Copyright 1999 Federal News Service, Inc.
Federal News Service
NOVEMBER 4, 1999, THURSDAY
SECTION: IN THE NEWS
LENGTH:
7653 words
HEADLINE: PREPARED TESTIMONY OF
ROYCE
HOLLAND
CHAIRMAN AND CEO OF ALLEGIANCE TELECOM
AND CHAIRMAN
THE
ASSOCIATION OF LOCAL TELECOMMUNICATIONS SERVICES (ARTS)
BEFORE THE
SENATE COMMITTEE ON COMMERCE, SCIENCE AND TRANSPORTATION
COMMUNICATIONS SUBCOMMITTEE
BODY:
Good
Morning, Chairman Burns, Senator Hollings, and Members of the Committee. I am
pleased to testify this morning on the state of competition in the local
telecommunications marketplace.
I am Chairman and CEO of Allegiance Telecom,
a competitive local exchange carder (CLEC) that is headquartered in Dallas,
Texas. Allegiance is a nationwide provider of competitive voice and data
services in 16 markets across the country. Allegiance was formed in 1996, after
passage of the Telecommunications Act of 1996. In fact, Allegiance is one of
over one hundred companies whose founding and growth is directly attributable to
the passage of that landmark 1996 Act.
I also appear before you today as the
Chairman of the Association for Local Telecommunications Services, or ALTS. ALTS
is the leading trade association representing the facilities-based CLECs, the
competitors to the incumbent local telephone companies. ALTS does not represent
any of the "big three" (soon to be big two) long distance companies, and ALTS
also does not represent the Regional Bell Operating Companies (RBOCs). ALTS'
membership includes only the CLECs that are deploying their own facilities
(switches, fiber optic cables, wireless antennas, etc.) to provide competitive
local telecommunications service. ALTS' membership has grown substantially since
passage of the 1996 Act, and now claims almost 200 members, 88 of whom are
CLECs. I am also pleased to note that the President of ALTS is John Windhausen,
who served for many years as a staff member to this Committee.
Mr. Chairman,
I have a long history of experience in the local telecommunications industry.
Prior to founding Allegiance Telecom, I founded MFS Communications, one of the
first competitive providers of local service in the late 1980's and early
1990's. MFS first operated in the local market as a competitive access provider,
or CAP. At the time, MFS was allowed to compete with the incumbent
telecommunications companies in the provision of access services to long
distance companies, but many states prohibited the provision of local exchange
service to end user consumers in competition with the incumbent
telecommunications company. MFS was purchased by WorldCom in 1996.
In short,
I have been at the business of trying to break open the monopoly owned by the
Bell Companies and GTE for many, many years, and I am happy to report that the
we are making great progress in turning that former monopoly market into a
competitive one. Most of the progress we have made over the last three and
one-half years is directly attributable to the passage of the Telecommunications
Act of 1996. Congress should be congratulated for its foresight in opening up
the local telecommunications marketplace to competition. But, despite our
progress, local competitors continue to encounter substantial roadblocks that
impede the growth of local telephone competition. These roadblocks fall into
three categories: 1) the failure of the local telephone companies to open their
networks to competition; 2) excessive regulation and delays by municipal
regulators; and 3) unwillingness of building owners to grant competitors the
same rights of access to buildings that they have granted to the incumbent
telephone companies. Because of these continuing impediments, consumers in many
regions of the country are being denied the lower prices and advanced services
that competitors are bringing to the marketplace. I will expound upon each of
these types of difficulties later in my testimony.
But first, I would like
to share with you some basic facts about the progress we have made in making the
local telecommunications marketplace more competitive since passage of the 1996
Act:
- in 1996, there were approximately 15 companies competing for local
telecommunications service; today there are over 200 companies earning revenue
in the market, and there are several hundred more companies that have received
state approval to offer competitive service;
- in 1996, the CLECs' market
share was approximately one-half of one percent (0.5%); today, the CLECs take in
approximately 6-7% of the local market revenues; CLECs have more than doubled
their market share each of the three years since passage of the 1996 Act;
-
in 1996, CLECs had deployed approximately 60 switches; today, CLECs have
deployed over 700 switches to provide competitive local exchange service;
-
The CLECs that have gone public currently have a market capitalization of more
than $54 billion. In other words, the 1996 Telecom Act has created more than $54
billion in new wealth for investors and the American economy.
There is no
doubt that competition has brought significant price reductions. Competitive
companies generally offer prices that are anywhere from 10 to 30% lower than the
prices offered by the incumbent telephone companies.
