Copyright 1999 Federal News Service, Inc.
Federal News Service
APRIL 13, 1999, TUESDAY
SECTION: IN THE NEWS
LENGTH:
3948 words
HEADLINE: PREPARED TESTIMONY OF
SOLOMON
D. TRUJILLO
BEFORE THE SENATE COMMERCE, SCIENCE AND
TRANSPORTATION COMMITTEE
BODY:
Providing
Consumers with High-Speed lnternet Access Requires Congressional Action
INTRODUCTION
A key public policy question facing Congress is whether the
intent of the 1996 Telecommunications Act to encourage widespread deployment of
advanced telecommunications services to all Americans is being fulfilled. Today,
that means answering the question: Are high-speed broadband networks...the "big
pipes" that are essential to the growth of distance-learning, e-commerce,
telemedicine...reaching all Americans?
The answer is that they are not.
Regulation and unequal treatment of industry players is widening the Digital
Divide... redlining millions of small- and medium-sized businesses, rural areas,
inner cities and government and educational institutions. Large businesses have
reaped the benefits of hyper-competition among telecommunications providers, but
the benefits of those services have stopped there. Congress should act to lift
the regulatory restrictions that have created disincentives for
telecommunications providers to deploy high- speed services more widely. These
regulations have their roots in the early 80s and were designed to regulate
longdistance voice calls. Now, they are applied - inappropriately and harmfully-
to data.
If those restrictions were lifted, U S WEST alone could provide
high- speed services to an additional two million households and businesses
through an additional 260 central offices in one year alone and reach 77% of the
total households and businesses in U S WEST's service territory.
That's
because the issue is fundamentally about competition, and for whom competitors
are competing. It's about choice, and whether Americans will have it. It's about
incentives, and creating the incentives that lead to investment in high-speed
data infrastructure. It's about the marketplace, and being able to offer
consumers what they want at prices they can afford.
Almost everyone agrees
that the Internet - the most significant technological and communications
development in the 20th century - should not be regulated. However, the Internet
is only as free and unregulated as its most regulated element, and today, the
telecommunications parts of that network are subject to pervasive regulation --
to the detriment of tens of millions of Americans.
Few foresaw that the
telephone would have uses other than voice communication. Today, anything can be
converted into binary digits or bits (on/off electronic pulses of zeroes and
ones and sent down the line).
HOW THE INTERNET WORKS
Millions of
computers can now communicate with each other in the worldwide Internet using
high-speed networks. Bits can arrive from anywhere, ready to proceed to the next
step in the digital domain and finally be put to use.
To travel to another
computer at high speed, the bits can travel via satellite, cable modem or
high-speed, packet-friendly, wired telephone data circuits. An ordinary
telephone line carries low-frequency sound signals and cannot handle bits at
this rate. So unless you install a high-speed line, you can't transmit video,
graphics, fingerprints, books with pictures, educational video, x-rays or other
bandwidth- hungry applications. A modem converts the computer's fast digital
on/off signals into a low-frequency sound signal.
All computer users, at
home and at work, can link into the global computer communications network --
the Internet. People can send each other electronic mail; they can visit web
sites for information, entertainment, commercial services and software of all
kinds.
Companies, hospitals and universities have computers that link
directly to the Internet Small business and home computers link via a modern and
phone line to a service provider like America Online. The service provider is an
organization with powerful computers that connect to the Internet and store
users' web sites. A telephone line links each home computer via its modem to the
service provider. Home users subscribe to a service provider, which is a gateway
to the Internet and e-mall services.
The Internet reached 50 million users
faster than any previous technology, including radio, television and cable
television. It grew from 100,000 sites three years ago to four million today.
Last year, it delivered 40 times as much mail as the U.S. Postal Service. Nearly
3,000 persons log onto the Internet every half-hour...for the first time. The
Internet has grown so fast because the marketplace has been allowed to work.
