Copyright 2000 Federal News Service, Inc.
Federal News Service
July 18, 2000, Tuesday
SECTION: PREPARED TESTIMONY
LENGTH: 4261 words
HEADLINE:
PREPARED TESTIMONY OF ROBERT SACHS PRESIDENT AND CEO NATIONAL CABLE TELEVISION
ASSOCIATION
BEFORE THE HOUSE COMMITTEE ON THE
JUDICIARY
SUBJECT - H.R. 1685, THE "INTERNET GROWTH AND
DEVELOPMENT ACT" AND H.R. 1686, THE "INTERNET FREEDOM ACT"
BODY:
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. NCTA represents cable
companies serving more than 90 percent of the nation's 68 million cable
customers and more than 200 cable program networks. Thank you for providing me
with this opportunity to express the cable industry's views on H.R. 1685, the
"Internet Growth and Development Act," and H.R. 1686, the "Internet Freedom Act"
introduced by two distinguished members of this committee, Congressmen Boucher
and Goodlatte. OVERVIEW
NCTA strongly believes that H.R. 1685 and H.R.
1686 are unnecessary and unwarranted in light of developments in the broadband
market, where multiple providers are competing to provide a variety of high-
speed data services to our nation's consumers. In this robust marketplace, the
largest cable operators - including AT&T, Time Warner, Comcast, and Cox
Communications - have already committed to providing their customers with a
choice of Internet Service Providers (ISPs). While these two bills purport to
encourage the growth of the Internet, they would in fact impede its development
by: (1) imposing undefined - and inevitably complex and burdensome - access
obligations on new entrants; and (2) hindering investments in high-speed cable
services. H.R. 1685 and H.R. 1686 also undermine the policies contained in the
Telecommunications Act of 1996 - landmark legislation that successfully promoted
competition over regulation and took the administration of telecommunications
policy (especially the fate of the RBOCs) out of the hands of antitrust courts.
THE BROADBAND MARKET IS BOOMING: THERE IS NO BOTTLENECK
Recent
deployment of broadband technology has been explosive, as the attached study
from Kagan Media Appraisals demonstrates.(1) Cable operators have led the way in
deploying the broadband facilities necessary to provide high-speed Internet and
data services, but they have been joined by virtually all segments of the
communications industry. ILECs, CLECs, satellite operators, wireless service
providers, public utilities, broadcasters, and overbuilders like RCN are
investing tens of billions of dollars to accelerate their own deployment of
high-speed facilities and services in order to respond to competitive market
pressures. The number of customers for all broadband services (cable, DSL,
satellite, and wireless) grew 210 percent from 1998 to 1999, with a 238 percent
increase expected in 2000 (from 1.8 million to 6.1 million customers). In major
markets, consumers can choose from among at least 10 different service
providers.(2)
Since passage of the Telecommunications Act of 1996, the
cable industry has invested approximately $36 billion to
upgrade its facilities, offer digital services, and provide high-speed access to
the Internet. The industry currently serves about 2.5 million cable modem
customers(3) and expects to add another 1.1 million during the second half of
this year, for a total of 3.6 million by year's end.(4) And cable modem
customers are just one click away from any site on the web.
Despite our
growth, cable companies are new entrants in the Internet business. Cable modem
service today accounts for approximately five percent of all Internet access in
the U.S. Cable modem penetration also averages about five percent in households
where cable Internet service is available.
Although cable was an early
leader in the broadband sector, we are not alone. In particular, cable's efforts
have spurred a competitive response from the telephone industry, which is
investing heavily in the deployment of Digital Subscriber Lines (DSL). The DSL
services offered by Local Exchange Companies and CLECs attracted 390,940 new
high-speed data customers in 1999 - more than a ten-fold increase over 1998 -
for a year-end total of 420,940 customers.(5) Combined, the Regional Bells ended
1999 with 36.5 million DSL-ready lines, which represents nearly a quarter of the
171 million phone lines in the United States. Some analysts predict that demand
for DSL will overtake deployment of cable modems by 2002.(6) Examples of
specific DSL offerings include:
US West As of January 1, 2000, US West
had more than 100,000 users in the 14 states where it provides service. US West
has 5 competitors in Utah, where it began service in 1998: Covad, Jato
Communications.net, Rhythms, RMI.net and Northpoint (Vince Horiuchi, "Companies
Lining Up to Provide High-Speed Internet Access." The Salt Lake Tribune,
Saturday, January 1, 2000, p. D1). US West offers residential service for as
little as $37/month (Vince Horiuchi, "Companies Lining Up to
Provide High-Speed Internet Access." The Salt Lake Tribune, Saturday, January 1,
2000, p. D1). US West is deploying DSL service in 30 cities in Arizona, Idaho,
New Mexico, Nebraska, Oregon, South Dakota, Utah, Washington, and Wyoming (TR
Insight, Advanced Services, June 19, 2000).
