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TELECOMMUNICATIONS POLICY REVIEW: 

A VIEW FROM INDUSTRY 

HEARING 

BEFORE THE

COMMITTEE ON COMMERCE, 

SCIENCE, AND TRANSPORTATION 

UNITED STATES SENATE 

ONE HUNDRED EIGHTH CONGRESS 

SECOND SESSION 

MAY 12, 2004 

Printed for the use of the Committee on Commerce, Science, and Transportation 

( 

(II) 

SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION 

ONE HUNDRED EIGHTH CONGRESS 

SECOND SESSION 

JOHN MCCAIN, Arizona, Chairman 

TED STEVENS, Alaska 

CONRAD BURNS, Montana 

TRENT LOTT, Mississippi 

KAY BAILEY HUTCHISON, Texas 

OLYMPIA J. SNOWE, Maine 

SAM BROWNBACK, Kansas 

GORDON H. SMITH, Oregon 

PETER G. FITZGERALD, Illinois 

JOHN ENSIGN, Nevada 

GEORGE ALLEN, Virginia 

JOHN E. SUNUNU, New Hampshire 

ERNEST F. HOLLINGS, South Carolina, 

Ranking 

DANIEL K. INOUYE, Hawaii 

JOHN D. ROCKEFELLER IV, West Virginia 

JOHN F. KERRY, Massachusetts 

JOHN B. BREAUX, Louisiana 

BYRON L. DORGAN, North Dakota 

RON WYDEN, Oregon 

BARBARA BOXER, California 

BILL NELSON, Florida 

MARIA CANTWELL, Washington 

FRANK R. LAUTENBERG, New Jersey 

JEANNE BUMPUS, Republican Staff Director and General Counsel 

ROBERT W. CHAMBERLIN, Republican Chief Counsel 

KEVIN D. KAYES, Democratic Staff Director and Chief Counsel 

GREGG ELIAS, Democratic General Counsel 

(III) 

C O N T E N T S 

Page 

Hearing held on May 12, 2004 ............................................................................... 1 

Statement of Senator Allen ..................................................................................... 3 

Statement of Senator Breaux ................................................................................. 40 

Statement of Senator Cantwell .............................................................................. 49 

Statement of Senator Ensign .................................................................................. 37 

Statement of Senator Lautenberg .......................................................................... 2 

Statement of Senator Lott ...................................................................................... 42 

Statement of Senator McCain ................................................................................. 1 

Prepared statement .......................................................................................... 1 

Statement of Senator Nelson .................................................................................. 2 

Statement of Senator Sununu ................................................................................ 44 

WITNESSES

Betty, Charles ‘‘Garry’’, President and Chief Executive Officer, EarthLink, 

Inc. ......................................................................................................................... 17 

Prepared statement .......................................................................................... 19 

Ford, Scott, President and Chief Executive Officer, ALLTEL Corporation ........ 12 

Prepared statement .......................................................................................... 15 

Roberts, Brian L., President and Chief Executive Officer, Comcast Corporation ........................................................................................................................ 8 

Prepared statement .......................................................................................... 10 

Seidenberg, Hon. Ivan, Chairman and Chief Executive Officer, Verizon ........... 3 

Prepared statement .......................................................................................... 5 

Wilson, Delbert, Central Texas Telephone Cooperative on behalf of the National Telecommunications Cooperative Association ......................................... 22 

Prepared statement .......................................................................................... 23 

APPENDIX

Letter dated May 18, 2004 to Hon. John McCain from Delbert Wilson, Central 

Texas Telephone Cooperative, Inc. ..................................................................... 57 

(1) 

TELECOMMUNICATIONS POLICY REVIEW: 

A VIEW FROM INDUSTRY 

WEDNESDAY, MAY 12, 2004 

U.S. SENATE, 

COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION, 

Washington, DC. 

The Committee met, pursuant to notice, at 9:32 a.m. in room SR– 

253, Russell Senate Office Building, Hon. John McCain, Chairman, 

presiding. 

OPENING STATEMENT OF HON. JOHN MCCAIN, 

U.S. SENATOR FROM ARIZONA 

The CHAIRMAN. Good morning. Today we continue our series of 

hearings reviewing telecommunications policy. I will be brief so 

that we can hear from our witnesses. In previous hearings we took 

a look back at the Telecommunications Act of 1996 to identify the 

successes and failures of that law and looked forward to consider 

potential reforms to our telecommunications policy, given advances 

in technology. 

Today we will hear the perspectives of leading corporations in 

each of various industry sectors regarding the elements that should 

be considered in any legislation seeking to reform existing telecommunications law. I thank the witnesses for being here today 

and I look forward to their testimony. 

Our witnesses are: Mr. Ivan Seidenberg, who is the Chairman 

and Chief Executive Officer of Verizon; Mr. Brian Roberts, President and Chief Executive Officer of Comcast Corporation; Mr. Scott 

Ford, President and Chief Executive Officer of ALLTEL; Mr. Garry 

Betty, President and Chief Executive Officer of EarthLink; and Mr. 

Delbert Wilson, former Chief Executive Officer, Central Texas Telephone Cooperative. 

[The prepared statement of Senator McCain follows:] 

PREPARED STATEMENT OF HON. JOHN MCCAIN, U.S. SENATOR FROM ARIZONA

Today we continue our series of hearings reviewing telecommunications policy. I 

will be brief so that we can hear from our witnesses. In previous hearings, we took 

a look back at the Telecommunications Act of 1996 to identify the successes and failures of that law, and a look forward to consider potential reforms to our telecommunications policy given advances in technology. Today, we will hear the perspectives of leading companies in each of various industry sectors regarding the elements that should be considered in any legislation seeking to reform existing telecommunications law. I thank the witnesses for being here today and I look forward 

to your testimony. 

2 

The CHAIRMAN. Frank, would you like to make an opening statement? 

STATEMENT OF HON. FRANK R. LAUTENBERG, 

U.S. SENATOR FROM NEW JERSEY 

Senator LAUTENBERG. My statement will be short, Mr. Chairman. I appreciate the opportunity to just say a few words. Again, 

my appreciation for holding this hearing, this third in the series, 

to review the implementation and the effects of the Telecommunications Act of 1996. 

The 1996 Telecom Act, as it is called, ushered in what we 

thought would be, and what proves to be partially so, the most extensive change in U.S. communications law in the 62 years since 

the Communications Act of 1934. I believe that we should view the 

1996 Act as part of an ongoing effort to protect consumers from potential domination by one telecommunications company or by several regional companies with monopoly power and to encourage innovation and investment in the industry. 

The best way to accomplish these goals is to facilitate a marketplace where all service providers can compete for the consumers on 

a relatively—and I use the term advisedly—even playing field. The 

tough part is creating the even playing field. Now, I am sure today 

we are going to hear from some witnesses who will argue that the 

cable industry is the biggest beneficiary of Congress’s effort to deregulate the communications, telecommunications industry. The 

oft-quoted figure is that since 1996 the cable industry has been 

able to raise and invest over $75 billion on facility upgrades that 

allow operators to provide consumers with a wealth of new services, including digital cable, video on demand, cable modem service, 

and cable telephony. 

The witnesses for the telephone companies I am sure are going 

to point to cable’s successes—I do not know whether they are going 

to do it admiringly or otherwise, or enviously, but—point to cable’s 

successes and say that phone companies should also be free from 

the regulatory burden. But I think it is important to remember 

that the Bell telephone companies, unlike cable, enjoyed a regulated monopoly status for so many years and they were able to negotiate a guaranteed return on their investment. 

I am sure today’s witnesses, particularly Mr. Seidenberg and Mr. 

Roberts, who operate the biggest telephone and cable companies in 

New Jersey, will help clarify some of the implementation issues 

that we need to address as we revisit the 1996 Act. 

I thank you, Mr. Chairman. 

The CHAIRMAN. Would Senator Allen or Senator Nelson want to 

make brief opening comments? 

STATEMENT OF HON. BILL NELSON, 

U.S. SENATOR FROM FLORIDA 

Senator NELSON. Very brief, just to say that I am interested in 

hearing our witnesses’ thoughts about the strengths and weaknesses of the Nation’s telecom policies, looking forward to it. 

The CHAIRMAN. Thank you, Senator Nelson. 

Senator Allen. 

3 

STATEMENT OF HON. GEORGE ALLEN, 

U.S. SENATOR FROM VIRGINIA 

Senator ALLEN. Mr. Chairman, I would like to submit my statement for the record—— 

The CHAIRMAN. Without objection. 

Senator ALLEN.—with a brief statement that, first of all commending you for having this hearing, which is very timely. The 

1996 Act was certainly of value, but I think the greatest value has 

been all the advancements in technology, and we in my view ought 

to be doing everything that we can to remove burdens on the deployment of broadband, which is going to provide so many more opportunities, not just telephone lines and cable lines, but satellite, 

Wi-Fi, wireless, even power lines. 

With your help, Mr. Chairman, just a little over a week ago we 

did the right thing on preventing taxation of broadband, which certainly will provide all the new applications to get out there and 

provide people with the opportunities in commerce and education 

and access to information. 

We have, obviously, key stakeholders here today. I look forward 

to hearing their testimony as we determine how to, in my view, 

embrace the power of technology to operate in a free market rather 

than arcane government regulations that are stagnant, out of 

touch, or inflexible. To the extent that we can look at ways to encourage the infrastructure deployment and compelling applications 

for our Nation, I want us to be one of the leaders of the digital information age, and look forward to where we can examine the 1996 

Act and improve it, update it, and make it better for consumers. 

Thank you, Mr. Chairman. 

The CHAIRMAN. I again want to thank a very illustrious and successful panel here today, or mostly successful panel today. We will 

begin with you, Mr. Seidenberg. Thank you for appearing before 

the Committee again. 

STATEMENT OF HON. IVAN SEIDENBERG, CHAIRMAN 

AND CHIEF EXECUTIVE OFFICER, VERIZON 

Mr. SEIDENBERG. Thank you, Mr. Chairman. Thank you very 

much, members of the Committee. It is indeed a pleasure to be 

with you this morning and share our views on industry and our 

company in general. 

As you know, in our written testimony we laid out a lot of detail 

about the shifts that is occurring in our industry, all of the technological changes. The bottom line to us is that consumers today have 

more choices in which to provide services, telecom services, particularly over wireless, cable, and telecom networks. 

The other key point is, with the emergence of the Internet over 

the past several years, all these networks can be interconnected 

using IP protocols and packet switching protocols, which in effect 

tear down the silos that used to exist between cable, telephone, 

wireless, and other types of networks, radio networks for example. 

For example, today you can see you can have area codes that are 

portable. You could never do that before. So in our view the whole 

shift from local to national has occurred in the telecom space. 

Technology investment and innovation have created the competition and the consumer choice that we think were the stated objecVerDate Nov 24 2008 11:27 Sep 14, 2016 Jkt 075679 PO 00000 Frm 00007 Fmt 6633 Sfmt 6601 S:\GPO\DOCS\21481.TXT JACKIE
4 

tives of the Telecom Act. As we further upgrade our networks to 

even higher speed broadband and IP-based technologies, consumers 

will see even greater benefits in terms of product innovation and 

economic growth and job creation. 

Now, Verizon. Verizon is a major player in this broadband market. You all know that. The key point I would like to make this 

morning is our record of commitment to deploying new technologies 

is clear and unquestionable. In fact, we have invested more as a 

single company in wireless and broadband than any other single 

company in the industry, and we continue to use our more than 

$12 billion a year in capital spending to aggressively transform our 

networks and our business model around new technologies in these 

markets. Of course, these network investments include things like 

expanded DSL service, packet switches that work on IP protocols, 

large-scale deployment of fiber optics, wireless, and the first ever 

deployment of wireless broadband. 

So, Mr. Chairman, there should be no doubt about our commitment to manage our business for the future or our willingness to 

take the business risk associated with investing in these new technologies. So for us, the question for us goes to the wireline or the 

traditional side of our business, is whether this level of commitment that we have made to investment is really sustainable over 

the long term. 

In our view, under the present regulatory regime that we operate 

under we feel that the ability to continue this level of investment 

is highly speculative. Now, the problem lies in the imbalance between the rules for investing in the wireline network as opposed 

to other technologies such as cable or wireless. The current system 

subjects those investments that we make in wireline to conflicting 

agendas and interpretations of regulatory agencies at every level of 

government, from municipalities to States to the Federal Government, imposing costs, injecting ambiguity, introducing bureaucratic 

red tape into every investment decision involving the wireline network. 

This is evidenced in our results over the last four or five quarters, including the last quarter, which shows that our wireless 

business has had a steady growth rate of more than 15 percent a 

year for the past 2 years, our wireline business has been shrinking 

at an average rate of 4 percent a year. 

Now, our view is that, even in light, in the face of this shrinking 

business, we have been willing to invest to transform our growth 

profile around these new technologies, and we have done that with 

the understanding that over the course of the last 7 or 8 years, 

with the Telecom Act having been passed, that we would see a 

more stable environment for rules and investment. 

What we have found is the process is getting worse. So for us, 

we are very much concerned that we will continue to have to shift 

our focus away from wireline if we do not straighten out the imbalances that exist in regulation on the wireline side of the business. 

Any business person would tell you that there is always a short period of time that we would be willing to live with some business 

risk and some ambiguity, but 8 years now is a long enough period 

of time when we should have this thing straightened out. As we 

look out into the future, we think the practices of the past 8 years 

5 

are likely to become the permanent rules under which we operate, 

which is just not acceptable to us. 

So what do you do? What we would ask is that Congress take 

the lead in creating a new legislative framework for the broadband 

era based on the same principles that govern any technology-driven 

industry, including cable or wireless, and have a policy that provides stability and uniformity across the industry and across the 

country, a policy free from any form of economic regulation of these 

investments, and common rules for enforcement, technical standards, and public safety where the Congress thinks they are needed. 

So you know that this is in our interest to see this happen. It 

will give us a chance to grow and compete. We are one of the few 

companies that have the resources and the will to participate in 

this market. Why is this good for you and the country? It is obvious. We will create economic growth and economic development. 

For every dollar we spend and invest in our business, it creates 

three dollars in additional investment and growth in other industries that depend on telecom services. 

Having said that, I appreciate the opportunity to address you 

this morning and hopefully you can clear the path to the future so 

we can all participate on a more even keel basis. 

Thank you. 

[The prepared statement of Mr. Seidenberg follows:] 

PREPARED STATEMENT OF HON. IVAN SEIDENBERG, CHAIRMAN

AND CHIEF EXECUTIVE OFFICER, VERIZON

Mr. Chairman, Senator Hollings, and members of the Committee, thank you for 

the opportunity to join in this important examination of the future of telecommunications policy. Verizon invests more capital, employs more workers, and serves more 

customers than any other communications company in the U.S., so we have a vital 

interest in the outcome of your deliberations, as does the entire American economy. 

I would like to make three points this morning: 

• First, that the communications industry has been changed forever by a new era 

of mobility and broadband networks, 

• Second, that Verizon is excited about the industry’s future and its potential to 

contribute to the economy and improve our quality of life, 

• And finally, that we urgently need a new approach to public policy in order for 

us to continue investing in the high-speed broadband networks at the heart of 

this vision of the future. 

A New World of Communications 

This committee has heard a great deal of testimony about how radically technology has transformed the communications industry since Congress last took up 

this debate in 1996. This year, the total number of long distance calls made over 

the wireless network will exceed those made over the wireline network. More than 

160 M Americans have wireless phones, almost one in five of whom will use their 

mobile phones as their main communications device. More than 70 percent of American households are connected to the Internet, increasingly via broadband connections provided by cable, wireline and wireless networks. A hundred million Americans now regularly use e-mail. Instant Messaging is not only becoming the principal 

means of communication for young people, but is also evolving beyond text into voice 

and video. 

And with the emergence of the Internet—which interconnects all these networks 

using an IP protocol—you don’t need to own the pipeline to offer these services to 

customers; you just have to put your application and your content on the Internet, 

where customers can reach it over their broadband connections. That’s what we’re 

seeing now with the emergence of Voice-Over-IP—basically, as an application that 

can be offered on the Internet and essentially bypass the carrier who has the pipe 

into the customer. So we’re seeing a whole new challenge to the traditional definition of communications services. 

6 

The result of this explosion of new technologies is that the objectives envisioned 

by the framers of the Telecom Act of 1996—competition, consumer choice, and rapid 

innovation—have been realized, not because of regulation but because of technology. 

About 40 percent of long-distance telephone and about a third of local telephone use 

has been supplanted by new technologies. But while revenues and access lines in 

the traditional telephone business are declining, the electronic communications market is expanding, providing Americans with many networks and many services from 

which to choose. 

In fact, I would argue that the ‘‘telecom industry’’ as we knew it is history. In 

its place will be the ‘‘broadband industry’’ made up of new, superfast, multimegabit 

networks that can deliver video, data and voice in entirely new ways. Today’s ‘‘firstgeneration’’ broadband connections—whether DSL or cable modems—are just the 

first step. Truly high-speed, multimegabit networks go beyond faster downloads or 

cheaper phone calls, enabling two-way, multimedia capabilities that will revolutionize commerce, education and health care. 

Verizon agrees with the Consumer Electronics Association, the High Tech 

Broadband Coalition, and TechNet that delivering 100 megabits of capacity to people wherever they are—at home, at work, on the go—should be the long-term goal 

for the communications and high-tech industries. These kinds of networks will create a platform for new applications, services, and communications technologies, giving Americans even more choices in the electronic communications marketplace 

than they ever could have imagined. 

Verizon’s Vision of the Future 

Verizon is a major player in this new broadband marketplace, and we are aggressively transforming our wireline and wireless networks around new technologies 

and new markets. My company invests close to $12 billion in capital every year, 

more and more of it to deploy the broadband networks on which the information 

economy runs: 

• We have equipped over 40 million lines of our network with DSL capabilities 

and will continue to expand coverage, increase speeds, add customers, and provide new services like VoIP. 

• We are converting from circuit switching to packet switching to accommodate 

the upsurge of IP-based traffic. 

• This month, we will begin a large-scale deployment of fiber in our local network. 

We expect to pass 1 million homes this year and, potentially, another 2 million 

in 2005. 

• And we have the largest and most advanced wireless network in the U.S., 

which itself is rapidly moving to broadband speeds. In fact, our wireless 

broadband service, EV–DO, is available right here in Washington, D.C. and we 

are moving quickly to expand it nationwide. 

Our strategy is to differentiate our company through investment and innovation: 

new applications, services and network platforms. We have shown how this dynamic 

works in our wireless business, which is a technology and quality leader in the industry. It is vital that we be able to do the same in our wireline business by making 

the huge investments required to transform our copper network around the requirements of the broadband era. 

These investments benefit not only the millions of homes, small businesses, hospitals, schools and corporations who rely on Verizon’s networks for high-speed access, but also have an enormous multiplier effect on the American economy in general. Every dollar of capital we invest generates $3 of investment in the economy 

as a whole. One study finds that accelerated broadband investment by telecommunications companies would add more than $400 billion to GDP and 1.2 million jobs 

over the next 10 years. And keep in mind, these jobs will not only be in the hightech sector, but throughout the economy: manufacturing, small business, creative, 

even at-home work. 

That is why the debate over telecom policy—in particular, its impact on investment and technological progress—is so important to America. The truth is, the U.S. 

is falling behind the rest of the world when it comes to broadband deployment— 

11th, to be precise, in one study. The average household in South Korea has more 

bandwidth than the average American business. Countries like Japan are deploying 

more fiber in their local networks than we are, forcing the U.S. to play catch-up in 

an infrastructure critical to technologies such as fiber-optics. The extent of the harm 

to the U.S. economy is evident in the latest employment statistics, which show that 

the information technology sector—computers, telecom equipment, and telecom services—is still losing jobs, even while the rest of the economy is growing. 

7 

Verizon is optimistic about the future of our industry, and we believe our company 

has a positive, constructive role to play in delivering a new generation of technology 

to our customers. As we do, we will help stimulate a new wave of productivity 

growth, create the entrepreneurial activity that is key to America’s economic leadership, and deliver the long-promised social benefits of broadband in health care and 

education. 

A Policy Framework for the Broadband Era 

However, for that to happen, we need a policy framework suitable for a broadband 

era. Unfortunately, today’s public policies are badly out of synch with market realities. 

The world Verizon operates in is characterized by the emergence of large, wellcapitalized strategic competitors who are rapidly deploying IP and broadband networks to offer high-speed data, video and voice services in our markets. In fact, the 

C.E.O. of one of our biggest strategic competitors is sitting at this table. Brian Roberts’s company, Comcast, currently has the leading market share in broadband in 

our markets and is rapidly upgrading its networks to offer IP telephony, as well. 