A NETWORK ONLY AS FREE AS ITS MOST REGULATED PART
Computers aren't
regulated. Software isn't regulated. Internet service providers aren't
regulated. The network of routing computers that forms the backbone of the
Internet isn't regulated. Web sites aren't regulated. The browser isn't
regulated. But the high-speed data links that connect schools, businesses,
hospitals and homes, that mark the beginning and the end of the Internet for
millions of Americans, are regulated-at least for telcos.
These regulations
grow out of a 1982 agreement between the Justice Department and AT&T to
divide local and long-distance voice calls by establishing 197 arbitrary
geographic boundaries that have no relation to markets, population
configurations, political jurisdictions or technology. These regulations are now
applied to the data traffic on the Internet, even though data, by its very
nature, is global and has no geographic boundaries.
THE EFFECT OF REGULATION
ON DATA
These regulations mean that some companies are prohibited from
moving data across these arbitrary boundaries known as LATAs (Local Access
Transport Area). These companies consequently have a disincentive to invest in
their data networks, particularly in rural, suburban and residential inner-city
areas. This discourages investment in anything but urban business corridors and
tech centers, and deprives others of competitive choice, as illustrated by maps
created by economist Dr. Bill Lille), of InContext. It also artificially
inflates the cost of data services.
This constitutes nothing less thin a new
industrial policy that selectively benefits some segments of society, but
penalizes others.
Can you imagine a nation that wouldn't bristle at a policy
that allowed some doctors to use new medicines, while telling others that they
couldn't? Would you think it made sense to tell farmers that they could use one
tractor on one piece of land, but must buy another to plow another piece of land
across some arbitrary boundary?
And how ridiculous would it be (and how
would the public react) if our nation allowed one segment of the population to
drive on the highways while forcing others to walk?
This is exactly what has
happened and what continues to happen in telecommunications.
Today, the
great need and great demand for broadband services is in the small and mid-sized
business market, and especially those located outside of downtown business
districts and edge-of-city office parks. If these businesses are denied access
to high-speed, broadband telecommunications, then government regulation will be
responsible for killing jobs, slowing growth and stifling opportunity for those
located in America's small towns and rural areas.
SELECTIVE DEPLOYMENT OF
ADVANCED SERVICES
No one else seems to be willing to widely deploy
high-speed services (also known as "broadband"). The Bill Lilley studies have
shown that investment in broadband infrastructure has been strictly limited to
high-density, urban business areas and technological parks. He has mapped new
telephony business deployment in 10 of U S WEST's biggest markets. Virtually all
of the new advanced telecommunications equipment and capital spending is aimed
at large business enclaves. The record shows that they continue their
concentration on high-end areas, even though that's where they face the greatest
competition.
New market entrants (called Competitive Local Exchange
Carriers, or CLECs) are not building out to suburban, rural, and minority areas.
If companies like U S WEST cannot transmit data across LATA boundaries, the
economics are not there for them to build out the facilities needed to provide
high-speed data services.
This is particularly important for consumers in
the many rural areas U S WEST serves. U S WEST has the largest geography of any
RBOC, more than twice the RBOC average. U S WEST also has the fewest number of
access lines and an average loop length that is almost 40% longer than the RBOC
average. Nearly one-third of U S WEST's customers live in rural areas, compared
the about one-fifth for the other RBOCs. The CLECs show no inclination to serve
those vast numbers of customers.
THE EFFECTS OF SELECTIVE DEPLOYMENT ON
CONSUMERS
A report by John Oppenheimer and Gideon Stein of Glocap
Consulting, LLC, showed that in Washington State, 67% of people in urban areas
have at least one option for high-speed services compared to only 10% in rural
areas. Wes Hare, La Grande, Oregon city manager, said, "This is not just a rural
problem, it is a problem of people without money and without power."
