Copyright 1999 Federal News Service, Inc.
Federal News Service
JUNE 30, 1999, WEDNESDAY
SECTION: IN THE NEWS
LENGTH:
5117 words
HEADLINE: PREPARED TESTIMONY OF
MICHAEL
SALSBURY
EXECUTIVE VICE PRESIDENT AND GENERAL COUNSEL
MCI WORLDCOM, INC.
BEFORE THE HOUSE JUDICIARY COMMITTEE
BODY:
Good morning. Thank you,
Chairman Hyde, and members of the Committee, for the opportunity to speak to you
today about the far-sightedness of the Telecommunications Act of 1996, why that
landmark statute is so much more than just a short-term experiment, and why it
should be preserved just as important benefits to consumers are being realized.
In particular, the provisions of H.R. 1685 and H.R. 1686 that would permit the
Bell Companies to offer interLATA service before opening their local networks to
competition would break Congress' 1996 promise to consumers, and to the telecom
industry, to bring competition to one of the last remaining monopolies in
America -- the local telephone market. These bills offer a legislative solution
to a non-existent problem, while ignoring the real problem: that three years
after the fact, the local markets for voice and data services are not yet open.
The solution to that very real problem is vigorous enforcement of the law
Congress already has enacted, not new legislation seeking to reverse the
pro-competitive provisions applicable to the local telecom markets.
I am the
Executive Vice President and General Counsel of MCI WorldCom. In addition to
being a large long distance carrier, MCI WorldCom is the largest of the
facilities-based competitive local exchange carriers ("CLECs") and, through its
UUNET subsidiary, is one of the world's largest Internet Service Providers
("ISPs"). More than anything else, except perhaps the singular vision and
concerted efforts of entrepreneurs like Bill McGowan and Bernie Ebbers, MCI
WorldCom owes much of its success -- and, indeed, its very existence -- to this
nation's open and competitive telecommunications markets. These markets did not
simply spring to life unassisted. It took the hard work of a whole host of
policymakers -- from Congress, to the Reagan Justice Department, to the FCC, to
a tenacious district court judge -- to pry open the previously closed,
monopolistic markets for long distance services, information services, and
telecommunications equipment. If nothing else, this history demonstrates that
free markets do not always become free on their own. Often, government has a
critical role to play in creating the necessary structure and ground rules that
allow previously-closed markets to flourish with full competition.
The
Telecommunications Act enhanced this legacy of competitive long distance
telecommunications and information service markets by mandating the end to
monopoly in the local market as well. Congress could have simply enacted, by
itself, what is now Section 253 of the Act, which requires the state and local
governments to remove barriers to entry in the telecommunications markets. But
Congress wisely chose to go far beyond that simplistic approach. The '96 Act
begins, as it must, by acknowledging the fundamental and undeniable advantages
of local carrier incumbency -- from massive economies of scale and scope, to
pervasive company name recognition. In order to break the local phone companies'
chokehold over the infamous "last mile" to and from nearly every home and
business in America, Section 251 of the Act creates multiple pathways for
competitive providers to enter the local market. Whether on a pure facilities
basis, or through unbundled network elements ("UNEs"), or through resale, the
Act leaves it up to the individual competitor to select the most appropriate
business model -- and then, simply, compete. The genius of the Act is that, once
the incumbent LECs carry out their statutory obligations, many competitors will
be able to use these pathways to devise new and innovative ways to provide
low-cost, beneficial services to consumers.
Of course, it isn't quite as
simple as that. Breaking the entrenched monopoly over the last mile is a
formidable challenge to even the most nimble competitor. This is not surprising;
after all, stretching back to the early 1980s, when the Reagan Justice
Department crafted the landmark antitrust settlement decree that would become
the Modified Final Judgment (MFJ), it was well understood that the Bell
Companies and GTE, left to their own devices, would do what any other business
in their enviable position would do, namely, through a variety of
anticompetitive practices, to first, foreclose competition in their own markets,
while second, extend their monopolies into adjacent markets, such as long
distance and information services. As a result, the MFJ created a virtual wall
of separation between the Bell Companies' monopoly local services -- viewed by
many then as a natural monopoly -- and the newly-competitive world of long
distance services, information services, and customer premises equipment. The
Bell Companies were forbidden to enter that competitive world unless and until
they could demonstrate they would cause no significant harm to competition.