SBC Communications SBC has
made DSL service available to 14 million homes in its service area and had
201,000 DSLs in operation at the end of March 2000. SBC hopes to offer its
high-speed service to more than 18 million homes and businesses by the end of
2000 (Patricia Fusco, "SBC Offers DSL Installation Kits." InternetNews - ISP
News, July 5, 2000). SBC plans to spend more than $6 billion on
"Project Pronto" to extend DSL service to 80 percent of its customer base in a
13-state region by the end of 2002. SBC hopes to have more than 1 million DSL
subscribers by year's end (Ted Sickinger, "Southwestern Bell to Build DSL
Gateways." The Kansas City Star, Friday, June 30, 2000, p. C1). In another move
to unleash Project Pronto, SBC began offering self- installation kits on Monday,
July 3, 2000, to make high-speed Internet access simple. The kit will also be
made available to partners who are reselling SBC's service (Patricia Fusco, "SBC
Offers DSL Installation Kits." InternetNews - ISP News, July 5, 2000). SBC cut
monthly DSL residential charges by $10 to
$39.95 and eliminated installation fees to keep customers and
to lure more subscribers (Peronet Despeignes, "Phone Companies Launch
Super-Speed Internet in Mich." The Detroit News, Thursday, February 24, 2000, p.
2B).
Fixed wireless and satellite providers have also made great strides
in delivering broadband services during the past year. Sprint has begun to roll
out its broadband fixed wireless service and expects to deploy its Sprint
Broadband Direct service in ten to fifteen cities by the end of the year.(7)
Sprint projects that it will be able to reach 30 percent of all households in
the United States.(8) FCC Chairman Kennard has pointed out that fixed wireless
brings more competition to the phone business and can hasten the deployment of
high-speed Internet access in rural areas.(9)
Broadband satellite
services are also becoming more accessible.
For example, by next year,
there will be several competing interactive broadband satellite services
available. Gilat-To-Home, in partnership with EchoStar, will begin offering
two-way service this year as will DirecPC (DirecTV's high-speed Internet
service),(10) while iSky will offer interactive service by the end of 2001.
These national broadband services will offer even the most rural areas high-
speed access to the Internet. And we are also seeing efforts by consortia like
Geocast to use the broadcasters' digital television spectrum to offer new
competition to broadband providers.
Just as consumers can choose among
autos, trains, buses, and planes to get to their geographic destination, they
can choose among cable, DSL, fixed wireless, and satellite to connect to the
Internet.
Prices for Broadband Services Are Falling
Dramatic
reductions in price for broadband services and innovative service offerings are
further evidence that the market is working. For example, Verizon
Communications, formed by the merger of Bell Atlantic and GTE, recently
announced that it has cut prices for its high-speed DSL service by 20 percent in
certain regions.(11) Similarly, SBC has announced that customers who sign
two-year contracts for its DSL services will receive free Compaq personal
computers.(12) These price reductions and marketing campaigns are a direct
response to cable's broadband efforts and the perception, which I believe to be
correct, that the market is going to become even more competitive in the future.
REGULATION IS UNNECESSARY AND COUNTERPRODUCTIVE
In this dynamic
environment, access regulation is neither necessary nor warranted. It is in a
cable operator's business interest to provide consumers a choice of ISPs.
Providing such choice will give cable modem customers additional e-mail
services, customer service support, and web page tools. (As I mentioned earlier,
cable modem customers today can access any Internet content they wish. Some on-
line service providers charge extra for their content; most provide it for free.
That is a decision made by the content provider, not the cable operator.)
On the other hand, government-mandated access would be
counterproductive. Imposing burdensome regulatory requirements on new entrants
would result in increased costs and market uncertainty, which would in turn make
it difficult for companies to attract the capital they need to fund the
construction of broadband facilities. Cable companies in particular are raising
substantial funds necessary to upgrade their facilities in the private capital
market. The $36 billion our industry has spent since 1996 to
rebuild our networks is just the beginning. Upgrading one-way cable networks to
two-way hybrid fiber coaxial (HFC) networks to carry digital video, voice, and
data is a massive construction undertaking. These investments are risky and lack
a guaranteed return. Cable's ability and incentive to continue the rollout of
broadband facilities and services is closely linked to a stable regulatory
environment that promotes investment and rewards risk-taking.
