Copyright 1999 Federal News Service, Inc.
Federal News Service
NOVEMBER 4, 1999, THURSDAY
SECTION: IN THE NEWS
LENGTH:
4738 words
HEADLINE: PREPARED TESTIMONY OF
CHARLES
S. HOUSER
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
TRIVERGENT
COMMUNICATIONS, INC.
BEFORE THE SENATE COMMERCE COMMITTEE
SUBCOMMITTEE ON COMMUNICATIONS
SUBJECT - THE DEVELOPMENT OF COMPETITION
IN THE LOCAL TELECOMMUNICATIONS SERVICES MARKET
BODY:
Good morning Mr. Chairman and members
of the Committee. My name is Charlie Houser. Since 1982, I have been involved in
the telecommunications industry as an entrepreneur, investor, executive, board
member, and/or CEO of several successful telecommunications companies. I have
served as Chairman of the Telecommunications Resellers Association, an
organization that represents 800 companies involved in the resale of
telecommunications services - a multi billion-dollar industry led by an
estimated $13 billion long distance resale segment. I have also served on the
board of directors of CompTel, an association representing over 300 competitive
telecommunications companies. During this time I have been fortunate to see huge
positive changes in the long distance market and the initial positive changes in
the local services market. Today, I serve as the Chairman and Chief Executive
Officer of TriVergent Communications, Inc. ("TriVergent"). TriVergent is a
privately held Integrated Communications Provider. TriVergent provides business
and residential consumers with a wide range of communications products and
services, including DSL, high-speed Internet, Web hosting and design, local
exchange, long-distance, and data-integration products. The company is building
an18-switch ATM-backbone, high-speed data network that will cover 26
southeastern metropolitan areas, including many second and third tier markets.
TriVergent, with a capital expenses budget of $350,000,000, owes its existence
to the Telecommunications Act of 1996 ("1996 Act" or "Act") and is making huge
economic investment and employing the efforts of hundreds of partners to bring
about the changes to the local telecommunications landscape that Congress
intended by the enactment of the 1996 Act.
A. INTRODUCTION
Thank you for
the opportunity to discuss the challenges facing the development of local
competition. To explain the position of TriVergent Communications further, let
me provide the Committee with some additional background. I think we can all
agree that, generally speaking, monopolies do not best serve the public
interest. Monopolies do not adequately respond to or meet customer demand; they
offer few service choices; they generally do not innovate; they do not price
competitively; and they have a history of using their market power to squash new
entrants. Over 20 years ago, federal policy makers ended AT&T's monopoly in
the provision of long distance services and the manufacturing of
telecommunications equipment. Under the watchful eye of Judge Greene and the
guidance of the FCC, the results speak for themselves: over 800 new competitors
have entered the long distance market, prices have dropped dramatically, new
services constantly come to market, and huge amounts of capital are being
expended to upgrade plant with the latest technologies. For the life of me, I
don't understand why the opening of the local markets to competition can't be
handled in the same way.
The 1996 Act, which many of you worked hard to
bring about, was designed to bring thesame benefits of competition to the local
telephone marketplace. The Act's passage was supported equally by the RBOCs and
other ILECs, the long distance companies, and by the new entrants into local
markets, the competitive local exchange carriers ("CLEC") - companies like
TriVergent.
The 1996 Act focused on turning a sector of the economy serviced
by monopolies, the local telephone markets for voice, data, and video services,
into a competitive market. Accordingly, the 1996 Act requires the RBOCs to open
the local market to competition first, and after the local market is opened,
then - and only then- do they have the fight to enter the long distance market.
