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20–748PDF 2005

HOW INTERNET PROTOCOL-ENABLED SERVICES

ARE CHANGING THE FACE OF COMMUNICATIONS: A LOOK AT VIDEO AND DATA SERVICES

HEARING

BEFORE THE

SUBCOMMITTEE ON TELECOMMUNICATIONS AND

THE INTERNET

OF THE

COMMITTEE ON ENERGY AND

COMMERCE

HOUSE OF REPRESENTATIVES

ONE HUNDRED NINTH CONGRESS

FIRST SESSION

APRIL 20, 2005

Serial No. 109–19

Printed for the use of the Committee on Energy and Commerce

(

Available via the World Wide Web: http://www.access.gpo.gov/congress/house

COMMITTEE ON ENERGY AND COMMERCE

JOE BARTON, Texas, Chairman

RALPH M. HALL, Texas

MICHAEL BILIRAKIS, Florida

Vice Chairman

FRED UPTON, Michigan

CLIFF STEARNS, Florida

PAUL E. GILLMOR, Ohio

NATHAN DEAL, Georgia

ED WHITFIELD, Kentucky

CHARLIE NORWOOD, Georgia

BARBARA CUBIN, Wyoming

JOHN SHIMKUS, Illinois

HEATHER WILSON, New Mexico

JOHN B. SHADEGG, Arizona

CHARLES W. ‘‘CHIP’’ PICKERING,

Mississippi, Vice Chairman

VITO FOSSELLA, New York

ROY BLUNT, Missouri

STEVE BUYER, Indiana

GEORGE RADANOVICH, California

CHARLES F. BASS, New Hampshire

JOSEPH R. PITTS, Pennsylvania

MARY BONO, California

GREG WALDEN, Oregon

LEE TERRY, Nebraska

MIKE FERGUSON, New Jersey

MIKE ROGERS, Michigan

C.L. ‘‘BUTCH’’ OTTER, Idaho

SUE MYRICK, North Carolina

JOHN SULLIVAN, Oklahoma

TIM MURPHY, Pennsylvania

MICHAEL C. BURGESS, Texas

MARSHA BLACKBURN, Tennessee

JOHN D. DINGELL, Michigan

Ranking Member

HENRY A. WAXMAN, California

EDWARD J. MARKEY, Massachusetts

RICK BOUCHER, Virginia

EDOLPHUS TOWNS, New York

FRANK PALLONE, Jr., New Jersey

SHERROD BROWN, Ohio

BART GORDON, Tennessee

BOBBY L. RUSH, Illinois

ANNA G. ESHOO, California

BART STUPAK, Michigan

ELIOT L. ENGEL, New York

ALBERT R. WYNN, Maryland

GENE GREEN, Texas

TED STRICKLAND, Ohio

DIANA DEGETTE, Colorado

LOIS CAPPS, California

MIKE DOYLE, Pennsylvania

TOM ALLEN, Maine

JIM DAVIS, Florida

JAN SCHAKOWSKY, Illinois

HILDA L. SOLIS, California

CHARLES A. GONZALEZ, Texas

JAY INSLEE, Washington

TAMMY BALDWIN, Wisconsin

MIKE ROSS, Arkansas

BUD ALBRIGHT, Staff Director

DAVID CAVICKE, Deputy Staff Director and General Counsel

REID P.F. STUNTZ, Minority Staff Director and Chief Counsel

SUBCOMMITTEE ON TELECOMMUNICATIONS AND THE INTERNET

FRED UPTON, Michigan, Chairman

MICHAEL BILIRAKIS, Florida

CLIFF STEARNS, Florida

PAUL E. GILLMOR, Ohio

ED WHITFIELD, Kentucky

BARBARA CUBIN, Wyoming

JOHN SHIMKUS, Illinois

HEATHER WILSON, New Mexico

CHARLES W. ‘‘CHIP’’ PICKERING,

Mississippi

VITO FOSSELLA, New York

GEORGE RADANOVICH, California

CHARLES F. BASS, New Hampshire

GREG WALDEN, Oregon

LEE TERRY, Nebraska

MIKE FERGUSON, New Jersey

JOHN SULLIVAN, Oklahoma

MARSHA BLACKBURN, Tennessee

JOE BARTON, Texas,

(Ex Officio)

EDWARD J. MARKEY, Massachusetts

Ranking Member

ELIOT L. ENGEL, New York

ALBERT R. WYNN, Maryland

MIKE DOYLE, Pennsylvania

CHARLES A. GONZALEZ, Texas

JAY INSLEE, Washington

RICK BOUCHER, Virginia

EDOLPHUS TOWNS, New York

FRANK PALLONE, Jr., New Jersey

SHERROD BROWN, Ohio

BART GORDON, Tennessee

BOBBY L. RUSH, Illinois

ANNA G. ESHOO, California

BART STUPAK, Michigan

JOHN D. DINGELL, Michigan,

(Ex Officio)

(II)

C O N T E N T S

Page

Testimony of:

Champion, Lea Ann, Senior Executive Vice President, IP Operations

and Services, SBC Services, Inc .................................................................. 7

Cohen, David L., Executive Vice President, Comcast Corporation .............. 17

Gleason, James M., President, New Wave Communications, Chairman,

American Cable Association ......................................................................... 29

Ingalls, Robert E., Jr., President, Retail Markets Group, Verizon Communications ......................................................................................................... 20

Mitchell, Paul, Senior Director and General Manager, Microsoft TV Division, Microsoft Corporation .......................................................................... 11

Perry, Jack, President and Chief Executive Officer, Decisionmark Corporation .......................................................................................................... 40

Schmidt, Gregory, Vice President of New Development and General

Counsel, Lin Television Corporation, on Behalf of National Association

of Broadcasters .............................................................................................. 23

Additional material submitted for the record:

Champion, Lea Ann, Senior Executive Vice President, IP Operations

and Services, SBC Services, Inc., letter dated May 18, 2005, enclosing

response for the record ................................................................................. 82

Cohen, David L., Executive Vice President, Comcast Corporation, letter

dated May 24, 2005, enclosing response for the record ............................. 85

Gleason, James M., President, New Wave Communications, Chairman,

American Cable Association, response for the record ................................ 80

Ingalls, Robert E., Jr., President, Retail Markets Group, Verizon Communications, letter dated May 24, 2005, enclosing response for the record .. 88

Mitchell, Paul, Senior Director and General Manager, Microsoft TV Division, Microsoft Corporation, letter dated May 24, 2005, enclosing response for the record ..................................................................................... 91

Perry, Jack, President and Chief Executive Officer, Decisionmark Corporation, letter dated May 17, 2005, enclosing response for the record ... 93

Schmidt, Gregory, Vice President of New Development and General

Counsel, Lin Television Corporation, on Behalf of National Association

of Broadcasters, letter dated May 23, 2005, enclosing response for

the record ....................................................................................................... 94

(III)

(1)

HOW INTERNET PROTOCOL-ENABLED SERVICES ARE CHANGING THE FACE OF COMMUNICATIONS: A LOOK AT VIDEO AND DATA

SERVICES

WEDNESDAY, APRIL 20, 2005

HOUSE OF REPRESENTATIVES,

COMMITTEE ON ENERGY AND COMMERCE,

SUBCOMMITTEE ON TELECOMMUNICATIONS

AND THE INTERNET,

Washington, DC.

The subcommittee met, pursuant to notice, at 10:10 a.m., in room

2123 of the Rayburn House Office Building, Hon. Fred Upton

(chairman) presiding.

Members present: Representatives Upton, Stearns, Gillmor,

Whitfield, Cubin, Shimkus, Pickering, Radanovich, Bass, Walden,

Terry, Ferguson, Sullivan, Blackburn, Markey, Doyle, Gonzalez,

Inslee, Boucher, Towns, Gordon, Rush, Eshoo, and Stupak.

Staff present: Howard Waltzman, chief counsel; Neil Fried, majority counsel; Will Nordwind, policy coordinator; Jaylyn Jensen,

senior legislative analyst; Anh Nguyen, legislative clerk; Kevin

Schweers, communications director; Jon Tripp, deputy communications director; Peter Filon, minority counsel; Johanna Shelton, minority counsel; and Turney Hall, staff assistant.

Mr. UPTON. Good morning. Today’s hearing is entitled ‘‘How

Internet Protocol-Enabled Services Are Changing the Face of Communications: A Look at Video and Data Services.’’

Video and data are the second and third legs of the three-legged

IP-enabled stool. Recently, we examined Voice over IP, which is the

other leg. And as we modernize our Nation’s communications laws,

it is my goal to ensure that all three legs of the IP-enabled stool

are covered by whatever we do. Anything short of that could hamper deployment of the widest range of IP-enabled services to the

American people and thwart the widest range of intermodal competition in the communications marketplace.

When video is sent in an IP format through a broadband connection, it enables the provider to send just the content that the subscriber wants at that particular time, as opposed to cable or satellite technology, which typically requires all channels to be available to each subscriber at the same time, waiting for the subscriber

to change the channel. As a result, IP delivered over broadband enables a much more efficient use of a provider’s capacity and thus

enables that capacity to be used to offer more content and more

services. In addition, when video is sent in an IP format through

2

a broadband connection, it enables more interactively, which, in

turn, enables more customization of the subscriber’s video experience. Moreover, it enables voice and data to be combined with a

video offering, which many subscribers may find attractive.

At issue today is what the proper regulatory framework for IPdelivered video should be. Of particular interested to me is whether

IP-delivered video services should be treated the same way as cable

in terms of existing local franchise law. Shouldn’t the FCC’s determination that Vonage’s VoIP service is uniquely interstate in nature and therefore not subject to State regulation guide our logic

when we discuss local franchise authority over IP-delivered video

services? Moreover, couldn’t certain IP-delivered video services be

so distinct from today’s cable service to warrant a distinction in the

law regarding local franchise authority?

I look forward to exploring these and other issues with our witnesses today. And with that, I yield to the ranking member and my

friend, Mr. Markey from Massachusetts, for an opening statement.

Mr. MARKEY. I thank you, Mr. Chairman. And I thank you so

much for calling this hearing this morning on the policy questions

raised by the Internet Protocol-based video and data services. This

morning, we will receive testimony on IP-enabled data services and

video services.

Microsoft’s Xbox, for example, is not only a widely popular game

application for broadband networks, but also provides voice services as a feature. Policy makers will need to address what happens

when IP applications combine multiple services, such as voice, with

other data information for purposes of determining proper regulatory treatment.

We also need to enact strong protections ensuring the consumers

are not thwarted from utilization the applications of their choice

over the Internet and that innovators and entrepreneurs are not

frustrated in their ability to offer innovative new services to consumers over broadband networks.

Today’s hearing raises a number of important policy issues on

video-related issues as well. The cable market today remains highly concentrated. Consumers continue to pay too much for cable

service. An independent cable operator is almost an oxymoron, as

the overwhelming majority of cable channels are either owned by

major television networks or the cable operators themselves. When

cable operators are questioned annually about why rates continue

to rise annually, they note that they have spent large sums upgrading their networks for additional services and channels.

There is no question the cable networks have been upgraded and

that they increasingly offer an array of services to customers, including much-needed voice competition. Additionally, cable operators often point to increases in programming costs as a key reason

consumer rates keep rising. The programmers, in turn, often point

to rising costs in the sports marketplace. Policy makers have been

hoping for years that competition would arrive to ameliorate some

of these unhealthy dynamics in the marketplace, but for millions

of consumers, effective competition has not yet arrived.

Which brings us to the Bell Telephone utilities. As the Bells roll

out IP video services, policymakers must determine whether such

services represent a qualitatively distinct service of services now ofVerDate 11-MAY-2000 07:21 Sep 15, 2005 Jkt 000000 PO 00000 Frm 00006 Fmt 6633 Sfmt 6633 20748.TXT HCOM1 PsN: HCOM1
3

fered for cable operators. If so, we will also need to determine

whether that also means that must-carry rules, sports blackout

rules, community access channels, local franchises, franchise fees,

consumer privacy protections, and other obligations to which we

currently hold cable operators should be ignored in whole or in part

for the Bell companies.

The benefits of competitive IP-based services are manifold in

terms of consumer choice and possible job creation and innovation.

But we must remember that consumers can only derive the benefits of such new broadband services if they can actually afford a

broadband connection and only if providers offer such services in

their neighborhood in the first place. With this in mind, it is particularly troubling that SBC and Verizon have deployment plans

that skip over or avoid the very communities in their service territories which could most benefit from an affordable alternative in

the marketplace. It is unusual, in this context, to receive requests

for forbearance from the public interest obligations the cable operator’s discharge from providers whose current deployment plans arguably widen rather than bridge the digital divide, which remains

in our society.

An argument that rules need to be bent or waived so that service

can reach the most affluent sooner is simply not a compelling public interest case to make. I hope that these companies will reflect

on their plans and needs of their own customers and recalibrate

their deployment plans so that all sectors of our society are appropriately served. In the end, this is not only good telecommunications policy, it is also good economic policy for our country.

I want to thank Chairman Upton so much for this hearing, and

I look forward to hearing from our witnesses.

Mr. UPTON. Mr. Whitfield?

Mr. WHITFIELD. Mr. Chairman, thank you very much.

We, I noticed, have a distinguished panel here of seven people,

so I will waive my opening statement.

Mr. UPTON. Mr. Shimkus.

Mr. SHIMKUS. Pass.

Mr. UPTON. Mr. Walden.

Mr. WALDEN. Thank you, Mr. Chairman.

Since I am dressed like the chairman of the Oversight and Investigations Subcommittee, I, too, will waive.

Mr. UPTON. Mr. Ferguson.

Mr. FERGUSON. Thank you, Mr. Chairman. I have a different suit

on, so I will offer an opening statement.

Thank you for holding this hearing on Internet Protocol-related

services. These hearings have been a great opportunity for all

members, particularly new subcommittee members, like myself, to

get the full picture of the exciting new services being made available to our constituents. They have also given us guidance on how

our committee should treat these services as we consider a rewrite

of the communications act.

Voice over Internet Protocol has already permeated the American

marketplace, providing new ways for people to communicate outside traditional telephony and wireless cell phones. IP video, the

subject of today’s hearing, is a new and exciting product poised to

enter the marketplace and to have a major impact on the video

4

services industry. IP video, some already available and some in development, will fundamentally change the way we watch television

and receive other video content. This new option will also directly

compete with other established offerings, such as cable and satellite. With these options available to the consumer, this committee

will need to consider how to ensure that a level, competitive playing field exists for all industries.

We also need to determine whether and how these new services

fit into the current regulatory landscape and what it takes to get

them deployed quickly with the least amount of government interference. I welcome the witnesses present here today. I look forward

to hearing your varied perspectives on what Congress’s role should

be as we move forward in this exciting new area.

Mr. Chairman, with that, I yield back. And I thank you.

Mr. UPTON. Mr. Doyle.

Mr. DOYLE. Thank you, Mr. Chairman.

I want to thank you for holding this hearing, and I also want to

thank each witness for agreeing to appear before us today.

This is our third hearing on IP-enabled services, and in the time

that we have looked at this issue, I have only become more convinced that the revolutionary effect this medium will have on every

aspect of communications.

It is truly an exciting time in the telecom world, exciting both for

consumers who will benefit from increased choice and value, and

also for companies that will use IP-enabled services to compete for

new business opportunities. I have always believed that the role of

this subcommittee should be to try to pass legislation that will promote and increase competition within industries in order to yield

greater benefits for consumers. And it is clear to me that if we can

craft and pass good legislation, one major area where consumers

will see significant benefits is in the area of choice. Consumers will

have multiple choices to make when determining from whom or

where to purchase voice, data, and video services.

VoIP calls for a cable provider, video services through a phone

company, and data services through a satellite provider are all closer than most people might think. In fact, these services are here,

and they are growing in popularity. And in order for them to continue to grow in popularity, it is incumbent upon us to provide legislative clarity to both industry and consumers. It is clear to me

that the speed with which IP-enabled services have changed the

telecommunication industry requires that we craft legislation that

places more emphasis on regulating the services companies offer as

opposed to regulating the manner in which they are delivered.

Regulatory parity across platforms seems like a sensible goal for

us to strive toward. Some issues that have always been the subject

of regulation may have grown in importance as this technology has

advanced. Because the extent that a consumer can benefit from

this new IP-enabled technology is entirely dependent upon that

consumer’s access to broadband networks. All communities should

have access to the benefits of IP-enabled services. We must do more

to promote the deployment of broadband services, and we must ensure that those services are available in all of our communities, not

just the most affluent ones. For this technology to truly create opportunities, it must be available to everyone.

5

I look forward to hearing from our witnesses today. I want to

specifically welcome Mr. David L. Cohen, Executive Vice President

of Comcast Corporation to the subcommittee this morning. I have

had the pleasure of knowing David for many years, dating back to

his Chief of Staff days to then mayor of Philadelphia and know our

Governor, Ed Rendell. David’s civic and charitable activities make

him an asset both to Comcast and also to the State of Pennsylvania. David, welcome.

Welcome to all of the panelists.

Mr. Chairman, thank you, and I yield back.

Mr. UPTON. Mr. Sullivan.

Mr. Pickering.

Mr. PICKERING. Mr. Chairman, I just want to thank you for having this hearing, and I will waive my time.

Mr. UPTON. Mr. Terry.

Ms. Eshoo.

Mr. Gordon.

Mr. GORDON. Mr. Chairman, this is an important hearing, and

I welcome the opportunity to hear from our witnesses today.

Mr. UPTON. Mr. Boucher.

Mr. BOUCHER. Well, thank you very much, Mr. Chairman. I want

to compliment you for focusing the subcommittee’s attention this

morning on a matter of far-reaching consequence for the telecommunications marketplace.

The arrival of advanced communications over the Internet, including Video over Internet Protocol, promises a broad transformation in the market for multi-channel video programming services. Internet-based video will bring digital clarity and a wider

array of service offerings to consumers.

As the private sector both welcomes and accommodates these

dramatic changes, a new regulatory framework is required. That is

why our colleague, Mr. Stearns, and I have introduced legislation

that would treat all advanced Internet communications with a light

regulatory touch. It is noteworthy that our bill would apply the

new regulatory framework to IP video as well as to VoIP and other

more commonly known applications that are Internet-based. Our

view is that the scope of the new law should be broad and not be

limited just to VoIP.

After hearing this morning from our witnesses about the dramatic new IP video services that are now on the horizon, I hope

that the members of the subcommittee will agree that these services should also be within the coverage of the new, light-touch regulatory framework. Within that framework, IP services would be

declared to be interstate in nature and the States would be prohibited from regulating.

At the Federal level, regulation would truly be minimal. Legacy

regulations applicable to the public-switched telephone network

would not apply. The FCC would be empowered only to do the following and only with regard to VoIP, which substitutes directly for

regular telephone service: provide for E911 access, provide for disability access, provide for access charges where the call is terminated on the public switched telephone network, provide for Universal Service payments, and provide for technically feasible law

enforcement access.

6

We face a number of questions, including the need for network

neutrality, to prevent platform owners from discriminating in favor

of their own content to the disadvantage of unaffiliated content

providers, and how to address the video franchising requirements

imposed by local governments.

Perhaps our witnesses this morning will address some of these

matters during their comments.

Thank you very much, Mr. Chairman. I yield back.

Mr. UPTON. Mr. Stupak passes.

That concludes our opening statements. I would just make unanimous consent that all members will be able to put their opening

statements in as part of the record. I would note that the House

is in session, and we are taking up a very important energy bill on

the House floor, so members will be in and out. Other subcommittees are meeting as well.

[Additional statement submitted for the record follows:]

PREPARED STATEMENT OF HON. JOE BARTON, CHAIRMAN, COMMITTEE ON ENERGY

AND COMMERCE

Mr. Chairman, thank you for holding this hearing. Last month we examined how

Internet Protocol is revolutionizing voice services. Today we examine how Internet

Protocol and broadband technology is revolutionizing video services.

Many of you are probably already aware of video streaming technology. Companies such as RealNetworks have for some time been enabling consumers to watch

news clips and other video content over computers using the Web and browser-type

interfaces.

One advantage to delivering content in IP format and over broadband connections

is that it uses capacity more efficiently. Cable and satellite operators have traditionally had to make all their channels available to each subscriber simultaneously, regardless of which channel the subscriber was watching at a particular time. Internet

Protocol allows a provider to transmit only the content that a consumer is watching,

freeing capacity on the network to offer more content to more consumers as well

as additional services and applications. And broadband networks are increasingly

providing more bandwidth, enabling the provision of new, content-rich services.

Another advantage of IP is its increased interactivity. By converting video to an

IP format and adding two-way broadband connectivity, providers can tailor programming to each specific viewer, and allow the viewer to alter specific components

of that programming in real time. IP also facilitates the introduction of voice and

data functionality into the video product.

As we look toward modernizing the Communications Act, we will need to consider

what the appropriate statutory framework should be for IP-delivered video services.

Should they be governed by existing provisions in the Communications Act, such as

the franchising, must-carry, and program access rules, even though those provisions

were drafted without IP technology in mind? Is it even possible to apply those rules

to video delivered over the geographically boundless Internet? What is the right

statutory framework that will increase competition, allow innovative services to

flourish, and enable all industry participants to benefit from the advantages of IP

technology?

I look forward to today’s testimony, and welcome our witnesses’ help in examining

the technological, business, and legal implications of IP-delivered video.

Today we stand on the threshold of a new age in communications. The 1996 Telecommunications Act served an important purpose, but technology has moved on.

This year, one of my high priorities is to update the old act and to do it well. The

right approach will invigorate the tech sector and produce jobs, growth and opportunity for its workers. American consumers will get an array of services and choices

that were unimagined just a few years ago. I can’t wait to get started.

I yield back.

Mr. UPTON. As all of my colleagues indicated, we do have a very

distinguished panel of witnesses for today’s hearing. And we are

joined by Ms. Lea Ann Champion, Senior Executive Vice President

of IP Operations and Services for SBC; Mr. Paul Mitchell, Senior

7

Director and General Manager of Microsoft TV Division; Mr. David

Cohen, Executive Vice President of Comcast; Mr. Robert Ingalls,

President of the Retail Markets Group for Verizon; Mr. Greg

Schmidt, Vice President of New Development and General Counsel

for LIN Television Corporation; Mr. James Gleason, President of

New Wave Communications; and Mr. Jack Perry, President and

Chief Executive Officer of Decisionmark. We appreciate you sending your testimony up yesterday, at least I got it yesterday, in advance. I would note that your testimony is made part of the record

in its entirety. I understand a couple of you have video presentation in conjunction with your remarks, and we would like to

think that you could keep your opening statement to no more than

about 5 minutes.

Ms. Champion, we will begin with you. Welcome. You need to

turn that mic button on.

STATEMENTS OF LEA ANN CHAMPION, SENIOR EXECUTIVE

VICE PRESIDENT, IP OPERATIONS AND SERVICES, SBC

SERVICES, INC.; PAUL MITCHELL, SENIOR DIRECTOR AND

GENERAL MANAGER, MICROSOFT TV DIVISION, MICROSOFT

CORPORATION; DAVID L. COHEN, EXECUTIVE VICE PRESIDENT, COMCAST CORPORATION; ROBERT E. INGALLS, JR.,

PRESIDENT, RETAIL MARKETS GROUP, VERIZON COMMUNICATIONS; GREGORY SCHMIDT, VICE PRESIDENT OF NEW

DEVELOPMENT AND GENERAL COUNSEL, LIN TELEVISION

CORPORATION, ON BEHALF OF NATIONAL ASSOCIATION OF

BROADCASTERS; JAMES M. GLEASON, PRESIDENT, NEW

WAVE COMMUNICATIONS, CHAIRMAN, AMERICAN CABLE ASSOCIATION; AND JACK PERRY, PRESIDENT AND CHIEF EXECUTIVE OFFICER, DECISIONMARK CORPORATION

Ms. CHAMPION. Very good. Thank you very much.

Thank you Chairman Upton and members of the committee for

offering me this opportunity to speak with you today. My name is

Lea Ann Champion and I am Senior Executive Vice President for

IP Operations and Services at SBC Communications, Inc.

And it is a pleasure to be with you here today to talk about the

seismic shifts that are reshaping the communications and entertainment industries and how SBC is building a powerful new Internet Protocol platform to meet customers’. Today, customers do want

more choice. They want the ability to control their communications

and entertainment experience. They want to be able to communicate, to gather information, and to enjoy entertainment when

they want it, how they want it, and on what device they want it.

That is why it is important for us to invest into new technologies.

It is not enough to repackage the same old stuff. We must bring

a new level of integration and functionality to our customers.

We will do that by using Internet Protocol, or IP-based, services.

The simple elegance of IP technology is that it allows various

broadband applications to communicate and work together to enhance the capabilities of otherwise separate services. This is because, with IP, the digital bits all look the same whether they are

carrying video, voice, or data, music, photos, high-speed Internet,

or wireless services, no matter what the device.

8

Through Project Lightspeed, we plan to invest $4 billion over the

next 3 years in our network, operations, customer care, and IT infrastructure. We are working with companies like Alcatel and Scientific-Atlanta, to deploy a two-way, interactive, switched IP video

network and extend approximately 40,000 miles of new fiber optics.

In existing neighborhoods across our 13 States, we will extend fiber

to within 3,000 feet of a home on average. And in most new developments, we plan to take fiber all of the way to the premises. The

initial deployment will reach more customers, 18 million households, faster than any other company with a fiber deployment plan

in the United States.

Our plan is to deliver a single IP network connection providing

high-quality TV viewing, super high-speed Internet access, and integrated digital voice services, a single IP address to every home

for video, voice, and data.

Now let me show you some of the features that will be available

in the initial or later stages of our product.

[Video.]

Customers will be able to scroll through and preview other channels in a picture-in-picture guide, without leaving the channel that

they are watching, something that they can not do today with traditional cable services.

Customers will be able to enjoy the customized and personalized

content of their SBC Yahoo! service on their TV screens, such as

personalized sports, weather, and stock information, something

they can not do today with traditional cable services.

Through IPTV technology, our whole-home DVR, digital video recorder, goes beyond what standard DVRs do today. You can record

a program in one room and then watch it on any TV in the house,

something that can not be done today with traditional cable services.

With IP-based picture-in-picture technology, the entertainment

experience will move from passive TV viewing to an interactive

one. And I would like to show you an example, courtesy of our

friends at Major League Baseball and Microsoft. Today, with traditional cable services, you watch baseball like this, one game with

a few stats. Here is how you will watch it with IPTV. Even the

Cubs, who are ahead in the eighth inning there, five to one, Mr.

Chairman. Here is how you will watch it with IPTV. With this new

TV viewing capability and experience, watching sports will never

be the same.

The IP-based platform will allow customers to access and program services even when they are away from home. As an example,

customers will be able to use their Cingular phone to access a list

of shows, watch a commercial for the show right there on their

phone’s screen, and then schedule to record that show. And the

customer will be able to see a notification both on their Cingular

phone as well as on their TV back at home that the show has been

set to be recorded. This is something that customers can not do

today with traditional cable services.

There are other applications in development, using our ability to

deliver on-demand data, that will deliver a better TV experience.

9

With our IP platform, customers will have instant access to the

program they select, eliminating the annoying delay experienced

with today’s current digital cable services.

And IPTV allows new levels of interactivity. Let us say you are

watching a commercial with a cliffhanger ending. Instead of going

to a website, you could just press a button for more information

about what comes next. Or, if you are viewing a talk show and

want to order the ‘‘book of the month’’ just discussed, you can order

it through your television, again, something that can not be done

today with traditional cable services.

In short, we are not building a cable network nor do we have any

interest in being a cable company offering traditional cable services. Instead, we intend to offer customers a new, unique, total

communications experience, one that they can customize and personalize to suit their family’s needs and tastes. Likewise, our super

high band with IP platform will offer broadcasters and programmers a more nimble and sophisticated alternative to take content

to the future.

So we are building very aggressively to reach half our customers’

homes in 3 years with this new IP network, but we are not stopping there. We are also creating another integrated solution to

compete for customers in the video space. Through a joint venture

with 2Wire, a Silicon Valley-based company, we will integrate satellite video with our high-speed Internet access service through a

combination set-top box, available to the majority of our customers

later this year.

The service will allow various capabilities to work together. For

example, via SBC Yahoo! DSL Internet connection, Internet-based

entertainment services can be downloaded and viewed. Customers

will be able to use their stereo system to listen to their music that

is stored on their PCs and will be able to view digital photos that

have been stored on their set-top box or saved on a networked PC

right on their TV screen. And as with IPTV, customers can even

control their entertainment experience while they are away from

home. They may remotely program their set-top box to record a

show, change parental controls, download movies, access their

photos and personal music collection.

With these two video initiatives, we plan to bring a new level of

interactivity and integration to customers.

With Project Lightspeed, we have decided to put billions of dollars of private investment at risk. We can move forward with greater confidence due to the progress that has been made in the public

policy and regulatory arena. The FCC and Congress have so far

employed a light touch approach to regulating the Internet and IPbased services, and we applaud you for your forward-thinking efforts. We need to extend this minimal regulation approach applied

to VoIP, only now the ‘‘V’’ stands for video.