Unlike Verizon, Comcast can make these network investments in response to customer demand and market opportunity. It can earn a reasonable return on investment, unfettered by sharing obligations or asymmetrical tax burdens. And it can 

make investment decisions in an environment of reasonable stability, without the 

uncertainty of ambiguous and changing regulations. 

Similarly, wireless companies—including Verizon Wireless—can invest and innovate like real businesses. Wholesale rates are negotiated commercially. Prices are 

set in the marketplace in an environment of vigorous competition. The result is a 

market in which companies compete on price, quality and innovation, to the benefit 

of consumers across the country. 

Yet the world as seen through the lens of telecom policy could not be more different. In fact, today’s policies ignore these market realities entirely—regulating my 

company one way and Mr. Roberts’ another with respect to the very same types of 

services. 

Today’s regulations look backwards to a time when the world was dominated by 

a single company, offering a single service. Under the current regime, regulators— 

not customers—set prices, create competition, and pick winners and losers. And because these rules focus almost exclusively on the old definition of communications— 

the traditional voice business—they discourage investment and innovation in the 

segment of the industry that arguably serves the broadest base of customers. 

To see the consequences of a system that imposes costly, burdensome rules on one 

set of competitors, compare the pace of innovation and investment in the heavily 

regulated telecom business with that of wireless, cable, Internet and other technology-driven industries. 

This is not good for America’s long-term competitiveness in an industry vital to 

our future. 

Let me be very clear. Verizon does not seek to impose new regulatory burdens 

on Mr. Roberts’s company or any of our competitors. On the contrary, we believe 

government regulation of broadband investments and Internet services is both unnecessary and inappropriate. Instead, we seek a forward-looking, market-based policy framework for all competitors—one that puts us on the same footing as cable 

and wireless network providers. 

Congress has taken some important first steps in this direction. For example, we 

commend this Committee for urging the Senate to pass the Internet Tax Moratorium, which keeps new IP services free of onerous tax burdens. In particular, we 

applaud the leadership shown by Chairman McCain and chief sponsors Senators 

[George] Allen and [Ron] Wyden, and the strong support from Senators [Trent] Lott, 

[Barbara] Boxer and [Ted] Stevens. It is our hope that the House and Senate can 

come together to ensure that this important legislation is enacted. 

We also applaud Senator Sununu’s efforts to ensure that Voice-over-IP will be free 

from a patchwork of potentially burdensome and inconsistent state regulations. As 

we move forward, we need a comprehensive policy framework to make sure that all 

investments in new fiber networks are not burdened with costly rules that increase 

risk and reduce incentives to invest. 

The President has said we need to clear out the ‘‘regulatory underbrush’’ to encourage the growth of broadband. The FCC is moving on the right path by working 

to ensure that deployments of new, broadband technologies are not burdened by traditional, heavy-handed regulation. 

But regulators must rely on frameworks and guidance from Congress. It is clear 

to me that in order to take the major steps needed to break the industry out of the 

8 

old regulatory structures of the past, Congress will need to provide a new vision. 

That vision should have the following elements. 

• First, it is imperative that government decision makers understand how radically different the telecommunications market has become and incorporate that 

understanding into policy decisions. Harmful policies are based on ‘‘old think’’ 

and outdated stereotypes. 

• Second, we must shift our view of what government’s primary role is in this 

new telecommunications market. Traditional prescriptive regulation tends to 

drive all services down to a ‘‘least common denominator’’ level where little difference in networks, services or options is possible. Consumers want more options, more control, and more innovation. 

• Third, government should not impose price controls on selected services and 

transactions, thereby skewing the market and the incentives for efficient 

growth, impose operational constraints on technologies in an attempt to anticipate hypothetical problems, or impose burdensome and uneven taxation and 

regulation on one technology over another. 

• Finally, government should recognize the power and properties of networks because efficient, innovative networks require scale and scale is what drives consumer satisfaction—the more people and places any person can reach, the more 

valuable the network. It should continue to allocate spectrum and continue to 

facilitate more efficient ways to allow firms to use that spectrum. And it should 

focus on the role government may play in using broadband and advanced communications technologies to address the social challenges of our time, including 

telemedicine, improved emergency services and online education applications. 

Before I conclude, let me make one final point about the future of public policy. 

Any effort on the part of Congress to reform the laws governing communications 

must be matched by an equally thorough revamping of the state and Federal regulatory process. Without such reforms, the objectives of even the most well-intentioned legislation are in danger of being thwarted by the conflicting agendas and 

interpretations of multiple regulatory bodies. Only by paying close attention to the 

process by which telecom laws are implemented and enforced can Congress make 

sure new legislation produces the effects you intend. 

Complexity and uncertainty are the enemies of investment. You have the opportunity to clear the path to the future. I urge you to act on that opportunity with 

all due speed. 

Mr. Chairman, the world has changed in telecommunications. Consumers have 

more options and the market is more competitive than ever. We need to stop making policy by looking in the rear-view mirror and create a forward-looking framework that rewards the investment, innovation and risk-taking at the heart of technology-driven industries. 

We believe in this business. We are excited about the future and about our role 

in delivering the promise of the broadband era to customers. And we are confident 

that, with the right policy framework in place, communications can once again be 

an engine of economic growth and catalyst for innovation in this vital industry. 

Thank you, and I look forward to your questions. 

The CHAIRMAN. Thank you. 

Mr. Roberts, welcome. 

STATEMENT OF BRIAN L. ROBERTS, PRESIDENT AND CHIEF 

EXECUTIVE OFFICER, COMCAST CORPORATION 

Mr. ROBERTS. Thank you. Chairman McCain and members of the 

Committee: I appreciate the opportunity to share our views on the 

status and direction of communications policy in America. I think 

the right place to begin is with the excellent articulation that appeared in the preamble of the Telecommunications Act of 1996. It 

called for a pro-competitive deregulatory policy to promote investment, innovation, and competition in all segments of communications. That vision signaled a major change in direction, from decades-old interventionist policies that tended to artificially limit 

competition to policies that embraced markets, encouraged faciliVerDate Nov 24 2008 11:27 Sep 14, 2016 Jkt 075679 PO 00000 Frm 00012 Fmt 6633 Sfmt 6601 S:\GPO\DOCS\21481.TXT JACKIE
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ties-based competition, focused on breaking down entry barriers, 

and paring away counterproductive regulation. 

To the extent that we have remained true to that vision, I believe 

consumers have benefited, and the greatest success story of the 

1996 Act are what has happened in video and broadband markets. 

This chart shows you annual cable investment in innovation. From 

1992 when Congress regulated cable until 1996, when the industry 

was stagnant—our industry was stagnant between 1992 and 1996. 

The investment in new technology was literally frozen and new 

programming networks came to a halt. 

Then in 1996 the Act passed and it really changed everything. 

The Act removed the strict regulations on cable pricing and packaging effective in 1999. With the signing of the 1996 Act, the investment community finally regained confidence in cable and became willing to support the massive investment in video and 

broadband. In the last 8 years, the industry as a whole has invested over actually $85 billion in new technology. Comcast alone, 

counting the companies that we have acquired, have invested over 

$39 billion. 

Before deregulation the industry’s annual capital investment was $4.8 billion. After deregulation, in the average year we spent $13.4 

billion, more than triple. That has allowed all sorts of new services 

to become realistic to American consumers. 

But the 1996 Act was not just about deregulation at the Federal 

level. It was also about competition. The 1996 Act set the stage for 

the Satellite Home Viewer Act, which unleased the direct broadcast 

satellite industry to fully compete with cable. Until that legislation 

passed, satellite TV was mostly a rural phenomenon. Since then 

satellite and other video competitors have gone on to serve one out 

of every four multi-channel TV homes in the United States. 

The 1996 Act also gave the incentive to invest in high-speed 

Internet. Cable modems really drove the broadband revolution in 

America, and today Verizon, SBC and other companies compete 

fiercely with us and they are upgrading their networks, just as we 

have done, to keep pushing the technology envelope. 

Broadband is booming. Only cell phones have had a more rapid 

consumer acceptance. More than 20 percent of broadband customers, over 16 million homes, subscribe to high-speed network 

from cable and nearly a quarter of all U.S. homes take broadband 

from cable, phone, or other providers. 

The success of video and broadband, and I would add wireless, 

proves the wisdom of focusing government policy on promoting facilities-based competition. This is the kind of competition that is 

real and long-term and sustainable. It does not depend on a regulatory intervention to simulate competition through resale or forced 

access policies. Promoting facilities-based competition has been and 

should remain the paramount public policy goal. 

As we look ahead, I think we can agree that the next great transforming technology is Internet protocol, or IP, which gives us the 

ability to convert all forms of video, voice and data into data packets and move them over our networks with greater efficiency and 

less cost. The main reason we have seen very little facilities-based 

telecom competition over the past 8 years, particularly in the residential marketplace, is that the available technologies were so limVerDate Nov 24 2008 11:27 Sep 14, 2016 Jkt 075679 PO 00000 Frm 00013 Fmt 6633 Sfmt 6601 S:\GPO\DOCS\21481.TXT JACKIE
10 

iting. It really has not been possible to offer a phone service that 

is anything other than me-too. 

But the IP platform lets us offer a differentiated product with 

services like integrated messaging, so you can check your e-mail 

and voice-mail together on any number of different devices. As we 

saw some truly incredible IP videophones at the cable industry’s 

national show in New Orleans just last week, it gets me even more 

excited. Voice-over-IP will make cable a ubiquitous facilities-based 

telephone competitor, and we have clearly stated, in exchange for 

the rights we need to compete as a VoIP provider, as it is called, 

we are prepared to step up to important social responsibilities like 

universal service, emergency service, and full cooperation with law 

enforcement. 

We need a clear, strong deregulatory policy on VoIP. The FCC’s 

notice and Senator Sununu’s bill start us in the right direction. We 

hope these policies will not have to await a comprehensive rewrite 

of the Telecommunications Act. We need them sooner rather than 

later. 

Finally, I think that Congress and the FCC already have the 

right focus: promote facilities-based competition, break down barriers to entry, and reduce regulation. Right now the FCC is clearing the way for new wireless technologies, broadband over power 

lines, and other broadband alternatives. I believe that American 

businesses should put their energy and capital into creating these 

new facilities, as well as folks like ourselves creating new and better facilities, and try not to try to regulate competitors. 

Some may not get that message and to them I think Congress 

should offer the advice: Do not just stand there; build something. 

We have. $4.8 billion went to $13.4 billion per year. 

Mr. Chairman, thank you again for the chance to share our 

views. I look forward to the members’ questions. 

[The prepared statement of Mr. Roberts follows:] 

PREPARED STATEMENT OF BRIAN L. ROBERTS, PRESIDENT AND CHIEF EXECUTIVE

OFFICER, COMCAST CORPORATION

Chairman McCain, Senator Hollings: 

Thank you for this opportunity to share our views on the status and direction of 

communications policy in America. 

In our view, the starting point for this discussion is the excellent articulation in 

the preamble of the Telecommunications Act of 1996, which calls for a pro-competitive, deregulatory policy to promote investment, innovation and competition in all 

segments of the communications industry. 

That vision represented a major change in direction—from decades-old, interventionist policies that tended to artificially limit competition . . . to policies that embrace markets, encourage facilities-based competition, focus on breaking down entry 

barriers, and pare away counterproductive regulation. 

To the extent that our Nation has remained true to that vision, I believe consumers have benefited. And the greatest success stories of the 1996 Act are what 

has happened in the video and broadband markets. This chart shows what I mean. 

Before 1996, the cable industry was stagnant. The heavy-handed economic regulation imposed by the 1992 Cable Act had frozen investment and innovation. New 

cable technology and programming had all but ceased. 

From 1992 through 1998, the time when the cable industry was under heavy regulation, investment in upgrading the networks and in new programming was very 

low. You’ll notice in 1992 the industry collectively spent only $2.4 billion. By 1995— 

in what should have been peak spending years for the industry—the numbers were 

just over $5 billion. 

11 

Then, in the wake of the 1996 Telecom Act and increased competition from satellite, the industry made a huge bet. With the lifting of many of the most egregious 

regulations, the industry concluded that ‘‘if we build it they will come.’’ In the eight 

years since the Act, the cable industry has had a renaissance. We have made massive investments in both video and broadband—over $85 billion to date by the industry as a whole, and $39 billion of investment just by Comcast and our predecessor companies in the markets where we now do business. You can see the dramatic rise between 1998 and 1999, when investment almost doubled from $5.6 billion to $10.6 billion. As we approach 100 percent completion of the rebuild, the numbers begin to level off and drop slightly year-to-year. 

But the 1996 Act was not just about deregulation at the Federal level—it was 

about competition. The 1996 Act set the stage for the Satellite Home Viewer Act 

in 1999, which unleashed the direct broadcast satellite industry to invest in advanced facilities and to compete with cable, hammer and tongs. Until that legislation passed, satellite TV was mostly a rural phenomenon. Since then, satellite has 

gone on to serve one out of every four multichannel TV homes in the United States. 

The 1996 Act also gave cable the incentive to invest in high-speed Internet services. Our industry really drove the broadband revolution in America. And today, 

Verizon, SBC and other companies compete fiercely with us—and they are upgrading their networks, just as we have done, to keep pushing the technological envelope. 

Broadband is booming—only cellphones have had more rapid consumer acceptance. In the first quarter of 2004, about two million more homes signed up for 

broadband from cable, phone companies and other sources. Today, more than 20 

percent of cable customers—over 16 million homes—subscribe to high-speed Internet 

from cable, and nearly a quarter of all U.S. homes take broadband from cable, 

phone, or other providers. 

The success of the video and broadband marketplaces—and, I would add, the 

wireless marketplace—prove that when government policy emphasizes investment 

in facilities-based competition, markets thrive and consumers benefit. 

Facilities-based competition is real, sustainable competition. It does not depend on 

regulatory intervention to ‘‘simulate’’ competition through resale or forced access 

policies. Promoting facilities-based competition has been, and should remain, the 

paramount public policy goal. 

Incidentally, I want to dispel any notion that the 1996 Act ‘‘deregulated’’ cable. 

I can point you to over 60 pages of the U.S. Code, over 200 pages of FCC regulations 

and forms, and over 30,000 separate and distinct local franchise agreements, under 

which our industry must operate every day. While the regulatory load has been loosened somewhat, it is still substantial. 

As we look ahead, I think we can agree that the next great transforming technology is Internet protocol, or ‘‘IP,’’ which gives us the ability to convert all forms 

of video, voice and data into data packets, and move them over our networks with 

greater efficiency and less cost. 

I think the key reason we have seen very little facilities-based telephone competition over the past eight years—particularly in the residential marketplace—is that 

the available technologies were so limiting. It really hasn’t been possible to offer a 

phone service that is anything other than ‘‘me too.’’ That means the only basis for 

competing is price, and that doesn’t create much incentive to invest. 

But the IP platform makes it possible to compete on innovation and services as 

well. With services like integrated messaging, so you can check your e-mail and 

voice-mail together on any of a number of different devices . . . or give each person 

in your home a distinctive ring tone so they’ll know who the call is for . . . or create 

a videophone service that people really want to use—in fact, some exciting new 

videophones captured the imagination of all of us who saw them at the cable industry’s National Show in New Orleans last week. 

VoIP will make cable a ubiquitous facilities-based telephone competitor. And as 

VoIP providers, we have made it clear that in exchange for the rights we need to 

compete, we are prepared to step up to important social responsibilities like universal service, emergency services, and full cooperation with law enforcement. 

VoIP can fundamentally and positively change telephone competition in America 

. . . but only if we can have a clear, strong deregulatory policy. The FCC has started down that path. And the legislation on VoIP introduced by Senator Sununu goes 

in the right direction. We sincerely hope that getting clarity on VoIP will not have 

to await a comprehensive rewrite of the Telecommunications Act. This is something 

that needed sooner, rather than later. 

In conclusion, I think that Congress and the FCC already have the right focus: 

promote facilities-based competition, break down barriers to entry, and reduce regulation. 

12 

The FCC is working tirelessly to clear the way for a wide range of new wireless 

technologies, broadband over power lines, and other broadband alternatives. American businesses should put their energy and capital into building these new facilities—and not into trying to regulate competitors. To those who don’t get the message, I hope you will offer this advice: ‘‘Don’t just stand there—build something!’’ 

Mr. Chairman, thank you again for the chance to share our views, and I look forward to the Members’ questions. 

The CHAIRMAN. On your chart there, Mr. Roberts, why is—how 

do you account for the downturn there? 

Mr. ROBERTS. The rebuild cycle peaked out. But if you take the annual spending, that adds up to $85 billion since 1996. In the last 

couple years, as a number of systems have the two-way fiber-based 

technology, you are still spending way more than you were before 

it came along, but we are beginning to have the peak periods get 

behind us. 

The CHAIRMAN. You are not concerned about that downturn? 

Mr. ROBERTS. No. I think, you know, we have borrowed to do 

this, so we have got to pay back some of the borrowings. But we 

have in our company—— 

The CHAIRMAN. I do not know why you have to. We do not. 

[Laughter.] 

The CHAIRMAN. Mr. Ford. 

STATEMENT OF SCOTT FORD, PRESIDENT AND CHIEF 

EXECUTIVE OFFICER, ALLTEL CORPORATION 

Mr. FORD. Well, everybody has heard of Verizon and Comcast. I 

am the CEO of ALLTEL, one of the many companies in regional 

sections of the country that get to compete against both of them. 

We are a telecommunications provider, an integrated telecommunications provider, with almost 13 million customers and over $8 billion in annual revenues. We provide wireless, local telephone as an 

ILEC, local telephone as a CLEC. We provide long distance service, 

Internet access, and high-speed or broadband data services to residential and business customers in largely rural and smaller metropolitan areas in 26 states. 

While almost 60 percent of our revenues are generated by our 

wireless business, our roots go back 60-plus years as an independent rural telephone company. 

I would like to thank you to have just a minute to give our views 

on the topic in front of you today. In 1996, the Act that you passed 

I think made a good faith effort to deal with the rapid technological 

changes that were sweeping the traditional telecom industry. However, politics being what they are, it largely resulted in compromise 

legislation between the largest and most antagonistic industry segments, the RBOC’s, the wireline telephone business, and the long 

distance companies. 

I think, further, the Act did not view the industry and technology 

as as fluid as it turned out to be and it took a fairly static view. 

I think the Act—I think it would be fair to say that in 1996 not 

even the most outlandish telecom futurists would have foreseen the 

situation that we are dealing with today, one where both telephone 

and cable companies are seeing their economic model move from 

one of service provider to that of access provider only, one where 

the customer will increasingly use their broadband access device, 

from whoever they get that from, to replace the traditional teleVerDate Nov 24 2008 11:27 Sep 14, 2016 Jkt 075679 PO 00000 Frm 00016 Fmt 6633 Sfmt 6601 S:\GPO\DOCS\21481.TXT JACKIE
13 

phone and eventually to replace the traditional video service offerings with self-selected applications, and one where the broadband 

connection is becoming increasingly available in a device, such as 

a wi-fi-enabled PC or an EVDO phone, not through either one of 

the traditional networks that are represented in the testimony you 

have already heard. 

Consumers today have an unprecedented and ever-growing array 

of choices in how they communicate. ALLTEL’s customers show us 

every day they value two things: mobility and high speed. 

Setting aside the impact of the wireless industry for the moment, 

the evidence of success in the new telecom entrants is undebatable 

and only just beginning. By some estimates, e-mail and instant 

messaging have displaced some 40 percent of traditional local telephone calls, and two of America’s top ten telecom companies are 

cable companies. 

While local telco’s have recently started posting better results, 

according to an article in Telephony magazine last week, the cable 

companies still hold a 2-to-1 lead over the telephone companies in 

providing broadband access. This tremendous lead does not reflect 

simple technological differences, but rather economic incentives 

and regulatory freedom. So if we are to have rules, I think we need 

one set of rules for everybody that is in the business. I think that 

is the bottom line take-away from that. 

While the world and technology have changed a lot since 1996, 

most of what has been done on the legal side has been done in 

courts. Cable, wireless, satellite, wi-fi, ultra-wideband, wireless, 

they all remain largely free from Federal and State regulation, as 

they should be in a competitive marketplace in the world’s leading 

free market economy. However, ALLTEL, like the other local exchange businesses in the country—and this is about 40 percent of 

our business—- remains shackled by Federal and State regulation 

that limits our flexibility and competitive position. Just like the 

chart showed you a moment ago that capital spending in cable has 

gone up, in the wireline business, faced with the inability to change 

prices, to bundle, to offer services in the fashion that the consumer 

would take, we have been decreasing our spending in the local telephone business. 

