Copyright 2002 Federal News Service, Inc.  
Federal News Service
March 20, 2002, Wednesday
LENGTH: 25405 words

HEADLINE: HEARING OF THE SENATE COMMERCE, SCIENCE AND TRANSPORTATION COMMITTEE
 
SUBJECT: HEARING ON H.R. 1542, THE INTERNET FREEDOM AND BROADBAND DEPLOYMENT ACT OF 2001
 
CHAIRED BY: SENATOR ERNEST F. HOLLINGS (D-SC)
 
LOCATION: 253 RUSSELL SENATE OFFICE BUILDING, WASHINGTON, D.C.

WITNESSES:
 
REPRESENTATIVE W.J. "BILLY" TAUZIN, CHAIRMAN, COMMITTEE ON ENERGY AND COMMERCE, UNITED STATES HOUSE OF REPRESENTATIVES;
 
REPRESENTATIVE JOHN D. DINGELL, RANKING MEMBER, COMMITTEE ON ENERGY AND COMMERCE, UNITED STATES HOUSE OF REPRESENTATIVES
 


BODY:
REP. ERNEST F. HOLLINGS (D-SC): The committee will come to order.

We're pleased this morning to have our hearing on H.R. 1542, the Tauzin-Dingell measure. It's been sent over from the House side. I'm going to put this long statement that the staff have prepared for me to cover all bases, and let me just try to cover one. I notice that Chairman Tauzin says that he wants to be sure that there is not a monopoly or monopoly control, and that the users will not be, as he said -- suffer the penalties on monopoly unregulated service.

I have the same concern and I'm going to agree in a sense with my distinguished ranking member that the '96 Act hadn't worked, in that we have yet to take the major player, the Bell company, and deregulate it. We thought at the time that we would use just exactly what Judge Green had used in the long distance market. He required that AT&T sell at wholesale and there develop some 500 long distance carriers, got to be very competitive. AT&T actually downsized, made a bigger profit and we saw the benefits of competition. However, we were totally deceived in that there has been really no effort whatever to get into the Internet services, the Broadband service until recently, until some competition by the cable because they've been holding on to their monopoly.

Let me give the representations that were given us at the very time in February '96 when John Clendenin, the chairman of Bell South, said and I quote: "intends to aggressively compete for our customers' long distance business. We are going full speed ahead and immediately offering Bell South long distance service to our satellite customers, and within a year or so we can offer long distance to our residential and business wire line customers, U.S. West." Ahead of that I quote: "Customers have made it clear they want one stop shopping for both their local and long distance service. We are preparing to give them exactly what they've been asking for. U.S. West will be able to reach a reasonable solution on the bill's checklist requirements in the majority of its states within 12 to 18 months."

Then same with Ameritech Bell Atlantic. "The bipartisan bill" -- this is Jim Cullen(ph), and incidentally he was the negotiator for the seven Bell companies that I worked with over a three year period: "This bipartisan bill could enable you to do one stop shopping for your local and long distance phone service, cable service, Internet access service. In short, we move ever closer to the wondrous promise of the information age and look to Bell Atlantic to take you there. The company would start offering long distance service outside its traditional region immediately and inside its region within a year."

Nynex -- again, Seidenberg: "Nynex will offer one stop shopping for a full array of communication services, local, long distance, wire line, wireless, Internet, video entertainment, information services and customers will be able to package what they want the way they want it."

PacBell, I quote: "Pacific Telesis said it plans to be in the long distance market in 10 to 12 months." And then SBC: "SBC's incentive is the freedom to enter markets such as long distance, that have been closed to us since divestiture. The key to achieving that freedom is opening the local telephone market to competition."

And that's exactly what is guaranteed by 1542, namely that it remain closed, and that's why it's not working. That's our problem today. I'll include in the record here that 91 percent -- just put out by the Federal Communications Commission, they still have 91 percent of the last line.

And finally, to make the point, none other than I quote Chairman Tauzin on page 576 of the Congressional record just a few weeks ago when the bill passed the House. He was talking to Sensenbrenner, quote: "He and I are equally committed to watch carefully the performance of these companies and others, to make sure that consumers have the benefits of competition and not the penalties of monopoly unregulated service."

That's what we have is monopoly unregulated service and they're about to extend it to Broadband, where we've got dynamic competition. Eight percent of the country has got it. They don't subscribe to it, but that's the problem and in that sense Chairman McCain and I agree with you. It hadn't worked. That's been the big bottleneck. I yield to Senator McCain.

SEN. JOHN MCCAIN (R-AZ): I thank you, Mr. Chairman, and I thank you for your commitment for many, many years to provide telecommunication services to all Americans at a lower price.

If there's been a failure, it has not been because of your lack of effort and dedication to this proposition, as you and I have worked together for many years. The majority of our agenda is taken up with telecommunications issues and that is of a committee that has very wide and broad jurisdiction, but there are no more vital issues to the future of this country.

In 1996 Congress passed the first major overhaul of telecommunications policy in 62 years. Supporters of the Telecommunications Act argued that it would create increased competition, provide consumers with a variety of new and innovative services at lower prices and reduce the need for regulation. My principal objection to the Act at that time was that it fundamentally regulated, not deregulated, the telecommunications industry and would lead inevitably to prolonged litigation. It's been six years since the passage of the Act. Six years since the passage of the Act, but consumers have yet to benefit from lower prices or a competitive marketplace as promised by the Act's proponents. In fact, local telephone rates are up 17 percent, cable rates are up 36 percent and some companies are now raising rates on basic long distance service.

I believe that Congress must face reality and deal realistically with these obvious problems. The latest debate in the telecommunications industry is focused on the purported need to accelerate the deployment of Broadband services. A 2002 Department of Commerce report entitled "A Nation Online" states that less than 11 percent of Americans currently subscribe to Broadband services. When it comes to these services there is a stark disagreement about whether there is a supply problem, a demand problem, a combination of the two or no problem at all. The one thing all parties agree on is that Americans and our national economy will benefit greatly from the widespread use of Broadband services.

Given broadband's great promise, I believe we should make sure that the government is not impeding timely deployment of Broadband services to more Americans. In order to accomplish this goal, a truly deregulatory approach cannot be narrowly focused on one particular sector of the industry. Rather, I believe that such an approach should seek deregulatory parity among all segments of the telecommunications industry and ensure that ultimately consumers will have more choices, higher quality and lower prices.

Finally, I commend FCC Chairman Michael Powell for his leadership in working to find ways to stimulate the rollout of Broadband services across all industry segments. Under section 706 of the Act, Congress instructed the commission to, quote, "encourage the deployment on a reasonable and timely basis of advanced telecommunications capability to all Americans by utilizing regulatory forbearance, measures that promote competition in the local telecommunications market, or other regulating methods that remove barriers to infrastructure investment." I believe that the commission is working diligently to fulfill their obligations set forth by Congress in section 706 of the Act.

I thank the chairman for today's hearing. I thank our friends Congressman Dingell and Congressman Tauzin for appearing before us, and I hope that as a result we will work closely together to deregulate the entire industry, which should have been what happened in 1996 and unfortunately did not, at least if you look at any measurable observations of the effect of the Act.

I thank you, Mr. Chairman.

SEN. HOLLINGS: Thank you. The chairman and ranking member of our defense appropriation have witnesses waiting. I've gotten permission to out of order recognize Senator Inouye.

SEN. DANIEL INOUYE (D-HI): I thank you very much, Mr. Chairman.

I commend you for holding this hearing on this important measure. Regretfully, as noted, I must be leaving to conduct another hearing. But before I do, I'd like to say that I share your concerns about this measure. I ask unanimous consent that my full statement be made part of the record.

SEN. HOLLINGS: It will be included.

Senator Stevens.

SEN. TED STEVENS (R-AK): Thank you very much, Mr. Chairman.

I too must join Senator Inouye at the other hearing. I want the record to show I have some serious problems with H.R. 1542. I do not think that it's correct in its findings, which state that the '96 Act was designed to promote competition for local voice services only. To me that is not correct. We've had numerous hearings over the four years before we passed the Telecom Act, where we discussed all facets of the communications system: fiber optics packets package, switching, the Internet as a component of the information highway.

There were 25 million people on the Internet in 1995 and title 5 of the '96 Act deals entirely with Internet pornography. We clearly new about the Internet and packet switch networks that provide Internet services when we finished the 1996 Act, and it's no accident that the Telecom Act makes no distinction between voice and data networks. We knew then that data would surpass voice and we wanted to be sure that pro-competitive rules applied to all types of networks. The statute specifically says "regardless of the facilities used" in the definition of a telecommunications service, and I think it means just what it says.

This bill would allow regional Bells into long distance markets without first opening their local markets to competition, and that's just what we thought we were doing when we passed the '96 Act. The bill to me, as it stands now, would send the wrong message. It would preempt all form of federal and state regulation designed to carry out the purposes of the Act in the name of deregulation. I do think that we have to take a look at what this does because, as a practical matter, the core of the 1960 Act was competition, regulatory parity and universal service, all predicated on common carrier regulation with the underlying networks being involved.

I am concerned -- disagree with Senator McCain -- I do believe the FCC is wrong to deregulate entirely the common carrier facilities used to provide Internet access. The net result will be, in my opinion, that the universal service and pro-competition provisions we adopted in the '96 Act will cease to apply to facilities used to provide Internet access. And the FCC then is going to have to devise its own rules to safeguard consumers. We'll be right back where we were in '95, before the '96 Act, and I don't think that's a good result. I do believe we should force the compliance of the '96 Act and proceed from there.

I do agree with an objective of Senator McCain's and that is to find a way to eliminate the type of regulation that's necessary, but until we have the concept of this law followed, I do not think we will have that. I do hope that we'll find a way to work with our two friends, who've been very cooperative with us in trying to seek out our current objectives and a series of meetings we've had with members of the telecommunications industry, but I just disagree with the basic finding of the Act and the bill that passed by the House and therefore I could not support it as it stands.

SEN. HOLLINGS: Senator Burns.

SEN. CONRAD BURNS (R-MT): Thank you Mr. Chairman.

I thank you for this hearing today. I want to commend Chairman Tauzin and Ranking Member Dingell for their hard work in passing 1542 in the House. I know they've been tenacious about that and trying to do some things to ensure a build-out of broadband services into our country. I particularly applaud them for focusing attention on the topic of vital national interest -- how best to foster universal broadband deployment.

I remarked previously that the bill deserves a full and fair debate in the Senate and today's hearing constitutes the beginning of that process. I continue to have concerns about 1542 and do not support this legislation in its present form, but the goal of the bill is a worthy one and I look forward in working with both of you as this legislation moves down the line.

Clearly, broadband is the central defining telecommunications issue of today. We are rapidly transforming from an information society to a text and words to one of video and dynamic multimedia. The development of this rich media is only possible through a national broadband network and this network would be as important to the national destiny as the building of the railroads in the 19th century and the Rural Electrification Act in the 20th century.

Universal broadband should not -- should be the national priority early in this century, the same way as putting a man on the moon was a national priority in the last one.

The question then, is how to achieve this vision of universal broadband. As I remarked, I have several concerns about 1542, particularly the preemption of all state public service commission authority to regulate the rates, charges, terms and conditions of high-speed data services. Given my experiences with the Bell Operating company currently serving Montana, I am not at all confident that this full deregulation would serve the consumers. In fact, until very recently, it had deployed advance services in a grand total of one Montana city, and that's in Helena, despite years of promising more rapid deployment of broadband.

In stark contrast, there will soon be 121 small Montana communities that will have advance services, courtesy of the Montana's independent and cooperative telephone companies. Among the list are rural communities such as Circle, Malda, and Plentywood, and let me tell you, those are not metropolises.

Now, given this positive history of smaller operators I fully support the Senate provision being considered in the farm belt conference that provides stable funding for low interest broadband loans administered by the rural utility service. The Senate bill takes the existing broadband pilot program and makes it a permanent and provides stable funding for the next five years.

This is perhaps the most significant action that Congress can take to stimulate broadband deployment in rural areas.

The fact is that there are companies, local cooperatives and new startups that want to serve rural America and deploy those broadband services that will create jobs and stimulate the economy. Low interest loans are one of the most effective ways to get broadband to rural America.

I should add that the RUS Telecom program has never issued a bad loan in over 50 years. The government has actually made money off of those loans. Also, because of existing RUS lending rules, these loans do not go for a services that are duplicated. So we are not subsidizing a competitor against someone else. The loans will only go to service that would otherwise would not happen.

Another approach, I believe, has a lot of merit, is offering tax credits for rural build out of broadband. I've worked closely with Senator Rockefeller on S88, which would create tax incentives for the deployment of high speed Internet services to rural, low income and residential areas. The bill would grant a 10 percent credit for expenditures on equipment that provide a band width of 1.5 megabytes per second to subscribers in rural and low income areas and a 20 percent credit for the delivery of 22 megabytes to these customers and other residential subscribers. This bill has over 64 co-sponsors.

Finally, I want to touch on an idea that has been offered -- that the author -- that the idea that has been offered -- that the authors of the Telecommunications Act of 1996, somehow never considered Internet during the debate surrounding the bill. Well folks, I was there, and as many of us were on this Commerce committee here, and this simply, is not the case. In fact, I authored section 706 of the Act with the specific aim of promoting broadband technologies in rural areas, and I think it's important to keep this historical context of the Act in mind when moving forward on critical issues.

Mr. Chairman, thank you for holding this hearing today, and I look forward in working with all the principles, so that we can ensure that broadband does make it into rural areas.

SEN. HOLLINGS: Thank you, sir.

Senator Breaux.

SEN. JOHN B. BREAUX (D-LA): Thank you very much, Mr. Chairman.

Thank you very much for having this hearing -- I wouldn't miss it for all the tea in China.

(Laughter.)

About a half a loaf. You know, Washington --

SEN. HOLLINGS: Let's get to the entertainment.

(Laughter.)

SEN. BREAUX: Right. Washington may not get the Mike Tyson heavyweight fight but we've certainly got a heavyweight battle today between the long distance carriers and the local carriers.

I think we all talk about -- everybody is committed to one thing -- we all want to have a level playing field. I mean, I must have heard the term, let's have a level playing field for all the competitors, since we started working on this legislation back when we first passed it, and we still continue today to say, well, we want a level playing field. But, you know, you look at what's happening -- I know in my state of Louisiana, in our local service area you've got the cable companies, which are clearly monopolies, which are providing video and movies, they're providing telephonic communications over cable, they're providing broadband Internet service over cable, and they're a monopoly, they're not regulated. If the local phone company wants to do that they have to meet all kinds of rules and regulations and standards. You got satellites doing the same thing in the local communities, that are providing broadband services, they're providing movies and videos, and they're not regulated, and no-one is proposing that.

