Copyright 1999 Federal News Service, Inc.
Federal News Service
APRIL 13, 1999, TUESDAY
SECTION: IN THE NEWS
LENGTH:
3306 words
HEADLINE: PREPARED TESTIMONY OF
WILLIAM
L. SCHRADER
CHAIRMAN & CEO
PSINET INC.
BEFORE THE
SENATE COMMITTEE ON COMMERCE, SCIENCE AND TRANSPORTATION
SUBJECT - INTERNET ACCESS AND THE CONSUMER
BODY:
Summary of the Testimony of Bill Schrader Before the Senate Committee on
Commerce, Science, and Transportation on Internet Access and the Consumer
I
am Bill Schrader, Chairman and Chief Executive Officer of PSINet, the largest
independent facilities-based Internet service provider in the United States. I
am also testifying on behalf of the Commercial Internet exchange, the largest
trade association of Internet Service Providers, which PSINet co-founded in
1991.
Since the passage of the 1996 Act, the explosion of Internet access
and Internet services to American consumers and businesses has been
unprecedented in the history of communications. Never before has a
communications technology or medium penetrated consumer markets, and offered
such a rich variety of information opportunity, as the Internet has since the
1996 Act. PSINet believes that the framework of the 1996 Act works well for the
Internet, and that Congress should keep that framework. Congress made two
decisions in the Act that are of critical importance to the unprecedented
development of the Internet since February of 1996. First, Congress decided that
the policy of the United States is to allow the highly competitive Internet
markets to flourish with minimal regulation. Second, Congress decided to provide
the local telecommunications monopolies with a specific path to deregulation
that requires opening up their local networks. The 1996 Act safeguards
competition, while providing the Bell Companies with the keys to their own
deregulation. I urge you to stay the course of competition set out in the 1996
Act.
The Bell companies argue that their data service offerings should be
deregulated so that they can offer ADSL services at a faster pace. But the Bell
companies are already deploying DSL services spurred on by competitive
pressures. Furthermore, this argument ignores the fact that the 1996 Act makes
possible DSL offerings by competitive carriers. For example, yesterday PSINet
announced a strategic partnership with Covad to offer DSL services directly to
our customers. As local competition grows, many more of these opportunities will
be available.
The Bell companies also argue that deregulation is of critical
importance to accelerating the deployment of DSL services to rural America. This
argument may make a good sound bite and appeal to Senators from rural states,
but it makes little sense. ADSL does not work when a customer is more than
18,000 feet from the phone company central office, as is common in rural areas.
Furthermore, if the Bell companies are so committed to rural deployment, why are
they selling off significant portions of their rural exchanges? There is reason
to be skeptical of Bell Company claims that "if you give us just one more
regulatory break, we'll roll it out." This sort of compromise has been struck
before and invariably the fabled services never quite materialize. In fact,
other technologies, such as wireless and satellite delivery systems, may offer
more significant potential for delivering high-capacity broadband service to
high-cost areas of the country.
Third, some Bell Companies have attempted to
justify regulatory relief on the basis of a supposed "backbone capacity
shortage." Nothing could be further from the truth. For example, PSINet's
network traverses the entire country with more than 230 points of presence
("PoPs") in the U.S, and is but one of numerous backbones that do so. PSINet
maintains PoPs in locations as diverse as Pascagoula, MS; Charleston, SC;
Billings, MT; Wichita, KS; Wheeling, W.Va.; Fargo, ND; Medford, OR; Joplin, MO;
and Amarillo and Abilene, TX. These places are as important to our network as
New York, Atlanta, and Phoenix. Simply stated, PSINet's network is designed
specifically to deliver broadband capacity, as demanded by customers throughout
the country. PSINet and other Internet backbone providers are doing their part
bringing highspeed Internet access to rural, as well as urban America. Indeed,
several features of PSINet's network advance the goal of rural broadband
service. For example, PSINet allows other ISPs to peer (exchange traffic, much
like telecommunications interconnection) with more than 100 PSINet PoPs in the
U.S. for free. These direct connections to more than 10% of the traffic on the
Internet speed data traffic significantly by avoiding potential congestion
points on the Internet. As PSINet's free peering arrangements illustrate, rural
ISPs may access PSINet's backbone-quality services at numerous PSINet PoPs.
