[House Hearing, 106 Congress]
[From the U.S. Government Publishing Office]



 
                      DEPLOYMENT OF DATA SERVICES

=======================================================================

                                HEARING

                               before the

                  SUBCOMMITTEE ON TELECOMMUNICATIONS,
                     TRADE, AND CONSUMER PROTECTION

                                 of the

                         COMMITTEE ON COMMERCE
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED SIXTH CONGRESS

                             FIRST SESSION

                               __________

                             JUNE 24, 1999

                               __________

                           Serial No. 106-50

                               __________

            Printed for the use of the Committee on Commerce

                    ------------------------------  



                    U.S. GOVERNMENT PRINTING OFFICE
58-505 CC                   WASHINGTON : 1999



                         COMMITTEE ON COMMERCE

                     TOM BLILEY, Virginia, Chairman

W.J. ``BILLY'' TAUZIN, Louisiana     JOHN D. DINGELL, Michigan
MICHAEL G. OXLEY, Ohio               HENRY A. WAXMAN, California
MICHAEL BILIRAKIS, Florida           EDWARD J. MARKEY, Massachusetts
JOE BARTON, Texas                    RALPH M. HALL, Texas
FRED UPTON, Michigan                 RICK BOUCHER, Virginia
CLIFF STEARNS, Florida               EDOLPHUS TOWNS, New York
PAUL E. GILLMOR, Ohio                FRANK PALLONE, Jr., New Jersey
  Vice Chairman                      SHERROD BROWN, Ohio
JAMES C. GREENWOOD, Pennsylvania     BART GORDON, Tennessee
CHRISTOPHER COX, California          PETER DEUTSCH, Florida
NATHAN DEAL, Georgia                 BOBBY L. RUSH, Illinois
STEVE LARGENT, Oklahoma              ANNA G. ESHOO, California
RICHARD BURR, North Carolina         RON KLINK, Pennsylvania
BRIAN P. BILBRAY, California         BART STUPAK, Michigan
ED WHITFIELD, Kentucky               ELIOT L. ENGEL, New York
GREG GANSKE, Iowa                    THOMAS C. SAWYER, Ohio
CHARLIE NORWOOD, Georgia             ALBERT R. WYNN, Maryland
TOM A. COBURN, Oklahoma              GENE GREEN, Texas
RICK LAZIO, New York                 KAREN McCARTHY, Missouri
BARBARA CUBIN, Wyoming               TED STRICKLAND, Ohio
JAMES E. ROGAN, California           DIANA DeGETTE, Colorado
JOHN SHIMKUS, Illinois               THOMAS M. BARRETT, Wisconsin
HEATHER WILSON, New Mexico           BILL LUTHER, Minnesota
JOHN B. SHADEGG, Arizona             LOIS CAPPS, California
CHARLES W. ``CHIP'' PICKERING, 
Mississippi
VITO FOSSELLA, New York
ROY BLUNT, Missouri
ED BRYANT, Tennessee
ROBERT L. EHRLICH, Jr., Maryland

                   James E. Derderian, Chief of Staff

                   James D. Barnette, General Counsel

      Reid P.F. Stuntz, Minority Staff Director and Chief Counsel

                                 ______

   Subcommittee on Telecommunications, Trade, and Consumer Protection

               W.J. ``BILLY'' TAUZIN, Louisiana, Chairman

MICHAEL G. OXLEY, Ohio,              EDWARD J. MARKEY, Massachusetts
  Vice Chairman                      RICK BOUCHER, Virginia
CLIFF STEARNS, Florida               BART GORDON, Tennessee
PAUL E. GILLMOR, Ohio                BOBBY L. RUSH, Illinois
CHRISTOPHER COX, California          ANNA G. ESHOO, California
NATHAN DEAL, Georgia                 ELIOT L. ENGEL, New York
STEVE LARGENT, Oklahoma              ALBERT R. WYNN, Maryland
BARBARA CUBIN, Wyoming               BILL LUTHER, Minnesota
JAMES E. ROGAN, California           RON KLINK, Pennsylvania
JOHN SHIMKUS, Illinois               THOMAS C. SAWYER, Ohio
HEATHER WILSON, New Mexico           GENE GREEN, Texas
CHARLES W. ``CHIP'' PICKERING,       KAREN McCARTHY, Missouri
Mississippi                          JOHN D. DINGELL, Michigan,
VITO FOSSELLA, New York                (Ex Officio)
ROY BLUNT, Missouri
ROBERT L. EHRLICH, Jr., Maryland
TOM BLILEY, Virginia,
  (Ex Officio)

                                  (ii)


                            C O N T E N T S

                               __________
                                                                   Page

Testimony of:
    Apfelbaum, Marc J., Senior Vice President and General 
      Counsel, Time Warner Cable.................................    55
    Daggatt, Russell, Vice Chairman, Teledesic...................    36
    Falcao, Glenn, President, Internet and Service Provider 
      Networks, Nortel Networks..................................    32
    Gray, Stephen C., President and COO, McLeodUSA, Incorporated.    82
    Kurtze, Arthur, Senior Vice President, Onesprint, Strategic 
      Development, Sprint........................................    72
    Lenox, Howard A., Jr., Director, Federal Relations and 
      Technology Issues, SBC Telecommunications..................    15
    Netchvolodoff, Alexander V., Vice President, Public Policy, 
      Cox Enterprises............................................    57
    Pickle, Kirby G., President and COO, Teligent................    41
    Scott, David E., President and CEO, Birch Telecom, Inc.......    76
    Tauke, Hon. Tom, Senior Vice President, Bell Atlantic........    60
    Vitale, Mary Beth, President and COO, RMI.NET................    87
    Vradenburg, George, Senior Vice President, Global and 
      Strategic Policy, AOL......................................    50
Material submitted for the record by:
    Kurtze, Arthur, Senior Vice President, Onesprint, Strategic 
      Development, Sprint, letter dated August 31, 1999, 
      enclosing response for the record..........................   126

                                 (iii)

  


                      DEPLOYMENT OF DATA SERVICES

                              ----------                              


                        Thursday, June 24, 1999

              House of Representatives,    
                         Committee on Commerce,    
                    Subcommittee on Telecommunications,    
                            Trade, and Consumer Protection,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 10:13 a.m., in 
room 2123, Rayburn House Office Building, Hon. W.J. ``Billy'' 
Tauzin (chairman) presiding.
    Members Present: Representatives Tauzin, Stearns, Gillmor, 
Deal, Largent, Cubin, Rogan, Shimkus, Wilson, Pickering, 
Markey, Boucher, Gordon, Rush, Eshoo, Engel, Luther, Sawyer, 
Green, McCarthy, and Dingell (ex officio).
    Staff present: Justin Lilley, majority counsel; Cliff 
Riccio, legislative clerk, and Andy Levin, minority counsel.
    Mr. Tauzin. The committee will please come to order. We 
will keep trying. The committee will please come to order.
    I will ask that all of our guests take seats and witnesses 
please take your positions at the table. Thank you very much.
    The purpose of today's hearing is specifically to provide 
this subcommittee with a comprehensive overview of what I 
believe is the next generation of telecommunications. The 
United of America is rapidly approaching the close of the 20th 
century with its position as the world leader in the provision 
of telecommunication services to its citizens firmly 
established. Congress has laid the groundwork to ensure that, 
as we move into the 21st century, Americans will have a mature, 
dynamic, competitive telephone, cable, broadcast industry both 
wired and unwired to provide a full range of affordable, local 
long-distance video and over-the-air services.
    The provisions of the Telecommunications Act of 1996 and 
the regulations attendant thereto, while certainly not perfect, 
have been the safe harbor in which each of these services has 
been securely docked now for the last 4 years. But there is a 
new kid on the block--a strapping, unruly teenager--now that is 
barely recognized, in its infancy, and was only vaguely 
referred to when Congress and America's great 
telecommunications companies signed the uneasy truce of 1996.
    It is called high-speed, broadband data. And it can travel 
from house to house and business to business around the globe 
at light speed through a medium called the Internet. It is 
swallowing up all of the great telecommunications services upon 
which we Americans have grown dependent and come to expect and 
it is spitting them out again in great and wonderful 
combinations the likes of which the world has never seen nor 
imagined. Because in 1996 it was just an infant, vaguely 
acknowledged, ill-defined as some sort of anticipated, quote, 
unquote ``advanced'' telecommunications service, it was left 
alone to define itself and develop while we policymakers 
sweated and groaned belatedly crafting policies and rules for 
the last generation of telecommunications. And now every 
telecommunications industry in America--ILECs, CLECs, IOLECs, 
satellite, wireless, phone, fixed wireless, electric, cable, 
and broadcast, probably some we haven't heard of yet--is 
gearing up to use and deploy high-speed broadband data 
services.
    Over the next several years, it can be available to every 
American home and business that wants to be connected to the 
next century's service. It isn't an exaggeration to say that 
this technology has begun and will continue to change the way 
we live, the way we do business, not only in this United 
States, but in every country on the planet. Its positive 
effects on our economy is truly staggering.
    According to the U.S. Department of Commerce report 
recently issued called The Emerging Digital Economy II, 
information technology industry is driving the U.S. economic 
growth and although it comprised only 8 percent of the Nation's 
total economic output from 1995 to 1998, it is responsible now 
for more than one-third of U.S. economic growth. The report 
concludes that by the year 2006, almost half of U.S. workers 
will be employed in the information technology industry or in a 
field that heavily relies on such technology. Here in the 
northern Virginia area, I am told, 4,500 high-tech industries 
now employ more people--more people--than the Federal 
Government, believe it or not.
    We have invited a number of companies to come before us 
today to present an overview of the broadband data pipes that 
are developing or preparing to deploy, as well as the companies 
which are creating this remarkable applications and services 
that are and will be delivered over these broadband pipes.
    To the extent that any of the witnesses today were led to 
believe that this hearing is an open invitation to attack other 
companies for perceived sins or perceived commissions or 
omissions or will be an opportunity to lobby this committee as 
to your position on particular legislation now before the 
Congress or possibly before the Congress or to your company's 
opposition to any other company's position on any legislation, 
let me set the record straight at the outset. There are a 
number of policy issues attendant to this next generation of 
telecommunications, including matters of regulations versus 
deregulation, taxation, open access, privacy, competition, and 
many, many more. Let me assure the members that those issues 
will be addressed in upcoming hearings, specifically on 
legislation that I, Mr. Dingell, and others will shortly 
introduce and others have already introduced.
    However, it is not our intention in calling this hearing to 
attempt to have the committee explore or debate these matters 
today. It is specifically our intention today that this be an 
in-depth exposure for members on the various types of broadband 
pipes and broadband applications. And I am, therefore, going to 
ask the witnesses to do something very important. I have read 
your opening statements. We reviewed them last night. Put them 
away. If any of you want to read those statements to us, I will 
bang the gavel down and we will move to the next witness. If 
any of you want to engage in attacks on each other or on your 
business practices or perceived sins or omissions or 
commissions, I will bang the gavel and we will move to the next 
witness.
    This is an educational hearing. The purpose of it is to 
give you a chance to do something we sorely need and that is to 
teach us about the miracle of broadband: what it is; what it 
does; what it can do; and why it is important to get it out 
there. And how are you getting it out there and how are you 
not? And to teach us why it is that we have to, 1 day, consider 
making some policy in this area for the good of the country and 
for the planet.
    Therefore, put those written statements away. Don't lobby 
us today. We are not interested in that. And I would ask 
members: Do your part, too. This is not a day in which you ask 
witnesses to attack other witnesses. This is a day to learn. 
This is a day for you to teach us.
    We have a large panel before us. I am going to suggest 
several things. One: I don't do two panels when we do hearings. 
I have a very specific reason for that. I have been here a long 
time now and I have been through a lot of hearings with two 
panels. And whenever I chair a hearing with two panels, it is 
me and the second panel alone.
    We do one panel. That way you can hear from us and we can 
all here from you and then we can have a good dialog together.
    Second, keep your conversation with us conversational. Put 
those written statements away. Talk to us about what it is you 
are doing and what you can teach us about broadband.
    And, third, if any of you need a break, just give me a 
little signal and we will call a 5 or 10 minute break. This 
could be a long process.
    Let me thank you for coming. I deeply appreciate the time 
you are going to spend with us and the fact that we are all 
going to go to school today. I thank you and I yield now to my 
friend, the gentleman from Massachusetts, Mr. Markey for an 
opening statement.
    Mr. Markey. Thank you, Mr. Tauzin, very much. And I thank 
you for calling this great hearing today on the subject of the 
deployment of data services.
    The subject of data services is not a new one to this 
subcommittee. This subcommittee has a long history with the 
development of competitive data services and I think a brief 
overview of that history is beneficial. Let us just take a 
short walk down memory lane.
    Some of the most important data service hearings were held 
immediately after the break-up of AT&T in 1984. The newly 
divested Baby Bells were clamoring to be relieved of the line 
of business restrictions of the MFJ which broke up Ma Bell. The 
most hotly contested issue at the time was the information 
service restriction with fledgling information service 
providers and newspaper publishers battling with the Bells in 
hearing after hearing.
    We had long debates in the subcommittee on that subject. We 
were told back then if we only let the Bell companies into 
information services, then they could bring fiber to the home. 
If they could do information services, then they could reach 
rural areas with dis-

tant learning or do virtual surgery through telemedicine 
applications. Sound familiar? Fiber to the home became a 
bumper-sticker slogan to promote the Baby Bell data service 
agenda.
    And who could forget Monsieur Minitel in 1987? We explored 
Minitel data service that was being deployed in France with 
Monsieur Minitel who ran it testifying before our committee. We 
even projected the service up on the hearing room wall right 
over here so that we could right to France and plug right into 
that system with their wonderful data service where one could 
buy airline tickets online, make dinner reservations, or 
remotely chat with Bridgette in Lyon.
    We needed Minitel in America. What a vision.
    Simultaneous with these debates in the late 1980's, this 
subcommittee promoted our domestic information services 
marketplace. As then-chairman of this panel, I convened 
numerous hearings as we battled the FCC time and again, in 
bipartisan fashion, over a proposal to levy so-called enhanced 
service provider access charges on nascent information 
providers such as Prodigy, CompuServe, and others. The Federal 
Communications Commission proposal at the time was to assess 
charges on data service providers such as would raise the 
subscriber line charge to almost $8 so that access charges 
could be lowered for everyone else. Sound familiar?
    And in what FCC Chairman Bill Kennard has called the most 
important decision affecting the development of the Internet, 
the FCC finally relented to our subcommittee and put in place 
an exemption for such charges on information service companies 
that still stands today as the most important decision. It was 
that decision, after some very tense negotiations with this 
subcommittee, that helped to spawn the rapid growth of Internet 
access to residential consumers because it made such service 
available.
    The computer industry was invited to give us its views as 
well. We heard testimony from John Scully of Apple; Mitch 
Kapor, the founder of Lotus, John Gage of Sun Microsystems. We 
were told to get digital; that we were in a period of 
convergence; that a bit is a bit is a bit. It didn't matter if 
it was a voice bit, a data bit, a movie bit, a music bit, a 
fact bit: all bits could flow over the digital networks and use 
digital technology. And this subcommittee got digital. We began 
to foster national proposals to deal with the communications 
convergence.
    I remember the hearings leading to the passage of the 
Brooks-Dingell-Markey-Fields bills in 1993 and 1994 where we 
talked about fostering greater growth in data services to help 
promote growth in the high-tech computer and software fields. I 
maintained that we didn't need fiber to the home, we could data 
over copper wire with digital compression. I argued that it 
would be a good start to promote affordable ISDN or some other 
flavor of digital service to consumers, a proposal met with 
great skepticism in the industry.
    Our efforts on all these issues eventually bore fruit. We 
legislated in the midst of this digital convergence and enacted 
the landmark Telecommunications Act of 1996. That act broke 
down historic barriers to competition and was designed to 
unleash a digit free-for-all across all market sectors and 
industries. Central to the act was the notion that we would 
treat all entities based upon the services that they were 
providing and neither based upon their pedigree as a cable 
company or phone company nor on the particular type of facility 
used to deliver this service.
    With all this history in mind, one can imagine my surprise 
when I was told by someone recently that the Telecom Act was 
only about voice. Simply competition for voice bits. There are 
apparently many people in the industry suffering from the same 
bout of telecommunications amnesia. Some people now seem to be 
saying that a bit is a bit is a bit, but some bits are more 
special than other bits. Rather than communications 
convergence, people are proposing digital divergence, proposing 
to rip data bits out of the bit stream and treat them 
differently from voice bits. There are also suggestions that 
identical telecommunications services offered over different 
facilities should be treated differently. How very undigital.
    Now, 3 years after the act, after numerous rulemakings, 
after numerous court cases challenging FCC decisions, after a 
couple of Supreme Court decisions, and even after a Bill of 
Attainder suit, we are now finally starting to see the 
dividends of digital convergence. We are starting to see the 
competitive promise of the Telecommunications Act being 
fulfilled. Companies are turning away from the courts and 
renewing efforts to open up markets and competing for all 
consumers.
    As much as this hearing is an exploration for how we can 
further foster competitive data services, it is also a 
celebration of the handy work of this subcommittee. The fact 
that the witness table is so diverse and that some companies 
present today might not even have existed if not for the work 
of this subcommittee and the decisions which we made is 
something that we all should take stock of. Because, in the 
end, our effort is not just about voice, it is not just about 
data, it is about the future. And I think our competitive 
future is a bright one if we remain true to our history on 
these issues.
    I thank you, Mr. Chairman, for your incredible panel today. 
I think it is going to be one of the most interesting days we 
have ever had in the subcommittee. I yield back the balance.
    Mr. Tauzin. Thank you, Mr. Markey. The Chair is now pleased 
to yield to my friend from Illinois, Mr. Shimkus, for an 
opening statement.
    Mr. Shimkus. Thank you, Mr. Chairman. And, Mr. Chairman, I 
appreciate your opening comments. I do not want to be in the 
business of taking sides. What I want to be involved in the 
business is of fostering competition and I think that is why 
this hearing is so important. Many of my constituents have an 
extremely slow connection to the Internet or none at all. For 
them, the digital divide is all too real. They know that 
broadband technology is out there and others are receiving it, 
but no one is willing to make the investment to build out to 
them.
    Mr. Chairman, I also realize that any time we deal with our 
Federal regulations, it will be controversial. Our constituents 
demand that we do all we can to help deploy these services. 
Again, Mr. Chairman, thank you for this hearing and I look 
forward to hearing from the panel. I yield back.
    Mr. Tauzin. I thank the gentleman. The gentleman from 
Virginia, Mr. Boucher, for an opening statement.
    Mr. Boucher. Well, thank you very much, Mr. Chairman. I 
want to commend you for organizing a discussion this morning on 
various aspects of broadband deployment for data services.
    The Internet has become an enormous engine of financial 
growth, making an economic contribution that few other 
industries can equal. Eighty million Americans are now 
connected to the Internet and there are currently more than 5 
million websites in use. But there are barriers, both actual 
and potential, that limit the experience of current Internet 
users and, if not removed, will burden future Internet growth.
    I hope that, perhaps beginning this morning, our witnesses 
will discuss an appropriate avenue for removing these barriers 
and then continuing in our discussion next week where we begin 
to address specific legislative proposals. A continuation of 
those recommendations to this subcommittee can be made.
    One factor that limits the experience of current Internet 
users is the paltry pace of broadband deployment over the last 
mile into homes and places of work. At the present time, there 
are only 70,000 users of DSL services, the telephone company's 
broadband offering. And there are only 500,000 subscribers to 
cable modem transport services, the cable industry's competing 
offering for broadband connections.
    I think we would be very interested in knowing, in the 
opinion of these witnesses, what factors are limiting the 
deployment of both DSL and cable-modem services. I think we 
would also be very interested in knowing what pace of 
deployment we can expect on a realistic basis in future years. 
There have been a lot of projections of what that pace of 
deployment will be. What, in the opinion of these witnesses, is 
a realistic schedule for deployment of both DSL and cable-modem 
services. And then I think we also would be very interested in 
knowing the opinion of these witnesses with regard to what 
policy changes, either administrative or statutory, we should 
promote that, in turn, will promote the more rapid deployment 
of broadband services.
    If the Internet is to achieve its potential as a multi-
media platform for the offering of voice, video, and data, 
using the TCPIP architecture--and we all hope that it will 
achieve that potential--we simply have got to resolve this 
bottleneck over the last mile and increase data rates into 
homes and places of work. And your recommendations as to how we 
can best achieve that goal will be welcome indeed.
    There is another issue that I hope that we can address in 
this hearing and also the one next week. And that is the 
potential need for greater competition in the offering of 
Internet backbone services. There are a number of participants 
in that market but, at the same time, we are also witnessing an 
unprecedented concentration in the telecommunications industry. 
And if that concentration proceeds into the market for Internet 
backbone services, there could be a threatening of the peering 
arrangements that today assure that information moves from one 
segment of the Internet backbone to another without charge.
    Backbone providers assume, I think more or less correctly, 
that they are all at having content of roughly equal value 
attached to their individual segments of the Internet backbone. 
But as one company begins to achieve a larger presence in the 
Internet backbone market, that company might begin to assume 
that the content attached to its segment of the backbone is of 
greater value than the content attached to the segments owned 
by other participants. And then that company might begin to 
impose charges on the flow of information to and from its 
segment of the backbone.
    The question I suppose we would ask of these witnesses--and 
I hope you will address this--is, is that a potential problem? 
And if it is, would we be well advised to encourage greater 
competition in the offering of Internet backbone service to 
keep these peering arrangements intact and prevent the gateways 
that today are toll-free from becoming toll booths in the 
future? And if you believe we should, how should we approach 
that?
    One final issue I think deserves comment in these remarks 
and I hope our witnesses will address this. At the present 
time, when telephone companies provide Internet transport--and 
that is, by the way, the way that most people get Internet 
transport today--they are not permitted to package and price as 
a unity the transport and any affiliated Internet access 
service that they also offer. They can offer Internet access, 
but they have to provide that Internet as an option and price 
is separately and give their customers for transport services 
an opportunity to purchase Internet access from any of a 
variety of Internet access providers.
    That rule, however, does not apply to the cable industry 
and it is apparent that, as many cable companies begin to 
deploy cable modem services, that they will proceed on a very 
different model and offer as a unity that cable modem transport 
and their affiliated Internet access service. It would be very 
interesting to hear from these witnesses any concerns that they 
have concerning that practice.
    I would assume that Internet access providers would be very 
concerned indeed. There are about 5,000 of these companies 
across the United States. They are companies that, by and 
large, did not exist 5 years ago. These are entrepreneurial 
startups that are succeeding throughout our country not only in 
offering Internet access service, but, in many instances, in 
becoming CLECs and qualifying to offer competitive local 
telephone services as well.
    These 5,000 companies carry with them the promise of giving 
reality to our vision when we passed the 1996 act of creating a 
truly competitive local telephone and local telecommunications 
market. And we should be taking every possible step to 
encourage the growth and the development of these 5,000 
entrepreneurial startup companies. And yet their business base 
is threatened by the emerging practice of the cable modem 
providers of packaging as a unity their transport and their 
affiliated Internet access service. These ISPs can have their 
business base foreclosed to the extent that their customers 
migrate from telephone platforms to the cable platform to 
obtain broadband access. And we would be interested in knowing 
the extent to which that is a serious threat and the extent to 
which we ought to consider remedies for that concern.
    Well, this is a range of questions that I hope our 
witnesses will consider and perhaps take this opportunity to 
respond to. Mr. Chairman, I, again, want to commend you for 
scheduling a hearing on what I think are the most important 
telecommunications issues before us today and I look forward to 
hearing from these very distinguished witnesses.
    Mr. Tauzin. I thank my friend from Virginia. The Chair now 
recognizes the vice chairman of the full committee, the 
gentleman from Ohio, Mr. Gillmor, who passes. The gentleman 
from Georgia, Mr. Deal.
    Mr. Deal. Mr. Chairman, I listened to your lecture and I 
have done my homework and will submit my written statement for 
the record to be graded.
    [The prepared statement of Hon. Nathan Deal follows:]
 Prepared Statement of Hon. Nathan Deal, a Representative in Congress 
                       from the State of Georgia
    Thank you, Mr. Chairman, for holding this hearing today regarding 
the deployment of data services. I appreciate your attention to this 
important issue.
    The 1996 Telecommunications Act requires that high speed data 
services be made available to ``all Americans'' in a ``reasonable and 
timely manner.'' However, the interpretation of this requirement by the 
FCC has been subjective. We must ensure that regulations do not prevent 
new competitors from entering markets with alternative services, 
particularly in rural districts such as mine. As we face 
reauthorization of the FCC in the near future, we must examine whether 
deployment of data services is occurring and also assess whether 
deregulation would spur new entrants into the market.
    Currently, consumers have two main options for receiving high speed 
data service--via the telephone and cable networks. Wireless and 
satellite companies should also be encouraged to compete. In addition, 
numerous mergers have occurred in the field of technology since the 96 
Act passed. We must ensure that we continue to foster an environment 
where all companies have an opportunity to compete, and that such 
competition results in consumer choice and affordable prices.
    I look forward to learning more regarding the status of data 
deployment, as well as hearing from our broad span of impressive 
witnesses here with us today. Thank you Mr. Chairman.

    Mr. Tauzin. Without objection, all written statements will 
be part of the record and I thank you, Mr. Deal.
    The gentleman from Oklahoma, Mr. Largent. Mrs. Cubin is 
recognized.
    Mrs. Cubin. Mr. Chairman, I do have some brilliant, 
inspirational, and insightful remarks, but I will submit them.
    [The prepared statement of Hon. Barbara Cubin follows:]
Prepared Statement of Hon. Barbara Cubin, a Representative in Congress 
                       from the State of Wyoming
    Thank you, Mr. Chairman, for holding this very important hearing on 
the deployment of data services.
    The hearing is of particular interest to me for two reasons. First, 
I am eager to learn more about broadband deployment. Secondly, in a few 
weeks I will be holding a town meeting in Wyoming on the same topic.
    The specific issues that I want to concentrate on today are parity 
and access in rural areas of the country to high speed data services.
    The question is: when broadband technologies are fully deployed, 
will they be available in rural areas at the same time they are 
available in urban areas?
    Furthermore, will the bandwidth be the same? Just because we live 
in rural areas and enjoy a slow paced lifestyle doesn't mean we will 
settle for anything less than the latest and fastest technology 
available.
    Competition in the area of data deployment is vibrant. The industry 
is falling all over themselves trying to deploy the fastest data 
services to consumers.
    That is certainly good news for rural America. Services such as 
satellite, wireless, and fixed wireless will reach where fiber and 
cable won't--to the most rural of areas. DSL and cable-modem technology 
promise to bring high speed services to the most rural parts of the 
country, and I want to see that promise come to fruition.
    The other good news is that some in the industry are starting to 
recognize the importance of marketing broadband capabilities to small 
towns.
    In the area of e-commerce there is not much difference anymore 
between a consumer in Wyoming and a consumer in L.A. In fact, 
businesses such as Tiffany's, Macy's, and Barnes & Noble don't even 
differentiate between urban and rural regions of the country any more--
as long as their customers are accessible via the Internet.
    The Internet gives an entrepreneur the unique opportunity to set up 
a business in Cheyenne or Lusk just as easily as one would in New York 
or Chicago and have customers visit from all corners of the globe.
    However, I have heard from several business people in Wyoming that 
they can't set up shop in certain towns in the state because the high 
speed data capabilities are not yet available.
    I want to work with industry to come up with incentives to solve 
that problem. However, there are those that would actually define high 
speed data services differently in rural areas. That, I believe, is 
short sighted.
    The gap in the ``Digital Divide'' will only grow wider if we start 
down the road of legislating or regulating what certain parts of the 
country should and should not have, or are capable of having, as far as 
high speed data services.
    I agree with US West CEO Solomon Trujillo when he said ``It will 
leave us with a nation of `Haves' and `Have Nots.' ''
    I'm interested in hearing from the witnesses as to what plans their 
companies have to deploy high speed data services in rural America.
    What hinders them from providing services to small towns across the 
country?
    What incentives do we, the federal government, need to provide to 
move your companies toward providing the latest technological and 
highest bandwidth capabilities to every rural county across the U.S.?
    I look forward to the discussion and learning more about this 
issue.
    Thank you, Mr. Chairman, I yield back my time.

    Mrs. Cubin. I do want to just let the panel know that I am 
very interested in hearing what plans your companies have to 
deploy high-speed data services to rural areas in America. I 
would like to know what hinders you from providing services to 
small towns. What incentives do we, the Federal Government, 
need to provide to move your companies toward providing the 
latest technological and highest bandwidth capabilities to all 
of rural America? I don't want any of rural America to be left 
behind because I represent the true rural America and that is 
the whole State of Wyoming. So I look forward to the 
discussion, but I do hope you will address those rural issues. 
Thank you.
    Mr. Tauzin. Like we don't have rural America in the bayous 
of Louisiana, Barbara. The gentleman from Tennessee, Mr. 
Gordon, is recognized.
    Mr. Gordon. Thank you, Mr. Chairman. This is a very 
important and high-stakes issue that we are going to be 
discussing today and I congratulate you for bringing this good 
panel together. The decisions that this committee will be 
making in the future is going to have a tremendous impact on 
the panel's stockholders and on our constituents. And so we 
need to be well-informed of the consequences of our acts and 
the potential unintended consequences. So this is a good effort 
to try to be educated and we need to make educated decisions on 
these very important and difficult questions. So thank you for 
bringing this panel together.
    Mr. Tauzin. Thank you very much, Mr. Gordon. The gentleman 
from Florida, Mr. Stearns.
    Mr. Stearns. Thank you, Mr. Chairman. I notice we have 12 
witnesses. That is pretty strong. But I still have my opening 
statement here.
    Thank you for calling this hearing. The roll-out of such 
broadband services will be integral to the continued high 
productivity of our Nation's economy, but, of course, we are 
all concerned how we proceed. Commissioner Michael Powell of 
the FCC recently gave a speech in which he stated, quote--and 
I'd like to put this in the record--``I find that regulators 
often are invited or tempted to take actions and promulgate 
rules based on sunny or stormy pictures painted by the 
advocates of action without digging below the rhetoric and 
testing whether our intervention will really benefit the 
public. One area that risks having that character is that of 
advanced services and the associated bevy of issues.'' I think 
Commissioner Powell's statement is quite true and applies, 
also, to Members of Congress here as well.
    You know, I think all of us after the recent Portland 
decision was announced, have some concern because basically, 
you know, there is a statement by one of the Washington 
attorneys who stated that, ``AT&T's cable pipe provides public 
service that should be accessible to others,'' end quote. You 
know, let me ask my colleagues, is this the new standard we 
should try to strive for? If it is a public service, then 
should we regulate? Under this standard, Congress and the 
Federal Government could regulate how movie theaters show their 
movies and that competitors should have access to those 
theaters or to the movie cameras because it is providing, 
quote, ``a public service.'' Or maybe television networks 
should have access to their competitors signals because, again, 
televisions airwaves are a public service.
    I suggest that this direction is not the right way to go. 
Congress created the Telecom Act of 1996 to foment deregulation 
and to allow the free market to provide competition. Some of 
the witnesses here today represent companies that owe their 
existence, very existence, primarily, if not wholly, to this 
act by allowing them to compete with the incumbent 
telecommunication providers.
    I think the city of Portland decision is a problem. I 
believe that States and localities should play a primary role 
in the development of telecommunications services, but if we 
allow every locality to create conditions for mergers, as 
Portland has done to the AT&T, TCI merger, we will allow 
competition to be stifled and that will lead to the slower 
roll-out of such services as broadband. The Portland decision 
is a direct violation of the Constitution's Interstate Commerce 
clause that Congress was bestowed to undertake. I believe that 
only the Federal Government and really only the Department of 
Justice should place economic conditions on mergers. The path 
we have already chosen through the Telecom Act is the road for 
deregulation.
    Deregulation, in the perfect world, would be treated 
equitably and broadband, regardless of the delivery mechanism, 
be it cable, telephone lines, satellite dishes, or electrical 
connections. I would like to see all players have immediate and 
impartial access to deliver broadband services but, in the case 
of Bell companies, there is the hitch of section 271 of the act 
that provides for the mandated 14 point checklist before the 
RBOCs provide long-distance voice. But did the act place an 
equivalent restriction on the RBOCs for data services?
    Most analysts believe that data will soon make up 90 
percent of the traffic delivered. My main fear is that if we 
provide interLATA relief, some companies may make an economic 
choice and forego attempting to offer long-distance voice in 
their region or in certain States because it would be much more 
lucrative to offer local telephone and data services.
    Now there are two companies, Mr. Chairman, in particular, 
who have been dedicated to getting into the long-distance 
market: Bell South and Bell Atlantic. Bell South has dedicated 
over $700 million in their effort to comply with the act and 
its checkpoint list requirements in order to enter the long-
distance market. Bell Atlantic has made great strides and is 
the furthest along in complying with the checklist. I expect 
both companies will clear that checklist and we will see in New 
York and Georgia, if not in other States, by the end of the 
year, full competition.
    So hopefully this accomplishment will provide these 
companies a guideline to overcome the checklist for every State 
and every region. So I want to be assured that all the Bell 
companies will make every effort to comply with the checklist 
in their region and in every State before the interLATA 
restrictions are lifted. I thank the witnesses and I thank you, 
Mr. Chairman, for your time.
    Mr. Tauzin. I thank the gentleman from Florida. The 
gentleman from Ohio, Mr. Sawyer, is recognized.
    Mr. Sawyer. Thank you, Mr. Chairman. I, like Mrs. Cubin, I 
have a wonderful opening statement. I commend it to all of you. 
I hope you will all read it.
    Some of you will laugh; others may shed a tear. But none of 
you will fail to be moved.
    I just hope you won't tell the ending to your fellow 
readers. It will spoil it for them.
    I am reminded of the moment when Vaclav Havel came to the 
Congress and addressed a joint session. It was a compelling 
speech. It was compelling because it reminded me of what I had 
learned when I was a child and that was in no small way the 
development of the printing press changed the world. It lead 
directly to the development of representational democracy and 
to the ability to move ideas from one generation to another in 
very large ways across huge portions of the world's population. 
If you think in terms of what the fax machine did all across 
Eastern and Central Europe just a little more than a decade 
ago, it gives you some sense of the enormous potential of what 
we are talking about here today.
    When Havel came to the Congress, one of the most compelling 
things that he had to say was that the events in Czechoslovakia 
happened so fast that they did not have time even to be 
astonished. That very same thing is taking place today. It may 
well, before we complete our consideration of the full range of 
issues that, Mr. Chairman, you are opening up today, indeed 
begin changes in the nature of representational democracy 
across the globe in ways that we can hardly even contemplate. 
In that sense, thank you very much for this hearing today and 
for the work that will proceed from it.
    [The prepared statement of Hon. Thomas C. Sawyer follows:]
  Prepared Statement of Hon. Tom Sawyer, a Representative in Congress 
                         from the State of Ohio
    Thank you Mr. Chairman for holding this hearing this morning on the 
deployment of high speed data services. I also want to thank our 
witnesses for coming to testify before us.
    Mr. Chairman, it would be an understatement to say the internet has 
changed the way we do things because it has profoundly reshaped our 
culture in the United States, and to a great extent, other developed 
countries. Electronic commerce is the driving force of the global 
economy. People in remote places are able to communicate with one 
another on a real-time basis using the internet. Students can download 
information to supplement their classroom assignments. Clearly the 
growth of the Internet can be attributed to the entrepreneurial spirit 
of the companies and the individuals involved in its continuous 
development.
    If we look back five years ago, we would have never thought that 
we'd be using the Internet for things we are using it for now. 
Companies have been able to develop new technologies and products to 
meet consumers' needs. The development, and deployment, of broadband 
services will help continue to meet those demands. What does the future 
hold? We can only speculate. In the very near future, consumers will be 
able to use nearly any telecommunications device to receive and deliver 
large quantities of voice, video or data almost instantaneously. And 
this will be done regardless of whether you are using a telephone 
(wireline or wireless), cable, or satellite company to access or 
distribute that information.
    The deployment of broadband services is one of the most important 
issues in the telecommunications industry because of the potential to 
provide new services to customers. However, questions remain as to who 
should control the ``last mile'' or the connection to the household and 
whether consumers are given fair access to advanced telecommunications 
services. These issues need to be addressed so that we can continue to 
keep up with the changing technology and move the world forward.
    Mr. Chairman these are a few of my observations. Thank you again 
for calling this hearing. I look forward to hearing from our witnesses 
and learning more about this issue.

    Mr. Tauzin. I thank my friend. It is true that your opening 
statement, by the way, will be available at amazon.com? I thank 
the gentleman.
    Mr. Sawyer. And in comic-book version as well.
    Mr. Tauzin. The gentleman from Mississippi, Mr. Pickering.
    Mr. Pickering. Mr. Chairman, I thank you for having this 
very important hearing to address these issues. I look forward 
to hearing this panel. It seems like an old reunion from the 
1996 act that all are gathered here together today. But I do 
want to look and listen today, based on what I call the three 
Cs: convergence, certainty, and context.
    One of the key objectives of the act was that we would have 
the one-stop-shop, that voice, video, data, all of those 
products and services would converge and be offered by 
incumbents and competitors alike to consumers. And so we want 
to look and listen to these proposals as to how would it relate 
to the objective or the goal or the intent of the act as far as 
convergence.
    Certainty, the second point. We have had a 3-year battle, 
both regulatory and in litigation, and now we seem to be, as 
the gentleman from Florida said, on the verge of some 
breakthroughs in 271 in New York and Georgia and in Texas. We 
want to make sure that whatever we do continues the regulatory 
certainty and the investment certainty, the market certainty, 
that we are hoping will lead to the objectives of the act.
    And the third thing, the context, was, again, where are we 
today? We are on the verge of that breakthrough. So I hope and 
look forward to the testimony today and look forward to working 
with the chairman on these very important policy questions that 
we do see the fulfillment of our hopes when we passed the 1996 
Telecommunications Act. Mr. Chairman, thank you very much.
    Mr. Tauzin. I thank the gentleman from Mississippi. The 
gentlelady from Missouri, Ms. McCarthy, is recognized.
    Ms. McCarthy. Thank you, Mr. Chairman, for holding this 
hearing today. I think it is important that we do examine the 
extent to which consumers currently have or soon will have 
access to broadband facilities and distribution. And we here in 
this subcommittee must ensure that we allow for adequate and 
fair competition between all providers so that consumers can 
benefit from the best technologies available.
    I look forward, especially, to hearing from the expert 
witnesses today as we discuss this new and very exciting 
technology and the services that are becoming available. And I 
am pleased that two witnesses today are from my community. Al 
Kurtze, the senior vice president of strategic development of 
Sprint Communications and Dave Scott, who is president and 
chief executive officer of Birch Telecom. These two companies 
are leading the way in greater Kansas City in the state-of-the-
art technology and, of course, in service.
    Al Kurtze led Sprint through its combination of voice and 
data to expand both their wireless and wireline presence and 
through his continued leadership, Sprint is being transformed 
into an integrated communications company. This week, Sprint, 
as you all know, officially announced its new integrated on-
demand ION service which will deliver local and long-distance 
service as well as Internet access through a single connection 
to the home with a single bill. In addition, customers using 
this service can use several phones and be connected to the 
Internet simultaneously because the basic ION package will 
include four voice lines and two high-speed data connections. 
With its new ION service, Sprint is not only making our lives 
more convenient, it is bringing competition to the 
telecommunications industry and bringing jobs and economic 
opportunity to our area.
    Dave Scott founded Birch Telecom and is chief executive 
officer. Birch Telecom has grown quickly since its founding in 
1997 and it is distinguishing itself by offering service both 
to residential and business customers. Because it can offer 
several packages to small businesses, Birch customers can save 
from 15 percent to 40 percent on their bills. Birch also offers 
an integrator package, which includes local, long-distance, and 
high-speed Internet access for its customers. Birch's recent 
mergers with other communications companies have continued its 
growth and innovation, as well as its continued competitiveness 
and service to our community.
    So, thank you, Mr. Chairman. I do look forward to the 
insights which our panelists will share with us today on what 
Congress should be doing to encourage more deployment.
    Mr. Tauzin. I thank the gentlelady. And, finally, the 
gentleman from Texas, Mr. Green, for an opening statement.
    Mr. Green. Thank you, Mr. Chairman. And I will submit my 
opening statement and I appreciate my colleague from Kansas 
City giving that commercial.
    Also, following up my colleague from Florida, Mr. Stearns, 
I thought we tried to regulate content last week in the 
juvenile crime bill. But I will submit my opening statement.
    [The prepared statement of Hon. Gene Green follows:]
  Prepared Statement of Hon. Gene Green, A Representative in Congress 
                        from the State of Texas
    The internet is the fastest growing communications medium. Here are 
some basic facts about the internet: the amount of traffic on the 
internet doubles every 90 days; the amount of voice and data traffic 
are about equal with data traffic growing at 30% per year; 
approximately 67,000 people sign up to the internet everyday. These 
numbers are approximations of what is happening to the internet, but it 
clearly demonstrates that the internet plays a growing role in our day 
to day lives.
    Consumers usually access the internet through a traditional dial up 
call to their internet service provider. Since the 1996 
Telecommunications act there has been new developments and innovations 
in both the accessing and utilization of the internet such as broadband 
services. Broadband service allows consumers to gain access to 
telephony, video, and internet services all over through one pipeline. 
Also, the development of faster technologies such as the development of 
both Digital Subscriber Lines and cable modems are helping to push the 
deployment of broadband and at the same time reduces the cost for this 
service to the consumer.
    There is tremendous growth in the internet, and Congress needs to 
make sure that we balance the need for networks and backbones with the 
demand for faster service and innovation of the internet.
    I am interested in hearing about the other distribution services 
that are starting to be deployed for broadband service such as two way 
satellite and wireless applications. I look forward to this hearing and 
learning more about broadband applications.
    I want to thank the chairman for holding this hearing.

    Mr. Tauzin. I thank the gentleman. The gentlelady from 
California.
    Ms. Eshoo. Well, I think that we are here to listen to the 
witnesses so I will submit my statement and thank you, Mr. 
Chairman, for holding this very important hearing. And thank 
you to the witnesses that are here to enlighten us. And I yield 
back.
    [Additional statements submitted for the record follow:]
 Prepared Statement of Hon. Tom Bliley, Chairman, Committee on Commerce
    Thank you, Mr. Chairman, and I applaud you for holding today's 
hearing.
    This is an exciting time for consumers, to say the least. Some of 
the nation's biggest and most dynamic companies are falling all over 
themselves to bring consumers high-speed access to the Internet.
    And each of them has different ideas on how to do it.
    Wireline providers are banking on digital subscriber line 
technology--otherwise known as ``DSL.''
    Meanwhile, the cable companies are finally delivering on their 
promise to enter new markets. Many operators are busily upgrading their 
networks to enable them to provide two-interactive services.
    And the wireless industry--both fixed and mobile providers--are 
hoping to find their own niche.
    And then there's the satellite industry. Some companies, such as 
Teledesic, plan multi-billion dollar systems for a constellation of 
hundreds of low-earth orbit satellites that will enable someone to surf 
the Web--from anywhere in the world!
    Even television broadcasters, who are in the midst of their own 
digital deployment, will be players.
    All this competitive ferment is good news for the economy, American 
workers ... and most of all, the American consumer. Competitive choice 
means lower prices and better services.
    This is also good news for Congress, and this Committee in 
particular. We worked hard to enact the Telecommunications Act of 1996, 
and we are now seeing the fruits of our labor.
    The Act unleashed economic forces that have revolutionized the way 
in which Americans live, learn, heal and entertain themselves. Indeed, 
I suspect that some of the companies sitting at the witness table today 
would not be here today were it not for the 1996 Act. In fact, their 
efforts would have been illegal in many states.
    This good news is only the beginning. As that old saying goes: we 
ain't seen nothin' yet.
    The pace of deployment will soon quicken--particularly because the 
cloud of uncertainty created by all this industry litigation is 
beginning to lift.
    Having firmly established the rules of the road, Congress, the FCC 
and the courts need to step aside and let these companies compete. 
There's venture capital begging to be invested, and there are jobs 
waiting to be created. Let's press on.
    So again, Mr. Chairman, I want to thank you for holding today's 
hearing. I look forward to the testimony of today's witnesses.
                                 ______
                                 
  Prepared Statement of Hon. Bobby Rush, a Representative in Congress 
                       from the State of Illinois
    Mr. Chairman, I applaud your initiative and leadership for holding 
this hearing today on a matter of growing importance to our country and 
our economy. When Congress passed the 1996 Telecommunications Act, no 
one envisioned that the Internet would grow at such an incredible rate. 
Today more and more people conduct commerce on-line. In 1998 consumers 
spent over $32 billion dollars in on-line transactions. It seems that 
every time one reads the business section of any major newspaper, there 
is a new Internet-related company or an initial public offering by a 
growing list of Internet companies. We've also reached that point in 
time when massive amounts of information-data-are transmitted 
nationally and internationally reflecting the true nature of our global 
economy.
    Mr. Chairman, consumers are now more sophisticated and are 
demanding better and faster Internet access. Hence, it is increasingly 
important that enhanced Internet access and broadband deployment is 
available to Internet users. The status quo simply does not cut it any 
more. It is incumbent upon us, as legislators to remove any regulatory 
impediments that may stifle broadband deployment. I hope this hearing 
will enlighten us on the new broadband distributing technologies and 
what is being done to deploy these technologies at a faster pace to the 
American consumer.
    Thank you Mr. Chairman.

