Copyright 2001 Federal News Service, Inc. Federal News Service
June 19, 2001, Tuesday
SECTION: CAPITOL HILL HEARING
LENGTH: 9112 words
HEADLINE:
PANEL ONE OF A HEARING OF THE SENATE COMMERCE, SCIENCE, AND
TRANSPORTATION COMMITTEE
SUBJECT: LOCAL TELEPHONE
COMPETITION AND U.S. MANUFACTURING
CHAIRED BY:
SENATOR FRITZ HOLLINGS (D-SC)
PANEL ONE LOCATION:
253 RUSSELL SENATE OFFICE BUILDING , WASHINGTON, D.C.
WITNESSES: REPRESENTATIVE EDWARD MARKEY (D-MA)
BODY: SEN. HOLLINGS: The committee will come to order. And we appreciate very
much our distinguished colleague on the House side, Mr. Markey, coming and
obliging the committee. As I understand, they have a very important hearing over
on the House side relative to the Firestone case. I invited first Chairman
Bliley, and he had a conflict. Then Chairman Tauzin and Congressman Dingell, but
they told me of the conflict -- and we'll have them at another time.
Otherwise, Senator McCain and others -- who started this
anyway?
SEN. : We were told that, Mr. Chairman.
SEN. HOLLINGS: Well, we'll put it back to where it was
before. We're not changing around just for TV, Sam. Don't worry about it.
Well, the truth of the matter is with 23 members we always
have to yield to the chairman and the ranking member for their opening
statements, but we are going to withhold -- not necessarily this morning,
because we're not crowded -- but when we get 23 members -- hold opening
statements to a minute in length. Otherwise I'll try to set an example by
putting my full statement in the record, and simply say that the 1996
Telecommunications Act was a very deliberate, studied deregulation. I've heard
about so-called being anti-Bell companies. But the truth of the matter, I
started deregulating the Bell companies myself back in 1991 as chairman when I
put in the bill to allow them in the manufacture. I worked on the bill 1822 for
a little over two years, and then when the Republicans took over the Congress in
'95 of course we had 652 and we adjusted the two bills and passed it finally in
February '96. But everyone should understand -- and the record should show --
that we had meetings of the Bell companies' representatives, their attorneys,
their K Street counsel. They came in every Friday, and the competition to long
distance, they came in every Tuesday morning over a two-year period, hammering
out the so-called 14-point checklist. In other words, when you deregulate and
allow let's say the Bell companies into long distance, we told the Bell
companies that they could get into long distance anywhere they wanted to in the
country except where they had a monopoly. And the whole idea was for those
meetings on Friday and Monday with all the parties, so there would be no hidden
ball tricks or anything of that kind, that they would hammer out what would be
reasonable and acceptable, because the main thing -- I had already experienced
deregulation in the airlines hadn't worked -- we have still the best
telecommunications system in the entire world. And the idea was to bring about
this deregulation in a studied fashion so we didn't mess up America's
telecommunications. It was the Bell companies who were begging for the
deregulation, to get into long distance and compete. So we provided the systems,
local exchange, be available with Section 251. And then in 271 they wrote it.
I'd like to go back home -- and I'm a politician -- and say I wrote it and
everything like that, but the truth of the matter is the Bells and the long
distance hammered this out, and that's why when we passed it we had 95 votes in
favor of it in the United States Senate.
So what we are
really looking at in this hearing that was set by Chairman McCain on local
telephone competition, is how do we get compliance with the deregulation. Simply
put, we know that instead of competing they question the constitutionality of it
immediately. It was a shock to me, because I had checked with my chairman, John
Clendenon (ph) with BellSouth in December before we had the final conference,
and I read to him the language that he was asking for, and he was down in
Florida and had already left for the Christmas holidays, and I said, "John, does
this suit you?" He said, "That's fine -- pass the bill -- we're ready to
compete." Instead they questioned the constitutionality. They took us to every
public service commission -- the Federal Communications Commission all the way
up to the Supreme Court, and has got even the chairman of the present Federal
Communications Commission saying the only way we are going to get compliance is
to double or increase the fines.
Let me yield to
Senator McCain.
SEN. JOHN MCCAIN (R-AZ): Thank you very
much. Thank you very much, Mr. Chairman, and thank you for having this hearing
on this important topic, and we welcome our colleague from the House,
Congressman Markey.
When the Telecommunications Act of
1996 was passed, its supporters hoped that its passage would let communications
companies from various sectors enter into each other's markets, thereby
stimulating an explosion of new competition in all sectors of the
telecommunications market.
This hope for explosion was
in turn expected to produce an abundance of consumer choice and lower consumer
prices for telecommunications services. (Coughing.) You okay? Was it something I
said? (Laughter.)
Unfortunately, we have not seen the
lower prices promised by the Telecommunications Act. We have consistently seen
prices rise since the act's passage. Local phone prices are up more than 12
percent. Take out long distance prices, and consumers are paying almost 20
percent more than in 1996. Cable rates are up almost 33 percent, which is almost
three times the rate of inflation. Moreover, I note that AT&T has recently
raised its basic long distance rates 11 percent, its third increase in basic
long distance prices since October of 1999.
These price
increases are caused by several factors, but the most important of these is
doubtless a lack of competition between various types of service providers. And
nowhere is this lack of competition more apparent than in the provision of local
phone service. In fact, according to the FCC's recent report on local
competition today, more than five years after the act's passage, CLECs are only
providing service on a little more than 8 percent of local telephone lines,
meaning that the Bell operating companies still control about 92 percent of the
local phone market.