At the time of the passage of the Act, Congress in its wisdom recognized that if
the RBOCs were allowed into long distance first, they would have no incentive to
open their local networks to competitors and the legislation would not achieve
its purpose. B. THE STATUS OF LOCAL TELECOMMUNICATIONS COMPETITION
Three and
a half years after its passage, there is evidence of the development of
competition envisioned by the Act. The good news is that well over one hundred
and fifty CLECs have entered the local market since the passage of the Act. Many
of these companies, like TriVergent, are rapidly building high-speed voice and
data networks to serve residential and business customers. Collectively, CLECs
have increased their market share each of the past two years, and now provide
services to approximately 3% of the local services market. Furthermore, CLECs
have already deployed approximately 20% of the fiber optic cable capacity
available in the United States. The bad news is that the RBOCs and ILECs have
fought the process tooth and nail and have prevented vibrant, open
competition.TriVergent and other CLECs offering local services are also making
particular progress in deploying advanced, broadband technologies. Along with
its local, long distance and internet service offerings, TriVergent will deploy
advanced DSL service throughout the southeastern United States over the next two
years. When combined with the efforts of other like- minded CLECs, over
two-thirds of the nation's population will be able to take advantage of this
remarkable service in the next two to three years.
The Act is beginning to
work, but I repeat it is only beginning to work. CLECs are just beginning to
establish a presence in the market and bring local service to business and
residential customers for lower prices. Additionally, CLECs are bundling local
service with other offerings including long distance, internet, and DSL
services. Because of the threat of competition, RBOCs and ILECs are being forced
to develop better products and offer these products for better prices. Despite
these gains, let me make certain that you understand that we are still a long
way from the robustly competitive local telecom marketplace that Congress
envisioned at the time of the Passage of the 1996 Act. As I said earlier, alter
three years, CLECs serve only 3% of all the nation's local telephone service
customers. As is apparent by this figure, while competition is growing, the
market is far from a fully competitive model today.
There are several major
reasons why the local telecommunications market still falls short of being fully
competitive. CLECs and, more importantly, their customers, still encounter
discriminatory and anti- competitive treatment from RBOCs and ILECs. RBOCs and
ILECs, through delay tactics and other frustrating and, in some cases, illegal
tactics, hamper efforts of CLECs to install their own facilities or interconnect
these facilities with those of the RBOC or ILEC. Let me be clear on this one
point - the most oppressive obstacle to local telephonecompetition is the RBOCs'
and ILECs' refusal to really open their markets to competition, not just in
word, but in deed. With adequate time I can site dozens of examples.
In an
effort to add a face to this message, consider the story of TriVergent. We began
offering local and long distance services as a reseller in April of 1998 under
the name of State Communications. In order to prevent any undo confusion, I will
refer to the company as TriVergent. TriVergent set out to provide local and long
distance telecommunications service to residential and small business customers,
primarily through resale, in Kentucky, Tennessee, Louisiana, Alabama, South
Carolina, Mississippi and Georgia. We were one of the largest CLECs in the
country (in terms of number of residential customers) and one of the few
alternative telephone companies targeting primarily the residential market.
By March of 1999, TriVergent had enrolled over 100,000 customers on its
local and long distance service. It is important to note that over 90% of
TriVergent's customer base were of the residential consumer flavor. Our
projections had us enrolling an additional 150,000 customers over the course of
1999. The bad news is that we have virtually abandoned our efforts in resale of
local services to residential and small business customers after investing over
$18,000,000 to that effort.
During the eleven months from April of 1998
until March of 1999, we proved three things: (1) customers wanted an alternative
to BellSouth; (2) TriVergent could attract and provision huge numbers of
customers; and (3) that BellSouth's reluctance to open and support its markets
prevented resale from being a viable alternative to facility deployment for
successful entry into the local services market. Unlike long distance, local
resale as an entry strategy into the local services market is a dismal failure.
In addition to totally inadequate discounts, inworking with BellSouth we
encountered the following difficulties:
-- NONRECURRING CHARGES AND FEES/l
-- FAILURE TO MEET FIRM ORDER CONFIRMATIONS/2
-- INADEQUATE AND
INCOMPLETE CUSTOMER SUPPORT SYSTEMS
-- DISCONNECTIONS AND INTERRUPTIONS IN
SERVICE/3
-- PROVISIONING DIFFICULTIES AND DELAYS/4
-- INVOICE
DISPUTES/5
-- ILLEGAL INTERACTION BY BELLSOUTH WITH TRIVERGENT CUSTOMERS/6
However, if you don't remember anything else about my presentation, please
realize this: The most important factor in explaining why resale is not a viable
option, but in fact a dismal failure, as a means of entry into the local
services market is the lack of an adequate wholesale discount and the refusal of
the RBOCs to offer alternative pricing structures. That is, there remain
consistent shortfalls between the wholesale discounts on local phone service and
the minimum discounts needed to make local service resale a feasible long-term
business.7 Again, resale of local phone service simply is not feasible as a
stand-alone, long-term business strategy, especially for companies targeting
residential customers. The proof is evident by the fact that we don't know of a
single company successfully deploying resale of local service as a viable
business strategy. The situation is insidious for two reasons. First, it nearly
eliminates a key market entry channel for small business service providers.