    Mr. Tauzin. Thank you very much. And let us begin, then.
    The witnesses will, again, be admonished to be 
conversational. You will have 5 minutes. The way we operate is 
I hit this little switch, press this little button and when the 
red light comes on, kind of wrap it up about that time. 
Conversational, again. The written statement is gone. Please 
don't attack. Let us educate. We will start by introducing Mr. 
Hal Lenox, he is the director of Federal relations and 
technology issues of SBC Telecommunications--and he will give 
us an Internet overview. Mr. Hal Lenox, please.

STATEMENTS OF HOWARD A. LENOX, JR., DIRECTOR, FEDERAL RELATIONS 
 AND TECHNOLOGY ISSUES, SBC TELECOMMUNICATIONS; GLENN FALCAO, 
   PRESIDENT, INTERNET AND SERVICE PROVIDER NETWORKS, NORTEL 
 NETWORKS; RUSSELL DAGGATT, VICE CHAIRMAN, TELEDESIC; KIRBY G. 
     ``BUDDY'' PICKLE, PRESIDENT AND COO, TELIGENT; GEORGE 
VRADENBURG, SENIOR VICE PRESIDENT, GLOBAL AND STRATEGIC POLICY, 
   AOL; MARC J. APFELBAUM, SENIOR VICE PRESIDENT AND GENERAL 
 COUNSEL, TIME WARNER CABLE; ALEXANDER V. NETCHVOLODOFF, VICE 
 PRESIDENT, PUBLIC POLICY, COX ENTERPRISES; TOM TAUKE, SENIOR 
   VICE PRESIDENT, BELL ATLANTIC; ARTHUR KURTZE, SENIOR VICE 
 PRESIDENT, ONESPRINT, STRATEGIC DEVELOPMENT, SPRINT; DAVID E. 
SCOTT, PRESIDENT AND CEO, BIRCH TELECOM, INC.; STEPHEN C. GRAY, 
   PRESIDENT AND COO, MCLEODUSA, INCORPORATED; AND MARY BETH 
               VITALE, PRESIDENT AND COO, RMI.NET

    Mr. Lenox. Good morning and thank you, Mr. Chairman and 
members of the subcommittee. It is truly an honor to be here 
today and, with your permission, I will at least use my written 
words to kind of keep on the 5-minute track.
    I have been asked this morning to speak with you a little 
bit about the Internet, not from any particular perspective 
over than to speak of it structurally, how it is put together, 
what the components are, in the hopes that it will add some 
additional frames of reference for the discussion that follows 
me this morning.
    Mr. Chairman, even defining the Internet can prove to be 
quite problematic. I went to Newton's Telecom Dictionary in 
advance of today's hearing to hear from the bible what the 
Internet was and Mr. Newton admonishes that it is very hard to 
define the Internet in a way that is either meaningful or easy 
to grasp. I share that definition with you so that if, at the 
end of my comments, I have completely confused you, it is the 
Internet's fault and not mine.
    Well, let us work with this definition, then, and that is 
that the Internet is a network of networks linking various 
individuals together globally through the use of a common 
computer language. And there are a variety of languages, but 
they typically reside under a suite of protocols called TCPIP 
and you will hear that mentioned frequently as it relates to 
the Internet.
    Well, with our working definition in hand, I think it is 
appropriate to spend just a moment on the history of the 
Internet. From its nascent stages in 1969 until today, the 
Internet has grown to become the enabler of society's 
transition from a service economy to a knowledge economy and so 
many of you spoke of that in your opening statements this 
morning. It truly is a phenomenal event for us.
    A number of factors have contributed to the Internet's 
popularity: the proliferation of powerful computers, 
privatization of the Internet itself, and the development of a 
simple user interface which we call the World Wide Web. Now the 
Internet today features over 42 million domains containing in 
excess of 830 million pages of web content. Well, let us put 
that in perspective. In 1996, a year that is frequently spoken 
of in these chambers, the Internet contained an estimated 
240,000 domains and roughly 72 million pages of web content. 
Now such growth can only be described, I think, as explosive 
and, in fact, Inc. Magazine recently estimated that 
approximately 17 new web pages appear on the web every second.
    Well, as we know, the growth of PCs really came when they 
became easy to use. When we moved from DOS into the graphical 
user interface environment, the use of PCs really took off. And 
so too it is with the web. When we developed the World Wide Web 
itself and the accompanying browser, the Internet became 
accessible and we began to use it with much more regularity 
than we had prior to. We had the ability to trade stocks, 
purchase books and even automobiles, preview a CD or movie, or 
simply chat with a friend in a way that a very few years ago 
none of us would have even dreamed possible.
    Whatever the application, one thing is certain. Our desire 
for content and media-rich transactions will drive the need for 
more and more information. We will become less willing to 
tolerate simple text files and we will demand a great deal more 
media-rich content. Files that include video, sound, and all 
these things enrich our experience on the Net, but they also 
require a great deal more bandwidth to accommodate the size of 
the files, lest you try to download something and then come 
back to it 20, 30 minutes later in the hopes that it may have 
actually arrived. And for those of you that are on the Net 
using a conventional modem, I think you know what I am speaking 
of.
    Well, the Net is hierarchical in nature. I would like to 
spend a moment just sort of structurally how it is built. It is 
hierarchical in nature and the data feeds up from end-users 
through a series of computer networks until they finally reach 
a set of facilities that we commonly refer to as backbones. It 
is a bit like a river system, if you think about it, in which 
small streams and tributaries make their way toward a main body 
of water, all the while accumulating greater and greater 
volume. And you can think of that volume being the bits of 
information and the files that we are sending to one another 
across the web.
    Well, backbones are the main network in a particular 
network system. And the circuits making up that backbone are 
large, high-capacity lines running both across country and 
around the world. These networks allow your Internet service 
provider to exchange data across regional networks in an 
arrangement that is commonly referred to as peering. The hubs 
or the intersections at which this data is handed from provider 
to provider are generally thought of as being network access 
points or NAPs.
    Now to reach a local provider or ISP, the end-user must 
have some connection to the provider themselves. A number of 
access methods are currently available or under development. 
And I am going to mention just a few and if I have left any 
out, it was not intentional. Analog modems, which is probably 
the most common way that most of us access the Net, typically 
now are labeled as running at 56 kilobits. It is rare if ever 
that you can get a 56K modem to sync at that speed and we have 
all spent time and the pain of trying to download files in that 
method.
    ISDN came along for a while and is still a product in 
particular niche markets. It, like analog modems, uses the 
circuit switch telephone network. In other words, all these are 
going over the telephone network that was built to carry voice 
and, originally, exclusively voice. It does, however, unlike 
analog modems, it does carry the traffic from end to end in a 
digital form. So ISDN is not just a product, it is actually a 
set of protocols that make that digital transmission happen 
over the circuit switch network.
    Well, now if we move to packet networks, which is where we 
will spend the bulk of our time, I suspect, talking today, 
digital subscriber loop is a suite of technologies that you 
will hear a great deal about that provide high-bandwidth over 
existing copper, twisted paid. In other words, we use that last 
mile that you referred to in some of your opening statements to 
provide IP-based digital traffic on those loops. It allows us 
to move much faster than in the traditional format over either 
analog or ISDN and it gives you something that is often 
referred to as ``always on'' which is to say that you don't, 
like the modem, need to dial into the Internet, wait for the 
modem to quite screeching, establish your connections, so 
forth. A DSL, like a cable modem connection, allows you to be 
there as though you were logged on in your local area network 
in the office.
    I mentioned cable modems. They operate over the CATV 
network. And, again, like DSL, provide an always-on digital 
connection.
    There are many other access methods that are either in 
development or are already available. They show great promise, 
including the electrical industry; wireless, both terrestrial 
and satellite, offer a variety of ways to access the Net. In 
other words, there are many, many ways to get to the Internet 
and we are developing newer and better ways each and every day.
    Well, how do these new networks work? The Internet protocol 
that I mentioned earlier provides the foundation for that. 
Think of the packets as postcards and think of an IP 
transaction as sending a novel on postcards through the post 
office from one end to the other. So we will break that novel 
up, we will stick it into individual envelopes, we will mail it 
out, when it arrives at the other end, we will reassemble the 
novel, and put it back together. Then I read it as thought it 
had been assembled that way the entire time.
    So that is what IP does, which is dramatically from the way 
that the telephone network works in terms of establishing a 
connection, which is established for the length of the call, we 
call it in our business ``nailed-up'' and we leave that 
connection in place. IP is different. It just sends those 
packets in a diverse set of routes to get where it needs to go 
following the best way to get there.
    Now as telecommunications and technologies evolve toward 
the environment of convergence, telecommunications carriers are 
constructing new, separate data networks that all plug into 
these--they are all based on IP, but each of us, in our own 
way, are finding ways to bring IP to the end-user. And I 
believe that is what this subcommittee is looking at now and 
trying to understand is all the different ways that this is 
done and why that is the right thing to do.
    In the late 19th century--I will close with this--we saw 
the emergence of the Industrial Revolution and the entrance of 
the manufacturing economy. During the 20th century, we saw the 
migration from a manufacturing economy to a service economy. We 
now stand at the threshold of the 21st century, Mr. Chairman, 
where we are about to see yet another structural change in our 
economy as we move toward a knowledge economy. Now that move is 
fueled by a robust Internet and this new economy offers the 
promise of opportunity for all Americans.
    In their new book--or in their book--excuse me--The Virtual 
Corporation, Davidow and Malone observe this, ``In the years to 
come, incremental differences in companies' abilities to 
acquire, distribute, store, analyze, and invoke actions based 
on information will determine the winners and losers in the 
battle for customers.'' That is what the Internet is all about. 
I think that their comments offer succinct affirmation of why 
the rapid development and deployment of broadband is critical 
and why it will be a key enabler for a robust development of 
applications having both economic and social value.
    Mr. Chairman and members of the subcommittee, thank you 
very much for this opportunity to be with you today.
    [The prepared statement of Howard A. Lenox, Jr. follows:]
     Prepared Statement of Howard A. Lenox, Jr., Director Federal 
       Relations--Technology Issues, SBC Telecommunications, Inc.
    Mr. Chairman and Members of the Subcommittee, it is an honor to 
appear before you today. I am Hal Lenox, Director of Federal Relations 
for Technology Issues at SBC Telecommunications. I have been asked to 
provide the Subcommittee with a brief overview of the Internet, the 
technologies that make it up, and perhaps a prediction or two 
concerning its future.
    Mr. Chairman, even defining the Internet can at times be 
problematic. In preparation for our discussion today, I consulted 
Newton's Telecom Dictionary for a succinct description that I could 
share with the Committee. Newton's begins its definition with the 
following admonition: ``INTERNET: It is very hard to define the 
Internet in a way that is either meaningful or easy to 
grasp.1'' Mr. Newton then goes on to provide a definition 
that spans \2/3\ of a page. At the other extreme, the textbook 
Telecommunications for Managers, by Stanford Rowe, a text I taught out 
of at San Diego State University, provides the other end of the 
spectrum. Rowe offers this definition in its totality: ``An 
interconnected set of government, research, education, and private 
networks.2'' Both definitions are correct, yet neither is 
wholly useful for our discussion today.
---------------------------------------------------------------------------
    \1\ Newton, Harry, Newton's Telecom Dictionary, 9e, pp. 610-611
    \2\ Rowe II, Stanford H., Telecommunications for Managers, 3e, p. 
674
---------------------------------------------------------------------------
    I would submit that a useful definition might be: ``INTERNET: A 
`network of networks' linking various individuals and institutions 
spanning business, education, and government, together globally through 
the use of a common computer language''. The operative elements of the 
definition include: network, individuals and institutions, globally, 
and common language.
                         background and history
    With our working definition in hand, I'll begin with a brief 
history of the Internet. In 1962, the Internet was ``born'' as an 
outcome of recommendations from the Rand Corporation in a document 
entitled, ``On Distributed Communications Networks 3''. The 
document detailed the construction of a computer network featuring the 
absence of a single outage point. In other words, Rand advocated the 
construction of a network with the theoretical ability to survive a 
catastrophic event such as nuclear war. In 1969, the Department of 
Defense commissioned ARPANet with four host computers, or nodes, and a 
limited number of users made up primarily of scientific researchers 
4.
---------------------------------------------------------------------------
    \3\ Zakon, Robert Hobbes, Hobbes Internet Timeline v1.1, http://
info.isoc.org/guest/zakon/Internet/History/HIT.html
    \4\ Ibid
---------------------------------------------------------------------------
    From its nascent stages in 1969 until today, the Internet has grown 
to become the catalyst that--together with dramatic improvements in 
both computing power and bandwidth potential--has become the enabler of 
our society's transition from a service economy to a knowledge economy. 
How did an arcane computing network built solely with the intent of 
conducting military research rise to its current position of prominence 
and pervasiveness in our daily lives?
    A number of factors have contributed to the Internet's newfound 
utility and popularity: the growth in both number and processing power 
of computers, privatization of the Internet and the development of a 
simple user interface, the World Wide Web. While I will confine the 
majority of my comments to the Web, it is the concurrence of all three 
that have made the Internet the phenomenon it has become.
    The Internet today features over 42 million domains, or discreet 
sites that one can visit on the Net, containing in excess of 830 
million pages of web content. To put things in perspective, it is 
useful to benchmark these statistics against 1996, the year that the 
Telecommunication Act was signed. In that year, the Internet contained 
an estimated 240,000 domains, and roughly 72 million web pages. Such 
growth can only be described as explosive. Nor is it slowing. Inc. 
Magazine recently estimated that 17 new web pages appear on the World 
Wide Web every second 5.
---------------------------------------------------------------------------
    \5\ ``Data Data'', Inc. Magazine, January 1999
---------------------------------------------------------------------------
    As the Internet has grown, so has the nature of the data carried 
over it. In its early days, the content on the web was primarily text-
based, similar to our first personal computers. In fact, the PC offers 
a valuable metaphor for the current geometric growth of data on the 
Internet. I can still vividly recall the first IBM XT computers 
delivered to our office. During their delivery and setup, it was not 
uncommon to hear the refrain: ``What will we ever do with 10 megs of 
hard drive?''! Today, that 10 meg hard drive would barely be sufficient 
to house a simple movie trailer downloaded from your favorite movie 
site on the Web. The real growth in PCs came when the graphical user 
interface was developed, making computers approachable and easy to use.
    The same is true of the Internet. The development of the World Wide 
Web and ``browser'' in 1993 had an identical effect; the growth rate in 
web sites mentioned previously offers ample evidence.6 
Whereas we once accessed text-based interfaces with programs such as 
``FTP'' and ``Gopher'' (the Internet equivalent of using DOS), today we 
merely point and click on our browser.
---------------------------------------------------------------------------
    \6\ Zakon, Robert Hobbes, Hobbes Internet Timeline v1.1, http://
info.isoc.org/guest/zakon/Internet/History/HIT.html
---------------------------------------------------------------------------
    What follows that action is the ability to trade stocks, purchase 
books or even automobiles, research an affliction suffered by a loved 
one, preview a CD or movie, or simply chat with one's friends. Whatever 
the application, one thing is certain: our desire for content and media 
rich transactions will drive the amount of information transmitted even 
higher, making the need for speeds greater than your modem currently 
supports all the more important.
                     the structure of the internet
    The architecture of the Net is hierarchical in nature, which is to 
say that things ``feed up'' from the end user through a series of 
computer networks connected to local and/or regional service providers 
until they reach large transmission facilities commonly referred to as 
``backbones''. One might think of the structure as looking somewhat 
like a river system beginning with small streams and tributaries making 
their way towards the main body of water.
Backbone Structure
    Rowe defines ``backbone network'' as ``the main network in a 
particular network system.7'' The circuits making up the 
backbone are large, high capacity lines running both cross-country and 
around the globe, connecting major cities along the way. These 
privately owned networks allow Internet Service Providers (ISPs) to 
exchange data across networks. This exchanging of Internet traffic is 
generally referred to as ``peering''.8 The hubs, or 
intersections, at which this data is handed from provider to provider 
and backbone to backbone is generally referred to as a Network Access 
Point, or NAP.9
---------------------------------------------------------------------------
    \7\ Rowe II, Stanford H., Telecommunications for Managers, 3e, p. 
662
    \8\ http://www.pacbell.com/products/business/fastrak/networking/nap
    \9\ ibid
---------------------------------------------------------------------------
    Following the privatization of the Internet by the NSF, a total of 
four NAPs existed in the U.S. However, due to the explosive growth of 
the Net, additional exchange points--both public and private--appeared. 
NAP clients may negotiate their own agreements with other NAP clients 
for the exchange of Internet. These agreements establish mutually 
acceptable rules by which the providers transact 
exchanges.10 It is here that the peering takes place.
---------------------------------------------------------------------------
    \10\ ibid
---------------------------------------------------------------------------
End User Access: Narrowband
    To reach the local provider, or ISP, the end user must have some 
connection to that provider. A number of access methods are currently 
available with a like number currently under development.
    Switched Telephone Network (analog modem): Bandwidth on the 
telephone network is generally limited to the transmission of analog 
voice and modem-based data in the 0-4 kHz range. Modem manufacturers 
are now producing 56K modems with 50K downstream capability and 33K 
upstream. These speeds represent the upper limit for analog 
transmission on a single pair of copper wires within the circuit-
switched telephone network.
    Switched Telephone Network (ISDN): The integrated services digital 
network is both a set of digital transmission standards and a network 
infrastructure that allows digital transmission over the existing 
telephone wiring. ISDN is defined as ``a network, evolved from the 
telephony network that provides end-to-end digital connectivity to 
support a wide range of services including voice and non-voice, to 
which users have a limited set of multiple-use user interfaces.'' ISDN 
represented an attempt to increase both the bandwidth availability and 
overall functionality of the legacy telephone network.
End User Access: Broadband
    Digital Subscriber Loop (xDSL): DSL is a suite of technologies that 
provide high bandwidth over existing copper twisted pair local loop 
cables. DSL employs a modem-like technology and is available in a 
number of variations. ADSL service supports both voice and data 
services. The service provides a substantial increase in speed over 
both analog (50 times) and ISDN dial-up access methods. ADSL represents 
a true, open architecture, high-bandwidth service that is ``always 
on'', allowing the user constant access to information without logging 
on to the Net each time. Unlike the developing trend in cable modems, 
the end-user is free to select from any Internet Service Provider 
(ISP).
    Cable Modems: Cable modems are devices that operate over the CATV 
coaxial circuit. Cable modems operate like an analog modem providing 
the modulation of the signal, as well as some routing functions. These 
devices operate in a shared bandwidth, ``ring'' topology and offer 
theoretical speeds of up to 4 MBps according to Forrester Research. 
Cable modems, too, are an ``always on'' technology.
    Other Access Methods: A number of wireless technologies, both 
terrestrial and satellite are showing signs of promise as high speed 
Internet access products. In addition, the electrical industry is 
currently developing a product that utilizes electricity distribution 
facilities to provide high-speed data access.
                           internet protocol
    Internet Protocol, or IP, serves as the enabler for data 
communications networks. It is the foundation upon which diverse data 
networks communicate with one other and pass data traffic between them.
    One can think of IP packets as postcards and an IP message as a 
novel. An IP communications session is the equivalent of sending the 
novel through the network on postcards. The cards contain their own 
``to and from'' addresses as well as part of the novel's content. At 
the receiving post office, the postcards are reassembled in the correct 
order so the novel can be read. If some packets (postcards) don't make 
it to their destination, the receiving post office asks the sending 
post office for a retransmission.
    With the digitization of payloads--voice, data, video, etc.--and 
the evolution of Wide Area Networking, Internet Protocol has emerged as 
the clear winner for data communications. It simplifies management of 
the network; handles any number of other protocols; is an open protocol 
and not proprietary; and allows for scalability and therefore easier 
network growth.
             circuit switched vs. packet switched networks
    The advent of Internet Protocols, or IP, transmission offers the 
opportunity to migrate from the legacy public switched telephone 
network onto IP-based networks designed specifically for the 
transmission of large data streams.
    In a traditional voice, circuit switched call, the call is first 
set up; calls are routed through traditional class 5 switches, the 
circuit or path is established and maintained through-out the call; and 
at the end of the call it is taken down. This is called connection 
oriented because a connection is set up and maintained for the duration 
of the call. The call route is not available for any other traffic 
while the call is in progress.
    By contrast, an IP network routes IP packets over diverse and 
changing routes on the network. The path packets take between two 
points constantly varies based upon network conditions. As they receive 
them, each router sends packets out to the other routers and the data 
eventually makes it to its end point. The path is not pre-established, 
thus IP is referred to as being ``connectionless.''
           convergence and the need for broadband deployment
    Much has been written regarding the phenomenon of convergence. Used 
in the telecommunications context, convergence may include both 
services and architectures. As noted previously, legacy network 
architectures featured payload-specific, service-discreet offerings to 
end-users. Cable companies provided one-way, broadcast services while 
telephone companies provided two-way, voice and data services. Today, 
different providers from previously different industries offer services 
that cross traditional industry lines.
    As telecommunications networks and technologies evolve, 
telecommunications carriers are constructing new, separate data 
networks based upon IP, which will exist parallel to the ``legacy'' 
voice network. (It is important to note that while these networks 
reside outside of the legacy telephone networks, they may--as in the 
case of DSL--employ elements of the Switched Telephone Network.) These 
networks will require the commitment of significant amounts of capital, 
which currently is subject not only to market risk, but also--in the 
case of the ILECs--significant regulatory uncertainty. This regulatory 
risk represents a potent disincentive to the deployment of broadband 
networks capable of supporting the nation's thirst for media-rich 
(converged) payloads.
          potential impediments to the deployment of broadband
    Despite the promise of the Internet, a number of issues stand as 
impediments to its fulfillment. Consider these observations:

 ``The single most significant barrier to the continued 
        expansion of the digital economy is the scarcity of digital 
        broadband connectivity to home and offices.'' 11
---------------------------------------------------------------------------
    \11\ Eisenach, Jeffrey A., ``Testimony before the Subcommittee on 
Communications, Committee on Commerce, Science, and Transportation, 
United States Senate, April 22, 1998
---------------------------------------------------------------------------
 ``The local loop, however, remains the biggest obstacle to 
        network convergence. The lack of bandwidth . . . restricts 
        users from accessing broadband interactive content.'' 
        12
---------------------------------------------------------------------------
    \12\ Taylor, Dan and Bill Hills, ``Connecting the pipes,'' The 
Analyst's Corner, http://www.internettelephony.com
---------------------------------------------------------------------------
 ``The best available date indicates that new broadband 
        technologies are available in just 10% of US counties . . .'' 
        13
---------------------------------------------------------------------------
    \13\ ``State of the Internet: USIC's Report on Use and Threats in 
1999'', http://usic.org/usic--state--of--net99.htm,
---------------------------------------------------------------------------
                               conclusion
    The late 19th Century saw the emergence of the Industrial 
Revolution and the entrance of the manufacturing economy. The 20th 
Century saw an information revolution and a corresponding migration to 
a service-based economy. We stand now at the threshold of the 21st 
Century, where we are about to see yet another structural change in our 
economy as we move towards a knowledge economy. Fueled by a robust 
Internet, this new economy offers the promise of opportunity for all 
Americans.
    In their book, The Virtual Corporation, William Davidow and Michael 
Malone observed:
        ``. . . in the years to come, incremental differences in 
        companies' abilities to acquire, distribute, store, analyze, 
        and invoke actions based on information will determine the 
        winners and losers in the battle for customers.'' 14
---------------------------------------------------------------------------
    \14\ Davidow, William H. and Michael S. Malone, The Virtual 
Corporation, HarperCollins, 1992
---------------------------------------------------------------------------
Davidow and Malone's comments offer a succinct affirmation of why the 
rapid development and deployment of broadband networks is critical as 
an issue of national policy. The scale deployment of high-speed 
services, facilitated by the removal of regulatory prohibitions, 
becomes a key enabler for the robust development of applications having 
both economic and social value. Our children deserve no less.
    Mr. Chairman and Members of the Subcommittee, thank you for the 
opportunity to appear today. I look forward to addressing any questions 
you may have.
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    Mr. Tauzin. Thank you very much, Mr. Lenox. We, of course, 
were generous with time because we wanted this overview to 
proceed the discussion by witnesses. The Chair would also ask 
that you make a hard copy of the slides available for the 
record of the subcommittee.
    Mr. Lenox. Yes, sir. As soon as possible.
    Mr. Tauzin. I thank you. I might also mention we were 
discussing--we saw a bumper sticker that said ``Relax. It is 
just 1's and 0's.'' And somebody added ``And dollars.'' Thank 
you very much.
    We will now go to a discussion of what broadband is all 
about, what it is doing, and what its potential for 
telecommunications is. And we will start with Mr. Glenn 
Falcao--did I pronounce it right, Glenn?--of NORTEL, who has an 
equipment provider role and the question of data over electric 
lines. Mr. Falcao.

                   STATEMENT OF GLENN FALCAO

    Mr. Falcao Thank you very much. It is a pleasure to be 
here, Mr. Chairman, honored committee members.
    In the spirit of your opening comments, I would like to 
give you some observations from a company that is helping to 
build this Internet both in this country and internationally.
    As I see what is going on both here and outside of this 
country, we are on the verge of fundamentally changing both the 
social and political fabric of what is generating wealth, what 
is generating our social economy. And the underpinning of this 
is that ideas are allowed to flow without bounds and this is a 
very fundamental issue around what the Internet is all about. 
And I think how what we do in the next little while and how we 
address this technology is going to fundamentally affect our 
competitiveness in a global economy.
    So what are talking about here? The Internet is allowing us 
to share knowledge with no boundaries, to provide higher 
standards of education to all who have access, including those 
in the rural areas, to truly have global reach for E-commerce, 
and have access to rich entertainment. And, by the way, it 
helps us to communicate in a much more profound manner.
    I won't bore you with a whole lot of facts. I know that you 
have seen all the exponential charts and growth of the 
Internet, but one thing we can't get away from is that people 
are getting more connected and data accounts for more than 50 
percent of the total network traffic today and by the year 
2005, will account for more than 80 percent of the traffic. And 
the impact of that is that it is fundamentally changing the 
business models for both current customers and providing 
opportunities for new entrants, many of which are at the table. 
Much of this is a result of the deregulation that you are 
seeing globally and, when you look at the Internet, the 
fundamental open architecture of the Internet is a good example 
of what open competition in a free market can accomplish.
    So, let me talk a little bit about high-speed access. 
Really what people are looking for are applications and 
services and not so much bandwidth and really what we need to 
look at is how to open up the network to provide access to 
those applications and services. And the bottleneck in the 
network today is fundamentally at the access point. So to 
enable rich content and applications, we really do need to look 
at opening up that access bottleneck. And this has to be 
technology agnostic. It has to be on coax, on copper, on fiber, 
wireless, and, yes, even power lines. And we at NORTEL Networks 
can deliver much of that today, but still much has to be done.
    So what I see in the market today is that the increased 
competition is resulting in new entrants and transformation of 
existing players. And it is improving, it is increasing, the 
amount of investment that is going into the network and to both 
the existing networks and providing new network architectures. 
Competition is speeding up the introduction of new services and 
it is improving the overall cost performance of the existing 
services and the net effect of that is that it is providing 
much more affordable services and applications to the public.
    But we have got to remember something. Much of what we are 
talking about today is running on the existing network 
infrastructure. A lot of the things that we are using to access 
the Internet is the existing public network. So, although we 
are building new network structures and overlay networks, we 
have to ensure that both the existing network and the new 
networks have an opportunity to grow in a way that is fostering 
the use of the Internet. Because we need both of those networks 
to continue this growth to prosper as we go forward. So that 
is--I think it is something that, you know, at some point we 
would need to look at in more detail.
    So, in conclusion, I think what you see here is that we 
have provided the building blocks for this new network 
technology and this new engine for growth. I think the telecom 
and datacom industry, working with subcommittees like this can 
really provide the economic engine that is going to make us 
competitive both today and in the next millennium. Thank you 
very much.
    [The prepared statement of Glenn Falcao follows:]
  Prepared Statement of Glenn Falcao, President, Internet and Service 
  Provider Networks, Nortel NetworksChairman Tauzin and distinguished 
                      members of the Subcommittee:
    My name is Glenn Falcao. I am the President of the Internet and 
Service Provider Networks division of Nortel Networks. It is my 
pleasure to appear before you today.
    I was asked to present an equipment provider's perspective on the 
availability of broadband solutions used in the deployment of data 
services and applications. My comments will be made from the viewpoint 
of Nortel Networks, a world leader in technology delivering network 
solutions for telephony and data-based, wireline, and wireless 
applications. As a leader in the provision of equipment and cutting-
edge technology, Nortel Networks is facilitating the development and 
deployment of reliable and cost effective high-speed access for all 
data service providers--including transmission via cable, copper wire, 
fiber optic, and even the power grid.
    Nortel Networks supports open and fair competition in the 
deployment of data services. The Telecommunications Act of 1996 is 
helping to promote competition and deregulation in the U.S. 
telecommunications arena. Globalization and deregulation will continue 
to drive broadband applications, which are critically important to the 
continued growth of knowledge sharing, electronic commerce, and 
electronic entertainment. As the Subcommittee considers legislative 
options in this area, we recommend that you should strive to facilitate 
the development of broadband capabilities and increased access to those 
capabilities.
Nortel Networks and The Internet
    Nortel Networks is one of the world's largest suppliers of digital 
network solutions that facilitate the deployment of data services. And 
it is the most broadly diversified developer of high capacity 
switching, transmission, access, and optics technology. We are at the 
heart of the Internet. We are a global company with a presence in over 
150 countries where we work with customers to build and deliver 
communications products and networks for voice and data that we call 
``Unified Networks.'' We are the best qualified to deliver global 
applications and services that merge new and existing networking 
elements and technologies into a seamless network.
    Our U.S. presence has been steadily increasing over the past 25 
years and our U.S. locations represent our single largest pool of 
highly skilled people. Since our recent merger with Bay Networks we are 
an even stronger company with a larger U.S. presence. About 35,000 of 
our 68,000 employees worldwide work in our U.S. facilities. Nortel 
Networks has an invested base in the U.S. of $10 billion, and growing. 
Fifty-six percent of our 1998 revenues were generated in the U.S. 
Indeed, we export over $2 billion from the U.S. each year.
    Like the Internet itself, Nortel Networks is an exciting place to 
be right now. Early this year Network World's annual ``Power Issue'' 
listed Nortel Networks among the top five networking companies in the 
world and No. 2 among our competitors.
    It is clear to Nortel Networks that our customers and the American 
public want reliable, affordable, and speedy access to the Internet. In 
these competitive times of market and technology convergence it is 
vitally important to be agile, ever ready to anticipate and respond to 
change, and to remain focused on customers' needs. At Nortel Networks, 
we are focused on continuing to enhance the value of our broadband 
application solutions--such as Unified Networks--to provide the 
building blocks to deliver data, voice, and multimedia capabilities for 
business and residential customers.
The Internet, Networks, And Broadband Services
    Because of the importance of broadband services in fully exploiting 
the capabilities of the Internet through the deployment of data 
services, it is important to realize how the Internet itself relies on 
communications networks. What makes all Web-driven opportunities 
possible is the world's telecommunications infrastructure. There is no 
Internet without it. The public perception seems to be that the 
Internet runs on a separate collection of networking technologies 
created for some brave new world of cyber communication. Nothing could 
be further from the truth. In the real world, when consumers and 
millions of businesses access the Web, they use the existing telecom 
network's infrastructure and technology. So today, as firms rush to 
adapt Internet technology to every purpose and create the hardware and 
software needed to make Web communication ubiquitous, we need to 
remember that none of this would be possible without the trillion 
dollars that new and traditional service providers have invested in 
their infrastructures during the past few decades.
    Supporting the growth of the Internet have been some key factors 
that often are overlooked. The globalization of business over the last 
decade created much of the pressure for better communications networks, 
new services, and more competitive rates. These, in turn, drove what is 
now a global process of deregulation, which has increased competition 
among local and national communications network providers. Deregulation 
opened formerly monopoly networks to competition. In doing so, it 
created opportunities for new service providers to enter the market and 
also enriched the world's networks with new technologies.
    The result has been the unleashing of both Moore's Law, that 
microchip processing performance doubles every 18 months, and Metcalf's 
Law, that the value of a network expands in proportion to the number of 
users connected to it. These notions explain the worldwide explosion in 
the use of networked personal computers, which paved the way for the 
rise of the Internet and contributed greatly to networks becoming the 
new growth engine for wealth creation.
    Wireless, fiberoptic, and other high-speed access technologies have 
provided low-cost networks to developing regions and introduced vast 
new economies in long-distance services as network capacity increased. 
In the past five years, Nortel Networks has doubled the carrying 
capacity of a fiber every nine months, twice the rate of Moore's Law, 
and we expect to continue that for the foreseeable future. Our 
customers will collectively install more transport capacity in the next 
three years than the industry implemented in the past century.
    Users are demanding such broadband capacity. Internet traffic is 
doubling every four months, a growth rate that over the next three 
years will result in cumulative traffic more than 500 times what it is 
today. By 2002, two million additional businesses will be connected to 
the Internet and 30 million more consumers will join the 130 million 
already online. As dial-up access speeds increase from tens of kilobits 
per second to thousands of kilobits per second, e-commerce will 
flourish.
    The market changes caused by exploding Internet use require service 
providers to reconsider their business strategies. As the Internet and 
corporate intranets have grown, so has the amount of data. From 
virtually nothing in the 1970s, data traffic now accounts for more than 
50 percent of total traffic across the average cross-section of the 
North American public network. Data traffic in North America grows by 
30 to 40 percent a year, which means that data will account for at 
least 80 percent of all traffic by 2005.
    Nortel Networks has undertaken four leadership initiatives that are 
good examples of the directions in which the Internet is growing:

 Intranet services, in which corporate networks and the 
        Internet combine to create new applications and business models 
        that leverage investments in information technology.
 Internet telephony, the convergence of telephony services and 
        packet technologies. As these services develop, the existing 
        public networks must be transformed to help wireline and 
        wireless service providers begin the migration to next-
        generation packet networks.
 The wireless Internet. The next frontier in wireless is the 
        networking of laptops, palmtops, and other web-enabled devices.
 The optical Internet. Nortel Networks is building high-speed, 
        high-performance, IP-optimized optical backbones. We're 
        focusing on high-speed access for the ``first mile'' of the 
        network, using wireline and wireless solutions to bring 
        ``megabits to the masses.''
The Need for Policies That Promote Competition
    As the foregoing discussion shows, the Internet is revolutionizing 
communications. It offers us a portal for communication, education, 
commerce, and entertainment. It impacts every aspect of our private and 
public lives. We know our customers are facing new challenges, brought 
on by the Internet, deregulation of markets around the globe, changing 
consumer behavior, and converging technologies. These events change the 
traditional boundaries between service providers and enterprises, 
between local and global networks.
    These changing boundaries present a dilemma for policymakers. As 
new competitors begin to catch up with or even accelerate beyond 
incumbents, and entrants from the cable television, wireless, 
utilities, and other industries vie in the lucrative data services 
market, it becomes increasingly difficult for policymakers to strike 
the proper balance to facilitate both competition and affordable access 
to broadband services. Although this dilemma may be difficult to 
resolve, the fine distinction between protecting competition and 
allowing individual competitors to remain competitive must be 
maintained. Solutions providers like Nortel Networks play an extremely 
important role in helping solve these public policy dilemmas by 
providing the means for the full, fair, and open service competition 
contemplated by the 1996 Act. Simply stated, it is in our business 
interest as well as the public's interest to see competition flourish 
in the provision of broadband services. We can't tell you specifically 
how law or regulation should treat one group of providers as opposed to 
another group of providers, but the result must be a competitive 
market. However, in a real sense, the interests of solutions providers 
in the development of broadband services are consistent with the public 
interest in promoting competition. Nortel Networks is on the side of 
competition. We believe technology solutions that promote competition 
in broadband applications and services are in the best interest of the 
American public. Only true competition will provide the solutions to 
the issues you are struggling with today.
Broadband Solutions
    You are constantly hearing from all sides of the broadband access 
debate: the incumbent carriers, the new competitors, the Internet 
service providers, the cable companies, and the wireless providers--to 
name a few from a growing list. But I suspect you also are hearing from 
your business and residential constituents who want what I think we all 
want and need: ready, reliable access to multi-media services and 
applications at affordable prices that are the product of competition.
    We believe that the current 64 kilobit-based infrastructure is the 
key bottleneck to enabling new services. Access is critical. The 
majority of carrier investments, between 50 and 75 per cent, are spent 
on access for the new networks. Residential customers need Internet 
connectivity at affordable prices enabled by industry leading 
technology like 1-Meg Modem and G.lite. Business customers need 
bandwidth greater than 500kb to enable Virtual Private Networks, e-
commerce, and Internet telephony across a single access pipe.
    Another trend we are seeing is the movement of intelligence out of 
the central office to the ``edge'' of networks. Line cards have been 
migrating to colocation cages for the past five years. Now the line 
card is being combined with DSL, wireless, cable products to migrate 
directly to the home or business offering great economies of scale and 
rich feature content.
    As a major Internet equipment provider, with 75 percent of all 
Internet traffic traveling over Nortel Networks infrastructure, we meet 
our service provider customers' demands for broadband solutions so that 
they can, in turn, provide the services demanded by your constituents. 
Our customers from all sides of the broadband access issue are 
challenging us to meet their demands: (1) to protect their existing 
revenue sources; (2) to reduce the costs of operating their networks; 
(3) to help them start new businesses, which drive new revenue streams; 
(4) to help them be successful by serving their customers' needs.
    By providing broadband solutions that meet our customers' demands 
we provide incentives for them to deploy affordable broadband access 
and applications to all Americans. For example, our Succession Network 
helps our customers transform their existing circuit-switched (voice) 
networks into packet-switched (data) networks without having to abandon 
the investment in their current infrastructure, making broadband access 
easier to implement cost effectively nationwide. The Succession Network 
helps customers to preserve their investment because it is not a 
separate infrastructure layered onto an existing network--it transforms 
the existing network. In our many years as an equipment provider we 
know that technology solutions that lower network operating costs and 
increase revenue from data-based services will give our customers the 
incentives they need to expand broadband access to their customers.
    Making the best use of existing infrastructure can also accelerate 
broadband access to a larger base of the American public. For example, 
fiber optics promises to be a competitive option for the provision of 
broadband access, particularly when the existing fiber infrastructure 
is combined with bandwidth-enhancing technology, such as OPTera--Nortel 
Networks' Dense Wavelength Division Multiplexing (DWDM) technology. 
When applied to existing fiber optic networks, DWDM can greatly expand 
transmission capacity and can turn a traditional voice-only network 
into a powerful multi-media conduit delivering megabits to end users.
    Let me illustrate the power of this technology. Using Nortel 
Networks' OPTera broadband solution, a single optic fiber could be 
expanded to transport the entire 4 million-book collection of the U.S. 
Library of Congress from Washington, D.C., to Los Angeles in just 
seconds. Or, using a highway analogy OPTera converts a 10-lane highway 
into a mega-highway of 160, 10-lane highways stacked on top of each 
other. If broadband access is the goal, this technology is the solution 
that could provide simultaneous access to the Internet for 28 million 
households.
Rural Communities
    An even greater challenge to broadband access is the difficult 
business case presented by service to rural communities. Yet here, too, 
technology and competition are beginning to provide solutions. 
Companies, including Nortel Networks, are pioneering broadband 
technologies that can expand conduits such as power lines and the 
electrical wiring in buildings, to carry high-speed data. This type of 
broadband application is being deployed now in the United Kingdom and 
Europe, and in the future will surely be available in the United 
States.
    Another possible low-cost solution for rural areas could be one 
that does not rely on wired infrastructure. Fixed wireless 
technologies, using unobtrusive antennas similar to the direct 
broadcast satellite ``pizza dish''-size receivers, have been launched 
in various countries around the world, and in the United States on an 
experimental basis using Nortel Networks applications on an Indian 
reservation that previously did not have easily accessible telephone 
service. Wireless applications could make it possible for even the most 
remote areas to receive both basic services and high-speed broadband 
access. Of course these wireless solutions require access to 
appropriate spectrum, an issue we are currently addressing with NTIA 
and the FCC.
    Bandwidth applications and solutions like the ones I have described 
will bring the promise of the Internet to all Americans and help 
telecommunications service providers and the public benefit from 
converging technologies. By keeping the costs low, through competition 
and technological advances, we can help make the dream of broadband 
access for all Americans, as envisioned by Congress three years ago, a 
reality.
Conclusion
    The technological reality that I described here today should give 
you confidence that the telecommunications industry has the technology 
and the ability to place the power of the Web into the hands of each 
and every American. The dramatic technological advances taking place 
make it possible to deliver ever-larger streams of information at lower 
costs, making deployment of data services more affordable. In other 
words, the cost of technology has plummeted while its capabilities have 
soared.
    In 1996 Congress gave the FCC authority to facilitate availability 
of advanced services to all Americans. Competition and technology can 
provide the building blocks to make advanced services available to 
everyone, including those in rural and hard-to-reach areas. With your 
help, the telecommunications industry can provide the innovative 
solutions, if you provide the leadership and policies that allow 
competition to unleash its market driven magic.
    We at Nortel Networks look forward to working with you.
    I want to thank the Subcommittee again for inviting me to appear 
before you, and I would be pleased to answer any of your questions.

    Mr. Tauzin. Thank you very much, sir.
    And the Chair now recognizes Mr. Russ Daggatt, vice 
chairman of Teledesic, for your opening statement. Russ.