Mary
Leahey, producer of the PBS documentary, "Digital Nation," said, "most rural
area leaders consider access to high-speed telecommunications a matter of
survival."Everyone who buys or sells products or services understands the
importance of high-speed broadband access. A druggist in West Virginia who is
filling a prescription for an addiction-sensitive drug has to go on-line to see
if the prescribing doctor is current with Drug Enforcement Administration
registration. A contractor in Arizona needs to refer to current Federal
regulations on highway curbs and can do that via the Internet. If our connection
is spotty or slow, you're at a deeper competitive disadvantage every time you
log-on. And if you don't have access to data-rich files over a dial-up 28.8K or
56K connection, you need high-speed service.
Yet no one is building out the
Internet to serve tens of millions of Americans, to serve hospitals, libraries,
law enforcement agencies and the nearly 11 million small businesses in the
United States.
THE LOGICAL EFFECT OF ILLOGICAL REGULATION
Those
regulations have excluded millions of Americans from the benefits of the
Information Age. The rules now in place give new market players no incentive to
invest in under-served areas and at the same time prohibit companies like U S
WEST from filling the void.
There is no reason to believe this will change
without direct action from Congress.
The head of MCI/WorldCom, Bernie
Ebbers, has said, "We're going to concentrate on business customers, and you
won't see us in places like Butte, Montana."
AT&T and TCI repeatedly
told the FCC that the fulfillment of the Telecommunications Act vision in
providing competition to incumbent telephone companies should be a reason for
approving their recent merger. Yet in their proxystatement on the merger, they
told their shareholders that even though they entered into talks with the
"expectation" that a merger would lead to cable telephony services (including
high-speed data services), that goal "may not be realized." The proxy further
stated that there are no assurances that necessary deployment of advanced
services could take place since "it will require significant attention from
management," which may be preoccupied with other issues.
Consumers are
penalized when their only choice of a provider who can get them onto the
Internet is a company that can't move their data across LATA boundaries. If U S
WEST could transmit data across LATAs, the costs for consumers would decline by
approximately 20%. At the same time, U S WEST would have a reasonable incentive
to expand its high-speed data offerings to reach an additional two million
customer households.
THE ADVERSE ECONOMICS OF REDUNDANCY
Because U S
WEST is not allowed to aggregate data traffic from central offices in different
LATAs, it must duplicate facilities in each one. Each central office must
connect to a data-friendly Asynchronous Transfer Mode (ATM) switch located in
the same LATA. Each duplicate ATM switching system and supporting equipment adds
more than a million dollars to the costs of serving small- and rural-market
customers. Consequently, the deployment of high-speed Digital Subscriber Line
technology to rural areas under current regulations makes little business sense.
A PROBLEM CONGRESS ANTICIPATED
Congress recognized file potential plight
of rural Americans in the Telecom Act: "Consumers in all regions of the Nation,
including...those in rural, insular, and high-cost areas, should have access to
telecommunications and information services, including.., advanced
telecommunications and information services, that are reasonably comparable to
those services provided in urban areas."
The FCC says there is no investment
problem, but ignores the fact that services are not widely available.
In a
recent report to Congress, the FCC concluded that advanced Internet services
were presently being deployed in a reasonable and timely manner. They based this
finding on evidence that 375,000 customers are now subscribing to broadband
services throughout America. By their own math, they say this amounts to a
residential penetration of about four-tenths of one percent. The FCC also said
that it "... lacks information on the deployment and availability of advanced
telecommunications availability in disadvantaged urban areas" but the National
Telecommunications and Information Administration in "Falling Through the Net
II: New Data on the Digital Divide" reported that the digital divide increased
between 1994 and 1997 and that "Blacks and Hispanics now lag even further behind
whites in their levels of PC-ownership and online access."
The National
Rural Development Council reported that low-income, minorities, young, and
less-educated in rural or inner cities are more likely to be technologically
disadvantaged: "45% of all have access to the Internet - 82% in urban areas, and
31% have access in rural areas."1
The FCC also wrote, "At this time, we do
not find that lack of backbone is a pervasive factor in rural areas," yet 13 of
the 27 (48%) of the long-distance calling areas in U S WEST's territory are
untouched by national high-speed backbone networks.
