SECTION: CAPITOL HILL HEARING TESTIMONY

LENGTH: 5334 words

COMMITTEE: HOUSE JUDICIARY

HEADLINE: TESTIMONY BROADBAND ISSUES

TESTIMONY-BY: BILL BAR , EXECUTIVE VICE PRESIDENT

AFFILIATION: VERIZON COMMUNICATIONS

BODY:
May 22, 2001 Testimony of William P. Barr Executive Vice President and General Counsel Verizon Communications on H.R. 1697 and H.R. 1698 Committee on the Judiciary United States House of Representatives Thank you, Mr. Chairman, for the opportunity to testify before the Committee. I am Bill Barr, Executive Vice President and General Counsel of Verizon. I am here to urge you not to support H.R. 1697 and H.R. 1698. Both bills represent bad antitrust policy. Even more important, they also represent bad economic policy for this country. These bills are based on two premises. The first is that telephone companies like Verizon have been impeding the competition that the 1996 Act was intended to foster. And, second, that new remedies are needed to deal with this bad conduct. Both of these notions are false. In recent years, we have heard numerous complaints from our competitors that we were failing to live up to the requirements of the 1996 Act. These competitors brought their claims to state regulators and to the FCC. This was done on a comprehensive basis as part of the section 271 process through which we obtained long distance authority in New York and Massachusetts. Many complaints were also pursued apart from those proceedings. The states and the FCC reviewed all these claims and concluded that we were complying with our obligations under the Act. Moreover, there are many opportunities under existing law if a competitor can show we violated the rules or impeded competition, and new remedies are, therefore, not required. Verizon has entered into "no fault" performance assurance programs, under which we make payments if the service we provide to competitors does not meet objective standards. The FCC has concluded that guarantee payments required by these plans are sufficient to give us the incentive to meet the standards. The FCC has the power to impose significant forfeitures for violations of the Act or its rules or orders. The FCC can suspend or revoke our authority to provide interLATA service if we fail to continue to meet any condition of that approval. A competitor can file a complaint if it believes that we have failed to adhere to our interconnection agreement. Nothing new is needed. Moreover, the changes proposed in these two bills are ill-advised as both antitrust and telecommunications policy. Just five years ago, Congress passed the Telecommunications Act of 1996. One of the primary motivations of many Members for working hard to enact this law was that the telecommunications sector was being regulated under the antitrust regime of the AT&T consent decree and that, they strongly believed, was bad for that sector and bad for economy. This Committee, in reporting H.R. 1528, wrote that "national telecommunications policy should be set by Congress acting through generally applicable legislation." (1) These bills would reverse that sound judgment. These bills would create an antitrust regime for a part of the telecommunications industry that is different both from the regime that applies to American industry generally and from that which applies to most sectors of telecommunications. It would also give the Attorney General extraordinary regulatory authority in the telecommunications industry, authority which that official does not enjoy in any other sector. This authority would include not just making judgments on the state of competition but also disbursing Federal loans and loan guarantees to providers of telecommunications services and establishing alternate dispute resolution mechanisms for parties to private contracts. These bills amend the antitrust laws and appear to be concerned about competition. However, both bills completely ignore the broadband providers that together have more than a 70 percent share of the residential broadband market - giant cable companies like AT&T - and focus entirely on telephone companies that are relative new entrants with a less-than-30-percent share. The focus of the bill on these companies is even more remarkable when you add the fact that the cable operators today exclude other Internet providers from their systems. If this Committee is looking for exclusionary conduct to remedy, I would urge them to look at these practices by the cable industry. H.R. 1697 Section 101 of this bill would give the Attorney General a veto over an Act of Congress. And unlike Presidential vetoes, Congress would not even get an opportunity to override that veto. If Congress decides to amend section 271 of the Communications Act to allow a Bell company to provide some form of interLATA service, the bill would permit the Attorney General to reverse Congress' action by finding that the Bell company had market power in the provision of wireline telephone exchange service. There is no reason that the Attorney General should be able to taketh away what Congress decides to giveth. The bill establishes 85 percent of business and residential subscribers as the definition of market power that requires the Attorney General veto. This approach makes no sense for several reasons. First, it effectively gives Bell company competitors control over Bell company entry. Second, it would give these competitors a reason not to pursue residential customers. Under the bill, a Bell company is deemed to have market power - and to be precluded from any new authority Congress affords - if its competitors have less that 15 percent of both business and residential customers. Our competitors already have every incentive to go after the relatively high value business customers and ignore residential consumers, and this bill would increase that incentive. Third, and more fundamentally, there is no logic in saying that a Bell company should not be allowed to provide Internet backbone services because it has a large share of the residential voice telephony market where it provides local service. Sprint has a large share of the residential voice market where it provide service, but no one has ever suggested that this fact should prevent Sprint from being an Internet backbone provider. The FCC has concluded that broadband and narrowband are separate markets, and there is no way that a large customer base in the narrowband market can give an firm an unfair advantage in the broadband Internet backbone market. Finally, this