Government-mandated access requirements would also weaken the forces
driving investment by others in new facilities. Cable's investment in broadband
has served as a powerful competitive spur to the incumbent telephone companies
and other facilities-based providers, multiplying the benefits of this
investment across various platforms and driving down prices. For example,
digital subscriber line (DSL) technology has been around for years. However,
until three years ago - when cable operators began to offer high-speed data
services - GTE and the Bell companies were reluctant to roll out a technology
that would cut into the lucrative sales of T-1 lines (which cost customers
thousands of dollars a month) and ISDN circuits. The ILECs were also happy to
sell consumers second phone lines for dial-up Internet access, rather than
enhancing existing lines with DSL.
Cable broadband - and the Bell
companies' subsequent efforts to respond by accelerating DSL deployment - have
now substantially reduced data transmission costs and eliminated the need for
second phone lines - all to the benefit of consumers. By slowing cable's
investments in broadband facilities and services, government-mandated access
would deprive consumers of this valuable competitive spur.(13)
Cable is
Offering Access to its Networks on its Own
Government-mandated access is
particularly unnecessary in light of the commitments by AT&T, AOL/Time
Warner and other cable operators to provide their customers with a choice of
Internet service providers. While cable modem service is still very new, and
cable companies are still in the process of rebuilding their networks to offer
broadband services, the trend is clear: cable operators are developing various
business models to provide consumers with a choice of Internet access. Not every
cable operator is at the same stage in terms of system upgrades or
broadband deployment, and cable operators are still figuring
out technically how best to accommodate multiple ISPs. Significantly, however,
the two largest cable operators, AT&T and AOL/Time Warner (who together
account for nearly half the cable subscribers in the U.S.), have already
detailed in writing their commitment to consumer choice. AT&T will soon
begin technical trials in Colorado to test how multiple Internet service
providers can offer high-speed, always-on cable Internet service over a hybrid
fiber- coaxial network. These developments - driven by market forces and
spirited encouragement from several members of this committee - remove any
argument for forced access legislation.
CRITIQUE OF H.R. 1685 AND H.R.
1686
H.R. 1685 and H.R. 1686 would amend the antitrust laws to create
new grounds for civil action in federal court. They would establish a
presumption that the antitrust laws are violated when a "broadband access
transport provider" (such as a cable operator, satellite system, telephone
company or a broadcaster using digital spectrum for data transmission) offers a
service provider access to its high-speed plant on terms or conditions that are
less favorable than those it offers to any other ISP. The bills also make
unlawful any unfair methods of competition or unfair or deceptive acts or
practices which would discriminate in favor of an ISP that is affiliated with a
"broadband access transport provider" or which "restrains unreasonably" an
unaffiliated ISP from competing with the transport provider or its affiliate.
In addition, these bills would remove the "interLATA restriction" (line
of business restriction) which limits the RBOCs' provision of advanced services
and voice services across LATA boundaries. The bills would remove the
restrictions for advanced (data) services but not for voice services and would
otherwise deregulate advanced services provided by the RBOCs.
Problems
with H.R. 1685 and H.R. 1686 include the following: These bills would slow
cable's deployment of broadband facilities.
The "forced access"
provisions of these bills would impose undefined and burdensome regulations on
new providers of Internet access and lead to expensive and lengthy litigation
while courts try to define what the terms in the legislation mean. They would
also encourage ISPs to bypass marketplace negotiations in favor of using the
courts to force their way onto cable and other broadband platforms. The
resulting costs, delays and uncertainty will make it difficult for companies to
attract the capital needed to upgrade their facilities. Forced access
requirements would defeat two of the main goals of the 1996 Telecommunications
Act. The 1996 Act sought to promote competition and the delivery of new advanced
services through deregulation. H.R. 1685 and H.R. 1686 would impose burdensome
regulatory and pricing requirements on broadband providers, hinder competition,
and slow the delivery of high-speed Internet access to consumers. The 1996 Act
sought to take the administration of telecommunications policy and the fate of
communications companies out of the hands of the antitrust courts. H.R. 1685 and
H.R. 1686 create a new and unnecessary cause of action under the Sherman
Antitrust Act which encourages civil suits and would throw the cable industry
into the hands of antitrust courts for many years of protracted litigation.
