Copyright 1999 Federal News Service, Inc.
Federal News Service
JULY 14, 1999, WEDNESDAY
SECTION: IN THE NEWS
LENGTH:
3339 words
HEADLINE: PREPARED TESTIMONY OF
IVAN G.
SEIDENBERG
BEFORE THE SENATE JUDICIARY COMMITTEE
ANTITRUST, BUSINESS RIGHTS AND COMPETITION SUBCOMMITTEE
SUBJECT -
BROADBAND: COMPETITION AND CONSUMER CHOICE
IN HIGH-SPEED INTERNET SERVICES
AND TECHNOLOGIES
BODY:
Good morning, Mr.
Chairman and members of the Committee. My name is Ivan Seidenberg, and I am the
CEO of Bell Atlantic Corporation.
Thank you for the opportunity to discuss
what is probably the most exciting development in the telecommunications
industry in years. That development is the astounding growth of the Internet --
a telecommunications medium that has already changed the way millions of
Americans live. And what is even more exciting is that this is only the
beginning -- the changes that will come in the next five years will dwarf those
we have seen in the last five.
The Internet is a wonderful tool that has
developed far faster than anyone could have imagined. But its continued
development and evolution into a technology that can handle any form of
communication and any type of service from educational to medical may not keep
pace, with significant consequences for some segments of the country. When I
look back just five years ago, when the World Wide Web really began to take off,
I am amazed at what has been accomplished. But the plain truth is we have an
Internet infrastructure today that is nearly tapped out. Yes, there is
investment going into the Internet backbone. Yes, local broadband connections
are beginning to roll out. But given the speed of Internet time, we have to
unleash all our strengths -- and free all sectors of the Internet industry -- to
build out broadband networks, put in place more backbone facilities, and build
the crucial hubs and connection points for the backbone that are lacking in many
parts of the country. We simply can't afford to have some companies that build
infrastructure -- like the Bell companies -- sitting on the sidelines.
Continued Economic Growth Is at Risk The Internet and the information
industry have been crucial components of the amazing growth we have had in our
economy. But we may be getting complacent. We may all be starting to believe
that this growth is inevitable and that nothing will slow it down.
It would
not be wise to tip toe around and hope that the economy will simply continue on
its upward path. The information industry -- which includes hardware and
software and the facilities that connect them -- is crucial to this economy not
just because we all bought computers, cell phones and Palm Pilots. It is crucial
because it networked these devices together through the Internet, creating an
almost seamless communications fabric that created a powerful engine of
innovation and efficiency the likes of which the world has never seen. This has
increased productivity in many segments of the economy, from agriculture to
manufacturing.
To keep this growth curve moving rapidly upward, we need to
have an Internet and communications infrastructure that can do more, do it more
quickly and do it more reliably. We need to act now to get this infrastructure
in place, and we need it as rapidly as possible. We can't let an infrastructure
that is already showing signs of strain begin to affect our economy and its
health. We can't leave out the many parts of the country that are far away from
the backbone or have no close-by high-speed hubs. We would be far better off
setting the stage now for an infrastructure that can grow with the economy and
stimulate even more innovation and efficiency.
That is the way to lead the
country towards an even more prosperous future.
The State of the Industry A
few short years ago, the Internet was something that only serious researchers
and computer jockeys knew about. Electronic commerce was not part of our
vocabulary. In 1995, revenues generated by the Internet were a mere $5 billion.
Since then, the growth of the Internet has been astounding, far outstripping
the predictions of most experts. Last year, Internet revenues rose to an
astronomical $301 billion. With this growth, there has been increasing demand
for bandwidth and speed. The modems that were state-of-the-art a few short years
ago are the slowpokes. As more and more people use the Internet and more complex
information and bandwidth-intensive applications appear, it is clear that even
current speeds are not fast enough.
Consumer surveys demonstrate that speed
is very important to users. But so are quality and capability. The Internet's
problems are only partly related to the need for more capacity. It is an
end-to-end system based on hundreds of connections between different networks.