Perhaps even more
important, however, is that competition is brining advanced broadband services
to American consumers more quickly than ever before. CLECs are leading the
deployment of advanced broadband services. The introduction of broadband
services by the CLECs has forced the incumbents to shelve outmoded technology
and pricing regimes and replace two thousand dollar analog T-1 lines with
hundred dollar digital subscriber lines -offering the same services at a
fraction of the price. In other words, the growth of local telecommunications
competition is transforming the local telecommunications marketplace from a
sleepy, slow-growth, basic telephone business to an innovative, high-speed,
entrepreneurial battleground. The emergence of innovative, competitive
telecommunications companies has brought, not only price competition, but new
options to consumers, services and technologies that Americans otherwise may not
have seen- at least not for years to come. Now, where CLECs begin deploying new
technologies, ILECs are forced to follow suit, offering similar services at
comparable prices. (Unfortunately, where competition does not yet exist,
monopolists are still free to overcharge or not deploy broadband services.)
There is no doubt, that CLECs are leading the way in the rollout of new
services.
Witness the following examples of innovations in the local
telecommunications marketplace:
Digital Subscriber Line (DSL) Services:
CLECs are leading the deployment of Digital Subscribe Line (DSL) technology.
DSL, which stands for digital subscriber line, provides consumers with an
always-on, high-speed connection to the internet using basic copper wire that
already runs into every consumer's home or business. DSL provides high-speed
data communications to provide connectivity on a wholesale basis to Internet
Service Providers (ISPs) or on a retail basis to consumers. The so-called data
competitive local exchange carders (Data CLECs) offer these high-speed local
access services by leasing the copper lines of the telecommunications company
and connecting those lines to their own equipment, called DSLAMs. They purchase
"conditioned" (free of load coils and bridge taps) unbundled copper loops from
incumbent local exchange carders (ILECs),collocate their own DSL equipment in
the central office, and backhaul the traffic through leased transport. Some
companies have plans to build their own backbone network in the future, but for
the most part, these service providers are dependent on ILECs for the connection
to the customer.
DSL technology provides several advantages over
competing technologies. DSL offers a dedicated connection, increased security
and guaranteed bandwidth. Service is consistent, irrespective of the number of
users in a geographic location, unlike cable modems, where all residential
subscribers on a coaxial connection contend for bandwidth. Also, DSL
simultaneously supports multiple sessions, so that multiple PCs can be connected
at the same tune. The connection is always on.
A study from Communications
Industry Researchers Inc. of Charlottesville, Va., indicates that by 2003 there
will be more than 31.7 million households in North America using data
connections that feature transmission speeds of at least 1.5 Mbps, up from just
1.6 million households using such connections currently. CIR includes both
DSL-modem and cable-modem deployments in its study, as well as wireless and
satellite access technologies.
Allegiance is rapidly deploying these new
digital technologies. In June of this year, Allegiance rolled out DSL services
from 24 central offices in seven of our 16 markets nationwide. For small and
medium- sized business customers, we are deploying what we believe to be the
first commercial application of HDSL2, the new symmetric DSL standard that
requires the use of only one unbundled loop to achieve T-1 capacity (1.544
Mbps). We plan to collocate our DSL equipment in 110 central offices by
year-end. We believe that DSL is one of the best enabling technologies to hit
the CLEC space in a number of years, especially for the medium and small
business market. In addition to improving our gross margins, DSL should allow
our customers to significantly upgrade their data transmission and Internet
connections on a cost-effective basis.
As the DSL deployment progresses,
Allegiance is accelerating the acquisition of local fiber networks to replace
the leased bandwidth we have relied upon through the company's startup phase.
For instance, earlier this year, Allegiance completed the deployment of high-
capacity SONET networks in New York City and Dallas using fiber acquired from
Metromedia Fiber Networks. Construction also has begun in Houston on a similar
network using fiber acquired from Metromedia. The company is negotiating the
acquisition of fiber in several additional markets. The Telecom Act knocked down
the barriers, and now we're seeing all the forces that have driven the computer
and software industries for the last 20 years moving into telecom.
Allegiance is not alone in deploying this high-speed technology. Perhaps the
first three companies to identify the value of the DSL technology and announce
nationwide rollout plans were Covad, NorthPoint and Rhythms NetConnections.
Their reach extends to residential, as well as business customers. For instance,
Covad just announced that it would extend its DSL services to 40% of residential
consumers and 45% of business consumers by the end of the year 2000. Many of the
companies that have traditionally provided voice services have jumped on the DSL
bandwagon and have announced their own DSL offerings, including McLeodUSA,
FirstWorld, and MGC, just to name a few.
In addition, newer companies are
already entering the DSL market to serve smaller Tier 2 and Tier 3 cities.
