Copyright 1999 Federal News Service, Inc.
Federal News Service
JUNE 30, 1999, WEDNESDAY
SECTION: IN THE NEWS
LENGTH:
3525 words
HEADLINE: PREPARED TESTIMONY OF
JOHN
WINDHAUSEN, JR.
PRESIDENT
ASSOCIATION FOR LOCAL TELECOMMUNICATIONS
SERVICES (ALTS)
BEFORE THE HOUSE JUDICIARY COMMITTEE
SUBJECT - H.R. 1685 AND H.R. 1686
BODY:
Good morning Mr. Chairman and members of the Committee. My name is John
Windhausen. For many years, I served on the staff of the Senate Commerce
Committee, where I was fortunate enough to play a part in the drafting of the
Telecommunications Act of 1996. Today, I am the President of the Association for
Local Telecommunications Services ("ALTS"). ALTS is the leading national
industry association responsible for promoting facilities-based competition for
local telecommunications services. ALTS represents over 70 competitors for local
service that build, own, and operate competitive local telecommunications
networks. (ALTS does not represent the three traditional long distance companies
-- AT&T, MCI WorldCom, and Sprint.) In short, ALTS is the association that
is trying like mad to bring about all the successful changes to the local
telecommunications landscape that Congress intended back in 1995 and 1996.
A. INTRODUCTION
Thank you for the opportunity to discuss the bills
sponsored by Congressmen Goodlatte and Boucher. While we share the objective of
these bills -- to promote broadband telecommunications capability for all
Americans -- ALTS must strongly oppose them. These bills would not speed up
broadband deployment; they would do just the opposite. By
exempting the incumbent local exchange companies (ILECs) from the market-opening
provisions of the Telecommunications Act of 1996, and by giving the Regional
Bell Operating Companies (RBOCs) premature long distance entry for data
services, these bills make it substantially less likely that the incumbents will
open their networks to competition. As a result, these bills would make it ever
more difficult for competitors to raise capital, obtain collocation and other
necessary elements from the incumbent local telephone companies, and deploy
advanced broadband technologies to consumers.(1)
Furthermore, this
legislation is likely to slow down deployment of advanced technologies by
everybody, competitors and incumbents alike. Robust competition, as envisioned
by the authors of the Telecommunications Act of 1996, is the strongest
inducement to deployment of these technologies. If competitors are discouraged
from investing in these capabilities, the incumbent local telephone companies
will have no incentive to deploy them either.
To explain the ALTS position
further, let me provide the Committee with some additional background.
B.
THE TELECOMMUNICATIONS ACT OF 1996: A BRIEF REVIEW
Over the past 25 years,
we have learned that monopolies do not best serve the public interest.
Monopolies do not respond to customer demand; they offer few service choices;
they do not innovate; they do not price competitively; and, they use their
market power to squash new entrants. Over 20 years ago, federal policy makers
moved to end AT&T's monopoly in the provision of long distance services and
the manufacturing of telecommunications equipment. The results have been most
impressive: prices have dropped tremendously, new services constantly come to
market, and huge amounts of capital are being expended to upgrade plant with the
latest technologies.
The Telecommunications Act of 1996, which many of you
on this Committee worked hard to shape, sought to bring the same benefits of
competition to the local telephone marketplace. After over a decade of work, the
1996 Act passed overwhelmingly, and was supported equally by the RBOCs and other
ILECs, the long distance companies, and by the new entrants into local markets -
the competitive local exchange carriers (CLECs) who ALTS represents.
The new
Act focused on turning the last bastion of monopoly power, the local telephone
markets for voice, data, and video services, into a competitive market. The Act
thus requires the RBOCs to open the local market to competition first, and then
allows them to enter the long distance market. The theory of the 1996 Act was to
encourage the RBOCs to open their local networks to competition by granting them
the right to enter the long distance market thereafter. Congress realized that,
if the RBOCs were allowed into long distance first, they would have no incentive
to open their local networks to competitors and the legislation would not
achieve its purpose.
C. THE STATUS OF LOCAL TELECOMMUNICATIONS COMPETITION
Three years after passage of the 1996 Act, there is substantial real world
evidence that it is beginning to work. Well over one hundred and fifty CLECs
have entered the local market since the Act's passage. These companies are
rapidly building high-speed voice and data networks serving residential and
business customers. Collectively, CLECs have doubled their market share each of
the past two years. Furthermore, CLECs have already deployed about 17% of the
nation's fiber optic cable capacity.
