May 12, 2004
Members will hear testimony on suggested revisions to current telecommunications law that policymakers should consider in any future reform of telecommunications policy. Senator McCain will preside. Following is a tentative witness list (not necessarily in order of appearance):
If you are having trouble viewing this hearing, please try the following steps:
- Clear your browser's cache - Guide to clearing browser cache
- Close and re-open your browser
- If the above two steps do not help, please try another browser. Google Chrome and Microsoft Edge have the highest level of compatibility with our player.
The Honorable John McCain
· 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.
Mr. Delbert Wilson
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 3302 SQUARE MILES, WHICH ROUGHLY EQUATES THE SIZE DELAWARE AND RHODE ISLAND COMBINED. WE HAVE 17 TELEPHONE EXCHANGES PROVIDING LOCAL EXCHANGE SERVICE TO APPROXIMATELY 7700 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% OF THIS COUNTRY’S ACCESS LINES, BUT OVER TERRITORY COVERING 40% 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% 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 APRROACH. 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 INTRIGING 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 AGRESSIVELY 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 INFRASTUCTURE. 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 PRINDIPLE 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 DISUCSSION ABOUT THE VITUES 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 APROACHES WOULD BE PARTICDULARLY HARSH ON LOW-VOLUME USERS SUCH AS RURAL AND ELDERLY REDDENTIAL CONSUMERS. IN ADDITION, WE CONTEND THE REVENUES APPROACH IS THE BEST SUITED TO ENSURING THATALL 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 UNASSESSABLE. 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. AFTERALL, 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.
Mr. Garry Betty
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 ’96 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% or more of the customers in their core businesses and some 95% 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 §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% of the local voice market for businesses and over 90% 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% of cable services, over 80% of the multichannel video market, and again over 95% 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 ’96 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 ’96 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 ’96 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.
Mr. Ivan SeidenbergChief Executive OfficerVerizon Communications
Ivan Seidenberg Chairman and Chief Executive Officer Verizon U.S. Senate Committee on Commerce, Science, and Transportation May 12, 2004 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 ‘96 – 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 B to GDP and 1.2 M 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. ###
Mr. Brian Roberts
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 dollars to date by the industry as a whole, and 39 billion dollars 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% completion of the rebuild, the numbers begin to level off and drop slightly year-to-year. But the ’96 Act was not just about deregulation at the federal level – it was about competition. The ’96 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 ’96 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 voicemail 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.
Mr. Scott Ford
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% 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 ‘96 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 ‘96 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% 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. 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 years2 and our economy would see some 1.2 million additional jobs over the next 20 years3 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. 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.