Copyright 1999 Federal News Service, Inc.
Federal News Service
JUNE 30, 1999, WEDNESDAY
SECTION: IN THE NEWS
LENGTH:
4379 words
HEADLINE: PREPARED STATEMENT OF
MARK C.
ROSENBLUM
VICE PRESIDENT - LAW AND CHIEF LITIGATION
AND FEDERAL
REGULATORY COUNSEL,
AT&T
BEFORE THE HOUSE JUDICIARY
COMMITTEE
BODY:
It is a pleasure to appear
before this Committee today to discuss H.R. 1685 and H.R. 1686. We commend the
Committee for the leadership role it has played in the last three years in
ensuring appropriate enforcement of the antitrust laws in the telecommunications
industry.
Before passage of the Telecommunications Act of 1996 (the "Telecom
Act"), investment in the cable and telecom industries was sluggish. Now, with
the legal and regulatory certainty the Act provides, investors are flocking not
only to cable providers and incumbent monopolies, but also to competitive local
exchange carriers, wireless providers, and other telecom companies.
We at
AT&T believe that government policies that encourage entry and investment
by, and promote competition among, providers of broadband services promise
enormous benefits to all Americans. AT&T has embarked on a mission of
investing the widest possible deployment of broadband technology and services to
consumers. For us, broadband technology is not merely an effort to promote
high-speed Internet access, important though that is. Rather, we've always been
a communications company, and our plan is to use our broadband capabilities to
compete in local phone markets across the country, offering spirited competition
to the incumbent monopoly local exchange carriers - all resulting in lower
prices, better service, and more choices for millions of residential consumers.
Our actions in the marketplace are fulfilling the promise of the Telecom Act. We
will use cable technology to provide local phone service. We approach the issue
of the proposed Goodlatte-Boucher legislation from this perspective.
If we
have learned anything in the few short years that the Internet has become such
an important part of the fabric of our national life, it is this: we cannot
legislate technology. To do so would distort not only the workings of markets,
but the development of technology itself. Further, it would stifle investment -
the very investment that permits entrepreneurs to develop and market powerful
and innovative new technologies. Competition among technologies, as well as
among companies, will lead to the quickest possible deployment of broadband
services. We certainly hope that high-speed access to the Internet through cable
succeeds in the marketplace, but we know that will occur only through
competition among cable, satellite, and DSL providers.
Yet the proposed
legislation would violate the most basic antitrust principles by requiring
Federal courts to ignore the reality of intense rivalry among alternative
broadband technologies. It would thus discourage, rather than encourage,
investment and competition and harm rather than help consumers. Of course, any
attempt to replace the antitrust laws' traditional focus on case-by-case
consideration of the relevant markets and the competitive forces in those
markets with inflexible legislative determinations should be approached with
great caution. But this is especially true in markets characterized by rapidly
evolving technologies. There is simply no reason even to try to do so here.
Market forces, buttressed by existing antitrust laws and specially-tailored
regulatory protections - in particular, the Telecom Act provisions designed to
prevent the incumbent local telephone companies from extending or abusing their
monopolies - are a superior approach.
Since enactment of the Telecom Act,
AT&T has led the telecommunications and cable industries in investing
billions of dollars to upgrade cable facilities to provide Internet and local
telephone services - a risky proposition given that the dominant local telephone
monopolies and Internet providers have virtually all of the customers today. But
we and others are making those investments on the understanding that the
national policy embodied in the Telecom Act requires that we do our part to
foster the local phone competition that is the central promise of the Act.
Preserving competitors' incentives to make these investments is not simply
important in its own right. The mere announcement of our cable upgrades - and
particularly AT&T's unrivalled public commitment to short-term and
large-scale deployment - have, in turn, spurred the local telephone monopolies
and others to finally deploy the broadband technologies they have had sitting on
the shelves for years and, equally important, to enter into commercial
arrangements with Internet providers (notably AOL) to bring even broader choice
to consumers.
The proposed legislation, in contrast, would denying the cable
companies that have largely stimulated these vibrant market forces the right to
respond to market forces in balancing customer demands, technology constraints,
and legitimate network congestion concerns and in pursuing
commercially-negotiated arrangements of their own. Ironically, this could only
discourage both cable investments and the long-overdue competitive response to
those investments by today's dominant providers of Internet and local telephone
services.