provision reverses one of the judgments made by Congress in the 1996 Telecommunications Act. In those debates, some urged that the new law establish a "market share test" for Bell company entry into the long distance business. This Committee rejected that approach, as did Congress overall. There is no reason that a market share test is makes any more sense today than it did five years ago. H.R. 1698 Section 2 of H.R. 1698 adds two new provisions to the Clayton Act that together constitute a radical departure from established antitrust law. New section 28 prohibits an antitrust court from dismissing a claim on the ground that defendant's conduct is subject to the Communications Act. It also allows a court to consider as a possible antitrust violation any conduct that violates the Communications Act or FCC rules. New section 29 goes one step further by making violations of certain Communications Act provisions per se antitrust offenses. It then goes on to prescribe a specific penalty for such violations, a penalty that may have nothing whatever to do with the offense - that the defendant carrier be prohibited from jointly marketing any advanced telecommunications service with any other telecommunications or information services. These provisions scrap years of antitrust jurisprudence, in which violations of regulatory statutes are not antitrust violations and certain regulated conduct cannot violate the antitrust laws. They also reverse Congress' judgment five years ago to deregulate the telecommunications industry, promote competition and empower agencies, rather than antitrust courts. There are many regulated industries in this country. Congress and the courts have long accommodated both the regulatory regime and the antitrust laws. Often, regulatory approval or oversight confers immunity from the antitrust laws. In other cases, adherence to regulatory mandates is a defense to an antitrust challenge. H.R. 1698 ignores this long history of regulatory- antitrust accommodation by removing any defense based upon the fact that the conduct was regulated. For example, one of these well-established principles is the filed-rate doctrine, which prevents courts from revisiting the reasonableness of a utility's rates once the utility has filed and received approval of those rates with a governmental agency. (2) Another is state action immunity, (3) which that alleged restraints that are supervised and approved by state regulators cannot violate federal antitrust laws. These doctrines make sense: the American public would be ill-served by regulators unsure of whether there would be judicial deference to their decisions, and by courts and juries poorly suited for determining permissible rates or practices in such varied industries as telecommunications, electricity and railroads. But H.R. 1698 casts aside this wisdom, favoring a regime in which any multiplicity of courts could second-guess the highly technical judgments of state and federal regulatory agencies. But, more important, these provisions are inconsistent with the regime Congress established only five years ago for this industry. The Telecommunications Act of 1996 opened local telecommunications markets to competition by imposing special duties on incumbent local exchange carriers. It established a carefully balanced system of privately negotiated interconnection agreements, state public commission and Federal Communication Commission supervision, and limited federal court review of agency decisions. All disputes over interconnection agreements were to be brought first to state commissions possessed of the technical expertise and regulatory experience needed to resolve these complex issues. But Congress did not simply conflate antitrust and telecommunications regulation. On the contrary, it imposed through the Act precisely the kinds of affirmative duties to help one's competitors do not exist under the antitrust laws. And the Act made an appropriate assessment of institutional competence by leaving regulation in the first instance to the regulators. This bill expands antitrust law well beyond what Congress or any court has found appropriate. Antitrust law exists to promote competition, not to protect competitors. It seeks to remedy competitive injuries, not trivial commercial ones. It deals with intentional or willful conduct, not failure to perfectly satisfy detailed technical regulatory requirements. And yet this bill would transform into per se antitrust violations minor commercial disputes that do not affect competition and without any showing of bad intent. With very narrow exceptions, antitrust law does not require an incumbent to aid a competitor. This is because the greater such a duty, the more likely the impairment of competitive incentives for both the incumbent and competitor, and the more likely the ultimate harm to the consumer. The Telecommunications Act, however, imposes many such duties on incumbents. The U.S. Court of Appeals for the Seventh Circuit recently recognized that Congress thereby limited antitrust law's application to telecommunications regulation: to use the court's words, the requirements under Sections 251, 252, 271 and 272 "are precisely the kinds of affirmative duties to help one's competitors that . . . do not exist under the unadorned antitrust laws." (4) Violations of these Telecommunications Act requirements, therefore, is not the stuff of an antitrust violation. Furthermore, using antitrust law to enforce the Telecommunications Act would discourage competitors from developing their own alternative facilities or services. Such concerns are particularly apt in the context of local telecommunications markets, because the 1996 Act's overriding goal, as Congressman Goodlatte stated years ago, is to "give new entrants the incentive to build their own local facilities- based networks." (5) Why should a competitor build its own network when it can obtain access to another's by wielding the weapon of an antitrust lawsuit? The answer has been self-evident to courts for a century, which is why they rarely, if ever, subject the type of duties imposed by the Act to antitrust scrutiny. So it is that " i ncreased sharing by itself does not automatically mean increased competition. It is in theunshared, not in the shared, portions of the enterprise that meaningful competition would likely emerge." (6) H.R. 1698 also risks protecting inefficient competitors and technologies in its expansion of antitrust. Suppose, for example, that a new entrant is faced with