So it seems that what you have right now, in fact, is a very unlevel playing field, that legislation is trying to address. I'm not sure it's the perfect answer to the problem in creating a level playing field, but I think, certainly something has to be done in this area. When local companies go into new broadband services, having to sell those services to competitors at less than the cost, is that a level playing field? Doesn't seem like it is to me. If I was in business and had to come out with something new and innovative and had to sell it to my competitors for below what it cost, and then they say, well go compete on a level playing field, well that's not a level playing field and I think that there ought to be someway to establish what I think everybody can agree with, and that is equal competitors.

I want competition, I don't want to have just one phone company, I don't want to have just one cable company, but we got that, and I think that's patently unfair. And I look forward to the testimony.

Thank you, Mr. Chairman.

SEN. HOLLINGS: Senator Brownback.

SEN. SAM BROWNBACK (R-KS): Thank you, Mr. Chairman, and thank you for holding the hearing today.

You didn't have to do this, to hold this hearing, but it's good that you did, so that we could get into this debate, and I think it's a good debate. We need to have this debate.

As I look at what we can grow our economy on, in this country, over the next several years, I think this issue of broadband deployment, high speed Internet access is one of the key items that we can really grow this economy based around. Along with issues like trade and some other items here, I think this is one of really the key debates and we're all, I think, kind of struggling with past Act and we're saying, well, it covered this issue, it covered that issue, it did this, it didn't do that.

I would ask, I think we all ought to look at where we are today and where we can grow this economy and what do we need to do to move forward. Not whether somebody complied with what was the intent of this Act or of that one. What we've got is a situation that's different today than it was in 1996 when the Telcom Act passed. That isn't to say that we just look passed the Telcom Act. We don't, it's law it's as it should be. But we've got a different situation that's out there today and I'd hope we could look just at that.

Our society's transitioning from an analogue to a digital world, characterized by bandwidth intensive Internet applications and the broadband connections required to access them. This transition, I believe, holds great promise for continued industry innovation and productiveness as well as opening up a whole new world for consumer and community access to information, entertainment, education, health care, the digital revolution and the emergence of broadband connectivity could be the largest factor in the continued economic growth and development of our nation in the 21st Century.

Broadband connections are having a powerful impact on underlining service industries providing them to consumers. Cable TV, wireless, satellite and telephone companies are converging with each deploying new technologies that will permit them to offer the same voice, video and data services over their respective platforms. Broadband connections will enable cable TV subscribers to make phone calls over the cable network and telephone subscribers to watch multi channel video over the telephone network. Broadband could usher in a new era of inter-modal competition in telecommunications.

Incumbent local telephone companies are heavily regulated in the broadband space and their cable competitors are not. This regulatory disparity saps in incentives of telephone companies and consumers are the people that suffer from it. Broadband services offered by incumbent phone companies are available only sporadically and tend to be less capable than the intended and anticipated services of their cable competitors. This ensures that phone companies will exist with existing connections to most homes in America are not putting real competitive pressure on their inter-modal competitors.

Now these developments raise the ultimate question, as put forth by the Tauzin-Dingell bill and by legislation that I put forward last year, the Broadband Deployment and Competition Enhancement Act of 2001 and that's this question.

How do we balance our commitment to the Telecom Acts, local telephone market opening provisions, which everybody agrees with, yet also recognize and provide for the continued deployment of inter-modal competition, which everybody around this table would agree, is taking place at this point in time now? I think that's the central question that we should focus on and I would hope that all of us working together could see ways that we could come up with that solution.

I don't think that should be an overly difficult process for us to do. I think tax credits are important. As Senator Burns talked about, loan guarantees I think are important as well on this, as a number of other people have cited. Yet I also believe that regulatory reform is going to have to serve as one of the cornerstones to be able to get this done. And I would really hope that we, as members are looking at the national economy and I think all of us would agree, this is one of the major things that can grow this economy in the future, that it needs to be a competitive force, should be able to craft those three tools that we have, with the tax credits, loan guarantees, regulatory incentives, deregulation, to be able to come up with a national broadband strategy that helps us move this economy and this industry on forward. I think we ought to seek to do it just that way.

Thank you, Mr. Chairman.

SEN. HOLLINGS: Let the record show, I'm a co-sponsor of the Burns bill.

Senator Smith?

SEN. GORDON SMITH (R-OR): Thank you, Mr. Chairman.

I was not a member of this committee in '96 when the Act was passed but I have seldom encountered a more technical and complicated issue than this and so I'm here to learn and to listen and anxious to hear our witnesses so I'll be very brief.

I think that access to broadband will truly determine whether an economy flourishes in the new economy or is left behind. I thank you, sir, for this hearing because we are now beginning to work on closing the digital divide that will help ensure all Americans have choices for high speed Internet services. I'm concerned that the service disparity may be growing wider and wider throughout this country and potentially affecting rural areas.

SEN. HOLLINGS: Senator Smith, if you would hold just a minute. I understand, Billy, there's a vote on in the House and there's about 10 minutes left. If you all want to make that vote while we finish up these opening statements. Okay?

SEN. SMITH: I think it's a vote on the journal, Mr. Chairman, and we're okay to pass on that.

SEN. HOLLINGS: Thank you. Excuse me, I apologize.

SEN. SMITH: That's fine.

Mr. Chairman, I want to make certain that no one is left behind in the new economy. Millions of Americans and small towns in rural areas and inner cities are blocked at the on ramp to the information super highway because they just can't get broadband services. And while I'm still weighing some of the difficult issues implicated by the Tauzin-Dingell bill, on one thing I'm certain, public policy needs to encourage all potential providers to deploy new last mile broadband facilities and that includes the incumbent phone companies and the competitive local exchange carriers. We need to continue to debate the issue to find ways to encourage more investment and competition.

Making high bandwidth broadband, high speed, widespread and affordable is going to require tens of billions dollars of risky investment by any company in the telecommunications industry. The companies who take the risk of deploying the last mile broadband facilities should get the benefit if they succeed.

I thank Chairman Tauzin and Representative Dingell for taking the time to appear before this committee, and I thank you, sir.

SEN. HOLLINGS: Thank you.

Senator Carnahan.

SEN. JEAN CARNAHAN (D-MO): Thank you, Mr. Chairman, for holding this hearing today and for your leadership on these issues.

I am pleased that we are continuing to consider the issue of broadband high speed Internet services. As policy makers, we must remain focused on how we can help our nation, our entire nation, realize the vast benefits that high speed Internet services offer. It's important that we do so while maintaining robust competition in the provision of local telecommunication services.

First and foremost we need to ensure that current generation broadband services are available to all segments of the population. We must look at how to ensure that the benefits that broadband are available in rural America, in our inner cities and to lower income Americans. And we should also consider how we can generate increased demand for the services that are currently available. The Congressional Record -- I'm sorry, the Congressional Research Services reports that while approximately 85 percent of households have access to broadband services, less than 15 percent choose to subscribe.

At the same time, Mr. Chairman, we should be looking ahead at promoting the rollout of even more advanced broadband services. We need to redouble our commitment to improving the capability, reliability and availability of high-speed data networks. In doing so, we should ensure that our policies reward innovation, encourage investment and promote job creation. Hastening the deployment and utilization of high-speed Internet services has the potential of re- invigorating our economy and fuelling economic expansion. Broadband can spur growth by creating jobs, educating our workforce and increasing productivity. If America is going to continue to lead the way in the new economy, we must focus on a pragmatic commonsense broadband agenda that we can enact now.

Again, Mr. Chairman, I appreciate your leadership on this timely issue and I look forward to hearing from our witnesses.

SEN. HOLLINGS: Thank you.

Senator Boxer?

SEN. BARBARA BOXER (D-CA): Chairman, I'll be very brief.

I want to see affordable broadband deployment as soon as possible. I agree with my colleagues who said this is crucial for our economy and I want to see it in more areas and I want to see it all over the country. But I want to see it in a way that's fair to consumers and that means competition. Mr. Chairman, in California, 45 percent of our people have no access to cable modem service. No access. So if we get a situation where we freeze that and there's no competition, 45 percent of my state is going to be disadvantaged and we have 34 million people in our state. This is a very important point.

So I'm concerned about Tauzin-Dingell because it would freeze in that monopoly situation in 45 percent of my state. So, in conclusion, three principles will guide me as we reach a solution. That will be swift deployment, in other words, a policy that would lead to swift deployment, consumer support for what we do and competition. Thank you.

SEN. HOLLINGS: Thank you. Senator Dorgan?

SEN. BYRON DORGAN (D-ND): Mr. Chairman, thank you.

There's a certain pageantry about opening statements in the Senate, especially when we have an audience of host colleagues. I must say, as I've said before, I'm so tired of in the mornings in front of the mirror shaving with a television set on, hearing about Tauzin-Dingell. One side describes it as a cure for hiccups and gout and virtually everything else that ails mankind and the other says it is a precursor to economic collapse. We've been listening to these claims for, what, about two years now. I have no idea how much money has been spent for and against that bill. But simply the bill is not going to pass the United States Senate.

That's a starting point.

I think my colleagues have described it as circumstance where we've all had some tough experiences with deregulation in areas where we have had -- in North Dakota, for example, we deregulated in this country the airlines and we ended up with less service, it costs more. We deregulate the railroad, we end up with less service, it costs more. We've had really a bellyful of deregulation. What we really want is an opportunity to have the build out of advanced services and I must say to my colleagues, I was dismayed to see in Congress Daily this a.m. that Tauzin-Dingell supporters are sending a signal that they are going to strip this provision out of the Ag. Bill as my colleague from Montana described. They're going to do that so that they will send a messages to senators so they will not get anything on broadband without accepting Tauzin-Dingell.

There are a lot of ways to solve this issue. There are many different approaches. I've introduced a Broadband REA program, part of which is now in the Ag. Bill and Conference. That's one approach. There's a tax credit approach. There are several different ideas. I think in the end, all we care about is an aggressive, robust build out and that's not going to happen, in my judgment, with Tauzin-Dingell because that's not going to pass the Senate. I am anxious to hear the witnesses. I will defer and put the rest of my statement in the record.

SEN. HOLLINGS: Thank you.

Senator Allen?

SEN. GEORGE ALLEN (R-VA): Thank you, Mr. Chairman.

Thank you for calling this hearing today and I want to thank both Congressman Tauzin and Congressman Dingell for appearing here today. I want to associate myself with the sentiments expressed by Senator Burns. That's pretty much the way I look at it and also Gordon Smith. Having not yet made a decision on this issue, trying to keep track of who's for and who's against it may be there. I think we all agree that the rollout of greater access to broadband is absolutely essential for our country, for people, for communications, for education, for medical services and making sure there's not a digital divide based upon where people live.

Looking though at the current landscape of broadband, the number of subscribers continues to increase at a relatively healthy rate. However, the number remains small in comparison to the number of subscribers who have access to broadband service. Previously was mentioned this matter but the FCC in particular found that high speed services were available in each of the 50 states. Approximately, 78 percent of the zip codes in the U.S. had access to high speed services. However, only about 10 percent of households, or approximately 10 million people subscribe to broadband service. This would suggest a significant lack of consumer demand -- to some extent, corporate demand -- but mostly consumer demand that I think needs to be addressed to further advance broadband deployment.

This is clearly an economics issue. It is a major investment to get broadband, especially if you're digging a lot a dirt, as Senator Burns says. With fiber optics, you want to get a rate of return on it. If people don't see a value in paying higher prices for monthly broadband service than their current Internet service. That's simply a consumer demand matter. The point is that this is not a simple question of if you build it, they will come, because that's obviously not happening. Now we're all eager to find ways to promote the build out of broadband capabilities. There's a host of other complex issues beyond Tauzin-Dingell that have to be addressed such as the availability of compelling content. Spectrum allocation reform, I think, is clearly a part of it. We had a hearing on intellectual property protection that hopefully would be handled by the private sector but nevertheless will eventually, I think, a more compelling content that people will see a value in purchasing broadband because it will be more available to them.

I also understand part of this bill is beyond the supply side concerns, that it does have to do with competition. Most people who have access to broadband currently, two-thirds, I believe, receive it from cable sources. Senator Boxer of California talked about their situation in that state and understanding that the incumbent local exchange carriers are looking to change this by amending both the Communications Act of 1934 and 1996. I've not yet determined that by simply amending both these Communications acts, provide the so-called ILECs with deregulatory incentives will miraculously cure us of the broadband deployment problem. I do think we need to take reasonable action from a business economics perspective as well as a rural community empowerment perspective. And I think personally that Senator Rockefeller's bill is a good approach with incentives to handle that. But the point is that there are major stake holders in this. They all need to be considered and I'm not sure which will come out -- that's what we take votes for -- to find what's the best and most preferred route.

I thank you for having this hearing. I look forward to hearing comments in this hearing and many other hearings on how can we all effectuate a goal we agree upon. We may disagree on some of the methods of doing it. Thank you, Mr. Chairman.

SEN. HOLLINGS: Thank you. Senator Kerry.

SEN. JOHN KERRY (D-MA): Mr. Chairman, thank you very much both for the hearing as well as for your long-term leadership on this.

I won't be too long. But let me say a couple of things if I may. I know that you, Senator McCain and others have said very clearly how you feel about the road traveled with respect to the Bells and their obligations and promises. I think everybody here would agree that the expectations of '96 have fallen short in many regards. I support your observations with respect to that, Mr. Chairman. But I do think that we have to also recognize -- I mean I remember that 1996 debate as other members here do -- and I think the truth is the world we were talking about then and despite some of the language -- I've gone back and reviewed it -- that seems to embrace a broader understanding of the market place. The truth is that we were mostly focused on telephony. We really didn't have the full vision in front of us of the world we're operating with today.

And so we have some very powerful entities that are fighting over the access to market share and ultimately the distribution of revenue that will come from that. And we've really a couple of different worlds competing here, now. I mean it has changed. I don't support Tauzin-Dingell as it is now, nor do you, Mr. Chairman, or other members here, but I think that our friends in the House have, frankly, done us all a significant service by bringing to the table a critical debate for all of us about what the architecture is going to be like now and what steps we're going to take to create a true advanced network architecture.

You've got the Bells versus the competing carriers struggling with telephony and most of the focus, Mr. Chairman, of, sort of your disappointment is in the field of telephony. But then you have the Bells versus cable, satellite, wireless et cetera in data. And data, as we all know, is the battleground today. To some degree, I think it's honest to say that telephony is perhaps even just ancillary. You know, I mean there's still revenue there, but it's not what this battle is about.

And so, for all of us here on this committee, I'd like to see us think about this in a larger sense, if we could. There are roughly 10 million homes that presently subscribe to some form of high speed Internet service and that marketplace is dominated by two industries. The cable industry with its cable modem service and then the phone companies with DSL.

