conyers, Mr. Boucher, myself, and the other
members of the committee, that we do want to work with you and Mr. Tauzin and
other members of the Commerce Committee to make sure that the wide array of
Internet hubs that are available in districts like yours, in the Silicon Valley,
get to districts like mine and Mr. Tauzin's, where this competition yet has not
reached us. We look forward to continuing to work with you. Thank you.
Our second panel consists of one witnesses. Chairman William Kennard is
Chairman of the Federal Communications Commission, the agency responsible for
some of the matters that we are considering here today. He is a graduate of
Stanford University and Yale Law School. Before becoming chairman, he was a
partner in the Washington law firm of Verner, Liipfert, Bernhard, McPherson and
Hand. He joined the Commission first as an assistant general counsel, becoming
its general counsel in 1993. He became chairman in November 1997, and his term
runs until June 2001. Chairman Kennard, we are happy to have you with us, and we
look forward to hearing your testimony.
MR. WILLIAM KENNARD: Thank you
very much. It's a pleasure to be here. I very much appreciate the time that you,
Congressman Goodlatte, and Congressman Boucher and many other members of this
committee, and of course, Chairman Tauzin and Representative Eshoo, have spent
in delving into these very, very difficult, but important policy issues. I want
to commend you for holding this hearing on this very, very important topic.
My message for you this morning is really a very simple one, and that is
that the Telecommunications Act of 1996 is working. It is working well. We have
gone through a period of a lot of litigation and confusion and I believe that it
would be wrong not to give the Act a chance to continue to work and to bring
American consumers the benefits that were promised in that 1996 Act. I think
it's very ironic that we sit here today and debate whether we should, in effect,
deregulate what I think are the key market opening provisions of that Act, by in
effect deregulating -- eliminating section 271 -- when just last week, the
European Commission adopted directives which would replicate, for the most part,
what we have done in this country.
They issued directives last week
which would require unbundling of the local loop, cost-based interconnection,
collocation -- all of the principle tenants of the 1996 Act. And they did that
for a very simple reason. Because they look at the United States market. They
see that we have created in this marketplace a network of telecommunications
services and Internet services that are the envy of the rest of the world, and
they want to catch up. It's as simple as that.
And I think that it would
be unfortunate at this time if we were to reverse course, just when the Act is
really kicking in and starting to work. And if you look around the world, you
can see many examples of different approaches that have been tried in this area.
New Zealand, for example. New Zealand adopted an approach quite similar to the
legislation that you're considering today. They decided not to adopt a
regulatory approach. They endorsed an antitrust approach. After a number of
years of massive court litigation that went no where, they abandoned that
approach, and now they're trying to adopt the American approach, which is
embodied in the 1996 Act.
And the fact is that broadband
deployment in this country is exploding today. It's exploding so fast
that the service providers can't keep up with the demand for broadband. Just
this week, there were articles in the Washington Post about how difficult it is
for Bell Atlantic, now Verizon, to keep up with their requests for broadband
connections in the residential market.
The fact is that every one of our
delivery platforms in this country is either going digital or has gone digital,
and the marketplace is scrambling to roll out broadband for high-speed Internet
access products -- the wireless industry, the satellite industry, the broadcast
industry and, of course, the cable industry and the wireline phone network.
And what makes this marketplace so dynamic and so different on the
wireline side, is that we have this unique ability to create a powerful
incentive for the Bell companies to open up their market as a condition to
getting long distance entry. In fact, when I talk to my European colleagues,
they're envious of what we have. They're envious that we have this tremendous
incentive that's pushing the regional Bell companies to open their markets and
unbundle and allow competitors to roll out broadband.
I did want to
respond somewhat to some of the comments of Chairman Tauzin. Let me say first of
all that Chairman Tauzin and I clearly share the same goals. Everybody wants
every American to have broadband in their home and businesses. But we differ
pretty profoundly on the means of getting there. The map that I would like to
present to you today, and it's shown here, is that there is no paucity of long
haul, high capacity, fiber optic capacity in this country. And if you look at
this map, and you look at deployment in Louisiana in particular, there's plenty
of fiber optic capacity in Louisiana.
You look at the cities of -- I'm
just looking at the map that you have here before you -- Shreveport, Monroe,
Alexandria, Baton Rouge, Lake Charles, Lafayette. That is not our problem.
There's plenty of long haul capacity. The problem is the last mile. The last
mile is not a fully open, competitive platform, and that is why we have to keep
this incentive structure in place. Chairman Tauzin is also exactly right. Voice
will be given away for free. It'll be commoditized (sp). But that's exactly why
we have to keep the incentive in place for these companies to open their markets
as an incentive to getting into the data market.
I did want to address
the cable access question, because it's a very difficult question that's pending
before us at the FCC, and obviously before the Congress. This also is a debate
about means and not about ends. Everybody agrees that the success of the
Internet has arrived because it's an open platform. Nobody can dispute that. The
real question here is how do we achieve that same openness on the cable
platform. At the FCC, we have not presumed to know all the answers here, and we
have given the marketplace an opportunity to work.
We've been monitoring
closely the economic relationships that are beginning to form between the cable
companies and the ISP community. And we've taken this approach, in large part,
because this is a very different transition on the cable side than what we've
seen in the telephone side in the past. Much of the history of regulation in
this area has basically been the fight over one wire -- the one copper wire
telephone wire into the home. Well, that's changing now with the multiplicity of
platforms, both wireless and wireline.
So, the question is how do we
create the same open platform in cable without replicating all of the labyrinth
of regulation of the phone network that we're really trying to work our way out
of with more competition. And so we're really searching for what is a new
paradigm. With all respect, I believe that the paradigm that you've proposed in
this bill is not the appropriate paradigm. The antitrust paradigm, I don't think
will work in this particular marketplace.
But I do think that it's
important that we continue the focus and, frankly, the pressure on the industry
to develop an open platform on the cable side. And, frankly, we've heard a lot
of rhetoric and good intentions from the cable industry -- not coincidentally
probably from companies that have major mergers pending before the government.
But I really don't think that this debate will go away or should go away until
we really see a cable company, or many cable companies, actually deploy an open
network platform for the cable planet.
We've tried to give this
marketplace a little time to work, because the technology is still being
developed. The relationships are still forming. But, as Congressman Boucher
mentioned, we are going to commence a proceeding where we're going to a little
bit more aggressively look at the marketplace, evaluate the commercial
relationships, and determine whether more needs to be done here.
Let me
just sum up by saying that I do believe that this legislation at this time
threatens to undermine American leadership in the Internet economy for the
simple reason that other things have been tried around the world and everyone's
coming back to what we have done, what you have done in the 1996 act. I consider
myself a veteran of the telecom wars in the wake of the '96 act. I was general
counsel when the act was being debated and written and ultimately passed and
when much of the litigation was pending around our implementation of that act.
I defended those provisions all the way up to the United States Supreme
Court and the marketplace is settling out now. We've granted two Bell company
applications to get into long distance. I'm very proud that the FCC unanimously
adopted those applications. And if you look at what's happening in those markets
in Texas, in New York, you'll see that the blueprint that you gave us is working
beautifully. There's robust competition in those states. The incentive structure
that you set up is working.
So please don't put consumers through the
uncertainty of another round of legislation and litigation. If it ain't broke,
don't fix it. The act is working. Please give it a chance. Thank you.
REP. HYDE: Thank you, Chairman Kennard. We'll now ask questions. Mr.
Conyers.
REP. JOHN CONYERS, JR. (D-MI): Thank you for your written
statement and your remarks. They were consistent and complimented each other.
Let me ask you, Chairman Kennard, you indicated in August 1999 that you believed
the FCC already has regulatory authority to require open access if the market
tips toward cable broadband. Is there some number of market share that cable
would have to achieve before you were to exercise that authority?
MR.
KENARD: I think that's one of the things that we'll have to evaluate in the
proceeding that we intend to have. It's hard for me to say that without having
the benefit of a full record, but I think fundamentally we'll have to ask the
question is, are consumers able to exercise a choice in an open environment that
they've become used to in the narrowband world? I think that that's what we owe
consumers in all broadband platforms.
REP. CONYERS: Do you worry about
network effects should the market tip towards cable network effects, which might
be hard to undo after the fact?
MR. KENARD: Yes, I am concerned about
that, but I think you have to balance that against the danger of imposing a new
regulatory regime in an area that's really quite dynamic and the business
relationships are not fully formed. So it's going to be a delicate balancing act
that we'll have to do.
REP. CONYERS: I am impressed with your enthusiasm
about the success of the '96 act, but how can you alleviate some of our concerns
about the cable rates, which have gone up 20 percent over a six-year period,
that we're still having the Bells shrinking and getting bigger? It's almost, you
know, to talk about Baby Bells these are the top businesses in America. They're
down to four. The cable industry is in the process of being swallowed up. Are
there some pills we should take and see you in the morning to feel better about
all of that? You know, there's another direction here.
MR. KENARD:
Certainly. Well, I think we have to put all of this perspective. First of all,
we have a tremendous amount of investment in this marketplace. Consumers are
using telecommunication services today more than ever before and rates in many
areas of the sector are going down or are not going up. I share your concern
about cable rates. This is a very vexing problem for the country. I think that
many people would, in looking back at the '96 act, would probably agree that
perhaps we acted precipitously in deregulating cable rates basically at a flash
cut, by saying in March of 1999 the FCC would loose its regulatory authority in
this area all together.
The other side of that coin though is that the
cable rate experience was a difficult one for the country and I think Congress's
faith in competition is ultimately right. The key of course is making sure that
there is enough competition from new technologies, different technologies like
cable over bills and the satellite industry to constrain rates.
The
ultimately the way we're going to work our way out of this cable rate issue.
REP. CONYERS: On a personal note, are there some goals that you've set
in mind between now and the end of your term? Are there some things you'd like
to see that you leave behind in your own legacy here as, one, the general
counsel and chairman, which is I think a extraordinary feat, and that you were
here during the beginning of all of this? Are there work left undone that you
would like to get into a tidy arrangement on your desk?
MR. KENARD:
Well, it's not a question I expected this morning, Mr. Conyers. First of all,
I'm not going anywhere immediately I want everyone to know, but there's much,
much work to be done. I think that we have made a lot of progress in making sure
that the benefits of this information revolution touch all Americans and I
personally feel very proud at the FCC that we have worked on many aspects of
trying to bridge the digital divide by working hard to bring technology into our
schools, particularly our poor schools, bringing technology to our most
distressed populations like our Native American population in rural areas.
We've worked very hard to make sure that the 54 million Americans with
disabilities have access to this wondrous technology and I want to continue that
work. There's a lot of more work to be done and hopefully in the last few years
we will have changed the debate around some of these issues so that they'll be
somewhat institutionalized. So that it's not a question of whether I or anyone
else is in the job, but rather this will be a part of our national mission and
it will carry on. That's really my ultimate goal.
REP. CONYERS: Well, I
think you've done a excellent job in your career with FCC and --
MR.
KENNARD: Thank you.
REP. CONYERS: -- thank you very much.
REP.
HYDE: The chair recognizes himself for five minutes. Chairman Kennard, I know
the thrust of our hearings today have to do with these two pieces of
legislation, but ancillary to that is the subject you just talked about and that
is the escalating cable rates.
I'm one Republican, perhaps a minority in
my group, who believes in antitrust laws. I think they're good. I think they
help the system work and monopoly is bad and we're seeing monopolies develop in
the cable business at least in my part of the country where AT&T is buying
up cable company after cable company and the rates predictably go up 10 percent.
I'm writing you a letter today asking for your help in studying the
situation and trying to see what and why and how this is happening. They tell us
that the cost of programming and they talk about the high cost of sports, which
people want. I heard this morning on the radio where some rookie with the
Redskins got $10 million as a signing bonus. So I guess that
all gets factored into the cost of programming, but people are really upset
about it. We did deregulate. We felt uncomfortable about it at the time, but as
you say, faith in the free market, free enterprise system ought to carry the
day, but it doesn't provide much of answer to my constituents who are really
furious about this.
I'll write you more extensively of my concerns and
ask you for your analysis, but service upgrades and increased programming costs
are the reason that AT&T gives. I have their correspondence here to one of
my constituents. Do you see these as generally valid explanations for the kinds
of increases or is this the inevitable result of monopoly?
MR. KENNARD:
Well, we issue a report every year to Congress, which assesses the status of
competition in the multi-channel video market, which includes cable, satellite,
other multi-channel video technologies and we did recognize what you point out
that increased programming costs are certainly one reason why cable rates are
going up. However, it's clear to me that if there were more competition to the
cable industry, these rates would be moderated, constrained, perhaps even would
go down. And we see that in markets where there is more competition, you tend to
have lower rates so the ultimate answer here is competition.
I was very
pleased when Congress recently passed legislation to allow the satellite
industry access to the local broadcast signal because that will give a little
more of a competitive boost to that industry, which is appears to be the best
prospect of providing real competition to the cable industry, but we still have
a problem and I look forward to receiving your letter and working with you to
see if we can come up with even more solutions to that.
REP. HYDE: Thank
you very much. Mr. Berman.
REP. HOWARD L. BERMAN (D-CA): Thank you, Mr.
Chairman. And Mr. Chairman, two aspects of this legislation I'd like you to
comment with some specificity one question on each aspect. On the mandated ISP
access issue, cable is deploying broadband in certain areas, not mine right now,
but in certain areas. What's going on in the real world in terms of people's
ability to get other ISPs favors to them towards a affiliated ISP? What are you
seeing out there in the real world where this has been deployed?
MR.
KENNARD: Well again, I think a lot of these business relationships are still
being formed, but as a very general matter what we're seeing is that the large
cable operators, the MSOs, have entered into exclusivity arrangements with their
own Internet service providers, the two principle ones being Excite at home and
the Roadrunner service, and they are in effect bundling the provision of
high-speed Internet access service with use of that portal. Now it is true that
most consumers can still access whatever ISP they want, but this really goes to
how much they have to pay in order to access that ISP.
In some cases,
the speed with which they can access that ISP and who ultimately controls the
customer. A lot of what's happening in this marketplace both in this area and
generally in some of the Internet areas, is like instant messaging for example,
it's who is going to control the customer. And we have to be very vigilant to
make sure that ultimately customers have choice, that they have the ability to
determine what service providers they want to go to over these platforms and
that's the issue that we'll obviously be looking at as we move forward.
REP. BERMAN: Well just to follow-up on this, you've made a number of
references to looking at. I take in the wake of the 9th Circuit decision, you've
decided to jump in and what?
MR. KENNARD: Well, I can't say with a lot
of specificity because we haven't really designed the framework for this
proceeding and I need to talk to my colleagues and figure out what makes the
most sense. But the 9th Circuit decision I think really did key up an important
issue, which we haven't decided, which is whether broadband access over cable,
Internet access over cable is a telecommunication service. The FCC has not
decided that issue. And I have always believed fairly strongly that there should
be a national policy here.
As you know some municipalities have taken
action, which is why we had the 9th Circuit decision. I think the 9th Circuit
decision appropriately determined that there should be a national policy and I
think it's incumbent on the FCC to speak now on what that national policy should
be.
REP. BERMAN: On the other aspect of the bill, what did Bell Atlantic
do in New York and the FCC do in Texas with respect to allowing the kind of
competition that the 1996 act designed that isn't going on with the Baby Bells
in other states that causes you to think that continued adherence to that act
will create the dynamic to open up more competition? Are there applications
pending and decisions being made in other states that would lean towards
approval of long distance data and telephony by the local Bells?
MR.
KENNARD: Certainly. And with respect to your first question, what did the
companies in Texas and New York do that the others haven't? The simple answer is
that they complied with the law. I mean this is really not a voluntary
situation.
REP. BERMAN: Specifically, what are the kinds of things they
did that they're not doing in the other states?
MR. KENNARD: Well, they
were the first to demonstrate that they could open their markets, treat the
competitors who want access to their network the same way that they treat
themselves. There are a lot of things that they had to do, allow their
competitors to switch customers over to the competitor's network from the
incumbent network. A lot of this revolved on the development of electronic
interfaces between the incumbent network and the competitor's network so that
there can be a smooth transition.
So when you want to switch a
competitor from Bell Atlantic to Covad (sp), it's a phone call and it happens
quickly. Just the way you switch your long distance service from AT&T to
MCI. I might add that it took a little time to get those systems in place in the
wake of the divestiture of AT&T. You don't wave a magic wand and this
happens. People have to invest. They have to train workers. They have to put the
interfaces in place. And I'm happy to report that in the wake of those two cases
we now have a pretty clear roadmap that other Bell companies can follow and
those Bell companies can follow in other states in their region.
That
brings me to your next question, are there other applications pending? Not at
this time, but we expect that there will be soon. Bell South has announced that
they'll be filing a application for Georgia next month and there was a story
yesterday in "Bloomberg" where both Horizon and Bell South discussed their plans
to file applications and we expect that we'll see multiple applications in the
next year or so.
REP. HYDE: The gentleman's time has expired. Mr.
Goodlatte.
REP. BOB GOODLATTE (R-VA): Thank you, Mr. Chairman. Chairman
Kennard, to follow-up on Mr. Berman's question, the purpose of the provisions in
the Telecommunications Reform Act that require incumbent local exchange
carriers, local telephone companies to make their facilities available to
competitors is to encourage competition, consumer choice in price, is that not
correct?
MR. KENNARD: Of course.
REP. GOODLATTE: Now if I'm
reading your testimony correctly, you state that competition would be inhibited
if cable were to make its facilities available. Can you explain this
contradiction?
MR. KENNARD: Well, I think it's a question of, again what
I said earlier, it's a different transition now. This is not a fight over one
wire. This is the goal of creating multiple broadband platforms competing in the
marketplace.
REP. GOODLATTE: In that regard, let me ask you, one of the
companies that's in both of these markets, AT&T, which is an Internet
service provider over the phone lines of about four million subscribers to one
of the largest Internet service providers is also now one of the largest cable
company owners. They have made the conscientious decision, they started out
heading toward becoming a CLEC and competing on the phone lines and then
switched and went into the cable business instead and to offer that competition
on cable.
When we see that kind of dramatic change in the strategy that
was contemplated by the Telecommunications Reform Act, why wouldn't we change
our strategy in response in terms of opening up the telephone lines for the
phone companies to compete in the long distance market since we've already
effectively accomplished by a different means the intention of the act in terms
of opening up the phone lines to competition?
MR. KENNARD: Well, the
marketplace is not monolithic in that there're just one or two players. There
are literally hundreds of companies out there who are trying to compete to bring
local phone service to competitors and they have different business plans. I
think NISU (sp) is exactly right that this act spawned a whole new industry, the
CLEC industry, now the DLEC industry that now has opportunities to provide
consumers choice by accessing that local loop. We're not just talking about the
cable companies versus the phone companies. There are multiple players out
there.
REP. GOODLATTE: And I agree and I think that's the good
development. We want to encourage those folks, but at the same time, the dynamic
has changed. When the act was written, less that 10 percent of all
telecommunications were data and 90 percent was voice. Already just five years
later, it's now more 60 percent data and about 40 percent voice and it's rapidly
headed towards 90 percent data and 10 percent voice. We already have that
competition on the phone lines for data. That's what those 6,000 Internet
service providers are.
That the phone companies have opened up their
lines due to total competition. They compete with Bell Atlantic, which also is
an Internet service provider on their line. With that fact being the case that
we have opened up that kind of competition, why wouldn't it make sense to
encourage the phone companies to get in and build out the Internet backbone by
allowing them to get into the long distance market?
MR. KENNARD: Well, I
think it's apples and oranges to a large extent. First of all when the Bell
companies get into long distance that doesn't necessarily mean that they pour
investment into the Internet backbone. In fact that's not what we're seeing.
When Bell Atlantic, now Horizon, was -
REP. GOODLATTE: To interrupt for
just a second, we don't have Mr. Tauzin's chart here anymore, but I think the
fact of the matter is that they have already invested billions in building out
the capability that can be used for that Internet backbone and it is going to
waste in Louisiana and my part of Virginia and a great many other places because
it can't be used for this purpose even though the customers of these companies
have already paid for it.
MR. KENNARD: Well, if the goal of this
legislation is to attract investment in the Internet backbone, I really don't
think that that's going to happen for a couple of reasons. One, as I was
beginning to say, when Bell companies get into long distance, they don't
automatically pour investment into the Internet backbone. Indeed what they do is
they look for a partner that has long haul capacity. Horizon partnered with
Sprint I believe and SBC has partnered with Williams.
REP. GOODLATTE:
Let me interrupt again because I'm going to run out of time here, but let me ask
you about Section 706 of the act what that stipulates?
MR. KENNARD:
Section 706 requires the FCC to insure that advanced services, including
broadband, are deployed to all Americans throughout the country.
REP.
GOODLATTE: Has the FCC used Section 706 to remove any burdensome regulations as
it calls for in that section?
MR. KENNARD: Well, the section doesn't
require the FCC to eliminate regulations. What the section says is really quite
general. It says that we have to report to Congress on the status of deployment
of advanced services and use our regulatory power to make sure that advanced
services are deployed.
REP. HYDE: Gentleman's time has expired. Do you
want to finish the answer, I'm sorry?
MR. KENNARD: If I might, Mr.
Chairman. In early August, we will be sending our second 706 report to Congress
and I'm really excited about it because this time we held field hearings all
throughout the country, many in rural parts of the country, to determine how
advanced services are being deployed and I think that it's a pretty hopeful
story. Broadband is being deployed in many areas of the country. Some things are
working, some things aren't.
REP. HYDE: Mr. Boucher, gentleman from
Virginia, is recognized for five minutes.
REP. RICK BOUCHER (D-VA):
Thank you very much, Mr. Chairman. Mr. Kennard thank you for taking part in our
discussion this morning. We welcome you before this committee not a customary
forum for you. We hope you'll come back on a frequent basis.
MR.
KENNARD: Thank you.
REP. BOUCHER: I'm glad to learn from your testimony
that the European Commission has now adopted the same kinds of unbundling and
interconnection requirements for telecommunication services that we adopted in
1996. I serious doubt, however, that the European Commission has any
restrictions on the long distance transport of data as we currently have in
Section 271.
Let me say that Mr. Goodlatte and I are not proposing any
retrenchment, any erosion of the interconnection and then bundling requirements
of Section 251 and other sections that have promoted local exchange competition.
The Europeans, therefore, could take great confidence that the United States is
certainly not stepping back from this model that the Europeans have now adopted.
We're also not proposing in our legislation that Section 271 be eliminated.
You suggested in your testimony that we are.
What we are
proposing is simply that the Bell operating companies in order to encourage
competition and the offering of backbone services, and serve these unserved
rural areas that other speakers have identified, be permitted immediately to
offer data across latter boundaries. They would not be permitted to offer voice
based long distance across those boundaries until they get permission under
Section 271. Now, you suggested that there would not be adequate incentive for
the Bell companies to open their local networks if we take the step.
Let
me choose to differ with you on that. The voice based long distance market
alone, just the market for voice, is about $90 billion a year.
And using the interest of Bell operating companies and getting permission to
enter the market, that's happened in New York now and in Texas, but I would
think that a $90 billion market creates ample incentive for the
companies to take whatever steps are necessary in order to enter that market.
