U.S. GOVERNMENT PRINTING OFFICE

72–979 PS WASHINGTON : 2001

INTERNET FREEDOM AND BROADBAND

DEPLOYMENT ACT OF 2001

HEARING

BEFORE THE

COMMITTEE ON THE JUDICIARY

HOUSE OF REPRESENTATIVES

ONE HUNDRED SEVENTH CONGRESS

FIRST SESSION

ON

H.R. 1542

JUNE 5, 2001

Serial No. 18

Printed for the use of the Committee on the Judiciary

(

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(II)

COMMITTEE ON THE JUDICIARY

F. JAMES SENSENBRENNER, JR., WISCONSIN, Chairman

HENRY J. HYDE, Illinois

GEORGE W. GEKAS, Pennsylvania

HOWARD COBLE, North Carolina

LAMAR SMITH, Texas

ELTON GALLEGLY, California

BOB GOODLATTE, Virginia

STEVE CHABOT, Ohio

BOB BARR, Georgia

WILLIAM L. JENKINS, Tennessee

ASA HUTCHINSON, Arkansas

CHRIS CANNON, Utah

LINDSEY O. GRAHAM, South Carolina

SPENCER BACHUS, Alabama

JOE SCARBOROUGH, Florida

JOHN N. HOSTETTLER, Indiana

MARK GREEN, Wisconsin

RIC KELLER, Florida

DARRELL E. ISSA, California

MELISSA A. HART, Pennsylvania

JEFF FLAKE, Arizona

JOHN CONYERS, JR., MICHIGAN

BARNEY FRANK, Massachusetts

HOWARD L. BERMAN, California

RICK BOUCHER, Virginia

JERROLD NADLER, New York

ROBERT C. SCOTT, Virginia

MELVIN L. WATT, North Carolina

ZOE LOFGREN, California

SHEILA JACKSON LEE, Texas

MAXINE WATERS, California

MARTIN T. MEEHAN, Massachusetts

WILLIAM D. DELAHUNT, Massachusetts

ROBERT WEXLER, Florida

TAMMY BALDWIN, Wisconsin

ANTHONY D. WEINER, New York

ADAM B. SCHIFF, California

PHILIP G. KIKO, Chief of Staff-General Counsel

JULIAN EPSTEIN, Minority Chief Counsel and Staff Director

(III)

C O N T E N T S

HEARING DATE

Page

June 5, 2001 ............................................................................................................. 1

OPENING STATEMENT

The Honorable F. James Sensenbrenner, Jr., a Representative in Congress

From the State of Wisconsin, and Chairman, Committee on the Judiciary ... 1

WITNESSES

The Honorable Thomas J. Tauke, Senior Vice President for Public Policy

and External Affairs, Verizon

Oral Testimony ..................................................................................................... 4

Prepared Statement ............................................................................................. 6

Mr. Clark McLeod, Chairman and Co-Chief Executive Officer, McLeod USA

Oral Testimony ..................................................................................................... 10

Prepared Statement ............................................................................................. 11

Ms. Margaret Greene, Executive Vice President for Regulatory and External

Affairs, BellSouth Corporation

Oral Testimony ..................................................................................................... 15

Prepared Statement ............................................................................................. 16

Mr. James K. Glassman, Resident Fellow, American Enterprise Institute

Oral Testimony ..................................................................................................... 18

Prepared Statement ............................................................................................. 20

LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING

The Honorable Chris Cannon, A Representative in Congress From the State

of Utah

Article by Mr. Glassman dated April 25, 2001, in the Washington Times

entitled ‘‘For Whom the Bell Still Tolls.’’ ........................................................ 33

Chart showing difference in increase and decrease in prices for local and

long distance service since the breakup of AT&T .......................................... 34

Letters from local or State public utilities commisssions to various congressmen .................................................................................................................... 35

The Honorable John Conyers, Jr., A Representative in Congress From the

State of Michigan

Letter dated June 4, 2001, to Chairman Sensenbrenner from the Association for Local Telecommunications Services ................................................... 56

The Honorable Bob Goodlatte, A Representative in Congress From the State

of Virginia

Letter dated June 4, 2001, to Chairman Sensenbrenner from Herbert

Hovenkamp ....................................................................................................... 61

Precursor Group Independent Research statement by Scott Cleland ............. 66

APPENDIX

Material submitted for the record .......................................................................... 75

(1)

Internet Freedom and Broadband Deployment

Act of 2001

TUESDAY, JUNE 5, 2001

HOUSE OF REPRESENTATIVES,

COMMITTEE ON THE JUDICIARY,

Washington, DC.

The Committee met, pursuant to call, at 2:00 p.m., in Room

2141, Rayburn House Office Building, Hon. F. James Sensenbrenner [Chairman of the Committee] presiding.

Chairman SENSENBRENNER. The Committee will be in order.

Today the Committee holds a hearing on H.R. 1542, the ‘‘Internet

Freedom and Broadband Deployment Act of 2001’’, also known as

the Tauzin-Dingell bill.

Chairman SENSENBRENNER. On May 22, we held a hearing on

H.R. 1698 and H.R. 1697, the Cannon and Conyers bills which address the same general topic. Speaker Hastert has now referred

H.R. 1542 to us through June 18th, and we will give it fair consideration, as I indicated at the May 22nd hearing.

Given the short time of that referral, I want to announce to all

the concerned parties that I intend to go to markup on both H.R.

1542 and H.R. 1698 on Wednesday of next week, and the Committee will not recess until both of these bills are reported. I want

to ensure all sides of this debate get the chance to put forth their

proposals and to have them debated. So everyone who wants to

work with Members of the Committee on these bills should be

working toward that date.

Many have asked about my position on these matters. As I said

at the previous hearing, I am listening and learning. I have not

made up my mind, and I am open to proposals from all sides as

to how we should resolve these matters. Like everyone else, I want

my constituents to get high-speed Internet access as soon as possible, with as many competitive choices as possible. Messrs. Tauzin

and Dingell promise their proposal will bring us that; so do Messrs.

Cannon and Conyers. I am still trying to determine which, if any

of them, can deliver on their promise. Answering that question is

the purpose of today’s hearing.

In the previous hearing we heard the arguments for and against

the Cannon and Conyers proposals; today we will hear the arguments for and against the Tauzin and Dingell proposal. I am hopeful that it will give all of us the chance to cast a more informed

vote next week.

And I am now slowly turning to Mr. Conyers for his opening

statement. The gentleman from Michigan.

2

Mr. CONYERS. Thank you, Mr. Chairman, and Members and witnesses.

Five years ago, we adopted with high hopes and great expectations legislation intended to bring about the savings, innovation

and consumer benefits that would come from achieving, at long

last, competition for the last mile, the loop, the bottleneck. Until

then, previously, that was walled off by the consent decree that

broke up the Bell Telephone monopoly; and it had previously

thwarted competition in long distance information services and

manufacturing.

In 1996, Congress understood that opening the local market to

competition was the key that would allow deregulation and bring

about tremendous consumer benefits. And so the Telecommunications Act of 1996 unleashed a flood of new investment directed

at that last-mile bottleneck. Many new companies were created to

bring consumers new choices, including new services. And these

competitive carriers used all of the means open to them to compete

against monopolies that have become entrenched over the course of

the century. The old Ma Bell system was protected from competitors and guaranteed rates of return. This was all at the courtesy

of the U.S. Government that supposedly promoted competition, was

against regulation, and all the patriotic jargon that goes with those

concepts.

Believing in the promise of the 1996 act, the CLEC invested billions of dollars, created hundreds of thousands of jobs and began

the enormously difficult work of providing choice to consumers and

businesses. But today most of the companies have been devastated

by behavior and procrastination on the part of the Bell Systems,

which ironically have regrouped and in some ways become stronger

than they were before the 1996 Telecommunications Act.

Tens of thousands of newly created jobs disappeared, billions of

dollars of value are now gone. Some of the CLECs are bankrupt or

penny stocks, and the capital markets are closed to many of the

competitors. So we come here today to examine the antitrust implications and to very carefully reconsider the Judiciary Committee’s

role in the construction of the Telecommunications Act in the first

place.

Competition is important in telecommunications. It is the touchstone for lower prices, better services, and for unleashing the innovative creativity that has built our new economy from the ground

up. And I think it is important that these concepts be preserved.

And therefore, with my colleague from Utah, Chris Cannon, we

have a couple of legislative ideas that we think will further this

concept. And I’m happy that these hearings are being considered

pursuant to our jurisdiction on these important subjects. Thank

you very much.

Chairman SENSENBRENNER. Thank you.

Without objection, Members’ opening statements will be placed in

the record at this point.

Our panel today consists of four distinguished witnesses. Our

first witness is Tom Tauke, the Senior Vice President for Public

Policy and External Affairs at Verizon. He is a graduate of Loras

College and the University of Iowa Law School. Before coming to

Congress, he practiced law in Iowa and served in the State legislaVerDate 11-MAY-2000 11:43 Sep 28, 2001 Jkt 000000 PO 00000 Frm 00006 Fmt 6633 Sfmt 6633 G:\WORK\FULL\060501\72979.000 HJUD2 PsN: HJUD2
3

ture. He was first elected to Congress in 1978, in a very illustrious

and distinguished class, and served through 1990. After that, he

went to NYNEX, which in turn became Bell Atlantic and now is

called Verizon.

Our second witness is Mr. Clark McLeod, Chairman and CoChief Executive Officer of McLeod USA. He began his career as a

math and science teacher before becoming a pioneer in telecommunications competition. In 1980, he founded Teleconnect, one

of the first competing long distance companies. He ran that company until MCI purchased it in 1990. Shortly thereafter, he founded his present company which is one of the leading competitors in

the local telephone market.

We also have Mr. James Glassman, a Senior Fellow of the American Enterprise Institute. Mr. Glassman is a graduate of Harvard

College. He has had a long and distinguished career in the publishing world, holding executive positions with the Washingtonian,

New Republic, Atlantic Monthly, U.S. News and World Report, and

Roll Call. He has published articles in a wide variety of newspapers

and magazines and appeared on numerous television and radio

shows.

In addition to his duties at AEI, he is currently the host of a politics and technology Web site called techcentralstation.com. And I

would now like to ask the gentleman from Alabama, Mr. Bachus,

to introduce Ms. Greene.

Mr. BACHUS. Thank you, Mr. Chairman. It is my extreme pleasure to introduce Ms. Margaret Greene. She is a Nebraska native,

graduated from the University of Nebraska and the law school

there. But she joined BellSouth in 1981 in Birmingham, Alabama,

in the local department.

Since that time, she has risen quite rapidly through the ranks

at BellSouth. In 1991, she was named President of all BellSouth’s

operations in the State of Kentucky. While serving there, she took

a leave of absence and served as Cabinet Secretary for the Governor of Kentucky.

When she rejoined BellSouth, she was named General Counsel of

BellSouth Telecommunications. And then, in 1998, she was promoted to Executive Vice President for Regulatory and External Affairs. There, she is responsible for, and heads up, all of BellSouth’s

regulatory, legislative, governmental and public affairs areas.

We are very proud of Ms. Greene in Alabama and proud that she

joined BellSouth in Alabama.

I welcome you.

Chairman SENSENBRENNER. Would each of you please rise, raise

your right hand and take the oath.

Do each of you solemnly swear that the testimony you are about

to give before this Committee will be the truth, the whole truth

and nothing but the truth, so help you God?

[Witnesses sworn.]

Chairman SENSENBRENNER. Let the record show that each of the

witnesses answered in the affirmative.

Without objection, each of your written statements will be included in the record at that part where your testimony appears. We

would like to ask each of you to summarize your statement in

4

about 5 minutes. The red light will go on and it will be somebody

else’s turn at that point in time.

And you are first, Mr. Tauke.

TESTIMONY OF THE HONORABLE THOMAS J. TAUKE, SENIOR

VICE PRESIDENT FOR PUBLIC POLICY AND EXTERNAL AFFAIRS, VERIZON

Mr. TAUKE. Thank you, Mr. Chairman and Members of the Committee. It is an honor to be here, and I appreciate the opportunity

to discuss H.R. 1542, legislation which we support.

Mr. Chairman, the Nation today does not have a policy for

broadband services. We all recognize that broadband, or high-speed

data services, are critical for the future growth of the economy and

very important for the delivery of a number of social services, ranging from education to health care. Good broadband services can

even improve the operation of government, yet today we don’t have

a broadband policy.

When the 1996 act was adopted, Congress established in title II

a policy for telephony services. In 1996, Congress established a policy for cable services. And despite efforts by many players, Congress did not establish a title VII for broadband services as had

been promoted at that time; so there was no policy established for

broadband, and we have had confusion for some time. In fact, three

separate circuit courts of appeals have addressed the issue of what

rules apply to broadband and each of the three reached different

conclusions.

The Nation needs a broadband policy, and that’s the first reason

why we support H.R. 1542. Our belief is that that national policy

should be focused on achieving two goals. One is the deployment

of broadband services so that your constituents and our customers

can get those services as rapidly as possible; secondly, the policy

should promote competition in the broadband marketplace where

today there is very little competition.

We believe that H.R. 1542 again encourages and achieves those

goals. In essence, H.R. 1542 stops the application of rules that were

intended for the voice telephony market to the broadband services

market. These are two very distinct markets. Voice telephony is an

old technology and old service; the broadband high-speed Internet

market is a very different market, and the rules for telephony just

don’t work when applied to the broadband market.

What this act in essence boils down to in the practical world is

two things: One, it lifts the restrictions on interLATA services in

the broadband arena; in other words, those boundaries that were

set up at the breakup of AT&T would not apply to data services.

They would continue to apply to voice services, but not to data

services.

Secondly, it would eliminate a thing called ‘‘line sharing’’ over

the local loop, the last mile to the home, when fiber is deployed in

that local loop. And it would eliminate line sharing over local loop

when fiber is in it, because we don’t know how to do it or do it efficiently. So, as a result, those who wanted to reach the local customer who were competitors would have to buy the whole local loop

not just take a piece of it.

5

Let me speak specifically to the interLATA piece for a moment.

Under the 1996 act, Congress established a methodology under section 271 whereby regional Bell Operating Companies could enter

the long distance market; and a number of us are working through

that process. That market, the voice telephony market, is a $100

billion market, a $100 billion market. The data market is about a

$6 billion market.

What we are seeking in this legislation is to be able to enter that

data market in order to be able to deploy networks.

Now, why is this important for public policy reasons? Well, if you

look at the market or the technology for the Internet, you’ll find

that there are two kinds of interLATA services, if you will. One is

the long-haul market, backbone market, where there is quite a bit

of that. But when I represented Iowa, I knew that all those airline

flights from New York to Los Angeles didn’t do any good unless

there was a regional network which allowed you to get to O’Hare

Airport so you could get on one of those long-haul flights.

What our challenge is is to build those regional networks which

aren’t being built rapidly enough today in order to hook up local

customers to the long-haul or broadband, long-pipe markets.

Now, we believe that this legislation does that. And it will help

many of you in your districts. Take, for example, the southwest

Virginia district.

Chairman SENSENBRENNER. The time of the gentleman has expired.

Mr. TAUKE. The clock didn’t move, Mr. Chairman.

Chairman SENSENBRENNER. Well, we’ll fix that.

Let me point out to each of the witnesses that the referral to this

Committee by the Speaker is specifically, quote, ‘‘For consideration

of such provisions of the bill and amendments recommended by the

Committee on Energy and Commerce as proposed and narrow the

purview of the Attorney General under section 271 of the Communications Act of 1934.’’ I think the Committee would appreciate the

witnesses addressing that particular issue because anything else in

the Tauzin-Dingell bill is out of bounds for this Committee to consider.

Would you like an additional minute, Tom?

Mr. TAUKE. Mr. Chairman, I was watching the green, and it

never moved off green; so, yes, I would, if I could sum up.

Chairman SENSENBRENNER. Okay.

Mr. TAUKE. Mr. Boucher’s district, we have a situation where

there is no regional network. And his district is not alone; you can’t

get from areas in his district to other areas where you can hook

into the broadband network, the long-haul broadband network.

Why is that? Because there is no regional network that has been

built. In order to get out of Mr. Boucher’s district, you have to go

to Johnson City, Tennessee, or to Charlottesville, Virginia, in order

to hook into the long-haul networks. But there is no high-speed

data network from his district to those locations. And Verizon,

which serves much of his district, can’t build it because of the

interLATA restrictions.

The interLATA restriction, lifting that would allow us to build

that network, yet we would still have all the incentives to continue

to open up our network pursuant to the section 271 process in

6

1 Remarks of Alan Greenspan, ‘‘Technology innovation and its economic impact’’ before the National Technology Forum, St. Louis, Mo., April 7, 2000.

order to get at the $100 billion voice long distance market where

the money still is in the long distance arena.

So, Mr. Chairman, we believe that this legislation will promote

deployment of broadband networks and facilities and services, and

it will encourage competition in both the long-haul and the lastmile market for broadband services.

Chairman SENSENBRENNER. Thank you.

[The statement of Mr. Tauke follows:]

PREPARED STATEMENT OF THOMAS J. TAUKE

Thank you, Mr. Chairman, for the opportunity to testify before the Committee.

I am Tom Tauke, Senior Vice President for Public Policy and External Affairs of

Verizon Communications. I am here today to explain why H.R. 1542 is a good bill—

good for consumers and for economic development—and to urge you not to amend

that bill in ways that would undermine these goals.

What’s this All About?

As recently as a few years ago, most people knew nothing of the Internet. Electronic commerce was all but unknown. In 1995, when Congress was re-writing the

Communications Act of 1934, revenues generated by the Internet were a mere $5

billion.

But then something unexpected happened. As Alan Greenspan has noted, ‘‘until

the mid 1990s . . . computers were still being used on a stand-alone basis. The full

value of computing power could be realized only after ways had been devised to link

computers into large-scale networks.’’ 1 This networking spurred the economic

growth of the late 1990’s. The resulting Internet economy included services that

were available online. It included giving businesses a new way to reach their customers and to deal with each other. It included companies that made the equipment

and the software that made all this happen.

But there are limits to the legacy networks and the economic value they can deliver. And these limits were one of the reasons that this economy reached a plateau

and, now, is stagnating.

Speed is important for e-commerce. Consumers love buying online, but get frustrated when they have to wait too long for the picture of the dress to download or

to complete their transaction. So the customers gave up and did not make the purchase, and the economy suffered.

And if the picture of the dress came too slowly, there was surely no way for the

consumer to get the three-dimensional views of the new cars she was considering.

These services absolutely require faster speeds than are possible through ordinary

dial-up connections to the Internet. If they are to succeed and grow, speeds must

improve.

The economic effects of the Internet economy reach beyond the money that

changes hands in an online retail sale. These e-tailers buy hardware and software

and the services of web designers and others in order to run their businesses. Internet service providers buy servers, routers and lots more. Backbone transport companies build the networks to carry the billions and billions of bytes that traverse the

Internet. Millions of consumers bought their first computer because of the Internet

and millions more are expected to do so in coming years. Without the higher speeds

that will bring new users and enable new services, this sector will continue to stagnate, to the Nation’s detriment.

