Copyright 2001 Federal News Service, Inc. Federal News Service
April 25, 2001, Wednesday
SECTION: PREPARED TESTIMONY
LENGTH: 4882 words
HEADLINE:
PREPARED TESTIMONY OF JAMES W. CICCONI GENERAL COUNSEL AND EXECUTIVE VICE
PRESIDENT, AT&T CORP.
BEFORE THE HOUSE
COMMITTEE ON COMMERCE
BODY: The
Internet Freedom and Broadband Deployment Act of 2001 would
subvert the incentive based framework of the 1996 Act, undermine competition in
the provision of telecommunications services, and slow the deployment of
advanced services. Far from promoting broadband deployment or
bridging the "digital divide," this bill would deprive competitors of the
ability to purchase access to the incumbents' network in order to provide
competitive advanced services and gain a foothold in the marketplace.
There is no need to abort the promise of competition in
exchange for broadband deployment by the incumbents.
Experience shows that the ILECs have deployed advanced services under the
existing rules when faced with competition. Remove the possibility of DSL
competition, and the prospects for ILEC deployment of advanced services will be
substantially reduced, while DSL prices are sure to increase. The real effect of
relieving ILECs of the unbundling and resale obligations for high speed data
facilities and services will be to undermine the ability of competitors to offer
DSL and other advanced services, because it would deny them access to the
facilities they need to compete. Under the bill, ILECs would not have to sell
CLECs access to facilities that are used to provide basic telecommunications
services if those facilities are also used to provide advanced services. As
ILECs update their networks, an increasing portion of those networks will become
inaccessible to competitors.
The Bell companies do not
need regulatory relief to provide long distance service. They have been able to
persuade the regulators to grant their requests to enter the long distance
business without any change in the law. Passage of this legislation, however,
would harm consumers in the more than 40 jurisdictions where the Bell companies
have not yet obtained interLATA authority. Companies that lack the Section 271
incentives of the Bells have been far slower to comply with the marketopening
provisions of the 1996 Act.
Moreover, the bill's
attempt to "limit" interLATA relief to data transmissions would be unavailing,
because with the growth of services like IP telephony, there is no longer a
clear distinction between "voice" and "data" transmissions. Even if there were
such a distinction, there is no effective way to determine whether the BOCs are
only transmitting data services over their interLATA facilities.
Competitive LECs, which invested billions of dollars in reliance on the
market-opening requirements of the 1996 Act, have suffered heavily because of
the impediments to competition thrown up the incumbents exacerbated by the
economic downturn. Many CLECs have declared bankruptcy or scaled back service
plans, to the detriment of consumers that will not have access to those
competitive networks. If the CLECs are deprived of the tools to succeed now, it
will be a long time before consumers realize the promise of competition.
Congress should consider ways to make the process that it established in the
1996 Act more -- and not less - effective.
**********
Thank you, Mr. Chairman and Members
of the Committee, for inviting me here today to share AT&T's views on the
Internet Freedom and Broadband Deployment Act of 2001. We
believe that the bill places at risk all of the hard work of this body to bring
consumers the benefits of a competitive marketplace, and the private investment
made by new entrants to bring broadband services to the American people. With
the Bell companies gaining permission to offer long distance services pursuant
to Section 271 of the Telecommunications Act of 1996, the main effect of this
bill would be to protect the Bell companies from advanced services competition.
There is no justification for doing so.
Five years ago,
this Committee crafted landmark legislation that was intended to end almost a
century of monopoly control over the local telecommunications market and bring
the benefits of competition to consumers. Foremost among the market-opening
tools of the 1996 Act was the obligation imposed on incumbent local exchange
carriers ("ILECs") under Section 251(c) to share their networks with
competitors, in return for opening their markets to competition, the Bell
companies would be allowed into the long distance market.
