Copyright 2001 Federal News Service, Inc. Federal News Service
April 25, 2001, Wednesday
SECTION: PREPARED TESTIMONY
LENGTH: 2621 words
HEADLINE:
PREPARED TESTIMONY OF CHARLES MCMINN CO-FOUNDER AND CHAIRMAN OF THE BOARD, COVAD
COMMUNICATIONS COMPANY
BEFORE THE HOUSE
COMMITTEE ON COMMERCE
SUBJECT - THE INTERNET
FREEDOM AND BROADBAND DEPLOYMENT ACT OF 2001
BODY: Good morning Mr. Chairman, Ranking Member
Dingell, and distinguished members of the Committee. Thank you for inviting me
here today to testify on this very important issue.
My
name is Charles McMinn. I am the Chairman of the Board and a co- founder of
Covad Communications Company. Covad is the nation's largest competitive provider
of broadband DSL Internet connections, offering service to nearly 50% of the
country--more than any other CLEC and any other ILEC. We have over 320,000 DSL
subscribers, half of which are residential customers. I am here today to tell
you that if you pass the bill before you as it is currently written, you will
eliminate the driving force in the deployment of broadband technology in the
United States, competition that the Telecom Act of 1996 created. Your decision
in 1996 to open local telecommunications markets to competition allowed
consumers a choice in broadband services from a variety of competitive
providers. The bill you are considering today will take that choice away.
The public telephone network is the only ubiquitous,
government- subsidized communications delivery system in the nation. Using
copper phone lines, companies can and do offer a variety of different services,
including voice, data, and video. While other delivery systems offer a promise
for the future, the monopoly copper phone network is the here and now. It is the
only choice that many consumers will have for the next decade.
The sad fact is that competition in local telecom markets, especially
in residential broadband services, would be virtually eliminated by this bill.
The Tauzin-Dingell bill dismantles the core market-opening provisions of the
1996 Act, eliminates line sharing, and ensures that the four Bell monopolies
will be the only companies offering residential consumers broadband DSL Internet
connections to the vast majority of consumers in the U.S.
Two colleagues and I founded Covad in October of 1996, just months
after you passed the Telecommunications Act. We took DSL technology - which had
been collecting dust on the shelves and in the warehouses of the Bell companies
for over six years- and quickly used it to build a broadband network that can
reach nearly half of the homes in America.
This
competition drove the Bells to deploy their own DSL services for the first time.
The total number of DSL lines installed nationwide in 1996 was zero. In 1998 it
was about 38,000. At the end of 2000, that number topped 2.3 million. Verizon
alone jumped over 500% between 1999 and 2000, from 87,000 to 540,000. SBC ramped
up to 767,000 from 169,000.
The speed of DSL deployment
by the RBOCs would not have been accomplished without competition from companies
like Covad. Still today, CLECs like us are the only competition that the ILECs
face in many of their markets. We offer services in all of their markets, while
they offer services only in their own markets. The fact is, we are the ones who
compete against each and every ILEC in each and every region in the United
States. They do not compete against each other.
Let me
repeat that. Even though the ILECs were allowed to compete against each other,
none of them have chosen to do so. Only CLECs like Covad are competing to offer
consumers a choice. If this bill is passed, competition will be history and
consumers will suffer, as they have in the past.
The
ILECs, of course, will say that they face competition from cable companies. This
is true only where cable companies offer high-speed data services, which is a
small fraction of the whole country. To put that competition in perspective,
Covad's national DSL network alone has more coverage than all of the cable modem
systems in the U.S. combined. I believe that Covad is a tremendous example of
the type of innovation and entrepreneurship that you envisioned and expected
when you passed that great law. Starting from scratch, we at Covad have led the
charge to bring broadband services to every home in America, and we couldn't
have done it without the Telecommunications Act.
I have
with me today our newest product - the Covad JumpStart kit. It represents the
progress and innovation possible through a policy of local competition. Using
the equipment in this box, and by following some easy instructions, new DSL
customers can install broadband in their homes without a visit from a
technician. As a matter of fact, almost 80% of our residential lines are
installed using the JumpStart kit. There is no need for a separate data line,
and a customer can get connected in a matter of days. With JumpStart, broadband
DSL can be wrapped up and given as a gift. That's quite a long way from a few
years ago when the ILECs controlled broadband services, when prices were high,
availability scarce, and installation times stretched into months on end. This
was a time when no consumers and few businesses could even afford broadband
connections. This bill would return us to those times because it would eliminate
the only competition that the Bells face---CLECs like Covad.