- Even without forced access provisions, these bills would re-open the
1996 Telecommunications Act , which is a bad idea. Reopening the Act is not
needed to - and will not - speed deployment of broadband. The 1996 Act is
working as intended - widespread broadband deployment by cable,
telephone companies, and others is underway. CLECs and the RBOCs have responded
to cable by accelerating their own deployment. Moreover, the line of business
restrictions has not impeded RBOC deployment of high-speed data services.
Reopening the Act will create regulatory uncertainty and slow deployment
of broadband services. Changing investor expectations mid- stream will increase
the cost of capital and reduce the willingness of investors to risk money on the
deployment of new services and technology. Reopening the Act is unnecessary to
deregulate the RBOCs. The 1996 Act already lays out a path to for the
deregulation of the RBOCs: if they meet the terms of the interconnection
checklist (Section 271) - terms which the RBOCs endorsed - the line of business
restrictions will be lifted. Bell Atlantic has entered the long distance
business in New York, as has SBC in Texas. Reopening the Act could lead to
unintended results. Drafting and passing the Telecommunications Act of 1996 took
three years and two Congresses to accomplish, and resulted in three years of
litigation. Now that the lawsuits surrounding Title II have finally been
settled, it would be wise to allow the Act to work - as the current economic
expansion in the United States proves it is doing.
As Professor Einer
Elhauge of the Harvard Law School commented in his Analysis of the Proposed
Internet Freedom Act (released October 12, 1999):
The avowed purposes of
the Internet Freedom Act are to increase competition, consumer choice, and
freedom from regulation. (H)owever well-intentioned, this Act can be expected to
have the opposite effect: reducing competition in broadband services, harming
consumers, and requiring a massive increase in government regulation. These
counter-productive effects seem particularly unnecessary because antitrust law
already stands ready to police any genuinely anti- competitive practices. The
proposed Act, in contrast, would sweep well beyond existing antitrust law, and
in the name of protecting competition would perversely hinder it.(14)
Professor Elhauge's white paper, which NCTA supplied to members of this
committee last October, supports the Federal Communications Commission's
findings to date that government regulation of cable's broadband Internet
services is unnecessary, would slow deployment, and would be harmful to
consumers. The white paper concludes: Requiring the cable companies to share any
broadband capacity they create with other firms at regulated prices will
discourage investment in creating broadband capacity at all. In short, although
the Proposed Act has the aspiration of getting the "FCC out of the business of
regulating the Internet," it does so by massively involving antitrust courts in
price regulation, and state regulators in investment regulation. The Proposed
Act is thus not truly de-regulatory, but rather creates a huge increase in
regulation in a different form. This regulation would harm competition and
consumers.(15)
SEVERAL STUDIES ON THE DEPLOYMENT OF BROADBAND ARE
UNDERWAY
The deployment of broadband facilities and the development of
commercial arrangements for ISP choice are proceeding under government's
watchful eye, addressing any concern that these trends may not continue their
present course. For instance, the General Accounting Office is currently
studying how competition is developing in the market for Internet access
services, including the development of consumer choice of Internet access. The
GAO expects to release its report in October 2000. Furthermore, the Federal
Communications Commission, pursuant to its statutory obligation under Section
706 of the Telecommunications Act of 1996, is about to complete its second
annual inquiry into the deployment of advanced telecommunications capabilities.
The Commission also recently implemented a data collection program to enable it
to assess the state of local telecommunications competition and
broadband deployment. The results of these studies and
monitoring efforts will give the public and policymakers a detailed picture of
broadband deployment and competition.
In addition, the
FCC announced on June 30, 2000, its intention to undertake a proceeding to
address some questions raised by the recent U.S. Court of Appeals decision in
the Portland case.(16) As you know, that decision held that local franchising
authorities do not have jurisdiction to impose forced access conditions on cable
franchisees. In so doing, the Court affirmed the cable industry's view that
regulatory policies involving the Internet should be a matter of national
telecommunications policy. Recognizing the FCC's jurisdiction and expertise in
this area, the Court stated:
Thus far, the FCC has not subjected cable
broadband to any regulation, including common carrier telecommunications
regulation. We note that the FCC has broad authority to forbear from enforcing
the telecommunications provisions if it determines that such action is
unnecessary to prevent discrimination and protect consumers, and is consistent
with the public interest. See 47 U.S.C. S 160(a). Congress has reposed the
details of telecommunications policy in the FCC, and we will not impinge on its
authority over these matters.(17)
To date, the Commission has set a
national policy of regulatory restraint. We welcome the proceeding announced by
Chairman Kennard and look forward to the Commission's clarification of questions
raised by the Ninth Circuit decision.