SBC will be a new entrant in the video space, providing a competitive alternative to incumbent cable operators. And we intend to

move quickly. Public policy should reduce any roadblocks and unnecessary rules to encourage new entry into the video services market. In particular, new entrants should not be saddled with the legacy regulation applicable today to incumbent providers. Only then

10

will consumers benefit from the innovation and choice that is just

around the corner.

Thank you very much for the opportunity to be here today, and

I would be happy to take any questions.

[The prepared statement of Lea Ann Champion follows:]

PREPARED STATEMENT OF LEA ANN CHAMPION, SENIOR EXECUTIVE VICE

PRESIDENT—IP OPERATIONS AND SERVICES, SBC COMMUNICATIONS INC.

Good morning. Thank you, Chairman Upton, and Members of the Committee for

offering me the opportunity to speak with you today. My name is Lea Ann Champion, Senior Executive Vice President—IP Operations and Services for SBC Communications Inc.

It is a pleasure to be here to talk about the seismic shifts that are reshaping the

communications and entertainment industries and how SBC is building a powerful

new Internet Protocol platform to meet customers’ needs. Customers today want to

have choice. They want to control their communications and entertainment experience. They want to communicate, gather information and enjoy entertainment when

they want it, how they want it and on which device they want it.

That’s why it is important for us to invest in new technologies. It is not enough

to repackage the same old stuff. We must bring a new level of integration and

functionality to our customers.

We’ll do that by using Internet Protocol or IP-based services. The simple elegance

of IP technology is that it allows various broadband applications to communicate

and work together to enhance the capabilities of otherwise separate services. This

is because, with IP, the digital bits all look the same whether they are carrying

video, voice, music, photos, high-speed Internet access, or wireless services—no matter the device.

Through Project Lightspeed, we plan to invest $4 billion over the next three years

in our network, operations, customer care and IT infrastructure. Working with companies such as Alcatel and Scientific-Atlanta, we will deploy a two-way, interactive,

switched IP video network and extend approximately 40,000 miles of new fiber optics. In existing neighborhoods across our 13 states, we will extend fiber to within

an average of 3,000 feet of the home. In most new developments, we plan to take

fiber all the way to the premises. This initial deployment will reach more customers—18 million households—faster than any other company with a fiber deployment plan in the United States.

Our plan is to deliver a single IP network connection providing high-quality TV

viewing, super high-speed Internet access and integrated digital voice services. Let

me show you some of these new features that will be available in the initial or later

stages of the product:

• Customers will be able to scroll through and preview other channels in a picturein-picture guide—without leaving the channel they are watching.

• Customers will be able to enjoy the customized content of their SBC Yahoo! service on their TV screens, such as personalized sports, weather and stock information.

• Through IPTV technology, our whole-home DVR—digital video recorder—goes beyond what standard DVRs do today. You can record a program in one room, and

watch it on any TV in the house.

• With IP-based picture-in-picture technology the entertainment experience will

move from passive TV viewing to an interactive one. I’d like to show you an

example, courtesy of our friends at Major League Baseball and Microsoft.

Today, you watch baseball like this—one game with a few stats. Here’s how

you’ll watch it with IPTV. With this new TV viewing experience... watching

sports will never be the same.

• The IP-based platform will allow customers to access and program services when

they are away from home. As an example, customers may use their Cingular

phone to access a list of shows, watch a commercial for the show right on the

phone’s screen, and schedule to record it. The customer will see the notification

that the program is set to record in two places: on the wireless phone and on

the DVR guide at home.

There are other applications in development—using our ability to deliver on-demand data—that will deliver a better TV experience.

• With our IP platform, customers will have instant access to the program they select—eliminating the annoying delay experienced with today’s current services

11

• And IPTV allows for new levels of interactivity. Say you’re watching a commercial

with a cliffhanger ending; instead of going to a Web site, you can press a button

for more information about what comes next. Or, if you’re viewing a talk show

and want to order the ‘‘book of the month’’ just discussed, you can order it

through your TV.

So, we’re building very aggressively to reach half our customer homes in three

years with this new IP network—but we’re not stopping there. We are also creating

another integrated solution to compete for customers in the video space. Through

a joint venture with 2Wire, a Silicon Valley-based company, we will integrate satellite video with our high-speed Internet access service through a combination settop box, available to a majority of our customers later this year.

The service will allow various capabilities to work together. For example, via SBC

Yahoo! DSL, Internet-based entertainment services can be downloaded and viewed.

Customers will be able to use their stereo system to listen to music stored on their

PCs. And, customers will be able to view digital photos stored on the set-top box

or saved on a networked PC right on their TV screens. As with IPTV, customers

can even control their entertainment experience while away from home. They may

remotely program their set-top box to record a show, change parental controls,

download movies, and access their photos and personal music collection.

With these two video initiatives, we plan to bring a new level of interactivity and

integration to consumers.

With Project Lightspeed, we have decided to put billions of dollars of private investment at risk. We can move forward with greater confidence due to the progress

made in the public policy and regulatory arenas. The FCC and Congress have so

far employed a light-touch approach to regulating the Internet and IP-based services, and we applaud you for these forward-thinking efforts. We need to extend this

minimal regulation approach applied to VoIP—only now the ‘‘V’’ stands for video.

SBC will be a new entrant in the video space, providing a competitive alternative

to incumbent cable operators—and we intend to move quickly. Public policy should

reduce any roadblocks and unnecessary rules to encourage new entry into the video

services market. In particular, new entrants should not be saddled with the legacy

regulation applicable to incumbent providers. Only then will consumers benefit from

the innovation and choice that is just around the corner.

Again, thank you for the opportunity to be here today. I would be happy to answer

any questions you have.

Mr. UPTON. Thank you.

I made a mistake in the beginning. I did not see Mr. Gonzalez

to my left. I apologize. Would you like to make—I know that this

was a constituent from Texas. Did you want to say something?

Mr. GONZALEZ. No, I was going to waive opening except for the

extent that I wanted to welcome the witness, Ms. Champion from

SBC, which, obviously, is headquartered in the very heart of my

District and of course commend all of the efforts SBC does in the

community. And it is truly a model corporate citizen.

Other than that, I yield back.

Mr. UPTON. Mr. Mitchell.

STATEMENT OF PAUL MITCHELL

Mr. MITCHELL. Thank you, Mr. Chairman, Mr. Markey, and

members of the subcommittee.

I am Paul Mitchell, and I am the Senior Director and General

Manager for the Microsoft TV Division——

Mr. UPTON. Can you just pull the mike just a little closer to you?

Mr. MITCHELL. I am the Senior Director and General Manager

for the Microsoft TV Division at Microsoft.

This hearing is important, because it asks how current Internet

technologies are transforming the consumer experience and what,

if any, obligations should apply.

Microsoft is not a network provider. Instead, we offer a variety

of Internet products and services that ride atop of and use a

broadband transport. Our products and services that make use of

12

the Internet and IP technologies include Windows XP and Media

Center Edition, MSN, the Xbox, and Microsoft TV IPTV division.

My division, Microsoft TV, offers technology solutions to infrastructure providers, including Comcast, SBC, and Verizon. We have

Microsoft TV Foundation Edition for traditional cable networks and

our advanced IPTV edition products for advanced IP networks,

DSL, cable, or wireless.

The emergence of IP technology is finally delivering the longpromised convergence of Internet service and products. Ten years

ago, the then-Chairman of this subcommittee predicted that in the

future, you will be able to watch your phone, answer your PC, and

download your television. And today, these notions are a reality.

We are moving from a time when consumers looked at the Internet as a distinct medium to a world where consumers simply make

calls, watch TV, and obtain information without realizing that the

service is being provided in an IP format. The Xbox Live Service

demonstrates how IP technology can transform the consumer experience, in this case, gaming. It allows gamers to compete with each

other over the Internet and the gaming experience is enhanced by

allowing them to talk to their competitors. This ancillary VoIP feature associated with an Xbox and the Xbox Live Service, does not

allow for connection to the public switch network, does not use

numbers, can only be used with an Xbox game console, and can not

be used with a phone.

This use of Voice over Internet Protocol technology highlights the

challenge that is faced by policymakers as they contemplate Internet services. VoIP implementations encompass a great range of capabilities, from a feature supported by a gaming console such as

the Xbox, to a full substitute for telephone service that is connected

with the public switch network.

As Congress considers how to treat VoIP services that are a substitute for a traditional phone service, it must ensure that other

VoIP products or implementations are not inadvertently swept into

the mix, because no one would cancel their landline phone just because they bought an Xbox and subscribed to the Xbox Live Service. The service clearly stands outside of the communications act.

As this subcommittee considers the shape of future laws, we

think that a look back is constructive. In 1996, this committee

wrote into the act the following statement: ‘‘It is the policy of the

United States to promote the continued development of the Internet and to preserve the vibrant and competitive free market unfettered by Federal or State regulation.’’ That policy has served the

Nation well over the past 10 years, and we believe that it remains

sound policy today.

Because Microsoft provides products and services and not

broadband transport networks, we will not address all of the questions facing the subcommittee, but we do have some core principles

for your consideration.

First, Internet services and products should remain largely unregulated. The Internet has been a remarkably successful tool for

consumers and business. Congress should proceed carefully so it

does not inadvertently disturb this accomplishment. You should

ask whether any proposed law or regulation that burdens Internet

services and products is necessary for the public good.

13

Second, consumers should be able to continue to use and access

any site and any lawful application or device with a broadband connection. In his speech last fall, the former FCC Chairman, Michael

Powell, listed four Internet freedoms: the freedom to access content, the freedom to use applications, the freedom to attach personal devices, and the freedom to obtain service plan information.

And those freedoms have clearly helped shape the tremendous success of the Internet to date, and they remain of vital importance

in a broadband environment.

Third, if policymakers act, they should maintain a light touch.

The regulatory light touch approach of the past decade that has

been embraced by Congress and the FCC triggered the explosion

of new services and applications that fueled the Internet economy.

In the Internet marketplace, it is exceedingly difficult for government regulations to keep pace with technology, so it is important

to remember this: the unfolding world of Internet services will not

neatly map to all of the existing regulations. So if legacy rules are

applied indiscriminately, they will hold back innovation. Before applying existing regulatory concepts, some of which date back 70

years, to Internet services, it is important to first test whether the

rule benefits the public now in a broadband world.

And finally, if regulated at all, Internet services should be subject exclusively to Federal jurisdiction. Congress should protect

Internet services from conflicting and overlapping State regulation.

Internet services are used in interstate commerce, they do utilize

global networks, and they generally require the transmission of

bids across State lines. Therefore, Congress should make certain

that where subject to regulation, Internet services should fall exclusively within Federal jurisdiction.

In conclusion, let me emphasize that Microsoft is very excited

about its role in bringing innovative Internet products and capabilities to consumers. And we stand ready to work with this subcommittee to ensure that any legislation accomplishes these goals.

Thank you.

[The prepared statement of Paul Mitchell follows:]

PREPARED STATEMENT OF PAUL MITCHELL, SENIOR DIRECTOR AND GENERAL

MANAGER, MICROSOFT TV DIVISION, MICROSOFT CORPORATION

Mr. Chairman, Mr. Markey, and Members of the Subcommittee: My name is Paul

Mitchell, and I am Senior Director and General Manager for the Microsoft TV Division at Microsoft Corporation. I am pleased to appear before the Subcommittee as

it works to understand how current Internet technologies are transforming the consumer experience, and as it turns to the critical job of reviewing existing laws and

rules in an effort to determine how new ones need to be written so that these new

technologies can flourish and consumers can receive and enjoy new and innovative

Internet services and products.

We see the emergence of broadband platforms and Internet Protocol (IP) technology as delivering—finally—the long promised convergence of Internet service and

products. Ten years ago, at a hearing much like this one, the then-Chairman of this

Subcommittee predicted that in the future you will be able to watch your phone,

answer your PC, and download your television. These notions are no longer theory.

Today, they are a reality. IP services and products today enable the delivery of

voice, data, and video in new and innovative ways and represent a transition in how

consumers communicate, since it allows consumers at work, at home or on the go

to access content, services, and applications through a greater diversity of devices,

including PCs, TVs, mobile phones, and handheld devices. We are moving from a

time when consumers looked at the Internet as a distinct medium (they looked for

information ‘‘on the Internet’’ or made ‘‘Internet calls’’) to a world where consumers

14

simply make calls, watch TV, and obtain information without realizing that the

service they receive is being provided in an IP format.

We are excited about this development because Microsoft offers a variety of Internet products and services that use broadband transport connections to create new

and innovative consumer experiences. In our world, Internet or IP services and

products generally mean those services and products that ride atop or are connect

to broadband transport networks. For example, we provide software used to run the

Windows Media Center Edition PC which is available in the market today and enables consumers today to access an analog or digital broadcast video service, an analog multichannel cable video service, photos, music, Internet services, and all the

other features of a PC. We are currently in talks with the cable industry to enable

the Media Center Edition PC, hopefully in a short timeframe, to access digital cable

and interactive services. In the future, we expect the Media Center Edition PC also

to enable consumers to access IPTV services. Media Center Extenders and Portable

Media Centers allow consumers to enjoy this content and these services throughout

the home and on the go. MSN delivers to the computers and wireless phones and

handheld devices of consumers a variety of content, including news and entertainment, as well as other services such as downloadable music and video offerings. In

addition, consumers can sign up for Hotmail, a free email service, and MSN Messenger, a free instant messaging product. Microsoft Live Meeting enables a group

of people in an enterprise environment or other setting to enjoy new options for realtime collaboration, to increase productivity, using Microsoft software and a

broadband transport connection. Our Xbox Live Service offers another example of

how IP technology can be used to improve a consumer experience, in this case gaming, by allowing gamers to compete against each other over the Internet and enhancing their gaming experience with a VoIP feature.

In addition to the products just mentioned, my group, Microsoft TV, offers technology solutions to infrastructure providers. We developed Microsoft TV Foundation

Edition, currently being deployed by Comcast, which brings advanced guide

functionality with digital video recording and a client applications platform to traditional cable networks. We also developed the IPTV products that SBC and Verizon

are deploying, which deliver a high-quality interactive video content service to consumers. These products can be deployed over a variety of networks including a

broadband telephony, cable, or wireless network. Our IPTV products will offer new

interactive features for consumers, and we think consumers will find this a very

compelling experience.

We may hear today about VoIP, which is the delivery of voice communication over

an IP based platform. VoIP is a technology that can be used in a variety of ways

and as such highlights the challenge for policy makers. VoIP encompasses a great

range of capabilities—from a feature in a gaming console such as Xbox, to a computer-to-computer communication, to a full blown telephone service that is capable

of interconnecting with the PSTN. Even Internet radio programs are, in some sense,

VoIP services. As Congress considers the appropriate regulatory treatment for those

VoIP services that consumers use or that are offered as a substitute for their traditional phone services—what I will call a VoIP Telephony service—it must ensure

that other VoIP services or features are not swept inadvertently into the mix. No

one sees the VoIP feature that can be used with our Xbox Live gaming service as

a substitute for your landline phone. The Xbox Live VoIP feature does not use telephone numbers, cannot be used in conjunction with a phone, cannot connect to the

PSTN, can only be used if you have an Xbox game console, and users are identified

solely by their gamer tags and not their names. In short, the Xbox Live VoIP feature

is simply too limited to be of use to consumers outside the gaming experience. Essentially, you are not going to give up your regular phone connection to the PSTN

just because you have an Xbox.

The Subcommittee will hear today about tremendous innovations which result

from billions of dollars of investments by Microsoft and other high tech companies

as well as upgrades by the network transport providers represented here today. The

investments in innovative software, devices, services, and applications are, in fact,

major drivers of the tremendous investments being made in network capacity. As

Congress has indicated, policy makers should avoid any action that slows, disrupts,

or distorts that innovation. This suggests Congress should proceed cautiously before

creating new rules and avoid expanding the scope of regulation unless and until it

is demonstrably needed.

Indeed, in writing the Telecommunications Act of 1996, this Subcommittee recognized that an overarching policy goal is to preserve the vibrant Internet marketplace unfettered by unnecessary regulation, in order to encourage innovation, create

jobs, and stimulate the economy. That principle, embodied in Section 230(b) of the

Communications Act, is a testament to the vision of the Members of this SubVerDate 11-MAY-2000 07:21 Sep 15, 2005 Jkt 000000 PO 00000 Frm 00018 Fmt 6633 Sfmt 6621 20748.TXT HCOM1 PsN: HCOM1
15

1Michael Powell, Remarks at the Voice on the Net Conference (Oct. 19, 2004) (available at

http://hraunfoss.fcc.gov/edocs—public/attachmatch/DOC-253325A1.pdf). 2 Department of Commerce, Office of Technology Policy, Understanding Broadband Demand:

A Review of Critical Issues, at 14-17 (Sept. 22, 2003).

committee, who stated ten years ago that, ‘‘It is the policy of the United States . . . to

promote the continued development of the Internet . . .; [and] to preserve the vibrant

and competitive free market that presently exists for the Internet and other interactive computer services, unfettered by Federal or State regulation . . .’’

We believe that this overarching policy statement has served our nation well over

the past ten years, and we think that policy remains sound today. The hard questions come when Congress moves beyond this policy statement, which we think Congress should reaffirm in any new legislation, to specific provisions of existing law

and how new technologies fit, or don’t fit, into those legal schemes. Because Microsoft provides products and services that rely on broadband connections, but does not

operate broadband transport networks, we sit in a different place than many other

companies testifying today. Consequently, we do not have answers to all of the important questions facing network operators and this Subcommittee as communications networks migrate to the widespread use of IP technology. But we do come to

this debate with certain core principles and want to share them with you today:

1. Internet services and products should remain largely unregulated.

Internet services, that is, those services and products that ride atop or connect

to the underlying broadband transport services, should remain largely unregulated

and not be subject to the Communications Act. The success of the Internet as a tool

for consumers and business has been remarkable, and Congress should proceed

carefully so it does not inadvertently disturb this accomplishment. The choice of content and services available over the Internet overwhelms all of us, and that stands

out as a huge accomplishment of this medium. Thus, Congress should ask whether

any proposed law or regulation that touches upon this tremendous variety of Internet services and products is necessary for the public good. No question that our information technology and communications networks are changing rapidly, but it is

wise for this Subcommittee to pause and ask whether the evolution of technology

requires an expansion of our laws into new realms.

2. Consumers should be able to access any site and use any lawful application or device with a broadband connection—just as they have been

able to do in the narrowband world.

At a speech last fall, Chairman Powell stated that as we continue to promote competition among high-speed platforms, ‘‘we must preserve the freedom of use

broadband consumers have come to expect.’’ He then went on to challenge the

broadband network industry to preserve what he called ‘‘Internet Freedoms.’’ Specifically, these are:

• Freedom to Access Content. First, consumers should have access to their choice of

legal content.

• Freedom to Use Applications. Second, consumers should be able to run applications of their choice.

• Freedom to Attach Personal Devices. Third, consumers should be permitted to attach any devices they choose to the connection in their homes.

• Freedom to Obtain Service Plan Information. Fourth, consumers should receive

meaningful information regarding their service plans.1

We see these consumer freedoms as fundamental to the success of the Internet.

Those freedoms, which have been at the core of the telecommunications world for

the past three decades or longer, shaped the dial-up Internet world, and we firmly

believe these principles should be carried forward to the broadband future.

As a Commerce Department study found, availability of value-added businesses

and consumer applications at competitive prices is a key demand-side driver of

broadband.2 Preserving an environment for innovation and competition among services and devices that connect to broadband networks will, in turn, encourage further

investments in these networks. Thus, we hope that everyone at this table and this

Subcommittee agree that these consumer freedoms must continue to hold true for

the Internet to succeed.

3. If policy makers act, they should maintain a ‘‘light touch’’ and act only

with respect to those services that give rise to present day policy questions.

Since passage of the Telecommunications Act of 1996, the FCC and this Subcommittee have stayed the course on the principle that the Internet services should

16

be unregulated or at most lightly regulated. We firmly believe that this regulatory

‘‘light touch’’ approach triggered the explosion of new services and applications that

has fuelled the Internet economy that we have today. Rapid change and technological advancement in the IP services market mean that it is exceedingly difficult

for government regulations to keep pace with technological advances in the IP marketplace. That reality counsels caution in expanding the scope of regulation or in

writing overly prescriptive rules.

In order to avoid constraining the continued growth of IP services, any regulation

imposed on IP services should focus on objectives, not means, and should allow implementers flexibility in how to technically meet those objectives. For example, policymakers should retain as a policy objective that consumers should be able to obtain, at retail, a variety of innovative devices for accessing IP services over a

broadband connection, while allowing industry and appropriate standards bodies to

develop the solutions for connectivity of such devices.

An area which this Committee may consider is how these new services may affect

the existing telecommunications infrastructure and the support systems, such as

universal service, that accomplish important social goals. The local telephone network is currently subsidized through massive implicit subsidies as well as explicit

subsidies which involve telecommunications carriers making payments into the universal service fund. Plainly, the system that finances the universal service fund is

under strain today, because it is funded by interstate telecom revenues, and demand

for subsidy payments is growing at the same time that those revenues are shrinking. Thus, we encourage the Subcommittee to consider alternative means, such as

assessing a universal service fee on telephone numbers if you want to fund the telephone service or assessing it based on connections if you want to fund the underlying infrastructure. In addition, the existing system for compensating telecommunications carriers that exchange traffic is deeply flawed and has been the subject of

reform efforts for years. Those efforts should come to conclusion and the system

should be fixed before it is applied to IP services, or else innovation will suffer.

This example illustrates an important point: Old rules will not map neatly to the

unfolding world of Internet services and will hold back innovation. The transformative nature of IP services, including IP transport services, means that existing

regulatory or legislative concepts, some of which have not been reconfigured in

seven decades, should not be applied without first analyzing whether the legacy rule

still benefits the public in the broadband world.

Regardless of the legislative approach this Committee takes, we think it is instructive to learn from the FCC’s light touch in developing a policy toward the Internet over the past ten years. We also believe that the existence of certain core consumer safeguards provide key signals to all those who use the Internet—network

operators, content developers, consumer equipment manufacturers, software developers, and consumers—that their investment will be protected and that their innovation may be rewarded. Any legislative drafting must be done carefully so as not

to overreach, and we hope to work with the Committee to clarify the scope of any

legislation.

4. Where subject to regulation, Internet services should be subject exclusively to Federal jurisdiction.

Lastly, Congress should protect IP services from conflicting and overlapping State

regulation. IP services are used as an integral part of interstate commerce, they utilize interstate or global networks, and they generally require the transmission of

bits across state lines. As a consequence, where subject to regulation, they should

be exclusively within Federal jurisdiction. The FCC has correctly decided that VoIP

is an interstate service, and that conclusion should apply to other IP services that

are subjected to regulatory treatment. Accordingly, where this Committee subjects

an IP service to the Communications Act, it should make clear that the IP service

is subject only to Federal jurisdiction.

In conclusion, IP services are beginning to deliver to consumers a world of content

and communications that will dramatically improve economic and social welfare. Investment and innovation in these services thrives in an environment in which these

services are unregulated or lightly regulated, and where certain core principles regarding the freedom of use that broadband transport customers have come to expect

are preserved. To the extent IP services have to be regulated, if at all, it should be

done exclusively at the Federal level, and only then to the degree necessary to

achieve core government interests that the marketplace cannot solve.

Mr. UPTON. Mr. Cohen.

17

STATEMENT OF DAVID L. COHEN

Mr. COHEN. Good morning, Mr. Chairman and members of the

committee.

Mr. UPTON. You just need to move that.

Mr. COHEN. Good morning, Mr. Chairman and members of the

committee. It is a pleasure to be here today.

One of the favorite stories of Comcast Chairman and CEO Brian

Roberts relates to a conversation he had with Bill Gates of Microsoft in early 2002. Mr. Gates said he was more excited than ever

about cable’s potential to bring new services to America because of

IP. The next day, when Brian returned to Philadelphia, he called

in all of his engineers and said, ‘‘What is this IP that Bill was talking about?’’ Well, 3 years later, we all know what IP is. It is a powerful technology that is changing the world of communications. And

the cable industry has embraced IP. As an industry, we have now

invested nearly $100 billion since 1996 to bring an IP-enabled

broadband network to nearly every doorstep in America. For

Comcast, our part of that investment has been about $39 billion,

and we will use that infrastructure to bring advanced digital voice

service to nearly every one of the 40 million homes that we pass

over the next 2 years.

Congress and the FCC are now considering how IP may change

the competitive landscape and what the implications are for that

for regulation. Some phone companies want to use IP to bring another competitive video choice to consumers. And we say, ‘‘Welcome.’’ The video marketplace is already robust with competition,

and now phone companies and others plan to offer even more. This

additional competition warrants a comprehensive reexamination of

the rules regulating cable, rules adopted in a far less competitive

era.

At least one phone company is arguing, ‘‘IP video is a different

technology. Exempt us from everything,’’ which invites some fundamental questions. On what basis do we regulate? Do we make regulatory distinctions based on technology? Or should we treat like

services alike?

In January of this year, my friend and your former colleague

Tom Tauke of Verizon made the following comment to the Nation’s

mayors, and I quote: ‘‘It is not logical to treat different sectors of

the communications marketplace differently based on what technology they use when they are all delivering the same service.’’

We think he is right. If the consumer views the video service delivered by a phone company to be essentially the same as what

they get from a cable company, the law should not treat them differently based on whether they use a lot of IP, a little IP, or no

IP at all. Like services should be treated alike, and everybody

should play by the same rules.

As the phone companies have described their IP video ideas to

date, they clearly seem to be just like cable services. The demonstration you saw here today, for those of you who were at the

cable show less than a month ago, you saw very similar demonstrations, picture-in-picture, customized TV, whole-home DVRs demonstrated on Comcast cable network in the Bay area as you saw

on the demonstration today. As such, those services today should

be governed by the cable provisions of the communications act. And

18

that is not to say that they would be regulated identically to incumbent cable operators.

Title VI of the act applies lesser economic regulation to new entrants, including freedom from all price regulation. However, Title

VI generally applies service non-economic rules to all competitors,

including the need to obtain a local franchise and the responsibility

to bring the benefits of competition to every American, rich or poor.

A cable operator may not discriminate based on the economic

characteristics of a community. Every cable operator in business

today, large and small, has been required to build out its systems

to avoid redlining and so should all new entrants.

Now let me be clear. We do not oppose a review of Title VI. In

fact, we think the level of competition today justifies elimination of

many of the requirements of Title VI for all providers, and we applaud the chairman and the committee for taking up this issue.

Similarly, we supported efforts in the last Congress to establish

new rules for all VoIP providers. And while VoIP services are now

widely available in the marketplace, we still lack clarity about the

rules that will apply. So we also this committee to complete its important work on VoIP policy as quickly as possible.

In contrast, no one is providing IP video services in any significant way today in the commercial marketplace. There is no IP

video market that is being held back by current policies, and there

are unique policy issues raised by IP video that do not apply to IP

voice, including issues of localism and content rights management,

in addition to the redlining issue I mentioned earlier. Therefore,

this is a great time for Congress to comprehensively review the regulatory framework for all multi-channel video services, given the

substantial growth in video competition. And if the rules are to be

changed, I think it is clear that some of the rules need to be

changed, then they should be changed for all providers.

Mr. Chairman, for years the phone companies have protested

that the law treats their DSL service differently from the way it

treats cable’s high-speed Internet service. ‘‘Treat us like the cable

companies,’’ they have said. And I would note that Comcast, for

one, has never objected to that position.

Now that the phone companies plan to offer video, I suggest that

they should get their wish. They should be treated like the cable

companies, and whatever rules apply to us should apply to them,

too.

Thank you very much, and I am also looking forward to taking

your questions.

[The prepared statement of David L. Cohen follows:]

PREPARED STATEMENT OF DAVID L. COHEN, EXECUTIVE VICE PRESIDENT, COMCAST

CORPORATION

Good morning, Mr. Chairman and Members of the Committee.

Comcast’s Chairman and CEO Brian Roberts tells the story of two conversations

he had with Bill Gates of Microsoft that represented turning points for our company.

The first was in 1997, when Mr. Gates agreed to invest a billion dollars in

Comcast to help jump-start our industry after a severe downturn.

The second was in early 2002, at the Consumer Electronics Show. Mr. Gates said

he was more excited than ever about the potential of the cable industry to bring

new services to America because of ‘‘IP.’’ The next day, Brian returned to Philadelphia, called in his engineers and said, ‘‘What’s this IP that Bill was talking about?’’

19

Well, three years later, now we all know what IP is. It’s a powerful technology

that’s changing the world of communications. And the cable industry has embraced

IP. We have now invested nearly 100 billion dollars to bring an IP-enabled

broadband network to nearly every doorstep in America. And at Comcast, we will

use our IP infrastructure to provide advanced digital voice service to 40 million

homes in the next two years.

