Copyright 2001 Federal News Service, Inc. Federal News Service
April 25, 2001, Wednesday
SECTION: PREPARED TESTIMONY
LENGTH: 2809 words
HEADLINE:
PREPARED TESTIMONY OF THOMAS TAUKE SENIOR VICE PRESIDENT, VERIZON
COMMUNICATIONS
BEFORE THE HOUSE COMMERCE
COMMITTEE
SUBJECT - INTERNET FREEDOM AND BROADBAND DEPLOYMENT ACT OF 2001
BODY: Mr. Chairman, thank you for this opportunity
to testify before the Committee. I am Tom Tauke, Senior Vice President for
Public Policy and External Affairs at Verizon Communications. I am before you
today in support of the Internet Freedom and Broadband
Deployment Act of 2001 and to tell you that, without changes in the current
regulatory regime, the deployment of high speed Internet access will be
significantly impeded, to the detriment of the American economy as a whole and
all Americans.
Mr. Chairman, 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.
The current infrastructure on which the Internet rides has proven
insufficient to handle the explosive growth. To stimulate the infrastructure
investment that is required, policy-makers must stop applying old regulatory
models to this entirely new, competitive technology. As the recent economic
indicators have shown, the consequences of this policy are very serious. The
entire Internet economy rests on the ability of businesses to reach consumers
and to reach each other. Without broadband deployment, many
local communities will never realize the promise of highspeed Internet, and
Internet companies will not be able to reach their markets. This has had and
will continue to have a serious impact on the value of the Internet economy
itself and the economy at large.
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.
The opponents of this legislation will talk about everything but
broadband services. They will tell you their stories about narrowband local
service competition and about voice long distance. But this bill is not about
narrowband or voice long distance. This bill will not change the marketopening
provisions of the 1996 Act or the section 271 tests that Verizon and the other
Bell companies will have to pass if they are to provide voice long distance
services. What the bill will change is mics that were never intended to apply to
the Internet world in the first place and, in doing so, will allow more
resources to be devoted to meeting consumers' needs for broadband services. That
is why I urge you all to support this legislation.
THE
STATE OF THE INDUSTRY
As recently as a few years ago,
the American people knew nothing of the Internet. Electronic commerce was all
but unknown. In 1995, when Congress was re-writing the Communications Act,
revenues generated by the Internet were a mere $5 billion. Since then, the
growth of the Internet has been astounding, far outstripping everyone's
predictions. Last year, Internet revenues rose to an astronomical $130
billion.
With this growth, there has been increasing
demand for bandwidth and speed. The 56k modems that were fast a couple of years
ago now seem to crawl. Consumers who have gotten used to high-speed connections
at work want the same speeds when they go online at home.
This problem is exacerbated in rural areas and other locations that are
distant from backbone connections or hubs. Even where backbone exists, such as
in major urban centers, it is often congested. Many Internet providers have no
way to get then' data traffic to the backbone efficiently and without numerous
back-ups and delays. Many are simply located too far away from convenient
backbone connections. And when they do get to the backbone, they find that the
lack of adequate capacity slows their customers' service.
If any leg of the transmission is slow, the consumer cannot enjoy the
benefits of high-speed Internet service. Without this speed, some of the more
exciting applications for education and telemedicine involving video, for
example, are impossible. We need competition and investment in the Internet from
end-to-end- from the local connection to the nationwide and global backbone.
Without it, whole new industries based on a more advanced Internet will be
stymied and the continued development of our high tech and computer industries
will be slowed. The Internet drove the growth of the high tech sector, and it
can drive it again, if we change the regulatory regime that now inhibits
investments by some of the most logical players.
Today,
the two landline technologies that provide residential consumers with high speed
Internet access at a reasonable cost are 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 (BOCs) -- 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 axe 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.