However, Senator Conrad
Bums of Montana estimates that only 2% of Americans have access to high-speed
services.
Apparently, the FCC equates significant investment in high-speed
access by competitive local exchange carriers (CLECS) to significant access to
services. By this logic, one could measure rainfall in the U.S. and conclude
that Death Valley is a forest. But the truth is that access applies only to
large businesses in metro areas.
FROM THEORETICAL HARM TO REAL DAMAGE
Are these policies hurting people? Yes.
The unavailability of broadband
services, which can be delivered by telephone lines, cable modems or satellite,
is more than just a nuisance for a techie frustrated that it takes an hour to
download a large file off the Internet. It is particularly damaging to people
involved in small business, who are missing out on the opportunities afforded
big, urban businesses to dramatically reduce the cost of business transactions
and increase productivity.
IMPORTANCE OF BROADBAND TO SMALL BUSINESS
Small businesses are struggling to overcome this disadvantage. Increasingly,
they are being forced to conduct business with their customers (usually large
corporations) via internal corporate communications networks and to compete with
on-line businesses such as Amazon. corn and CDNow. A recent study predicts that
business-to- business commerce transactions on the Internet will top $842
billion by the year 2002, more than double the amount predicted a year ago.
One example of how lifts Internet revolution is revolutionizing business
involves the automobile dealerships in Montana.
Steve Turkiewicz, executive
director of the Montana Auto Dealers, told attendees at a "Digital Divide
Summit" that all dealer-factory communications for one major U.S. auto maker are
in the process of being switched to a company intranet system. But most Montana
dealers have no access to high-speed broadband services and must spend hours
on-line- if they can even get a connection- trying to order vehicles.
Moreover, these dealers cannot take advantage of on-line training for their
technicians. Often, the only alternative is a costly trip to a distant training
location. "If rural dealerships continue to be limited by technology, we will
not be able to compete," Turkiewicz said. Rules written and imposed years before
the Internet rose to prominence are hurting people like Steve Turkiewicz today.
IMPORTANCE OF BROADBAND TO FARMERS Farmers rely heavily on computers and the
Internet to conduct business transactions and obtain information. Jim Burg, a
South Dakota Public Utilities Commissioner and a farmer, also spoke at the
"Digital Divide Summit." He said that over the Internet, farmers can get access
to resources and information that was never before available, and conduct
business from their home that previously required trips to the bank, the grain
elevator, the feed store and the auction house. But farmers' daily use of the
Internet is hampered by low-speed connections. These extremely slow and
unreliable connections rob valuable time from the farmer's day and tie up
telephone lines and computers for long periods of time. Burg said, "People in
rural areas need (broadband) services more than people in town."
IMPORTANCE
OF BROADBAND TO HEALTH CARE
The Inland Northwest Telehealth Services
regional network connects six hospitals in Spokane and 11 more hospitals in
rural areas of Eastern Washington. The same highspeed link in Spokane costs
nearly three times more a month in rural areas, according to Defray Lordan of
Inland Northwest. In the case of the small town of Newport, Washington, a
high-speed link would cost $2,400 a month, making it prohibitively expensive.
Rural communities such as Newport are left in a "very dangerous position"
according to Lordan.
IMPORTANCE OF BROADBAND TO GOVERNMENTS
Nebraska
operates a high-speed data network that connects various government agencies,
educational institutions and Native Americans reservations across Nebraska. The
connections between sites in northeastern Nebraska are less robust than those
that comprise the rest of the State Network because it is significantly more
expensive to send data across the LATA boundary that divides Omaha, Nebraska,
and Sioux City, Iowa. As a result, the capacity of the State Network in
Northeastern Nebraska is insufficient to accommodate new network applications,
such as graphics-rich content from the National Crime Information Center or
public video conferencing. Because existing competitors to U S WEST have proven
unwilling or unable to provide service on affordable terms, Nebraska and U S
WEST have jointly asked the FCC to allow U S WEST to do what others will not.
