Copyright 2001 Federal News Service, Inc.  
Federal News Service
April 25, 2001, Wednesday
SECTION: CAPITOL HILL HEARING

LENGTH: 24951 words

HEADLINE: HEARING OF THE HOUSE ENERGY AND COMMERCE COMMITTEE
 
SUBJECT: INTERNET FREEDOM AND BROADBAND DEPLOYMENT ACT OF 2001
 
CHAIRED BY: REPRESENTATIVE W.J. BILLY TAUZIN (R-LA)
 
LOCATION: 2123 RAYBURN HOUSE OFFICE BUILDING, WASHINGTON, D.C.

WITNESSES: DOUGLAS C. ASHTON, BEAR STEARNS & COMPANY JAMES CICCONI, GENERAL COUNSEL & EXECUTIVE VICE PRESIDENT, AT&T JOSEPH GREGORI, CEO, INFOHIGHWAY COMMUNICATIONS JAMES HENRY, GREENFIELD HILL CAPITAL LLP GORDON HILL, ECONOMIC OPPORTUNITY, ELMIRA NEW YORK PAUL MANCINI, SBC MANAGEMENT SERVICES CLARK MCLEOD, MCLEOD USA CHARLES MCMINN, COVAD COMMUNICATIONS PETER PITSH, INTEL TIMOTHY REGAN, CORNING INCORPORATED THOMAS TAUKE, VERIZON
 


BODY:
REP. TAUZIN: (Sounds gavel.) The committee will please come to order. This will be a very crowded session today, so I would ask our guests to take seats and get comfortable. We have a very large and illustrious panel of witnesses today, and this obviously is going to be a long day of hearing, and the sooner we can settle down and get started the better.

Good morning. I would like to first welcome our guests our guests this morning, and thank the members for attending this important hearing. Today the committee will hear testimony regarding the Internet Freedom and Broadband Deployment Act, legislation that I introduced yesterday along with my colleague, the ranking member of this committee, Mr. Dingell, and many of our colleagues.

I am delighted that we are conducting this hearing today, so that all the members of the committee may participate in a discussion again of the bill's merits.

I am also delighted that Chairman Upton will mark this bill up in his subcommittee tomorrow, and I want to thank the chairman for his expeditious consideration of the measure.

Mr. Dingell and I have worked with many of our colleagues for the past two years attempting to finish the deregulation begun by the Telecommunications Act of 1996. In 1999, we introduced H.R. 2420, which was the identical bill we refiled again yesterday, a bill to deregulate the provisions of high-speed data and Internet service access -- Internet access services rather. That bill in the last Congress gathered nearly 240 co-sponsors, indicating very broad and very deep support among the markets, our colleagues in the House.

Yesterday we reintroduced the bill, and the hearing will mark the beginning of the process in which the 107th Congress will consider the legislation.

Broadband services offer consumers new ways to communicate, to learn to do business, and to entertain themselves. I am often asked at home to explain broadband, and I like to use the refrigerator-and- beer analogy. Today if we want to use the Internet, we have got to dial it up, wait for it to warm up, and depending upon the speed of our PC and the sped of our connections, it may take a while for us to chill the beer down. It's like going to the refrigerator and finding the doggone thing shut down, having to turn it on and wait for it to chill the beer. Broadband is where you turn up in the kitchen and find a refrigerator that is always on, and when you open the door not only is the beer chilled, but there are 20,000 varieties of beer in that refrigerator -- rich content.

For television consumers who may not be as keenly aware of Internet services yet, as we move television into the age of digital communications television will be the broadband portal by which many Americans will experience Internet services -- rich content, that refrigerator full of 20,000 varieties of communications.

Broadband services are not nearly as available as their slower pile-up counterparts. While broadband deployment has begun to speed up in urban and densely populated suburban areas, broadband deployment is almost nonexistent in most of the rural areas of our country. Many of the reasons for the disparity in the deployment of broadband services are economic. Broadband is a capital-intensive investment, the cost of which can be recovered more rapidly if they're being spread over more and more lucrative customers. But that does not mean that Congress should not be concerned about the disparity in deployment. Areas in which broadband services are not available are in jeopardy. They are in jeopardy of being left out of the new Internet age. And Internet-dependent businesses simply will not local in rural areas if broadband is unavailable. And those that are there may find themselves required to move, to go to those parts of the country where in fact these services are abundantly available.

To give carriers a greater economic incentive to deploy broadband services more rapidly anywhere, everywhere in the United States, Congress needs to complete deregulation begun by the Telecom Act, by deregulating broadband services. Currently there are regulations imposed upon broadband services and facilities provided by the incumbent local exchange carrier that are not imposed upon any of the broadband carriers. ILECs (ph) must provide their facilities, even brand-new facilities, on an unbundled basis to competitors at regulated prices. ILECs must resell their broadband services to competitors at wholesale rates, which no other carrier is required to do. In addition, the ILECs, the Bells, are prohibited from offering long-distance data services, which then deprives them of the efficiencies that can be gained from offering end-to-end services. These restrictions given the ILECs little incentive to deploy new services or facilities. Why spend the money to roll out broadband when your competitors can then use your network to take away your broadband customers? Even worse, to take away your old customers, the telephone customers, while they're doing it? These types of rules might have made sense for basic telephone service; but cable companies now control 75 percent of the broadband market. So the ILECs cannot be considered dominant by any stretch of the imagination. In fact -- the fact that cable is deregulated says a lot about deployment. The fact that cable is so actively deploying broadband in a deregulated governmental relationship says a lot about the need for this bill.

I am suggesting that we -- I am not suggesting rather that we subject the cable companies to the same rules that currently apply to the ILECs. On the contrary, I applaud the cable companies for aggressively rolling out broadband services; and frankly I hope the government continues to stay out of the way so that cable companies can continue to do so. But what it means is that ILECs should have the deregulatory parity with cable companies in the broadband market. Those who worried about cable rates for television services ought to think about cable rates for broadband services if there are no real competitors out there, and testing for those same customers. Broadband is a nascent market that does not need regulation. What it needs is the ability to thrive, similar to what happened when the wireless industry was given its chance and government stayed out of the way. Wireless thrived in the absence of regulation; broadband will just as well.

The broadband needs to be deregulated. We have introduced a bill to accomplish that goal. The bill provides the right amount of deregulation for broadband services. It rejects the application of antiquated telephone rules for the new market like broadband, and it seeks to maximize investment and innovation of new facilities. After many strong years of growth, the tech sector is experiencing some very difficult times. How can we stimulate the high-tech sector of our economy? If we deregulate the broadband market, we will witness indeed the acceleration of broadband deployment. And as we will hear today from witnesses, like Peter Pitsh of Intel and Tim Regan of Corning, an acceleration of broadband deployment is exactly what the tech sector needs to get back on its feet, to get the dot-com companies coming again, functioning again, surviving and growing. And broadband services will bring new opportunities to many of our constituents. It will bring them choice, it will bring them new services. It will bring them all those products of all those high- tech companies.

And deployment of broadband facilities will hopefully restore what has become one of the most important sector of our economy. I look forward to the witnesses today, and I certainly look forward to my colleagues' participation in this extremely important debate. The chair now yields to the ranking minority member of the committee, my friend and co-sponsor of this legislation, from Michigan, Mr. Dingell.

REP. JOHN DINGELL (D-MI): Thank you, Mr. Chairman, and I commend you for holding this hearing today, which I note is our fifth hearing on this matter. And I am pleased to join you in co-sponsorship of the reintroduced Internet Freedom and Broadband Deployment Act. I am happy to have worked with you on the drafting of this legislation, because I believe the legislation is right, I believe it's fair, and I believe it will provide great benefits to the public, and to the American economy as a whole.

The bill will make sure that competition for broadband, interband and Internet service is strong, that high-speed Internet connections are delivered to American consumers quickly -- something not happening now. And, above all else, that no single sector of the industry is given de facto monopoly when it comes to providing consumers with broadband Internet access, as is now the case.

Today's hearing marks the fifth time that we have held hearings on this broadband development in less than two years. The first four hearings were heard in the telecommunications subcommittee on legislation substantially identical to that upon which we proceed today. It has been before this committee in at least two Congresses. And I want to commend you for calling today's session before the full committee. This is an important legislative issue which for many reasons demand the addressing of the committee, and it is crucial that all members have the opportunity to learn first-hand about the strong need for regulatory reform in this area.

Five years ago, you will recall, Mr. Chairman, the Congress asked the most substantial rewrite of the nation's telecommunications law since 1934. That was an extraordinary achievement. Unfortunately not all of our hopes have been materialized. Like all legislation, the Telecom Act simply reflected the Congress's best policy judgment based on the facts as we knew them at that time, or anticipated they might change. But now in this information age facts change more rapidly than ever before, and those who operate on Internet time, the last years seems to be an eternity.

With the benefit of 20/20 hindsight, perhaps the more glaring oversight of the Telecom Act was the failure to create with certainty a proper regulatory environment for Internet. As a result, with its explosive growth the Internet is still in many ways grinding along in low gear. While we hear a great deal about the benefits of the information superhighway, the truth is that most Americans are relegated to the slow lane -- and the expensive lane. It is astounding to me that only 5 percent of Americans today have broadband -- only 5 percent -- or high-speed Internet service today. Ninety- five percent of our people, Internet users, are stuck with low-speed dial-up service. The Internet users are not being permitted to participate in the progress made in this area.

If there is any realistic hope that the new economy will be resuscitated, these numbers must change dramatically and fast. And I believe that the legislation before us will make that possible.

What is even more astounding is how the 5 percent number breaks down. Let's look at what you have to do to get in under the benefits of getting these kinds of new services. First, you have to live in an area where broadband service is offered -- that's a matter of pure luck. Second, you must be fortunate enough to be able to afford it. Third, if you surmount these hurdles you are three times more likely to subscribe to cable modem service than to DSL. The troubling fact is that cable companies now have a fine monopoly of their own -- they control more than 70 percent of the broadband Internet market. And we will be asking some questions about this this morning, Mr. Chairman.

One must also ask why there is a major discrepancy in market shares. Is it because the cable companies provide vastly superior service? That is the most unlikely question, since most technical reports say that service qualities of modern cable modems versus DSL are largely comparable. It is much more likely that the discrepancy in market share is due to the tremendous competitive advantage cable companies enjoy in the broadband marketplace. Since the Telecom Act removed virtually all federal regulation of cable companies, these companies are now free to invest in advanced broadband services without any requirement whatsoever that new investment or facilities be share with competitors. They also have no constraints going from regulation.

When it comes to cable, the law contains no interconnection requirements, no resale requirements, no requirements to lease proprietary network facilities to competitors at cost-based rates. I am quite certain that if in fact cable companies are required to share their property with competitors, AT&T would not have spent more than $100 billion to acquire broadband facilities. No bank would have lent them the money. Their shareholders would have staged a revolt, and the investment would not have and could not have been recovered.

However, that's precisely the situation that the nation's local telephone service companies find themselves confronting. I would note that they are best positioned, and most likely competitors to cable, willing and able to provide effective competition for broadband Internet services. And in so doing they will stimulate the cable people to provide better service at lower cost. But they remain saddled with common carrier regulations designed for another time, and quite different purposes. While these regulations continue to be necessary to open telephone networks to competition, they are an absolute impediment to realizing healthy competition in the broadband Internet market.

The simple truth is that the Tauzin-Dingell bill will do nothing -- and I repeat, will do nothing -- to roll back market-opening provisions contained now in the law. What the bill will do is simply to remove regulatory obstacles that substantially hinder investment in broadband technologies. In my view that is the single best way to get the new economy back on track, and to give the American public a real choice when it comes to faster and better and cheaper Internet access.

Mr. Chairman, I would urge my colleagues to support this legislation, and I thank you for this hearing.

REP. TAUZIN: I thank my friend.

The chair is now pleased to recognize the chairman of the telecommunications and Internet subcommittee of this fine committee, Mr. Fred Upton of Michigan.

REP. FRED UPTON (R-MI): Well, thank you, Mr. Chairman. And as subcommittee chairman I am pleased that we are able to open up this hearing to all full committee members to ensure that everyone has the opportunity to participate. And I commend both you and Ranking Member Dingell for helping to hold it this morning.

This hearing will complement the four hearings held in the subcommittee last Congress, including the legislative hearing on an identical bill last July.

Last month I had the opportunity to chat with the head of the Southwestern Michigan Association of Realtors. Number one question on the minds of prospective buyers in Berrien County these days is not about property taxes or local schools or hospitals but whether or not there is high-speed Internet access in the neighborhoods. I am told that potential buyers are willing to commute more than 30 minutes -- sometimes even across state lines -- just to live in communities that have this service. Our businesses report similar competitive disadvantages. Regrettably, high-speed Internet access is not available to most consumers in Southwest Michigan like it is in more populated areas of the country, and it is having a negative impact on economic growth and the quality of life.

I compare high-speed Internet access to the interstate highway system and the railroads from days ago. As I criss-crossed my district I can see the population in economic growth which has occurred in those communities along the interstate highways, and some would say that the towns which don't have access have remained in a time capsule -- nice towns, nice people, but they virtually stood still in terms of economic growth.

That's what I will fear will happen in Southwest Michigan if we fail to move to get these communities connected to the high-speed Internet highway. That's why we need to provide deregulatory parity for high-speed Internet access, regardless of the platform by which it's delivered, be it by telephone wires, cable, wireless or satellite. By doing this we can undo the enormous regulatory shackles which prevent telephone companies from providing DSL the last mile.

That said, as chairman of the telecommunications and Internet subcommittee, I have done a lot of thinking about this bill lately. Since becoming chairman several months ago, my door has been open to virtually all comers, whether they be ILECs, CLECs, DLECs, IXCs, PUCs and, yes, MCs, members of Congress, to discuss their support or opposition, whatever the case may be. It's a matter or public record that I was not a co-sponsor of H.R. 2420 last Congress, and I am not a co-sponsor of H.R. 1542, the bill before us today. I have always stated that I would seek to make some constructive and positive changes to the bill, and this will happen.