Companies such as New EdgeNetworks, @Link, HarvardNet, Network Access Solutions
(NAS), BlueStar, and many others are rapidly deploying DSL service to smaller
communities. These technologies are also being deployed in some rural areas as
well, although progress in rural areas is slower because many of the rural
telecommunications companies do not have the same obligations or incentives to
open their networks to competitors.
Because of the CLECs' rapid deployment
of DSL services, all the RBOCs and GTE are now planning their own roll-out of
these services. U S WEST and SBC currently appear to be the leading RBOC
providers of DSL services. U S WEST has already deployed roughly 80,000 DSL
lines (projected to be 100,000 by the end of the year. SBC has about 100,000 DSL
lines (projected to be 200,000 by year year end. Additionally, SBC just
announced plans to deploy to invest some $6 billion dollars for
broadband deployment over the next few years. The other Bell
Companies and GTE have also announced similar plans.
In short, the passage
of the 1996 Telecommunications Act, and the growth of competition for local
telecommunications services, has dramatically increased the deployment of
high-speed internet access to all consumers.
Broadband Wireless
Technologies:
A number of companies are rapidly deploying fixed wireless
services to small business and residential consumers in multi-tenant buildings.
These companies, such as Teligent, WinStar, NEXTLINK, Advanced Radio Telecom,
OpTel and others, beam high-speed communications from a central antenna to the
rooftops of buildings in metropolitan areas. The company then connects the
antenna with the inside wire in the building to reach the consumer.
Fixed
wireless service is similar to cellular telecommunications service, except its
users stay in one place. Conventional wiring and telecommunications apparatus is
used inside the building. But an antenna bolted to the building's roof transmits
calls to a base station. The base stations ends the signals, via fiber link or
wireless transmission, to a switch operation, where calls are routed locally, to
long-distance networks or to the Internet.
This technology can deliver
high-bandwidth services more efficiently and at lower cost than the dominant
fiber-based carders. Unlike their fiber counterparts, wireless carders do not
have to dig up streets to access buildings and can start services within a
matter of days, not weeks. About two-thirds of the nation's 55 million business
lines are in buildings where it's uneconomical to extend fiber optic lines,
according to a recent Salomon Smith Barney report. That adds up to a potential
$57 billion "niche" for wireless providers.
Teligent teams are working in 30
markets, including San Francisco, San Jose, Dallas, Houston, Austin, San
Antonio, Chicago, Washington, D.C., New York, Orlando, Jacksonville, Miami, and
Denver. The company plans to launch another 25 markets in 1999 and 34 markets in
2001. WinStar recently announced that it is offering data and Internet services
in the top 60 U.S. markets, one year ahead of schedule. The company also
announced plans to construct data centers in every WinStar central office across
the country. WinStar operates one of the most widely available broadband
networks in the country. Through its agreements with Metromedia Fiber and
Williams Communications, WinStar has acquired more than 16,000 long-haul route
miles of fiber and nearly 6,000 intra-city route miles of fiber that are already
being delivered. In addition, the company has deployed more than 100 data
switches across the nation. The combination of fixed wireless broadband
technology and local and long haul fiber, allows WinStar to route traffic at a
local level across the country, improving network efficiency, speed and quality
of service.
Electric Utilities
The ability of electric utilities to use
their infrastructure to provide telecommunications services also holds a great
deal of promise. In the 1990's, electric utilities owned the third largest
telecommunications system in the U.S. - created originally for internal use. By
the mid 1990's, however, many utilities' fiber-based communications systems had
been overbuilt, and in some cases only 2 percent of the fiber capacity was in
use. Consequently, utilities began investigating the possibility of utilizing
their facilities for commercial telecommunications services. By 1998, more than
40 electric and gas utilities were engaged in some form of telecommunications.
While most of the utilities' telecom subsidiaries sell transmission capacity to
other telecom carriers, several have become CLECs themselves, such as Conectiv
communications and Electric Lightwave, while others have engaged in joint
ventures with CLECs, such as Hyperion Telecommunications and PEPCO's partnership
with RCN in the Washington, D.C. area.
Rural Telecommunications Companies
Several independent incumbent local exchange carriers serving rural areas
have also begun to establish their own CLECs to attack markets of their larger
RBOC brethren. For instance, AllTel, an ILEC headquartered in Little Rock,
Arkansas, has begun to provide CLEC services in other parts of the southeast.
Several rural ILECs in North Dakota have formed a CLEC called IdeaOne to compete
against USWest. I expect these small ILECs will expand once the large ILECs
complete the job of opening their markets to competition.
Cable Company
Affiliates
Several cable companies have entered the local telephony market
by targeting the residential customers that they already serve through their
existing cable plant.