The cable companies have approximately 70 percent of market share and they offer service to about 80 percent of American homes. The phone companies have about 30 percent of market share and they offer service to about 50 percent of American homes. Both of them provide offerings to consumers with bit speeds of about 500 kilobits per second which is okay -- it's good for speedy web browsing. But, frankly it's limiting otherwise.

Now, the way I think we ought to sit through this is, sort of, think of this a little in larger terms. And I agree with Senator Brownback. There has to be a way for us to find a way through the pricing mechanisms and regulations scheme currently of the FCC.

A recent study by the OECD found that the U.S. is now fourth in the world behind Korea, Canada and Sweden in per capita broadband subscribership. In Japan, NTT, Tokyo Electric Power and other companies are competing to rollout fiber to the home. The Korean government has an official policy to provide 20 megabits per second to 85 percent of Korean homes by the year 2005.

Our situation is embarrassing by comparison. As opposed to Korea, which has a goal of the 20 megabits per second system, we seem to be satisfied with competing systems that are less than 3 percent as valuable.

In contrast to Japan where companies are rolling fiber to the home, we're still debating how to get fiber anywhere outside the central office, and at the end of 2001 there were only 16,000 fiber to the home residences in the United States.

Now, aside from the benefits of movies, high definition television and entertainment, advanced speeds would provide tremendous advances for our country in terms of tele-medicine, distance learning, worker training and a myriad of other applications. Some people say there's no market for that -- I don't believe that. I don't think most people here do.

Another problem that's ancillary to that that we haven't yet dealt with, is the question of the protection of what's on broadband. One of the reasons, some people who have the capacity aren't putting more interesting things on broadband is that they can't protect it.

So, this committee has a very important obligation in front of it, Mr. Chairman, which is to try and find the midstream, in a sense, the sort of fairness in how you impact and don't choose winners and losers but, in fact, create a structure that provides adequate incentive. Pat Moynihan, J. Rockefeller and I sat down to write and incentive for the deployment of those systems. We came through the tax credit route, but there are other ways to do it. And I hope, Mr. Chairman, these hearings, while this bill is not going to pass in its current form, my hope is this committee, working with you and under your leaderships, can find a way to satisfy the remaining telephony needs but not short change the longer term broadband needs of the nation.

I thank you.

SEN. HOLLINGS: Thank you.

Mr. Ensign?

SEN. JOHN ENSIGN (R-NV): Thank you, Mr. Chairman.

I think that holding this hearing today is very valuable. One of the most -- I think it was mentioned before, one of the most complex issues that I've certainly ever come across simply because you have one side telling you a set of facts and looking at it one way, and the other side saying virtually the same facts, sometimes maybe with a little different spin on it and the exact opposite consequences as a result of those facts.

Our job, I believe, as policy makers, is determine somewhere, the best that we can, what is going to be the best policy for American citizens, American business and, as Senator Kerry was just talking about, keeping America competitive in the global marketplace.

You know, the term has been said "build it" -- we use this in Las Vegas -- "build it and they will come." I think, if we look at the deployment of broadband, it is "deploy it and they will invent it." There are so many technologies and applications that we can't even foresee today, that if we have broadband deployed in a much greater degree today than it is, we will have technologies we can't even fathom today. But also one of our jobs is when we do this legislation is to prevent that dangerous law, the most dangerous law of all, it seems up here, and that's law of unintended consequences. Sometimes we do things up here without knowing what the adverse consequences of what our actions are going to have. And so we have to be very careful when we're messing with such a huge part of the marketplace.

So, I think that some of the stated goals here I would agree with. Affordability for the consumer and having a lot more competition in the marketplace -- those goals are laudable goals and that's what we should be looking at doing and I think it's going to be important for all of us, whichever position that anybody stakes out is to be willing to work together and look for the benefit of Americans when we come with final legislation. And I'll submit my official statement for the record without objection.

SEN. HOLLINGS: Senator Fitzgerald and Senator Lott, I've got a note that, as you heard, Chairman Dingell has to leave momentarily. If you all make it short, I'd appreciate it.

Senator Fitzgerald?

SEN. TRENT LOTT (R-MI): Let me just say, Mr. Chairman, I'd like yield my time, because I'd like to hear the witness.

SEN. HOLLINGS: Good.

Senator Fitzgerald?

SEN. PETER G. FITZGERALD (R-IL): Yes, I just want to welcome you to the committee.

The one thing I will be looking at is that I'm simply concerned about the idea of kind of moving the goal posts on people who have already invested a lot of money, created companies, done public offerings to create competitive local exchange carriers and I'm concerned about the perception that we're changing the rules in the middle of the game. So I'd appreciate your addressing that issue. And I want to compliment you on the hearings you did on Enron over in the House. I thought you both did a great job.

Thank you.

SEN. HOLLINGS: As you -- Chairman Tauzin and Mr. Dingell. Chairman Tauzin you ordinarily go first. If you want to yield ---

REP. W.J. "BILLY" TAUZIN: No, no, no -- (off mike).

SEN. HOLLINGS: That we had a note there that you had to leave.

The committee welcomes you both. There are no two finer congressmen, no two finer leaders in the Congress. I've said time and again, the only thing I like about 1542 are the authors.

(Laughter.)

Mr. Dingell, we welcome you and would be delighted to hear from you at this time.

REP. TAUZIN: I think that John asked that I go first.

SEN. HOLLINGS: Okay.

REP. TAUZIN: Mr. Chairman, first let me express to you our mutual respect and admiration of you and this committee. Mr. Dingell and I come, as Mr. Brownback, said to a hearing that you didn't have to call and I want to thank you for calling this hearing and giving us a chance to come and begin this debate because it's a critical one for our country.

I also want to make it clear that we didn't come to blaspheme. We didn't come to do anything but agree with you. Our goals are mutual. We want competition, both in the local market and we certainly want to build a competitive frame upon which broadband services can be built, delivered and in fact new services and content can be developed for the benefit of our country.

And third, my Cajun friend from Louisiana, Mr. Breaux -- we certainly don't expect the Tyson/Lewis fight here. Your ears are safe and so are ours, I hope.

(Laughter.)

We struggled too hard to come here, Mr. Chairman, to leave for a vote on the journal, I assure you and we deeply appreciate the chance to visit with you.

Let me say, first of all -- I know that he's left -- but I think Senator Kerry did a masterful job of laying it out. There was a time, Senator Dorgan, when the chairman of the Commerce Committee who preceded me said very clearly that the Tauzin-Dingell Bill will never pass the House. He was right. The Tauzin bill in that form did not pass the House. The House, like the Senate, takes suggested legislation from each one of us, and works their will. The committee process changed the bill mightily, the floor changed it again. It is a different product that the Tauzin-Dingell Bill with the chairman who preceded me promised would never pass the House. It didn't.

I don't expect the Tauzin-Dingell Bill, as it came from the House, to pass the Senate either.

I fully expect, in the wisdom of the Senate and the wisdom of this committee will be employed to find your own way of achieving what we have all described today as mutual goals of incentivizing competition and growth and development content, all these new systems, at the same time making sure that the Bells do, in fact, open up their local markets to full and vibrant telephone competition.

We gave our members in the House side a chance to speak, and 271 of our colleagues joined my good friend John Dingell and I in passing this bill to you for your consideration. And the debate in the House was focused. It was extremely focused on a simple question: What is the best way to foster the rapid, ubiquitous deployment of broadband networks and services to ensure that we would have a vibrant competitive marketplace where the winners and losers would be picked by the consumers of America, not by you and I, exactly as Senator Kerry said.

It required members to make a single determination, whether they defined competitive marketplace based upon facility based competitors competing against each other using their own infrastructure, and their own different systems, technologies, or was competition to be defined as multiple competitors piggy-backing on the Bells network and the facilities at below cost rates.

And I'm going to quote an interesting gentleman to define the terms of that debate. Senator Breaux, you put your finger on it very adequately, I think. Mr. Chairman, I'm going to quote the chairman of AT&T, Chairman Michael Armstrong. He said, this is a quote: "No company will invest billions of dollars to become a facility based broadband services provider if competitors who have not invested a penny of capital, nor taken an ounce of risk, can come along and get a free ride on the investments and the risk of others."

That, Mr. Chairman and members, is what the House debate was all about. And the House made it clear: if you're willing to take the risk and spend the capital necessary to make broadband services available to consumers in America, you should not have to let your competitors get a free ride on your investment at below cost rates, as you said. That's the crux of 1542. It's to give everybody the opportunity to take the risk, invest in broadband, and everybody has that opportunity to then reap the rewards of doing so as they build new content and new services for the American public. Again, as broadly defined as Senator Kerry did, not just voice and video and pictures and pretty HDTV signals and movies, but long distance medicine, learning, and all the massive amounts of new forms of competitive advantage our country's companies can have in the world if we build these efficient broadband networks for companies and employees to continue the growth of the American economy.

We're told if our bill passed, by one study, 1.2 million new jobs flows from it. This will begin to expand rapidly the growth of these new inventions, Senator, and the new products that would come if, in fact, we do this.

Let me add that 1542 has a stick as well as a carrot. And, Mr. Chairman, I hope you give this real thought as you consider what you might do on the Senate side. H.R. 1542 requires that the Bell companies provide broadband to all of their subscribers within five years, and builds out to 100 percent of the country in five years. No other company, or group of companies, has had such an unprecedented obligation imposed upon them, but this bill imposes it.

We've all heard or seen on TV what the opponents say about the bill. They say that if they can't use the Bell's broadband facilities under current regulatory framework they'll go out of business. The Bell's will have a monopoly on broadband. That, Mr. Chairman, is simply not true. I cannot say it stronger, it is not true. The cable industry controls today about 70 percent of the broadband market. If we risk any group of companies gaining a monopoly with broadband, it's the cable companies. They're unregulated. And they've currently got the dominant position in the marketplace.

If we do not deregulate the telephone companies and give them a chance to compete against the cable companies, we risk having to come back here one day, in a couple of years, and to re-regulate broadband services offered by the cable companies. You and I don't want to have to do that. There's nothing in the law nor in this bill, Ms. Boxer, that prevents the cable companies from reaching out to that 45 percent of California and offering competition to the DSL service that could be provided by the Bells in even greater measure if this bill passes.

This is about having two wire competition, as well as hopefully non-wire and satellite in other forms of competition.

Second, H.R. 1542 does not prevent the Bells competitors from using the legacy parts of the Bells network. Senator -- I think it was Senator Inouye who talked about the concern that -- Fitzgerald, rather -- talked about that nothing in our bill should put some new goal posts up, take away the rights of the CLECs who are currently using the legacy system. Nothing in our bill does that. The bill continues the ability of the CLECs to completely use the legacy systems under rules and regulations currently set by the commission.

Furthermore, we had a Buyer-Towns amendment to the bill on the floor, after a tricky parliamentary attempt to keep us from offering it. That provision imposes upon the Bell the obligation to allow its new broadband facilities, its new wires, its new remote terminals, its new DSLAMs, to allow all those facilities to be used by the competitor CLECs at rates, terms and conditions set by the commission, not by the Bells.

So it not only preserves the CLECs current rights to use the Bells wired legacy system, it gives them the rights under terms, conditions set by the commission, and prices set by the commission to use the new facilities built by the Bells. Don't let anybody tell you we've moved the goal posts back. It just isn't true.

Competitors have also argued that they will go out of business because after the deregulation provided in H.R. 1542 there were no rules left in force. Well, there are plenty of rules left in force. 1542 does not change any of the rules for a basic telephone service. None. Furthermore, an amendment offered by Mr. Upton, Mr. Chairman, it's a big important amendment. It provides the hammer that the commission asked us here in Congress to give them. It increases the penalties on non-performance of the Bells in offering competitors rights to use the systems in Montana, Senator, by 10 times. It doubles those penalties if they're repeat offenders to 20 times. And it gives the commission something it doesn't have today, cease and assist the enforcement authority to force the Bells in your community to treat the CLECs right and open up the local markets. That's all new in this bill added to the House floor.

Well, we finally heard that because only 10 percent, or 11 percent of Americans subscribe to broadband, we really just face a demand question. That's a question, Senator Allen, I think you talked about. Have you ever heard of pet milk, Senator? In Louisiana, I know John has heard of it, Louisiana people thought pet milk was the name of canned milk because it was the only form of canned milk offered in the stores in my state in the country where I grew up along the bayous. We didn't learn until much later there were other forms of canned milk. And the reason we didn't know there were other forms of canned milk, because when you've got one store in town, they sell one product. You don't get that rich content. You don't get the other forms of products and services when there's only one store in town.

You know what you get when you've got one store in town, sir? You get bad prices, bad terms, bad products, bad attitudes. When you get more stores in town you know what you get? You get different forms of canned milk, learn that Carnation makes a canned milk not just PET, and you learn those things -- you learn about new products. More importantly, you get a variety of new content in those stores and companies begin competing for shelf space and they treat you better, and prices go down. Look at the wireless telephone marketplace when we deregulated it. And we created competition and competitive services. Rates plummeted. Giving you phones away just so you use their service today. The same thing can happen in broadband if we're smart enough to deploy more not less of the pipes that are needed to create that rich content, Senator Allen, you and I want to see happen in this country.

Finally, let me say, Mr. Chairman, we've got two options. We gave the House two options. We can either, as Senator Breaux said, create a level playing field for these new participants in these broadband services. We can do it one or two ways. We can either say to the telephone companies, we're going to deregulate you and let you compete against the cable companies so all of America has a chance to get service and products from more than one store on the ground, or we're going to have to come back here and regulate the cable companies. So that the cable and telephone companies are similarly treated in this country.

Now, I choose the former and the House chose the former by overwhelming numbers. And it's better to have a competitive marketplace where consumers regulate that market by picking the winners and losers and choosing the best forces and forcing them to compete. That's the choice the House made.

Now look, you guys are bright and you ladies are bright here just like the House members are bright. We don't have a monopoly, you know, monopoly on the wisdom of these two bodies. If we haven't done it the way you want to do it, find a different way. Find a better way. But in the end, let's create that level playing field genre. Let's make sure that all Americans have more than one store to shop in for these vital services and let's make them fight so hard for our business that they create all that rich content, all those new forms of PET milk. And they give us all kinds of varieties in quality of services that this country deserves. Not just in pretty pictures but all those things Senator Kerry described. That's what this fight is about.

Mr. Dingell and I have been tenacious indeed because we really believe, as I know all you do, that these kinds of services are critical to America. They've been bottled up too long. It's time for us to open up that bottle and let the genie out and that's what our bill tries to do. If you've got a better way to do it, sir, I'm anxious to hear it and anxious to work with you.

Thank you.

SEN. HOLLINGS: Mr. Dingell?

REP. JOHN D. DINGELL: Mr. Chairman, thank you. Members of the committee, thank you.