If a consumer's data -- a web page being transmitted to a person's home for
example -- is slowed at any point in the transmission, data can be lost, the
connection may drop and some of the more exciting applications for education and
telemedicine involving video, for example, will simply be impossible.
The
Backbone. At the top of this system is the Internet backbone -- high-speed
facilities which take traffic back and forth at high speeds across the U.S. The
faster data can get onto the backbone and the more backbone capacity there is,
the better the connection and the higher the quality of the data transmitted.
The Internet's structure is like the airline system. National and
international airports are located in major cities and population centers of the
country.
Major air carriers connect these airports together and planes fly
at rapid speed back and forth across the county into and out of these airports.
Thousands of smaller airports are connected to these major hubs taking
passengers from the larger airports out to smaller towns and cities throughout
the states.
In the case of the airlines, if you have no major airport close
to you, it may be very difficult, slow or expensive for you to get a flight to
other parts of the country. The farther you are away from the airport, the more
difficulty and expense you may have. The same is true of the backbone. Only so
many backbone facilities exist and most of the hubs or connection points for the
backbone are located in a relatively few areas. Areas without hubs become
backwaters -- the airplanes flying over head with no place to land does not do a
waiting customer much good.
There are vast areas of the U. S. that simply
have no nearby backbone connections or hubs. The three largest backbone carriers
-- MCI/WorldCom, Sprint and Cable and Wireless with AT&T coming up fast --
have little incentive to connect their systems with smaller carriers or locate
hubs away from major urban centers. And the level of concentration is increasing
rapidly as the major backbones acquire or displace smaller players. Even where
backbone exists, such as in major urban centers, it is often congested. Many
Internet providers have no way to get their data traffic to the backbone
efficiently and without numerous back-ups and delays. Many are simply located
too far away from convenient backbone connections. And when they do get to the
backbone, they find that the lack of adequate capacity slows their customers'
service.
The Last Mile. Today, most consumers get to the Internet over
narrowband technology -- their ordinary telephone lines.
Although speeds
have increased significantly in recent years, they are nowhere near fast enough
to support the applications of tomorrow. The two most promising landline
technologies to provide residential consumers with high-speed broadband Internet
access at a reasonable cost are Digital Subscriber Line (DSL) services and cable
modem services.
To Regulate or Not to Regulate, That Is the Question We
should not apply traditional voice telephone regulation to the Internet and
broadband services. This would slow deployment of broadband, inhibit competition
and risk slowing investment at the very time when we need every possible firm
involved in advancing the capabilities and capacity of the Internet. The
Internet has driven the growth of the high tech sector. There is a very real
danger that if the Internet does not advance to a new level, one capable of
providing higher speed, higher quality connections, the growth our economy has
enjoyed because of the explosion of information technology could well be
undermined.
The high-speed data business of today should not be regulated
like the voice telephone network of yesterday. In most urban areas, there are
several companies vying for the high-speed data business. Cable companies are
upgrading systems to be Internet-capable with high-speed cable modems. New
entrants, such as Covad, Northpoint, and Rhythms NetConnections, provide DSL
services to business and residential consumers. And unlike the voice markets,
local telephone companies are not the dominant providers of residential
high-speed data services -- cable companies are. They already serve more than 80
percent of the residential customers buying high speed Internet access. The old
policies just don't make sense here.
Bell Atlantic and the other Bell
companies are prohibited from carrying data traffic across LATA boundaries. That
means that a Bell Atlantic customer must rely on other providers to reach the
Internet. It also means that Bell Atlantic cannot invest in Internet backbone
services.
To provide customers reliable end-to-end data services, a provider
must be able to move data from one end of the country to the other, and
overseas. Sprint, MCI and AT&T all have this capability today. Cable
companies and the nascent data-only carriers are not prohibited from providing
these services. The only companies not allowed to provide this service are the
Bells. There is no justification for the FCC's protection of AT&T and MCI
from Bell Atlantic's full entry into the data business. These mammoth companies
have the capital and know-how to compete for data customers. Even the start-up
data carriers are in an excellent financial position. These companies have been
the darlings of Wall Street, in spite of the fact that most of these companies
have only started to build their customer base. NorthPoint Communications has a
market capitalization of $4.5 billion, in spite of the fact that its revenues in
1998 were less than $1 million. Covad's market capitalization is $3.1 billion,
with 1998 sales at $5.3 million. Rhythms NetConnections market capitalization is
nearly $4 billion, on 1998 sales of $500,000.