The benefit of minimal regulation under one set of rules, though, 

is probably best illustrated by the enormous growth of the wireless 

industry. The wireless trade association, the CTIA, reports that 98 

percent of the U.S. population now lives in markets that are served 

by three or more wireless operators. 93 percent of Americans are 

served by four or more operators. 83 percent are served by five or 

more operators. And a full 66 percent are served by six or more 

wireless operators. 

Multiple wireless service providers are offering services to effectively all Americans today and the consumers are receiving the 

benefit. In the mean time, wireless service providers have continued to build out and invest in their networks and introduce new 

service features. By any measure, the wireless marketplace is a 

true success story for the American consumer, where the free market has delivered effective competition, sustainable competition in 

some markets, probably unsustainable in others, and the competiVerDate Nov 24 2008 11:27 Sep 14, 2016 Jkt 075679 PO 00000 Frm 00017 Fmt 6633 Sfmt 6601 S:\GPO\DOCS\21481.TXT JACKIE
14 

tive benefits that come from that, like radically lower prices, improved reliability, and leapfrog-like investment in new technology. 

Local telephone companies, by contrast, are stagnating under 

rules written for a bygone era where any investment made, unfortunately, is subject—and we have to view it this way—is potentially subject to economic seizure by regulators for the benefit of 

competitors. These rules assume a monopoly on access that, frankly, no longer exists. The results have been devastating. You have 

all read about it. 

[Cell phone rings.] 

We do not make any money until you answer that, so we appreciate you getting it. 

[Laughter.] 

Mr. FORD. Hundreds of thousands of jobs lost, $2 trillion in market value dissipated, and some quarter of a trillion dollars in capital investment gone from the telecommunications business. Lots of 

analysis about the fact, and Mr. Seidenberg referred to some of it, 

that up to $3 billion a year in new investment would be made in 

telecom, according to the experts, in a free market-based economy 

rather than a managed competitive model. 

Now, in all fairness, I think the pink elephant in the room is 

this. The effects of major technological change that we are undergoing in our industry is probably going to express itself in a very 

deflationary cycle for all of us sitting at this table. 

The key policy issue—— 

The CHAIRMAN. Because? 

Mr. FORD. I am sorry, sir? 

The CHAIRMAN. Because? 

Mr. FORD. Because new technology allows cheaper service that 

will be moving from the networks and the way that we build networks, the way that we sell our networks, onto applications. Right 

now you buy voice as a service and you buy cable TV as a service. 

The technology that is being deployed, largely by cable companies 

and some in the wireless business, is going to be able to let you 

make a decision, do you want to do business with Verizon for voice 

or do you want to take that application from somebody else. 

Everybody’s prices drop to meet that kind of paradigm shift. 

So I think the key policy issue is this: the wireline telephone 

companies, probably for lots of historical reasons—and I think 

some of the views have already been expressed this morning—but 

they are prohibited from making the next generation of investments that are going to be required for them to be competitive 5 

to 10 years from now because of the disparate regulatory and legal 

frameworks that exist across the country. It is true for us, so I 

know it is true for companies that are larger than we are. 

So while the current environment may not provide the perfect 

opportunity to write new legislation, I think it is past time, frankly, 

if we can get a framework that will reward companies for moving 

into the future. 

I will summarize this way. Investment is a forward-looking act 

of faith. Where we have had spectrum rules and competitive dynamics that we could understand, we have invested in the wireless 

business. Where we have regulatory rules on a State by State, city 

by city basis in the wireline business, we have pared our capital 

15 

spending and will continue to pare our capital spending. And we 

are the ones—we represent many companies, about a thousand of 

us—that actually serve rural America, the actual opposite of everything that we say we are trying to get done. 

But because we are not free to invest because we cannot turn our 

shareholders’ money over to a regulatory scheme that then some 

regulator says, I do not like the mix in the business, so I am going 

to take it and make you sell it to somebody else. It is a systemic 

problem and if you can do something about it with a set of rules 

that encourage facilities-based competition, frankly, I stand to gain 

and I stand to lose by such a set of rules. But I think long-term 

it is the policy that will benefit the consumer and, frankly, the 

economy and the country long-term. 

Thank you very much for the opportunity to be here this morning. 

[The prepared statement of Mr. Ford follows:] 

PREPARED STATEMENT OF SCOTT FORD, PRESIDENT AND CHIEF EXECUTIVE OFFICER, 

ALLTEL CORPORATION

Mr. Chairman and Members of the Committee: 

Thank you for the opportunity to appear before you today. I am Scott Ford, President and Chief Executive Officer of ALLTEL Corporation. ALLTEL is an integrated 

telecommunications provider with almost 13 million customers and over $8 billion 

in annual revenues. ALLTEL provides wireless, local telephone, long-distance, Internet access and high-speed or ‘‘broadband’’ data services to residential and business 

customers in largely rural and smaller metropolitan areas in 26 states. While almost 60 percent of our revenues are generated by our wireless operations today— 

our roots go back some 60 plus years as a rural, independent telephone company. 

I commend Chairman McCain and the Members of the Committee for holding this 

hearing and the two previous hearings on telecom policy. These are important steps 

in reviewing how telecom policy might be changed to better meet the needs of customers in the 21st century. 

In passing the 1996 Act, Congress made a good faith effort to deal with the rapid 

technological changes that were sweeping the traditional telecom industry—however, politics being what they are—the 1996 Act was largely a compromise between 

the largest and most antagonistic industry segments—namely the local wireline and 

long-distance companies. And while it did allow new market entry by some, in the 

end, the Act represented a static view of the industry and the market. The Act also 

did not fully anticipate the rapid development and deployment of the numerous alternative technology platforms and providers that have emerged as the most formidable competitors to the regulated local telephone companies. 

In fact, I think it fair to say that in 1996 not even the most outlandish telecom 

‘‘futurists’’ would have foreseen the situation we are dealing with today. One where 

both telephone and cable companies are seeing their economic model move from one 

of ‘‘service provider’’ to that of ‘‘access provider’’ only. One where the customer will 

increasingly use their broadband access device to replace traditional telephone and 

video service offerings with self-selected applications. And one where the broadband 

connection is becoming increasingly available in a ‘‘device’’ such as a WiFi enabled 

PC or a 1xEVDO wireless phone, not just through a ‘‘traditional network’’. 

Consumers today have an unprecedented and ever-growing array of choices in 

how they communicate. ALLTEL’s customers show us every day that they highly 

value mobility and broadband speed, as the number of homes and small businesses 

that use wireless phones for voice and broadband connections for data continues to 

increase while the number of traditional telephone lines—even in our non-urban 

markets—continues to shrink. 

Setting aside the impact of the wireless industry for the moment, the evidence of 

the success of new telecom entrants is undebatable and only just beginning. By 

some estimates, E-mail and Instant Messaging have displaced some 40 percent of 

traditional local phone calls and two of America’s top telephone service providers are 

in fact cable companies. And while the local telco’s have recently started posting betVerDate Nov 24 2008 11:27 Sep 14, 2016 Jkt 075679 PO 00000 Frm 00019 Fmt 6633 Sfmt 6621 S:\GPO\DOCS\21481.TXT JACKIE
16 

1Telephony, ‘‘RBOCs Gird For Broadband Battleground’’ (May 3, 2004). 

2Decision Economics, ‘‘Macroeconomic Effects of Telecommunications Regulation’’ (May, 2004). 

3 ‘‘The Effects of Ubiquitous Broadband Adoption on Investment, Jobs and the U.S. Economy,’’ 

New Millennium Research Council (September, 2003). 

ter results, according to Convergent Consulting,1 at year end 2003, the total 

broadband connections provided by traditional cable companies outpaced their telephone counterparts by a two to one margin. This tremendous lead does not reflect 

simple technological differences, but rather, economic incentives and regulatory freedom. So if we are to have rules, we need one set of rules for all broadband service 

providers, regardless of the technology or method used to deliver it or what origin 

the service provider had. 

While the world and technology have changed a lot since 1996, the regulation governing telecom has remained the same. Cable, wireless, satellite, Wi-Fi and ultra 

wideband wireless are all largely free from Federal and state government regulation—as they should be in a competitive marketplace in the world’s leading freemarket economy. However, ALLTEL, like the other local exchange businesses in the 

country, remains shackled by Federal and state regulation that limits our flexibility 

and competitive position. 

The benefit of minimal regulation under one set of rules is best illustrated by the 

enormous growth and vitality of the wireless industry. The Cellular Telecommunications & Internet Association (‘‘CTIA’’) reports that 98 percent of the U.S. population now lives in markets served by three or more operators, 93 percent in markets served by four or more operators, 83 percent in markets served by five or more 

operators, and 66 percent in markets served by six or more operators. 

Multiple wireless service providers are offering services to effectively all Americans today, and consumers are benefiting from the unprecedented choice of service 

offerings. In the meantime, wireless service providers have continued to build out 

and invest in their networks and introduce new service features. By any measure, 

the wireless marketplace is a true success story for the American consumer—where 

the free-market has delivered effective competition, and competitive benefits like 

radically lower prices, improved reliability and ‘‘leap-frog’’ like technological investment. 

Local telephone companies, by contrast, are stagnating under rules written for a 

bygone era where any investment made is subject to economic seizure by regulators 

and competitors. These rules assume a monopoly on access that no longer exists. 

The results have been devastating: hundreds of thousands of jobs lost, $2 trillion 

in market value dissipated and a drop by some quarter of a trillion dollars in capital 

investment. According to recent analysis, capital spending on communications 

equipment alone would increase by almost $3 billion a year for the next five years 2

and our economy would see some 1.2 million additional jobs over the next 20 years 3

under a market-based competitive model. Rules that incent a robust and vital 

telecom industry benefit consumers, our economy, and our society as a whole. Public 

policy in this arena is potentially a major driver of economic growth. If unchanged 

though, our laws will continue to block investment and the benefits of the resulting 

competition. 

Now in all fairness, it should be noted that the ‘‘pink elephant in the room’’ is 

that this kind of disruptive technological change is probably going to have a deflationary effect on all traditional participants. The key policy issue remains though 

that the wireline telephone companies are virtually prohibited from making the next 

generation investments required to be competitive over the next several years by the 

disparate regulatory and legal frameworks that exists across the country. 

While the current environment may not provide the perfect opportunity to write 

new legislation, the need for rules that acknowledge the radical technological 

progress in our industry is clear and we must build a legal framework that will reward companies for moving into the future. 

I believe that this country would be well served if this body were to write rules 

that treat all competitors providing similar services equally without regard to the 

definitions of the past—rules that rely on the operation of our free-market economy 

rather than management by our Federal and state governments. Investment is a 

forward-looking act of faith. Without free and fair markets we will not attract the 

capital, the economy will go without the associated growth, and our customers will 

go without the benefits that only economically sustainable competition can bring. 

Free markets work for America in virtually every sector of the U.S. economy 

today. Market-based competition enables innovation, better services, better technology, and ultimately the choice to take your business elsewhere. The telecom industry has extraordinary potential to create jobs, enhance our quality of life, open 

up new economic opportunities in American communities, and benefit our economy. 

17 

Achieving fundamental telecom reform for the 21st century will likely not be an 

easy task to accomplish, but it is achievable if we take our cue from the reality of 

the market and the basic principles of consistency and simplicity. It involves a 

choice between embracing the new and dealing with it’s inevitable changes—some 

good and some bad—and letting the market sort it out—or being encumbered by the 

past and its traditional definitions and limitations. 

Finally, in my opinion, we must keep faith in the American belief that great 

things can come for our country if we free the marketplace to drive powerful new 

cycles of American investment, innovation, and growth. And frankly, our company 

stands to lose as well as gain from such a marketplace—but we look forward to the 

opportunity to compete on a level playing field. I recognize that divining truth in 

this arena must be a very daunting task for the members of Congress from so many 

disparate voices—so on behalf of the 20,000 employees of ALLTEL I extend our 

gratitude for your public service. 

Mr. Chairman and Members of the Committee, thank you for holding these hearings. I look forward to answering your questions, and stand ready to assist your efforts. Thank you. 

The CHAIRMAN. Thank you very much. 

Mr. Betty, would you pull the mike up. Thank you. Welcome. 

STATEMENT OF CHARLES ‘‘GARRY’’ BETTY, PRESIDENT AND 

CHIEF EXECUTIVE OFFICER, EARTHLINK, INC. 

Mr. BETTY. Thank you, Mr. Chairman and members of the Committee. I am Garry Betty. I am President of EarthLink. We serve 

5.3 million subscribers. We are one of the largest independent 

Internet service providers in the United States, providing dialup, 

broadband, web hosting, and wireless Internet services. 

As you know, the purpose of today’s hearing is to review our telecommunications policy. As the members of the Committee are 

aware, such policy is the focus of several ongoing proceedings both 

here and at the FCC. However, we are troubled by the far-reaching 

attempts by the FCC to classify the facilities used to provide 

broadband services as end to end information services. 

Common carrier transmission services are the foundation of the 

information economy. If such services were no longer available to 

information service providers upon reasonable request on nondiscriminatory terms and conditions, incumbents could close their 

networks to competitive providers, services, and innovations. This 

would hurt consumers. 

Congress has enacted a body of laws over the years to promote 

competition, to protect consumers, and provide for public safety. 

Neither the FCC nor incumbent companies can ignore the plain 

language that Congress wrote in the Telecommunications Act of 

1996. 

The central issue in this hearing, several current FCC proceedings, and in any proposed rewrite of the 1996 Act would be the 

regulatory classification of broadband services. Let me be clear in 

answering this question. All Internet access services, whether provided by an independent ISP like EarthLink, a telco affiliate like 

Verizon On Line, or a cable company like Comcast, are information 

services. 

Let me be equally clear, though, that the information services 

are delivered via telecommunications and offering such telecommunications, whether by telco or cable company, for a fee to the 

public makes them telecommunications services. Internet access, 

broadband or otherwise, is therefore an information service riding 

18 

on top of a transmission component, which is telecommunications 

service. 

Today the RBOC’s have enjoyed a government-granted monopoly 

for almost a century as they built out their transmission networks 

while rate of return regulation ensured profits. Cable companies 

talk about risk capital, but enjoyed monopoly franchises, the cabletelco cross-ownership ban, and low-cost access to poles, ducts, conduits, and rights of way for decades as they built out their networks. Thus, incumbent telephone and cable companies still have 

85 percent or more of their customers in their core business and 

some 95 percent of all broadband or cable modem customers respectively. 

Eight years after the passage of the Telecommunications Act, it 

is clear that no one has benefited more than the incumbent providers. Regional Bell operating companies have gained 271 authority to offer long distance services in all 50 States. At the same 

time, CLEC’s have seen their ranks decimated, while UNEEP, 

their best tool for offering local voice service competition, was taken 

away by the D.C. Circuit’s recent vacatur of the FCC’s review 

order. In broadband, that same order even eliminated line sharing 

on existing copper loops. The FCC thus has not only granted the 

Bells the regulatory relief they demanded, but has erased a key 

component that promoted DSL deployment to date. 

Until recently, cable providers held almost a two to one share advantage over DSL. Telco’s blame this shortfall on regulatory disparity, but in the first quarter of 2004 DSL sales actually exceeded 

those for cable modem service. So the regulatory disadvantage of 

which the Bells complain does not withstand scrutiny. 

In cable, competition is also scarce. Incumbent providers still 

control over 95 percent of broadband cable modem services. Unfortunately, the FCC’s misguided attempt to classify cable modem 

service as an end to end information service has allowed most cable 

companies to extend their monopolies to broadband. However, the 

Ninth Circuit Court of Appeals in October 2003, overturned the 

FCC’s cable modem order and correctly ruled that cable modem 

service contains an underlying telecommunications service transmission component. 

In March 2004, the full court denied petitions for rehearing the 

FCC and cable companies. I am sure they will likely seek Supreme 

Court review, but even review, not to mention reversal, is questionable. 

In sum, rather than trying to rewrite the 1996 Act, Congress 

should insist that the FCC enforce the provisions of the current 

act. In many respects the 1996 Act has been a great success. Over 

35 million on-line households now have broadband access. In many 

cases prices are falling and speeds are increase, and DSL is even 

catching up to cable’s market share. The incumbents are doing better than ever. 

In fact, the only area where the Act has fallen short is promoting 

more widespread competition in products and services to benefit 

consumers. So-called facilities-based competition exists between 

cable and phone companies and that is good as far as it goes, but 

it only creates a duopoly. And even this limited competition only 

19 

reaches two-thirds of American households, leaving many consumers with only one choice, if any, for broadband service. 

Only by ensuring that consumers can choose their broadband 

providers regardless of which wire they use will they enjoy the 

widest deployment, the best products, features, customer services, 

price, and innovation. 

Thank you for inviting me here today. 

[The prepared statement of Mr. Betty follows:] 

PREPARED STATEMENT OF CHARLES ‘‘GARRY’’ BETTY, PRESIDENT AND CHIEF

EXECUTIVE OFFICER, EARTHLINK, INC. 

Mr. Chairman and members of the Committee. Thank you for the opportunity to 

testify before you today. My name is Garry Betty and I am the President and CEO 

of EarthLink. EarthLink is the Nation’s 3rd largest Internet Service Provider (ISP), 

serving over 5 million customers nationwide with dial-up, broadband (DSL, cable 

and satellite), web hosting and wireless Internet services. EarthLink regularly receives awards for its customer service and innovation, including the J.D. Power and 

Associates award for highest customer satisfaction among dial-up ISPs and (tie) 

highest customer satisfaction among broadband ISPs. 

The purpose of today’s hearing is to review telecommunications policy. As the 

members of the Committee are aware, such policy is the focus of several ongoing 

proceedings at the Federal Communications Commission (FCC). Particularly troubling to EarthLink, and I would hope troubling as well to the members of this Committee, are the far reaching effects of attempts by the FCC to classify the facilities 

used to provide broadband services as end-to-end ‘‘information services’’ under the 

Communications Act. 

Common carrier transmission services are the foundation of the information economy. If such services were no longer available to information service providers upon 

reasonable request on non-discriminatory terms and conditions, incumbents would 

be free to close their networks to any competitive providers, services, or innovations. 

This would work against consumer interests. Even laws like CALEA would no 

longer apply as the DOJ, FBI and DEA have made clear in recent filing with the 

FCC. Congress has enacted an entire body of laws over the years to promote competition, protect consumers, and provide for public safety. Neither the FCC nor incumbent companies can ignore the plain language that Congress wrote in the Telecommunications Act of 1996. 

The central issue in this hearing, several current FCC proceedings and in any 

proposed re-write of the 1996 Act would be the regulatory classification of 

broadband services. Let me be clear in answering this question. All Internet access 

services—whether provided by an independent ISP like EarthLink, a telco affiliate 

like Verizon Online, or a cable company like Comcast—are information services. Let 

me be equally clear that all information services are, by definition, delivered via 

telecommunications, and the offering of such telecommunications, whether by a telco 

or a cable company, for a fee to the public makes them telecommunications services. 

This is true whether the Internet access is provided by an independent ISP or by 

the network operators themselves. Internet access, broadband or otherwise, is therefore an information service riding on top of a transmission component which is a 

telecommunications service. 

In the world of dial-up Internet access these two components are easy to see. Consumers purchase their phone line from their telephone company and their Internet 

service from an ISP such as EarthLink. The telephone company provides a telecommunications service which can be used to transmit voice or data. The ISP provides an information service. The consumer dials an EarthLink access number, 

which establishes an underlying transmission link through the customer’s phone 

line; the consumer can then use EarthLink’s services to access the Internet. The underlying transmission link is a regulated common carrier telecommunications service. The Internet access service is an unregulated information service. 

In the broadband world, the same rules apply. Underlying DSL transmission provided by Verizon is regulated as a common carrier telecommunications service, but 

Verizon Online’s Internet access service is still an unregulated information service. 

This is the regime that the FCC crafted in its seminal 1980 Computer II proceeding, 

which has been affirmed by the FCC and Federal courts many times in the intervening years, and which Congress adopted in the Telecommunications Act of 1996. 

As a result, competition in the provision of information services flourished because 

20 

the facility owners could not use their ownership of the underlying transmission facilities to leverage their position in the information services market. 