WHY ARE THE RBOCs LEADING THE
FORCED ACCESS CAMPAIGN?
Why have the Regional Bell companies and GTE
been leading a campaign to force cumbersome government regulation on cable
operators when the phone companies are building their own competing high-speed
Internet access facilities that do not depend on cable?
We think that
the answer is to derail cable as the only real facilities-based competitor for
integrated voice, video, data and Internet services. Incumbents like SBC and
GTE/Bell Atlantic still control 98 percent of all local residential telephone
service and have fought endlessly to protect their dominant market share.
Following passage of the Telecommunications Act of 1996, GTE filed suit against
more than a dozen state public service commissions and the FCC in a bid to delay
competition in their local markets for as long as possible. Cable companies are
among the most vigorous competitors of the ILECs in the provision of local phone
services. In places like Atlanta, Boston, Chicago, Long Island, Minneapolis-St.
Paul, and San Diego, where cable operators are starting to provide local phone
competition, cable charges significantly less than the incumbents.
To
the extent that the ILECs compete with cable by speeding up DSL deployment and
lowering prices, that is good for the public and a tribute to Congress's passage
of the 1996 Telecommunications Act. But when the ILECs seek to maintain their
towering market share - and use it to move into new businesses like Internet and
video without fear of effective competition - by asking the government to saddle
cable operators with requirements that would slow the deployment of competitive
high-speed Internet service and telephony, that is bad for the public and
contrary to the purposes of the 1996 Act.
CONCLUSION
The
pro-competitive policies adopted by Congress in recent years have provided a
foundation for growth and innovation in communications markets. Congress's
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 to these competitive markets, as H.R. 1685
and H.R. 1686 would do, will only impede broadband deployment
and hinder the development of competitive Internet and telephone services.
FOOTNOTES:
1. Kagan Media Appraisals, "The State of Broadband
Competition: An Analysis of Cable, Telco DSL, Fixed Wireless and Satellite
Competition for High-Speed Data Services, 1999-2000," March 2000.
2.
Id., p. 25.
3. Paul Kagan Associates, Inc., Broadband Technology. April
30, 2000, No. 273, p. 1.
4. Op. Cit., p. 6.
5. Id., p. 8.
6. Kelsey, Dick, "Report - DSL Will Overtake Cable"; Newsbytes, July 5,
2000. Grice, Corey, "DSL Could Pull Ahead in High-Speed Race;" CNET News.com,
March 1, 2000.
7. Patricia Fusco, "Sprint Wireless Leaps Past Last-Mile
Broadband Limits," InternetNews.com (May 8, 2000) <www.internetnews.com>.
8. Id.
9. "We've Come Unplugged: Speedy Wireless Access to Net
Connects with Firms, Customers;" USA Today, Wednesday, February 23, 2000, p. 1B.
10. Jim Hu, "AOL Speeds Towards Satellite Service," CNETNews.com (May
31, 2000) <http://news.cnet.com>.
11. Corey Grice, "Verizon
Communications Cuts DSL Prices," CNETNews.com (July 6, 2000)
<http://news.cnet.com>.
12. Deborah Solomon and Scott Thurm; "SBC
to Give PCs to Internet Customers," Wall Street Journal; July 10, 2000; p. B8
13. This is true whether that regulation takes the form of federal,
state, or local forced access requirements or revisions to the antitrust laws to
prohibit vaguely defined "anticompetitive behavior" by broadband providers. An
amendment to the antitrust laws expanding the definition of "anticompetitive
behavior," for instance, would lead to extensive litigation in which the courts
would have to define which business practices were "unfair" or "deceptive." The
resulting uncertainty would stifle the deployment of broadband facilities and
services.
14. Executive Summary, p. 1.
15. Id., p. 4.
16. On June 22, 2000, the U.S. Court of Appeals for the Ninth Circuit
held that local franchise authorities (LFAs) may not require cable operators to
permit multiple ISPs to use their high-speed facilities. The decision reverses
the federal district court decision in the Portland case which held that LFAs
could impose such "forced access" conditions.
17. AT&T v. City of
Portland, No. 99-35609 (9th Circuit, June 22, 2000).
END
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