CLECs are making particular progress in
deploying advanced, broadband technologies. CLECs expect to deploy advanced DSL
service to over two- thirds of the nation's population in the next two years.
(DSL, which stands for Digital Subscribe Line, can provide data services to
consumers over a copper wire over 100 times faster than a typical 56k modem.)
Because of this competitive challenge, all the RBOCs and GTE announced plans to
deploy their own DSL services.
Even though the Act is beginning to work, we
are still far short of the robustly competitive local telecom marketplace that
the authors of the Act envisioned. Collectively, CLECs serve about 3% of all the
country's local telephone service customers, and collect about 5% of all local
telecom service revenues. ALTS' goal is to garner 25% share of the local
telecommunications marketplace by the year 2003. Clearly, our ambition is lofty,
but the market is far from competitive today.
There are many reasons why the
local telecommunications market still falls short of being robustly competitive.
Competitors still encounter excessive and discriminatory regulation by
municipalities. Many CLECs have difficulty obtaining access to buildings, which
hinders the ALTS companies' ability to bring consumers the choices that are
being promised them. Further, the court appeals mounted by the ILECs against the
policies of the Federal Communications Commission (FCC) and state regulators
have slowed down the implementation process. The FCC has not yet completed its
reform of the universal service program that would allow competitors to compete
for the subsidies that currently are handed out to the rural telephone
companies. Each of these factors affects the pace of local telephone
competition.
Perhaps the largest impediment to local telephone competition,
however, is the RBOCs' and the other ILECs' refusals to open their markets to
competition. To put it simply, they have not fulfilled their part of the
bargain. They continue to discriminate against CLECs, often refusing to provide
them with the same access to the network that they provide to themselves. In
fact, after three years, not a single telephone company has complied with the
market-opening requirements of the 1996 Act. Not a single ILEC provides non-
discriminatory treatment to CLECs. Thus, CLECs continue to have difficulty
ordering loops, collocating in central offices, acquiring number portability to
allow consumers to switch seamlessly to a CLEC. All these problems delay the
growth of competition.
This is the problem the Committee should focus on
solving. The Committee should not reward the ILECs for fighting the Act in a
clear effort to preserve their local monopolies.
D. WHY THE RBOC/ILEC
ARGUMENTS FOR AMENDING THE KEY LOCAL COMPETITION PROVISIONS OF THE 1996 ACT ARE
WRONG.
Despite their failure to open their networks to competition, several
of the RBOCs and GTE are now proposing that they be granted exemptions from the
market-opening requirements of the 1996 Act. These companies propose several
arguments to support what they call "regulatory relief". ALTS urges the
Committee not to accept these arguments at face value. Most of these arguments
are specious and simply wrong. The ILEC arguments can be summed up as follows:
the Act was not meant to apply to data; the ILECs must be deregulated in order
to encourage broadband deployment because broadband is not
being deployed quickly enough; and, the RBOCs and other ILECs are in the same
market position as new entrants when it comes to deploying data. Let me address
each of these in turn.
1. ILEC Argument: The 1996 Act was not meant to apply
to broadband data services. ALTS Response: The authors of the 1996 Act intended
to promote competition for voice data and video services, which is why the Act
applies to all "telecommunications services."
The allegation that the
authors did not intend the new law to apply to broadband data services is sheer
nonsense. The Act's definition of "telecommunications services" is unambiguous:
there is no distinction between voice, video and data services. Nor should there
be. The basic telephone network has been used to provide data services for
decades, and the local telephone companies used their network to maintain a
monopoly over voice, video and data services. For this reason, the 1996 Act
directed the incumbent local telephone companies to unbundle their network into
piece parts that could be used by competitors to provide any type of
telecommunications services, without regard to content.
Further support for
this conclusion can be found in numerous places. First, there are many other
provisions of the Act that expressly apply to data and Internet services,
including: the Exon indecency provision, the universal service e-rate program
for schools and libraries, the section 271 (RBOC long distance entry provision)
exception for delivery of Internet services to schools, and the recently used
section 706, which requires the FCC regularly to examine the state of
broadband deployment. Second, there are a plethora of
statements made at the time the bill was passed about the new Act's potential to
accelerate broadband deployment. Finally, there is the FCC's
decision this past year that the Act applies equally to voice and data - a
conclusion not overturned in the courts.
