Copyright 1999 Federal News Service, Inc.
Federal News Service
JULY 14, 1999, WEDNESDAY
SECTION: IN THE NEWS
LENGTH:
3821 words
HEADLINE: PREPARED TESTIMONY OF
BILL
SCHRADER
CHAIRMAN & CHIEF EXECUTIVE OFFICER
PSINET INC.
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 am Bill Schrader, Chairman and
Chief Executive Officer of PSINet, the first and 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
penetrated consumer markets so quickly, and offered such a rich variety of
information opportunity, as the Internet has since the 1996 Act.
In PSINet's
experience, the key to rapid deployment of broadband service is competition in
local telecom markets. The stunning advance of the Internet in just a decade
demonstrates that competition -- not the deregulation of telecom monopolies --
provides consumers with greater innovation, higher quality service, and more
choices -- all at lower prices. It is no coincidence that the highly competitive
Internet backbone market has brought the United States a level of broadband
capacity that other countries envy. But the challenge for deployment of
broadband service will be played out at the local level, where competition is
only beginning to take root.
Under current law, local telecom monopolies
have a specific path to deregulation. Only if they open up their local networks,
can they enter interLATA voice and data markets. This balance safeguards
competition, and at the same time, it provides the Bell Companies with the keys
to their own deregulation. The 1996 Act ain't broke -- and attempts to fix it
will only make broadband deployment slower, not faster. I urge
you to stay the course of competition, and to consider policies that will
encourage building additional broadband pipelines into the home, using cable,
satellite and wireless technologies.
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 competitive carriers are responsible for spurring
deployment of Bell company DSL offerings. For example, PSINet recently entered
into a strategic partnership with Covad Communications Company to offer DSL
services directly to our customers. As local competition grows, many more of
these opportunities will be available, and incumbents will be forced to respond
by rolling out their own broadband offerings, more quickly and at lower cost.
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 satellite and wireless delivery systems, may offer more
significant potential for delivering high-capacity broadband service to
high-cost areas of the country.
Some Bell Companies have attempted to
justify regulatory relief on the basis of a supposed backbone capacity shortage.
In reality, Internet backbone capacity is increasing at an exponential rate,
doubling every several months, fed by a vibrant, highly competitive market. For
example, PSINet's network traverses the entire country with more than 230 points
of presence (what we call PoPs) in the U.S, and ours is one of several
nationwide Internet backbones. PSINet has brought high- speed bandwidth to
places like Salt Lake City, Utah; Joplin, Missouri; Toledo, Ohio; and Troy,
Syracuse and Buffalo, New York. We maintain PoPs in locations as diverse as
Rutland, Vermont; Columbia, South Carolina; Des Moines, Iowa; York and
Lancaster, Pennsylvania; Dublin, Ohio; Kalamazoo and Grand Rapids, Michigan;
Mobile and Montgomery, Alabama; Manchester, New Hampshire; Pittsfield and
Westford, Massachusetts; Green Bay, Wisconsin; Chico and Bakersfield,
California; and Vineland, New Jersey. These places are as important to our
network as New York, Phoenix, and Wilmington. Our network is designed
specifically to deliver broadband capacity, in response to increasing demand by
customers throughout the country. PSINet and other Internet backbone providers
are doing their part -- bringing high-speed Internet access to rural, as well as
urban America.
Several features of PSINet's network advance the goal of
rural broadband service. For example, PSINet allows other ISPs to peer (that is,
to 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 all Internet traffic help speed data transmission significantly, by
avoiding potential congestion points at public peering sites. PSINet's free
peering arrangements make it possible for rural ISPs to access our
backbone-quality services at numerous PSINet PoPs.
We also believe that
cable providers, as they enter the Internet access arena, will bring greater
diversity to that market, especially for consumers. We strongly believe that
consumers will demand access to the ISP of their choice over cable broadband
systems, and that the marketplace -- not Government mandates -- will provide the
best mechanism for ensuring that choice.
We congratulate you for exploring
these important issues, and we look forward to working with the Committee as it
examines the issues of broadband deployment.
**************
INTRODUCTION
Good morning, Mr. Chairman, and thank you for the
opportunity to appear before your Committee as it examines broadband
communications and competition policy. 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
high-speed, 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.
I want you to know that Salt Lake City; Rutland; Columbia;
Des Moines; York; Green Bay; Syracuse; Mobile; Manchester; Chico; Vineland and
Kalamazoo are as important to our network as New York, Phoenix and Philadelphia.
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 Carrier 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 key to rapid deployment of
broadband service is competition in local telecommunications markets. As the
remarkably rapid deployment of Internet service this decade demonstrates,
competition -- not deregulating and expanding telecommunications monopolies --
provides consumers with greater innovation, higher quality service, and more
choices -- all at lower prices. It is no coincidence that the United States has
ample broadband capacity in the highly competitive Internet backbone market, and
that the challenge for deployment of broadband service relates to deployment at
the local level, where competition is only beginning to take root.
