Copyright 2001 Federal News Service, Inc. Federal News Service
April 25, 2001, Wednesday
SECTION: PREPARED TESTIMONY
LENGTH: 898 words
HEADLINE:
PREPARED TESTIMONY OF JAMES H. HENRY MANAGING GENERAL PARTNER GREENFIELD HILL
CAPITAL LLP
BEFORE THE HOUSE COMMITTEE ON
COMMERCE
SUBJECT - THE INTERNET FREEDOM & BROADBAND DEPLOYMENT ACT OF 2001
BODY: INTRODUCTION
Mr.
Chairman and Members of the Committee, thank you very much for inviting me to
testify at today's heating on the proposed Internet Freedom & Broadband Deployment Act of 2001. My name is James Henry and I am
the Managing General Partner of Greenfield Hill Capital LLP, a hedge fund
focused on the communications sector. Prior to founding Greenfield Hill Capital
I served as a research analyst following the telecommunications industry for
approximately 7 years. Most recently, I was a Senior Managing Director at Bear,
Steams & Co. Inc. where I was ranked 2nd in Institutional Investor
Magazine's All American Research Team survey for the CLEC category in 1999 and
2000. My testimony today will provide a "Wall Street" perspective on local
competition and the implications of the proposed legislation. LOCAL TELECOM
COMPETITION
I believe that competition in the local
telecommunications industry is in the public interest insofar as it (1)
accelerates the deployment of advanced networks, technology, and services to
businesses and consumers, (2) drives reduction in the prices of local
telecommunications services, and (3) creates new jobs and employment
opportunities for technologically sophisticated workers. Competition in the
telecommunications market has historically been viewed as a compelling
opportunity by the investment community as a result of the substantial size,
growth and profitability of the market coupled with regulatory and legislative
initiatives to foster the growth and development of competition in the
marketplace. That perception has clearly changed to the negative as a result of
a number of factors that include legislative and regulatory uncertainty.
CLECS - LOCAL COMPETITION
The
CLECs and other non-incumbent telecommunications companies are the principal
drivers of competition in the local market. The CLECs, including the CLEC
subsidiaries of AT&T and WorldCom, have installed a total of approximately
12.2 million local access lines and achieved an annualized local revenue run
rate of approximately $7.5 billion since the passage of the Telecommunications
Act of 1996. By contrast, the ILECs, principally SBC Communications and Verizon,
have done very little outside their respective regions on the competitive front.
In fact, both companies announced significant pullbacks of their out-of- region
competitive initiatives in the past quarter.
ACCESS TO
CAPITAL
Access to capital is the lifeblood of the
telecommunications industry in general and the CLECs in particular, given the
high startup costs and the capital intensity of the businesses. Therefore, I
submit that access to capital is vital to competition in the local telecom
market to the extent that the CLECs offer the only meaningful source of local
competition. As a result of the relatively free-flowing access to capital
enjoyed between 1996 and 1999, the CLECs deployed approximately $55 billion in
capital to build alternative local networks. Regrettably as the capital markets
have collapsed beneath the weight of the broader market and the significant
uncertainty surrounding the sector, CLEC capital spending has started to slow
significantly. For example, CLEC capital spending grew from $6.0 billion in 1999
to $10.2 billion in 2000, but is expected to contract to $7.0 billion or less in
2001.
WALL STREET CONCERNS
It
is my observation as an industry analyst that the investment community's
willingness to fund telecom companies in general and CLECs in particular is
adversely impacted by legislative and regulatory uncertainty. The proposed
Internet Freedom & Broadband Deployment Act of 2001 is
illustrative of the kind of legislative uncertainty that will cause investors to
move to the sidelines and withhold capital from the emerging local competitors.
I have had a number of conversations with institutional investors, including
private equity investors, public equity investors, and high yield investors,
that have cited regulatory uncertainty as one of the principal reasons for
avoiding the telecommunications sector in general and the CLECs in
particular.
THE INTERNET FREEDOM & BROADBAND DEPLOYMENT ACT OF 2001
The
proposed legislation has the potential to create the following issues that would
adversely impact the CLECs and therefore the pace of local competition in the
United States. The principal issues that concern me about the proposed
legislation include, but are not limited to, the potential that it could
(1)jeopardize competition for broadband and voice services by exempting
high-speed data and Internet access services and facilities from regulation, (2)
significantly reduce the incentive of the ILECs to open their local markets to
competition in order to qualify for entry into long distance, and (3) jeopardize
line sharing and eliminate access to unbundled loops, sub loops, and dark fiber
on facilities that are used for both voice and data. Furthermore, I would submit
that any legislation that views voice and data network facilities as separate is
not prepared to follow the telecommunications industry into the inevitable
future of unified packetswitched networks that will carry all traffic. In
conclusion, I urge the committee to not pass the proposed legislation because I
believe it will have an adverse impact on local competition, which would not be
in the public interest.
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