That would be a very high price to pay, particularly given the
reality of the marketplace. Competition will ensure that consumer demands for
the services they want are met. Any cable provider that fails to offer customers
the services and choices they demand will simply lose in the marketplace.
AT&T recognizes this reality, and having committed more than $100 billion of
its shareholders' resources to acquire TCI and MediaOne and upgrade their cable
facilities, is fully committed to making sure that consumers are able to access
the content of their choice - a point our Chairman, C. Michael Armstrong, has
made publicly on numerous occasions. If we don't give consumers what they want,
they will simply go somewhere else - or, more precisely, given that we are just
getting started here, stay somewhere else, which is with the incumbent local
phone companies.
Thus, the question here is not whether cable systems will
be "open," but whether new facilities and services that offer the most viable
near-term hope for legitimate local competition should be allowed to develop in
accordance with customer demands and market forces - rather than through
protracted and costly litigation that will discourage the very investment
necessary to generate this rivalry and the ensuing consumer benefits.
The
remainder of this testimony is organized in two parts. First, it discusses why
we believe existing laws are more than adequate to address potential
anticompetitive conduct in the broadband area and that the proposed legislation
is fundamentally flawed. No new legislation is necessary to protect consumers of
broadband services. Moreover, the proposed legislation is fundamentally flawed
from the perspective of antitrust jurisprudence and economics. Second, we
believe the proposed legislation would in fact retard the rapid deployment of
broadband technologies both by placing unwarranted new regulatory constraints on
cable companies and by removing existing protections against anticompetitive
conduct by local telephone monopolies. By contrast, the best way to make sure
that all consumers have access to a variety of broadband technologies and
services, including both cable-based systems and systems provided by the local
telephone monopolies, iis to allow market forces, constrained by existing
regulatory protections, to continue working.
The Existing Antitrust Laws Are
Working
Regardless of one's perspective on the appropriate role of
government in the deployment of broadband, there would still remain many reasons
to oppose attempting to change the Federal antitrust laws in the manner proposed
in this legislation.
From the perspective of antitrust law and antitrust
economics, there are a number of serious shortcomings in this proposed
legislation.
First, this bill imposes an inflexible statutory definition of
the relevant "market" (the "broadband service provider market") which is
inaccurate at best and more generally inappropriate. In the normal course, under
well-developed case law, an antitrust plaintiff must prove that the defendant
has the power to control prices and output and exclude competitors in a relevant
market. The appropriate definition of the relevant market is thus the starting
point of traditional antitrust analysis. To determine what the relevant market
actually is, agencies and courts must consider the facts as to whether customers
have alternatives that effectively prevent a firm from raising prices or
limiting choice without losing business - in antitrust jargon, the
"elasticities."
This bill, in contrast, would foreclose the usual role that
economic realities and evidence play in this determination and force an
artificial definition of the market. Not only does the bill decree that
broadband services are the relevant market - even though broadband Internet
access services plainly compete with narrowband services today - the bill
further declares that the facilities of a single broadband access provider
constitute the relevant market. In essence, this bill would bypass relevant case
law and deem individual broadband networks to be "essential facilities" (i.e.,
those that are essential for competition in the relevant market) without finding
any ability to exercise monopoly power and notwithstanding that those seeking
access to such a network have alternative suppliers that can provide the same or
similar high-speed capabilities. This ignores long-developed precedent on the
essential facilities doctrine by asserting a presumption of a Sherman Act
violation based only on a broadband access provider's legitimate business
decision.
Problems with this statutorily-mandated definition will grow even
worse as technology evolves in the coming years and even more alternative for
communications and broadband technology appear in the market. Rather than
forcing Congress to perpetually revisit this question of the appropriate market
definition, therefore, the easier and more logical course is surely to preserve
traditional antitrust principles and analysis by letting administrative agencies
and courts determine the relevant market in any enforcement or damages action.