Yet, in the case of broadband Internet access, the FCC seems determined to take 

the exact opposite approach from the one that proved so successful in promoting 

Internet usage in the first place. For broadband, the FCC suggests that, so long as 

the facility owner refuses to offer consumers the option of buying the transmission 

link separately from the information services component, the entire bundled package of transmission and information service is an ‘‘information service’’. As a result, 

facility operators are able to shield their transmission networks from requirements 

for non-discriminatory access by independent ISPs. This all but eliminates competition among broadband Internet service providers and not only violates the letter and 

intent of the Telecommunications Act, but also does great harm to small businesses 

and to consumers. 

Today’s Regional Bell Companies enjoyed a government-granted monopoly market 

for almost a century as they built out their transmission networks while rate of return regulation ensured profits. Cable companies like to talk about ‘‘risk capital’’ but 

enjoyed monopoly franchises, the cable-telco cross ownership ban, and below-cost access to poles, ducts and conduits for decades as they built out their networks. Today, 

incumbent telephone and cable companies still each have 85 percent or more of the 

customers in their core businesses and some 95 percent of all broadband DSL or 

cable modem customers, respectively. Yet competitors to these incumbent facility 

owners would, under the FCC’s interpretation, have to undertake the impossible 

task of building their own last-mile network—without any protection or subsidy— 

in order to continue to compete in the information services business. This result 

stands the 1996 Act on its head. 

It is therefore crucial to distinguish between broadband information services and 

the underlying telecommunications services which deliver them. Internet access 

services, whether narrowband or broadband, and whether offered by an independent 

ISP, an RBOC, or a cable company, remain unregulated information services. But 

the facility based transmission services that underlie all information services remain common carrier telecommunications services, regardless of whose broadband 

Internet service the customer subscribes to and whether or not the facilities operator offers those transmission services separately to consumers or as part of a combined package of services that includes information services. Consumers and the 

economy have benefited over the past two decades from robust competition in an 

unregulated information services industry. This competition was made possible because the underlying transmission networks remained subject to regulations that require that they be offered to all ISPs on non-discriminatory terms and conditions. 

In most areas of the country today there are at best two broadband networks; for 

many residential consumers there is effectively only one. Both the telephone networks and the cable networks were built with government-granted monopolies over 

public rights of ways using Federal authority using rate-payer money. To allow 

these facility owners to now repudiate their obligation to share those transmission 

networks on a non-discriminatory basis with others who seek to offer telecommunications or information services to the public is an abuse of the law and is anti-competitive. Such an approach would take a robustly competitive and level playing field 

and tilt it heavily in favor of a few players by allowing them to leverage their transmission facility monopoly into domination of new areas and services. Clearly that 

was not what Congress wrote or intended when it passed the 1996 Act. 

Eight years after the passage of the Telecommunications Act of 1996, it is clear 

that no one has benefited more than incumbent providers. Regional Bell Operating 

Companies (RBOCs) have gained § 271 authority to offer long distance service in all 

50 states. At the same time, Competitive Local Exchange Carriers (CLECs) have 

seen their ranks decimated. Incumbent Local Exchange Carriers (ILECs) still control over 80 percent of the local voice market for businesses and over 90 percent 

of the residential market. And CLECs have just seen UNE–P, their best tool for offering local voice service competition, taken away from them by the DC Circuit’s recent vacatur of the FCC’s UNE Triennial Review Order. 

In broadband DSL, the FCC in the same order not only barred competitors from 

access to new networks like fiber-to-the-home (FTTH), but also barred access to hybrid fiber loops (HFL) and even eliminated line sharing on existing copper loops. 

The FCC has thus not only granted the Bells the regulatory relief they have so long 

demanded, but has erased a key component that has promoted DSL deployment to 

date. 

As Chairman Powell correctly pointed out in his dissent to this Order, such a 

scheme actually eliminates the regulatory incentives for incumbents to deploy new 

broadband technologies. Why build expensive fiber to the home when even a piece 

of fiber spliced into a loop is enough to inoculate it from any access by competitors? 

21 

And eliminating line sharing strikes a blow to competitive wholesale DSL providers 

like Covad. Eliminating wholesale DSL competition will only further enhance the 

Bells’ position as the dominant providers of retail DSL service. While we are encouraged that Covad recently struck a commercial arrangement for line sharing with 

Qwest, none of the other Regional Bell Companies have done so. It is untenable for 

a retail competitor such as EarthLink to have to rely solely on its biggest competitors for an essential component of their service. 

Meanwhile, incumbent Bell companies use their market power to engage in anticompetitive and discriminatory pricing, often selling their retail DSL service at or 

below the wholesale DSL loop price they charge to competitors. No doubt, recent 

price drops in DSL service are good for consumers. However, with fair pricing of 

wholesale inputs, more companies could offer such deals to even more consumers. 

Until recently, cable providers held an almost 2–1 share advantage over DSL. 

Telcos blame this shortfall on regulatory disparity, but that’s not the reason for it. 

Rather, the Bells sat on DSL technology for 10 years. Selling T–1 services to businesses for $750 a month instead of similar-speed DSL services to consumers for $50 

a month was a business decision which cable exploited to get a jump on the residential broadband market. Also, DSL has inherent distance limitations. Even with aggressive build-out, DSL will never reach all the homes that cable modems can. 

Nonetheless, in the first quarter of 2004, DSL sales actually exceeded those for 

cable modem service and DSL now has approximately 20 million customers compared to 26 million for cable. So the regulatory disadvantage that Bells complain 

of does not stand up to scrutiny. 

In cable, the competitive landscape is no better. Incumbent providers still control 

over 97 percent of cable services, over 80 percent of the multichannel video market, 

and again over 95 percent of broadband cable modem services. Time Warner Cable 

is required to sell network access in its 39 major markets but the rest of the industry remains virtually closed to competition. Unfortunately the FCC has aided and 

abetted this situation. Original inaction, followed by a misguided attempt to classify 

cable modem service as an end-to-end information service, has allowed most cable 

companies to expand their monopolies to broadband cable modem service as well. 

However, the 9th Circuit Court of Appeals in October 2003 overturned the FCC’s 

cable modem order and correctly ruled that cable modem service contains an underlying telecommunications service transmission component. The full court also denied 

petitions for rehearing by the FCC and cable companies. The FCC and cable companies will likely seek Supreme Court review, but even review, much less reversal, is 

questionable. 

Finally, the emergence of Voice Over Internet Protocol (VoIP) drives much of this 

debate. The FCC has just opened a docket to develop rules concerning VoIP. Chairman Powell and others have expressed a desire to regulate VoIP as little as possible, but quickly note the need to preserve universal service, 911, disabled access, 

CALEA compliance and inter-carrier compensation. At the end of the day, we’re not 

sure how much differently VoIP would be treated from traditional voice service, but 

we might suggest that Congress allow both the VoIP record and marketplace to develop a little more before taking on the task of re-writing the 1996 Act. 

While VoIP certainly poses a potential threat to the Bells’ core business model, 

it can also drastically slash their costs. Whether a call is routed over the public 

switched telephone network or through Internet Protocol is invisible to the customer. VoIP may ultimately serve as a better, cheaper way to route the voice traffic 

the Bells already handle. In the end, the biggest users of VoIP may be the Bells 

themselves. 

In sum, rather than trying to re-write the 1996 Act, Congress should insist that 

the FCC enforce the provisions of the current Act. Before we try to fix the current 

Act, we must answer ‘‘What’s broken?’’. In many respects, the 1996 Act has been 

a great success. Over 46 million online households now have broadband access. In 

many cases, prices are falling and speeds are increasing. And DSL is even catching 

up to cable’s market share. The incumbents are doing better than ever. 

In fact, the only area where the Act has fallen short is in promoting more widespread competition in products and services to benefit consumers. So called facilities-based competition between cable and phone companies is good as far as it goes, 

but it only creates a duopoly, or more precisely, a ‘‘double-headed monopoly’’. And 

even this limited competition only reaches about 2/3 of American households, leaving many consumers with only one choice, if any, for broadband services. Only by 

ensuring that consumers can choose their broadband providers regardless of which 

wire they use will they enjoy the widest deployment and the best products, features, 

customer service, prices and innovation. 

Thank you for hearing me today and I look forward to your questions. 

22 

The CHAIRMAN. Thank you very much. 

Mr. Wilson. 

STATEMENT OF DELBERT WILSON, CENTRAL TEXAS 

TELEPHONE COOPERATIVE ON BEHALF OF THE NATIONAL 

TELECOMMUNICATIONS COOPERATIVE ASSOCIATION 

Mr. WILSON. Good morning. I am Delbert Wilson with Central 

Texas Telephone Cooperative, Incorporated. Central Texas is a 

member-owned telephone cooperative headquartered in 

Goldthwaite, Texas. Our service area encompasses over 3,302 

square miles, which roughly equates to the size of Delaware and 

Rhode Island combined. We have 17 telephone exchanges providing 

local exchange service to approximately 7,700 access lines. That is 

a density of only 2.33 subscribers per square mile. 

Through Central Texas’ infrastructure investments, we are key 

to the local economy and the rural economic development of our 

rural service area. Central Texas is representative of the Nation’s 

small rural incumbent local exchange carriers. The good things we 

stand for and do make our rural communities a better place in 

which to live and work. That is why I am honored to be appearing 

today on behalf of the hundreds of rural local exchange carriers 

that are represented by NTCA and, more importantly, on behalf of 

their several thousand employees and several million subscribers. 

NTCA members and their fellow rural independents provide 

service to 7 percent of this Nation’s access lines, but actually cover 

40 percent of the land mass of this country. We have a mission of 

service that supersedes profitmaking. We have a mission that is 

based on responsibilities to the community and the industry rather 

than focusing only on the bottom line. We have a mission of providing universal service, which means service to all Americans, not 

just the 92 percent majority that many FCC policies attempt to address. We have done this despite the tremendous regulatory and 

economic barriers that have historically stood in our way. 

For well over 100 years, small rural incumbent local exchange 

carriers have been engaged in the provision of local telecommunications services throughout rural America. These carriers are the 

embodiment of the universal service concept, having built the infrastructure that provides ubiquitous high-quality local exchange service and exchange access, as well as a variety of other telecommunications services, to some of the Nation’s most economically challenging to serve areas. 

This would have not been possible were it not for their dedication 

to their community and the Nation’s longstanding commitment to 

the policy of universal service. It is no secret that the ability to 

fully recover costs is the very lifeblood of the small rural ILEC’s. 

Thus, of particular concern to us today are the many regulatory 

and judicial proceedings that could destroy this ability and subsequently the continued investment in rural telecommunications infrastructure throughout this country. 

During this hearing series, you are receiving input from a wide 

range of witnesses. In many ways their themes are similar in that 

they revolve around the theory that absolute competition and deregulation are always in the public interest, the telecommunications world can only evolve to the next level with a hands-off polVerDate Nov 24 2008 11:27 Sep 14, 2016 Jkt 075679 PO 00000 Frm 00026 Fmt 6633 Sfmt 6601 S:\GPO\DOCS\21481.TXT JACKIE
23 

icymaking approach, we must let go of the footings of our past, 

such as universal service and access charges, and we must abandon 

the legacy network in favor of the intriguing technologies of the future. 

The flaw with all these theories is that none of them alone or 

even in combination will produce the results their advocates so desperately seek. Why? Because they ignore the fact that through a 

combination of longstanding social policy, innovation and cooperation a preeminent communications network has been built. They 

are in denial of the reality that it is only through our national universal service policy and the infrastructure it has yielded that we 

are able to even think of contemplating the technological wonders 

of this era. 

So if we learn nothing else from these hearings, let us take away 

the knowledge and recognition that the foundation of our past is 

at least as important to our future as the mist of so many dreams. 

We agree that now may be the time for Congress to weigh in on 

these matters. Policymakers, the judiciary, the public, and competitors alike must be reminded of the importance of our longstanding 

national universal service policy. It must be carefully managed to 

fulfil its public interest goals of providing affordable, high-quality 

telecommunications services to rural consumers throughout this 

Nation. Universal service is not a tool to be used to incite artificial 

competition. It is a tool to help ensure the existence of a nationwide ubiquitous telecommunications network, a network that has 

been proven again and again to be so critical to our national and 

economic security. 

NTCA and others have particular ideas regarding the future of 

this program. We will be looking to you for help in arriving at a 

legislative solution that will ultimately accomplish these objectives. 

In terms of a broader rewrite of the Communications Act, we would 

implore the Committee to remain cognizant of the following specific 

areas that are so critical to rural carriers and the consumers they 

serve: network compensation, smart regulation over deregulation, 

access to spectrum, leadership in encouraging nationwide 

broadband deployment, and above all ensuring a level playing field 

for all carriers in this competitive environment. 

Congress must continue to support the longstanding policy of 

providing all Americans with access to comparable, affordable telecommunications services now and in the future. 

Thank you, Mr. Chairman. 

[The prepared statement of Mr. Wilson, follows:] 

PREPARED STATEMENT OF DELBERT WILSON, CENTRAL TEXAS TELEPHONE

COOPERATIVE ON BEHALF OF THE NATIONAL TELECOMMUNICATIONS COOPERATIVE

ASSOCIATION

Executive Summary 

For well over 100 years, small rural Incumbent Local Exchange Carriers (ILECs) 

have been engaged in the provision of local telecommunications services throughout 

rural America. These carriers are the embodiment of the universal service concept, 

having built the infrastructure that provides ubiquitous, high-quality local exchange 

service and exchange access (as well as a variety of other telecommunications services) to some of the Nation’s most economically challenging to serve areas. This 

would not have been possible were it not for their dedication to community, and the 

Nation’s long-standing commitment to the policy of universal service. 

24 

As the industry continues its rapid evolution, and as the calls for a rewrite of the 

communications act continue to escalate, policymakers and the public alike must not 

lose sight of the fact that emerging technologies are not free, as many people have 

come to believe because they are generally riding on the backs of the Nation’s existing telecommunications infrastructure. As the migration away from voice only service toward a mix of voice, video and data continues, policymakers must ensure that 

the universal service policy of this Nation evolves to ensure the dreams associated 

with the migration ultimately equate the reality of the superiority of the underlying 

network helping to support them. 

Now is the time for congress to weigh in on these matters. Policymakers, the judiciary, the public, and competitors alike must be reminded that the universal service 

support mechanism, and the intercarrier compensation mechanisms that are in 

place today that effectuate this policy are resources that cannot be abandoned and 

that must be carefully managed to fulfill the public interest goal of providing affordable, high-quality telecommunications services to consumers and helping to protect 

our national and economic security. 

Introduction 

Good morning! I am Delbert Wilson with the Central Texas Telephone Cooperative, Inc. CTTC is a member-owned telephone cooperative headquartered in 

Goldthwaite, Texas, which is geographically located in the center of the state. Our 

service area encompasses over 3,302 square miles, which roughly equates the size 

Delaware and Rhode Island combined. We have 17 telephone exchanges providing 

local exchange service to approximately 7,700 access lines. That is a density of only 

2.33 subscribers per square mile. 

CTTC is rich in history. Created in 1951 by the people of Mills County, it was 

built to provide telephone service to rural consumers who had never before had 

service. Due to the sparse population, this area was economically unattractive to the 

larger telephone companies. Today, throughout our service area, we are involved in 

many activities that have helped to bring new services, technologies and opportunities to our rural subscribers. Besides local exchange service, CTTC provides wireless 

cable TV, wired/wireless digital subscriber lines (know as DSL), Internet access, 

long distance, distance learning, and wireless phone service. Through CTTC’s infrastructure investments, we are key to the local economy and the rural economic development of our rural service areas. 

CTTC is representative of the Nation’s small rural incumbent local exchange carriers. The good things we stand for and do, make our rural communities a better 

place in which to live and work. That is why i am honored to be appearing today 

on behalf of the hundreds of rural local exchange carriers that are represented by 

NTCA—and more importantly, on behalf of their several thousand employees and 

several million subscribers. 

NTCA members and their fellow rural independents provide service to 7 percent 

of this country’s access lines, but over territory covering 40 percent of the land mass 

of this Nation. We have a mission of service that supercedes profit making. We have 

a mission that is based on responsibilities to the community and the industry rather 

than focusing only on the bottom line. We have a mission of providing universal 

service which means services to all Americans, not just the 92 percent majority that 

many of the policies emerging from the FCC attempt to. We have done this despite 

the tremendous regulatory and competitive barriers that have historically stood in 

our way. 

The Landscape 

During this hearing series, you are receiving input from large providers, a former 

regulator, think tanks and myself. While the testimony of the other witnesses is not 

identical, many of their themes are similar and they are that: ‘‘absolute competition 

and deregulation are always in the public interest. The telecommunications world 

can only evolve to the next level with a hands-off policymaking approach. We must 

let go of the footings of our past such as universal service, and access charges. We 

must abandon the legacy network in favor of the intriguing technologies of the future.’’ 

The flaw with all of these theories is that none of them alone or even in combination will produce the results their advocates so desperately seek. Why? Because they 

ignore the fact that through a combination of social policy, innovation, and cooperation, a preeminent communications network has been built. They ignore that all of 

this has evolved under a longstanding national policy based on the premise that 

universal service is in the country’s best interest. They are in denial of the reality 

that it is only through this national policy, and the infrastructure it has yielded, 

that we are able to even think of contemplating the unlimited wonders we are expeVerDate Nov 24 2008 11:27 Sep 14, 2016 Jkt 075679 PO 00000 Frm 00028 Fmt 6633 Sfmt 6621 S:\GPO\DOCS\21481.TXT JACKIE
25 

riencing with technology changes today and will continue to encounter in the future. 

So, if we learn nothing else from these hearings, let us take away the knowledge 

and recognition that the foundation of our past is at least as important to our future 

as the mist of so many dreams. 

Please don’t misinterpret my message today. In fact let me be perfectly clear. As 

small businesses, rural community based telecommunications providers strongly 

support the idea that new technologies and services should remain free of needless 

regulatory oversight. Yet they concurrently recognize that there is a stark difference 

between such restraints, and the core industry responsibilities that have and will 

continue to ensure we have a ubiquitous telecommunications system that is capable 

of protecting our national and economic security. We will settle for nothing less. 

The Rural Spirit 

During the course of the past decade, the telecommunications industry has confronted nearly unfathomable technological change. Yet without exception, the Nation’s small rural community based telecommunications providers, that are representative of NTCA’s members, have always been at the forefront of aggressively 

embracing and deploying new technologies and services. 

It still regularly comes as a surprise to most people to learn that it was a small 

rural LEC in Pennsylvania, in June of 1979 that placed in service the first commercial fiber optic telephone system in the Nation. That feat is representative of our 

segment of the industry. We led the transition to digital switching and actually completed the job well ahead of the rest of the industry. Likewise, we got into the cable 

TV business years ago because no one else would serve our rural communities. The 

same goes for the satellite television business. We led the way 15 years ago in the 

migration to distance learning and telehealth applications. We partnered and have 

tried to persist in wireless endeavors despite tremendous uphill battles with the 

FCC and the industry members with the deepest pockets. We ran headlong into the 

business of Internet provision. And we have engaged ourselves in the business of 

long distance whether through resell or other partnerships. While others have developed a long history of making grand pronouncement on the Washington luncheon 

circuit, we have been silently plodding ahead doing what we do best—serving our 

communities. 

Now we find ourselves at yet another crossroads. Again we find competitors old 

and new, policymakers, and others endlessly proclaiming that the law as it exists 

today is broken. We are told over and over that the law is incapable of meeting the 

technological necessities of the era in which we live—that it doesn’t allow innovation, and subsequently hurts consumers. I think our record, outlined above, speaks 

to the contrary. Certainly, we do not dispute that the law could be better written. 

But our refrain is that such modifications will help us do even more for our consumers by ensuring that scarce resources are used in the wisest possible manner. 

Critical Nature of Cost Recovery 

From our perspective, perhaps the single most important area that congress could 

provide help on is ensuring that we recover our costs. It’s no secret that the ability 

to fully recover costs is the very lifeblood of small rural ILECs. Thus, of particular 

concern to us today are the many regulatory and judicial proceedings that will either sustain or destroy this ability—and subsequently continued investment in rural 

telecommunications infrastructure. 

Any adjustment to one of the three components of our cost recovery—the local 

rate, intercarrier compensation such as access charges, and universal service—requires the inverse adjustment of the others. Not surprisingly, the local rate component is the least able to tolerate increased pressure. Already rural rate payers face 

higher monthly charges for access to fewer local numbers. Conversely, the intercarrier component is the one most susceptible to regulatory and competitive oriented 

pressures. This leaves universal service as the most likely to contend with cost recovery fluctuations. And despite its history of strength, we fear that at this time, 

it is ill prepared to take on such added burden. 