In response to the passage of the Act, AT&T and dozens of companies
invested tens of billions of dollars in new telecommunications facilities and
services. These companies took substantial risks in reliance on the regulatory
framework created by the 1996 Act, under which they should have had a fair
chance to compete with the established incumbents. Unfortunately, the ILECs have
resisted and challenged nearly every attempt to implement the pro-competitive
provisions of the Act. This strategy of resistance, delay, and litigation has
enabled the ILECs to maintain their dominance of the local telephone market,
while dozens of their competitors are forced to scale back service plans, and
many others go out of business entirely.
We are deeply
concerned that the legislation before you today would subvert the
incentive-based framework of the 1996 Act, further undermine competition in the
provision of telecommunications services, and slow the deployment of advanced
services. Far from promoting broadband deployment or bridging
the "digital divide," this bill would deprive competitors of the ability to
purchase access to the incumbents' network in order to provide competitive
advanced services and gain a foothold in the marketplace. Faced with even less
competition, the incumbents will slow -- and indeed have slowed -- the pace of
broadband deployment.
The unbundling
requirements in the 1996 Act were imposed because Congress recognized that the
incumbent LECs had bottleneck control of local telecommunications networks and
the economic incentive to use those networks to deter competition. The ILECs'
dominant market position and their economic incentives to use that position to
undermine competition have not changed in the last five years. By cementing the
dominant position of the incumbent carriers, the bill will frustrate the
prospects for competition in an industry already destabilized by the recent
market downturn. Indeed, the mere consideration of the measure by this body
would lessen the incentive of the Bell monopolies to comply with the
market-opening requirements of the Act, and could deter Wall Street from
providing the needed funding for carriers struggling to provide consumers with a
meaningful alternative to the incumbent monopolists.
There is simply no need to abort the promise of competition in exchange
for broadband deployment by the incumbents. We have heard the
incumbents complain before that overregulation was deterring them from rolling
out advanced services and facilities. Specifically, in 1998, they demanded that
the FCC give them the right to offer advanced services largely free of the
requirements of Sections 251 and 271 of the 1996 Act, much as this legislation
would shield them from those requirements. But before they gained the relief
they sought, competitors began to deploy broadband services, and the incumbents
responded with vigorous deployment of their own. Now, with the competitors
seriously weakened and their deployment plans curtailed, the incumbents are back
with the same untenable claims of overregulation.
They
are as unjustified now as they were two or three years ago. Now, as then, the
incumbents' threat that they will cancel deployment unless the rules are changed
is nothing more than a ploy to retain and strengthen their monopoly position.
Indeed, despite the market-opening principles embodied in
the 1996 Act, the ILECs' market position is even more entrenched than it was
only a year ago. The Bell companies have added almost five times the total
number of access lines of all the competitive providers combined, and today they
provide more than 90 percent of residential DSL services. Experience shows that
the ILECs have deployed advanced services under the existing rules when faced
with competition, and absent competition did not deploy them, even when the
technology existed and the market-opening requirements of the 1996 Act had not
yet been enacted. Remove the possibility of DSL competition -- as this bill
would -- and the prospects for ILEC deployment of advanced services will be
substantially reduced. And where competition to the ILECs has declined, the
price they charge for DSL rises significantly.
There is
likewise no case for modifying the existing 271 process. Five years after
enactment of the 1996 Act, the incumbents have been able to persuade the
regulators to grant their requests to enter the long distance business without
any change in the law. In five states - including two of the largest -- the Bell
companies now offer interexchange services. There will certainly be more this
year. In the meantime, several large companies, including several owned by the
Bells or in which they have significant investments, are providing significant
Internet backbone capacity to all regions of the Nation. The public need not be
forced to pay the high cost of enacting the bill before you.
I will address each of these concerns in turn.
Broad Exemptions from the Unbundling and Wholesale Resale Requirements
Will Deter Broadband Deployment and Competition
In what has been described as an attempt to speed the
deployment of high-speed Internet access services to consumers, this bill
creates broad exemptions from the ILECs' unbundling and resale obligations for
high speed data facilities and services. But relieving the ILECs of these
obligations will only delay the deployment of high-speed Internet access by
undermining the ability of competitors to offer DSL and other advanced services.
