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JULY 14, 1999, WEDNESDAY

SECTION: IN THE NEWS

LENGTH: 3416 words

HEADLINE: PREPARED TESTIMONY OF
ALEX J. MANDL
CHAIRMAN & CEO
TELIGENT INC.
VIENNA, VA
BEFORE THE SENATE JUDICIARY COMMITTEE
ANTITRUST, BUSINESS RIGHTS AND COMPETITION SUBCOMMITTEE

BODY:

Mr. Chairman, Ranking Member and other Members of the Committee, thank you very much for giving me the opportunity to come here today to tell you a little about Teligent's contribution to this country's broadband future and to describe some of the challenges we face as we work toward making that goal a reality.
My name is Alex Mandl. I am the Chairman and Chief Executive Officer of Teligent, a competitive communications company that offers local, long distance and high-speed Internet services to small and mid-sized businesses across the country. Teligent has its headquarters in Vienna, Virginia. We employ more than 2,000 people, who work in more than 50 facilities throughout the nation.
Earlier, I served as president and chief operating officer of AT&T, and as AT&T's chief financial officer. Before joining AT&T, I was chairman and chief executive officer of Sea-Land Services, Inc., the world's leading provider of ocean transport and distribution services.
Mr. Chairman, when I left AT&T to found Teligent nearly three years ago, I began with an idea.
The idea was to use a new variant on a proven technology microwave radio transmission to build new local communications networks across the country, broadband networks that do not rely on the existing local telephone companies and their aging narrowband infrastructure.
The goal was to build unified networks with the ability to simultaneously deliver high-speed data and Internet services, as well as traditional voice services, to small and mid-sized businesses at significant savings to customers.
We target small and medium-sized businesses -- businesses with as few as five or ten telephone lines -- because they represent the engine that is driving the success of our nation's economy. Small and medium- sized businesses make up more than two-thirds of all businesses in the United States. Ironically, these businesses comprise the fastest growing but most under-served segment of the communications marketplace. Because of our unique technology, we're able to reach out beyond the central cities to the suburbs and beyond, where these smaller businesses are concentrated.
Today, Teligent is serving customers in 28 markets around the country, in states such as Ohio, Delaware, Wisconsin, New Jersey, New York and California. We plan to be up and running in 40 markets by the end of the year. Eventually, we'll have facilities in at least 34 states. I think that represents a major accomplishment for a company that launched service in its very first markets at the end of last October.
In the next three to four years, Teligent expects to spend more than $1 billion on the construction of local broadband networks throughout this nation. Why are we making this significant investment? Because we believe that the success of the American economy as we enter the 21st Century depends on our nation's ability to move information with more speed, efficiency and intelligence than any other country in the world. In the last five years, we have witnessed the dawn of a new age in which commerce no longer is measured in short tons -- it's measured in terabits.
That's what the broadband revolution is all about -- the convergence of old fashioned voice technology and new, high-speed data technology, culminating in a new system of high-capacity communications networks that don't distinguish between the two.
The advent of the Internet and e-commerce is fueling a tremendous demand for bandwidth. We're crossing over the threshold into a new world of communications -- one that's been compared to the advent of electricity in terms of the revolutionary changes that will come in its wake. Forrester Research recently predicted that the U.S. market for broadband access and Internet service is ready to -- and I use their word -- explode. Just three years ago, the entire U.S. Internet services industry amounted to about $1.3 billion. But last year, the business segment of that market alone had grown to nearly $4 billion. Forrester predicts that by 2003 that number will hit nearly $60 billion.
Anecdotal experience confirms these projections. At Teligent, we're already seeing a heightened interest in data and Internet services from our base of small and mid-sized business customers. Nearly a fifth of them are ordering some type of broadband access service -- a much higher percentage than we had expected. And many of our new customers are using our new, Web-based, interactive management tool called elmagineSM , an innovate product that allows customers immediate on-line access to their billing information 24-hours a day.
A product such as elmagineSM simply wouldn't be possible in the old, analog world.
We think these developments foreshadow ever-greater demand for bigger and bigger information pipes. Already, more than five million businesses have created their own Internet sites. In fact, business- to-business commerce on the net is expected to blow through the $1 trillion mark in the next five years, according to Forrester.
With all that traffic pumping through the system, businesses that rely on a traditional dial-up data connection through their local communications network literally will be left in the dust on the Information Superhighway.
Why do I emphasize the world local? Since the federal courts broke up the AT&T long distance monopoly 15 years ago, companies like MCI and Sprint -- and now Qwest, Williams and Level 3 -- have been building big backbone data pipes -- analogous to the water mains in the streets -- to carry high volumes of traffic across the country, across the states and across large metropolitan areas.
In fact, one recent article concluded that if all the fiber announced by U.S. operators were fully utilized, the backbone capacity of the U.S. could increase by as much as 200 times during the next 3 to 5 years.
The point was underscored just this past Sunday in a major piece in The New York Times' business section. Reporter Seth Schiesel concluded that -- and I quote -- While consumers and regulators focus on the communications bottleneck in the so-called last mile of wire to homes and businesses, long-distance communications capacity -- or 'bandwidth' -- is fast becoming a commodity. That's just the point. What happens when you get to the neighborhood? At the neighborhood level, the twisted pairs of copper wire that carried analog voice traffic along the last mile to homes and businesses for the past 100 years simply aren't suited -- or capable -- of meeting the bulk of today's digital demands. Futurist George Gilder calls these lines the copper cage. The highest data speed that most people can squeeze out of these copper pipes today using a conventional computer modem is roughly 56 kilobits per second. At that rate, it takes more than six hours to download the Encyclopaedia Britannica. By contrast, Teligent today can deliver customers speeds of up to 45 megabits per second.