Of course the CLECs and Bell
companies have dynamically opposed views about the causes of this lack of
competition. The Bell companies claim excessive subsidies and regulations make
the local consumer market unattractive to potential competitors, so they
encourage further deregulation. Some CLECs allege that anti- competitive conduct
by Bell companies and urge further regulation as a means of shoring up their
market capitalization.
This committee needs to probe
behind the rhetoric of the parties to discover a solution not to favor or punish
particular industry sectors, but to create competition and true competition that
will reduce prices for consumers. That has to be our goal, a pro- competitive
solution that will lower consumer prices. And, Mr. Chairman, I thank you again
for holding this hearing, and congratulations on your assumption of the
chairmanship of this committee. And, as always, I look forward to working
together as we have for many, many years. I thank you, Mr. Chairman.
SEN. HOLLINGS: Very definitely. We have continued to work
together.
And do you want to yield to Senator Lott,
because he might have to get to the floor.
SEN. TRENT
LOTT (R-MS): Well, I'll be very brief. Thank you very much, Mr. Chairman. Thank
you for having this hearing, and thank you to our colleagues in the House and to
the other witnesses who are here today. I am glad that we are having this
hearing, and I assume that there will be additional hearings on this important
subject.
SEN. HOLLINGS: Definitely.
SEN. LOTT: I will be brief this morning, because you have already said
that, gee, do we have to all have opening statements before we get to our panel?
So I'll be very brief -- just to say that you and I obviously did work together
on the Telecommunications Act in 1996, and were able to I think have a
breakthrough that has been positive. Our goal was more competition, better
access, and in some respects in some areas that has been happening. In others
not so much so. I think it is incumbent upon us to see if we need to take a look
at the act, see if it needs to be tweaked in some way, and make sure that what
we tried to accomplish in the Telecommunications Act actually is occurring.
And so since there is legislation that is in the process,
and moving some in the House, I think we need to learn more about what it does
and decide how we are going to proceed. So this is the beginning of a process
that allows us to do that, and I think you for that.
SEN. HOLLINGS: Very good. Senator Brownback?
SEN. SAM BROWNBACK (R-KS): Thank you very much, Mr. Chairman. And I too
want to congratulate you on holding this hearing. This is your first one as
chairman this iteration, this time around, on telephone communication and
competition, and it's an important topic, and I am glad you are doing it, and
ask that my full opening statement be included in the record as if read.
SEN. HOLLINGS: It will be.
SEN.
BROWNBACK: The one point I'd like to make is I would like to use this hearing to
examine something that has been a great deficiency, and that is the deployment
of broadband or high-speed Internet access, particularly into rural areas, and
into a number of urban areas as well. That's a great shortage that we have in my
state of Kansas. It's in my rural areas across the country that we simply are
not getting the high-speed Internet access. And I'd like to see why and hear
from the individuals that are here to testify today why we are not getting this
broadband deployment out into many areas across the country.
What needs to take place for us to get this? There are different approaches that
are coming forward. Some members are putting forward subsidy approaches. Others
are putting forward deregulatory approaches. Others are putting forward tax
credits. What I would hope we could do is seriously address this topic, because
it's becoming a business competitiveness or lack of it, in rural areas in
particular and in some urban areas as well. So I would hope that we could look
at that issue, which is one that is front and center, and a difficult one for
people in my state. I'll be looking forward to putting forth legislative
vehicles to try to deal with this need for broadband
deployment, particularly in a deregulatory framework.
With that, I look forward to the testimony, Mr. Chairman.
SEN. HOLLINGS: Very good. Thank you, Mr. Markey, we
appreciate your appearance.
REP. MARKEY: Thank you, Mr.
Chairman. I appreciate the invitation to appear before you today. This is one of
the longest standing discussions that we have had in the Congress. When I was
first elected in 1976, I arrived I think in the same way that most of us arrive
-- with a notion that the telephone company was a natural monopoly; that is,
there could only be one telephone company. And it took me a while and many
meetings with Bill McGowan (sp), the chairman of MCI, sitting in my office in
1977 and '78, trying to explain to me that there could be competitive telephone
companies. And I'll be honest with you -- for the first several meetings I had
visions of like four-foot telephone poles going down the street as we had a
start-up telephone company that would compete against AT&T. I couldn't
figure out how they would do it. How can a company compete against AT&T?
And then after a while it became clear that if you allowed
MCI, if you allowed Sprint, if you allowed dozens of other companies to have
access to the wires of AT&T and to the switches, and to the homes that they
serve, that they could provide a competing long distance telephone service. But
AT&T, a company with over one million employees, the largest company in the
United States, a monopoly, really refused to allow any competitors, any
realistic access to consumers. So, as a result, the federal government, the
Justice Department, beginning with Gerald Ford, through Jimmy Carter and then
through Ronald Reagan -- ultimately on January 1st, 1984, Judge Harold Greene's
(sp) decision went into effect, which called for the breakup of AT&T. So
that the regional Bell operating companies that still controlled the local loop
-- that is the seven Bells from BellSouth to NYNEX and PacBell and SBC would be
broken off, and AT&T would be left with its manufacturing and with its
information services and long distance.
And so now the
local Bells had no additional reason to discriminate against MCI and Sprint
since they no longer were in the long distance business. And what happened?
Almost immediately rates started to plummet. Choices started to be made
available to consumers all across the United States. And instead of the long
distance call being something special, as it was in my home, where your mother
would say to you, "You're on the phone with long distance -- you can't talk for
long!" Now it's no big deal. Now long distance is just another service. That's
what happened, because we ensured that MCI and Sprint could create the
competition which collapsed the rates that long distance had always presented to
the ordinary American family.