There are other existing
regulations that handicap Bell Atlantic's provision of DSL. The FCC is busy
working on applying Section 251 unbundling and resale requirements to Bell
Atlantic and other incumbent LECs. Bell Atlantic is committed to providing
unbundled DSL- compatible loops to competitors. Any other unbundling of the DSL
service or the provision of DSL-capable loops is unnecessary and can harm
deployment of DSL.
The FCC is currently considering a proposal to require
spectrum unbundling, also called line sharing. Under this proposal a competitor
would be allowed to use a portion of the capacity of the loop essentially for
free to provide DSL service, and the incumbent LEC would still be required to
provide the underlying basic telephone service and cover the full cost of the
loop. To split the capacity of the loop, however, is bad public policy. Line
sharing deters the development of competition for local voice services by
stranding voice and discouraging competition for voice services. Line sharing
discourages competitive investment in local voice services by giving the new
data-only competitors a free ride on the incumbent's voice service, which is
priced below cost. Competing carriers do not need to share the unbundled loop to
offer advanced services. They are already free to offer advanced services over
an unbundled loop or to invest in other technologies, such as wireless
technologies. Like the ILEC, they can recover the cost of the unbundled loop by
offering voice and other services over that unbundled loop.
The FCC is also
in the midst of determining whether our DSL services should be subject to the
resale discounts provided under Section 251. Bell Atlantic has filed a tariff at
the FCC to provide DSL service on a wholesale basis to ISPs such as AOL and to
competing carriers. CLECs claim that ISPs are the end-users of that service, and
therefore CLECs should be able to obtain an additional discount from the
wholesale tariff price.
With the proper deregulation in place, DSL
deployment will increase significantly. A rising tide will raise all ships, as
the standard speed for Internet access increases by a factor of 10 or 100, every
high-speed data provider will benefit. Deregulation often provides consumer
benefits in deployment, prices, and choices.
The Cellular Experience There
are parallels between what happened in the cellular industry and what is
happening in the high-speed data marketplace. The slow roll out of cellular
service, and continuing regulation of the service cost consumers and the economy
billions of dollars. Significant deregulation, however, has increased
subscribership and lowered consumer costs.
It took 15 years from the time
that the FCC began its first inquiry to the first commercial cellular service.
Even then, no one predicted the fantastic growth of cellular. In fact, at the
time of the breakup of the Bell System, it was unclear as to whether AT&T or
the Baby Bells would inherit AT&T's cellular spectrum licenses. AT&T had
predicted that cellular subscription levels would reach one million by 1999. In
reality, cellular subscribership reached that level in 1987, and at the end of
1998, there were more than 69 million wireless subscribers in the U.S.
Deregulation speeded wireless growth. First, the FCC made an effort to
lessen regulation of cellular service in 1988. In December 1988, the average
monthly cellular bill was $98.02 for the two million plus subscribers. Within
four years of the FCC's deregulatory effort, cellular subscribership reached 11
million, while the subscriber's average monthly bill dropped by nearly 30
percent.
The second major deregulatory effort was undertaken by Congress in
1993 in the Omnibus Budget Reconciliation Act. From 1993 to 1998, wireless
telephone subscribership rose from 16 million to 69 million, while the average
monthly bill has dropped by nearly 50 percent.
Some states were allowed to
continue to regulate cellular service. A Cellular Telephone Industry Association
study showed that cellular prices in regulated states averaged 17% higher than
the prices in unregulated states. It also found that cellular penetration and
cellular growth was lower in regulated states than in unregulated states.
The inescapable conclusion is that the cellular industry benefited greatly
from deregulation. In a deregulated environment, subscribership rose and prices
dropped.
The high-speed Internet market is like the cellular industry 15
years ago.