The Broadband Marketplace
Broadband services are different from narrowband services
and constitute a separate market. As the FCC found in analyzing the AOL- Time
Warner merger, "Residential high-speed Internet service constitutes a discrete
market that must be considered separate from the residential narrowband
market."1
This market is already competitive, as the
FCC has repeatedly held. For example: "The record before us, which shows a
continuing increase in consumer broadband choices within and among the various
delivery technologies -- xDSL, cable modems, satellite, fixed wireless, and
mobile wireless, suggests that no group of firms or technology will likely be
able to dominate the provision of broadband services."2
Local telephone companies like Verizon are not the dominant providers
in this market in fact, they are the new entrants. Cable operators serve more
than 70% of all residential broadband customers, offering these customers
high-speed local access bundled with the service of an affiliated ISP.3 Local
telephone companies are newer entrants in the residential broadband access
market, challenging the dominant market position held by cable operators. In
addition, local telephone companies must make substantial improvements to their
networks to provide residential broadband access.4 As the FCC has recognized,
"traditional telephone" networks "are not ideally suited for broadband.
"5 Specifically, the Commission has found that "variations
in legacy outside plant conditions can limit access to certain end-users even in
upgraded areas."6 For example, ADSL service cannot generally reach customers
whose loops exceed 18,000 feet or are routed through a Digital Loop Carrier.7
Further, "in contrast to an upgraded cable network, which can offer upgraded
service to all homes it passes, LECs must 'condition' each end-user's line by
removing ... devices that were used to enhance the quality of voice traffic over
the copper."8 The necessary improvements to the telephone network will require
substantial investments.
THE REGULATORY LANDSCAPE
Cable operators started first, are ahead in deployment and
have more customers than local telephone companies. And yet cable is
unregulated, while telephone companies are burdened with a set of rules that
were designed for the voice business and that make no sense at all in this
marketplace.
This regulatory disparity has a direct
effect on the market. Observers note that "DSL is a long shot to seize the lead
now" in part because "archaic regulations that forced DSL players to adopt a
wrong-headed structure from the get-go? "Even if the FCC acts quickly (to free
the Bells), it isn't clear that DSL, in such turmoil, can keep pace with
cable."10
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 then'
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.
THE CELLULAR EXPERIENCE
There is
a better way. And it is not to heavily regulate telecommunications services.
Arguably, one of the greatest success in this industry in the last twenty years
is the growth of wireless services, but that success came only after regulation
was disposed of and the marketplace was allowed to operate.
In March 1982, the FCC created commercial cellular service,/11 and
service began in 1983. No one at that time predicted cellular's fantastic
growth. In fact, at the time of the breakup of the Bell system, it was unclear
as to whether AT&T or the BOCs would inherit AT&T's cellular spectrum
licenses. AT&T had predicted that cellular subscription levels would reach
one million by 1999. In reality, cellular subscribership reached that level in
1987, and at the end of 1998, there were 69,209,321 wireless subscribers in the
U.S.12
Wireless growth was slow at first. By the end of
1988, there were approximately two million cellular subscribers in the U.S. with
an average monthly cellular bill of $98.02. At that point, the FCC made an
effort to significantly deregulate cellular service.14 Within four years of the
FCC's deregulatory effort, cellular subscribership reached 11 million, while the
subscriber's average monthly bill dropped by nearly 30 percent.15
A second major deregulatory effort was undertaken by
Congress in 1993. In the Omnibus Budget Reconciliation Act of 1993,/16 Congress,
to a great extent, deregulated the cellular telephone industry. In the next five
years, wireless telephone subscribership rose from 16 million to 69 million,
while the average monthly bill dropped by nearly 50 percent./7 Today, there are
more than 100 million mobile customers in this country, paying as little as $15
per month for basic service. Wireless long distance service has become so
inexpensive that about 40% of mobile phone users make long distance calls on
their cellular phone while they are home.