Specifically, today small rural providers are faced with an FCC, and an industry 

dominated by large carriers, that are bent on moving access charges—legitimate 

forms of compensation for the use of a carriers facilities and a longstanding principle of capitalism—to a zero cost basis. We do not dispute that access charges in 

their current per/minute form may be unsustainable. However, we do dispute the 

contention by these parties that we are not entitled to legitimate compensation for 

the use of our facilities. 

Indeed, the bill and keep regime they are advocating will not work for rural carriers. NTCA recently conducted an extensive data request of its members and found 

that moving to this approach would cost rural carriers in excess of $2 billion annuVerDate Nov 24 2008 11:27 Sep 14, 2016 Jkt 075679 PO 00000 Frm 00029 Fmt 6633 Sfmt 6621 S:\GPO\DOCS\21481.TXT JACKIE
26 

ally. Moving in this direction will not help build or maintain the telecommunications 

infrastructure that is necessary to our economic and national security. 

It has been asked why this shortfall couldn’t simply be made up through the USF. 

There are a variety of reasons. Today, the states, and the FCC are granting USF 

etc status to competitors at an alarming pace and under rules that result in competitors receiving inflated support levels that are based upon the incumbents’ costs 

rather than their own as the law requires. The Federal State Joint Board on universal service has chosen to ignore such issues for now and instead suggest limiting 

support only to primary lines. How will that build infrastructure? Nevertheless, as 

desperately as those issues need our attention, there is an even more critical facet 

of the program that requires attention—its contribution methodology. 

Universal Service Contribution Methodology 

We have all heard a great deal of discussion about the virtues of moving away 

from the universal service system’s current revenues based assessment methodology 

toward a numbers or connections based approach. We contend moving in this direction would be a mistake. The problem with these alternative approaches are that 

they dramatically shift the responsibility of paying for universal service onto incumbent and competitive local exchange carriers and wireless carriers, while relieving 

long distance and other types of providers of such responsibilities. The impact of the 

flat-fee nature of these approaches would be particularly harsh on low-volume users 

such as rural and elderly credential consumers. In addition, we contend the revenues approach is the best suited to ensuring that all those that should be participating in this responsibility are indeed doing so. 

We do go two steps further however with regard to our advocacy of the revenues 

approach. First, we also believe the law should be changed to allow not just a provider’s interexchange and international revenues to be assessed for these purposes, 

but also their intrastate revenues. The major reason for this is that too many carriers today are manipulating their way out of fully complying with their universal 

service responsibilities by reclassifying interstate revenues as intrastate in nature 

and thus making them inaccessible. The expanded revenues approach also helps 

lower the overall universal service responsibility of any one carrier, and will help 

sustain the fund for the long-term. Second, we advocate expanding the base of providers whose revenues are assessed so that many of those that are not being so assessed today would become participants in this national responsibility. 

The Future of Our Industry 

We have registered our views both in the state and Federal regulatory arenas. 

And in many cases we have done so with the judiciary as well. Yet, we now believe 

it is time for congress to weigh in on these matters. We are hopeful that with your 

direction, policymakers, the judiciary, the public, and competitors alike, will be guided by the principle that USF is a valuable, yet scarce, national resource. Congress 

has the ultimate authority and responsibility to ensure that the USF is carefully 

managed in order to best serve the public interest. And now is the appropriate time 

for Congress to reassert its intent with regard to this program. NTCA and others 

have particular ideas regarding the future of this program, which center around the 

issues just noted. We will be looking to you for help in arriving at legislative solutions that will ultimately accomplish these objectives. 

Despite what you have heard from some of the other witnesses during this hearing series, it is clear that universal service must remain the hallmark of our national telecommunications policy. We have built and will continue to maintain a system of telecommunications infrastructure that is ubiquitous and integrated regardless of whether it is voice, video, or data oriented or a combination thereof. And it 

should be particularly evident that this support system will only work if it remains 

carrier oriented in terms of how support is distributed. After all, it is a tool that 

is designed to build and maintain telecommunications infrastructure, not to serve 

as a consumer welfare program as some have suggested to this panel. 

In addition, contrary to what most people have been led to believe today, the new 

technologies of this era are not free. In fact, the only reason they appear so is because they are riding on the underlying network that has been built by the likes 

of CTTC. We must maintain this critical element of our ability to adequately recover 

our costs. 

Conclusion 

If the Committee arrives at no other conclusion from these sorts of deliberations 

I would urge you to take away this thought above all else. We are fast moving away 

from a voice dominated network orientation. Concurrently we are engaging in and 

making use of a variety of forms of communications at a rapidly increasing pace and 

in ways upon which we are increasingly reliant. Our nation today views all of these 

27 

as necessities, not luxuries. Consequently, we will need to maintain infrastructure 

no matter what form such communications ultimately take. Universal service will 

be necessary to accomplish this. It is not a tool to be used to incite artificial competition, nor is it a responsibility to be escaped. It is a policy and program to ensure 

the existence of a nationwide ubiquitous telecommunications network—a network 

that has been proven again and again to be so critical to our national and economic 

security. Congress must continue to ensure that the underlying principles of this 

long-standing national policy are faithfully adhered to now and in the future. Thank 

you. 

The CHAIRMAN. Thank you very much. 

Mr. Seidenberg. 

Mr. SEIDENBERG. Yes, sir. 

The CHAIRMAN. Last Friday an article in the L.A. Times reported, quote: ‘‘Reversing their long-held disdain for the competitors that lease Bell networks and equipment to provide local phone 

service, some of the Bells now want to bind rivals to those facilities 

and prevent them from installing their own gear. SBC Chairman 

Whittaker Junior has argued that leasing the entire platform of 

services ‘is not real competition’ and that the industry needs, 

among other things, ‘real facilities-based competition.’ ’’ 

‘‘But in SBC’s negotiations for a lease deal with Talk America 

Holdings Corporation, sources said SBC is proposing a requirement 

that the small Virginia-based firm use SBC’s network for nearly all 

of its phone traffic, discouraging it from installing its own equipment and preventing it from leasing from other providers. MCI 

said it faced a similar demand last fall from Verizon Communications in talks that have since halted.’’ 

In your negotiations with your competitors over the use of 

Verizon’s facilities, has Verizon demanded that they commit to 

staying on Verizon’s network? 

Mr. SEIDENBERG. No, sir, we have not done that. 

The CHAIRMAN. You have not done that? 

Mr. SEIDENBERG. No. I think what happens in these negotiations 

is that the longer they agree to stay on the network the lower price 

they get. So if you have a contract that runs 7 years you will get 

a price, if the contract runs 3 you will get a slightly higher price. 

Of course, the carriers want the 7-year price for one day. 

I think—let me just shed some light on this for a second. We believe that a good wholesale regime is very important. Let us take 

the simple example. Wireless companies every day terminate calls 

on landline phones. That is a form of interconnection, it is a form 

of wholesale interconnection. They are willing to pay fair rates for 

it. We are willing to give them volume discounts. 

Now, the article you talk about is specifically geared to the IXC’s 

and some of the smaller CLEC’s that are looking for a continuation 

of the past practices of regulators forcing us to give these services 

away at below cost. So our view is we want them on our network; 

all we want them to do is pay the going rate. 

The CHAIRMAN. In your written testimony, and other witnesses 

have mentioned the same thing, that the average household in 

South Korea has more bandwidth than the average American business. Countries like Japan are deploying more fiber in their local 

networks than we are. We have had testimony before this committee on broadband; we are tenth or eleventh or somewhere 

around there in the world. 

28 

Your comments suggest that we should emulate whatever public 

policies these countries have employed. What specific policies—and 

I will expand this question to Mr. Roberts and Mr. Ford and Mr. 

Betty. What specific policies from these countries should we consider if we are falling behind? 

Mr. SEIDENBERG. We would be the last to suggest that we follow 

what they are doing in South Korea or Norway. But I would say 

this, that all of these countries have a consistency of their policy 

that drives investment in a fashion that is fair and balanced. What 

we have here is a well developed cable industry, we have a well 

developed wireless industry, we have a well developed telecom industry. I do not think we need to copy any model of any company, 

other than go to the principles under which they operate, which is 

they incent investment, they allow the companies to get a return 

on that investment, and they do not require unbundling. 

What you will find in all ten countries that are on the list before 

us is no one is requiring anybody to give away their facilities at 

below-cost rates to competitors in the name of simulated competition. 

The CHAIRMAN. Mr. Roberts? 

Mr. ROBERTS. I would say that I think that we are in a lot better 

shape than people would suggest by looking at how fast the cable 

industry, a business I am familiar with—— 

The CHAIRMAN. Let me just interrupt a second. There is numerous testimony of witnesses we are falling way behind, we are tenth 

or eleventh or twentieth or something, we better do something 

quick. 

Mr. ROBERTS. I do not know that that is true. 

The CHAIRMAN. Apparently neither Mr. Seidenberg or you feel 

that there is any need for any drastic change in policy? 

Mr. ROBERTS. Well, that, I would agree with that last statement. 

I would say that my industry—cable modems were invented in 

1996–97. We went to one conference, just to give you an anecdote, 

where Andy Grove of Intel stood up and said: I do not think a cable 

modem can work. And there was a trillion dollars literally of investment capital in the room when he made that statement. 

So this is risk-based investment with ideas that nobody ever predicted. And I agree with the testimony earlier that it is hard to 

know how fast the world keeps changing and to make accurate predictions. But I believe the fastest growing part of Comcast is our 

high-speed Internet business. So we do not need any more incentive than that to try to get out and make that business happen, not 

because Korea is doing better or worse by some standard that may 

or may not be exactly accurate. 

I think it is a great opportunity, and regulatory stability is what 

allows the capital spending that I was referring to having tripled 

on an annual basis for an entire industry. 

The CHAIRMAN. Mr. Ford? 

Mr. FORD. Well, I think it would be easy to echo what both of 

them said. I think what you hear and I would agree with is you 

will get more broadband deployment because every time the cable 

company deploys broadband they are eating into the telephone 

service revenue potential. Every time the telephone company deploys broadband that is a high enough speed to deliver video, they 

29 

are eating into the traditional video business. They will compete 

with each other—we have to compete with both of them in different 

markets. They will compete with each other when they both are 

free to invest. 

The issue right now is in wireless—the technology is not mature 

enough to offer video wirelessly yet. We are working hard to try 

and make that a reality over the next several years, but it is not 

in the next 3 to 5. But the cable guys, where we compete with Mr. 

Roberts’ company he is free to invest and he is done once he has 

put his fiber in the ground. And when we put our fiber in the 

ground, we are only beginning because then we get—I can tell you 

a lot more about what Nebraska and Kentucky are doing than 

South Korea or Japan. 

But each one of those States then starts to want to take our network back apart individually for their particular view of what they 

think the world should look like. So our answer to that is, well, 

then we just will not invest, and we cannot. 

The CHAIRMAN. Good. 

Mr. Betty, real quick. 

Mr. BETTY. I do not think the United States has as big a problem 

as people think. Japan and Korea have some unique circumstances 

of a lot of people located in a very small area and it makes the capital that is deployed much more effective. I do think that not providing consumer choice does impact the ultimate deployment. 

We heard a lot about the damages people incur. We lose about 

50,000 customers every month to a facilities-based provider because I have nothing that I can provide them because I cannot gain 

access. Those are customers that we have served for a long time. 

The CHAIRMAN. One fix to the 1996 Act, beginning with you, Mr. 

Seidenberg, quick. One fix. 

Mr. SEIDENBERG. One fix? 

The CHAIRMAN. What is your priority? 

Mr. SEIDENBERG. Oh, definitely, definitely get rid of the entire 

unbundling regime and allow investment to move to the risks that 

they are willing to take with that. 

The CHAIRMAN. Mr. Roberts? 

Mr. ROBERTS. I do not think you need a wholesale rewrite. I 

think you should let it stay. But if you want to focus on one thing, 

I would say focus on VoIP and Internet protocol; and as I mentioned, Senator Sununu’s proposed legislation, be targeted in not 

creating a whole long process that will perhaps destabilize a lot of 

businesses, but rather say, OK, what is it we are most focused on, 

if we want more telephony competition what are the barriers. 

I think the IP technology is going to be the delivery way to get 

there and there is probably a legitimate conversation around that. 

The CHAIRMAN. So you endorse the indecipherable Sununu legislation? 

Mr. ROBERTS. No comment. No comment. 

The CHAIRMAN. Mr. Ford? 

Mr. FORD. Senator, I think the one thing if we could wave a 

magic wand, I think the one thing we would ask you to look at is, 

with all due respect, I know Mr. Seidenberg’s company has a 

telecom background, I know Mr. Roberts’ company has a cable 

30 

background. Out in the markets where we compete with them, they 

look an awful lot alike to me. 

The CHAIRMAN. What is your fix? 

Mr. FORD. My fix is put everybody on the same playing field and 

then you will get sustained competition. 

The CHAIRMAN. Mr. Betty? 

Mr. BETTY. I agree with Mr. Ford. 

The CHAIRMAN. Mr. Wilson? 

Mr. WILSON. I think from a rural carrier’s perspective, maintain 

a strong universal service policy. That is very important to us out 

in the rural areas. 

The CHAIRMAN. I thank the witnesses. 

Senator Lautenberg. 

Senator LAUTENBERG. Thanks, Mr. Chairman. 

Mr. Seidenberg, currently all telephones, including the regional 

Bells, are permitted to provide long distance and local service 

throughout the country. What does Verizon do by way of competing 

with other companies, former Bell companies, in their markets for 

local subscribers, non-business? 

Mr. SEIDENBERG. We have the largest and most successful wireless company in the country and those services clearly substitute 

for local services everyplace, including in our own footprint. So I 

think that wireless represents a facilities-based technology that 

easily provides customers with alternatives to spending money on 

local telecom services. There is not any question in my mind that 

wireless is the single biggest competitor to any existing incumbent 

for local calling that there exists in the country. 

Senator LAUTENBERG. We had a question come up in New Jersey 

about some regulation that was being considered and Verizon said 

that they would pull out of a plan to invest some $250 million in 

the state of New Jersey. That is a lot of muscle to be exerting, Mr. 

Seidenberg. What is the intent there? Is it to say that if you do not 

play our game we are taking away the bat and the ball and we are 

going home? 

Verizon is not suffering from lack of opportunity or lack of profits. So why would that kind of a threat be a good business policy 

for either our State or the company? 

Mr. SEIDENBERG. The state of New Jersey has a requirement that we lease our network for approximately $12 a line. The average across the country is $19. AT&T charges $54 for its bundled 

services across the country and the average across the country that 

they pay is $19 a month. Therefore, in the state of New Jersey, 

AT&T is making an extra $7 a month for charging everybody the 

$54 without returning a single nickel of that to the customers in 

the state of New Jersey. 

Our position is we will not invest incremental capital in the state 

to do broadband if we are in business to support our competitors. 

Now, you claim this is a lot of money. It is absolutely a lot of 

money. I would point out, however, Senator, that for the past 5 

years we may have invested $6 or $7 billion in the state and we 

have a negative return on that money in terms of how we are earning in the state. 

I think the bottom line to this is we want to do broadband, we 

are doing it in other places, but in any jurisdiction that continues 

31 

to provide an environment in which our invested capital cannot get 

a reasonable return on investment we are going to slow down the 

investment. 

Senator LAUTENBERG. You said in your testimony that you are 

investing some $12 billion a year in capital investment. 

Mr. SEIDENBERG. Yes, sir. 

Senator LAUTENBERG. What is typically the life of the assets that 

you buy in that $12 billion a year? 

Mr. SEIDENBERG. It depends. Some of them are long. It could be 

8 or 9 years for switches. For fiber in the ground it could be as 

much as 12, 15 years. The electronics are shorter periods of time. 

To give you a perspective on how we think about it, wireless is 

very hot today, so we invest money in wireless. The investor thinks 

that we will get a return on our wireless investment in 6 or 7 

years. For 6 or 7 years we will incur a loss until we see a positive 

return on net income in our wireless business. 

Today there is no business model that would suggest any investment in the wireline business has any positive return ever. But we 

have been willing to do it, on the theory that we think we can remake our business and turn this regulatory quagmire around. If we 

cannot turn the regulatory quagmire around, then focus is going to 

continue to be shifted away from the wireline business. 

If I just may give you a couple of facts, because I know you hear 

all these numbers about investment. In the past 4 years, we have 

cut our telco investment by 50 percent. So it used to be running 

at $12 billion a year just in the telco. It is now running a little bit 

over $6 billion in that time period. Our employment, we used to 

employ 240,000 people in our telco. We are down to 140,000. 

Senator LAUTENBERG. Is that technologically created? 

Mr. SEIDENBERG. Some of it is. Some of it is technologically created, as it was said before. 

But here is the issue. Unless we invest in new technologies and 

recreate growth, all we are doing is heading down a path of going 

to zero. I think our view is broadband gives us a chance to recreate 

an industry around a new technology. Government policy, particularly regulatory policy, we think is frustrating that entire opportunity. 

Senator LAUTENBERG. You can see that by the results of growth 

in your company, with all of these regulated years that you are 

complaining about. The progress of the company is incredible. 

I wish that you and I could sit over my phone bill. I am a New 

Jersey resident and I would like to examine what we get, how 

much less we seem to get for the money we are spending. 

Mr. SEIDENBERG. Senator, any time you want to look at our balance sheet, I think you will find that we have not grown over the 

last 4 or 5 years, that we do not get a return on our investment. 

The fact that you use our services I appreciate. I think it is a good 

thing. 

The CHAIRMAN. I would like you to explain my phone bill to me 

just so I could understand it. 

Mr. SEIDENBERG. Just pay it. Just pay it. 

Senator LAUTENBERG. I come out of the computer industry, Mr. 

Chairman. 

32 

Mr. SEIDENBERG. It is one of the best values you will ever get, 

Senator. 

Senator LAUTENBERG. Mr. Roberts, what do you think about the 

negotiations between the Bell companies and the competitive carriers in the wake of the D.C. Circuit decision? 

Mr. ROBERTS. Well, I was enjoying the previous exchange. 

[Laughter.] 

Senator LAUTENBERG. But I get a chance at you, too. 

Mr. ROBERTS. I think regulating the Internet, which if you boil 

it all down is what is at stake—and I am in the camp that you 

should look at what is the end goal and I think it is to promote 

competition and have multiple facilities-based providers. 

The comment that was made that the telephone companies are 

now selling more DSL’s than the cable companies in the last quarter is a true statement, and that is the first time that happened. 

That did not happen for any other reason than, as I said earlier 

to Senator McCain, that I believe it is a good business and that is 

what the consumer wants and you are racing to get the consumer 

what they want. The same thing in wireless. 

So to turn around and take a law that was passed 70 years ago 

and apply it to an Internet-based product, high-speed Internet and 

broadband, does not seem to make sense to me. The FCC recognized that and hopefully the Supreme Court will recognize that, because I think whether you are talking wireless technologies, cable 

technologies, or power line technologies or whatever, I do not think 

you want to go back in time. 

If need be, take a look at the rules that still apply to others and 

try to take some rules off. Do not put new rules on in the name 

of trying to promote competition. I do not think it proves that that 

will work. 

The CHAIRMAN. Thank you. 

Senator Allen. 

Senator ALLEN. Thank you, Mr. Chairman. 

My key concern here and view is that we need to make sure 

broadband is more available to more people. It benefits consumers, 

encourages innovation, and it stimulates jobs and economic growth 

and clearly individual opportunity for consumers, particularly in 

small towns and rural areas, for those businesses, individuals, 

whether they are in schools or telemedicine, in a variety of ways— 

distance learning and so forth. 

I think that to worry about the telephone aspect is secondary to 

broadband because the applications are way more than e-mail and 

instant messaging, and it is more even than telephone. It is video. 

It will get competition against the cable, so to speak, but give consumers more choices in it. Again, it is not just cable modem and 

DSL; it is ultra-wideband, it is the power lines, it is satellites, wifi, and so forth. 

Now, we recently passed the Internet Tax Freedom Act extending 

the Internet tax moratorium, and most of you supported that effort 

and I appreciate it. Can you tell me what you think the impact of 

taxing the Internet would have on the deployment of broadband by 

your company? We could go through all of you, to the extent you 

all in one way or another are involved in broadband. Start with 

you, Mr. Seidenberg. 