Congress and the FCC are now considering how IP may change the competitive

landscape, and what the implications are for regulation. Some phone companies

want to use IP to bring another competitive video choice to consumers. We say,

‘‘Welcome.’’ The video marketplace is already robustly competitive, and entry by

more competitors can bring more consumer benefit. And we believe that this additional competition warrants a comprehensive reexamination of an existing regulatory framework adopted when the video marketplace was far less competitive.

But at least one phone company argues, ‘‘IP video is a different technology. Exempt us from everything.’’ Which leads to some fundamental questions: On what

basis do we regulate? Do we make regulatory distinctions based on technology? Or

do we treat like services alike?

In January, my friend Tom Tauke of Verizon made the following comment to the

nation’s mayors: ‘‘It’s not logical to treat different sectors of the communications

marketplace differently based on what technology they use when they’re all delivering the same service.’’

We think he’s right. What matters to consumers, and what should matter to this

Congress, is not the technology used to provide services, but the services themselves. If the consumer views the video service delivered by a phone company to be

essentially the same as what they get from a cable company, there is no basis for

the law to treat them differently based on whether they use a lot of IP, a little IP

or no IP. Like services should be treated alike, and everyone should play by the

same rules.

Today, the law permits a phone company to offer video programming in one of

four ways—as a common carrier, as a wireless provider, as an open video systems

provider, or as a franchised cable operator. Based on what we understand of the

business models planned by the phone companies here today, they will fall into that

fourth category—they would be franchised cable operators, governed by the cable

provisions (Title VI) of the Communications Act.

Title VI already contains reduced obligations for new entrants, such as freedom

from price regulation, but, in general, it does not distinguish among competitors in

imposing certain non-economic rules—including the need to obtain a local franchise,

and the responsibility to bring the benefits of competition to every American, rich

or poor.

A cable operator may not discriminate based on the economic characteristics of

a community. Therefore, as a condition of granting a local franchise, a city government may insist that every neighborhood is to be served within a reasonable period

of time. Every cable operator in business today lives under this rule and has built

out its systems to avoid redlining. By the way, that’s also how we’re rolling out our

IP-powered ‘‘digital voice’’ service as well—when we provide this service in a community, we will quickly serve the whole community. And we will offer it to every

home in the franchise area, whether or not that home is currently a video or data

customer.

Let me be clear. We do not oppose a review of Title VI. In fact, we think the level

of competition today justifies elimination of many of the requirements of Title VI

for all providers.

Mr. Chairman, we supported efforts in the last Congress to establish new rules

for VoIP. That job is not yet done—and while VoIP services are now widely available in the marketplace, we are left waiting for clarity about the rules that will

apply. We believe that VoIP deserves the prompt attention of this Committee. And

our position on VoIP is consistent with our position on IP video: for VoIP, we support minimal economic regulation while ensuring that all VoIP providers satisfy

E911, CALEA, universal service and disabilities access requirements.

By contrast, there is no one providing IP video services in any significant way

today. There is not an IP video market that is being held back by current policies.

Many of the issues raised by IP video have no parallel in IP voice and so have not

been part of the debates over the proper framework for voice offerings. Legislating

or regulating in advance of a careful consideration of these issues, such as localism,

content rights management, and redlining, could inadvertently undermine important public policies. Responsibility for some of these issues has been placed at the

local franchise level, and Congress and the FCC may or may not want to shift that

responsibility to other levels of government.

20

Instead of having a debate about IP technology, we believe Congress should consider how all multichannel video services should be regulated in the future. Congress should consider the current state of competition and the additional competition that IP video could bring—and, if the rules are to be changed, they should be

changed for all providers.

Mr. Chairman, for years the phone companies have protested the disparity between the way the law treats their DSL service and the way it treats cable’s high

speed Internet service. Their plea has been, ‘‘Treat us like the cable companies.’’

And I would note that Comcast has never objected to that.

Now that the phone companies plan to offer video, we say ‘‘welcome... and we

agree—you should be treated like cable companies, because that is what you are.’’

And whatever rules apply to one should apply to all.

I would like to thank the Committee for the opportunity to appear here today,

and I look forward to answering any questions.

Mr. UPTON. Thank you.

Mr. Ingalls.

STATEMENT OF ROBERT E. INGALLS, JR.

Mr. INGALLS. Chairman Upton, Ranking Member Markey, and

members of the subcommittee, thank you for the opportunity to testify today. My name is Robert Ingalls. I am President of Retail

Markets at Verizon, and I am responsible for the sales and marketing of Verizon’s products and services, including broadband, to

our residential and small business customers.

And I want to tell you about the exciting new broadband and

video experience Verizon is ready to deliver to its consumers. We

are deploying a fiber optic network called FiOS, and we have prepared a short video to introduce to you these capabilities.

I think we have a video. We have a technical glitch.

[Video.]

Thank you. So Verizon is the first broadband network to use

fiber to the premises architecture. And FiOS is capable of delivering 100 megabits downstream and up to 15 megabits upstream,

which will make it the fastest, most interactive network deployed

anywhere in America.

FiOS gives consumers a super-fast broadband data experience. It

has speed up to 30 megabits downstream and 5 megabits upstream. As we move forward, the bandwidth and upstream capacity

of the fiber system will allow us to offer consumers a number of

other exciting services, including FiOS TV.

FiOS TV will provide consumers with a video experience that is

different from anything they have today. The tremendous capacity

of the fiber system gives us all kinds of room for hundreds of digital video channels, local programming, high-definition and on-demand content. Digital video recording options will allow content to

be distributed throughout the home.

What we think the consumers are really going to like about FiOS

is the upstream capacity of the system that will connect them to

a world of multimedia and interactive possibilities. Families will be

able to quickly and easily produce, store, send, and share home videos and share pictures with friends across the country. Other interactive possibilities include 3-D gaming, video-on-demand, online

shopping, real-time polling, even setting camera angles while

watching sporting events.

21

I think you see why Verizon is so excited and why our customers

are so eager for this broadband and video choice to reach the market.

We are deploying FiOS in more than 100 communities across the

country right now. We have begun to introduce FiOS Data, our

super-fast Internet services, with excellent results. Our plan is to

pass three million homes by the end of 2005, with further expansion as fast as technology and the marketplace will allow.

We are making all of the necessary preparations for the commercial launch of FiOS TV this year. We are obtaining franchises. We

are signing content deals with broadcasters and programmers,

working with the software programmers on interactive features

and with the hardware developers on our set-tops.

The result will be a compelling video experience for consumers

and the true video choice for the marketplace.

Regulatory issues, however, are affecting how soon we will enter

the video market on a wide scale.

First, current law does not serve innovation well. The law was

written for a world where telecom and cable were different technologies and distinct services. In the converged world we are in

today, those distinctions make less and less sense.

We need a national broadband policy that does not shoehorn new

technologies into old categories. This national policy should promote broadband deployment, new technologies, and increased investments by any provider.

Second, as a local telephone company, Verizon has a franchise to

deploy and operate networks. Yet we are being asked to obtain a

second franchise to use those same networks to offer consumers a

choice in video. We believe this redundant franchise process is unnecessary and will delay effective video competition for year unless

a Federal solution is enacted soon.

Verizon is sensitive to the needs and concerns of local communities regarding such matters as franchise fees, local access, and

public interest content, and we will continue to work to address

them. But we believe a streamlined, national franchise process is

the fastest route to a much-needed choice and competition in the

video market.

The era of broadband video has arrived. Verizon is eager to deliver it to our customers. We are also excited by the opportunities

with software and hardware companies, content developers, and

distributors to tap the full potential of this great new technology.

Together, our efforts will empower consumers, transform communities, and encourage innovation and economic growth across

America for years to come.

Thank you very much. I look forward to answering any questions

you may have.

[The prepared statement of Robert E. Ingalls, Jr. follows:]

PREPARED STATEMENT OF ROBERT INGALLS, JR., PRESIDENT, RETAIL MARKETS

GROUP, VERIZON COMMUNICATIONS

Chairman Upton, Ranking Member Markey, and members of the subcommittee,

thank you for the opportunity to testify today. My name is Robert Ingalls, President

of Retail Markets at Verizon. I am responsible for sales and marketing of Verizon

products, including broadband, to residential and small business customers.

22

I want to tell you about the exciting new broadband and video experience Verizon

is ready to deliver to consumers. We are deploying a fiber optic network called FiOS,

and we have prepared a short video to introduce you to its capabilities.

FiOS is the first broadband network to use a fiber-to-the-premises architecture.

FiOS is capable of delivering 100 megabits downstream and up to 15 megabits upstream—which will make it the fastest, most interactive network deployed anywhere in America.

FiOS gives consumers a super-fast broadband data experience, at speeds of up to

30 megabits downstream and 5 megabits upstream. As we move forward, the bandwidth and upstream capacity of the fiber system will allow us to offer customers

a number of other exciting services, including FiOS TV.

FiOS TV will provide consumers with a video experience that’s different from anything they have today. The tremendous capacity of the fiber system gives us all

kinds of room for hundreds of digital video channels, local programming, high-definition and on-demand content. Digital video recording options will allow content to be

distributed throughout the home.

What we think customers are really going to like about FiOS is the upstream capacity of the system that will connect them to a world of multi-media and interactive possibilities. Families will be able to quickly and easily produce, store, send

and share home videos and share pictures with friends across the country. Other

interactive possibilities include—3-D gaming, video-on-demand, online shopping,

real-time polling, even setting camera angles while watching sporting events.

I think you can see why Verizon is excited and why our customers are so eager

for this broadband and video choice to reach the marketplace.

We are deploying FiOS in more than 100 communities across the country. We

have begun to introduce FiOS Data, our super-fast Internet service, with excellent

results. Our plan is to pass 3 million homes by the end of 2005, with further expansion as fast as technology and the marketplace allow.

We are making all of the necessary preparations for the commercial launch of

FiOS TV later this year:

• Obtaining franchises,

• Signing content deals with broadcasters and programmers,

• Working with software programmers on interactive features, and

• Working with hardware developers on set-tops.

The result will be a compelling video experience for consumers and true video

choice for the marketplace.

Regulatory issues, however, are affecting how soon we will enter the video market

on a wide scale.

First, current law does not serve innovation well. The law was written for a world

where telecom and cable were different technologies and distinct services. In the

converged world we’re in today, those distinctions make less and less sense.

We need a national broadband policy that does not shoe-horn new technologies

into old categories. This national policy should promote broadband deployment, new

technologies and increased investment by any provider.

Second, as a local telephone company, Verizon has a franchise to deploy and operate networks. Yet we’re being asked to obtain a second franchise to use those same

networks to offer consumers a choice in video. We believe this redundant franchise

process is unnecessary and will delay effective video competition for years unless a

federal solution is enacted soon.

Verizon is sensitive to the needs and concerns of local communities regarding such

matters as franchise fees, local access and public interest content, and we will continue to work to address them. But we believe a streamlined, national franchise

process is the fastest route to bringing much-needed choice and competition in the

video market.

The era of broadband video has arrived. Verizon is eager to deliver it to our customers.

We are also excited by the opportunities to work with software and hardware

companies, content developers and distributors to tap the full potential of this great

new technology. Together, our efforts will empower consumers, transform communities, and encourage innovation and economic growth across America for years to

come.

Thank you. I look forward to answering any questions you may have.

Mr. UPTON. Mr. Schmidt.

23

STATEMENT OF GREGORY SCHMIDT

Mr. SCHMIDT. Thank you, Mr. Chairman and members of the

committee. My name is Greg Schmidt. I am LIN Television’s Vice

President of New Development and General Counsel. We own 24

local broadcast television stations.

Let me begin by expressing local broadcasters’ enthusiasm for

the possibilities being discussed today. Video-over broadband has

the potential to introduce much-needed competition into the multichannel video marketplace. Doing so will provide cable subscribers,

who are currently locked into a structure of subscription rates that

have escalated 40 percent in just 5 years, with additional options.

It will also give broadcasters additional options to distribute their

local programming. In short, we welcome any technology that enhances competition to cable.

As broadcasters, we are no strangers as to how technology

evolves to meet better consumer needs. Imagine for a moment if I

told you about a new cutting-edge technology that would be digital,

would be wireless, and would provide local news and weather in

real time, and, best of all, would be free. That technology exists.

We call it broadcasting. In short, local broadcasters were wireless

before wireless was cool.

Some tend to forget, our industry innovated radio and then

brought about television. Broadcasters proposed and then built the

first digital video distribution system. We developed the tantalizing

images of HDTV broadcasts. I don’t have any video for you today,

but I will remind you that 7 years ago this month, in this room,

we brought the first local sports event in HD, an opening day game

of the Texas Rangers versus Chicago White Sox, and displayed it

live in this room from Arlington, Texas. Broadcasters also created

the additional programming options of digital multi-casting. So as

an industry, we see great potential in the development of videoover broadband.

As Congress unlocks the potential of IP video, it must, however,

be careful to continue advancing its long-standing goal of preserving a free, over-the-air television system. Local television remains essential to the fabric of this country. From its beginning,

Americans have turned to television and broadcasting for vital

news and information. In weather emergencies, like last year’s hurricanes in Florida, when cable and satellite systems were unavailable, local stations offered a lifeline of information. Viewers turn to

us for coverage of local news and political programming. Our stations cover the high school sports that communities rally around.

We raise billions for local charitable causes and give a voice to community organizations. In short, local television stations are integral

to the communities they serve, and the people we serve, our audience, are the same people you serve. Your constituents are our

viewers. With that in mind, as Congress examines the regulatory

framework for Video-over broadband, it should continue to hold a

robust system of local, over-the-air television as a paramount goal.

As the technology evolves, government regulation of IP video

may someday in the future become completely unnecessary. For the

time being, however, Congress should ensure that new entrants

into the market operate under the existing ground rules that have

24

enhanced competition, encouraged diversity of content, and protected the intellectual property rights of content creators.

At minimum, a few key protections that currently exist should be

extended into any future regulatory framework. First, Congress

has long honored network affiliate stations’ contractual rights to be

the exclusive providers of network programming in their markets.

Congress and the Commission have also recognized the importance

of stations’ exclusivity for syndicated programming. The local advertisements sold by a station during popular network programming, such as CSI or Alias or syndicated programming, such as

Seinfeld, help fund our local programming. Congress has applied

similar thinking that supports blackout rules, and these protections, too, should be extended as Congress moves forward.

Ultimately, if other video providers were permitted to offer duplicative network and syndicated programming, stations would lose

audience share and advertising dollars. And these dollars fund the

local programming that makes local broadcasting so valuable. It is,

therefore, vital that as Video-over broadband regulatory model develops, it continue to respect network non-duplication and syndicated exclusivity.

Second, the retransmission consent and must-carry rules must

continue into the digital age to ensure the continued liability of the

over-the-air model. In 1992, when passing the Cable Act, Congress

recognized that video services that sell advertising have a direct incentive to delete, reposition, or even refuse to carry local television

broadcast stations. Congress also recognized that a vibrant overthe-air system requires access to cable households. The fundamental policies and basic facts that drove Congress to adopt mustcarry and retransmission consent are as sound today as they were

in 1992.

Mr. Chairman, Congress has wisely stood by these principles

over the years to ensure that cities as large as New York all of the

way down to communities as small as Glendive, Montana can have

their own unique broadcasting voices. This committee, in particular, has repeatedly recognized the value of broadcast localism

when writing the first Satellite Home Viewer Act of 1998 and reauthorizing the act in 1999. And again this year and last year, the

committee made clear its strong support for localism.

Our industry stands ready to work with the committee in developing the regulatory framework that fosters additional competition

to cable and satellite operators while simultaneously strengthening

and sustaining America’s unique system of local broadcasting.

Thank you.

[The prepared statement of Gregory Schmidt follows:]

PREPARED STATEMENT OF GREGORY SCHMIDT, VICE PRESIDENT OF NEW

DEVELOPMENT AND GENERAL COUNSEL, LIN TELEVISION CORPORATION

Good morning Mr. Chairman, Ranking Member Markey, Members of the Committee. I am Gregory Schmidt, Vice President of New Development and General

Counsel for LIN Television Corporation. I appear today on behalf of the National

Association of Broadcasters.

Let me begin by articulating how enthusiastic local television broadcasters are

about the possibilities being discussed in this hearing today. We are excited about

new and innovative Internet services such as video over broadband. Broadcasters,

like many others, see great promise in what this new platform has to offer. Video

over broadband has the potential to introduce much needed competition into the

25

1Satellite Delivery of Network Signals to Unserved Households for Purposes of the Satellite

Home Viewer Act, First Report and Order, 14 FCC Rcd 2654, 2659 (1999); see Satellite Delivery

of Network Signals to Unserved Households for Purposes of the Satellite Home Viewer Act, Notice

of Proposed Rulemaking, 13 FCC Rcd 22977, 22979 (1998) (‘‘The network station compulsory licenses created by the Satellite Home Viewer Act are limited because Congress recognized the

importance that the network-affiliate relationship plays in delivering free, over-the-air broadcasts to American families, and because of the value of localism in broadcasting. Localism, a

principle underlying the broadcast service since the Radio Act of 1927, serves the public interest

by making available to local citizens information of interest to the local community (e.g., local

news, information on local weather, and information on community events). Congress was concerned that without copyright protection, the economic viability of local stations, specifically

those affiliated with national broadcast network[s], might be jeopardized, thus undermining one

important source of local information.’’)

multi-channel programming distribution marketplace. We see this as a positive development for consumers and broadcasters.

As we embrace new technologies, however, it is vital that the policies you adopt

continue to recognize the importance of maintaining a robust system of local, overthe-air television. Competition may eventually lead to deregulation of all video

media, but until it does, existing policies designed to promote competition, diversity

and intellectual property rights must extend to all multi-channel platforms. Thus,

I encourage you to explore important questions such as: How will policies designed

to protect and promote public access to important local information be realized for

this new service? How will local rights to content such as sports, network and syndicated programming be protected? These are questions that you asked and answered as cable and satellite technology developed. They are once again questions

to be asked as you address public policy issues related to this new service. And they

should be asked in two contexts. First, how will these policies affect content providers such as broadcasters, and second how will they affect competition among context distributors such as cable satellite, and now potentially new distribution technologies.

LOCAL TELEVISION

The American television system is an integral part of the fabric of this country.

Television is not just an entertainment medium. From its very beginning, Americans have turned to television and over-the-air broadcasting for vital news and information. Indeed, often in the case of weather emergencies, when the multi-channel

systems such as cable and satellite are unavailable, over-the-air broadcasting is the

only way to get life-saving information to the public. Thus, it is not surprising that

Congress, the courts and the Federal Communications Commission (‘‘FCC’’) have

consistently recognized that public access to a healthy, free-over-the-air broadcast

system is an important federal interest.

Our country has made a substantial investment in free, local over-the-air service.

Unlike many other countries that offer only national television channels, the United

States has succeeded in creating a rich and varied mix of local television outlets

through which more than 200 communities can have their own local voices. But

over-the-air local TV stations—particularly those in smaller markets—can survive

only by generating advertising revenue based on local viewership. If new technologies can override program exclusivity rights of local stations by offering the

same programs on stations imported from other markets, or effectively block their

subscribers access to local signals, the viability of local TV stations—and their ability to serve their communities with the highest-quality programming—is put at risk.

To preserve this public access to free-over-the air television, policy-makers must

continue to support the principles of localism and of local station program exclusivity. These are the principles that underlie the policies of syndicated exclusivity,

network non-duplication, must-carry and retransmission consent. These policies

help preserve the health of the free-over-the air television upon which the American

public relies.

LOCALISM

The fundamental policy of localism has been embedded in federal law since the

Radio Act of 1927.1 The objective of localism in the broadcast industry is ‘‘to afford

each community of appreciable size an over-the-air source of information and an

outlet for exchange on matters of local concern.’’ Turner Broadcasting Sys. v. FCC,

512 U.S. 622, 663 (1994) (Turner I); see United States v. Southwestern Cable Co.,

392 U.S. 157, 174 & n.39 (1968) (same). As pointed out by the Supreme Court, that

policy has provided crucial public interest benefits.

26

2 Amendment of Subpart L, Part 11 to Adopt Rules and Regulations to Govern the Grant of

Authorization in the Business Radio Service for Microwave Stations to Relay Television Signals

to Community Antenna Systems, First Report and Order, 38 FCC 683 (1965). 3 Id., at 719. 4 Id., at 715 (emphasis added).

Broadcast television is an important source of information to many Americans.

Though it is but one of many means for communication, by tradition and use

for decades now it has been an essential part of the national discourse on subjects across the whole broad spectrum of speech, thought, and expression. Turner Broadcasting Sys. v. FCC, 117 S. Ct. 1174, 1188 (1997).

Thanks to the vigilance of Congress and the FCC over the past 50 years in protecting the rights of local stations, over-the-air television stations today serve more

than 200 local markets across the United States, including markets as small as

Presque Isle, Maine (with only 28,000 television households), North Platte, Nebraska (with fewer than 15,000 television households), and Glendive, Montana (with

only 3,900 television households).

This success is largely the result of the partnership between broadcast networks

and affiliated television stations in markets across the country. The programming

offered by network affiliated stations is, of course, available over-the-air for free to

local viewers. Although other technologies offer alternative ways to obtain television

programming, tens of millions of Americans still rely on broadcast stations as their

exclusive source of television programming and broadcast stations continue to offer

most of the top-rated programming on television.

The network/affiliate system provides a service that is very different from nonbroadcast networks. Each network affiliated station offers a unique mix of national

programming provided by its network, local programming produced by the station

itself, and syndicated programs acquired by the station from third parties. H.R. Rep.

100-887, pt. 2, at 19-20 (1988) (describing network/affiliate system, and concluding

that ‘‘historically and currently the network-affiliate partnership serves the broad

public interest.’’) Unlike nonbroadcast networks such as Nickelodeon or USA Network, which telecast the same material to all viewers nationally, each network affiliate provides a customized blend of programming suited to its community—in the

Supreme Court’s words, a ‘‘local voice.’’

America’s local television broadcast stations make an enormous contribution to

their communities because broadcasters are uniquely positioned to help community

organizations promote their causes, through media saturation and attention from

local on-air talent. Broadcasters help give an organization a voice, and are the main

conduit for members of a community to discuss the issues of the day amongst themselves. A broadcaster can help an organization make its case directly to local citizens, to raise its public profile in a unique way, and to cement connections within

local communities. A broadcaster can help an organization better leverage its fund

raising resources and expertise, its public awareness and its educational efforts.

Community-responsive programming—along with day-to-day local news, weather,

and public affairs programs—is made possible, in part, by the sale of local advertising time during and adjacent to network programs. These programs (such as

‘‘CSI’’ and ‘‘American Idol’’) often command large audiences, and the sale of local advertising slots during and adjacent to these programs is a crucial revenue source

for local stations.

LOCAL PROGRAM EXCLUSIVITY

The FCC has recognized the need for strong and effective rules enabling television

stations to preserve the exclusivity of programming in their local markets since the

earliest days of cable. The first cable rules, for example, were non-duplication rules

to protect both network programming and syndicated programming for which local

broadcasters had negotiated exclusive exhibition rights.2 The basic principle was

that non-duplication was ‘‘something to which a station is entitled, without a showing of special need, within its basic market area.’’ 3 The FCC explained:

Our aim . . . is not to take any programs away from any CATV subscriber, but

to preserve to local stations the credit to which they are entitled—in the eyes

of the advertisers and the public—for presenting programs for which they had

bargained and paid in the competitive program market.4

In 1972, the FCC adopted its first rules authorizing stations that had purchased

local exclusive exhibition rights to syndicated programming to demand that cable

systems located in their service areas delete such programming from imported disVerDate 11-MAY-2000 07:21 Sep 15, 2005 Jkt 000000 PO 00000 Frm 00030 Fmt 6633 Sfmt 6621 20748.TXT HCOM1 PsN: HCOM1
27

5 Amendment of Part 74, Subpart K, of the Commission’s Rules and Regulations Relative to

Community Antenna Television Systems, and Inquiry into the Development of Communications

Technology and Services to Formulate Regulatory Policy and rulemaking and/or Legislative Proposals, 36 FCC 2d 141, 148 (1972) (hereinafter cited as ‘‘Cable Television Report and Order’’),

recon. granted, 36 FCC 2d 326 (1972) (hereinafter cited as ‘‘Reconsideration Order’’). 6 Cable Television Syndicated Program Exclusivity Rules, Report and Order, 79 FCC 2d 663

(1980) (hereinafter ‘‘1980 Report and Order’’). 7 1988 Report and Order.

8 Id., at ¶ 89. See Amendment of Parts 73 and 76, of the Commission’s Rules Relating To Program Exclusivity in the Cable and Broadcast Industries, Memorandum Opinion and Order, 4

FCC Rcd 2711, ¶ 24 (1989) (‘‘In reinstating our syndex rules, we are attempting to remove unnecessary impediments on broadcasters’ right to contract (thereby enhancing competition) and

to provide an environment that is more conducive over the long run to the production, diversity,

responsiveness, quality and distribution of programming in order to ensure that consumers receive an optimal mix of programming.’’). 9 Id., at ¶ 116. The FCC cited to record evidence that when a small market Palm Springs affiliate lost non-duplication protection, it lost half of its audience to an imported distant affiliate.

Id., at 117. 10 H.R. Rep. No. 887 Part 2, 100th Cong. 2nd Sess. 26 (1988).

tant signals.5 While these rules were repealed in 1980 6, eight years later the FCC

reinstated a revised set of syndicated exclusivity rules as well as revising and

strengthening the network non-duplication rules.7 The FCC concluded that:

The restoration of syndicated exclusivity protection will enhance competition in

the video marketplace by eliminating unfairness to broadcasters. It will increase

incentives to supply the programs viewers want to see and it will encourage the

development of a pattern of distribution that makes the best use of the particular advantages of different distribution outlets. It will encourage promotion

of programming. Although cable operators may have to make some changes in

the way they do business, compliance costs will not be burdensome and, in any

event, are outweighed by benefits. Specifically, television viewers generally will

be exposed to richer and more diverse programming.8

In addition to reinstating the syndicated exclusivity rules, the 1988 Report and

Order also expanded the scope of protection that network affiliates could enforce

under the network non-duplication rules. Quoting approvingly from CBS’ comments,

the FCC concluded that:

In a word, the relationship between broadcast network and its affiliates is one

of intense symbiosis. It is fundamentally premised both on the network’s ability

to acquire exclusive rights from its suppliers, and on the affiliated stations’ ability to enjoy program exclusivity in their respective marketplaces. This vital feature of the system of free over-the-air television has been true for over forty

years.9

In a similar vein, when Congress crafted the original Satellite Home Viewer Act

in 1988, it emphasized that the legislation ‘‘respects the network/affiliate relationship and promotes localism.’’ H.R. Rep. No. 100-887, pt. 1, at 20 (1988). It also found

that ‘‘depriving local stations of the ability to enforce their program constraints

could cause an erosion of audiences for such local stations because their programming would no longer be unique and distinctive.10 And when Congress extended the

distant-signal compulsory license in 1999, it reaffirmed the importance of localism

as fundamental to the American television system. For example, the 1999 SHVIA

Conference Report says this:

‘‘[T]he Conference Committee reasserts the importance of protecting and fostering the system of television networks as they relate to the concept of localism . . .[T]elevision broadcast stations provide valuable programming tailored to

local needs, such as news, weather, special announcements and information related to local activities. To that end, the Committee has structured the copyright licensing regime for satellite to encourage and promote retransmissions by

satellite of local television broadcast stations to subscribers who reside in the

local markets of those stations.’’ SHVIA Conference Report, 145 Cong. Rec.

H11792 (daily ed. Nov. 9, 1999).

In addition, the legislative history of SHVERA reinforces the importance of program exclusivity, particularly to broadcast localism. For example, Congressman Dingell noted during floor debates regarding SHVERA:

[T]he act will protect consumers and foster localism by ensuring that satellite

customers receive all of their local broadcast signals when these signals become

available via satellite. Local broadcasters provide their communities with important local programming. Whether it is local news, weather, or community

events, these broadcasters are there, on the ground serving their friends and

neighbors. See Congressional Record, H8223, October 6, 2004, H.R. 4518

28

11 1988 Report and Order, at ¶ 74. 12 Id. 13 In 2004 the profit margins for the average affiliate station in ADI markets 101-125, 126-

150, 151-175, and 176 plus were 8.4%, 0.6%, 10.6%, and 1.4%, respectively, and the average PreTax profits for affiliates in these markets were $616,000, $30,000, $475,000, and $39,000, respectively. 14See Pub. L. No. 102-385, 106 Stat. 1460, codified at 47 U.S.C. § 521 et seq.