At that speed, it takes less than 28 seconds to download that same encyclopaedia. And we expect to see dramatic improvements in that performance in the not too distant future.
But the current reality of the Information Age is that more than 95 percent of the communications customers -- businesses and consumers alike -- are bound by that 56 kilobit per second copper cage. That's the bottleneck that Teligent is trying to break -- the bottleneck of copper that separates those broadband fiber backbone networks from the end-user.
Our approach is to build a series of wholly new local networks based primarily on a new type of high frequency, microwave radio technology. We also integrate traditional broadband wireline technology into our local communications networks. Through our local SmartWave networks, Teligent offers customers independent access to technologically sophisticated, high bandwidth capabilities and services. Because Teligent does not need to dig up streets to run wires and conduits, it avoids imposing inconvenience and expense on cities and neighborhoods in which it offers services.
Microwave technology has been around for a long time. The military used it in World War II to develop radar defenses for our sailors, aviators and ground troops. MCI used it in the 1970s and early 1980s to create the very first competition in the long distance market. But until just a few years ago, the very high end of the radio spectrum in which we and other so-called 'fixed wireless' carriers operate was virtually unusable for commercial communications applications. Now, advances in technology have turned that spectrum into a communications medium that is not only usable, but highly reliable and very cost effective. It's so cost effective, we are able to offer our customers up to a 30 percent discount off their existing pricing. We expect that these technological advances will not only continue, but accelerate.
One of the principal reasons that Teligent can pass on these savings is that we are a facilities-based company. Jargon aside, that means we are not reselling our voice and data services over existing telephone networks that were built by the big local phone companies over the last 50 years. While we don't resell the incumbent phone company's services, we do rely on them to interconnect with our network and provide the support necessary to cut over customers and complete calls that originate on the Teligent network.
To reach our fixed wireless customers, Teligent installs small antennas, often no more than a foot in diameter, on top of customer buildings. When a customer picks up a telephone, accesses the Internet or activates a videoconference, the signal travels over inside wiring to the rooftop antenna. An electronics box, usually situated near the antenna, digitizes all signals, and places them onto a data platform -- we use ATM, or asynchronous transfer mode, for that purpose. The customer building antenna then relays the voice, data or video signals to a Teligent base station antenna.
The base station antenna gathers signals from a cluster of surrounding customer buildings, aggregates the signals and then routes them to a Teligent broadband switching center. At the switching center, Teligent uses ATM switches and data routers along with Nortel DMS switches to hand off the traffic to other networks -- the public circuit-switched voice network, the packet-switched Internet, and private data networks.
You'll note that the Teligent network makes no distinction between voice and data. All these signals are carried over the same, broadband data platform.
As we build our local networks, we are making significant investments in people, property and equipment. In this year alone we expect to spend $300 million on capital equipment. For a company that has been in commercial operation for less than a year, I believe that investment is significant.
I've outlined Teligent's plans for delivering broadband access to local customers. But we are not the only company working on the problem. Nor is fixed broadband wireless the only technology that can get us there.