2. ILEC Argument: The ILECs need
regulatory exemptions from the pro- competition provisions of the Act in order
to give the ILECs sufficient incentives to deploy advanced broadband services.
ALTS Response: In fact, the pace of broadband
deployment is accelerating faster than ever before
because of the passage of the 1996 Act.
The proponents of the new
legislation contend that the nation's customers are being deprived of broadband
services. Here again, their argument has no support. The rollout of broadband
services is forging ahead just as the authors of the 1996 Act intended. Start-up
entities have used the new law to enter markets and interconnect with and gain
access to the RBOC's networks. Companies such as
Link, Logix, and McLeod
Communications are rapidly deploying broadband data services in second, third
and fourth tier cities and in rural areas. They then have taken technologies
that the ILECs have long ignored, refined them, and rapidly brought them to
market. In response to this new competitive threat, the risk-adverse RBOCs and
other ILECs have finally woken up and responded. They too are deploying
broadband. At any of the many Wall Street conferences held this year about the
telecommunications industry, you would hear RBOC CEOs line up to tell about
their plans to expedite their broadband deployment. As a
result, at the end of the 1st quarter of this year, both the competition and the
ILECs were passing over 20 million customers, a huge leap in deployment. It is
clear that we are the in the midst of a broadband gold rush all because of the
new law.
This viewpoint is supported by statements of CLECs, ILECs, and Wall
Street analysts. Here are just a sampling:
We are aggressively expanding our
nationwide footprint and adding subscriber lines. The demand for broadband
service is very real, and we offer a high-speed alternative to over 11 million
homes and businesses we reach today.
Robert E. Knowling, Jr. ,
President/CEO, Covad Communications (a CLEC)
Clearly, in the words of one
our strategic allies, Cisco's John Chambers, we "get" it when it comes to data.
We're in the data game to stay. Our overall data revenues grew 29 percent in
1998 to nearly $1.3 billion. We expect even more significant gains from the
portion of that business focused specifically on Internet-related services.
Sol Trujillo, President/CEO, US West
ADSL (broadband services) to the
rescue! All of the large LECs have announced ADSL roll-out plans. Certainly, the
explosive demand for high-bandwidth services is motivation enough for large LECs
to deploy ADSL quickly. Another important motivating factor is the threat of
competition.
Prudential Securities, March, 1999
Our industry checks
suggest that the rollout of xDSL is proceeding faster than expected.
Morgan
Stanley, May, 1999
3. ILEC Argument: The ILECs are new entrants in the data
market, just as are the CLECs, and thus the ILECs' data services should not be
regulated. ALTS Response: The incumbent local telephone companies continue to
hold a monopoly over the loop and other local network facilities that are used
to carry voice, video and data calls.
The RBOCs contend that because no
provider has many broadband subscribers, the RBOCs and other ILECs have no
market power in broadband and thus should not be regulated. This argument misses
the reason why the ILECs are regulated in the first place: their "bottleneck"
networks. It is this network - and not the services that ride on the network --
that is the key focus of the market power inquiry. The authors of the 1996 Act
understood this point in ensuring that the local network would be unbundled into
piece parts that could be used for any telecommunications services that
customers demand. Allowing the ILEC to exempt the parts of their network from
the unbundling requirements will cause two harms: First, it will decimate data
competition because competitors need collocation, access to the loop and other
network facilities to provide competitive data services. Second, it would
decimate voice competition as well, because voice competitors also rely on those
same network facilities.
The RBOCs and other ILECs are not constructing new
networks that will be used exclusively for data. Rather, just as they have done
with previous upgrades of their network to accommodate new technologies, they
are using their traditional network to provide broadband. As the RBOC SBC
Communications says on its web page: "SBC's competitive advantage lies in the
strength of its existing network. SBC's expansion of its data capabilities
represents the emergence of packet- switching technology, which the company
began implementing years ago into its existing network." The fact that the RBOCs
are moving into data using their existing infrastructure should not be
surprising. After all, they each have tens of billions of dollars already
invested in these networks, and these networks reach every customer.
E. THE
TELECOMMUNICATIONS INDUSTRY BENEFITS FROM REGULATORY CERTAINTY.
The 1996 Act
gives great impetus for investment in advanced telecommunications facilities for
two reasons: it opens markets, and it creates certainty. In three years, the Act
has produced tens of billions of dollars of new investment. In the three years
since passage of the 1996 Act, CLECs have raised more capital than all the
previous years combined. Facilities-based CLECs are rapidly building new,
sophisticated networks, and ILECs are upgrading their old ones. Those happiest
with this development are customers, who finally have suppliers who want to meet
their demands, and equipment vendors, who are selling everything they build and
bringing out new products every day. So long as competition is allowed to
develop and gain greater traction, this investment is sure to continue.
