[Senate Hearing 108-1021]
[From the U.S. Government Publishing Office]
S. Hrg. 108-1021
TELECOMMUNICATIONS POLICY REVIEW:
A VIEW FROM INDUSTRY
=======================================================================
HEARING
before the
COMMITTEE ON COMMERCE,
SCIENCE, AND TRANSPORTATION
UNITED STATES SENATE
ONE HUNDRED EIGHTH CONGRESS
SECOND SESSION
__________
MAY 12, 2004
__________
Printed for the use of the Committee on Commerce, Science, and Transportation
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SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION
ONE HUNDRED EIGHTH CONGRESS
SECOND SESSION
JOHN McCAIN, Arizona, Chairman
TED STEVENS, Alaska ERNEST F. HOLLINGS, South
CONRAD BURNS, Montana Carolina, Ranking
TRENT LOTT, Mississippi DANIEL K. INOUYE, Hawaii
KAY BAILEY HUTCHISON, Texas JOHN D. ROCKEFELLER IV, West
OLYMPIA J. SNOWE, Maine Virginia
SAM BROWNBACK, Kansas JOHN F. KERRY, Massachusetts
GORDON H. SMITH, Oregon JOHN B. BREAUX, Louisiana
PETER G. FITZGERALD, Illinois BYRON L. DORGAN, North Dakota
JOHN ENSIGN, Nevada RON WYDEN, Oregon
GEORGE ALLEN, Virginia BARBARA BOXER, California
JOHN E. SUNUNU, New Hampshire BILL NELSON, Florida
MARIA CANTWELL, Washington
FRANK R. LAUTENBERG, New Jersey
Jeanne Bumpus, Republican Staff Director and General Counsel
Robert W. Chamberlin, Republican Chief Counsel
Kevin D. Kayes, Democratic Staff Director and Chief Counsel
Gregg Elias, Democratic General Counsel
C O N T E N T S
----------
Page
Hearing held on May 12, 2004..................................... 1
Statement of Senator Allen....................................... 3
Statement of Senator Breaux...................................... 40
Statement of Senator Cantwell.................................... 49
Statement of Senator Ensign...................................... 37
Statement of Senator Lautenberg.................................. 2
Statement of Senator Lott........................................ 42
Statement of Senator McCain...................................... 1
Prepared statement........................................... 1
Statement of Senator Nelson...................................... 2
Statement of Senator Sununu...................................... 44
Witnesses
Betty, Charles ``Garry'', President and Chief Executive Officer,
EarthLink, Inc................................................. 17
Prepared statement........................................... 19
Ford, Scott, President and Chief Executive Officer, ALLTEL
Corporation.................................................... 12
Prepared statement........................................... 15
Roberts, Brian L., President and Chief Executive Officer, Comcast
Corporation.................................................... 8
Prepared statement........................................... 10
Seidenberg, Hon. Ivan, Chairman and Chief Executive Officer,
Verizon........................................................ 3
Prepared statement........................................... 5
Wilson, Delbert, Central Texas Telephone Cooperative on behalf of
the National Telecommunications Cooperative Association........ 22
Prepared statement........................................... 23
Appendix
Letter dated May 18, 2004 to Hon. John McCain from Delbert
Wilson, Central Texas Telephone Cooperative, Inc............... 57
TELECOMMUNICATIONS POLICY REVIEW:
A VIEW FROM INDUSTRY
----------
WEDNESDAY, MAY 12, 2004
U.S. Senate,
Committee on Commerce, Science, and Transportation,
Washington, DC.
The Committee met, pursuant to notice, at 9:32 a.m. in room
SR-253, Russell Senate Office Building, Hon. John McCain,
Chairman, presiding.
OPENING STATEMENT OF HON. JOHN McCAIN,
U.S. SENATOR FROM ARIZONA
The Chairman. Good morning. Today we continue our series of
hearings reviewing telecommunications policy. I will be brief
so that we can hear from our witnesses. In previous hearings we
took a look back at the Telecommunications Act of 1996 to
identify the successes and failures of that law and looked
forward to consider potential reforms to our telecommunications
policy, given advances in technology.
Today we will hear the perspectives of leading corporations
in each of various industry sectors regarding the elements that
should be considered in any legislation seeking to reform
existing telecommunications law. I thank the witnesses for
being here today and I look forward to their testimony.
Our witnesses are: Mr. Ivan Seidenberg, who is the Chairman
and Chief Executive Officer of Verizon; Mr. Brian Roberts,
President and Chief Executive Officer of Comcast Corporation;
Mr. Scott Ford, President and Chief Executive Officer of
ALLTEL; Mr. Garry Betty, President and Chief Executive Officer
of EarthLink; and Mr. Delbert Wilson, former Chief Executive
Officer, Central Texas Telephone Cooperative.
[The prepared statement of Senator McCain follows:]
Prepared Statement of Hon. John McCain, U.S. Senator from Arizona
Today we continue our series of hearings reviewing
telecommunications policy. I will be brief so that we can hear from our
witnesses. In previous hearings, we took a look back at the
Telecommunications Act of 1996 to identify the successes and failures
of that law, and a look forward to consider potential reforms to our
telecommunications policy given advances in technology. Today, we will
hear the perspectives of leading companies in each of various industry
sectors regarding the elements that should be considered in any
legislation seeking to reform existing telecommunications law. I thank
the witnesses for being here today and I look forward to your
testimony.
The Chairman. Frank, would you like to make an opening
statement?
STATEMENT OF HON. FRANK R. LAUTENBERG,
U.S. SENATOR FROM NEW JERSEY
Senator Lautenberg. My statement will be short, Mr.
Chairman. I appreciate the opportunity to just say a few words.
Again, my appreciation for holding this hearing, this third in
the series, to review the implementation and the effects of the
Telecommunications Act of 1996.
The 1996 Telecom Act, as it is called, ushered in what we
thought would be, and what proves to be partially so, the most
extensive change in U.S. communications law in the 62 years
since the Communications Act of 1934. I believe that we should
view the 1996 Act as part of an ongoing effort to protect
consumers from potential domination by one telecommunications
company or by several regional companies with monopoly power
and to encourage innovation and investment in the industry.
The best way to accomplish these goals is to facilitate a
marketplace where all service providers can compete for the
consumers on a relatively--and I use the term advisedly--even
playing field. The tough part is creating the even playing
field. Now, I am sure today we are going to hear from some
witnesses who will argue that the cable industry is the biggest
beneficiary of Congress's effort to deregulate the
communications, telecommunications industry. The oft-quoted
figure is that since 1996 the cable industry has been able to
raise and invest over $75 billion on facility upgrades that
allow operators to provide consumers with a wealth of new
services, including digital cable, video on demand, cable modem
service, and cable telephony.
The witnesses for the telephone companies I am sure are
going to point to cable's successes--I do not know whether they
are going to do it admiringly or otherwise, or enviously, but--
point to cable's successes and say that phone companies should
also be free from the regulatory burden. But I think it is
important to remember that the Bell telephone companies, unlike
cable, enjoyed a regulated monopoly status for so many years
and they were able to negotiate a guaranteed return on their
investment.
I am sure today's witnesses, particularly Mr. Seidenberg
and Mr. Roberts, who operate the biggest telephone and cable
companies in New Jersey, will help clarify some of the
implementation issues that we need to address as we revisit the
1996 Act.
I thank you, Mr. Chairman.
The Chairman. Would Senator Allen or Senator Nelson want to
make brief opening comments?
STATEMENT OF HON. BILL NELSON,
U.S. SENATOR FROM FLORIDA
Senator Nelson. Very brief, just to say that I am
interested in hearing our witnesses' thoughts about the
strengths and weaknesses of the Nation's telecom policies,
looking forward to it.
The Chairman. Thank you, Senator Nelson.
Senator Allen.
STATEMENT OF HON. GEORGE ALLEN,
U.S. SENATOR FROM VIRGINIA
Senator Allen. Mr. Chairman, I would like to submit my
statement for the record----
The Chairman. Without objection.
Senator Allen.--with a brief statement that, first of all
commending you for having this hearing, which is very timely.
The 1996 Act was certainly of value, but I think the greatest
value has been all the advancements in technology, and we in my
view ought to be doing everything that we can to remove burdens
on the deployment of broadband, which is going to provide so
many more opportunities, not just telephone lines and cable
lines, but satellite, Wi-Fi, wireless, even power lines.
With your help, Mr. Chairman, just a little over a week ago
we did the right thing on preventing taxation of broadband,
which certainly will provide all the new applications to get
out there and provide people with the opportunities in commerce
and education and access to information.
We have, obviously, key stakeholders here today. I look
forward to hearing their testimony as we determine how to, in
my view, embrace the power of technology to operate in a free
market rather than arcane government regulations that are
stagnant, out of touch, or inflexible. To the extent that we
can look at ways to encourage the infrastructure deployment and
compelling applications for our Nation, I want us to be one of
the leaders of the digital information age, and look forward to
where we can examine the 1996 Act and improve it, update it,
and make it better for consumers.
Thank you, Mr. Chairman.
The Chairman. I again want to thank a very illustrious and
successful panel here today, or mostly successful panel today.
We will begin with you, Mr. Seidenberg. Thank you for appearing
before the Committee again.
STATEMENT OF HON. IVAN SEIDENBERG, CHAIRMAN
AND CHIEF EXECUTIVE OFFICER, VERIZON
Mr. Seidenberg. Thank you, Mr. Chairman. Thank you very
much, members of the Committee. It is indeed a pleasure to be
with you this morning and share our views on industry and our
company in general.
As you know, in our written testimony we laid out a lot of
detail about the shifts that is occurring in our industry, all
of the technological changes. The bottom line to us is that
consumers today have more choices in which to provide services,
telecom services, particularly over wireless, cable, and
telecom networks.
The other key point is, with the emergence of the Internet
over the past several years, all these networks can be
interconnected using IP protocols and packet switching
protocols, which in effect tear down the silos that used to
exist between cable, telephone, wireless, and other types of
networks, radio networks for example. For example, today you
can see you can have area codes that are portable. You could
never do that before. So in our view the whole shift from local
to national has occurred in the telecom space.
Technology investment and innovation have created the
competition and the consumer choice that we think were the
stated objectives of the Telecom Act. As we further upgrade our
networks to even higher speed broadband and IP-based
technologies, consumers will see even greater benefits in terms
of product innovation and economic growth and job creation.
Now, Verizon. Verizon is a major player in this broadband
market. You all know that. The key point I would like to make
this morning is our record of commitment to deploying new
technologies is clear and unquestionable. In fact, we have
invested more as a single company in wireless and broadband
than any other single company in the industry, and we continue
to use our more than $12 billion a year in capital spending to
aggressively transform our networks and our business model
around new technologies in these markets. Of course, these
network investments include things like expanded DSL service,
packet switches that work on IP protocols, large-scale
deployment of fiber optics, wireless, and the first ever
deployment of wireless broadband.
So, Mr. Chairman, there should be no doubt about our
commitment to manage our business for the future or our
willingness to take the business risk associated with investing
in these new technologies. So for us, the question for us goes
to the wireline or the traditional side of our business, is
whether this level of commitment that we have made to
investment is really sustainable over the long term.
In our view, under the present regulatory regime that we
operate under we feel that the ability to continue this level
of investment is highly speculative. Now, the problem lies in
the imbalance between the rules for investing in the wireline
network as opposed to other technologies such as cable or
wireless. The current system subjects those investments that we
make in wireline to conflicting agendas and interpretations of
regulatory agencies at every level of government, from
municipalities to States to the Federal Government, imposing
costs, injecting ambiguity, introducing bureaucratic red tape
into every investment decision involving the wireline network.
This is evidenced in our results over the last four or five
quarters, including the last quarter, which shows that our
wireless business has had a steady growth rate of more than 15
percent a year for the past 2 years, our wireline business has
been shrinking at an average rate of 4 percent a year.
Now, our view is that, even in light, in the face of this
shrinking business, we have been willing to invest to transform
our growth profile around these new technologies, and we have
done that with the understanding that over the course of the
last 7 or 8 years, with the Telecom Act having been passed,
that we would see a more stable environment for rules and
investment.
What we have found is the process is getting worse. So for
us, we are very much concerned that we will continue to have to
shift our focus away from wireline if we do not straighten out
the imbalances that exist in regulation on the wireline side of
the business. Any business person would tell you that there is
always a short period of time that we would be willing to live
with some business risk and some ambiguity, but 8 years now is
a long enough period of time when we should have this thing
straightened out. As we look out into the future, we think the
practices of the past 8 years are likely to become the
permanent rules under which we operate, which is just not
acceptable to us.
So what do you do? What we would ask is that Congress take
the lead in creating a new legislative framework for the
broadband era based on the same principles that govern any
technology-driven industry, including cable or wireless, and
have a policy that provides stability and uniformity across the
industry and across the country, a policy free from any form of
economic regulation of these investments, and common rules for
enforcement, technical standards, and public safety where the
Congress thinks they are needed.
So you know that this is in our interest to see this
happen. It will give us a chance to grow and compete. We are
one of the few companies that have the resources and the will
to participate in this market. Why is this good for you and the
country? It is obvious. We will create economic growth and
economic development. For every dollar we spend and invest in
our business, it creates three dollars in additional investment
and growth in other industries that depend on telecom services.
Having said that, I appreciate the opportunity to address
you this morning and hopefully you can clear the path to the
future so we can all participate on a more even keel basis.
Thank you.
[The prepared statement of Mr. Seidenberg follows:]
Prepared Statement of Hon. Ivan Seidenberg, Chairman
and Chief Executive Officer, Verizon
Mr. Chairman, Senator Hollings, and members of the Committee, thank
you for the opportunity to join in this important examination of the
future of telecommunications policy. Verizon invests more capital,
employs more workers, and serves more customers than any other
communications company in the U.S., so we have a vital interest in the
outcome of your deliberations, as does the entire American economy.
I would like to make three points this morning:
First, that the communications industry has been changed
forever by a new era of mobility and broadband networks,
Second, that Verizon is excited about the industry's future
and its potential to contribute to the economy and improve our
quality of life,
And finally, that we urgently need a new approach to public
policy in order for us to continue investing in the high-speed
broadband networks at the heart of this vision of the future.
A New World of Communications
This committee has heard a great deal of testimony about how
radically technology has transformed the communications industry since
Congress last took up this debate in 1996. This year, the total number
of long distance calls made over the wireless network will exceed those
made over the wireline network. More than 160 M Americans have wireless
phones, almost one in five of whom will use their mobile phones as
their main communications device. More than 70 percent of American
households are connected to the Internet, increasingly via broadband
connections provided by cable, wireline and wireless networks. A
hundred million Americans now regularly use e-mail. Instant Messaging
is not only becoming the principal means of communication for young
people, but is also evolving beyond text into voice and video.
And with the emergence of the Internet--which interconnects all
these networks using an IP protocol--you don't need to own the pipeline
to offer these services to customers; you just have to put your
application and your content on the Internet, where customers can reach
it over their broadband connections. That's what we're seeing now with
the emergence of Voice-Over-IP--basically, as an application that can
be offered on the Internet and essentially bypass the carrier who has
the pipe into the customer. So we're seeing a whole new challenge to
the traditional definition of communications services.
The result of this explosion of new technologies is that the
objectives envisioned by the framers of the Telecom Act of 1996--
competition, consumer choice, and rapid innovation--have been realized,
not because of regulation but because of technology. About 40 percent
of long-distance telephone and about a third of local telephone use has
been supplanted by new technologies. But while revenues and access
lines in the traditional telephone business are declining, the
electronic communications market is expanding, providing Americans with
many networks and many services from which to choose.
In fact, I would argue that the ``telecom industry'' as we knew it
is history. In its place will be the ``broadband industry'' made up of
new, superfast, multimegabit networks that can deliver video, data and
voice in entirely new ways. Today's ``first-generation'' broadband
connections--whether DSL or cable modems--are just the first step.
Truly high-speed, multimegabit networks go beyond faster downloads or
cheaper phone calls, enabling two-way, multimedia capabilities that
will revolutionize commerce, education and health care.
Verizon agrees with the Consumer Electronics Association, the High
Tech Broadband Coalition, and TechNet that delivering 100 megabits of
capacity to people wherever they are--at home, at work, on the go--
should be the long-term goal for the communications and high-tech
industries. These kinds of networks will create a platform for new
applications, services, and communications technologies, giving
Americans even more choices in the electronic communications
marketplace than they ever could have imagined.
Verizon's Vision of the Future
Verizon is a major player in this new broadband marketplace, and we
are aggressively transforming our wireline and wireless networks around
new technologies and new markets. My company invests close to $12
billion in capital every year, more and more of it to deploy the
broadband networks on which the information economy runs:
We have equipped over 40 million lines of our network with
DSL capabilities and will continue to expand coverage, increase
speeds, add customers, and provide new services like VoIP.
We are converting from circuit switching to packet switching
to accommodate the upsurge of IP-based traffic.
This month, we will begin a large-scale deployment of fiber
in our local network. We expect to pass 1 million homes this
year and, potentially, another 2 million in 2005.
And we have the largest and most advanced wireless network
in the U.S., which itself is rapidly moving to broadband
speeds. In fact, our wireless broadband service, EV-DO, is
available right here in Washington, D.C. and we are moving
quickly to expand it nationwide.
Our strategy is to differentiate our company through investment and
innovation: new applications, services and network platforms. We have
shown how this dynamic works in our wireless business, which is a
technology and quality leader in the industry. It is vital that we be
able to do the same in our wireline business by making the huge
investments required to transform our copper network around the
requirements of the broadband era.
These investments benefit not only the millions of homes, small
businesses, hospitals, schools and corporations who rely on Verizon's
networks for high-speed access, but also have an enormous multiplier
effect on the American economy in general. Every dollar of capital we
invest generates $3 of investment in the economy as a whole. One study
finds that accelerated broadband investment by telecommunications
companies would add more than $400 billion to GDP and 1.2 million jobs
over the next 10 years. And keep in mind, these jobs will not only be
in the high-tech sector, but throughout the economy: manufacturing,
small business, creative, even at-home work.
That is why the debate over telecom policy--in particular, its
impact on investment and technological progress--is so important to
America. The truth is, the U.S. is falling behind the rest of the world
when it comes to broadband deployment--11th, to be precise, in one
study. The average household in South Korea has more bandwidth than the
average American business. Countries like Japan are deploying more
fiber in their local networks than we are, forcing the U.S. to play
catch-up in an infrastructure critical to technologies such as fiber-
optics. The extent of the harm to the U.S. economy is evident in the
latest employment statistics, which show that the information
technology sector--computers, telecom equipment, and telecom services--
is still losing jobs, even while the rest of the economy is growing.
Verizon is optimistic about the future of our industry, and we
believe our company has a positive, constructive role to play in
delivering a new generation of technology to our customers. As we do,
we will help stimulate a new wave of productivity growth, create the
entrepreneurial activity that is key to America's economic leadership,
and deliver the long-promised social benefits of broadband in health
care and education.
A Policy Framework for the Broadband Era
However, for that to happen, we need a policy framework suitable
for a broadband era. Unfortunately, today's public policies are badly
out of synch with market realities.