What else happened? Well,
because the Bells no longer -- the local Bells no longer controlled the
manufacturing, they no longer had a monopsony as well --that is that the Bells
used to be the only purchaser of equipment. And so if you made competing
telephones, if you made competing telephone equipment, why would the Bells buy
from you if they made their own equipment? My father used to say to me, "Eddie,
every cook loves the smell of his own food" -- although he didn't quite use that
phrase, a similar phrase to that. And the reality is that the Bells didn't buy
from anybody else. And so as a result, by 1977, when I arrived in Congress,
1980, I still had a black rotary-dial phone in my house, and just about every
one of us did as well, notwithstanding the fact that the Bell labs had been
winning Nobel prizes in basic telecommunications research, but because they had
a monopsony they didn't have a stake in developing new technologies for
consumers. But once the monopoly was broken up, once the monopsony was broken
up, as of January 1st, 1984, all of a sudden each of us in our own homes could
purchase any equipment that we wanted to. There was no longer this control over
the development of these technologies.
However, there
was one thing that was remaining: Each of us still thought that the provision of
local telephone service was a monopoly. How are you going to break that up? We
just couldn't figure that out. So we kind of allowed them to stay there under
rate of service, cost of service, their controls, with universal service built
in to reach the rural parts of any state. But we just couldn't figure out how to
do that. But the Bells almost immediately sought to get out from underneath the
restrictions. Let us into long distance, they said. Let us into manufacturing.
Let us into information services. And we had many hearings in the '80s and the
early '90s. And finally we cut a deal with them, at their request.
And the deal was this: If we allowed them into long
distance, which they had been prohibited from getting into since January 1st of
1984, they would open up their local phone markets to competition, because it
turned out that there were companies like McLeod and RCN and Covad and scores of
other companies that said, If you could just guarantee that we had access to the
local phones business, in the same way that you guaranteed to MCI and Sprint
that they could gain access to those customers for long distance, we will
provide local competition. And just to sweeten the pot, we actually threw in
free, no extra charge, the lifting of the restriction that the Bells were under
that prohibited them from getting into cable service. They promised that if we
lifted the restriction on them getting into cable that they would go out and
deliver cable competition all across the United States. And we passed that act
in 1996.
And Senator Lott, Senator Hollings and I, and
Tom Bliley, Democrats and Republicans, liberals and conservatives, we came
together on that legislation.
Now, as you pointed out,
senator, the first act of the Bells was not to comply with the act; it was to
take the act to court. SBC actually brought a case saying that the bill was a
bill of attainder; that is, it targeted a specific company or set of companies
and that the bill was illegal. Now, my memory is the same as yours. I remember
the CEOs coming in and begging us to pass the bill. It was just the opposite of
being a bill of attainder. It was their request that we grant them this relief,
and in turn they would accept the restrictions that were placed upon them that
forced them to open up their local loop.
As a result of
all the court cases, however, they delayed opening their local loop -- '96, '97,
'98, '99 -- they still haven't opened up a single state because they are in
court. Only in December of 1999 -- almost January of the year 2000 do they
finally accede, after having lost the court cases, to opening up New York. Now,
that's only a year and a half ago -- an act five years old, and people say, Why
isn't it working? Well, they went to court first -- and they also wanted to
consolidate. So the first thing they tried to do was, in addition to the court
cases, was to move from seven companies down to four, which is where they are
now -- economies of scale they said, synergies -- monopoly is another word for
it, but that's where we were. So only a year and a half has transpired. And
since that time we have had Massachusetts, we have had Texas, we have had Kansas
and we have had Oklahoma. That's it.
Now, they have
applications in in other states now as the local regulators and the FCC have
increasingly begun the process of ensuring that there is proper and timely
review of the applications, which they are finally making in these states.
So what has happened though since the '96 act has passed?
Sixty billion dollars worth of new investment by new companies in broadband deployment all across this country, hundreds of
competitors -- ISPs by the thousands, which now have access to millions of
homes. They are innovating. They are driving prices and service. If the Bells
had had their way, there would have been no access which they would have
granted, as of yet, to any of these homes for any of the competitors.
The bottom line on this is that what finally is driving
innovation and deployment of technology in this country is paranoia. It's the
paranoia of a competitive marketplace -- (inaudible) -- competition, Adam Smith
smiling-in-his grave competition, looking up at this marketplace that has
finally unfolded after 100 years.
And so we are at this
critical point right now where we have proven that you can provide local phone
service, local telecommunications competition. Now, we're only up to 7 percent
of all of the lines in the United States being controlled by the competitors,
but it's as a result of the 1996 act. So in the same way that in long distance
we saw a revolution, we're at the dawn of this local phone competition.
Now, the good news is that 52 percent of all American
homes now have access to broad-band technology. That's only since the '96 act
passed -- 52 percent. So it's moving fast, very fast, as fast or faster than the
long-distance revolution, remembering, however, that long distance was already
available, so there was a flick-of-a-switch quality to that. But the reality is
that the act is working, not perfectly, but in a way that ultimately has given
this incredible incentive to hundreds of companies to make investments.
We have a word for this phenomenon. We call it the Nasdaq.
So many of us look at the Nasdaq and say, "What are the names of all those
companies? I never heard of them before." And there's a good reason -- because
(before) the 1996 act, they didn't have access to the capital markets. There was
no incentive to deploy new technologies.
Now, there's a
little bit of irrational pessimism which has hit the Nasdaq over the last one
year. But without question, it has been for the last five years and it will be,
for the rest of our lives, the single most important revolution that affects our
society.