Unfortunately, we have witnessed several business failures in this arena.
Second, it denies consumers the benefits of a healthy resale market -
competition, innovation, and choice. Even when TriVergent approached BellSouth
on numerous occasions to request more reasonable discounts in exchange for
volume and term commitments, BellSouth would not work with TriVergent or respond
to proposals.8 The losers in this game are the residential and small business
customers.It is for these reasons that TriVergent has reevaluated its marketing
plan in favor of deploying its own facilities with the objective of migrating
its customers to these facilities. Unfortunately, we are experiencing similar
problems interfacing with BellSouth.
In short, the antics of the ILECs and
RBOCs severely constrain the CLEC's ability to bring consumers the products,
services, better prices, and choices that are being promised them. Further, the
RBOCs' and ILECs' efforts to persistently and continually litigate against the
policies of the Federal Communications Commission (FCC) and state regulators,
rather than work fairly with new market entrants has severely hampered the
development of competitors and the competitive process. The continuing failure
by ILECs to provide nondiscriminatory access to their networks and OSS
functionalities stands as a major impediment of local service competition.
As a result, TriVergent and other CLECs continue to encounter obstacles when
ordering loops, collocating in central offices,/9 and achieving number
portability necessary to allow consumers to switch seamlessly to a CLEC. For
example, under the section 2.1 of our interconnection agreement with BellSouth,
BellSouth is obligated to respond to collocation space requests within 10 days
of receipt of the request. We have 162 applications on file with BellSouth.
Responses to the applications have ranged from 19 to 86 days with the average
response time being approximately 50 days. These are issues the Committee should
make a priority. The Committee should remedy these problems so that we achieve a
fully competitive environment.
C. KEY COMPONENTS FOR FOSTERING COMPETITION
1. PRESERVE THE INTEGRITY OF THE 1996 ACT
For many years prior to the
passage of the 1996 Act, RBOCs and ILECs worked with Congress to pass the
legislation like the '96 Act. The RBOCs and ILECs were proponents of the Act and
accepted its provisions. Despite their failure to live up to their obligations
under the 1996 Act and open their networks to competition, several of the RBOCs
and ILECs now propose that they be granted exemptions from the Act's
market-opening requirements. The RBOCs and ILECs are now arguing that they must
be deregulated in order to encourage broadband deployment. In
reality, the RBOCs and ILECs don't want to meet their obligations under the Act
but want the ability to tilt the playing field in their favor by lobbying for
"Regulatory Relief'.
The ILECs' and RBOCs' argument that without such relief
they do not have sufficient incentives to deploy advanced broadband services is
preposterous. Contrary to their claims, the pace of broadband
deployment is accelerating faster than ever before because of the
passage of the Act. Companies like TriVergent are deploying broadband data
services throughout the United States. These competitors are meeting consumer's
demands by offering consumers access to technologies that the RBOCs and ILECs
have long ignored.
The small but steady progress made by CLECs and other new
market entrants has forced the RBOCs' and ILECs' hand. Only after competitors
offered new services, the RBOCs and ILECs have been forced to offer new services
to keep from losing customers. However, any decision to allow RBOCs Regulatory
Relief regarding data services could crush competitive efforts in the data
services arena and negatively impact competition in the local services arena, as
well. As long as the ILECs and RBOCs hold a monopoly over the loop and other
local networkfacilities used to carry voice, video and data calls, new market
entrants must rely on procompetitive legislation, regulation and the oversight
of the FCC in order to survive. Allowing the ILEC or RBOC to exempt the parts of
their networks from the unbundling requirements will destroy voice and data
competition because competitors need collocation, access to the loop and other
network facilities to provide competitive data services.