The cable plant, which was designed for one-way
transmission of video programming, must be upgraded at a substantial costs to
carry two-way voice and data telephone services. Nevertheless, Cox Cable,
MediaOne, Cablevision Lightpath, and Time Warner Telecom have made substantial
progress in entering the local telephone marketplace since 1996.
Cox
operates local telephone services in Orange County, CA, Omaha, Merieen, CT, Sand
Diego and Phoenix and Hampton Roads, VA. Cox's prices average 10% lower than the
incumbent for the consumers' first line, and 50% below the incumbent's price for
the second telephone line. MediaOne offers Digital Telephone service to
residential consumers in Atlanta, Los Angeles, Jacksonville and Pompano Beach,
FL, Boston and Richmond, VA. Time Warner Telecom, by contrast, has focused its
efforts on mid-size and large business customers, using its own fiber optic
cable network in approximately 20 cities nationwide.
As the above summary
indicates, the market for local telecommunications service is attracting several
kinds of new entrants and technologies. Nevertheless, several consumer
organizations, the media, and some Members of Congress have expressed
disappointment in the pace of local competition since passage of the 1996 Act.
Of course, it should be expected that competition cannot begin overnight, and
policymakers should understand that it takes time to raise capital, deploy
networks, develop marketing plans, and serve customers.
Perhaps most
important, however, is that competitors still face a number of significant
roadblocks that make it exceptionally difficult to compete on even terms with
the incumbent telecommunications company. Even in those areas that have
attracted the most intense interest among local telecommunications competitors,
the CLECs still face a competitive disadvantage when it comes to competing with
the Bell Companies and GTE. If Congress wants to help speed the growth of more
local telecommunications competition, it should address the following three
impediments to local telecommunications competition:
1. The ILECs' failure
to open their networks to competition.
Three and one-half years after
passage of the 1996 Telecom Act, not a single ILEC has complied with Congress'
directive to open its network to competitors. CLECs continue to face enormous
service provisioning difficulties when interconnecting with the incumbent. The
Telecommunications Act correctly requires the ILECs to give the CLECs the same
quality of service that it provides to itself. Only when this principle of
nondiscrimination is enforced will the local market truly be able to compete on
the same terms as the incumbent. To date, however, CLECs face a number of
discriminatory practices by the ILECs, including the following:
A. Access to
Unbundled Network Elements
The 1996 Telecom Act requires the ILECs to
provide nondiscriminatory access to the piece parts of their networks to
competitors at cost- based rates. The telephone companies agreed to open their
network to competition as part of the bargain that would allow them to enter the
long distance market. Further, this requirement that the ILECs provide unbundled
network elements (UNEs) is essential to the development of facilities-based
competition. Most competitors can purchase some of their own equipment
(switches, fiber optic cables, wireless antennas, etc.) but they must
interconnect their own equipment with the ILEC network in order to complete
calls. These facilities-based CLECs must purchase, or lease, the piece parts of
the network to supplement the components of the network that they cannot yet
provide on their own.
To date, however, the ILECs have not made these
components available to competitors on the same terms and conditions that they
provide these components to themselves. In particular, the ILECs have
consistently failed to provide nondiscriminatory access to unbundled local loops
that connect the customer to the CLEC network equipment. The ILEC often fails to
connect the customer properly, causing the consumer to lose service altogether.
Often the ILEC does not provide the UNE on the proper date and time, causing
delay and confusion on the part of the consumer. Further, the ILEC often does
not provide directory listings of consumers who take service from a CLEC, a
severe competitive disadvantage. In other cases, the ILEC fails to repair or
maintain loops that are connected to the CLEC network.
Service provisioning
difficulties are not limited to provisioning loops. The ILECs also have
difficulty in providing high-capacity trunks on a timely and efficient manner,
and they have often resisted allowing the CLECs to obtain collocation space in
the ILEC central office. Even though the FCC issued an order earlier this year
to require the ILECs to provide such collocation, in too many cases, the ILEC
claims that there is no space available, or attempts to charge an outrageous sum
of money (sometimes hundreds of thousands of dollars) to allow the CLEC
equipment into the central office.