The other point that I would make to you is that the Section 251
requirements for opening the local exchange will remain in place after our
legislation passes and those provisions require that the local exchange be
opened, incentive or no, the law requires that that happens. And so, in my
humble opinion, we can take these steps and permit data to be carried across a
lot of boundaries by Bell companies completely consistently with our national
policy of promoting local exchange competition and making sure that competition
comes into local telephone markets.
The other point I would like to make
to you is, with reference to your comments about the pace of the Section 271
process, in my opinion, it's pretty slow. Here we are more than four years
beyond the time that the 1996 act has passed, two companies have now been
permitted into the Internet or long distance market and only from two states.
And it just seems to me that it's going to be several years, at a minimum even
given the fact that new applications will be filed later this year, before the
commission grants 271 applications that bring these high speed transport
services and the DF-3 (sp) backbone services that we so badly need to the rural
areas of the nation that are underserved today. I think those are the last
places where the 271 applications are likely to be granted.
Well, of the
time I have remaining, let me just get your response to that. I'll give you an
opportunity to say what you will.
MR. KENNARD: Thank you, Mr. Boucher.
First of all, this whole marketplace is going data and we've heard a lot of
testimony today about how much data traffic is now moving on our networks and if
you in effect deregulate 271 and take data out of it, and there's I think some
difficult technical questions of how you can separate the two technically, then
a very simple thing will happen.
REP. BOUCHER: Mr. Kennard I can't
resist interrupting to say, it's very simple, you just look in the phone book
and see if they're advertising long distance. If they're advertising voice based
long distance service, then they're violating the requirement. If they're not,
then it ought to be fine.
MR. KENNARD: What'll happen, Mr. Boucher, is
that the Bell companies will just move to IP telephony. IP telephony is a data
service and that will eliminate any incentives to move voice traffic over the
network at all. Second of all, if the motivation of the legislation is to ensure
that there is deployment of data in rural areas, we have addressed that problem.
First and fundamentally, the problem's addressed by requiring the Bell companies
to open up their markets. Once they open their markets, they can move data
anywhere.
There's no restriction at all. That's the beauty of the
incentive. But second, the FCC has adopted a waiver process so that any Bell
company that can demonstrate to us that the only way to get data into a rural
area is over their facilities, we will waive the interlateral restrictions and
allow them to do it. Not one Bell company has ever asked us for that waiver.
REP. HYDE: The gentleman's time has expired.
REP. BOUCHER: Thank
you.
REP. HYDE: The gentleman from Pennsylvania, Mr. Gekas.
REP.
GEORGE W. GEKAS (R-PA): No questions. I really admire the gentleman. (LAUGHTER)
REP. HYDE: The gentleman from New York, Mr. Nadler.
REP. JERROLD
NADLER (D-NY): Thank you, Mr. Chairman. Chairman Kennard, I apologize if the
questions I'm asking are repetitive of anything you said, but Mr. Gekas and I
and several other members we had a subcommittee hearing scheduled at the same
time as committee hearing.
As I understand this bill, it will allow,
among other things, cable companies or will mandate that cable companies allow
multiple ISPs to use their broadband service. Is that correct?
MR.
KENNARD: Yes.
REP. NADLER: Do you support that first of all?
MR.
KENNARD: To allow ISPs to use a broadband service?
REP. NADLER: To
mandate that cable companies must allow multiple ISPs to use their broadband
service, yes.
MR. KENNARD: Assuming that's the goal and I wouldn't
dispute that that's what we want consumers to have. We want consumers to have a
choice of multiple ISPs. The real question is how we get there.
REP.
NADLER: Let me just pursue that for a moment. If that were done and if we
accomplished that that would, and correct me if I'm wrong I want to make sure I
understand this, that would mean in effect a common carrier obligation so that
the cable companies could not use their control of the broadband access to favor
their own programming, if they own programming, their own content over somebody
else's content?
MR. KENNARD: My own personal view is that the cable
broadband pipe is a new pipe.
REP. NADLER: Say it again.
MR.
KENNARD: The cable broadband pipe is a new pipe, a new network and I think we
need to be careful about automatically imposing all the Legacy regulation that
we've developed over the last 50 years in this country and are actually trying
to work our way out of, pick it up and drop it wholesale on the new pipe. My own
view is that I don't think that that would be the appropriate paradigm for
cable. People have offered various ways of doing it and we're going to look at
various alternatives.
REP. NADLER: But I do want to make sure that right
now the Internet has been developed in a way that basically there's open access
to everybody, nobody can control the pipes on the Internet. We want to make sure
as a lot of the Internet traffic moves to broadband cable, if that is
maintained, that no one gets that control, do we not?
MR. KENNARD:
Absolutely.
REP. NADLER: And are there better ways to do it than that
provision?
MR. KENNARD: Well, I believe, sir, my own view is that I
don't believe approaching it from an antitrust perspective is the best way. I
think that if you're going to open up that cable pipe, you would have to adopt a
regulatory approach. I'm not saying that that's necessarily what we should be
doing right now. The FCC has taken the approach thus far that we ought allow the
marketplace an opportunity to develop because we're transitioning from a
different place now.
REP. NADLER: To allow the opportunity for the
market to develop until you can see how you must mandate what or in the
expectation that the market will automatically open up everything, but something
that history says is not very likely to occur?
MR. KENNARD: We've never
seen anything like this period in history. For one thing, people who are likely
to go from the narrowband world to the broadband world, the fast adaptors, are
migrating from an environment of open access, the narrowband world.
Consumers expect access to multiple ISPs. When cable operators are
competing against the DSL platform, an open access platform, we think that there
may be some powerful market incentives that will drive them to want to maximize
their cable facility by adopting an open ISP environment. That may not be the
case.
We're going to have to look at it and monitor it. But my point is
that there are costs imposed when we waltz into this marketplace and in a sort
of knee-jerk fashion say, okay, it worked in the wire line world. We're going to
import it to the cable world because that creates a level of confusion and
uncertainty in the marketplace that I don't know would be appropriate right now.
REP. NADLER: Thank you. Second, I gather with respect to the other major
thing that this bill does, and I gather it is the other major thing that bill
does, which is to say that the local Bells, as a price for competing interstate,
do not have to open up their systems to data as opposed to voice? That is the
other major provision, you're not supporting that?
MR. KENNARD: That's
correct.
REP. NADLER: And that was a fundamental deal in the '96 act. Do
you believe that anything's occurred since then? Mr. Goodlatte says that since
we've seen much more data than happened in 1996, other than that we'll be seeing
a shift much more than was expected in 1996. Briefly, could you comment on that?
REP. HYDE: The gentleman's time has expired.
REP. NADLER: May I
ask one additional minute so he can answer this question.
REP. HYDE:
Without objection.
REP. NADLER: Thank you. In 1996 when the bill was
passed, was there reason to expect or was there reason to contemplate that a
very large share, more than the five percent at that time, of communication
would be data as opposed to voice?
MR. KENNARD: Well, I think that
Representative Eshoo, who testified earlier about her experience as a confrere
on that bill is exactly right. There was discussion of the Internet at that
time. In fact, the Internet is mentioned in the bill. So the movement toward
data traffic on the networks was beginning. I think realistically few people
predicted the explosion of data on our networks. But in my view, I think this
has been a happy outcome in the marketplace and for the '96 act because what it
has done is it's increased the incentives to get these markets open.
I
believe Section 271 is the heart and soul of this legislation because I see it
in practice every day. It forces the competitors to sit down at the table with
the Bell companies and figure out how they're going to get those markets open to
competition. That's why it's being replicated around the world. That's why my
colleagues at the state level support it and virtually every government official
charged with trying to open these markets, believes that this provision is a
huge benefit and it would be tragic to deregulate it or undermine it in any way.
REP. HYDE: The gentleman from Ohio, Mr. Chabot.
REP. STEVE
CHABOT (R-OH): Thank you, Mr. Chairman. Mr. Kennard, I know your expertise is in
communications law rather than in antitrust law, but would you give us again
your opinion on whether it makes good sense from either a legal or an economic
standpoint to create distinct classes of industries or companies, which would be
subject to special treatment under the antitrust laws? And what is the effect of
using antitrust law to regulate in this area and what are the potential effects
of letting courts make new telecom policy? Would you again give us your views on
that?
MR. KENNARD: Certainly. If you look around the world and see how
other countries have tried to address this issue of de- monopolizing telecom
markets, some have tried relying on competition policy, antitrust policy as the
principle vehicle. I believe it's been a failure, most recently in New Zealand
when the government there departed from reliance on antitrust principles. I
believe that there are two fundamental ways that you get these markets open. One
is that you use an antitrust approach similar to approach we used with the
divestiture of AT&T and it worked fairly well.
The other is to
empower a strong, independent regulatory authority with continuing oversight
over the market to pry the market open. That's the blueprint of the 1996 act. I
think that's working. I don't believe you can mix and match them very
effectively and I believe that if you gut the market opening provisions of the
1996 act what you will have is what Mr. Conyers alluded to in his opening
testimony, yet another giant antitrust suit to finish this job.
And I
hear that if we don't stay the course now and be strong and keep the pressure on
the incumbents to open their markets for both voice and data, then years from
now, people are going to say, well the '96 act was a failure and unfortunately
this whole industry is in antitrust court all over again and that would be a
tragic outcome.
REP. CHABOT: Thank you. I yield back the balance of my
time.
REP. HYDE: The gentleman from Virginia, Mr. Scott.
REP.
ROBERT C. SCOTT (D-VA): Thank you, Mr. Chairman. I want to go back to the open
access question and just ask fundamentally whether a person ought to be required
to buy Excite at Home if all they want is AOL?
MR. KENNARD: Well, I
believe that there should be open access. I believe that consumers should get
the choices that they want. The real question is, is the cable industry and
market forces affecting that industry going to develop a more open platform to
give the consumers a choice that you allude to or will it require the
intervention of regulation? And I think that at this point, we haven't decided
the answer to that question, at least I haven't.
REP. SCOTT: Why should
the analysis be any different than Microsoft requiring Microsoft Explorer as a
condition of getting Windows, giving that away, and what that did to Netscape?
MR. KENNARD: Well, I'm not an expert on that antitrust case and it
probably wouldn't be appropriate for me to comment on it.
REP. SCOTT:
Okay, well let me ask another question then, in Portland, Oregon, Portland
required open access as a condition for the cable franchise. The District Court
sustained that position. Did other cities take advantage of that law? That's of
course up until last month when the Circuit Court reversed.
MR. KENNARD:
A majority of cities, as they've looked at this question, have determined that
they are not going to impose an open access ordinance. And many of them,
frankly, are looking to the federal government for a national policy in this
regard. That's what the 9th Circuit clearly said in their decision that there
should be a national policy. That's why I believe it's appropriate now for the
FCC to commence the proceeding and determine what course we should take.
REP. SCOTT: In terms of competition for the local dial tone service, if
you find there's local competition obviously there's no problem with the bill,
people can do what they want to do. What progress had been made across the
country in developing effective competition for the dial tone service and what
has happened to the price to the consumer as a result of that competition?
MR. KENNARD: Well, the way markets work, as I know you know, is that
most competitors, most new entrants it is not in the business plans to target
the densely populated customers, the business customers. That's been our
experience in long distance. When MCI was a little upstart company in the late
'70s, their business plan was not about residential service. It was about
serving the business customer. Ultimately as we had more competition that
business migrated into the residential space and now we have much more
competition for residential long distance.
So, you know, flash forward
to where we are in competition for dial tone service in the local loop. Most
business today, particularly large businesses, have many options for service,
the dial tone service. Our challenge is to bring residential consumers choice in
local phone service. That was the promise of the '96 act, that everyone would
have competition in local phone service and there we still have a lot of work to
do, but we're making progress.
I think one of the most significant
things that we did in that area is recently the FCC mandate lined sharing,
requires the incumbent Bell companies to share their lines so that competitors
who want to provide broadband services can use the single line that the
incumbent has brought into the home. So progress is being made, but you know
frankly, if you look at the progress that we were making in promoting
competition in long distance four years after the divestiture of AT&T and
compare it to the progress that we're making in local phone service four years
from the '96 act, we're making much more progress today relatively speaking.
In large part because we have more technologies, it's a more dynamic
marketplace and because the '96 act is working quite well.
REP. SCOTT:
And what would happen if you removed the incentive that the local phone
companies have, that is to be able to get into long distance, if you remove that
incentive for data, what would happen to the progress in competition for the
local dial tone service/
MR. KENNARD: I think it would gut the incentive
to open these markets quickly.
REP. SCOTT: Technologically, can you tell
the difference between voice and data if you allow just data service and not
voice? Can you appropriately regulate that?
MR. KENNARD: Well certainly
you can distinguish between analog voice service and data services, packet
switch services. The problem is that it's all merging together and if you in
effect deregulate data, then all of the voice services will just migrate over to
the data platform. I think that the key reason why this particular legislation
would gut those incentives to open the markets because it would just move voice
to another place.
REP. HYDE: Gentleman's time has expired. The gentleman
from Arkansas, Mr. Hutchinson.
REP. ASA HUTCHINSON (R-AK): Thank you,
Mr. Chairman. And Mr. Kennard I appreciate your instructive testimony today. Did
want to ask you follow-up on your testimony, you indicated that after show us
the map of the backbone across the country and looking at Arkansas there is a
good line going through Arkansas, but Arkansas's more than a line. And you
pointed out that the problem is not the long haul route, but it's the last mile
as being the problem. Describe what you would define as the last mile? It this a
literal mile? Obviously, it's not, but you know, how big is the last mile and
what are the obstacles to get to the last mile?
MR. KENNARD: Well, it's
essentially, in the context of this discussion, it's moving the traffic from the
Internet point of presence to the customer's home. And this is has been our
biggest challenge frankly is finding a way to allow competitors access to that
last mile facility.
REP. HUTCHINSON: Well, I mean, you're speaking of
getting it more into the rural areas or more into the less dense population and
giving the companies the incentive to extend broadband services to those areas.
Isn't that what we're speaking of?
MR. KENNARD: That's right.
REP. HUTCHINSON: And whether it's Southwestern Bell or someone else,
they say it takes some time. They don't have the economic incentives to do that.
Is that correct?
MR. KENNARD: Yeah, I think it's they're asking the
wrong question. I mean if you look at the way these markets develop, people who
are providing data services, even the competitors, the Covads and the Rhythms of
the world, they're not all building long haul capacity. What they're doing is
they're building out local networks. In many cases, their own last mile and
they're handing off traffic to long haul providers like the WorldCom network and
Sprint and Level 3 (sp) Global Crossing.
We don't have a causity (sp) of
long haul capacity and it's quite amazing in our country because data traffic is
doubling about every hundred days, mainly as a result of the Internet explosion
and we've been able to keep up with that capacity. The problem is getting the
broadband capacity built out locally.
REP. HUTCHINSON: Thank you. I'd
like to yield the balance of my time to the gentleman from Virginia, Mr.
Goodlatte.
REP. GOODLATTE: I thank the gentleman. To follow-up on that,
Mr. Kennard, Covad and Rhythms are too very fine companies, but isn't the
competition that they bring primarily to business telecommunications rather than
to residential service?
MR. KENNARD: I can't speak particular to the
business plans of those companies. I do that, as I mentioned earlier, it's a
natural migration to serve the business market first and then migrate down to
residential. We've taken some regulatory actions recently that I think will make
it easier for competitors to serve the residential marketplace.
REP.
GOODLATTE: The shift is in the merger agreement between AT&T and TCI,
Liberty Media was granted preferred provider status. What does that mean?
MR. KENNARD: I don't know what that means in that context, Mr.
Goodlatte.
REP. GOODLATTE: You don't know if Liberty Media content gets
a better price or a better channel placement?
MR. KENNARD: No I don't.
REP. GOODLATTE: Okay. Going back to the Section 706 issue that I raised
with you earlier and we weren't able to complete, the language of that doesn't
require you to deregulate, but it does allow you to deregulate. And let me ask
you in that context, the Department of Justice recently entered an objection to
the MCI/Sprint merger. Wasn't that, in part, because of a concern for the
reduction in competition in the Internet backbone market?
MR. KENNARD:
As I understand the Justice Department's action, they determined that if that
merger were allowed to proceed then there would be an unacceptable degree of
concentration in the Internet backbone market, yes.
REP. GOODLATTE: And
wouldn't more participants in the market lead to an increase in backbone
competition?
MR. KENNARD: Yes, but again, if the concern is about more
competition in the Internet backbone, our experience with the 271 process today
is not that the Bell companies pour investment into the Internet backbone when
they get into long distance. They, like most of their competitors in that
market, hand off traffic to the Internet backbone. And when they're providing
long distance services over interlateral boundaries.
REP. HYDE: The
gentleman's time has expired. The gentleman from North Carolina, Mr. Watt.
REP. MEL WATT (D-NC): Thank you, Mr. Chairman. Mr. Kennard, some of us
who are ambivalent about the Goodlatte/Boucher bill or the Tauzin bill or any
kind of legislation suggest that our ambivalence has to do with allowing, as you
have indicated, the telecom bill to work for some period of time and allowing
that process to play itself out. If you're saying that these bills have some
merit to them, yet we should still be waiting to allow the telecom bill to play
itself out, the questions that I have really are twofold, number one, would be
there some timeframe within which we would be looking to allow the telecom bill
and what's happening in the aftermath of that to play itself out? Or
alternatively would there be some set of triggering devices, evaluative criteria
that we might be looking for next year, year after next, five years from now
that would either trigger or put to rest the need for additional legislation?
MR. KENNARD: It's a very good question. I think it's important that we
continually assess the progress of this act in a number of respects. In the area
that we're talking about today, deployment of broadband services into rural
areas, every year the FCC sends a report to Congress. Our next report will be
coming up next month where we will survey the deployment of broadband around the
country and probably make some recommendations as to specific actions that need
to be taken.
I'm very optimistic about the amount of investment that is
pouring into this marketplace and I think that says something about the '96 act
having struck the right balance. If you look at every sector of the
communications economy, investment is pouring in to provide new services, many
broadband services, the wireless industry, cable, DSL across the board. My view
is that our main challenge is making sure that everybody benefits, that all
people in the country have access. And oftentimes insuring that is not a simple
question of, well do you deregulate the big players so that they have more
freedom.
Oftentimes when you find that there are distressed areas like
tribal lands or remote rural areas that aren't getting service, sometimes it's a
different solution, targeted universal service subsidy support for example and
we're working in those areas at the FCC. So I think it's two easy a solution to
say if you're not satisfied with the progress, deregulate more. I mean that
doesn't seem to me to be the right approach.
REP. WATT: Doesn't that
leave you with a framework that gives the independent regulatory agency, FCC,
substantial authority? I guess that may be making some people uneasy, that we
can't find a legislative group of words that solve this problem once and for all
and kind of get the regulation out of it. What I hear you saying is that there
is going to be an ongoing need for substantial regulatory involvement in
evaluating the impact of the Telecommunications Act and in pushing and plugging
to make sure that the Telecommunications Act yields all of the results that we
might have anticipated. Am I correct in there or would you elaborate on that a
little bit?
MR. KENNARD: Certainly. I think you're fundamentally
correct. We are constantly tweaking the implementation of the act. When it
appears that arties are blocked or competitors can't get access to things, we're
constantly tweaking it. We're also now looking hard at this cable access issue,
but I think there will always be tensions. You know I spend most of my days
meeting with people who are out in the industry in companies, businesses, et
cetera, who want the law changed, the regulation changed one way or another.
And there's a pattern to all these discussions, almost everybody wants
less regulation for them and more regulation for their competitor and that's how
they define a level playing field. This is the way people arbitrage the profits
and I think we just have to assume that that's life and continue to do our job.
REP. HYDE: Gentleman's time has expired. The gentleman from Utah, Mr.
Cannon.
REP. CHRISTOPHER CANNON (R-UT): Thank you, Mr. Chairman. And
Chairman Kennard, I've been thinking I often have the opportunity to ask
questions in circumstances like this because it's sometime better to get on with
other testimony, but I think the reason you've had so many questions and the
chairman's patience has been tried is because the issues that you're dealing
with are so important to the American people. It's certainly important to people
in my district.
You know, we heard from Chairman Tauzin earlier today
and we've compared our districts. While he has more people in his state, my
state is much more urbanized than his. Utah's the seventh most urban state in
the country and I represent a district that contains just about two-thirds of
the whole state of Utah. So I have most of the non-urban, but heavily
unpopulated areas of the state of Utah. I might just say that my rural residents
don't whine very much. I love them.
On the other hand, I have lots of
people, I have larger state, a larger portion of the state. It's also the
beautiful portion of the state and many people want to move in. They want to
move in when they have access to high bandwidth data so these issues are
important to me and to the people of my state. I was personally thrilled when
AT&T invested in TCI and you had a couple of questions already on that and
you've dealt with those I think well.
Let me just ask this first, do you
believe that the provisions of the bill before us would have tendency to injure
or to put at risk the investment that AT&T has made in cable?
MR.
KENNARD: Well, it's hard for me to answer that question, Congressman, because I
really, to some extent, to large extent, it's irrelevant to me because I have to
focus on what's best for the consumer. And one of the reasons why we approved
the transaction to allow AT&T to buy TCI is because we felt that it would
create investment for consumers in a new technology. And although we haven't
seen that play out fully, I think our instincts were right because we're now
seeing some wonderful competition developing between the telephone companies and
the cable companies to roll out new services for consumers.
So from a
consumer's standpoint, those sorts of transactions are working. That's not to
say that every combination or merger is pro- competitive, but that particular
one where you had a long distance company combining resources with a cable
company to compete against the Bell companies in their backyard, the residential
marketplace, it's a good deal for consumers.
REP. CANNON: Frankly, I
think it was a great deal for consumers and I've weighed the risk there and I
think it's important from our point of view that we keep the rules stable so
that people can make those kind of risks and make the world a better place for
consumers and everyone else. I appreciated your comment where you were referring
to the provisions, you said they would gut the incentive to open these markets
quickly and then went on to say that's because voice services would migrate to
data services. It seems to me that is really the core of what's going on with
this bill. If this bill is passed, the RBOCs will move very quickly to voice
over the Internet and not open up their services or their access operations to
the competitive services. I take it that's where you were headed, right?
MR. KENNARD: That's correct. In fact, I believe that even if voice
doesn't migrate quickly to data, to IP telephony then it's clear, everybody
knows, this is the high growth area of the industry. Everybody wants data and if
you take away the incentive to open up your markets because they basically don't
have to worry about data anymore that incentive is gone.
REP. CANNON:
I'm intrigued by your statement that no RBOC has asked for a wavier of the
interlateral requirements because of rural areas that are not or areas that are
not receiving Internet services. Could you elaborate a little on that? Has there
been talk about that or are the RBOCs just using that as a lever over the heads
of their constituents to create anger that will result in pressure opening up
the whole system?
MR. KENNARD: It might be better to direct that
question to them and I hope you get an honest answer.
REP. CANNON: I
don't think we can get a straight answer.
MR. KENNARD: But, I think one
of the reasons why that provision hasn't been used is because there is a fair
amount of long haul capacity in the country. And, we did have a situation in
West Virginia not long ago where it was claimed that if we didn't allow the Bell
Company the ability to move traffic over LATA boundaries, then people wouldn't
get served. Then, low and behold, someone stepped up to provide service, not the
Bell Company. So, you know, there are companies out there that are willing to
provide these services.