Our JumpStart kit works by employing line sharing. Line sharing is a
simple policy. It allows a customer to receive DSL and surf the net over the
same copper phone line used for regular old telephone service, that same copper
line that has been paid for by consumers over and over again. Because of the
unique technical characteristics of DSL, broadband services and voice services
can travel over the same copper wire. They literally share the line. The issue
before the committee is - who has the right to choose how that wire is used --
the customer or the monopoly?
Using line sharing and
ADSL technology is the only economically feasible way to serve residential users
and to mass market DSL service. When a Bell company provides DSL to a customer,
it exclusively employs line sharing. They do not force the customer to install a
separate phone line, and they do not send a technician to the customer's house
to complete the installation. When Covad serves a residential customer, we also
employ line sharing. This fairness principle is at risk in the legislation you
are considering.
The Tauzin-Dingell bill as it is
currently written eliminates line sharing for everyone but the ILECs. This
conveys a preferred status on the ILECs that we can not possibly overcome. Let
me be clear. If line sharing is eliminated, Covad and other CLECs will have no
choice but to stop offering broadband services to consumers. This could result
in the disconnection of 50,000 residential DSL lines for Covad alone. It also
means that our Jumpstart kit would become a thing of the past. The oft-ignored
section of the current bill reads:
"...the Commission
shall not require an Incumbent Local Exchange Carrier to provide ...unbundled
access to any network element used in the provision of any high speed data
service, other than those network elements described in Section 51.319 of the
Commission's regulations (47 C.F.R. 51.319), as in effect on January 1,
1999...
"
Line sharing was
ordered in November 1999, and therefore would, under the proposed TauzinDingell
bill, cease to exist. How can this possibly benefit the consumer?
I would also note that numerous other pro-competitive
rules that are vital to a competitive marketplace would be completely eliminated
as well, but the elimination of line sharing is at the top of the list.
Aside from unplugging over 50,000 Americans from their
Covad broadband connections, the elimination of line sharing also represents a
serious retreat from the goal of a competitive local telecommunications market.
By eliminating line sharing, Congress will ensure that the Bell monopolies, and
only the Bell monopolies, are allowed to offer residential customers DSL
services in the vast majority of the U.S. In the absence of line sharing,
competitors will have to lease a separate phone line and send a technician to
the field, adding significant costs and time delays, a cost disadvantage that we
can not hope to overcome. And so we will have to withdraw from the consumer
market.
Moreover, the Tauzin-Dingell bill would
relegate consumers to only those broadband services the Bell monopolies decide
to offer. While the Bells offer only one type of DSL called ADSL, Covad and
other competitive companies offer a menu of DSL services and products that give
consumers a wide range of broadband choices, higher speed and farther-reaching
services. The Tauzin-Dingell bill takes away new and innovative services from
consumers. I submit, and Covad firmly believes, that such a re-monopolization of
the local market is clearly not in the best interests of the nation. That
certainly was not the goal of the Telecommunications Act.
We are not alone in our opposition to returning to a local phone
monopoly. I point to an April 18, 2001 Business Week editorial that reads:
"The Bells are not known for their competitive vigor or
their willingness to roll out broadband quickly. Indeed, it was only competition
from new companies that spurred them to start. Even now, the monthly cost--about
$40--for broadband service is high, and the quality of digital subscriber line
(DSL) service often low. Baby Bell SBC Communications Inc. just hiked its rate
to $50 a month. Broadband is clearly the next big thing in the info-tech
economy. Cell-phone and handheld-device manufacturers, Internet infrastructure
builders, server makers, content providers, software writers, advertisers, and
others in the IT sector are betting on broadband...But regulators will have to
do their part as well. If consolidation produces more monopolization of the
telecom market, America's high-tech economy will suffer."
At a time when competition for local broadband services is beginning to
take off, I don't believe the nation can afford to return to a monopolized local
telecommunications network.
The Tauzin-Dingell bill
addresses a variety of other issues that relate to local telecommunications
competition. In each case, we believe such provisions will stifle competition
and slow broadband deployment. The Section 271 process is
crucial to ensuring that local markets are indeed opened to competition.