                  STATEMENT OF RUSSELL DAGGATT

    Mr. Daggett. Thank you, Mr. Chairman, and members of the 
subcommittee. It is a pleasure and honor to be here to speak 
with you today. My name is Russ Daggatt. I am vice chairman of 
Teledesic LLC.
    Like the NATO forces and the former Yugoslavia, we are 
fighting this battle from the sky. And I hope our vision can 
stay above some of the Balkanization of this debate on the 
ground.
    As some of you know, we are in the process of building a 
satellite network that will provide people in every part of 
this country and the world with affordable, broadband Internet 
access.
    I first joined Teledesic almost 6 years ago and it was a 
little over 5 years ago that we first introduced this vision to 
the public. And, at the time, we described our system as an 
Internet in the sky and the service proposition as global 
broadband Internet access. As difficult as it may be to recall 
now, 5 years ago the World Wide Web still had not made its 
presence felt and the Internet model was definitely not the 
consensus network model. Most people's notion of broadband at 
the time was what many companies were articulating as video-on-
demand and interactivity being a by-button on the channel 
remote. This was over a year before Netscape was formed. There 
were still no commercial browsers. Since then, we have also had 
to endure the push technology craze.
    But our vision was based on a fairly simple one which was 
that the continuing improvement in the power of microprocessors 
was going to lead to ubiquitous deployment of computing power 
around the world in many forms and that the real killer 
application for the telecommunications networks would be 
networking those computers, that even phones would be 
computers, in effect. And that vision really required a very 
different network model and it is the network model that is 
now, I think, accepted as the Internet model.
    And, without going into that model in depth, there are a 
few elements of it that are relevant. One is the movement of 
intelligence in the network from the core of the network to the 
edge of the networks. Another is the replacement of proprietary 
networks and application-specific networks by open networks 
where all applications are moving over a common network 
infrastructure. And, perhaps most critically, the move from 
circuit networks to packet networks. But, again, all of this 
required a very network infrastructure than we have in place 
today. In fact it is, even in relatively developed countries, 
it is, when it comes to a telecommunications network 
infrastructure optimized for networking computers, we are 
virtually starting from scratch.
    Of course, in most of the world no telecommunications 
infrastructure exists at all. You have heard all of the 
statistics like, you know, there are more phones in New York 
than in all of Africa. Over half the world's population has 
never made a phone call. But even where that telecommunications 
infrastructure exists, for the most part it is 100-year-old 
technology: twisted-pair copper wires and a circuit-based 
infrastructure.
    I think it is not an exaggeration to say that when it comes 
to building the infrastructure that is optimized for networking 
computers, building the networks that will provide global, 
broadband Internet access, that this is going to be the single 
biggest business opportunity on the planet over the next few 
decades. Estimates of the amount of capital that will be 
invested in telecommunications infrastructure over the next 
decade start at, I think, around $2 trillion and go up from 
there.
    Although Teledesic will be only one star in this 
constellation of broadband services, it will provide some 
unique capabilities. Teledesic's network will be a low-Earth 
orbit satellite network, which means a non-geostationary 
satellite network. Once you move out of the geostationary 
orbit, by definition, the satellites move in relationship to 
the Earth. Which means to provide continuous coverage of any 
single point on Earth, you have to provide, in effect, global 
coverage. Which means we will have a unique ability to serve 
customers in all parts of the world at a cost independent of 
location.
    But the fuel that is feeding this telecommunications build-
out, including novel technologies like that that Teledesic will 
provide is access to capital. And the capital markets require a 
fair degree of regulatory certainty. The actions of this 
committee and the Congress have helped provide that regulatory 
certainty and I would encourage you to preserve the universal 
service principle, which has been perhaps the great social 
policy success of the 20th century, but also to preserve the 
regulatory certainty that is necessary for these investments.
    Thank you very much.
    [The prepared statement of Russell Daggatt follows:]
  Prepared Statement of Russell Daggatt, Vice-Chairman, Teledesic LLC
    Thank you Mr. Chairman and Members of the Subcommittee. It is a 
pleasure and an honor to be here to speak to you today. My name is 
Russell Daggatt, and I am the Vice-Chairman of Teledesic LLC. At 
Teledesic, we are in the process of building a satellite network that 
will provide people in every part of this country and the world with 
affordable access to broadband communications services.
    As this Committee and other organs of the government consider how 
to promote the development of advanced telecommunications, it is of 
utmost importance that you continue to support the goal of universal 
access by all Americans, as well as the new technologies that will make 
this universal access a reality. I want to emphasize to you that this 
is not just a matter of economic or regulatory significance, but it is 
of profound social import as well.
    When I first joined Teledesic over 5 years ago, it was necessary to 
explain not only why broadband communication was important, but also 
what it was. At that time we described our system as an ``Internet in 
the Sky'' and our service proposition as ``global, broadband Internet 
access.'' As difficult as it may be to recall now, five years ago the 
World Wide Web had not yet made its presence felt and the Internet had 
not emerged as the consensus network model. This was before Netscape 
was started--before there were any commercial Web browsers. Since then, 
various different notions of ``broadband'' have been put forth. We had 
to endure the ``video on demand'' period, followed by the ``push 
technology'' craze. Five years later the World Wide Web has become a 
daily part of most of our lives and the Internet an increasing 
necessity for things we associate with a high standard of living--from 
education and health care to economic development and public services.
    As evidenced by the plethora of different companies and 
technologies represented on the panel here today, many of which didn't 
even exist just 5 years ago, clearly there is no shortage of interest 
in providing broadband communications. Fiber optics, coax, copper, 
terrestrial wireless and satellites will all play a role in serving the 
insatiable demand for bandwidth.
    When trying to understand which technologies will be most efficient 
for servicing which needs, it is important to understand that in the 
traditional circuit-switched telecommunications model, you can break 
the network out into ``access'' or end-user connections and 
``transport'' or backbone elements. The two elements have very 
different economics. In the Internet model, a third major element comes 
into play--``quality-of-service''--which sort of summarizes the whole. 
It is important to understand all three in comparing the economics of a 
wireline technology like optic fiber with a wireless access technology 
like Teledesic.
    The capabilities of optic fiber are truly amazing and growing more 
so every day. Optic fiber is certainly in the ``miracle technology'' 
category. In point-to-point applications, the economics of fiber 
absolutely overwhelm any other technology. In the ``transport'' 
networks, the cost per bit of a loaded system (including all the up-
front, fixed costs) will be very low, nearly infinitesimal. 
Unfortunately, the challenge is in extending broadband to the access 
networks, to make this technology available directly to end-users. 
infinitesimal. For this reason, distance will largely disappear as a 
pricing criterion in telecommunications (putting aside legacy 
regulatory distortions to the market). In the transport network, fiber 
dominates.
    Unfortunately, the challenge is in extending broadband to the 
access networks (point of end-user interface). In the traditional 
circuit-switched networks the rule of thumb was that, on average, about 
80% of the network cost is in the access portion. But that only takes 
into account those areas that have access (which does not include the 
vast majority of the Earth's surface and the vast majority of the 
world's population). With the economics of fiber coming to dominate the 
transport networks, with packet networks replacing circuit networks, 
and with the ubiquity of access increasing (or, more accurately, the 
lack of ubiquity decreasing), it is probably reasonable to assume for 
all relevant purposes that almost all of the network cost is in the 
access network (especially as the Internet model redefines ``access''. 
That is where the economics of wireline vs. wireless get more 
interesting.
    The relative economics of wireline access technologies versus a 
wireless approach (including a satellite approach like Teledesic) are a 
function of both density and intensity of usage. The density part is 
pretty obvious. The cost to connect a customer with a wireline 
technology depends on the length the cable and the number of users it 
serves. That leaves most people and areas around the world unserved 
today. You can say that there is no demand for broadband 
telecommunications access in rural, remote and undeveloped or 
underdeveloped urban areas, but that is a bit circular in its logic. 
Any activity that requires an advanced information infrastructure 
today, almost by definition, must migrate out of those areas that don't 
have such an infrastructure. It's dictated by the economics of wireline 
access.
    The intensity of usage determines the relative economics of access 
technologies. In the connections to most individual offices and homes, 
most of the capacity of a fiber connection would sit idle most of the 
time. The average residential subscriber in the U.S., for example, uses 
the phone for only something like 20 minutes a day. Internet 
applications are making usage patterns even more bursty and 
intermittent. It might be necessary to burst up to broadband speeds for 
only for a few seconds or a few minutes for a particular application, 
but the total number of megabytes sent and received over a day or week 
might still be very small. For example, I live in the heart of Seattle 
and have a DSL line. I work on my computer at home maybe 10 hours a 
week between evenings and weekends (pretty high usage). But the total 
number of megabytes I send and receive is pretty small (even though I 
want high speed when I do burst). With wireline technologies like 
fiber, all of that awesome capability must be rigidly dedicated to a 
particular end-user at a particular location, whether or not they need 
it at that moment. Given the very significant cost of extending fiber 
to individual offices and homes, i.e. using fiber as an ``access'' 
element, the cost per bit is most definitely not infinitesimal. Nor are 
the increases in the capabilities of fiber of much relevance--even on a 
neighborhood level, the capacity of the fiber is not the limiting 
factor in the economics of its deployment. Even at Teledesic's 
headquarters, with 150 or so very data intensive users sending and 
receiving very big files, the company collectively bursts up to the 
full capacity of its T-1 line for a very few moments during an average 
day.
    Wireless technologies, including satellites systems like Teledesic, 
that offer bandwidth-on-demand can provide a more economic access 
technology in a wide range of settings by dedicating only the bandwidth 
required by a particular application at a particular moment. Because 
demand for broadband services will generally be uneven and diffuse, it 
won't be possible to justify fiber buildout for most of the world's 
geography and the vast majority of its population. Even in the highly-
developed urban areas, the early adopters who want a T-1 connection at 
their homes, for example, are likely to be fairly randomly distributed 
throughout each of those areas. On a neighborhood level, few areas will 
have the aggregate demand for two-way, interactive, broadband network 
connections that would justify the full area build-out that wireline 
technologies require. Where an existing coaxial cable or copper access 
infrastructure can be upgraded, the economics improve. But you don't 
see many (if any) overbuilds of those existing networks, which says 
something about the economics of the access network.
    Nonetheless, it is fair to say that Teledesic is not likely to be 
the broadband access technology of choice for most users in developed 
urban areas. Which is just as well, because any satellite system is 
ultimately constrained in its ``capacity density''--that is, the amount 
of capacity it can focus in a given, concentrated area.
    The Internet model introduces a third element to network economics, 
which I would argue, is the most important--quality-of-service (QoS). 
In the traditional circuit network, QoS is not an issue. For each voice 
conversation, an end-to-end connection is established that is dedicated 
exclusively to that conversation (or data session). Of course, this 
assures a very high service quality, but it is also very inefficient. 
Packet-switched networks like the Internet, however, carry traffic from 
multiple sources that move over the same network infrastructure, making 
them up to 10 times more efficient than circuit networks. The economics 
of a packet network kill those of a circuit network. Because packet 
network traffic has to compete for network resources, network 
congestion becomes a big factor in how efficient packet networks can 
be. But in a packet network traffic has to compete for network 
resources. Network congestion becomes a big issue. The ability to 
establish and enforce priorities, latency guarantees and other service 
quality parameters becomes the distinguishing characteristic of a 
packet-switched network. In fact, with the Internet today, QoS issues 
are a bigger deal than bandwidth per se.
    A critical point here: QoS is an end-to-end concept. It is not 
enough to provide QoS guarantees only part of the way to the 
destination, because the connection is only as strong (or fast) as its 
weakest link. It is also not enough to take the traffic from the end-
user and dump it into the Internet cloud. Even fiber access is of 
limited value if it only connects to that Internet cloud (which, 
itself, includes abundant fiber). QoS is only meaningful as an end-to-
end concept--it all has to be tied together with enforceable service 
guarantees. As a result, in the Internet world, the concept of 
``access'' changes. In the traditional voice world, access only 
requires a connection from the end-user to the nearest central office 
where a circuit connection can be established with any other circuit 
network. In the Internet world, that's not enough.
    Teledesic is an end-to-end access network. Teledesic defines access 
in terms of the Internet model--in other words, in QoS terms. 
``Access'' is the connection from the end-user to the nearest point of 
presence (PoP) that can provide the end-to-end QoS required by a 
particular application. In some cases, that might be only a kilometer. 
In other cases, it might be 1000 km . . . or 5000 km. Let me explain 
this in more detail, because it is a critically important concept.
    If you want to see where the applications are going to come from 
for the broadband networks of the future, look to where there are 
broadband networks today . . . in the local area networks (LANs). What 
are the applications running over these LANs? Enterprise Resource 
Planning applications, SAP, Peoplesoft, SNI, BAAN, Oracle Financials, 
and the like. These are very demanding applications, particularly when 
it comes to latency. They were designed to run on LANs, not on the 
public Internet. Yet, increasingly, enterprises want to connect all 
their sites as well as their customers, suppliers, and the homes of 
their executives. They want to be able to run these enterprise 
applications not just at one isolated site, but everywhere to which 
their networks extend. This demands very high QoS guarantees from the 
network service providers.
    UUNet (now part of MCI Worldcom) was the first major service 
provider to offer a product with a guaranteed maximum latency (of 150 
ms). Others--Sprint, MCI, AT&T--soon followed with similar products. 
(Recent service level agreements I've seen have latency guarantees of 
80 ms or less.) In every case, however, the service provider can only 
provide these guarantees where they actually control the network end-
to-end. That is pretty limited availability, even for the largest 
service provider. MCI Worldcom, for example, only serves through its 
own facilities something like 40,000 sites worldwide.
    This leads to another important point: It is not enough that there 
is some carrier nearby that might be able to provide a particular 
service guarantee. In a competitive world it matters very much whose 
network infrastructure is available. For example, Teledesic is 
headquartered in a suburb of Seattle. Let's say there is a USWest PoP a 
kilometer away from where Teledesic is located. That doesn't 
necessarily do Teledesic any good if it is a customer of, let's say, 
France Telecom. If Teledesic is a customer of France Telecom its 
traffic might have to go 1000 km, to a France Telecom PoP in the San 
Francisco Bay Area, in order for France Telecom to be able to provide 
the necessary end-to-end QoS to the destination. In this example, 
``access'' becomes 1000 km, not one kilometer. In other settings, in 
other parts of the world, ``access'' might be 5000 km, or more, in 
order to route around missing or problematic links or to connect into a 
unified infrastructure. Again, I would emphasize, it is not enough to 
take the traffic and dump it in the Internet cloud, or to hand it over 
to a competitor--or, more typically, to half a dozen carriers on the 
way to the destination.
    It is not enough that there is a potential fiber connection to the 
customer. In a competitive world, it matters very much whose fiber it 
is. For example, running under the street in front of Teledesic's 
former headquarters in Kirkland, Washington, there are six fiber 
cables. Each one of those six cables could carry more than 100% of all 
the traffic moving on all six of those cables. So why six cables--
because competitors don't want to rely on the facilities of their 
competitors. (As an aside, it is interesting to note than none of the 
many condominium complexes running along that street connects into any 
of those fiber cables. The cost to slice into any one of those cables 
is about $50,000.)
    Another example: Let's say that the Swedish national carrier, 
Telia, has the task of connecting all of Volvo's sites around the 
world, including an operation in Sao Paolo, Brazil. That Volvo site 
might be Telia's only customer in Sao Paolo. It doesn't make sense for 
Telia to build out facilities in Sao Paolo just to serve that one Volvo 
site. But it may be that the local service provider is affiliated with 
a competitor of Telia. Or the local service provider might be seeking 
exorbitant fees to provide the facilities for Telia. Or the local 
carrier itself simply might not have the facilities to provide service 
with the necessary QoS (this is most likely the case in most parts of 
the world today--even in most urban areas).
    Teledesic is an end-to-end network. Teledesic will be able to carry 
traffic from any point on Earth to any other point on Earth. That 
doesn't mean that Teledesic will carry the traffic end to end in every 
case--rather, that it can. Which means that Teledesic (or its partners) 
can provide end-to-end QoS guarantees to any customer from any place on 
Earth to any other place on Earth. Teledesic's satellite infrastructure 
will not be the preferred technology for all of a customer's sites in 
all cases (or even in most cases). But it is what enables the universal 
guarantee.
    Teledesic has unique economics that enable the provision of 
broadband access (with end-to-end QoS guarantees) at a cost independent 
of location and independent of user density anywhere in the world 
(including maritime and aviation applications). That ability to 
aggregate diffuse demand globally creates a very robust business model 
that does not depend on the conditions of any single market. That can 
make even a $10 billion investment seem quite modest. Companies like 
Level 3 are spending comparable amounts just to undertake yet another 
fiber backbone overbuild in the U.S. The ability to aggregate diffuse 
demand globally makes Teledesic almost perfectly complementary to 
(rather than competitive with) fiber, which requires heavily aggregated 
demand (rather than diffuse demand) in a single point-to-point location 
to unleash its economic advantage.
    It is not an exaggeration to say that building the infrastructure 
to provide broadband Internet access globally will be the single 
biggest business opportunity on the planet over the next few decades. 
In most of the world, no telecommunications infrastructure exists at 
all. Where such infrastructure does exist, it consists largely of 100-
year-old technology--twisted-pair copper wires with a circuit-switched 
architecture. Even in relatively developed countries, when it comes to 
a telecommunications infrastructure optimized for networking computers, 
we're virtually starting from scratch. Estimates of the amount that 
will be invested in telecommunications infrastructure globally over the 
next decade start at around $2 trillion and go up from there.
    Access to capital is indisputable element to the current global 
broadband build-out. The Telecommunications Act of 1996 established the 
regulatory certainty needed by the capital markets to fund an 
unprecedented number of new competitive start-up telecommunications 
providers. Due in large part to the ground-rules established by the 
Act, in the US alone Wall Street investors have committed with tens of 
billions of dollars for competitive infrastructure. Therefore, it 
critical that Congress not take any action that could upset the capital 
markets that are providing the investments necessary to bring broadband 
services to all Americans.
    Although the $10 billion Teledesic network will only be a drop in 
the ocean of global bandwidth required, it will enable a unique 
capability to provide broadband Internet access to all those areas of 
the world that would not be economic to serve by other means. And--at 
least as important--it will provide a competitive overbuild in all the 
areas that do have an existing broadband Internet access 
infrastructure.

    Mr. Tauzin. Thank you very much, Mr. Daggatt.
    And next will be Mr. Kirby ``Buddy'' Pickle, president and 
COO of Teligent here in Vienna, Virginia. Mr. Pickle.

             STATEMENT OF KIRBY G. ``BUDDY'' PICKLE

    Mr. Pickle. Thank you, Mr. Chairman. And thank you for 
giving me a chance today and come talk about those new 
companies that you mentioned earlier, those new companies in 
northern Virginia that are coming about as a result of the 
Telecom Act.
    Teligent is a unique entity in that we are trying to do a 
very old business in a new way. We are trying to be a 
communications provider of voice, data, and video using a 
unique twist on a very, very solid technology which is fixed 
microwave. And we will talk about that in just a moment.
    But, before I do that, I would like to step back just a 
minute because Teligent is a little more than 2 years old now. 
And we had this idea, we had a goal. And that was that we 
could, in fact, be the person that brought a bundled solution 
to small and medium business customers. And we focus on small 
and medium business customers because we feel like that is the 
segment of the industry today that is clearly the least served. 
We look for small and medium business people who have between 
10 and 200 telephone lines. We don't serve IBM. We don't serve 
the government. We look for people who need help and that is 
what we do. I like to say that we are not a technology company, 
but in fact a solution company using technology to meet 
people's needs.
    Now what we have done is interesting in that, by using this 
unique technology, we can actually go out to the suburbs and 
further out into the rural areas because we can, in fact, for a 
very small amount of money, build networks that provide this 
broadband pipe. And if you think about the economy today, most 
of the small and medium businesses are growing up in the 
suburbs. And that is what we are trying to do is serve those 
people.
    Now Teligent has grown very quickly in those 2 years. We 
have service today in 28 markets. We will be in 40 by the end 
of this year. So we are very pleased with that. And we are 
investing hundreds and hundreds of millions of dollars to build 
these networks. And why are we doing that? Because we believe 
that America needs that broadband capability and we also 
believe we can meet the needs of a part of that.
    Now in the last 5 years, you know, we have seen in this 
industry an unbelievable thing happen. Information has become 
critical to what happens in this country. Companies live and 
breathe with information and we want to be the person that 
provides that. And that is what the broadband revolution is 
really all about. But, in fact, the country faces some 
significant challenges. You know, the advent of the Internet 
and E-commerce is fueling a huge, huge demand that is, in fact, 
outstripping the capacity of the small little copper wires that 
have existed for all these years in this country.
    In communications jargon, I have heard it mentioned up here 
before we call that the last mile. So what we are trying to do 
is help people get access to high-speed on that last mile 
because we have a technology and an understanding of how to do 
that. Now going forward, if we don't fix this problem, 
businesses relying on 56 kilobits per second will literally be 
left in the dust on the information superhighway and that is 
where Teligent and others like us come in.
    Now more than 95 percent--95 percent--of the communications 
customers in the United States, whether they are business or 
residential, are still served by copper loops. And that is what 
Teligent is all about, giving the small and medium business 
person access to some other type of technology that allows that 
broadband future to come to play. And our approach is to build 
a series of local networks across the country, based primarily 
on this new type of technology I talked about, fixed microwave. 
We also, however, integrate traditional broadband wireline 
technologies into our networks to make sure we can all for 
everyone.
    Now to reach our fixed wireless customers--and I have 
brought an example because it looks very strange--we install 
small antennas on top of customer buildings. This is what one 
of those would look like. Now most people think of microwave as 
huge, giant drums. That is no longer the case. Now to help 
educate the panel, what I thought I would do is I brought a 
diagram to real quickly give you an idea of how a company like 
Teligent does what is old with something new.
    [Chart.]
    So if you look over here, what happens is that if a 
customer picks up a telephone or accesses the Internet--and 
that is very important because we are not a telecommunications 
company. We are a communications company. You pick up this 
particular phone and off goes a series of digits to our 
antennae. We send that series of digits to our switch and then, 
through a base station, we concentrate that information and 
send it to wherever it is supposed to go. This is no different 
than the way the country has been using communications for 
years, but is an example, I think, of how technology can help 
this country move into the next century doing things 
differently and better for everyone.
    So, in terms of technology, we don't believe there is any 
one way to do it. Fixed wireless is great. DSL is great. What 
is important is that we allow it to flourish. Teligent is proud 
to be part of this. So thank you very much for the opportunity 
to be here today.
    [The prepared statement of Kirby G. Pickle, Jr. follows:]
 Prepared Statement of Kirby G. Pickle, President and Chief Operating 
                           Officer, Teligent
    Mr. Chairman, Ranking Member and other Members of the Subcommittee, 
thank you very much for giving me the opportunity to come here today to 
tell you a little about the part that Teligent is playing in building 
this country's broadband future.
    My name is Buddy Pickle. I'm the President and Chief Operating 
Officer of Teligent, which is based about 16 miles west of this room, 
in Vienna, Virginia.
    Earlier, I served as president and COO of the MFS Intelenet 
Companies, and president and COO of UUNET Technologies, Inc., following 
its acquisition by MFS. As you know, MFS was one of the very first 
companies to deliver competitive communications services to business 
customers, and UUNET is one of the nation's largest providers of high-
speed Internet access services. Previously, I held a number of 
positions at Sprint, MCI, and the Southern Bell unit of AT&T, before 
the 1984 divestiture.
    I also serve on the executive committee of the Association for 
Local Telecommunications Services, or ALTS, the trade association 
representing facilities-based CLECs. However, the testimony I am 
presenting here today is solely on behalf of Teligent.
    Mr. Chairman, when I joined Teligent more than two and a half years 
ago, the company was little more than an idea. The idea was to use a 
new variant on a proven technology--microwave radio transmission--to 
build scores of new local communications networks across the country--
networks that would offer a real choice to customers who wanted not 
only local and long distance service, but broadband data and Internet 
services at savings of up to 30 percent off what they are paying today.
    Teligent targets small and medium-sized businesses--the most under-
served, but fastest growing, segment of the business market. We offer 
service to businesses with as few as 5 telephone lines--businesses that 
simply don't have access to the large discounts or personal service 
that are readily available to the Fortune 500. In fact, most of our 
current customers have fewer than 25 telephone lines and most of the 
buildings we serve are not connected to fiber. I like to say that 
Teligent's mission is to level the playing field for these ``under 
served five million'' companies by giving them the bandwidth and the 
pricing that they need to compete with the biggest players in the 
marketplace.
    Today, Teligent is offering service to customers in 28 markets 
around the country, and we intend to be up and running in 40 markets by 
the end of the year. We launched service in our very first markets at 
the end of last October, so I would say that we're very much off to a 
running start. We have more than 2,000 employees--and coincidentally, 
we have about 2,000 customers. Obviously we're working hard to increase 
that ratio, and we expect to do so in the coming weeks and months.
    It's important to note that Teligent is a facilities-based company. 
Jargon aside, that means we are not reselling our voice and data 
services over existing telephone networks that were built by the big 
local phone companies over the last 100 years. While we don't resell 
the incumbent phone company's services, we do rely on them to 
interconnect with our network and provide the support necessary to cut 
over customers and complete calls that originate on the Teligent 
network.
    Teligent is investing hundreds of millions of dollars to build our 
own local voice and data networks to compete with the existing 
telephone companies. Teligent is offering service in places like New 
Orleans, Louisiana; Boston, Massachusetts; Richmond, Virginia; 
Cleveland, Ohio; and Miami, Florida--as well as New York City, Los 
Angeles, Chicago and twenty other markets around the country. Together, 
these markets comprise more than 460 cities and towns of all sizes, and 
represent a combined population of more than 83 million. Eventually, we 
plan to offer service in 74 markets with more than 550 cities and towns 
and a total population of 130 million.
    Our approach is to build a wholly new local network based primarily 
on a new type of high frequency, microwave radio technology. We also 
integrate traditional broadband wireline technology into our local 
communications networks. Through our local SmartWave TM 
networks, Teligent offers customers independent access to 
technologically sophisticated, high bandwidth capabilities and 
services. Because Teligent does not need to dig up streets to run wires 
and conduits, it avoids imposing inconvenience and expense on cities 
and neighborhoods in which it offers services.
    With this combination of fixed wireless and broadband wireline 
technologies, Teligent is able to reach outside the core urban markets 
where most of the other new competitive local telephone companies are 
deploying fiber optic cable. That means we can serve emerging 
businesses that don't yet have the revenue or the desire to locate 
offices in the traditional downtown business centers.
    To reach our fixed wireless customers, Teligent installs small 
antennas, often no more than a foot in diameter, on top of customer 
buildings. When a customer picks up a telephone, accesses the Internet 
or activates a videoconference, the signal travels over inside wiring 
to the rooftop antenna. An electronics box, usually situated near the 
antenna, digitizes all signals, and places them onto a data platform--
we use ATM, or asynchronous transfer mode, for that purpose. The 
customer building antenna then relays the voice, data or video signals 
to a Teligent base station antenna.
    The base station antenna gathers signals from a cluster of 
surrounding customer buildings, aggregates the signals and then routes 
them to a Teligent broadband switching center. At the switching center, 
Teligent uses ATM switches and data routers along with Nortel DMS 
switches to hand off the traffic to other networks--the public circuit-
switched voice network, the packet-switched Internet, and private data 
networks.
    It's important to note that Teligent operates at the very high-end 
of the frequency range--at 24 gigahertz--using spectrum licensed by the 
Federal Communications Commission. That means that each Teligent 
antenna must have a clear line of sight to the base station. The line 
of sight requirement creates both advantages and disadvantages for us. 
Because each customer building uses its own, specially-directed 
``beam'' of spectrum, we can reach many different buildings using the 
same radio frequency, as long as those buildings are not too close 
together. On the other hand, our spectrum does not permit us to send 
signals through trees or around walls. That is a significant drawback 
when it comes to serving smaller buildings or single-family homes.
    As we build our local networks, we are making significant 
investments in people, property and equipment. In this year alone we 
expect to spend $300 million on capital equipment. For a company that 
has been in commercial operation for less than a year, I believe that 
investment is significant.
    I mentioned a moment ago that when I joined Teligent, the company 
was little more than an idea. But that idea didn't just strike like a 
bolt of lightning. That idea--and through it this company--owes its 
life to three major developments. I'd like to take a moment to discuss 
each of those right now.
    The first and most important factor in Teligent's genesis was the 
passage of the Telecommunications Act of 1996. In a very real sense, my 
company is a child of the Telecom Act. We wouldn't be here today if it 
had not been passed. Our business of providing competitive local 
communications services literally was illegal in many of the states in 
this country prior to the enactment of the Act.
    The Act created ground rules, agreed to by the entire industry, 
which accelerated local competition and opened up opportunities for 
companies like Teligent. Because of the Act, which ensured that we 
would not be harmed by the historic, government-sanctioned advantages 
granted to the incumbent telephone companies, we were able to raise the 
capital we needed to build our business.
    We now are finally near the end of a cycle of industry-wide 
litigation that has created uncertainty and delayed new competitors' 
ability to offer choice and new services to customers. If Congress were 
to reopen a debate over the key principles of the Act, it would only 
create more confusion and further delay the benefits of competition. 
Bluntly put, high-paid lawyers from the best law firms in Washington 
would tie us up for years.
    The Act is not perfect, but it has set in motion an irreversible 
push toward more and more competition in our industry that will over 
time benefit all consumers. Most countries across the globe are racing 
to emulate the U.S. model, so their citizens and companies won't be 
left behind as the world moves into the information age. For that, we 
are very grateful to you. In a very real sense, each of you who helped 
shape the Act enabled us to create this company.
    We also owe our existence to some dramatic improvements in 
technology, particularly the rapidly increasing capacity and declining 
cost of high-frequency radio technology. Microwave technology has been 
around for a long time. The military used it in World War II to develop 
radar defenses for our sailors, aviators and ground troops. MCI used it 
in the 1970s and early 1980s to create the very first competition in 
the long distance market. Remember, the letters M-C-I originally stood 
for Microwave Communications, Inc. Now we are using the latest advances 
in point-to-point and point-to-multipoint microwave radio technology to 
build competitive local communications networks in the local loop.
    Until just a few years ago, the very high end of the radio spectrum 
in which we and other so-called ``fixed wireless'' carriers operate was 
virtually unusable for commercial communications applications. Now, 
advances in technology have turned that spectrum into a communications 
medium that is not only usable, but highly reliable and very cost 
effective. It's so cost effective, that we are able to offer our 
customers that 30 percent discount off current pricing that I mentioned 
earlier. So in a large measure, we owe our creation to these 
technological advances, which we expect not only to continue, but to 
accelerate.
    Finally, we owe our life to a significant shift in customer needs, 
especially the demand for broadband services--a demand that is driving 
almost everything going on today in the communications industry.
    I think the best analogy for what is happening today relates to the 
history of municipal water systems. Before the turn of the century, 
most homes didn't have any water pipes that connected them to the 
system. Demand was relatively low, and most needs were met by a well in 
the basement or the backyard. But with the advent of new technology--
steam heat, indoor plumbing--the demand for water delivery to 
businesses and homes dramatically increased--and builders and 
municipalities began installing water pipes directly to homes and 
businesses.
    The same thing is happening today in the communications world, 
albeit much more dramatically. The advent of new technology--the 
Internet and e-commerce--is fueling a demand for communications 
services that is far outstripping the capacity of the small 
communications pipes that serve most homes and businesses in this 
country.
    In this case, those small communications pipes are the copper 
telephone lines that lead into an office building or a house. These 
lines were built to deliver analog voice traffic and were intended to 
be in use only a few minutes out of every hour. In communications 
parlance, these lines are referred to as ``the last mile.'' The 
futurist George Gilder calls them ``the copper cage.''
    As we move from an analog to a digital world, and from a voice 
world to a data world, these little copper pipes are no longer adequate 
to handle the surge of new data traffic coming to and from end-users. 
The highest data speed that most people can squeeze out of these copper 
pipes today using a conventional computer modem is roughly 56 kilobits 
per second. At that rate, it takes more than six hours to download the 
Encyclopaedia Britannica.
    By contrast, Teligent today can deliver customers speeds of up to 
45 megabits per second. At 45 megabits per second, it would take only 
27.5 seconds to download that same encyclopaedia. And we expect to see 
dramatic improvements in that performance in the not too distant 
future.
    Why do people need bigger information pipes?
    As you know, we're not only crossing the threshold into a new 
millennium. We're also crossing into a new world of communications--one 
that's been compared to the advent of electricity in terms of the 
revolutionary changes that will come in its wake.
    I think that comparison is right on target. It's true not only in 
terms of how electricity shaped the world we now live in. But also in 
terms of how people in the past century viewed the transition to 
electric power.
    Back then most people couldn't easily think beyond the advantages 
of a gas lamp. A bigger lamp, with maybe a longer lasting wick, or 
better burning fuel, was viewed as quite acceptable progress. Change 
was conceived in increments of what existed. We're at a similar point 
today. But that is about to change very quickly.
    Forrester Research recently predicted that the U.S. market for 
broadband access and Internet service is ready to--and I use their 
word--``explode.'' Just three years ago, the entire U.S. Internet 
services industry amounted to about $1.3 billion. But last year alone, 
the business segment of that market had already grown to nearly $4 
billion. Forrester predicts that by 2003 that number will hit nearly 
$60 billion.
    Datamonitor recently predicted that IP traffic will surpass 
telephone voice traffic sometime during 2000. That's not hard to 
believe when IP traffic is doubling every 9 to 12 months, compared with 
under 10% growth for voice.
    Anecdotal experience confirms these projections. At Teligent, we're 
already seeing a heightened interest in data and Internet services from 
our base of small and mid-sized business customers. Nearly a fifth of 
them are ordering some type of broadband access service--a much higher 
percentage than we had expected.
    We think this foreshadows ever-greater demand for bigger and bigger 
pipes. Already, more than five million businesses have created their 
own Internet sites. In fact, business-to-business commerce on the net 
is expected to blow through the $1 trillion--that's trillion with a 
``T''--market in the next five years, according to Forrester.
    With all that traffic pumping through the system, businesses who 
must rely on a 56 kilobit per second dial up connection through their 
local network literally will be left in the dust on the Information 
Superhighway.
    Why do I emphasize the world ``local?''
    Since the federal courts broke up the AT&T long distance monopoly 
15 years ago, companies like MCI and Sprint--and now Qwest, Williams 
and Level 3--have been building big ``backbone'' data pipes--analogous 
to the water mains in the streets--to carry high volumes of traffic 
across the country, across the states and across large metropolitan 
areas.
    An article in the McKinsey Quarterly this month reckons that if all 
the fiber announced by U.S. operators were fully utilized, the backbone 
capacity of the U.S. could increase by as much as 200 times during the 
next 3 to 5 years. And that's great news for this country.
    But what happens when you get to the neighborhood? The reality of 
the Information Age is that more than 95 percent of the communications 
customers--businesses and consumers alike--are bound by that 56 kilobit 
per second ``copper cage'' that we discussed earlier. That's the 
bottleneck that Teligent is trying to break--the bottleneck of copper 
that separates those broadband fiber ``backbone'' networks from the 
end-user.
    Obviously, there is more than one company working on the problem--
and there is more than one technology that can get you there.
    First, of course, there is DSL--digital subscriber line technology. 
DSL in a sense is an attempt to teach a very old dog new tricks by 
using new electronics to enhance the speed and capacity of the old 
copper networks.
    DSL technology has an important place in this new communications 
landscape. But it also has some limitations.
    First of all, DSL can't be installed everywhere. Lines have to be 
``groomed,'' often at considerable expense, and central offices must be 
``DSL-ready.'' Some have suggested that only about half the central 
offices in the country will be able to accommodate DSL equipment.
    DSL has distance limitations--18,000 feet is a generous estimate. 
There also are questions about the kind of network speeds that can be 
achieved in the real world--as opposed to the engineering world.
    But there's an even more important point to be made about DSL 
limitations. No matter how you spell it, D-S-L still equals R-B-O-C. In 
other words, when you're dealing with DSL, you're still dealing with 
the RBOC networks--the copper cage. You must still lease or resell RBOC 
service. And we all know about the burden that exercise imposes on 
competitive carriers.
    That's not to say that DSL doesn't have an important role to play. 
In fact, Teligent has found a way to secure many of the benefits of DSL 
technology while avoiding many of the issues usually associated with 
DSL deployment, including the need to co-locate facilities in LEC 
central offices. Two days ago, we announced that we will be combining 
DSL technology on copper wiring inside customer buildings with 
Teligent's SmartWave TM fixed wireless networks outside the 
buildings to provide a lower cost, entry level data service for smaller 
companies.
    Another solution, obviously, is fiber optic cable. Fiber is 
terrific stuff, no question about it. But, as I've mentioned, fiber 
generally reaches only the highest density buildings, because, simply 
put, it costs a lot of money to dig up streets.
    To date, only 3 percent of the approximately 750,000 commercial 
office buildings in the United States are directly connected to fiber. 
In fairness, those buildings account for roughly one third of the 60 
million or so business lines in the country. But that still means that 
40 million business lines cannot get a high-speed connection via fiber, 
because it costs too much to reach them.
    What about coaxial cable? A lot of very smart people and some very 
big companies are betting that cable will provide an important 
broadband pipe to the home. Frankly, I don't disagree. But cable passes 
very few businesses today, including small businesses. So that need 
remains to be met.
    Satellite? Teledesic, Iridium, GlobalStar and others have some very 
ambitious plans. For the larger companies that can afford these 
services, I think they will provide an important alternative. But I 
don't believe that broadband satellite services will offer a real 
alternative to the residential market or to small and medium-sized 
businesses. And that's the market that will be in the forefront of 
demanding new, broadband connections. So what's the answer? In terms of 
general principles, the most important answer is competition. If we 
allow the Telecom Act to do the job it was intended to do--open local 
communications markets to full competition--we'll go a long way toward 
spawning the innovation and investment that will bring the benefits of 
lower costs and greater choice to customers and consumers--big and 
small--all across the country.
    In terms of the technology that will get us there, I don't believe 
that there is ONE answer. But I do believe that fixed broadband 
wireless will play a very important role as an enabling technology that 
breaks open the ``copper cage'' for the small and medium-sized business 
market in the United States--and around the globe.
    At Teligent, we have branded it as digital ``SmartWave 
TM'' technology. But whatever you call it, it offers 
communications providers a leg up on their competition.
    What are the principal advantages of fixed wireless technology? I 
hope you'll pardon me for using one of Teligent's advertising slogans, 
but I think it sums up my point nicely: Big Savings; Big Service; Big 
Bandwidth.
    For the target market of small to medium-sized businesses, 
businesses that have between, say, five to five hundred DS-0s, fixed 
wireless offer significant cost advantages. In fact, we're pricing our 
package of services at 30 percent below what customers are currently 
paying their incumbent carriers.
    How can we do this? In the world of fixed wireless, 80 percent of 
our costs are associated with electronics. Anyone who has bought a 
computer or a stereo lately knows those costs are declining at dizzying 
rates.
    In addition to the cost advantage, fixed wireless has a speed 
advantage. By that I mean both network speed--bandwidth--and speed of 
deployment. Most of the businesses we're targeting today don't have 
access to the Internet. Those that do most likely have a dial-up 
account using that 56 kilobit per second modem that I mentioned 
earlier.
    In the past, they never even considered T-1 dedicated access 
because of the prohibitive cost of obtaining that service from a Bell 
company or an existing ISP. But Teligent and other fixed wireless 
carriers can offer them that bandwidth at a reasonable cost. And that, 
for the first time, is opening up a new world of e-commerce and the 
Internet to small and medium businesses.
    We chose fixed wireless because we think it is absolutely the best 
way to bring bandwidth and broadband services to this tremendously 
important segment of the business market.
    Each of us at this table is a pioneer. We are part of a revolution 
and part of a new solution. Our challenge is to keep our gaze fixed 
beyond the next quarter and into the future to continue to drive 
competition and to level the playing field for our customers.
    We need to focus on what we do best. Keep the race fair and open to 
all runners. Drive innovation. Put the customer first. That's our 
mission. In closing, I'll note briefly how I believe Congress can help 
facilities-based carriers more rapidly deliver on that promise and 
bring the benefits of broadband services to our customers.
    Notwithstanding the laudable success of the 1996 Act, some barriers 
to competition remain.
    First, Congress should insist that all players comply with the 
provisions of the 1996 Telecom Act. Specifically, the incumbent local 
telephone companies must comply with the Act's requirement to open 
their local markets for competition before they are permitted to enter 
the long distance market. ILECs control essential facilities to which 
many competitive carriers require access before they can begin to offer 
competitive service. Even fully facilities-based carriers such as 
Teligent must have adequate interconnection with the incumbent so that 
networks communicate seamlessly and traffic flows smoothly. No matter 
how competitive the industry becomes, prompt and seamless 
interconnection with the existing local networks will remain an 
imperative. Shortcomings in this area are being addressed, but we are 
far from achieving full compliance.
    Another remaining barrier--and an issue addressed by this 
subcommittee in its recent hearing--is the impediments that new, 
facilities-based competitors face in bringing broadband services to 
customers in multi-tenant buildings in a reasonable and timely manner.
    The multi-tenant building market is not inconsequential--about one-
third of all Americans live in multi-tenant buildings and an even 
higher percentage of businesses are located there. When consumers 
decide that they want to take advantage of competitive choices, it is 
important that they be given the ability to do so--and the ability to 
obtain the competitive benefits quickly.
    In our experience, we've found that many landlords recognize the 
benefits that accrue to their tenants--and frankly, themselves--by 
providing timely access to competitive communications carriers in their 
buildings. Competitive services make buildings more attractive to 
tenants--and more valuable in the real estate marketplace. We agree 
with the members of this subcommittee who believe that a fair balance 
can and should be struck between the legitimate property rights of 
building owners including reasonable, safety and security concerns and 
the need to bring broadband services to all sectors of the economy.
    By providing for reasonable and nondiscriminatory access to 
customers in multi-tenant buildings, Congress can ensure that building 
owners and competitive carriers work together to bring more rapid 
development and widespread availability of competitive broadband 
services. Similarly, securing access on reasonable terms to the wiring 
inside these buildings is another critical factor, a task that is 
further complicated when the inside wiring is controlled by the 
incumbent local telephone company. I believe that Congress can and 
should address these issues.
    Working together, Congress and new carriers such as Teligent can 
create a new broadband world that enables open, fair competition among 
all competitors, no matter how big they are. And that will make a world 
of difference for customers and consumers.
    Thank you all for your kind attention.
    [GRAPHIC] [TIFF OMITTED] T0293.010
    
    Mr. Tauzin. Thank you very much, Mr. Pickle.
    And next on the list will be Mr. George Vradenburg, senior 
vice president, global and strategic policy, for AOL. Mr. 
Vradenburg.