We congratulate you for exploring these important issues, and look forward
to working with the Committee on broadband deployment.
***************
INTRODUCTION
Good morning, Mr. Chairman, and thank
you for the opportunity to appear before your Committee as it examines broadband
communications and the Telecommunications Act of 1996 (the "1996 Act"). I am
Bill Schrader, Chairman and Chief Executive Officer of PSINet. I am here to
offer testimony on behalf of my company, PSINet Inc., and as a founding member
of the largest trade association of ISPs, the Commercial Internet exchange
Association.
When I founded PSINet in the eighties, our company was the
first commercial Internet service provider ("ISP") in the United States. We
continue to be a leader in deploying highspeed, high-performance Internet
services. PSINet, located in Herndon, Virginia, is now the largest independent
facilities-based ISP in the United States. It is also the second largest ISP in
Japan and the far east. PSINet's network today includes more than 230 points of
presence ("PoPs") in the United States, and more than 500 PoPs worldwide, each
designed and built specifically to handle Internet traffic from customers that
employ a range of access methods. Submitted with this testimony is a route map
showing PSINet's extensive network in the U.S.
I want you to know, and as
the attached map shows, that Pascagoula, Charleston, Billings, Wichita,
Wheeling, Fargo, Medford, Joplin, Amarillo, and Abilene are as important to our
network as New York, Atlanta, and Phoenix. PSINet and our customers that are
Internet service providers deliver Internet access to both business and
individual residential users in these areas.
PSINet offers a full line of
services to business, government, and educational customers, including 37 of the
Fortune 100 companies, and federal agencies such as the Federal Trade
Commission. The PSINet Carder and ISP Services unit also offers consumer and
commercial Internet services on a private label basis to a community of more
than 6,000 U.S.-based ISPs, as well as some 500 large telecommunications
providers.
PSINet engineers and executives have developed many of the most
significant technical and product innovations in the Internet's history, and are
at the forefront of broadband Internet backbone investment and development.
PSINet also is actively exploring satellite and wireless delivery mechanisms in
rural and other underserved areas. PSINet has a major stake in delivering to its
customers throughout this country and the world high-quality, high- speed
broadband communications capability.
Mr. Chairman, I am at this hearing
today to tell you that the framework of the 1996 Act works, and that the
Congress should keep to that framework. The Congress made two decisions that are
of critical importance to the Internet, and that have provided significant
support for the unprecedented development of the Internet since the passage of
the 1996 Act. First, Congress decided that the policy of the United States is to
allow the highly competitive Internet markets to flourish with minimal
regulation. Second, Congress decided to provide the local telecommunications
monopolies with a specific path to deregulation that requires opening up their
local networks. The 1996 Act provides the Bell Companies with the keys to their
own deregulation. I urge you to stay the course of competition set out in the
1996 Act.
I. THE 1996 ACT HAS CREATED A VIBRANT FRAMEWORK FOR INTERNET
GROWTH AND COMPETITION
Since the passage of the 1996 Act, the explosion of
Internet access and Internet services to American consumers and American
businesses has been unprecedented in the history of communications. Never before
has a communications technology or medium penetrated consumer markets, and
offered such a rich variety of information opportunity, as the Internet has
since the 1996 Act. The Congress should take pride in the legal framework that
has supported this explosive growth. Some recent statistics provide a sense of
the growth of narrowband Internet access. In 1996, just prior to passage of the
Act, there were 9.5 million Internet user computers that store and relay
Internet communications; today there are approximately 43.2 million user
computers in the U.S. The ISP market in the United States today is made up of
more than 6,000 ISPs serving more than 60 million Internet users. Competition
and service for the consumer is abundant approximately 96% of Americans today
have a choice of at least four ISPs within their local calling area. And the
market should continue to grow explosively; one recent study estimates that
one-third of U.S. households have Internet access today, and that twothirds of
U.S. households will obtain access by the year 2003.