Mr. Tauzin and I are delighted to appear here this morning to testify about H.R. 1542 the Internet Freedom & Broadband Deployment Act.

I want to endorse what my friend and chairman, Mr. Tauzin, has had to say to you this morning and say I agree with him thoroughly and I make to you the same offers. I would ask unanimous consent that my full statement be inserted in the record and I be permitted to make just a few --

SEN. HOLLINGS: It will be included and so will Mr. Tauzin's.

REP. DINGELL: Mr. Chairman, we're here to talk not about a vast squabble in the industry. We're here to try and see how we best serve the interests of the country and the interests of the American consuming public. That's what this is all about. As Mr. Tauzin has mentioned you've got your choice between two ways of doing it. One, regulate everybody or two, to allow everybody to compete.

Now I've heard a lot of discussion about H.R. 52 -- 1542 -- this morning some of it, and it reminds me of an event that I participated in way back when I was a young lawyer and was a law clerk to a federal judge. There was a collision in the Detroit River which occurred between three lake vessels, freighters if you please. All of them with radar going. All of them going in the fog. And when the judge heard -- had heard the testimony and rendered his decision, he said he couldn't understand how this accident could have happened because in fact, according to testimony, none of the vessels was within three quarters of a mile of the point of impact -- (laughter).

What I've listened to is I've heard the debate on this legislation is that I think it would do a lot of the people who are talking about it, good to look to see what the House has done. Now, I want to endorse very clearly the statement of Mr. Tauzin. We -- if you can do better than we did we challenge you to do it. We urge you to do it. And we hope that you succeed. I would tell you also that if you attempt that and you succeed we want to sit down and talk to you about seeing whether we can both work together and come up with something better than that which we have done today. Because, in human entities like this committee and our commodity -- committee, there is room for working together and for trying to come up with something that's going to be better from the standpoint of all.

There really are just two areas where we go in and we deregulate. We deregulate the last mile and we deregulate the backbone. In the area of the backbone that is the area where there is substantial problem in terms of getting the speed up. In the last mile you will find that there really are only about two people who can -- are two entities that can reliably get in there to provide service.

One, is the Longline people who are exempt from regulation, can enter this without any letter hinder. The other are of course the cable people. Now all of you will remember we had to pass legislation to re-regulate cable because of high handed and arrogant behavior. I'm hopeful that that will not be an exercise we'll have to engage in at any time in the future. But I would point out that if you want to get service to the people, H.R. 1542 will get it there for broadband. And it will do it by allowing everybody to fairly compete.

Now you're going to hear a lot of complaints from the CLECs who are going to say, "Oh, isn't this terrible." And you're going to hear that all the CLECs are opposed. In point of fact not all the CLECs are opposed. Some of them strongly support the legislation. And some of them support it very strongly because they recognize that there are significant other benefits to them in so doing. I would not one thing that is of importance. The CLECs who are opposed are those who are now getting service from the bells at reduced cost. Interestingly enough, the question before us here is, are we going to see to it that everybody has a chance to compete. And as Mr. Tauzin mentioned the chairman of AT&T came out and he made this point. No country is going to invest billions of dollars to become solely based broadband services provider if competitors who have not invested a penny of capital, nor taken one ounce of risk, can come along and get a free ride on the investments and risks of others.

What we are suggesting here then is, that we have protected the rights of the CLECs. Those who are getting a free ride today will continue to get a free ride on the things on which they are getting a free ride. That's not changed. And we will give them other special preferences. We will enable them to get services from the bells at regulated prices, regulated by the FCC, fair price. We've done something more. We were aware of the concerns of everybody about the many regions of this country today that don't have broadband service. My question to you is, do you want to let the people who have not provided broadband services to those areas and who have not provided competition in other areas, to continue to enjoy the wonderful situation which they now enjoy, or do you want to do something about it?

First of all, our bill mandates -- mandates -- and under substantially, as was mentioned by our chairman, substantially increased penalties that the Bells, if they get into this and if this legislation passes, to provide service to every part of the country within five years.

If you don't do something like that, members of the committee, you ain't going to see no services going to the rural areas that you, Senator Burns, are talking about or you my friend, Mr. Gardener, are talking about. Just not going to build up. You can sit back and say, "Well, we should have done it in five years," but that service is not going to be there. We want to see that you get your constituents service. I've got rural constituents who won't get service under this and I want to see them have it. I also want to see them have an option to have service provided by many, so that we get competition, so we get faster service, better service, service at fair, competitive prices. This committee and our committee in times past made the judgment we were going to move from the kind of regulated service to a new kind of unregulated service, to afford better consideration.

Now, you're going to hear a lot of complaints about, well, the Bells are not going to open their local nets. The simple fact of the matter is the Bells are going to remain under the same kinds of strictures on which they now suffer. In the future we do not change that with regard to voice. What we change is we open it with regard to broadband. We force competition into two areas, backbone and the last mile. And in so doing, we afford opportunities for everybody who is not there and we do so in addition by requiring that the Bells proceed to provide services to every part of this country by the end of five years and we put sanctions and penalties and painful provisions for them into the legislation if they do not do so.

Now I just want to conclude by repeating this. We challenge you to do better than we did. We challenge you to have a proceeding here. Here the people who are involved, I would ask however, that you read the bill, to look to see what it is we have done. There's a lot of high price obviously in this town making a fine living running around lying about what the House bill does is what we did. And I don't have any objection to them making a fine living.

But I do think gentlemen that you have the capacity to gather the truth by looking at the legislation and by conducting a fair and an open hearing of the kind that you have begun. And I want to commend you for that, Mr. Chairman. And I want to suggest that proceed down this course and meeting us in a honest conference to discuss the real differences will result in a better piece of legislation that we've done and an opportunity for us all to serve the public interest.

Mr. Tauzin and I have been working on this business of telecommunications for a long time. I introduced the first legislation and I find that it changed beyond any recognition by me. And the following year, we found it changed even a little bit more, not a lot but a little, and it is better legislation because of the process. And the Senate and the House sat down in this room as many of you will remember to discuss the differences between the two bills and to come up with something which has the capacity to serve the country better. I would note that there's a lot of complaint about monopoly. Well, if you want to look at monopolies take a hard look at the cable folks. They've got about 70 percent. If you want to take another look at monopolies take a hard look at the local fellows. But also take a look at the long line folks, their monopolies and the whining I've heard from them is very interesting because all they're telling me is we just want to continue suffering along with a fair advantage over all of our competitors. And somehow or other I think that's inconsistent with the purposes of my friends on my committee.

In any event, Mr. Chairman and members of the committee, we have a chance to write a good bill. I hope we can. I'm satisfied from my knowledge of all you up there that's what you want. I would say one thing to my old friend Mr. Gardener. I don't remember ever hearing any member of the House talk about how we're going to give a lesson to the Senate. I have to say in all modesty that's beyond my capacity. But I would observe to you that we would be very happy to sit down and discuss with you a meaningful piece of legislation and one that we can all be proud of instead of listening to a high paid, fat cat lobbyists who are pushing a situation that does not benefit the United States. Let's let the bastards get out there and do a little bit of honest competition and see whether we're not all better for it.

Thank you, Mr. Chairman.

SEN. HOLLINGS: Thank you. They both have commented about a balanced approach. Let the record show that that's what this hearing intended in the original instance. We had, as you know Mr. Markey so we'd have a balanced approach, but Mr. Tauzin said he'd rather appear just without him. And then when we had the local public service commissions coming because we had a panel after you too, again Mr. Tauzin said that there would be sand bagging and we'll ambushing him. And even the title, I've got a letter and we'll make that part of the record that we're trying to ambush -- you're all uptight.

(Laughter.)

Chairman Tauzin, you remind me a lot of Michael Armstrong. You both have been quoting him. And I don't know when he made that statement but of course and in allowing that's a bunch of baloney in the sense that we heard that when you two voted and supported the '96 Act. We had quite a debate and we said, you know Judge Green was pretty smart. He opened up the long distance market for access where they would pay not only the cost but a reasonable profit. If you both look at page 97 of the '96 Act you'll see that's exactly what we did with respect to our deregulation. We said in section 252 on page 97, the sale at cost plus a reasonable profit. Now we know and we had the experience of long distance and bar that had a viable competition and not only not an advantage or unfair advantage or whatever else the gentleman refers to on the contrary, they own the ropes financially. You talk about taking a risk. There is no risk to the crowd I referred to, namely the Bell companies. There is a risk, yes. The cable companies are private investors, not government instituted monopoly, but on the contrary there are 1080 cable companies and let me go not only to the services to the services that they have to provide and what have you, their regulations, but more particularly to what they have, Chairman Tauzin.

You and I agree, let's see if we go like two apples and two apples are four apples, 85 percent now have access to broadband. You disagree?

REP. TAUZIN: Absolutely.

SEN. HOLLINGS: Why do you disagree?

REP. TAUZIN: Because what the cable companies are saying is that they pass 85 percent of American homes. You've got to understand that if you're going to deliver broadband services.

SEN. HOLLINGS: I'm talking about cable companies and, you know, the telephone companies and the Bell company. The Bell company is in there like gangbusters right now. You --

REP. TAUZIN: No, I disagree with that and we've got the numbers to show it. The marketplace right now is about 89 percent vacant in terms of services.

SEN. HOLLINGS: No, no. Well --

REP. TAUZIN: Well, let me ask you a question if I might.

SEN. HOLLINGS: Well, answer that question. Where do you find less than 85 percent?

REP. TAUZIN: The problem is that the numbers you have cited do not take into account that for the cable companies to provide true broadband services, high speed broadband services, they have to go in those systems and add an extensive amount of investments called nodes as more and more people sign up to a broadband cable. I'm on broadband cable in Northern Virginia. As more of my neighbors sign up, the cable company has to come in and make substantially new investments because the speed goes down as more cable subscribers sign on. And unless the cable companies come in and put new nodes in to build the speeds back up those systems are incapable of serving the 85 percent of the people that are passed by these wires.

The Bell companies likewise have to make significant investments in new remote terminals, in new fibrous systems in order to make their lines accessible for really high speed services as Mr. Kerry described them. So you know, there are "lies, damn lies and statistics," I'm afraid we're dealing in some interesting statistics here. The truth is --

SEN. HOLLINGS: What statistic do you have?

REP. TAUZIN The fact -- these are the facts --

SEN. HOLLINGS: It passes 85 percent of the homes.

REP. TAUZIN : These are the facts --

SEN. HOLLINGS: I can't read that chart. My eyes are not that good. But don't worry about that. I mean you can make these pretty little charts. We play that game over here too.

(Laughter.)

Do you deny that 85 percent at -- broadband passes the homes right now.

REP. TAUZIN: Yes, I deny that.

SEN. DINGELL: Goes right by.

SEN. HOLLINGS: What percent do you say? Excuse me, what percent -- don't give me all of that explanation --

REP. TAUZIN: I don't know. I know it's a lot less than 85 percent.

SEN. HOLLINGS: Well, what is your percent?

Mr. Dingell then?

REP. DINGELL: I don't have any percent. All I'll tell you is you're right. It goes by.

SEN. HOLLINGS: That's right.

Ah now, yeah, I knew I'd get some help from John.

REP. DINGELL: It goes by. The problem --

SEN. HOLLINGS: That's right, it goes by and you're right, Mr. Dingell, it only goes to the home --

REP. DINGELL: The problem is they go right by. They don't stop.

SEN. HOLLINGS: That's right. And they don't stop on account of demand. And they don't stop because they can't dig up the streets and --

REP. DINGELL: They don't stop -- they don't stop because the investment has not been made.

SEN. HOLLINGS: That's right, you and I are agreeing, the investment has not been made because they can't dig up and go to those businesses. So the cable we're talking about is predominantly just residential. It doesn't even go to the business. You and I are right, they can't make the investment. But let's see who can make the investment now. We've got 85 percent and only 10 percent have it -- I'm just quoting you, you just used that figure -- so that's 10 percent of the 85 percent and restricted to residential, so 90 percent of the market is out there still, for competition.

I mean you act like the cable has taken over it all. They have 10 percent of -- they only pass 70 percent -- 10 percent of 70 percent of the residences alone and not businesses.

REP. TAUZIN: Senator, if I can, let me first address your opening comments. You're the only person I know in this town who's ever called me tight and I want to tell you that. I'm as loose a guy as you ever found over here. John Bruin(ph) and I come from a loose kind of culture, so don't buy that argument.

(Laughter.)

Secondly, we come here as open and as willing to work with you on any kind of new proposals and ideas you have. What I suggested to you, in organizing this hearing when you called me to come, was that I'd been invited to lunch many times but I didn't intend to come to be the meal. I wanted a fair chance to tell you what we did and then if you wanted to have those other folks around in 20,000 hearings, I'd invite you to do that. So, I just wanted to put that on the record.

SEN. HOLLINGS: That's right. You had the five hearings and six mark ups and I guess we'll have to do that --

REP. TAUZIN: Then we'll come back again if you need us.

SEN. HOLLINGS: Don't come round here in September and claim I'm delaying it. Thank you.

REP. TAUZIN: Okay. The point is, we'll come back if you need us again.

Let me try to say it again as clearly as I can. The numbers that the commission and the cable companies put out to us about homes passed, did not take into account that even if the cable is broadband adequate today, that it cannot serve this vast amount of Americans they pass, without substantial new investments. They will tell you that. They have to go build all kinds of new investments, if in fact, demand increases on these systems because every new customer lowers the speed until new nodes are put in.

Secondly, what we did, senator, in this bill, was simply say that these old ladder lines, these old lines that prevented the Bell companies from doing what the cable companies can do today, to reach out across these lines that Judge drew on a map long before the '96 Act, that they can reach out and extend their broadband systems across those lines, and as John said, make the investments in that last mile. And we've added the provision that even when they do that, Senator Fitzgerald, they have to make those facilities available at rates set by the commission for their competitors. That's a fair way of doing it. Again, if you've got a fairer way, please tell us what it is.

SEN. HOLLINGS: Yeah, well, the better way is told by just the people that you represent and that ought to take it over, those that don't have a risk. Let me just state exactly what they're doing.

Horizon spent nearly $18 billion last year and they increased the number of DSL customers by 666,000 to 1.2 million. SBC invested billions in heavily promoted project Pronto, they got 146,000 more and Bell South has put in $33 billion -- I got way more but I'm cutting it short because my time is limited -- $33 billion during the 1990s and they are going like gangbusters and let me quote Dwayne Ackerman right here in my own backyard and I want Ms. English to listen to this one. "Some companies have suggested that before DSL can be deployed, substantial investments need to be made in the network."