the choice of developing a new, wireless interface with a user's premises, or instead purchasing the incumbent's existing wire at cost. Even though development of the wireless interface might offer significant consumer benefit, development of such a system might entail huge sunk cost investment and much higher risk than reliance on existing technology. Using antitrust to broaden the sharing requirements of the Act thus diminishes the incentive of new entrants to innovate, and raises the risk that competitors will merely "free ride" on the incumbents' investments and innovation. Even if it were appropriate to slap the antitrust label onto any Telecommunications Act violation - which it plainly is not - H.R. 1698 would offer unclear-and hence unmanageable-standards to the courts. Section 28(a)(1) provides that a court "may consider" any Act violation in assessing anticompetitive or exclusionary conduct. What does this mean? It means that some courts may consider it; others may not. Of those that consider, some may find a violation to be conclusive evidence of anticompetitive conduct, notwithstanding the antitrust laws; others may find it to be merely suggestive. The smart competitor would now focus not on promoting new facilities and services, but on shopping for favorable fora. Conversely, Section 29(a), which demands courts find an antitrust violation whenever an carrier is found to violate certain sections of the Act, flicks away years of jurisprudence and usurps the judicial function. The Supreme Court has repeatedly made clear that violation of other legal duties is not an antitrust violation. Aside from the considered judgment of the Court, the fact that antitrust law since its inception never has presumed violation from such things as minor contract disputes should give you pause. In short, section 2 of H.R. 1698 is bad antitrust law. It's bad telecommunications law. And it's bad for consumers. Section 3 of the bill directs the Attorney General to establish a mandatory alternative dispute resolution process to resolve disputes arising under interconnection agreements. Verizon is eager to find ways to expedite the resolution of interconnection disputes. We support, for example, the provision in H.R. 1795 that establishes state arbitration of these issues, with a quick decision. We do not understand, however, why the Attorney General of the United States should be the person to set up a dispute- resolution mechanism for this part of the telecommunications industry. Broadband Policy Both these bills have the word "broadband" in their titles. However, other than the loan program in H.R. 1697, they have little to do with broadband services and do nothing at all to stimulate broadband deployment. The Internet is a wonderful tool that developed far faster than anyone could have imagined. Use of personal computers and dial-up access to the Internet fueled the growth the U.S. and world economy enjoyed in the late 1990's. This growth has now reached a plateau. More is needed now to move the economy to the next level. And that stimulus - stimulus to the economy as a whole - could be provided by greater deployment of high-speed broadband Internet access. Using policies for the Internet and broadband services that were intended for a local voice telephone market has slowed deployment of broadband, inhibited competition and slowed investment at the very time when we need every possible player involved to help advance the capabilities and capacity of the Internet. Two landline technologies provide residential consumers with high speed Internet access at a reasonable cost - Digital Subscriber Line (DSL) services and cable modem services. Only one of these services, DSL, is subject to significant federal regulation. Even worse, only certain providers of DSL - the Bell operating companies - are so constrained as to not be able to provide data services across LATA boundaries that were drawn with traditional voice telephone service in mind. If consumers are to get widespread deployment of high speed Internet services from competing providers, it is necessary for DSL services to be deregulated just like cable modem services. Current regulation hampers significant DSL deployment and denies consumers benefits. Existing federal regulations handicap Verizon's provision of DSL. The FCC has applied the section 251 unbundling and resale requirements to Verizon and other incumbent local telephone companies. They require Verizon to allow competitors to put their DSL equipment not only in our central office equipment buildings but also in small "remote terminal" boxes in local neighborhoods. They require us to provide not only unbundled lines from our locations to customers, but also "subloop" pieces of those lines. The FCC first required us to provide DSL-capable loops, then it required "line sharing" - allowing a competitor to use only a portion of the capacity of the loop almost for free to provide DSL service while Verizon provided the underlying basic telephone service. Now we are also required to "line split" - to arrange for two different competitors to share our lines, while we provide no service at all to the customer. The FCC is now considering requests from other carriers that we be required to provide our new DSL services to them at very low TELRIC prices - that is prices that are below our costs. If we have to do this, what incentive will we have to make the investments that make these services possible? And yet that investment is exactly what you and the public expect from us. The other characteristic of the regulatory landscape is uncertainty - participants and investors don't know for sure what the rules are. One federal court of appeals has held that cable modem service is a "telecommunications service" under the Communications Act; another has held the opposite. A third circuit court has found that comparable services provided by telephone companies are "telecommunications services." Whether Verizon must provide wholesale DSL services at discounts to their competitors and whether it must unbundle its retail DSL service are now before the courts. Our investment decisions, and the investment decisions of our competitors, will be effected by the actions of these courts and by the Commission's actions in response to them. If Congress wants to encourage broadband investment, it needs to set a clear, national broadband policy, and that policy must allow all competitors to play by the same rules. Thank you.

LOAD-DATE: May 24, 2001, Thursday