The opposite is also true. It should come as no surprise to the
Members of the Committee that legislative activity to alter the Act , especially
to roll back pro-competitive rules, will freeze this investment. As everyone
knows, investors abhor uncertainty. Thus, there is a real downside to
legislative activity so soon after new rules have been put in place.
F.
SPECIFIC PROBLEMS WITH H.R. 1685/1686
There are at least four major problems
with the broadband deployment approach proposed in the
Goodlatte-Boucher bills.
First, the bills appear to require all local
exchange carriers, incumbent carriers and competitive carriers, to develop plans
to provide broadband services on an unregulated basis. The bills thus improperly
treat all local carriers the same whether they have market power or not. This is
in direct contrast to the 1996 Act, which only requires the incumbent local
exchange companies to unbundle their networks because of their monopoly,
bottleneck control over necessary facilities. The Goodlatte-Boucher bills would
thus underregulate the incumbent provider, exempting them from the
market-opening requirements of the 1996 Act, and overregulate the competitive
carriers.
Second, the incumbent provider would not be subject to the
unbundling requirements of section 251(c)(3) and resale requirements of section
251(c)(4) if it provides or promises to provide conditioned loops. As mentioned
above, the ALTS companies are primarily facilities-based providers that depend
upon the full range of unbundled network elements. In 1996, the FCC identified
seven network elements that must be unbundled, and it may expand this list in
the current proceeding undertaken to consider the remand from the recent Supreme
Court decision. To exempt the ILECs from providing all the network elements on
an unbundled basis based upon their provision of only one of these elements
(loops) would deprive competitive, facilities-based companies of several of the
necessary elements they need to compete. Furthermore, no exemptions should ever
be granted today to the ILECs based upon their promises to provide anything in
the future. We have enough experience of ILEC promises to know that these
promises are often unfulfilled. Third, these bills undermine the theory of the
1996 Act by immediately allowing the RBOCs to provide long distance data
services. ALTS does not have major interexchange carriers as its members. So, we
are not attempting to keep the RBOCs out of the long distance market to protect
our long distance market share. Our support for section 271 stems from that fact
that it is the only provision of the Act that gives the RBOCs an incentive to
open their markets. It is common knowledge that today the telecommunications
networks carry more data traffic than voice traffic and that the differential is
expanding daily. Allowing them to provide long distance data services is thus no
"incidental" exception. It goes to the very core of how telecommunications
services are provided today. Allow them this "exception", and I can assure you
the RBOCs will have almost no incentive to open their markets.
The final
problem with these two bills is their effort to amend the antitrust laws. The
telecommunications industry is already subject to the federal antitrust laws.
These laws are well known and have proven effective. The new provisions proposed
in these bills that apply to ILECs would weaken these already existing
requirements.
These four problems - in conjunction with the need to enforce
the existing Act and promote certainty - lead ALTS to oppose these bills.
F.
CONCLUSION
This Committee played a lead role in developing the
Telecommunications Act of 1996. The Act established the correct,
pro-competitive, approach to deploying advanced broadband technologies. After
much delay brought about by the reluctance of the ILECs to comply with the 1996
Act, it is producing significant benefits. We are on the verge of the true
information superhighway reaching all homes and businesses. All it takes is
strict adherence to the 1996 Act. We can then rely on competition to drive
investment and innovation. If, however, you decide to undo the Act, there will
be a significant cost: capital will dry up and broadband
deployment will in fact slow. Don't let this happen.
Finally, to
the extent the Committee wishes to take action to advance deployment of
broadband services, we recommend the following actions:
1. Give the FCC the
resources to enforce its rules; the ILECs should no longer be allowed to ignore
them by trying to run out the clock;
2. Expand the FCC's legal authority to
impose penalties on the ILECs for failing to open up their local networks;
3. Urge the FCC to complete its universal service proceeding; without
subsidies that are explicit and available to competitors, it will be virtually
impossible to bring competition to rural areas.
Thank you. 1. ALTS has no
position on the question of whether cable companies should be required to open
their plant to competing internet providers. ALTS' sole focus in this testimony
are the provisions affecting competition for local telephone services.
END
LOAD-DATE: July 2, 1999 