The world Verizon operates in is characterized by the emergence of
large, well-capitalized strategic competitors who are rapidly deploying
IP and broadband networks to offer high-speed data, video and voice
services in our markets. In fact, the C.E.O. of one of our biggest
strategic competitors is sitting at this table. Brian Roberts's
company, Comcast, currently has the leading market share in broadband
in our markets and is rapidly upgrading its networks to offer IP
telephony, as well. Unlike Verizon, Comcast can make these network
investments in response to customer demand and market opportunity. It
can earn a reasonable return on investment, unfettered by sharing
obligations or asymmetrical tax burdens. And it can make investment
decisions in an environment of reasonable stability, without the
uncertainty of ambiguous and changing regulations.
Similarly, wireless companies--including Verizon Wireless--can
invest and innovate like real businesses. Wholesale rates are
negotiated commercially. Prices are set in the marketplace in an
environment of vigorous competition. The result is a market in which
companies compete on price, quality and innovation, to the benefit of
consumers across the country.
Yet the world as seen through the lens of telecom policy could not
be more different. In fact, today's policies ignore these market
realities entirely--regulating my company one way and Mr. Roberts'
another with respect to the very same types of services.
Today's regulations look backwards to a time when the world was
dominated by a single company, offering a single service. Under the
current regime, regulators--not customers--set prices, create
competition, and pick winners and losers. And because these rules focus
almost exclusively on the old definition of communications--the
traditional voice business--they discourage investment and innovation
in the segment of the industry that arguably serves the broadest base
of customers.
To see the consequences of a system that imposes costly, burdensome
rules on one set of competitors, compare the pace of innovation and
investment in the heavily regulated telecom business with that of
wireless, cable, Internet and other technology-driven industries.
This is not good for America's long-term competitiveness in an
industry vital to our future.
Let me be very clear. Verizon does not seek to impose new
regulatory burdens on Mr. Roberts's company or any of our competitors.
On the contrary, we believe government regulation of broadband
investments and Internet services is both unnecessary and
inappropriate. Instead, we seek a forward-looking, market-based policy
framework for all competitors--one that puts us on the same footing as
cable and wireless network providers.
Congress has taken some important first steps in this direction.
For example, we commend this Committee for urging the Senate to pass
the Internet Tax Moratorium, which keeps new IP services free of
onerous tax burdens. In particular, we applaud the leadership shown by
Chairman McCain and chief sponsors Senators [George] Allen and [Ron]
Wyden, and the strong support from Senators [Trent] Lott, [Barbara]
Boxer and [Ted] Stevens. It is our hope that the House and Senate can
come together to ensure that this important legislation is enacted.
We also applaud Senator Sununu's efforts to ensure that Voice-over-
IP will be free from a patchwork of potentially burdensome and
inconsistent state regulations. As we move forward, we need a
comprehensive policy framework to make sure that all investments in new
fiber networks are not burdened with costly rules that increase risk
and reduce incentives to invest.
The President has said we need to clear out the ``regulatory
underbrush'' to encourage the growth of broadband. The FCC is moving on
the right path by working to ensure that deployments of new, broadband
technologies are not burdened by traditional, heavy-handed regulation.
But regulators must rely on frameworks and guidance from Congress.
It is clear to me that in order to take the major steps needed to break
the industry out of the old regulatory structures of the past, Congress
will need to provide a new vision. That vision should have the
following elements.
First, it is imperative that government decision makers
understand how radically different the telecommunications
market has become and incorporate that understanding into
policy decisions. Harmful policies are based on ``old think''
and outdated stereotypes.
Second, we must shift our view of what government's primary
role is in this new telecommunications market. Traditional
prescriptive regulation tends to drive all services down to a
``least common denominator'' level where little difference in
networks, services or options is possible. Consumers want more
options, more control, and more innovation.
Third, government should not impose price controls on
selected services and transactions, thereby skewing the market
and the incentives for efficient growth, impose operational
constraints on technologies in an attempt to anticipate
hypothetical problems, or impose burdensome and uneven taxation
and regulation on one technology over another.
Finally, government should recognize the power and
properties of networks because efficient, innovative networks
require scale and scale is what drives consumer satisfaction--
the more people and places any person can reach, the more
valuable the network. It should continue to allocate spectrum
and continue to facilitate more efficient ways to allow firms
to use that spectrum. And it should focus on the role
government may play in using broadband and advanced
communications technologies to address the social challenges of
our time, including telemedicine, improved emergency services
and online education applications.
Before I conclude, let me make one final point about the future of
public policy. Any effort on the part of Congress to reform the laws
governing communications must be matched by an equally thorough
revamping of the state and Federal regulatory process. Without such
reforms, the objectives of even the most well-intentioned legislation
are in danger of being thwarted by the conflicting agendas and
interpretations of multiple regulatory bodies. Only by paying close
attention to the process by which telecom laws are implemented and
enforced can Congress make sure new legislation produces the effects
you intend.
Complexity and uncertainty are the enemies of investment. You have
the opportunity to clear the path to the future. I urge you to act on
that opportunity with all due speed.
Mr. Chairman, the world has changed in telecommunications.
Consumers have more options and the market is more competitive than
ever. We need to stop making policy by looking in the rear-view mirror
and create a forward-looking framework that rewards the investment,
innovation and risk-taking at the heart of technology-driven
industries.
We believe in this business. We are excited about the future and
about our role in delivering the promise of the broadband era to
customers. And we are confident that, with the right policy framework
in place, communications can once again be an engine of economic growth
and catalyst for innovation in this vital industry.
Thank you, and I look forward to your questions.
The Chairman. Thank you.
Mr. Roberts, welcome.
STATEMENT OF BRIAN L. ROBERTS, PRESIDENT AND CHIEF EXECUTIVE
OFFICER, COMCAST CORPORATION
Mr. Roberts. Thank you. Chairman McCain and members of the
Committee: I appreciate the opportunity to share our views on
the status and direction of communications policy in America. I
think the right place to begin is with the excellent
articulation that appeared in the preamble of the
Telecommunications Act of 1996. It called for a pro-competitive
deregulatory policy to promote investment, innovation, and
competition in all segments of communications. That vision
signaled a major change in direction, from decades-old
interventionist policies that tended to artificially limit
competition to policies that embraced markets, encouraged
facilities-based competition, focused on breaking down entry
barriers, and paring away counterproductive regulation.
To the extent that we have remained true to that vision, I
believe consumers have benefited, and the greatest success
story of the 1996 Act are what has happened in video and
broadband markets. This chart shows you annual cable investment
in innovation. From 1992 when Congress regulated cable until
1996, when the industry was stagnant--our industry was stagnant
between 1992 and 1996. The investment in new technology was
literally frozen and new programming networks came to a halt.
Then in 1996 the Act passed and it really changed
everything. The Act removed the strict regulations on cable
pricing and packaging effective in 1999. With the signing of
the 1996 Act, the investment community finally regained
confidence in cable and became willing to support the massive
investment in video and broadband. In the last 8 years, the
industry as a whole has invested over actually $85 billion in
new technology. Comcast alone, counting the companies that we
have acquired, have invested over $39 billion.
Before deregulation the industry's annual capital
investment was $4.8 billion. After deregulation, in the average
year we spent $13.4 billion, more than triple. That has allowed
all sorts of new services to become realistic to American
consumers.
But the 1996 Act was not just about deregulation at the
Federal level. It was also about competition. The 1996 Act set
the stage for the Satellite Home Viewer Act, which unleased the
direct broadcast satellite industry to fully compete with
cable. Until that legislation passed, satellite TV was mostly a
rural phenomenon. Since then satellite and other video
competitors have gone on to serve one out of every four multi-
channel TV homes in the United States.
The 1996 Act also gave the incentive to invest in high-
speed Internet. Cable modems really drove the broadband
revolution in America, and today Verizon, SBC and other
companies compete fiercely with us and they are upgrading their
networks, just as we have done, to keep pushing the technology
envelope.
Broadband is booming. Only cell phones have had a more
rapid consumer acceptance. More than 20 percent of broadband
customers, over 16 million homes, subscribe to high-speed
network from cable and nearly a quarter of all U.S. homes take
broadband from cable, phone, or other providers.
The success of video and broadband, and I would add
wireless, proves the wisdom of focusing government policy on
promoting facilities-based competition. This is the kind of
competition that is real and long-term and sustainable. It does
not depend on a regulatory intervention to simulate competition
through resale or forced access policies. Promoting facilities-
based competition has been and should remain the paramount
public policy goal.
As we look ahead, I think we can agree that the next great
transforming technology is Internet protocol, or IP, which
gives us the ability to convert all forms of video, voice and
data into data packets and move them over our networks with
greater efficiency and less cost. The main reason we have seen
very little facilities-based telecom competition over the past
8 years, particularly in the residential marketplace, is that
the available technologies were so limiting. It really has not
been possible to offer a phone service that is anything other
than me-too.
But the IP platform lets us offer a differentiated product
with services like integrated messaging, so you can check your
e-mail and voice-mail together on any number of different
devices. As we saw some truly incredible IP videophones at the
cable industry's national show in New Orleans just last week,
it gets me even more excited. Voice-over-IP will make cable a
ubiquitous facilities-based telephone competitor, and we have
clearly stated, in exchange for the rights we need to compete
as a VoIP provider, as it is called, we are prepared to step up
to important social responsibilities like universal service,
emergency service, and full cooperation with law enforcement.
We need a clear, strong deregulatory policy on VoIP. The
FCC's notice and Senator Sununu's bill start us in the right
direction. We hope these policies will not have to await a
comprehensive rewrite of the Telecommunications Act. We need
them sooner rather than later.
Finally, I think that Congress and the FCC already have the
right focus: promote facilities-based competition, break down
barriers to entry, and reduce regulation. Right now the FCC is
clearing the way for new wireless technologies, broadband over
power lines, and other broadband alternatives. I believe that
American businesses should put their energy and capital into
creating these new facilities, as well as folks like ourselves
creating new and better facilities, and try not to try to
regulate competitors.
Some may not get that message and to them I think Congress
should offer the advice: Do not just stand there; build
something. We have. $4.8 billion went to $13.4 billion per
year.
Mr. Chairman, thank you again for the chance to share our
views. I look forward to the members' questions.
[The prepared statement of Mr. Roberts follows:]
Prepared Statement of Brian L. Roberts, President and Chief Executive
Officer, Comcast Corporation
Chairman McCain, Senator Hollings:
Thank you for this opportunity to share our views on the status and
direction of communications policy in America.
In our view, the starting point for this discussion is the
excellent articulation in the preamble of the Telecommunications Act of
1996, which calls for a pro-competitive, deregulatory policy to promote
investment, innovation and competition in all segments of the
communications industry.
That vision represented a major change in direction--from decades-
old, interventionist policies that tended to artificially limit
competition . . . to policies that embrace markets, encourage
facilities-based competition, focus on breaking down entry barriers,
and pare away counterproductive regulation.
To the extent that our Nation has remained true to that vision, I
believe consumers have benefited. And the greatest success stories of
the 1996 Act are what has happened in the video and broadband markets.
This chart shows what I mean.
Before 1996, the cable industry was stagnant. The heavy-handed
economic regulation imposed by the 1992 Cable Act had frozen investment
and innovation. New cable technology and programming had all but
ceased.
From 1992 through 1998, the time when the cable industry was under
heavy regulation, investment in upgrading the networks and in new
programming was very low. You'll notice in 1992 the industry
collectively spent only $2.4 billion. By 1995--in what should have been
peak spending years for the industry--the numbers were just over $5
billion.
Then, in the wake of the 1996 Telecom Act and increased competition
from satellite, the industry made a huge bet. With the lifting of many
of the most egregious regulations, the industry concluded that ``if we
build it they will come.'' In the eight years since the Act, the cable
industry has had a renaissance. We have made massive investments in
both video and broadband--over $85 billion to date by the industry as a
whole, and $39 billion of investment just by Comcast and our
predecessor companies in the markets where we now do business. You can
see the dramatic rise between 1998 and 1999, when investment almost
doubled from $5.6 billion to $10.6 billion. As we approach 100 percent
completion of the rebuild, the numbers begin to level off and drop
slightly year-to-year.
But the 1996 Act was not just about deregulation at the Federal
level--it was about competition. The 1996 Act set the stage for the
Satellite Home Viewer Act in 1999, which unleashed the direct broadcast
satellite industry to invest in advanced facilities and to compete with
cable, hammer and tongs. Until that legislation passed, satellite TV
was mostly a rural phenomenon. Since then, satellite has gone on to
serve one out of every four multichannel TV homes in the United States.
The 1996 Act also gave cable the incentive to invest in high-speed
Internet services. Our industry really drove the broadband revolution
in America. And today, Verizon, SBC and other companies compete
fiercely with us--and they are upgrading their networks, just as we
have done, to keep pushing the technological envelope.
Broadband is booming--only cellphones have had more rapid consumer
acceptance. In the first quarter of 2004, about two million more homes
signed up for broadband from cable, phone companies and other sources.
Today, more than 20 percent of cable customers--over 16 million homes--
subscribe to high-speed Internet from cable, and nearly a quarter of
all U.S. homes take broadband from cable, phone, or other providers.
The success of the video and broadband marketplaces--and, I would
add, the wireless marketplace--prove that when government policy
emphasizes investment in facilities-based competition, markets thrive
and consumers benefit.
Facilities-based competition is real, sustainable competition. It
does not depend on regulatory intervention to ``simulate'' competition
through resale or forced access policies. Promoting facilities-based
competition has been, and should remain, the paramount public policy
goal.
Incidentally, I want to dispel any notion that the 1996 Act
``deregulated'' cable. I can point you to over 60 pages of the U.S.
Code, over 200 pages of FCC regulations and forms, and over 30,000
separate and distinct local franchise agreements, under which our
industry must operate every day. While the regulatory load has been
loosened somewhat, it is still substantial.
As we look ahead, I think we can agree that the next great
transforming technology is Internet protocol, or ``IP,'' which gives us
the ability to convert all forms of video, voice and data into data
packets, and move them over our networks with greater efficiency and
less cost.
I think the key reason we have seen very little facilities-based
telephone competition over the past eight years--particularly in the
residential marketplace--is that the available technologies were so
limiting. It really hasn't been possible to offer a phone service that
is anything other than ``me too.'' That means the only basis for
competing is price, and that doesn't create much incentive to invest.
But the IP platform makes it possible to compete on innovation and
services as well. With services like integrated messaging, so you can
check your e-mail and voice-mail together on any of a number of
different devices . . . or give each person in your home a distinctive
ring tone so they'll know who the call is for . . . or create a
videophone service that people really want to use--in fact, some
exciting new videophones captured the imagination of all of us who saw
them at the cable industry's National Show in New Orleans last week.
VoIP will make cable a ubiquitous facilities-based telephone
competitor. And as VoIP providers, we have made it clear that in
exchange for the rights we need to compete, we are prepared to step up
to important social responsibilities like universal service, emergency
services, and full cooperation with law enforcement.
VoIP can fundamentally and positively change telephone competition
in America . . . but only if we can have a clear, strong deregulatory
policy. The FCC has started down that path. And the legislation on VoIP
introduced by Senator Sununu goes in the right direction. We sincerely
hope that getting clarity on VoIP will not have to await a
comprehensive rewrite of the Telecommunications Act. This is something
that needed sooner, rather than later.
In conclusion, I think that Congress and the FCC already have the
right focus: promote facilities-based competition, break down barriers
to entry, and reduce regulation.
The FCC is working tirelessly to clear the way for a wide range of
new wireless technologies, broadband over power lines, and other
broadband alternatives. American businesses should put their energy and
capital into building these new facilities--and not into trying to
regulate competitors. To those who don't get the message, I hope you
will offer this advice: ``Don't just stand there--build something!''
Mr. Chairman, thank you again for the chance to share our views,
and I look forward to the Members' questions.
The Chairman. On your chart there, Mr. Roberts, why is--how
do you account for the downturn there?
Mr. Roberts. The rebuild cycle peaked out. But if you take
the annual spending, that adds up to $85 billion since 1996. In
the last couple years, as a number of systems have the two-way
fiber-based technology, you are still spending way more than
you were before it came along, but we are beginning to have the
peak periods get behind us.
The Chairman. You are not concerned about that downturn?
Mr. Roberts. No. I think, you know, we have borrowed to do
this, so we have got to pay back some of the borrowings. But we
have in our company----
The Chairman. I do not know why you have to. We do not.
[Laughter.]
The Chairman. Mr. Ford.
STATEMENT OF SCOTT FORD, PRESIDENT AND CHIEF EXECUTIVE OFFICER,
ALLTEL CORPORATION
Mr. Ford. Well, everybody has heard of Verizon and Comcast.
I am the CEO of ALLTEL, one of the many companies in regional
sections of the country that get to compete against both of
them. We are a telecommunications provider, an integrated
telecommunications provider, with almost 13 million customers
and over $8 billion in annual revenues. We provide wireless,
local telephone as an ILEC, local telephone as a CLEC. We
provide long distance service, Internet access, and high-speed
or broadband data services to residential and business
customers in largely rural and smaller metropolitan areas in 26
states.
While almost 60 percent of our revenues are generated by
our wireless business, our roots go back 60-plus years as an
independent rural telephone company.
I would like to thank you to have just a minute to give our
views on the topic in front of you today. In 1996, the Act that
you passed I think made a good faith effort to deal with the
rapid technological changes that were sweeping the traditional
telecom industry. However, politics being what they are, it
largely resulted in compromise legislation between the largest
and most antagonistic industry segments, the RBOC's, the
wireline telephone business, and the long distance companies.
I think, further, the Act did not view the industry and
technology as as fluid as it turned out to be and it took a
fairly static view. I think the Act--I think it would be fair
to say that in 1996 not even the most outlandish telecom
futurists would have foreseen the situation that we are dealing
with today, one where both telephone and cable companies are
seeing their economic model move from one of service provider
to that of access provider only, one where the customer will
increasingly use their broadband access device, from whoever
they get that from, to replace the traditional telephone and
eventually to replace the traditional video service offerings
with self-selected applications, and one where the broadband
connection is becoming increasingly available in a device, such
as a wi-fi-enabled PC or an EVDO phone, not through either one
of the traditional networks that are represented in the
testimony you have already heard.
Consumers today have an unprecedented and ever-growing
array of choices in how they communicate. ALLTEL's customers
show us every day they value two things: mobility and high
speed.
Setting aside the impact of the wireless industry for the
moment, the evidence of success in the new telecom entrants is
undebatable and only just beginning. By some estimates, e-mail
and instant messaging have displaced some 40 percent of
traditional local telephone calls, and two of America's top ten
telecom companies are cable companies.
While local telco's have recently started posting better
results, according to an article in Telephony magazine last
week, the cable companies still hold a 2-to-1 lead over the
telephone companies in providing broadband access. This
tremendous lead does not reflect simple technological
differences, but rather economic incentives and regulatory
freedom. So if we are to have rules, I think we need one set of
rules for everybody that is in the business. I think that is
the bottom line take-away from that.
While the world and technology have changed a lot since
1996, most of what has been done on the legal side has been
done in courts. Cable, wireless, satellite, wi-fi, ultra-
wideband, wireless, they all remain largely free from Federal
and State regulation, as they should be in a competitive
marketplace in the world's leading free market economy.
However, ALLTEL, like the other local exchange businesses in
the country--and this is about 40 percent of our business---
remains shackled by Federal and State regulation that limits
our flexibility and competitive position. Just like the chart
showed you a moment ago that capital spending in cable has gone
up, in the wireline business, faced with the inability to
change prices, to bundle, to offer services in the fashion that
the consumer would take, we have been decreasing our spending
in the local telephone business.