Now, fully fifteen years after the MFJ was first put into place, it is safe
to say that the long distance market is robustly competitive. At last count,
over twelve hundred companies -- from giants like AT&T, to mid-sized
national facilities-based carriers, to the smallest resellers -- are busily
competing head-on to provide every conceivable option in long distance services.
Long distance rates have plummeted more than seventy percent in that span, and
are falling further all the time. Where the Sunday afternoon phone call to a
distant relative once was viewed as a momentous and wallet-sapping proposition,
today MCI WorldCom charges only a nickel per minute. Innovations such as
competitive collect calling services and "10-10" services also have been
developed. It is a similar success story with regard to the telecommunications
equipment and information services.
In passing the Telecommunications Act,
Congress both recognized the salient pro-competitive lessons of the MFJ, and
sought to go beyond them. It was no longer taken as gospel that consumers could
never enjoy the fruits of competition in the local telephone market. Instead,
Congress directed the FCC to establish rules that would end one of the last
remaining monopolies in this country. In return, once the Bell Companies
complied with those market-opening rules, they would no longer be limited by the
long distance restrictions first imposed on them as part of the MFJ. Instead,
the Bell Companies would be permitted to provide all long distance services --
including interLATA services -- within their home regions. It should be noted
that, from day one, the Act has allowed the Bell Companies to provide local and
long distance services anywhere outside their home regions, a significant
opportunity that none of them has chosen to pursue. The Bell Companies hold the
keys to long distance in their own hands -- once they decide to comply with the
law, the remaining interLATA restrictions will be gone.
As with the breakup
of AT&T, it has taken concerted action by policymakers to bring competition
to a local telephone market where none has existed before. And, while the final
battle over monopoly is far from won, at least we can see promise of victory
from where we stand. As just one example, today there are 146 facilities-based
CLECs, serving some 4.4 million customers. This compares to just 13 competitive
local carriers before the Act was enacted into law.
Through the
Telecommunications Act, Congress provided the critical tools designed to ensure
that access to last mile facilities is made available to competitors. Congress
rightly recognized that only competition delivers the best technologies, the
best service, and the best prices to consumers. Thus, Section 251(c) requires,
among other things, that incumbent LECs provide access to their network elements
on an unbundled basis at cost-based rates. In this manner, the '96 Act ensures
that new entrants will be able to use the incumbent LECs' local network where
necessary, and that consumers would have the maximum possible competitive
choices.
Competitors are obligated to pay the ILECs for every element,
facility, and service they use. In MCI WorldCom's view, Congress struck just the
right competitive balance three years ago. We have endured three long years of
protracted litigation, which ultimately has culminated in the U.S. Supreme Court
upholding the pro-competitive policy choices made by Congress, and carried out
by the FCC. It would be a grave mistake to upset that delicate balance crafted
by Congress and the Commission just as consumers are beginning to see the fruits
of competition.
Some may be surprised to learn that the Internet is another
singular example of government's successful affirmative efforts to create a
vibrant free market where none existed before. The federal government, at first
unintentionally, laid the groundwork for today's Internet through a variety of
government-sponsored programs. In the late 1960s, the U.S. Department of Defense
initiated its ARPA project, culminating in the so-called "ARPANET" backbone.
Through the 1970s and early 1980s, the Defense Department administered the
ARPANET and allowed certain users of other research and academic networks, such
as CSNET, to interconnect and utilize the ARPANET resources. In 1986, the
National Science Foundation started up its own NSFNET backbone and chose the
"TCP/IP" protocol -- developed by Vint Cerf, now of MCI WorldCom, and Bob Kahn
-- the very lingua franca of the Internet. The government also ramped up its
management role and bore many of the costs of deploying and maintaining the
backbone infrastructure. Some ten years later, in 1995, the government
officially abandoned its Appropriate Use Policy, under which the NSFNET could
not be used for commercial purposes. Instead, the government ceased federal
funding and privatized the NSFNET, leaving it open to any consumer or business
to begin developing whatever commercial or non-commercial applications they
chose. Without those efforts, the Internet would not exist today.