The benefits of the Internet, of course, go beyond commerce and the economy. The

Internet enables advances in education and medical care, and improvements in the

quality of life generally. It allows children to sit in school or at home and have access to educational materials, libraries and museums all over the world. Of special

importance to me as one of the founders of the congressional rural health care caucus, doctors and nurses everywhere can use medical resources that could otherwise

be used only by those at the greatest medical centers. Faster speeds will enable

medical monitoring at home and hold the promise of improving health care, especially in rural areas. And people of all ages everywhere can sit at home and read,

watch and enjoy words and images that were previously beyond their reach. These

are benefits that all Americans should have and, with your help, can have.

7

What’s the Problem?

The problem is that we don’t have a national policy that promotes the development and deployment of broadband services. Congress established a national policy

for voice telephone services in the Communications Act of 1934 and the Telecommunications Act of 1996. It adopted a different policy for video cable services,

now found in Title VI. It has not adopted a policy for broadband. Without a clear

national policy, the FCC and the courts have been left to using laws that were enacted for completely different purposes, with predictably confusing results.

A clear national policy is needed to provide the certainty that is needed for companies to be comfortable investing the billions of dollars that are required to bring

broadband services to all Americans. Companies cannot be expected to invest what

they could in this business if they don’t know what the rules are. And, as I will

discuss later, they will not invest if they have to share the fruits of that investment

with other companies that did not share in the cost or the risk.

The absence of national policy guidance and of rules specially designed for

broadband has led to strange results. Existing law prevents one set of competitors— local telephone companies like Verizon—from competing freely in the Internet marketplace, thus insulating cable companies, such as AT&T, and the largest long distance companies—again such as AT&T and WorldCom and Sprint—from full competition. It also imposes on telephone company broadband services a host of requirements not imposed on cable—to interconnect, to file tariffs, to permit resale, to provide collocation, to offer unbundled access to network elements, etc. H.R. 1542 removes some, but by no means all, of the existing regulation of telephone company

broadband services and the facilities telephone companies use to provide these services. At the same time, the bill would not remove the requirements on these companies to open their local telephone markets to competition in order to enter the long

distance telephone market, but would simply free them to participate fully in the

Internet market.

How Does H.R. 1542 Help?

When we look at the broadband Internet access marketplace, it’s useful to look

at three parts of the service. First, there’s the last mile to the home—the wires that

go from the home to a switch or some other type of equipment. The second piece

is what I’ll refer to as the regional network, facilities that carry the traffic to the

network access points and connect to the long-haul backbone facilities. And the

third piece is the high-speed backbone facilities, that carry Internet messages across

the country and around the world. Each of these three pieces is vital, and H.R. 1542

has provisions that will increase competition and the availability of services in all

three.

First, the bill will bring more competition to the long haul market. The Antitrust

Division of the Justice Department agrees that the Internet transport market needs

more competition. In its complaint to enjoin the WorldCom-Sprint merger, the Department found that the provision of Internet backbone services is a relevant market for antitrust purposes and that this market is ‘‘highly concentrated.’’ The degree

of concentration has only increased since that time. Three long distance companies—AT&T, Sprint and WorldCom—are the dominant players in this market. H.R.

1542 will permit the Bell companies to enter this market and bring much-needed

competition.

The second area is the regional market. The problem here is not competition; the

problem is deployment. There are vast areas of the United States that simply have

no nearby backbone connections. The largest backbone providers have little incentive to connect their systems with smaller providers or to locate hubs away from

major urban centers. Many Internet providers have no way to get their data traffic

to the backbone efficiently and without numerous back-ups and delays. Many are

simply located too far away from convenient backbone connections. And when they

do get to the backbone, they find that the lack of adequate capacity slows their customers’ service.

However, the Bell companies already have high-speed fiber-optic facilities connecting virtually every city and town they serve. A Bell company could use this network to solve this Internet connection problem. That company could provide Internet hubs closer to the ISPs in these communities and use the fiber that is already

in place—but which cannot now be used for these purposes—to connect them to the

Internet backbone. That same fiber-optic facility could also be used to deliver Internet traffic collected by other hub providers to the main Internet backbone. These options would offer the ISPs in these communities better service at a lower price.

But these regional connections often cross LATA boundaries, those lines that were

drawn in 1982 to divide up the voice telephone network. Thus, the interLATA restriction prevents the Bell companies from providing these services.

8

2 Report and Order, 86 F.C.C.2d 469 (1981), modified 89 F.C.C.2d 58 (1982), further modified

90 F.C.C.2d 571 (1982). 3 CTIA Semi-Annual Wireless Industry Survey Results.

4 Amendment of Parts 2 and 22 of the Commission’s Rules to Permit Liberalization of Technology and Auxiliary Service Offerings in the Domestic Public Cellular Radio Telecommunications Service, Report and Order, 3 FCC Rcd. 7033 (1988), recon. in part 5 FCC Rcd 1138

(1990).

The third piece is that ‘‘last mile.’’ Here the problem is both deployment and competition, and Congress needs to adopt a policy that encourages both. By establishing

a policy, Congress will stop the migration of old-style telephone rules to the new

broadband market, and Congress will make sure that the rules allow everyone to

compete on even terms.

Cable operators started first in providing broadband services to residence consumers, are ahead in deployment and have more customers than local telephone

companies. And yet cable is unregulated, while telephone companies are burdened

with a set of rules that were designed for the voice business and that make no sense

at all in this marketplace.

Moreover, these existing federal regulations affirmatively discourage Verizon’s deployment of DSL. The FCC has applied the section 251 unbundling and resale requirements to Verizon and other incumbent local telephone companies. They require

Verizon to allow competitors to put their DSL equipment not only in our central office equipment buildings but also in small ‘‘remote terminal’’ boxes in local neighborhoods.

They require us to provide not only unbundled lines from our locations to customers, but also ‘‘subloop’’ pieces of those lines. The FCC first required us to provide

DSL-capable loops, then it required ‘‘line sharing’’—allowing a competitor to use

only a portion of the capacity of the loop almost for free to provide DSL service

while Verizon provided the underlying basic telephone service. Now we are also required to ‘‘line split’’—to arrange for two different competitors to share our lines,

while we provide no service at all to the customer.

The FCC is now considering requests from other carriers that we be required to

provide our new DSL services to them at very low TELRIC prices—prices that are

below our costs. If we have to do this, what incentive will we have to make the investments that make these services possible? And yet that investment is exactly

what you and the public expect from us.

H.R. 1542 is carefully drawn to deal with these problems and not to change anything else. It does not change the requirements for voice telephony services. It does

not change our obligation to allow collocation in our central offices. While continuing

line sharing over copper loops, the bill does not require line sharing over fiber, a

limitation which is crucial to the industry’s deployment of fiber in the local loop.

H.R. 1542 moves telephone company DSL services closer to the regulatory freedom enjoyed by cable and eliminates most of the FCC rules that burden telephone

company provision of DSL services.

Finally, section 8 of H.R. 1542 removes any doubt about the deployment of

broadband services—it requires that they be made widely available. Coupled with

the other sections that are based on the recognition that this marketplace is competitive and that there is no need for costly regulation, this provision establishes

a regime that will ensure that no American is left off the high-speed Information

Highway.

The Cellular Experience

I’m not just guessing that this approach will work. It has actually worked in a

new telecommunications service market. In fact, this approach produced what is arguably one of the greatest successes in this industry in the last twenty years—the

growth of wireless services. But that approach was adopted only after attempts to

apply old telephone rules to the new technology.

In March 1982, the FCC created commercial cellular service,2 and service began

in 1983. No one at that time predicted the fantastic growth of cellular. In fact, at

the time of the breakup of the Bell system, it was unclear as to whether AT&T or

the BOCs would inherit AT&T’s cellular spectrum licenses. AT&T had predicted

that cellular subscription levels would reach one million by 1999. In reality, cellular

subscribership reached that level in 1987, and that figure is now more than 100 million.

Wireless growth was slow at first. By the end of 1988, there were approximately

two million cellular subscribers in the U.S.,3 with an average monthly cellular bill

of $98.02. At that point, the FCC made an effort to significantly deregulate cellular

service.4. Within four years of the FCC’s deregulatory effort, cellular subscribership

9

5 CTIA Semi-Annual Wireless Industry Survey Results.

6Omnibus Budget Reconciliation Act of 1993, Public Law 103-66.

7 CTIA Semi-Annual Wireless Industry Survey Results.

8The Cost of Cellular Regulation, Jerry Hausman, McDonald School of Economics, MIT, January 3, 1995.

reached 11 million, while the subscriber’s average monthly bill dropped by nearly

30 percent.5

A second major deregulatory effort was undertaken by Congress in 1993. In the

Omnibus Budget Reconciliation Act of 1993,6 Congress, to a great extent, deregulated the cellular telephone industry. And in 1996, Congress provided interLATA relief for Bell company wireless services. Between 1993 and 1998, wireless telephone

subscribership rose from 16 million to 69 million, while the average monthly bill

dropped by nearly 50 percent.7 Today, there are more than 100 million mobile cus- tomers in this country, paying as little as $15 per month for basic service. Wireless

long distance service has become so inexpensive that about 40% of mobile phone

users make long distance calls on their cellular phone while they are home.

Regulation was not necessary to keep prices reasonable—the market did that. In

fact, regulation actually raised cellular prices. During FCC proceedings, a Cellular

Telephone Industry Association study showed that cellular prices in regulated states

averaged 17% higher than the prices in unregulated states. It also found that cellular penetration and cellular growth is lower in regulated states than in unregulated states.8

The inescapable conclusion is that the cellular industry—and cellular con- sumers—benefited greatly from deregulation. In a deregulated environment,

subscribership rose and prices dropped.

The high-speed Internet market is in a similar position today as the cellular industry was more than ten years ago. Of the more than 60 million U.S. Internet

households, 5.5 million access the Internet via high-speed cable modem, and only

2.3 million use xDSL technology for high-speed Internet access. Adoption of deregulatory measures, such as those contained in the Internet Freedom and Broadband

Deployment Act, will permit telephone companies to provide xDSL technologies at

a more rapid pace, hopefully with the same results as deregulation of the cellular

industry: more consumers accessing the technology for lower costs.

What Will the Future Bring?

This debate has been largely about traditional markets—telephone and cable— and about old regulatory regimes. In addition to fixing problems that now exist, policy-makers should also be looking ahead, at new markets and considering whether

any steps should be taken now to ensure that they develop competitively.

These information transport technologies are really just a means to an end—and

that end is the dissemination of information. There will be competition among content providers over the Internet, just as there is now competition among content

providers in print and broadcast media. Policy-makers need to be concerned that

there will continue to be competition among content providers over the Internet and

that content providers will have access to the increasing number of Americans

whose primary source of information is the Internet.

Cable systems are closed—their owners generally do not have to allow open or

nondiscriminatory access to them. Telephone company systems are open, and H.R.

1542 does not change that, In fact, it specifically requires, in section 5 of the bill,

that we both give Internet users the ability to have access to any Internet service

provider and give all Internet service providers the right to acquire the facilities and

services needed to reach Internet users. While we believe that an open model is better, we are not trying to force it on cable.

But this difference is another reason for you to support H.R. 1542. Congress

should want the deployment of open systems, because they are the best for competition and diversity in the information marketplace. Existing rules discourage us from

building these open systems and favor the market segment that is building closed

systems. This difference in treatment not only makes no sense from a regulatory

or antitrust perspective in the broadband market, it is also harmful to the development of a competitive and healthy Internet content marketplace.

The FCC cannot solve the problem of regulation that inhibits broadband deployment and skews the competitive marketplace—Congress must do that. The longer

the delay, the longer consumers will have to wait for services they want and the

longer the economy will have to wait for the boost that these new services would

surely produce. The authors of this bill want to free the Internet from the LATA

constraints that were established for the voice telephone network nearly twenty

years ago. They want to remove burdensome regulation that discourages innovation

and deployment in data services. And they want to put telephone company

10

broadband providers on a more level competitive playing field with cable. These are

all worthy goals, and I urge you to support them.

Thank you.

Chairman SENSENBRENNER. Mr. McLeod.

TESTIMONY OF CLARK McLEOD, CHAIRMAN AND CO-CHIEF

EXECUTIVE OFFICER, MCLEOD USA

Mr. MCLEOD. Thank you, Mr. Chairman. Thank you, Committee,

for inviting me to testify today. I’ll highlight three areas.

First, a little background of myself and the two companies that

I have been involved with in the 20 years that I have been in the

competitive industry, to H.R. 1542 specifically and our opposition

to H.R. 1542, and the third area would be what we would see as

the ability for Judiciary to move forward in a more constructive

fashion.

On the first point, 20 years in competitive telecom: I guess I’m

the only one on the Committee that has gone through the long distance industry and, now, the opening of the local industry. In the

1980s, we built a company which was the fourth largest long distance company in the U.S.

The reason I bring that up is, I think the long distance industry

presented a model for opening up monopolized markets. Within 5

years of opening up the market, 5 years following divestiture, competitive companies had over a 30 percent share of the long distance

industry. Today, we have 8 percent, all of the competitive providers, after 5 years of the 1996 Telecom Act.

Secondly, the experience that we have had in the CLEC business:

Starting in 1996, we have grown the largest independent CLEC operation, and because of that, I think I can provide some specific testimony to you today.

H.R. 1542: Well, it clearly restrains competition, no ands, ifs or

buts about it. It strengthens the Bell monopoly by restricting access to the local loop. It removes the carrot that was placed in the

1996 act of allowing the long distance companies into interLATA

services, removes that carrot prematurely. And finally, the real

garotte is the fact that this legislation actually restricts our access

to the Bell network.

So, the bill is being held out as helping rural America. We are

helping rural America. We are building fiber networks of the type

that Mr. Tauke has talked about. As far as increasing DSL services, the Bell companies are providing DSL services as fast as they

choose to today. They have a 75 percent share.

So I would ask that the Judiciary Committee oppose H.R. 1542,

take it off the table, it’s very destructive. It’s moving our industry

towards remonopolization. It’s causing financial markets to go

away completely. We have no access to capital today to build new

networks. H.R. 1542 has no redeeming characteristics.

Let me go for a moment into the long distance marketplace of the

’80s. That was a model for competition because it mandated equal

access by competitive providers. Think about, if all competitive providers had equal access to the Bell networks for provisioning services, then broadband services would be deployed very rapidly. But

what do we have today?

11

We actually have unequal access. We have access to a network

that maybe 20 or 30 percent of the time we don’t receive our orders

on time, and our customers become frustrated and go back to the

Bell Companies; and for this, we are paying as if we are getting

the service 100 percent of the time.

In the telecom arena, in the 1980s, there was a special period

where competitive companies had a transitional period to when

they got equal access; and we received lower costs for our services

during those—for the services that we bought from the Bell Companies during those periods of time.

The economic pressure that is on the competitive industry is, we

are paying too much, we are getting too little. And the monopolies

that are controlling this marketplace have been able to put forward

legislation like H.R. 1542 which really heads our industry back towards remonopolization.

I would hope that the Committee would oppose H.R. 1542, get it

off the table, and look towards the future of moving our industry

back to a competitive industry, and stop the trend towards remonopolization.

Thank you, Mr. Chairman.

Chairman SENSENBRENNER. Thank you, Mr. McLeod.

[The statement of Mr. McLeod follows:]

PREPARED STATEMENT OF CLARK MCLEOD

H.R. 1542 will lead to the re-monopolization of all telecommunications markets

by the Bell companies. This bill is unnecessary, unfair and unwise for many reasons.

First, H.R. 1542 does nothing to spur broadband investment in rural America.

While some of the Bell companies have abandoned rural America by selling their

rural exchanges, McLeodUSA invests and serves residential and business customers

in rural markets in many states.

Second, the Bells can and do provide broadband DSL service today without passage of H.R. 1542. The Bell companies try to distract legislators by suggesting the

cable companies have some advantage over the Bells in providing high-speed Internet service. This is false.

Third, the Bells can provide in-region, long distance (data and voice) service by

simply complying with the 14-point checklist. To date the FCC has granted longdistance approval in 5 states: New York, Texas, Kansas, Oklahoma and Massachusetts. Numerous other Section 271 activities are ongoing. Most of the remaining 45

states have invested heavily in the 271 process, and we should support that investment of tax dollars.

Fourth, H.R. 1542 creates uncertainty, which harms access to capital. Capital is

the lifeblood of competition. Continued access to capital is critical for competitors

to continue providing customers with a competitive choice for telecommunications.

Fifth, H.R. 1542 would severely disrupt the CLEC industry. By granting immediate authority to provide long-distance data services before local markets are

opened to competition, the bill reduces the Bells’ incentive to open their local markets, thus preserving their monopoly. Furthermore, the bill is based on a wholly artificial attempt to distinguish voice from data transmission. Once content is

digitized, there is no meaningful distinction between voice and data.

Sixth, H.R. 1542 further strengthens the Bells’ monopoly control over the local

network.

Finally, in order to create competitive telecommunications, Congress, the FCC and

state regulators should follow the successful model used in the long-distance industry and mandate equal access, monitor access quality and enforce equal access.

On behalf of McLeodUSA, I would like to thank the Committee for the opportunity to talk with you today. I would like to accomplish three goals today: first,

summarize McLeodUSA’s presence and progress in serving residential and business

customers in rural and urban markets; second, discuss our strong opposition to H.R.

1542, which would lead to re-monopolization of all telecommunications markets by

the Bell companies; and third, propose an alternative plan to create competitive

12

telecommunications, thereby bringing lower prices and higher service quality to all

customers.

I. MCLEODUSA IS EXACTLY WHAT CONGRESS ENVISIONED.

A. Entrepreneurial

In the early 1980s, I was CEO of Teleconnect, a company founded to compete in

the long distance industry. I started basically out of my garage and began to bring

the benefits of competition to my customers. In 1981, the Federal Communications

Commission (FCC) mandated AT&T to allow competitors complete use of its existing

network. As public policies continued to encourage and support competition in that

industry, several competitors, including Teleconnect, began to have success. Over

the course of about 8 years we built Teleconnect into the fourth largest long distance

company in the country employing nearly 7,000 employees. So you can see that entrepreneurial spirit can produce effective competition.

In 1992, I organized McLeodUSA, headquartered in Cedar Rapids, Iowa, and

began competing in the local and long distance telephone markets. We started slowly. When the Telecommunications Act of 1996 (‘‘the ‘96 Act’’) was passed, we were

able to take our company public and accelerate our growth.

McLeodUSA’s corporate team is recognized as one of the strongest management

groups in the telecom industry: strong because of our breadth, and strong because

of our depth. Our five-year compounded annual growth rate for revenue is 104% and

for deployment of route miles of fiber optic cable is 74%. With the support of policymakers, we can continue our competitive activities at a fast pace.

McLeodUSA Incorporated is a Nasdaq-100 company traded as MCLD. The Company’s Web site is available at www.mcleodusa.com.

B. Serving a Wide Range of Customers

We serve both business and residential customers. In fact we serve more residential customers than business customers. Our goal is to be the number 1 and most

admired company in the markets we serve. We cannot accomplish that by only serving large business customers in large cities, so we rejected that model. The Bells

like to portray competition as competitors who merely ‘‘cherry-pick’’ high-margin

large business customers. That is obviously not the case with McLeodUSA.

We also serve a wide range of communities ranging from cities as small as a few

hundred people up to cities as large as Chicago. In the communities we serve, our

focus is primarily on small and medium sized enterprises. While we do serve residential customers and large businesses, we have found that small and medium-sized

businesses are largely underserved. We have good success with those customers

using our beat-cop sales approach that meets customers face-to-face. Currently our

average customer only has about 6 lines. So again you can see we are not in this

business to only serve the ‘‘high revenue’’ large business customers of the Bell companies.