                 STATEMENT OF GEORGE VRADENBURG

    Mr. Vradenburg. Thank you, Mr. Chairman. And I will comply 
with your injunction not to read my prepared statement. I have 
some notes and I would like to pick up on a number of comments 
from members of the committee and also represent myself as one 
of those employers in northern Virginia that is in fact one of 
those startup companies that is employing more and more people 
every day in our Nation's region.
    First I would like to identify myself with the comments 
from the Chair about the need to keep a broad vision as we 
approach the policies that ought to govern broadband in this 
arena. The world has been moving from analog to digital at an 
extraordinary rate. It is going to continue to do so. We 
estimate that what we would currently call traditional voice 
telephony will be perhaps 1 percent of the bits that are and 
the traffic on the world's communication systems within the 
next 5 to 10 years.
    And the development of these Internet developments are, in 
fact, transforming the Nation's economy. The value chain made 
up of the Internet today, the 6,000 ISPs, the Internet access 
providers, in the country, the scores of portals, the websites, 
the computer equipment suppliers, and the software suppliers, 
and now those components of our economy, in recent estimate, 
now represent $300 billion, which is larger than the 
traditional local telephone, long-distance telephone, and cable 
industries combined. So we are talking about major 
transformative effects.
    Remarkably, most of this growth has occurred since the 
passage of the 1996 act. But, in fact, has been, I think, 
fostered by the philosophy of the 1996 act, which was basically 
that the infrastructure ought to be open to competing providers 
of services, that, in fact, it ought to be shared, and, in 
fact, beyond that, service providers ought not to be regulated. 
And, in fact, the Internet has been largely, indeed almost with 
ideological devotion, maintained as a deregulated aspect of our 
economy, but the infrastructure on which it rides is shared.
    Remarkably, the infrastructure on which the Internet rides 
is a single monopoly infrastructure. It is basically borrowed 
from the old voice telephony system. And the reason that we 
have been able to layer multiple levels of competition at 
increasing levels of the value chain on top of this monopoly 
infrastructure is because of the philosophy of the 1996 act, 
which is keep it open and keep those facilities shared.
    Now I think the challenge as we go forward and we see 
increasing different kinds of technology platforms on which 
broadband might be developed, is to maintain that philosophy, 
which essentially says keep that Internet deregulated, keep 
that infrastructure shared so that all service providers can 
get to all customers. All service providers can invest the 
necessary marketing and capital needed to build out new 
services and new business models, but no gatekeeper or 
bottleneck develops in this new world. So I think the challenge 
is to drive all of that competition that we have seen at every 
level of the value chain, now drive that competition into the 
infrastructure on which we are going to build our broadband 
arena.
    Now what is the secret sauce to that? As I said before, I 
think it has been the openness of the infrastructure. Uniform 
connection requirements, non-discrimination requirements, most 
of the players that you have heard from today, at least so far, 
in fact, follow that philosophy and have been open to 
competitors. And, indeed, as you move downward the multiple 
infrastructure world, it seems to me that the government has 
got to take enormous care that it treats the infrastructures in 
a similar fashion. So that, in fact, government itself is not 
weighting, putting its hand, its finger on the scales as 
between cable, as between telephone, as between wireless, and 
satellite. That, in fact, the government take some great care 
here that it treats these infrastructures in a similar manner, 
that parity of government treatment of these infrastructures be 
similar, and that, in fact, these infrastructures be kept open 
and that that Internet be kept deregulated.
    As a consequence of that philosophy, we have seen an 
absolute blossoming of competition, choice, lower prices, 
better service. The one thing I will refer to in my written 
testimony, Mr. Chairman, is the chart attached to my written 
testimony which demonstrates that the prices in virtually all 
aspects of communications-related products and services has 
been falling over the last several years except for one. And, 
as a consequence, it seems to me, Mr. Chairman, that we take 
some lessons that competition and deregulation is good and that 
infrastructures ought to remain open and shared and available 
to all service providers. Thank you very much.
    [The prepared statement of George Vradenburg follows:]
  Prepared Statement of George Vradenburg III, Senior Vice President, 
            Global & Strategic Policy, America Online, Inc.
Introduction
    Chairman Tauzin, Ranking Member Markey, members of the 
Subcommittee, thank you for the opportunity to discuss the important 
issue of the Internet in a broadband world. I believe that this hearing 
marks an important step in Congress' examination of issues that are 
critical to the future of the American economy and society as we move 
further into the Information Age.
The Internet Today
    Unlike any other communications technology that has preceded it, 
the Internet is a truly remarkable phenomenon. In only a few short 
years, the medium has literally transformed the way Americans 
communicate, engage in commerce, educate themselves and even 
participate in our democracy. It is a place where an untold number of 
new entrepreneurs have discovered that if they build something--a 
Website, a business or a new access service--thousands, even millions, 
will come. Always open for business, always open to new ideas, the 
Internet is perhaps the most dynamic force in our society and economy 
today.
    More than half of American households--a total of 53 million --now 
own PCs. And about one-third of American households now have access to 
the Internet. Every month, nearly 1.5 millions Americans join the 
online world for the first time, bringing the percentage of the US 
population online from nearly zero in 1990 to over 30 percent today. 
Indeed, the number of online households in the United States grew by a 
factor of eight between 1994 and 1998. In five years, nearly 60 percent 
of Americans are expected to be online. This same rapid growth path can 
be seen throughout the world, where the number of online users is 
expected to reach 250 million by the year 2002. As one would expect 
from all of these users online, traffic on the Internet is doubling 
every 100 days and analysts are predicting that by 2002 consumers will 
spend nearly $43 billion a year online, compared to $8 billion last 
year.
    The most significant aspect of this online phenomenon in many ways 
is the degree to which consumer choice and competition at all levels of 
the Internet marketplace has fueled its growth; consumer adoption rates 
are far out-pacing the predictions of even the most aggressive analysts 
only a few short years ago--and far outpace the track record of any 
other medium in history. Today over 6000 ISP's offer a wide variety of 
price, feature and service packages; over 90% of Americans have 
available to them competing Internet services with local dial-up 
connections. Competition has brought prices down, raised the quality of 
service and expanded the range of Internet features at all points in 
the Internet value chain. From the migration to flat rate pricing in 
the access market to rapid innovation in business models, no Internet 
business man or woman has been able to lose sight of competition for 
even a moment lest the rug be pulled out from under them.
    Consumers are the drivers--and the ultimate beneficiaries--of this 
fierce competitive and open environment. With virtually no barriers to 
entry into the Internet marketplace and no gatekeepers collecting tolls 
from new businesses, consumers have seen their product choices expand, 
been granted access to a wealth of information historically available 
only to those with means and have been empowered to participate in 
civic life in ways that were previously imaginable.
The Broadband Future
    In the next few years, the interactive medium will be available not 
only over today's ``narrowband'' technologies but also through 
``broadband'' connections 100 times faster than today's access speeds.
    As broadband becomes widely available, affordable and easy-to-use, 
it will meet the needs of consumers, small businesses and our community 
in new ways we have only begun to imagine.
    Online shopping--and online-selling--will explode as more 
sophisticated technologies expand the range of products and services 
available online and make it possible to view, tour, test and even 
``try on'' a range of products.
    And beyond online shopping will come the home office. 
Telecommuting--involving everyone from typists to traders--will come 
into the mainstream through broadband's capabilities, benefiting cities 
across the country through reduced traffic and pollution. One-person 
Internet-based operations will compete with multinational corporations, 
creating whole new local industries.
    As broadband expands the capabilities of the Internet, its role 
will expand as society's ``great leveler''--putting world-class 
resources, the widest range of products and services, and even access 
to the outside world at the fingertips of anyone capable of flipping a 
switch or dialing a telephone.
The Future will be Multidimensional
    Remarkably, today's Internet is built on a single access platform 
borrowed from the world of voice telephony. Tomorrow, broadband 
Internet may well be built on multiple access platforms--telephone, 
cable, satellite and wireless. Indeed, our vision for residential 
Internet access is one of a true ``broadband tapestry.''
    In a multiple-platform environment, it is our view that consumer 
choice and competition can and should be enhanced not limited--
consumers should be able to choose among infrastructures, as well as 
services.
    In this vision, multiple service providers will offer services of 
varying speed and functionality to their consumers through multiple 
platforms. Ideally, any Internet service provider could offer consumers 
different applications using different access technologies--and the 
consumer would never have to know whether their Internet service 
provider was using DSL telephone lines, cable modems, or hybrid 
satellite delivery. Indeed, the consumer, in a fully competitive 
broadband world should not be aware of which access technology its 
Internet service provider is using--the consumer cares about service 
and applications, not technology. The transparency or invisibility of 
the technology employed by a service provider is critical to the 
success of the Internet as a mass medium.
    It is important to recognize that despite this vision, for the next 
several years, two-way broadband access to the Internet for the 
consumer marketplace will be offered primarily through two sources, 
both wireline--DSL through traditional phone lines and cable modems 
over cable systems. In the case of DSL, telephone companies offer non-
exclusive and non-discriminatory interconnection arrangements. We, and 
our Internet competitors, have entered into such arrangements with the 
prospect of higher speed Internet services and more robust applications 
becoming widely available in neighborhoods accessible by DSL by the end 
of the year.
    Other broadband access technologies will also become available at 
some point in the future. In fact, just this week AOL announced an 
alliance with Hughes Electronics to help bring a hybrid form of high-
speed Internet access through satellite to consumers by early next 
year. As a result, consumers will be able to benefit from affordable, 
convenient and faster Internet service even if they live in 
traditionally hard-to-serve communities like rural areas. In today's 
Internet environment, rural consumers and those in other high cost 
areas have choice and flexibility in Internet access. Tomorrow's rural 
Internet customer should have the same choice and flexibility. What 
makes satellite broadband connectivity distinctive is its availability 
nationwide, particularly where other services are not rolling out. In 
the next few years, satellite systems can provide their download speeds 
up to 14 times faster than the standard 28.8 kbps modem, with uploads 
over phone lines at speeds up to 56 kbps. In the longer term, two-way, 
higher-speed connectivity will be available by next-generation 
satellite systems, such as Hughes' Spaceway, TM expected to 
be available for residential applications by 2003.
    It is in the cable environment where we see the potential for 
consumer choice and competition in broadband services to be at risk. 
Unlike in other broadband facilities, providers, cable companies do not 
plan to offer access to Internet services--insisting that a customer 
purchase the cable-owned or affiliated service before buying or 
accessing a competitive service. This practice has at least three 
adverse consequences. First, it eliminates competition in the access 
market, thereby challenging the Internet model that has kept prices 
falling and service quality rising over the last several years. Second, 
it forces consumers to pay twice to get the Internet service of their 
choice, thus depriving moderate and low income families of cable-based 
Internet service. Third, it discriminates in service quality between 
the cable-owned Internet service providers--whose content is directly 
accessible--and independent Internet service providers--whose content 
is only indirectly available through the Internet. To make matters 
worse, the cable companies have even stated their intention to preclude 
access to content otherwise available to the consumer on the Internet, 
material with which the cable system does not wish to compete, 
including video material longer than ten minutes.
The Policy Environment
    AOL believes that competition, openness and consumer choice are the 
essential ingredients of the success of the Internet, whether consumers 
access the Internet by broadband or narrowband means.
    As technologies converge and all services--voice, data, video and 
others `` are offered over traditionally distinct voice or video 
platforms, old regulatory classifications will not be sustainable. As a 
result, regulatory parity should become a clear priority, lest Congress 
favor one technology platform over another.
    In moving toward regulatory parity, Congress must choose between 
the open model of the Internet or the closed model of the old AT&T and 
of cable.
    We believe the choice is clear. As the Internet marketplace has 
demonstrated, competition in an open environment will deliver to all 
American consumers' lower prices, better services and more innovative 
products.
    Further, the goal of Congress in this area should be to rely 
increasingly on the marketplace, and less on regulation. We can do that 
by assuring a market-oriented framework where entry costs are low and 
where business success is achieved by a better product and lower price, 
not by ownership of bottleneck facilities or more favorable government 
regulation.
    We decided nearly 20 years ago that open interconnection and 
nondiscriminatory treatment of national service providers by owners of 
last-mile bottleneck facilities should be the cornerstone of our 
national and international communications policy. The remarkable 
developments in the Internet over just the last 5 years have proven the 
wisdom of that choice. The rules of the game have changed; we gave 
monopoly a chance and it failed; we decided to take a different, more 
competitive, path; and we as a nation are better off as a result. 
Indeed, the attached chart shows the benefits of competition across 
multiple communications media, only, in cable, where there is little 
competition have prices risen.
    While Congress's role in this area should be as ``hands off'' as 
possible, you and your colleagues, have in my view, a responsibility to 
consumers to ensure that the benefits being delivered by the Internet 
marketplace are preserved and fostered in the future. It should be our 
ultimate goal to continue an environment of consumer choice and 
competition--where prices have been shooting down instead of up and 
services have gotten better and better. This Internet DNA of choice and 
competition--not the gatekeeper DNA of vertical integration--should be 
our guiding star. If gatekeepers want to play in the new Internet game, 
we should require them to play by Internet rules. We owe consumers no 
less.
    Thank you for the opportunity to appear before you today.
    [GRAPHIC] [TIFF OMITTED] T0293.011
    
    Mr. Tauzin. Thank you very much, Mr. Vradenburg.
    And now Mr. Marc Apfelbaum, senior vice president and 
general counsel of Time Warner Cable.

                 STATEMENT OF MARC J. APFELBAUM

    Mr. Apfelbaum. Thanks very much, Mr. Chairman, for inviting 
us. I am the general counsel of Time Warner Cable, as you said. 
I didn't throw away my prepared remarks because I used the back 
page to write some new notes.
    I wanted to just mention a little bit, you asked us to talk 
about our businesses and Time Warner is really a content 
company. That is what we have always been and we have always 
seen technology as something to use in the service of content. 
But we have been on the forefront of technology in the cable 
business, going back to QUBE in the 1970's, which I think was 
the first interactive cable system. I think we were also at the 
forefront of developing hybrid fiber-coax. We also had our FSN 
experiment in Orlando where we have developed a lot of 
interactive services that are just really becoming to come into 
practice today.
    On the Road Runner front, the whole service is really made 
possible by the upgrades that we have done with our cable plant 
which will allow us to offer all kinds of new digital services, 
not just Internet services. Road Runner is a fully integrated 
service. It is not just created by an ISP, as such. It is 
really a jointly created product between the Road Runner joint 
venture, which we created with Media One and some other 
companies, and us as the local cable operator, where we have 
local online editors in each of the communities we serve and 
they do a really wonderful and creative job of developing local 
content in a way that I think a lot of national companies just 
haven't done. They have worked with local museums, local 
schools, local everything and have developed some really unique 
work.
    I guess the thing that we are trying to do is, as we go 
along, figure out the best way to provide these services, what 
is best for customers. And I think that is the most important 
thing that we all, everybody who is building facilities, which 
is in the end what provides these new services, that all 
facilities providers have the freedom to experiment. That if, 
at this early stage in the development of these services, 
government would come in and say here is how you have got to do 
it, it would all be over. So on the policy front, I do think it 
would be a huge mistake for government to step in and say, here 
is how you have got to do it and, you know, no more 
experimentation.
    And a couple of the Congress people asked, you know, what 
stops us from deploying this more quickly? I would say it is a 
very complicated thing we are out there trying to do. It is not 
an easy thing on either the technology side or the business 
side and, again, it is our freedom to figure this thing out, as 
we go along, that will make it possible to roll this stuff out 
more quickly.
    And the other thing I would say about what government can 
do is that we really do need a national policy on this. You 
know, there has been some reference to the Portland decision. 
It seems to us that it is simply impossible to run our business 
and let hundreds or thousands of different communities decide 
how we should make this business work.
    So, again, I would just like to thank you for having us 
here today and I would be glad to answer any questions.
    [The prepared statement of Marc J. Apfelbaum follows:]
  Prepared Statement of Marc J. Apfelbaum, Senior Vice President and 
                   General Counsel, Time Warner Cable
    Chairman Tauzin and distinguished members of the Subcommittee, my 
name is Marc Apfelbaum and I am senior vice president and general 
counsel of Time Warner Cable. I appreciate the opportunity to appear 
today to discuss the deployment of our broadband service, known as Road 
Runner, and to discuss the future of broadband technology. I commend 
you for holding this hearing as we at Time Warner believe that the pro- 
competitive policies adopted by this committee in the 1996 
Telecommunications Act and the policies we are discussing today to 
encourage deployment of broadband technologies are critical to the 
future of our economy and the continued development of the Internet.
    Time Warner has a long history of technological innovation and 
leadership and has long been interested in providing advanced services 
to consumers over its cable systems. In the early 1980s, Time Warner 
developed QUBE, the first interactive programming service offered over 
cable. In the early 1990s, Time Warner constructed the first hybrid 
fiber-coaxial cable network located in Queens, New York, and 
experimented with a variety of new services through its Full Service 
Network in Orlando, Florida. These earlier groundbreaking initiatives 
provided the foundation for the on-line services the company is now 
introducing across the Nation.
    Building on that foundation and as a result of the regulatory 
certainty created by the 1996 Telecommunications Act, Time Warner is 
well into the process of upgrading all of its cable systems to a state-
of-the-art, hybrid fiber coaxial architecture. When these are 
substantially completed by the end of the year, Time Warner will have 
invested about $4 billion upgrading its cable systems to provide 
increased capacity for both video programming and other new digital 
services.
    To make full use of the upgraded plant, Time Warner teamed with 
Microsoft, Compaq, Media One, and Advance Newhouse to develop Road 
Runner, a new high-speed on-line service that provides local and 
national content. The Road Runner service is jointly created by the 
Road Runner venture and its affiliated cable operators. Road Runner 
provides an innovative mix of local and national content, as well as a 
high-speed connection to the Internet. The joint venture provides 
content on a national basis from various sources including CBS 
Sportsline and Barnes and Noble. Road Runner's cable operator 
affiliates, including Time Warner Cable, Media One and third party 
cable operators, provide additional local content, among other things 
our local on-line editors also assist schools, libraries and museums in 
developing their content.
    The foundation of our Road Runner service is our upgraded cable 
fiber-coaxial network. This network provides the enhanced reliability 
and capacity of fiber optics and results in an increase in the delivery 
of content to the PC at speeds up to 100 times greater than today's 
residential telephone line. Customers reach our Road Runner service and 
the Internet over the cable system, without any need to dial in to a 
local telephone number and the service is ``always on,''
    The Road Runner service allows customers to visit any site on the 
Internet. Nothing on the Internet is off limits to the Road Runner 
customer, including the sites of Internet Service Providers. As you 
know, most content on the Internet is free, but some content providers, 
such as AOL, charge for their services. If a Road Runner user has 
installed AOL on her computer or if her computer came with AOL already 
installed, she need only click on the AOL icon on her computer screen. 
She will obtain access to AOL, and thereby obtain all AOL content, web 
access, e-mail and other services. Road Runner customers similarly can 
reach any other ISP posted on the Net with a single mouse click.
    We believe our Internet services provide subscribers with an 
enormous value. For about the same price as today's dial-up phone line 
plus an ISP, Road Runner provides consumers with Internet service that 
is faster and provides more immediate access to on-line services.
    The development of the Internet is the quintessential example of 
the power of the free market. It was Congress's respect for market 
forces over governmental interference that allowed the market to meet 
the needs of consumers, to develop innovative new technologies, to grow 
the economy and to provide the ultimate forum for communications. No 
one player has the ability to stand in the way of the global phenomenon 
that is the Internet today. For some to suggest that might be the case 
is nothing short of ridiculous. For although Time Warner and other 
cable companies are investing billions of dollars in upgrading our 
infrastructure, cable modem services is still in its infancy, with 
fewer than 1 million subscribers nationwide out of the current total of 
29 million residential Internet subscribers.
    At this early stage in the development of broadband services, it 
would be a mistake for government to choose and impose one business 
model on all broadband providers. Time Warner believes that cable 
companies and other players--be they satellite, wireless, or telephone 
companies-should be encouraged to invest in the development of these 
new Internet access services through pro-competitive policies that 
leave each one free to experiment and develop its own business 
strategy. It is our strong belief that consumers will be best served by 
government policies that spur the rapid rollout of high-speed broadband 
Internet services by multiple players and multiple technologies, rather 
than by government mandates about the business models such entities 
should employ. Those companies that have urged a contrary approach are 
simply using the tired old Washington game of seeking to use government 
to advance their own ``competitive advantage''. However, as FCC 
Commissioner Michael Powell wisely stated in a recent speech on this 
issue: ``Competition policy should focus on the benefits and harms to 
consumers, not the effect on firms.''
    As I've stated, upgrading cable plant and developing and deploying 
advanced services are expensive and risky ventures. Imposing new 
regulation on companies as some have suggested will not only slow 
development but will deter further investment of private capital. 
Therefore, Time Warner strongly urges policymakers to resist those 
attempts to determine through regulation how this market might develop. 
Such attempts fly in the face of history of Internet regulation up 
until now and inevitably result in the freezing or slowing of 
technological development and thereby harm consumer welfare.
     Time Warner also strongly believes that broadband policy must be 
set at the national level. As FCC Chairman Kennard and Commissioner 
Powell have also stated, these important policy questions cannot be 
answered hundreds or thousands of different ways by state and local 
authorities, and we therefore urge this Committee to keep a watchful 
eye on such developments.
    Mr. Chairman, Time Warner applauds your Committee's pro-competitive 
policy approach. I thank you again for giving me the opportunity to 
share Time Warner's views with you and look forward to you questions.

    Mr. Tauzin. Thank you very much, Mr. Apfelbaum.
    And now, Mr. Alex Netchvolodoff. And everybody calls you 
Netch, right?

            STATEMENT OF ALEXANDER V. NETCHVOLODOFF

    Mr. Netchvolodoff. That is right. Just think of the great 
advertising campaign ``With a name like Smuckers, it has got to 
be good.''
    Mr. Tauzin. It has got to be good. Of Cox Enterprises. 
Welcome, Alex.
    Mr. Netchvolodoff. Thank you, Mr. Chairman. The written 
part of my statement, which I am discarding with your 
encouragement, tried to make one point, which I will summarize, 
and then you invited us to perhaps do a little bragging about 
what we are trying to do within our own operations. So I will 
proceed to do that afterwards.
    I think that the question before policymakers is this: Is 
Internet access going to be a competitive service or not? And 
what do the people that analyze this who are not stakeholders, 
who are neither telephone operators nor cable operators or 
wireless providers, but folks in think tanks in Boston and 
California, what do they think is going to happen with respect 
to Internet access?
    And what they think is going to happen is that there are 
going to be six or seven non-affiliated, facilities-based 
providers of access to the Internet and the technologies that 
are going to be used vary. You are going to have microwave. You 
are going to have satellite. You are going to have third-
generation PCS. You are going to have DSL. You are going to 
have cable modems. And that is just the beginning. Electric 
utilities are also going to be involved in this.
    And, therefore, the idea that government, at the very early 
stages of the enormous amount of investment that is teed up to 
occur over the next 3 or 4 years, would somehow decide it 
appropriate to regulate, to impose what would inevitably 
become, in the words of Mr. Powell and Mr. Kennard at the 
expert agency, a very difficult and complicated and costly 
cost-based analysis in order to tease apart all the business 
elements so that seamless access could be provided to non-
facilities-based players--resellers and packagers--is just 
simply not an appropriate thing at this point for the 
government to entertain.
    So the first point I would make--and it is summarized, as I 
say, in my written comments--is that it is way too early, I 
think, for policymakers to consider an intervention, a 
regulatory intervention.
    Now, when the 1996 act was signed into law, Cox was a cable 
company. We simply video one way to our customers. Since the 
enactment of that legislation, we have spent $4 billion 
literally transforming our networks so that you wouldn't 
recognize them today in terms of what they were at the time 
that the 1996 act was passed. We have activated the return path 
and we have done that in a way in which we have had to be very 
careful about noise on the network.
    We have brought switches so that we can provide digital 
telephone service. We have invested in the enormous complexity 
of developing a national network, distributed network, with 
servers so that the people that are using our data access 
services can benefit from the speed of having content 
downloaded into servers. We started a joint venture with a firm 
called At Home. And all of this was done so that we could begin 
to offer our customers a new service at a lower cost and at a 
higher speed than is currently available in the marketplace.
    The gating factor for us is complexity. The gating factor 
is not demand. Our customers want high-speed data services 
faster than we are willing to provide it to them because we get 
only one bite at the apple. Either the services that we 
provide, whether they are telephone or data services, work and 
work very well or we are out of business. The cable industry 
does not enjoy the kind of reputation that the regional bell 
operating companies do. And when we go to our customers and say 
try us on new technology. Try us on new services. They either 
work very well or we are in trouble.
    So, for Cox, the concern here is, A, we have made these 
investments, not with a guaranteed rate of return because, as 
you know, under the Cable Act, we couldn't pass through any of 
the capital investments that we have made to the end-user in 
the form of our cable rates. It was prohibited under the act. 
So all of the investments that we made were made under the 
basis of being, essentially, venture capital. And, Mr. 
Chairman, the promise, we think, is there. By the end of next 
year, our original customer base, which was 4 million--it is 
now 5 million because we have done some consolidating 
transactions, but our original customer base--we would be able 
to provide data access, telephony, and digital video to about 
85 percent of our customer base by the end of next year.
    So we think that this is an enormous success. We would 
simply ask that the Congress be very careful to permit the 
incredible spending of money. I mean, I think it is hundreds of 
billions of dollars that are going to spent by facilities-based 
providers to create Internet access and that that enormous 
investment ought to proceed with as little government 
intervention as possible. So that is, essentially, Cox's story.
    [The prepared statement of Alexander V. Netchvolodoff 
follows:]
   Prepared Statement of Alexander V. Netchvolodoff, Vice President, 
                  Public Policy, Cox Enterprises, Inc.
    Chairman Tauzin and distinguished members of this Committee, I 
appreciate the opportunity to appear here today representing Cox 
Communications, a subsidiary of Cox Enterprises, Inc. When it comes to 
deployment of data services, here's what Cox Communications is 
providing to its customers--fast, cheap, high quality, competitive 
Internet access with national and local content. And we're connecting 
schools and libraries to the Internet . . . for free.
    Mr. Chairman, many industries--telephone, cable, wireless, electric 
utility and satellite--will be investing tens, perhaps hundreds, of 
billions of dollars in private risk capital in the next few years to 
deploy broadband infrastructure. Injecting new government regulation 
into the way competitive high bandwidth Internet access services are 
provided would have an entirely predictable result--it would slow 
investment and hinder deployment. Indeed, one winning strategy for 
government to accelerate the deployment of advanced services would be 
to reduce regulatory burdens not increase them.
    Just consider the dynamic nature of today's marketplace. The cable 
industry's annual spending on two-way broadband facilities is about $10 
billion. Since the '96 Act, Cox alone has invested more than $4 
billion. For the industry, the number of high-speed data homes passed 
will exceed 35 million by December 31.
    The phone industry is answering this competitive cable challenge by 
spending billions of dollars of its own to activate high bandwidth DSL 
capable loops. By year-end, Bell Atlantic has announced 8 million 
lines, SBC 8.4 million, Pacific Bell 5.2 million, and Bell South 5 
million. The most current ARMIS data from 1997 reveal that almost a 
year and a half ago ILECs had 831,000 high-bandwidth, customer-
terminated T1 lines yielding about $11 billion in annual revenue. US 
West alone has told analysts that it would add 80,000 DSL customers 
this year to a total industry subscriber base that is growing at a 
substantial rate.
    Sprint has plans to offer its broadband Integrated On-Demand 
Network (ION) in 27 major markets and, to that end, is spending 
hundreds of millions of dollars on wireless spectrum to create 
broadband access. Last month, MCI Worldcom agreed to purchase CAI 
Wireless to launch broadband access. Motorola and Cisco have formed a 
wireless joint venture to provide high-speed access. Winstar, Nextel, 
and Microsoft have joined this broadband parade. And certainly smaller 
facilities-based players are not excluded. In Seattle, ReFlex 
Communications and TUT Systems have formed a venture to offer Multiple 
Dwelling Units high-speed access using microwave spectrum and fiber 
optic rings.
    The satellite industry is emerging as a very major part of the 
marketplace for broadband access. Hughes is spending $1.4 billion to 
launch two-way access. And AOL has just announced a $1.5 billion 
investment in Hughes. Not to be outdone, Lockheed Martin/TRW is 
spending $3.5 billion.
    Electric utilities are joining with RCN to offer broadband services 
along the east and west coasts passing 40% of U.S. households.
    And finally, 3rd generation PCS broadband capability will start to 
be deployed next year.
    I am not trying to suggest that the entirety of this business 
activity and the billions of dollars of venture capital that it 
represents will all bear fruit. But much of it will. In the last 
several months, there simply has been an undeniable and unprecedented 
amount of time, effort and money committed by dozens of unaffiliated 
stakeholders to the task of providing broadband Internet access. Under 
these circumstances robust competition is inevitable. And it is 
important to note that this will not be competition reliant on 
repackaging or reselling. This competition will result from deployment 
of facilities by numerous unaffiliated industries. It will lower costs 
for end users and provide a rich array of broadband choices 
specifically related to intended uses.
    Mr. Chairman, the cable industry is taking on enormous risk to 
provide new digital services to its customers. In the case of broadband 
data, I can tell you that even with a carefully integrated service like 
@Home the details of both technology and business relationships have 
proven to be extremely complicated. The gating factor for Cox is not 
consumer demand, it's execution in a way that delivers a dependable 
product. From a public policy standpoint, the proposition that 
government should never attempt to regulate a nascent and competitive 
consumer product like broadband data service is apparent on its face. 
From an operational standpoint, such regulation can only introduce cost 
and complexity for the consumer into an already costly and complex 
offering. And from a governmental standpoint, as Chairman Kennard has 
noted, the imposition of seamless access regulation can only be 
accomplished through a prolonged and difficult cost-of-service 
proceeding to determine how to price the myriad network elements and 
business services that are involved. Such a regulatory thicket is 
precisely what the '96 Act aggressively discourages.
    In conclusion it would be a pity if, instead of a nation of 
facilities-based communications providers, we became a nation primarily 
of resellers and re-packagers. Global competitiveness will not be 
furthered by policymaking that creates heavy incentives for resale 
instead of promoting facilities-based business strategies. As I have 
just noted, a highly regulatory, cost-based, rate-of-return unbundling 
of competitive cable Internet access facilities has no public policy or 
legal predicate. High bandwidth Internet access is now and will 
continue to be highly competitive. In this context, cable controls no 
essential facility. Old-fashioned regulation is the last thing needed 
for the Internet to continue to flourish.

    Mr. Tauzin. Thank you very much, sir. Dr. Evil would have 
said it would only cost $1 million. Thank you.
    We will now turn to the Honorable Tom Tauke, a former 
member who has served on this committee. And, Tom, I want to 
welcome you back to the other side of the table now 
representing Bell Atlantic. Mr. Tauke.

                 STATEMENT OF HON. THOMAS TAUKE

    Mr. Tauke. Mr. Chairman, it is good to be back. When I 
talked to the chairman this morning, he indicated I was a 
little boring. So I am going to try to liven up my presentation 
this morning for all of you with a couple of----
    Mr. Tauzin. You weren't supposed to quote me on that, Tom.
    Mr. Sawyer. Mr. Chairman, the microphones don't work any 
better than they did when he was here.
    If he could move it a little closer, it would help.
    Mr. Tauzin. You have got to move it a little closer, Tom.
    Mr. Tauke. This is as close as it gets. I will speak up. I 
will move over a little closer.
    As many of the members have already indicated--or those 
that have testified this morning--have already indicated, the 
Internet is a terrific phenomenon. It is doing great things for 
our economy. As the Department of Commerce study pointed out 
that was released just this week, the Internet is fueling the 
growth in the economy the last couple of years and it is the 
hope for growth in the economy in the future.
    But the infrastructure, which has also been referenced this 
morning, the infrastructure on which the Internet rides is an 
infrastructure that really wasn't built for this market or for 
this technology or for this use. It was an infrastructure that 
was, in large part, built for voice services, has been used for 
some simple data services like downloading text, but now is 
being challenged in a whole new way.
    Customers are going online today not just to tap into CNN 
to get the news of the day. Customers want to be able to go to 
a furniture store, pick out a sofa, see how it looks in their 
room, walk around the sofa, and do all that online. That takes 
a whole lot more bandwidth. That takes a whole lot more 
infrastructure than is there today. So the challenge that we 
face is to get the infrastructure out there that will meet the 
needs of the new economy.
    Well, what is the--when we think of this infrastructure, 
then, what should we be thinking about? I try to think of it in 
two terms. One is the last mile, which we have talked about. 
The second is the infrastructure that is around the backbone. 
And when it comes to last mile of the infrastructure, we have 
been attempting to deploy more and new technology in the last 
mile in order to speed up the service that people get to the 
home.
    I have a little demonstration here that I would like Link 
to run, if he would.
    [Slide.]
    On the left, you just saw a 28.8-K modem that is the 
typical residential customer that is trying to download 6 
pictures. They got 4 percent, a little less than a third of a 
picture.
    [Slide.]
    In the second--we didn't get the rest of it up--but the 
second one is the highest speed modem that we have today. You 
got less than the first picture.
    [Slide.]
    Meanwhile, if you have DSL service, the lowest speed DSL 
service that Bell Atlantic is employing today, you can get all 
six pictures during that timeframe.
    So that is one of the things that we are attempting to do 
for the last mile.
    But there is another issue----
    Mr. Tauzin. Could you redo that?
    Mr. Tauke. Sure.
    Mr. Tauzin. It went kind of fast. I want to make sure 
people kind of saw it. Could you back it up and do it again. 
All right.
    Mr. Tauke. So that is the last mile.
    But you can have the greatest last mile in the world, if 
you don't have connection to a backbone that also is providing 
speed to this level, it isn't going to do you a lot of good. 
And when it comes to the backbone, I have personally had a lot 
of difficulty figuring out what is going on. I look at these 
maps and they are put out there and there are networks flying 
all over the country. I read stories about how we have all this 
capacity.
    I have finally concluded that the backbone is a lot like a 
regional airport system or the Nation's airport system. You 
know, my own State of Iowa, you can look at a map and you see 
all of these flights flying from New York to Los Angeles going 
over Iowa and they are high-speed flights, you know, direct 
service. They don't do the people in Iowa a bit of good. They 
don't land in Iowa because if they did it would slow down the 
traffic.
    Well, the same is true with much of the backbone. It goes 
cross-country. There are not stop-off points because stop-off 
points slow down the traffic. So, instead, you have to build a 
lot of regional airports to get you into the hub so you can get 
on the main backbone. Building those regional airports is where 
the real money comes in and where the real investment is 
needed. We, today, have barriers that prevent us as companies 
from building those regional airports and other players are 
busy putting the resources they have into the major backbones.
    So I believe that those are the two challenges: the last 
mile and the regional system that is part of the backbone 
system that allows people to get on to this new world of 
information. I think that if you look at what is the barrier, 
then, to the investment--and it is huge amounts of investment 
that need to be made to get that last mile and the regional 
system in place--a big part of the barrier is regulation. A 
number of the people have said the government shouldn't be in 
here telling us how to deploy the technology. I don't want to 
shout this too loudly, but that is what is happening. At least 
that is what is happening for the major providers of the 
technology, including Bell Atlantic.
    Essentially, the way I look at it is this. We have a 
telephone market. We have a cable video market. We have telecom 
legislation and 1934 act and various revisions thereof that 
apply to those markets. But today we are taking the regulation 
from the telephone market and applying it to the new 
infrastructure and the new technology that we are attempting to 
deploy. And it is hamstringing that deployment; it discourages 
the investment. In the last mile, it makes our environment in 
which we are making this investment very uncertain. We don't 
know from day to day what the rules will be. And so, as a 
result, it deters that investment. We have lots of plans, but 
there are lots of uncertainties in the regulatory world. In the 
regional airport or backbone world, we can't make the 
investment today because of the rules that are on the books.
    I would encourage the committee to look at the wireless 
model. When the wireless industry came forward, which, again, 
uses part of the existing infrastructure as this new world is 
using some of the existing infrastructure, that when the 
wireless world came forward, the Congress and the FCC said, let 
us set up a new regulatory paradigm for that world. Let us not 
regulate it. Let us instead have limited regulation so the new 
technology will be deployed and, indeed, that is what happened. 
New technology was deployed. It was deployed rapidly, much 
faster than was ever predicted. There has been great 
competition in that arena and in the wireless arena you have 
seen prices go down and services expand.
    So I guess my last point is this. That what can this 
committee do to promote growth of the Internet in its 
infrastructure? I think what the committee can do is to try to 
clear away some of the regulation that is restricting and 
inhibiting investment. And if you are able to do that, then I 
think you will see the kind of speed at your homes, not just in 
business, but in homes, that I would like to show in this last 
demonstration. Demonstrations always take longer.
    This is why we need speed.
    [Slide.]
    These are pictures that are being downloaded right now. 10 
pictures being downloaded very rapidly using 7.1 megabits per 
second. And the point that I want to make is that with this 
kind of rapid downloading, you get great clarity which you 
don't get today. You would be able to download a novel, a good-
sized novel, in 2 seconds. You could transfer x-rays in 4 
seconds. The fact is you would also have the infrastructure in 
place which would permit this world of E-commerce that 
consumers want and the economy needs to move forward. Thank 
you.
    [The prepared statement of Hon. Thomas Tauke follows:]
 Prepared Statement of Thomas Tauke, Senior Vice President, Government 
                  Relations, Bell Atlantic Corporation
    Mr. Chairman, thank you for this opportunity to testify before the 
Committee. I am Tom Tauke, Senior Vice President of Government 
Relations for Bell Atlantic. I am before you today to tell you that, 
without changes in the regulatory architecture, the deployment of high 
speed Internet access will be significantly impeded, to the detriment 
of all Americans.
    Mr. Chairman, the Internet is a wonderful tool that has developed 
far faster than anyone could have imagined. But its continued 
development and evolution into a technology that can handle any form of 
communications and any type of service from educational to medical is 
threatened.
    The current infrastructure on which the Internet rides is 
insufficient to handle the explosive growth, and the danger is that we 
won't recognize the scope of the problem until it seriously impairs our 
economic growth. Policy makers must avoid applying old regulatory 
models to an entirely new, competitive technology. The consequences of 
inaction are very serious. The entire Internet economy rests on the 
ability of businesses to reach consumers. Without BOC broadband 
deployment many local communities will never realize the promise of 
high-speed Internet, and Internet companies will not be able to reach 
their markets. This will have a serious impact on the value of the 
Internet economy itself--the sector that everyone agrees is driving 
economic growth.
    If we slip into using policies for the Internet and broadband 
services that were intended for a local voice telephone market, we will 
slow deployment of broadband, inhibit competition and risk slowing 
investment at the very time when we need every possible player involved 
to help advance the capabilities and capacity of the Internet.
The State of the Industry
    A few short years ago, the Internet was something that only serious 
researchers and computer jockeys knew about. Electronic commerce was 
not part of our vocabulary. In 1995, revenues generated by the Internet 
were a mere $5 billion. Since then, the growth of the Internet has been 
astounding, far outstripping the predictions of most experts. Last 
year, Internet revenues rose to an astronomical $301 billion.
    With this growth, there has been increasing demand for bandwidth 
and speed. The 14.4k modems that were state-of-the-art a few short 
years ago are the slowpokes, with 56k being the top speed achievable by 
most mass-marketed dial-up modems. As more and more people use the 
Internet and more complex information and bandwidth-intensive 
applications appear, it is clear that 56k just is not fast enough.
    Consumer surveys demonstrate that speed is a very important issue 
to users. But so is quality and capability. The Internet's problems are 
only partly related to the need for more capacity. It is an end-to-end 
system based on hundreds of connections between different networks. At 
the top of this system is the Internet backbone which links together 
thousands of web sites and Internet providers and takes traffic back 
and forth at high speeds across the U.S. The faster data can get on the 
backbone and the more backbone capacity there is, the better the 
connection and the higher the quality of the data transmitted.
    There are vast areas of the U.S. that simply have no nearby 
backbone connections or hubs. The three largest backbone carriers--MCI/
WorldCom, Sprint and Cable and Wireless with AT&T coming up fast--have 
little incentive to connect their systems with smaller carriers or 
locate hubs away from major urban centers. And the level of 
concentration is increasing rapidly as the major backbones acquire or 
displace smaller players. Even where backbone exists, such as in major 
urban centers, it is often congested. Many Internet providers have no 
way to get their data traffic to the backbone efficiently and without 
numerous back-ups and delays. Many are simply located too far away from 
convenient backbone connections. And when they do get to the backbone, 
they find that the lack of adequate capacity slows their customers' 
service.
    If a consumer's data--a web page being transmitted to a person's 
home for example--is slowed at any point in the transmission, data can 
be lost, the connection may drop and some of the more exciting 
applications for education and telemedicine involving video, for 
example, will simply be impossible. The current lack of competition in 
the backbone market and the threat of telephone style regulation of 
broadband connections deployed by incumbent telephone companies 
threaten to slow the improvement needed in the Internet. We need 
competition and investment in the Internet from end-to-end--from the 
local connection to the nationwide and global backbone. Whole new 
industries based on a more advanced Internet will be stymied and the 
continued development of our high tech and computer industries will be 
slowed. The Internet has driven the growth of the high tech sector. 
There is a very real danger that if the Internet does not advance to a 
new level, one capable of providing higher speed, higher quality 
connections, the growth our economy has enjoyed because of the 
explosion of information technology could well be undermined.
    The information superhighway is exploding while driving at 56k, 
imagine what will happen when we allow consumers to drive at 10 or 100 
times that speed.
    Today, the two most promising landline technologies to provide 
residential consumers with high speed Internet access at a reasonable 
cost are Digital Subscriber Line (DSL) 1 services, and cable 
modem services. Only one of these services, DSL, is subject to 
significant federal regulation. Even worse, only certain providers of 
DSL--the Bell operating companies (BOCs)--are so constrained as to not 
be able to provide data services across LATA boundaries.
---------------------------------------------------------------------------
    \1\ There are different types of DSL services. The most popular 
today is Asynchronous DSL, or ADSL. DSL technologies are generically 
referred to as xDSL.
---------------------------------------------------------------------------
    If consumers are to get widespread deployment of high speed 
Internet services from competing providers, it is necessary for DSL 
services to be deregulated. Current regulation hampers significant DSL 
deployment and denies consumers benefits.
To Regulate or Not to Regulate, That is the Question
    The question before Congress is ``Why should companies that are 
best able to bring broadband to all Americans be constrained from doing 
so by an antiquated regulatory structure?'' Bell Atlantic thinks they 
should not.
    The high-speed data business of today should not be regulated like 
the telephone network of yesterday. In most urban areas, there are 
several companies vying for the high-speed data business. Cable 
companies are upgrading systems to be Internet-capable with high-speed 
cable modems. New entrants, such as Covad, Northpoint, and Rhythms 
NetConnections 2, provide DSL services to business and 
residential consumers. And unlike the voice markets, local telephone 
companies are not the dominant providers of residential high-speed data 
services--cable companies are. They already serve 80 percent of the 
residential customers buying high speed Internet access.
---------------------------------------------------------------------------
    \2\ These companies are sometimes referred to as data local 
exchange carriers, or DLECs.
---------------------------------------------------------------------------
    Even though there are several willing providers of the service, 
there is still precious little deployment of high-speed Internet 
services. The players who can make the financial commitment to widely 
deploy DSL services, and can help new entrants in their deployment of 
the services, are being held back by the regulatory regime in place 
today.
    Bell Atlantic and other Bell operating companies (BOCs) are 
prohibited from carrying data traffic across LATA boundaries. That 
means that a Bell Atlantic customer must rely on other providers to 
reach the Internet. It also means that Bell Atlantic cannot operate 
Internet backbone services.
    To provide customers reliable end-to-end data services, a provider 
must be able to move data from one end of the country to the other, and 
overseas. Sprint, MCI, and AT&T all have this capability today. Cable 
companies and the nascent DLECs are not prohibited from providing these 
services. The only companies not allowed to provide this service are 
the BOCs.
    Remember that the reason that AT&T was split into local and long 
distance components was the threat that AT&T would use its market power 
in one market to harm competition in another market. At that time, AT&T 
had a monopoly over the local exchange market. There is no current 
monopoly for high-speed data services.3 In fact, out of the 
nearly 100 million Internet users, there are only 70,000 total DSL 
customers nationwide. There are seven times more high-speed data 
customers using cable modems (500,000) than DSL.
---------------------------------------------------------------------------
    \3\ Without a change in the regulatory treatment of DSL services, 
however, cable may become a de facto monopoly provider of high speed 
Internet services.
---------------------------------------------------------------------------
    Bell Atlantic may not even provide its Bell Atlantic.net customers 
direct Internet access. Instead, Bell Atlantic.net must contract with a 
third party to provide the Internet portion of the Bell Atlantic.net 
service.
    There is very little justification for the FCC's protection of AT&T 
and MCI from Bell Atlantic's pro-consumer entry into the data business 
on an equal footing. These mammoth companies have the capital and know-
how to compete for data customers. Even the start-up DLECs are in an 
excellent financial position. These companies have been the darlings of 
Wall Street, in spite of the fact that most of these companies have 
only started to build their customer base. NorthPoint Communications 
has a market capitalization of $4.5 billion, in spite of the fact that 
its revenues in 1998 were less than $1 million. Covad's market 
capitalization is $3.1 billion, with 1998 sales at $5.3 million. 
Rhythms NetConnections market capitalization is nearly $4 billion, on 
1998 sales of $500,000.
    There are other existing regulations that handicap Bell Atlantic's 
provision of DSL. The FCC is busy working on applying Section 251 
unbundling and resale requirements to Bell Atlantic and other incumbent 
LECs. Bell Atlantic is committed to providing unbundled DSL-compatible 
loops to competitors. Any other unbundling of the DSL service or the 
provision of DSL-capable loops is unnecessary and can harm deployment 
of DSL.
    The FCC is currently considering a proposal to require spectrum 
unbundling, also called line sharing. Under this proposal a competitor 
would be allowed to use only a portion of the capacity of the loop for 
free to provide DSL service and the incumbent LEC would still be 
required to provide the underlying basic telephone service and cover 
the full cost of the loop. To split the capacity of the loop, however, 
is bad public policy. Line sharing deters the development of 
competition for local voice services by ``stranding'' voice and 
discouraging competition for voice services. Line sharing discourages 
CLEC investment in local voice services by giving the new DLEC 
competitors a ``free ride'' on the ILEC's voice service, which is 
priced below cost. Competing carriers do not need to share the 
unbundled loop to offer advanced services. They are already free to 
offer advanced services over an unbundled loop or to invest in other 
technologies, such as wireless technologies. Like the ILEC, they can 
recover the cost of the unbundled loop by offering voice and other 
services over that unbundled loop.
    The FCC is also in the midst of determining whether LEC DSL 
services should be subject to the resale discounts provided under 
Section 251. Bell Atlantic has filed a tariff at the FCC to provide DSL 
service on a wholesale basis to ISPs such as AOL and to competing 
carriers. CLECs claim that ISPs are the end-users of that service, and 
therefore CLECs should be able to obtain an additional discount from 
the ISP tariff price. What they are trying to do is give themselves a 
better deal for DSL services so that it is impossible for ISPs to 
compete against carriers in the residential mass market. But that makes 
no sense from either a legal or policy perspective. First, as a legal 
matter, the Section 251(c)(4) discount applies only to services that 
are provided ``at retail'' to ``subscribers'' of those services. The 
xDSL services provided to Internet service providers (ISPs) and other 
carriers, however, will be used as an input to their own retail 
Internet services and resold to their own subscribers. It is the ISPs 
and other carriers that purchase under this tariff that will perform 
the retail functions of marketing, advertising, billing and customer. 
There are no further retail costs that Bell Atlantic would avoid by 
providing these same wholesale arrangements to carriers and therefore 
there is basis for applying the avoided cost discount that is normally 
applied services offered at retail.
    Second, as a policy matter, imposing a wholesale discount 
requirement on wholesale xDSL services would make it impossible to 
provide ISPs the lowest possible price. If any price made available to 
ISPs, no matter how deeply discounted, automatically would have to be 
available to CLECs at a further 20 percent discount, the simple fact is 
that carriers will be unable to offer ISPs as significant a volume 
discount. And ISPs will be unable to compete in the residential mass 
market against carriers that are getting the same service, but at a 
significantly lower price.
    With the proper deregulation in place, DSL deployment will increase 
significantly. A rising tide will raise all ships, as the standard 
speed for Internet access increases by a factor of 10 or 100, every 
high-speed data provider will benefit. Deregulation often provides 
consumer benefits in deployment, prices, and choices.
The Cellular Experience
    There are some parallels between what happened in the cellular 
industry and what is happening in the high-speed data marketplace. The 
slow roll out of cellular service, and continuing regulation of the 
service has cost consumers and the economy billions of dollars. 
Significant deregulation, however, has increased subscribership and 
lowered consumer costs.
    In 1968, the FCC initiated its first inquiry into reallocating UHF 
spectrum for mobile telephone service.4 The Commission 
issued its first report and order in 1970.5 Several 
decisions and reconsideration followed, and the first experimental 
cellular system finally became operational in 1979 in Chicago. In March 
1982, the FCC issued its Report and Order creating the commercial 
cellular service.6 Commercial cellular service finally began 
in 1983, even though the technology was developed and ready for market 
more than 10 years earlier. According to one estimate, this delay in 
cellular licensing cost the U.S. economy a staggering $86 
billion.7
---------------------------------------------------------------------------
    \4\ Ten years earlier, the FCC chose to grant additional spectrum 
in the UHF band to broadcasters, rather than mobile radio.
    \5\ First Report and Order and Second Notice of Inquiry, Docket No, 
18262, 35 F.R. 8644 (1970).
    \6\ Report and Order, 86 F.C.C. 2d 469 (1981), modified 89 F.C.C. 
2d 58 (1982), further modified 90 F.C.C. 2d 571 (1982).
    \7\ Estimate of the Loss to the Unites States Caused by the FCC's 
Delay in Licensing Cellular Telecommunications, National Economic 
Research Associates, Prepared by Jeffery H. Rohlfs, Charles L. Jackson 
and Tracey E. Kelly, released November 8, 1991 (revised).
---------------------------------------------------------------------------
    Moreover, no one predicted cellular's fantastic growth. In fact, at 
the time of the breakup of the Bell system, it was unclear as to 
whether AT&T or the BOCs would inherit AT&T's cellular spectrum 
licenses. AT&T had predicted that cellular subscription levels would 
reach one million by 1999. In reality, cellular subscribership reached 
that level in 1987, and at the end of 1998, there were 69,209,321 
wireless subscribers in the U.S.8
---------------------------------------------------------------------------
    \8\ CTIA Semi-Annual Wireless Industry Survey Results.
---------------------------------------------------------------------------
    Wireless growth was actually very slow at first. By the end of 
1988, there were approximately two million cellular subscribers in the 
U.S.9 The FCC made an effort to significantly deregulate 
cellular service in 1988.10 This first of two significant 
deregulatory events in the cellular industry help make wireless 
telecommunications the ubiquitous service it is today.
---------------------------------------------------------------------------
    \9\ Id.
    \10\ Amendment of Parts 2 and 22 of the Commission's Rules to 
Permit Liberalization of Technology and Auxiliary Service Offerings in 
the Domestic Public Cellular Radio Telecommunications Service, Report 
and Order, 3 FCC Rcd. 7033 (1988), recon. in part 5 FCC Rcd 1138 
(1990).
---------------------------------------------------------------------------
     In December 1988, the average monthly cellular bill was $98.02 for 
the two million plus subscribers. Within four years of the FCC's 
deregulatory effort, cellular subscribership reached 11 million, while 
the subscriber's average monthly bill dropped by nearly 30 
percent.11
---------------------------------------------------------------------------
    \11\ CTIA Semi-Annual Wireless Industry Survey Results.
---------------------------------------------------------------------------
    The second major deregulatory effort was undertaken by Congress in 
1993. In the Omnibus Budget Reconciliation Act of 1993 (OBRA 1993) 
12, Congress, to a great extent, deregulated the cellular 
telephone industry. From 1993 to 1998, wireless telephone 
subscribership has risen from 16 million to 69 million, while the 
average monthly bill has dropped by nearly 50 percent.13
---------------------------------------------------------------------------
    \12\ Omnibus Budget Reconciliation ACt of 1993, Public Law 103-66.
    \13\ CTIA Semi-Annual Wireless Industry Survey Results.
---------------------------------------------------------------------------
    OBRA 1993 allowed states to petition the FCC for continued rate 
regulation. During the pendency of these proceedings, the Cellular 
Telephone Industry Association filed a study with the FCC detailing the 
effects of state cellular regulation.14 The study, performed 
by Jerry Hausman, concluded that cellular prices in regulated states 
averaged 17% higher than the prices in unregulated states. He also 
found that cellular penetration and cellular growth is lower in 
regulated states than in unregulated states.15
---------------------------------------------------------------------------
    \14\ Letter to Reed Hundt from Thomas, E. Wheeler, President and 
CEO, CTIA, March 10, 1995, in PR Dockets 94-103, 94-104, 94-106, 94-
107, 94-108, 94-109, and 94-110.
    \15\ The Cost of Cellular Regulation, Jerry Hausman, McDonald 
School of Economics, MIT, January 3, 1995.
---------------------------------------------------------------------------
    The inescapable conclusion is that the cellular industry benefited 
greatly from deregulation. In a deregulated environment, subscribership 
rose and prices dropped.
    The high-speed Internet market is in a similar position today as 
the cellular industry was more than ten years ago. Of the nearly 100 
million U.S. Internet users, only 500,000 access the Internet via high-
speed cable modem, and a scant 70,000 use xDSL technology for high-
speed Internet access. Adoption of deregulatory measures, such as those 
contained in the Tauzin-Dingell draft bill will permit telephone 
companies to provide xDSL technologies at a more rapid pace, hopefully 
with the same results as deregulation of the cellular industry: more 
consumers accessing the technology for lower costs.
Give the Consumer a Choice
    With AT&T providing high speed Internet access over a closed 
system, whereby the consumer using AT&T's cable modem must pay for 
AT&T's ISP of choice--(At Home), consumers will want a different 
provider to give them a choice of both the high speed pipe and the ISP. 
Bell Atlantic's DSL will allow consumers to choose from many ISPs, 
including Bell Atlantic's own ISP. Bell Atlantic will not condition the 
deployment of DSL on the requirement that a customer use Bell 
Atlantic's own ISP.
    Customers want choice. Some customers are very happy with their 
current ISPs. Bell Atlantic would like to provide those consumers with 
a high-speed Internet option using their ISP of choice. This is good 
for the consumer and good for the industry.
Data Services Are Different
    Congress must make the FCC recognize that the high-speed data 
business is separate and distinct from the voice telephony services 
business. The FCC seems intent on applying the Title II common carrier 
regulation of voice services on telephone companies' providing data 
services, and applying the Title VI cable regulation, or lack thereof, 
on cable operators' providing the same service. A company's parentage 
should not determine that company's regulations in a different 
business. This is a classic case of regulatory disparity--those 
customers purchasing high-speed Internet access service from a BOC have 
their service restricted by regulation, while those purchasing similar 
high speed Internet access service from AT&T's cable system have no 
such regulations.
    Rather than impose additional regulations for data provision by 
cable operators, the FCC should not be regulating data services under 
Title II, Title VI, or any other provisions of the Communications Act. 
Congress gave the FCC the opportunity to set the proper deregulatory 
environment for high-speed data services by including Section 706 in 
the Telecommunications Act of 1996. Unfortunately, the FCC failed to 
take advantage of the opportunity and continues to constrain the 
deployment of advanced services to all Americans through its imposition 
of a regulatory scheme designed for voice services. Clearly, consumers 
will benefit from deregulation where there is competition as there is 
for data services.
    Some have argued that providing interLATA data relief is a back-
door way for the BOCs to enter the interLATA voice business. This 
argument is a red herring. Bell Atlantic will not provide interLATA 
voice telephony until it gains the approval to provide that service 
pursuant to Section 271. Bell Atlantic is committed to opening its 
local telephone network, and gaining approval to provide long distance 
services in every state in its region.
Congress Should Adopt an Open Competition Policy for Data Services
    The policy that will most benefit the consumer and the Internet is 
an open competition policy. Congress should adopt a policy that permits 
all data service providers to provide Internet backbone services. 
Congress should encourage last mile broadband deployment. Finally, 
Congress should ensure that regulation is only instituted where there 
is a clear market failure.
    Overlaying existing telephony regulation to the Internet will not 
work. Bell Atlantic urges Congress to adopt legislation that 
deregulates the provision of data services and does not favor one 
provider over another. The legislation should empower consumers with 
choice. Bell Atlantic believes that the Tauzin-Dingell draft 
legislation meets all of these policy objectives, and Bell Atlantic 
respectfully urges Congress to take immediate action in passing such 
legislation.
[GRAPHIC] [TIFF OMITTED] T0293.012