33 

Mr. SEIDENBERG. Well, in addition to it being a bad idea, taxing 

the Internet, I think I will come back to my theme. I think it will 

take all or most business risk associated with wanting to invest in 

new technologies and frustrate it. 

I think that you have a hard job in terms of public policy. You 

can get revenues into the treasury by creating growth or you can 

tax it. I think if we tax it we are not going to get the growth. So 

I think in this case I err on the side of wanting to see capital formation, continue to have people invest, all the services that you 

talk about will occur. And investors will flee from this market in 

a nanosecond if they feel the heavy hand of taxation enters the success formula for these kinds of services. 

Senator ALLEN. Mr. Roberts, while you are not considered by the 

ones who want to tax it a telecommunications company, which gave 

you an advantage over some of those States that looked at loopholes and taxed DSL, one thing we do not want, at least I do not 

want, is an Internet service bill, monthly bill, to look like the telephone bill that Senator McCain and no one can understand, with 

the multiple State taxes, local taxes, and Federal taxes, including 

a luxury tax put on to finance the Spanish-American War that remains there. 

What would the impact of taxation be on you? And Mr. Ford, Mr. 

Betty, and Mr. Wilson. 

Mr. ROBERTS. Well, first of all, we do have local franchise fees, 

so there are taxes at stake in this debate as well, because a cable 

operator gives 5 percent of their revenue to the local municipality, 

depending on how you define what the service is. 

Senator ALLEN. Right, but not in Internet service. 

Mr. ROBERTS. In the past there has been some municipalities 

that have wanted that, and so that is part of the question. I think 

when you create a tax in something that is growing like this, you 

are obviously going to depress demand. If you go back to what 

Chairman McCain said or what the President said, should we not 

be thinking about growing the appetite, not depressing the appetite? 

I would agree with what Mr. Seidenberg said, that I do not think 

that is in any way going to help grow demand, and I think that 

is better for the Nation as a policy. 

Senator ALLEN. Mr. Ford? 

Mr. FORD. Well, sir, one comment would be we pay—I did not realize until the last few weeks when all the articles starting coming 

out, we pay 6 to $700 million in State and Federal taxes. I did not 

know we were in such a minority in just the Nation as a whole. 

But one of our primary competitors that is trying to sell service 

promotes having a $10 cheaper price for a similar bundle of voice 

services. That is because they have about $8.50 of less taxes, fees, 

surcharges, and etcetera on the bill. So again, it is maybe not just 

the question of do you tax the Internet and how you take that into 

State tax revenues and balance that, but one set of competitors are 

being taxed, one set of competitors are not being taxed. Again, I 

think that is worthy of looking at as you go through your review 

of this. 

Senator ALLEN. Mr. Betty. 

34 

Mr. BETTY. Taxes clearly would have the effect of dampening demand. It would make it unaffordable for even that many more 

Americans. 

Senator ALLEN. Thank you. 

Mr. Wilson. 

Mr. WILSON. Senator Allen, when I go back and think about our 

rural cooperative, when we deployed the Internet back in 1996 and 

I talked to many of the people when they took the service, we have 

over 3,000 dialup subscribers and around 300 DSL subscribers. To 

be frankly honest with you, whether it had been taxed or not I 

think would have had little impact upon people wanting the service. They wanted the service, they needed the service bad. 

Senator ALLEN. What would—beyond the issue of taxation, if 

each of you could say this. Beyond the issue of taxation, what is 

the key issue facing your company preventing further deployment 

of broadband services? We will go in the same order. 

Mr. SEIDENBERG. I will just give two things. I think, as Senator 

McCain said earlier, I think in our case requiring the FCC to implement the court rules without all these silly pricing distortions; 

and treating adjacent industries the same. I think the theme comes 

out here that—and I did not make this point, make it a point to 

come here this morning to comment on this, but there is no question that the cable industry, with all its success, has a different set 

of rules than we have, and in some cases we provide exactly the 

same service. 

The CHAIRMAN. And different kind of taxes. 

Mr. SEIDENBERG. Absolutely. Now, I am not suggesting that they 

are doing anything that is not good. They are taking advantage of 

an opportunity. But the issue is we cannot go downstream and 

have a different set of rules for us and for the cable. It is not sustainable. 

Senator ALLEN. Mr. Roberts? 

Mr. ROBERTS. Well, first of all let me just comment on that last 

part. If you take the video business, one out of every four homes 

now buy their video products from somebody other than their cable 

company. There has been several laws about video competition. 

You have two national competitors. We are not in the satellite business, really not allowed in the satellite business. The biggest competitor to telephone is wireless. 

Senator ALLEN. I do not want to get in that whole debate. 

Mr. ROBERTS. OK, no problem. 

Senator ALLEN. I understand there is competition. What is the 

biggest and key impediment to you all? 

Mr. ROBERTS. The biggest impediment would be regulatory instability, and in our case that is here and now and immediate, which 

would be the so-called Brand X case which Senator Lautenberg was 

referring to is under review. The question is whether they are 

going to appeal it to the Supreme Court, the FCC’s rulemaking. 

Senator ALLEN. So you are saying legal uncertainty? 

Mr. ROBERTS. Legal uncertainty. 

Senator ALLEN. All right. Mr. Ford? 

Mr. FORD. Mr. Allen, I have to say that it is regulatory uncertainty as well. The technological advances are hard enough to forecast. We struggle with it every day. But when we do not know 

35 

what regulatory scheme we would be making that capital investment decision, the only decision we can make is not to push. 

Senator ALLEN. Mr. Betty? 

Mr. BETTY. Nondiscriminatory open access to the infrastructure. 

Senator ALLEN. I know we could have a good debate with you 

and Mr. Seidenberg on that one. 

Mr. Wilson. 

Mr. WILSON. As a rural carrier, it would have to be regulatory 

instability, too. We need a stable environment of investment recovery so we can build that broadband out in rural America. I think 

it will bring untold opportunities to many of our subscribers. 

Senator ALLEN. Thank you. 

Thank you, Mr. Chairman. 

The CHAIRMAN. Senator Nelson. 

Senator NELSON. Thank you, Mr. Chairman. 

If we move forward on a goal that I would like to see of helping 

consumers and a regulatory environment without hampering technological innovation, something that would also allow wireless 

broadband to be rolled out quickly, and ensuring that all Americans have access to this kind of technological innovation, so with 

that in mind, which is one of my goals, Mr. Betty, suggest to us 

how you think we could redesign the laws, the telecommunications 

laws, so that they do not become outmoded by the new technological innovations? 

Mr. BETTY. Well, that is a tough question. I mean, IP fundamentally is changing how things are delivered. I think Scott talked 

about the view that it is going to be applications that people are 

buying, not necessarily the service. That genie is out of the bottle. 

It is not going to change. And IP is going to be delivered by a number of different infrastructures. 

If the Congress decides that access needs to be provided for everyone, I do not see how anything but some subsidization is the 

only way to fund cost effectively the delivery of those services to 

many of the rural areas. But I do not think providing a framework 

where you are limiting or setting up a duopoly of interests or having only a couple of people that can provide those services is for 

the public good. Whatever you do, I would suggest that you provide 

a framework that takes these public, somewhat public, infrastructures and makes it available to other third parties. 

Senator NELSON. Mr. Roberts, you have thrived in the cable industry since the 1996 Act, in part because of being relieved of 

many of the regulatory restraints. Now, the wireless industry is 

also minimally regulated. Should the incumbent local telephone 

providers be similarly deregulated? 

Mr. ROBERTS. Well, if the choice is that versus regulating others, 

then I would say yes. I do not consider myself an expert on all the 

machinations, and I did not mean to get us in with Senator Allen’s 

question, but I think you do have to look at who are the largest 

wireless companies in America. They are the telephone companies. 

In the case of our industry, the satellite companies are not owned 

by the cable companies. 

So you do have—it is simple to say, oh, just have one set of rules 

for everybody. I do not think that is necessarily totally realistic. We 

have local municipalities that regulate our business, other busiVerDate Nov 24 2008 11:27 Sep 14, 2016 Jkt 075679 PO 00000 Frm 00039 Fmt 6633 Sfmt 6601 S:\GPO\DOCS\21481.TXT JACKIE
36 

nesses have different regulations. So I think what you should be 

doing is looking at the end user and saying, how can we promote 

more and more competition and thoughtfully take rules off of people that are no longer necessary. 

I do not know that I know every rule affecting the local telephone 

companies. But if the answer in the name of parity is to put more 

regulation on, then I have a very strong point of view. If the question is should you take regulation off, I think it is a question that 

should be thoughtfully revisited, and there are many witnesses and 

I think you are doing the right process to ask those questions. 

Senator NELSON. Mr. Seidenberg, you are negotiating interconnection agreements with competitors over the use of their networks. How would you characterize the progress that is made thus 

far? 

Mr. SEIDENBERG. Well, it has only been 2 or 3 weeks. I think the 

progress is fine. I would prefer that we call them customers because they are customers. They spend a lot of money with us. And 

we do—we have had interconnection agreements with most of them 

for the last 25 years. 

What we need to do here is find the right balance between a fair 

price to be paid for the facilities and the services that we offer. We 

have negotiations going on with close to 20 different carriers right 

now. Most of those carriers feel that they would like to cut an individual deal with our company because each of them has built differentiation in their company, and we would like to accommodate 

that by giving them whatever it is that they feel would be reasonable under the law. 

So I am very pleased that the discussions are ongoing and active, 

and we should end up with some good results over the next several 

weeks. 

Senator NELSON. You think those interconnection agreements 

should be filed with the government? 

Mr. SEIDENBERG. This is a difficult question. I think my instinct 

is the following. We were asked to settle this commercially. I think 

my concern would go to, if we cut a deal with you, sir, should we 

take all of your intellectual property and make it available to Senator Sununu? This is what happens in the regulatory process. So 

you go through this very tortuous process to treat customers as individuals, only to find out that every term and condition of every 

single contract is spread across the entire industry. 

So I think we want to follow the commitments we have made, 

which is to do bilateral agreements, cut these deals with these 

major customers, and go forward on the basis that will keep the information confidential. 

Senator NELSON. Mr. Ford, should Congress consider amending 

the Act to support wireless or broadband applications to permit 

universal service funding instead of just supporting only the basic 

voice applications? 

Mr. FORD. That is a deep set of issues. I could probably make 

money if I said yes and you did it, but I do not know that that 

would be the right policy. I think that there is plenty of money in 

the pools. We are a rural telephone company. We take out about 

100, we take out about $150 million from the State and Federal 

pools; we pay in about $100 million. 

37 

There are plenty of pools to incent lifeline support, whether it be 

wireline or wireless. There has been an interesting evolution on 

that topic in the last couple of years, and I think a reasonably fair 

one. 

Do we need to go and incent that for the delivery of broadband 

in rural America? We probably will not build out extreme rural 

America with wireless broadband in the first few years, but I think 

the technological progress that is being made will allow us to get 

there over the next 10 years without having to introduce a new 

Federal subsidy or a new State subsidy. 

So while I would profit if you did that and I will avail our company of that revenue stream if you decide to do that, I do not know 

that that is essential long-term. 

Senator LOTT [presiding]. Senator Allen—no, I am sorry. Senator 

Ensign. 

STATEMENT OF HON. JOHN ENSIGN, 

U.S. SENATOR FROM NEVADA 

Senator ENSIGN. Thank you, Mr. Chairman. 

I want to delve a little deeper on this topic. Senator Allen talked 

about taxation. Well, another tax is regulation, and you all are operating not only nationally but even internationally. So I would like 

your comments on how, because this is definitely one of our roles, 

in terms of regulating interstate commerce, when do we preempt 

States; and for the deployment of broadband, getting more 

broadband out there, making it more competitive, as Senator 

McCain talked about in regards to Korea and Japan. 

Can you comment on that aspect of the States appropriate role 

and the difficulties of having different laws in each state you think 

that affects broadband deployment, pricing, and the like? This 

might be something most of the panel at least can agree on. Just 

start down the line. 

Mr. SEIDENBERG. You want me to start? 

Senator ENSIGN. Yes. 

Mr. SEIDENBERG. OK, fair enough. Maybe I could just quickly 

offer why it is time to take up the questions you just mentioned. 

If we believe the technology, we now have services that are more 

national in scope rather than local. Let us take the example of 

wireless for a second. The U.S. was criticized because we had multiple standards, CDMA and GSM. Europe created one technical 

standard across Europe. They had faster deployment of wireless in 

Europe. 

Now let us take a look at the phone situation or the telecom situation in the U.S. We have 53 jurisdictions setting prices, setting 

terms and conditions. We have the FCC setting terms and conditions. We have heard here that when you deploy networks you 

have IP protocols and packet switching that create national formats. 

I think if we do not eliminate the unintended consequences of 

having 53 different statutes regulating different aspects of this, trying to divide a chip on a device and trying to allocate costs, we are 

going to continue to disadvantage the formation of broadband networks. So I think it is time for the Congress, the FCC—most state 

38 

commissions will not like me, will not appreciate this, but time to 

preempt it, cut across the top and create uniform standards. 

You have heard this before, but we need common rules for enforcement, technical standards, public safety; we do not need economic regulation of prices. We do not have it in wireless, we do not 

have it in cable. It works. And we need policy that provides stability and uniformity across the country. It is time we did that. 

Senator ENSIGN. Thank you. 

Mr. ROBERTS. I think you are right, I think we will probably 

have a lot of agreement on this point. I also think pointing out that 

regulation is another form of tax is exactly right. Without a doubt, 

as we look to the daunting challenge of going into the phone business and all the interconnection rules and all the myriad of consumer necessities that are the phone business if you really want 

to be a primary line company, which is what our goal to offer the 

service is, having preemption of 53 or whatever State rules is critical. 

It happened in 1996 and that is a big part of why high-speed 

Internet took off. There is one set of broadband policies that are 

under judicial review and so that is part of my concern. I think 

doing it again for VoIP makes an awful lot of sense. 

Mr. FORD. I would agree completely on the wireline side. The 

wireless industry, this has been one of the primary issues we have 

dealt with in the wireless industry the last few years, as one State 

after another wants to come in and start—they do not want to regulate price. They cannot. But the terms and conditions becomes an 

ever-expanding room for them in terms of their view of what they 

need to regulate, including in one State what font size various 

parts of our ads should be. 

There was another State where we passed on an acquisition because part of it did business in one State where we knew the regulatory burden would not pay for us to even have the operations in 

the State. So it is a real issue. 

Mr. BETTY. I agree with the other panelists. 

Mr. WILSON. I guess mine would be just a little bit different. I 

do not have the experience of all these other States, but I can tell 

you in the rural areas that we serve, for DSL broadband type services to remain regulated to receive a rate of return is imperative 

for us to be able to get this stuff out there. 

There has been quite a bit of rhetoric over the last year or so 

about deregulating these information services, and if so, if there is 

no rate of return, for us as rural carriers we are probably as far 

as we are going to be able to go. We definitely need the help from 

rate of return regulation to deploy this stuff. 

Senator ENSIGN. Just to go a little further along these lines to 

get into the Voice-Over-IP: taxation, obviously at the local level and 

regulation. There is a lot of promising work in the Sununu bill and 

I think it is one of the most important technologies that we allow 

to develop, and I say ‘‘allow to develop’’ because it is developing. 

This body up here can mess it up. 

That is kind of the bottom line, is how do we get out of the way 

so that it does develop in a way that I think is going to revolutionize the way that people send and receive information in their 

homes and their businesses. So please offer your comments on, 

39 

once again, the State and local preemption of taxes and regulation 

that would apply to this particular technology that is dependent 

broadband? 

Mr. SEIDENBERG. I have the feeling that I was just given a pass 

in open court and no one between me and the basket and I cannot 

lay it up. I apologize. 

I would say this. I think that from all these years of participating 

in this industry, there is a gravity of regulators, of regulatory 

thinking, that will not let go of the old in order to try the new. It 

does not mean that they are doing anything wrong. They are following what they view as the statutes. 

I think it is time for the Congress to change the statutes, so you 

change the job. If you change the job, they will change the behavior. I think what we are facing is, if you look at wireless—I can 

speak from that because of our experience—we started a wireless 

business from almost nothing, just a few licenses. We have a national company. Arguably we have the superior asset in the entire 

industry, and it is based on investment. We have invested more per 

customer than anybody else in the industry. We have the best service, the best coverage, the best distribution. 

I think the same thing has to occur on the wireline side. So we 

have to trust the market. We have to believe that the market is 

competitive enough at this juncture. 

Now, having said that, I am not a person that believes that we 

just obliterate all regulatory responsibilities. Somebody has to be 

the referee, somebody has to enforce, somebody has to set standards, somebody has to make sure it is uniform, there is nondiscrimination. I think there is a legitimate role for regulatory 

work, but it needs to shift away from micromanaging price and 

winners and losers to regulating the terms and conditions of market behavior. 

Senator ENSIGN. Thank you. 

Mr. ROBERTS. Well, I concur with a lot of that and I think it goes 

back to is the glass half full or half empty approach to what you 

are trying to accomplish and recognizing that this is changing. So 

in our company we are taking three cities this year and we are rolling out Voice-Over-IP. Again, the technology changes every day. 

We are thinking should we go into videophone, should we just go 

into voice? Should an Internet connect with your TV or should it 

be a stand-alone device? How does it relate to wireless? 

These are all questions that I cannot sit here today and tell you 

that we know until we go do it. I totally agree that it is about innovation and investment, and we are fully committed to taking our 

cash-flow and putting it back in and hoping that we are going to 

develop products where we can compete. 

In order for the government to support that and, as you say, get 

out of the way and not slow it down, I think the best thing you 

can do is to look at the existing regulatory regimes—in the telephony case that is clearly the States—and it is to recognize that any 

tax will slow this down or any regulation will slow this down, and 

have a stable platform, because Wall Street, which all of our companies basically or most of our companies have to answer to, wants 

to put their investment where they know there is not going to be 

40 

a change 12 months later and suddenly your investment is wiped 

out. 

Senator LOTT. Anybody want to add to that? 

[No response.] 

Senator LOTT. Senator Breaux. 

STATEMENT OF HON. JOHN BREAUX, 

U.S. SENATOR FROM LOUISIANA 

Senator BREAUX. I am sorry, I have my Verizon Blackberry here. 

Thank you, Mr. Chairman. 

I think it is really important that we are doing what we are 

doing. If you think about Congress, we are so far behind technology 

in the laws that we pass. We passed the 1934 Telecommunications 

Act. We came around in 1996 and passed an update 62 years after 

the first one. And then now it is arguable that what we did in 1996 

has little relation to the technology that exists today. 

I mean, if you look at where we are going, just check the teenagers in this country as they move around on their Blackberries 

and their wireless telephones. I mean, these kids do not even use 

a wireline any more and probably will never use it in the future. 

And you look at e-mail and instant messages and broadband. Really, none of that was very common when we passed and debated the 

1996 Act. 

So it is incredibly important that the next Congress, that I will 

not be part of, uses this opportunity to try and once again bring 

the laws regulating this industry into the modern world in which 

technology prevails. There is a disconnect between the 1996 Act 

now and what is needed in the year 2004 and into the future. So 

it is really important, I think, that we have taken this opportunity 

to set the stage for next year to come in with legislation that addresses the new technologies so we can try and keep up with the 

laws, with the technology that is out there. 

Mr. Roberts, Mr. Seidenberg, and maybe if someone else would 

comment, it seems to me that what we did in 1996 was extremely 

regulatory in the sense of the RBOC’s and the requirements that 

Mr. Roberts and his cable companies do not have those same standards. I think Mr. Roberts’ response I think is correct, but I will get 

you to elaborate on it. 

Currently the regulations on the RBOC’s, Mr. Seidenberg’s company, in comparison to what is there for the cable companies, there 

is a huge difference. I mean, the cable companies do not have to 

negotiate with your competitors for access to your network, you 

have no duty to interconnect with your competitors, sometimes at 

below cost, you have no duty to follow a detailed system of regulatory accounting, no duty to file tariffs, no duty to provide network 

ISP service, and others. 

But I would think, Mr. Roberts, that what you are suggesting is, 

rather than let Congress come in and provide these same regulations to you that you have on Mr. Seidenberg’s companies, that the 

preferable answer would be to create a level playing field which 

moves toward deregulation in this area, as opposed to more regulations. Can you comment on that? 

Mr. ROBERTS. Yes, I think that is right. I think that, in fairness, 

there are other regulations on cable, and in fairness there are other 

41 

competitors in, quote, our ‘‘core business,’’ the video business, that 

in Mr. Seidenberg’s core business that there are people at this 

table, not at this table, who would say, well, here is why there 

should be a difference. And you can have that intellectual debate. 