I think the good news is, for Bell South, a large part of that investment has in fact already been made. You will see Bell South continue to drive investment into DSL on a per customer basis and the reason is simple. DSL is growing and DSL is profitable. You got 85 percent already passing the homes, we'll all agree on that. And they're fighting over the land in 15 percent and then DSL has got all the business and they'll put the CLECs out and take the market power and take over the poor little cable that's trying to give competition. We didn't have -- I described the Bell companies -- for three years after they said they were going the long distance, in a year's time -- for three years they kept us in courts, they did absolutely nothing. They're still only in 10 states in long distance. Four-fifths of the country. If you're worried about broadband, four-fifths of the country doesn't have that kind of competition. That's the big problem before this committee right now.

My time is limited, let me yield to Senator McCain.

Senator Burns?

SEN. DINGELL: Before you do, would you permit me to make an observation?

SEN. HOLLINGS: Please do.

SEN. DINGELL: I enjoyed your remarks, senator, and I thank you.

The simple fact of the matter is, we're all agreed on one thing. We want to get service to the people. These things may seem to be easy and you may be looking at broadband and the lines that provide broadband as being something which can absorb any load and the simple fact of the matter is, they aren't. As Mr. Tauzin mentioned, the more traffic you put in the slower they move. It is also so that you have to have significant investment to get that 85 percent from the point where the line passes the house to the home of, or the business, and all of them -- and these lines pass both homes and businesses, so that you can get the service into the home or the business. This is going to take an investment. And the question is, how are you going to get the investment and who are you going to get to make the investment?

Now, senator, you're an intelligent man. You're not going to sit there and tell me that a CLEC that has no investment in equipment is going to have either the capital or the resources to go in and to provide the service to that home. You've got to find somebody that's got the means to provide the necessary investment and all I'm going to do is quote Mr. Anderson, a well known opponent of this legislation -- or Armstrong rather, in saying nobody's going to make that investment if they don't have a chance of getting some return on it.

So what we're suggesting is, let the people in who can and will invest. Let everybody invest, CLECs can go in if they want and the ones who are getting a free ride on everybody else's back can still get it. They're going to get the same rights they have with regard to existing services. Those are not being taken away and on any new investment, they're going to get the right to go in and to get those services provided by the Bells on the basis of fair prices under regulations issued by the FCC. And I repeat, if you can come up with a better way of speeding this process up, I'm for it. But do remember, that you only have a small percentage of the people in this country actually receiving the service.

Our debate this morning should be about how we are going to get service to the American people and how we're going to catch up on the Japanese and the Koreans and others.

Now, let me just mention this to you. The homes that you say are having these wires pass them, are having wires pass them, but the thing you've got to know is we want to have more than one who will go into that home. We want to see that we make it a wise and intelligent business judgment by the people who are making the investments, that they ought to go in so we have competition. Not that the American consumer is saddled with a situation where there's only one person. He is not benefited by that situation. He just remains a victim, if that kind of situation pertains.

SEN. HOLLINGS: And that, as you and I both agree, there's no broadband problem, it passes 85 percent of the homes right now. And I've just pointed out how the Bell companies are in there like gangbusters --

REP. DINGELL: Senator, you are --

SEN. HOLLINGS: Wait a minute, can I please make a statement too? That, by gosh, as Mr. Dwayne Ackerman says, DSL is profitable. Well, they're getting out there like gangbusters now on services. The big problem that this committee has is just the concern expressed by our fearless leader, Chairman Tauzin, who says consumers must have the benefits of competition and not the penalties of monopoly unregulated service. And that's what 1542 gives is monopoly unregulated service.

REP. DINGELL: Let me assure you, Senator, that comment is made about the cable companies who are unregulated and have monopoly provision of services today. The Bell companies are in fact deeply regulated in their provision of service. We've added new requirements on them and new hammers by the FCC. Again, if you've got a better way of making sure they open their markets, come tell us, we'll work with you.

SEN. HOLLINGS: The nearest thing to immortality on earth is a Bell company. The poor little cable companies have got a five-year contract down where I live, and a 15-year contract here with Comcast in Washington, and Comcast is trying to get just a 10-year contract. I can tell you right now they're struggling. Armstrong, that you quoted, says, "I can't make with it and I'm ready to sell it in order to, by gosh, get some kind of job done."

Senator Conrad Burns?

SEN. BURNS: I'm not real sure I want to jump in on this.

(Laughter.)

I don't think I want the football. No, I'm very interested in making this thing work, that's number one, that's the way I'm going to approach it. But tell me, in today's world of ones and zeros, and we talk about InterLATA relief, how do we tell that it's voice or data?

REP. DINGELL: The answer is you can't. The bits that carry one or the other are going to carry either and you can't tell by looking at the bit if you can do that. What I want to do is to just see to it that we regulate the service. You could still regulate the service, which is what we do under H.R. 1542 --

REP. TAUZIN: He's saying the voice service is still regulated.

REP. DINGELL: We don't change the regulation of voice. That remains as it is. Data is deregulated, and I think, very frankly, it should be, and everybody who has studied the question of the Internet says let them be deregulated.

SEN. BURNS: But if we can't distinguish the difference between voice and data, how do we enforce it?

REP. DINGELL: You regulate the service. You regulate the provider of that service.

REP. TAUZIN: And the bill does that.

REP. DINGELL: Where he provides voice you regulate him and you do it by looking at his books and you require him to keep proper books. You don't regulate the data transmission, and that is good. But you can identify the difference between the service. You don't look at the bit and say this bit is a voice bit and this bit is a data bit, you regulate the service. And you go in and you look at the guy's books and you say you're doing this and we're therefore going to regulate it. You're doing this, this is not subject to --

REP. TAUZIN: Let me try quickly, Senator Burns. The bill provides that the Bell companies under this Act cannot sell, market, nor collect any dollars for voice services.

Secondly, the bill does not take away the FCC's authority to examine under performance measures the operations of the Bell companies. And it keeps in the local PUCs and at the FCC the authority to regulate those voice services. So that the agencies have the power under performance standards examination to see that the Bells are in fact enforced on the provision that says you cannot sell nor market nor collect a dime for voice services except under the provisions of the '96 Act.

SEN. BURNS: Now, this to -- another little question before my times runs out. Would IP telephony be a data service not subject to competitive checklist or a voice service that is?

REP. TAUZIN: It depends on how it is denominated by the regulatory agency and by the provider. It would be regulated as a service as opposed to being regulated as a particular stream of bits going across a wire.

SEN. BURNS: Well, these are the areas that I have concern, and also the areas in section 4, and I think in section 6, just going through this thing, and I'm sure that we can work these things out. Maybe we can't, but I think in those areas -- I'm just going to highlight those areas of which I have great concerns and maybe on some other provisions let's mark them -- but I think section 4 and section 6 really concerns us a lot. And -- I've forgotten --

REP. TAUZIN: Senator, can I make a comment?

SEN. BURNS: Yeah, go ahead.

REP. TAUZIN: I know of your concern in Montana and --

SEN. BURNS: We're really whizzing right along there, that DSL, you know. One city here and one user -- Lightman (sp)

(Laughter.)

REP. TAUZIN: One user at a time. What we have seen is that your Bell company out there has in fact sold a lot of its rural areas off. Under the provisions of the universal services laws and rules and regulations that are currently existing, when a company owns both the dense urban area that helps subsidize a rural area and also owns a rural area that's getting subsidy, the subsidies flow inside the company. When a company can sell off a rural area and another company can simply buy a rural area, the subsidies come from another company, to them. And they tend to be able then to go ahead and with those resources improve those networks and deploy DSL where the ILEC which was subsidizing itself had a more difficult time doing that. That's a fact out west.

Secondly, all the universal service laws and regulations are kept in tact in our bill. We don't change them one iota. I know that was one of your concerns. Those are still in tact. The companies that buy off a region or a rural area from an ILEC out there end up getting the benefits of that universal service provision, and because they don't have to subsidize themselves, they tend to be in a better position to actually deliver those services. That's what's happening out west.

SEN. BURNS: Well, I will visit with you on this and we'll work it out. But don't fiddle with my RUS either.

REP. DINGELL: I understand we're -- I've got my pistol cocked on that little deal, okay.

(Laughter.)

REP. DINGELL: We will be happy to work with you on these concerns.

SEN. BURNS: Okay. But those are the areas of our most concern on this and I'd just like to say we're not going to close our mind on this thing because I think we want to get to the same place.

There is no doubt about it, and how best we do it.

The experience that we're having in Montana is not a very positive experience, which makes us wonder about the deployment, even if they were given InterLATA relief, we do not see a great rush to deploy DSL or VDSL.

REP. TAUZIN: They won't have a choice under our bill, Senator. They don't have a choice under our bill. Mandate deployment in areas where they're currently not going.

SEN. BURNS: Well, we thought that would happen in another section of the '86 bill too, so you know, or the '96 bill, but that didn't happen and so --

REP. DINGELL: We offer you a better mechanism today. If you can improve on it, we're willing to listen, because I want to see this mandate. I've got some rural areas of my own.

SEN. BURNS: (Laughs.) Well, we're going to sit down and, in a different venue and environment and try to work this out. We've got a deal on that.

SEN. HOLLINGS: Right. Senator Brownback.

SEN. BROWNBACK: Thank you, Mr. Chairman. Again, thanks for holding the hearing -- you didn't have to do this and I appreciate you doing it.

If I could -- what I hear people talking about, and I think you both have done an excellent job putting forward your case, and the Chairman's put forward his case well, is that if we have, and I think Senator Kerry outlined it pretty well with this too, is how we balance our commitment to telecommunications and our competition in telephony and yet open up competition in this other area when you've got two different spheres of competing influence. You've got phone companies competing over here and you've got a phone company and cable and others competing over here.

Mr. Tauzin, if I might submit, I wonder if there'd be a way for us in crafting a piece of legislation that would strengthen the telephony competition section, which I believe, you believe you've done that in your bill, anyway. You think you've given your real teeth now in the telephony competition section, in your bill, so you're open to doing that.

REP. TAUZIN: Yes.

SEN. BROWNBACK: No problem with strengthening that, which has been a lot of the difficulty that you, Mr. Chairman, have had with this bill, that Senator McCain, Senator Burns, Senator Dorgan and a lot of people around have had with this -- whether we couldn't craft this where you really strengthen and put teeth and try to correct the inequities that have taken place there in the actual operation of it. At the same time, opening up, in the competition field and this -- in the other area where you've got competition taking place between other groups, whether it's with cable or wireless or satellite, so you don't limit our ability to create facilities-based competitors, particularly from the phone companies in that last mile, in the backbone.

But particularly that last mile of getting high fiber, high speed, high quality -- we ought to be going where the Koreans are with this, to be able to get the access to the really fast, high quality delivery of services. And I think if we do that you're going to see a flourishing of services that would be available with that. I don't know -- I would take it you'd be open to that sort of negotiation and discussion with a bill I believe you've created -- created one just that way.

REP. TAUZIN: Yeah. Let me comment, Senator, that's exactly correct. What we added wasn't just a tenfold increase in penalties, or even a 20 fold, for repeat bad behavior. What we've given the commission, under our bill, is cease and desist authority, which is to say, for the first time instead of the commission having to wait for Bell Company to come in and say, I'd like to get into long distance and here's what I've done to open up my market.

It gives the commission a chance to examine whether they've opened the market, whether they're trying a 271 petition or not, and to say, you are not treating the competitors, the CLECs correctly. You're not opening up your markets, you're not exchanging customers the way you should be exchanging customers, you're not treating the CLECs customers the same way you're treating your own customers and we order you to cease and desist, we'll take you to court with an injunction if you don't.

You can't do that under current law. Our bill would give them that new authority. If there are other ways to improve on that sanction, senators, to make sure that the Bells -- whether they want to get into long distance or not -- fairly treat the competitors in the local system, we're very open to work with you to strengthen it, improve it, build a different mouse trap if you want.

REP. DINGELL: I would like to echo that. I would like to say, senator, you put your finger on a very important point, and I want to thank you for it.

I would like to make this observation, though, in addition to what Mr. Tauzin said -- the powers that we have given the FCC are exactly the powers that the chairman of the FCC said he and the commission have to have to open up the local service net of the Bells to assure that the problems that concern the chairman, Mr. Hollings, also finds so oppressive.

And I would also note one thing, that until the Bells have addressed the problems that the FCC has, they're not going to get into long distance voice communications -- it's not going to happen. And I would note that they're compelled to submit, and have been, to the commission as many as 270,000 pages of exhibits, along side which the commission has rested most tranquilly and given no decision after enormous expenditures by people who are applying for relief from their government and on which they received no advice from the commission as to what it is, is wrong. They say if you want to get some relief, submit us another 270,000 pages. It seems to be an unwise way run the government.

REP. TAUZIN: If I can add one more thing that I think we ought to have on the table, and that is that when it comes to local competition, one of the problems is that in the residential market, as opposed to the commercial market where there's a good profit margin, that incentivizing a competitor to come in and compete in a low margin marketplace where prices are already subsidized through Universal Service, is a difficult task.

The competitor may -- you may say my market is open to that competitor, he may choose not to compete. In fact, many of the CLECs don't even try to offer telephone service, residential telephone service -- all they're trying to do is to get into broadband services and so they use the high frequency part of the copper wire to deliver broadband services and they don't offer telephone services at all. Check the record -- that's a fact. And the reason they don't is because in residential areas there's not a lot of money to be made -- it's a high cost, low margin area that we end up subsidizing in order to make sure people in sparsely populated areas of America get that service.

But when it comes to broadband services -- let me make this point, it's an important one -- distance becomes irrelevant. Everything about the old regulations on the telephone systems of America were about distance, how far we lived from one another, how far was the call going. On the Internet it doesn't matter whether you live in Tokyo, or if you live in South Carolina, or Michigan or Louisiana -- you can speak commonly to anyone on that system without regard to distance. It's a distance-irrelevant system -- it makes no sense for us to continue distance-relevant regulation on a distance- irrelevant system.

SEN. BROWNBACK: Well, I just -- if I could, I might add in the remaining time, Mr. Chairman -- I think we've got a chance for a "two- fer" here, actually to create competition in that local market sector where there's been a lot of difficulty here, and in crafting this such that you get some real teeth, you see, and you really give a chance to people to get at a problem that wasn't correctly -- if people thought was addressed in the Telecom Act.

At the same time, we can then create a quality of broadband deployment and competition that we need to have, cause right now, we just don't have it out there. We've got some cable companies that are pretty much dominating the field, they need to have more competitive pressure, there's competitive pressure we can get there.

We could get that fiber the last mile, which is going to be expensive, very expensive to do -- it is a low margin area -- when you go into residential, that last mile with fiber or, in my state, to be able to get it built out into rural areas, which your legislation requires it would have to be done over a period of five years. That's a real expensive matter to string that out to my parents that are a few miles away from town. And that would require them to do that.

So I look at this and say, well, we've got a chance really to do something that's going to spur the economy on substantially and to correct an inequity in a prior Act -- that we should take advantage of both of those.