The end
results of the government's overt decision to create and nurture the Internet
space? The Internet is different from anything else we human beings have ever
witnessed before. At some basic level, each of us is aware that the Internet
already holds the key to our future. Its ability as a public "network of
networks" to ubiquitously reach and connect everyone -- from customers,
employees, and suppliers to friends and family -- is changing how we do
everything. Consumer demand for services provided via the Internet appears
unquenchable. For example, demand for Internet bandwidth doubles every 3 or 4
months. That is astonishing. The Internet already accounts for 50 percent of the
traffic on the world's communications networks. By some estimates, the Internet
will soak up 90 percent of all bandwidth by 2003, and 99 percent by 2004. In
just a few short years, the Internet has become, in the words of the Council of
Economic Advisors, "the engine that drives our economy." On the supply side of
the information services marketplace, business also is booming. For the past
three years, MCI WorldCom has increased the capacity of its UUNET backbone by
over 1,000 percent each year to handle peak traffic loads. Other backbone
providers -- from AT&T to Sprint to PSINet to GTE -- also have increased
their capacity, and still others -- such as Qwest, Level 3, and Williams -- are
building entirely new nationwide networks designed specifically to handle
Internet traffic. All in all, some forty-seven different backbone providers now
are competing. As a result, all but three LATAs (194 out of 197) are served by 4
or more different Internet backbone providers, and the capacity of Internet
backbone networks has exploded from only 1.2 terabits per second in 1996 to 21.7
terabits per second in 1999. You don't have know what a terabit is to understand
that the capacity of the backbone networks have expanded twenty fold.
There
also is good news with regard to one's ability to access the Internet. Consumers
today reach the Internet almost exclusively through an ordinary telephone call,
placed over ordinary copper lines. Because the incumbent LECs are required by
the FCC to allow consumers to reach any ISP they choose, competition has
flourished. In the case of MCI WorldCom, we offer dial-up access to the Internet
through a local call to about 95 percent of the lines in the continental United
States. UUNET alone has about 750 local points of presence all over the country.
At last count, there were some 6,500 independent providers of Internet access,
or ISPs, out there, through which more than 79 million Americans get their
Internet service. Well over 90 percent of all Americans can choose from among
four or more ISPs for local dial-up access, which is more than you can say for
local telephone service. So, thanks again to the government's open market
requirements, access to the Internet has become available ubiquitously to
virtually all Americans.
The lesson here, regarding the long distance
industry, the local marketplace, and the Internet, is what I would call the
lesson of open platforms. Where policymakers create and maintain open markets,
where a multiplicity of providers and users can interact in a myriad of mutually
beneficial ways, all will derive the full benefits of competition. This openness
feeds on itself, multiplying the effect still further. Like the Internet itself,
open competition in the Internet backbone and Internet access is in the best
interest of consumers and competitors alike. Just imagine, if you could, how
history would have been changed profoundly if the two graduate students who
created Mosaic -- the software underlying the world's first Web browser for
Netscape -- had been prevented from bringing the fruits of their innovation to
the open platform of the Internet. The list of such examples goes on and on.
As I'm sure you are aware, there now is considerable market demand for
higher speed access to the Internet, beyond the capabilities of the normal
dial-up connections familiar to all of us. The latest telephone capability to be
deployed to residential and small business customers is called Digital
Subscriber Line ("DSL"), a decade old technology that competition is finally
forcing the ILECs to offer consumers. On the cable side, so-called cable modems
provide a similar high-speed, broadband connection to consumers. The good news
is that both capabilities are being deployed by ILECs, CLECs, and cable
companies on an expedited basis. The bad news is that, unless MCI WorldCom and
other competitors can buy or lease access to the last mile facilities and
services of the incumbent monopolies -- both telephone and cable -- consumers
will have little or no choice for high-speed Internet services. In this regard,
MCI WorldCom is certainly supportive of the efforts of H.R. 1685 and H.R. 1686
to ensure that open broadband access is offered by cable providers and by local
exchange providers. The lesson of open platforms can be applied to these
monopolies by maintaining the pro-competitive provisions of the '96 Act with
regard to the ILECs, and applying fundamental nondiscrimination,
interconnection, and resale requirements with respect to the cable companies.