REP. HYDE: The gentleman's time has expired. The
gentlelady from California, Ms. Lofgren.
REP. LOFGREN: Thank you, Mr.
Chairman, and thank you, Mr. Chairman. I really think that you have done a
terrific job in your service at the FCC, and really the country is fortunate
that you have been willing to put up with the grief that the job sometimes
brings. And as you outlined the successes that the country has experienced since
1996, it really is, when you think and step back from it, it's just stunning
what has occurred since 1996 in terms of the rollout of broadband and the reach
of the Internet into so many homes.
And, we're not there yet. We all
know that. Sometimes it's hard to be patient because the role that we have here
in Congress, and really in the country, is not to decide only what, but also to
decide when. And sometimes the when question is even more important than the
what question.
I obviously represent a primarily urbanized area where
there is interestingly enough, the heart of Silicon Valley, and not much
competition from cable because of an antiquated cable system. But, there has
been rapid rollout of DSL and that is one of the questions that I have for you.
Not in terms of changing the law, but in terms of implementing, and tweaking,
and utilizing the tools available to you.
I am concerned that of the DSL
rollout, only 25 percent is currently being provided by upstarts, the Kovads
(sp) and others. And, I know that they have had often times rather energizing
experiences in dealing with the incumbents. And, I'm wondering if there are
steps that the commission is considering that might provide for enhanced
competition from not just not Kovad (sp), but there are many other upstart
companies that might allow them to pose more effective competition.
MR.
KENNARD: Well, thank you very much for your opening comments and I'm happy to
address that. Companies like Kovad, and Rhythms, are really the children of the
'96 act. And, we have watched them fairly carefully to assess what they need in
order to compete effectively in this marketplace. And, we've taken a number of
steps over the past few years to enhance their ability to co-locate, for
example, to line sharing, which I mentioned earlier I think, is a very important
development for them.
And I think it's very important for the success of
the '96 act for companies like that to be able to compete in this marketplace.
One, you know, interesting outcome of the proposed legislation, if it were to
pass, I think companies like Kovad and Rhythms would immediately become
acquisition targets to the Bell companies. Because if they can move data across
LATA boundaries, and these companies have not really matured yet, then you might
see some very, very rapid consolidation in this marketplace and we might be
regretting the fact that we would have lost those competitors. So, it's
something that we have to watch very carefully.
REP. LOFGREN: Looking
ahead, and the chairman indicated his concern with cable fees. Not for Internet
access, but for more traditional media and the concerns expressed to him by his
constituents. And, I think all of us have experienced that phenomena at one time
or another. I'm wondering if you have considered, it's really not the FCC's job,
but as we are melding the various technologies in broadband, and video, and like
I recently read an article on there's this small company in Texas that claims
that they have broadcast quality video on DSL as a trial.
And looking
ahead, we will see, I think, traditional media streaming on DSL. We haven't see
the end of compression technology so that essentially we will have competition
not just for what we're now using the Internet for, but for movies, and TV, and
TV actually is not the word we'll have to use. How is that going to play into
the whole copyright issue that has been recently raised in the Senate? I don't
favor the proposal made by the chairman and ranking member of the Judiciary
Committee.
But, looking ahead at the convergence of technology, is there
a role for the FCC to give opinions on the whole issue of copyright and making
sure that the convergence of technology continues to be successful?
MR.
KENNARD: Well, you've touched on what I think is one of the most challenging
issues facing us as we move into the world of digital content. And, I feel very
fortunate that because I have enough problems I don't have to deal with
copyright issues. So, whatever observation I gave you would just be a personal
observation. I'd be happy to give it to you if you'd like.
REP. LOFGREN:
I'd love it.
REP. HYDE: The gentlelady's time has expired.
MR.
KENNARD: Thank God. (Laughter.)
REP. LOFGREN: Perhaps after the hearing
you can give me your personal opinion.
REP. HYDE: Just in the nick of
time. The gentleman from Alabama.
REP. BACHUS: I thank you. Chairman
Kennard, you said data is doubling every 80 days.
MR. KENNARD: One
hundred days.
REP. BACHUS: One hundred days? Everybody wants data.
Everybody needs data. It's a matter of being able to compete. It's a level
playing field. And, I think you said it ought to be a national policy that we
get access to everyone as soon as possible. Is that correct?
MR.
KENNARD: That's right.
REP. BACHUS: Would you agree that allowing the
Bells into long distance data would bring broadband services to the under served
areas and do it quickly?
MR. KENNARD: No. I think it would have actually
the opposite effect because it would eliminate from the marketplace lots of
competitors that are trying to serve consumers with data services.
REP.
BACHUS: You mean allowing the Bells to deliver data, long distance data, to
under served areas would actually restrict the amount of services in those
areas? Well, how would they eliminate competitors? Well, you said let the
marketplace.
MR. KENNARD: Maybe I didn't explain my answer fully. As
I've testified earlier --
REP. BACHUS: Let me just say that I just maybe
posed this question and you're saying allowing the Bells into long distance data
wouldn't speed up the deployment of broadband services to under served areas. I
thought that was a given.
MR. KENNARD: No. Actually, I don't think that
would happen. First of all, I think it's important to note that if any Bell
company comes to the FCC and says it has the desire to serve an unserved area
with data services and it's not been granted 271 authority and it seeks a waiver
to do that and can demonstrate that no one else will serve that community, we
will grant the waiver.
REP. BACHUS: Well, you mean no one else. I
thought you were promoting competition. Shouldn't the market create a demand?
And, if they want to go out and sell to that area, that would be an evidence of
demand?
MR. KENNARD: Well, they can. The only thing that's preventing
Bell companies today from moving data across these LATA boundaries is the fact
that they haven't yet demonstrated to their state regulators and the FCC that
they have opened their market to competition.
REP. BACHUS: But, I, now I
understand that. But, you're talking about, you know, that they hadn't done
something else they should do. But, we're talking about the narrow focus of
there's a great demand out there for broadband services and the Bells can
deliver a tremendous amount of that service to under served areas. I mean,
surely you agree with that.
MR. KENNARD: Of course they can. But, what
I'm saying is --
REP. BACHUS: They could do it if they could it quickly.
And, what you're saying is well, someone else might be able to do that. But,
then you've talked about the need for competition. Why would you have a national
policy to exclude probably the group that could deliver those services quicker
than anyone else and maybe cheaper? And I mean, is it up to the FCC to decide
who goes in and who doesn't?
MR. KENNARD: First of all --
REP.
BACHUS: I mean, you've said for us, that you actually said in a statement, that
we ought to rely on the FCC to bring, you know, to make these decisions.
Shouldn't we just open it up for everyone?
MR. KENNARD: I think it's
important to note, and it hasn't been said yet today, that most of our rural
areas in America are not served by the Bell companies. They're served by small,
independent rural telephone companies. Many of those companies, not all of them,
but many of those companies, are providing state of the art broadband services
in rural communities. And, they have developed business plans that allow them
to, in part with the help of federal and state subsidies, but which allow them
to provide state of the art broadband services.
So, it's not appropriate
to say that the Bell companies are the only companies in America that are going
to serve these rural areas.
REP. BACHUS: Well, they're certainly not the
only. But, wouldn't you say that the Bell companies do serve a lot of rural
areas that need broadband services?
MR. KENNARD: Some of them do. But, I
also think that if you deregulate the law to allow the Bell companies to move
data across LATA boundaries, I think you will find that they will target data
into large metropolitan areas because that's the main driver for those
companies, for every company in this marketplace.
REP. BACHUS: I
understand. But, you're not saying they wouldn't also go into the rural areas.
MR. KENNARD: I'm saying that if they want to go into the rural areas,
and no one is serving those rural areas today, they should come and talk to us.
There is a pathway that we have provided for them, not one has shown up yet.
REP. BACHUS: Let me ask you this about the city of Portland case. You're
for promoting local competition. Now, the city of Portland, they said we'll give
you a cable franchise, but you open up your cable to other content providers.
Now, that's something you'd like to promote too, isn't it?
MR. KENNARD:
Absolutely.
REP. BACHUS: So, you're a little disappointed with this
decision, aren't you? I mean, you say that you like the decision because there
ought to be a national policy. But, shouldn't the national policy be that these
cable systems be opened to all content providers?
MR. KENNARD: My
philosophy, Congressman, particularly in this very dynamic unpredictable
marketplace, is that we as regulators can't presume to know everything that's
going to happen. Many people --
REP. BACHUS: I would say this, you just
said you presume that the -- REP. HYDE: The gentleman's time has expired.
REP. BACHUS: Let me complete this question if I could.
REP.
HYDE: Yes, yes.
REP. BACHUS: You said you presume the Bell systems might
not do this and wouldn't do that, which I mean, I agree. You shouldn't be
presuming such things. But, let me ask you about the Portland case. It ought to
be a national policy that these local cable systems open up their cables to all
sorts of providers, right?
MR. KENNARD: Mm-hmm. (In agreement.)
REP. BACHUS: Is that correct?
MR. KENNARD: That's correct.
REP. BACHUS: And the Portland cases actually now stops local governments
from doing just that, doesn't it? Does it not?
MR. KENNARD: Yes.
REP. BACHUS: So, that's bad news for consumers, isn't it?
MR.
KENNARD: Not necessarily, no.
REP. HYDE: Now, the gentleman's time has
really expired. (Laughter.) The gentlelady from --
REP. BACHUS: But, I
would like to say for the record he said not necessarily.
REP. HYDE:
Okay. The gentlelady from Texas.
REP. JACKSON-LEE: I thank the chairman
very much, and I thank the ranking member, both for holding a very vital and
crucial hearing on legislation that I think we should have the opportunity to
review. Juxtaposed to that point, I would say that I am also eager to see how we
balance the desires of the present legislative initiatives with what I think
have been some very telling comments made by Chairman Kennard.
Allow me
also to add my appreciation for the combined service that you have given to
American consumers. Particularly, let me applaud you for you tenacious fight
over the E rate that I can proudly say to you that there are now some 50,000
schools, and growing I hope, of course we have additional issues of software and
training that we have to address, but your tenacious fight put us where we are
and I thank you very much for your leadership.
MR. KENNARD: Thank you.
REP. JACKSON-LEE: Mr. Chairman, I would like to submit in the record my
remarks and ask unanimous consent that my opening statement be submitted into
the record.
REP. HYDE: (Off mike.)
REP. JACKSON-LEE: Thank you
very much. Let me impose some questions briefly and ask you to use DSL timeframe
answers because I'm just full of questions. And, I thank you for recognizing how
important this hearing is.
You made a statement that the direction that
we might be going, or the moving of such legislative initiatives, which I know
my colleagues have put forward to increase competition, and I have a strong
advocacy for that position. But, you said something in your remarks that the
direction might undermine the U.S. leadership in Internet economy.
Having been involved in local government with the emerging cable
technology, primarily hooking up folk's television and hearing all of the
complaints of cost, I really thought in the involvement of the 1996 act we would
see high or speedy competition and diminished rates. And, I think what you see
today in this hearing room is a concern for whether or not the consumer is
actually benefiting from such.
And I'll come to my question. Recognizing
of course that the Internet, and I hope this statement doesn't draw some of the
smiles as some other statement about the Internet, but it is a creature of the
government. I mean, the research started there and it sort of belongs to us all.
What is your response to that or how do you define your statement that you made
that it undermines, or might undermine, the U.S. leadership in Internet economy,
the direction that we might be going?
MR. KENNARD: Well, I think it's
undeniable at this point that most countries around the world are replicating
the 1996 act and the incentives around it. And, my concern is that if we were to
gut what I believe are the key market opening provisions of the act, then we
would slow down the deployment of Internet technology on our networks. And, that
would be a tragedy for the American public and for our economy.
REP.
JACKSON-LEE: Let me follow-up with that and ask the question somewhat that my
colleague asked, and also to mention an example. I think because it's public
record now that we're allowed to do so. The FCC request for long distance, that
took a period of time. Some might argue that the delays in that decision
augmented the decision, or the opinion, that competition is not moving the way
they'd like.
How do you answer that question with respect to the
processes that the FCC used? I think we got a good product, but I think it's
important to respond to how you analyze that and the time that it took. And
then, I'd like to find out whether that the 1996 act has given opportunity for
start ups and minority participation through the dereg that we had hoped that it
would have occurred.
MR. KENNARD: With respect to your question about
SBC's application in Texas, I feel very good about voting in favor of the grant
of that application. Opening these markets takes time. It doesn't involve just
going down and marking off a checklist. That's part of the process.
But,
it also involves investing in systems and people to make sure that we can have
confidence that the market is open and will stay open.
I was very
pleased that in Texas we were able to work with a state regulatory commission
that took it's job very, very seriously, went to the hard work of working with
all of the players in that marketplace to make sure that by the time the
application got to the FCC, it was one that was a solid application. That wasn't
the case all the time. And the applications that we denied, the main difference
is the state regulatory authorities did not do the hard work of presenting that
application.
Now, with respect to your question about minority
participation. I am very concerned about the lack of opportunities for not only
minority companies, but all small businesses in this sector. I think we've seen
a tremendous amount of consolidation in recent years, some of it triggered by
the 1996 act, that has foreclosed opportunities for new entrants.
We are
working, not withstanding the '96 act, we are working where we can to create
more opportunity. We are trying to create a new low power FM radio service for
small community based organizations, non-profits, churches, schools, community
groups, to get access to the airwaves as a small, but significant anecdote to
this consolidation.
REP. HYDE: The gentlelady's time has expired.
REP. JACKSON-LEE: I thank the gentleman.
REP. HYDE: The
gentleman from Georgia, Mr. Barr. Mr. Barr, you have no questions. Gentlelady
from California, Ms. Waters.
REP. WATERS: Thank you very much, Mr.
Chairman. I too would like to thank you, and our ranking member, for this
hearing. We need more of this. We are all trying to keep up with all of the
latest developments in telecommunications and it is very important for us to
have an opportunity to talk with you and others, and I thank you for being here
too, Mr. Kennard.
I am trying desperately not to get caught up in the
market share battles. We watched as AT&T and OAL I guess it is created this
big discussion about access when AT&T bought up all the cable companies.
Well, at one level, it looked to me as if AT&T had indeed made a very smart
move to be able to provide broadband services. And that, you know, there is
something about the American marketplace that promotes the ability for smart
people to get the edge. And, it seems as if that's what they did.
The
discussion stopped when OAL merged with Time Warner and it found itself in an
equal position, I suppose, with AT&T having access, significant cable
capability. Now, having said all of that, and not wanting to get caught up in
these fights, I suspect what you are trying to tell us makes good sense. That
whatever is going to happen in all of this has not occurred yet.
And if
we allow it to play itself out, that the relationship that can be developed
maybe relationships that will even a lot of this out rather than trying to
regulate so early what takes place. And that's where I think I am at this point.
Even though there are some questions about access, and we all I think would like
to see access so that we can have the kind of competition that will drive
competitive prices, all of that. So, I'm trying to follow to follow you and wait
it out and let it play itself out rather than us getting involved in this kind
of legislation.
Now, having said that, I'm concerned that when AT&T
was a monopoly, it did not provide good comprehensive services to inner cities
and I suspect to rural communities. And when the cable companies started to
develop their capability, they did not provide good services to inner cities and
I suspect rural areas. And it seems to me, we still have some questions on the
table today that we have had historically.
There are public housing
projects that don't have cable even today. There are communities that do not
have comprehensive local telephone services. For example, in South Central Los
Angeles, I know I thought that we had moved to a time where no matter where you
lived, you could have the kind of local telephone service that would not cause
you to have to pay extra money to maintain a prefix numbers, for example. But,
that's not true and people are still paying to retain their prefix service. If
they move, extra money. It seems to me we should be much more advanced than that
in just basic telephone service.
Also, with this deregulation, some of
the local telephone companies have not opened up their lines so that smaller
telephone companies can get in there and provide services. So, right now, what
I'm interested in is I'm interested in what can you do to continue to work on
access at the very basic level for inner cities and rural communities before we
even get into some of this discussion about whether or not the local companies
are going to be allowed to provide data services. I want to know what they're
going to do to improve their services to the local community that are
unrealized. And I'll just leave you with that.
MR. KENNARD: Thank you.
Many of these issues of the actual deployment of networks at the local level are
dealt with by state regulators. We do have a role, however, and a role that we
take very seriously. Often times in the context of these major mergers that have
come before us, we have pressed the companies on their plans to roll out
services, particularly advanced services, to rural areas and low income inner
city areas.
And if you look at the mergers that we have approved in
recent years, AT&T, TCI, SBC, Ameritech and others, we have as a condition
to our approval insisted that these companies demonstrate that they are going to
rollout services in these historically under served areas. I do think it's one
of the most important things that we do as a government, which is to make sure
that everybody has an ability to participate in this growing sector of the
economy.
My view though is that we have to make sure that we match the
regulatory incentives, the statutory incentives with the goals. And much has
been said about this proposed legislation as solving the so- called digital
divide issue. I don't think that it will because the issue, and particularly in
rural areas, is not so much deregulating the big players, but rather it's
targeting subsidies to companies, often times smaller companies, that are
willing to provide service in those distressed areas.
REP. HYDE: The
gentlelady's time has expired. The gentleman from Florida, and the gentleman
from New Jersey, Mr. Kennard has an appointment. However, I'm sure if you will
be extra brief, why he'll be able to accommodate you. If you don't mind.
MR. KENNARD: Mr. Chairman, I'll stay as long as it takes.
REP.
HYDE: Will you? Okay, very well. Mr. Wexler.
REP. WEXLER: Thank you. I
will be brief. I too want to thank the chairman and the ranking member for
having the committee and I want to commend Chairman Kennard for brining what I
think to be an extraordinary amount of integrity to this process. And I think
consumers all across America benefit from your objectivity.
Having said
that, I'm baffled as to your response to the gentleman from Alabama, Mr. Bachus.
If I understood his question, or his inquiry, correctly, he essentially inquired
of you as to what the benefits would be to consumers if the regional Bells were
allowed into the markets, provide Internet service, and I assume the long
distance market. And if I understood your answer correctly, you basically said
none, or little, because it would inhibit competition with respect to that
market.
I would understand your response if you said yes, there would be
substantial benefits to the consumers if the regional Bells were allowed into
certain markets that they're not in now. However, that benefit must be weighed
against any loss of incentive for the regional Bells to open up their local
markets. It would seem to me that would be a fairer response and then it would
be up to the appropriate regulator to determine those benefits.
But,
your response, and please correct me if I'm wrong, seems to suggest a bias
against allowing the regional Bells to compete where they now cannot compete,
but in a bias for competition with respect to local services, which I don't
understand.
MR. KENNARD: Maybe I didn't explain my answer as fully as I
should have, Congressman. I agree with you. This is a balancing of the
incentives to open the market versus whatever benefits the Bell companies could
bring to serving those rural areas.
The point that I was trying to make
is one, ultimately consumers are benefited primarily by having competition in
all these markets in all areas of the country.
We have embarked on a
very ambitious effort to open these markets to competition by creating this
incentive structure in the act. And I fear that if we gut it, then sure, maybe
the Bell companies would provide service to those rural areas. But, they'll be
the only choice that those people in those rural areas will ever get because we
will have eliminated the hope of robust competition across the board.
And second, the point that I was trying to make, which is a balancing
act as you mentioned --
REP. WEXLER: Could we just stop there for a
moment? Are you suggesting that simply by regional Bells having permission to
operate in markets that they do not have that that by its very nature eliminates
competition?
MR. KENNARD: If it guts whatever incentive they have to
open their markets across the board, yes.
REP. WEXLER: Okay. So, then
that's a very different answer unless I misunderstood your answer than what you
gave to Mr. Bachus. And the answer is, and I don't want to put words in your
mouth, yes, there are substantial benefits. However, we have to weigh them
against other factors.
MR. KENNARD: Yes. Thank you for clarifying my
testimony.
REP. WEXLER: Because you know more than me. I don't want to
--
MR. KENNARD: But, the second point that I was struggling to make in
response to his questioning is that if there's a situation brought before the
FCC where a Bell company can show that it is the only provider, or the only
perspective provider, of service to that rural area, we will be sympathetic and
our rules allow them to get entry. They just haven't come forward.
And I
suspect what is happening here is that there is a motivation to create a scare
tactic here that the only way to serve rural American is to deregulate the Bell
companies. And I've seen this around the world as governments have tried to open
historic monopoly markets to competition. The first response is well, your most
remote distressed citizens will go without.
And unfortunately, if we buy
into that argument, we will lose focus on what is the central goal here, which
is to open the markets, all of the markets, to competitors so that people around
the country can get service from competitive choice.
REP. WEXLER: Thank
you.
REP. HYDE: The gentleman from New Jersey.
REP. ROTHMAN:
Thank the chairman, and my ranking member, for calling this hearing and I thank
Chairman Kennard as well. All the great things said about you, I agree with.
MR. KENNARD: Thank you very much.
REP. ROTHMAN: You know, I'm
trying to think of the right analogy for these situations and I know I don't
have a perfect one. It may not even be a good one, but it's one that amuses me.
You know, there's a goal of allowing people to get to the ocean to enjoy the
beach. But, if somebody owns a piece of property on one stretch of the beach and
they don't want to let people cross their property all the time, only under
their conditions.
So, some people say well, make that person allow us to
cross his property to get to the beach. Well, I told you that was the only
access point to the ocean, maybe there would be a public purpose in condemning
the property which that person worked so hard to buy. I sound like a Republican,
don't I? (Laughter.) But, you know, it depends on where you stand. It depends on
where you sit, right? You said that earlier.
And so, I find it amusing
that those who are so intent on protecting private property, and I voted for the
Private Property Rights Act by the way, would ignore the tremendous investment
by a certain segment of the industry. However, it's now 1 percent, the cable
share of this market. And certainly, I would want all Americans, I wouldn't want
to wait until they had 99 percent.
The question is, and I think my
friend Mel Watt asked earlier, when does it rise to the level of real concern
where this kind of, what you described as antitrust regulation, would be
appropriate? And you said, well, we're working on it and we'll see. Is that
about right?
MR. KENNARD: That's about right.
REP. ROTHMAN: I
don't want to use the phrase unclean hands because it's too dramatic and maybe
it's excessive. But, it seems to me that if under the prior act the deal was,
the quid pro quo was, if the local Bells provide greater access to their
service, they can get something in return. Now, they're saying we don't want to
live up to that, but we want the benefits of this new technology. Doesn't that
seem unfair?
I suppose if it were a national emergency, or some great
national interest involved, we would feel the necessity of giving something even
though they hadn't lived up to the terms of that precondition imposed in the '96
act. So, how does that strike you?
MR. KENNARD: Well, I'm not here to
demonize the Bell companies. They are market actors and their goals as market
actors is to maximize their profits. And I think that we saw in the wake of the
1996 act a change in philosophy and attitude. The 1996 act was, I think, a
masterful compromise that was struck by the Congress where they basically
balanced the incentives.
They told the Bell companies that if you open
your markets to competition, then you'll be able to get into long distance,
which they want very badly. But, when we went to implement that act, and we were
faced with lots of resistance in the courts, before my agency, now in the
Congress, in the press. This is natural. We see it all over the world. Nobody
wants to give up a monopoly position in the marketplace if they don't have to.