The benefit of minimal regulation under one set of rules,
though, is probably best illustrated by the enormous growth of
the wireless industry. The wireless trade association, the
CTIA, reports that 98 percent of the U.S. population now lives
in markets that are served by three or more wireless operators.
93 percent of Americans are served by four or more operators.
83 percent are served by five or more operators. And a full 66
percent are served by six or more wireless operators.
Multiple wireless service providers are offering services
to effectively all Americans today and the consumers are
receiving the benefit. In the mean time, wireless service
providers have continued to build out and invest in their
networks and introduce new service features. By any measure,
the wireless marketplace is a true success story for the
American consumer, where the free market has delivered
effective competition, sustainable competition in some markets,
probably unsustainable in others, and the competitive benefits
that come from that, like radically lower prices, improved
reliability, and leapfrog-like investment in new technology.
Local telephone companies, by contrast, are stagnating
under rules written for a bygone era where any investment made,
unfortunately, is subject--and we have to view it this way--is
potentially subject to economic seizure by regulators for the
benefit of competitors. These rules assume a monopoly on access
that, frankly, no longer exists. The results have been
devastating. You have all read about it.
[Cell phone rings.]
We do not make any money until you answer that, so we
appreciate you getting it.
[Laughter.]
Mr. Ford. Hundreds of thousands of jobs lost, $2 trillion
in market value dissipated, and some quarter of a trillion
dollars in capital investment gone from the telecommunications
business. Lots of analysis about the fact, and Mr. Seidenberg
referred to some of it, that up to $3 billion a year in new
investment would be made in telecom, according to the experts,
in a free market-based economy rather than a managed
competitive model.
Now, in all fairness, I think the pink elephant in the room
is this. The effects of major technological change that we are
undergoing in our industry is probably going to express itself
in a very deflationary cycle for all of us sitting at this
table.
The key policy issue----
The Chairman. Because?
Mr. Ford. I am sorry, sir?
The Chairman. Because?
Mr. Ford. Because new technology allows cheaper service
that will be moving from the networks and the way that we build
networks, the way that we sell our networks, onto applications.
Right now you buy voice as a service and you buy cable TV as a
service. The technology that is being deployed, largely by
cable companies and some in the wireless business, is going to
be able to let you make a decision, do you want to do business
with Verizon for voice or do you want to take that application
from somebody else. Everybody's prices drop to meet that kind
of paradigm shift.
So I think the key policy issue is this: the wireline
telephone companies, probably for lots of historical reasons--
and I think some of the views have already been expressed this
morning--but they are prohibited from making the next
generation of investments that are going to be required for
them to be competitive 5 to 10 years from now because of the
disparate regulatory and legal frameworks that exist across the
country. It is true for us, so I know it is true for companies
that are larger than we are.
So while the current environment may not provide the
perfect opportunity to write new legislation, I think it is
past time, frankly, if we can get a framework that will reward
companies for moving into the future.
I will summarize this way. Investment is a forward-looking
act of faith. Where we have had spectrum rules and competitive
dynamics that we could understand, we have invested in the
wireless business. Where we have regulatory rules on a State by
State, city by city basis in the wireline business, we have
pared our capital spending and will continue to pare our
capital spending. And we are the ones--we represent many
companies, about a thousand of us--that actually serve rural
America, the actual opposite of everything that we say we are
trying to get done.
But because we are not free to invest because we cannot
turn our shareholders' money over to a regulatory scheme that
then some regulator says, I do not like the mix in the
business, so I am going to take it and make you sell it to
somebody else. It is a systemic problem and if you can do
something about it with a set of rules that encourage
facilities-based competition, frankly, I stand to gain and I
stand to lose by such a set of rules. But I think long-term it
is the policy that will benefit the consumer and, frankly, the
economy and the country long-term.
Thank you very much for the opportunity to be here this
morning.
[The prepared statement of Mr. Ford follows:]
Prepared Statement of Scott Ford, President and Chief Executive
Officer, ALLTEL Corporation
Mr. Chairman and Members of the Committee:
Thank you for the opportunity to appear before you today. I am
Scott Ford, President and Chief Executive Officer of ALLTEL
Corporation. ALLTEL is an integrated telecommunications provider with
almost 13 million customers and over $8 billion in annual revenues.
ALLTEL provides wireless, local telephone, long-distance, Internet
access and high-speed or ``broadband'' data services to residential and
business customers in largely rural and smaller metropolitan areas in
26 states. While almost 60 percent of our revenues are generated by our
wireless operations today--our roots go back some 60 plus years as a
rural, independent telephone company.
I commend Chairman McCain and the Members of the Committee for
holding this hearing and the two previous hearings on telecom policy.
These are important steps in reviewing how telecom policy might be
changed to better meet the needs of customers in the 21st century.
In passing the 1996 Act, Congress made a good faith effort to deal
with the rapid technological changes that were sweeping the traditional
telecom industry--however, politics being what they are--the 1996 Act
was largely a compromise between the largest and most antagonistic
industry segments--namely the local wireline and long-distance
companies. And while it did allow new market entry by some, in the end,
the Act represented a static view of the industry and the market. The
Act also did not fully anticipate the rapid development and deployment
of the numerous alternative technology platforms and providers that
have emerged as the most formidable competitors to the regulated local
telephone companies.
In fact, I think it fair to say that in 1996 not even the most
outlandish telecom ``futurists'' would have foreseen the situation we
are dealing with today. One where both telephone and cable companies
are seeing their economic model move from one of ``service provider''
to that of ``access provider'' only. One where the customer will
increasingly use their broadband access device to replace traditional
telephone and video service offerings with self-selected applications.
And one where the broadband connection is becoming increasingly
available in a ``device'' such as a WiFi enabled PC or a 1xEVDO
wireless phone, not just through a ``traditional network''.
Consumers today have an unprecedented and ever-growing array of
choices in how they communicate. ALLTEL's customers show us every day
that they highly value mobility and broadband speed, as the number of
homes and small businesses that use wireless phones for voice and
broadband connections for data continues to increase while the number
of traditional telephone lines--even in our non-urban markets--
continues to shrink.
Setting aside the impact of the wireless industry for the moment,
the evidence of the success of new telecom entrants is undebatable and
only just beginning. By some estimates, E-mail and Instant Messaging
have displaced some 40 percent of traditional local phone calls and two
of America's top telephone service providers are in fact cable
companies. And while the local telco's have recently started posting
better results, according to Convergent Consulting,\1\ at year end
2003, the total broadband connections provided by traditional cable
companies outpaced their telephone counterparts by a two to one margin.
This tremendous lead does not reflect simple technological differences,
but rather, economic incentives and regulatory freedom. So if we are to
have rules, we need one set of rules for all broadband service
providers, regardless of the technology or method used to deliver it or
what origin the service provider had.
---------------------------------------------------------------------------
\1\ Telephony, ``RBOCs Gird For Broadband Battleground'' (May 3,
2004).
---------------------------------------------------------------------------
While the world and technology have changed a lot since 1996, the
regulation governing telecom has remained the same. Cable, wireless,
satellite, Wi-Fi and ultra wideband wireless are all largely free from
Federal and state government regulation--as they should be in a
competitive marketplace in the world's leading free-market economy.
However, ALLTEL, like the other local exchange businesses in the
country, remains shackled by Federal and state regulation that limits
our flexibility and competitive position.
The benefit of minimal regulation under one set of rules is best
illustrated by the enormous growth and vitality of the wireless
industry. The Cellular Telecommunications & Internet Association
(``CTIA'') reports that 98 percent of the U.S. population now lives in
markets served by three or more operators, 93 percent in markets served
by four or more operators, 83 percent in markets served by five or more
operators, and 66 percent in markets served by six or more operators.
Multiple wireless service providers are offering services to
effectively all Americans today, and consumers are benefiting from the
unprecedented choice of service offerings. In the meantime, wireless
service providers have continued to build out and invest in their
networks and introduce new service features. By any measure, the
wireless marketplace is a true success story for the American
consumer--where the free-market has delivered effective competition,
and competitive benefits like radically lower prices, improved
reliability and ``leap-frog'' like technological investment.
Local telephone companies, by contrast, are stagnating under rules
written for a bygone era where any investment made is subject to
economic seizure by regulators and competitors. These rules assume a
monopoly on access that no longer exists. The results have been
devastating: hundreds of thousands of jobs lost, $2 trillion in market
value dissipated and a drop by some quarter of a trillion dollars in
capital investment. According to recent analysis, capital spending on
communications equipment alone would increase by almost $3 billion a
year for the next five years \2\ and our economy would see some 1.2
million additional jobs over the next 20 years \3\ under a market-based
competitive model. Rules that incent a robust and vital telecom
industry benefit consumers, our economy, and our society as a whole.
Public policy in this arena is potentially a major driver of economic
growth. If unchanged though, our laws will continue to block investment
and the benefits of the resulting competition.
---------------------------------------------------------------------------
\2\ Decision Economics, ``Macroeconomic Effects of
Telecommunications Regulation'' (May, 2004).
\3\ ``The Effects of Ubiquitous Broadband Adoption on Investment,
Jobs and the U.S. Economy,'' New Millennium Research Council
(September, 2003).
---------------------------------------------------------------------------
Now in all fairness, it should be noted that the ``pink elephant in
the room'' is that this kind of disruptive technological change is
probably going to have a deflationary effect on all traditional
participants. The key policy issue remains though that the wireline
telephone companies are virtually prohibited from making the next
generation investments required to be competitive over the next several
years by the disparate regulatory and legal frameworks that exists
across the country.
While the current environment may not provide the perfect
opportunity to write new legislation, the need for rules that
acknowledge the radical technological progress in our industry is clear
and we must build a legal framework that will reward companies for
moving into the future.
I believe that this country would be well served if this body were
to write rules that treat all competitors providing similar services
equally without regard to the definitions of the past--rules that rely
on the operation of our free-market economy rather than management by
our Federal and state governments. Investment is a forward-looking act
of faith. Without free and fair markets we will not attract the
capital, the economy will go without the associated growth, and our
customers will go without the benefits that only economically
sustainable competition can bring.
Free markets work for America in virtually every sector of the U.S.
economy today. Market-based competition enables innovation, better
services, better technology, and ultimately the choice to take your
business elsewhere. The telecom industry has extraordinary potential to
create jobs, enhance our quality of life, open up new economic
opportunities in American communities, and benefit our economy.
Achieving fundamental telecom reform for the 21st century will
likely not be an easy task to accomplish, but it is achievable if we
take our cue from the reality of the market and the basic principles of
consistency and simplicity. It involves a choice between embracing the
new and dealing with it's inevitable changes--some good and some bad--
and letting the market sort it out--or being encumbered by the past and
its traditional definitions and limitations.
Finally, in my opinion, we must keep faith in the American belief
that great things can come for our country if we free the marketplace
to drive powerful new cycles of American investment, innovation, and
growth. And frankly, our company stands to lose as well as gain from
such a marketplace--but we look forward to the opportunity to compete
on a level playing field. I recognize that divining truth in this arena
must be a very daunting task for the members of Congress from so many
disparate voices--so on behalf of the 20,000 employees of ALLTEL I
extend our gratitude for your public service.
Mr. Chairman and Members of the Committee, thank you for holding
these hearings. I look forward to answering your questions, and stand
ready to assist your efforts. Thank you.
The Chairman. Thank you very much.
Mr. Betty, would you pull the mike up. Thank you. Welcome.
STATEMENT OF CHARLES ``GARRY'' BETTY, PRESIDENT AND CHIEF
EXECUTIVE OFFICER, EARTHLINK, INC.
Mr. Betty. Thank you, Mr. Chairman and members of the
Committee. I am Garry Betty. I am President of EarthLink. We
serve 5.3 million subscribers. We are one of the largest
independent Internet service providers in the United States,
providing dialup, broadband, web hosting, and wireless Internet
services.
As you know, the purpose of today's hearing is to review
our telecommunications policy. As the members of the Committee
are aware, such policy is the focus of several ongoing
proceedings both here and at the FCC. However, we are troubled
by the far-reaching attempts by the FCC to classify the
facilities used to provide broadband services as end to end
information services.
Common carrier transmission services are the foundation of
the information economy. If such services were no longer
available to information service providers upon reasonable
request on nondiscriminatory terms and conditions, incumbents
could close their networks to competitive providers, services,
and innovations. This would hurt consumers.
Congress has enacted a body of laws over the years to
promote competition, to protect consumers, and provide for
public safety. Neither the FCC nor incumbent companies can
ignore the plain language that Congress wrote in the
Telecommunications Act of 1996.
The central issue in this hearing, several current FCC
proceedings, and in any proposed rewrite of the 1996 Act would
be the regulatory classification of broadband services. Let me
be clear in answering this question. All Internet access
services, whether provided by an independent ISP like
EarthLink, a telco affiliate like Verizon On Line, or a cable
company like Comcast, are information services.
Let me be equally clear, though, that the information
services are delivered via telecommunications and offering such
telecommunications, whether by telco or cable company, for a
fee to the public makes them telecommunications services.
Internet access, broadband or otherwise, is therefore an
information service riding on top of a transmission component,
which is telecommunications service.
Today the RBOC's have enjoyed a government-granted monopoly
for almost a century as they built out their transmission
networks while rate of return regulation ensured profits. Cable
companies talk about risk capital, but enjoyed monopoly
franchises, the cable-telco cross-ownership ban, and low-cost
access to poles, ducts, conduits, and rights of way for decades
as they built out their networks. Thus, incumbent telephone and
cable companies still have 85 percent or more of their
customers in their core business and some 95 percent of all
broadband or cable modem customers respectively.
Eight years after the passage of the Telecommunications
Act, it is clear that no one has benefited more than the
incumbent providers. Regional Bell operating companies have
gained 271 authority to offer long distance services in all 50
States. At the same time, CLEC's have seen their ranks
decimated, while UNEEP, their best tool for offering local
voice service competition, was taken away by the D.C. Circuit's
recent vacatur of the FCC's review order. In broadband, that
same order even eliminated line sharing on existing copper
loops. The FCC thus has not only granted the Bells the
regulatory relief they demanded, but has erased a key component
that promoted DSL deployment to date.
Until recently, cable providers held almost a two to one
share advantage over DSL. Telco's blame this shortfall on
regulatory disparity, but in the first quarter of 2004 DSL
sales actually exceeded those for cable modem service. So the
regulatory disadvantage of which the Bells complain does not
withstand scrutiny.
In cable, competition is also scarce. Incumbent providers
still control over 95 percent of broadband cable modem
services. Unfortunately, the FCC's misguided attempt to
classify cable modem service as an end to end information
service has allowed most cable companies to extend their
monopolies to broadband. However, the Ninth Circuit Court of
Appeals in October 2003, overturned the FCC's cable modem order
and correctly ruled that cable modem service contains an
underlying telecommunications service transmission component.
In March 2004, the full court denied petitions for
rehearing the FCC and cable companies. I am sure they will
likely seek Supreme Court review, but even review, not to
mention reversal, is questionable.
In sum, rather than trying to rewrite the 1996 Act,
Congress should insist that the FCC enforce the provisions of
the current act. In many respects the 1996 Act has been a great
success. Over 35 million on-line households now have broadband
access. In many cases prices are falling and speeds are
increase, and DSL is even catching up to cable's market share.
The incumbents are doing better than ever.
In fact, the only area where the Act has fallen short is
promoting more widespread competition in products and services
to benefit consumers. So-called facilities-based competition
exists between cable and phone companies and that is good as
far as it goes, but it only creates a duopoly. And even this
limited competition only reaches two-thirds of American
households, leaving many consumers with only one choice, if
any, for broadband service.
Only by ensuring that consumers can choose their broadband
providers regardless of which wire they use will they enjoy the
widest deployment, the best products, features, customer
services, price, and innovation.
Thank you for inviting me here today.
[The prepared statement of Mr. Betty follows:]
Prepared Statement of Charles ``Garry'' Betty, President and Chief
Executive Officer, EarthLink, Inc.
Mr. Chairman and members of the Committee. Thank you for the
opportunity to testify before you today. My name is Garry Betty and I
am the President and CEO of EarthLink. EarthLink is the Nation's 3rd
largest Internet Service Provider (ISP), serving over 5 million
customers nationwide with dial-up, broadband (DSL, cable and
satellite), web hosting and wireless Internet services. EarthLink
regularly receives awards for its customer service and innovation,
including the J.D. Power and Associates award for highest customer
satisfaction among dial-up ISPs and (tie) highest customer satisfaction
among broadband ISPs.
The purpose of today's hearing is to review telecommunications
policy. As the members of the Committee are aware, such policy is the
focus of several ongoing proceedings at the Federal Communications
Commission (FCC). Particularly troubling to EarthLink, and I would hope
troubling as well to the members of this Committee, are the far
reaching effects of attempts by the FCC to classify the facilities used
to provide broadband services as end-to-end ``information services''
under the Communications Act.
Common carrier transmission services are the foundation of the
information economy. If such services were no longer available to
information service providers upon reasonable request on non-
discriminatory terms and conditions, incumbents would be free to close
their networks to any competitive providers, services, or innovations.
This would work against consumer interests. Even laws like CALEA would
no longer apply as the DOJ, FBI and DEA have made clear in recent
filing with the FCC. Congress has enacted an entire body of laws over
the years to promote competition, protect consumers, and provide for
public safety. Neither the FCC nor incumbent companies can ignore the
plain language that Congress wrote in the Telecommunications Act of
1996.
The central issue in this hearing, several current FCC proceedings
and in any proposed re-write of the 1996 Act would be the regulatory
classification of broadband services. Let me be clear in answering this
question. All Internet access services--whether provided by an
independent ISP like EarthLink, a telco affiliate like Verizon Online,
or a cable company like Comcast--are information services. Let me be
equally clear that all information services are, by definition,
delivered via telecommunications, and the offering of such
telecommunications, whether by a telco or a cable company, for a fee to
the public makes them telecommunications services. This is true whether
the Internet access is provided by an independent ISP or by the network
operators themselves. Internet access, broadband or otherwise, is
therefore an information service riding on top of a transmission
component which is a telecommunications service.
In the world of dial-up Internet access these two components are
easy to see. Consumers purchase their phone line from their telephone
company and their Internet service from an ISP such as EarthLink. The
telephone company provides a telecommunications service which can be
used to transmit voice or data. The ISP provides an information
service. The consumer dials an EarthLink access number, which
establishes an underlying transmission link through the customer's
phone line; the consumer can then use EarthLink's services to access
the Internet. The underlying transmission link is a regulated common
carrier telecommunications service. The Internet access service is an
unregulated information service.
In the broadband world, the same rules apply. Underlying DSL
transmission provided by Verizon is regulated as a common carrier
telecommunications service, but Verizon Online's Internet access
service is still an unregulated information service. This is the regime
that the FCC crafted in its seminal 1980 Computer II proceeding, which
has been affirmed by the FCC and Federal courts many times in the
intervening years, and which Congress adopted in the Telecommunications
Act of 1996. As a result, competition in the provision of information
services flourished because the facility owners could not use their
ownership of the underlying transmission facilities to leverage their
position in the information services market.