I listened intently to Chairman Powell when he testified before our subcommittee on March 29th. And in his testimony he said this: You have to have a response to consumer harm and dangers of marketplace failure. I believe that response is enforcement. I might give you the benefit of the doubt, but you cheat and I am going to hurt you, and hurt you bad -- hard. And that is what enforcement means. And I think to do this seriously we will need the help of Congress.

I believe the enforcement tools made available to us are inadequate with billion dollar industries. "Our fines are trivial -- they are the cost of doing business to many of the companies" -- end quote. I would note that the FCC's fines for phone companies in violation of the law are up to $100,000 per violation, capped at a million. I think this is what Chairman Powell was referring to as "inadequate, trivial, and the cost of doing business to many companies."

As H.R. 1542 moves through the legislative process, I will seek to significantly increase those fines and enhance other FCC enforcement tools to make sure that Chairman Powell and his colleagues at the FCC will be able to hurt and hurt hard those who violate the law. It is my hope that the threat of such fines would compel companies to make sure that they are doing right by the Telecom Act of '96, and by the consumers who the law seeks to benefit through robust competition in the marketplace for local telephone service. Moreover, I believe that there are ways that we can improve the state PUCs' process of resolving disputes over terms contained in interconnection agreements. Mr. Chairman, I look forward to working with you to move this bill along the way. Thank you. I yield back.

REP. TAUZIN: And I thank my friend.

And the chair is now pleased to welcome and recognize the gentleman from California, Mr. Waxman, for an opening statement.

REP. HENRY WAXMAN (D-CA): Thank you very much, Mr. Chairman. I am committed to a policy that leads to more competition, lower prices, better service, and marketplace conditions that encourage the greatest possible technological advancements. As the debate on this issue has developed, I've been careful not to rush to judgment on how we can best achieve that goal. I have tried the best I can to keep an open mind on legislative proposals, including the Internet Freedom and Broadband Deployment Act. Depending who you talk to, the Tauzin- Dingell bill is either going to speed broadband deployment throughout the country and allow competition to flourish, or it's going to destroy the very lifeblood of competition, ruin competitive carriers and residential and business consumers.

At this point my view is that H.R. 1542 will do more harm than good, and I want to raise some specific competitive concerns that I have about this legislation.

First, I believe there is some confusion about the role of DSL in this debate. DSL is a high-speed broadband service that is being deployed today. It is a local service that the incumbent ILECs can offer anywhere they choose under current law and in competition with other DSL providers. And they do offer it. In short, the ILECs do not need long-distance relief to offer DSL.

The CLECs currently serve only about 3 percent of the local lines that go to residences and small businesses, and about 17 percent of the local lines that go to big businesses. Facilities-based competition is currently limited to about 2 percent of the market. I believe that the dominant position the ILECs hold in their service areas is a critical part of this debate. Under the requirements of the 1996 Telecommunications Act, ILECs must meet a 14-point competitive checklist before they can gain entry into the long- distance markets in their service areas. They've gained entry in a five states and a number of other 271 petitions are pending, including one before the California PUC, which is expect ed to be considered in June.

I am concerned, however, that the Tauzin-Dingell bill will allow the ILECs into long-distance data service, without having to meet the checklist requirements or make any demonstration that their own markets are open to competition. I urge today's witnesses to specifically address this point so that the committee can evaluate this concern.

According to the bill's proponents, data and traditional voice services are different forms of communication, so it only makes sense that they be regulated differently. That sidesteps what I believe to be the core issue. Both forms of communication are transmitted on the same wire, and the final mile of that wire for almost every residential and business customer is still under the control of the ILECs. At the same time, the legislation would eliminate the competitive checklist requirement on ILECs. It would make it more difficult for CLECs to compete against them in their service areas.

The 1996 act required the ILECs to offer unbundled access, network elements and resale to their competitors. But the Tauzin- Dingell bill would eliminate these competitive requirements for high- speed data service. We learned first-hand with the divestiture of AT&T how effectively strong market-opening requirements work to bring competition and huge savings to customers.

Finally, this legislation gives the ILECs unregulated entry into long-distance data service without including a performance standard or any other provision to make sure they actually deploy broadband service in undeserved areas. So the ILECs get their reward upfront. But there's no guarantee they will ever provide the public policy service that Congress is expecting.

The communications industry is now about one-seventh of our economy. Any legislative changes we make that could lead to less competition would reverberate throughout our economy for years to come. It is imperative that we move deliberately and wisely, and I look forward to hearing from our witnesses on these and other important issues today.

Thank you, Mr. Chairman.

REP. TAUZIN: The chair thanks the gentleman. The chair is now pleased to recognize the chairman of the Commerce Consumer Trade Protection Committee, Mr. Cliff Stearns.

REP. CLIFF STEARNS (R-FL): Good morning, and thank you, Mr. Chairman. I look out in the audience and see these 11 distinguished senior vice presidents and CEOs, and so I welcome this hearing. This, as many of us know, is not the first introduction of your bill. Last year it had a number of co-sponsors that made it appear that it passed the House easily. However, I think, as you move forward, there's going to be quite a bit of concern. And I think having this hearing this morning is the right step forward.

The bill centered upon the belief that present regulatory conditions of both inter lada prohibitions and network unbundling and resale requirements imposed on the RBOCs adversely affected RBOCs' ability to offer high-speed data services. In other words, Mr. Chairman, is the present environment for ROBCs an incentive for them to participate? And they don't think so, and your bill is lining up the incentives.

They're pressing for this legislation because the unbundling and resale requirements, they argue, when applied to advanced services, provide a disincentive for them to upgrade their network. Furthermore, by lifting the inter lada restrictions, the Bells claim they still have an incentive for seeking relief for inter lada voice services due to the demand of bundled services, including long- distance voice.

Now, conversely, those opposing the legislation do so because they believe such relief would undermine the unbundling and resale safeguards for competitors and their ability to compete with the incumbent phone company for customers. Additionally, they claim the means for such regulatory relief is spelled out simply in Section 271 of the Telecom Act. And granting regulatory relief to the RBOCs prior to such clearance would result in financial ruin for competitors.

I would add, Mr. Chairman, in Congress Daily this morning we have four distinguished key senators have written to the FCC, speaking against the bill. And they have one sentence in their letter which says, "If present trends continue, local markets will not be open to competition and incumbent companies will leverage their monopolies as they enter new service areas." So we see both sides of the argument.

While I generally support increased competition and less regulation, there is a lot of complexities in this. I am not a co- sponsor, Mr. Chairman, as you know, of your bill, but I'm sympathetic to the fact that we need something to jump-start this whole area of bringing broad-band to this country. And so I'm very interested in a thorough examination of the facts, having an exchange of ideas with these 11 distinguished witnesses, and hearing public debate.

So I commend you for having this hearing. I would follow up on the chairman of the Subcommittee on Telecommunications, Mr. Upton, when he talked about enforcement. Chairman Powell has called for increased enforcement through the FCC, and he wants those powers to do so. And I intend to work with Mr. Upton and the chairman and my colleagues in crafting language that will deter companies from simply saying, "Okay, we'll just pay these fines when we have violations and just consider that as a cost of doing business." Only when we have the fines that are strong enough so that the industry does not think, "Well, it's just a cost of doing business" will we have real enforcement by the FCC. And I'd like to give them that power.

So I look forward to the markup tomorrow. And Mr. Chairman, I again commend you for this hearing today.

REP. TAUZIN: I thank my friend and assure him that I intend to work with him on exactly that type of strategy. The chair now recognizes the gentleman from Massachusetts, the ranking minority member of the Telecommunications and Internet Committee, Mr. Markey.

REP. EDWARD MARKEY (D-MA): Thank you, Mr. Chairman. Mr. Chairman, the legislation that we are now considering is highly flawed for three reasons. It's undigital, it's unnecessary and it's unfair. It's undigital because it fails to recognize the fundamental truth about going digital. By converging all information into a series of 0s and 1s, digital helps to create a technology Esperanto. All media can speak. All forms of information -- videos, photos, e-mail, faxes, music -- everything can be expressed technologically as 0s and 1s.

Conversely, this legislation creates a technological land of make-believe, where bits traveling through networks can be magically separated into voice and data. Rather than learning what technology teaches us and getting in sync with convergence, this bill represents a digital divergence. Ripping certain bits out of the network to be treated by regulators differently turns back the clock. It presents once again the problem of trying to force certain services into particular regulatory boxes, even as technology renders such classification antiquated and meaningless.

This bill is also unnecessary. The Bells don't need legislation in order to provide digital services. They can and do offer DSL services today. The Bells don't need legislation to offer Internet access. Again, they offer such services today. Moreover, the Telecom Act allows the Bells into long distance after they have met the requirements of a competitive checklist in a state. They've done this in five states, including Massachusetts. We're the beneficiaries of all that additional competition. In other words, the key to entering the long-distance market is in their own hands.

In addition to being undigital and unnecessary, this bill is also unfair. In the aftermath of the enactment of the Telecommunications Act of 1996, several new commercial enterprises were launched and they began to win customers, provide new services and invest in infrastructure. In fact, they poured about $60 billion into new infrastructure. They delivered on the promise of the act by deploying new digital services, prompting the Bells to finally get around to offering such services themselves, finally spending tens of billions of dollars to go digital that they should have been spending all along.

And this is the thanks the new companies get. They get a bill that drops a boulder of uncertainty into the marketplace and a proposal that eliminates market-opening provisions of the Telecom Act and frees the Bells into the long-distance marketplace before they have met the competitive checklist in a state. It's a Bell protection program, plain and simple. It shields the Bell companies while emptying a six-shooter into the heart of the New Economy companies, the Nasdaq. That's what the Nasdaq is. It's what happened to the information economy after 1996.

And this bill shoots right at the heart of that revolution. That's because, in order to benefit these poor corporate behemoths, thousands of companies will suffer the consequences. Beyond raising the specter of monopoly providers in certain regions and markets throughout the country, the bill accelerates the trend towards (monopsony?), where there will be only one buyer, the way it was until 1984. Rather than dozens of companies building networks and buying equipment, we'll have one major purchaser of manufactured goods and software for the network over vast regions of the country. That will stultify economic growth and innovation.

Our national economic interest is furthered by a policy that reinvigorates telecommunications competition and encourages America's high-tech equipment manufacturers to become the worldwide arms merchants of the information revolution. Consumers benefit when warring parties fight for their loyalty in the telecom marketplace. They lose when the government blesses (detente?) for the Bells.

Now a word about the process by which we are considering this legislation. Going right from our full committee hearing today into a subcommittee markup is a disservice, not only to the members of the subcommittee, who will have little time to reflect and benefit from today's proceedings, but also to our witnesses, who are taking time out of their lives to inform and educate us. Given the importance of the bill to our economy, it is unfortunate that more time was not allocated at this particularly precarious time in the capital markets and our national economy to better examine the proposal in that light.

Moreover, while many of us on the committee have spent years working on these issues, many members are new to the committee or new members of the Telecommunications Subcommittee this session. I think it is disrespectful to the issues at stake not to afford members a full set of hearings this year and to engage in discussions with the conditions of this year, with information that comes to light.

It's only April 25th. What is the rush? The announced schedule is for a markup tomorrow. I would have preferred additional hearings or at least moving the markup back until next week. If we proceed tomorrow, then I'll offer amendments tomorrow, and we will have votes on amendments tomorrow.

I thank you, and I yield back the balance of my time.

REP. TAUZIN: The gentleman looks forward to the gentleman's amendments tomorrow. (Laughter.) And the chair recognizes the gentleman from California, Mr. Cox, for an opening statement.

REP. CHRIS COX (R-CA): Thank you, Mr. Chairman. I actually want to commend Mr. Markey for his statement, inasmuch as much of what he said is what I was going to say, although I'm not sure that the hearing today or the markup tomorrow should necessarily require us to pick sides the way seemingly we are about to do.

A thoughtful process ought to permit us to reconcile the views that are being expressed, the competitive claims that are being made, in a policy that doesn't necessarily shortchange the local exchange carriers or chill their willingness to invest, but at the same time, does not put the thumb on the scale in favor of the local exchange carriers over cable providers or satellite providers or fixed wireless providers or any other potential competitors.

And it's for that reason that I do agree with Mr. Markey that we are being deprived by the process of the opportunity to think about what we're going to hear from 11 distinguished panelists today in a process that requires us to submit amendments today on a bill that we've just received for a markup tomorrow.

In order to not just listen and pick sides but to try and listen and rationalize and harmonize and synthesize what we're hearing, I think at least 24 hours might be necessary. I support the goal of this legislation to jump-start the deployment of broad-band access, and I also think Mr. Markey hit the nail on the head when he focused on the fact that in a technological world, there simply is no distinction worth making between voice and data. I don't think any of the local exchange carriers in their competitive plans sees a real distinction between voice and data. Hopefully they want to get into all of these markets.

And I'm concerned that the legislation before this committee might unintentionally provide an incentive for competitors to create and maintain that distinction, simply because the regulatory model requires it. There's nothing in the technological world that requires it. There really is a convergence that, if it is not already fully underway, is surely possible, if regulation doesn't get in the way of it, convergence between Internet services, telephony, broadcast video, and just about everything else that you can think of that is transportable in digital form.

So the challenge to this committee is to look beyond the urgent competitive pressures of the moment to the marketplace that can be in the not-too-distant future if distorting government regulations don't prevent it from materializing. And I hope, Mr. Chairman, that we do give every consideration to the thoughtful presentations that we're about to hear from these 11 distinguished panelists, who undoubtedly spent a good deal of time, energy and intellectual effort in formalizing their comments for us today. And I yield back.

REP. TAUZIN: The chair thanks the gentleman and would assure him that that's the reason why we're having the hearing today is that we want to inform the whole committee, as well as the subcommittee, on various viewpoints on the legislation.

The chair recognizes the gentleman from Virginia, Mr. Boucher, for an opening statement.

REP. RICK BOUCHER (D-VA): Thank you very much, Mr. Chairman. And I want to commend you for the leadership that you've taken in the effort to stimulate broad-band deployment, which is currently the greatest challenge that confronts the continued growth and development of the Internet.

I'm pleased, Mr. Chairman, to be listed among the co-sponsors of the legislation that is the subject of the hearing this morning, and I'll use my time to make three brief points in support of the need for its approval by this committee.