AT&T has made a substantial commitment to providing competitive DSL service
to residential and business customers. Earlier this year, AT&T committed
more than $130 million to acquire the assets of the now-defunct NorthPoint
Communications. The assets include collocations in 1920 locations, 3000 DSLAMs
and other DSL networking equipment, 153 ATM switches, and the associated systems
(hardware and software) that support provisioning, engineering, testing and
maintenance functions. Without access to the ILECs' facilities, as contemplated
by the 1996 Act, AT&T's ability to put these assets to use for consumers
will be substantially diminished. Other competitive DSL providers would likewise
see a substantial dimunition in the value and use of their facilities and
investments if this bill were to become law. Worst of all, the bill would deny
customers the lower prices, greater innovation, and broader deployment of
advanced services that only competition can deliver.
Specifically, this bill would deny CLECs the access to facilities they
need to compete. Under the FCC's existing mics, ILECs already are generally not
obligated to offer unbundled access to packet switching and advanced services
equipment. But this bill would end access to those facilities under all
circumstances, even when necessary to permit competition, and would extend this
exemption even to facilities that are used to provide basic telecommunications
services, as long as they are also used for the provision of advanced services.
As the ILECs update their networks and replace more and more of their copper
facilities with fiber optics to deliver high speed services as well as basic
voice, an increasing portion of those networks will become inaccessible to
competitors. Ultimately, there could be little, if anything, left of the
statutory mandate for ILECs to give competitors access to unbundled network
elements - even loops, which are the critical "last mile" that competitors
simply cannot do without. This would effectively close the most significant door
to competition under the Act, by enabling incumbent careers to avoid the
fundamental obligation to open up their networks to new entrants.
The manner in which ILECs upgrade their networks
exacerbates this problem. The copper portion of the ILECs' networks -- the only
portion that seemingly would remain accessible to competitors -- more and more
frequently does not run all the way from a subscriber's premises to the central
office. Instead, as the incumbents push fiber further out into the network,
copper loops terminate at so-called "remote terminals" that house the equipment
for DSL service. Under the bill, however, an incumbent would not be required to
give a competitor access to the equipment at the remote terminal (even for the
provision of basic voice service) or to the customers' data communications
signals at the central office. It leaves competitors no practical alternative
for providing advanced services using the incumbent's loop facilities. In
effect, in a direct reversal of the requirements of the 1996 Act, the bill would
preserve, exclusively for the incumbent carriers, the economies of scale, scope
and density that they have built on the backs of the ratepayers as the
sanctioned monopoly providers of local services for nearly a century. It is
clear that this price need not -- and should not -- be paid in order to
encourage ILEC investment in broadband facilities. After sitting on DSL
technology for ten years, ILECs finally deployed it only in response to
competitive offerings of CLECs and cable companies (and specifically to
AT&T). Verizon, for instance, will spend $18 billion this year on capital
investment,/1 SBC is spending more than $6 billion on its heavily-promoted
"Project Pronto,"2 and Qwest will spend $9.5 billion this year to build out its
facilities? BellSouth's Duane Ackerman has stated that BellSouth "invested over
$33 billion ... during the 1990's," and that BellSouth expects "total DSL
revenue of approximately $225 million this year and $500 million in 2002."4
Further, Mr. Ackerman acknowledged that the regulatory challenges BellSouth is
facing "are unlikely to slow down the momentum of the marketplace."5 Contrary to
the incumbents' complaints, the facts demonstrate that application of the 1996
Act's unbundling requirements has not been a deterrent to this extraordinary
level of investment.
Further, these investments are
producing significant revenue for the ILECs. While SBC threatens to cease
deployment of advanced facilities in Illinois after a state regulatory decision
allowing competitors access to SBC's fiber optic facilities, it simultaneously
boasts to investors that "(t)he network efficiency improvements alone pay for
this (Project Pronto) initiative, leaving SBC with a data network that will be
second to none."6 Beyond those savings, of course, SBC and the other ILECs will
earn substantial revenues from the new services made possible by the deployment
of advanced facilities. And when SBC makes advanced facilities available to
competitors as unbundled network elements, they earn yet another revenue stream
from competitors who must pay the costs of these elements plus a profit.
