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JUNE 30, 1999, WEDNESDAY

SECTION: IN THE NEWS

LENGTH: 2281 words

HEADLINE: PREPARED TESTIMONY OF
GENE KIMMELMAN
CO-DIRECTOR
WASHINGTON OFFICE
CONSUMERS UNION
BEFORE THE HOUSE JUDICIARY COMMITTEE
SUBJECT - THE INTERNET FREEDOM ACT, H.R. 1686
AND THE INTERNET GROWTH AND DEVELOPMENT ACT OF 1999,
H.R. 1685

BODY:

I. INTRODUCTION
Consumers Union(1) believes it is time for Congress to address the shortcomings of the Telecommunications Act of 1996.(2) With cable television rates soaring and many telephone charges on the rise, the majority of consumers are not receiving the benefits that Congress promised through elimination of traditional ownership and price regulation in telecommunications markets. We therefore welcome Representatives Goodlatte's and Boucher's interest in proposing legislation designed to deal with the realities of today's marketplace.
The Goodlatte and Boucher bills, H.R. 1685 ("Internet Growth and Development Act of 1999") and H.R. 1686 ("Internet Freedom Act") include important consumer protection provisions that would make the emerging world of high-speed Internet services more open to consumer choice and competition. However the bills also contain a number of provisions regarding digital services offered by local telephone companies, which we believe require significant modification to ensure that they do not open the door to anticompetitive or unfair practices. In addition to working with the bills' sponsors to address these concerns, Consumers Union will suggest additional changes to the Telecommunications Act which we believe are necessary to ensure fair pricing for cable and telephone services while we wait to see if these markets become more competitive.
II. RISING PRICES IN TODAY'S MARKET
Contrary to the goals of the Telecommunications Act, consumers face rising prices and extremely limited competitive choice for numerous television and telephone services. Since passage of the Act in February 1996, cable TV rates have risen about 23 percent, more than three times the rate of inflation during that period.(3) Despite significant growth in the satellite industry, the high price of purchasing a satellite dish, expensive installation charges and the inability to provide local broadcast signals have enabled cable to avoid price competition from satellite providers. On the other hand, the few consumers who have a choice of cable service from two providers (head-to-head competition from two cable companies or one cable and one telephone company) receive approximately the same programming, new services and infrastructure upgrades for about 14 percent less than cable monopolies charge.(4) If cable monopolies were limited to charging these competitive prices throughout the country, consumers would save about a $4 billion a year.
The picture for some telephone rates is starting to look almost as bad as for cable. Federal Communications Commission (FCC) pricing policies have resulted in new "line-item" charges on phone bills that will cost consumers almost $5 billion a year starting in July (See Attachment A). New universal service fees, subscriber line charges, federal access fees, and number portability charges are requiring the average single-line customer to pay $3.01 per month more, and consumers with two lines $7.39 per month more for phone service, before they place a call. These figures do not include new monthly minimum charges assessed by long distance companies like AT&T and MCI, which require consumers to pay $3.00 to $5.00 a month even if they make no calls, or less than $3.00/$5.00 worth of calls. While large-volume long distance users are finding competitive options and declining per-minute prices, consumers who make less than 30 minutes of interstate long distance calls per month have seen their rates double since passage of the Act.(5)
MARKET CONCENTRATION
Failure of our antitrust authorities to take an aggressive stance against telecommunications and cable mergers has contributed to a bleak picture for the development of local telephone, cable and increased long distance competition. The Justice Department's Antitrust Division is in the process of allowing six of the eight big local telephone companies (GTE and the Bell Companies) to merge into two giant super-regional monopolies. After gobbling up Pacific Telesis and Ameritech, SBC will control about one-third of all telephone lines into consumers' homes. Similarly, with the acquisition of NYNEX and GTE, Bell Atlantic will control another third of the country's local phone lines. These were the companies that, during consideration of the Telecommunications Act, claimed they would be "seven new competitors" in long distance and other markets.
In response to this massive local telephone consolidation, AT&T has purchased substantial ownership stakes in cable television companies that serve about 60 percent of all households in the country. Through its merger with TeleCommunications Inc. and proposed purchase of MediaOne, AT&T will dominate not only the majority of cable wires, but also the major high-speed Internet access providers (
Home and Roadrunner) and control more than 60 cable television channels.(6) Despite AT&T's stated goal of expanding its cable business into the local telephony market, the fact that the underlying cable monopoly is not subject to any limits on pricing (unlike the local telephone monopoly) and is not subject to common carriage/nondiscrimination requirements (unlike the local telephone monopoly), makes this consolidation particularly troubling for consumers.
It is important to note that, while everyone expects the telephone and cable wires some day to offer the same set of services in competition with each other, they do not compete today! Without enormous infrastructure investments, elimination of technical barriers, and experimentation with network management of bundled services, cable and local telephone companies cannot effectively compete against each other. And no one else is even close to them, measured either by technical or financial standards, to serve as a mass market competitor for the most important telephone, television and Internet services. We may therefore be experiencing an enormous consolidation that, at best, yields a duopoly. What does this mean for consumers?
THE DIGITAL DIVIDE
In a report we released with the Consumer Federation of America in February(7), we found that at least one-half and as many as three- quarters of all consumer do not generate enough revenue opportunity - because of their small local, long distance, wireless, cable and Internet consumption - to be attractive to the companies seeking to expand into these markets. This fact is unlikely to change in the foreseeable future. Therefore all the talk of deregulation designed to spur investment in new infrastructure and advanced services may do little or nothing for the needs and desires of the vast majority of the consumer market. Our report demonstrates that cable, local phone and long distance companies are only likely to compete for the top 20% of the consumer market. Market forces are not strong enough to prevent a growing world of telecommunications haves and have-nots.

