Copyright 2000 eMediaMillWorks, Inc.
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Federal Document Clearing House
Congressional Testimony
March 28, 2000, Tuesday
SECTION: CAPITOL HILL HEARING TESTIMONY
LENGTH: 6027 words
HEADLINE:
TESTIMONY March 28, 2000 ROY NEEL PRESIDENT AND CEO UNITED STATES TELECOM
ASSOCITON SENATE COMMERCE, SCIENCE AND TRANSPORTATION
COMMUNICATIONS INTERNET SERVICE DISTRIBUTION
BODY:
TESTIMONY OF ROY NEEL PRESIDENT AND CEO UNITED STATES TELECOM ASSOCIATION
BEFORE THE COMMITTEE ON COMMERCE, SCIENCE AND TRANSPORTATION UNITED STATES
SENATE March 28, 2000 Thank you, Mr. Chairman, for giving me the opportunity to
testify. I am the President and Chief Executive Officer of the United States
Telecom Association (USTA). I am here today on behalf of the over I I --
incumbent local exchange carriers throughout the nation that USTA represents. We
appreciate your conducting this vital and timely hearing because our members are
on the front lines of the Internet and the thrust of my testimony today is that
the current Internet regulatory environment must be reformed. We need to pass
legislation this year that deregulates the offering of DSL and
provides interLATA relief for the RBOCs with respect to data services. We must
level the playing field with cable modem service. This relief is not only for
the RBOCs but for the over 1--- mid and small companies that USTA represents
that offer DSL and are burdened by regulations not faced by
their direct competitors - cable modem service. We are at a critical stage in
this country in that we already face a series of digital divides. A great deal
of attention has already been paid to the digital divide and separating affluent
consumers from poor and middle income consumers. The growing divide between
white and minority populations has also been addressed. There are two additional
types of digital divides that I am going to focus on today. The first is a
digital divide between large businesses and small businesses. The second is the
digital divide between urban/rural. I commend Senators McCain, Brownback,
Dorgan, Kerry, Snowe, and Rockefeller for all recognizing the crisis that this
country faces with respect to high speed access and the Internet and for taking
the lead and introducing their respective bills. 1)HIGH SPEED INTERNET ACCESS -
ANOTHER DIGITAL DIVIDE Today, high speed Internet access is made available on an
economically feasible basis three ways. First, there is fiber optic cable. This
is being provided primarily by Competitive Local Exchange Carriers (CLECs). The
laying of these fiber optic cable is the reason why you see the city streets
being tom up time and again, but CLECs are not deploying fiber in rural areas.
The second way is Digital Subscriber Line service (DSL). DSL is
a service that incumbent telephone companies (ILECs) and others provide. By
adding advanced equipment and conditioned local telephone lines, high speed
Internet access by means of DSL can be provided over the same
copper wires used for plain old telephone services. Data Local Exchange Carriers
(DLECs) also offer DSL service, but it is almost an entirely
derivative service, as DLECs are able to provide their service only by
collocating their equipment in the ILEC's central telephone office and by making
use of the ILECs local telephone wires, which ILECs are required by law to
provide to DLECs at very low rates. DSL deployment in all
areas, but especially in rural areas is being constrained by the lack of
regulatory relief for these advanced services. Third, cable operators provide
high-speed access to the Internet by means of high capacity (broadband) cable
wires. This is called cable modem service and is primarily a residential
service. What then is the Digital Divide? The CLECs provision of high speed
access is almost exclusively limited to business customers located in downtown
business areas or in an edge city. In Washington, for instance, that means the K
Street corridor and Tysons Comer. Cable operators because of their historical
provision of cable television service are located and provide service to
primarily residential customers. So, if your area business is not located
downtown or in an edge city, your only real possibility for high-speed Internet
access is DSL, and unfortunately DSL is the
only one of these three approaches subject to significant regulatory constraints
and requirements. DSL service only exists in some areas, even
in urban areas, because pervasive regulation is retarding deployment. It is,
thus, not available everywhere. If you are either a business or residential
customer in a rural area where their exists limited Internet backbone facilities
and little or no high speed access you are doubly burdened in your ability to
obtain high speed Internet access, as you will have neither local nor long haul
Internet access. If you are business customer located in a downtown business
district and you want a competitor to the CLEC service, DSL is
your only option, because again cable modem service is primarily located in the
residential areas. To see the benefits of competition in the high-speed access
market, we need to encourage the deployment of DSL, not hamper
its deployment by unnecessary government regulation. Before continuing, let me
summarize what we consider to be the current factors limiting the future
development of the Internet, especially for rural, residential and small and
medium business customers. First, there is the fact that DSL is
pervasively regulated while other high speed Internet access services are
unregulated. Second, especially in rural areas, but also generally everywhere,
the restriction on the BOCs which limits their ability to transmit data across
LATA (local access and transport area) lines limits the opportunity to expand
the Internet backbone. The 1996 Act provisions that were intended to ameliorate
this situation have not proven effective and the interLATA relief contemplated
by the 1996 Act has produced to date authority to cross LATA lines in only one
state. These LATA lines are the product of the 1982 AT&T breakup, so they
were clearly not drawn with the Internet in mind, but these 1982 lines are
frustrating the development of the Internet, especially in rural areas. INTERNET
REGULATORY FREEDOM SECTION 7-6 Section 7-6 required the Federal Communications
Commission (FCC) to initiate within 3- months of enactment of the 1996 Act an
inquiry concerning the availability of advanced telecommunications capability.