As you consider what is
the best set of rules for accelerating broadband deployment of
local telecommunications services, think about whether you want rules that
further entrench the Bell Companies in their local telecommunications monopolies
or whether you want rules that encourage a competitive structure for the local
telephone system and that support a competitive Internet. In contrast to the
Internet, today's local telecommunications market is marked by the absence of
competition. In fact, incumbent local exchange carders control 99% of the
country's local service business. PSINet is one of the largest customers for
each of the Bell Companies,and faces on a daily basis the consequences of the
lack of competition in the local telecommunications market. Lack of local
telecommunications competition produces fewer telecom choices, sub-optimal
telecom offerings, and overpriced telecommunications services for Internet
companies like PSINet, and ultimately for each and every Internet user in
America. However, only yesterday, PSINet announced a strategic partnership with
Covad to offer DSL services directly to our customers. As local competition
grows, many more of these opportunities will be available.
I know based upon
our experience dealing with monopolists in the local telecommunications market,
as opposed to competitive ISPs in the Internet market, that the procompetitive
provisions of the 1996 Act are critical for broadband services such as DSL to
reach their potential. This core feature of the Act must be allowed to work.
There is absolutely no reason to exempt the services offered from monopoly
facilities from the pro-competitive provisions of the 1996 Act. The incumbent's
underlying local facilities used to provide DSL services are fundamentally part
of its monopoly network, and have been paid for by the captive ratepayer. The
1996 Act's obligations for monopolies open access to unbundled elements of the
incumbent's network, cost-based interconnection, reciprocal compensation, and
flexible collocation arrangements---are all necessary for competing DSL
providers to gain a foothold in the market.
Consumers have benefited
enormously from competition in the "narrowband" Internet. Once competition for
broadband services begins to take hold in local telecommunications markets, the
American consumer will be mazed at what the Internet/telecommunications industry
and the 1996 Act can offer. Congress should stay the course and keep the 1996
Act intact to do its part to support the arrival of that competitive broadband
market of tomorrow.The principal justification to compromise on the
pro-competitive provisions of the 1996 Act is highly suspect. Bell Companies
claim that such relief will greatly hasten their deployment of DSL services.
However, due largely to competitive pressures, the Bell Companies already have
significantly and aggressively rolled out ADSL products. The current regulatory
environment clearly has not stopped the Bell Companies from entering the
broadband market.
So, some Bell companies--ware perhaps of the states
represented on this Committee--argue that removing pro-competitive safeguards
will accelerate deployment of their broadband ADSL services in rural areas. Now
this argument makes a good sound bite, and I imagine that it is very appealing
to Senators from rural states. But as I have learned by leading my company, and
with a thorough understanding of high-speed Internet technologies, I have to
tell you that it makes very little sense. ADSL is poorly suited to serving rural
customers. It does not work when a customer is more than 18,000 feet from the
provider's central off.ace, as is common in rural areas. Furthermore, Bell
Companies such as U.S. West have sold off many of their more rural exchanges.
I am also skeptical of Bell Company claims that "just one more regulatory
break, and we'll roll it out." This sort of compromise has been struck before
and, invariably, the fabled services never quite materialize. Instead, the
Congress should stick to its commitment that competition, not compromise, will
get the Bell Companies to hasten deployment. Compromises made in the name of
helping rural Americans may never, in fact, deliver DSL services to those same
Americans.
I would also add that compromises on the provisions of the 1996
Act are inadvisable because the 1996 Act already provides a sensible framework
for Bell Company deregulation in this area. The 1996 Act does not saddle Bell
Companies with any regulations that they do not have the power to release
themselves from. The 1996 Act does, however, provide that such deregulation be
preceded by specific and significant demonstrations from the Bell Companies that
they have, indeed, opened their local monopolies to competition. The Congress
should let the Bell Companies deregulate themselves, as the 1996 Act provides.
II. THE INTERLATA RELIEF THE BELLS PROPOSE WOULD RETARD, RATHER THAN
ADVANCE, COMPETITIVE, COST-EFFECTIVE BROADBAND SERVICES
Under the 1996 Act,
interLATA relief and local competition go hand-in- hand, which is good for the
deployment of competitive broadband services. The 1996 Act offers the Bell
Companies an enormous, incentive actually to open their local market monopolies.
The incentive is entering the interLATA market--both the traditional voice long
distance market and the Internet backbone and interLATA information services
markets. Congress was well aware in 1996 that the restriction applies across all
of the interLATA services.