Yet, in the case of broadband Internet access, the FCC seems
determined to take the exact opposite approach from the one that proved
so successful in promoting Internet usage in the first place. For
broadband, the FCC suggests that, so long as the facility owner refuses
to offer consumers the option of buying the transmission link
separately from the information services component, the entire bundled
package of transmission and information service is an ``information
service''. As a result, facility operators are able to shield their
transmission networks from requirements for non-discriminatory access
by independent ISPs. This all but eliminates competition among
broadband Internet service providers and not only violates the letter
and intent of the Telecommunications Act, but also does great harm to
small businesses and to consumers.
Today's Regional Bell Companies enjoyed a government-granted
monopoly market for almost a century as they built out their
transmission networks while rate of return regulation ensured profits.
Cable companies like to talk about ``risk capital'' but enjoyed
monopoly franchises, the cable-telco cross ownership ban, and below-
cost access to poles, ducts and conduits for decades as they built out
their networks. Today, incumbent telephone and cable companies still
each have 85 percent or more of the customers in their core businesses
and some 95 percent of all broadband DSL or cable modem customers,
respectively. Yet competitors to these incumbent facility owners would,
under the FCC's interpretation, have to undertake the impossible task
of building their own last-mile network--without any protection or
subsidy--in order to continue to compete in the information services
business. This result stands the 1996 Act on its head.
It is therefore crucial to distinguish between broadband
information services and the underlying telecommunications services
which deliver them. Internet access services, whether narrowband or
broadband, and whether offered by an independent ISP, an RBOC, or a
cable company, remain unregulated information services. But the
facility based transmission services that underlie all information
services remain common carrier telecommunications services, regardless
of whose broadband Internet service the customer subscribes to and
whether or not the facilities operator offers those transmission
services separately to consumers or as part of a combined package of
services that includes information services. Consumers and the economy
have benefited over the past two decades from robust competition in an
unregulated information services industry. This competition was made
possible because the underlying transmission networks remained subject
to regulations that require that they be offered to all ISPs on non-
discriminatory terms and conditions.
In most areas of the country today there are at best two broadband
networks; for many residential consumers there is effectively only one.
Both the telephone networks and the cable networks were built with
government-granted monopolies over public rights of ways using Federal
authority using rate-payer money. To allow these facility owners to now
repudiate their obligation to share those transmission networks on a
non-discriminatory basis with others who seek to offer
telecommunications or information services to the public is an abuse of
the law and is anti-competitive. Such an approach would take a robustly
competitive and level playing field and tilt it heavily in favor of a
few players by allowing them to leverage their transmission facility
monopoly into domination of new areas and services. Clearly that was
not what Congress wrote or intended when it passed the 1996 Act.
Eight years after the passage of the Telecommunications Act of
1996, it is clear that no one has benefited more than incumbent
providers. Regional Bell Operating Companies (RBOCs) have gained
Sec. 271 authority to offer long distance service in all 50 states. At
the same time, Competitive Local Exchange Carriers (CLECs) have seen
their ranks decimated. Incumbent Local Exchange Carriers (ILECs) still
control over 80 percent of the local voice market for businesses and
over 90 percent of the residential market. And CLECs have just seen
UNE-P, their best tool for offering local voice service competition,
taken away from them by the DC Circuit's recent vacatur of the FCC's
UNE Triennial Review Order.
In broadband DSL, the FCC in the same order not only barred
competitors from access to new networks like fiber-to-the-home (FTTH),
but also barred access to hybrid fiber loops (HFL) and even eliminated
line sharing on existing copper loops. The FCC has thus not only
granted the Bells the regulatory relief they have so long demanded, but
has erased a key component that has promoted DSL deployment to date.
As Chairman Powell correctly pointed out in his dissent to this
Order, such a scheme actually eliminates the regulatory incentives for
incumbents to deploy new broadband technologies. Why build expensive
fiber to the home when even a piece of fiber spliced into a loop is
enough to inoculate it from any access by competitors? And eliminating
line sharing strikes a blow to competitive wholesale DSL providers like
Covad. Eliminating wholesale DSL competition will only further enhance
the Bells' position as the dominant providers of retail DSL service.
While we are encouraged that Covad recently struck a commercial
arrangement for line sharing with Qwest, none of the other Regional
Bell Companies have done so. It is untenable for a retail competitor
such as EarthLink to have to rely solely on its biggest competitors for
an essential component of their service.
Meanwhile, incumbent Bell companies use their market power to
engage in anti-competitive and discriminatory pricing, often selling
their retail DSL service at or below the wholesale DSL loop price they
charge to competitors. No doubt, recent price drops in DSL service are
good for consumers. However, with fair pricing of wholesale inputs,
more companies could offer such deals to even more consumers.
Until recently, cable providers held an almost 2-1 share advantage
over DSL. Telcos blame this shortfall on regulatory disparity, but
that's not the reason for it. Rather, the Bells sat on DSL technology
for 10 years. Selling T-1 services to businesses for $750 a month
instead of similar-speed DSL services to consumers for $50 a month was
a business decision which cable exploited to get a jump on the
residential broadband market. Also, DSL has inherent distance
limitations. Even with aggressive build-out, DSL will never reach all
the homes that cable modems can. Nonetheless, in the first quarter of
2004, DSL sales actually exceeded those for cable modem service and DSL
now has approximately 20 million customers compared to 26 million for
cable. So the regulatory disadvantage that Bells complain of does not
stand up to scrutiny.
In cable, the competitive landscape is no better. Incumbent
providers still control over 97 percent of cable services, over 80
percent of the multichannel video market, and again over 95 percent of
broadband cable modem services. Time Warner Cable is required to sell
network access in its 39 major markets but the rest of the industry
remains virtually closed to competition. Unfortunately the FCC has
aided and abetted this situation. Original inaction, followed by a
misguided attempt to classify cable modem service as an end-to-end
information service, has allowed most cable companies to expand their
monopolies to broadband cable modem service as well. However, the 9th
Circuit Court of Appeals in October 2003 overturned the FCC's cable
modem order and correctly ruled that cable modem service contains an
underlying telecommunications service transmission component. The full
court also denied petitions for rehearing by the FCC and cable
companies. The FCC and cable companies will likely seek Supreme Court
review, but even review, much less reversal, is questionable.
Finally, the emergence of Voice Over Internet Protocol (VoIP)
drives much of this debate. The FCC has just opened a docket to develop
rules concerning VoIP. Chairman Powell and others have expressed a
desire to regulate VoIP as little as possible, but quickly note the
need to preserve universal service, 911, disabled access, CALEA
compliance and inter-carrier compensation. At the end of the day, we're
not sure how much differently VoIP would be treated from traditional
voice service, but we might suggest that Congress allow both the VoIP
record and marketplace to develop a little more before taking on the
task of re-writing the 1996 Act.
While VoIP certainly poses a potential threat to the Bells' core
business model, it can also drastically slash their costs. Whether a
call is routed over the public switched telephone network or through
Internet Protocol is invisible to the customer. VoIP may ultimately
serve as a better, cheaper way to route the voice traffic the Bells
already handle. In the end, the biggest users of VoIP may be the Bells
themselves.
In sum, rather than trying to re-write the 1996 Act, Congress
should insist that the FCC enforce the provisions of the current Act.
Before we try to fix the current Act, we must answer ``What's
broken?''. In many respects, the 1996 Act has been a great success.
Over 46 million online households now have broadband access. In many
cases, prices are falling and speeds are increasing. And DSL is even
catching up to cable's market share. The incumbents are doing better
than ever.
In fact, the only area where the Act has fallen short is in
promoting more widespread competition in products and services to
benefit consumers. So called facilities-based competition between cable
and phone companies is good as far as it goes, but it only creates a
duopoly, or more precisely, a ``double-headed monopoly''. And even this
limited competition only reaches about 2/3 of American households,
leaving many consumers with only one choice, if any, for broadband
services. Only by ensuring that consumers can choose their broadband
providers regardless of which wire they use will they enjoy the widest
deployment and the best products, features, customer service, prices
and innovation.
Thank you for hearing me today and I look forward to your
questions.
The Chairman. Thank you very much.
Mr. Wilson.
STATEMENT OF DELBERT WILSON, CENTRAL TEXAS
TELEPHONE COOPERATIVE ON BEHALF OF THE NATIONAL
TELECOMMUNICATIONS COOPERATIVE ASSOCIATION
Mr. Wilson. Good morning. I am Delbert Wilson with Central
Texas Telephone Cooperative, Incorporated. Central Texas is a
member-owned telephone cooperative headquartered in
Goldthwaite, Texas. Our service area encompasses over 3,302
square miles, which roughly equates to the size of Delaware and
Rhode Island combined. We have 17 telephone exchanges providing
local exchange service to approximately 7,700 access lines.
That is a density of only 2.33 subscribers per square mile.
Through Central Texas' infrastructure investments, we are
key to the local economy and the rural economic development of
our rural service area. Central Texas is representative of the
Nation's small rural incumbent local exchange carriers. The
good things we stand for and do make our rural communities a
better place in which to live and work. That is why I am
honored to be appearing today on behalf of the hundreds of
rural local exchange carriers that are represented by NTCA and,
more importantly, on behalf of their several thousand employees
and several million subscribers.
NTCA members and their fellow rural independents provide
service to 7 percent of this Nation's access lines, but
actually cover 40 percent of the land mass of this country. We
have a mission of service that supersedes profitmaking. We have
a mission that is based on responsibilities to the community
and the industry rather than focusing only on the bottom line.
We have a mission of providing universal service, which means
service to all Americans, not just the 92 percent majority that
many FCC policies attempt to address. We have done this despite
the tremendous regulatory and economic barriers that have
historically stood in our way.
For well over 100 years, small rural incumbent local
exchange carriers have been engaged in the provision of local
telecommunications services throughout rural America. These
carriers are the embodiment of the universal service concept,
having built the infrastructure that provides ubiquitous high-
quality local exchange service and exchange access, as well as
a variety of other telecommunications services, to some of the
Nation's most economically challenging to serve areas.
This would have not been possible were it not for their
dedication to their community and the Nation's longstanding
commitment to the policy of universal service. It is no secret
that the ability to fully recover costs is the very lifeblood
of the small rural ILEC's. Thus, of particular concern to us
today are the many regulatory and judicial proceedings that
could destroy this ability and subsequently the continued
investment in rural telecommunications infrastructure
throughout this country.
During this hearing series, you are receiving input from a
wide range of witnesses. In many ways their themes are similar
in that they revolve around the theory that absolute
competition and deregulation are always in the public interest,
the telecommunications world can only evolve to the next level
with a hands-off policymaking approach, we must let go of the
footings of our past, such as universal service and access
charges, and we must abandon the legacy network in favor of the
intriguing technologies of the future.
The flaw with all these theories is that none of them alone
or even in combination will produce the results their advocates
so desperately seek. Why? Because they ignore the fact that
through a combination of longstanding social policy, innovation
and cooperation a preeminent communications network has been
built. They are in denial of the reality that it is only
through our national universal service policy and the
infrastructure it has yielded that we are able to even think of
contemplating the technological wonders of this era.
So if we learn nothing else from these hearings, let us
take away the knowledge and recognition that the foundation of
our past is at least as important to our future as the mist of
so many dreams.
We agree that now may be the time for Congress to weigh in
on these matters. Policymakers, the judiciary, the public, and
competitors alike must be reminded of the importance of our
longstanding national universal service policy. It must be
carefully managed to fulfil its public interest goals of
providing affordable, high-quality telecommunications services
to rural consumers throughout this Nation. Universal service is
not a tool to be used to incite artificial competition. It is a
tool to help ensure the existence of a nationwide ubiquitous
telecommunications network, a network that has been proven
again and again to be so critical to our national and economic
security.
NTCA and others have particular ideas regarding the future
of this program. We will be looking to you for help in arriving
at a legislative solution that will ultimately accomplish these
objectives. In terms of a broader rewrite of the Communications
Act, we would implore the Committee to remain cognizant of the
following specific areas that are so critical to rural carriers
and the consumers they serve: network compensation, smart
regulation over deregulation, access to spectrum, leadership in
encouraging nationwide broadband deployment, and above all
ensuring a level playing field for all carriers in this
competitive environment.
Congress must continue to support the longstanding policy
of providing all Americans with access to comparable,
affordable telecommunications services now and in the future.
Thank you, Mr. Chairman.
[The prepared statement of Mr. Wilson, follows:]
Prepared Statement of Delbert Wilson, Central Texas Telephone
Cooperative on behalf of the National Telecommunications Cooperative
Association
Executive Summary
For well over 100 years, small rural Incumbent Local Exchange
Carriers (ILECs) have been engaged in the provision of local
telecommunications services throughout rural America. These carriers
are the embodiment of the universal service concept, having built the
infrastructure that provides ubiquitous, high-quality local exchange
service and exchange access (as well as a variety of other
telecommunications services) to some of the Nation's most economically
challenging to serve areas. This would not have been possible were it
not for their dedication to community, and the Nation's long-standing
commitment to the policy of universal service.
As the industry continues its rapid evolution, and as the calls for
a rewrite of the communications act continue to escalate, policymakers
and the public alike must not lose sight of the fact that emerging
technologies are not free, as many people have come to believe because
they are generally riding on the backs of the Nation's existing
telecommunications infrastructure. As the migration away from voice
only service toward a mix of voice, video and data continues,
policymakers must ensure that the universal service policy of this
Nation evolves to ensure the dreams associated with the migration
ultimately equate the reality of the superiority of the underlying
network helping to support them.
Now is the time for congress to weigh in on these matters.
Policymakers, the judiciary, the public, and competitors alike must be
reminded that the universal service support mechanism, and the
intercarrier compensation mechanisms that are in place today that
effectuate this policy are resources that cannot be abandoned and that
must be carefully managed to fulfill the public interest goal of
providing affordable, high-quality telecommunications services to
consumers and helping to protect our national and economic security.
Introduction
Good morning! I am Delbert Wilson with the Central Texas Telephone
Cooperative, Inc. CTTC is a member-owned telephone cooperative
headquartered in Goldthwaite, Texas, which is geographically located in
the center of the state. Our service area encompasses over 3,302 square
miles, which roughly equates the size Delaware and Rhode Island
combined. We have 17 telephone exchanges providing local exchange
service to approximately 7,700 access lines. That is a density of only
2.33 subscribers per square mile.
CTTC is rich in history. Created in 1951 by the people of Mills
County, it was built to provide telephone service to rural consumers
who had never before had service. Due to the sparse population, this
area was economically unattractive to the larger telephone companies.
Today, throughout our service area, we are involved in many activities
that have helped to bring new services, technologies and opportunities
to our rural subscribers. Besides local exchange service, CTTC provides
wireless cable TV, wired/wireless digital subscriber lines (know as
DSL), Internet access, long distance, distance learning, and wireless
phone service. Through CTTC's infrastructure investments, we are key to
the local economy and the rural economic development of our rural
service areas.
CTTC is representative of the Nation's small rural incumbent local
exchange carriers. The good things we stand for and do, make our rural
communities a better place in which to live and work. That is why i am
honored to be appearing today on behalf of the hundreds of rural local
exchange carriers that are represented by NTCA--and more importantly,
on behalf of their several thousand employees and several million
subscribers.
NTCA members and their fellow rural independents provide service to
7 percent of this country's access lines, but over territory covering
40 percent of the land mass of this Nation. We have a mission of
service that supercedes profit making. We have a mission that is based
on responsibilities to the community and the industry rather than
focusing only on the bottom line. We have a mission of providing
universal service which means services to all Americans, not just the
92 percent majority that many of the policies emerging from the FCC
attempt to. We have done this despite the tremendous regulatory and
competitive barriers that have historically stood in our way.
The Landscape
During this hearing series, you are receiving input from large
providers, a former regulator, think tanks and myself. While the
testimony of the other witnesses is not identical, many of their themes
are similar and they are that: ``absolute competition and deregulation
are always in the public interest. The telecommunications world can
only evolve to the next level with a hands-off policymaking approach.
We must let go of the footings of our past such as universal service,
and access charges. We must abandon the legacy network in favor of the
intriguing technologies of the future.''
The flaw with all of these theories is that none of them alone or
even in combination will produce the results their advocates so
desperately seek. Why? Because they ignore the fact that through a
combination of social policy, innovation, and cooperation, a preeminent
communications network has been built. They ignore that all of this has
evolved under a longstanding national policy based on the premise that
universal service is in the country's best interest. They are in denial
of the reality that it is only through this national policy, and the
infrastructure it has yielded, that we are able to even think of
contemplating the unlimited wonders we are experiencing with technology
changes today and will continue to encounter in the future. So, if we
learn nothing else from these hearings, let us take away the knowledge
and recognition that the foundation of our past is at least as
important to our future as the mist of so many dreams.
Please don't misinterpret my message today. In fact let me be
perfectly clear. As small businesses, rural community based
telecommunications providers strongly support the idea that new
technologies and services should remain free of needless regulatory
oversight. Yet they concurrently recognize that there is a stark
difference between such restraints, and the core industry
responsibilities that have and will continue to ensure we have a
ubiquitous telecommunications system that is capable of protecting our
national and economic security. We will settle for nothing less.
The Rural Spirit
During the course of the past decade, the telecommunications
industry has confronted nearly unfathomable technological change. Yet
without exception, the Nation's small rural community based
telecommunications providers, that are representative of NTCA's
members, have always been at the forefront of aggressively embracing
and deploying new technologies and services.
It still regularly comes as a surprise to most people to learn that
it was a small rural LEC in Pennsylvania, in June of 1979 that placed
in service the first commercial fiber optic telephone system in the
Nation. That feat is representative of our segment of the industry. We
led the transition to digital switching and actually completed the job
well ahead of the rest of the industry. Likewise, we got into the cable
TV business years ago because no one else would serve our rural
communities. The same goes for the satellite television business. We
led the way 15 years ago in the migration to distance learning and
telehealth applications. We partnered and have tried to persist in
wireless endeavors despite tremendous uphill battles with the FCC and
the industry members with the deepest pockets. We ran headlong into the
business of Internet provision. And we have engaged ourselves in the
business of long distance whether through resell or other partnerships.
While others have developed a long history of making grand
pronouncement on the Washington luncheon circuit, we have been silently
plodding ahead doing what we do best--serving our communities.
Now we find ourselves at yet another crossroads. Again we find
competitors old and new, policymakers, and others endlessly proclaiming
that the law as it exists today is broken. We are told over and over
that the law is incapable of meeting the technological necessities of
the era in which we live--that it doesn't allow innovation, and
subsequently hurts consumers. I think our record, outlined above,
speaks to the contrary. Certainly, we do not dispute that the law could
be better written. But our refrain is that such modifications will help
us do even more for our consumers by ensuring that scarce resources are
used in the wisest possible manner.
Critical Nature of Cost Recovery
From our perspective, perhaps the single most important area that
congress could provide help on is ensuring that we recover our costs.
It's no secret that the ability to fully recover costs is the very
lifeblood of small rural ILECs. Thus, of particular concern to us today
are the many regulatory and judicial proceedings that will either
sustain or destroy this ability--and subsequently continued investment
in rural telecommunications infrastructure.
Any adjustment to one of the three components of our cost
recovery--the local rate, intercarrier compensation such as access
charges, and universal service--requires the inverse adjustment of the
others. Not surprisingly, the local rate component is the least able to
tolerate increased pressure. Already rural rate payers face higher
monthly charges for access to fewer local numbers. Conversely, the
intercarrier component is the one most susceptible to regulatory and
competitive oriented pressures. This leaves universal service as the
most likely to contend with cost recovery fluctuations. And despite its
history of strength, we fear that at this time, it is ill prepared to
take on such added burden.