II. MCLEODUSA IS BRINGING COMPETITION AND ITS BENEFITS.

McLeodUSA is the largest independent CLEC in the country. In March 1996 we

served approximately 40,000 local access lines. Today, we serve over 1.1 million

lines.

A. Jobs

In late 1994 we had approximately 200 employees, primarily in Iowa. Today we

have nearly 11,000 employees working in 150 offices located in 25 states.

B. Technology

At the end of the first quarter of 2001, we had 50 central office and long distance

switches and 396 data switches in operation. In addition we had deployed and

begun operating approximately 29,000 route miles of fiber optic cable connecting

most of those facilities. By the end of 2002, we will operate a 30,000-mile broadband

network connecting 810 cities capable of delivering service to a local telephone connection (the ‘‘local loop’’ for 90% of the U.S. population. The one critical missing requirement for meaningful local competition, however, is for competitors to have

equal access (functional and economic) to the Bell local network . . . the entire local

network.

III. H.R. 1542 WILL LEAD TO THE RE-MONOPOLIZATION OF ALL TELECOMMUNICATIONS

MARKETS BY THE BELL COMPANIES.

H.R. 1542 is unnecessary, unfair and unwise for many reasons. First, H.R. 1542

does nothing to spur broadband investment in rural America. Last year, the Bells

13

hailed this bill as the solution to narrow the so-called ‘‘Digital Divide’’ in rural

America. This year, the Bells have completely abandoned this rationale for providing them ‘‘relief.’’ Furthermore, during the past several years, some of the Bell

companies have abandoned rural America by selling their rural exchanges. In sharp

contrast, McLeodUSA invests in and serves residential and business customers in

rural markets in many states, including Wisconsin and Illinois.

Second, the Bells can and do provide broadband DSL service today without passage of H.R. 1542. The Bell companies try to distract legislators by suggesting the

cable companies have some advantage over the Bells in providing high-speed Internet service. This is false. The Bells chose to delay offering their high-speed Internet

access service, and thus, the cable companies got a three-year head start.

Marketshare growth for the Bells’ DSL service, however, is now growing must faster

than the growth for the cable companies’ internet access service. H.R. 1542 is totally

irrelevant to the Bells’ argument involving DSL service.

Third, the Bells can provide in-region, long distance (data and voice) service by

simply complying with the 14-point checklist. To date the FCC has granted longdistance approval in 5 states: New York, Texas, Kansas, Oklahoma and Massachusetts. Numerous other Section 271 activities are ongoing. Most of the remaining 45

states have invested heavily in the 271 process, and we should support that investment of tax dollars.

Fourth, H.R. 1542 creates uncertainty, which harms access to capital. Capital is

the lifeblood of competition. Since passage of the ‘96 Act, McLeodUSA and other

CLECs have invested over $55 billion dollars in capital to deploy broadband networks to serve business and residential consumers in both urban and rural America.

Continued access to capital is critical for competitors like McLeodUSA to continue

providing customers with a competitive choice.

During last year when Congress considered changing the rules and granting legislative ‘‘favors’’ to the Bell companies, access to capital declined dramatically. The

stock prices for the Bells decreased commensurate with the overall market drop. In

contrast, the CLEC stock prices were driven to historical lows. During a 52-week

period prior to April 4, 2001, aggregate stock prices have fallen the following

amounts: Bells - 39% and CLECs - 94%.

CLEC stock prices disproportionately decreased for two key reasons: uncertainty

in the public policy arena and continued difficulties in accessing the Bells’ local networks. Wall Street is now investing in re-monopolization (the Bells), because proposed policy changes during the past 12 months clearly favored the Bells.

Fifth, H.R. 1542 would severely disrupt the CLEC industry. By granting immediate authority to provide long-distance data services before local markets are

opened to competition, the bill substantially reduces the Bells’ incentive to open

their local markets, thus preserving their monopoly. This would delay the development of local competition. Furthermore, the bill is based on a wholly artificial attempt to distinguish voice from data transmission. Once content is digitized, there

is no meaningful distinction between voice and data. Both voice and data, when they

are digitized and transmitted over a fiber optic cable, are just flashes of light. When

you see those flashes there is no way to determine whether the message is voice

or data and, therefore, no way to know if the message should be allowed. Furthermore, as voice over the internet technology continues to develop, the problem grows.

If we allow the Bell companies to provide long distance service for the Internet, then

when voice communication over the Internet becomes widespread, the ‘‘carrot’’ will

be gone and there will be no incentive to ease the Bell stranglehold on the ‘‘last

mile’’ local loop.

Sixth, of most relevance to this committee, H.R. 1542 strengthens monopoly control for the Bells over the local networks. This monopoly control is bad for customers. SBC held over 1 million customers ‘‘hostage’’ when it refused to offer DSL

service in Illinois unless it could maintain its monopoly control over its network.

The FCC and the Illinois Commerce Commission rejected SBC’s anti-competitive

threat and held that competitors are entitled to full access to SBC’s network. Consequently, SBC has threatened to abandon its ‘‘Project Pronto’’ deployment of new

technology, rather than offering the citizens of Illinois a competitive choice for service.

Strengthened monopoly control over local networks is also unfair and harmful to

CLECs. CLECs pay for and are entitled to receive access to the entire Bell local network. The rates CLECs pay the Bells for unbundled network elements are based

on forward-looking costs using the best currently available technology. In other

words, the Bells are receiving money from CLECs to pay for deploying fiber deeper

into the neighborhoods. Because CLECs are paying for the newest technology and

network, CLECs are entitled to access that network . . . the entire network.

14

IV. A PROVEN PLAN FOR COMPETITIVE TELECOMMUNICATIONS

Today, we are at the beginning of providing consumers a competitive choice for

their local telecommunications service. Five years after the ‘96 Act, all competitors

(CLECs, AT&T, Worldcom and Sprint) have gained 8.5% share of local access lines.

In contrast, competition in the long-distance industry during the 1980s developed

much faster. Five years after the 1984 divestiture of AT&T from the Bell companies,

all long-distance competitors had gained 3X the marketshare that competitors have

gained in local access lines. The Bells have successfully denied competitors equal

access (both functional and economic) to their local network, thus restraining the

growth of competition and preserving their monopoly.

In an effort to bring real consumer choice to the local telecommunications market,

Congress, the FCC and state regulators should follow the successful model used in

the long-distance industry. Long-distance markets are competitive today because of

two key actions. The first was mandated access. In 1981, the FCC mandated that

all competitors have access to the AT&T network. In 1986, equal access from the

Bells was mandated, thus allowing 1+ dialing. The second was strong enforcement.

Judge Greene provided the strong enforcement, including meaningful penalties, to

deter anti-competitive conduct. The result was healthy long distance competition resulting in lower prices and higher service quality for all customers.

Similar actions need to be taken to create competitive telecommunications in the

local markets. First, Congress and the FCC must mandate equal access to the Bells’

monopoly-controlled local networks. Equal access means that both competitors and

the Bell companies’ retail operations must request and purchase the same network

inputs under the same terms and conditions and through the same operation support systems (OSS). The Bell network operations must be made ‘‘blind,’’ to make it

impossible to discriminate, whether an order or request comes from the Bell retail

operation or a competitor. As long as there is a reason to treat one user better than

another, and the ability to do so, there will not be the type of equal access that allowed competition to flourish in the long distance markets. Once equal access is established customers can, and should, be allowed the opportunity to select both their

local service provider and their long-distance provider through the use of a balloting

process.

Second, in order to improve the quality of access to the entire Bell local network

(copper and fiber), it is important to establish and monitor meaningful standards

in every step of the process: preordering, ordering, provisioning, maintenance and

repair and billing. The FCC currently monitors several specific performance measures. The FCC should require full compliance by the Bells with all these performance standards both before obtaining 271 approval and after 271 approval on an ongoing basis.

Third, there must be strong enforcement of these equal access standards. One way

would be to award meaningful damages to competitors when the Bell companies fail

to comply with these equal access standards. Awarding damages directly to competitors will incent the Bells to change their anti-competitive behavior, rather than simply pay the fines as a cost of doing business. A second way would provide competitors with price discounts for unequal access. In the long-distance industry, competitors received a 55% price discount until competitors received ‘‘1+’’ equal access.

Damages or price discounts will ensure competitors remain ‘‘economically whole,’’

thereby providing a sustainable competitive choice for consumers.

If the Bells do not comply with the equal access mandate, Congress should grant

the FCC authority to separate the Bell companies, either functionally or (if necessary) structurally. The FCC should then act if the Bell companies refuse to grant

equal access to competitors by a certain date.

Congress should also authorize the FCC to establish a system of progressive penalties. Meaningful, progressive penalties will deter anti-competitive actions. Penalties should be authorized up to 5% of the offending Bells’ annualized pretax profits. Only penalties of this size can impact business decisions. Penalties should also

be repeated monthly for continuing violations. Finally, penalties should progressively escalate for repeat violations by the Bells. Progressive penalties provide a

critical incentive for the Bell companies to comply with an equal access mandate.

Finally, Congress needs to clarify that anti-trust laws apply to the ‘96 Act. Violations of equal access standards and interconnection agreements must be per se violations of antitrust law and allow for private causes of action coupled with recovery

of traditional anti-trust remedies. In addition, Congress should authorize the FCC

to award damages to fully compensate competitors for proven losses, along with treble damages, punitive damages and attorneys fees. These strong enforcement measures will help accomplish the goal of competitive telecommunications.

Conclusion

15

H.R. 1542 would allow a further restraint of competition by restricting access to

the Bells’ bottleneck facilities and, thus, must be defeated. Setting H.R. 1542 aside,

in order to create competitive telecommunications, Congress, the FCC and state regulators must mandate equal access, monitor access quality and enforce equal access.

In closing, I ask this Committee to join me in an effort to provide real consumer

choice in telecommunications.

Chairman SENSENBRENNER. Ms. Greene.

TESTIMONY OF MARGARET GREENE, EXECUTIVE VICE PRESIDENT FOR REGULATORY AND EXTERNAL AFFAIRS,

BELLSOUTH CORPORATION

Ms. GREENE. Mr. Chairman, Ranking Member Conyers, Members

of the Committee, good afternoon and thank you for the opportunity to appear before you today to testify on H.R. 1542.

This is a critical piece of legislation, and its passage is necessary

to help achieve the economic promise of the digital age. My goal in

my testimony is to outline for you the incentives and disincentives

currently at work in the telecommunications industry and outline

how the Tauzin-Dingell bill can help clarify those incentives.

In the ’96 act, Congress outlined a four-pronged policy designed

to change the competitive dynamics of the local exchange telephone

market. In implementing this legislation, the FCC focused on but

one of the four goals, creating competition, and ordered that local

exchange companies make their network available to their competitors in total, or piece parts, at a regulatorily set price. That price

imagines that the local exchange companies have totally efficient

state-of-the-art networks.

In addition, our retail prices are set by regulators at the State

and Federal levels. Let’s look at some real numbers to see how this

regulatory policy has driven behavior.

Competitive local exchange companies have flocked to the business markets in the metro areas. They have largely avoided the

residential and rural areas. Their behavior is driven by regulatory

policy. In Georgia, 120 competitors serve 800,000 lines. They’re

concentrated in metro areas and most are competing for exactly the

same customers in exactly the same geography.

The regulatory prices explain why. Our retail rate for a business in metropolitan Georgia is $48.30. This is a rate set by regulators

in a noncompetitive area, a noncompetitive area intentionally

above cost to subsidize residential rates. The wholesale rate set by

regulators is $14.21—our retail rate, $48.30; competitors’ wholesale

rate, $14.21. The $34 difference between those rates is the potential profit margin available to our competitor. The same difference

is the potential profit margin lost to us because of a regulatory rule

change.

Behaviors of competitors are clear and rational. They go where

the money is, to metropolitan business customers, and they have

flocked to that market. In several areas of our cities, we currently

have below 50 percent of the business market share.

But in rural Georgia, we don’t have a lot of competition yet for

residential customers. This is no surprise since regulation encourages competitors to go elsewhere. The regulators set our rural residential retail rate at $12.50; the wholesale rate, $26.08. Our competitors would have to pay $26.08 to gain access to a $12.50 revenue stream. This is not an incentive for competitors to invest, and

16

their behavior reflects that. They continue to avoid the residential

market.

Neither is it an incentive to invest for companies like mine. Implementation of regulatory policy to date has sent one signal to

local exchange companies: Your traditional profit margins are open

to attack and you can’t do anything about your interLATA rates.

If you were a business owner, what would your likely response

to this message be? It would be one of caution, and you would want

more information before you committed to an investment that you

may have to make available at terms you did not count on when

you placed the investment.

I outline these numbers for you not to complain about the implementation of the ’96 act, but rather to make a point about investment. Investment is like water; it goes naturally to the open

course. It flows where there is the least impediment, avoiding narrow or dammed up opportunities. Regulation has created open

flows, and it has created dams in the flow of competitive investment to the local exchange market.

Broadband is not the existing telephone plan that was the subject of the ’96 act and yet it is increasingly treated as such.

Broadband requires investment and lots of it. New networks have

to be built, new things have to be put in place, things with names

like DSL and D-Slams and remote terminals. The decisions to place

these new investments are influenced by factors like, where is the

open course, what will the rules be impacting my decision to invest,

when and where will I get my money back? The broadband networks we are building and will build do not exist in a vacuum.

They are introduced into a marketplace where competition is dominated by the cable companies that outrank us 3 to 1 in investment.

The Tauzin-Dingell bill would put a stop to the fact that their

investment is not regulated and ours is. It’s a bill designed with

a built-in compromise. It treats the traditional plant in exactly the

same way as it’s treated today; and yet it treats the new plant and

new investment in an unregulated and more market-friendly way,

reflecting the competition that consists in the marketplace today.

We need a clear broadband policy. Tauzin-Dingell is that policy.

Chairman SENSENBRENNER. Thank you, Ms. Greene.

[The statement of Ms. Greene follows:]

PREPARED STATEMENT OF MARGARET H. GREENE

Mr. Chairman, Congressman Conyers, members of the House Judiciary Committee, thank you for giving me the opportunity to testify regarding H.R. 1542, the

Internet Freedom and Broadband Deployment Act 2001. BellSouth supports this

legislation and we would urge you to lend your considerable influence to its passage.

The members of this Committee played a key role in the passage of the Telecommunications Act of 1996, and you can do so here—We hope that you avail yourself of this similar opportunity in 2001 with respect to H.R. 1542.

The key sections of H.R. 1542 which we support are Sections 4 and 6. Section 4

deals with limitations on the authority of State and Federal governments to regulate high speed data service, Internet access and Internet backbone service. Section

6 provides interLATA relief for high speed data and Internet backbone services, but

specifically excludes relief for the provision of interLATA voice communications over

such facilities.

The Need for Legislation

Why is legislation of this sort needed? The Telecommunications Act of 1996 was

based on at least 4 fundamental principles. First, it was designed to encourage competition in both the local and long distance market. Second, it protected universal

17

service by making implicit subsidies explicit. Third, the Act encouraged investment

in competitive networks while requiring resale and unbundling of incumbents’ networks. And fourth, it encouraged deregulation as evidenced by the forbearance provisions of the Act. However, in the 5 years since the enactment of the 1996 Act,

the Federal Communications Commission (FCC) has taken a number of steps that

contradict those purposes.

First, the FCC has substantially diminished any incentive a new entrant may

have to deploy its own local facilities. This is due to the fact that the FCC has permitted requesting carriers to use unbundled access as a mode of entry at

confiscatorily low prices—even though the 1996 Act requires unbundled network element prices to be based on the cost of providing the network element.

Second, the FCC adopted policies that have put off the long distance competition

that the 1996 Act envisioned. The FCC has done this by expanding the 14-point

checklist beyond recognition. BellSouth’s experience with three applications, South

Carolina once and Louisiana twice, has been that each time we filed the bar got

higher and higher. This has delayed our entry into long distance, beyond anything

envisioned by the 1996 Act.

At a hearing before the Senate Commerce Committee in April 1999, the then

Chairman of U.S. West, Solomon Trujillo, made the point that the 14–point checklist had been vastly expanded to become, by that time, a 672–point checklist. It has

expanded more since 1999. This expansion, I might add has occurred, despite the

express prohibition in the Act barring the FCC from expanding the checklist. As

BellSouth prepares its Georgia application, we are attempting to operationalize a

‘checklist’ of some 1831 individual performance measures that must be accumulated

separately for each and every CLEC operating in that state. Multiply that number

by the 9 states in which we operate and one can readily see how expansive the list

of requirements has grown.

We need legislation such as HR 1542 because the FCC has taken two significant

steps that have expanded the reach of the 1996 Act’s provisions to Internet-related

data markets. The FCC has interpreted Section 251 of the Act, which contains the

affirmative steps that we must take to assist competitors to enter the local exchange

market, to apply not just to local voice service, but also to high speed data services.

This is inconsistent with the pro-competitive, deregulatory scheme that we believed

Congress intended. Incumbent local exchange carriers are not dominant in the high

speed data market. At this point, the cable platform (cable modem service) is by far

the most popular platform for high speed Internet access, with a better than twoto-one lead over our DSL service. The cable platform is not subject to these same

regulatory requirements, even though it is a functionally equivalent service.

We do not favor extending this type of regulation to cable at this time. This would

be a policy mistake. We favor what the Chairman of the Telecommunications and

Internet Subcommittee, Fred Upton, refers to as deregulatory parity. Section 4 of

H.R. 1542 accomplishes this deregulatory parity. Market forces, not regulation, can

govern the robustly competitive high speed data market, which also includes cable,

wireless and satellite providers.

InterLATA Relief for Data

As to Section 6, this is the other key provision of H.R. 1542. It applies to

InterLATA relief for high speed data services and Internet backbone services. This

is likewise a robustly competitive market and we are well suited to compete in this

market. Our entry into this market will increase, not diminish, competition, leading

to lower prices and improved service.

I have heard two criticisms of Section 6. First, critics contend that if Bell operating companies are allowed to compete in the interLATA data market, our incentive to comply with the vastly expanded 14-point checklist will go away. That is absolutely false. We have more incentive today than ever before to comply with that

checklist, because our competitors can offer a package of services—long distance

voice, long distance data, local voice, local data, cable, Internet access and cellular.

We cannot offer those packages today. Even with H.R. 1542, we will not be able to

provide voice services across LATA lines. This is a major hole in our service offerings and the only way that we fill it is by complying with the checklist. BellSouth

has spent billions to meet these requirements and will continue to fulfill its obligations under the 1996 Act.

A second criticism that I have heard is that because a ‘‘bit is a bit’’, one cannot

distinguish voice service from data service. The suggestion is that we will provide

voice services under the guise of providing a data service. H.R. 1542 recognizes this

and expressly prohibits us from providing voice—this means offering, marketing,

billing, etc.

18

Local Phone Competition

During your Committee hearing last month, there were a number of questions

about the state of local telephone competition. First, I want to emphasize again that

H.R. 1542 deals with high speed data service, Internet access service and Internet

backbone. It does not concern voice service. A CLEC wishing to provide local voice

service has access to everything that the 1996 Act, the courts and the FCC say they

are entitled to. This means local loops, transport, switching, operational support systems all at pricing levels that are well below cost. Nothing in H.R. 1542 changes

any of that. The changes being proposed again relate to Internet services not voice

services.