IT IS TIME FOR CONGRESS TO ACT
If neither antitrust officials nor the FCC are willing to stop the telecommunications consolidation juggernaut, it is imperative that Congress step in to establish comparable public obligations for the two wires that may some day be in a position to compete for the most important telecommunications, Internet and television services. We believe the Telecommunications Act should be adjusted to:
protect against inflated pricing of monopoly telephone and cable services;
ensure that monopoly telephone and cable services do not subsidize other services;
prevent either telephone or cable companies that have market power as a result of their transmission facilities from discriminating in any way against consumers or independent vendors who must rely on those companies' transmission facilities to offer services to the public; and
ensure that low-volume telecommunications users (including long distance customers) are not overcharged for their limited communications needs.
VI. THE GOODLATTE AND BOUCHER BILLS
H.R. 1685 and 1686 offer a good starting point to begin addressing inappropriate regulatory advantages the cable wire has over the telephone wire. Consumers Union supports efforts to ensure that cable TV monopolies cannot use their dominance in the transmission of high- speed Internet access to discriminate against particular Internet service providers or inflate prices for consumers. The bills' prohibition on anticompetitive or discriminating behavior begins to address this problem. However, the legislation should be expanded to prohibit cross-subsidization and discriminatory practices by local telephone and other broadband access transport providers in services essential for making broadband access a viable mass market service (e.g., local telephone, video transmission).
The bills' provisions specifically related to broadband and Internet backbone services provided by local telephone companies need significant modification to meet consumers' needs. Despite the convergence of telephone, television, and data (including Internet) services through the enormous growth of digital transmission techniques, the legislation creates an artificial "no regulation" zone for transmission that mixes voice, data and video. This regulatory distinction is simply unworkable in a digital world.
In a world where virtually all service providers are attempting to offer consumers one-stop-shopping for local phone, wireless, long distance, fax, Internet and television services - mostly mixed together in digitized format - it becomes impossible to separate data and voice services for regulatory purposes.
Consumers Union supports preservation of the portions of the 1996 Telecommunications Act that will open local phone markets to competition. We believe that efforts to enhance deployment of broadband facilities by local phone companies must coincide with, and not replace efforts to open the local telephone market to competition. We therefore believe the broadband and Internet backbone provisions of the legislation should be modified to ensure that efforts to enhance local telephone competition would not suffer. And where competition does not develop, the legislation must also ensure that prices for the local phone service that connects Internet and other broadband applications remain reasonable and affordable to all consumers.
Rather than focus modification of the Telecommunications Act on distinctions between services - data, voice, video - that are disappearing, we suggest a different basis for revisiting the Act. It is now obvious that modest users of virtually all communications services - local phone, long distance, cable, Internet - are unlikely to benefit from the deregulatory, market opening provisions of the 1996 Act. In the foreseeable future, competition will not penetrate these low-volume markets, either for individual services or a bundle of these services combined. We therefore suggest modifications to the Act that ensure reasonable prices for local telephone, cable and long distance services where competition does not exist or is insufficient to keep prices down. Such an approach would place greater emphasis on Bell company entry into the residential long distance market, with appropriate public oversight, over deregulation of broadband and Internet backbone services.
CONCLUSION
Consumers Union applauds Representatives Goodlatte and Boucher for initiating the process of adjusting the 1996 Telecommunications Act to deal with today's market realities. As consumers experience spiraling cable rates, rising monthly telephone charges, and the restricted choices that result from massive industry mergers, it is obvious that the Act is not meeting its competitive goals. While the Goodlatte and Boucher bills require significant modification, they provide an important starting point for addressing consumer needs in today's market. 1.
0 Consumers Union is a nonprofit membership organization chartered in 1936 under the laws of the State of New York to provide consumers with information, education and counsel about good, services, health, and personal finance; and to initiate and cooperate with individual and group efforts to maintain and enhance the quality of life for consumers. Consumers Union's income is solely derived from the sale of Consumer Reports, its other publications and from noncommercial contributions, grants and fees. In addition to reports on Consumers Union's own product testing, Consumer Reports with approximately 4.5 million paid circulation, regularly, carries articles on health, product safety, marketplace economics and legislative, judicial and regulatory actions which affect consumer welfare. Consumers Union's publications carry no advertising and receive no commercial support.
2.
0 Public Law 104-104, 110 Stat. 56 (1996)
3.
0 Source: Bureau of Labor Statistics Cable Consumer Price Index and Consumer Price Index--All Urban Consumers
4.
0 In the Matter of Implementation of Section 3 of the Cable Television Consumer Protection and Competition Act of 1992, REPORT ON CABLE INDISTRY PRICES, MM Dkt. No. 92-266, May 7, 1999, at 3
5.
0 Industry Analysis Division, Common Carrier Bureau, Federal Communications Commission, REFERENCE BOOK OF RATES, PRICES, INDICES AND EXPENDITURES FOR TELEPHONE SERVICE, June 1999 at Table 2.4.
6.
0 In the Matter of Annual Assessment of the Status of Competition in Markets for the Delivery of Video Programming, FIFTH ANNUAL REPORT, CS Dkt. No. 98-102, Dec. 23, 1998 at Appendixes C and D.
7.
0 Dr. Mark Cooper and Gene Kimmelman, "The Digital Divide Confronts the Telecommunications Act of 1996," Consumers Union and Consumer Federation of America, February 1999.

END

LOAD-DATE: July 1, 1999

Document 263 of 383.


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