But, my point is that we have one real shot at getting this right and
the whole world is watching us. And I think it's very important that we stay the
course and keep the incentives in place that the '96 act --
REP.
ROTHMAN: Can I interrupt you because I see the yellow light?
MR.
KENNARD: Okay.
REP. ROTHMAN: And again, I have no reason to demonize my
friends in the Bell industry. I think they provide a wonderful service. But, it
would make it easier for me to grant relief if I knew that they were living up
to the responsibilities of the act.
I did want to echo my distinguished
chairman's concerns about cable rates and choice, consumer choice, in selecting
what programs they see on cable. I mean, I think I have four cooking channels on
mine. I have no choice but to take four cooking channels. Not to denigrate
cooking or eating, but I wish I could have some other choice. So, to the extent
that you can find a way to give consumers more choice in their cable programming
and avoid the kind of excessive fees that many of my constituents have mentioned
to me and complained about, that would be great and it would be very important.
So, if it was a $9 million signing bonus, I know matching it
would be a great loss, Mr. Chairman.
REP. HYDE: We thank the gentleman
from New Jersey. His time has just expired.
REP. WATERS: Mr. Chairman,
I'd like to ask unanimous consent to correct America Online. I kept referring to
them as something else and I just wanted to correct that. AOL, I referred to
them as OAL in my testimony.
REP. HYDE: Certainly. Thank you, Chairman
Kennard, for your helpful testimony this morning.
MR. KENNARD: Thank you
very much.
REP. HYDE: We appreciate your patience.
MR. KENNARD:
It's a pleasure.
REP. HYDE: Our third panel consists of 10 witnesses
from industry who will provide us with a variety of perspectives on these
issues. First, we have the Honorable Tom Tauke, the senior vice president for
public policy and external affairs at Verizon Communications. He's a graduate of
Loras College and the University of Iowa Law School.
Before coming to
Congress, he practiced law in Iowa and served in the state legislator. He was
first elected to Congress in 1978 and served through 1990. After that, he went
to Nynex, which in turn became Bell Atlantic, which in turn became Verizon. In
addition, he's an old friend and I want to extend to him a very special welcome.
Next, we have Mr. Mike McCurry, the co-chair of iAdvance, a coalition of
telecommunications and technology companies. He's a graduate of Princeton
University and Georgetown University. He served on the staff of the Senate
Committee on Labor and Human Resources and on the staff of Senator Daniel
Patrick Moynihan. He's also served with a number of Democratic presidential
campaigns and is well known to us all as the president's former spokesman where
he served from 1995 until 1998.
Next, we have Mr. Randy Lowe, the
executive vice president and chief legal officer of Prism Communication
Services. He has a long career in telecommunications working in the legal
departments of AT&T and ITT. He has also worked in private practice for the
Washington law firms Jones, Day and Piper Marbury (sp). He is also widely known
as a writer and speaker on these topics. And next, I will turn to Mr. Conyers to
introduce Chairman Ivey.
REP. CONYERS: Thank you, Mr. Chairman. Glenn
Ivey is an old friend of ours. He worked here on the hill and then became a U.S.
attorney. He then became a Senate counsel to the Banking Committee and then
later served with Minority Leader Tom Daschle as chief counsel before Governor
Glendening appointed him to the Public Service Commission, where he's now
chairman.
He came through all of those by way of Princeton University
and a graduate of Harvard Law School and we're happy to have him up on the hill
again. Welcome, Chairman Ivey.
REP. HYDE: Next, we have Mr. Scott
Cleland, the chief executive officer of the Precursor Group. Mr. Cleland has a
bachelor's degree from Kalamazoo College, a master's degree from the University
of Texas. He has a long career in government serving in the State Department,
the Treasury Department, and the Office of Management and Budget.
He
also has extensive experience in the private sector working with Booze, Allen
and Hamilton, Charles Schwab and Company, and Legg Mason. He recently founded
his own company, the Precursor Group, an independent research company.
Next, we have Mr. Preston Padden, the executive vice president for
government relations of the Walt Disney Company. He's a graduate of the
University of Maryland and the George Washington University Law School. He has
been president of television at News Corporation, the CEO of American Sky
Broadcasting, and president of ABC Television. He took his current position in
1998.
Next, we have Mr. Dave Baker, vice president for law and public
policy of EarthLink. Mr. Baker is a graduate of Johns Hopkins University and the
Washington Lee University Law School. Before coming to EarthLink, he was
chairman of the Georgia Public Service Commission and took his current position
in 1998 and he appears here today on behalf of the openNet Coalition.
Next, we have Mr. Len Cali, the vice president for federal government
affairs at AT&T. He's a graduate of Fordham University and the University of
Michigan Law School. Before coming to AT&T, he practiced law for many years
with the law firm of Cadwallader, Wikersham and Taft (sp). He joined AT&T in
1988, and since that time has served in several positions in its law and public
policy group.
And next, we have Mr. Tom Wolzien, the senior media
analyst for Sanford C. Bernstein and Company. He's a graduate of the University
of Denver. After serving a tour with the Army in Vietnam, he worked as a
reporter for local television stations in Denver, Green Bay, and St. Louis, and
spent 16 years with NBC in various positions, including helping to found the
cable channel, CNBC. He joined Sanford Bernstein in 1991.
Finally, we
have Mr. Robert Sachs, the president and chief executive officer of the National
Cable Television Association. He's a graduate of the University of Rochester,
Columbia University, and the Georgetown University Law School. He began his
career serving on the staff of several members of Congress and in the White
House. After that, he worked in a number of positions for Continental
Cablevision and took his current position in 1999.
We welcome all of
you. We recognize your patience and appreciate it and we look forward to your
testimony. Mr. Tauke.
MR. TOM TAUKE: Mr. Chairman, I have always had a
warm spot in my heart for you and it's a great pleasure to be here with you and
your distinguished colleagues. I have rewritten my testimony several times while
I've been sitting here this morning. Let me take a moment to just try to clarify
a few issues.
First of all, when we think about the Internet, it's
important to understand that there are three pieces that make up the Internet
from the standpoint of the average consumer. The first piece is the last mile.
From the home, let's say, or small business, to the central office. Then, there
is a piece that takes what we might call a regional network, which takes the
traffic from the central office to a network access point. And then, the third
piece is the long backbones that go cross country.
Now, Chairman Kennard
talked about the first piece, the last mile, and he talked about the backbone,
and he said there's lots of backbone and the problem is in the last mile. I
agree with both of those statements. But, the problem is as of yet no one has
focused on the middle piece, the regional networks.
I look at this a
little bit the way the airline system works. I, as you know, used to represent
the state of Iowa. And all of these flights would be going from New York to Los
Angeles and they'd all be going over Iowa. Didn't do us a bit of good in the
state of Iowa. We could look at maps that showed lots of airline over the state.
Didn't help us. What we needed was a regional airport to get us to Chicago and
some jets that would make that flight.
That's the same thing here. Those
LATA boundaries prevent the creation of the regional networks that carry the
traffic for Verizon, for all the small telephone companies in those regions,
which is why the small telephone companies support the legislation lifting the
restrictions on inter LATA release, so that those regional networks can be
created that will carry the traffic to the main network access point, the hubs
if you will. That's what this legislation is about.
Consumers want that
access. They need that access. They need speed and they need it at a reasonable
cost. Now, what happens when you don't get it? Well, in the state of Wisconsin,
we have a very good example. There's a South Central Wisconsin Library System.
It has over 300 libraries. If a library is located within the same LATA as the
headquarters for the South Central Library System, they pay
$200 a month for high speed Internet access. But, if they are
across a LATA boundary, they have to pay over $820 a month for
high speed access. The same service, but a few miles further. Why? Because the
regional Bell companies are unable to construct the network to make that
available for the whole system.
Now, Chairman Kennard said well, we have
a system. Anybody can come in and apply to provide service that we don't have. I
will tell you, I was outraged. Bell Atlantic filed for the state of West
Virginia under 706 and the petition sat the FCC for two years. Then, they came
forward with a procedure for applying for that release to serve under served
areas and they didn't even take into account the price.
So, for example,
the library sitting outside the LATA boundary wouldn't be able to say well,
we've got to pay over $800 when we should be paying
$150 or $200. That wouldn't count. Well, of
course, if there's no limit to price, it's pretty hard to demonstrate that there
is a limit in the ability or the access to the service that is available.
This is important not just for libraries, and for hospitals, and for
schools, but it's important for small businesses. And yes, in communities, and
yes, it is time. We're all going to be into the long distance market in three,
four, five, six years. The question for you and for your communities is can the
nation afford to have these people sitting there without Internet access even
though the networks are essentially in place, but unable to be used. Can the
nation afford to waste those resources and keep people disconnected for three,
four, five or six years?
Time is of the essence in this world and I
don't think we have a lot it to waste. So, I think the bottom line here is that
time is not our friend. Time is our enemy. We have huge incentives which I can
get into to continue to comply with the act. We are required to comply with the
act regardless of 271. The money is in the voice market, not the data market
today. And so, this act is designed to ensure that consumers who today cannot
get high speed access have the ability to get it tomorrow.
REP. HYDE:
Thank you, Mr. Tauke. Mr. McCurry.
Mr. MIKE McCURRY: Thank you, Mr.
Chairman. I'll spare you my longer statement and in the interest of this long
panel, make only a few very brief points. I'm here in my capacity as co-chair of
iAdvance. I have that position along with your former colleague, Susan Molinari,
and it is a pleasure on behalf of that coalition to represent a range of
company's interests from the high tech field, the telecommunications field,
those who actually use this amazing technology that we're talking about today.
So, I would like to put on that hat and represent the view of those who
really need the extensive resources of the broadband Internet, those who use it,
and those who are making the quality of life in America better because of it.
We represent folks who are involved in the fields of telemedicine, those
who are now providing distance medicine to people who might otherwise not have
access to high quality health care. We represent those who are bringing
technologies in the field of learning to people who would otherwise be under
served. We represent those that are in development organizations trying to
attract economic commerce to regions of our country that have been sometimes
left behind, that have not been part of the longest growth and expansion in
American economy in history.
Those people, as they see how the Internet
is developing and becoming a critical factor in all of their walks of life, are
anxious about the capacity of this network of networks that we're building and
whether in the future it is really going to be able to provide the kind of fast,
efficient connections to this tool that they all will need.
Now, I am
not a veteran of the telecommunications fights of the 20th century, as are many
here. I watched kind of on the sidelines, and also from the White House, as many
of the debates, often very bitter, took place here. And some of the discussion
has been about whether or not we want to go back and revisit the 1996 act.
You can argue a lot about what the applications of various sections of
that bill are to the situation we're in now, but I think one thing is
indisputable. No one at the time of '96 act predicted the transforming effect
that these technologies would have on the American people as they thought about
the situation we'd be in now here in the 21st century. And to try to adapt the
regulatory structure that effects telephony, to make it work for this brand new
field that we're in seems to me a pretty daunting challenge for all of you.
Now, this really is a new field. It is going to have in addition to the
transforming effects in the areas that I talked about, it's going to effect the
lives of all of you as you pursue your representation of your constituents. The
ability to communicate with them, to bring information to them, to convey to
them the choices that have to be made in public policy. The very active
citizenship in this democracy will depend on a rich robust network that can
carry lots of traffic, video, audio and else, into the American home, into the
business place.
Now, given that reality, let's look at what's happening.
Chairman Kennard said Internet traffic is doubling every 100 days. That may be.
At the very least, it's going to be doubling every year, or maybe even less than
every year, and that is going to stretch the capacity of the network that we
have today. So few people have connections in the home to what we call the
broadband Internet that we can't even foresee the things that might happen as we
start to see congestion build on the Internet.
When the Department of
Justice looked at a recent merger, and looked at the quality of this current
network, they were convinced that we were already seeing the telltale signs of
an incapacity of this network to deliver traffic to the places that it needs to
go and they were rightly concerned about the concentrations that exist in that
market.
My point to you in conclusion is this, we are at the beginning
of something brand new and we have the ability to get it right. If we try to
transpose the telephony regulations of the 20th century and create that as the
paradigm that governs the regulation of the Internet going forward in the
future, which we are in effect doing by leaving the current restrictions that
exist on the Bell companies in place, the I think we are going to get it wrong
and we're going to several years from now look back at this period of time as a
lost opportunity.
iAdvance, and the coalition of people it represents,
commends Congressman Boucher and Congressman Goodlatte for this legislation
which we strongly support.
REP. HYDE: Mr. Lowe.
MR. RANDY LOWE:
Mr. Chairman, Mr. Conyers, members of this committee, I appreciate being here
this afternoon and indeed I am both flattered and honored by my presence here
today. Honored because of the esteemed history of this committee, but flattered
because I do believe that it is a recognition of the time spent by my company,
Prism Communication Services, to do what we were allowed to do by the '96
Telecommunications Act.
Prism Communication Services is a subsidiary of
Comdisco (sp) out in Rosemont, Illinois, and as such is a member of the
Competitive Telecommunications Association, CompTel, as well as the Association
for Local Telecommunications Services, otherwise known as ALTS.
We
however, unlike the DLECs (sp), which you heard about here this morning, are a
true CLEC, a Competitive Local Exchange Carrier, as we believe was envisioned by
the act. And by that, I mean we not only provide data services, but we provide
on an integrated basis both voice and data services in 33 cities, 27 states,
including the District of Columbia, in 900 plus locations serving 57 million
telephone lines.
We are in the process of rolling that out because over
the last year and a half we have spent $400 million and will
continue to spend at that rate money to build out our network in order to do
what again we believe the Telecommunications Act of '96 has allowed us to do.
I, up to about a year ago, was nicely ensconced here in town in private
practice and was brought out for a reason. And the reason was that my experience
in the long distance business dating back some 20, 25 years is identical to what
we perceive to be the experience in this market, and that is the difficulty of
getting access to the various elements of a local network that we need in order
to compete and as we believe the '96 act has required the Bell operating
companies to provide to companies such as ourselves.
The act was a
perfect balance, as Chairman Kennard said, we believe between opening up the
local marketplace and providing us the tools by which we need to get into that
marketplace. And at the same time, providing the incentive of the Bell operating
companies to give us those tools by them allowing to get into long distance,
both data and voice.
The Telecommunications Act of '96, back when it was
passed then, and I believe firmly now, is a watershed in the history of this
country in particular. It determined that communications is communications. Data
and voice, it doesn't matter. It goes over the same lines to the same places
reaching the same people. Albeit for different purposes going in and different
purposes going out, but it is communications.
And within that construct,
this Congress declared that in fact we should be allowed to have access to a
network which is built on the rates of the American ratepayers over the last 100
years. That is, the local telecommunications networks of the Bell operating
companies.
And it is that interconnection, and the unbundling associated
with that interconnection, that we must as an industry have in order to survive,
in order to provide the type of competitive services that Congress decided we
should provide to the American people back in '96.
But, because it is a
watershed, four years is not enough to build a network and provide those types
of services to the American ratepayer. Four years in the scheme of things, and
again considering that the network that we are presently faced with is built
over the course of 100 years, is a small amount of time in order to accomplish
that goal. But, that goal indeed we are accomplishing.
As Chairman
Kennard said, the act is working. The act is a masterful piece of legislation
turned into law that is indeed working. Unfortunately, the proposals before this
committee in particular, the 1686 and 1685 initiatives, will not accomplish that
goal, but in fact will upset substantially that balance. It will take away the
unbundling aspects of the bill, of the act. It will also disallow us from
resale, which is a traditional way by which to enter into a particular market.
But, most importantly, again as Chairman Kennard said, it will take away
the most fundamental portion of the '96 act, and that was the incentive created
by 271. I firmly believe that if in fact we allow the Bell operating companies
to cross LATA boundaries, which are not in acronyms by the way, but were
designed specifically for purposes of determining what is local and what is long
distance, not telephony versus data, then we will in fact take away completely
the incentive that they have now to give us what we need in order to compete and
in order to provide services to the American public. Thank you, Mr. Chairman.
REP. HYDE: Thank you, Mr. Lowe. Chairman Ivey.
MR. GLENN IVEY:
Thank you, Mr. Chairman, members of the committee. My name is Glenn Ivey. I am
here to represent NARUC this morning and our strong opposition to H.R. 1686 and
we oppose it for several reasons.
First of all, H.R. 1686 would allow
the Bells to transport data across LATA boundaries immediately. And in essence,
what this would do was allow ILECs to become long distance carriers of data,
which they can't do under the act until the meet the 271 requirements, open
their local markets to competition. If the Bells were allowed to transport long
distance traffic without first having to comply with the 271 checklist, state
commissions and the FCC would lose the primary tool for promoting local
telephone competition.
Circumventing the incentives that Congress put in
place would derail ongoing efforts to bring advanced services to local markets.
States currently in the midst of arbitrating entry disputes regarding advanced
services could be required to visit those previously resolved issues. And in
addition, the legislation would give the ILECs a competitive advantage in
broadband deployment without providing in return any
demonstrable gains in local competition.
Secondly, data now accounts for
at least 60 percent of the traffic on the public network and it's projected to
account for as much as 90 percent in three to five years. So, as Mr. Cannon
pointed out, data, if we move forward with the legislation as drafted, data will
overtake voice and essentially circumvent the balancing act of the Telecom Act.
In the interest of brevity, I'll make one last point, and that goes to
the issue of the Telecom Act being replaced by the Sherman Act in this bill. I'm
very troubled by that because I think it means that the Sherman Act could be
used certainly to prohibit anticompetitive activities by ILECs, but at this
point, legislative changes to the current legal and regulatory structure would
exacerbate an already litigious relationship between ILECs and their potential
competitors.
And since litigation has been a central factor in delaying
full implementation of the Telecom Act, and because antitrust litigation is
extremely expensive and protracted, it seems clear that shifting emphasis to the
Sherman Act would delay rather than hasten broadband
deployment. I thank you for the chance to express our views to the
committee and I'll submit the full statement for the record.
REP. HYDE:
Thank you, Chairman Ivey. Mr. Cleland.
MR. SCOTT CLELAND: Yes, Mr.
Chairman, and Mr. Conyers, thank you for the honor of testifying before your
committee. At the Precursor Group, we are structured to be independent so that
we avoid the common financial conflicts of interest. We don't do any investment
banking, any stock picking, any money management, or proprietary trading. So, in
that context, I offer kind of the following big picture insight.
I have
one main message today and that is that I think the lack of a balanced national
Internet broadband policy actually devalues the Internet and it risks killing
the goose that laid the golden egg. Both H.R. 1685 and 1686 recognize that
something is seriously wrong with the Internet. These bills also recognize that
the current implementation of the Telecom Act is out of balance and it's not
enhancing the value of the Internet.
Now, what's happened, I believe, is
that industry lobbying has effectively undermined longstanding bipartisan public
policy that has fostered growth, competition, consumer choice and innovation on
the Internet. Now, specifically, if you look at the state of schizophrenic
infrastructure regulation between telecom and cable, it's what's contributing to
the breakdown of what makes the Internet valuable.
For the local
telco's, the FCC has a hyper regulatory policy. Essentially, it's micromanaging
most prices and product terms to achieve desired market outcomes. Now, for the
cable operators, essentially the FCC effectively has what I call the trust and
don't verify policy where even contemplating regulatory enforcement appears to
be taboo. Essentially, the FCC has picked cable as its winner. It has picked
cable as its winning technology. And I think that that has made the
implementation of the Telecom Act, and the process of the Internet, very out of
balance.
So, let's talk about real briefly what makes the Internet
valuable. Why is this the goose that laid the proverbial golden egg? What makes
it valuable is first of all, it's interconnected. It brings everybody together.
Second, it's interoperable. It emigrates otherwise totally incompatible
technologies and it allows a phenomenal increase in efficiency, in convenience,
and productivity.
Is it has few barriers, therefore it allows easy
competitive entry for new businesses. Essentially, it's supposed to be open,
competitive in a high-growth marketplace.
Fourth, the Internet is an
engine of economic growth and innovation. It enables new businesses and new ways
of doing business because it decentralizes control and gives it to the end user.
And finally, why the Internet is valuable is because it increases
consumer choice and it decreases supplier control. It's these extraordinary
synergies and network effects and efficiencies that make the Internet overall
worth a whole lot more than the sum of its parts. So what's the problem? Well, I
believe that public policy neglect is actually devaluating the Internet. The FCC
shift to a hands-off policy, after 28, 30 years of a bipartisan hands-on policy
that led to the Internet because essentially they are allowing an erosion of
what I call the public value of the Internet and they're encouraging a corporate
tug-of-war to fight over the Internet. And like the goose that laid the golden
egg, when you pull apart the pieces of the goose, the goose either is crippled
or it's gonna die. Nobody appears to be defending the goose that laid the golden
egg.
So what do I mean? There are three main big problems that are going
on in this debate, number one, the government's allow fragmentation of the
Internet. The Internet grows in value by being interconnected, by being
interoperable. That's essentially Section 251A of the Telecom Act and Section
256, which is interconnectivity. But the neglectful hands-off policy devalued
the Internet. Now, the government is allowing now cable, the leading broadband
facility going forward, to disconnect competitors from the underlying Internet
infrastructure. Problem two is cartelization. Rather than ensuring that the
Internet remains open and competitive, the FTC has acquiesced the cable market
power, it's permitted cable to erect all sorts of competitive barriers to entry
and it's passively promoted a first- mover advantage by cable and that's a
problem, because there's virtually no after-market competition in the broadband
market.
Finally, problem three is politicization. After decades of--
three decades of bipartisanship, promoting competition and innovation through
open networks, industry has successfully driven a partisan wedge on Internet
policy by making the government out to be this Internet bogeyman.
It's a
ridiculous charge. The government developed, subsidized and then commercialized
the Internet and it suckled its growth through massive subsidies and very
minimal regulation. I thank you, Mr. Chairman, for the honor of testifying
before the committee.
REP. HYDE: Thank you, Mr. Cleland. Mr. Padden.
MR. PRESTON R. PADDEN, EXECUTIVE VICE PRESIDENT, GOVERNMENT RELATIONS,
THE WALT DISNEY COMPANY: Thank you Mr. Chairman and, with your consent, I'd ask
that my written testimony and the three letters attached to that be entered in
the record.
REP. HYDE: Without objection. All your statements in full
will made a part of the record and any attachments thereto.
MR. PADDEN:
Great. Thank you, Mr. Chairman. My name is Preston Padden. The Walt Disney
Company. Disney is honored to be here today to support 1685 and H.R. 1686 and,
in particular, we want to commend Congressman Goodlatte and Congressman Boucher
for their focus on consumer choice. And I want to begin by explaining why the
Walt Disney Company is here, because we don't any of the facilities that have
been discussed all day today. We don't own any telephone wires, we don't own any
cable wires, so we don't stand to be regulated or deregulated by any of this.
Our sole interest is that we produce television programming and Internet
content. And what we're looking for is a world where the customer has the right
to choose or to not choose our content, based solely on how good a job we do of
creating that content and promoting it. And to not have that choice limited or
skewed by the conflicted business interests of the company that owns the
pipeline to their home that last mile you've heard about today.