MCI WorldCom is certainly doing its part to bring the promised benefits of
the Information Age to its customers. For starters, we tripled our local network
capacity last year. Where we can reach our customers' premises with our own
facilities, we are providing them with high-speed Internet access using DSL
technology. UUNET, our Internet company, has mounted the first, and biggest,
national deployment of broadband DSL access to data, starting with 400 points of
presence (POPs) late last year, with the aggressive goal of reaching at least
1,000 POPs by the end of this year. We are expanding our consumer service trials
and partnering with other data CLECs so that we can provide the same innovations
to consumers and small businesses. As soon as we can get to them, we can hit the
ground running with fast, reliable, affordable service. We are not just limiting
ourselves to the telephone network; we are also readying our networks to provide
service through cable modems the same way we enable ISPs to do so through DSL
technologies. We are also investing in fixed wireless technologies so we can
reach consumers in suburban and urban markets.
And it is not just my company
that is providing these services on a competitive basis. Data CLECs like Covad,
Northpoint, Rythms NetConnections, and others are all at the cutting edge of
bring these advanced services to the consumer.
This competition brings with
it more good news. Competition is causing the incumbents themselves to deploy
broadband services. In fact, the ILECs are accelerating their DSL deployment
plans as a result of competitive pressure from cable modems and data CLECs, far
surpassing their original intentions and announcements. Wall Street analyst SG
Cowen said just two months ago that "if recent activity is any indication, 1999
could be a strong year for last-mile technologies - cable and XDSL.... Cable
operators have stepped up the pace of deploying high-speed data services,
forcing the incumbent LECs to draw up ADSL plans." So, despite their
protestations that they must have regulatory relief before they can deploy these
advanced services in their territories, the Bell Companies are engaged in a
massive rollout of these services.
The companies' own press releases
speak volumes about what is actually happening in the marketplace: o In April of
1999, following an announcement that it would slash ADSL prices, SBC projected
that its DSL deployment would reach 9.5 million homes by the end of this year.
- That same month, Bell Atlantic announced that 8 million homes in its
region will have ADSL access in 1999 and increase to 16 million by 2000.
-
Ameritech announced that it will have DSL service available to 70% of its
customers by 2000.
- BellSouth will reach 5.1 million customers with DSL by
the end of this year.
- US West is already offering its self-described
"lightning fast" ADSL to 5.5 million customers in 40 cities across 14 states.
Only three years ago, the Yankee Group predicted that ADSL would be
available to less than 4 million American homes by the year 2000. But, the above
announcements mean that over 25 MILLION homes will be able to utilize DSL
services by the end of 1999. That is quite an accomplishment. It is self-evident
that competition is forcing the incumbents LECs to deploy DSL throughout their
regions. In short, the Telecom Act is working.
Nonetheless, despite about
the astounding achievements brought about by competitive markets, and the
compelling need to create and maintain open platforms, we are now at a critical
crossroads. Much of this hard-fought success hinges on keeping the last mile
open to consumers, and open to competition. We have to resist the urge to excuse
the incumbents from their competitive requirements under the Act, in exchange
for their pie-in-the-sky promises of purported social good. In the past few
months, the incumbent LECs have come up with some carefully-crafted myths they
would have you believe to justify a rollback of the Telecommunications Act. None
of them is true.
For example, the ILECs claim that maintaining and enforcing
the Telecommunications Act's local competition provisions is tantamount to
"regulating the Internet." This is nonsense. The Telecommunications Act's local
competition provisions concern only the local telecommunications facilities and
services that form the last mile between a customer and the telecom network.
These facilities and services can be, and are, used for a variety of local
telecommunications services, including traditional voice service, dial-up
Internet access, and DSL service. The local competition provisions of the
Telecom Act are necessary to keep Internet access from becoming completely
dominated by the ILECs -- to the detriment of consumers, and the Internet
itself.