IMPORTANCE OF BROADBAND TO EDUCATION
Recently, a coalition of
universities and government institutions - including Arizona State University,
the Colorado School of Mines, Colorado State University, the Universities of
Colorado at Boulder and Denver, the National Center for Atmospheric Research,
the University of New Mexico, the University of Utah and Utah Slate University -
asked U S WEST to submit a proposal to build a high-speed network connecting
these institutions. Because of the lnterLATA restriction, U S WEST could not
offer to build an integrated wide-area network The project was shelved.
In
short, those most likely to benefit from the Internet and services like
electronic commerce, distance learning and telemedicine are the least likely to
have affordable access to high-speed broadband networks.
WHAT IS THE FCC'S
SOLUTION?
The FCC offers a faulty solution to the problem: Allow companies
like U S WEST to provide high-speed services, but only through separate
subsidiaries. This approach is predicated on the belief that the economic models
(that already show little or no incentive to serve neglected areas) will improve
if providers bear the duplicative costs of setting up separate companies. For U
S WEST alone, just the systems costs for a separate subsidiary would exceed $200
million. The expenses of setting up anew company, paying an Internet backbone
provider and coveting resale expenses would mean an increase in highspeed
service costs of 50% to the average consumer. All it takes is a little
regulation to skew the economics of the Internet a lot.
The separate
subsidiary scheme is clearly illogical, and it ignores the reality that
competitors such as AT&T can provide such services without any separate
subsidiary requirement, and will do so with a take-it-or-leave-it approach by
imposing themselves as the only available Internet Service Provider to cable
modem customers.
Some fear that if given the authority to transmit data
across LATA boundaries, companies like U S WEST would monopolize the market. But
as the FCC itself has noted, "The preconditions for monopoly appear absent...
The record does not indicate that the consumer market is inherently a natural
monopoly."2 Instead, removing the interLATA restrictions on data would being new
entrants to the market, bring new competition, and serve to lower prices and
expand broadband deployment.
WHAT IS THE RIGHT SOLUTION?
Congress must act to remove government regulation from the Internet and
bring broadband to more Americans.
U S WEST'S COMMITMENT TO DEPLOYING
BROADBAND
How will this help consumers? If Congress removes government
regulation from the Internet, U S WEST would he able to deploy high- speed
services to smaller communities and serve an additional two million households
throughout our territory - a total of 77% of its customers. And that's just U S
WEST and our territory. Others will do likewise in other parts of the country.If
Congress acts, U S WEST would be able to deploy greater bandwidth to many
additional smaller markets. This would alleviate the network congestion rural
ISPs and subscribers face. It would decrease the costs of their connections to
the Internet by reducing the need for backhauling, and it would improve the
quality of their connections by allowing them to reach the upper levels of the
Internet hierarchy in fewer hops. Every company- the local service carriers, the
long-distance carriers and the competitive local exchange carriers - is a new
entrant in data services. We are all building out new networks. We are all
investing in research and development to figure out how to achieve the rapid and
pervasive deployment of high-speed, broadband transport. There is no rationale
whatsoever for regulating any provider of data services - and certainly not for
regulating some and not others.
U S WEST has the capability, the capital,
the desire, and the technology to serve rural and urban customers, but
regulators are preventing us from doing so. In essence, companies that can serve
aren't, while those - like U S WEST - that want to, can't.
Congress must act
to deregulate data services, including the transmission of data services across
LATA boundaries to achieve the goals of the Telecom Act.
That will ensure
that high-speed services are being widely deployed to more Americans in a timely
fashion.
1 47 USC 254 (b) (3) 2 "In the Matter of Inquiry/Concerning the
Deployment of Advanced Telecommunication Capability to all Americans in a
Reasonable and Timely Fashion, and Possible Steps to Accelerate Such Deployment
Pursuant to Section 706 of the Telecommunications Act of 1996." CC Docket No.
98-146, February 2, 1999.
END
LOAD-DATE: April
14, 1999 
