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JULY 14, 1999, WEDNESDAY

SECTION: IN THE NEWS

LENGTH: 1757 words

HEADLINE: PREPARED TESTIMONY OF
GENE KIMMELMAN
CO-DIRECTOR
WASHINGTON OFFICE
CONSUMERS UNION
BEFORE THE SENATE COMMITTEE ON THE JUDICIARY
ANTITRUST, BUSINESS RIGHTS AND COMPETITION SUBCOMMITTEE
SUBJECT - "BROADBAND: COMPETITION AND CONSUMER CHOICE
IN HIGH-SPEED INTERNET SERVICES AND TECHNOLOGIES"

BODY:

I. INTRODUCTION
Consumers Union believes it is time for Congress to address the competitive shortcomings of the Telecommunications Act of 1996. With cable television rates soaring and many telephone charges on the rise, the majority of consumers are not receiving the benefits that Congress promised through elimination of traditional ownership and price regulation in telecommunications markets. And massive consolidation among telecommunications and cable companies is threatening development of competition and fair pricing for new services that rely on the telephone or cable wire, like high-speed Internet access.
So long as local telephone and cable companies face limited competitive threat in their core service markets, and their wires remain the most viable transmission systems for broadband, high-speed Internet services, consumers are in danger of monopolistic abuse. Strict antitrust enforcement, careful regulation, and legislation to correct flaws in the 1996 Telecommunications Act are needed to open the door to broad-based competition.
II. RISING PRICES IN TODAY'S MARKET
Contrary to the goals of the Telecommunications Act, consumers face rising prices and extremely limited competitive choice for numerous television and telephone services. Since passage of the Act in February 1996, cable TV rates have risen about 23 percent, more than three times the rate of inflation during that period. Despite significant growth in the satellite industry, the high price of purchasing a satellite dish, expensive installation charges and the inability to provide local broadcast signals have enabled cable to avoid price competition from satellite providers. On the other hand, the few consumers who have a choice of cable service from two providers (head-to-head competition from two cable companies or one cable and one telephone company) receive approximately the same programming, new services and infrastructure upgrades for about 14 percent less than cable monopolies charge. If cable monopolies were limited to charging these competitive prices throughout the country, consumers would save about a $4 billion a year.
The picture for some telephone rates is starting to look almost as bad as for cable. Federal Communications Commission (FCC) pricing policies have resulted in new "line-item" charges on phone bills that will cost consumers almost $5 billion a year. New universal service fees, subscriber line charges, federal access fees, and number portability charges are requiring the average single-line customer to pay about $3.00 per month more, and consumers with two lines at least $7.00 per month more for phone service, before they place a call.
These figures do not include new monthly minimum charges assessed by long distance companies like AT&T and MCI, which require consumers to pay $3.00 to $5.00 a month even if they make no calls. While large- volume long distance users are finding competitive options and declining per-minute prices, consumers who make less than 30 minutes of interstate long distance calls per month have seen their rates double since passage of the Act.
III. MARKET CONCENTRATION
Failure of our antitrust authorities to take an aggressive stance against telecommunications and cable mergers has contributed to a bleak picture for the development of local telephone, cable, high- speed Internet access, and increased long distance competition. The Justice Department's Antitrust Division is in the process of allowing six of the eight big local telephone companies (GTE and the Bell Companies) to merge into two giant super-regional monopolies. After gobbling up Pacific Telesis and Ameritech, SBC will control about one- third of all telephone lines into consumers' homes. Similarly, with the acquisition of NYNEX and GTE, Bell Atlantic will control another third of the country's local phone lines. These were the companies that, during consideration of the Telecommunications Act, claimed they would be "seven new competitors" in long distance and other markets.
In response to this massive local telephone consolidation, AT&T has purchased substantial ownership stakes in cable television companies that serve about 60 percent of all households in the country. Through its merger with TeleCommunications Inc. and proposed purchase of MediaOne, AT&T will dominate not only the majority of cable wires, but also the major high-speed Internet access providers (@Home and Roadrunner) and control more than 60 cable television channels.
To avoid antitrust and regulatory scrutiny, AT&T has attempted to divert attention from its minority ownership stakes in a vast universe of cable properties, TV channels, cable set-top box developers, and Internet service providers. See Exhibit 1. However, even with recent sales of some cable assets , AT&T's excessive market power in cable TV and related markets requires massive antitrust and regulatory surgery to prevent inflated consumer prices and barriers to competition. See Exhibits 2-5.
Despite AT&T's stated goal of expanding its cable business into the local telephony market, the fact that the underlying cable monopoly is not subject to any limits on pricing (unlike the local telephone monopoly) and is not subject to common carriage/nondiscrimination requirements (unlike the local telephone monopoly), makes this consolidation particularly troubling. For consumers, AT&T's promise to try to compete in the local telephone business in the future is not worth today's skyrocketing cable rates and discrimination in new Internet services. And AT&T's preferential deal with Microsoft to install Windows CE in cable set-top boxes could put a damper on competition for the equipment that accompanies broadband services. It is important to note that, while everyone expects the telephone and cable wires some day to offer the same set of services in competition with each other, they do not compete today! Without enormous infrastructure investments, elimination of technical barriers, and experimentation with network management of bundled services, cable and local telephone companies cannot effectively compete against each other. And no one else is even close to them, measured either by technical or financial standards, to serve as a mass market competitor for the most important telephone, television and Internet services. We may therefore be experiencing an enormous consolidation that, at best, yields a duopoly. What does this mean for consumers?
IV. THE DIGITAL DIVIDE
In a report we released with the Consumer Federation of America in February, we found that at least one-half and as many as three- quarters of all consumer do not generate enough revenue opportunity - because of their small local, long distance, wireless, cable and Internet consumption - to be attractive to the companies seeking to expand into these markets. This fact is unlikely to change in the foreseeable future. Therefore all the talk of deregulation designed to spur investment in new infrastructure and advanced services may do little or nothing for the needs and desires of the vast majority of the consumer market.