The incumbent LECs next insist that competitors shouldn't be
permitted to utilize the network elements underlying advanced services like DSL,
or subscribe to DSL services from the ILECs at wholesale rates. It is obvious
why the ILECs would want to eliminate the UNE and resale pathways -- this would
force competitors to provide, install, and maintain their own advanced services
facilities everywhere, a process that would take decades, cost billions, and
strand much of the investment in local networks that consumers have already paid
to the Bell Companies. In reality, however, competitors need all three
competitive entry pathways promised by the Telecommunications Act in order to
provide robust and ubiquitous DSL offerings. In particular, competitors such as
MCI WorldCom need the UNE pathway to provide coverage for a nationwide customer
base. The ILECs already own and control all central offices and remote terminals
necessary to reach all potential customers, and enjoy considerable economies of
scale, scope, and density, low-cost collocation in their own facilities, and
unique access to Universal Service subsidies for high-cost residential
customers. The resale of services and the leasing of facilities were
instrumental in paving the way for facilities-based competition in the long
distance industry -- why would we choose to abandon that successful model now?
The ILECs also argue that they do not possess market power in the provision of
"advanced services" such as DSL. The simple truth is that the ILECs have every
monopoly-derived advantage in providing DSL service that they also enjoy in
providing other local telecommunications services. DSL is a local transmission
technology, compatible only with copper loops, and the ILECs obviously possess
market power over local telecommunications services provided over copper loops.
The infrastructure necessary to deploy DSL is exactly the same as is necessary
to provide any other local telecommunications services. The ILECs continue to
own and control all central offices needed to deploy DSL equipment and data
transport facilities, all local loops needed to deploy DSL services, and all
support systems needed to support DSL services. The ILECs also continue to have
exclusive access to all residential customers. As DSL could eventually become
the basic loop carrier technology of the 21st Century, the ILECs seek to extend
their control over today's voice-dominated local loop to tomorrow's DSL-enabled
loop.
Perhaps the single biggest myth perpetrated by the ILECs is that the
Telecommunications Act of 1996 was only about voice, not data. In reality, the
Act includes both telecommunications services and information services, in a
technology neutral manner. Indeed, there is no sustainable legal, or logical,
distinction between "traditional" local services and "advanced" local services.
The Act nowhere makes any such distinctions, and any attempt to define a local
service based on the types of technologies it employs, or the types of
functionalities it provides, makes no sense. From a technical standpoint, there
is no feasible way of enforcing a "data" versus "voice" distinction. Data "bits"
and voice "bits" look exactly the same from the network's perspective. As I
mentioned previously, data is quickly overtaking voice; today at least half of
all traffic on the public network is data. In four years, data will comprise up
to 90 percent of all traffic on the public network.
Further, Section 271 of
the Act includes an express prohibition on the Bell Companies' provision of
interLATA information services, and refers to both telecommunications services
and information services. In particular, Section 271(g)(2) grants a narrow
exception to the general prohibition by authorizing the Bell Companies to
provide Internet services to elementary and secondary schools. This exception
would be wholly unnecessary if the Act did not already prohibit the Bell
Companies from providing interLATA information services. Significantly, the Bell
Companies never contested the FCC's 1996 ruling on this point, or sought review
by a federal appellate court.
The Bell Companies also complain that they
require interLATA relief in order to be able to provide DSL to consumers,
especially in rural areas. In truth, the Section 271 prohibition on the
provision of interLATA services is completely unrelated to the Bell Companies'
ability to deploy local telecom services like DSL. US West told Congress earlier
this year that deployment of DSL capability requires installation of ATM
switches, and that the interLATA restriction makes DSL cost-prohibitive because
it artificially compels US West to place an ATM switch in each LATA. However, my
understanding is that ATM switches are relatively inexpensive, generally on the
order of $20,000 to $30,000 each. And, if a provider has ten percent or more of
the DSL traffic in a LATA, installation of an ATM switch is virtually a
necessity. Perhaps for these reasons, US West already has either deployed, or
announced immediate intentions to deploy, a total of 127 ATM switches, including
at least one ATM switch in 23 of 27 LATAs in which US West provides service. US
West's own actions show that no interLATA relief is required for US West to do
what it is already doing: installing ATM switches to provide DSL services to US
West's customers.