Having said that, one important point must be made. When the bills that ultimately led to the 1996 Act were being considered by the Congress in 1993, 1994

and 1995, we as members of the United States Telecom Association (USTA) considered seriously and at length what steps needed to be taken to ensure the development of local telephone competition for both business and residences. We advised

the Congress that one of the steps that was absolutely mandatory to assure competition to both classes of customers was what we call rate rebalancing. Let me explain.

In our BellSouth states we are required by our state public service commissions to

charge business customers more for local telephone services than we charge residences. This has been the case for decades. In reality, it costs us less in most instances to provide businesses with telephone service than residences because businesses are densely located, for instance in a downtown business district.

We advised the Congress and submitted proposals that would have had the Congress require the states to rebalance these local telephone rates—in other words

eliminate this price disparity and permit us to base our rates on the costs of providing the service, not on the class of customer. Our ideas were not accepted. We

explained and offered at the time our opinion that the net result of this failure to

rebalance rates would be robust competition for business customers because they

were being charged considerably more than cost, and little competition for residential customers, because in most instances they were receiving service at below cost

rates.

CLEC Focus on Business Market

I read with interest the written testimony of John F. Malone submitted to this

Committee last month. He is the management consultant who assists CLECs. He

points out that ‘‘CLECs have successfully penetrated the customer base of the incumbent telephone companies.’’ He said that USTA’s estimate that CLECs serve 20

million access lines may be understated, and that CLECs may serve a ‘‘far greater’’

number of lines He went on to say ‘‘CLECs are not known to target the residential

customer.’’ He also said that we at BellSouth lose to CLECs ‘‘on the order of $30

million per month.’’

Why are CLECs not making money? Mr. Malone accurately pointed out that the

‘‘CLEC market is saturated with competitors.’’ Way too many CLECs are clustered

around the same densely populated business geography each going after the same

customers. Also, a number of companies established faulty business plans primarily

based on capitalizing on regulatory arbitrage opportunities. Further, many CLECs

have not invested in facilities. Indeed, by permitting CLECs to use unbundled access at confiscatorily low prices, the FCC has given them little reason to do so. By

this action the FCC has stifled facilities based competition. This same distortion

should not be allowed to occur in the high speed data and Internet backbone service

market. Absent a clear policy against an unbundling requirement on our advanced

services network investments, such investments will be retarded.

In conclusion, I would say to you that the deregulatory provisions of Sections 4

and 6 of H.R. 1542 are a positive step in the right direction. We do not need common regulation developed over many years to regulate voice service to be applied

to Internet service, especially when our biggest competitors for these services are

not regulated in this manner.

Chairman SENSENBRENNER. Mr. Glassman.

TESTIMONY OF JAMES K. GLASSMAN, RESIDENT FELLOW,

AMERICAN ENTERPRISE INSTITUTE

Mr. GLASSMAN. Thank you, Mr. Chairman, Mr. Conyers, Members of the Committee. Thank you for inviting me here today to

share my views on H.R. 1542.

19

My name is James K. Glassman; I’m a Resident Fellow at the

American Enterprise Institute.

There’s a crisis in the deployment of fast Internet services’ broadband connections. This crisis is destroying whole industries,

damaging the economy and frustrating American families. H.R.

1542, the Tauzin-Dingell bill, is being promoted as a way to boost

deployment of high-speed data services. In fact, it will produce the

opposite result. Without competition, the rollout of broadband will

be slowed, even stopped in its tracks.

The bill will do substantial harm not just to competitive telecom

companies, or CLECs, but to the U.S. economy. In fact, a series of

studies that I am conducting with two economists shows that this

bill, by increasing uncertainty, has helped dry up the flow of capital, destroying CLECs and harming the economy. Very simply, you

cannot have real consumer choice and the benefits that flow from

it without competition and you cannot have competition without

competitors.

H.R. 1542 would eviscerate the crucial provisions of the Telecommunications Act of 1996 that created the CLEC industry, once

a $200 billion industry and now one-fifth of that size in market

capitalization. The bill would, make no mistake, kill that industry,

kill the competitors, both current and future. And without competitors, the Bells, once seven companies and now just four regional

monopolists, will expand their monopoly from local service to long

distance to Internet services.

This appears to be what some in Congress actually want. They

assume that if we will trust the nine monopolists, they will bestow

wonderful benefits on American consumers. This is a dangerous

fantasy. We have tried it before and it doesn’t work.

And, Mr. Chairman, if there is an antitrust issue for this Committee, this is it. Instead, it is competition that best serves consumers, all consumers, including the poor inner-city residents and

rural families. Before there was competition, for example, the Bells

kept their high-speed DSL technology on the shelf. Why deploy it

if not pressed by competition? That will be their behavior when

they emerge again as end-to-end monopolists.

Some of the backers of this legislation call it deregulation. I have

devoted much of my career to advocating deregulatory free market

solutions to economic and social problems. I know deregulation

when I see it; this is not deregulation. Instead, H.R. 1542 will allow

the Bells to crush the remaining CLEC opposition and extend their

monopoly.

And what will Congress do when this state of affairs becomes

evident? It will reregulate, of course. You know as well as I do that

you will not sit there and allow such a powerful monopolist to set

prices, quality and extent of service in your communities. Congress

will step in with strict mandates. We are already seeing that response to H.R. 1542. In the Commerce Committee, provisions were

added to set deployment timetables. There will be more such mandates on the monopolists, as in fact there should be. In short, this

bill causes reregulation.

The mere prospect of the passage of H.R. 1542 and its predecessor last year has already severely damaged the CLEC industry.

This is one of the preliminary findings of studies that I am comVerDate 11-MAY-2000 11:43 Sep 28, 2001 Jkt 000000 PO 00000 Frm 00023 Fmt 6633 Sfmt 6601 G:\WORK\FULL\060501\72979.000 HJUD2 PsN: HJUD2
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pleting with two economists Kevin Hasset of the American Enterprise Institute and William Lehr of MIT. The uncertainty generated by this bill and the possibility that the Bells will destroy

what is left of the CLEC industry if it passes have helped dry up

the flow of capital to CLECs and have damaged the U.S. economy

as a whole.

Five years ago a group of risk-taking entrepreneurs went into the

telecommunications market against tough odds. They were comfortable at least that a new law would force the Bells to share, at

reasonable cost, the physical infrastructure that they had built up

over a century as a protected, subsidized monopolist. But what

H.R. 1542 proposes is to pull the rug out from under these CLEC

entrepreneurs, what’s left of them. That is more than unfair, it’s

damaging to the economy. As an editorial in the Los Angeles Times

put it, H.R. 1542 is, quote, ‘‘a proposal without logic. The change

would only strengthen the Bells’ chokehold on local service and remove any incentive to compete and innovate.’’ And, our research

shows that the bill has already done that.

The chokehold has nearly killed the CLECs. If this bill progresses, it will surely finish the job of ending competition. That is

why it must be stopped and stopped now. Stopped here, not in the

Senate.

Thank you.

Chairman SENSENBRENNER. Thank you very much, Mr. Glassman.

[The statement of Mr. Glassman follows:]

PREPARED STATEMENT OF JAMES K. GLASSMAN

Mr. Chairman and members of the committee:

Thank you for inviting me here today to share my views on the Internet Freedom

and Broadband Deployment Act of 2001, also called the Tauzin-Dingell bill, HR

1542.

My name is James K. Glassman. I am a resident fellow at the American Enterprise Institute for Public Policy Research in Washington and host of

TechCentralStation.com, a website that focuses on matters of technology, finance

and public policy, including telecommunications. I have also been deeply involved

in issues involving financial markets in my longtime role as a syndicated columnist

for the Washington Post as well as for the Reader’s Digest and the International

Herald Tribune and in my capacity as a frequent contributor to such publications

as the Wall Street Journal, the Washington Times and the Atlantic Monthly.

A Dangerous Fantasy

Let me get immediately to the point: HR 1542 is being promoted as a way to boost

deployment of high-speed data services. In fact, it will produce the opposite result.

It will severely harm prospects for sustainable and effective telecommunications

competition—and it will further deter the deployment of broadband Internet technology and do substantial damage to the U.S. economy as a result. You cannot have

real consumer choice and the benefits that flow from it without competition, and you

cannot have competition without competitors. HR 1542 would eviscerate the crucial

provisions of the Telecommunications Act of 1996 that have created the competitive

local exchange carrier (CLEC) industry and, make no mistake, kill that industry—

kill the competitors, both current and future.

Furthermore, the bill, which is being presented by some of its sponsors as ‘‘deregulation,’’ will actually produce re-regulation. I have devoted much of my professional career to advocating deregulatory, free-market solutions to economic and social problems. I know deregulation when I see it, and the Tauzin-Dingell bill is not

deregulation. For reasons I will explain below, it will take us back to the pre-1984

days of heavy telecommunications regulation.

With the last of their CLEC competitors destroyed by this legislation, the monopoly Bells will expand their monopolies. This appears to be what some in Congress

want. They assume that if we will trust benign monopolists, they will bestow wonVerDate 11-MAY-2000 11:43 Sep 28, 2001 Jkt 000000 PO 00000 Frm 00024 Fmt 6633 Sfmt 6621 G:\WORK\FULL\060501\72979.000 HJUD2 PsN: HJUD2
21

derful benefits on American consumers. This is a dangerous fantasy. We tried it before, and it doesn’t work.

In fact, the mere prospect of the passage of HR 1542 and its predecessor last year

has already severely damaged the CLEC industry by helping to cut off the flow of

investment capital. I did not come to this conclusion lightly. Instead, it is one of the

preliminary findings of a series of studies that I am in the process of completing

with two distinguished economists, Kevin Hassett, resident scholar at the American

Enterprise Institute, and William H. Lehr, associate director of the Internet and

Telecoms Convergence Consortium of the Massachusetts Institute of Technology. I

am not saying that Congress should not discuss Mr. Tauzin’s bill. I am saying that,

by increasing the possibility of such legislation becoming law, Congress is unwittingly aiding in a strategy to kill the competitive telecommunications industry in its

cradle and to deny to their constituents the benefits of high technology at a reasonable cost—the same kind of benefits that competition has brought to such sectors

as computers (which have fallen in price, adjusted for quality, by 90 percent in 10

years), software and, in fact, long-distance services. Think of it this way: If you were

a big lender or equity investor, would you devote capital today to CLECs threatened

with annihilation by HR 1542? I don’t think so.

HR 1542 will not deregulate telecommunications. Instead, it will undeniably do

the following:

Bill Leads to Re-Regulation, Not De-Regulation

First, it will allow the monopoly Bells to crush their remaining CLEC opposition

and extend their monopoly from end to end: from local service to long distance to

fast Internet connections, or broadband.

Second, it will lead us straight back to remonopolization and re-regulation—back

to the conditions that existed before the breakup of AT&T in 1984. If the Tauzin

bill becomes law, and the Bells, as expected, eviscerate their opposition by

leveraging their local monopoly, you here today know as well as I do that Congress

will not stand by and allow such a powerful monopolist—either a single company

or four regionals, or somewhere in between—to set prices, quality and extent of

service. Congress will step in, as it should, with strict mandates. We will be right

back where we started. Already, we have seen an amendment added to HR 1542

in the Commerce Committee’s markup that sets a deployment timetable. All I can

say is: Here we go again. Perhaps it is well intended, but the Tauzin-Dingell bill

is an act of re-regulation, not de-regulation.

Background: Slow Rollout of Broadband

Before I examine the specific deficiencies of this legislation, let me first offer some

background: Today, barely 5 percent of households have even the most rudimentary

form of broadband—or fast access to the Internet. As a result, the promise of the

Internet is not being enjoyed by 95 percent of Americans—an increasingly frustrated

group. Incredibly, in the first quarter of this year, for the first time ever, the number of Americans with Internet access of any sort actually declined. As Francis Rose

wrote recently in Wired magazine, a monthly magazine that is a kind of non-partisan high-tech bible: ‘‘The digital future has arrived, but the analog past won’t let

go. Data flashes across the country at the speed of light only to end up dribbling

out of your wall in the tech version of Chinese water torture.’’

Most Americans with Internet access have dial-up 56K modems even though the

technology is readily available for speeds averaging 20 to 30 times that fast, using

manipulations to the copper wiring entering your house—a process called DSL. But

for lack of consumer access to DSL and other technologies, companies all up and

down the line—from firms that wanted to deliver video down these pipes to companies that provide the infrastructure—are stumbling and falling, watching their stock

prices plummet, failing at gathering more capital, and filing bankruptcy. Since November 1999, some 25 CLECs have filed for Chapter 11 protection. Copper Mountain, a leading DSL equipment maker, has seen its revenues plummet. In the first

quarter of 2000, its top four customers (NorthPoint, Rhythms, DSL.net and Lucent)

spent over $50 million, but in the first quarter of 2001, the remaining companies

in this group spent only $1 million.

‘‘All this year, victims of the ‘tech wreck’ have been looking furiously for someone

to blame for their huge losses,’’ wrote Ethan H. Hugo of David L. Babson & Co.,

a Cambridge, Mass., investment management firm, in a recent letter to clients.

‘‘Pick your scapegoat . . . greedy Wall Street underwriters and their cheerleading

analysts, even Alan Greenspan. We suggest another culprit . . . the growing pains

and slow adoption of residential high-speed ‘broadband’ Internet access. This is the

business factor that has been causing so many shattered dreams in tech-land.’’

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And the problem is not merely declining stock prices and unemployment in the

telecom and Internet sector. The problem is the overall decline in the U.S. economy—from a Gross Domestic Product growth rate, in annual terms, of more than

5 percent a year ago to barely 1 percent today. One of the preliminary results of

the Glassman-Hassett-Lehr studies is that a key contributor to the slowdown in the

U.S. economy is the slowdown in the dissemination of broadband.

The Bottleneck That Has Held Up Deployment

What is holding up the deployment of broadband? The answer to that question

is not difficult to discern: There is a bottleneck at the ‘‘last mile’’—at the local connection between high-speed long-distance data lines and the homes and small businesses of America. The Telecommunications Act of 1996 was supposed to loosen that

bottleneck and at the same time spread the blessings of consumer choice and competition throughout the telecom system.

The idea behind the act was a sound one: The extensive local networks owned by

the Bells had been built over decades and represented billions of dollars in sunk

investments, much of which had been subsidized by a variety of implicit and explicit

public-subsidy mechanisms. In the face of an entrenched and uncooperative monopolist, local competition faced barriers to entry that were simply too high, outside of

a few major metropolitan areas. Without being able to interconnect to the incumbent’s local access facilities on an equivalent, non-discriminatory basis, a CLEC was

unable to offer a competitive product to establish itself in the marketplace. So, the

Telecom Act of 1996 mandated that the Bells unbundle their networks and provide

resale of all retail services at non-discriminatory, cost-based wholesale rates and

that they also negotiate interconnection agreements for reciprocal traffic.

Of course, the Bells had a huge incentive to be uncooperative. They didn’t want

the competition. The Act provided a carrot: open up your local networks to competitors sufficiently and, on a state by state basis, you will be granted interLATA relief—that is, you will be allowed into long distance. This was a sensible deal for all

parties and a good way to move toward what Congress and the president wanted:

deregulation and the benefits—in lower prices, higher quality and broader dissemination—that competition had already provided in long distance and equipment markets, which the Bell System monopolized before its structural separation in 1984.

The Birth of an Industry

The Telecommunications Act of 1996 produced the birth of an industry—the

CLECs. Some 300 companies exploded onto the scene, and investment in telecom

infrastructure soared. Bells, which had kept DSL technology on the shelf for 10

years, suddenly began to deploy it in the face of competition, cutting prices to lure

customers. ‘‘The Bells are not known for their competitive vigor,’’ said an editorial

in Business Week. ‘‘Indeed it was only competition from new companies that

spurred them to start.’’ But despite that encouraging beginning, the Act has not provided the results that

were envisioned. The incumbent carriers—the seven regional Bells plus GTE—have

now become just four companies through remonopolization. They’re now called,

aptly, ‘‘mega-Bells’’ by the media. They serve 95 percent of the U.S. small business

and consumer market and own 91.5 percent of all lines in the country. In only five

of the 50 states have these Bell companies complied with the act to the extent that

they have been permitted into long distance. The Bell monopolies were fined over $370 million in 2000 for anti-competitive

business practices, service problems and failure to live up to legal obligations. At

every stage along the way, the Bells sought to overturn or weaken the pro-competitive provisions of the Act. They immediately appealed the FCC’s first order establishing the economic standard to be used to set cost-based rules for unbundled elements on the grounds that the commission had overstepped its jurisdiction. The

lawsuits and the foot-dragging continued. Wrote Mr. Rose in Wired: ‘‘The Telecommunications Act of 1996, which was intended to end the Bells’ monopoly on local

lines and transform the industry into a competitive free-for-all, has proved toothless.’’

Immediate Entry Into the ‘Good’ Part of Long Distance

An obvious remedy, therefore, would be to give the Act some teeth. Instead, HR

1542 proposes the exact opposite course. Incredibly, it removes the one incentive— in the absence of tough enforcement—that can encourage the Bells to open up their

local networks to competition. That incentive, of course, is long-distance authorization. Let me again quote Mr. Rose of Wired magazine:

‘‘The Bells’ goal is to satisfy their customers’ telecom needs in one package. But,

so far, they’ve been allowed to offer long distance in only four [now five] states . . .

because they haven’t met the criteria set out in the Telecom Act. So while they stall

23

on the local loop, the Bells have lobbied Congress to give them long distance anyway—not long distance voice, which is no longer a fast-growing market, but long

distance data services, which are exploding.’’ In fact, according to Telcordia Technologies, data represents about 75 percent of all network traffic, up from 50 percent

in 1998. By 2004, data will be nine-tenths of traffic, voice just one-tenth.

As an editorial in the Los Angeles Times on April 27 stated: ‘‘The 1996 Telecommunications Act, meant to bring competition into local phone service, clearly

hasn’t delivered. Most consumers have no choice but to pay high prices. Reps. W.J.

(Billy) Tauzin (R-La.) and John D. Dingell (D-Mich.) say they intend to fix this by

allowing the Baby Bells into the long-distance DSL business while keeping their

local-service monopoly. It is a proposal without logic. The change would only

strengthen the Bells’ chokehold on local service and remove any incentive to compete and innovate.’’

Think of long distance as the carrot—the only enticement, really—to get a donkey

to move in the right direction, that is, for the Bells to act in a way that enhances

competition and helps consumers. Think of HR 1542 as a law that orders the carrot

to be fed to the donkey. The law, then, will stop the donkey in its tracks, that is,

end the chances for competition that will help consumers.

Already, it should be noted, there are no regulatory impediments to the deployment of DSL by the incumbent Bells. Indeed, they are already deploying DSL—

without the Tauzin-Dingell bill. SBC, to name just one Bell company, announced it

is spending more than $6 billion on ‘‘Project Pronto,’’ a program to get DSL to millions of customers. BellSouth’s Duane Ackerman has stated that his company ‘‘invested $33 billion . . . during the 1990s’’ and that it expects ‘‘total DSL revenue of

approximately $225 million this year and $500 million in 2002. Mr. Ackerman, at

a Salomon Smith Barney conference in January 2001, admitted that the regulatory

challenges BellSouth is facing ‘‘are unlikely to slow down the momentum of the marketplace.’’