Specifically, today small rural providers are faced with an FCC,
and an industry dominated by large carriers, that are bent on moving
access charges--legitimate forms of compensation for the use of a
carriers facilities and a longstanding principle of capitalism--to a
zero cost basis. We do not dispute that access charges in their current
per/minute form may be unsustainable. However, we do dispute the
contention by these parties that we are not entitled to legitimate
compensation for the use of our facilities.
Indeed, the bill and keep regime they are advocating will not work
for rural carriers. NTCA recently conducted an extensive data request
of its members and found that moving to this approach would cost rural
carriers in excess of $2 billion annually. Moving in this direction
will not help build or maintain the telecommunications infrastructure
that is necessary to our economic and national security.
It has been asked why this shortfall couldn't simply be made up
through the USF. There are a variety of reasons. Today, the states, and
the FCC are granting USF etc status to competitors at an alarming pace
and under rules that result in competitors receiving inflated support
levels that are based upon the incumbents' costs rather than their own
as the law requires. The Federal State Joint Board on universal service
has chosen to ignore such issues for now and instead suggest limiting
support only to primary lines. How will that build infrastructure?
Nevertheless, as desperately as those issues need our attention, there
is an even more critical facet of the program that requires attention--
its contribution methodology.
Universal Service Contribution Methodology
We have all heard a great deal of discussion about the virtues of
moving away from the universal service system's current revenues based
assessment methodology toward a numbers or connections based approach.
We contend moving in this direction would be a mistake. The problem
with these alternative approaches are that they dramatically shift the
responsibility of paying for universal service onto incumbent and
competitive local exchange carriers and wireless carriers, while
relieving long distance and other types of providers of such
responsibilities. The impact of the flat-fee nature of these approaches
would be particularly harsh on low-volume users such as rural and
elderly credential consumers. In addition, we contend the revenues
approach is the best suited to ensuring that all those that should be
participating in this responsibility are indeed doing so.
We do go two steps further however with regard to our advocacy of
the revenues approach. First, we also believe the law should be changed
to allow not just a provider's interexchange and international revenues
to be assessed for these purposes, but also their intrastate revenues.
The major reason for this is that too many carriers today are
manipulating their way out of fully complying with their universal
service responsibilities by reclassifying interstate revenues as
intrastate in nature and thus making them inaccessible. The expanded
revenues approach also helps lower the overall universal service
responsibility of any one carrier, and will help sustain the fund for
the long-term. Second, we advocate expanding the base of providers
whose revenues are assessed so that many of those that are not being so
assessed today would become participants in this national
responsibility.
The Future of Our Industry
We have registered our views both in the state and Federal
regulatory arenas. And in many cases we have done so with the judiciary
as well. Yet, we now believe it is time for congress to weigh in on
these matters. We are hopeful that with your direction, policymakers,
the judiciary, the public, and competitors alike, will be guided by the
principle that USF is a valuable, yet scarce, national resource.
Congress has the ultimate authority and responsibility to ensure that
the USF is carefully managed in order to best serve the public
interest. And now is the appropriate time for Congress to reassert its
intent with regard to this program. NTCA and others have particular
ideas regarding the future of this program, which center around the
issues just noted. We will be looking to you for help in arriving at
legislative solutions that will ultimately accomplish these objectives.
Despite what you have heard from some of the other witnesses during
this hearing series, it is clear that universal service must remain the
hallmark of our national telecommunications policy. We have built and
will continue to maintain a system of telecommunications infrastructure
that is ubiquitous and integrated regardless of whether it is voice,
video, or data oriented or a combination thereof. And it should be
particularly evident that this support system will only work if it
remains carrier oriented in terms of how support is distributed. After
all, it is a tool that is designed to build and maintain
telecommunications infrastructure, not to serve as a consumer welfare
program as some have suggested to this panel.
In addition, contrary to what most people have been led to believe
today, the new technologies of this era are not free. In fact, the only
reason they appear so is because they are riding on the underlying
network that has been built by the likes of CTTC. We must maintain this
critical element of our ability to adequately recover our costs.
Conclusion
If the Committee arrives at no other conclusion from these sorts of
deliberations I would urge you to take away this thought above all
else. We are fast moving away from a voice dominated network
orientation. Concurrently we are engaging in and making use of a
variety of forms of communications at a rapidly increasing pace and in
ways upon which we are increasingly reliant. Our nation today views all
of these as necessities, not luxuries. Consequently, we will need to
maintain infrastructure no matter what form such communications
ultimately take. Universal service will be necessary to accomplish
this. It is not a tool to be used to incite artificial competition, nor
is it a responsibility to be escaped. It is a policy and program to
ensure the existence of a nationwide ubiquitous telecommunications
network--a network that has been proven again and again to be so
critical to our national and economic security. Congress must continue
to ensure that the underlying principles of this long-standing national
policy are faithfully adhered to now and in the future. Thank you.
The Chairman. Thank you very much.
Mr. Seidenberg.
Mr. Seidenberg. Yes, sir.
The Chairman. Last Friday an article in the L.A. Times
reported, quote: ``Reversing their long-held disdain for the
competitors that lease Bell networks and equipment to provide
local phone service, some of the Bells now want to bind rivals
to those facilities and prevent them from installing their own
gear. SBC Chairman Whittaker Junior has argued that leasing the
entire platform of services `is not real competition' and that
the industry needs, among other things, `real facilities-based
competition.' ''
``But in SBC's negotiations for a lease deal with Talk
America Holdings Corporation, sources said SBC is proposing a
requirement that the small Virginia-based firm use SBC's
network for nearly all of its phone traffic, discouraging it
from installing its own equipment and preventing it from
leasing from other providers. MCI said it faced a similar
demand last fall from Verizon Communications in talks that have
since halted.''
In your negotiations with your competitors over the use of
Verizon's facilities, has Verizon demanded that they commit to
staying on Verizon's network?
Mr. Seidenberg. No, sir, we have not done that.
The Chairman. You have not done that?
Mr. Seidenberg. No. I think what happens in these
negotiations is that the longer they agree to stay on the
network the lower price they get. So if you have a contract
that runs 7 years you will get a price, if the contract runs 3
you will get a slightly higher price. Of course, the carriers
want the 7-year price for one day.
I think--let me just shed some light on this for a second.
We believe that a good wholesale regime is very important. Let
us take the simple example. Wireless companies every day
terminate calls on landline phones. That is a form of
interconnection, it is a form of wholesale interconnection.
They are willing to pay fair rates for it. We are willing to
give them volume discounts.
Now, the article you talk about is specifically geared to
the IXC's and some of the smaller CLEC's that are looking for a
continuation of the past practices of regulators forcing us to
give these services away at below cost. So our view is we want
them on our network; all we want them to do is pay the going
rate.
The Chairman. In your written testimony, and other
witnesses have mentioned the same thing, that the average
household in South Korea has more bandwidth than the average
American business. Countries like Japan are deploying more
fiber in their local networks than we are. We have had
testimony before this committee on broadband; we are tenth or
eleventh or somewhere around there in the world.
Your comments suggest that we should emulate whatever
public policies these countries have employed. What specific
policies--and I will expand this question to Mr. Roberts and
Mr. Ford and Mr. Betty. What specific policies from these
countries should we consider if we are falling behind?
Mr. Seidenberg. We would be the last to suggest that we
follow what they are doing in South Korea or Norway. But I
would say this, that all of these countries have a consistency
of their policy that drives investment in a fashion that is
fair and balanced. What we have here is a well developed cable
industry, we have a well developed wireless industry, we have a
well developed telecom industry. I do not think we need to copy
any model of any company, other than go to the principles under
which they operate, which is they incent investment, they allow
the companies to get a return on that investment, and they do
not require unbundling.
What you will find in all ten countries that are on the
list before us is no one is requiring anybody to give away
their facilities at below-cost rates to competitors in the name
of simulated competition.
The Chairman. Mr. Roberts?
Mr. Roberts. I would say that I think that we are in a lot
better shape than people would suggest by looking at how fast
the cable industry, a business I am familiar with----
The Chairman. Let me just interrupt a second. There is
numerous testimony of witnesses we are falling way behind, we
are tenth or eleventh or twentieth or something, we better do
something quick.
Mr. Roberts. I do not know that that is true.
The Chairman. Apparently neither Mr. Seidenberg or you feel
that there is any need for any drastic change in policy?
Mr. Roberts. Well, that, I would agree with that last
statement. I would say that my industry--cable modems were
invented in 1996-97. We went to one conference, just to give
you an anecdote, where Andy Grove of Intel stood up and said: I
do not think a cable modem can work. And there was a trillion
dollars literally of investment capital in the room when he
made that statement.
So this is risk-based investment with ideas that nobody
ever predicted. And I agree with the testimony earlier that it
is hard to know how fast the world keeps changing and to make
accurate predictions. But I believe the fastest growing part of
Comcast is our high-speed Internet business. So we do not need
any more incentive than that to try to get out and make that
business happen, not because Korea is doing better or worse by
some standard that may or may not be exactly accurate.
I think it is a great opportunity, and regulatory stability
is what allows the capital spending that I was referring to
having tripled on an annual basis for an entire industry.
The Chairman. Mr. Ford?
Mr. Ford. Well, I think it would be easy to echo what both
of them said. I think what you hear and I would agree with is
you will get more broadband deployment because every time the
cable company deploys broadband they are eating into the
telephone service revenue potential. Every time the telephone
company deploys broadband that is a high enough speed to
deliver video, they are eating into the traditional video
business. They will compete with each other--we have to compete
with both of them in different markets. They will compete with
each other when they both are free to invest.
The issue right now is in wireless--the technology is not
mature enough to offer video wirelessly yet. We are working
hard to try and make that a reality over the next several
years, but it is not in the next 3 to 5. But the cable guys,
where we compete with Mr. Roberts' company he is free to invest
and he is done once he has put his fiber in the ground. And
when we put our fiber in the ground, we are only beginning
because then we get--I can tell you a lot more about what
Nebraska and Kentucky are doing than South Korea or Japan.
But each one of those States then starts to want to take
our network back apart individually for their particular view
of what they think the world should look like. So our answer to
that is, well, then we just will not invest, and we cannot.
The Chairman. Good.
Mr. Betty, real quick.
Mr. Betty. I do not think the United States has as big a
problem as people think. Japan and Korea have some unique
circumstances of a lot of people located in a very small area
and it makes the capital that is deployed much more effective.
I do think that not providing consumer choice does impact the
ultimate deployment.
We heard a lot about the damages people incur. We lose
about 50,000 customers every month to a facilities-based
provider because I have nothing that I can provide them because
I cannot gain access. Those are customers that we have served
for a long time.
The Chairman. One fix to the 1996 Act, beginning with you,
Mr. Seidenberg, quick. One fix.
Mr. Seidenberg. One fix?
The Chairman. What is your priority?
Mr. Seidenberg. Oh, definitely, definitely get rid of the
entire unbundling regime and allow investment to move to the
risks that they are willing to take with that.
The Chairman. Mr. Roberts?
Mr. Roberts. I do not think you need a wholesale rewrite. I
think you should let it stay. But if you want to focus on one
thing, I would say focus on VoIP and Internet protocol; and as
I mentioned, Senator Sununu's proposed legislation, be targeted
in not creating a whole long process that will perhaps
destabilize a lot of businesses, but rather say, OK, what is it
we are most focused on, if we want more telephony competition
what are the barriers.
I think the IP technology is going to be the delivery way
to get there and there is probably a legitimate conversation
around that.
The Chairman. So you endorse the indecipherable Sununu
legislation?
Mr. Roberts. No comment. No comment.
The Chairman. Mr. Ford?
Mr. Ford. Senator, I think the one thing if we could wave a
magic wand, I think the one thing we would ask you to look at
is, with all due respect, I know Mr. Seidenberg's company has a
telecom background, I know Mr. Roberts' company has a cable
background. Out in the markets where we compete with them, they
look an awful lot alike to me.
The Chairman. What is your fix?
Mr. Ford. My fix is put everybody on the same playing field
and then you will get sustained competition.
The Chairman. Mr. Betty?
Mr. Betty. I agree with Mr. Ford.
The Chairman. Mr. Wilson?
Mr. Wilson. I think from a rural carrier's perspective,
maintain a strong universal service policy. That is very
important to us out in the rural areas.
The Chairman. I thank the witnesses.
Senator Lautenberg.
Senator Lautenberg. Thanks, Mr. Chairman.
Mr. Seidenberg, currently all telephones, including the
regional Bells, are permitted to provide long distance and
local service throughout the country. What does Verizon do by
way of competing with other companies, former Bell companies,
in their markets for local subscribers, non-business?
Mr. Seidenberg. We have the largest and most successful
wireless company in the country and those services clearly
substitute for local services everyplace, including in our own
footprint. So I think that wireless represents a facilities-
based technology that easily provides customers with
alternatives to spending money on local telecom services. There
is not any question in my mind that wireless is the single
biggest competitor to any existing incumbent for local calling
that there exists in the country.
Senator Lautenberg. We had a question come up in New Jersey
about some regulation that was being considered and Verizon
said that they would pull out of a plan to invest some $250
million in the state of New Jersey. That is a lot of muscle to
be exerting, Mr. Seidenberg. What is the intent there? Is it to
say that if you do not play our game we are taking away the bat
and the ball and we are going home?
Verizon is not suffering from lack of opportunity or lack
of profits. So why would that kind of a threat be a good
business policy for either our State or the company?
Mr. Seidenberg. The state of New Jersey has a requirement
that we lease our network for approximately $12 a line. The
average across the country is $19. AT&T charges $54 for its
bundled services across the country and the average across the
country that they pay is $19 a month. Therefore, in the state
of New Jersey, AT&T is making an extra $7 a month for charging
everybody the $54 without returning a single nickel of that to
the customers in the state of New Jersey.
Our position is we will not invest incremental capital in
the state to do broadband if we are in business to support our
competitors. Now, you claim this is a lot of money. It is
absolutely a lot of money. I would point out, however, Senator,
that for the past 5 years we may have invested $6 or $7 billion
in the state and we have a negative return on that money in
terms of how we are earning in the state.
I think the bottom line to this is we want to do broadband,
we are doing it in other places, but in any jurisdiction that
continues to provide an environment in which our invested
capital cannot get a reasonable return on investment we are
going to slow down the investment.
Senator Lautenberg. You said in your testimony that you are
investing some $12 billion a year in capital investment.
Mr. Seidenberg. Yes, sir.
Senator Lautenberg. What is typically the life of the
assets that you buy in that $12 billion a year?
Mr. Seidenberg. It depends. Some of them are long. It could
be 8 or 9 years for switches. For fiber in the ground it could
be as much as 12, 15 years. The electronics are shorter periods
of time.
To give you a perspective on how we think about it,
wireless is very hot today, so we invest money in wireless. The
investor thinks that we will get a return on our wireless
investment in 6 or 7 years. For 6 or 7 years we will incur a
loss until we see a positive return on net income in our
wireless business.
Today there is no business model that would suggest any
investment in the wireline business has any positive return
ever. But we have been willing to do it, on the theory that we
think we can remake our business and turn this regulatory
quagmire around. If we cannot turn the regulatory quagmire
around, then focus is going to continue to be shifted away from
the wireline business.
If I just may give you a couple of facts, because I know
you hear all these numbers about investment. In the past 4
years, we have cut our telco investment by 50 percent. So it
used to be running at $12 billion a year just in the telco. It
is now running a little bit over $6 billion in that time
period. Our employment, we used to employ 240,000 people in our
telco. We are down to 140,000.
Senator Lautenberg. Is that technologically created?
Mr. Seidenberg. Some of it is. Some of it is
technologically created, as it was said before.
But here is the issue. Unless we invest in new technologies
and recreate growth, all we are doing is heading down a path of
going to zero. I think our view is broadband gives us a chance
to recreate an industry around a new technology. Government
policy, particularly regulatory policy, we think is frustrating
that entire opportunity.
Senator Lautenberg. You can see that by the results of
growth in your company, with all of these regulated years that
you are complaining about. The progress of the company is
incredible.
I wish that you and I could sit over my phone bill. I am a
New Jersey resident and I would like to examine what we get,
how much less we seem to get for the money we are spending.
Mr. Seidenberg. Senator, any time you want to look at our
balance sheet, I think you will find that we have not grown
over the last 4 or 5 years, that we do not get a return on our
investment. The fact that you use our services I appreciate. I
think it is a good thing.
The Chairman. I would like you to explain my phone bill to
me just so I could understand it.
Mr. Seidenberg. Just pay it. Just pay it.
Senator Lautenberg. I come out of the computer industry,
Mr. Chairman.
Mr. Seidenberg. It is one of the best values you will ever
get, Senator.
Senator Lautenberg. Mr. Roberts, what do you think about
the negotiations between the Bell companies and the competitive
carriers in the wake of the D.C. Circuit decision?
Mr. Roberts. Well, I was enjoying the previous exchange.
[Laughter.]
Senator Lautenberg. But I get a chance at you, too.
Mr. Roberts. I think regulating the Internet, which if you
boil it all down is what is at stake--and I am in the camp that
you should look at what is the end goal and I think it is to
promote competition and have multiple facilities-based
providers.
The comment that was made that the telephone companies are
now selling more DSL's than the cable companies in the last
quarter is a true statement, and that is the first time that
happened. That did not happen for any other reason than, as I
said earlier to Senator McCain, that I believe it is a good
business and that is what the consumer wants and you are racing
to get the consumer what they want. The same thing in wireless.
So to turn around and take a law that was passed 70 years
ago and apply it to an Internet-based product, high-speed
Internet and broadband, does not seem to make sense to me. The
FCC recognized that and hopefully the Supreme Court will
recognize that, because I think whether you are talking
wireless technologies, cable technologies, or power line
technologies or whatever, I do not think you want to go back in
time.
If need be, take a look at the rules that still apply to
others and try to take some rules off. Do not put new rules on
in the name of trying to promote competition. I do not think it
proves that that will work.
The Chairman. Thank you.
Senator Allen.
Senator Allen. Thank you, Mr. Chairman.
My key concern here and view is that we need to make sure
broadband is more available to more people. It benefits
consumers, encourages innovation, and it stimulates jobs and
economic growth and clearly individual opportunity for
consumers, particularly in small towns and rural areas, for
those businesses, individuals, whether they are in schools or
telemedicine, in a variety of ways--distance learning and so
forth.
I think that to worry about the telephone aspect is
secondary to broadband because the applications are way more
than e-mail and instant messaging, and it is more even than
telephone. It is video. It will get competition against the
cable, so to speak, but give consumers more choices in it.
Again, it is not just cable modem and DSL; it is ultra-
wideband, it is the power lines, it is satellites, wi-fi, and
so forth.
Now, we recently passed the Internet Tax Freedom Act
extending the Internet tax moratorium, and most of you
supported that effort and I appreciate it. Can you tell me what
you think the impact of taxing the Internet would have on the
deployment of broadband by your company? We could go through
all of you, to the extent you all in one way or another are
involved in broadband. Start with you, Mr. Seidenberg.
Mr. Seidenberg. Well, in addition to it being a bad idea,
taxing the Internet, I think I will come back to my theme. I
think it will take all or most business risk associated with
wanting to invest in new technologies and frustrate it.