The FCC has clearly articulated how localism and the ability of local television

stations to fulfill their public interest obligations are inextricably linked to their

ability to enforce local market program exclusivity. In its 1988 Report and Order,

the Commission said:

In fulfilling our responsibility under Sections 301, 307(b), and 309, we believe

the public interest requires that free, local, over-the-air broadcasting be given

full opportunity to meet its public interest obligations. An essential element of

this responsibility is to create a local television market that allows local broadcasters to compete fully and fairly with other marketplace participants. Promoting fair competition between free, over-the-air broadcasting and cable helps

ensure that local communities will be presented with the most attractive and

diverse programming possible. Local broadcast signals make a significant contribution to this diverse mix. As we documented previously, the absence of syndicated exclusivity places local broadcasters at a competitive disadvantage. Lack

of exclusivity protection distorts the local television market to the detriment of

the viewing public, especially those who do not subscribe to cable. Our regulatory scheme should not be structured so as to impair a local broadcaster’s ability to compete. Restoration of our syndicated exclusivity rules will provide more

balance to the marketplace and assist broadcasters in meeting the needs of the

communities they are licensed to serve.11

From a policy perspective, there is no benefit—and many drawbacks—to delivery

of distant signals with programming that duplicates local station programming. Unlike local stations, distant stations do not provide viewers with their own local news,

weather, emergency, and public service programming. Viewership of competing programming on distant stations provides no financial benefit to local stations to help

fund their free, over-the-air service. To the contrary, duplicative distant signals,

when delivered to any household that can receive local over-the-air stations, simply

siphon off audiences and diminish the revenues that would otherwise go to support

free, over-the-air programming.

The need for local station program exclusivity in medium and small sized markets

is particularly acute. Many of these markets operate in areas overshadowed by larger markets and have relatively spare and more diffuse population densities. That

is why the Commission, early on, provided smaller markets with an extra wide zone

of program exclusivity protection.

None of the facts or premises underlying the FCC’s determination that this extra

zone of protection was needed 12 has changed since 1975. If anything, the position

of broadcasters has become more precarious; especially for affiliates in hundred plus

markets that usually operate on a slimmer profit margin and are less likely to be

profitable.13 The erosion of even a few percentage points of revenue caused by a reduction in the non-duplication protection zone will undoubtedly affect the service

they can provide to their communities.

MUST CARRY/RETRANSMISSION CONSENT

Must-carry and retransmission rights are also an important part of the local

broadcast equation. In the Cable Television Consumer Protection and Competition

Act of 1992,14 Congress expressed its belief that revisions in the law was necessary

to ensure the continued viability of: (1) free-over-the-air television broadcast service,

and (2) the benefits derived from local origination of programming. Congress recognized that because cable systems and broadcasters compete for advertising revenue

and programming, and because cable operators would have an interest in favoring

affiliated programmers, the cable provider would also have an incentive to delete,

reposition, or refuse to carry local television broadcast stations. At the same time,

Congress also recognized that cable systems had, in many instances, received great

benefits from local broadcast signals in the form of subscribership and increased audience for cable programming services even though they had been able to exploit

a broadcaster’s signal without its consent. Accordingly, the 1992 Cable Act adopted

a mechanism whereby stations could elect between assured carriage (must carry)

and no compensation, or retransmission consent, where the station and the cable

operator negotiated over the terms and conditions of carriage.

29

15Turner, 520 U.S. at 190 (quoting Capital Cities Cable, Inc. v. Crisp, 467 U.S. 691, 714

(1984)). 16 Id. 17 Id. at 1187. 18See Census Bureau says 1.3 million more slipped into poverty last year; health care coverage

also drops, CNN Money (Aug. 26, 2004), available at http://money.cnn.com/2004/08/26/news/economy/povertylsurvey.

In upholding the must carry rules, the Supreme Court recognized the ‘‘important

federal interest’’ in ‘‘protecting noncable households from loss of regular television

broadcasting.’’ 15 The Court described the interest in ensuring public access to the

multiplicity of programming... services...that over-the-air broadcasting offered as

‘‘governmental purpose of the highest order.’’ 16 And, both Congress and the Court

have acknowledged that the legitimate public policy goal would not be ‘‘satisfied by

a rump broadcasting industry providing a minimum of broadcast service to Americans without cable.’’ 17

The fundamental policies and basic facts that cause Congress to adopt must carry

requirements are as sound today as they were in 1992. Some 20.3 million U.S.

households receive television service solely over-the-air. Many of these viewers

choose not to subscribe to pay television services for well thought out and legitimate

reasons. For example, they do not want to be locked into the ever-increasing costs

of pay television service and they have additional sets that are not hooked up to

cable or satellite, among others. They feel well-served by the locally-oriented and

public interest programming they receive over the air and do not see the need for

expensive pay television services.

But there are also a large number of viewers who cannot afford pay television.

Twelve percent of American households fall below the poverty line.18 They should

not be forced by government policy into paying subscriber fees that only escalate

over time and that they cannot afford. They deserve as an option a vibrant, overthe-air service that provides the benefits of new digital technologies. Must-carry is

necessary to preserve this option.

A station’s second option under the 1992 Cable Act, retransmission consent, has

also worked well. Many stations, including some of LIN’s stations, have used retransmission consent to create and improve mechanisms that better serve their local

communities and regions. LIN has used retransmission consent in some of its markets to launch separate cable channels providing local weather information. Here in

the Washington, D.C., area, Albritton Communications, owner of ABC affiliate

Channel 7, has used retransmission consent to launch News Channel 8 that provides ten hours of local news, weather and public affairs programming zoned separately for Washington and its suburbs.

In short, the must carry/retransmission consent regime in the 1992 Cable Act has

worked as Congress intended in protecting the free over-the-air broadcasting system

and providing a mechanism to help that system improve service to the local communities it serves.

CONCLUSION

Because broadcast television is universally available and is the only service used

by millions of Americans, when considering public policies to apply to new technologies such as video over broadband, we urge you to adopt the same principles

of local market program exclusivity, must carry, and retransmission consent that

have served broadcasting and its local viewers so well for the last thirteen years.

This will not only help ensure the continued viability of a free over-the-air locally

oriented broadcasting service, it will also provide a level playing field whereby existing video production delivery services and any new services play by the same rules.

Mr. UPTON. Thank you.

Mr. Gleason.

STATEMENT OF JAMES M. GLEASON

Mr. GLEASON. Thank you, Mr. Chairman and members of the

subcommittee.

My name is Jim Gleason, and I am President of New Wave Communications, an independent cable business serving nearly 20,000

customers in the Midwest and Southeast.

As this committee investigates how to deploy new and advanced

video services, it is essential to address two major components of

30

a successful rollout. What most people seem focused upon is the

first question: Who will deploy these services? In short, our view

is that no industry should be artificially shackled by the failed policies of the current regulatory regime while others are allowed to

run around unfettered. Therefore, outdated policies should be reformed or discarded so that creative competition can be unleashed

to the benefit of consumers.

While that facet is important and merits consideration, there is

a second item that merits equal time: What content will those services be able to provide?

Based on my extensive experience in the cable business, I am

certain you do not want to carry many of those rules that have governed the analog world into the IP world. Between the DTV transition and the telecom rewrite, you have a unique and historic opportunity to address the significant problems that exist in multi-channel video competition, including growing media consolidation, increases in programming prices, forced tying of channels, and retransmission consent abuse. If you do not address these problems

concurrently, I believe you will not achieve the flexibility, choice,

and price you want for the new world.

So what should you do?

Now is the time to discard current rules that, if left in place, will,

one, constrain access to programming; two, force consumers to take

programming they don’t want; three, allow media consortiums to

raise prices with no regard to what consumers value; four, hide the

reasons for higher rates from Congress, the FCC, local franchising

authorities, and consumers, and fail to harness the greatest of

American tools, a free market.

Specifically, I want to highlight three changes that must be made

if your goal to provide competition to multi-channel video at prices

consumers will pay in the IP world. They are: one, treat video services alike, regardless of the means of delivery; two, change retransmission consent rules to remedy the imbalance of power caused by

media consolidation; and three, correct rules that allow for abusive

media behavior and control of content.

Point one: Congress must reduce or at least equalize the regulatory burdens so that all providers of like services are treated

alike. For example, you should either extend or eliminate, for all

providers, franchise fees and other franchise requirements. Leaving

only one provider with this burden would distort what should be

a free and open competitive environment.

Point two: retransmission consent. Cable operators must, in essence, purchase the right to carry free, over-the-air local television

signals owned by the big four media conglomerates: Disney,

Viacom, Fox, GE, and other broadcast groups and stations. This

year, broadcasters will leverage retransmission consent rules to extract nearly $1 billion from consumers served by ACA members

alone for programming that is freely available over the air. Additionally, some conglomerates use retransmission consent rules in

one market to force cable operators to carry affiliated programming

in entirely separate markets. This means that consumers who

won’t even see the broadcast signal are unknowingly forced to pay

for it.

31

There is an easy solution to this problem. When a broadcaster

seeks payment for retransmission consent in cash or a carriage of

programming, give operators the ability to shop for a lower-cost

network station. This would finally allow competitive markets to

establish a fair market value for signals that are currently protected by antiquated government rules that now have an anti-competitive and anti-consumer effect.

Point three: media consolidation has permitted the following

abuses. The first is lack of local choice. Today, the big four restricts

choice by forcing all of their channels onto the basic or expanded

basic tiers. Two, price discrimination against smaller and mediumsized cable companies. We often pay 30 to 50-percent higher prices

than larger competitors for exactly the same programming. Three,

the media giants cloak these arrangements with strict confidentiality and non-disclosure obligations. These clauses prevent Congress, the FCC, local franchising authorities and consumers from

knowing what programmers are really charging cable operators for

programming. As a result, Congress must address these market

problems and update rules to give local providers more flexibility

to tailor programming offerings to consumer needs.

In conclusion, media consolidation has rendered the current

1970’s-era programming laws and regulations outdated and anticompetitive. You have the ability to update these laws to protect

your constituents with exciting new programs, content, and flexibility while finally allowing free market to spur competition. Please

seize the opportunity by avoiding the mistake of carrying a broken

regulatory regime and an anti-competitive programming market

into the IP-enabled world.

Thank you, Mr. Chairman.

[The prepared statement of James M. Gleason follows:]

PREPARED STATEMENT OF JAMES M. GLEASON, PRESIDENT AND COO, NEWWAVE

COMMUNICATIONS, INC.

INTRODUCTION

Thank you, Mr. Chairman and members of the subcommittee.

My name is Jim Gleason, and I am president and chief operating officer of

NewWave Communications, an independent cable business currently serving 20,000

customers in Missouri, Tennessee, Arkansas, North Carolina and South Carolina.

My company provides cable television, digital cable, high-speed internet, local phone

VOIP service, digital video recorders and other advanced services in 10 smaller systems and rural areas throughout the Midwest and Southeast United States.

I am also the chairman of the American Cable Association. ACA represents nearly

1,100 smaller and medium-sized independent cable businesses. These companies do

one thing—serve our customers. They don’t own programming or content; nor are

they run by the large media companies. Collectively, ACA members serve nearly 8

million customers, mostly in smaller markets. ACA’s constituency is truly national;

our members serve customers in every state and in nearly every congressional district, particularly those of this Committee.

To begin, I want to commend you for holding this hearing. My testimony today

details what I think has gone right and what has gone wrong in the video services

industry over the past decade, and I will offer my thoughts on what lessons should

be transferred into the digital IP world. I believe you stand at an historic moment,

when we shift from the 1970s-era policies of the analog world to the exciting and

enticing future that the digital revolution can provide. I strongly urge this Committee to seize this moment and to adopt what has worked in the past and to discard what has outlived its purpose. In short, I believe it is time for the balance of

power between programmers, operators, media consortiums and broadcasters to be

recalibrated for the digital world so that each is subject to the creative power of

competitive market forces.

32

I have been in the cable business for 20 years, and I have seen firsthand the effect

that growing media consolidation, rising programming increases, forced tying and

bundling of channels, and retransmission consent have had on my company and,

most importantly for you, on your constituents. As you analyze what rules should

be in place in an IP-based market place, I believe you must review whether the current analog rules are really providing consumers with the ‘‘best television money

can buy.’’ Now is the time to discard the rules that: 1) force consumers to take programming they do not want; 2) allow media consortiums to raise prices with no regard to what consumers value; 3) hide the reasons for higher rates from the Congress, the Federal Communications Commission, the local franchising authorities

and consumers alike; and, 4) fail to harness the greatest of American tools, a free

market to spur diverse and new programming. Digital platforms may provide consumers with a wondrous world of new and valuable programming. But if you allow

the old rules stay in place, it will just be more of the same. Wouldn’t it be a shame

to clog the healthy and robust arteries of the new IP infrastructure when you have

the chance to inject new vitality into this space? To provide consumers with the

greatest benefit, it is imperative that you break with the past and recognize that

some old ideas no longer serve the greater good.

Before describing my views on how to craft the best market structure, I want to

offer one other cautionary point about smaller markets and rural communities.

Out in the smaller communities ACA members serve from Pennsylvania to Nebraska to Oregon to Mississippi, it is our core video business that allows us to finance and provide the high-speed services that everyone wants in order to bridge

the Digital Divide. But unlike independent cable, satellite providers, telephone giants and major cable companies are not rushing into these communities to offer

high-speed data or other advances services. The headlines you read about new services and suites of services are offered to larger communities. If ACA members’ video

service cannot survive, I can assure you no one of us will be around to offer the

cable modem services these communities need. In short, video programming is not

‘‘just’’ about programming choices and rates, but it is also the foundation upon

which advanced services are built.

As I see it, there are four fundamental and specific changes that need to be made

if your goal is to provide the greatest diversity of video services at prices consumers

will pay in the IP-enabled world. These steps have been detailed extensively in the

ACA’s recent comments in the FCC’s programming inquiry, ACA’s petition for rulemaking on retransmission consent that was recently opened by the FCC, and in

ACA’s comments on the Satellite Home Viewer Extension and Reauthorization Act.

I urge each of you to review these filings because I believe they embody the core

elements of what is wrong with today’s market and provide solutions for a better

market tomorrow. The four changes are:

1. Update And Change The Current Retransmission Consent Rules To Help Remedy

The Imbalance Of Power Caused By Media Consolidation.

2. Treat Video Services Alike As Much As Possible, Regardless Of The Means Of

Delivery.

3. Make Access To Quality Local-Into-Local Television Signals Available.

4. Correct Rules That Allow For Abusive Behavior Because Of Media Consolidation

And Control Of Content.

What needs to be changed and why:

1. Current Retransmission Consent Rules Must Be Updated To Help Remedy The Imbalance Of Power Caused By Media Consolidation.

• The current retransmission consent and broadcast exclusivity laws and regulations limit consumer choice and impede independent cable operators’ ability to

compete in smaller markets and rural America by permitting distant media conglomerates to charge monopoly prices for programming. This situation must not

be carried forward into the IP world or in the post-DTV world.

The current laws and regulations governing retransmission consent and broadcast

exclusivity limit consumer choice and significantly impede independent, smaller and

medium-sized cable operators’ ability to compete in rural America by permitting distant media conglomerates to mandate the cost and content of most of the services

that these operators provide in local small markets. We estimate that this year

broadcasters will leverage retransmission consent rules to extract more than $860

million from consumers served by ACA members. Remember, this is cash out of consumers’ pockets to pay for programming that is freely available over-the-air. And

broadcasters don’t only demand cash for carriage. Some members of the largest

media conglomerates even require our cable companies to carry affiliated satellite

programming in systems outside of the member’s local broadcast market. In this

33

way, ownership of a broadcast license is used to force carriage of, and payment for,

affiliated programming by consumers who do not even receive the broadcast signal

at issue.

The programmers can get away with these abuses because the pricing of retransmission consent does not occur in a competitive market. Under the current regulatory scheme, media conglomerates and major affiliate groups are free to demand

monopoly ‘‘prices’’ for retransmission consent while blocking access to readily available lower cost substitutes.

They do so by two methods:

• First, the network non-duplication and syndicated exclusivity laws and regulations allow broadcasters to block cable operators from cable-casting network and

syndicated programming carried by stations outside of the broadcaster’s protected zone. For example, a Disney/ABC-owned station that broadcasts in a

small town or rural area can use the broadcast exclusivity rules to block a cable

operator from cable-casting a station owned by a local ABC affiliate in the next

market. In other words, the conglomerate-owned station makes itself the only

game in town and can charge the cable operator a monopoly ‘‘price’’ for its musthave network programming. The cable operator needs this programming to compete. So your constituents end up paying monopoly prices.

• Second, the media conglomerates require network affiliates to sign contracts that

prevent the affiliate from selling their programming to a cable operator in a different market. Again, the conglomerate-owned and operated stations are the

only game in town.

In these situations, the cable companies’ only defense is to refuse to carry the programming. This has virtually no effect on the media conglomerates, but it prevents

your constituents from receiving must-have network programming and local news.

This result directly conflicts with the historic goals and intent of the retransmission

consent and broadcast exclusivity rules, which were to promote consumer choice and

localism.

There is a ready solution to this dilemma. When a broadcaster seeks a ‘‘price’’ for

retransmission consent, give independent, smaller and medium-sized cable companies the ability to shop for lower cost network programming for their customers.

Accordingly, in our March 2, 2005, Petition for Rulemaking to the FCC, ACA proposed the following adjustments to the FCC’s retransmission consent and broadcast

exclusivity regulations:

• One: Maintain broadcast exclusivity for stations that elect must-carry or that do

not seek additional consideration for retransmission consent.

• Two: Eliminate exclusivity when a broadcaster elects retransmission consent and

seeks additional consideration for carriage.

• Three: Prohibit any party, including a network, from preventing a broadcast station from granting retransmission consent.

On March 17, 2005, the FCC released ACA’s petition for comments. By opening

ACA’s petition for public comment, the FCC has acknowledged that the current retransmission consent and broadcast exclusivity scheme requires further scrutiny. Before codifying a new regulatory regime for video services utilizing IP, Congress

should ask similar questions and make the important decision to update current law

to rebalance the role of programmers and providers.

Congress, too, should revisit the retransmission consent laws to correct the imbalance caused by the substantial media ownership concentration that has taken place

since 1992. One solution is to codify the retransmission consent conditions imposed

on News Corp. to apply across the retransmission consent process. The three key

components of those conditions include: (i) a streamlined arbitration process; (ii) the

ability to carry a signal pending dispute resolution; and (iii) special conditions for

smaller cable companies.

In summary, the retransmission consent and broadcast exclusivity regulations

have been used by the networks and stations to raise rates and to force unwanted

programming onto consumers. This must stop. If a station wants to be carried, it

can elect must-carry. If a station wants to charge for retransmission consent, let a

true competitive marketplace establish the price.

2. Treat Video Services Alike As Much As Possible, Regardless Of The Means Of Delivery.

As a fundamental principal of competition, like services should be treated alike,

regardless of how the service is distributed to consumers, whether by cable, satellite, wireless, copper or other means. I would urge you to be skeptical of those advocating reduced regulatory obligations to provide like services, because that is a

harbinger of their desire to eliminate, not promote, competition.

34

We’re here today partly because huge, national phone companies are asking to be

released from fundamental video regulations, such as the need to obtain a franchise

from a local government to use its public rights-of-way or the obligation to pay a

franchise fee for the use of such rights-of-way. These companies claim that if Congress would only release them from regulation, they would be able to compete

against cable.

Ironically, the companies asking to be deregulated today had to be broken up in

the not-too-distant past because of their monopolistic practices.

Furthermore, it is not genuine for these giant, national phone companies that are

on the path again toward consolidation and dominant market control to say they

need Congressional help to compete against my smaller company or any ACA member.

As the FCC has observed, video competition is local. Competition is not national,

as if it were PHONE versus CABLE versus SATELLITE. It’s my company,

NewWave Communications, versus DirecTV and EchoStar, and now versus SBC,

Verizon and other phone giants.

Nearly 1,100 ACA members compete head-to-head against these giant companies

in Dexter, MO, Brownsville, TN, and also in Bloomingdale, MI, Braintree, MA,

Parkdale, OR, Ramsey, IL, and many other towns represented by this Committee.

Compounding this challenge is the fact that for our members each new customer

and mile of cable must be financed by a loan from the local bank signed by the local

owner, while our mega-competitors are financed by Wall Street.

Direct broadcast satellite (DBS) is an example of this point.

Since 1999, the DBS industry has become a mature, successful business and a

powerful competitor to cable. This is especially true in the smaller markets and

rural areas served by my company and ACA members. DBS took away cable market

share from the start, even before receiving specific legislative and regulatory relief.

In some smaller markets, DBS has become the dominant provider. And when you

consider competition at the local level, it is not hard to see why.

The typical ACA member company in your state serves about 1,000 customers per

cable system. DirecTV serves almost 12 million more customers than the average

ACA member. Similarly, EchoStar serves almost 10 million more subscribers than

the average ACA member. It is self-evident that these companies benefit from far

greater economies of scale, access to capital and bargaining power over programmers and other suppliers. As the FCC found, the acquisition of DirecTV by News

Corp. enhanced those competitive advantages. Compounding the problem, smaller

cable operators bear a much greater regulatory load against these giants. It would

no different with the national phone companies if they are deregulated. Consider the

following comparison:

REGULATORY BURDENS

ACA MEMBERS

(Avg. 8,000

Subscribers)

Big Telcos’

Current Obligations Under

Title VI And

Related Regulations

What Big Telcos are Asking For

DBS (DirecTV—12 million subscribers; EchoStar—10 million

subscribers)

Mandatory carriage of broadcast on

basic.

Yes Yes To be exempt ............ No

Must-carry in all markets .................. Yes Yes To be exempt ............ Must-carry only in selected

markets

Must-carry for qualified low power

stations.

Yes Yes To be exempt ............ No

Retransmission consent ..................... Yes Yes To be exempt ............ Yes

Full public interest obligations ......... Yes Yes To be exempt ............ Limited public interest obligations

Emergency alert requirements ........... Yes Yes To be exempt ............ No

Tier buy-through ................................ Yes Yes To be exempt ............ No

Franchising requirement .................... Yes Yes To be exempt ............ No

Franchise fees .................................... Yes Yes To be exempt ............ No

Local taxes ......................................... Yes Yes To be exempt ............ No

Signal leakage/CLI ............................. Yes Yes To be exempt ............ No

Rate regulation .................................. Yes Yes To be exempt ............ No

Privacy obligations ............................. Yes Yes To be exempt ............ Yes

Customer service obligations ............ Yes Yes To be exempt ............ No

35

REGULATORY BURDENS—Continued

ACA MEMBERS

(Avg. 8,000

Subscribers)

Big Telcos’

Current Obligations Under

Title VI And

Related Regulations

What Big Telcos are Asking For

DBS (DirecTV—12 million subscribers; EchoStar—10 million

subscribers)

Service notice provisions ................... Yes Yes To be exempt ............ Limited to notice regarding

privacy rights

Closed captioning .............................. Yes Yes To be exempt ............ No

Pole attachment fees ......................... Yes Yes ............................. No

Channel positioning requirements for

local broadcast stations.

Yes Yes To be exempt ............ Only requirement is to retransmit local broadcast

stations on contiguous

channels

Billing requirements .......................... Yes Yes To be exempt ............ No

Public file requirements .................... Yes Yes To be exempt ............ No

Before changing the rules now for the giant telephone companies, Congress should

examine the regulatory disparity among all providers that exists in local markets

today and try to eliminate those artificial and unnecessary disparities. With vibrant

competition as the goal, why should the heavy hand of government weigh on one

type of provider versus another, let alone do so in order to disadvantage small businesses such as my own that are the heart and soul of local Chambers of Commerce

across this country?

To ensure that local communications businesses continue to deliver advanced

services in smaller markets, Congress should consider reducing, or at least equalizing, the regulatory burdens on independent cable.

Moreover, any legislative or regulatory action to treat multi-video programming

distributors differently—whether cable, satellite, phone or wireless, among others—

will skew competition across America.

For these reasons, the Committee should treat and regulate all video providers

alike, regardless of how video signals are distributed to the customer.

3. Make Access To Quality Local-Into-Local Television Signals Available.

Another legislative obstacle to competition and rural consumers’ access to local

programming is the current local-into-local statutory scheme.

Because of distance from transmitters, many rural cable systems cannot receive

good-quality local broadcast signals. By contrast, in local-into-local markets, DBS

can deliver clear local broadcast signals regardless of distance from transmitters.

The problem? The DBS duopoly refuses to allow rural cable systems to receive these

DBS-delivered broadcast signals. As a result, more than one million rural consumers cannot receive good quality local broadcast signals from their provider of

choice.

The inability to provide local broadcast signals is a serious handicap—it was this

limitation that caused Congress to enact the Satellite Home Viewer Improvement

Act in 1999, which Congress recently reauthorized through SHVERA. But SHVERA

does nothing to solve the local signal problem for rural cable operators and customers.

Congress can solve this problem by revising the retransmission consent laws as

follows:

In markets where a satellite carrier delivers local-into-local signals, that satellite carrier shall make those signals available to MVPDs of all types on nondiscriminatory prices, terms and conditions when (i) the MVPD cannot receive

a good quality signal off-air; and (ii) the MVPD has the consent of the broadcaster to retransmit the signal.

ACA’s recommended revisions to the laws and regulations governing retransmission transmission consent and broadcast exclusivity are modest. But they will

advance the widespread dissemination of good quality local broadcast signals to

your constituents and will address the serious competitive imbalance currently hurting small market and rural cable systems. Carrying this restrictive situation into

the IP realm would further compound this mistake. All video vendors must be able

to have access to quality signals if they are going to be viable competitors within

the IP-enabled marketplace.

36

4. Correct Rules That Allow For Abusive Behavior Because Of Media Consolidation

And Control Of Content.

What most consumers do not understand is that my independent company and

ACA member companies must purchase most of their programming wholesale from

just four media conglomerates, referred to here as the ‘‘Big Four’’—Disney/ABC,

Viacom/CBS, News Corp./DirecTV/Fox, and General Electric/NBC. In dealing with

the Big Four, all ACA members continually face contractual restrictions that eliminate local cable companies’ flexibility to package and distribute programming the

way our customers would like it. Instead, programming cartels, headquartered thousands of miles away, decide what they think is ‘‘valuable’’ content and what our customers and local communities see.

ACA members have intimate knowledge of the wholesale practices of the Big Four

and how those practices can restrict choice and increase costs in smaller markets.

By leveraging their broadcast assets, these cartels make the decisions that tend to

lead to the headlines we all experience. We’ve seen the headlines: ‘‘Higher rates,’’

‘‘Indecent content,’’ and ‘‘I have 200 channels and nothing is on’’ and the like. Why

would we want to carry over a regulatory scheme that propels this situation into

the IP world? Today is the day to recognize that there is no ‘‘market’’ in this market

and the responsibility to correct that situation lies within this body.

To fix this situation, Congress must update and reform the rules so that:

a. Local providers of all forms and customers have more choice and flexibility in how programming channels are priced and packaged, including the

ability to sell programming channels on a theme-based tier if necessary;

b. Tying through retransmission consent must end. Today, the media giants

hold local broadcast signals hostage with monopolistic cash-for-carriage demands or demands for carriage of affiliated media-giant programming, which

was never the intention of Congress when granting this power;

c. The programming pricing gap between the biggest and smallest providers is closed to ensure that customers and local providers in smaller markets are not subsidizing large companies and subscribers in urban America;

and,

d. The programming media giants must disclose, at least to Congress and

the FCC, what they are charging local providers, ending the strict confidentiality and non-disclosure dictated by the media giants. Confidentiality and

non-disclosure mean lack of accountability of the media giants.

Let me explain.

Forced Cost and Channels

For nearly all of the 50 most distributed channels (see Exhibit 1), the Big Four

contractually obligate my company and all ACA members to distribute the programming to all basic or expanded basic customers regardless of whether we think that

makes sense for our community. These same contracts also mandate carriage of less

desirable channels in exchange for the rights to distribute desirable programming.

A small cable company that violated these carriage requirements would be subject

to legal action by the media conglomerates, and for ACA’s members, this is a very

real threat.

These carriage restrictions prohibit ACA members from offering more customized

channel offerings that may reflect the interests and values of our specific community.

More Forced Cost and Channels Through Retransmission Consent

As previously discussed, retransmission consent has morphed from its original intent to provide another means to impose additional cost and channel carriage obligations. As a result, nearly all customers have to purchase basic or expanded basic

packages filled with channels owned by the Big Four (See Exhibit 2).

In short, media conglomerates that control networks and broadcast licenses are

exploiting current laws and regulations to actually reduce consumer choice and to

increase costs, all for their own benefit. Such control should not be perpetuated in

the IP or in the post-DTV transition world.

Forced Carriage Eliminates Diverse Programming Channels.

The programming practices of certain Big Four members have also restricted the

ability of some ACA members to launch and continue to carry independent, niche,

minority, religious and ethnic programming. The main problem: requirements to

carry Big Four affiliated programming on expanded basic eliminate ‘‘shelf space’’

where the cable provider could offer independent programming.

37

If new independent programmers are to provide outlets for this type of programming to reach consumers, you must ensure that they are not subject to the handcuffs current programming practices place upon them.

Local Flexibility is Needed.

In order to give consumers more flexibility and better value, changes in current

wholesale programming practices and market conditions are needed for all providers. Operators must be given more flexibility to tailor channel offerings that work

best in their own local marketplaces.