So I thank you, Mr. Chairman, for the
opportunity to testify before you today. And all I say to you is the bottom line
on the competitive local exchange carriers is that they lead to more job growth,
more innovation, lower prices, and ultimately more choices for consumers across
this country. And it's something that I think we should stay the course with
because it is a success -- not a success without some deficiencies, but a
success of historic proportions.
Thank you, Mr.
Chairman.
SEN. HOLLINGS: Well, Mr. Markey, that's an
outstanding statement. Let the record show that you were in the room when we
finalized, at the conference committee, on the 1996 act. And it might be well to
remember, at that particular time it was pretty well- designed act. I'll never
forget that the vice president came on that evening, right in the middle of Tom
Brokaw. I thought maybe the president had gotten shot, because Brokaw said,
"Wait a minute, folks. I've got a highly important announcement here from the
vice president of the United States." And so he came on and he said, "We've
gotten together on the telecommunications highway, and I got everything I
wanted."
When he said, "I got everything I wanted," Bob
Dole said, "That bill will never pass" and Newt Gingrich said, "That thing is
deader than Elvis." That was in the first part of December. And I had to hold
the hands of all the members of the conference until February without a change
of a word. But, I mean, he didn't get everything he wanted and that kind of
thing; it was just a political thing to put us all off.
But in any event, you hearken Bill McGowan. And the record also ought
to show that you're exactly right. You just made an outstanding statement that
jogged my memory. I'll never forget, he got a farmer's home loan and ordered to
finance two little things -- two-story little one-room proposition down here in
Georgetown with a couple of aerials up on top. That's how he started the
competition. And as to the equipment, I competed with the Bell labs trying to
get that telephone manufacturer in South Carolina. They got it in Raleigh, North
Carolina, but it's now out in Singapore, and maybe has moved to China. I hadn't
checked in a few years. But we're losing all of that.
But in any event, what you point out is the dynamism of the market and
the great success, because it's the weeping and wailing on the House side about
all this thing -- "It's a disaster. We don't have any competition. We've got to
change the law." All we've got to do is enforce the law.
Our problem was to not make mandatory Section 271. And, in fact, when I
saw the movement on the House side, I put in the bill a drop- dead date that
they comply with their own 14-point checklist that they wrote themselves, if
they'd only comply with that. And if they didn't by 2002, they had a certain
fine of thousands of dollars every day for non-compliance. But if they ever got
compliance there and really opening up, we'd have the competition.
So what has occurred? In Illinois, they've tried to beef
up and make more mandatory the different voluntary provisions. Or otherwise in
Pennsylvania, they say, "Well, we've got to have a structural separation where
it's more easily audited, wholesale from retail, to make them sell to the
retailers on a retail basis, the same as they're selling to the in-house
companies." But those are the real needs right now, as seen by (NARAC?).
All the state commissioners have come in and begged us,
"Don't mess up the act itself; it's working," except for the fact that they're
not complying. And the ones who begged for this thing are putting on a Broadway
act up here in Washington to the effect that, "Oh, no, this thing hasn't worked,
and what we need is data," and we never considered data, and those kind of
things. It's all out of the whole cloth. It's the biggest bunch of nonsense I've
ever heard of.
Senator Brownback -- or Senator Lott, do
you --
SEN. SAM BROWNBACK (R-KS): (Off mike.)
SEN. HOLLINGS: Yeah.
SEN.
BROWNBACK: On that note, Congressman Markey, you noted on the broad-band
deployment issue that there had been -- I think your figure was 52 percent
penetration. In the rural areas of the country, it's under 20 percent; it's
about 19 percent. And that's with one broad-band provider. It's not competition
or high-speed. There isn't two people competing. That's one out there. And so
it's been slow going into rural areas. That's an area that you may not have as
many in your district, rural areas, but a lot of us have large patches, large
swaths across the country.
I would hope that you could
work with us on that particular issue, because that's one where I want to make
sure that we have in rural areas in North Dakota or Mississippi or South
Carolina, Georgia, across the country, that high-speed Internet access and
deployment on an increasing, a more rapid basis. So I would hope you could work
with us on that particular issue.
REP. MARKEY: I know,
Senator, that on the next panel you'll have, amongst others, Clark McLeod, who
is the CEO of McLeod Communications, which is an Iowa company which focuses upon
rural America as part of its business (slant?). One of the things that I
remember most vividly about the 1996 act was the amount of time that Senator
Hollings and I spent in Senator Lott's office. And I would say that the single
most discussed subject was how to maintain universal service to rural America.
Senator Stevens was interested in it; Senator Lott, Senator Hollings; just about
every member of the Senate who talked about this issue.
I guess what I would say to you is this. For good parts of rural
America, competition is going to work. There is an incentive. It's -- again,
they're moving slow, because the Bells started slow. They decided not to move in
the competitive direction first but rather to consolidate and then to challenge
in courts.
Where, however, in the most remote parts of
rural America, there may be a solution which is necessary, I think that we can
discuss that in the context of some universal service-like provision, some tax
incentive, some solution. But it would be a big mistake, in my opinion, to
remove the incentives which have been built in that are driving the Bells to
deploy in urban and suburban and in good chunks of rural America already and to
replace that with something that would allow the Bells to remonopolize in terms
of their giving access to the competitive local exchange companies and to all of
the ISPs that are out there, now able to survive and potentially thrive because
of this '96 act.
So I think there is a solution,
Senator, but I think it should be done in the context of our historic
understanding that universal service is especially appropriate for the most
rural parts of the country.