The FCC commenced the inquiry in August 1998. The purpose of that inquiry was to
determine whether "advanced telecommunications capability" was being made
available to "all Americans in a reasonable and timely fashion." Section 7- 6
defined advanced telecommunications capability as "high speed switched broadband
telecommunications capability." If the FCC found that this goal was not being
achieved, Section 7-6 required it to "take immediate action to accelerate
deployment." One of the principal means that Congress intended and provided to
be used if this goal was not being achieved was "regulatory forbearance." FCC
SECTION 7-6 REPORT (FEBRUARY 28,1999 - CC DOCKET 98- 146) After studying the
matter for six months, the FCC concluded on January 28, 1999 that reasonable and
timely deployment of "high speed switched broadband capability" was occurring so
no "immediate action" of any consequence was required. At that time, the FCC
said that high speed Internet access penetration was an acceptable .4%. Even
this low figure was an overstatement of the actual penetration in that the FCC
appears to have measured penetration based upon the number of high speed access
customers as a percentage of residential households - not residential households
and businesses. Adding businesses to this calculation would have produced an
even lower penetration number. Today, 14 months after the FCC Reports and using
the FCC's same methodology there is only 1.45% high speed access penetration.
Section 7-6, thus, was intended to address some of the very problems that I have
identified. If re latory requirements were constraining the 911 deployment of
advanced telecommunications in a reasonable and timely manner, Section 7-6
instructed the FCC to eliminate them. The FCC, however, has interpreted Section
7-6 so narrowly as to virtually write Section 7-6 out of the Act. Section 7-6
was intended, in our view, to be standalone authority to deal with this specific
problem. The FCC, however, determined that Section 7-6 was constrained by other
provisions of the 1996 Act dealing with voice telephone matters. Since the FCC
refuses to acknowledge that the statistics show that deployment of advanced
services is not happening in a reasonable and timely manner, I believe the
Congress must act again in a manner that has no such statutory interpretation
limitations. THERE IS A DIGITAL DIVIDE AND IT CONTINUES My testimony today is
that there are multiple digital divides. The digital divide exists at the local
level for both access generally and for high speed Internet access and on the
long distance level for Internet backbone. I would reiterate and emphasize once
again that one of the primary reasons for this failure to close the high speed
access digital divide and Internet backbone divide is regulatory constraints
which add cost, time, effort and lack of flexibility to services being offered
in a market that one considers to be a monopoly. FCC Chairman Kennard even
refers to this market a "no-opoly" market. DSL (Digital
Subscriber Line) service offered by incumbent local exchange carriers is
pervasively regulated, everything from tariffs to depreciation to annual reports
to rate regulation. I brought this regulatory disparity situation to the
Committee's attention last November in my testimony. Things have not changed
since then. Services functionally equivalent to DSL are not
subject to any significant regulation, with cable modem services being the
classic example - cable operators call this a cable service. Not surprisingly,
cable modem service is growing at a faster rate than DSL. The
net effect is that major telecommunications providers, the ILECs, who would do
more, could do more and want to do more are frustrated by a regulatory regime
designed to regulate two-way voice service in the monopoly service era of 1934!
1 believe the prevailing Congressional wisdom is that the Internet should not be
regulated. When these DSL services are subject to regulation,
government regulation has been extended and applied to the Internet - make no
mistake about it. BUSINESS CUSTOMERS For the residential customer, high-speed
Internet access is a way to the "world-wide wait." To the business customer,
high-speed access may be essential, even for many businesses that we ordinarily
do not consider to be part of the new economy. If your business is located in
the downtown area of a major city or in an edge city (e.g., Tysons Comer), you
have a plethora of high speed access service providers and service options and
more are coming all of the time. If you are a small or medium size business
outside those limited geographic areas, your high-speed Internet access options
are very limited - if they exist at all. Since 1992, our industry has contracted
with iMapData.com to evaluate and map for us where competitive local exchange
carriers (CLECs) are deploying their fiber optic lines in order to provide
broadband service. During this eight-year period of study, what we learn each
year from these studies is that the CLECs 'just continue to build one on top of
the other, in the same geographic areas to service business customers. The only
real significant difference from year-to-year is that we have more CLECs digging
up the same streets to provide service to the same class of business customers.