I'd hope -- I'd love to be able to work with the chairman to do just that.

SEN. HOLLINGS: Senator Allen, as you were.

Senator Dorgan, Senator Dorgan?

SEN. DORGAN: Mr. Chairman, thank you.

Let me ask a question about the issue of the Ag conference, because I mentioned in my opening comments that there's a report in Congress Daily a.m. this morning that the provision was put in the Ag Conference dealing with the incentivizing the build-out of broadband, is a provision that is under some assault and my understanding is the two of you have actually become conferees to the Farm Bill -- congratulations.

REP. DINGELL: We will make it a better --

SEN. DORGAN: Long recognized experts on wool and mohair and commodities programs.

(Laughter.)

REP. TAUZIN: I grew up on a farm, Senator Dorgan.

SEN. DORGAN: But I understand that you are there because you're concerned about the RUS provision. And let me ask this question. You indicate that this is a marketplace of ideas. You have one. You passed it through the House. If we have other ideas you're interested in hearing them and embracing them. One of those ideas in the Farm Bill that comes from the Senate to conference is to provide some low interest loans under certain circumstances to help accelerate the build out of broadband. My understanding is, Congressman Tauzin, your staff is making some impassioned pleas in opposition to that provision in the Farm Bill in the conference. Is that accurate?

REP. TAUZIN: We have two problems with the provision you draft in the Farm Bill. One is in the Farm Bill.

It's extraordinary that we have to be on that conference. We shouldn't have to be. It's a telecommunications matter which hopefully should be -- would be decided in a telecommunications conference.

Secondly, we have problems with the whole idea of giving some of the competitors low interest loans and not others. And that's what the provision does. It provides low interest loans for some in this marketplace but not for all. And I know you disagree with that. We believe that that's what it does and so we have to have that cleared up as well.

Let me also say, Senator Dorgan, a quote you made though about us sending you a signal or send it, tell them to send it, you know, won't get anything without accepting Tauzin-Dingell, that's a quote by one of our opponents --

SEN. DORGAN: Yeah, but --

REP. TAUZIN: -- I hope you recognize that --

SEN. DORGAN: The first quote of the Tauzin spokesman, "We are sending a message that we are the committee of jurisdiction, senator," that's a Tauzin spokesman.

REP. TAUZIN: That's accurate.

SEN. DORGAN: That's not an opponent of yours.

REP. TAUZIN: And that is accurate. We have a jurisdictional problem with the form legislators of the Congress writing telecommunications policy. We've had that problem in the past years. We have it today. We're not saying that the policy may be wrong in the end, but when it came time for us to provide low interest loans, for example, the local -- in the local, for rural communities, came through our Telecommunications committee, not through the Farm Agricultural committee.

SEN. DORGAN: But we've had a real telephone coop program for 50 years in the Agricultural Bill, do you not agree?

REP. TAUZIN: Which is a part again of the telecommunications policy of the country. And as I said when it came down to us to put together low interest loans for rural parts of America to get local into local satellite service, that properly came through the jurisdictional committees of telecom and that's our argument here. We stand by that. We would not like the agricultural committee deciding broadband policy. It's that simple.

SEN. DORGAN: My only point here is that if you come to us and say, look if there are other ideas out there, let's hear them. I've introduced a broadband REA program which is low interest loans for the deployment of broadband. The telephone program in RUS has been there since 1949. I mean, this is not some -- some new thing and I guess when you say to us let's hear new ideas and we've got one in an Ag Conference and you're the one that's sending a spokesperson down there. I guess now you will go down there and say I oppose it. If you want -- if you really want to build out a broadband why not embrace a range of ideas including the tax credit Rockefeller proposes, the broadband REA program, the provision in RUS. Why would you oppose any of them?

REP. TAUZIN: The answer is. We don't oppose the idea --

SEN. DORGAN: But you're trying to --

REP. TAUZIN: -- we oppose it on jurisdictional grounds --

SEN. DORGAN: -- but you're trying to kill the provision, are you not?

REP. TAUZIN: No, sir. We're not saying that the provision properly addressed in a telecommunications broadband bill is not a good provision.

SEN. DORGAN: You're trying to kill the provision in the Ag --

REP. TAUZIN: We're trying to say that it doesn't belong in the Farm Bill.

SEN. DORGAN: -- but you're trying to kill the provision in the Ag Conference, are you not?

REP. TAUZIN: We're trying to say get it out of the Farm Bill, yes.

SEN. DORGAN: That's all I'm asking.

REP. TAUZIN: We're also trying to say that if you're going to write a provision like that it needs to be written in a way as we did the satellite low interest loan program for direct -- local into local. It has to be written in a way that all the participants in that business have a chance to get those loans.

SEN. DORGAN: Well, that's exactly the way this is written. This is technologically neutral but my point is --

REP. TAUZIN: I don't think so.

SEN. DORGAN: -- don't say to us we want to embrace a lot of other ideas and then be over in that conference trying to kill that provision. But I guess that's a subject for another day.

REP. TAUZIN: It's not the idea is where the idea is located.

We suggest --

SEN. DORGAN: If it's not your idea it's not worthy?

REP. TAUZIN: No, no, we're saying that it ought to be addressed as part of broadband policy not farm policy.

SEN. DORGAN: But people who don't get access to broadband because this provision gets killed are going to have a hard time understanding. Well, the issue really was just jurisdiction between Congressman Tauzin and Senator Hollings. The fact is that we're interested in doing a lot of things that work. And this is one and I would hope very much in conference the two of you will not design to kill --

REP. TAUZIN: We will visit with you but you came from the House, Senator Dorgan. You know there's a difference in the way we operate there. We have rules of domain-ness, we have jurisdictional lines that our committees and top -- subject matters come under. We understand that it's different here. We understand that. But when it comes to the way we proceed and we write broadband policy we are simply saying that this ought to part of broader broadband policy not simply something done for one segment under an agricultural bill.

SEN. DORGAN: Congressman Tauzin, that -- these kinds of provisions dealing with telephone and especially the build out in rural areas, have been in the Agricultural Bill since 1949, 1949. There's never been a default, in fact, in the rural telephone coop program but I just -- I urge you. Take a new look at that, don't be in there trying to kill that. If you want to work with us work with us on a wide range of issues including that.

REP. DINGELL: Let me make a comment because I've not had anything to say about this matter and my staff has not had anything to say about it. I just want to make a couple of observations here which I think are useful.

First of all I think as a member of this committee you want to see to it that if something of this kind is done, it's done right.

Second, while as a member of this committee I think you want to see that if anything is done that it relates intelligently to the rest of our telecommunications policy. I don't think anything is wrong with either one of those positions. Those make eminent sense. We enforce those kinds of situations in the House by seeing to it that we protect our jurisdictional concerns of the committees. Because the committees usually know better what they're doing on their particular subject matter than do other committees.

Now, having said that, it is very clear to me that the Senate wants to discuss this. Mr. Tauzin and I are prepared to discuss this with the Senate as conferees on behalf of the House and we're prepared to try and work with you on these matters. But we do want to make very clear and very sure that I think you, and we, want to see to it that this is done in a way which doesn't conflict with other policies. If that's done, I don't have any objection at all to making loans to assist this. This makes good sense.

But I would just make one thing for the benefit of everybody in the room. And that is if you look carefully you will find that all of this comes out from somebody who is opposed to Tauzin-Dingell. And I would say that talking to Tauzin-Dingell might give you a better way of getting an appreciation of both what Mr. Tauzin and Mr. Dingell think --

REP. TAUZIN: That was one guy --

REP. DINGELL: And also it would give us a better chance of having an intelligent discussion to talk --

SEN. DORGAN: Yeah, and the paragraph says we are sending a message that we are the committee of jurisdiction when it comes to telecommunication issues, says a Tauzin spokesman, talking about the issue of the conference committee.

REP. DINGELL: It comes out of the lips of an opponent.

SEN. DORGAN: No, no, no. You're wrong about that. You're --

REP. DINGELL: You said that the devil may --

SEN. DORGAN: -- you're talking about a different paragraph, my friend. You're wrong about that. So, I've just read the paragraph: "We are sending a message. We are the committee of jurisdiction," said a Tauzin spokesman. But I understand the paragraph you're reading. But understand the one I'm reading as well.

Let me ask a question if I might about, how deregulation would do anything to change the status quo in a state like North Dakota? Because obviously I have a parochial interest here. I mean this is national policy but I have an interest in North Dakota. Let me describe to you what has happened in North Dakota.

We have had DSL being offered now by 157 of the 231 rural exchanges in North Dakota. At the end of next month I know that 13 will be bringing that total to 170 out of 230. These are the rural telephone coops in most cases and independent phones. And with respect to Quest that has sold off many of its exchanges in our state, they offered DSL on four of the 24 exchanges it has. Now, can I get your opinion, why would Quest, a big old company that has done a lot of business in North Dakota over many years prior to selling some 60 or so exchanges -- 76 exchanges, why would it offer DSL, do you think, in only four of 24 exchanges?

REP. DINGELL: Well, I'm not an officer, employee or shareholder of Quest. I haven't the vaguest damned idea why Quest does things and I don't think anybody else in this room unless they work for Quest, does. I would only tell you that if you want to get service and you want to compel them to offer this service, there's a good way to do it and it's in H.R. 1542.

First of all Tauzin-Dingell requires them to provide that service.

Second of all it eliminates obstacles to investment by Quest in that.

So I -- we give you two things. One, we give you the carrot and two, we give you the stick.

SEN. DORGAN: And what is the obstacle that exists with respect to Quest providing DSL service beyond four exchanges in North Dakota?

REP. DINGELL: I'll quote a well known authority, Michael Armstrong, November 2, 1998. "No company will invest billions of dollars to become a facilities based broadband services provider if competitors who have not invested a penny of capital, nor taken one ounce of risk can come along for a free ride on the investment and risks of others.

SEN. DORGAN: And that does not apply to rural exchanges, why, Mr. Tauzin?

REP. TAUZIN: That statement applies everywhere. It applies everywhere.

SEN. DORGAN: No, I'm talking about the lack of incentive that apparently exists with the Quest company, does not apply to the local exchanges in North Dakota, the rural telephone coops in the rural exchanges --

REP. TAUZIN: It applies to them. The only difference is that when the --

SEN. DORGAN: But they're building out.

REP. TAUZIN: When they buy one of these areas, because they're basically buying a rural area only and they don't have an urban area as well in their service area. They're actually getting subsidies under the universal service fund from another company, not from themselves which then allows them to make some of the upgrades in services that the ILEC may not have deemed to be profitable at the time.

So the idea that they sell these off to a company that can because of universal service rules actually pick up universal service funds to help them do it is probably a good thing in your area. So it lays --

REP DINGELL: You've obviously got two situations. First of all, let me remind you that your small local service companies are not compelled to meet the same tests that the Bells are compelled to meet.

SEN. DORGAN: Well we don't have a traffic jam of competition in most of these areas.

REP. DINGELL: The only situation you confront here is the local service companies, the little independents, they're not compelled to provide these services, the Bells are. But the interesting thing is that that -- the question you should really be asking is why can't and don't these small local companies that offer the service? I can explain why the Bells don't. You've got to ask the question --

SEN. DORGAN: My point is they offering the services. That's exactly what I said to you today.

REP. TAUZIN: Senator Dorgan, there is an exemption for them.

SEN. DORGAN: There's the exemption in 251F that also can be taken away when the companies received a bona fide request for interconnection services network elements in the future so --

REP. TAUZIN: It's up to the PUC to make that decision.

SEN. DORGAN: But that's in your bill and my point is the same disincentive would apply to a rural telephone exchange that's going ahead and making the investment for broadband deployment, the same disincentive would apply with 251F because at some point they might say, you know, somebody's going to come in and make a request and I've got a share here. And you're saying that's why the Bells are building out because of that disincentive. My point is rural telephone companies are but the Bells are not.

REP. TAUZIN: The answer is they're exempt today and they are not covered.

SEN. DORGAN: They're exempt under 251F which -- but they have jeopardy under that of someone later after they build the system wants to use it. And my point is --

REP. DINGELL: They are not now covered.

SEN. DORGAN: But my point is in your legislation in 251F it describes conditions under which they could be covered if someone wants to come in and require the sharing of that system. Now you're getting a lot of advice here on this question.

REP. TAUZIN: But the question, senator, is how many times is CLEC going to the PUC and ask that the exemption be waived? Zero.

SEN. DORGAN: My only point is this.

REP. TAUZIN: But there's no jeopardy right now.

SEN. DORGAN: My time is about up, but in North Dakota, Quest has been serving North Dakota. It moved off 74 exchanges, sold them. You're saying it did that in order to avoid the responsibility of universal service so that it can come out of a different fund.

REP. TAUZIN: No, no, I did not say that. What I said was that for Quest to upgrade those systems it has to use monies that are subsidized within its own system from urban consumers. When they sell off one of those areas and the company owns just the rural area then the subsidies come from Quest, from some other company. So that company can then use those subsidies not generated in its own company to actually make those improvements. They tend to have a better economic position to make those improvements.

Secondly, they enjoin exemption. So they're more likely to do it.

SEN. DORGAN: I wanted to asked a whole series of questions about universal service which I think is the most important issue for me and I think will be an area that is a very serious problem with respect to your bill. I unfortunately have another hearing I have to attend but I -- let me Mr. Chairman just make one final comment. I've taken more time than perhaps I am owed.

My experience in North Dakota is that the Quest company has very little interesting in building our DSL, just very little interest. Now look, I think we've got a lot of great companies around this country including the old baby Bells and the new CLECs and others -- they're all great companies. Every company must do what is in its self interest, that's the way life were. That's the way it is with those companies.

So what happens is Quest decides in North Dakota we're not going to build out DSL, what we're going to do is we're going to create a circumstance where we can get somebody to come to Congress and get rid of 271 and get rid of other provisions of the '96 Act and they say if we can just get these folks to do that guess what happens. We get out from under something that they required in 1996 by which at some point we're going to have local competition that is aggressive.

REP. TAUZIN: We're not letting them out from under 271. Under 271, they've remain under the constraints of 271 for all voice services. They do not --

(Cross talk.)

SEN. DORGAN: I mean, that's the mixed message here.

REP. TAUZIN: And they also remain under 251 which is substantially identical.

SEN. DORGAN: But that's interestingly enough the mixed message here. You want regulation, in fact I think you might have said even more regulation for voice transmission but you're in here with a bill that talks about deregulation. Is the value of one not the value of the other? I don't understand the message, I guess.

REP. TAUZIN: Well the answer, we have not increased regulations on voice transmission. We increased the authority, the commission enforced the current regulations.

(Cross-talk.)

Secondly, if you really want Quest to deploy, vote for this bill. Under our bill they mandated to deploy over a five year period to every community in South Dakota.