First, the legislation accompanies a long-needed deregulation of DSL services, which will dramatically strengthen the financial case for the deployment of this broad-band offering to homes and to businesses. The major reason that the cable industry has captured more than 70 percent of the last-mile broad-band market is that cable is essentially unregulated, while DSL services are burdened with extensive regulations that dampen the willingness of telephone companies to invest in their deployment. The legislation that is before this committee largely resolves that regulatory disparity.

Secondly, the measure will ensure greater competition and greater investment in the offering of Internet backbone services by permitting Bell operating companies to offer data across lata boundaries while reserving to the Section 271 process the permission for the Bell companies to offer voice-based long distance on a nationwide basis.

This provision is essential to assure adequate Internet backbone services in many rural areas of the nation to promote competition and backbone service offerings with consequent benefits for end-user pricing, and to ensure an adequate level of investment in the Internet backbone in order to handle the ever-growing volume of Internet traffic.

Third, the freedom to become Internet backbone providers will further incent the Bell companies to deploy DSL services over the last mile, since they will be able to maximize the return on their DSL investments when they can carry the traffic from the originating user through the Internet backbone, and perhaps even to the user on the terminating side.

For all of these reasons, Mr. Chairman, the legislation makes much needed reforms. I am pleased to be serving as one of the co- sponsors, and to encourage the approval of the legislation by the subcommittee tomorrow as an essential step in the promotion of the greater growth and development of the Internet. Thank you, Mr. Chairman. I yield back.

REP. TAUZIN: The chair thanks the gentleman particularly for his co-sponsorship and support. And I wish to inform the members that Mr. Goodlatte, who has often introduced similar legislation with Mr. Boucher has also joined as an original co-sponsor for the bill.

The chair is now pleased to welcome for an opening statement the gentleman from Oklahoma, Mr. Largent.

REP. STEVE LARGENT (R-OK): Thank you, Mr. Chairman. In the interest of time I want to submit my entire statement for the record. I have served on this subcommittee now for over four years. And during this time I have learned that regarding this particular piece of legislation that we are having a hearing on today that members are characterized as either pro-Bell, pro-long-distance or pro-CLEC. And I've tried to have my position in the record reflect that I am none of those. I am pro-competition.

I voted for the '96 act because I thought it would enhance competition in all sectors of the telecommunications industry, and I am proud of the vote that I cast in support of the '96 act.

Mr. Chairman, I'd also like to submit for the record an article that was published on April 23rd -- just two days ago -- in Business Week, and read the opening paragraph. The title says, "Don't Let Telecom Competition Vanish." "And the winner in this great telecom consolidation sweepstakes is monopoly. That appears to be the most likely outcome as the giant telecommunications industry works its way through the current meltdown. The promise of competition and lower prices provided by the entry of new players is quickly fading. With hundreds of new telecom start-ups hugely in debt and facing bankruptcy, only those companies with deep pockets will survive to pick up the remaining assets on the cheat. These appear to be none other than the old Baby Bells, which may well wind up controlling not only the telephone and data services, but also the all-important broadband market. Newly-appointed Federal Communications Commission Chairman Michael Powell should take note. Competition is being threatened more than ever in Telecom."

Mr. Chairman, I know that when the debate was raging in '96 before the Telecommunications Act was passed that the mantra that was sounded by all players at the table was: create a level playing field. We heard it over and over and over again. Mr. Chairman, I would just tell you that the bill we are considering and about to hear testimony I believe tips that level playing field in a way that may be irreversible, and is why I am deeply concerned and very interested to hear the testimony of the witnesses that we have at the table today, because as I said I am pro-competition, and my fear is that the bill that we are considering and will mark up tomorrow tips that level playing field in a way that will damage the competitive nature of the telecommunications industry in a way that will be irreversible.

I yield back the balance of my time.

REP. TAUZIN: I thank the gentleman. And by unanimous consent, the gentleman's full statement is a part of the record, along with the attached article. And, by unanimous consent, all members' written statements with attachments are made a part of the written record of this proceeding, without objection it is so ordered.

The chair now recognizes the gentleman from Tennessee, Mr. Gordon. Let me announce for the record that the chair asked the staff to prepare a list of the members present at the dropping of the gavel, and under our rules members are called in order of their appearance at the drop of the gavel, and then other members as they have appeared at the hearing. So that's the reason we are going to depart from the normal seniority line in some cases. The gentleman from Tennessee, Mr. Gordon, is recognized.

REP. BART GORDON (D-TN): Thank you, Mr. Chairman. I too would like for my full statement to be placed in the record. And I want to add my welcome to this distinguished panel today. You bring a lot of expertise, and we appreciate your time for us. I too was one that voted for the 1996 Telecommunications Act in hoping that it would bring us more investment, more competition, and in turn more services and lower prices for consumers.

I think in some areas were were successful with competition, and in some other areas I think we have seen more consolidation. And I hope that we can use some of the lessons from that '96 act as we proceed today.

Also, let me say that although the essence of this bill has been before us since the last Congress, and we should be up to speed on it, the fact of the matter is that because of the competition for our time and energy and interest here, I think many of us do have more questions and more to learn. But it's upon us, and so let's try to learn all we can today, and I would hope that we will have a little time to discuss this balance as we go forward.

As I can see, a part of the purpose of the bill is to allow the Bells into interLATA or long-distance data transmission to bring additional investment and competition into that area. And one of the things I want to learn more about is how this bill is going to impact additional competition and investment into the DSL area. And I hope that we can learn more about that today, and I want to hear from you. Thank you very much.

REP. TAUZIN: The chair thanks the gentleman.

The chair now recognizes Mr. Ganske for an opening statement.

REP. GREG GANSKE (R-IA): Thank you, Mr. Chairman. The decision we are confronted with is how to best create an environment where Internet service will rapidly expand. There are diverse opinions as to how we can accomplish that goal. Do we need to open electronic data transfer markets, or will opening these markets without first requiring the Bells to meet the Section 271 requirements reverse the accomplishments of the Telecom Act of 1996.

I am forward to receiving the advice and suggestions of the distinguished panel. I am pleased that two of those testifying are Iowans, former Congressman and member of this committee, Tom Tauke who now represents Verizon, and Clark McLeod, the founder and CEO of McLeod USA, one of America's most successful competitive local exchange companies. Mr. Tauke and Mr. McLeod possess a tremendous wealth of knowledge and experience in the telecommunications field, and I believe they will offer some very different visions of the future for this essential industry, and I look forward to their testimony, and thank you, Mr. Chairman.

REP. TAUZIN: I thank the gentleman. And, by the way, I want to thank the cooperation of the minority in assembling such a distinguished panel. We are going to get to you as fast as I can, I promise you.

The chair now recognizes the gentleman, Mr. Sawyer, for an opening statement.

REP. TOM SAWYER (D-OH): Thank you, Mr. Chairman. With your permission, I will include my full text in the record. But let me just say simply make four fundamental points. I am less interested in the great (tourforism ?) on competitors than I am in how their fair competition benefits consumers. I am interested in whether it will ensure broadband to those who do not have it now, and will it encourage carriers to build out their infrastructure to the underserved.

Finally, I hope that we will be able to heed the wishes of Chairman Powell, who asked us so eloquently to give him the means to enforce laws and to bring meaningful sanctions to those who violate Section 251 and Section 271.

There are a lot of consumer angles to this bill that I am not sure that we have sufficiently explored. I am hopeful that we will be able to do so today. Thank you. I yield back.

REP. TAUZIN: I thank the gentleman. The chair recognizes Mr. Shimkus for an opening statement.

REP. JOHN SHIMKUS (R-IL): Thank you, Mr. Chairman. I initially thought that we would get to multiple pipes and multiple choices in the competitive scheme. I now think that consumers are going to have multiple choices, but I do believe that they are going to be by set deliverable methods -- coaxial cables, direct satellite, basic telephone lines. I think we need to move to competition in DSL. I applaud the chairman. This is a similar bill to the one a lot of us co-sponsored last year. I am not a co-sponsor this year -- but it is a method to get to a means, which is Internet DSL service to our citizens. We really don't have it now. So I applaud the chairman, I look forward to the hearing, and I yield back my time.

REP. TAUZIN: I thank my friend. The chair recognizes the gentleman from Louisiana, Mr. John, for an opening statement.

REP. CHRIS JOHN (D-LA): I'll be very brief, Mr. Chairman. I really believe that the economic future and educational future of America not only rests upon our ability and corporate America's ability to deliver high-speed broadband access to not only corporate America, but to all residents -- rural, urban and suburban. And I think the question before us today is what happened in 1996 in the deregulation of the telecom industry I think started the ball rolling toward that end. But how fast do we get there today? I've heard arguments the whole way. And being a new member of the Commerce Committee I have had to educate myself very quickly on this issue. But I heard comments all over that we need to at all costs get this broadband deployed into our sector, because at that point then everyone will have access. But I also believe that there is a balance and a risk we take if we go into it at all costs. So I am anxious to hear from the testimony as we move toward deployment, because I think it is very, very important, and there must be a balance that we reached. It must be deployed as soon as possible, but at the risk of what? And that's what I am interested in hearing today from some of the panelists. So I thank the chairman.

REP. TAUZIN: I thank the gentleman.

The chair recognizes the gentle lady Ms. Wilson for an opening statement.

REP. HEATHER WILSON (R-NM): Thank you, Mr. Chairman, and thank you for holding this hearing, particularly as so much has changed since last year or when we were looking at this before.

I believe that the sponsors of this bill have been straightforward and very persuasive and passionate and I believe very much that this is the right thing to do, and I am convinced that your support for this bill is very straightforward and honest.

But I am still unsure about whether you're right, and whether this is the right way to go, particularly in the state of very rapid change in the telecommunications industry. And just looking back over the last year since we've considered this bill before, so much has changed.

I do believe that competition, whether it's long-distance or data or local service, improves services. It improves options for consumers, and it pushes innovation. And without the 1996 act many of the innovations and the services and the companies that we are talking about today would not even exist.

In New Mexico just in the last year, U.S. West was acquired by a competitive telecommunications company, Quest, that came into the business as a high-speed, broadband network, and they now own our local telephone company. They are rapidly moving toward 271 application, which we hope will happen this summer or fall. They agreed to make huge investments in the state of New Mexico, and service quality is beginning to improve. All of those are very good signs, and they wouldn't have happened if it weren't for competition and the 1996 act.

But we have also seen other things happen over the last year. We have seen since the '96 act the consolidation of the Bells from eight to four. We have seen fierce regional and national backbone competition with 40 providers, and about 17 long-distance players and the Bells now wanting to get in to compete in that market as well.

But what we haven't seen is the independent -- the incumbent local telephone companies competing each other, and we haven't seen competitive local service. The CLECs are in trouble across the country. Northpoint went dark on April 2nd; Advanced Radio Telecom, Windstar, ESPIRE -- go down the list -- all of the CLECs in general are in trouble.

So the real fundamental question for me is: How do we promote local competition, and how do we prevent the remonopolization of the industry not horizontally but vertically? -- so in the end what we don't end up with is a very small number of companies serving me from my home in Albuquerque through all of the long-distance and international calling, and I only have one choice. I think that to me is the fundamental question of how do we promote local competition. Thank you, Mr. Chairman.

REP. TAUZIN: I thank the gentle lady.

And the chair now recognizes Ms. Harman for an opening statement.

REP. JANE HARMAN (D-CA): Thank you, Mr. Chairman. This subject is of intense interest to my constituents who occupy what is called the digital coast of Southern California. I voted for the '96 Telecom Act, and I believe it was Congress's intent then that the act applied to voice and data services. On the House floor, the chairman of this committee said, quote, "Today in a bipartisan way we unleashed the spirit of competition in all forms of communication services, from telephones to computers, to services dealing with video programming and data services." That was February 1, 1996. It took us many, many months to carefully balance the interests at stake in that act. And I think we realign the forces of that act five years later at our peril. So it would be my preference to let that act stand, and even if it does not directly cover everything in this bill, I think to use a Supreme Court term, the "penumbra" of that act does cover everything in this bill.

I would leave my remarks at this point, and ask unanimous consent to insert a more complete version of them in the record, and yield back the balance of my time.

REP. TAUZIN: Unanimous consent has been granted.

The gentleman from Virginia, Mr. Davis, is recognized for an opening statement.

REP. TOM DAVIS (R-VA): Thank you, Mr. Chairman. We are now at a critical junction in our economy. New technologies and innovation in services and services delivery are promising to improve telecommunications for individuals and small businesses alike. Consumer expectations are evolving with the anticipation of widespread broadband deployment, and thousands of high-skilled, high-paying jobs have been created nationwide. Yet the telecom industry which has fueled our nation's economic expansion is struggling to maintain this momentum. Competitive carriers, following the promises of the 1996 Telecommunications Act, invested over $50 billion in new telecom networks. For the past two years they have committed over a billion dollars per month for DSL-style broadband connectivity alone.

But we have all witnessed over the past six to nine months the rapid downturn in the economic viability of the competitive industry and the impact it's had on our economy, particularly in terms of consumer confidence and employment.

Mr. Chairman, this hearing today serves an important objective for our committee. Our discussion gives us an opportunity to measure the extent to which the Telecommunications Act of 1996 has achieved it's ultimate purpose: to unleash competition in all forms of telecommunications services in order to increase the quality and lower the prices of those services for American consumers.

While judicial action brought competition in the long-distance market, the passage of the '96 act hailed Congress's recognition to achieve network-wide competition. We had to prescribe a recipe that would similarly bring competition to the local telecom market. Like in any market, only then would consumers benefit from lower prices, advanced services, technological innovation and increased investment in the information infrastructure. The strategy is simple: offer the RBOCs an incentive to open their local monopoly so that conditions for market competition in the local loop will flourish.

I commend you, Mr. Chairman, and the ranking member, for your commitment to consumers. But I strongly disagree with the path taken in H.R. 1542. I think it would irrevocably defeat the purpose of the act by destroying the efforts made over the last five years to bring competition to the local loop. By eliminating the applicability of Section 271 to inter-region interLATA data and eliminating the requirement that the ILECs provide their network elements to competitors on an unbundled basis, this legislation will destroy any incentive for the ILECs to open up their local loop to competition. At this time the ILECs possess monopolistic control over 90 percent of their markets nationwide. In my home state of Virginia, Verizon controls 96 percent of the phone lines. Clearly competition in the local markets targeted by the '96 act has not yet arrived.