By letting the Bells immediately into long distance as a way of speeding

broadband to consumers, the bill tries to solve a problem that doesn’t exist: the

Bells can already get broadband to consumers.

The Bill Turns Back the Clock to Before a Key Supreme Court Decision

But the bill is even worse.

It would overturn several FCC decisions since January 1, 1999, that give CLECs

access to the network elements necessary to provide consumers with advanced communications services. Under the FCC’s existing rules, the incumbent Bells are generally not required to share packet-switching equipment used for advanced services.

The bill would expand this exemption to cover any network elements identified as

essential to competition since January 1999, to the extent they are used to provide

advanced services. The January 1999 date is significant. It was in January 1999

that the U.S. Supreme Court ruled decisively against the incumbents’ challenges to

the FCC’s unbundling rules and upheld the FCC’s authority to specify which network elements should be available to competitors. Subsequently, using the ‘‘necessary and impair’’ standard in the 1996 Act, as the Supreme Court required, the

FCC added to the list of network elements that incumbents must make available

for purchase.

HR 1542 rolls back the clock by fixing the list of network elements as of January

1, 1999—before the Supreme Court remanded the list to the FCC and before the

FCC revised it as the Supreme Court directed. In effect, the bill hands the incumbent Bells the victory decisively rejected by the Supreme Court and rewards them

for their refusal to comply with the requirements of the 1996 Act.

As the incumbents update their networks and replace more and more of their copper facilities with fiber optics to deliver high-speed services as well as basic voice,

an increasing portion of those networks will become inaccessible to competitors. Ultimately, there could be little, if anything, left of the statutory mandate for the incumbents to give competitors access to unbundled network elements—even loops,

which are the critical ‘‘last mile’’ that competitors simply cannot do without.

In essence, the bill would effectively close the most significant door to competition

under the Act by enabling incumbent carriers to avoid the fundamental obligation

to open up their networks to new entrants. In a direct reversal of the requirements

of the 1996 Act, it would preserve, exclusively for the incumbent carriers, the economies of scale, scope and density that they have built on the backs of the ratepayers

Study Shows That Just Consideration of Bill Impairs Capital

HR 1542 and its predecessor, HR 2420 last year, are so clearly destructive of potential competition that that the very progress of the bill itself has done terrible

damage to the market capitalization of CLECs. In our research, we conducted what

24

are called ‘‘event studies,’’ looking at the market-price response to specific events

that improved potential for passage of the Tauzin-Dingell bill or its earlier siblings.

We found that CLEC prices fell significantly and repeatedly on those occasions, providing empirical evidence (as if any were needed) that markets believe that HR 1542

will destroy, not just competition, but competitors.

All of us in this room are aware of the decline in stock prices since the spring

of 2000. Between March 1, 2000, and April 30, 2001, the Standard & Poor’s 500-

Stock Index, the prime benchmark for the U.S. market as a whole, fell 9 percent,

and the PSE Technology Index fell 35 percent. But our research found that an index

of CLECs fell more than 80 percent. Remarkably, we discovered that almost half

of that decline was concentrated in the handful of days when the market learned

that this bill or its predecessor was more likely to pass. A rich academic literature

shows that capital investment for companies and sectors is tied to the direction and

extent of market capitalization. We can expect, then, to see a sharp decline—probably in the 80-percent range—in capital investment by CLECs in the near future.

This decline has already begun, with capital investment by all telecommunications

companies falling in the first quarter of 2001 compared with a year earlier. It can

only be reversed by wiping out the possibility of passage of a bill such as HR 1542.

This is my main concern. What I care about is the U.S. economy and the standard

of living of average Americans, and what I know is that competition and deregulation produce better results than monopoly and regulation. This bill kills competition

by killing competitors, and it will lead to more regulation, not less.

William Kennard, who served as FCC chairman from 1997 until early this year,

called HR 1542 ‘‘a prescription for disaster. . . . You’d be telling Americans, ‘Forget

about having competitive choice for DSL service—We’re going to give it to the incumbent monopolists.’’ ’ He also said, ‘‘This bill moves us 180 degrees in the wrong

direction.’’ Reed Hundt, who served as FCC chairman from 1993 to 1997, explains

why capital has dried up for the competitors. ‘‘Investors no longer know the direction of policy,’’ he told Bloomberg Business News recently. ‘‘They no longer know

what to bet on so they are taking their money off the table.’’

The high level of uncertainty introduced simply by Congressional consideration of

HR 1542 is exactly the type of force that squashes investment. Moreover, it raises

the possibility that the Bell monopolies are purposefully lobbying heavily for bills

such as this one because they are well aware that uncertainty about those changes

can itself accomplish the job of slowing CLEC investment. Because of their smaller

size and greater need for financial resources, CLECs suffer disproportionately when

regulatory uncertainty contributes to raising the costs for financial capital. That is

one of the preliminary conclusions of our study, but common sense would indicate

its truth.

Fundamental Question: Trust the Monopolist? Or Trust Competition?

Mr. Chairman and members of the committee, the stakes are extremely high. The

rise of the Internet, e-commerce, and the Bell mega-mergers have changed the communications landscape since the passage of the Telecommunications Act of 1996.

The principle behind the act was sound. But it was flawed. As Nicholas Economides,

a New York University economist, has said, ‘‘It didn’t have the deadlines and punishments to make people do what they were supposed to do.’’ Two bills introduced

by Reps. Cannon and Conyers and their colleagues, HR 1697 and HR 1698, help

enforce the Telecom Act through a reaffirmation of antitrust policy.

This hearing poses a fundamental question. What is the best way to accelerate

the deployment of broadband technology? The Bells say that if you will relieve them

of competitive pressures, they will roll out broadband faster. This is a paternalistic

game that might be called, ‘‘Trust the Monopolist.’’ Just give us back our monopoly

power, and we will work wonders.

Nonsense. Competition, not monopoly, offers a far better guarantee that new technology reaches all Americans. Time and again, Congress and the president—across

partisan lines—have trusted competition. And it has been the right course. The

order to break up the Bell System in 1984 was an action that trusted competition—

and prices fell and quality rose. Again, in 1996, Congress decided to trust competition, and it was right. This bill would undo that decision and would instead trust

monopolies. That it why it is wrong.

The bill will do great damage to the economy and to consumers. In fact, it already

has. It is time to reject a course that turns back the clock and hurts all Americans.

Thank you.

Chairman SENSENBRENNER. The Chair will enforce the 5-minute

rule on Members, and Members will be recognized alternately on

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each side of the aisle in the order in which they appeared at the

beginning of the hearing. So I will recognize myself for 5 minutes.

Mr. Tauke, are you familiar with the decision of the U.S. Court

of Appeals in the Seventh Circuit in the case of Goldwasser v.

Ameritech?

Mr. TAUKE. Mr. Chairman, I am familiar with it, not as familiar

as my legal counsel, Mr. Barr, who testified at the last hearing.

Chairman SENSENBRENNER. Do you think that decision was correctly decided?

Mr. TAUKE. I believe, as he testified, that the decision, at least

as we understand it, was——. Chairman SENSENBRENNER. Move your microphone a little bit

closer.

Mr. TAUKE. The decision, as we understand the decision—and I

understand that there is some difference of interpretation—was essentially correctly decided. As we understand the decision, it merely indicated that a violation of the Telecom Act of 1996 is not necessarily a violation of the antitrust laws. However, the antitrust

laws as they stood before the ’96 Telecom Act remain in place

today, and we are subject to them.

Chairman SENSENBRENNER. I don’t agree with you, and I don’t

agree with Mr. Barr. It seems to me that what the Seventh Circuit

decided was that the antitrust savings clause in the Telecom Act

of 1996 did not apply to section 271 applications by Baby Bells, or

RBOCs, into the long distance and broadband market.

Now, assuming for the sake of argument that is a correct interpretation of the decision, do you think that an RBOC should effectively have an antitrust exemption in this market, while everyone

that the RBOC competes with is subject to the antitrust laws as

they are written?

Mr. TAUKE. I believe that our view is that we should—we are

subject to the antitrust laws, and we do not anticipate that the passage of this legislation would alter that; that the savings clause of

the ’96 act was not overturned by Goldwasser.

You obviously have a differing view. We don’t see it that way,

and we believe that the passage of this legislation would not exempt us from application of the antitrust laws.

Chairman SENSENBRENNER. Would you support an amendment

to the Tauzin-Dingell bill that would clarify this confusion on what

the Goldwasser holding was, to ensure that the antitrust laws were

applied equally to an RBOC entry into the broadband market, as

to a competitor who is not an RBOC.

Mr. TAUKE. From a policy perspective, I believe we are not trying

to get out from under the antitrust laws and believe that they do

apply and do not object that they apply to our company. And so,

from a general policy perspective, I don’t believe there is an objection. Obviously, we would want to see the wording of any amendment before making a judgment.

Chairman SENSENBRENNER. Thank you.

The gentleman from Michigan, Mr. Conyers.

Mr. CONYERS. Thank you, Mr. Chairman. I want to congratulate

the witnesses for joining us here today.

We are in a situation here in this Committee, and this hearing

is very important because if we send a strong message to the ConVerDate 11-MAY-2000 11:43 Sep 28, 2001 Jkt 000000 PO 00000 Frm 00029 Fmt 6633 Sfmt 6601 G:\WORK\FULL\060501\72979.000 HJUD2 PsN: HJUD2
26

gress that the game is up here and that we are not going to allow

the Telecommunications Act of ’96 to be rooted out.

As the Bells, in an extremely aggressive move—they’ve been so

profitable that they’re combining with each other now. They’re getting stronger and more powerful, and yet they’re claiming we can’t

get out to the rural areas. I mean, it’s really tough. We wish we

could. We need more power. We need to knock long distance out

even further so that we can really take over this thing completely,

and then we’ll get you service.

And so I come here slightly stunned at the nerve of companies

that control typically 96 to 98 percent of the residential lines, over

90 percent of the business lines, and they say, we need more. I

mean, it looks like you Bells would be tiptoeing around, hoping

that nobody calls you to task or that an oversight committee like

Judiciary doesn’t step in.

But no, you bring legislation forward that says, give us more. It’s

not that we’ve kept out of long distance, we are making huge profits. We are merging with each other, we are so successful, but that

isn’t quite enough.

And so I come here, hoping that through all of this very important and technical presentation that we are giving, we are being

given, that the truth will come out very clearly to all of the Members. I commend the Chairman for these hearings. I think they’re

critical.

Now, we’ve got this provision in here that talks about the buildout. H.R. 1542 requires the Bells to provide broadband services to

underserved areas within 5 years, but the former Attorney General

of the United States, William Barr, said that Verizon is, quote, ‘‘not

happy with the requirement.’’ In other words, all that you’re getting is still not enough.

The Tauzin-Dingell bill is tough on the Bells, and they want to

strip that provision out, which I think should shock a lot of people.

I’m not going to ask those that represent them whether they will

support the provision. I mean, it would be pretty hard for me to

get that you’d say no in broad daylight. But, you know, we found

out what you think about the Telecommunications Act after we

signed it and touted it that it would create competition, we find out

where we are now.

And then there’s another little piece called a State preemption in

which we just excuse public utility commissions, all of whom oppose H.R. 1542, and whose job it is to protect consumer interests,

not to mention all the other consumer organizations that are dead

set against it; plus a whole host of new industries that have been

created by the Telecommunications Act, that they would be given

the death knell has already been carefully explained.

So what do you think of that?

Well, I don’t have much time, Mr. Chairman.

The CHAIRMAN. Four seconds to be precise.

Mr. CONYERS. You’re overgenerous today, as usual.

Chairman SENSENBRENNER. The time of the gentleman has expired.

Mr. CONYERS. Thank you very much.

Chairman SENSENBRENNER. The gentleman from California, Mr.

Issa.

27

Mr. ISSA. Thank you very much, Mr. Chairman, and thank you

for holding these hearings. I must say that I’d like an answer to

that last question if there is time left at the end of my time.

But I guess my first question would be for Mr. Tauke and Ms.

Greene. If this is such a good idea, why is it that every PUC, especially in my case, California’s, has opposed this bill? If you could

give me a short answer that maybe I could understand——. Mr. TAUKE. I think, Congressman, that the simple—first of all,

every PUC, I do not believe, does oppose the legislation; but secondly, a number of them do, and it’s not surprising. Whenever Congress begins to take power away from regulators, regulators always

fight for their jurisdiction, and that’s essentially what’s happening

here.

But there is a worldwide Internet without boundaries, and trying

to regulate it on a State-by-State basis is virtually impossible, and

certainly a policy that seeks to do that would be very difficult to

enforce.

Mr. ISSA. That’s a fair answer.

Ms. Greene.

Ms. GREENE. I think there is another factor here, and that is

that mixed metaphor that has happened in the discussions we have

been having so far today.

H.R. 1542 does not change in any way the ’96 Telecom Act as it

applies to traditional telephone plants. What we are talking about

in H.R. 1542 is a broadband plant, a new plant that will have to

be built; and it’s being built today. That plant is not built in a monopoly environment. That plant is built where we have four existing technologies as the service platform. And one of those cable

companies already enjoys over a 70 percent market share.

Mr. ISSA. Okay. I appreciate that. Thank you for the answer to

the question.

Maybe to help you get into the next question, as you may or may

not know, I just came from the private sector; and in my own company, less than 3 miles away from a central station, I requested a

DSL and a T-1. And the DSL, had it been deliverable, never quite

got the reason it wasn’t deliverable, and ran out of time. But had

it been deliverable, since it was qualified and it was technically

within a CLEC rollout area, would have been—and this is for, you

know, one MIP plus T-1 speed—it would have been $200 and some

with fixed IPs. My T-1 in my previous building and in my next

building had been $1,000, and then we were able to contractually

get it down to slightly less than $800.

What I’m not sure I understand is, you know, I’m hearing about

all this competitiveness that is already available. My T-1s predate

the 1996 Telecommunications Act. I’m concerned that, in fact, the

Bells have not had real competition in data that existed prior to

that time that, in theory, I have to accept that the 1996 act intended to open competition for.

Can one of you from the Bell side answer that?

Ms. GREENE. Well, I’m not sure that I understand exactly what

you’re asking, but the only thing that I would say is that nothing

in Tauzin-Dingell would change in any way the CLECs’ access and

competitors’ access to that plant. You still have open access; it’s

just a matter of price.

28

Mr. ISSA. And if that’s the case, then would you accept that Tauzin-Dingell would have an enactment date of 1996 or 1999, some

date that would be prior to court decisions?

Ms. GREENE. I think what Tauzin-Dingell has, what it attempts

to do is to draw a line between plant that was subject to

unbundling by regulators prior to 1999, and then plant that was

subject to unbundling by regulators post-1999. So I think the act

already tries to strike the compromise that your question is implying.

Mr. ISSA. Tom, did you have a different answer?

Mr. TAUKE. No, I think that is essentially the correct answer.

But there really is only one small area that the act changes in the

local marketplace and that is line sharing over loops that contain

fiber. The loop is from the central office to the home and it’s only

those that have fiber where line sharing would be restricted.

Mr. ISSA. Thank you. Reclaiming what little time is left, just see

if I can summarize this.

If I understand correctly, what Tauzin-Dingell really wants to

say is that the next level of technology, something that existed

prior to 1996, but was not rolled out, when it’s rolled out will take

the deregulation of 1996 and undo it because we will then be rolling out over fiber rather than twisted pair and have the potential

for higher speeds.

If that is correct, then aren’t you asking——. Chairman SENSENBRENNER. The gentleman’s time has expired.

Mr. ISSA.—a reregulated monopoly. Thank you, Mr. Chairman.

Chairman SENSENBRENNER. The gentleman from Virginia, Mr.

Scott.

Mr. SCOTT. Thank you, Mr. Chairman.

Mr. Glassman, our summary shows—and I think you have referred to this—that H.R. 1542 would eliminate the 1996 act’s requirements that the Bell Companies share their phone networks

through unbundled network elements and resale with their competitors. The bill does this by rolling back regulations relating to

unbundled access that the FCC issued after January 1, 1999. From

a practical impact—and maybe Mr. McLeod might want to answer

this too—exactly how does that disadvantage competition from a

practical perspective? What does it do?

Mr. GLASSMAN. I will defer to Mr. McLeod, if you would like to

talk about the technical aspects of it. But the point is that what

we will find is that the—is, basically the incentives for the Bells

to cooperate in opening their networks will vanish, will vanish as

a result of H.R. 1542.

Mr. SCOTT. Mr. McLeod, you indicated that you only had 8 percent. How would that make your ability to get into the market better or worse from a competitive point of view?

Mr. MCLEOD. We don’t have 8 percent. The combination of all

long distance companies, all CLECs, after 5 years of competing

have now, according to the FCC, captured a 5 percent share of the

local market.

The act envisioned that competitive companies would have access

to the network, and looking forward to advances in the network

through the pricing that was put forward, it did envision fiber. In

fact, there was a great deal of fiber in the Bell networks in 1996.

29

Mr. SCOTT. If the bill passes, what will that do to your ability

to get into the market? From a practical point of view, how will it

stop you from getting into the market?

Mr. MCLEOD. It restricts us from using the local loop in certain

ways at certain times.

Mr. SCOTT. Like what?

Mr. MCLEOD. When a line is a combination of fiber and copper,

there is restriction on our access to that loop. And in reality—— . Mr. SCOTT. Are there homes you can’t get into if this were to

pass?

Mr. MCLEOD. Yes, there are.

Mr. SCOTT. How would that keep you out of the home?

Mr. MCLEOD. Because the network becomes, over time, a hybrid

which it is today a hybrid fiber/copper network. We are having a

hard time getting access today to the network where we are supposed to have total access. And now we are injecting some new

technology.

This is not new technology. We have had DSL around and we

have had fiber around for a long time.

Mr. SCOTT. Let me ask this a different way. If I called your firm

and said I wanted your firm to service my house, how would the

passage of this bill prevent you from serving my house?

Mr. MCLEOD. It may or may not, depending on the plant serving

your house. We would do a qualifications of the line service to your

house to determine whether or not facilities would be made available from the telephone company to us to service the house, unless

we did a direct bill to your house.

Mr. TAUKE. Mr. Scott, the fact of life is, if this legislation passes

every local loop, whether it contains fiber in it or does not contain

fiber in it, must be resold on an unbundled network element basis

to any competitor.

Secondly, every competitor has to purchase any service that we

offer over that local loop on a wholesale basis for retail. So there

are two ways the competitor can get to every home in America.

The only thing this bill does is to say one methodology that is

currently available and used very sparingly—parenthetically, by

competitors, the line-sharing methodology where you split the copper in two—and you have one carrier offer the voice service over

the copper and a second carrier offer DSL service over the copper.

That would not be required when there is fiber.

Why wouldn’t it be required? Because we don’t know how to do

it. So if you don’t lift that requirement on fiber in the local loop,

then you cannot deploy fiber in the local loop and that means a diminishment in the availability of high-speed data services.

Mr. SCOTT. Thank you, Mr. Chairman.

Chairman SENSENBRENNER. The gentleman’s time has expired.