As I have stated, the Big Four condition access to popular programming on a

range of distribution obligations and additional carriage requirements. These restrictions and obligations eliminate flexibility to offer more customized channel

packages in local markets.

With more flexibility, cable operators could offer a variety of options to their customers, including more customized program offerings that meet the local needs and

interests of our customers.

However, without congressional or regulatory involvement or accountability, the

Big Four will continue to act solely to benefit themselves, without regard to the cost,

channels and content forced upon consumers. Again, this situation must be remedied now and guarded against in any future IP regulatory regime.

It’s important to point out that neither my company nor any ACA member controls the content that’s on today’s programming channels. That content—decent or

not—is controlled by the media conglomerates that contractually and legally prevent

us from changing or preempting any questionable or indecent content.

However, if my company and other ACA members had more flexibility to package

these channels with the involvement of our customers, current indecency concerns

raised by both Congress and the FCC could also be addressed.

Price discrimination against smaller cable companies makes matters worse.

The wholesale price differentials between what a smaller cable company pays in

rural America compared to larger providers in urban America have little to do with

differences in cost, and much to do with disparities in market power. These differences are not economically cost-justified and could easily be replicated in the IP

world as smaller entrants are treated to the same treatment our members face.

Price discrimination against independent, smaller and medium-sized cable companies and their customers is clearly anti-competitive conduct on the part of the Big

Four—they offer a lower price to one competitor and force another other competitor

to pay a 30-55% higher price FOR THE SAME PROGRAMMING. In this way,

smaller cable systems and their customers actually subsidize the programming costs

of larger urban distributors and consumers.

In order to give consumers in smaller markets and rural areas more choice and

better value, media conglomerates must be required to eliminate non-cost-based

price discrimination against independent, smaller and medium-sized cable operators

and customers in rural America.

With less wholesale price discrimination, ACA members could offer their customers better value and stop subsidizing programming costs of large distributors.

Basis For Legislative and Regulatory Action

Congress has the legal and constitutional foundation to impose content neutral

regulation on wholesale programming transactions. The program access laws provide the model and the vehicle, and those laws have withstood First Amendment

scrutiny. This hearing provides the Committee with a key opportunity to help determine the important governmental interests that are being harmed by current programming practices.

Furthermore, based in large part on the FCC’s actions in the DirecTV-News Corp.

merger, there is precedent for Congress and the FCC to address the legal and policy

concerns raised by the current programming and retransmission consent practices

of the media conglomerates. The FCC’s analysis and conclusions in the News Corp.

Order persuasively establish the market power wielded by owners of ‘‘must have’’

satellite programming and broadcast channels and how that market power can be

used to harm consumers. That analysis applies with equal force to other media conglomerates besides News Corp.

Pierce the Programming Veil of Secrecy—End Non-Disclosure and Confidentiality.

Most programming contracts are subject to strict confidentiality and nondisclosure

obligations, and my company and ACA members are very concerned about legal retaliation by certain Big Four programmers for violating this confidentiality. Why

38

does this confidentiality and non-disclosure exist? Who does it benefit? Consumers,

Congress, the FCC? I don’t think so. Why is this information so secret when much

of the infrastructure the media giants benefit from derives from licenses and frequencies granted by the government?

Congress should obtain specific programming contracts and rate information directly from the programmers, either by agreement or under the Committee’s subpoena power. That information should then be compiled, at a minimum, to develop

a Programming Pricing Index (PPI). The PPI would be a simple yet effective way

to gauge how programming rates rise or fall while still protecting the rates, terms,

and conditions of the individual contract. By authorizing the FCC to collect this information in a manner that protects the unique details of individual agreements,

I cannot see who could object.

Armed with this information, Congress and the FCC would finally be able to

gauge whether rising cable rates are due to rising programming prices as we have

claimed or whether cable operators have simply used that argument as a ruse. A

PPI would finally help everyone get to the bottom of the problems behind higher

cable and satellite rates. We at ACA are so convinced that this type of information

will aid you in your deliberations that we challenge our colleagues in the programming marketplace to work with us and this Committee to craft a process for the

collection of that data.

In short, without disclosure, there is no accountability.

CONCLUSION

In preparing to talk to you today, I have held the following image in my mind

from the Wizard of Oz.

If you think things are fine in the World of Television today, then do nothing and

live on in Oz.

But if you are worried about how much television costs or why consumers can’t

receive more of the specific types of programming they want or how they can protect

their families from unwanted programs or why diverse programming struggles to

get on the air, then you must pull back the curtain. What you will find is a cabal

of ‘‘wizards’’ laboring at the levers of programming, using broadcast signals and onerous leverage to gain carriage of other programming that would never make it on

its own.

As a smaller, independent businessman who lives in this arena, I can assure you

that the market needs your help now to fix these problems. The future IP-based

world needs you to act with the wisdom, heart and courage to face down the corporate media wizards that tell you everything is fine in order to have you convey

these problems onto the next generation of video services. Do not fall prey to that

argument.

EXHIBIT 1—Ownership of the Top 50 Programming Channels

Channel Ownership

BET ............................................................................................ Viacom/CBS

CMT ........................................................................................... Viacom/CBS

MTV ........................................................................................... Viacom/CBS

Nickelodeon ............................................................................... Viacom/CBS

Spike ......................................................................................... Viacom/CBS

TV Land ..................................................................................... Viacom/CBS

VH1 ............................................................................................ Viacom/CBS

Comedy Central ......................................................................... Viacom/CBS

ABC Family ................................................................................ Walt Disney Co./ABC

Disney ........................................................................................ Walt Disney Co./ABC

ESPN .......................................................................................... Walt Disney Co./ABC

ESPN2 ........................................................................................ Walt Disney Co./ABC

Lifetime ..................................................................................... Walt Disney Co./Hearst

A&E ........................................................................................... Hearst/ABC/NBC

History ....................................................................................... Hearst/ABC/NBC

CNBC ......................................................................................... GE/NBC

MSNBC ...................................................................................... GE/NBC

Sci-fi ......................................................................................... GE/NBC

USA ............................................................................................ GE/NBC

Bravo ......................................................................................... GE/NBC

Shop NBC .................................................................................. GE/NBC

Fox News ................................................................................... News Corp.

Fox Sports ................................................................................. News Corp.

39

EXHIBIT 1—Ownership of the Top 50 Programming Channels—Continued

Channel Ownership

FX .............................................................................................. News Corp.

Speed ........................................................................................ News Corp.

TV Guide .................................................................................... News Corp.

CNN ........................................................................................... Time Warner/Turner

Headline News .......................................................................... Time Warner/Turner

TBS ............................................................................................ Time Warner/Turner

TCM ........................................................................................... Time Warner/Turner

TNT ............................................................................................ Time Warner/Turner

TOON ......................................................................................... Time Warner/Turner

Court TV .................................................................................... Time Warner/Liberty Group

Animal Planet ........................................................................... Liberty Media

Discovery ................................................................................... Liberty Media

Travel ........................................................................................ Liberty Media

TLC ............................................................................................ Liberty Media

Golf ............................................................................................ Comcast Corp.

Outdoor Life .............................................................................. Comcast Corp.

E! .............................................................................................. Comcast Corp.

QVC ........................................................................................... Comcast Corp.

HGTV .......................................................................................... Scripps Company

Food ........................................................................................... Scripps Company

AMC ........................................................................................... Rainbow/Cablevision Systems

C-Span ...................................................................................... National Cable Satellite Corp.

C-Span II ................................................................................... National Cable Satellite Corp.

WGN ........................................................................................... Tribune Company

Hallmark .................................................................................... Crown Media Holdings

Weather ..................................................................................... Landmark Communications

HSN ........................................................................................... IAC/InterActiveCorp.

EXHIBIT 2—Channels Carried Through Retransmission Consent

Program Service Ownership

FX .............................................................................................. News Corp.

Fox News ................................................................................... News Corp.

Speed ........................................................................................ News Corp.

National Geographic ................................................................. News Corp.

Fox Movie Network .................................................................... News Corp.

Fox Sports World ....................................................................... News Corp.

Fuel ........................................................................................... News Corp.

ESPN2 ........................................................................................ Walt Disney Co./ABC

ESPN Classic ............................................................................. Walt Disney Co./ABC

ESPNews .................................................................................... Walt Disney Co./ABC

Disney from premium to basic ................................................. Walt Disney Co./ABC

Toon Disney ............................................................................... Walt Disney Co./ABC

SoapNet ..................................................................................... Walt Disney Co./ABC

Lifetime Movie Network ............................................................. Walt Disney Co./Hearst

Lifetime Real Women ................................................................ Walt Disney Co./Hearst

MSNBC ...................................................................................... GE/NBC

CNBC ......................................................................................... GE/NBC

Shop NBC .................................................................................. GE/NBC

Olympic Surcharges for MSNBC/CNBC ..................................... GE/NBC

Comedy Central ......................................................................... Viacom/CBS

MTV Espanol ............................................................................. Viacom/CBS

MTV Hits .................................................................................... Viacom/CBS

MTV2 ......................................................................................... Viacom/CBS

Nick GAS ................................................................................... Viacom/CBS

Nicktoons ................................................................................... Viacom/CBS

Noggin ....................................................................................... Viacom/CBS

VH1 Classic ............................................................................... Viacom/CBS

VH1 Country .............................................................................. Viacom/CBS

LOGO ......................................................................................... Viacom/CBS

40

Comparing this with the Top Fifty Channels in Exhibit 1 demonstrates how certain members of the Big Five have used retransmission consent to gain a significant

portion of analog and digital channel capacity.

Mr. UPTON. Mr. Perry.

STATEMENT OF JACK PERRY

Mr. PERRY. Good morning. Thank you for the opportunity to testify.

Decisionmark is a media technology company based in Cedar

Rapids, Iowa. When I last testified before you in February 1999, I

introduced our patented Geneva technology. Today, Geneva rests

squarely between the DBS carriers and every local television station in the United States. Geneva provides real-time compliance

with SHVA. The most critical component of Geneva being our station-verified broadcast signal area data warehouse Coronado.

During the 5 years of SHVA and now SHVERA, Geneva has answered the compliance question 174 million times, and we have

processed 50 million waiver requests for distant network signals.

Our consumer product, TitanTV.com, and online EPGPBR, was

used 26 million times last year by viewers in search of HD content.

Today I want to talk to you about a new technology we call ‘‘AirTo-Web Broadcast Replication.’’ Air-To-Web, we believe, is the solution to a problem that has long faced local broadcasters: how to

maintain the ability to serve the local public but over the Internet.

The fundamental question has been whether or not the geographic

exclusivity of markets, the cornerstone of the American system of

free, over-the-air broadcast television, can be replicated for Internet

broadcasting. The answer is yes.

Using Air-To-Web, a local broadcaster can deliver local content

in real time over the Internet to a wired or wireless device with

the same copyright protections currently enjoyed by broadcast cable

and satellite delivery. The bottom line is the localization of the

Internet.

Air-To-Web will make accurate eligibility determinations in real

time using signal strength technology in a broadcaster-verified data

warehouse. Air-To-Web will communicate subscriber activity to

each of the Nation’s local broadcasters, giving them unprecedented

real-time ratings data. This reporting will more accurately measure

ratings of minority viewers than has been the case with the traditional Nielsen reporting system. Air-To-Web will ensure that the

underlying signal area data is always accurate.

The benefits to the consumers and the broadcasters are many.

Local broadcasters will be able to bring their programming to the

Internet, which will enhance interactivity with their audience. Consumers will have the benefit of gaining access to their local stations

in real time over the Web. The net result is more viewers for local

programming and more choice for consumers.

Finally, Air-To-Web also represents an opportunity for delivering

local broadcast television through non-traditional means. Using

Air-To-Web will help foster competition for local television, allowing consumers to have new choice instead of being forced to rely

on solely over-the-air, cable, or satellite service.

As you move forward with the legislation addressing the conversion of digital television and rewriting the 1996 TelecommuniVerDate 11-MAY-2000 07:21 Sep 15, 2005 Jkt 000000 PO 00000 Frm 00044 Fmt 6633 Sfmt 6602 20748.TXT HCOM1 PsN: HCOM1
41

cations Act, remember that technology does not stand still. Air-ToWeb is new today and has endless possibilities, and it is just the

beginning of innovations to come.

To illustrate Air-To-Web, I have a demo here. My colleague, Mike

Rinehart, will drive while I talk.

[Video.]

Mr. Chairman, I grew up in Grand Rapids, Michigan, so I am

from here. So I pre-entered the address——

Mr. UPTON. Be careful about Mr. Stupak. You are missing half

of the State.

Mr. PERRY. Okay.

So what my colleague has done is called up Air-To-Web Broadcast Replication technology. And since most devices, as you know,

are wireless nowadays, we are able to take the address, enter it in,

hit the submit button, and return the channel line-up. What you

have there is the exact channel line-up, using Air-To-Web Broadcast Replication, for my former home in Grand Rapids, Michigan.

Those are the channels, which are specifically received at that address.

So if we know the location of a device, of course we know the

Internet is global, but broadcasting is local. If we know the location

of the device, we can make the assumption of what channels are

received there. So instead of putting up an antenna, we are able

to broadcast using the Internet.

Now in the interest of time and fairness, we have also entered

in an address for a Boston location as well. So my colleague will

enter that in.

So the point of the technology is that in the very near future,

there will be a billion devices that are wired or wireless, which can

get high-speed access. The local broadcasters are unable to use that

access because of the question of eligibility. And so, using this technology, it is very quick and very easy to say what channels are received here. And so if we can do that, I think we should let viewers

and broadcasters meet on the Internet. And so, as you can see, it

is very fast. We went out and established the copyright for each television station. We established the eligibility right there. And for

EchoStar and DirecTV, we do it at the point of sale, but for Internet broadcasting, we are doing it at the device. That opens up a

world of broadcasting over the Internet for local broadcasters and

viewers.

Thank you, Mr. Chairman.

[The prepared statement of Jack Perry follows:]

PREPARED STATEMENT OF JACK PERRY, PRESIDENT AND CHIEF OPERATING OFFICER, DECISIONMARK CORP.

Good morning Mr. Chairman and Members of the Committee, I am Jack Perry

President and CEO of Decisionmark Corp. I want to thank Chairman Barton and

Chairman Upton for extending this invitation to testify.

Decisionmark is a media technology company based in Cedar Rapids, Iowa.—

Decisionmark is a leader in providing software and data solutions to television and

radio broadcasters and consumers. We have been at the forefront of accurately testing the reach of—local broadcast signals for the satellite industry in order for satellite providers and consumers to be in compliance with the Satellite Home Viewer

Act (SHVA) and its updated versions.

We hold an ever-growing number of technology patents and our patented Geneva

technology is what enables household-level predictions of broadcast signals. Also,

our Coronado Data Warehouse, the industry standard for broadcast signal area and

42

1 ‘‘Broadband Internet Access and Services to the Home 2004’’, Leichtman Research,  2004,

www.leichtmanresearch.com 2 ‘‘Broadband Booms in 2004,’’ Sky Report E-news, March 7, 2005, www.skyreport.com

3 ‘‘4.1 Million People a Week Listen to Three Major Online Radio Networks According to

comScore Arbitron Online Radio Ratings,’’ Press release, International Webcasters Association,

December 6, 2004. http://www.webcasters.org/news/20041206.htm 4 ‘‘AccuStream Report: User Consumption of Broadband Video Streams Up 42% in First Half

’04’’ Press release, AccuStream iMedia Research, http://www.accustreamresearch.com/news/

aug17-04.html

programming data, have served as the basis for our consumer and broadcaster solutions, including TitanTV.com, CheckHD.com, and ProximityTV.

When I last testified before you in February of 1999, I described our Geneva technology, which is used by all of the major networks, their affiliates and Satellite

broadcasters to measure broadcast signal strength to insure compliance with

SHIVERA. To date, we have processed more than 50 million waiver requests using

getawaiver.com. Today I want to talk to you about a new technology we call AirTo-Web Broadcast Replication (AWBR).

AWBR, we believe, is the solution to a problem that has long faced local broadcasters: how to maintain the ability to serve the local public over the Internet. The

fundamental question has been whether or not the geographic exclusivity of markets, the cornerstone of the American system of free-over-the-air broadcast television can be replicated for Internet broadcasting. The answer is, yes.

Using AWBR technology, a local broadcaster can deliver local content in real time

over the internet to a wired or wireless device with the same copyright protections

currently enjoyed by broadcast, cable and satellite delivery. Bottom line: the localization of the Internet.

How does AWBR work? It works by meeting the four requirements necessary for

any system to successfully stream local content 24/7 and be in compliance with a

local broadcasters copyright:

AWBR determines what channels/stations a viewer is entitled to receive by using

proven local signal area prediction to determine which signals are received for each

individual subscriber.

AWBR will make accurate eligibility determinations in real time using signal

strength technology and a broadcaster-verified data warehouse. AWBR will communicate subscriber activity to each of the nation’s local broadcasters giving them unprecedented, real time ratings data. This reporting will more accurately measure

ratings of minority viewers than has been the case with traditional Nielsen reporting. AWBR will also ensure that the underlying signal data is accurate.

The benefits to consumers and broadcasters are many. Local broadcasters will be

able to bring their programming to the Internet, which will enhance interactivity

with their audience. Consumers will have the benefit of gaining access to their local

stations in real time over the Web or via wireless. The net result is more viewers

for local programming and more choices for consumers.

Finally, AWBR also presents the opportunity of delivering local broadcast television through non-traditional means. Usage of AWBR will help foster competition

for local television, allowing consumers to have a new choice instead of being forced

to rely on over-the-air, cable or satellite service.

As you move forward with legislation addressing the conversion to digital television and rewriting the 1996 Telecommunication Act, remember that technology

does not stand still. AWBR is new today with endless possibilities and just the beginning of innovations to come.

INTRODUCTION

For some time now it has been technologically feasible to provide television and

radio content to consumers in real time via the Internet. According to a study by

Leichtman Research Group, about 60% of households in the US subscribe to an online service, and in the past two years broadband providers have added 12.5 million

net new subscribers. 1 The same study also indicates that over 30 million U.S.

households subscribe to cable or DSL broadband services.2

Not only do Americans have unprecedented access to broadband services, they are

listening to and viewing content streamed over the Internet in greater numbers

than ever before. According to ratings information assembled by Arbitron Inc. and

comScore Media Metrix, 4.1 million people a week listen to three major online radio

networks.3 Furthermore, broadband users accessed an average of 15.4 video streams

per month during the first half of 2004, up 42.6% over 2003.4 The audience size and

43

5Decisionmark’s proprietary broadcast data warehouse as of March 2005.

the potential opportunity for Internet streaming are both far too large for local

broadcasters to ignore.

With this opportunity comes a challenge—how to maintain compliance with copyright regulations within a geographically boundless medium. When granted a license, broadcasters were given the right to transmit their signal to a specific geographic area and called upon to restrict their transmission to this area. Advances

in technology have moved the broadcast industry closer to using the Internet as yet

another medium to reach their audience. Unfortunately, there are vexing legal

issues that have stymied the development of the Internet as a medium for delivery

of broadcast television and radio.

Fortunately, Air-to-Web Broadcast Replication (AWBR) technology has now surfaced with a solution to the issue of broadcasters streaming via the Internet. AWBR

has been proven in numerous pilot projects with broadcasters and will work in parallel with the intent of the original free American broadcast system. AWBR will help

broadcasters maintain the ability to serve the local public—via the Internet.

THE PROBLEM: BROADCAST IS LOCAL; THE INTERNET IS GLOBAL

Free over-the-air American television is based on the network-affiliate distribution

system. Networks supply general interest programming and local affiliates supplement with local interest and syndicated programming. A mix of local and national

advertising sales funds this system and the territorial exclusivity granted to the

local affiliates is crucial to this model.

Prior to cable TV, territorial exclusivity was enforced via transmitter licensing.

With the advent of new delivery mechanisms for television, Congress has given

cable and satellite TV services permission to retransmit broadcast television channels under a compulsory license to a specific geographic area therefore replicating

broadcast television signal areas. Radio has not been subject to such legislation as

yet, but the advent of digital satellite radio services has raised issues for local radio

stations in protecting their licensed signal areas.

The question remains of whether the geographic exclusivity of markets, that is

fundamental to the American system of free-over-the-air broadcast television and

radio, can be replicated for Internet broadcasting. Traditionally, the Internet has

been a global entity, providing content to all regardless of location. What is needed

is a way to provide broadcasts, via the Internet, to replicate what consumers could

receive with an antenna—the standard for terrestrial, cable and satellite delivery.

THE SOLUTION: AIR-TO-WEB BROADCAST REPLICATION

Air-to-Web Broadcast Replication (AWBR) is the solution to the problem of delivering television and radio content via the Internet. AWBR can provide the technology and data that will allow television and radio content to be delivered over the

Internet with the same copyright protections currently enjoyed by broadcast, cable

and satellite delivery. The AWBR solution potentially will provide the means to authorize, monitor and report on all television and radio content streamed over the

Internet.

The AWBR solution offers:

• Accurate signal area prediction technology

• Broadcaster-verified data warehouse

• Verification process

• Ability to help broadcasters control streamed content through their online programming guides

Currently, there are 2,350 television stations and 13,810 radio stations broadcasting off-air reaching 104 million households 513. Every household is in control of

what they watch and listen to off-air by simply putting up an antenna. A broadcaster’s signal reach is also their copyright reach, i.e., only those that can get it with

an antenna can watch/listen to it with an antenna. By installing an antenna, the

household automatically places itself within a broadcaster’s copyright area, or it ‘‘activates’’ its ability to receive the broadcaster’s signal. With AWBR, streamed TV and

radio on the Internet can be almost as straightforward—AWBR is akin to tuning

a web-enabled device so that it receives the same programming that an over-theair reception device would receive. AWBR, along with the appropriate verification

mechanism, provides the technology and data that enables geographically-restricted

Internet delivery of television and radio programming.

44

IMPLEMENTING AIR-TO-WEB

For any system to successfully stream local content 24/7 and be in compliance

with local broadcaster’s copyright, it must:

Determine what channels/stations a viewer is entitled to receive, i.e.

screen for eligibility. AWBR answers this by using proven signal area prediction

technology to determine which signals are received for each individual subscriber.

Make accurate eligibility determinations in real time. AWBR’s combination

of signal strength prediction technology and a broadcaster-verified data warehouse

is the only way that eligibility can be accurately predicted in real time.

Communicate subscriber activity to each of the nation’s local television

affiliates and radio stations. AWBR will connect with every broadcaster so they

can know exactly how many viewers or listeners are watching/listening to them via

the web—while they are watching/listening. This opportunity for generating realtime ratings data is unprecedented.

Ensure that the underlying signal area data is accurate. Local broadcasters

must be able to easily communicate changes in their signal area. They need to easily change and verify their coverage information so that off-air and web broadcasts

are ALWAYS identical.

BENEFITS OF AIR-TO-WEB

The broadcast industry, artists and consumers alike stand to benefit from AWBR

technology.

Broadcaster benefits

• Potentially avoid additional copyright fees

• Bring their broadcasts to the Internet

• Enhance interactivity with their audience

Artist and content owner benefits

• Promote their works visually while a listener or viewer is tuning in on the Web

• Utilize interactivity that is inherent to the Internet

• Build loyalty in local markets

Consumer benefits

• Listening and viewing devices tuned by Decisionmark

• Gain access to their favorite, free local programming online

• Allows consumers to continue to listen or watch their favorite broadcasts via the

Internet

CONCLUSION

AWBR has solved the ‘‘Internet is global, broadcast is local’’ quandary. With

AWBR, broadcasters can implement the same geographical parameters for Internet

streams as off-air broadcasts. This solution benefits the entire broadcast industry

because it expedites the process and acceptance of local streamed media over the

Internet, in real time and without copyright infringement. Local broadcasters will

have access to their audience via the TV or radio and the desktop and still maintain

agreements with local advertisers. Because of the potential to reach consumers who

may otherwise have missed the programming, affiliates may be able to achieve better advertising rates. The major benefit to AWBR is the ability to replicate, via the

web, any broadcaster’s exact signal.

In addition, real-time monitoring by broadcasters for compliance will benefit both

broadcasters and consumers. Consumers benefit by having more local programming

available and broadcasters benefit by learning more about their viewers and in turn,

being able to supply their advertisers with this information. AWBR is the only technology in existence today with the unique ability to bring local streamed media to

the Internet.

Mr. UPTON. Well, thank you very much. That was very informative, for sure.

Mr. Ingalls and Ms. Champion, in Comcast’s written statement

and what they indicated verbally, too, asserted that like services

should be treated alike. Is Verizon and SBC’s planned video service, in essence, the same as what they would get from a cable company? And if not, how is it different?

45

Mr. INGALLS. Well, as far as Verizon goes, how we are different

is we are deploying a next-generation network, broadband, which

really enables both the broadcast or linear programming as well as

the interactive content to be delivered over the set-top. We feel that

that is different, because of the technology, the bandwidth, that we

are able to deliver.

On the other hand, we do believe that to apply the legacy rules

to the new technology would be a mistake, because the opportunity

to compete and to deliver this choice to the consumer is something

that will benefit the consumers and the economy.

Mr. UPTON. Ms. Champion?

Ms. CHAMPION. Yes, Mr. Chairman. We are not building a cable

network. There are very distinct differences between Project

Lightspeed and the fiber deployment that we have brought to you

today. Today, a cable network is defined as a one-way broadcast

network. What I have showed you today is the capabilities of providing customers a lot of choice, innovation through providing a

single IP connection to their home to deliver an IPTV switched

video solution. A switched video solution is entirely different from

today’s broadcast model, which is the vast majority of the content

that is delivered by the cable company today. This switched IP

video solution allows interactivity. It allows the consumer to have

great control over their content. It also allows them to personalize

their services in ways that is not done today with broadcast cable.

You can create your own identity on your Web service, on your

SBC Yahoo! portal. And then that same identity with your interests for news, sports and entertainment, and music videos can

automatically be populated directly onto your platform of the television, giving you a lot of control in your family.

I think you have seen the innovation, through the demonstration

today. I think that is just really scratching the surface of how consumers can take an innovative IP-only solution and truly change

the communications and entertainment experience by integrating

it, making it customized and personal. And that happens with a

true IP platform, which is what we are bringing to consumers with

our plans.

Mr. UPTON. Well, let me ask this before I come back to Mr.

Cohen.

I confess, I am a Comcast subscriber, and I have seen tremendous innovation as a consumer in terms of what they are able to

provide. I can get pay-per-view. I can stop it when I go into the

kitchen to make popcorn and come back. I have picture-in-picture,

so I can scroll through and see a little bit of what I saw here. I

know I have been to the cable show in the past, not this year, but

I have been able to see, you know, great advancements that are on

the way through my scientific America box in terms of what they

are able to provide in the future as it relates to computers and that

type of thing. And at what point would you say that the services

begin to be offered the same?

Ms. CHAMPION. I think you would have to address directly the

cable companies as far as what their plans are for investing. I

know that from day one, we will be a completely digital solution.

As you probably are aware, today there are still many, many analog cable customers out in the marketplace today. All of that just

46

really tells a story that we move into the marketplace day one as

an all-digital, completely IP solution. And that really sets the bar

high as far as the capabilities of what our platform can do. So with

the approach creating innovation through light touch regulation,

we can really begin to lead the way. I think at the end of the day,

the opportunity here is to stimulate a competitive business marketplace, and what we are doing is employing the latest and best technology we have seen, the road maps of where Microsoft’s IPTV solutions can let us bring new solutions to customers. And I just believe it is just a total leapfrog from where today’s, you know, majority of analog cable customers have, I mean, you can just look at the

track record there as far as where we are going to be doing from

day one.

Mr. UPTON. Let me just ask Mr. Cohen to respond before my

time expires.

Mr. COHEN. Sure. Thank you, Mr. Chairman.

Let me start by saying that as a competitor in this marketplace,

I mean, we are excited by what Verizon and SBC are doing. I think

that the demonstrations, the video and the demonstrations you

have seen today have been great. I think it is a demonstration of

how we are going to be. We collectively are going to be delivering

much more value to all of our customers. I also think it is a pretty

compelling demonstration that regulation hasn’t exactly gotten in

the way of innovation. There is a lot going on here, and I don’t

think we have really retarded any of that development.

In terms of what is present in the cable world today and the innovation that we are going to be making, the investment that has

been made, as I said, the industry has invested almost $100 billion

in building an IP-enabled network. Today, that network, which is

incredibly robust, has an effective capacity of about 5 billion bits

per second. The SBC network, by way of contrast, is going to be

significantly less robust. It is going to have an effective capacity of

about 20 million bits per second. And because of the slightly less

robust network, they are going to be able to deliver a very efficient

suite of products that is going to look an awful lot like the suite

of products we are delivering and an awful lot like the suite of

products that Verizon is delivering, all with slightly different uses

of technology. We are all using IP today. You referenced your experience using On Demand, the Video On Demand service of

Comcast. That is delivered through IP technology to the head end.