I think that you have a hard job in terms of public policy.
You can get revenues into the treasury by creating growth or
you can tax it. I think if we tax it we are not going to get
the growth. So I think in this case I err on the side of
wanting to see capital formation, continue to have people
invest, all the services that you talk about will occur. And
investors will flee from this market in a nanosecond if they
feel the heavy hand of taxation enters the success formula for
these kinds of services.
Senator Allen. Mr. Roberts, while you are not considered by
the ones who want to tax it a telecommunications company, which
gave you an advantage over some of those States that looked at
loopholes and taxed DSL, one thing we do not want, at least I
do not want, is an Internet service bill, monthly bill, to look
like the telephone bill that Senator McCain and no one can
understand, with the multiple State taxes, local taxes, and
Federal taxes, including a luxury tax put on to finance the
Spanish-American War that remains there.
What would the impact of taxation be on you? And Mr. Ford,
Mr. Betty, and Mr. Wilson.
Mr. Roberts. Well, first of all, we do have local franchise
fees, so there are taxes at stake in this debate as well,
because a cable operator gives 5 percent of their revenue to
the local municipality, depending on how you define what the
service is.
Senator Allen. Right, but not in Internet service.
Mr. Roberts. In the past there has been some municipalities
that have wanted that, and so that is part of the question. I
think when you create a tax in something that is growing like
this, you are obviously going to depress demand. If you go back
to what Chairman McCain said or what the President said, should
we not be thinking about growing the appetite, not depressing
the appetite?
I would agree with what Mr. Seidenberg said, that I do not
think that is in any way going to help grow demand, and I think
that is better for the Nation as a policy.
Senator Allen. Mr. Ford?
Mr. Ford. Well, sir, one comment would be we pay--I did not
realize until the last few weeks when all the articles starting
coming out, we pay 6 to $700 million in State and Federal
taxes. I did not know we were in such a minority in just the
Nation as a whole.
But one of our primary competitors that is trying to sell
service promotes having a $10 cheaper price for a similar
bundle of voice services. That is because they have about $8.50
of less taxes, fees, surcharges, and etcetera on the bill. So
again, it is maybe not just the question of do you tax the
Internet and how you take that into State tax revenues and
balance that, but one set of competitors are being taxed, one
set of competitors are not being taxed. Again, I think that is
worthy of looking at as you go through your review of this.
Senator Allen. Mr. Betty.
Mr. Betty. Taxes clearly would have the effect of dampening
demand. It would make it unaffordable for even that many more
Americans.
Senator Allen. Thank you.
Mr. Wilson.
Mr. Wilson. Senator Allen, when I go back and think about
our rural cooperative, when we deployed the Internet back in
1996 and I talked to many of the people when they took the
service, we have over 3,000 dialup subscribers and around 300
DSL subscribers. To be frankly honest with you, whether it had
been taxed or not I think would have had little impact upon
people wanting the service. They wanted the service, they
needed the service bad.
Senator Allen. What would--beyond the issue of taxation, if
each of you could say this. Beyond the issue of taxation, what
is the key issue facing your company preventing further
deployment of broadband services? We will go in the same order.
Mr. Seidenberg. I will just give two things. I think, as
Senator McCain said earlier, I think in our case requiring the
FCC to implement the court rules without all these silly
pricing distortions; and treating adjacent industries the same.
I think the theme comes out here that--and I did not make this
point, make it a point to come here this morning to comment on
this, but there is no question that the cable industry, with
all its success, has a different set of rules than we have, and
in some cases we provide exactly the same service.
The Chairman. And different kind of taxes.
Mr. Seidenberg. Absolutely. Now, I am not suggesting that
they are doing anything that is not good. They are taking
advantage of an opportunity. But the issue is we cannot go
downstream and have a different set of rules for us and for the
cable. It is not sustainable.
Senator Allen. Mr. Roberts?
Mr. Roberts. Well, first of all let me just comment on that
last part. If you take the video business, one out of every
four homes now buy their video products from somebody other
than their cable company. There has been several laws about
video competition. You have two national competitors. We are
not in the satellite business, really not allowed in the
satellite business. The biggest competitor to telephone is
wireless.
Senator Allen. I do not want to get in that whole debate.
Mr. Roberts. OK, no problem.
Senator Allen. I understand there is competition. What is
the biggest and key impediment to you all?
Mr. Roberts. The biggest impediment would be regulatory
instability, and in our case that is here and now and
immediate, which would be the so-called Brand X case which
Senator Lautenberg was referring to is under review. The
question is whether they are going to appeal it to the Supreme
Court, the FCC's rulemaking.
Senator Allen. So you are saying legal uncertainty?
Mr. Roberts. Legal uncertainty.
Senator Allen. All right. Mr. Ford?
Mr. Ford. Mr. Allen, I have to say that it is regulatory
uncertainty as well. The technological advances are hard enough
to forecast. We struggle with it every day. But when we do not
know what regulatory scheme we would be making that capital
investment decision, the only decision we can make is not to
push.
Senator Allen. Mr. Betty?
Mr. Betty. Nondiscriminatory open access to the
infrastructure.
Senator Allen. I know we could have a good debate with you
and Mr. Seidenberg on that one.
Mr. Wilson.
Mr. Wilson. As a rural carrier, it would have to be
regulatory instability, too. We need a stable environment of
investment recovery so we can build that broadband out in rural
America. I think it will bring untold opportunities to many of
our subscribers.
Senator Allen. Thank you.
Thank you, Mr. Chairman.
The Chairman. Senator Nelson.
Senator Nelson. Thank you, Mr. Chairman.
If we move forward on a goal that I would like to see of
helping consumers and a regulatory environment without
hampering technological innovation, something that would also
allow wireless broadband to be rolled out quickly, and ensuring
that all Americans have access to this kind of technological
innovation, so with that in mind, which is one of my goals, Mr.
Betty, suggest to us how you think we could redesign the laws,
the telecommunications laws, so that they do not become
outmoded by the new technological innovations?
Mr. Betty. Well, that is a tough question. I mean, IP
fundamentally is changing how things are delivered. I think
Scott talked about the view that it is going to be applications
that people are buying, not necessarily the service. That genie
is out of the bottle. It is not going to change. And IP is
going to be delivered by a number of different infrastructures.
If the Congress decides that access needs to be provided
for everyone, I do not see how anything but some subsidization
is the only way to fund cost effectively the delivery of those
services to many of the rural areas. But I do not think
providing a framework where you are limiting or setting up a
duopoly of interests or having only a couple of people that can
provide those services is for the public good. Whatever you do,
I would suggest that you provide a framework that takes these
public, somewhat public, infrastructures and makes it available
to other third parties.
Senator Nelson. Mr. Roberts, you have thrived in the cable
industry since the 1996 Act, in part because of being relieved
of many of the regulatory restraints. Now, the wireless
industry is also minimally regulated. Should the incumbent
local telephone providers be similarly deregulated?
Mr. Roberts. Well, if the choice is that versus regulating
others, then I would say yes. I do not consider myself an
expert on all the machinations, and I did not mean to get us in
with Senator Allen's question, but I think you do have to look
at who are the largest wireless companies in America. They are
the telephone companies. In the case of our industry, the
satellite companies are not owned by the cable companies.
So you do have--it is simple to say, oh, just have one set
of rules for everybody. I do not think that is necessarily
totally realistic. We have local municipalities that regulate
our business, other businesses have different regulations. So I
think what you should be doing is looking at the end user and
saying, how can we promote more and more competition and
thoughtfully take rules off of people that are no longer
necessary.
I do not know that I know every rule affecting the local
telephone companies. But if the answer in the name of parity is
to put more regulation on, then I have a very strong point of
view. If the question is should you take regulation off, I
think it is a question that should be thoughtfully revisited,
and there are many witnesses and I think you are doing the
right process to ask those questions.
Senator Nelson. Mr. Seidenberg, you are negotiating
interconnection agreements with competitors over the use of
their networks. How would you characterize the progress that is
made thus far?
Mr. Seidenberg. Well, it has only been 2 or 3 weeks. I
think the progress is fine. I would prefer that we call them
customers because they are customers. They spend a lot of money
with us. And we do--we have had interconnection agreements with
most of them for the last 25 years.
What we need to do here is find the right balance between a
fair price to be paid for the facilities and the services that
we offer. We have negotiations going on with close to 20
different carriers right now. Most of those carriers feel that
they would like to cut an individual deal with our company
because each of them has built differentiation in their
company, and we would like to accommodate that by giving them
whatever it is that they feel would be reasonable under the
law.
So I am very pleased that the discussions are ongoing and
active, and we should end up with some good results over the
next several weeks.
Senator Nelson. You think those interconnection agreements
should be filed with the government?
Mr. Seidenberg. This is a difficult question. I think my
instinct is the following. We were asked to settle this
commercially. I think my concern would go to, if we cut a deal
with you, sir, should we take all of your intellectual property
and make it available to Senator Sununu? This is what happens
in the regulatory process. So you go through this very tortuous
process to treat customers as individuals, only to find out
that every term and condition of every single contract is
spread across the entire industry.
So I think we want to follow the commitments we have made,
which is to do bilateral agreements, cut these deals with these
major customers, and go forward on the basis that will keep the
information confidential.
Senator Nelson. Mr. Ford, should Congress consider amending
the Act to support wireless or broadband applications to permit
universal service funding instead of just supporting only the
basic voice applications?
Mr. Ford. That is a deep set of issues. I could probably
make money if I said yes and you did it, but I do not know that
that would be the right policy. I think that there is plenty of
money in the pools. We are a rural telephone company. We take
out about 100, we take out about $150 million from the State
and Federal pools; we pay in about $100 million.
There are plenty of pools to incent lifeline support,
whether it be wireline or wireless. There has been an
interesting evolution on that topic in the last couple of
years, and I think a reasonably fair one.
Do we need to go and incent that for the delivery of
broadband in rural America? We probably will not build out
extreme rural America with wireless broadband in the first few
years, but I think the technological progress that is being
made will allow us to get there over the next 10 years without
having to introduce a new Federal subsidy or a new State
subsidy.
So while I would profit if you did that and I will avail
our company of that revenue stream if you decide to do that, I
do not know that that is essential long-term.
Senator Lott [presiding]. Senator Allen--no, I am sorry.
Senator Ensign.
STATEMENT OF HON. JOHN ENSIGN,
U.S. SENATOR FROM NEVADA
Senator Ensign. Thank you, Mr. Chairman.
I want to delve a little deeper on this topic. Senator
Allen talked about taxation. Well, another tax is regulation,
and you all are operating not only nationally but even
internationally. So I would like your comments on how, because
this is definitely one of our roles, in terms of regulating
interstate commerce, when do we preempt States; and for the
deployment of broadband, getting more broadband out there,
making it more competitive, as Senator McCain talked about in
regards to Korea and Japan.
Can you comment on that aspect of the States appropriate
role and the difficulties of having different laws in each
state you think that affects broadband deployment, pricing, and
the like? This might be something most of the panel at least
can agree on. Just start down the line.
Mr. Seidenberg. You want me to start?
Senator Ensign. Yes.
Mr. Seidenberg. OK, fair enough. Maybe I could just quickly
offer why it is time to take up the questions you just
mentioned. If we believe the technology, we now have services
that are more national in scope rather than local. Let us take
the example of wireless for a second. The U.S. was criticized
because we had multiple standards, CDMA and GSM. Europe created
one technical standard across Europe. They had faster
deployment of wireless in Europe.
Now let us take a look at the phone situation or the
telecom situation in the U.S. We have 53 jurisdictions setting
prices, setting terms and conditions. We have the FCC setting
terms and conditions. We have heard here that when you deploy
networks you have IP protocols and packet switching that create
national formats.
I think if we do not eliminate the unintended consequences
of having 53 different statutes regulating different aspects of
this, trying to divide a chip on a device and trying to
allocate costs, we are going to continue to disadvantage the
formation of broadband networks. So I think it is time for the
Congress, the FCC--most state commissions will not like me,
will not appreciate this, but time to preempt it, cut across
the top and create uniform standards.
You have heard this before, but we need common rules for
enforcement, technical standards, public safety; we do not need
economic regulation of prices. We do not have it in wireless,
we do not have it in cable. It works. And we need policy that
provides stability and uniformity across the country. It is
time we did that.
Senator Ensign. Thank you.
Mr. Roberts. I think you are right, I think we will
probably have a lot of agreement on this point. I also think
pointing out that regulation is another form of tax is exactly
right. Without a doubt, as we look to the daunting challenge of
going into the phone business and all the interconnection rules
and all the myriad of consumer necessities that are the phone
business if you really want to be a primary line company, which
is what our goal to offer the service is, having preemption of
53 or whatever State rules is critical.
It happened in 1996 and that is a big part of why high-
speed Internet took off. There is one set of broadband policies
that are under judicial review and so that is part of my
concern. I think doing it again for VoIP makes an awful lot of
sense.
Mr. Ford. I would agree completely on the wireline side.
The wireless industry, this has been one of the primary issues
we have dealt with in the wireless industry the last few years,
as one State after another wants to come in and start--they do
not want to regulate price. They cannot. But the terms and
conditions becomes an ever-expanding room for them in terms of
their view of what they need to regulate, including in one
State what font size various parts of our ads should be.
There was another State where we passed on an acquisition
because part of it did business in one State where we knew the
regulatory burden would not pay for us to even have the
operations in the State. So it is a real issue.
Mr. Betty. I agree with the other panelists.
Mr. Wilson. I guess mine would be just a little bit
different. I do not have the experience of all these other
States, but I can tell you in the rural areas that we serve,
for DSL broadband type services to remain regulated to receive
a rate of return is imperative for us to be able to get this
stuff out there.
There has been quite a bit of rhetoric over the last year
or so about deregulating these information services, and if so,
if there is no rate of return, for us as rural carriers we are
probably as far as we are going to be able to go. We definitely
need the help from rate of return regulation to deploy this
stuff.
Senator Ensign. Just to go a little further along these
lines to get into the Voice-Over-IP: taxation, obviously at the
local level and regulation. There is a lot of promising work in
the Sununu bill and I think it is one of the most important
technologies that we allow to develop, and I say ``allow to
develop'' because it is developing. This body up here can mess
it up.
That is kind of the bottom line, is how do we get out of
the way so that it does develop in a way that I think is going
to revolutionize the way that people send and receive
information in their homes and their businesses. So please
offer your comments on, once again, the State and local
preemption of taxes and regulation that would apply to this
particular technology that is dependent broadband?
Mr. Seidenberg. I have the feeling that I was just given a
pass in open court and no one between me and the basket and I
cannot lay it up. I apologize.
I would say this. I think that from all these years of
participating in this industry, there is a gravity of
regulators, of regulatory thinking, that will not let go of the
old in order to try the new. It does not mean that they are
doing anything wrong. They are following what they view as the
statutes.
I think it is time for the Congress to change the statutes,
so you change the job. If you change the job, they will change
the behavior. I think what we are facing is, if you look at
wireless--I can speak from that because of our experience--we
started a wireless business from almost nothing, just a few
licenses. We have a national company. Arguably we have the
superior asset in the entire industry, and it is based on
investment. We have invested more per customer than anybody
else in the industry. We have the best service, the best
coverage, the best distribution.
I think the same thing has to occur on the wireline side.
So we have to trust the market. We have to believe that the
market is competitive enough at this juncture.
Now, having said that, I am not a person that believes that
we just obliterate all regulatory responsibilities. Somebody
has to be the referee, somebody has to enforce, somebody has to
set standards, somebody has to make sure it is uniform, there
is nondiscrimination. I think there is a legitimate role for
regulatory work, but it needs to shift away from micromanaging
price and winners and losers to regulating the terms and
conditions of market behavior.
Senator Ensign. Thank you.
Mr. Roberts. Well, I concur with a lot of that and I think
it goes back to is the glass half full or half empty approach
to what you are trying to accomplish and recognizing that this
is changing. So in our company we are taking three cities this
year and we are rolling out Voice-Over-IP. Again, the
technology changes every day. We are thinking should we go into
videophone, should we just go into voice? Should an Internet
connect with your TV or should it be a stand-alone device? How
does it relate to wireless?
These are all questions that I cannot sit here today and
tell you that we know until we go do it. I totally agree that
it is about innovation and investment, and we are fully
committed to taking our cash-flow and putting it back in and
hoping that we are going to develop products where we can
compete.
In order for the government to support that and, as you
say, get out of the way and not slow it down, I think the best
thing you can do is to look at the existing regulatory
regimes--in the telephony case that is clearly the States--and
it is to recognize that any tax will slow this down or any
regulation will slow this down, and have a stable platform,
because Wall Street, which all of our companies basically or
most of our companies have to answer to, wants to put their
investment where they know there is not going to be a change 12
months later and suddenly your investment is wiped out.
Senator Lott. Anybody want to add to that?
[No response.]
Senator Lott. Senator Breaux.
STATEMENT OF HON. JOHN BREAUX,
U.S. SENATOR FROM LOUISIANA
Senator Breaux. I am sorry, I have my Verizon Blackberry
here.
Thank you, Mr. Chairman.
I think it is really important that we are doing what we
are doing. If you think about Congress, we are so far behind
technology in the laws that we pass. We passed the 1934
Telecommunications Act. We came around in 1996 and passed an
update 62 years after the first one. And then now it is
arguable that what we did in 1996 has little relation to the
technology that exists today.
I mean, if you look at where we are going, just check the
teenagers in this country as they move around on their
Blackberries and their wireless telephones. I mean, these kids
do not even use a wireline any more and probably will never use
it in the future. And you look at e-mail and instant messages
and broadband. Really, none of that was very common when we
passed and debated the 1996 Act.
So it is incredibly important that the next Congress, that
I will not be part of, uses this opportunity to try and once
again bring the laws regulating this industry into the modern
world in which technology prevails. There is a disconnect
between the 1996 Act now and what is needed in the year 2004
and into the future. So it is really important, I think, that
we have taken this opportunity to set the stage for next year
to come in with legislation that addresses the new technologies
so we can try and keep up with the laws, with the technology
that is out there.
Mr. Roberts, Mr. Seidenberg, and maybe if someone else
would comment, it seems to me that what we did in 1996 was
extremely regulatory in the sense of the RBOC's and the
requirements that Mr. Roberts and his cable companies do not
have those same standards. I think Mr. Roberts' response I
think is correct, but I will get you to elaborate on it.
Currently the regulations on the RBOC's, Mr. Seidenberg's
company, in comparison to what is there for the cable
companies, there is a huge difference. I mean, the cable
companies do not have to negotiate with your competitors for
access to your network, you have no duty to interconnect with
your competitors, sometimes at below cost, you have no duty to
follow a detailed system of regulatory accounting, no duty to
file tariffs, no duty to provide network ISP service, and
others.
But I would think, Mr. Roberts, that what you are
suggesting is, rather than let Congress come in and provide
these same regulations to you that you have on Mr. Seidenberg's
companies, that the preferable answer would be to create a
level playing field which moves toward deregulation in this
area, as opposed to more regulations. Can you comment on that?
Mr. Roberts. Yes, I think that is right. I think that, in
fairness, there are other regulations on cable, and in fairness
there are other competitors in, quote, our ``core business,''
the video business, that in Mr. Seidenberg's core business that
there are people at this table, not at this table, who would
say, well, here is why there should be a difference. And you
can have that intellectual debate.