Furthermore, this bill would ultimately retard speedy deployment of broadband technologies to consumers. Level competition in a state that brings wide digital services into homes and businesses, there will be no competitors or market forces to push their widespread provision of broadband markets. Indeed, I disagree with the notion that broadband deployment is not moving at a market-induced pace, and as a result the RBOCs are the only entities capable of delivering the service in the wired market.

Statistics show that broadband deployment is indeed moving forward. At the end of 2000, the DSL market had 2,429,000 lines in service -- a 389 percent increase from year-end 1999. ILECs accounted for 78 percent of the total, followed by the CLECs with 21 percent. SBC had almost ten times as many subscribers as of March 2001 as in the fourth quarter of 1999, increasing from 115,000 subscribers to 954,000 subscribers, and at the same time raising the price of that service by 25 percent.

Over the same period, SBC's DSL's availability has doubled, from 10.2 million customer locations to 21.7 million customer locations. Furthermore, the act in no way prohibits the ILECs from offering interLATA voice over data service in out-of-region areas. But to date no RBOC has invested in the infrastructure to move in those areas.

Finally, the proposition that the RBOCs are the only entities capable of bringing broadband to the rural corners of America is seriously undermined by the fact that rural interregional access lines are being sold by the millions. The RBOCs have already divested 10 million rural lines. As well, Quest CEO Joe Nachio (ph) has publicly discussed the idea of selling off rural in-region access lines, including possibly the operation of some entire states, leaving Quest free to focus on the 8 to 12 metropolitan areas that it considers strategically important.

GTE, now part of Verizon, has sold 393,000 rural lines since last summer. I want to note that several large employers in my district have had enormous problems with special access provisions by the ILECs that have significant impact on their businesses. I would like to include the statements of one of them in the record. I agree that deregulation is always preferable for encouraging market forces, but the '96 act also -- it already provides for deregulation so long as there is competition. A monopoly will never voluntarily welcome competition, and of course it makes rational business sense that they would not. Deregulation for deregulation sake is bad for consumers, it's bad for our economy. To remove the (carrot?) that's embodied in Section 271 would allow ILECs to close off access to the local loop and simply obliterate the act's ultimate goal to foster competition in the local telecom markets. I look forward to hearing our witnesses' perspective on this complex issue.

REP. TAUZIN: I thank the gentleman. The chair now recognizes the gentlelady from California, Ms. Eshoo, for an opening statement.

REP. ANNA ESHOO (D-CA): Thank you, Mr. Chairman. The issue of waiving the important competition-enhancing requirements of the Telecom Act has been brought before this committee on numerous occasions since the act's passage in 1996, and in my view, it's never been less necessary than it is today.

CLECs have lost 90 percent of their stock values in the past year. Some have filed for bankruptcy. Conversely, the Bells are having more Section 271 applications granted by the FCC and still own more than 90 percent of the market. And the Bells continue to have fines levied against them repeatedly for violating their contractual and statutory obligations to allow for interconnection to their networks. And yet, instead of finding ways to protect competition by assuring that some of the CLECs survive, this bill, in my view, drives the last nail into their coffin.

Many CLECs rely heavily on line-sharing to improve DSL service delivery and bring broad-band service to more American consumers. This bill, again, in my view, eliminates that practice and effectively eliminates those competitors.

Those companies who were born out of the act and who had solid business plans are likely to struggle through this downturn but are also more likely to survive in the end. Failure appears inevitable for those who base their strategies on less sturdy ground, and those companies who have the benefit of their historical monopoly position have steadily moved forward and are far more likely to not only survive but also to acquire some of the weakened players. This, I suppose, is competition at work.

Finally, this bill has the one hook that I think will get its undeserved support, and that hook is the promise that rural areas will magically receive access to advanced data services if we pass the bill. No one that I know of is against upgrading service to rural areas, but where is the evidence that the Bells have any desire or demonstrated ability to do that?

The evidence suggests otherwise. U.S. West has sold off many of its rural exchanges, and I'd be curious to know of Verizon's efforts to bring service to upstate New York since the FCC's approval of its New York application. Moreover, the smaller independent companies seem to be doing far more in getting broad-band to underserved areas.

I fully appreciate that less revenue can be derived from rural areas and that it's more economical to serve business customers. But that's exactly the point. An important part of the public policy we tried to create in the act was to provide residential competition for our constituents. This bill removes valuable incentives that we crafted to bring that service to them. Without the protections of the act and the enhanced enforcement provisions, I fear that we're going to fail in that objective.

So thank you, Mr. Chairman, for holding the hearing. I look forward to what our witnesses will provide in terms of information to us on that, and I look forward to hearing from them.

REP. TAUZIN: I thank the gentlelady. The chair now recognizes Mr. Bryant for an opening statement.

REP. ED BRYANT (R-TN): Thank you, Mr. Chairman. I also would like to thank you for holding this important hearing today and for your leadership on this issue of broad-band deployment. With dial-up Internet service operating at a maximum speed of 56 kilobytes per second, and with the high-speed data services having the capacity to transmit information at the rate of no less than 384 kilobytes per second, the benefits of broad-band technology are numerous and undeniable.

However, with the creation of this technology, we've seen the deployment of the broad band has been slow, to say the least. Our Telecommunications Act of 1996 was a good bill, and I voted for it. But when this bill passed the House on August 4th, 1995, I don't believe we foresaw the role the Internet was going to have in our nation and on our world economy.

When considering this bill in 1995, our concern was voice service, not data. The 1996 act dealt with opening the local telephone market to competition. Under the act, the FCC must agree that an incumbent local exchange carrier has opened the local telephone market to competition. I believe that the intent of the 1996 act was misunderstood when the FCC concluded from the act that the ILECs couldn't provide broad-band Internet access because the services are long distance.

As a result of this ruling, the deployment of broad-band services has been stifled. The 1996 act dealt with opening the local telephone market to competition, and this legislation leaves the rules relating to local telephone service intact. Despite the benefits of high-speed Internet access, 88 percent of all Internet connections in the United States are dial-up.

I realize that broad-band deployment is expensive, and it makes sense that companies would deploy broad-band where the majority of customers live, which is in the urban and densely-populated suburban areas. This business practice really excludes the more rural areas. I'm afraid that as a result, the Internet revolution could pass by rural America. And rural America includes a large part of my district and other parts of Tennessee.

The ILECs have the capacity and capability to provide the broad- band technology to rural and urban areas alike, and I don't think it's right for the government to hamstring these companies with regulations and red tape. Other high-speed Internet providers like cable, wireless and satellite companies have been able to operate in this market, uninhibited by FCC regulations. And I believe that broad-band companies should also be allowed to operate without government interference.

I'd like to thank the witnesses today for coming and for your patience with all of us in making these statements. I look forward to hearing from you on the details of broad-band deployment, the importance of speeding the timely and ubiquitous deployment of broad- band services, and the details as to how this bill would help achieve this goal. I'm particularly interested to hear from what the witnesses have to say about rural areas and how they will be better served under this legislation.

Lastly, I also would like to -- I think it is important that we hear about what is going to be done -- what is being done currently to deploy broad-band services by businesses and the (depth?) of which providing these services are hindered by government regulation.

Thank you, Mr. Chairman.

REP. TAUZIN: I thank the gentleman. The chair now recognizes the gentleman from Minnesota, Mr. Luther, for an opening statement.

REP. BILL LUTHER (D-MN): Thank you, Mr. Chairman. I'll be brief and I'll submit my entire opening statement for the record. But just one concern I did want to touch on, and that is a concern I have with the bill in that the bill would eliminate the line-sharing requirement that has been in place for a little over a year now. My home state of Minnesota was the first state in the nation to require its incumbent dominant carrier to lease its existing loop line to competitors providing broad-band DSL service. This is simply common sense. Why would one require customers to pay for an extra loop line?

I'm interested to hear the rationale for the elimination of the line-sharing requirement, and in particular how it would affect consumers if this bill were to pass. So that's the one point that I wanted to particularly raise, and certainly would welcome input from members of the panel.

Thank you, Mr. Chairman, and I'll yield back the balance of my time.

REP. TAUZIN: I thank the gentleman. The chair recognizes Mr. Walden for an opening statement.

REP. GREG WALDEN (R-OR): Thank you, Mr. Chairman. I have an opening statement I'll submit for the record. And the biggest issue I have is how you're going to get out into rural areas with broad band. I wish there were actually some requirement in this legislation or some other that would, in effect, mandate that. And I'm not talking about rural areas, communities of 30,000 or 40,000. I'm talking down to the small communities like in the district of my own.

Mr. Chairman, I'll submit my testimony for the record and look forward to the witnesses' comments.

REP. TAUZIN: Thank the gentleman. The chair recognizes the gentleman from Wisconsin, Mr. Barrett, for an opening statement.

REP. TOM BARRETT (D-WI): Thank you, Mr. Chairman. I will be brief as well. My perception in this area is that people love competition when they're going into someone else's backyard to compete. They're not so keen about competition when someone is coming into their backyard to compete. And what concerns me about this legislation is not that we would be opening new areas for the Bells to have broad band.

I think competition is good. What concerns me is I'm still waiting. After five years, I'm still waiting for local competition. And during the course of this hearing, I will be asking witnesses and listening to testimony, because I think that the promise that everybody here heard in 1996 that there would be competition, that promise is still, in my mind, not met. And for me, that's a very, very important concern.

So I appreciate your having the hearing, Mr. Chairman. I think this is a very, very important issue. And I do have some serious questions and hope that they can be answered through the course of this hearing. I would yield back the balance of my time.

REP. TAUZIN: Thank you, Mr. Barrett. The chair now recognizes Mr. Terry for an opening statement.

REP. LEE TERRY (R-NE): (As we?) start rearranging ourselves in our chairs, I yield back my time. (Laughter.)

REP. TAUZIN: I thank my friend. We'll do a lot of rearranging, I think, over the next few hours. The chair recognizes Mr. Stupak for an opening statement. He's not there. Then the chair recognizes Mr. Green.

REP. GENE GREEN (D-TX): Thank you, Mr. Chairman. And I won't be as brief as Mr. Terry, but I will not give my full opening statement. I had the opportunity during our district work period to see the competition that we have in Houston, Texas, in our local phone service, in a very aggressive campaign. So that's why I'm proud to be a co-sponsor of this bill.

I think we can provide additional avenues for high-speed Internet connections with the example of competition, at least in Houston, and I'm sure in other parts of the country, we will see competition between both our Internet providers, but also between our RBOCs. And that's why, Mr. Chairman, I'm glad we're moving this bill.

I yield back my time.

REP. TAUZIN: I thank you. My friend from New Hampshire, Mr. Bass, is recognized.

REP. CHARLES BASS (R-NH): Thank you very much, Mr. Chairman. I also want to commend you for your willingness to have a really thorough examination and exchange of ideas before the full committee on this very important issue. You know, my district is a microcosm probably of the whole country. There's fairly good broad-band service in some of the more populated areas, but virtually nothing in the more rural areas. And I hope that this discussion and further action that the subcommittee and the full committee and the Congress take on this issue will move to bridge that huge disparity that exists and continues to exist across this country.

And with that, I'll yield back to the chairman.

REP. TAUZIN: I thank the gentleman. The chair recognizes Mr. Brown for an opening statement. Then Ms. DeGette for an opening statement.

REP. DIANA DEGETTE (D-CO): Thank you, Mr. Chairman. Colorado, in particular the area of Denver, is one of the fastest-growing areas in telecommunications in the country. In fact, I think we're now the fourth-largest area. This is 100 percent due to the 1996 act. Not only is Qwest, which Congresswoman Wilson mentioned, based in my district in Denver, but also the vast number of CLECs that have grown up in the area are completely due to the 1996 act. And I'm a strong supporter of competition. I always have been. The only thing -- and so I'm concerned about how this bill will affect competition and eager to hear from the witnesses.

One thing I would interject that I haven't heard folks talking about. During the recess, in a great act of luck, I actually had a telecommunications roundtable, not knowing this hearing would be scheduled. One of the people who came to the roundtable was a representative from a group called Wild Blue. And Wild Blue is developing satellite transmission for high-speed data to rural areas.

And I will submit to many of my colleagues from rural areas, particularly very small towns, that the only practicable way we will be able to do high-speed data transmission in the future is not through laying cable, not through laying high-speed lines, but through other technologies which have been developed completely as the result of the act. That's why I want to make sure anything we do in this committee does not undermine the fundamental purpose of the '96 act, which is to foster competition in all areas of technology as we move forward in telecommunications.

And I'll yield back. Thank you, Mr. Chairman.

REP. TAUZIN: I thank the gentlelady. The chair recognizes Mr. Radanovich for an opening statement.

REP. GEORGE RADANOVICH (R-CA): Thank you, Mr. Chairman. I welcome the members of the panel and look forward to your testimony. I have a statement in the record, and yield back. Thanks.

REP. TAUZIN: The chair thanks the gentleman and recognizes Ms. McCarthy for an opening statement.

REP. KAREN MCCARTHY (D-MO): Thank you, Mr. Chairman. I will put my remarks in the record and just make a few comments, because I want to get to the panel of experts who are here today. Since the Telecommunications Act was enacted, the deployment of broad-band services has increased rapidly. Incumbent local exchange carriers, cable companies, competitive local exchange carriers and wireless companies are all offering broad-band services.

In the second report of the FCC on advanced service capability, they concluded that advanced telecommunications capability is being deployed in a reasonable and timely fashion overall. The report states that in late 1998, there were roughly 375,000 subscribers to advanced services. By the end of 1999, there were 2.8 million subscribers. And that's an increase of 300 percent.

The proponents of H.R. 1542 tout the bill as the means to spur broad-band deployment more rapidly. But broad-band service is becoming more available throughout much of the country, thanks to the aggressive rollout of services by the CLECs and the cable industry. This competition forced local phone companies to deploy digital subscriber lines, a technology they had for some time but were slow to offer. Now all of the regional Bells are deploying broad-band services, particularly DSL, in their home regions.