But I think ultimately, if the policy of is broadband going fast 

enough in this country, to thoughtfully go back and look at issues 

as he described in New Jersey or wherever that are retarding their 

advancement are legitimate to revisit. And there may be—again, it 

is a nice goal to say let us have exactly the same rules for all parties. But in the end, last quarter there were more DSL’s sold in 

this country than cable modems. 

Senator BREAUX. Yes, but you are so far ahead. I mean, they 

could have a good quarter, they have got a hell of a lot of making 

up to do to come close to catching up with cable. 

Mr. ROBERTS. Again, so part of that is—— 

Senator BREAUX. You have got what, 25 million subscribers? 

They have got 16? 

Mr. ROBERTS. I think it is a little higher, but I think that conceptually we would not argue we did better, because I think we recognized that this was a business a little faster, and that is good for 

competition. 

Senator BREAUX. Yes, but you also did not have all the regulations that Mr. Seidenberg had. 

Mr. ROBERTS. That may be part of the answer, and I think that 

is worth taking a look at. 

Senator BREAUX. Mr. Ford, you have a comment on this? 

Mr. FORD. I think you have got it square. 

Senator BREAUX. Mr. Seidenberg, do you want to elaborate? 

Maybe this is another jump shot for you. 

Mr. SEIDENBERG. I would just make, I would just like to—Senator, you have been working these issues a long time. I know you 

understand this. I think that this whole issue of DSL and cable 

modem would suggest there is a lot of competition. Regardless of 

who is on top, the fact is we compete every day. Cable does a good 

job. We are trying to do a better job. We happened to have one good 

quarter out of the last 30, so I guess it does not mean we are on 

a winning streak. But that is fine. 

But I think the other point that I would like to just offer you is, 

what makes this different today is that there are no boundaries to 

separate voice from high-speed from video. As these industries 

come together—Senator, you asked a question before about applications and the software industry. If we do not begin to treat these 

technologies as they serve the myriad of applications across these 

technologies, we are going to continue to suboptimize the process. 

I think that is the reason why we need to cut across the regulatory structure and obliterate those things that draw us to the 

past and try to create something that is more level going forward. 

Senator BREAUX. Well, I may be hoping for the impossible, but 

it would be so incredibly positive if the industry itself could look 

at this in a way without getting into problems with antitrust, to 

make recommendations to the next Congress as to how this should 

be handled. You have been through the battles and had TV ads ad 

infinitum from both sides talking about what we should do and 

42 

what we should not do. If as much time was spent on trying to 

present a united recommendation, it would be incredibly helpful. 

I believe in regulation when there is no competition. If there is 

a monopoly, there should be regulation. But you need a lot less regulation when there is true competition, because the competitive 

system can work, but it can only work if you have in fact competitors. I think that we are moving in that direction and the recommendations I think would help the next Congress a great deal 

to try and get together on this. 

I thank all of you for your testimony. 

STATEMENT OF HON. TRENT LOTT, 

U.S. SENATOR FROM MISSISSIPPI 

Senator LOTT. Well, let me say, Senator Breaux, no matter what 

we do next year or the next, it will not be as much fun without you 

helping us write the legislation. You would certainly add some complication and entertainment to the process, but we are going to 

miss you as we try to do that. 

I want to thank Senator McCain, even in his absence, for having 

this series of hearings. I think it is helpful to begin to frame the 

discussion and help us understand a little bit more about the tremendous technology changes that are under way, and we need to 

try to deal with it, hopefully in a positive way, in terms of what 

we do with the law, the regulations, legal concerns. 

So I think this has turned out to be a good idea. I want to thank 

the panel for being here. I think you have done a very good job. 

But to change things up just a little bit, I am going to start down 

on this end with you, Mr. Wilson. One of the things obviously that 

will be a key factor when we develop legislation is what do we need 

to do, what kind of reform should we have in the universal service 

fund and in the way the distributions are made that would help 

guarantee the stability of the fund in the future? Where can we get 

more money to help provide the funds? 

Do you have any thoughts on either part of that question? 

Mr. WILSON. Yes, sir. We at NTCA believe that the contribution 

base needs to be expanded, for one thing, to all telecommunications 

providers, also including information providers as well. We believe 

that the current revenue assessment base is the way to stick with. 

We do not really—we do not believe we need to move toward a 

numbers or a connection-based. That will shift a lot of the responsibility to telephone companies, to wireless providers, and to CLEC’s 

as well, and relieving a lot of the inter-exchange carriers of their 

statutory responsibilities. 

So yes, sir, we believe that the base should be expanded. 

Senator LOTT. Mr. Seidenberg, do you have a thought on that? 

Mr. SEIDENBERG. Well, yes, sir. Senator, I think universal service 

to us is important. I mean, all the rural customers are very important. We serve rural locations, as you know. I guess technically we 

are probably as large a rural provider as anybody is. 

I think the issue for us is to make sure that the fund is administered correctly and is targeted. If we could do that and get the support where it belongs, to those that need it, there should not be a 

big objection to it. I think in the past these funds have tended to 

be bigger than they need to be, they tend to go to companies rather 

43 

than people. If we can sort through a way to do that, we are willing, we absolutely are going to participate and try to make it work. 

Senator LOTT. Do you want to add anything to that, Mr. Roberts? 

Mr. ROBERTS. One point that I think as you think about how the 

USF can be relevant in the future with new technological development, the very last point of whether the money is ending up in the 

right place I think is a fair question. So one idea, just as you are 

evolving ideas, is if you want to continue to take—obviously we 

want to participate if we are in the phone business; we do today 

pay into the fund—whether it should get to the user as compared 

to the provider. So that tends to pick winners and losers. 

I do not know how you do that. I think if you have this discussion you should be thinking about, OK, the incentive is there, the 

question is whether it is low income or rural. What can you do to 

spur the demand side is again in my mind an interesting way to 

at least revisit the question. 

Senator LOTT. I noticed in your testimony, Mr. Roberts, that you 

refer to the preamble of the Telecommunications Act, and what a 

worthy description that was. You can debate about whether or not 

we have achieved that goal. But my thought when we were working on that legislation in 1996 and today is we need to always keep 

our eye on the ultimate goal, which is to provide the customers 

with the best service at the best rates, with the least hassle. 

I think we have made some progress in giving them tremendous 

options, and for the most part pretty good rates. But I still think 

to the average consumer it is a confused mess. I look forward to 

the day when I as a customer can get my television, the Internet, 

the telephone, the works, local, long distance, all of it from one 

company that I choose, so I can pay one bill. I am getting damned 

tired of having to pay Bell South, Verizon, AT&T, cable, and the 

satellite company every month. It takes half my checkbook just to 

pay those. Now, partially because I live in two different places. 

But Mr. Roberts, since you have been very aggressive and innovative, do you envision that day? And I want it with competition. 

I worry that you can get all that, but I do not want it provided by 

one company. I want to be able to choose between at least a couple, 

so that I can keep a little heat on both of them to control their 

prices for that myriad of services. 

Mr. ROBERTS. I think that is the vision. I mean, I think that is— 

all kidding aside, how can the various networks evolve the technology to where you are offering all the products to the consumer, 

whatever the definition of the products will be 5 or 10 years from 

now. So as you think through the model, you do want a facilitiesbased competitor that is willing to integrate. In the marketing 

lingo, that is the bundle. 

And bundling, Verizon is a leader in that. Get your cellular, your 

telephone, your DSL, they are offering satellite, and all in one bill. 

Cable is doing that, and I think that that is a lot of what some customers want. 

The key point that you also made, having competitive choices for 

all those bundles, is also happening. So in our case you can get Rupert Murdoch’s DirecTV, you can get EchoStar, the Dish Network, 

you can get DSL. They are bundling together. 

44 

So how do you innovate? So the real thing, so if you are in our 

shoes, is obviously trying to have local service, be a company that 

is community-based. So as you know, we take great pride in the 

fact that we started this company locally. 

Senator LOTT. In Mississippi. 

Mr. ROBERTS. In Mississippi. 

Senator LOTT. Do not ever forget that. 

Mr. ROBERTS. I never forget it. Tupelo, Mississippi, my father. 

Senator LOTT. That is what got you started off on the right note, 

yes. 

Mr. ROBERTS. Forty years ago. So whether it is being part of the 

community or now doing 24–7, again, the change that you are talking about I think has happened, so we are open 7 days-a-week, 24 

hours-a-day. You call, you talk to somebody from Comcast. That is 

a very different business model than your cable company 10 years 

ago. 

So that is the competition part that you referred to. But I think 

that is a vision that we are all shooting for, which is the bundle. 

Senator LOTT. Mr. Ford, my staff tells me that you indicated 

maybe you might want to comment on the universal service fund, 

go back to that. 

Mr. FORD. That is an observant staff. 

Well, I wanted to say one thing on that. As a rural phone company, we never quite got it right. We started in Arkansas instead 

of Mississippi, but that is as close as we could get. 

Senator LOTT. But you do serve part of my State now. 

Mr. FORD. We do, sir. 

Senator LOTT. So you are making progress. 

Mr. FORD. That is a crack staff you have got back there. 

Just to kind of stay on my mantra today of sighting the pink elephants in the room, when you talk about universal service, as I am 

sure you are aware, the high cost subsidies that used to flow only 

to the wireline companies, whatever that subsidy was now flows to 

any wireless company for any number of lines in that marketplace. 

So the universal service fund has grown tremendously over the last 

several years. It is not like it is dying on the vine. 

I am a beneficiary of it. But if you are looking for people in the 

industry that would say, look, enough of a good thing is enough, 

if you really want to policy where people have to compete and 

evolve their business models to stay competitive, I think you would 

find more support in the telecommunications industry than you 

might suspect. 

Senator LOTT. Thank you very much. 

Now we will hear from VoIP Sununu in person. 

STATEMENT OF HON. JOHN SUNUNU, 

U.S. SENATOR FROM NEW HAMPSHIRE 

Senator SUNUNU. Thank you very much, Mr. Substitute Chairman. 

[Laughter.] 

Senator SUNUNU. I want to point out that you are doing an outstanding job presiding over this hearing. 

Senator LOTT. Feel free to extend your remarks in that vein. 

[Laughter.] 

45 

Senator SUNUNU. One of the points that seems to have been 

made in a number of different forms is the importance of regulatory parity and a level playing field, and also consistency, because it is the consistency that creates an environment where people can take a risk and put up some capital, invest in a new service, new infrastructure, and keep serving those customers in Mississippi and elsewhere that are the heart and soul of your businesses. 

Along those lines, Mr. Seidenberg, I think you talked about regulatory parity with regard to voice and video and data, whatever 

might be carried over the system. Mr. Betty, in your remarks I 

think you made a similar point about looking at these applications 

and treating them all in a similar way. 

Does VoIP fit that description that you provided in your testimony, Mr. Betty, an application that rides over the Internet? 

Mr. BETTY. Absolutely. 

Senator SUNUNU. And do you agree that all of these applications, 

voice or instant messaging or video, ought to be treated as information services? 

Mr. BETTY. Absolutely. 

Senator SUNUNU. Mr. Seidenberg, do you agree with that? 

Mr. SEIDENBERG. I am not a technical expert on the law here, so 

I do not want to get in trouble. But I think that to the extent that 

we can treat the VoIP services absent the common carrier regulation that would create a disparity with other services, then I would 

agree. 

But I want to make sure I read the fine print because this is 

what I have learned in this industry after all these years. But generally we have been making the case that broadband services 

should not be treated under Title 2, they should be treated under 

Title 1. 

Senator SUNUNU. Mr. Wilson, do you agree with Mr. Betty? 

Mr. WILSON. No, sir, I do not. I think VoIP is another form of 

telecommunications and should be treated so. I look at Voice-OverIP as just another natural evolutionary step in the innovation of 

telecommunications. If you go back years ago, we had the old central switchboard, we had open wire lines with a great number of 

people on party lines. We migrated to eight-party, to four-party, to 

one-party, buried copper to fiber, hybrid coaxial networks, went 

from step switches to digital switches, now to soft switches. 

I think it is just innovation, another step in innovation in telecommunications. 

Senator SUNUNU. So instant messaging, e-mail, video on demand, 

those are also telecommunications services that should be regulated under Title 2? 

Mr. WILSON. I do not think e-mail and text messaging should be, 

but I think the Voice-Over-IP should be. 

Senator SUNUNU. So looking out toward the future, regulators 

are going to have some sort of a sieve that enables them to determine which bits carry a telecommunications voice call and which 

bits carry an instant message and which bits carry an e-mail? 

Mr. WILSON. Well, sir, I think the fact may be that we have to 

have some type of a network compensation for just a bit, period, 

because we will not be able to distinguish those bits for sure. But 

46 

still, we will have usage of our network. This stuff, it is not magically just getting from point A to point B. It is still riding over a 

network. We have got network investment and somehow we need 

to be compensated for use of our networks whether it carries VoIP 

or text messaging or whatever else it carries. 

Senator SUNUNU. So your point is not really whether you have 

regulatory parity or not. It is just whether anything affects the rate 

of return model that your business is based on? 

Mr. WILSON. Yes, sir, we just need to be compensated for our network usage. 

Senator SUNUNU. I appreciate that directness. 

Mr. Seidenberg, I believe the FCC has encouraged and you and 

others have participated in discussions around modifying the intercarrier compensation system, moving to maybe the nirvana, or perhaps the mirage, of a bill-and-keep system. Is that realistic? Are 

you making any progress there? And where will that leave, if we 

were to move to a bill-and-keep system, where would that move 

folks like Mr. Wilson? 

Mr. SEIDENBERG. I think there are two different questions here. 

Let me see if I can address the question of the rural support. I 

think from an inter-carrier compensation system, some progress is 

being made. I guess we always make progress, depending on where 

you sit. I think what is important to us in that whole debate is to 

evolve the inter-carrier compensation art form here to—‘‘bill-andkeep’’ is not a bad way to say it, but, you know, to every complex 

solution there is a simple answer and it is usually wrong in this 

environment. 

I think we need to move more in that direction. We need to move 

more in the direction of people paying for the facilities they use. 

Now, here is the only place that we have a very strong view on 

this, is that every time we get into one of these debates we find 

ourselves supporting other companies’ bad business models. This is 

where you get into all the trouble in the regulatory process. 

If everybody had to make a return like Comcast on their investor 

capital, the debates would be different. But when some companies 

come to the table with no stake in the game, no skin in the game 

because they do not invest anything, the whole discussion goes a 

different direction. 

Senator SUNUNU. Who would that be? 

Mr. SEIDENBERG. The interstate carriers and all those companies 

that—we know who they are. I guess we are talking about pink elephants. There is one of them around here someplace. 

I think, to the other question, I think that I believe that wireless, 

take for example, we have expanded coverage, we have grown the 

market. We have moved wireless coverage further and further into 

the rural communities. I would not give up on the idea that the 

marketplace will drive coverage and we do not need rate of return 

guarantees in order to make sure we provide services into the rural 

areas. 

So I think there is a balance here. We can push things out a little further through investment and growth before we get into the 

situation of trying to mandate these things through regulators who, 

frankly, it does not work. You come from a rural State. You know 

this. 

47 

Senator SUNUNU. I would not say that. My state, it is a mix of 

suburban areas who go through the hand-wringing of being included in the Boston DMA and all the problems that that can create in a number of different areas, and yes, we have got some rural 

areas and the issues associated with broadband access as well. 

However—sorry, Mr. Chairman. Let me just be clear. You did not 

really answer my question, which was about moving to bill-andkeep and whether or not you thought that was a realistic goal, 

whether we could achieve a bill-and-keep system, and whether or 

not, if we did that, whether that would create a problem. 

Mr. SEIDENBERG. I apologize. I mean, I think moving in that direction is right. But I want to be very careful. I want to make sure 

I read the fine print to make sure that somebody does not call it 

that and when I get finished with it it is something else, because 

that has been the history. 

Senator SUNUNU. Thank you, Mr. Chairman. 

Senator LOTT. Senator Lautenberg, would you like to pursue a 

couple more questions? 

Senator LAUTENBERG. Yes, thank you, Mr. Chairman. 

One of the things I noticed, Mr. Seidenberg, in your response to 

my question about how you are competing in local markets, you 

turned immediately to wireless. Is that because of an abandonment 

of the traditional opportunities that came from the wire-connected 

subscribers? 

Mr. SEIDENBERG. No, sir. I think—and fair enough. I could have 

answered that question a little differently. 

Senator LAUTENBERG. Do you compete for the wire-connected, the 

more traditional kind of phone subscriber, in other marketplaces? 

Mr. SEIDENBERG. No, we do not. 

Senator LAUTENBERG. OK. I just wanted to be sure, because 

what we are talking about here is how those companies who would 

like to enter into the competitive marketplace with traditional service really do not have much of a chance. 

I noticed a company called Convergence Consulting estimates 

that 20 to 25 percent of DSL customers, the customer base, are 

businesses compared to only 3 percent to 4 percent for cable. Now, 

Mr. Roberts, do you have a view of that? Is that because you were 

not interested, the cable industry is not interested in the business 

marketplace? 

Mr. ROBERTS. No, we definitely are interested. I think we see 

that as a future growth opportunity. But traditionally we did not 

have the suite of services necessary that businesses wanted. 

Verizon has a very successful longstanding relationship with those 

businesses. But I do think part of our plan as the Voice-Over-IP 

technology happens, I think one of the themes here is that may 

well be the path to real competition in phone, is through VoIP. And 

should that occur, then I think a lot of the other conversations we 

have been having today will play out, and hopefully we will then 

go into the small business market. 

But in the big business market, it is unlikely that we are going 

to be a meaningful competitor any time soon. 

Senator LAUTENBERG. So that is a good marketplace for Verizon 

and the others? 

Mr. ROBERTS. Yes. 

48 

Senator LAUTENBERG. And that is without any regulation interfering, is it not? 

Mr. ROBERTS. Yes. 

Senator LAUTENBERG. Is that so for you, Mr. Seidenberg, for 

Verizon? 

Mr. SEIDENBERG. That is true, sir. But may I just add something 

to this? 

Senator LAUTENBERG. Sure. 

Mr. SEIDENBERG. Because I think, if I understand the premise of 

the question, is that we have no natural platform to build local facilities in Atlanta. We have a network that we operate in New Jersey, for example, and other places. Our first choice is to upgrade 

that network to the next generation of service, while others are 

coming in and overbuilding us. So our focus in the local area has 

always been to upgrade what we have. 

I think the same thing applies to any cable company who would 

choose to get into the business market. They first have to upgrade 

their networks to provide those services, and then as a future service they will do that. 

We have plenty of competitors in our market for local services— 

wireless, cable, and all the little companies that do this. We have 

chosen not to go out of our wireline franchise to build, overbuild 

facilities, because new technologies like wireless and IP will supersede those technologies soon enough. 

Senator LAUTENBERG. So that that marketplace can be thrown 

wide open? You do not much care about it in terms of—let me not 

exaggerate what you have said. But what happens is the pressure 

that comes as I see it is that there is little opportunity for others 

to break into the local marketplace, and part of that has to do with 

fee structure. 

I do not want regulation on fees, but I wonder, where does the 

consumer right get protected here? Should that be regulated? 

Should there be some regulation that guarantees the consumer 

that their service is reliable and efficient and reasonably costed? 

Mr. ROBERTS. If I might take a shot at that, I think this is where 

the regulatory parity is a little too simplistic to be the right solution, because you are pointing out that there are parts of the market where there is not enough competition, where in other parts of 

the market there may be more healthy competition. 

So the model of saying, I believe, facilities-based competition is 

the sustainable competitive model. Let us promote policies that are 

encouraging people to make that investment. I think I believe—the 

last time I will say it, so I am not a broken record—I think VoIP 

presents that possibility. We do not know yet whether it will materialize that way. And we hope to be a leader in making that happen by making that investment. 

Senator LAUTENBERG. Mr. Roberts, when Comcast moved to acquire the AT&T broadband installations you argued that the combined companies would be able to accelerate the delivery of 

broadband services to the American public. You have had that company or that relationship now 18 months. How successful have you 

been on delivering that promise? 

Mr. ROBERTS. I appreciate that opportunity to answer that question, because I am very proud of the fact in the first 18 months we 

49 

have basically rebuilt to 95 percent plus the AT&T systems, which 

were about 70 percent rebuilt at the time we bought them. They 

had lost 500,000 customers to our competitors in the year between 

signing and closing. We got 150,000 of those back. 