SEN. BROWNBACK: And I hope
you would recognize that very point, because we've not left rural areas behind
before, whether it's on electrification or telephones. And now people need
access, high-speed access to the Internet. And this is not an area that we
should leave the rural areas behind. So I would hope that we could look at
focuses that could intensively focus in that area.
You
present a universal-service approach. I put forward a deregulatory approach.
Others have put forward tax credits. But we need to do something, because the
longer it languishes, the longer that rural areas are left vulnerable to
business moves or lacking of information or lacking access to the very means
that they need to have to be able to produce commerce, to be able to have
competitive goods and services out there.
REP. MARKEY:
By definition --
SEN. BROWNBACK: So I would hope you
would continue to work with us on these sort of topics, as I would hope that the
chairman would as well.
REP. MARKEY: By definition,
Senator, the reason that the telephone companies or electric companies don't go
to the most rural parts of America is that it's not economical. So in my
opinion, it's unrealistic to think that just because we allow them to wall out
the CLECs and the ISPs that they now are going to go to this uneconomical part
of the country. I don't think that's going to happen.
I
think what we should do is keep in place this paranoia-based competition policy
which drives them to serve every street in urban, suburban and rural America
that they can reach economically, and then to construct a policy that deals, as
we have historically done so, with the most rural parts of the country. And I
think we can do it. But it would be a big mistake to take off the books that
thing which has essentially created the Nasdaq, these hundreds and thousands of
companies that have changed the face of this information age and made us the
leader in the world, looking over our shoulders at number two and three in the
world over the last five years.
SEN. BROWNBACK: I don't
know that this needs to be constructed such that, you know, what you're saying,
that a certain group is walled off from the marketplace in order to try to get
at the problem that I think you would agree is there and that exists, and that I
think the chairman agrees exists in his state -- it certainly is in mine -- and
that we can maybe knock the straw man down and say, "Okay, here is the serious
business about what we need to deal with. It's a problem that exists, and we
want to get at it and we want to focus on that."
Thank
you, Mr. Chairman.
REP. MARKEY: Remember, Senator, I
mean, in Boston, I mean, my father --
SEN. BROWNBACK:
The major rural areas of Boston.
REP. MARKEY: -- and I,
we have been subsidizing the most rural parts of New England forever, and we
accept that. I mean, we do believe in the notions of universal service. But it
shouldn't be done at the expense of policies which also work for urban,
suburban, and the most densely populated parts of rural America.
SEN. HOLLINGS: There are no restrictions at this minute to go into the
rural areas -- none whatsoever. They can go in right this minute. In the real
world, that's why you've got the coops. I mean, it just wasn't economically
profitable, and so they just avoided it and neglected it, and that's why you've
got these strong coops. I'm, like you say, a rural state.
Senator Lott, you said (you want to pass?). Excuse me. Senator
Cleland.
SEN. MAX CLELAND (D-GA): Thank you very much,
Mr. Chairman. Let me just say it's a pleasure to welcome some dear friends;
Margaret Greene of BellSouth, based in Atlanta, and my dear friend Mike
Armstrong with AT&T.
Just on a philosophical note,
Mr. Markey, I wonder -- I've always had some reservations about total
deregulation or the wisdom of deregulation. It does seem to me that when you
deregulate, whether it's airlines, trucking, telecommunications or whatever, it
is the rural areas of our country that suffer, because there is no real economic
incentive to go there anymore, so to speak.
Under a
regulated environment, airlines went there under a certain tariff, trucking went
there under a certain tariff, and telecommunications went there, such as it was,
based on a regulatory environment. And I wonder if we're not reaching the outer
banks of the effects, the positive effects, of deregulation and running up
against the negative effects of deregulation. I've often thought that in the
telecommunications world, that we had sown to the wind and now reaping the
whirlwind; that we've reaped, in effect, the benefits of deregulation for 20
years; now we're running up against the hard part of it.
In my state, the hard part of a deregulated telecommunications
environment is that the people most in need of the new telecommunications
services are the ones most denied, for several reasons; first of all, expense;
secondly of all, distance; third, basically there's no economic viability there.
There's no "there" there.
I think back -- and the
distinguished chairman mentioned the coops. I think back to my state and the
whole question of electricity. How were we connected, first of all, in
electricity? Now we see connectivity with the Internet and the Worldwide Web and
connectivity with the telecommunications assets. But how is my state connected,
first of all, in electricity?
First of all, it was
Franklin Roosevelt that came in 1936 and threw a switch in Barnesville, Georgia
that created the REA, which was a government program, a regulatory environment.
And that has, in effect, created the coops that now serve rural Georgia. It's
not Georgia Power. It's Oglethorpe Power. It's a bunch of coops out there; and
TVA, all of which were basically started as governmental programs under a
regulatory environment. That's how we got electricity, first of all, in the
rural environment.
Now, I guess my question to you is,
where do we go from here? I mean, how are we going to -- it's one thing to have
competition in (Buckhead?), which is where I have an apartment and I have all
those assets. What is it, the Billy Joel song, you know, "Fifty Channels and
Nothing On." But anyway, the point being, I have a suburban friend who has
access to 500 channels. It takes him an hour and a half to surf the net.
(Laughter.)
I mean, the point is, we're overwhelmed
with choices in metropolitan Atlanta. But in Unadilla and parts like it,
basically two-thirds of my state area-wise, they're still struggling just to get
fiber-optic cable. They're struggling just to get hooked up to the Internet.