Fewer than 1 million American Internet users have access via
high- speed cable modem, and a scant 70,000 use DSL technology. Adoption of
deregulatory measures will permit telephone companies to provide DSL
technologies at a more rapid pace, hopefully with the same results as
deregulation of the cellular industry: more consumers accessing the technology
for lower costs.
Give the Consumer a Choice The Internet's foundation and
its strength is its heritage of openness and individual control. This heritage
grew out of a commitment to an agreed set of protocols -- ground rules for how
the Internet is supposed to operate -- that were developed openly and without
government direction. Government established the framework -- and then it got
out of the way.
As we build a new high speed Internet, its heritage of
openness and individual control should not be forgotten. We should ensure that
the new broadband networks are as open as the Internet itself has been.
Otherwise, we will begin to erode the strength of the Internet and to undermine
what is its core -- connectedness. Connecting people, businesses, schools, web
developers and content makers together and creating an open, vibrant market
place of ideas and commerce.
However, some providers have adopted
polices that are inconsistent with these principles. AT&T, the dominant
provider of high speed Internet access, has a closed system, in which a consumer
using AT&T's cable modem service must pay for AT&T's affiliate and ISP
of choice, @Home. This issue becomes more urgent as AT&T's acquires more
cable properties.
Here's what AT&T/cable say to customers: If you want
my high speed transport, you have to pay for my Internet service provider too,
even if you want to use some other Internet access provider. Why does AT&T
want closed systems? It's pure and simple a business decision.
AT&T
spent $48 billion for TCI and is willing to pay $58 billion for MediaOne because
it knows that having captive customers means more revenue per customer.
By
freezing out other providers, AT&T can essentially control the content its
customers receive. The market power of closed systems combined with access to a
major percentage of the nation's households, gives AT&T the ability to
assert substantial economic leverage over content providers.
AT&T
apparently thinks that policymakers will let it get away with closed systems,
because the new AT&T pledges to compete in the local telephone market.
Even if you believe that this is what it takes to get AT&T into the
local telephone market, it's a bad deal. More competition in the local voice
telephone business is a poor trade for an unregulated monopoly in the Internet.
This is not a call to bring the heavy hand of regulation down on cable. We
can ensure that networks are open without extensive regulation. What I am
suggesting is a simple mandate that requires cable networks to allow consumers a
real choice in their Internet provider. The terms, conditions, and technical
aspects of how this is done should be left to the marketplace.
Congress
should establish a simple policy of non-discrimination for cable networks, to
allow consumers a real choice in their Internet provider. I believe that by
setting this simple ground rule, we are extending the Internet's core strengths
into the new broadband arena. If we at the same time free the Bell companies
from the LATA boundary restrictions in carrying Internet data traffic and remove
price regulation from telephone broadband services to the home, we will free all
of the companies who have helped build the Internet -- from ISPs to the local
telcos to the cable companies -- to invest in and more rapidly build out the
broadband networks we need now. We will put them all on a more level playing
field and encourage more competition.
Congress has had to step in before to
require cable companies to open up. Direct broadcast satellite (DBS) technology
offered a alternative to cable.
However, by the early 1990's, the cable
industry had sewn up most of the video programming content, and it wouldn't let
the program providers sell their content to DBS. It took a change in the law,
through the 1992 Cable Act, to allow DBS to have an opportunity to offer some of
these programs. Given access to programming, DBS has provided a real alternative
to cable and has provided service in rural areas that cable hasn't tried to
serve.
Congress Should Set the Open Competition Policy As it did for
wireless services, Congress must make the FCC recognize that the high-speed data
business is different from the voice telephony business and that it just not be
subjected to voice telephony rules. The policy that will most benefit the
consumer and the Internet is an open competition policy -- one that applies
equally to all providers, regardless of their parentage. Congress should adopt a
policy that permits all data service providers to provide Internet backbone
services. Congress should encourage last mile broadband
deployment.
Finally, Congress should ensure that regulation is only
instituted where there is a clear market failure.
Overlaying existing
telephony regulation to the Internet is not the answer.
Bell Atlantic urges
Congress to adopt legislation that deregulates the provision of these services
and does not favor one provider over another.
END
LOAD-DATE: August 25, 1999