B. Operations Support Systems
In
addition, several ILECs have had great difficulty in providing operations
support systems (OSS). As the Department of Justice noted in its comments on the
Bell Atlantic-New York application, too often the ILEC must rely upon manual
procedures to process CLEC service orders. Manual procedures are simply more
prone to error and delay than electronic procedures. The ILECs should move to an
electronic bonding approach as soon as possible to ensure that service is
provided efficiently. Allegiance has recently had some promising experiences
with Bell Atlantic's OSS in New York and with SBC's OSS process in Texas. I
believe our experience demonstrates that the ILEC can "get it right" if it puts
its mind to it. I understand, however, that other CLECs have not had the same
positive experience as Allegiance. I hope that the ILECs and CLECs can follow
the example that Bell Atlantic and SBC have set with Allegiance so that the
ordering process can operate in a smooth, seamless manner that is transparent to
the customer. (Although the ILECs complain that OSS does not appear in the 1996
Telecom Act, that is not the case. OSS is the process by which the ILEC receives
and fulfills orders to provide service to the CLEC. In other words, the ILEC
must provide a transparent OSS in order to fulfill its obligation under the Act
to provide "nondiscriminatory" service to CLECs.)
C. Performance Measures
and Self-Executing Penalties
Finally, most of the ILECs have yet to
establish adequate performance measures and to abide by such measures (including
the enforcement of such measures through penalties/damages) The rationale behind
the Commission's "self-executing remedy" requirement is to promote the rapid
development of local exchange competition by preventing competitors from being
driven out of business by being forced to litigate operational issues with the
ILEC each time such issues arise. To operate properly, this "self-executing"
remedy must have well- defined and properly implemented performance measures of
ILEC practices in regard to relations with CLEC. There also must be swift
resolution of problems with sufficiently severe penalties to deter further
abuses. To date, while ILECs have implemented part of this requirement, they
still fall short of establishing the self-executing commercial type
relationships that ILECs have, for instance, with their own customers.
Much
attention has been focused in the last few months on Bell Atlantic in New York
and SBC in Texas. Bell Atlantic filed its application to enter the long distance
market in New York under section 271 last month; SBC is expected to be the next
RBOC to file a long distance application before the end of this year. Without
going into all the details of those efforts, I would like to note briefly that
both Bell Atlantic and SBC have made significant improvements in opening their
networks to competition. At the moment, however, neither Bell Atlantic nor SBC
is currently ready to provide long distance service. ALTS and Allegiance have no
objection to allowing the RBOCs into the long distance market after they have
opened their local markets to competition. Bell Atlantic, however, is still
encountering major difficulty in providing loops to CLECs at the same rate and
quality as it provides these loops to itself. While Allegiance's experience may
be better on this front than some other ALTS members, it is clear from the data
submitted to the FCC that consumers are suffering unacceptable numbers of
service cut-offs when they try to switch to a competitor. As for SBC, the major
impediment to its application is that SBC has not implemented a fully
transparent process for processing orders from CLECs for interconnection. The
Texas Public Utilities Commission recently found that the independent,
third-party tests of SBC's operations support systems (OSS) continues to find
errors that hamper CLECs' performance. Allegiance and ALTS hope that these
problems can be addressed as soon as possible, as these loop provisioning and
OSS problems run to the heart of the CLECs' businesses.
Once these
problems are fixed, ALTS and Allegiance will be pleased to support these
companies' applications under section 271.
2. Excessive regulation by
municipal governments.
The members of ALTS have found that in many
circumstances their ability to provide service in a timely, efficient and cost
effective manner has been hampered by municipal ordinances (and, sometimes,
state laws) that make it difficult, time consuming, and costly to use the
municipal rights-of-way for the provisioning of facilities. Three years after
the passage of the Telecommunications Act of 1996 and after many negotiations
with numerous municipal governments, the members of ALTS find that the vast
majority of municipalities are not managing their rights-of-way in an efficient,
competitively neutral manner.
Rather, the members of ALTS have found that
significant numbers of municipalities have been very wary of CLECs and/or have
seen them as a potential new source of revenue. These attitudes have resulted in
hundreds (and possibly thousands) of municipalities considering and often
adopting regulations or ordinances that have had a chilling effect upon
competition. In addition to exorbitant fees, some municipalities have imposed a
broad range of regulations that are often duplicative of the state's regulatory
role and encroach upon the states' role of regulating intrastate communications.
Even though the carriers (including CLECs and ILECs) have sometimes prevailed
upon the local governments not to adopt the more onerous provisions considered,
significant resources have been expended by the entire industry simply
attempting to hold back the flood of new ordinances.
In addition, of course,
carriers often have not been successful in convincing the municipalities to
enact reasonable ordinances. In those cases, carders are left with three
undesirable choices: agreeing to onerous terms (that often place them at a
competitive disadvantage visa vis the incumbent) just to be able to provide
service, engaging in expensive,protracted litigation, or simply abandoning plans
to provide service in the particular community.