Second, the bill's proposed new procedural rules in antitrust suits
involving broadband Internet access threaten to sow considerable confusion and
lead to a litigation and regulation explosion. For example, Section 102 of the
bill establishes a presumption of a Sherman Act violation any time a cable
company that provides broadband Internet access seeks to negotiate terms and
conditions for access with one ISP that are in any way different from those
offered to any other ISP. But the legislation is silent as to how this would
work in practice. What does it mean to say this is a presumption? What evidence
would suffice to rebut it? What happens in Sherman Act cases after the
applicability of the presumption has been established. More fundamentally, the
procedure envisioned in the legislation would inevitably enmesh the Federal
courts in all 50 States in setting, overseeing and administering the rates,
terms, and conditions for interconnection between literally thousands of
broadband and Internet providers. This is certain to be extraordinarily costly
and cumbersome. It would also foreclose the very innovation that the antitrust
laws otherwise seek to foster by preventing new firms with new ideas from
investing in new approaches that may require different interconnection
arrangements.
Stated broadly, we are seriously concerned that the proposed
legislation would lead to sharply increased litigation, rather than healthy
industry competition. The bill creates the "presumption" of a Sherman Act
violation any time a broadband service provider merely offers more favorable
terms or conditions to one ISP. This presumption would apply without regard to
whether this access was the result of fair commercial bargaining between the
parties or the need of broadband service providers to recoup their investments.
In effect, the bill would establish a new cause of action for the more than six
thousand ISPs every time a broadband provider enters into an agreement with an
ISP.
Because the bill gives special advantages to plaintiffs, defendants
would have the scales tipped against them. As noted above, the legislation is
unclear regarding whether the presumption of a Sherman Act violation is
rebuttable and how defendants may challenge the presumption in court. It follows
naturally that accepted procedural devices for quick dismissal of meritless
litigation, such as motions to dismiss or motions for summary judgment, would be
difficult, if not impossible, for defendants to obtain. This would considerably
increase the costs of litigation for all parties, as even meritless claims could
proceed only to trial or settlement.
Finally, this bill marks a sharp
departure from the philosophy that has animated antitrust jurisprudence for over
a century. The Sherman Act was intentionally written in language that is
somewhat simple and general to ensure that courts have adequate flexibility to
respond to rapidly changing market conditions and to new economic developments
regarding the nature of the competitive process in particular markets.(1)
Moreover, courts have uniformly recognized that the Sherman Act is a law of
general application and is for the "protection of competition, not
competitors."(2) Historically, the Federal antitrust statutes have been laws of
general application. Accordingly, courts have generally rejected special, narrow
presumptions or exceptions. Similarly, Congress has appropriately rejected prior
legislative proposals suggesting specific presumptions or exceptions covering
the health care, transportation, and energy industries, even in the face of
asserted public health and safety rationales.
In sharp contrast, this bill
is written in industry-specific and frankly protectionist terms that are
contrary to the pro-competitive spirit of long-standing Federal antitrust laws.
Likewise, rather than giving competitors and courts the ability to respond to
new market conditions and to economic developments, it artificially dictates the
relevant market and decrees that each broadband provider's system is an
essential facility. Not only is this approach unprecedented, but the legislation
would prevent broadband access providers from demonstrating in court that actual
competition exists between or among different broadband companies and
technologies. In short, this bill would protect competitors at the expense of
competition.
Surely Congress cannot desire this result: to adopt this
legislation would retard the competition among technologies that lies at the
heart of innovation. Any new technology, by virtue of its newness, its challenge
to the established way of doing things, would be seen as a potential monopoly -
a strong deterrent to innovation.
Towards the Broadband Future
Of equal
importance to the consideration of the proposed legislation is the question of
whether this bill would further or retard an important public policy goal:
achieving the rapid deployment of all types of competing broadband technologies
to consumers. AT&T has a strong interest, shared by many on this Committee,
in ensuring that this broadband technology is deployed quickly and widely to all
types of consumers. Regrettably, this bill, while intended to spur the
deployment of advanced telecommunications services, would actually undermine the
pro-competitive policies of the Telecom Act in several important ways.
First, as explained above, competition, not regulation, provides the best
incentive for broadband deployment. In fact, had this
legislation already been enacted, we would not be witnessing the current
dramatic explosion in competition to provide consumers with high-speed Internet
access. Since cable companies have entered the broadband market, deployment of
all types of advanced broadband services has skyrocketed. While DSL broadband
technology has been around for years, the RBOCs and GTE began stepping up their
deployment and lowering their prices only in response to the emerging
competition from CLECs, cable companies, wireless, and satellite providers.