The balanced
approach laid out by the Act has opened the door to hundreds of small businesses
to compete in the local telecommunications marketplace. Three years of RBOC
litigation and non-compliance with the Act is standing in the way of the growth
of competition. Don't reward anti-competitive behavior with a change of the
ground rules under which the ILECs and RBOCs must operate.
2. KEEP THE
PRO-COMPETITIVE REGULATORY FRAMEWORK
The 1996 Act gives great impetus for
investment in telecommunications facilities because it opens markets to
competitors. In three years, the Act has produced tens of billions of dollars of
new investment. Facilities-based CLECs are rapidly building new, sophisticated
networks, and ILECs are upgrading their old ones. The beneficiaries of these
facilities build-outs will be customers, who finally have suppliers who want to
meet their demands, and equipment vendors, who are bringing out new products
every day. So long as competition is allowed to develop and gain steam, this
investment is sure to continue. However, the opposite is also true. Any
legislative activity to alter the Act, especially to roll back pro-competitive
rules, could freeze this investment activity. Deregulation the ILECs and RBOCs
claim as an entitlement under the Actwas to be a product of the local
competition the statute was intended to engender. The continued need for
regulatory oversight of the local market cannot be overstated. The burdens
associated with such oversight flow directly from the ILECs' and RBOCs' failure
to have met their statutory. responsibilities more than three years following
enactment of the 1996 Act.
3. SUPPORT THE FCC AND ITS PRO-COMPETITIVE
EFFORTS
With the proper framework and oversight, competition in the long
distance market has become a reality. For the same robust competition to develop
in the local arena, the same framework and, more importantly, oversight
mechanisms, must be in place. Give the FCC the resources to enforce its rules.
Expand the FCC's legal authority to impose penalties on the ILECs and
RBOCs for failing to open up their local networks and/or impede CLECs' progress.
Urge the FCC to complete its universal service proceeding; without subsidies
that are explicit and available to competitors, it will be virtually impossible
to bring competition to rural areas. Support the FCC's efforts to promote
reasonable rates and fair terms and conditions for collocation as excessive
rates and unreasonable terms have become important barriers to competitive entry
into data service markets. Support the FCC's efforts to promote full
implementation of the interconnection, collocation, unbundling and resale
provisions of the Act.
Regulatory efforts should be focused on eliminating
the many remaining obstacles to the competitive provision of local exchange
service, such as inadequate discounts. As we all know, competition promotes
innovation and the efficient deployment and use of telecommunications
facilities, which generates increased research and development and positively
impacts the growth of the market for telecommunications services.
D.
CONCLUSION
National policy guidance will be an essential element of any
regulatory scheme designed to promote local services competition for the
foreseeable future. By the passage of the 1996 Act, Congress "enacted...
sweeping reforms" to "open local telecommunications markets to previously
precluded competitors." After much delay brought about by the reluctance of the
ILECs and RBOCs to comply with its terms, the 1996 Act is only beginning to
produce significant benefits. While CLECs have driven the increasing
availability of local exchange and advanced services, RBOC and ILEC
obstructionist tactics in this regard are hampering CLEC efforts. Strict
adherence to, support for and enforcement of the Act will foster the development
of competition. Support for the FCC, the regulatory body charged with
enforcement of the act, will foster development of competition. We can then rely
on competition to drive investment and innovation. If, however, there are
amendments to the Act in the form of Regulatory Relief for ILECs and RBOCs,
there could be a significant cost: capital could dry up and competition in the
local exchange and advanced services arena might not develop. It's not
complicated. We have the 1996 Telecommunications Act in place. Let's enforce it.
We have a regulatory agency, the FCC, to administer the Act. Let's support them.
ENDNOTES
1 NONRECURRING CHARGES AND FEES: Anytime a customer made a change
to his/her account, BellSouth charged TriVergent a Secondary Service Charge.