Those of us who live and or work in Washington have been personally observing
this pattern. The story about the digging up of the Washington D.C. streets has
been a hot topic in the local media for two weeks now. One carrier digs up the
streets, fills it in and then the next carrier comes along and digs it up again
and then the next and the next. Multiple fiber-based CLECs are going after
business customers in a limited geographic area. Washington is not unique in
this respect. I am attaching to my testimony maps of 15 cities, Washington and
14 others that we have studied and analyzed over this eight-year period. These
15 cities are mature ones, with established downtown business districts. As you
can see from each of these maps, the fiber being installed by CLECs is being
installed almost exclusively is these downtown areas or edge cities. The areas
shown in gay are in the city, but they have no CLEC fiber optic service. So, if
you are a business or residential customer located in the areas depicted in gay
on these maps, you will have no access to these fiber facilities or service from
these CLEC providers. As you can see on the maps, the great preponderance of
these very large cities is not being served by these CLECs. Who serves in the
gay areas on these maps? That is simple. If you are a business, you will have
only one effective choice, DSL service, and then only if it is
available in your area. You either receive the service from your ILEC or a DLEC,
with the DLEC providing, as I have pointed out, service through collocation in
the incumbent's central office and through the use of the incumbent's
DSL conditioned loops. Business customers located in these gay
areas are also unlikely to have access to cable modem service from cable
operators, because for the present and the foreseeable future cable will be
providing residential broadband service. This is not Just my view. The
investment community concurs. Scott Cleland of The Precursor Group said the
following in his February 8, 2--- Research Report on this subject: (1)"Most of
all the CLECs built out to serve the same high-end customers, which met two
chiteria; high average customer revenue and geographic density. Despite industry
pledges to offer broadband universally, it probably won't happen because it will
be uneconomic...... (2)"In the next three to four years, TPG projects that up to
2- %of the country may have a choice of three to four different broadband
facilities, roughly 3-%of the country may have the choice of two and half of the
country may have only on or no broadband facility to choose from." (3) "TPG
expects cable to remain the primary residential broadband facility for the
foreseeable future." (4)"TPG expects DSL to remain the
secondary broadband infrastructure for the foreseeable future." Who are these
businesses that cannot receive high-speed Internet access or access from only
DSL service. In Washington D.C., they are, for instance,
doctors, clinics and single family home, construction companies. Why do
businesses of this type need high speed access? Our iMapData.com study shows as
follows: -The need for current availabilities of goods, products, services,
supplies, etc.; -The need for current prices; -The need to place orders fast;
-The ability to bid for different supplies at different prices and thereby
reduce costs; -The need for speedy downloading of bulky documents (e.g.,
multiple real estate listing, building codes, patient records, insurance forms);
-The need for speedy downloading and uploading of pictorial documents (e.g.,
photographs of supplies, furnishings, houses, floor plans); - The need for
speedy downloading and uploading of data-dense schematics (e.g., architectural
blueprints, engineering schematics, design schematics, CAD files, X-rays, Cat
scans, MRIs. Medical facilities and physicians are a special case according to
our study by iMapData.com as doctors split their time between their
offices/clinics and their hospitals. They rely on high speed Internet
transmission of X-rays, CAT scans, MRIs and all the schematic tools of their
trade. Downloading and uploading of data-dense schematics are almost impossible
at standard modem speeds. RURAL AREAS If you are on the wrong side of the
digital divide, such as in rural areas, your continued survival and prosperity
may 'just depend on the ability to obtain affordable high-speed access just as
in the past these areas depended upon highways, waterways and railroads. The
added costs and limitations caused by government regulation merely exacerbate an
already bad situation. Small towns and rural areas without high speed Internet
access will continue to find it even more difficult to attract 'jobs and
industry. ADVANCED ILEC SERVICES SHOULD BE DEREGULATED If the Congress or the
FCC, for that matter, want to accelerate broadband deployment, they can do so by
deregulating these services. All of the major broadband bills currently before
the Congress move positively in this direction: Senator McCain (S-1- 43),
Senator Brownback (S. 877), Congressmen Tauzin and Dingell (HR 242-),
Congressman Goodlatte (HR 1686) and Congressman Boucher (HR 1685). All of these
bills would create an incentive for ILECs to deploy broadband capability. Before
considering other ideas and approaches to this problem, such as tax incentives
and universal service subsidies, we urge you to eliminate the regulatory
constraints first. After deregulation, you can then evaluate what occurs in a
deregulated environment. You as policyrnakers can then with more precision
target the areas that should really be the beneficiaries of such tax credits or
regulatory subsidies. 11. INTERNET BACKBONE - STILL ANOTHER DIGITAL DIVIDE
Attached to my testimony and on the chart behind me is a map of the United
States which you may have seen before. I use it in conjunction with my
testimony, because it compellingly shows the need and justification for
interLATA data relief. It also shows the rural digital divide. Can anyone deny
it after looking at this map? The map shows the location of Internet backbone
POPS (points of presence) also called Internet hubs. A POP or hub is a high
speed ramp using a highway analogy. It is the place where you get on the
Internet backbone network. If you are a long distance from a POP, your service
will be more costly and in many cases you will suffer service degradation. Look,
for instance, at the Upper Tier of States running West from Minnesota to
Washington. There 'just are not any POPs. In these states, you have a very long
way to go just to get connected to the Internet much less on a high speed basis.