[GRAPHIC] [TIFF OMITTED] T0293.013

[GRAPHIC] [TIFF OMITTED] T0293.014

[GRAPHIC] [TIFF OMITTED] T0293.015

    Mr. Tauzin. I thank the gentleman.
    And next will be the senior vice president of One Sprint 
strategic development for Sprint Corporation, Mr. Al Kurtze. 
Al.

                   STATEMENT OF ARTHUR KURTZE

    Mr. Kurtze. Thank you, Mr. Chairman. And I too will be 
mindful of your admonition not to----
    Mr. Tauzin. Microphone. Let us crank it up again. We have 
to download this stuff over here. You know, that is how it gets 
to----
    Mr. Kurtze. I spent the last 4 years in the wireless world, 
so I keep clicking. I thank the chairman for the opportunity to 
speak here and I will be mindful of not dragging in our written 
statements. And I see that the Congresswoman has had to step 
out, but I would thank her for the kind words she said on our 
behalf at the opening.
    Mr. Chairman, I have been in the communications industry 
for 33 years now. In fact, we started just down the street here 
in an old building at 1225 Eye Street with what was then C&P 
Telephone Company and I can tell you that the changes that the 
committee is wrestling with are significant and I know very 
complicated from what I have observed over that period of time. 
I would like to also apologize in advance if I get accused of a 
little bit of advocacy here. And I will talk a little bit about 
Sprint's experience in deploying new networks and it is one 
that we are very proud of and I would like to think it gives us 
at least a point of view on the challenges of deploying new 
technologies and new networks over the years.
    Sprint is well-known for its deployment of the first fiber-
optic, a long-distance network, now over 15 years ago. And 
learned a lot in the challenges of deploying that technology, 
new technology at the time, of stringing fiber-optics across 
the country and continues to benefit from that experience.
    More recently, we have deployed the first all digital, 
nationwide PCS network over the last 4 years. Which was my 
specific assignment at the time. And I can tell you, the 
challenges there of building almost 15,000 cell sites in 
various communities throughout the country were significant and 
varied and really does open your eyes as to the demands of 
various communities, the specific circumstances when it comes 
to deploying those technologies, always dealing with local 
citizens who have their own points of view and trying to do 
what they think is best for their communities.
    Right now, Sprint is on the verge of deploying its new 
integrated on-demand digital network. That network will ride on 
a substantial backbone of which Sprint has invested throughout 
the country in new ATM technologies. What it does, in fact, 
when it comes to reaching out to individual consumers, 
residential consumers, if you will, in the short-term depend on 
technologies that would be available from other suppliers of 
the last mile service. The contemplation of constructing new 
facilities to each individual home is one that we will 
eventually get to, but do now depend on existing carriers to 
provide those services.
    Sprint is investigating and working with new types of 
technologies. We have recently acquired rights to companies 
that have spectrum previously designated as MMDS spectrum that 
was originally thought would be used for alternate forms of 
distribution of television, which we think hold great promise 
for delivering broadband data, but I would tell the committee 
that that is probably a year and a half away in terms of 
implementation, if not longer. Those are new technologies that 
are just underway.
    We are also experimenting, as was commented earlier, with 
our PCS spectrum in new forms of data transmission. We have 
just introduced low-speed data, low-speed relative to Internet 
type speeds, 14.4 kilobit data, with any PCS phone, but we are 
pushing the edge of that envelope and looking at new 
technologies. But I would also say that the broad use of that 
technology is probably a year or 2 away in terms of faster 
data.
    So I think the issue of the last mile is one that has to be 
dealt with at least on a transition basis. It would be 
inappropriate, I think, for the committee to assume that there 
are many choices available today for companies that want to go 
in service today and we must look at the transition for what 
might be and what we expect will be technologies at some point 
down the road, but are not available in the marketplace today.
    I would say that Sprint has a long record of cooperating 
with many of the companies, in fact, that are represented here 
and we look to continuing to do so. But we hope it is an 
environment that allows that evolution from where we are today 
to where we would like to be. Thank you, Mr. Chairman.
    [The prepared statement of Arthur Kurtze follows:]
Prepared Statement of Arthur Kurtze, Senior Vice President, One Sprint 
               Strategic Development, Sprint Corporation
    Thank you Mr. Chairman and members of the subcommittee, for the 
opportunity to present Sprint's views on the deployment of broadband 
and high-speed data services.
    My name is Al Kurtze. I am Senior Vice President for One Sprint 
Strategic Development at Sprint Corporation, a position I have held for 
the past four months. Prior to that, I was the Chief Operating Officer 
of Sprint PCS for four years, where I had responsibility for 
construction and operation of the nation's first and only all digital 
nationwide PCS network. Prior to that, I was Senior Vice President and 
chief of staff for Sprint's local telephone division and was also an 
executive at Centel Corporation. During my thirty-three years in the 
telecommunications industry, I have been fortunate to be in the 
forefront of technological innovation, and I can assure you that the 
topic we are discussing today is as important as any topic to the 
future of telecommunications. Broadband access, and particularly 
broadband to the home, is the last roadblock inhibiting many Americans 
from enjoying the benefits of the telecommunications revolution. I 
applaud the subcommittee for taking a hard look at broadband 
technologies because proposals before Congress would have the 
unintended effect of fortifying and perpetuating that roadblock.
    Sprint is uniquely suited to address broadband issues because we 
are a technological leader. We changed the paradigm for long distance 
service by building the first nationwide all-digital, fiber optic 
network in the United States, which allowed us to bring ``pin drop'' 
clarity and ``dime a minute'' long distance calls to America. We also 
spent billions of dollars to buy licenses from the government and build 
Sprint PCS, the only nationwide PCS wireless network. Concurrently, 
Sprint has shown its technical leadership by Synchronous Optical 
Network (SONET) and Dense Wave Division Multiplexing technologies in 
its backbone network.
    Sprint has considerable experience in packet switching technology. 
In fact, both Sprint's core long distance network and its PCS network 
utilize packet technology extensively. In these networks voice and data 
traffic are both transmitted in packets and are often 
indistinguishable.
    While we are proud of these achievements, our most exciting 
technological breakthrough is a new service Sprint announced about a 
year ago called Integrated On-Demand Network, or ION for short. ION is 
a family of broadband-based services for both business and residential 
markets. ION provides all distance, voice, video, and data services, 
using a transmission facility over Sprint's network. Sprint ION service 
replaces multiple access networks from multiple suppliers and provides 
the opportunity to offer a package of multiple services over a single 
network.
    For small business and residential customers, the basic ION package 
will include four virtual voice lines, each equipped with caller ID and 
voice mail, two high-speed data connections that can be used for 
Internet service, and virtually unlimited local and domestic long 
distance voice service. If a customer wants a different configuration, 
the change can be made quickly by the customer. All of this can be 
provided over one access connection through the Sprint ION broadband 
network. This will eliminate the need for multiple ``plain old 
telephone'' lines when customers needed to use the Internet at the same 
time they needed to make a voice call. With Sprint ION, everything is 
available at once over one connection.
     Sprint ION is an elegant service in large part because it is 
capable of using multiple last mile access technologies. This fact has 
led Sprint to state that ION is ``access technology agnostic.'' Sprint 
ION can use broadband capabilities provided by wireless solutions, 
dedicated special access circuits, normal telephone lines upgraded 
using xDSL technologies, and communications enabled, broadband cable 
plant.
    While multiple methods of access may be used and Sprint is 
aggressively pursuing several of them, the reality is that there are 
only two technologies currently available and generally deployed to 
reach most American homes--the telephone line to the house and the 
cable line to the house. Thus, Sprint's ability to provide ION to 
businesses and residences depends in most cases on either the phone 
company or the cable company making its facilities available. And, 
that's a serious problem.
    The Bell Companies and GTE have successfully stonewalled to date in 
making xDSL capable facilities available on reasonable terms. Now they 
are urging Congress to change the law to remove the current legal 
obligation to provide access to their needed facilities. The cable 
companies have adopted a similar stonewall approach, with AT&T trying 
to buy up cable companies or tie them up in exclusive arrangements and 
then denying access to competitors such as Sprint.
    In an effort to get around this ``last mile'' roadblock, Sprint has 
begun a massive effort to collocate Digital Subscriber Line (xDSL) 
equipment in many Bell and GTE central offices. Unfortunately, Sprint 
and other companies have had well documented problems in obtaining 
access to broadband capable local loops. In nearly 20 per cent of the 
Bell and GTE offices where Sprint has requested collocation for the 
placement of broadband equipment, that critical collocation has been 
denied.
    Further, many local loops are not broadband capable for use by 
Sprint and others. The phone companies have placed so-called ``pair 
gain'' or Digital Line Concentrator (DLC) remote equipment in 
neighborhoods rather than install copper wires directly from central 
offices to individual customers. These DLC devices, while cost 
effective for the ILECs, make it impossible to gain a broadband capable 
loop at the central offices for connection to the xDSL equipment Sprint 
is deploying. In order for xDSL to work, there must be copper wire from 
the xDSL equipment to the subscriber. The placement of DLCs breaks this 
discrete copper connection between the customer and the xDSL equipment 
that is installed in a central office.
    Because the RBOCs and GTE continue to install new DLCs in their 
networks, Sprint believes that soon more than 50 per cent of the ILEC 
local loops will not be capable of supporting broadband services 
offered by competitive carriers through collocation in ILEC central 
offices. In order to provide competitive broadband services such as 
Sprint ION to customers behind ILEC DLCs, Sprint and other competitors 
will need access on a line-by-line basis to the bandwidth created by 
the ILEC-deployed xDSL facilities and packet switching, something the 
Bells and GTE have been unwilling to provide.
    In another attempt to circumvent the roadblock, Sprint is in the 
process of purchasing rights to companies holding licenses or lease 
rights to frequency spectrum in the Multichannel Distribution Service 
(MMDS) band. It is Sprint's hope that by utilizing this spectrum with 
equipment that is still under development Sprint can provide broadband 
last mile facilities to at least a portion of the market. 
Unfortunately, this spectrum, originally intended for television 
signals, is in short supply and Sprint can cover only a small portion 
of the potential market through MMDS spectrum. Further, even in areas 
where Sprint has MMDS spectrum available, not all businesses and homes 
can be reached because MMDS requires line-of-sight between the 
transmission tower and a unit on the side of the customer's home. This 
means that hills, trees and buildings can block a signal from being 
received.
     MMDS technology is also essentially untried for two-way data 
transmission and will require significant buildouts. These buildouts 
will involve many of the same siting and zoning issues encountered by 
the recent PCS construction activity. While Sprint is optimistic that a 
cell-based, fixed wireless broadband network can be constructed, and 
has backed up that optimism by spending hundreds of millions of dollars 
to obtain rights to spectrum in parts of the country, it's probably at 
least 18 months before service can be offered on a meaningful basis. 
And, there are major parts of the country not covered by Sprint's 
acquisitions at all. For example, Sprint's acquisition of MMDS licenses 
does not cover many of this Subcommittee's Congressional districts. For 
example we do not have licenses for Louisiana, Massachusetts, Georgia, 
Mississippi, Virginia, Tennessee, or Los Angeles.
    Some may argue that broadband wireless spectrum in both the 
geostationary and low earth orbit satellite (LEO) bands is available. 
However, geostationary satellites are at such a high orbit that signal 
delay caused by the distance signals must travel creates significant 
voice and real-time two-way video problems that make use of 
geostationary satellites inappropriate. While geostationary satellites 
may work for surfing the Web, they do not work well for services 
requiring real-time two-way communications. When voice services were 
offered over geostationary satellites about 15 years ago, the market 
rejected these voice services because of the degradation in quality 
caused by the signal delay. LEO applications conceptually hold some 
promise, but the economics of LEO service appear to make practical 
broadband consumer service impossible in markets with any significant 
density.
    Sprint PCS operates a nationwide, state-of-the-art second-
generation mobile services network. So-called third generation (3G) 
technologies that are likely to become available for use in PCS 
mobility networks are likely to increase network efficiency and enable 
Sprint PCS to provide new services and capabilities to the public. 
While 3G technologies are complex and involve many components, two 
features deserve attention. First, 3G aims at facilitating the 
evolution from incompatible second-generation systems towards systems 
that will offer users genuine global roaming and interoperability. 
Second, with 3G, carriers will be able to extend additional bandwidth 
to consumers to satisfy diverse mobile communications needs including 
access to email, the Internet, and potentially, in certain 
circumstances, even interactive multimedia such as video telephony. The 
mobile wireless industry has agreed to three general ranges of data 
rates: (1) improved data transmission (64-144 Kbps); (2) medium 
multimedia transmission (384 Kbps); and high multimedia transmission 
(1-2 Mbps).
    These data speeds agreed to for 3G technologies appear to provide 
PCS a seat at the broadband table. It is important to emphasize, 
however, that 3G is still at the early stages of spectrum allocation 
and standards setting. In fact, carriers only began deploying second 
generation networks a few years ago. While 3G capabilities will be 
implemented sometime in the future, at what time and at what prices is 
unknown and will largely be governed by market needs and customer 
requirements. It is difficult to predict the data needs of mobility 
customers in the future because mobile networks carry very little data 
today. It is likely that mobile access to the Internet will complement 
more robust broadband offerings such as Sprint ION, as mobile voice 
telephony today complements wireline voice telephony. Due to expected 
capacity limitations of spectrum available to PCS carriers and the 
economics of deploying 3G networks, Sprint does not believe that 
broadband mobile services will substitute for the types of broadband 
access needed by Sprint ION and other high-speed data services.
    There are also several broadband wireless carriers offering service 
to medium and large business customers. These companies operate 
generally in the 24-38 GHz range. These services do not envision and 
are not designed to provide service to individual subscribers. 
Moreover, these systems only appear economical when there is a 
reasonable density of demand.
    Sprint believes that broadband wireless services available to the 
mass market, provided by multiple competitors, could be created through 
the availability of additional spectrum for this purpose and encourages 
that such spectrum in useful bands be made available.
    In conclusion, Sprint has innovative and currently available 
advanced telecommunications, broadband products whose performance will 
thrill customers. However, Sprint, lacking last mile broadband 
facilities to most of the nation, is stymied in offering these products 
to many potential customers. The sad fact is that the Bells, GTE, and 
the cable companies, are not only denying access to their broadband 
facilities, they are slowing the availability of robust integrated 
broadband products such as Sprint ION in most regions of the country. 
Perhaps in five to 10 years there will be other alternatives to the 
phone company and the cable company lines to the house. Until that 
time, Congress should be demanding greater access, not deregulation of 
the monopolist's essential facilities.

    Mr. Tauzin. Thank you very much, Mr. Kurtze.
    We have three more witnesses and we are being called to a 
15-minute vote followed by a final passage vote which will 
occupy us, I am sure, for the next half hour. If it is 
acceptable with you all what I would like to do maybe is take a 
little break. Let us take a 45-minute break. That will give you 
a chance to catch some lunch, perhaps. We will go and vote, 
take care of our business, and we will reassemble here at 
12:30. So the committee stands in recess until 12:30.
    [Brief recess.]
    Mr. Tauzin. The committee will please come back to order.
    We will ask someone to catch the doors and ask our guests 
to be seated. And we will proceed to hear from the last 
panelists. And then offer members a chance to dialog with you.
    Next will be Mr. Dave Scott, president and CEO of Birch 
Telecom, Incorporated, of Kansas City, Missouri. Mr. Scott, you 
are on, sir.

                   STATEMENT OF DAVID E. SCOTT

    Mr. Scott. Thank you very much, Mr. Chairman. And I want to 
say it is a distinct privilege for us. This is something that 
we rarely get a chance to do, being a small company. We don't 
have the resources to typically do this and so we really want 
to thank you for the opportunity to make our point of view 
known on this very important topic.
    Mr. Tauzin. One day, Mr. Scott, we will be able to reach 
you in Missouri on the Internet and do this sort of 
interactive.
    Mr. Scott. Just do this virtually.
    Mr. Tauzin. Virtually. Thank you, Mr. Scott.
    Mr. Scott. I guess I want to say I like to think that Birch 
was the kind of company that you had in mind when the Telecom 
Act was passed in 1996. We are a startup. We acted immediately 
after the passage of the act to begin the foundation of Birch.
    And Birch was established in early 1997 and immediately 
began providing service. And not the way it had typically been 
done by competitors to large businesses. Our mission wasn't to 
serve big business. Our mission was to serve, as fast as we 
could, consumers in small to mid-sized businesses. And we have 
done that. We have been working very hard since we founded that 
company over the last 2\1/2\ years to establish a real presence 
in the industry. And I think we have had some real success in 
that area.
    I won't give you a long drawn-out discussion of what the 
company does, but I will focus on what this subcommittee is 
taking a look at and that would be advanced services, data 
services, and Internet. We really feel like that is something 
that Birch has to do to survive in this business. We have to be 
innovative. We have to do it at a very rapid rate. We have to 
do things better than they have been done before and bring 
those services to our constituents. And we have done a good job 
of that.
    We have a product that we have just recently launched which 
is called the integrator. It combines both voice and data 
service on the same line and we deliver that to very small 
businesses, businesses who could not afford dedicated Internet 
access before.
    We also have a line of services called the Internet 
complete line where we are taking both equipment and the line 
and the Internet services on the other end, packaging those 
together, and making them very easy and convenient for 
businesses who don't have in-house experts to deal with 
programming a route or trying to maintain that. We actually 
make the equipment at the customer's premise a part of the 
network and manage that. And we are finding that is really 
tapping into a need out there. This technology is new. It is 
complicated. It is relatively confusing for the small 
businesses who don't have the in-house resources to become 
experts in it. And so we have found a tremendous of demand for 
that.
    We have also deployed an ATM network, which is state-of-
the-art switching facilities. We have ATM switches in Kansas 
City and in St. Louis and Wichita and are starting to deploy 
them in Texas. And that is the foundation for our ability to 
provide high-speed access to our customer base. And we are also 
using and trying to solve the last mile problem through a 
partnership that we have recently announced with another 2-
year-old company, Northpoint, using DSL service to provide 
high-speed connections over the existing copper facilities.
    I think there is one thing I would like to point out is 
that I do think it will be impossible in the future to 
distinguish voice and data. I know there has been some debate 
over whether the regulations should apply to just voice 
services and not to data. From our perspective, we think that 
is a practical impossibility, that voice and data are already 
being combined in the network and that manufacturers are 
working hard on equipment that will make voice and data 
services equate to the same thing.
    Since we started providing service, it has been a struggle, 
quite frankly, to build a complicated business in a complicated 
industry and one of the things that has been of a great help 
for us is knowing what the framework or the structure for 
competition would be, as defined by the 1996 act. And so I 
think a lot of the benefits have been provided already, 
especially in the data services area where all the competitors 
are in a competitive frenzy right now to provide these 
services. And I think one of the reasons that we have been able 
to do that is because the competitive framework has been nailed 
down.
    I think that is important in terms of raising capital for 
the business. It is important as companies such as Birch 
Telecom plan to do things. And, frankly, it has been, for us, 
more of a struggle on the voice side to get things down, to 
nail down some of the rules.
    When you look at the level of competition in the industry, 
I think that one of the real bright points of the 1996 act 
truly was what has happened in the data services field where 
you have small companies, you have large companies, you even 
have the incumbent Bells were all racing against time, against 
each other to deploy new services throughout the marketplace. 
And so I think, as we take a look at ways that Congress can 
help do this, I think we need to focus on measures that will 
reinforce the competitive framework that is already in place.
    Thank you very much.
    [The prepared statement of David E. Scott follows:]
       Prepared Statement of David E. Scott, Birch Telecom, Inc.
    Mr. Chairman and members of the subcommittee, I am Dave Scott, 
president and chief executive officer of Birch Telecom, Inc. Birch is a 
small but growing competitive local exchange carrier headquartered in 
Kansas City, Missouri. I am testifying today on behalf of Birch and the 
Competitive Telecommunications Association.
    Thank you for inviting me to testify before the subcommittee today 
on issues regarding the deployment of data services. The prompt and 
widespread availability of internet and other data services is of vital 
importance to Americans throughout the Nation.
    There is no longer debate on whether such services have 
revolutionized the way we conduct our personal and business affairs. 
The debate now centers instead on what policies will best promote the 
prompt availability of data services to all our citizens, including 
those in rural as well as urban areas.
    The good news is that data services already are being rapidly 
deployed. Dial up internet access via a local phone call currently is 
available to more than 95 percent of the population and carriers and 
internet service providers around the country are focussed on how to 
serve that remaining 5 percent.
    Higher speed access to the internet and other higher speed data 
services also are being deployed at a rapidly accelerating pace. 
Competitive local exchange carriers, such as birch, are using unbundled 
network elements in conjunction with their own equipment and facilities 
to provide digital subscriber line (``DSL''), asynchronous transfer 
mode (``ATM''), frame relay and other high speed data facilities and 
services to residential and business customers. The growth in high 
speed data services provided by cable television companies and 
satellite carriers also has been rapid. The stimulus of all this 
competition spurred by the telecommunications act of 1996 has also had 
a positive effect on the bell companies. The Bell companies, in 
response to these competitive stimuli, are aggressively rolling out DSL 
services that use their investment in ubiquitous copper line 
facilities.
    This rapid expansion is, however, potentially threatened by 
proposed legislation that may inadvertently disrupt the competition-
fueled progress made to date. Such legislation would (1) exempt the 
Bell companies from their current obligations under the 
Telecommunications Act of 1996 to make their data facilities and 
services available to CLEC's and (2) allow the Bell companies to 
provide long distance data services before they open their local 
exchange markets to competition.
    Although the goal of these bills is the laudatory one of spurring 
the deployment of data services by the bell companies, particularly to 
rural areas, I am convinced that the bills, if enacted, would not serve 
their intended purpose. To begin with, the Bell companies, by design, 
do not serve many of the Nation's rural areas. Further, as noted above, 
the Bell companies in response to the kinds of competitive pressures 
contemplated by the 1996 act already are aggressively deploying data 
services.
    Finally, I am greatly concerned that the practical effect of such 
legislation, if enacted, would be to position the Bell companies to re-
establish themselves as monopoly carriers in both the local and long 
distance markets for both voice and data services. The public interest 
would be ill-served by such a result. I believe the better policy is to 
encourage competition among data service providers within the framework 
established by the 1996 act. Such a policy will far better serve the 
interests of the American public.
    Before I turn to my specific reasons for urging you to adhere to 
the policies established by the 1996 act, it may be helpful if I 
provide you some information about Birch.
About Birch
    Birch initiated local service in march 1997 and now serves 
approximately 50,000 access lines. We employ 650 people, including 220 
at our headquarters in Kansas City, and 225 employees in Emporia, 
Kansas where our customer service and call center is located.
    We serve customers primarily in Missouri, Kansas and Texas. In 
Missouri, we operate in Kansas City, St. Louis and St. Joseph, and have 
customers located throughout the state, including Carthage, Chillicothe 
and Springfield. In Kansas, we have customers in every county and have 
substantial operations in Wichita, Topeka, Manhattan, Lawrence, 
Emporia, Salina and Dodge City. In Texas, we recently began operations 
in Fort Worth, Beaumont, Waco, Tyler and Houston.
    We offer a menu that includes local and long distance services, 
high-speed internet access services and customer premises equipment to 
residential and small and mid-sized business customers. Forty percent 
of our customers are residential customers.
    In addition to our voice-oriented circuit switches in Kansas City, 
St. Louis and Wichita that route local and long distance calls, we are 
deploying an ATM packet switching network. Packet switches initially 
are being installed in Kansas City, St. Louis, Wichita and Fort Worth. 
These data-oriented packet switches will be linked by high-speed ATM 
transport facilities. For reasons I'll explain shortly, I want to 
emphasize that we plan to use this packet switching network to carry 
voice as well as data traffic.
    We provide our services through our own switching equipment and, 
pursuant to provisions of the 1996 act, through use of leased network 
facilities and resold services obtained primarily from Southwestern 
Bell.
    Southwestern Bell is also our principal competitor. Although it has 
been a struggle, and although we still are a small company, we have 
grown into one of the larger CLEC's in the territory served by 
Southwestern Bell.
    That's who we are today. Tomorrow, if we continue to work harder 
and smarter than our competitors, and if the rules of the game remain 
fair, we expect to emerge as a major regional provider of data and 
other telecommunications services to small and mid-sized businesses and 
residential customers.
The Rules of the Game
    The rules of the game were set by the 1996 act, a law which several 
of you on today's subcommittee were instrumental in fashioning. 
Overall, I believe the act established a reasonable balance between the 
interests of incumbent local exchange carriers and competitors, such as 
Birch, who want to enter local markets. most importantly, the act 
recognized that because incumbent carriers have strong economic 
incentives to maintain their de facto control of essential bottleneck 
facilities, both a stick and a carrot will be required to open the 
local exchange market.
The stick and the Carrot
    The stick is the mandate of sections 251 and 252 of the act 
requiring incumbents to open their markets to new entrants by making 
available interconnection, access to unbundled network elements and 
resale on just, reasonable and nondiscriminatory terms. Access to such 
facilities and services is absolutely essential to CLEC's such as 
Birch. Incumbents must be held to strict accountability under the act, 
and the fcc must be willing to assess fines and award damages when 
incumbents fail to comply with their obligations to competitors.
    Equally important, incumbent carriers that do not comply with the 
act must not get to eat the carrot. The carrot is the offer in section 
271 to allow the incumbent local carriers into their in-region long 
distance markets once they have opened their monopoly local markets to 
competition. To date, based on their behavior, the Bell companies have 
not been strongly drawn to the carrot of long distance voice service. 
Perhaps that is because prices and profit margins for long distance 
voice traffic have been plummeting since the passage of the act.
    It's a different matter for long distance data traffic. That's a 
carrot over which the incumbent carriers have started to drool, and 
they are searching for ways to enter that market without having to 
comply with the obligations or seek the incentives of the 1996 act. For 
several reasons, I urge you not to let that happen.
Voice Traffic Can and Will Flow Over Data Networks
    If the bell companies are allowed to establish data networks on an 
interlata basis, it won't be just data traffic flowing over those 
networks. there will be voice traffic as well. I am aware that the 
proposed legislation contains a ban on any bell company using the 
internet or other packet switching networks to carry voice-only traffic 
until it has satisfied section 271 requirements. As a practical matter, 
that ban is ineffective.
    Even if the ban could be enforced, which it cannot, it applies 
solely to ``two-way voice-only'' traffic. This leaves a gaping loophole 
that would allow incumbent carriers to carry voice traffic on trunks as 
long as some nominal percent of the total traffic on the trunk were 
non-voice or one-way voice.
    As I mentioned earlier, Birch is in the process of deploying packet 
switching networks. We know how such networks operate. When fully 
deployed, packet switching networks are equally capable of supporting 
both high bandwidth applications and traditional voice calls. Because 
packets from the same communication will travel over a number of 
different paths simultaneously, it is impossible to limit users to data 
traffic or to police effectively the transmission of voice calls over 
such networks. ``Leakage'' of voice traffic would be uncontrollable, 
even in the unlikely event the Bell companies were motivated to police 
their customers' traffic.
    Allowing the Bell companies to provide interlata data services now 
would blow apart the central premise of the 1996 act: that the Bell 
companies be allowed into long distance service only after opening 
their monopoly local markets.
Birch's experience with Southwestern Bell
    Even with the obligations and incentives the 1996 act imposes on 
and offers to the Bell companies to open their local exchange markets 
to competition, Birch's experience in dealing with Southwestern Bell 
has been, and still is, an exasperating one. I have attached to this 
testimony as exhibit 1 1 and exhibit 2,2 
testimony that Birch has presented in state proceedings that discusses 
some of the Bell tactics Birch has encountered. To summarize just a few 
of the areas (details are provided in the exhibits):
---------------------------------------------------------------------------
    \1\ Direct Testimony of David E. Scott on Behalf of Birch Telecom 
Of Missouri, Inc., In the Matter of the Application of Southwestern 
Bell Telephone Company to Provide Notice of Intent to File an 
Application for Authorization to Provide In-Region InterLATA Services 
Originating in Missouri Pursuant to Section 271 of the Federal 
Telecommunications Act of 1996, Case No. T0-99-227.
    \2\ Direct Testimony of Richard L. Tidwell on Behalf of Birch 
Telecom Of Missouri, Inc., In the Matter of the Application of 
Southwestern Bell Telephone Company to Provide Notice of Intent to File 
an Application for Authorization to Provide In-Region InterLATA 
Services Originating in Missouri Pursuant to Section 271 of the Federal 
Telecommunications Act of 1996, Case No. T0-99-227.
---------------------------------------------------------------------------
        Collocation: Southwestern Bell has imposed unreasonable 
        conditions in terms of price (recurring and non-recurring), 
        construction requirements, application and specification 
        requirements, delivery dates, and premises access, the 
        cumulative effect of which is to deter potential local 
        competitors, such as Birch, from entering the local market. 
        These conditions strike Birch particularly hard, as we serve 
        the market broadly. If we wanted to limit our customers to big 
        businesses in downtown areas, the number of collocation 
        arrangements would be few. But Birch believes that small 
        businesses and residential customers deserve the benefits of 
        competition too, and in large cities they are served by dozens 
        of different Southwestern Bell central offices, multiplying the 
        effect of these policies.
        Collocation Revisited: On top of imposing unreasonable 
        collocation practices, Southwestern Bell then makes it very 
        difficult to compete without accepting unreasonable terms and 
        conditions. For example, Southwestern Bell does not make 
        available without unreasonable charges in Missouri or Kansas a 
        combination of the unbundled loop with a multiplexer and 
        transport to create a single unbundled network element, known 
        as an ``extended loop'' or ``enhanced extended loop'' 
        (``EEL''). The EEL makes it possible for CLECs to collocate at 
        one central office which then provides access to several 
        others. Once again, these policies constrain the geographic 
        area that Birch can afford to cover.
        Arbitration delays: Southwestern Bell has refused to execute an 
        interconnection agreement reached as a result of an arbitration 
        order. Southwestern Bell is trying to force a renegotiation of 
        the agreement despite efforts at compromise.3
---------------------------------------------------------------------------
    \3\ Request of Dunn & Associates, Inc. d/b/a Boulevard Phone 
Company to Reopen Arbitration, Docket No. 97-BCSC-546 ARB (Kansas 
Corporation Commission). Dunn & Associates is a subsidiary of Birch.
---------------------------------------------------------------------------
        ``UNE-P'': ``UNE-P'' allows a competitor to purchase a complete 
        package of network elements combined to provide service to the 
        competitor's customer. Even though Southwestern Bell has signed 
        agreements in Texas and missouri allowing UNE-P, Birch cannot 
        get Southwestern Bell to provide the service in Kansas without 
        unreasonable charges.
        Resale: Southwestern Bell refuses to allow Birch to resell 
        customer specific arrangements or contract arrangements at the 
        standard resale discount. In fact, Southwestern Bell even 
        refuses to allow Birch to assume the liability on those 
        contracts and resell them to Birch's customers with no 
        reduction in the amounts payable to Southwestern Bell. Rather, 
        Southwestern Bell takes the position that any attempt to 
        convert the service covered by the contract requires the 
        customer to pay large termination fees to Southwestern Bell.
        Operational Support Systems: These systems simply are 
        inadequate and fail to provide competitors such as Birch the 
        ability to provide their customers the same level of service as 
        Southwestern Bell representatives are able to provide 
        Southwestern Bell customer's using Southwestern Bell's internal 
        systems, as required by the statute. Details are provided in 
        exhibit 2.
        Directory Listing: Since 1997 Birch has from time to time found 
        customers that had listings in the Southwestern Bell Telephone 
        Directory omitted after they converted to Birch. In late 1998, 
        Southwestern Bell admitted that a problem had been found and 
        reported that it had been fixed. Just this past Monday, June 
        21, 1999, another omission was found. How long must we work 
        before this problem is fixed? What incentive does Southwestern 
        Bell have to fix this?
        Locking in customers: Southwestern Bell's Customer Choice 
        Protection (``CCP'') is a service offered to Southwestern Bell 
        end users that allows a customer to prohibit a change in the 
        customer's interLATA and/or local service provider without the 
        customer's consent. Birch believes such anti-slamming 
        procedures have become necessary. But Southwestern Bell put its 
        system in place with inadequate mechanisms for a customer to 
        remove the CCP so the customer could change his or her service 
        to a Southwestern Bell competitor. Only after several months of 
        prodding by Birch and the intervention of the FCC did 
        Southwestern Bell put these procedures in place. As yet, they 
        are not fully functioning. As a result, it is a struggle for 
        many customers to attempt to convert to Birch.
        Early Disconnection of Service: In several cases Southwestern 
        Bell has disconnected the customer's Southwestern Bell service 
        before the specified time for conversion of the customer 
        service to Birch and left the customer without any telephone 
        service. This has happened to business customers. The end 
        result is that some customers are now afraid to move their 
        service.
        Coordination on installation of new UNE loops: The systems and 
        procedures Southwestern Bell has in place to provide unbundled 
        loops make the service much more complicated and provide for 
        many potential problems upon conversion. Problems such as poor 
        loop quality, missing cross-connections, and lack of 
        coordination at cutover are all common problems encountered.
        Billing Issues: Southwestern Bell ignores due dates and 
        deadlines. Over the last year Southwestern Bell has repeatedly 
        failed to deliver billing information which Birch must have in 
        order to bill our customers. In the last 10 days, Southwestern 
        Bell has again failed to provide a group of monthly billing 
        records and information. Southwestern Bell's failure to provide 
        the billing records in the proper manner has forced birch to 
        suspend its own billing, bringing Birch's cash flow to a halt. 
        Yet, Southwestern Bell demands prompt payments.
        Birch as an agent of the customer: Upon receiving written 
        agreement from the customer, in the form of a ``Letter of 
        Agency'' in the form required by Southwestern Bell, birch may 
        act as the customer's agent, and should be treated in exactly 
        the same manner as the end user by Southwestern Bell. This is 
        generally not the case. For example, Southwestern Bell provides 
        information to a retail end user directly within an hour of the 
        request. When Birch requests the same information the response 
        normally takes several days. It has recently become 
        Southwestern Bell's practice to ``white out'' any retail 
        pricing information before the information is sent to Birch.
    There are many other examples. But I will end this discussion by 
mentioning one of Southwestern Bell's most effective tactics. 
Southwestern Bell continues to under-resource its CLEC account teams. 
For example, for many years the interexchange carrier account teams 
have been assigned a technical representative to deal with the many 
operational issues. We know the account teams have requested this 
technical support and yet Southwestern Bell management has not 
allocated the required resources. This results in service disruptions 
and delays in providing services for companies like Birch, who are 
competitors of Southwestern Bell.
    Southwestern Bell's tactics are a replay of the types of resistance 
MCI and other competitive carriers encountered in opening up the long 
distance market to competition. I first entered the telecommunications 
business in the pre-divestiture days of the early 1980's. Back then, 
MCI and others referred to AT&T as the 800 pound gorilla.
    With Southwestern Bell, Birch feels like it's dealing with a 1500 
pound mule. Even with the stick of sections 251 and 252, and the carrot 
of 271, we're having a hard time getting it to move.
The 1500 Pound Mule
    Southwestern Bell's behavior reminds me of a quote attributed to 
Lyndon Johnson when he was President. One afternoon, after the protests 
against the Vietnam war had begun to intensify, the President, who had 
grown up in the hill country of Texas, assembled his beleaguered staff. 
``Boys,'' he said, ``we've got to hunker down like a jackass in a 
rainstorm.''
    I feel like that same guidance must have been offered at 
Southwestern Bell headquarters following the passage of the 1996 act. 
Certainly that's how we perceive southwestern bell's behavior. They're 
hunkered down, they're big and they are tough to budge.
    I'm from Missouri and I know something about mules. Mules are not 
only stubborn, they are intelligent. A horse will work or run itself to 
death. A mule won't. It generally knows what's in its self interest.
    The same is true with Southwestern Bell. It knows that the longer 
it hunkers down, the longer it will be able to keep competitors from 
getting into its local exchange market. Every day Southwestern Bell can 
stop or hinder its competitors is another day it can retain the level 
of its monopoly revenues.
    Getting Southwestern Bell to move requires the stick (a two-by-four 
if necessary) of sections 251 and 252 of the act, and the carrot of 
section 271. Given the powerful economic incentives Southwestern Bell 
has to maintain its bottleneck position, both methods are essential.
The Bell Companies, as well as CLECs and other providers, will deploy 
        broadband services rapidly
    If there is one area where the Bell companies' behavior is not 
mulish, it's in the deployment of advanced broadband services. Now I 
know they say they need a special set of rules `` or exemption from 
existing rules `` before making an investment in broadband facilities.
    Actually, the Bell companies are already making the investment, and 
at a fast pace. They and other ilecs have to deploy broadband services 
quickly or they will be beaten to the marketplace by CLEC's, cable 
companies and other service providers. Southwestern Bell today is 
aggressively marketing its DSL product and pricing the service at such 
low levels that CLEC's using unbundled network elements cannot match, 
much less beat, the Southwestern Bell price. Other Bell companies 
around the country are doing the same.
    Indeed, it is this competitive pressure from the cable industry and 
the CLECs that has forced the bell companies in some states to finally 
begin making genuine efforts to satisfy section 271 conditions so they 
can enter the in-region interlata market. They will move in that 
direction because, and only because, they want to get into the 
interlata data market and know they will not get that carrot unless 
they open their monopoly local exchange markets to competition.
The Right Incentives
    If you had an opportunity to review the biography I submitted, you 
may have noticed my interest in deregulation. This interest stems from 
my graduate school days at the University of Chicago where I studied 
under Professor George J. Stigler.
    Professor Stigler was the 1982 winner of the Nobel Prize in 
economics for his work on the economics of regulation. His work helped 
establish the principle that regulation often fails to achieve the 
public policy goals that give rise to the regulation in the first 
place. Instead, competition is almost always more effective in 
achieving those same goals.
    But competition can only work when there are no bottlenecks in the 
marketplace. My fear is that if the Bell companies are allowed into the 
long distance data market before they open their local markets, they 
will be positioned to re-establish themselves as monopoly carriers in 
both the local and long distance markets. The result would be that we 
would have turned back the clock to the pre-at&t divestiture days.
    The Congress set economic incentives in place in the 1996 act that 
will soon lead to a truly competitive telecommunications marketplace. 
Deregulation will follow in due course. I urge you not to tamper with 
those incentives by prematurely allowing the Bell companies into the 
interlata data market or by exempting them from their obligation to 
provide critical bottleneck facilities and services to CLEC's.
    That concludes my remarks. Thank you for inviting me to participate 
in this hearing.