So how do we get, in this deregulated environment, how do
we get "there" there? How do we put the "there" there? How do we connect rural
America? Because there are so many disincentives to go there. Now, I don't see
the CLECs in my state just all of a sudden popping up in Unadilla either. I
mean, they're in metropolitan Atlanta as well. And so do you have any guidance
here for us as we consider some of these great challenges? I think the real
great challenge here we all face is how do we provide incentives to get out
there and connect all of our people?
REP. MARKEY: You
raise a very good point. First of all, it should be understood that DSL was
invented by the Bells. But until 1996, they didn't have any incentive to deploy
it because there was no competition in the marketplace. So it was no different,
really, than the black rotary-dial phone. It could sit there forever.
Only at the point at which competition was introduced did
the Bells begin to deploy DSL. And again, as I pointed out earlier in the
testimony, they took all of '96, '97, '98 and '99 to bring the '96 act to court
rather than to the marketplace. So they're a little bit behind; there's no
question about that. We really only have seen this in full deployment since the
beginning of the year 2000.
The key insight of the '96
act included was that the word shouldn't be "deregulated," Senator. That's
really a misnomer for what we did. What we did was demonopolize. Deregulation is
a concept which is possible to be implemented at a point at which there are
multiple competitors in a marketplace. Here we were faced with a situation where
there was one competitor, and so we had to demonopolize. And paradoxically, we
then had to put regulations on the books that would make it possible for these
dozens, these hundreds of competitors, to get into the market and to serve all
of these consumers.
So at this point, pretty impressive
-- 52 percent of all Americans have access to the technology, to DSL, to broad
band, to high-speed Internet. That's very impressive. By the way, 88 percent of
all Americans have access to the Internet itself; I mean, narrow band. And, by
the way, most Americans are never going to subscribe to broad band because they
don't need it, because most Americans use the Internet for e-mail.
Only at the point at which there is this ability to
download massive amounts of video in an economically viable way are we ever
going to see the average consumer even using broad band in their home. Right now
it's mostly businesses. When people get home, even though they've had it at
work, they still only really subscribe to narrow band. That's where most
Americans get it and have it today, as a matter of fact.
SEN. CLELAND: Mr. Markey, my time is up. I may just say that in order
to enhance incentives to go to rural areas, Governor Roy Barnes in the state
enacted the business expansion and support tax, which BellSouth, quite frankly,
is taking advantage of to upgrade their switches to accommodate high-speed
service.
So there are actions that government can take,
which is one of the reasons I'm fascinated about our panelists today. What
actions can we take to provide greater incentives to get into rural areas? But I
might say, it does seem to me that deregulation only tends toward monopoly,
because what I see in the airlines, in the trucking industry, and, to a certain
extent, in telecommunications, the greater the deregulation after a period of
time, the ultimate result of that is you wind up with two or three dominant
players, whether it's airlines, trucking or telecommunications. I just thought
that it does seem to me that the more you deregulate, the more you ultimately
tend, in the private sector, to end up with a monopolistic situation.
Anyway, Mr. Chairman, it's a fascinating hearing. Thank
you.
REP. MARKEY: Can I just briefly respond? Two --
one, the first point. In the most rural parts of America, it is possible to
construct, at a statewide level or a national level, a set of policies, tax
incentives, universal service, that ensures that there is deployment of any
technology out into those parts of the country. The analog is electricity. The
analog is telephone. We can do it as well for broad band if that is our
decision.
And on the second point is that in 1996, for
all intents and purposes, the telephone industry had 100 percent control, 100
percent control of the local marketplace. Today, after the passage and this
brief implementation period of the Telecom Act, the competitors now control 7 to
8 percent of all the lines in the United States. So we're heading in just the
opposite direction of some of these other deregulation analogies which you used.
And the protection which the consumer and competitors have is that there is an
act on the books. There is a 14-point checklist.
There
is a carrot which is held out there, which is that they cannot get into the
long-distance business, a $100 million business, until they open up their local
loop. And then it is up to the FCC and the state regulators to make that
determination. And although they have only now complied in five states, we
already see 7 percent of all the lines in the United States controlled by
competitors.
When we hit the 50-state level, if we hold
onto this act, if we ensure that the state and federal regulators implement it
and we don't repeal it, which is what many people are proposing, then we will
see a dramatic increase in the total lines that are controlled by competitors
and see just the opposite of what happened in the trucking or in the airline
business. So we have just the opposite situation. We actually put the law on the
books to break it up. We haven't done that yet in airlines. We haven't done that
in other industries. We've done it here. And I would just say that our best
course is to stay the course.
SEN. CLELAND: Thank you
very much, Mr. Chairman.
SEN. HOLLINGS: Senator
Dorgan.
SEN. DORGAN: Mr. Chairman, thank you very much.
Congressman Markey, this must be therapeutic for you to come over and --
(laughter) -- and be able to say in front of the Senate what I've heard you say
so often. You've been --
REP. MARKEY: Well, as you
know, my wife is a psychiatrist, so I say it to her at night. So this is great.
(Laughter.)
SEN. DORGAN: I should say, it's actually
therapeutic for us to have you sit there so we can talk about these issues. Let
me just follow my colleague's lead on that and make a couple of remarks and then
ask you a question. I'm actually pretty tired in the morning getting up and
shaving, and I have a television set on, and hearing advertisement after
advertisement after advertisement about Dingell- Tauzin, sounding kind of like a
foot powder or something that'll cure everything -- (laughter) -- cure
everything from hiccups to the gout. But Dingell-Tauzin every morning,
Dingell-Tauzin.