As you can further see, however, there are areas 'just like this in the regions
of every Bell operating company (BOC), not just US West. The Internet POPs
depicted on these maps are like train stations using a rail analogy and the
Internet backbone can be analogized to the rail network connecting the cites.
You need to be able if you are an ISP to get to this POP (hub) in order to
participate in the Internet and all of its e-functions. The greater the distance
from a town to an Internet hub (POP), the more expensive the service, the
constrained the speed of the service, and the more limited the service
offerings. These towns can get on the slower, narrowband Internet, but cannot
acquire high speed broadband connectivity at a reasonable price, if at all. The
broadband Internet is fast becoming an essential infrastructure for business.
Broadband e-commerce applications are providing are providing enormous choice,
value, and benefit to users, and e-business is quickly becoming an essential
tool for the manufacturing, service, and agricultural sectors. Communities not
served by Internet backbone hubs risk losing critical industries to connected
cities, and their citizens risk missing out on the full educational and
commercial benefits of the Internet. The backbone hubs necessary for providing
such benefits, however, are to a large extent available only in the country's
largest metropolitan areas. Smaller cities and non-metropolitan areas do not
have the same access to these high-speed connection to a backbone hub, and while
over one thousand hubs (POPs) have been put in place, less than one hundred are
in non-metropolitan areas. In fact, 6-.7 percent of all metropolitan areas do
not have a connection to a Internet backbone hub (POP). Therefore, the vast
majority of Americans do not have direct access to the Internet backbone in
their own communities. Network economics and the nature of telecom markets give
strong incentives to deploy networks in densely populated and high- income
areas. In addition, regulations affecting investment, markets, and suppliers
also impact backbone deployment. The RBOCs are uniquely positioned to address
this problem and are the only ones prevented from doing so. Let me not fail to
mention one additional thought: The Internet backbone is being increasingly
concentrated in a few hands -- evidence the merge of MCI WorldCom and Sprint.
For competitive reasons, BOCs entry into this market will go a long way causing
this concern to evaporate. MYTHS ABOUT INTERLATA DATA RELIEF I would like to
take a moment to clarify some confusion regarding the implications of the
deregulatory relief I have suggested. First, critics claim the Internet
deregulations I'm suggesting will undo reforms of the 1996 telecommuncations
act. Not True. In 1995, the commercial Internet was still in its infancy. The
Internet deregulation I am proposing would leave the current telephone
regulation intact. Second, critics contend that this deregulation removes the
Bell's incentives to satisfy Section 271 of the Telecom Act which requires the
companies to open their local markets to competition before entering long
distance. Not True. These bills do not change voice regulation. The BOCs cannot
offer voice long distance until they get Section 271 approval from the FCC.
About 8- cents of every dollar for long distance service is for voice service.
This presents quite a market incentive. Conclusion Congress needs to address the
digital divide issue this year. Clearly, we are beyond debating whether there
really is a digital divide or a problem that needs to be addressed - with five
bills introduced or about to be introduced that address high speed Internet
access and deployment to rural areas everyone acknowledges that there is a
problem. We support all of the Senators that have taken the lead on this issue
and strongly urge that any legislative solution to address the digital divide
deregulate the offering of DSL and provide interLATA relief to
the RBOCs for data.
LOAD-DATE: April 4, 2000, Tuesday