The losers in SBC's game of chicken with the Illinois
regulators are consumers. As the Illinois Commerce Commissioner, Terry Harvill,
aptly observed in his letter last month to Speaker Hastert, "if the market were
competitive, SBC/Ameritech would not be able to unilaterally halt the deployment
of DSL infrastructure and deny these (Illinois) customers advanced telephony
services." AT&T agrees with Commissioner Harvill that "(w)ithout competitive
guidelines like those (SBC) objects to, it is unlikely that millions of
customers in Illinois will ever see the intended benefits of the Act in the form
of lower prices, many choices for broadband services, and better customer
service."
Nor is there any assurance that the
incumbents would use the regulatory relief in the bill to deploy broadband
facilities any faster or to historically underserved areas like rural
communities or inner cities. Their arguments that this bill will give them the
incentive to bring high-speed access to rural areas ring hollow when you
consider the fact that they are selling off many of their rural exchanges, and
there is little evidence that the ILECs have used the last five years to extend
broadband to unserved communities. And without the competitive spur of new
entrants, the incumbents will slow the pace of deployment and raise prices for
advanced services. Analysts at Legg Mason have noted that "with numerous DSL
providers exiting the playing field. DSL pricing appears to be on the rise."
SBC, for example, raised its residential DSL rates in February by approximately
25 percent and Earthlink followed suit.
The impact of
this bill on competition would be particularly severe in light of current market
conditions. Competitive LECs are suffering heavily because of the difficulties
they have encountered entering local markets and the economic downturn. Over the
past year, the CLEC industry has virtually collapsed. Numerous competitors,
including Winstar, e.spire, Vectris, Jato, Prism, NETtel and many others, have
declared bankruptcy or shut down operations. Even NorthPoint, which was widely
considered the type of major competitive player created by the Act, is now
defunct.
For those that continue to struggle in
operation, stock prices have plunged, and the capital market has virtually dried
up. While telecommunications companies captured an average of two billion
dollars per month in initial public offerings over the last two years, they
raised only $76 million in IPOs last month, leading numerous companies to
withdraw their IPO plans.7
The difficulty in entering
local markets has also caused nearly all competitors to scale back their plans
to offer service. Covad, originally another success story, is closing down over
250 central offices, and will suspend applications for 500 more facilities.
Rhythms has cancelled plans to expand nationwide. Net2000 has put its plans for
expansion on hold. Numerous other competitors have resolved to focus on a few
core markets. Each of these decisions has been accompanied by hundreds of
eliminated jobs. CLECs dismissed over 6000 employees in the last year,
attempting to remain in business.
The repercussions of
these events on consumers is significant. CLECs reinvested most of their 2000
revenues in local network facilities. CLECs declaring bankruptcy in 2000 had
planned to spend over $600 million on capital expenditures in 2001. Those
competitive networks will not be available to consumers. Further, as CLECs leave
the market, the incumbents raise their prices, and lose incentive to deploy
advanced services. Indeed, we could well return to the environment that existed
before the 1996 Act, when the Bells kept DSL technology on the shelf, feeling no
pressure to deploy it in the marketplace.
Mr. Chairman,
as the "father of program access," you are well aware that new entrants need
access to the assets of incumbents in order to break into new markets. You took
the lead in ensuring that new entrants to the video market would have access to
the cable programming they needed to compete with incumbent cable operators. New
entrants to the local exchange market need access to the facilities of the
incumbent LECs for the same reasons. Depriving them of this access will deprive
the public of the competitive telecommunications alternatives envisioned by you
and the other authors of the 1996 Act.