And in
particular, as we go forward with this legislative process, we would ask you to
focus on consumer choice in the context of what is the emerging part of this
marketplace and that is Interactive Television. Interactive Television
represents the convergence of traditional one- way cable television, which is
regulated under Title VI of the Communications Act, converting with two-way
Internet content, regulated under Title II of the Communications Act.
And let me give you just a couple of examples. We're going to be doing a
demonstration for your staff next Monday over in the Capitol.
We've sent
an invitation around to them so they can see examples of interactive television.
But the consumer will be able to call up the television they want by
genre. They'll be an icon on the screen that says, News and the consumer will be
able to click on that icon and something will happen. What happens is gonna
depend, in part, on what you do with its legislation. Either the consumer will
get the choice of a lot of competing news services or they might get the choice
of the news service owned by the company that owns the pipe to their home. The
consumer will also be able to view both traditional television content and
Internet content on the same screen at the same time. They'll be able to drill
down in a newscast and say this is a subject about which I'd like to know more
and get transported right from the newscast to a broadband web site rich with
detail about that news story. They'll be able interact with ads. If they see a
car they really like being advertised, they'll e able to click to indicate
they'd like a test drive and they'll even be able to do their e-mail and chat
right over top of the television screen at the same time.
Now the
pending merger of AOL, Time-Warner and EMI, in fact, embodies this coming
together of interactive television. This one company, if the merger is
consummated, will own monopoly cable pipelines to about 20 million homes.
They'll own half of the narrowband Internet marketplace, they'll own a vast
collection of content, motion pictures cable networks, television programs.
They'll own the set-top box hardware that the customer uses to access all of
this. They'll own the operating system that runs that set-top box. They'll own a
monopoly in instant messaging, "sticky applications", like e-mail and chat, that
tend to bind the customer forever to their first choice and they will own the
largest collection of music publishing rights in the world.
Now as you
can imagine, as an unaffiliated content owner, interested remember just in the
customer having the opportunity to choose our content, we look at all of this
with some trepidation. So we sent some letters to our friends at Time Warner and
they're attached to my testimony and we said, gee, could you assure us that
consumers will have the same level of opportunity to interact with our content
that they have to interact with your content? We're pretty sure if the customer
wants to drill down in that news story on CNN, that the system that Time Warner
and AOL will be deploying, will work for them. Our question is if the customer
wants to drill down for more detail on an ABC news story, will it work? We're
pretty sure that interactive ad for a Jeep or a Chevrolet, the interactive
functions will work when that ad runs on a channel that Time Warner owns, like
TNT, or TBS, but we ask, assure us that same interactivity will occur if the ad
is running on ABC or ESPN.
Unfortunately, we didn't get any satisfactory
response to our requests, you'll see in the letters. What we got was "trust us,
we'll be good guys and take care of things." And that response stood in stark
contrast to AOL's testimony on this same legislation just one year ago before
this same committee where they said, quote, "strong unequivocal Congressional
action is required." And we would associate ourselves with AOL's view a year
ago, as opposed to their view today. We're also influenced in believing that
there's a role of the government here by the history of anti-competitive
practices of both of these companies and I wont' go into that a whole lot. I'll
wind up just by saying there's been a lot of talk here about DSL today. We love
DSL. We want to see the telephone companies encouraged, but we hope the
committee will focus on the fact that today DSL is not a substitute to give
consumers an alternative path to interactive television. Just to quote from one
report, "Today's DSL deployments in technology are largely incapable of
providing video." So when we think about this marketplace, please don't make the
mistake of thinking that DSL, while it's a great substitute for higher speed
Internet access, it's not a good substitute for interactive television. Thank
you very much.
REP. HYDE: Thank you, Mr. Padden. Mr. Baker.
MR.
DAVE BAKER, VICE PRESIDENT, LAW AND PUBLIC POLICY, EARTHLINK, INC.: Chairman
Hyde, Ranking Member Conyers, and Members of the Committee, I'm Dave Baker, Vice
President for Law and Policy for EarthLink, headquartered in Atlanta. EarthLink
is now the nation's second-largest Internet service provider, serving
approximately 3.5 million customers throughout the country.
I'm pleased
to appear today on behalf of the openNET Coalition of which EarthLink is a
charter member. OpenNet is a national coalition of more than 980 local, regional
and national ISPs and communications providers that have joined together to
promote the rights of all consumers to obtain affordable, high-speed access to
the Internet from the ISP of their choice.
Founded in 1999, OpenNet has
quickly grown to become the largest organization of ISPs in the country. Thank
you for the opportunity to share with you today OpenNet's views regarding the
"open access" provisions of 1686 and 1685.
OpenNet commends Congressman
Goodlatte and Boucher for their early understanding of the "open access" debate,
it's implication for consumers, ISP competition, and the future architecture of
the Internet.
In their legislation, they have shown great foresight in
offering provisions which would quickly establish an enforceable, national open
access policy for the broadband environment in a direct, non- regulatory way.
These provisions would ensure that consumers of broadband Internet services have
multiple competitive ISP choices regardless of the platform they use. Such
legislation is needed because incumbent cable companies that offer broadband
services do not provide open access to their systems. If a consumer today wants
high- speed Internet access through a cable modem, he or she has no choice but
to buy and use the bundled offering of their cable company's own affiliated ISP.
Cable companies are tying their transmission and ISP offerings together and
making their affiliated ISP exclusive. They have implemented the structure,
notwithstanding their dominance over central transmission facilities and their
90 percent market share in the broadband market.
There has been some
progress in recent months toward the open access, but there's still a long way
to go. Within the past year, the cable industry's opposing argument that open
access was "technically infeasible," or would chill investment, or would slow
deployment, or is "bad for business. These arguments have eroded.
An
increasing number of large cable companies have begun to at least promise
eventual open access. However, we remain concerned that the cable industry still
seeks to delay open access for as long as possible. ALLOW as possible. This
would allow them to gain a "first mover" advantage and. By their own admission,
"rope off" from competition as many customers of their bundled high-speed cable
broadband services as possible.
Given the continued resistance of the
cable industry towards open access, a catalyst is needed if there will be any
meaningful widespread open access any time soon. The open access provisions of
1686 and 1685 provide this catalyst.
Among the positive developments we
mentioned, these seek to emphasize, rather than diminish, the importance of this
legislation. In December 1999, when my company was still known as MindSpring, I
negotiated a Statement of Principles with AT&T, which we submitted to the
FCC. I noted at that time that AT&T's commitments towards eventual open
access was a step in the right direction, but were nonetheless too limited and
indefinite to stand in lieu of a comprehensive national policy.
In
February of this year, AOL and Time Warner issued their Memorandum of
Understanding which set forth more detailed open access principles. And, in a
landmark decision, just last month in the AT&T v. City of Portland case, the
U.S. Court of Appeals for the Ninth Circuit ruled that cable broadband service
is a telecommunications service. As such, it is subject to federal law requiring
nondiscriminatory access and interconnection. In light of this decision, the FTC
announced on June 30 that it would finally initiate a long-requested proceeding
to address cable Internet access. However, as the FCC itself has indicated many
times in the past, such a proceeding will take time and then will still have to
face litigation following that.
Consumers of Consumers of emerging
high-speed broadband services should not have to wait years for cable companies
with market power to unilaterally decide whether or when they might offer access
to unaffiliated ISPs so that consumers can have choice.
Mr. Chairman,
Open access has a proven track record of promoting consumer choice, competition
and innovation. Because of open access policies in narrowband, marketplace, 97
percent of Internet users throughout the country can choose from among several,
even hundreds of ISPs. Compare this to cable, where 97 percent of customers have
no choice in who their cable company is or in the content they provide. As we
begin to offer high-speed Internet access over cable, we are at a crossroads,
where we follow the open pro-consumer choice model of the Internet or the
closed, no-choice model of cable.
At every turn, policymakers have
sought to give consumers greater choice in their communications services. This
Committee has played a leading role in crafting many of the laws that foster
competition. Broadband Internet access over cable should be no exception. Thank
you again for inviting me to share OpenNet's views and I look forward to your
questions.
REP. HYDE: Thank you, Mr. Baker. Mr. Cali.
LEONARD J.
CALI: Chairman Hyde, Ranking Member Conyers, and members of the Committee, it is
a pleasure to be here with you today. My message is this: the marketplace is
effectively addressing the primary issues of concern in H.R. 1685 and H.R. 1686
and this has been confirmed since this committee last held hearings on these
bills. There is no public interest reason to change these rules.
To the
contrary, the proposals would destroy the intensive-based framework of the '96
Act, create net marketplace uncertainty, introduce renewed opportunities for
litigation and otherwise imposed unnecessary costs on competitive carriers.
First, the marketplace is working. Today more than three million
subscribes to DSL and cable modem services enjoy high-speed Internet access.
Analysts tell us by the end of this year, high-speed technology will be able to
54 percent or more of American homes and that will rise to 80 percent by the
year 2002.
When considering my written submission, I would ask the
members of the committee, in particular, to consider two attachments to the back
of the testimony. Those are two maps. The first map depicts more than 1,000
high-speed Internet points of access that have been deployed in the last four
years by the competitive industry. As a result of that deployment, more than 94
percent, 94.7 percent of Americans live within 50 miles of one of these
high-speed POPs. The second map depicts, by state, the percent of Americans in
each state living with 50 miles of one of these high-speed Internet POPs.
This is the result of more than 40 Internet backbone provides
constructing six new major networks coming on line and we need to step back and
consider what's achieved this outcome. It is competition. We have some
staggering numbers. In the last four years, the cable industry has spent
$36 billion to upgrade its networks and convert them to an
advanced infrastructure.
In addition, the CLECs have deployed 1,400 data
switches and deployed 162,000 fiber route miles. As a result, the Bell companies
have begun to announce major deployments in the last year. SBC has announced
that it will invest $6 billion to reach 80 percent of its
households in its territory.
Bell Atlantic will invest
$1 billion a year until 2005 to upgrade its network and U.S.
West has recently announced that it will extend DSL deployment to 30 cities.
Meanwhile, competition is driving down prices. Just last year, Verizon announced
that it was reducing DSL rates from $49.95 to
$39.95. In my testimony, I've also identified that other Bells
have done the same. In fact, in one instance, one Bell company has reduced DSL
monthly charges from $89 in 1998 to $39 today.
Meanwhile, the residential local exchange market remains dominated by
Bell companies. And what we're hearing today about rural DSL deployment or
broadband deployment by the Bell companies, is very familiar.
It is what we have heard before as to broadband deployment
generally. But what we now know is that the Bell companies can and, in fact,
have deployed broadband.
And just this May, Bell South announced that it
will deploy a high-speed infrastructure in every line in Georgia, including
rural. But in all events, since last year, we now know that the 1996 Act
requirements for entry into the LD market are attainable. They were retained in
New York and they were and retained in Texas. And other companies can obtain
entry into the interLATA market, if they just open their local exchange market.
And this is a crucial point. There remains a market dominated by the local
exchange carriers. So when we look at promising growth of competition in
broadband deployment, we look at the local exchange market,
particularly for residential customers and we realize that it is dominated by
the local exchange carriers. Granting the relief proposed here will only
solidify that position. In addition, you should also consider this: passage of
this legislation would hurt consumers in the 47 jurisdictions where the Bell
companies do not today have release and that is because if this legislation were
enacted for all the reasons you've heard this morning, the Bells would have no
incentive to open markets in those states. As a result, the competitive
investment dollars that have been flowing since the '96 act was passed, will
flow to New York and Texas, but away from those states where less competitive
opportunities exist.
In addition, I would like to mention that the
marketplace is also working in a second important respect, cable companies will
offer choice of ISPs to their consumers. Last June, AT&T told this committee
that it would provider consumers access to content of their choice. In a
December letter to Chairman Kennard seemed to confirm that it would, upon
expiration of its exclusive contract, with Excite@Home, provide consumers with a
choice of ISPs. And earlier this summer, AT&T announced that it will conduct
two trials to work out the technical issues involved in offering choice. And
this is a result of our own self interest. The more that we meet our customer
needs, the more customers we'll have, the more traffic we'll carry and the more
likely we'll be able to sell other cable and telephone offers.
Now we
hear that other cable providers are also indicating that they will provide
customers with choice. These steps confirm that the marketplace is addressing
these concerns. There is no need for legislative action that would create
uncertainty, give rise to litigation and slow deployment of competitive
offerings.
Mr. Chairman and members of the committee, we respectfully
urge the committee to promote continued deployment of broadband in a swift,
widespread, and commercially reasonable manner by maintaining the competitive
incentives.
REP. HYDE: Thank you, Mr. Cali. Mr. Wolzien.
MR. TOM
WOLZIEN: Thank you, Mr. Chairman, members of the committee. As Senior Media
Analyst for Sanford C. Bernstein, a Wall Street Research and investment firm,
provide research on publicly traded entertainment and cable companies to the
large institutional investors, the managers of pension and mutual funds. I cover
Disney, AOL, Time Warner, Viacom, Comcast, Cox Communications, and Liberty
Media, putting me on at least two sides, if not more, of these broadband
discussions. Since Bernstein is not involved in investment banking, none of
these companies is a client.
Today at the invitation of the committee, I
will make four points dealing with investor concerns over mandated access,
potential cable reactions, the legitimate concerns of content providers that
don't own cable systems, and to note the unique opportunity companies have to
cooperate to use this new technology to assist efforts in the public interest.
Point One: What Investors Expect. The traditional cable business of
offering video channels is a mature business. It is the new digital businesses
that provide investors with the potential returns that provide the rationale to
invest in cable today . If the rationale goes away, so will some of the
investments. Cable companies are past the midpoint in investing more than
$20 billion to provide upgraded plants that can handle
traditional analog video signals and the two-way transmission of data bits to
open up new applications in the on-line, pay per view, television-based
commerce, and digital telephone areas. The improved economic returns justifying
the expenditure are not based simply on the common carriage of data bits at some
bulk price. Rather, they're based on the much higher returns that are
anticipated for those new bit-using applications, for the applications, not the
transport.
Here's an example of what cable investors fear. An ISP taking
advantage of mandated access, for example, might transmit streaming movies on
demand, in direct competition with the same movies provided by the cable company
elsewhere on that same cable, but the ISP might pay the cable company only a
flat rate for the number of bits transmitted, keeping the upside for the
entertainment value carried in those bits for the ISP itself.
Conversely, in a negotiated business deal, the ISP might still be
providing those streaming pay per view movies to the detriment of the cable
company, but the cable operator might have negotiated to share in the pay per
view upside, and would see his returns made whole because the ISP might deliver
millions more new subscribers to the cable company's digital services. Such a
negotiation, of course, presupposes that the ISP brings something of value to
the table.
Point Two: Mandated Access Could Damage Implementation of the
Second Wired Infrastructure. If mandated access threatens cable's expected
returns, a cable company could either quit building out its plant at halfway or
60 percent, where we are today, leaving the country stuck with about half the
plant upgraded, or it might avoid offering a retail data service and shift
emphasis instead to other services that might not fall in the common carrier
arena. For example, it could focus its two-way planton digital pay per view or a
television-based commerce, but forego the data-related businesses that might put
that portion of its business under regulation. And without an aggressive rollout
of cable data services, I think it's reasonable to ask if the RBOCs would be as
motivated to expend the capital necessary to build out their own broadband
infrastructure.
Point Three: There Is Risk to Content Companies. Worries
that a cable company could provide preferential technical treatment to services
it owns, I think, are legitimate. Think of the consumer reaction to a slow
response of a music video service not owned by a cable company, versus one
playing the music instantly because the cable company owns it and technically
assures a faster response. This is a risk, I believe, and I think it must be
watched closely, but the lack of protective legislation is not damaging
entertainment company investors today. And, in the '92 Act, of course, there is
precedent for dealing with cable companies that abuse their positions as content
owner and distributor.
Point Four: A Unique Opportunity. No investor
I've ever spoken with has complained about companies doing good works. And now
is the time for both content and distribution companies alike to begin defining
programs of interactive public service announcements in the public interest. For
example, an AIDS announcement runs on TV, click to get additional info. An Army
ad runs and then, click, and recruiter is at the door before the end of the
show. An anti-alcoholism or drug abuse spot runs, and then click and there's
information there for the closest AA meeting and so on.
Finally, a
pragmatic public policy question. The digital plant is being built, competition
is beginning, and the dynamic marketplace is seeming to starting to respond. Why
change the rules now and regulate this area before the construction of the
digital plant is completed and risk of slowing or stopping the rollout of
digital services?
Politically astute cable companies know they must find
a way to open up access. They know legislation is likely if they use technology
to discriminate against content providers. And if legislation comes, those same
cable companies know they will be severely punished by investors just as they
were in the mid '90s after re-regulation was necessary then to correct abuses.
Thank you very much.
REP. HYDE: Thank you, sir. Mr. Sachs.
MR.
ROBERT SACHS: Mr. Chairman, Congressman Conyers, and members of the Judiciary
Committee, my name is Robert Sachs and I am President and CEO of the National
Cable Television Association. Thank you very much for the opportunity to express
the cable industry's views on H.R. 1685 and 1686.
NCTA strongly believes
that this legislation is unnecessary and unwarranted in light of developments in
the broadband market, where multiple providers, including cable, telephone,
satellite and wireless companies are vigorously competing to offer high-speed
data services. Already the nation's largest cable operators, including AT&T,
Time Warner, Comcast, and Cox Communications, have committed to providing their
customers with a choice of Internet Service Providers. And even today, cable
modem subscribers can access any content they choose on the Internet.
While cable modem service is still very new, accounting for only about
five percent of Internet access in the U.S. and cable companies are still
upgrading their networks, the trend is clear: cable operators are developing
business models and seeking technical solutions to give consumers a choice of
Internet Service Providers.
For instance, AT&T will soon begin
technical trials in to test how multiple Internet Service Providers can utilize
its broadband network. These developments, all of which have occurred since
these bills were first introduced, should eliminate any argument for government
intervention.
The goals of the bills are being realized through
marketplace solutions. For their spirited encouragement of competitive access,
Congressman Goodlatte and Boucher rightfully deserve credit.
Deployment
of broadband technology has been explosive. Since passage of the '96
Telecommunications Act, the cable industry alone has invested
$36 billion to upgrade facilities and provide broadband
services. Cable's efforts have spurred a competitive response from the telephone
industry, which is investing heavily in digital subscriber line, DSL,
technology.
The regional bells and GTE ended 1999 with 36.5 million
DSL-ready lines and last year, experienced a tenfold increase in DSL
subscribers. Fixed wireless and satellite providers have also made great strides
in delivering high-speed data services. Sprint has begun to roll out its
broadband wireless service and Direct TV and EchoStar will introduce two-way
high-speed satellite Internet service later this year.
Dramatic
reductions in price for broadband service provide further evidence that the
competitive marketplace is working. As mentioned, Verizon slashed its DSL price
20 percent recently from $49 a month to $39.95
a month to meet cable modem competition.
In this dynamic environment,
government intervention is neither necessary nor warranted. And existing
antitrust laws already protect against genuinely anti-competitive practices.
Congress' policy of allowing marketplace forces to foster the
development of the Internet has succeeded beyond anyone's expectations,
reversing course by imposing burdensome regulation on new entrants along with
slow delivery of high-speed Internet and competitive local phone service to
consumers.
Finally, even without mandated access provisions, H.R. 1685
and 1686 would reopen the 1996 Telecommunications Act. We think this is a bad
idea. This landmark telecommunications legislation is working. The
pro-competitive policies Congress adopted in 1996 have provided a foundation for
unprecedented growth and innovation in communications markets. So rather than
create regulatory uncertainty and discourage investment in new technology and
services by reopening the '96 Act, we would strongly urge you to allow the Act
to continue to work for the benefit of American consumers. Thank you very much.
REP. HYDE: Thank you, Mr. Sachs. I will recognize myself for five
minutes. I listened, Mr., Cali, I'll direct my remarks to you. I listened to
some testimony about how prices are being slashed and that sounds utopian to me,
because in my district, they're going up 10 percent. AT&T is buying every
cable company they can find and there is no competition. And you have a monopoly
situation, you have the inevitable Newton's Law of Motion that applies when you
have a monopoly. Now, I am very concerned about the cable rates because my
people are very concerned.
In trying to figure out what is going on, I
got some correspondence directed to me, talking about the local sports
programming. In recent years, as the programming services have invested
substantially more money in producing new programs and purchasing the rights to
transmit other programs over the networks, I guess Jackie Gleason is going up in
price, the rates they charge have risen dramatically. We, in turn, have had to
recover these charges from subscribers. By far, the most significant increases
have on occasion by the charges for sports programming. Well, let's have the
pro-basketball games be on a pay per view thing then and feature high- school
basketball, feature high-school football, feature high-school baseball. These
guys who are getting millions and millions for being the utility infielder, if
the consumer has to pay that, do we just let the agents and the athletes run the
whole cable business and the entertainment business? Somewhere, somehow, someone
has to draw the line. It's as well as anyone, but this reaches the law of
increasing disutility.
A recent Chicago Sun Times story said AT&T is
raising rates more in Chicago than in other places. Now, we've just gone through
and are going through a struggle with gasoline prices, which are higher in
Chicago and Milwaukee, than the rest of the country and now AT&T joins the
parade. I wonder if they've all collectively decided that we are the ideal
victims, I don't know. But Mr. Cali, I don't expect you to be able to answer
this now. This isn't really the subject of this, it's just that you're here and
I can get at you. But could you provide a breakdown for the communities in my
district as to precisely what service has been upgraded, because that's the
excuse that is used, we were upgrading service. What service has been upgraded
and what programming has been added, so I can share it with my constituents who
daily want to know what I'm doing about this?
MR. CALI: Yes, Mr.
Chairman. We will do that. And if I may, may I make a couple of points?
REP. HYDE: Please.
MR. CALI: On the competition point,
competition works and that's because we have seen DSL prices be slashed and
there is a strong and good public policy in this nation to create competition
for both the local telephone monopolies, as well as the cable companies. I dare
say that public policy is far closer to being achieved in the cable industry
than on the telephone side.
Today, two out of three new subscribers, opt
for satellite and the satellite industry has taken 15 to 20 percent of the
marketplace. As to the rising rates on cable, it really is a local issue and you
have to look from local market to local market. I did look at the Wieding (sp),
Illinois market recently and I know there was a 9.5 percent increase there,
about a $2.74 increase. About $2.17 in that
context was attributable to programming. Other costs accounted for about 57
cents. That's not true everywhere. In some areas--
REP. HYDE: Well,
excuse me now. The programming ought to be pretty standard throughout the
country. I mean, if you're gonna show Desi and Lucy in Chicago, you're gonna
show it in Poughkeepsie.
MR. CALI: Well, as I understand it, part of the
issue in the market around Chicago is the sports programming, the local sports
programming. In other areas, you see significant increases as a result of
upgrades to the cable system, but those are then coupled with significantly
improved reliability, quality and increase in number of channels. If you'll look
across the industry on average on a per-channel cost, they really are about flat
and, in some cases, actually declining.
REP. HYDE: May I suggest you go
after the beer companies and not the subscribers?
MR. CALI: Well, part
of the issue was the programming and I think it's fair to say and probably as a
cable company, we should-- there are others who could address it better, but
this programming that's in demand. It's in demand by our customers and that's
why we're providing it and, yes, there are charges associated with it.