Opening the Telecommunications Act to provide for inter-LATA relief for data is not needed. If the ILECs meet the requirements of Section 271 of the Telecommunications Act, they can offer long- distance service for voice and data. Verizon and (SBC?) have met the requirements and now offer such services in New York and Massachusetts and Texas, Oklahoma and Kansas, respectively. SBC just recently filed a Section 271 application with the FCC to enter the long-distance market in my home state of Missouri.

Clearly the act is working. In addition, in a statement to the subcommittee on telecommunications and the Internet this past March, FCC Chairman Powell stated that the FCC would speed the review of Section 271 applications. If the ILECs want interLATA relief, they just need to meet the fair and reasonable requirements set up Section 271.

I understand my colleagues desire to spur deployment. But I do not agree that this legislation will do so. If enacted, it will likely have the consequence of reducing competition, increasing costs and shifting innovation. With our access to incumbent facilities, competitors such as Birch (ph) telecom, based in my Congressional district in Kansas City, would not be able to offer the DSL service to its residential and small businesses.

Last July, then former FCC Chairman William Kennard, in his testimony before the House Judiciary Committee, stated that eliminating data from Section 271 would eliminate a crucial incentive for incumbent BOCs to open their monopoly markets. The opening of local markets is absolutely critical for accelerating broadband deployment. I agree with that assessment, and I do hope that Congress allows the act to work. Than you, Mr. Chairman. I yield back the balance of my time.

REP. TAUZIN: I thank the gentle lady.

The chair recognizes the gentleman from Mississippi, Mr. Pickering, for an opening statement.

REP. CHARLES PICKERING (R-MS): Thank you, Mr. Chairman. Let me begin with the words of Chairman Powell and the hearing that we had right before the recess in response to a question that I asked: Is now the time in a period of economic uncertainty, especially in the tech sector, where we are seeing the bankruptcies, the loss of capital, the devaluations, the emerging competitors in critical condition -- is now the time to reopen the act and have dramatic change? Chairman Powell responded, "I think my advice, such that it is worth anything, is that any sort of wholesale rewriting of the act to my mind is ill-advised."

I went on to ask one further question, again in the context of the market and the capital flows right now in the tech and telecom sector, and especially with the emerging competitors, would dramatic policy change further destabilize and possibly harm emerging competition?" Chairman Powell responded, "If you focus particularly on capital markets, you would have to say it could." Now is now the time given the economic conditions of the tech and telecom sector to be dramatically reopening the act.

Moreover, the act in the name of deployment violates the principles of the '96 act of competition, convergence and for capital right now the need for certainty. In the name of deployment, it would kill competition, kill convergence, and create uncertainty.

For those reasons, this bill should not be passed or signed into law. And the reality is in its current form cannot be passed through both bodies of Congress or signed into law. It is fundamentally flawed. It cannot be fixed. The foundation is not repairable.

Now, if we desire to find competitive common ground, if we want to look at the '96 act, where both sides have legitimate concerns, and we have lessons learned over the last five years, of not only how to increase deployment, increase competition in local, in data, in cable, and in local competition, I do think there is another way and a better way to find that competitive common ground.

Unfortunately, as I look at the bill I have to conclude that it is a sham. You cannot separate digital -- you cannot separate voice from data. If you cannot separate voice from data, how can you have data relief? If you talk about enforcement, how can we enforce the opening requirements when the act eliminates the opening requirements of interconnection and unbundling once a network offers advanced services?

The combination of the technological reality of not being able to separate voice from data, and the bill's elimination of interconnection and unbundling requirements if you offer advanced services makes this a fundamentally flawed, and a bill that cannot be fixed or repaired or amended with enforcements or any other types of amendments. It cannot pass the other body. It violates the principles of competition, convergence and certainty. Chairman Powell said it is ill advised during a period of economic uncertainty. All of these are articles in the tech sector of bankruptcies and devaluations in critical condition of the emerging competitors.

I urge the committee to step back. I urge the industries that want to see advanced deployment into all areas -- to my home state and to rural areas and underserved markets -- to come back to a table that is fair and balanced, inclusive and open, just as we try to do in the '96 act.

There are things that we can improve in the act. There are ways that we can come together and find the principled approach of advancing deployment, but at the same time not harming competition, not harming convergence, and not creating uncertainty during a critical economic period of time. With that I yield back.

REP. TAUZIN: The chair thanks the gentleman.

The chair recognizes Mr. Rush for an opening statement.

REP. BOBBY RUSH (D-IL): Thank you, Mr. Chairman. I too join in with my colleagues in commending you for this indeed very, very important hearing.

The RBOCs contend that if we give them unilateral relief that consumers will have lower prices and more choices for advanced broadband services. On the other hand, the CLECs contend that lifting the interLATA restrictions will undermine the Telecom Act and mean higher prices and less choices for the consumers. They contend that this is true especially if the RBOCs do not have to open their markets to competition.

As we move forward with this legislation, I believe we must tread carefully, so that we do not run afoul of the fundamental principles of the Telecom Act, which is indeed, as has been stated before many, many times, which is competition.

I believe that the Telecom Act is working. Because of competition, we have seen real commitments by the competitors and incumbents alike to deploy broadband services. With that said, I am cognizant of the limitations the RBOCs face in deploying broadband services under their current regulatory scheme. For the past few years they have repeatedly argued that cable, satellite and wireless providers do not have such regulatory burdens. And this, Mr. Chairman, this inequitable treatment has hindered them from effectively competing in this market.

One area of concern to me -- an important area of concern to me is the lack of deployment of advanced services in underserved areas, such as urban poor and rural areas. According to the proponents of this bill, if they are given unilateral relief they will deploy broadband services in underserved areas. I remain skeptical. For me, inadequate and uncertain reasons, these areas have been neglected by CLECs and incumbents alike. And, Mr. Chairman, I look forward to today's hearing and the testimony regarding these particular issues. Thank you, and I yield back the balance of my time.

REP. TAUZIN: The chair thanks the gentleman.

The chair recognizes the gentleman from Pennsylvania, Mr. Pitts, for an opening statement.

REP. JOSEPH PITTS (R-PA): Thank you, Mr. Chairman, and thank you for holding this important hearing. It is 11:30. I have enjoyed the members' comments. I am looking forward to hearing the testimony of the distinguished panel, so I will submit my opening statement for the record, and I yield back.

REP. TAUZIN: The chair thanks the gentleman.

The chair recognizes Mr. Hall for an opening statement.

REP. RALPH HALL (D-TX): Mr. Chairman, I thank you, and I too will be very, very brief. I certainly want to welcome our colleague, Tom Tauke, who was a long-time member of this committee and this Congress, and the very distinguished panelists here. I think people want to hear them and not us.

I just want to very briefly say that I represent a district that has some rural areas in it -- part of Dallas, and then goes on up to the Red River and back down through the oil patch. And we recently held a forum on the campus of Austin College in Sherman, Texas, and the topic of the forum was "Work Force Development," and with the Internet having provided new mediums and communications, education, commerce and entertainment, it was a well-attended committee, and the topic of the forum though was "Work Force Development," and how can educators and businesses and government work together in training tomorrow's work force. I guess my question would -- and the gentleman from Mississippi succinctly set it out when he says in its current form he is not happy with the bill. That's what subcommittees and hearings are all about, and that's the reason I want to see what's in this bill. I held off, as the chairman knows, last year until you had 218, 219 signatures, hoping, because there were good people on both sides of this issue, people that really make great contributions to the economy of this country, and people with whom I voted for years and years, and we have come to the crossroads and can't agree with both sides, but hoping both sides will continue to negotiate and to probe and to try to work something out. Mrs. Eshoo set it out very well when she said we want to upgrade the service to rural areas. And I want to see how this works out in my district.

I yield back my time. I thank you for introducing the bill, and I thank you for having this hearing. And we will be listening very closely as we progress.

REP. TAUZIN: I thank my friend.

The chair now yields to Mr. Shadegg for an opening statement.

REP. JOHN SHADEGG (R-AZ): Thank you, Mr. Chairman, and I will be brief. Let me commend you for holding a committee hearing, a full committee hearing, on this extremely important topic, and for bringing this legislation before us. I think it is timely and important. In the interests of our witnesses and being able to hear them, I will take advantage of the unanimous consent and insert my full opening statement in the record.

I do want to associate myself with the remarks of Mr. Cox, Mr. Davis and Ms. Wilson. I share a great deal of concern about this legislation, and particularly about competition at the local level, local service level. And I think that before we move on legislation of this great significance we ought to do so cautiously, and we ought to understand what we are doing and we ought to understand its implications.

I am going to be looking carefully at that issue. And specifically it's a question of whether we have done enough to open up competition at the local service level, and whether or not this legislation advances that cause or does not do so. And I thank you, Mr. Chairman, and yield back the balance of my time.

REP. TAUZIN: The chair thanks the gentleman.

And the chair recognizes Mr. Wynn for an opening statement.

REP. ALBERT WYNN (D-MD): Thank you, Mr. Chairman. I appreciate you bringing this matter before the committee and convening this hearing. I will submit for the record -- I will just note that this is not just a battle between LECs. There are actual consumers out there that are interested in this, and we clearly have a conflict between the advantages of deployment versus the advantages of competition. Ultimately hopefully we will be able to decide which of these two approaches best benefits the consumer, and make rational decisions with respect to legislation that will help, the quote, "folks back home," in the most efficient way.

I yield the balance of my time.

REP. TAUZIN: The chair thanks the gentleman.

The chair recognizes Mr. Norwood for an opening statement. Ms. Cubin? Mr. Buyer?

REP. STEVE BUYER (R-IN): Thank you, Mr. Chairman. I want to thank you for introducing this legislation. The deployment of broadband, when I think of this, goes beyond just my Congressional district, and it's more than just about greater, faster, more efficient access to the Internet. It's about increasing the quality of life.

Right now in America we have what has been coined the "digital divide," those who have access to quality Internet service and those who do not. For example, right now, my congressional staff, who work here in Washington, D.C., have greater access and more choices in Internet service providers than do my staff in Kokomo and in Monticello, Indiana. In fact, my Washington staff has perhaps a half a dozen quality providers of broadband services; and in Indiana they only have one.

My goal in supporting this bill is to provide the access and choice to all Americans, regardless of where they live, to have the same access in rural areas as they do -- as those who live in large metropolitan areas.

If we do not do something now to increase the competition, then those living in rural America will be left behind -- economically, socially, educationally, and in so many other ways, not to mention the negative effect it's having on small businesses trying to compete in the marketplace.

Expanding broadband to libraries, schools, and to students at home would be among the most important effects of our efforts. As I meet with students and teachers I am constantly reminded of the importance of broadband in improving students' educational experiences. This is true for students of all ages, including adults. Distance learning is a common way of life in rural communities, and broadband only increases the level of learning and the educational environment. Broadband, both fixed and wireless, has the ability to transform the way teachers teach and the way our students learn.

I believe the Congress has a role in making sure that Americans can equally participate in the digital world. The legislation being addressed today appears to be one of the better vehicles to encourage the deployment of broadband, because it also appears the FCC, while it has the ability will not act.

As a strong supporter of this legislation last Congress, I am still not convinced that we should limit our efforts to deploy broadband to this bill alone, especially with the reluctance of the Senate to act. While many in the industry have been coming in to see me about this legislation, I have yet to have anyone tell me that they will deploy broadband services in my rural communities if the business model does not allow it. Therefore I believe that the House should pursue other ways to encourage the installation of the infrastructure in rural and less-developed communities. And therefore I am open and ready to listen. The deployment of broadband and increasing competition has real effect of the quality of life of Hoosiers that I represent. The lack of broadband hurts our students' educational opportunities, hurts our businesses' ability to be able to compete, and discriminates against willing participants in the digital age.

Some may see the lack of services as only hurting rural Americans; but I submit that it hurts all of America. America has been great and a leader in technology, because we are a melting pot of ideas, of goals and of dreams. Yet when we do not allow a particular sector to participate equally, then we lose the ingenuity of so many. So my goal is to erase the digital divide so that so many Americans can be active participants.

And, if I can be frank, the last time I was really involved in these issues was back in the Judiciary Committee in 1995 and '96. Then I sort of left those issues. So now I come back to the Commerce Committee, having left Armed Services and Judiciary. So if you've left something and you come back five years later, it is like going and seeing your cousins, or seeing your niece and nephew that you hadn't seen for a while -- see, I have it all locked in my mind the way it was when I was a conferee back in '95 and '96. Over the last three months, the more I'm beginning to see, I don't recognize it. I'm supposed to say how much you've grown, how excited I am to see what you've become. But I can't say that. I am beginning to say how disappointed I am, and it's not looking the way Congress intended it or nor envisioned it. So I want to compliment you, Mr. Chairman, for the legislation. I yield back my time.

REP. TAUZIN: Thanks, Steve.

The chair is now pleased to recognize Mr. Engel for an opening statement.

REP. ELIOT ENGEL (D-NY): Well, thank you, Mr. Chairman. And I too want to compliment you for having this hearing, and I want to compliment the distinguished panel for having to endure all these opening statements.

I am going to be brief, because a lot of the points have already been addressed. But I am a strong supporter of H.R. 1542. I represent an urban district, and I am too very concerned about the digital divide in my district, and I believe that this legislation will help close that digital divide.

I am also concerned with the fact that small businesses are having difficulties affording high-speed Internet access, and I believe this legislation will help in allowing small business to afford this access.

I also think it's equitable for the wiring of high-speed Internet access by cable companies is not regulated. And if that is not regulated, then we could have an approach to try to regulate cable companies in the wiring of high-speed Internet access. I don't think that's the approach we should take. I think this approach is far preferable to deregulate and to allow the Baby Bells not to have the regulations that the cable companies have as well. So I think this legislation moves in the right direction. Negotiations? Yes, I am always for it, and I think that the way the process works there will be negotiations. But I think it's important to move this bill forward, important to pass this bill. And I think this bill will be good not only in urban districts such as mine, or the rural districts as Mr. Buyer said. But I think it will be good for all Americans, because again I think it will help bridge the digital divide, and help make this technology more accessible to constituents. I thank you, Mr. Chairman, and I yield back the balance of my time.

REP. TAUZIN: I thank my friend, and the chair yields to Mr. Strickland for an opening statement.