Our report demonstrates that cable, local phone and long distance companies are only likely to compete for the top 20% of the consumer market. Market forces are not strong enough to prevent a growing world of telecommunications haves and have-nots.
V. IT IS TIME FOR CONGRESS TO ACT
If neither antitrust officials nor the FCC are willing to stop the telecommunications consolidation juggernaut, it is imperative that Congress step in to establish comparable public obligations for the two wires that may some day be in a position to compete for the most important telecommunications, Internet and television services. We believe the Telecommunications Act should be adjusted to: 1) protect against inflated pricing of monopoly telephone and cable services; 2) ensure that monopoly telephone and cable services do not subsidize other services; 3) prevent either telephone or cable companies that have market power as a result of their transmission facilities from discriminating in any way against consumers or independent vendors who must rely on those companies' transmission facilities to offer services (e.g., cable channels, Internet access) or equipment (like cable set-top boxes) to the public; and 4) ensure that low-volume telecommunications users (including long distance customers) are not overcharged for their limited communications needs.
Consumers Union supports preservation of the portions of the 1996 Telecommunications Act that will open local phone markets to competition. We believe that efforts to enhance deployment of broadband facilities by local phone companies must coincide with, and not replace efforts to open the local telephone market to competition. And where competition does not develop, Congress must also ensure that prices for the local phone service that connects Internet and other broadband applications remain reasonable and affordable to all consumers. Rather than focus on distinctions between services - data, voice, video - that are disappearing, we suggest a different basis for revisiting the Act. It is now obvious that modest users of virtually all communications services - local phone, long distance, cable, Internet - are unlikely to benefit from the deregulatory, market opening provisions of the 1996 Act. In the foreseeable future, competition will not penetrate these low-volume markets, either for individual services or a bundle of these services combined. We therefore suggest modifications to the Act that ensure reasonable prices for local telephone, cable and long distance services where competition does not exist or is insufficient to keep prices down. Consumers will only receive the maximum benefit of new broadband Internet services if the prices for the building blocks these services depend upon-telephone and cable services-are reasonable.
VII. CONCLUSION
Consumers Union urges swift action to correct the flaws in the 1996 Telecommunications Act. As consumers experience spiraling cable rates, rising monthly telephone charges, and the restricted choices that result from massive industry mergers, it is obvious that the Act is not meeting its competitive goals. Either massive cable and telephone industry consolidation must be blocked, or new consumer protection policies implemented to ensure reasonable prices and maximum choice for high-speed Internet access, cable and telecommunications services.
END

LOAD-DATE: August 25, 1999

Document 251 of 383.


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