REP. DINGELL: If you want everybody in South Dakota covered vote for our bill. If you don't, vote against it.

REP. TAUZIN: And you can't tell the difference -- (off mike).

SEN. DORGAN: I guess your bill is what Quest has been angling for. That's the reason for their not deploying I suppose.

REP. TAUZIN: When Quest backed off the coalition in support of the bill, for the most part because of the mandate, because they don't think they can afford it. The fact is, the mandate and the bill will force Quest or any other provider in the country among the bills to actually deploy over five years. Quest doesn't particularly like that provisions.

SEN. DORGAN: I'll tell you what I want. I want aggressive, robust competition in local exchanges number one. Two number: I want -- well, you know, I said when I started I've heard that every morning while I was shaving (laughter) -- that vote for Dingell Tauzin -- Tauzin-Dingell, whichever it is. I want robust, aggressive competition at local exchanges.

REP. TAUZIN: So do we.

SEN. DORGAN: We're only going to get that if we keep pressing on this issue, on the '96 Act.

And second, I want the ambitious broadband deployment everywhere in the country just as we did with electricity and I again will end where I started. I regret at least one idea by which we might enhance the lives of some with respect to the RUS provision in the Ag. bill, I hope very much that I won't have to regret your trying to kill that -- go in to that conference committee you two people on the --

REP. TAUZIN: You've read a lot of quotes. Did you read the one that says we're not trying to kill the provision per say? Read the quotes. It's in the story.

SEN. DORGAN: Yeah, well read of your staffer that's in the conference in the staff conference saying you want to kill it.

(Cross talk.)

REP. TAUZIN: It says we want to protect our jurisdiction and we're going to do that.

SEN. DORGAN: First of all, thank you for coming.

REP. TAUZIN: Thank you, sir.

SEN. DORGAN: It's really good to have you here.

(Laughter.)

REP. TAUZIN: It was good to be had.

(Laughter.)

SEN. HOLLINGS: My list shows Breaux, Allen, Nelson and then Hutchinson and end.

REP. DINGELL: Mr. Chairman, I apologize but I do have other business. Thank you very much for having me here.

SEN. HOLLINGS: We appreciate very, very much your appearance.

Senator Breaux?

SEN. BREAUX: Now, what round are we in Mr. Chairman?

(Laughter.)

-- about 14th -- 15th round here.

MR. : I've still got my ears jammed.

SEN. BREAUX: I'll begin my line of questioning so my good friend and colleague Congressman Tauzin, sort of where I left off and I mean where I left off was, I think one thing we can all agree on is that everybody wants a level playing field and for people for compete and we all want competition. And then everybody departs about what we think will bring about fair competition in these areas of broadband services and others.

I happen to think that -- it seems to me I want to ask my friend. I got a list, I guess we got it from the local carriers and the DSL providers but what they did, I'd like to ask unanimous consent to make this chart part of the record because I think it's interesting and I want to ask Congressman Tauzin some of questions.

As I understand -- I mean, I got one cable that provides all my cable service. I can't find anybody else to provide cable services, one cable, it's a monopoly. They provide video and movies and it provides telephonic communications. They provide broadband service and there's no competition for them.

The same thing, if you have a satellite that provides movies and also broadband there's no real competition for them as far as fixed wireless service. The chart I have -- it's almost unbelievable to me, with regard to the regulatory requirements is what applies to the local phone companies trying to operate in this competitive mode as applies to what regulations apply to cable, satellite and fixed wireless.

I take it, Congressman Tauzin, that the regulatory requirement of common carrier duty to provide service at just and reasonable prices for high speed Internet services. It doesn't apply to cable, it doesn't apply to satellite and it doesn't apply to wireless but it applies to the local phone companies.

REP. TAUZIN: That's essentially correct. There is a proposal -- there is still an open area about whether the commission might at some time in the future require the cable companies to carry another Internet service provider, for example. But they have not made that decision. As we sit here today, they have decided just last week that broadband services are essentially not telecommunication services but data services, information services.

SEN. BREAUX: Is there a common carrier duty prohibiting discriminatory treatment that applies to the local phone companies but not to satellites and not to cable?

REP. TAUZIN: That's correct.

SEN. BREAUX: Is there a duty to provide network to Internet service providers that applies to the local phone companies but not to cable, nor satellites?

REP. TAUZIN: That's correct.

SEN. BREAUX: Is there a duty to file tariffs for the local phone companies but not to cable and not to satellites?

REP. TAUZIN: That's correct. In fact, one of the members, Mr. Chairman, came to tell me yesterday on the floor that his local cable provider doubled their broadband rates the day our bill passed. Just a monopoly taking advantage of their monopoly situation as long as they can.

SEN. BREAUX: Here's the one I really want you to elaborate on. Is there a duty to interconnect with competitors at below cost prices that would apply to local companies but not to cable?

REP. TAUZIN: It applies to telephone but not to cable.

SEN. BREAUX: As I understand it, even under new broadband equipment that would be added to the system henceforth forward that the price at which the local companies would have to sell to their competitors will not be the just and reasonable standard but it could potentially in some cases is a requirement to sell at below their actual cost of installing the new equipment.

REP. TAUZIN: That's true on the old Legacy system, on the old copper system. Under our bill, we would say that insofar as --

SEN. BREAUX: But without your bill?

REP. TAUZIN: Without your bill, they could theoretically be obliged to share their new investments at below cost -- which is kind of nutty.

SEN. BREAUX: You know, we all talk about the level playing field and we all agree with it. I mean, I think, what I'd like -- I want competition, I don't want one phone company. I don't want one cable company, which we have. I don't want one satellite service. I want the competition and I think it has to be balanced competition. I don't want to vote for a bill that only helps one phone system. But I think that what we have here is one that I'm very concerned that the current system doesn't provide the balance and even competition that is our goal for all of us. Would the bill still require the local phone companies to provide access to the new equipment under a just and reasonable standard?

REP. TAUZIN: Our bill would say that all the new investments in the fiber to the homes, the last mile, the remote terminals, all the equipment by which the CLEC which is currently using the Legacy systems at below cost would need, if they didn't want to make their own investments in that right away, they could use the Bell Company systems at rates, terms and conditions set by the commission. That's important. Not just the price but the terms and conditions. In other words, they could define speed requirements for the competitors as well as the conditions of service and connection. All of that is still required under our bill at rates, terms and conditions set by the commission.

SEN. BREAUX: Is that where the just and reasonable standard comes into play?

REP. TAUZIN: Yes, yes, sir.

SEN. BREAUX: Without the bill -- I mean, I heard a company say, "Look, we're not going to go out and build all this stuff if we have to give access to our competitors at below the cost of building.

We're just not going to do it." I mean, without the bill, is that where the problem is? One of the problems?

REP. TAUZIN: That's -- there are two problems. That problem and of course, the LATA lines, the inability to cross those LATA lines. It will be a little bit -- Senator Breaux, you and I lived on the same street once -- it's like all our neighbors coming to you and saying, "Look, Mr. Breaux, we'd like you to buy a new car that the neighborhood would like to use. Understand you won't be able to use it except to get up and down the driveway. But we can take it anywhere we want and we can use it at below your cost. But you can't use it except to go up and down your driveway." Would you buy that car?

The answer is no. No company will make those kinds of investments without being able to use it, number one, equally as anyone else and number two, certainly they wouldn't make it, if they had to give it away at below cost. It's that simple.

SEN. BREAUX: The legislation then would, I guess -- my last question -- if the companies and the local exchanges build the new broadband equipment, they would still be required to give access to that new system to their local competitors but at a just and reasonable standard as opposed to what is possible.

REP. TAUZIN: That is correct. In fact, we give the competitors an additional option. If they want to build their own system inside that right-of-way, the Bells have to allow them to do it. They can either use the Bells systems or these investments they make at just and reasonable rates set by the commission or they can build their own facilities in those right-of-ways provided by the Bells company.

SEN. BREAUX: And the charges for the access would still be FCC determined at a just --

REP. TAUZIN: The FCC will determine it, not the Bell Company.

SEN. BREAUX: Thank you.

REP. TAUZIN: Thank you, Senator.

SEN. HOLLINGS: Senator Allen?

SEN. ALLEN: Thank you, Mr. Chairman.

Let me follow up on a variety of issues that have been raised since you are the sole one here, Congressman Tauzin. Again, I think you're seeing out of this committee unanimous views that obviously we're looking at the best way to make broadband available in all communities. It's mostly in rural communities, the key is for businesses number one. If those businesses are going to survive, they need to have access to broadband. To secondary extend but still important, education, medical and then consumers simply aren't going to it as much as people would expect.

What I'm trying to figure out in all of this is listening to all the different perspectives. One of the things is the basic disagreement seems to be an understanding of the factual basis we're starting from. Now granted it may be said broadband penetration is only 10 percent. True. But on the other hand, there's a disagreement with the chairman and also apparently with the FCC's views that 78 percent of all the zip codes have access to broadband but you still have the 10 percent accessing it. Then we've gotten not only in that difference of the perspective of what the situation is right now, but then arguing over committee processes and so forth and the merits of ideas seem to be ignored in the midst of this. I'm one who doesn't care about process or politics. I like the merits of ideas and I have, as chairman of the High Tech Task Force in the Senate for the Republicans, we have made -- Senator Ensign is on our task force -- made broadband a top priority. We have worked for the broadband tax credit on Senator Rockefeller's bill. It's a bipartisan effort and that bill, just for your information, one of the things I wanted before I signed on to it, I wanted to make sure that it was technology neutral.

Now, let me widen this discussion and get your views on this. And you mentioned -- and I very much appreciate it -- the concept of new ideas. If you don't like what we're doing, come up with something better, maybe add on or draft it to make some changes and understand in my commonwealth of Virginia that a lot of CLECs have relied on the laws and those concerns are, I think, understandable and legitimate. Now, as far as broadband, it can be delivered by cable, it can be delivered by DSL, whether it's a CLEC or the Bells. What's missing in a lot of this discussion are satellites or wireless.

One thing that I'd be interested in hearing your opinion on is the issue of spectrum management reform, specifically re-allocating or freeing up more spectrum for the use of wireless technologies as an alternative means of delivering broadband capabilities. The very same reason why there is not cable in all mountainous areas of West Virginia or South West Virginia or elsewhere is because there's too much dirt to dig and so there are satellites for it. But the same sort of concept or paradigm seems to me to be apt and hopefully applicable to try to deliver broadband maybe not by fiber but by wireless or satellite capabilities. What are your views on that spectrum management reform?

REP. TAUZIN: Well, you actually touched on a number of topics including that one that need to get addressed if we're going to get content, rich content in these systems. One the chairman is vitally interested in is content protection which I share very much the chairman's views on pushing the industry as rapidly as possible to settle those content issues with the recognition of fair use for consumers to be considered. It is all right for us to make copies in our homes, in our home video systems, et cetera. We got to work that out quickly, Senator. We're having meetings every week with the industry, trying to push them as you have been talking about legislation to push them as well. So content protection and recognition of consumer rights, key issue. Spectrum, key issue.

Just recently, the commission issued an order on ultra broadband wireless technologies. I think it was much too narrowly licensed. I think it has much more potential than the commission has yet to authorize, but they're up against the Defense Department. They're up against the Transportation and others who have resisted this new technology because they obviously are concerned about Spectrum invasion, Spectrum interference. We've got to settle those issues. This ultra broadband wireless technology could be one of the ways in which we settle that last mile of concern, and get the last mile connections from cable heads, or telephone DSLAM systems into homes. It's a key ingredient.

So, working the problems out with the Defense Department and others who have an awful lot of Spectrum, we'd love to work with them to get more out into the public so we can have new wireless systems, particularly these ultra broadband wireless technologies available is something I'm keenly interested in, and our committee on the House side is aggressively pursuing.

Secondly, we're trying to get the digital transition completed. Part of what the chairman of your committee is doing with his potential legislation, what we're doing with our hearings, is to push the technology side of the equation hard so that the broadcast side can meet their mandate deadlines so we can get the digital transition done. If we do that, then we can have the kind of rich, hot, sexy content provided to broadband that Americans are going to want to sign up for. It's that simple. If we have the protections built in, if we have the industry in the digital age speaking computer language, we have Spectrum available for new technologies to come in, we're well on our way with a combination of a bill that deregulates and opens up more competition.

I want to make one other point to you, because I know of you and Senator Ensign's work on your committee. I've got two letters I want to leave with you. One is from the TIA, and one is from the ITI, the two high tech industry associations in this town, representing the great bulk of all the high tech industries who depend upon these new technologies for their existence. And both of them came out against the attempt in the House to give the CLECs below cost access to these new systems that Bells would deploy. Both of them urged the House not to adopt the Cannon amendment, in fact to oppose them rigorously. And I share these amendments with you.

They're basically saying they agree that broadband deployment is critical, along with these other issues you've raised. And they're basically saying, for heavens sakes, don't disincentivize the Bell companies for building these systems by forcing them to sell them at below cost rates. These are important letters, and I leave them with you for your consideration.

SEN. HOLLINGS: Thank you.

SEN. ALLEN: Well, thanks. My time has expired.

SEN. HOLLINGS: Senator Ensign?

SEN. ENSIGN: Thank you, Mr. Chairman.

This issue, and I think we're seeing it by today, and I mentioned in my opening statement about the complexity of the issue. How do you, you know, when we talk to some of the IXEs, and they complain about the jurisdiction being taken out of the local authorities and put into the FCC, and we know how efficient the FCC is getting back to things. Given the rapidity, or lack thereof, with the FCC, do you think this is an appropriate place for adjudicating issues dealing with the IXEs?

REP. TAUZIN: Well, first of all, the only exemption we've given to local regulation is in this Internet area. And that's a question I hope you think about in your conference, is that whether or not we ought to make a policy on broadband that says that local regulators can regulate the Internet. I would hope we decide, as we do in this bill that, no, that ought not be the function of local regulators. The Internet is not only international, interstate, it's international, my point. It is not something that ought to be the subject of rate, terms and conditions set by a local PUC.

Secondly, the FCC is the most appropriate agency to make sure that the Bell carries out its provisions requiring the open access to CLECs and other competitors under these new systems again, because they have literally been the enforces of the rights and responsibilities of the Bells when it comes to the CLECs enjoying the rights on the current legacy systems, and we think that's appropriate.

Again, we're talking about -- we're not talking about local phone services between two towns and Louisiana, Nevada, or something. We're talking about Internet service. Broadband is essentially rich content Internet. I've been asked to explain it to people back in, you know, the hunting camps, the fishing camps back home. "What is all this broadband talk"? And I try to give them a simple example. It's like going to the refrigerator, under the current Internet world, and finding the refrigerator off. And you open it up and your beer is hot. Then you've got to turn it on and wait for the beer to get cold, and you're sitting there waiting, you wait a long time.