There has been much discussion lately about DSL -- digital subscriber line technology. DSL in a sense is an attempt to teach a very old dog new tricks by using new electronics to enhance the speed and capacity of the old copper networks.
DSL technology has an important place in this new communications landscape. But it also has some limitations. First of all, DSL can't be installed everywhere.
Lines have to be groomed, often at considerable expense, and central offices must be DSL-ready. Some have suggested that only about half the central offices in the country will be able to accommodate DSL equipment. DSL has distance limitations -- 18,000 feet is a generous estimate. There also are questions about the kind of network speeds that can be achieved in the real world -- as opposed to the engineering world.
But there's an even more important point to be made about DSL limitations. No matter how you spell it, D-S-L still equals R-B-O-C. In other words, when you're dealing with DSL, you're still dealing with the RBOC networks -- the copper cage.
You must still lease or resell RBOC service. And we all know about the burden that exercise imposes on competitive carriers.
That's not to say that DSL doesn't have an important role to play. In fact, Teligent has found a way to secure many of the benefits of DSL technology while avoiding many of the issues usually associated with DSL deployment, including the need to co-locate facilities in LEC central offices. Just last month, we announced that we will be combining DSL technology on copper wiring inside customer buildings with Teligent's SmartWave fixed wireless networks outside the buildings to provide a lower cost, entry level data service for smaller companies.
Another solution, obviously, is fiber optic cable. Fiber is terrific stuff, no question about it. But fiber generally reaches only the highest density buildings, because, simply put, it costs a lot of money to dig up streets. To date, only 3 percent of the approximately 750,000 commercial office buildings in the United States are directly connected to fiber. In fairness, those buildings account for roughly one third of the 60 million or so business lines in the country. But that still means that 40 million business lines cannot get a high- speed connection via fiber, because it costs too much to reach them.
What about coaxial cable? A lot of very smart people and some very big companies are betting that cable will provide an important broadband pipe to the home.
Frankly, I don't disagree. But cable passes very few businesses today, including small businesses. So that need remains to be met.
Satellite? A number of companies have some very ambitious plans. But it is not yet clear in the marketplace exactly what customers these companies will serve -- and what prices they will charge.
So what's the answer? It should be clear by now that the creation of new broadband networks is not dependent on any one company or any single technology.
But it is dependent on one very important condition -- it's called competition -- the competition that was created by the Telecommunications Act of 1996.
I mentioned a moment ago that when we started Teligent, the company was little more than an idea. But that idea didn't just strike like a bolt of lightning.
That idea -- and through it this company -- owes its life to three major developments. We've discussed two of those phenomena -- the explosion in the demand for bandwidth and dramatic improvements in radio and electronic technology. Now I'd like to spend a moment discussing the third, and most important factor -- the enactment of the Telecommunications Act of 1996.
Before I proceed, I want to mention a recent development relating to one of our major shareholders, The Associated Group of Pittsburgh, Pennsylvania. As I'm sure many of you read in The New York Times and The Wall Street Journal, Liberty Media Group announced recently that it intends to acquire The Associated Group.