We use Mpeg technology today to bring it from the head end to the

home, but we are already using IP to bring it to the head end. So

that I think if you look at the aggregate suite of products that all

of us are going to be delivering to customers in the video world,

there is going to be great choice, there is going to be great competition. I think the winners, the real winners here are going to be the

consumers.

Mr. UPTON. Mr. Markey.

Mr. MARKEY. Thank you, Mr. Chairman, very much.

Ms. Champion, Verizon says that their video service, from a legal

standpoint, is covered by the same laws which govern cable operators. SBC apparently disagrees with that position. Is SBC’s service

any different from Verizon’s?

47

Ms. CHAMPION. SBC is building a very robust broadband network.

Mr. MARKEY. Is it different than Verizon’s?

Ms. CHAMPION. Verizon would have to specify what they are

building, but from very beginning day one, we are very much a

pure IPTV solution, and that provides a total different potential

versus what I believe what——

Mr. MARKEY. So you are saying it is different from Verizon’s?

Ms. CHAMPION. From the day one, yes. We are different. We are

providing a completely IP video-based solution from day one, not a

traditional broadcast cable——

Mr. MARKEY. Do you agree with that, Mr. Ingalls? Is it a different service that SBC is producing?

Mr. INGALLS. Well, the networks are very different. Our network

is both broadcast and IP, so we are providing to the consumer the

benefits of both. And the upstream side also provides to the consumer the interactivity and control that the other networks don’t

have from an upstream point of view.

Mr. MARKEY. So from a consumer perspective, there will be a big

difference between the two networks that the two companies

are——

Ms. CHAMPION. There is a big difference, yes, sir.

Mr. MARKEY. Would you agree, Mr. Ingalls?

Mr. INGALLS. Yes.

Mr. MARKEY. Okay. Now Ms. Champion, when we passed the

Cable Act here in 1992, we provided that all cable programming be

made available to competitors. And we also have compulsory licensing laws as well, which benefit companies that provide video service. Now when we do those laws out of the committee, we then attach public interest responsibility to the companies that are going

to be the beneficiary of it. Do you think that you should be bound

by the public interest obligations that are then shouldered by the

companies that provide that video service, or should SBC not be

bound by those laws?

Ms. CHAMPION. May I ask you to, perhaps, be a bit more specific

about the comments that you are making? I am a business and

product person, so I am not very familiar with the 1992 Cable Act.

Mr. MARKEY. Well, the 1992 Cable Act is the basis for your business model, because without that, you would not have access to

HBO or Showtime or ESPN. And as a result, we probably would

not be sitting here today.

Ms. CHAMPION. Well, clearly we will look forward to working

with the programmers in providing customers a complete suite of

programming choices. As a matter of fact, the various programmers

that we work with in negotiating to provide their content to customers have embraced the idea of the capabilities of this new platform.

Mr. MARKEY. In other words, what I am asking you is do you

think you should be bound by the privacy laws that are inside of

the Cable Act?

Ms. CHAMPION. Yes, sir. We absolutely recognize, and on the

basis of SBC’s relationships today, we recognize the need to support the privacy issue.

48

Mr. MARKEY. So you believe that that should be a law? You

would abide by the law——

Ms. CHAMPION. Absolutely. Yes, sir.

Mr. MARKEY. [continuing] on privacy? What other laws do you

think, as you sit there, that SBC and the other phone companies

should be bound by as they move into this video area?

Ms. CHAMPION. Well, we have already addressed the privacy

issue. I believe that we will work with the local channels. I think

there has been some representation today to provide the local retransmission of services so that we can bring those services to

the——

Mr. MARKEY. How about the must-carry laws? Do you think that

you should be bound by the must-carry laws?

Ms. CHAMPION. That is what I am referring to, yes, sir.

Mr. MARKEY. Okay. How many households do you have in the

SBC service area?

Ms. CHAMPION. Project Lightspeed will allow us to reach a little

over half of our households with——

Mr. MARKEY. No, how many households do you have in your

service area?

Ms. CHAMPION. So it is about—so we will reach 18 million

households——

Mr. MARKEY. Well, how many households do you have in your

whole—in your service area, there are 18 million total homes?

Ms. CHAMPION. And we reach half of the—36 million

households——

Mr. MARKEY. So there are 36 million?

Ms. CHAMPION. [continuing] half of them in 3 years. Yes, sir.

Mr. MARKEY. Okay. When are you going to reach the other 18

million?

Ms. CHAMPION. Well, obviously, you know, we want to bring

video solutions to customers, that is why today we provide a video

solution for customers in our bundles. We do that through a satellite solution.

Mr. MARKEY. No, but when are you going to bring this service

to the other 18 million homes?

Ms. CHAMPION. Well, today we have announced the most aggressive build-out of any company in cable.

Mr. MARKEY. No, when are you going to meet the other 18 million homes?

Ms. CHAMPION. And as the technology——

Mr. MARKEY. In a chart, which I have here, of the business plan

for SBC, what it says is that in the first phase, that is the first

18 million of the 36 million homes, you are going to do 90 percent

of the high-value homes in your region. You are going to do 70 percent of the medium-value households in your region, but you are

only going to do 5 percent of the low value. Now we have another

word for those 5 percent. We call them our constituents. And so the

5 percent, which you are not going to do, deserve to know what

your plan is for them. Those are the 18 million households that you

are not providing a plan for, even as you ask to be exempt from

many of the laws which govern telecommunications policy. Well,

the reason that we are here is that those are the people who need

the most protection. I really don’t have to worry about the wealthiVerDate 11-MAY-2000 07:21 Sep 15, 2005 Jkt 000000 PO 00000 Frm 00052 Fmt 6633 Sfmt 6602 20748.TXT HCOM1 PsN: HCOM1
49

est people in the towns that are being targeted. I have to worry

about the people who are in the bottom 50 percentile. Those are the

people who need it. So what is your plan for those 18 million

households in the SBC area?

Ms. CHAMPION. We are deploying very aggressively. We are making good business decisions about investing early and rapidly to

reach the vast majority of our customers. And as technology develops, and as we enter the marketplace and are able to show that

we can compete and succeed here, we will be able to evaluate our

abilities to go forward. We will have momentum in the marketplace, plus we will have other technology choices available——

Mr. MARKEY. Oh, other technology——

Ms. CHAMPION. May I make one other comment, please? Relative

to the ability to serve customers.

Mr. MARKEY. So I think you have two programs, then, it sounds

to me. You have Lightspeed for the well-off and ‘‘snail speed’’ for

everybody else, that is the bottom 50 percentile. And I haven’t

heard yet a plan which you have given to us other than, ‘‘We will

have some other technology for those other people that we will deploy at another time that I am not here capable of testifying as to

when they will get the benefit of it.’’

Ms. CHAMPION. I sit in front of you——

Mr. MARKEY. And that is just not adequate.

Ms. CHAMPION. I sit in front of you as a business person

today——

Mr. MARKEY. Right.

Ms. CHAMPION. [continuing] saying that we are going to be in- vesting $2 billion between now and next year, $4 billion between

now and the end of 2007. And as any sound business decision has

to be made based on the needs of the marketplace and the market’s

response to your services. Technologies evolved. My friend from

Comcast announced that his chairman even two and 3 years ago

didn’t know about IP. Technology alone will allow us to evaluate

other choices. We want to bring consumers choice. We do that

today. We provide them solutions for video today. And we will do

so tomorrow with very innovative——

Mr. MARKEY. When a cable company goes into a community, they

agree to wire every home in that community. I am asking you,

when you are going to wire, when you are going to provide the

service to the 50 percent, who obviously are not part of any business plan, I have Harvard Business School in my District. You only

need a three by five card to know to go to Dover and Weston and

Lincoln and Brooklyn. That is not complicated. The complicated

part about providing these services is to make sure every citizen

gets access to them, and that is what we wanted to hear from you

today, Ms. Champion. And we have yet to hear from you when they

get the benefit of your request to be exempt from many of the laws

which govern all of the other video services in our country.

Ms. CHAMPION. I would point to our track record with DSL, and

I would point to our track record with wireless. There was no mandated build-out on either of those. I think the record stands on

SBC’s intention to bring and compete very aggressively in the consumer market to bring choice against an incumbent cable provider

who raises prices against——

50

Mr. MARKEY. I want your commercial interest and the public interest drive, and today it has yet to do so, and that is your challenge in the years ahead. Otherwise, I think you are not going to

have the reception you want in this committee.

I thank you, Mr. Chairman.

Mr. UPTON. Mr. Whitfield.

Mr. WHITFIELD. Thank you, Mr. Chairman.

And I want to thank the panel for being here today and helping

us explore these quite interesting issues.

Like many people, I really admired Brian Robert’s leadership

with Comcast, and I actually did read his speech that he gave out

at the U.S. Telecom Association Convention in 2004. At the time,

he talked about the issue of regulation and how the telecommunications marketplace needed to have less regulation and a level

playing field. But today, I want to ask a question to Mr. Gleason

and Mr. Cohen. You can make an argument that, for example,

when you find yourselves competing with telephone companies for

voice service, you want less regulation. When they compete with

you, say, on video services, you make the argument that they need

to be regulated. We already know that cable, for example, is subject

to local franchise authorities and direct broadcast satellite is not,

and they serve nationwide. So I would ask the question, do we need

to exempt everyone? Do we need to develop new rules only for the

phone companies trying to enter the IP video or do we treat them

in a different way? Mr. Gleason, can we start with your comment

on that and then Mr. Cohen and then anyone else that would like

to address it.

Mr. GLEASON. Sure.

Well, I think it is a great question, because that is really the

whole conundrum we find ourselves in here today. And we do have

a host of regulations that we have all detailed on the cable side and

the telephone companies do on the telephone side. I think to a certain extent, the answer is this committee, with industry, has got

to figure out how we reach the happy medium. I don’t necessarily

fully support phasing in a whole host of regulations on the telephone companies, but what I am saying is that we have got to have

at least regulatory parity on the video side of the business. So that

may mean that if you want to go down the road of deregulating

certain aspects of the Cable Act, which you may or may not want

to do, then you are going to have to do it for both sides.

Mr. WHITFIELD. Could you just give us 2 or 3 specific examples?

Mr. GLEASON. Well, I think specifically the most burdensome

part of the regulations that we face are local franchising authorities, and with that comes the local franchise fee. And that, in and

of itself, makes our product, in essence, more expensive to consumers and does bring on a host of regulatory requirements that

go with that. I agree with Mr. Markey is that if you want to get

into our end of the business, and I don’t care how you deliver it.

I mean, I am listening to an all-digital solution, so is that to say

that if we were to go ahead and change out set-top boxes and force

a set-top box on every one of our customers and we delivered an

all-digital solution, now we are a network like theirs? And then we

should be out of all of those regulations? I don’t think that is where

the intent of this whole discussion surely is to lead that because

51

everybody has a set-top now our network looks like theirs so we get

out of franchising requirements. But the franchising burdens are

probably the most burdensome. And I would argue that I tend to

agree that one of the reasons we have a franchise is to use the

easements and rights of ways of a community. And those easements and rights of ways are limited in their capacity. We can’t

string 40 different cable and telephone companies down every community’s easements and rights of ways on poles and underground

and what have you and make efficient use of that. So there is going

to have to be some way that we all comply with franchising requirements, I think, that are subject to cable onto video products

that other providers provide.

Mr. WHITFIELD. What do you say, Mr. Cohen?

Mr. COHEN. I essentially agree with Mr. Gleason, and I think I

agree with the general tenure of your question, as well. Let me go

back to voice a second, because you referenced Brian’s speech, and

we have engaged in a dialog with many members of this committee

over the past couple of Congresses on the regulation of voice. I will

tell you that Comcast, as a company, has never advocated the use

of regulation as a sword that we would use against a competitor

in the marketplace. So we do not come to you, have never come to

you, and said, ‘‘Regulate our competitor in order to make it easier

for us to be successful in business.’’ And that is not the tenure of

the dialog, I think, that we had in voice. I think the complexity of

those discussions related to what legacy regulations in the telephone area should still continue to apply in a light regulatory approach to voice. And we have mentioned some of them at this hearing already: E911, CALEA compliance, participation in the Universal Service Fund, I mean, the types of legacy regulation that

needed to continue to apply. And I think that we have almost come

to a consensus around those points, although we are not quite

there yet and we have been working at that for 21⁄2 or 3 years. And

I think it takes longer than 21⁄2 or 3 minutes to just glibly say, ‘‘IP

is IP so we should go and deregulate IP on the video side, because

that is what we are doing on the voice side.’’ The question is what

are the types of legacy regulations that should continue on the

video side, also in a deregulatory discussion and in a deregulatory

approach in order to stimulate competition. And again, I think we

flagged some of those, but I think we have just touched the surface

today. Mr. Markey’s questions were in around privacy and mustcarry and non-discrimination provisions. I think there are significant issues of localism, which were codified in local franchising requirements, but it was protecting not only the rights of ways but

local community interests and concerns. And there are certainly

some serious policy questions that are raised as to who is going to

protect those issues of localism if you completely take LFA’s local

franchising authorities out of the business on the video side.

Mr. WHITFIELD. Mr. Cohen, thank you for those comments. I just

want to be sure to give Ms. Champion an opportunity, too. I would

like to get her comments. And if we have time, Mr. Ingalls, I would

like to get your comments.

Ms. CHAMPION. Yes, thank you very much.

I sit in front of you today with the opportunity to bring a brand

new solution to the consumers. And the approach that has been

52

used by the FCC and by the Congress to apply a light touch to

Internet services is the approach that has given us the competence

and clarity to proceed with our plan to invest into this new network and these new services. And relative to the voice comments,

the opportunity of the various providers, pure play VoIP providers

as well as cable companies, to enter into the VoIP business and to

compete over an IP service environment, I believe is being affected

positively and it is one that we have supported because there is one

set of single, national rules that are being applied to how these

services can be provided and protected for consumers across the

United States. And so we believe that that same kind of capability

will lead to advancements for the video space as well as we create

a complete video solution. So one set of rules, light touch, the same

approach that has been used to date for Internet rules, applying

that as a new entrant to our ability to enter into the video marketplace.

Mr. WHITFIELD. Mr. Ingalls, could you make a brief comment on

the local franchising authority?

Mr. INGALLS. Sure.

Very briefly, we have actually gotten franchised in five communities. We recognize the localism, as Mr. Cohen mentioned, and

have gone to hundreds of local communities. So franchising is a

very cumbersome process. We estimate that we have, just in the

neighborhood like the Philadelphia community, over 250 franchises

we have to get in order to offer video service in that metropolitan

area. So we look for a streamlined process. I like what I hear, as

a marketing person, about a light touch regulation. I think it is

about the marketplace. And we support the local franchise process

but would like to see a national process to circumvent that. And

we are not opposed. We have built into our business case, you

know, paying the franchise fees to the local communities.

Mr. WHITFIELD. Okay. Thank you.

Mr. UPTON. Mr. Doyle.

Mr. DOYLE. Thank you, Mr. Chairman.

While it is true that many consumers want these new bells and

whistles along with their voice, data, and video services, I can’t tell

you how many times I hear from people back in my District that

what they want is simply lower bills. Do any of you here on the

panel believe that IP-enabled services will promote enough competition in which to say a basic tier of cable gets cheaper or a basic

phone plan gets cheaper? I mean, I understand the new and improved features, but what about good, old fashioned, cheaper rates?

Mr. GLEASON. Well, I would like to address that, because I think

in my comments I noted that one of the questions is exactly that.

Right now, and we hear this all of the time, and I hear the same

thing from our customers. You know. They say, ‘‘I don’t really want

MTV.’’ Well, but in our store, we are not like a grocery store or a

bookstore. In our store, our wholesale providers force us to sell you

all of this host of channels onto an expanded basic platform, and

so if you want to get Nickelodeon, you have to take MTV. And so

I am not sure that the IP discussion here is going to change the

fact that, for the most part, four companies control all of the channels on the cable network. At some point, in order to address costs,

you have got to address wholesale costs. But a company like New

53

Wave or the association that we are a part of, American Cable Association, certainly does not have the market power to ever affect

that change. So my opinion is, until we come up with a way, and

we have a suggestion that we have suggested to the FCC of coming

up with a programming price index that would be submitted to the

FCC every year on which programmers would supply them with

their rates for each cable operator and what that price index

changes every year. We believe if we had something like that, or

other ideas, that that would rein in wholesale price increases. But

I don’t think those pricing phenomenons are going to change until

wholesale prices change.

Mr. INGALLS. And if I could make a comment. And responsibility

for the consumer market within the Verizon territory, I have seen

what competition can do to pricing. Clearly, if you just look at the

history of long distance pricing or local pricing, it has come down.

Competition brings many benefits: choice, value, simplicity to the

consumer. But something that is very important, as you said, to

your constituents, is price. There is a GAO study that I was made

aware of that showed when wired competition was brought to

cable, it actually shows that in that 2 percent of instances where

it occurred, prices were actually 15 percent lower. When we have

built and announced FiOS in the Tampa area, the incumbent cable

company actually, in response, has lowered their rates and offered

new and creative packages.

So competition really is going to help the constituents. And they

may not want the interactive, because that is really what we are

bringing. We are bringing a network that is going to provide mainstream services to those that just want broadcast or the interactive

services that are looking for the integrated converged solution.

Mr. DOYLE. Ms. Champion.

Ms. CHAMPION. Yes, thank you very much.

Yes, I absolutely believe the consumers will benefit from lower

prices. Competition in a business marketplace allows consumers to

have choice, and that puts the spotlight on an incumbent cable provider, in this example, to have to respond to the dynamics of the

marketplace by a new product, a brand new service coming in and

entering. I think the key thing that I would like to make a comment there is that the incumbent cable provider clearly has a lower

cost structure. Our ability to move into a marketplace aggressively,

very quickly, and being able to scale, being able to serve millions

of households, will allow us to get in, improve our operating capabilities, and continue to help us work to drive prices and our cost

structure so that we can compete as a new entrant in the video

space with IPTV.

Mr. DOYLE. Thank you.

Mr. Cohen, I want to ask you. I read in your testimony that you

said you believe the state of competition in the cable video industry

is so strong that portions of Title VI of the communications act may

no longer be necessary. I wonder if you want to expand on this

statement and highlight portions of the act that you feel, in fact,

may not be necessary any longer.

Mr. COHEN. Well, I think we have actually already touched on

a number of these today. I mean, I think it is, as this committee

looks at the telecommunications act, and by the way, I think we

54

are of the school that a targeted rewrite is probably of greater wisdom than an complete and total rewrite. But looking at burdens in

the act, looking at burdens around franchising, by way of example,

is certainly a productive exercise. Looking at some of the other

rules and regulatory burdens that apply in a unique way in Title

VI as opposed to the balance of the telecommunications act. I think

as you go through this inquiry, and you have heard from this panel

today, you have a very different marketplace and a very different

dynamic occurring that in either 1992 or 1996, the latest two revisions of the telecommunications act, and I think that that justifies

a different regulatory approach, or at least consideration of a different regulatory approach.

Mr. DOYLE. Thank you, Mr. Chairman.

Mr. UPTON. Mr. Shimkus.

Mr. SHIMKUS. Thank you, Mr. Chairman.

And I am glad my colleague mentioned that, because that is really the question I was going to ask, you know, the communication

act here. And my focus was going to be on how do you change the

bureau focus, because really, what we are looking at now is a whole

new world versus the way the FCC was designed and the different

bureaus. And you know, you have got the communications laws in,

you know, 1927, 1934, 1984, 1992, 1993. A lot of the members here

were there in 1996. I was running that year, and I remember all

of the lobbyists going to all of the members’ offices. But even those

who were the authors of that 1996 rewrite, I mean, based upon 9

years of being on this subcommittee, you couldn’t envision where

we were heading. So I think what would be helpful, too, and that

is part of this testimony is how do we restructure the FCC to meet

the new technological age? Now that may not be a surgeon approach to what some of the deficiency is. But I mean, there just

makes no sense today that, you know, when we have competitive

prices in the cellular industry, prices are going down, I mean,

where are they in the telecommunications act? And how do we get,

when there is convergence, and we have VoIP, how do we justify

a different regulatory scheme when you have the convergence of

broadband that you all will be competing with? So I am just going

to throw that up as a generic question. Actually, Mike asked it very

similarly. But I would rather, you know, you all come to our offices

and really look at the FCC and its organization, based upon the

law, and help us make sense of how we then rewrite this so that

we have pure competition in, really, in essence, what we are calling

as the broadband arena of delivering a multitude of services over

various different pipes. Let me just stop there. Does anyone agree

or disagree or if I said something really——

Ms. CHAMPION. I just want to say I accept your opportunity to

come talk with you about how technologies are changing. I think

the reality is there, and you nailed it, was that customers’ needs

are changing. They are looking for new technology. They are time

shifting, place shifting all of their communications and entertainment. And that means that, you know, in the past two or 3 years,

and what will happen in the future, really needs to be considered.

I think that will happen by business and government working

hand-in-hand to create a uniform approach to address these issues

55

today. So I appreciate your invitation and look forward to doing

that.

Mr. SHIMKUS. Well, go see Ray Fitzgerald. Write his name down.

Ms. CHAMPION. Okay. Very good. Very good.

Mr. SHIMKUS. Start there.

Anyone else want to comment on that?

Mr. COHEN. Congressman, I mean, I think, again, you really did

nail the issue there, and I mean, I would reiterate what I think the

principles of that review should be, which is to keep in mind the

purpose of regulation. It should not be to pick winners or losers.

It should be to foster facilities-based competition to treat like services alike and to create an overall competitive environment that

benefits consumers while preserving those aspects of legacy regulation that implicate important social considerations and that need

to be protected.

Mr. SCHMIDT. Congressman.

Mr. SHIMKUS. Yes.

Mr. SCHMIDT. The most important content to your constituents is

local news, weather, and sports. And we saw a number of demonstrations this morning, which were very slick, if I might say, but

they didn’t include local broadcasting. So I think any video play,

you have to take into account local broadcasting and get that there.

And putting free, over-the-air TV free over-the-Web creates competition.

Mr. SHIMKUS. Right. And obviously, those that have followed this

committee for many, many years, know that I have been a strong

advocate for the local broadcasters because of the safety concerns.

And I always point to the 1993 flood that happened in the Midwest. And who was there reporting on the levies that are breaking

and getting people out of the flood plain? It was the local broadcasts. And but that is all part of this debate. Same regulations,

same requirements across the board. But there was a comment

made that, you know, we are very schizophrenic as Members of

Congress, you know what I am talking about. Let us level the playing field. But then the comment was made legacy regulations that

are in the public good, I represent a large rural area, so we know

what we are talking about with legacy regulations, which is making sure that rural areas have the same access to this technology

as anyone else does.

Anyone want to add to that in that comment?

Mr. INGALLS. If I could make a couple comments. One, I think

you have touched upon the wireless model as a model of lower

prices and choices. I mean, technology is still being developed.

There are no regulations driving it. We see Verizon Wireless deploying EVDO across the United States at a very fast rate, so

broadband is available in that way.

As far as the rural comment, we also are committed, as we build

out a fiber network, which is not a short bill, we are going to pass

about 35 to 40,000 homes a week and keep ramping up. So we

don’t have an 18 million plan. We are just building. But in the

rural communities, we are testing today broadband access in a

wireless way using Y-max and Y-fi technology. So we are very supportive of providing broadband access, video access, and from the

local programming point of view, we also believe local broadcast.

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We are very supportive of that from a retransmission consent. So

I think it is not a surgical thing, as you said. It is a significant

change. Because on the other side, to enter voice, nobody is applying for any franchises. For us to enter video, we have to apply for

franchise. That is a big difference. And I think leveling that playing field, looking at the whole gamut, is probably very valuable.

Mr. GLEASON. I would just add, since you brought up the rural

aspect, and our association represents a lot of rural cable operators,

our membership, just to keep in mind, has done a phenomenal job

over the last 4 years of deploying broadband services in very small

rural communities. I know I am headquartered in Sikeston, Missouri and so is Galaxy, which serves a town like Carrier Mills in

your area that has broadband services.

Mr. SHIMKUS. Good research.

Mr. GLEASON. Thank you.

Well, I am not very far away. But our membership has been very

aggressive in deploying broadband services to rural areas, so those

services are available there now.

Mr. SHIMKUS. Great.

Thank you, Mr. Chairman. I yield back my time.

Mr. UPTON. Ms. Eshoo.

Ms. ESHOO. Thank you, Mr. Chairman, for holding this important hearing.

I have two questions.

The first to SBC and Verizon. I absolutely agree that we should

approach any regulation of the Internet carefully. And I have often

argued against cumbersome rules for new technologies. But I can

certainly understand why your prospective competitors object to

your entering the game on an uneven playing field. How do you

suggest that we address their legitimate questions about fairness

while still permitting you the leeway to innovate and bring new

services to customers?

And my second question, and I want to get it in now so that we

divvy up the time, is for Microsoft. Your company has done a lot

of work in the area of standards and interoperability. And you have

battled with your competitors and, in some cases, the government

over how to make the Internet even more open and more accessible

to all technologies and services. The television industry has had an

even more difficult time creating interoperable standards for electronics. And my question to you is will the advent of television on

the Internet exacerbate these problems or help to solve them.

So why don’t we start with SBC, Verizon, and then go to Microsoft? Thank you.

Ms. CHAMPION. Thank you very much.

Your comment was regarding the playing field, and I would like

to just reply to that by saying what we are looking for is one playing field where Internet innovation and Internet technologies can

be treated the same. When we bring services to your home, there

is going to be one Internet pie to bringing all bits together: voice,

video, and data. Relative to VoIP entry, the cable companies are

clearly eating into our core business, and with VoIP, the cable companies and pure play providers have been provided one single set

of national rules to enter into the marketplace and are being treated as a new entrant with Voice over IP and without telephone legVerDate 11-MAY-2000 07:21 Sep 15, 2005 Jkt 000000 PO 00000 Frm 00060 Fmt 6633 Sfmt 6602 20748.TXT HCOM1 PsN: HCOM1
57

acy rules and regulations. And I also want to add about the voice

comment, with very little incremental investment. So we have got

one playing field, uniform rules, being able to enter into a new

business as a new entrant without any of the legacy rules associated to providing essential services for voice. So those aren’t being

applied. What we are asking for is one playing field where we can

apply the same kind of light touch regulatory rules to the entry of

video where we are making significant business investments to accomplish such.

Ms. ESHOO. Mr. Cohen, do you want——

Mr. INGALLS. And my comment——

Ms. ESHOO. Just before Microsoft gets in, Mr. Cohen, did you

want to say something—no? All right.

Mr. INGALLS. Did you want—if I could.

Ms. ESHOO. Yes.

Mr. INGALLS. You know, the level of the playing field, from my

point of view, is exactly what we are looking for, and frankly, I am

not advocating that we apply legacy telephone rules to the Voice

over IP market, but as Ms. Champion said, I think there are new

entrants here that are coming in without applying for a franchise,

as I mentioned, and so they are entering the market. So leveling

the playing field, to us, is to kind of equalize the ability to enter

into the other’s businesses.

Let me give you a specific example of what I mean.

Applying for a franchise is now applying into a boundary that is

a cable franchise boundary. We are structured as a network based

upon the way the telephone network was built, so we could build

fiber to the home, FiOS, in a central office, and it could encompass

five different franchises of which are not all served by that central

office. So franchise requirements are an unnatural overlay to our

network topology. So we are just looking for a way to streamline

the franchise process so that it fits with our legacy network as

cable is obviously taking their legacy network and made it fit to the

telephone world without any rules being overlaid as to where they

go or don’t go.

Mr. MITCHELL. So the short answer to your question is that it

is explicitly our objective to make sure that that doesn’t happen

when it comes to developing the software solutions that enable

Video-over IP. There are several different components of that. One

is simply the fact that the Internet itself has been able to be very

successful by having an explicit protocol approach that enables the

evolution of other forms of services on top of the network. So for

the last 10 years, you have seen the Internet take on many different types of applications because there is a common base of accepted standards. In terms of the video case, you have to look at

rights management and security and on the encoding schemes. In

all of these areas, we are working to ensure that the software solutions effectively have replaceable components that can evolve over

time, so that the same type of evolution that you are able to see

on the Internet works.

And finally, I would just add that it is, for us, in terms of developing the IPTV solution, for example, that SBC is deploying, it is

explicitly our objective to ensure that we enable the ability of retail

devices from many manufacturers within the next few years once

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all of the technology is sorted out. It has been, from the beginning,

part of our design approach.

Ms. ESHOO. Thank you. I am going to yield back, Mr. Chairman.

Mr. UPTON. Mr. Walden.

Mr. WALDEN. Thank you very much, Mr. Chairman.