Under
current law, local telecommunications monopolies have a specific path to
deregulation. If they open up their local networks, then they can enter
interLATA voice and data markets. This balance safeguards competition, while
providing the Bell Companies with the keys to their own deregulation. I urge you
to stay this course of competition, while encouraging additional broadband
pipelines into the home via cable, satellite and wireless technologies.
I.
CURRENT LAW HAS CREATED A VIBRANT FRAMEWORK FOR INTERNET GROWTH AND COMPETITION
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 so quickly, and offered such a rich variety of information opportunity.
Some recent statistics provide a sense of the growth of narrowband Internet
access. Just prior to passage of the 1996 Telecommunications 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 two-thirds 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 carriers 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, competition in local telecommunications markets will change
this. For example, PSINet recently joined in a strategic partnership with Covad
Communications Company to offer DSL services directly to our customers. As local
competition grows, through competition over the incumbent monopolists' lines, as
well as competition from cable, satellite and wireless providers, 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 balanced incentive structure
created by the 1996 Telecommunication Act is critical for broadband services
such as DSL to reach their potential. It ain't broke, and attempts to fix it
will make broadband deployment slower, not faster.
There is
absolutely no reason to exempt the services offered from monopoly facilities
from the pro-competitive provisions of the 1996 Telecommunications 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 amazed at what the
Internet/telecommunications industry can offer. Congress should stay the course
and keep the 1996 Telecommunications Act intact to do its part to support the
arrival of that competitive broadband market of tomorrow.
The principal
justification for offering incumbent telecommunications monopolists regulatory
relief 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.
Some Bell companies
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, based on my experience leading my company, and my 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 office, as is
common in rural areas. Furthermore, Bell Companies such as U.S. West have sold
off many of their more rural exchanges.
Policymakers should also 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. Instead, the Congress
should stick to its commitment that competition, not deregulating monopolies,
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.
Loosening regulation of incumbent monopoly providers
is inadvisable because the 1996 Telecommunication Act already provides a
sensible framework for Bell Company deregulation in this area. Current law does
not saddle Bell Companies with any regulations that they do not have the power
to release themselves from.
It does, however, provide very sensibly 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 current law 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 Bell
Companies have an enormous incentive actually to open their local market
monopolies. That incentive is entering the interLATA marketboth 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 local competition. For example, what Bell Company would have
any real incentive to open its local markets to competitors if it were allowed
into the interLATA data market today? Some Bell Companies propose allowing
interLATA data entry as a Section 271 compromise. In reality, this is no
compromise at all because incumbent monopolists could easily shift their voice
traffic to their deregulated interLATA data lines. A bit is a bit, whether voice
or data, and incumbents would have powerful incentives to shift traffic in this
manner. That would produce a variety of significant negative impacts, including
ending the Bell Companies' incentives to open their facilities to local
competition by innovative competitors. Broadband deployment
would be set back, not furthered.
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 confirmed in a recent report,
nothing could be further from the truth. In reality, Internet backbone capacity
is increasing at an exponential rate, doubling every four to six months, fed by
a vibrant, highly competitive market.
PSINet alone 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,
full-service standard to allow customer choice of access method -- dial-up
analog, ISDN, or dedicated lines, and in selected markets, wireless transmission
-- 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 -- bringing high-speed Internet access to rural,
as well as urban America.
Several features of PSINet's network -- which
traverses the entire country -- 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, and Level Three.
Further, other
technologies than Bell Company wireline facilities, such as cable, wireless and
satellite delivery systems, offer tremendous potential to deliver additional
high-capacity broadband service to all areas of the country.
For this
reason, while I agree wholeheartedly that cable plant should be open to
competition, government regulation is not the appropriate way to ensure that
goal. Cable companies must make massive investments in their infrastructure to
deliver reliable, two-way Internet access. Once that investment is made, if
cable operators refuse to open their systems to those of competing Internet
service providers, then I am convinced that consumers will turn their backs on
cable Internet access. If the market for broadband Internet access eventually
becomes a duopoly (instead of the current ILEC-dominated local monopolies),
perhaps there will be a role for Government to address that situation. But in
the meantime, I believe that the market, not regulation, will most effectively
open the cable plant to a variety of Internet service providers.
III. THE
INTERNET SHOULD REMAIN FREE OF ENCROACHING GOVERNMENTAL REGULATION
The other
message I would like to share with you today is that competitive markets -- and
the Internet, unlike local telecommunications markets, is a classic competitive
marketplace -- should be left to operate free from government regulation. This,
too, is a fundamental aspect of current law, and 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 dial-up 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 U.S. telecommunications policy by promoting advanced services
through competitive markets. The remarkable success of the Internet flourishes
because there are a multitude of innovative providers and because the market,
and not regulation, dictates success. Congress should continue to exercise
restraint, and resist any urge to control the Internet or to make providers of
Internet services -- be they independent providers like PSINet, or incumbent
monopolists -- liable for the actions of third parties.
IV. CONCLUSION
By maintaining pro-competitive regulation of local telecommunications
monopolists, while refraining from regulating the highly competitive Internet
market, Congress will best promote the rapid, low-cost deployment of broadband
services to all Americans.
END
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August 25, 1999 