The gentleman from Florida, Mr. Keller.

Mr. KELLER. Thank you, Mr. Chairman. My primary concern in

this debate—in fact, my sole concern, frankly—is to try to get to

the bottom of what is going to be best for consumers here.

Now, the long distance companies say if that is the sole criterion,

at least it is for me, then we should vote no on Tauzin-Dingell.

They say that, as evidence, look at what happened since AT&T

30

broke up; the long distance rates went down and the local rates

continue to go up.

The same question—the local Bell Companies say if that is the

criterion, best for consumers, we should vote yes because they are

in a far better position to deploy broadband, particularly to the

rural areas.

I want to give Mr. McLeod and Ms. Greene a crack at that issue.

Mr. McLeod, take a minute or two and just explain to me in terms

of the bottom line why voting no on Tauzin-Dingell is best for consumers.

Mr. MCLEOD. Voting no means voting no to, in effect, allowing

the Bell Companies into interLATA services before they open up

their local network. The ’96 act requires that they open their network, the section 271 checklist; and once that’s done, the Bells are

free to provide any kind of services they choose to.

Now that’s the name of the act. We are 5 years into it. And we

have about 10 percent compliance, about 5 States out of 50. So anything that undercuts the ’96 act, like allowing a major provision,

interLATA services to be open, is lessening the impact of the ’96

act.

Second, there are restrictions to our ability to use the local network in the Tauzin bill. There are restrictions placed on the speeds

with which we can access these networks. And so there are two

places where we have restraint to competition, which means less

choice for consumers.

Mr. KELLER. Ms. Greene.

Ms. GREENE. I would actually agree with the last statement that

he made in that what’s in the best interest of consumers is the

maximum possible competitive choices.

What we are talking about in a broadband network is a technology or a service that is delivered by four different technologies— cable, which has a 70 percent market share; satellite; wireless; and

then land line telephone companies. We currently have about a 25

to 30 percent market share. And if you’re going to have robust and

meaningful competition for cable and wireless broadband, you need

to allow us into that market with clear signals that if we invest in

that market, we’ll be able to recapture our investment.

Just one point that I’d like to address, though. You said in your

opening statement that the inter-exchange carriers talk constantly

about residential rates going up and long distance rates going

down. In fact, residential rates for basic service have been frozen

for well over a decade and there has been no increase in that price.

Part of why I went through those numbers at the beginning was

to show the distortion that we currently have in the regulatory

pricing, which is also a disincentive to consumers.

Mr. KELLER. Thank you.

Mr. Glassman, what is your opinion about the impact to consumers that this bill would have?

Mr. GLASSMAN. I think that the best way to serve consumers always is through robust competition. Competition drives down

prices and increases quality.

What this bill does is, it limits competition. We already have that

problem. The CLECs, which started off with such high hopes in

1996 as a result of this act, 300 of them starting are now on the

31

ropes. Why? Because the Telecom Act basically has not been enforced. There has been foot-dragging, there have been lawsuits, so

these companies are going out of business.

This bill, the Tauzin-Dingell bill, removes the only incentive that

the Bells have to open up and to allow the CLECs connection to

the last mile that allows them to live.

They’re going to die. You’re not going to have any competition.

And without competition, basically consumers are left with no

choice except perhaps the choices that this Congress would mandate on the Bells, telling them, you have to deploy by this time, you

have to do this, you have to do that.

That’s basically the way we ran telecommunications prior to

1984, and I don’t think we want to go back to that date.

Mr. GLASSMAN. So what we need is to promote competition, and

that is not what the Tauzin-Dingell bill does.

Mr. KELLER. I yield back, Mr. Chairman.

Chairman SENSENBRENNER. The gentleman’s time has expired.

Gentlewoman from Wisconsin, Ms. Baldwin.

Ms. BALDWIN. Thank you, Mr. Chairman.

We were reminded by our Chairman earlier that our special role

as a Member of this Committee is to look at the particular aspects

of this bill that narrow the purview of the Attorney General under

section 271 of the Communications Act of 1934, but each of us also

comes to this Committee with another role which is as Members

of Congress representing our specific districts and like Mr. Keller,

who questioned the witnesses just a moment ago, that’s a role that

I’m very clear on.

In my case, I represent the Second Congressional District of Wisconsin, a district that is approximately one-third urban, one-third

suburban and one-third rural; and last year I had a chance to meet

with an array of constituents from Dodgeville, Wisconsin.

Dodgeville, Wisconsin, is in Iowa County, a county of about 23,000

constituents; and Dodgeville’s the biggest city in that county. It’s

sort of anchor businesses, lands and corporations—I hope everybody in this room has heard of it—an employer year round of about

three, four thousand individuals and seasonally many more, many

of whom are members of farm families trying to bring in extra income in the struggling economy.

But also at this meeting in Dodgeville, aside from the CEO of

Lands End, were a public health nurse, a librarian at the

Dodgeville library, the owner of a lumber store, the head of the

Dodgeville Chamber of Commerce, a farmer by the name of Michael Gingrich who was a dairy farmer. He buys grain over the

Internet and also was about to get involved in a venture to develop

a specialty French cheese that he wanted to market over the Internet. And an individual was also there from the community of

Hillandale, a much smaller community of about 200 population. He

reminded me that they were the last to get electricity in their county, the last to get phone service, and they certainly predict that

they will be the last to get high-speed Internet.

They don’t know what ILECs, CLECs, RBOCs are or anything of

the sort, but they want to know when they are going to be truly

participants in the high-speed Internet arena. That’s what I want

to know; and, like Mr. Keller, I would like to see us thinking about

32

how we set a national policy on deployment of broadband access

and what sort of legislation we need to support to get there.

I would ask each of you on that issue, not talking about competition in local phone service or competition in other arenas but in

competition for broadband service to these individuals, how

would—and each of you in the time remaining please briefly say—

how would passage or defeat of H.R. 1542 help or harm in this situation and specifically who and when do you—who do you think is

going to provide broadband access to Mr. Gingrich or to the librarian or to the public health nurse and when? Go ahead.

Mr. TAUKE. Congresswoman, first, the right model to look at

from a consumer standpoint is what happened in wireless, and I

encourage you to read my written testimony because the wireless

market is very much—of 10 years ago is very much like the

broadband market of today. Lifting the restrictions allowed for an

explosion in the wireless marketplace and a tremendous increase

in the services available to consumers.

I grew up in Dubuque, so I know Dodgeville well, and Dodgeville

is an area that will be served with this legislation because: First,

the regional network that caused Lands End that—wasn’t pleasant

and caused Lands End to move some of its facilities to a larger city

in Wisconsin would be put in by the local Regional Bell Operating

Company presumably; and, secondly, the Rush amendment ensures

they will be billed out of local broadband facilities.

Ms. BALDWIN. Mr. McLeod.

Mr. MCLEOD. Again, this bill is really targeting the Bell companies specifically. So to the markets where the Bell companies are

being served, there’s nothing to restrict Bell companies from providing high-speed services in any of the markets today. They can

do that, and they are doing that, and they’re growing DSL services

faster than anybody else in the marketplace.

So, as far as this bill specifically causing a stimulation in DSL

services in rural cities, if they are presently serving rural cities, the

Bell companies can service those markets with DSL. There is nothing stopping them from doing that. There is nothing stopping them

from putting fiber in; and, in fact, they are aggressively putting

fiber in.

The bottom line, though, is that we need to create an environment where other people can get access to those local lines in these

Bell markets so that competitors, DLECs, CLECs, IXEs can come

in and offer data services on those lines as well, invest in those

lines and provide choice.

Chairman SENSENBRENNER. The gentlewoman’s time has expired.

The gentleman from Utah, Mr. Cannon.

Mr. CANNON. Thank you, Mr. Chairman.

I’d like to ask unanimous consent to submit for the record an article by Mr. Glassman that was printed in the Washington Times.

Chairman SENSENBRENNER. Without objection.

[The information follows:]

33

34

Mr. CANNON. Also, a chart showing the difference in increase and

decrease in prices for local and long distance service since the

breakup of AT&T.

Chairman SENSENBRENNER. Also without objection.

[The information follows:]

35

Mr. CANNON. Also, various letters from local—or State public

utilities commissions to various Congressmen.

Chairman SENSENBRENNER. Without objection.

[The information follows:]

36

37

38

39

40

41

42

43

44

45

46

47

Mr. CANNON. Thank you.

Mr. McLeod, if I could ask you a particular question? I was talking with a—some young entrepreneurs who have a high-tech company that depends on Internet access and you are their service provider. I raise it because they need consistent high-speed access and

have had a terrible time with it. In addition to that, they have been

double-billed by your company and the local RBOC. The erratic

service, after much time and attention, turns out to be a defective

switch at the RBOC side of things. And my understanding—I don’t

recall the numbers exactly, but they either wrote off $5,000 of an

$8,000 bill or maybe they wrote off the whole—that is, your company wrote off the whole $8,000 bill because their service was not

acceptable during that period of time. Is this typical of your experience with RBOCs around the country where you operate?

Mr. MCLEOD. We would find error rates in providing services in

the 15, 20, 25, 30 percent range in filling orders. Okay? So if there

is an error in filling an order, as we’re proposing here, then we

must go——.

Mr. CANNON. This is over like a 6 or 8 month period of time. So

these people had problems for 6 or 8 months.

Mr. MCLEOD. Yeah. And those are the kinds of problems we will

spend thousands of dollars trying to rectify. So an error that comes

through a Bell facility, covered in their payments by us, while the

Bell companies are making money on our payments to them, we

are spending thousands of dollars trying to make good and hold on

to a customer like that.

Mr. CANNON. And writing off the billing that you would otherwise receive.

Mr. MCLEOD. And writing off the billing because we don’t really

have equal access to the network. The Bell companies provide us

one quality of service, and they provide their own customers a different quality of service.

48

Mr. CANNON. Mr. Glassman, could I ask you, it seems to me the

real problem here is incentives, that if you have incentive to—if

quality pays for itself, then you will want to have—qualify if you’re

an RBOC except as it relates to your competitor. Do you think this

is a problem?

Mr. GLASSMAN. Yeah. I think it’s a massive problem. Essentially,

the Telecommunications Act of 1996, which I think is a good framework for the kind of broadband dissemination we need, had some

flaws, and one of the flaws was it really didn’t have any teeth. Instead, it simply offered an incentive to the Bells. If you do this, you

can get into long distance. But they also had incentives on the

other side to cause problems for people like Mr. McLeod’s business.

If they can cause problems for a long, long time, as they have been

doing, then eventually these companies, the ones that are not as

financially stable as Mr. McLeod’s, go out of business. And now, to

compound things, they have asked for this other bill which lets

them immediately into long distance.

Mr. CANNON. Let me shift gears, if you don’t mind, Mr. Glassman, and ask another question.

I was talking with an executive from the industry about the

value of these companies—you indicated that their stock market

valuation has plummeted and—about who would be buying those

companies and why. And the answer is nobody is going to buy

these companies even at their highly depressed prices as long as

you have got the Tauzin-Dingell bill hanging over the head of the

industry, because they could be valueless.

Mr. GLASSMAN. Absolutely. These companies still have a market cap, the way we define the companies anyway, of about $40 billion

today, down from $200 billion. Big decline. But there’re still assets

there, there’s still value there, and that value is rapidly diminishing as a result of this bill. If this bill passes, the value is going

to be close to zero. Think about it. If you’re an investor, if you’re

a lender or somebody who wants to commit equity to a CLEC, you

have to be out of your mind today with this bill hanging over the

industry. You would be nuts.

Mr. CANNON. That’s essentially what you said.

May I ask one final question of Ms. Greene? You pointed out that

70 percent of this industry is dominated by cable and only 30 percent by DSL, the RBOCs. Isn’t it true that only about 7 percent of

the people have access to broadband today? So you’re talking about

70 percent and 30 percent of only 7 percent, isn’t that right?

Ms. GREENE. Only 7 percent in total have access?

Mr. CANNON. Only 7 percent of the people around the country

today have access today to broadband.

Ms. GREENE. I would think that it is different in every service

territory. In BellSouth service territory, we will have 70 percent of

the households that we pass eligible for DSL lines by the end of

next year; and so we are making a concerted effort to get DSL

available and roll out our technology.

Chairman SENSENBRENNER. The time of the gentleman has expired.

The gentleman from Massachusetts, Mr. Delahunt.

Mr. DELAHUNT. Thank you, Mr. Chairman; and I yield for as

much time as he may need to the Ranking Member, Mr. Conyers.

49

Mr. CONYERS. I thank you, Mr. Delahunt.

I just want to clear up an important question that Congressman

Scott raised with our former colleague in which it was not made

perfectly clear that, under this bill before us, the section 271, we

would be providing voice telephone service under Tauzin-Dingell

but not data service. Mr. Tauke said yes to both, and this is the

huge—here’s the $64,000 question that just got slipped through

here. It does not include data, and that’s where the market’s going,

right?

Thank you for yielding.

Mr. DELAHUNT. I think maybe Mr. Tauke would like to respond,

but I don’t think I have the time to allow him to do that.

Mr. Tauke, you indicated earlier that, with the PUCs, their inclination to oppose Tauzin-Dingell was predicated, in your opinion, on

loss of jurisdiction. Now, you’ve heard other colleagues here speak

to the issue of the consumer. Now, Consumer Federation of America, Consumer Union—these are legitimate consumer organizations, and they’re highly regarded by Members on both sides—are

both opposed to Tauzin-Dingell. Is their analysis in terms of the

impact on the consumer inaccurate? How do you account for their

opposition and its impact to the consumer?

Mr. TAUKE. Yes, in simple terms, I think their analysis is wrong.

There has been a lot of faulty analysis relating to this bill; and,

frankly, I think there has been quite a bit of that today. There are

other groups such as the NAACP, the League of United Latin

American Citizens, Alliance for Public Technology——.

Mr. DELAHUNT. Sir, you have answered my question. I appreciate

that. But in terms of the consumer interest, these are groups that

have for a long period of time existed and analyzed various proposals before Congress regarding impact on consumers.

Mr. TAUKE. And they opposed the ’96 act, too. They have traditionally opposed any change in telephony regulation.

Mr. DELAHUNT. All right. Again—and I would go back just to

pursue the point by Mr. Cannon. I mean, I think the point that Mr.

Glassman is making—and I’ll presume that his data is accurate

and maybe you can expand on that—but while Tauzin-Dingell is

kicking around here in Congress, it is having an impact in terms

of capital access, and uncertainty we know the financial markets

do not embrace and, in fact, run away from.

Mr. McLeod, you—as someone that’s in the business, do you have

any anecdotal information? In your own experience when you go to

a bank, are they saying to you, gee, Mr. McLeod, we’d like to help,

but what is Congress going to do in terms of Tauzin-Dingell? Are

you aware in your own experience or any of your competitors finding access to capital substantially impaired?

Mr. MCLEOD. Yeah. I think the handwriting is pretty simple to

read. I don’t think I have to hunt very far for examples of this.

When you see the industry and the capital being shut off you know

that the markets have weighed in and said, look, we set up the

rurals in 1996. This bill——.

Mr. DELAHUNT. Mr. McLeod, my question is, have you run into

that experience? Are you aware of anybody that has gone down

seeking capital and it just isn’t working?

50

Mr. MCLEOD. Yes. I have spoken to people on Wall Street who

will specifically talk to a bill like H.R. 1542 and say if we go in this

direction are we just remonopolizing the marketplace. So that

is——

Mr. DELAHUNT. Mr. Glassman.

Mr. GLASSMAN. We’ve had three dozen CLECs in chapter 11, and

lots of them are ready to go in. Let me just quote Reed Hunt,

former FCC Chairman: ‘‘Investors no longer know the direction of

policy. They no longer know what to bet on, so they are taking

money off the table.’’ Mr. DELAHUNT. Thank you.

Chairman SENSENBRENNER. The gentleman’s time has expired.

The gentleman from Alabama, Mr. Bachus.

Mr. BACHUS. I thank the Chairman.

One of the reasons we are here today is to talk about the antitrust provisions of this and the—what is it called? Goldwasser case,

is that how you pronounce it? Now, it’s my understanding today— I mean, not understanding. When you want to pass a rate or a tariff you go to the regulatory agency and you get that approved. Does

everybody on the panel agree with that?

Mr. TAUKE. Yes.

Mr. BACHUS. You file for it and you get it approved? And once

that’s approved, then you don’t have to defend it against the tariff.

You don’t have to defend that against an antitrust action, a collateral attack by a customer; and that’s true, isn’t it?

Mr. TAUKE. Yes.

Mr. MCLEOD. Well, the rates for services are still being questioned all the way to the Supreme Court today.

Mr. BACHUS. Well, they’re being questioned. But now there’s— we’ve had a doctrine—and I graduated—I was outstanding senior

at a pretty good law school, and we were taught that if you go to— and I only say that because, you know, we were taught then and

I think I mastered it that if you go to a rate agency and you get— you file and you get a tariff approved, then a customer can’t go in

and collaterally attack that. Isn’t that the doctrine we’ve had

since—what is that case? Chicago Northwestern is the defendant,

wasn’t that right? Hasn’t that been the law since 1922?

Mr. TAUKE. That is what I understand the law to be.

Mr. BACHUS. And it was affirmed in the AT&T case just recently,

wasn’t there, 1998, by the Supreme Court? Now, does anybody disagree with that doctrine, that if you go to an agency and you get

a rate or a tariff approved that you don’t have to let every customer

go into court and collaterally attack it? Don’t we all agree on that?

Mr. GLASSMAN. Mr. Bachus, I hope my silence doesn’t mean I

agree with it. It’s just that I’m not a lawyer——.

Mr. BACHUS. You talk about companies going broke. If that doctrine came off and you had to defend yourself against every rate

attack by every customer that was disgruntled, there’d be a lot

more companies going——. Mr. MCLEOD. In a monopoly-controlled environment, where rates

are established for a resource, that is, a monopoly resource——. Mr. BACHUS. Right, but what I’m saying, the Circuit Court just

affirmed that doctrine. They affirmed the doctrine in the Keogh

case.

51

Mr. TAUKE. And it’s true not just in monopoly environments. It’s

true in any environment, including long distance marketplaces or

others where tariffs are filed, they aren’t subject to subsequent attack by customers on an antitrust basis.

Mr. BACHUS. You know, I went to read that case thinking it was

some complicated thing, it would be hard to understand, and all

the court did is affirm a doctrine that’s been in existence since

1922, and it’s been affirmed every so often. I mean, that’s my understanding of the case. I mean, I didn’t think it was—I’ll go back

and——.

Mr. MCLEOD. Can I talk practical versus legal for a second?

Mr. BACHUS. Yeah. But I mean it was a legal decision. And it

may have a practical effect, but what I am saying, maybe the court

as a practical matter needs to say that once you get a rate or a

tariff approved, customers can go in and collaterally attack it,

something I don’t think anybody in the industry would want, but,

you know, that’s the doctrine.

Mr. MCLEOD. Certainly the monopolies would not want that to

occur, because it is protection for the monopolies.

Mr. BACHUS. I think if you go to a regulatory agency——.

Well, let me ask you this, and I also heard this—and let me just

ask Ms. Greene, because I could have sworn that our farmers have

endorsed Tauzin-Dingell. Have not your farm organizations, some

of them, the Grangers and others, hadn’t they—they represent

rural America, I mean, the farmers. Hadn’t they endorsed this bill?