REP. HYDE: Sure, it's in demand, but the price ought to go down, if you
have more people wanting it per capita. But I just think we're victimized by a
monopoly and we've got to look at that. There is not effective competition.
MR. CLELAND: Can I comment and answer your question? What you're
concerned about is the vertical leverage and the lack of packing competition.
What open access would allow is if somebody could get an ISP, most Americans
only want seven channels. Well, they could get a lower price for those seven
packages and if you had other ISPs on there, somebody could be the high-school
basketball ISP, somebody else could be the Desi, you know, and Lucy ISP. What
you're asking for is for your consumers to have competition and choice and
that's what open access would provide. People wouldn't have to support
programming they didn't want and they could have a lower price.
REP.
HYDE: Well, I thank you. And now, I've indulged myself. Mr. Berman.
REP.
BERMAN: I'd like to hear more from the, on the one hand, from AT&T and the
cable folks. We hear about the marketplace working, the competition, DSL, what
the phone companies have done, given the competition with the pricing of DSL
satellite and references to wireless, as well. On the other hand, Mr. Padden and
others talk about these really not being sort of replaceable kinds of
modalities, that cable broadband can do certain things, I take it, that at least
DSL can't in the area of interactivity video. I'd like whoever is interested to
talk about this. We have passed legislation on satellites, we've provided for,
we mandated, we've allowed local channels to be broadcast and we hear all kinds
of new innovations in wireless. Why isn't cable broadband just one of a number
of choices and to the extent that Mr. Hyde's constituents and my constituents
find that pricing unsatisfactory, they can switch to satellite, they can go for
DSL, they can take one of the options available and they truly do have a choice,
including a choice if the cable companies are not being open enough, in terms of
their access to Internet Service Providers that other people want. Could any of
you, a few of you address those kinds of issues?
MR. PADDEN: Sure, I'd
be happy to jump in. You know, we think DSL is a great service for getting a
higher speed Internet access. But when it comes to interactive television, the
opportunity to get full motion, full-screen live television, coupled with
interactivity, there are millions and millions of Americans for whom, over the
next as far as five years, they are gonna have a choice of exactly one provider
for that service and that is the cable company at their door, because the DSL,
if they're lucky enough to be in a neighborhood that is DSL-capable, the DSL
can't give them that full-motion video that you can get from the higher
bandwidth cable.
REP. BERMAN: And satellite?
MR. PADDEN: And
satellite is a great service for television.
The return path on
satellite is limited to the twisted copper, so you don't have two-way broadband
and it's just a reality that for many consumers, they don't have the option of a
satellite, because their landlord won't let them nail a dish to the wall or they
point the right compass direction.
REP. BERMAN: But even cable broadband
is not anywhere near universally deployed. Can the cable folks assert that you
get into legislating in this area right now and Mr. Wolzien talks about
investments deferred or move to other areas based on all of that, that in the
end, first assuming you're correct on this, these numbers are for people only
having access to that one alternative if we mock around too quickly. So I guess
I'd like to hear from the response from the cable folks to what you said and
then somebody's response to this notion that Congress mucking around means
delayed investment which means delayed deployment which means people kept from
having access to high-speed interactive video.
MR. SACHS: If I can try
to put the issue in context. We're talking about, in all cases, about relatively
recent developments. Today there are approximately 2.5 million cable modem
subscribers. Our universe of basic cable subscribers is about 68 million, just
to give you the relative ratio there. If we go back in time several year, there
were many skeptics that the cable plant was even going to be able to be used for
data or for cable telephony. Our industry has taken that risk.
And as
you've heard, to date, we've invested since the '96 act, some
$36 billion. DSL technology has been around for years, but when
there was no alternative, there was no reason for the Bell companies to be
rolling out DSL. So TI lines, ISBN lines selling second phone lines for dial-up
Internet access, were the options that consumers had.
As our industry
started to invest and upgrade the plant, and we're really talking about
rebuilding cable networks across the country and this is a multiyear-year
process that started in the last three and four years and has another couple
years, really, to go to completion. As we started to do that, the phone
companies have started rather aggressively to be deploying DSL. Meanwhile, since
the '96 act, we've also seen a boom in DBS.
It was mentioned that today
nearly one out of five subscribers to a multichannel video service is receiving
that service from somebody other than their cable operator. In most cases, that
is the DBS provider, that's Direct TV or EchoStar. In 32 states today, DBS has
more than 15 percent penetration. The satellite companies are now starting to
offer high-speed data; today, it's to the home. Direct TV just announced
recently that they had signed up their hundred thousandth high-speed data
customer.
In the fourth quarter of this year, they have announced plans
to have a transmitter from the home, so that the traffic can go back at higher
speed. EchoStar is working with Jilap (sp), an Israeli company, their plans are
to launch that service later this year.
I was going to say, there's a
lot happening in this space. I'm from Boston. There's a sign next to the Big Dig
(sp) project, which says if Rome were really built in a day, we have hired their
contractor. Well, the Big Dig is gonna take a lot longer than the cable rebuild
of its networks across the country and that's happening also with our tax
dollars. But the reality here is that this all can't happen at once. It's a
multiyear process.
REP. HYDE: The gentleman's time has expired. Mr.
Goodlatte.
REP. GOODLATTE: Thank you, Mr. Chairman. I think Mr. Tauke
wanted to respond to that same question and Mr. Cali.
MR. TAUKE: We are,
in this case, talking about the last mile. And in the deployment of technology
in the last mile, we're all relatively new at it. The cable company is redoing
its network, we have to redo our network in order to provide broadband services
to the last mile. But there are very different rules by which we operate. The
telephone company has to make its line available to anybody who wants to buy it
at a rate set by the FCC. The cable company does not have to make its line
available. Even if we provide services over the line, we have to have open
access for our system, so that any content provider who wants to come has to be
given access to the customer. The cable company does not have to give access to
any content provider. We have to have a separate affiliate that we establish to
provide services, broadband services over that entity, which is additional costs
and so on, imposed by the rule. The cable company does not have that. Those are
just three of the big things that are different in the way in which we approach
the business.
Now if the cable companies, if it's okay for them and they
need the incentive to invest in that last mile of new technology and the
incentive is that they should be able t limit the content provider and strike
deals with content providers, then that should apply to the telephone companies,
too, because we have the same incentive investments that they do. And clearly,
it's very tough to compete. If we have to get all of the revenue out of the
service itself, while somebody else can package the high-speed broadband service
with content and sell that as a package and get both the content and the service
revenue, and if we have to compete against that, we're in tough shape. So this
open access issue is a competition issue for the last mile. It's also an issue
of do consumers get access to all the content.
REP. GOODLATTE: Let me
interrupt, because I want to ask a question of Mr. Sachs. Has the National Cable
Television Association adopted open access as a policy of the Association, now
that so many of your members have avowed open access as their policy?
MR. SACHS: You'll find in my written comment today where I'm really here
to say we are not opposed to the concept of open access that, in fact, it's in
our company's business interest to offer open access.
In this whole
debate, though, open access as used by the OpenNet Coalition, has become
synonymous with mandated government access. That's a different concept. What we
are in support of is having companies in the market negotiate business
arrangements to accommodate multiple ISPs. The other thing here is there's not a
single business model or technical solution to accommodate this, so different
companies in our industry are going about it indifferent ways and not are all
there in the same place on their own learning curve, but the largest companies
are industry. AT&T and Time Warner, two together, constitute almost 50
percent.
REP. GOODLATTE: I take it, our answer is your association has
not adopted open access as a policy of the association.
MR. SACHS: We
have not adopted open--
REP. GOODLATTE: Let me go down to Mr. Cali,
since my time is short. Mr. Cali, during a March 29th of this year press
conference, called to discuss the extension AT&T, Comcast and Cox cable
company's distribution agreements with Excite@Home, George Bell, the president
and CEO of Excite@Home stated, quote, "We all have all agreed that whatever
number of customers exist on the Excite At home portal and platform at the end
of June 2002, you put a rope around those customers and our cable partners have
agreed not to re-marked other platform or portal opportunities to those
customers through the term of those new agreement." So you have a protected set
of customers that exist as of 2002. I wonder if you would comment on Mr. Bell's
rope-off strategy, in which he includes your company.
MR. CALI: I am
unfamiliar with the quote, but I would be glad to comment. There is a lot of
concern around the exclusivity provisions of AT&T's agreement inherited from
TCI with Excite@Home and I think we need to recognize that Excite@Home was ahead
of other companies investing private capital in an industry that no one was
quite sure would develop and it did so, based on a market case that included
these-- REP. GOODLATTE: Are you gonna honor their statement that you're gonna
"rope off" those customers and exclude other-- if AOL suddenly has the
opportunity to do business on AT&T's cable lines which I hope they and many
others have the opportunity to do, are you gonna rope off those customers and
keep them from being marketed to by ISPs, so that we don't have competition for
those customers?
MR. CALI: Oh, no, absolutely not. I do not believe,
even though I'm unfamiliar with the quote, that that's what Mr. Bell said from
your rendering of it. What he seemed to indicate was that the cable companies
would not market and, in fact, we have extended our agreement with Excite@Home
to 2008 where they are already a preferred supplier of ours. But what that
really means if a cable customer chooses AT&T for their broadband service,
they would get Excite@Home during that period.
A cable company would
remain free to choose any one of the other ISPs that would be available on the
system to them and those ISPs are, of course, free to market to anyone they
want.
REP. GOODLATTE: But you won't?
MR. CALI: We will have a
marketing arrangement with Excite@Home, I believe.
REP. GOODLATTE: And
nobody else?
MR. CALI: But it's important to emphasize.
REP.
GOODLATTE: Well, but it's important to emphasize-- but there's an important
point here that we have indicated and we've repeated that we will not favor an
ISP after the period of exclusivity based on its affiliation with AT&T. That
means operational, technical systems will be the same for other similarly
situation ISPs. It's a very complex industry. Interconnection arrangements will
be complex, marketing and billing arrangements will be complex. That's because
we have urged that it should be left to the commercial marketplace to negotiate,
but the critical point and the critical commitment is that our customers will
have the choice of ISP they would like.
REP. GOODLATTE: Mr. Padden, I
believe you want to respond to that, too?
MR. PADDEN: Well, I think the
language you quoted shows the difference between so-called voluntary open access
commitments and meaningful government intervention in this marketplace. And once
again, we would associated ourselves with a testimony a year ago by AOL, which
said that government needs to step in here. Their MOU is a good starting place
and I think maybe even codifying it would be a good start. But it doesn't
require non-discriminatory terms among different ISPs and I would also have a
question about its application to interactive television, consumers who are
trying to interact with Internet material, at the same time they're vision
television, whether they will have the open ability to interact in that fashion.
REP. HYDE: The gentleman's time has expired. Mr. Boucher.
REP.
BOUCHER: Thank you, Mr. Chairman. I want commend all of the witnesses today for
their very informed testimony. This is one of the better panels that I think
we've had before this committee in quite some time and I think that each of you
has enriched our discussion today, so my commendation.
Mr. Tauke, a
number of misconceptions about the interLATA data provisions of our legislation
have crept into the conversations today and I would like to give you an
opportunity to clarify precisely what the legislation does and also to address
the requirements that would remain in the law and the incentives that would
remain in the law for the opening of the local exchange. And specifically, you
might want to touch on the charge that our legislation would repeal the
interconnection provisions that are a part of the 1996 Act, they don't, but you
might elaborate on that. You might reference the fact that the long-distance
voice market is still very robust. I understand it's about a
$90 billion market and that ought to offer plenty of incentives
to take the steps necessary to participate in it. You might mention the various
provisions that will remain the law that require interconnection on bundling and
promote local exchange competition. And I would hope that you could clarify
that, in the even that voice migrates to the Internet protocol, which it
certainly at one point will, that that fact alone does not defeat the
requirement that would remain in our legislation that before Bell companies
could offer voice-based long distance, they would still have to get permission,
under Section 271. It doesn't matter how you would offer the voice-based long
distance, you would still have to get Section 271 permission. Well, that's
several points and if you could touch on those.
MR. TAUKE: You've done a
good job. Let me just observe that when the Telecommunications Act passed, it
applied to all 1,000 telephone companies in the country, not just the regional
bell operating companies. And many of those companies are very substantial local
telephone companies that also have all the requirements to open their network
under Section 251 of the Act that apply to the Bell.
The FTC is doing a
great job of making sure that those companies comply with the interconnection
provisions and all of the other market opening conditions of the Act. So first,
the FCC has its traditional enforcement authority and a direction to make sure
the companies abide by those rules. Secondly, for the regional bell companies,
there still is the 271 requirement and, as you indicated, in order for us to
offer voice long-distance services, we would have to go through that 271
process. I would observe that that is where, at the current time, the money is
and for the foreseeable future, that's where the money is. The growth in data
traffic is not a reflection of a change and a substantial change in the revenue
base or the revenue generated in our industry. The revenue is still in the voice
business.
But more importantly, in order for us to be full players in
the marketplace, we have to be able to offer a combination of voice and data
services, particularly to major customers. So you go to a Citibank or a Wal-Mart
and you are trying to provide services to them, they want the array of services.
They don't want just the voice service or just the data service, they want the
whole thing. So for us to be players in the marketplace, it is essential that we
be able to offer the full package of services and that's why 271, even without
the data provision, is a huge incentive for us to enter the market, in addition
to the fact that we're required to open our market.
REP. BOUCHER: Thank
you very much. Mr. Baker, addressing the other portion of our legislation, the
open access provisions, we've had a lot of discussion about the pros and cons
that from various perspectives attend that proposal, but we have not had very
much discussion about what open access really means. Time Warner in its
memorandum of understanding set forth a number of principals, including not
limiting the number of ISPs that could serve their customers on the cable
platform, providing for a direct customer relationship between the ISP that
attaches and its customer, allowing attachment to be at the cable head end, so
as to promote competition and the transport of that information between the
cable head end and the Internet backbone and also providing non-discriminatory
terms among all of the various ISPs for attachment. What is your view as to the
adequacy of those standards as a formulation of a genuine and workable open
access policy and are there other elements that ought to be considered as a
national open access policy is constructed?
MR. BAKER: Congressman
Boucher, the AOL/Time Warner Memorandum of Understanding, to date, is probably
the most complete articulation of open access principles that's been put forth
by any major cable company and certainly we applaud their efforts in doing that.
Obviously, it sort of took the largest Internet Service Provider in the country
to buy that cable company, essentially before we got to that point, so
obviously, you know, I think there's been some influence there, all for the
good. And I'm not saying that the MOU is the last word, but we do think that
it's sufficiently complete, that it could essentially serve as model of what
open access needs to look like. And again, just to-- in my testimony, I've
reiterated seven points that are necessary for open access and I think just
about all of them are contained in the MOU, things such as the consumer being
able to choose their ISP, not having to go through a K-4 (sp), the cable
company's affiliate ISP, non-discriminatory access, all things being equal,
pricing terms and service, no restrictions on content, no favoring of affiliated
content, etcetera, etcetera.
REP. BOUCHER: Have the other cable
companies that have announced their intention to implement open access policies
indicated what they mean by open access? Do those statements contain these
various commitments that Time Warner has made in its MOU?
MR. CALI:
Well, the statement of principles which AT&T signed with us last December
was not as specific as the AOL-Time Warner MOU, which followed a couple months
later. Again, compared to where we were just six, seven, eight months ago, with
companies saying open access is impossible or technically infeasible, it would
destroy our investment or we won't deploy if we have to do this. To get
AT&T, the largest cable company in the country, to the table to at least
make the promises that they did, that was a step in the right direction. But
again, it's not in itself, sufficient to say that we don't need this, because
even if they kept every promise that they've made, number one, it's a question
of time. They're saying it's something that we're only going to begin to
implement two years from now. Number two, there's no enforceability provisions.
We like to, you know, talk about how, you know, the Internet and Internet
companies have grown were still tiny, compared to communications incumbents.
REP. BOUCHER: And I think it's reasonable to say that the other cable
companies have been less specific than AT&T in terms of their statement of
intentions that implement open access. Well, I think some attention is gonna
have to be paid to really what we mean by open access as we go forward and I'm
glad this morning we had an opportunity begin that conversation. Thank you very
much, Mr. Chairman.
MR. CALI: Mr. Chairman, may I address this one?
REP. BOUCHER: My time has expired. If the chairman permits the answer,
that's fine.
MR. CALI: And just a brief answer. I think the discussion
just goes to highlight the complexity of the issues we're discussing and the
fact that if we do move towards a government mandate, whether it be legislative
or regulatory, the type of detail in a regulatory analysis is gonna be required
to enforce this type of forced access arrangement. As to the AT&T's
statement, I think you could just look at it for one clear example of
complexity. I look at the Time Warner proposal on billing where it sort of sets
up a marketing race. If Time Warner or the cable company wins the customer, then
the cable company would bill for the entire piece, the cable piece, as well as
the ISP piece. The AT&T proposal doesn't and if the ISP won, the ISP would
bill for the entire piece. The AT&T statement and principles doesn't propose
that arrangement, but also makes clear that the ISP would have an independent
right always to bill the customer for its portion of the services, and thereby
retain the customer ISP relationship. That is a very positive thing. Again, it's
a detail, but it's a complexity that's in the business market. I just wanted to
underscore that we have two avenues before us. One is an avenue that says the
marketplace looks like it's working, it's a nascent marketplace. It looks like
it's moving in the right direction and custom and provider incentives can drive
us in the right direction through a commercial negotiation. The other says, it's
time to step in and regulate and we need to balance on the other side of that
equation the risk to the certainty in the marketplace and the investment that's
currently taking place. Thank you.
REP. HYDE: Mr. Baker, I believe you
said that the market was working, but we still needed action. Would you care to
elaborate on that?
MR. BAKER: Yes, Congressman, to leave the future of
broadband Internet to unilateral decisions of major cable companies when there
is essentially no ability to negotiate on the other side that's just not
sufficient. We've already seen examples -- well fist of all starting with the
status quo.
Where if you want broadband Internet access through cable,
you have no choice but to go through and pay for the cable companies that are
affiliated with ISP. Cable companies have unilaterally decided that situation is
not going to change for at least for another couple of years. We have already
seen examples where there has been discrimination as to the content that is
provided over those.
The point is that whether we have been talking
narrow-band access, DSL access, any other form of Internet access the status quo
is an open market with rules for nondiscriminatory access and interconnection in
place. Those rules are lacking in the cable broadband market. So we are not
talking about regulating, we are talking about brining and insuring the same
open platforms that have allowed the Internet to grow in narrow-band. That are
allowing it to grow in DSL, and making sure it can grow in cable as well.
And if I may, we had discussions for essentially, well why do we need to
worry about open access in cable if DSL is available, if wireless, and
satellite, and other things are available. The point is that for all the talk
about DSL, fixed, wireless, mobile wireless, satellite; cable and DSL are the
only major broadband plays for years to come.
Furthermore, DSL is
limited in its availability. For many consumers throughout the country,
particularly in rural areas, and for all the talk of digital divide and folks in
rural areas being left out, cable will be their only broadband choice for years
to come. That is why it is essential to ensure that no matter what the platform,
customers can choose their ISP over that platform.
REP. HYDE: Okay, I'm
going to cut you off because we have extended that and I've given two opposing
views the opportunity, I see Mr. Cleland and Mr. Padden want to jump in too, but
I'm going to recognize the gentleman from North Carolina, Mr. Coble.
REP. COBLE: Mr. Chairman, I have had conflicting meetings all day and I
apologize for my being in and out and having said that I have no questions right
now.
REP. HYDE: We'll then go to the gentleman from Virginia, Mr. Scott.
REP. SCOTT: Thank you, Mr. Chairman. Mr. Ivey, have the cost actually
gone down with competition for the dial tone service where there is in fact
competition?
MR. IVEY: Local telephone service?
REP. SCOTT:
Local telephone service. I mean this whole idea is to get competition and local
service where there is competition. Have the cost gone down?
MR. IVEY: I
can tell you it has not in my state to any significant degree, and that is
because we don't really have local telephone competition in Maryland. And I
think you've got some states like New York, who have gone through the 271
checklist but for the mast majority of the states there is a promise out there
with respect to the telecom act that we are waiting to have fulfilled. And that
is why we are so concerned about the impact of this legislation on section 271.
REP. SCOTT: Where you have had the 271 compliance, have the cost gone
down?
MR. IVEY: I believe so.
REP. SCOTT: So, not in your state.
(Cross talk)
MR. IVEY: Not my state, but I believe it is the
case in New York yes, sir.
REP. SCOTT: Well how much control do the
Bell's have in actually attracting competition to themselves? If they have
opened up and know one has come in to compete, can they comply with 271 under
those circumstances?
MR. IVEY: Well it depends on what you mean by "open
up". And I will give you an example, and I think Chairman Kennard referred to
this earlier as well, here is the example. The argument is that the EC likes to
come in and compete for local service immediately. The problem with this is say
for example, AT&T or MCI ran an ad tomorrow on national television that
said, come to us and we will give you better service then your currently
getting. And 300 thousand people show up, lets say for Bell Atlantic, Maryland,
the question would be, does Bell Atlantic, Maryland have the system in place in
which they could transfer those customers to the new service in a timely way.
The answer appears to be, no. And that was one of the big holdups in New
York, its called OSS. And what we need to go through in addition to other
pieces, is testing and the like to make sure that those systems are in place and
that you have a smooth transfer. Other wise you will alienate customers and they
will say, gees I don't want to go to that company, I better stay where I am.
REP. SCOTT: And if you were to remove the incentive that they have now
to open up, that is so they can get into the data competition, what would happen
to the ability of companies to get in to compete on the dial tone service?
MR. IVEY: Well if you remove the 271 incentives, it seems to me, you not
likely to get much movement in the competition on that front. It seems to me
that in states in which the Bell's have had the strongest interests in moving
forward, those are the places in which you've got the 271 activity underway.
You've had more competition come in the local market as is the case in
New York, and then the customers see the benefits from that.
REP. SCOTT:
On this next question, I think we've gotten into it a little bit, you've got
cable, you've got the Bell Atlantic DSL, and you've got wireless. My question is
whether or not with the technology, whether or not they are sufficiently
competing with each other or whether you nee competition with in the cable or
Bell.
And it seems to me that the wireless is just inherently more
promising long term because it is easier to set that up. All you have to do is
set up a satellite dish rather then string some wires. What does the future look
like in terms of whether or not they will be able to effectively compete with
each other. I think Mr. Wolzien had talked about that a little bit.
MR.
WOLZIEN: Work we've done indicates that cable's probably got a two-year head
start here. Where we basically, perhaps 75 percent of the cable plants should be
built out within the next 12 to 18 months. That doesn't mean the services will
be offered as customer service operations come up to speed and technicians and
so on, but basically for high speed access it looks like the plant itself is
within two years away of being done.
The DSL plant, and this is up to
about 75 percent of households, the DSL plant because of various technology
issues is perhaps two years behind that to reach the same level of penetration.
And wireless starts to roll out some place in the middle suggesting that
wireless for particularly for that...
REP. SCOTT: As you answer this
case, say a word or two about technologically whether one is better then the
other and whether your getting a better buy or are all essentially the same?
MR. WOLZIEN: Between cable and DSL they should be able to offer
effectively the same thing to the PC. Mr. Padden's point is that the cable guys
probable have more potential to provide the digital set top boxes and there fore
have control of the television set. But as far as pure data transmission, there
are quirks one way or the other but effectively they should be able to provide
you with the same product.