    Mr. Tauzin. Thank you very much, Mr. Scott.
    Next will be Mr. Stephen Gray, president and COO of 
McLeodUSA Incorporated of Cedar Rapids, Iowa. Mr. Gray.

                  STATEMENT OF STEPHEN C. GRAY

    Mr. Gray. Good afternoon, Mr. Chairman. And thank you. If I 
may beg your indulgence just to begin with, since Tom left 
Iowa--our headquarters is in Cedar Rapids--we built a couple of 
airports, we bought four planes, and I think we built about 
3,000 miles of fiber. So we are doing okay there these days.
    A little bit about who McLeodUSA is. Mr. Chairman, we have 
been in business a little over 5 years, which, quite frankly, 
was 2 years prior to the act itself. Today we serve about 
260,000 customers, of which two-thirds of those are residential 
customers and about one-third small business customers. And, 
unlike Buddy, our small business customers are about five 
lines. We also operate in 20 States, all 14 of the US West 
markets as well as 4 of the 5 Ameritech, current Ameritech, 
markets, serving 500 cities with an average population of less 
than 60,000.
    But with all that said, I think what we think is more 
important is what is going to happen in the future. And our 
perspective kind of is this. Currently, there are 150 million 
access lines in the United States. By our projections, that 
should grow at about 6 percent per year or be a little over 250 
million access lines within 10 years, or customer connections. 
In addition to that, we believe that there is over 5 million 
miles of fiber, copper, coax currently deployed in the United 
States. With over 5 million distinct network elements managing 
that network.
    Well, if that weren't complicated enough, we have to make 
sure that that network works. When something is wrong, we need 
to know what is wrong with it. And then we need to know how to 
fix it. Well, if that weren't enough, then you have got the 
customer who is involved. And the customer, in our opinion, 
over the next 10 years, will have to change out every element 
of their telephone and data equipment, which will be rendered 
obsolete.
    Well, at the end of the day, I happen to agree with Dave, 
we believe it will be a kilobit business where there will be a 
pipe to each home and each business where these artificial 
distinctions of voice, data, wireless, wireline, local, long-
distance will all go away. It will be much like the electricity 
business where, when Thomas Edison invented electricity, he 
didn't know about the microwave oven and he didn't know about 
the television. It was to power a light bulb. So there are 
going to be kilobits coming into and out of the homes much like 
kilowatts.
    The keys to our success, quite frankly, will be technology, 
the efficiency and the economics associated with that 
technology. Two, our ability to find and keep great people. Our 
company has created 5 jobs per day for the last 1,000 calendar 
days. And if you look at the unemployment in most of our 
States, one of the biggest challenges we will have is providing 
a great environment for those people. And last but not least, 
access to capital markets.
    So the so-what of all of that, if I could beg anything of 
you, Mr. Chairman, and this group is please understand that 
this is going to take a little bit of time. To rebuild, 
overbuild, or overlay this network, it takes a crew an hour to 
build 1 mile of network. The access right-of-way permitting 
issues, whether you are going through fields, sidewalks, up on 
towers, or through the airways and the ability to find crews, 
equipment, and real estate are all challenges that companies 
like ours face on a day-to-day business.
    Second, the access to the capital markets. If you 
fundamentally think about this 5 million mile network that is 
going to need to be replaced in today's dollars, that is in 
excess of $500 billion to rebuild or overbuild. I have to have 
access to the capital markets in order to survive. And in order 
to have access to the capital markets, from a public policy 
perspective, we need stability. We absolutely need stability at 
the Federal, State, and local level. The Supreme Court began 
giving us some of that stability and guidance just 6 months 
ago. So we like to talk about how the act is 3\1/2\ years old, 
but, for all practical purposes, there wasn't much just clarity 
until a few months ago. And we need to give it some time to 
provide that guidance to the States and the local governments 
as well.
    So thank you very much for your time.
    [The prepared statement of Stephen C. Gray follows:]
 Prepared Statement of Stephen C. Gray, President and Chief Operating 
                    Officer, McLeodUSA Incorporated
    On behalf of McLeodUSA, I would like to thank the Subcommittee for 
the opportunity to talk with you today. I would like to accomplish 
three goals today: first, provide a high level overview of McLeodUSA; 
second, summarize our concerns with providing broadband data ``relief'' 
to the RBOCs; and third, emphasize Wall Street's predictable reaction 
to providing data ``relief'' to the RBOCs.
I. McLeodUSA Overview
    Clark McLeod and I formed McLeodUSA, headquartered in Cedar Rapids, 
Iowa, in 1992. This is not our first foray into telecommunications. In 
the early 1980s, Clark formed Teleconnect and built it into the fourth 
largest long distance company in the United States. In 1990, MCI 
purchased the company, then named TelecomUSA. McLeodUSA is a member of 
the major trade associations representing the competitive 
telecommunications industry, the Competitive Telecommunications 
Association (CompTel), and the Association for Local Telecommunications 
Services (ALTS).
    In 1992, desiring to bring competition to the local telephone 
industry, we what today is called McLeodUSA Incorporated. Our primary 
focus as a company has been to serve small business and residential 
customers in the Tier 2, 3, and 4 markets in our target states. As a 
result (as of March 31, 1999), we provided competitive local exchange 
services to about 91,000 residential customers, and about 53,000 
business customers, in the 11 Midwest and Rocky Mountain states. (We 
have targeted an additional 9 states for expansion in the near future). 
Our average business customer subscribes to 5.6 lines.
    McLeodUSA's corporate team, with over 250 years of experience, is 
recognized as one of the strongest management groups in the telecom 
industry. Strong because of our breadth, and strong because of our 
depth.
    McLeodUSA has already become the leading facilities-based 
Integrated Communications Provider (ICP) in our market area, providing 
local, long distance and Internet services. And due to a series of 
recent and dynamic events, our market opportunity has more than doubled 
to $80 billion in 2009.
     McLeodUSA derives its revenues primarily from the sale of 
telecommunications services and the publication of telephone 
directories. McLeodUSA has developed one of the largest competitive 
white and yellow page directory companies in the United States. In 
fact, McLeodUSA Publishing will print and distribute nearly 21 million 
directories in 22 states over the next 12 months.
    The opportunity for our employees is incredible: one third of our 
stock ownership resides with employees. This is an important linkage 
for our investors, and gives our employees a major stake in our 
success.
    McLeodUSA's three-part phased execution is success based. First, 
building local line market share by resale and by leasing Bell 
facilities . . . concurrently expanding our brand presence.
    Second, building the platform, with inter-city fiber connecting 
regional gateways.
    And third, our current phase, migrating customer traffic on-switch/
on-net, which involves constructing intra-city fiber which connects our 
customers with our regional gateways.
    This execution allows us 100% access to build customer share, while 
capital is efficiently and effectively deployed.
    In our first phase of building customer share, we have leased RBOC 
central offices, which allows us to sell to 100% of the customers in 
our 400 cities. In addition to pervasive coverage, this service is 
relatively easy for the Bells to provision and is generally a 
transparent switch over. Once the switch has occurred, we control many 
of the features for the customers through on-line provisioning 
terminals.
    Our recent data strategy announcement will add new revenue 
opportunity from our collocations and XDSL technology.
    Concurrent with building customer share, we have executed the 2nd 
phase of our strategy and deployed the most advanced platform in our 
region. Nearly 7,800 miles, both intra-city and inter-city, high-
density fiber, SONET ring topology, with incredible capacity, is 
capable of supporting all our voice, data and video applications.
    For the last 5 years, McLeodUSA has been focused primarily on the 
voice market; however, the data opportunity is explosive. Data revenues 
will surpass voice revenues in 2009. And the bandwidth required to 
capture data will require companies to own or control high capacity 
networks. McLeodUSA is positioned for these opportunities in several 
key areas.
    First, the market position. Our customers conveniently have only 
one number to call for customer service, and one bill provides the best 
value proposition--one company, simple and complete.
    Second, our customer service is World Class. Our goal is to have a 
real person answering calls within 20 seconds, 24 hours a day, 7 days a 
week, with one call resolutions. Great people providing great service. 
McLeodUSA has proof. Since 1994, we have averaged 0.5% business 
customer churn, the lowest in the industry.
    Finally, from a platform position, we can pick the best solution 
for the customer and the company. Our collocations connect to local 
access rings, which connect to 500 mile backbone rings, which then 
attach to high capacity regional gateways. This design is a low cost 
way to serve 1st, 2nd and 3rd tier markets with one regional center, 
robust capacity, and functionality. It also allows us to use both our 
network and the Bell network to optimize the economics.
    Our results through 1998 have been incredible.

Directories: 1998: 14 million. 1999 industry estimates: 21 million
Local Lines: 1998: 400,000. 1999 industry estimates: 650,000
Network: 1998: over 7,000 miles. 1999 industry estimates: 9,000 miles
Revenue: 1998: $600 million. 1999 industry estimates: $900 million
II. Concerns about providing data ``relief'' to the RBOCs
    Based on the progress that McLeodUSA has made in bringing 
competition to its markets, it is tempting to conclude that all must be 
going well in the world of emerging telecommunications competition. 
This optimistic conclusion, however, ignores the reality faced by 
McLeodUSA every day: that the incumbent RBOCs upon whom we depend for 
inputs are doing everything in their power to limit our ability to 
serve our customers. Those companies, at every turn, make use of each 
opportunity to introduce delay, uncertainty, and unnecessary expense 
into our business relationship.
    This situation reveals an important fact about the relationship 
between emerging competitors like McLeodUSA and established incumbent 
RBOCs: the grossly unequal commercial power between those entities. 
Typically, when two companies negotiate a commercial agreement, both 
parties have something to gain and something to lose; and that 
situation leads both parties to seek a result where there is mutual 
benefit. In such a case, because either party can seek a better bargain 
elsewhere, both parties seek a compromise solution that maximizes their 
mutual gains. In contrast, our relationships with RBOCs show clearly 
that those companies believe they have nothing to gain by dealing with 
McLeodUSA. As a result, we typically find that compromise is not 
possible, and we are told that, if we disagree with an RBOC position, 
we will need to seek regulatory relief.
    An example of this type of conduct is instructive. We have had a 
dispute with an RBOC about the charges that we pay when we order 
unbundled loops; not the recurring ``monthly'' charge (which we also 
believe is generally too high), but simply the one-time charge to have 
the loop supplied at all. We are sometimes charged thousands of dollars 
when the RBOC supplies these loops for ISDN service, even though there 
is no charge at all when the same ISDN service is provided to the same 
location by the RBOC for its own end-user customer. We know that this 
is the case because, when these charges have made it financially 
impossible for use to serve the customer ourselves, that customer has 
ordered the same service from the RBOC and not been charged for such 
``special construction.''
    Under the forward-looking TELRIC pricing standards used to 
determine rates for unbundled loops, we believe that loop costs should 
already include the ability to ``unbundle'' loops like ISDN loops. Even 
if this were not the case, however, there is certainly no reason for 
competitive carriers to be charged by the RBOC when the RBOC would not 
charge its own end-users. We believe this situation is a clear example 
of discrimination against companies like McLeodUSA. At least one state 
commission--the Michigan Public Service Commission--has agreed, and has 
refused to allow such ``special construction'' charges for unbundled 
loops.
    Of course, the RBOC has appealed that decision to court; and when 
we have attempted to use the reasoning of this Michigan decision in the 
RBOC's other states to convince them to change their position on this 
issue, the response we received was a flat ``no,'' with the notation 
that we were free to litigate before the other state commissions if we 
so desired.
    This result plays into the RBOC's long-term strategy in two ways. 
First, by requiring new competitors to expend their resources 
litigating issues multiple times before regulatory agencies and in 
subsequent court appeals, they are effectively diverting the 
competitor's resources away from the goal of providing competitive 
services to customers. Second, by simultaneously attempting to convince 
state legislatures and the Congress that regulatory oversight must be 
reduced, they are trying to close the only channel available to us to 
obtain fair treatment. And that brings us squarely to the subject 
before the Subcommittee today.
    It is clear to me in my job as President of McLeodUSA that the 
RBOCs with which we deal are not committed to allowing competitive 
markets to develop in their historical monopoly territories. Instead, 
it appears that these RBOCs are committed to finding a way to enter 
markets which are ``off limits'' under the Telecom Act while preserving 
their local exchange monopolies essentially intact. Deregulation of 
data services is an integral part of that strategy.
    News reports, industry analysts, and assorted pundits have all 
noted the ``convergence'' of voice and data technology in recent years. 
My company firmly believes in such convergence. Given this phenomenon, 
it is not at all clear why policy-makers should spend the effort 
required in an attempt to develop separate legal frameworks for voice 
and data. The Telecommunications Act itself defines 
``telecommunications'' to include any ``information of the user's 
choosing.'' This definition on its face includes voice, data, video, 
and all other sources of ``information.'' If the data services were not 
to be included within the procompetitive framework of the Act, it would 
have been a simple matter to specify that telecommunications included 
only ``voice'' services; yet the Congress did not do that when the Act 
was passed in 1996. Existing law makes no artificial distinction 
between voice and data services; both are considered to be 
``telecommunications.'' This is a wise course, and it should be 
maintained.
    In fact, attempting to develop separate frameworks is bound to 
result in an artificial situation which is more complicated, less 
efficient, and ultimately does not serve the needs of our customers. In 
the long run, there will be no reasonable distinction that can be made 
between voice and data as it is carried over telecommunications 
networks. Even now, much of the voice traffic carried on existing 
telecommunications networks is carried in digital form. Since digital 
information is nothing more than a string of binary digits (carried 
either electronically or in optical form), there is no way to 
distinguish digital voice signals from other digital signals once the 
conversion to a digital signal is made. Thus, a legal distinction based 
on differences between ``voice'' and ``data'' is bound to fail.
    The only way this traffic can be practically separated is before 
digital conversion. Yet, we will increasingly see digital conversions 
taking place at the home, or within the telephone network prior to 
switching. As a result, by the time the digital signal is ready to be 
switched, it will already be in digital form, ready to be placed onto a 
packet-switched network. There will be no distinction to be made 
between voice and data in such a world.
    The structure of the Telecommunications Act is not based upon 
specific technologies or traffic patterns. Rather, that structure is 
based upon an immutable fact: for the foreseeable future, in most 
circumstances, new competitors will have no alternative but to use the 
existing loop distribution plant (the ``copper wires'') of the 
incumbent RBOCs. The Telecommunications Act makes those copper wires 
available for lease by competitors not because they are necessary to 
provide voice service, but because they are necessary to provide any 
service to the household served by them. Those wires constitute a 
bottleneck which the RBOCs will use to stifle the drive toward 
competitive local markets unless prevented by regulators and 
legislators from doing so. A drive to ``deregulate'' those bottleneck 
facilities simply because they are used for data transmission is 
exactly the wrong response if we want competitive markets to fully 
develop.
    RBOC control of that bottleneck will be just as damaging to the 
development of competition for data services as it has been for voice 
service, if control of the bottleneck facility is not held in check by 
regulatory oversight. Even if one attempts to distinguish between voice 
and data service, it is clear that those wires are just as necessary 
for data as they are for voice. Increasingly, consumers will use those 
copper wires to transmit both voice and data, with little distinction 
between the two. Constructing differing regulatory regimes for each 
will only confuse customers and hinder our pursuit of the ultimate goal 
of competition in all telecommunications markets.
III. Wall Street's reaction to RBOC data ``relief'' proposal
    Finally, if high speed data services and facilities are 
deregulated, confusion about ultimate goals will not be limited to 
customers. Our company is acutely aware of the need to maintain 
investor confidence in the national goal of bringing competition to the 
telecommunications marketplace. That confidence has been bolstered by 
the clear commitment to the 1996 Telecommunications Act, and the 
efforts of the FCC, to reach that national goal. Legislation which 
would carve out data services from the procompetitive goals of the Act 
could only be seen in financial markets as a retreat from that national 
commitment. As a result, the ability of new entrants to raise the 
capital needed to bring true, facilities-based competition to all 
telecommunications markets could be placed in jeopardy. Thus, the drive 
toward competition could be slowed even though that is not what was 
intended by supporters of such ``data deregulation.''
IV. Conclusion
    The Telecommunications Act is working to bring competition to 
telecommunications consumers in all areas of the country. While that 
competition is not progressing as rapidly as many would hope, the 
delays have resulted not from inadequate legislation, but from a 
failure of the incumbent RBOCs to fulfill their duties under that 
legislation. Attempting to impose an artificial distinction between 
data and voice services will only serve to delay the deployment of 
advanced services and the development of competition in general. This 
result will disadvantage consumers, and delay the goal of providing 
faster, better, less expensive telecommunications services to all 
Americans.
    Again, I thank the Subcommittee for the opportunity to appear 
before you today, and would welcome any questions that any of the 
Members might have.

    Mr. Tauzin. Thank you very much.
    Finally, Ms. Mary Beth Vitale who is the president and COO 
of RMI.NET in Denver, Colorado. Ms. Vitale.

                  STATEMENT OF MARY BETH VITALE

    Ms. Vitale. Thank you, Chairman. And thank you, members of 
the committee, for allowing me to share information about 
RMI.NET.
    Mr. Tauzin. I want you to know I resisted the urge to 
introduce you as the femme fatale.
    Ms. Vitale. Well, I am glad you saved me for last. I would 
like to just first start with a little bit about who RMI.NET is 
and what types of products and services we offer. Congressman 
Boucher talked the 5,000 ISPs out there. Well, we are one of 
the 5,000 ISPs that exist. We started back in 1994 as really a 
dial-up type of Internet access provider. And once the act was 
signed in 1996, the expansion really started to grow. Besides 
offering dial-up the dedicated access services to consumers and 
small and medium-sized businesses, we offer web hosting, E-
commerce capability, long-distance, high-speed data access for 
our customers along with voice-over telephony, just to mention 
a few of the products.
    We also have purchased a backbone network. We purchased a 
company in December called Data Exchange. And with that we have 
a nationwide backbone network that, with that particular 
company, has allowed us to resell products and services across 
the United States and make us a national provider for all of 
the products to consumers and to small and medium-sized 
businesses.
    A couple of our plans. Our plans for growth. One is organic 
growth, which we do from our sales, our marketing, our 
packaging of products and services together and bundling them 
to the consumers that we have in our area and nationwide. But, 
most importantly, we are also doing it through acquisition. And 
we have purchased, just even last week, we purchased 3 new 
companies and we have purchased about 15 so far in the past 
year and hope to purchase 20 in the year of 1999.
    Those acquisitions have been companies that are located in 
small, rural areas, many of them. And, for example, we have 
services in Huntsville, Utah, to Steamboat Springs, Colorado, 
and, most recently, in Bloomington, Illinois. We bought a 
little company called Dave's World. And, yes, the owner's first 
name was Dave. And Dave's World serviced very small, rural 
communities. In fact, this is rural America. Farmers and, in 
fact, I think, just not long ago they got their first Pizza Hut 
in Dave's World.
    But I think the most important thing about that is that we 
have lots of choices and options in order to service them with 
high-speed data access. Right now some of the witnesses have 
mentioned companies like COVAD or Northpoint. We will be able 
to, in just next year, be able to offer DSL service in 
Bloomington and throughout that network, which is really what I 
think this is all about, to be able to have ubiquitous access 
for everybody to high-speed data.
    We have people like COVAD and Northpoint banging down our 
doors in order to purchase the DSL services from them and then 
to offer them to our consumers. So we have been fortunate. And 
just most recently, the RBOCs and GTE have now stepped up to 
the plate to be able to offer those services for us to resell. 
And so they have been able to do this in the environment that 
we currently have and we have them as a choice of our services 
to resell.
    I wanted to at least, last, to explain the reason why the 
growth has happened and has occurred for us is that we have had 
open access to unbundled local loops. We have been able to do 
that. And we have been able to grow because of that. We have 
also not had access, which I think is important, and we have 
not access, is to the cable modems that we want to be able to 
have access to all the technology that is out there.
    I would like to make just one reference to a chart that is 
here to my right. And it talks about the growth. And this chart 
is dated in July 1998, but I think I will hopefully explain 
really where the growth has been. If you look first to the 
left, the first map talks about where the cable modem providers 
were for that particular access, if you move to the right, it 
talks about the CLECs where there distribution is. But, today, 
that particular chart, you would have to put five times more 
blue dots on that because of the COVADs and the Rhythms of the 
world. It has expanded.
    And, because of that, in the lower left-hand corner, the 
RBOCs and GTE have had to respond to the competition. So they 
have started to respond and have their DSL service available. 
And then the last map gives you the overlay of what is there, 
but keep in mind, as of July 1998, and you just need to write 
about 5 times, and that is happening today. So all that I would 
leave the panel with is that I really would think that keeping 
the--what the act has done for us, keeping access open and 
available to both existing technology and the new cable 
technology that is going to be available shortly in all areas. 
Thank you.
    [The prepared statement of Mary Beth Vitale follows:]
 Prepared Statement of Mary Beth Vitale, President and Chief Operating 
                            Officer, RMI.NET
    Good morning Chairman Tauzin, Ranking Member Markey and Members of 
the Subcommittee. My name is Mary Beth Vitale and I am President and 
Chief Operating Officer of Denver-based RMI.NET. On behalf of RMI.NET 
and the Competitive Telecommunications Association or CompTel, I 
appreciate the opportunity to appear before the Subcommittee today to 
help illuminate the competitive issues related to the deployment of 
advanced data services. These are critical issues. Virtually all of the 
services RMI.NET provides to small and medium-sized businesses and 
consumer end users are dependent on our ability to acquire and 
interconnect to high-speed or advanced data communications services.
    I would like to tell you about the role of RMI.NET and other 
competitors in the industry, then make three points about the 
deployment of broadband in this country. First, the competitive 
industry is doing a good job of deploying advanced data services, even 
to high-cost rural areas. The business plans of RMI.NET and many others 
like us are proof of that. Second, claims by the Regional Bell 
Operating Companies or RBOCs that deployment of advanced services 
cannot be fully realized without special regulatory relief are 
overblown. As a former US West employee, I have heard all of their 
justifications for requesting data relief. I find those justifications 
disingenuous and aimed more at expanding their market than at bringing 
relief to consumers. It is, in fact, possible to foster the development 
of advanced data services in today's environment. In fact, spurred by 
competitors, the RBOCs and GTE are deploying new data services without 
special regulatory exemptions. Just as competition has pushed the RBOCs 
and GTE to finally deploy advanced data services to densely populated 
areas, competition will push them to deploy to more rural areas. Third, 
legislation that alters the competitive landscape created by the 
Telecommunications Act of 1996 would actually be destructive, as it 
would undermine the position of competitors and the positive force they 
exert on incumbents. Ironically, legislative proposals to exempt the 
RBOCs and GTE would remove competitors from the equation, thus 
eliminating the pressure on incumbents to deploy and endangering the 
price competition and choice that are critical to consumer welfare. 
Allowing the RBOCs special interLATA relief now, when they have 
demonstrated their antagonism toward competition, will kill the 
promising--but nascent--competition that exists in the market for 
advanced data services. RMI.NET and CompTel would strongly oppose any 
such proposals.
    RMI.NET provides convergent e-business and packet-based 
communications solutions for small and mid-sized companies. At the most 
basic level, RMI.NET has been offering dedicated and dial-up Internet 
access services to businesses and consumers since 1994. Currently, we 
provide access in 90 of the nation's top 100 market areas via a 
combination of points of presence that we own ourselves or lease from 
others. RMI.NET recently purchased DataXchange Network, the sixth 
largest national Internet backbone provider, giving us the capability 
to provide access at speeds up to DS-3 in New York, Chicago, Atlanta, 
Washington, Dallas, San Francisco and Los Angeles. DataXchange's 
network is based on a dual OC-3 fiber optic ring, and interconnects via 
peering arrangements with all significant backbone providers at 
multiple network access points. We also provide website hosting, and 
competitive local exchange, long distance, and Internet protocol voice 
service.
    Over the years, our Internet Service Provider, or ISP, business has 
expanded through both internal growth and acquisitions, many of which 
are focused on small markets and rural areas--the very areas that are 
at the center of the drive to deploy bandwidth. RMI.NET recently 
acquired Dave's World, an ISP headquartered in Bloomington, Illinois, 
which serves a number of downstate Illinois communities, including 
Peoria. We have also added Internet Connect, based in Salt Lake City, 
Utah. Internet Connect serves the small mountainous communities of 
Heber, Morgan and Huntsville, Utah, in addition to the relatively 
larger communities of Salt Lake City, Ogden and Provo. Within our home 
state of Colorado, we offer Colorado Mountain Net, headquartered in 
Steamboat Springs, which brings service to scattered communities in 
northwestern Colorado.
    The Internet access business is particularly competitive; there are 
more than 5,000 ISPs in the U.S. Although we are the largest locally 
based ISP in Denver, we face competition there, and in every major 
market we serve, from national, regional and local ISPs. Even in the 
smallest cities and towns, there are almost always several ISPs vying 
for consumers' accounts. It is estimated that upwards of 90 percent of 
the U.S. population has local dial-up access to more than one ISP.
    The fact that RMI.NET and other competitive companies are quickly 
and efficiently deploying advanced data services to smaller and even 
rural communities makes evident the fallacy of RBOC and GTE claims that 
consumers can only realize the full benefits of these services if the 
Telecommunications Act is altered to provide special incentives for 
them. One hallmark of RMI.NET and other competitive ISPs is our 
extensive use of broadband transmission capacity to provide our service 
offerings. The sources and availability of broadband capacity do vary 
somewhat from route to route and city to city. As a general rule, the 
longer competition has existed in a market, the more plentiful the 
supply of bandwidth and the lower the cost. On interstate and interLATA 
routes, where competition was first authorized, there is ample 
broadband capacity available. Ultra-high speed digital links capable of 
carrying the vast quantities of voice and data traffic that the 
American information economy generates are readily available from the 
major long distance carriers (AT&T, Sprint, GTE and MCI WorldCom) as 
well as from several newer national network providers, such as Qwest, 
Frontier and Level 3.
    Within the major metropolitan areas, the sources of broadband 
capacity began to multiply with the emergence of competitive access 
providers; in the three years since the barriers to local competition 
were removed by the Telecommunications Act, the pace has accelerated 
and fiber rings have been, or are being, deployed in first, second and 
third tier markets throughout the country. Just look at the markets we 
already serve in Western states. And look at other CompTel members like 
ITC DeltaCom, a competitive local exchange carrier and backbone 
provider offering services in the Louisiana communities of Lafayette, 
Lake Charles, Monroe, Shreveport, and West Monroe, as well as in Baton 
Rouge and New Orleans. RMI.NET and ITC DeltaCom are representative of 
the many competitors deploying advanced services in large and small 
communities across the country. Over time, we fully expect that this 
process will continue, at an accelerated pace, as companies expand 
their operations in smaller cities and towns to attract workers and to 
address the quality of life issues facing many employees. In light of 
present and future deployment by competitors, RBOC claims that 
consumers will not enjoy widespread access to advanced data services do 
not recognize the true status of the market. The competitive market is, 
in fact, addressing the broadband infrastructure needs of the nation.
    Second, although slow to react as usual, the RBOCs nonetheless are 
deploying broadband--and without regulatory relief. From my experience 
with US West I can tell you that it was because of competition, not in 
spite of it, that US West has finally deployed broadband services in 
its service area. The benefits to consumers are clear, as more 
widespread, better, cheaper services have become available.
    We are already beginning to see the effects of competition in the 
broadband access market. An example can be found in the contrast 
between two of our ISP markets, Denver, Colorado and Bloomington, 
Illinois. Within the past few weeks, a start-up company called Rhythms 
NetConnections Inc. announced the availability of high speed data 
services (using DSL technology) in several Western markets, including 
Denver. US West, which had initiated a similar service offering in 
Denver and other markets nearly a year earlier, almost simultaneously 
announced a nearly fifty percent reduction in its basic DSL rate for 
residential subscribers. In Bloomington, Illinois, there is still only 
one facilities-based DSL provider (the incumbent LEC, GTE), and prices 
remain substantially higher than in those markets where competition 
exists.
    US West and other RBOCs, unfortunately, have done little to improve 
the competitive landscape. Although US West currently offers advanced 
services to 5.5 million households in 39 cities in its region, it has 
earned an extremely poor record over the years in terms of delivering 
on its promised data services to competitive providers. For example, 
RMI.NET has been waiting months for US West to install DS-3 lines in 
areas where there is not yet an alternative supplier. US West is 
capable, from a regulatory and a business point of view, of providing 
this service now, but refuses to do so.
    This brings me to my third and final point. The robust and growing 
competition that now exists in the data market would be a thing of the 
past if the ability of competitors to access broadband data facilities 
were compromised as a result of legislative proposals now under 
consideration. While RMI.NET and other competitors provide some of our 
own networks, and to a large extent have been successful in deploying 
services to both rural and urban areas, the fact remains that the RBOCs 
and GTE control vast local networks that cannot readily be duplicated. 
Thus, we must rely on incumbents for access to these networks, just as 
competitive local exchange carriers must rely on access to voice 
networks. The very existence of a competitive market for advanced data 
services is made possible only by the unbundling, resale discount and 
interconnection requirements of the Telecommunications Act. 
Particularly in more rural areas, competitors need access not just to 
loops, but also to the other elements of incumbent networks in order to 
make network extension feasible. For example, in the absence of 
unbundled network elements or resale (both denied under pending RBOC 
proposals) competitors would be forced to ``collocate'' their own 
equipment in incumbent LEC end offices--more than 23,000 of them 
nationwide--and, in many cases, remote terminals, which number in the 
hundreds of thousands. This will cripple broadband competition in rural 
America where thin population densities will make it economically 
infeasible for more than one local provider to install the necessary 
equipment. Clearly, fortifying the incumbent's advantage is not the 
answer. Instead, we must ease the way for competitors to push the 
incumbents to serve new areas. If the basic pro-competitive 
requirements of the Telecommunications Act are obliterated through 
legislative fiat, the competitive market will die as quickly as it was 
born.
    In addition to threatening the very elements of the 
Telecommunications Act that competitors rely on to provide 
communications services, some proposals would strip the FCC and the 
state public utility commissions of their authority to regulate the 
provision of broadband data services. These proposals would slow 
competition and ultimately disadvantage consumers by giving incumbents 
the green light to favor their own services. If freed from existing 
legal obligations to refrain from unreasonable discrimination, 
incumbents would doubtless give priority service to their direct 
customers. Companies such as ours, that purchase broadband services 
from the incumbents (and others, where it is available), could face 
even greater delays and potentially higher costs, particularly over the 
short term. Consumers, and competition, would suffer.
    Finally, I would like to highlight that there is a loophole in the 
current data relief proposals. These proposals fail to recognize that 
data networks could be used to provide prohibited long distance voice 
traffic as well. It is an error to assume that voice and data can be 
treated differently. Today, and for more than a decade, both circuit-
switched voice traffic on the public switched telephone network and 
packet-switched data traffic on the network of networks which comprise 
the Internet, are transformed into the ones and zeros characteristic of 
a modern digital network. This was true when the Telecommunications Act 
was enacted, and it remains true today. As a practical matter, there is 
no way to limit the breadth of these proposals to relieve the RBOCs of 
their obligations under the Act. Proposals to allow RBOCs to provide 
interLATA data services should be rejected because they may lead to 
untimely relief from the market opening provisions of the 
Telecommunications Act that are prerequisite to RBOC provision of 
interLATA voice traffic.
    The Telecommunications Act is working, as evidenced by the 
explosive growth of the Internet and e-commerce. Hundreds of billions 
of dollars have been invested in companies that have been created, or 
that have diversified their business activities, to take advantage of 
opportunities provided by the Act. Preservation of the current 
framework, including the unbundling and resale requirements, is 
essential to the continued growth of this vital sector of the U.S. 
economy.
    Thank you.