But I think ultimately, if the policy of is broadband going
fast enough in this country, to thoughtfully go back and look
at issues as he described in New Jersey or wherever that are
retarding their advancement are legitimate to revisit. And
there may be--again, it is a nice goal to say let us have
exactly the same rules for all parties. But in the end, last
quarter there were more DSL's sold in this country than cable
modems.
Senator Breaux. Yes, but you are so far ahead. I mean, they
could have a good quarter, they have got a hell of a lot of
making up to do to come close to catching up with cable.
Mr. Roberts. Again, so part of that is----
Senator Breaux. You have got what, 25 million subscribers?
They have got 16?
Mr. Roberts. I think it is a little higher, but I think
that conceptually we would not argue we did better, because I
think we recognized that this was a business a little faster,
and that is good for competition.
Senator Breaux. Yes, but you also did not have all the
regulations that Mr. Seidenberg had.
Mr. Roberts. That may be part of the answer, and I think
that is worth taking a look at.
Senator Breaux. Mr. Ford, you have a comment on this?
Mr. Ford. I think you have got it square.
Senator Breaux. Mr. Seidenberg, do you want to elaborate?
Maybe this is another jump shot for you.
Mr. Seidenberg. I would just make, I would just like to--
Senator, you have been working these issues a long time. I know
you understand this. I think that this whole issue of DSL and
cable modem would suggest there is a lot of competition.
Regardless of who is on top, the fact is we compete every day.
Cable does a good job. We are trying to do a better job. We
happened to have one good quarter out of the last 30, so I
guess it does not mean we are on a winning streak. But that is
fine.
But I think the other point that I would like to just offer
you is, what makes this different today is that there are no
boundaries to separate voice from high-speed from video. As
these industries come together--Senator, you asked a question
before about applications and the software industry. If we do
not begin to treat these technologies as they serve the myriad
of applications across these technologies, we are going to
continue to suboptimize the process.
I think that is the reason why we need to cut across the
regulatory structure and obliterate those things that draw us
to the past and try to create something that is more level
going forward.
Senator Breaux. Well, I may be hoping for the impossible,
but it would be so incredibly positive if the industry itself
could look at this in a way without getting into problems with
antitrust, to make recommendations to the next Congress as to
how this should be handled. You have been through the battles
and had TV ads ad infinitum from both sides talking about what
we should do and what we should not do. If as much time was
spent on trying to present a united recommendation, it would be
incredibly helpful.
I believe in regulation when there is no competition. If
there is a monopoly, there should be regulation. But you need a
lot less regulation when there is true competition, because the
competitive system can work, but it can only work if you have
in fact competitors. I think that we are moving in that
direction and the recommendations I think would help the next
Congress a great deal to try and get together on this.
I thank all of you for your testimony.
STATEMENT OF HON. TRENT LOTT,
U.S. SENATOR FROM MISSISSIPPI
Senator Lott. Well, let me say, Senator Breaux, no matter
what we do next year or the next, it will not be as much fun
without you helping us write the legislation. You would
certainly add some complication and entertainment to the
process, but we are going to miss you as we try to do that.
I want to thank Senator McCain, even in his absence, for
having this series of hearings. I think it is helpful to begin
to frame the discussion and help us understand a little bit
more about the tremendous technology changes that are under
way, and we need to try to deal with it, hopefully in a
positive way, in terms of what we do with the law, the
regulations, legal concerns.
So I think this has turned out to be a good idea. I want to
thank the panel for being here. I think you have done a very
good job.
But to change things up just a little bit, I am going to
start down on this end with you, Mr. Wilson. One of the things
obviously that will be a key factor when we develop legislation
is what do we need to do, what kind of reform should we have in
the universal service fund and in the way the distributions are
made that would help guarantee the stability of the fund in the
future? Where can we get more money to help provide the funds?
Do you have any thoughts on either part of that question?
Mr. Wilson. Yes, sir. We at NTCA believe that the
contribution base needs to be expanded, for one thing, to all
telecommunications providers, also including information
providers as well. We believe that the current revenue
assessment base is the way to stick with. We do not really--we
do not believe we need to move toward a numbers or a
connection-based. That will shift a lot of the responsibility
to telephone companies, to wireless providers, and to CLEC's as
well, and relieving a lot of the inter-exchange carriers of
their statutory responsibilities.
So yes, sir, we believe that the base should be expanded.
Senator Lott. Mr. Seidenberg, do you have a thought on
that?
Mr. Seidenberg. Well, yes, sir. Senator, I think universal
service to us is important. I mean, all the rural customers are
very important. We serve rural locations, as you know. I guess
technically we are probably as large a rural provider as
anybody is.
I think the issue for us is to make sure that the fund is
administered correctly and is targeted. If we could do that and
get the support where it belongs, to those that need it, there
should not be a big objection to it. I think in the past these
funds have tended to be bigger than they need to be, they tend
to go to companies rather than people. If we can sort through a
way to do that, we are willing, we absolutely are going to
participate and try to make it work.
Senator Lott. Do you want to add anything to that, Mr.
Roberts?
Mr. Roberts. One point that I think as you think about how
the USF can be relevant in the future with new technological
development, the very last point of whether the money is ending
up in the right place I think is a fair question. So one idea,
just as you are evolving ideas, is if you want to continue to
take--obviously we want to participate if we are in the phone
business; we do today pay into the fund--whether it should get
to the user as compared to the provider. So that tends to pick
winners and losers.
I do not know how you do that. I think if you have this
discussion you should be thinking about, OK, the incentive is
there, the question is whether it is low income or rural. What
can you do to spur the demand side is again in my mind an
interesting way to at least revisit the question.
Senator Lott. I noticed in your testimony, Mr. Roberts,
that you refer to the preamble of the Telecommunications Act,
and what a worthy description that was. You can debate about
whether or not we have achieved that goal. But my thought when
we were working on that legislation in 1996 and today is we
need to always keep our eye on the ultimate goal, which is to
provide the customers with the best service at the best rates,
with the least hassle.
I think we have made some progress in giving them
tremendous options, and for the most part pretty good rates.
But I still think to the average consumer it is a confused
mess. I look forward to the day when I as a customer can get my
television, the Internet, the telephone, the works, local, long
distance, all of it from one company that I choose, so I can
pay one bill. I am getting damned tired of having to pay Bell
South, Verizon, AT&T, cable, and the satellite company every
month. It takes half my checkbook just to pay those. Now,
partially because I live in two different places.
But Mr. Roberts, since you have been very aggressive and
innovative, do you envision that day? And I want it with
competition. I worry that you can get all that, but I do not
want it provided by one company. I want to be able to choose
between at least a couple, so that I can keep a little heat on
both of them to control their prices for that myriad of
services.
Mr. Roberts. I think that is the vision. I mean, I think
that is--all kidding aside, how can the various networks evolve
the technology to where you are offering all the products to
the consumer, whatever the definition of the products will be 5
or 10 years from now. So as you think through the model, you do
want a facilities-based competitor that is willing to
integrate. In the marketing lingo, that is the bundle.
And bundling, Verizon is a leader in that. Get your
cellular, your telephone, your DSL, they are offering
satellite, and all in one bill. Cable is doing that, and I
think that that is a lot of what some customers want.
The key point that you also made, having competitive
choices for all those bundles, is also happening. So in our
case you can get Rupert Murdoch's DirecTV, you can get
EchoStar, the Dish Network, you can get DSL. They are bundling
together.
So how do you innovate? So the real thing, so if you are in
our shoes, is obviously trying to have local service, be a
company that is community-based. So as you know, we take great
pride in the fact that we started this company locally.
Senator Lott. In Mississippi.
Mr. Roberts. In Mississippi.
Senator Lott. Do not ever forget that.
Mr. Roberts. I never forget it. Tupelo, Mississippi, my
father.
Senator Lott. That is what got you started off on the right
note, yes.
Mr. Roberts. Forty years ago. So whether it is being part
of the community or now doing 24-7, again, the change that you
are talking about I think has happened, so we are open 7 days-
a-week, 24 hours-a-day. You call, you talk to somebody from
Comcast. That is a very different business model than your
cable company 10 years ago.
So that is the competition part that you referred to. But I
think that is a vision that we are all shooting for, which is
the bundle.
Senator Lott. Mr. Ford, my staff tells me that you
indicated maybe you might want to comment on the universal
service fund, go back to that.
Mr. Ford. That is an observant staff.
Well, I wanted to say one thing on that. As a rural phone
company, we never quite got it right. We started in Arkansas
instead of Mississippi, but that is as close as we could get.
Senator Lott. But you do serve part of my State now.
Mr. Ford. We do, sir.
Senator Lott. So you are making progress.
Mr. Ford. That is a crack staff you have got back there.
Just to kind of stay on my mantra today of sighting the
pink elephants in the room, when you talk about universal
service, as I am sure you are aware, the high cost subsidies
that used to flow only to the wireline companies, whatever that
subsidy was now flows to any wireless company for any number of
lines in that marketplace. So the universal service fund has
grown tremendously over the last several years. It is not like
it is dying on the vine.
I am a beneficiary of it. But if you are looking for people
in the industry that would say, look, enough of a good thing is
enough, if you really want to policy where people have to
compete and evolve their business models to stay competitive, I
think you would find more support in the telecommunications
industry than you might suspect.
Senator Lott. Thank you very much.
Now we will hear from VoIP Sununu in person.
STATEMENT OF HON. JOHN SUNUNU,
U.S. SENATOR FROM NEW HAMPSHIRE
Senator Sununu. Thank you very much, Mr. Substitute
Chairman.
[Laughter.]
Senator Sununu. I want to point out that you are doing an
outstanding job presiding over this hearing.
Senator Lott. Feel free to extend your remarks in that
vein.
[Laughter.]
Senator Sununu. One of the points that seems to have been
made in a number of different forms is the importance of
regulatory parity and a level playing field, and also
consistency, because it is the consistency that creates an
environment where people can take a risk and put up some
capital, invest in a new service, new infrastructure, and keep
serving those customers in Mississippi and elsewhere that are
the heart and soul of your businesses.
Along those lines, Mr. Seidenberg, I think you talked about
regulatory parity with regard to voice and video and data,
whatever might be carried over the system. Mr. Betty, in your
remarks I think you made a similar point about looking at these
applications and treating them all in a similar way.
Does VoIP fit that description that you provided in your
testimony, Mr. Betty, an application that rides over the
Internet?
Mr. Betty. Absolutely.
Senator Sununu. And do you agree that all of these
applications, voice or instant messaging or video, ought to be
treated as information services?
Mr. Betty. Absolutely.
Senator Sununu. Mr. Seidenberg, do you agree with that?
Mr. Seidenberg. I am not a technical expert on the law
here, so I do not want to get in trouble. But I think that to
the extent that we can treat the VoIP services absent the
common carrier regulation that would create a disparity with
other services, then I would agree.
But I want to make sure I read the fine print because this
is what I have learned in this industry after all these years.
But generally we have been making the case that broadband
services should not be treated under Title 2, they should be
treated under Title 1.
Senator Sununu. Mr. Wilson, do you agree with Mr. Betty?
Mr. Wilson. No, sir, I do not. I think VoIP is another form
of telecommunications and should be treated so. I look at
Voice-Over-IP as just another natural evolutionary step in the
innovation of telecommunications. If you go back years ago, we
had the old central switchboard, we had open wire lines with a
great number of people on party lines. We migrated to eight-
party, to four-party, to one-party, buried copper to fiber,
hybrid coaxial networks, went from step switches to digital
switches, now to soft switches.
I think it is just innovation, another step in innovation
in telecommunications.
Senator Sununu. So instant messaging, e-mail, video on
demand, those are also telecommunications services that should
be regulated under Title 2?
Mr. Wilson. I do not think e-mail and text messaging should
be, but I think the Voice-Over-IP should be.
Senator Sununu. So looking out toward the future,
regulators are going to have some sort of a sieve that enables
them to determine which bits carry a telecommunications voice
call and which bits carry an instant message and which bits
carry an e-mail?
Mr. Wilson. Well, sir, I think the fact may be that we have
to have some type of a network compensation for just a bit,
period, because we will not be able to distinguish those bits
for sure. But still, we will have usage of our network. This
stuff, it is not magically just getting from point A to point
B. It is still riding over a network. We have got network
investment and somehow we need to be compensated for use of our
networks whether it carries VoIP or text messaging or whatever
else it carries.
Senator Sununu. So your point is not really whether you
have regulatory parity or not. It is just whether anything
affects the rate of return model that your business is based
on?
Mr. Wilson. Yes, sir, we just need to be compensated for
our network usage.
Senator Sununu. I appreciate that directness.
Mr. Seidenberg, I believe the FCC has encouraged and you
and others have participated in discussions around modifying
the inter-carrier compensation system, moving to maybe the
nirvana, or perhaps the mirage, of a bill-and-keep system. Is
that realistic? Are you making any progress there? And where
will that leave, if we were to move to a bill-and-keep system,
where would that move folks like Mr. Wilson?
Mr. Seidenberg. I think there are two different questions
here. Let me see if I can address the question of the rural
support. I think from an inter-carrier compensation system,
some progress is being made. I guess we always make progress,
depending on where you sit. I think what is important to us in
that whole debate is to evolve the inter-carrier compensation
art form here to--``bill-and-keep'' is not a bad way to say it,
but, you know, to every complex solution there is a simple
answer and it is usually wrong in this environment.
I think we need to move more in that direction. We need to
move more in the direction of people paying for the facilities
they use. Now, here is the only place that we have a very
strong view on this, is that every time we get into one of
these debates we find ourselves supporting other companies' bad
business models. This is where you get into all the trouble in
the regulatory process.
If everybody had to make a return like Comcast on their
investor capital, the debates would be different. But when some
companies come to the table with no stake in the game, no skin
in the game because they do not invest anything, the whole
discussion goes a different direction.
Senator Sununu. Who would that be?
Mr. Seidenberg. The interstate carriers and all those
companies that--we know who they are. I guess we are talking
about pink elephants. There is one of them around here
someplace.
I think, to the other question, I think that I believe that
wireless, take for example, we have expanded coverage, we have
grown the market. We have moved wireless coverage further and
further into the rural communities. I would not give up on the
idea that the marketplace will drive coverage and we do not
need rate of return guarantees in order to make sure we provide
services into the rural areas.
So I think there is a balance here. We can push things out
a little further through investment and growth before we get
into the situation of trying to mandate these things through
regulators who, frankly, it does not work. You come from a
rural State. You know this.
Senator Sununu. I would not say that. My state, it is a mix
of suburban areas who go through the hand-wringing of being
included in the Boston DMA and all the problems that that can
create in a number of different areas, and yes, we have got
some rural areas and the issues associated with broadband
access as well.
However--sorry, Mr. Chairman. Let me just be clear. You did
not really answer my question, which was about moving to bill-
and-keep and whether or not you thought that was a realistic
goal, whether we could achieve a bill-and-keep system, and
whether or not, if we did that, whether that would create a
problem.
Mr. Seidenberg. I apologize. I mean, I think moving in that
direction is right. But I want to be very careful. I want to
make sure I read the fine print to make sure that somebody does
not call it that and when I get finished with it it is
something else, because that has been the history.
Senator Sununu. Thank you, Mr. Chairman.
Senator Lott. Senator Lautenberg, would you like to pursue
a couple more questions?
Senator Lautenberg. Yes, thank you, Mr. Chairman.
One of the things I noticed, Mr. Seidenberg, in your
response to my question about how you are competing in local
markets, you turned immediately to wireless. Is that because of
an abandonment of the traditional opportunities that came from
the wire-connected subscribers?
Mr. Seidenberg. No, sir. I think--and fair enough. I could
have answered that question a little differently.
Senator Lautenberg. Do you compete for the wire-connected,
the more traditional kind of phone subscriber, in other
marketplaces?
Mr. Seidenberg. No, we do not.
Senator Lautenberg. OK. I just wanted to be sure, because
what we are talking about here is how those companies who would
like to enter into the competitive marketplace with traditional
service really do not have much of a chance.
I noticed a company called Convergence Consulting estimates
that 20 to 25 percent of DSL customers, the customer base, are
businesses compared to only 3 percent to 4 percent for cable.
Now, Mr. Roberts, do you have a view of that? Is that because
you were not interested, the cable industry is not interested
in the business marketplace?
Mr. Roberts. No, we definitely are interested. I think we
see that as a future growth opportunity. But traditionally we
did not have the suite of services necessary that businesses
wanted. Verizon has a very successful longstanding relationship
with those businesses. But I do think part of our plan as the
Voice-Over-IP technology happens, I think one of the themes
here is that may well be the path to real competition in phone,
is through VoIP. And should that occur, then I think a lot of
the other conversations we have been having today will play
out, and hopefully we will then go into the small business
market.
But in the big business market, it is unlikely that we are
going to be a meaningful competitor any time soon.
Senator Lautenberg. So that is a good marketplace for
Verizon and the others?
Mr. Roberts. Yes.
Senator Lautenberg. And that is without any regulation
interfering, is it not?
Mr. Roberts. Yes.
Senator Lautenberg. Is that so for you, Mr. Seidenberg, for
Verizon?
Mr. Seidenberg. That is true, sir. But may I just add
something to this?
Senator Lautenberg. Sure.
Mr. Seidenberg. Because I think, if I understand the
premise of the question, is that we have no natural platform to
build local facilities in Atlanta. We have a network that we
operate in New Jersey, for example, and other places. Our first
choice is to upgrade that network to the next generation of
service, while others are coming in and overbuilding us. So our
focus in the local area has always been to upgrade what we
have.
I think the same thing applies to any cable company who
would choose to get into the business market. They first have
to upgrade their networks to provide those services, and then
as a future service they will do that.
We have plenty of competitors in our market for local
services--wireless, cable, and all the little companies that do
this. We have chosen not to go out of our wireline franchise to
build, overbuild facilities, because new technologies like
wireless and IP will supersede those technologies soon enough.
Senator Lautenberg. So that that marketplace can be thrown
wide open? You do not much care about it in terms of--let me
not exaggerate what you have said. But what happens is the
pressure that comes as I see it is that there is little
opportunity for others to break into the local marketplace, and
part of that has to do with fee structure.
I do not want regulation on fees, but I wonder, where does
the consumer right get protected here? Should that be
regulated? Should there be some regulation that guarantees the
consumer that their service is reliable and efficient and
reasonably costed?
Mr. Roberts. If I might take a shot at that, I think this
is where the regulatory parity is a little too simplistic to be
the right solution, because you are pointing out that there are
parts of the market where there is not enough competition,
where in other parts of the market there may be more healthy
competition.
So the model of saying, I believe, facilities-based
competition is the sustainable competitive model. Let us
promote policies that are encouraging people to make that
investment. I think I believe--the last time I will say it, so
I am not a broken record--I think VoIP presents that
possibility. We do not know yet whether it will materialize
that way. And we hope to be a leader in making that happen by
making that investment.
Senator Lautenberg. Mr. Roberts, when Comcast moved to
acquire the AT&T broadband installations you argued that the
combined companies would be able to accelerate the delivery of
broadband services to the American public. You have had that
company or that relationship now 18 months. How successful have
you been on delivering that promise?
Mr. Roberts. I appreciate that opportunity to answer that
question, because I am very proud of the fact in the first 18
months we have basically rebuilt to 95 percent plus the AT&T
systems, which were about 70 percent rebuilt at the time we
bought them. They had lost 500,000 customers to our competitors
in the year between signing and closing. We got 150,000 of
those back.