Ms. GREENE. I’m confident that the Grange has, but we have

many consumer organizations that have endorsed this bill.

And back to the question that was asked about Consumer Federation of America and Consumers Union, they do not endorse Tauzin-Dingell, but the reason is because they want open access for

cable as well. They want competitors treated similarly, which is

what Tauzin-Dingell would do, but they want regulation imposed

on all sides.

Mr. BACHUS. Would we all agree that today your small—your

rural consumer, your small business, if he’s not hooked up to the

Internet, he can’t compete effectively? Do we all agree to that?

Mr. GLASSMAN. Yes. And, by the way, as you may or may not

know, Congressman, the Bells have been selling off their rural

lines. They sold off 10 million rural lines already, and there was

a Legg-Mason conference where the analyst said they want to sell

off another 20 to 30 million rural lines.

Mr. BACHUS. And——.

Chairman SENSENBRENNER. The gentleman’s time has expired.

The gentleman from Virginia, Mr. Boucher.

Mr. BOUCHER. Thank you very much, Mr. Chairman.

Mr. Tauke, let me get you to respond to some of the claims that

have been made by opponents of the legislation with respect to the

state of competition of the local exchange; and let me begin with

just some numbers about the percent of lines of the local exchange

that are in the hands of the CLECs.

In the case of the residential market, the CLECs have something

like 6 percent of the lines nationally, but in the case of the business market, the CLECs have something on the order of 40 percent

52

of the local exchange lines. And I think Ms. Greene said that in the

City of Atlanta that number now approaches 50 percent.

The rules for obtaining access are exactly the same as in the case

of the residential market and the business market, and so what is

there about the residential market that has caused the CLECs not

to invest? Why do we have only 6 percent of those lines in the

hands of CLECs, whereas in the case of the business market it’s

40 percent and upwards? And what conclusion should the Members

of this Committee draw from those numbers about whether or not

the local exchange is truly open to competition today? Mr. Tauke.

Mr. TAUKE. Well, first, Mr. Boucher, I think it’s important to

note that competition is developing very rapidly in some marketplaces. If you look, for example, at the State of New York, even if

you look at just access lines, just access lines, 25.62 percent of the

access lines in the State of New York are now controlled by competitors; 17.96 percent in the State of Massachusetts; 14.04 percent

in the State of Pennsylvania. So competition is developing quite

rapidly in some States, particularly where there are major metropolitan areas.

Secondly, if I you look at a State like New Jersey, and you have

the barbershop on the first floor and the apartment on the second

floor, the barbershop for dial tone pays 50 bucks a month. The residence that’s on the second floor pays $8.18 a month. Now, if you

are a competitor, where are you going to go to sell your services?

You’re going to go to the barbershop, not to the apartment upstairs.

This is what Ms. Greene was trying to explain earlier in her remarks. They go where the money is.

That’s how—why we develop—competition develops first in the

very large business, high-speed-access market to large businesses.

It develops next in the mid- and small-sized businesses, and it develops last in the residential marketplace, except in those States

where they have begun to change the rate structure.

Mr. BOUCHER. And the conclusion that we should draw as Members of this Committee about the state of competition of the local

exchange is what? What would you say?

Mr. TAUKE. Well, as the FCC said in its report that was just recently issued, and I encourage all of you to read it, competition is

developing very well in the local market. It’s going to the business

market before it goes to the residential market and it develops

more rapidly in States where long distance entry has been granted.

Why? Because then the long distance companies come in and compete in the local marketplace.

Right today, the long distance carriers don’t come in in a major

way in States until they see the Bell company getting into the long

distance market, and then they go into the local market in order

to preserve their customer base.

Mr. BOUCHER. The second claim I’d like to get you to respond to

is this. The opponents of the legislation say that passage of the

Tauzin-Dingell bill would undermine the section 271 process that

currently governs the entry of Bell Operating Companies into the

interLATA long distance market.

Let’s suppose this bill is passed, and immediate entry for data

service is allowed. What remaining incentives would there be for

the Bell Operating Companies to take the steps necessary to open

53

their local exchange to competition or retain the openness that now

exists in the event that the bill passes? And I would ask for the

answer in two particulars. First of all, is the size of the voice-based

long distance market adequate to provide that incentive? And, secondly, are there any provisions in existing law, perhaps in section

251 of the 1996 act, that would require the Bell Operating Companies to have an open local exchange, incentives aside?

Mr. Tauke.

Mr. TAUKE. On the first question, the size of the voice market, long distance voice market is over $100 billion, and the margins

are high. The size of the data long distance market is about $6 billion, no estimate that I’ve seen higher than $10 billion. So the comparison of the two markets shows the incentive is in the voice market, and the margin in the data market is virtually nonexistent.

In answer to your——. Chairman SENSENBRENNER. The gentleman’s time has expired.

The gentleman from North Carolina, Mr. Coble.

Mr. COBLE. Thank you, Mr. Chairman. Good to have you all with

us.

From the comments made during the last hearing on this subject

there appeared to be general agreement that the Bell companies

would receive section 271 approval across the country and, therefore, under the provision of the 1996 Telecom Act, be granted entry

into the long distance market and competitors will have access to

their local route.

I’m furthermore advised that the FCC is in the process of reviewing line-sharing agreements—strike that—line-sharing requirements and looking for an efficient and fair way to apply such requirements to fiber lines.

Now, if the Bells are going to be able to enter the long distance

market within the next year, give or take 4 or 5 weeks and the

FCC is reviewing line-sharing requirements, why is Tauzin-Dingell

necessary?

From anyone. Ms. Greene.

Ms. GREENE. Well, we will still not have a clear telecommunications policy, even if the FCC would decide that line sharing

wouldn’t be required. The FCC has recently decided that they

should extend unbundling and regulation to packet switching. In

each generation of technology that comes forward, there is still the

regulatory threat that the FCC will reach out and break that apart

into piece parts and then price it at a deeply discounted rate and

make it available to competitors. Cable doesn’t enjoy that kind of

regulation, satellite doesn’t, and neither does wireless.

Mr. COBLE. Anybody else want to weigh in on this?

Mr. GLASSMAN. Yeah, I’d like to, Congressman.

You asked a very important question. Right now, the Bells are

perfectly capable of getting into DSL. They’re doing it. SBC’s

Project Pronto, $6 billion. BellSouth is doing it. It isn’t necessary

to pass this legislation. However, with the legislation up here hanging over the heads of CLECs, as it has been for over a year, their

market caps are declining. Uncertainty grows, capital dries up. So

from a strategic point of view it makes a lot of sense for the RBOCs

to have this bill hanging around. From a practical point of view,

no.

54

Mr. COBLE. I understand that. I did not mean to imply that it’s

not necessary, but, as the old farmer said, I wanted somebody to

’splain to me why it was necessary.

The gentleman from Iowa.

Mr. TAUKE. Well, first, I want to point out I vigorously disagree

with Mr. Glassman’s analysis of the market, which we could get

into at another point, but, in response to your question, I think

that it is important to understand that timing is of the essence

here because the fact of life is that today Americans are seeking

and want broadband services, and every month, quarter, year delay

takes time. So one issue is just timing, and the timing relating to

our long distance entry and the timing relating to the deployment

of broadband services in the local loop and for the FCC to change

its rules is very important, and that takes time.

The second big thing is that——. Mr. COBLE. You have to make it quick because I have got to beat

that red light.

Mr. TAUKE. I will speak fast. The FCC has tried—they tried to

relieve us from the section 251 rules. These are some of the requirements we’re talking about today. If you put this in a separate

affiliate, your high-speed data services in a separate affiliate, these

rules shouldn’t apply. In part they did that because they don’t

think that it makes sense for telephony rules to apply to

broadband. The court overruled them. So the fact of life is that the

FCC sees the need to do it, but they aren’t sure they have the authority to do it.

Mr. COBLE. Mr. McLeod.

Mr. MCLEOD. Absolutely right. Mr. Tauke has said time is of the

essence. We have waited 5 years for compliance to section 271, the

competitive industry has waited 5 years, and if, in fact, they’re

ready to open up their network in a year, I would say the Bell companies could certainly wait another year and comply with section

271 and be able to provide all services.

Mr. COBLE. Let me ask Ms. Greene a follow-up question. Ms.

Greene, what is your company’s business plan if H.R. 1542 were to

become law, compared to the fact that if it did not become law?

Ms. GREENE. Our business plan, if 1542 was law, would be not

characterized with the degree of caution that we have today.

Today, as we look where we’re going to place our DSL investment,

we have great concern that the same pattern that has happened to

us with the investment that we’ve had in the traditional network,

that that same pattern will occur, where we have subsidized rates

and we are counting on an incentive and then the regulators will

come in and force us to sell that network at a deeply discounted

rate. We would have more confidence. We would be a bolder investor.

Mr. COBLE. All right, folks. Can competitors compete with Bell

monopolies?

Chairman SENSENBRENNER. The gentleman’s time has expired.

Mr. CANNON. Mr. Chairman, may I ask unanimous consent that

Members be allowed to submit written questions to the witnesses?

Chairman SENSENBRENNER. Without objection.

Also without objection, and at the request of Mr. Conyers, I

would like to insert into the record a letter dated June 4th from

55

the Association for Local Telecommunications Services addressed to

me in support of the Cannon-Conyers bill and in opposition to the

Tauzin-Dingell bill.

[The information follows:]

56

57

Chairman SENSENBRENNER. The gentlewoman from Texas, Ms.

Jackson Lee.

Ms. JACKSON LEE. Thank you very much, Mr. Chairman. I’d be

delighted to yield to the Ranking Member.

Mr. CONYERS. Thank you, Ms. Jackson Lee.

Tom, this isn’t our best day, but let me just point out to you the

NAACP does not support the Tauzin-Dingell bill. Do you know

that?

Mr. TAUKE. Well, I think I disagree with you, Mr. Conyers.

Mr. CONYERS. Well, check with Hilary Shelton, the Executive

Secretary—Executive Director of NAACP, because I just called him.

Mr. TAUKE. Well, they’re on the Hill lobbying in favor of the bill.

58

Mr. CONYERS. Okay. I’ll go get him then. If I bring him here, and

he’ll—he won’t be able to be a witness, but if I can bring him in

the room and have him hold up a sign, would that—what would

that do for you?

Chairman SENSENBRENNER. The gentleman from Michigan

knows that demonstrations are not allowed in the Committee room.

Mr. CONYERS. Could we slip him a note, Mr. Chairman?

Thank you. I thank the gentlelady.

Ms. JACKSON LEE. Thank you very much, and I thank the Ranking Member.

Let me use the time I have to try to bring us back to where we

started, not at the turn of the century but 1996 and the Telecommunications Act. And to Mr. Tauke I’d like to ask, and as our

time flows, why that does not fit for what you’re trying to do today.

And I am going to go right to your next door neighbor, Mr. McLeod,

for why you feel we need legislative action to fix where we are

today. Mr. Tauke, why not the 1996 bill? Why is that not tough

enough, telecommunications?

Mr. TAUKE. The 1996 act did not address broadband policy. Ira

Magaziner, as some of you may recall, was at the White House at

that time and handled the White House position on the——. Ms. JACKSON LEE. Your mike, please, is not on, I don’t think. Is

the light on? Thank you.

Mr. TAUKE. Okay. During the 1996 act, Ira Magaziner, who represented the White House, worked very hard to get a title VII in

the act, which some of you may recall, to establish a broadband

policy, and it would have said that services above a certain speed

would have been treated as broadband policy and—or as

broadband, and there would have been a separate policy articulated. Because that was not done in the 1996 act, there has been

a lot of confusion as to what rules do apply.

As I indicated in my earlier testimony, three circuit courts have

addressed this issue and haven’t even been able to decide if

broadband services are telecommunications services or in some

cases if they’re cable services or which piece of the act applies to

them. The FCC tried to deregulate many of these services as part

of the merger, for example, in our case of Bell Atlantic and GTE,

as long as we placed them in a separate subsidiary, which we subsequently did. The court overruled that effort by the FCC.

Ms. JACKSON LEE. You do not think, yes or no, that the 1996 act

precludes Tauzin-Dingell? Precludes.

Mr. TAUKE. No, it does not preclude Tauzin-Dingell.

Ms. JACKSON LEE. Mr. McLeod, why cannot we act in the framework of the 1996 Telecommunications Act as it relates to CLECs?

Mr. MCLEOD. I think the framework for the ’96 act is fine. However, in the process of implementing that, we need to buy services,

if you will, from the telephone companies and receive equal access

to those services. To get equal access means that the telephone

companies need to provide that service in the same way they’re

providing it directly to their own retail operations.

If anyone believes that there isn’t a conflict of interest there that

is so huge it’s insurmountable, then I’d like it explained to me, how

we would get equal access to their retail operation. So, to solve

that, we need to be able to functionally separate that provisioning

59

of services so that we get the same service as their own retail operation. How can we separate them—or you can do as we did in the

long distance industry, and that is we can break them apart structurally. Now, those are the two solutions to that.

The second thing is that, as we move forward here, the Bell companies have to have some kind of punishment when they don’t comply with the act, some kind of punishment.

Let me read a short article here from the Telecom Report

where——.

Ms. JACKSON LEE. Would you be kind enough maybe to submit

it to the record or summarize it? Because my time is moving, and

I’ve got some additional questions.

Mr. MCLEOD. I will summarize it very quickly.

Ms. JACKSON LEE. If you would.

Mr. MCLEOD. SBC was fined $88,000 for not complying with the

merger act when they bought Ameritech. This is a $100 billion

company. Let’s not go after elephants with BB guns. You can’t fight

an $88,000 fine.

Chairman SENSENBRENNER. The gentlewoman’s time has expired.

The gentleman from Virginia, Mr. Goodlatte.

Mr. GOODLATTE. Thank you, Mr. Chairman. I appreciate your

holding this second hearing on this important issue.

I have a statement that I would ask to be inserted in the record.

Chairman SENSENBRENNER. Without objection.

Mr. GOODLATTE. Thank you, Mr. Chairman.

[The statement of Mr. Goodlatte follows in the Appendix.]

Mr. GOODLATTE. Mr. Chairman, in addition, I have a lengthy letter addressed to you by Herbert Hovencamp, who is the professor

of law at the University of Iowa who is the author of the 18-volume

Antitrust Law, one of the major treatises in this area, that supports the Goldwasser decision, says it’s a correct decision and rather severely criticizes the Conyers-Cannon legislation that has been

introduced to overturn that decision. I ask that that be made a part

of the record.

Chairman SENSENBRENNER. If the gentleman would yield, this is

not all 18 volumes, is it?

Mr. GOODLATTE. No, it’s only five pages.

Chairman SENSENBRENNER. Without objection.

Mr. GOODLATTE. Thank you, Mr. Chairman.

[The information follows:]

60

61

62

63

64

Mr. GOODLATTE. Thirdly, I would ask to have made a part of the

record a Precursor Group independent research statement by Scott

Cleland which states a number of reasons why the CLEC industry

is not doing well, quite contrary to the observations made by Mr.

Glassman here today.

Chairman SENSENBRENNER. Also without objection.

Mr. GOODLATTE. Thank you.

[The information follows:]

65

Mr. GOODLATTE. Well, first let me say——.

Chairman SENSENBRENNER. Anything else?

Mr. GOODLATTE. That will do it for now, Mr. Chairman. Thank

you.

First, let me say to Mr. McLeod and Mr. Glassman, your definition of deregulation—and, Mr. Glassman, I have had the opportunity to read your piece in the Washington Times while I’ve been

sitting here waiting for whom the Bell still tolls—your definition of

deregulation is completely the opposite of mine.

To me, deregulation means cutting companies loose and allowing

them to get into a market and compete and provide services. That’s

what we did in the Telecommunications Reform Act for the CLECs.

66

In fact, there are 150 CLECs in the market today, and they have

now captured 35 to 40 percent of the business local telephone market. Now, they have not captured anywhere near that for the residential market, and that’s because they haven’t chosen for the most

part to go after the residential market. Why? Because 40 percent

of that market is subsidized by the telephone companies. Well, if

you’re subsidizing the market, if you’re paying more to provide the

service than you’re getting in return, you are not likely to go into

that market. And so, as a result, I think that the Telecommunications Reform Act is working very well in that regard.

Now, as to the capitalization of those companies, it is true that,

along with a whole lot of other Internet related companies, the

value of that capitalization has declined dramatically in the last

year. A lot of those companies have absolutely nothing to do with

providing local telephone service, and they declined as well.

One of the reasons why investors are cautious right now is that

that whole downturn has taken place. The second reason is that,

with 150 companies in the market, they’re not going to succeed.

Probably six out of seven, according to John Mallone who testified

at the last hearing, are going to fail. There probably is room in this

market for 20 to 25 CLECs competing on a national basis.

So, yes, a lot of companies have filed bankruptcy. That is because

a lot of them have bad business plans. That’s because they’re competing with each other as well as competing with the telephone

companies, and that’s going to result in a huge market shake-out

which is taking place right now. I hope Mr. McLeod’s company is

one of those that succeeds, but the fact of the matter is that most

of them are not going to succeed, and that’s what this is all about.

Now, let me ask you, Mr. Glassman, are you familiar with the

testimony of Mr. Mallone, who testified at the previous hearing we

had 2 weeks ago?

Mr. GLASSMAN. No.

Mr. GOODLATTE. He’s a consultant to the CLEC industry, and he

testified that there are 150 of these companies, and he expects because of the competition amongst each other and because of the

bad market and because of the shake-out that’s going to take place,

many of them are simply going to go by the wayside. Would you

dispute that?

Mr. GLASSMAN. Certainly, there has been a shake-out in high

technology. There were 300 CLECs 5 years ago.

Mr. GOODLATTE. Is it going to continue?

Mr. GLASSMAN. Half of that now, and the big ones—the big ones

are the ones that are going under, and there’s no doubt—and I’m

completely aware, by the way, since I have written for many years

a column on the stock market, that there’s been a big decline in

high-tech stocks over the last year and a half, but what our research shows is that the decline for CLECs is far greater than that

decline, and there’s a good reason for it, and soon we’re going to

have zero CLECs, and I don’t think anybody thinks that is a good

idea.

Mr. GOODLATTE. I don’t either, and I don’t believe that’s the case.

I believe CLECs will be able to continue to compete in the market;

and, quite frankly, I think that if the Bells are allowed to get into

the long distance market and build out the backbone of the InterVerDate 11-MAY-2000 11:43 Sep 28, 2001 Jkt 000000 PO 00000 Frm 00070 Fmt 6633 Sfmt 6601 G:\WORK\FULL\060501\72979.000 HJUD2 PsN: HJUD2
67

net where there is not enough competition today that that will improve the market for CLECs because they will have the opportunity to do that.

Chairman SENSENBRENNER. The gentleman’s time has expired.

The gentleman from North Carolina, Mr. Watt.

Mr. WATT. Thank you, Mr. Chairman.

Let me be completely parochial first, Ms. Greene. BellSouth

serves my congressional district, local service. I’m told by them

that within a year or less they will have done whatever is necessary under the Telecom Act to allow themselves to be in the long

distance market; is that right?

Ms. GREENE. Yes, sir. If I could take just——.