REP. TED STRICKLAND (D-OH): Mr. Chairman, I am looking forward to hearing from our witnesses, so I will forgo an opening statement. Thank you.

REP. TAUZIN: I thank the gentleman. I think that concludes the opening statements. Is there anyone who has not yet made an opening statement who would like to? I believe we have it covered.

The chair is very pleased to recognize a very distinguished panel of witnesses today. Let me introduce all of you first, and then we'll begin with Mr. Ashton as our first contributor. As you know, under our rules, we have a five-minute rule. If you have not testified before the committee before, the little units that are sitting on the desk give you a warning when the yellow light goes on that you have got about a minute to wrap up.

We have your written statements in our packets, and we can refer to them as we listen to you. So kindly -- not -- try not to read your written statement -- just sort of summarize and have a conversation or dialogue with us about what you think about the status of competition in this bill.

We'll begin by introducing all of you first. Mr. Douglas Ashton, managing director of communication and technology, equity research, Bear Stearns & Company, Boston, Massachusetts. We are pleased to welcome you, Mr. Ashton. Mr. James Cicconi, the general counsel and executive vice president of AT&T here in Washington, D.C. And, Jim, it's always a pleasure to see you again. Mr. Joseph Gregori, CEO of InfoHighway Communications of Broadway Street New York. Welcome, sir. Mr. James Henry, the managing general partner of Greenfield Hill Capital LLP, Fairfield, Connecticut. Welcome, sir. And also Mr. Gordon Hill, executive director of the Economic Opportunity program of Elmira, New York, who is testifying on behalf of the National Association of Community Action Agencies, of which I was a former officer in my home community, I might add. Mr. Paul Mancini, the vice president and assistant general counsel, SBC Management Services, Incorporated, of San Antonio, Texas. Mr. Mancini, welcome. Mr. Clark McLeod, chairman and CEO of McLeod USA, Cedar Rapids, Iowa. Mr. Charles McMinn, chairman of the board of Covad Communications and Santa Clara Communications -- again, welcome, sir. Mr. Peter Pitsh, communications policy director of Intel Government Affairs, here in Washington, D.C. Peter, welcome. Tim Regan, a senior vice president, government affairs, at Corning Incorporated -- welcome to you again. And the Honorable Thomas Tauke, a former member of this committee, whom we are always delighted to welcome back -- the senior vice president for public policy and external affairs of Verizon -- I almost said "Verizan" again -- (laughter) -- can you believe it? -- Verizon Communications, here in Washington, D.C. Gentlemen, thank you all for coming, and we'll begin with the testimony of Mr. Ashton.

MR. ASHTON: Good morning, Mr. Chairman and other distinguished members of the House Committee on Energy & Commerce. Thank you very much for inviting me here to discuss the Internet Freedom and Broad- Band Deployment Act of 2001. I'm going to speak today from the perspective of a technology analyst more so than a telecom analyst. I cover telecommunications technology vendors.

But I can say in a recent report that we submitted to our constituencies, which was primarily money managers, and the companies in the industry, we recognize that the only catalyst for a better technology and telecom environment is regulatory reform. We called our report "Saving Telecommunications," because we think that kind of dramatic title is relevant to the conditions that the industry is in today.

The best -- I'm going to try and limit my comments to just giving you a framework on which to think about the industry, because there are certain things that we'd all like to see but there are certain realities to the way the business has evolved since 1996, and really looking back even farther than that.

But in essence, the word I like to use when I'm speaking with investors is the word "transition." This industry just happens to be transitioning in many different ways at the same time, and it's been very destructive to the status quo. It's been very destabilizing for both service providers and vendors.

When you think about these transitions, think about them in three ways. We are trying to transition from a narrow-band networking environment to a broad-band networking environment, and that is a momentous change for this industry. Up till this point, we have largely been about narrow-band services, and primarily voice.

The second, which is a microcosm of the first, because we've already started down the modernization path, is the idea of moving from core network modernization or long haul, which is where you hear a lot about optical technology and the like, to access modernization, which seems to be the focus of this bill.

The third transition is probably the most self-evident, but what I find is people miss the importance of it, and that's that this industry is trying to transition from a voice-dominated business to a data-dominated business. And that is a very difficult transition to make. The risks in this business are now higher because the path for those services is not clear for any of the carriers or the vendors.

Think about it this way. I always tell my investment clients, if I gave you a company and said 80 percent of your revenues come from a business that's slowing, that now has more substitutes than it ever had, the pricing of it is going to change because we used to do it based on distance, and now that is seemingly going away. It's price- inelastic, so the more we lower prices, we don't generate the kind of growth we used to when we lowered prices. It's not the kind of stock you'd want to buy.

Well, that's basically our industry. And getting past that point is going to be very difficult. So if we take these in turn -- I'll go through them very quickly -- think about the core to access shift, because that's what's going on right now. And we're stopped at the door of access modernization. And this is very problematic for all the core long-haul players and all the core optics vendors.

Think of level three in (Williams?) and AT&T and Sprint and MCI Worldcom and a host of others. They have modernized, and they made one fatal mistake, which was they bet on an orderly development of access modernization. Without it -- and it's not here, and it doesn't look like it's going anywhere -- those investments are kind of twisting in the wind.

So this sector as a whole has now reached from that core-to- access-modernization stage. Kick-starting or jump-starting that stage of the process is really the only way to get us out of what I'm starting to call technology malaise and telecom malaise, but in a different order, which is I believe telecom, and particularly access, is kind of the sphere of influence on which all the other technology markets will rest. If we don't get modernization there, we're telling investors, "You cannot expect to see a return of the technology markets in general."

We think that it's nice to think about competition in CLECs and others, but when you think about access, think about it in three ways. There's three types of access networks because there's three types of end-user groups. There's large businesses, small businesses, and residential or consumer customers. Our modernization in access has largely revolved around the large business market, but it is not moving down. It's not moving down in the small business and residential markets, which you can consider the same, because largely the network on which they are serviced is the same. You think about any suburban town and all the businesses that lie at the end of the street.

In getting to the access modernization path that we'd like to see in the technology market, we see one primary problem that has two sub- problems, which is the companies that need to do this investment are having a hard time identifying the services that can pay for it. And so they're hesitant to take the risks and they're looking for ways to bring that rate of return up. And clearly one of those ways is regulatory reform in the bill that's been talked about today. If this bill can move forward, I think it will substantially enhance the rate- of-return picture that the access providers can attempt and set up a competitive environment that is largely based on cable and the RBOCs, which I think will be enough to get the benefits of that.

Thank you.

REP. TAUZIN: Thank you. Mr. Cicconi, welcome.

MR. CICCONI: Thank you, Mr. Chairman. I want to thank you and Chairman Tauzin for inviting me here today to share AT&T's views. We oppose this bill because it places at risk the goal of the '96 Telecom Act, to bring competition to local phone service in America. Let me make four points.

First, this bill presents a serious threat to local competition at a time when it's already under severe stress. The 271 process in the '96 act allows the Bells to enter the long-distance market for voice and data, provided they open their local monopolies. The Bells have been cleared to do so in five states. Two are pending now. They themselves predict accelerated 271 approvals this year and next.

This process provides the data relief they seek in this bill, but only after they meet the law's requirements to open their markets. What the Bells want, though, is to avoid the act's requirements for data, which is the bulk of the traffic on their networks. This bill would grant their wish, but it would leave little incentive for them to open their monopolies.

Moreover, this bill would go beyond data. It will deprive competitors of the ability to purchase access to crucial parts of the monopoly's network, access that is essential for competitors to have any chance to succeed. Make no mistake, this bill would undercut the most important provisions of the '96 Telecom Act and would preserve monopoly power over local phone service.

Second, there is no real regulatory barrier to the Bells' deployment of DSL. It's occurring today. It's occurring faster than the deployment of any new technology in memory. The Bells are spending billions to deploy DSL for one reason: Competition. DSL is not a new technology. It sat on the Bells' shelf for years. They had no incentive to roll it out until competitors showed up as a result of the '96 act. In fact, they didn't even face any market-opening restrictions before the '96 act, so there was absolutely no impediment to their deployment of this technology.

The first places they deployed it: Where competitors were most active. They're not deploying DSL because they're public-spirited folks, though I'm sure they are. They're deploying it because competition forced them to do so. And if a big part of that competition is removed, as this bill would clearly do, the likelihood is that the Bells will slow broad-band deployment and raise prices. In fact, that's already happened.

We've also heard that this bill will bring broad-band to rural areas. With respect, this is a transparent effort to exploit digital- divide concerns. There is nothing in this bill that would ensure that. All we get are vague promises that if the monopolies are allowed to keep the CLECs out of their facilities, they'd be more inclined to bring DSL to rural areas. By the way, at the same time, as it's been pointed out here, they're selling off rural exchanges. Which is the better way to get DSL to rural areas and inner cities? I'd bet on the presence of competitors before I bet on mere promises.

Third, the monopolies argue for major changes to the Telecom Act in the name of regulatory parity. They say cable operates free of regulation. This is simply untrue. Cable faces significant regulatory requirements the Bells don't face. Cables license by over 30,000 local franchising authorities across the nation. We pay them over $2 billion in franchise fees annually and often must provide free service to local governments and schools as a condition. The Bells face nothing similar. There is also a statutory limit on the number of subscribers any cable operator can serve. If the Bells had faced a similar limit, it's possible none of their mergers with each other would have been allowed.

There are other compelling reasons why Congress regulates these two industries differently. The local telephone companies have not faced any competition to their core local-exchange business. Only a tiny percentage of Americans actually have a choice for local phone service today. Cable, on the other hand, faces ubiquitous and fast- growing competition. Nearly everyone in America, including everybody in this room, has a choice if they want cable's core product, which is multi-channel video. The Bells are regulated differently, precisely because Congress concluded correctly that their local markets are still closed.

Finally, this hearing poses a fundamental question: What is the best way to accelerate the deployment of broad band, or indeed any new technology? The Bells say relieve them of competitive pressures and they're roll out new services faster. We say competition is the better guarantor that new technology will reach all Americans. Theirs is a "trust me," with all the dangers that entails. The other approach says to trust market forces, trust competition, because time and again, that has proven the correct course.

The government trusted competition when it broke up the Bell system in 1984. The result is vibrant competition in long distance and dramatic drops in prices. The opposite has happened in local service. In 1996, Congress again decided to trust competition, and it was right. This bill would undo that decision and would trust monopolies, and that is why it is wrong.

The hope of competition in local service is at a critical juncture today. CLECs have invested heavily to compete, in reliance on the law Congress wrote. All of us are having a tough enough time getting the monopolies to do what the law requires. Billions have already been wagered and billions have been lost. Many CLECs have gone under. Many are on the ropes.

Simple fairness argues against Congress changing the rules it wrote in the middle of the game, and especially now. If you do, who will ever again invest to bring choices to consumers in the face of monopoly power?

Thank you again for the chance to present AT&T's views.

REP. TAUZIN (?): Thank you. Mr. Gregori.

MR. GREGORI: Good morning. It's still appropriate. My name is Joseph Gregori, and I'm the CEO of Info Highway Communications Corporation. I'd like to thank the chairman and other members of the committee for allowing me the opportunity to speak with you this morning.

First, I'd like to just spend a moment or two to tell you about Info Highway, what we're doing, and then share with you our view of this bill. Info Highway is an integrated communications provider serving the needs of small to medium-size businesses, primarily in the Northeast, where we've just opened several new offices in cities, and in Texas.

We provide a full range of communication services, including bundled voice, high-speed data through DSL, and other Internet offerings. We provide these services through a combination of our own network facilities, resale and (Uni-P?). That's how we're reaching our customers. We're utilizing DSL technology because we think it's the right choice, and deploying such through a co-location strategy that includes both deployments in the RBOC central offices as well as directly in buildings that are not currently being served and may be out of reach of DSL services.

We've chosen DSL and are building our own network to further position ourselves in the future to deploy new technologies, Voice- Over DSL and Voice-Over IP. We see the convergence coming. We're not ready yet to endeavor on that path, but we are positioning ourselves that way.

We've deployed our equipment, primarily Cisco and Access Land communication devices and (D-SLAMs?), in approximately 100 buildings in 10 central offices, the majority of which in the last six months, since our recent funding in September of the year 2000.

As a service provider, we differentiate our service by focusing on the needs of the customer, which are primarily small to medium-size businesses. These customers typically don't have data or communication staffs or the in-house expertise necessary, but rather look to service providers like ourselves, who offer communication solutions to their needs with friendly, responsive customer service. Whether it's our high-speed Internet access products, our customized voice calling plans or total bundled communication services, we are delivering new, creative, value-added solutions to this market segment.

With respect to this bill, I have several views. First, if passed, I believe it will result in less incentives for the RBOCs to continue to open their local networks and comply with the 14-point checklist requirements of the '96 act. The data services segment is a huge slice of the inter-LADA traffic. And granting relief, as proposed by this bill, would be a major concession and relieve the RBOCs of a significant statutory requirement.

The effect of such to me is very clear: Less competition and less choice, especially for the small to medium-size business segment. Today they are underserved, and if this bill is passed, they will likely have fewer choices. The checklist works. In several states, 271 approval has been granted. Why would we consider changing that now?

Secondly, I believe the RBOCs have frustrated and will continue to undermine competition at every juncture. Providing them with access to advanced data services now across LADA boundaries will reinforce such. Our experiences recently demonstrate to us that these practices will continue. One RBOC has recently proposed to raise wholesale rates to competitors that access their network, while also withdrawing access to advanced data services to companies like ours. We had access to advanced data services very briefly, and we made a significant investment in the product rollout, and then it was just as quickly withdrawn from us.

And lastly, the bill as drafted, I believe, will be interpreted very negatively by the capital markets. Wall Street and venture capitalists will perceive this as further support for the RBOCs -- and rightly so -- to the detriment of competition. An already-tight capital market will further constrict. Every competitor will be impacted as additional capital would become scarce.

In closure, although I believe in the intent and the spirit of the bill, the outcome if passed will not be the expected one. Competition will suffer. If this bill is passed, the RBOCs will have less incentive to comply with the 14-point checklist; competition will not be served in the small to medium-sized business segments; and it will be perceived negatively by the capital markets. Thank you.