We were able to--we had set guidance for the company
internally and externally of 1.2 million broadbands last year
that we would sell and we sold 1.67, call it 1.7, million,
substantially more than we had expected, because of the
investment, because of the return to localism from a national
company to a local company, I believe. Certainly, for an 18-
month report card we think it has been the most significant and
transforming event in our company's history.
Senator Lautenberg. Thanks, Mister--I cannot find the
Chairman.
Senator Sununu [presiding]. If you just say ``Mr.
Chairman,'' somebody over here will answer.
[Laughter.]
Senator Sununu. Senator Cantwell.
STATEMENT OF HON. MARIA CANTWELL,
U.S. SENATOR FROM WASHINGTON
Senator Cantwell. Thank you, Mr. Chairman.
Gentlemen, it is great to see all of you here this morning.
I know you have had a healthy discussion about what will give
us predictability and investment for the future that will help
promulgate even better products and services in the broadband
space.
I am curious. We have had, this is I think our third
hearing, Mr. Chairman, about this issue and the complexities of
moving forward, given the framework of current statute and the
development of technology, particularly IP telephony and the
advent of many of your business models, let us just say,
coalescing or coming together. And I know you are not
soothsayers, I know you cannot predict the future, and some of
this is still evolving.
But I have a question as it relates to where we are today.
We have a current Telecom Act and an FCC that tries to
interpret that, obviously at times stretches in its challenge
of information services in defining it, and obviously we all
end up in litigation and complex outcomes to what we think
would be a clearer solution if the Act was changed and defined
in certain ways. And we have a moratorium proposed now on
Voice-Over-IP.
So I just want to understand where you are in looking at
this context, of whether the moratorium process will get us to
that point of predictability and certainty in investment, or
whether you think that in fact the Act has to be changed in
some ways so that we can get that predictability and certainty
that you have been talking about today.
So whoever wants to start with that.
Mr. Seidenberg. Brian volunteers that I go first.
Senator Cantwell. That easy question.
Mr. Seidenberg. This is an easy issue for us, OK. The
status quo is a slow death. So I think the moratorium is a
reasonable first step. I think some of the other steps that
have been taken are small, they are positive, but they do not
do anything.
If I could just answer this very quickly from our
perspective----
Senator Cantwell. And tell me--I am assuming a moratorium
without a change to the FCC. So in that environment, describe
how you see it playing out?
Mr. Seidenberg. Well again, let us look at--if we look at,
if we were in our board room and we were looking at what our
opportunity is and we are looking at this through our lens,
which is I think what you really want us to tell you, here is
what we see. We see ourselves in a position that we have an
open-ended opportunity to develop wireless and we have spent
more in wireless than anybody else and, frankly, we are
spending it as fast as we can figure out how to spend it.
When it comes to the wireline side of the company, the
challenge is that technology continues to eat away at the
traditional revenue streams for that business. You are familiar
with that. And the only way for us to overcome that inertia is
to reinvest our earnings, our cash, and create something
different.
So we are not trying to create next year's voice business.
We are trying to create a broadband business. The problem we
have with the current rules is that there is no--there are no
levers that can be pulled to stop the train of all the
destructive policies that are going on right now across the
industry, short of somebody preempting all of the mischief that
goes on, however unintentional it might be, and create an
investment-friendly environment so that we can recreate the
industry.
If we do not recreate the industry, it just will continue
to shrink and we will continue to push our resources someplace
else. I think you understand this very well. So as far as we
are concerned, there is nothing the FCC could do under its
current mandate that will stop the forces of natural technology
and investment from disengaging from the wireline business over
time.
The history of it is that is exactly what has happened in
the last 8 years. Since the Act, the only way any company has
made money in the wireline business is by selling itself. That
is a 100 percent true statement. So no one is making any money
organically. They are making it because they run the business
to a certain point and they have to merge with somebody or sell
the assets. It is not a good model. It is not what was
intended.
Senator Cantwell. So you are saying do both because----
Mr. Seidenberg. I am saying that we have to completely
revamp the current regulatory structure, State and Federal,
around an investment-friendly, forward-looking model.
Senator Cantwell. But if you are revamping and putting a
moratorium on, those are different things.
Mr. Seidenberg. I do not think I would do both. I would
change it.
Senator Cantwell. OK. Mr. Roberts?
Mr. Roberts. Well, again I think the details of the
telephone business are not something that I would sit here, and
as I have said previously, that I am necessarily an expert on
their industry. They are in the wireless business and they are
the largest competitor to local telephone is wireless, and they
are the largest wireless company. So I do think it is a
complicated process of how you unravel the 70 years of
regulations.
But I think the goal should be competition. And to your
point, because no one has a crystal ball, it is all--as a
competitor, it is all about innovating. You do not know whether
the consumer wants VoIP or not. Nobody knew whether high-speed
Internet would work, let alone how much you could sell to
recoup your investment. So to do a massive rewrite of the
Telecommunications Act I think will create nothing but
instability, will destabilize the capital markets, to want you
to continue to make long-term decisions where there are short-
term uncertainties and medium-term uncertainties as to what
those rewrites will be.
I think if there is a problem and somebody wants to target
and fix it and that involves reducing some regulations without
creating new regulations, then I certainly think that is a
better path. In our case, the government has a choice right now
about whether to pursue the Brand X case in the Supreme Court,
whether or not you want to start regulating the Internet and
allowing it to be regulated in a law that was created in 1934.
I do not think that is what we should be doing. I think we
should be trying to focus from is there competition.
We talked last quarter the phone companies sold more DSL
lines than cable companies. That is not because of government.
That is because it is a good business opportunity and they are
going after it aggressively, as I think they should. I think
that model of competition, innovation, and less regulation is
where we are at.
Senator Cantwell. I am not trying to put anybody in a box,
but I am just trying to understand because we think of things--
well, we should think outside the box here. In the framework of
this discussion, I think Mr. Seidenberg was saying, I will take
my chances with a new framework, and you are saying, I will
take my chances with the moratorium.
Mr. Roberts. I would think that what worries me about a
complete rewrite is then it gets into many, many other issues
and not into let us do a targeted series of things that are
clearly either a moratorium or focused on VoIP only, however
you want to phrase it.
Senator Cantwell. Mr. Ford?
Mr. Ford. I think the underlying issue is there are going
to be winners and losers any time the rules change. I sense,
just personally I sense a strong reluctance on the part of
regulators to let any company go out of business. But I think
the reality is, until there is a common set of rules where
people can fully compete on a facilities-based approach and run
some companies, frankly, out of business, you are not going to
get to a systemic change that allows competition to renew
itself and renew the investment that we are struggling with.
I will give you a great example--go ahead, ma'am.
Senator Cantwell. No, I was just going to say I think some
people think that you might get there with the moratorium, that
some people might be run out of business with the moratorium.
So if that is your definition of letting the playing field
happen.
Mr. Ford. Really, to just speak very frankly, the issue is
do we want to take some companies, who have a business model
that frankly does not make sense, and continue to take money
from the shareholders of people who made a decision to invest
in a model that at the time made sense? We have now got a set
of rules that say, well, we have got another company here whose
shareholders are going to lose because their managements took
them in the wrong direction and we need to take money from
these folks and give it to these folks to keep them both alive.
That is fundamentally, that is fundamentally why we have
gotten to the point--and we are not a big participant in this
battle. That is fundamentally where we have gotten, I think, in
terms of the issue around the moratorium today.
Senator Cantwell. So you are for new rules?
Mr. Ford. I am for new rules, but may I throw in 30
seconds? At great danger, it looks like.
Senator Cantwell. Oh, no, no.
Mr. Ford. The wireless business is a great example of this.
We are spending all of our time--we have taken our business
model over the last 5 years from four to one wireline to
wireless to three to one wireless to wireline, and we spend all
of our time and energy trying to create new applications over
the wireless business, because if we come up with a new
application or a new service and we spend the capital to put it
out, I know, even though it is a very competitive world, I know
that I can compete on a heads-up basis.
We spend no time, no time, trying to invest in the wireline
business because even if we do we cannot keep it because the
regulatory scheme says, well, that disadvantages some other
company's shareholders and I am going to take some of that from
you and give it to them. So we just do not invest.
Senator Cantwell. Mr. Betty, new rules or a moratorium?
Mr. Betty. I would support a moratorium, but I hear a lot
of--what they want is to go back to the way it was before 1996.
The 1996 Act did do a lot of good. Transit costs are down 75 to
80 percent. Broadband deployment and acceptance would not be
there absent the technology changes that helped make the cost
to deliver that a lot more effective.
I fear that we are going to reach an environment where the
only place innovation can occur is if you go to a cable
operator or to a telephone company and try to cut some
arrangement to have some chance of creating a business. Absent
a way for third party companies to help--what is going to
happen to Vonage? I mean, we talk about VoIP and people that
are creating this thing. If you do not allow those companies
the opportunity to compete, they are going to get squeezed out
of the marketplace because the only people who can deliver
anything are the cable operators and the telephone companies.
Senator Cantwell. Mr. Wilson, did you want to cast a vote
on this?
Mr. Wilson. Well, I guess I have just a little bit
different perspective, being a rural telephone cooperative with
2.33 subscribers per square mile. I guess I will go back and
kind of address your question about where we think things are
going and about investment and getting there.
Senator Cantwell. Particularly, do you think the path ought
to be through a moratorium or through new rules?
Mr. Wilson. Probably a moratorium. We need a stable
environment of investment recovery so that we can deploy these
new technologies. I think it is imperative to our rural areas
to move toward the IP broadband world, to create opportunity
for our rural subscribers.
Senator Cantwell. Thank you, Mr. Chairman. I know that took
longer probably than my allowed time.
Senator Sununu. Fortunately, there is no one here to
complain about it.
I have just a couple of additional questions, although I do
want to point out that, Mr. Ford, I think you are the only
panelist that has advocated for a regulatory framework that
allows competitors to run other competitors out of business,
although in a level playing field. There is something very
American about that. I am not criticizing.
Mr. Ford. I could win or lose.
Senator Sununu. I am not criticizing. Just it is a bold
choice of words for a panelist, at least in this committee.
Mr. Ford, I wanted to ask you a little bit about universal
service. You referred to this, I think, in one of your other
answers, but I just wanted you to clarify a little bit about
any proposed changes or changes that you might recommend or
advocate regarding collection methodology or distribution
methodology.
Mr. Ford. Collection methodology, we would literally fall
into all of the discussions about bill-and-keep, numbers,
revenues, connections. I do not have an elegant statement on
that, so I----
Senator Sununu. You do not have a particular----
Mr. Ford. I do not have a particular preference on revenue
source. My comment was aimed at the distribution of the funds.
I think if you look at the joint State-Federal board issues
that were recently--well, at least the talk about the meetings
that they held--one of the key issues is, well, should
universal service or high cost subsidies, maybe more broadly
speaking, be available to the primary wireline, the second
wireline into the home, the third wireline access point into
the home, the first wireless business to apply for funds in
that State, the second wireless business, the third, the
fourth?
The issue that we have right now, to the great advantage,
frankly, of rural telephone company providers like ourselves,
is you pay it all, which puts more pressure on the fund. And,
keeping with my theme of you ought to let the market sort this
out, I am just wanting to point out that it does not have to be
that way, and we as one rural telephone provider would not jump
up and down and say you have got to make it available to the
primary line, which goes back to the politics of the 1930s and
everybody needs to have a phone, a chicken in the pot and a
phone in the home.
So we want to incent companies like the one my grandfather
started, where he dug poles and my mother was an operator, to
go out into rural areas and build networks where no one would
ever be able to pay for them. So I understand that and
appreciate it and would support it.
But do you need it for the second line, the third line?
Every wireless provider? Or do you need the customer to say, I
want a lifeline connection and I will choose whether it is the
wireline provider or the wireless provider? I think you would
be able to take an enormous amount of pressure off the subsidy
pool.
Senator Sununu. Should that valuable subsidy be provided to
the provider or to the customer?
Mr. Ford. You are going to effect the same means. I am not
versed in whatever is going through your mind right now on the
split out of that, and so I am not really sure.
Senator Sununu. I would hope that your answer to any
question is not predicated on what I am thinking.
Mr. Ford. I think I have established that.
I am not sure.
Senator Sununu. Mr. Wilson, in your comments regarding
universal service I think you were pretty clear, although in
talking about expanding the base you talked about including
information providers. It was not clear to me exactly who you
were referring to and who that might cover.
Mr. Wilson. Well, Senator, I do not necessarily have the
definition with me of what all we included in that. I always
look at the information provided by the NTCA where we think the
base should be expanded to all providers of telecommunications
services. I do not guess I could sit here and tell you at the
moment what all we included in information services. I do not
have it available to me.
Senator Sununu. You talked about instant messaging or e-
mail services being telecommunications service. So would those
service providers, IP service providers, be covered? You would
have them pay universal service rates?
Mr. Wilson. Yes, sir, I think they could fit that
definition.
Senator Sununu. How big is your company?
Mr. Wilson. We have 7,700 access lines.
Senator Sununu. What is your revenue base?
Mr. Wilson. Our revenue base is about $16 million a year.
Senator Sununu. How much of that comes from universal
service payments?
Mr. Wilson. About 60 percent of it.
Senator Sununu. 60 percent?
Mr. Wilson. Yes, sir.
Senator Sununu. And how much of it--how much of the balance
comes from, or how much of the total revenue base comes from
access charges from terminating calls from other providers?
Mr. Wilson. I do not have that off the top of my head. I
know about 9 percent of our total revenues come from local and
the remainder of our revenues come off State and Federal USF
and access revenues, State and Federal access revenues.
Senator Sununu. Thank you. Not what I would have guessed.
Mr. Roberts, what do you expect the per-customer costs for
adding VoIP to be?
Mr. Roberts. That is a great question that I do not know
that I know the answer to that. We are hoping to get it 3 to
$400 a home, where you put in the technology. Hopefully, as
with high-speed Internet, that cost will drop substantially. It
has been higher than that in the last couple of years. So we
are doing three markets this year, three different States, to
be able to thoughtfully know the answer to that question.
I do not think anybody yet has rolled out VoIP that can
say, yes, it is a winner, we are going to go. I think that
there is a number of cable companies almost universally who
have all said: If you charged around $40 a month for the
product, with that type of investment you ought to be able to
make a return.
Senator Sununu. Mr. Seidenberg, what are your per-customer
add costs for VoIP expected to be?
Mr. Seidenberg. That is a good question. I do not really
have one number for that, simply because if we install new--let
us take the case of installing new fiber into the home and we
will offer VoIP services over a greenfield network. Those
costs, initial costs, can be anywhere from $1,000 to $2,000
depending on if the plant is buried.
Senator Sununu. You do not need to install fiber into
someone's home to offer them VoIP service, do you?
Mr. Seidenberg. No, that is correct. We have to put a
packet switch in so we can put VoIP in.
I do not think we have identified the costs that way.
Frankly, to be honest with you, even if I did know it directly
it is a competitive piece of information, so I am not sure I
would disclose it in that fashion anyway.
Senator Sununu. I guess that is the witness version of ``If
I tell you I have to kill you.''
To both of you, what do you think they are relative to the
installation of a circuit switch, an add for a circuit switch
customer? Greater, less? Do you anticipate them to be less?
Mr. Roberts. It is our great desire that it is less,
because we are not convinced that the circuit switch model is a
business that you can long-term get a good return from.
Senator Sununu. Do you disagree with that, Mr. Seidenberg?
Mr. Seidenberg. No. I would just like to add something to
that, though, just to make sure that--I can see you are a
techie into this, so just to make sure. In this marketplace,
the install cost of the packet switch or the electronics over
time might be less than what we spend on the circuit switch,
but the cost of acquisition, the marketing and the customer
care, is going to be much higher.
So I think when we look at the total cost of acquisition of
a customer, it is going to be substantial. I think the issue is
that without an opportunity to get, to hold that customer long
enough to get a return, it is very hard, it is a very hard
thing to do in the long term.
Senator Sununu. A final question for all of you. If and
when we reopen the 1996 Act and start modifying, change, I have
heard a lot of discussion about limiting regulation to
establish greater parity between modes, being concerned about
taking away regulations that may be associated with universal
service. But are any of you advocating a new regulation, a new
rule that you would like to see as part of this debate? Left to
right, Mr. Seidenberg?
Mr. Seidenberg. Your left to right, OK. No. The answer--and
I probably misled or maybe Senator Cantwell misheard me. We are
focused on fixing what applies to us. If you cannot fix it and
you have got to change a bigger piece, so be it. But our first
choice would be to correct what we think are the infirmities
that exist.
Senator Sununu. You are not proposing adding new set of
rules or regulations?
Mr. Seidenberg. Not that my staff has told me about that I
know of, no.
Senator Sununu. They are all whispering behind you. I do
not know if that is a good sign or not.
Mr. Roberts?
Mr. Roberts. No.
Senator Sununu. Mr. Ford?
Mr. Ford. No, sir.
Senator Sununu. Mr. Betty?
Mr. Betty. I think we should enforce the existing rules.
Senator Sununu. Enforce the existing rules. I am always
for, if you have a set of rules, they ought to be enforced.
That way you are a little bit more credible as both legislators
and regulators.
Mr. Wilson?
Mr. Wilson. No, sir, no new rules.
Senator Sununu. Thank you very much. We are adjourned.
[Whereupon, at 11:43 a.m., the Committee was adjourned.]
A P P E N D I X
Central Texas Telephone Cooperative, Inc.
Goldthwaite, TX, May 18,2004
Hon. John McCain,
U.S. Senate,
Washington, DC.
Dear Senator McCain:
On behalf of NTCA and myself, I would like to express my sincere
gratitude for the opportunity to participate on the panel in last
week's Telecommunication Policy Review. It was an experience I'll never
forget.
I would like to follow up on a question you asked regarding the
need for a national broadband policy. I believe such a policy is very
much needed. Currently, there is no real framework in place to ensure
this kind of infrastructure will be universal and interconnected. The
telecommunication industry needs direction from Congress if such a
ubiquitous network is to ever be built in this Nation. Despite the
tremendous progress of small rural carriers in deploying broadband
capable infrastructure in their areas, if left entirely to market
forces, I contend broadband investment will be piecemeal with many
parts of the Nation never having access to a truly broadband network.
This would leave many Americans never being able to realize and take
advantage of all the potential opportunities and benefits such a
network could yield.
I see a national policy directive from Congress that creates a
partnership between government and private industry where: (1)
standards are established; (2) interoperability issues are addressed
for interconnection of all types of broadband technologies; (3) a
network with flexible bandwidths and unlimited capacities is the
objective; and most important, (4) our policies are developed in a
manner to make it future proof.
To encourage players, Congress should create a more stable
regulatory environment with incentives such as tax credits for large
players and USF recovery for small players. Such a project could
potentially pump billions into the economy creating an untold number of
new jobs.
The United States should be leading the world in the deployment of
broadband, not be number eleventh or twelfth as was alluded by some
during your hearing series. This type of network would not only make
the country more globally competitive, it would usher forth a new era
of untold benefits and opportunities to all Americans now and for
future generations to come. I want you to know that NTCA, as well as
myself, are at your disposal should you chose to pursue such a course
of action.
Sincerely,
Delbert Wilson,
Central Texas Telephone Cooperative, Inc.