If and when that sale is completed, Liberty Media , which is independently operated but wholly owned by AT&T, will become Teligent's single largest shareholder, with approximately 41 percent of our outstanding shares. That said, I want you to know that any of the views I am about to express regarding legislative and regulatory issues are solely those of the management of this company.
Mr. Chairman, Teligent would not exist without the Telecom Act of 1996. The Act created ground rules, agreed to by the entire industry, which accelerated local competition and opened up new opportunities. The Act enabled us to raise the capital we needed to build our business by ensuring that we would not be harmed by the historic, government-sanctioned advantages granted to the incumbent telephone companies.
Now we are finally near the end of a cycle of industry-wide litigation that has created uncertainty and delayed new competitors' ability to offer choice and new services to customers. If Congress were to reopen a debate over the key principles of the Act, it would only create more confusion and further delay the benefits of competition.
The Act is not perfect, but it has set in motion irreversible momentum toward more and more competition in our industry that, over time, will benefit all consumers. Most countries across the globe are racing to emulate the U.S. model, so their citizens and companies won't be left behind as the world moves into the information age. For that, we are very grateful to you.
But some barriers to competition remain. First and foremost, Congress and the FCC must enforce the provisions of the Act that require incumbent local telephone companies to fully open their markets to competition before they are allowed to offer long distance service. Even fully facilities-based carriers such as Teligent must have adequate interconnection with the incumbent so our respective networks can communicate seamlessly. No matter how competitive the industry becomes, prompt and seamless interconnection with the existing local networks will remain an imperative.
I have noted that Teligent draws no distinction between voice and data services because our local networks make no distinction. For us, it is all a single vibrant bitstream of ones and zeros. We believe that making any such distinction for the incumbent local telephone companies would only serve to slow the development of competitive broadband networks, especially those networks that handle local data traffic, because it would reduce the incumbent carrier's incentive to fully open local market to new competitors.
Another remaining barrier relates to the impediments that new, facilities-based competitors face in bringing broadband services to customers in apartments, condominiums and commercial office buildings in a reasonable and timely manner.
The multi-tenant building market is not inconsequential -- more than a quarter of all Americans live in multi-tenant buildings and an even higher percentage of businesses are located there. When consumers decide that they want to take advantage of competitive choices, it is important that they be given the ability to do so -- and the ability to obtain the competitive benefits quickly.
In our experience, we've found that many landlords recognize the benefits that accrue to their tenants -- and frankly, themselves -- by providing timely access to competitive communications carriers in their buildings. Competitive services make buildings more attractive to tenants -- and more valuable in the real estate marketplace. We believe that a fair balance can and should be struck between the legitimate property rights of building owners -- including reasonable concerns about safety and security -- and the need to bring broadband services to all sectors of the economy.
We are encouraged by the decision of the National Association of Regulatory and Utility Commissioners (NARUC) to call for legislative and regulatory action to promote non-discriminatory building access. And we believe the Federal Communications Commission is taking appropriate steps to examine the issue, as outlined in its recent Notice of Proposed Rulemaking (NPRM). But legislative action is the most certain way to ensure that this issue is handled in a manner that will give more customers greater choice as quickly as possible. To that end, we applaud the leadership of Senators DeWine and Kohl and other members of Congress in recognizing the need for federal policy that will address this important issue.
By providing for reasonable and nondiscriminatory access to customers in multi-tenant buildings, Congress can ensure that building owners and competitive carriers work together to bring more rapid development and widespread availability of competitive broadband services. Similarly, securing access on reasonable terms to the wiring inside these buildings is another critical factor, a task that is further complicated when the inside wiring is controlled by the incumbent local telephone company. I believe that Congress can and should address these issues.
Working together, Congress and new carriers such as Teligent can create a new broadband world that enables open, fair competition among all competitors, no matter how big they are. And that will make a world of difference for customers and consumers.
Thank you all for your kind attention.
END

LOAD-DATE: August 25, 1999

Document 250 of 383.


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