States have an interest in
ensuring that municipal regulation of the use of public rights-of way is
relatively uniform, does not burden telecommunications carders, and does not
duplicate the states' regulatory role. Therefore, there has been movement in
some state legislatures in the past three years for the adoption of state
statutes that would ensure that access to public rights-of way is administered
in a reasonable, predictable and non-discriminatory manner. While there has been
progress made in this area and a number of state statutes improve on the
pre-existing status quo, far fewer than half the states have managed to pass
legislation and there has not been uniformity in the statutes that have been
passed. In addition, some state statutes that have been passed in the past
several years have significant discriminatory provisions in them. And, in some
states that have passed legislation limiting the ability of local governments to
unreasonably manage their rights-of-way, cities have disregarded the legislation
and passed ordinances that violate state law.
In addition to state
legislatures, there have been some state public utility commissions that have
taken actions to address the rights-of- way issues. For example, in California
the PUC in Docket 98-10-058, when faced with complaints from carriers about
excessive fees, held that while municipalities have an interest in managing
local rights- of-way, the State has "an interest in removing barriers to open
and competitive markets and in ensuring that there is recourse for actions which
may violate state and federal laws regarding nondiscriminatory access and fair
and reasonable compensation." Therefore, the California PUC decided that it
could intervene in disputes over municipal rights-of-way access "when a party
seeking ROW access contends that local action impedes statewide goals, or when
local agencies contend that a carrier's actions are frustrating local
interests." Some state statutes specifically give the state regulatory
commissions jurisdiction over rights-of-way issues, but others either deny the
commission authority or are silent or ambiguous as to the commission's
authority.
In addition to the time and effort expanded in negotiating with
individual municipalities and working with state legislators, there have been
several instances in which carriers have decided that their only recourse is to
file suit against a municipality. These decisions are not made lightly; it is
always preferable to work out differences in an amicable manner with the
municipalities with whom the carder clearly needs to have a long-term
relationship. Nonetheless, in a number of municipalities across the country
carriers have felt that there is no alternative left to them and have filed suit
against the municipality.
The members of ALTS understand that if they (or
any other carrier) construct facilities in public rights-of-way they should
repair the rights-of-way. Enforcement of the cities' right to insist that
streets are returned to a state close to what it was prior to the construction
is not at issue. In addition, the members of ALTS would not challenge a
permitting fee that is administered in a nondiscriminatory manner and is
directly related to the costs incurred to manage the public rights-of-way. No
carrier, however, should be subject to different standards or requirements than
other carriers, thus putting some carders at a significant competitive
disadvantage vis-a-vis the other carriers. And no carrier should be subject to
fees or requirements that are wholly unrelated to reasonable regulation of the
public rights-of-way.
The members of ALTS who are spending significant
resources and time negotiating with cities believe that this is one of the
biggest bottlenecks preventing the rapid growth of facilities based competition.
Although the FCC and the courts have several times articulated what they believe
are the limits of the municipalities' police powers to manage the rights-of-way
and some state legislatures have attempted to pass legislation that would make
municipal regulations more (missing text)
To give you an idea of the
problems that ALTS members confront, I offer you a sampling of examples. This is
by no means an exhaustive list of the problems that competitive carriers face,
but it does provide some concrete understanding of the unreasonable barriers to
competition that some landlords are erecting.
- The manager of one large
Florida property has demanded from a CLEC a rooftop access fee of $1,000 per
month and a $100 per month fee for each hook up in the building. The company
estimates that this fee structure would cost it about $300,000 per year -- just
to service one building.
- The management company for another Florida
building demands that a telecommunications carrier pay the management company
$700 per customer for access to the building, in addition to a sizable deposit,
a separate monthly rooftop fee, and a substantial monthly fee for access to the
building's risers which are the dedicated, horizontal and vertical spaces within
a building that contain utility facilities. Taken together, these fees preclude
the company from providing tenants in that building a choice of
telecommunications carriers.
- In one Arizona building, a CLEC had pulled
its fiber cable into the building, had access to the telephone closet and
building risers, and had begun providing service to customers in the building
with the landlord's permission. However, one of the CLEC's customers in that
building recently requested expanded service from the CLEC, requiting an
expansion of facilities. The building owner informed the CLEC that it could no
longer have access to the telephone closet -- that it was the property of the
incumbent LEC. Moreover, the building owner informed the CLEC that the building
was now under exclusive contract to another carder and that the CLEC would have
to obtain permission from that carder to service the equipment that the CLEC had
already installed in the building. As a result, the customer in the building is
experiencing delays in receiving expanded service while the CLEC negotiates with
the building owner and the "exclusive" telecommunications carrier for access.
Moreover, the CLEC's relationship with the customer is at risk and the CLEC's
facilities that were installed in the building several years ago are in jeopardy
of becoming stranded assets.