Mr. Cohen, you said something that I thought really hit the nail

on the head on what we are trying to sort out, and that is that we

need to review all of the rules for all of the providers. And as I sit

here and listen to all of your testimony and kind of think about

this, you know, the world really has changed so rapidly, and I am

a broadcaster, a radio broadcaster by profession, 19 years in the

business, and you know, it is phenomenal to me how things are

changing and how, you know, the 1934 act requires us to do certain

things, and then other people come along and compete in my community that doesn’t have to do any of those things, and yet I am

supposed to do all of these community standards, you know, which

I think is actually going to be the survival of community broadcasting. But it does raise some really difficult challenging questions

about how you provide content to people who want it while also

dealing with this issue of serving the community and allowing

those who are charged with that as part of their obligation to survive economically. I mean, that is kind of cutting to the chase.

And I am curious. I think it was Ms. Champion who talked about

your system was unique in that it was switched IP video, a whole

digital system and that would be unlike cable and it is two-way,

not one-way, if I got you right. And so I am curious, for the cable

providers on our panel, because I have got digital cable, aren’t you

also getting into a two-way system and digital capability as well?

So how are you really going to be different? I mean, maybe you are

right now, but 6 months from now, 3 hours from now, are you

going to be that much different?

Mr. COHEN. I think your question says it exactly right. I think

not only is there going to be convergence among platforms, there

is going to be convergence among services. As I said, we are already two-way. We already use a significant amount of IP in our

system. We will inevitably use a switched video component to the

delivery of our service in the very near future. The platform is already enabled for that. I think, as I said in response to a previous

question, the SBC model uses switched video because it is an efficient use of the particular platform that they are building out,

which happens to have much less overall capacity than the platform that cable has built out. But there are clear advantages to

interactivity and being able to deliver personal——

Mr. WALDEN. And you were talking about the difference between

the bandwidth of your platform versus Ms. Champion’s, right?

Mr. COHEN. Right. Our platform has an effective available capacity of 5 billion bits per second whereas the SBC platform has an

effective capacity of about 20 million bits per second.

Mr. WALDEN. So you would have, like, plenty of capacity to do

multi-channel must-carry, then?

Mr. COHEN. I should have seen that coming. I mean, of course

the issue——

Mr. WALDEN. I just wondered if you had the capacity. I sort of

sense maybe you do.

59

Mr. COHEN. And of course the answer to that question is that the

capacity that we have built——

Mr. WALDEN. Yes.

Mr. COHEN. [continuing] that we have developed needs to be

available for the services that our customers want to receive.

Mr. WALDEN. Right.

Mr. COHEN. And we would have capacity——

Mr. WALDEN. I sort of anticipated that answer, too.

Mr. COHEN. We have capacity to carry loads of extra channels,

but they should be channels that our customers want, not just

those——

Mr. WALDEN. Now let me go to that point. And I understand that

argument. But let me go to that point, because public television

has some pretty remarkable agreements on multi-channel mustcarry. What is the difference, from your industry’s perspective,

about that agreement versus what over-the-air broadcasters are

trying to require as well? Is the difference that one has advertising

and one doesn’t?

Mr. COHEN. No, actually, it isn’t. I think it is a difference of

whether government should mandate the carriage or whether there

should be commercial negotiations and discussions——

Mr. WALDEN. Are you all engaged in commercial negotiations

and discussions?

Mr. COHEN. With many different broadcasters.

Mr. WALDEN. Okay.

Mr. COHEN. We just announced a deal with NBC for some multicast.

Mr. WALDEN. All right.

Mr. COHEN. And so we are engaged with the networks and with

local broadcasters in those discussions.

Mr. WALDEN. Perfect.

Mr. COHEN. And what we want to have, and let me just give one

fact——

Mr. WALDEN. Yeah, sure.

Mr. COHEN. [continuing] because it is incredible. If you apply

multi-casting must-carry, we have must-carry obligations with 23

broadcasters in Los Angeles.

Mr. WALDEN. Right.

Mr. COHEN. So imagine that we might have to carry 23 weather

channels of the broadcasters having cameras pointing out their

window looking at the weather.

Mr. WALDEN. But given none of those ever is right, maybe having

23 options——

Mr. COHEN. Right. It is comparable weather, put it that way.

Mr. WALDEN. All right. Well, but I want to make another point,

which is sort of off this point, but it is all in this together, because

some of our colleagues in the Senate then want a mandate on overthe-air broadcasters that they cover us ‘‘holier than thou’’ candidates when we are running for office, if you are a commercial

broadcaster, but not if you are a cable caster or Verizon or SBC,

to give free air time and free access. Can you imagine if the same

burden applied to video providers and audio providers in Los Angeles and New York? Can I get 100 minutes of free time on your system?

60

Mr. COHEN. I am not sure about 100 minutes, but——

Mr. WALDEN. Ninety-nine? Can we——

Mr. COHEN. You should know. I think we have talked with many

of you, Comcast pioneered something last year called ‘‘Candidates

on Demand’’ where we provided——

Mr. WALDEN. And nobody clicked.

Mr. COHEN. Actually, you would be surprised. We——

Mr. WALDEN. Well, you understand what I am saying, and that

is part of the——

Mr. COHEN. The Senate race, it was wildly popular. We gave, basically, 35 minutes to each candidate, seven issues, 5-minute videos. We put it up on our On Demand platform for free.

Mr. WALDEN. Okay.

Mr. COHEN. And it actually was fairly popular, and it is something that we intend to roll out——

Mr. WALDEN. And I commend you for it. But that is also one of

those legacy requirements that it out there on some providers of

video content and audio content that is not on others.

I want to go to the issue of retransmission consent and all, because I sensed a slight disagreement between Mr. Gleason and Mr.

Schmidt, I believe. What do you do where you are in a legacy, call

it an ‘‘old line business’’, if you want to call it that, where you have

an agreement that says, ‘‘I have got market exclusivity for this program.’’ Should we open up that program to anybody, because we

have a new technology to deliver it, or is there still this legacy

right that, as the provider and contracted provider for that program, you should have that right in your market to have exclusivity?

Mr. SCHMIDT. Well, Mr. Walden, obviously, we believe that if you

have the contractual right, you should have the ability to enforce

it, and the point that goes to your earlier comments about the importance of localism is that the rules, that we did not emphasize

in the testimony, are primarily aimed at protecting smaller markets who not only would be vulnerable to an international threat,

but even from their adjacent markets. Would Grand Rapids broadcasters buy exclusivity versus Traverse City? Probably, if we could.

And the same issue is large on the Internet. So the syndicated exclusivity and the network non-duplicative rules are really intended

to preserve the universal availability of local news, weather, and

sports, which are the beneficiaries of the rest of the system. So in

this instance, I don’t think there is any doubt, really, that these are

quasi-intellectual property rules, but they are also intended to preserve the local reach. And while I see that the label up here on this

thing is ‘‘twisted pair’’, which I assume refers to Mr. Gleason and

me, we really are bound together. And I think his beef is actually

more with Mr. Cohen than it is with the broadcasters, particularly

the small market broadcasters. And I fear that the solutions that

he proposed to eliminate these protections will harm local broadcasters and the local content, which is, in significant part, what

drives his business as it is today. So I think the enemies are not

the small, local broadcasters with whom he is negotiating retransmission consent and having to occasionally carry and must-carry.

Mr. GLEASON. Well, let me be clear about my comments, too, on

retransmission consent agreements. I completely agree that we

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need to carry local broadcast channels in our markets, and they are

a very important part of our product offering in our areas. And I

think we should be carrying those, and I think that that opportunity is already there for broadcasters to make sure they are carried, and it is called must-carry. But what I have suggested in my

comments is that where this dynamic changes, when a broadcaster

elects retransmission consent and now wants cash for carriage that

is obviously going to fall straight to the consumer for a free, overthe-air broadcast channel, then that has changed the negotiating

dynamic, particularly for small market cable systems where we

don’t affect enough eyeballs in a particular market. So if that channel is dropped, we don’t have enough effect for the broadcaster to

notice, thereby giving them much more market leverage, because

we can’t go import an out-of-market station. So——

Mr. WALDEN. But you do charge your viewers, because they have

to pay a subscription in order to be able to watch the program that

the over-the-air broadcasters are giving to you or now negotiating

a price for, right?

Mr. GLEASON. We do charge a nominal charge for limited basic

service——

Mr. WALDEN. Yeah.

Mr. GLEASON. [continuing] which is generally that broadcast

basic service——

Mr. WALDEN. Sure.

Mr. GLEASON. [continuing] that is getting cable out to those

homes, and I would argue in most cases, extending broadcasters’

reach.

Mr. WALDEN. Sure. It is a partnership.

Mr. GLEASON. But that is usually a very low-cost level of service

and generally pays for the cost of delivering the service. But if we

are now going to layer on specific fees per customer to watch those

broadcast stations, then that changes that dynamic of that level of

service. And our argument is that if you do decide to charge, then

we should be given the option to shop.

Mr. WALDEN. I see.

Ms. CHAMPION. Mr. Congressman, may I reply to the comment

related to the bandwidth that is involved here?

Mr. WALDEN. Yeah, you are going to do multi-channel mustcarry?

Ms. CHAMPION. Well, no, sir. But the point that was made by Mr.

Cohen here is really an apples to oranges comparison. As you

know, a cable company shares their bandwidth across all of the

users in their area. And what we are talking about is a dedicated

connection providing a very secure and private connection for that

individual home, that dedicated bandwidth that is available to

them versus an environment that is shared.

And I would also like to say I sympathize with your request regarding having free time. I would just like for the various cable

companies to allow us to advertise some of our services relative to

what we want to present into the marketplaces, which today they

do deny us that opportunity on many, many, many occasions.

So I appreciate your request for the free time.

Mr. WALDEN. You can always buy radio advertising.

Ms. CHAMPION. Yes, we do. Thank you very much.

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Mr. UPTON. Especially in Oregon.

Mr. Boucher.

Mr. BOUCHER. Thank you, Mr. Chairman.

I also want to thank this panel for sharing with us today what

I think is a very stimulating discussion of highly relevant issues.

Let me take the opportunity, Mr. Ingalls and Ms. Champion, to

have you clarify the extent of which you are willing to accept Title

VI obligations. Let me just tick off a couple of things, and I would

like both of your responses as to whether or not you are willing to

accept this, as you offer your multi-channel video service. You

might just note these as I go down, and you could respond to all

of them collectively, no need to respond to each one: retransmission

consent, network non-duplication, syndicated exclusivity, the mustcarry requirements, sports blackout, the program access requirements, which basically say if you are originating your own content,

there are circumstances under which other multi-channel video

providers should have non-discriminatory access to your content,

privacy for customer information, and set-top box interoperability.

There may be some other elements of Title VI. I think this captures

most of it.

Mr. Ingalls, would you like to respond first?

Mr. INGALLS. It is a long list. I couldn’t write fast enough, but

I will try to hit a few of them.

First, privacy is something that, as a common carrier, we operate

under today. So from a privacy requirement, there is no question

that that is something we support and we clearly endorse. I mean,

I think the key point here is that, you know, entering the video

market that we are entering, as the new entrant, we are looking

to take this playing field and level it. Things like must-carrys,

sports blackout, those are issues that I think are to be discussed.

I guess I have the benefit of being a businessperson focused on the

business market, trying to get customers, so I am not, you know,

deeply familiar with the rules that you mentioned, but I will say

Verizon has demonstrated in our negotiations to get into this business that many of the things that you referenced, we are negotiating with the appropriate authorities trying to make sure we comply as we enter the business, the local franchising authorities being

an example.

Mr. BOUCHER. So your answer is some of these but not necessarily all.

Mr. INGALLS. I can’t tick off one by one. Again, I didn’t write fast

enough, but——

Mr. BOUCHER. All right. Ms. Champion, would you like to respond?

Ms. CHAMPION. Yes, sir. Thank you.

As a multi-channel video provider, as a satellite company is, we

would endorse and follow the same requirements as they have

adopted and the same rules have been applied to a satellite provider.

Mr. BOUCHER. Okay. Well, that is a clear answer. So you would

basically take the set of rules applicable to satellite multi-channel

video providers and say that you are willing to accept those?

Ms. CHAMPION. That is correct.

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Mr. BOUCHER. All right. Let me address the questions relating

to franchise, because we are going to have a debate here about this,

I can see that coming. And this is truly interesting.

Mr. Ingalls, I detected in some of your answers to questions

posed by other members a general willingness on the part of

Verizon as it offers its service to pay the franchise fee. I also have

seen other statements made by Verizon suggesting that you would

be willing to abide by the public access channel requirements that

attend franchise agreements. But are there elements of the franchise agreement that you think should not be applied to your service as it is introduced into local communities?

Mr. INGALLS. Well, yes, I did say we are willing to pay the franchise fees. We have negotiated five franchises and are in the middle of negotiating hundreds. As part of those franchise agreements,

we are negotiating public access, educational, government channels. We are willing to provide that. I think the issue here is the

process by which you get franchising authority. The cable industry

built their business based on a monopoly franchise in local communities. And as we look at the market as really the fourth entrant

now with two satellite providers doing reasonably well in every

market, we are looking for a more streamlined process, so is a

State-level franchise or even a Federal-level franchise the right

way to level this playing field? So simplifying the process to get a

franchise is something we clearly want.

Mr. BOUCHER. What are you asking us to do?

Mr. INGALLS. I think this committee, we would very much appreciate looking at the franchise and rules, looking at a national franchising policy that would apply some of the local franchise conditions that have existed, which we have demonstrated the willingness to support so that we could enter the market. As I said earlier, in a given community like Philadelphia, 250 franchises to

serve the Philadelphia marketplace.

Mr. BOUCHER. And so are you going to propose to us elements

of what this national franchise model should be?

Mr. INGALLS. We would love to sit down with you and lay out for

you exactly how we think the franchise——

Mr. BOUCHER. All right.

Mr. INGALLS. [continuing] model and process should look.

Mr. BOUCHER. Ms. Champion, could you speak to how SBC’s position with regard to local franchising might differ from what

Verizon has said?

Ms. CHAMPION. The intention of SBC to build the 18 million

households between now and 2007 would mean that we would be

proceeding against over 2,200 unique franchise negotiations and

processes. As an IP-based service, we believe we should be treated

as a new entrant under the light touch IP rules of the Internet.

Specifically related to build out, that is the——

Mr. BOUCHER. Well, let me ask you this. Are you asking us to

adopt a kind of a national franchise model along the lines of what

Verizon is suggesting or are you saying that we should——

Ms. CHAMPION. Yes, sir.

Mr. BOUCHER. [continuing] basically—oh, you are?

64

Ms. CHAMPION. Yes, sir, that is exactly—one set of national

rules, unified rules to help overcome this patchwork of, you know,

varieties of rules and regulations across the——

Mr. BOUCHER. Okay. I am trespassing on others’ time, but two

quick questions.

Would you be willing to pay the local franchise fee?

Ms. CHAMPION. We will absolutely be willing to work with them.

We live in these communities. We want to equalize across the players.

Mr. BOUCHER. Okay. I take that as a yes.

And would you be willing to abide by public access channel requirements? I mean, these are two things which Verizon says it is

willing——

Ms. CHAMPION. The must-carry——

Mr. BOUCHER. No, no, local access. You know, you have paid

channels on cable and, you know, educational purposes covering

the town council, that kind of thing.

Ms. CHAMPION. The whole nature of this platform is different

than traditional services are, so we have a lot of flexibility to provide public interest features and services to the communities,

so——

Mr. BOUCHER. So I take it the answer is generally yes.

Mr. MARKEY. Would the gentleman quickly yield?

Mr. BOUCHER. I would be happy to yield.

Mr. MARKEY. Okay. You said that you would be willing to abide

by the rules that the satellite companies abide by?

Ms. CHAMPION. Multi-channel provider satellite rules.

Mr. MARKEY. All right. Does that include the turning over of 5

percent of capacity to non-commercial, unaffiliated programmers?

That is one of the rules that was part of the satellite package.

Ms. CHAMPION. Oh. I would have to look into that. I am not sure

I understand what all of the specifics are of that rule.

Mr. MARKEY. Okay. Does it include the obligation to provide test

signals throughout the entirety of a broadcaster’s local signal area?

Ms. CHAMPION. As I stated earlier, we would follow the same

guidelines as the satellite providers, so if that is one of the stipulations, then——

Mr. MARKEY. Those are the satellite rules. So you would abide

by those satellite rules that I just gave to you?

Ms. CHAMPION. Yes.

Mr. MARKEY. Okay. Thank you.

Ms. CHAMPION. Yes.

Mr. MARKEY. Thank you.

Ms. CHAMPION. You are welcome.

Mr. BOUCHER. All right. Thank you very much, Mr. Chairman.

I yield back.

Mr. UPTON. Mr. Ferguson.

Mr. FERGUSON. Thank you, Mr. Chairman.

I have a few questions, and I want to try and get through these

quickly.

A quick question for Mr. Ingalls.

I am very interested in the issue of a level playing field, particularly as you roll out your fiber network and others as we get into

this particular issue and how competitive that playing field will be.

65

I know you have already addressed this issue a little bit, but I

want to ask you more specifically. How much are you spending on

your fiber development and your deployment and how does that

compare with some other folks in the industry in terms of your rollout?

Mr. INGALLS. Yeah, we are building, as I said earlier, really a next-generation network. We spent $1 billion in 2004 to pass approximately 1 million premises. And we have announced that we

have committed to do 2 million premises in 2005. Our capital budget has increased. As a combined company, it is about $11.3 billion

this year, not just on fiber, but you can work backwards. If 1 million is $1 billion, 2 million this year is close to $2 billion. So we

are investing heavily. It is about the capability of the network.

And if I could just add one more comment that hasn’t been clear.

The network really is a combination, so when we talk about 100

megabits downstream and 15 megabits upstream, that is just the

data connection. We still are providing hundreds of digital channels

coincident with that. So it is not constrained. So we really have the

capacity here that can deliver.

Mr. FERGUSON. How does that compare with some of the other

companies? Are you tops in terms of the money you are spending

right now in deployment? Are you——

Mr. INGALLS. I believe we are spending as much—I really don’t

know everybody’s checkbook, but I think we are spending as much

or more as anybody.

Mr. FERGUSON. How do you decide where you are going to deploy?

Mr. INGALLS. Our decisions on deployment are based upon multiple factors. One, I have responsibility for over 30 million households. So we look at the market we have announced in 14 States.

We are deploying in every major market initially. We have only announced plans, as of right now, to about 100 central offices or communities. We have plans built now through the early part of 2006.

This is a very evolving plan, so we have not announced everywhere

that we are going over the next 5 years, but as I said, we are building at the rate of about 35 to 40,000 a week and ramping it up,

so we should be accelerating it. The decision on where we build is

based upon the market, the opportunity, and frankly, partly on the

competitive intensity, because today we have cable companies announcing they are entering the telephone business without applying for the franchise, which they don’t have to, and we have to provide that same package of services. So we are really looking at

competitive intensity as one of the big drivers of where we go.

Mr. FERGUSON. When you decide to deploy in an area, is it economically feasible for you to hit 100 percent of that community in

the first year?

Mr. INGALLS. Not in the first year. It is pretty hard. If, you know,

you look at metropolitan markets like New York City or even the

Washington market or Boston, it is a pretty large community, so

it is really a 2 or 3-year plan to cover a market. So when we choose

to go into a market, a metropolitan area, we really look at the efficiency of building it, the efficiency of marketing, because the big

benefit here is to be able to market to the whole community, not

to have what I would call like a Swiss cheese approach where we

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are only in certain neighborhoods. So our intent is to build out the

whole area as we go to a market.

Mr. FERGUSON. But it is sometimes economically not feasible to

do it in the first year?

Mr. INGALLS. No, it is really a matter of physical ability as well

as economics. We can’t pass millions of homes in 1 year, so that

is why, in the first year, it is difficult. But as I said, over a two

or 3-year period, we plan on covering a market that we have chosen to go into.

Mr. FERGUSON. Okay. Thank you.

For Mr. Cohen, Comcast now offers data, voice, and video services, which have traditionally been regulated under Titles I and II

and VI of the act. Practically speaking, how does this sort of regulation work for a company like yours, which offers many different

services to many different customers in many different States, as

you do?

Mr. COHEN. Well, I don’t want to repeat what people have been

saying today, but I mean, I guess the question puts your finger on

some of the complexity that exists in the current structure of the

communications act. And in particular, we have a VoIP product

that, as all of you know, falls somewhere between Title I and Title

II and aspects of it can be regulated under both of those titles. I

think that where the communications act creates confusion and retards competitive entry, it needs to be reexamined. I think that,

generally speaking, on a philosophical level, we believe that lesser

regulation is better than more regulation, but we believe that regulation should not be used to pick winners or losers, to favor particular technologies, and that, generally speaking, like services

should be treated alike in the regulatory treatment.

I think our concern, having gone through several years of work

with members of this committee and others, just on the VoIP side,

just on the Voice over Internet Protocol side, when I think where

we were two or 3 years ago in terms of restructuring the regulatory

approach and all of the mistakes we would have made by the first

look at it, I get a little nervous when we talk about just a meat

ax approach on the video side where we say because it is an IP network and because we are using IP technology to deliver this service, no regulation is necessary. And so I think the dialog that we

have all had here today, frankly, the multiple invitations to continue the dialog and to make sure that we create a regulatory approach that fosters all of the objectives that we have talked about,

which I think, generally speaking, are shared by all of the members on the panel, will result in a restructuring of the 1996 act in

a way that will benefit consumers and benefit competition but preserve critical aspects of legacy regulation that are necessary to promote important social policies.

Mr. FERGUSON. I think you would find a lot of people on this

panel who would agree with that.

Thank you, Mr. Chairman.

Mr. UPTON. Mr. Gonzalez.

Mr. GONZALEZ. Thank you very much, Mr. Chairman.

I guess my first observation, and I apologize, I was absent during

some of the questioning that would be very relevant to what I want

to speak to, and the first assumption, I think, is always that I

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think individuals, the witnesses, and many of the individuals in

the audience go back to their offices later and I think they actually

say things like, ‘‘These guys really don’t understand the technology,

the members of this committee.’’ And then they say, ‘‘Gee, and we

know they don’t understand sound business practices.’’ Well, you

may be right, but it doesn’t mean that we are not going to regulate.

So be really careful what you ask for. The amount of specificity and

detail, you know, we hear it from that end and then you get it from

us, because we are trying to obligate you on all sorts of stuff that

may or may not lend itself when you get in there into the real practice. So I guess, you know, this is just, you know, beware. All of

us should beware of what we are trying to do. We are trying to accommodate changing technology, right? And we have traditional

companies, the wire line companies, that are moving into these

new technologies. We have got to figure out how that is going to

happen, how we will foster competition, and how we will be in a

position to actually enhance and promote this technology. And I

know I wasn’t here, I think, when Mr. Markey eluded to is SBC,

or anyone else similarly situated, more or less redlining or whatever.

And I guess my question to Ms. Champion, I just always assume

certain things, if I look at cable companies and I look at Time Warner in San Antonio in the 20th District. You know. They have

Voice over Internet Protocol available now. They have always had

their cable lines there. I know when SBC went into broadband,

well, you know, we had our phone line coming in. But what we are

talking about here is something a little different, and you are expanding and going into something different as well as other companies. Do you all look at markets and fear, as you start off, in order

to remain competitive and make a profit, which is still a legitimate

business goal in America today, do you look at a customer profile

and say, ‘‘This is where we are going to go,’’ get off the ground, and

then see where else we go? Because I really believe you have to do

that to survive, and then to expand, and maybe into certain communities that, at one time, maybe weren’t as attractive or such. I

mean, that is just kind of a common sense approach that I have

always felt about everything. I may be completely wrong, and I

would ask that you please address that particular view or concern

of mine.

Ms. CHAMPION. To survive, you must apply sound business practices. And that means that you have to start and build. The course

that we have ahead of us is a very challenging course to enter as

a new video provider, an IP-based solution for our customers. So

yes, we have to start and then build on our capabilities and create

momentum. We are competing against the incumbent providers,

and as much as they entered our business, they entered into the

voice business and are entering into the voice business without the

legacy constraints and the legacy rules of an incumbent voice provider. So the path forward for SBC is absolutely we want to serve

our customers. We have the most aggressive, 50 percent plus, than

anyone sitting, other than at this table, you know, that is talking

about reaching 18 million subscribers. So our goal is absolutely to

get there. And as technology evolves, we will have even more capabilities. But the key for us is to enter this marketplace, to make

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these investments, let these capabilities develop, and then let us

work through that process very quickly over the next several years

to determine, just as we did with DSL and just as has been done

with wireless technology, where both of them have grown rapidly

without mandates on building areas to serve customers and provide

customers with the solutions that they want. Customers, at the end

of the day, are what is going to dictate the sound business choices

that SBC makes relative to the investments of billions of dollars of

shareholders’ money. And so what we are looking for is the ability,

with a light touch entry, to enter this marketplace with a new solution and a powerful solution that allows us to serve customers.

Mr. GONZALEZ. Thank you.

The way I see the big question, and I think the way it has been

presented by committee staff to me during the briefings, is really

how we categorize different service and providers: voice, data,

video, what will they be subject to, what is still fair to carry on as

far as certain obligations in the way of contribution by existing

companies and so on. And if we could just rather stay focused on

those things. I think Mr. Gleason had something on retransmission, the problems we have with that. We know from the broadcasters on multi-cast, we know the problems with digital and highdefinition whether this will be carried or not carried. And I would

like that we would be able to address those things. But I would

rather that the industries themselves come to some sort of an

agreement so that it doesn’t require us to move forward or allow

any regulatory agency to take that particular issue over. But those

are my observations. But we do appreciate that you have come forward, that you provide us the insight regarding the change in technologies and trying to explain it to us. You know, believe it or not,

we are capable of understanding, when we listen. And also, there

is nothing wrong with bringing out the market dynamics and explaining those in detail sometimes to us.

But again, I would yield back at this time.

Thank you, Mr. Chairman.

Mr. UPTON. Mr. Pickering.

Mr. PICKERING. Mr. Chairman, thank you.

Let me really quickly give what I think is the context of the decisions before us as policymakers where there is consensus and then

what our objectives should be as we examine our policy decisions.

The context, the 1996 act has been fully implemented and the old

world is over. There is no longer long distance and local. As we see

the mergers and acquisitions, we are going to concentration. Probably in the next 2 years, where there are four Bells, I wouldn’t be

surprised if there are only two Bells: Bell East and Bell West.

There is a concentration occurring in wireless from seven national

probably down to three or four. Cable is experiencing the same

thing.

As we see the completion of the act and then we see the concentration of the industries, all sectors, and that is not necessarily

a negative thing, it leads us to convergence, which is one of the objectives of the 1996 act. What we are talking about today is the

quadruple play or the four play that you can offer data, video,

voice, wireless and then offer consumers that. That is, I think, a

good outcome. But it is very critical that as we go into concentraVerDate 11-MAY-2000 07:21 Sep 15, 2005 Jkt 000000 PO 00000 Frm 00072 Fmt 6633 Sfmt 6602 20748.TXT HCOM1 PsN: HCOM1
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tion and convergence that we still maintain the core objective of

the 1996 act. Even though the 1996 act now deserves reform or revision or modification, I think the objectives of the act should be

the same and that is to maximize competition, maximize choice, because when you do that, you maximize investment, capital investment into new applications, new technologies, and that core objective is what we should consider.

The other objective is that we are competitively neutral, that we

don’t favor Bells over cable, or cable over Bells, or wireless or other

new entrants, that we should try to find a way, even though I do

not think it is possible at this point to have regulatory parity, it

is possible to have fairness. And I have said this before, when you

are raising children, I have five boys, you treat your children at different stages differently, but you hope you treat them fairly, so at

the end of their youth, as a mature adult, you can release them

into deregulatory parity.

So that, I believe, is what our objective should be. There is a danger with concentration that we could have not a monopoly, but in

a lot of our markets, duopolies. I do not think that would be a good

outcome. I think that we want to see three to five competitors in

each segment or each sector of our markets. And so as we look at

our decisions, we should say, one, we are going to be competitively

neutral, we are going to maximize competition, and we want to try

to maintain three to five competitors in each of our markets.

So having said that, if those are objectives we can agree on as

a committee, then where are the consensus points that we have

reached? I think on IP-related services, the consensus points are

that IP-related services should primarily be regulated at the Federal level. I think that is a consensus. Now there are partnerships

with States and localities even under that, but in general, their primary jurisdiction should be Federal. I think that there is consensus

on the social obligations: USF, E911, law enforcement, CALEA, in

concept, not in detail. I think that there is consensus that we

should do intercarrier comp as we go forward.

Now where we have remaining questions or concerns are how do

we treat networks, incumbent networks, and how do we treat content, access to content. And how we choose those two answers will

determine if we reach our policy objectives. So in that context, I

would like to ask my questions.

Ms. Champion, you testified earlier that as you enter into video,

that you would like to see legacy regulations removed. Is that your

position?

Ms. CHAMPION. We are building a new network that is an entirely IP-based solution, so yes, the legacy rules, as a new entrant,

should not be applied.

Mr. PICKERING. Now is that the same position you take at FCC?

Ms. CHAMPION. Yes.