Mr. WATT. Wait a minute. Just then on a State of North Carolina

basis, if that were the case, would there be a need for Tauzin-Dingell for North Carolina? If you had—if BellSouth had long distance,

the long distance people have local, everybody’s competing on the

same basis in North Carolina, would there be a need for TauzinDingell in North Carolina? X out the other 40 States.

Ms. GREENE. Well, I’ll enjoy being completely parochial with you.

Yes, sir, there would still be a need for that.

Mr. WATT. Why?

Ms. GREENE. And the reason is that Tauzin-Dingell has two

parts to it. One of them is that it would give interLATA data relief;

and if we were allowed in long distance in all of our States, that

provision would not be as important to us.

But the second provision that it has is it gives a clear policy signal that the other pieces of investing in a broadband network, fully

equipping offices, building out fiber into the network as much as

possible, beginning to do fiber and copper loops and really deploying DSL vigorously, those components of the network which are

new build and which are competitive with existing services today,

those services would not be regulated. That’s a clear signal——.

Mr. WATT. So I understand what you’re saying is that you’re

looking for a signal or you’re looking for content of a bill. I thought

the signal to all private enterprise was to get in everything on an

unregulated basis. You’re looking for some additional signal other

than that?

Ms. GREENE. Sir, today, we—our network today can be broken up

into piece parts and sold at a discount. We are looking for a clear

policy direction that says, on forward looking technology, the new

Internet technology, that that will not be regulated in a way that’s

different from its competitors.

Mr. WATT. But once everybody is competing on the same basis,

local, long distance carriers—historically, long distance carriers are

in local markets. Historically, local carriers are in long distance

markets. Why would there need to be any signal beyond just that

the market is working?

Ms. GREENE. What we’re talking about here is—you are talking

specifically about the voice—what we’re trying to do in North Carolina is get authority to offer long distance voice services. What the

Tauzin-Dingell bill is about is unregulating advanced services,

broadband services, Internet related services. They really are two

different things.

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Mr. WATT. All right. I think I heard pretty clearly—I’m going

from parochialism to heresy now, since I’ve got a smidgen of time.

Your testimony about control of residential rates impacting the

willingness of companies to get into residential markets would

seem to me to get you to a conclusion that residential rates should

be deregulated by State utilities. Am I missing something in that?

Ms. GREENE. I was not giving you those numbers to make that

point. I was giving you the numbers to show that——. Mr. WATT. Well, how else would you ever get carriers to go into

it if that does not happen?

Ms. GREENE. Well, I think that’s a good question. That’s not the

question we’re here to talk about today. But the Telecom Act had

four purposes, one of which was——. Mr. WATT. I’m here to try to get more service, and if that gets

more service, why wouldn’t we be here to talk about that?

Ms. GREENE. Well, I think that that is a question that’s going to

have to be addressed.

Chairman SENSENBRENNER. The gentleman’s time has expired.

The gentlewoman from Pennsylvania, Ms. Hart.

Ms. HART. Thank you, Mr. Chairman.

I’m interested in what this bill would do to basically prevent or

I guess prevent the concerns people have about antitrust with the

Bells. And also I guess my question goes to Mr. Glassman as an

economist, which I believe you are.

Mr. GLASSMAN. Well, actually, just play one on TV.

Ms. HART. Okay. Well, that’s close enough.

Mr. GLASSMAN. I’m not a Ph.D. economist.

Ms. HART. That’s okay. You don’t have to be. I’m not a Ph.D. either.

What do you think the impact on business would be if the prospect for success in an antitrust suit would become better, which I

guess would be a result if we do move forward with this legislation?

Mr. GLASSMAN. If the prospects for an antitrust suit would be

better for plaintiffs who are arguing against the Bells, is that what

you’re saying?

Ms. HART. Right, against the Bells.

Mr. GLASSMAN. Well, I think it would be—I think it would improve business. I mean, right now—right now, under the act and

under the Goldwasser decision, as I understand it, the plaintiffs

are in a very difficult position. I mean, there are no teeth to this

act. We are basically depending on the kindness of the Bells or the

incentive—this carrot allowing them to get into long distance, and

now we have a bill that lets them into long distance anyway. So

you don’t really have much left as far as enforcement is concerned.

Ms. HART. As far as the Bells go—and I guess either one of you

could answer this one, either one of the Bells I guess. That would

be Mr. Tauke—is that the way you say it?

Mr. TAUKE. Tauke.

Ms. HART.—Tauke or Ms. Greene. I was a State legislator

when—in 1996, and we were just sitting back, kind of watching

what was going on, expecting a lot of the areas in rural Pennsylvania to get all of this wonderful service and nothing has happened. And people are sitting around saying, back home, to me, no,

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this is the only—don’t support this, because this is the only hammer we have to force the Bells to do what they promised they

would do. If we don’t do this—I’m sorry, if we do pass this, tell me

why you’re going to go in and serve the rural areas better.

Mr. TAUKE. Since Verizon serves Pennsylvania, let me attempt

to answer that question. First, the—at the current time, many

rural areas of Pennsylvania are like rural areas that I referenced

earlier in Virginia such as Mr. Boucher’s district where there is the

regional network that is needed to connect the last mile to the long

haul broadband pipes are not in place, and we are unable today to

deploy those services because of restrictions contained in the act,

the interLATA restrictions. By lifting those restrictions, we would

be able to deploy that kind of service.

Secondly, in rural areas we would be able to deploy more fiber

into the network, which is necessary in order to be able to reach

customers with DSL service who are further from the central office.

In many rural areas—well, in order to get DSL service you have

to be within three miles of a central office. In many rural areas a

lot of customers are not within three miles of a central office. So

what we do is deploy fiber out a ways, then have we what we call

a remote terminal, and from that remote terminal we have copper

that goes to the home. This would allow us to deploy fiber in and

establish those remote terminals and deliver the DSL service to

those customers.

In addition, this act as it’s currently written requires deployment

of broadband services in all central offices that we have, including

those in rural Pennsylvania that you are referencing. So I believe

that because of the regional network issue, the last mile issue, and

because of the deployment requirements in the act, that you could

be assured that services would be delivered to your district.

Ms. GREENE. And the only thing that I would add is that

imbedded in your question is that somehow Tauzin-Dingell would

take away the threat that we have or the incentive that we have

under the 1996 Telecom Act to get into long distance. Tauzin-Dingell doesn’t do anything to remove our incentives to get in the voice

long distance market. It would prohibit us from being in the voice

long distance market until we completed the checklist activities

that are required under the ’96 act. So it doesn’t change those incentives at all.

Chairman SENSENBRENNER. The gentlewoman’s time has expired.

The gentleman from New York, Mr. Nadler.

Mr. NADLER. Thank you, Mr. Chairman.

I have observed in some other areas that have been deregulated

that there seems to be a certain path that we go through. First,

you have a regulated monopoly, then you have deregulation, and

then you have competition and better service and cheaper prices.

Then you have mergers and acquisitions, and then you end up with

a unregulated cartel, and you’re back where you started except you

lack the regulation. Although, if Mr. Glassman’s comment proves

true, Congress may then be tempted to come in and make it a regulated cartel, and you’re sort of back where you started. It seems

to me that we’re well on the way in telecommunications, but let me

ask the following.

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Mr. Tauke mentioned the figures for competition in New York,

and New York supposedly has a lot of local competition. I represent

part of New York including Silicon Alley. I must tell you that the

local telephone service is disgraceful. The largest single source of

complaints in my office, after complaints about the Immigration

and Naturalization Service, is complaints against local telephone

service mostly by businesses where we have the competition, where

Silicon Alley—I represent Silicon Alley. They’re screaming. They

can’t get broadband. They can’t get high-speed service.

We recently moved my own district office, and even though I

could talk to—as a Congressman I could talk to appropriate people

in the local telephone company it took almost a month to get the

service moved—to get the Internet service moved. No one comments on that cheaper services garden.

Let me ask Mr. Glassman, with whom I seldom agree but find

myself in agreement on this occasion, why do you think, given the

fact that we have theoretically—whatever Mr. Tauke’s figures

were, I am sure they’re correct—- some local competition, why has

it gotten so bad, much worse than when we supposedly had just

the regulated system?

Mr. GLASSMAN. Well, I guess even though we agree on this, I

kind of disagree with your—kind of your overall theory that you

necessarily——.

Mr. NADLER. I didn’t say necessarily. I said it seems to go in a

direction sometimes.

Mr. GLASSMAN. Okay, and I think it is going that way this time

even if this bill passes or even if this bill hangs around for a long

time.

Also, may I also say one other thing, Congressman? I, too, live

in New York, as you know, and I try to run a small business in

New York, and I have exactly the same problem. It’s extremely difficult to get DSL service. I tried to get it from Verizon and ended

up going to RCN, and now I can’t even get that. Okay.

I really don’t know the answer to the question except that when

you get a kind of an effective monopoly in an area, normally the

monopoly cuts back on service and raises prices. That’s basically

what they do. And why do they do it? Because they make a whole

lot more money that way. And my worry is that this bill reinforces—actually extends the monopoly that the Bell——.

Mr. NADLER. I clearly agree. I must say that I was one of the

16 Members of the House who voted against the telecommunications bill of ’96 because of a number of reasons, one of which was

that I thought it would tend to increase concentration of ownership

in the media and the telecommunications. But—so I don’t have——

.

Mr. GLASSMAN. You got that right.

Mr. NADLER.—so much possessory interest in keeping the bill as

it is, but it does seem to me Tauzin-Dingell takes away the only

enforcement mechanism we have on gaining some local competition

which is one of the main purposes of the bill to start with.

Are you saying in effect, Mr. Glassman, that even though we

have whatever the percentage of market penetration by CLECs, the

control of the local Bell company of the last mile is such that effecVerDate 11-MAY-2000 11:43 Sep 28, 2001 Jkt 000000 PO 00000 Frm 00074 Fmt 6633 Sfmt 6601 G:\WORK\FULL\060501\72979.000 HJUD2 PsN: HJUD2
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tively they make it difficult for the CLECs to compete currently

and that’s why we’re still getting the lousy service in New York?

Mr. GLASSMAN. Absolutely. Absolutely. I don’t think there is any

doubt about that. And you can hear from Mr. McLeod if you don’t

believe me.

Mr. NADLER. But even where you have——.

Mr. GLASSMAN. In fact, I kind of thought it was impolitic for Mr.

Tauke to raise New York as an example.

Mr. NADLER. Certainly with someone sitting here representing

southern Manhattan here, yes.

Mr. McLeod.

Mr. MCLEOD. Let my say that I disagree a little bit with your

model as well, because I do believe we created a very competitive

market in the long distance business, viable competitors in long

distance, and they all had equal access to the last mile connection.

That’s what we’re missing right now is equal access.

Mr. NADLER. The difference——.

Chairman SENSENBRENNER. The gentleman’s time has expired.

The gentleman from New York Mr. Weiner.

Mr. NADLER. Can I have 15 seconds?

Chairman SENSENBRENNER. I haven’t extended anybody else’s

time.

Mr. NADLER. Can I have 15 seconds?

Chairman SENSENBRENNER. I would like to recognize the gentleman from New York. You can ask him to yield some of his time

if he wants to.

Mr. NADLER. I wouldn’t do that.

Mr. WEINER. Thank you, Mr. Chairman.

I thank the panel. I am particularly gratified to see former Congressman Tauke here. I always wondered whether having ‘‘Congressman’’ on your resume means you can never get a real job, and

I’m glad to see someone landed on their feet.

Actually, I want to—you know, I think Verizon is an example

here of what is the good and the bad in the present law. I think

it’s fair to say that Verizon and other Bells made a crucial mistake

in not rolling out DSL more aggressively, faster; that one of the

reasons you’re behind cable is because you didn’t for that period of

time, however long it was, DSL—you know, 56K was as high as

you were willing to go for most residences. Cable companies, on the

other hand, said, you know what, we have these tubes going in;

we’re going to dig up all the streets of New York and other places,

and we’re going to try to get delivery.

But you’re also the best in terms of the way you’ve complied with

the 13 points in places like New York and four other States. You

have gone through an arduous process. You have done it well

enough that now consumer groups and unions and everyone else

has rallied on the idea to give you a sign-off to expand your service.

And in many ways you’re the argument for keeping the present

law, that you don’t want to reward a company that says, all right,

I’m not going to invest in high-speed broadband; oh, wait a minute,

now I want to, let me get government to help push me. You seem

to be, or Verizon seems to be, the case study for leaving things

alone.

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And before you answer, I also—I’m puzzled by all of this talk

about service in rural areas. I will eat this desk if cable or DSL

is servicing rural areas in 5 years or 10 years. There’s a reason

there are satellite dishes all across the landscape. It’s going to be

satellite of some form or some technology that we’re not even

thinking about that is going to service those areas. It’s funny how

3 or 5 or 6 percent of your customer base is now driving 90 percent

of this debate.

So I guess my question for you, Congressman, is why is it, looking at your experience in New York and my experience as a consumer where I now have Verizon DSL, which I got very quickly

without any problems, but it stinks, so now I’m going to try out Cablevision, who just knocked on my door and said, we’re ready to

provide you, you know, cable service, I’m going to try that, too— isn’t my experience and the experience in New York and Verizon’s

experience exactly why we should preserve the present law?

Mr. TAUKE. Well, first, Congressman, I think I would be remiss

if I didn’t ask that Mr. Nadler and you both raise your service

questions. I have answers to what is going on in New York relating

to those issues which is unique to your area of Manhattan, and it

has to do with the build-out of facilities. But specifically to your

question——. Mr. WEINER. By the way, Brooklyn is the rural area to Jerry

Nadler, by the way.

Mr. TAUKE. As we’ve talked about, there are two pieces to the

Tauzin bill, and the piece that is most important to the State of

New York is the piece relating to the last mile, and when it comes

to what we need to do in Manhattan and what we need to do in

many other areas is deploy more fiber into the local loop.

Why is it we can’t deploy fiber today or are inhibited from deploying more fiber? The reason we’re inhibited from deploying more

fiber is that in order to deploy more fiber, we have to figure out

a way in which to do line sharing over that fiber in order to meet

the requirements of regulators as they currently stand, and which

the FCC at one point tried to exempt us from but couldn’t.

When we have to do line sharing over the local——.

Mr. WEINER. Forgive me, I have a very limited time. You’re focusing on the microissue. Focus on the macroissue, why the present

construct of the law the way it stands now doesn’t get us the best

of both worlds, get you guys to overcome hurdles that consumers

benefit from, but allows the marketplace to kind of work fairly

well.

Mr. TAUKE. It is a microissue, but the macroissue is this: That

when you try to apply rules that were built for a copper network

to a fiber network, it doesn’t work. And so as a result, because you

can’t apply the rules, you’re stuck with the copper network, and

you are inhibited from deploying the fiber network.

If you want better services in Manhattan or you want services

in a rural area, you got to get the fiber deployed in our network,

and today the rules inhibit that.

Mr. WEINER. But let me interrupt because the yellow light is on.

I have DSL from Verizon. I have my cable provider. I have a

Covat, whatever that is. I have these other guys that are providing

DSL. It’s working. We have all of these things. The State reguVerDate 11-MAY-2000 11:43 Sep 28, 2001 Jkt 000000 PO 00000 Frm 00076 Fmt 6633 Sfmt 6601 G:\WORK\FULL\060501\72979.000 HJUD2 PsN: HJUD2
73

lators are happy. We have individual complaints about service, and

we’re going to shop around. The process seems to be working, at

least in my neighborhood. I have all these choices, and I’m shopping around.

Mr. TAUKE. You’re lucky, but it isn’t working in every neighborhood, and that’s part of the difficulty, because in every neighborhood they don’t have all the options. In fact, some of them don’t

have any option at all.

Mr. WEINER. And part of it is——. Chairman SENSENBRENNER. The gentleman’s time has expired.

I would like to thank the witnesses for putting up with us for the

last 2 hours plus. I’d like to thank the Members of the Committee

for their very vigorous questioning. This is an issue that has been

debated for the last 5 years. I don’t know if it will be debated for

the next 5 years, but we’ll try to make some sense of it next week

with the markup.

So thank you again, and the Committee stands adjourned.

[Whereupon, at 4:08 p.m., the Committee was adjourned.]

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A P P E N D I X

MATERIAL SUBMITTED FOR THE HEARING RECORD

PREPARED STATEMENT OF THE HONORABLE BOB GOODLATTE, A REPRESENTATIVE IN

CONGRESS FROM THE STATE OF VIRGINIA

Thank you Mr. Chairman for holding this second hearing on competition in the

telecommunications marketplace. I believe that the subject of this hearing and the

impact of legislation known as the ‘‘Tauzin-Dingell’’ bill is one that deserves close

examination by this Committee. However, I am hopeful that after hearing from our

witnesses today, my colleagues on the Committee will agree that no further action

is necessary by the Judiciary Committee on this piece of legislation that is so critically needed to address the digital divide.

As a sponsor of similar legislation in the 106th Congress with my colleague Mr.

Boucher, I am a strong supporter of legislative efforts like Chairman Tauzin’s that

focus on addressing the digital divide by removing anticompetitive regulations from

the incumbent phone companies that were never intended for the Internet. Our bill,

which was referred to the Judiciary Committee in the 106th Congress, had significant support from Members on this Committee and from Members of both parties.

As many of my colleagues are aware, neither Goodlatte-Boucher nor a similar version introduced by Congressmen Tauzin and Dingell was considered by either committee of jurisdiction last year. However, as the new Chairman of the Commerce

Committee, Congressman Tauzin has reintroduced his legislation this year as H.R.

1542. After lengthy consideration, a well-balanced version of H.R. 1542 was approved and reported by the Commerce Committee last month.

The Judiciary Committee has requested and has been granted a referral of this

important bill for consideration. I agree that the Judiciary Committee has clear jurisdiction over several areas addressed in H.R. 1542, and I applaud the Chairman

for holding a series of hearings on the bill. However, I urge the Chairman and the

other Members of this Committee to take a close look at the carefully crafted compromise reached in the Commerce Committee before deciding to move ahead with

a markup of this bill. A markup of this bill by the Judiciary Committee would only

serve to slow or stop the progress of the bill through the legislative process, delaying

its enactment and ultimately slowing the delivery of high-speed Internet service to

rural America.

A markup of this bill by the Judiciary Committee would upset the balance currently achieved in the bill. While H.R. 1542 does remove barriers for the ILECs to

enter the high-speed Internet marketplace, the Committee added language that sets

out a firm timetable for deployment of broadband services by ILECs. The bill requires ILECs and their affiliates to achieve high speed data capability in 20 percent

of its central offices in a State within one year, 40 percent of its central offices in

such State within two years, 70 percent of its central offices in such State within

three years, and 100 percent of the central offices in such State within five years.

I am hopeful that Members of this Committee can walk away from this hearing

today satisfied with the compromise approved by the Commerce Committee and

agree that further action on this legislation is unnecessary.

The qualities that made the narrowband Internet infrastructure a revolutionary

tool for both business and consumers—competition, low barriers to entry, and consumer choice—must remain fundamental components of the new broadband Internet infrastructure as we enter the new millennium. This is the only way that areas

like the Shenandoah Valley of Virginia, the rural communities of the South, or the

great plains of the Midwest can compete in the new economy while at the same time

maintain the quality-of-life factor that has made them some of the best places in

this Nation to live, work, and learn. Mr. Chairman, thank you again for holding this

hearing today. I look forward to hearing from our witnesses.

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