InterLATA Data
Relief Is Not Necessary for the Deployment of Broadband Facilities and Services
The second component of the bill, interLATA data relief, also is not necessary
to ensure adequate investment in broadband backbone facilities. There are ample
backbone facilities throughout the United States from a wide variety of
companies, including three - Qwest, Genuity, and Williams -- that are affiliated
with Bell companies. Other providers, such as Level 3,360 Networks, Global
Crossing, and XO Communications, are currently adding fiber and deploying new
transmission technologies to expand the capacity of existing networks. Qwest has
deployed an 18,500 mile fiber network connecting 150 cities in the United
States.8 Level 3's high-speed network has over 16,000 miles of fiber optic lines
and connects 50 U.S. cities.9 360Networks recently deployed 21,000 miles of
fiber optic networks.10 ln 1999 alone, twelve new companies began providing
national Internet backbone services, for a total of 46 providers in the United
States.11 There is no support for the claim that section 271 is somehow
depriving the country of needed backbone capacity. If anything, there is now a
glut of backbone capacity far exceeding current demand.
In fact, dozens of competitive providers have, in the last four years,
blanketed the Nation with over 1,000 high-speed Internet points of presence
("POPs"), and today 95 percent of all Americans live within 50 miles of one of
these competitively provided POPs. Each represents a DS-3 POP capable of
providing customers with speeds of 45 Mbps or more. And even this understates
the level of access to the Internet backbone, because local ISPs aggregate onto
highspeed private lines the demand of local communities for transport to the
Internet backbone, regardless of the distance to the Internet POP.
More fundamentally, this legislation is unnecessary
because the BOCs themselves hold the key to obtaining the authority to provide
any long distance service by opening their, local markets to competitors.
Earlier this month Verizon was granted permission under Section 271 of the Act
to provide interLATA service in Massachusetts, in addition to its existing
authority to provide interLATA service in New York. The FCC has also granted SBC
approval to provide interLATA service in Texas, Kansas, and Oklahoma. Although
AT&T believes that each of these Bell company applications fell short of
what the Act requires in particular respects, it is clear that the requirements
of Section 271 of the Act are attainable and can be met, if a Bell company takes
steps to open its local markets to competition.
This is
a particularly significant point because granting the Bell companies interLATA
data relief would harm the very competition that Congress is seeking to promote.
As this Committee is well aware, in order to foster local competition, the 1996
Act permits in-region interLATA authority only after a Bell company has opened
its local market to competition. This incentive-based approach takes full
advantage of the long distance restriction to provide the Bell companies with a
reason to open their local markets for the benefit of all consumers. And the
ability to provide high speed data services across LATA boundaries is a powerful
incentive: currently, the majority of traffic traveling over long haul networks
is data traffic, not voice, and analysts predict that data traffic will make up
90 percent of all traffic within four years.
Nor is
there any basis to conclude that, in adopting the Telecommunications Act of
1996, Congress intended to exclude broadband or advanced data services from the
interLATA restriction. Even the most cursory review of the 1996 Act and its
legislative history belies such an argument. For example, Section 271 (g)(2) of
the Act, which carves out incidental interLATA services that may be provided by
the BOCs without FCC approval, specifically includes "Internet services over
dedicated facilities to or for elementary and secondary schools." Other Internet
services provided by the Bell companies were therefore deliberately made subject
to the interLATA restrictions.
Too much remains to be
done for Congress now to reopen the Act and remove or lessen the incentives
provided by Section 271. The four Bell companies continue to dominate the local
exchange market -- CLECs account for only about 6 to 8 percent of the total
local telecommunications market/12 and far less of the market for residential
local telephone service. By permitting Bell companies to enter the high speed
interLATA data market without first opening their local markets, this bill would
substantially reduce the likelihood that this dominance will end.