Mr. PICKERING. According to your proceeding to the FCC that is

now pending currently, your petition says a declaration that IP

platform services are not subject to Title II will not affect the applicability of Title II to legacy telecommunication services and networks. So before the FCC, you are saying it would in no way affect

existing regulation of legacy networks and services by either State

or Federal regulation. The other point that you make is that servVerDate 11-MAY-2000 07:21 Sep 15, 2005 Jkt 000000 PO 00000 Frm 00073 Fmt 6633 Sfmt 6602 20748.TXT HCOM1 PsN: HCOM1
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ices may remain unregulated but will have no effect on rights of

access to legacy non-IP-based services and certain facilities that

support them. And it goes on to basically say that as we have seen

the completion of the act and competition emerge, we have had

FCC action to deregulate the network, the broadband decision,

those beginnings of deregulating the network as competition

emerges but still maintaining minimal regulation of legacy networks. You are testifying differently than how I read your proceeding at the FCC and the outcome as far as maximizing competition.

For example, I would like to ask Mr. Cohen this question, if you

remove legacy regulations to networks, cable right now partners

with C-LEC’s to offer VoIP, is that correct?

Mr. COHEN. We do have to partner with C-LEC’s to offer VoIP,

because we need the connections to customers off of our basic network.

Mr. PICKERING. And so if C-LEC’s no longer can have access to

loops and transports, can you offer VoIP, the voice service today?

Mr. COHEN. I think we would need different partnerships, but we

would have to structure different business relationships with some

different players.

Mr. PICKERING. And what partner could now, that exists today,

if no partner can get access to loops and transports, how could you

offer VoIP? Where are you going to find this partner?

Mr. COHEN. We will find a partner at this table.

Mr. PICKERING. Oh, you are talking about here?

Mr. COHEN. Yeah.

Mr. PICKERING. But I am talking about if we were to do as SBC

testified and that we took away all access to the incumbent network, how would ISPs and cable offer voice today? I think the answer is you would not be able to.

Mr. COHEN. I think that we would not be able to in the way you

have raised the question.

Mr. PICKERING. Yeah.

Mr. COHEN. That is correct.

Mr. PICKERING. And then the question is——

Mr. COHEN. I am not sure I understand, but——

Mr. PICKERING. Now let us go back to the objective. We want to

maximize competition in voice. Now I am going to come back and

I am going to say what the Bells would probably want me to say

as they enter your market, and this gets back to fairness, not parity but fairness. If we want to maximize voice competition and your

quadruple play as you enter into their market, you need access to

their networks, is that not correct? Or your partners need access,

at least the minimal elements of the network, is that correct?

Mr. COHEN. I think that is correct.

Mr. PICKERING. Now on a preemption policy, you had testified

earlier, Mr. Cohen, that you would want them to go through the

same franchising, city by city. Is that correct?

Mr. COHEN. I think what I testified to was that under current

law, I believe that is what the requirement is. And I allowed that

as this committee looks at and evaluates the competitive marketplace and weighs all of the factors, one of the factors this committee should look at, I think it was in response to Mr. Doyle’s

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question, was the applicability of franchise requirements not only

to the Bells but also to incumbent cable providers.

Mr. PICKERING. But if we followed that policy, it would not be

consistent with a primary Federal jurisdiction, and it could actually

act to slow competition in video and the investment, the capital investment, and IP video. And so what I would like to do is work

with everyone to find those areas where we could preempt, remove

all basic barriers to entry so that we can speed competition and investment in both video while maintaining competitive choices in

voice and the ability of everyone to compete in both markets. There

will be different treatment but the same objective in both markets.

And so I would look forward to working with the chairman of

this committee to find additional points of consensus as we try to

maximize competition in all markets.

Thank you.

Mr. UPTON. Mr. Inslee.

Mr. INSLEE. Thank you. And I share Mr. Pickering’s goal that ultimately we will come out with a bill that leads to an industry that

is just as well behaved as the Pickering children. So we set the bar

kind of high here, but I hope we are going to get it.

I want to thank Mr. Mitchell for joining us and thank you all for

seeing the wisdom for using Microsoft products in this effort as

well. It is the hometown team, and I appreciate that.

Mr. Ingalls, I wanted to ask you how important are video services in your, sort of, business plan, and what do you really consider

the major hurdle to full implementation that we should be knowledgeable about?

Mr. INGALLS. Yeah, as far as our business plan goes, I think Mr.

Pickering eluded to it, whether you call it the triple play or the

quadruple play, the market is converging. It is about voice, video,

and data. And as we sit and look at the market evolving, we are

losing market share on our legacy business to providers of the triple play where we have partnered with DirecTV, as an example, to

offer a bundle. We believe to compete, our business model requires

us to deliver a high-end network, which we are building with FiOS,

that will really differentiate us from both what SBC and Comcast

have talked about today, because we really are providing a very

unique business and capability to our customers. The upstream capability is not to be diminished. And our basic offering, it is two

megabits upstream. There is a lot of capability there that will be

offered to the consumer, you know, and I alluded to it in my testimony talking about just the idea of sharing media with your

friends and family. So Mr. Pickering has five kids. My guess is at

some point in time he is going to share his album over the network

as opposed to on pictures. And to do that with two megabits upstream instead of, you know, something less, like 768, is a significantly different experience.

So building that network is critical, because we really made the

decision to go all of the way to the home, because we know speed

is really one of the key issues and requirements of our customers.

On the other side, what is the biggest roadblock to getting into

the business? I have said it several times today. The No. 1 issue

in trying to roll out to the market is negotiating hundreds, if not

thousands, of franchises across all of the local communities, and we

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really are talking about thousands. And so we have many people

deployed today who are sitting in rooms negotiating in these hundreds of cities. We only have five franchises. We have been at it

for over a year trying to get there. So that is a huge issue. And

as I stated earlier to Mr. Boucher’s statement, yes, we would like

to see a policy that does streamline that. I do understand the fairness issue, but I also understand the value of competition. And I

think competition is going to drive investment and investment, as

you all know, will drive jobs. We are going to hire 3,000 to 5,000

new people this year just to build the fiber network across our footprint.

Mr. INSLEE. Thank you.

Mr. Gleason, you mentioned something intriguing, and I wanted

to make sure I understood it, on retransmission rights. You said

something to the effect that you would like to see a right to bid

competitively for other, as I understand it, geographic areas for

syndication purposes. Could you elaborate on that on how you see

that as a solution?

Mr. GLEASON. Sure. As we have discussed, right now, if a broadcaster elects retransmission consent, we have to negotiate to come

to an agreement to carry that broadcast station that we want to

do. But at the same time, that broadcast station is given network

non-duplication rights, meaning that if they are an NBC affiliate,

for example, we have to negotiate to get retransmission consent for

that NBC affiliate within our given market. But we also can not

import an NBC affiliate from a neighboring DMA or over satellite,

for example. And we have got no problem with must-carry or a station that elects retransmission consent, but now when they want

to charge for that free, over-the-air signal, we are in a no negotiating type of position in that there is no competition for that that

establishes the price that that station may want to charge. So our

position is that we should be able to import an out-of-market station, or in essence, how we have put it with the FCC, give us the

right to shop for a better deal, and we think that that will more

clearly establish what the value that station places on their retransmission consent price.

Mr. INSLEE. And from the broadcasters, how would you respond

to their criticism how that affects their locality of the broadcast

content?

Mr. GLEASON. Well, I can say I think localism is extremely important, and we want to carry the local broadcast stations, and that

is why we have must-carry. And that is why it is free, over-the-air

broadcast, and the station can elect must-carry and the local programming will be on the cable system.

Mr. INSLEE. Okay.

Thank you.

Mr. UPTON. Ms. Cubin.

Ms. CUBIN. Thank you, Mr. Chairman.

You know, I think most everybody up here has said that we have

some objectives in what we are doing, and you all know that, too.

And that is maximize competition, maximize choice on a competitively neutral platform. But I would like to add one other objective,

and that is that rural America gets served. And you know, that is

going to be the basis for every decision that I make. And I say that

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I am a little bit cynical about a lot of things that I hear, although

I know that they are true, but they don’t necessarily apply to Wyoming. For example, when I was traveling around the State a few

weeks ago, you know, we were driving, and for 50 minutes, we

didn’t even have cell phone service in Wyoming. So I feel like we

are being left behind in a lot of the promises that are being made.

And to me, that is just not acceptable. So I just want you to know

that every decision I make will be based on whether rural America

is being served and really being served in a true way.

So my first question will be first for Mr. Schmidt and then response by Mr. Gleason.

With the prospect of so many new companies providing video to

consumers, what mechanisms are in place to ensure that smaller

co-ops, like those in Wyoming, will have access to programming?

And do you think that they will just lose out in negotiations and

that we will see a big increase in exclusive agreements like the

NFL has with DirecTV?

Mr. SCHMIDT. Well, there is a major issue, a major problem for

broadcasting that has come up indirectly today, and that is the

problem that we are required by law to be open, unencrypted, and

available to everyone. So unless we are carried on a secondary

basis through a subscriber-based system, we get none of those revenues. You may have noticed this weekend that there was a major

development on the sports front where ESPN obtained Monday

Night Football. ESPN is going to pay twice as much as ABC could

pay and probably get 60 percent of the audience. That basic calculus is what is playing out through the video marketplace everywhere: high-quality programming, high-value programming is migrating away from the local broadcast system and on to the subscription services. We can share, in a small way, through the retransmission consent mechanism, where when people are charging

for our product we can get some percentage of what they charge.

The problem I have with the bidding system that Mr. Gleason is

proposing is that he is going to be pitting Cheyenne against Denver, and I don’t think that battle is a fair battle. Denver is going

to win it. The cities are going to win over the rural areas. They

may not win it directly, but eventually, the Denver stations will be

able to pay more.

Ms. CUBIN. Absolutely.

Mr. SCHMIDT. The networks will decide to go through the Denver

stations, because it is more efficient, and we will lose the localism

at the edges of the service in exactly the areas you are talking

about.

Mr. GLEASON. And I have said repeatedly to protect localism,

elect must-carry and then that way that local station is guaranteed

to be on that network. You know. I would argue on the sports

rights fees, that is the whole heart of the rest of our argument is

that we have a problem, the smaller cable operators, like many

that would serve in your area in Wyoming, if ESPN is going to pay

double what ABC was paying, do our customers really care that it

is not on channel 7 and it is now on channel 17? I don’t think they

do. And that is why we believe we need to have the ability to tier

certain types of programming on cable so that, again, the four

major media conglomerates don’t control the entire dial. It is not

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all shoved onto expanded basic. We have got to come up with the

ability to sell consumers the types of services that they want to get,

and I think if that ability were there, you may not have seen that

recent development.

Mr. SCHMIDT. I don’t disagree that your problem is that you are

paying too much for cable programming, but you are paying too little for broadcast programming, for free, over-the-air broadcasting.

Ms. CUBIN. And this subject of franchising has been discussed.

I just want to go on a little bit more about it. I am a direct person.

I need really direct answers.

Mr. Cohen, from what I have heard today, the way I understand

it is that you want to be able to offer Voice over IP, but you don’t

want phone companies to have IP video legislation. You feel, once

again, if I understand this correctly, that there is enough video

competition with satellite and that is one of the reasons for that.

Playing devil’s advocate, I would suggest that wireless competition

exists for phone companies, and the problem, as I see it, is that

franchise areas are not necessarily geographically in the same

place as phone service areas. So why is it we shouldn’t fix this in

an IP title in the communications act? Because it seems to me that

that would help increase competition and therefore the number and

quality of services in rural America.

Mr. COHEN. With all due respect, I don’t agree with the characterization of what I have said today.

Ms. CUBIN. Okay. Well, that is why I am asking.

Mr. COHEN. I think on the voice side, I have endorsed the consensus that I think we have been working toward, and by we I

mean the entire telecommunications industry with members of this

committee, over the past two or 3 years, and I think we are almost

to the finish line there and think that the appropriate balances

have been struck in those compromises. I absolutely have repeatedly said that we welcome the competition from the Bells in the

video marketplace. I think it makes our product better, and I think

it improves the experience for customers. And I have not and will

not defend the current franchising status quo. As the largest cable

company in America, I will guarantee you that we have experienced more of the pain and suffering that you experience through

the local franchising process than anyone who you have heard from

today.

And what I have said, however, is that before you go in and simply say, ‘‘Let us eliminate franchising,’’ let us recognize some of the

important public policies that were designed to be protected by the

franchising process, issues of localism, issues of non-discrimination,

issues that we have talked about here, issues of franchising fees

and local revenues, and pegged channels and public access television. I mean, I think, by the way, collectively, and I know that

there is a huge amount of disagreement about this, that as you restructure the obligations that are imposed on competitors in the

1996 act, that we make sure, No. 1, that we are truly fostering

competition; No. 2, that even light regulation is not picking winners or losers; No. 3, that we are stimulating facilities-based competition, which is what all of us endorse and believe in; No. 4, that

we treat like services alike; and No. 5, that we make sure that the

ultimate regulatory scheme protects important legacy social policies

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and regulations that I think everyone would agree are important

to protect. And I think that is the tough task of this committee,

and I think the dialog today has helped to expose where some of

the friction points are going to be as you go through that analysis.

Ms. CUBIN. Thank you, Mr. Chairman.

Mr. UPTON. Mr. Radanovich.

Mr. RADANOVICH. Thank you, Mr. Chairman.

Most of the questions, I think, that I have had have been answered, but I would like to pose a couple of questions, too.

Mr. Cohen, I appreciated your comments about what ought to be

the objectives of any telecom rewrite, and I just want to do my best

to make sure that there is regulatory parity in what we do. And

with that in mind, it seems to me the toughest part of the rewrite

will be on the franchise issue. And there has been some discussion

amongst Verizon and SBC about the willingness to look at things

like national franchising or State franchising. I would be interested

to know what your thoughts are on that, whether that is, you

know, a common meeting ground area.

Mr. COHEN. Yeah, I think that is going to be one of the questions

we all have to work our way through. I think everyone has to remember that the local franchising requirements in Title VI didn’t

just appear in Title VI because somebody wanted to empower local

governments to extort from cable companies. And that was not the

public policy objective that was present. And I was not around

then, but I think what happened was that there were a series of

important issues around localism and local interests and that the

Congress determined that the best way to protect those interests

was by having local franchising requirements and let the local governments protect those interests.

I am a little concerned when we talk about Federal franchising,

because I wonder who then is going to be charged with protecting

whatever localism and local interests that we might all agree deserve to be protected. I mean, is this committee going to sit and

make franchise fee determinations? Is the FCC going to do that?

When you move to the State level, you are getting closer to the

local issues, and there may be a better opportunity to do that. By

the same token, I mean, I want to say that I hear from Verizon

and SBC that the way in which they provide service doesn’t fit

neatly within the way in which local franchise areas are drawn,

and I hear and share their pain with the administrative burden

and inconvenience of local franchising regulations.

So I think it is those types of issues that we have to discuss to

be able to find the accommodation where we have got a model that

works for their business model that provides fair, and I will adopt

Congressman Pickering’s word, a fair sharing of regulatory burdens

on all competitors in the marketplace, but by the same token, it

provides a structure where important issues of localism can be protected going forward.

Mr. RADANOVICH. Right. Right. All right. Thank you.

You mentioned something earlier, too, about your problem in Los

Angeles with the 23 stations on the must-carry provision. How

would you solve that? I mean, is there a way to solve that problem?

Mr. COHEN. Well, I think Mr. Gleason’s testimony and comments

are very interesting on the must-carry issue. I didn’t really come

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here today prepared to discuss it in full. I mean, when you have

23 must-carry stations in a single market, and obviously I picked

the market in the country with the largest number of must-carry

stations.

Mr. RADANOVICH. Right. Right.

Mr. COHEN. I think I make the point really to drive home the

tremendous problems and issues that would be put in place by having multi-casting must-carry, because you are taking those 23

must-carry stations and giving them three, four, or five extra channels, and all of a sudden you have now got 100 must-carry stations

in a single market. I mean, I think if you are going to address, in

a particular market, the number of must-carry stations, you could

probably address that issue, which really doesn’t go to Mr. Gleason’s issues, by tweaking the definition of what you have to do in

order to be a must-carry station, which might reduce the number

of stations that have those rights in a regulatory environment.

Mr. SCHMIDT. I might point out, Mr. Radanovich——

Mr. RADANOVICH. Yes. Sure.

Mr. SCHMIDT. [continuing] that we are talking bandwidth here.

You can divide it up into tiny little slices, but really the bandwidth

load is no greater, because the station is six megahertz digital than

it is six megahertz analog.

Mr. RADANOVICH. Got it. Thank you. Thank you.

Ms. Champion, I want to ask you, on the issues, you have been

grilled a lot, I think, on SBC’s willingness to service rural areas as

part of any discussion on a telecom rewrite. And I am curious to

know a little bit more about your thoughts on achieving that. It

has got to be part of our concerns on this part of the table to make

sure that people are served, both that they are served but also

served cost-effectively. Give me your thoughts on that, on rural delivery, but also on your willingness to abide by indecency standards

that are imposed upon the cable producers.

Ms. CHAMPION. Yes. Regarding the rule question, our position is

basically this. We have to enter the marketplace and begin to expand our capabilities. That means investments will be made into

new technologies. And as this IPTV platform becomes available in

the marketplace, there is absolutely, as we see in the technological

advances recently, there will be solutions that I believe will help

us solve some of the density issues around many of the rural areas.

It is a physical situation today. And so as technologies evolve, we

read every day about advancements with wireless technology, Ymax, et cetera, I believe there is a combination of technologies that

will let us achieve our goal to serving our customers across our

footprint, and we will adopt those technologies to provide customers solutions. The day there are physical and economic situations that really——

Mr. RADANOVICH. Maybe I can ask you, would you be willing to

abide by any standard that is set up in a telecom rewrite to make

sure that those areas are provided?

Ms. CHAMPION. Well, my preference is that you would have a

light touch approach to this. Just as with wireless and with DSL,

we have been able to make investments and expand our footprint.

So I wouldn’t be looking for mandates that would specify that. I

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would be looking for the ability for us to deploy technologies and

to make investments——

Mr. RADANOVICH. Okay.

Ms. CHAMPION. [continuing] based on sound business practices to

serve customers across the footprint.

Mr. RADANOVICH. How about the indecency deal?

Ms. CHAMPION. Well, we absolutely will abide by the rules of the

FCC and other Congress issues related to managing the content

that is available to subscribers.

Mr. RADANOVICH. Thank you.

Thank you, Mr. Chairman.

Mr. UPTON. Ms. Blackburn.

Ms. BLACKBURN. Thank you, Mr. Chairman.

I want to thank all of you for your patience and for being here

today. I know it has been a long hearing, and as we got the schedule of who was going to be here today, I thought, ‘‘My heavens,

seven people on a panel.’’ You know. But it is such a great conversation, and it is helpful to me, and I am sure to many of my

colleagues, to listen to the exchange between you all and your

thoughts on how you approach this. I am out of Tennessee, and I

represent a lot of the content producers, whether it be music,

whether it be television, whether it be film, and of course, there is

tremendous interest in what is going to happen with this bill. And

today, we have heard a lot about infrastructure and we have heard

about finances and franchises and taxation and competition and

regulation and what it means to your business.

But I want to go back to something. Mr. Ingalls had touched on

it, and Mr. Cohen had touched on it. And this is the compliance

cost. As you look at dealing with the local franchises is you look

at the Federal regulation. And Mr. Ingalls, and then Mr. Cohen, if

you will each answer, Mr. Ingalls, for the cost to Verizon to comply

with the local franchising authority, and then Mr. Cohen, if you

would address that for Comcast. What is it costing you as you go

in and you negotiate these local franchise agreements and the

amount of time that you are spending on that? What is the cost of

compliance for that, if you will address that?

Mr. INGALLS. Well, I think the biggest cost will be the franchise

fee, which we fully understand we will pay, and it ranges, you

know, 2 to 5 percent, depending on the jurisdiction. In terms of resources, it is cost a fair amount of resources, so I can’t put the

budget on that, but we have dozens of people deployed across the

country negotiating with local jurisdictions. So the real cost is franchise fees. And then when you look at building the network that

we are building, we don’t really feel there is a cost with the mustcarry issues or the peg channels, because we are building a network. And that is one of the points that is really important here

is I think this isn’t just about IP. This is really about the network,

and it is voice, video, and data. And so we are building a network

that has the capacity to accommodate the local programming requirements. So those are not big costs. It really is the franchise fee.

Ms. BLACKBURN. Okay.

Mr. Cohen?

Mr. COHEN. I am sorry. I was coughing before. I didn’t want to

cough into the microphone.

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I think I would certainly agree with Mr. Ingalls. The largest cost

is the franchise fee. We probably have several hundred people who

are engaged in franchising. Our rough franchise number, you will

all have a heart attack when you hear this, we have over 5,000

franchises and average length is about 10 years, which means that

every year, about 10 percent of them are being re-negotiated. So

that means we are doing a new franchise agreement, basically,

more than once a day on an annual basis somewhere in the country. And I might be able to give you some more specific numbers,

which I would be happy to forward on, if we go back and do a little

analysis of them.

Ms. BLACKBURN. That would be great. I think it would be helpful

to us, you know, to look at not only the dollar costs of the franchise

fee but the human capital cost and the agreements and the maintenance of those agreements.

Mr. COHEN. I am sure we can put together some numbers, which

we will get to the committee.

Ms. BLACKBURN. That would be helpful. Thank you.

Quickly to Ms. Champion and Mr. Ingalls. Competition and looking at content. My content providers are very concerned about what

they see as the peer-to-peer file swapping, and——

Mr. INGALLS. I am sorry. I couldn’t hear you.

Ms. BLACKBURN. The peer-to-peer file swapping.

Mr. INGALLS. Oh, okay.

Ms. BLACKBURN. And we are concerned about the Internet traffic

and peer-to-peer file swapping, the copyright infringements that

are there to our songwriters to our content producers. So in light

of the discussion of the file swapping and the copyright infringements, it seems to many of my content producers that facilitating

or enabling Video-over IP might further contribute to the significant online piracy problem that they are addressing every single

day. And in your opinion, do you think that this committee should

explore mechanisms for ensuring that Video-over IP does not exacerbate this problem?

Ms. CHAMPION. I believe this platform has the ability to really

simplify and solve some of those issues and being able to introduce

for those various content providers a way to bring their content to

users and then users to be able to legally purchase, providing them

choices and options that maybe didn’t exist before, even on a payper-use or on a pay-per-selection process. You know, part of this

process here is about building a very robust back-office system and

capabilities that will help fundamentally support various content

owners to reach more customers and to monetize that in effective

ways. So I believe there are some great capability here to bring

growth and management of their content.

Ms. BLACKBURN. And you all are taking steps?

Ms. CHAMPION. Our platform is being built. You know, there is

a very significant investment, $4 billion. A big chunk of that is

about our back offices and being able to support use and sensitive

type services for digital consumption. And that is the nature of

what this platform is about. It really unleashes a whole capability

that we haven’t even gotten to today about fundamentally allowing

new consumption legally whereas options today may not be as easily and readily available to consumers. So it is about creating a

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whole new platform for digital content consumption, which can

really help various providers.

Mr. INGALLS. If I could just add on, you know, as Ms. Champion

said, the platform really is the key enabler, and I think the back

office is a key component. But we are, today, negotiating with content providers. It is one of the key questions as we have attempted

to close those negotiations, and we have committed to stand behind

the digital rights management and protection for the content providers. And it really is the systems. We are in a new generation

now, and so the capabilities that we are building into this multibillion dollar investment do just as Ms. Champion said provide protection and hopefully put in the hands of the content providers a

new revenue source through, whether it be subscription or pay-peruse.

Ms. BLACKBURN. Thank you. Thank you.

Mr. UPTON. Thank you.

Mr. Stearns.

Mr. STEARNS. Thank you, Mr. Chairman. I didn’t do my opening

statement. By unanimous consent, I would just like to put it as

part of the record.

Mr. UPTON. All members were allowed to do that.

Mr. STEARNS. Okay. You know, I think, as many of us are aware,

and I think as Mr. Boucher and I both adopt a bill sort of

classifying this new IP-enabled services with a new definition, ‘‘advanced Internet communication services.’’ And so we are trying to

really break out of the inflexibility of the regulatory titles, because

we don’t have anything in Title I or II or even Title VI of the

telecom act, which really describes what we are trying to do. So we

are attempting to promote a regulatory certainty, which encourages

investment in these areas and so to get the flexibility. I think there

are two questions I have. Mr. Mitchell will search in his testimony

that where ‘‘subject to regulation, IP services should be exclusively

within Federal jurisdiction.’’ I guess the question for all of the witnesses, does everybody agree with that or disagree? And maybe if

you disagree with it, you might comment, and I will assume everybody else agrees with it.

Okay. The second question I have is, Mr. Cohen, you indicated

today that you do not support different rules for IP video services.

But what about a two-way interactive service, regardless of how

they are provided, that, let us say, arguably today, perhaps could

not be defined as cable services. So that is the question for you.

Mr. COHEN. Well, I mean, I think that was a subcomment of my

view, my general view that like services should be treated alike.

And I would note that in our On Demand platform today, we are

providing a robust, two-way, interactive service, which is not unlike

the two-way, interactive service that SBC and Verizon will be providing over their networks. The comparability is much closer than

the lack of comparability.

Mr. STEARNS. So you would define that as a typical cable service

then?

Mr. COHEN. Whether it is a typical cable service, it is enabled in

90 percent of the households across the Comcast footprint. I think

over a relatively short period of time, it will be comparably available across all cable company footprints in the country.

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Mr. STEARNS. So you don’t support different rules then?

Mr. COHEN. I think the answer is that we don’t support different

regulatory treatment for like services.

Mr. STEARNS. Okay. And this is a follow-up with one of the questions, I think, dealing with indecency. And this is for Mr. Perry.

How will your technology enable parents to better control indecent

material on television?

Mr. PERRY. Well, the No. 1 thing that our technology does is it

makes sure the right content gets to the right viewers, so we preserve the local broadcaster’s copyright. In doing that, we are opening up broadcasting to a PC. And PCs can be used then to set filters. In fact, of our 500,000 users of TitanTV today, we have many

users that have customized their interactive program guide to only

show those channels that they wish their family to see. So the fact

that we are broadcasting to a PC opens up a whole host of possibilities for controlling indecency.

Mr. STEARNS. I have got another minute, Mr. Chairman, before,

and I think we can still make the vote.

I think, Mr. Cohen, you have answered this, but I wasn’t here

when you answered it. You assert that additional competition

would be presented by the Bells ‘‘warrants a comprehensive reexamination of existing regulatory framework adopted when the

video marketplace was far less competitive.’’ And I think, did you

point out the rules then that Congress should change for this whole

video industry?

Mr. COHEN. We do endorse the work of this committee. We think

that the competitive environment has changed since 1996 and it is

absolutely appropriate to review the rules and regulations that

apply. And I have given a couple of specific areas, including VoIP

and the local franchising area and some of the other regulatory

parity that may exist in other titles of the existing communications

act but is not in Title VI today.

Mr. STEARNS. Thank you.

Mr. UPTON. As much as I would like to give a lengthy closing

statement, looking at the clock, and we have a couple of minutes

on a series of votes. All of us appreciate your testimony today and

look forward to working with you in the months ahead. Thank you.

[Whereupon, at 1:11 p.m., the subcommittee was adjourned.]

[Additional material submitted for the record follows:]

RESPONSE FOR THE RECORD BY JAMES M. GLEASON, PRESIDENT, NEWWAVE

COMMUNICATIONS, AND CHAIRMAN, AMERICAN CABLE ASSOCIATION

Question: Do you believe that the concept of ‘‘net neutrality,’’ as we have seen in

the area of IP-voice services, will eventually become relevant when it comes to the

field of IP-Video? In other words, does anyone foresee a time when network operators will have the opportunity to block the services of other video providers? And

if so, how do you think such a problem should be remedied? By some sort of preemptive legislation or a sort of post-hoc reaction by the FCC to each case?

Answer: Net neutrality is less relevant in the video world because of the difference of the product offering. A voice product delivered by any provider is the

same product no matter what network it is offered through. In the video world it

is harder to create a product that would be ‘‘net neutral.’’ There are five major programming conglomerates that control of 80% or more of the available television

video content in America. These conglomerates will dictate what the video product

will look like whether it is carried on telephone, satellite or traditional cable backbone, and no matter the retail provider. Congress should address the issue of video

programming tying, bundling and control of video content by the five major media

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conglomerates, including retransmission consent, if Congress’ intent is ensuring continued growth in the video IP sector for the American public. Cable and phone providers will provide access to their networks if Congress can give them back control

over their bandwidth. If Congress goes down a path of restriction/access on a networks bandwidth, then Congress will be picking winners and losers rather than allowing the marketplace to function as it does best.

The key from a legislative perspective is to treat like services alike. Rather than

focusing on specific issues such as, ‘‘net neutrality’’ and bandwidth restrictive measures, Congress should not create blanket laws in regard to IP-enabled services.

Rather, Congress should address each product category separately and create common laws within the specific product category across all platforms of providers. This

would ensure a ‘‘level playing field’’ for all providers and network owners.

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