These charges were incurred when a customer added or deleted an ancillary
service such as call waiting and in almost every situation in which a customer
altered his/her account. This cost TriVergent literally millions of dollars and
hampered its ability to make an acceptable gross margin.
The charges
BellSouth imposed on TriVergent varied from state to state despite the fact that
all work performed by BellSouth to make the customer requested change was made
in a single central office in Atlanta or Birmingham. The following list includes
a breakdown of Secondary Service Charges on a state-by state basis:
Tennessee - $17.00 Louisiana - $13.94 Georgia - $9.72 SC - $4.51 Kentucky -
$12.55 NC - $4.25 Florida- $7.87 Alabama - $6.80 Mississippi - $7.65
Additionally, if BellSouth's OSS interfaces are electronic and user friendly
as described by BellSouth, why does BellSouth charge the CLECs these amounts to
make a change that should only require a software load?
To date, TriVergent
has paid over $2,000,000 in disputed Secondary Service charges that, generally
speaking, BellSouth would and do waive for its own retail customers.
Monthly
Minimum
When a customer signs up with TriVergent, we are forced to pay
BellSouth a monthly minimum for all services ordered by that customer through
TriVergent. The issues involved with these charges are more easily identified by
way of the following example:
Customer A signs up with TriVergent on
February 1, 1999. After a call from BellSouth, that customer makes a change back
to BellSouth on February 15, 1999. Rather than bill TriVergent for the 15 days
for which the customer was serviced through TriVergent, BellSouth bills
TriVergent for a full month of service.
Realize that 95% of TriVergent's
customers have been with BellSouth and are simply requesting a "change as is"
order and all of these customers have already paid the initial one-monthminimum.
By making the change to TriVergent they are asked to pay an additional one-month
minimum not by TriVergent, but by BellSouth. Additionally, when and if the
customer switches back to BellSouth, they are asked to pay a third monthly
minimum charge.
By way of example, please review documents included in
ATTACHMENT A.
2 FAILURE TO MEET FIRM ORDER CONFIRMATIONS: BellSouth
regularly ignored Firm Order Confirmations ("FOC") in provisioning orders for
TriVergent customers. BellSouth's inability to complete the orders on time, if
at all, severely crippled the company's ability to deliver quality customer
service to our customers. Without this notification TriVergent had no record of
order completion, requiring the Company to place a call to BellSouth after the
due date. More importantly, the company lost the ability to complete the order
on the due date and was forced to request a new, much later due date for the
order, delaying provisioning for days.
By way of example, please review
documents included in ATTACHMENT B.
3 DISCONNECTIONS AND INTERRUPTIONS IN
SERVICE: Consumers that chose to switch to TriVergent and who, after signing up
with TriVergent, contacted BellSouth for one reason or another - to request a
final bill, ask about credits, or pay final invoices - reported that they lost
service before TriVergent had provisioned the order through BellSouth.
By
way of example, please review documents included in ATTACHMENT C.
4
PROVISIONING DIFFICULTIES AND DELAYS: BellSouth commonly delayed - sometimes for
days on end - in provisioning orders for TriVergent customers while BellSouth
representatives contacted those same individuals and promised that BellSouth
would have the customer's service up and running as soon as possible. This type
of discriminatory treatment significantly injured TriVergent's business.
By
way of example, please review documents included in ATTACHMENT D.
5 INVOICE
DISPUTES: The mechanisms in place for the resolution of disputes are inadequate.
TriVergent issues a notice to BellSouth disputing specific charges included by
BellSouth on the latest BellSouth invoice. In every instance it takes BellSouth
months to issue a credit to TriVergent even though BellSouth has acknowledged
the billing error when disputed. If TriVergent refuses to pay portions of its
invoice, BellSouth threatens to stop provisioning TriVergent orders. Therefore,
TriVergent is forced to pay out amounts that are not due to BellSouth and, in
doing so, lose the ability to put these resources to better use for the Company
while BellSouth hangs onto the funds for months until it issues a credit.
BellSouth's failure to promptly credit TriVergent's account directly and
negatively impacts TriVergent's business plan and financials.By way of example,
please review documents included in ATTACHMENT E.