Wireless is a little bit more difficult and
while it is easy to reach a lot of people, it probable isn't quite as fast.
MR. PADDEN: If I could just add. Our concern about DSL, just to give you
the example when Time Warner dropped ABC off their cable system in New York,
consumers did not have the option of sticking their phone wire in the back of
the set and getting reconnected to Eye Witness News. How ever wonderful it is as
a high-speed data service, DSL is not now and is not got to be for a long time,
a substitute for television and particularly interactive television service.
MR. CLELAND: If I could add, one of the things that is most remarkable
about this hearing is, on the hearing on antitrust legislation addressing this
matter, nobody ever mentioned the AT&T Media One Consent Decree. And they
have studied this and they have found that cable broadband has market power. The
people that enforce this law have found that they have a ten year decree with
AT&T and they have essentially, I quote, "are worried about AT&T
exploiting its gatekeeper front position."
So at least the Justice
Department has already ruled, and I quote, "DSL still lags substantially behind
cable modem service in market penetration and acceptance." And then they go on
in their analysis to say that fixed wireless and satellite are not likely to be
major factors in the immediate future. So the people that matter to you all is
the antitrust oversight, their judgement on this is there is market power that
cable has and they don't have the same optimism of the monopoly stance that many
have.
REP. HYDE: The gentleman from Georgia, Mr. Barr.
REP.
BARR: Thank you, Mr. Chairman. Mr. Baker, I would like to ask you a question
that while it may appear on the surface to be unrelated to the discussion today,
I think you can understand it really isn't because it goes to matters that are
very, very important to users of ISP's, the consumers that is and their ability
and their power to choose and ISP of their choice. And if privacy is important
to them, then they can choose an ISP that provides a greater level of
protection.
I have concern over a recently reveled government program
called "Carnivore", who comes up with these things I don't know but they labeled
it "Carnivore", if they had labeled it something less, you know, more benign it
might not be so troubling but they seem to go out of their way to highlight,
draw attention to these things.
But project "Carnivore" is a software
program developed by the FBI in which they will go to an ISP and attach this
software, the ISP has no control whatsoever over what the FBI is monitoring and
the FBI while they ask us to trust them, that they are only going to be
monitoring one individual that the court order provided them to be able to
monitor surreptitiously they have access to virtually all traffic over that ISP
for 10's of thousands, hundreds of thousands, millions of consumers, users of
that ISP.
This is very troubling to us and we're going to have some
hearings specifically focused on this and I think Attorney General Reno has
indicated that she maybe looking at it as well. Is this of concern to you?
MR. BAKER: It is, Congressman Barr. The sort of silver lining in the
cloud here is I think we've got a good story to tell here and that is we have
two clearly stated policies that affect all of our members and all our users, we
have several policies but among them two that relate to this.
Number
one, first and for most; we protect our users and members privacy. Number two,
we also have stated that we do cooperate with legitimate law enforcement
requests that we might get from time to time. Most of the time these two
policies are not in conflict. As in the case here, they may have rubbed up
against one another. Depending on the level of information that law enforcement
requests from us there are different procedures that obviously have to be gone
through. And the good news is that most law enforcement, particularly at the
federal level, is well familiar with the provisions with the electronics
communications privacy act and they know the hoops they have to jump through and
what information they can and can't request from us.
Carnivore is a
system by which the FBI, in this case, could get at the most sensitive level of
information and that is the actual content of communication. And they did have
the proper authorization in which to do that but when they said, we don't just
want you to provide this information to us but rather we want to install our own
system in order to get it we had two concerns.
Number one was obviously
getting past the "trust us" concern. Making sure that this program would do only
what it reported to do and that is to draw an analogy in trying to find content
of e-mail's going to and from one particular person. It would be the equivalent
of only opening envelopes that had that person's name on it. But the problem is
making sure that, number one that they don't open up anybody else's envelopes.
And number two that they not gain information just from seeing what might be
written on the outside of any other envelope.
The other concern was one
of network compatibility and that is as an ISP your stock and trade, what you
sell to your customers is making sure that they have fast reliable connections.
And if someone where to come in from the outside, install equipment that bogs
down your system, makes it hard for everybody else to get their e-mail, that's
hurting us as well.
REP. BARR: And these aren't hypothetical, these are
very real actual problems.
MR. BAKER: Right, exactly. So what happened
in this case, the order to install Carnivore is for a finite period of time but
nonetheless we had to -- we met with the FBI, we were sufficiently satisfied as
to the privacy concerns but we did run into some problems with how it made our
network function.
And so we actually went to a federal magistrate to
challenge the FBI's authority to put this on our system.
Not because we
don't cooperate with law enforcement, we do, but we think there are less
intrusive ways to do this and while the federal magistrate granted or denied our
request and allowed the FBI to install this equipment, at least for that period
of time, it is no longer on our system today, we did have to deal with this for
a period of time.
And again, having had this experience we are now
trying to work with law enforcement to come up with a way in the future so that
we can still cooperate with legitimate request for information but do it in such
a way that it both protects all our other users privacy and doesn't compromise
our network performance.
REP. BARR: Thank you. This is, as I said, will
be the subject of some hearings coming up very shortly by one of the
subcommittees of the Judiciary committee and some of you all may be interested
in watching for that, perhaps participating.
MR. BAKER: And if I may,
Congressman Barr, the importance and the relevance to this here today is that we
think we handled this pretty well. But if any of our customers, our members,
don't think so they are free to switch to another Internet Service Provider;
they can do that in a heartbeat.
With a broadband connection, number
one, you don't have a choice in who is providing your Internet service. Number
two, it is a lot harder to switch. There are all kinds of set top boxes and
other things that can figure you, give you a broadband Internet connection. It's
not just as simple as picking up the phone and calling someone else. So, the
point is, if there is any customer out there that thinks that we didn't protect
their privacy enough, they've got other ISP choices out there, lots of them,
hundreds of them, thousands of them.
In the broadband world,
particularly on cable that's not the case and that's why it's important to be
able to choice your ISP regardless of what connection you use. This is but one
example of that.
REP. BARR: Thank you, Mr. Baker. Thank you, Mr.
Chairman.
REP. HYDE: Thank you. The gentleman from North Carolina.
REP. WATT: Mr. Chairman, unfortunately I missed all the testimony
because I had a conflicting engagement. So I think I will just read the
testimony and pass.
REP. HYDE: I thank the gentleman. The gentleman from
Utah, Mr. Cannon.
REP. CANNON: Thank you, Mr. Chairman. I sort of feel
like Thor, the war god who drank from the cup connected to the ocean and I
appreciate our panelists vast store of an ocean of knowledge that they are
sharing with us today.
Mr. Cali, may I ask just a question, just a
couple of questions of you to clarify. In AT&T's relationship with Excite At
Home, does Excite have any advantage other then the fact that it will be
promoted through AT&T over other ISP's, other portals?
MR. CALI:
Today we have an exclusive arrangement with Excite At Home. That is contractual
and we intend to honor that arrangement. After the exclusivity period expires in
2002 we have indicated that they will be a preferred or preferred ISP, and as a
result customers who choose AT&T for broadband will receive their service.
But we've also said we will not favor them based on affiliation in terms of
operational issues.
I do want to clarify something I said earlier to be
sure I'm clear. The reality is that we are urging that the commercial market
place be aloud to work out these arrangements and we may have a variety of
arrangements with a variety of ISP's going forward. The key commitment here is
that our customers will have choice.
REP. CANNON: Will that choice come
at an additional cost and will Excite At Home be free? Or will it be a
competitive cost based on what is provided by the ISP?
MR. CALI: Let's
be clear, today if you use Excite At Home you could get to any content on the
Internet. And some content providers charge for that, others do not. A lot of
people have been concerned I asked but in order to get to that other content we
have to buy Excite At Home's enhanced offering and so we are paying twice in
effect. At least that is the argument that is being made.
We have made
clear that going forward you will not have to acquire Excite At Homes enhanced
content to get to other providers on the Internet. Now, will there be separate
charges for the permitting of the broadband access, perhaps. And again, I think
we have to look at the arraignments we enter into.
As to the technical
issues that is why we are entering into trials. We are trying to determine how
technically we can make it easy for customers to choose ISP's and move their
choice if they need to. And on this point I would just like to emphasize that we
really are an renascent market, a world of convergence.
I think if you
look at the AT&T consent decree and you realize the Department of Justice
allowed this merger to go forward because they believed the consent decree
addressed the issues of concern. And it really was more an issue of will DSL,
and will satellite, and will fixed wireless, and ultimately the utility
companies, be effective competitors in this market place. We think they will.
The question is in it's renascent market today, and is today the right time to
enter into that market with regulation?
REP. CANNON: I thank you. Mr.
Tauke, if I could refer with you. I could help but think that you talked about
the first mile and the backbone and the middle area that the R-box becomes sort
of the lords of the middle kingdom here. Including the area where we need a lot
of work.
You said in your testimony that the dollars in voice, but if
the R-box gets data capability, will there not be an immeasurable movement
towards IP telephony or voice over data?
MR. TAUKE: First of all we are
not asking, and I don't believe that this legislation grants relief --
inter-latta data relief for IP telephony. If we would offer a voice long
distance service, whether it would be an IP telephony service or a traditional
long distance service and were charging for that service, presumable that would
be in violation of the law under section 271 of the Act.
Obviously the
FCC has the ability to know what we are charging our customers for what services
we are offering in the marketplace.
REP. CANNON: But if you are offering
data and people have a computer that is connected with your network in getting
data, you couldn't stop them from using...
MR. TAUKE: That happens
today. People can signup on their computer now and we don't know and they can do
voice over the Internet. But, of course, we receive no revenue from that and we
loose out on the revenue, so does the long distance carriers. This is an issue
that is interesting but it's not something that is in a sense relative to this
discussion in the sense that there is no money being charged for that service.
REP. CANNON: Thank you. Mr. Cleland, you talked earlier about cable is
clearly leading in the broadband width -- is it not true that DSL is also
catching up with cable over time?
MR. CLELAND: Well cable had a very big
head start. When we first looked at this about a year ago, cable was at 90
percent of the broadband market. Now, today, their probably in the mid to high
70's and so DSL is catching up. But the question is it's going to be a weak
duopoly, there is not one clear winner. It's not black or white.
But
there is clearly market power by the two-duopoly players and the market power on
the telco side is mitigated because there is open access on it.
REP.
CANNON: Thank you. Thank you, Mr. Chairman.
REP. HYDE: Thank you. The
gentlewoman from Texas, Ms. Jackson- Lee.
REP. JACKSON-LEE: I thank the
Chairman very much. I had started this morning with remarks to the Chairman that
my ultimate consideration is the increased opportunity for competition and the
recognition that regulation by the federal government in particular the FCC and
legislative initiatives is appropriate in as much as the Internet is somewhat a
creation of this government.
In the legislation 1686, there is a
definition of broadband that refers to transmission capacity in excess of 200
kilobits per second in at least one direction. Having visited a number of new
broadband intuits by diversified companies, meaning large institutions that are
now seeing the light and the excitement of getting into broadband. It seems to
me that this is a new popular kid on the block.
So I would like to ask,
and if the question is too technical for those that I raise the question with
just pass it on to someone who is either for or against the bill. Mike, let me
ask you that definition, do you agree with that and how does it help increase,
because you support the bill as I understand it, the legislation, how would that
technical definition help in competition?
MR. MCCURRY: Your asking the
guy who never signed onto the White House web site when I worked there. So
probably not...
REP. JACKSON-LEE: (Laughing) And I'm not putting you on
the hot seat. Welcome by the way, I'm glad to see you.
MR. MCCURRY: Let
me comment though because I think it did come up a little bit indirectly in the
discussion about the capability of DSL with respect to video streaming
technology and what the different rates are for that. I will defer to my
colleagues on the panel but I think that standard is the section 706 definition.
Is that right?
MR. CLELAND: Actually, it's the FCC's definition -- it's
half of the FCC's definition. The FCC says, 200 kilo bits both ways and it is an
arbitrary kind of distinction to try to be faster then the ISPN speed which was
baby DSL of the past.
MR. MCCURRY: But the larger point I would make is
that the people...
REP. JACKSON-LEE: Thank you, (Mr. Cleland).
MR. MCCURRY: ... the people who are interested in the capacity of what
broadband will bring, particularly into the residence. We know what the
applications are increasingly now with respect to the business place but those
who are interested in what this will mean in the home with respect to
entertainment, with respect to the way in which you can interact with government
officials as a citizen.
That speed, irrespective of how you define it,
depends on a backbone that is capable of caring that traffic with the speed and
the efficiency that we are going to need going forward. We only can predict, you
know, massive increases in the number of people, in the number of entities the
kinds of organizations that are going to want to use this technology. And if the
Department of Justice as expressed in the world crime sprint filling is correct,
we can see the tell tail signs of congestion beginning.
If that is true,
why would we lock out of building those efficient networks some of the companies
that have got the greatest capacity to do exactly that kind of ...
REP.
JACKSON-LEE: And you believe that this intervention, legislative intervention,
is both appropriate and needed?
MR. MCCURRY: I do. I think there is an
irony here which I would grant you. On the one hand with respect to this issue
of open access non-discriminatory acts of content that we have been talking.
Some on the panel seem to say no, the markets will work with follow the
Periclean model and Time will work in advantage for us but ironically when it
comes to the infrastructure necessary to carry that content they say, no the
regulatory paradigm that exists because of telephony restrictions that are in
section 271, they can be the good heavy hand of regulation that will create the
incentive for companies to make the investment necessary.
REP.
JACKSON-LEE: Thank you. Let me, in light of the time, go to Commissioner Ivey,
representing both public utility companies and I guess the state of Maryland.
Why not, why not intervene at this point and how does that in your leadership
and wisdom interfere with where we're trying to go with the telecommunications
act of 1996. Again, my focus, consumer viability and competition and I would
appreciate, I have a question for Mr. Sachs and I should say that on the record
so that the Chairman will indulge me, but I would appreciate, very much, your
answer.
MR. IVEY: We have a number of concerns. The first is with
respect to the impact on 271. You're gutting it unnecessarily. If the goal is to
insure that there is a roll out of these types of services to under served areas
you don't have to gut 271 to do that; that's point number one.
Point
number two is, to the extent this legislation is aimed at giving the Bell's a
chance to build a network, I think as Ms. Lofgren pointed out earlier, the bells
are already participating in and servicing a lot of these DSL lines already.
It's really just a question of linking that, in my view, with 271 and the impact
on local competition.
If they want to go beyond the latta boundaries
that are there, my hope is what they would do is get the 271 issue taken care of
and then they are providing the local service, they have complied with the
telecommunications act and they can go forward in their DSL efforts across latta
boundaries.
REP. JACKSON-LEE: I have a question for Mr. Sachs. Mr.
Chairman, I ask for an additional minute to finish my questioning.
REP.
HYDE: Indulgence is our specialty this afternoon noon.
REP. JACKSON-LEE:
You are gracious this afternoon, Mr. Chairman, as you've always been, and I
appreciate it. Let me just put on the record, I'm probably not going to get
answers verbally from you gentlemen, we put issues on the record then we have to
be diligent our selves to follow up with you for these answers in writing. I am
going to be concerned specifically about the fiscally challenged, minorities,
small businesses, schools, libraries, and the elderly as to whether or not
intervention at this time enhances their access to Internet resources. And I
will reach out to you to get those answers but I do want to go to Mr. Sachs.
Someone sited New York but Houston also was in the midst of the
extinguishing of service through their cable service in a dispute between their
cable service and Disney. What arguments do you make in opposition to the
present legislation that would, as I understand it and I understand you to be
opposed to it, but in opposition to present legislation that would give me
comfort that as we are preceding now we'll have the competition as we move to
the next level that does not have communities blocked out because of contractual
disputes as we just had in Houston where we could not see a particular arraying
because you all were in a contractual, when I say you all, cable network was in
a contractual fight. Why do you not want to intervene or have legislative
intervention at this time?
MR. SACHS: First let me say with respect to
the Disney / Time Warner dispute that unfortunately caught several million
consumers between two companies...
REP. JACKSON-LEE: And as I mentioned
I am concerned about consumers and competition.
MR. SACHS: From our
stand -- and I should say that both Disney and Time Warner members of the cable
industry, the trade association doesn't get involved in their private
contractual negotiations but I think the...
REP. JACKSON-LEE: But you're
on the hot seat now to a certain extent.
MR. SACHS: And I'm going to
speak to it. I think the lesson from that is that our companies need to do a
much better job of resolving contractual negotiations in the board room or the
conference room and not let them boil over so that they impact consumers. In
fact, there are 1,500 television stations, 11,000 cable systems we've got
retransmission consent since 1992 and you can really count on one hand the
number of instances where there has been this kind of interruption. This was
obviously the most visible.
But I think the lesson that the companies
have taken from it is that it behooves them not to have this happen again.
Between that and this issue there are -- Mr. Padden referred to the fact
that in New York City, other then off the air with a broadcast antenna, there is
not another alternative in that instance for...
REP. JACKSON-LEE: I
would rather you just answer the question of why not this legislation and why
your opposed.
MR. SACHS: This legislation because this is a new business
that we are entering into. It's not even available yet in many places across the
country because we are just in the process of rebuilding our networks. At the
same time there are a number of other providers of broadband high-speed services
who are merging.
We've talked about DSL, we've talked about satellite,
we've talked about wireless, in fact even the broadcast industry is now pooling
some of the digital spectrum that congress gave it in 1996 extensively to do
high definition television for data casting. So consumers are going to have
numerous alternatives here; it's not all going to happen over night.
REP. JACKSON-LEE: I thank you. Mr. Chairman, I thank you very much. Mr.
Cali, I will both read your testimony in depth and would like to pursue some
discussions with you. I think the Chairman has indulged me and I will yield at
this time. Thank you very much.
REP. HYDE: I thank the gentlelady. The
gentleman from Alabama, Mr. Bachus.
REP. BACHUS: Thank you. Mr. Cali,
you say in your statement that consumers ought to have choice and that is why
you are here today. AT&T testified over a year ago before this committee and
said that you will ensure that consumers are able to access the content of their
choice over our cable systems. In other words; you want to ensure that consumers
get the content of their choice over your systems. That hasn't been done has it?
MR. CALI: Congressman, yes it's been done and it's being done in two
respects.
REP. BACHUS: Do any of your customers have access to the
content of their choice?
MR. CALI: Yes they do in fact through Excite At
Home. And then the concern has been but they have to go through Excite At Home.
REP. BACHUS: Well actually that's not a choice of content. A choice of
content is when you have more then one content provider. Now you and I both know
that, is that right?
MR. CALI: No that's not correct. I think what I'm
explaining is that...
REP. BACHUS: But what you also said is that you
are opening your cable lines to other content providers to ensure that customers
have content choice. So you're opening the cable systems to other content
providers to ensure that your customers have...
MR. CALI: Our customers
will have their choice of content. They can go anywhere on the Internet today.
REP. BACHUS: But they can't choose their content providers can they?
MR. CALI: No, they go anywhere they have access to...
REP.
BACHUS: No, answer my question.
MR. CALI: I am trying to do so. With all
do respect...
REP. BACHUS: Answer my question.
MR. CALI: I am
answering that question.
REP. BACHUS: Can they choose their content
provider?
MR. CALI: We are engaged -- we have announced we will begin
technical trials this fall to work out the remaining technical issues to permit
them to choose...
REP. BACHUS: But they can't now?
MR. CALI:
...their ISP of choice.
REP. BACHUS: But they can't now?
MR.
CALI: We have taken firm steps. We did testify last year...
REP. BACHUS:
Okay, you've taken firm steps, you want to ensure all this, but as of today they
don't have choice of content providers; yes or no.
MR. CALI: As of
today, all cable customers do not have a choice of multiple ISP's.
REP.
BACHUS: So in other words the answer is, no they don't have a choice.
MR. CALI: No that was not the answer. The answer was they do not have a
choice of multiple ISP's, sir.
REP. BACHUS: Okay, they don't have a
choice of -- well what you said is that your opening the cable lines to other
content providers; you said that last year. You haven't done that have you?
MR. CALI: No, what we said last year was we would ensure that our
customers had access to the content of their choice. They have access -- I'm
making two points. They have... (cross talk)... first site at home...
REP. BACHUS: Let me ask you this. Let me ask you this, you have an
exclusive agreement with Excite At Home for them to provide all content over
your cable lines, is that correct?
MR. CALI: We have an exclusive
agreement with Excite At Home as the ISP of choice until 2002 that is correct.
REP. BACHUS: Well ISP of choice is them.
MR. CALI: Well that is
correct.
REP. BACHUS: That's not a choice is it? How can that be a
choice if it has to be them? I think this is a pretty good illustration of a
straight answer or not a straight answer.
MR. CALI: No, I think we have
a definitional issue here on both respects.
REP. BACHUS: I think we do
have a disagreement about that but there is only one content provider and that
is Excite At Home if you link up with TCI or Media One.
MR. CALI: There
is one ISP available on the old TCI systems, that's Excite At Home, Roadrunner
is available on the Media One system.
REP. BACHUS: Mr. Sachs, a cable
company that blocks consumer access to electronic program guides; a cable
company that refuses to carry channels that compete with its own existing and
planned news channels; a cable company that blocks critical interactive
communications between customers and competing content providers; a cable
company that makes its own content more accessible by simplifying its own
interfaces with making complex interfaces with other providers or designs client
software that automatically disables the client software competing ISP's; would
you consider that they are committed to consumer choice? Or maybe we just say
that unplug 8 million ABC customers, is that committed to consumer choice?
MR. SACHS: I mean these sound like the concerns that Disney has raised
with both the Federal Trade Commission and the FCC.
REP. BACHUS: And I
think...
MR. SACHS: Would you like for me to speak to your question?
REP. BACHUS: Well those are exactly what -- those were what we talking
about AOL / Time Warner...
MR. SACHS: Those are allegations and concerns
that one company that is involved in business negotiations with another company
has raised before regulators who are reviewing a merger.
REP. BACHUS:
But what I mean, they have in fact done all those things, have they not?
MR. SACHS: No.
REP. BACHUS: They hadn't?
MR. SACHS: No
they have not.
REP. BACHUS: Have they done any of those things?
MR. SACHS: As to the -- I wouldn't agree with your characterization of
the ABC / Disney dispute. Again that was a retransmission dispute, which I don't
believe, personally, had anything to do with the carriage of the ABC network or
Time Warner's choice of carrying the Time network. I think that dispute had to
do with money.
REP. BACHUS: Well they had admitted that they had walled
off on it on cases over 85 percent of the content.
MR. SACHS: Excuse me.
REP. BACHUS: They have admitted that they walled off as much as 85
percent of the...
MR. SACHS: I am not at all familiar with what you're
referring to.
REP. BACHUS: Alright. Let me ask you this. Do you think,
you said -- do you think that AOL / Time Warner, where are they on the learning
curve compared to other cable companies?
MR. SACHS: I think that they
are farther along in terms of development of providing choice to other ISP's and
I think they have articulated that perhaps more comprehensively then other
companies in their memorandum of understanding.
REP. BACHUS: So some of
the other cable companies are less committed to...