Well, let me try to describe where I
think we are. We passed the Telecommunications Act. I thought it was a pretty
good bill. I don't think we ought to take it apart at this point. I think a
couple of things have intervened. One, we've had an FCC that's made some bad
turns, some wrong turns, and probably drug their feet for some while, you know,
in terms of the implementation of it. The FCC must be a referee in a
circumstance like this, and I think in some respects doesn't do as good a job as
we'd like. Secondly, some companies took this to court, delayed its full
implementation.
But as I see it, there are two issues.
One is the ability for consumers around this country to have competition in the
local exchanges. And while I think that there's been some small amount of
progress, it is infinitesimal. And we need to get at the business of giving
people around this country the opportunity to see competition in local
exchanges. If you take away the business lines, in terms of residential, I think
you're talking only 3 or 4 percent of the people in this country that have that
choice, and the incumbents control about 96 percent or so. So we've not made
great progress there.
Second, they build out of
advanced services all across the country. That's going to happen in rural areas
only when you have universal service support. The investment stream necessary to
support the build-out of that infrastructure for advancing services will occur
only to the extent the FCC understands that universal service was intended by us
not to be capped. It was intended by us to be a mechanism by which all Americans
would have universal access to all of the technologies in the services.
So I think that we're in a situation at the moment where
things have not gone as well as we had hoped. The solution is not to take apart
the '96 act. The solution is to make sure the '96 act works as we intended it to
work. And we intended it to work in a manner that allows a checklist for the
incumbent local exchange carriers to meet the checklist, after which they are
free to go into long distance inter lata. But when they meet the checklist, it
means the competitive local exchange carriers will be able to come and compete.
And competition is when you have a number of firms competing over price and
service and you have robust competition.
We have a
market system that is clogged at this point. The arteries of that system are
clogged and it doesn't work right. And so some say, "Well, let's just pass
Dingell-Tauzin." In my judgment, Dingell-Tauzin is going to get slowed way, way
down when it gets here to the United States Senate, and should get slowed down.
I don't think the Senate is prepared to pass the Dingell-Tauzin Act. But what we
should do, it seems to me, is try and evaluate what hasn't worked and how do we
put it on a track to make it work.
Now, Congressman
Markey, with those comments, very briefly, tell me the two things you think we
can do, dealing with establishing once again the need for competitive local
service in the local exchanges, and second, the build-out of advanced services
to rural areas?
SEN. LOTT: Senator, would you yield
just for one moment?
SEN. DORGAN: Of course.
SEN. LOTT: I'm concerned because I fear that those who
have been running these ads may double their buy, because apparently they
haven't gotten through to you. It's Tauzin-Dingell. (Laughter.) It's
Tauzin-Dingell.
SEN. DORGAN: And that's why I thought
it had something to do with foot powder -- Tauzin-Dingell. (Laughter.) Well, it
goes to show my attention deficit in the morning. But I have just enough
attention to understand it's annoying. (Laughter.)
Congressman Markey, I've asked you a question.
REP. MARKEY: I think saying it Dingell-Tauzin is anticipating, Senator,
a five-seat switch in the House. (Laughter.) It's anticipatory.
SEN. DORGAN: Something we have experience with.
REP. MARKEY: Yeah. So, again, the act is working. As each Bell in each
state applies to the federal government, the federal government at the FCC then
relies upon the state public utility commission to determine whether or not the
checklist has been met.
I think that if the message is
sent from the Senate that the act is not going to be changed, then the Bells no
longer have an incentive in delaying in their applications being sent to the FCC
and to the states, because there won't be any relief from the requirements. If,
however, there is a sense that the Senate may change the act, then they don't
have an incentive to comply, because they will be relieved of the
responsibilities.
So there's a regulatory uncertainty
which has been introduced into the marketplace by the introduction of this
legislation. It hurts these competitive companies in the capital markets and it
hurts them in the sense that the four Bells don't have an incentive to fully
comply at the state level with the opening of their market. So I think the first
and most important thing that can happen is that a signal be sent that there
will be no changes. As a result, the Bells have a higher incentive to more
quickly comply with the 14-point checklist and we'll see more competition.
With regard to rural America, again, they have already
been the beneficiaries of this competition policy. It may only be 20 percent of
rural America thus far, but again, remember, that has happened in a relatively
short period of time. To the extent to which all of rural America -- that is,
the parts of it that are very difficult to reach -- need a special policy, I
think that we can construct one, looking at tax incentives, looking at universal
service, looking at state/federal cooperation to effectuate that end.
But I don't think that we should tamper with the
underlying principles of the act, which have created hundreds, thousands of
companies which have revolutionized information services in this country and
across the world. I think that that would be the biggest mistake which we could
make.
SEN. DORGAN: Mr. Markey, my time has expired. But
let me just, Mr. Chairman, mention in Minot, North Dakota, there's a company.
It's a rural telephone coop called Source River Telephone which actually bought
the exchange from the old Northern States Power. And they took Minot, which is
about 40,000 or 50,000 people, and all the small towns and the farms in their
entire service area and they've decided, "As a cooperative, we're going to build
out advanced-service capability to everybody." All of Minot is now able to
achieve advanced services if they want to do so under this system. Small towns
30 miles away can. And in September, using the wireless approach, this company,
this rural telephone coop, has said, "Everybody in our service area is going to
have advanced-service capability."
It is a matter of
will for those that want to do it. And I will say the large carrier in our state
that provides local exchange service has not had that will. In fact, they've
wanted to sell some of their exchanges and not invest in others. And I'm very
concerned about what is happening in larger towns than Minot where people don't
have the same capability because the will doesn't exist by those that are now
serving it. That's why I'd like to see a strong, good burst of competition all
across this country in these areas.