The FCC has noted that investment in broadband facilities by cable operators
and CLECs "spurred incumbent LECs to construct competing facilities."(3) Wall
Street analysts have likewise observed that competition from cable and CLECs is
the primary force spurring incumbent LECs to increase their investment.(4) This
appears to be the case in markets around the country, where the ILECs have
lowered their prices and expanded their coverage areas in response to the entry
of competitors.(5)
Indeed, four RBOCs (SBC, BellSouth, U S WEST and Bell
Atlantic) and GTE expect to be able to offer DSL service to over 31 million
homes in their regions by the end of this year. Competition keeps driving
deployment ever faster and prices ever lower. For instance, in January 1999, SBC
accelerated its deployment timetable by two years and reduced its price for 384
kbps DSL service about 30% to $39 per month. Likewise, in May 1999, U S WEST
dropped its price for 256 kbps DSL service 25%, to only $29.95 per month, making
it a much more attractive offering.
Particularly since AT&T
announced its intent to use cable systems to provide high speed Internet access,
deployment of all types of advanced broadband services has skyrocketed. Having
amassed a dominant share of Internet subscribers while ignoring demand for
broadband Internet access for years, AOL has now announced a series of
initiatives with the RBOCs to provide high speed access over telephone lines.
Likewise, AOL has just announced a venture with Hughes to deliver broadband
service via satellites.
Second, the proposed legislation would directly
undermine the pro- competitive policies of the Telecom Act that have accelerated
investment in new state-of-the-art local networks. As a direct consequence of
the landmark Telecom Act, over 150 competitive local exchange carriers (CLECs)
are in business today, providing new jobs and investing billions of dollars in
the Nation's telecommunications infrastructure.
This progress, however, has
not come quickly or easily and has still not brought meaningful local
competition to the overwhelming majority of Americans. Rather than complying
with the Act's market-opening requirements, the incumbent local exchange
carriers (ILECs) have opted to delay the onset of local competition by
challenging the constitutionality of the Act and appealing almost every state
and FCC decision adverse to their interests, or by simply refusing to do what
the Act plainly requires. The ILECs continue to control 97% of their local
markets, and the very popularity of second lines devoted to data services has
only served to reinforce this level of market dominance. Thus, new entrants and
competitive companies continue to face an uphill battle as they work and invest
to make local competition a reality.
After almost three full years of
litigation, having now failed in that effort, the RBOCs and GTE are now asking
Congress to reward their recalcitrance by making exceptions in the Act for the
provision of data services, including across LATA (local access and transport
area) boundaries. They claim that this legislative "relief" is needed to foster
broadband deployment.
Yet this claim is based on several
false premises.
First, the Act is technologically neutral; its
pro-competitive policies apply equally to both voice and data. Recognizing that
Americans deserve a competitive choice both when they use the phone and log on
to a computer, Congress made no distinction between voice and data traffic in
the Act. The Act, like the 1984 antitrust decree before it, encompasses all
telecom services, and already provides the relief the ILECs seek - when they
open their local monopolies to competition.
Second, granting "limited"
relief covering data is functionally equivalent to granting total, unconditional
relief from the requirements of Sections 251 and 271 to the ILECs. Over half of
today's telecommunications traffic is data, and data traffic is growing at 30%
per year, according to the Dataquest research firm.(6) Another estimate has data
"outgrowing voice 15:1," noting that "90% of data is long-haul rather than
local."(7)
In addition - as the ILECs well know - with the advent of
Internet Protocol (IP) technology, the distinction between "voice" and "data"
traffic, already blurred, is quickly disappearing. Indeed, voice and data are
transported over the same network, not two distinct networks. As an SBC
executive recently stated, "DSL is a bigger deal than high- speed access to the
Internet; it's about renewing our networks."(8) This view is supported by
industry analysis: one report affirms that "(t)he telecommunications industry is
making a fundamental shift from circuit switched voice networks with data
overlays to packet switched data networks with voice overlays."(9) Thus,
although the proposed legislation would exclude voice-only services from this
LATA relief, the reality is that under today's technology, there may be no such
thing as a voice-only service.
Far from fostering broadband
deployment in rural and other underserved areas, this legislation would
actually hinder it. The ILECs have argued that legislative action is necessary
for the deployment of broadband in rural areas. In actuality, however, large
incumbent monopoly carriers have been abandoning their rural customers and
selling off rural lines. U S WEST and GTE, in particular, have been active in
selling off small rural exchanges to concentrate on urban and suburban markets;
U S WEST alone has sold over 400 rural exchanges since 1994, while GTE is
currently shedding 1.6 million lines, including all of its wireline exchanges in
Alaska, Arkansas, Arizona, Iowa, Minnesota, Nebraska, New Mexico, and Oklahoma.