Finally, dial it up and it gets cold and you enjoy your beer. The broadband is like going to a refrigerator that's always on, is always cold, and when you open the door it's like "beer city," you've got every variety of beer you could possibly want, all the wonderful rich content that you deserve when you've had a good fishing camp in Louisiana. The bottom line is that that's what we're talking about. We're talking about Internet services, essentially, data information services. Not the old world of the local telephone.

And you've got to separate that when you think about regulations and freedom. And we have entitled our bill, The Internet Freedom and Broadband Deployment Act, because it does both. It keeps the Internet free of the hands of all these regulators who would love to tax it, regulate it, set terms and conditions, what you've got to carry, and what you don't have to carry, and who gets on and who doesn't get on. It keeps it out of the hands of all those regulators.

And, secondly, it fosters, it incentivizes much more deployment of the systems by which all this content, hopefully, will get protected, get enhanced, and get deployed in a digital television world.

SEN. ENSIGN: Well, Mr. Chairman, we don't have Nevada analogies to be able to compete with Cajun analogies. So, hopefully, we'll have some South Carolina analogies that can compete with that.

REP. TAUZIN: Well, you know, this is a gamble you want to talk about, you know, it's --

SEN. ENSIGN: Yes, we'll come up with some casino analogies. Okay.

REP. TAUZIN: Rolling a dice here, you know, we really are.

SEN. ENSIGN: Yes. Just hope we don't get a seven out.

SEN. HOLLINGS: I was wondering how Billy passed that bill in the House. That House crowd is hungry for entertainment.

REP. TAUZIN: Senator, that's why we enjoyed your visit to our committee. You entertained us for about, I think, an hour and a half when -- under our 15 minute rule, which we really appreciated.

SEN. ENSIGN: Anyway, I have another question, because we've heard from some of our -- especially the small CLECs in our state. Under the Buyer-Towns amendment, you think that -- they don't think they will be able to compete with your bill, and they think that they will actually go out of business. How do you address that?

REP. TAUZIN: Well, I can only take you back to the National Academy of Science's study, which said if you really want competition you have to have facility based competition. The idea of someone coming in to your store and trying to sell your products at below your cost is a weird business proposition. You want to look at why so many have failed already, it's because they're building their business on a model that doesn't work. They're coming into a store in many cases where the products are already subsidized below cost, the residential phone market, and trying to sell those products in your store.

The National Academy of Science, there have been a number of excellent studies done, CATO just did a beautiful study on the idea of property rights takings. Why would we in Congress approve a law that says companies can go out and build brand new systems, that's their property, that's their shareholders' property, and then have to give it away below cost. They won't build them. What shareholder would support a president or board that did that? We'd have some more Enron hearings, I suspect.

So, the bottom line is that if you really want competition in this marketplace, encourage facility base. That's what the bill does. It says you're encouraged to build your facilities inside the Bell right of way. Now, if you want to use their investment, you can do that too, but as long as you pay a just and reasonable rate for doing it. Now, what's wrong with that? What is wrong with that in America to say that with if somebody's going to come use your property, that they at least pay you a just and reasonable rate when they use it.

And, again, all of the IT companies, all of them said, "For heavens sakes, don't force an investor to give away his property at below cost rates. He just won't make the investments, and we'll all lose out."

SEN. ENSIGN: Mr. Chairman, I'll just close with this, and that is, and it gets to the heart of the difficulty and the politics, you know, both sides accuse the other side of having a monopoly and obviously, but yet both sides say that they want competition. And I think that our challenge is going to be truly getting to that competition, because everybody wants to have competition in the other guy's marketplace, and they'd like to have a monopoly in their own marketplace.

REP. TAUZIN: That's correct.

SEN. ENSIGN: And the key to us is to make sure that the legislation, whatever the final piece of legislation that we have, truly opens up everything. Because everybody benefits, including the companies, when there is true competition. They get better.

REP. TAUZIN: Do you remember when we -- all of us got together and passed this satellite news rights Act inside the cable Act? Was it '92? We passed it over president --

SEN. ENSIGN: We weren't here. That's okay.

REP. TAUZIN: You weren't here. But we had to do it over presidential veto. It was essentially the same issue: did you want the cable company to be the only provider of television services to so many homes in America, or did you want to give them another choice, an option in the sky? We had to fight, to duke that thing out. And, I mean, the same interests were arrayed.

I was told when I went to the floor with that amendment in the House, "forget it." Just like Senator Dorgan said, "You're never going to pass this. You cannot pass this bill. There are too many big companies arguing against you.

The House voted for it and the Senate voted for it. I think Senator Al Gore led the charge here in the Senate, and we overrode a presidential veto to make it law. And today, 16 --19 million Americans now enjoy a different choice of television programming than the cable company. I want to make sure they have the same choices in broadband. That they have a second store in town, Senator. A chance to go find some different content. Something brand new. That's the least we can do for American consumers. We can't create a job for everybody with this legislation, but we'll create 1.2 million jobs, according to one study.

We'll get this economy going. We'll give Americans control of this marketplace again instead of all these big companies that are running Tauzin-Dingell ads and interrupting our shaving in the morning.

SEN. ENSIGN: Well, Mr. Chairman, I think we all have the same goals, it's just a question of how we get there will be the fascinating thing to watch and I appreciate your holding these hearings today.

SEN. HOLLINGS: Yes sir. Thank you.

Senator Nelson?

SEN. NELSON: Thank you, Mr. Chairman.

Mr. Chairman Tauzin, having just been to New Orleans, just before Mardi Gras, I now understand why you use imagery of beer-filled refrigerators.

REP. TAUZIN: Quickly, Senator, I was asked why the travel to New Orleans only dropped 3 percent after 9/11 when it dropped so dramatically around the country, and the only answer I had was that when people come into New Orleans, they expect to die.

(Laughter.)

It's a great place.

SEN. NELSON: Well, I tell you when I was jogging down on Bourbon Street at first light of day at around 6:00 o'clock, they didn't look very dead down there.

(Laughter.)

I've got a number of questions for the record and I won't be long because I know the time is moving on here.

A GAO report of February 2001 found that most people did not want to pay a lot for broadband services and most households with access to the Internet were not planning on subscribing to broadband services at the current price range of around of $45 to $50 month. Tell us about if your bill will lead to more demand and lower prices.

REP. TAUZIN: You could have made the survey when it came to cellular phones when they were initially deployed in America, when there was only one cellular phone company, or two perhaps, because we made the good judgment to make sure there was a wired and non-wired line distributor.

This same arguments pertained. Then there three and there were four and there were five eventual companies offering. A price war erupted. And the same thing can happen in broadband. If you want to bring prices back down, get another store in town. It's as simple as that. It's no more complex -- somebody said this is such a complex issue. It is not when you really get down to it. It's a simple question of whether or not consumers are better off when there's only one store in town and that store sets all the prices, or whether they're better off when there's a second, third and fourth coming to town and all of a sudden those folks are fighting for your prices. And the prices come down in the price wars, and the services improve and the content improves because they keep bringing in new products to attract you to their store.

It's a simple proposition, Senator. You create more stores, you help consumers.

SEN. NELSON: Right. Let me ask you about that chart. That chart seems to be the opposite of our experience in Florida. The Public Service Commission chairman has written and says that Florida ranks well about the national averages in broadband deployment. As I understand that chart, you're saying that there's no broadband in about 89 percent of the consumers. It says, "According to FCC data, 87 percent of Florida's zip codes are served by at least one broadband provider, 69 percent are served by one to three providers." And it says, "These percentages are above the national averages of 59 percent and 49 percent respectively."

Is there a disconnect there with your chart because they're talking about zip codes here and you're talking about something else there?

REP. TAUZIN: Absolutely. I mean if America was one zip code, 100 percent of America would be served by broadband. That make sense? The fact is you could have one customer --

SEN. NELSON: What is that? That's on all customers?

REP. TAUZIN: That's the percentage of customers in America on broadband. If there's one customer, generally a business customer, in a zip code, that zip code is counted as being broadband served under those statistics. You've just got to watch how you read them.

SEN. NELSON: Is it of your knowledge that Florida is served? More consumers are served in Florida as compared to other states?

REP. TAUZIN: As compared to some other states you are. I think Florida's as advanced in deployment as the best of the states, but I don't think it's necessarily better than the rest of the country. I think the other parts of the country would compare with Florida.

SEN. NELSON: All right.

Mr. Chairman, I would like to proffer a series of questions, if we could get just short answers. These are questions that have been proffered from the chairman of our Public Service Commission and I would like to get your answers on the record.

REP. TAUZIN: I'll try.

SEN. NELSON: Does the bill undermine the incentives for Bell operating companies to open their local markets to competition?

REP. TAUZIN: We don't think so. I mean, they've made that argument. What we've done is not only kept the carrot of long distance service under 271 in order to encourage them to open up their local markets, we've added a stick. So today we're operating just under a carrot and it's not working very well. We've only got a few states that have been through the process. What we're saying is maybe we need a stick too. So we've added a stick.

SEN. NELSON: All right. Number two, would the regional Bell operating companies lose their incentives to open up their markets if the data traffic were allowed across LATA boundaries?

REP. TAUZIN: The long distance market is about $100 billion market. Nothing to sneeze at. That's a pretty good incentive.

Secondly, whether they have an incentive to or not, we've added power to the FCC to force them to open up their local markets.

SEN. NELSON: Number three, does the bill harm rather than help competition in broadband deployment? This is what we've been talking about here.

REP. TAUZIN: No question in our mind it enhances dramatically competition. If you don't -- if you like the current situation where you've got a 70 percent dominant player and the Bell companies are really reluctant to deploy because they'd have to sell their new investments at below cost, then this is what you get. I think we deserve better than this.

SEN. NELSON: Next question.

While the Florida Public Service Commission does not regulate the Internet, would the preemptive language in the bill keep the PSC from overseeing the non-discriminatory application of terms and conditions in tariffs for high speed data services?

REP. TAUZIN: Yes. It eliminates any regulation by the PUC of terms and conditions and service on the Internet. It frees the Internet from local regulation and it however, continues the power to examine the performance standards of the bills.

SEN. NELSON: Last question, does, in your opinion, the bill -- how does it affect the regulatory leverage to spur the Bell companies to open up their markets.

REP. TAUZIN: It increases regulatory leverage. The commission -- Mr. Powell came before us and asked for exactly what he gets in our bill, which is a ten-fold increase in fines, a 20-fold increase for repeat bad behavior and the power to go to court under cease and desist authority to force the Bells to behave when they misbehave.

SEN. NELSON: Thank you, Mr. Chairman.

SEN. HOLLINGS: Chairman Tauzin, the hour is late, I --

REP. TAUZIN: We do have a vote --

SEN. HOLLINGS: Correction. This disconnect, Senator Nelson, is from the truth. It's just exactly the opposite of that. Eighty five percent passes the homes all over America. It's the lack of demand. Yes, there is a monopoly, cable has got a temporary monopoly. The Bell company has got a permanent one. The cable one is, by way of a franchise fee for 5-10 years, the Bell companies don't pay a franchise fee. The cable companies have got to provide governmental services, schools and everything else and they've got to have a good reasonable price or they're going to lose the contract.

In fact, there's some price overview and changes in the city's contracts and everything else of that kind. And they know they'll lose the contract. There never is going to be the end of a Bell company.

REP. TAUZIN: Excuse me, senator, but there is no cable franchise fee on the broadband service.

SEN. HOLLINGS: Let me tell you this, going right down here. I'll yield to you in just a second because I have a hard time keeping up. The 271, you just gave the excuse about your competition of long distance -- 271, Senator Conrad Burns asked the question about the difference between data and voice, none. Both of you all said absolutely none. On page 18, section 6, line 13, you repeal 271 for data and thereby since there's no difference with voice, you repeal 271 for both.

You go right down the years to comply, Horizon, Bell South, they're already in to the third year and that's no five year requirement because they are pell-mell trying their best between Ackerman or Bell South says, going as fast as they can, as profitable and even if they didn't comply, the penalties are a joke. They've paid $2 billion in penalties --

REP. TAUZIN: Senator, I've got two minutes --

SEN. HOLLINGS: I'll yield in just a second, you --

REP. TAUZIN: I've got two minutes on a vote. I've got to vote.

SEN. HOLLINGS: All right. You've got to vote and then -- well you give the authority to the FCC just and reasonable and everything else. It's not given to them except on appeal and you give the authority to -- we had, Billy, a contest for an insurance company down in South Carolina and the winning slogan was "a capital life will surely pay if the small print on the back don't take it away." And that's exactly this bill.

I had the staff study it. I've looked at it and every time I've said the Chairman Tauzin told me now, he's got some amendments and it will be acceptable and everything else like that, you've got to fill it out for the lawyer that's drawn this darn thing. It's still the worse thing I've ever seen because it really does turn it over to a total monopoly. I mean --

REP. TAUZIN: We disagree on that.

SEN. HOLLINGS: -- the little bit of competition that the cables are giving is going out the door.

REP. TAUZIN: We disagree on that, senator. That's a valid disagreement. I can only tell you that when we presented our bill to the delegation from South Carolina in the House, all but one of the members voted for it. So there's even disagreement within your state that --

SEN. HOLLINGS: Your right. In fact, I've got way more friends -- I can't tell who the AT&T fellow down there. You keep saying I'm shilling for AT&T --

REP. TAUZIN: I've never said that.

SEN. HOLLINGS: I don't know who represents them in South Carolina. I know all of them in Bell South. They're far more influential that --

REP. TAUZIN: Trust me, senator, I've never said you shill for anyone. No one would ever claim that. What I do know is, when we presented these amendments -- these changes in the bill to the delegation from South Carolina, we were very successful in getting the support of the vast majority of your members and only one voted against it. I'm saying that's a legitimate difference of opinion.

Let us leave it there and let's continue to talk and work. I think I've heard a lot of expression today that have agreement on the general things we want to accomplish and I will reiterate again, Mr. Dingell and I are absolutely dedicated to work with you and all your members, if there are better ideas, better ways to achieve the goals I think we've all mutually expressed, sir.

SEN. HOLLINGS: Very good. Thank you very much, for your appearance. It's been very helpful to us today.

SEN. NELSON: Mr. Chairman, I want to clarify and as we get into the discussion on this, because the suggestion of that chart, I'm looking at the Federal Communications Commission's third report and they make a statement on page 49. "Analysts estimate that high speed Internet access is available in about 75 to 80 percent of U.S. households, via DSL and cable modem service." And so there's a disconnect between statements like that and that chart, that over the course of your hearings, I'd like to figure it out.

SEN. HOLLINGS: Very good, chairman.

The committee be in recess, so be it called.

END

LOAD-DATE: March 22, 2002