Mr. Chairman, thank
you very much.
SEN. HOLLINGS: Very good. Senator
Carnahan. Turn on that -- yeah, go ahead.
SEN. JEAN
CARNAHAN (D-MO): I want to thank you for inviting me to participate today. I'm
very much looking forward to rejoining this committee at the appropriate time.
I'm pleased that the committee has convened this hearing to examine what is an
extremely important issue of competition in local telephone markets.
It seems lately that, as Senator Dorgan pointed out, you
can't turn on your television or open the newspaper without being deluged by
messages promoting competing theories about the roll-out of high-speed Internet
services. The debate, however, is fundamentally about contrasting views
concerning the proper interpretation of the Telecommunications Act of 1996. And
although I was not here when that legislation was crafted, I do believe strongly
in the importance of its overall goal -- to encourage competition in local
telephone markets. Robust competition is good for consumers. It's good for the
economy. Competition helps to forge breakthroughs in technology as well.
Consumers have already reaped the benefits of competition
in long-distance services, and we need to ensure these same benefits are
available in local markets as well. These are certainly extremely complicated
issues that have tremendous implications for consumers in Missouri and across
the nation. Our panelists today, I'm sure, will have a diverse set of viewpoints
concerning the state of local competition, and I'm looking forward to a lively
and insightful discussion with them.
But I might ask
Mr. Markey this question. I had noted that Chairman Powell has said that he
thinks the FCC needs to be able to levy larger fines against incumbent carriers
when they do not comply with the act. Do you agree with that assessment? And if
so, do you think that larger fines will suffice?
REP.
MARKEY: I do believe that larger fines are necessary -- much, much larger fines.
But I do not believe that we should have the fines collected any longer go to
the federal government. I believe that the fines should then be given over to
the companies that were harmed so that there's a jeopardy which is run by the
Bells if ultimately a decision is made against them whereby the companies that
were harmed actually got the money and not the federal government, and as a
result, become more competitive.
So it makes it a much
more dangerous game for the Bells to engage in if they wind up being the source
of funding for their competitors if a decision is made that a fine should be
levied. Right now that is not the case. Otherwise what we wind up with is kind
of a posthumous vindication by the competitor as the fines are collected by the
federal government but not handed over to the company.
So, yes, I do believe that fines are necessary. I do not believe that,
in and of themselves, they are sufficient because these companies do want to
compete. And only if there is a full implementation of a 14-point checklist will
there be full competition in the marketplace. So stronger fines that go to the
competitors, not to the federal government, coupled with a full implementation
of the 14-point checklist, will be a formula which will guarantee the consumers
will get choice in the marketplace.
SEN. CARNAHAN:
Thank you very much.
SEN. HOLLINGS: Good. Mr. Markey,
my only regret is that we didn't have all 23 senators here on the committee to
hear your testimony. You know, when they don't have roll calls, then they don't
come in. And that's unfortunate. And we're going to have to have you back. You
are the more informed member, or most informed member, I should say, on
telecommunications in the Congress. And we can't thank you enough for coming
over here. And just tell our friend Billy, when you see him -- he's having those
Firestone hearings -- tell him the tread has come off of the monopoly tire --
(laughter) -- over on the Senate side.
REP. MARKEY: Can
I say one final word?
SEN. HOLLINGS: Yes, sir.
REP. MARKEY: Thank you. And I appreciate the honor to have
been asked to come and testify before you. In my opinion, in summary, there are
three key reasons why we don't need a change of law, especially the proposal
which is being touted on television that Senator Dorgan referred to.
First, it's unnecessary. There is competition in the
marketplace today. It's very vigorous. It has been hurt by the marketplace. It
has been hurt by the potential that new legislation could pass. But there is
tremendous competition out in the marketplace. So it's unnecessary in terms of
the new legislation.
Second, it's unfair. It's unfair
to all of these companies, the hundreds, the thousands of them that have gone
out into the marketplace and raised all of these tens of billions of dollars, to
change the rules halfway through the game.
And third,
it's undigital. It's undigital to argue that it's possible to separate the 0s
and 1s of voice and data and video. It can't be done. The very point of
everything that we're trying to accomplish is that there is a convergence. And
so they're setting up a proposal that is, from a regulatory perspective,
impossible to ever monitor, because you can't take out the 0s and 1s of voice
from the 0s and 1s of data. And that's why we have the restriction on the books.
Once they're allowed into long distance, they're allowed in for voice and data.
But you can't say that they're just in for data but not for voice, because a
regulator cannot separate them.
So in my opinion, the
CLEC slump means that prices have started to rise, that the DSL prices are up,
cable-modem prices are up, cable programming rates are up. If we don't
reinvigorate competition by letting the marketplace know that this act is going
to be implemented, then the new economy will suffer.
There is a misunderstanding that I think is thought to be created is
that it's a battle between the cable guy and the telephone guy for the future.
It is not. That is a false choice. It's a choice between the cable guy, the
telephone guy and hundreds of other companies who are finally allowed in -- ISPs
and CLECs that are invigorating competition that both of these monopolies
historically have not been subject to.
And those are
the primary beneficiaries; that is, those companies, combined with the consumers
that now see deployment of technology that they otherwise would never have seen
from either the cable or the telephone guy. And so keep those people in mind,
because those are the real entrepreneurs. Those are the little guys. Those are
the people taking risks. Those are the technologists. Those are the people who
are changing our country. And when you consider this act, consider the impact
which it will have upon them.
Document 25 of 55. 