Notably, one securities analyst noted observed that "(w)e believe the large
ILECs would be inclined to divest more rural properties if they judged that they
could do so without political fallout."(10) All this raises serious questions
about the commitment of the RBOCs and GTE to serving rural customers, with or
without the relief they seek in this legislation.
Moreover, the scope of
this legislation is not limited to rural areas. For example, provisions in the
legislation would bar competitors from leasing DSL-equipped lines from the
incumbents, limiting their ability to compete at all in rural or other areas.
Conclusion
In short, the market, properly constrained by existing antitrust
and regulatory protections, is working. Incumbent carriers are already
responding to the pressure of even modest market entry by new competitors, and
the benefits of this rivalry can only accelerate as new entry becomes more
significant. In these circumstances, the proposed bill can only do harm.
Government should not tamper with this evidence of a market that is working.
Experience has shown that the best way to encourage broadband
deployment is to encourage and ensure competition for local monopolies
and Internet giants. In short, the Act is beginning to work just as Congress
intended; now is not the time to reopen the Act.
We respectfully urge this
Committee to promote quick and wide deployment of broadband technologies in the
best way possible: by standing with the Act and existing antitrust laws and
opposing efforts such as this legislation to rewrite them in furtherance of
narrow interests that are in direct conflict with the public good.
NOTES:
1. 0 "The Sherman Act was designed to be a comprehensive charter of economic
liberty aimed at preserving free and unfettered competition as the rule of
trade. It rests on the premise that the unrestrained interaction of competitive
forces will yield the best allocation of our economic resources, at the lowest
prices, of the highest quality and the greatest material progress, while at the
same time providing an environment conducive to the preservation of our
democratic, political, and social institutions. But even were the premise open
to question the policy unequivocally laid down by the Act is competition."
Northern Pacific Railway v. U.S., 356 U.S. 1, 4 (1958).
2. 0 Brown Shoe Co.
v. United States, 370 U.S. 294, 320 (1962).
3. 0 706 NOI Report -- 42 &
n.84.
4. 0 E.g., J.P. Morgan Report titled "DSL: the Bells Get Serious: 1999
Promises to be the Year of DSL Deployment, March 19, 1999: "We detect a dramatic
change in the attitude of the local phone companies toward DSL deployment(T)here
are several forces driving the local phone companies to accelerate their DSL
deployment. Most notable is the rollout of cable modems by cable companies"
5. 0 See, e.g., Mike Farrell, PacBell to Lower DSL Rates in Calif.,
Multichannel News, November 23, 1998. In other markets where cable operators
have initiated broadband service, the incumbent carriers quickly followed suit.
For example,
Home launched service in San Francisco in September 1996 and
San Diego in May 1997, and Pacific Bell followed in November 1997 and September
1998, respectively. See Pacific Bell's ADSL-Internet Access Packages Now
Available to 180 California Communities (visited March 18, 1999)
(http://www.sbc.com/PB/News). Likewise, after Home launched service in Phoenix
in May 1997 and Denver in June 1998, US WEST followed in October 1997 and June
1998, respectively. See US WEST Launches Ultra- Fast DSL Internet Service in
Twin Cities; Continues Roll Out (visited March 18, 1999)
(http://www.uswest.com/com/insideusw/news/051398b.html).
6. 0 Kenneth Kelly,
"The Shift to Data by Two Major U.S. Suppliers," Dataquest, Sept. 14, 1998.
7. 0 Jack Grubman, "Review of Our Position on RBOCs: SBC & BEL will
create most value," Salomon Smith Barney, March 9, 1999.
8. 0 Andrew Brooks,
"SBC Accelerates Plans for High-Speed Net Lines," The Dallas Morning News, June
16, 1999, at 4D.
9. 0 Kenneth Kelly, "The Shift to Data by Two Major U.S.
Suppliers," Dataquest, Sept. 14, 1998.
10. 0 Michael J. Balhoff, CFA, and
Tina T. Heidrick; "Harvesting New Value: The Rural Local Exchange Industry,"
Legg Mason Equity Research, Spring 1999, at 16.
END
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