6 ILLEGAL INTERACTION BY
BELLSOUTH WITH TRIVERGENT
COMMUNICATIONS CUSTOMERS: Reports from TriVergent
customers and TriVergent customer service representatives indicate that (1)
BellSouth continues to engage in improper activity with regard to provisioning
TriVergent's orders and (2) BellSouth operators and representatives continue to
make erroneous and inflammatory statements to TriVergent customers. By way of
example, please review documents included in ATTACHMENT F.
7 The
Telecommunications Resellers Association study consists of a state-by-state
analysis of two different business strategies over a five-year startup period:
one solely using resale and one employing the UNE-platform approach. While the
models utilizing the UNE-platform consistently generated revenues and margins,
this was not the case with resale. The report determined that not a single
state-authorized wholesale discount was capable of producing positive cash flow
after five years.
The findings prompted TRA to go a step further with
the study and determine on a state-by-state basis the minimum discounts required
by resellers to reach the breakpoint after five years of utilizing local resale
as a stand alone business. The results found consistently large gaps between
state-approved wholesale discounts and those needed to break even.
8 By way
of example, please refer to documents included in ATTACHMENT G.
9
COLLOCATION: The following are some examples of situations TriVergent has run
into in attempting to collocate with BellSouth and complete build out of its own
facilities.
Space Availability Response Interval
BellSouth is required
to provide a response to an application for collocation space within 10 business
days as to whether space is available within a BellSouth central office premise.
(Exhibit 2, Amendment to the Agreement between State Communications and
BellSouth, Dated April 20, 1999, Page 4, Section 2.1, Availability of Space,
Signed 7/28/99).
Below is a breakdown of BellSouth's average response
interval per market:
Greenville- 37 days Atlanta - 57-65 days Greensboro -
37 days Jacksonville - 49-69 days Miami - 49-86 days Charlotte - 19 days
Charleston- 37 days Louisville - 40 days Nashville- 35 days Birmingham - 19 days
New Orleans - 42-49 days Jackson - 30 days Wilmington - 37 days
Application
Cancellation
TriVergent submitted New Orleans collocation applications
6/17/99. BellSouth provided comprehensive responses, including price quotes on
8/17/99 and 8/25/99. TriVergent submitted Firm Orders 8/20/99 & 8/27/99.
TriVergent notified BellSouth to cancel these applications 9/10/99 and requested
a refund of any unused funds. TriVergent requested status of the cancellation
and refund and was informed by Eddie Trant that no monies would be refunded.
TriVergent escalated to the BellSouth Account Team 9/17/99 for resolution.
BellSouth informed TriVergent 9/17/99 that the issue was under review.
TriVergent requested resolution of this issue 9/24/99. TriVergent again
requested BellSouth position 9/30/99. BellSouth responded to previous status
inquiries 10/13/99 with the following "I feel nothing (sic). It is like it has
gone to the black hole of collo (sic). Even Duane don't know (sic)." Eddie
Trant, Regional Collocation manager. BellSouth offered to refund prepayments
10/14/99 or allow TriVergent to proceed with applications when cancelled if
additional application fees were provided. 10/29/99 TriVergent resubmitted
applications with fees totaling $63,830.
Collocation Cage Construction Fees
BellSouth erroneously charged TriVergent for cage construction when it was
clearly indicated on the collocation applications that TriVergent intended to
construct its own cage. TriVergent requested a refund of these incorrect charges
9/13/99 totaling $ 326,250. Despite several requests to BellSouth for a response
to our refund request none has been received to date.
Power Feed Fees
Despite having charged an average of $30,000 for power at collocation sites
throughout Florida (38 collocation sites), BellSouth claims that TriVergent must
provide its own power feeder cables from BellSouth' power distribution frame.
Clearly BellSouth has included the provision of these services in the costs it
has assessed TriVergent. TriVergent requested a clarification and/or refund of
this incorrect assumption by BellSouth on 10/19/99 and has received no response
other than they are looking into the issue.
END
LOAD-DATE: November 5, 1999