We were able to—we had set guidance for the company internally and externally of 1.2 million broadbands last year that we 

would sell and we sold 1.67, call it 1.7, million, substantially more 

than we had expected, because of the investment, because of the 

return to localism from a national company to a local company, I 

believe. Certainly, for an 18-month report card we think it has 

been the most significant and transforming event in our company’s 

history. 

Senator LAUTENBERG. Thanks, Mister—I cannot find the Chairman. 

Senator SUNUNU [presiding]. If you just say ‘‘Mr. Chairman,’’ 

somebody over here will answer. 

[Laughter.] 

Senator SUNUNU. Senator Cantwell. 

STATEMENT OF HON. MARIA CANTWELL, 

U.S. SENATOR FROM WASHINGTON 

Senator CANTWELL. Thank you, Mr. Chairman. 

Gentlemen, it is great to see all of you here this morning. I know 

you have had a healthy discussion about what will give us predictability and investment for the future that will help promulgate 

even better products and services in the broadband space. 

I am curious. We have had, this is I think our third hearing, Mr. 

Chairman, about this issue and the complexities of moving forward, 

given the framework of current statute and the development of 

technology, particularly IP telephony and the advent of many of 

your business models, let us just say, coalescing or coming together. And I know you are not soothsayers, I know you cannot 

predict the future, and some of this is still evolving. 

But I have a question as it relates to where we are today. We 

have a current Telecom Act and an FCC that tries to interpret 

that, obviously at times stretches in its challenge of information 

services in defining it, and obviously we all end up in litigation and 

complex outcomes to what we think would be a clearer solution if 

the Act was changed and defined in certain ways. And we have a 

moratorium proposed now on Voice-Over-IP. 

So I just want to understand where you are in looking at this 

context, of whether the moratorium process will get us to that 

point of predictability and certainty in investment, or whether you 

think that in fact the Act has to be changed in some ways so that 

we can get that predictability and certainty that you have been 

talking about today. 

So whoever wants to start with that. 

Mr. SEIDENBERG. Brian volunteers that I go first. 

Senator CANTWELL. That easy question. 

Mr. SEIDENBERG. This is an easy issue for us, OK. The status 

quo is a slow death. So I think the moratorium is a reasonable first 

step. I think some of the other steps that have been taken are 

small, they are positive, but they do not do anything. 

If I could just answer this very quickly from our perspective—— 

50 

Senator CANTWELL. And tell me—I am assuming a moratorium 

without a change to the FCC. So in that environment, describe how 

you see it playing out? 

Mr. SEIDENBERG. Well again, let us look at—if we look at, if we 

were in our board room and we were looking at what our opportunity is and we are looking at this through our lens, which is I 

think what you really want us to tell you, here is what we see. We 

see ourselves in a position that we have an open-ended opportunity 

to develop wireless and we have spent more in wireless than anybody else and, frankly, we are spending it as fast as we can figure 

out how to spend it. 

When it comes to the wireline side of the company, the challenge 

is that technology continues to eat away at the traditional revenue 

streams for that business. You are familiar with that. And the only 

way for us to overcome that inertia is to reinvest our earnings, our 

cash, and create something different. 

So we are not trying to create next year’s voice business. We are 

trying to create a broadband business. The problem we have with 

the current rules is that there is no—there are no levers that can 

be pulled to stop the train of all the destructive policies that are 

going on right now across the industry, short of somebody preempting all of the mischief that goes on, however unintentional it 

might be, and create an investment-friendly environment so that 

we can recreate the industry. 

If we do not recreate the industry, it just will continue to shrink 

and we will continue to push our resources someplace else. I think 

you understand this very well. So as far as we are concerned, there 

is nothing the FCC could do under its current mandate that will 

stop the forces of natural technology and investment from disengaging from the wireline business over time. 

The history of it is that is exactly what has happened in the last 

8 years. Since the Act, the only way any company has made money 

in the wireline business is by selling itself. That is a 100 percent 

true statement. So no one is making any money organically. They 

are making it because they run the business to a certain point and 

they have to merge with somebody or sell the assets. It is not a 

good model. It is not what was intended. 

Senator CANTWELL. So you are saying do both because—— 

Mr. SEIDENBERG. I am saying that we have to completely revamp 

the current regulatory structure, State and Federal, around an investment-friendly, forward-looking model. 

Senator CANTWELL. But if you are revamping and putting a moratorium on, those are different things. 

Mr. SEIDENBERG. I do not think I would do both. I would change 

it. 

Senator CANTWELL. OK. Mr. Roberts? 

Mr. ROBERTS. Well, again I think the details of the telephone 

business are not something that I would sit here, and as I have 

said previously, that I am necessarily an expert on their industry. 

They are in the wireless business and they are the largest competitor to local telephone is wireless, and they are the largest wireless 

company. So I do think it is a complicated process of how you unravel the 70 years of regulations. 

51 

But I think the goal should be competition. And to your point, 

because no one has a crystal ball, it is all—as a competitor, it is 

all about innovating. You do not know whether the consumer 

wants VoIP or not. Nobody knew whether high-speed Internet 

would work, let alone how much you could sell to recoup your investment. So to do a massive rewrite of the Telecommunications 

Act I think will create nothing but instability, will destabilize the 

capital markets, to want you to continue to make long-term decisions where there are short-term uncertainties and medium-term 

uncertainties as to what those rewrites will be. 

I think if there is a problem and somebody wants to target and 

fix it and that involves reducing some regulations without creating 

new regulations, then I certainly think that is a better path. In our 

case, the government has a choice right now about whether to pursue the Brand X case in the Supreme Court, whether or not you 

want to start regulating the Internet and allowing it to be regulated in a law that was created in 1934. I do not think that is what 

we should be doing. I think we should be trying to focus from is 

there competition. 

We talked last quarter the phone companies sold more DSL lines 

than cable companies. That is not because of government. That is 

because it is a good business opportunity and they are going after 

it aggressively, as I think they should. I think that model of competition, innovation, and less regulation is where we are at. 

Senator CANTWELL. I am not trying to put anybody in a box, but 

I am just trying to understand because we think of things—well, 

we should think outside the box here. In the framework of this discussion, I think Mr. Seidenberg was saying, I will take my chances 

with a new framework, and you are saying, I will take my chances 

with the moratorium. 

Mr. ROBERTS. I would think that what worries me about a complete rewrite is then it gets into many, many other issues and not 

into let us do a targeted series of things that are clearly either a 

moratorium or focused on VoIP only, however you want to phrase 

it. 

Senator CANTWELL. Mr. Ford? 

Mr. FORD. I think the underlying issue is there are going to be 

winners and losers any time the rules change. I sense, just personally I sense a strong reluctance on the part of regulators to let any 

company go out of business. But I think the reality is, until there 

is a common set of rules where people can fully compete on a facilities-based approach and run some companies, frankly, out of business, you are not going to get to a systemic change that allows 

competition to renew itself and renew the investment that we are 

struggling with. 

I will give you a great example—go ahead, ma’am. 

Senator CANTWELL. No, I was just going to say I think some people think that you might get there with the moratorium, that some 

people might be run out of business with the moratorium. So if 

that is your definition of letting the playing field happen. 

Mr. FORD. Really, to just speak very frankly, the issue is do we 

want to take some companies, who have a business model that 

frankly does not make sense, and continue to take money from the 

shareholders of people who made a decision to invest in a model 

52 

that at the time made sense? We have now got a set of rules that 

say, well, we have got another company here whose shareholders 

are going to lose because their managements took them in the 

wrong direction and we need to take money from these folks and 

give it to these folks to keep them both alive. 

That is fundamentally, that is fundamentally why we have gotten to the point—and we are not a big participant in this battle. 

That is fundamentally where we have gotten, I think, in terms of 

the issue around the moratorium today. 

Senator CANTWELL. So you are for new rules? 

Mr. FORD. I am for new rules, but may I throw in 30 seconds? 

At great danger, it looks like. 

Senator CANTWELL. Oh, no, no. 

Mr. FORD. The wireless business is a great example of this. We 

are spending all of our time—we have taken our business model 

over the last 5 years from four to one wireline to wireless to three 

to one wireless to wireline, and we spend all of our time and energy 

trying to create new applications over the wireless business, because if we come up with a new application or a new service and 

we spend the capital to put it out, I know, even though it is a very 

competitive world, I know that I can compete on a heads-up basis. 

We spend no time, no time, trying to invest in the wireline business because even if we do we cannot keep it because the regulatory scheme says, well, that disadvantages some other company’s 

shareholders and I am going to take some of that from you and 

give it to them. So we just do not invest. 

Senator CANTWELL. Mr. Betty, new rules or a moratorium? 

Mr. BETTY. I would support a moratorium, but I hear a lot of— 

what they want is to go back to the way it was before 1996. The 

1996 Act did do a lot of good. Transit costs are down 75 to 80 percent. Broadband deployment and acceptance would not be there absent the technology changes that helped make the cost to deliver 

that a lot more effective. 

I fear that we are going to reach an environment where the only 

place innovation can occur is if you go to a cable operator or to a 

telephone company and try to cut some arrangement to have some 

chance of creating a business. Absent a way for third party companies to help—what is going to happen to Vonage? I mean, we talk 

about VoIP and people that are creating this thing. If you do not 

allow those companies the opportunity to compete, they are going 

to get squeezed out of the marketplace because the only people who 

can deliver anything are the cable operators and the telephone 

companies. 

Senator CANTWELL. Mr. Wilson, did you want to cast a vote on 

this? 

Mr. WILSON. Well, I guess I have just a little bit different perspective, being a rural telephone cooperative with 2.33 subscribers 

per square mile. I guess I will go back and kind of address your 

question about where we think things are going and about investment and getting there. 

Senator CANTWELL. Particularly, do you think the path ought to 

be through a moratorium or through new rules? 

Mr. WILSON. Probably a moratorium. We need a stable environment of investment recovery so that we can deploy these new techVerDate Nov 24 2008 11:27 Sep 14, 2016 Jkt 075679 PO 00000 Frm 00056 Fmt 6633 Sfmt 6601 S:\GPO\DOCS\21481.TXT JACKIE
53 

nologies. I think it is imperative to our rural areas to move toward 

the IP broadband world, to create opportunity for our rural subscribers. 

Senator CANTWELL. Thank you, Mr. Chairman. I know that took 

longer probably than my allowed time. 

Senator SUNUNU. Fortunately, there is no one here to complain 

about it. 

I have just a couple of additional questions, although I do want 

to point out that, Mr. Ford, I think you are the only panelist that 

has advocated for a regulatory framework that allows competitors 

to run other competitors out of business, although in a level playing field. There is something very American about that. I am not 

criticizing. 

Mr. FORD. I could win or lose. 

Senator SUNUNU. I am not criticizing. Just it is a bold choice of 

words for a panelist, at least in this committee. 

Mr. Ford, I wanted to ask you a little bit about universal service. 

You referred to this, I think, in one of your other answers, but I 

just wanted you to clarify a little bit about any proposed changes 

or changes that you might recommend or advocate regarding collection methodology or distribution methodology. 

Mr. FORD. Collection methodology, we would literally fall into all 

of the discussions about bill-and-keep, numbers, revenues, connections. I do not have an elegant statement on that, so I—— 

Senator SUNUNU. You do not have a particular—— 

Mr. FORD. I do not have a particular preference on revenue 

source. My comment was aimed at the distribution of the funds. I 

think if you look at the joint State-Federal board issues that were 

recently—well, at least the talk about the meetings that they 

held—one of the key issues is, well, should universal service or 

high cost subsidies, maybe more broadly speaking, be available to 

the primary wireline, the second wireline into the home, the third 

wireline access point into the home, the first wireless business to 

apply for funds in that State, the second wireless business, the 

third, the fourth? 

The issue that we have right now, to the great advantage, frankly, of rural telephone company providers like ourselves, is you pay 

it all, which puts more pressure on the fund. And, keeping with my 

theme of you ought to let the market sort this out, I am just wanting to point out that it does not have to be that way, and we as 

one rural telephone provider would not jump up and down and say 

you have got to make it available to the primary line, which goes 

back to the politics of the 1930s and everybody needs to have a 

phone, a chicken in the pot and a phone in the home. 

So we want to incent companies like the one my grandfather 

started, where he dug poles and my mother was an operator, to go 

out into rural areas and build networks where no one would ever 

be able to pay for them. So I understand that and appreciate it and 

would support it. 

But do you need it for the second line, the third line? Every wireless provider? Or do you need the customer to say, I want a lifeline 

connection and I will choose whether it is the wireline provider or 

the wireless provider? I think you would be able to take an enormous amount of pressure off the subsidy pool. 

54 

Senator SUNUNU. Should that valuable subsidy be provided to 

the provider or to the customer? 

Mr. FORD. You are going to effect the same means. I am not 

versed in whatever is going through your mind right now on the 

split out of that, and so I am not really sure. 

Senator SUNUNU. I would hope that your answer to any question 

is not predicated on what I am thinking. 

Mr. FORD. I think I have established that. 

I am not sure. 

Senator SUNUNU. Mr. Wilson, in your comments regarding universal service I think you were pretty clear, although in talking 

about expanding the base you talked about including information 

providers. It was not clear to me exactly who you were referring 

to and who that might cover. 

Mr. WILSON. Well, Senator, I do not necessarily have the definition with me of what all we included in that. I always look at the 

information provided by the NTCA where we think the base should 

be expanded to all providers of telecommunications services. I do 

not guess I could sit here and tell you at the moment what all we 

included in information services. I do not have it available to me. 

Senator SUNUNU. You talked about instant messaging or e-mail 

services being telecommunications service. So would those service 

providers, IP service providers, be covered? You would have them 

pay universal service rates? 

Mr. WILSON. Yes, sir, I think they could fit that definition. 

Senator SUNUNU. How big is your company? 

Mr. WILSON. We have 7,700 access lines. 

Senator SUNUNU. What is your revenue base? 

Mr. WILSON. Our revenue base is about $16 million a year. 

Senator SUNUNU. How much of that comes from universal service 

payments? 

Mr. WILSON. About 60 percent of it. 

Senator SUNUNU. 60 percent? 

Mr. WILSON. Yes, sir. 

Senator SUNUNU. And how much of it—how much of the balance 

comes from, or how much of the total revenue base comes from access charges from terminating calls from other providers? 

Mr. WILSON. I do not have that off the top of my head. I know 

about 9 percent of our total revenues come from local and the remainder of our revenues come off State and Federal USF and access revenues, State and Federal access revenues. 

Senator SUNUNU. Thank you. Not what I would have guessed. 

Mr. Roberts, what do you expect the per-customer costs for adding VoIP to be? 

Mr. ROBERTS. That is a great question that I do not know that 

I know the answer to that. We are hoping to get it 3 to $400 a 

home, where you put in the technology. Hopefully, as with highspeed Internet, that cost will drop substantially. It has been higher 

than that in the last couple of years. So we are doing three markets this year, three different States, to be able to thoughtfully 

know the answer to that question. 

I do not think anybody yet has rolled out VoIP that can say, yes, 

it is a winner, we are going to go. I think that there is a number 

of cable companies almost universally who have all said: If you 

55 

charged around $40 a month for the product, with that type of investment you ought to be able to make a return. 

Senator SUNUNU. Mr. Seidenberg, what are your per-customer 

add costs for VoIP expected to be? 

Mr. SEIDENBERG. That is a good question. I do not really have 

one number for that, simply because if we install new—let us take 

the case of installing new fiber into the home and we will offer 

VoIP services over a greenfield network. Those costs, initial costs, 

can be anywhere from $1,000 to $2,000 depending on if the plant 

is buried. 

Senator SUNUNU. You do not need to install fiber into someone’s 

home to offer them VoIP service, do you? 

Mr. SEIDENBERG. No, that is correct. We have to put a packet 

switch in so we can put VoIP in. 

I do not think we have identified the costs that way. Frankly, to 

be honest with you, even if I did know it directly it is a competitive 

piece of information, so I am not sure I would disclose it in that 

fashion anyway. 

Senator SUNUNU. I guess that is the witness version of ‘‘If I tell 

you I have to kill you.’’ 

To both of you, what do you think they are relative to the installation of a circuit switch, an add for a circuit switch customer? 

Greater, less? Do you anticipate them to be less? 

Mr. ROBERTS. It is our great desire that it is less, because we are 

not convinced that the circuit switch model is a business that you 

can long-term get a good return from. 

Senator SUNUNU. Do you disagree with that, Mr. Seidenberg? 

Mr. SEIDENBERG. No. I would just like to add something to that, 

though, just to make sure that—I can see you are a techie into this, 

so just to make sure. In this marketplace, the install cost of the 

packet switch or the electronics over time might be less than what 

we spend on the circuit switch, but the cost of acquisition, the marketing and the customer care, is going to be much higher. 

So I think when we look at the total cost of acquisition of a customer, it is going to be substantial. I think the issue is that without an opportunity to get, to hold that customer long enough to get 

a return, it is very hard, it is a very hard thing to do in the long 

term. 

Senator SUNUNU. A final question for all of you. If and when we 

reopen the 1996 Act and start modifying, change, I have heard a 

lot of discussion about limiting regulation to establish greater parity between modes, being concerned about taking away regulations 

that may be associated with universal service. But are any of you 

advocating a new regulation, a new rule that you would like to see 

as part of this debate? Left to right, Mr. Seidenberg? 

Mr. SEIDENBERG. Your left to right, OK. No. The answer—and I 

probably misled or maybe Senator Cantwell misheard me. We are 

focused on fixing what applies to us. If you cannot fix it and you 

have got to change a bigger piece, so be it. But our first choice 

would be to correct what we think are the infirmities that exist. 

Senator SUNUNU. You are not proposing adding new set of rules 

or regulations? 

Mr. SEIDENBERG. Not that my staff has told me about that I 

know of, no. 

56 

Senator SUNUNU. They are all whispering behind you. I do not 

know if that is a good sign or not. 

Mr. Roberts? 

Mr. ROBERTS. No. 

Senator SUNUNU. Mr. Ford? 

Mr. FORD. No, sir. 

Senator SUNUNU. Mr. Betty? 

Mr. BETTY. I think we should enforce the existing rules. 

Senator SUNUNU. Enforce the existing rules. I am always for, if 

you have a set of rules, they ought to be enforced. That way you 

are a little bit more credible as both legislators and regulators. 

Mr. Wilson? 

Mr. WILSON. No, sir, no new rules. 

Senator SUNUNU. Thank you very much. We are adjourned. 

[Whereupon, at 11:43 a.m., the Committee was adjourned.] 

(57) 

A P P E N D I X 

CENTRAL TEXAS TELEPHONE COOPERATIVE, INC. 

Goldthwaite, TX, May 18,2004 

Hon. JOHN MCCAIN, 

U.S. Senate, 

Washington, DC. 

Dear Senator McCain: 

On behalf of NTCA and myself, I would like to express my sincere gratitude for 

the opportunity to participate on the panel in last week’s Telecommunication Policy 

Review. It was an experience I’ll never forget. 

I would like to follow up on a question you asked regarding the need for a national broadband policy. I believe such a policy is very much needed. Currently, 

there is no real framework in place to ensure this kind of infrastructure will be universal and interconnected. The telecommunication industry needs direction from 

Congress if such a ubiquitous network is to ever be built in this Nation. Despite 

the tremendous progress of small rural carriers in deploying broadband capable infrastructure in their areas, if left entirely to market forces, I contend broadband investment will be piecemeal with many parts of the Nation never having access to 

a truly broadband network. This would leave many Americans never being able to 

realize and take advantage of all the potential opportunities and benefits such a 

network could yield. 

I see a national policy directive from Congress that creates a partnership between 

government and private industry where: (1) standards are established; (2) interoperability issues are addressed for interconnection of all types of broadband technologies; (3) a network with flexible bandwidths and unlimited capacities is the objective; and most important, (4) our policies are developed in a manner to make it 

future proof. 

To encourage players, Congress should create a more stable regulatory environment with incentives such as tax credits for large players and USF recovery for 

small players. Such a project could potentially pump billions into the economy creating an untold number of new jobs. 

The United States should be leading the world in the deployment of broadband, 

not be number eleventh or twelfth as was alluded by some during your hearing series. This type of network would not only make the country more globally competitive, it would usher forth a new era of untold benefits and opportunities to all Americans now and for future generations to come. I want you to know that NTCA, as 

well as myself, are at your disposal should you chose to pursue such a course of 

action. 

Sincerely, 

DELBERT WILSON, 

Central Texas Telephone Cooperative, Inc. 

Æ