- One CLEC sought a building access agreement
with a large property holding and management company with properties nationwide.
This company required an agreement fee of $2,500 per building in addition to
space rental of approximately $800 to $1,500 per month per building. Moreover,
the company refused to negotiate an agreement for fewer than 50 buildings.
Finally, as a condition of entering into the agreement, the company insisted
that the CLEC agree to refrain from making any regulatory filings concerning the
building access issue.
- Another large property owner and management company
demanded $10,000 per month per building just for access rights to building
risers.
- In an Arizona property, the incumbent and one competitive provider
had installed facilities. Four additional CLECs requested access.
The
property owner demanded that the four new CLECs provide conduit, fiber
connectivity between buildings, and dark fiber to the property owner free of
charge -- approximately $200,000 of in-kind contributed facilities. The property
owner also seeks to charge a $750 per month access fee for access to the
property even though the access will not deprive the property owner of leasable
space to tenants. This situation places the four new CLECs at a competitive
disadvantage to the two providers already inside the building.
- A large
number of building owners and managers do not want a second telecommunications
carder in the building because of revenue sharing arrangements with the first
carrier and many have entered into exclusive access contracts with a single
carder; indeed, one building management company told a CLEC not to solicit its
tenants.
- In Washington state, the owner of a new building put the
provision of telecommunications services to the tenants out to bid. The winning
bidder would gain exclusive access to provide telecommunications service to the
tenants in the building. The incumbent provider was able to outbid all other
providers, offering to pay $10,000 every year to the building owner. The
incumbent was thereby able to shut its competitors out of the building entirely.
- Management companies for many other buildings demand revenue sharing
arrangements in exchange for access.
- Some owners of newly constructed
buildings are installing "central distribution systems" ("CDS") in their
buildings -- an intra-building telecommunications network. Rather than allowing
carders to install their own facilities all the way to the customer, the
building owner requires the carders to utilize the CDS. However, some of these
facilities are not advanced enough to carry adequately the traffic of more
advanced carriers. Moreover, the building owners will not guarantee the
reliability of these CDS intra-building networks. In addition, building owners
often seek to charge excessive rates for use of a CDS that many carders would
rather not use.
Finally, some building owners are requiting
telecommunications carriers to sign agreements that once a CDS system is
installed, it must be used -- forcing CLECs to promise to strand their installed
investments within buildings. This creates a tremendous disincentive to serving
customers in these buildings.The tenants in these buildings often are without
recourse and cannot obtain access to telecommunications options. Building owner
interests sometimes say that the market will take care of the problem -- that
landlords have the incentive to keep their tenants happy and to allow them
access to the telecommunications carders of their choice. They say that tenants
will move out of the building if they are unhappy with their telecommunications
options. These arguments are simply wrong.
The building access problem
exists, suggesting that these "market incentives" are not working. Of course, in
some instances, the market may provide competitive choices, but not until
tenants are legally and financially able and willing to move their residence or
business for the sake of competitive telecommunications choices. Tenants would
be required to incur the substantial expense and inconvenience of breaking their
leases and moving locations. Moreover, they may often confront higher leases,
given the strength of the real estate markets and the economy generally. This is
an unreasonable pre-condition to the enjoyment of the competition envisioned by
the 1996 Telecommunications Act. In fact, may of these tenants -- particularly
individuals and small and medium-sized businesses (those who have the least
power when dealing with landlords) -- have never had the opportunity to
experience the benefits of telecommunications competition. This is largely a
theoretical phenomenon to them. The notion that these tenants would break a
lease and incur all of the other identified expenses for this unknown benefit is
unrealistic.
The 1996 Telecommunications Act represents a laudable effort to
open local telephone markets to competition. A good deal of work went into the
construction of the statute to eliminate barriers to competitive entry. However,
to a large degree, the 1996 Telecommunications Act assumes that once the
incumbent LEC-imposed barriers are removed,competition will be able to flourish.
It does not contemplate that even after incumbent LEC barriers are dismantled,
telecommunications carders may still be prevented from reaching and serving
consumers. In short, the 1996 Telecommunications Act assumes that building
access is available. Unfortunately, that assumption has proven incorrect.
Building access remains a formidable barrier to the accomplishment of local
competition.
Universal Service
In addition to these explicit barriers to
competition, there are several other impediments that hamper the growth of local
telecommunications competition.