Eliminating it with respect to data services is not only technically infeasible;
it is the same as eliminating it all together. There is no feasible way to
accurately distinguish between voice and data. How would you classify a
videoconference between Chicago and San Francisco? How about a forwarded voice
transcript of that same conference? Or an online replay of the conference
available to anyone on the Internet?
The process that
Congress put in place in 1996 is working - the FCC has not rejected a single
RBOC long distance application since 1998, and the Bell Companies have announced
plans to submit dozens of applications for approval this year. By year-end, it
is expected that half the nation's population will be able to buy long distance
services from their monopoly phone company. Removing this pro- competitive
provision from the Act would return the nation and its broadband consumers to a
monopolized local market -- but no provision of the bill will harm consumers
more than the elimination of line sharing.
Covad has
more experience competing in the last mile of the local market than perhaps any
other carrier. We've competed in local broadband since December of 1997, when we
began providing service in San Francisco. We deal with each of the four Baby
Bells, and can offer service to nearly half of the homes in America. It is this
long history and experience that leads me to believe there are indeed steps that
Congress can and should take to further the goal of local competition. I don't
believe they will come as a surprise to any Member of this Committee.
The Telecommunications Act provides a tremendous framework
to induce competition into a monopoly market. It comes up short, however, on
enforcement. Only the rigorous enforcement of the law and of the Telecom Act
will promote the deployment of broadband. Not only do competitors continue to
receive poor wholesale performance from all the Baby Bells, we are without an
effective means to have our concerns addressed by policy makers. The current
fine structures that regulators possess are wholly inadequate. I believe that
FCC Chairman Powell said essentially the same thing in his testimony here in
March. For example, in the month following Verizon's entry into the long
distance market in New York, both the FCC and the New York Public Service
Commission found that Verizon had violated the law and "lost' thousands of CLEC
orders. Both agencies together fined Verizon over $13 million. An impressive
sounding figure, but when one considers the size of this company, the penalty is
quite literally pocket change. Verizon recovered the $13 million in just three
hours of operating revenue. In regulatory proceedings, the Baby Bells will tell
you that it is cheaper to pay the fine than to actually address and fix the
problem. It is also ironic that the Bells are permitted to recover the costs of
the fines from customers through their local phone rates. Clearly the current
enforcement regime is not a deterrent to anti- competitive behavior.
Whatever the intent of this legislation, the elimination
of line sharing will end residential DSL competition overnight, leaving
consumers with no choice. Granting "interLATA data" relief will delay
indefinitely the opening of the local market. If Congress is to take action, it
must be to ensure increased and vigorous enforcement of the law and increased
competition, not the elimination of the only real competition the ILECs face.
Without it, American consumers will be left out in the cold, and once again will
be at the mercy of a monopoly local phone company.
I
would leave you with one final thought. Monday's edition of The Wall Street
Journal features a story on the impact of the economic slowdown on fiber-optic
companies. The article reads:
"After two years of
staggering sales increases, the world's major fiber-optic companies are
experiencing growing pains, as a slowdown in telecommunications spending hurts
components and systems makers alike ... The big domino in all of this is the
lack of funding for start-up phone companies. Funding began to dry up in the
middle of last year. The start-ups, which were building
optical-telecommunications networks, no longer have the cash to spend on optical
equipment, and some have declared bankruptcy. As a result, the large incumbent
phone companies, which had to spend aggressively to protect their customer
bases, have curtailed their own spending plans..."
The
message from this article is clear. Competitive deployment drives the Baby Bells
to spend and deploy. Further, outlawing local competition, as Tauzin-Dingell
does, will have serious repercussions on the economy as a whole.
I look forward to working with you to see us through this process. The
story of Coyad is one I believe you all envisioned back in February 1996.
Unfortunately, I fear our story, and the story of all competitive providers of
broadband services, is lost amid the hype about "leveling the playing field" of
pseudo-competition between the Bell monopolies and the cable companies.
Competition and innovation brought broadband to the masses. The real
beneficiaries of this competitive policy have not been companies or
shareholders. Instead, the beneficiaries have been consumers and constituents
who have reaped the benefits, in the form of new services and for the first time
- a choice in a local provider. Please do not eliminate that choice through your
actions.
Thank you very much, and I would be happy to
answer any questions you might have.
Document 49 of 55. 