In particular, passage of this legislation would harm
consumers in the more than 40 jurisdictions where the Bell companies have not
yet sufficiently opened their local markets to obtain interLATA authority. SBC
recently filed a Section 271 application to provide interLATA service in
Missouri,13 and press reports indicate that other Section 271 applications may
soon be filed.14 But if this legislation were enacted, the Bell companies would
have less of an incentive to take any steps to open their local markets in these
states to competition. Companies that lack the Section 271 incentives of the
RBOCs have been far slower to comply with the marketopening provisions of the
1996 Act. For example, as the former CEO of Ameritech noted shortly after the
Act's passage, GTE (then an independent LEC) has "no incentive" to cooperate to
open its markets because it is not subject to Section 271.15
Congress understood that if the Bell companies could provide long
distance service before there were sufficient local alternatives, they would
have the incentive and the ability to use their local networks to favor their
long distance affiliate and discriminate against competing long distance
providers that needed access to the Bells' local networks to reach consumers.
Nothing has changed in the past five years that would alter that conclusion.
The bill's attempt to "limit" interLATA relief to data
transmissions would, moreover, be unavailing. With the growth of services like
IP telephony, there is no longer a clear or readily identifiable distinction
between "voice" and "data" transmissions. SBC, for example, has indicated an
intent to move to packetized voice transmissions, which would essentially
eliminate any distinction between the two services and allow SBC to characterize
all transmissions as "data" transmissions. From a practical standpoint, even if
the distinction remained clear, there is no effective way to determine whether
the BOCs are only transmitting data services over their interLATA facilities.
The "data exception" in the bill would essentially hand
ILECs the tool they need to shut CLECs out from their networks completely, and
would quickly and surely swallow the policies and rule embodied by Section
271.
Perhaps most telling is the fact that, if there is
a problem here, it can be addressed far more narrowly than by legislation that
rejects the incentive-based framework of the 1996 Act. Indeed, the FCC has
itself established an expedited process under which it will approve targeted
LATA boundary modifications if a Bell company can demonstrate that such a
modification is necessary for the deployment of "advanced services." It is
notable that the FCC has not received any requests for LATA modifications under
this process.
Conclusion
With
all due deference to you, Mr. Chairman and the other co-sponsors of this bill,
there is no need for this legislation. Under the spur of competition - indeed,
only under the spur of competition - the Bell companies have invested in
broadband facilities and services. Moreover, because the Bell companies continue
to dominate the local exchange market, this legislation would harm consumers and
set back the cause of competition by undermining the very incentives and
policies that Congress intended to foster local exchange competition.
The CLEC industry is at a critical juncture. If we don't
succeed now, it will be a long time before others are willing to invest the
billions of dollars needed to try again. Rather than eliminate the most
important incentive for the Bell companies to open their local markets, Congress
should consider ways to make the process that it established in the 1996 Act
more -and not less -- effective.
Thank you again for
the chance to present our views.
3 "Running on Empty; Industry Trend or Event,"
Communications Week International (Mar. 5, 2001). 4 Duane Ackerman, Talk Notes,
Salomon Smith Barney Conference (Jan. 9, 2001) at 7, 15.
5 Id. at 11.
6 Id. at 2.
7 Telecom Meltdown, Business Week (April 23, 2001).
8 Qwest News Release, Qwest Communications Completes 18,500 Mile
Nationwide Network and Shifts Construction to 25 Local Fiber Networks, Sept. 13,
1999.
9 "Teligent to Buy Network Services from Level 3
Commumcatious," CNETNews.com (May 9, 2000).
10
"360networks Announces Record Fourth Quarter and 2000 Revenues," PR Newswire
(Mar. 1, 2001).
11 Boardwatch Magazine's Directory of
Internet Service Providers (11th ed., 1999).
12 C.E.
Unterberg, Towbin, Broadband Communications Providers, June 14, 2000, p. 5.
13 "SW Bell Seeks To Offer InterLATA Services In Missouri,
Says It Followed Texas Model," TR Daily (April 9, 2001).
14 See "Qwest Takes a Shortcut to Re-Enter Long Distance," Hive4.com
(April 15, 2001) (reporting that Qwest plans to file 271 applications for all 14
states in its region in late 2001). 15 Mike Mills, "Holding the Line on Phone
Rivalry; GTE Keeps Potential Competitors, Regulators Price Guidelines at Bay,"
Washington Post, Oct. 23, 1996, at C12.
Document 52 of 55. 