REP. TAUZIN: Mr. Henry.

MR. HENRY: Good afternoon. I'd like to thank the chairman and the members of the committee for inviting me to testify at today's hearing. Just by way of introduction, I Manage a company called Greenfield Hill Capital, which is a telecommunications investment fund. Prior to founding Greenfield Hill Capital, recently I acted as a telecommunications research analyst on Wall Street for about seven years, most recently at Bear Stearns, where I was responsible for following the competitive local exchange carriers, among other competitive and insurgent business models across the telecom and data services space.

My comments today -- my testimony today will provide a Wall Street perspective on local competition, and what I perceive as potentially adverse implications of this legislation on local competition and broadband deployment.

First, let me just state that I believe that local competition is in the public interests insofar as it accelerates the deployment of advanced broadband networks, technology and services to both businesses and consumers across the country; second, it drives reduction in the prices of local telecom services; and, three, it creates new jobs and demand for technologically sophisticated --

REP. TAUZIN: Mr. Henry, if you could just move the microphone a little closer.

MR. HENRY: Certainly. How is that? I believe local competition is in the public interest on that basis. Competition from a Wall Street perspective historically has been viewed as a very positive opportunity, based on large extent on the track record of long- distance industry, the value and wealth creation that occurred there. The size of the local market opportunity, its profitability and relatively stable growth initially attracted a lot of investors and a lot of capital to this space. I think the evidence is quite clear that in the past year investor sentiment has turned quite the contrary as a result of a number of factors that include the legislative and regulatory uncertainties that overhang the industry today.

My second point is that the CLECs are the principal agents of local competition, and broadband deployment in the local telecom market. I would point out that the CLECs, including the CLEC subsidiaries of companies like AT&T and WorldCom, have installed a total of 12.2 million local telephone lines competitively since the passage of the Telecom Act of 1996. Those lines represent about $7.5 billion of annual recurring revenue, which have been generated by these competitive companies.

By contrast, I would note that the incumbent local exchange carriers, principally SBC and Verizon, have done very little outside of their respective home territories on the competitive front, and in fact both companies have announced recently pullbacks to their out-of- region initiatives despite the commitments made under the merger agreements for Ameritech and GTE.

I would also point out that the ILECs have pulled back to some extent their in-region broadband initiatives, particularly as it relates to DSL. And in fact you've seen them raise prices just as competition has dropped off and the competitive player have died.

The third point is that access to capital is the lifeblood to telecom in particular, and of early-stage companies like the CLECs in particular, and therefore access to capital is the lifeblood of competition in the telecommunications industry, particularly local. As a result of relatively free-flowing access to capital from 1996 through 1999, the CLECs deployed approximately $55 billion of capital to build alternative local networks, broadband networks. And unfortunately as the capital markets collapsed beneath the weight of great uncertainty and concern surrounding the technology and telecom sector, CLEC capital spending has slowed dramatically. I would note in fact that CLEC capital spending in 1999 was $6 billion. It grew dramatically to $10 billion in the year 2000, and is expected to contract to reduce to only $7 billion -- probably less -- in 2001, and likely lower than that beyond.

As far as Wall Street concerns and investor sentiment, it is my observation as an industry analyst that the investment community's willingness to fund telecom companies in general and CLECs and other early-stage businesses in general or in particular is adversely impacted by legislative and regulatory uncertainty. The proposed act that is front of the committee today is illustrative of that kind of legislative uncertainty that I think will cause investors to move to the sidelines and withhold capital from these companies. I have had numerous conversations over the past number of quarters with investors, with public equity investors, private equity investors, high-yield investors across all the capital markets who have said that they view regulatory uncertainty in telecommunications as one of the principal reasons that they have moved to the sidelines.

As far as the particulars, I am troubled by this act insofar as it could, one, jeopardize competition for broadband by exempting high- speed data and Internet services as well as the facilities that provide those services from regulation; two, could significantly reduce the incentives for the Bells to comply with 271 and to open their local markets to competition; and, three, could seriously jeopardize line-sharing. So information -- I view that this bill would be negative to competition in the local market; it would be negative to broadband deployment overall. And I would urge the committee to not approve the bill.

REP. TAUZIN: Mr. Hills.

MR. HILLS: Good afternoon. Thank you, Mr. Chairman, for inviting me here and giving me the opportunity to testify. My name is Gordon Hills, and I am a member of Keep America Connected -- also the executive director of a community action agency in a rural urban environment in Upstate New York. Also, I am different from some of the members here in that I am going to be hopefully an end user of the product that this bill will provide. So I am speaking on behalf of consumers.

Keep America Connected, formed in February 1997, is a partnership between consumer organizations, labor and local phone companies. This partnership represents older Americans, people with disabilities, rural and inner-city residents, people of color and low-income residents. Keep America Connected works to achieve affordable access to modern telecommunications services by all consumers. A major tenet of the organization is to ensure that regulatory changes guiding the transition to a competitive market also preserve affordability and accessibility. We appreciate your conducting this vital hearing, because our service populations will be the beneficiaries of your legislation.

I joined Keep America Connected because I wanted to find a way to make a difference and empower many of our communities that are disenfranchised. I serve on the Keep America Connected board of directors and on the technology committee for the National Association of Community Action Agencies, or NACAA.

The goal of Keep America Connected is to make sure that we all have access to the wonders of modern telecommunications and that policymakers remember that consumers are concerned with both rates and accessibility. The community action network that I work in operates in 96 percent of the nation's counties supporting a wide range of programs. Many of those agencies perform services for more than 34.5 million people who are living in poverty in the United States. And those programs represent a broad range of services.

One of my major responsibilities to support more than 900 community action agencies in a system in upgrading the technological capabilities. This includes equipping low-income clients with technical skills and facilitating high-speed Internet access. In short, our national network shares community -- our Keep America Connected's commitment toward bringing affordable broadband services to all Americans.

While building up technology in individual agencies, we are focused on providing Internet training to preschoolers, troubled teens and the elderly with the help of broadband technology, we intend to use video and audio streaming to augment our education programs. Broadband access will allow the use of streaming video and audio in teacher and training modules. However, with more than 60 percent of community action agencies located in rural areas, the only hope of high-speed access will be for Congress to allow incumbent local exchange carriers to build out networks. All the stakeholder groups that were involved in affordable access to high-speed telecommunications brings the promise of the information age closer to reality for us. Access to broadband means very different things to different groups. But the needs and interests of various stakeholders are not mutually exclusive. They share common concerns of economic development and quality of life issues and the wide range of benefits for the whole is much greater.

For small businesses, greater broadband promotes business development and economic equality. I talk about this, because I am also a member of the work force development board. Greater deployment of broadband will allow smaller businesses to compete with larger ones. For those living in rural areas, social applications, which includes telemedicine and distance learning, help to bridge the difference of geography.

We strongly support the Internet Freedom and Broadband Deployment Act of 2001. It is an important step to achieve a more rapid deployment of broadband technology to all consumers, and particularly those that right now have very limited access. With that my time is up. I will yield.

REP. TAUZIN: Thank you very much, Mr. Hills. And, by the way, I want to commend you for your work with community action. As a former officer in a local Mafoosh (ph) Parish community action agency, I know the work you do, and I thank you for it.

Mr. Mancini is recognized.

MR. MANCINI: Thank you for the opportunity to appear and testify before you this morning. I am Paul Mancini, vice president and assistant general counsel of SBC Communications.

H.R. 1452 will encourage broadband deployment to consumers in all areas of the country. It will balance the regulatory disparity that currently exists between different types of high-speed Internet access providers. It will help close the digital divide, and it will encourage competition by providing more customers with more choices in higher quality services at competitive prices.

I'd like to focus my remarks this morning primarily on the market for high-speed Internet access services and the situation we confront in Illinois, because this provides a compelling real-life evidence of why this bill should be passed.

There are two fundamental competitive principles that we believe should guide Congress when considering this legislation. First, competitive markets should be free from government regulation. Second, if there is some sound public policy reason for regulating a competitive market, all service providers in that market should be subject to symmetrical regulatory requirements. In other words, the same services in the same competitive markets should be regulated in the same way, regardless of who is providing the services or what technology is used.

By way of background, SBC's high-speed Internet access service is called digital subscriber services, or DSL. We compete directly against the local cable operator which offers cable modem services, as well as against wireless and satellite-based high-speed Internet access providers. The cable operators, including AT&T, have in excess of 75 percent market share in this market. Moreover, you have to keep in mind that all versions of this Internet access are based on new investments, new facilities, new networks that provide these capabilities. They are not based on the old legacy voice network.

I found it very interesting when I was reading AT&T's written statement yesterday and listening to their opening remarks. You would think from hearing those that AT&T is a simple bystander or a poor little DSL provider that is being forced out of the high-speed Internet market. Let's be clear about this: AT&T is the nation's largest cable monopoly, and they are also the nation's largest provider of high-speed Internet access service through a closed network that includes content and is completely unregulated. And they along with other cable companies are now trying to ask Congress to block competition in that market in which they are the dominant provider.

I would like to talk about just some facts and not speculations. So there's a few undisputed facts that should drive your consideration of this legislation. Notwithstanding what you hear from some components, this bill is not about Bell companies monopolizing the DSL market, because there is no such thing as a separate DSL market. Rather the SEC and every independent analyst and economist who have looked at this issue have concluded that the market for high-speed Internet access services is a separate, distinct and competitive market in which there are four different providers using different technologies, competing head to head. The main providers are cable companies, DSL companies, wireless and satellite companies, all providing their own version of Internet access.

Moreover, it's undisputed there is no bottleneck in this market. Indeed, each of the four types of providers use their own facilities and do not rely on the facilities of the other three providers. As everyone has mentioned, cable modems clearly dominate the market today, and they serve three out of four customers.

Finally, it is undisputed that telephone companies are heavily regulated when they provide DSL, but no similar regulatory requirements apply to cable modems or wireless or satellite providers.

Despite the fact that we are the nondominant player in this competitive market, we are subject to pervasive regulation by the FCC, by the states, and now recently by the Illinois commission. For example, when we provide DSL services, we are faced with the following types of obligations. We have to interconnect with data competitors. We have to share the broadband spectrum. We have to connect with ISPs. We have to open -- offer open access. We have to offer wholesale pricing obligations. We have to offer resale. We have to provide the location and we have to operate through a separate structurally separate subsidiary. And I would say to Mr. Cicconi that cable companies including AT&T do not have any one of those obligations -- not a one. As you compare that to a franchise obligation, you can see that the regulatory disparities that exist in this market.

So in contrast, there is simply no public policy justification for heavily regulating the nondominant player DSL in a competitive market. Moreover, the disparate regulatory treatment has consequences, and it results in reduced and distorted decisions, delayed deployments, higher costs and fewer choices.

Now, let me just give you an example in Illinois --

REP. TAUZIN: The gentleman's time is expired, so you are going to have to wrap real quick.

MR. MANCINI: Okay. In Illinois, as a result of the decisions by the Illinois Commission, which required us to, quote, "unbundle" our integrated (line-in ?) cards. We submitted sworn affidavits from ALCATEL's (ph) chief technology officer that says, one, it's technically unfeasible; in addition, it increased our costs to over $500 million. As a result, we had to suspend deployment of DSL in Illinois. This is the type of regulatory decisions by state agencies which is going to destroy the potential for DSL to compete against cable modems in the future.

REP. TAUZIN: I thank the gentleman. The chair recognizes Mr. Clark McLeod.

MR. MCLEOD: Thank you, Chairman Tauzin. I appreciate being invited to speak to the committee today. I will depart completely from my written comments and try to respond to some of the comments from the group. But I would like to start with the fact that this bill is totally unnecessary. There is nothing that occurs in this bill that will spur broadband deployment to world markets. That's obvious from what this group has already said. There is really nothing that prevents the telephone companies from deploying DSL service today -- nothing. And for us to go and retool something that took six years to create, the Telecom Act, and undermine it in this fashion, is very, very disruptive to our industry, no ands, ifs, or buts about it.

This bill actually does damage. It restricts access to the Bell networks by competitors. It restricts access to a monopoly supply. That's totally destructive to a competitive environment. And it takes away any reason for the Bell companies to comply with the 14-point checklist. The 14-point checklist, once complied with, will allow the Bell companies to do everything everywhere. And we all agreed on it back in 1996.

So let me step back a moment -- I only have a couple of minutes here -- but I have a perspective that maybe is different from some of the other people here in that I have been in the competitive industry now for 21 years. You can tell by my gray hair that I've been around for a long time. I started a company in 1981 that turned out to be the fourth largest long-distance company in the United States. It was started in 1981 for one reason: the FCC opened up the AT&T network to competitors to use, March 1981.

MCI had tried to compete with AT&T for 13 years up to that point, and had gotten one percent share. AT&T's market was open to competitors like ourselves so that we could buy services and bring in new network to combine with that to provide a ubiquitous coverage of our market area.

The exact same thing is true today. If we want a competitive marketplace, if we want broadband services deployed, the key to that is in the access to he local network. You know that local network is made up of both copper and fiber that the Bell companies have today, and you know DSL is just putting a copper link on steroids -- right? So what we need access to is that copper network. Now, the Bell companies would say the network is open. Well, if you call it being open that open, then you're right. But try to walk through a door that is that wide open.

So I want to be as constructive as I can with the group today and talk about what we could do. A couple of things that have worked recently -- Chairman Powell talked about wanting to be able to impose fines. A little twist to the fines -- they do need to be imposed -- $60 million have been imposed on SBC in Illinois recently. But it all went to the Illinois government, not to the competitors who were hurt by their noncompliance.

In three states -- Colorado, Iowa and Minnesota -- Quest Communications pays us when they don't meet standards. That makes sense, doesn't it? The people who are damaged. So, one, I would propose that if anything is done we should look to the FCC to enforce the current act, award damages, award them to the right place.

Make the 14-point checklist mandatory, date certain, complied with throughout the country. Then everybody is free to do everything. And, finally, we can't do anything to restrict access to the current Bell network. That's what makes a monopoly a monopoly -- they control supply. Competitors have to get access to that supply. Thank you.

REP. TAUZIN: Thank you very much. The chair is now pleased to welcome and recognize Charles McMinn for his testimony.