MR. SACHS: It's not a
question of commitment. It's a question of developing the business model and
figuring out how technically to accommodate multiple ISP's.
REP. BACHUS:
Alright. Let me close with this. One, I think one obstacle to the Internet is
consumer privacy. Polls say that consumers aren't confident that their
information will be protected when they get on the Internet. And I think trust
is very important in privacy.
Mr. Padden, Toysmark (ph), I recently --
it came to my attention that they had made a pledge, in fact, I think you've
probably seen that where they actually say, Our promise is that personally
information, voluntarily submitted by visitors to our site, is never shared with
a third party. Then they go over and say, you information is safe with us.
Actually entered in bold terms.
Disney owns a majority of that company,
I have filed legislation which would prevent a company promising or pledging
that it would not release private information and then attempts to do so would
make that an unfair business practice. Do you agree?
MR. PADDEN: We
would support that legislation. We would be happy to work with you. We were as
alarmed as anybody when this issue arose in the bankruptcy proceeding. We were
surrounded by bankruptcy lawyers, initially told us we couldn't even publicly
express our desire that this commitment be honored and preserved because we
would put ourselves in jeopardy vice versa the creditors in the bankruptcy
proceeding. As I think you are aware, we nonetheless did put out a strong
statement that we strongly support honoring this pledge and in fact have
indicated a willingness to step up and bid in the bankruptcy court for this data
so that we can bury it somewhere in the backyard and nobody will ever have to
worry about the pledge being violated. We agree with the trust of your bill
completely.
REP. BACHUS: In fact, I think you all actually said that you
might buy back the list if that's what it took.
MR. PADDEN: That's
right.
REP. BACHUS: So I commend you for that, and I really do commend
Disney. And I think that's -- I have no further questions.
REP. HYDE:
Thank the gentleman. Does anybody else have -- I have a few more questions. Does
the gentleman from Virginia have any more questions? The gentleman from North
Carolina, the gentlelady from Texas, why don't you go ahead and then I'll finish
up with a couple.
REP. JACKSON-LEE: Thank you very much, Mr. Chairman. I
want to clarify, make sure my inquiry on the Time Warner / Walt Disney issue was
not so much personal contractual transgressions as much as it was to highlight
the responsibility of this committee which is competition and the opposition to
monopolistic impact. And so my inquiry was to suggest that that dispute single
handedly bared a number of my constituents.
In fact, the whole city of
Houston from having, at least those who were tied to cable, having access to
product that they wanted. In my interpretation both for the layman who may be
listening, that's anti competitive, I know that there were some contractual
issues, so I raise the question on that basis..
Let me follow up and
allow Mr. Cali to give me a precise answer on content question, which is his
projection for when he feels comfortable that there will be competition or when,
at least within his portfolio, consumers will have choice. You were trying to
get the answer out, why don't you give me that answer please so I can understand
it and then pursue it from there.
MR. CALI: Thank you and I apologize if
I was unclear and I am trying to draw a distinction between ISP's and content.
Today, through Excite At Home, but it is through Excite At Home over the old TCI
systems and Roadrunner on some of the Media One systems, you can access any
content on the Internet.
We understand that many parties have raised
concern with that and a number of ISP's said, I just don't want to be able to be
accessed through Excite At Home but I would like to be able to have customers to
choose me as the ISP. And we have committed to do so. The exclusivity agreement
with Excite At Home runs until June of 2002. We intend to honor that agreement.
There are also technical issues that need to be resolved and we are
beginning a trial this fall in Boulder, Colorado, and again next fall in
Massachusetts to work out those technical issues and then we intend to be ready
on the cable systems to offer customers choice of ISP's upon exploration of the
Excite At Home...
REP. JACKSON-LEE: 2002. Let me ask you, what would be
your response to those who would say that you're not moving fast enough that's
why we're here today?
MR. CALI: No and I completely understand the
concern of many. And what I would ask the members of the committee to consider
is this, again, we weren't even in the business at the time when Excite At Home
first started taking risks with capital. First started investing on the hope
that this marketplace would work, and at that time they entered into exclusivity
arrangements with the cable companies.
You can't walk away from that
type of a contract lightly. It is an independent company, AT&T has a
significant interest in it but it is publicly traded, there are other
shareholders. We share the concern of some that we are not moving fast enough.
But we know where we're going, we're committed to get there.
I would
also point out that if there is some question about AT&T's commitment,
AT&T is also working modally to roll out a sixth wireless offering. That
offering will deliver both telephone service, competitive telephone service as
our cable services will and it will deliver broadband access.
And we
have said from the beginning, we will give customers on that service their
choice of ISP's and we are currently negotiating with some ISP's in order to
give our fixed wireless customers a choice of ISP's.
REP. JACKSON-LEE: I
am interested in pursuing that. Mr. Scott made a very important point about the
ease of wireless and why not just got their now. I'm going to seek to engage you
in a meeting in my office and I will pursue that with some additional inquires
that I would like to put on the record. But I noticed Mr. Wolzien wanted to
comment on that question and I would appreciate your response, or at least
wanted to comment.
MR. WOLZIEN: Thank you, Congresswoman. I think it's
important that somebody that covers both cable and also covers AOL to point out
that we are really talking about with Excite At Home, a bundled content and ISP
that you have to buy the ISP and the content together.
Whereas, you can
go and buy AOL as access to AOL's content for $9.95 with no
connectivity whatsoever. So the issue is that you're buying two things with At
Home, you're buying the connectivity and the content and you have to buy through
that content to buy somebody else's content. And while in fact there may be an
exclusive arrangement with AT&T the reality is that AT&T is
fundamentally today in control of At Home and over time it would seem to be the
potential to try to sort these things out.
REP. JACKSON-LEE: Let me, Mr.
Sachs, and then I have Mr...
MR.TAUKE: Tauke.
REP. JACKSON-LEE:
Mr. Tauke. Mr. Sachs, just a simple question. Do you think they are moving fast
enough? Do you think we need to hold our horses on present legislative
initiatives and do you feel comfortable that we will get where we want to get on
the Telecommunication Act of 1996?
MR. SACHS: Yes.
REP.
JACKSON-LEE: You're a representative of a certain body, yes, and I'll give you
about five more words. But yes under the intent or under the offices of how. How
do you believe we are moving fast enough?
MR. SACHS: I think the
evidence is in the amount of investment that has been made by our industry over
the last several years and the fact that we are rolling out cable modem service
just as on industry as quickly as we can obtain the modems and at the same time
our companies are learning -- I mean just yesterday, for instance in Days
Communications Daily, there are two stories.
One is that Comcast just
signed a three-year agreement with Cisco for broadband routers. The article goes
on to explain that broadband routers will enable Comcast to accommodate multiple
ISP's. A second article explaining that a company called ISky (ph), a satellite
provider just completed their second round of equity financing, they raised
$750 million dollars. They are going to be offering broadband
to the home via satellite next year. This is a dynamic market place. A lot is
happening.
REP. JACKSON-LEE: So you see no dilatory tactics at this
time?
MR. SACHS: Not on the part of our industry, no.
REP.
JACKSON-LEE: Well, Mr. Tauke, thank you. Let me read into the record the
initiatives that I mentioned and also site for you, right now as we speak, and I
am going to be heading over there, the National Telecommunications Information
Administration Agency is holding a session at the Department of Commerce on how
to improve access to minorities and small business.
Let me read this
group into the record again. The physically challenged, minorities, small
businesses, schools, libraries, and the elderly; there are two prong questions,
one on small business who it would mean access of corporation to secure pieces
of the industry. With the others, and minorities and women as, well let me read
minorities and women into the record. But with the others, the physically
challenged, schools, and libraries it's a question of access and competition.
How does the intervention of these legislative initiatives improve any of that?
MR. TAUKE: I think first that the technology that is being developed has
great promise for the physically challenged community. We have been working very
closely with them during the past several years to improve the quality of life
for them and as this technology is made available to them, broadband services
are rolled out to them, they have many opportunities that they do not have
today.
And so anything that we can do to encourage the deployment of
broadband services and make those services more available whether it be to the
physically challenged community, the schools and libraries, others that you
mentioned, this is going to improve the ability of these individuals to receive
healthcare services education services and so on. As well as to have the
economic benefit of shopping over the Internet or small business and relating to
the manufacturer and being more efficient.
REP. JACKSON-LEE: Do you have
any pacific parts of your business that deal with those issues specifically? Do
you have any segmented out parts of your business that say, I'm trying to reach
those populations?
MR. TAUKE: Yes, we have the segments of the business
that are focused on almost all of those populations, which I would be happy to
discuss with you at anytime.
REP. JACKSON-LEE: I'd be gratified as well
as participation with minorities, women, and small businesses having access to
it. Mr. Chairman, I will conclude because you have been indulgent but I do see
the hand of is it Mr. ...
MR. CLELAND: Cleland.
REP.
JACKSON-LEE: Cleland.
MR. CLELAND: One point on your physically
challenged issue is...
REP. JACKSON-LEE: I appreciate his being able to
answer the question, thank you, Mr. Cleland.
MR. CLELAND: Yes, under
section 255, if a service is a telecom service, by law, the physically
challenged get special access. Cable broadband, if its not a telecom service,
the physically challenged don't have that same legal right to access that
technology.
REP. JACKSON-LEE: Thank you, Mr. Chairman. Thank you, Mr.
Cleland. I would appreciate more definitive answers on those particular groups
that I offered and I would appreciate it if the witnesses would provide me, both
from their perspective of being for or against this legislation, how their
position enables these populations to have more access to the resources that I
believe belong to all of the people of this country. And I yield back. Thank
you.
REP. HYDE: The gentleman from Alabama.
REP. BACHUS: Someone
mentioned, you know that broadband cable is not a telecom service. Did the ninth
circuit rule that it was and what implications is that going to have?
MR. CLELAND: Yes, the ninth circuit did rule that cable broadband was a
common carrier telecom service.
REP. BACHUS: What significance is that?
MR. CLELAND: The implications are that as a telecommunications service
they have to provide both nondiscriminatory access to entities such as Internet
service providers and interconnection to other telecommunication carriers, which
has a further definition under the Telecommunications Act.
REP. BACHUS:
Now Mr. Sachs I think said that, I mentioned the practice of disconnecting
competitors over their system.
Now I think you basically denied that
that had happened, is that right?
MR. SACHS: As a physical proposition
clearly that could happen, but I -- If we're talking about going back to Time
Warner and Disney that signal was taken off the air. The Time Warner position
was that they didn't have the retransmission right to continue to carry it, the
FCC found against them.
REP. BACHUS: Yeah, other then the ABC example
there have been numerous cases where a cable company was owned by a broadcast
company that had another sports program and they came in when they bought it
they took that sports program off or that regional program and they put their
own service on.
MR. SACHS: Congress in 1992 put in effect some program
access rules. In the six years since that time there may be half a dozen cases,
instances, presented to the FCC, which have been adjudicated. So, do cable
companies change programming from time to time, yes, there is consumer demand
for other programming. And in an age of limited capacity, there are 200 and some
odd networks, all couldn't be accommodated but companies do need to be sensitive
to their customer's interests here.
REP. BACHUS: Would you say the cable
companies have erected barriers to competition, which discriminated against
companies, which they don't own or favor, companies which they do?
MR.
SACHS: No, and I don't believe there is evidence of that either.
REP.
BACHUS: Alright. Does anyone else on the panel disagree?
WITNESS: I
think there is ample evidence, I'll let Preston tackle that one.
MR.
PADDEN: Plenty of evidence and if I could interrupt Congresswoman Jackson-Lee,
as well, with this example. Just to give you an example, in Houston -- well we
own a children's channel called Disney Channel. Its carried on the basic tier in
over 60 million homes by many fine cable companies that don't have any
conflicted interest.
Time Warner owns their own children's channel
called Cartoon Network, which they would rather that your kids watch so they
declined to carry Disney Channel on basic tier. And in Houston where the city
was half TCI and half Time Warner, TCI was carrying Disney Channel on the basic
tier. The two companies swapped systems so that Time Warner ended up owning all
of the cable in Houston.
Time Warner went into the former TCI systems,
ripped out the Disney Channel, made it only available as a premium offering and
raised basic fees at the same time. And the only reason we can think that they
would do that is because of their conflicted interest owning Cartoon Network.
REP. BACHUS: Ah, there was another gentleman on the panel next to Mr.
Padden that -- Mr. Cleland?
MR. CLELAND: Yes, sir. I think, you know, if
the question cuts to is there past instances where cable has possible abused its
market power or tried to prevent choice and there are four places in law where
congress determined that the cable industry is anti- competitively leveraging
their power.
Program access, allowing access -- at the time of open
access for programming, they mandated the broadcasters under must carry and
retransmission consent should get access. They required leased access for
commercial competitors and they required competitive availability for navigation
devises. So there was four different instances on four different marketplace
leverage points that the congress, in its wisdom, decided to try and medicate
the leveraging of that market power.
REP. BACHUS: Has the FCC been
aggressive in enforcing those provisions?
MR. CLELAND: Certainly on the
competitive navigation devices they have not. On leased access they have not;
there's very little leased access competition. Program access has been a huge
success. There's over 10 million Americans that use DBS and it's largely to the
success there. And must carry and retransmission consent, except for a few
isolated instances, has been very successful.
MR. CALI: If I might
interject that is due to congressional legislation.
MR. CLELAND:
Correct.
REP. HYDE: The gentleman from Massachusetts.
REP.
MEEHAN: Thank you, Mr. Chairman. Mr. Tauke, when Bell Atlantic and GTE decided
to merge to form Verizon the FCC had said that a GTE Internet backbone provider
formally called BBN had to be spun off, and it's my understanding that sections
271 test is the reason BBN, now known as Genuity (ph), had to be spun off. What
is your perspective on any benefits or cost to consumers stemming from the spin
off of Genuity?
MR. TAUKE: Frst, you are correct that as a result of the
restrictions on our ability to be affiliated with a company that provides any
form of inter latta services, Genuity was spun off as part of that transaction.
In terms of the benefits or the detriments to consumers, at this juncture
probably is too early to tell.
If is clear, however, that as a result of
the -- since Genuity was a tier one backbone the concern that was expressed by
both the Department of Justice and the FCC was that if Genuity were not
preserved as a tier one backbone that there would be a diminishment in the
competition in the tier one backbone market, which the Department of Justice has
concluded is very concentrated in the hands of a few players.
The
concerns that the Justice Department, I think, had expressed relating to this
kind of spin off was that instead of Genuity being linked with a company that
had a substantial customer base it would be separated from that customer base
and there was concern about how it would thrive. When part of the MCI backbone
was spun off as a result of the MCI WorldCom merger, that piece of backbone went
to Cable and Wireless. Cable and Wireless is a great, solid company but it
doesn't have customers in the U.S. and that piece of the backbone withered.
And there was concern that that might happen to Genuity. We believe that
because of the structure that has been put in place by the FCC that Genuity will
be able to thrive during this period and we hope that with prompt movement
through the 271 process that we will have the ability at some point to pull it
back.
REP. MEEHAN: What is your response to the argument that the
regional Bell operating companies won't even bother to comply with 271 if these
bills pass and in answering this question can you give us a status update on
Verizons efforts to secure 271 approval in Massachusetts?
MR. TAUKE:
First, we have no option. We must comply with the market opening provisions of
the act even if we do not apply for long distance relief. So this is not a
choice, this is a requirement. When we have sufficiently complied that we are
able to file 271 applications, there is a long and lengthy process that we must
go through.
We are now at the stage in Massachusetts where we expect
that the full report and record, if you will, will be before the commission in a
relatively short period of time. We expect that the Massachusetts commission
will be acting on that record in the foreseeable future and that we will be
filing with the FCC at the end of the third quarter or at the beginning of the
fourth quarter of this year in Massachusetts.
REP. MEEHAN: One last
question, and actually I have this question for Mr. Cali as well, obviously
there is some difference of opinion on whether or not the Telecommunications Act
271 was intended to apply to long distance data communications. Can you provide
the committee with your respective opinions on that issue?
MR. TAUKE:
That is a question that I am glad we have an opportunity to address before this
hearing ends. When the Telecommunications Act was put together in the early
'90's and into '95, '96 and it was actually signed in '96, put together in '94
and '95, there was a lot of discussion about the long distance piece. And there
were two areas where the long distance was considered to be -- where freedom was
given for long distance services.
One was in the wireless area, and so
the long distance restrictions do not apply to wireless. The second was in the
area of information services. I think many former members of Congress and
current members of Congress who were involved in that process have indicated
that at the time when information services were set aside to be freed from the
inter latta or long distance restriction most members thought of that as data
and Internet content. The way it has been interpreted by the Federal
Communications Commission its been interpreted very narrowly and there has been
no action taken under the 706 provision of the act and so therefore, there has
been no movement to permit the data to be free of those long distance
restrictions.
So, obviously people can differ as to what the intent was,
but I think the intent was to treat wireless and information services or data,
different from voice services under the act.
REP. MEEHAN: Mr. Cali.
MR. CALI: Sure. Thank you. There is no doubt that data was included in
the restriction. Let's remember where this restriction comes from. It arises out
of a consent decree to settle an antitrust case. Under the MFJ there was no
distinction between voice and data services and data is not a new thing, in
effect packet services have been around for years. I think the evidence that
Representative Eshoo read into the record indicates that this was under
consideration during deliberations concerning the act.
And, in fact, the
existence of 706 itself is an acknowledgement that the Congress knew that we
were moving into a new world of data. That coupled with the fact that as we
said, the industry is moving to data. Everything is going to data as Chairman
Kennard said, indicates that the very policy of 271 also requires that, we
understand the act in terms of data being included in the restriction.
MR. LOWE: Could I, if I may, Congressman, just to quickly add, I think
it is quite clear that data was incorporated in the confines of the act along
with voice. Indeed, the definition of telecommunications just says the
transmission of information. But more importantly, I think if you take the
principles that are driving the '96 Act and apply them to voice I think you will
find that they apply equally as well to data, meaning, it is the Bell operating
company, in particular the incumbent local exchange cares that have control over
the monopoly local plant.
And it's that local plant that people need to
get access to in order to terminate and originate traffic. Whether that traffic
be voice or data it doesn't matter we all still need to get access to that
plant. And so the rules and the constructs set up by the act in particular
section 251 and 271 apply equally as well whether its voice or data. And that is
how the FCC came to this conclusion.
MR. TAUKE: Congressman, I think it
is instructive to note that the administration at the time of the '96 Act
consideration of a proposed to Title 7 to have a section devoted specifically
devoted to broadband. The congress looked at that but never acted on the
specific broadband example, but they did set up two, what they called,
incidental inter latta restrictions.
One was for wireless and the other
was for information services. I think you would have to ask yourself, if by
information services the congress wasn't thinking about data and Internet and
medicine over the Internet and that kind of thing, what is it that they were
thinking? You could go back and read the records yourself to reach a conclusion.
REP. MEEHAN: Thank you, Mr. Chairman.
REP. HYDE: I thank the
gentleman. Now that I have indulged everybody else, I'm going to indulge myself
for just a few more questions if you'll bear with me.
Mr. Cali, in the
merger agreement between AT&T and TCI, Liberty Media was granted preferred
provider status. What does that mean?
MR. CALI: As I understand it and
to my knowledge on it, that meant that we would give for Liberty Media's new
programming we would make reasonable efforts to distribute that programming. We
would do so pursuant to standard industry terms and conditions. It did not
suggest a discrimination against other programming providers.
REP. HYDE:
Does it get better channel placement?
MR. CALI: I cannot provide you,
personally, more info on that, that is what I know but we would be happy to
supplement the record with that information.
REP. HYDE: Could that be
one of the things that it means?
MR. CALI: I would not know. As I say,
my understanding is that we would use reasonable efforts to provide distribution
so it would not suggest that.
REP. HYDE: What about a better price?
MR. CALI: No, to my knowledge it would not. But again we can supplement
the record.
REP. HYDE: If it got better channel placement would you
consider that to be discrimination?
MR. CALI: I just will not comment on
that until I get further information on...
REP. HYDE: Would you submit
that information to the committee?
MR. CALI: Yes we will.
REP.
HYDE: If you would answer that question we would appreciate it.
MR.
CALI: Sure.
REP. HYDE: Recently John Malone stated that AT&T would
shift its focus to the content side. Is that getting into the problem area that
Mr. Padden raised earlier?
MR. CALI: Well actually we were reading the
same article because the only information I have is the press report as well.
Where Doctor Malone said, AT&T should shift its focus into the content side
and then in that same Wall Street Journal article as I recall, he said, he was
still trying to sell that idea.
We have consistently viewed ourselves as
a pipe company. The reason we moved into cable was because of our desire to
serve our telephone customers with residential local telephone service.
Something very few other companies are expressing an interest in.
REP.
HYDE: Have you entered into an MOU, similar to the AOL / Time Warner MOU?
MR. CALI: For the cable properties?
REP. HYDE: Yes.
MR.
CALI: We have not. We are currently speaking to a number of providers both
national and regional ISP's for participation in the trial this fall in Boulder,
(Colorado).
REP. HYDE: Mr. Tauke and Mr. McCurry, what do you for see as
the future of the Bell company applications to enter long distance in the next
year or so. I know the gentleman from Massachusetts asked about Massachusetts,
obviously I'm interested in Virginia, but I would like to have an overview. Are
there going to be lots more applications now that the first two have been
approved or will it still be a long slow process?
MR. TAUKE: Mr.
Chairman, I think you have had the opportunity to see how extensive these
applications are and the amount of work, regulatory work that state commissions
and others have to put into it in order to get an application ready. So these
are major undertakings.
As a result, I don't think that they are going
to come flowing rapidly, but I think the pace is certainly going to pick up. I
anticipate that our company will have four or five applications to the FCC in
the next year. I believe that the other Bell companies will also have enough
single digit numbers to the FCC so that the FCC, over the course of the next
year, may receive 10 applications.
REP. HYDE: And they all encompass an
entire state?
MR. TAUKE: Each application encompasses an entire state.
REP. HYDE: And the Virginia applications?
MR. TAUKE: We are
getting into speculation here, but we anticipate that we will be engaged in
operation support system testing with KPMG, this third party testing of systems,
sometime before the end of the year. Depending on how quickly that goes, we
would hope that we would be able to complete the process in Virginia during the
course of the year, 2001.
REP. HYDE: And what does that mean for the
roll out of DSL service in just pick Roanoke, Virginia, (laughter) as a random
location.
MR. TAUKE: I should have studied Roanoke before I came. There
is a relationship between the roll out of DSL services and this legislation but
I might observe, and 271 applications, but its not, that is, it is somewhat an
incidental relationship. The roll out of DSL services has to do with our ability
to make investment and the determination of where that investment is going to be
made, the capability of the plant in the area and a variety of other issues.
So I would be happy to talk with you off line about timing in Roanoke.
What the -- to what level we could penetrate the market in Roanoke with DSL
services. As you know, we are not able to deliver them to every customer. And I
would be happy to that off line.
REP. HYDE: All right that sounds like a
great place to stop. I want to thank all of you, this has been a very, very
helpful panel and a very good discussion and debate about two critically
important issues for the future of the Internet and I appreciate all of your
participation. The hearing stands adjourned.
END
LOAD-DATE: July 20, 2000 