Providing the Bell Companies with premature
interLATA relief before they fully open their local markets would fatally
undermine the local competition provisions of the 1996 Act. For example, what
Bell Company would have any real incentive to satisfy the Act's local
competition provisions if it were allowed into the interLATA data market today?
Some Bell Companies propose allowing interLATA data entry as a 271
"compromise." But "a bit is a bit," whether it's voice or data. Offering
interLATA relief to the incumbent monopolist gives the incumbent every incentive
to shift its traffic dramatically away from the incumbent's PSTN and onto its
interLATA "data" network. That would produce a variety of significant negative
impacts, including ending the Bell Companies' incentives to open their
facilities to local competition. Therefore, the incentives of the 1996 Act
designed to open the local monopolies cannot be compromised. Again, I urge the
Congress to stay the course on the 1996 Act. Further, some Bell Companies have
attempted to justify their desire for interLATA relief on the basis of an
alleged "backbone capacity shortage." As the FCC recently confirmed, nothing
could be further from the truth. PSINet maintains more than 230 points of
presence ("PoPs") in the U.S., including the communities I mentioned earlier,
that are connected to each other and to the Internet by T1 and T3 dedicated
lines, augmented by 10,000 mile OC-48 backbone arrangements. Simply stated,
PSINet's network is designed specifically to deliver enormous, backbone
capacity, as demanded by the customer.
Each PoP is built to a precise,
fullservice standard to allow customer choice of access method dial-up analog,
ISDN, or dedicated lines so that it serves both large and small customers.
PSINet's national PoP deployment illustrates how Internet backbone providers are
serving smaller communities with high-speed network access points, even if that
community may not be able to support a large DS3 PoP. PSINet and other Internet
backbone providers are doing their part-- ringing high-speed Internet access to
rural, as well as urban America. As the attached map shows, the PSINet network
traverses the entire country.
Several features of PSINet's network advance
the goal of rural broadband service. For example, PSINet allows other ISPs to
peer (exchange traffic, much like telecommunications interconnection) with more
than 100 PSINet PoPs in the U.S. for free. These direct connections to more than
10% of the traffic on the Internet speed data traffic significantly by avoiding
potential congestion points on the Internet. As PSINet's free peering
arrangements illustrate, rural ISPs may access PSINet's backbone-quality
services at numerous. PSINet PoPs.
Keep in mind, as you think of our
network, that in the highly competitive Internet market, PSINet is only one of
many ISPs that provide backbone access and services to all Americans. Other
companies competing in this market include: AT&T, MCI WorldCom, Sprint,
Qwest,Level Three, and LCI. Further, other technologies than Bell Company
wireline facilities, such as wireless and satellite delivery systems, offer
tremendous, potential to deliver additional highcapacity broadband service to
high-cost areas of the country.
III. THE INTERNET SHOULD REMAIN FREE OF
ENCROACHING GOVERNMENTAL REGULATION
As I indicated above, the other message
I bring to you today is that the other fundamental aspect of the 1996 Act is the
choice to keep the competitive Internet industry free from government
regulation. I urge you to stay that course, as well.
In contrast to the
local exchange market, today's Internet market is highly competitive and
dynamic. Backbone providers may build high- speed capacity, or acquire or lease
it from long distance providers or providers of newer transmission methods.
Unlike the local telecommunications market, no Internet provider today enjoys a
monopoly on services, so that issues of reliability, speed, and quality of
service are key determinants to the survival and success of each provider,
whether one looks at the Internet backbone providers or the local dialup ISP
providers.
Indeed, the innovation driving much of today's Internet stems
from the market imperative for competing providers to develop new and better
approaches to enhance speed, reliability, and customer satisfaction. This
market-based innovation furthers the highest objectives of Section 706 of the
1996 Act by promoting advanced services through competitive markets.
ISPs
have long been responsible for the technological innovations and market-based
Internet solutions for their customers, including broadband services. The
remarkable success of the Internet, however, flourishes because there are a
multitude of innovative providers and because the market, and not regulation,
dictates success. The Congress, as it did with the 1996 Act (i.e., Section 230),
should keep to that vision now.
END
LOAD-DATE:
April 14, 1999 