    Mr. Tauzin. Thank you very much. And that wraps up our 
panel's opening statements. Let me make a couple of 
announcements for the purpose of the panel and particularly for 
the membership. In July, CATO is sponsoring a retreat for our 
committee, which I urge you to all attend. We will focus on the 
knowledge we are gaining on broadband and the policy issues 
attendant to that knowledge at that retreat and hopefully get 
into some of the real fights that lay ahead in terms of who is 
right and who is wrong about what policy we should adopt. Today 
I want to thank you for keeping away from that and for 
concentrating more on what you are doing and what you see is 
happening in the world of broadband.
    I also wanted, second, to commend to all of your attention 
if you haven't seen this yet a little book entitled The 
Victorian Internet which is absolutely fascinating--a book by 
Mr. Tom Standey--it compares the arrival of the telegraph to 
the arrival of the Internet and makes some incredibly startling 
comparisons of the two. For example, when the telegraph first 
hit, a fellow by the name of Claude Crappy invented it, the 
quote in a poem written in tribute to Samuel Morse was: We are 
one, said the nations, and hand met hand in a thrill electric 
from land to land.
    It details in great detail the incredible parallels where 
scam artists found crooked ways to make money by manipulating 
the transmission of stock prices and results of horse races 
using the telegraph. And it was setting up fake fronts, just as 
they have done on the Internet. And people worried about 
inadequate security so codes were developed and encrypted 
messages were employed and eventually there were telegraph 
weddings and telegraph divorces. And the phenomena spread 
around the world and it was predicted to change the way we did 
business and did life.
    And in one ominous parallel, Claude Crappy is depicted as 
not too happy a fellow because he had pretenders claiming to 
have invented the telegraph--his invention and he sank into a 
great depression, increasingly paranoid, and on January 23, 
1805, killed himself by jumping into the well outside the 
Telegraph Administration Building in Paris. He was buried, by 
the way, under a tombstone decorated with a telegraph tower, 
showing the sign for at rest.
    It is an incredibly interesting little book and has a great 
deal about the Internet in it in relation to the development of 
the telegraph. I would commend it to you for research. Pretty 
good tutorial.
    Let me now recognize members for 5 minutes and the Chair 
will begin with the 5-minute session. Let me first acknowledge 
something Mr. Scott said, that we know broadband is going to 
deliver, as Mr. Tauke pointed out, pictures in real-time, video 
in real-time. And just as we see 1,700 radio stations now 
broadcasting on the Internet, we can assume there will be video 
broadcasters on the Internet as the Internet merges with the 
television set as the predominate monitor in our homes.
    We also know that data includes voice and so telephony may 
be a part of the integrated package of services. We know that 
Cox is delivering telephone service, standard telephone 
service, right now competitively in communities in America. But 
we also hear of something called IP telephony, Internet 
protocol telephony. I take it that is packet-switched 
telephony. But I need to know more about it. Mr. Falcao, would 
you give us an idea of what is IP telephony as opposed to 
ordinary telephony? What is the state of it now? When is it 
really going to pose a policy problem for it? When has it 
really arrived, in effect?
    Mr. Falcao. I will be glad to do that, Mr. Chairman. So let 
me characterize the different. IP telephony, essentially, is 
delivering your suite of voice telephony services on a packet 
network. And, in this case, an IP network. So, fundamentally, 
as was explained how the Internet differs from the existing 
network, everything is packetized in data format, the IP 
telephony is delivered in that type of network. So that is the 
difference between IP telephony and the existing telephony.
    Now you asked an important question of where is it today 
and when will it be ready for prime time. IP telephony has made 
a lot of advances in the last I would say year where it has 
moved from being a very exploratory science project type 
offering to something that can now be rolled out in the real 
world. I believe it still has a little way to go from a quality 
of service perspective to deliver the type of public network 
telephony that you would like to deliver on a public network. 
However, IP telephony in an enterprise, in a business 
environment, is actually very good today. And I would suspect 
that you could probably not tell the difference between current 
telephony and IP telephony in a business environment, in a 
closed-network environment.
    Mr. Tauzin. Well, let me ask, anyone could come back now. 
When do Americans--when are we likely to see a day when we turn 
our television and, with a touch of few buttons, dial up a 
friend and see our friend's picture on the television and 
communicate with them, really with technology like IP 
telephony, when is that likely to arrive for Americans or 
citizens in general? Is that close upon us? Is that a year 
away, 2 years away, 3 years away, 5 years away? Where is it? 
Anyone? Please?
    Mr. Falcao. Take a guess?
    Mr. Tauzin. Yes.
    Mr. Falcao. So, you know you can actually do some of that 
right now.
    Mr. Tauzin. You can do some of it now.
    Mr. Falcao. You can do some it right now. The problem we 
have is it is not ubiquitous. It is not available to everybody.
    Mr. Tauzin. So that it will--the answer is, when there are 
networks available and the technology has reached the right 
stage.
    Mr. Falcao. Yes.
    Mr. Tauzin. Predictions on it? Three, 5, 10 years?
    Mr. Falcao. I would hope it would be in the 3 year range.
    Mr. Tauzin. So those things are going to be happening 
pretty fast, I take it.
    Mr. Falcao. With one caveat. So I think a lot of the things 
we talked about today is going to be very dependent on the 
decisions you make as a committee to enable those networks to 
be built. So there are things that need to get done to ensure 
that those networks do get built.
    Mr. Tauzin. Now, Mr. Vradenburg, you and I have had some 
conversation about this. Maybe you want to come back. I mean, 
if some of us want to join in. But timing seems to be an issue 
about when things are laid out and when these networks are 
built and when all this service is available to people from 
different pipes, different providers. Can any of you kind of 
lay out to me when you think systems like Teledesic are going 
to be really available and when they will be fully competitive 
with landscape technologies? Mr. Daggatt, you want to try and I 
will get Mr. Vradenburg?
    Mr. Daggatt. Mr. Chairman, you raise a good point about IP 
telephony because it brings out one of the big issues with the 
Internet model and that is quality of service becomes a 
critical element. The ability to provide and enforce service 
quality guarantees through the network. In the traditional 
circuit network model, you have a pair of copper wires 
exclusively dedicated to a particular connection. Quality of 
service isn't an issue. In the packet model, where you have 
traffic from a lot of sources competing for network resources, 
it becomes a bigger issue, probably a bigger issue than 
bandwidth, per se.
    And, whereas in the traditional model, you think of access 
and transport as being sort of the two major network elements, 
in the Internet model, quality of service comprehends both of 
those. And, in fact, I would even redefine access as being not 
just the connection to the central office, but the connection 
from the end-user to the nearest point of presence that can 
provide the end-to-end quality of service that is required. And 
that could be a kilometer. It could be 1,000 kilometers, 
because, for the most part, you have to have a carrier, some 
service provider, that can actually put all those elements 
together with those service quality guarantees.
    So it is not just a question of when do you get a broadband 
connection, but when are you able to connect all those network 
elements in a way where you can enforce those quality of 
service guarantees. And that is probably going to take quite a 
while. We expect to have the Teledesic network up and 
operational in 5 years. At that point, we would be able to 
provide an end-to-end service guarantee from any point on the 
planet to any other point on the planet.
    Mr. Tauzin. The point I was trying to get to is that we do 
have a timing problem for all of this to be laid out, 
connected, and those last miles problems solved. Mr. 
Vradenburg, what I am getting into is the questions of what 
policy we have to engage in, can you just sort of teach us a 
little bit about how you see that happening and how AOL, for 
example, is going to be delivered and by what pipes and when?
    Mr. Vradenburg. Mr. Chairman, I think it is very important, 
as we discuss timing, to distinguish between the business 
marketplace and the residential marketplace.
    Mr. Tauzin. Okay.
    Mr. Vradenburg. Because in the business marketplace, a 
number of these services are beginning to be delivered today 
with good quality of service and with a variety of choice 
because perhaps 40 percent of our businesses in major urban 
centers already have broadband connectivity, both either 
internal or among their major offices and major urban centers. 
So at the moment, some of these new services are being rolled 
out today among businesses or within businesses in major urban 
centers.
    The great challenge, it seems to me and the timing question 
in terms of when we can get broadband delivery into the 
marketplace is residences and smaller businesses and businesses 
in rural areas. And that challenge, it seems to me, goes 
something like the following. Cable is beginning today to roll 
out a cable modem service in certain communities in larger 
urban areas. DSL is beginning to get rolled out. We ourselves 
have deals with Bell Atlantic and Southwestern Bell, plan to 
have more, which will begin to roll out DSL to consumers, a 
high-speed AOL service to consumers, beginning at least in test 
this summer and then in quantity by this fall.
    We have also announced a satellite ability, a one-way, 
broadband capability, which will be broadband dam and the 
telephone return path that will begin to roll out to rural 
areas or to areas of the country that don't otherwise have 
access to DSL or cable modems. Again, probably early next year.
    So we are going to begin to see these services in the 
residential marketplace now, but rolling out, increasingly, 
over the next couple of years. But in the business marketplace, 
it will move a lot faster. So I do think, as important, as you 
think about the policies in this area, is are you focusing on 
business-to-business, are you focusing on residential, are you 
focusing on urban, are you focusing on rural areas. Because the 
answer in terms of the timing of these different technologies, 
particularly as they are being delivered in quality-of-service 
standards, as has just been discussed, is quite different in 
those different areas.
    Mr. Tauzin. Anybody else want to respond before I move on? 
Yes, sir.
    Mr. Netchvolodoff. I am not a technical person, but our 
engineers tell us that IP telephony, with respect to the Cox 
systems, is at least 2 years, perhaps more, away.
    But the more interesting piece is the economic analysis 
that goes into what makes a business. If IP telephony is to be 
a lifeline service, that is, if people are going to use it as a 
dependable telephone service, just as they use their telephone 
service today, then the economic advantage of IP telephony 
begins to disappear because you have a powering requirement. In 
our business analysis and technology analysis is not so sure 
that, in fact, utilization of the cable platform may be just as 
economic in terms of telephone service by continuing with the 
digital service that we are providing normally under title II.
    Mr. Tauzin. Thank you. Anyone else? Yes, Ma'am, and then 
the two of you and then I will move on to you, Mr. Boucher. 
Yes, Ma'am.
    Ms. Vitale. Just briefly. In respect to IP telephony, we 
deliver IP telephony right now. We have customers that are 
using that product. We give them a very good price for it and 
they are willing to pay that price for possibly not the most 
perfect service that you----
    Mr. Tauzin. Is that commercial or residential?
    Ms. Vitale. Residential. So we have that right now.
    Mr. Tauzin. And Mr. Tauke, finally.
    Mr. Tauke. As you know, I am not a technician either, but I 
have been involved in a planning group within Bell Atlantic on 
the issue of Internet telephony or IP telephony and we are of 
the view that it will not make a major presence in the 
marketplace as a substitute for traditional telephony for the 
next 5 years. There are a variety of reasons for that. Some are 
issues such as numbering and how you handle those kinds of 
issues.
    But a lot of it has to do with reliability of networks. A 
lot of people will use IP telephony as a supplement to the 
existing networks, but there is a robustness in our current 
networks dealing with the powering of the networks, of the 
electricity can go out and you still make a phone call, and a 
variety of duplications of networks and so on that we expect 
will not be present in the Internet arena, at least over the 
next 5 years. So it will be in the marketplace, but as a full 
substitute for the current telephony, no, not for 5 years.
    Mr. Tauzin. Thank you very much. The Chair, Mr. Boucher, I 
notice Mr. Dingell has arrived. Do you want to yield? The Chair 
will now recognize the ranking member of the full committee, 
Mr. Dingell, for a round of questions.
    Mr. Dingell. Mr. Chairman, I thank you for that and I 
commend you for holding these hearings. I believe they will be 
very useful to us and I want to thank our panel for being here 
with us to discuss the matters before the committee.
    As I would recall--and this question is directed 
particularly to Mr. Apfelbaum--the central premise of the 
Telecommunications Act of 1996 was to regulate or not to 
regulate like services in a like manner. We believed that was 
the best way to give truly competitive services to the American 
people. We have heard a lot about technological changes and 
they have been enormous. And, as a result, advanced 
telecommunications services are now being or soon will be 
provided by a myriad of companies.
    There is no question these companies currently are subject 
to a wide dichotomy of regulation at the Federal and State 
levels, depending on what their original mission may have been. 
It is interesting to note that the practical result of this is 
that the differences in regulation may imbalance the 
competitive opportunities in the different forms of services 
and the impact that it would have on the opportunity of the 
citizen to have freely competitive services available to him.
    Now, Mr. Apfelbaum, can you tell me, is there any good 
policy reason to regulate advanced telecommunication services 
provided by cable companies such as yours differently than 
similar services offered by telephone companies, satellite 
companies, land-based wireless companies, broadcast companies, 
or any other company, for that matter, who may or may not have 
a shared mission to yours?
    Mr. Apfelbaum. Our view has always been that we have 
advocated a deregulatory approach for anyone who is offering 
advanced services. I think different approaches have developed, 
historically, because these business have been distinct, 
historically. How you go forward from there, you know, there 
are a lot of issues for you all to decide, especially when some 
companies have been regulated, the issue of how to let them out 
of existing regulation, you know, can be a complicated one.
    But our basic view is that deregulation is the way to go 
for all of these advanced services and, unlike some of our 
competitors, we have not tried to use the congressional process 
to gain a competitive advantage. In the recent Satellite Act, 
for example, we didn't oppose at all the ability of DBS 
providers to be able to provide local broadcast services. So 
our view is that there should be a deregulatory approach for 
all of these services and that is how we would see things going 
forward.
    Mr. Dingell. Now, Mr. Tauke, do you want to give a comment 
on that?
    Mr. Tauke. Well, as you know, Mr. Chairman, there has been 
a migration of regulation from the telephone market to the new 
Internet data market. And so when we begin to deploy the new 
infrastructure that would deliver high-speed data services, we 
are subject to unbundling of some of that technology. We are 
required to resell those services, things which no other 
provider of those services must do. We are prohibited from 
providing any kind of backbone service or full Internet service 
to a customer, so we cannot provide the service in some 
instances and in other instances we have to take apart pieces 
of our network or resell the services that we offer in a way 
that no other competitor does.
    Mr. Dingell. Mr. Vradenburg, do you want to make a comment?
    Mr. Vradenburg. Yes, Mr. Dingell. We very much believe 
that, in fact, we have to approach these different, 
historically different, structures with a common mindset. Now 
whether or not that results in a common scheme or not obviously 
depends a little bit on history and technology and the like. 
But at least with a common mindset--and the one thing that I 
think you are hearing out of everyone on this panel today is 
that in the future, the similar kind of digital transmission 
techniques offering a wide variety of voice data and video 
services are going to be offered over exactly the same 
technology and the same sets of infrastructures.
    And it seems to me unconscionable for us to proceed into 
the 21st century with a regulatory system that makes those 
distinctions. That, in fact, we ought to look at these systems 
to see how we can move toward a closer regulatory paradigm 
across all these infrastructures and that the main message 
ought to be keep the Internet deregulated and keep the 
infrastructures open to all service providers.
    Mr. Dingell. The point, I gather, that the three of you 
gentlemen are making is that the result of this regulatory 
approach is to essentially pick winners amongst technology on 
the basis of a regulatory scheme and also to pick the companies 
who would prosper greatest through the regulatory process 
rather than through the competitive prowess of the company or 
the particular desirability from an economic or technical 
standpoint of the particular kind of service used. Is that 
right?
    Mr. Vrandenburg. I think, Mr. Dingell, that you have hit it 
right on the head. The government ought not to be picking 
winners and losers. A product or service ought to win in the 
marketplace based upon its merits and not on whether the 
government favors it or whether you own the wire.
    Mr. Dingell. Now, Mr. Tauke--and, by the way, welcome back 
to the committee, old friend. Glad to see you. I was interested 
to note in your testimony a discussion about the role of 
Internet backbone networks in making sure consumers have access 
to the information superhighway at the highest speed and the 
lowest cost. Would you describe how concentration can develop 
in these networks and what the implications of this 
concentration could be on prices consumers pay for Internet 
access.
    I am particularly interested and concerned about the 
historic role of so-called peering arrangements in which, I 
understand, traffic is exchanged between these networks free of 
charge and the potential exists for these agreements to break 
down if full competition is not maintained. Is there a danger 
here for us to concern ourselves with?
    Mr. Tauke. We believe that there is a danger to be 
concerned about relating to the what-have-been traditional 
peering arrangements in the Internet world. Just for purposes 
of those who may not be familiar with the term peering, in the 
Internet world, peering is like interconnection in the 
telephony world and, essentially, if you have a network and I 
have a network, you send traffic to my network. I send traffic 
to your network. We have, traditionally, we have exchanged that 
traffic free of charge.
    What has been happening over the last couple of years in 
the Internet world is that we have had some concentration of 
ownership in the backbone arena that was addressed 
parenthetically by the Department of Justice in the MCI 
Worldcom merger and, as a result, there is some concern that 
those who have garnered great power in the backbone world are 
changing that peering structure and essentially saying to the 
smaller carriers, if they are bringing a small amount of 
traffic on the backbone, they are saying, instead of peering 
with you, you will be paying us when you deliver that traffic.
    The other thing that is happening is that the quality of 
some of the networks is in question and so, therefore, some 
major companies and ISP providers are, like At Home, which 
recently announced they are going to build their own 
proprietary network nationally so that they can ensure quality 
but also then they are not involved in the peering 
arrangements. Going back to my regional airports story, in 
essence, they are saying they are building a regional airport, 
but only for their planes, not for other players.
    And so both of those phenomena are having an impact or 
straining this traditional notion of peering. So one of the 
longer term issues for the Congress is how do you ensure that 
there is free and open interconnection, if you will, in this 
new arena.
    Mr. Tauzin. The gentleman's time has expired.
    Mr. Dingell. I noted that, Mr. Chairman. Thank you.
    Mr. Tauzin. I thank the gentleman. It is likely that we 
have time to do another round if members would like to do that. 
So if you would like to stick around and do another round, we 
will probably have a chance. The gentleman from Illinois, Mr. 
Shimkus, is recognized.
    Mr. Shimkus. Thank you, Mr. Chairman. As you saw, I had my 
family here. Competing interests, so I appreciate your being 
patient.
    In my opening statement, I commented about the rural areas. 
And I know other members are very concerned about that. And 
excuse me if this question has been asked before, but also my 
focus in my opening comments was the need for competition and 
the belief in competition. What do we need to do--I guess is 
the question I want to ask--what needs to be done to ensure 
that the competitive marketplace comes to rural America, in 
other words, a competitive marketplace where there is a choice 
between competitors? And how can we help that occur?
    That is an open question. I guess the best way to do this 
with so many panelists is just who wants to try to answer that 
first and we will bounce back and forth.
    Mr. Vradenburg. Let me try first, Congressman. I would say, 
first, that we ought to look at what has happened to date. In 
the narrow-band world, what we have seen is that between 90 and 
95 percent of American households have access to the Internet 
via a local dial-up phone number. As a consequence, we have in, 
for example, Blacksburg, which I know Mr. Boucher is from, 376 
ISPs. Now Blacksburg is not a major community, but there are 
multiple Internet service providers in that community.
    Now why is that the case, because there is only one phone 
company? We are only using one set of wires. It is because the 
phone company, in essence, is obliged to interconnect and to 
sell its facilities to, in Blacksburg, 376 independent service 
providers. And, in fact, those people called up, ordered 
business lines, set up modem banks, and began to offer service 
in Blacksburg. So we have a great deal of competition in the 
existing environment because of the openness of the telephone 
system.
    Now as we move to broadband, we have to continue that same 
framework and not only have our ability to offer DSL service 
and those 376 Internet service providers in Blacksburg offering 
a high-speed service through DSL, but also get competition in 
the infrastructure itself so that, in fact, those 376 ISPs can 
get access to the local cable system and use whichever system 
is most accessible to a household and also be able to service 
their particular customers using whichever infrastructure is 
best suited to the applications that they want to deliver.
    Now we also have this in satellite and we have announced a 
deal with Hughes, we have got to recognize that cable is only 
going to be able to serve maybe 60 percent of the American 
public, even at total build-out. DSL and current technology is 
probably only going to be able to reach 40 percent to 50 
percent of American homes. So we are still going to need 
additional services and additional capacity infrastructure to 
reach all of America. And, hence, satellite, at the moment, 
seems to be the best opportunity to do that. So we will need 
competition as well and open access inside satellite systems to 
ensure that, in fact, multiple service providers are having 
access to that portion of the country that is not serviced by 
either cable or by telephone.
    Mr. Shimkus. Yes, sir.
    Mr. Gray. Yes, sir, if I may. I am Steve Gray with 
McLeodUSA. In your particular State of Illinois, if I may. We 
serve 144 markets in Illinois; 1,500 employees; and we have 
deployed almost 3,000 miles of fiber in the State of Illinois. 
None of those statistics include the city of Chicago. We 
acquired Consolidated Communications about 2\1/2\ years ago. 
Our plan over the next 5 years is to build and deliver 
broadband pipes to every home and every business, either 
through the construction of our own facilities or partnering 
with Ameritech and utilizing the copper and providing DSL over 
the copper itself.
    Mr. Shimkus. Okay. We are trying to do two things at one 
time. Thank you. I am glad you brought up the issue of direct 
satellite, because cable is not everywhere in America and it is 
not everywhere in my district. So the direct satellite is going 
to be a big player in this. Will there be needs from us at the 
Federal level to provide tax incentives, capital investment? 
Again, can it be done by just easing the regulatory burden and 
staying out of the way, is that enough to encourage the capital 
investment to go out to these small, rural regions? Yes, Ma'am, 
go ahead.
    Ms. Vitale. I think on two points, in terms of addressing 
your issue on the capital investment. Yes, it is very helpful 
in order to do that. We purchased a company in Opelika, 
Alabama, which is a very rural territory. And the Federal and 
both State areas have given us capital funding in order to 
expand--thank you--to expand that particular area in a very 
small, rural town in Opelika. The closest town of any size is 
Auburn. So I think we look at it from that angle, yes, that has 
been, you know, beneficial.
    But I think as far as what I would share with the committee 
that would be critical is to take the Telecommunications Act of 
1996 and continue with what the progress has happened. I mean, 
it has allowed us to have access and grow because of having 
access to the local lines in order to deliver our services. So 
that would be something I would stress.
    Mr. Tauzin. The Chair will recognize Mr. Boucher. I 
recommend the other members go out and make the vote. Mr. 
Shimkus will return and continue the hearing. So if you would 
like to leave now and make the vote, your call. Mr. Boucher 
will be the next to be recognized. Mr. Boucher.
    Mr. Boucher. Thank you very much, Mr. Chairman. Chairman 
Tauzin was asking a series of questions directed toward a 
prediction on the general availability of telephony using the 
IP protocol and we got some interesting answers from the panel 
concerning that.
    I would like to follow that series of questions with 
questions directed toward determining when we might expect 
general availability throughout the country of both DSL and 
cable modem services. Now we have seen a number of projections, 
all varying, I might add, for when these services will 
generally be available. This is a panel of experts who are 
well-qualified to talk with us about that.
    And so I would like to ask for projections here. Let us 
just take a date. Let us say by the end of the year 2000. How 
many DSL subscribers will there be? How many cable modem 
subscribers will there be? Today, we start with a base of 
70,000 with DSL and about 500,000 with cable modem service. 
Where are we going to be at the end of the year 2000? Mr. 
Apfelbaum.
    Mr. Apfelbaum. I couldn't predict a number. I could tell 
you that we are trying to roll out the service as quickly as we 
can in all of our service areas. And, you know, a lot of that 
depends on the policy that is set here, whether we are fettered 
with unnecessary regulation or left free to develop our 
business the way our business people think is best to serve 
customers.
    Mr. Boucher. Do you have any estimate at all? Take one case 
and the other.
    Mr. Apfelbaum. Well, you know, it is also hard to say what 
the numbers are because with all of these new services being 
developed, I think they are all going to be rolling out and 
they are all going to be getting customers. We would like to 
get a large number of them, but, you know, I predict a number 
for----
    Mr. Boucher. Mr. Netchvolodoff, do you have a prediction 
for us?
    Mr. Netchvolodoff. Well, I can only speak for Cox, but by 
the end of the year 2000, we would expect in excess of 80 
percent of our total customer base to have access to all 3 
digital services: video, telephony, and high-speed data. With 
respect to the phone companies, the only thing that I can 
comment there is the public pronouncements that have been made 
by the phone companies that by the end of this year they will 
have activated over 25 million DSL lines and I would presume 
that by the end of the year 2000 that would accelerate, not 
decelerate since activating DSL lines involves defense of their 
core business.
    Mr. Boucher. Mr. Tauke, would you care to comment on that? 
Offer a projection for us with regard to DSL?
    Mr. Tauke. An independent third party, International Data 
Corporation, says that there will be, they estimate that there 
will be 6 million lines of DSL services in operation by the 
year 2002, which is not the year 2000 figure. I can speak for 
Bell Atlantic. By the end of the year 2000, we believe we will 
have DSL capability for 14 million homes of the some 30 million 
residential customers we serve.
    Now that projection, however, has a lot of caveats. For 
example, just to give one, we anticipate that we will be able 
to deploy DSL services over some fiber. In order to be able to 
do that, you have