Regulation
was not necessary to keep prices reasonable -- the market did that. In fact,
regulation actually raised cellular prices. During FCC proceedings, a Cellular
Telephone Industry Association study showed that cellular prices in regulated
states averaged 17% higher than the prices in unregulated states. It also found
that cellular penetration and cellular growth is lower in regulated states than
in unregulated states.18
The inescapable conclusion is
that the cellular industry -- and cellular consumers benefited greatly from
deregulation. In a deregulated environment, subscribership rose and prices
dropped.
The high-speed Internet market today is in a
similar position today as the cellular industry was more than ten years ago. Of
the more than 60 million U.S. Internet households, 5.5 million access the
Internet via high-speed cable modem, and only 2.3 million use xDSL technology
for high-speed Internet access. Adoption of deregulatory measures, such as those
contained in the Internet Freedom and Broadband Deployment
Act, will permit telephone companies to provide xDSL technologies at a more
rapid pace, hopefully with the same results as deregulation of the cellular
industry: more consumers accessing the technology for lower costs.
CONGRESS NEEDS TO ACT NOW
The FCC
cannot solve the problem of regulation that inhibits broadband
deployment and skews the competitive marketplace -- Congress must do that.
The longer the delay, the longer consumers will have to wait for services they
want and the longer the economy will have to wait for the boost that these new
services would surely produce. The authors of this bill want to free the
Internet from the LATA constraints that were established for the voice telephone
network nearly twenty years ago. They want to remove burdensome regulation that
discourages innovation and deployment in data services. And they want to put
telephone company broadband providers on a more level competitive playing field
with cable. These are all worthy goals. I urge you to start the process and to
take up and report out the Internet Freedom and Broadband
Deployment Act without delay.
Thank you.
FOOTNTOES:
1 FACT SHEET: FCC's
Conditioned Approval Of AOL-Time Warner Merger at 3, dated January 2001.
2 Rulemaking to Amend Parts 1, 2, 21, and 25 of the
Commission's Rules to Establish Rules and Policies for Local Multipoint
Distribution Service and Fixed Satellite Services, 15 FCC Rcd 11,857, at Para.
19 (2000).
3 On February 22, 2001, Precursor Group
reported that 73 percent of residential broadband service was provided by cable
modems. How Broadband Deployment Skews Economic/Business
Growth at 1, dated February 22, 2001. According to data released by the
Commission in October, cable operators control 70% of all "residential and small
business highspeed lines" -- a total that understates cable operators' share of
the residential market by including a class of business customers largely served
by DSL. Industry Analysis Division, Common Carrier Bureau, High-Speed Services
for Internet Access: Subscribership as of June 30, 2000, at Table 3 (Oct.
2000).
4 Inquiry Concerning the Deployment of Advanced
Telecommunications Capability to All Americans, Second Report, CC Docket No.
98-146, at Paras. 31.35 (Aug. 21, 2000) (Second Advanced Services Report").
5 Inquiry Concerning the Deployment of Advanced
Telecommunications Capability to All Americans, 14 FCC Rcd 2398, at Para. 46
(1999).
6 Second Advanced Services Report Para. 31.
7 See id. Paras. 38, 40.
8 Id.
Para. 39.
9 Technology: Highway to Hell, Forbes, dated
Feb. 19, 2001, at 98-99.
10 Technology: Highway to
Hell, Forbes, dated Feb. 19, 2001, at 100.
12 CTIA Semi-Annual
Wireless Industry Survey Results.
13 Id.
14 Amendment of Parts 2 and 22 of the Commission's Rules
to Permit Liberalization of Technology and Auxiliary Service Offerings in the
Domestic Public Cellular Radio Telecommunications Service, Report and Order, 3
FCC Rcd. 7033 (1988), recon. in part 5 FCC Rcd 1138 (1990).
15 CTIA Semi-Annual Wireless Industry Survey Results.
16 Omnibus Budget Reconciliation Act of 1993, Public Law 103-66.
17 CTIA Semi-Annual Wireless Industry Survey Results.
18 The Cost of Cellular Regulation, Jerry Hausman,
McDonald School of Economics, MIT, January 3, 1995.
Document 48 of 55. 