MR. MCMINN: Good afternoon, Mr. Chairman, Ranking Member Dingell, and distinguished members of the committee. Thank you for inviting me here to testify today. I am the chairman of the board and a co-founder of Covad Communications. Covad is the nation's largest competitive provider of broadband DSL services, including Internet access. We offer our Internet services in an area that covers nearly 50 percent of the country. That's more than any CLEC, that's more than any cable company, and that's more than any ILEC in the United States. We have over 320,000 DSL subscribers on our network, half of which are residential customers. And we are a company that did not exist before the Telecommunications Act was passed.

I am here today to tell you that if you pass this bill as it is currently written you will eliminate the driving force behind the high-tech sector, the investment unleashed by the Telecom Act of '96. While this bill will certainly benefit the four Bell monopolies, I promise that will halt investment in the high-tech sector. It's a poison pill for the technology economy.

I was in New York only yesterday at a financial conference. I am already being told by investors that because of their fear of this bill they are slowing their technology investments -- not just in CLECs like Covad, but in equipment suppliers like Lucent and Cisco.

As you can see from this panel, the three competitive companies you invited here today all chose to send their top executive officers. This issue is absolutely critical to us. The sad fact is that competition in the local telecom markets, especially in residential broadband services, would be virtually eliminated by this bill. The Tauzin-Dingell bill dismantles the core unbundling requirements of the '96 act. It eliminates line sharing, and it ensures that the four Bell companies will be the only ones offering residential consumer broadband access in the United States.

They won't tell you this, but the Bells are deploying DSL as fast as they can. In '96 there were virtually no DSL lines installed. At the end of 2000 there were 2.3 million. SBC alone has nearly a million subscribers. What's more, the DSL share of the market is projected to pass the cable share of high-speed access in the United States within the next two years, and that's despite the fact that the cable industry got a three-year head start.

The speed of DSL deployment by the RBOCs would not have happened without competition from companies like Covad. We were the first out of the gate, taking technology that they had in house for over six years and driving it into the market. We were the prod that got the Bell companies moving. We offer services in all of their markets, while still today they only offer their broadband services in their own monopoly territories. This unhealthy situation will be cemented in place if this bill is passed.

The Bells of course will say that they face fierce 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 is already larger than all of the cable modem networks in this country combined.

I have with me today our newest product, a Covad jump-start kit. Using this equipment, just the equipment in this box, and following some easy instructions, new DSL customers can install their own broadband connection without the need for us to send them a technician. There is no need for a separate data line, and a customer gets connected in a matter of days.

Our kits work by employing line-sharing. Every carrier uses line-sharing to reach residential customers. It allows a customer to receive DSL and surf the Net over the same copper line as regular old telephone service. This bill as it is currently written eliminates line-sharing for everyone but the ILECs. Let me be clear: If line- sharing is eliminated, Covad will have no choice but to withdraw from the residential market. We cannot match a competitor whose lines are subsidized. We have tried in the past and it just does not work. The bill goes even further. If line-sharing is eliminated, not only would we disconnect over 50,000 of our subscribers; we would be locked out of the residential market forever. This bill destroys the very core of the Telecom Act, the right of competitors to lease basic portions of the monopoly network.

The Telecom Act does provide a tremendous framework to introduce competition into the market. It does come up short on enforcement. Several members of the committee have mentioned that fact. We believe that additional enforcement is necessary, not a reduction of the competitive capabilities that the act put in place.

I will submit to you, in closing, to discuss and all these matters at your convenience. It is without question the most important issue facing this industry, and one we take very seriously. Thank you very much for your time.

REP. TAUZIN: Thank you very much, sir.

The chair is now pleased to recognize for opening statement Mr. Peter Pitsh of the Intel Corporation. Peter?

MR. PITSH: Thank you, Mr. Chairman, and members of the committee. I am the communication policy director for Intel, and I'd like to thank you for this opportunity to be here this morning to testify before the committee on this important topic. In my oral testimony I want to limit myself to three main points. First I'd like to discuss the importance of broadband deployment; second, I'd like to lay out Intel's policy prescriptions in this area; and, lastly, I want to make a brief comment about Intel's position and posture in this larger broadband debate.

First, regarding broadband deployment, Intel believes that rapid deployment of affordable broadband technology will dramatically drive the growth of the Internet, e-commerce and our larger economy. In my testimony I cite our chairman, Andy Grove (ph), surveys of CEOs, business press and so on. But today I want to just make one fundamental point about the importance of broadband, and that is that we are just beginning to fathom the importance of broadband deployment. I would ask you to consider back to the first days of the PCs and those initial computer application and then consider where we are today. I submit that dramatic increases in the growth of broad- band penetration will lead to a similar growth of developments and flourishing of opportunities that we saw with the interaction between software and hardware developers in the PC sector.

One particular study I reference is a study that looks at the broad-band revenues worldwide and indicates that in 1999, those revenues were about $60 billion, and projects that by 2004, those revenues could be over $460 billion. It should come as no surprise, then, that Intel and many in the high-tech sector want policymakers to get broad-band policy right. And in our view, like consumers, Intel believes that public policy should best promote rapid deployment of affordable broad band to all consumers.

We believe that the Congress and the FCC should and can make this happen through the deregulation of the incumbent exchange, DSL services, in the last mile. I wish to point out that I'm not taking any position -- Intel does not take any position on the inter-LATA provisions of this bill. However, we do believe that eliminating the unbundling restrictions that currently exist and threaten the investment opportunity for the incumbent telephone companies in the last mile, between your central office and the residential customer, do represent a barrier to deployment.

I'd like to explain that just briefly. This investment is risky. It's discretionary. It's not part of the legacy of existing copper in central office buildings. And if we impose that kind of unbundling obligation, we undercut business' case for these companies to make that investment. Intel's position is if a company takes a broad-band deployment risk, it should get the reward. We are satisfied that there can be safeguards designed that protect competition and achieve this goal.

In my testimony, I mention conditioning relief upon compliance with the FCC and states' co-location and loop provisioning requirements. I also mention the possibility of conditioning relief for an ILEC on the achievement of milestones, benchmarks that would require the companies to meet certain (build-out?) requirements.

Lastly, I'd like to talk about Intel's position in the larger broad-band debate. This is -- the position here today is really just one of a consistent set of policy positions we've taken in this larger area. I'd like to point out that Intel, through our trade association, ITI, a high-tech trade group I know many of you are familiar with, supported the FCC's decision in finding cable unbundling to be premature at this point. We supported the FCC's decision to require the incumbent companies to unbundle their existing copper and make their central offices available. We also supported the FCC decision not to impose unbundling requirements on DSL electronics, and there are other examples as well.

It should be clear here that Intel is not uninterested. We believe we're disinterested. We want all these providers to have ample opportunity to provide this. And our positions -- I think at various points we've opposed or supported all of our friends in this larger community, but consistently, hopefully, always with the goal of encouraging affordable broad band for all consumers.

Thank you.

REP. TAUZIN: Thank you very much, sir. The chair is now pleased to welcome for his testimony Mr. Tim Regan of Corning, Incorporated.

MR. REGAN: Thank you, Mr. Chairman. As you said, I'm from Corning, Incorporated. We're the original inventors of optical fiber and obviously have a lot of interest in seeing the technology deployed. I applaud the committee for undertaking this discussion today, because it deals fundamentally with the issue of investment. And we've really got two problems, from where we stand on investment. One is to get investment going again in the telecommunications sector. One of the things that brought this economy down is that investment dried up in the telecommunication sector, so we need a revival of it.

The second thing is we really can testify to the fact that broad band, as we define it, is not being deployed to American homes today. And let me explain what I mean by broad band. Broad band, as I refer to it, is the capability to both send and receive information in all its forms -- voice, data, video, graphics, high-speed video, by the subscriber. It is not DSL. It is not cable modems. It's not fixed wireless. These are properly defined as high-speed capabilities. And I will address only the broad-band issue, because fiber optics is inherently capable of transmitting broad band, not these other capabilities.

Now, we didn't witness very unusual investment behavior in this sector as it applies to investment in fiber-optic broad-band systems to residential customers. Specifically, what we've observed is that incumbent local exchange carriers are investing in copper rather than fiber-optic systems in new builds and in rehab situations when fiber systems are equal in cost to copper.

It's hard to believe, but it's true today. We have reached the cross-over point. And I can read a statement that came out of the Wall Street Journal specifically that refers to that. The quote is, "Sales of communications wire from fiber-optic and coaxial cable to old-fashioned copper rose 6 percent to $14 billion last year. Here's the most surprising part: The bulk of the industry sales continue to come from the same type of wire Alexander Graham Bell developed in 1879 to transmit voice signals -- copper."

Obviously this situation puzzled us, so we hired a couple of economists and we said, "Look at this thing. Why is there this apparent irrational act?" They came back and said, "No, the ILECs are acting in a very rational way." It turns out that there's new economic research that indicates, in certain situations, you're better off to wait than to invest in new technologies. Those situations include situations where you have high sunk costs and in situations where you have technology uncertainty.

They also noted that the unbundling rules at Telrec (sp) that came out of the FCC have also caused a bit of a problem in that they have not allowed a sufficient rate of return on the capital investment to get the investment moving. So you have essentially two powerful forces going on at the same time which are inhibiting the investment in this revolutionary technology.

So you might say, "What is the solution?" And we don't have any magic wands. One solution we might think about is to consider the possibility of actually amending the unbundling rules so that you can allow a sufficient rate of return on capital to justify the investment. In a sense, this is not a regulation issue. It's a financial issue. It's how do we get the rate of return up? And you can get the rate of return up by changing the rules. So it's worth taking a look at this.

And I think, in the final analysis, what we really face is we face here a tug between two things. We all want competition. And we have a natural tug between the unbundling rules that will enhance competition and the rules which can inhibit investment. And somehow we have to find the right balance.

So, with that, I'd like to thank you for your time. I guess I'm less than five minutes, but I'm sure that's probably appreciated.

REP. TAUZIN: Thank you very much, Mr. Regan. Finally, the testimony of Tom Tauke of Verizon Communications is welcome. Tom.

MR. TAUKE: Thank you, Mr. Chairman. It's always good to be here. I will say it's nicer to be up there, where you get to walk around a little bit -- (laughs) -- during the course of the meeting.

I want to make a couple of assertions that I believe most of us agree upon. The first is that the broad-band market is a distinct market. The high-speed services market is an identifiable and distinct market. The second: Deployment of broad-band services is key to economic growth. Alan Greenspan has suggested that the productivity growth that we have experienced over the last several years has come from networking, and the improvement of those networks will explode the economic growth. Third, that the members of this committee and the members of Congress want the right public policy for broad band, and the right public policy is a policy which, A, encourages deployment, and B, encourages competition.

Now, I think we can agree on all those things. For some of you, I think you're not aware that Congress has never established a broad- band policy. And if you believe that Congress has established a broad-band policy, I encourage you to look at what the three circuit courts have done that have addressed broad-band issues. They haven't been able to figure out what the '96 act said about broad-band services, whether or not they're telecom services -- they couldn't agree on that -- or what rules ought to apply.

Congress needs to set a broad-band policy. When you don't, you have a lot of confusion. And we have mass confusion today as to what rules apply. You have unfairness. Certainly it's unfair for the dominant provider to be able to offer services and not have any rules or regulations, while the provider that has less than a quarter of the market has all kinds of rules and regulations. You have that unfairness today. And you have barriers to deployment of broad-band services.

We believe that the Tauzin-Dingell bill moves in the right direction in setting the right policy. I will say to you that we might start by agreeing on what the Tauzin-Dingell bill does, because I don't recognize the bill from a lot of the assertions that have been made today about it. Let me tell you what I think it does.

First, it does not change any of the rules relating to the telephone network, to telephone services, to narrow-band services. None of those change. The assertion has been made, for example, that if we deploy fiber in the network, we don't have to unbundle. We don't see that. We believe we still have to unbundle and sell the loop to carriers, even if it's on fiber; sell it to them for their voice services. The telephone rules don't change.

Secondly, it imposes no new rules on anybody else -- satellite, wireless, cable. Nobody else gets any new rules. Third, it lifts the telephony rules, which we believe the FCC (and some?) have mistakenly begun to apply to broad band but which Congress never directed be applied to broad band. I might say the FCC even tried to undo some of that and got overturned by the courts.

Let me just say that we believe there are two areas where the rules need to be lifted. One is in the local broad-band networks. We've heard a lot about DSL deployment, and DSL is important. But the first one that talked about fiber was Jim Regan. And the biggest challenge we face is that as we attempt to upgrade the local networks by putting fiber out to the neighborhood, we have all kinds of technical inhibitions to doing so because of the rules and economic inhibitions from doing so, and it makes no sense for you to try to discourage us from deploying fiber in the network.

The second area where we think the rules should be lifted is the inter-LATA restrictions, and we believe that also happens under the act. I testified two years ago before this committee, and at that point I used the airport analogy, the long hauls. We were getting lots of long hauls, you know; lots of routes from New York to Los Angeles. We weren't getting those regional networks that would serve places like Dubuque, Iowa, my hometown.

Well, I can report to you, two years later, everybody's continuing to invest in those long-haul networks, but we don't have many more regional airports that hook people in to the broad-band nationwide network. And the need is still there. There are two separate needs. Both are important.

You're not plowing new ground here, by the way. What you're doing is very parallel in this bill to what was done with wireless services back in 1993. Wireless at that time was recognized as a separate market. Congress decided that the telephony rules, even though wireless service looked a lot like telephone, the telephony rules should not apply. And Congress established a pro-market policy, and then in 1996 lifted the inter-LATA restrictions on wireless.

What happened to wireless? Explosion of growth, from 11 million users in 1993 to 100 million today; development of robust competition; ubiquity of deployment; new services provided for consumers at lower prices. You can get the same good results from the right policy for broad band.

REP. TAUZIN: (And you wrapped?) very nicely, almost within time limit. We are going to have a vote on the floor in just a few minutes, and I know you would like to walk around, perhaps for some very reasonable reasons. (Laughter.) And what we're going to do is we're going to take a break for lunch and other purposes and come back at 1:30, when we'll begin our questions for the panel. The committee stands in recess till 1:30.

(Recess.)

END

LOAD-DATE: April 26, 2001