Further, any claims by the Bell Companies and GTE that
they will provide advanced services to rural communities seems unlikely. The
Bell Companies have always served predominantly urban and suburban markets,
leaving most rural exchanges to the independents. This bias against operating in
rural markets has only increased recently. In the past few years, US West has
sold off over sixty of its local exchanges in the more rural areas of
Washington, Nebraska, Wyoming, and Idaho. Last year, GTE announced plans to sell
up to 8 percent, or 1.7 million access lines, of its local exchange operations,
mostly in low-density rural areas. It is difficult to discern any commitment by
these large ILECs to serve rural markets with DSL services. Moreover, in many
cases, the smaller independent LECs are well ahead of the larger ILECs in
deploying infrastructure and providing advanced services such as DSL. In fact,
by the end of 1997, rural LECs had installed over 40,000 route miles of fiber
optic cable in states like Kansas, Oklahoma, Texas, South Dakota, Minnesota, and
Iowa.
Finally, any blanket exemption from the LATA requirements of the Act
for all data transmissions is unwarranted as a matter of national policy.
Congress, in crafting the 1996 Act, carefully designed the only legally
sanctioned incentives system for the Bell Companies. When the Bell Companies
meet their local competition obligations, they are free to enter the in-region
interLATA market.
Elimination of even intrastate LATA boundaries for
data telecommunications would completely undermine Section 271 by stifling the
very incentives necessary to compel the Bell Companies to comply with the
market-opening provisions of the Act. Excusing the Bell Companies from
compliance with the fundamental interLATA requirements of the 1996 Act for data
services would ignore the increasing convergence of voice and data, and the
inability to exclude voice bits from data bits.
Enough debunking of myths.
This country decided three years ago to reject the notion of natural monopolies
in the local exchange, and to choose instead the path of free and open
competition. In contrast, industrial policy, even in the pleasing guise of
"deregulation," does not work. That form of government intervention is precisely
what limits or even forecloses the opportunity for competition to develop --
hurting the very constituencies it purports to serve. Broadband
deployment in all parts of the country -- urban, suburban, and rural --
can only be accomplished by fostering, not frustrating, the beginnings of real
competition.
The way to do that is to make sure that last mile facilities
are not closed off to competition. Again, all of the infrastructure advancements
I just talked about are irrelevant if competitors cannot reach customers, and
customers cannot reach the ISP or telecom vendor of their choice. Competitors
like MCI WorldCom must have non- discriminatory access to last-mile incumbent
facilities in order to provide advanced, innovative new services and
technologies that benefit consumers everywhere. This is not a discretionary
item. We have residential long distance customers everywhere in the country.
These customers tell us they want new choices for local phone service and
Internet access.
The investment community also is counting on Congress not
to overturn the '96 Act. Wall Street has come to expect legal certainty to
ensure that there is a competitive environment for broadband. Investors know
that the Internet is an increasingly central component to business models for
carriers, ISPs, electronic commerce, and the information technology industry,
and that the ultimate resolution of the broadband access issue will
fundamentally impact the way different industries' business plans develop in the
Internet space. None of those plans, I assure you, will or can be realized
through a closed network. The financial markets need the law to be maintained,
just as competitors do. Reversing the antitrust-based principles, market rules,
and safeguards set forth in the Act, and specifically designed to promote the
development of competition, will only hinder broadband
deployment and allow dominant incumbents, be they telcos or cable
providers, to leverage their market power over the last mile to broadband
access, and into the Internet.
In closing, I again appeal to you to
safeguard the Information Age economy by enforcing the law and the principles of
competition. Remember that incumbents have a long history of broken promises in
connection with infrastructure programs and regulatory bargains. Nothing is
worth the price of competition we have all fought so hard to win for American
consumers. The Internet's phenomenal development has already demonstrated that
Congress did the right thing in 1996 by focusing on opening up access to
monopoly local distribution facilities. Policymakers will continue to play a
critical role in enforcing the pro-competitive provisions of the Act, which hold
the key to the future of broadband in America. To turn back now, and retreat
from all the painstaking advances of the past three years, would be a disastrous
blow to the future of telecommunications competition, and to the information
economy that depends on it.
Thank you.
END
LOAD-DATE: July 1, 1999 