to have remote terminals in your network. The question arises: 
Will we have to unbundle the remote terminals? Will we have to 
provide co-location in those remote terminals? If the FCC would 
come forward with those kinds of rules or a State commission, 
for that matter, that might throw way off the kinds of 
projections that we are making.
    So we believe, right now, given the current state of 
affairs, 14 million homes would be passed, have it available. 
How many will take it, I don't know.
    Mr. Boucher. I have one other question and then I am going 
to have to go to vote as well and so will the chairman.
    The discussion about whether or not transport platforms 
should be open so that the consumers of transport services have 
a choice of Internet access providers has both technical and 
policy components. Chairman Dingell was discussing some of the 
policy implications of that decision a moment ago. Let me focus 
on a technical question. We have heard from some of the cable 
companies that if they are required to open their platform to 
Internet access providers other than the one with which they 
are affiliated, that significant technical barriers are raised. 
And that, in fact, it may not be possible to accommodate more 
than one Internet access provider on a given cable platform.
    I read with great interest last week about a demonstration 
by GTE and AOL concerning a cable platform that now can 
accommodate multiple Internet access providers. And Mr. 
Vradenburg, I would like to give you an opportunity to comment 
about that demonstration and about the technical feasibility of 
accommodating multiple ISPs on a single cable platform. And, at 
the same time as you are describing that demonstration, if you 
would, tell us if, in your opinion, based upon that experience 
and your other research, there is any practical upward limit on 
the number of ISPs that can be accommodated on a cable 
platform.
    Mr. Vradenburg. Thank you, Mr. Boucher. We did do a trial 
in Clearwater, Florida, on a GTE cable plant. Actually, it was 
GTE's trial in which they utilized access to our service as 
well as to two other ISPs. And what they were able to do was to 
demonstrate was that there is a simple technical solution to 
this problem of multiple ISPs. They demonstrated it with a 
routing device that they have modified but is essentially off-
the-shelf equipment that has been used in the multiple ISP DSL 
world that, in fact, for roughly a one-time capital investment 
of $1 per home that, in fact, it is not only feasible but 
relatively straightforward to provide multiple ISP access for 
households.
    There are also off-the-shelf software management systems 
which enable a cable MSO to continue to manage the data traffic 
on that network to assure there aren't data hogs and to provide 
that, in fact, the data is effectively moving through those 
systems. In fact, they have demonstrated that by stacking those 
routers, they don't see a natural upward limit on the number of 
ISPs that can be supported. What they have determined is that, 
in fact, the scaling issues inside the cable plant are a 
product of the number of subscribers, not the number of ISPs.
    Mr. Boucher. Thank you, Mr. Vradenburg. Let me give our 
friends from the cable industry an opportunity to comment on 
that question if they desire to do so. And I am afraid I am 
going to have to be impolite and leave. I won't hear the answer 
to your question. I assure you I will read it in the record.
    Mr. Apfelbaum. Okay. We have never taken the view that it 
was technically impossible to have multiple ISPs. We have 
really approached it from the policy end. But we think the 
technical end is a big component of the policy end. And the 
question is what do you get out of the resources it takes to 
configure a system to allow multiple ISPs? If your goal is to 
have multiple ISPs, you can do that. If your goal is to serve 
consumer welfare and give consumers what they want, I don't 
think you would build your system that way. It increases the 
cost tremendously. It increases the inefficiency tremendously.
    And I did read the LA report that came out the other day 
and they seem to very quickly answer the technical feasibility 
answer by saying if you put two engineers in a room, they can 
do anything. And they quoted that old NASA line that with 
enough thrust, you can make anything fly. We don't leave two 
engineers alone in a room very often in our company because 
they can do anything and oftentimes they want to do everything, 
but if we let them make these decisions, the cost of cable 
service would probably be about $1,000 a month.
    So there are all kinds of other competing considerations 
that go into this. And, again, the question I think also is do 
you want to pick one business model now and require every 
facilities-based competitor to follow that model? Our view is 
it is better to encourage the deployment of facilities-based 
competitors by allowing them to be free to develop the business 
models that work best.
    Mr. Shimkus [presiding]. The Chair recognizes himself for a 
second round of questions. And the first one I have is to Mr. 
Scott and Mr. Gray. If you are able to get unbundled network 
elements to compete for business in the voice market, but you 
cannot get unbundled network elements to compete for the 
business in the data market, what will this do to your 
company's incentive and ability to enter markets that lack the 
population density to justify the installation of your own 
facilities? Pretty complex.
    Mr. Scott. No, I think it is pretty clear. If we did not 
have access to unbundled elements for data service, that would 
be crippling to our ability to do that. And that becomes more 
important as time goes on. We started by mainly providing voice 
services, but rapidly we have been pulled by customer demand 
into providing voice and data services. So we would absolutely 
need access to those elements for the provision of data 
services to remain competitively viable, regardless of the size 
of the community. That would apply in a large market or in a 
small market.
    Mr. Gray. I directionally agree with Dave. I will come at 
it just a little bit differently. A, I still submit that it is 
an artificial distinction, from a consumer's perspective, to 
differentiate voice from data. All I know is that our consumer 
customers want a service that works all of the time and when it 
breaks they need to call us and whether they have the same line 
for Internet or telephony, they don't draw that distinction so 
I shouldn't be able to.
    With respect to the ramifications, if premature Bell 
operationing company entry is allowed into the interLATA data 
business, Dave and I, I think, lose access to the capital 
markets. We are losing--I am losing $200 million a year and 
will need sustained access to the capital markets for a while 
in order to support our emerging efforts. So I think the 
consequences are somewhat grave. I also would remind you, Mr. 
Congressman, if I may, that we are in an open registration 
period with the SEC, so please nobody run out and buy or sell 
our stock based on anything I have just said.
    Mr. Shimkus. And I am going to go to Mr. Tauke, but I want 
to follow up before I do that. Why is this more critical--
again, you understand my focus is on the rural areas--why is 
this even more critical in the rural areas versus the urban?
    Mr. Gray. If I may go first--and I will speak specifically 
to US West and, with all due respect to Mr. Tauke, the fact of 
the matter is, the quality of the service is declining from the 
incumbent local exchange company. And, two, they are not 
investing in those rural markets. And, three, one could read 
into the tea leaves with all that is going on with either Quest 
or Global Crossing that they may further forget where Pierre, 
South Dakota, or even how to say Peer, South Dakota, what that 
really is.
    So I think if we send the wrong message in 14 of those 
States and if I go out of business and US West starts investing 
in international markets, what are the alternatives for rural 
companies in those areas?
    Mr. Shimkus. Mr. Scott, did you want to follow up?
    Mr. Scott. Yes, I will follow up.
    Mr. Shimkus. And then I am going to go to Mr. Tauke.
    Mr. Scott. I will follow onto Mr. Gray's comments. For us 
it is very important. I mean, there are a lot of people in our 
markets who are clamoring to provide Internet services, high-
speed Internet services in St. Louis, in Houston, and Dallas. 
But, as far as I know, we are the only ones who are eager to do 
that in Topeka, Kansas. And so we may be the only one out there 
who is ready to stand by and provide service, high-speed 
Internet services, in those communities. So I do think that 
access to those unbundled elements is critical for relatively 
quick delivery of such services to small markets.
    Mr. Shimkus. Let me just follow up one more question. To 
what extent is certainty important to the ability to raise 
capital?
    Mr. Scott. Central to it. I couldn't agree with Mr. Gray 
more on that. And, in fact, McLeod is an older company that we 
are and probably has better access to the capital markets than 
a company such as Birch. I will guarantee you that when people 
look at investing in Birch, we spend most of the time 
discussing the regulatory scheme at the Federal level and at 
the State level and discuss the contingencies that might be 
brought to bear on the availability of unbundled network 
elements. So capital for companies such as Birch could dry up 
overnight.
    Mr. Shimkus. And now, Mr. Tauke, thanks for being patient 
and have at it.
    Mr. Tauke. Happy to be patient. I think it might be 
worthwhile to take just a moment to say a few words about 
unbundling and the network element issue that you raised. The 
first point is that I basically agree with my two fellow 
witnesses here that for rural areas and for competition in 
rural areas, that it is relatively important that these 
companies have access to unbundled network elements, have 
access to the loop, they are not, in the near-term, going to be 
building loops to the home--that they have access to be able to 
co-locate in our central offices in order to be delivering 
services. And I want to underscore that Bell Atlantic is not 
asking that we be given relief from those requirements to make 
our loops to the home available or to avoid co-location or any 
of the other section 251 requirements.
    The second observation that I want to make is we are also 
not asking that any of those requirements be imposed on the 
cable industry. Although we believe in the notion of regulatory 
parity that Congressman Dingell offered, we are not suggesting 
that those requirements which have traditionally been imposed 
on us be transferred to somebody else, because they are pretty 
onerous requirements.
    What we are suggesting is, as we deploy new technology, 
such as DSLMs, that we not have to unbundle the DSLMs, that any 
of the new companies can purchase that technology as well, use 
our network, and deploy those services on our network and be 
able to compete with us in the high-speed data market as well 
as the voice market.
    So I just want to be clear. We believe that the unbundling 
is important for competition. We are willing to live with that 
for the existing network. But we do not believe that it should 
be extended to all the new technology.
    Mr. Shimkus. Thank you. And I want to follow up with Mr. 
Gray and Mr. Scott on a question of why isn't US West 
investing? Could it be that their incentives are lacking, given 
the requirement that they are unbundled, that they unbundle the 
new services? Because we have heard in cable companies, they 
strongly suggest that a similar requirement on them would 
remove the investment incentives.
    Mr. Gray. I personally do not think that is a fair 
argument. In fact, if you look at the State of South Dakota, 
for example, to Mr. Tauke's point--who, by the way, I am very 
much aligned with that position as well. An unbundled network 
element, the pure copper itself, is $28 per loop per month in 
the State of South Dakota. The retail rate for business 
services is $30 and for residential service $14. So the cost of 
the loop itself is 2X times what the residential unbundled loop 
is--I am sorry, the residential retail line and almost the 
equivalent of the business line.
    So we have failed to see the merit of that argument. In 
fact, their access charges are $.06.5 a minute in South Dakota. 
So I fail to see the economic merit of that argument.
    Mr. Shimkus. Mr. Scott.
    Mr. Scott. I can't comment about US West because we don't 
provide service in US West's territory, but I will make 
comments about Southwestern Bell. And we would not seek to 
imply that Southwestern Bell is not investing in its basic 
network plant, especially in metropolitan areas. We are also 
seeing that independent telephone companies are using their 
access to universal service funding and subsidies to continue 
to invest in the infrastructure in small towns and in rural 
areas.
    So we think that, currently, there is strong incentive for 
phone companies to continue to invest in their plant and the 
market-based incentives where cable companies and providers 
such as Birch are using and employing our own technology are 
creating a competitive environment where they must continue to 
invest very aggressively in advanced services. And you are 
seeing that today. Southwestern Bell, in particular, unveiled 
earlier this year an aggressive DSL roll-out throughout their 
entire region with the projections of having hundreds of 
thousands or even millions of DSL lines in service in a very 
short period of time.
    So we do see that the current competitive environment is 
driving all players in the industry to invest significantly in 
these facilities.
    Mr. Tauzin. The gentleman from Tennessee is recognized for 
a line of questions.
    Mr. Gordon. Thank you, Mr. Chairman. Again, thanks for 
having this very good hearing today. I have a couple of 
questions just because I am not that informed, I would like for 
you to help me with.
    One, we have talked about the different vehicles of which 
people are going to be plugged up. But electric wasn't one of 
those. Are we going to have some kind of a supercharged 
electric additional wire into the house that can be a part of 
this competition? That is one of my questions.
    And the other is we have talked about the various elements 
to get service and get people hooked up. I am interested in 
what kind of combinations we are going to have. I assume that 
wireless has to be a part of the finished product if you are 
going to have universal service. But as we look into the 
future, in terms of price and quality, is cable and telephone, 
are they going to be comparable? Or are we going to have 
winners and losers there? I mean, ultimately, does one, because 
it is more efficient, better quality, less expensive, is it 
going to beat the other out? So where are we going to wind up 
in the future here?
    Let me start first with the is electric wire, is that out 
of the picture?
    Mr. Falcao. Certainly is not out of the picture. We are 
currently deploying Internet access using the power facility in 
Europe and we have at least one trial in North America and 
there are other companies that are trialing that as well. So I 
believe you will see the power utilities using their electric 
infrastructure as an access technology.
    Mr. Gordon. Does anybody disagree with that? Is it going to 
be economically and technically viable?
    Mr. Vradenburg. Mr. Gordon, I think it is very difficult to 
predict the future and I think if you sat here and tried to 
predict what was, in fact, going to win or lose in a technology 
environment, you would have missed the Internet, you would have 
missed a lot of things. I came to AOL when there were a lot of 
busy signals going on and the company was going under and that 
was a little over 2 years ago. So I think it is very difficult 
to predict the future.
    I do think what is important to try and do is to try and 
maintain a framework for these businesses in which the 
technology either will deploy effectively because, in fact, 
there is a utilitarian quality to it, in fact, it in terms of 
cost and reliability of service that it, in fact, succeeds in 
the marketplace. And the fact that if, in fact--the electric 
utility is an interesting example earlier mentioned that, in 
fact, if the electric utility only, in fact, wants you to buy 
their light bulbs, that ought not to be the way that the 
business is being done.
    So that, in fact, all service providers have access to all 
of these access technologies. Allow them to compete on their 
merits and allow the American people to get services through 
which everyone is successful. But I do think it is very 
difficult to be predictive yet.
    Mr. Gordon. Your whole message today--and I understand 
that--and certainly you are not a soothsayer to know what the 
future is. But I am trying to get a technical question answered 
to the best of this, you know, widely talented group here. So 
let me, if I could, go back to is the power companies, are they 
going to be a player in this both in terms of the quality and 
economics? Does anyone think they are not?
    Mr. Kurtze. I think the actually perfectly technical answer 
is it depends. And, as it often is in these technologies, the 
capability is there for some technologies and some power 
companies to be able to do that, but it will depend, I think, 
on the configuration of their individual networks. All power 
grids are not built identically. All customers are not located 
essentially the same.
    Within Sprint, we are trying to do some things that would 
mix a lot of technologies--wired, wireless. We would love to 
have the power companies as an alternative source of access. We 
wouldn't be launching our ION network in the fall as we are in 
three cities--Kansas City, Denver, and Seattle--without using 
currently unbundled network elements from the incumbent 
carrier. But we would love to have these alternatives. So we 
are going to pursue those.
    So I think the precise answer to your question, 
Congressman, is it is difficult to come up, but I would expect 
the answer is in many cases, yes, but it won't be a ubiquitous 
yes and it won't be equal in all parts of the network.
    Mr. Gordon. Mr. Falcao, what are your thoughts?
    Mr. Falcao. So I absolutely agree. I believe it is not 
going to be a technology issue here. It is going to be very 
much a business focus issue. And I know there are a number of 
utilities today that are considering this an additional revenue 
stream, additional methodology of capturing customers, but it 
is very much on their business model. It won't be a technology 
issue.
    Mr. Gordon. Mr. Falcao, you are somewhat unbiased, I guess, 
in the terms of your product. You want everything, you know. 
Are there technical and financial advantages to either the 
telephone line or the cable line or the wireless that is 
going--with the knowledge that we have now--to make one appear 
to be a superior being that is going to win this battle?
    Mr. Falcao. I think the answer to that is not--again, it is 
going to be an economic answer. So if I look at the investment 
required to get them all to the same place, I think you are 
going to find very different investment patterns that are 
required to get everyone to the same place that they are all 
equal. So the way I can answer that is that if you want to 
everyone to equality, it is going to require very different 
investment streams in each one of those technologies you talked 
about.
    Just to give you an example, today cable and the wire, the 
copper telephone lines, are growing very rapidly and the copper 
wires are pretty much ubiquitous. So getting to copper wires to 
deliver high-speed access is not going to take as much as 
possibly building a different cable infrastructure. However, 
there is no reason that they can't all deliver the same quality 
of service.
    Mr. Vradenburg. May I take a shot, Mr. Gordon?
    Mr. Gordon. Sure.
    Mr. Vradenburg. Let me describe how, first you have got the 
difference in footprint of DSL and telephone wires because of 
the technical constraints in the current technology, probably 
can only reach about 50 percent of American homes. The cable 
probably can reach somewhat more, albeit the footprints aren't 
going to be overlapping. But let us assume that you are in a 
geographic area in which both access technologies were 
available to a home.
    It is our view, our vision of how this would work, is that 
AOL would offer a higher speed suite of services to its 
customers and that a customer would order up, either for an 
additional $10 or $20 or $30 a month, what they wanted in terms 
of speeds and applications. And that the customer would never 
know whether we delivered that service through the cable modem 
or through the high-speed telephone wire. And that the high-
speed telephone wire may be better for some applications and 
the cable plant better for other applications.
    So that, in fact, we see a world in which both could 
coexist and which the customer basically can order up the kind 
of service with the kind of application they want and never 
would know what was the nature of the access technology that we 
employed in order to get that service to their home. So if the 
customer were truly interested in a high-speed, just brute 
strength, download capability and was less interested in 
upload, it could be we would deliver that via the cable plant. 
If they needed some symmetrical quality to the transmission 
because they were in a home office or something, we might use 
the telephone plant because its architected differently. So 
that, in fact, the consumer may never know.
    So my own judgment on this is that these, even in areas 
where they both coexist, will coexist because they will be 
better for different applications and the service providers, 
the 6,000 ISPs, will end up picking one or the other or both 
for different sets of applications and both will coexist.
    Mr. Tauzin. The gentleman's time has expired. The Chair 
will now recognize the gentleman from Florida, Mr. Stearns, for 
a round of questions.
    Mr. Stearns. Thank you, Mr. Chairman. Mr. Apfelbaum, this 
is a question for you. The architecture for cable broadband is 
much different than DSL technology because cable broadband will 
require the sharing of cable lines between residents, rather 
than a dedicated line that a telephone company could provide. 
How does this fact complicate the ability to offer open access 
to cable? If we mandate open access to cable, would the 
regulations resemble the common carrier regulations that 
telephone companies must provide? And what effect would that 
have on the roll-out of broadband cable services?
    Mr. Apfelbaum. I do think that the architecture is very 
different and that that would make unbundling a very 
complicated thing for us. And I think I said earlier--you may 
have been out of the room--is that that kind of regulation, 
while it might be feasible or it might be possible to do, is 
very costly and very inefficient. If we were required to do 
that, I think it would make our lives much more complicated and 
really interfere with our ability to offer the services that we 
think consumers want.
    And the networks that we build are not only shared in the 
sense that customers share them to get services like Internet 
services, but it is one network that we use to provide 
everything we do, including providing video programming, 
providing telephony, and providing these new services. I think 
sometimes some of the people who advocate open access act as if 
we were kind of irrelevant to the thing and they can say, well, 
we will use phone for this. We will use cable for that. And I 
guess, you know, their view is that whatever demand they choose 
to make, our system will somehow magically respond.
    But our view is that all of this is a very delicate process 
and that we are the ones in the position to meet consumer 
demand and try to build a service that will be something 
customers want. If we had this unbundled open system where all 
of these ISPs would say, well, I want this much of your 
capacity because I have signed up this many customers. I want 
that many. I don't think it would work very well, from the 
consumer's point of view.
    And I do think that the goal of policymakers should be to 
encourage the deployment of facilities and that the best way to 
do that is to leave the facilities companies free to make their 
own decisions about business models. And I think, as we have 
heard today, there are so many different companies doing so 
many different things, let those people go out and experiment 
and let the marketplace decide what the best business model is.
    Mr. Stearns. Let me ask Mr. Vradenburg from AOL if he has 
any comments to the comments that Time Warner just gave.
    Mr. Vradenburg. Yes, sir, Mr. Stearns. Two or three points 
here. First, the demonstration that we made in Clearwater, 
Florida, demonstrated that a $1 per home, one-time cost is a 
simple and straightforward solution to offering multiple 
services over the same cable plant and that off-the-shelf 
software can manage this. It is not only feasible, but it is a 
relatively low-cost, inexpensive solution so that, in fact, 
customer choice and competition can, in fact, be built into the 
cable plant as well as the telephone plant.
    It seems to me that to allow the facilities provider to 
basically choose the services that is offered over their system 
has several disadvantages. First we have known the cable 
system's track record in terms of price and service quality in 
this country and that is the product of the fact that they are 
local video monopolies, basically relying on government-granted 
exclusive franchises for their position. As a consequence, not 
only is the price higher and the service quality less in that 
particular environment, we are also seeing that the service 
that they delivered for competitive services or for content 
over their plant is different, depending on whether it is 
there's or somebody else's. If it is there's, it is cashed. If 
it is somebody else's, they get access to the Internet.
    The third thing I think you will see in that particular 
business model is that they basically limit the amount of video 
content that will come through the wire. So, basically, in a 
model in which the facility is the only service provider over 
that system, you have less competition, less consumer choice, 
and, in fact, you have constrained services that are being 
offered. And this is not a matter of technical feasibility. It 
can be technically opened up, both feasibly and in terms of 
cost efficiency, and so that it need not be so.
    And we have seen in the Internet as a whole that it is a 
network of networks, all interrelated, all interconnected, and 
it all works responsively behind the scenes and it is totally 
and transparent and invisible to the consumer.
    Mr. Stearns. Mr. Chairman, I just have one more question.
    Mr. Tauzin. The gentleman may proceed.
    Mr. Stearns. In my opening statement, I talked about the 
decision in Portland, Washington, and you and I just talked 
briefly, you might indicate what AOL's reaction is to the 
Portland decision.
    Mr. Vradenburg. Well, we have been hearing a great deal 
from the cities recently and they seem to be saying to us that 
they are hearing from their local constituents that 
constituents are angry about the lack of choice in cable-
delivered services in their communities. The cities think that 
they have a legitimate interest here because they own the 
rights of way over which a cable plant is built and they 
traditionally have had a responsibility for protecting 
competition in cable-delivered services in their local markets.
    They are, in a sense, on the front line of this particular 
issue in terms of what the consumers are thinking and they are 
telling us that consumers want choice and competition. In a 
sense, the cities here are laboratories of democracy. I do 
think that, through time, we are going to see other cities pick 
up this issue because they are responding to local constituent 
pressure for consumer choice and competition in cable-delivered 
cities in their communities.
    Mr. Stearns. Thank you, Mr. Chairman.
    Mr. Tauzin. Thank you, Mr. Stearns. The Chair is pleased 
now to welcome and recognize the gentleman from Massachusetts, 
Mr. Markey, for a round of questions.
    Mr. Markey. Thank you, Mr. Chairman. In the old days when 
telecommunication and finance was one great glorious 
subcommittee, I could go to a banking meeting, which I just had 
to do because that bill is coming up next week, on our own 
schedule. But, unfortunately, we don't have that luxury any 
more and I have got a privacy amendment I am trying to make to 
that bill that required my presence to all of you.
    Mr. Tauzin. My dad used to talk to me about the good old 
days, too, until I looked at them. They weren't so good.
    They were old.
    Mr. Markey. Well, you were a Democrat in those days.
    Mr. Tauzin. Like I said they weren't so good.
    Mr. Markey. Mr. Tauke, in your testimony, you state that 
the notion that Bell companies would use interLATA data relief 
as a back door for interLATA voice relief is a red herring. And 
you state that Bell Atlantic will not provide interLATA voice 
telephony until it gains the approval to provide that service 
pursuant to section 271, the checklist. Are you stating that 
when you get section 271 relief in New York or Massachusetts 
that such relief will only cover voice and that to do interLATA 
data, you would need some other relief?
    Mr. Tauke. When we receive 271 approval in the State of New 
York, we could begin to offer some data services to consumers 
in the State of New York. But, as you know, the way networks 
are constructed and the way the Internet works, it is very 
difficult to know precisely where traffic is going and so on. 
And so, as a result, while we can provide certain services to 
the State of New York, it does not permit us to enter the 
Internet and data markets in the way we would like until we 
have the ability to gain 271 relief in all of our States. So, 
in order to be a player in the market, we really need to go 
through the 271 process in all of our States if the 271 process 
is required for us to haul data across LATA lines.
    Mr. Markey. But you will move quickly in other States, as 
well?
    Mr. Tauke. We are trying to move just as quickly as we can 
through the 271 process. And we could have a whole hearing on 
the 271 process and, after we finish the process in New York, I 
could even talk more freely about the 271 process. But the 
bottom line is that, when this committee passed the 1996 act, 
you were among those who predicted that Bell Atlantic, then 
NYNEX would be through the process in New York by the end of 
1996. We are now in 1999. I don't think that the process has 
evolved in the way that any of us anticipated.
    Meanwhile, the world has changed a lot. And I think our 
point is that, essentially, we have huge incentives from a 
revenue standpoint to continue to pursue the 271 process, 
separating data from voice services. And allowing us to engage 
the Internet market in the interim is not going to reduce our 
incentives or the necessity for us to complete the 271 process.
    Mr. Markey. I guess the only point I am trying to make is 
that the Telecom Act of 1996 does provide for your entry into 
the interLATA data marketplace, but that it does require for 
Bell Atlantic to open its local loop as the precondition.
    Mr. Tauke. There is no question that if we complete the 271 
process in all of the States, that then we can enter the data 
market without restriction or for backbone purposes. We still 
will have all of the restrictions I alluded to earlier relating 
to the last mile.
    Mr. Markey. But the chief issue for you is that it is just 
taking a little bit longer than you thought to resolve these 
271 interLATA data, the local loop issues, but once they are 
resolved, you are free for voice and data.
    Mr. Tauke. Right. We are talking about what happens between 
now and the time we complete the 271 process. And from your 
standpoint, if I may be so bold to suggest it, you shouldn't be 
that concerned about what happens to Bell Atlantic. What you 
should be concerned about is what is Bell Atlantic not 
delivering to the constituents you serve and people all across 
the rest of our region because of these restrictions. What does 
that mean to their ability to enter the world of E-commerce, 
the new data world that is available? And is there anybody else 
who is able to do what we could do over the 1 year or 18 months 
or 2 years to make this world advance so that we get the 
economic benefits that come from it?
    Mr. Markey. So, I mean, so that is why I want to work 
closely to you to get those restrictions lifted and get it 
resolved, that 271 provision resolved, knock heads with these 
State regulators and you and the Justice Department and get it 
done. Because it is really not a question of what, you know, 
Bell Atlantic can do for me, it is what I can do for Bell 
Atlantic. I mean, that is my motto.
    And I want to work with you to get that 271 restriction----
    Mr. Tauke. Well, now that we are entering into a new era of 
good feeling, I am looking forward to it.
    Mr. Markey. Let me--is it Vitale?--if I could, Ms. Vitale 
and Mr. Vradenburg, I would like to read you a quote from a 
hearing held in February 1994 before this committee on the 
issue of developing legislation to deal with the issue of the 
convergence of these technologies.
    This is what it said: ``The open access and interconnection 
requirements placed on the telephone companies should also be 
applied to the cable television industry. The asymmetrical 
application of these provisions will frustrate the development 
of an integrated network of advanced networks. If we are to 
realize the full potential of the information highway, all 
telephone and cable networks should be open and unbundled. We 
must move away from information bottlenecks and transmission 
monopolies. If some networks are open and others closed, we 
risk creating a tangle of private toll roads, not an open 
highway. With mandatory interconnection and equal access, 
customers on one network will be able to reach other networks. 
Open access requirements also encourage the robust development 
of niche information providers who can deliver their products 
to consumers with little or no capital investment.
    Furthermore, open interconnection can help ensure that 
competition can still thrive even before we realize the vision 
of legislation where customers have access to at least two 
ubiquitous competing broadband networks. As the Nation makes 
the transition to a system of multiple networks, competition 
can be safeguarded if all information providers are guaranteed 
access. This protection will be especially important in less 
densely populated areas where, at least initially, it may be 
financially prohibitive to construct more than one broadband 
network.'' Now this was testimony by Dick Notabach, who was the 
CEO of Ameritech at that time. Could you comment on that 
testimony? Ms. Vitale, Mr. Vradenburg.
    Ms. Vitale. Well, I couldn't agree more with the particular 
testimony in terms of opening it up and having access available 
to everyone. And I think that it is critical that we are able 
to purchase the unbundled loops, that you have access to 
customers. And that is how RMI.NET has thrived and been able to 
offer different products and services throughout the country 
and we are able to do that. And we are able to do that in 
small, rural areas also because of the opening of that.
    And the more choice that we have, rather than only one and, 
if we were dependent upon the RBOCs to deliver high-speed 
access, we would be in a world of hurt. And we are able to have 
other choices. And I mentioned earlier that we have companies 
in Bloomington, Illinois, and we are able to be able to deliver 
high-speed access to them starting next year because of these 
companies that we are able to resell their products.
    Mr. Markey. Thank you. Mr. Vradenburg, very briefly.
    Mr. Vradenburg. Well, I agree with the comment. It echoes 
comments and sentiments made in a speech by Vice President Gore 
in 1994 on exactly the same subject. It was a very visionary 
look at how the future was going to develop and we have only 
partially realized that.
    Mr. Markey. Okay. Thank you, Mr. Chairman.
    Mr. Tauzin. Thank you, Mr. Markey. The gentlelady from 
Missouri, Ms. McCarthy. I am sorry? Oh, Mr. Apfelbaum wanted to 
respond.
    Mr. Apfelbaum. Could I respond to that? I am sorry. You 
know, I thought it was a fairly established principle that 
common carrier regulation was only to be employed when there 
was some kind of market failure. Some of the speakers today, 
while they are talking about at least seven different kinds of 
providers, seem to say that each of those providers is a 
monopolist. I think that makes no economic sense.
    Also, some people have said it is crucial to be able to buy 
access to these different providers and I think the policy 
question is crucial to whom? As Commissioner Powell said the 
other day, the point of competition policy isn't to look at the 
effects on individual companies, it is to look at the effects 
on competition. When a market is in its very early stages and 
there is no indication that the market is failing, that is the 
very worst time to come in and say here is how it is going to 
work for everybody from this moment forward.
    Finally, I do want to emphasize, too, that, in terms of 
this debate about whether ISPs can have access, Road Runner 
provides access to any content that any of our customers wants.
    Mr. Markey. Can I ask just to conclude--I thank you, Mr. 
Chairman--is your point that it is technologically feasible for 
multiple access? Or is it just a business model that you wish 
to pursue?
    Mr. Apfelbaum. Well, I think that the technical component 
is part of the policy issue and----
    Mr. Markey. Are you saying it is infeasible to do that?
    Mr. Apfelbaum. I think that it adds a clot of costs and 
inefficiencies for no consumer benefit. So in that sense it----
    Mr. Markey. So are you saying the engineers say they can't 
do it? Or that you don't derive the full consumer benefit from 
doing it?
    Mr. Apfelbaum. It is more the latter.
    Mr. Markey. Yes.
    Mr. Apfelbaum. I think engineers can do anything they want 
to do. The question is whether the costs are worth it.
    Mr. Markey. Okay. Thank you.
    Mr. Netchvolodoff. Could I just add just something to that?
    Mr. Tauzin. Mr. Netch, proceed.
    Mr. Netchvolodoff. I think that the question here is a 
question of scale. Are we talking about 6,000 ISPs? Are we 
talking about 500 ISPs per market? And the complexity is not a 
straight line. It is asymptotic. It is logarithmic. And the 
more equal access you are providing for under a regulatory 
scheme, the higher the cost to the end-user. And this is 
especially problematic when most ISPs are not adding value. 
They are simply providing a service that is already being 
provided by whoever is providing it.
    Mr. Tauzin. Yes, we will do another round if we need to. I 
need to recognize Ms. McCarthy who has another appointment.
    Ms. McCarthy. Thank you, Mr. Chairman. Mr. Kurtze, your eye 
on technology is very phenomenal and in your testimony you talk 
about the importance of the last mile and how critical it is to 
getting it to potential customers like me. I would like you to 
expand upon that because I think it is a very impressive 
technology and you took the law quite seriously in 1996 and 
abided by it and here you are today on the cutting edge of 
these new technologies and better service to customers. So if 
you would expand a little bit on that last mile broadband and 
what we in the Congress should be doing to help you get there, 
I would appreciate that.
    Mr. Kurtze. Well, as I have said earlier, we have designed 
the ION concept, an integrated, on-demand network to be access 
technology agnostic. So as other opportunities present 
themselves to us, we are prepared to look at wireless, to look 
at different forms of access technology to the end-customer and 
there are more available to us today at the small business and 
large business arena than there are at the consumer.
    So our concern has been, in the short-term, that we are in 
fact using unbundled elements and DSL type technologies from 
the incumbent as we roll-out this initial product to consumers 
because that is all that is practically available to us if we 
want to launch that network and get consumers to see--the value 
to the consumer is not in the access technology. The value to 
the consumer is in the services and the kind of things we put 
on our networks and others might as well. We want to get that 
value out so consumers can see it and to do that, to date, as I 
said, in our initial 3 markets we are launching this fall, we 
are depending on the unbundled access that is available to us 
from the ILEC as a function of the 1996 and other current 
regulations.
    So our position is, you know, that process is working now 
and, in the short-term, we would like to see it continue while 
these other technologies get a chance to mature and actually 
present themselves in the marketplace.
    Ms. McCarthy. I assume by your response that you would 
favor having interconnection rights to the last mile, whether 
it be by telephone wire or cable?
    Mr. Kurtze. Oh, yes, we--the more technologies that are 
available to us, the more we think our overall network will 
give us the opportunity to present an acceptable proposition to 
the end-user.
    Ms. McCarthy. Thank you. Mr. Scott, you, too, have abided 
by the 1996 act and here you are. And we wish we could 
duplicate you all over America because that kind of competition 
is what we hoped to foster in the act. I wonder if you, since 
you in your statement talked about the carrot and stick and the 
critical difference in carrot right now and the true importance 
of it both to you and companies like you and to those companies 
that would like to be like you but the hurdles in the way as 
well. Would you mind touching upon this IP telephony that will 
be a viable business, how soon you think that might be 
available and what we in the Congress could be doing to help 
make it possible?
    Mr. Scott. Sure. I guess I differ a little bit from some of 
the opinions expressed on how quickly IP telephony will be what 
we call ready for prime time, providing voice service in the 
local exchange. We are predicting that, given the amount of 
resources that are being dedicated to this task within the 
vendor community, that it could be feasible within a year to a 
year and a half. We are actually beginning to trial some 
technology that would allow us to put voice over a DSL loop as 
an overlay technology and are beginning those trials in Kansas 
City right now. That technology is here. So I am more 
optimistic about that.
    And it may interest you to know that we are already using 
packetized voice in our long-distance network to carry 
services. It is trickier, granted, to actually move it into a 
local exchange, but many carriers in the long-distance market 
are already converting the voice signal into a data signal and 
carrying that around for reasons of efficiency.
    And your earlier comment about the carrot and the stick.
    Ms. McCarthy. Yes.
    Mr. Scott. I have been somewhat pessimistic up until 
relatively recently at ever getting through the process of 
interconnection and all of the requirements for opening up the 
local exchange as laid down by the act. But I think the carrot 
has finally worked and it has been skillfully employed by the 
Texas Commission in working through a number of different 
interconnection agreements that parties had fought over for, 
well, ever since the act and actually before that. So we have 
seen that the carrot aspect, section 271 of the act, has really 
started to make some progress in the Texas jurisdiction. And we 
think that will serve as a model for other States.
    Ms. McCarthy. And could I take from those remarks that 
Congress ought not get in the way of the commissions--Missouri, 
Texas, or otherwise--proceeding? Are there things we should be 
doing up here to help facilitate?
    Mr. Scott. Yes, I think you are right. Congress should not 
get in the way of the implementation of that. Everybody has 
been patient and I think we are starting to see some progress 
in that and so changing the regulatory scheme, I think, would 
be the worst possible thing to do.
    In terms of encouraging, I would have one suggestion. It 
may be both an issue for the U.S. Congress and also for State 
legislatures to deal with. But the subsidy mechanisms that are 
set up to support universal service. We are waiting to see the 
specifics of that and whether those are targeting subsidies 
toward particular companies or if they are subsidizing the 
consumers. Because we see a lot of innovation that could occur 
in meeting the demands in high-cost or rural areas. And so I 
think one thing that would be very important for Congress to 
consider is that the subsidies not accrue out of default to a 
particular provider of service, but that it be independent of 
provider or technology to give us all maximum incentive to 
compete for those market opportunities.
    Ms. McCarthy. That is a very good idea and I thank you for 
it. And I have run out of time. And, Mr. Chairman, I thank you 
for your graciousness.
    Mr. Tauzin. Thank the gentlelady. And the Chair now yields 
to the gentleman from New York, Mr. Engel, for a round of 
questions.
    Mr. Engel. Well, thank you, Mr. Chairman. First of all, I 
want to commend you for doing this. I know we are going to be 
doing more of this in the next months and I apologize for just 
coming in. This has been one of those days for me. Since I 
really didn't hear the testimony, I really just have a general 
question that anyone who might want to answer it could. When we 
passed the Telecommunications Act a few years ago, most of us 
were in favor of it because we thought it would bring about 
increased competition for consumers. Increased competition, the 
theory goes, brings about lower prices because there is, 
obviously, more people competing for the same thing.
    I think that my constituents in New York have experienced 
disappointment the way constituents have across the country 
that they haven't seen the benefit of lower prices and they 
have a growing fear that not only will the lower prices never 
come, but that they will ultimately lack the access to 
broadband technologies, the very technologies that we are 
discussing today.
    So, as this committee in the next several months--I know 
the chairman is planning on getting the members together at a 
retreat and I know that we are going to be studying this issue 
a lot and one of the nice things about this committee is 
whenever you think you know everything, you realize how little 
you really know--as we are dealing--this subcommittee and the 
committee--with legislation that advances the broadband 
technologies and the access to the consumers' homes, what 
assurances will the consumer have or can the consumer have that 
these technologies will ultimately be available for all 
Americans and at reasonable prices? Because, obviously if it is 
not reasonable, we could say it is available but my 
constituents, many of my constituents, would not be able to 
afford it.
    So I am wondering if any one in the panel--a lot of people 
here. I see my colleague--my former colleague--Mr. Tauke and 
other friends here. So does anyone want to take a stab at it? I 
would be appreciative.
    Mr. Vradenburg. Mr. Engel, my name is George Vradenburg 
from America On Line and I would like to try and answer that 
question. At the end of the day, it is what the consumers 
demand and whether or not there is some additional service or 
features that we can deliver to them through broadband that 
they can't get through narrow band. And whether we can get the 
price of that service down and the applications or the features 
or the services improved so that they will pay whatever 
additional price needs to be paid.
    In terms of access to the marketplace, it seems to us here 
at AOL that is very important that we maintain the policy that 
we have had over the last few years, which is to keep the 
Internet deregulated and to keep the infrastructure open. We 
are buying DSL lines now from Bell Atlantic in your region and 
we are able to do that because Bell Atlantic is obliged to sell 
them to us. We would also like to see competition in these 
access technologies so that we have urged, Mr. Engel, that the 
cable systems as well sell us access technologies so that, in 
fact, we can buy transport from either or both of their plants 
and drive the costs of this down so that we can get consumers' 
prices down. At the end of the day, it is consumer demand.
    We have seen consumer demand in Internet narrow band 
services now roll out a new medium faster than any medium in 
history. We have rolled out the Internet to 33 million American 
households, which is 5 times faster than we have been able to 
do in the television or the radio marketplace. Why is that? 
Consumer choice and competition and broader services and we 
would like to be able to do that as well in broadband.
    Mr. Engel. Mr. Tauke, I guess you would have a little 
different opinion.
    Mr. Tauke. Actually I have a very similar opinion. I think, 
first of all, as we alluded to earlier, that there are a lot of 
things in the 1996 act that are working very well, but it has 
taken a lot longer than anybody wanted for a lot of these 
things to work and we can have a long discussion about that. 
But on a going-forward basis, it seems to me that where the key 
question is how do you deal with the new market? And we do have 
a new market with new technology and new opportunities, if you 
will, and how do you get the infrastructure for that new market 
deployed and how do you get it deployed ubiquitously and how do 
you get it at a reasonable cost to consumers?
    I believe that in the foreseeable future, the best policy 
that the Congress can pursue to achieve those objectives is to 
follow the model that was used in the world of wireless. When 
wireless technology was in its infancy, then the great 
telephone companies said we would have 1 million users by the 
year 2000. Well, obviously, that has been totally bypassed 
years and years ago. We have many technologies now in the 
wireless market. We have lots of competition in the wireless 
market. There are a variety of packages of services consumers 
can buy. And the price has come down.
    Why has that happened? In part, because companies were able 
to make decisions without excessive fear of regulation about 
deployment of technologies. Not everybody succeeded. Some tried 
it. Some lost. But it has resulted in a robustness in that 
market, which I think has served consumers well. Part of the 
difficulty we have today is that there is not the same kind of 
opportunity available for many players in this new data market, 
Bell Atlantic being one of them. I won't go through all we have 
talked about today, but there are a lot of barriers to our 
being able to deploy the services.
    Just one example: The FCC has talked about having us do our 
DSL services in a separate affiliate, which means we would have 
to buy separate trucks, hire new people, you know, and so on, 
to have them go out and serve the people in the city of New 
York. This is enormously expensive. We believe it would 
increase the cost $8 a month per customer to provide the same 
service. But that one regulatory requirement, if it were 
adopted--it hasn't been adopted--but if it were adopted, would 
have tremendous impact on costs to consumers. That is the kind 
of thing that we have to avoid.
    Mr. Engel. Yes.
    Ms. Vitale. Congressman Engel, I am Mary Beth Vitale. I am 
president of RMI.NET, one of the small, 5,000 ISPs out there. 
And I wanted to address one point that you made about are the 
consumers really getting more products, more technology for 
lesser price. And I think one example I would like to cite is 
that ISDN has been around for quite some time at a very large 
price point for a consumer and it was not ubiquitously 
available or distributed. It was very slow to come and at the 
time it was just the RBOCs that were delivering that service.
    As the 1996 act started to be implemented, more and more 
competitors came in delivering the DSL service that you are 
seeing right now and whereas ISDN was at a certain level of 
technology for $200 a month, you can now have a DSL service 
that gives you even faster speed, higher technology, delivered 
to consumers and to businesses at around a $40 price range. So 
here they have gotten, you know, a better technology, quicker, 
and cheaper.
    So I think it is starting to work. It is starting to 
happen. And it is because of the act. And we see it right now. 
And we are able to resell those products.
    Mr. Engel. Well, thank you, Mr. Chairman.
    Mr. Tauzin. Thank you, Mr. Engel. The Chair would now 
recognize himself again. Let me take you through all of the 
various pipes and examine what is the difference in 
governmental treatment insofar as broadband would be concerned 
and get you to comment for me. When it comes to whether or not 
a platform can legally limit consumer's choice of an ISP today, 
clearly ILECs and CLECs, incumbent telephone companies and the 
new competitive local telephone companies, clearly they are 
common carriers. No one disputes that the telephone companies 
could today limit consumer's choice of an ISP. Is that correct?
    They cannot. That is right. But cable can, right? Cable 
today can limit because it is a private network, it can limit. 
What about--and maybe you can help me here, Mr. Apfelbaum and 
Mr. Netch--what about if cable decided to offer IP telephony? 
Would they then be under the act, a telecommunications carrier 
with common carriage obligations, under current law? Mr. 
Apfelbaum. Or even circuit switch?
    Mr. Apfelbaum. I am not really sure there is a clear answer 
to that under the existing law. I think our view would be that, 
generally, what we do is provide cable service and that, under 
that law, we are not obligated to function as a common carrier.
    Mr. Tauzin. Even in IP telephony?
    Mr. Apfelbaum. I am not sure that is 100 percent clear 
under existing law. And, you know, I think that is one of the 
issues going forward, but, generally, I think the Cable Act is 
pretty clear that what we do is not subject to common carrier 
regulation.
    Mr. Tauzin. Mr. Netch, you want to comment? Do you think 
that either switched or IP telephony is or is not subject to 
common carriage obligation today when delivered by a cable 
company?
    Mr. Netchvolodoff. Well, switched telephony clearly is 
under title II and we are in full compliance with title II in 
the 1996 act.
    Mr. Tauzin. How about IP?
    Mr. Netchvolodoff. IP telephony is a grey area. I think 
that Congress was not clear about this. There is, as you know, 
a report from the FCC which Barbara Aspen who was the author of 
that report cited some ambiguities and also cited the fact that 
there were certain statements on the floor and in report 
language indicating that the cable usage of Internet services 
would be under title VI. Whether or not that survives, I have 
no way of knowing. But I think it is a grey area.
    Mr. Tauzin. Fixed wireless, mobile wireless. Probably not, 
right? Anybody want to challenge that? Would fixed wireless and 
mobile wireless have the capacity to limit a consumer's choice 
of an ISP or would they be treated as common carrier?
    Mr. Pickle. You know, Mr. Chairman, today at Teligent, we 
actually have ISPs as customers of our network. One of the 
great things about building a facility-based network as opposed 
to using other facilities provided by other suppliers, you can 
do with your network whatever is best for your business and 
best for the consumer. We do do that today. We don't believe it 
is a legal requirement, we just believe it is the right thing 
to do because we believe in competition.
    Mr. Tauzin. What about if it is a retail service you 
provide?
    Mr. Pickle. We would do that as well.
    Mr. Tauzin. You would? Do you think you are obligated to 
be--are you treated as a common carriage under the law under 
those circumstances?
    Mr. Pickle. Oh, I think, yes.
    Mr. Tauzin. Satellite. Here I want to turn you, George, if 
you can, because I want to get your interaction on this. You 
know, you commented about your company's recent deal with 
Hughes Direct TV. Since the 1996 act, it seems to indicate 
that, except the Commission shall determine whether the 
provision of fixed and mobile satellite service shall be 
treated as common carriage. That until the Commission should 
make a determination, it seems at least that satellites, until 
the Commission says otherwise, may not be common carriage or 
instruments. In that case, could Hughes, in your business 
arrangement with them, limit the choice of ISPs to consumers?
    Mr. Vradenburg. I don't know that answer, as a matter of 
law, Mr. Tauzin. Our deal with them is not exclusive.
    Mr. Tauzin. What is your business plan there? Can you tell 
us?
    Mr. Vradenburg. Well, the business plan is to be able to 
offer to an AOL customer a broadband service no matter where 
they are in the United States.
    Mr. Tauzin. What if I am not an AOL customer?
    Mr. Vradenburg. A non-AOL customer we wouldn't be offering 
services to.
    Mr. Tauzin. Yes, you wouldn't be doing it. But would----
    Mr. Vradenburg. One of our competitors would be. They can 
do it over the DSL platform. They could do it over a wireless 
platform. They can do it over a satellite platform.
    Mr. Tauzin. I guess what I am asking you, is your agreement 
with Hughes exclusive?
    Mr. Vradenburg. Oh, no, sir.
    Mr. Tauzin. Hughes could offer other ISPs. And the question 
that is hanging out there is do they have to offer other ISPs 
access to that system?
    Mr. Vradenburg. I don't know the answer to that question.
    Mr. Tauzin. Okay.
    Mr. Vradenburg. They can, under our deal. I think it is a 
matter of capacity. I think we are clearly investing in them 
and that we want to build out a platform up there.
    Mr. Tauzin. If they don't have to offer other ISPs access, 
then you would agree with me that it is possible that then AOL 
would be the beneficiary of it because you would deal with AOL 
and nobody else.
    Mr. Vradenburg. Well, that is certainly true, although, 
clearly, we have not sought to make it exclusive because we 
believe that, in fact, the more choices there are for the 
American consumer, the more applications are out there off of 
the Internet, the faster these Internet services will be 
adopted, and we will compete for our fair share. But we would 
like to see the tide go up for everybody and then compete for 
it rather than try and constrain the growth of the business.
    Mr. Tauzin. When it comes to electric lines, now, Mr. 
Falcao, maybe you can help us here, I would assume that if an 
electric company decides to offer broadband services, that it 
would be treated as a common carrier. But would it? Or would it 
be a cable company at that point, which is exempt because it is 
not defined as a telecommunications carrier. Which is it? What 
do you think it is going to be when NORTEL begins to unveil its 
electric line, broadband services?
    Mr. Falcao. I honestly don't know. I would think it would 
fall into the same category as you were discussing with the 
cable company, but I honestly don't know.
    Mr. Tauzin. Well, I guess you get my drift here. I heard a 
lot of don't knows and a lot of grey area. A lot of we think 
but we are not sure. A lot of we would like to see it work this 
way, but we are not certain it does. And the strange thing 
about it is that, you know, there are some of you who were 
telling us don't mess with the act, don't mess with the law, 
just let it work. But there are a lot of don't knows out there. 
And we are talking about the same service, the same ones and 
Os. Broadband distribution of the same services, just coming on 
all these different pipes with a lot of I don't know what the 
rules are.
    You can understand why we are going to have a good time 
exploring this not only in future hearings, but at our retreat.
    Let me ask you to help us in that regard. Mr. Boucher and I 
opened up our line of questions with asking you to 
prognosticate a little bit for us, to guess when you thought 
things might be out there for people. What I would like you to 
do is to come back to us in writing on that.
    What we would like to know, for example, from the ILECs and 
CLECs is when do you think, on a time line, the various 
broadband services are going to be available to what percent 
commercial and what percent residential customers if we don't 
change the law? If whatever uncertainties or handicaps 
currently exist in the law, if we do nothing? We would like to 
hear the same thing from cable. Some ideas over the next 3, 5, 
10-year period when broadband services are going to be 
available to people, what people, and what services? What 
percent commercial? What percent residential?
    And we would like to hear the same thing from the mobile 
and wireless and from the satellite folks. And eventually we 
are going to ask the same thing from broadcasters who might be 
able to do some similar broadband services over the new 
spectrum we have provided for them. And we are going to have to 
ask the electric companies, I suppose, to comment as to whether 
or not they think they are going to be in this game and when, 
too.
    What I would like to be able to do as we further explore 
the I don't knows and the maybes and I think and I guess and I 
am not sure about these issues is to see, without changing any 
laws, without Congress getting into this act at all, or the FCC 
doing anything differently than they are doing today, when are 
consumers likely to see what broadband service is offered by 
what pipes? So that we can get a picture as to which of those 
pipes are going to be open and which of them are going to be 
closed networks and when they are likely to be available to 
offer consumers the kinds of choices we are talking about.
    The reason I would like to ask you to do that--I mean, we 
have been through this a number of times at this committee 
level. And Mr. Tauke, you were here when we were first debating 
communications deregulations issues all the way back in the 
early 1980's. This issue of timing always plagues those of us 
in Congress and I am sure at the FCC. The issue of timing, the 
question is will there be competition available in a market at 
the right time to ensure that not only the players can enter 
that market and compete, but that consumers are not 
inappropriately stuck with only one provider that is, perhaps, 
in some cases, not an open network. Perhaps a closed or private 
network. In which case, what is our responsibility under those 
circumstances? How can we aid the timing of the deployment of 
these services so that choice is out there rather than the 
necessity for somebody to regulate?
    And those issues are going to plague us as we try to 
unravel these I don't knows and maybes and I guesses as the way 
it is going to work, until we can give you some kind of 
certainty. All of you talked about certainty. Mr. Pickering I 
think centered his comments on that, that clearly business 
certainty requires regulatory certainty and governmental policy 
certainty so you can move forward. And I will go back to what 
Mr. Shimkus said. Our role is not pick winners and losers out 
here, our role is to try to make sure that you all can play. 
And, more importantly, that Americans will have real choices 
out there and that they have the full services available to 
everyone as close as possible at the same time, recognizing 
that, you know, in deploying services, some people are going to 
have it sooner than others.
    If you would kindly do that for us. Kindly come back to us 
in writing on as good a time line as you can predict. No change 
in law, no change in regulation, making whatever assumptions 
you want to make as to whether or not you are common carriage 
or not.
    Mr. Kurtze, you had your hand up, sir? No. And I don't see 
any other members here. Let me offer each of you right now, a 
final word if you would like to make it, on the record, before 
the committee. Any one of you? Final words. Mr. Apfelbaum.
    Mr. Apfelbaum. I would just like to say one thing. I think 
the way you framed that question, we were talking about whether 
ISPs could serve as ISPs as such, but we don't have a closed 
network. We have an open network where our customers can get 
any content they want. And I would just like to clear about 
that.
    Mr. Tauzin. I understand. My question was whether or not 
the platform could legally limit consumer's choice of ISPs, 
though. And your answer was yes it can as a cable platform, but 
you are not quite sure about the laws on IP telephony.
    Mr. Apfelbaum. Right. But I just want it to be clear that 
we don't run a closed network because our customers can get any 
content that they want.
    Mr. Tauzin. Any other final comments? Yes, sir, Mr. 
Vradenburg.
    Mr. Vradenburg. I would first say that they run a closed 
network and obviously customers cannot get access, direct 
access, to AOL or to other ISPs. They can, obviously, go to us 
through the Internet which is, of course, is open to everyone 
because it is the Internet.
    But the final word I would say, Mr. Chairman, is the 
following. What I think I have heard today and I hope that you 
have heard is that we are going to have in the world of 
convergence a set of digital services which are voice, video, 
and data, which are going to go through a variety of different 
platforms and are going to be single mixes and bundles of 
services going through a common technology through quite 
different platforms treated differently because of their 
historic legacy.
    And that, as a consequence, there is going to be a strong 
need for the government to assure that it does not pick winners 
and losers, that its inadvertent action, inattention to this 
issue, does not result in an imbalance in the marketplace and a 
choice that results as a consequence of government, as opposed 
to consumers.
    We have right now a problem which is big enough to see, but 
still small enough to solve. And if the government does not do 
anything now, then it will of necessity begin to be having an 
effect in the marketplace because of its actions or rather 
because of its inertia. And, as a consequence, this is an issue 
that I commend you for taking up right now. This is a problem, 
now. Not in 5 years, not in 10 years, but now.
    The government, by its action, historic in character, 
legacy, and quality, is beginning to have an effect in the 
marketplace which is differential because of its differential 
treatment of different platforms which are now beginning to 
offer like services. And so I commend you, Mr. Chairman, for 
taking the steps now to focus on this problem.
    Mr. Tauzin. Thank you, sir. Ms. Vitale.
    Ms. Vitale. The comment I would like to make to sum up is, 
addressing your last question about the electric industry, 
cable industry, and the telephony industry and whether there is 
similarities and should they be held by the same restrictions 
or requirements. And I think those industries have, you know, a 
lot in common in the respect that they are the only real access 
to the consumer at their home. And for emerging companies such 
as myself currently right now, RMI.NET can only deliver 
services from an unbundled loop through the telephone company 
to consumers there.
    Once technology advances and, obviously, in cable it 
already has been advanced and then electric utilities are 
moving forward, they would not be required, if they are not 
underneath the act, to resell those products. So I am relegated 
to really only having access through one means because of the 
law.
    And if we keep in mind that those three industries, in 
order to be delivering the products for their industries, got 
regulatory relief to be a monopoly--there were pricing 
advantages and return on investment advantages, you know, to 
deploy their networks and their infrastructure. And now the 
lines are crossed and blurred because everybody is in 
everybody's business. And I think that having the technology to 
be open and access to be available to everybody will only just 
ensure that there is an economic growth and new companies that 
will evolve from that. Thank you.
    Mr. Tauzin. Thank you, Ma'am. Mr. Tauke.
    Mr. Tauke. There has been quite a bit of discussion about 
openness in the sense of consumer choice and whether or not it 
is fair and equitable. But I just wanted to mention something 
that I don't think has been mentioned and that is the way the 
rules in this matter have impact on deployment. Just bluntly 
speaking, if we are in a situation where we operate by one rule 
where, A, we cannot package our service with an Internet 
service provider and, B, we can't designate an Internet service 
provider for our consumers and therefore derive the revenue 
from that to supplement the revenue from the line, it is hard 
for us to compete with somebody who is able to package and 
designate an Internet service provider. And, if we, therefore, 
are not competitive in the marketplace because of a rule, then 
that slows down the deployment of the alternative services that 
the consumer might want.
    So the rules relating to openness and the ability of 
consumers to choose an ISP have real implications for the way 
in which technology will be deployed and how, graphically, it 
will be deployed. I just would cite the video dial tone model, 
which was something of years past and was obviously a failure. 
There were a variety of reasons why it failed. But one reason 
why it failed is because one technology, in this case the cable 
industry, was able to say to a customer, we will give you 
transport and the programming package and the other industry 
was supposed to come in and say to the customer, we will give 
you transport but we can't give you the programming package, 
but we have to offer you a variety of options. Economically 
that didn't work. There were technological issues too, but 
economically it didn't work.
    So, as you examine this, think of the economics and what it 
means for the roll-out and deployment of services as well as 
the fairness and consumer choice issues.
    Mr. Tauzin. Yes, sir, Mr. Falcao.
    Mr. Falcao. First I want to commend you on this because I 
believe it is a very important issue. The only observation I 
would make is the Internet has achieved a faster penetration 
than any other technology in history, so our decisions are 
going to have to be made in that context, very rapidly.
    Mr. Tauzin. We are not good at that. You know that.
    Mr. Falcao. So my only comment is I think we really are 
under a very, very right time pressure to make decisions 
quickly.
    Mr. Tauzin. Mr. Netch.
    Mr. Netchvolodoff. Mr. Chairman, first, thank you very much 
for having this hearing. I think it is a privilege to be here 
and to participate. I think that one thing that is very 
important to bear in mind is that the deployment of technology 
is very, very capital-intensive. There are hundreds of 
billions--and I mean literally hundreds of billions--of dollars 
that will be spent, probably in the next 5 to 10 years, 
developing high-bandwidth capabilities in this country and 
there are a number of unaffiliated sectors in the economy that 
are committed to do this.
    We read every day in the newspaper announcement from 
various parties, whether they are using microwave spectrum or 
whether they are going to do it by satellite or whether they 
are going to do it over utility lines, the one thing that is 
very clear about all of these plans are that they are going to 
cost a ton of money and I think that one of the things that the 
government has done successfully with respect to the Internet 
is to try to do no harm with respect to imposing regulatory 
overlays.
    And so I would suggest that, as you consider whether or not 
there is a strong likelihood that there would be five or six, 
perhaps even seven, competitive, unaffiliated facilities-based, 
broadband providers of access from the home, that the 
marketplace will be fully capable and able to discipline the 
pricing and the selection for the consumer under those 
circumstances. If the cable model is closed, which we don't 
think it is, but if it is closed, from the standpoint of the 
consumer, we will lose because there are a number of broad, 
high-bandwidth competitors that are going to tee up 
infrastructure to provide access.
    So if the customers don't want what we are providing, they 
won't take it. So that would be my comment, that the government 
should try to do not harm from a regulatory point of view.
    Mr. Tauzin. Mr. Pickle.
    Mr. Pickle. Mr. Chairman, if you will take into 
consideration the Telecommunications Act of 1996. We are, in 
fact, we like to say a product of that act. Now it is not 
perfect. We all agree with that. But I think--we think--that it 
has set in motion an irreversible force toward competition. And 
we think competition is the only way the broadband revolution 
will ever be realized. And so we would only suggest: Allow 
people to compete and compete fairly and we think the Nation 
will gain from that.
    Mr. Tauzin. Mr. Kurtze.
    Mr. Kurtze. Thank you, Mr. Chairman. I think I would agree 
with most of the comments of this panel hearing. And I would 
say that the issue is the one you framed correctly where you 
have asked for supplemental information and that is timing. 
When does this competitive marketplace really exist? And when 
will it serve the American consumers? Because what consumers 
want to buy are the applications that will be available on 
these networks and the services. They really aren't technology 
junkies like some of us here on the panel that really 
understand the difference. But they want those applications and 
those applications will flourish when there are multiple ways 
to reach the consumer and there is that competitive dynamic. So 
I think the timing issue that you have raised is, in fact, the 
pivotal issue as to when things should evolve.
    Mr. Tauzin. Anyone else? Let me ask one other thing of you 
that can either respond or not, your choice, but I would 
appreciate some of you trying. What we are basically talking 
about when it comes to common carriage, the question of common 
carriage, is that common carriage, even must carriage for cable 
companies when it came to video programming, was always 
designed, as you said, in a broken marketplace where there was 
not competition and there was only one provider and therefore 
some sort of common carriage law had to be applied to that 
monopoly provider or that near-monopoly provider.
    In fact, must carry has been sustained pretty much legally 
on that basis that cable was the video provider for America for 
a long time and should be obliged to carry the programming of 
television stations, which were operating under the quote, 
unquote, ``public interest standard.'' Is there a need for us 
to examine the term of common carriage in any other context, as 
we think of broadband services? Or is the old context 
sufficient? And by that, I mean, will it be enough if there are 
four or five or seven competitors out there, 1 day, none of 
which may have a common carriage obligation, all of whom may 
pick the ISPs they want to deal with and consumers can then 
choose from among those carriers who they want to deal with and 
what content they are interested in receiving from which one of 
those carriers? Or will there always be a need for someone to 
be open to everybody under some new theory of what common 
carriage means when it comes to information or knowledge and 
communications?
    You can either do that now or later. Mr. Netch.
    Mr. Netchvolodoff. One of the things that happens is that 
scale is important. To the end-user, scale is important. But 
scale is also important to the provider. And if we are talking 
about perfect democracy here where 6,000 ISPs have all equal 
opportunity to engage somehow in a variety of networks, it 
isn't going to work because you can see already that AOL has an 
arrangement with Bell Atlantic, which is based on scale. And, 
therefore, the smaller ISPs have said this isn't fair because 
we are at a price disadvantage.
    The problem here is you can't repeal the laws of economics. 
And if you have seven competitors, five or six competitors, and 
there is no market power amongst them, then I do believe that 
the marketplace is the place to put your trust.
    Mr. Tauzin. Mr. Vradenburg, you had your hand up.
    Mr. Vradenburg. You raise, I think, what is the pivotal 
point. Because the chairman of the FCC has posited a world in 
which there are four or five facilities-based providers and 
that is a world of which he would like to get to and think that 
that is adequate. And if one said each of those facilities 
providers could designate their ISP or their access point to 
the Internet, you would have four or five or six competitors in 
the marketplace. And you say to yourself, well, what is the 
level of performance there of that marketplace? Well, we have 
seen that marketplace in a number of aspects of our economy: 
the broadcast television or record companies or motion picture 
companies.
    We have also seen in the last 5 years something remarkable. 
And your Houma, Louisiana?
    Mr. Tauzin. Houma. ``Houma on the ranga.''
    Mr. Vradenburg. Yes, you have got one cable provider, but 
you have got 400 ISPs.
    Mr. Tauzin. That is right.
    Mr. Vradenburg. And what you have in a world in which there 
are 100 competitors is a world where you get this 
extraordinarily tumbling effect. You have price and feature 
options from those people which fix every niche and cranny of a 
consumer's desire and you get technological innovation and 
business model innovation of type this country has never seen 
before, indeed the world has never seen before. You get 
customer adoption rates faster than any medium in history. You 
get technological progress faster than any in history. So there 
is something different about a marketplace which has 100 
competitors than there is about a marketplace for 3 or 4.
    Mr. Tauzin. No question, Mr. Vradenburg. The question I 
pose, though, is a legal one. Assuming that that is a good idea 
to have that kind of a marketplace when it comes to knowledge 
and ideas, when you do have five, six, seven different 
platforms to deliver those ideas, does the government of the 
United States have any legal right to regulate content on some 
common carriage theory for one or any of those pipes at that 
point?
    And I want to yield to my friend from Massachusetts for a 
final comment, so if you can brief and then come back to us in 
writing on it.
    Mr. Kurtze. Mr. Chairman, I think what you are really 
asking is, you know, where--to go back to maybe our joint good 
old days--this is a supplier of last resort argument. And is 
there a requirement still, at some point in time in the future, 
for a supplier of last resort?
    Mr. Tauzin. Yes. I guess that is a better way to phrase it. 
Yes.
    Mr. Kurtze. That is a social question.
    Mr. Tauzin. But can you do that legally?
    Mr. Kurtze. We would like to think theoretically, no. That 
there wouldn't be a requirement, that the marketplace would 
work. But I think that is a good question.
    Mr. Tauzin. Well, anyhow, if you would kindly come back to 
us on it, I would like to hear your thoughts on it. Because, I 
mean, it is a philosophical question as to whether or not it is 
a good idea to do it for a marketplace that could be as vibrant 
as you describe, Mr. Vradenburg. And that is as vibrant in many 
communities today. So it a question: Is that a good idea? 
Second, is it a legal idea that is enforceable in law in a 
country that is pretty strict about seeing government takes its 
hands off of free speech? In our society, you don't try to 
regulate content.
    Mr. Markey.
    Mr. Markey. I thank you, Mr. Chairman. And it is not so 
long ago that the most contentious issue was whether or not the 
telephone company should be able to buy the cable companies in 
their own market. That is the central provision in the Telecom 
Act, that they are not allowed to. So we have a two-wire world. 
And the interesting thing was both industries opposed that 
provision, that they both saw wonderful synergies in having one 
huge pipeline and the cable companies, of course, would have 
telephone companies bidding, you know, on giving their 
shareholders an enormously great return. But as a matter of 
public policy we don't allow that to happen. That is central in 
the 1996 act.
    And I guess the question is when do the witnesses believe 
that we will reach a point when we have four or five networks? 
Give us a date when you think that is possible?
    Mr. Tauzin. The gentleman came in after I made the specific 
request. I have asked each one of the various industries to 
give us a time line so we can actually draw a map of it as best 
we can for the gentleman. Then I thank you. Unless anyone has a 
final word, then let me thank you again for your extraordinary 
patience today. This has been very good, but it is only the 
first step.
    As I began it, let me end it on the same request. You saw 
members coming in and out. Some had the benefit of some of this 
discussion, some did not. That is unavoidable. Members have so 
many duties that I can't fault anyone who could not be here for 
the full hearing. You saw we had to leave for votes, even. 
There are members on our committee who are going to end up 
having to make some pretty important decisions that will affect 
all of you. Please do me the favor of continuing this education 
process.
    We will get to a point where you will have a chance to 
throw all of the brickbats at each other you want to. And I 
promise you, we will get there sooner or later. But in the 
meantime, as we go into retreat, as I try to get members to 
focus on the critical importance of broadband. I mean, it is 
truly revolutionary. It is truly going to make a huge 
difference in what this country is all about. Maybe what the 
world is about. I need your help in making sure they understand 
all of the applications and how they work in different pipes 
and different communities with different consumer groups with 
different content. And the more you do of that for me, 
individually and collectively, I think it is going to move our 
process along a lot quicker and we will get that date where you 
can be throwing those bricks at each other again.
    Thank you very much. This has been a very productive 
hearing. This hearing stands adjourned.
    [Whereupon, at 2:54 p.m., the subcommittee was adjourned.]
    [Additional material submitted for the record follows:]

                                                     Sprint
                                                    August 31, 1999
The Honorable W.J. ``Billy'' Tauzin
Chairman,
Subcommittee on Telecommunications, Trade and Consumer Protection
2183 Rayburn House Office Building
Washington, DC 20515-1803
    Dear Mr. Chairman: Thank you for the opportunity to testify on June 
24th before you and your Subcommittee on Telecommunications, Trade, and 
Consumer Protection concerning the deployment of data services, 
particularly broadband services. I believe that the question of when 
such services will be more broadly available is important to the 
public; I know it is vitally important to Sprint.
    At the close of the hearing, you invited us to provide further 
information concerning the provision of these services, including when 
can customers expect to see broadband services at home? Over what pipes 
and in what order will they be available? Who will have an open network 
and who will have a closed network? What can Congress do--if anything--
to move up the timeline?
    The purpose of this letter is to provide additional information on 
these issues, as you requested.
    The telecommunications industry, due to changes in technology, is 
going through a period of convergence where voice and data 
communications are rushing toward each other. Due to packet switching 
technology and other developments, there will no longer be a difference 
between voice and data traffic on modem networks. As a result, 
broadband services will increasingly include voice capabilities 
intermingled with other data packets. I believe that we must make sure 
that any broadband deployment facilitates both voice and traditional 
data uses.
    When you ask the question ``when can customers expect to see 
broadband services at home?'' you are focusing on the right issue. 
Large business customers have had access to Telephone Company special 
access broadband facilities for several years. Companies such as TCG 
and other competitive access providers have also provided broadband 
capability to big business locations. Recently, specialized wireless 
carriers have also offered broadband capabilities to large business 
locations. Small businesses and residential customers are another story 
because there are fewer broadband options currently available. 
Telephone companies are currently deploying xDSL service to provide 
broadband capabilities and cable companies are providing broadband 
through the use of cable modems. There are dozens of ISPs and other 
companies that provide services that could use broadband plant, but 
only a few options exist for broadband transport to these service 
providers. In each case, the owners of last mile telephone wires and 
cable facilities to the home are exercising their market power to harm 
competition and to deny the availability of competitive, robust 
broadband services to small businesses and everyday Americans. I 
believe that if the Regional Bell Operating Companies (RBOCs) and GTE 
chose to open this last mile to others in accordance with the purposes 
and requirements of the Telecommunications Act of 1996, broadband 
services from a variety of competitors, including the RBOCs and GTE, 
would be rapidly available and at increasingly competitive prices. I 
also believe that cable companies should open their broadband transport 
facilities so broadband service alternatives are available to customers 
of cable companies.
    Conversely, I believe that without this last mile open to 
competitors as the Telecommunications Act intended, it will be an 
unfortunately long time before there will be the widespread competition 
and competitive pricing that Sprint desires and that we believe 
consumers desire.
    Although the RBOCs and GTE, as well as the cable companies, have 
argued that their last mile facilities are subject to extensive 
competition from other technologies such as broadband wireless 
facilities, this isn't true, as your questions recognize. The only 
facilities that are currently ubiquitous and that are well on their way 
to being upgraded to handle broadband communications are the local 
distribution facilities of the incumbent local telephone companies and 
cable companies.
    There are today only a handful of ways to potentially provide 
broadband services, e.g., over the existing telephone wires of the 
RBOCs and GTE by installing Digital Subscriber Line (xDSL) equipment; 
over cable lines that have been upgraded for data communications; just 
emerging wireless broadband; geosynchronous satellites (GEO) that are 
not suitable for voice; and as yet unproven low earth orbit satellite 
(LEO) systems. My prepared remarks before the Subcommittee discussed in 
general the challenges and uncertainties of these several mechanisms.
    The bottom line is that it will take a few years before the xDSL 
and cable technologies are widely deployed. Satellite technologies will 
likely prove to be economically unworkable on a large scale for both 
voice and data uses. And it is possible that there will be no near or 
mid-term broadband availability or choice at all for consumers if the 
current local monopolies succeed in extending their monopoly into the 
provision of broadband services.
    On the other hand, if the last mile transport services of telephone 
and cable companies were made available for competition as intended by 
the Telecommunications Act, a choice of competitive broadband services 
traveling over these transport systems would be rapidly available. I 
think this could begin as quickly as 2000.
    Sprint is eager to provide broadband services right now using both 
the MMDS capability it is acquiring in portions of the nation and 
through the last mile facilities of the telephone companies
    About a year ago Sprint announced its Integrated On-Demand Network, 
called ION. ION is a family of broadband-based services for both 
business and residential markets. ION provides all distance, voice, 
video and data services, using a common protocol over Sprint's ATM 
integrated network. Sprint ION service replaces multiple access 
networks from multiple suppliers and provides the opportunity to 
integrate multiple services on a single access and transport network.
    Sprint ION will serve not only large business locations, but also 
residential and small business customers. Sprint ION will bring a 
broadband ray of light to small businesses and the homes of America. 
These smaller locations will have access to multiple voice sessions, 
which will act much like multiple lines to the home. In addition, high-
speed data products such as always-on high speed access to the Internet 
will be provided. Video conferencing, e-commerce, gaming and other new 
and innovative applications will be offered over the broadband ION 
network.
    The Sprint ION service is a reality today. Service is currently 
being offered to large business customers in many locations and, as 
announced on June 21st, will rollout to residential customers this 
year.
    The availability of ION will be limited in the small business and 
residential markets because broadband last mile access continues to be 
a significant problem for Sprint and for other potential broadband 
providers. While Sprint ION services are the most technologically 
advanced broadband products in the industry, the RBOCs and GTE, along 
with a very aggressive AT&T, are blocking deployment of Sprint ION to 
the consumer market.
    Unfortunately, under the current rules the RBOCs and GTE have the 
opportunity to create a network that allows them to deploy xDSL broadly 
but greatly restricts xDSL deployment by competitors using their last 
mile facilities. Sprint estimates that over 50 per cent of the phone 
lines of the RBOCs and GTE will not be available for xDSL provided by 
competitors through collocation in RBOC and GTE central offices. This 
problem is caused by the widespread installation of digital line 
concentrator equipment outside central offices that defeats central 
office xDSL. In addition, the RBOCs and GTE continue to stymie 
broadband competition and products by denying reasonable access to the 
remainder of their essential last mile facilities. AT&T is firmly 
denying access to its facilities to other potential competitors. 
Indeed, AT&T is hard at work attempting to assemble exclusive broadband 
deals with non-affiliated cable companies or buying them up to create 
an massive exclusive network of its own.
    Over what pipes and in what order will broadband services be 
available to small businesses and residences? Other companies who are 
pursuing different strategies to get broadband services into the home 
or small business are better able to give estimates of their estimated 
time of widespread deployment and those estimates will produce the 
order in which they are available. Sprint is currently collocating xDSL 
equipment in hundreds of RBOC and GTE central offices serving 
approximately 13 million households by yearend 2000, but many RBOC and 
GTE lines will be unavailable. As I've already said, if the RBOC and 
GTE xDSL facilities were opened to competitors, additional broadband 
services would be available quickly. Sprint is aggressively pursuing 
MMDS technologies and hopes to have broadband services available to 
approximately 19 million households by year-end 2001. Useful wireless 
broadband spectrum is in short supply and while Sprint is actively 
pursuing this means of bringing broadband services to residences and 
small businesses, wireless broadband spectrum can cover only a small 
portion of the potential market through MMDS/ITFS spectrum available to 
Sprint. Indeed, even in areas where Sprint has MMDS/ITFS spectrum 
available, with reasonable success in the marketplace, problems will 
arise with capacity because of the scarcity of spectrum available to 
us.
    Geostationary satellites are at such a high orbit that signal delay 
caused by the distance signals must travel, creates significant voice 
and real-time two-way video problems. While geostationary satellites 
may work well for old fashioned data transfer, they do not work well 
for services requiring real-time two-way communications. LEO 
applications conceptually hold some promise.
    My prepared remarks before your Subcommittee and my testimony 
discuss other features and other problems with the limited number of 
means by which broadband services can be offered to residences and 
small businesses.
    Who will have an open network and who will have a closed network? 
Unless forced to do otherwise, the local telephone lines will be closed 
and the overwhelming majority of cable will be closed. By the time 
other technologies are available for wide deployment it may not matter. 
By then, there will be an oligopoly for the provision of these critical 
services.
    What can Congress do--if anything--to move up the timeline? Open up 
the last mile of telephone wires to competition and require cable 
companies to allow competition on their lines. Nothing else will 
achieve rapid deployment of broadband services, competitive offerings 
and market-driven prices. Nothing. Allowing the RBOCs to offer 
broadband services while maintaining their local monopolies would 
probably result in a momentary increase in broadband availability, but 
at a tremendous cost--a continuing phone company monopoly of voice, a 
new monopoly of broadband services, inferior competitive offerings and 
much higher prices.
    So far, the incentives for the ILECs to open the last mile to 
competition as set forth in the Telecommunications Act have not been 
sufficient for them to open up that last mile to competition. Maybe 
their desire to offer broadband services will be what gets them to open 
up the last mile. I hope so. And if so, it would be a tragic mistake to 
remove that incentive by repealing the essential compromise of the 
Telecommunications Act. But if their desire to provide broadband is not 
sufficient to get them to open up the last mile, then Congress needs to 
look at ways to force them to do so.
    Again, I appreciate the opportunity to have testified before your 
Subcommittee and for your consideration of these views.
            Sincerely,
                                            Arthur A. Kurtz
                                              Senior Vice President
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