For instance, neither the FCC nor the states
have made universal service subsidies accessible to competitive providers of
local telecommunications service. It is unfair and uneconomic for CLECs to
compete with rural telecommunications companies that receive subsidies from the
government that the CLECs cannot receive. Further, many rural telecommunications
companies are under no obligation to open their networks to competition because
of the extensive "rural exemptions" in the 1996 Telecommunications Act. ALTS
believes that the rural exemption harms citizens of rural areas by making it
less likely that competition, and high-speed communications will be delivered to
rural consumers as soon as they are being deployed in urban areas. If Congress
is concerned about the so-called "Digital Divide," it should immediately open
the rural telecommunications markets to competition as it opened the urban
markets.
The Need for Enforcement
The most important role that Congress
could take to spur the development of competition can be summarized in one
word--enforcement. In short, we do not need changes to the 1996
Telecommunications Act, we need enforcement of the existing Act.
On this
point, I must congratulate Senator Hollings for the introduction of his
legislation, S. 1312. Senator Hollings' bill would require the RBOCs to complete
opening their networks according to the 14-point competitive checklist or face
severe penalties. The RBOCs would face penalties of $100,000 per day for every
day after 2001, or would require divestiture of the RBOCs into wholesale and
retail units if they fail to comply with the checklist by the 2003. While this
legislation would certainly impose a drastic remedy, there are other efforts
that the FCC could undertake under the current law, with the support of
Congress, to spur local competition. These actions include the following:
a.
Anti-backsliding measures.
ALTS submits that prior to the grant of Bell
Atlantic's Application, the Commission must adopt mechanisms to ensure that Bell
Atlantic does not backslide on its obligations pursuant to section 271 of the
Act. As Allegiance Telecom indicated in its Petition for Expedited Rulemaking, 1
a BOC's statutory obligation to provide each element of the competitive
checklist continues even after a it has obtained in- region interLATA relief.
However, as evidenced by the three year long process in New York, compliance
with key procompetitive provisions of the Act has been slow in coming, and
advances have largely resulted from pressure imposed by regulators and
competitors. Therefore, ALTS submits that backsliding framework be in place
prior to the grant of 271 authority to Bell Atlantic.
b. Fresh Look
provisions.
In order to foster and ensure the development of an open, robust
market for local telecommunications, the FCC should provide "flesh look"
opportunities for consumers immediately upon the grant of any authority to enter
the long distance market under section 271. This would eliminate the
anti-competitive impact created by the termination penalties contained in an
RBOC's tariffs and customer contracts, terms that clearly discourage RBOC
customers from purchasing the same or similar services from a CLEC. To
facilitate the goals of open local markets and increased competition in such
markets, customers should be allowed to re-examine existing service arrangements
where circumstances have changed significantly, as when competitors enter a
historically monopoly market. The FCC should allow customers with existing long
term contractual termination penalties the ability to "opt out" of those
provisions where the contracts were entered into prior to the RBOC's receipt of
271 authority. Such customers should be permitted to terminate their contracts
without the imposition of harsh (usually the full contract price) penalties, at
least for a reasonable period of time following the grant of 271 approval. To
the extent the FCC is unwilling to completely eliminate termination liabilities
for an RBOC's customers, customers' termination penalties could be limited to a
reasonable time period, e.g., six months.
Conclusion
Mr. Chairman,
Allegiance and ALTS look forward to the day when the local telecommunications
market is truly and"irreversibly" open to competition. ALTS' goal is that the
CLECs should have 25% of the local telecommunications market by the 2003. I
believe that this goal is readily attainable. Once the local market is truly
competitive, with a variety of facilities deployed, then policymakers would be
wise to deregulate the incumbent local telecommunications companies altogether,
allow the RBOCs into the long distance market, and rely upon market forces to
protect the interests of the consumer and the information economy.
Unfortunately, we are not yet at that point, and we have much work to do for
that vision to become a reality. As mentioned at the beginning of my testimony,
CLECs have only about 6% of the local telecommunications market today in
revenues. The local telecommunications market cannot be considered competitive
when the incumbent carders retain 94% of all the local telecommunications
revenues. If local competition is truly to take hold and become entrenched, we
must have your help in opening up that local market.
I suggest that
policymakers use one simple metric to judge whether or not the local market is
truly open: when it is as easy for consumers to switch local telecommunications
companies as it is to switch long distance companies, then we will know that the
market is truly and irreversibly open. Today, however, it takes consumers only
three days to switch long distance companies, it can take 30 to 90 days to
switch local companies. Until this competitive disparity is addressed, we cannot
determine that the market is open. I urge you to encourage the FCC, the states,
the courts, and everyone involved in the process to keep the pressure on and
make the Telecommunications Act of 1996 a reality.
Thank you.
FOOTNOTES:
1 See Allegiance Petition.
END
LOAD-DATE:
November 9, 1999 
